WEBVTT - Why Fundamentals Are Driving Currency Investment: BBH's Thin 0:00:01.400 --> 0:00:04.120 Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney. Along 0:00:04.160 --> 0:00:06.240 with my co host of Bonnie Quinn. Every business day 0:00:06.240 --> 0:00:09.240 we bring you interviews from CEOs, A market pros, and 0:00:09.400 --> 0:00:12.799 Bloomberg experts, along with essential market moving news. Kind the 0:00:12.800 --> 0:00:16.320 Bloomberg Markets Podcast on Apple podcast or wherever you listen 0:00:16.360 --> 0:00:20.799 to podcasts, and on Bloomberg dot com. It is time 0:00:20.840 --> 0:00:24.720 now to get to our next guests. Currency guest, but 0:00:25.000 --> 0:00:27.200 one of the best because he used to cover emerging 0:00:27.200 --> 0:00:29.920 market currencies. Now he covers everything and he really just 0:00:29.960 --> 0:00:33.720 knows everything about everything. Wentin of Brown Brothers Harmon. Thanks 0:00:33.800 --> 0:00:36.959 for joining us today. Hi FI always a picture. Thank 0:00:37.000 --> 0:00:39.000 you so when you know, I'd love to talk about 0:00:39.040 --> 0:00:40.960 emerging market currencies, but I do want to ask you 0:00:41.000 --> 0:00:44.440 first about this spot, which is really more than a spot. 0:00:44.440 --> 0:00:46.480 I shouldn't call it a bat between the US and China. 0:00:46.680 --> 0:00:49.680 It's pumping up again President Trump, you know, throwing in 0:00:49.720 --> 0:00:52.879 a threat. Perhaps it's too distract from other things. Perhaps 0:00:52.880 --> 0:00:55.880 it's for real, as they say, how are you reading it? 0:00:55.920 --> 0:01:00.760 And will it affect the dollar longer term? As you know, 0:01:00.920 --> 0:01:02.960 the markets have been struggling with the U S China 0:01:03.040 --> 0:01:06.160 struggle really for for several years now, right, it started 0:01:06.200 --> 0:01:09.800 off with the trade war, No certaint you know something 0:01:09.840 --> 0:01:13.399 I think even deeper and such structurally more profound. You 0:01:13.520 --> 0:01:16.240 I think, regardless of who the next president is, I 0:01:16.280 --> 0:01:19.399 think the US China relations have h well, you know, 0:01:19.520 --> 0:01:22.600 have changed um forever. I mean, if you look at 0:01:22.600 --> 0:01:27.080 the poles um voters in in the US cross party lines, 0:01:27.160 --> 0:01:31.320 both Democrats and Republicans all favor taking a tougher line 0:01:31.360 --> 0:01:36.000 against China, against the perceiving fractions, etcetera. So whether it's 0:01:36.240 --> 0:01:39.400 Mr Biden or whether this Mr Trump, um, you know, 0:01:39.600 --> 0:01:41.880 both administrations I think will continue on this tough line 0:01:41.880 --> 0:01:45.760 with China. Yeah. And what will that do to the 0:01:45.840 --> 0:01:49.560 US dollar? Because we definitely saw you know, big weakening 0:01:49.560 --> 0:01:51.240 in the dollar last week. It wasn't just on the 0:01:51.320 --> 0:01:53.840 China news, but you know it was ninety two and 0:01:53.920 --> 0:01:57.639 change on d x y. We've strengthened a little bit again. 0:01:58.280 --> 0:02:03.920 Will there be any the impact even if this continues? Well, 0:02:03.920 --> 0:02:07.440 what we saw back last year was, you know, during 0:02:07.600 --> 0:02:10.520 when the trade war erupted and really got tense, the 0:02:10.600 --> 0:02:13.519 dollars tend to strengthen, especially against emerging markets, right, because 0:02:13.840 --> 0:02:15.919 it's not just China, it's all the countries in sort 0:02:15.919 --> 0:02:20.720 of the wider China orbit. UM. You know, China imports UH, commodity, 0:02:20.919 --> 0:02:23.720 et cetera from other countries. So it's it's really you know, 0:02:23.760 --> 0:02:25.639 part of it, you know, sort of a big cog 0:02:25.840 --> 0:02:29.400 cog in the whole global trading regime. So to me, 0:02:29.480 --> 0:02:32.960 that's the risk UM that you know, a a UM, 0:02:33.800 --> 0:02:37.400 it's a prolonged or renewed tensions in the US China 0:02:37.440 --> 0:02:39.960 would a two things, probably boost the dollars for safe 0:02:39.960 --> 0:02:44.040 haven and most likely UM put down depression on equities. 0:02:44.040 --> 0:02:46.040 You know, we saw that last year. I think that's 0:02:46.040 --> 0:02:48.480 what dynamic would take place. Now what's interesting to me 0:02:48.560 --> 0:02:50.920 is that, you know, and Mr Trump is sort of 0:02:51.000 --> 0:02:53.000 kind of eased off that a little bit. UM. And 0:02:53.040 --> 0:02:54.359 but now I think, as you pointed out, you know, 0:02:54.360 --> 0:02:57.040 we're going into prime election season, and it seems you're 0:02:57.040 --> 0:02:58.840 trying to find some sort of message that's going to 0:02:58.880 --> 0:03:03.040 resonate with voters. UM myself personally, I look at the 0:03:03.040 --> 0:03:05.600 polls and and see that most voters at this point 0:03:05.720 --> 0:03:10.200 really we're most worried about the pandemic and the domestic economy. 0:03:10.440 --> 0:03:13.200 China seems a little bit lower on the list, and 0:03:13.240 --> 0:03:16.120 so also I do suspect this, this, this will not 0:03:16.160 --> 0:03:19.320 get that much traction. And Mr Trump me go on 0:03:19.400 --> 0:03:22.600 the next message. So, if we don't have to worry 0:03:22.600 --> 0:03:24.919 so much about the dollar, where are you looking around 0:03:24.919 --> 0:03:29.480 for value in currencies? We saw the g B P 0:03:29.600 --> 0:03:32.160 U S D weekend today a little bit sterling trading 0:03:32.200 --> 0:03:34.360 at one thirty twenty six, but it had been strengthening. 0:03:34.400 --> 0:03:37.280 So there's that. We have the Canadian dollar almost at 0:03:37.280 --> 0:03:40.720 one thirty two right now and the end below one 0:03:40.720 --> 0:03:43.080 oh six, so there's definitely movement out there when but 0:03:43.200 --> 0:03:47.560 where are you finding the most buying for your book? Literally? Yeah, 0:03:47.600 --> 0:03:49.360 So if I'm glad you brought that, because it's is 0:03:49.360 --> 0:03:51.600 something that myself and I think a few other analysts 0:03:51.640 --> 0:03:53.840 have been talking about that. You know, in the past 0:03:53.880 --> 0:03:56.120 you could talk about interest rate differentials as as a 0:03:56.160 --> 0:03:59.400 big driver for currencies, and that's just no longer the case. 0:03:59.400 --> 0:04:02.760 We've got zero of rates basic basically across developed markets 0:04:02.760 --> 0:04:06.480 and even in across many emerging markets. So instead of 0:04:06.760 --> 0:04:09.400 the carry and sort of intertect differentials, I think investors 0:04:09.520 --> 0:04:13.280 are focusing really purely on the fundamentals and and relative 0:04:13.440 --> 0:04:17.920 economic growth potential and differentials. So where does that put us? Well, 0:04:18.200 --> 0:04:19.479 you know, I've been as you probably know, I've been 0:04:19.520 --> 0:04:22.080 pretty negative on the dollar in two three just because 0:04:22.279 --> 0:04:25.440 you've really I think mishandled this virus. It's been much 0:04:25.480 --> 0:04:27.600 worse than it had to be, and I think the 0:04:27.680 --> 0:04:30.679 US economy has been underperforming. But what we're seeing around 0:04:30.680 --> 0:04:33.040 the world now is that those countries that started to 0:04:33.040 --> 0:04:37.560 reopen or having trouble right We're seeing problems in Italy, France, Germany, 0:04:38.200 --> 0:04:41.640 in Asia. So it's it's sort of almost a moving target, 0:04:41.640 --> 0:04:45.520 like who's what's what's looking worse right now? Um So, 0:04:45.600 --> 0:04:48.400 I remain negative on the US dollar in your term, 0:04:48.520 --> 0:04:51.240 We've got to get these virus numbers that control. Um 0:04:51.320 --> 0:04:53.000 you know, I think China is a good story they 0:04:53.160 --> 0:04:55.559 you know, of all these other countries around the world, 0:04:55.560 --> 0:04:58.280 it's it seems to be done the best in in 0:04:58.360 --> 0:05:02.119 really keeping the virus numbers down. So China, Emerging Asia, 0:05:02.160 --> 0:05:04.280 I think hold the best eye right now in terms 0:05:04.320 --> 0:05:07.960 of relative fundamentals and relative growth Latin Americans and is 0:05:08.040 --> 0:05:10.040 just like he has in the US. Just we're struggling 0:05:10.040 --> 0:05:14.240 with the virus, struggling to keep economic growth. Um So 0:05:14.279 --> 0:05:17.039 it's really I think for fundamental person like myself, you know, 0:05:17.080 --> 0:05:20.400 fundamentally focused investors and analysts, this is really where it 0:05:20.440 --> 0:05:22.800 becomes important. And I think that we really have to 0:05:22.839 --> 0:05:26.839 pay attention here. Yeah. So obviously we're in a coronavirus era, 0:05:27.520 --> 0:05:29.760 and so you're saying that until that era is over, 0:05:30.040 --> 0:05:32.839 you would look at certain countries very differently than you 0:05:32.920 --> 0:05:35.640 might if we were not on a coronavirus era, such 0:05:35.680 --> 0:05:40.719 as emerging Asia and parts of Latin America and not 0:05:40.720 --> 0:05:43.600 not all of Latin America. But does that mean, for example, 0:05:43.640 --> 0:05:47.279 that you would consider, you know, currencies where you wouldn't 0:05:47.360 --> 0:05:50.360 normally and I say normally pre pandemic and post pandemic 0:05:50.400 --> 0:05:55.839 invest Yes, I mean, I think what you know. I 0:05:55.839 --> 0:05:59.599 think that, for instance, we've always seen um emerging markets, 0:05:59.760 --> 0:06:04.800 a lot of high carey countries sort of Brazil, Turkey, um, 0:06:05.160 --> 0:06:09.600 South Africa. They tended to gain during risk on training. 0:06:09.640 --> 0:06:12.240 But now and again with basically zero rates, there's no 0:06:12.320 --> 0:06:16.760 Crishian there, there's no yield or carriage that attracts um 0:06:17.400 --> 0:06:19.680 UH invest in closes these countries, which to me have 0:06:19.839 --> 0:06:24.120 arguably amongst the worst fundamentals. So within the e M, 0:06:24.160 --> 0:06:26.760 it's it's fascinating to me that there's such a divergence 0:06:26.760 --> 0:06:29.599 in performance um even during this sort of risk on 0:06:30.200 --> 0:06:33.120 um environment we really saw in the last several months. 0:06:33.839 --> 0:06:36.880 So again I would just again caution investors to to 0:06:37.040 --> 0:06:41.279 really not buy things sort of wholesale that is, you know, look, 0:06:41.560 --> 0:06:46.440 look differentiate, look at the aversion fundamentals, you know, within 0:06:46.480 --> 0:06:49.679 asset classes, and that's that's that's very important to remember 0:06:49.680 --> 0:06:52.520 as you're going to Q four. Where do you like 0:06:52.600 --> 0:06:59.279 in Emerging Asia? I think, um, Singapore, Korea, China. You know, 0:06:59.320 --> 0:07:01.920 they again these countries, you know, they're still struggling obviously 0:07:02.000 --> 0:07:05.120 to to maintain low virus numbers. They've done a fantastic 0:07:05.200 --> 0:07:08.200 job um and without having to shut down the economy 0:07:08.880 --> 0:07:11.800 as as as uh these day, as we have elsewhere 0:07:11.840 --> 0:07:15.920 in Europe and here in in North America. So Taiwan 0:07:15.960 --> 0:07:17.520 I would go in that as well. You know, again, 0:07:17.760 --> 0:07:20.360 the China story is solid and it's going to bring 0:07:20.400 --> 0:07:24.120 up a lot of these other other regional economies as well. Um. 0:07:24.160 --> 0:07:26.400 You know, it's it's not perfect. You know, China has 0:07:26.400 --> 0:07:28.560 its issues. You know, I think as you as we've 0:07:28.560 --> 0:07:30.880 been talking about this, this issue with the U S 0:07:30.880 --> 0:07:34.120 could flare up and could harm sentiment. But for now, 0:07:34.160 --> 0:07:37.160 I think investors are pretty comfortable with the China recovery story. 0:07:37.640 --> 0:07:39.920 You look at am I numbers and an export numbers 0:07:40.400 --> 0:07:42.239 China just as they lead the sort of the world 0:07:42.240 --> 0:07:45.720 downward during this coronavirus, leaving the world world upward in 0:07:45.760 --> 0:07:48.160 the recovery. And again it's I think we all have 0:07:48.200 --> 0:07:51.080 to focus on which countries have done the best in 0:07:51.080 --> 0:07:54.600 in limiting the pandemic impact. You know, another reason I'm 0:07:54.640 --> 0:07:56.560 negative on the US is we still can't get another 0:07:56.600 --> 0:07:59.760 studless book past, and I think it's very crucial. And 0:08:00.600 --> 0:08:02.840 you know, I would have thought we've had something in 0:08:02.880 --> 0:08:06.520 the in the bank bank by now, but um, I mean, 0:08:06.520 --> 0:08:08.600 it's unreal that it's fifty six days to the election 0:08:08.600 --> 0:08:12.080 and we still have nothing. Very briefly starting, why is 0:08:12.120 --> 0:08:15.240 it not reacting more? Our investors not taking the possibility 0:08:15.240 --> 0:08:19.480 of a worse break sit seriously? Yeah, so what look 0:08:19.520 --> 0:08:24.040 it did we have seen throwing U be the worst 0:08:24.040 --> 0:08:26.640 performance today? And I think over the last week it's 0:08:26.640 --> 0:08:30.200 pretty clear that that they're the odds of a no 0:08:30.320 --> 0:08:33.600 deal Brexit are are rising their higher than I think 0:08:33.679 --> 0:08:36.600 many has expected. Mr Johnson, you know, through our monkey 0:08:36.640 --> 0:08:38.640 mentions and the works by saying he may just throw 0:08:38.679 --> 0:08:41.760 out parts of you know, withdrawalogy, which is against I 0:08:41.960 --> 0:08:45.160 I believe against international law. Uh So it's just to me, 0:08:45.200 --> 0:08:47.880 it's a big mess. Um. I think what most people 0:08:47.880 --> 0:08:49.680 are comfortable with. It's not going to be a huge 0:08:49.760 --> 0:08:54.600 sort of um global can cast. I think most agents 0:08:54.679 --> 0:08:57.720 have have sort of prepared for this um and and 0:08:57.800 --> 0:09:01.520 so the impact will not be huge globally. But throwing 0:09:01.559 --> 0:09:04.560 it's pretty negative. Yeah, that's for sure. Win, thank you 0:09:04.640 --> 0:09:07.360 so much. That's when thin of Brown Brothers Harriman so 0:09:07.440 --> 0:09:12.679 much appreciated. That's a serious story that Greg Jared just 0:09:12.880 --> 0:09:16.640 told us about JP Morgan issuing about two eighty thousand 0:09:16.679 --> 0:09:20.200 loans in the p p P. Those loans told more 0:09:20.240 --> 0:09:23.760 than twenty nine billion dollars with a b so. JP 0:09:23.880 --> 0:09:26.280 Morgan was the top p p P lender in the 0:09:26.320 --> 0:09:29.000 country according to SPA data. And if it's now looking 0:09:29.080 --> 0:09:33.680 into instances, we don't know how many in which COVID 0:09:33.720 --> 0:09:37.000 relief funds were misused by customers and as probing employees 0:09:37.080 --> 0:09:40.000 involvement in the illegal activities, you can be sure we're 0:09:40.040 --> 0:09:43.200 here a lot a lot more about that. All right, 0:09:43.240 --> 0:09:45.200 let's bring in somebody who knows a lot about what's 0:09:45.200 --> 0:09:47.240 going on in the NASDAC right now, and that is 0:09:47.480 --> 0:09:51.160 David Garrity of laid Law and also bt Block. David, 0:09:51.160 --> 0:09:54.480 thanks for joining. How concerned are you that now we're 0:09:54.520 --> 0:09:57.040 you know, in the last three sessions or so, we're 0:09:57.240 --> 0:10:03.080 at around about eight to nine percent drop for the deck. Yeah, Vanni. 0:10:03.160 --> 0:10:05.680 In terms of looking at the price action that we 0:10:05.760 --> 0:10:08.360 had going into the end of August, you certainly had 0:10:08.400 --> 0:10:12.200 a asymptotic move to the upside by the likes of 0:10:12.320 --> 0:10:15.679 Apple as well as Tesla going into their splits um. 0:10:15.760 --> 0:10:18.880 Certainly we've had the news about the options market activity 0:10:19.200 --> 0:10:22.040 that have been taking place. So to have the market 0:10:22.080 --> 0:10:26.680 back now nine percent below its highs um as that 0:10:26.760 --> 0:10:29.920 tends more volatile, we don't think we necessarily going to 0:10:30.000 --> 0:10:33.040 be finished with this correction as of today. It may 0:10:33.120 --> 0:10:36.640 have a little bit further to run. Are there stocks 0:10:36.679 --> 0:10:38.840 that you would pile into right now though, even if 0:10:39.240 --> 0:10:40.880 there is a little more to run, or would you 0:10:40.880 --> 0:10:44.120 wait for another while? Or are we getting to the 0:10:44.200 --> 0:10:47.360 stage where we'll see stocks correctly valued as opposed to 0:10:47.400 --> 0:10:50.760 under valued. I think that your last point here in 0:10:50.840 --> 0:10:53.479 terms of trying to get to a more correct valuation 0:10:53.880 --> 0:10:57.880 is probably the most appropriate point. Um. We have to 0:10:57.880 --> 0:11:02.920 take into account the fact the prospects for further fiscal stimulus, 0:11:02.960 --> 0:11:06.800 at least prior to the election in November, are most 0:11:06.840 --> 0:11:10.480 likely being put squarely on the sidelines. So there is 0:11:10.520 --> 0:11:12.360 nothing that's going to be coming over the hill, so 0:11:12.400 --> 0:11:15.760 to speak, in terms of further spending UH to support 0:11:15.840 --> 0:11:18.720 the US economy, and certainly that has knock on effects 0:11:18.720 --> 0:11:21.800 for the global economy. Um. And at the same time, 0:11:21.960 --> 0:11:25.040 absent that support. The drumbeat of bad news in terms 0:11:25.040 --> 0:11:28.800 of layoffs, whether it's coming from airlines, banks or other places, 0:11:28.920 --> 0:11:31.960 is probably going to become more significant. And you know, 0:11:32.040 --> 0:11:34.280 in the meanwhile, we always have the news about you know, 0:11:34.360 --> 0:11:37.679 the second wave if you will, of coronavirus infections. So 0:11:37.960 --> 0:11:41.520 you know, on balance, um, people were quite a brilliant 0:11:41.760 --> 0:11:45.560 going into the late summer, and unfortunately fall brings along 0:11:45.600 --> 0:11:50.560 with the cooler temperatures perhaps a cooler perspective, David. The 0:11:50.600 --> 0:11:53.200 options activity that you were talking about, you know, religio 0:11:53.240 --> 0:11:55.720 to soft bank and so on, How serious is that 0:11:55.920 --> 0:12:00.640 for trading going forward? Will have any impact? Um? I 0:12:00.679 --> 0:12:04.120 mean to the extent we don't know necessarily what were 0:12:04.240 --> 0:12:07.320 what was the maturity or what was the term on 0:12:07.400 --> 0:12:10.480 the options contracts that were involved, To the extent that 0:12:10.520 --> 0:12:13.440 they appear to have been fairly significant relative to the 0:12:13.520 --> 0:12:16.840 ramp up in the shares um, we would think that 0:12:16.880 --> 0:12:20.840 the options contracts themselves were perhaps relatively short term, in 0:12:20.880 --> 0:12:24.079 which case, um, you know, the impact of those contracts 0:12:24.840 --> 0:12:28.960 should wash out fairly frequently. Nevertheless, it probably leaves us 0:12:28.960 --> 0:12:32.720 in a position here where the month of September um 0:12:32.880 --> 0:12:35.640 is going to be obviously ordered, started volatile, but it's 0:12:35.679 --> 0:12:38.880 likely to continue to be so. And that more, it's 0:12:38.920 --> 0:12:40.719 going to be the earning season that we start to 0:12:40.720 --> 0:12:45.000 get announced in October for the third quarter of that 0:12:45.080 --> 0:12:47.920 will serve to stabilize things and give a better prospect 0:12:47.920 --> 0:12:50.800 in terms of where are the valuations reasonable in terms 0:12:50.800 --> 0:12:52.920 of the prices in the market relative to the earnings 0:12:52.960 --> 0:12:58.200 prospects of the companies involved. So, David, perfect news for you. 0:12:58.280 --> 0:13:00.360 We just got the word that Apple is going to 0:13:00.400 --> 0:13:03.800 hold an online event September where the company is expected 0:13:03.840 --> 0:13:06.760 to unveil its latest iPhones and Apple Watches. It's going 0:13:06.800 --> 0:13:09.840 to start at ten am Pacific time one pm Eastern. 0:13:10.120 --> 0:13:12.000 What should we look forward to from Apple in this 0:13:12.120 --> 0:13:16.240 round of innovation. Well, certainly the biggest thing to look 0:13:16.280 --> 0:13:19.520 for from Apple is going to be the latest edition 0:13:19.520 --> 0:13:22.200 of the iPhone, which is going to be engineered to 0:13:22.240 --> 0:13:25.120 be using the five G wireless spectrum and in this 0:13:25.280 --> 0:13:30.520 regard considered to be possibly a transformative product for Apple. 0:13:30.800 --> 0:13:33.439 Certainly it's been an element that's been responsible for the 0:13:33.520 --> 0:13:36.840 run up and the shares um probably over the last 0:13:36.880 --> 0:13:39.080 three to four months. Maybe if you want to go 0:13:39.120 --> 0:13:42.760 back further and look at the March lows so clearly 0:13:42.760 --> 0:13:46.440 allowed the expectations they're already baked into the market. Um. 0:13:46.520 --> 0:13:48.000 Nice to know that we're going to be getting something 0:13:48.000 --> 0:13:51.000 to look forward to in the fifteen September um, and 0:13:51.040 --> 0:13:53.200 we'll be looking for what the surprises are on the margin. 0:13:53.280 --> 0:13:55.320 But the five G I phone is the big ticket. 0:13:56.360 --> 0:14:00.680 So why put so much and for this on five 0:14:00.760 --> 0:14:02.599 G when really you know there's a lot of the 0:14:02.640 --> 0:14:04.520 country that is not going to be able to benefit 0:14:04.520 --> 0:14:06.200 from that. I mean we're really only talking about the 0:14:06.240 --> 0:14:09.200 major cities and not even all of those major cities 0:14:09.240 --> 0:14:13.360 that have five G right now. No, it's true, um, 0:14:13.400 --> 0:14:16.600 but if we look at what the services are that 0:14:16.760 --> 0:14:20.720 can be facilitated as a result of having the speed 0:14:21.200 --> 0:14:25.120 that five G will offer, it can be a substantially 0:14:25.320 --> 0:14:29.480 different user experience. UM, and you have to look at 0:14:29.560 --> 0:14:31.560 you know, what's going to be capable in terms of 0:14:31.560 --> 0:14:36.240 providing more information by way of video at faster rates. 0:14:36.320 --> 0:14:39.280 And arguably you may say it's the cities that have 0:14:39.400 --> 0:14:42.760 most of the coverage right now, but UM absent COVID, 0:14:43.240 --> 0:14:45.520 that's where most of the people or most of the 0:14:45.520 --> 0:14:48.880 cell phone users tend to be UM. So you know, 0:14:49.000 --> 0:14:51.760 looking at five G we're not so far out from 0:14:51.800 --> 0:14:54.520 the deployment of five gene networks that this is something 0:14:54.560 --> 0:14:58.040 of a product that comes out before there's really a 0:14:58.080 --> 0:15:00.520 market for it. I think the timing on Apple support 0:15:00.560 --> 0:15:04.440 is actually quite good. Yeah, indeed, because there will be 0:15:04.480 --> 0:15:06.560 nothing like wanting a little bit of luxury or a 0:15:06.600 --> 0:15:10.360 little something new to pep us up if coronavirus continues, 0:15:10.400 --> 0:15:13.160 which as we know it will. David Garrity, thank you 0:15:13.240 --> 0:15:15.880 so much for all of your intelligence today. David Garrity, 0:15:16.240 --> 0:15:19.920 chief market strategist at laid Lawn Company and also beat 0:15:19.920 --> 0:15:27.320 t block which is a blockchain and cryptocurrency company. It 0:15:27.440 --> 0:15:29.360 is time now forms and we're opinion of that we're 0:15:29.400 --> 0:15:33.360 going to actually across the pond. Sterling has been trading 0:15:33.400 --> 0:15:36.840 today just a little bit on the idea that Boris 0:15:36.880 --> 0:15:39.480 Johnson might be taking breaksit in a crazy direction. And 0:15:39.520 --> 0:15:43.440 that is also the title of Terre's Raphael's latest bloombaring 0:15:43.440 --> 0:15:46.280 opinion piece. So we welcome tores right now and once 0:15:46.320 --> 0:15:49.040 again Sterling at one thirty thirty two week or by 0:15:49.120 --> 0:15:54.880 one percent. What crazy direction are we talking about, Terres, Well, 0:15:54.920 --> 0:15:58.000 there's there, there is crazy and crazier. Let's put it 0:15:58.040 --> 0:16:03.920 that way. So john since ministers, his cabinet and then 0:16:03.960 --> 0:16:05.840 the can downing streets, have been putting out the word 0:16:05.880 --> 0:16:09.400 for some time now that he sees no deal with 0:16:09.480 --> 0:16:12.359 the EU, no trade deal that sets out the future negotiations, 0:16:12.480 --> 0:16:17.000 is actually preferable to compromising on the outstanding issues, including 0:16:17.000 --> 0:16:19.640 the one of state aid now that carries all sorts 0:16:19.640 --> 0:16:22.760 of implications because of the insertible trade, but the World 0:16:22.760 --> 0:16:26.720 Trade Organization terms, which will carry of course economic costs 0:16:26.720 --> 0:16:32.240 as we get trade Christians. The crazier part is the acknowledgement, 0:16:32.280 --> 0:16:35.080 including by a government minister in the House of Commons today, 0:16:35.120 --> 0:16:39.160 that the government plans to break its treaty obligation. This 0:16:39.320 --> 0:16:43.520 is the treaty it fined with the EU only months ago, UH, 0:16:43.520 --> 0:16:46.200 and the part of the treaty on the Northern Irish 0:16:46.280 --> 0:16:50.600 Protocol that was intended to ensure that there's an open 0:16:50.640 --> 0:16:52.920 border between the Northern Ireland and Ireland, and the government 0:16:53.000 --> 0:16:57.200 is now saying it wants to pass legislation that would 0:16:57.240 --> 0:17:00.200 override parts of that treaty. So all of this is 0:17:00.320 --> 0:17:05.320 obviously caused much consternation uh from the EU side, though 0:17:05.680 --> 0:17:08.520 there is at least, you know, some hope that it's 0:17:08.760 --> 0:17:11.359 uh the kind of brinkmanship we've seen in the past 0:17:11.680 --> 0:17:15.000 that tends to perceive the eleventh hour adminciations that tends 0:17:15.000 --> 0:17:18.560 to procede some kind of a deal. So essentially Boris 0:17:18.640 --> 0:17:22.200 Johnson might be trying to rewrite the Brexit divorce deal 0:17:22.320 --> 0:17:25.080 that took so long to get signed last year with 0:17:25.160 --> 0:17:28.400 the European Union, and he might also be baking international law. 0:17:28.440 --> 0:17:31.119 If all of this goes ahead, why are markets not 0:17:31.240 --> 0:17:34.200 taking this seriously seriously enough in the sense that's starting 0:17:34.240 --> 0:17:36.840 as a little weaker but nothing is falling off a cliff. 0:17:39.040 --> 0:17:41.800 I mean, I think for a couple of reasons. One, 0:17:42.040 --> 0:17:48.400 there is a sense that that EU negotiations always UH 0:17:48.640 --> 0:17:52.080 go through this sort of stage of falling apart before 0:17:52.119 --> 0:17:54.040 they come together at the last minute. And that's what 0:17:54.119 --> 0:17:59.520 we saw last year where Boris Johnson met with the 0:17:59.560 --> 0:18:03.200 former Irish teacher Leo Rodka and did a deal um 0:18:03.440 --> 0:18:07.159 on the Northern Island that that field um are paved 0:18:07.160 --> 0:18:08.760 the way for the rest of the withdrawll agreement. So 0:18:08.760 --> 0:18:13.480 there's some sense that this may be posturing, but you know, 0:18:13.520 --> 0:18:18.879 there's also an understanding that they now had a significant 0:18:18.920 --> 0:18:22.320 time to prepare for a no deal exit. Both sides 0:18:22.359 --> 0:18:25.680 have been doing. So any deal that they would uh 0:18:25.760 --> 0:18:30.119 conclude now is not going to be uh substantially better 0:18:30.119 --> 0:18:33.840 in terms of trade than leaving without a deal. They 0:18:33.840 --> 0:18:36.639 will get, you know, perhaps some relief on tariffs and quotas, 0:18:36.680 --> 0:18:39.479 but we're not talking the kind of comprehensive free trade 0:18:39.720 --> 0:18:44.240 agreement covering all areas of policy that was hoped for 0:18:44.520 --> 0:18:46.720 in the beginning, and that's kind of priced in now. 0:18:47.080 --> 0:18:49.600 These talks are going to go on and on and 0:18:49.720 --> 0:18:52.639 on regardless of whether some kind of deal is reached 0:18:52.680 --> 0:18:55.159 at the end of the year. Not only that, but 0:18:55.320 --> 0:18:57.480 it sounds like there are two options for no deal. 0:18:57.600 --> 0:19:00.760 One is just no deal, but fairly endye terms, and 0:19:00.800 --> 0:19:02.600 the other is what seems to be happening, and that's 0:19:02.680 --> 0:19:08.240 no deal in pretty acrimonious terms. Yeah, and I think 0:19:08.440 --> 0:19:10.760 you know, from the point off, if you're going to 0:19:11.240 --> 0:19:14.639 look at it from from from the market perspective, you 0:19:14.720 --> 0:19:17.840 can have a no deal on acrimonious terms, but how 0:19:17.880 --> 0:19:20.600 long can you really stay on those terms. Britain and 0:19:20.680 --> 0:19:25.359 the EU are each other's major trading partner. They cooperate 0:19:25.440 --> 0:19:32.119 on a whole rate, but issues from migration to counter terrorism, security, policing, um, 0:19:32.160 --> 0:19:35.080 all sorts of uh, you know, all sorts of other issues, 0:19:35.119 --> 0:19:37.679 and really they have to find some way through this. 0:19:38.200 --> 0:19:41.680 So you know, whatever the mood music is now, uh, 0:19:42.200 --> 0:19:44.560 we can expect that at some point cooler had to 0:19:44.600 --> 0:19:48.080 prevail and some kind of return to ano those shaping 0:19:48.119 --> 0:19:51.040 table would be expected. And I think that's that's sort 0:19:51.080 --> 0:19:54.480 of a reasonable expectation. When that happens, and on what 0:19:54.720 --> 0:19:57.880 terms is really hard to say. So as I read 0:19:57.920 --> 0:20:00.800 Lauris Johnson's statement out of the ten Downings Weak yesterday, 0:20:00.920 --> 0:20:04.600 and it appeared to be, you know, very optimistic and look, 0:20:05.040 --> 0:20:07.840 if this all happens, it'll end up that we're you know, 0:20:07.920 --> 0:20:11.240 essentially trading with Europe, like Australia trades with Europe for example, 0:20:11.359 --> 0:20:15.960 but we'll also have completely you know, sovereign power and 0:20:16.200 --> 0:20:18.720 control over what we decide to do and so on. 0:20:19.680 --> 0:20:23.159 Is the tone too optimistic for what would happen in 0:20:23.200 --> 0:20:28.600 a scenario where Britain was on the outside, like say Australia, Well, 0:20:28.640 --> 0:20:30.439 I mean you might as well well have said, you know, 0:20:30.560 --> 0:20:33.080 we'll trade with Europe the way um as someone said 0:20:33.080 --> 0:20:36.000 Outer Mongolia will trade with her, because Australia doesn't have 0:20:36.760 --> 0:20:38.679 a trade deal, and so that is just kind of 0:20:38.720 --> 0:20:41.640 a soft way of saying, um, you know, we will 0:20:41.680 --> 0:20:45.120 be completely on the outside. I think Johnson does want 0:20:45.200 --> 0:20:49.240 some kind of a deal. It's clearly in Britain's economic 0:20:49.280 --> 0:20:52.920 interests to have preferential trade terms. Politically, it will get 0:20:53.080 --> 0:20:59.280 very very tricky with the momentum for independence in Scotland 0:20:59.320 --> 0:21:01.000 if there's no deal at all, So I think his 0:21:01.119 --> 0:21:03.720 preference would be to have a deal. At the same time, 0:21:03.760 --> 0:21:07.359 the issue that's dividing them now, which is a state aid, 0:21:07.640 --> 0:21:10.920 the the ability of governments to get subsidies, tax really 0:21:11.080 --> 0:21:14.119 for other incentives to businesses. It is pretty existential for 0:21:14.160 --> 0:21:17.680 this government because it's trying to reorient the British economy 0:21:17.720 --> 0:21:21.520 after Brexit, to make it amenable to global trade deals, 0:21:21.600 --> 0:21:24.760 to level up, as as Johnson likes to put it, 0:21:25.000 --> 0:21:27.560 parts of the economy that has fallen behind, to try 0:21:27.600 --> 0:21:31.879 to improve certain lagging productivity. And the only way, in 0:21:31.920 --> 0:21:33.560 their view, they can do that is to have a 0:21:33.640 --> 0:21:37.560 free rein when it comes to using taxpayer money to 0:21:37.680 --> 0:21:40.680 help give a boost to investment in R and D 0:21:41.200 --> 0:21:43.439 skills training in certain industries. And they're worried that the 0:21:43.480 --> 0:21:47.480 EU is going to try to prevent that because the 0:21:47.520 --> 0:21:51.480 EU will fear a distortion of competition. So the both 0:21:51.520 --> 0:21:54.399 sides actually have a lot of to stake here. The 0:21:54.400 --> 0:21:56.800 EU is trying to preserve the integrity of the Single 0:21:56.880 --> 0:22:00.960 Market and prevent Britain from undercutting the new industries in 0:22:01.040 --> 0:22:03.480 Britain wants to reap the benefits of Brexit and have 0:22:03.600 --> 0:22:07.440 complete freedom over its rules. And uh, you know, there 0:22:07.600 --> 0:22:09.639 is a deal to be done, no doubt, but it 0:22:09.680 --> 0:22:12.680 will require political will on both sides. And the dangerous 0:22:12.680 --> 0:22:16.080