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Speaker 1: Who you put your trust in matters. Investors have put

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Speaker 1: their trust and independent registered investment advisors to the tune

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Speaker 1: four trillion dollars. Why learn more at find your Independent

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Speaker 1: Advisor dot com. Welcome to the Bloomberg Surveillance Podcast. I'm

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Speaker 1: Tom Keene with David Gura. Daily we bring you insight

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Speaker 1: from the best in economics, finance, investment, and international relations.

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Speaker 1: Find Bloomberg Surveillance on iTunes, SoundCloud, Bloomberg dot com, and

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Speaker 1: of course on the Bloomberg Bob Moan and I were

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Speaker 1: joking about a few moments ago. There are precious few

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Speaker 1: hours here until the Christmas holiday. I have a great

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Speaker 1: guest here to talk retail with us. That is Howard David.

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Speaker 1: It's chairman of Davidvitz and Associates, an expert on Retail's

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Speaker 1: great to see here in studio this morning. Thank you

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Speaker 1: for the invitation. Help me understanding here how much holiday

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Speaker 1: retail changes year in and year out? Is the strategy different?

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Speaker 1: I walked outside of Bloomberg headquarters yesterday. There's a gap

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Speaker 1: there's been in republic both. You're having off sales, something

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Speaker 1: I used to remember happening after the holidays themselves, but

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Speaker 1: it seems like that is starting earlier. Yeah, it's much

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Speaker 1: more competitive now. But if you, for example, if you're

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Speaker 1: in a department store business, they're all getting killed, so

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Speaker 1: obviously they're gonna be much more aggressive on promotions. That's

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Speaker 1: how they react. If you're in a BETTERT segment, if

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Speaker 1: you're in a cosmetics business, you're promoting a lot less.

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Speaker 1: I mean, Altar is the finest specialty store in the

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Speaker 1: United States. It's the fastest growing, it's the most successful.

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Speaker 1: Everything's great, So they don't have to promote. They have

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Speaker 1: their normal promotions. Same with t J Max, say Rus.

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Speaker 1: They're all making their numbers. If you don't make your numbers,

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Speaker 1: you react, and sometimes you overreact. So that's what's going on.

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Speaker 1: The week are promoting the most. That's the way it works.

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Speaker 1: We hear that the department stories are dying, that they're

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Speaker 1: on life support. What's the what's the expected longevity for

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Speaker 1: the department story in the US. We're gonna see them

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Speaker 1: in five years, a ten years now. Yeah, we will

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Speaker 1: see them, but a lot fewer, a lot fewer in them.

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Speaker 1: For example, the largest department story United States see is

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Speaker 1: is on a death wash and has been and it

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Speaker 1: has been and it just keeps shrinking and it's all

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Speaker 1: going away. So that's the largest So you start with

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Speaker 1: that guy, and then you go to a lot of

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Speaker 1: weak players, and there's loads of them. We don't a

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Speaker 1: Bonton and a bunch of others who don't look too good.

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Speaker 1: They're all one way or another bad uh Dillard's, Macy's

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Speaker 1: norths I mean, the numbers are all bad. And what

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Speaker 1: they're all doing is getting into the discount pass. If

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Speaker 1: you take norths Froom, they've got two hundred norths from

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Speaker 1: Rack stores, which a discount stores. They've only got a

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Speaker 1: hundred and twenty norths Room stores. So they've reallocated capital

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Speaker 1: to the best part of the business. If you thanks

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Speaker 1: Sacks Fifth Avenue, they've got more or fifth stores than

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Speaker 1: they have Sacks stores, reallocating capital to what's working. So

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Speaker 1: that's a big change is on like discount stores and

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Speaker 1: all that, and on the super super fancy high stores.

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Speaker 1: Just below the super super fancy stores. What's gonna happen there.

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Speaker 1: What's gonna happen is that discount is going to get

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Speaker 1: the business. That's really what's gonna happen. In other words,

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Speaker 1: below the super high fancy. There won't be a place

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Speaker 1: for middle level stores. It's very little market, so most

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Speaker 1: people will shop in discount oriented stores. By the way,

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Speaker 1: that makes a lot of sense to me, because half,

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Speaker 1: you know, a lot of the buying will be online

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Speaker 1: and the rest will bit will be in discount stores

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Speaker 1: that will have changing products and that interest people, you know,

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Speaker 1: search around getting new stuff. So it'll be different. They'll

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Speaker 1: be less stores in the middle and you know stores

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Speaker 1: like Pennies and Sees. I mean, they're all in trouble anyway.

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Speaker 1: So there's gonna just gonna got his Bloomingdale's right next

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Speaker 1: door to us folks here in New York City, and

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Speaker 1: they really painted the building this year's great. Are they

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Speaker 1: a fancy store in your world? Is Bloomingdale's like wicked

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Speaker 1: upscale or is it just sort of kind of Bloomingdales

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Speaker 1: for sure is not wicked upscale. In other words, it's

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Speaker 1: not Birddoff's or Bonnie's price points. Bloomingdales has a younger customer, okay,

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Speaker 1: more price sensitive. Can they survive and not the way

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Speaker 1: they are now? In other words, they'll be fewer stores,

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Speaker 1: they'll be smaller stores, But will there be some kind

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Speaker 1: of Bloomingdals. Yes, but in five or ten years they'll

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Speaker 1: be smaller, more urban and different than they are. Just

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Speaker 1: David Gurlsi, you understand I can't survive getting across the

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Speaker 1: acclaimed Bloomingdale's makeup floor which is in Moscow, the Hudson.

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Speaker 1: I mean, it's still there and it's as funny as

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Speaker 1: what Robert Williams was thanking history. What are you going

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Speaker 1: into Bloomingdale's, Are you going to bridge? What are these

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Speaker 1: what are these stories doing? Well? In other ways they

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Speaker 1: are they maintaining any semblance of a surprise? Can you

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Speaker 1: delight in anything there? Can you find something unexpected and

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Speaker 1: and pick up something that you wouldn't have thought to

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Speaker 1: get online or thought to get elsewhere? Well, I think

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Speaker 1: they're working on that. For example, Uh, Macy's, who's Bloomingdale's

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Speaker 1: parents what a cosmetics company? And and and and and

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Speaker 1: they're trying to you know, build that business and that

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Speaker 1: ort to be okay, they're going into the discount business

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Speaker 1: and Macy's, so maybe they'll have board of the store

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Speaker 1: and that there's a lot of changes taking place, but

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Speaker 1: basically they're stuck Ralph Lauren this department that basically they're

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Speaker 1: stuck doing what they always did, trying to do it

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Speaker 1: better and reallocate space. But I mean they got a

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Speaker 1: monster by the tail. It's not really viable the way

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Speaker 1: it is now. Play this out for us. If if

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Speaker 1: we see some of these big bucks storers go out

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Speaker 1: of business, if they become vacant, if you look at

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Speaker 1: shopping malls they become vacant, is well, what does that

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Speaker 1: mean for the for commercial real estate in this country?

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Speaker 1: What's gonna happen to those places? Well, we have forty

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Speaker 1: seven billion dollars dead to unreal estate loans in the

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Speaker 1: next eighteen months, forty seven billion c mbs. And that's

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Speaker 1: only the beginning. Hello, Mr Banks, that's the next crisis.

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Speaker 1: So if you Macy's, you've got some good things. You've

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Speaker 1: got some great real estate that you own, probably twenty

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Speaker 1: billion worth. So the big store in Chicago that they have,

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Speaker 1: the Marshall Field store, that I'll be some kind of

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Speaker 1: multiple deal with condos and say and the store will

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Speaker 1: get smaller. That makes sense, Uh, in Minneapolis, Macy's marketing

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Speaker 1: that store in some way. In the Macy's New York's laugh,

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Speaker 1: they're looking to monetize plot of that over a million squiffy.

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Speaker 1: They don't need over a million squiffy. So a lot

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Speaker 1: of that real estate will be monetized one way or

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Speaker 1: another and that will help ten seconds. Word of the

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Speaker 1: malls go and we'll come back with us on the suburbs.

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Speaker 1: Half of them are gonna be gone within fifteen years,

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Speaker 1: they'll half of mac gone because they're not gonna be

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Speaker 1: kind now they're all gone. They're just gone, and they're

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Speaker 1: all tremendously in debt and they're gonna be handed back

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Speaker 1: to the banks. That is going to be a big deal.

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Speaker 1: That is giant numbers and it's coming. It's like a

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Speaker 1: y old tied greeting from our developments. We get the

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Speaker 1: Christmas spirit, the holiday spirit as well. Where is after

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Speaker 1: the holiday? Now everybody is it still? Everybody gets cash

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Speaker 1: cards and it does how long does it extend in

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Speaker 1: the junior Well, gift cards are a big deal. But

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Speaker 1: see at the end of the day, January factually is

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Speaker 1: the worst month of the year. So I mean, you know,

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Speaker 1: there's a lot of talk about all the business done

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Speaker 1: in January. They do so much business. It's the worst

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Speaker 1: month of a year, so it can't overreact to January.

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Speaker 1: There is a lot of traffic, there are a lot

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Speaker 1: of returns. There are super Bogga hunters out. It's a

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Speaker 1: chance to get seventy percent off. It's also an opportunity

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Speaker 1: to buy Christmas cards for next year at se Christmas

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Speaker 1: decorations and everything else, and lots of people do that.

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Speaker 1: Lots of people are interested in saving money. And January

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Speaker 1: it's a good time to save money. So there's all

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Speaker 1: kinds of stuff ten percent and retail merchandise gets returned

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Speaker 1: ten percent. It's a gigantic number. So there's all those

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Speaker 1: crowds that returning merchant. I said, they're in the store,

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Speaker 1: so maybe you can sell them something. We've been we've

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Speaker 1: been trying to piece together what Donald Trump's policies mean

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Speaker 1: for the economy. Many many sectoris in the economy, and

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Speaker 1: I wonder what it means for for retail. You have

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Speaker 1: to retail is worried about the prospect of new trade

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Speaker 1: tariffs and what that could mean for clothing in particular.

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Speaker 1: Yet a new trade tariffs stuff, you know, is tricky,

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Speaker 1: But there's a lot in what Donald Trump is saying

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Speaker 1: that relates to growth and that's what we need. Look this, yeo,

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Speaker 1: we're in a two percent economy. Next year we're gonna

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Speaker 1: have a two percent economy. So that's not good for retailing.

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Speaker 1: I mean, retailing is a huge part of the economy.

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Speaker 1: The core of what Donald Trump is saying, I think

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Speaker 1: is good for retailling, tax reform, less regulation. You know

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Speaker 1: those community banks. You know when you go to a

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Speaker 1: small town and they've got two franchise stores and a

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Speaker 1: guy wants to open up a third, uh Ace Hardware.

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Speaker 1: You know, the guy's got two weeks, you know, And

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Speaker 1: the auto dealer and all those guys they deal with

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Speaker 1: the community bank. The president of the bank since right since,

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Speaker 1: right on the floor. I don't know how much dealings

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Speaker 1: you've had with those bad but the president is right

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Speaker 1: there on the floor. He knows the customers they come in.

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Speaker 1: I mean, they've been destroyed by a bunch of lunatic

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Speaker 1: professors who should be in a mental institute. And by

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Speaker 1: the way, the guy who charge your writing a lot

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Speaker 1: of Obama's rules wrote a book and he said animals

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Speaker 1: should have lawyers. Let me quote animals. Your pets should

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Speaker 1: have a right to an attorney. Now, that ought to

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Speaker 1: give you a little hint to how we ended up

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Speaker 1: in this absurd situation with with that discourse, do do

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Speaker 1: you suggest that the president elect just go right in

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Speaker 1: and make abrupt changes. I don't think the Republicans will

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Speaker 1: lesson or soften. Forget the softening. Look, he's gonna have

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Speaker 1: nine months to get something done. He's gotta go for

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Speaker 1: the maximum right off the what's an example in retailing

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Speaker 1: of a regulation that needs to be changed to the

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Speaker 1: part time full time? I mean, what would be your

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Speaker 1: regulation that would benefit tax tax reform? Tax reform would

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Speaker 1: be a tremendous benefit to retail because people Anything where

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Speaker 1: people have more money in their pockets helps retail. If

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Speaker 1: there's tax reform that will help retail, If banks lend

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Speaker 1: money easier, that will help retail. Everything that Trump, most

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Speaker 1: things that Trump wants to do related and most of

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Speaker 1: it is related to growth, that will all help retail.

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Speaker 1: It will generally be a help to retail. And a

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Speaker 1: lot of the areas involve, you know, less regulations, calming

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Speaker 1: down the unions, and all this great fifteen dollar minimum

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Speaker 1: wage with the totally it will destroy the whole restaurant business.

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Speaker 1: Bernie Sanders, you know all the crazies, so all the

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Speaker 1: crazy stuff that's gone on we'll go off the table

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Speaker 1: and we'll get down to what can really be done

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Speaker 1: on a practical base. Hopefully he can do this. I

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Speaker 1: think he's tough enough to get a lot of his stuff.

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Speaker 1: I think he knows how to threaten people, and I

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Speaker 1: think he knows how to get some of these Republicans

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Speaker 1: in line. Hopefully he'll get it done. Hard of it is.

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Speaker 1: Thank you so much, reach out and reach out America.

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Speaker 1: How's the shopping going town? Haven't started? One? More data?

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Speaker 1: Getting the spirit and all that. I was listening last

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Speaker 1: time to Nickelback and then I'm sure Mr Burl lives

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Speaker 1: with Christmas. David, girl, why don't you bring in a

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Speaker 1: guess that we truly could speak for six hours today

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Speaker 1: on a wide set of topics. And could we thank

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Speaker 1: David Miliband for halting the British airways strike just for you?

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Speaker 1: Did it just for you? Wielded all that packward for you? Uh? Yeah.

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Speaker 1: David miliv enjoys us now. He's the CEO of the

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Speaker 1: International Rescue Conan of course, former Foreign secretary, and we

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Speaker 1: have been watching, of course the political back and forth

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Speaker 1: at the u N about Aleppo as as things to

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Speaker 1: tear there even further, as hard as that is to believe,

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Speaker 1: and certainly the ballooning refugee crisis in Europe as well.

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Speaker 1: Let's look ahead to two thousand seventeen. Now, let's focus

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Speaker 1: on refugees and in particular and what's the biggest challenge

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Speaker 1: going to be here for Europe? First of all, as

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Speaker 1: that inflow continues, well, thanks, I thought we did have

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Speaker 1: six hours, don't we. Look, Refugees are a symptom of

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Speaker 1: political failure and the central two facts of the political

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Speaker 1: international political environment for a first of all, fragmentation of

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Speaker 1: the global international order and secondly, relatedly, a turning inwards

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Speaker 1: not just in the advanced Western countries but also elsewhere

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Speaker 1: as well. And it's ironic, but the world has never

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Speaker 1: been connected before. But never have more people been saying

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Speaker 1: all politics is local, and that neglect of the global commons,

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Speaker 1: that neglect of the unsafe spaces around the world, that

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Speaker 1: neglect of fragile and failing states is what's leading to

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Speaker 1: more people fleeing their homes and being driven from their

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Speaker 1: homes by conflict. Never before twenty five million refugees. And

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Speaker 1: I suppose that what really makes this a global problem,

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Speaker 1: not just the local problem is that the problems that

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Speaker 1: start in Syria or Somalia or Nigeria don't stay in

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Speaker 1: Syria or Somalia or Nigeria. They end up to the closest, safest,

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Speaker 1: richest approximate geographical point, and that often is Europe. And

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Speaker 1: that's the central or fact of the global refugee stroke

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Speaker 1: migration crisis that Europe faces. But I would argue it's

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Speaker 1: not going to be confined to Europe. How do you

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Speaker 1: and how do politicians have a conversation about a global

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Speaker 1: crisis at a time when it seems like, as we've

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Speaker 1: seen here in the US, if we've seen in your

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Speaker 1: United Kingdom as well, there is a a limited appetite

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Speaker 1: for globalization at this point. Well, I think there's not

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Speaker 1: a lipened appetite for common sense, and I think the

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Speaker 1: way to address this is to say, look, and we

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Speaker 1: have to address this problem at source as well as

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Speaker 1: a symptoms. So it does need more effective peacemaking and peacekeeping.

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Speaker 1: It does need more effective humanitarian aid in the countries

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Speaker 1: that have most refugees. I mean, you'd think from the

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Speaker 1: American debate or the European debate, where we're talking in

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Speaker 1: America a hundred thousand refugees or fifty thousand refugees in

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Speaker 1: the UK, massive debate about ten thousand people in Calais.

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Speaker 1: You'd think it was Western countries that were besieged. The

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Speaker 1: truth is of the world's refugees are in poor and

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Speaker 1: lower middle income countries, some of them very close allies

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Speaker 1: of the US. Look, Jordan's is the second closest ally

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Speaker 1: of the United States in the Middle East. It's got

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Speaker 1: six hundred fifty thousand registered Syrian refugees, probably six hundred

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Speaker 1: fifty and unregistered as well, and they are facing the

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Speaker 1: refugee crisis in the absolute heat of the kitchen, and

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Speaker 1: I think are the argument in the West has got

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Speaker 1: to be first, we've got to address this problem at source. Second,

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Speaker 1: the symptom, which is the people smuggling that's bringing people

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Speaker 1: illegally into Europe, needs to be addressed. And the best

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Speaker 1: way to address that is to say the most vulnerable

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Speaker 1: cases will have a refugee settlement route properly vetted. Thirdly,

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Speaker 1: if we neglect this problem, which is what happened in

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Speaker 1: it'll come crashing onto our shows. Anyway. After the last

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Speaker 1: thirties six or forty eight hours of politics in tweets

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Speaker 1: what does europe want from the President elect of the

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Speaker 1: United States on migration and on the greater good and

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Speaker 1: society and common wheel of Europe. Well, I think there's

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Speaker 1: a very simple answer to that. Europeans want America to

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Speaker 1: be their ally. They want an alliance founded on values

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Speaker 1: that believes that the critic societies will always have more

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Speaker 1: in common with each other than with autocratic societies, whatever

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Speaker 1: the real polity. And they want to be working with

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Speaker 1: the new Trump administration as a force for global stability

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Speaker 1: and prosperity. And so when they're thinking about engagement with Russia,

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Speaker 1: they want to do it with America. When they're thinking

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Speaker 1: about engagement with China, they want to do it with America.

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Speaker 1: That if you're asking me what's the central aspiration of Europeans,

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Speaker 1: it's for the new administration to uphold, first of all,

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Speaker 1: an alliance that has brought peace and prosperity for a

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Speaker 1: long time. Secondly, they want to be uh see, they

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Speaker 1: want the United States to work with them in a

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Speaker 1: way that recognizes shared interest. How serious occupying such a

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Speaker 1: large part of our minds and we talk about this

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Speaker 1: this issue. But of course I heard Ambassador Smith the

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Speaker 1: power really this week talking about South Sudan and what's

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Speaker 1: happening there, the refugee crisis is much larger, and how

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Speaker 1: ignorant are we are most people of the breadth oven. Well,

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Speaker 1: it's a great point. We shouldn't forget serious. I mean,

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Speaker 1: remember eight of my hospitals have been bombed in Syria

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Speaker 1: in in total. These are not underground. That's a fabulous state.

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Speaker 1: In east east of Damascus, we're running a hospital and

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Speaker 1: it's not an underground hospital. It's marked on the map,

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Speaker 1: and it gets bombed and patients get killed. In that case,

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Speaker 1: this is the modern face of warfare, total abuse of

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Speaker 1: internationally manitorian law and no accountability. I mean, if I

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Speaker 1: had been at President Putin's press conference today, which I

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Speaker 1: think is still going on, I would have after three

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Speaker 1: hours and forty eight minutes, I would have liked to

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Speaker 1: have asked him who in your system was responsible for

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Speaker 1: ordering the bombing raids with the Syrian Air Force of

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Speaker 1: those hospitals. And I think that so Syria does get

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Speaker 1: attention because it's the most appalling evidence of a breakdown

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Speaker 1: of international norms, not just wars without end, but wars

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Speaker 1: without law. How are you're right to say, we mustn't

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Speaker 1: just chase the headlines. We've got to look outside the

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Speaker 1: head and as part of my job running an international

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Speaker 1: aid organization is to talk about the forgotten crises which

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Speaker 1: might be important. I mean, not many people know Nigeria.

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Speaker 1: They know it's the largest country in Africa, they don't

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Speaker 1: know it's got two and a half million internally displaced people.

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Speaker 1: In the northeast of the country was a Bocco harem

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Speaker 1: at South Sudan, the world's newest nation, which you mentioned

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Speaker 1: in your intro. That's a country where population of ten million,

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Speaker 1: four and a half million in humanitarian need, a civil

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Speaker 1: war and an inability to get there's a vote today

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Speaker 1: I think on an arms embargo. These My point is

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Speaker 1: these problems don't just stay in the countries that they're happening.

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Speaker 1: In a connected world, they'll hit the rest of us.

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Speaker 1: How are is it for you to hire people to

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Speaker 1: do these jobs in a place like you mentioned those hospitals.

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Speaker 1: How difficult is it? Should have made that clear because

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Speaker 1: one of the things that's changing in the humanitarian sector

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Speaker 1: is we hire local people. So the people who are

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Speaker 1: working for us in hospitals in Syria, we're not sending

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Speaker 1: them from Hoboken. We are employing local people who and

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Speaker 1: they always say to me when I say, well, how

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Speaker 1: you know you're brave? How how do you do they say,

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Speaker 1: I've got no choice. I live here. And that is

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Speaker 1: especially in the middle income country like Syria, where you

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Speaker 1: can get doctors and health workers and civil engineers. We

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Speaker 1: we do water and sanitation, we do health, give we

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Speaker 1: do education, and I think it's the model that we're

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Speaker 1: moving to is. Yes, there are a small number of

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Speaker 1: international staff who are experts in emergencies and other things,

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Speaker 1: but actually you're more and more trying to hire local people.

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Speaker 1: We're gonna leave it. They're gon leave um sorry, okay,

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Speaker 1: so much for a success. Don't be a strange with this.

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Speaker 1: Maybe Will even mentioned the United Kingdom. There you go

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Speaker 1: next time. I'm now you know I live in New York.

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Speaker 1: Now I'm not. I'm not an American. I don't The

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Speaker 1: voice gives you thank you for something to be using

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Speaker 1: their services. It's nice that the Miller Band stepped and said, no,

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Speaker 1: you can strike. Who you put your trust in matters.

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Speaker 1: Investors have put their trust in independent registered investment advisors

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Speaker 1: to the tune of four trillion dollars. Why they see

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Speaker 1: their roles to serve, not sell. That's why Charles Schwab

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Speaker 1: is committed to the success over seven thousand independent financial

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Speaker 1: advisors who passionately dedicate themselves to helping people achieve their

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Speaker 1: financial goals. Learn more and find your independent advisor dot com.

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Speaker 1: What did joy this is? Um we're the first of

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Speaker 1: all folks on this week of the year. We don't

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Speaker 1: do math, so I don't know why Rocky Fisher was

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Speaker 1: booked because he does brilliant, brilliant derivatives math work for

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Speaker 1: Deutsche Bank and he gets a ton of mail when

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Speaker 1: he's on. Because we really get going, I want to

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Speaker 1: start with what we're seeing, which is the emotion of

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Speaker 1: the market, which you know is this words stochastic, which

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Speaker 1: I translate in lectures is pointy. There's lots of pointy.

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Speaker 1: There's lots of abrupt things going on. Now, are you working,

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Speaker 1: you know your work with Domini constant and being each

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Speaker 1: oldren that. Are you working within a continuum of stability

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Speaker 1: or is it getting very pointy where your radars up?

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Speaker 1: If anything, we're seeing more stability going forward. What we

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Speaker 1: think that we're heading into this year is a more

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Speaker 1: fundamental less technical market. So the last couple of years,

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Speaker 1: especially in the US equity market, there were moments when

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Speaker 1: it seemed like some sort of accumulation of positioning and

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Speaker 1: markets moving in a certain way triggering force buying and

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Speaker 1: selling was causing some of the most violent moves in

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Speaker 1: the market. Do you think about the last few months,

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Speaker 1: The market's biggest moves are on catalysts like Brexit and

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Speaker 1: the elections that people were preparing for talking about for

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Speaker 1: months going into them. So we do think that we're

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Speaker 1: heading into more of a technical, fundamental market it rather

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Speaker 1: than a technical market. That probably means market trends play

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Speaker 1: out over weeks or months rather than happening all at

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Speaker 1: once like we've had the last couple of years. So

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Speaker 1: should we make less of a deal about the elections

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Speaker 1: in France elections in the Netherlands? Are these less catalytic

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Speaker 1: than the referintum in the UK, say, or the U

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Speaker 1: S presidential election or be more it's just more inur

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Speaker 1: two two things like this, Well, they're important, and the

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Speaker 1: catalysts coming out of Europe are all important in the aggregate.

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Speaker 1: It's not like there's going to be a single moment

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Speaker 1: that's going to define what the Eurozone looks like twelve

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Speaker 1: or twenty four months from now. But we do think

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Speaker 1: that we're going to have a more steady diet of

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Speaker 1: mild volatility over the course of the year rather than

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Speaker 1: a single severe response. Ramping your derivatives work with Peter

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Speaker 1: Hooper's three plus GDP. We we go back and forth.

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Speaker 1: One interview is two percent g d P. One is

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Speaker 1: a more buoyant idea. The vector I get from Deutsche

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Speaker 1: Bank is this is real and we're gonna grind higher.

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Speaker 1: Fold that into your equity view and the tool of derivatives. Well,

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Speaker 1: all the equity derivatives market seems to be agreeing with

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Speaker 1: a positive outlook on growth. If anything, we're seeing more

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Speaker 1: activity and call options, which are positioning for upside in

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Speaker 1: the market relative to put options. UM the ratio of

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Speaker 1: the open interests of calls and puts is very heavy

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Speaker 1: towards the call side right now. UM SMP skew, which

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Speaker 1: is the derivatives market's way of expressing how valuable protection

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Speaker 1: is versus how valuable leverage is, has come down very

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Speaker 1: significantly in the last few weeks. Should we have Ken

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Speaker 1: David GIRs skew up uh, queue up rather Robert Robert

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Speaker 1: Goulet's Christmas songs. I'm dreaming of a cross moment that

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Speaker 1: would be good if he can find it a limited

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Speaker 1: amount of time. He got crotosis and stocking continue, David,

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Speaker 1: that was skew, folks, that's the think the third cross moment.

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Speaker 1: Rock that some of this is all Greek to me.

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Speaker 1: But you talk about the timeliness of overwriting in your note.

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Speaker 1: What what does that mean and why should we focus on? David? Yeah, Well,

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Speaker 1: overwriting is a strategy that up and investors due to

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Speaker 1: position for only limited upside in the market. So it

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Speaker 1: says that you are willing to take full downside risk

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Speaker 1: on a stock but lock in a certain amount of

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Speaker 1: upside and in an environment where there're still is not

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Speaker 1: that much equity upside to a lot of investors perceptions,

427
00:25:16,480 --> 00:25:17,959
Speaker 1: you want to be able to get what you can.

428
00:25:18,320 --> 00:25:21,000
Speaker 1: Options markets can let you make money when options are

429
00:25:21,119 --> 00:25:24,800
Speaker 1: doing nothing by selling call options on existing Because David,

430
00:25:24,880 --> 00:25:28,600
Speaker 1: it's a brilliant you get an A plus question math. Okay,

431
00:25:28,720 --> 00:25:32,120
Speaker 1: so I've got an option, Rocky, I'm gonna go out.

432
00:25:32,200 --> 00:25:35,440
Speaker 1: I'm gonna sell the option, bringing the income, bringing the

433
00:25:35,560 --> 00:25:39,320
Speaker 1: money in from writing the option. What is the part

434
00:25:39,440 --> 00:25:44,359
Speaker 1: of the Greek dynamics now making that very productive and

435
00:25:44,480 --> 00:25:47,399
Speaker 1: cheap to do? Or is it a high cost strategy

436
00:25:47,600 --> 00:25:50,920
Speaker 1: right now while selling options is a negative cost strategy

437
00:25:51,040 --> 00:25:52,680
Speaker 1: and you're making money. The Greek that you want to

438
00:25:52,760 --> 00:25:54,639
Speaker 1: know about is called theata. I know we're getting a

439
00:25:54,640 --> 00:25:58,480
Speaker 1: little help. I knew he was going there. This is

440
00:25:58,520 --> 00:26:02,879
Speaker 1: the time function. You're right, So options will if nothing happens.

441
00:26:02,920 --> 00:26:05,760
Speaker 1: Options lose value over time. So if you can sell

442
00:26:05,840 --> 00:26:08,760
Speaker 1: the right options and the markets don't move enough to

443
00:26:08,840 --> 00:26:11,480
Speaker 1: justify the value of that option, then you can be

444
00:26:11,640 --> 00:26:15,000
Speaker 1: making money and nothing happens scenario. So that's a strategy

445
00:26:15,040 --> 00:26:17,679
Speaker 1: that's been very timely the last couple of years. UM

446
00:26:17,840 --> 00:26:20,680
Speaker 1: it's going to continue to be timely, especially as we

447
00:26:20,920 --> 00:26:24,440
Speaker 1: get to a fully priced in upside scenario when you

448
00:26:24,560 --> 00:26:28,000
Speaker 1: have just limited additional upside to go on the SMP.

449
00:26:28,640 --> 00:26:30,280
Speaker 1: For those of you have Global Wall Street, it's been

450
00:26:30,320 --> 00:26:32,920
Speaker 1: a joy. Rocky Fishman with us with Deutsche Bank. We've

451
00:26:32,960 --> 00:26:37,320
Speaker 1: been talking THETA, not Gamma, not Vega. We've been talking THETA.

452
00:26:37,359 --> 00:26:41,960
Speaker 1: We've been talking skew, not crtosis net variants. David Gura

453
00:26:42,720 --> 00:26:46,440
Speaker 1: through a Bloomberg food court muffin at me on the head.

454
00:26:47,880 --> 00:26:51,080
Speaker 1: I don't get it. Let's talk vix, David. Let's look

455
00:26:51,119 --> 00:26:53,359
Speaker 1: at the VIX right now. Was lower than that? Yes,

456
00:26:53,400 --> 00:26:55,960
Speaker 1: I think we lows that we haven't seen a few

457
00:26:55,960 --> 00:26:57,879
Speaker 1: months out yesterday here. What do you say when you

458
00:26:57,880 --> 00:27:01,160
Speaker 1: look at the VIX today and what's your forecast going forward? Yeah? Well,

459
00:27:01,200 --> 00:27:03,520
Speaker 1: I mean I think that the low VIX level that

460
00:27:03,560 --> 00:27:06,359
Speaker 1: we've seen this week is partially a byproduct of the

461
00:27:06,440 --> 00:27:08,399
Speaker 1: time of year that we're in. The VIX is a

462
00:27:08,680 --> 00:27:11,240
Speaker 1: measure very very short dated volatility. What is the next

463
00:27:11,240 --> 00:27:13,000
Speaker 1: thirty days gonna look like. Well, we know that the

464
00:27:13,080 --> 00:27:16,200
Speaker 1: next thirty days has three holidays in it. You have Christmas,

465
00:27:16,240 --> 00:27:18,320
Speaker 1: New Year's, Martin Luther King Day. Those are all days

466
00:27:18,760 --> 00:27:21,600
Speaker 1: that the market has closed. The VIX doesn't really adjust

467
00:27:21,720 --> 00:27:25,600
Speaker 1: for that. So just from that perspective, there's less opportunity

468
00:27:25,640 --> 00:27:27,639
Speaker 1: for the markets to move around. If you look at

469
00:27:27,680 --> 00:27:30,560
Speaker 1: the ratio of the VIX to longer dated measures of volatility,

470
00:27:30,680 --> 00:27:33,680
Speaker 1: there is a high premium on longer dated volatility, what

471
00:27:33,760 --> 00:27:36,159
Speaker 1: we call a steep term structure. Um. The other thing

472
00:27:36,240 --> 00:27:38,800
Speaker 1: I would say about the VIX being so low is

473
00:27:38,880 --> 00:27:41,680
Speaker 1: that the VIX is a measure of how volatile the

474
00:27:41,800 --> 00:27:44,560
Speaker 1: SMP is going to be. Well, the SMP lately has

475
00:27:44,600 --> 00:27:46,840
Speaker 1: been a lot less volatile than the stuff inside of

476
00:27:46,880 --> 00:27:50,080
Speaker 1: it because you've had sectors moving in different directions. We've

477
00:27:50,119 --> 00:27:53,040
Speaker 1: had a lot of sector differentiation in this post election

478
00:27:53,160 --> 00:27:57,440
Speaker 1: period because the fundamental um stories that are coming out

479
00:27:57,480 --> 00:28:00,840
Speaker 1: of the election result affect difference set there's differently, So

480
00:28:00,960 --> 00:28:04,080
Speaker 1: financials have been doing great while utilities have been doing poorly,

481
00:28:04,160 --> 00:28:06,680
Speaker 1: and you've had a lot of differentiation inside of the SMP.

482
00:28:07,160 --> 00:28:10,359
Speaker 1: When the SMP is not moving as an index because

483
00:28:10,400 --> 00:28:12,119
Speaker 1: the stuff inside of it is moving a lot, but

484
00:28:12,200 --> 00:28:14,520
Speaker 1: in different directions, that's going to bring down the VIX

485
00:28:14,560 --> 00:28:16,840
Speaker 1: as well. So we expect the VIX to be higher

486
00:28:16,920 --> 00:28:19,760
Speaker 1: as we start getting into next year UM. But at

487
00:28:19,800 --> 00:28:24,119
Speaker 1: this particular time of year, UM, it is not unusual

488
00:28:24,240 --> 00:28:26,600
Speaker 1: to have one of the lower volatility periods of the year.

489
00:28:26,840 --> 00:28:28,520
Speaker 1: But a question that I put to George Concaals of

490
00:28:28,720 --> 00:28:31,119
Speaker 1: of Numura here a few moments ago, that's rates volatility.

491
00:28:31,160 --> 00:28:34,480
Speaker 1: What have we seen in rates volatility? Uh? And and

492
00:28:34,640 --> 00:28:36,320
Speaker 1: and what does that tell you right now? Well, it's

493
00:28:36,359 --> 00:28:40,680
Speaker 1: definitely picked up, UM, It's become relatively high relative to

494
00:28:40,720 --> 00:28:44,400
Speaker 1: equity volatility, but not at an extreme. UM. Rates vall

495
00:28:44,480 --> 00:28:48,600
Speaker 1: has slowed down after it's big jump post elections UM,

496
00:28:48,800 --> 00:28:51,320
Speaker 1: and we're keeping an eye on it for sure. UM.

497
00:28:51,480 --> 00:28:54,000
Speaker 1: One of the things that matters to very multi asset

498
00:28:54,080 --> 00:28:57,600
Speaker 1: portfolio managers is not just what's rates volatility doing, but

499
00:28:57,720 --> 00:29:00,760
Speaker 1: our rates correlated with the equity market. In other words,

500
00:29:00,800 --> 00:29:03,920
Speaker 1: are bond prices and stock prices going in the same

501
00:29:04,000 --> 00:29:08,400
Speaker 1: direction as each other? UM, That correlation has been changing directions,

502
00:29:08,480 --> 00:29:11,080
Speaker 1: but during the period in November when rates volatility was

503
00:29:11,200 --> 00:29:14,040
Speaker 1: very high, you were seeing bond prices and stock prices

504
00:29:14,080 --> 00:29:17,360
Speaker 1: going in opposite directions. Allows investors to tolerate more of

505
00:29:17,440 --> 00:29:20,640
Speaker 1: that volatility. Help us with a modern concept. Some of

506
00:29:20,680 --> 00:29:23,520
Speaker 1: our listeners will know that many others won't, which is

507
00:29:23,720 --> 00:29:30,120
Speaker 1: buying volatility and you buy the volatility of the volatility

508
00:29:30,400 --> 00:29:36,040
Speaker 1: translate that's soup I just mentioned. What does that mean? Well,

509
00:29:36,080 --> 00:29:38,440
Speaker 1: I will tell you if it all sounds like complicated

510
00:29:38,600 --> 00:29:41,520
Speaker 1: stuff and and you know, Greek letters and whatnot, but

511
00:29:41,600 --> 00:29:44,480
Speaker 1: the reality is that there are products that are listed

512
00:29:44,560 --> 00:29:46,360
Speaker 1: in e t F and e t N format that

513
00:29:46,440 --> 00:29:50,160
Speaker 1: allow investors to buy volatility and therefore establish a position

514
00:29:50,200 --> 00:29:53,560
Speaker 1: in volatility. Of volatility um. People need to certainly be

515
00:29:53,680 --> 00:29:56,320
Speaker 1: aware of what those products are made out of. But

516
00:29:56,480 --> 00:30:00,600
Speaker 1: there are products that people use to actually transact volatility.

517
00:30:00,720 --> 00:30:03,880
Speaker 1: VIX options, mixed futures, the v x x CTN other

518
00:30:03,920 --> 00:30:08,960
Speaker 1: a t N is based on volatile. It had its day. Well,

519
00:30:09,240 --> 00:30:12,240
Speaker 1: it's always when you talk about a market on anything,

520
00:30:12,280 --> 00:30:15,520
Speaker 1: whether it's volatility or oil, there's always two directions. Volatility

521
00:30:15,560 --> 00:30:18,240
Speaker 1: can go up, volatility can go down. So there are periods.

522
00:30:18,280 --> 00:30:21,000
Speaker 1: One it's better to own volatility. This periods. I want

523
00:30:21,040 --> 00:30:22,800
Speaker 1: to rip up the scripture. This is important because the

524
00:30:22,880 --> 00:30:25,680
Speaker 1: media didn't get this right. The other day the media

525
00:30:25,800 --> 00:30:28,480
Speaker 1: was talking with a frenzy about the option market on

526
00:30:28,520 --> 00:30:32,680
Speaker 1: a hundred dollar oil derivatives. That stuff sort of always

527
00:30:32,840 --> 00:30:35,800
Speaker 1: out there. You put little bits of money. This is

528
00:30:35,880 --> 00:30:38,640
Speaker 1: a tellub one oh one. You put little bits of

529
00:30:38,800 --> 00:30:42,840
Speaker 1: money on huge payoff bets, which you can do it

530
00:30:42,880 --> 00:30:44,960
Speaker 1: all oils fifty and you believe it's going to go

531
00:30:45,000 --> 00:30:46,880
Speaker 1: to a hundred. You don't put all your money on

532
00:30:46,960 --> 00:30:49,040
Speaker 1: it because you may be wrong. You're put in little

533
00:30:49,080 --> 00:30:51,960
Speaker 1: bits of money along the way on that one off

534
00:30:52,160 --> 00:30:55,680
Speaker 1: rare bet, the idea of rare things happening in the

535
00:30:55,880 --> 00:30:59,440
Speaker 1: normal world of feed guessing. Are we going to be

536
00:30:59,560 --> 00:31:02,840
Speaker 1: doing at betting on big moves or are we going

537
00:31:02,920 --> 00:31:07,600
Speaker 1: to be grinding out derivative strategies as we enjoy the

538
00:31:07,640 --> 00:31:12,240
Speaker 1: Trump reflation. So I think that I would prefer to

539
00:31:12,360 --> 00:31:15,720
Speaker 1: be doing longer term options strategies that don't depend on

540
00:31:15,840 --> 00:31:18,680
Speaker 1: having a very sudden move happening right now. So I

541
00:31:18,800 --> 00:31:23,200
Speaker 1: think that with fundamentals mattering fundamentals play out over longer

542
00:31:23,320 --> 00:31:27,280
Speaker 1: periods of time. Understanding which of the policy proposals that

543
00:31:27,360 --> 00:31:29,720
Speaker 1: have come out of the Trump administration are going to

544
00:31:29,800 --> 00:31:31,680
Speaker 1: get legislated and which ones are going to run into

545
00:31:31,760 --> 00:31:34,360
Speaker 1: roadblocks is not going to just happen in one day

546
00:31:34,760 --> 00:31:37,440
Speaker 1: causing a big move in the market. It's something that's

547
00:31:37,480 --> 00:31:41,000
Speaker 1: going to be trending towards its final destination over a

548
00:31:41,040 --> 00:31:43,280
Speaker 1: period of mind. I would stay, folks, and David, the

549
00:31:43,400 --> 00:31:45,720
Speaker 1: only way to understand what Rocky just said is to

550
00:31:45,840 --> 00:31:49,920
Speaker 1: enjoy losing money. Full disclosure, I've done it. But you've

551
00:31:49,920 --> 00:31:52,080
Speaker 1: got to go out and have a conviction about a

552
00:31:52,120 --> 00:31:55,320
Speaker 1: big bet and make the big bet, whether what the

553
00:31:55,360 --> 00:31:58,160
Speaker 1: big move I should say, and enjoy losing money before

554
00:31:58,200 --> 00:32:00,400
Speaker 1: you really get what he just said. David, Rocky When

555
00:32:00,400 --> 00:32:02,560
Speaker 1: you say fundamental trends, break that down for us. What

556
00:32:02,640 --> 00:32:05,520
Speaker 1: are you looking at in particular? Well, I think that

557
00:32:05,760 --> 00:32:09,320
Speaker 1: it's about the um outcomes of some of the policy

558
00:32:09,360 --> 00:32:12,840
Speaker 1: proposals that the new administration has brought to the table. Um.

559
00:32:12,920 --> 00:32:15,280
Speaker 1: It's also about some of what we talked about with Europe.

560
00:32:15,280 --> 00:32:16,960
Speaker 1: A lot of the elections in Europe are going to

561
00:32:17,040 --> 00:32:20,920
Speaker 1: have significant implications over the next year and years. These

562
00:32:20,960 --> 00:32:24,480
Speaker 1: are things that are going to be understandable from a

563
00:32:24,600 --> 00:32:27,760
Speaker 1: perspective of economics and markets. And it's not going to

564
00:32:27,840 --> 00:32:31,440
Speaker 1: be that our biggest moments of volatility come when we've

565
00:32:31,480 --> 00:32:33,840
Speaker 1: had two low volatility and all of a sudden people

566
00:32:33,880 --> 00:32:36,440
Speaker 1: are getting long the market because it's not volatile. I

567
00:32:36,480 --> 00:32:38,800
Speaker 1: think that it's going to be more about the upside

568
00:32:38,840 --> 00:32:43,360
Speaker 1: coming from the actual changes to companies prospects for making money,

569
00:32:43,560 --> 00:32:46,800
Speaker 1: rather than just people crowding in and out of the market.

570
00:32:47,400 --> 00:32:49,400
Speaker 1: Is an exciting time to be in the space. It's

571
00:32:49,440 --> 00:32:52,640
Speaker 1: always an exciting time to be in the space. I'm

572
00:32:52,680 --> 00:32:54,320
Speaker 1: looking at this book, Tom, I mean, it's should I

573
00:32:54,360 --> 00:32:56,080
Speaker 1: get it? We have to get out my t I

574
00:32:56,160 --> 00:32:58,640
Speaker 1: E six. Well, I'll do, I'll say to you do yeah.

575
00:32:59,040 --> 00:33:02,080
Speaker 1: Talking about some of us are before a T I eight.

576
00:33:03,320 --> 00:33:05,120
Speaker 1: How about you got to get out your kou ful

577
00:33:05,200 --> 00:33:12,200
Speaker 1: and slide rule. Uh. The answer is Sheldon Adenberg is

578
00:33:12,280 --> 00:33:17,200
Speaker 1: a wonderful bible on the world of Rocky Fishman. Math warning,

579
00:33:17,400 --> 00:33:20,200
Speaker 1: it's got some math in It's not the worst I've seen.

580
00:33:20,920 --> 00:33:23,880
Speaker 1: But if anybody is on Global Wall Street, including the

581
00:33:23,960 --> 00:33:28,120
Speaker 1: young Turks who want to talk theta and gamma and

582
00:33:28,320 --> 00:33:32,680
Speaker 1: actually almost know the dynamics within the court through it

583
00:33:32,840 --> 00:33:35,720
Speaker 1: his equations, there's a lot of ways to go. And

584
00:33:35,800 --> 00:33:38,560
Speaker 1: Paul Wilmot is brilliant, and you know, Rocky, You've got

585
00:33:38,600 --> 00:33:43,320
Speaker 1: your heroes as well, But shade Sheldon Ntenberg's option volatility

586
00:33:43,520 --> 00:33:47,680
Speaker 1: is truly one of the original classic what I call foundations.

587
00:33:47,800 --> 00:33:50,240
Speaker 1: Reading the reviews here on Amazon and someone saying, you know,

588
00:33:50,600 --> 00:33:52,560
Speaker 1: the first time I read this book, I didn't understand it,

589
00:33:52,560 --> 00:33:54,880
Speaker 1: and therefore I didn't like it. But he or she

590
00:33:55,000 --> 00:33:57,080
Speaker 1: read it again, as I imagine you have, Tom, I

591
00:33:57,120 --> 00:34:01,120
Speaker 1: would recommend David you have a Kale beverage has I'll

592
00:34:01,160 --> 00:34:05,280
Speaker 1: take it too. Rocky Fisherman wears the market twelve months

593
00:34:05,320 --> 00:34:07,560
Speaker 1: from now. You're got any derivative strategy for that? Do

594
00:34:07,680 --> 00:34:10,600
Speaker 1: you believing in up, up, up on the equity markets.

595
00:34:11,160 --> 00:34:13,160
Speaker 1: I mean my view is more about volatility. I think

596
00:34:13,200 --> 00:34:15,480
Speaker 1: that we when we have this conversation and now we're

597
00:34:15,480 --> 00:34:17,480
Speaker 1: going to find that the market has been more volatile.

598
00:34:18,520 --> 00:34:20,879
Speaker 1: Don't give me your cross moments. Is the market going

599
00:34:21,080 --> 00:34:23,799
Speaker 1: up in the next twelve months. That's a really hard

600
00:34:23,880 --> 00:34:25,640
Speaker 1: question to answer. And if I knew the answer, then

601
00:34:25,800 --> 00:34:30,080
Speaker 1: that's it. Rich Rich, He's so done. Next time, Binkie Chottam,

602
00:34:30,320 --> 00:34:34,560
Speaker 1: Rocky Fisherman, thank you so much with with Deutsche Bank,

603
00:34:46,760 --> 00:34:49,680
Speaker 1: out of Wesley and out of Stanford, with the story,

604
00:34:49,800 --> 00:34:53,439
Speaker 1: career on Wall Street and service at the International Monetary Fund.

605
00:34:54,080 --> 00:34:57,360
Speaker 1: Now at the John's Hopkins School of Advanced International Studies,

606
00:34:57,880 --> 00:35:01,680
Speaker 1: he is a Peterson's scholar. John Lipsky joins us here

607
00:35:01,800 --> 00:35:03,719
Speaker 1: for the next half hour. I have to begin with

608
00:35:03,920 --> 00:35:08,839
Speaker 1: exceptionally delicate discussion. Uh. No, one more than you has

609
00:35:08,880 --> 00:35:11,680
Speaker 1: worked with Christine Lagard over the last number of years,

610
00:35:11,920 --> 00:35:14,279
Speaker 1: this thing of negligence. I read everything I could John

611
00:35:14,320 --> 00:35:17,919
Speaker 1: Lipsky about the oddity of the French courts. We begin

612
00:35:18,000 --> 00:35:21,240
Speaker 1: with the statement that it's unique to France. There's no English,

613
00:35:21,360 --> 00:35:25,920
Speaker 1: no London, no Washington, no New York, no cedar uh

614
00:35:26,239 --> 00:35:32,200
Speaker 1: cedar rabbids iowa equivalent negligence and they went through the ballet.

615
00:35:32,400 --> 00:35:36,400
Speaker 1: Can you give us an explanation why seconding Royal Christine

616
00:35:36,480 --> 00:35:39,799
Speaker 1: Lagarde and other worthies have had to go through this torture. Uh.

617
00:35:40,000 --> 00:35:43,839
Speaker 1: It's it's France, and it's rather it's rather unique. Uh.

618
00:35:44,239 --> 00:35:47,640
Speaker 1: As you imply, the charge not only was the form

619
00:35:47,680 --> 00:35:50,319
Speaker 1: of the court, but the charge leveled against her would

620
00:35:50,360 --> 00:35:55,080
Speaker 1: not be defined as a crime anywhere else that I understand. Uh.

621
00:35:55,200 --> 00:35:57,800
Speaker 1: And that's why the I m F board in the

622
00:35:58,440 --> 00:36:02,920
Speaker 1: when when they not first named Christine Lagarde as managing director,

623
00:36:03,200 --> 00:36:06,320
Speaker 1: this charge was pending, so they always implicitly they understood

624
00:36:06,400 --> 00:36:09,640
Speaker 1: this was a risk. And so it's not surprising what

625
00:36:09,920 --> 00:36:13,000
Speaker 1: with her conviction, but with this oddity of conviction with

626
00:36:13,080 --> 00:36:17,120
Speaker 1: no penalties, no fine, no jail time, no nothing, just

627
00:36:17,960 --> 00:36:20,759
Speaker 1: a blot, if you will, the board has said we're

628
00:36:20,840 --> 00:36:23,520
Speaker 1: okay with this word to go forward with her as manager.

629
00:36:23,640 --> 00:36:25,879
Speaker 1: Had Worthy asked me about this and I said, well,

630
00:36:25,920 --> 00:36:27,960
Speaker 1: I think it's a court of should you should have

631
00:36:28,040 --> 00:36:31,799
Speaker 1: done this said that you have lived should with your

632
00:36:31,840 --> 00:36:35,640
Speaker 1: public service for years and the word associated with Dr

633
00:36:35,719 --> 00:36:39,960
Speaker 1: Lipsky is macro prudential. What is the state of our

634
00:36:40,040 --> 00:36:45,000
Speaker 1: macro prudential risks right now, given populism, given the Trump presidency,

635
00:36:45,360 --> 00:36:49,080
Speaker 1: just given the newsflow we've seen the last six weeks. Well, indeed,

636
00:36:49,320 --> 00:36:52,400
Speaker 1: the I would say, when you talk about macro prudential

637
00:36:53,000 --> 00:36:57,000
Speaker 1: we now face some potential risks that are very difficult

638
00:36:57,040 --> 00:36:59,960
Speaker 1: to deal with in policy terms, and that's for example

639
00:37:00,000 --> 00:37:03,800
Speaker 1: a one in Europe. The very structure of the European edifice,

640
00:37:03,840 --> 00:37:08,080
Speaker 1: if you will, has been changed dramatically with Brexit, and

641
00:37:08,200 --> 00:37:10,920
Speaker 1: now we have to see the response of the Eurozone.

642
00:37:11,040 --> 00:37:15,640
Speaker 1: How are they going to move forward with institutionalization without

643
00:37:15,760 --> 00:37:19,160
Speaker 1: the UK and with the challenge, among other things, of

644
00:37:19,280 --> 00:37:22,600
Speaker 1: restoring growth. That means cleaning the banking system, and we've

645
00:37:22,640 --> 00:37:26,840
Speaker 1: seen the difficulties so far in that. That's that's certainly

646
00:37:26,920 --> 00:37:30,120
Speaker 1: a macro predential issue that's very difficult to deal with

647
00:37:30,840 --> 00:37:34,840
Speaker 1: UH and it's easy to see that the weakness and

648
00:37:34,880 --> 00:37:37,240
Speaker 1: troubles of the banking system are one of the reasons

649
00:37:37,280 --> 00:37:40,640
Speaker 1: why growth in Europe has been so slow and business

650
00:37:40,719 --> 00:37:48,080
Speaker 1: investments so negligible. Turning to China, China's potential success in

651
00:37:48,360 --> 00:37:52,080
Speaker 1: economic reform or not is a big macro predential issue

652
00:37:52,560 --> 00:37:55,759
Speaker 1: that is an open question and very hard to hard

653
00:37:56,360 --> 00:37:58,520
Speaker 1: A lot of open questions, a lot of open questions.

654
00:37:58,680 --> 00:38:00,560
Speaker 1: Are we any closer to getting answers to those questions

655
00:38:00,600 --> 00:38:02,719
Speaker 1: about China? We saw what happened to the currency in

656
00:38:02,800 --> 00:38:04,759
Speaker 1: in January February of this year, a lot of people

657
00:38:04,800 --> 00:38:07,000
Speaker 1: saying we can expect a reprisal of that here in

658
00:38:07,080 --> 00:38:11,280
Speaker 1: the new year. Are we getting a more transparent Chinese

659
00:38:11,280 --> 00:38:13,320
Speaker 1: government in any sense when it comes to issues of currency,

660
00:38:13,400 --> 00:38:18,000
Speaker 1: saying on on currency, I think the answer is yes,

661
00:38:18,960 --> 00:38:21,840
Speaker 1: kind of, sort of. And part of the issue is,

662
00:38:22,040 --> 00:38:25,280
Speaker 1: of course, if they are running an expansionary domestic policy

663
00:38:26,040 --> 00:38:30,000
Speaker 1: and with the implication that they are at the same

664
00:38:30,120 --> 00:38:33,400
Speaker 1: time going to to try to limit downside risk to

665
00:38:33,480 --> 00:38:36,680
Speaker 1: the currency, they're going to end up doing what they've done,

666
00:38:36,760 --> 00:38:40,880
Speaker 1: which is resorting to some tightening of current of capital controls.

667
00:38:41,600 --> 00:38:44,720
Speaker 1: So I would say that's a move away from transparency.

668
00:38:45,160 --> 00:38:48,080
Speaker 1: But if that's says, if that's just a little bounce,

669
00:38:48,120 --> 00:38:51,520
Speaker 1: shall we say, uh, a step backwards in a move

670
00:38:51,640 --> 00:38:55,719
Speaker 1: towards a more open and transparent financial system, including a

671
00:38:55,800 --> 00:38:59,239
Speaker 1: more open capital markets, which what is the the explicit

672
00:38:59,320 --> 00:39:01,560
Speaker 1: goal of the long term goal of the Chinese authorities,

673
00:39:01,960 --> 00:39:04,839
Speaker 1: then this is not meaningful with your experience at the IMF.

674
00:39:04,920 --> 00:39:08,760
Speaker 1: Help us understand the importance of China joining that special

675
00:39:08,840 --> 00:39:11,720
Speaker 1: drawing rights basket at the IMF. Joining the STR anything

676
00:39:11,800 --> 00:39:15,279
Speaker 1: more than just a symbolic movie symbolic gesture there. What

677
00:39:15,400 --> 00:39:17,480
Speaker 1: does it mean? What does it say about the currency? Well,

678
00:39:17,560 --> 00:39:22,120
Speaker 1: it's it's certainly mainly symbolic, but symbolic potentially with the

679
00:39:22,440 --> 00:39:26,480
Speaker 1: symbolism could be very meaningful. If you look at thet

680
00:39:26,760 --> 00:39:31,000
Speaker 1: five year plan of the Chinese government, what it says

681
00:39:31,120 --> 00:39:34,160
Speaker 1: is they aren't moving towards a floating exchange rate in

682
00:39:34,239 --> 00:39:37,840
Speaker 1: an open capital market, in a market driven, efficient, modern

683
00:39:38,480 --> 00:39:44,160
Speaker 1: domestic financial system. If if this UH inclusion in the

684
00:39:44,320 --> 00:39:49,120
Speaker 1: STR basket with reflects both their growing role in international

685
00:39:49,320 --> 00:39:52,120
Speaker 1: the growing size relatively the rest of the economy, their

686
00:39:52,160 --> 00:39:56,040
Speaker 1: increasing role in terms of international trade, the increasing role

687
00:39:56,239 --> 00:39:59,240
Speaker 1: of their currency the R and B in settling trade,

688
00:39:59,280 --> 00:40:04,359
Speaker 1: and eventually wing toward capital, then this provides at both

689
00:40:04,440 --> 00:40:08,600
Speaker 1: a sign and an encouragement for them to continue along

690
00:40:08,680 --> 00:40:11,240
Speaker 1: the path they've laid out. John Lipskut where this formerly

691
00:40:11,280 --> 00:40:14,040
Speaker 1: with the International Monetary Fund Salomon Brothers a few years

692
00:40:14,040 --> 00:40:17,960
Speaker 1: ago as well. Now at Johns Hopkins. Uh, if I

693
00:40:18,080 --> 00:40:20,400
Speaker 1: look at the idea that I'm sitting with John Lipsky

694
00:40:20,480 --> 00:40:24,080
Speaker 1: the day of the largest set of bank nationalizations in

695
00:40:24,239 --> 00:40:27,800
Speaker 1: Italy since Mussolini. I mean, that's what I opened the

696
00:40:27,840 --> 00:40:30,080
Speaker 1: TV show with today. I can't believe I said that

697
00:40:30,640 --> 00:40:33,600
Speaker 1: that's true, folks. I checked. I checked with Michael Moore.

698
00:40:33,920 --> 00:40:36,800
Speaker 1: What does this say about the ability to clear markets?

699
00:40:37,160 --> 00:40:40,560
Speaker 1: And do you just demand that you're finally get its

700
00:40:40,640 --> 00:40:44,800
Speaker 1: act together and create a more Anglo sex and model

701
00:40:45,400 --> 00:40:48,800
Speaker 1: of clearing mistakes. We all make mistakes, Guras, you have

702
00:40:48,920 --> 00:40:52,600
Speaker 1: to make one Bloomberg surveillance, but we all make mistakes.

703
00:40:52,760 --> 00:40:56,480
Speaker 1: Just they can't move on well until today. First of all,

704
00:40:57,160 --> 00:41:00,160
Speaker 1: let's set back the weakness of the banking sy them,

705
00:41:00,200 --> 00:41:03,640
Speaker 1: the clog, balance sheets still littered with with bad assets,

706
00:41:03,840 --> 00:41:08,440
Speaker 1: some places more than others, the heavy reliance on wholesale funding.

707
00:41:09,080 --> 00:41:11,960
Speaker 1: All of these have been flagged as a problem for

708
00:41:12,320 --> 00:41:16,040
Speaker 1: some time. And the problem at the time of the

709
00:41:16,400 --> 00:41:20,400
Speaker 1: of the Great Recession was the institutions did not exist

710
00:41:20,800 --> 00:41:24,000
Speaker 1: to the European institutions did not exist to deal adequately

711
00:41:24,080 --> 00:41:27,480
Speaker 1: with this, and they've been sort of building up, Uh,

712
00:41:27,680 --> 00:41:30,400
Speaker 1: the institutions as we went along. Now, that was always

713
00:41:30,440 --> 00:41:33,080
Speaker 1: the idea in Europe, but no one ever imagined that

714
00:41:33,200 --> 00:41:36,359
Speaker 1: the elemental Deep challenge would be the mother of all

715
00:41:36,480 --> 00:41:39,600
Speaker 1: financial crises emanating from the United States. But that's what

716
00:41:39,760 --> 00:41:43,840
Speaker 1: it was. So have they done anything to make you

717
00:41:43,960 --> 00:41:47,920
Speaker 1: more optimistic going forward? The answer is absolutely, the European

718
00:41:48,000 --> 00:41:53,120
Speaker 1: Banking Authority, Uh, the the resolution mechanism. But here's something

719
00:41:53,200 --> 00:41:55,960
Speaker 1: that's important that I'm a little puzzled by. They created

720
00:41:56,000 --> 00:42:01,760
Speaker 1: the European Stability Mechanism and that that institution can borrow

721
00:42:02,280 --> 00:42:05,759
Speaker 1: and it is allowed under under its by laws, if

722
00:42:05,800 --> 00:42:09,920
Speaker 1: you will, it is allowed to directly recapitalize banks in

723
00:42:10,040 --> 00:42:13,279
Speaker 1: the Eurozone. Now, why I've been a little puzzled as

724
00:42:13,360 --> 00:42:16,560
Speaker 1: to why there have been this big fight between the

725
00:42:16,640 --> 00:42:20,080
Speaker 1: European Commission and the Italian authorities over whether or not

726
00:42:20,239 --> 00:42:23,160
Speaker 1: they can use state money. Why haven't they been using

727
00:42:23,440 --> 00:42:26,360
Speaker 1: the institution that was created that, among others things you

728
00:42:26,440 --> 00:42:30,520
Speaker 1: to deal with this something to talked to Claus regular about. John,

729
00:42:30,600 --> 00:42:32,879
Speaker 1: let's do with us. I got to do some house

730
00:42:32,920 --> 00:42:38,439
Speaker 1: cleaning here. Uh. The the president elect reportedly, uh, move

731
00:42:38,600 --> 00:42:42,480
Speaker 1: Mr Bolton's side because he was mustached. If you visited

732
00:42:42,520 --> 00:42:46,799
Speaker 1: the Trump Tower, are you transitioning you being considered transition

733
00:42:47,560 --> 00:42:51,359
Speaker 1: you were the most wonderful mustache and all of economics.

734
00:42:52,440 --> 00:42:54,600
Speaker 1: I've had it since I was nineteen. It's not about

735
00:42:54,719 --> 00:42:57,960
Speaker 1: kids and not about it even for the president. Have

736
00:42:58,120 --> 00:43:01,120
Speaker 1: you been seriously Mr Tyller's and could use your services

737
00:43:01,560 --> 00:43:04,160
Speaker 1: If you have, I'm sure there are lots and lots

738
00:43:04,200 --> 00:43:07,040
Speaker 1: of people who are going to be ready, willing and

739
00:43:07,160 --> 00:43:10,680
Speaker 1: able to serve in this administration. Help help us here

740
00:43:10,840 --> 00:43:14,400
Speaker 1: with what we've seen, the populism that we've seen, the

741
00:43:14,480 --> 00:43:17,720
Speaker 1: impulse here to look inward among many people, it seems,

742
00:43:18,200 --> 00:43:20,960
Speaker 1: in this country and elsewhere. All the while there is

743
00:43:21,000 --> 00:43:23,200
Speaker 1: talk of globalization, there's the need to have a global focus.

744
00:43:23,800 --> 00:43:25,560
Speaker 1: Madam will Gardless here a couple of weeks ago talking

745
00:43:25,600 --> 00:43:28,479
Speaker 1: about the threat of deglobalization. How real is that threat

746
00:43:28,520 --> 00:43:30,680
Speaker 1: as you see it? And how do we uh have

747
00:43:30,760 --> 00:43:34,480
Speaker 1: a better conversation about globalization, about living in a more

748
00:43:34,520 --> 00:43:38,440
Speaker 1: globalized world and and making it a place where more

749
00:43:38,480 --> 00:43:43,120
Speaker 1: people get more advantages. Indeed, Uh, globalization is a fact.

750
00:43:44,920 --> 00:43:51,520
Speaker 1: Deglobalization is a puzzling idea. Uh exactly what what does

751
00:43:51,600 --> 00:43:54,239
Speaker 1: that mean? Do? I don't can't. I find it hard

752
00:43:54,280 --> 00:43:57,080
Speaker 1: to believe that anybody thinks that shutting off their borders

753
00:43:57,560 --> 00:44:01,360
Speaker 1: suddenly would be a positive development for the outlook for

754
00:44:01,440 --> 00:44:04,800
Speaker 1: their economy. In fact, what we've seen, of course is

755
00:44:05,120 --> 00:44:09,560
Speaker 1: under the uh the post war order, the institutions on

756
00:44:09,680 --> 00:44:14,040
Speaker 1: the economic side, which were designed exactly to make sure

757
00:44:14,239 --> 00:44:17,600
Speaker 1: that to facilitate the flow of good services and the

758
00:44:17,719 --> 00:44:21,080
Speaker 1: financing for those goods and services, has brought about the

759
00:44:21,160 --> 00:44:23,560
Speaker 1: fastest sixty years of growth in the history of the world.

760
00:44:24,239 --> 00:44:27,680
Speaker 1: And it's inconceivable that we would go back to the

761
00:44:27,880 --> 00:44:32,680
Speaker 1: kind of of policies that brought on ruin in the twenties.

762
00:44:32,760 --> 00:44:36,600
Speaker 1: I don't think that's a real risk, but we absolutely

763
00:44:36,719 --> 00:44:39,839
Speaker 1: need to work out the institutions that will work well

764
00:44:40,480 --> 00:44:44,120
Speaker 1: in a context in which the world, the economy of

765
00:44:44,239 --> 00:44:47,040
Speaker 1: the emerging economies is much more important than it was before.

766
00:44:47,080 --> 00:44:49,960
Speaker 1: This is I know it's a cliche, but the G

767
00:44:50,160 --> 00:44:53,040
Speaker 1: twenty was created in the G twenty at the leaders level,

768
00:44:53,160 --> 00:44:55,040
Speaker 1: was created in the wake of the of the crisis.

769
00:44:55,239 --> 00:44:58,680
Speaker 1: Is the principal institutional response to the global financial crisis,

770
00:44:59,239 --> 00:45:02,680
Speaker 1: and I think it's been a disappointment so far as

771
00:45:02,760 --> 00:45:06,800
Speaker 1: a venue for dealing with real issues. And I was

772
00:45:07,000 --> 00:45:11,440
Speaker 1: one thing I learned in Washington. If the US isn't engaged,

773
00:45:12,000 --> 00:45:15,760
Speaker 1: nothing much happens. If only the US is engaged, nothing

774
00:45:15,880 --> 00:45:21,160
Speaker 1: much happens. And I hope that there won't be a deviation. UH.

775
00:45:21,200 --> 00:45:25,600
Speaker 1: An idea that somehow just dealing with bilateral issues or

776
00:45:25,680 --> 00:45:30,080
Speaker 1: even regional issues is obviates the need to show leadership

777
00:45:30,440 --> 00:45:33,600
Speaker 1: at the global institutions that have been so critical for

778
00:45:33,800 --> 00:45:36,800
Speaker 1: maintaining an environment that has been so beneficial would be

779
00:45:37,080 --> 00:45:40,839
Speaker 1: UH inconceivable. Let me ask you about Chinese response during

780
00:45:40,960 --> 00:45:44,400
Speaker 1: conversations about the Transpacific Partnership. Something that the administration said was,

781
00:45:44,440 --> 00:45:46,800
Speaker 1: if this deal isn't ratified, if Congress doesn't deprove it,

782
00:45:46,880 --> 00:45:49,200
Speaker 1: China is going to step in and broker a large

783
00:45:49,239 --> 00:45:50,719
Speaker 1: trade deal of its own, and they're going to exert

784
00:45:50,800 --> 00:45:54,880
Speaker 1: more power in that UH space. The same thing we

785
00:45:55,000 --> 00:45:57,759
Speaker 1: hear with the with the Asian Infrastructure Investment Bank UH.

786
00:45:57,880 --> 00:46:01,000
Speaker 1: They have now built up fifty plus part earth. They're

787
00:46:01,000 --> 00:46:03,359
Speaker 1: doing a lot of good work as well. How real

788
00:46:03,520 --> 00:46:05,080
Speaker 1: is that threat? In other ways we we heard it

789
00:46:05,560 --> 00:46:07,480
Speaker 1: from the administration, from the Abou administration. Is it a

790
00:46:07,560 --> 00:46:10,040
Speaker 1: real threat here? Seating some sort of power geopolitical power

791
00:46:10,640 --> 00:46:14,920
Speaker 1: to the Chinese well within within limits, and we're not

792
00:46:14,960 --> 00:46:20,840
Speaker 1: going to see a revolution in international relations exactly. On

793
00:46:21,040 --> 00:46:24,080
Speaker 1: the other hand, on the other hand, uh, look at

794
00:46:24,160 --> 00:46:27,480
Speaker 1: the there are two big problems facing us right now.

795
00:46:28,280 --> 00:46:31,440
Speaker 1: One is the the G twenty authorities say we need

796
00:46:31,520 --> 00:46:35,000
Speaker 1: infrastructure investment and we're going to create an infrastructure hub

797
00:46:35,160 --> 00:46:38,160
Speaker 1: and we're going to work on this. The biggest international

798
00:46:38,200 --> 00:46:41,239
Speaker 1: infrastructure project going is the Chinese One Belt one Road.

799
00:46:41,760 --> 00:46:44,240
Speaker 1: Where is the Where does that fit into global governance?

800
00:46:44,320 --> 00:46:48,080
Speaker 1: I don't I don't see it. And secondly, climate change

801
00:46:48,120 --> 00:46:50,759
Speaker 1: finds right, it's been dealt with so far at the

802
00:46:50,880 --> 00:46:53,480
Speaker 1: at the U N level, where you have UH for

803
00:46:53,600 --> 00:46:57,920
Speaker 1: better for worse, very lofty goals that seem divorced from

804
00:46:57,960 --> 00:47:01,120
Speaker 1: the financial realities underneath. Let's get you proud of me

805
00:47:01,280 --> 00:47:04,120
Speaker 1: yesterday you would have you have taken out your handkerchief

806
00:47:04,200 --> 00:47:08,000
Speaker 1: and dabbed your tears away for my young staff. I

807
00:47:08,120 --> 00:47:14,600
Speaker 1: trotted out Jacob Viner Power in plenty. I asked Madame

808
00:47:14,719 --> 00:47:17,200
Speaker 1: Legard about this the other day with John michaels Waite.

809
00:47:17,280 --> 00:47:20,400
Speaker 1: Let me ask you, it's becoming a zero sum world.

810
00:47:21,160 --> 00:47:23,920
Speaker 1: We are heading towards neo mercantili is um and the

811
00:47:24,080 --> 00:47:28,680
Speaker 1: shattering of everything from the Atlantic Charter. Who's going to

812
00:47:28,760 --> 00:47:31,040
Speaker 1: be the adult in the room, As Christine Legard has

813
00:47:31,080 --> 00:47:34,800
Speaker 1: talked about, to right this ship and my greatest away

814
00:47:34,920 --> 00:47:38,360
Speaker 1: from zero sum. There has been a rebalancing of the

815
00:47:38,400 --> 00:47:40,640
Speaker 1: global economy. But I come back what I just said

816
00:47:40,680 --> 00:47:43,800
Speaker 1: a few minutes ago. If the US isn't engaged in

817
00:47:43,880 --> 00:47:48,000
Speaker 1: a leadership role, nothing much happens internationally. If only the

818
00:47:48,120 --> 00:47:51,840
Speaker 1: US has engaged, nothing much. If Mr Trump chooses to

819
00:47:52,600 --> 00:47:56,440
Speaker 1: do a Reagan or a pseudo Reagan re dux, are

820
00:47:56,520 --> 00:47:59,640
Speaker 1: you impressed with the generals and Mr Tillerson to do

821
00:47:59,840 --> 00:48:03,720
Speaker 1: that to engage, Well, I'd take it. I'd take another another,

822
00:48:04,000 --> 00:48:07,240
Speaker 1: another glance at this in the following way. US growth

823
00:48:07,320 --> 00:48:09,680
Speaker 1: since the Great Recession has been two point one percent

824
00:48:09,800 --> 00:48:12,640
Speaker 1: on average, which is a lot lower than our long

825
00:48:12,760 --> 00:48:16,799
Speaker 1: term average. That we've had some policy issues, issues congealed

826
00:48:17,000 --> 00:48:20,040
Speaker 1: with no forward motion, even though everybody recognizes we need

827
00:48:20,160 --> 00:48:22,960
Speaker 1: forward motion. I think the market is telling us it's

828
00:48:22,960 --> 00:48:26,080
Speaker 1: hopeful that that there's going to be an unfreezing and

829
00:48:26,239 --> 00:48:31,239
Speaker 1: policies and areas like corporate taxes and regulation and immigration

830
00:48:31,440 --> 00:48:33,640
Speaker 1: are going to move, are gonna move hopefully in a

831
00:48:33,760 --> 00:48:38,000
Speaker 1: positive direction. If that results in an acceleration in US growth.

832
00:48:38,280 --> 00:48:42,280
Speaker 1: I think that would be a great contribution to this process.

833
00:48:42,440 --> 00:48:44,960
Speaker 1: Thank you so much, Dr Lip. We've got a Dayton, Washington,

834
00:48:45,080 --> 00:48:49,399
Speaker 1: February would be honored if you would attends well, people

835
00:48:49,440 --> 00:49:00,239
Speaker 1: will talk to European. Thanks for listening to the Work

836
00:49:00,320 --> 00:49:05,759
Speaker 1: Surveillance podcast. Subscribe and listen to interviews on iTunes, SoundCloud,

837
00:49:06,200 --> 00:49:10,400
Speaker 1: or whichever podcast platform you prefer. I'm out on Twitter

838
00:49:10,560 --> 00:49:14,320
Speaker 1: at Tom Keene. David Gura is at David Gura. Before

839
00:49:14,360 --> 00:49:18,720
Speaker 1: the podcast, you can always catch us worldwide on Bloomberg Radio.

840
00:49:31,160 --> 00:49:33,759
Speaker 1: Who you put your trust in matters. Investors have put

841
00:49:33,840 --> 00:49:38,160
Speaker 1: their trust and independent registered investment advisors to the two

842
00:49:38,200 --> 00:49:41,839
Speaker 1: and four trillion dollars. Why Learn more at find your

843
00:49:41,920 --> 00:49:44,200
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