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Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom keene Jailey.

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Speaker 1: We bring you insight from the best in economics, finance, investment,

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Speaker 1: and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud,

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Speaker 1: Bloomberg dot Com, and of course on the Bloomberg Suddenly

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Speaker 1: US Reet's House sus a big focus out. I agree totally.

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Speaker 1: This is a huge, huge report, folks, and it goes

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Speaker 1: beneath the control group to that breakout of how retail

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Speaker 1: does versus online retail, and a good place John to

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Speaker 1: start that discussion is a Stephen Sadoff. He's out of

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Speaker 1: Hamilton College and then a terrific career working across big

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Speaker 1: corporations and marketing, messaging, merchandizing, culminating in his tenure where

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Speaker 1: he's single handedly reinvent did Sex Fifth Avenue. We're thrilled

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Speaker 1: that the former chairman could join us this morning. Steve,

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Speaker 1: I want to know how retail continues to adapt to Amazon.

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Speaker 1: What have you learned in this pandemic about how retail

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Speaker 1: will take on Jeffrey Bezos. Well, I think, oh, Tom,

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Speaker 1: it's great talking with you, and you always have such

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Speaker 1: terrific insights. I think what we're finding right now is

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Speaker 1: the consumer is becoming much more digital. If you look

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Speaker 1: at the MasterCard spending post data and their recovery insights,

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Speaker 1: you see that retail online has basically doubled during the pandemic.

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Speaker 1: It's gone from that eleven percent of sales to cent

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Speaker 1: of sales. Amazon is one of the major beneficiaries of that,

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Speaker 1: but so are others. Look at Walmart, look at Target

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Speaker 1: dot Com. These guys are killing it. And the consumer

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Speaker 1: has gravitated towards almost all of the major players that

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Speaker 1: have invested in the technology to be able to provide

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Speaker 1: a great experience online. But it's not just the online

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Speaker 1: deliver to the home. It's also the buy online, pick

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Speaker 1: up curbside and things like that. So it's the seamless

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Speaker 1: integration of the technology into the overall consumer experience that's grumming. Okay,

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Speaker 1: but Steve, this is so important. I mean, let me

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Speaker 1: just take this just one example. If Lisa Bramo, it's

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Speaker 1: is working the O T D from Sex Fifth Avenue

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Speaker 1: and she's looking at the Laylor Rose dress usually sev

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Speaker 1: now eight hundred dollars, why does she go back to

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Speaker 1: shopping on Fifth Avenue? Why can't Lisa get the O

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Speaker 1: T D seven off digital she can and she'll do

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Speaker 1: it it. Probably it's stacks with the associate that she

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Speaker 1: has the relationship with with there, So I think that

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Speaker 1: the full price selling. So if you're gonna buy a

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Speaker 1: Louis Vuitton handbag, it's gonna be the same price whether

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Speaker 1: you buy it online, in the store, at the Louis

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Speaker 1: Vuitton shopp or you buy it at SAX. So the

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Speaker 1: price is not going to be the issue on that

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Speaker 1: full price item. On the discounted end of season or

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Speaker 1: can dies, then clearly you're going to be able to

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Speaker 1: figure out where you want to buy it. But some

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Speaker 1: people remember, even with the MasterCard game of saying that

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Speaker 1: is online, I mean of the volume is still in

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Speaker 1: a store. People still like to experience product. They still

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Speaker 1: want to get that interaction with a the associate try

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Speaker 1: it on. Now. Clearly they have to feel safe, and

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Speaker 1: right now we're an environment where the consumer has to

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Speaker 1: feel safe enough to be able to go on into

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Speaker 1: a store, and that's evolving right now as stores opening.

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Speaker 1: We're opening New Jersey today. As you open up, there's

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Speaker 1: a pent up demand to get out into the store

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Speaker 1: and you're seeing week by week improvement in the trends. Now,

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Speaker 1: the outdoor malls, for example, are picking up faster. People

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Speaker 1: are more comfortable being an outdoor environment than they are

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Speaker 1: going inside of a big shopping mall. Free standing stores

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Speaker 1: like a Sax use that as an example, or maybe

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Speaker 1: even a Coals or a Target or a Walmart. People

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Speaker 1: feel a little more comfortable that with that that the

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Speaker 1: interior of the mall. Yeah, well, Steve, if I were

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Speaker 1: going to go try on a Chanel suit and did

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Speaker 1: want to go to a physical location in order to

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Speaker 1: look my best, when I go to Beleman's, when John

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Speaker 1: and Tom are there talking on an average Tuesday evening,

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Speaker 1: I am wondering there is a question of how much

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Speaker 1: of the existing store space will have to close in

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Speaker 1: order to meet the fact that, yes, I am going

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Speaker 1: to probably buy my suit online at some point, but

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Speaker 1: I may go to the store. What how much more

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Speaker 1: do you expect in terms of store closures. Oh, I

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Speaker 1: think it's gonna be a lot. We're in a reset

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Speaker 1: period right now. There are malls in the United States.

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Speaker 1: I think in the next three or four years a

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Speaker 1: third of them they go away. That doesn't mean the

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Speaker 1: A and B malls it's going to be the sum

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Speaker 1: of the c D malls. As you see the j

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Speaker 1: C Pennies go out of the mall, as Macy's closes,

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Speaker 1: a lot of store co tendencies will kick in, so

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Speaker 1: some of the a lot of these malls will go away.

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Speaker 1: If you look at the high Street, go on Madison Avenue,

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Speaker 1: are down in Soho in New York, You've got huge vacancies.

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Speaker 1: The rents are going to have to come down. You're

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Speaker 1: going to see a reset in the system. Uh, And

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Speaker 1: I think you're gonna We've been saying that for years,

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Speaker 1: and I'm starting up. We have been saying that forever

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Speaker 1: Madison Avenue, Lexington Avenue, all these storefronts that have been

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Speaker 1: shut down forever waiting for the rents to come down. Stave.

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Speaker 1: Why hasn't it happened and why would it happen now?

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Speaker 1: I think because you've got what I call that reset

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Speaker 1: in the system. The landlords haven't been able to haven't

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Speaker 1: lowered the rents because they've got obligations to their lenders

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Speaker 1: relative to the valuations that they're gonna be uh basing

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Speaker 1: their rents against. I think that what's going to happen

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Speaker 1: is a lot of these guys are going to go under.

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Speaker 1: You're going to see restaurants going under. You're gonna see

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Speaker 1: new players coming in. It doesn't mean there won't be restaurants.

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Speaker 1: There's gonna be restaurants, but there maybe a new ownership

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Speaker 1: structure with a different rent fee. I think in some

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Speaker 1: of these stores, you if you have pent of the business,

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Speaker 1: let's say, are thirty percent of the business going online,

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Speaker 1: you don't have the volume per square foot that's going

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Speaker 1: to support the kind of rent in a store, and

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Speaker 1: the rents are gonna have to come down or they're

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Speaker 1: gonna be empty storefronts. Steve stayed off with us folks

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Speaker 1: who were thrilled to have you on radio and TV

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Speaker 1: with us today, Stephen across from Louis Vatan, where John

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Speaker 1: Farrell is going to buy the Rivoli sneakers for nine dollars.

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Speaker 1: Those were the Dammy a canvas, the great check ones

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Speaker 1: John looks great and great check from Louis Vata is

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Speaker 1: a small shop called Tiffany's. Give us an update on Tiffany's. LVMH.

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Speaker 1: What a soap opera? Steve stayed off, what would you

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Speaker 1: do if you were LVMH on this busted transaction. Well, look,

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Speaker 1: I think l v m H wanted to buy Tiffany.

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Speaker 1: They had a price. It was a hundred thirty five

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Speaker 1: dollars to share before the pandemic. Valuations have come down.

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Speaker 1: The luxury market has UH slow dramatically. You don't have

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Speaker 1: the tourism coming in from China, so you have a reset.

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Speaker 1: LVMH would obviously like to own Tiffany. It's a great brand,

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Speaker 1: has great expansion opportunities overseas. My guesses they're trying to

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Speaker 1: play a game relative to getting a better valuation. This

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Speaker 1: is no different than Simon and the Taubman UH deal.

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Speaker 1: On the reach, they the price is probably too high.

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Speaker 1: I don't know whether these things are going to happen

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Speaker 1: or not happen. It's all about price. I can't imagine

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Speaker 1: that they for the longer term don't want the brand,

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Speaker 1: because Tiffany is a great brand and LBMH would be

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Speaker 1: a terrific parent. But this all comes down to price.

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Speaker 1: It's the same as the real estate we were talking about.

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Speaker 1: The brands can't pay the levels of rents the the

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Speaker 1: landlords owe the lenders, and you're the need and lenders

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Speaker 1: need to be built out by the government. Steve stayed

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Speaker 1: off with us with MasterCard advising master Card of the

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Speaker 1: course his work with SAX Folks, when you hear the

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Speaker 1: word exclusive, that somebody has address exclusive, Mr Sadof is

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Speaker 1: decidedly the one who invented that down in Ruskin at

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Speaker 1: Deutsche Bank and in the V shaped head fake you

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Speaker 1: focused on that. Talk to us about it. Yeah, I

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Speaker 1: think you put it right. I think it's going to

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Speaker 1: be a head fake, but it's gonna look quite good

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Speaker 1: in terms of the the do as we sort of

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Speaker 1: transition from lockdown to reopening. I think the data could

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Speaker 1: be extraordinary. Um, you know, just in the same way

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Speaker 1: as when we were in reverse really from an open

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Speaker 1: economy to lockdown, we went into some sort of plungs.

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Speaker 1: So I think initially at least in June, the data

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Speaker 1: will look good, or the data fortune in particular will

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Speaker 1: look good. Um that maybe last through July. By August,

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Speaker 1: I think you know that that fact will be normalized

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Speaker 1: as such, and we'll be back into the idea that

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Speaker 1: unfortunately we're living in a world somewhere between lockdown and open,

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Speaker 1: some sort of halfway house story, and that the new

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Speaker 1: normal is nothing like the old normal. Well, if that's

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Speaker 1: the case, on how do you express it across assets?

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Speaker 1: I mean, you are an international strategist, and we can

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Speaker 1: look at equities, bonds, currencies, commodities. What is the productive

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Speaker 1: play given your ambivalence about a strong V shaped recovery, Tom,

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Speaker 1: I think you can't get ahead of yourself. I think

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Speaker 1: you know, people are inclined to think, okay, we can

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Speaker 1: trade this on a three maybe six months view. I

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Speaker 1: think it's probably you know, it's very difficult to do.

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Speaker 1: I think you've got to focus really maybe on one

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Speaker 1: week ahead, two weeks ahead, which is tough for you

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Speaker 1: no longer too massive managers that it's a little bit

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Speaker 1: easier for the leverage fund guys. But in general, I

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Speaker 1: think you've got to say, okay, you know, it felt

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Speaker 1: like a week ago it was risk on. Right now

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Speaker 1: it's it doesn't look great as far as risks concern,

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Speaker 1: and you effectively have got to play in a much

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Speaker 1: more defensive mode. But I don't think you can be

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Speaker 1: thinking in terms of okay, um, you know, because it's

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Speaker 1: V shaped in June, you know it's going to be

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Speaker 1: risk on for the next six months. For example, I

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Speaker 1: think that V will be helpful for risk in the

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Speaker 1: next say month or two, but it's not necessarily going

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Speaker 1: to be terribly helpful for risk three to six months out.

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Speaker 1: Alan when you look at some of the calls across

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Speaker 1: the wall street houses, as Tom King was mentioning earlier,

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Speaker 1: the idea that you're getting some pretty bullish calls, it

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Speaker 1: comes on the heels of expect aations for fiscal stimulus.

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Speaker 1: And yet over the weekend we heard from Larry Carlo,

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Speaker 1: chief economic advisor to President Trump that he is expecting

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Speaker 1: the enhanced unemployment benefits to expire next month as planned.

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Speaker 1: First of all, do you buy that? And second do

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Speaker 1: you think that that will have a material negative impact

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Speaker 1: on the potential recovery of the US UM So the

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Speaker 1: answer to your last part of the question is absolutely um.

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Speaker 1: You know, I think what you're seeing is that when

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Speaker 1: you look at the breakdown of d DC, the big

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Speaker 1: plus is really on the government minus taxation side, the

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Speaker 1: affecting the fiscal piece of it, which is really building

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Speaker 1: the bridge to you know, effectively from lockdown to open,

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Speaker 1: and everything else is looking extremely weak. So consumption wealth

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Speaker 1: effects not too bad. The income from the government side

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Speaker 1: is very very helpful, but employment so bad. And precautionary

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Speaker 1: savings are kicking in. So consumption is not looking good.

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Speaker 1: On the investment side, commercial real estate in particular, I

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Speaker 1: think it's going to get wilop. On the export side,

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Speaker 1: You've got a global synchronized depressed uh not. I wouldn't

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Speaker 1: say recovery really depression. So there's a lot to make

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Speaker 1: up on the government side, and the government is going

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Speaker 1: to have something kick in really with the deploment benefits,

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Speaker 1: I would say on balance, I would expect that there

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Speaker 1: won't expire, that there will be rolled over. I think

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Speaker 1: it's in both parties interest to do that. But whether

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Speaker 1: you can get the Republicans and Democrats to really come

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Speaker 1: together with a bigger program and that I think it's

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Speaker 1: going to be tough, because they do seem to be

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Speaker 1: quite far apart. Well. Alan, at the moment, what we

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Speaker 1: hear again and again and again is the following phrase

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Speaker 1: policy fatigue. I don't see policy fatigue. I just see

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Speaker 1: the composition of the policy effort changing, and I wonder

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Speaker 1: if they just get it wrong. Is that what you're

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Speaker 1: focused on, Allen, Not so much, sir John. I think

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Speaker 1: I think it's less fatigue than they've done a remarkable

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Speaker 1: job in frontloading policy using both on the fiscal side

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Speaker 1: and on the monetary side. So I think you just

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Speaker 1: can't keep up that sort of level of momentum, and

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Speaker 1: then you've just got to look and hope that actually, um,

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Speaker 1: you are, as I mentioned earlier, sort of building this bridge. Um.

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Speaker 1: I think when I when this all started, I felt

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Speaker 1: that if the virus was going to be a depressant

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Speaker 1: on growth would say longer than three months, the fiscal

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Speaker 1: monetary policy end of things would not be sufficient to

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Speaker 1: effectively build that bridge. Um, they've done so much effectively

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Speaker 1: that I think, Um, now I think we can cope

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Speaker 1: with a virus extending three to six months, maybe you know,

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Speaker 1: even towards your end really um, but it does need

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Speaker 1: some of those elements it needs. It does need a

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Speaker 1: roll over benefits. I think that that is going to

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Speaker 1: be crucial. So there's certain elementary pieces that are that

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Speaker 1: are going to be important. Well, I wan't your dollar call.

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Speaker 1: I mean you have to put up with George Seravellos

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Speaker 1: my Deepert sympathies on that, But what does the rusk

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Speaker 1: and dollar call right now? No sympathies needed, So I think, um,

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Speaker 1: over time, I think the dollar will a weekend um.

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Speaker 1: It's it's subject to I think three main forces. In

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Speaker 1: the short term, it's all about risk on risk golf

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Speaker 1: ready and the dollar does better in Richard. As a

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Speaker 1: medium term, it's all about this this virus differentiation, whether

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Speaker 1: the US is going to be worse than anywhere else.

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Speaker 1: In the long term, I think the focus has to

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Speaker 1: be on the external accounts. I'll be back into the

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Speaker 1: world of twin depicts. That's going to be the big one.

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Speaker 1: The current account I think is determining whether dollar really

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Speaker 1: goes down hard or not. And at Deutsche Bank right now,

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Speaker 1: John opened the show with a disappointment in China. Forget

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Speaker 1: about v shapes. The question is what kind of recovery

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Speaker 1: will it be? And for all of us in the

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Speaker 1: West to understand China, we need to interpret through reading.

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Speaker 1: The best book in ages is George Magnus is Red Flags.

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Speaker 1: It is not a grim book, but it is a

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Speaker 1: cautionary tale on the modernity of the new China. Dr

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Speaker 1: Magnus joins us this morning from the Oxford China Center.

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Speaker 1: George Magnus, wonderful to have you with us at this

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Speaker 1: important time. How big is slowdown? Are we observing in China. Well,

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Speaker 1: the worst of it, Tom was probably in February and March,

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Speaker 1: and actually since March, I mean, and remember that China

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Speaker 1: is about eight ish weeks ahead of us in terms

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Speaker 1: of the evolving coronavirus phenomenon, certainly from an economic point

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Speaker 1: of view and from a lockdown point of view. So actually,

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Speaker 1: since April now May, we've got kind of two months

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Speaker 1: worth of data for really or getting on for a

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Speaker 1: full set. Economy is actually parts of the economy are

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Speaker 1: recovering pretty well. So if you look at the production

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Speaker 1: side of the economy, electricity steal cement heavy industry, we're

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Speaker 1: now at or above two thousand and nineteen levels of activity.

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Speaker 1: So let's come back well, but the demand side of

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Speaker 1: the economy hasn't done so well. Dichotomy, you know, I

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Speaker 1: wanted this, folks. Goes back to George Magnus at Ubs

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Speaker 1: and the great Jonathan Anderson as well. And your calibration

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Speaker 1: of Chinese demand and global demand is the challenge here

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Speaker 1: for Beijing and for that matter, for Washington as well.

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Speaker 1: The domestic demand of China or is even more important

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Speaker 1: that lack of global demand of Chinese products. Yeah, I

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Speaker 1: think I mean, in this respect, I think, you know,

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Speaker 1: they're both are sort of tied with the same brush.

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Speaker 1: I mean Chinese demand, which was particularly real estate demand,

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Speaker 1: and you know, commodities demand, which is very kind of

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Speaker 1: closely associated with what goes on in the Chinese real

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Speaker 1: estate and construction sector. I mean, these areas got absolutely

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Speaker 1: hammered during the first months of two thousand and twenty

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Speaker 1: UM and to the extent that these sectors are coming

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Speaker 1: back a bit. Actually it is, you know, obviously a

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Speaker 1: good thing from the point of view of global growth,

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Speaker 1: but we should be quite cautious in looking at you know,

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Speaker 1: growth rates and levels. Levels are better because there has

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Speaker 1: been a bit of a catch up, a bit of

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Speaker 1: a bounce back, but the growth rates that we're seeing

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Speaker 1: in activity in construction, infrastructure, real estate, consumer demand are

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Speaker 1: really much much off the pace that we're recorded even

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Speaker 1: in the kind of slow down years of two thousand

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Speaker 1: and eighteen two thousand nineteen, So we've got quite a

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Speaker 1: long way to come back there. Yeah. Well, George, that's

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Speaker 1: the dilemon of the moment for a lot of people

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Speaker 1: on the outside looking in. The data points we should

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Speaker 1: focus on, and the data points we should ignore. What

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Speaker 1: is worth our while right now, well, you know everything,

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Speaker 1: We had a lot of data out today for industrial production,

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Speaker 1: for infrastructure investment and so on, and the one thing

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Speaker 1: that kind of unemployment. So the one thing that really

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Speaker 1: stands out amongst all of these data releases that we've

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Speaker 1: had out is construct auction construction. Construction, that's the sector

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Speaker 1: that's really taking up a bit of the slack in

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Speaker 1: the economy at the moment. Unemployment is something that I mean,

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Speaker 1: people look watch it that the numbers aren't particularly reliable

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Speaker 1: because they don't include migrant workers who basically approximately about

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Speaker 1: a fifth of migrant workers still probably haven't gone back

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Speaker 1: to work yet, which means that even though the unemployment

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Speaker 1: rate dropped from six to five point nine percent in May,

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Speaker 1: the actual rate of unemployment is probably closer to about

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Speaker 1: fifteen So we need to kind of watch a little

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Speaker 1: bit the numbers that we can't see in the kind

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Speaker 1: of official stats. Also, credit creation. China's rhetoric is very

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Speaker 1: much about we're not going to repeat the mistakes that

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Speaker 1: we did in two thousand and eight, two thousand nine,

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Speaker 1: and two thousand four fifteen. But actually there's been more

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Speaker 1: credit creation during the first five months of this year

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Speaker 1: than there was by a long way in the first

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Speaker 1: five months of two thousand and eighteen and nineteen. So

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Speaker 1: over the last six months, for example, credit creation is

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Speaker 1: running at about fifteen percent annualized, which is the highest

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Speaker 1: it's been since two thousands seventeen. So this is kind

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Speaker 1: of a little bit of the old playbook of you know,

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Speaker 1: infrastructure construction, credit creation, and we've got to be a

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Speaker 1: little bit kept. We don't blame the Chinese for doing this.

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Speaker 1: I mean, we'd all do this if we can, and

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Speaker 1: if we could, but actually, given China's pre existing indebtedness

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Speaker 1: and bad loans and so on, so of forth, these

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Speaker 1: things have to be watched quite carefully during the course

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Speaker 1: of this year and in two one, George, let's tease

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Speaker 1: out some of what you just said. A fifteen to

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Speaker 1: tw real unemployment rate perhaps explains why credit creation is

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Speaker 1: running at the rate that it is as China tries

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Speaker 1: to juice the economy. Can you give us some perspective

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Speaker 1: of the last time that China saw unemployment rates that

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Speaker 1: you believe truly are the situation and how much pressure

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Speaker 1: this son Jjan Ping to come up with some new

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Speaker 1: stimulus efforts. Yeah, I mean, well, sort of the unemployment

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Speaker 1: and labor market stats in China, like like a lot

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Speaker 1: of emerging countries, actually not not that good. Um. And

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Speaker 1: the last time we think that there was anything as

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Speaker 1: alarming as this in terms of joblessness was probably in

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Speaker 1: just after the Cultural Revolution in the late night in

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Speaker 1: the mid to late nine sixties. So and then that

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Speaker 1: you know, the numbers were even worse than they are today.

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Speaker 1: But every single state council and polit bureau meeting that's

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Speaker 1: been held since January of two thousand nineteen has always

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Speaker 1: been has each all of them have been dominated by

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Speaker 1: one major issue, which is unemployment, jobs, joblessness. And we

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Speaker 1: look at every state council meeting, every the National People's Congress,

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Speaker 1: which was held recently, the annual meeting of China so

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Speaker 1: called Parliament, basically told us a reconfer to us again

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Speaker 1: that unemployment joblessness is the one issue that the Chinese

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Speaker 1: government leadership care about more than anything else at the moment,

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Speaker 1: and and we should expect to see a lot of

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Speaker 1: activity from the government to try them. They've only already. Actually,

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Speaker 1: fiscal policy is very expansionary, monetary policy is credit policy

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Speaker 1: very expansionary. But it is the thing that really would

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Speaker 1: could undermine obviously the legitimacy of the government and it's

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Speaker 1: kind of reputation for doing things right all the time.

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Speaker 1: Is if this doesn't get sorted out quickly. I mean,

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Speaker 1: we know in our own world, in the Western world,

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Speaker 1: that it's going to take a long time to get

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Speaker 1: on top of this chronic issue that we have about joblessness,

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Speaker 1: and particularly in the gig economy. And you know, China

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Speaker 1: has its own gig economy, um, and this is this

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Speaker 1: is something that we really need to pay a lot

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Speaker 1: of attention to because they are well, George. The big issue,

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Speaker 1: of course, and I'm sure you understand that this might

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Speaker 1: not is that in a place like China, a high

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Speaker 1: unemployment rate would be considered by some within the Communist

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Speaker 1: Party as an existential risk. So I'm looking on the outside,

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Speaker 1: looking in and wondering, how does this shape their foreign policy?

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Speaker 1: How does this shape the Chinese Communist parties foreign policy?

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Speaker 1: If they know they've got domestic problems brewing at home,

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Speaker 1: what do they do abroad? Well, this is I think

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Speaker 1: a question which you're vexing question for practically every international

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Speaker 1: relations expert that there is in the world, because obviously,

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Speaker 1: when China has been feeling in the past very confident

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Speaker 1: about its economic position and its economic heft in Asia

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Speaker 1: and in the world. It kind of comes across as

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Speaker 1: confidence and you know, assuredness and sure footageedness in terms

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Speaker 1: of its foreign policy. And of course the converse of

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Speaker 1: that holds true as well. When China is feeling very

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Speaker 1: insecure and very threatened because it hasn't got total control

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Speaker 1: over the domestic economy or over aspects of the domestic

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Speaker 1: economy which are causing them political potentially calls them political problems,

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Speaker 1: then you know, there is a nationalism in the way

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Speaker 1: in which, or an more extreme version of the nationalism

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Speaker 1: which we can detect in the way and conducts its

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Speaker 1: relations with the United States and other countries as well.

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Speaker 1: And I think probably we all understand, I mean, not

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Speaker 1: uniquely Chinese phenomenon, but we all understand that in China,

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Speaker 1: certainly this year, there has been a marked kind of

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Speaker 1: tilt towards a more truculent nationalistic kind of bias in

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Speaker 1: terms of the conduct of its international relations, which which

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Speaker 1: I think stems from you know, rising economic insecurity, which

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Speaker 1: I think is something they will find it very difficult

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Speaker 1: to kind of push to one side for some time

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Speaker 1: would be my judgment. George really really fascinated stuff, and

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Speaker 1: we appreciate your unique perspective and inside look for to

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Speaker 1: catch him up with you against So George mcnus there

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Speaker 1: of Oxford University right now, never morose to Stephen gallow

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Speaker 1: Stephen Gallo BEMO Capital b M, a bank of Montreal.

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Speaker 1: We're thrilled to Stephen Gallo could join us because it

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Speaker 1: does very acute work synthesizing all this together. Stephen Gallo,

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Speaker 1: what does f X tell you about the cross currents

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Speaker 1: that are so evident this morning? I think overall, big picture, Tom,

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Speaker 1: I think what investors know now is that the economic

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Speaker 1: playing field has become a lot more evenly balanced over

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Speaker 1: the last one to two months. And I think that's

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Speaker 1: why there's a great irony in the fact that the

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Speaker 1: virus COVID nineteen has come from China, Because an evenly

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Speaker 1: balanced playing field is a lot better for you. If

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Speaker 1: your economic model is largely not for profit, state directed,

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Speaker 1: and and also debt dependent, you can't forget that. But

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Speaker 1: I think the economic playing field being a lot more

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Speaker 1: evenly balanced means the medium term growth outlook will be

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Speaker 1: heavily shaped by this success or failure of government intervention

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Speaker 1: and fiscal policy experimentation. Basically MMT so I think that

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Speaker 1: is a lot more important for effects than the next

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Speaker 1: marginal reduction in interest rates or the next marginal increase

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Speaker 1: in central banqueu EE. That said, I think it's just

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Speaker 1: one final comment. I think it's important that we are

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Speaker 1: moving into a period where U s economic data are

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Speaker 1: going to become a bit more important for the dollar

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Speaker 1: as investors attempt to uncover what the shape of the

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Speaker 1: US recovery looks like. Well, Stephen, let's talk about the

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Speaker 1: policy maker and whether that's successful or not. As you know,

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Speaker 1: markets aren't waiting for that. That just seems to be

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Speaker 1: a ton of optimism that in Europe the policy effort

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Speaker 1: is very real, it will materialize in a way that

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Speaker 1: it did not ten years ago, and people have become

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Speaker 1: very optimistic on Europe and a single currency. Do you

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Speaker 1: share that confidence? Well, I think what we've learned over

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Speaker 1: the last decade or so of the eurozones existence is

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Speaker 1: that European political leaders are very good at appeasing financial

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Speaker 1: market pressures. They're less good at heading off medium term risks.

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Speaker 1: An e s M credit line for Italy will create

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Speaker 1: loads of medium term political risks. Bickering over burden sharing

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Speaker 1: related to the rescue fund will create medium term political risks.

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Speaker 1: The fiscal impact of the recovery Fund, especially on weaker

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Speaker 1: so called weaker Euro Area member states, is going to

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Speaker 1: be staggered. The direct in fiscal in fiscal impact will

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Speaker 1: probably be low. That also will create medium term risks.

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Speaker 1: So you know, I think you've got to look at

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Speaker 1: the medium term. Financial market pressures are one thing. Political

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Speaker 1: pressures are an entirely different one. Stephen, there are a

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Speaker 1: lot of downside risks to the Euro, but it's a

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Speaker 1: relative game, and there are a lot of downside risks

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Speaker 1: too pretty much everything. And I'm wondering about Stephen Roach

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Speaker 1: of Yale University, who wrote a column a series of

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Speaker 1: columns for Bloomberg Opinion talking about how the US dollar

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Speaker 1: is going to lose its supremacy as it engages in

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Speaker 1: financial oppression and an increase in the deficit. Yes, the

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Speaker 1: Euro faces risks, but is it a better potential as

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Speaker 1: slit of risks compared to the dollar. Do you expect

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Speaker 1: the Euro to continue to strengthen versus the Green pack?

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Speaker 1: I think short run our call is that the risk

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Speaker 1: rally will continue, notwithstanding the weakness and equity markets we

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Speaker 1: saw at the end of last week and the beginning

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Speaker 1: of this week. I think our view is that the

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Speaker 1: the size and the pace of that balance sheet expansion

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Speaker 1: is something that will put a floor under global equity markets.

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Speaker 1: So short run, yeah, we think that the you know,

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Speaker 1: the euro dollar, the move we've seen up over the

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Speaker 1: last few weeks, can extend a bit. But I've cautioned

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Speaker 1: and I continue to caution that we don't have a

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Speaker 1: huge amount of conviction around that call. And the main

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Speaker 1: reason is because we're so unenthusiastic about non dollar currencies. Um.

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Speaker 1: We've we've been saying that for a long time that

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Speaker 1: the COVID nineteen is not clearly increased the attractiveness of

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Speaker 1: none of non dollar currencies. Um said though, and I

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Speaker 1: alluded to the economic data coming out of the US

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Speaker 1: a short while ago. We need to watch that closely,

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Speaker 1: and also on this side of the election, due to

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Speaker 1: the political risk in the US, it doesn't look likely

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Speaker 1: that significant appreciation of the dollar is going to occur.

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Speaker 1: I think FX markets are probably in a waiting in

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Speaker 1: a waiting period right now. Steve mcgawna of Stephen. I

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Speaker 1: hope you do him wow and you stiephro W so

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Speaker 1: you sound it. It's great to catch up Stephen Gallna

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Speaker 1: that of BEMO Capital Markets. Thanks for listening to the

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Speaker 1: Bloomberg Surveillance podcast. Subscribe and listen to interviews on Apple Podcasts, SoundCloud,

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Speaker 1: or whichever podcast platform you prefer. I'm on Twitter at

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Speaker 1: Tom Keane before the podcast. You can always catch us worldwide.

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Speaker 1: I'm Bloomberg Radio