1 00:00:00,320 --> 00:00:04,160 Speaker 1: Who you put your trust in matters. Investors have put 2 00:00:04,200 --> 00:00:07,640 Speaker 1: their trust in independent registered investment advisors to the tune 3 00:00:07,640 --> 00:00:12,240 Speaker 1: of four trillion dollars. Why learn more and find your 4 00:00:12,240 --> 00:00:27,240 Speaker 1: independent advisor dot com. Welcome to the Bloomberg Surveillance Podcast. 5 00:00:27,280 --> 00:00:31,320 Speaker 1: I'm Tom Keane. Always with Michael McKee. Daily we bring 6 00:00:31,360 --> 00:00:35,280 Speaker 1: you insight from the best in economics, finance, investment, and 7 00:00:35,360 --> 00:00:41,519 Speaker 1: international relations. Find Bloomberg Surveillance on iTunes, SoundCloud, Bloomberg dot com, 8 00:00:41,560 --> 00:00:47,839 Speaker 1: and of course on the Bloomberg. Mark Tayler is with 9 00:00:47,920 --> 00:00:50,760 Speaker 1: it from Brown Brothers Hareman. He's their chief currency strategist 10 00:00:50,760 --> 00:00:54,480 Speaker 1: and he's he keeps track of basically everything that's going on, because, 11 00:00:54,520 --> 00:00:56,760 Speaker 1: as we've often mentioned on the show, currencies are the 12 00:00:57,600 --> 00:01:02,040 Speaker 1: the weather vane for all things economic and political. Right now, 13 00:01:02,160 --> 00:01:07,760 Speaker 1: the focus is on the pound. Uh. It is the 14 00:01:07,800 --> 00:01:10,679 Speaker 1: currency driving the markets today. It appears to the extent 15 00:01:10,720 --> 00:01:15,119 Speaker 1: they want to be driven because now we have a tiny, tiny, 16 00:01:15,240 --> 00:01:18,360 Speaker 1: tiny bit of certainty about what's going to happen, in 17 00:01:18,400 --> 00:01:21,400 Speaker 1: the sense that we now have a date for article fifty, 18 00:01:21,400 --> 00:01:23,679 Speaker 1: a rough date for Article fifty in the beginning of 19 00:01:23,680 --> 00:01:27,360 Speaker 1: the process. So where does the pound go from here? 20 00:01:27,480 --> 00:01:30,040 Speaker 1: I mean this, we obviously get a knee jerk reaction 21 00:01:30,080 --> 00:01:32,480 Speaker 1: of the pound dropping, but does it continue to drop 22 00:01:32,480 --> 00:01:34,760 Speaker 1: and if so, how far or does it rally on 23 00:01:34,800 --> 00:01:37,520 Speaker 1: the back of this better than expected economic news that 24 00:01:37,560 --> 00:01:40,120 Speaker 1: we have seen in recent months. I think that you're right, 25 00:01:40,160 --> 00:01:42,320 Speaker 1: that's the key question is in the short term, you've 26 00:01:42,360 --> 00:01:46,040 Speaker 1: got the you've got the stronger economic data. That is, 27 00:01:46,120 --> 00:01:48,760 Speaker 1: in a sense that the refraventum itself didn'tly put the 28 00:01:48,800 --> 00:01:51,880 Speaker 1: economy and bad shape. And if anything, the combination of 29 00:01:51,880 --> 00:01:54,800 Speaker 1: the easy liquidity made provided by the Bank of England, 30 00:01:55,080 --> 00:01:57,920 Speaker 1: the very cuts and the weaker pound is helping cushion 31 00:01:58,240 --> 00:02:00,240 Speaker 1: what could have been a more serious blow. And see 32 00:02:00,280 --> 00:02:02,080 Speaker 1: that with today's as you mentioned, the p M I 33 00:02:02,080 --> 00:02:04,840 Speaker 1: showed a big jump in export orders. But I'm still 34 00:02:04,840 --> 00:02:07,680 Speaker 1: concerned that in the longer term, as businesses begin making 35 00:02:07,680 --> 00:02:10,679 Speaker 1: decisions for next year the following year, whether it's a 36 00:02:10,800 --> 00:02:14,280 Speaker 1: plant and equipment, whether it's hiring positions, I think that 37 00:02:14,400 --> 00:02:18,079 Speaker 1: is when it's sort of going to be feel more impactful. 38 00:02:18,320 --> 00:02:20,640 Speaker 1: And I sort of think it's more like cooking frogs. 39 00:02:21,200 --> 00:02:23,079 Speaker 1: You know, you put them on a warm water so 40 00:02:23,520 --> 00:02:25,360 Speaker 1: sort of love them to sleep. And I'm afraid that's 41 00:02:25,400 --> 00:02:27,280 Speaker 1: what's gonna happen here. We're gonna see, Oh, the economic 42 00:02:27,280 --> 00:02:29,839 Speaker 1: economy is doing fine, it's not such a big deal. 43 00:02:30,120 --> 00:02:33,840 Speaker 1: Then they file for divorce businesses, including like Japanese auto companies. 44 00:02:33,880 --> 00:02:36,640 Speaker 1: They say, we we put production into the UK thinking 45 00:02:36,639 --> 00:02:38,920 Speaker 1: we had access to the EU, and now you're gonna 46 00:02:38,919 --> 00:02:40,600 Speaker 1: take it away from us. We have to reconsider our 47 00:02:40,600 --> 00:02:43,400 Speaker 1: business plans. Well, that's what Carlos Going of Nissan, speaking 48 00:02:43,400 --> 00:02:45,799 Speaker 1: of Nissan, said over the weekend. And so I think 49 00:02:45,800 --> 00:02:47,360 Speaker 1: that this is just a tip of the iceberger. We've 50 00:02:47,360 --> 00:02:50,480 Speaker 1: seen a survey i believe by the Chamber of Commerce 51 00:02:50,720 --> 00:02:53,560 Speaker 1: indicating a lot of businesses, the majority of businesses are 52 00:02:53,560 --> 00:02:56,560 Speaker 1: reconsidering their investment plans and hiring plans in the UK. 53 00:02:57,120 --> 00:02:58,760 Speaker 1: So I'm not I'm not a big fan of Brexit. 54 00:02:58,840 --> 00:03:01,480 Speaker 1: I think that the biggest winner from Brexit is not 55 00:03:01,520 --> 00:03:03,800 Speaker 1: going to be the British people. I think sovereignty is 56 00:03:03,800 --> 00:03:06,240 Speaker 1: gonna prove very elusive. But I think those who have 57 00:03:06,240 --> 00:03:09,760 Speaker 1: been favoring a disruption of Europe, a disintegration of Europe, 58 00:03:10,560 --> 00:03:13,320 Speaker 1: like Russia for example, will be the big beneficiaries of 59 00:03:13,360 --> 00:03:16,200 Speaker 1: what's happening. Well, how far does the pound go down 60 00:03:16,280 --> 00:03:20,920 Speaker 1: and how much does do the export benefits offset the 61 00:03:21,000 --> 00:03:24,359 Speaker 1: other bad economic news. Well, ultimately the UK economy is 62 00:03:24,400 --> 00:03:28,000 Speaker 1: not really about merchandise goods and exports. It's really about 63 00:03:28,000 --> 00:03:30,560 Speaker 1: the service sector. And so I'm still thinking that the 64 00:03:30,560 --> 00:03:32,440 Speaker 1: British powder is gonna have to make new loads. I 65 00:03:32,440 --> 00:03:35,600 Speaker 1: look at like past crises in which they're like idiosyncratic, 66 00:03:35,760 --> 00:03:39,080 Speaker 1: we're just really UK crises. And Sterling does have this 67 00:03:39,200 --> 00:03:42,000 Speaker 1: habit having a leg down people think about for a 68 00:03:42,040 --> 00:03:44,560 Speaker 1: while and then take another leg down. And so I'm 69 00:03:44,560 --> 00:03:46,680 Speaker 1: thinking that before it's all over, Sterling is falling to 70 00:03:46,800 --> 00:03:50,880 Speaker 1: one and that is just based on the Brexit story, 71 00:03:51,440 --> 00:03:54,200 Speaker 1: easier policy in the UK, and then later we get 72 00:03:54,320 --> 00:03:57,880 Speaker 1: tightening in the US at a stronger US economy. Our frog, 73 00:03:58,400 --> 00:04:01,839 Speaker 1: Tom Keene has just hopped out of the um. We're 74 00:04:01,880 --> 00:04:05,080 Speaker 1: talking to them about the long term implications of the 75 00:04:05,120 --> 00:04:07,800 Speaker 1: economy being like the frog cooked in the pot, where 76 00:04:07,840 --> 00:04:10,560 Speaker 1: people don't realize because the data have been good so far, 77 00:04:10,920 --> 00:04:13,240 Speaker 1: they don't realize the trouble they're going to be in 78 00:04:13,240 --> 00:04:16,279 Speaker 1: In England. Yeah, and there's been a real mix on 79 00:04:16,400 --> 00:04:20,159 Speaker 1: this on on and my conversation the other day with 80 00:04:20,279 --> 00:04:25,640 Speaker 1: John Greenwood of of Investco was along the same line. Mark, 81 00:04:25,680 --> 00:04:29,080 Speaker 1: when you look at sterling, do you look at sterling 82 00:04:29,400 --> 00:04:31,800 Speaker 1: euro sterling rather or do you look at cable what 83 00:04:32,040 --> 00:04:34,839 Speaker 1: how do you measure it in the litmus paper of 84 00:04:34,880 --> 00:04:36,520 Speaker 1: your market. Yeah, so I for a lot of our 85 00:04:36,560 --> 00:04:39,440 Speaker 1: client at Rahn Brothers are going to be dollar based investors, 86 00:04:39,440 --> 00:04:41,000 Speaker 1: so of course I have to keep a very close 87 00:04:41,040 --> 00:04:43,560 Speaker 1: eye on dollar against sterling. But when you try and 88 00:04:43,560 --> 00:04:47,000 Speaker 1: think about the impact of the UK on the UK economy, 89 00:04:47,279 --> 00:04:49,400 Speaker 1: this is where and the only time I would use 90 00:04:49,440 --> 00:04:52,040 Speaker 1: the this trade weighted basis, and that really means looking 91 00:04:52,080 --> 00:04:55,039 Speaker 1: at euro sterling, which today the euros at new two 92 00:04:55,120 --> 00:04:57,440 Speaker 1: or three year highs against Sterling. It's really broken up, 93 00:04:57,720 --> 00:04:59,240 Speaker 1: and so I think that there's gonna be more of 94 00:04:59,279 --> 00:05:01,760 Speaker 1: them to go there as well, even though the ECB 95 00:05:01,880 --> 00:05:04,400 Speaker 1: is still easing policy and they might have to extend it. 96 00:05:04,920 --> 00:05:07,839 Speaker 1: But I think ultimately this is about a redivision of labor. 97 00:05:08,400 --> 00:05:10,880 Speaker 1: And this is even if the continent gets a small 98 00:05:10,960 --> 00:05:14,520 Speaker 1: part of the UK banking system can make a big 99 00:05:14,560 --> 00:05:17,800 Speaker 1: difference for trade flows, for service flows, and for the 100 00:05:17,839 --> 00:05:19,880 Speaker 1: strength of the content versus the strength of the Euro 101 00:05:20,000 --> 00:05:24,160 Speaker 1: versus Sterling. You're you're calling euro is nothing short of stunning, 102 00:05:24,279 --> 00:05:27,880 Speaker 1: which is basically, let's walk through this again. The Bill 103 00:05:27,920 --> 00:05:31,160 Speaker 1: Clinton dollar Robert Rubin dollar of the nineties will be 104 00:05:31,200 --> 00:05:34,640 Speaker 1: reduxed with maybe a Hillary Clinton dollar if she's elected. 105 00:05:35,160 --> 00:05:38,359 Speaker 1: So we see dollars strength and euro does. It's not 106 00:05:38,440 --> 00:05:41,679 Speaker 1: a parody call or zero point nine five calls. You're 107 00:05:41,720 --> 00:05:44,679 Speaker 1: looking for a plunge in the euro versus the dollar. 108 00:05:45,160 --> 00:05:47,320 Speaker 1: The plunge is it's really over a longer period of time. 109 00:05:47,520 --> 00:05:50,240 Speaker 1: So as a strategist, I'm thinking about, you know, I 110 00:05:50,600 --> 00:05:52,880 Speaker 1: make my living on a three three months in less, 111 00:05:52,920 --> 00:05:54,440 Speaker 1: but take a look at it sort of, it's how 112 00:05:54,440 --> 00:05:56,800 Speaker 1: we drive right, aim high in the steering. And I'm 113 00:05:56,800 --> 00:05:59,880 Speaker 1: looking at is not just the US monetary cycle years 114 00:06:00,040 --> 00:06:02,640 Speaker 1: ahead of the e c B cycle, but I'm also 115 00:06:02,640 --> 00:06:05,000 Speaker 1: looking at the politics. Think about what's gonna happen next year. 116 00:06:05,240 --> 00:06:08,960 Speaker 1: It's possible that le Pen the National Front in France, 117 00:06:09,160 --> 00:06:12,839 Speaker 1: captures the presidency. Some people even doubt that Merkel, who 118 00:06:12,839 --> 00:06:15,000 Speaker 1: faces who could be up for election in the in 119 00:06:15,040 --> 00:06:17,880 Speaker 1: the fourth quarter or September next year, she might not 120 00:06:18,040 --> 00:06:20,599 Speaker 1: run again. And they're looking at a much harder German line. 121 00:06:20,640 --> 00:06:23,520 Speaker 1: And even even if these things don't take place, ahead 122 00:06:23,520 --> 00:06:25,840 Speaker 1: of the elections, You've got to imagine a very tough 123 00:06:26,000 --> 00:06:29,440 Speaker 1: lines regarding Portugal. Who's gonna be who could be downgraded 124 00:06:29,480 --> 00:06:32,120 Speaker 1: later this month by DBRs, the only reading agency that 125 00:06:32,160 --> 00:06:35,640 Speaker 1: puts them in investment grade. You've got an Italian referendum 126 00:06:35,880 --> 00:06:37,520 Speaker 1: in uh in early December. You've got a lot of 127 00:06:37,520 --> 00:06:40,080 Speaker 1: political on certainty coming in Europe, and so for me, 128 00:06:40,160 --> 00:06:44,080 Speaker 1: a combination of the economic divergence and the political divergence. 129 00:06:44,120 --> 00:06:47,279 Speaker 1: Of course, assuming Trump doesn't win here drives a euro 130 00:06:47,520 --> 00:06:50,480 Speaker 1: sharply over in the coming years. The script and come back. 131 00:06:50,520 --> 00:06:52,960 Speaker 1: We'll talk to you in a moment. Dollar Ruble. We've 132 00:06:52,960 --> 00:06:55,440 Speaker 1: got a smart story out on Bloomberg today about recent 133 00:06:55,600 --> 00:06:59,920 Speaker 1: strength Ruble. Obviously that is oil strength. Does Mr Putin 134 00:07:00,000 --> 00:07:03,400 Speaker 1: on a stronger weak Ruble cuts both ways, doesn't it? Yeah, 135 00:07:03,440 --> 00:07:04,760 Speaker 1: at the end of the day, I think, I think, 136 00:07:04,920 --> 00:07:07,400 Speaker 1: I mean, I think that, like the Chinese, the best 137 00:07:07,440 --> 00:07:10,600 Speaker 1: thing that Putin could have probably the stable Ruble. Of course, 138 00:07:10,640 --> 00:07:13,280 Speaker 1: it's highly you know, there's a lot of speculative speculative 139 00:07:13,280 --> 00:07:16,560 Speaker 1: plays right now. Earlier we were talking about maybe the 140 00:07:16,960 --> 00:07:19,280 Speaker 1: fact that the polls in the US have widened out 141 00:07:19,280 --> 00:07:21,720 Speaker 1: in favor of Clinton, that takes off some scratch off 142 00:07:21,720 --> 00:07:24,480 Speaker 1: the Mexican pacer after the raised rates last last week 143 00:07:24,480 --> 00:07:27,040 Speaker 1: by fifty basis points. But some hedge funds are talking 144 00:07:27,040 --> 00:07:30,840 Speaker 1: about a long lubo short pace of position as a 145 00:07:30,840 --> 00:07:34,480 Speaker 1: way to game a Trump factory. Mike, I'm feeling smart. 146 00:07:35,360 --> 00:07:37,520 Speaker 1: I was gonna I was gonna go to Mark Chandler 147 00:07:37,680 --> 00:07:41,960 Speaker 1: without looking at his research note about Naki Stocky and 148 00:07:42,080 --> 00:07:45,800 Speaker 1: Okay Sek, and then I noticed the lead his research 149 00:07:45,880 --> 00:07:49,800 Speaker 1: note with this right angled divergence. This is a moonshot 150 00:07:50,480 --> 00:07:56,400 Speaker 1: of Norwegian corona versus the Swedish crona discuss. Yeah, here's 151 00:07:56,400 --> 00:07:58,680 Speaker 1: the story. I mean, it's a really simple story, divergence. 152 00:07:59,360 --> 00:08:04,240 Speaker 1: The the Swedes wanna, despite having relatively strong growth, rising inflation, 153 00:08:04,280 --> 00:08:08,480 Speaker 1: they insist at having unorthodox monetary policy because despite them 154 00:08:08,480 --> 00:08:11,360 Speaker 1: being independent country not being part of the monetary Union, 155 00:08:11,640 --> 00:08:13,960 Speaker 1: they still feel they have to shadow the e c B. 156 00:08:14,440 --> 00:08:16,520 Speaker 1: And there's a lesson to the UK, who thinks that 157 00:08:16,600 --> 00:08:20,160 Speaker 1: somehow leaving the EU they're gonna be having greater sovereignty. Sweden, 158 00:08:20,240 --> 00:08:23,800 Speaker 1: independent country, still uses its monetary policy tracks the e 159 00:08:23,920 --> 00:08:27,080 Speaker 1: c B. Norway, on the other hand, has indicated a 160 00:08:27,160 --> 00:08:29,760 Speaker 1: couple of weeks ago they're done easing and the central 161 00:08:29,760 --> 00:08:32,600 Speaker 1: banks adopted a more neutral setting. And so this divergence 162 00:08:32,600 --> 00:08:37,160 Speaker 1: between easy Sweden and a neutral Norway central Bank is 163 00:08:37,160 --> 00:08:39,880 Speaker 1: seeing that cross going Norway's favor in a big way. 164 00:08:40,280 --> 00:08:42,600 Speaker 1: He goes Norway. So you want to you want to 165 00:08:42,600 --> 00:08:46,400 Speaker 1: be long Norway, short Sweden. That that has been to 166 00:08:46,440 --> 00:08:48,440 Speaker 1: play for the last couple of weeks, and that looks 167 00:08:48,440 --> 00:08:50,320 Speaker 1: to me like it's got more room to go because 168 00:08:50,920 --> 00:08:53,640 Speaker 1: because Norway, We're gonna get more data this week from 169 00:08:53,640 --> 00:08:56,760 Speaker 1: both countries and we'll see that Norway and Sweden are 170 00:08:56,760 --> 00:09:00,000 Speaker 1: both growing fine. Sweden insists on the soft monetary policy, 171 00:09:00,160 --> 00:09:04,080 Speaker 1: Norway doesn't, and Norway this tailwind now coming from high 172 00:09:04,120 --> 00:09:06,360 Speaker 1: oil prices. Is it eating or not that Mike and 173 00:09:06,440 --> 00:09:09,080 Speaker 1: I do trades that are discussed on Bloomberg surveillance, But 174 00:09:09,480 --> 00:09:14,000 Speaker 1: is it easy for somebody to affect this trade? Is 175 00:09:14,040 --> 00:09:16,880 Speaker 1: it knock stock right? Yes? And so I think it 176 00:09:16,960 --> 00:09:19,320 Speaker 1: points both. Taking the sense that our client at our 177 00:09:19,360 --> 00:09:21,760 Speaker 1: brothers are asset managers, there's not a lot of assets 178 00:09:21,760 --> 00:09:23,319 Speaker 1: for them to buy and suite it in Norway, so 179 00:09:23,480 --> 00:09:27,640 Speaker 1: exactly so those currencies tend to be uh less actively traded. 180 00:09:27,720 --> 00:09:30,559 Speaker 1: Bit thinner and so they often trade like risk on 181 00:09:30,720 --> 00:09:34,080 Speaker 1: and risk off currencies. Well, speaking of risk on and 182 00:09:34,200 --> 00:09:41,000 Speaker 1: risk off the end five right now flat um I 183 00:09:41,080 --> 00:09:45,400 Speaker 1: was reading today and another analysis that basically said that 184 00:09:45,440 --> 00:09:48,600 Speaker 1: has got to change otherwise Abbey not makes no matter 185 00:09:48,600 --> 00:09:52,280 Speaker 1: what he does, fails. Uh and so does Corona. That 186 00:09:52,520 --> 00:09:55,479 Speaker 1: if they don't get a weaker currency, they cannot possibly 187 00:09:56,080 --> 00:09:59,719 Speaker 1: make the economy better. Um As Tom would say, disc 188 00:10:01,040 --> 00:10:03,040 Speaker 1: did agree with that. I think that a lot of 189 00:10:03,040 --> 00:10:06,400 Speaker 1: people misunderstand how the Japanese economy works, many of us. 190 00:10:06,679 --> 00:10:09,800 Speaker 1: Uh So maybe my ages so think about Japan, I 191 00:10:09,840 --> 00:10:13,160 Speaker 1: think as an export or did economy. It's just factually 192 00:10:13,200 --> 00:10:16,280 Speaker 1: not true. Japan's exports at the percentage of GDP about 193 00:10:16,320 --> 00:10:18,439 Speaker 1: what they are in the US. They will challenge for 194 00:10:18,480 --> 00:10:21,319 Speaker 1: the Japanese is they've got this whole. They've been buying 195 00:10:21,360 --> 00:10:24,160 Speaker 1: foreign assets for a long time. The part of the 196 00:10:24,200 --> 00:10:27,000 Speaker 1: abonomics that's not talked about so much is a diversification 197 00:10:27,040 --> 00:10:30,120 Speaker 1: of the Japanese pension funds. As the Japanese pension funds 198 00:10:30,240 --> 00:10:33,920 Speaker 1: reduced it holdings in Japanese assets, bought foreign assets. This 199 00:10:34,080 --> 00:10:37,360 Speaker 1: triggered the end's weakness. And now this thing, well, hell, 200 00:10:37,440 --> 00:10:40,760 Speaker 1: we've got to hedge ourselves. US and states are rising. 201 00:10:41,120 --> 00:10:42,720 Speaker 1: The end's gotten a bit stronger, so we need to 202 00:10:42,720 --> 00:10:45,720 Speaker 1: hedge ourselves, and that's exacerbating the upward pressure on the 203 00:10:45,840 --> 00:10:48,240 Speaker 1: end so large. I think that's the Japanese doing this 204 00:10:48,280 --> 00:10:52,120 Speaker 1: to themselves, first diversifying their savings overseas and now hedging 205 00:10:52,160 --> 00:10:55,719 Speaker 1: their currency exposure, and so that that I think is 206 00:10:55,760 --> 00:10:58,319 Speaker 1: the heart of the problems the Japanese doing to themselves. Yeah, 207 00:10:58,320 --> 00:11:00,880 Speaker 1: and Robert Feldman and Morgan stated the visited with us 208 00:11:00,960 --> 00:11:03,280 Speaker 1: last week and was adamant that this is the most 209 00:11:03,400 --> 00:11:09,800 Speaker 1: unified Japan domestically that he's ever seen. I mean, the 210 00:11:09,320 --> 00:11:13,679 Speaker 1: the the warfare, domestic, rural Tokyo, all that stuff is gone. 211 00:11:14,040 --> 00:11:16,319 Speaker 1: People are really behind Abbey to try to fix this. 212 00:11:16,679 --> 00:11:19,680 Speaker 1: Are you optimistic about them? And not very optimistic. I 213 00:11:19,679 --> 00:11:22,559 Speaker 1: think that Abbe is still he's got a foot of 214 00:11:22,600 --> 00:11:24,120 Speaker 1: the old world at a foot in the new world, 215 00:11:24,760 --> 00:11:27,160 Speaker 1: and because of that, he's not breaking from the old habits. 216 00:11:27,160 --> 00:11:30,600 Speaker 1: And here's what happened. Really they tried before Kuroda. There's 217 00:11:30,640 --> 00:11:33,439 Speaker 1: a bo j governor, Shia Kawa, and he was more 218 00:11:33,440 --> 00:11:36,440 Speaker 1: like the Bundesbank monetary policies, not to really stimulate the 219 00:11:36,520 --> 00:11:39,840 Speaker 1: Japanese economy. It's not really to fight deflation. Along comes 220 00:11:39,880 --> 00:11:43,800 Speaker 1: Krona tries the opposite. Neither one works. It's interesting Shia, 221 00:11:43,880 --> 00:11:47,560 Speaker 1: Kawa and Karna they mean white and black. They looked 222 00:11:47,559 --> 00:11:49,880 Speaker 1: at their words in Japanese. They've tried the white cat, 223 00:11:49,880 --> 00:11:52,040 Speaker 1: they've tried the black cat, and obviously they just need 224 00:11:52,040 --> 00:11:57,000 Speaker 1: a better mouse trap. Mark, thank you so much. There there, 225 00:11:57,040 --> 00:12:00,040 Speaker 1: that's their names. And where do their names come in 226 00:12:00,160 --> 00:12:02,520 Speaker 1: black and white? I did not know that, Mark you. 227 00:12:02,920 --> 00:12:09,760 Speaker 1: Thank you so much for frogs to catsrum N. I'm 228 00:12:09,760 --> 00:12:12,440 Speaker 1: gonna put out the KNACKI Stocky chart to Bloomberg Radio Plus. 229 00:12:12,480 --> 00:12:29,360 Speaker 1: I'll get that out. Also across social media, he has 230 00:12:29,400 --> 00:12:34,160 Speaker 1: been a frequent invalued guest ambl James Travide's Tough School, 231 00:12:34,840 --> 00:12:38,640 Speaker 1: Tough Fletcher School, I should say in international relations, Embal, 232 00:12:38,720 --> 00:12:40,199 Speaker 1: I want to rip up the script. You were in 233 00:12:40,240 --> 00:12:42,559 Speaker 1: the U. S. S. Valley Forage a few years ago, 234 00:12:43,240 --> 00:12:45,640 Speaker 1: and then the USS Barry. I believe this is when 235 00:12:45,720 --> 00:12:51,400 Speaker 1: John uh this is like the Mediterranean and the Barbary States, 236 00:12:51,440 --> 00:12:56,559 Speaker 1: and back then at the time Germany was reunifying. They 237 00:12:56,600 --> 00:13:01,800 Speaker 1: celebrate that today. And I love your thoughts on your 238 00:13:02,000 --> 00:13:06,960 Speaker 1: NATO in Germany. It was not a given that Germany 239 00:13:07,000 --> 00:13:12,280 Speaker 1: would stay within NATO, was not at all And you know, 240 00:13:12,720 --> 00:13:15,640 Speaker 1: so often Tom in history we tend to think that 241 00:13:16,080 --> 00:13:19,120 Speaker 1: what happened was what was always going to happen, and 242 00:13:19,160 --> 00:13:21,040 Speaker 1: that just isn't the case. A lot of things are 243 00:13:21,040 --> 00:13:23,439 Speaker 1: balanced on the ahead of a pin and they fall off. 244 00:13:23,840 --> 00:13:27,000 Speaker 1: And Germany had a long thought and also Russia was 245 00:13:27,040 --> 00:13:29,720 Speaker 1: pressing very hard for Germany not to come into NATO. 246 00:13:30,080 --> 00:13:33,360 Speaker 1: So there were many countervailing forces. Were lucky to have them, 247 00:13:33,360 --> 00:13:37,840 Speaker 1: and they become an absolute anchor in the alliance. Interestingly enough, 248 00:13:38,720 --> 00:13:41,880 Speaker 1: you know, you can trace this to today that the 249 00:13:41,960 --> 00:13:46,080 Speaker 1: Germans made some deals in terms of being able to 250 00:13:46,080 --> 00:13:49,640 Speaker 1: reunify that end up that ended up with the euro 251 00:13:49,800 --> 00:13:53,560 Speaker 1: being what it is, absolutely right and over on the 252 00:13:53,720 --> 00:13:57,600 Speaker 1: security side, what you're seeing today is Germany taking a 253 00:13:57,640 --> 00:14:01,240 Speaker 1: more muscular stance. They realized that there has to be 254 00:14:01,400 --> 00:14:05,319 Speaker 1: a leading military power inside the European Union, and with 255 00:14:05,360 --> 00:14:09,320 Speaker 1: the Brexit that role falls completely to Germany, with some 256 00:14:09,400 --> 00:14:11,840 Speaker 1: help from France. So you're going to see more defense 257 00:14:11,880 --> 00:14:13,960 Speaker 1: spending out of Germany in the years they had. Not 258 00:14:14,160 --> 00:14:16,440 Speaker 1: that we are experts on this, but let us go 259 00:14:16,480 --> 00:14:21,080 Speaker 1: to you, the paragraph and the Wikipedia on German reunification 260 00:14:21,200 --> 00:14:25,120 Speaker 1: on the exit of troops reads like a movie. I mean, 261 00:14:25,200 --> 00:14:29,520 Speaker 1: the idea of the Allied troops exiting German territory and 262 00:14:29,560 --> 00:14:34,240 Speaker 1: the Russian troops. I mean, it was really choreographed, wasn't it. 263 00:14:34,240 --> 00:14:37,280 Speaker 1: It absolutely was. And if you look back at the 264 00:14:37,360 --> 00:14:40,760 Speaker 1: history of the actual invasion of Germany at the end 265 00:14:40,840 --> 00:14:44,920 Speaker 1: World War Two, you saw each of the nation's rushing 266 00:14:44,960 --> 00:14:47,360 Speaker 1: to get as much territory as possible. Of course, this 267 00:14:47,480 --> 00:14:50,560 Speaker 1: was Patent's role. From the U. S perspective, the Russians 268 00:14:50,560 --> 00:14:53,200 Speaker 1: were doing the same, rolling in from the east, and 269 00:14:53,280 --> 00:14:57,760 Speaker 1: it became a highly interlocked system of security and governments 270 00:14:57,800 --> 00:15:02,960 Speaker 1: across that nation, which we only unspooled really twenty years ago. 271 00:15:03,840 --> 00:15:06,640 Speaker 1: The question we look at when we look at what's 272 00:15:06,640 --> 00:15:10,240 Speaker 1: going on in Europe in in the context of the 273 00:15:10,280 --> 00:15:14,760 Speaker 1: political campaign, is um, how strong is Europe in working 274 00:15:14,800 --> 00:15:19,280 Speaker 1: with the United States these days now, this many years 275 00:15:19,320 --> 00:15:21,680 Speaker 1: on from the reunification of Germany and the fall of 276 00:15:21,720 --> 00:15:25,320 Speaker 1: the Wall, And how vulnerable do we remain to Russia? 277 00:15:25,360 --> 00:15:28,480 Speaker 1: I guess we call it today the European Union is 278 00:15:28,640 --> 00:15:32,400 Speaker 1: under enormous and terrifical force, right now kind of pulling 279 00:15:32,440 --> 00:15:35,440 Speaker 1: at it, pulling it apart, and obviously breggs it is huge, 280 00:15:35,680 --> 00:15:38,280 Speaker 1: but also what's happening in Greece is weighing it's down 281 00:15:39,080 --> 00:15:43,200 Speaker 1: as well as the ongoing pressure from Russia. Having said 282 00:15:43,240 --> 00:15:46,480 Speaker 1: that we will never have a better pool of partners 283 00:15:46,520 --> 00:15:49,280 Speaker 1: in the world than the Europeans. Why because they share 284 00:15:49,320 --> 00:15:53,080 Speaker 1: our values, they sit on top of incredibly important geography, 285 00:15:53,160 --> 00:15:56,080 Speaker 1: and their defense spending is three billion dollars a year. 286 00:15:56,080 --> 00:15:58,440 Speaker 1: It's the second largest defense budget in the world. How 287 00:15:58,520 --> 00:16:01,680 Speaker 1: do you why interrupted just because of time? This is 288 00:16:01,760 --> 00:16:05,400 Speaker 1: important animal. How do you respond to critics, including Mr Trump, 289 00:16:05,680 --> 00:16:09,280 Speaker 1: to say they're not carrying their fair share? I would 290 00:16:09,320 --> 00:16:12,080 Speaker 1: respond by saying, look at the facts on the ground. 291 00:16:12,160 --> 00:16:16,360 Speaker 1: The Europeans have been with US in Afghanistan, Libya, the Balkan, Syria, 292 00:16:16,680 --> 00:16:21,400 Speaker 1: counter piracy, counter cyber, counter terrorism. Uh, they work extremely 293 00:16:21,440 --> 00:16:23,640 Speaker 1: well with US. And as I just mentioned, they spent 294 00:16:23,760 --> 00:16:27,160 Speaker 1: three d billion dollars a year on defense, second largest 295 00:16:27,240 --> 00:16:30,040 Speaker 1: in the world after the United States. What we should do, 296 00:16:30,160 --> 00:16:32,920 Speaker 1: there's a grain of truths and Trump's comments. What we 297 00:16:32,960 --> 00:16:36,160 Speaker 1: should do is push them to up their game a bit, 298 00:16:36,280 --> 00:16:38,520 Speaker 1: to hit the two percent of g d P they're 299 00:16:38,600 --> 00:16:42,120 Speaker 1: running about one per one point six percent right now, 300 00:16:42,160 --> 00:16:45,080 Speaker 1: so there's room for more European defense spending, and I 301 00:16:45,160 --> 00:16:47,120 Speaker 1: think we're going to see that given the threats both 302 00:16:47,160 --> 00:16:50,720 Speaker 1: from Russia and from the Levant. I watched a little 303 00:16:50,720 --> 00:16:54,760 Speaker 1: bit of baseball yesterday. It was really exciting. Vince Kelly's 304 00:16:54,840 --> 00:16:58,080 Speaker 1: last game, yes and that beautifully covered, and I watched 305 00:16:58,120 --> 00:17:03,400 Speaker 1: Orioles take it in and when victorious against the Dress, 306 00:17:03,400 --> 00:17:07,400 Speaker 1: shout out to our friend John Angelos from the Baltimore Congratulations, 307 00:17:07,800 --> 00:17:10,480 Speaker 1: good luck against the Blue Jays, and maybe we will 308 00:17:10,680 --> 00:17:13,719 Speaker 1: see you farther down the line. Many times the dreaded 309 00:17:13,800 --> 00:17:17,119 Speaker 1: Yankees were saved by a third baseman in the hot corner. 310 00:17:17,200 --> 00:17:21,000 Speaker 1: One Ronald Torres may play. After play yesterday to keep 311 00:17:21,000 --> 00:17:25,600 Speaker 1: the Orioles honest, Admiral James Stevidis talks about the hot corner, which, 312 00:17:25,640 --> 00:17:29,040 Speaker 1: for those of you global is the crushing reality of 313 00:17:29,119 --> 00:17:32,080 Speaker 1: catching the ball in the infield at third base, and 314 00:17:32,119 --> 00:17:35,840 Speaker 1: then Admiral Stevidis, at a certain age, you look over 315 00:17:35,880 --> 00:17:40,000 Speaker 1: the first base and you go, my, that's far away. 316 00:17:40,480 --> 00:17:44,800 Speaker 1: I had that happen. Indeed, Yeah, you start to dream 317 00:17:44,840 --> 00:17:48,040 Speaker 1: of just playing first base because it's a lot easier 318 00:17:48,520 --> 00:17:50,800 Speaker 1: you look over at that, you gotta curve the ball 319 00:17:50,840 --> 00:17:53,440 Speaker 1: to get at the first basis so far, I tell 320 00:17:53,520 --> 00:17:55,560 Speaker 1: us about the hot corner of your world now, and 321 00:17:55,560 --> 00:17:58,520 Speaker 1: that would be Greece. It would be. And you know, 322 00:17:58,600 --> 00:18:00,959 Speaker 1: I grew up as a baseball player. I'm a pretty 323 00:18:01,320 --> 00:18:05,320 Speaker 1: modest sized guy, but I had reasonable hands and reasonable feet. 324 00:18:05,400 --> 00:18:07,679 Speaker 1: And you're the first line of defense. And that's what 325 00:18:07,840 --> 00:18:12,360 Speaker 1: Greece is to Europe. And as a result, my thesis 326 00:18:12,480 --> 00:18:15,440 Speaker 1: is we need to be continuing to put focus on Greece. 327 00:18:15,480 --> 00:18:18,800 Speaker 1: It kind of runs like a roller coaster of gosh, 328 00:18:18,880 --> 00:18:21,359 Speaker 1: let's give them some money, let's take it back, let's 329 00:18:21,359 --> 00:18:25,119 Speaker 1: some post conditions, etcetera. All understandable, But the root cause 330 00:18:25,320 --> 00:18:28,920 Speaker 1: is the debt. And at some point the international community 331 00:18:28,960 --> 00:18:31,440 Speaker 1: is going to have to address some level of debt 332 00:18:31,480 --> 00:18:33,359 Speaker 1: relief and they ought to do it not just for 333 00:18:33,400 --> 00:18:38,360 Speaker 1: the economic reasons, but for the geopolitical ones. Now, explain, 334 00:18:39,200 --> 00:18:42,640 Speaker 1: explain why you're saying this. Are we talking about an 335 00:18:42,640 --> 00:18:45,480 Speaker 1: invasion of Greece and we're certainly seeing that in a 336 00:18:45,520 --> 00:18:47,960 Speaker 1: way we've seen that with the refugees. Are we talking 337 00:18:47,960 --> 00:18:52,840 Speaker 1: about Greece allying itself with somebody else? Because they can't 338 00:18:53,320 --> 00:18:56,720 Speaker 1: continue to afford to be allied to the West. Both 339 00:18:56,760 --> 00:19:01,360 Speaker 1: of those things are possibilities and very dangerous ones. UM. 340 00:19:01,680 --> 00:19:04,800 Speaker 1: Taking the former first, UM, there's not going to be 341 00:19:04,840 --> 00:19:08,600 Speaker 1: an overt invasion, but the potential if this refugee deal 342 00:19:08,680 --> 00:19:12,360 Speaker 1: with Turkey falls through, which it looks like it might. Um, 343 00:19:12,440 --> 00:19:16,639 Speaker 1: you'll see another uh. Five thousand refugees were ramping up 344 00:19:16,680 --> 00:19:18,840 Speaker 1: going to Greece to get to the rest of the 345 00:19:18,840 --> 00:19:21,600 Speaker 1: European Union. However, the rest of the EU has closed 346 00:19:21,640 --> 00:19:24,800 Speaker 1: their borders, they'll stay in Greece. That country could go 347 00:19:24,880 --> 00:19:29,040 Speaker 1: into real instability. And as to the latter potential you mentioned, 348 00:19:29,280 --> 00:19:31,680 Speaker 1: it would be in an alignment with Russia. To Orthodox 349 00:19:31,720 --> 00:19:35,080 Speaker 1: countries Greece and Russia. A lot of Greeks looked to 350 00:19:35,200 --> 00:19:38,360 Speaker 1: Russia as an alternative to the West. There's a long 351 00:19:38,440 --> 00:19:41,720 Speaker 1: tradition of that in Greece. Would be very, very ill 352 00:19:41,800 --> 00:19:44,800 Speaker 1: served to see Greece drift away from NATO or the 353 00:19:44,840 --> 00:19:47,720 Speaker 1: European Union. I don't predict that, but we need to 354 00:19:47,720 --> 00:19:50,400 Speaker 1: be mindful of it as we try to support Greece. Well, 355 00:19:50,440 --> 00:19:52,880 Speaker 1: I was in Greece quite a bit during the last 356 00:19:52,920 --> 00:19:57,160 Speaker 1: couple of years, and there was always this speculation about Russia, 357 00:19:57,520 --> 00:19:59,760 Speaker 1: but it seemed the Russians are a lot less interested 358 00:19:59,800 --> 00:20:01,520 Speaker 1: in the Greeks, and the Greeks might have been in 359 00:20:01,520 --> 00:20:04,920 Speaker 1: the Russians because the Russians don't want it, don't want 360 00:20:04,920 --> 00:20:06,439 Speaker 1: to our earn in a position to take it on 361 00:20:06,480 --> 00:20:10,960 Speaker 1: Greece's debts. Yeah, that's the good news, is that Russia's 362 00:20:11,000 --> 00:20:14,760 Speaker 1: spread pretty thin and it's shall we say, international activities 363 00:20:14,800 --> 00:20:18,240 Speaker 1: at the moment. Syria is costing them a ton of money. 364 00:20:18,280 --> 00:20:21,240 Speaker 1: They're under sanctions as a result of Ukraine. They're committed 365 00:20:21,280 --> 00:20:24,720 Speaker 1: to rebuilding Crimea. They've got to prop up this crazy 366 00:20:24,920 --> 00:20:30,760 Speaker 1: insurgent regime in southeastern Ukraine. So the flow of cash 367 00:20:30,840 --> 00:20:34,160 Speaker 1: that would be required whild oil prices are this low 368 00:20:34,320 --> 00:20:37,200 Speaker 1: just isn't at play. This was a more prevalent theory 369 00:20:37,240 --> 00:20:39,800 Speaker 1: when oil prices were a hundred and forty bucks of barrel. 370 00:20:40,359 --> 00:20:42,080 Speaker 1: Let's hope they don't go back up there for a 371 00:20:42,160 --> 00:20:45,399 Speaker 1: variety of reasons, this being one of them. What is 372 00:20:45,680 --> 00:20:49,159 Speaker 1: the update on the funding of NATO. I mean, we 373 00:20:49,280 --> 00:20:53,080 Speaker 1: talk about Greece, except it takes money to make this happen. 374 00:20:53,920 --> 00:20:58,359 Speaker 1: Is the US writing the check for NATO? No? Um, 375 00:20:58,480 --> 00:21:02,840 Speaker 1: the US, let's do defense budgets first. So US spends 376 00:21:02,840 --> 00:21:06,399 Speaker 1: about six billion a year on defense UH. The rest 377 00:21:06,520 --> 00:21:10,200 Speaker 1: of NATO Europe spends three hundred billion dollars a year, 378 00:21:10,280 --> 00:21:12,720 Speaker 1: so it's a kind of two to one ratio. Would 379 00:21:12,760 --> 00:21:16,320 Speaker 1: like to see that ratio be more a little bit 380 00:21:16,359 --> 00:21:19,200 Speaker 1: more towards fifty fifty because the two economies are roughly 381 00:21:19,240 --> 00:21:23,000 Speaker 1: the same size at sixteen trillion apiece. UM. Let's talk 382 00:21:23,200 --> 00:21:28,639 Speaker 1: NATO budget. NATO's budget to actually conduct operations UH is 383 00:21:29,240 --> 00:21:33,119 Speaker 1: conducted on the basis of support for troops, aircraft, and 384 00:21:33,200 --> 00:21:35,480 Speaker 1: ships that are given to the Alliance to conduct it. 385 00:21:35,800 --> 00:21:38,679 Speaker 1: On that basis, it is closer to fifty fifty in 386 00:21:38,760 --> 00:21:42,000 Speaker 1: terms of where actual operational costs lay down. So no, 387 00:21:42,119 --> 00:21:45,080 Speaker 1: we're not quote writing a check for NATO in any sense. 388 00:21:46,119 --> 00:21:49,919 Speaker 1: Let me ask you this, though, suppose we did follow 389 00:21:49,960 --> 00:21:52,679 Speaker 1: the recommendations of one of the presidential candidates and threatened 390 00:21:52,720 --> 00:21:56,520 Speaker 1: to pull out of NATO and until they pay up 391 00:21:56,560 --> 00:22:01,040 Speaker 1: and increase they're spending at least two the treaty levels. 392 00:22:01,600 --> 00:22:04,040 Speaker 1: Would they blink? Would they do that? Would we need 393 00:22:04,119 --> 00:22:08,040 Speaker 1: to follow through? I think that we should not take 394 00:22:08,200 --> 00:22:13,200 Speaker 1: an ultimatum approach to NATO because what could easily happen. 395 00:22:13,320 --> 00:22:16,159 Speaker 1: Is the opposite reaction, which is the Europeans saying, you 396 00:22:16,200 --> 00:22:18,919 Speaker 1: know what, we really don't want to be involved in 397 00:22:18,960 --> 00:22:21,760 Speaker 1: the kind of global ideas that the United States as. 398 00:22:21,840 --> 00:22:24,160 Speaker 1: We don't want to send troops to Afghanistan, we don't 399 00:22:24,160 --> 00:22:27,000 Speaker 1: want to participate in Syria, we don't want to participate 400 00:22:27,040 --> 00:22:30,560 Speaker 1: in Libya. We'll just hunker down here in fortress Europe, 401 00:22:30,840 --> 00:22:33,800 Speaker 1: create a citadel. There are three billion dollars a year 402 00:22:33,840 --> 00:22:37,280 Speaker 1: is certainly sufficient to defend Europe um. We need them 403 00:22:37,320 --> 00:22:40,720 Speaker 1: as a partner. So why would we take an antagonistic 404 00:22:40,760 --> 00:22:44,120 Speaker 1: approach having said that, hey, everything is negotiable. We ought 405 00:22:44,119 --> 00:22:46,480 Speaker 1: to continue to put pressure on them, but we ought 406 00:22:46,520 --> 00:22:51,240 Speaker 1: to do it from a framework of allies, friends and partners, 407 00:22:51,400 --> 00:22:55,080 Speaker 1: not ultimatums and the art of the deal. When you 408 00:22:55,160 --> 00:22:58,760 Speaker 1: look at the launch into October here and I guess 409 00:22:58,800 --> 00:23:01,960 Speaker 1: to go around the globe, how are you teaching the 410 00:23:02,000 --> 00:23:06,120 Speaker 1: pivot at Fletcher's School? That was so in four years ago, 411 00:23:06,280 --> 00:23:10,720 Speaker 1: wasn't it? Are we pivoting still? We are pivoting. I 412 00:23:10,800 --> 00:23:14,760 Speaker 1: wouldn't say it's been as rapid or as uh as 413 00:23:14,880 --> 00:23:19,000 Speaker 1: as determinative as the administration might have hoped why because 414 00:23:19,000 --> 00:23:23,000 Speaker 1: of events in Syria and events in Ukraine. But that 415 00:23:23,160 --> 00:23:26,600 Speaker 1: pivot that the long arc of history is going to 416 00:23:26,720 --> 00:23:30,480 Speaker 1: move to the west inexorably for the United States, to Asia. 417 00:23:30,920 --> 00:23:34,919 Speaker 1: So yes, the pivot continues. However, what we need to 418 00:23:34,960 --> 00:23:37,880 Speaker 1: do in Asia is ensure we don't have a blow 419 00:23:37,960 --> 00:23:40,520 Speaker 1: up on the North Korean Peninsula. We need to work 420 00:23:40,520 --> 00:23:43,400 Speaker 1: out a modus vivendi with China in the South China Sea. 421 00:23:43,800 --> 00:23:46,159 Speaker 1: And above all we need to work with our closest 422 00:23:46,200 --> 00:23:50,680 Speaker 1: allies and partners Japan, Auntralia, South Korea. M. Well, thank 423 00:23:50,680 --> 00:23:52,879 Speaker 1: you so much, James. Travina is particularly there in German 424 00:23:52,880 --> 00:23:57,560 Speaker 1: reunification that was really special. Markets in Germany closed today 425 00:23:58,000 --> 00:24:05,719 Speaker 1: in honor of becoming one again. Who you put your 426 00:24:05,760 --> 00:24:10,080 Speaker 1: trust in matters. Investors have put their trust in independent 427 00:24:10,119 --> 00:24:13,760 Speaker 1: registered investment advisors to the tune of four trillion dollars. 428 00:24:14,440 --> 00:24:18,280 Speaker 1: Why they see their role is to serve, not sell. 429 00:24:19,119 --> 00:24:21,480 Speaker 1: That's why Charles Schwab is committed to the success of 430 00:24:21,520 --> 00:24:26,720 Speaker 1: over seven thousand independent financial advisors who passionately dedicate themselves 431 00:24:27,000 --> 00:24:30,879 Speaker 1: to helping people achieve their financial goals. Learn more and 432 00:24:31,040 --> 00:24:40,200 Speaker 1: find your independent advisor dot com. No. Eight thirty numbers 433 00:24:40,200 --> 00:24:43,840 Speaker 1: at get the market US manufacturing p m I, which 434 00:24:43,880 --> 00:24:45,760 Speaker 1: doesn't get a lot of publicity here in the United States. 435 00:24:45,840 --> 00:24:48,399 Speaker 1: Market runs a lot of the p m I numbers 436 00:24:48,440 --> 00:24:51,560 Speaker 1: around the world that we quote UH, and then at 437 00:24:51,560 --> 00:24:54,560 Speaker 1: ten o'clock we get the I s M Manufacturing Survey, 438 00:24:54,600 --> 00:24:57,800 Speaker 1: which is the manufacturing survey that does get a lot 439 00:24:57,800 --> 00:25:00,679 Speaker 1: of publicity. And will see how that turns out. Right now, 440 00:25:00,720 --> 00:25:02,600 Speaker 1: the forecast is for it to come in at fifty 441 00:25:02,680 --> 00:25:07,040 Speaker 1: point four. Last month it was at forty nine point four. UH. 442 00:25:07,680 --> 00:25:11,240 Speaker 1: Generally thought of as contraction when it's below fifty, although 443 00:25:11,480 --> 00:25:13,240 Speaker 1: if you want to look at the correlations, you gotta 444 00:25:13,240 --> 00:25:16,600 Speaker 1: go down to forty two or so two. I looked 445 00:25:16,600 --> 00:25:19,240 Speaker 1: that up this morning in a footdoll so I wouldn't 446 00:25:19,240 --> 00:25:21,840 Speaker 1: worry too much about it. We get auto sales all day. 447 00:25:21,880 --> 00:25:23,679 Speaker 1: So far we have not had any of the major's 448 00:25:23,720 --> 00:25:27,200 Speaker 1: Nissan out with much better than forecast number. Michael for 449 00:25:27,320 --> 00:25:30,280 Speaker 1: only keep track of all this stuff. It is a 450 00:25:30,400 --> 00:25:34,000 Speaker 1: very big week culminating in jobs Friday. He's JP Morgan's 451 00:25:34,080 --> 00:25:39,200 Speaker 1: chief US economists. We are, Michael three months, well eight 452 00:25:39,280 --> 00:25:42,960 Speaker 1: weeks basically from a FED meeting at which a decision 453 00:25:43,000 --> 00:25:44,760 Speaker 1: could be made if we assume that they're not going 454 00:25:44,800 --> 00:25:49,440 Speaker 1: to do anything on UH November two, So what numbers 455 00:25:49,600 --> 00:25:52,760 Speaker 1: matter at this point? What would you be watching this 456 00:25:52,840 --> 00:25:57,400 Speaker 1: week in terms of what it tells you about the economy. 457 00:25:58,440 --> 00:26:01,679 Speaker 1: So I think, obviously, you know you want to watch perils. Um, 458 00:26:01,720 --> 00:26:03,800 Speaker 1: I would think we're gonna get three perils between now 459 00:26:03,800 --> 00:26:06,600 Speaker 1: and the December meeting. If they I think if they 460 00:26:06,640 --> 00:26:10,280 Speaker 1: average one fifty year above, a hike is more likely 461 00:26:10,320 --> 00:26:12,320 Speaker 1: than not. Now. I would also pay pretty close attention 462 00:26:12,359 --> 00:26:15,679 Speaker 1: to the inflation numbers. Will also get three CPI s 463 00:26:16,000 --> 00:26:20,240 Speaker 1: between now and the meeting, And obviously we we don't 464 00:26:20,280 --> 00:26:22,800 Speaker 1: need those we for a hike to occur in December, 465 00:26:23,480 --> 00:26:25,680 Speaker 1: you'd like to see those at least continue around the 466 00:26:25,720 --> 00:26:27,840 Speaker 1: same run, right they've been over the last few months. 467 00:26:27,880 --> 00:26:32,240 Speaker 1: And I think Yellen's press conference, um she kind of 468 00:26:32,840 --> 00:26:36,399 Speaker 1: twice basically said as long as things continue along the 469 00:26:36,440 --> 00:26:39,520 Speaker 1: past they've been on that a hike before year end 470 00:26:39,600 --> 00:26:41,560 Speaker 1: is likely. So I don't think we necessarily needs to 471 00:26:41,600 --> 00:26:45,840 Speaker 1: see a big acceleration in either the employment or inflation numbers. 472 00:26:45,840 --> 00:26:48,159 Speaker 1: But we also, you know, don't you know, would need 473 00:26:48,200 --> 00:26:52,200 Speaker 1: to see those not lose any ground. I want to 474 00:26:52,200 --> 00:26:55,800 Speaker 1: follow up on that though, because the argument that Trullo 475 00:26:55,880 --> 00:27:02,000 Speaker 1: and Brainers have made is that we have we are 476 00:27:02,040 --> 00:27:05,359 Speaker 1: continuing along, but continuing along in the same way we 477 00:27:05,400 --> 00:27:08,520 Speaker 1: have been. The unemployment rate has stuck at four point 478 00:27:08,600 --> 00:27:11,520 Speaker 1: nine percent for several months now, it's flattened out, the 479 00:27:12,000 --> 00:27:15,680 Speaker 1: decline has ended. So would it need to get better 480 00:27:15,760 --> 00:27:19,040 Speaker 1: to impress anybody, uh, to impress sort of the center 481 00:27:19,119 --> 00:27:22,960 Speaker 1: of of the the group that wants to stay on 482 00:27:23,040 --> 00:27:27,159 Speaker 1: hold right, Well, you know, I think as uh, the 483 00:27:27,240 --> 00:27:35,040 Speaker 1: chair is emphasized numbers, payroll numbers like for instance, are 484 00:27:35,119 --> 00:27:37,679 Speaker 1: faster than is sustainable in the long run. So it's 485 00:27:37,680 --> 00:27:39,800 Speaker 1: true that the unemployment rate has been stable, but that's 486 00:27:39,840 --> 00:27:43,520 Speaker 1: been banks in Part two participation rate that seems to 487 00:27:43,560 --> 00:27:48,679 Speaker 1: be bucking the structural trend down. So slack is being absorbed. 488 00:27:48,760 --> 00:27:51,639 Speaker 1: Maybe not, you don't necessarily see it to the unemployment rate, 489 00:27:51,640 --> 00:27:53,920 Speaker 1: but it is being absorbed. And I think for most 490 00:27:53,960 --> 00:27:56,480 Speaker 1: of the committee now the point out brained in trule. 491 00:27:56,600 --> 00:27:58,639 Speaker 1: There are obviously on kind of the dubbish wing of 492 00:27:58,640 --> 00:28:00,359 Speaker 1: the committee, but I think for most people in the 493 00:28:00,359 --> 00:28:04,560 Speaker 1: committee they are still thinking about policy and afford looking 494 00:28:04,600 --> 00:28:08,280 Speaker 1: manner and thinking about the fact that a flack is 495 00:28:08,280 --> 00:28:11,800 Speaker 1: being absorbed over time that will generate inflation pressures. So 496 00:28:11,880 --> 00:28:13,800 Speaker 1: you're right that you know, there's a lot of disagreement 497 00:28:13,800 --> 00:28:16,480 Speaker 1: on the committee. Some people wanted to hide you know 498 00:28:16,560 --> 00:28:20,560 Speaker 1: last month. So, um, where's wage inflation? Right now? It's 499 00:28:20,600 --> 00:28:22,920 Speaker 1: you know, I understand there's eighteen c p I s. 500 00:28:23,400 --> 00:28:27,400 Speaker 1: Some of them are feroally friendly, some aren't. Where's wage inflation? 501 00:28:27,480 --> 00:28:30,919 Speaker 1: Michael Faroly? You know, so as you know, there's a 502 00:28:30,920 --> 00:28:34,600 Speaker 1: bunch of different measures. Most of them are clustered kind 503 00:28:34,600 --> 00:28:37,560 Speaker 1: of around two and a half right now. Um, the 504 00:28:37,680 --> 00:28:41,320 Speaker 1: e c I is two point three, average aliy earnings 505 00:28:41,360 --> 00:28:44,840 Speaker 1: is two point four. Uh. Comp hours running actually in 506 00:28:44,840 --> 00:28:49,160 Speaker 1: the threes. You learn from income and spending late last week, Um, 507 00:28:50,080 --> 00:28:52,760 Speaker 1: you know it came in mostly in line with expectations. H. 508 00:28:52,840 --> 00:28:55,760 Speaker 1: It's interesting with the saving rate did move a little 509 00:28:55,760 --> 00:29:01,680 Speaker 1: bit higher. So, UM, I think some of the consumer euphoria, 510 00:29:01,640 --> 00:29:05,440 Speaker 1: if you will, over the springtime seems to be um, 511 00:29:05,440 --> 00:29:08,120 Speaker 1: not quite as thigers now that being said, the early 512 00:29:08,120 --> 00:29:11,040 Speaker 1: word is that auto sales bounce back in September, so 513 00:29:11,040 --> 00:29:14,120 Speaker 1: I don't want to yea and consumer confidence is up 514 00:29:14,120 --> 00:29:19,520 Speaker 1: big so so people are happy but not spending now again, 515 00:29:19,960 --> 00:29:22,160 Speaker 1: I think we're going to see a real consumption number 516 00:29:22,160 --> 00:29:24,120 Speaker 1: for the third quarter pretty close to three percent. So 517 00:29:24,160 --> 00:29:26,880 Speaker 1: that's nothing to sniff at, particularly in this kind of 518 00:29:27,040 --> 00:29:31,720 Speaker 1: low growth environment. I look at where we are in 519 00:29:31,760 --> 00:29:34,880 Speaker 1: the phrase and put this out over the weekend marginal 520 00:29:34,960 --> 00:29:38,120 Speaker 1: propensity to save, which is basically you wake up and 521 00:29:38,160 --> 00:29:41,520 Speaker 1: say the glasses half full, I need to save. Is 522 00:29:41,560 --> 00:29:44,520 Speaker 1: that where we are or are we going to get 523 00:29:44,520 --> 00:29:50,160 Speaker 1: back to the consumer that Mike mentions in confidence, right, So, Thomas, 524 00:29:50,200 --> 00:29:54,920 Speaker 1: I think, you know, really since the crisis the link 525 00:29:55,320 --> 00:29:58,600 Speaker 1: Normally we would think that wealth is a big determinant 526 00:29:58,720 --> 00:30:01,160 Speaker 1: of how much consumers to save. When wealth goes up, 527 00:30:01,240 --> 00:30:04,360 Speaker 1: they save plus. And we've had a huge wealth boom 528 00:30:04,440 --> 00:30:08,440 Speaker 1: over the past seven or eight years, and yet the 529 00:30:08,480 --> 00:30:12,080 Speaker 1: saving rate has been um very little changed in the 530 00:30:12,120 --> 00:30:15,480 Speaker 1: five handles. So normally we would have expected the saving 531 00:30:15,560 --> 00:30:17,960 Speaker 1: rate to be down around to two or so with 532 00:30:18,000 --> 00:30:20,640 Speaker 1: the wealth numbers we've been seeing. So there has been 533 00:30:20,640 --> 00:30:23,880 Speaker 1: a shift in psychology after the crisis. I think that's 534 00:30:23,920 --> 00:30:27,880 Speaker 1: pretty clear. Um that said, uh, you know, you can 535 00:30:27,880 --> 00:30:30,320 Speaker 1: still get good consumption numbers like we did in the 536 00:30:30,320 --> 00:30:33,000 Speaker 1: second quarter, and we think in the current quarter as well, 537 00:30:33,040 --> 00:30:36,240 Speaker 1: so so maybe some of that, you know, psychological fear 538 00:30:36,280 --> 00:30:39,560 Speaker 1: factors starting a certainly fadeaway. Michael McKee and Tom Keane 539 00:30:39,600 --> 00:30:43,600 Speaker 1: with his Michael Faroli, j Pete Morgan. Michael, you you 540 00:30:43,720 --> 00:30:46,800 Speaker 1: mentioned the asymmetric nature of the dots that can only 541 00:30:46,880 --> 00:30:52,520 Speaker 1: migrate in one direction. Asymmetry seems to be the almost 542 00:30:52,560 --> 00:30:58,840 Speaker 1: the front and center philosophy or behavior of good policymakers 543 00:30:58,960 --> 00:31:02,680 Speaker 1: right now, this fear of getting it wrong. Discuss the 544 00:31:02,800 --> 00:31:07,480 Speaker 1: asymmetry that Janet Yellen lives right now. Well, I think 545 00:31:07,520 --> 00:31:10,960 Speaker 1: the fact that interest rates normally, one would say interest 546 00:31:11,040 --> 00:31:13,800 Speaker 1: rates can't go negative, they can't go deeply negative, and 547 00:31:13,840 --> 00:31:17,760 Speaker 1: so that means that it's easy to choke off inflation 548 00:31:17,800 --> 00:31:20,320 Speaker 1: if we need to buy hiking rates. Is harder to 549 00:31:20,320 --> 00:31:25,120 Speaker 1: stimulate the economy by cutting rates. So that asymmetry is 550 00:31:25,240 --> 00:31:27,640 Speaker 1: an important reason why the chair and the rest of 551 00:31:27,680 --> 00:31:29,760 Speaker 1: the committee have been so cautious over the last year 552 00:31:29,800 --> 00:31:33,200 Speaker 1: and UH in moving rates higher, because if they do 553 00:31:33,240 --> 00:31:38,040 Speaker 1: it too quickly, reversing it is UH is difficult, whereas 554 00:31:38,080 --> 00:31:40,560 Speaker 1: if they're behind the curve, they can always catch up. 555 00:31:40,600 --> 00:31:42,880 Speaker 1: And so that I think is the most important asymmetry 556 00:31:42,880 --> 00:31:45,760 Speaker 1: they're thinking about right now. What about the remorse out 557 00:31:45,840 --> 00:31:48,360 Speaker 1: farther Mike and I were looking at the Japanese target 558 00:31:48,400 --> 00:31:52,160 Speaker 1: fund rate from twenty years ago. They made that rate 559 00:31:52,280 --> 00:31:54,880 Speaker 1: rise in the early two thousand's and then I had 560 00:31:54,920 --> 00:31:58,040 Speaker 1: to turn around and reduce it. Does that right minds 561 00:31:58,080 --> 00:32:01,440 Speaker 1: of our bankers? I say thing, so, um, that seems 562 00:32:01,480 --> 00:32:04,800 Speaker 1: to be. I don't think any central banker wants to, 563 00:32:06,200 --> 00:32:09,240 Speaker 1: you know, be accused by history of making that same mistake. 564 00:32:09,480 --> 00:32:13,160 Speaker 1: That's why we're nominating Michael McKee to be another governor, Yeah, 565 00:32:14,600 --> 00:32:21,040 Speaker 1: to be able to take it when the counter argument 566 00:32:21,160 --> 00:32:24,080 Speaker 1: to the idea of the asymmetry would be that the 567 00:32:24,120 --> 00:32:27,440 Speaker 1: FED has to uh make sure it's not behind the 568 00:32:27,440 --> 00:32:30,800 Speaker 1: curve on inflation. And there are those now who are 569 00:32:30,920 --> 00:32:33,680 Speaker 1: arguing that on the f O m C. And if 570 00:32:33,720 --> 00:32:35,640 Speaker 1: you're going to worry about that, then you have to 571 00:32:35,640 --> 00:32:38,520 Speaker 1: worry about how quickly the FED can respond. Where do 572 00:32:38,560 --> 00:32:40,160 Speaker 1: you come down on the argument that the FED has 573 00:32:40,200 --> 00:32:44,360 Speaker 1: more time because inflation dynamics have changed enough that we 574 00:32:44,400 --> 00:32:49,520 Speaker 1: aren't going to see the huge kind of breakout that 575 00:32:49,600 --> 00:32:52,320 Speaker 1: we might have seen in the past when inflation started 576 00:32:52,400 --> 00:32:55,280 Speaker 1: get going. I think there's something to that. And if 577 00:32:55,280 --> 00:32:58,200 Speaker 1: you look at the inflation expectations numbers, whether market based 578 00:32:58,240 --> 00:33:02,080 Speaker 1: or survey based. UM, it doesn't. I feel like we're 579 00:33:02,120 --> 00:33:04,720 Speaker 1: behind the curve in that dimension, and so that should 580 00:33:04,720 --> 00:33:07,920 Speaker 1: buy them sometime now. UM, we obviously are at a 581 00:33:07,960 --> 00:33:11,040 Speaker 1: point in the cycle where it's, uh, it's not an 582 00:33:11,040 --> 00:33:12,840 Speaker 1: easy call, and I think that's why you have smart 583 00:33:12,840 --> 00:33:15,560 Speaker 1: people in the committee who are both arguing for a 584 00:33:15,640 --> 00:33:18,800 Speaker 1: hike uh last month, as well as arguing for NOL 585 00:33:18,880 --> 00:33:21,040 Speaker 1: hikes at all this year. And you know, I think 586 00:33:21,040 --> 00:33:24,200 Speaker 1: those there have been times in the past few years 587 00:33:24,240 --> 00:33:26,200 Speaker 1: where I think they were all together because it was 588 00:33:26,200 --> 00:33:28,640 Speaker 1: an easier call, and now you're at this point in 589 00:33:28,640 --> 00:33:31,360 Speaker 1: the cycle where, um, I think it's it's really a 590 00:33:31,440 --> 00:33:34,840 Speaker 1: judgment call more than anything. And so you know, our 591 00:33:34,960 --> 00:33:38,720 Speaker 1: view is that they go in December, and I think 592 00:33:38,720 --> 00:33:42,560 Speaker 1: that would be if things hold together here, consistent with 593 00:33:43,240 --> 00:33:46,600 Speaker 1: good policy in our our opinion, If they if they 594 00:33:46,640 --> 00:33:49,960 Speaker 1: go in December, then how long do they stand hold 595 00:33:50,040 --> 00:33:54,400 Speaker 1: until the next one? There they move the dots to 596 00:33:54,440 --> 00:33:58,640 Speaker 1: suggest only two next year. So do we then go 597 00:33:58,680 --> 00:34:04,720 Speaker 1: and hold for an extended period time deliberatelier? Accidentally how 598 00:34:04,920 --> 00:34:08,080 Speaker 1: this year evolved? Yeah, I think so, you know, our 599 00:34:08,200 --> 00:34:11,799 Speaker 1: our guests really is that after December, the next move 600 00:34:11,920 --> 00:34:15,480 Speaker 1: isn't until next next June. And in part that slow 601 00:34:15,520 --> 00:34:20,080 Speaker 1: paces UM allowed afforded them by the fact that the 602 00:34:20,120 --> 00:34:25,040 Speaker 1: global economy seems to UM really having suggestion if if 603 00:34:25,040 --> 00:34:29,480 Speaker 1: the FETCH signal anything UM faster so uh, you know, 604 00:34:29,520 --> 00:34:33,040 Speaker 1: we think that would be consistent with probably some dollar strengthening, 605 00:34:33,160 --> 00:34:37,160 Speaker 1: some import price pressure downward, and thereby buying men time 606 00:34:37,200 --> 00:34:40,600 Speaker 1: to be as gradual as they think. The three GDP 607 00:34:40,800 --> 00:34:44,520 Speaker 1: call you now have is that I'm Mike talked about 608 00:34:44,560 --> 00:34:48,560 Speaker 1: this earlier. How can you scope that out three months, 609 00:34:48,600 --> 00:34:52,760 Speaker 1: six months, nine months, twelve months or we got into 610 00:34:52,760 --> 00:34:56,840 Speaker 1: this volatility, particularly with first of your weakness where you 611 00:34:56,920 --> 00:35:00,600 Speaker 1: can't do that anymore. Yeah, yes, our three sentence just 612 00:35:00,680 --> 00:35:04,719 Speaker 1: for the third quarter, which is yeah, yeah, I think 613 00:35:04,760 --> 00:35:07,239 Speaker 1: you're just James Diamond know you're doing that. Does Mr 614 00:35:07,320 --> 00:35:11,080 Speaker 1: Diamond know that Farro and Kasman are doing one off? 615 00:35:11,160 --> 00:35:15,840 Speaker 1: Melman would have never let this happen. Uh. So we 616 00:35:15,920 --> 00:35:18,600 Speaker 1: had some very weak inventory numbers in the first half 617 00:35:18,600 --> 00:35:20,400 Speaker 1: of the year and that you got a little bit 618 00:35:20,400 --> 00:35:22,400 Speaker 1: of relief in the third quarter, but we don't you know, 619 00:35:23,040 --> 00:35:25,520 Speaker 1: we don't think that's going to persist on into the 620 00:35:25,600 --> 00:35:27,239 Speaker 1: onto the fourth what we would like it, but we 621 00:35:27,280 --> 00:35:31,920 Speaker 1: think we're probably gonna fell it back. Mike, Mike, Michael McKee, 622 00:35:31,960 --> 00:35:34,279 Speaker 1: Michael Farrel, both of you jump in here. Why do 623 00:35:34,360 --> 00:35:37,000 Speaker 1: we always EBB in the first quarter? Is it because 624 00:35:37,040 --> 00:35:42,279 Speaker 1: of taxes? So I'll voice my opinion first. I don't 625 00:35:42,320 --> 00:35:46,480 Speaker 1: think there is a I don't think it's taxes. It 626 00:35:46,520 --> 00:35:48,360 Speaker 1: does seem to be that there may be a little 627 00:35:48,360 --> 00:35:51,040 Speaker 1: bit of problem with the seasonal adjustment of some of 628 00:35:51,080 --> 00:35:52,879 Speaker 1: the source data that that is the used to produce 629 00:35:54,200 --> 00:35:57,000 Speaker 1: The statistical agencies are working on that, but I think 630 00:35:57,080 --> 00:36:01,200 Speaker 1: that project is not Michael McKee, Is it is some 631 00:36:01,400 --> 00:36:04,080 Speaker 1: Nolan and h Oh. I mean, where do we go 632 00:36:04,160 --> 00:36:06,960 Speaker 1: with it? Sometimes if we take time off for the Olympics, 633 00:36:07,480 --> 00:36:09,239 Speaker 1: that may have In fact, No, I think Michael is 634 00:36:09,280 --> 00:36:11,640 Speaker 1: probably right. I'm not as qualified as he to offer 635 00:36:11,680 --> 00:36:13,480 Speaker 1: an opinion, but I know they are working on and 636 00:36:13,640 --> 00:36:17,360 Speaker 1: it does seem to be a thing um at this 637 00:36:17,400 --> 00:36:19,799 Speaker 1: point though, what kind of matters is where we're gonna 638 00:36:19,880 --> 00:36:22,960 Speaker 1: end up in the fourth quarter. You've got for the 639 00:36:23,000 --> 00:36:28,520 Speaker 1: third quarter roughly three percent. Michael, We're we're still shy 640 00:36:28,640 --> 00:36:31,720 Speaker 1: some data. But what do you think about the current quarter? 641 00:36:31,800 --> 00:36:34,840 Speaker 1: I can say that since this is October three, because 642 00:36:35,520 --> 00:36:38,239 Speaker 1: the kind of growth numbers we're gonna get for this 643 00:36:38,320 --> 00:36:41,400 Speaker 1: quarter or what's gonna matter to Yelling and Company by 644 00:36:41,400 --> 00:36:44,080 Speaker 1: the time we get to the middle of December. Sure, sure, 645 00:36:44,120 --> 00:36:47,080 Speaker 1: So we have two percent penciled in for the fourth quarter. 646 00:36:47,080 --> 00:36:50,480 Speaker 1: And I would emphasize the pencil part because uh, we 647 00:36:50,520 --> 00:36:54,600 Speaker 1: don't really have any data has been roughly the average 648 00:36:54,600 --> 00:36:58,960 Speaker 1: over the past few years. So um, that's that's an 649 00:36:59,000 --> 00:37:02,600 Speaker 1: initial guest. But uh uh, if we get the auto 650 00:37:02,600 --> 00:37:04,799 Speaker 1: sales numbers that people are looking for today, I think 651 00:37:04,840 --> 00:37:07,759 Speaker 1: that would be, um, you know, good trajectory heading into 652 00:37:07,800 --> 00:37:10,279 Speaker 1: the into the fourth quarter. Michael, Thank you so much. 653 00:37:10,280 --> 00:37:15,080 Speaker 1: Michael Ferolio with JP Morgan revising the view ending September 654 00:37:15,120 --> 00:37:19,480 Speaker 1: thirty up to three. Thanks for listening to the Bloomberg 655 00:37:19,520 --> 00:37:25,080 Speaker 1: Surveillance podcast. Subscribe and listen to interviews on iTunes, SoundCloud, 656 00:37:25,400 --> 00:37:29,359 Speaker 1: or whichever podcast platform you prefer. I'm on Twitter at 657 00:37:29,400 --> 00:37:34,200 Speaker 1: Tom Keane, Michael McKee is at Economy Before the podcast, 658 00:37:34,280 --> 00:37:44,440 Speaker 1: you can always catch us worldwide. I'm Bloomberg Radio. Who 659 00:37:44,560 --> 00:37:48,279 Speaker 1: you put your trust in matters. Investors have put their 660 00:37:48,280 --> 00:37:51,640 Speaker 1: trust in independent registered investment advisors to the tune of 661 00:37:51,719 --> 00:37:56,680 Speaker 1: four trillion dollars. Why learn more and find your independent 662 00:37:56,719 --> 00:38:00,200 Speaker 1: advisor dot com