WEBVTT - Trade Is Now War, Kotok Says 0:00:00.080 --> 0:00:12.960 Yeah, Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene 0:00:13.480 --> 0:00:17.560 Jay Ley. We bring you insight from the best in economics, finance, investment, 0:00:18.000 --> 0:00:23.520 and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, 0:00:23.600 --> 0:00:28.080 Bloomberg dot Com, and of course on the Bloomberg YEA, 0:00:33.240 --> 0:00:35.360 what is going on in the market. It feels like 0:00:35.360 --> 0:00:37.600 we're going back to January. The VIX has a ten handle, 0:00:37.680 --> 0:00:41.040 the SMP five is just points away from a record high. 0:00:41.159 --> 0:00:42.680 To discuss you want to us here in New York 0:00:42.760 --> 0:00:46.280 is David Kotok, Cumbled Advisers, Chief investment officer and co 0:00:46.479 --> 0:00:49.040 found a Good morning to David. Good morning John. It's 0:00:49.040 --> 0:00:52.520 a pleasure to be here and we back at January. Well, 0:00:52.560 --> 0:00:55.240 it certainly looks like it you just described it, but 0:00:55.440 --> 0:01:00.280 remember February follows January, and we'll see what this next 0:01:00.320 --> 0:01:02.760 two months it's going to bring. In January February, we 0:01:02.840 --> 0:01:05.800 explored the concept with people like yourself as to whether 0:01:05.800 --> 0:01:07.880 we were going to go into a new trading regime, 0:01:07.880 --> 0:01:11.320 and you market regime of high volatility, lower returns. Is 0:01:11.360 --> 0:01:13.560 that where we're at? And if we are, why are 0:01:13.560 --> 0:01:15.520 we going back to a ten on the vix at 0:01:15.520 --> 0:01:19.160 a record handy SMP five. Well, I remember that discussion 0:01:19.240 --> 0:01:22.480 here along with a bunch of other folks who had 0:01:22.600 --> 0:01:26.640 during that period of time and felt the same way. 0:01:27.600 --> 0:01:32.200 One thing is different now. Trade is now war not 0:01:32.480 --> 0:01:38.080 even threatened. Rhetoric number two. All the promises that Peter 0:01:38.160 --> 0:01:41.080 Navarro made there will be no retaliation, there will be 0:01:41.160 --> 0:01:44.760 no penalties, everybody's gonna have a negotiation. I think that 0:01:44.880 --> 0:01:49.760 was March are proven wrong. And every single day we 0:01:49.840 --> 0:01:55.360 get another anecdote of the effects of trade war and 0:01:55.440 --> 0:01:58.040 how bad this can be. Ken lang Owned did an 0:01:58.040 --> 0:02:04.720 interview here yesterday. Yeah, and he's right, he's got well here. 0:02:04.720 --> 0:02:08.360 I mean he's trade words. We're headed for trouble. All 0:02:08.400 --> 0:02:11.920 the warnings of history say so. And we now have 0:02:12.040 --> 0:02:16.720 an administration which is entrenched in this policy and doesn't 0:02:16.720 --> 0:02:19.760 have a way out. It's trying to do a bilateral 0:02:19.800 --> 0:02:22.200 deal with Mexico. Then it's going to try to co 0:02:22.360 --> 0:02:27.600 opt in Canada when it comes to China. I think 0:02:28.240 --> 0:02:33.400 this adversary is patient, doesn't have our political issues, has 0:02:33.440 --> 0:02:39.400 studied us exceptionally well, and is advancing faster than we are. 0:02:39.440 --> 0:02:43.640 I read about how the rollout at five G in 0:02:43.800 --> 0:02:51.000 China is light years ahead of the United States, and 0:02:51.080 --> 0:02:53.800 you say to yourself, if China's gonna have this massive 0:02:53.919 --> 0:02:57.079 bandwidth and roll out, and we're going to be busy 0:02:57.560 --> 0:03:02.360 imposing tariffs and getting retalied. They were tariffs on soybeans 0:03:02.400 --> 0:03:06.320 and lobsters, what does the matter with us? Okay, the 0:03:06.440 --> 0:03:08.240 Good Morning I had to find the red button folks 0:03:08.280 --> 0:03:11.519 on New good Morning. David um, if that's true, what 0:03:11.639 --> 0:03:13.800 do I do with my investments? I mean you at 0:03:13.840 --> 0:03:17.560 Ohio last night with a suburban vote radically changed from 0:03:17.600 --> 0:03:21.040 the GOP traditional alliable. You've got all the Yanks with China. 0:03:21.240 --> 0:03:25.000 You and John have just voiced. Does it change Cumberland 0:03:25.160 --> 0:03:30.959 Advisors investment approach? Well, it has, and in that in 0:03:31.080 --> 0:03:34.480 the US portfolios with et F portfolios, we are now 0:03:34.560 --> 0:03:38.160 focused domestically. We are focused on small and mid caps. 0:03:38.440 --> 0:03:42.600 We are staying away from international exposure which is at 0:03:42.760 --> 0:03:45.680 risk to trade war. And we have a cash reserve. 0:03:46.280 --> 0:03:49.920 And in the in the bond side, the treasury is 0:03:50.040 --> 0:03:54.280 being flattened and suppressed by a tax effect which expires 0:03:54.400 --> 0:03:57.119 on the fift September. Let's see what the yield curve 0:03:57.200 --> 0:04:00.640 looks like. Are you gonna make like effort through there 0:04:00.640 --> 0:04:02.400 when the dog days of August? Are you gonna make 0:04:02.440 --> 0:04:05.840 your gold this year? A fishing two two days? That's 0:04:05.880 --> 0:04:09.200 your record is kind of tough. I'll get a little 0:04:09.240 --> 0:04:11.120 tired of my arms. So you moved to Florida to 0:04:11.200 --> 0:04:13.360 do that? I get the idea what you saw in 0:04:13.400 --> 0:04:17.320 Ohio last night? Is that gonna happen in Florida? Are 0:04:17.440 --> 0:04:21.039 you gonna have the suburban voters of Florida walk away 0:04:21.080 --> 0:04:24.960 from the GOP? Mr? Trump? I think that's an interesting question. 0:04:25.640 --> 0:04:28.880 The congressman in my district where I live in Sarisoda's 0:04:29.000 --> 0:04:32.680 Verne Buchanan, I think seven or eight term Republican. He's 0:04:32.760 --> 0:04:37.080 running ads, walking down the street, holding hands with his granddaughter. 0:04:37.200 --> 0:04:41.360 He doesn't mention Trump, he doesn't mention Republicans. He is 0:04:41.680 --> 0:04:45.240 now worried. He's had a reason to be worried. So 0:04:45.440 --> 0:04:47.680 then how does that affect your I mean, Phararell wants 0:04:47.720 --> 0:04:50.520 to know this. Farrell, you don't understand John Farrell is 0:04:50.520 --> 0:04:53.680 sleeping under a park bench in Central Park. If Sterling 0:04:53.720 --> 0:05:00.840 goes to and he's wiped out, I know, though, so 0:05:00.960 --> 0:05:04.040 much for Franzy summer place in Italy. But but what 0:05:04.200 --> 0:05:06.839 I want to know is does all this mumbo jumbo 0:05:06.880 --> 0:05:09.400 the John and I talked about every day on politics, 0:05:09.800 --> 0:05:13.279 does it affect what we do in investment? I think 0:05:13.360 --> 0:05:16.760 it raises risk profiles. I don't care where the vix goes. 0:05:16.880 --> 0:05:22.800 It's a contemporaneous indicator. It has no forecast power. Everybody, Well, 0:05:23.279 --> 0:05:26.000 if there's no distortion in a treasury curve, you would 0:05:26.040 --> 0:05:28.520 look at the flatness of the curve and you would 0:05:28.560 --> 0:05:31.720 say there's a message here. But we now find in 0:05:31.839 --> 0:05:36.320 this tax code change that the purchases of strips are 0:05:36.440 --> 0:05:41.080 consuming a great deal of the monthly action of the 0:05:41.200 --> 0:05:44.479 thirty year bond. And it's because of a tax code 0:05:44.600 --> 0:05:49.760 change which will expire on September. Anybody who's any corporation 0:05:49.800 --> 0:05:53.800 has got to define benefit pension plan that's underfunded as 0:05:53.920 --> 0:05:58.720 huge incentives right now today to buy long strips. They 0:05:58.760 --> 0:06:01.280 get paid for doing so in a big way. Do 0:06:01.320 --> 0:06:02.560 you know what I thought got lost in all the 0:06:02.600 --> 0:06:06.280 tests the noise yesterday? Tom was Pimco and Dan Iverson 0:06:06.560 --> 0:06:09.279 possibly one of the most talented portfolio managers on the planet, 0:06:09.640 --> 0:06:13.120 turning cautious and defensive. This is where the sequent fund. Yeah, 0:06:15.560 --> 0:06:18.240 Dan is a fantastic PM with a huge track record 0:06:18.600 --> 0:06:21.080 over the last few years, and he has taken the 0:06:21.160 --> 0:06:24.000 funds for a more defensive, cautious stance, and he says 0:06:24.080 --> 0:06:27.800 the following um, the populist parties have already gained traction 0:06:27.839 --> 0:06:29.840 across the globe. The major central banks are trying to 0:06:29.839 --> 0:06:32.240 step away from accommodation they've provided for the markets for 0:06:32.320 --> 0:06:35.000 many years. Their influence has been quickly replaced by that 0:06:35.120 --> 0:06:39.240 of politics. His view, the fund's view for both equity 0:06:39.240 --> 0:06:41.760 and fixed income investors, we think this means of returns 0:06:41.960 --> 0:06:45.000 and unfortunately higher volatility. Now that might not be the 0:06:45.040 --> 0:06:47.600 story of the morning, but that's the story they're anticipating. 0:06:47.960 --> 0:06:50.320 And you know fixed income really really well, David, So 0:06:50.560 --> 0:06:52.800 right now, the way that PIMCO would describe it is 0:06:52.880 --> 0:06:55.559 that you can quite simply expose yourself to two pools 0:06:55.600 --> 0:06:58.599 of assets. A pall of assets leverage to economic growth 0:06:58.640 --> 0:07:01.760 here in the United States, more back securities, corporate credit. 0:07:02.040 --> 0:07:04.360 Then a pool of assets that give you a hedge. Inky, 0:07:04.360 --> 0:07:07.160 so we get it down to it, highly liquid treasuries, 0:07:07.520 --> 0:07:10.520 things like treasury bills, et cetera, et cetera. How do 0:07:10.600 --> 0:07:13.040 you want to balance yourself between those two poles? Of 0:07:13.120 --> 0:07:16.240 assets through the duration of the ship. You just described 0:07:16.280 --> 0:07:19.880 the classic bond manager's barbell. That's what we call it 0:07:20.040 --> 0:07:23.320 as opposed to a ladder. If you're in a ladder today, 0:07:23.880 --> 0:07:27.600 you are taking on risk. You think you're reducing risk 0:07:27.640 --> 0:07:30.960 with the ladder, and you're failing. You're taking on risk 0:07:31.040 --> 0:07:33.280 with the letter. You need a barbel. Now, how do 0:07:33.360 --> 0:07:38.280 you do the barbell? Peace? Long, peace, short and in between. 0:07:38.360 --> 0:07:41.920 You measure the duration of the whole, You measure the 0:07:42.080 --> 0:07:45.560 yield curve for its sweet spot, and you match it. 0:07:46.160 --> 0:07:49.280 Only you match it with a barbell, not linearly or 0:07:49.320 --> 0:07:52.280 a ladder. That is a lot of technical jargon on like, 0:07:52.880 --> 0:07:55.280 but but that's how you do it. What are we 0:07:55.360 --> 0:07:57.680 doing in the barbell? When this curve gets fat like this? 0:07:58.480 --> 0:08:01.080 You shorten and build one side of the bar bill 0:08:01.240 --> 0:08:03.840 larger than the other, leans, lodge hard the fish. You're 0:08:03.880 --> 0:08:05.920 out there with a bunch of people fishing. Yeah, we 0:08:06.040 --> 0:08:09.920 had fifty folks. We had great conversation, divided views. Of course. 0:08:10.080 --> 0:08:12.240 You see the shot of me and John Farron. We 0:08:12.320 --> 0:08:16.360 went sturgeon fishing this weekend. Your sturgeon went viral? Did 0:08:16.480 --> 0:08:19.280 go viral? Yes? And we and we decided that the 0:08:19.400 --> 0:08:22.040 sturgeon is about the size of what we use for 0:08:22.160 --> 0:08:26.880 bait fish. But Leans close. You're Leans Lodge. We're over Patrosian. 0:08:27.200 --> 0:08:32.640 It's called vodka. You guys are permanently and invited. You 0:08:32.720 --> 0:08:35.439 would be ten years if you came up. There's no 0:08:35.679 --> 0:08:38.559 UK equivalent. It is so far in the middle of nowhere. 0:08:39.120 --> 0:08:41.480 Did you go by private like one of those planes 0:08:41.559 --> 0:08:45.000 with the pontoon things on it? You get to the 0:08:45.080 --> 0:08:47.640 lake plane you want, You're gonna hold my hand. If 0:08:47.640 --> 0:08:51.200 I do that, I will. I'll carry your bag. David Kotalk, 0:08:51.280 --> 0:08:55.520 thank you so much, coming that with a bottle of Carosotic. 0:08:55.679 --> 0:08:58.440 I'll be out there in the grumming canoe taking dramamine. 0:08:59.200 --> 0:09:15.040 David Kotalk, humble of advisors. Why don't you bring in 0:09:15.080 --> 0:09:19.640 our next guest and idiosyncratic em Pabla Goldberg blank Rock, 0:09:19.720 --> 0:09:21.439 head of a merchant market. Dad, I'm sure, Pablo A. 0:09:21.440 --> 0:09:23.800 You're gonna tell me some of these issues are idiosyncratic. 0:09:23.920 --> 0:09:30.559 But Turkey, Argentina, Brazil, it's sounding gap, isn't it. Well? 0:09:30.640 --> 0:09:32.800 I think they we need to separate these. I think 0:09:32.840 --> 0:09:36.240 that there are idiosyncredic vulnerabilities to global factors. If you 0:09:36.280 --> 0:09:38.360 want to put it like that. I think Argentina and 0:09:38.440 --> 0:09:40.680 Turkey belong to the same camp. Brazil is a little 0:09:40.679 --> 0:09:43.040 bit of a different story. Um, what is the trigger 0:09:43.120 --> 0:09:47.160 to Argentina and Turkey? The trigger is you tighter financial 0:09:47.240 --> 0:09:50.959 conditions globally. In that sense, it is not indiosy incredic issue. 0:09:51.120 --> 0:09:53.520 What it is idiosyncratic is that these two countries have 0:09:53.720 --> 0:09:56.800 been um, you know, in out of balance for for 0:09:57.000 --> 0:09:59.920 some time, and now the market has indicated that is 0:10:00.000 --> 0:10:03.839 time for reckoning. And the difference is that Argentina has 0:10:04.240 --> 0:10:06.280 bidden the bullet, I mean, has gone to the I 0:10:06.480 --> 0:10:09.480 m F, has tried to interest rates significantly, is lad 0:10:09.559 --> 0:10:12.480 in the economy to the adjudgment, but Turkey is not. 0:10:12.840 --> 0:10:15.480 And that's why now the pressure is on Turkey. Still 0:10:15.520 --> 0:10:18.000 a wall of silence over the last forty eight hours, Pamp. 0:10:18.200 --> 0:10:21.119 What are you expecting to say from the Turkish authorities 0:10:21.160 --> 0:10:24.400 just in terms of policy response? Well, I think that 0:10:24.600 --> 0:10:27.600 we're the Turkish authorities are working in three different camps 0:10:27.720 --> 0:10:30.400 right that The first one is try to um you 0:10:30.480 --> 0:10:32.520 know the case they go to gone to Washington. They're 0:10:32.520 --> 0:10:35.120 trying to deal with this issue of the sanctions, because 0:10:35.200 --> 0:10:38.560 that's quite important because for a country that has large 0:10:38.640 --> 0:10:43.240 external funding needs, anything that can affect, you know, the 0:10:43.320 --> 0:10:48.560 willingness of foreign lenders to roll over that debt would 0:10:48.559 --> 0:10:50.960 be a complication. And of course the process of sanctions 0:10:51.440 --> 0:10:54.920 or potential sanctions are the deterrent potentially to a cross 0:10:54.960 --> 0:10:57.360 border landing. So that's one area of work that they're doing. 0:10:57.440 --> 0:11:01.319 The other area of work is are they're gonna is 0:11:01.360 --> 0:11:04.079 the central band gonna be racing grates who you know, 0:11:04.160 --> 0:11:06.440 get ahead of the curve. And and and there's where 0:11:06.520 --> 0:11:09.160 we are not being so much advantced yet. Look, give 0:11:09.240 --> 0:11:12.080 us a clinic on any nation. In this case Turkey, 0:11:12.720 --> 0:11:15.839 it has to debt. They have debt in Turkish lira 0:11:16.480 --> 0:11:18.679 and they have debt in the US dollar. Both are 0:11:18.720 --> 0:11:23.480 going up and yield priced down, yields dramatically higher on 0:11:23.600 --> 0:11:27.439 Turkish debt. What does that mean for Turkish finance and 0:11:27.559 --> 0:11:32.240 Turkish banks? Let me let me do another cut on 0:11:32.360 --> 0:11:34.000 top of the one you've done. You you've done the 0:11:34.080 --> 0:11:36.160 cut by currency. Let me do a cut by borrower. 0:11:36.320 --> 0:11:39.240 Right there, sovereign dead, basically dead of the government. And 0:11:39.320 --> 0:11:42.960 there's that of the corporate sector being banks and corporate 0:11:43.040 --> 0:11:46.679 now financial corporate, where Turkey is heavily in debted, it 0:11:46.880 --> 0:11:49.720 is in dollars. So that's one part of the quadrant 0:11:49.840 --> 0:11:51.160 and the other part of the quadram that is the 0:11:51.640 --> 0:11:53.719 actually corporate sector, the one that is so in that 0:11:53.880 --> 0:11:56.960 it's not the government, it is the corporate sector. Um. 0:11:57.080 --> 0:11:59.200 And the banks are in between, right. The banks are 0:11:59.280 --> 0:12:02.800 the US who are just bringing dollars from abroad and 0:12:02.960 --> 0:12:06.280 lending to the guys inside. So where we need to 0:12:06.360 --> 0:12:08.839 put an eye on is on the corporate sector and 0:12:08.880 --> 0:12:11.640 the rollovers. Now, if they fail to roll over and 0:12:11.720 --> 0:12:14.719 they have payment problems, that's kind of eventually knock on 0:12:14.760 --> 0:12:16.680 the banks. And that's why the banks have been suffering. 0:12:16.880 --> 0:12:19.880 Do we see that within whatever is the short term 0:12:19.960 --> 0:12:23.280 paper market in Turkey is the you know, the proverbial 0:12:23.360 --> 0:12:25.760 canary in the coal mine. Is it some form of 0:12:25.840 --> 0:12:30.160 Turkish library or bank commercial paper? Well, I mean if 0:12:30.160 --> 0:12:33.960 you look at the sort of short term borrowing costs 0:12:34.000 --> 0:12:38.200 in Turkey, of course they've gone up. We've seen uh, 0:12:38.360 --> 0:12:40.960 sort of cross currency swaps going up. We have seen 0:12:41.600 --> 0:12:45.480 spreads of turkeysh banks gone up. So that pressure is 0:12:45.520 --> 0:12:49.080 pain felt through a system. Um. The question is, uh, 0:12:49.559 --> 0:12:52.640 we are the point where women have some failures or 0:12:52.679 --> 0:12:54.880 not and so far if you look at the data, 0:12:55.360 --> 0:12:57.760 and now granted that the data has a couple of 0:12:57.880 --> 0:13:01.080 months lag, but even an eg total and still whatevers 0:13:01.080 --> 0:13:04.040 are going through. I think investors are worried will they 0:13:04.120 --> 0:13:07.400 stop right or not? And that's probably where we have 0:13:07.800 --> 0:13:10.439 not a daily information and that's bring everybody to be 0:13:10.440 --> 0:13:12.280 a little apprehensive. So the other thing that I think 0:13:12.360 --> 0:13:14.599 many people are worried about whether these technical issues just 0:13:14.679 --> 0:13:17.440 become real fundamental issues paplow when you have short term 0:13:17.480 --> 0:13:21.720 interest rates this high in countries like Argentina and essentially 0:13:21.720 --> 0:13:23.880 a response will have to follow in a country like Turkey. 0:13:24.320 --> 0:13:26.720 Essentially that's going to choke off growth, and that's going 0:13:26.800 --> 0:13:29.160 to choke off NIX and then the whole thing just 0:13:29.240 --> 0:13:31.280 sort of ends up in this big loop that it's 0:13:31.360 --> 0:13:33.439 very hard to get out of. Pamplow. To what extent 0:13:33.559 --> 0:13:37.679 were entering that kind of cycle, we you know, you're 0:13:37.760 --> 0:13:40.360 totally right, and and this is an exercise of adjustment, 0:13:40.480 --> 0:13:42.400 right and and and the big question when you go 0:13:42.480 --> 0:13:44.640 into an exercise of adjustment is how to distribute the 0:13:44.720 --> 0:13:47.120 cost of the adjustment. And this is what we are 0:13:47.679 --> 0:13:51.239 seeing debated in Turkey today. I mean, in case of Argentina. 0:13:51.720 --> 0:13:54.160 It is clear that the fiscal side is doing it adjustment, 0:13:54.400 --> 0:13:59.880 but also the costumers are doing the adjustment on higher utility, terrests, etcetera. 0:14:00.440 --> 0:14:04.040 Um the general the corporate sector through lower growth. UH. 0:14:04.480 --> 0:14:07.480 In Turkey, the question is will the government fight back 0:14:07.559 --> 0:14:10.400 the necessary adjustment as they did into thousand and seventeen. 0:14:10.480 --> 0:14:13.800 Remember they did a massive push up in credit into 0:14:13.840 --> 0:14:17.559 thousand and seventeen. Turkey grew seven percent when this economy 0:14:17.679 --> 0:14:21.400 was already heavily dollarly indebted and with a large account deficits. 0:14:21.600 --> 0:14:23.320 So are they going to try to the fire gravity 0:14:23.400 --> 0:14:26.360 for longer, which actually stretches the court which you could 0:14:26.400 --> 0:14:29.760 eventually break or not, or they're gonna buy the bullet 0:14:30.040 --> 0:14:31.880 and just go through the slower and right now and 0:14:31.960 --> 0:14:34.920 trying to distribute the judgment. The banks are in generally 0:14:35.040 --> 0:14:37.160 solid and they will have good provisions to cover some 0:14:37.320 --> 0:14:39.440 of the not performing loans that are going to go 0:14:39.600 --> 0:14:42.080 up as the economy slow down as you indicate it 0:14:42.600 --> 0:14:44.960 um so, but they usually are you going to do 0:14:45.080 --> 0:14:46.920 it or you're just gonna fly back and you're gonna 0:14:46.920 --> 0:14:50.200 make the situation worse. And I think that's where the 0:14:50.320 --> 0:14:52.760 market is still debating because we're not seeing the right 0:14:52.800 --> 0:14:57.360 reaction function by the government yet. What how does contagions start? 0:14:57.480 --> 0:14:59.680 I mean, if we have all these events here there, 0:15:00.120 --> 0:15:02.480 if you look back to Ecuador in Mexico two or 0:15:02.560 --> 0:15:06.040 three times, and we all remember ninety eight, how does 0:15:06.160 --> 0:15:11.640 contagion happen? We all remember ninety eight very well, unfortunately, 0:15:11.880 --> 0:15:16.880 and contagion, contagion. The first thing about contagients happened, uh 0:15:17.400 --> 0:15:20.440 when you spected in the list. So that's that's one 0:15:20.480 --> 0:15:23.360 of the problems with contagion, right and uh and and 0:15:23.640 --> 0:15:28.640 this happens when investors start to pair uh different countries 0:15:28.800 --> 0:15:31.720 by sort of where they wulnerability lize and and and 0:15:31.840 --> 0:15:34.320 then you guys start to separate the winners and losers. 0:15:34.720 --> 0:15:36.320 I think that we have had a little bit of 0:15:36.400 --> 0:15:39.200 contagion before in emerging markets, kind of when the dollars 0:15:39.200 --> 0:15:42.440 started to move higher in April and May, we started 0:15:42.480 --> 0:15:45.160 to see contagion. We saw some contingent from Argentina to 0:15:45.200 --> 0:15:48.080 other countries. If anything, you could say that Turkey, you know, 0:15:48.480 --> 0:15:51.000 having a minded on vulnerabilities, it is a little bit 0:15:51.080 --> 0:15:54.240 of the effect of the contagion coming from Argentina. But 0:15:54.280 --> 0:15:56.840 we're not seeing contingent from Turkey to the rest. At 0:15:56.880 --> 0:16:01.160 this point, um, there's one you know line that is 0:16:01.600 --> 0:16:03.640 women through some of the countries. That is the issue 0:16:03.680 --> 0:16:06.640 of sanctions right today to look at the Russian ruble 0:16:07.080 --> 0:16:12.080 is under pressure on expectations of potential higher sanctions to Russia. 0:16:12.160 --> 0:16:15.400 So that is a new access that investors are dealing 0:16:15.480 --> 0:16:18.560 with that all of a sudden from Washington, that could 0:16:18.600 --> 0:16:22.880 be something that will impair the liquidity of some of 0:16:22.960 --> 0:16:25.160 the markets. That will prevent some place to play in 0:16:25.240 --> 0:16:28.800 significant markets. So that is things that could bring contagients 0:16:28.920 --> 0:16:31.160 the public Goldberg, thank you. So it's the black Rock folks. 0:16:31.200 --> 0:16:34.120 This will be out on our podcast on Spotify, Apple 0:16:34.240 --> 0:16:38.040 Music as well. Public Goldberg just brilliant there on e 0:16:38.240 --> 0:16:58.440 M as well, without cyphering its economics. And I want 0:16:58.480 --> 0:17:01.000 to rip up the script here. Just spend a good 0:17:01.040 --> 0:17:05.119 amount of time getting a clinic from Dr Weinberg on 0:17:05.280 --> 0:17:09.880 why we can't clear markets anymore. Carl Weinberg is legendary 0:17:10.000 --> 0:17:12.520 for his experience with many others and I think of 0:17:12.560 --> 0:17:16.320 Bill Rhodes a City group over the years in saying 0:17:16.480 --> 0:17:20.560 to troubled countries, you know what, you made some mistakes. 0:17:20.880 --> 0:17:23.800 Here's how you work it out, and you usually work 0:17:23.840 --> 0:17:27.400 it out, folks, by extending debt. Maybe there's a cram 0:17:27.520 --> 0:17:31.000 down where somebody takes a loss up front to make 0:17:31.119 --> 0:17:34.640 all benefit down the road. There's an interest rate workout 0:17:34.760 --> 0:17:38.960 in other creative adventures as well. Carl, what happened? Why 0:17:39.080 --> 0:17:43.639 can't we do this anymore? Well, um, we can. Uh. 0:17:43.880 --> 0:17:47.480 The politics of it have become increasingly difficult, and a 0:17:47.600 --> 0:17:51.200 lot of countries, even countries that still remain committed to 0:17:51.240 --> 0:17:54.800 globalism within their own houses, are not willing to commit 0:17:54.880 --> 0:17:59.160 domestic resources to international events. And I'm talking specifically about 0:17:59.240 --> 0:18:03.000 Europe here where Um, while the nations of Europe presumably 0:18:03.040 --> 0:18:06.480 are united in the Union, where they presumably share common 0:18:06.560 --> 0:18:09.399 interests in common causes and think of themselves as Europeans 0:18:09.560 --> 0:18:15.919 rather than Germans, Dutch or Italians, Nonetheless, when countries like Italy, Greece, Portugal, Spain, 0:18:16.119 --> 0:18:21.080 Ireland get into financial difficulty, the politics are unfavorable to 0:18:21.200 --> 0:18:25.520 burden sharing. Is part of this that we've eliminated, for 0:18:25.600 --> 0:18:30.440 the most part fixed currencies, in that a disciplinarian was 0:18:30.520 --> 0:18:35.720 the reality of selected fixed currencies which forced the politicians 0:18:35.840 --> 0:18:39.439 hands well. I think that the recent Europe's not working. 0:18:39.960 --> 0:18:43.200 Isn't the fixed currencies, it's all the things to support 0:18:43.280 --> 0:18:46.680 fixed currencies that have not been implemented. The Europeans, to 0:18:46.760 --> 0:18:50.200 their credit, have been making big strides recently, right better 0:18:50.280 --> 0:18:54.840 late than never on things like banking union, on deposit insurance, 0:18:54.880 --> 0:18:59.480 across borders, on shared risks, on burden sharing, on shared responsibilities, 0:18:59.720 --> 0:19:02.600 but still have a way to go on fiscal responsibilities, 0:19:03.040 --> 0:19:05.439 which is what makes it possible for the United States 0:19:05.520 --> 0:19:09.320 to have a Massachusetts in New York and Arkansas and 0:19:09.400 --> 0:19:12.399 the West Virginia all within the same nation, in the 0:19:12.480 --> 0:19:15.919 same banking system without having to worry about capital flows 0:19:16.119 --> 0:19:19.240 or currency adjustment. Do you worry? Do you worry about? 0:19:19.760 --> 0:19:22.639 I guess this new theology of politics trumping all no 0:19:22.800 --> 0:19:27.439 pun intended with a pacific rim or with idiosyncratic stories 0:19:27.520 --> 0:19:29.879 like Argentina and Turkey. I mean they don't have the 0:19:29.920 --> 0:19:33.520 europe excuse, do they? No, they don't, and there we have. 0:19:33.760 --> 0:19:35.840 But the same basic thing is there. You know, the 0:19:35.920 --> 0:19:40.760 domestic um response to any crisis, you know, is to um, 0:19:41.040 --> 0:19:43.480 you know, blame the foreigner for its shut down on 0:19:43.640 --> 0:19:47.440 foreign transactions and um, you know, try to clamp down 0:19:47.600 --> 0:19:49.880 on the parts of the boat that are leaking, which 0:19:50.000 --> 0:19:53.119 is uh maybe a first instance a good thing, but 0:19:53.520 --> 0:19:56.200 when the credit flows or across borders, you have to 0:19:56.320 --> 0:19:59.359 look across the border for cooperation and for a solution. 0:19:59.400 --> 0:20:02.479 You can't close well well said, and it shows your 0:20:02.520 --> 0:20:07.119 experience the phrase cop cooperation and solution. Are we not 0:20:07.400 --> 0:20:10.080 solving some of these debt workouts because they're really not 0:20:10.320 --> 0:20:14.920 that big of a crisis. Don't tell that to the Greeks, no, 0:20:15.119 --> 0:20:17.320 And they certainly are very real to the countries that 0:20:17.400 --> 0:20:20.119 are involved. And I think the most relevant example right 0:20:20.160 --> 0:20:23.920 now is Italy, and I think everything that we've experienced 0:20:24.000 --> 0:20:26.959 recently in Europe and as well in emerging markets, even 0:20:27.000 --> 0:20:29.400 though Italy is not an emerging market comes to bear 0:20:29.440 --> 0:20:32.119 when we think about Italy. We have a crushing public 0:20:32.200 --> 0:20:34.879 sector debt, we have crushing private sector debt. We have 0:20:35.000 --> 0:20:38.760 cross border cumulative balance of payments obligations which are hidden 0:20:38.800 --> 0:20:41.200 in the e CBS a clearing system, the so called 0:20:41.240 --> 0:20:46.600 target too. And then we have domestic politics where repuviation 0:20:46.720 --> 0:20:50.720 of relationships and obligations seems to be the populous factor 0:20:50.760 --> 0:20:53.040 that's winning the votes. So a government that comes in 0:20:53.160 --> 0:20:55.840 on that kind of vote can't do the right thing 0:20:56.480 --> 0:20:59.560 because it undermines its political base. Well, how do you 0:20:59.640 --> 0:21:02.560 reas on to the idea and this moves on from 0:21:02.760 --> 0:21:06.600 debt workouts, how do you respond to the idea of 0:21:06.920 --> 0:21:10.320 Asia that learned their lessons in and they have a 0:21:10.359 --> 0:21:14.080 bigger piggy bank and all that. How do you respond 0:21:14.119 --> 0:21:15.720 to that? I mean, is that do you buy the 0:21:15.800 --> 0:21:19.680 story that they're stealed for crisis? Yeah? I mean you 0:21:19.760 --> 0:21:22.240 have to respond to that story on seven different levels. Right, 0:21:22.280 --> 0:21:25.040 First of all, crises have always occurred. They're never going 0:21:25.160 --> 0:21:28.520 to stop occurring. Their part of the human condition, all right, 0:21:28.600 --> 0:21:31.840 that things get hot, they overheat, and then somebody has 0:21:31.920 --> 0:21:34.280 to pay for it. So you're never going to eliminate crisis, 0:21:34.320 --> 0:21:37.040 no matter how smart or sophisticated you are. But the 0:21:37.160 --> 0:21:39.200 real story that I think you allude to, which is 0:21:39.280 --> 0:21:41.720 the important one, which is that the growth in the world, 0:21:41.800 --> 0:21:44.600 the economic growth, the population in the world, the money 0:21:44.640 --> 0:21:47.359 in the world, the investment of the world, the future 0:21:47.359 --> 0:21:51.200 of the world is now pivoted towards Asia. And Asia 0:21:51.280 --> 0:21:53.520 is the new place where the action is for investors, 0:21:53.800 --> 0:21:57.040 both for its rewards and for its risks. Because, as 0:21:57.119 --> 0:21:59.000 we know, for us to have the investor risks can 0:21:59.040 --> 0:22:02.720 breed opportunities. Carl Weinberg, thank you so much, greatly appreciate it. 0:22:02.800 --> 0:22:06.000 This morning, Carl Weinberg with my frequency economics with a 0:22:06.040 --> 0:22:10.560 little more thoughtful time constrained, uh idea from what we 0:22:10.680 --> 0:22:25.680 see in the heat and all that, Fim Fox and 0:22:25.760 --> 0:22:28.840 Tom Keenan. Now I really enjoyed Gina smiling with us 0:22:28.840 --> 0:22:32.000 the Blueberg Economics and Bloomberg News, and she's written up 0:22:32.040 --> 0:22:34.680 a bang up story about one of the major trends. 0:22:34.720 --> 0:22:36.600 And you know, just to set this up for you, 0:22:37.200 --> 0:22:40.280 Villain Bowder turned to me one day and he said, Tom, 0:22:40.400 --> 0:22:44.800 this is secret and you can't say publicly, but we 0:22:44.920 --> 0:22:48.720 have hired Catherine Man. And I felt so wonderful to 0:22:48.800 --> 0:22:51.639 see Kathy Man out of brand Ice, who went to O. E. C. D. 0:22:52.280 --> 0:22:55.159 With one of the giant books on trade and one 0:22:55.200 --> 0:22:58.639 of the real theories of dysfunction China in the U 0:22:58.880 --> 0:23:02.159 s to to leave the shop at City Group, tell 0:23:02.240 --> 0:23:05.600 us what you learned about women as chief economists. So 0:23:05.720 --> 0:23:09.200 women are increasingly becoming private sector chief economists, which is 0:23:09.320 --> 0:23:11.960 a big deal because this his for a long time. 0:23:12.480 --> 0:23:15.680 Just spend one of those ceilings that women have a 0:23:15.760 --> 0:23:18.119 lot have had a lot of trouble cracking, and so 0:23:18.640 --> 0:23:22.320 we're seeing Kathy Man at City Group, michelmar Cusin, and 0:23:25.800 --> 0:23:30.119 Marian Stanley. Yeah, just across that, really across the globe, 0:23:30.160 --> 0:23:32.520 we're seeing these women get these great, big jobs Janet 0:23:32.520 --> 0:23:35.800 Henry at HSBC and so one of the things that's 0:23:35.840 --> 0:23:39.959 really interesting is the women who are getting elevated now 0:23:40.040 --> 0:23:44.120