WEBVTT - Apple Services to Be a $45 Billion Business, Munster Says 0:00:00.120 --> 0:00:02.920 Brought you by Bank of America, Mary Lynch. Investing in 0:00:03.000 --> 0:00:07.840 local communities, economies and a sustainable future. That's a power 0:00:08.080 --> 0:00:12.360 of global connections, Mary Lynch, Pierce Fenner and Smith Incorporated 0:00:12.760 --> 0:00:27.400 Member s I p C. Welcome to the Bloomberg Surveillance Podcast. 0:00:27.840 --> 0:00:31.520 I'm Tom Keene with David Gura. Daily we bring you 0:00:31.560 --> 0:00:36.600 insight from the best in economics, finance, investment, and international relations. 0:00:37.000 --> 0:00:41.600 Find Bloomberg Surveillance on iTunes, SoundCloud, Bloomberg dot Com, and 0:00:41.680 --> 0:00:49.840 of course on the Bloomberg How can Germany be an 0:00:49.960 --> 0:00:54.360 exploiter of the Euro, Sir Howard, given the laws of 0:00:54.400 --> 0:00:58.480 the European Union, I don't think it is in this 0:00:58.760 --> 0:01:02.320 in that sense an exploiter of the Euro. What happened 0:01:02.400 --> 0:01:05.520 was that the Germans joined the Euro at what many 0:01:05.520 --> 0:01:09.200 of them perceived to be an uncompetitive rate, and they 0:01:09.240 --> 0:01:13.520 thought that they had been manipulated by the French, if 0:01:13.520 --> 0:01:16.440 you like, who agreed a rate that was too high 0:01:16.520 --> 0:01:19.840 for the Deutsche mark. In the years following the introduction 0:01:19.880 --> 0:01:23.240 of the Euro, the Germans then focused on productivity increases 0:01:23.319 --> 0:01:27.039 and wage discipline. Unions in in Germany worried about the 0:01:27.040 --> 0:01:31.480 impact of competitiveness agreed very very tight wage deals, and 0:01:31.560 --> 0:01:35.800 German competitiveness improved dramatically. Many other countries in the euro 0:01:35.920 --> 0:01:38.440 Zone seemed to take the view that having joined the 0:01:38.440 --> 0:01:40.960 euro Zone, that couldn't have a balance of payments problem anymore, 0:01:41.240 --> 0:01:45.160 and therefore competitiveness wasn't really problem, and wage rates rose 0:01:45.959 --> 0:01:49.400 in Greece, in Spain, in Italy particularly, but also to 0:01:49.440 --> 0:01:52.800 some extent in France, and they became less competitive. Now, 0:01:53.040 --> 0:01:55.960 if you call that manipulation, well, I think that's a 0:01:56.000 --> 0:01:58.760 rather difficult word to use about it. It does, however, 0:01:58.840 --> 0:02:01.560 mean that the Germans are now operating with the currency 0:02:01.600 --> 0:02:06.080 which is an average currency for Germany, Italy, Greece, Spain, etcetera, 0:02:06.320 --> 0:02:09.160 which is certainly lower than it would be if it 0:02:09.280 --> 0:02:12.360 was just the Austria and the Netherlands. That is certainly 0:02:12.400 --> 0:02:15.679 true when you look back twenty and thirty years back 0:02:15.800 --> 0:02:19.359 the time of Green Span Ruben in Summers. Is the 0:02:19.480 --> 0:02:26.440 US the ultimate manipulator of their exorbitant privilege. I think 0:02:26.480 --> 0:02:31.880 that these loaded words like manipulation and illegal, etcetera. Are 0:02:32.000 --> 0:02:35.280 really not a helpful way of thinking about this. Barry 0:02:35.320 --> 0:02:37.560 I can Green coined the phrase exhorbitant privilege of being 0:02:37.560 --> 0:02:39.840 reserved currency, and that to some extent is true because 0:02:39.880 --> 0:02:42.720 it does mean, you know, the traditional phrase, the dollar 0:02:42.880 --> 0:02:45.800 is is our currency, but your problem is typically what 0:02:45.840 --> 0:02:49.200 fread Treasury secretaries have said to people. But I think 0:02:49.240 --> 0:02:51.840 that is just a fact that it is the global 0:02:51.880 --> 0:02:56.000 reserve currency, and that gives you certain freedoms if you like, 0:02:56.120 --> 0:02:59.079 in terms of the way you handle your own monetary policy. 0:02:59.080 --> 0:03:02.920 People don't have a voice but to own dollar assets, 0:03:02.960 --> 0:03:05.840 and that creates a kind of underpinning for you. But 0:03:05.919 --> 0:03:08.919 then to turn that round and use words like manipulation 0:03:08.919 --> 0:03:11.440 that people are doing this deliberately, I just don't think 0:03:11.480 --> 0:03:14.160 that's the way policy makers think about it. How disruptive 0:03:14.160 --> 0:03:18.919 will Donald Trump's presidency in b for European elections this year, Well, 0:03:19.680 --> 0:03:22.919 it's I'm not sure how disruptive will be European elections. 0:03:23.040 --> 0:03:28.320 It certainly is causing European leaders to think about how 0:03:28.360 --> 0:03:31.280 they come together in response to what they do perceive 0:03:31.320 --> 0:03:34.239 clearly more more so than here as a as a threat. 0:03:34.360 --> 0:03:37.160 So I think you will see more pressure for common 0:03:37.200 --> 0:03:41.080 European positions being taken. Whether that will really read across 0:03:41.080 --> 0:03:42.920 into the individual elections, where I think there's a lot 0:03:42.960 --> 0:03:45.120 more national things going on. So how do you worry 0:03:45.200 --> 0:03:48.280 about Marine Lapin becoming president of France? There are fresh 0:03:48.320 --> 0:03:52.240 allegations against possois Fillon. We now have the latest pulsing. 0:03:52.240 --> 0:03:54.440 Actually Manuel and McCallon, the Independent who used to be 0:03:54.440 --> 0:03:59.400 Finance minister under Mansieur Land, may actually win and go 0:03:59.480 --> 0:04:01.440 to the second ound. What happens if we get an 0:04:01.440 --> 0:04:04.640 e manun Malpin stand off? Yeah, I think this is 0:04:04.720 --> 0:04:09.120 quite worrying. Until recently I thought that Fillon was likely 0:04:09.200 --> 0:04:12.440 to win and that he would appeal to a lot 0:04:12.520 --> 0:04:15.480 of the kind of traditional goal list and blue collar 0:04:15.880 --> 0:04:19.920 people who are flirting with Marine le Pin. But we've 0:04:19.960 --> 0:04:22.880 now come across what I think of as Welsh wife risk, 0:04:23.800 --> 0:04:26.720 which has appeared in the case of Fion, and that 0:04:26.760 --> 0:04:31.960 has unsettled things. Macron obviously very plausible sort of guy, 0:04:32.160 --> 0:04:35.599 but with no political roots whatsoever, never been elected to anything. 0:04:36.040 --> 0:04:37.880 So I think that the idea of him in the 0:04:37.920 --> 0:04:40.520 second round versus Mary Lepin is a big throw of 0:04:40.520 --> 0:04:44.760 the dice because he's got no party to back him 0:04:44.880 --> 0:04:48.360 except his small organization called oh Marsh. He doesn't have 0:04:48.400 --> 0:04:50.560 any kind of tradition. How would he behave in a 0:04:50.600 --> 0:04:52.640 big campaign? I think this is a big throw of 0:04:52.640 --> 0:04:55.159 the dice. I would be much more comfortable if it 0:04:55.200 --> 0:04:58.000 were Lepine against either Fillon or if he has to 0:04:58.000 --> 0:05:01.320 pull out back maybe to Juppe. Okay, what happens if 0:05:01.440 --> 0:05:03.880 Marin Lepine gets elected president? And I don't know whether 0:05:03.920 --> 0:05:06.440 that's at the moment a ten percent chance or a 0:05:06.480 --> 0:05:09.479 fifty percent chance in your eyes. I think it is 0:05:09.680 --> 0:05:16.280 very serious indeed for the euro project in total, because 0:05:16.720 --> 0:05:19.200 although she has been a bit cautious about saying she 0:05:19.279 --> 0:05:22.640 wants to come out of the European Union, she wants 0:05:22.680 --> 0:05:25.479 to come out of the Euro and I think that 0:05:25.560 --> 0:05:28.960 the European project would be in big trouble. I cannot 0:05:28.960 --> 0:05:31.640 see Mrs Merkel wanting to stand there in a press 0:05:31.680 --> 0:05:35.920 conference with Marin Lepine talking about how the Franco German 0:05:35.960 --> 0:05:38.200 alliance is going to be re established. That just won't happen. 0:05:38.360 --> 0:05:42.799 So I think that's an existential threat to the European 0:05:42.839 --> 0:05:45.000 project in total, in the way that Brexit is not, 0:05:45.640 --> 0:05:48.560 Sir Howard, when we look at all that we're talking 0:05:48.600 --> 0:05:53.560 about a populism in a political turmoil. Our markets and 0:05:53.600 --> 0:05:55.680 I go to John Plender in the f T today, 0:05:56.080 --> 0:06:00.120 our markets just wildly betting on the advantages of a 0:06:00.160 --> 0:06:04.400 Trump reflation, or is a Trump reflation literally to use 0:06:04.400 --> 0:06:10.839 the British phrase on money illusion. Well, I think probably 0:06:11.160 --> 0:06:13.919 there will be a Trump reflation in the form of 0:06:13.960 --> 0:06:17.520 low corporate taxation and eventually some infrastructure spending. Though whether 0:06:17.520 --> 0:06:19.960 there are enough shovel ready projects for that to be 0:06:20.680 --> 0:06:22.640 a big factor in the short run, I don't know. 0:06:22.920 --> 0:06:26.359 So I don't think it's a complete money illusion, but 0:06:26.760 --> 0:06:30.720 maybe at the moment people are putting too much emphasis 0:06:30.800 --> 0:06:34.080 on that side of the Trump presidency and perhaps too 0:06:34.080 --> 0:06:39.320 little on the trade risk. You know, I look, sir Howard, 0:06:39.360 --> 0:06:41.440 it at all that's going on and the idea of 0:06:41.440 --> 0:06:45.040 a Trump reflation. Help me here with what Janet Yellen 0:06:45.080 --> 0:06:47.640 should do. I mean, if we we forget almost fancy 0:06:47.680 --> 0:06:50.120 and I've never seen this where we've in so much 0:06:50.160 --> 0:06:53.480 way ignored a FED decision and do a two pm today, 0:06:53.520 --> 0:06:56.440 all my radar is up on that, Sir Howard. Help 0:06:56.480 --> 0:06:59.920 me here with the response of a leading economist in 0:07:00.120 --> 0:07:03.960 Cherry yelling to all that's going on in Washington. Well, 0:07:04.000 --> 0:07:07.560 I think the FED will be asking itself whether the 0:07:07.640 --> 0:07:11.240 Trump reflection will really occur and whether there will be 0:07:11.600 --> 0:07:17.000 a corresponding depressing offset on economic growth from worries about 0:07:17.400 --> 0:07:21.080 trade policy. So that to me, if I were the Fed, 0:07:21.120 --> 0:07:23.840 would cause me to wish to hold my fire for 0:07:23.880 --> 0:07:27.200 the time being and not to take it as for 0:07:27.280 --> 0:07:30.400 granted that we are going to see the economy growing 0:07:30.640 --> 0:07:33.360 more rapidly and therefore that they can raise rates quickly. 0:07:33.520 --> 0:07:37.240 So I would expect the Fed to adopt to wait 0:07:37.280 --> 0:07:39.600 and see posture for the moment, and I think those 0:07:39.640 --> 0:07:42.080 factors will be what's in their mind. Francy. Here's the 0:07:42.080 --> 0:07:45.240 Trump reflation right now, very quickly the election. The day 0:07:45.280 --> 0:07:47.440 after the election, up we go. We've shown this chart 0:07:47.680 --> 0:07:51.320 too many times in Francy. And here's this indeterminate charn 0:07:52.280 --> 0:07:56.240 right now, the chair yelling faces this afternoon. Yeah, and 0:07:56.280 --> 0:07:57.640 so I was going back to what you were saying 0:07:57.640 --> 0:08:00.200 looking at Tom's chart and actually bring the duck want 0:08:00.480 --> 0:08:04.520 up on the Boomberg terminal. It would see outdoing once again. 0:08:04.640 --> 0:08:07.000 You see that, Tom, You see that is that we 0:08:07.040 --> 0:08:09.480 started the year where there was an alignment between what 0:08:09.520 --> 0:08:11.840 the dots were telling us in the FED fund futures 0:08:12.040 --> 0:08:14.040 put it no longer. The Feds are still saying three 0:08:14.040 --> 0:08:16.440 to four and actually the Fed funds are saying two 0:08:16.480 --> 0:08:20.800 interest rate hikes. Yeah, that that's that's not surprising because 0:08:20.840 --> 0:08:23.880 I think what I've been saying risk repeating myself, is 0:08:23.920 --> 0:08:26.640 that people are now starting to just try to weigh 0:08:26.720 --> 0:08:30.800 up the totality of Trump presidency. I think in the 0:08:30.840 --> 0:08:33.319 first week they were saying, well, it's all going to 0:08:33.400 --> 0:08:35.520 be about reflation. We're going to see the dollar rising 0:08:35.520 --> 0:08:37.760 and everything. And now people are sun say, well, maybe 0:08:37.960 --> 0:08:40.160 there are some serious threats on the horizon on the 0:08:40.280 --> 0:08:42.360 trade policy front, that that might create a bit of 0:08:42.360 --> 0:08:45.280 grinding of gears, even if you know, eventually you get 0:08:45.360 --> 0:08:47.760 to a more rational outcome, but in the short run, 0:08:47.800 --> 0:08:50.400 that could be somewhat disruptive. Thank you so much, sir, 0:08:50.400 --> 0:08:53.920 Howard Davis. What a great, great interview with the RBS 0:08:54.040 --> 0:09:09.280 chairman there, Gene Munster. Where this Loup Ventures, of course 0:09:09.280 --> 0:09:13.000 more than iconic, Piper Jaffrey. What is Loup Ventures? How's 0:09:13.000 --> 0:09:17.040 it different than the day today? Grind it fortress, Piper. Uh, 0:09:17.280 --> 0:09:19.480 From a day to day, I'm still doing research. I'm 0:09:19.520 --> 0:09:22.480 head of research, so I still write three research. No, 0:09:22.679 --> 0:09:25.400 you still stand out in front of Apple stores? Oh yeah, 0:09:25.800 --> 0:09:29.440 we uh we do that. It's not every daytime. We 0:09:29.480 --> 0:09:31.199 do that, but I would say maybe once a month. 0:09:31.440 --> 0:09:34.240 Once a month, you're out there looking at what's uh 0:09:34.559 --> 0:09:37.320 going on? Help me here with what I need to 0:09:37.400 --> 0:09:40.200 know about Apple's balance sheet. I look at the lack 0:09:40.240 --> 0:09:44.400 of goodwill, it's it's it's it's the most unique balance 0:09:44.480 --> 0:09:48.320 sheet I've ever seen. Why is that? Well, because they 0:09:48.559 --> 0:09:51.320 have a lot of cash, first of all, called billion. 0:09:51.760 --> 0:09:54.360 They have a lot of debt to call its sixty 0:09:54.400 --> 0:09:59.040 or seventy billion, you know that's correct, And they have 0:09:59.600 --> 0:10:03.000 h a boatload of that debt is outside of the US. 0:10:03.120 --> 0:10:05.080 And so if you look at the boatload of that 0:10:05.120 --> 0:10:06.840 cash is so if you look at the total cash 0:10:07.200 --> 0:10:09.720 outside the US, it's called probably a hundred a hundred 0:10:10.120 --> 0:10:13.440 billion dollars, and so that's net of debt. So there's 0:10:13.640 --> 0:10:16.480 there's a big chunk that's offshore. Still three and a 0:10:16.520 --> 0:10:19.160 half million more iPhones to new customers. Who who are 0:10:19.200 --> 0:10:23.280 these new customers buying these phones? And how is how 0:10:23.280 --> 0:10:26.360 many more can they recruit to the Apple world. Well, 0:10:26.400 --> 0:10:28.760 some of them came from Samsung. Samsung obviously had a 0:10:28.800 --> 0:10:32.000 tough fall here, so they probably we picked up about 0:10:32.000 --> 0:10:34.720 half of those from Samsung people, and they still are 0:10:34.760 --> 0:10:39.040 getting growth in merging markets, and China mainland was flat 0:10:39.080 --> 0:10:42.480 ear rear, uh, the Brazil was particularly strong. So they 0:10:42.480 --> 0:10:44.800 pick up that. I think you're getting to a bigger 0:10:45.080 --> 0:10:47.640 question around the story, which is is this really a 0:10:47.679 --> 0:10:50.520 growing market? And the answer is that it's not. The 0:10:50.760 --> 0:10:54.240 smartphone market doesn't grow um and Apple knows that, and 0:10:54.280 --> 0:10:57.360 that's why they're talking about things like augmented reality and 0:10:57.360 --> 0:11:02.080 and these shift towards wearable. Yeah, David, just so you know, 0:11:02.160 --> 0:11:04.880 the augmented reality is we're trying to break a record 0:11:04.880 --> 0:11:07.439 and get to twenty four Apple products in our house. 0:11:08.080 --> 0:11:11.080 That's our augmented reality. What it defined it for us? 0:11:11.120 --> 0:11:14.280 What is augmented real? We know virtual reality, what's augmented reality? 0:11:14.280 --> 0:11:16.800 And what's Apple? What's Apple's game plan for it? So 0:11:16.840 --> 0:11:20.800 it's super imposing um things onto the real world and 0:11:20.800 --> 0:11:24.800 stuff Pokemon Pokemon goo exactly, but but something that would 0:11:24.880 --> 0:11:27.719 be much more advanced and more usable than what I 0:11:27.800 --> 0:11:29.560 think is a clumsy game. But that's a great example. 0:11:30.160 --> 0:11:32.559 How is Apple's approach different from say Google's approach to 0:11:32.600 --> 0:11:35.400 augmented reality. You have these big companies getting into this space. 0:11:35.440 --> 0:11:39.000 What is each doing differently? Apple is gonna put position 0:11:39.040 --> 0:11:41.960 as more as a hardware play. Google seems to be. 0:11:42.120 --> 0:11:46.000 They had Google Glass that failed and their new efforts 0:11:46.040 --> 0:11:49.199 they've restarted it. Now it's kind of under wraps. But 0:11:49.440 --> 0:11:52.400 they also have a significant investment in this company, Magically, 0:11:52.440 --> 0:11:55.040 which is a very controversial company but a lot of 0:11:55.120 --> 0:11:57.760 high expectations. But Google is one of the majority investors 0:11:57.760 --> 0:12:01.040 in that. And so Apple's approach is to the hardware themselves, 0:12:01.040 --> 0:12:03.360 and they just filed a couple of patents last week 0:12:03.400 --> 0:12:07.480 around augmented reality and wearables, and Google's approach appears to 0:12:07.520 --> 0:12:10.040 be more partnering our college. Sheer Ova, who writes for 0:12:10.040 --> 0:12:13.319 a Bloomberg Gadfly, had a column yesterday looking at the 0:12:13.360 --> 0:12:16.160 Apple results saying that you can draw the comparison here 0:12:16.160 --> 0:12:18.480 to Walmart, and she sort of wondered what Steve Jobs 0:12:18.480 --> 0:12:20.360 would think about that comparison. When you look at growth, 0:12:20.400 --> 0:12:23.000 when you look at the balance sheet, Uh, what is 0:12:23.040 --> 0:12:25.760 it that's gonna kickstart growth for for applicant to get back? 0:12:25.800 --> 0:12:27.040 Can I get back to where it was, to the 0:12:27.120 --> 0:12:30.199 kind of growth that it saw before. There can be 0:12:30.320 --> 0:12:33.840 some periods where growth is going to be much quicker, 0:12:33.880 --> 0:12:36.240 and so for example, this fall, when we come into 0:12:36.240 --> 0:12:38.400 the iPhone ten, there's going to be a large pool 0:12:38.559 --> 0:12:41.960 of million plus people with really old phones and that's 0:12:41.960 --> 0:12:45.199 gonna drive growth. Should step up at that point. Uh. 0:12:45.280 --> 0:12:47.440 Then they'll come out with a foldable phone, probably the 0:12:47.480 --> 0:12:49.320 next three to five years. And so think of it 0:12:49.360 --> 0:12:51.880 as having a phone the same size that you have today, 0:12:51.920 --> 0:12:53.240 but then you can fold it open. It could be 0:12:53.280 --> 0:12:56.000 a small iPad that will be good for growth, but 0:12:56.040 --> 0:12:59.120 it still doesn't change the long term trajectory. The car 0:12:59.240 --> 0:13:02.840 is what's needed. Uh. And and the before or wearable, 0:13:03.040 --> 0:13:06.600 whether it's yeah, something along those And David Sure's comment 0:13:06.920 --> 0:13:10.800 is really important in terms of this desire for growth. 0:13:11.280 --> 0:13:15.680 General Mills, which is the ultimate basic company his return 0:13:15.800 --> 0:13:18.800 eleven points seven percent per year for the last ten years. 0:13:19.360 --> 0:13:21.520 Apple can be am I right, Gene, Apple can be 0:13:21.640 --> 0:13:25.840 a General Mills and still meant money for shareholders. Yes, 0:13:25.920 --> 0:13:29.520 And I think you're gonna see that when and even 0:13:29.559 --> 0:13:32.520 more when they report their March quarter and talk about 0:13:32.920 --> 0:13:37.280 capital allocation and buy back and improve dividends. So I 0:13:37.320 --> 0:13:41.080 remember reading, you know, Bloomberg reporting on Apple's return to 0:13:41.120 --> 0:13:43.319 services hoping to improve the services they offer. It seems 0:13:43.360 --> 0:13:46.160 like yesterday was a good moment. For the Apple portfolio 0:13:46.240 --> 0:13:49.040 of services. Are you satisfied with how well they've done 0:13:49.040 --> 0:13:50.719 turning that around? Is there still room for them to 0:13:50.840 --> 0:13:53.600 make more improvements? Services a big deal. When we look 0:13:53.600 --> 0:13:56.720 at kind of the Apple model for the next five years, 0:13:56.760 --> 0:13:59.040 the growth is going to come from services. So the 0:13:59.040 --> 0:14:01.120 iPhone is going to kind of EBB and flow, but 0:14:01.200 --> 0:14:04.040 service is going to go from college twenty billion dollar 0:14:04.080 --> 0:14:08.520 business this year to probably a forty five billion dollar business. 0:14:08.640 --> 0:14:11.320 Right now, Apple services business is about the same size 0:14:11.320 --> 0:14:14.600 as Facebook, not growing as fast. But so when you 0:14:14.640 --> 0:14:16.640 put all of this together and look at the profitability, 0:14:16.640 --> 0:14:20.560 which is much higher. Services is a critical part to 0:14:20.600 --> 0:14:23.680 the Apple story longer term, and they need to embrace 0:14:23.760 --> 0:14:26.320 it even more aggressively than they are today. It's a 0:14:26.360 --> 0:14:29.920 quick question about Google and and UH and AI. How 0:14:29.960 --> 0:14:32.000 far have they gone towards monetizing that. In other words, 0:14:32.160 --> 0:14:35.440 you have the innovation part of things, is the monetari 0:14:36.000 --> 0:14:40.480 monetization side of things close behind. It's it's slowly starting. 0:14:40.480 --> 0:14:43.680 And think of AI. Google set on their last conference 0:14:43.680 --> 0:14:45.560 call that they're going to be an AI first company, 0:14:45.600 --> 0:14:48.040 their mobile first company. They they're gonna become AI first, 0:14:48.320 --> 0:14:51.480 and they talked about three fifty AI innovations in the court. 0:14:52.120 --> 0:14:54.840 And what this will be is in terms of monetizing it, 0:14:54.840 --> 0:14:57.080 it's not going to be like an AI product that 0:14:57.080 --> 0:14:59.480 you're going to download, and it's going to be the 0:14:59.520 --> 0:15:01.680 existing products you have are just gonna get smarter in 0:15:01.720 --> 0:15:04.200 yourknees the more. Okay, Jean, if you forget your Apple 0:15:04.360 --> 0:15:07.640 I D. So if the kid wants to download apps 0:15:08.360 --> 0:15:11.400 on their iPod but they can't do it because I 0:15:11.520 --> 0:15:15.520 forgot my Apple I D, what do I do? Well, 0:15:15.600 --> 0:15:18.840 you do uh A reset and I D reset and 0:15:18.880 --> 0:15:22.840 eventually you're going to probably come up against some password problems. 0:15:22.840 --> 0:15:25.920 So the good news with Apple is you can actually 0:15:25.920 --> 0:15:29.440 have real uh support, real tech support around their services 0:15:29.520 --> 0:15:32.040 and you can call somebody. You know, there's the question 0:15:32.160 --> 0:15:35.560 you needed to get from gene Muster Hell Loop Ventures. Jean, 0:15:35.680 --> 0:15:48.160 thank you so much. We continue. This is Bloomberg, brought 0:15:48.200 --> 0:15:51.840 you by Bank of America Mary Lynch, dedicated to bringing 0:15:51.840 --> 0:15:55.600 our clients insights and solutions to meet the challenges of 0:15:55.600 --> 0:15:59.880 a transforming world. That's the power of global connections. Merrily 0:16:00.280 --> 0:16:08.080 Pierce Veneran Smith Incorporated Member s I p C. We 0:16:08.120 --> 0:16:11.640 are pleased to bring you worldwide very Ion Green Professor, 0:16:12.240 --> 0:16:16.120 Good morning, Good morning Tom. How are you? I'm very good. 0:16:16.160 --> 0:16:19.680 For President Trump has an exorbitant privilege, which is I 0:16:19.680 --> 0:16:25.920 guess he can talk anytime seven on dollar strength, dollar policy, 0:16:25.960 --> 0:16:30.040 dollar weakness. What is the icon green prescription for any 0:16:30.120 --> 0:16:35.960 president to do when discussing the US dollar? To hold 0:16:35.960 --> 0:16:40.560 his fire? Basically, Um, I think the term strong dollar 0:16:40.680 --> 0:16:46.080 policy has been unfortunate. It's really code for uh, don't 0:16:46.120 --> 0:16:49.600 comment on the dollar because the exchange rates at the 0:16:49.680 --> 0:16:54.600 single most important price in the economy, and random tweet 0:16:54.760 --> 0:16:59.440 can drive it up or down. Do you help us 0:16:59.480 --> 0:17:01.400 with that? A term that is thrown around so much, 0:17:01.400 --> 0:17:04.520 strong dollar policy goes back to Bob Rubin? Of course? 0:17:05.080 --> 0:17:07.120 Are we are we seeing a change here in policy? 0:17:07.119 --> 0:17:10.080 Do you think when it comes to the dollar? I 0:17:10.119 --> 0:17:14.640 don't think policy has been defined yet, but we are 0:17:14.760 --> 0:17:19.119 seeing much more uncertainty around policy. We don't know whether 0:17:20.400 --> 0:17:24.399 Mr Trump will tell his Treasury Department to intervene in 0:17:24.440 --> 0:17:27.920 the foreign exchange market. We don't know whether the administration 0:17:28.000 --> 0:17:32.439 will job ow the FED to adjust policy in ways 0:17:32.600 --> 0:17:36.600 with the with implications for the dollar or not. All 0:17:36.640 --> 0:17:39.840 we know for sure is that everything is on the table, 0:17:39.960 --> 0:17:44.679 conceivably at this point, everything's on the table. Mentioned there 0:17:44.720 --> 0:17:47.879 that came came via Twitter. What have you learned here 0:17:47.880 --> 0:17:49.280 over the last few days. It's hard to believe it's 0:17:49.280 --> 0:17:51.160 just been about a week plus of this administration. What's 0:17:51.160 --> 0:17:55.800 your takeaway from this this first week? The clear takeaway 0:17:55.880 --> 0:17:58.720 is that something big is likely to happen on the 0:17:58.760 --> 0:18:02.560 trade policy front um. Getting corporate tax reforman is going 0:18:02.600 --> 0:18:06.600 to be hard. Getting individual and come tax reform is 0:18:06.640 --> 0:18:11.040 going to be harder. Getting big infrastructure packages going to 0:18:11.119 --> 0:18:15.359 be harder. Still, all of those things require cooperation with 0:18:15.440 --> 0:18:19.280 the Congress, which is time consuming and can't be taken 0:18:19.320 --> 0:18:22.800 for granted. Trade policy is the one place where the president, 0:18:23.080 --> 0:18:25.879 if he grows in patient, can move in laterally. I 0:18:25.920 --> 0:18:29.080 think that's what we've seen. Going back to your wonderful 0:18:29.240 --> 0:18:32.760 in focus, this is a fabulous short read. Globalizing Capital 0:18:33.320 --> 0:18:36.440 or very Ikey Green talks about the many shades of globalization, 0:18:36.560 --> 0:18:39.720 starting with a gold standard and and moving forward from there. 0:18:39.720 --> 0:18:42.159 I can't say enough about the effort. If you were 0:18:42.200 --> 0:18:45.320 to write a chapter eight, you go chapter five, Breton Woods, 0:18:45.400 --> 0:18:48.399 chapter six, A Brave New Monetary World. You end up 0:18:48.400 --> 0:18:50.399 with a conclusion if you need you to write a 0:18:50.400 --> 0:18:53.440 back chapter on the back end for Mr Trump to read. 0:18:53.720 --> 0:18:57.320 What would your new chapter be? Look for the third 0:18:57.440 --> 0:19:04.360 edition in Tom, Thank you. UM. I think, uh, we 0:19:04.400 --> 0:19:08.840 have learned over and over again that flexible exchange rates 0:19:09.240 --> 0:19:13.400 are the worst alternatives except for all the others. We 0:19:13.480 --> 0:19:17.879 have to learn to live with this world. And what 0:19:18.000 --> 0:19:23.520 it implies for Trump is that everything that he is contemplating, 0:19:23.680 --> 0:19:30.040 from expansionary fiscal policy to create protectionism to destination based 0:19:30.160 --> 0:19:36.160 corporate tax reform is apt to drive the dollar up, 0:19:36.560 --> 0:19:41.320 uh serpificantly and frustrate his own intentions. I don't think 0:19:41.359 --> 0:19:43.560 there is any way around that other than to try 0:19:43.600 --> 0:19:48.240 to moderate a little bit those extreme policy initiatives. UM, 0:19:48.560 --> 0:19:51.320 quickly question here just about about that trade policy are 0:19:51.359 --> 0:19:53.840 we Are you any more confident what the shape of 0:19:53.840 --> 0:19:55.600 that policy is going to be? As you said, it's 0:19:55.600 --> 0:19:57.000 going to be a big event here, we're gonna see 0:19:57.040 --> 0:19:58.640 something happened with it. Do you have a better sense 0:19:58.640 --> 0:20:02.640 of what it's going to look like? No, I don't 0:20:02.640 --> 0:20:04.600 think any of us do. But I think there's some 0:20:04.720 --> 0:20:10.480 more obvious targets than others. Mexico is an obvious target, 0:20:10.720 --> 0:20:16.399 China less so, because China is a very large economy 0:20:16.560 --> 0:20:21.400 with geo political reach, and Germany even less. Though even 0:20:21.400 --> 0:20:25.399 though Germany has a big external surplus, it does not 0:20:25.520 --> 0:20:29.800 have its own currency, as Mrs Merkel reminded Mr Crump 0:20:29.800 --> 0:20:33.960 in the world. Yet that makes UH Germany a more 0:20:34.119 --> 0:20:38.720 difficult problematic target. Professor, I look at I think of 0:20:38.760 --> 0:20:43.760 Douglas or when at dartmous work on mercantilism in zero sum, 0:20:43.960 --> 0:20:48.600 in the phrases thrown around right now, are we working 0:20:48.720 --> 0:20:52.520 our way back to a colonial world? Are we becoming 0:20:52.720 --> 0:20:57.719 inward and a more closed economy like an autarchy? Again? 0:20:57.800 --> 0:21:02.159 Are we doing that? I think what what's happening is 0:21:02.280 --> 0:21:07.359 that the age of hyper globalization, when cross border creating 0:21:07.440 --> 0:21:12.680 finance for growing faster than everything else, is over. If 0:21:12.760 --> 0:21:16.640 we follow sensible policies, we don't have to have regress 0:21:16.680 --> 0:21:20.320 from here. The word you use Tom Meth's on point 0:21:20.800 --> 0:21:24.159 is mercantilism. If you look at the Peter Navarro Wilbur 0:21:24.280 --> 0:21:28.399 Ross documents from the Fall or their Financial Times column, 0:21:28.440 --> 0:21:32.440 it was all about imports bad, exports good. And that's 0:21:32.520 --> 0:21:36.000 classic mercantilism, which we know can be good politics. That 0:21:36.240 --> 0:21:41.840 is bad economics. It's not. However, zero sum. It's negative 0:21:41.880 --> 0:21:45.160 sum once we get into trade warfare and retaliation and 0:21:45.240 --> 0:21:48.960 breaking up global supply chains and so forth. When I 0:21:49.040 --> 0:21:52.760 look at the games theory that will occur, you are 0:21:53.040 --> 0:21:56.600 these students of the mistakes we made in the thirties, 0:21:56.640 --> 0:22:00.040 beginning with golden fetters years ago and the works of 0:22:00.080 --> 0:22:04.440 the International Monetary Fund. When someone says to you, does 0:22:04.520 --> 0:22:09.720 this hearken back to nineteen thirties regionalism in block thinking? 0:22:10.240 --> 0:22:13.919 Are they right? They are right, and they ought to 0:22:14.000 --> 0:22:18.400 focus on two risks that developed in the nineties. Number One, 0:22:18.920 --> 0:22:21.880 when the US lapped on the Smooth Holly tariff, we 0:22:22.280 --> 0:22:27.240 destroyed the financial position of emerging markets. Basically, indebted countries 0:22:27.359 --> 0:22:30.920 couldn't earn the dollars to pay back what they borrowed, 0:22:31.040 --> 0:22:35.560 and that then collapse the global financial system. So if 0:22:36.440 --> 0:22:38.560 we have a Trump tariff and a strong rise in 0:22:38.640 --> 0:22:43.880 the dollar, that could happen again. Number Two, trade conflicts 0:22:43.960 --> 0:22:47.880 billed over into other forms of geo political conflict. Imated 0:22:47.960 --> 0:22:52.399 much harder for countries to cooperate in opposition to rising 0:22:52.440 --> 0:22:56.200 threats like that from the Third Reich. So I I 0:22:56.840 --> 0:23:00.240 worry as well about how trade tension could spill over 0:23:00.400 --> 0:23:03.679 into other tension as it did in the nineteen You 0:23:03.720 --> 0:23:06.080 mentioned that Navar piece and the Ft, and I wonder 0:23:06.119 --> 0:23:08.480 sort of what the takeaway is from the commentary he 0:23:08.520 --> 0:23:10.400 made there about the Euro. We saw the euro move 0:23:11.080 --> 0:23:13.240 on the release of that that column in the Ft 0:23:13.359 --> 0:23:17.000 he talked about the sort of the fact of dutsch Mark. 0:23:17.280 --> 0:23:19.720 I'm misquoting it there, but you know that that there 0:23:19.800 --> 0:23:22.160 is a larger German role in the Euro right now, 0:23:22.280 --> 0:23:24.359 what's your takeaway from that? What was the importance of 0:23:24.359 --> 0:23:28.119 that to you? Number one, It doesn't seem to me 0:23:28.160 --> 0:23:33.280 that Mr Navarro really understands the Euro or how it's determined, 0:23:34.040 --> 0:23:37.920 or appreciates the fact that Germany does not have a 0:23:37.960 --> 0:23:42.600 central bank anymore. But it does reflect that same mercantilist 0:23:42.680 --> 0:23:46.080 thinking that we were talking about a moment ago, that 0:23:46.280 --> 0:23:51.639 Germany has an external surplus. Therefore, the inference follows erroneously 0:23:51.920 --> 0:23:54.520