WEBVTT - Weak Dollar To Continue As Central Banks Reallocate: Borthwick 0:00:05.800 --> 0:00:08.720 Welcome to the Bloomberg p m L Podcast. I'm pim Fox. 0:00:08.760 --> 0:00:11.520 Along with my co host Lisa Abramowitz. Each day we 0:00:11.640 --> 0:00:15.120 bring you the most important, noteworthy, and useful interviews for 0:00:15.200 --> 0:00:17.840 you and your money, whether you're at the grocery store 0:00:17.960 --> 0:00:20.720 or the trading floor. Find the Bloomberg p m L 0:00:20.840 --> 0:00:34.080 Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot com. Questions 0:00:34.120 --> 0:00:37.279 about the US dollar and that's why we have Douglas Barthwick. 0:00:37.400 --> 0:00:40.000 He is managing director in the head of FX at 0:00:40.080 --> 0:00:43.800 Chapola Dane and a company and he joins us now. Doug, 0:00:43.840 --> 0:00:46.200 thanks very much for being with us. Just a question 0:00:46.240 --> 0:00:50.600 about the dollar is why is the dollar not looking stronger? 0:00:50.760 --> 0:00:54.920 I mean maybe it's a sort of fastle argument, but uh, 0:00:55.000 --> 0:00:59.040 let's see macro backdrop. US growth is good, tax cut 0:00:59.080 --> 0:01:02.320 has already been one, and perhaps even another one in 0:01:02.360 --> 0:01:05.360 the offing. A dollar, though, has fallen if you go 0:01:05.400 --> 0:01:08.200 back all the way in November sixteen the end of 0:01:09.400 --> 0:01:12.440 it's fallen more than ten percent against the basket of currencies. 0:01:12.520 --> 0:01:16.440 Why are there no dollar bulls out there? Well, there 0:01:16.480 --> 0:01:19.240 were a lot of dollar bulls about back in November 0:01:19.240 --> 0:01:21.640 of two dozen sixteen. As you as you discussed, but 0:01:21.800 --> 0:01:24.840 they've sully been squeezed out of the woodwork. I think 0:01:24.880 --> 0:01:28.280 that there's an expectation. Are folks certainly expected that as 0:01:28.319 --> 0:01:30.560 a fed race rates that be positive for the dollar, 0:01:31.120 --> 0:01:33.160 but they forgot at the same time as that, as 0:01:33.200 --> 0:01:35.839 the fed rais rates, other countries that also start raising 0:01:35.920 --> 0:01:38.400 rates as well, or start moving out of the quantity 0:01:38.400 --> 0:01:41.720 of easing that they were getting into. And against Europe specifically, 0:01:41.720 --> 0:01:44.400 you've seen Europe turner and and now start to discuss 0:01:44.440 --> 0:01:46.640 getting rid of their quantity of using. You've got the 0:01:46.720 --> 0:01:50.160 Chinese talking about getting rid of theirs, and that creates 0:01:50.240 --> 0:01:54.000 some headway against which the dollar has a tough time 0:01:54.040 --> 0:01:55.920 and strengthening. But at the same time, you have to 0:01:55.960 --> 0:01:59.760 remember the global central banks have been incredibly overweight the 0:01:59.800 --> 0:02:03.360 dollar dollar, especially given what was happening in Greece about 0:02:03.360 --> 0:02:06.080 ten years ago. Neither the grease issue is something that 0:02:06.120 --> 0:02:09.240 no one talks about. These CenTra bank reserve manders are 0:02:09.280 --> 0:02:12.120 reallocating back again and they're taking some of that overweight 0:02:12.160 --> 0:02:14.880 dollar exposure and they're putting it into other currencies. The 0:02:14.880 --> 0:02:17.000 euro is a good example of where money's going. Money 0:02:17.080 --> 0:02:19.520 is also going into the end but a lot more 0:02:19.520 --> 0:02:21.959 money is going into the Chinese currency because the Chinese 0:02:21.960 --> 0:02:24.040 currency is not seen as a reserve asset as well, 0:02:24.639 --> 0:02:27.440 and so instead of allocating money towards the dollar, you're 0:02:27.440 --> 0:02:30.280 seeing center banks now allocated to different currencies, and that's 0:02:30.320 --> 0:02:33.080 also seeing dollar weakness, you know, and Doug your rays 0:02:33.160 --> 0:02:37.240 really interesting question. How much is this a normalization of 0:02:37.400 --> 0:02:39.680 the dollar relative to the rest of the world, and 0:02:39.720 --> 0:02:42.639 how much is this an overcrowded trade the dollar will 0:02:42.720 --> 0:02:46.680 keep on weakening. Well, it would be I think that 0:02:46.720 --> 0:02:50.560 the dollar would be an overcrowded trade if if if 0:02:50.600 --> 0:02:54.320 center banks were extremely underweight the dollar. Unfortunately, they're still 0:02:54.440 --> 0:02:58.280 extremely overweight the dollar, where as much as portfolios are 0:02:58.280 --> 0:03:02.400 still in the US dollar. However, maybe their trade flows 0:03:02.480 --> 0:03:05.280 go to the US and so I would expect that 0:03:05.280 --> 0:03:07.520 you continue see this reweighting going on for quite some 0:03:07.600 --> 0:03:10.799 time now. Before the euro dropped down to one fifty, 0:03:11.160 --> 0:03:14.000 remember we were training over one fifty and right now 0:03:14.000 --> 0:03:16.520 that you'res trading at one twenty three the figure. So 0:03:16.560 --> 0:03:18.480 in my mind, you know, maybe we're halfway through in 0:03:18.480 --> 0:03:22.240 the move. But essentially, but before the European crisis, the 0:03:22.280 --> 0:03:26.040 dollars in a weakening trend. It was just interrupted by Greece, 0:03:26.200 --> 0:03:29.080 and now we're slowly getting back into that weakening trend. 0:03:29.120 --> 0:03:31.640 But I think the center bank managers, especially when it 0:03:31.680 --> 0:03:34.720 comes down to the Chinese currency, are more interested now 0:03:34.760 --> 0:03:37.320 in putting less weight into buying US treasuries and more 0:03:37.360 --> 0:03:40.960 weight into buying treasuries in Japan, let's say, and certainly 0:03:40.960 --> 0:03:43.280 in China. So do you have a particular level for 0:03:43.360 --> 0:03:45.840 the dollar euro right now? Dollar, you're as you said, 0:03:45.880 --> 0:03:49.119 one twenty three, let's call it, Well, it's one three 0:03:49.200 --> 0:03:50.640 right now. I think we're going to see up to 0:03:50.680 --> 0:03:53.560 that one thirty and one level for sure, And I 0:03:53.640 --> 0:03:55.240 think it's just really a matter of time. It's it's 0:03:55.280 --> 0:03:57.280 not about the direction. I think it's more about the pace. 0:03:57.320 --> 0:03:59.280 And I think that the US is very concerned about 0:03:59.320 --> 0:04:01.280 making sure that the case is not too fast of 0:04:01.360 --> 0:04:04.520 dollar weakness. But this administration, as we all know, once 0:04:04.560 --> 0:04:06.800 a week or dollar they just can't talk about it anymore. 0:04:07.200 --> 0:04:09.760 Now I'm wondering the flip side of a week dollar 0:04:10.040 --> 0:04:12.760 has been, at least in the in the past few months, 0:04:12.800 --> 0:04:16.680 a strong emerging markets currency basket of currencies, and do 0:04:16.720 --> 0:04:20.720 you expect that to continue? Yeah, they're really one and 0:04:20.760 --> 0:04:24.760 the same. So if you're short dollars, let's say the 0:04:24.800 --> 0:04:28.800 dollars the strengthened considerably, maybe ten. A lot of these 0:04:28.800 --> 0:04:32.800 emerging market countries have significant dollar debt exposure, so if 0:04:32.800 --> 0:04:35.760 the US dollars was the strength and significantly, that would 0:04:35.960 --> 0:04:38.719 cause their debt exposure to go up and their interest 0:04:38.720 --> 0:04:41.400 payments may be unpayable. You could have a new emerging 0:04:41.440 --> 0:04:44.400 markets debt crisis. So as long as the US dollar 0:04:44.440 --> 0:04:46.960 continues to weaken, that's very positive for the emerging market 0:04:46.960 --> 0:04:49.680 countries that have that dollar exposure. Well so, so just 0:04:49.800 --> 0:04:53.000 I'm wondering what would you have to see to make 0:04:53.040 --> 0:04:56.200 you change your mind about the thesis that the dollar 0:04:56.279 --> 0:05:01.720 really is in a study weakening kind of pattern here? Um, well, 0:05:01.760 --> 0:05:03.200 but I have to see. Well, I think that if 0:05:03.200 --> 0:05:07.080 there was a domestic implosion in the US, so sort 0:05:07.120 --> 0:05:10.359 of a mortgage crisis like we've had before, then something 0:05:10.440 --> 0:05:13.960 like that would see changes in the US and a 0:05:13.960 --> 0:05:16.120 new quantitative easing in the United States that would then 0:05:16.160 --> 0:05:19.159 turn this around, this dollar weakness. And I think the 0:05:19.240 --> 0:05:22.479 quantity of easing again would be the way to have 0:05:22.600 --> 0:05:24.680 that happen. But I don't see quantity of using on 0:05:24.720 --> 0:05:27.240 the horizon right now, especially given the FED and where 0:05:27.279 --> 0:05:31.520 it's standing. Cottney thoughts quickly on let's say dollar versus 0:05:31.760 --> 0:05:34.960 the looney versus the Canadian dollar. I think the dollar 0:05:35.080 --> 0:05:38.039 Canada will continue to move lower, just as dollar Mexico 0:05:38.120 --> 0:05:40.680 continues to move lower, really on the back of the 0:05:40.680 --> 0:05:43.680 fact that I think that folks fears about NAPTA are 0:05:43.680 --> 0:05:46.279 going to end up being overblown. I think that NAPTA 0:05:46.320 --> 0:05:48.680 will end up being done and that'll see then a 0:05:48.800 --> 0:05:51.560 flow back into Canada because the Canadian dollars obviously had 0:05:51.560 --> 0:05:54.000 a lot of weakness on the back of fears over NAPTA. 0:05:54.400 --> 0:05:56.960 Now Mexico has not had weakness. In fact, the Mexican 0:05:57.000 --> 0:05:58.880 pacer has continued to shrenden. So I think that dollar 0:05:58.880 --> 0:06:01.320 Canada is gonna play catch up and you probably dollar 0:06:01.360 --> 0:06:04.440 Canada through by the end of the year. Doug Borthwick, 0:06:04.480 --> 0:06:07.160 thank you so much for joining us. Doug Barthwick, Managing 0:06:07.200 --> 0:06:10.600 director and head of f X for Exchange, Chapter Len 0:06:10.760 --> 0:06:14.679 and Company, talking about why the dollar just isn't getting 0:06:14.680 --> 0:06:18.680 the bid you would expect given the uncertainties out there. 0:06:32.920 --> 0:06:35.880 President Donald Trump has said that Amazon does not pay 0:06:35.960 --> 0:06:39.159 its fair share of taxes. The President also has said 0:06:39.200 --> 0:06:41.719 that Amazon does not pay fair rates to the US 0:06:41.839 --> 0:06:46.000 Postal Service, and indeed, the President on a tweet recently 0:06:46.080 --> 0:06:48.400 said that it's reported that the U. S Post Office 0:06:48.440 --> 0:06:50.680 will lose one and a half dollars on average for 0:06:50.760 --> 0:06:54.599 each package it delivers for Amazon. Here to help us 0:06:54.640 --> 0:06:57.839 understand more about the relationship between Amazon and the US 0:06:57.920 --> 0:07:01.000 Postal Service is Satish Jendle. He is the president of 0:07:01.320 --> 0:07:06.360 s J Consulting and he joins us from Swiftly, Pennsylvania. Said, 0:07:06.400 --> 0:07:09.400 he's always a pleasure. Now just give people a little 0:07:09.400 --> 0:07:12.400 bit of your background so they understand your expertise in 0:07:12.480 --> 0:07:15.640 the world of logistics and transport, and then help us 0:07:16.200 --> 0:07:19.440 unpack sort of the back and forth between President Donald 0:07:19.440 --> 0:07:22.880 Trump and his comments about Amazon and the US Postal Service. 0:07:23.400 --> 0:07:26.240 Thank you, PIM. I have been dealing with the Post 0:07:26.320 --> 0:07:32.440 Office for the parcel services since nine when I actually 0:07:32.560 --> 0:07:36.480 utilized the Post Office from my days at FedEx Ground 0:07:36.680 --> 0:07:40.520 for deliveries too many of the residential area because they 0:07:40.520 --> 0:07:44.320 have the best network for it. And since then I 0:07:44.400 --> 0:07:47.280 have worked with them also as a consultant to help 0:07:47.320 --> 0:07:50.920 them implement the Parcel Select service, which is the service 0:07:51.040 --> 0:07:56.200 that Amazon uses for the last mild delivery, what residential 0:07:56.360 --> 0:08:00.960 packages that it has. And for us to Trump, with 0:08:00.960 --> 0:08:04.360 all due respect to him, to suggest that the Post 0:08:04.400 --> 0:08:09.040 Office lose his money on Amazon is almost him creating 0:08:09.040 --> 0:08:13.080 fake news that he tells every well else about not 0:08:13.200 --> 0:08:18.360 putting out fake news. And there is a Postal Regulatory Commission, 0:08:18.480 --> 0:08:23.080 which is another congressional body appointed by the Congress and 0:08:23.160 --> 0:08:26.560 the President. They have an oversight on the Post Office 0:08:26.840 --> 0:08:30.400 and for any special pricing that they give out for 0:08:30.560 --> 0:08:34.680 parts of services to any customer, whether it's Amazon or 0:08:34.760 --> 0:08:37.480 ups fed X, which are very big customers of the 0:08:37.520 --> 0:08:41.440 post Office, Postal Regulatory Commission has to prove it and 0:08:41.520 --> 0:08:44.560 post Office has to demonstrate to them that they are 0:08:44.640 --> 0:08:47.959 covering their cost not just a variable cost, but also 0:08:48.080 --> 0:08:51.800 the fixed cost that is part of the post offices 0:08:51.880 --> 0:08:57.320 network which is supported by the first classmal So let's 0:08:57.720 --> 0:09:00.320 get sort of the facts of what the arrangement is 0:09:00.400 --> 0:09:04.959 between the Postal Service and Amazon. And is there any 0:09:05.040 --> 0:09:08.400 sort of if not, you know, factor based truth to 0:09:08.559 --> 0:09:11.439 what President Trump is saying, uh, sort of anything to 0:09:11.520 --> 0:09:15.640 sort of edify the sentiment that he's expressing. But there 0:09:15.760 --> 0:09:21.760 is uh comments. There are comments by ups fed X 0:09:21.920 --> 0:09:25.719 on occasions that they think the post Office parts of 0:09:25.840 --> 0:09:29.200 services are not covering the full cost of what it 0:09:29.240 --> 0:09:32.840 takes for them to deliver. And they say that partly 0:09:32.880 --> 0:09:36.400 because they are a competitor of the post Office, even 0:09:36.440 --> 0:09:40.000 though they used the post Office for that delivery of 0:09:40.080 --> 0:09:44.320 their residential packages, just like Amazon does, so it can 0:09:44.440 --> 0:09:47.480 provide some noise in that system. In addition to that, 0:09:47.679 --> 0:09:50.960 you have some self side analysts who put out reports 0:09:51.400 --> 0:09:54.719 where they suggest that Amazon only pays two dollar per 0:09:54.760 --> 0:09:58.080 package and that it costs a lot more. They do 0:09:58.160 --> 0:10:01.960 not have understanding of how the last mile works and 0:10:02.040 --> 0:10:05.680 it is the best service that post Office has and 0:10:05.760 --> 0:10:09.280 they actually make money on parcel select from all the customers, 0:10:09.360 --> 0:10:14.280 including from Amazon, UPS and FedEx. All right, now, let's 0:10:14.280 --> 0:10:16.360 step back for just a second and get your thoughts 0:10:16.400 --> 0:10:21.120 about how the logistics supply chain will be affected by 0:10:21.160 --> 0:10:24.920 the various tariffs that have been spoken about and that 0:10:25.040 --> 0:10:27.280 you know about, and what that would mean to the 0:10:27.320 --> 0:10:30.680 cost of actually getting the goods and services to the 0:10:30.720 --> 0:10:34.680 people that want them. You know, any time you and 0:10:34.760 --> 0:10:37.000 it's not just the amount of tariffs that they impose. 0:10:37.600 --> 0:10:40.840 When you add tariffs, it slows down the processing of 0:10:40.920 --> 0:10:45.080 the goods that are being moved across the borders, and 0:10:45.400 --> 0:10:48.760 through our ship matrix technology that you're aware of, we 0:10:48.880 --> 0:10:53.520 have visibility to how many international packages get delayed when 0:10:53.600 --> 0:10:56.320 they have to be processed for customs. So when you 0:10:56.400 --> 0:11:01.360 add another tariff on top of regulatory regular or approaches 0:11:01.400 --> 0:11:04.240 that are used to know what is coming and going out, 0:11:04.720 --> 0:11:06.880 you are going to slow down and that is going 0:11:06.960 --> 0:11:11.520 to discourage cross border e commerce. That's a really interesting 0:11:11.600 --> 0:11:15.520 point because Bloomberg Intelligence put out some research today looking 0:11:15.679 --> 0:11:19.520 at the container shipping industry and how it wouldn't be 0:11:19.559 --> 0:11:23.560 that affected by the tariffs as proposed so far. But 0:11:23.600 --> 0:11:27.920 you're suggesting that simply the delays involved in imposing these 0:11:27.920 --> 0:11:30.480 tariffs could throw a sort of wrench in the system 0:11:30.720 --> 0:11:34.880 more than people are expecting. That is absolutely correct. That's fascinating. 0:11:34.920 --> 0:11:36.520 So can you give a sense of what the economic 0:11:36.520 --> 0:11:41.640 impact would be. I think companies like ups, FedEx DHL 0:11:42.320 --> 0:11:47.800 may notice slowing down of cross bordered e commerce, UH, 0:11:47.880 --> 0:11:51.240 including the retailers who are selling things. They may not 0:11:51.360 --> 0:11:55.720 sell the products as to the same numbers and growth 0:11:55.840 --> 0:12:01.440 rate that they're expecting. So anything like at that interfered 0:12:01.520 --> 0:12:06.600 with the speed and efficiency of moving cords between bios 0:12:06.600 --> 0:12:10.280 and sealers is a negative for the retailers and for 0:12:10.360 --> 0:12:13.960 those involved in moving it. Satish Jandel, thank you so 0:12:14.040 --> 0:12:17.080 much for joining us and for that really interesting and 0:12:17.160 --> 0:12:21.280 important perspective. Satisha Jandel is president of s J Consulting 0:12:21.320 --> 0:12:25.160 Group based in Pennsylvania, with a long standing relationship with 0:12:25.200 --> 0:12:44.319 the US Postal Service and the logistics industry. Saudia Arabia 0:12:44.400 --> 0:12:47.320 has been in the news quite a bit in recent months. 0:12:47.360 --> 0:12:51.559 Not only is there the foot see e M inclusion 0:12:51.720 --> 0:12:55.640 of Saudi Arabian stocks, but also we are all wondering 0:12:55.960 --> 0:13:00.679 when is Saudi Aramco going to file or what may 0:13:00.679 --> 0:13:04.720 be the biggest initial public offering in history? Joining us now. 0:13:04.800 --> 0:13:07.640 Dr Ellen a Ward Energy markets and policy analyst and 0:13:07.679 --> 0:13:11.480 a nonresident scholar at the Arabia Foundation. She is also 0:13:11.679 --> 0:13:14.959 the author of a book that just came out, Saudi Inc. 0:13:15.200 --> 0:13:18.600 That really tracks the history of this nation through the 0:13:18.640 --> 0:13:23.360 eyes of the Saudi Aramco behemoth. So you know, as 0:13:23.440 --> 0:13:25.680 we sort of prepare for this I p O that 0:13:25.679 --> 0:13:28.360 that may or may not happen this year and possibly 0:13:28.520 --> 0:13:32.080 may not happen next year. One is the most underappreciated 0:13:32.160 --> 0:13:37.080 fact about the family behind Saudi Aramco that might, you know, 0:13:37.600 --> 0:13:41.840 factor into people's understanding of this. Well, the most underappreciated 0:13:41.920 --> 0:13:45.920 fact about the family that owns Saudi Aramco is that 0:13:46.120 --> 0:13:51.400 they've always historically allowed a Ramco to be independently run. 0:13:51.640 --> 0:13:54.720 The company makes all of its own decisions, it collects 0:13:54.760 --> 0:13:58.120 all of the money. It's financially independent, just like any 0:13:58.160 --> 0:14:02.440 other corporation, and it pays taxes to the Saudi government. 0:14:02.520 --> 0:14:06.959 And the Saudi government has never tried to control Aramco's finances. 0:14:06.960 --> 0:14:10.160 They've always let it be, let it run itself and 0:14:10.200 --> 0:14:13.679 be the most profitable company it can be. What do 0:14:13.679 --> 0:14:15.760 you want people to take away from the book in 0:14:15.880 --> 0:14:19.760 terms of learning about how Saudi Arabia operates, but also 0:14:19.880 --> 0:14:23.600 its role in the Middle East and its role as 0:14:23.600 --> 0:14:27.760 probably the largest oil exporting nation in the world. I 0:14:27.880 --> 0:14:32.640 believe it's about total crude oil exports come from Saudi Arabia, 0:14:32.640 --> 0:14:35.720 and we're talking about over a hundred and forty billion 0:14:35.760 --> 0:14:39.480 dollars of crude exports. I'd like people to take away 0:14:39.560 --> 0:14:43.000 the fact that this has been a very long term 0:14:43.040 --> 0:14:46.120 plan for the saudis that ever since the beginning, they've 0:14:46.160 --> 0:14:49.600 seen the potential that their oil industry could be and 0:14:49.640 --> 0:14:54.840 They've always operated with UH stability in mind, and they 0:14:54.920 --> 0:14:58.840 partnered with the Americans and they maintain stability for many 0:14:58.840 --> 0:15:02.040 many years with the idea that that would be the 0:15:02.080 --> 0:15:06.240 most profitable long term. They never nationalized in a violent 0:15:06.240 --> 0:15:09.800 way like Iraq or Iran. They bought out the company 0:15:10.000 --> 0:15:13.280 and then once it became a Saudi company, they expanded 0:15:13.280 --> 0:15:17.240 it globally. One thing that I'm struck by, as you said, 0:15:17.280 --> 0:15:21.440 you know, that's perhaps it's under appreciated how independent Saudi 0:15:21.560 --> 0:15:24.880 Aramco is. Uh. You know, perhaps this is stemming from 0:15:24.920 --> 0:15:27.240 the fact that the government has thought of as a 0:15:27.240 --> 0:15:33.000 pretty controlling, family run kind of entity, and that the 0:15:33.040 --> 0:15:36.000 government has sort of been more of, I don't want 0:15:36.000 --> 0:15:39.160 to say a dictatorship, but certainly an oligarchy. So I'm wondering, 0:15:39.280 --> 0:15:42.560 you know, do you think that the optimism that we've 0:15:42.560 --> 0:15:45.440 seen with respect to the shares being included in the 0:15:45.440 --> 0:15:47.360 foot see em index and then the sort of the 0:15:47.440 --> 0:15:50.600 rise there as well as just sort of the anticipation 0:15:50.920 --> 0:15:54.040 of broader visions from the new from the new ruler 0:15:54.200 --> 0:15:57.160 with respect of the plan, do you think that the 0:15:57.200 --> 0:16:03.040 optimism is warranted, is not fully executed yet in the market, 0:16:03.200 --> 0:16:06.720 or is overblown. I definitely think the optimism is warranted, 0:16:06.760 --> 0:16:10.280 but proceed with caution as always in this case. One 0:16:10.320 --> 0:16:13.520 of the interesting things that I read about in my book. 0:16:13.520 --> 0:16:17.760 An example of this is when Saudi Aramco was becoming 0:16:17.760 --> 0:16:20.800 Saudi Aramco and transferring from an American company to a 0:16:20.800 --> 0:16:25.040 Saudi company. The government originally wanted to take control of it. 0:16:25.080 --> 0:16:28.040 The Finance ministry wanted to run it, and the CEO 0:16:28.200 --> 0:16:30.240 at the time Ali and the EMI. He told me 0:16:30.280 --> 0:16:33.640 this story. He said to the king, he said, you 0:16:33.800 --> 0:16:38.360 cannot expect a Ramco to be as profitable to run 0:16:38.560 --> 0:16:41.840 as a good company should if they're not in control 0:16:41.840 --> 0:16:44.640 of their own finances. And a Ramco has always been 0:16:44.680 --> 0:16:47.760 this kind of rock of stability there and so I 0:16:47.880 --> 0:16:51.440 certainly expect that to continue. What role do you think 0:16:51.480 --> 0:16:57.600 that the the current ruler of Saudi Arabia and the 0:16:57.680 --> 0:17:03.640 power there of Crown Prince Mohammed been Salmon known as MBS, 0:17:04.200 --> 0:17:06.800 what do you think they foresee about the future of 0:17:06.840 --> 0:17:13.359 Saudi Arabia. Inasmuch as what of the government's revenues come 0:17:13.480 --> 0:17:18.280 from oil? This is a very interesting point, and the 0:17:18.280 --> 0:17:21.600 government revenues have come from a Ramco. Ramco has historically 0:17:21.640 --> 0:17:26.320 paid very high taxes between eight and taxes to the government. 0:17:26.400 --> 0:17:29.560 This has been changed in preparation for the I p 0:17:29.640 --> 0:17:33.119 O two I think about, and so the government is 0:17:33.160 --> 0:17:36.600 going to need to make up those revenues somewhere. They 0:17:36.640 --> 0:17:39.160 may get it in dividends from the company, as they'll 0:17:39.160 --> 0:17:42.639 still be the vast majority shareholder, but they're going to 0:17:42.800 --> 0:17:46.040 be They're going to have to look for those that 0:17:46.119 --> 0:17:49.479 revenue somewhere else, and they're starting to raise taxes and 0:17:49.640 --> 0:17:52.280 encourage other industry to come into the Kingdom. It's a 0:17:52.400 --> 0:17:57.000 very ambitious plan, it's very risky, but they are moving 0:17:57.000 --> 0:18:00.680 forward with it. Can you handicap the likelihood that Saudi 0:18:00.760 --> 0:18:04.120 Aramco would decide against an i p O. After all, 0:18:05.160 --> 0:18:08.520 when it comes to a Ramco, I wouldn't be surprised 0:18:08.560 --> 0:18:11.560 if the company is a bit resistant to the idea 0:18:11.640 --> 0:18:13.760 of the I p O and would like to at 0:18:13.800 --> 0:18:17.360 the very least take more time with it. I think 0:18:17.400 --> 0:18:20.760 that they want to make their own decisions and they're 0:18:20.800 --> 0:18:24.240 certainly looking to consider all of the options. CEO Aminoster 0:18:24.320 --> 0:18:26.879 has been very positive about it. However, he said, a 0:18:27.000 --> 0:18:29.800 Ramco is a great company, and it's a very efficient company, 0:18:29.880 --> 0:18:33.080 and I think that if they do decide to go 0:18:33.160 --> 0:18:35.960 forward with this, people will see that. On the other hand, 0:18:36.200 --> 0:18:39.160 the decision is ultimately going to be made by what 0:18:39.640 --> 0:18:42.439 people at a RAMCO called the shareholder, which means the 0:18:42.480 --> 0:18:45.679 government and in this case most likely the Crown Prince, 0:18:46.200 --> 0:18:50.560 and he may have some different ideas in mind when 0:18:50.560 --> 0:18:52.440 it comes to the purpose of the I p O 0:18:52.640 --> 0:18:56.480 than a RAMCO might prefer. Like what well, it said 0:18:56.480 --> 0:18:58.520 that he would like to use some of the money 0:18:58.560 --> 0:19:01.119 that they make from the sale of the shares to 0:19:02.359 --> 0:19:06.399 fund his p if the public Investment Fund, and a 0:19:06.560 --> 0:19:11.160 RAMCO is probably a little less excited about that. They 0:19:11.280 --> 0:19:14.360 certainly have enough money, and I believe Aminasa has said 0:19:14.400 --> 0:19:16.639 they will be using some of that to fund greater 0:19:16.720 --> 0:19:20.480 downstream expansion, which is really where their vision is going 0:19:20.560 --> 0:19:25.520 right now. China imports quite a bit of its energy 0:19:25.760 --> 0:19:30.119 from Saudi Arabia, as Saudi Arabia an ally of the 0:19:30.200 --> 0:19:36.639 United States. Does the US trade tariff confrontation with China, 0:19:36.720 --> 0:19:39.760 does that play into the relationship between China and Saudi Arabia. 0:19:40.040 --> 0:19:42.440 I don't think it does at this point. Saudi Arabia 0:19:42.440 --> 0:19:45.359 and China have a very strong relationship. Saudi Arabia and 0:19:45.400 --> 0:19:48.480 particularly a Ramco has been had been angling to get 0:19:48.520 --> 0:19:51.960 into China for many years, and their relationship is deeper 0:19:52.040 --> 0:19:57.359 than just a basic oil export situation. They own refineries 0:19:57.359 --> 0:20:01.280 there along with Chinese interests. They have long term contracts 0:20:01.320 --> 0:20:05.120 to deliver crew there. They have a students, they say, 0:20:05.160 --> 0:20:09.240 A Ramco sends students young Saudis to China to study, 0:20:09.280 --> 0:20:11.560 to learn the language, to be able to work their 0:20:11.640 --> 0:20:15.520 long term so that relationship is much deeper than any 0:20:15.520 --> 0:20:19.320 tariff or trade war can damage. Thank you very much 0:20:19.359 --> 0:20:22.240 for being with us. Dr ellen Wald is the scholar 0:20:22.320 --> 0:20:25.240 at the Arabia Foundation and the author of the new 0:20:25.280 --> 0:20:28.600 book Saudi Ink, a History of a Saudi Aramco and 0:20:28.600 --> 0:20:45.160 the family that controls the multi trillion dollar enterprise. Well, 0:20:45.400 --> 0:20:48.280 when it comes to investing, are you a raccoon? Are 0:20:48.359 --> 0:20:52.960 you a coyote? Are you someone who's interested in risk parody? Well? 0:20:53.119 --> 0:20:55.560 Rob Coach could be all these things. He's the managing 0:20:55.600 --> 0:20:59.879 director of quantitative Strategies at Salient and they are based 0:21:00.040 --> 0:21:03.040 into Houston, Texas. He joins us here in our eleven 0:21:03.040 --> 0:21:06.560 three oh studios and you can follow Rob on Twitter 0:21:06.680 --> 0:21:11.080 at Roberto M. Crow Chase c R O ce Rob, 0:21:11.119 --> 0:21:13.679 thanks very much for being here. I mentioned raccoons and 0:21:13.680 --> 0:21:17.240 I mentioned coyotes because Salience is also the home to 0:21:17.520 --> 0:21:21.920 uh what I considered to be two very interesting continuums 0:21:21.960 --> 0:21:26.400 of information, the Epsilon Theory newsletter and the Salient blog. 0:21:26.760 --> 0:21:29.760 And uh, let's speak of my asking you about what 0:21:30.000 --> 0:21:33.720 actually is risk parity? What is that? What is that 0:21:33.760 --> 0:21:36.199 when it comes to investors? And then tell us what 0:21:36.320 --> 0:21:40.359 kind of animals we might be sure? Risk party is 0:21:40.400 --> 0:21:44.080 a portfolio allocation that tries to use information about the 0:21:44.160 --> 0:21:47.600 riskiness and the relative riskiness of different types of assets 0:21:47.640 --> 0:21:50.919 like stocks and bonds and commodities two size positions, so 0:21:50.920 --> 0:21:53.920 that you're not really making a bet on any one 0:21:53.920 --> 0:21:57.040 of them. You really want to have balance across the 0:21:57.040 --> 0:22:00.480 different types of economic regimes that we could face the future. 0:22:00.760 --> 0:22:02.439 The idea is that you really don't know what the 0:22:02.440 --> 0:22:06.160 future holds, so you should really be uh ready for anything. 0:22:07.600 --> 0:22:11.439 I'm so glad you're here today because the market is 0:22:11.520 --> 0:22:14.600 that certainly the equity markets are seeing a real risk 0:22:14.680 --> 0:22:18.120 off feelthough backing away from some of their earlier lows. UM, 0:22:18.240 --> 0:22:22.359 you're not seeing the same reaction in bond markets, And 0:22:22.400 --> 0:22:26.760 I'm wondering when you are sort of betting on traditional correlations, 0:22:26.760 --> 0:22:29.760 how challenging is that to truly kind of hedge or 0:22:29.840 --> 0:22:32.439 be you know, sort of diversified and and sort of 0:22:32.640 --> 0:22:36.199 distributing your risk. Sure, So the thing is there is 0:22:36.240 --> 0:22:40.080 no traditional correlation. Recently, the correlations between stocks and bonds 0:22:40.080 --> 0:22:42.520 have been negative, but if you go back further, they 0:22:42.520 --> 0:22:45.280 were very positive in other environments. So the key is 0:22:45.320 --> 0:22:48.800 to adapt and so understand what the correlation environment is 0:22:48.840 --> 0:22:53.280 like today, Understand what the volatility environment and the conditioning 0:22:53.640 --> 0:22:56.040 of each of these asset classes is today, and that 0:22:56.080 --> 0:22:57.879 tells you a little bit about how likely they are 0:22:57.920 --> 0:23:01.199 to respond to different economic shocks, if you will. So, 0:23:01.320 --> 0:23:03.040 when when the market does sell off on a day 0:23:03.040 --> 0:23:06.040 like today, are you in there buying? So we're not 0:23:06.200 --> 0:23:08.919 buying the dip Explicitly, what we're doing is we're figuring 0:23:08.920 --> 0:23:11.480 out where risk is and we're updating our information about 0:23:11.480 --> 0:23:13.760 the riskiness of each of these markets based on what 0:23:13.800 --> 0:23:16.359 we're seeing today. But you're trading. Yeah, sure, we're trading. 0:23:16.359 --> 0:23:18.920 We're rebalancing every day. But Rob, let me go back 0:23:18.920 --> 0:23:21.400 to your idea about what is risk parity, because isn't 0:23:21.400 --> 0:23:23.760 the risk always there? The risk is always there, but 0:23:23.800 --> 0:23:27.000 it changes. So how does it change. The likelihood that 0:23:27.040 --> 0:23:29.080 the market will drop two or three percent in a 0:23:29.119 --> 0:23:33.119 given day changes dramatically from one environment to another. So 0:23:33.160 --> 0:23:36.600 if you look last year, you know three percent inter 0:23:36.720 --> 0:23:40.360 day moves didn't really happen, whereas they are commonplace. This year, 0:23:40.600 --> 0:23:42.680 we've seen the market up one and a half, then 0:23:42.720 --> 0:23:45.920 down one and a half, closing flat several times this year, 0:23:46.240 --> 0:23:48.760 and and so that means that the risk environment has changed, 0:23:48.800 --> 0:23:51.359 and the likelihood that you lose big on any given 0:23:51.440 --> 0:23:54.439 day is different today than it was last year. But 0:23:54.520 --> 0:23:57.920 that implies that every investment is being made at the 0:23:57.960 --> 0:24:02.119 market right now. If you're risk is built into the 0:24:02.200 --> 0:24:06.440 price of what you paid for a specific asset, your 0:24:06.520 --> 0:24:09.480