WEBVTT - The Fed Is Guessing As it Plays With Fire: David Kotok 0:00:02.640 --> 0:00:05.320 Welcome to the Bloomberg Penel podcast. I'm Paul swing you. 0:00:05.360 --> 0:00:07.680 Along with my co host Lisa Brahma Waits. Each day 0:00:07.720 --> 0:00:10.240 we bring you the most noteworthy and useful interviews for 0:00:10.280 --> 0:00:12.520 you and your money, whether at the grocery store or 0:00:12.560 --> 0:00:15.480 the trading floor. Find a Bloomberg Penl podcast on Apple 0:00:15.520 --> 0:00:17.960 podcast or wherever you listen to podcasts, as well as 0:00:17.960 --> 0:00:23.680 at Bloomberg dot com. It is the question Paul facing 0:00:23.720 --> 0:00:26.920 the bond market today, which is how much does the 0:00:26.920 --> 0:00:31.040 FEDS balance sheet roll off really affect markets? And frankly, 0:00:31.080 --> 0:00:33.360 there are people lined up on all sides of the issue, 0:00:33.840 --> 0:00:37.080 debating fiercely and away. In here is David Kotalk. I'm 0:00:37.159 --> 0:00:39.720 very pleased to say, joining us at ourteractive broker Studios, 0:00:39.880 --> 0:00:44.080 Chairman and chief investment officer of Cumberland Advisers. David, you 0:00:44.400 --> 0:00:47.680 spared yourself beautiful weather in Sarah Soda to come here 0:00:47.680 --> 0:00:50.120 in frigid at New York City. Thank you for joining 0:00:50.200 --> 0:00:52.760 us here. So what's your take on this? How important 0:00:52.880 --> 0:00:56.080 has the Fed's balance sheet rolloff been so far? Well, 0:00:56.640 --> 0:00:59.640 very important. Pleasure to be with you. I'm leaving tomorrow 0:00:59.680 --> 0:01:02.600 morning and going back from the five degree in New 0:01:02.680 --> 0:01:08.280 York weather as fast as I can. So this is 0:01:08.360 --> 0:01:13.520 the perhaps the most profound debate monetary policy. Never before 0:01:13.520 --> 0:01:17.200 have we seen a major central bank change an interest 0:01:17.280 --> 0:01:21.600 rate and shrink its balance sheet simultaneously. So we're in 0:01:21.640 --> 0:01:25.399 an experiment. Nobody's been here before, and we're doing it 0:01:25.480 --> 0:01:28.120 in very large sums. So you've got to look at 0:01:28.120 --> 0:01:29.680 the balance sheet. And as you know, you've got two 0:01:29.680 --> 0:01:32.800 sides of a balance sheet. Have the asset side in 0:01:32.800 --> 0:01:36.520 this case, it's now got long term and intermediate term 0:01:36.680 --> 0:01:41.080 and mortgages all federal credit. But that's the asset side, 0:01:41.280 --> 0:01:43.959 and the asset side of this balance sheet for fifty 0:01:44.040 --> 0:01:47.880 years never looked like this until the financial crisis. It's 0:01:47.920 --> 0:01:52.200 the liability side where the debate needs to be held. 0:01:52.720 --> 0:01:56.960 And the liability side of that balance sheet bank reserves 0:01:57.480 --> 0:02:02.600 excess bank reserves four five hundred billion to operate the 0:02:02.680 --> 0:02:07.960 Treasury of the United States a few small items. Currency 0:02:08.080 --> 0:02:11.880 in circulation will be two trillion by the end of 0:02:12.040 --> 0:02:16.799 next year. And what do you do about the alternative 0:02:16.880 --> 0:02:21.680 to bank reserves REPO? And that is a debate. So 0:02:21.760 --> 0:02:25.680 the bottom line of that complex to is you can 0:02:25.720 --> 0:02:28.120 get a range of three and a half trillion high 0:02:28.200 --> 0:02:30.920 to two and a half trillion low as to the 0:02:31.000 --> 0:02:35.040 proper size of the balance sheet, and debate all sides 0:02:35.080 --> 0:02:38.280 of it. How do you think the FED has done 0:02:38.320 --> 0:02:41.200 in terms of managing the wind down of the balance sheet? 0:02:41.280 --> 0:02:43.720 And then if you have an opinion, where do you 0:02:43.840 --> 0:02:48.280 think they should go? Well, showed is always a difficult word. 0:02:48.760 --> 0:02:52.679 How have they done? They attempted to communicate what they're 0:02:52.720 --> 0:02:56.800 gonna do. They published the schedule and and said, here's 0:02:56.840 --> 0:02:59.840 how we're gonna do it. Here's the amount, here's the 0:03:00.000 --> 0:03:03.040 time table. We're going to scale it up slowly. So 0:03:03.720 --> 0:03:08.200 the FED tried to communicate that. What they didn't communicate 0:03:08.280 --> 0:03:13.120 and haven't clearly is here's the end game, here's what 0:03:13.320 --> 0:03:16.560 it has to look like when we're done, and here 0:03:16.600 --> 0:03:20.880 are the metrics which will cause us to change. So 0:03:21.040 --> 0:03:26.160 you have this divided opinion within the FED communicated therefore 0:03:26.639 --> 0:03:30.600 in a confusing way. And I think that's what's needed. 0:03:30.639 --> 0:03:34.600 I hope Pal tomorrow is questioned and question and question 0:03:35.200 --> 0:03:39.280 on these metrics so he explains them, and he may 0:03:39.320 --> 0:03:42.840 have a divided house which will make it very difficult 0:03:42.880 --> 0:03:45.720 for So David, I'm looking right now by the numbers 0:03:46.080 --> 0:03:49.280 the fed's balance sheet had a high of four point 0:03:49.280 --> 0:03:53.560 five trillion dollars nearly that in April. It's currently a 0:03:53.600 --> 0:03:55.600 little bit more than four trillion dollars, so a little 0:03:55.600 --> 0:03:58.120 bit less than five billion dollar reduction in the balance 0:03:58.200 --> 0:04:02.480 sheet over those early two years. Now, you make a 0:04:02.520 --> 0:04:05.600 really important point that the balance sheet kind of cannot 0:04:05.600 --> 0:04:08.040 shrink below two and a half trillion dollars based on 0:04:08.160 --> 0:04:10.720 just the currency that we have out standing in circulation 0:04:10.840 --> 0:04:13.080 right now, as well as some of these other obligations. 0:04:14.680 --> 0:04:16.760 How much of an effect would it be if the 0:04:16.800 --> 0:04:18.640 FED stopted at three and a half or two and 0:04:18.640 --> 0:04:21.120 a half trillion? Is that sort of a seismic difference? 0:04:22.000 --> 0:04:26.240 I think so? So I think one the FED doesn't 0:04:26.360 --> 0:04:29.719 know how the market expectation is changing because of the 0:04:29.800 --> 0:04:34.960 size of the balance sheets. Guessing too, what's the hurry. 0:04:35.120 --> 0:04:37.320 Why are you in such a rush to take the 0:04:37.360 --> 0:04:41.120 balance sheet down only to have to start to take 0:04:41.160 --> 0:04:45.039 it out up in the future. As Bernanke pointed out, 0:04:45.320 --> 0:04:48.800 it naturally will grow at the rate of two billion 0:04:48.839 --> 0:04:50.960 a year. So if we go down, we're gonna be 0:04:50.960 --> 0:04:54.159 going up soon. What's the big deal? Slow it down, 0:04:54.279 --> 0:04:58.480 take your time. You're in an experiment, and you're playing 0:04:58.520 --> 0:05:01.920 with fire because you're playing with the credit markets to 0:05:01.960 --> 0:05:05.600 the world in the US economy. What's your hurry. How 0:05:05.680 --> 0:05:07.920 much do you think that the FED right now is 0:05:07.920 --> 0:05:11.599 is focusing on our weighing the geopolitical issues in China 0:05:11.680 --> 0:05:15.720 and Europe and Brexit and how that impacts their policy, 0:05:15.800 --> 0:05:19.839 or they really just focused on more more internal data. Well, 0:05:20.080 --> 0:05:22.279 they always have to put the US economy first, But 0:05:22.400 --> 0:05:27.440 how do you possibly set policy in this list that 0:05:27.480 --> 0:05:32.080 you just articulated. It's so difficult to do. Imagine that 0:05:32.240 --> 0:05:36.039 meeting when you're gonna go round that table twice. The 0:05:36.080 --> 0:05:40.040 first round is going to report on all the influences 0:05:40.080 --> 0:05:43.680 of the world. You're gonna see them in Beijing book reports, 0:05:43.720 --> 0:05:46.359 you're gonna see them in data. You're going to be 0:05:46.400 --> 0:05:50.680 in the midst of shutdown issues, trade ward tissues issues, 0:05:50.800 --> 0:05:53.640 tariffs all at once, and you've got to go around 0:05:53.680 --> 0:05:56.800 the room twice, and you've got two three four minutes 0:05:56.839 --> 0:06:00.400 each for people sitting around the table who then have 0:06:00.480 --> 0:06:03.720 to conclude a policy statement, and in between they've been 0:06:03.720 --> 0:06:07.760 negotiating in between meetings to get to it. It's incredible. 0:06:07.839 --> 0:06:10.840 And now they all bring in a hundred staffers from 0:06:10.920 --> 0:06:13.720 twelve reserve banks plus the board of Governors, and they 0:06:13.760 --> 0:06:16.800 have diverse models and opinions, and none of them work. 0:06:17.279 --> 0:06:19.719 That's where we are. That's where we are. None of 0:06:19.720 --> 0:06:23.320 them work. David Kotak David's chairman, chief investment officer from 0:06:23.320 --> 0:06:27.040 Cumberland Advisors based in Sarasota, Florida, where he is very 0:06:27.080 --> 0:06:29.440 much looking forward to returning to tomorrow as we look 0:06:29.520 --> 0:06:33.560 to enter in to the polar vortex here in New York. Up. So, David, 0:06:33.560 --> 0:06:36.800 we're about maybe a third a halfway through earnings. Is 0:06:36.920 --> 0:06:38.840 what are some of the themes that you've taken out 0:06:38.839 --> 0:06:41.240 of here as you think about your portfolio, any themes 0:06:41.240 --> 0:06:43.800 that have been kind of causing you maybe to rethink 0:06:43.839 --> 0:06:46.680 a little bit where your positioned. Well, we're we're an 0:06:46.680 --> 0:06:50.080 ETF shop, not a single stock shop, but we look 0:06:50.080 --> 0:06:53.600 at weights within the E t F space. For example, 0:06:53.720 --> 0:06:59.240 this week xl E has the largest percentage component reporting 0:06:59.600 --> 0:07:01.479 the n G sector. So you look at it the 0:07:01.640 --> 0:07:07.320 d S because you look at the contents earnings cross currents. 0:07:08.120 --> 0:07:13.160 Shutdown anticipation is shutdown tariff. You saw it with Harley. 0:07:13.280 --> 0:07:18.760 You see this constant flow of this crazy narrative world. 0:07:18.800 --> 0:07:24.120 We live in, impacting with surprises in all directions, and 0:07:24.160 --> 0:07:27.280 you say, what is normal? Where is a trend? How 0:07:27.320 --> 0:07:29.840 do we stabilize the earnings? I think if we can 0:07:29.880 --> 0:07:32.480 get to the second quarter of this year and we 0:07:32.560 --> 0:07:35.720 don't have another shutdown, and we make a trade deal 0:07:35.840 --> 0:07:40.480 of some type or the trade truce continues, we will 0:07:40.560 --> 0:07:45.280 begin again to see the earnings power of American companies 0:07:45.360 --> 0:07:49.600 in a more stable environment. And without that, we're guessing. 0:07:50.160 --> 0:07:53.120 So I'm not surprised by the volatility of the reporting. 0:07:53.120 --> 0:07:55.440 I'll give you our numbers. We see about a hundred 0:07:55.480 --> 0:07:59.840 and seventy or so for this year for the SMP index, 0:08:00.040 --> 0:08:02.880 but there's a band around that and we see a 0:08:02.960 --> 0:08:06.800 higher number. We don't see a recession, and that's how 0:08:06.800 --> 0:08:10.880 we're basing a market overviews level. So I guess that. 0:08:11.040 --> 0:08:14.720 Then I was gonna ask you or stock investors too 0:08:14.800 --> 0:08:19.120 optimistic or too pessimistic right now about the US economy? Yes, yes, right, 0:08:19.160 --> 0:08:20.760 I mean I think that you answered it with a 0:08:20.800 --> 0:08:24.560 sense of we're just guessing. So then why shouldn't investors 0:08:24.560 --> 0:08:28.680 just sit on their hands? If you think interest rates 0:08:28.680 --> 0:08:33.000 are going to go substantially higher from here, then you 0:08:33.120 --> 0:08:35.480 might say, wait a minute, my cash is going to 0:08:35.600 --> 0:08:40.160 earn more. I'm worried about valuation mechanics. I'm going to 0:08:40.280 --> 0:08:43.320 have to value against a four percent treasury instead of 0:08:43.320 --> 0:08:47.360 a three percent treasury or whatever. I don't see it, 0:08:48.320 --> 0:08:52.160 and I don't see the forces that make that happen. 0:08:53.720 --> 0:08:55.800 They may make it happen five years from now. We 0:08:55.840 --> 0:08:58.360 have a large deficit that's going to compound, but for 0:08:58.360 --> 0:09:00.640 the next two or three or four years, it's not 0:09:00.720 --> 0:09:03.400 a shock. So without a shock, you say, what are 0:09:03.440 --> 0:09:07.040 the shocks? Trade ward is the biggest shock. The two 0:09:07.080 --> 0:09:10.160 giant economies of the world, China in the US are 0:09:10.200 --> 0:09:13.880 embroiled in a breujaha. Let's get it over. Let's have 0:09:14.040 --> 0:09:17.280 the truth's extend. Both sides want to make that happen. 0:09:17.559 --> 0:09:23.600 If that happens, business gets better, sentiment improves, we all 0:09:23.720 --> 0:09:26.920 will like it, and stock market will go higher and 0:09:27.000 --> 0:09:28.960 reflect it. So what do you think I mean if 0:09:28.960 --> 0:09:32.320 you just put December versus January, and you know just 0:09:32.360 --> 0:09:35.520 the volatility of December in particular on the downside, and 0:09:35.559 --> 0:09:38.640 I know you your experience, you've experienced volatile markets before. 0:09:39.840 --> 0:09:42.040 Do you think the market just overshot itself on the 0:09:42.080 --> 0:09:44.679 downside in December, and you know, the five or six 0:09:44.760 --> 0:09:46.800 percent increase we're seen in the SMP this year is 0:09:46.840 --> 0:09:48.760 just trying to get us back to a new normal, 0:09:48.840 --> 0:09:51.880 because if you think about that, the late November December period, 0:09:51.880 --> 0:09:54.920 it was the volatility was just breathtaking, I would think. So, 0:09:55.520 --> 0:09:59.360 you know, the Christmas Eve massacre was the bottom? Was 0:09:59.400 --> 0:10:04.120 it the bottom? It certainly was a climactic bottom, and 0:10:04.200 --> 0:10:07.760 we have recovered from it more or less. So now 0:10:07.800 --> 0:10:10.200 we're back, and you take the v out of the 0:10:10.240 --> 0:10:14.040 bottom and say, let's look at where we are. We 0:10:14.200 --> 0:10:17.240 look like we're on trend for around a hundred and 0:10:17.240 --> 0:10:20.760 seventy dollar earnings. That's a guestimate, but a close one 0:10:21.120 --> 0:10:24.200 that seems to be on track. How would you value 0:10:24.240 --> 0:10:27.560 the SMP five index if it's got a hundred and 0:10:27.559 --> 0:10:32.520 seventy bucks is earnings, that's cheap, it's not expensive. So 0:10:33.080 --> 0:10:37.040 the idea of US equities rallying is that predicated on 0:10:37.080 --> 0:10:39.680 the idea that US bond yields stay low and stay 0:10:39.679 --> 0:10:42.400 around where they are right now, stay close to where 0:10:42.400 --> 0:10:47.000 they are right now. If you think that the the 0:10:47.040 --> 0:10:49.440 thirty year Treasury bund is going to be four and 0:10:49.440 --> 0:10:52.040 a half instead of three. You don't want to own 0:10:52.040 --> 0:10:54.599 the stock market. If you think cash is going to 0:10:54.720 --> 0:10:57.240 earn three or three and a half, you don't want 0:10:57.280 --> 0:10:59.280 to own the stock market. What's the threshold? Was the 0:10:59.280 --> 0:11:01.480 tipping point? Well, I don't know. Three is sort of 0:11:01.480 --> 0:11:04.240 a magic kind of number that everybody kicks around and 0:11:04.280 --> 0:11:06.240 we kick it around to When we get there, we'll 0:11:06.280 --> 0:11:08.760 find out. Do you think the FED has Do you 0:11:08.760 --> 0:11:11.560 think the FED has the capability to kind of engineer 0:11:12.559 --> 0:11:14.640 soft ish landing in a two and a half percent 0:11:14.800 --> 0:11:17.920 range which will support a lot of the forecasts and 0:11:18.240 --> 0:11:20.840 earnings estimates that that are out there. Oh my gosh, 0:11:21.080 --> 0:11:25.440 everybody's that's the question. Can they do it? The record 0:11:25.480 --> 0:11:29.839 of the FED is mixed at best poor under certain circumstances. 0:11:30.200 --> 0:11:32.600 And when they try to do two things at once, 0:11:32.920 --> 0:11:36.560 which is what they've been doing, balance shrink, raise interest 0:11:36.640 --> 0:11:40.640 rates simultaneously. They're trying to do two things. They can't 0:11:40.640 --> 0:11:43.640 get one right, let alone too. If the FED stops 0:11:43.720 --> 0:11:47.640 raising rates, and if the trade war is sort of eased, 0:11:48.240 --> 0:11:50.520 how much longer does this credit cycle have before? We 0:11:50.600 --> 0:11:53.800 could have years. We could have years at least we 0:11:53.880 --> 0:11:58.839 don't have high inflation upward pressures. As long as we 0:11:58.920 --> 0:12:02.559 have low end for AH and low rate gradual recovery 0:12:02.840 --> 0:12:07.360 two hundred thousand kind of job number, unemployment rate low 0:12:07.640 --> 0:12:11.080 below what we used to think about. These kinds of 0:12:11.120 --> 0:12:15.080 this cycle could go on for years. It would be 0:12:15.120 --> 0:12:20.439 the Fed overshoot that could kill it, or ratcheting up 0:12:20.480 --> 0:12:24.600 tariffs and full blown trade war could kill it. Those 0:12:24.600 --> 0:12:27.760 are the two killers in my view. David ko talk, 0:12:28.240 --> 0:12:30.560 wonderful having you on. Thank you so much for being here, 0:12:30.800 --> 0:12:34.080 Thank you for warming up my day. Good luck getting 0:12:34.120 --> 0:12:39.880 back to the warm haven of of of sunshine in Sarasota, Florida, 0:12:39.960 --> 0:12:43.080 which is very appealing to me right now considering what 0:12:43.240 --> 0:12:46.360 the temperature is in New York City. David Kotalk, Chairman 0:12:46.360 --> 0:12:49.080 and Chief Investment Officer of Cumberland Advisors. And certainly the 0:12:49.080 --> 0:12:52.559 optimism it's being felt in up markets today. A sort 0:12:52.600 --> 0:12:55.640 of risk on day for sure, at least in the 0:12:55.760 --> 0:12:58.360 down not so much the NASDAC ahead of those earnings 0:12:58.400 --> 0:13:01.440 down four tenths of one per cent, So again all 0:13:01.440 --> 0:13:15.440 eyes on Apple and on the big tech giants. Another day, 0:13:15.559 --> 0:13:18.920 another most important vote ever for Brexit joining US now 0:13:19.120 --> 0:13:21.640 raise at Raphael. I am very glad to say, Bloomberg 0:13:21.640 --> 0:13:25.840 Opinion editor, coming to us from London. Raise, there is 0:13:25.920 --> 0:13:29.920 a vote in Parliament today and you had some scathing 0:13:30.120 --> 0:13:33.600 words for it in your recent column that was titled 0:13:33.679 --> 0:13:36.680 had enough of Brexit? How about ten more years? So Raise, 0:13:37.040 --> 0:13:40.240 what are you expecting? What's at sake today? And how 0:13:40.320 --> 0:13:42.559 much should we pay attention to this vote? Well, yet 0:13:42.600 --> 0:13:44.920 again we're all sort of at the edges of our 0:13:45.000 --> 0:13:48.680 seat waiting to see what Parliament decides to do. And 0:13:48.800 --> 0:13:52.040 yet again, what comes out of this vote doesn't tell 0:13:52.160 --> 0:13:55.160 us very much about what kind of Brexit we're going 0:13:55.200 --> 0:13:57.960 to get, when we're going to get Brexit, or very 0:13:58.040 --> 0:14:01.400 much of anything else. So basically, the primary sister has 0:14:01.480 --> 0:14:05.280 now thrown her weight behind one of the seven amendments 0:14:05.320 --> 0:14:09.559 that Parliament would be voting on, and uh she has 0:14:09.559 --> 0:14:12.719 she has indicated that she would like parliament support to 0:14:12.760 --> 0:14:15.480 go back to Brussels and reopen the deal that she's 0:14:15.520 --> 0:14:19.040 previously said cannot be reopened and that took nearly two 0:14:19.120 --> 0:14:23.400 years to negotiate. So what's really happening here? Um, this 0:14:23.480 --> 0:14:26.720 is the government trying to reduce the size of the 0:14:26.800 --> 0:14:30.320 division within its own party and within Parliament in an 0:14:30.360 --> 0:14:32.720 attempt to go back to Brussels and say, okay, right, 0:14:32.720 --> 0:14:35.480 you've been asking us what do we really really want, 0:14:35.600 --> 0:14:37.760 and now we're telling you. What we really really want 0:14:37.840 --> 0:14:41.320 is a change to this Irish backstop, this provision that 0:14:41.400 --> 0:14:44.640 keeps the border open but ties the UK into a 0:14:44.760 --> 0:14:48.800 long term custom junion, potentially with the EU. And so 0:14:48.960 --> 0:14:53.720 Teresa May, having you know, been roundly defeated in her deal, 0:14:53.880 --> 0:14:57.240 is now trying to get some kind of um unity, 0:14:57.440 --> 0:15:00.640 or at least to reduce the size of disunity in 0:15:00.640 --> 0:15:03.000 Parliament so she can try to put more pressure on 0:15:03.080 --> 0:15:05.400 the EU. But we're what we're not going to get 0:15:05.440 --> 0:15:09.920 from tonight's vote is a clear sign of what Parliament wants. 0:15:09.920 --> 0:15:11.880 We may see none of these amendments passed, and I 0:15:11.880 --> 0:15:14.320 don't think we're going to get anywhere close to a 0:15:14.360 --> 0:15:16.920 sort of conclusion to this brexit Sanga. We're going to 0:15:17.000 --> 0:15:19.880 have to come much closer to the March twenty nine 0:15:20.000 --> 0:15:23.720 exit date before we get any more clarity. So Terres, 0:15:24.280 --> 0:15:27.280 you know, it's I keep thinking about the European Union 0:15:27.320 --> 0:15:29.920 and I'm not sure if it's rhetoric or negotiating tactic 0:15:30.000 --> 0:15:33.000 or whether they're really serious, but they have been adamant 0:15:33.040 --> 0:15:36.240 that they are not going to renegotiate this deal. How 0:15:36.240 --> 0:15:38.280 do you view their rhetoric? Is that in fact should 0:15:38.280 --> 0:15:39.800 we take that at face value? Or do you think 0:15:39.800 --> 0:15:41.880 that is more of a negotiating tactic. Well, you know, 0:15:42.200 --> 0:15:45.400 I think the it's it's serious on a number of levels. 0:15:45.760 --> 0:15:49.400 The Irish border issue is one that the EU takes 0:15:49.440 --> 0:15:53.000 extremely seriously, and it's one that Ireland takes extremely seriously. 0:15:53.360 --> 0:15:57.440 And for all the argument that you get from the UK, 0:15:57.560 --> 0:15:59.680 particularly from brexitters, to say, look, this is really a 0:15:59.760 --> 0:16:01.760 non issue. If they really want to, they can just 0:16:02.080 --> 0:16:04.960 you know, they can scratch it out, put it in 0:16:05.000 --> 0:16:08.160 the future political declaration, you do not hear that in 0:16:08.160 --> 0:16:10.080 the EU. You do not hear that in Ireland. Today 0:16:10.120 --> 0:16:13.320 I was speaking to the CEO of Enterprise Ireland, which 0:16:13.320 --> 0:16:16.880 looks after Irish exporters, and you know, I asked her, well, look, 0:16:16.880 --> 0:16:20.200 if push comes to slot to shove, won't these won't 0:16:20.240 --> 0:16:23.160 the CEOs of these exporting companies say please please get 0:16:23.240 --> 0:16:25.480 rid of that backstop so that we can get a deal. 0:16:25.520 --> 0:16:27.400 And she said that she had not heard from a 0:16:27.480 --> 0:16:29.920 single one of them anything close to that, that they 0:16:29.960 --> 0:16:33.720 all understand the backstops important that ended. Uh that that 0:16:33.720 --> 0:16:36.080 that is there to support the Good Friday Agreement, which 0:16:36.120 --> 0:16:41.680 was agreement that ended a quarter century of of violence 0:16:41.720 --> 0:16:46.240 and conflict in Northern Ireland. And nobody wants to experiment 0:16:46.280 --> 0:16:49.720 with what happens if you start putting border infrastructure back. 0:16:50.080 --> 0:16:53.800 So I think the EU has room to maneuver. I'm 0:16:53.840 --> 0:16:55.960 not saying that there's nothing that the EU can give, 0:16:56.240 --> 0:16:59.600 but it's not going to be a wholesale plucking out 0:16:59.600 --> 0:17:02.920 of that that controversial Backstop putting it in the trash 0:17:03.000 --> 0:17:05.879 can and saying, okay, guys, you know, we understand this 0:17:05.920 --> 0:17:07.359 is hard for you. We'll give you what you wanted. 0:17:07.520 --> 0:17:09.359 It's not going to go that far. Tores. I think 0:17:09.359 --> 0:17:11.560 a lot of investors and analysts would agree with you 0:17:11.800 --> 0:17:14.159 that one thing is certain with Brexit, and that is 0:17:14.200 --> 0:17:16.560 that it will be a big muddle for a long 0:17:16.600 --> 0:17:19.440 time and that we're not going to get resolution anytime soon. 0:17:19.960 --> 0:17:24.560 What does that do to any leader Theresa May, Theresa May, uh, 0:17:24.600 --> 0:17:27.600 you know, her successor, etcetera, trying to sort of herd 0:17:27.680 --> 0:17:30.960 cats here get some sort of agreement. What does that 0:17:31.040 --> 0:17:33.760 do to their negotiating power with the European Union. Given 0:17:33.800 --> 0:17:35.399 the fact that everybody knows it's just going to be 0:17:35.440 --> 0:17:38.080 an ongoing muddle for a long time. Yeah. I mean 0:17:38.280 --> 0:17:40.240 think that that's the key question here. That's what we 0:17:40.280 --> 0:17:42.280 all miss when we get caught up in the sort 0:17:42.280 --> 0:17:45.520 of drama of you know, the vote. It does two things. 0:17:45.520 --> 0:17:48.320 First of all, the the the European Union knows that 0:17:48.359 --> 0:17:51.200 this is not the last negotiation. It knows that it's 0:17:51.240 --> 0:17:54.680 going to be entering into a series of negotiations over 0:17:54.720 --> 0:18:02.000 everything from you know, financial services to UH certification, non barriers, goods, 0:18:02.880 --> 0:18:07.120 you name it. The whole panoply of of trade relations, UH, 0:18:07.160 --> 0:18:09.760 security relations, all of that is going to be negotiated 0:18:09.800 --> 0:18:11.960 for years to come. The EU is not going to 0:18:12.040 --> 0:18:14.720 want to just roll over on a key red line 0:18:14.800 --> 0:18:17.639 right now, knowing that that could set a precedent. UH. 0:18:17.760 --> 0:18:22.360 The other thing that this UH signals is that Britain 0:18:22.480 --> 0:18:24.880 is is you know, the whole world knows right now 0:18:25.400 --> 0:18:28.800 is incredibly divided on this issue. The two main parties 0:18:28.800 --> 0:18:31.280 are divided on this issue. And because we're going to 0:18:31.400 --> 0:18:35.520 now have negotiation after negotiation after negotiation, no matter what 0:18:35.680 --> 0:18:39.520 Brexit outcome we get, UH, this signals that that that 0:18:39.600 --> 0:18:41.040 a lot of this is going to play out in 0:18:41.080 --> 0:18:43.000 the public. It's going to play out in the very 0:18:43.080 --> 0:18:47.320 robust British media and that is going to most likely 0:18:47.800 --> 0:18:50.760 weaken the hand of any leader who's going to get 0:18:50.760 --> 0:18:54.439 criticism from all sides. So the EU understands that it 0:18:54.480 --> 0:18:56.959 will want to try to ease the path here so 0:18:57.000 --> 0:19:00.960 it's not blamed. At the same time, uh, it needs 0:19:01.040 --> 0:19:04.399 it needs to uh to stand firm because there are 0:19:04.440 --> 0:19:07.679 more negotiations to come. So to what I'm not hearing 0:19:07.720 --> 0:19:09.880 in the rhetoric over the past a couple of days, 0:19:09.880 --> 0:19:11.200 and I didn't hear it in some of the opening 0:19:11.240 --> 0:19:15.479 statements today in Parliament is the second referendum that seems 0:19:15.480 --> 0:19:17.879 to have lost a lot of momentum. Where do you 0:19:17.920 --> 0:19:21.440 think that is as an option? Yeah, well observed. So 0:19:21.600 --> 0:19:24.600 the second referendum was all the rage a few weeks ago. 0:19:25.119 --> 0:19:28.960 It has really died down as something people are talking 0:19:29.000 --> 0:19:32.080 about and talking up. I don't think it's gone away. 0:19:32.160 --> 0:19:35.960 I think if, uh, if, if other pathways fail, that 0:19:36.119 --> 0:19:39.720 it's still there. The one of the amendments sponsored by 0:19:39.800 --> 0:19:44.879 Evett Cooper seeks to force Parliament to extend Article fifty 0:19:44.920 --> 0:19:47.520 with a view to putting it to a people's vote 0:19:47.640 --> 0:19:50.520 as as proponents of a second referenum call it. I think, 0:19:50.560 --> 0:19:52.639 you know, the Prime Minister really doesn't want that, the 0:19:52.720 --> 0:19:55.600 Labor Party leader really doesn't want that, and it's very 0:19:55.640 --> 0:19:58.240 hard to see it happening when the heads of the 0:19:58.240 --> 0:20:00.960 two major parties you know, quite clearly don't want it 0:20:01.040 --> 0:20:03.360 to happen. Y is just real quick here, how much 0:20:03.359 --> 0:20:07.560 more time does Prime Minister Theresa may have? Probably till 0:20:07.600 --> 0:20:11.639 mid February. That's I think that's the uh sort of 0:20:11.880 --> 0:20:15.320 end of what the hard line in her own party 0:20:15.320 --> 0:20:17.680 will give her. And then she's got to come back 0:20:17.880 --> 0:20:19.640 and say what she wants to do, and then we'll 0:20:19.640 --> 0:20:21.960 start to see some some votes that will probably matter 0:20:21.960 --> 0:20:25.040 a lot more than tonight's. And just quickly trays the 0:20:25.160 --> 0:20:27.560 note no brexit that does seem to be off the 0:20:27.600 --> 0:20:31.000 tables that you read as well, Uh, no brexit at 0:20:31.040 --> 0:20:34.960 all is not off the table yet, neither was no deal. 0:20:35.359 --> 0:20:38.000 You know, sorry to disappoint, but all options are still there. 0:20:38.160 --> 0:20:40.399 If it goes to a second referendum, which we've as 0:20:40.400 --> 0:20:43.560 we've just said it might people could vote to remain. 0:20:44.400 --> 0:20:48.600 Very good Tres Rafael Bloomberg, opinion editor covering European politics 0:20:48.600 --> 0:20:51.440 and economics. For Bloomber calling in from the London bureau 0:20:51.480 --> 0:20:53.880 giving us some great color on what is a very 0:20:54.920 --> 0:20:58.960 you know, fluid story. It's a long playing story. It's 0:20:58.960 --> 0:21:01.400 a mess. Thank you. Just looking at our monitor here 0:21:01.400 --> 0:21:03.480 of our members of parliament kind of going back and 0:21:03.520 --> 0:21:06.560 forth and how long they've been uh doing that, and 0:21:06.600 --> 0:21:09.760 it just you know, Tres says, it's you know, even 0:21:09.800 --> 0:21:13.879 if you get something, you got another ten years or 0:21:14.119 --> 0:21:17.320 of just kind of negotiating all types of side deals here. 0:21:17.400 --> 0:21:19.320 So you know, we'll stay on top of it as 0:21:19.320 --> 0:21:32.640 we always do. Also focused in Washington, d C. We're 0:21:32.640 --> 0:21:35.679 expecting trade talks at this point at some point between 0:21:35.680 --> 0:21:39.960 the US and China, but a US court has gone 0:21:40.000 --> 0:21:45.080 after Huawei to accuse them criminally of some of their actions. 0:21:45.119 --> 0:21:47.639 Joining us down to talk about this is and Stevenson Yang, 0:21:47.680 --> 0:21:50.840 co founder and research director at Jay Capital Research, also 0:21:51.000 --> 0:21:53.720 a Bloomberg opinion contributor, and thank you so much for 0:21:53.760 --> 0:21:57.040 being with us. This seems like a very big deal 0:21:57.119 --> 0:22:00.199 because it seems like the US is going after on 0:22:00.240 --> 0:22:04.280 a criminal level the biggest or one of the biggest 0:22:04.400 --> 0:22:07.560 China technology companies. Can you give us a sense of 0:22:07.600 --> 0:22:10.840 what the charges are and whether they are politically motivated, 0:22:13.480 --> 0:22:16.520 you know, they're they're two different. Um, there there are 0:22:16.520 --> 0:22:19.520 two different sets of charges. One has to do with 0:22:20.040 --> 0:22:24.800 Huawei's evasion of US sanctions on Iran and other countries, 0:22:24.880 --> 0:22:28.359 and the other one is an indictment in Washington State 0:22:28.520 --> 0:22:32.040 for Huawei's attempts to steal technology from T Mobile. And 0:22:32.080 --> 0:22:35.280 I would say that the latter, which has gotten less attention, 0:22:35.440 --> 0:22:38.720 is kind of more and is not related to the 0:22:38.760 --> 0:22:41.720 case of of Mong One Joe, who is being held 0:22:41.760 --> 0:22:45.840 in Canada. UM I would say that one is more interesting. 0:22:45.880 --> 0:22:48.760 And if you read the indictment, it's really damning. I mean, 0:22:49.200 --> 0:22:53.760 you know, Huawei actually giving bonuses to employees to incentivize 0:22:53.800 --> 0:22:59.440 them to steal technology from American companies, Huawei guaranteeing employees 0:23:00.040 --> 0:23:02.439 in writing that they wouldn't be punished if they if 0:23:02.480 --> 0:23:06.399 they broke US laws. I mean, it's pretty it's pretty damning. 0:23:06.480 --> 0:23:09.560