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Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane. Daily

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Speaker 1: we bring you insight from the best in economics, finance, investment,

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Speaker 1: and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud,

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Speaker 1: Bloomberg dot Com, and of course on the Bloomberg. Right now,

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Speaker 1: we want to have a conversation with a former president

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Speaker 1: of the New York Fed. As I said earlier, Bill

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Speaker 1: Dudley has done a public service this morning. I believe

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Speaker 1: it's a two part essay for Bloomberg Opinion, and it's

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Speaker 1: essay today is a tourtive force of clarity on what

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Speaker 1: we're doing moving from four trillion to seven trillion and

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Speaker 1: indeed out to a possible ten trillion dollar balance sheet

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Speaker 1: of our central Bank. Every ECON, one on one student

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Speaker 1: should be required to read the Dudley as he built. Dudley,

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Speaker 1: congratulations on the clarity that we've known for years from

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Speaker 1: your work at Goldman Sachs. What is the singular distinction

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Speaker 1: of what Chairman Powell needs to do forward with the

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Speaker 1: presumed ten trillion dollar balance sheet. Well, what it means

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Speaker 1: is we're going to have a lot of access reserves

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Speaker 1: in the banking system allow of deposits in the banking system. Uh,

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Speaker 1: and that that's going to create some anxiety that that

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Speaker 1: that that fuel is going to lead to inflation. What

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Speaker 1: are the implications the implications of when the fit by

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Speaker 1: treasury securities and mortgage backed securities is the added amount

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Speaker 1: of reserves and bank deposits in the system. The reserves

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Speaker 1: have already doubled. Second implication is that that forces the

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Speaker 1: private sector hold more cash and deposits than before. And

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Speaker 1: the third implication is that the sense of private sector

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Speaker 1: may not want to hold all that cash and deposits.

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Speaker 1: That encourages them to move into higher riskier, higher yielding assets,

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Speaker 1: and that pushes up asset prices. It does not, however,

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Speaker 1: need lead to in lation because the fact can control

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Speaker 1: credit demand by raising the interest rate that pays on

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Speaker 1: reserves at the appropriate time. I will take your singular

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Speaker 1: distinction that the FED can control this fear of inflation.

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Speaker 1: And certainly, folks in two thousand and eight we saw

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Speaker 1: the inflation nieces just dropped by the low inflation that

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Speaker 1: surprised them. What I would point out, though, Bill Dudley,

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Speaker 1: is all of our listeners and viewers on this simulcast

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Speaker 1: understand the phrase, there's no such thing as a free lunch.

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Speaker 1: What is the price of a distortion that is a

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Speaker 1: ten trillion dollar balance sheet? Well, I mean, I think

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Speaker 1: there's a couple of things. Number One, obviously, this has

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Speaker 1: implications for financial asset prices, and so defend withdraws this

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Speaker 1: liquidity that that's going to have some consequences for financial

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Speaker 1: asset valuations. The second consequences of the FED is actually

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Speaker 1: taking some risk in its balance sheet. I mean, if

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Speaker 1: you think of the FED right now, it's a lot

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Speaker 1: of long term assets financed overnight, and that's fine when

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Speaker 1: in short term and rates aired zero. But if you

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Speaker 1: run the clock ahead a few years and the set

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Speaker 1: has to raise short term interest rates, you have a

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Speaker 1: situation where short term, the cost of the other set

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Speaker 1: of paying interest on reserves could actually exceed the returns

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Speaker 1: on its portfolio, and so the FED could actually start

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Speaker 1: to lose money. Bill you said, when the FED starts

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Speaker 1: to reduce its balance sheet, when the FED starts to

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Speaker 1: raise rates. Can the Fed ever do either of those things? Well,

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Speaker 1: obviously all depends on the paths of the coronavirus pandemic

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Speaker 1: and also how the economy response to that. I'm assuming

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Speaker 1: that a few years from now we'll be back to

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Speaker 1: a more normal economy, and when we when we're back

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Speaker 1: to a more normal economy, will also be back to

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Speaker 1: a more normal level of interest rates. Bill, we just

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Speaker 1: got data showing that June is on pace for the

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Speaker 1: fastest pace of issuance ever for US junk bond sales.

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Speaker 1: What are the consequences of the debt being occurred by corporations,

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Speaker 1: not to say the United States of America as a

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Speaker 1: result of the FEDS policies. Well, the shore run, it

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Speaker 1: means people have the cash and resources to stay in

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Speaker 1: operation in the long run. Obviously, there's limits to how

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Speaker 1: much that people can take on, so there's a risk

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Speaker 1: of servicing that dead over the longer term. I mean,

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Speaker 1: the set is worried about today and tomorrow and next

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Speaker 1: week and next month. They're not so worried about what's

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Speaker 1: going to happen in five years from now. But you

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Speaker 1: know there will be a hangover from what we're experiencing today.

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Speaker 1: I look, Mr Dudley at all that we've gone through,

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Speaker 1: and I would suggest this was not in your textbooks

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Speaker 1: at Berkeley years ago. It is unorthodox. Do you have

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Speaker 1: a confidence in the belief of all of the smart

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Speaker 1: people like you to get this fixed, even if we're

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Speaker 1: working off original theory. Well, we've never gone down this

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Speaker 1: particular path before, so I think Tom yet to be

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Speaker 1: a little bit cautious and say, we don't know how

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Speaker 1: this is all going to turn out. That said, it's

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Speaker 1: certainly better than allowing the economy to sink beneath the

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Speaker 1: way it's gonna have a full flown depression. So I

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Speaker 1: think what the FET is doing is appropriate, but we

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Speaker 1: don't yet know how this is all going to play

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Speaker 1: out over the long run. Bill Dudley, I give Chairman

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Speaker 1: Paul extremely high marks. Everybody grows into the position and

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Speaker 1: the pressure of those very bright lights, and he's I think,

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Speaker 1: really handling much better now the press conference, in the

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Speaker 1: back and forth and the nuances of all this. But

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Speaker 1: the thing that's out there is what if we receive

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Speaker 1: some form of exogen is shock to the system given

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Speaker 1: this balance sheet build up? Are we prepared for the

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Speaker 1: not the next pandemic. I don't want to get all

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Speaker 1: fiery in that, but are we prepared for any kind

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Speaker 1: of exogen is shocked within our debt markets? Well? I

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Speaker 1: think the FED has shown that they have a pretty

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Speaker 1: wide array of tools to deal with market functioning issues,

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Speaker 1: and I think one of the great successes in the

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Speaker 1: last few months is that we had a lot of

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Speaker 1: market stress in March going into April, and the FED

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Speaker 1: introduced a number of special liquidity facilis that have actually

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Speaker 1: caused markets to return to good functioning. So I think

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Speaker 1: it tells you that the FED still has pretty good

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Speaker 1: tools to deal with things like illiquidity. The problem I

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Speaker 1: think we have fundamentally, though, is that the pandemic is

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Speaker 1: causing harm to household and corporate balance sheets, and there's

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Speaker 1: limits to what the FED can do with respect to

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Speaker 1: that damage. My favorite quote over the weekend fund manager

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Speaker 1: called the Federal Reserve helicopter parents for the market. I

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Speaker 1: thought that was pretty apt at a time when you

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Speaker 1: have a lot of worries that are just being absolutely

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Speaker 1: pushed away at the at the behest of the Federals.

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Speaker 1: Or if people saying, put your faith in the FED,

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Speaker 1: don't fight the Fed. The FED has our backs. I'm

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Speaker 1: wondering how concerned you are, Bill that this takes the

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Speaker 1: pressure off of Congress of federal lawmakers to actually pass

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Speaker 1: some stimulus efforts that could potentially get to main street

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Speaker 1: faster than some of the Fed's programs. Well, I think

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Speaker 1: Cheri Pale has made that same point that it can't

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Speaker 1: all be just about Monterrey policy. The pandemic is causing

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Speaker 1: harm to people's incomes, to their balance sheets, and that's

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Speaker 1: something that really terry policy can't repair by it. So

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Speaker 1: that's why you need fiscal policy stimulus. So, you know,

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Speaker 1: one of the you know, risk here is that people

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Speaker 1: think that the FED is all powerful and basically put

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Speaker 1: all the all the weight on the FED. And the

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Speaker 1: fact I think that we need more, probably probably gonna

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Speaker 1: need more fiscal stimulus than what we've got to take.

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Speaker 1: Dr Dudley, thank you so much for joining us today.

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Speaker 1: Bill Dudley is the former president of the New York Fed.

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Speaker 1: An exceptionally interesting and clear essay for Bloomberg Opinion today,

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Speaker 1: and I really anticipate, folks, what I believe is a

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Speaker 1: presume second essay from Bill Dudley on the prescription forward

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Speaker 1: given a ten trillion dollar deficit right now with us

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Speaker 1: and we're thrilled to bring you here for an important

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Speaker 1: conversation on deflation and disinflation. James Sweeney of Credit Sweets

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Speaker 1: he writes, wonderfully direct research reports this out of the

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Speaker 1: acuity of a London school of economics. James, I've got

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Speaker 1: to start with what was in the literature this week again,

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Speaker 1: which is the what if what if we do fiscal policy?

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Speaker 1: What if we do fiscal salvation? And what if we

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Speaker 1: run out of it before we get a legitimate recovery?

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Speaker 1: Is that feasible? Is that possible? I mean, with the

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Speaker 1: politics the way they are right now, I think anything

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Speaker 1: is possible with fiscal I mean I could imagine a

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Speaker 1: strong stimulus, I could imagine a temporary strong stimulus that

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Speaker 1: runs out, and I can imagine no stimulus, and that

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Speaker 1: creates a lot of uncertainty for the outlooking both directions.

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Speaker 1: They all look in both direction, and then it sort

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Speaker 1: of it really comes down to that the V shaped idea,

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Speaker 1: and I get I looked at the spreadsheets down we're

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Speaker 1: going up. We go que three. How big of a

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Speaker 1: mystery is the fourth quarter of this year. It's a

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Speaker 1: very big mystery. And I think that, well, we've got

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Speaker 1: three uncertainties. I mean, first we have are we going

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Speaker 1: to have another fiscal stimulus? We have that extended unemployment

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Speaker 1: help running out on July thirty one, So you're gonna

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Speaker 1: have a big drop in household cash flows at to

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Speaker 1: that if if you don't you renew it um, and

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Speaker 1: it looks like they probably won't. They might extend it,

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Speaker 1: but not renew it. But on top of that, you know,

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Speaker 1: we have ongoing contagion, accelerating contagion in many states, and

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Speaker 1: could that lead to more shutdowns? Even without more shutdowns,

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Speaker 1: could it lead to people staying home to the extent

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Speaker 1: where we don't have the full recovery, um, you know,

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Speaker 1: the full post shutdown normalization we were hoping for. And

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Speaker 1: then you have the election as well, So UM, I

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Speaker 1: think you have to put large arab bands around any

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Speaker 1: forecast for for the fourth quarter this year and arguably

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Speaker 1: for the third two. Let's talk about the bounce we've

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Speaker 1: seen as well, James, and how the bounce, the data

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Speaker 1: bounds that we've seen over the last month informs your

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Speaker 1: views about the ladder end of this year. What do

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Speaker 1: you take your wife from the bounds? Yeah, it does

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Speaker 1: not inform my view about the latter half of this year.

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Speaker 1: This bounce was entirely predictable. This is turning the light

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Speaker 1: switch off on the economy and turning it back on again.

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Speaker 1: It's pretty it's pretty easy if if hours work to

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Speaker 1: go down because they sent this home and then we

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Speaker 1: they bring us back to work and hours work, they're

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Speaker 1: going to go back up, and the data are going

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Speaker 1: to bounce. But it's not answering answering any of the

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Speaker 1: big questions. So you know, the unemployment to jump in

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Speaker 1: this is so so significant. So many people are looking

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Speaker 1: at this data bounce and they're extrapolating out two three

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Speaker 1: Q two for que into what does inform your view

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Speaker 1: about the year still to come? Well, I mean, I

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Speaker 1: think you can extrapolate this bounce out a few more months,

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Speaker 1: as long as you're seeing people return to work. But

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Speaker 1: further out, I mean, if I'm thinking about the labor

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Speaker 1: market at the end of the year, I want to

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Speaker 1: know how damaged our businesses, How bad are their balance

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Speaker 1: sheets and earning so that they can't hire. I want

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Speaker 1: to know how bad are their sales expectations given that

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Speaker 1: the virus may still be around and a lot of

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Speaker 1: people might be avoiding certain activity. And I want to

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Speaker 1: know even how much how many efficiencies have businesses found

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Speaker 1: while their workers have been working from home? So some

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Speaker 1: business is maybe discovering that they could rearrange somethings, use

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Speaker 1: less space and fewer workers. And I think all of

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Speaker 1: those three factors are different factors that backward looking forward,

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Speaker 1: looking at a productivity one which could lead to an

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Speaker 1: elevated unemployment rate later in the year. So I think

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Speaker 1: the unemployment rate is falling now for very simple and

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Speaker 1: simplistic reasons, where the light switches is being dialed back

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Speaker 1: up again. But um, it's gonna be high. It's gonna

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Speaker 1: be a lot higher than three and a half percent

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Speaker 1: at the end of the year, maybe in the high

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Speaker 1: single digits are even higher. Um And and you know,

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Speaker 1: so we've got to really think about all those factors separately, James,

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Speaker 1: Efficiencies is a sort of a dirty word right now

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Speaker 1: as people look for the second wave of layoffs. How

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Speaker 1: much are the federal reserves policies buoying this market from

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Speaker 1: a main street perspective, keeping some of these businesses alive

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Speaker 1: and can continue to through the end of this year. Well,

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Speaker 1: there's no doubt that the p p P program in particular,

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Speaker 1: which I think of more of the Treasury of the

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Speaker 1: Treasury program than a fit probe him, has has kept

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Speaker 1: a lot of businesses going UM and I think the

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Speaker 1: FED programs in general have kept credit flowing. You've had

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Speaker 1: this extraordinary issuance in the primary markets, but it doesn't

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Speaker 1: mean everything is good. I mean you're gonna have a

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Speaker 1: lot of business failures and we don't know what the

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Speaker 1: balance sheet damage looks like six months from now. So

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Speaker 1: it's just a very, very big deal when you have

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Speaker 1: the GDP contraction of this size driven by the virus.

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Speaker 1: We've had policy responses which are extremely forceful UM, but

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Speaker 1: it's even possible that they are not enough. And that's

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Speaker 1: why you circle July thirty one as the date that

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Speaker 1: some of the Cares Act benefits expire. And and this

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Speaker 1: is going to be the next particularly important moment that

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Speaker 1: markets are going to focus on as we've come to

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Speaker 1: learn what the second half is going to be. Like James,

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Speaker 1: everyone's becoming a social scientist and trying to pass through Google,

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Speaker 1: Google searches and other soft high frequency data to get

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Speaker 1: a sense of what the consumer behavior is going to

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Speaker 1: be with respect to the virus as well as businesses.

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Speaker 1: What are you looking for? What sort of the early

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Speaker 1: indicators that can give us a sense of just how

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Speaker 1: much business is being suppressed by people's concerns and frankly,

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Speaker 1: how much businesses have to respond by shutting down so

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Speaker 1: that they don't have the extra expenses of being open

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Speaker 1: without enough business to justify it. Yeah, there's different forms

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Speaker 1: of foot traffic data, web traffic data, you know, hours

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Speaker 1: worked data. I mean, there's a lot of very ultra

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Speaker 1: high frequency macro data that didn't exist just a few

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Speaker 1: years ago, and right now, I would say, survey quite

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Speaker 1: quite a few of these numbers. Um, you're not normalizing,

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Speaker 1: You're you're normalizing very slowly in the states that reopened first,

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Speaker 1: and then the states that reopened later they're slowly normalizing too.

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Speaker 1: And now in the states that reopened first, you have

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Speaker 1: a very sharp pick up in contagion in a number

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Speaker 1: of them. So I think the best case scenario was

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Speaker 1: the viruses is a little quiet, and you know, you're

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Speaker 1: you're rich hurning workers to work, and some workers are

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Speaker 1: avoiding risks, and therefore you can't expect a normal level

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Speaker 1: of demand. But if the virus is severe been a

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Speaker 1: lot more workers and customers are going to avoid going out,

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Speaker 1: and in those most affected sectors like restaurants and travel

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Speaker 1: in airlines, etcetera. You know you're gonna have a problem,

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Speaker 1: and so every data point on the contagion UH suggests

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Speaker 1: you know something bad for the second half of the year. James,

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Speaker 1: you made your name with Niel Sauce studying deflation and

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Speaker 1: really pushing against the deflation gloom in Europe, ages and

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Speaker 1: ages Ago. I want you to parse right now the

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Speaker 1: disinflation of America in goods and services. We've had a

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Speaker 1: pernicious decline in price for goods at times fine, but

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Speaker 1: services have been remarkably stable. Can you model out, given

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Speaker 1: this pandemic and the tough recovery, can you model out

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Speaker 1: services disinflation or even outright inflation? Sure? Well, I mean

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Speaker 1: in the way inflation is measured about to and thirds

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Speaker 1: is services prices, and one third is good. And it's

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Speaker 1: important to know that because you know, most people really

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Speaker 1: look at cars and look at gasoline, and there's their

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Speaker 1: view on inflation. But the services are important, and you've

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Speaker 1: got things like housing, healthcare, and financial services in there

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Speaker 1: which are opaque, and sometimes the prices are even basically modeled,

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Speaker 1: at least in the short term. Right now, housing inflation

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Speaker 1: looks likely to put downward pressure on overall inflation um,

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Speaker 1: financial inflation, and the others are in healthcare a little

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Speaker 1: bit more mysterious. Um. But this was a huge drop

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Speaker 1: in services consumption, the likes of which we haven't seen

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Speaker 1: since the Great Depression. And right now we have a

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Speaker 1: much bigger services sector. So you know, we're gonna see

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Speaker 1: headline inflation bounce around zero for a while. We're gonna

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Speaker 1: see core inflation bounce around one percent um. Services are

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Speaker 1: doing some of that work. I mean, there's certain goods

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Speaker 1: like airlines and use cars that are that are doing

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Speaker 1: it on the good side as well. But this is

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Speaker 1: the temporary implications on prices from the shut down and

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Speaker 1: from the virus. The wrong term questions a little different.

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Speaker 1: The one final question, James, it's just real simple here.

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Speaker 1: If we're gonna model this kind of nominal g d P,

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Speaker 1: should we begin to really aggressively talk about a FED

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Speaker 1: that manages for nominal GDP and not real GDP. Well, yeah,

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Speaker 1: I mean I think really the dual mandate is nominal

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Speaker 1: GDP in a way, because you've got you know, the

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Speaker 1: unemployment rate is the real growth piece and the inflation

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Speaker 1: is the is the inflation piece. So there you have it.

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Speaker 1: If you're doing both right, You're you're really targeting nominal,

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Speaker 1: just not you know, explicitly. Um So, I think we've

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Speaker 1: had a four percent nominal GDP trends in the US

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Speaker 1: over the past ten years, and hopefully we can get

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Speaker 1: back on it. I think the equity market is trading

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Speaker 1: as if the expectation is we're going to be on

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Speaker 1: that four percent nominal GDP trend before too long. Um

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Speaker 1: The bond market seems to have its doubts, and I

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Speaker 1: think that that encapsulates pretty well the range of opinions

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Speaker 1: right now on deflation and inflation, a wide range of

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Speaker 1: opinions on pretty much everything right now. James task to

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Speaker 1: catch up with you said as alwise, James Sweeney of

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Speaker 1: Credit sways on this market, this economy, this recovery. Joining

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Speaker 1: us now is he did a bit ago? Uh? Joining

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Speaker 1: us now is the head of the m t A.

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Speaker 1: Their chairman Patrick Foy joins us now. Pet A hundred

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Speaker 1: and thirty two people within your huge organizations succumbed to

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Speaker 1: the virus. The courage in the heat of this was noted.

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Speaker 1: What will they do? What will the m t A

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Speaker 1: do to celebrate on this reopening? Well? Phase two Phase

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Speaker 1: two is a big step for New York City and

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Speaker 1: frankly a big step forward for the UH for the country.

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Speaker 1: On gladtime that you're gonna be eating in New York

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Speaker 1: City restaurants five days a week. The city needs the

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Speaker 1: business and the UH and the tax revenue. Throughout the

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Speaker 1: entire pandemic, the m t A UH employees, UH, Subways, buses,

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Speaker 1: Metro North Long our Road, road bridges and tunnels have

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Speaker 1: been heroes, moving heroes. They've done extraordinary work in the

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Speaker 1: most trying circumstances. At one point, UH a total of

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Speaker 1: well over ten thousand employees or under home quarantine. Ten

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Speaker 1: thousand employees have returned to work. The number of employees

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Speaker 1: on home quarantine is in the is in the hundreds,

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Speaker 1: down from thousands. And tragically, a hundred and thirty two

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Speaker 1: of our colleagues succumbed to the virus at at the

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Speaker 1: mt A, Subways, Buses, New York City Transit, Metro North

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Speaker 1: Long Island Railroad, UH, and UH, and that is tragic. Obviously,

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Speaker 1: New York has been the epicenter of the UH of

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Speaker 1: the pandemic, but the MTA workforce has been heroes, moving heroes,

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Speaker 1: first responders, and essential employees, including fellow transporters. What will

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Speaker 1: be the process of someone on a subway, someone on

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Speaker 1: a bus not wearing a mask. Wellok it state law

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Speaker 1: to wear a mask on public transit. As a result

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Speaker 1: of an executive order that Governor Cuomo issued some weeks ago,

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Speaker 1: I can tell you that UH compliance by our employees

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Speaker 1: is universal. We have done physical counts on the subways.

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Speaker 1: The original account was a ninety two mask compliance by

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Speaker 1: our employees. We believe it is now. We've got a

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Speaker 1: robust communications and messaging plan to get the number even higher,

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Speaker 1: and we've been distributing over the last couple of weeks

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Speaker 1: millions of masks to writers who were returning to the system.

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Speaker 1: It is not optional, it is mandatory and state law

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Speaker 1: to wear a mask on transit. Public health officials tell

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Speaker 1: us that the single most important thing any anybody can

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Speaker 1: do in whatever environment they're in, but including on transit,

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Speaker 1: is to wear a mask. Protects you, it protects your

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Speaker 1: fellow commuters, and it protects our employees. Pet I've been

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Speaker 1: looking at pictures of workers cleaning all of the subway

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Speaker 1: cars twice a day, which is fantastic for anyone who

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Speaker 1: wants to write a clean subway. It all takes money,

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Speaker 1: and your CFO said that it could be as soon

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Speaker 1: as early July, at which point the m TABLE run

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Speaker 1: out of money, will run out of federal funding that's

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Speaker 1: been propping up the finances. What then if the federals,

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Speaker 1: if if the federal government does not re up that financing,

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Speaker 1: what happens to the m t A. So so at

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Speaker 1: least a just one point of clarification, which is important.

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Speaker 1: Our employees are not cleaning subways. UH, They're not cleaning stations.

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Speaker 1: They're disaffecting them. And we've been doing that since since

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Speaker 1: Mark three. Bob Foreign, our CFOs concern is is well placed.

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Speaker 1: We're in a dire financial situation. We got the MTA

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Speaker 1: received three point eight billion dollars, was awarded three point

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Speaker 1: eight billion dollars in the Cares Act. That money will

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Speaker 1: carry us through July, will be drawing it down through August. UH.

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Speaker 1: The f t A, at U, S d OT has

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Speaker 1: done a good job of facilitating and expediting that money.

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Speaker 1: The Heroes The Heroes Act, which passed the House thanks

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Speaker 1: to Speaker Pelosi UH and the support of the New

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Speaker 1: York Congressional Delegation, provides an additional three point nine billion

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Speaker 1: dollars of federal funding. It's obviously subject to Senate approval.

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Speaker 1: It is absolutely critical that the MTA received that money.

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Speaker 1: We hired McKenzie to do a review of our finances

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Speaker 1: UH and the looking at the revenue decline because ridership

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Speaker 1: is down across the system, expenses her up and also

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Speaker 1: a dedicated package of taxes and subsidies which also accounts

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Speaker 1: for fifty of the mt A revenue in a in

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Speaker 1: a normal year. Mackenzie's midpoint is seven point seven billion dollars,

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Speaker 1: So the three point eight from CARES and the three

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Speaker 1: point nine in the House bill on the Heroes will

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Speaker 1: take us through. It's critical that we received that federal funding. PA,

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Speaker 1: just real quick here. That distinction that you made between

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Speaker 1: disinfecting and cleaning, why was that an important distinction to make? Well?

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Speaker 1: We we UH. Cleaning means taking the coffee cups out

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Speaker 1: and the refuse on a on a subway car or bus.

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Speaker 1: We've been disinfecting using disinfecting agents since since March three

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Speaker 1: because of the pandemic. We've also been piloting the use

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Speaker 1: of ultra violet sea light on subway cars and busses

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Speaker 1: were doing that right now. We worked with a Columbia

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Speaker 1: University professor, Dr David Brenner or the Irving Medical Center

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Speaker 1: at Columbia, who's an expert on ultra violet light. He

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Speaker 1: concluded in this innovative collaboration with the m t A

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Speaker 1: and ultra violet sea light kills the COVID nineteen virus.

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Speaker 1: We've also been piloting the use of anti microbials, which

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Speaker 1: we believe and to be verified by independent laboratories and

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Speaker 1: regulators that it too will kill the COVID nineteen virus

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Speaker 1: and has the potential to do that for weeks and

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Speaker 1: months after application. That would be a game changer. And

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Speaker 1: the point I wanted to make to our riders is

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Speaker 1: that we are looking at every step we can to

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Speaker 1: minimize public health risk to our customers, answer our employees,

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Speaker 1: ultra violet light, ultra violet sea light, ants on microbials

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Speaker 1: or evidence of that. Pat way pray shot hot work

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Speaker 1: the city, the whole city does. And I thoughts with

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Speaker 1: the team of the m c A. Patfoy that off

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Speaker 1: the m c A right now, let us turn to

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Speaker 1: what we do, which is economics, finance, investment, and more

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Speaker 1: on foreign exchange than anyone in the world. And we

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Speaker 1: can do that with Jane Foley of Robbo Bank. She's

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Speaker 1: exceptionally attuned to not only what the speculators are doing,

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Speaker 1: but also the commercial banking interests of her Robbo Bank.

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Speaker 1: Jane Foley, I have to start with the dollar. I

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Speaker 1: noticed today looking at the Bloomberg Dollar Index, which is

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Speaker 1: basically resilience for four years, even pushing into five years

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Speaker 1: of relatively strong dollar. That's been a great miscall. When

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Speaker 1: do we finally see the dollar give way to what

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Speaker 1: the consensus call is? Is we just dollar weakness? You

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Speaker 1: know something that's a really interesting question because let you say,

431
00:24:05,400 --> 00:24:07,439
Speaker 1: the consensus called for a number of years has been

432
00:24:07,480 --> 00:24:10,480
Speaker 1: that we will have a weaker dollar, and finally with

433
00:24:11,000 --> 00:24:12,680
Speaker 1: the dollar, bears are saying, well, this year, this is

434
00:24:12,720 --> 00:24:14,520
Speaker 1: going to be the year that we see this weeker

435
00:24:14,600 --> 00:24:16,679
Speaker 1: dollar because a little that money printing that we've had,

436
00:24:16,720 --> 00:24:19,399
Speaker 1: Look at all the excel liquidity that we saw at

437
00:24:19,400 --> 00:24:22,480
Speaker 1: the FED and other central banks add But you know,

438
00:24:22,600 --> 00:24:26,080
Speaker 1: I think the answer really will be in risk appetite,

439
00:24:26,119 --> 00:24:28,880
Speaker 1: because it's not just this year that we've seen, say,

440
00:24:28,920 --> 00:24:32,320
Speaker 1: a correlation between the dollar and emerging market stocks. This

441
00:24:32,440 --> 00:24:34,760
Speaker 1: has been going on at least since twenty eighteen, and

442
00:24:34,840 --> 00:24:37,359
Speaker 1: it seems to me that the answer to the dollar

443
00:24:37,800 --> 00:24:40,720
Speaker 1: or the dollars the dollars trend will be an emerging market.

444
00:24:40,800 --> 00:24:43,920
Speaker 1: If the market is confident enough to keep on investing

445
00:24:43,960 --> 00:24:46,760
Speaker 1: in e M, the dollar will go down. If it isn't,

446
00:24:47,240 --> 00:24:50,320
Speaker 1: it won't and the dollars still will have this safe haven.

447
00:24:50,400 --> 00:24:53,960
Speaker 1: So if we do have another wave, if we do

448
00:24:54,320 --> 00:24:57,119
Speaker 1: have later on in the year markets really concerned and

449
00:24:57,480 --> 00:25:00,800
Speaker 1: stock markets got ahead of themselves, well, in sort of instance,

450
00:25:01,080 --> 00:25:02,800
Speaker 1: the dollar is likely to do well. But if the

451
00:25:02,880 --> 00:25:05,600
Speaker 1: market carries on being really optimistic and being in this

452
00:25:05,960 --> 00:25:09,600
Speaker 1: blind stupor of optimism because of central bank money, well

453
00:25:09,640 --> 00:25:13,200
Speaker 1: the dollar could soften. It certainly could. Jenny's there's another

454
00:25:13,200 --> 00:25:16,959
Speaker 1: way of saying, don't waste your time looking at rate differentials. Well,

455
00:25:17,040 --> 00:25:19,159
Speaker 1: you know, great differentials obviously come into it. I mean

456
00:25:19,160 --> 00:25:22,000
Speaker 1: they're the bread and butter clearly of foreign exchange. But

457
00:25:22,119 --> 00:25:24,440
Speaker 1: that they it has changed. So for instance, if we

458
00:25:24,720 --> 00:25:27,320
Speaker 1: consider for ins as a carry trade, it used to

459
00:25:27,400 --> 00:25:29,679
Speaker 1: be the days when we used to sell the air

460
00:25:29,720 --> 00:25:33,159
Speaker 1: and as as the funding currency and by the Aussie

461
00:25:33,200 --> 00:25:35,600
Speaker 1: But if you look now where Aussie rates are then

462
00:25:35,680 --> 00:25:39,960
Speaker 1: really not that high anymore. Last year people swapped, for instance,

463
00:25:40,040 --> 00:25:42,080
Speaker 1: to to to the Mexican pay so as as a

464
00:25:42,119 --> 00:25:45,479
Speaker 1: carry trade. But in terms of funding currencies, perhaps now

465
00:25:45,600 --> 00:25:47,840
Speaker 1: you have a lot more choice. You've got negative interest

466
00:25:47,920 --> 00:25:51,000
Speaker 1: rates for a variety of different countries now, not just

467
00:25:51,520 --> 00:25:54,720
Speaker 1: of course at the end, so the market has changed.

468
00:25:54,760 --> 00:25:58,639
Speaker 1: Interest rates will always be important. But I think what

469
00:25:58,800 --> 00:26:01,520
Speaker 1: we have, as we all know, in terms of crisis,

470
00:26:01,640 --> 00:26:04,560
Speaker 1: we have this big correlation where we have risk one

471
00:26:04,600 --> 00:26:08,320
Speaker 1: and risk off and in those sorts of environments we

472
00:26:08,440 --> 00:26:11,000
Speaker 1: have less detail. Well, let's talk about the characteristics of

473
00:26:11,040 --> 00:26:13,360
Speaker 1: this particular regime just a little bit more, Jane, going

474
00:26:13,400 --> 00:26:16,000
Speaker 1: into the downturn, the March contraction that we saw not

475
00:26:16,080 --> 00:26:18,800
Speaker 1: just in the economy but in this market to increasingly

476
00:26:18,880 --> 00:26:23,440
Speaker 1: the Euro was becoming the funding currency of choice, then

477
00:26:23,480 --> 00:26:25,840
Speaker 1: it quickly unwound. Have you seen that build up in

478
00:26:25,920 --> 00:26:28,000
Speaker 1: any particular way that's significant enough that we need to

479
00:26:28,080 --> 00:26:30,760
Speaker 1: think about more. I think the euro has been significant

480
00:26:31,000 --> 00:26:33,520
Speaker 1: this year. Now, We've got to remember that the Eurozone

481
00:26:33,560 --> 00:26:36,919
Speaker 1: has an enormous current account surpers. Germany has an enormous

482
00:26:36,920 --> 00:26:39,479
Speaker 1: current account surpers, and what we saw in March when

483
00:26:39,560 --> 00:26:42,359
Speaker 1: we saw this big sell off in risky currencies and

484
00:26:42,480 --> 00:26:46,200
Speaker 1: and e M in particular, we obviously saw the dollar benefit,

485
00:26:46,520 --> 00:26:48,920
Speaker 1: but I would always say I think the Euro held

486
00:26:49,000 --> 00:26:51,680
Speaker 1: up relatively well against the US dollar. I think what

487
00:26:51,800 --> 00:26:54,480
Speaker 1: we actually saw was sort of e M versus G

488
00:26:54,680 --> 00:26:56,640
Speaker 1: ten with with the dollar coming out at the top

489
00:26:56,680 --> 00:26:58,840
Speaker 1: of the bundle of of the G ten. But but

490
00:26:59,160 --> 00:27:01,200
Speaker 1: you're held up well. And then of course last month

491
00:27:01,280 --> 00:27:03,560
Speaker 1: we had those two pieces of news which I think

492
00:27:03,600 --> 00:27:06,320
Speaker 1: was significant for the Euro. We had at the ECB

493
00:27:06,800 --> 00:27:10,280
Speaker 1: really put in its mouth where it's where it's money,

494
00:27:10,320 --> 00:27:12,520
Speaker 1: where its mouth was, and say, look, we do not

495
00:27:12,760 --> 00:27:15,760
Speaker 1: want fragmentation, and we do not want the market to

496
00:27:15,880 --> 00:27:18,840
Speaker 1: think about fragmentation. We're going to buy those peripheral bonds.

497
00:27:18,960 --> 00:27:21,440
Speaker 1: We're going to stop that sort of talk, which helped

498
00:27:21,480 --> 00:27:25,640
Speaker 1: the Euro. And of course we also had that European

499
00:27:25,640 --> 00:27:28,840
Speaker 1: Commission bunship proposal that was a step forward. Now clearly

500
00:27:28,880 --> 00:27:31,119
Speaker 1: that's got to be ratified, but we've still got the

501
00:27:31,160 --> 00:27:33,680
Speaker 1: euro really boid on that. So I think the sort

502
00:27:33,680 --> 00:27:36,520
Speaker 1: of neutral point for for Euro dollar has shifted tire

503
00:27:36,560 --> 00:27:39,119
Speaker 1: on the back of European news, and I think that

504
00:27:39,280 --> 00:27:42,000
Speaker 1: is significant. Jana, the dollar is still very much the

505
00:27:42,080 --> 00:27:44,760
Speaker 1: funding choice of many countries, and that's the reason why

506
00:27:44,760 --> 00:27:47,280
Speaker 1: the feasurers have opened up that swap line and expanded

507
00:27:47,320 --> 00:27:49,720
Speaker 1: it dramatically in the wake of the dollar crunch that

508
00:27:49,760 --> 00:27:53,000
Speaker 1: we saw in March. Last week marked the first time

509
00:27:53,080 --> 00:27:55,080
Speaker 1: that the FED started to taper that and people are

510
00:27:55,119 --> 00:27:58,800
Speaker 1: expecting that to continue. The demand for dollars coming down.

511
00:27:59,240 --> 00:28:01,720
Speaker 1: Does that tell you that the dollar crunch is over?

512
00:28:01,960 --> 00:28:03,880
Speaker 1: Does that tell you that this could be a potential

513
00:28:04,080 --> 00:28:07,200
Speaker 1: risk with the dollar surging again, if there is a

514
00:28:07,240 --> 00:28:10,600
Speaker 1: liquidity shortage around the world. I think it tells you

515
00:28:10,720 --> 00:28:12,639
Speaker 1: both of those things. I think it tells you at

516
00:28:12,720 --> 00:28:15,080
Speaker 1: least for now. Yes, the the the the eye of

517
00:28:15,119 --> 00:28:17,800
Speaker 1: the storm has passed. The middle of the crisis has gone,

518
00:28:17,840 --> 00:28:20,240
Speaker 1: and things are calming down, and we can see that

519
00:28:20,359 --> 00:28:22,879
Speaker 1: in lots of different asset crisis too. We wouldn't have

520
00:28:22,960 --> 00:28:25,159
Speaker 1: stock markets where they are now if we were in

521
00:28:25,200 --> 00:28:26,879
Speaker 1: the middle or you know, still in the eye of

522
00:28:26,920 --> 00:28:29,600
Speaker 1: the storm. But we also know, you know, all of us,

523
00:28:29,640 --> 00:28:31,800
Speaker 1: we look at our screens every day and we see

524
00:28:32,119 --> 00:28:35,760
Speaker 1: worry news about the coronavirus in the US, and we

525
00:28:35,800 --> 00:28:39,560
Speaker 1: see the r rising again in Germany or you know,

526
00:28:39,640 --> 00:28:41,800
Speaker 1: in Brazil, we see terrible news, and then we know

527
00:28:42,040 --> 00:28:44,960
Speaker 1: that we're going to face bad economic news as well

528
00:28:45,040 --> 00:28:47,200
Speaker 1: over the next few months at the very least. So

529
00:28:47,560 --> 00:28:49,440
Speaker 1: we all know that there is another wave, and if

530
00:28:49,480 --> 00:28:51,760
Speaker 1: there is another wave, it will be the dollar and

531
00:28:52,400 --> 00:28:56,120
Speaker 1: possibly the end in the currency world that well, we'll

532
00:28:56,200 --> 00:28:58,760
Speaker 1: see still some flows and central banks will have to

533
00:28:58,840 --> 00:29:02,400
Speaker 1: react again if that does happen. Jane, I got killed

534
00:29:02,480 --> 00:29:04,880
Speaker 1: this weekend. I lost so much money on the tarts.

535
00:29:04,960 --> 00:29:08,320
Speaker 1: It's incalculable. Where can I make back money in foreign

536
00:29:08,360 --> 00:29:11,760
Speaker 1: exchange in the next six months. Where's a tradeable trade

537
00:29:11,880 --> 00:29:14,920
Speaker 1: right now in f X? Which pair gets it done?

538
00:29:15,200 --> 00:29:16,920
Speaker 1: You know what, I think the trade that you might

539
00:29:16,960 --> 00:29:18,760
Speaker 1: be putting on today it could be very different to

540
00:29:18,840 --> 00:29:20,760
Speaker 1: the trade that you're sitting on in six months time,

541
00:29:20,800 --> 00:29:22,880
Speaker 1: and it very much depends as to whether or not

542
00:29:22,960 --> 00:29:25,680
Speaker 1: we get that second wave or not. If you are

543
00:29:25,800 --> 00:29:28,640
Speaker 1: extremely confident that we weren't, then yeah, maybe you'll make

544
00:29:28,680 --> 00:29:31,760
Speaker 1: money out of selling the dollar. But you know, looking

545
00:29:31,800 --> 00:29:33,800
Speaker 1: at the Aussi dollar, that does worry me. I think

546
00:29:33,840 --> 00:29:35,640
Speaker 1: we see the same picture in the Aussie dollar as

547
00:29:35,640 --> 00:29:37,680
Speaker 1: we see in many stock markets, and we see a

548
00:29:37,800 --> 00:29:39,960
Speaker 1: lot of good news in that price, and if we

549
00:29:40,040 --> 00:29:41,560
Speaker 1: see a lot of good news in the price, it

550
00:29:42,040 --> 00:29:44,560
Speaker 1: clearly means that the market is is more susceptible to

551
00:29:44,640 --> 00:29:47,040
Speaker 1: it's it's a bad news. And I do think that

552
00:29:47,160 --> 00:29:50,440
Speaker 1: we've got some retracement to go, potentially a lot of

553
00:29:50,480 --> 00:29:54,280
Speaker 1: retracement that certainly some retracement in the next few months.

554
00:29:54,360 --> 00:29:56,880
Speaker 1: So you know, I would be a cello and rallies

555
00:29:56,960 --> 00:30:00,520
Speaker 1: of risk currencies like the Aussie and we'll I'd be

556
00:30:00,720 --> 00:30:03,920
Speaker 1: very concerned about Sterling if we do not get a

557
00:30:04,000 --> 00:30:07,360
Speaker 1: trade deal soon between the UK and the EU. I

558
00:30:07,440 --> 00:30:09,720
Speaker 1: think Sterling could be really quite vulnerable. We've got to

559
00:30:09,720 --> 00:30:12,240
Speaker 1: spend some time talking about Brexit in a not too

560
00:30:12,320 --> 00:30:15,160
Speaker 1: distant future. James Foley of Rather Bank, I'm sure you

561
00:30:15,240 --> 00:30:17,320
Speaker 1: can hardly wait week and hardly wait great to catch

562
00:30:17,360 --> 00:30:19,160
Speaker 1: hell with you this morning. My best to you and yours.

563
00:30:19,560 --> 00:30:23,640
Speaker 1: Thanks for listening to the Bloomberg Surveillance podcast. Subscribe and

564
00:30:23,840 --> 00:30:29,080
Speaker 1: listen to interviews on Apple Podcasts, SoundCloud, or whichever podcast

565
00:30:29,200 --> 00:30:33,400
Speaker 1: platform you prefer. I'm on Twitter at Tom Keane before

566
00:30:33,440 --> 00:30:37,280
Speaker 1: the podcast, you can always catch us worldwide. I'm Bloomberg

567
00:30:37,400 --> 00:30:37,640
Speaker 1: Radio