Speaker 1: Who you put your trust in matters. Investors have put
Speaker 1: their trust and independent registered investment advisors to the two
Speaker 1: four trillion dollars. Why Learn more at find your Independent
Speaker 1: Advisor dot com. Welcome to the Bloomberg Surveillance Podcast. I'm
Speaker 1: Tom Keene with David Gura. Daily we bring you insight
Speaker 1: from the best in economics, finance, investment, and international relations.
Speaker 1: Find Bloomberg Surveillance on iTunes, SoundCloud, Bloomberg dot com, and
Speaker 1: of course, on the Bloomberg. Donald Trump's and victory triggered
Speaker 1: a sell off in global bonds and emerging market assets
Speaker 1: while the dollar rose. Now we're seeing some of those
Speaker 1: post election moves scale back as investors assess whether they're
Speaker 1: overreacting the Trump's victory. For more, we're very pleased to
Speaker 1: welcome Alex Salmon. He is the former First Minister of Scotland.
Speaker 1: Good morning, Holger's meeting. Chief economist at Barenberg also joins us.
Speaker 1: Thank you for joining us. Let me start off with you, right,
Speaker 1: What does it Donald trump victory mean to you? Is
Speaker 1: this the end of austerity? Is this actually inequality? How
Speaker 1: do you explain it? Because if you can explain it,
Speaker 1: it means that he has a clear mandate to do
Speaker 1: what exactly. Well, I don't think Hamdy knowes. I mean, obviously,
Speaker 1: the campaign rhetoric employed by the Donald is very frightening
Speaker 1: to lots of people, to Mexican, to Muslims, perhaps to
Speaker 1: gaze to minorities, and you see some of that reaction.
Speaker 1: It's not just disappointment, there's fear in that reaction. And
Speaker 1: more international terms, then, I think it's a balance between
Speaker 1: an expansionally domestic policy in the economy, but also the
Speaker 1: threat of protectionism, which an international affairs and trade. Now,
Speaker 1: I mean the few things which are absolutely hastan laws
Speaker 1: and economics, but one of them is protectionism makes everybody poorer.
Speaker 1: The less international trade you have, the less freedom of
Speaker 1: trade you have, the more the more poor people. Yet
Speaker 1: this is where the world is going. Well, there's a
Speaker 1: lot of protections forces. I mean, it's it's one of
Speaker 1: the natural populist instincts, and it's usually the job of
Speaker 1: politicians to resist that populist instinct for the greater good.
Speaker 1: But so you've got the balance between an expansionary policy
Speaker 1: to restore the broken infrastructure of the of the United
Speaker 1: States in the one hand, but the looming threat of protectionism,
Speaker 1: which certainly will absolutely make everybody poorer, including the dispossessed,
Speaker 1: the disappointed of the United States who Donald Trump was
Speaker 1: meant to be appealing to. Now it's helped me here
Speaker 1: with my observation that London has barely been affected by Brexit.
Speaker 1: How is brexit the initial days here, the initial weeks,
Speaker 1: How has it affected Scotland. Well that there hasn't been
Speaker 1: a dramatic effect, but of course know that's one in London.
Speaker 1: So it's about like jumping off the post Office talent
Speaker 1: and halfway down saying well, we're all right so far
Speaker 1: at the ground jet. There hasn't been a Brexit in Scotland.
Speaker 1: It would be jumping off the scott Monument in Edinburgh,
Speaker 1: being halfway down and saying we're all right so far.
Speaker 1: So we don't know. I mean. The difficulty I think
Speaker 1: it's looming in the economy is there's a growing realization
Speaker 1: that the UK government doesn't know either, and the indicatetion
Speaker 1: no clear strategy will affect real economic and fancy. That
Speaker 1: sets us up for our next segment on Brexit. But
Speaker 1: really today to me is almost currency dynamics. Yeah, it's
Speaker 1: currency dynamics. It's also again to access point you know
Speaker 1: about protectionism. If you're in Europe and whole ground, I
Speaker 1: know you've held the view the German jew for for
Speaker 1: quite some time. Right an angler miracle has been the
Speaker 1: beacon of stability for eleven years. How does she fight
Speaker 1: this current wave of populism which brings a lot of
Speaker 1: things with it. How we cope with immigration, how we
Speaker 1: cope with trade deals, how we cope with open borders.
Speaker 1: First of all, life fully agree with what we just heard.
Speaker 1: Protectionism is the real risk here. So far, policymakers around
Speaker 1: the Western world have held the line we have not
Speaker 1: had an increase in protectionism yet, but now with the
Speaker 1: Brexit move vote and Donald Trump, there is a risk
Speaker 1: of protectionism writhing. The German position is very clear. Germany
Speaker 1: did the hard labor market reforms ten twelve years ago.
Speaker 1: As a result, it has record employment, It has a
Speaker 1: strong domestic situation, and as a result, populists in Germany
Speaker 1: are at around fifteen fourteen percent. They are not close
Speaker 1: to anywhere where they are in the UK or the US,
Speaker 1: but very I mean very you know, clearly, we spoke
Speaker 1: to a couple of the Trump advisors David now Pass, Mr.
Speaker 1: Navarro and Peter Navarro was very clear he believes that
Speaker 1: any country with a surplus, and he mentioned Germany, he
Speaker 1: talked about China, any country with a surplus is cheating
Speaker 1: America in trade deals. That is just wrong. Economics period,
Speaker 1: simply wrong. Any sort of second year student of economics
Speaker 1: or first year student of economics food, No, that is wrong.
Speaker 1: If you look at the German date of what you
Speaker 1: see is dependents are rising four percent, government spending is
Speaker 1: rising four percent year over, Your private consumption is fairly strong.
Speaker 1: You cannot simply accuse the Germans of underspending. Alright, we
Speaker 1: have Sirry Alex, And it was some time of Alex
Speaker 1: pulled that thought because we're just getting the former French
Speaker 1: finance minster, Emmanuel mccoon, who has just said he's running
Speaker 1: for president. I was seeing life pictures from Bob Tom.
Speaker 1: This is north of Paris. I think it's about forty
Speaker 1: five minutes from Paris. We had covered him extensively. When
Speaker 1: he's talking about reforms again, remember there's a presidential election. Um,
Speaker 1: I'm losing my voice town, but there's a presidential election
Speaker 1: in France next year. The markets need to decide whether
Speaker 1: they believe the polls. There is certainly someone from the
Speaker 1: far right is Mahin Lupin, who is much more palatable
Speaker 1: than her father ever was. But with anti Europe stands,
Speaker 1: antimmigration stands. Macon is not from that camp. He's very young,
Speaker 1: he's about thirty nine. He answer, it's a crowded field
Speaker 1: of where mccorn wants to be. Right, he's a socialist.
Speaker 1: So if you look at the left of talk field.
Speaker 1: Let's rip up the script right now. We see this
Speaker 1: this important moment for France. Alex Samon, you've seen this
Speaker 1: before and it's almost a new populism. Did Mr Trump
Speaker 1: and frankly other elections, did they change the traditional calculus
Speaker 1: of voting across Europe. Well, I think it'd be be
Speaker 1: very adventurous after Brexit and after Trump to state that
Speaker 1: Marie La Penn is not going to have a chance
Speaker 1: of winning the Fence presidential election. However, you would say
Speaker 1: that the electoral system in France can of mitigates against
Speaker 1: it because they have a knockout system which goes to runoff.
Speaker 1: And I was you couldn't, for example, when a presidential
Speaker 1: election of France without winning the popular vote like Mr
Speaker 1: Trump did. I could also say that, you know, scott
Speaker 1: was quite interesting here that Scotland is a country where
Speaker 1: the insubject party, the SMP, the one who's become dominant.
Speaker 1: It's actually very progressive party in both in towns of
Speaker 1: international trade but in terms of domestic politics. So it's
Speaker 1: not a given that parties which are against the establishment
Speaker 1: have to be protectionists in terms of attitude the world
Speaker 1: or for that matter, device you had your referendum, settled
Speaker 1: it well last year. Yeah, I mean looks since it
Speaker 1: was two years ago. But since then the SMP has
Speaker 1: won fifty six out of fifty nine Westminster seats in
Speaker 1: the in the in the elections, and the SMP have
Speaker 1: been domestical. Yeah. I just like to emphasize one point.
Speaker 1: If we look at France, we find that among the
Speaker 1: most popular politicians in that country on the center right
Speaker 1: up reformer for your reformer on the center left, Macon
Speaker 1: Vales an economic reformer. So while there's a lot of
Speaker 1: talk about lupendent, there is a tail risk. The really
Speaker 1: interesting thing in France is reformers are reformed. Do you
Speaker 1: mean a more Anglo Saxon model, I mean a more
Speaker 1: Anglo Merker reforms and stability. Can I can I steal
Speaker 1: the phrase you can tell with royalty, so you have
Speaker 1: to pay a premium to Holger every time you use it.
Speaker 1: I think we're also seeing life pictures of Mahin Lupin,
Speaker 1: who's actually rebranding her movement and doesn't want to be
Speaker 1: called Mahein Lupin anymore. She wants to be called Mahein
Speaker 1: the problem Holgar and then I'll ask Alex the same thing.
Speaker 1: She's opening her headquarters in Paris. Their tom is that
Speaker 1: all has been around forever, right, He's been in politics
Speaker 1: for what sixty years, and so if you see a
Speaker 1: wave of people wanting something new, then he's a favorite currently.
Speaker 1: But he may not be the right person. Well, actually
Speaker 1: he would be because he when he was Prime minister,
Speaker 1: he was the one who actually instituted reformed and then
Speaker 1: it was his president she Raq who did not back
Speaker 1: him up against street protests. But so risk the record
Speaker 1: is that he actually wants to perceivee it, wants to
Speaker 1: do reformed and if president he would That's a reasonable point.
Speaker 1: But remember and it's the supports that in France, by definition,
Speaker 1: you come up against the strongest candidate because of the
Speaker 1: knockout system, Lepine will face the strongest alternative candidate argument
Speaker 1: that doesn't up and then the United States, right. I mean,
Speaker 1: it reminds me of two thousand and two. I was
Speaker 1: covering the French elections. Then Tom and her father Jean
Speaker 1: marche Lupin you know, came out of nowhere to that
Speaker 1: second round of the presidential elections. Always driving the conversation
Speaker 1: in international relations with that question. The gentleman who invented
Speaker 1: it out of the Washington consensus, Joseph and I of
Speaker 1: course at the Harvard Kennedy School. His power and interdependence
Speaker 1: is the iconic text, professor, and I wonderful to have
Speaker 1: you with us. How do you define Trump foreign policy? Well, Tom,
Speaker 1: it's early. We don't know based on the campaign which
Speaker 1: of the contradictory statements is going to be operational. But
Speaker 1: I would say on security policy he's more likely to
Speaker 1: day on course. On trade policy, I think you can
Speaker 1: have radical changes the end of TPP and t tipped
Speaker 1: and stuff forth. So a mixed bag and still unconnectable.
Speaker 1: The backdrop from your wonderful monograph of a year ago,
Speaker 1: your smaller size book, which is which I claimed was
Speaker 1: a must read, and your reaffirmation and project syndicate the
Speaker 1: other day is on your optimism on the nation. Let's
Speaker 1: go to the quote I called my morning must read
Speaker 1: for this morning, This from Professor uh Ni and it's
Speaker 1: real simple. We oscillate between triumphalism and declinism. The US
Speaker 1: is not in decline. Finally, Professor and I goes on
Speaker 1: to say, there is Russia a country in decline. Mr
Speaker 1: Trump is correct to avoid the complete isolation of Russia,
Speaker 1: with which we have overlapping interests. No one would could
Speaker 1: gain from a Cold war, Professor and I. How should
Speaker 1: Mr Trump uh discuss, act and behave with Mr Putin? Well,
Speaker 1: he's got a double task. One is, he doesn't want
Speaker 1: to undercut the sanctions which tell Putin that you can't
Speaker 1: steal yourr neighbor's territory by force, as he did with Ukraine.
Speaker 1: On the other hand, we do have business to do
Speaker 1: with the Russians, Iran, Afghanistan, North Korea, the Arctic. There
Speaker 1: are lots of things where we and and of course
Speaker 1: Syria in the Middle East, lots of things where we
Speaker 1: have to do business. So he's got to have a
Speaker 1: business like relationship, which is of course what he prides
Speaker 1: himself in, but at the same time not not let
Speaker 1: pouting off the hook in regard to his aggression against Ukraine. Professor,
Speaker 1: I love what you wrote. Forget soft power, the US
Speaker 1: risks losing hard power, right, I mean, if they're retrenching,
Speaker 1: if they're becoming much more inward looking. You could also
Speaker 1: see the Chinese uh, you know, forcing the rest of
Speaker 1: the world to adopt the reminbi as a reserve and
Speaker 1: s do you think there's a real possibility that four
Speaker 1: years from now the US loses real power. I doubt
Speaker 1: that you're going to see that rendom b is the
Speaker 1: reserve currency. You have to have deep and flexible capital
Speaker 1: markets and a real rule of law before a currency
Speaker 1: becomes a dominant reserve currency. China is a long way
Speaker 1: from that, uh. And in terms of hard military power,
Speaker 1: Trump has said that he is going to invest in
Speaker 1: that area. So I think we're actually likely to lose
Speaker 1: more in the terms of soft power people who want
Speaker 1: to follow our values because of the rhetoric we're using.
Speaker 1: A right, doubt, we're going to lose a lot in
Speaker 1: hard power, either economic or military capability. Right, Professor, what
Speaker 1: are your values are the values under this presidency going
Speaker 1: to be the same as they were ten years ago.
Speaker 1: I I believe in democracy. I believe in tallers towards
Speaker 1: people as certain openness, and those are issues which have
Speaker 1: been questioned in UH in the campaign. I hope that
Speaker 1: that the President elect is going to reaffirm them, as
Speaker 1: many people have urged him to do. Professor, Now you
Speaker 1: have a chapter in your classic book Coping with Interdependence.
Speaker 1: Help us here with President Trump and how he needs
Speaker 1: to cope with a new Westphalian world, how he needs
Speaker 1: to quote, UH, cope with his Fred Zacharias says, a
Speaker 1: hub and spoke system, there's a new calculus here. How
Speaker 1: does a president cope with that? Well? Well, UH, for
Speaker 1: seventy years since Harry Truman's day, the United States is
Speaker 1: not a system of alliances which has provided stability and security.
Speaker 1: And every market requires a political framework of security for
Speaker 1: itself for it to flourish. And if Trump undercuts those
Speaker 1: alliances is then you're going to see the spillover into
Speaker 1: the UH prospects for markets and growth. I think if
Speaker 1: you look at his initial statements since the last week's election, UH,
Speaker 1: he's tended to be reaffirming on those alliances. He complains
Speaker 1: about NATO not paying enough for its own defense, but
Speaker 1: so did previous presidents, and he has at least so
Speaker 1: far authorized the view that we will defend the NATO partners.
Speaker 1: This is what we love about Bloomberg surveillance. Joseph and
Speaker 1: I with us UH and also joining US today Jim O'Neill,
Speaker 1: of course, with his service to Goldman Saxon, then to
Speaker 1: the United Kingdom. Mr O'Neil, you're here, professor and I
Speaker 1: they're talking about interdependence and the new calculus. Help you
Speaker 1: here with how the United Kingdom fits into a new
Speaker 1: Trump foreign policy. So Higil Farage, I believe is stepping
Speaker 1: in on this debate. It's great to be on the
Speaker 1: same UH session as A as somebody like Jokes had
Speaker 1: the pleasure of trusting him about the big world in
Speaker 1: the PASTA. I find the line thinking that this is
Speaker 1: just the whole chump development is a further step on
Speaker 1: the path to an increasingly complex world and a couple
Speaker 1: of other things that for the UK, and I think
Speaker 1: you've seen the Chancellor articulated reasonably well that we just
Speaker 1: had the so called economic con functional dialogue with China
Speaker 1: and He was pretty clear because he was quiz directly
Speaker 1: about that. As the you know, the number one finance
Speaker 1: guy in this country, we have to We're a very small,
Speaker 1: open country and especially post Brexit, we have to have
Speaker 1: as good relationships with the US as we can, but
Speaker 1: we have to be probably even more on the front
Speaker 1: foot with some of these newer guys like China. Is
Speaker 1: an agel forage help with that conversation or is he
Speaker 1: an abstraction? You know that that is something for the
Speaker 1: tactics of the policy makers to focus on what it
Speaker 1: what is really important for the underlying and long term
Speaker 1: health of the UK. We need to be on the
Speaker 1: front foot with the likes of a China, despite some
Speaker 1: of the obvious challenges that creates, because we we need
Speaker 1: to be in the center of global trade flows more
Speaker 1: than we have successfully been in the past, and we
Speaker 1: have to remain in the sense of global capital flows
Speaker 1: and whilst that raises some challenges for us, as we
Speaker 1: saw in things, I was involved in the policy. We
Speaker 1: were one of the earliest participants in the Asian Infrastructure Bank.
Speaker 1: I was there for the signing. We have to do
Speaker 1: like no other It doesn'ntagonizing or playing tough guy with
Speaker 1: China work. Listen, I'll go back to what I said
Speaker 1: about the dollar. I remember all this stuff in the
Speaker 1: early eighties about beating up on Japan, and you know
Speaker 1: it never really happened. Who you put your trust in matters.
Speaker 1: Investors have put their trust in independent registered investment advisors
Speaker 1: to the tune of four trillion dollars. Why they see
Speaker 1: their rules to serve, not sell, That's right. Charles Schwab
Speaker 1: is committed to the success over seven thousand independent financial
Speaker 1: advisors who passionately dedicate themselves to helping people achieve their
Speaker 1: financial goals. Learn more and find your independent advisor dot com.
Speaker 1: Let me bring in now, Charles wide Plots, Professor of
Speaker 1: International Economics the Graduate Institute of International Development Studies in Geneva,
Speaker 1: on a day when President Obama is speaking about democracy
Speaker 1: in Athens, preparing to head to Germany after that to
Speaker 1: meet with the Chancellor of Germany, Angela Merkel. Let's start
Speaker 1: in France. We're reaching you in France today, Professor white Plots.
Speaker 1: Emmanuel Macrons declaring his candidacy in France this morning. What
Speaker 1: does that say to you about what's going on in France? Indeed,
Speaker 1: what's going on in Europe him declaring his candidacy. Well,
Speaker 1: generally in Europe, as you know, there is also a
Speaker 1: Trump like phenomenon happening. All sorts of strange populist are
Speaker 1: climbing in public opinion polls. Next month we have a
Speaker 1: referendum in Italy that can turn ugly, and then next
Speaker 1: year we have an acceence in France. So there's plenty
Speaker 1: to worry about. Cho's why plots. It's wonderful to speak
Speaker 1: to you today. We sparked with Paul Degar yesterday, and
Speaker 1: so much of this is about clearing the markets and
Speaker 1: how your Europe is behind. What is the urgency of
Speaker 1: Europe clearing their markets to move forward to get to
Speaker 1: us like growth. Well, the problem with Europe is that
Speaker 1: it's a large number of countries and everyone as its
Speaker 1: share of trouble. So today President Obama is in Greece,
Speaker 1: which is a very very troubled country. Interestingly, he's been
Speaker 1: calling for that restructuring public that restructuring in Greece is
Speaker 1: absolutely right, but the others don't want. And his next
Speaker 1: trip to Germany he might raise the issue with Chancellor Miracle.
Speaker 1: He will be told no way so that's one issue.
Speaker 1: But you know, if you think about my own country, friends,
Speaker 1: the labor market is pretty much in a mess. The
Speaker 1: government is huge, uh and has been running a deficits
Speaker 1: since nineteen seventies three. Uh. So the list of things
Speaker 1: that have to be done in every country is pretty
Speaker 1: well known. What's missing is the politician's readiness to do that.
Speaker 1: And I think when they watch what's happening in the US,
Speaker 1: they are even less willing to tackle any of the
Speaker 1: real issues. How are they hearing what President Obama has
Speaker 1: to say on this trip and light of what happened
Speaker 1: here in the US last week, how is his message
Speaker 1: being interpreted? Do you think, well, it's a goodbye message.
Speaker 1: People in Europe like the Obama way more and the Americans,
Speaker 1: I think, uh, And they are sad to see him go,
Speaker 1: and they are sad to see him being replaced by Trump. Uh.
Speaker 1: They are very worried about that, by the way. Uh.
Speaker 1: But but you know, when he goes and makes a
Speaker 1: great species about democracy and all of that, that's viewtiful.
Speaker 1: But everybody knows that. Everybody knows that democracy is are
Speaker 1: very complex things to make work. And at the time
Speaker 1: when the population in Europe pretty much like in the US,
Speaker 1: A significant segment of the population is really upset about
Speaker 1: what has been there a lot for the last twenty
Speaker 1: or thirty years. It's very, very, very hard to think
Speaker 1: about good outcomes. Charles White plots with us, of course
Speaker 1: he is. He's joining his by phone from from France.
Speaker 1: It's great to have you with us again here. Let's
Speaker 1: talk a little bit about productivity. We're focused here on
Speaker 1: manufacturing in the US. When you look at it more broadly,
Speaker 1: when you look at the state manufacturing globally, what do
Speaker 1: you see. Well, we we had a major slowdown in
Speaker 1: productivity for the last twenty years. Uh. One reason is
Speaker 1: that industries shrinking and services are increasing, and services are
Speaker 1: typically low productivity gains or zero productivity gains. So this
Speaker 1: shifting production in production pattern through the developed world these
Speaker 1: is a major source of low productivity gains. Is it
Speaker 1: because there's too much money slashing around? Is it just
Speaker 1: we're paying the price of capital deepening of just over investment.
Speaker 1: I don't think there has been over investment quite to
Speaker 1: the country. Since the crisis in two thousand and eight,
Speaker 1: investment has been extremely low, extremely depressed. Had many discussions
Speaker 1: about why. I tend to believe that the poor over
Speaker 1: old growth pattern in the developed country as discouraged firms
Speaker 1: from from investing, and that's weighing on productivity gains. You
Speaker 1: you're right when you when you look at the complement
Speaker 1: of what the e c B is considering when it
Speaker 1: meets at the beginning of December, how heavily does productivity
Speaker 1: way When they're looking at the data, I don't think
Speaker 1: they are very worried about that. They maybe they shoot,
Speaker 1: but I think they are. They are very worried that
Speaker 1: inflation is stuck uh, not far from zero and has
Speaker 1: been there for the last three years. Uh. And therefore
Speaker 1: and they want to keep growth, but that's not happening easily.
Speaker 1: It chose White Plots and with a shout out to
Speaker 1: John the Sylvia of of Wells Fargo with your work,
Speaker 1: Professor white Plots on labor mobility. As we have economic slowdown, disinflation,
Speaker 1: we become rigid as a society. How critical is that idea,
Speaker 1: that dream of moving to a new place, How does
Speaker 1: that fold into European and for that better US economics. Well, uh,
Speaker 1: we we have in most European countries very rigid markets.
Speaker 1: So It's not only that people don't move from one
Speaker 1: country to another, they don't even move within their own countries,
Speaker 1: or they move much less than the US worker is
Speaker 1: used to to move. So that's that's been that's been
Speaker 1: known for for decades before we stopped the monetary union. UH,
Speaker 1: And it was clear that this was one of the
Speaker 1: drawbacks of having a common currency. UM. But to me,
Speaker 1: that's that's not the most important issue. To me, the
Speaker 1: most important issue is that many in many countries, labor
Speaker 1: markets are frozen. It's hard to fire people, so firms
Speaker 1: don't hire. Uh. They are in some countries minimum wages
Speaker 1: are very high, so they are discouraging employment of the
Speaker 1: non qualified workers. UH. Dismissals are very difficult, very costly,
Speaker 1: and legally uncertain, and so and so forth. So we
Speaker 1: the problem really is at the national level that this
Speaker 1: labor markets just not function and and we generate their
Speaker 1: machinery to create an employment. I don't know if you
Speaker 1: thought about this, but if we get Trump inflation, if
Speaker 1: we get some forms stimulus and reflation within the United States,
Speaker 1: do we just presume economic growth that raises wages? Is
Speaker 1: there the real riskier stag wage inflation where we've got
Speaker 1: inflation with no real rage increase. Well as you know that.
Speaker 1: The mystery is why inflation wage inflation is not higher
Speaker 1: in the US, given that the unemployment rate is very low.
Speaker 1: The continuous debates about why it is the case. I
Speaker 1: think the silver lining of Trump is that if he
Speaker 1: does it, he might UH in pomp up government spending
Speaker 1: on infrastructure, increase the deficit. That would be good news
Speaker 1: for the world over because it would mean more growth
Speaker 1: in the US, return of inflation in the US. We
Speaker 1: all need to see some inflation from the zero levels
Speaker 1: we have had, so that there is a little bit
Speaker 1: of silver lining out there, depending on what the next
Speaker 1: president will do or not to. Let's we talk about
Speaker 1: a pause here in the US among policymakers as they
Speaker 1: wait to see what kind of infrastructure package a president
Speaker 1: elect Donald Trump will be able to get through the
Speaker 1: Congress and how that might affect monetary policy. How do
Speaker 1: you how do you see that playing out in Europe
Speaker 1: a similar short of wait and see approach. Yeah, everybody
Speaker 1: is UH is mesmerized by the political situation Asian in
Speaker 1: the US, A great number of economies at least had
Speaker 1: been calling for the US to pump up public investment
Speaker 1: in infrastructure, but as we know, Obama had exactly zero
Speaker 1: chance of passing that through Congress. I am not sure
Speaker 1: that Trump will be able to do much better with
Speaker 1: his Congress, but I certainly wish him good luck. You
Speaker 1: mentioned this a moment ago, our colleague Tracy Alloway, tweeting
Speaker 1: out a timetable from JP Morgan here of what electoral
Speaker 1: events we will have here in two thousand seventeen in Europe,
Speaker 1: branching from primaries and France to the Italian referendum, to
Speaker 1: an Austrian presidential election, a German presidential election, in general
Speaker 1: elections in the Netherlands. It's a busy year two thousand seventeen.
Speaker 1: What does Europe look like after that year is done?
Speaker 1: Oh god, that's a scary question. It's likely that the
Speaker 1: Australians real elect Natzi president. That wouldn't be the first time.
Speaker 1: They already did it fifteen or twenty years ago. Uh So,
Speaker 1: that's one thing. In the Netherlands there is a very
Speaker 1: virulent far right, reasonably racist party which is going up
Speaker 1: and up and up in a in a Germany. Well,
Speaker 1: maybe miracle will still be the miracles. Chancellor. She has
Speaker 1: been and win it. Uh and in Germany as in France,
Speaker 1: as you may know, there is a serious challenge from
Speaker 1: the far right Marian Lepin. I personally don't believe she
Speaker 1: has any chance, but I also believed from had zero chance,
Speaker 1: so I wouldn't bet on it. Yeah, well, yeah, you
Speaker 1: have a lot of company in that. Thank you so
Speaker 1: much with the Graduate Institute, Geneva. David our next guest,
Speaker 1: and thrilled these on because we we have not been
Speaker 1: good about commodities. We are in the surveillance commodity time
Speaker 1: out share amid the blur that you described, Tom, we
Speaker 1: have not talked enough about oil and other commodities. As
Speaker 1: you say, I'm pleased to bring in Dane Davis now
Speaker 1: he's a commodities analyst at Barclays. Is I look at
Speaker 1: oil here? Brent sven W T forty dang. Great to
Speaker 1: have you with us, glad to be here. Let's start
Speaker 1: with with the big question here. We we've seen what's
Speaker 1: happened in the equities market since Donald Trump was elected.
Speaker 1: What have we seen in the commodity space broadly? What
Speaker 1: kind of moves have we seen? Well, to put it
Speaker 1: quite shortly, Donald Trump through his election has made medals
Speaker 1: great again. Uh. And I'm being cheeky here, but tom
Speaker 1: It says that, yeah. No, but what we've seen is
Speaker 1: a massive rally across the entire complex and medals um
Speaker 1: and it's it's it's wide ranging. It's not just iron
Speaker 1: or it's steel, it's copper, it's sinc and the like.
Speaker 1: Now this rally has started appear out recently, but since
Speaker 1: It's election, there's just been a massive increase in the
Speaker 1: metals complex. Looking at the timing here, what do you
Speaker 1: what do you make of it? How how closely can
Speaker 1: you tie these two things together? Obviously investors placing a
Speaker 1: big bet here on the fact that Donald Trump has
Speaker 1: said he wants to get an infrastructure built through through
Speaker 1: Congress that could have an effect on metals prices. Uh,
Speaker 1: do you draw the correlation that closely? Well? I think
Speaker 1: when it comes to commodities, you have to be careful
Speaker 1: of disentangling causal relationships, right. I think it's very easy
Speaker 1: for me to come on here and say, yep, Donald Trump,
Speaker 1: it's all him. But in actuality, I think a closer
Speaker 1: look at the data and the price movement shows that
Speaker 1: the prices for the metals complex in particular, they were
Speaker 1: rallying before the election of Donald Trump. Now that tells me,
Speaker 1: given that very few people thought he was able to win,
Speaker 1: it's not a Donald Trump thing. What I think is
Speaker 1: going on here is I think that this is a
Speaker 1: China story. Uh so, the Chinese economy has actually coming
Speaker 1: quite strongly in twenty sixteen. I think that's leading to
Speaker 1: a rallying commodities. Dane. I've got a copper chart which
Speaker 1: shows a rally and really it's through two thousand sixteen
Speaker 1: range bounded and up we go with the recent news.
Speaker 1: Oh that's great, I'll put out the copper chart folks
Speaker 1: on Twitter under be surveillance. But is it a breakout
Speaker 1: of what is a five year old bear market? I
Speaker 1: don't see it technically, is it? We don't know yet.
Speaker 1: Coppers are really interesting in the you identified something. I
Speaker 1: think that's quite important. The other medals were rallying earlier
Speaker 1: into this year, yet copper was lagging. And if you
Speaker 1: believe the doctor Copper thesis, whereas copper is the best
Speaker 1: tracker for the macro economy, that tells you something. That
Speaker 1: tells you that we had a global economy that was
Speaker 1: still stuck in mediocre growth, and we had a Chinese
Speaker 1: economy that was returning to growth and it was growing,
Speaker 1: but yet the market wasn't really certain about it. I
Speaker 1: think as we go forward, I would say fall the
Speaker 1: copper price among all of the medals, because that's going
Speaker 1: to tell you what's going on. The Chinese property mark.
Speaker 1: It has been reheated. That is what's triggered the iron
Speaker 1: ore rise. It triggered the steel rise, and now it's
Speaker 1: trying to trigger the other medals to increase. If that
Speaker 1: property market, though, shows signs of slowing down, we could
Speaker 1: be back where we were at the beginning of this year. Uh.
Speaker 1: It's it's a rally built on very tenuous grounds. Agreed.
Speaker 1: I strongly agree with that. And I just you know,
Speaker 1: I just want to frame through the Barclays lens and
Speaker 1: all the different people you've got telling you what to do,
Speaker 1: you are not calling this a commodity breakout. I want
Speaker 1: to be clear on that. Yeah, I think that's absolutely clear.
Speaker 1: I think that there's still a lot that we haven't
Speaker 1: yet determined. I think the property market within China, I
Speaker 1: think that's number one. Number two returning to Trump is
Speaker 1: you know, there's a lot of hype about his infrastructure plans.
Speaker 1: We don't yet know what those infrastructure plans will be. Moreover,
Speaker 1: the market is focusing I think on the good things
Speaker 1: about the Trump's plan, but less on the bad things
Speaker 1: are the less desirable things. For example, if Trump threatends
Speaker 1: the global trade order, that's going to have knock on
Speaker 1: effects in the world's largest market for metals consumption, China.
Speaker 1: I mean, you can imagine a trade war would have
Speaker 1: terrible effects onto the Chinese economy, could also affect other
Speaker 1: emerging markets such as Mexico and Brazil. So whereas we
Speaker 1: might see a gain in metals consumption in the US,
Speaker 1: we could see a fall in other markets, and you
Speaker 1: could actually have a net decline. Now that's not what
Speaker 1: we're calling for, but that's a possibility and something to
Speaker 1: keep in mind as we cut through the euphoria that
Speaker 1: we've been seeing. Dan Davis in the latest Barkley's Commodity
Speaker 1: to You, you describe that tension very well. I let
Speaker 1: Tom use his standard caveat here about respecting the copyright
Speaker 1: of the gas, but check check out the note if
Speaker 1: if you can seek it out from from Barkleys. You
Speaker 1: mentioned that the Chinese property market, what does what does
Speaker 1: Chinese policy look like right now when it comes to
Speaker 1: economic stimulus, great questions, So I think it's important to
Speaker 1: go back to there are very real concerns of a
Speaker 1: hard landing. I talked to a lot of clients that
Speaker 1: were concerned that the Chinese ECON would actually go negative.
Speaker 1: We were in a very different environment. Automobile production was
Speaker 1: down in the first nine months of the year. The
Speaker 1: real estate market was showing severe signs of weakness. Than
Speaker 1: what the Chinese did in the very beginning this year
Speaker 1: is uh. They played a song with the familiar tune.
Speaker 1: They essentially loosen up their credit bubble. Uh. They loosen
Speaker 1: up credit standards, loaning standards, and they allowed people to
Speaker 1: invest and buy homes. Now, this had the very positive
Speaker 1: effect in the short term of twenty sixteen of boosting
Speaker 1: construction UM. But as we start to look into the foreword,
Speaker 1: there's a real question here of how many times can
Speaker 1: you stimulate your way to growth, how many times can
Speaker 1: you reheat the property market. I think it's likely that
Speaker 1: it cools as we go into seventeen and eighteen and moreover,
Speaker 1: I think that there's the very hard limit of demography.
Speaker 1: You know, the Chinese population is aging, a lot of
Speaker 1: the growth is already behind it in terms of its
Speaker 1: population bubble, So that puts another heartlement on the property market.
Speaker 1: And I'm looking at trade figures here, trade figures for October,
Speaker 1: Chinese trade figures, and they look disappointing to me. How
Speaker 1: much of a red flag is that for you? I
Speaker 1: think you need more than one data point to make
Speaker 1: a trend. Uh. The weakness in October, I think it
Speaker 1: is concerning, but it's not yet concerning enough, and it's
Speaker 1: not yet confirmed by more trade data points to be
Speaker 1: a worrying trend. But I think it is something that
Speaker 1: goes back to my key thesis here is let's hold up.
Speaker 1: You know, we've seen this massive rally and copper going
Speaker 1: from two o eight to two fifty. Uh, let's just
Speaker 1: recheck fundamentals, look at what the data is actually telling
Speaker 1: us and not what you know, we might think may
Speaker 1: happen in the future. Help me with the esoterics. You know,
Speaker 1: I've spent too much money in London? Can I make
Speaker 1: it back in Zinc? I mean, we don't talk enough
Speaker 1: on this show, David Grafinitely there's a reason for that,
Speaker 1: you know. I think that's that is a very esoteric question,
Speaker 1: and here would be my answer to you. I think
Speaker 1: that we're are a new air of commodities, and so
Speaker 1: when you look at something like copper or zinc or nickel,
Speaker 1: or that it's no longer the rising China lifts all boats.
Speaker 1: I think that the price outlook for various commodities inc
Speaker 1: concluded copper included iron ore will be increasingly determined by
Speaker 1: supply fundamentals. UH. Look for those markets which have very
Speaker 1: tight supply fundamentals, which are facing problems and getting production
Speaker 1: into into the market, which are facing the threat of
Speaker 1: resource nationalism. Those commodities, I think are going to be
Speaker 1: your best chance going forward. The other commodities though that
Speaker 1: have new supply coming online in fifteen sixteen, new supply
Speaker 1: coming online in the future, iron ore, I think it's
Speaker 1: a good example of this. I think those commodities are
Speaker 1: the most pressure as we move forward. I want to
Speaker 1: get to oil here in just a minute, but maybe
Speaker 1: one more more question here about about metals. What are
Speaker 1: we seeing in terms of disruption when it comes to
Speaker 1: demand for copper. I know that there were strikes Indonesia
Speaker 1: and and labor disputes improve these things having effect on
Speaker 1: the price of copper where they pretty at the margins.
Speaker 1: I think they do have a psychological effect on the
Speaker 1: price of copper. So you're right, we've been having it's
Speaker 1: been a quiet ear so far. But then in this
Speaker 1: third quarter, going into the fourth quarter of the disruption
Speaker 1: started to suddenly tick up. There were storms in Australia
Speaker 1: that knocked out several copper mines. There were labor disputes
Speaker 1: in Indonesia at the Grassburg mine. Uh, there's been issues
Speaker 1: with the Philippines and there they have a very new
Speaker 1: regulatory climate. So there's been more disruptions to production and
Speaker 1: copper and other metals. But I think that doesn't really
Speaker 1: necessarily affect the balances today. I think that does, though,
Speaker 1: give you a psychological argument for higher prices. Whether or
Speaker 1: not it actually is impacted the true balances, it's hard
Speaker 1: to determine, but I think it does give you know,
Speaker 1: a market boost. Dane Davis with his fundamentals and the
Speaker 1: medals and the courses work with Michael Cohen and others
Speaker 1: at Barclays on oil as well. Dane Davis with us
Speaker 1: with Barclays, and you know, we're lucky folks, and that
Speaker 1: Dane Davis. Well, he like deals in the land of rebar, copper, palladium.
Speaker 1: Down the hall is Michael Cohen or in Russell, Mr
Speaker 1: and Mahesh they look at oil. Help us here, Dane.
Speaker 1: And this is within the microeconomics and commodities. I mean,
Speaker 1: like aluminium is aluminum and it's totally different. There's fewer
Speaker 1: bearers to entry, et cetera than copper. What's your interpretation
Speaker 1: of oil microeconomics right now? Is it a whole new
Speaker 1: terrain because of US fracking where the rules of guys
Speaker 1: like you use are forever changed. Well, I think the
Speaker 1: way to address this is to look at the supply
Speaker 1: side and let's do some comparisons here. Let's talk about oil,
Speaker 1: and let's talk about natural gas and copper. For copper,
Speaker 1: we haven't really had any revolutions in the production of
Speaker 1: copper mining since the nineteen eighties. Uh in the nine
Speaker 1: eighties they create a new process using various as. It's
Speaker 1: where they could extract copper from deposits that were previously
Speaker 1: on an economical But since then, really, if you want
Speaker 1: to get copper today, it's the same way you got
Speaker 1: copper ten years ago, twenty years ago, thirty years ago.
Speaker 1: You dig a massive pit in the ground and you
Speaker 1: you just mine it out. Now, when we talk about
Speaker 1: natural gas or if we talk about oil, we've seen
Speaker 1: massive revolutions on the supply side for both of those commodities.
Speaker 1: And so when I think when you look at prices
Speaker 1: today and you look at trying to understand price action,
Speaker 1: I think it's important to understand we're in a new
Speaker 1: world with say natural gas production. You know, I'm from Ohio,
Speaker 1: Northeast Ohio, and I've witnessed firsthand the the revolution that
Speaker 1: we've seen thanks to shale gas technologies and the transformation
Speaker 1: of the Ohio and Pennsylvania economies. I thought you were
Speaker 1: gonna say the Cleveland Indians. No, no, no. You know,
Speaker 1: my father's actually a Yankees fans, so I uh no, No,
Speaker 1: we're Yankees fans in the David's household. So he needs
Speaker 1: he needs to protect he does, he does. No. But
Speaker 1: but in oil it's the same thing too. I mean,
Speaker 1: if you go back to two thousand and seven and
Speaker 1: two thousand and eight, there were the concerns of peak oil,
Speaker 1: and that which was once a fringe theory, was seriously
Speaker 1: being discussed in the mainstream. And then we've had the
Speaker 1: tight oil in the US revolutionized the market. So when
Speaker 1: we look at the microeconomics of commodities, whether it's oil,
Speaker 1: natural gas, copper, or some of the metals, it's important
Speaker 1: to keep in mind, how are these commodities brought to
Speaker 1: the market and have there been any technological innovations and
Speaker 1: bringing those commodities to the market. Dan Davis, I'm looking
Speaker 1: at Brent your forty two a barrel. Let's look at
Speaker 1: that through the prism of this meeting taking place in
Speaker 1: Vienna at the end of the month. Is optimism based
Speaker 1: into that price or pessimism? Well, I you know, I
Speaker 1: think when it comes to OPEC, I think the key
Speaker 1: thing here is that you have to separate rhetoric from reality.
Speaker 1: And you know, there's two questions here, one whether or
Speaker 1: not OPE comes to an agreement, and then the second
Speaker 1: question is are they actually able to carry through any
Speaker 1: agreements that they reach? Right, So, we are in a
Speaker 1: new world. Going back to what I just said with
Speaker 1: regards to oil supply, It's no longer the situation that
Speaker 1: we found ourselves uh in the nineteen seventies or nineteen eighties.
Speaker 1: There's new ways to get oil to the market. And
Speaker 1: there's new areas where we get oil to the market.
Speaker 1: And so when you have an economics going back to microeconomics,
Speaker 1: when you have an organization of cartel which consoles supply,
Speaker 1: they already have a difficult time and you know, rashing
Speaker 1: supply among the different producers, they're strong incentives to cheat.
Speaker 1: But when you have a market, when that cartel has
Speaker 1: a declining share of overall input, the incentive has become
Speaker 1: that much more stronger. So I think the real question is,
Speaker 1: and not not to avoid your question, is are they
Speaker 1: able to enforce any agreements that they come to. Didn
Speaker 1: One last question on a revisit of the arch call,
Speaker 1: which is the China commodity boom, the boom of the
Speaker 1: last x number of years. Are we back on the
Speaker 1: track of what has been well over a half century
Speaker 1: of just general commodity deflation due to technological progress and
Speaker 1: due to improve processes worldwide. Are we back to the normal? Well,
Speaker 1: I'm gonna sound like an economist here and give it
Speaker 1: classic economist answer. It depends, It depends. It depends on
Speaker 1: the commodity. Uh. Look, I think for something like UH
Speaker 1: copper or zinc or that where the supply side is constrained.
Speaker 1: I think that you you you might not see strong deflation,
Speaker 1: but for other commodities where we've seen technological revolutions, you might.
Speaker 1: And I think to the demand outlook for commodities are
Speaker 1: very different. If you take aluminium copper. I was just
Speaker 1: in London for Luman Week. The outlook for aluminium is
Speaker 1: very very bright. Uh, there's this substitution effect that you
Speaker 1: were using aluminium and vehicles were using aluminum, and our
Speaker 1: iPhones and our you know, our laptops in the like.
Speaker 1: So the demand growth there looks to be pretty strong. Copper, surprisingly,
Speaker 1: despite being the macro metal, the demand outlook isn't that great.
Speaker 1: It's you're looking at one point five to two percent
Speaker 1: growth annually per year. So it all depends on, you know,
Speaker 1: the particulars of each commodity. I think that's the message.
Speaker 1: Look at each commodity on its own, don't view it
Speaker 1: as an asset. Classic Dane Davis thinking so much with Barclays.
Speaker 1: Thank you. Thanks for listening to the Bloomberg Surveillance podcast.
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