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

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Speaker 1: Jai Lely. 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. Our

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Speaker 1: guest is so experienced and important that I think we

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Speaker 1: need to go right to him. Carl Weinberg high frequency

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Speaker 1: economics for years, on international economics and particularly debt workout.

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Speaker 1: And just for John farre who was probably listening, he

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Speaker 1: probably doesn't know that I studied to be as Zermatt

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Speaker 1: mountain guide, did you years back in the days of

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Speaker 1: my youth? He was, he you come out of Zoomatin,

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Speaker 1: there's ferrale f you r l actually very sure, okay,

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Speaker 1: excuse me. And I think he was above fury like

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Speaker 1: he was really making a serious upon truck steg. I

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Speaker 1: don't know what the climate. I'm sorry. How did you

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Speaker 1: make your way from from being a mountain guide to

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Speaker 1: where you are today? Well, I was employed full time

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Speaker 1: at a government agency in Paris and I didn't really

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Speaker 1: have much to do, so I had eight weeks of

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Speaker 1: year paid vacations you know, so it was a good

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Speaker 1: way to have you climbed. No no, no, no no.

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Speaker 1: When they took out the ropes, that's when I decided

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Speaker 1: I didn't want to be a mountain guide. The skies,

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Speaker 1: the coupons, all that stuff that I was fine with.

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Speaker 1: But when they brought out the ropes and they said climb,

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Speaker 1: I said, no way. That's for some of my whole

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Speaker 1: frameworks at Disney movie from like fifty five years ago

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Speaker 1: that you know, we were riveted by his kids. I

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Speaker 1: thought it was a Clint Eastwood movie from some time ago,

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Speaker 1: the Iiger sanction. That's very inspiration. Yeah, that was it

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Speaker 1: was as well. Let us get to the topic of

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Speaker 1: the moment, which is your China note that you write

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Speaker 1: a High frequencies what will your China note be for

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Speaker 1: this week? How do you fold Hong Kong into your

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Speaker 1: China calculus? So luckily we're going on vacation at High

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Speaker 1: Frequency Economics, so there won't be a China note. But

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Speaker 1: if I, if I were writing, you know, the the

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Speaker 1: question for Hong Kong, and the way I like to

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Speaker 1: think about it is what's going to happen six months

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Speaker 1: or twelve months from now? Is there's still going to

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Speaker 1: be in Hong Kong. And do we tell companies are

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Speaker 1: clients who have business stakes in Hong Kong and businesses

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Speaker 1: that depend on being in Hong Kong, did they stay

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Speaker 1: or do they go? And I think that's really the

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Speaker 1: core economic question right now. There's not a sign that

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Speaker 1: anyone is leaving. And while some people are pessimistic on

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Speaker 1: the latest developments, other people are saying that, well, you know,

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Speaker 1: by becoming more violent, the protesters are isolating the middle

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Speaker 1: class and that they lose traction therefore as a result

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Speaker 1: of all that. So I'm looking for the longer term.

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Speaker 1: My guess is that there's still with Hong Kong, that

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Speaker 1: it will still be China's gateway to capital markets, it

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Speaker 1: will still be the gateway for businesses both ways in

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Speaker 1: and out of China, and that it's too important to foul.

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Speaker 1: But I can't tell you what shape it's going to

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Speaker 1: be and with the format of that settlement is going

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Speaker 1: to be. But I'm confident that this isn't the end

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Speaker 1: of Hong Kong. One thing that I'm struck by right

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Speaker 1: now is it just adds to this growing feeling of

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Speaker 1: worry in markets, both you know, stemming from China, setting

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Speaker 1: from trade, stemming from just the global economic backdrop. With

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Speaker 1: a growing number of economists saying that we are heading

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Speaker 1: toward recession, I'm struggling to just sort of put this

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Speaker 1: into that perspective. Have we reached a tipping point at

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Speaker 1: which we are going to a downturn that central banks

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Speaker 1: cannot prevent at this point? Well, working your question backwards,

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Speaker 1: A right, central banks don't have enough tools to deal

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Speaker 1: with a lot of economic adversity right now. I mean,

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Speaker 1: the c B is tapped out, despite when Mario Drocki says,

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Speaker 1: the bank in Japan is tapped out, despite what Kuroda

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Speaker 1: tells you. Uh, the FED has some room to maneuver,

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Speaker 1: and they're exercising it. But the problems that are facing

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Speaker 1: the economy caused by uncertainty, caused by trade risk, caused

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Speaker 1: by political risk, caused by i'll say a Trump risk,

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Speaker 1: a right, caused by Italy risk. All right, these are

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Speaker 1: not the things that monetary policy can fix. And it's

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Speaker 1: a it's a hard fact that public policy may be

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Speaker 1: able to soften a business cycle downturn, but it's never

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Speaker 1: been able to actually prevent one. So if you say

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Speaker 1: we have a twenty chance of a recession in the

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Speaker 1: United States. That's probably true, all right, Is it going

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Speaker 1: to be this year? I can't tell you that for sure.

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Speaker 1: Kind of FED prevented, I don't think so. Okay, But

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Speaker 1: yields in right now, we are in six basis points

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Speaker 1: in the tenure right now, in only five basis points

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Speaker 1: in the heart of the matter. And again, as I

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Speaker 1: mentioned earlier, I put you in class with Paul degra

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Speaker 1: Else and Charles White plots of Switzerland. It's saying, why

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Speaker 1: can't we work this out? Do you look at the

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Speaker 1: turmoil we're in now? Is simply nobody wants to clear markets,

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Speaker 1: nobody wants to take the proverbial loss. Well, I think

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Speaker 1: that right now investors are being reluctant, all right, to

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Speaker 1: take on a lot of risk. They're putting their money

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Speaker 1: into equities, I think, not because they want to take

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Speaker 1: on risk, but because other e years of investment are

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Speaker 1: not rewarding to them. Bonds have lower negative yields wherever

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Speaker 1: you look. Cash has lower negative yields wherever they look.

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Speaker 1: So moving into risky assets is not a choice, it's

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Speaker 1: it's a necessity to get any positive rate of return.

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Speaker 1: So I think that we're in a peculiar place, a

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Speaker 1: place that I don't remember being in before in terms

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Speaker 1: of global financial marks. How do you look at the

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Speaker 1: inertial force of the chronic nature? That's e excuse me,

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Speaker 1: that's Chicago physics talk. How do you look at the

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Speaker 1: inertial force or the chronic nature of negative interest rates?

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Speaker 1: Does it matter that it's been a long time we've

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Speaker 1: been doing this? Well, I think the longer we go,

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Speaker 1: the greater the risk of a systemic failure somewhere being

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Speaker 1: caused by negative interest rates. Big pools of money can

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Speaker 1: survive at negative interest rates, their cash flows go away.

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Speaker 1: Banks can't make money lending at negative interest rates, and

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Speaker 1: they make money anyway taking the positives deposits at negative

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Speaker 1: interest rates, being paid to take money, and why take

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Speaker 1: on the risk of lowering their rate and then lower

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Speaker 1: their rate of return by making a loan. So there's

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Speaker 1: a credit crunch inherent in this negative interest rate thing,

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Speaker 1: and a credit crunch is a known economy killer. All right,

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Speaker 1: Since I'm on with Tom Keane, I'm going to rip

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Speaker 1: the script up because that's what we do. Right. I'm

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Speaker 1: struggling to understand the flip side there's so much pessimism

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Speaker 1: here and people are so ready for a downturn in

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Speaker 1: the fact that central bankers don't have ammunition, that what's

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Speaker 1: the risk that things are better than may seem, that

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Speaker 1: things are actually pretty good, and that central banks are

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Speaker 1: entering an easing cycle at a time when we don't

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Speaker 1: need it and the economy is going to take off,

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Speaker 1: We're finally going to see inflation. I mean, what's that risk? Well,

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Speaker 1: I admire your optimism, but no one has ever said

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Speaker 1: that before something. But I don't share this as someone

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Speaker 1: who's having listened to you. I think I'm at least

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Speaker 1: as pessimistic as you are. But what I learned in

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Speaker 1: two thousand and eight is that you don't know what

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Speaker 1: you don't know when you move off the grid. And

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Speaker 1: we're off the grid right now. With negative YO curves

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Speaker 1: in Europe, I mean, the German yo curb is negative

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Speaker 1: all the way out the thirty year is the Dutch

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Speaker 1: curve is not far behind that a right, the French

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Speaker 1: curve is moving in that direction, even the pound sterling

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Speaker 1: is moving that direction. I've never experienced negative interest rates

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Speaker 1: like this, just as I never experienced falling house prices

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Speaker 1: and I didn't even know the right questions. Even though

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Speaker 1: we saw house prices falling in two thousand and eight,

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Speaker 1: we didn't know the right questions to ask about, you know,

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Speaker 1: what to take out the financial system. So I'm very

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Speaker 1: nervous personally, more so than ever before, because negative yale

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Speaker 1: curve in Germany after thirty years is so far off

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Speaker 1: the grid. I don't know. I would note Lisa, with

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Speaker 1: Deutsche Bank and other EU banks breaking down this morning,

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Speaker 1: sort of touching on loads of July. Deutsche Bank is

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Speaker 1: a thirteen percent from the enthusiasm of early July. Yeah,

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Speaker 1: and Commerce Bank reaching a new record low as Milo. Yeah,

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Speaker 1: Commerce Bank is tumbling right now. Uh, and really really

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Speaker 1: kind of speaking to those incredibly negative yields in this

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Speaker 1: feeling they're not going to get positive. But Carl, I

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Speaker 1: mean what you said really really resonates with me. We're

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Speaker 1: off the grid and we don't even know the questions

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Speaker 1: to ask. How do we even get a framework for

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Speaker 1: what to be asked? Is it? Well? You know, right now,

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Speaker 1: right now, right now, if you're an investor, what are

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Speaker 1: your choices? All right? Money? If you're an investor in Germany,

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Speaker 1: money has no value. You have to pay people to

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Speaker 1: take it off your hands. That's what negative interest rates means.

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Speaker 1: So you don't want to hold cash, you don't want

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Speaker 1: to hold bonds because the government doesn't need your stinking money.

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Speaker 1: They're running a surplus, all right. Corporates don't need your

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Speaker 1: stinking money because the ECB has driven their yield solo.

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Speaker 1: They're sitting on piles of cash. So nobody needs your money.

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Speaker 1: So what do you do with your money? So the

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Speaker 1: outcomes from this our money goes into stocks, and you

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Speaker 1: get a bubble in stocks that eventually bursts, maybe not

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Speaker 1: tomorrow or the next day, but at some point. Or

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Speaker 1: here's the scariest outcome of all that people who don't

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Speaker 1: have use for money convert that money into things they

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Speaker 1: do have use for goods and services. And if that

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Speaker 1: happens faster than the economy can create those goods and services,

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Speaker 1: you get an inflation. And everyone thinks in the textbook

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Speaker 1: you know, it says you print the money and you

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Speaker 1: get the inflation today. But you don't get the inflation today,

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Speaker 1: you get the inflation tomorrow, with the next day or

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Speaker 1: the day after. And maybe what's lurking behind all of

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Speaker 1: this is money dies and loses all of its value.

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Speaker 1: Is that we get a big surge of money into

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Speaker 1: consumption and that's a problem. Carl Weinberg, thank you so

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Speaker 1: much high Frequency Economics on this important day, Lisa Brandon Winson,

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Speaker 1: Tim Keene right now, a really smart Bloomberg survey in

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Speaker 1: recent months, Singapore the best airport in the world, then Haneda,

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Speaker 1: Tokyo in Seon, Soul, Doha, and number five is Hong Kong.

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Speaker 1: Or Ivan Man provides leadership for all of Bloomberg News

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Speaker 1: in Hong Kong, and she has traveled out to the

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Speaker 1: airport uh today, Ivan I noticed on Flight Aware all

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Speaker 1: the domestic flights to China disappeared, some of the longer

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Speaker 1: Internet sational flights still landing. What is the likelihood that

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Speaker 1: Hong Kong's airport would open on your Tuesday morning, say

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Speaker 1: about eight pm tonight New York time. It's hard to

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Speaker 1: say so, but we have heard from the Hong Kong

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Speaker 1: Authority at least earlier saying that they are hoping to

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Speaker 1: resume those flights on Tuesday morning. But as of now,

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Speaker 1: I'm looking at the screen right now, and in right

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Speaker 1: red you see mostly, if not all, of the flights

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Speaker 1: here today leaving Hong Kong have been canceled. The Hon

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Speaker 1: Kong Airport Authority telling us they've never had to shut

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Speaker 1: down the airport like this before. Unclear just how many

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Speaker 1: flights have been impacted, But what we're seeing right now

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Speaker 1: is that but the crowds are sitting out a little

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Speaker 1: bit here are things have died down just a bit,

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Speaker 1: but there's still about hundreds, I would say, have not

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Speaker 1: thousands of people still sitting out on the arrival halls.

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Speaker 1: No sign of police officers just yet. A lot of

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Speaker 1: questions on whether they were going to use force stick

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Speaker 1: throughout these crowds what we saw over the weekend. Evan,

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Speaker 1: I guess this really highlights the big question at what

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Speaker 1: point will the Hong Kong unrest bleed into the economy

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Speaker 1: and cause a real problem with businesses moving out of

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Speaker 1: the region. Are we seeing some sort of signs that

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Speaker 1: this is a tipping point for businesses, that it is

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Speaker 1: a sign that we're not going back to the way

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Speaker 1: it was, Well, it's we haven't seen signs just yet.

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Speaker 1: I think most people are still not seeing that the

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Speaker 1: thread of capital outfloads, but businesses are certainly Really we've

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Speaker 1: seen during these protests in the last ten straight weeks. Now,

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Speaker 1: businesses are not opening, They're not opening their doors while

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Speaker 1: therese protests are marching. And we even saw it today

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Speaker 1: with Kathy Specific shares humbling to that ten year low

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Speaker 1: after Beijing added pressure on these businesses as well. There

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Speaker 1: was several staff members that turned out and showed up

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Speaker 1: in some of these demonstrations. We've heard from sources telling

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Speaker 1: us the Chinese Chinese state run company is engurging their

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Speaker 1: employees not supply Kathy Pacific, whether for personal or business trips.

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Speaker 1: So we are seeing Beijing adding one the more pressure

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Speaker 1: to businesses who are supporting, if not tolerating with So

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Speaker 1: it's the demonstrations we've seen. At what point do you

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Speaker 1: expect Beijing to send in troops? I mean, this has

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Speaker 1: sort of been the expectation that at some point the

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Speaker 1: mainland will clamp down more seriously. Are we getting to

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Speaker 1: that point at this point? We're not not yet. I

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Speaker 1: mean we've we've heard from the Hong Kong macalais on

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Speaker 1: office folkesmen there earlier at a press conference, and they

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Speaker 1: ratted up the rhetoric at least right now, saying that

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Speaker 1: these protesters are committing serious crimes that they're seeing signs

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Speaker 1: of terrorism, but in terms of actually supporting police officers

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Speaker 1: in Hong Kong or sending the p l A, we

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Speaker 1: haven't seen that quite yet Hong Kong though, mind you

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Speaker 1: today earlier this afternoon, showed off some of their new

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Speaker 1: water cantons out there to the media, which we saw

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Speaker 1: similar signs of that back and occupied Tway four teams.

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Speaker 1: So perhaps they're preparing for further escalations town, you know,

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Speaker 1: and I could make a joke about it and talk

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Speaker 1: about Ivon Man's eight bedroom, twelve beeth house up Mount Nicholson, Uh,

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Speaker 1: you know here in Hong Kong. But seriously, Von, what

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Speaker 1: is what are you feeling on the streets and in

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Speaker 1: the neighborhoods is people try to get on with their

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Speaker 1: lives in Hong Kong away from the media. What is

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Speaker 1: a tone you observe in Kowloon and in Hong Kong.

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Speaker 1: It's interesting, John, because when you take a look at Internet,

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Speaker 1: national media, and it seems like all we see is

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Speaker 1: violent and and certain aspects you do see that there are,

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Speaker 1: you know, extremes from both sides where we've seen both

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Speaker 1: sides hardening their stands violence arresting protesters throwing petro bomb,

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Speaker 1: do you have police find pure gas inside subway stations

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Speaker 1: and whatnot. But if you take with the rest of

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Speaker 1: of Hong Kong, relatively speaking, I would say there are

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Speaker 1: areas that are still safe. I mean I have people

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Speaker 1: from abroad asked me are you safe? And and for

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Speaker 1: the most part we are. And but the one thing

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Speaker 1: that people are worried about the impact on the economy.

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Speaker 1: We had Caroline that you've executive speaking over the weekend

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Speaker 1: saying the impact of these protests the economy could be

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Speaker 1: worse and stars perhaps even a worse financial crisis. More

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Speaker 1: imports today with our Evon man at the Hong Kong

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Speaker 1: International Airport. Right now we look at international relations in

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Speaker 1: I guess China, but through the prison of Washington. Jeffrey

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Speaker 1: Wright joins us with eur Asia Group as we consider

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Speaker 1: some of the China themes in Washington. Jeffrey, you've got

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Speaker 1: a brilliant note on Huawei. This is the Chinese company

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Speaker 1: with a big uproar about whether they should be in

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Speaker 1: this country or that country you're doing business. Let me

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Speaker 1: begin with the basics. Do the Republicans and Democrats on

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Speaker 1: Capitol Hill do they agree about the president's approach to

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Speaker 1: Huawei or there points of nuance. Uh, there are some

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Speaker 1: points of nuance, but I think there's quite a lot

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Speaker 1: of agreement on Capitol Hill that the person that's perhaps

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Speaker 1: having second thoughts as Trump himself, who's more interested in

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Speaker 1: trading Huawei away for something else. It looks like, well,

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Speaker 1: what if we trade him away, what do we trade

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Speaker 1: them too? I mean, you know, it's not like you know,

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Speaker 1: your trade Oriental avenue for New York avenue and monopoly.

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Speaker 1: I mean, what do we trade what do we trade

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Speaker 1: them away to? Well, this opportunity may have passed over

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Speaker 1: the last week or two as things have gotten worse,

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Speaker 1: but I think if you go back to Osaka early June,

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Speaker 1: Trump was interested in trading a Huawei settlement for trade

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Speaker 1: concessions from the Chinese. I think maybe that ship has

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Speaker 1: sailed at this point, but that was the hope. So

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Speaker 1: here's one question that I have. Jeffrey just sort of

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Speaker 1: speaking to this morning's big news as the Hong Kong protests,

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Speaker 1: the fact that the airport was shut down, and I'm

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Speaker 1: trying to understand how why Washington views all of this

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Speaker 1: in light of the trade negotiations with China. With mainland China,

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Speaker 1: how does that unrest factor in if at all? I

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Speaker 1: think it's a pretty limited factor From the U S side. UH.

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Speaker 1: There are certainly some people who would like to see

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Speaker 1: the US more forcefully come out in favor of these

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Speaker 1: protests in Hong Kong, but but Trump is not one

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Speaker 1: of them. The way it becomes really interesting is what

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Speaker 1: the Chinese perceive as US support for these protests, which

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Speaker 1: makes them much more hesitant to deal with the US

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Speaker 1: as they blame them in their state media for the

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Speaker 1: protests in Hong Kong. But it really highlights the sort

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Speaker 1: of growing fissures not only socially for China and jij

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Speaker 1: and Ping trying to solidify his control UH and his reign,

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Speaker 1: but also economically. We got data overnight showing that China's

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Speaker 1: credit growth tumbled to the second lowest amount this year

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Speaker 1: amid week demand, not because the Chinese government is cracking

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Speaker 1: down necessarily on leverage anymore so much. How does that

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Speaker 1: help or hurt negotiations? I think it makes them much

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Speaker 1: harder or even two ways. One is that it's hard

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Speaker 1: obviously for the Chinese, would be hard for them to

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Speaker 1: do a deal with the US as they blame them

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Speaker 1: for fomenting the protests in Hong Kong. The other way, though,

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Speaker 1: is that it puts she on the defensive internally within

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Speaker 1: the CCP, and so I think it makes it harder

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Speaker 1: for him to pursue a trade deal. What is your

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Speaker 1: update on his relationship with the Communist Party and particularly

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Speaker 1: after the summer meetings on the beach there was East

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Speaker 1: rather of Beijing. I mean, what is his power this

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Speaker 1: morning as he confronts the images from Hong Kong. Well,

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Speaker 1: I think gets It's hard to say with any certainty,

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Speaker 1: but that what's going on in Hong Kong certainly makes

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Speaker 1: it I think it puts his position uh in a

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Speaker 1: little bit of trouble. I mean, not that he is

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Speaker 1: in any imminent danger, but it would make selling an

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Speaker 1: agreement with the Americans harder, which she already had issues

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Speaker 1: with doing in April and May. So one thing I'm

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Speaker 1: struggling to understand, especially as we confront this wall of

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Speaker 1: pessimism this morning, this wall of worry, is just how

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Speaker 1: much the trade tensions have already eaten into global growth.

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Speaker 1: And I'm wondering what negotiators in Washington, d C. Look

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Speaker 1: at in order to assess that and how much that's

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Speaker 1: weighing on them as they do proceed with his negotiations.

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Speaker 1: I think it's an interesting question. I think they're mandated

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Speaker 1: from Trump is much narrower though. I think there are

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Speaker 1: the trade negotiators themselves are focused on, you know, these

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Speaker 1: issues between the US and China, which are actually, you know,

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Speaker 1: relatively long standing, and I think they're their remit from

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Speaker 1: Trump is to you know, work on the trade issues

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Speaker 1: and let him worry about the economy. It's a I

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Speaker 1: think those broader economic worries there something for the political

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Speaker 1: leadership and not the trade negotiators themselves. But you know,

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Speaker 1: I think Trump is going to be very sensitive to

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Speaker 1: any sign that what he's doing with China head is

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Speaker 1: has sort of slowed the economy in a way that

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Speaker 1: could be dangerous for his free election. We're distracted by

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Speaker 1: all sorts of things. If we're looking for Argentina to

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Speaker 1: open up weaker pay so, all the protests in Hong Kong,

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Speaker 1: the airport shut down. But you bring up Jeffrey right

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Speaker 1: an incredibly important point, which is we're poised and waiting

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Speaker 1: what is the next step we're going to see from

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Speaker 1: the President of the United States. Uh, well, that the

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Speaker 1: tariffs will go into effect on September one if nothing

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Speaker 1: is done. But yeah, but what what are you looking

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Speaker 1: for if he tweets out in the next forty eight hours.

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Speaker 1: I mean, Lisa's glued to every presidential tweet. But Jeffrey, right,

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Speaker 1: what are you looking for? I think you know what

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Speaker 1: the most important two things. One is whether the meeting

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Speaker 1: between negotiators in September is still going forward. If it

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Speaker 1: if it gets canceled, they take us a very bad

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Speaker 1: sign that the Chinese are are losing interest in this. Secondly,

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Speaker 1: the the expiration of the general license for Huawei, which

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Speaker 1: she is a week today. Uh. The way the US

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Speaker 1: handles that is going to be uh, you know, pretty

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Speaker 1: important for the future of the negotiations and how the

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Speaker 1: Chinese see them as a negotiating partner. So, Jeffrey, I

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Speaker 1: want to go back something that you said, which I

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Speaker 1: found really interesting that negotiators don't really care about the

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Speaker 1: economic followed or it's not really their mandate to consider it.

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Speaker 1: So is that not even on the table for them?

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Speaker 1: I mean, in other words, uh, you know, ultimately it

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Speaker 1: just comes down to certain ideals and certain uh sort

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Speaker 1: of perfect goals that President Trump has, but not necessarily

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Speaker 1: what the fallout is. I think, you know, Trump is

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Speaker 1: concerned about those things, uh to an extent, but his view,

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Speaker 1: it seems to me, is that, uh, the US is

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Speaker 1: in a stronger position visa via China, and so if

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Speaker 1: he keeps pressing that advantage, then he'll eventually get uh

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Speaker 1: something out of the Chinese that will make it all

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Speaker 1: worth it. Uh. You know, you can you can say

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Speaker 1: that that will work, and and that that's a bad

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Speaker 1: theory that I think they look at the Chinese trade

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Speaker 1: data and the uh the economy flowing there, and they

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Speaker 1: see an advantage for the U s which you know,

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Speaker 1: has an economy that's still relatively strong. So I think

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Speaker 1: they're preoccupied with their advantage over the Chinese, and let's

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Speaker 1: focus on what it's doing to the divisit monament is.

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Speaker 1: Jeffrey thinks so much. Jeffrey right this morning with your

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Speaker 1: rage group. One of the joys of trying to be

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Speaker 1: so smart, you're bloomberg as I got a little bit

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Speaker 1: of help this morning, among others, one Pablo spinetto George

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Speaker 1: Lay and of course the wonderful Daniel Canceled helping US

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Speaker 1: with Latin America. One of the energy a d r

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Speaker 1: S priced to New York is down fifty that's an

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Speaker 1: equity um the argentinean et F down twenty seven percent,

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Speaker 1: the ms C I argent et F and of course

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Speaker 1: pay so right now UH fifty nine on pay so

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Speaker 1: that I don't know the percentage move on that other

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Speaker 1: than it's large. Someone to fold this in to what

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Speaker 1: it means for markets in US economic policy is Julia Cornado,

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Speaker 1: Macro Policy Advisors. Julia. It's idiosync insyncratic until it's not.

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Speaker 1: How not are we this morning? Are we still idiosyncratic?

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Speaker 1: We're getting pretty pretty We're dancing pretty close to non

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Speaker 1: linear dynamics, I would say. I mean there is global

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Speaker 1: geopolitical risk on the rise pretty rapidly around the world,

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Speaker 1: and that's coming against the backdrop of a swelling economy.

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Speaker 1: So these two things can easily combine, UH to a

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Speaker 1: self fulfilling downward move and confidence. So I think we're

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Speaker 1: teetering right now. I've used the word gamma more on

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Speaker 1: television and banners in less since weeks that I have

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Speaker 1: in the last six years to remind and now no

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Speaker 1: vet Bill's name is not Gamma, it's vet Bill. But

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Speaker 1: gamma is acceleration on a linear basis. It's a big curve,

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Speaker 1: and scary is on a log rhythmic basis. In finance,

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Speaker 1: when you get a curve on a log chart, that's

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Speaker 1: not good. There's a lot of those out there right now,

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Speaker 1: isn't there? There are? And the question is are those

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Speaker 1: isolated cases or where we always have, you know, certain

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Speaker 1: pockets of distress around the global economy, so we can

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Speaker 1: absorb a few isolated cases. The question is whether more

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Speaker 1: material China is moving in that direction or is starting

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Speaker 1: to hit those kinds of dynamics, And that's what we're

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Speaker 1: watching very closely. So there was some weak credit data

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Speaker 1: out overnight. The Hong Kong unrest could be very disruptive

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00:23:56,080 --> 00:24:00,639
Speaker 1: to a major global financial so um I think that's

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00:24:00,680 --> 00:24:05,160
Speaker 1: that's as material or more material than potentially the Argentine situation,

433
00:24:05,160 --> 00:24:10,080
Speaker 1: which is also quite and US AM ten am Wall

434
00:24:10,119 --> 00:24:12,560
Speaker 1: Street time in about eleven hours, we'll get some kind

435
00:24:12,560 --> 00:24:16,720
Speaker 1: of China fix off of seven point zero six you

436
00:24:16,840 --> 00:24:20,240
Speaker 1: want per dollar fold this into the August. The chairman

437
00:24:20,320 --> 00:24:23,119
Speaker 1: Powell's enjoying, I mean, I know he's central banker to

438
00:24:23,200 --> 00:24:26,920
Speaker 1: the world. It's five It's like it's three hundred miles

439
00:24:26,920 --> 00:24:30,439
Speaker 1: more Julia from New York to Buenos Sarres, and it

440
00:24:30,520 --> 00:24:33,159
Speaker 1: is from New York to Honnolulu. I mean it's a

441
00:24:33,200 --> 00:24:37,680
Speaker 1: long ways away. How does Chairman Paul interpret that? Well,

442
00:24:37,720 --> 00:24:41,399
Speaker 1: I would say he's probably not enjoying his August so much.

443
00:24:41,440 --> 00:24:45,399
Speaker 1: I mean after a July meeting where um, it seemed

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00:24:45,440 --> 00:24:47,720
Speaker 1: like there was a lot of disagreement on the committee

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00:24:47,720 --> 00:24:50,520
Speaker 1: about whether they should be cutting rights at all. Now

446
00:24:50,520 --> 00:24:54,440
Speaker 1: we're back again talking about a fifty basis uh potential

447
00:24:54,480 --> 00:24:58,199
Speaker 1: cut in September. So you know, it's very difficult to

448
00:24:58,240 --> 00:25:04,440
Speaker 1: calibrate policy to these uncertainties that haven't yet material materialized

449
00:25:04,480 --> 00:25:08,760
Speaker 1: in US data. Uh. So I think that's the challenge

450
00:25:08,800 --> 00:25:11,440
Speaker 1: for him. I think they they have signal that they

451
00:25:11,480 --> 00:25:16,359
Speaker 1: are in preemptive mode, preemptively addressing risks. So if there's

452
00:25:16,400 --> 00:25:18,360
Speaker 1: no doubt they're going to be cutting rates in Remember,

453
00:25:18,359 --> 00:25:20,199
Speaker 1: the question is how much I want to read this

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00:25:20,240 --> 00:25:22,359
Speaker 1: as carefully as I can. Again, the T Live go

455
00:25:22,480 --> 00:25:24,080
Speaker 1: for those of you are the Bloomberg term or I

456
00:25:24,240 --> 00:25:28,360
Speaker 1: can't say enough about keeping T Life fixed on your screen.

457
00:25:28,760 --> 00:25:31,119
Speaker 1: I'm gonna go quickly. Here bank O b b v

458
00:25:31,280 --> 00:25:35,400
Speaker 1: A Argentina and group of super vil sank as much

459
00:25:35,440 --> 00:25:42,240
Speaker 1: as sixty five six five, while group of Financiero Galicia

460
00:25:42,800 --> 00:25:48,200
Speaker 1: and bank oh Macro tumbled only six six zero. This

461
00:25:48,280 --> 00:25:50,960
Speaker 1: is after downgrade some Morgan Stanley, I mean it begins

462
00:25:51,000 --> 00:25:54,720
Speaker 1: to feed on itself, Juliette. I'm gonna say, and if

463
00:25:54,720 --> 00:25:58,440
Speaker 1: the I S curve is the real economy and the

464
00:25:58,520 --> 00:26:03,440
Speaker 1: money curve is l economy, in the L M curve

465
00:26:03,520 --> 00:26:06,720
Speaker 1: is rather the money economy, all of a sudden, it

466
00:26:06,800 --> 00:26:11,200
Speaker 1: becomes a real economic discussion, doesn't it. Yes, yes, yes,

467
00:26:11,280 --> 00:26:13,640
Speaker 1: I mean there is. There is a lot of leverage

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00:26:13,640 --> 00:26:17,760
Speaker 1: around the world. There's a lot of dollar leverage both

469
00:26:17,840 --> 00:26:21,960
Speaker 1: in Argentina and China and other places that could be

470
00:26:22,000 --> 00:26:26,760
Speaker 1: affected by these disruptive moves. So, um, yeah, we maybe

471
00:26:27,119 --> 00:26:30,080
Speaker 1: we may be at a point where some of these

472
00:26:30,440 --> 00:26:35,040
Speaker 1: pockets of distress will start to hit institutions that um

473
00:26:35,160 --> 00:26:38,880
Speaker 1: then been pulled back on credit to other credit worthy borrowers.

474
00:26:38,920 --> 00:26:41,479
Speaker 1: And that's the that's the seeds of a downturn, right

475
00:26:41,480 --> 00:26:44,840
Speaker 1: when when bad credit starts to affect good in it,

476
00:26:45,800 --> 00:26:49,880
Speaker 1: That's that's when when when economies start to contract what's

477
00:26:49,920 --> 00:26:52,119
Speaker 1: your run rate on the US economy right now, and

478
00:26:52,119 --> 00:26:54,199
Speaker 1: if you brought it in is others have in the

479
00:26:54,280 --> 00:26:58,679
Speaker 1: last seventy two hours. Yeah, we're running it just just

480
00:26:58,880 --> 00:27:04,120
Speaker 1: below one on Q three, which is still a very

481
00:27:04,160 --> 00:27:08,359
Speaker 1: respectable performance. What we're watching for is retail sales later

482
00:27:08,440 --> 00:27:12,359
Speaker 1: this week. We saw in the jobs report the hours

483
00:27:12,400 --> 00:27:16,760
Speaker 1: growth has started to slow a lot, and so that

484
00:27:16,800 --> 00:27:21,160
Speaker 1: should manifest itself and other indicators that we haven't seen yet.

485
00:27:21,240 --> 00:27:24,600
Speaker 1: So we're going to be watching those demand indicators for

486
00:27:24,680 --> 00:27:28,240
Speaker 1: signs of that slowing. Let me do a data check

487
00:27:28,280 --> 00:27:33,399
Speaker 1: here with Julia Carnado Macro Policy Advisors. UH the doubt

488
00:27:33,520 --> 00:27:37,000
Speaker 1: negative to thirty six thousand and seventy three, sp X

489
00:27:37,320 --> 00:27:41,040
Speaker 1: negative twenty four to eight nine four on the sp

490
00:27:41,160 --> 00:27:44,560
Speaker 1: FI vix out two big figures back above twenty that

491
00:27:44,840 --> 00:27:48,439
Speaker 1: long long term average twenty point one six, and yields

492
00:27:48,480 --> 00:27:51,080
Speaker 1: come in and critically, yields are making new loads today.

493
00:27:51,359 --> 00:27:54,760
Speaker 1: I'll do this four digits ten year yield one point

494
00:27:54,840 --> 00:27:58,440
Speaker 1: six seven seven eight, make out a one two year

495
00:27:58,480 --> 00:28:01,119
Speaker 1: yield well under a one six the one point five

496
00:28:01,880 --> 00:28:05,560
Speaker 1: nine as well. Julia. One final question or discussion point

497
00:28:05,600 --> 00:28:10,840
Speaker 1: I should say comment on not the forecast of a

498
00:28:10,920 --> 00:28:15,640
Speaker 1: zero percent tenure yield. But people modeling the what ifs

499
00:28:15,680 --> 00:28:18,040
Speaker 1: of a tenure yield? Are we just bored because the

500
00:28:18,080 --> 00:28:20,760
Speaker 1: red sox are terrible this year? Or is this actually

501
00:28:20,840 --> 00:28:25,600
Speaker 1: a legitimate debate. I mean, we've see we see negative

502
00:28:25,680 --> 00:28:28,119
Speaker 1: yields in a lot of countries. Those countries tend to

503
00:28:28,160 --> 00:28:33,880
Speaker 1: have much lower potential growth UM and UM much more

504
00:28:33,960 --> 00:28:37,280
Speaker 1: intervention if they've seen much more intervention from the Central Bank.

505
00:28:37,400 --> 00:28:41,000
Speaker 1: Is it possible in the US? It certainly is. UM.

506
00:28:41,080 --> 00:28:44,240
Speaker 1: It's disruptive though, if we start looking at negative yields

507
00:28:44,280 --> 00:28:46,760
Speaker 1: around the world, think of the what that does to

508
00:28:46,840 --> 00:28:51,400
Speaker 1: the models for pension funds and insurance companies. How does

509
00:28:51,640 --> 00:28:57,080
Speaker 1: our financial infrastructure manage UM? How does saving an investment

510
00:28:57,200 --> 00:29:01,560
Speaker 1: proceed in a negative interest rate world? Oh? Um, we're

511
00:29:01,560 --> 00:29:05,000
Speaker 1: still a ways away. We're only at one eight on

512
00:29:05,120 --> 00:29:08,040
Speaker 1: the on the ten year tom, so we've still got

513
00:29:08,080 --> 00:29:10,440
Speaker 1: a hundred and sixty eight basis points to work with here.

514
00:29:10,560 --> 00:29:12,800
Speaker 1: We've got less than nine basis points on the two

515
00:29:12,880 --> 00:29:16,200
Speaker 1: is tent spread eight point five seven six on that

516
00:29:16,520 --> 00:29:19,280
Speaker 1: massive curve flattening we've seen, Juliet. When you gotta talk

517
00:29:19,320 --> 00:29:22,640
Speaker 1: here as soon, Juliet Cornado. Thank you so much, Dr Cortinado,

518
00:29:22,680 --> 00:29:32,400
Speaker 1: MECRO Policy Advisers. Thanks for listening to the Bloomberg Surveillance podcast.

519
00:29:32,760 --> 00:29:37,720
Speaker 1: Subscribe and listen to interviews on Apple Podcasts, SoundCloud, or

520
00:29:37,840 --> 00:29:42,160
Speaker 1: whichever podcast platform you prefer. I'm on Twitter at Tom

521
00:29:42,280 --> 00:29:46,160
Speaker 1: Keane before the podcast. You can always catch us worldwide.

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Speaker 1: I'm Bloomberg Radio eight