WEBVTT - Surveillance: Mario Draghi's ECB Legacy 0:00:00.080 --> 0:00:12.960 Ye. Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene 0:00:13.480 --> 0:00:17.560 Jay Leye. We bring you insight from the best in economics, finance, investment, 0:00:18.000 --> 0:00:23.520 and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, 0:00:23.600 --> 0:00:27.680 Bloomberg dot Com, and of course on the Bloomberg. We 0:00:27.720 --> 0:00:30.080 will have a news conference with President dr Ky his 0:00:30.320 --> 0:00:34.040 final one. Wow, eight years is up. Where has that 0:00:34.120 --> 0:00:36.960 time gone? Let's talk about this market? Shaw We three am, 0:00:37.000 --> 0:00:41.800 cutting forecast, CAT cutting forecast, Texas instruments, cutting forecasts, the 0:00:41.880 --> 0:00:45.000 market getting a ton thrown at it and it's holding 0:00:45.120 --> 0:00:48.000 up really well to discuss. Kate more black Rock Global 0:00:48.040 --> 0:00:52.960 Allocation Investment teamhead of Thematic Strategy. Good monitor, Kate, good morning. 0:00:53.320 --> 0:00:56.920 Sometimes the information content in how a market response to 0:00:57.000 --> 0:01:00.560 data can be just as important as the data it's self. 0:01:00.640 --> 0:01:03.120 That's right. The last couple of days, did they speak 0:01:03.160 --> 0:01:06.199 to that? Yeah? I think that's right. So there's there's 0:01:06.280 --> 0:01:08.600 one way to think about investing, which is it's not 0:01:08.720 --> 0:01:12.039 good enough to have the right information or what you 0:01:12.160 --> 0:01:14.600 perceive to be the right information. It's not good enough 0:01:14.640 --> 0:01:17.160 even to think about or think you have a view 0:01:17.200 --> 0:01:20.520 on what consensus thinks to write information is you also 0:01:20.560 --> 0:01:23.040 have to get to that third degree, what does consensus 0:01:23.080 --> 0:01:25.720 think consensus things? And I think this is what's really 0:01:25.720 --> 0:01:29.600 critically important. Consensus thought, consensus though things were gonna get 0:01:29.600 --> 0:01:32.800 a lot worse. And uh, we're at a place now 0:01:32.880 --> 0:01:35.840 where maybe on some of the industrial companies we're not 0:01:35.880 --> 0:01:39.120 seeing a meaningful pickup and activity, but this pace of 0:01:39.160 --> 0:01:43.399 deceleration has slowed, and there are signs of life and 0:01:43.560 --> 0:01:48.840 actually some words us like optimistic and optimism across a 0:01:48.920 --> 0:01:51.640 number of the cyclical sectors that are leading people to 0:01:51.680 --> 0:01:53.960 think that, you know, fourth quarter, maybe first quarter of 0:01:54.880 --> 0:01:57.840 are going to be the cyclical low. And I think 0:01:57.880 --> 0:02:01.120 that's leading these people who have been positioned for you know, 0:02:01.160 --> 0:02:06.320 a prolonged slowdown, perhaps even a recession, to take to 0:02:06.360 --> 0:02:08.760 take on some of these cyclical companies. Again, well, let's 0:02:08.800 --> 0:02:12.720 take this morning as an example. Eurostocks holding up really 0:02:12.800 --> 0:02:15.799 quite well even after another round of disappointing p M 0:02:15.840 --> 0:02:17.880 I S. A lot of people might be saying, we've 0:02:17.919 --> 0:02:21.280 seen the worst of it. Are you confident we have now? 0:02:21.360 --> 0:02:23.920 And the eurostox is a great example actually because if 0:02:23.919 --> 0:02:25.880 you think about this, the back the macro backdrop is 0:02:25.880 --> 0:02:28.760 still really weak. We have not actually gotten past that 0:02:28.840 --> 0:02:33.400 point of decelerating growth. The fundamental story for a lot 0:02:33.480 --> 0:02:38.400 of the European companies, particularly domestics, don't look exceptionally strong valuations. 0:02:38.440 --> 0:02:40.760 It's hard to argue they're cheap, especially when you think 0:02:40.760 --> 0:02:43.680 about the companies that are producing growth and the premium 0:02:43.680 --> 0:02:45.720 they're trading to the rest of the market. But you know, 0:02:45.840 --> 0:02:48.200 this really comes back to the sentiment where a lot 0:02:48.240 --> 0:02:50.720 of people had not owned European stocks for a while. 0:02:51.120 --> 0:02:55.919 We had seen consistent outflows across all European managed funds 0:02:55.919 --> 0:02:58.119 as well as et f s, and there's a little 0:02:58.120 --> 0:03:00.920 bit of a catch up the promise that maybe there's 0:03:00.919 --> 0:03:04.040 some fiscal stimulus, maybe there's going to be uh, some 0:03:04.080 --> 0:03:07.640 signs of life, and the markets outperformed. I'm not sure 0:03:07.680 --> 0:03:11.600 that our performance is sustainable. John, what Charles Cantor said, Uh, 0:03:11.720 --> 0:03:15.800 with new Bigger Berman. It's idiosyncratic. Now there's Twitter cratering 0:03:15.840 --> 0:03:19.840 down off uh, you know, lowest levels in April and 0:03:19.919 --> 0:03:23.880 off quarterly sales disappointment, etcetera, etcetera. We're all buried in 0:03:23.880 --> 0:03:28.200 the idiosyncratic Now for mere mortal investors just trying to 0:03:28.200 --> 0:03:31.640 make the retirement plan go up. Do you take a bigger, 0:03:31.720 --> 0:03:35.440 broader view and just ignore the idiosyncratic. I think you've 0:03:35.480 --> 0:03:37.600 made a good point, though, Tom, there are lots of 0:03:37.760 --> 0:03:40.800 very specific stories, not just in this earning season, but 0:03:40.840 --> 0:03:43.040 in terms of market leadership throughout the course of two 0:03:43.120 --> 0:03:46.920 thousand nineteen. The good news is especially I'd say the 0:03:47.000 --> 0:03:51.160 US large cap space has a large number of these 0:03:51.200 --> 0:03:54.560 strong idiosyncratic stories, and that's kind of what what gives 0:03:54.600 --> 0:03:56.640 the strength of the S ANDP. Have we ever been 0:03:56.680 --> 0:04:01.160 more miserable John going up yere today? I don't think 0:04:01.360 --> 0:04:04.600 the scars of q Q is still so deep cake, 0:04:06.040 --> 0:04:07.640 and I think a lot of people are still worried 0:04:07.720 --> 0:04:12.200 about going into twenty leveled up adding some cyclicality to 0:04:12.240 --> 0:04:15.600 their portfolios without really seeing a bottoming out in the 0:04:15.640 --> 0:04:19.640 economic data. Talk to me about the spread right now 0:04:19.680 --> 0:04:24.400 between south side expectations and by side sentiment. Clearly not 0:04:24.440 --> 0:04:27.240 a precise science, but just how you interpret that at 0:04:27.240 --> 0:04:30.200 the moment. Yeah, I think there's a huge spread. Actually. 0:04:30.760 --> 0:04:33.200 One of the easiest ways to gauge this is in 0:04:33.320 --> 0:04:37.520 terms of cash levels and overall defensive positionings on the 0:04:37.560 --> 0:04:41.640 Bye side relative to the cell side. Earnings expectations for 0:04:41.680 --> 0:04:44.200 the twelve month forward and you know, something John and 0:04:44.240 --> 0:04:46.039 I were just talking about was that if you look 0:04:46.080 --> 0:04:50.880 at this week last year, expectations for earnings over the 0:04:50.920 --> 0:04:52.920 next year, and that that cave two thousand nineteen, but 0:04:53.200 --> 0:04:56.600 in this case or pretty much the same. This is 0:04:56.600 --> 0:04:59.960 another way to say the Cell side hasn't significantly adjust 0:05:00.040 --> 0:05:03.080 did their expectations yet, but the behavior on the Bye 0:05:03.120 --> 0:05:07.360 side in rotation and holding higher cash and slightly more 0:05:07.400 --> 0:05:11.279 defensive positioning um really doesn't square with what might have 0:05:11.320 --> 0:05:14.200 been decent numbers for earnings that are in the south 0:05:14.240 --> 0:05:17.160 side forecast. I think people have been scared. There's been 0:05:17.160 --> 0:05:22.160 the geopolitics, there's policy, there's the growth data, and they're very, 0:05:22.240 --> 0:05:26.000 very concerned that the duration of this cycle is too long. 0:05:26.760 --> 0:05:29.760 In Black Rock, what's the percentage of people that have 0:05:29.880 --> 0:05:33.120 enjoyed this bullmarket? Has this been the all time loneliest 0:05:33.279 --> 0:05:36.880 up of the last one year or two years? Percentage 0:05:36.880 --> 0:05:39.719 of people who have enjoyed it in or you know, 0:05:42.040 --> 0:05:45.160 you know, I get the feeling it's actually pretty lonely. 0:05:45.160 --> 0:05:49.240 There's a lot of people, because of these idiosyncratic geopolitical 0:05:49.720 --> 0:05:52.560 corporate stories, have just said no, are they're not in 0:05:52.640 --> 0:05:56.240 fully Yeah, they even when you are invested. I think 0:05:56.240 --> 0:05:59.279 the anxiety level and the fear that something could really 0:05:59.320 --> 0:06:01.400 reverse the mark it is much higher than it has 0:06:01.440 --> 0:06:03.760 been in any of the post crisis period. You know, 0:06:03.839 --> 0:06:07.360 that doesn't make the sleep quality of many of our 0:06:07.400 --> 0:06:11.560 investors particularly high. Okay, what have people been buying? They've 0:06:11.600 --> 0:06:14.200 have been rewarding the companies with structural growth tail winds. 0:06:14.240 --> 0:06:16.200 Morgan Stanley have a take on this this week. They 0:06:16.200 --> 0:06:18.599 say the narrative of slowing growth has become obvious. The 0:06:18.640 --> 0:06:22.239 market has been rewarding companies with structural growth tail winds, 0:06:22.279 --> 0:06:25.400 betting they could grow through a slowdown. This has created 0:06:25.480 --> 0:06:29.800 valuation risks, and the valuation risks around say the software companies, 0:06:29.839 --> 0:06:31.479 et cetera. Where do you stand on the area of 0:06:31.480 --> 0:06:34.360 the market right now? Yeah, Look, there are some pockets 0:06:34.360 --> 0:06:37.760 of the market. Software is an obvious example where valuations 0:06:37.800 --> 0:06:41.640 had become quite extended. Uh, and we're actually revenue revenue 0:06:41.640 --> 0:06:44.760 growth was not going to really come through, uh, not 0:06:44.800 --> 0:06:47.400 even just at the back end of but the chances 0:06:47.440 --> 0:06:49.919 of it coming through were down as well. This is 0:06:49.920 --> 0:06:52.839 what I will say, though, UM, I think the call 0:06:53.040 --> 0:06:56.640 to rotate out of the more UH secular growth stories 0:06:57.080 --> 0:07:00.400 is far too soon in order to get very value 0:07:00.400 --> 0:07:05.000 oriented place, and this the sort of cyclical losers. To outperform, 0:07:05.080 --> 0:07:07.760 you need an acceleration in global growth. We're not looking 0:07:07.760 --> 0:07:09.920 for that right now. What do I want to pay 0:07:10.040 --> 0:07:15.000 for a small company that has revenues up? That's a 0:07:15.040 --> 0:07:18.960 big number, huge number. It's Microsoft, Okay, I mean I 0:07:19.000 --> 0:07:21.120 get it. They're trading in a like John, you just 0:07:21.160 --> 0:07:26.400 said they're fully valued, right, I didn't say that. But 0:07:26.400 --> 0:07:29.560 but what am I going to pay for double digit 0:07:29.720 --> 0:07:32.960 revenue growth? And the answer in this environment a lot, right. 0:07:33.520 --> 0:07:36.320 And it's not even just the revenue growth number. It's 0:07:36.360 --> 0:07:40.480 the consistency of the revenue growth, the stability and existent 0:07:41.800 --> 0:07:45.680 the consistence and stability of revenue growth, the constant delivery. 0:07:46.160 --> 0:07:48.680 You know, in a case like Microsoft, you have both 0:07:48.800 --> 0:07:52.880 a you know, annuity like business with a growth business. 0:07:53.040 --> 0:07:55.600 Excellent management. We got another three hours with it, right, 0:07:55.640 --> 0:07:58.840 You've got more minute, so quickly here let's go physics. Here. 0:07:59.440 --> 0:08:04.680 The market values a inertial force of good things. When 0:08:04.680 --> 0:08:07.400 you're at the zero bound, when you've got potential g 0:08:07.520 --> 0:08:12.000 d P under two. The value of that inertial force 0:08:12.080 --> 0:08:16.200 of good companies it's it's like the it's like it's unbelievable. 0:08:16.240 --> 0:08:18.640 And this is why I don't really buy into that 0:08:18.800 --> 0:08:23.280 value supercyclical rotation to there's still a lot of uncertainty 0:08:23.320 --> 0:08:26.800 out there, you know, around the US election, around the 0:08:26.800 --> 0:08:30.800 schism between US and China, uh, the trade implications for 0:08:30.880 --> 0:08:32.959 a lot of different companies and industries, and there's a 0:08:33.000 --> 0:08:35.079 lot of other geopolitical risk. You take all of this 0:08:35.120 --> 0:08:38.280 stuff together and you say, you, now, why would I 0:08:38.320 --> 0:08:42.880 step away from these companies that are consistently delivering, whose products, 0:08:43.200 --> 0:08:46.520 whose services, and whose management teams are best in class? 0:08:46.960 --> 0:08:48.959 So you know, my view is that we have to 0:08:49.000 --> 0:08:52.720 be thoughtful around valuation, but you can't let valuation lead 0:08:53.000 --> 0:08:54.839 and when you're making a decision at this point in 0:08:54.840 --> 0:08:57.720 the cycle, Okay, more great to say, you're fantastic to 0:08:57.720 --> 0:09:00.480 have you with us in the studio. More of lank Rock. 0:09:14.600 --> 0:09:16.880 We want to give you context and we can do 0:09:16.960 --> 0:09:20.720 that from without question, the most emotional book on the 0:09:20.760 --> 0:09:25.240 Euro I have ever seen. It was written five years ago. 0:09:26.160 --> 0:09:29.160 His negotiations for the movie rights were so tenuous. We're 0:09:29.200 --> 0:09:31.559 looking for the fall of the Euro. Memorial Day two 0:09:31.600 --> 0:09:36.600 thousand twenty two, John but, a gentleman from Denmark, wrote 0:09:36.800 --> 0:09:42.559 a piercingly passionate book on the euro and on reinventing 0:09:42.600 --> 0:09:47.680 the Eurozone. In chapter by chapter, he went through, what 0:09:47.800 --> 0:09:50.360 a god awful mess it was five years ago. This 0:09:50.400 --> 0:09:54.040 is the perfect guy to talk to about dragging. Give 0:09:54.120 --> 0:10:00.560 that for the book launch one I was party was 0:10:00.640 --> 0:10:03.720 three people. You know, I just you know. I didn't 0:10:03.760 --> 0:10:05.720 talk to him and I didn't get invite. He was 0:10:05.760 --> 0:10:08.320 so large I couldn't even talk to him. Aout the party, 0:10:08.360 --> 0:10:10.360 walked away from the moora set up his own shop, 0:10:10.720 --> 0:10:15.199 just picked up three books and left data founder and 0:10:15.240 --> 0:10:17.280 see how good morning to ends. Good morning. I don't 0:10:17.320 --> 0:10:20.199 know quite what to say, but anyway, thanks for the intro. 0:10:20.720 --> 0:10:22.800 And here's what I'll say, when's the next book? It 0:10:22.880 --> 0:10:26.440 was so good? When's the next book? Writing a book 0:10:26.480 --> 0:10:27.680 takes a little bit of time, so I have to 0:10:27.679 --> 0:10:30.160 get approved for my wife before I'm allowed to write 0:10:30.160 --> 0:10:33.640 a second one. Eight years he's up ends eleven president drunk, 0:10:33.679 --> 0:10:37.360 he takes over the ECB. Eight years later he steps down. 0:10:38.200 --> 0:10:43.199 What's his legacy? So um he everybody says he saved 0:10:43.200 --> 0:10:47.120 the euro He did have a very important contribution to 0:10:47.240 --> 0:10:50.040 ending the euro crisis. He had a very important contribution 0:10:50.120 --> 0:10:52.640 to sort of breaking new ground for the e c B. Right, 0:10:53.080 --> 0:10:55.640 we had the Mastric Treaty. It was supposed to be 0:10:55.880 --> 0:10:58.959 not legal for the ECB to buy any government bonds, 0:10:59.679 --> 0:11:02.640 and that he made it llegal essentially, not without it 0:11:02.679 --> 0:11:04.960 didn't change the legal text, but the interpretation of the 0:11:05.040 --> 0:11:07.920 legal text is totally different now. And I think if 0:11:07.960 --> 0:11:10.120 we can think about in very concrete terms, like think 0:11:10.120 --> 0:11:13.319 about Italy, over the last few years, we've had tremendous 0:11:13.360 --> 0:11:16.080 political uncertainty. That was the main point in my book 0:11:16.160 --> 0:11:19.080 that the next crisis was going to come from political uncertainty. Right, 0:11:19.440 --> 0:11:22.800 and despite of that uncertainty, because there's such a belief 0:11:22.920 --> 0:11:26.240 that the ECB is there to provide back stuff, we 0:11:26.320 --> 0:11:30.120 had limited tension financial markets in Italy. We clearly had 0:11:30.160 --> 0:11:32.600 big moves up and down on btbs, but it never 0:11:32.679 --> 0:11:36.360 turned into like a financial crisis dynamic. And that's because 0:11:36.400 --> 0:11:39.160 of the changes drug you have done. That's his legacy. 0:11:39.480 --> 0:11:43.560 Trech Let the red redenomination genie out of the bottle. 0:11:44.080 --> 0:11:49.240 Can we ever get it back in? So it all 0:11:49.280 --> 0:11:52.319 comes down to whether there's public support for the Euro. 0:11:52.760 --> 0:11:57.199 So if you go and look at opinion polls, it's 0:11:57.200 --> 0:12:00.360 actually pretty striking that we have all this pessimist about 0:12:00.520 --> 0:12:04.120 growth in the Eurozone, all the troubles that exist in 0:12:04.160 --> 0:12:06.760 the EU with Brexit and so forth, and then you 0:12:06.840 --> 0:12:08.640 ask people on the ground, do you want to keep 0:12:08.640 --> 0:12:13.000 the Euro? In every single country support for the Euro 0:12:13.600 --> 0:12:17.960 is high, and in many countries at a record high. 0:12:18.000 --> 0:12:20.840 Obviously in Italy support is lower than other countries, but 0:12:20.920 --> 0:12:24.160 support is going up again. So it is quite interesting, 0:12:24.200 --> 0:12:26.080 giving all the pessimism that is out there, that the 0:12:26.080 --> 0:12:30.439 Euro is kind of light. Part of your wonderful ability 0:12:30.520 --> 0:12:33.199 here is to figure out the legacy of all these people. 0:12:33.240 --> 0:12:35.920 You do this out of our house. Your academics in Denmark. 0:12:36.679 --> 0:12:40.880 Drogg is m I t. Drog Is fundamentally is twisted 0:12:41.000 --> 0:12:44.640 Anglo Saxon Field. Do they revert back to a Triche 0:12:44.720 --> 0:12:50.160 Deuisenberg Old World ethos or is he permanently changed the 0:12:50.559 --> 0:12:56.720 theoretical structure of historical Europe versus a more British or 0:12:56.760 --> 0:13:02.120 more American economics. Well, I thank that is a big question. 0:13:02.360 --> 0:13:05.400 And I think one of the reasons why we had 0:13:05.440 --> 0:13:10.040 such a controversial decision at the last meeting was that 0:13:10.400 --> 0:13:13.800 Dragon wanted to set the tone for the next four 0:13:13.880 --> 0:13:16.800 years as well, and he has done so with the 0:13:16.840 --> 0:13:21.080 four guidance, where they essentially say they're not gonna raise 0:13:21.160 --> 0:13:26.040 interest rates until actual inflation, not just what the ECB 0:13:26.280 --> 0:13:30.600 staff is forecasting, but actual inflation is getting to the target. 0:13:30.960 --> 0:13:33.920 It's quite an extraordinary form of four guidance, Johnny, you 0:13:33.920 --> 0:13:36.800 know I'll say this, and you know, maybe wrong, John, 0:13:36.840 --> 0:13:40.160 But the most thunderous moment as headline the next number 0:13:40.200 --> 0:13:43.040 of years was that single headline two years ago, we're 0:13:43.120 --> 0:13:47.600 dragging began to put a timeline on we're not raising race. 0:13:47.679 --> 0:13:50.080 Remember that he said, like, we're not raising race till 0:13:50.080 --> 0:13:52.160 the summer of nineteen or whatever. He pushed the limits 0:13:52.160 --> 0:13:54.520 of Monechy policy. And yes, I think the criticism will 0:13:54.559 --> 0:13:56.960 be that an argument of his for quite a while 0:13:57.200 --> 0:13:59.080 is that for rates to behind the future, they need 0:13:59.160 --> 0:14:02.160 to be low. Now been negative for five years. And 0:14:02.200 --> 0:14:04.440 I think the debate, even after he leaves the ECB 0:14:04.600 --> 0:14:07.080 today will be whether any of this stuff actually works, 0:14:07.720 --> 0:14:10.800 Has que work? Does negative rates actually work? Is he 0:14:10.840 --> 0:14:13.000 taking it too far? Has he taken it too far? 0:14:13.640 --> 0:14:16.160 The jury is still out, isn't it. So I think 0:14:16.160 --> 0:14:19.360 there's two aspects of this that you need to separate. 0:14:19.920 --> 0:14:24.280 So I think there's a financial stability argument. The Euros 0:14:24.280 --> 0:14:30.560 song was incredibly vulnerable to financial crises before we learned 0:14:30.600 --> 0:14:34.360 that the ECB was willing to buy sovereign bonds. That 0:14:34.480 --> 0:14:37.080 part of legacy, I don't think you can doubt. The 0:14:37.160 --> 0:14:41.040 other part of legacy pertains to inflation, and there it's 0:14:41.080 --> 0:14:44.320 a much tougher thing to to to sell that. He 0:14:44.360 --> 0:14:47.760 has been very successful. You can look at where core 0:14:47.800 --> 0:14:51.960 inflation is now after essentially maxing out monetary policy, and 0:14:52.000 --> 0:14:53.880 we're close to one percent. We should be close to 0:14:53.920 --> 0:14:57.400 two percent, right, So I think he's been incredibly successful 0:14:57.400 --> 0:15:00.160 in terms of reducing the risk of financial crisis. He 0:15:00.200 --> 0:15:02.760 has not been particularly successful in terms of getting inflation 0:15:02.840 --> 0:15:05.440 and inflation expectation up to the target. The way I've 0:15:05.480 --> 0:15:07.640 told that story essentially is by saying the first half 0:15:07.680 --> 0:15:10.080 of his tenure underlined the power of the ECB, the 0:15:10.120 --> 0:15:15.440 second half highlighted its limitations. Let's push things on, President Leguard. 0:15:16.160 --> 0:15:18.240 She's got a tough ask a lot of people, especially 0:15:18.280 --> 0:15:19.520 on this side of the Atlantic, and I find it 0:15:19.560 --> 0:15:21.560 really interesting. I don't know what your conversations have been 0:15:21.560 --> 0:15:23.480 like with clients, he ends, but many people on this 0:15:23.520 --> 0:15:26.200 side of the Atlantic seem to believe that a president 0:15:26.280 --> 0:15:30.120 Leguard can get European politicians to do something that Mario 0:15:30.280 --> 0:15:33.280 Dragon could not, and that's if you have the fiscal space, 0:15:33.920 --> 0:15:37.760 use it. Yeah, I think there's this perception that she 0:15:38.040 --> 0:15:40.680 was in charge of fiscal policy in France and therefore 0:15:40.760 --> 0:15:43.440 she has some kind of magic power to make sure 0:15:43.520 --> 0:15:47.160 the coordination between the central banks and the fiscal authorities 0:15:47.720 --> 0:15:51.800 somehow gets much much better. I think it's a bit 0:15:51.880 --> 0:15:55.360 more complicated than that. We're negative interest rates in your book, 0:15:56.480 --> 0:15:59.960 they were not. They were not stunning. Yeah, that's just stunning. 0:16:00.440 --> 0:16:03.120 It's hard to predict the future, isn't it. It's not 0:16:03.120 --> 0:16:05.800 only the future, but it's hard to predict a complete 0:16:05.880 --> 0:16:08.600 shattering of a theory. I mean, I don't know what 0:16:08.640 --> 0:16:10.800 your econ one on one book was in Denver, but 0:16:11.080 --> 0:16:14.920 in Denmark. But whether it's beg or it's it's it's 0:16:15.200 --> 0:16:17.720 during bush fish or stars or whatever, man Q whatever 0:16:18.680 --> 0:16:22.040 none of his folks were living is in those books? 0:16:22.520 --> 0:16:27.200 Is it? Like? Um? Like? Even if you think about 0:16:27.240 --> 0:16:31.360 debt sustainability, right, so you have this situation where you think, okay, 0:16:31.440 --> 0:16:35.480 if you have no growth, eventually your debt dynamics will 0:16:35.600 --> 0:16:37.480 run out of control. But if you have negative rights, 0:16:37.520 --> 0:16:40.240 that's not obviously anymore either, right, So everything gets turned 0:16:40.240 --> 0:16:47.560 on its head quickly. Space So there is something going 0:16:47.600 --> 0:16:50.320 on in some European countries. There's something going on Holland, 0:16:50.400 --> 0:16:52.960 there's something going on in France. What we're missing is 0:16:53.000 --> 0:16:56.000 a big shift in Germany, and they have constitutional limits. 0:16:56.320 --> 0:16:58.680 They need to find a different name for it. They 0:16:58.720 --> 0:17:02.280 need to call it climb an investment and get around 0:17:02.280 --> 0:17:05.560 the constitutional limits to get a big push going. That's 0:17:05.600 --> 0:17:08.600 really sort of the hope at the end of the 0:17:08.640 --> 0:17:10.520 tunnel is that we can find a new name for 0:17:10.600 --> 0:17:13.600 fiscal stimulus that can get around those constraints. You're a 0:17:13.640 --> 0:17:17.719 target one three right now, twelve months out come on tapes, 0:17:17.960 --> 0:17:21.320 tapes recording. The key thing is global growth. If global 0:17:21.320 --> 0:17:23.600 growth and can recover a little bit, the dollar will 0:17:23.640 --> 0:17:26.120 be down and the euro will be meaningfully stronger. See 0:17:26.119 --> 0:17:29.679 how he did that. That's very small. That's decades of work. 0:17:30.119 --> 0:17:33.120 I didn't get a number. I didn't get a time. 0:17:33.320 --> 0:17:34.760 So I think about it. When did we have peak 0:17:34.760 --> 0:17:39.240 happy talk? Peak happy talk springen for global economy and 0:17:39.280 --> 0:17:44.040 for global market spring right before now I'm talking about 0:17:44.040 --> 0:17:47.400 global markets and global economy, the synchronized growth. In two, 0:17:48.400 --> 0:17:52.760 you're a dollar peaked out. Stelling won forty as well. 0:17:53.359 --> 0:17:55.199 So if things start to pick up. I didn't do 0:17:55.240 --> 0:17:58.720 the exact math, but the drug ear is a sixteent appreciation. 0:17:58.760 --> 0:18:01.200 In Europe, we've had a massive move success. At one 0:18:01.200 --> 0:18:03.119 point they were fighting to get it down because it 0:18:03.160 --> 0:18:05.680 was too strong. Remember that they were good times, weren't 0:18:05.720 --> 0:18:07.920 the yins. When we're in and around one forty fighting, 0:18:07.960 --> 0:18:09.720 you're still talking to him. He didn't give us a 0:18:09.840 --> 0:18:12.920 number or a date. What I'm trying to get him now? 0:18:12.960 --> 0:18:18.000 Please continue? We came from one thirty nine point seven 0:18:18.119 --> 0:18:21.840 before the negative rates started, and obviously we traded below 0:18:21.920 --> 0:18:24.280 one ten very recently, so it's a pretty meaningful move. 0:18:24.480 --> 0:18:26.440 So he's still looking past. Can you get from T 0:18:26.600 --> 0:18:29.240 minus one at the T plus one year? I still 0:18:29.240 --> 0:18:34.720 want to forecast. I think in our global growth recovery scenario, 0:18:35.600 --> 0:18:39.320 it's pretty easy to get the euro backup to watch one. Okay, 0:18:39.359 --> 0:18:41.720 now we can move on, we can move forward. Yes, Nord, 0:18:41.960 --> 0:18:44.000 there can't say enough about the fall of the year 0:18:44.080 --> 0:18:58.240 right to do it for it per book. We can 0:18:58.240 --> 0:19:00.560 talk about someone that used to over see the market 0:19:00.600 --> 0:19:03.000 operations of the e c B. The man that in 0:19:03.000 --> 0:19:06.280 this position would typically be executing the monetary policy. Really 0:19:06.320 --> 0:19:09.959 pleased to say that. Francesco Pappadia joins us now former 0:19:10.040 --> 0:19:15.680 ECB Director General of Market Operations, overseeing market ops through 0:19:15.720 --> 0:19:19.159 to twelve at the ECB. Francesco, good morning, great to 0:19:19.160 --> 0:19:21.960 have you with us on the program. Good morning to you. 0:19:22.520 --> 0:19:24.600 A big focus at the moment on what the ECB 0:19:24.800 --> 0:19:27.399 can and cannot buy and if they want to commit 0:19:27.440 --> 0:19:30.400 to twenty billion a month, open ended, where will they 0:19:30.400 --> 0:19:32.919 be looking. What are your thoughts on that at the moment, Francesco, 0:19:34.240 --> 0:19:37.240 I think that the latest information we have on this 0:19:37.960 --> 0:19:41.240 is that that they can go on for quite a while, 0:19:41.760 --> 0:19:45.480 quite a while, goold mean one more year, um. They 0:19:45.520 --> 0:19:49.879 would not a bump into the limits for the Germany, 0:19:49.960 --> 0:19:53.359 which is of course the biggest, the biggest problem. So 0:19:53.480 --> 0:19:57.760 they do have the time to revise the thirty a 0:19:57.840 --> 0:20:02.199 limit if they would see the problem coming. There was 0:20:02.200 --> 0:20:04.800 a big debate a couple of years ago about would 0:20:04.800 --> 0:20:07.800 they go beyond corporate debt, would they start to buy equities? 0:20:07.800 --> 0:20:10.840 And that's wrapped up again. Francesco, I imagine that when 0:20:10.840 --> 0:20:14.280 you were at the ECB in twelve. When you're executing 0:20:14.320 --> 0:20:17.760 the securities market program, did you ever think they'll be 0:20:17.800 --> 0:20:22.680 buying corporate debt, corporate paper? Well, that was not so 0:20:22.760 --> 0:20:26.760 far away, So I mean we had been buying something 0:20:27.040 --> 0:20:30.240 similar to corporate debt, which is covered bonds. Cover bonds 0:20:30.280 --> 0:20:34.080 are issued by banks, so they are a private kind 0:20:34.080 --> 0:20:37.280 of paper, and we did We did that. When it 0:20:37.359 --> 0:20:42.040 comes to new things, that they could buy more than equities, 0:20:42.080 --> 0:20:44.639 which is a bit odd, I think, I mean, the 0:20:44.720 --> 0:20:48.080 Japanese are doing it, but I think it would be 0:20:48.119 --> 0:20:55.320 more likely that they would buy bank loans even without securitization. 0:20:55.359 --> 0:21:00.119 Bank loans are already in the collateral pool of e 0:21:00.200 --> 0:21:02.560 c B, and in a way, that's the only asset 0:21:02.600 --> 0:21:05.600 which is in the collateral pool that is not bought outright, 0:21:05.720 --> 0:21:08.480 So if I have to think of the new asset, 0:21:08.640 --> 0:21:11.520 I think of the bank loans. Francisco, How controversial would 0:21:11.560 --> 0:21:13.480 that be for the ECB to buy the loans of 0:21:13.560 --> 0:21:18.320 banks that they also have to regulate. Well, I think 0:21:18.400 --> 0:21:21.320 that that would be of an order of magnitude easier 0:21:21.680 --> 0:21:25.280 than buying bank bonds, because if you buy bank bowns, 0:21:25.440 --> 0:21:28.320 you buy the credit of the bank. If you buy 0:21:28.359 --> 0:21:31.520 bank aloans, you buy the credit of the customer of 0:21:31.600 --> 0:21:34.399 the bank, I mean, not to borrow it. So I 0:21:34.440 --> 0:21:38.159 think it would be easier from from this point of 0:21:38.200 --> 0:21:40.760 view because you don't buy the credit of the bank. 0:21:41.560 --> 0:21:44.480 Francisco Papadia with us right now, folks, and we're just 0:21:44.600 --> 0:21:46.359 thrilled it could be with us. All you need to 0:21:46.400 --> 0:21:50.119 know with a seminal effort at the e c B 0:21:50.400 --> 0:21:54.240 is Director General for Market Operations, Francisco. John and I 0:21:54.240 --> 0:21:57.280 could talk to you for an hour this morning about 0:21:57.320 --> 0:22:01.640 this linkage of Mr drog Mr Powell, Mr Carney into 0:22:01.680 --> 0:22:05.800 a nascent question about trust in the very short term market, 0:22:06.359 --> 0:22:10.520 just with a view from sixty feet. Every official John 0:22:10.520 --> 0:22:12.920 and I have spoken to, including Lawrence Cudlo of the 0:22:12.960 --> 0:22:16.200 White House and Bill Dudley, formerly with a New York Fed, 0:22:16.720 --> 0:22:20.040 have said there's not a problem here. Is there a 0:22:20.160 --> 0:22:26.280 problem brewing, brewing or existent in that very short term 0:22:26.440 --> 0:22:33.320 overnight trust market. I don't see that as a pressing 0:22:33.359 --> 0:22:37.879 problem quite frankly, um I see the main problem in 0:22:37.920 --> 0:22:43.760 my view is that central banks are close to having 0:22:43.800 --> 0:22:47.800 exhausted that their ammunition unless they invent something new, which 0:22:47.920 --> 0:22:52.040 they could. But unless they do invent something new, the 0:22:52.440 --> 0:22:58.520 unconventional measures, in my view, out closed to having finished 0:22:58.520 --> 0:23:02.240 their their effect activeness. So I don't see a problem 0:23:02.280 --> 0:23:05.639 of trust. Um, I see a problem of effectiveness if 0:23:05.640 --> 0:23:08.760 you wish the vectors. If you take a log chart 0:23:08.840 --> 0:23:11.639 where slope matters, folks, and you look at the build 0:23:11.680 --> 0:23:16.160 out of the balance sheets of the different major central banks, 0:23:16.720 --> 0:23:20.720 do you have confidence in the mathematics and calculation of 0:23:20.800 --> 0:23:26.480 the appropriate level of assets at any given central bank? Well, 0:23:26.520 --> 0:23:29.880 I think that the mathematics of this, as you say, 0:23:30.040 --> 0:23:34.920 has changed a lot and keeps changing, because what used 0:23:34.920 --> 0:23:37.760 to be normal in two thousand and seven two thousand 0:23:37.800 --> 0:23:40.560 and eight is no longer normal, and there is no 0:23:40.720 --> 0:23:43.480 prospect that we will get back to normal. And the 0:23:43.560 --> 0:23:47.320