WEBVTT - Surveillance: Big Tech Break Up Has Begun, Galloway Says 0:00:00.080 --> 0:00:13.040 Ye, Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene 0:00:13.480 --> 0:00:17.560 Jay Lee. 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 --> 0:00:28.640 Bloomberg dot com, and of course on the Bloomberg You've 0:00:28.640 --> 0:00:30.440 seen in the reports this morning. I'm sure many of 0:00:30.480 --> 0:00:32.320 you have let me read it to you. If you haven't. 0:00:32.560 --> 0:00:35.519 According to people with knowledge of the talks, executives of 0:00:35.640 --> 0:00:38.680 we Work and it's launches investor Self Bank discussing whether 0:00:38.760 --> 0:00:42.400 to shelve the I p O plans. They're not discussing 0:00:42.640 --> 0:00:45.519 the Golden sax or JP Morgan Chase right discussing it 0:00:45.560 --> 0:00:50.519 between themselves. Reportedly, let's bring in David Kirkpatrick show we 0:00:50.600 --> 0:00:52.680 founder and CEO of to Economy, and I'm sure many 0:00:52.720 --> 0:00:55.920 of you have read his book, The Facebook perspect David 0:00:56.040 --> 0:00:58.560 is great to have you with us. Just put into 0:00:58.600 --> 0:01:02.960 context what is happening. It's some perspective around this company 0:01:03.040 --> 0:01:05.960 and the controversy surrounding it as they try and go public. 0:01:06.400 --> 0:01:08.880 I would say the biggest picture context is that the 0:01:08.920 --> 0:01:11.640 WEE Company or we Work is not a tech company, 0:01:11.680 --> 0:01:14.479 but partly because of it's backing from soft Bank, which 0:01:14.560 --> 0:01:17.320 is basically trying to turn everything into tech and profit 0:01:17.440 --> 0:01:21.800 massively with their hundred plus billion dollar funds they keep raising. Uh, 0:01:21.840 --> 0:01:24.920 they've they've somewhat deluded the world into thinking that pretty 0:01:25.000 --> 0:01:27.400 much any company that's using an app or or some 0:01:27.480 --> 0:01:29.880 kind of tech in order to transform an industry deserves 0:01:29.880 --> 0:01:32.560 the same kind of evaluation as Facebook. And that's ridiculous. 0:01:32.600 --> 0:01:34.840 So they came to the market last time in the 0:01:34.840 --> 0:01:38.000 private funding round, the last funding round, and got two 0:01:38.000 --> 0:01:40.560 billion dollars of investment from self bank and evaluation of 0:01:40.640 --> 0:01:43.360 forty seven billion. Are we saying that self bank is 0:01:43.400 --> 0:01:47.400 completely distorted private markets? I would say yes, it has. 0:01:47.560 --> 0:01:50.000 I think that's a very good general statement. I mean, 0:01:50.040 --> 0:01:52.080 I think Uber is another consequence of this, and I 0:01:52.160 --> 0:01:54.080 look at what's happened since Suber's I p oh, It's 0:01:54.120 --> 0:01:57.440 it's very related. So what happens next with this as 0:01:57.480 --> 0:01:59.800 far as you see things, well, the interest think about 0:01:59.840 --> 0:02:03.160 the I p O. Is this thing the contingent loan 0:02:03.440 --> 0:02:05.680 if they have to raise three billion or else, they 0:02:05.680 --> 0:02:08.400 don't get all this other billions from Wall Street banks. 0:02:08.400 --> 0:02:11.120 So it's six billion dollars aligned contingent on rice and three. 0:02:11.240 --> 0:02:13.880 So it could be that they will just lower the 0:02:14.600 --> 0:02:17.560 valuation as far as they can, so they still can 0:02:17.639 --> 0:02:20.200 raise three billion because they basically have to have more 0:02:20.240 --> 0:02:22.760 cash to keep expanding, because it's a shell game in 0:02:22.760 --> 0:02:28.239 a way. Chapter six of the Facebook Effect page becoming 0:02:29.240 --> 0:02:34.680 becoming a company? Is this any way to becoming a company? No, 0:02:34.800 --> 0:02:37.280 it isn't. But I will say since you mentioned my 0:02:37.360 --> 0:02:42.120 book about Facebook, Facebook did some degree set in motion 0:02:42.160 --> 0:02:45.959 the forces that we are seeing today. Well, primarily because 0:02:45.960 --> 0:02:49.480 of the absolute control that Zuckerberg obtained and the idea 0:02:49.560 --> 0:02:52.840 after that that every single tech quote unquote tech founder 0:02:53.240 --> 0:02:56.040 ought to have complete and total control, which Adam Newman 0:02:56.280 --> 0:02:58.639 took to an absurd Okay, but in the last week 0:02:58.720 --> 0:03:00.840 or Mr Newman's one, well, who wanted to do the 0:03:00.840 --> 0:03:04.440 tabloids sociable whole thing. You know, he's like Pharaoh. He's 0:03:04.440 --> 0:03:07.079 out there doing the you know, society thing. Yeah, John Farrell, 0:03:07.280 --> 0:03:09.760 He's doing the society. He's like Pharaoh in the Egyptian. 0:03:09.840 --> 0:03:12.880 So it's like Pharaoh here, not rowing Pharaoh, John Pharaoh. 0:03:12.919 --> 0:03:16.240 I meant Pharaoh in Cairo, and stay with me. Okay, 0:03:16.280 --> 0:03:20.080 Adam Newman has been invisible the last ten days. That's blowny. 0:03:20.880 --> 0:03:24.800 I mean, wouldn't if you were a basically a scam artist, 0:03:24.800 --> 0:03:27.040 wouldn't you hide when people have discovered you? I mean, 0:03:28.160 --> 0:03:32.200 you know, I mean, I'm afraid he's he's a variety 0:03:32.240 --> 0:03:34.800 of things that he has done at that company. It's 0:03:34.840 --> 0:03:37.240 almost too many to list. Does this break the arrogance 0:03:37.280 --> 0:03:40.480 of Silicon Valley is a general statement. The arrogance of 0:03:40.520 --> 0:03:44.040 Silicon Valley is being broken in real time already, and 0:03:44.080 --> 0:03:46.680 I think Facebook contributed again to that. They've made so 0:03:46.720 --> 0:03:51.400 many near criminal errors. Public markets will forgive governance issues 0:03:51.720 --> 0:03:53.560 if the business model is good. So let's talk about 0:03:53.600 --> 0:03:57.000 the business model, long term lease obligations, short term agreements 0:03:57.000 --> 0:04:00.480 with customers. You used the word scam. Just put some 0:04:00.560 --> 0:04:02.760 meat on those bots. I mean, it's you know, scam 0:04:02.760 --> 0:04:04.040 is a strong word. I don't want to get to 0:04:04.080 --> 0:04:07.040 a strong but basically, I think it's amazing that j 0:04:07.400 --> 0:04:10.480 the JP, Morgan Chase, and Golden Sachs would back this company. 0:04:10.560 --> 0:04:13.720 I think it makes them really culpable and is suspect 0:04:13.800 --> 0:04:18.640 they should be shamed for this. But I come at 0:04:18.640 --> 0:04:20.800 a time when we're possibly about to go into a 0:04:20.839 --> 0:04:23.760 downturn which is the absolute worst time for real estate. 0:04:24.240 --> 0:04:26.640 And all these little companies that occupy we works, they 0:04:26.640 --> 0:04:29.760 are going to basically be, you know, many of them 0:04:29.760 --> 0:04:32.000 out of funding, and that's exactly the wrong time to 0:04:32.000 --> 0:04:36.640 go puvid. When you say culpable, do you mean reputationally. Yes. Look, 0:04:36.640 --> 0:04:39.279 we're in a time when the smallest foible and somebody's 0:04:39.320 --> 0:04:42.719 reputation behavior causes them to lose their job, you know, 0:04:42.839 --> 0:04:45.560 be shamed. These are companies that are doing something I 0:04:45.600 --> 0:04:48.039 think that is unconscionable. They should not have backed this 0:04:48.120 --> 0:04:50.880 company at this kind of valuation. They shouldn't be trying 0:04:50.880 --> 0:04:53.880 to convince investors to throw their money away. That is, 0:04:54.080 --> 0:04:56.880 that's immoral. Well, self Bank is going for vision to 0:04:57.400 --> 0:05:00.320 the vision to fund the Vision fund too. I'm not 0:05:00.320 --> 0:05:03.599 saying I think they're just opportunistic. I think it's Wall Street. 0:05:03.760 --> 0:05:08.599 Is there accounting transparent? Do we know SoftBank's true accounting? 0:05:08.800 --> 0:05:10.600 I doubt it. I mean I'm not an expert at 0:05:10.600 --> 0:05:13.000 SoftBank's accounting, but I doubt it. We're out of time. 0:05:13.160 --> 0:05:15.520 You've coined something new here nearly emails and this says 0:05:15.520 --> 0:05:18.440 I have to call him Pharaoh John from now on? 0:05:20.360 --> 0:05:22.359 Is that my New Night. It's like King Todd, except 0:05:22.360 --> 0:05:28.039 it's King tart spout very differently. Oh yes, really there's 0:05:28.080 --> 0:05:32.400 a pH on that. How did you not realize? David, 0:05:32.440 --> 0:05:33.919 Great to see you, Great to be here at some 0:05:33.960 --> 0:05:38.679 controversial comments that David really look forward to coming along 0:05:38.680 --> 0:05:55.120 the way on this as well. Potentially the most interesting 0:05:55.200 --> 0:05:57.880 negative zero point zero one percent move I've ever seen 0:05:57.920 --> 0:06:00.760 on the SMP five hundred, the worst performing names with 0:06:00.839 --> 0:06:02.800 some of the best performing names on the day. The 0:06:02.880 --> 0:06:06.160 best performing names was some of the worst and it's 0:06:06.240 --> 0:06:08.560 left some people asking whether this is the beginning of 0:06:08.560 --> 0:06:11.320 a rotation, not just inequities, but in the bond market 0:06:11.320 --> 0:06:13.960 to one big question for bonds right now. Is it 0:06:14.040 --> 0:06:16.760 the beginning of the reflation trade, the beginning of a 0:06:16.800 --> 0:06:20.120 new trend, or just the correction after a monster move 0:06:20.480 --> 0:06:24.240 through Derek Hampenny dropping by the studio m u f 0:06:24.400 --> 0:06:27.520 G head are European at Global Markets Research. He joined 0:06:27.600 --> 0:06:29.800 us here in New York. Good morning to Derek. Good morning. 0:06:30.360 --> 0:06:32.839 Let's start with the question, shall we It is very 0:06:32.880 --> 0:06:35.320 early days, It has been a couple of weeks, but 0:06:35.440 --> 0:06:39.080 please weigh in on that big debate right now. It 0:06:39.240 --> 0:06:43.240 is early days and I would still be leaning towards 0:06:43.279 --> 0:06:46.240 a degree of caution in how this pans out. You know, 0:06:46.279 --> 0:06:48.760 the scale of the move makes it understandable that we've 0:06:48.800 --> 0:06:51.360 had some degree of correction. But you know the US 0:06:51.440 --> 0:06:56.640 China story. You know, even if we go back into negotiations, 0:06:56.920 --> 0:07:01.000 even if they start to kind of make progress, the 0:07:01.360 --> 0:07:04.080 kind of big picture on certainty around trade is not 0:07:04.120 --> 0:07:06.680 going to go away. Secondly, we believe a no deal 0:07:06.720 --> 0:07:09.720 braggsit is on the way. Boris Johnson has had a 0:07:09.720 --> 0:07:12.280 bad period of time, but ultimately we still think as 0:07:12.320 --> 0:07:16.760 big picture strategies in play um. So you know, all 0:07:16.800 --> 0:07:20.440 of that, coupled with just the fact that this was 0:07:20.480 --> 0:07:23.200 more about positioning than anything, I think you'd have to 0:07:23.200 --> 0:07:26.280 see some real fundamental shifts before you could get confident 0:07:26.360 --> 0:07:29.120 about this being a longer term trend. The US thirty 0:07:29.160 --> 0:07:31.200 year yield bottomed out at the end of August. We 0:07:31.240 --> 0:07:34.640 were as lower as around about one ninety city group. 0:07:34.760 --> 0:07:37.120 Since we have bottomed out is up around about ten 0:07:37.200 --> 0:07:39.360 percent since the end of August. Off the back of 0:07:39.360 --> 0:07:42.080 this pickup and yields. This rotation in the equity market 0:07:42.120 --> 0:07:44.080 is getting a lot of attention, but when you talk 0:07:44.560 --> 0:07:46.800 you highlight the same themes the same problems that took 0:07:46.880 --> 0:07:49.160 yields down to one ninety on the US thirty year 0:07:49.560 --> 0:07:51.520 and I assume from what you're saying, Derek, we've got 0:07:51.560 --> 0:07:54.760 more to come through the rest of Yeah, and you know, 0:07:54.720 --> 0:07:57.080 I look at central banks. We're going to get deeper 0:07:57.120 --> 0:07:59.760 negative cuts from the u CB on Thursday. We think 0:08:00.000 --> 0:08:02.840 ali and is having lower so we think Japanese strength, 0:08:02.920 --> 0:08:05.680 Japanese end strength is ultimately going to pressure in the 0:08:05.720 --> 0:08:09.000 b O J to potentially cutting rates. Are certainly trying 0:08:09.040 --> 0:08:12.160 to implement some form of easing under a no deal brexit. 0:08:12.200 --> 0:08:14.480 Are expecting two more rate cuts from the Bank of England. 0:08:14.960 --> 0:08:18.320 So you know, all of this, it's not a particularly 0:08:18.400 --> 0:08:21.520 positive backdrop for suggesting we've seen a turn in yields. 0:08:21.560 --> 0:08:23.120 We've got a lot to strip out there. Let's start 0:08:23.120 --> 0:08:25.840 with the c P and the decision on Thursday. Are 0:08:25.880 --> 0:08:29.080 you expecting what has been described as the full package, 0:08:29.160 --> 0:08:31.400 the right cut, the tearing, the QUI, the whole lot. 0:08:32.800 --> 0:08:36.520 Well again, yes, but I think this comes into why 0:08:36.600 --> 0:08:39.760 we're seeing the correction in yields because quite clearly there's 0:08:39.800 --> 0:08:43.560 been a very concerted effort amongst e c B Council 0:08:43.640 --> 0:08:48.160 members to shift the expectations in terms of the scale 0:08:48.200 --> 0:08:51.680 of that package, and in particular, perhaps the quantitative easing 0:08:51.720 --> 0:08:54.440 is where there is some division in relation to the 0:08:54.440 --> 0:08:56.360 scale of that. So perhaps that's going to come out 0:08:56.360 --> 0:08:59.240 at the low end of the scale twenty billion per 0:08:59.280 --> 0:09:02.199 month something like, but no indication of a change in 0:09:02.240 --> 0:09:06.400 the issuance limits that would kind of curtail the scale 0:09:06.400 --> 0:09:09.840 of the program. So you know, some potential disappointment perhaps 0:09:09.840 --> 0:09:13.280 on that, but you know, ultimately it's not going to 0:09:13.360 --> 0:09:16.520 make a huge difference beyond the short term momentum. Do 0:09:16.600 --> 0:09:18.560 they have a partition in the United States? Here as 0:09:18.559 --> 0:09:22.599 the US talks about trade war, manufacturing goods, disinflation, deflation, 0:09:23.040 --> 0:09:25.760 and then there's a buoyant service sector that Vice Chairman 0:09:25.800 --> 0:09:28.800 Clarator would say is solid. Great, I get that, Maybe 0:09:28.840 --> 0:09:31.640 the aggregate solid as well. That's a debate. Is the 0:09:31.640 --> 0:09:34.360 EU structure that way as well or is it just 0:09:34.720 --> 0:09:39.680 some no recession environment forget about the service sector goods 0:09:39.679 --> 0:09:43.840 trade war partition? Well, you know, the one positive that 0:09:44.320 --> 0:09:49.280 is still more or less evident in Europe is that 0:09:49.480 --> 0:09:55.800 outside of the external related economic indicators, there has been 0:09:56.360 --> 0:09:59.640 U positive data. And by that I mean and we 0:09:59.679 --> 0:10:02.480 mentioned it earlier in terms of the German labor market, 0:10:02.640 --> 0:10:04.880 but if you look at some of the domestic demand 0:10:06.080 --> 0:10:10.240 elements across Europe, the labor market is still supporting domestic 0:10:10.240 --> 0:10:12.920 demand to a degree. The problem is though, that of course, 0:10:12.960 --> 0:10:17.480 the longer the external certainties last, the greater the risk 0:10:17.520 --> 0:10:21.240 is filtering ECB delay. I mean, Farrell spend to Frankfurt 0:10:21.320 --> 0:10:24.160 like forty two times. He's he's never had a lunch. 0:10:24.160 --> 0:10:27.199 They're shorter than three hours. Well, I struggle to find 0:10:27.200 --> 0:10:30.840 a restaurant in Frankfurt's have lunch in because people having 0:10:30.920 --> 0:10:33.600 lunches for three hours. But John, I mean, I mean, 0:10:33.600 --> 0:10:35.800 why don't they just delay? I mean, there's no debate 0:10:35.840 --> 0:10:38.600 here about the ECB delaying. The whole debate has been 0:10:38.640 --> 0:10:40.880 hijacked by the counter effect. You're not just at the ECB. 0:10:41.040 --> 0:10:45.280 But the problems have to remember inflation, Like, they have 0:10:45.400 --> 0:10:48.880 one single mandate and they are missing it pretty badly. 0:10:49.880 --> 0:10:52.560 They are, and if they don't move. I think the 0:10:52.600 --> 0:10:54.560 fear that they have is the fit the FED shares 0:10:54.640 --> 0:10:58.200 is that financial conditions titan, the idea being ultimately that 0:10:58.240 --> 0:11:00.440 if you move again, you're not going to loosen them 0:11:00.440 --> 0:11:02.880 a whole lot more given that where spreads are at 0:11:02.880 --> 0:11:04.960 the moment, given where credit is trading, But if you 0:11:05.040 --> 0:11:08.000 don't move, you could have the opposite reaction, and then 0:11:08.000 --> 0:11:09.840 you've got a much bigger problem. I guess is that 0:11:09.880 --> 0:11:11.560 the logic is that the thinking do you think on 0:11:11.559 --> 0:11:15.040 the Governing Council at the moment, yes, to a degree. 0:11:15.080 --> 0:11:18.520 You know, again there their hands are tied to an 0:11:18.559 --> 0:11:20.640 extent in terms that they have a legal mandate, and 0:11:20.679 --> 0:11:23.800 if they continue to show forecasts that are moving in 0:11:23.880 --> 0:11:26.640 the opposite direction, and of course the five year five 0:11:26.679 --> 0:11:30.200 year inflation is showing, you know, record low levels, so 0:11:30.400 --> 0:11:34.120 you know that's that's where they're and is forced. But ultimately, 0:11:34.480 --> 0:11:37.000 you know, we all know we're reaching the end of 0:11:37.120 --> 0:11:40.440 the kind of scale of monetaries and that can be implemented. 0:11:40.840 --> 0:11:43.720 And as I said earlier to Tom, the pressure on 0:11:44.320 --> 0:11:46.840 a new course of action is going to increase considerably. 0:11:46.880 --> 0:11:50.439 And we have a new political landscape emerging in Europe 0:11:50.600 --> 0:11:52.880 and the Mercal is leaving, we have new commission in 0:11:53.200 --> 0:11:56.480 the U, a new ECB president. There's got to be 0:11:56.520 --> 0:11:59.800 a change in direction towards fiscal stimulus on a concerted 0:12:00.160 --> 0:12:02.600 and I've been so busy this morning, John I I 0:12:02.720 --> 0:12:04.800 just brought this chart up. I saw it and the 0:12:04.880 --> 0:12:09.160 bloomberg on the Great Jay screen they have. The plunge 0:12:09.480 --> 0:12:14.800 in Swedish inflation is jaw dropping, I mean plunge. There's 0:12:14.920 --> 0:12:17.840 almost no equivalent going back ten years, despite the fact 0:12:17.840 --> 0:12:20.600 that ricks Bank has been pretty aggressive as well. Derek, 0:12:20.679 --> 0:12:23.200 what's interesting from a foreign exchange perspective, and I'd love 0:12:23.240 --> 0:12:25.960 your insight just around out the conversation, is that we 0:12:26.040 --> 0:12:30.199 have seen spreads, the rate differentials between say the United 0:12:30.240 --> 0:12:33.320 States and Europe narrow at the same time we've seen 0:12:33.360 --> 0:12:35.599 a weaker euro. We've seen euro dollar break down a 0:12:35.640 --> 0:12:37.920 little bit. That's not what some people would expect just 0:12:38.000 --> 0:12:40.400 with f X one oh one, look at rate differentials, 0:12:40.440 --> 0:12:43.280 look at currencies. That's not really worked for a while, 0:12:43.320 --> 0:12:46.240 has it with a single currency? Why not? Derek? Well, 0:12:46.280 --> 0:12:50.200 I think we've we've we've reached extremes, and you know, 0:12:50.280 --> 0:12:55.040 the markets are I think to a degree acknowledging that 0:12:55.120 --> 0:12:58.160 we've reached the zero bound. And while yeah, okay, we 0:12:58.160 --> 0:13:01.679 can get tann basis points to any basis points, the 0:13:02.120 --> 0:13:06.800 what's being priced in is the quantitative easing component of that, 0:13:07.720 --> 0:13:10.240 which doesn't filter through into the right spreads to the 0:13:10.280 --> 0:13:12.760 same degree because of course we're at the lower band 0:13:12.760 --> 0:13:15.840 and you're getting less traction. But it doesn't then tie 0:13:15.920 --> 0:13:20.000 with euro because of those curtailments in relation to what 0:13:20.040 --> 0:13:24.440 the ECP can do. Uh you know. But again you 0:13:24.440 --> 0:13:31.040 can go back to euro euro rallied to one and 0:13:31.520 --> 0:13:34.480 it had nothing to do with spreads. So when you 0:13:34.559 --> 0:13:37.480 reach extremes you can have you can have moves and 0:13:37.520 --> 0:13:42.520 with intert the FED and focus as well, their reluctance 0:13:42.600 --> 0:13:45.920 to act more aggressively is helping to keep the dollar support. 0:13:45.960 --> 0:13:48.000 This has been a wonderful conversation, Derek. Help on you 0:13:48.120 --> 0:13:51.560 visiting in New York ahead of Global Research. I don't 0:13:51.559 --> 0:13:53.760 know what's your title. This week had a Global Research 0:13:53.840 --> 0:13:57.040 in charge of Premier League nails. Are you over your 0:13:57.040 --> 0:14:01.920 interviewing for NBC Sports for Premier A happy to be 0:14:02.000 --> 0:14:04.760 here and not if it's talking about Arsenal, I would 0:14:04.840 --> 0:14:07.400 I would happily do that. They look good against the Tots. 0:14:07.440 --> 0:14:10.959 They deserve to beat the top that he called spurs 0:14:11.000 --> 0:14:14.880 the Tarts. He said, but I watched were you at 0:14:14.920 --> 0:14:17.760 the game? The game with my two boys? I thought 0:14:17.840 --> 0:14:20.680 I saw you. You know, we can't afford his seats. 0:14:20.800 --> 0:14:23.920 I mean they're like and they're close. You know, we 0:14:23.960 --> 0:14:26.320 need to get you to a game this season. Yeah, 0:14:26.520 --> 0:14:30.640 they catch when when? When when the election? When they 0:14:30.680 --> 0:14:36.320 finally call it gets Arsenal, it's a derby. It's not 0:14:36.400 --> 0:14:39.920 a derby. It's a derby derby. Arsenal looked really good. 0:14:39.920 --> 0:14:41.760 And I got the idea where the experts are saying 0:14:41.800 --> 0:14:43.640 they got three guys up front there they're so good 0:14:43.640 --> 0:14:47.720 that it changes everyone that got three thirty seconds blow 0:14:47.800 --> 0:14:53.720 the brake rich football. They've got three good upfronts. The 0:14:53.800 --> 0:14:58.400 defenses the problem uh in the league. See how he 0:14:58.440 --> 0:15:00.840 gets gage. He doesn't talk about you're all yeng like 0:15:00.960 --> 0:15:05.880 this John. I know he can totally engage about his gunners, 0:15:05.880 --> 0:15:09.800 his gunners. I didn't know that Arsenal gunners. You like that? 0:15:24.760 --> 0:15:27.840 So we bringing George sara Velos, bringing George serious research 0:15:28.200 --> 0:15:31.360 of Deutsche Bank Global head of Foreign Exchange Research, going 0:15:31.400 --> 0:15:34.120 into a really interesting way tomorrow, pp I data from 0:15:34.120 --> 0:15:37.680 the United States Thursday, CPI retail sales Friday, and an 0:15:37.680 --> 0:15:40.640 ECP rate decision TOMPs somewhere in between. Coming up on 0:15:40.680 --> 0:15:42.840 Thursday with a news conference with President Runkie. It is 0:15:42.880 --> 0:15:45.800 a really sizeable week ahead, sizable week ahead in the 0:15:46.000 --> 0:15:49.920 George in your research note, you've got all in trade 0:15:49.960 --> 0:15:54.200 weighted price adjusted dollar. Why do you have price adjusted 0:15:54.280 --> 0:16:00.320 dollar in your note? With the news slow that's coming up? Well, 0:16:00.360 --> 0:16:02.720 as you say, Thursday is a really big day for 0:16:02.760 --> 0:16:06.240 the markets in terms of the ECB, So all the 0:16:06.280 --> 0:16:09.160 focus will be on the euro, but at least as 0:16:09.160 --> 0:16:11.760 far as the US administration goes, I think they're focused 0:16:11.800 --> 0:16:14.120 on broader measures and what dollar China has been doing, 0:16:14.800 --> 0:16:17.560 and on that front, obviously they move through seven over 0:16:17.600 --> 0:16:20.480 the summer has picked up attention. What was interesting in 0:16:20.520 --> 0:16:23.280 August is that we saw a new bill submitted in 0:16:23.320 --> 0:16:26.840 the Senate that was bipartisan talking about the FED now 0:16:26.880 --> 0:16:29.200 given a mandate to weaken the dollar and to start 0:16:29.240 --> 0:16:33.960 taxing capital inflows. So m Thursday will be all about Europe, 0:16:34.040 --> 0:16:36.400 but I think as we go into the end of 0:16:36.440 --> 0:16:39.520 the year and inter next the focus back into the 0:16:39.600 --> 0:16:43.600 US and the presidential election. In John, your your summary 0:16:43.640 --> 0:16:46.640 of the news events of partial differentials, is it about 0:16:46.960 --> 0:16:51.280 euros stronger weaker or is it about something else stronger weaker? 0:16:51.320 --> 0:16:53.040 Compared to you, Well, the elephant in the room right 0:16:53.080 --> 0:16:55.080 now is China and the Chinese currency. I think kit 0:16:55.160 --> 0:16:56.800 Juice of Solf John has done a great job of 0:16:56.920 --> 0:16:59.320 banging the drum on this, hammering home the idea that 0:16:59.480 --> 0:17:02.920 the biggest waiting in the trade weighted X basket of 0:17:03.000 --> 0:17:04.720 the e C B is the Chinese currency, and the 0:17:04.760 --> 0:17:08.119 second biggest waiting in the trade weighted fex basket of 0:17:08.200 --> 0:17:11.320 the FED is the Chinese currency. George, just how important 0:17:11.359 --> 0:17:14.840 is that currency move in the Chinese currency for the 0:17:14.920 --> 0:17:17.200 majors like the Euro, like the Dollar, for the FED 0:17:17.240 --> 0:17:22.040 and the e C big Well, it's absolutely critical. And 0:17:22.240 --> 0:17:25.439 for me, the biggest events of the summer has actually 0:17:25.480 --> 0:17:30.000 been just how successful the Chinese have been in managing 0:17:30.040 --> 0:17:32.800 this move through seven. So there was a large fear 0:17:32.840 --> 0:17:35.320 in the market that could be disorderly. You could see 0:17:36.000 --> 0:17:40.160 reserve depletion, large capital outflows, and none of this have materialized. 0:17:40.200 --> 0:17:43.600 That the Chinese have been very, very successful in achieving 0:17:43.600 --> 0:17:47.119 a weaker currency, but not by more than what they want. 0:17:47.520 --> 0:17:49.879 So in that sense, that's been a major positive for 0:17:49.920 --> 0:17:51.720 the market, the fact that we were able to move 0:17:51.760 --> 0:17:54.760 through that seven level over the summer, and I think 0:17:54.800 --> 0:17:57.880 we come in September and the market is potentially looking 0:17:57.920 --> 0:18:00.480 a bit more optimistic, and I do think that control 0:18:00.960 --> 0:18:04.119 the Chinese have over the currency makes the light of 0:18:04.200 --> 0:18:06.919 the ECB and the FED just a little bit easier 0:18:07.200 --> 0:18:09.840 or surveillance. Let's use Euro just as one benchmark to 0:18:09.880 --> 0:18:12.040 begin a set of calls. What is your call on 0:18:12.280 --> 0:18:16.040 Euro twelve months out? Given the cacophony, have we come 0:18:16.080 --> 0:18:19.639 out of this summer? Well, we think it will move 0:18:19.720 --> 0:18:22.320 back above one twenties, So we think we will see 0:18:22.359 --> 0:18:26.520 the low in Q four. And there's two sides to 0:18:26.600 --> 0:18:30.439 that coin. The first one is European. The ECB at 0:18:30.440 --> 0:18:33.960 the moment, I think is losing relevant. The meeting this week, 0:18:34.000 --> 0:18:36.160 I think we'll be remembered as the last meeting where 0:18:36.160 --> 0:18:38.800 they can really deliver anything. And we're at a point 0:18:38.840 --> 0:18:42.040 for the ECB where less is more. So if they 0:18:42.160 --> 0:18:45.800 over deliver, the rook is financial conditions, Titan Bank stock 0:18:45.920 --> 0:18:49.600 drop and be precided because the CB can't deliver that much. 0:18:50.600 --> 0:18:53.680 The Euro, I think we'll struggle to weaken and then 0:18:53.720 --> 0:18:55.439 we go onto the U S story, which is the 0:18:55.440 --> 0:18:58.240 other side of the coin um. First, of course, the 0:18:58.240 --> 0:19:00.520 FED can cut a lot more. We say, if the 0:19:00.600 --> 0:19:02.760 FED cuts through one percent, that's going to be a 0:19:02.800 --> 0:19:06.800 big turn to the dollar. And secondly, the US presidential 0:19:06.800 --> 0:19:09.639 election next year, you have all sorts of policies being 0:19:09.640 --> 0:19:12.879 flown around which may potentially have a negative impact on 0:19:12.960 --> 0:19:15.960 confidence on capex, and I think that would be a 0:19:16.000 --> 0:19:19.359 negative driver dollar as well. John, What does Germany do 0:19:19.440 --> 0:19:22.119 with a one tw euro? What does it do to 0:19:22.160 --> 0:19:25.119 their automobile indust Given where autos are right now, it 0:19:25.160 --> 0:19:28.040 certainly doesn't help. George, looking at the euro and looking 0:19:28.040 --> 0:19:30.479 at the e c B, I sense you can gauge 0:19:30.520 --> 0:19:34.640 some kind of disappointment coming on Thursday. What does disappointment 0:19:34.760 --> 0:19:37.240 look like? What does that look like this Thursday with 0:19:37.280 --> 0:19:42.040 President drag Well, that's a great question, John, in terms 0:19:42.119 --> 0:19:46.360 of what disappointment means, because I would argue that, for instance, 0:19:46.400 --> 0:19:49.120 if they over deliver on QUI, if they push fun 0:19:49.200 --> 0:19:52.359 yields even lower. While that might be delivering on the 0:19:52.440 --> 0:19:55.640 rate side, it might not be so good for bank 0:19:55.680 --> 0:19:59.359 stocks and equities precisely because we're at the so called 0:19:59.720 --> 0:20:03.080 rever petal rate. So yes, I do think there may 0:20:03.080 --> 0:20:06.280 be a disappointment as far as q egos yields may 0:20:06.280 --> 0:20:08.840 move higher, but I don't think it will be disappointment 0:20:08.840 --> 0:20:11.480 in the conventional sense. In that you might actually see 0:20:11.480 --> 0:20:14.959 the market like such a reaction. So the key metric 0:20:15.040 --> 0:20:18.560 for me is really how inflation break evens behave and 0:20:18.600 --> 0:20:21.760 how bank stocks behave, and if you end up moving higher, 0:20:22.119 --> 0:20:24.600 I wouldn't call that an ECP disappointment, even if when 0:20:24.640 --> 0:20:27.040 yields move up. George, let's just talk about afraid to 0:20:27.160 --> 0:20:29.320 use their the reversal rate. It's something that's getting a 0:20:29.359 --> 0:20:32.160 whole lot more debate and discussion over the last few 0:20:32.160 --> 0:20:34.520 weeks coming into the CCP rate decision. Just walk us 0:20:34.520 --> 0:20:37.359 through that concept and why it's so important for the 0:20:37.440 --> 0:20:38.919 likes of the e CP and the likes of the 0:20:38.920 --> 0:20:44.240 b J to consider. Well, it's absolutely critical. And the 0:20:44.280 --> 0:20:47.800 reversal rate is the level at which beyond which if 0:20:47.840 --> 0:20:50.800 you start easing policy ends up having the opposite effect 0:20:51.200 --> 0:20:53.320 of what you need. So we saw that with the 0:20:53.359 --> 0:20:55.679 back of Japan when the ease policy a couple of 0:20:56.040 --> 0:20:59.000 years ago they went through negative banks had a very 0:20:59.040 --> 0:21:03.280 negative reaction. We're seeing it in Europe. The correlation between 0:21:03.520 --> 0:21:07.040 banks and yields used to be a negative one, so 0:21:07.320 --> 0:21:10.080 yields lower. Banks used to like that, but now that 0:21:10.200 --> 0:21:13.560 switched and yields going on, banks don't like that. Anymore. 0:21:13.800 --> 0:21:15.840 And I think we've reached this moment of truth for 0:21:15.920 --> 0:21:18.880 the ECB where they can't really do much. And it's 0:21:18.920 --> 0:21:21.360 something that looks acknowledged a few days ago as well. 0:21:21.440 --> 0:21:23.199 Are we going to have an e c B or 0:21:23.240 --> 0:21:28.080 anybody else buying Apple shares or Amazon shares or Semen 0:21:28.200 --> 0:21:30.640 shares or you know, name the German company. I mean, 0:21:31.160 --> 0:21:33.159 do they have to get really creative here? All know 0:21:33.280 --> 0:21:37.959 what the Japanese did. I think that is a possibility 0:21:38.040 --> 0:21:41.960 and drag you may talk up these options potentially including 0:21:42.000 --> 0:21:46.920 purchasing senior bank um senior bank bonds as well. These 0:21:46.960 --> 0:21:51.880 are quasi fiscal type policies which involved greater redistribution. However, 0:21:52.040 --> 0:21:54.680 it's quite a dangerous route to go down in that 0:21:55.359 --> 0:21:59.280 once the ECB starts, for instance, buying starting to push 0:21:59.359 --> 0:22:03.200 push as a values of wealthy people, um, it creates 0:22:03.359 --> 0:22:07.399 very negative redistribution effect. And then want to ask the question, 0:22:07.400 --> 0:22:10.040 why not do helicopter money? Why not give money to 0:22:10.080 --> 0:22:13.480 poor people directly rather than buying equities. And that's a 0:22:13.520 --> 0:22:16.639