WEBVTT - Equities Pull Back as Bonds Signal Warnings 0:00:02.520 --> 0:00:13.760 Bloomberg Audio Studios, podcasts, radio news. This is the Bloomberg 0:00:13.840 --> 0:00:17.920 Surveillance Podcast. Catch us live weekdays at seven am Eastern 0:00:18.200 --> 0:00:22.000 on Apple CarPlay or Android Auto with the Bloomberg Business App. 0:00:22.360 --> 0:00:25.680 Listen on demand wherever you get your podcasts, or watch 0:00:25.760 --> 0:00:27.040 us live on YouTube. 0:00:27.440 --> 0:00:30.720 Joining us now we start struggling. A really wonderful Friday 0:00:30.760 --> 0:00:34.159 with Sebastian Page had a global multi asset share of 0:00:34.159 --> 0:00:38.600 Asset Allocation Steering Committee. Tro Price acclaimed author the best 0:00:38.600 --> 0:00:41.960 book on diversification I've seen in his new book is 0:00:42.040 --> 0:00:46.240 out as well, The Psychology of Leadership. I want to 0:00:46.240 --> 0:00:49.560 go to Jain's Nordvik. Damien came walking and screaming about 0:00:49.560 --> 0:00:53.880 with exante data and the single sentence from ends into 0:00:53.880 --> 0:00:59.040 the weekend is strategic shifts are in motion. What's in 0:00:59.120 --> 0:01:00.680 motions page? 0:01:01.320 --> 0:01:03.720 You know, the last forty eight hours, it's about the 0:01:03.880 --> 0:01:08.240 thirty year bond and it's gone up above five percent. 0:01:09.160 --> 0:01:12.440 I think that's a lot of hoopla about not much. 0:01:12.600 --> 0:01:14.520 If I look at the long run chart, you know, 0:01:14.600 --> 0:01:17.840 like Damien, it's a long weekend. I'm actually looking at 0:01:17.920 --> 0:01:19.280 charts and I'm interested. 0:01:19.440 --> 0:01:20.080 If look at the. 0:01:20.000 --> 0:01:22.559 Long run chart of the thirty year yield, it's actually 0:01:22.600 --> 0:01:24.400 not that far from five percent. 0:01:24.360 --> 0:01:25.920 Right, Well, I mean look for me, I think Ira 0:01:26.040 --> 0:01:28.240 Josie said it best our us SO chief rate strategist. 0:01:28.280 --> 0:01:30.440 He said, you know, the mark to market loss of 0:01:30.440 --> 0:01:32.680 putting a negative carried position on the thirty year. I mean, 0:01:32.680 --> 0:01:34.280 if you think thirty years are going to go up 0:01:34.280 --> 0:01:36.360 on austerity or whatever you're you know, whatever you're thinking. 0:01:36.640 --> 0:01:39.000 You know, it's just it's not a profitable prese mean, 0:01:39.319 --> 0:01:40.040 the negative tract. 0:01:40.360 --> 0:01:43.920 This is great, But the real issue is why is 0:01:44.000 --> 0:01:48.400 the dollar tanking? You know, on the what does trow 0:01:48.480 --> 0:01:51.640 price say about a new structural week dollar? 0:01:52.240 --> 0:01:55.360 So short term on our platform, we're C two on 0:01:55.440 --> 0:01:58.760 the dollars. C two means we're actually bullish short term 0:01:58.760 --> 0:02:01.480 on the dollar. But Tom, this is the question of 0:02:01.520 --> 0:02:04.520 the hour because if you look at April right by 0:02:04.560 --> 0:02:06.800 the way, the stock market was flat in April, or 0:02:06.840 --> 0:02:09.320 close to flat, if you can believe it, despite what 0:02:09.400 --> 0:02:11.519 happened during the month. But if you look at what's 0:02:11.560 --> 0:02:15.440 been happening with the dollar, it's unusual. Because economic theory 0:02:15.480 --> 0:02:18.600 will tell you when you put tariffs on the best 0:02:18.639 --> 0:02:22.560 way for the exporting country to offset them is to 0:02:22.639 --> 0:02:25.440 devalue their currency, so you cheapen their goods to make 0:02:25.480 --> 0:02:27.400 up for the tariff that is paid at the quarter. 0:02:27.760 --> 0:02:29.920 The market work, and for a while it looked like 0:02:30.000 --> 0:02:32.680 economic theory was working and the dollar should be stronger. 0:02:33.040 --> 0:02:36.400 But then it's not behaving that way. And second thing 0:02:36.560 --> 0:02:39.480 is even in the middle of selloffs I think April, third, 0:02:39.520 --> 0:02:43.000 and fourth and huge market volatility, as Tom would say, 0:02:43.040 --> 0:02:46.400 you know on the Vick spikes, Well the dollar was 0:02:46.440 --> 0:02:50.279 not necessarily the safe haven in all this volatility. 0:02:50.320 --> 0:02:52.480 Well, Tom, I'm disappointed, and I'll tell you why, because 0:02:52.480 --> 0:02:54.520 Sebastian came in this morning and it didn't bring in 0:02:54.760 --> 0:02:58.400 LinkedIn sensation daughter Olivia, and you know, I'm disappointed that 0:02:58.400 --> 0:02:59.639 she's not here, by the way, I know it's early. 0:02:59.639 --> 0:03:02.160 First sherobably a school, but you know, Sebastian, you're going 0:03:02.240 --> 0:03:04.000 to probably take Olivia to Europe. And I know one 0:03:04.000 --> 0:03:06.400 of your trade calls right now is you're bullish on 0:03:06.480 --> 0:03:09.519 international act I'm sorry, really European equities, let's be clear here, 0:03:09.639 --> 0:03:11.960 and it's not because of the value component there. It's 0:03:12.000 --> 0:03:13.880 because of the momentum of the dollar cell off. 0:03:14.000 --> 0:03:15.240 So talk to us a little bit about that. 0:03:15.320 --> 0:03:17.320 On a month of a month or quarter of Is 0:03:17.880 --> 0:03:20.800 there some longevity to the styllar weakness on a quarter 0:03:20.800 --> 0:03:21.880 of a quarter basis. 0:03:21.560 --> 0:03:24.400 Here Damien love that question. Love even more of the 0:03:24.440 --> 0:03:26.880 reference to our financial education video that I've been doing 0:03:26.880 --> 0:03:30.359 with my daughter. They're all over LinkedIn loving have a look. 0:03:30.400 --> 0:03:33.360 She's really interested about compound interests. By the way, behind 0:03:33.400 --> 0:03:36.120 the scenes, she still wants to spend more than she 0:03:36.240 --> 0:03:40.400 probably should. Look on Europe, we're long European equities. I 0:03:40.400 --> 0:03:44.000 think this is a shorter term view for US six 0:03:44.040 --> 0:03:47.720 to twelve months. Longer term. We're not in the camp. 0:03:47.800 --> 0:03:49.920 I'm not in the camp of this is the end 0:03:50.000 --> 0:03:54.000 of US exceptionalism. US tech is a force to. 0:03:53.960 --> 0:03:54.600 Be reckoned with. 0:03:55.040 --> 0:03:59.440 But right now there's still a valuation advantage for European equities, 0:03:59.480 --> 0:04:03.279 even if you neutralize the sector effect. You have stimulus, 0:04:03.320 --> 0:04:05.920 you have dovish central banks. You have a banking sector 0:04:06.000 --> 0:04:08.040 that's doing pretty well now they've escaped. 0:04:09.200 --> 0:04:12.800 What kind of European stocks I mean, are we buying 0:04:12.880 --> 0:04:15.200 Nesle or we buying BMP Perry book. 0:04:15.200 --> 0:04:19.400 So our stock pickers those that implement our slcation strategy, 0:04:19.640 --> 0:04:24.200 like industrial healthcare and banks that banks are at one 0:04:24.320 --> 0:04:27.800 time book one times book value. Before the financial crisis 0:04:28.080 --> 0:04:31.360 in Europe there were two times book value. They struggled 0:04:31.400 --> 0:04:35.120 limping out of the financial crisis and with negative interest rates, 0:04:35.160 --> 0:04:37.880 that's not good for banks. Now we're in a positive 0:04:37.920 --> 0:04:41.920 interest rate environment, they're still trending around one times book value. 0:04:41.960 --> 0:04:42.560 So we like those. 0:04:42.560 --> 0:04:44.400 So, Tom, you see what Impassion's done here. He's taken 0:04:44.480 --> 0:04:47.040 what is effectively a value call, but he's wrapped it 0:04:47.120 --> 0:04:49.440 up in a big fat momentum swing here in euro dollargy. 0:04:49.520 --> 0:04:51.560 I agree that right back to what you were saying, 0:04:51.600 --> 0:04:54.080 I mean, it's a huge gamble about the momentum. 0:04:54.120 --> 0:04:55.760 I mean it's it's not right now. I mean, look 0:04:55.800 --> 0:04:57.839 at the euro relative to and by the way, I 0:04:57.880 --> 0:05:00.040 mean it's on the i of the beholder, right. And 0:05:00.080 --> 0:05:02.960 if you look at emerging market currencies, for example, nineteen 0:05:03.000 --> 0:05:04.640 of twenty one of our versus you know, the dollar 0:05:04.720 --> 0:05:07.280 this year, but only three are up versus the Euro 0:05:07.440 --> 0:05:10.320 this year, So you're really leaning into the factor, at 0:05:10.400 --> 0:05:12.520 least you know your your currency strategist are leaning into 0:05:12.560 --> 0:05:14.120 the fact that you know there may be a little 0:05:14.160 --> 0:05:17.120 bit of like again, some legs to this euro strength here, 0:05:17.400 --> 0:05:19.120 just because it's the best of the of the rest. 0:05:19.160 --> 0:05:22.400 I guess well Themian Bloomberg Surveillance Radio is the only 0:05:22.440 --> 0:05:25.160 show where I can get a little bit more quantitative 0:05:25.200 --> 0:05:29.280 and theoretical. That's why Tom is my absolute favorite host 0:05:29.320 --> 0:05:30.000 and anchor. 0:05:30.279 --> 0:05:32.320 Are okay you non linear right now? 0:05:32.480 --> 0:05:36.440 Well, a lot of things are nonlinear in markets. Markets 0:05:36.480 --> 0:05:39.400 are more nonlinear than they've been historically. If you look 0:05:39.440 --> 0:05:41.640 at tails on both sides, the left side and the 0:05:41.720 --> 0:05:43.920 right side, positive and negative. But what it's going to 0:05:43.960 --> 0:05:48.920 say is valuation and momentum when they align together. Yes, 0:05:49.400 --> 0:05:53.960 historically that is a much stronger signal than either signal 0:05:54.040 --> 0:05:58.200 working alone, and that's been studied across markets. 0:05:58.240 --> 0:06:01.200 We welcome all of you across the nation. Good morning 0:06:01.279 --> 0:06:04.599 on Serious XM. I was lectured, did an event with Pimco. 0:06:04.800 --> 0:06:08.520 It's a small startup money on the West coast. Sebastian 0:06:08.560 --> 0:06:11.680 page of t row Price. How about those orioles that 0:06:11.839 --> 0:06:15.719 endorsements really working out this year? Anyways, folks, good morning 0:06:15.720 --> 0:06:20.080 across this Memorial Day nation. Damien Sassar and Time, can 0:06:20.160 --> 0:06:23.280 we welcome you. I can't say enough on a sleepy 0:06:23.279 --> 0:06:26.120 Friday as you get into the weekend, the markets are 0:06:26.120 --> 0:06:29.920 not sleepy the dollar dynamics right now are extraordinary. Berry 0:06:30.120 --> 0:06:32.800 King Green and Damien Sasa are in the eight o'clock 0:06:33.040 --> 0:06:36.640 hour that got Ducky bumps over that on YouTube. Subscribe 0:06:36.680 --> 0:06:40.040 to Bloomberg Podcasts. Thank you for that, just growing each 0:06:40.360 --> 0:06:43.160 in every day. Damien sas are to Sebastian. 0:06:42.680 --> 0:06:44.880 Page, well, I just think it's about growth expectations here 0:06:44.880 --> 0:06:46.800 in the US, right, I mean, they really are falling. 0:06:46.839 --> 0:06:48.800 I mean, and so you know, the question is how 0:06:48.839 --> 0:06:50.800 far do they go or how far before the FED 0:06:50.880 --> 0:06:52.719 catches up and wakes up to this. So I'm just 0:06:52.720 --> 0:06:55.000 curious to hear what you know. Your great expectations are 0:06:55.040 --> 0:06:57.599 for the great Fed expectations are sorry through the end 0:06:57.640 --> 0:06:59.680 of this year, but more importantly in the first half 0:06:59.720 --> 0:07:01.919 of now next year. It's just how deep do we 0:07:02.000 --> 0:07:03.599 think the terminal FED funds rate can go? 0:07:04.320 --> 0:07:07.719 You have to account for the possibility of an upside 0:07:07.720 --> 0:07:11.360 surprise and inflation when you answer that question. It's not 0:07:11.560 --> 0:07:14.080 just about growth. That's why it's tough to be the FED. 0:07:14.200 --> 0:07:16.520 Right now, that's right, I'm going to stop the show, folks. 0:07:16.600 --> 0:07:21.160 I'm interviewing Damian Sassar and Sebastian Page. Horse and cart 0:07:22.120 --> 0:07:26.680 does inflation go up as the cart because the horse 0:07:26.920 --> 0:07:30.600 is the dollar weaker, the debt and the deficit bigger. 0:07:31.080 --> 0:07:33.840 How's that sequence work to get higher inflation. 0:07:34.000 --> 0:07:36.000 Well, I'll hit that first, And it really comes down 0:07:36.040 --> 0:07:37.880 to whether the hard data catches up to the soft 0:07:37.960 --> 0:07:40.160 data and the resilience of the US economy and whether 0:07:40.240 --> 0:07:42.000 or not this can all play through. And I don't 0:07:42.000 --> 0:07:44.520 think we've really gotten a whiff of what a fourteen 0:07:44.520 --> 0:07:46.880 and a half percent effective tariff rate, because that's what 0:07:46.880 --> 0:07:48.960 we're talking about exxanthy right if you talk about China 0:07:49.200 --> 0:07:51.720 forty percent plus the sectoral and that's up. 0:07:51.600 --> 0:07:54.440 From two and a half percent from three to fourteen, right, right. 0:07:54.320 --> 0:07:56.080 So I mean like, I don't I don't know what 0:07:56.080 --> 0:07:57.520 that looks like, and I don't know what this US 0:07:57.560 --> 0:08:00.040 economy looks like in that environment, and so what the 0:08:00.040 --> 0:08:02.480 market I guess if I had to get asymmetric on you, 0:08:02.840 --> 0:08:04.880 I think the asymmetry is to deeper cuts. 0:08:04.960 --> 0:08:05.920 You know when they do. 0:08:05.960 --> 0:08:09.840 Come Sebastian, Damian, Sebastian, I'll get they're both the great 0:08:10.000 --> 0:08:14.480 tie up in Quebec. Sebastian, when when I did Quebec 0:08:14.520 --> 0:08:17.200 go for Kearney, they sort of did. Didn't that Edmonton? 0:08:17.400 --> 0:08:22.440 They did? Good morning Prime Minister Kearney Sebastian. Very importantly 0:08:22.480 --> 0:08:27.120 here do the Americans get more inflation because of what 0:08:27.160 --> 0:08:30.280 we see now in currencies and with the Build Better 0:08:30.320 --> 0:08:32.480 America BBB bill and all. 0:08:32.520 --> 0:08:35.120 It's part of it on imports. So you're today we're 0:08:35.200 --> 0:08:38.000 running at two point four percent inflation. If you analyze 0:08:38.000 --> 0:08:40.559 the monthly prints, that's not too bad. The one year 0:08:40.640 --> 0:08:44.839 swap is looking at three point three. So the expectation 0:08:45.040 --> 0:08:47.560 is that inflation's coming up. I think there's a risk 0:08:47.640 --> 0:08:51.439 to the upside because of commodities. Some commodities are trending up, 0:08:52.640 --> 0:08:56.880 precious metals and soft commodities because of wages. 0:08:57.080 --> 0:08:59.080 About thirty three dollars. 0:08:58.559 --> 0:09:01.880 Just the towers alone, right, it's you know, you would 0:09:01.880 --> 0:09:03.760 know better than I. Just what is the impact of 0:09:03.800 --> 0:09:05.080 these terror I mean, what is it going to do 0:09:05.120 --> 0:09:08.120 to inflation? To prices here? I mean Walmart cost conounts, 0:09:08.160 --> 0:09:09.679 is earnings next week? I mean we're not going to 0:09:09.760 --> 0:09:11.400 get any look, but they're certainly going to, you know, 0:09:11.440 --> 0:09:12.920 talk around some of that stuff. And it's just going 0:09:12.960 --> 0:09:15.439 to be interesting to see you right in the especially 0:09:15.440 --> 0:09:17.200 the input prices I mean and you know, all that 0:09:17.240 --> 0:09:18.640 stuff is starting to trend to act. 0:09:18.679 --> 0:09:21.320 Okay, So Tom, this is like we're having our mini 0:09:21.360 --> 0:09:24.680 asset allocation committee here, because in our ass location committee 0:09:24.679 --> 0:09:27.000 we have bulls and bears, and we have debate, and 0:09:27.080 --> 0:09:30.000 now we're neutral or close to neutral between stocks and bonds. 0:09:30.000 --> 0:09:32.520 But now Damien is sounding a bit bearish here, so 0:09:32.679 --> 0:09:35.520 I'm going to give Devil's advocate the other side of it. 0:09:36.000 --> 0:09:40.240 Earnings growing thirteen percent this quarter relative to the same 0:09:40.280 --> 0:09:45.520 quarter last year. The FED more interested in cutting than hiking, 0:09:46.160 --> 0:09:48.960 and growth, yes, is slowing, but most of it is 0:09:48.960 --> 0:09:51.240 in the soft data. There's been a massive drop in 0:09:51.280 --> 0:09:53.400 the soft data. But if you want to look at 0:09:53.400 --> 0:09:56.720 one data point on hard data, I would look at claims, 0:09:56.880 --> 0:09:59.640 and claims are still in the low two hundreds. People 0:09:59.679 --> 0:10:01.520 are not getting fired, right. 0:10:02.200 --> 0:10:04.240 We've heard this this week. I really can't say enough, 0:10:04.280 --> 0:10:07.839 folks about the anecdote that we see that America is 0:10:07.960 --> 0:10:10.680 vibrant and busy. At least the upper third of people 0:10:10.760 --> 0:10:14.920 consuming is they can. There's a wonderful book out now, 0:10:15.000 --> 0:10:19.320 The Psychology of Leadership by Sebastian Page. This comes after 0:10:19.360 --> 0:10:22.840 his tour de force on All the Traps and pitfalls 0:10:23.240 --> 0:10:28.960 of diversification for parents at home falling apart because the 0:10:28.960 --> 0:10:31.920 Brady kids are getting ready for summer. What is the 0:10:32.000 --> 0:10:35.959 psychology of leadership for parents to get through this summer 0:10:36.240 --> 0:10:37.360 with teenagers? 0:10:37.640 --> 0:10:41.160 You know I have two teenagers, so that question hits home. 0:10:41.880 --> 0:10:45.520 Tom. I'll say to that question, I'll. 0:10:45.400 --> 0:10:49.679 Say this, people underestimate how important it is to have 0:10:49.800 --> 0:10:52.800 long term goals, to think long terms. And I think 0:10:52.800 --> 0:10:55.080 that applies to the younger. 0:10:55.200 --> 0:10:58.120 You got to give your kids the gift. 0:10:57.960 --> 0:11:00.880 Of long term, the long term goal and thinking long 0:11:00.960 --> 0:11:03.280 term and and guiding your actions day to day based 0:11:03.320 --> 0:11:04.840 on what you're trying to do long term. 0:11:04.920 --> 0:11:09.559 Is it okay that the older teenager walks in, says 0:11:09.600 --> 0:11:13.520 nothing and closes the bedroom door discuss. 0:11:13.240 --> 0:11:15.440 I mean, for me and my experiences, when you come 0:11:15.440 --> 0:11:17.560 down to the kitchen and your daughter's they're eating, and 0:11:17.600 --> 0:11:18.880 I say, oh, hey, what you eat and then she 0:11:18.920 --> 0:11:21.880 goes stop badgaming me and she just runs out the door. 0:11:21.920 --> 0:11:26.319 So I understand what you're talking about. And she's beautiful anyway, 0:11:26.360 --> 0:11:29.120 don't get me started. But we all have our experiences there. 0:11:29.160 --> 0:11:30.280 I think we have to take this back to the 0:11:30.360 --> 0:11:32.800 job market, because you make a really, really really good point. 0:11:32.960 --> 0:11:35.320 What will it takes a bashing page for payrolls to 0:11:35.320 --> 0:11:37.280 come off here in the US? I mean what I 0:11:37.320 --> 0:11:39.280 mean what and when? I mean like, when do you 0:11:39.400 --> 0:11:41.000 if it were going to happen and we had to 0:11:41.000 --> 0:11:43.439 play that scenario out, what should we be looking for? 0:11:43.480 --> 0:11:44.719 What are the first indicators there? 0:11:45.000 --> 0:11:49.760 So of the lagging labor market indicators, the least lagging 0:11:50.120 --> 0:11:53.400 is the claims. So I would look at claims and 0:11:53.559 --> 0:11:54.520 right now they're holding in. 0:11:54.559 --> 0:11:56.760 Do you have a statistic on claims? Was a tip point? 0:11:56.880 --> 0:11:58.240 Is it two sixty to eighty? 0:11:59.080 --> 0:12:01.680 Look the long run app riche on claims is three fifty. 0:12:01.840 --> 0:12:04.920 I know, so they can go higher. They can go higher, 0:12:04.960 --> 0:12:07.960 But that is potentially the least lagging of the lagging 0:12:08.040 --> 0:12:15.480 labor marketing. Edvans and oilers bullish on the Oilers, Sebastian 0:12:15.520 --> 0:12:17.960 page of Quebec and sure book, thank you so much. 0:12:18.000 --> 0:12:19.760 He is the t road price. 0:12:24.200 --> 0:12:27.800 You're listening to the Bloomberg Surveillance Podcast. Catch us live 0:12:27.880 --> 0:12:31.040 weekday afternoons from seven to ten am Eastern Listen on 0:12:31.120 --> 0:12:34.760 Applecarplay and Android Otto with the Bloomberg Business app, or 0:12:34.920 --> 0:12:36.440 watch us live on YouTube. 0:12:36.720 --> 0:12:40.760 Barry King Green at Berkeley Professor Ike and Green, thank 0:12:40.760 --> 0:12:44.680 you so much for joining Bloomberg this morning. Barry, I've 0:12:44.720 --> 0:12:47.560 got to go back to you start just staying in France, 0:12:48.000 --> 0:12:51.839 and you must read for any kid getting into the game. 0:12:52.400 --> 0:12:59.400 Exorbitant privilege is Donald Trump furtthering away. Our exorbitant privilege. 0:13:00.440 --> 0:13:05.640 Is I think the dollar has been tarnished significantly since 0:13:06.280 --> 0:13:11.439 Liberation Day. It's safe haven status is eroding more quickly 0:13:11.559 --> 0:13:14.640 than before. I've long thought that the dollar would have 0:13:14.679 --> 0:13:19.040 to share the international stage with other currencies. I didn't 0:13:19.040 --> 0:13:23.640 think that would that process would accelerate so grammatically this year. 0:13:24.120 --> 0:13:27.040 What is so important here, Barry, is a legacy back 0:13:27.080 --> 0:13:30.840 to the nineties of the unexpected. I was with you 0:13:30.920 --> 0:13:34.560 at a G seven meeting in Singapore, hugely historic, a 0:13:34.679 --> 0:13:39.000 lifetime ago. Then we were worried about the shadows in 0:13:39.040 --> 0:13:43.840 the unexpected. Now Here in twenty twenty five, what is 0:13:43.840 --> 0:13:48.360 the unexpected? You're studying at Berkeley. What's the surprise out 0:13:48.400 --> 0:13:51.520 there that concerns you well? 0:13:51.640 --> 0:13:54.920 I think that the markets have responded to the ninety 0:13:55.000 --> 0:13:59.320 day pause in the UK deal by thinking that the 0:13:59.480 --> 0:14:02.480 period of elevated uncertainty is over. And exactly as you 0:14:02.559 --> 0:14:06.320 said before, a few minutes ago. Tom, the uncertainty and 0:14:06.400 --> 0:14:10.240 the spike in the VIX continue. We haven't really seen 0:14:10.280 --> 0:14:15.280 that spill over into distress in financial markets, but I 0:14:15.280 --> 0:14:18.600 think that distress could be coming. I think what's happening 0:14:18.600 --> 0:14:23.840 in the cryptosphere could spill over and to mainstream financial markets. 0:14:23.880 --> 0:14:26.800 There's a lot to worry about that hasn't materialized yet. 0:14:27.000 --> 0:14:29.040 As very King Green looks at the long term, we 0:14:29.120 --> 0:14:32.360 must consider the data check is Professor Eiching Green states 0:14:32.360 --> 0:14:35.880 of vix's out now four big figures twenty four point 0:14:36.000 --> 0:14:40.120 five four, the SPX futures in negative ninety three now 0:14:40.280 --> 0:14:44.200 futures negative six twenty six, and dollars weaker. Barry a 0:14:44.280 --> 0:14:48.400 privileged to bring you, Damien SaaS Hour of Bloomberg Intelligence, 0:14:48.520 --> 0:14:54.200 truly expert on the interior dynamics of em currencies, Damien. 0:14:53.960 --> 0:14:58.840 Professor Eicken Green, you discussed this world of international capital mobility, 0:14:58.920 --> 0:15:01.000 and you know you talk about US its ability to 0:15:01.080 --> 0:15:03.800 run trade deficits in order to provide foreign reserves to 0:15:03.840 --> 0:15:06.560 the rest of the world. You know, just how much 0:15:06.640 --> 0:15:08.880 longer can it continue to do that? I mean, and 0:15:09.240 --> 0:15:13.520 what other currency might serve that role if the dollar 0:15:13.560 --> 0:15:15.640 is no longer you know, as you rightly point out, 0:15:15.640 --> 0:15:17.200 the world reserve currency. 0:15:18.000 --> 0:15:21.640 We're accelerating toward the cliff where the appetite for US 0:15:21.760 --> 0:15:25.080 free use abroad begins to cry up. I think we're 0:15:25.120 --> 0:15:29.080 already seeing hints of that in financial markets, at which 0:15:29.120 --> 0:15:32.320 point there will be a reluctance to acquire and hold 0:15:32.360 --> 0:15:36.160 and use dollars by secral banks and other investors around 0:15:36.160 --> 0:15:39.360 the world. But the answer to your second question, Damien, 0:15:40.120 --> 0:15:45.520 who can step up to provide that international liquidity if 0:15:45.560 --> 0:15:48.640 not the United States? The answer for the moment is 0:15:48.720 --> 0:15:53.280 no one. That there aren't enough high quality eurosecurities available 0:15:53.320 --> 0:15:56.320 to the rest of the world. China is still a 0:15:56.480 --> 0:16:01.680 small player financially, despite all the chatter about it growing role. 0:16:02.360 --> 0:16:05.800 Non traditional reserve currencies like the Aussie dollar and the 0:16:05.840 --> 0:16:08.840 Canadian dollar too small to make a difference. So I 0:16:08.880 --> 0:16:11.960 think we're staring down into the abyss of a global 0:16:11.960 --> 0:16:13.080 liquidity shortage. 0:16:13.200 --> 0:16:15.280 Professor I can Green. The dollar bulls would argue that 0:16:15.320 --> 0:16:17.840 the US military comes into play when you're thinking about 0:16:17.840 --> 0:16:20.200 the dollars reserve status. Talk to us about you know, 0:16:20.440 --> 0:16:22.640 the fact that the last seventy five years we've been 0:16:22.680 --> 0:16:25.000 free of war, there's been global financial security in the 0:16:25.000 --> 0:16:27.640 form of dollar reserve assets. Talk to us about the 0:16:27.720 --> 0:16:31.200 case for dollar bulls. Does it still hold up well? 0:16:31.920 --> 0:16:35.400 For the last seventy five years, our alliance partners have 0:16:36.240 --> 0:16:39.560 held and used dollars, partly as a show of thanks 0:16:39.560 --> 0:16:42.960 of goodwill, partly because they believe the US will be 0:16:43.000 --> 0:16:47.400 a reliable steward of their balances. Those alliances have been 0:16:47.400 --> 0:16:51.400 called into question. When and whether the US military will 0:16:51.440 --> 0:16:56.840 be deployed to defend our security partners is now up 0:16:56.920 --> 0:16:59.240 in the air, so is the appetite for dollars. 0:17:00.120 --> 0:17:02.920 Agreeing with us at Berkeley here on Global FX, I'm 0:17:02.920 --> 0:17:05.520 going to turn to the US debt and deficit here 0:17:06.080 --> 0:17:08.920 in a moment off of his iconic twenty twenty one 0:17:08.960 --> 0:17:12.119 book on our Public Debt. But Barry, first, I have 0:17:12.200 --> 0:17:13.800 to ask you, and I'm not going to say what's 0:17:13.840 --> 0:17:17.040 a question you would ask god Besson. It's far beneath 0:17:17.080 --> 0:17:20.200 you to act like a journalist. If you were at 0:17:20.200 --> 0:17:24.720 the White House today or at Treasury, if you were 0:17:24.800 --> 0:17:28.439 sitting there with a Secretary Treasury, what advice would you 0:17:28.600 --> 0:17:32.840 give him? Given the president that he serves well. 0:17:33.040 --> 0:17:36.720 Number one definitively takes some of the more hair brained 0:17:36.760 --> 0:17:41.720 ideas off the table, taxing foreign holdings of US securities. 0:17:42.200 --> 0:17:48.400 Number two get more serious about addressing the deficit problem, 0:17:48.400 --> 0:17:52.160 which is getting worse rather than better. And number three 0:17:52.760 --> 0:17:57.080 camp down the uncertainty around crede policy. 0:17:57.640 --> 0:18:01.720 The golden fetters, globalizing cap I love Hall of Mirrors, 0:18:01.760 --> 0:18:05.359 the Great Depression, Great Recession, and the uses and misuses 0:18:05.359 --> 0:18:08.159 of history. But the book very I can greed to 0:18:08.280 --> 0:18:12.480 stop me cold complete tangent. I thought in defense of 0:18:12.600 --> 0:18:18.879 public debt. Everyone of every political persuasion is apoplectic right now. 0:18:19.480 --> 0:18:23.960 It's the very log linear growth of our deficit and 0:18:24.000 --> 0:18:28.160 our debt. Are we becoming japan Like? Are we reaching 0:18:28.240 --> 0:18:32.600 a tipping point of too much debt, too much interest expense? 0:18:33.600 --> 0:18:36.199 Yes, the tipping point is coming. That book made the 0:18:36.240 --> 0:18:39.760 point that public debt can be useful in an emergency, 0:18:39.960 --> 0:18:43.840 in a financial crisis, in a war, in a pandemic, 0:18:43.880 --> 0:18:47.040 when you have to mobilize all available resources. But when 0:18:47.080 --> 0:18:51.320 the emergency passes, you want to restore the government's capacity 0:18:51.359 --> 0:18:55.760 to borrow in the future. And we did the first part. 0:18:55.840 --> 0:18:57.040 We did not do the second. 0:18:57.840 --> 0:19:01.240 Professor I can Green, my chief USA interest rate strategists, 0:19:01.640 --> 0:19:04.159 Ira Jersey, and we were just talking, and he discusses 0:19:04.240 --> 0:19:07.440 this new class of bond vigilantes that they're taking the reins, 0:19:07.440 --> 0:19:10.840 that they're rebuking fiscal large ass that the psychology of 0:19:10.920 --> 0:19:14.000 global government bond investors has shifted, and rather abruptly at that. 0:19:14.240 --> 0:19:15.160 What are your thoughts there? 0:19:16.720 --> 0:19:21.119 I think your interest rate strategists are exactly right. I 0:19:21.160 --> 0:19:25.719 think the US government has had a lot of leewaight 0:19:27.040 --> 0:19:31.720 incur debt to run deficits, the backdrop being that it 0:19:31.760 --> 0:19:37.080 is going to remain financially reliable and prudent in the 0:19:37.200 --> 0:19:41.399 longer run, and there is no evidence of the latter. 0:19:41.480 --> 0:19:45.399 There is no strategy for stabilizing the debt to GDP 0:19:45.600 --> 0:19:49.040 ratio and bringing down the deficits. So I think investors 0:19:49.119 --> 0:19:52.800 are really looking at treasuries in a very different way 0:19:52.840 --> 0:19:53.840 than they have in the past. 0:19:53.920 --> 0:19:56.080 Professor Aiki, We've got to move to the markets of 0:19:56.119 --> 0:19:58.679 folks who are blowing up the show. Given everything we see, 0:19:58.800 --> 0:20:01.040 I can grieve driving the vix out to a five 0:20:01.119 --> 0:20:04.879 handle twenty five point one four, the dowdown six hundred 0:20:04.880 --> 0:20:08.720 and thirty points. Barry Ike and Green and Ken Rogoff 0:20:08.760 --> 0:20:11.080 mentions you in my book of the Summer our dollar 0:20:11.680 --> 0:20:14.359 your problem. He mentions Ike and Green, like two thirds 0:20:14.359 --> 0:20:17.240 of the way through the book, where did our moral 0:20:17.440 --> 0:20:23.960 compass go, the calvinistic heritage of this nation to at 0:20:24.080 --> 0:20:28.600 least try to pay our bills in God's name? Barry, 0:20:28.640 --> 0:20:32.080 Ike and Green, where did that drift to? Well? 0:20:32.119 --> 0:20:36.520 I think it's drifted into the land of non facts, 0:20:36.720 --> 0:20:40.359 where everyone can any everyone can assert what they want 0:20:40.640 --> 0:20:45.840 about the state of the national finances. The Congressional Budget Office, 0:20:45.880 --> 0:20:51.040 which states the truth or the closest to reality we have, 0:20:51.320 --> 0:20:54.800 doesn't carry the weight on Capitol Hill or in the 0:20:54.840 --> 0:20:57.200 White House that it deserves that it should. 0:20:57.560 --> 0:20:59.480 Verry, I can mean honored to have you today. Thank 0:20:59.520 --> 0:21:02.080 you so much for joining Bloomberg, and we are fortunate 0:21:02.119 --> 0:21:05.200 to have you on this today of market crisis. Professor 0:21:05.240 --> 0:21:08.520 Eichingreen at the University of California at Berkeley. 0:21:08.920 --> 0:21:12.840 This is the Bloomberg Surveillance Podcast. Listen live each weekday 0:21:12.840 --> 0:21:15.880 starting at seven am Eastern on Apple Cocklay and Android 0:21:15.880 --> 0:21:18.920 Auto with the Bloomberg Business App. You can also listen 0:21:19.000 --> 0:21:22.280 live on Amazon Alexa from our flagship New York station. 0:21:22.840 --> 0:21:25.480 Just say Alexa play Bloomberg eleven thirty. 0:21:26.080 --> 0:21:29.479 We try to find a sense of calm with Emily Rowland. 0:21:29.560 --> 0:21:31.439 She agreed to come on if I wouldn't mention the 0:21:31.440 --> 0:21:34.600 Boston Red Sox, where thrilled she could join us from 0:21:34.640 --> 0:21:38.760 the John Hancock Company. This morning, Emily, the panic here 0:21:38.880 --> 0:21:42.800