WEBVTT - Surveillance: Economic Decisions Pulling us Apart, Krueger Says 0:00:00.040 --> 0:00:02.640 Who you put your trust in matters. Investors have put 0:00:02.680 --> 0:00:07.000 their trust and independent registered investment advisors to the two 0:00:07.040 --> 0:00:10.680 and four trillion dollars. Why learn more and find your 0:00:10.760 --> 0:00:26.360 independent advisor dot com. Welcome to the Bloomberg Surveillance Podcast. 0:00:26.760 --> 0:00:30.480 I'm Tom Keene with David Gura. Daily we bring you 0:00:30.520 --> 0:00:35.560 insight from the best in economics, finance, investment, and international relations. 0:00:35.960 --> 0:00:40.559 Find Bloomberg Surveillance on iTunes, SoundCloud, Bloomberg dot com, and 0:00:40.640 --> 0:00:47.800 of course on the Bloomberg. It's a pleasure to have 0:00:47.880 --> 0:00:50.080 with me in studio Alan Ruskin Cohea of Dutch Banks 0:00:50.080 --> 0:00:51.800 for in Exchange Research team on the morning when there 0:00:51.880 --> 0:00:54.840 is so much to talk about, Alan, let's be begin 0:00:54.920 --> 0:00:57.280 with oil. In your most recently you talk about the 0:00:57.280 --> 0:00:59.640 degree to which this is really the big macro driver 0:01:00.160 --> 0:01:03.800 right now. Yes, it is at the center point. Keep 0:01:03.800 --> 0:01:07.440 in mind that we did obviously see oil four very 0:01:07.520 --> 0:01:10.440 very sharply it was so important for all the other 0:01:10.480 --> 0:01:13.680 macro drivers. And then the rebound now is almost the 0:01:13.720 --> 0:01:17.280 reverse effect. So you know, I think the main channels 0:01:17.280 --> 0:01:20.360 in which this is working is higher all prices, higher 0:01:20.360 --> 0:01:24.440 break even rates, and then expectations that um, the likes 0:01:24.440 --> 0:01:27.199 of Treasury hills and other global bond heills will move higher. 0:01:27.360 --> 0:01:30.080 We've seen that start to quiet and down a little 0:01:30.080 --> 0:01:32.160 bit over the last few days. As the question as 0:01:32.200 --> 0:01:35.000 to whether oil sticks around here or does go up, 0:01:35.080 --> 0:01:37.399 say another ten dollars a barrel. Um, I don't think 0:01:37.400 --> 0:01:39.559 people are thinking much more than ten dollars a barrel 0:01:39.600 --> 0:01:41.400 and giving us some some sense of whether or not 0:01:41.440 --> 0:01:43.760 that might happen. Is this November three meeting in Vienna, 0:01:43.840 --> 0:01:45.840 this this Opeque meeting. From what we've heard today from 0:01:45.840 --> 0:01:47.840 the Saudi oil minister, what we've heard over these last 0:01:47.840 --> 0:01:49.960 few weeks, what's your sense of the likelihood that we 0:01:50.000 --> 0:01:52.400 will get at the very least of freeze and and 0:01:52.440 --> 0:01:54.880 perhaps cuts here in production. Yeah. So look, I'm not 0:01:54.920 --> 0:01:59.280 an oil analyst. It's it's full disclosure here, but I 0:01:59.320 --> 0:02:02.880 think what you have is at least stability with a 0:02:02.960 --> 0:02:06.440 tendency towards moving towards the upper end of the range. 0:02:06.480 --> 0:02:08.400 So you know, if the range is forty dollars a 0:02:08.400 --> 0:02:10.720 barrel to perhaps as high as sixty dollars a barrel, 0:02:10.760 --> 0:02:13.280 then um, you know, I think we edge a little 0:02:13.280 --> 0:02:16.320 bit higher at least. While there's speculation that OPEC and 0:02:16.440 --> 0:02:21.640 some big non OPEC countries really do curtail supply. The 0:02:21.680 --> 0:02:24.080 problem I think they face is really that on the 0:02:24.120 --> 0:02:27.120 non OPEC side, and notably on the U S side, 0:02:27.520 --> 0:02:30.880 supply will kick in again and you'll see those rig 0:02:31.000 --> 0:02:34.000 count numbers going up quite sharply. Really as soon as 0:02:34.040 --> 0:02:36.720 oil does go up. So oil prices do you go up? 0:02:36.720 --> 0:02:38.440 I want to ask you more here about the relationship 0:02:38.440 --> 0:02:40.760 between oil and the dollar. Frustyle. So the Bloomberrick surveillance 0:02:40.760 --> 0:02:43.519 brought to you by invest Goo investing isn't about achieving average, 0:02:43.520 --> 0:02:46.880 It's about achieving goals. Learned how Investco's high conviction approach 0:02:46.919 --> 0:02:49.680 can help investco dot com slash high conviction. I want 0:02:49.680 --> 0:02:52.600 to bring in Francy and Lackworth from London, pulling a 0:02:52.919 --> 0:02:55.200 doing yeoman's work here on the heels of a surveillance 0:02:55.200 --> 0:02:57.240 television joining me from from London's mo Good morning frid 0:02:57.560 --> 0:02:59.800 We sent Tom Holmes because he lost his works, so 0:02:59.880 --> 0:03:02.520 you get me. I'm so sorry out of the building. 0:03:02.560 --> 0:03:04.920 I'm sure Alan, if you look at so we had 0:03:04.960 --> 0:03:07.800 those more Instanley report right, and they cut down in 0:03:07.840 --> 0:03:10.880 trading some unless I guess we'll question whether they cut 0:03:10.919 --> 0:03:14.240 back down too much. Then you have crude as David 0:03:14.280 --> 0:03:16.680 was talking about, and you also have this China story. Again, 0:03:16.800 --> 0:03:21.440 we've seen so many movements from currencies, Brexit non Brexit, 0:03:21.560 --> 0:03:25.080 the US presidential elections. What will be the next impetus 0:03:25.240 --> 0:03:29.560 for for big currency moves? Yes, Um, I think right 0:03:29.600 --> 0:03:33.880 now the focus is really on treasury heels and whether 0:03:33.919 --> 0:03:36.200 we are seeing some sort of shifting regime. As we 0:03:36.200 --> 0:03:38.560 are talking about a little bit earlier. Oil could be 0:03:38.600 --> 0:03:41.800 one of the catalysts for higher interest rates, at least 0:03:41.840 --> 0:03:44.120 at the back and the curve, but there's a greater 0:03:44.240 --> 0:03:47.160 chatter that relates to what central banks actually want for 0:03:47.200 --> 0:03:49.720 the yield curve. So um, it's clear that the Bank 0:03:49.760 --> 0:03:53.000 of Japan and perhaps the e c B certainly wants 0:03:53.000 --> 0:03:57.360 a steeper heeled curve to support the financial sector. Um. 0:03:57.360 --> 0:04:00.040 Whether that translates to the US is another question. A 0:04:00.080 --> 0:04:02.360 little bit more skeptical that it does translate to the US. 0:04:02.440 --> 0:04:05.360 Are we really seeing inflation? And so treasuries gained a 0:04:05.400 --> 0:04:08.720 little bit right we saw a core inflation gauge rising 0:04:08.840 --> 0:04:12.200 less unexpected in September. I can't figure out when we 0:04:12.240 --> 0:04:15.160 see real inflation. I'm not talking about the UK, which 0:04:15.280 --> 0:04:18.600 is a whole other problem with Brexit. No, I think 0:04:18.880 --> 0:04:23.159 inflation has got a lot of global inertia still built 0:04:23.200 --> 0:04:27.080 into a huge amount of spare capacity in the system. Actually, 0:04:27.080 --> 0:04:29.760 not just in the international side of things, but the 0:04:29.839 --> 0:04:33.600 cap you numbers, the capacity utilization numbers in the US 0:04:33.640 --> 0:04:36.280 are very very low, remarkably low in the context of 0:04:36.400 --> 0:04:38.839 central bank that might be tightening. So look, I think 0:04:38.920 --> 0:04:41.600 at least on the goods inflation side, there's very low inflation. 0:04:41.760 --> 0:04:44.520 On the services sector side, there's something there as there's 0:04:44.520 --> 0:04:46.240 definitely been something. There's a little a little bit of 0:04:46.240 --> 0:04:50.880 creep and uh, you know, I think in aggregate, will 0:04:50.920 --> 0:04:53.000 the fair eventually hit their target over there a two 0:04:53.080 --> 0:04:56.080 year period. I think that's there some you know, that's 0:04:56.080 --> 0:04:58.680 what they expect, and I think that's not unreasonable. Let 0:04:58.680 --> 0:05:00.960 me get your sense of what we heard from the 0:05:01.040 --> 0:05:04.240 vice chair at the Federal Reserve on Monday. Maybe put 0:05:04.240 --> 0:05:06.040 that in a continue with what we heard from Janet 0:05:06.120 --> 0:05:09.040 Yellen on Friday. She's talking about running things a bit hard. 0:05:09.600 --> 0:05:12.160 He having what was a fairly academic discussion here about 0:05:12.160 --> 0:05:14.440 productivity and what is driving rates down. What did you 0:05:14.480 --> 0:05:18.440 make of those two speeches in concert with each other. Yeah, Look, 0:05:18.480 --> 0:05:22.320 I think they've got, you know, subtle differences of opinion really, 0:05:22.800 --> 0:05:26.800 insomuch as I think there still is a little bit 0:05:26.800 --> 0:05:31.160 more emphasis on the idea that low for long does 0:05:31.279 --> 0:05:36.159 create some potential financial problems, financial instability in the long 0:05:36.200 --> 0:05:38.640 haul really in a sense, and so nudging rates up 0:05:38.640 --> 0:05:41.760 a little bit won't do much harm. At the same time, 0:05:42.920 --> 0:05:45.839 waiting a little bit won't do too much harm either 0:05:45.960 --> 0:05:48.760 on the goods inflation side and on inflation side as well. 0:05:48.839 --> 0:05:51.320 So it's very subtle really in a way. It's in 0:05:51.360 --> 0:05:54.119 some ways speaks the idea that central banks don't matter 0:05:54.160 --> 0:05:56.040 as much as we might think. What did you make 0:05:56.080 --> 0:05:58.240 of the portion of stand Fishery speech and when he 0:05:58.279 --> 0:06:02.120 talked in which he talked about inflation targeting, he rather 0:06:02.160 --> 0:06:05.400 forcefully addressing critics who say, perhaps it should be re evaluated, 0:06:05.440 --> 0:06:07.640 perhaps it should be brought up. He's saying, you know, 0:06:07.640 --> 0:06:09.039 if we can't get to two, I would be talking 0:06:09.040 --> 0:06:12.120 about three or a number higher. Uh, what do you 0:06:12.120 --> 0:06:14.080 make of that portion? In particularly well, I think, you know, 0:06:14.120 --> 0:06:17.000 for central banks to shift on on on a target 0:06:17.040 --> 0:06:19.479 like this, you know, and it's been entrenched really for 0:06:19.520 --> 0:06:22.159 the better part of really, you know, in the likes 0:06:22.200 --> 0:06:26.000 the United States for what forty yard years. UM. I 0:06:26.040 --> 0:06:29.800 think that would be to really have people rethink that, 0:06:30.080 --> 0:06:31.840 you know, the structure and the model kind of thing. 0:06:31.920 --> 0:06:34.440 So I think that's that's that's one thing. I think 0:06:34.520 --> 0:06:38.680 raising the inflation target also has its problems, although having 0:06:38.680 --> 0:06:41.320 an inflation target it's you know, close to two is 0:06:41.920 --> 0:06:46.040 proving problematic as well in the current environment. And this 0:06:46.080 --> 0:06:48.280 is how markets are interpreting right. A lot of people 0:06:48.279 --> 0:06:50.440 are saying maybe because of what we heard from Janet 0:06:50.520 --> 0:06:53.159 Yellen talking about a high pressure economy and what we 0:06:53.200 --> 0:06:55.920 also heard from Mark Karney, who in the aftermath of 0:06:56.279 --> 0:06:59.040 breggsit is saying he will look through faster price gains, 0:06:59.480 --> 0:07:03.680 means that they're slightly changing their inflation target. Now you 0:07:03.720 --> 0:07:07.480 may think that they should, but are they well, I 0:07:07.520 --> 0:07:10.040 think Karnie is in a special situation. So you've had 0:07:10.080 --> 0:07:13.360 an exchange rate shock, and it's much easier to say, 0:07:13.440 --> 0:07:15.679 look at an exchange rate shock is a one off shock, 0:07:15.760 --> 0:07:17.920 as it were, and it's going to wake work its 0:07:17.960 --> 0:07:21.080 way through the system over the next say eighteen months 0:07:21.080 --> 0:07:24.400 to two or even three years, and uh, we look, 0:07:24.520 --> 0:07:27.160 the markets are probably going to look past that. UM 0:07:27.320 --> 0:07:31.160 and underlying inflation X, the exchange rate shock might well 0:07:31.200 --> 0:07:33.280 be well behaved. So I think Connie is in that 0:07:33.600 --> 0:07:36.640 in that particular situation. The US is uh, you know, 0:07:36.720 --> 0:07:40.120 in a in a very different set of circumstances. I 0:07:40.120 --> 0:07:42.680 think the idea that in the US is, look, if 0:07:42.720 --> 0:07:47.120 we go slightly above the inflation target, that will not 0:07:47.160 --> 0:07:50.680 be you know, too disruptive, is the premise. I think 0:07:50.760 --> 0:07:53.840 they're probably wrong on that to the extent. Well, I 0:07:53.840 --> 0:07:57.200 think if inflations does start to nutche above target and start, 0:07:57.240 --> 0:07:59.640 you know, we start to see the core PC deflator, 0:08:00.040 --> 0:08:03.480 even even in the low twos um, this bond market 0:08:03.600 --> 0:08:07.080 is is not priced for that scenario. And if you 0:08:07.160 --> 0:08:09.840 do see a major bond market sell off, and you know, 0:08:09.920 --> 0:08:12.440 some people think there's a bond bubble there. If you 0:08:12.480 --> 0:08:14.280 see a major bond market sell off, it's going to 0:08:14.320 --> 0:08:18.360 be usually disruptive for the US economy. And yes, real 0:08:18.440 --> 0:08:20.440 rates might not actually go up because they'll just be 0:08:20.480 --> 0:08:23.400 catching up, you know, nominal rates will just be catching 0:08:23.440 --> 0:08:27.200 up with inflation. But nonetheless, nominal rates matter a great deal. 0:08:27.560 --> 0:08:30.640 And if the bond market starts setting off sharply, you 0:08:30.680 --> 0:08:33.280 can rest assured. I think the equity market's gonna have 0:08:33.280 --> 0:08:35.240 a hard time as well, and we've seen the dollar 0:08:35.320 --> 0:08:38.000 weaken a little bit against the ten major currencies. This 0:08:38.040 --> 0:08:40.600 warning when you look at the Bloomberg Dollar Spot Index 0:08:40.640 --> 0:08:42.160 that when I was said, I was going to ask 0:08:42.160 --> 0:08:44.600 you here about the role of the dollar and oil 0:08:44.679 --> 0:08:46.640 right now, what are you seeing there? Yeah, I think 0:08:47.280 --> 0:08:50.120 it's it's a circular to some extent. So traditionally you 0:08:50.200 --> 0:08:54.480 see a stronger dollar really associated with weaker oil prices 0:08:54.480 --> 0:08:57.320 and weaker commodity prices just because you know these commodity 0:08:57.320 --> 0:09:00.280 prices or priced in dollars, so um. You know, that's 0:09:00.320 --> 0:09:04.240 the sort of traditional one sided relationship. The flip side 0:09:04.240 --> 0:09:06.480 of that, and the one we're kind of focusing on 0:09:06.520 --> 0:09:09.680 a little bit more right now is as oil prices 0:09:10.000 --> 0:09:13.079 go higher, and if they go still higher, um, what 0:09:13.280 --> 0:09:15.080 effect does that have on the bottom market and then 0:09:15.120 --> 0:09:18.439 the knock on effect to obviously the dollar. I think 0:09:18.480 --> 0:09:22.920 the issue here is if treasury hills do bump up significantly, 0:09:22.960 --> 0:09:26.560 say the tenure, he'll goes to two. Um, you know, 0:09:26.760 --> 0:09:29.000 not a huge move, but in the context of where 0:09:29.040 --> 0:09:32.000 we're at, it's a it's a decent sized move. Then 0:09:32.240 --> 0:09:35.480 I think you're in a circumstance where the dollar will 0:09:35.520 --> 0:09:39.760 actually benefit to some degree certainly versus the commodity currencies 0:09:39.800 --> 0:09:41.800 and the e M currencies because we will go a 0:09:41.840 --> 0:09:44.680 little bit risk off until we stabilize. And on the 0:09:44.679 --> 0:09:47.200 bondom market side, David Gurry here in New York with 0:09:47.280 --> 0:09:51.400 Francine Lackwar in London, a transatlantic version of Bloomberg Surveillance 0:09:51.520 --> 0:09:54.200 this morning, recapping the news from Morgan Stanley this morning. 0:09:54.440 --> 0:09:57.840 Third quarter net revenues of eight point nine billion dollars, 0:09:57.880 --> 0:10:00.520 fixed income trading revenue almost tripling from a year ago 0:10:00.559 --> 0:10:03.120 to one point five billion dollars. And that's where I 0:10:03.120 --> 0:10:05.840 want to start with Alison Williams, senior US bank analysts 0:10:05.840 --> 0:10:08.960 for Bloomberg Intelligence, who joins me here, uh in New York. Allison, 0:10:09.040 --> 0:10:13.640 this story, this fixed story continues here with with Morgan Stanley. Yeah, 0:10:13.679 --> 0:10:17.920 so we we've had excuse me, uh now, every single 0:10:17.920 --> 0:10:20.440 bank beating and really sort of going out with a 0:10:20.480 --> 0:10:23.839 bank with Morgan Stanley having a huge beat versus the 0:10:24.080 --> 0:10:28.560 one billion estimate and bearing in mind that one billion 0:10:28.679 --> 0:10:32.000 is about in line with management targets. So after they 0:10:32.040 --> 0:10:36.480 restructured the business, the most restructuring, the most recent restructuring 0:10:36.559 --> 0:10:39.080 was in the fourth quarter of last year when they 0:10:39.080 --> 0:10:42.520 cut of the front office staff. They had said that 0:10:42.559 --> 0:10:45.959 they wanted to target roughly four billion annual revenue. That's 0:10:46.000 --> 0:10:49.520 about a billion a quarter. That's about what UM analysts 0:10:49.559 --> 0:10:52.680 surveyed by Bloomberg News had been expecting for Morgan Stanley. 0:10:52.960 --> 0:10:55.679 So obviously this is a very big number. We've been 0:10:55.679 --> 0:10:58.160 talking a lot about restructuring. We certainly talked about it 0:10:58.160 --> 0:11:00.960 in the context of Goldman Sax yesterday, the reduction and 0:11:00.960 --> 0:11:04.440 head count head count that we've seen their Morgan Stanley 0:11:04.440 --> 0:11:07.280 has its project streamline. What we learned today about the 0:11:07.280 --> 0:11:10.360 efficacy of that so far so still going through the numbers, 0:11:10.360 --> 0:11:13.080 but it does look like they are making um progress 0:11:13.120 --> 0:11:16.720 on that. On on the overall basis. Uh. The other 0:11:16.800 --> 0:11:21.240 important pre tax margin is the margin within their wealth 0:11:21.280 --> 0:11:24.880 management business. That's a key metric. Their goal is twenty 0:11:24.920 --> 0:11:28.680 three to twenty five percent margin they got this quarter. 0:11:28.760 --> 0:11:30.440 So we're still going through just to see if there 0:11:30.440 --> 0:11:35.400 were any one timers, if that's a true organic recurring margin, 0:11:35.480 --> 0:11:38.040 but that is another positive for the company. All right, Nelson, 0:11:38.080 --> 0:11:40.040 thank you for joining us again here As the bank 0:11:40.120 --> 0:11:42.880 earning season rolls on, that's Alison Williams, their senior US 0:11:42.920 --> 0:11:46.640 bank analyst for Bloomberg Intelligence. Fran Yeah, David, we were 0:11:46.640 --> 0:11:49.679 talking a little bit about monetary policy, about inflation targets, 0:11:49.720 --> 0:11:52.560 about what a lot of these central banks are facing. 0:11:52.600 --> 0:11:55.480 We're back with Alan Ruskin from Deutsche Bank. He's global 0:11:55.520 --> 0:11:57.800 co head of Foreign Exchange Research. And you know, Alan, 0:11:57.880 --> 0:11:59.959 I was, I'm torn, I don't know whether Laski abou 0:12:00.120 --> 0:12:03.839 yen because people are concerned about exactly what Governor Kuroda 0:12:03.880 --> 0:12:05.959 is trying to do capping that tenure yield. We had 0:12:05.960 --> 0:12:09.640 the story today about Japan's three largest lenders selling a 0:12:09.679 --> 0:12:11.719 record amount of yen bonds, or whether I should ask 0:12:11.760 --> 0:12:15.080 about China and actually what the endgame for rem NIMBI is. 0:12:15.440 --> 0:12:19.160 Amongst those two stories, what could scupper the markets more 0:12:20.080 --> 0:12:23.520 right now? I think China is still probably more interesting. 0:12:23.760 --> 0:12:27.360 So China I think has been going through something of 0:12:27.360 --> 0:12:32.679 a stealth devaluation, effectively letting its trade weighted index weekend. 0:12:33.040 --> 0:12:35.960 The market I think has taken this on board quite nicely, 0:12:36.480 --> 0:12:38.920 to the relief of everybody, I think, or should be 0:12:38.960 --> 0:12:42.720 to the reef relief of everybody. And we're seeing, you know, 0:12:42.800 --> 0:12:46.200 for example, equity markets not respond in the same way 0:12:46.440 --> 0:12:49.200 to Chinese currency weakness as we've seen before, but I 0:12:49.200 --> 0:12:53.600 think you will see ongoing Chinese currency weakness on an 0:12:53.600 --> 0:12:57.600 opportunistic basis. So when China makes a decision and and 0:12:57.600 --> 0:12:59.760 and and sees that the markets are being well behaved 0:13:00.280 --> 0:13:02.560 in response to a weeker currency, they'll let their currency 0:13:02.559 --> 0:13:06.200 actually weaken. You are halting right this year's longest run 0:13:06.200 --> 0:13:09.400 of losses. Again, as we had data today showing the 0:13:09.480 --> 0:13:13.040 nation's economy stabilizing. Do we believe those figures? Yes, I 0:13:13.040 --> 0:13:15.160 think we do believe. The figure is in a very 0:13:15.200 --> 0:13:18.640 broad sense in terms of you know, his growth got 0:13:18.640 --> 0:13:21.080 a six handle. Well, that's probably as good an estimate 0:13:21.120 --> 0:13:25.600 as any um. I think the issue you have is 0:13:26.200 --> 0:13:31.160 the breakdown behind those numbers. So obviously public investments seems 0:13:31.200 --> 0:13:34.800 to be a main ingredient in terms of keeping growth going. 0:13:34.840 --> 0:13:37.520 And then more recently, of course, you've had this explosion 0:13:37.559 --> 0:13:42.400 of mortgage lending and private related investment has been concentrated 0:13:42.440 --> 0:13:46.560 in things housing related, and I think what you have 0:13:46.760 --> 0:13:50.280 here is the building up of even bigger problems and 0:13:50.400 --> 0:13:53.880 even bigger so called credit gap that I think will 0:13:53.880 --> 0:13:56.840 manifest itself probably more in two thousand and eighteen, Given 0:13:56.840 --> 0:13:59.280 then two thousand and seventeen doesn't really fit with the 0:13:59.559 --> 0:14:02.040 political calendar. Now, I'm going to close here by asking 0:14:02.080 --> 0:14:04.720 you about the dollar. Pas so we're seeing at eighteen 0:14:04.800 --> 0:14:07.000 sixty three, this has been an incredible proxy here for 0:14:07.040 --> 0:14:10.640 what we've been seeing in the US presidential election. Aside 0:14:10.640 --> 0:14:12.280 from that, aside of it being kind of neat to 0:14:12.280 --> 0:14:14.240 watch rise and fall as we see the polling change 0:14:14.280 --> 0:14:15.560 here in the US, what do you what do you 0:14:15.559 --> 0:14:17.199 what can you learn from what the PESO was doing 0:14:17.240 --> 0:14:20.160 at this point? Yeah, we'll just say that the pesso's 0:14:20.840 --> 0:14:25.400 problems are a lot deeper than Donald Trump. That the 0:14:25.640 --> 0:14:28.960 unresponsiveness of the trade balance to the weakness in the 0:14:29.000 --> 0:14:31.360 PESSO is being quite remarkable in that sense. And I 0:14:31.360 --> 0:14:33.480 think what you also seeing in terms of the trading 0:14:34.040 --> 0:14:36.440 is that the PESSO will tend to weaken a lot 0:14:36.520 --> 0:14:40.560 more on say Donald trumpet coming up on the polls, 0:14:40.720 --> 0:14:43.160 and will actually strengthen on say a Hillary victory at 0:14:43.160 --> 0:14:45.800 this point in time. So the upside as far as 0:14:45.800 --> 0:14:48.880 the PESSO is concerned, that means the downside and dollar, 0:14:50.000 --> 0:14:52.080 But the upside as far as the PESSO is concerned 0:14:52.160 --> 0:14:54.920 is quite limited. I think even if the politics works 0:14:54.920 --> 0:14:56.920 in its favor. All right, We'll be watching the debate tonight, 0:14:56.920 --> 0:14:58.640 of course, Alan Ruskin, thank you very much for joining 0:14:58.680 --> 0:15:01.360 us here. Instant Alan Ruskin, head of Foreign Exchange research 0:15:01.680 --> 0:15:04.160 at Deutsche Bank based here in New York. Of course, 0:15:04.200 --> 0:15:07.200 that debate tonight at nine o'clock Wall Street time, Donald 0:15:07.200 --> 0:15:09.760 Trump and Hillary Clinton taking the stage. Then we will 0:15:09.800 --> 0:15:12.920 have coverage before and after here on Bloomberg Radio, also 0:15:13.440 --> 0:15:28.240 on Bloomberg Intelligent. So pleasure to have Sebastian Mallaby here 0:15:28.280 --> 0:15:30.600 in studio with us today. He is a Senior Fellow 0:15:30.600 --> 0:15:32.880 to Counsel on Formulations, author of a new book called 0:15:32.920 --> 0:15:35.680 The Man Who Knew The Life and Times of Alan Greenspan, 0:15:35.760 --> 0:15:39.040 the culmination of five years of research interviews with Alan 0:15:39.080 --> 0:15:41.160 Greenspan and others. And thank you very much for being here. 0:15:41.160 --> 0:15:43.320 Appreciate it really great to be with you. Let me 0:15:43.320 --> 0:15:45.800 ask you first. I was watching the president's news conference 0:15:45.880 --> 0:15:49.760 yesterday and and something that came up was him commenting 0:15:49.760 --> 0:15:51.840 on the limits of monetary policy right now. This is 0:15:51.880 --> 0:15:54.440 a constant through line that we've heard over the last 0:15:54.440 --> 0:15:57.840 many months here um that monetary policy can't do everything. 0:15:57.840 --> 0:16:00.800 There has to be fiscal policy. Uh In answered with it. 0:16:00.840 --> 0:16:02.920 We're hearing that from central bank governors, were hearing that 0:16:03.000 --> 0:16:05.640 from finance chiefs, We're hearing it from from heads of state. 0:16:06.520 --> 0:16:08.360 Looking back at when Alan Greenspan was FED, here was 0:16:08.440 --> 0:16:10.560 just something that he had to reckon with the limits 0:16:10.560 --> 0:16:13.760 of monetary policy. Well, he did have to reckon at 0:16:13.800 --> 0:16:16.400 the beginning, with the limits of the Fed's independence and 0:16:16.400 --> 0:16:19.400 the willingness of politicians to beat up on the FED 0:16:19.440 --> 0:16:22.080 has happened very much in the George H. W. Bush 0:16:22.120 --> 0:16:25.200 administration at the beginning of Greenspan's tenure, to the point 0:16:25.280 --> 0:16:28.840 that actually the budget chief in the White House, Richard Dumman, 0:16:29.360 --> 0:16:33.160 was going around Washington and whispering This FED chief, sixty 0:16:33.240 --> 0:16:36.880 five years old, lives by himself, called his mother every day. 0:16:36.880 --> 0:16:39.960 Doesn't this reminds you of Hitchcock's Psycho So, I mean, 0:16:40.000 --> 0:16:42.920 there was there was nasty pressure on the FED. And 0:16:42.960 --> 0:16:45.240 the fact that then the FED this stopped and the 0:16:45.240 --> 0:16:49.320 FED became independent is a testament to Greenspan's political skills. 0:16:49.840 --> 0:16:51.880 And I think that you know modern day experts who 0:16:51.880 --> 0:16:54.360 are under pressure, whether it's central bankers or other experts 0:16:55.000 --> 0:16:57.680 they need to learn a lesson from Alan Greenspan, which 0:16:57.760 --> 0:17:01.560 is you've got to marry the expertise with political savvy 0:17:01.600 --> 0:17:05.280 and take the fight back to the politicians. Sebashion would 0:17:05.320 --> 0:17:07.520 mean he called his mother every day. He's Italian, right, 0:17:07.560 --> 0:17:12.800 that's the only thing we can take it out. Same thing. Um, Look, 0:17:12.840 --> 0:17:15.000 this is a man that was full of contradiction. First 0:17:15.000 --> 0:17:17.879 of all, congratulations on a really fine biography. He was 0:17:17.960 --> 0:17:20.880 considered a rock star. And yet it's it was under 0:17:20.920 --> 0:17:23.720 his watch almost that you know, the crisis happened, the 0:17:23.720 --> 0:17:27.560 financial crisis. Could he have done anything to avert it? Yes, 0:17:27.600 --> 0:17:30.520 I mean you cannot be the most influential economist in 0:17:30.520 --> 0:17:33.439 the world, presiding over the global financial system have it 0:17:33.520 --> 0:17:35.800 blow up and say sorry, it wasn't my my fault. 0:17:35.840 --> 0:17:38.840 I mean, clearly he got something wrong. Now, the interesting 0:17:38.880 --> 0:17:41.239 thing is, I believe the mistake he made is not 0:17:41.320 --> 0:17:43.800 what most people would say. Most people would say, gee, 0:17:44.160 --> 0:17:47.480 you know, interest rates were about right because inflation was 0:17:47.520 --> 0:17:50.639 on target. It was really on the regulatory side that 0:17:50.720 --> 0:17:53.240 there was a mess. In my view, and I did 0:17:53.320 --> 0:17:55.960 a Freedom of Information Act requests and so forth to 0:17:55.960 --> 0:17:59.600 to verify this. The fact actually did try to do 0:17:59.680 --> 0:18:02.440 something about some prime mortgages. In two thousand one, it 0:18:02.600 --> 0:18:06.560 did pass new rules. The problem is regulation, especially in 0:18:06.600 --> 0:18:09.359 the United States, is poorous it leaks. There are so 0:18:09.400 --> 0:18:12.160 many different agencies trying to do regulation. There's an alphabet 0:18:12.240 --> 0:18:15.400 soup out there of different bodies. So regulation doesn't work. 0:18:15.400 --> 0:18:18.200 And therefore I believe green Span should have been willing 0:18:18.240 --> 0:18:20.720 to raise interest rates to fight the bubble. We'll talk 0:18:20.760 --> 0:18:22.680 more about this apt for a breaking in just the second. 0:18:22.720 --> 0:18:24.120 I wanted to ask you about the degree to which 0:18:24.119 --> 0:18:26.160 he he thinks of his position in history. He looks 0:18:26.160 --> 0:18:28.679 back on decisions he made visa the regulation. What he 0:18:28.680 --> 0:18:31.160 could have done differently? Is he somebody who does think 0:18:31.200 --> 0:18:33.879 back on the past and maybe play out some counterfactuals. 0:18:34.080 --> 0:18:36.399 The fascinating thing is, you know, I would go see him, um, 0:18:36.720 --> 0:18:39.240 you know a lot. I lost current after seventy hours 0:18:39.240 --> 0:18:42.480 of sitting in his office, and every time he would 0:18:42.480 --> 0:18:45.400 want to speak about the present or the future, and 0:18:45.480 --> 0:18:47.840 I would have to force him because I'm doing a biography, right, 0:18:48.119 --> 0:18:50.119 I want him to talk about the past. But he's saying, 0:18:50.400 --> 0:18:52.359 why do you think about Brexit? Is that kind of 0:18:52.440 --> 0:18:55.440 you know, that kind of stuff? See, you know, we've 0:18:55.480 --> 0:18:57.719 spoken with him recently ran bloom Bigridian bloom Brew Television. 0:18:57.760 --> 0:19:00.720 He still is very actively engaged in these discussions that 0:19:00.720 --> 0:19:03.840 they're taking place. He's a wonderfully open and curious mind, 0:19:04.080 --> 0:19:06.400 and I think that's still true at ninety years old. 0:19:06.480 --> 0:19:09.200 We are joined in studio by Sebastian mal But, the 0:19:09.240 --> 0:19:11.439 author of for finding biography here of Alan Alan Greenspan, 0:19:11.480 --> 0:19:13.760 called the man who knew the life and times of 0:19:13.760 --> 0:19:16.480 Alan Greenspan, and Sebastian I wanted to ask you about 0:19:17.200 --> 0:19:20.960 FED communication. Alan Greenspan leaves and we see Ben Bernanki 0:19:21.000 --> 0:19:24.119 on sixty minutes. We watch wrapped every couple of months 0:19:24.119 --> 0:19:27.600 when the FED chair delivers a news conference. The vice chair, 0:19:27.600 --> 0:19:29.400 stand Fisher, spoke at the Economic Club of New York 0:19:29.440 --> 0:19:31.879 this week to a crowd of of hundreds. What is 0:19:31.920 --> 0:19:35.919 Alan Greenspan make of this movement toward more transparency, openness, 0:19:35.920 --> 0:19:38.560 whatever you'd like to call it. Well, when Alan Greenspan 0:19:38.800 --> 0:19:41.000 was chairman, first of all, he spoke less, but also 0:19:41.080 --> 0:19:44.560 when he did speak sometimes it was highly and deliberately confusing. 0:19:44.560 --> 0:19:47.680 I mean he was compared once to a bespectacled c 0:19:47.840 --> 0:19:52.240 SQUI who's sensing danger, right, He emits black ink and 0:19:52.280 --> 0:19:55.120 then glides away silently. So you know he didn't believe 0:19:55.119 --> 0:19:57.240 in quite as much communication. I actually think he got 0:19:57.240 --> 0:20:00.280 it right. I think the cacophony that you're here is 0:20:00.280 --> 0:20:02.840 not constructive because what it does it dilutes the message 0:20:03.240 --> 0:20:05.760 from the FED. And as a result, today you've got 0:20:05.760 --> 0:20:07.920 a tax on the FED from the right, from the left. 0:20:08.000 --> 0:20:10.399 Is it too tight? Is it too loose? And Janet 0:20:10.440 --> 0:20:12.840 Yell it is not really shaping that debate because there 0:20:12.840 --> 0:20:15.120 are too many different people speaking on behalf of the FED. 0:20:15.440 --> 0:20:17.960 That is not something that Alan Greenspan would have permitted. 0:20:18.200 --> 0:20:19.960 I'll have you come and down that. Maybe from from 0:20:19.960 --> 0:20:21.960 your perspective here, it seems like there's spin a sort 0:20:21.960 --> 0:20:25.240 of half moved toward openness. This is still there's still 0:20:25.280 --> 0:20:28.640 some opacity there. Uh. It creates a kind of game 0:20:28.640 --> 0:20:31.640 where we're constantly guessing, even as we do have more information. 0:20:31.680 --> 0:20:33.920 Just I guess the quality of that information is debatable. 0:20:34.040 --> 0:20:36.720 I think the fact is that the more you talk 0:20:36.960 --> 0:20:38.960 in a way, the less you can communicate. I mean, 0:20:39.040 --> 0:20:42.520