WEBVTT - Global Trade Is A Growth Engine, Roach Says 0:00:00.080 --> 0:00:13.040 Yeah, Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene 0:00:13.480 --> 0:00:17.560 Jai Ley. 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 --> 0:00:28.120 Bloomberg dot Com, and of course on the Bloomberg. Yeah. 0:00:33.200 --> 0:00:37.080 The President meeting with Joan Claudianka, the European Union's president 0:00:37.159 --> 0:00:39.600 today and saying that you should drop all to Harris 0:00:39.600 --> 0:00:42.720 Barris and subsidies, with the block's trade chiefs set to 0:00:42.760 --> 0:00:45.880 present him with proposals in that direction, and a crunch 0:00:45.920 --> 0:00:48.120 meeting at the White House lates today and we're joined 0:00:48.120 --> 0:00:51.040 by Morgan Stanley. Legend now is Stephen roach l University 0:00:51.040 --> 0:00:54.360 professor joins us in New York. Good morning, professor. We 0:00:54.440 --> 0:00:57.200 wait a minute. Richard Burner was a legend. H you. 0:00:57.440 --> 0:01:04.440 I hired you, so I'm the father of a legion. 0:01:04.880 --> 0:01:08.840 Okauyd there we go. There you got even slapped down 0:01:08.880 --> 0:01:11.880 this morning, and profess, So, what's the minimum condition of 0:01:11.959 --> 0:01:14.960 success from meeting like this today with the President of 0:01:14.959 --> 0:01:18.440 the United States and the European Union president meeting together. 0:01:18.760 --> 0:01:23.839 There's there's not much, Jonathan. The bar is pretty low. 0:01:24.040 --> 0:01:27.600 You know, in the last twenty four hours, the presidents 0:01:27.640 --> 0:01:30.720 said tariffs are great, and then he said he wants 0:01:30.720 --> 0:01:34.119 to propose to eliminate all tariffs. So if they're so great, 0:01:34.160 --> 0:01:36.520 why does he want to eliminate him? Uh, they're a 0:01:36.560 --> 0:01:40.320 negotiating employ He's the master of the art of the 0:01:40.400 --> 0:01:44.000 deal right now. The art of the deal is giving 0:01:44.040 --> 0:01:48.360 US retaliation that requires subsidies by the US Congress to 0:01:48.480 --> 0:01:52.760 deal with the retaliation being directed at US farmers. That 0:01:52.800 --> 0:01:55.640 doesn't sound like such a great deal to me, but 0:01:55.760 --> 0:01:59.120 you know, um, well, it remains to be seen where 0:01:59.120 --> 0:02:03.320 where we're we're outn here. But but for a global, 0:02:03.520 --> 0:02:08.640 interconnected world, competing not by countries but by through supply 0:02:08.800 --> 0:02:13.800 chains and the distribution of value added um to multiple 0:02:13.840 --> 0:02:19.840 platforms around the world, this is a confusing, perplexing, challenging 0:02:20.800 --> 0:02:25.520 time with a lot of potential collateral damage along the way. 0:02:25.680 --> 0:02:27.880 So we have the situation at the moment with tariffs 0:02:27.919 --> 0:02:31.000 on automobiles and light trucks coming from Europe into the 0:02:31.080 --> 0:02:34.600 United States face a huge tariff. Then there's just sort 0:02:34.639 --> 0:02:37.280 of the basic l autos that were used to talking about, 0:02:37.600 --> 0:02:40.280 where the Europeans slap on a much bigger tariff to 0:02:40.320 --> 0:02:43.400 the United States slaps on. Can we get something done 0:02:43.400 --> 0:02:46.160 where we remove those barriers to entry, we remove those 0:02:46.160 --> 0:02:51.079 tariffs on watmobiles and light trucks. You know, it was 0:02:51.520 --> 0:02:55.320 anything is possible, but you know it's is this the 0:02:55.400 --> 0:03:00.720 way to get that done? Is the way to reduce tariffs? Uh, 0:03:00.760 --> 0:03:04.560 to to threaten to raise them much higher than they 0:03:04.600 --> 0:03:08.880 have been, and to disrupts the supply chains, which um 0:03:09.880 --> 0:03:13.240 is the essence of the production platform for the for 0:03:13.280 --> 0:03:16.840 this key industry. So uh, you know, anything as possible, 0:03:16.880 --> 0:03:19.000 but I wouldn't bet that this is the right way 0:03:19.080 --> 0:03:22.040 to get there. Do you just assume a g d 0:03:22.200 --> 0:03:25.560 P markdown? I mean within all the fancy micro economist 0:03:25.600 --> 0:03:30.680 Paul Krugman has been great about showing the different dynamics 0:03:30.720 --> 0:03:34.200 here and the wedges in the you know, the geometry 0:03:34.280 --> 0:03:39.720 of tariffs and taxes. The answer is GDP goes south right. Yeah, well, 0:03:39.880 --> 0:03:44.240 uh uh, there's no question that um in my mind 0:03:44.320 --> 0:03:49.120 that the global trade which has gone um you know 0:03:49.200 --> 0:03:55.880 from twenty and of world GDP over the last fifteen 0:03:55.920 --> 0:03:59.520 to twenty years has has been an engine of of 0:03:59.600 --> 0:04:05.200 growth for developing and developed economies alike. Global trade has 0:04:05.240 --> 0:04:11.240 been uh a flat uh. Since the crisis is a 0:04:11.320 --> 0:04:14.560 share of of world GDP, and so that's made it 0:04:14.800 --> 0:04:20.200 challenging to to get world GDP back to its earlier 0:04:20.279 --> 0:04:23.559 pre crisis growth rate. Uh. And if global trade really 0:04:23.560 --> 0:04:26.880 starts to unwind, then the headwind has become far more 0:04:26.920 --> 0:04:30.120 severe and the GDP impacts will become more acute. As 0:04:30.160 --> 0:04:32.560 you allude to dr Roach, I know you're huge on 0:04:32.560 --> 0:04:35.200 on Twitter. We've got to respond. Have you respond rather 0:04:35.279 --> 0:04:38.400 to a presidential tweet this five minutes ago? Every time 0:04:38.440 --> 0:04:42.479 I see a weak politician asking to stop trade talks 0:04:42.600 --> 0:04:46.480 or the use of terrorists to counter unfair tariffs, I 0:04:46.520 --> 0:04:49.640 wonder what can they be thinking? Question Mark? Are we 0:04:49.720 --> 0:04:52.960 just going to continue and let our farmers in country 0:04:53.000 --> 0:04:57.719 get ripped off? Question Mark? Lost eight hundred seventeen billion 0:04:57.880 --> 0:05:04.320 on trade last year. No weakness exclamation point. Well, you 0:05:04.360 --> 0:05:08.120 know I'm a broken record on this time. The President 0:05:08.680 --> 0:05:12.800 plucks out trade as if it occurs in a vacuum, 0:05:12.960 --> 0:05:16.440 as if it's a result of the way other countries 0:05:17.000 --> 0:05:20.799 treat us poorly. He doesn't get the fact the trade 0:05:20.920 --> 0:05:24.840 is the mirror image of our need for surplus savings 0:05:24.920 --> 0:05:28.240 from abroad that requires us to run balance of payments 0:05:28.240 --> 0:05:31.719 and multilateral trade deficits last year with a hundred and 0:05:31.720 --> 0:05:36.839 two countries. That connection has never been made in UM, 0:05:36.920 --> 0:05:40.240 the president's mind or in the mind of his advisors, 0:05:40.279 --> 0:05:44.719 which is even more shocking because presumably he hires UH 0:05:45.000 --> 0:05:50.200 reasonably proficient UH policy advisors on the economic and international 0:05:50.240 --> 0:05:53.400 finance front. Either they're afraid to talk to him or 0:05:53.440 --> 0:05:56.440 they don't get it either which is or or both. 0:05:57.160 --> 0:05:59.520 Very good, Steven Roach, thank you so much, greatly appreciate 0:05:59.520 --> 0:06:13.960 what you know you were saying of time to Stephen. 0:06:14.000 --> 0:06:16.600 Aaron's joining US now. Bloomberg News Banks reporter joins US 0:06:16.600 --> 0:06:19.960 from Frankfurt. Stephen, here's the number, the weakest second quarter 0:06:19.960 --> 0:06:23.200 and fixed income trading since the global financial crisis. The 0:06:23.279 --> 0:06:26.799 five largest US investment banks saw total debt trading revenue 0:06:26.880 --> 0:06:31.160 rise by six point seven over the same time span. 0:06:31.640 --> 0:06:35.440 When does this stop, Steve, Well, if you believe the CEO, 0:06:35.720 --> 0:06:38.719 it should stop in the next quarter. He said, he's confident, 0:06:38.839 --> 0:06:42.559 very confident in fact UM that revenue in fixed income 0:06:42.600 --> 0:06:47.000 trading will now begin to rise. Admittedly, it's a it's 0:06:47.000 --> 0:06:50.839 actually a good comparative comparative for deutche Ban because six 0:06:51.360 --> 0:06:53.599 fixed income trading was really weak last year in the 0:06:53.600 --> 0:06:56.720 final TiO quarters of UM, so he's got a bit 0:06:56.760 --> 0:06:59.600 of a comparative advantage there. But of course a lot 0:06:59.640 --> 0:07:03.160 of it depends on where the cut the cuts have 0:07:03.240 --> 0:07:06.120 taken place that there are executing in the bank right now. 0:07:06.560 --> 0:07:08.720 So UM I think, well, we'll need to see him 0:07:08.720 --> 0:07:10.840 wait for the next results. What is the catalyst that 0:07:10.880 --> 0:07:12.760 drag us out of what has been a vicious cycle 0:07:12.800 --> 0:07:16.360 over the last several years, A sound fulfilling vicious cycle 0:07:16.400 --> 0:07:18.800 where Deutsche Bank have to cut the revenue folds, they 0:07:18.840 --> 0:07:21.240 have to cut some more. Are we really breaking out 0:07:21.240 --> 0:07:25.640 of that stage? Dotr back shortly hopes, and the CEO 0:07:25.720 --> 0:07:28.720 of course most of all hopes they can break out 0:07:28.720 --> 0:07:32.840 of the cycle. And yes, if they do, if Christian 0:07:32.880 --> 0:07:35.880 Seving actually pulls off the feet of an increase in 0:07:35.920 --> 0:07:41.080 fixing come trading next quarter and maybe the UH the 0:07:41.120 --> 0:07:44.200 next quarter after that, UM, that could certainly be some 0:07:44.240 --> 0:07:47.120 sort of catalyst UH. And of course, if he UM 0:07:47.320 --> 0:07:50.720 reaches the financial targets he set for example UM cutting 0:07:50.800 --> 0:07:53.560 or keeping adjust the cost below twenty three billion years 0:07:53.600 --> 0:07:59.480 this year UM and reaching a return intentional equity of 0:07:59.720 --> 0:08:02.200 over or four percent next year. Um, that would certainly 0:08:02.720 --> 0:08:05.960 be be progress as well. One of the price bosts 0:08:05.960 --> 0:08:08.920 today quite clearly was the advisory business doing quite well. 0:08:09.040 --> 0:08:11.880 What did you think of that state? Um. They've been 0:08:11.880 --> 0:08:15.000 telling us for a long time that the advisory business 0:08:15.040 --> 0:08:17.920 is actually not doing so badly. UM. And they always 0:08:17.920 --> 0:08:20.480 say it's it's a long pipeline, you know. UM. I 0:08:20.520 --> 0:08:22.840 mean when you when you prepare a deal and a 0:08:22.880 --> 0:08:26.240 lot of work goes into that. It's a relationship business, um. 0:08:26.320 --> 0:08:28.800 And sometimes the revenue doesn't show up in the in 0:08:28.840 --> 0:08:30.920 the income state and until maybe a year or even 0:08:30.960 --> 0:08:35.200 two years later. UM. So it's it's good to see obviously, UM. 0:08:35.280 --> 0:08:38.200 But it's actually the fruit of labor from maybe a 0:08:38.240 --> 0:08:41.760 year or two ago. And now they're cutting corporate financed 0:08:41.760 --> 0:08:44.320 in the US and Asia especially, UM. So we'll have 0:08:44.360 --> 0:08:46.720 to see how that affects the pipeline now and that 0:08:46.800 --> 0:08:50.200 won't happen, that won't be visible until maybe next year. 0:08:50.559 --> 0:08:53.040 I mean, part of the reason they keep people, particularly 0:08:53.120 --> 0:08:56.480 key employees of stock uh Price to book on JP 0:08:56.679 --> 0:08:59.840 Morgan is one point seven. Price to book on Deutsche 0:09:00.000 --> 0:09:05.400 Bank is point three. I mean, the disparity invaluations extraordinary. 0:09:05.440 --> 0:09:09.120 Is this guy able to retain that top ten percent. 0:09:09.240 --> 0:09:14.280 I'm going to call it eight thousand key employees. Ironically, 0:09:14.600 --> 0:09:16.760 the price the book actually helps in a in a 0:09:17.280 --> 0:09:20.920 weird in a weird way. Many people at a bank 0:09:21.000 --> 0:09:24.319 are extremely unhappy about the share price for understandable reasons, 0:09:24.360 --> 0:09:27.440 because you know, the pay depend on them. But since 0:09:27.440 --> 0:09:29.480 they higher now and the price is so low their 0:09:29.520 --> 0:09:32.760 pay packages, you know, they share um, they share options 0:09:32.760 --> 0:09:36.600 are basically worthless, so many are sticking around and hoping 0:09:36.640 --> 0:09:40.760 the share price will rewrite it. Yeah. Yeah, so you know, 0:09:40.800 --> 0:09:42.880 in a weird way, again, it helps, but yeah, people 0:09:42.880 --> 0:09:45.440 are extremely happy unhappy about it. Um and if they 0:09:45.520 --> 0:09:47.719 have hands to go somewhere else and trade in their 0:09:47.720 --> 0:09:49.880 share options for better ones in a different bank. I'm 0:09:49.880 --> 0:09:52.079 pretty sure many people think about that. See quickly you're 0:09:52.160 --> 0:09:57.199 from your vantage point balance. How London and New York 0:09:57.520 --> 0:10:01.280 matter to Deutsche Bank Germany? Is it all about London? 0:10:01.400 --> 0:10:03.880 Is New York and afterthought? Or do they have an 0:10:03.920 --> 0:10:08.439 equal waiters? There some nuance there? I don't see, um, 0:10:08.480 --> 0:10:10.800 I do think. I mean New York is extremely important, 0:10:11.520 --> 0:10:14.080 London is still a bit closer and many of the 0:10:14.120 --> 0:10:17.240 executives tend to be in London. More frequently. God Ritchie 0:10:17.280 --> 0:10:19.520 who was really important how to the investment bank lives 0:10:19.520 --> 0:10:22.920 in London. Um, so you know, it's hard to say. 0:10:22.960 --> 0:10:26.880 Obviously soft factors and so on. Um, it's hard to compare. 0:10:26.920 --> 0:10:29.240 I do think they're both really important. But the cuts, 0:10:29.360 --> 0:10:31.800 I think they're more cuts currently talking place in the US, 0:10:32.240 --> 0:10:35.120 so my senses, there's a bit of a shift away 0:10:35.160 --> 0:10:38.079 from the US, but New York will will remain a 0:10:38.160 --> 0:10:40.840 very important place for dutcha bank. Steve, thank you for 0:10:40.840 --> 0:10:43.120 the briefly learned a lot there, Steve Aarons and Franford 0:10:43.559 --> 0:11:00.520 with wisdom on Deutscheit. I think ViRGE with US out 0:11:00.520 --> 0:11:04.480 of London. She knows American technology and of course has 0:11:04.520 --> 0:11:07.400 brought that over to great acclaim uh in the United 0:11:07.520 --> 0:11:11.000 Kingdom is well, you know, Eileen. It brings back all 0:11:11.040 --> 0:11:14.920 the emotion in all the past and present and even 0:11:15.000 --> 0:11:20.280 future of technology. Why are we still so riveted by space? 0:11:20.640 --> 0:11:24.840 Is a last frontier? There's a great question. You're always 0:11:24.880 --> 0:11:27.240 throwing me these curveballs. I love it. Um. I think 0:11:27.280 --> 0:11:30.280 it is just this sort of uncharted territory because so 0:11:30.440 --> 0:11:33.160 few people have tried to tackle it, and because of 0:11:33.160 --> 0:11:35.800 the capital expenditure required in order to try and address it. 0:11:35.920 --> 0:11:39.960 It's just been out of the reach of traditional innovators 0:11:40.160 --> 0:11:43.040 or obviously any kind of startups because of what you 0:11:43.080 --> 0:11:45.000 actually need to put together in order to get there. 0:11:45.600 --> 0:11:48.040 I mean, within this is is government trying to do 0:11:48.120 --> 0:11:51.600 its thing, and and and certainly they're assisting here, but 0:11:51.679 --> 0:11:54.960 that John Pharaoh's really smart partition is in the Business 0:11:55.040 --> 0:12:00.160 Week cover. This seems to be relatively easy and the 0:12:00.559 --> 0:12:07.800 technology process over the traditional manufacturing processes is still steeped 0:12:07.800 --> 0:12:10.920 in the old, isn't it. Yeah? And I think it's 0:12:10.920 --> 0:12:13.240 as much as you said right before you kind of 0:12:13.280 --> 0:12:15.480 came over to me, it is about the number of parts. 0:12:15.679 --> 0:12:17.240 It's kind of put it down that way, and it is, 0:12:17.640 --> 0:12:19.280 you know, trying to get a sort of a new 0:12:19.320 --> 0:12:23.200 factory producing three cards a day, for example, has so 0:12:23.559 --> 0:12:26.800 much at risk and so many potential points of failure 0:12:27.080 --> 0:12:29.880 that I think that's doing things at scale is what 0:12:29.960 --> 0:12:32.600 always sort of stimy is even the best entrepreneurs. I'm 0:12:32.640 --> 0:12:36.080 just really enjoying Tom walking us through the launch. Where 0:12:36.080 --> 0:12:38.280 are we at the moment? Second stage? Oh, it's a 0:12:38.320 --> 0:12:41.040 bright red cone and they're gonna go out NASA showing 0:12:41.080 --> 0:12:44.760 some animation. But we're at the second stage, which John 0:12:44.840 --> 0:12:47.520 goes down to really the technology here of why the 0:12:47.640 --> 0:12:50.400 US did so better than the Soviets. Eilan, you know 0:12:50.480 --> 0:12:54.320 this from your engineering background. It's just about basic chemistry, 0:12:54.400 --> 0:12:59.040 basic physics, basic metals. These beasts that Mr Musk is 0:12:59.080 --> 0:13:02.679 putting up in the air, are they're way more sophisticated 0:13:02.679 --> 0:13:04.920 than what they dealt with with a Saturn five launch 0:13:05.000 --> 0:13:08.080 or aren't they? No? Absolutely, And I think you're also 0:13:08.120 --> 0:13:11.520 seeing people like Jeff Bezos doing similar to work with rockets, right, 0:13:11.559 --> 0:13:13.559 and they're starting to help compete with one another on 0:13:13.679 --> 0:13:17.320 ego for that. But the technology has run a long way. 0:13:17.480 --> 0:13:20.360 I think the bottom the sort of underlying physics hasn't 0:13:20.440 --> 0:13:22.760 changed to your point earlier, Right, they have to think 0:13:22.800 --> 0:13:24.720 about re entry, they have to think about what happens 0:13:24.760 --> 0:13:28.120 in the upper rapmosphere um. But the methodologies and the 0:13:28.240 --> 0:13:31.480 manufacturing or fabrication that they can use to put together 0:13:31.640 --> 0:13:34.640 the end a stumble the components has come a long way. Well, 0:13:34.640 --> 0:13:36.600 I don't mean this is no longer just about really 0:13:36.679 --> 0:13:38.680 rich men trying to get into space. This is about 0:13:38.679 --> 0:13:41.280 trying to create a business. What is the business The 0:13:41.360 --> 0:13:44.320 SpaceX is ultimately meant to be and where is the 0:13:44.360 --> 0:13:48.960 competition coming from. Yeah, I think actually the competition it 0:13:49.000 --> 0:13:50.640 was probably one of the reasons it was probably easier 0:13:50.679 --> 0:13:52.480 for Elon musk Is because it was such an open 0:13:52.520 --> 0:13:55.000 field when the government, and I think when sort of 0:13:55.000 --> 0:13:59.200 you saw defense spending come down for space um and 0:13:59.440 --> 0:14:02.320 most of the commercial application then moved to satellites and 0:14:02.760 --> 0:14:06.480 communication technology, that's when he saw an opportunity to kind 0:14:06.480 --> 0:14:09.400 of go in there. Fortunately, he is heavily satitized by 0:14:09.400 --> 0:14:11.719 the government still in the Defense Department. But I think 0:14:11.760 --> 0:14:14.760 the commercial opportunities absolutely trying to figure out who wants 0:14:14.800 --> 0:14:18.520 to have access to being able to launch and deploy 0:14:18.920 --> 0:14:23.000 more sort of communication based satellites for GPS or any 0:14:23.040 --> 0:14:26.240 other types of communication for private use. Eileen Burbage, thank 0:14:26.280 --> 0:14:28.080 you so much for a briefly great to bring her 0:14:28.120 --> 0:14:43.160 in with the technology side of all this. John Faroe 0:14:43.320 --> 0:14:46.240 and John Norman, John Norman, JP Morgan had across asset 0:14:46.240 --> 0:14:48.280 fundamental strategy joining us. Now, John, do we have a 0:14:48.320 --> 0:14:52.720 currency war brewing? I don't think that's the main issue. 0:14:52.720 --> 0:14:54.760 I think we definitely have a trade war, which is 0:14:55.040 --> 0:14:59.080 intensifying the currency consequences, But the the main focus is 0:14:59.120 --> 0:15:03.640 really trade when the president pushes back against the strong Goodalla, 0:15:03.720 --> 0:15:08.440 what is that? I think it's a reflection of his 0:15:08.560 --> 0:15:11.960 lack of understanding of the linkages amongst his policies. Is 0:15:12.040 --> 0:15:15.920 very difficult to have tax cuts which are boosting growth 0:15:16.040 --> 0:15:18.960 and have tariff policies which are pushing down e M 0:15:19.000 --> 0:15:22.040 growth and not get a strong dollar. So it's it's 0:15:22.040 --> 0:15:23.800 not obvious to me how he's going to square the circle. 0:15:23.840 --> 0:15:26.640 If he wants a strong growth through tax cuts, he 0:15:26.680 --> 0:15:29.320 also wants his very punitive terror policy, but he also 0:15:29.320 --> 0:15:33.520 wants a weaker currency. January anywhere near inflection points in 0:15:33.680 --> 0:15:37.280 selected pairs, like if I say yen one eleven oh 0:15:37.360 --> 0:15:41.160 five or euro one? S are they in the vicinity 0:15:41.320 --> 0:15:47.400 of JP Morgan important points? I think you're closer to 0:15:47.440 --> 0:15:49.640 an inflection point, or I think you're actually tracing an 0:15:49.680 --> 0:15:52.960 inflection point in the euro. I'm not sure we're tracing 0:15:53.000 --> 0:15:55.320 one and a yen yet. I think for the Euro 0:15:55.960 --> 0:15:59.880 a precondition for the Euro stabilizing and and maybe as 0:15:59.880 --> 0:16:01.640 you hire into year end was that the day to 0:16:01.680 --> 0:16:03.840 improve in Europe. And that's happening, and and the reason 0:16:03.840 --> 0:16:06.960 that's important is because it will reignite the debate about 0:16:07.000 --> 0:16:08.600 when the USA we should hike for the first time 0:16:08.640 --> 0:16:10.840 next year. But yeah, and I feel like it's still 0:16:10.880 --> 0:16:13.280 gonn a week and somewhat because we do have a 0:16:13.280 --> 0:16:16.080 FED which is pretty minded to hike in September and 0:16:16.480 --> 0:16:18.960 keep going after that. So I think, if you have 0:16:19.000 --> 0:16:20.800 to choose, you know, one of these to be bottoming 0:16:20.920 --> 0:16:23.040 versus the dollar, it's in the euro. You choose before 0:16:23.080 --> 0:16:25.320 the end, John, I've got to do a surveillance correction, 0:16:25.400 --> 0:16:27.280 John Farrow, I said the late great el Hard. I 0:16:27.320 --> 0:16:29.680 was thinking late because he used to come in late. 0:16:29.720 --> 0:16:34.800 But the first one and the I can't even I 0:16:34.840 --> 0:16:39.000 did not even great, not for a moment, did I 0:16:39.000 --> 0:16:41.080 actually think that's what you meant. I noticed it in 0:16:41.400 --> 0:16:48.880 good old Marty Schenker said, Tom, you've got it. Has 0:16:48.680 --> 0:16:53.560 this message? Now how messages? Thomas says, I'm still here. 0:16:54.640 --> 0:16:57.800 I was talking about late into the office kind of 0:16:58.440 --> 0:17:01.920 that got lost in surveilling. You gonna have to pick 0:17:02.000 --> 0:17:07.600 this up, while says John, why don't you guys save 0:17:07.680 --> 0:17:13.400 us with John Norman, John Tucker or me. After that one, 0:17:14.560 --> 0:17:16.920 it's pretty much all down there. There's three Johns around it. 0:17:17.000 --> 0:17:19.480 Say well, John Norman, um, let's get you back into 0:17:19.520 --> 0:17:22.680 the conversation and let's talk about China. What is your 0:17:22.680 --> 0:17:25.320 reading what is happening with the Chinese currency? Is this 0:17:25.520 --> 0:17:29.320 the Chinese set of authorities that are just accepting, get 0:17:29.400 --> 0:17:33.119 tolerating a weaker currency. Are they trying to engineer something? 0:17:33.200 --> 0:17:36.640 What's happening, John? I think what they're trying to do 0:17:36.760 --> 0:17:40.840 is stabilize the economy, which was slowing, and they're doing 0:17:40.840 --> 0:17:43.600 that through monitor easing. And if you do that at 0:17:43.640 --> 0:17:45.439 a time when the fet is tightening, you're more than 0:17:45.480 --> 0:17:47.960 likely get a weaker currency. So even though the weaker 0:17:48.000 --> 0:17:51.560 currency is not the first order objective, it's a consequence 0:17:51.600 --> 0:17:54.200 of their monetary policy decisions. So I think this is 0:17:54.240 --> 0:17:57.560 a pretty ordinary move. Um. I think the tough call 0:17:57.720 --> 0:18:01.240 is deciding how much weakness they're willing to tolerate as 0:18:01.240 --> 0:18:04.879 the easy monitor policy, because they're much more minded to 0:18:04.880 --> 0:18:08.880 tolerate very modest weakness five percent brandum versus a number 0:18:08.880 --> 0:18:11.080 of other emerging markets which seem to be much more 0:18:11.080 --> 0:18:15.159 comfortable with ten moves. So I think this is going 0:18:15.200 --> 0:18:17.040 to be kind of a low digit, low single digit 0:18:17.080 --> 0:18:19.359 move for the for the year, and you've had most 0:18:19.400 --> 0:18:22.840 of it already. But if they keep easy monitor policy 0:18:22.840 --> 0:18:24.840 in the side keeps tightening. You know your biases that 0:18:24.920 --> 0:18:27.480 the b is gonna edge lower, John, so far this 0:18:27.640 --> 0:18:31.119 hasn't been that disruptive for global markets relative to what 0:18:31.160 --> 0:18:34.960 we saw in the summer of fifteen, And why not? 0:18:35.080 --> 0:18:37.560 Why is this different and you expected to stay this way? 0:18:39.720 --> 0:18:41.640 I think some of the differences is that the the 0:18:41.720 --> 0:18:46.440 economy overall is in a firmer position. In in China, 0:18:46.440 --> 0:18:49.240 their newer growth sectors that have been offsetting an investment 0:18:49.359 --> 0:18:52.960 slowed down, and I think they're also um has been 0:18:53.480 --> 0:18:55.960 a recognition that China has a fourn exchange reserves to 0:18:56.520 --> 0:19:00.440 control the speed at which the currency declines. So these 0:19:00.480 --> 0:19:02.440 to me are reasons why you can have a low 0:19:02.520 --> 0:19:05.760 volatility moved down in the Chinese currency going forward, rather 0:19:05.800 --> 0:19:09.040 than the sort of higher volve, more disruptive, contagious type 0:19:09.080 --> 0:19:11.480 move that we had in two thousands fifteen, John, how's 0:19:11.480 --> 0:19:13.280 he am doing? If I look at a d X, 0:19:13.280 --> 0:19:17.080 why the Pacific RIM Index X Japan? If I look 0:19:17.119 --> 0:19:20.400 at your JP Morgan Spot Index of EM and all, 0:19:20.600 --> 0:19:24.639 how's the m faring right now? It's fairly mixed. I 0:19:24.640 --> 0:19:27.160 think there's clearly divide opening up between the Asian currencies, 0:19:27.240 --> 0:19:29.400 many of which are making new all time lows every week, 0:19:29.600 --> 0:19:33.239 and uh other currencies, particularly that in America, which are 0:19:33.280 --> 0:19:37.200 more stable, and it simply reflects different countries specific drivers. 0:19:37.280 --> 0:19:39.720 Mexico is looking a little more stable politically. That's why 0:19:39.760 --> 0:19:43.240 the currency is farming. Asia is clearly in the line 0:19:43.280 --> 0:19:46.360 of fire of the Trump administration. So I think if 0:19:46.359 --> 0:19:48.359 you look at broad in disease that it can somewhat 0:19:48.440 --> 0:19:51.840 mask the underlying stories that are a little more interesting. 0:19:51.840 --> 0:19:54.040 There's that there's a whole lot of branciation play here. 0:19:54.320 --> 0:19:56.600 This is really important. John. I agree with you where 0:19:56.640 --> 0:19:59.359 you say ages in the line of fire, but my 0:19:59.480 --> 0:20:03.320 news low tells me Europe's also in the line of fire. 0:20:03.960 --> 0:20:07.400 Is Europe the new Asia in terms of trade upset? 0:20:09.280 --> 0:20:12.000 I don't think quite yet, but more in terms of 0:20:12.040 --> 0:20:14.760 magnitude than that. In terms of focus, it's clear that 0:20:14.760 --> 0:20:17.960 the Trump administration has has labeled Europe of foe, but 0:20:18.040 --> 0:20:23.560 it's not suggesting that it's going to pursue a scale 0:20:23.600 --> 0:20:26.840 of terrorists on the order of what is pursuing with 0:20:26.840 --> 0:20:29.439 with China. So maybe it's just early days and Trump 0:20:29.480 --> 0:20:32.160 hasn't recognized all the things he could do with respect 0:20:32.160 --> 0:20:36.080 to Europe yet, but it looks like China is a 0:20:36.119 --> 0:20:38.600 is a primary enemy, and and and the main focus, 0:20:38.640 --> 0:20:41.639 and Europe is a slide slide show. But you know, 0:20:41.640 --> 0:20:44.800 there's no guarantees that that Europe can sort of leap 0:20:44.800 --> 0:20:46.920 frog into the into the spotlight in the next couple 0:20:46.920 --> 0:20:49.639 of months. John Norman, thank you so much, greatly appreciate that. 0:20:49.760 --> 0:21:06.160 Right now, Pim Fox and Tom Keane with you this morning, 0:21:06.200 --> 0:21:09.080 we have a spirited conversation with three kamar as you 0:21:09.080 --> 0:21:11.600 look at the American economy. Three I'm putting out on Twitter. 0:21:11.920 --> 0:21:15.760 You'll see it first on Bloomberg Radio. The separate lines 0:21:16.040 --> 0:21:22.520 of service sector inflation, which every single listener knows is substantial, 0:21:22.600 --> 0:21:27.080 think three point one percent, and it's essentially been there forever, uh, 0:21:27.240 --> 0:21:30.639 a lot of inflation every year in service sector, and 0:21:30.680 --> 0:21:35.920 then goods deflation, which has been pretty moldy going back, 0:21:35.960 --> 0:21:39.200 you know, good good fifteen years. But with a new 0:21:39.320 --> 0:21:42.639 leg up right now just below a zero percent statistic 0:21:42.760 --> 0:21:47.240 negative zero point two three. With all that's going on, 0:21:47.280 --> 0:21:50.640 are we going to finally see goods inflation, particularly because 0:21:50.640 --> 0:21:55.800 of tariffs slash taxes. Yeah, that is the danger I 0:21:55.800 --> 0:22:00.000 think eventually to both the inflation and to the bond eaves. 0:22:00.040 --> 0:22:04.160 Tom shot, it may not happen within the next six 0:22:04.200 --> 0:22:09.040 months because the global uncertainty is more likely to affect 0:22:09.240 --> 0:22:13.159 total demand and then slow the pace of economic growth. 0:22:13.680 --> 0:22:18.840 But if the tabs persist into twenty, then the higher 0:22:18.880 --> 0:22:22.320 cost get passed on at the wholesale and at the 0:22:22.359 --> 0:22:26.000 retail level, it passes on in the form of higher inflation. 0:22:26.680 --> 0:22:30.679 And then you have also the bondies going up. That is, 0:22:30.760 --> 0:22:34.840 then you have the true risk in tw of stag 0:22:34.880 --> 0:22:39.400 inflation similar to what you and I remember from three 0:22:39.560 --> 0:22:43.800 seventy four. You have a severe contraction in the economy 0:22:44.160 --> 0:22:47.159 as well as prices going up. Then it was because 0:22:47.160 --> 0:22:51.359 of a surge in global oil prices, and this time 0:22:51.760 --> 0:22:55.000 it may be an artificial increase in prices coming out 0:22:55.000 --> 0:22:58.159 of the trade sanctions. So what you say, Tom, is 0:22:58.200 --> 0:23:01.399 a real danger in terms of good inflation for twenty 0:23:02.600 --> 0:23:06.240 but I see the next few months as being relatively benign. 0:23:06.320 --> 0:23:08.760 On that net, on that framework, we can break out 0:23:08.760 --> 0:23:12.360 our whip inflation. Yeah, where I still have them somewhere 0:23:12.440 --> 0:23:15.800 in the in the drawer at home. And you know three, 0:23:15.880 --> 0:23:18.000 you know, I'm glad you used that term. Remember, you know, 0:23:18.320 --> 0:23:20.800 casting your mind back into history, and I'm wondering if 0:23:20.800 --> 0:23:24.040 you could just digress for just a second. And you know, 0:23:24.080 --> 0:23:26.560 you used to work at the Trust Company of the West. 0:23:27.320 --> 0:23:30.760 You went to Columbia University as well as Delhi University, 0:23:31.160 --> 0:23:33.600 and now you've got your own firm, and I'm wondering 0:23:33.600 --> 0:23:37.040 if you could just offer some insight or detail as 0:23:37.040 --> 0:23:39.840 to what it was like to make that switch to 0:23:39.960 --> 0:23:42.520 running your own shop and what you can offer to 0:23:42.640 --> 0:23:45.800 people who may be thinking of doing the same thing 0:23:45.960 --> 0:23:50.439 in their own specific discipline. Thank you, Pim. I'm happy 0:23:50.480 --> 0:23:53.520 to do that. The first thing I think that helps 0:23:53.720 --> 0:23:56.920 is to have a little bit of experience behind you, 0:23:57.440 --> 0:24:00.720 so that you do not want to start out very fresh. 0:24:00.800 --> 0:24:03.920 I did try some thirty five years ago to start 0:24:03.960 --> 0:24:07.480 my own consulting that was on Latin American death in 0:24:07.520 --> 0:24:11.760 the early eighties. The first year and a half was tough. 0:24:11.880 --> 0:24:15.919