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Speaker 1: Yea. Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane.

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Speaker 1: Daily we bring you insight from the best in economics, finance, investment,

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Speaker 1: and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud,

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Speaker 1: Bloomberg dot Com, and of course on the Bloomberg So

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Speaker 1: important now, folks, that we have just the right guest

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Speaker 1: to advance this discussion. Liziane Saunders and the Charles Schwab

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Speaker 1: in a course within her work on the equity markets

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Speaker 1: and all was a demonstrable economic voice to the George H.

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Speaker 1: Bush administration of another time in place, maybe a Republican

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Speaker 1: politics of another time in place. Lizian Saunders, I don't

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Speaker 1: want to espose it your Republican or Democrat, but you

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Speaker 1: did serve on a number of panels committees for President

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Speaker 1: uh Bush. What I'm seeing in the five Trump tweets

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Speaker 1: this warning is a completely non non republican trade ethos.

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Speaker 1: What is the ethos that you see from the president? Well,

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Speaker 1: I think tell me you think you you touched on it,

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Speaker 1: which is mercantilism. Um, you know that was It was

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Speaker 1: a pretty dominant economic theory in the fifteenth to the

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Speaker 1: eighteenth century. Certainly around Europe, tariffs were generally a big

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Speaker 1: part of that. If you want to speak more broadly

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Speaker 1: about moving from globalization to regionalization or nationalism, um, that

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Speaker 1: clearly is what the United States is doing now, but

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Speaker 1: it's not. It's not just the dominity United States has

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Speaker 1: moved toward nationalism. Is it is a global phenomenon. And

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Speaker 1: I think there's long term implications that are lost in

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Speaker 1: the shroud of the near term impact of this trade war.

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Speaker 1: This is from tweet two to tweet three quote. With

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Speaker 1: the over one hundred billion dollars in tariffs that we

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Speaker 1: take in, we will buy agricultural products from our gray farmers.

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Speaker 1: The idea that we take in tariffs from China is

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Speaker 1: the heart of the discussion, isn't it. But it's that's

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Speaker 1: not the reality of how tariffs work. Of course. In fact,

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Speaker 1: there's some attention rightly so on a fairly new paper

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Speaker 1: put out by the n b e R as a

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Speaker 1: reminder there the bureau that dates recessions, and it looks

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Speaker 1: at the impact of the tariffs that have kicked in

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Speaker 1: so far and who is boring the brunt of those

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Speaker 1: And it shouldn't come as a surprise to people who

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Speaker 1: really do the work and understand this, that the brunt

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Speaker 1: of the higher prices as being borne by the U

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Speaker 1: s US importers US consumers. And that is something as

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Speaker 1: we look at these additional tariffs which increasingly affect consumer goods,

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Speaker 1: I think will be increasingly felt kind of on the

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Speaker 1: ground by so called main street. It's been a more

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Speaker 1: esoteric thing, I think for a lot of consumers so far.

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Speaker 1: But but assuming they actually kick in um and are

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Speaker 1: pulled back, then we're at the point in this this game,

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Speaker 1: if you want to call it that, where it will

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Speaker 1: actually start to bite in a more concrete noticeable way.

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Speaker 1: And let's talk about what this makes for markets. Four

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Speaker 1: days of losses on the SMP five futures just a

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Speaker 1: little bit solfter this morning, down a quarter of one.

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Speaker 1: What's the message for clients this morning? Well, I think

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Speaker 1: this is more than just about trade. Quite frankly, I

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Speaker 1: think that that that represents maybe the shorter term wiggles

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Speaker 1: as it relates to market volatility. But you know, the

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Speaker 1: rally off the Christmas Eve low started in a very

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Speaker 1: healthy fashion. Breadth measures were quite strong. It was not

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Speaker 1: accompanied by excess optimism, so you you kept sentiments sort

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Speaker 1: of in the favor of the bulls, because there was

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Speaker 1: this maybe healthy skepticism that accompanied the first couple of

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Speaker 1: months of the rally. Were recently though, speculations started to

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Speaker 1: kick in. You saw record levels of speculative shorts on

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Speaker 1: the volatility index, even beyond where we were in January.

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Speaker 1: That of course led to the short vall implosion of

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Speaker 1: of February. You were seeing behavioral measures of sentiment, attitudinal

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Speaker 1: measures of sentiment. Of course, valuations had gotten not terribly stretched,

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Speaker 1: but stretched enough that we were probably at the point

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Speaker 1: where you needed earnings to start to do some of

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Speaker 1: the heavy lifting. That valuation expansion purely based on macro

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Speaker 1: factors was probably at its maximum points. So I think,

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Speaker 1: aside from trade, there were maybe reasons for the market

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Speaker 1: to take a little bit of a breather here. That's

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Speaker 1: just represented sort of the kicker of the catalyst. There

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Speaker 1: was a hope of belief perhaps then the second half

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Speaker 1: of this year we would get a stabilization in the

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Speaker 1: global economy, maybe even somewhat of an acceleration. Those hopes

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Speaker 1: have been dimmed somewhat as the weakest grown older HSBC

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Speaker 1: come out with the following this morning and say our

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Speaker 1: economists expect global growth to remain subdued in the coming

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Speaker 1: quarters and a significant rebound in the data seems unlikely.

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Speaker 1: This then means that the current outperformance of risk assets

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Speaker 1: such as globally coudit Fest's global sovereigns may have to

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Speaker 1: retrace in the coming three to six months. Does that

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Speaker 1: resonate with you? It does. But the factor that we

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Speaker 1: think that is most relevant to how non US will

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Speaker 1: perform relative to US, and this is the day to

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Speaker 1: day domain of of my colleague who you guys know,

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Speaker 1: Jeff Klinop, but is the what's going on in the

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Speaker 1: currency markets. I think a you know, an increase in

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Speaker 1: the dollar from here, that that brings back the era

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Speaker 1: of last year where you had to pick up in

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Speaker 1: the dollar and you had dollars nominated deaths coming due

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Speaker 1: and a funding crisis. Um that could that could resonate

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Speaker 1: again across emerging market, particularly the weaker ones, and kind

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Speaker 1: of reignite a period like we saw last fall where

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Speaker 1: you saw significant underperformance there. So so you know, it's

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Speaker 1: it's related to trade, of course, but I think currency

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Speaker 1: is key to performance. Comparisons too short today, lisen So

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Speaker 1: thrilled to have you and Mr Kleintop and Studio to

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Speaker 1: talk about the perspective of Mr Schwab's shop, z Anne Sanders,

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Speaker 1: on the equity markets, and on China. It's a small

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Speaker 1: I p O. John. It was wonderful the day of

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Speaker 1: the Facebook I p O to speak with Paul Kadraski

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Speaker 1: and David Kirkpatrick. And Kadraski just said, no, it's way

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Speaker 1: too early in the morning out here, and you know

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Speaker 1: the mountains of California, wherever the the man's the eight

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Speaker 1: thousands square feet that Kadrawski lives in out in California.

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Speaker 1: But Kirkpatrick darkened the door, and he darkens the door

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Speaker 1: this morning. David Kirkpatrick's economy media CEO and founded David.

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Speaker 1: Great to have you with the door today. Forty dollars

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Speaker 1: a share a market valley was seventy five point five

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Speaker 1: billion dollars, priced towards the bottom end of the range.

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Speaker 1: And yet the one phrase I've heard again and again

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Speaker 1: and again over the last twenty four aunts is I

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Speaker 1: don't get it, and you don't get it either. I

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Speaker 1: don't really get it. I mean, it's a it's a

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Speaker 1: strange situation where it's a company that's really changed the

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Speaker 1: way many of us live and changed even the layout

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Speaker 1: of our cities. Um may not ever be a really

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Speaker 1: great business. And and the interesting thing is, if you

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Speaker 1: look at the sort of history of Uber, it's often

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Speaker 1: been talked about as sort of the next great company

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Speaker 1: of the Internet allah Google and Facebook, and ultimately it

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Speaker 1: is in a way lower margin business that which really

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Speaker 1: doesn't have the essential elements that have created those coloss

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Speaker 1: I So I don't see it as a trillion dollar

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Speaker 1: company ever. Do you think it's company. I don't see

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Speaker 1: the thing this company can ever make money. I'm not

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Speaker 1: sure of that. I think it's possible, you know, if

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Speaker 1: they really cut costs and raise prices. Yes, is self

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Speaker 1: driving cars going to be a panacea, that's what they say.

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Speaker 1: I don't really see that coming in any near term

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Speaker 1: at at scale that could really transform their business. I

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Speaker 1: do think they're very enterprising. They write great software. Obviously

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Speaker 1: it's an impressive company. They've executed well. They did a

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Speaker 1: great job getting rid of Kolanic and putting in Kasra Shahi.

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Speaker 1: That was a smart move. They've got some really smart

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Speaker 1: investors who have done super well in the private markets.

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Speaker 1: But I don't see the company's long term prognosis being fantastic.

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Speaker 1: I just don't. But you're chirm besides writing the Facebook

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Speaker 1: effect and we await the Uber effect and your plane

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Speaker 1: a plane flying where you're right while you're on the plane.

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Speaker 1: But David Kirkpatrick, you have mentioned before that their only

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Speaker 1: weapon is heaven forbid to raise prices, right, well, why

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Speaker 1: can't they do that? They own the market, Well, they

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Speaker 1: can do it. I think they can do it, but

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Speaker 1: that would slow their growth, which is something else that

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Speaker 1: that markets now public markets are gonna demand because many

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Speaker 1: people still are very attracted of these services, not just

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Speaker 1: because they're more convenient, but because historically they have felt

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Speaker 1: very affordable. But people aren't going to go out and

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Speaker 1: buy taxi cabs again, or you know's a great extent

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Speaker 1: they raise prices and even sell that a part of

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Speaker 1: it actually goes to these drivers working an eight or

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Speaker 1: nine bucks an hour. Why don't they raise prices this morning?

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Speaker 1: I think they will raise prices, There's no question about it.

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Speaker 1: And there's a lot of cities where the taxi industry

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Speaker 1: is so poor that they will be able to get

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Speaker 1: away with it. In a city like New York. That's

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Speaker 1: going to be hard because the taxi industry is still

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Speaker 1: good here. A lot of people have reduced their use

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Speaker 1: of Uber and Lift and started using taxis again because

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Speaker 1: it's not more competitive. David, you made a point a

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Speaker 1: couple of minutes ago that you've done well if you

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Speaker 1: bought this in private markets. There was a headline across

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Speaker 1: the Bloomberg about twenty four hours ago Lift slipping below

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Speaker 1: the last private market value of fifteen point one billion dollars.

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Speaker 1: And I'm just wondering, when we always talk about the

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Speaker 1: frothiness in markets, do you need to spend a little

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Speaker 1: bit more time thinking about how much froththiness there is

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Speaker 1: in private market totally before these companies become public companies.

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Speaker 1: That has been very The reason we have to think

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Speaker 1: that way has a lot to do with soft Bank

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Speaker 1: and the Vision Fund, which has just thrown money at

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Speaker 1: companies and has to do it at massive uh scale

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Speaker 1: or else they can't justify themselves as being a hundred

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Speaker 1: billion dollar entity. So I think we've seen evaluations get

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Speaker 1: really out of whack with reality for companies. Many companies,

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Speaker 1: not all that that that that have sort of been

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Speaker 1: able to build a myth of being the potential next

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Speaker 1: x Facebook, you know, next Uber for the current generation

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Speaker 1: of startups. But but I I don't think all of

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Speaker 1: them have those opportunities. I think Silicon Valleys made a

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Speaker 1: lot of ethical and strategic mistakes that are starting to

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Speaker 1: become more apparent, and these valuations may have been over much.

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Speaker 1: I want to interrupt your John. The president's tweets have

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Speaker 1: changed the time clock on Twitter. There's a time element

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Speaker 1: that shows you how long the tweet has been out,

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Speaker 1: and I leave that the set of five tweets changed

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Speaker 1: two minutes ago, where maybe they went in and redid

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Speaker 1: a typo or redid some language. I'm not sure that,

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Speaker 1: but I do want to report it's a report that

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Speaker 1: the time clock on the president's tweets have changed from

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Speaker 1: forty minutes ago to like two minutes ago. I see

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Speaker 1: the same thing. Yeah, I don't think you kind of

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Speaker 1: edit tweets at home. Oh you know, you delete him

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Speaker 1: and then redo it. All right, So he's he's he's

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Speaker 1: retweeted at them. Is that what you're saying. I don't

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Speaker 1: know if he's retweeted him or he deleted him and

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Speaker 1: then retweeted a corrected copy. I don't the material substance

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Speaker 1: of it changing. But I'm just pointing out the time

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Speaker 1: clock change. All right. It's interesting Twitter and Uber have

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Speaker 1: certain things in common. They are absolutely central to the

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Speaker 1: infrastructure of many of our lives, but they may not

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Speaker 1: be gigantic, fantastic businesses. David Kirkpatrick honored to have you

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Speaker 1: here this day of the I p O obviously Capital

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Speaker 1: Markets chief US Economists being very sorry for me, Tom,

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Speaker 1: you'll read on the dates of place. Hey, good morning. Um, yeah, look,

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Speaker 1: I think it's you know, sort of it was more

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Speaker 1: or less consistent with our broader view, right that you're

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Speaker 1: going to see some energy price uh impact on the headline.

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Speaker 1: You know, core is a little light relative to our

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Speaker 1: own expectations. I haven't seen the details, Jet, I'm actually

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Speaker 1: out of the office today, but um, you know, well

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Speaker 1: we'll we'll look to that, look into that more to see,

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Speaker 1: you know, where the miss was from a core perspective.

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Speaker 1: But nevertheless, you're still running a you know, sort of

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Speaker 1: around two from a year of a year um basis perspective.

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Speaker 1: You know, nothing has really changed from an inflation narrative,

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Speaker 1: at least not based on today's numbers. Let's go to

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Speaker 1: first principles, Tom Purcelli, and we thank you for your perspective.

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Speaker 1: Chairman Powell mentions trimmed cp I series. What's the difference

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Speaker 1: between the Dallas trimmed or the Cleveland CPI and the

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Speaker 1: data that came out two minutes ago. Yeah, I mean,

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Speaker 1: look all all he's trying to do is he's trying

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Speaker 1: to say, if we strip out some of the volatile components, UM,

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Speaker 1: you know, what is the underlying run rate from an

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Speaker 1: inflation perspective, and and we're totally sympathetic from that, um

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Speaker 1: uh to that. So we actually have a sort of

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Speaker 1: another way of of looking at it. And and we

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Speaker 1: actually wrote about this, uh within the last week. You know,

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Speaker 1: if if you just strip out so we look at

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Speaker 1: the volatile components versus the non volatile components to to

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Speaker 1: sort of really get a good stumps for um, what's

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Speaker 1: you know, how inflation is actually evolving um, and the

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Speaker 1: volatile components have actually been pretty volatile. Uh. And so

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Speaker 1: from that perspective, I think, you know, Powell was in

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Speaker 1: the right to um to sort of you know, label

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Speaker 1: this transtory. But again let's let's let's be clear. UM.

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Speaker 1: I think one of the reasons why he's really trying

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Speaker 1: to drive this transitory idea home, because I think he's

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Speaker 1: actually trying to move people away from the idea of

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Speaker 1: thinking that the set is inclined at rates right now.

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Speaker 1: I mean, I think he's trying to balance that equation

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Speaker 1: to some expense. And John Ferroll, what's important here is

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Speaker 1: when you look at the volatile and transitory cpis to

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Speaker 1: textas one of them is Madrid hotel rooms that no transitory.

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Speaker 1: Rather no, there there's a their moon shot. They will

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Speaker 1: for when you and I go to Madrid, those inflationary

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Speaker 1: forces will fade after the Champions League. German Paul says,

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Speaker 1: usually transitory when we are below target, not above. It's

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Speaker 1: but this is really John John's you know, last into this.

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Speaker 1: But Tom Porcelli, this is a really important question. Are

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Speaker 1: we symmetric right now? No? I mean, look, it's it's

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Speaker 1: it's interesting, um and this is something this is something

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Speaker 1: with clients for for the last couple of days I'm

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Speaker 1: here in Canada. I think what people have to keep

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Speaker 1: in mind is that there's this notion that the FED

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Speaker 1: is willing to let inflation run run a little hotter

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Speaker 1: um to make up for previous shortfalls from an inflation perspective,

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Speaker 1: we found it really interesting that BRAINERD sort of through

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Speaker 1: a bunch of who's a dove threw a bunch of

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Speaker 1: cold water on on that idea UM, which again we're

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Speaker 1: we're we're totally sympathetic to UM. So I I would

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Speaker 1: say that if you look at it from a pure

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Speaker 1: what is the FED to mandate perspective, it is actually

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Speaker 1: quite clear that is entirely about inflation right now. Right like,

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Speaker 1: I think the growth part of the mandate is not

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Speaker 1: being used at all. So I do think it's about inflation.

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Speaker 1: And that's an important point to draw out because what

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Speaker 1: I would say is this, if you think about the

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Speaker 1: feds um um the reaction function to either cut rates

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Speaker 1: or raise rates, I think the hurdle is incredibly high

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Speaker 1: for the FED to cut rates. I think you would

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Speaker 1: actually need a pretty material down leg in inflation here

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Speaker 1: at the core level. And I think the opposite is

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Speaker 1: true too. I think you would actually need a pretty

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Speaker 1: significant increase in inflation for the FAT to actually restart

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Speaker 1: the hiking cycle. So you know, I think it all

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Speaker 1: points to the sort of the same conclusion. The FETE

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Speaker 1: is on hold, you gotta leave it there, Tom per Sali,

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Speaker 1: thank you so much, greatly appreciate that up in Canada

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Speaker 1: with our receipt the Royal Bank of Canada Capital Market.

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Speaker 1: Right now, Devin McDermott joins us with Morgan Stanley out

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Speaker 1: of North American exploration and production research at Morgan Stanley.

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Speaker 1: I'm gonna make it real clear, folks, don't email me

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Speaker 1: for the Morgan Stanley brilliance. You must get that through

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Speaker 1: Morgan Stanley. We protect the copyright of all of our guests, Devin,

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Speaker 1: I'm going to be real clear. Got an overweight on

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Speaker 1: Chevron and an overweight on oxy am. I correct on that.

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Speaker 1: That's right, Tom, to give me the one, give me

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Speaker 1: the excuse me, give me the y on accidental, so

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Speaker 1: on occidental. Here, we've seen the stock underperform the rest

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Speaker 1: of its peers in the oil space pretty significantly over

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Speaker 1: the last few weeks, in a large part due uncertainty

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Speaker 1: around this fairly unique m and A situation we watch

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Speaker 1: play out and where the stock sits now as one

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Speaker 1: of the strongest dividend yields in the sector in the

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Speaker 1: mid five percent range. That dividend is now comfortably covered

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Speaker 1: on the back of this anti Darko deal now moving forward,

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Speaker 1: and there's attractive acreation that I think the market will

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Speaker 1: begin to price in as we go through the next

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Speaker 1: several weeks. Shareholders, the core shareholders of Oxy, some were

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Speaker 1: frustrated by the way this deal process played out, but

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Speaker 1: I think most will stay with the stock, and sentiment

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Speaker 1: has been turning more positive in my conversation with investors

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Speaker 1: over the past few days. Here in particular, two questions

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Speaker 1: then the synergy word. I hate the word synergy, folks,

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Speaker 1: but it actually works here the ven diagram of Anon

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Speaker 1: darkal layering over accidental. How much synergy can they get?

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Speaker 1: Can you give us a billion dollar number of costs

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Speaker 1: they take out? Yeah, So the target that Oxy has

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Speaker 1: laid out is two billion dollars for this acquisition, and

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Speaker 1: about half of that is true capital synergies to making

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Speaker 1: the operations more efficient, and the other half is cutting

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Speaker 1: costs and looking at an a dark dough. It was

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Speaker 1: someone of a unique situation, but one thing that stood

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Speaker 1: out at that company is the overhead costs were much

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Speaker 1: higher than a lot of the piers in the industry,

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Speaker 1: and that does create nice opportunities for synergies. So we

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Speaker 1: do think that that level is achievable. But give me

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Speaker 1: a nudge. Here are we nudging two billions of synergies

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Speaker 1: out to two point to two point three two point

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Speaker 1: five readjust about thirty six months. So I think the

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Speaker 1: two billions of realistic number here in the case of Chevron,

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Speaker 1: had that deal move forward acquiring Anadarka, we think there

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Speaker 1: was more upside to synergies given there was more portfolio overlap.

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Speaker 1: But proxy, I think two billions. But you see how

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Speaker 1: Devon talks here, folks. He's got to be really carefully.

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Speaker 1: There's a lot of constituencies involved. I don't want to

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Speaker 1: get him in trouble at Morgan Stanley Devin. The other

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Speaker 1: thing you've got in your research note, which is brilliant

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Speaker 1: is Mr Buffet gets an lovely preferred overhanging as you

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Speaker 1: call it. I love that phrase. Mr Buffett gets paid first, right, Yes,

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Speaker 1: Mr Buffett gets paid before stockholders equity holders in this situation. Uh.

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Speaker 1: One of the developments over the past two weeks that

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Speaker 1: came to a surprise or as a surprised to us

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Speaker 1: in a lot of investors was the preferred equity arrangement

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Speaker 1: between Mr Buffet or Berkshire Hathaway and occidental ten billion

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Speaker 1: dollars eight percent yield for ten years, and he got

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Speaker 1: UH about ten percent of the stock or empercent of

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Speaker 1: the market captain warrants at a little bit above where

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Speaker 1: Oxy was trading at the time. That does create an

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Speaker 1: overhang for the stock around that price, a little bit

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Speaker 1: over ten percent. We're axey trades today. Have you done

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Speaker 1: his total return when he catches in those warrants yet?

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Speaker 1: Have you done the math yet? We have not run

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Speaker 1: that map at this point. It now ye fair, Okay,

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Speaker 1: there's been a little distracting say, and today Oxy is

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Speaker 1: trading below the strike price for those warrants. We have

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Speaker 1: to see how Oxy trade over the next few months

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Speaker 1: tow quarters and there'll be somewhat oil depending given the

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Speaker 1: linkage between Oxy's profitability and where oil prices. This transaction

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Speaker 1: is accidental program petroleum. Going back to Mr. Hammer, do

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Speaker 1: they enter big oil today? Are they big oil? All

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Speaker 1: of a sudden they have moved into that big oil category. Yes,

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Speaker 1: they will be one of the largest US companies fallowing

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Speaker 1: actually right behind Chevron in terms of total productions. We

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Speaker 1: have Exxon Chevron and then then Oxy UH in number

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Speaker 1: three slot. After this deal, I see the five year

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Speaker 1: dividend growth to three percent. That doesn't get it done.

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Speaker 1: And granted, you know there's a new religion on use

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Speaker 1: of cash and maybe oil sustains at a barrel? Do

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Speaker 1: you just assume a truncated dividend growth given all the

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Speaker 1: new constituencies include think Mr Buffett? Or can they actually

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Speaker 1: ramp up dividend growth? Which is what institutional investors care about?

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Speaker 1: Ask a good question, Tom, And prior to this deal,

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Speaker 1: one of the headwinds for Oxy was challenges growing the dividend.

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Speaker 1: The dividend was covered within organic cash flow, but just barely.

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Speaker 1: And I mentioned earlier that Anna Darko, given the synergy is,

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Speaker 1: given the portfolio overlap, and given the deep discount that

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Speaker 1: an A Darko traded that prior to this deal, creates

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Speaker 1: better dividend coverage and better free cash flow for Roxy

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Speaker 1: going forward. So we do see a better pathway to

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Speaker 1: dividend growth host this deal than we did looking at

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Speaker 1: Oxy stand alone. Where's the next Anna Darko out there?

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Speaker 1: Have you? Published? On ten twenty and Dvin McDermott Folks

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Speaker 1: and his team is so good at this because they're

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Speaker 1: not only looking large cat big oil, but they're looking

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Speaker 1: at everybody else where's the next day and a Darko

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Speaker 1: out there? Do you have one, two, three, four strong

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Speaker 1: buys in the smaller oil pitch. Yeah, it's a great

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Speaker 1: question as well. And we've done several M and A

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Speaker 1: screen looking at what has similar characteristics to Anadarko and

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Speaker 1: also what would be a strategic fit to some of

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Speaker 1: the big oil companies out there that might be looking

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Speaker 1: to expand in shale. There's one that stands out with

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Speaker 1: anti Darko like characteristics and that's Noble Energy, another one

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Speaker 1: of our overweights, and they have a position in the

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Speaker 1: Permian just like in a dark and also exposed to Colorado.

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Speaker 1: And then you couple that strong US on shore business

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Speaker 1: with international very cash generative assets, and Noble is a

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Speaker 1: big developer in the Eastern Mediterranean. They're developing a megaproject

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Speaker 1: into Israel, very strong, free cash, slow profile, and trades

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Speaker 1: at a deep discount of some of the parts here.

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Speaker 1: But is a behavior change for Mr Stover and Mr

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Speaker 1: Smallo get Noble? Is the behavior changed with this transaction? No,

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Speaker 1: I wouldn't say the behavior changed with this transaction, and

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Speaker 1: it's hard to say when the next M and A

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Speaker 1: deal in the space might happen overall. We think consolidation

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Speaker 1: makes sense over time, but Anadarko, as I mentioned, a

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Speaker 1: unique situation. It's not the beginning of this. You m

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Speaker 1: and A your consolidation wave in this space, feel will

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Speaker 1: be opportunistic from here rather than consolidation theme in the

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Speaker 1: short term. Devin McDermott, thank you so much. With Morgan

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Speaker 1: Stanley today on Chevron on totel on an a darko

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Speaker 1: in the view forward for American Oil. It thrilled that

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Speaker 1: David Wu could join us on this historic days UH

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Speaker 1: head of Global Rates FX and Emerging Market Fixed Income

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Speaker 1: Strategy at Bank of America Mary Lynch, which barely describes

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Speaker 1: as contribution to the discourse the global discourse of all

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Speaker 1: that we do, David, since I spoke to you three

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Speaker 1: hours ago, we have had I think it's ten or

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Speaker 1: eleven tweets and they center around a mercantile is um

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Speaker 1: and I gotta be careful, your folks. It's not even

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Speaker 1: rigid pre Ricardian Elizabethan mercantilism. It's the President's view of

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Speaker 1: the trade world. David Will, you've seen those tweets? How

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Speaker 1: do you translate them for the global economics and business community.

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Speaker 1: I think you know will listen. I Tom, thank you

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Speaker 1: so much for having me again. I mean, I I

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Speaker 1: feel like today's watching the Cuban missile crisis unfold in

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Speaker 1: financial market terms. It means to me, it's interesting that,

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Speaker 1: you know, the Trump's original tweet was when he said, well,

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Speaker 1: there's absolutely no no need to rush. That was clearly

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Speaker 1: and that tweet got deleted. That was interesting because no

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Speaker 1: need to rush could be basically interpreted as wow, you know,

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Speaker 1: this thing is really going to go out of control.

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Speaker 1: So I think the fact that got deleted that actually,

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00:24:48,320 --> 00:24:50,880
Speaker 1: I think, you know, gives me some optimism that perhaps

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00:24:50,920 --> 00:24:53,000
Speaker 1: you know, they're still going to try to deal basically

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00:24:53,040 --> 00:24:55,560
Speaker 1: the next few days, three days. I think the issue

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00:24:55,640 --> 00:24:57,440
Speaker 1: here for the market is not that the you know,

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Speaker 1: the issue is going to be today if we could

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00:25:00,000 --> 00:25:02,879
Speaker 1: to get a deal or not today, well, at least

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00:25:03,160 --> 00:25:05,800
Speaker 1: are we going to get an extension until basically Sunday,

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00:25:05,880 --> 00:25:08,000
Speaker 1: so that you know, Lil Hook can go back home

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00:25:08,000 --> 00:25:11,480
Speaker 1: where something enhanced. Even there's no deal today and Lil

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00:25:11,520 --> 00:25:14,719
Speaker 1: Hook goes back to basically China over the weekend empty handed.

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Speaker 1: That's when I become very worried because China will have

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00:25:17,560 --> 00:25:20,800
Speaker 1: to retaliate. But I think today is really really important.

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00:25:20,840 --> 00:25:24,359
Speaker 1: The fact that Trump is rethinking about the message you

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00:25:24,440 --> 00:25:26,800
Speaker 1: sending to the market. I think that it is not

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00:25:26,880 --> 00:25:29,200
Speaker 1: necessarily a bad thing. I mean, just tells you that,

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00:25:29,240 --> 00:25:31,560
Speaker 1: you know what, he hasn't completely made up his mind,

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00:25:31,720 --> 00:25:33,879
Speaker 1: and God shows some flexibility, and you need to be

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00:25:33,880 --> 00:25:36,280
Speaker 1: flexible going to the town, going down to the final

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00:25:36,320 --> 00:25:38,879
Speaker 1: structure of this. So, David, what happens if we at

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00:25:38,880 --> 00:25:41,119
Speaker 1: the end of today we not only get no deal,

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00:25:41,480 --> 00:25:44,080
Speaker 1: but we get bad body language out of both sides

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00:25:44,119 --> 00:25:46,040
Speaker 1: and they as they hop into their ubers the head

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Speaker 1: to the airport. What happens if it's just a real

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00:25:49,040 --> 00:25:51,840
Speaker 1: negative body language for the markets, I think that would

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00:25:51,880 --> 00:25:54,320
Speaker 1: be very bad. There's no doubt that would be very bad.

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00:25:54,760 --> 00:25:58,160
Speaker 1: But again you recall, right, this is why I think

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00:25:58,240 --> 00:26:01,360
Speaker 1: the last time something like this is happened was on

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00:26:01,520 --> 00:26:04,960
Speaker 1: February twenty second. Do you remember Wilho was over here.

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00:26:05,480 --> 00:26:07,919
Speaker 1: You know, the tariff that Trump was threatening was going

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00:26:08,000 --> 00:26:11,199
Speaker 1: to kick in on March one, right, the meeting was

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00:26:11,280 --> 00:26:14,119
Speaker 1: not going that well. But however, there was a press

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00:26:14,160 --> 00:26:18,520
Speaker 1: conference late afternoon on Friday, you know, in the old

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00:26:18,640 --> 00:26:20,720
Speaker 1: Office with wild Hood and basically trial, and they say

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00:26:20,760 --> 00:26:23,320
Speaker 1: they made enough progress for Lil Hood to extend his

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Speaker 1: day for two more days, and he stayed on Saturday

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Speaker 1: and Sunday. And on Sunday Trump tweeted saying that, well,

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00:26:29,640 --> 00:26:32,119
Speaker 1: you know, there was enough progress made that basically that

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00:26:32,240 --> 00:26:35,600
Speaker 1: the terroff has now been postponed. I think you know

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00:26:35,720 --> 00:26:38,879
Speaker 1: we've seen this movie before. I'm hoping that you know

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00:26:38,920 --> 00:26:41,359
Speaker 1: this is the script we're gonna basically follow. And I

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00:26:41,400 --> 00:26:43,919
Speaker 1: think you know it feels to me, I mean suddenly,

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00:26:43,960 --> 00:26:45,840
Speaker 1: I for this way, the fact that the market is

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00:26:45,920 --> 00:26:48,000
Speaker 1: up today, if I mean, you know, US features down

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00:26:48,000 --> 00:26:50,119
Speaker 1: a bit, but Europe and Asia generally up today, and

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00:26:50,160 --> 00:26:52,919
Speaker 1: then general the market is quite calm. The market I

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00:26:53,000 --> 00:26:56,720
Speaker 1: suspect is looking like that script to basically following David.

476
00:26:56,760 --> 00:26:59,680
Speaker 1: Let's go to the David Woo research report. We're gonna see,

477
00:27:00,040 --> 00:27:03,520
Speaker 1: which is a tool that the Chinese have. Whatever the

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00:27:03,640 --> 00:27:10,040
Speaker 1: outcome is re reman be appreciation and depreciation, not devaluation, folks,

479
00:27:10,359 --> 00:27:14,000
Speaker 1: but modest management of their currency. How much would they

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00:27:14,040 --> 00:27:18,479
Speaker 1: depreciate the currency given a bad Trump outcome, I think

481
00:27:18,480 --> 00:27:21,080
Speaker 1: will be at least two or three I mean, I

482
00:27:21,119 --> 00:27:23,680
Speaker 1: mean should extend the in theories. I mean, you know, Tom,

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00:27:23,760 --> 00:27:25,760
Speaker 1: I mean you know I've been talking. I think the

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00:27:25,800 --> 00:27:28,600
Speaker 1: most interesting thing about this market is the fact that

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00:27:28,640 --> 00:27:31,800
Speaker 1: different markets have been pricing very different probability of a

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00:27:31,840 --> 00:27:35,000
Speaker 1: deal being done. And I think every investor would agree

487
00:27:35,080 --> 00:27:37,359
Speaker 1: that the Chinese stock market was pricing in the highest

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00:27:37,359 --> 00:27:40,040
Speaker 1: probability of a deal being done. And this is also

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00:27:40,080 --> 00:27:42,199
Speaker 1: the reason why the Chinese stock market is now basically

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00:27:42,240 --> 00:27:44,240
Speaker 1: lost about half of the games okay, in the last

491
00:27:44,280 --> 00:27:47,200
Speaker 1: three or four trading days that it may basically since December.

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00:27:47,640 --> 00:27:49,400
Speaker 1: And I think from that point of view, if there's

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00:27:49,440 --> 00:27:51,399
Speaker 1: no deal, I think Chinese market is going to be

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00:27:51,400 --> 00:27:54,040
Speaker 1: the most vulnerable. The arm BE is probably gonna weaken

495
00:27:54,119 --> 00:27:57,040
Speaker 1: on his own. And the point here is that Beijing

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00:27:57,119 --> 00:28:00,119
Speaker 1: is unlikely to intervene to stabilize with support yard you.

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00:28:00,480 --> 00:28:02,640
Speaker 1: So I think the on BE from that point of view,

498
00:28:02,840 --> 00:28:04,840
Speaker 1: will be down probably to a three percent at least

499
00:28:05,240 --> 00:28:08,480
Speaker 1: if there's no deal. Where if there's a deal to extend,

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00:28:08,480 --> 00:28:10,359
Speaker 1: the Chinese don't want to see a stronger R and B.

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00:28:10,840 --> 00:28:12,720
Speaker 1: I think, you know, the outside for the Armby's limited.

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00:28:12,720 --> 00:28:15,639
Speaker 1: This is why this is sort of an asymmetric Basically,

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00:28:16,040 --> 00:28:18,240
Speaker 1: I think balance a risk. Caral David Wood, thank you

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00:28:18,320 --> 00:28:20,359
Speaker 1: so much for your contribution to the show on this

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00:28:20,440 --> 00:28:24,600
Speaker 1: historic day. Dr wu is with Bank of America Maryland's

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00:28:24,600 --> 00:28:26,640
Speaker 1: Look for David woo out on all of our services

507
00:28:26,680 --> 00:28:29,359
Speaker 1: and of course our podcast as well. We tak Oppenheimer

508
00:28:29,440 --> 00:28:32,520
Speaker 1: Funds for their support of our digital product has made

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00:28:32,520 --> 00:28:42,040
Speaker 1: a huge, huge that difference. Thanks for listening to the

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00:28:42,040 --> 00:28:48,560
Speaker 1: Bloomberg Surveillance Podcast. Subscribe and listen to interviews on Apple Podcasts, SoundCloud,

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00:28:48,920 --> 00:28:53,120
Speaker 1: or whichever podcast platform you prefer. I'm on Twitter at

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00:28:53,160 --> 00:28:57,440
Speaker 1: Tom Keane before the podcast. You can always catch us worldwide.

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Speaker 1: I'm Bloomberg Radio, a