WEBVTT - Surveillance: Trichet On Negative Interest Rates 0:00:09.840 --> 0:00:13.800 Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane Jaily. 0:00:13.960 --> 0:00:16.960 We bring you insight from the best in economics, finance, 0:00:17.040 --> 0:00:23.480 investment and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, 0:00:23.600 --> 0:00:27.680 Bloomberg dot Com, and of course, on the Bloomberg Let's 0:00:27.760 --> 0:00:29.920 Turn to Market. Seem A Shaw with us in London here, 0:00:30.040 --> 0:00:34.520 the chief strategists for the Principal Global Investors Group, sure 0:00:34.640 --> 0:00:36.520 that she could be with us. I love your note 0:00:36.680 --> 0:00:39.720 because it's short and right to the point. And Seema, 0:00:39.840 --> 0:00:43.199 you have some wonderful phrases that I need you to 0:00:43.200 --> 0:00:46.840 explain to our audience across America and worldwide. I love 0:00:46.920 --> 0:00:50.400 the idea of the vertico of equities. This is at 0:00:50.800 --> 0:00:54.960 Alfred Hitchcock. Is it? What is equity vertico for next year? 0:00:55.600 --> 0:00:58.840 So what it means, Tom, is we're expecting equity to 0:00:58.880 --> 0:01:02.040 continue to rise next year, really inflated by central bank easing, 0:01:02.040 --> 0:01:05.440 not really inflated by very strong economics. And as they 0:01:05.440 --> 0:01:07.840 continue to rise and those valuations become more and more 0:01:07.840 --> 0:01:12.080 expensive and disconnected from weak economics, it means that you're 0:01:12.080 --> 0:01:14.360 going to get to the point where investors are getting 0:01:14.360 --> 0:01:17.280 increasingly scared of the heights of equities. Now that's not 0:01:17.280 --> 0:01:19.840 mean to say that we expect an ectingmarket correction next year, 0:01:19.880 --> 0:01:22.039 but we are certainly getting closer with that vertigo and 0:01:22.080 --> 0:01:24.800 people start to feel a bit sick. Is it a bubble? 0:01:24.959 --> 0:01:27.240 Is it? By definition? I think of Steve Roach, the 0:01:27.360 --> 0:01:31.000 legend from Morgan Stanley now Yale, or even chairman Bernankey. 0:01:31.520 --> 0:01:33.640 You know, I hate this phrase when it works here 0:01:33.520 --> 0:01:36.720 are is it on the edge of bubble territory? I 0:01:36.760 --> 0:01:38.840 think there's a fair number of people who would say that. 0:01:38.920 --> 0:01:41.880 I would say, however, that you have got the prospect 0:01:41.880 --> 0:01:44.520 of economics catching up, So it's not a done deal 0:01:44.560 --> 0:01:46.920 that the bubble will continue to inflate, inflate, inflate, but 0:01:46.959 --> 0:01:49.160 you could get economis catching up with it. But at 0:01:49.160 --> 0:01:51.640 this stage certainly valuations are very expected, but they will 0:01:51.680 --> 0:01:53.800 be continue to be supported by central banks. So I 0:01:53.840 --> 0:01:57.200 want to go someplace else. Is the shift international? Is 0:01:57.240 --> 0:02:00.400 the shift to stay with us big cap? Something work 0:02:00.520 --> 0:02:03.200 this year? Is it a year of stick with what works? 0:02:03.360 --> 0:02:06.120 Or is it a year of shifting to new ideas? 0:02:06.800 --> 0:02:08.440 So it's a little bit of both. You stick with 0:02:08.520 --> 0:02:10.239 some of the stuff that has worked really well, such 0:02:10.280 --> 0:02:12.720 as megacaps. As you said, some of the defensive areas 0:02:12.760 --> 0:02:15.160 like real estate, we also continue to like. But also 0:02:15.240 --> 0:02:16.679 as we go into next year, there's going to be 0:02:16.720 --> 0:02:20.280 increasing opportunities, which will be important because investors need to 0:02:20.320 --> 0:02:22.399 have a stake in the upside, which we do think 0:02:22.440 --> 0:02:25.840 there will be opportunities for I look at the rest 0:02:25.880 --> 0:02:28.600 of your note and and again, what's so great about 0:02:28.639 --> 0:02:33.000 it is it's really brief. But you talk about risk velocity, 0:02:33.080 --> 0:02:36.119 you talk about I guess what is this a quickening 0:02:36.240 --> 0:02:38.760 of risk? Yeah? What is? You know? We we tend 0:02:38.800 --> 0:02:40.520 to look talk about the number of risks out there, 0:02:40.560 --> 0:02:44.079 but we never think about how quickly it transitions to portfolios. 0:02:44.360 --> 0:02:46.200 So that's what we're expecting next year. There's a number 0:02:46.240 --> 0:02:49.160 of different factors, but at least from this perspective, governments 0:02:49.160 --> 0:02:51.640 and political interference and a number of things we've been 0:02:51.639 --> 0:02:54.080 seen increasing over the next two last two years, and 0:02:54.160 --> 0:02:56.480 we expect that to continue as governments take a larger 0:02:56.600 --> 0:02:59.120 role than central banks have. And then you see a 0:02:59.160 --> 0:03:02.239 lot of the risks, she's a trade war. Eventually transitioning 0:03:02.240 --> 0:03:05.200 to the portfolio is very quickly. Seema lease over here 0:03:05.240 --> 0:03:07.440 in New York and one thing when we're talking about bubbles, 0:03:07.520 --> 0:03:10.280 I have to say it's not all stocks, because there 0:03:10.280 --> 0:03:11.960 have been certain stocks that have been beaten up, the 0:03:12.000 --> 0:03:16.080 stocks that resemble bonds or do best when bonds are rallying. Uh. 0:03:16.160 --> 0:03:19.120 Some people are concerned that the valuations there have gotten 0:03:19.360 --> 0:03:23.640 incredibly inflated. I'm talking about utilities or real estate investment trust. 0:03:23.800 --> 0:03:27.120 How concerned are you about a massive dried out, a 0:03:27.160 --> 0:03:30.400 massive sell off in those particular stocks. I mean, I 0:03:30.400 --> 0:03:32.040 think it is a concern. And I think that as 0:03:32.040 --> 0:03:36.000 we see those valuations that disconnect between some which extremely overvalid, 0:03:36.040 --> 0:03:38.440 which is some which are relatively cheap by history. If 0:03:38.440 --> 0:03:41.120 you do get that very technical shift, you could see 0:03:41.200 --> 0:03:43.720 a very very sharp move. So was that risk velocity 0:03:43.760 --> 0:03:46.240 coming through very sharply? And a number of the areas 0:03:46.280 --> 0:03:48.680 that have performed extremely well, and you've named a couple 0:03:48.680 --> 0:03:51.120 of theres such as utilities, Sama, I'm just wondering who's 0:03:51.120 --> 0:03:53.960 participated in this particular rolley this year. The Wall Street 0:03:54.000 --> 0:03:56.520 Journal out with a fascinating article yesterday referring to some 0:03:56.640 --> 0:03:59.520 data from Refinitive lip A that said investors have pulled 0:03:59.680 --> 0:04:02.960 one hundred and thirty five point five billion dollars from 0:04:03.080 --> 0:04:05.800 US stop focused mutual funds and etf so far this year, 0:04:05.840 --> 0:04:10.200 the biggest withdrawals on record Seema, who's been in the 0:04:10.280 --> 0:04:13.320 market to take advantage of this. You know, when we 0:04:13.400 --> 0:04:15.760 talked to investors, actually, even looking back to the first 0:04:15.800 --> 0:04:17.320 quarter of this year, when there were still a lot 0:04:17.360 --> 0:04:20.120 of concerns, the first question we would get from investors 0:04:20.200 --> 0:04:22.120 was when can I put my money back to work? 0:04:22.200 --> 0:04:24.520 They were desperate, So as soon as there were any 0:04:24.600 --> 0:04:27.400 indications to come in, that's when people started plowing in. 0:04:27.480 --> 0:04:30.520 And we've seen movement from from from hedge hedge funds. 0:04:30.760 --> 0:04:32.400 There's been a lot of the momentum trading and a 0:04:32.400 --> 0:04:33.719 lot of the e t f s as well, playing 0:04:33.720 --> 0:04:35.760 on this on this game, well, this is a really 0:04:35.760 --> 0:04:39.120 important idea. Though Cliff first quarted in zero Head yesterday 0:04:39.560 --> 0:04:43.680 it was brilliant about the cliche there's money on the sidelines? 0:04:44.440 --> 0:04:46.880 Is there money towards to shreds? Is there money on 0:04:46.960 --> 0:04:50.320 the sidelines? I think there is. You know, from our perspective, 0:04:50.320 --> 0:04:52.240 as long as you don't see a recession on the horizon, 0:04:52.680 --> 0:04:55.479 you should be invested in risk assets. Of course, you 0:04:55.480 --> 0:04:57.680 should protect on you on the downside and the defensive 0:04:57.760 --> 0:05:01.000 space and That's exactly why defensive especially equities, have performed 0:05:01.080 --> 0:05:03.280 so well this year is that people want to put 0:05:03.320 --> 0:05:05.760 their money to work. Now, there were some who didn't 0:05:05.760 --> 0:05:07.359 get back in on the rally at the beginning of 0:05:07.360 --> 0:05:10.520 the year when equities really bottomed um, and so for 0:05:10.560 --> 0:05:12.320 those people, they didn't put it in cash, but they 0:05:12.360 --> 0:05:15.279 just waited desperate to put it back into work. They're desperate. 0:05:15.279 --> 0:05:17.480 I mean, did you sense that desperation right now? I mean, 0:05:17.520 --> 0:05:19.600 we're up twenty. I haven't even looked John, I've been 0:05:19.600 --> 0:05:22.760 so busy over here. Arsenal last night against west Ham, 0:05:22.760 --> 0:05:25.280 Oh mg, that was exciting. Did you watch that gang? 0:05:25.400 --> 0:05:29.279 I watched it. I went to it. The SP five 0:05:29.760 --> 0:05:32.080 so far this year, and you're telling me people are 0:05:32.160 --> 0:05:35.600 dying on the sidelines to get in. Well, not necessarily equities, 0:05:35.600 --> 0:05:37.960 because as you said, they are extremely overvalued, but there 0:05:37.960 --> 0:05:40.080 are you know, people want to get something for their money. 0:05:40.120 --> 0:05:41.760 Where am I going to get that something? That's the 0:05:41.800 --> 0:05:44.440 money question? Yeah, absolutely. So. The couple, the couple of 0:05:44.480 --> 0:05:46.400 areas that we really like for next year is emerging 0:05:46.480 --> 0:05:48.960 market debt. Now that hasn't performed as well as the 0:05:49.000 --> 0:05:51.440 rest of the equity space or the fixed income space, 0:05:51.440 --> 0:05:53.640 and we think that the macro fundamentals for next year 0:05:53.839 --> 0:05:55.960 do look pretty good. The same thing with stuff like 0:05:56.040 --> 0:05:59.640 prefer securities, cocos, they are looking really good. They have 0:06:00.160 --> 0:06:01.960 the banking sect has been beaten up in a number 0:06:02.000 --> 0:06:04.359 of possible well, but they are protected by government, so 0:06:04.400 --> 0:06:06.840 that's another upside. But we also really like some of 0:06:06.880 --> 0:06:10.960 the liquid assets, specifically private real estate. Sema, thank you 0:06:11.000 --> 0:06:14.359 so much, Semach just wonderful. Well, really I love it. 0:06:14.520 --> 0:06:17.120 I get these fifty page two thousand twenty things. It's 0:06:17.160 --> 0:06:19.720 got time to read that, Thank you so much. With 0:06:19.960 --> 0:06:24.520 Principal Global Investors, five themes that will shape the markets. 0:06:38.520 --> 0:06:40.840 And now the most frustrating rest we have in all 0:06:40.920 --> 0:06:44.440 of Lubrick surveillance because when the journalist John Fenby walks 0:06:44.440 --> 0:06:46.560 in the door with his prolific writing, you don't know 0:06:46.600 --> 0:06:49.240 what to talk about. Should we talk about France and 0:06:49.279 --> 0:06:51.719 its classic one volume on France? Should we talk about 0:06:51.720 --> 0:06:55.880 his new effort Crucible about coming out of World War Two? 0:06:56.760 --> 0:07:00.960 Or the new edition of your classic Penguin book on China? 0:07:01.240 --> 0:07:04.320 Lisa Bramwitt said, go there. So that's what we're gonna do. 0:07:05.279 --> 0:07:08.440 On China. We have a president gy is it a 0:07:08.560 --> 0:07:11.960 fallback to Mao. Is the new leadership of China a 0:07:12.120 --> 0:07:15.840 redux of Mao? It's not a redux to Mao in 0:07:15.960 --> 0:07:20.440 terms of ideology and so on. He still believes in 0:07:22.080 --> 0:07:25.880 the reforms, the economic reforms, post things, things shaping, but 0:07:26.000 --> 0:07:28.360 he believes in the kind of power and the power 0:07:28.480 --> 0:07:32.480 centralization which we had on the Mao. So it's it's 0:07:32.680 --> 0:07:36.720 a term in terms of how China is run from 0:07:36.760 --> 0:07:39.480 the very top, but not necessarily in all the details 0:07:39.480 --> 0:07:41.640 of how it's run. There are three or four people 0:07:41.680 --> 0:07:44.480 that had the courage to write on all of China, 0:07:44.560 --> 0:07:47.520 like you have of course the giant Jonathan Spence, and 0:07:47.520 --> 0:07:52.040 and you Mr Fenby as well. Within writing on China 0:07:52.320 --> 0:07:54.560 is the response of the restaurant world. How do you 0:07:54.640 --> 0:07:59.720 synthesize President Trump's response to China? His China to his 0:08:00.480 --> 0:08:03.920 It's very erratic, i'd say, is the phrase, what we 0:08:04.000 --> 0:08:07.960 don't have from the United States is a coherent policy 0:08:08.240 --> 0:08:13.000 towards China, whereas She jinping is pretty coherent. I'm not 0:08:13.080 --> 0:08:16.560 a great fan for the idea that China always sets 0:08:16.640 --> 0:08:20.240 things in very very long term planning, but they are 0:08:20.280 --> 0:08:22.360 doing that Visa v. Trump at the moment and the 0:08:22.360 --> 0:08:25.600 clearest memories of being in Hong Kong with Governor Cheng 0:08:25.880 --> 0:08:29.280 the day the w t O began to splinter apart. 0:08:29.440 --> 0:08:33.240 Now we're really talking about the end of that multilateral experiment. 0:08:33.559 --> 0:08:36.960 How critical is it that we see how crucial is 0:08:37.000 --> 0:08:40.640 it rather that we see the w t O drift away? Well, 0:08:41.000 --> 0:08:44.800 China likes likes the w t O, and the danger 0:08:44.880 --> 0:08:49.640 if you get into a series of bilateral arrangements on 0:08:49.760 --> 0:08:54.000 trade rather than having an overarching organization like the w 0:08:54.120 --> 0:08:56.920 t O is that China will make an awful lot 0:08:56.920 --> 0:09:01.880 of deals around the world using its economic cloud quite 0:09:02.080 --> 0:09:07.600 nakedly to gain political influence. Jonathan, giving your vast experience 0:09:07.720 --> 0:09:10.400 in China and with China, i'd love your perspective on 0:09:10.440 --> 0:09:12.240 a question that Jonathan Faro has been asking all morning, 0:09:12.240 --> 0:09:15.040 which is a really good question. Is the silence that 0:09:15.120 --> 0:09:18.319 we've been hearing around the December fifteen tariffs a good 0:09:18.320 --> 0:09:20.800 thing or a bad thing in terms of them actually 0:09:20.880 --> 0:09:23.760 reaching some sort of accord. It shows I think that 0:09:23.800 --> 0:09:27.240 they are down to very serious negotiation at the moment. 0:09:28.040 --> 0:09:32.520 This is less the negotiation by tweet and silence from 0:09:32.600 --> 0:09:36.880 the Chinese side, and it's more a sign that they 0:09:36.920 --> 0:09:41.120 are getting down to real nitty gritty elements here, and 0:09:41.240 --> 0:09:46.360 that involves, of course increased Chinese purchases of American goods, 0:09:46.360 --> 0:09:50.480 particularly agriculture, but also it will require some indication from 0:09:50.520 --> 0:09:53.319 the U S side that they're willing to consider tariff 0:09:53.440 --> 0:09:57.720 rollbacks or further delays in tariffs to keep the Chinese happy. 0:09:57.880 --> 0:10:01.280 Another big question sort of overhang all of these negotiations 0:10:01.320 --> 0:10:03.280 is who has more to lose? And there was data 0:10:03.320 --> 0:10:07.600 coming out overnight about China's consumer inflation accelerating to a 0:10:07.720 --> 0:10:10.320 seven year high in November. This largely rides in the 0:10:10.320 --> 0:10:14.120 back of higher pork prices, but you see factory prices declining. 0:10:14.160 --> 0:10:17.439 This raises the specter of stagflation, of a concern for 0:10:17.679 --> 0:10:20.120 the PBOC what they are going to do in order 0:10:20.160 --> 0:10:23.319 to juic growth without causing a sort of hyper inflation 0:10:23.720 --> 0:10:26.360 that that impedes the economy. How should we view this? 0:10:26.720 --> 0:10:30.199 How concerned is the PBOC at this point? It is 0:10:30.240 --> 0:10:35.920 pretty concerned, I think, and it's traditional transition mechanisms aren't 0:10:35.960 --> 0:10:39.160 working as well as they used to, and you have 0:10:39.200 --> 0:10:42.840 a leadership in Beijing which doesn't want to go for 0:10:42.880 --> 0:10:47.200 the old fashioned stop go big stimulus packages that we've 0:10:47.200 --> 0:10:50.400 seen since two thousand and eight. They want a more managed, 0:10:50.480 --> 0:10:53.760 more stable economy, and they're trying to do this in 0:10:53.800 --> 0:10:56.280 the middle of the trade war, and that's difficult, and 0:10:56.320 --> 0:10:58.679 we can't let you go without a discussion. A crucible, 0:10:58.760 --> 0:11:02.640 You're right, prolifically, Jonathan Fenby. Crucible is about a time. 0:11:02.640 --> 0:11:05.480 It seems so important right now. Is it the end 0:11:05.480 --> 0:11:07.719 of World War two? It's the end of World War two? 0:11:07.760 --> 0:11:11.520 And it's the really the emergence of the new World system, 0:11:11.559 --> 0:11:15.160 both through the US involvement in the world and lots 0:11:15.160 --> 0:11:17.160 and lots of other things happening all across the globe. 0:11:17.480 --> 0:11:19.840 What's the distinction there? I mean, I think of the 0:11:19.880 --> 0:11:25.040 starvation in Europe, those difficult years of literally famine before 0:11:25.080 --> 0:11:29.320 the Marshall Plan, is well, did the US get that right? 0:11:29.400 --> 0:11:32.440 And can we get that spirit back? The US I 0:11:32.480 --> 0:11:35.480 think got that right. In fact, they were quite helped 0:11:35.679 --> 0:11:38.360 by the Soviet Union and the way that Starling got 0:11:38.360 --> 0:11:40.880 it wrong for most of the time. The US got 0:11:40.880 --> 0:11:45.160 it right through the Marshall Plan, through NATO, the establishment 0:11:45.280 --> 0:11:47.440 NATO and so on. And it needs that kind of 0:11:47.480 --> 0:11:50.960 commitment which you saw from the Truman administration to get 0:11:51.000 --> 0:11:53.720 things going again. I've got another two hours of questions 0:11:54.400 --> 0:11:57.120 another time, Jonathan Fanbi, thank you so much, folks. I'm 0:11:57.120 --> 0:11:59.600 going to cut to the chase. His one volume in 0:11:59.720 --> 0:12:04.600 China is absolutely definitive. It is a sprawling history, particularly 0:12:04.640 --> 0:12:09.080 of modern China. His one volume on France is just 0:12:09.240 --> 0:12:12.239 the single best thing out there, particularly on the cultural 0:12:12.720 --> 0:12:16.520 aspects of what make the French different and crucible thirteen 0:12:16.559 --> 0:12:19.960 months that forged our world with the emotion of awe 0:12:20.000 --> 0:12:37.480 after World War Two. It is always a joy to 0:12:37.559 --> 0:12:40.160 speak to Jean Claude Triche. There are too many things 0:12:40.200 --> 0:12:44.480 to talk about, including European central banking. Lisa Brando, It's 0:12:44.480 --> 0:12:46.640 would like a three hour interview. I guess we can't 0:12:46.640 --> 0:12:50.520 do that today, Lisa, but we will try forward with 0:12:50.640 --> 0:12:55.600 President Tryche on too many European topics. First, Sean Claude Triche, 0:12:55.840 --> 0:12:59.440 we must speak of the legacy of Paul Voker. We 0:12:59.520 --> 0:13:02.560 know of his courage in the late seventies in the 0:13:02.600 --> 0:13:07.360 early eighties to make tough decisions to force recession and 0:13:07.400 --> 0:13:10.880 to bring down inflation. But then there was a story 0:13:11.040 --> 0:13:16.600 afterward which was almost a study hand uh forward through 0:13:16.720 --> 0:13:20.959 the nineteen eighties, how does Europe find a vocer like 0:13:21.280 --> 0:13:26.600 presence for the next ten years. Well, let me let 0:13:26.640 --> 0:13:31.520 me say, Tom, how sad we are to lose Paul Vulcar. 0:13:32.120 --> 0:13:35.800 Until I would say his last days, he was still active. 0:13:36.720 --> 0:13:40.400 He was still very very keen on giving advice and sentiments. 0:13:40.840 --> 0:13:44.640 And the last book he published, Keeping Arid, has been 0:13:44.760 --> 0:13:49.479 absolutely incredible in terms of lessons to be learned from 0:13:49.640 --> 0:13:55.360 his whole life. He said the three verities are stable prices, 0:13:55.400 --> 0:14:00.480 sound finances, and good government. And he was not putting 0:14:00.559 --> 0:14:05.679 his punctions to say that on sound finance and good government. 0:14:06.360 --> 0:14:09.880 Practically all advanced economy where I'm not up to the 0:14:10.080 --> 0:14:16.760 challenges stable paces. We are still living in the legacy 0:14:15.559 --> 0:14:20.160 right as regards the stable prices, which which gives a 0:14:20.200 --> 0:14:25.920 measure of his own influence and his own achievement. You 0:14:26.320 --> 0:14:28.400 can't say enough about the book keeping out And of 0:14:28.440 --> 0:14:31.120 course this is Mr Foker writing with Bloomberg News. Is 0:14:31.200 --> 0:14:35.160 Christine Harper, great honor of Christine write that book with 0:14:35.800 --> 0:14:39.640 Chairman Walker in his final two years of life. Sean 0:14:39.680 --> 0:14:42.240 claud triche the new phrase. I know John Farrell wants 0:14:42.280 --> 0:14:43.720 to jump in here on it. Let me get the 0:14:43.760 --> 0:14:51.120 conversation started, how does Jean Claude Triche define fiscal space. Well, 0:14:51.760 --> 0:14:57.760 I would say a lot of countries have some fiscal 0:14:57.840 --> 0:15:02.280 space in the advanced to me, and should utilize their 0:15:02.280 --> 0:15:08.520 physical space as resolutely as possible with great determination in 0:15:08.600 --> 0:15:12.400 their interest and in the interest of the continental and 0:15:12.440 --> 0:15:17.000 global economies. Others are in a totally different situation. And 0:15:17.080 --> 0:15:20.000 that's all the difficulty with the concept of physical space 0:15:20.640 --> 0:15:24.000 at the global level as well as at the European level. 0:15:24.040 --> 0:15:28.680 There is a tendency to over simplify the recommendation and 0:15:28.760 --> 0:15:32.200 to say either you should be very sound and reasonable 0:15:32.320 --> 0:15:35.680 as regards the fiscal position, or you should be as 0:15:35.720 --> 0:15:41.680 expensive as possible. But it's not correct to simplify oversimplify 0:15:41.800 --> 0:15:46.160 the recommendation for for a number of countries like Germany 0:15:46.280 --> 0:15:51.920 and the Netherlands as examples, the idea that there should 0:15:51.920 --> 0:15:57.720 be much much I would say aggressive utilization of physical 0:15:57.800 --> 0:16:01.720 space is absolutely right and go without saying in my opinion, 0:16:02.280 --> 0:16:05.040 But others it's not the same. And I hesitate on 0:16:05.080 --> 0:16:09.240 the United States of America to tell you my my understanding, 0:16:09.280 --> 0:16:14.440 because the fiscal position is not signaling a lot of 0:16:14.560 --> 0:16:17.520 physical space in the US, at least in my view, 0:16:17.760 --> 0:16:20.600 Jean claud Le's trying and focus on europe An area 0:16:20.640 --> 0:16:23.680 that you had to oversee as the ECB president since 0:16:23.720 --> 0:16:26.360 twas and at three that was the last time that 0:16:26.440 --> 0:16:28.920 we had a Monechy policy review at the e c B. 0:16:29.280 --> 0:16:31.640 Christine Legard is now undertaking that task. What do you 0:16:31.640 --> 0:16:35.920 think needs to be done well? I think she's right 0:16:36.240 --> 0:16:39.640 to to look at it exactly like the FED looked 0:16:39.640 --> 0:16:43.200 at it in the very recent allions. Still continues if 0:16:43.200 --> 0:16:48.560 I'm not missled. So we we have a number of 0:16:48.680 --> 0:16:52.360 issues that are at stake. Which which are the judgments 0:16:52.440 --> 0:16:56.400 that you are i would say making on non conventional 0:16:56.480 --> 0:17:00.640 measures that have been so so heavily applied by all 0:17:00.720 --> 0:17:03.920 santo bags in the world. Is it something that you 0:17:03.920 --> 0:17:08.200 would consider permanent and structural or is it something which 0:17:08.280 --> 0:17:13.119 was really transitory, waiting for the economies of the advanced 0:17:13.320 --> 0:17:18.199 countries going back to normal themselves. Uh. You have also 0:17:18.400 --> 0:17:24.680 the way how do you run your definition of price stability? 0:17:25.040 --> 0:17:29.560 The United States Fed looked at it through a certain 0:17:29.640 --> 0:17:34.560 angle and concluding provisionally. To my knowledge, we don't change 0:17:34.640 --> 0:17:37.800 the definition of price stability to percent, but we are 0:17:37.920 --> 0:17:42.199 we will be more symmetric in utilizing this uh, this 0:17:42.480 --> 0:17:47.600 definition of price stability, So the same questions might be 0:17:47.680 --> 0:17:51.200 asked in Europe. My own understanding is that the most 0:17:51.240 --> 0:17:54.719 important one is certainly the definition of price stability and 0:17:54.760 --> 0:17:59.760 how do you run that? And I would personally, i 0:17:59.760 --> 0:18:04.600 would say, provisionally, conclude that a change of the figure 0:18:05.040 --> 0:18:08.439 would not be appropriate. Personally, at the time I was 0:18:08.480 --> 0:18:11.879 called myself to go to four percent instead of two percent, 0:18:12.280 --> 0:18:13.919 I don't think it was. It would have been a 0:18:13.920 --> 0:18:18.639 good idea, and today it would appear strange. I don't 0:18:18.680 --> 0:18:22.320 spouse the idea that zero percent or one percent would 0:18:22.320 --> 0:18:25.040 be better. It seems to me that we should not 0:18:25.160 --> 0:18:29.240 forget that the central banks are there to anchor medium 0:18:29.240 --> 0:18:34.800 and long term expectation. And that being said, it's clear 0:18:34.880 --> 0:18:39.639 to me that this running of monetary policy with this 0:18:39.760 --> 0:18:44.320 definition should be symmetric. Of course, I have no hesitation 0:18:44.400 --> 0:18:47.240 on that, but again I don't want to anticipate on 0:18:47.359 --> 0:18:49.879 the meditation of the Governing Council for our lessons to 0:18:50.200 --> 0:18:53.440 worldwide and placed decide that Johning us Humblinberg Radio, John Calatricia, 0:18:53.560 --> 0:18:56.720 the former President of the European Central Bank. Jean Claude, 0:18:56.720 --> 0:18:58.560 the former president of the e. C. B. The one 0:18:58.600 --> 0:19:01.080 that came after you are a Dragon used to say 0:19:01.119 --> 0:19:03.400 that for rights to be higher in the future, then 0:19:03.400 --> 0:19:05.879 needed to be lower. Now that's the argument for negative 0:19:05.880 --> 0:19:08.160 interest rates for much of the last five years or so. 0:19:08.440 --> 0:19:12.200 Do you think we need to reassess that argument? Well, 0:19:12.600 --> 0:19:16.680 again the problem. Of course, it is clear that extraordinary 0:19:16.760 --> 0:19:22.720 accommodating monetary policy, including negative interest rates like in Switzerland 0:19:22.920 --> 0:19:27.879 as minus zero points seven five, or in Sweden, or 0:19:27.960 --> 0:19:31.679 in in some respect in Japan or all this of 0:19:31.760 --> 0:19:37.880 course is extraordinary and associated with very very abnormally low 0:19:38.080 --> 0:19:42.359 level of inflation and also of growth in in the 0:19:42.440 --> 0:19:48.600 advanced economy. Uh. There are of course negatives that are 0:19:48.640 --> 0:19:52.880 associated with this negative interest rates or re accommodating policies 0:19:53.240 --> 0:19:56.240 as well as positives. But the positives, and I share 0:19:56.280 --> 0:19:59.199 the view of the major central banks that considered that 0:19:59.240 --> 0:20:02.760 the positives higher than the negatives. But the negatives should 0:20:02.800 --> 0:20:07.080 not be forgotten. And therefore I hope very much this 0:20:07.600 --> 0:20:12.679 very low it's will not be compulsory for eternity, and 0:20:12.960 --> 0:20:15.640 I hope and I expect that we will go back 0:20:15.680 --> 0:20:18.359 to a more normal situation. But that thing said, it 0:20:18.520 --> 0:20:21.439 is it is not an arbitrary decision of the central 0:20:21.480 --> 0:20:24.119 banks to embark on these accommitting in policies. It is 0:20:24.160 --> 0:20:27.639 because the situation is very demony. This has been wonderful, 0:20:27.720 --> 0:20:30.439 Jean clau Touche, thank you so much, particularly those thoughts 0:20:30.440 --> 0:20:33.440 on Paul Poker this morning. He is the former president 0:20:33.920 --> 0:20:50.480 of the European Central Bank. Please decide that joining us 0:20:50.520 --> 0:20:53.680 here in New York City is David coustin Government Sex Is, 0:20:53.760 --> 0:20:57.760 Chief US equity strategist. Good morning to you, Mr Corston, 0:20:57.920 --> 0:21:00.520 Good morning, optimistic about the year ahead. It give us 0:21:00.520 --> 0:21:04.320 the y. Why is the U S economy is continuing 0:21:04.359 --> 0:21:08.359 to grow and that is important because of the economic 0:21:08.400 --> 0:21:13.320 activity is what drives consumer spending. Consumers of US economy, 0:21:13.320 --> 0:21:15.480 that's what drive earnings, and that's what's likely to take 0:21:15.880 --> 0:21:19.439 the U S stock market higher in aboff average, in 0:21:21.200 --> 0:21:24.760 rising profit margins that will boost EPs by five percent. 0:21:25.240 --> 0:21:27.639 Where the rising profit margins coming from? Why are you 0:21:27.680 --> 0:21:30.119 looking for that type it? Well, the rising profit margins 0:21:30.200 --> 0:21:32.200 really is the fact that this year they came down 0:21:32.240 --> 0:21:35.479 by almost sixty five basis points. Kind of particular, But 0:21:35.520 --> 0:21:37.080 if you really want to look at what's happening, it's 0:21:37.160 --> 0:21:40.720 ultimately revenue growth. And revenue is the story. The unemployment 0:21:40.800 --> 0:21:43.320 right now is the lowest in fifty years, continuing to fall, 0:21:43.640 --> 0:21:48.760 likely driving overall business activity. Technology margins is what really 0:21:48.800 --> 0:21:52.199 distinguishes the United States equity markets from global markets, and 0:21:52.240 --> 0:21:55.239 the tech margins are now above and so in some 0:21:55.320 --> 0:21:57.680 cases you'll see them come down, but really coming down 0:21:57.720 --> 0:22:00.119 from a very very high levels compared with every whe 0:22:00.119 --> 0:22:02.280 else in the world. I know, Tom is over there 0:22:02.280 --> 0:22:04.720 in London. There's very low profit mars over there. Tom, 0:22:04.760 --> 0:22:07.160 you want to have more profit margins come here. Well, 0:22:07.440 --> 0:22:09.960 I will say that there is some concern about a 0:22:10.040 --> 0:22:13.480 bubble in a specific slice of the stock market. I'm 0:22:13.480 --> 0:22:17.280 talking about utilities and reads and other interest rate sensitive sectors. 0:22:17.480 --> 0:22:21.520 Ce CETA General has said that the world's largest stocks 0:22:21.520 --> 0:22:23.560 that win from low yields are near their most expensive 0:22:23.600 --> 0:22:26.439 relative to the losers in at least fifteen years. Do 0:22:26.480 --> 0:22:30.640 you think that they are set for a big sell off? Well, 0:22:30.800 --> 0:22:34.200 the dispersion of valuation is how you want to think 0:22:34.200 --> 0:22:38.199 about that. That's the separation the spread between the uh 0:22:39.080 --> 0:22:42.239 highest valued stocks versus lowest value stocks are as at 0:22:42.240 --> 0:22:47.360 an extreme and that is typically associated with value stocks outperforming, 0:22:48.160 --> 0:22:51.480 but economic growth in that modest level somewhere between zero 0:22:51.480 --> 0:22:54.840 and three percent, not a recession. Nor you're having rapid expansion. 0:22:54.920 --> 0:22:57.560 So that roughly the great rate of growth you've had 0:22:57.600 --> 0:23:00.240 in the last ten years. That suggests that growth ocs 0:23:00.280 --> 0:23:02.280 too better. So answer to your question, you think about 0:23:02.359 --> 0:23:05.240 value versus growth, Value should do better based on some 0:23:05.320 --> 0:23:07.600 of the metrics, growth likely to do better, and so 0:23:07.680 --> 0:23:10.200 as a as an investor, but following managers should be 0:23:10.240 --> 0:23:12.760 thinking about growth at a reasonable price kind of GARB 0:23:12.880 --> 0:23:15.720 the proverbial GARB strategy, and the idea behind that and 0:23:15.840 --> 0:23:19.640 intuition is not to own the most expensive companies, which 0:23:19.680 --> 0:23:21.679 are in fact over valued. I would certainly concur with 0:23:21.720 --> 0:23:24.520 that view um, but rather also you need always have 0:23:24.520 --> 0:23:28.199 some growth because value stocks are likely to trail if 0:23:28.240 --> 0:23:30.280 the economy continues to grow. So, hey, we call type 0:23:30.359 --> 0:23:33.280 it increasingly the consensus cold its value worth of growth, 0:23:33.400 --> 0:23:36.360 your growth of a value absolutely increasingly the consensus cold 0:23:36.440 --> 0:23:38.520 is the rest of the world of the United States. 0:23:38.640 --> 0:23:41.679 I don't hear that from you this morning. Why not? 0:23:41.920 --> 0:23:44.600 Because the economic activity in the US is still very strong. 0:23:44.640 --> 0:23:47.480