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Speaker 1: Brought you by Bank of America, Mary Lynch. Investing in

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Speaker 1: local communities, economies and a sustainable future. That's the power

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Speaker 1: of global connections. Mary Lynch, Pierce Fenner and Smith Incorporated

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Speaker 1: member s I p C. Welcome to the Bloomberg Surveillance Podcast.

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Speaker 1: I'm Tom Keene with David Gura. Daily we bring you

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Speaker 1: insight from the best in economics, finance, investment and international relations.

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Speaker 1: Find Bloomberg Surveillance on iTunes, SoundCloud, Bloomberg dot Com, and

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Speaker 1: of course on the Bloomberg Join us Now in studio

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Speaker 1: is Jeffrey You. He's the head of the UK Investment

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Speaker 1: office at UPS here in London, and it's great to

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Speaker 1: meet you in person. Jeffrey, Nice to see you. Likewise,

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Speaker 1: let's let's start with the with the macro here. We've

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Speaker 1: been trying to process what's been happening in dging markets

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Speaker 1: with currencies in particular over the quarters of the week.

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Speaker 1: What lessons are you drying here, What have you seen?

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Speaker 1: What are you interpret in here when you look at

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Speaker 1: emerging market currencies. So two things and you know we'll

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Speaker 1: go with a pacer in the Lira and and the

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Speaker 1: two of them are new. Moving on on esoteric matters.

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Speaker 1: So it's it's a good sign that, um, you know,

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Speaker 1: currencies well e M currencies can actually move quite aggressively,

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Speaker 1: can we can quite aggressively you know, without infecting the rest.

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Speaker 1: You know, we were worried about currency crisis and the

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Speaker 1: M currency crisis in the past. Um. But on the

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Speaker 1: other hand, it does show that, you know, where the

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Speaker 1: capsule is flowing, where the money is flowing, still heading

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Speaker 1: into the US right now as a dollar story on

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Speaker 1: the ascendancy UH the PBOC in China, they're trying to

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Speaker 1: contain that. We've seen some massive news in this DNH.

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Speaker 1: So even though there's no cross selling of EM and

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Speaker 1: right now I think a lot of EM currency is

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Speaker 1: actually know quite attractive at these levels, we are still

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Speaker 1: you know, not seeing a turn anytime soon. Markets are

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Speaker 1: waiting for the proposals, you know, the policies from the

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Speaker 1: incoming administration and will that prompt another dollar rally. So

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Speaker 1: you know, that's another risk a lot for us to

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Speaker 1: dig into. Your help us with the trou bank intervention

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Speaker 1: that we've seen. We saw the Turgu Central Bank trying

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Speaker 1: to to shrub liquidity here. What what what? What's your takeaway?

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Speaker 1: From that um. So if you look at what Turkeys

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Speaker 1: trying to do on the liquidity side of things now,

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Speaker 1: not too dissimilar to what's some going on at CNH market.

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Speaker 1: So they know the directionality is a bit hard to

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Speaker 1: move against right now. But now there are ways to

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Speaker 1: slow down the move right, so to speak, so to

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Speaker 1: make funding costs to get forward. Sweez going to make

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Speaker 1: holding a short position and these currencies relatively expensive for traders,

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Speaker 1: right but that can only work on a tactical basis

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Speaker 1: from a Central Banks points of view, This bys time

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Speaker 1: and the impetus is on the authorities to use that

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Speaker 1: times of restructure of reform and in Turkey's case, you know,

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Speaker 1: try to bring down the fex exposures. In the corporate sector.

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Speaker 1: We saw market enthusiasm, so much market enthusiasm after the

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Speaker 1: US presidential election. It seems like traders may be taking

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Speaker 1: a pause or or reevaluating, or waiting to see what

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Speaker 1: actually comes about. Here is that true sense of what

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Speaker 1: we're seeing right now when it comes to to US

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Speaker 1: economic policy. I think that's broadly true, more so in

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Speaker 1: the equity mark it because you know that has been

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Speaker 1: and you know whether you US ecty markets on relative

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Speaker 1: basis on much more domestic focused be at large caps

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Speaker 1: or midcaps. So in relative to the rest in Europe

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Speaker 1: and the UK, particularly the FITS, he is a commodity

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Speaker 1: in tax for index for all intents and purposes. So

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Speaker 1: there is you know, where people do want to you know,

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Speaker 1: probably gonna take a step back reassess. But for this year,

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Speaker 1: we still think the growth is in the U S

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Speaker 1: and we want to be overweight. The US banker folks

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Speaker 1: Bank of America, with a minimal move off markets, barely

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Speaker 1: budging here is increase their common share repurchase other too

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Speaker 1: big to fail banks to follow. We've got a good

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Speaker 1: amount of time with Jeffrey you of UBS, and we'll

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Speaker 1: get the acid allocation and what is you doing with

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Speaker 1: UBS wealth management? But I got one more inside baseball

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Speaker 1: question which you're almost up to speed on. Can I

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Speaker 1: trust the statement of foreign exchange reserves in any given nation?

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Speaker 1: Do you if the numbers three trillion, how much of

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Speaker 1: that is actually in the piggy bank? Um so in

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Speaker 1: China's case, so that's very interesting. Then most would argue

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Speaker 1: that if you count of all of China's f X assets,

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Speaker 1: you know, not just with say, if you've got the

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Speaker 1: n SSF, You've got CEE I C, You've got s

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Speaker 1: I C. You know, all of these entities. It's gotta

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Speaker 1: much larger than three trillion. What matters is how much liquid,

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Speaker 1: thank you, that they can actually crops. So probably you

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Speaker 1: know that is going to fall not significantly below the

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Speaker 1: three trilling mark, but a bit below that, right, So

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Speaker 1: hard to put a number on the guestimates. You know,

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Speaker 1: probably you know seven at least scent of that should

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Speaker 1: be liquid. And then you move from there. So you

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Speaker 1: move from there in within the trimma of international economics,

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Speaker 1: what's the first derivative going to be this year? Is

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Speaker 1: this going to be a mr G going to Dabo

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Speaker 1: saying whoa, the piggy bank is gonna empty quick? That

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Speaker 1: is not going to happen. From China's point of view,

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Speaker 1: It is going to be essential for them to maintain stability.

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Speaker 1: You know, we know the political risks in China, the

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Speaker 1: domestic political candia. Everyone talks about Europe this year. China

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Speaker 1: has a political transition every five years, and it's going

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Speaker 1: to happen this year. Very It's on very few client

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Speaker 1: spray does at this point. So maybe if a cold

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Speaker 1: recent because when that happens, that tend to stable process.

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Speaker 1: I don't mean to interrupt David, and you want to

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Speaker 1: jump in here with them that this is a critical question.

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Speaker 1: Who is Mr G's speaking to an happy valley in Switzerland.

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Speaker 1: Is he talking to David Rubinstein, Ken Rogoff, Mr Greco

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Speaker 1: of Zurich and Mr Krying no after me to Deutsche

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Speaker 1: Bank my panel at Davos, or is he talking to

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Speaker 1: somebody in cheng Do he is trying to talk to

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Speaker 1: the Chinese people one show China is applied. China is

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Speaker 1: trying to fill a vacuum. But at the same time

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Speaker 1: things are under his control. There will be stability. Yes,

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Speaker 1: we've had a few bubbles on the exchange right, yes,

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Speaker 1: where at this coming down, But it's not something that

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Speaker 1: is out of his control. The fact that he can

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Speaker 1: be there, you know, right ahead of the NPC and

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Speaker 1: March is a sign of yeah. Because I remember David

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Speaker 1: when Mr Sarkozy showed up when year early in his

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Speaker 1: reign and literally it wasn't like WF was even there.

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Speaker 1: He essentially gave a speech for Paris. Jeffrey, let me

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Speaker 1: ask you Begs a broader question here, just about the

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Speaker 1: degree which the Chinese government is getting better at communicating.

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Speaker 1: Do you find that to be the case on financial matters?

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Speaker 1: On monetary matters, um, I find the p BOC is

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Speaker 1: becoming much better at communicating and and the p BOC

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Speaker 1: is one of the most technocratic, if not the most

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Speaker 1: technocratic institutions in China. So you know they acknowledge. You know,

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Speaker 1: what they did in August two thousand and fifteen was

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Speaker 1: poorly communicated, so you know they plan on doing that better.

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Speaker 1: That again, communicating to markets versus communicating to the domestic audience,

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Speaker 1: and what has priority will always be the latter. What

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Speaker 1: changed after the IMF put put them in the special

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Speaker 1: drawings basket? Did anything change with that? Largely? You know,

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Speaker 1: not much. You know, that's not being domestic that that's

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Speaker 1: not being debated at all. I think what the Chinese

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Speaker 1: intended is for that to be a sign of well,

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Speaker 1: a sign of recognition and get tomand up and people

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Speaker 1: be more willing to borrow an issue and c nhum.

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Speaker 1: But again then they look at seeing why they look

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Speaker 1: at the capital outflows and I'll probably say no, thank you,

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Speaker 1: not right now, how's the PBOC has the Chinese government

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Speaker 1: preparing for the eventuality of dramatic changes to U S

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Speaker 1: trade policy. Um, that really is beyond their remit at

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Speaker 1: this point. From their their own points of view, they

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Speaker 1: just they know there will be a lot of financial instability.

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Speaker 1: But again on on on the currency side, any any instability,

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Speaker 1: if it's a dollar driven move, if it's dollar going

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Speaker 1: up against broader emerging markets, and they're like, then I

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Speaker 1: think they'll be happy to allow that to happen. And

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Speaker 1: then it's going to be a basket. They'll refer to

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Speaker 1: the basket. Look, it's a dollar move the stable against

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Speaker 1: everything else. What's migrate tour and talk about in our

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Speaker 1: next block. Do you use your expertise in foreign exchange

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Speaker 1: to hedge equity shares abroad? Is it worth hedging foreign

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Speaker 1: exchange or do you just go the risk? Well, if

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Speaker 1: you had so, from a UK investor's points of view,

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Speaker 1: if you had hedged your foreign exchange risk last year,

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Speaker 1: you would have missed out on quite a bit. So

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Speaker 1: I think last year was a very big educational exercise

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Speaker 1: for our UK clients. They realized that one having overseas

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Speaker 1: exposure could pay dividends and that that that that is

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Speaker 1: that could be said for the fit as well, because

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Speaker 1: seventy percent overseas earnings, but also having unhedged effects exposure

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Speaker 1: to overseas assets. If I'm really paid off, it's truly

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Speaker 1: a In London, David, all the talk here of winter

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Speaker 1: storm coming, it's not snow for maybe fifteen minutes. I

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Speaker 1: was expecting to create some excitement. Five inches, Jeffery, you

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Speaker 1: were this with the London weather report. You get do

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Speaker 1: they ever get like five inches of snow in London?

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Speaker 1: We'll put it this way. I went to college in Minnesota,

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Speaker 1: so I want to try to explain them what real snow.

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Speaker 1: It's a bit of a different reaction. UM, let's talk

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Speaker 1: about more about what to do with money. You are

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Speaker 1: truly an international economic expert, and you fold that into

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Speaker 1: what to do with money. To our listener in the

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Speaker 1: United States, who's got a retirement plan or they run

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Speaker 1: a pension plan, they run institutional money? Are is there

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Speaker 1: a confidence? Now? Are you in? Cash? Is literally an

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Speaker 1: asset alternative? Um? Not yet? Really, it's sun It has

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Speaker 1: performed in the past, but now this year, for example,

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Speaker 1: one of our biggest teams is falling real rate and

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Speaker 1: we still think central banks be at the FABR at

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Speaker 1: the c b if they are going to be willing

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Speaker 1: to actually let their currencies, sorry, let that their economies

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Speaker 1: actually run a bit ahead of potential growth. So let

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Speaker 1: them overheat somewhat to generate that escape velocity in inflation

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Speaker 1: which has eluded us for the last decade, and then

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Speaker 1: cash is not going to be a good place to be, right,

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Speaker 1: And that's the way the central banks wanted to look

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Speaker 1: around the world. Are their economies or their markets that

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Speaker 1: are more immune, shall we say, from the political forces

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Speaker 1: that are driving so much of the world economy right now. Well,

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Speaker 1: so against Switzerland would be an obvious one, right, so

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Speaker 1: we discussed on the previous show. You know, it's it's

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Speaker 1: remarkably no flexible economy, but its political system is remarkable,

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Speaker 1: you know as well. And now how it manages there

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Speaker 1: to be no federal at the same time, you know,

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Speaker 1: so much as devolved the local level. Um. So you

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Speaker 1: know that's why it's treated as a safe haven, financial

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Speaker 1: safe haven and a political safe haven. So but if

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Speaker 1: you go around the world right now looking for political

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Speaker 1: safe havens a bit difficult in Asia, people not think

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Speaker 1: about Singapore and all the time. But that's a very

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Speaker 1: cyclical economy, so not exactly economics, hayeven if we get

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Speaker 1: economic volatility. So it's a bit tricky right now. How

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Speaker 1: important is that the next FIRD meeting the February going

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Speaker 1: to be? How indif good is that question? So you're David,

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Speaker 1: You're absolutely right, we forget Oh yeah, yes, I would

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Speaker 1: say the most important thing is that we got from

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Speaker 1: the minutes of time around. I think you know, half

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Speaker 1: of the participants, you know, have started to incorporate fiscal

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Speaker 1: projections into their forecasts. That ratio has got to rise,

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Speaker 1: and the information value of their forecast and incorporating the

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Speaker 1: fiscal component will have to rise as well, and that

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Speaker 1: should give a small clarity on where there can be

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Speaker 1: But still we think they're three hikes this year. That

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Speaker 1: is a bit of a scretch from our perspective, and

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Speaker 1: that really underpins ass allocation for this year. How do

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Speaker 1: you think about US physical policy, the potential for a

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Speaker 1: big stimulus in a global context. What if that could

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Speaker 1: then have globally so you know, that really is the

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Speaker 1: main question of the emerging markets right now. If so

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Speaker 1: in the past, if you had major US reflation, the

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Speaker 1: US cycle really picked up, that that would bust global trade,

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Speaker 1: That would help emerging markets, especially in Asia. You should

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Speaker 1: see Asian surpluses rise again. And we've had all those

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Speaker 1: reserve managers and they're being active as well. Is it

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Speaker 1: going to happen this time around? Because if it's internally focused,

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Speaker 1: and make no mistake, the President elect wants it to

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Speaker 1: be internally focused, and so if the tailwinds are not

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Speaker 1: going to be a strong for the world right now,

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Speaker 1: then the world should worry. So I think now that's

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Speaker 1: what the presidency would I want to say in dabbles.

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Speaker 1: So there needs to be a new way, a new

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Speaker 1: method of growth, not just relying on the US to

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Speaker 1: lift all boats. There will be some residual benefit, but

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Speaker 1: really it's about generating your own internal demand. Right now, Jeffrey,

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Speaker 1: in the time that we've got left with you, what

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Speaker 1: would you expect from the president elect President and January?

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Speaker 1: What what will he do to adjust in adapt markets

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Speaker 1: this year? So I think the three main things there. Firstly,

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Speaker 1: again has been discussing on the fiscal side. I am

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Speaker 1: you believe there will be I do believe, but mostly

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Speaker 1: focusing on taxation side. Now that is baked in to

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Speaker 1: share prices and that is generally accepted as positive, but Secondly,

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Speaker 1: it's more about policy execution. How do you design it?

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Speaker 1: Two thousand of All Homeland Investment Act. Christian Forbes, who's

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Speaker 1: on our NPC right now with the Bank of England.

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Speaker 1: I think her story of her a paper two years

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Speaker 1: later said ninety six cents out of every dollar went

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Speaker 1: into shared dividends on buyback that lift equity prices. It

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Speaker 1: is not sustain it doesn't generate any capex, so we

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Speaker 1: want to see cres repatriation. It needs to go into investment.

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Speaker 1: This time needs to lift. So those two put together

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Speaker 1: from the U S side, I think if it's properly designed,

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Speaker 1: then that could do the whole world a lot of

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Speaker 1: good as well. It's Friday, and that's a statistic of

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Speaker 1: the last four days to see Christian Forbes research at

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Speaker 1: nix cents went back to shareholders, which some people would

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Speaker 1: suggest as a good US are good users to have

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Speaker 1: you with. Jeffrey was always thank you, thank you with

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Speaker 1: ubs this and now we do a section and cutting expense. Yes,

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Speaker 1: Friday the thirteenth, the first day of the latest bank

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Speaker 1: earning cutting. Ken ley On is with us now. He's

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Speaker 1: Global Director Industry and Equally Research at cf ARE a

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Speaker 1: Bank of America profit rise and we're waiting on earning

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Speaker 1: supports from Wells Fargo and JP Morgan Can. Great to

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Speaker 1: have you with us here on the Spectrum Enterprise phone

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Speaker 1: line Specum Enterprise nation wide Fiber bas network and I

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Speaker 1: T infrastructure solutions and can Let's start with Bank of

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Speaker 1: America and what the earnings say about Brian moynahan's planning

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Speaker 1: here to cut costs. As Tom was alluding to, this

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Speaker 1: has been a plan that's been implemented in the works.

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Speaker 1: What are we learned today about how efficacious it's been

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Speaker 1: so far? So the efforts to really right size the business. Uh,

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Speaker 1: the investment and across consumer, global bank and capital markets. Uh,

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Speaker 1: that's going well. What drives Coross and widens Martin's Marge

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Speaker 1: is not only controlling compensation course head count, but the

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Speaker 1: investment in the business. So I think that's good on

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Speaker 1: the margins saw we're also seeing, um, you know this

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Speaker 1: earnings report is the trajectory of moving from headwinds to

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Speaker 1: tail winds for a lot of their business drivers. Thick

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Speaker 1: was the story last quarter, if I remember correctly, fixed

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Speaker 1: income trading here. Bank of America disappointed a little bit.

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Speaker 1: What do you read into that there's a little very

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Speaker 1: strong quarter. I mean the numbers are up tremendously, you

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Speaker 1: know when when you look it's not just fixed income,

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Speaker 1: but it's what we call six fixed income trading commodities currencies. Uh,

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Speaker 1: the subset of that is important. So when you compare

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Speaker 1: this even to what JP Morgan has UM, it will

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Speaker 1: be you know, it's it's driven by the higher trading

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Speaker 1: in some areas such as municipal. They also did well,

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Speaker 1: I'm sure in some of the traditional fixed income UM

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Speaker 1: you know, but you know what's happened is you just

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Speaker 1: can't hit it out of the park because these banks

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Speaker 1: are controlling their capital for trading. And that's part and

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Speaker 1: parcel the Dodd Frank and the VO girl help me

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Speaker 1: here with the crushing reality that the three banks reporting

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Speaker 1: today represent a seven hundred and eighteen thousand employees. How

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Speaker 1: many bodies will be employed off seven hundred thousand five

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Speaker 1: years from now. So these are global banks UM. Their

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Speaker 1: ability to use technology, particularly in the mass market businesses

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Speaker 1: such as consumer means that there's always an appetite uh

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Speaker 1: for uh, certainly managing costs UM. I think the necessity

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Speaker 1: of UM cutting headcount as much as aligning performance and

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Speaker 1: compensation with the businesses is probably the right area. So

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Speaker 1: probably in some areas like investment banking or M and

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Speaker 1: A I P. It was down year over year, so

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Speaker 1: those bonuses will be damn But they still need you know,

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Speaker 1: you're still still need warm bodies. You need more bodies,

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Speaker 1: um and and probably you might send out your more

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Speaker 1: senior managing directors. But you know, in terms of having

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Speaker 1: a franchise and being in the market, certainly JP Morgan UM.

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Speaker 1: You know, some of the other businesses you know are

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Speaker 1: a little bit different. Okay, I'll go with that. And

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Speaker 1: then it's not about unit count, it's about total compensation

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Speaker 1: for the guys in the fancy suits. Help me with

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Speaker 1: consumer banking. I've been waiting for years to be see

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Speaker 1: a rationalization of consumer banking to seven hundred thousand roughly

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Speaker 1: employees at those three banks. Do you not a hundred

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Speaker 1: and forty off because of the revolution we're going to

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Speaker 1: see in consumer banking. Revolution of consumer banking is like

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Speaker 1: what's happening in automobiles, artificial intelligence, or let's say you

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Speaker 1: want to change your flight and you call the airline

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Speaker 1: and you've got to go through you know, five to

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Speaker 1: ten different steps talking to a machine. Unfortunately, I think

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Speaker 1: that's it's not about personal relationship banking, you know, unless

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Speaker 1: you have a sizeable bank account or net worth. I mean,

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Speaker 1: that's just the way it is in the consumer market.

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Speaker 1: I think the good news though, is the millennial generation

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Speaker 1: is much more comfortable, uh, in terms of online banking.

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Speaker 1: But you had another point, which essentially is do you

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Speaker 1: really need all that bricks and mortar? So it's kind

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Speaker 1: of like best By versus Amazon. If we're looking at

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Speaker 1: you know, large branch networks versus millennials comfortable of doing

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Speaker 1: online banking and investing and paying their bills. Um, that

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Speaker 1: gives you plus to what you're saying about probably a

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Speaker 1: six figure drop in terms of headcount over those years.

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Speaker 1: Just a quick question here is we we get at

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Speaker 1: JP Morgan arning is I'll bring this to you just

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Speaker 1: in just a second. Here. Look, there's this conversation about

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Speaker 1: regulation happening in Washington, d C. Now, how do you

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Speaker 1: begin to factor into what that could mean for these

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Speaker 1: banks going forward? How changes to the regulatory system could

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Speaker 1: have set at their earnings? Yeah, I think the picture

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Speaker 1: is from doom and gloom to more glimmer of hope

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Speaker 1: or optimism. Um. You know, how Washington plays out UM

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Speaker 1: for investors is really on the timeline. If the timeline

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Speaker 1: or lag is too long, it would disappoint. Look for

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Speaker 1: the following. The key areas where the Trump administration can

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Speaker 1: affect quickly would be at the UH authority to you know,

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Speaker 1: with their picks and the agency. So the Department of

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Speaker 1: Labor under Obama has a fiduciary role which really has

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Speaker 1: an impact on the wealth management business, essentially for retirement products.

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Speaker 1: So there might be some easing. They're Representative Wilson and

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Speaker 1: Congress UH had a bill to state that agency regulation,

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Speaker 1: the SEC, the c f PC over all, there should

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Speaker 1: be some easing. I think that, you know, the big

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Speaker 1: and then the final point is, well, everyone talks about

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Speaker 1: dot frank, but dot Frank was legis lation. That takes time,

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Speaker 1: and I think what's in front of dot frank? You know,

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Speaker 1: Congress can do something, but Federal Reserve has been most active.

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Speaker 1: You know, so Federal versus Trump becomes an interesting situation.

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Speaker 1: It doesn't. That's for another day of the day. Right now,

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Speaker 1: is JP Morgan Kenner Leon with us with c f

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Speaker 1: r A, and he's with us in real time. We

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Speaker 1: greatly appreciate that. This morning, JP Morgan on a one

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Speaker 1: seventy one versus a consensus one. Uh, the usual four thousand,

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Speaker 1: seven hundred headlines across the Bloomberg Equity sales trading a

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Speaker 1: little light off estimate. I think I noticed Fick doing

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Speaker 1: better than good. I don't see the drama of an

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Speaker 1: increased share buy back as we saw with Bank of America.

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Speaker 1: But we're also getting James Diamond with headlines out Jamie

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Speaker 1: Diamond calling the fourth quarter quote strong and to another

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Speaker 1: record year, and he's got a positive view forward on earnings.

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Speaker 1: Oh man, um, David girl, what do you see? We're

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Speaker 1: looking at figure fix sales and training we have with

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Speaker 1: a three point three seven billion the esput was three

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Speaker 1: point two six billion. Equity sales and trading moment at

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Speaker 1: one point one five billion, the estate one point to

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Speaker 1: nine billion. Michael Moore here on the top Live blog,

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Speaker 1: encourage everyone to check that out of as a Bloomberg

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Speaker 1: Journal T Live t l I V go on the

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Speaker 1: Bloomberg he says a pretty pretty strong and fourtune between

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Speaker 1: our OTC for the quarterwell above Bank of America's. Yeah,

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Speaker 1: and and that's those ratios are critical, folks. We're not

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Speaker 1: going to do a cf A dissertation here, but Ken Leon,

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Speaker 1: whether it's Tier one capital or it's tangible book value

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Speaker 1: or return on capital. JP Morgan leads the way, really,

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Speaker 1: ratio to ratio, don't they us? Sorry? Yeah, Jamie Diamond

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Speaker 1: has said, so, uh balance sheets and answer conditional liquidity,

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Speaker 1: they're they're all fine. Cash flow good? Um, you know,

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Speaker 1: get you know, return on equities were much higher than historically. Um,

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Speaker 1: so you know. JP Morgan continues to lead, let's rip

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Speaker 1: up the script here with a stock elevated for actually

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Speaker 1: kevil I and if Mr Diamond was sitting here and

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Speaker 1: and Jamie, if you're listening this morning, please contact Rachel.

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Speaker 1: Where's there? But Ken? If if JP Morgan management seriously

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Speaker 1: was listening to this discussion, the first question would be

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Speaker 1: are we over capitalized? Do they have too much of

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Speaker 1: a cash BUF buffer off of the scars of the

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Speaker 1: financial crisis? So I would take the flip side is

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Speaker 1: that they have a lot of capital because in many

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Speaker 1: instances regulation requires it even for their trading products UM

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Speaker 1: and UM as it relates to the risk measures. So

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Speaker 1: UM capital over the last five years has had to

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Speaker 1: increase in and that's not going away, David Bank earning

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Speaker 1: is really front and center. Wells Fargo to come and

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Speaker 1: we just noticed JP Morgan crossan earnings at one point

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Speaker 1: seven key On at one point seven one Kenny and

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Speaker 1: kind of have to stay with us here, Global director

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Speaker 1: of Industry and Equity Research and see f r A

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Speaker 1: jointing us on the spect enterprise phone line spec to

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Speaker 1: Enterprise Nationwide fiber based network and i T Infestry Sure Solutions.

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Speaker 1: There's a line here in the earnings report again we

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Speaker 1: were talking about regulation. Jamie Diamond, the CEO of the company,

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Speaker 1: saying in that press release, Uh, the economy maybe building momentum.

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Speaker 1: He says, looking ahead, there's opportunity for good, rational and

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Speaker 1: thoughtful policy decisions to be implemented which would spur growth,

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Speaker 1: create jobs for Americans across the income spectrum, and help communities.

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Speaker 1: And we are well positioned to play our part. Let's

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Speaker 1: let's dig into that last line of that quotation. They're

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Speaker 1: well positioned to play our part. Give us your sense

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Speaker 1: of how well positioned JP Morgan is well. I mean,

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Speaker 1: it is not only endured, but it has led the

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Speaker 1: banking industry since the Financial crisis and it's extremely well managed. Um.

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Speaker 1: You know, the knock on JP JP Morgan has always been,

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Speaker 1: you know, it is too big to manage and it

429
00:22:46,440 --> 00:22:50,040
Speaker 1: would be better, um if it was broken up. So

430
00:22:50,320 --> 00:22:52,879
Speaker 1: I don't think that's the environment we're in, you know,

431
00:22:53,119 --> 00:22:56,919
Speaker 1: in two thousand seven team with the Trump administration. UM,

432
00:22:56,960 --> 00:22:59,920
Speaker 1: I think JP Morgan wants to do the right thing,

433
00:23:00,359 --> 00:23:03,000
Speaker 1: not only for its shareholders but also for America. And

434
00:23:03,040 --> 00:23:06,359
Speaker 1: that means finding ways to generate jobs in some areas.

435
00:23:06,560 --> 00:23:09,280
Speaker 1: And it may mean, you know, back office centers aren't

436
00:23:09,280 --> 00:23:11,040
Speaker 1: going to be all over the world. Maybe they're going

437
00:23:11,080 --> 00:23:14,000
Speaker 1: to open up centers in Salt Lake City and things

438
00:23:14,040 --> 00:23:16,520
Speaker 1: like that. They have it, but they probably want to

439
00:23:16,560 --> 00:23:19,160
Speaker 1: message and do more so that they're able to get

440
00:23:19,200 --> 00:23:21,800
Speaker 1: to the much bigger issues for them, which is Dodd

441
00:23:21,880 --> 00:23:24,960
Speaker 1: Frank Just looking at Wells Fargo now crossing fourth quitter

442
00:23:25,000 --> 00:23:28,560
Speaker 1: on one point zero three at Tom and that net

443
00:23:28,600 --> 00:23:31,480
Speaker 1: income of five point three billion dollars, It is always

444
00:23:31,560 --> 00:23:33,840
Speaker 1: interesting and Ken and I will talk about this Ken

445
00:23:33,960 --> 00:23:38,200
Speaker 1: Leon in a moment. But to the credit of Wells Fargo,

446
00:23:38,320 --> 00:23:42,360
Speaker 1: they come out in the top line with an original yeah.

447
00:23:42,480 --> 00:23:48,000
Speaker 1: But in the yeah but is called net hedge ineffectiveness.

448
00:23:48,040 --> 00:23:50,639
Speaker 1: This generally means within the cf A cannon that somebody

449
00:23:50,720 --> 00:23:53,840
Speaker 1: screwed up, buried down, and again, Ken to the great

450
00:23:53,840 --> 00:23:58,399
Speaker 1: credit at Wells Fargo. Their chief financial officer, John Shrewsbury

451
00:23:58,600 --> 00:24:02,160
Speaker 1: gets right to the point on interest income declined from

452
00:24:02,160 --> 00:24:09,119
Speaker 1: a prior quarter due to net hedge accounting ineffectiveness associated

453
00:24:09,160 --> 00:24:12,800
Speaker 1: with our hedging of long term debt as part of

454
00:24:12,800 --> 00:24:18,000
Speaker 1: their asset liability management program. Ken, let me translate, Donald

455
00:24:18,080 --> 00:24:21,520
Speaker 1: Trump really hit Wells Fargo hard? Would that be a

456
00:24:21,520 --> 00:24:25,720
Speaker 1: good way to look at this? So, you know, Wells

457
00:24:25,760 --> 00:24:28,680
Speaker 1: Fargo has a lot to do to kind of regain

458
00:24:28,720 --> 00:24:33,280
Speaker 1: the stature that they had before the problems with consumself

459
00:24:34,359 --> 00:24:39,000
Speaker 1: um and you know obviously um, you know, there's put

460
00:24:39,080 --> 00:24:42,960
Speaker 1: some takes here. You know, it's something you just just

461
00:24:43,080 --> 00:24:45,880
Speaker 1: can't analyze on its space. You've got to go deep

462
00:24:45,920 --> 00:24:48,960
Speaker 1: intot of supplementals. But you know there's issues here. Wells

463
00:24:49,040 --> 00:24:52,760
Speaker 1: Fargo has definitely lost its mojo, you know, and it's

464
00:24:53,280 --> 00:24:56,440
Speaker 1: had some reputation damage that you're going to take time. Yeah,

465
00:24:57,000 --> 00:24:58,840
Speaker 1: and again, Ken, I don't mean to interrupt it. And

466
00:24:58,840 --> 00:25:01,560
Speaker 1: it's unfair to you because you're doing this in real time.

467
00:25:01,600 --> 00:25:05,080
Speaker 1: I want to credit Wells Fargo for clarity. Two thirds

468
00:25:05,080 --> 00:25:08,320
Speaker 1: of the way down the release background on hedge ineffectiveness,

469
00:25:08,680 --> 00:25:10,159
Speaker 1: and they go into and we're not going to have

470
00:25:10,240 --> 00:25:13,000
Speaker 1: people drive off the road, but they go into floating

471
00:25:13,119 --> 00:25:16,800
Speaker 1: versus fixed hedges. So can the distinction to me, is

472
00:25:16,840 --> 00:25:20,199
Speaker 1: this about the abrupt bond move that we saw November

473
00:25:20,240 --> 00:25:23,200
Speaker 1: eight from the election, or is this about all the

474
00:25:23,200 --> 00:25:26,840
Speaker 1: new the noise rather that Wells Fargo had in their

475
00:25:26,880 --> 00:25:31,400
Speaker 1: consumer lending. I can't answer that question when when you're

476
00:25:31,440 --> 00:25:33,760
Speaker 1: talking about the mix of floating and fix, you know

477
00:25:33,800 --> 00:25:37,240
Speaker 1: those are based on trading strategies and rate changes. Um,

478
00:25:37,280 --> 00:25:40,080
Speaker 1: I can't tie that to the bigger issue you're mentioning.

479
00:25:40,800 --> 00:25:43,280
Speaker 1: That's a fair answer. Let's let's look at the legal

480
00:25:43,280 --> 00:25:45,240
Speaker 1: issues that this bank hass phase. This has been a

481
00:25:45,320 --> 00:25:47,040
Speaker 1: quarter where they haven't had any new ones to add

482
00:25:47,080 --> 00:25:48,600
Speaker 1: to at the first quarter in a long while. Tim

483
00:25:48,600 --> 00:25:50,480
Speaker 1: tim Sloan now heading up the company. He says in

484
00:25:50,480 --> 00:25:52,360
Speaker 1: the statement, we continue to make progress in the fourth

485
00:25:52,440 --> 00:25:54,879
Speaker 1: quarter rebuilding the trust of our customers, team members and

486
00:25:54,880 --> 00:25:58,639
Speaker 1: other key stakeholders. What what is his turnaround effort looked like?

487
00:25:58,720 --> 00:26:00,240
Speaker 1: What What does it look like at well as bargo

488
00:26:00,240 --> 00:26:02,840
Speaker 1: and how much promise does it show to you? Yeah,

489
00:26:02,840 --> 00:26:06,800
Speaker 1: it looks better and absolutely looks better. And um, you know,

490
00:26:06,880 --> 00:26:10,919
Speaker 1: we've we've seen less headline news in terms of large

491
00:26:11,400 --> 00:26:15,639
Speaker 1: legal lawsuits, settlements and um, charge of ups are coming down,

492
00:26:15,800 --> 00:26:18,960
Speaker 1: you know, long qualities improving. You know, all these things

493
00:26:19,240 --> 00:26:22,160
Speaker 1: means there's going to be more attention to the operating lines,

494
00:26:22,359 --> 00:26:25,080
Speaker 1: you know versus uh, you know what's are in the reserves.

495
00:26:25,160 --> 00:26:28,399
Speaker 1: And another thing interesting is a lot of concerns two

496
00:26:28,440 --> 00:26:31,080
Speaker 1: thousand and sixteen of ridewoffs from the energy industry and

497
00:26:31,119 --> 00:26:33,560
Speaker 1: that seems to be whimpering out. That's a good point.

498
00:26:33,600 --> 00:26:36,399
Speaker 1: It's it's tapering out here, buried in the boiler plate.

499
00:26:36,640 --> 00:26:39,840
Speaker 1: And again I want to give them massive credit for clarity. Folks.

500
00:26:39,880 --> 00:26:42,800
Speaker 1: We we are we are uh, we've seen it all.

501
00:26:42,960 --> 00:26:45,520
Speaker 1: Is how I put it on Bloomberg surveillance in terms

502
00:26:45,520 --> 00:26:49,040
Speaker 1: of corporations hiding the news. Here's the key sentence, David Gura.

503
00:26:49,359 --> 00:26:53,120
Speaker 1: The net hedge accounting losses in the fourth quarter two

504
00:26:53,119 --> 00:26:57,000
Speaker 1: thousand sixteen were driven by a sharp increase in certain

505
00:26:57,119 --> 00:27:01,800
Speaker 1: interest rates and foreign currency fluctuation, which tilted towards the

506
00:27:01,840 --> 00:27:05,639
Speaker 1: market dynamics that we've seen and again Ken Leon Folks

507
00:27:05,680 --> 00:27:10,040
Speaker 1: has a huge responsibility not to speculate on this is

508
00:27:10,080 --> 00:27:13,119
Speaker 1: a security analyst on Wall Street, David Kenny, And let

509
00:27:13,160 --> 00:27:14,800
Speaker 1: me pull back globally a little bit. We had Mike

510
00:27:14,840 --> 00:27:16,359
Speaker 1: Mayo on the show yesterday and I asked him what

511
00:27:16,400 --> 00:27:18,080
Speaker 1: lessons US banks could take from what we've seen in

512
00:27:18,119 --> 00:27:20,080
Speaker 1: the European banking sector, and he said, this should be

513
00:27:20,080 --> 00:27:23,080
Speaker 1: a time when those banks, US banks are putting more

514
00:27:23,119 --> 00:27:25,440
Speaker 1: capitalist side, put the capital aside. Why while they can

515
00:27:25,760 --> 00:27:27,200
Speaker 1: do you agree with him? Is that? Is that something

516
00:27:27,200 --> 00:27:28,919
Speaker 1: that these banks should be more focused on building up

517
00:27:29,000 --> 00:27:33,200
Speaker 1: that cushion. Well, they have, I think the major US banks,

518
00:27:33,240 --> 00:27:36,360
Speaker 1: particularly the JP Morgans, so that they've they've done that

519
00:27:36,560 --> 00:27:41,240
Speaker 1: and they're you know, well well into the fourth quarter

520
00:27:41,280 --> 00:27:43,399
Speaker 1: of the game in terms of the reaction from the

521
00:27:43,440 --> 00:27:47,560
Speaker 1: crisis and the regulation. European banks are somewhat answering the

522
00:27:47,560 --> 00:27:50,440
Speaker 1: third quarter of the game. So you have to think

523
00:27:50,440 --> 00:27:53,680
Speaker 1: about the timeline first. They also have businesses and strategy

524
00:27:53,840 --> 00:27:57,960
Speaker 1: businesses that have done worse, um and there's been strategies

525
00:27:58,000 --> 00:28:01,439
Speaker 1: to shift away from capital markets risk taking to conservative

526
00:28:01,480 --> 00:28:05,480
Speaker 1: wealth management and traditional banking. That's the European banks. I

527
00:28:05,480 --> 00:28:09,200
Speaker 1: would see wolves high wolves trying to be built by

528
00:28:09,200 --> 00:28:13,920
Speaker 1: the European Commission because there's great opportunities for JP Morgan, Goldman, Sachs,

529
00:28:14,000 --> 00:28:17,119
Speaker 1: Morgan Stanley to gain market share in Europe and Candy

530
00:28:17,119 --> 00:28:20,560
Speaker 1: your observation and the energy of business. Continued improvement in

531
00:28:20,680 --> 00:28:24,639
Speaker 1: quote residential real estate and stabilization and oil and gas

532
00:28:24,680 --> 00:28:29,240
Speaker 1: industry conditions drove a hundred million reserve release back to

533
00:28:29,280 --> 00:28:31,720
Speaker 1: the company. That's where they take the piggybank folks and

534
00:28:31,760 --> 00:28:34,200
Speaker 1: move a hundred million out because things are better than

535
00:28:34,200 --> 00:28:36,840
Speaker 1: they expected. Can How does a guy like you figure

536
00:28:36,880 --> 00:28:38,959
Speaker 1: out how determined if the rate hike timeline is going

537
00:28:39,000 --> 00:28:40,680
Speaker 1: to be for these big banks? Looking at the results,

538
00:28:40,680 --> 00:28:42,080
Speaker 1: we see that they're looking at what these banks have

539
00:28:42,120 --> 00:28:45,320
Speaker 1: been saying, how determined if that's going to be you know,

540
00:28:45,440 --> 00:28:48,000
Speaker 1: it's it's gonna be positive, you know. So it's kind

541
00:28:48,000 --> 00:28:51,240
Speaker 1: of been a funk probably for the last eight quarters

542
00:28:51,320 --> 00:28:54,800
Speaker 1: of just the yield curve not helping and net interest

543
00:28:54,840 --> 00:28:58,760
Speaker 1: income going down. Uh, we're beginning to see that it's

544
00:28:58,840 --> 00:29:01,480
Speaker 1: flat slightly, and then if you look out over the

545
00:29:01,520 --> 00:29:05,120
Speaker 1: next eighteen months, you know, whether it's credit cards, mortgages,

546
00:29:05,840 --> 00:29:09,680
Speaker 1: investment accounts, um you know, rising rights helps the banks

547
00:29:10,520 --> 00:29:13,280
Speaker 1: can help me here with the three and five year

548
00:29:13,320 --> 00:29:15,640
Speaker 1: horizon we're bearing here in the quarterly. But give us

549
00:29:15,720 --> 00:29:20,520
Speaker 1: one last observation. Where do you put dividend growth for

550
00:29:20,640 --> 00:29:23,640
Speaker 1: these banks? Is it double digit? Can I be that

551
00:29:23,840 --> 00:29:26,960
Speaker 1: enthusiastic or are they going to grind out dividend growth

552
00:29:26,960 --> 00:29:31,880
Speaker 1: two d basis points above nominal GDP? You know that

553
00:29:32,000 --> 00:29:36,120
Speaker 1: the banks are generally known to be defensive. Total return

554
00:29:36,160 --> 00:29:41,360
Speaker 1: and dividends are important. UM. I doubt you know we'll

555
00:29:41,360 --> 00:29:45,000
Speaker 1: see any conviction of double digit um. You know, it

556
00:29:45,000 --> 00:29:48,320
Speaker 1: gets back to use of capital and then also for

557
00:29:48,440 --> 00:29:52,600
Speaker 1: future risk. Last point here, you know, you know it's

558
00:29:52,600 --> 00:29:56,120
Speaker 1: really there isn't any big controversial issues right now for

559
00:29:56,160 --> 00:29:58,760
Speaker 1: the banks. But watch out for student loans as we

560
00:29:58,840 --> 00:30:02,880
Speaker 1: get through seventeen to eight. That's been mostly government, so

561
00:30:02,960 --> 00:30:06,040
Speaker 1: maybe that's an opportunity for the banks to securitize it.

562
00:30:06,160 --> 00:30:08,560
Speaker 1: But you know that right now there really isn't a

563
00:30:08,600 --> 00:30:12,240
Speaker 1: big negative issue as we've seen for several years. Okay, Ken,

564
00:30:12,680 --> 00:30:15,120
Speaker 1: thank you so much for your generous time on three

565
00:30:15,160 --> 00:30:27,440
Speaker 1: banks this morning brought you by Bank of America Mary Lynch,

566
00:30:27,560 --> 00:30:31,800
Speaker 1: dedicated to bringing our clients insights and solutions to meet

567
00:30:31,840 --> 00:30:35,320
Speaker 1: the challenges of a transforming world. That's the power of

568
00:30:35,360 --> 00:30:41,160
Speaker 1: global connections. Mary Lynch Pierce Federan Smith Incorporated, Member s

569
00:30:41,240 --> 00:30:46,800
Speaker 1: I p C. It is always good to be in London,

570
00:30:47,280 --> 00:30:50,720
Speaker 1: and particularly to visit with Lord Desai Magna Desi the

571
00:30:50,760 --> 00:30:54,560
Speaker 1: London School of Economics is Uh been a prolific thinker

572
00:30:54,640 --> 00:30:57,280
Speaker 1: and writer on the changes, and there's none more than

573
00:30:57,320 --> 00:31:01,360
Speaker 1: the Uncertainty of two thousand seven. His Cubris was my

574
00:31:01,400 --> 00:31:05,480
Speaker 1: book of the Year last year two thousand fifteen. It

575
00:31:05,600 --> 00:31:08,760
Speaker 1: is a spectacular one volume. You've got a new book,

576
00:31:09,120 --> 00:31:12,560
Speaker 1: Lord Decide coming out on the resumption of History. I

577
00:31:12,600 --> 00:31:15,800
Speaker 1: want to go to your classic book, Marxist Revenge on

578
00:31:15,840 --> 00:31:20,080
Speaker 1: what you call the short century. Well, Mr Trump, bring

579
00:31:20,200 --> 00:31:25,000
Speaker 1: us the long four years. I think so. I think

580
00:31:25,160 --> 00:31:29,640
Speaker 1: you know it is Uh. He arrived with economy in

581
00:31:29,760 --> 00:31:33,680
Speaker 1: good shape, but with plenty of reserve power to grow,

582
00:31:34,600 --> 00:31:38,280
Speaker 1: and he, not being a professional politician, doesn't know the

583
00:31:38,360 --> 00:31:41,560
Speaker 1: constraints he should he should have followed, and so he

584
00:31:41,600 --> 00:31:46,000
Speaker 1: would be fiscally adventurous. First, when you hear people within

585
00:31:46,040 --> 00:31:50,000
Speaker 1: the Bloomberg world talk about the present uncertainty, how do

586
00:31:50,040 --> 00:31:55,080
Speaker 1: you translate that to your entire study of uncertainty and hubers.

587
00:31:55,440 --> 00:31:58,400
Speaker 1: When we say uncertainty to our listeners, what does that

588
00:31:58,440 --> 00:32:02,360
Speaker 1: really mean? Well, in to me, the real crucial change

589
00:32:02,360 --> 00:32:06,240
Speaker 1: will be we are in the middle of a long

590
00:32:06,360 --> 00:32:11,160
Speaker 1: downward cycle, long downward contractive cycle. Can he reverse it?

591
00:32:11,280 --> 00:32:14,680
Speaker 1: Can he stop it and reverse it? Can he actually

592
00:32:14,720 --> 00:32:18,080
Speaker 1: make a change so that the usual thing about circle

593
00:32:18,160 --> 00:32:22,840
Speaker 1: a stagnation, goes away, and he triggers not only in

594
00:32:22,920 --> 00:32:27,840
Speaker 1: America but elsewhere a growth revolution. Now you know, I

595
00:32:28,360 --> 00:32:30,680
Speaker 1: don't put it past him to be able to do that.

596
00:32:30,760 --> 00:32:35,600
Speaker 1: I think just because you know he's not a professional

597
00:32:35,640 --> 00:32:39,000
Speaker 1: person doesn't mean he's not a very competent person. I

598
00:32:39,040 --> 00:32:41,880
Speaker 1: think he could do it. Will decide with us here Inland,

599
00:32:41,880 --> 00:32:43,320
Speaker 1: and he's the chairman of the Board of Advantage of

600
00:32:43,320 --> 00:32:46,959
Speaker 1: the Official Monetary and Financial Institutions Forum here in London.

601
00:32:47,640 --> 00:32:49,440
Speaker 1: Let me ask you how you begin to reckon with

602
00:32:50,160 --> 00:32:52,920
Speaker 1: what this new century might look like without America, perhaps

603
00:32:52,920 --> 00:32:54,520
Speaker 1: in the leadership role that's been in the past. Do

604
00:32:54,520 --> 00:32:56,840
Speaker 1: you worry about the end of Pax American now work

605
00:32:57,400 --> 00:33:01,760
Speaker 1: I reduced American exceptions and reduced sense of American exceptionalism. Well,

606
00:33:01,800 --> 00:33:05,640
Speaker 1: I think that the real danger is that Donald Trump

607
00:33:05,720 --> 00:33:10,520
Speaker 1: is not ready for postpacts American and he is trying

608
00:33:10,520 --> 00:33:13,680
Speaker 1: to get back at the top of the league. Now

609
00:33:13,720 --> 00:33:17,480
Speaker 1: there's exactly via a century ago, more or less maybe

610
00:33:17,560 --> 00:33:20,560
Speaker 1: had a twenty years ago England was threatened by the

611
00:33:20,640 --> 00:33:23,960
Speaker 1: right of Germany and America. And you know that that

612
00:33:24,240 --> 00:33:28,120
Speaker 1: is a very muture repeating episode here now that unfortunately

613
00:33:28,200 --> 00:33:31,160
Speaker 1: ended sadly in the First World War, and we don't

614
00:33:31,240 --> 00:33:35,880
Speaker 1: really want that to happen here. But America is viewing

615
00:33:36,000 --> 00:33:40,120
Speaker 1: China as the number two kids, trying to get up

616
00:33:40,240 --> 00:33:44,560
Speaker 1: past them, and Trump feels he has to stop, partly

617
00:33:44,600 --> 00:33:47,480
Speaker 1: because of American pride, partly because it feels they can

618
00:33:47,520 --> 00:33:52,160
Speaker 1: get some manufacturing jobs back. Now, I think manufacturer getting

619
00:33:52,160 --> 00:33:56,920
Speaker 1: manufacturing jobs back is a tricky thing, not necessarily beneficial.

620
00:33:57,240 --> 00:34:01,960
Speaker 1: But but to get America at the top again, I

621
00:34:02,000 --> 00:34:05,840
Speaker 1: hope you saw an economically, no militarily. If it's militually,

622
00:34:06,000 --> 00:34:08,480
Speaker 1: it will be a big gamble. When you look back

623
00:34:08,480 --> 00:34:10,560
Speaker 1: at history, what what is the analog you're looking to?

624
00:34:10,800 --> 00:34:12,840
Speaker 1: You are you looking to the twenties and thirties? Is

625
00:34:13,040 --> 00:34:17,000
Speaker 1: there another go by the century? Go back a century

626
00:34:17,120 --> 00:34:20,560
Speaker 1: and twenty seventeen was the air in which America entered

627
00:34:20,640 --> 00:34:24,560
Speaker 1: first of World War, America entered Europe, America entered global

628
00:34:25,280 --> 00:34:28,400
Speaker 1: in the global stakes, and seen was the year of

629
00:34:28,440 --> 00:34:32,640
Speaker 1: doctorber Revolution. Right and now at the end of the century,

630
00:34:32,840 --> 00:34:38,319
Speaker 1: the October Revolution lost art an American emergency top doc. Okay, now,

631
00:34:38,320 --> 00:34:41,600
Speaker 1: after twenty five years, American, you're one of our great

632
00:34:41,640 --> 00:34:43,719
Speaker 1: students of history. I've had the honor of speaking to

633
00:34:43,760 --> 00:34:47,080
Speaker 1: you about India the day of the Bombay bombings. You

634
00:34:47,160 --> 00:34:50,479
Speaker 1: and I went through Brexit together. We've done things for years. Lord,

635
00:34:50,560 --> 00:34:55,680
Speaker 1: decide very simply here, can you see it coming? Did

636
00:34:55,680 --> 00:35:00,280
Speaker 1: they see in nineteen fourteen or thirteen what was gonna happen?

637
00:35:00,520 --> 00:35:02,959
Speaker 1: We can all agree in thirty eight or thirty nine

638
00:35:03,320 --> 00:35:06,240
Speaker 1: we didn't see it coming. Can we see it coming again?

639
00:35:07,000 --> 00:35:12,759
Speaker 1: I definitely put a non negligible probability on a serious

640
00:35:13,400 --> 00:35:18,520
Speaker 1: armed conflict between China and US, with India on the

641
00:35:18,560 --> 00:35:22,200
Speaker 1: side of US within India just in the time we

642
00:35:22,280 --> 00:35:25,080
Speaker 1: have left. What is your prescription for Mr Modi to

643
00:35:25,239 --> 00:35:29,520
Speaker 1: write the financialship of India after this monetization uproar. I

644
00:35:29,560 --> 00:35:32,640
Speaker 1: think he took a risk and he survived. He now

645
00:35:32,760 --> 00:35:35,920
Speaker 1: has to go after a bigger structure reforms like the

646
00:35:36,000 --> 00:35:39,319
Speaker 1: labor market. You know, if he can he can go

647
00:35:39,360 --> 00:35:43,640
Speaker 1: on being bold and taking risks, he's going to get

648
00:35:43,680 --> 00:35:48,759
Speaker 1: reelected in you know. So I think now he's it's

649
00:35:48,800 --> 00:35:53,240
Speaker 1: time to assert himself taker and go forward and shaped.

650
00:35:54,160 --> 00:35:56,480
Speaker 1: I want to congratulate you when your chairmanship of O

651
00:35:56,840 --> 00:35:59,280
Speaker 1: m f i F. You know you hear me folks

652
00:35:59,320 --> 00:36:02,200
Speaker 1: talk about warn Affairs of the Council on Foreign Relations

653
00:36:02,200 --> 00:36:06,880
Speaker 1: Ambassador Hassas organization. The bulletin of the O m f

654
00:36:07,080 --> 00:36:11,319
Speaker 1: i F is fabulous. It is brutal short reads by

655
00:36:11,400 --> 00:36:15,959
Speaker 1: professionals linking in economics to international relations. It's a joy

656
00:36:16,360 --> 00:36:20,120
Speaker 1: to see Philis Papa Davide here on African economics, to

657
00:36:20,200 --> 00:36:23,400
Speaker 1: see Lord de sid right on his India and Stephen

658
00:36:23,440 --> 00:36:27,400
Speaker 1: Hanke of Johns Hopkins writing on the challenges of dynamics

659
00:36:27,400 --> 00:36:32,319
Speaker 1: with Venezuela and the currency uh markets. Professor Desi is

660
00:36:32,360 --> 00:36:47,840
Speaker 1: emeritus at the London School of Economics. David Gerg and

661
00:36:47,880 --> 00:36:50,680
Speaker 1: Tom kea in London, and I wanted to finish our

662
00:36:51,040 --> 00:36:53,880
Speaker 1: our sojourn here of the week with someone who can

663
00:36:53,920 --> 00:36:57,440
Speaker 1: synthesize together so much at what's going on and provide

664
00:36:57,480 --> 00:37:01,160
Speaker 1: a framework not of certitude but of option as we

665
00:37:01,200 --> 00:37:04,920
Speaker 1: move forward. The world economic foreign meetings is a distraction,

666
00:37:05,000 --> 00:37:09,120
Speaker 1: but the serious business of of inaugurating a new president,

667
00:37:09,520 --> 00:37:12,600
Speaker 1: and this would be Robert Sinch of Amer's pier punt. Bob,

668
00:37:12,640 --> 00:37:15,360
Speaker 1: you had the call of the Autumn in October, you

669
00:37:15,560 --> 00:37:19,399
Speaker 1: nailed the end of the descent in sterling. We've seen

670
00:37:19,400 --> 00:37:22,040
Speaker 1: a recovery. But now we'll roll over and with it

671
00:37:22,560 --> 00:37:26,000
Speaker 1: and ebbing of the certitude of Trump reflation. How is

672
00:37:26,000 --> 00:37:29,560
Speaker 1: all this going to play out? Well, I think that

673
00:37:29,680 --> 00:37:33,960
Speaker 1: you know, the the UK authorities have have again raised

674
00:37:34,000 --> 00:37:36,400
Speaker 1: the specter of a of a harder Brexit, and I

675
00:37:36,440 --> 00:37:41,000
Speaker 1: think that's probably what's reverberated through sterling um. On a

676
00:37:41,040 --> 00:37:43,600
Speaker 1: trade weighted basis, sterling is still up from from the

677
00:37:43,640 --> 00:37:47,320
Speaker 1: lows um, but obviously it's been a much stronger dollar

678
00:37:47,400 --> 00:37:51,000
Speaker 1: that it's been battling against. Also, you know, I think

679
00:37:51,040 --> 00:37:54,719
Speaker 1: that my view has been for a while that what

680
00:37:54,800 --> 00:37:58,920
Speaker 1: we've seen in the market is not so much um

681
00:37:58,960 --> 00:38:03,319
Speaker 1: expectation about new policy under a Trump administration, but it's

682
00:38:03,320 --> 00:38:06,239
Speaker 1: really the reality of the economic environment in the latter

683
00:38:06,320 --> 00:38:09,520
Speaker 1: part of two thousand sixteen. Is looking this morning at

684
00:38:09,600 --> 00:38:14,320
Speaker 1: the economic Surprise Index globally and it's at its highest

685
00:38:14,400 --> 00:38:17,120
Speaker 1: level since two thousand and ten. So I think what

686
00:38:17,200 --> 00:38:20,040
Speaker 1: the markets have been reacting to it's just a much

687
00:38:20,120 --> 00:38:24,239
Speaker 1: stronger global momentum into the luder part of last year,

688
00:38:24,920 --> 00:38:27,520
Speaker 1: and I think they've been responding to reality rather than

689
00:38:27,560 --> 00:38:32,480
Speaker 1: necessarily expectations about what comes next. I'll help us with

690
00:38:32,320 --> 00:38:35,160
Speaker 1: the with the emerging markets. So we've been watching Turkish

691
00:38:35,200 --> 00:38:37,040
Speaker 1: lira all week for the first couple of days. As

692
00:38:37,080 --> 00:38:38,799
Speaker 1: we watched it, we're kind of unsure of what was

693
00:38:38,800 --> 00:38:40,480
Speaker 1: happening there. Here on a Friday, at the end of

694
00:38:40,480 --> 00:38:42,560
Speaker 1: the week, do we have a clearer sense of what's

695
00:38:42,600 --> 00:38:45,399
Speaker 1: going on and how effective the country central bank might

696
00:38:45,400 --> 00:38:49,680
Speaker 1: be in stopping what we've been seeing. You know, I

697
00:38:49,719 --> 00:38:54,360
Speaker 1: think it's interesting that UM central banks, particularly in emerging

698
00:38:54,440 --> 00:38:59,080
Speaker 1: and smaller economies of these days, are less aggressive at

699
00:38:59,120 --> 00:39:02,600
Speaker 1: actually trying to defend their currencies, and I think that

700
00:39:02,680 --> 00:39:05,160
Speaker 1: has to do with the environment being one of of

701
00:39:05,239 --> 00:39:09,480
Speaker 1: disinflation low inflation rather than high inflation. You know, when

702
00:39:09,480 --> 00:39:12,359
Speaker 1: I was a much younger man and inflationary pressures were

703
00:39:12,400 --> 00:39:15,839
Speaker 1: much higher around the world, a weakening currency was really

704
00:39:15,880 --> 00:39:20,680
Speaker 1: a problem because it exacerbated UM the underlying concern, which

705
00:39:20,760 --> 00:39:24,319
Speaker 1: was was very high inflation, and so central banks had

706
00:39:24,360 --> 00:39:29,000
Speaker 1: to really step in to defend their currencies in a

707
00:39:29,040 --> 00:39:32,440
Speaker 1: world of low inflation, and in many cases over the

708
00:39:32,480 --> 00:39:34,799
Speaker 1: last few years inflation that was below target, and of

709
00:39:34,920 --> 00:39:37,839
Speaker 1: concern that it was that it was too low. Um,

710
00:39:37,880 --> 00:39:40,200
Speaker 1: having a weaker currency and having prices pick up a

711
00:39:40,239 --> 00:39:42,120
Speaker 1: little bit is not the worst thing in the world.

712
00:39:42,160 --> 00:39:44,920
Speaker 1: And so I think what we're seeing is central banks

713
00:39:44,920 --> 00:39:48,040
Speaker 1: will monitor and make sure that conditions don't become disorderly,

714
00:39:48,120 --> 00:39:51,720
Speaker 1: and there's a risk that that's happened. Um, but really

715
00:39:51,760 --> 00:39:54,560
Speaker 1: not spending a lot of resources and trying to defend

716
00:39:54,600 --> 00:39:56,920
Speaker 1: the currency at a time when markets are in disarray.

717
00:39:57,280 --> 00:39:59,880
Speaker 1: This has been a theme of our visit to London,

718
00:40:00,120 --> 00:40:04,640
Speaker 1: that Mexico is a good economy affected by a zillion

719
00:40:04,719 --> 00:40:09,200
Speaker 1: coup cubic potential feed of concrete stretch from the Gulf

720
00:40:09,200 --> 00:40:12,239
Speaker 1: of Mexico to the Pacific Ocean. Are you telling me, Bob,

721
00:40:12,280 --> 00:40:16,000
Speaker 1: since that Mexico's the mother of all longs, the mother

722
00:40:16,040 --> 00:40:20,560
Speaker 1: of all dies, I don't think we're there yet, although

723
00:40:20,600 --> 00:40:24,720
Speaker 1: I would note that, Um. You know, during two thousand fifteen,

724
00:40:24,760 --> 00:40:27,480
Speaker 1: the Mexican Central Bank tried to defend the currency. They

725
00:40:27,520 --> 00:40:30,240
Speaker 1: spent about twenty billion dollars trying to prop up the peso.

726
00:40:31,280 --> 00:40:34,319
Speaker 1: In two thousand sixteen, reserves were flat. They're actually up

727
00:40:34,360 --> 00:40:36,800
Speaker 1: a couple of billion dollars, and so they've just stepped

728
00:40:36,800 --> 00:40:40,759
Speaker 1: away and let the market take hold. We often see

729
00:40:40,840 --> 00:40:44,759
Speaker 1: currencies overshoot. I think we're we're heading toward an overshoot

730
00:40:44,880 --> 00:40:48,200
Speaker 1: in the Mexican peso. I still think, though there's so

731
00:40:48,320 --> 00:40:51,759
Speaker 1: much uncertainty about policy going forward, that it would be

732
00:40:51,800 --> 00:40:53,759
Speaker 1: a very brave person who would come in and take

733
00:40:53,800 --> 00:40:57,040
Speaker 1: on a position right now. But certainly given the speed

734
00:40:57,120 --> 00:41:01,279
Speaker 1: of the decline UM and the the solid nature of

735
00:41:01,320 --> 00:41:04,520
Speaker 1: some of the underlying fundamentals in Mexico, at some point

736
00:41:04,520 --> 00:41:07,360
Speaker 1: I think you do want to own the pay so UM.

737
00:41:07,400 --> 00:41:10,239
Speaker 1: I don't think we're quite there yet, still too much uncertainty.

738
00:41:10,320 --> 00:41:12,160
Speaker 1: But this is not as though the currency has been

739
00:41:12,160 --> 00:41:13,920
Speaker 1: propped up and it still has a lot to go

740
00:41:14,000 --> 00:41:17,279
Speaker 1: to the down side. Bob. I'll put a question to

741
00:41:17,280 --> 00:41:19,200
Speaker 1: you that I put to Jordan Rochester. It's funny politics

742
00:41:19,239 --> 00:41:20,640
Speaker 1: that is driving so much to for X right now,

743
00:41:20,719 --> 00:41:23,879
Speaker 1: it seems, but what are you listening for here out

744
00:41:23,880 --> 00:41:25,880
Speaker 1: of the UK? What are you listening for when Theresa

745
00:41:25,920 --> 00:41:30,400
Speaker 1: May speaks on Tuesday. Well, you know, I've been with

746
00:41:30,480 --> 00:41:33,920
Speaker 1: the view that that economics will dominate this and the

747
00:41:34,040 --> 00:41:38,239
Speaker 1: UK and the EU are very large trading partners. Um,

748
00:41:38,320 --> 00:41:42,120
Speaker 1: So I've kind of turned Teddy Roosevelt on on it

749
00:41:42,280 --> 00:41:45,200
Speaker 1: on its head. Is his uh, you know, speak softly

750
00:41:45,239 --> 00:41:46,880
Speaker 1: and carry a big stick. I think we'll hear a

751
00:41:46,880 --> 00:41:49,480
Speaker 1: lot of noise, but when push comes to shove, there'll

752
00:41:49,520 --> 00:41:52,360
Speaker 1: be a lot more agreement. Um that the UK and

753
00:41:52,400 --> 00:41:55,680
Speaker 1: the EU want to stay very strong trading partners. And

754
00:41:55,719 --> 00:41:59,680
Speaker 1: I think that that really I'm not so much so

755
00:41:59,680 --> 00:42:01,880
Speaker 1: sure there's much that she can say at this point.

756
00:42:02,040 --> 00:42:04,480
Speaker 1: I think it's really a matter of what the EU

757
00:42:04,560 --> 00:42:07,640
Speaker 1: authorities are willing to accept as we go forward. But

758
00:42:07,920 --> 00:42:11,520
Speaker 1: certainly some some some indication that there's a willing to

759
00:42:11,840 --> 00:42:15,319
Speaker 1: willingness to negotiate um as we go forward. But I

760
00:42:15,320 --> 00:42:17,719
Speaker 1: think immigration remains the big issue, and I don't think

761
00:42:17,719 --> 00:42:21,400
Speaker 1: you'll see any any compromise there since to link this

762
00:42:21,560 --> 00:42:24,239
Speaker 1: into the bond market, into the price we pay for

763
00:42:24,280 --> 00:42:27,160
Speaker 1: the things that we do, we've got a trump Reflation

764
00:42:27,520 --> 00:42:32,360
Speaker 1: is the great distortion over you know, I think that

765
00:42:32,360 --> 00:42:37,440
Speaker 1: that the great distortion in terms of concerns of deflationary

766
00:42:37,520 --> 00:42:42,239
Speaker 1: fears and disinflationary pressures. UM is over Um. The fundamentals

767
00:42:42,239 --> 00:42:45,200
Speaker 1: are pointing us in that direction. UM. And I think

768
00:42:45,239 --> 00:42:48,480
Speaker 1: we're also at the end of quantitative easing around the world.

769
00:42:48,760 --> 00:42:51,680
Speaker 1: I think that's been the trend, and I think two

770
00:42:51,719 --> 00:42:54,920
Speaker 1: thousands sixteen two thousands sixteen will mark the real end

771
00:42:54,960 --> 00:42:59,640
Speaker 1: of aggressive QUEI and we'll be seeing moderation in that

772
00:42:59,680 --> 00:43:02,600
Speaker 1: effort as we go through, and that will bring fixed

773
00:43:02,640 --> 00:43:06,239
Speaker 1: income markets in particular back towards equilibrium. Bob, since thank

774
00:43:06,280 --> 00:43:08,640
Speaker 1: you for the Friday wrap up. Mr Sinchris with Amirs

775
00:43:08,680 --> 00:43:11,560
Speaker 1: pure Pond I get a terrific call in October and

776
00:43:11,719 --> 00:43:23,360
Speaker 1: sterling stability. Thanks for listening to the Bloomberg Surveillance podcast.

777
00:43:23,719 --> 00:43:28,840
Speaker 1: Subscribe and listen to interviews on iTunes, SoundCloud, or whichever

778
00:43:28,960 --> 00:43:33,400
Speaker 1: podcast platform you prefer. I'm out on Twitter at Tom Keene.

779
00:43:33,480 --> 00:43:37,279
Speaker 1: David Gura is at David Gura. Before the podcast, you

780
00:43:37,320 --> 00:43:53,600
Speaker 1: can always catch us worldwide. I'm Bloomberg Radio, brought you

781
00:43:53,640 --> 00:43:57,279
Speaker 1: by Bank of America Mary Lynch, dedicated to bringing our

782
00:43:57,360 --> 00:44:00,920
Speaker 1: clients insights and solutions to meet the challenges of a

783
00:44:00,960 --> 00:44:05,840
Speaker 1: transforming world. That's the power of global connections. Mary Lynch, Pierce,

784
00:44:05,960 --> 00:44:09,800
Speaker 1: Fenner and Smith Incorporated, Member s i p C,