1 00:00:10,920 --> 00:00:15,200 Speaker 1: Hello, and welcome to another episode of the Odd Lots podcast. 2 00:00:15,280 --> 00:00:19,400 Speaker 1: I'm Joe Wisenthal and I'm Tracy all Away. So Tracy 3 00:00:19,800 --> 00:00:27,120 Speaker 1: um obviously, twenty nineteen for sort of mainstream risky assets 4 00:00:27,200 --> 00:00:30,680 Speaker 1: like stocks in uh developed markets has been uh, it's 5 00:00:30,680 --> 00:00:33,840 Speaker 1: been a pretty good one. Uh. Yeah. I think we're 6 00:00:33,960 --> 00:00:38,959 Speaker 1: ending uh solidly up on the year. It looks like. Yeah. 7 00:00:39,000 --> 00:00:41,479 Speaker 1: One of the weird things, though, I would say, is 8 00:00:41,560 --> 00:00:45,360 Speaker 1: that despite the you know, on the surface, everything looks 9 00:00:45,400 --> 00:00:48,919 Speaker 1: good or growth I guess is Okay, stocks are up 10 00:00:48,920 --> 00:00:51,760 Speaker 1: a lot. There are a lot of things around the 11 00:00:51,840 --> 00:00:55,120 Speaker 1: world this year that maybe in another year would be 12 00:00:55,160 --> 00:00:59,560 Speaker 1: seen as more systemic or troubling. All kinds of hotspots 13 00:00:59,600 --> 00:01:04,440 Speaker 1: and arabs and protests basically everywhere you look. Yeah. So, 14 00:01:04,560 --> 00:01:07,640 Speaker 1: as someone who's in Hong Kong and has been for 15 00:01:07,680 --> 00:01:10,360 Speaker 1: the past six months, one of the really remarkable things 16 00:01:10,400 --> 00:01:13,880 Speaker 1: about this year is just how fast we've seen social 17 00:01:14,000 --> 00:01:17,360 Speaker 1: unrest basically spread around the world. I think Hong Kong 18 00:01:17,920 --> 00:01:20,360 Speaker 1: was the first place where it really cropped up this year, 19 00:01:20,400 --> 00:01:24,360 Speaker 1: but then we saw lots of protests in South American countries, 20 00:01:24,560 --> 00:01:27,600 Speaker 1: we saw them in the Middle East yet again, and 21 00:01:27,760 --> 00:01:30,760 Speaker 1: a lot of these are still taking place, of course, 22 00:01:30,800 --> 00:01:33,560 Speaker 1: and it takes a while to sort of get through 23 00:01:33,560 --> 00:01:39,480 Speaker 1: the impass with protesters. Yes, and there there's all these protests. 24 00:01:39,520 --> 00:01:42,679 Speaker 1: You know, they have multiple causes, but each is in 25 00:01:42,880 --> 00:01:48,840 Speaker 1: some level inextricably tied to something in the economy. Maybe 26 00:01:48,920 --> 00:01:52,320 Speaker 1: the economy or some economic decision is a spark. Of course, 27 00:01:52,680 --> 00:01:56,200 Speaker 1: everything is very complex, but all kinds of things related 28 00:01:56,280 --> 00:02:02,040 Speaker 1: to public subsidies and pension systems and cutting of government 29 00:02:02,120 --> 00:02:07,520 Speaker 1: support for various domestic programs, they seem to frequently, uh 30 00:02:07,560 --> 00:02:10,040 Speaker 1: play a part in the unrest, and of course that 31 00:02:10,240 --> 00:02:15,280 Speaker 1: feeds into the perception of economic and financial stability everywhere 32 00:02:15,360 --> 00:02:18,640 Speaker 1: that you see these things flare up. Yeah, I totally agree. 33 00:02:18,680 --> 00:02:21,880 Speaker 1: There's always an underlying economic trend in a lot of 34 00:02:21,919 --> 00:02:27,760 Speaker 1: the dissatisfaction that we're seeing around the world. Absolutely so 35 00:02:27,960 --> 00:02:31,600 Speaker 1: Today on the podcast, we're going to be speaking to 36 00:02:32,280 --> 00:02:35,799 Speaker 1: an investor who has been looking at world markets emerging 37 00:02:35,880 --> 00:02:38,880 Speaker 1: markets for a long time, knows a lot about how 38 00:02:38,919 --> 00:02:41,680 Speaker 1: these types of things play out or how they don't 39 00:02:41,720 --> 00:02:47,120 Speaker 1: play out. Maybe learn something about the connection between unrest, 40 00:02:47,560 --> 00:02:52,840 Speaker 1: fiscal problems, financial stress, bond markets, and how investors can 41 00:02:53,040 --> 00:02:56,160 Speaker 1: think about these situations. Yes, I like this one, and 42 00:02:56,240 --> 00:02:58,280 Speaker 1: before we start, we should just throw out there that 43 00:02:58,400 --> 00:03:01,880 Speaker 1: one of the really interesting things about all this social 44 00:03:01,960 --> 00:03:05,920 Speaker 1: unrest and how it affects the fiscal situation of countries 45 00:03:06,320 --> 00:03:10,320 Speaker 1: is that when it comes to debt sustainability, we don't 46 00:03:10,360 --> 00:03:14,639 Speaker 1: really have an overarching bankruptcy regime for the world. Right, 47 00:03:14,760 --> 00:03:18,519 Speaker 1: every country is sort of different, so you never quite 48 00:03:18,800 --> 00:03:22,160 Speaker 1: can be sure how these things are going to play out, 49 00:03:22,200 --> 00:03:25,480 Speaker 1: and each country might experience a very very different outcome, 50 00:03:26,639 --> 00:03:29,760 Speaker 1: exactly right. So with that, uh, with that intro, I 51 00:03:29,800 --> 00:03:33,919 Speaker 1: want to bring back Paul McNamara. He's a portfolio manager 52 00:03:33,960 --> 00:03:38,640 Speaker 1: at GAM Investments. He's been on the show before, one 53 00:03:38,640 --> 00:03:41,640 Speaker 1: of our favorite people to talk to here. So Paul, 54 00:03:41,720 --> 00:03:44,440 Speaker 1: thank you very much for joining us. Thanks very much 55 00:03:44,440 --> 00:03:48,560 Speaker 1: for having me so interesting year in your line of work, huh, 56 00:03:49,200 --> 00:03:51,840 Speaker 1: certainly has been. I mean, you know, apart from I mean, 57 00:03:51,920 --> 00:03:54,960 Speaker 1: I think Lebanon is probably the one in terms of 58 00:03:55,120 --> 00:03:59,280 Speaker 1: social unrest, but international investors always I think, you know, 59 00:03:59,400 --> 00:04:03,680 Speaker 1: make good good villains um in the know for for 60 00:04:03,760 --> 00:04:06,400 Speaker 1: evil capitalism, and I think, you know, in terms of 61 00:04:06,400 --> 00:04:08,680 Speaker 1: sovereign debt. There was a thing in the in the 62 00:04:08,720 --> 00:04:11,040 Speaker 1: New York Times recently when a bunch of hedge funds 63 00:04:11,640 --> 00:04:16,000 Speaker 1: tried to stop Puerto Rico from spending money on sort 64 00:04:16,000 --> 00:04:19,040 Speaker 1: of protecting the population from storm damage so that they 65 00:04:19,040 --> 00:04:22,039 Speaker 1: could repay in full the debt that the hedge funds 66 00:04:22,040 --> 00:04:25,000 Speaker 1: had bought in the forties. So, yeah, it's an interesting 67 00:04:25,040 --> 00:04:28,600 Speaker 1: place to be. Um, well, why don't we start with Lebanon. 68 00:04:28,640 --> 00:04:31,719 Speaker 1: We're going to sort of bounce around from place to place, 69 00:04:31,800 --> 00:04:34,080 Speaker 1: I think, given that we are talking about emerging in 70 00:04:34,120 --> 00:04:38,120 Speaker 1: frontier markets. But I'm particularly interested in Lebanon because I 71 00:04:38,160 --> 00:04:40,560 Speaker 1: remember when I was out in the Middle East. You know, 72 00:04:40,680 --> 00:04:43,000 Speaker 1: every once in a while, when you were talking about 73 00:04:43,240 --> 00:04:46,479 Speaker 1: debt sustainability with an analyst, or when a piece of 74 00:04:46,520 --> 00:04:50,240 Speaker 1: research cross my desk, it would say something like, Lebanon 75 00:04:50,440 --> 00:04:53,680 Speaker 1: has a public debt to GDP ratio of something like 76 00:04:53,720 --> 00:04:57,200 Speaker 1: a hundred fifty percent, which is really really eye catching 77 00:04:57,800 --> 00:05:03,320 Speaker 1: and probably worse than the majority of even emerging market countries. 78 00:05:03,680 --> 00:05:06,960 Speaker 1: And yet every analyst, every research note would kind of 79 00:05:07,000 --> 00:05:11,440 Speaker 1: swat that away as not really relevant for the time being. 80 00:05:12,120 --> 00:05:15,839 Speaker 1: And yet something has changed this year and suddenly everyone 81 00:05:15,960 --> 00:05:19,279 Speaker 1: is very, very worried about Lebanon situation. What was the 82 00:05:19,360 --> 00:05:23,680 Speaker 1: catalyst for the current crisis yeah, I mean it's hard, 83 00:05:23,720 --> 00:05:27,000 Speaker 1: it's hard to put your finger on. I think once 84 00:05:27,120 --> 00:05:29,960 Speaker 1: the government really realized that push was coming to shove. 85 00:05:30,040 --> 00:05:33,640 Speaker 1: I mean, like you say, Lebanon's ratios have been absolutely horrific. 86 00:05:33,839 --> 00:05:36,200 Speaker 1: We usually look at, for example, of current count deficit 87 00:05:36,400 --> 00:05:39,440 Speaker 1: or a budget deficit of six percent seven percent of 88 00:05:39,480 --> 00:05:43,880 Speaker 1: GDP as being unsustainable. Lebanon's current count deficit is around 89 00:05:43,880 --> 00:05:47,480 Speaker 1: twenty of GDP. I mean, most of these ratios are 90 00:05:47,480 --> 00:05:51,240 Speaker 1: completely off the charts. The reason why I think people 91 00:05:51,279 --> 00:05:53,920 Speaker 1: have kind of said, oh, well, Lebanon's different is they've 92 00:05:53,920 --> 00:05:55,600 Speaker 1: been in the wrong place for a long time. I mean, 93 00:05:55,839 --> 00:05:57,919 Speaker 1: as as Joe kind of noted, I've been doing this 94 00:05:58,000 --> 00:06:00,240 Speaker 1: job for a long time, and even in the late 95 00:06:00,320 --> 00:06:03,080 Speaker 1: nineties when I started out doing this, Lebanon was already 96 00:06:03,520 --> 00:06:07,400 Speaker 1: running some very peculiar numbers. But what's happening, I think 97 00:06:07,440 --> 00:06:10,520 Speaker 1: with with rising rates. I mean Lebanon is the one country. 98 00:06:10,560 --> 00:06:13,599 Speaker 1: I mean Ponzi scheme or pyramid scheme are terms which 99 00:06:13,640 --> 00:06:16,200 Speaker 1: get thrown around a lot, you know, and and often 100 00:06:16,320 --> 00:06:18,680 Speaker 1: very unfairly. But I think Lebanon is one country where 101 00:06:18,680 --> 00:06:22,040 Speaker 1: that accusation really begins to stick because what happens is 102 00:06:22,400 --> 00:06:27,039 Speaker 1: that Lebanese, either nonresidents or of non residents claiming to 103 00:06:27,080 --> 00:06:30,040 Speaker 1: be residents, or you know that there's not a huge 104 00:06:30,320 --> 00:06:33,200 Speaker 1: transparency where the money comes from. Bring their money into 105 00:06:33,279 --> 00:06:35,240 Speaker 1: Lebanon and and you know, and instead of running, you know, 106 00:06:35,279 --> 00:06:37,320 Speaker 1: sort of yield getting to say one percent one and 107 00:06:37,320 --> 00:06:40,680 Speaker 1: a half percent on the dollar deposit in a bank 108 00:06:40,800 --> 00:06:45,800 Speaker 1: anywhere else, you're getting nin on dollar deposits in the 109 00:06:45,880 --> 00:06:48,279 Speaker 1: Lebanese banking systems. And people thought that was a great trade. 110 00:06:48,279 --> 00:06:50,839 Speaker 1: They brought their they brought their money back. Basically, the 111 00:06:50,839 --> 00:06:53,160 Speaker 1: government spent the money. The central bank used the money 112 00:06:53,160 --> 00:06:56,400 Speaker 1: to prop up the peg of the of the Lebanese 113 00:06:56,400 --> 00:06:59,279 Speaker 1: pounds at a touch over a thousand, five hundred to 114 00:06:59,360 --> 00:07:02,160 Speaker 1: the US DO and it was it was the classic situation. 115 00:07:02,200 --> 00:07:06,840 Speaker 1: The currency became uncompetitive, huge trade deficits as huge amounts 116 00:07:06,839 --> 00:07:09,800 Speaker 1: were imported. But every year, you know, the country needed 117 00:07:09,840 --> 00:07:12,760 Speaker 1: not just to finance the current account deficit, but also 118 00:07:13,400 --> 00:07:16,960 Speaker 1: very significant redemp redemptions of of foreign debt. And what's 119 00:07:17,000 --> 00:07:19,840 Speaker 1: happened this year is that foreigners stopped being willing to 120 00:07:19,960 --> 00:07:22,240 Speaker 1: roll over the debts, or the Lebanese or whoever it was, 121 00:07:22,280 --> 00:07:25,080 Speaker 1: it was the end user of these debts, So the 122 00:07:25,120 --> 00:07:29,080 Speaker 1: banks became absolutely desperate for those foreign dollars, and at 123 00:07:29,160 --> 00:07:31,880 Speaker 1: that time the supply of those dollars also dried up. 124 00:07:32,040 --> 00:07:36,280 Speaker 1: Now that could be associated with some fairly unpopular kind 125 00:07:36,280 --> 00:07:40,840 Speaker 1: of austerity measures, including I think attacks on WhatsApp conversations. 126 00:07:41,280 --> 00:07:43,640 Speaker 1: You know that it's easy to kind of to point 127 00:07:43,640 --> 00:07:47,160 Speaker 1: to a hundred different things. But finally a situation which 128 00:07:47,160 --> 00:07:51,280 Speaker 1: had always looked unsustainable actually became unsustainable, and you've got 129 00:07:51,320 --> 00:07:53,960 Speaker 1: some very strange situations happening at the moment. There are 130 00:07:54,440 --> 00:07:57,400 Speaker 1: no formal capital controls on the Lebanese economy, but there 131 00:07:57,440 --> 00:07:59,560 Speaker 1: are de facto controls that you know that if you 132 00:07:59,560 --> 00:08:02,080 Speaker 1: want to take a large cash deposit, you'll find that 133 00:08:02,120 --> 00:08:04,520 Speaker 1: you're restricted to maybe a couple of hundred dollars per 134 00:08:04,640 --> 00:08:07,640 Speaker 1: day to take out of a bank. It's very difficult 135 00:08:07,640 --> 00:08:10,560 Speaker 1: to make transfers abroad. That you know that a dollar 136 00:08:10,760 --> 00:08:14,120 Speaker 1: in a Lebanese bank is absolutely not worth a dollar 137 00:08:14,200 --> 00:08:16,640 Speaker 1: in any other bank. That although the official rate for 138 00:08:16,640 --> 00:08:19,160 Speaker 1: the Lebanese pound is in one place, there's a there's 139 00:08:19,160 --> 00:08:23,920 Speaker 1: a gray market where the delirious we've heard around thirty cheaper. 140 00:08:24,280 --> 00:08:27,360 Speaker 1: So it's all the signs that you quite often associate 141 00:08:27,400 --> 00:08:30,240 Speaker 1: with countries going wrong. You know, these the official rate 142 00:08:30,680 --> 00:08:34,800 Speaker 1: deviating from from the practical rate. Theoretically you can move 143 00:08:34,840 --> 00:08:37,880 Speaker 1: money around, in practice you can't. So but yeah, I 144 00:08:37,880 --> 00:08:41,760 Speaker 1: mean what it's the old thing, you know, what can't 145 00:08:41,800 --> 00:08:44,720 Speaker 1: go on in the end won't go on, And Lebanon 146 00:08:44,760 --> 00:08:47,080 Speaker 1: looks to be moving much close to that moment of truth. 147 00:08:47,600 --> 00:08:52,720 Speaker 1: This dynamic that you mentioned in which Lebanese banks were 148 00:08:52,840 --> 00:08:56,920 Speaker 1: offering extremely high rates of interest, so that are foreign 149 00:08:56,920 --> 00:09:01,120 Speaker 1: holders of dollars would bring their money back into the country. 150 00:09:01,280 --> 00:09:04,200 Speaker 1: Is that unusual or is that something that you see 151 00:09:04,280 --> 00:09:09,480 Speaker 1: from time to time in countries that have very high 152 00:09:09,559 --> 00:09:13,360 Speaker 1: demand for hard currency. It's a bit retro really, I 153 00:09:13,360 --> 00:09:15,559 Speaker 1: mean it used to be much more common because it's 154 00:09:15,600 --> 00:09:19,000 Speaker 1: it's something that you typically associate with pegs. So, you know, 155 00:09:19,040 --> 00:09:21,200 Speaker 1: go back twenty years and nearly every country, I mean 156 00:09:21,240 --> 00:09:24,280 Speaker 1: that's effectively all the countries in Asia, most Latin America 157 00:09:24,600 --> 00:09:26,840 Speaker 1: had pegs to the dollars or mixed pegs to the 158 00:09:26,840 --> 00:09:29,000 Speaker 1: dollar and the end and the the Deutsche mark as 159 00:09:29,000 --> 00:09:31,560 Speaker 1: it was then. But you know, as all the you know, 160 00:09:31,600 --> 00:09:36,080 Speaker 1: as peg after peg broke, with I think Russia being 161 00:09:36,120 --> 00:09:39,880 Speaker 1: the most glaring example. Of this thing of paying up 162 00:09:39,920 --> 00:09:43,839 Speaker 1: massively for something linked to a dollar. It's really it's 163 00:09:43,880 --> 00:09:47,000 Speaker 1: it's a very unusual thing to see these days. There 164 00:09:47,000 --> 00:09:49,520 Speaker 1: are very few, very few pegs left in the world. 165 00:09:49,920 --> 00:09:52,840 Speaker 1: But yeah, it's something that we've seen in many places before, 166 00:09:53,320 --> 00:09:54,920 Speaker 1: and it doesn't you know. And once you get to 167 00:09:54,960 --> 00:09:59,600 Speaker 1: that point where X number of Lebanese pounds or or 168 00:09:59,640 --> 00:10:01,840 Speaker 1: a dollar in Lebanon aren't the same as a dollar 169 00:10:01,880 --> 00:10:04,079 Speaker 1: off shore, that's when things start to spin out of 170 00:10:04,120 --> 00:10:07,320 Speaker 1: control quite quickly. So the implication here, I guess is 171 00:10:07,360 --> 00:10:12,240 Speaker 1: that the Lebanese Central Bank was basically underwriting the country's 172 00:10:12,760 --> 00:10:16,000 Speaker 1: banks and sort of encouraging them to suck in foreign 173 00:10:16,080 --> 00:10:19,720 Speaker 1: influence so that it could maintain the peg exactly. So 174 00:10:19,800 --> 00:10:23,360 Speaker 1: does that mean that banking or a financial crisis is 175 00:10:23,400 --> 00:10:28,319 Speaker 1: now basically inevitable in Webinon? Inevitable to words us very 176 00:10:28,320 --> 00:10:32,319 Speaker 1: carefully about Lebanon, it's certainly left to itself. I'd say 177 00:10:32,320 --> 00:10:35,560 Speaker 1: it's absolutely inevitable. What we find a lot of place 178 00:10:35,640 --> 00:10:38,840 Speaker 1: people are placing their hopes on. Are the Lebanese looking 179 00:10:38,880 --> 00:10:43,080 Speaker 1: for a sponsor, you know, either the Saudias or the Iranians. 180 00:10:43,720 --> 00:10:49,120 Speaker 1: I mean domestic politics in Lebanon is really is really 181 00:10:49,200 --> 00:10:54,080 Speaker 1: very complicated. But the various richer energy exporting states are 182 00:10:54,080 --> 00:10:57,240 Speaker 1: often seen as maybe a sort of a magic well. 183 00:10:57,280 --> 00:11:00,480 Speaker 1: I suppose a sovereign sugar daddy, which could be which 184 00:11:00,640 --> 00:11:04,439 Speaker 1: because these some Lebanon is a small country, that seems 185 00:11:04,480 --> 00:11:07,360 Speaker 1: the only plausible way out. Certainly, the I m F 186 00:11:07,559 --> 00:11:09,640 Speaker 1: or any of the at any of the other global 187 00:11:09,720 --> 00:11:13,640 Speaker 1: lenders would be most unlikely to allow that to go ahead, 188 00:11:14,080 --> 00:11:16,440 Speaker 1: you know, to pump money into the economy without seeing 189 00:11:16,480 --> 00:11:23,000 Speaker 1: something to address the underlying imbalances. You mentioned the uncompetitiveness 190 00:11:23,480 --> 00:11:28,959 Speaker 1: of the currency. What is the I mean if in theory, 191 00:11:29,000 --> 00:11:32,320 Speaker 1: when you hear about uncompetitive currencies, you think about, okay, 192 00:11:32,320 --> 00:11:36,040 Speaker 1: that choking off some sort of domestic sector, some domestic 193 00:11:36,320 --> 00:11:39,760 Speaker 1: say export sector. What if in a sort of more 194 00:11:39,800 --> 00:11:44,480 Speaker 1: properly managed or more flexible currency, what does leban What 195 00:11:44,679 --> 00:11:49,320 Speaker 1: is the main potential for Lebanon to improve its terms 196 00:11:49,320 --> 00:11:52,360 Speaker 1: of trade? I mean, I think it's got great potential 197 00:11:52,360 --> 00:11:54,160 Speaker 1: as a service center for the Middle East. I mean 198 00:11:54,320 --> 00:11:57,080 Speaker 1: sort of Historically, you know, before the rise of Dubai, 199 00:11:57,880 --> 00:12:00,439 Speaker 1: Lebanon was was a big trading center. You know, in 200 00:12:00,480 --> 00:12:03,360 Speaker 1: trading centers like Hong Kong everywhere else have gone on 201 00:12:03,400 --> 00:12:06,400 Speaker 1: to be the financial capital of their regions. I think 202 00:12:06,440 --> 00:12:08,679 Speaker 1: the civil war and various other things in leban and 203 00:12:08,760 --> 00:12:11,520 Speaker 1: other reasons. You know why why that didn't happen there, 204 00:12:11,800 --> 00:12:14,079 Speaker 1: You know, it's it's a very attractive tourist destination, is 205 00:12:14,160 --> 00:12:16,480 Speaker 1: very well educated population. I mean that there are plenty 206 00:12:16,480 --> 00:12:19,800 Speaker 1: of areas where where the country could maybe be more competitive. 207 00:12:19,800 --> 00:12:23,360 Speaker 1: And also there's a very very large diaspora, and in 208 00:12:23,440 --> 00:12:25,520 Speaker 1: many other countries around the world, just you know, of 209 00:12:25,520 --> 00:12:28,600 Speaker 1: foreign remittances are enough to keep to keep an economy going. 210 00:12:29,080 --> 00:12:32,280 Speaker 1: But you know, looking at looking at Lebanon now, and 211 00:12:32,320 --> 00:12:35,559 Speaker 1: even allowing the fact that you know, a substantial recession 212 00:12:36,200 --> 00:12:38,599 Speaker 1: is pretty much guaranteed in the event of the of 213 00:12:38,760 --> 00:12:42,760 Speaker 1: the peg breaking, a devaluation of something, you know, over effectively, say, 214 00:12:42,800 --> 00:12:45,920 Speaker 1: harving the value of the currency really doesn't look like 215 00:12:46,000 --> 00:12:50,480 Speaker 1: much of a stretch here. So a devaluation is essentially 216 00:12:50,840 --> 00:12:53,720 Speaker 1: a debt restructuring in this context. And I did promise 217 00:12:53,800 --> 00:12:55,640 Speaker 1: that we were going to talk a little bit about 218 00:12:55,960 --> 00:13:01,120 Speaker 1: international bankruptcy regimes or the lack thereof mechanism by which 219 00:13:01,160 --> 00:13:03,760 Speaker 1: these actually get results. And one of the interesting things 220 00:13:03,760 --> 00:13:09,320 Speaker 1: about Lebanon is that it has issued debt to international investors, 221 00:13:09,360 --> 00:13:13,280 Speaker 1: and I think some of those bonds do have collective 222 00:13:13,320 --> 00:13:17,199 Speaker 1: action clauses in them. So are we going to get 223 00:13:17,240 --> 00:13:21,600 Speaker 1: a sort of repeat of the Elliott Argentina situation here? 224 00:13:22,160 --> 00:13:24,240 Speaker 1: It looks it's very likely that they're going to try. 225 00:13:24,640 --> 00:13:27,200 Speaker 1: I mean, the stuff that's that's at risk of the 226 00:13:27,200 --> 00:13:30,520 Speaker 1: the Elliott Argentina situation is really the older debt because 227 00:13:30,520 --> 00:13:33,280 Speaker 1: most collective action clauses. You know, if you get about 228 00:13:33,280 --> 00:13:35,960 Speaker 1: three quarters of the debts together, and most of this 229 00:13:36,040 --> 00:13:38,719 Speaker 1: debt is held by or a very large proportion of 230 00:13:38,760 --> 00:13:42,400 Speaker 1: this debt is held by Lebanese banks or Lebanese residents, 231 00:13:42,520 --> 00:13:45,560 Speaker 1: especially the older bonds which don't have these collective action clauses, 232 00:13:45,800 --> 00:13:48,520 Speaker 1: because what you tend to find is that vulture investors 233 00:13:49,120 --> 00:13:52,319 Speaker 1: choose one or two specific issues and try and own 234 00:13:52,320 --> 00:13:55,240 Speaker 1: a blocking stake in those bonds, rather than hoovering up 235 00:13:55,520 --> 00:13:57,720 Speaker 1: sort of odd odd bits of the bonds at a 236 00:13:57,720 --> 00:14:00,000 Speaker 1: few cents in the dollar, I mean at the moment, 237 00:14:00,040 --> 00:14:03,200 Speaker 1: and the Lebanese debt is generally sort of trading, you know, 238 00:14:03,280 --> 00:14:06,319 Speaker 1: high thirties and forties, not really down at the level 239 00:14:06,400 --> 00:14:09,120 Speaker 1: where distressed investors would find it interesting. I mean, a 240 00:14:09,120 --> 00:14:11,760 Speaker 1: lot of the debt that Elliott brought in Argentina, we 241 00:14:11,840 --> 00:14:14,880 Speaker 1: think was trading twenty cents in the in the dollar 242 00:14:15,280 --> 00:14:18,839 Speaker 1: or below. But absolutely it's vulnerable, you know, especially, I mean, 243 00:14:18,880 --> 00:14:22,200 Speaker 1: if you've got a cap it's fine sev the investors agree, 244 00:14:22,520 --> 00:14:24,760 Speaker 1: and then the remaining twenty five have no choice. They're 245 00:14:24,760 --> 00:14:28,680 Speaker 1: automatically sort of bailed in. But it's the older bonds 246 00:14:28,680 --> 00:14:31,720 Speaker 1: which don't have these clauses, which I think are particularly vulnerable. 247 00:14:31,960 --> 00:14:34,560 Speaker 1: And you know, we've seen it in Greece as well. 248 00:14:34,800 --> 00:14:37,880 Speaker 1: You know that there have been other cases where foreign 249 00:14:38,400 --> 00:14:41,760 Speaker 1: law bonds are effectively senior and that the investors get 250 00:14:41,800 --> 00:14:45,800 Speaker 1: get paid, get paid in full. Paul, you mentioned there 251 00:14:45,800 --> 00:14:48,960 Speaker 1: that even though we've seen a pretty dramatic drop in 252 00:14:49,000 --> 00:14:51,880 Speaker 1: the price of Lebanese debt, it's not yet trading at 253 00:14:51,920 --> 00:14:55,320 Speaker 1: distress levels. Why is that, because again, when you look 254 00:14:55,360 --> 00:14:59,200 Speaker 1: at the actual metrics for the country, it's really really 255 00:14:59,200 --> 00:15:01,640 Speaker 1: hard to see how it will get itself out of 256 00:15:01,640 --> 00:15:05,560 Speaker 1: this situation. So why isn't the debt being valued as such? 257 00:15:06,880 --> 00:15:09,120 Speaker 1: It's very hard to say. I think there's you know 258 00:15:09,200 --> 00:15:12,160 Speaker 1: that there's there's a certain residual belief in you know, 259 00:15:12,200 --> 00:15:14,560 Speaker 1: sort of the sugar daddy from from the Gulf. The 260 00:15:14,640 --> 00:15:18,760 Speaker 1: yields are sort of high, high teens now, although twenties. 261 00:15:18,760 --> 00:15:20,840 Speaker 1: It's quite an expensive thing not to be invested in, 262 00:15:20,840 --> 00:15:23,680 Speaker 1: and a very expensive thing to be short. They have 263 00:15:23,880 --> 00:15:27,040 Speaker 1: got significant reserves, so you know, there's every chance that 264 00:15:27,080 --> 00:15:29,880 Speaker 1: even if things do ultimately go wrong, they could certainly 265 00:15:29,920 --> 00:15:33,400 Speaker 1: postpone default for for a year or more. And I 266 00:15:33,480 --> 00:15:37,040 Speaker 1: think it's a combination of those uncertainties, but certainly, you know, 267 00:15:37,160 --> 00:15:39,400 Speaker 1: given these prices, I'd rather be a seller than a 268 00:15:39,400 --> 00:15:59,200 Speaker 1: buyer of Levanese debt. I have a weird question, and 269 00:15:59,320 --> 00:16:02,560 Speaker 1: it's it's gonna be kind of a curveball, and it's 270 00:16:02,600 --> 00:16:05,200 Speaker 1: something that I wonder about from time to time. But 271 00:16:05,280 --> 00:16:08,000 Speaker 1: it's just something on my mind just now. You know, 272 00:16:08,080 --> 00:16:10,040 Speaker 1: every once in a while, you get you read about 273 00:16:10,080 --> 00:16:14,120 Speaker 1: some country that's in some sort of extreme distress, the 274 00:16:14,200 --> 00:16:16,600 Speaker 1: running out of money, the banking system is running out 275 00:16:16,600 --> 00:16:20,320 Speaker 1: of dollars. We're talking about that with Turkey. A couple 276 00:16:20,360 --> 00:16:24,120 Speaker 1: of years ago, things quieted down. Why is it so 277 00:16:24,280 --> 00:16:29,760 Speaker 1: rare for countries to just completely collapse Alla Venezuela, like 278 00:16:29,840 --> 00:16:32,080 Speaker 1: we all know and have Venezuela in our head is 279 00:16:32,120 --> 00:16:35,000 Speaker 1: just a country in which everything has gone. But that's 280 00:16:35,080 --> 00:16:37,680 Speaker 1: pretty rare in the grand scheme of things, and so 281 00:16:38,080 --> 00:16:41,520 Speaker 1: you know, you might get some extreme recessions from time 282 00:16:41,560 --> 00:16:45,920 Speaker 1: to time, but you rarely get all out economic armageddon. 283 00:16:46,000 --> 00:16:50,040 Speaker 1: Even when the math looks horrible. I can only agree. 284 00:16:50,320 --> 00:16:52,280 Speaker 1: I mean, you get degrees. I mean Argentina in two 285 00:16:52,320 --> 00:16:55,160 Speaker 1: thousand and one was another thing, you know, where where 286 00:16:55,160 --> 00:16:57,880 Speaker 1: you know, there were fears of people going hungry. Uh, 287 00:16:58,160 --> 00:17:00,280 Speaker 1: Fortunately the country is a huge food export, as they 288 00:17:00,280 --> 00:17:03,120 Speaker 1: had surplus food. I think in Iceland we came very 289 00:17:03,120 --> 00:17:05,080 Speaker 1: close to the edge there. They were lucky in that, 290 00:17:05,200 --> 00:17:10,600 Speaker 1: you know, they have ample power use of hydro and geothermal. 291 00:17:10,680 --> 00:17:13,200 Speaker 1: But yeah, I know, countries, countries in the wrong place 292 00:17:13,200 --> 00:17:16,600 Speaker 1: where things go absolutely wrong. I mean Venezuela. It took 293 00:17:16,720 --> 00:17:19,879 Speaker 1: years of work, It took over a decade, first first 294 00:17:19,920 --> 00:17:23,879 Speaker 1: Shavez and then Maduro, until you've got the country completely 295 00:17:23,920 --> 00:17:26,399 Speaker 1: reliant on the oil price being kind of north of 296 00:17:26,440 --> 00:17:29,320 Speaker 1: a hundred dollars, so once it dropped much below there, 297 00:17:29,560 --> 00:17:32,800 Speaker 1: the situation was completely unsustainable. I mean, these countries are 298 00:17:32,880 --> 00:17:35,960 Speaker 1: very unpleasant places to be, you know, and very very 299 00:17:36,040 --> 00:17:39,040 Speaker 1: unpleasant places to be poor. I mean, even though Turkey 300 00:17:39,040 --> 00:17:41,080 Speaker 1: has gone quiet, there's a lot of people living very 301 00:17:41,119 --> 00:17:43,920 Speaker 1: miserable lives. But I think, you know, just the political 302 00:17:44,000 --> 00:17:46,560 Speaker 1: pushback that once the country gets gets right close to 303 00:17:46,560 --> 00:17:50,400 Speaker 1: the edge, you do need effectively a secret police, which 304 00:17:50,440 --> 00:17:53,120 Speaker 1: is what you've got in Venezuela, to prevent the governing 305 00:17:53,200 --> 00:17:55,879 Speaker 1: overthrown and replaced by something more rational. So I think 306 00:17:55,960 --> 00:17:59,360 Speaker 1: politics is probably the only answer I can really come 307 00:17:59,440 --> 00:18:03,280 Speaker 1: up with their So, Paul, uh, We've done Lebanon and 308 00:18:03,359 --> 00:18:06,000 Speaker 1: a little bit of Venezuela. But of course the other 309 00:18:06,040 --> 00:18:09,199 Speaker 1: country we wanted to ask you about is of course Argentina, 310 00:18:09,760 --> 00:18:12,720 Speaker 1: which is in the midst of it seems like they're 311 00:18:12,720 --> 00:18:16,919 Speaker 1: talking about yet another debt restructuring. What's the most likely 312 00:18:17,040 --> 00:18:20,320 Speaker 1: outcome there? And I guess my biggest, biggest question for 313 00:18:20,359 --> 00:18:25,560 Speaker 1: the Argentina situation is why do international investors continue to 314 00:18:25,800 --> 00:18:30,320 Speaker 1: buy Argentina in debt even though it's defaulted several times? 315 00:18:31,640 --> 00:18:34,199 Speaker 1: I think the greater full theory that's you know, a 316 00:18:34,240 --> 00:18:37,720 Speaker 1: lot of international data, I mean, the vast majority of 317 00:18:38,280 --> 00:18:41,400 Speaker 1: international debt investors. The key question is, you know, will 318 00:18:41,480 --> 00:18:43,880 Speaker 1: this be more expensive or will I make money over 319 00:18:43,920 --> 00:18:46,800 Speaker 1: the next month, regardless of whether this is sustainable in 320 00:18:46,840 --> 00:18:48,520 Speaker 1: the long term. I mean, if you look at the 321 00:18:48,600 --> 00:18:52,080 Speaker 1: Argentine Century Bond, which you know, even that people who 322 00:18:52,080 --> 00:18:54,399 Speaker 1: bought it an issue if they, if they were fairly nimble, 323 00:18:54,440 --> 00:18:57,040 Speaker 1: managed to manage to make a little money at least, 324 00:18:57,560 --> 00:19:01,359 Speaker 1: I think that you're just not paid to punish a 325 00:19:01,480 --> 00:19:05,600 Speaker 1: country for past sins. I mean absolutely, I think sovereign 326 00:19:05,640 --> 00:19:09,600 Speaker 1: date investors are chronically optimistic. Um, you know, the last 327 00:19:09,600 --> 00:19:13,320 Speaker 1: time around in Argentina they borrow an absolutely phenomenal amount 328 00:19:13,359 --> 00:19:16,879 Speaker 1: of money and sort of drove Argentina's ratios off the wall. 329 00:19:17,119 --> 00:19:20,440 Speaker 1: But I think just the the incentive horizon for your 330 00:19:20,480 --> 00:19:23,520 Speaker 1: average debt investor is a lot shorter than it takes 331 00:19:23,520 --> 00:19:26,679 Speaker 1: a country to go bust. So, Paul, we've seen this 332 00:19:26,840 --> 00:19:31,520 Speaker 1: return of trouble in Argentina, obviously you mentioned Lebanon. We're 333 00:19:31,520 --> 00:19:36,360 Speaker 1: also seeing it elsewhere in South America right now, similar issues. 334 00:19:36,440 --> 00:19:40,560 Speaker 1: You see issues in Chile, Colombia and elsewhere. And I'm 335 00:19:40,600 --> 00:19:44,520 Speaker 1: curious so in the developed world, and we've been talking 336 00:19:44,560 --> 00:19:47,320 Speaker 1: a lot about it on this podcast lately. In fact, 337 00:19:47,359 --> 00:19:51,000 Speaker 1: in the developed world, there's no doubt that there is 338 00:19:51,119 --> 00:19:56,160 Speaker 1: a lot of debating in rethinking sort of conventional macro 339 00:19:56,400 --> 00:20:00,560 Speaker 1: wisdom and this idea about how best to stabilize the economy. 340 00:20:00,640 --> 00:20:04,159 Speaker 1: They're roll of monetary policy versus fiscal policy and so forth. 341 00:20:04,560 --> 00:20:09,440 Speaker 1: The sluggish growth post crisis has caused a sort of rethink, 342 00:20:10,160 --> 00:20:13,719 Speaker 1: are we do for something like that when in the 343 00:20:13,760 --> 00:20:16,320 Speaker 1: developed world, because you see these sort of tried to 344 00:20:16,400 --> 00:20:19,120 Speaker 1: true efforts that i M. F comes in and has 345 00:20:19,200 --> 00:20:23,960 Speaker 1: some package, it fails inevitably, or it fails frequently because 346 00:20:24,000 --> 00:20:26,879 Speaker 1: the terms of the package run up against domestic politics, 347 00:20:27,280 --> 00:20:31,000 Speaker 1: or you see some country in Vain trying to hold 348 00:20:31,040 --> 00:20:34,240 Speaker 1: onto some peg, and this idea that I'm not sure 349 00:20:34,280 --> 00:20:40,639 Speaker 1: what is e M. Macro stability in need of a 350 00:20:40,840 --> 00:20:44,639 Speaker 1: broader rethink. That's a very good question. You know, I 351 00:20:44,640 --> 00:20:47,520 Speaker 1: don't have a good answer. I mean, clearly political tolerance 352 00:20:47,600 --> 00:20:50,040 Speaker 1: is being stretched, you know, by this long period. I think, 353 00:20:50,119 --> 00:20:53,359 Speaker 1: especially in the Anglo Saxon economies, we haven't seen wages rising, 354 00:20:53,680 --> 00:20:56,000 Speaker 1: We've seen massive inequality. It's you know, it's but it's 355 00:20:56,000 --> 00:20:58,560 Speaker 1: worked very well for the wealthy. It's worked much less 356 00:20:58,560 --> 00:21:01,240 Speaker 1: for everybody else. And you know, and clearly the cracks 357 00:21:01,240 --> 00:21:04,520 Speaker 1: are beginning to show, you know, things like Brexit in particular, 358 00:21:04,560 --> 00:21:07,040 Speaker 1: which is a hobby horse of mine. Oh, I haven't 359 00:21:07,040 --> 00:21:10,480 Speaker 1: noticed that the triumph of the triumph of populism, I 360 00:21:10,480 --> 00:21:13,119 Speaker 1: think owes a lot to that. I think, you know, 361 00:21:13,200 --> 00:21:15,639 Speaker 1: the big question for the Western countries is, you know, 362 00:21:15,760 --> 00:21:18,040 Speaker 1: is what the impact of the next recession where you know, 363 00:21:18,119 --> 00:21:20,399 Speaker 1: instead of people sort of seeing, you know, all the 364 00:21:20,400 --> 00:21:22,800 Speaker 1: wealth accreasing to a few people are suddenly sort of 365 00:21:22,840 --> 00:21:25,240 Speaker 1: struggling to meet their mortgage payments and stuff like that. 366 00:21:25,600 --> 00:21:28,520 Speaker 1: I think that's when, you know, some very serious questions 367 00:21:28,560 --> 00:21:30,679 Speaker 1: are going to be asked about, you know, whether you 368 00:21:30,720 --> 00:21:33,600 Speaker 1: can have and this is the question, you know, whether 369 00:21:33,640 --> 00:21:36,840 Speaker 1: you can have political stability when the economy isn't working 370 00:21:36,880 --> 00:21:39,359 Speaker 1: for the majority of people. I mean, this was I 371 00:21:39,359 --> 00:21:41,800 Speaker 1: think Chile is the best example of that, you know, 372 00:21:41,840 --> 00:21:44,680 Speaker 1: because it is the one which is most purely economic. 373 00:21:44,760 --> 00:21:47,120 Speaker 1: Is that the Chilean economy at a macro level has 374 00:21:47,119 --> 00:21:50,080 Speaker 1: been doing very very well, certainly better than almost any 375 00:21:50,119 --> 00:21:53,280 Speaker 1: other economy in South America over that period. But the 376 00:21:53,320 --> 00:21:56,800 Speaker 1: gains have all overwhelmingly accrued to a few people. And 377 00:21:56,840 --> 00:22:00,240 Speaker 1: I think, yes, I think there are definitely questions M 378 00:22:00,240 --> 00:22:02,919 Speaker 1: and E M about how long that's sustainable for And 379 00:22:02,960 --> 00:22:05,720 Speaker 1: I think a period of macro stress, you know, it's 380 00:22:05,720 --> 00:22:09,480 Speaker 1: going to make those questions much more glaring. But the differences, 381 00:22:09,760 --> 00:22:11,399 Speaker 1: and you know, I think this is why Chili you 382 00:22:11,400 --> 00:22:13,640 Speaker 1: get a lot of demonstrations which I think may may 383 00:22:13,760 --> 00:22:18,399 Speaker 1: may eventually quietened down. Unlike Argentina, unlike Lebanon, you know, 384 00:22:18,520 --> 00:22:22,800 Speaker 1: unlike Venezuela. Countries with with monetary sovereignty can hang on 385 00:22:22,840 --> 00:22:24,399 Speaker 1: a lot longer. You know that they can print the 386 00:22:24,440 --> 00:22:28,160 Speaker 1: money without completely debasing their currencies, you know, and all 387 00:22:28,200 --> 00:22:31,080 Speaker 1: the countries that we're talking about are really countries which 388 00:22:31,440 --> 00:22:33,919 Speaker 1: which don't conform to I'm not a huge believer in 389 00:22:34,040 --> 00:22:36,600 Speaker 1: m MT, but the idea is that it only applies 390 00:22:36,640 --> 00:22:40,000 Speaker 1: to monetary sovereigns. And you know, none of those countries are, 391 00:22:40,040 --> 00:22:43,399 Speaker 1: by anybody's definition, monetary sovereign. So I think monetary sovereigns 392 00:22:43,400 --> 00:22:47,760 Speaker 1: can probably hold out a lot longer. Paul Joe very 393 00:22:47,800 --> 00:22:53,000 Speaker 1: diplomatically said you were an experienced emerging market investor in 394 00:22:53,040 --> 00:22:56,520 Speaker 1: our intro, So I'm just curious, is there is there 395 00:22:56,560 --> 00:23:00,200 Speaker 1: anything about this year or the past year twenty nine 396 00:23:00,280 --> 00:23:05,080 Speaker 1: teen that has actually surprised you in your emerging market experience, 397 00:23:05,119 --> 00:23:08,600 Speaker 1: something that you weren't expecting. The thing is that we've 398 00:23:08,600 --> 00:23:11,840 Speaker 1: we've got this far without more serious problems in other places. 399 00:23:12,040 --> 00:23:13,760 Speaker 1: You know that that you know that we've had a 400 00:23:13,760 --> 00:23:15,439 Speaker 1: long period of stability, and I think the same with 401 00:23:15,480 --> 00:23:17,800 Speaker 1: everybody else. It's been the longest period since god knows 402 00:23:17,800 --> 00:23:21,320 Speaker 1: when without a recession that kind of Lebanon and Argentina 403 00:23:21,640 --> 00:23:24,000 Speaker 1: they're very significant for the people who are there, but 404 00:23:24,040 --> 00:23:26,600 Speaker 1: in the context of global markets they're tiny, you know, 405 00:23:26,680 --> 00:23:28,640 Speaker 1: sort of you know, and even as debt markets, they're 406 00:23:28,680 --> 00:23:31,560 Speaker 1: much smaller than Brazil or Russia or Turkey. So I 407 00:23:31,600 --> 00:23:33,640 Speaker 1: think the fact that you know that it's all been 408 00:23:34,040 --> 00:23:37,399 Speaker 1: in very small, marginal countries, you know, all countries with 409 00:23:37,520 --> 00:23:41,120 Speaker 1: very specific problems like Venezuela, has been the surprise. I think, 410 00:23:41,160 --> 00:23:43,440 Speaker 1: you know, the fact that Turkey was able to pull 411 00:23:43,480 --> 00:23:46,920 Speaker 1: itself back from the brink very quickly, that Brazil has 412 00:23:46,960 --> 00:23:49,000 Speaker 1: been able to cut interest rate, you know, to an 413 00:23:49,080 --> 00:23:52,480 Speaker 1: unprecedented degree. Markets are really pretty relaxed, and I'm you know, 414 00:23:53,080 --> 00:23:54,920 Speaker 1: that's what I think we've been struggling with a bit. 415 00:23:55,720 --> 00:23:59,240 Speaker 1: You know, you mentioned what we were talking about Lebanon, 416 00:23:59,359 --> 00:24:03,600 Speaker 1: and of course it absolutely applies to Argentina and the 417 00:24:03,640 --> 00:24:08,880 Speaker 1: whole saga with Paul Singer. How important is having good 418 00:24:09,000 --> 00:24:13,879 Speaker 1: legal expertise to investing in these markets to understand exactly 419 00:24:13,920 --> 00:24:16,600 Speaker 1: what you're buying? I mean it helps. I mean I think, 420 00:24:16,640 --> 00:24:18,640 Speaker 1: you know, most people in my position would know how 421 00:24:18,720 --> 00:24:21,240 Speaker 1: to how to read a or not how to read, 422 00:24:21,280 --> 00:24:23,200 Speaker 1: but you know, would have a grasp of some of 423 00:24:23,240 --> 00:24:25,520 Speaker 1: the concepts. And you know, if we didn't, we've been 424 00:24:25,600 --> 00:24:28,600 Speaker 1: educated over the last few years. You know. I think 425 00:24:28,920 --> 00:24:30,879 Speaker 1: a number i'd throw out there is that, you know, 426 00:24:31,160 --> 00:24:35,119 Speaker 1: having been sued for ten years by Elliott, that that 427 00:24:35,320 --> 00:24:39,880 Speaker 1: Singer's vulture funds. The Argentine government actually ended up paying 428 00:24:39,920 --> 00:24:42,199 Speaker 1: his legal fees, which were, as if I remember right, 429 00:24:42,240 --> 00:24:45,600 Speaker 1: about two hundred and thirty five million dollars. So yes, 430 00:24:45,720 --> 00:24:48,200 Speaker 1: good legal advice is worth It is worth an awful lot. 431 00:24:48,720 --> 00:24:51,119 Speaker 1: I mean, just just as a note, I think Singer 432 00:24:51,200 --> 00:24:54,320 Speaker 1: bought debt with a face value of other round four 433 00:24:54,400 --> 00:24:57,359 Speaker 1: hundred million dollars. They paid less than twenty cents on 434 00:24:57,400 --> 00:25:00,880 Speaker 1: the dollar, and they took back we think it's sort 435 00:25:00,880 --> 00:25:04,840 Speaker 1: of over two billion dollars was what article ultimately ended 436 00:25:04,920 --> 00:25:08,919 Speaker 1: up paying them. So yeah, getting your legal advice straight 437 00:25:09,119 --> 00:25:12,360 Speaker 1: is really worth quite a lot. Paul. One last thing 438 00:25:12,400 --> 00:25:15,000 Speaker 1: I remember, you know, I think the last time we 439 00:25:15,080 --> 00:25:18,280 Speaker 1: had you on, I think we're discussing the crisis and 440 00:25:18,440 --> 00:25:22,359 Speaker 1: Turkey and your timing about when that would turn. I mean, 441 00:25:22,400 --> 00:25:24,680 Speaker 1: you just mentioned they brought themselves back from the brink, 442 00:25:24,880 --> 00:25:27,880 Speaker 1: was very good, And I want to just sort of 443 00:25:28,040 --> 00:25:30,360 Speaker 1: go back to this idea that for people who are 444 00:25:30,720 --> 00:25:33,160 Speaker 1: in the weeds on this stuff, but who are interested, 445 00:25:33,640 --> 00:25:38,520 Speaker 1: what are the things that you look for. Specifically, Let's say, 446 00:25:38,720 --> 00:25:41,960 Speaker 1: even though the headlines may look awful in a country 447 00:25:42,400 --> 00:25:46,080 Speaker 1: this the some sort of corner has been turned such 448 00:25:46,119 --> 00:25:49,919 Speaker 1: that they can return to some sort of stability or sustainability. 449 00:25:50,200 --> 00:25:52,240 Speaker 1: The awkward truth is that, you know, for a bounce 450 00:25:52,280 --> 00:25:56,040 Speaker 1: of payments crisis, specifically a big recession, and to be honest, 451 00:25:56,160 --> 00:25:59,879 Speaker 1: a recognition that the recession is inevitable is usually what 452 00:26:00,000 --> 00:26:03,200 Speaker 1: fixes these things, because you fix a big external deficit 453 00:26:03,280 --> 00:26:07,280 Speaker 1: by imports collapsing, not by growing exports. I mean, people 454 00:26:07,320 --> 00:26:10,080 Speaker 1: love to say restoring competitiveness, but it's not. It's just 455 00:26:10,080 --> 00:26:13,200 Speaker 1: people not having the money to buy imported goods. Usually, 456 00:26:14,080 --> 00:26:17,720 Speaker 1: plus of the improvement comes from a collapse in imports, 457 00:26:17,720 --> 00:26:22,320 Speaker 1: which means a domestic recession. So once we see things 458 00:26:22,320 --> 00:26:25,119 Speaker 1: beginning to adjust a big drop in property prices, we 459 00:26:25,160 --> 00:26:28,640 Speaker 1: see activity slowing down, we see interest rates going up. 460 00:26:29,000 --> 00:26:31,920 Speaker 1: You know that this recognition that you know that that 461 00:26:31,920 --> 00:26:36,120 Speaker 1: that there is a reckoning is usually a sign that 462 00:26:36,119 --> 00:26:38,679 Speaker 1: that that leads the problem is being addressed and that 463 00:26:38,960 --> 00:26:42,399 Speaker 1: the worst will soon be over. Is a corollary to that, 464 00:26:43,040 --> 00:26:45,919 Speaker 1: is it a warning sign of who might be the 465 00:26:46,000 --> 00:26:50,440 Speaker 1: next in the line of crisis? If economic expansion is 466 00:26:50,480 --> 00:26:56,360 Speaker 1: associated with a dramatic widening of the trade deficit exactly 467 00:26:56,400 --> 00:26:59,720 Speaker 1: that that that combination of very high domestic credit growth 468 00:26:59,720 --> 00:27:03,400 Speaker 1: and external deficit, that's definitely something that we look for 469 00:27:03,640 --> 00:27:06,960 Speaker 1: as a country where things are going wrong. Paul McNamara, 470 00:27:07,520 --> 00:27:10,200 Speaker 1: great to get your perspective, and we'll have you again 471 00:27:10,800 --> 00:27:14,120 Speaker 1: on in another year to talk about all the new 472 00:27:14,200 --> 00:27:17,840 Speaker 1: crises that will inevitably pop up in the latest emerging 473 00:27:17,840 --> 00:27:20,520 Speaker 1: market crisis. Yeah, there's there's gonna be something new, So 474 00:27:20,760 --> 00:27:24,480 Speaker 1: looking forward to get your perspective. Thanks PAULA, Thanks pretty much. 475 00:27:24,680 --> 00:27:50,399 Speaker 1: Thanks Paul, so Joe, I always love talking to Paul, 476 00:27:50,920 --> 00:27:54,760 Speaker 1: partly because he brings, you know, decades of experience to 477 00:27:54,920 --> 00:27:58,879 Speaker 1: any discussion of emerging markets. But I think decade decades, 478 00:27:59,720 --> 00:28:03,560 Speaker 1: but I think it's also really important to get like 479 00:28:03,640 --> 00:28:07,560 Speaker 1: the actual investors side of things to explain some of 480 00:28:07,600 --> 00:28:11,159 Speaker 1: the dynamics. So his point about how investors aren't actually 481 00:28:11,240 --> 00:28:14,800 Speaker 1: paid to punish a country for past mistakes and that 482 00:28:14,960 --> 00:28:18,919 Speaker 1: it's actually very expensive to avoid investing in some of 483 00:28:18,960 --> 00:28:21,760 Speaker 1: these markets, I think is a really important one. Yeah. 484 00:28:21,880 --> 00:28:24,280 Speaker 1: I think so too. I mean, because it's easy enough 485 00:28:24,320 --> 00:28:27,080 Speaker 1: to look at a country like Argentina and say, oh, 486 00:28:27,200 --> 00:28:28,960 Speaker 1: how many I don't know how many dozens of times 487 00:28:28,960 --> 00:28:33,800 Speaker 1: they've defaulted over the last century or whatever. But you know, 488 00:28:33,880 --> 00:28:37,280 Speaker 1: this idea that maybe investors aren't all complete idiots and 489 00:28:37,359 --> 00:28:41,960 Speaker 1: still have reasons to invest in a country despite that 490 00:28:42,080 --> 00:28:45,959 Speaker 1: trek record, I think is makes a lot of sense. Yeah, 491 00:28:46,000 --> 00:28:48,320 Speaker 1: And the other thing, A lot of this reminded me of, 492 00:28:48,600 --> 00:28:51,360 Speaker 1: well A, I think your question about whether or not 493 00:28:51,520 --> 00:28:53,960 Speaker 1: there needs to be a new paradigm for emerging markets 494 00:28:54,400 --> 00:28:57,200 Speaker 1: is a good one, and it definitely brought a lot 495 00:28:57,240 --> 00:29:02,760 Speaker 1: of flashbacks from my like international witical economy classes in university. 496 00:29:03,040 --> 00:29:07,840 Speaker 1: But be uh, the notion of you know, large parts 497 00:29:07,840 --> 00:29:11,880 Speaker 1: of the world actually being tied very closely to the 498 00:29:11,960 --> 00:29:15,160 Speaker 1: US dollar and there by the Federal Reserve. So you know, 499 00:29:15,160 --> 00:29:17,480 Speaker 1: Paul mentioned at the very beginning that part of what 500 00:29:17,720 --> 00:29:21,240 Speaker 1: sparked Lebanon's crisis was just the rise and interest rates 501 00:29:21,240 --> 00:29:24,600 Speaker 1: in the US, which kind of caused its problems because 502 00:29:24,720 --> 00:29:28,560 Speaker 1: it of course has a pecked currency. Well, exactly right. 503 00:29:28,600 --> 00:29:31,240 Speaker 1: You remember we had our episode with a Fuddel Koboo 504 00:29:31,360 --> 00:29:35,080 Speaker 1: and um Paul was saying, you're not really a big 505 00:29:35,120 --> 00:29:41,040 Speaker 1: fan of MMT. That's fine. Nonetheless, this idea that the 506 00:29:41,080 --> 00:29:44,880 Speaker 1: sort of paradigm view which we think emerging markets must grow, 507 00:29:45,480 --> 00:29:52,040 Speaker 1: which is export competitiveness, currency stability and so forth. You know, 508 00:29:52,120 --> 00:29:55,440 Speaker 1: it continues to get tested and this idea that you know, 509 00:29:55,480 --> 00:29:58,080 Speaker 1: we do, I do think we have this macro rethink 510 00:29:58,840 --> 00:30:03,320 Speaker 1: in the West. A recent episode where we talked with 511 00:30:03,600 --> 00:30:07,640 Speaker 1: Robert Skidelski was very much about that. It does feel that, 512 00:30:08,320 --> 00:30:11,320 Speaker 1: you know, you look at these situations like again Argentina, 513 00:30:11,400 --> 00:30:13,360 Speaker 1: and however much the I m F sunk into that 514 00:30:13,520 --> 00:30:18,400 Speaker 1: program and you wonder whether a much deeper discussion needs 515 00:30:18,440 --> 00:30:24,680 Speaker 1: to be had about how macro stability and emerging markets. Yeah. Absolutely, 516 00:30:24,720 --> 00:30:26,920 Speaker 1: And the interesting thing is, I think there have been 517 00:30:27,000 --> 00:30:29,440 Speaker 1: some noises coming out of the I m F and 518 00:30:29,480 --> 00:30:34,440 Speaker 1: certain policymakers in Washington about rethinking some of these programs 519 00:30:34,480 --> 00:30:38,240 Speaker 1: and some of the approaches to debt sustainability. So interesting 520 00:30:38,280 --> 00:30:41,520 Speaker 1: stuff going on, interesting to have, interesting times, great to 521 00:30:41,560 --> 00:30:45,560 Speaker 1: talk to Paul. Yes, indeed, all right, this has been 522 00:30:45,600 --> 00:30:49,080 Speaker 1: another episode of the All Thoughts podcast. I'm Tracy Alloway. 523 00:30:49,200 --> 00:30:52,440 Speaker 1: You can follow me on Twitter at Tracy Alloway and 524 00:30:52,480 --> 00:30:54,960 Speaker 1: I'm Joe Why Isn't All? You can follow me on 525 00:30:55,000 --> 00:30:58,360 Speaker 1: Twitter at the Stalwart And you should definitely follow our 526 00:30:58,400 --> 00:31:02,560 Speaker 1: guests Paul mcnum era. He's on Twitter at m Underscore. 527 00:31:02,600 --> 00:31:05,880 Speaker 1: Paul McNamara. I think many people agree, one of the 528 00:31:05,880 --> 00:31:10,440 Speaker 1: most interesting and insightful people around on the space end. 529 00:31:11,240 --> 00:31:14,840 Speaker 1: Be sure to follow our producer Laura Carlson at Laura M. 530 00:31:14,880 --> 00:31:18,880 Speaker 1: Carlson as well as this week's substitute producer to for Foreheads. 531 00:31:18,920 --> 00:31:22,400 Speaker 1: He's at foreheads T. Be sure to follow the Bloomberg 532 00:31:22,440 --> 00:31:26,280 Speaker 1: head of podcast, Francesca Levy at Francesca Today, and check 533 00:31:26,280 --> 00:31:29,760 Speaker 1: out all of Bloomberg's podcasts. There's so many good ones. 534 00:31:30,000 --> 00:31:33,320 Speaker 1: Onto the handle at podcasts. Thanks for listening.