WEBVTT - The Russians Hacked Our Election, Slaughter Says 0:00:00.120 --> 0:00:02.920 Brought you by Bank of America, Mary Lynch. Investing in 0:00:03.000 --> 0:00:07.840 local communities, economies and a sustainable future. That's the power 0:00:08.080 --> 0:00:12.360 of global connections, Mary Lynch, Pierce Fenner and Smith Incorporated 0:00:12.760 --> 0:00:27.400 member s I p C. Welcome to the Bloomberg Surveillance Podcast. 0:00:27.840 --> 0:00:31.520 I'm Tom Keene with David Gura. Daily we bring you 0:00:31.560 --> 0:00:36.600 insight from the best in economics, finance, investment, and international relations. 0:00:37.000 --> 0:00:41.600 Find Bloomberg Surveillance on iTunes, SoundCloud, Bloomberg dot Com, and 0:00:41.680 --> 0:00:50.800 of course on the Bloomberg Sebastian Galley, senior currency strategist 0:00:50.800 --> 0:00:52.640 at Deutsche Bank, who joins us now here at the 0:00:52.680 --> 0:00:54.920 Pierre Hotel, Thank you very much for being here, and 0:00:54.960 --> 0:00:56.520 let's start with what we're seeing in the currency market 0:00:56.560 --> 0:00:58.680 in light of that attack yesterday. Not a whole lot 0:00:58.680 --> 0:01:01.200 of movement in the power. Let me just expand from 0:01:01.200 --> 0:01:03.360 that to say, uh, we're dealing with a lot of 0:01:03.360 --> 0:01:05.119 political risk, and when you look at the four X space, 0:01:05.160 --> 0:01:07.560 it seems like politics has been continues to be a 0:01:07.600 --> 0:01:10.360 huge driver here. Indeed it's a big driver. I think 0:01:10.360 --> 0:01:12.280 the market got used to terror attacks and would like 0:01:12.319 --> 0:01:15.960 to express my condolences to the people of England and 0:01:16.000 --> 0:01:19.000 the United Kingdom, but they have basically learned to deal 0:01:19.000 --> 0:01:21.399 with terrorism in in uh in Europe, and basic it 0:01:21.440 --> 0:01:24.360 means that it has very little impact. For example, what 0:01:24.440 --> 0:01:26.199 you could see is you could see a terror attack 0:01:26.200 --> 0:01:28.679 ahead of the French election, whether it be the first round, 0:01:28.720 --> 0:01:31.680 more probably the second round, and what we know from experiences, 0:01:31.720 --> 0:01:34.399 it will have very little impact on the actual outcome 0:01:34.680 --> 0:01:37.520 because fears does not actually lead to changes in the 0:01:37.600 --> 0:01:40.360 in voting patterns, which is somewhat reassuring. It is more 0:01:40.400 --> 0:01:43.840 anger that drives a change in voting patterns, and that 0:01:43.920 --> 0:01:46.000 may be triggered by a different events. For example, in 0:01:46.000 --> 0:01:48.480 the case of the Netherlands, we saw an incidents with 0:01:48.560 --> 0:01:51.680 Turkey which had changed the tone for a few days 0:01:51.720 --> 0:01:54.240 and then the vote for the populist group of Foil 0:01:54.280 --> 0:01:57.920 Papy essentially disappeared very quickly, and so that kind of 0:01:57.960 --> 0:02:00.880 incident could be repeated the drive and by an external 0:02:00.960 --> 0:02:03.240 factor in the French election. And it's a risk which 0:02:03.320 --> 0:02:05.760 is very hard to measure. But as we've seen in 0:02:05.800 --> 0:02:07.880 the past few elections in the West, they seem to 0:02:07.920 --> 0:02:12.280 be coming in and coming in repeatedly. The highest impact 0:02:12.280 --> 0:02:14.760 would be one to three days before the French election. 0:02:15.040 --> 0:02:18.520 That is basically anger would not have enough time to recede, 0:02:18.840 --> 0:02:21.040 and so they vote, which in this case, if it 0:02:21.120 --> 0:02:24.040 is one which is driven by anger, would then help 0:02:24.120 --> 0:02:28.560 the populist vote. After the Brexit referretum. After the US election, 0:02:28.560 --> 0:02:30.440 there was a lot of concern about polling. Let's look 0:02:30.440 --> 0:02:32.880 at the Dutch election in particular, didn't turn out the 0:02:32.880 --> 0:02:35.480 way uh many people thought it would. Perhaps polling wasn't 0:02:35.639 --> 0:02:38.560 as disadvantaged as with those other cases. But how do 0:02:38.600 --> 0:02:41.200 you rely on polling now looking ahead to the French election. 0:02:41.760 --> 0:02:44.120 In the case of polling, it depends on the country. 0:02:44.160 --> 0:02:46.360 They don't all have the same methodologies. But the French 0:02:46.360 --> 0:02:48.880 were absolutely scared by what happened both in the UK 0:02:49.120 --> 0:02:52.520 and the US. The difference in the in France is 0:02:52.600 --> 0:02:56.000 the populist party or what you could consider to be 0:02:56.000 --> 0:02:58.560 a populous party because it is a definition of the 0:02:58.639 --> 0:03:04.920 from Madame Marine. It has not historically been different in 0:03:05.000 --> 0:03:07.400 terms of outcomes in the vote versus the polls, so 0:03:07.480 --> 0:03:10.400 there's not this bias vote that people would would actually expect. 0:03:10.680 --> 0:03:12.720 What they've done is they try to improve the poly 0:03:12.800 --> 0:03:15.200 mythology as much as they could reduce this, and they 0:03:15.280 --> 0:03:17.240 use what they call rolling polls, so every day you 0:03:17.240 --> 0:03:19.560 have at least two polls coming out of France and 0:03:19.600 --> 0:03:22.400 they're very very stable. They have also what they call 0:03:22.480 --> 0:03:25.560 stratified pollings, which means it goes into the different groups 0:03:25.560 --> 0:03:29.760 such as workers, um, you know, employees, staff, CEOs, and 0:03:29.800 --> 0:03:32.400 to try to see the evolution of each single group, 0:03:32.720 --> 0:03:35.520 whether it's older or younger voters, to see if the 0:03:35.680 --> 0:03:38.200 change there is a change in the patterns. Yet journalists 0:03:38.200 --> 0:03:40.720 in France do not trust the system and then so 0:03:40.800 --> 0:03:43.400 what they've decided is in many cases to send out 0:03:43.680 --> 0:03:46.800 reporters all across France to check directly with the population, 0:03:46.920 --> 0:03:50.320 asked them questions to see if there was a change 0:03:50.320 --> 0:03:53.000 in the evolution a pattern that wouldn't maybe be mist 0:03:53.360 --> 0:03:56.240 and that would have an important impact in on the 0:03:56.640 --> 0:03:58.560 on the actual vote at the end of the day. 0:03:58.600 --> 0:04:01.080 So there's a lot of work made to try to 0:04:01.120 --> 0:04:03.880 make sure that it isn't a risk. For now, the 0:04:03.920 --> 0:04:07.360 market has decided, for many reasons, including the stratified polling, 0:04:07.680 --> 0:04:10.720 that the odds of Martin le Ben winning are extremely small. 0:04:10.960 --> 0:04:14.040 Then mccona was a very high probability of winning, and 0:04:14.120 --> 0:04:18.080 at this point that seems to be a reasonable event. Yeah, 0:04:18.080 --> 0:04:20.120 we talked about risk events, and I was listening to 0:04:20.160 --> 0:04:21.760 the hearing on Capitol Hill earlier this week with the 0:04:21.800 --> 0:04:24.320 FBI director and the n s A director and both 0:04:24.320 --> 0:04:27.680 basically said Russia had some involvement here or eagerness to 0:04:27.720 --> 0:04:30.960 be involved in the US election, and other countries having 0:04:30.960 --> 0:04:33.960 elections should stand on guard when you think of risk events, 0:04:34.320 --> 0:04:36.880 how how how big a risk event is the potential 0:04:36.880 --> 0:04:41.279 for intervention by another country like Russia. Well, I should 0:04:41.279 --> 0:04:43.600 take a neutral sensor should I should point out that 0:04:43.800 --> 0:04:48.480 Immanue mccona was actually coached by a mayor ex Mayor Bloomberg, 0:04:48.640 --> 0:04:52.280 so he received his own training. Mr Almona received the 0:04:52.360 --> 0:04:56.400 training from the ex training Treasury Secretary, And so these 0:04:56.400 --> 0:05:00.000 are already existing interventions. From my personal point of view, 0:05:00.040 --> 0:05:03.640 find it very positive. They have been uh interventions which 0:05:03.960 --> 0:05:06.240 some may have considered to be less positive. And they 0:05:06.279 --> 0:05:09.200 were the case in the Netherlands coming from Turkey at 0:05:09.240 --> 0:05:12.000 a critical time but too early to make a difference, 0:05:12.040 --> 0:05:14.400 anger in the pulse to decrease at the very fast 0:05:14.480 --> 0:05:17.400 rate um so they didn't have the the outcome that 0:05:17.520 --> 0:05:19.520 one would have expected, and therefore there would be a 0:05:19.640 --> 0:05:24.920 change if if a nondesirable intervention should happen. What are 0:05:24.920 --> 0:05:27.920 the odds of interventions in France? If you look at 0:05:28.080 --> 0:05:31.920 the different articles or ways that information is transmitted by 0:05:32.120 --> 0:05:35.680 foreign agents into the French press, there are several of them. 0:05:35.720 --> 0:05:39.480 They have been very critical of Monsieur Emmanuel Macon. They 0:05:39.480 --> 0:05:42.320 have been generally very supportive of Marie Lepine as well 0:05:42.360 --> 0:05:45.640 as a general called Melach. The reason why they would 0:05:45.640 --> 0:05:48.160 support Mila Schon, who's a far right supporter who's doing 0:05:48.240 --> 0:05:51.560 quite well, is because a percentage of the vote of 0:05:51.640 --> 0:05:54.680 Mr Mino Chan would have a certain probability of actually 0:05:54.760 --> 0:05:57.159 voting for Marie Lepin in the second round. These are 0:05:57.800 --> 0:06:02.560 worker type um the odds and the polls suggests this 0:06:02.600 --> 0:06:05.719 is far less than and then these people seem to think, 0:06:05.760 --> 0:06:09.480 but they are basically been pushing for for these two candidates. 0:06:09.480 --> 0:06:12.320 At this point in time, it looks like they've abandoned Filon, 0:06:12.400 --> 0:06:15.160 who's too low in the polling. So and Fillon also 0:06:15.240 --> 0:06:17.880 has changed his stands relative to Russia and has become 0:06:18.360 --> 0:06:20.480 much less per Russian than he once was. He was 0:06:20.520 --> 0:06:24.920 accused once by Mr of drinking excessive amounts of vodka, 0:06:25.000 --> 0:06:27.720 which was a reference to his very close ties to 0:06:27.839 --> 0:06:30.039 Russia at the time, and since then he has a 0:06:30.080 --> 0:06:34.520 distance himself considerably, a process which may continual for other candidates. 0:06:34.640 --> 0:06:36.239 Let me pivot a little bit here to talk about 0:06:36.240 --> 0:06:38.760 the Chinese currency you mentioned before we got started here. 0:06:39.200 --> 0:06:40.880 A pivotal moment coming up here for the I m F, 0:06:40.920 --> 0:06:43.640 which is placed the REAMINNB in the special drawing basket 0:06:43.640 --> 0:06:45.360 that the IMF has. What are we gonna learn over 0:06:45.400 --> 0:06:49.760 these next coming days. Indeed, they has been added to 0:06:49.920 --> 0:06:52.760 the SCR, which is the official currency used by the IMF, 0:06:52.880 --> 0:06:55.719 by the b I S, by the World Bank, and 0:06:55.880 --> 0:06:58.560 also Jordan and to some extent to Libya. So it 0:06:58.680 --> 0:07:02.400 is actually a relevant currency, it's a non a negigible one. 0:07:02.640 --> 0:07:04.279 But what we will learn at the end of the 0:07:04.320 --> 0:07:07.240 months it's not about the SDR, but about the amount 0:07:07.360 --> 0:07:09.640 of reserves in the m m B, c n Y 0:07:09.800 --> 0:07:13.560 or CNH that is being held by foreign reserves as 0:07:13.560 --> 0:07:15.400 part of what we call the I m F coffer. 0:07:15.440 --> 0:07:17.720 And this is a great mystery because nobody knows how 0:07:17.800 --> 0:07:21.240 much the money has been invested by foreign reserves into 0:07:21.360 --> 0:07:23.720 the HIMMB. It might be in the order of two percent. 0:07:23.840 --> 0:07:26.320 We will know exactly how much it is but I 0:07:26.360 --> 0:07:28.240 think it's people. It is something that a lot of 0:07:28.280 --> 0:07:30.760 people are starting to pay a strong amount of attention to. 0:07:31.240 --> 0:07:33.960 It tells you how much of a competitor to the 0:07:34.040 --> 0:07:37.400 dollar it is. The answer is is very much not one. 0:07:37.680 --> 0:07:40.640 But the the Chinese have been preparing the way for 0:07:40.680 --> 0:07:43.040 the in the next decades to be a serious competitor 0:07:43.120 --> 0:07:46.200 both to the yuro and the dollar. That process will 0:07:46.240 --> 0:07:49.160 take many years. For now that amm B is overvalued 0:07:49.280 --> 0:07:53.080 and should actually devalue, but they count afford this process 0:07:53.200 --> 0:07:56.000 right now. But in a horizon of ten, fifteen to 0:07:56.040 --> 0:07:58.920 twenty years, you'll see that the REMAINB becomes a much 0:07:58.960 --> 0:08:01.320 more used as a currency. There are f X swaps 0:08:01.480 --> 0:08:04.440 lines between the p bo s and many different central banks, 0:08:04.520 --> 0:08:07.320 and as they go through that process, Uh, the chinesely 0:08:07.360 --> 0:08:11.200 maybe should be a much more ordinary currency used internationally, 0:08:11.240 --> 0:08:14.160 including as part of foreign reserves. So they do not 0:08:14.320 --> 0:08:16.760 really fit the criteria whatever the I m F said 0:08:17.200 --> 0:08:19.120 to be a foreign reserves at this point in time. 0:08:19.160 --> 0:08:21.640 They will eventually, and they will do very well. We 0:08:21.640 --> 0:08:24.520 saw this infusion of capital by the PBOs yesterday and 0:08:24.520 --> 0:08:27.200 indeed in the two days before that as well. Uh, 0:08:27.200 --> 0:08:28.880 And there wasn't a whole lot of transparency from the 0:08:28.880 --> 0:08:30.920 PBOC about what it was doing when it comes to 0:08:30.960 --> 0:08:33.439 currency generally, is the Chinese government talking more about it? 0:08:33.480 --> 0:08:36.440 We just had the National People's Congress in Beijing. Uh. 0:08:36.600 --> 0:08:38.440 Is currency something they're keen or to talk about now 0:08:38.440 --> 0:08:41.080 than they used to be. From all the information that 0:08:41.160 --> 0:08:43.480 we have is they are very keen not to talk 0:08:43.520 --> 0:08:47.240 about the currency. Of The key problem that they have 0:08:47.440 --> 0:08:50.040 is one is a link to financial stability. If they 0:08:50.120 --> 0:08:53.840 let the currency go, it might be unhelpful for financial stability. 0:08:53.840 --> 0:08:56.559 On one side. Number two, there is a big negotiation 0:08:56.679 --> 0:08:59.520 process happening right now between many countries in the world 0:08:59.600 --> 0:09:02.480 and the United States. The United States is complaining, in 0:09:02.559 --> 0:09:05.320 part quite correctly so, that it's currency is overvalue, and 0:09:05.360 --> 0:09:08.160 it's overvalued because on the cyclical side, the US is 0:09:08.200 --> 0:09:11.480 doing well, but also for because many central banks around 0:09:11.520 --> 0:09:14.360 the world have taken excessive measures to weaken their currencies. 0:09:14.360 --> 0:09:18.280 That includes the PDOC, but it also includes the ECB 0:09:18.520 --> 0:09:21.760 and the b o J. And as these negotiations happen 0:09:21.800 --> 0:09:23.960 in the background, and you should forget a lot of 0:09:24.000 --> 0:09:27.720 the noise, which sometimes can be quite disturbing. But there 0:09:27.720 --> 0:09:30.520 are professionals in the background doing their work. It seems 0:09:30.520 --> 0:09:33.640 that there's a play at work in which the center 0:09:33.720 --> 0:09:37.640 banks are going to tighten at the measure which fits 0:09:37.679 --> 0:09:41.040 basically their mandates, which will help their currencies. To appreciate 0:09:41.120 --> 0:09:44.000 that maybe that I maybe used to some extent, but 0:09:44.040 --> 0:09:47.000 it also means that the euro would go higher. The 0:09:47.040 --> 0:09:50.040 coffee is hot, the weather is called tom Keane. It's 0:09:50.360 --> 0:09:53.600 it's like Rochester, New York. You know, there's winter, more winter. 0:09:53.720 --> 0:09:57.199 In the fourth of July, were inshing ahead, pushing ahead 0:09:57.200 --> 0:09:58.680 of the weekend. Saturday is supposed to be a little 0:09:58.720 --> 0:10:01.440 nicer here in New York. Remarkable, folks. I was just 0:10:01.520 --> 0:10:04.040 over at our world headquarters of course, doing our television 0:10:04.040 --> 0:10:07.679 show and David for a radio audience. Just remarkable, uh, 0:10:07.760 --> 0:10:11.360 this morning to see Prime Minister May speak and then 0:10:11.400 --> 0:10:14.319 a very somber Mr Corbyn in black black tie and 0:10:14.360 --> 0:10:16.840 a white shirt, and of course a packed house of 0:10:16.880 --> 0:10:19.839 Commons in the moment where the speaker turned to the 0:10:19.880 --> 0:10:23.680 French Foreign Minister in the upper gallery at the House 0:10:23.679 --> 0:10:26.640 of Commons was really quite really, quite something to observe. 0:10:26.800 --> 0:10:28.840 Truly a terrible event yesterday, and as you pointed out 0:10:28.880 --> 0:10:32.080 on the TV program, the nationalities of those who were 0:10:32.160 --> 0:10:36.040 killed yesterday varied incredibly very including three French students and 0:10:36.280 --> 0:10:38.079 in one American. We should point out there's a lot 0:10:38.120 --> 0:10:40.200 we don't know right now. We're learning a little more, 0:10:40.240 --> 0:10:43.000 but of course we'll have coverage on that through the day. 0:10:43.280 --> 0:10:45.560 We're here with Sebastian Galley. He's a senior currency strategy 0:10:45.559 --> 0:10:47.160 a Deutsche Bank, kind of enough to to be with 0:10:47.280 --> 0:10:49.560 us here at the Pier Hotel. We were talking about Europe, 0:10:49.600 --> 0:10:52.280 talking about the French elections. Let's talk about North America 0:10:52.320 --> 0:10:53.920 for a little while here. I'm sure that you're watching 0:10:53.920 --> 0:10:56.319 what's playing out in Washington, and I wonder the degree 0:10:56.360 --> 0:11:00.000 which you think that's going to portend something for tax reform. Uh, 0:11:00.080 --> 0:11:02.760 you're looking at the dollar, Luna, say, how do you 0:11:02.760 --> 0:11:05.760 factor all of that in for some French So the 0:11:05.960 --> 0:11:08.800 families in Concano, which must be hurting at this point 0:11:08.800 --> 0:11:12.520 in time, But looking forward at the taxes, there's been 0:11:12.520 --> 0:11:15.959 some difficulties basically and the aministration to to pass the law. 0:11:16.000 --> 0:11:18.719 So we expect that this night there actually will be 0:11:18.760 --> 0:11:21.280 a vote, so a little continued Senate so it continues 0:11:21.400 --> 0:11:23.720 its normal process. I think the market was very frightened 0:11:24.120 --> 0:11:26.920 that this administration was relatively weak and that it could 0:11:26.920 --> 0:11:29.880 really not when it rarely mattered, put some political way 0:11:29.920 --> 0:11:32.679 and actually achieve a breakthrough, and seems said it is 0:11:32.720 --> 0:11:35.880 achieving it. That means the second stage, which is the taxes, 0:11:36.160 --> 0:11:38.400 which is a much harder fight in some ways, is 0:11:38.440 --> 0:11:41.600 going to go through. That includes potentially the border tax adjustment, 0:11:41.600 --> 0:11:44.920 which has huge implications for the dollar for taxation in 0:11:44.960 --> 0:11:47.120 general and for the size of the tax cuts that 0:11:47.160 --> 0:11:50.640 will affect us all on on our salaries. If it 0:11:50.679 --> 0:11:53.000 isn't there, that it will be much more difficult. Um 0:11:53.160 --> 0:11:57.160 but that is a more positive if really that would 0:11:57.200 --> 0:12:00.840 go through. The US administration has shown flexive ability. It 0:12:00.920 --> 0:12:04.520 has basically a flummox center and threatened, but ultimately it 0:12:04.559 --> 0:12:09.760 actually has proven a well oiled political operator able to 0:12:09.800 --> 0:12:12.360 actually pass through some some difficult to measures that will 0:12:12.400 --> 0:12:16.160 see that confirmation probably tonight. So taxes will then be 0:12:16.280 --> 0:12:18.880 the next step. There are very difficult particularly at the 0:12:19.000 --> 0:12:21.880 Senate stage, particularly in the case of the B A T. 0:12:22.320 --> 0:12:25.280 The infrastructure project is mostly dead on arrival, but there 0:12:25.400 --> 0:12:27.600 probably will be a fig leaf. That's probably something for 0:12:27.640 --> 0:12:30.480 the next year. The economy is running well at a 0:12:30.640 --> 0:12:32.840 at a high pase with probably a Q one, which 0:12:32.880 --> 0:12:35.400 is relatively low, but it is running in the in 0:12:35.440 --> 0:12:37.440 the right direction, so it doesn't need that much of 0:12:37.480 --> 0:12:40.760 an impulse. Nonetheless, the market is betting on that impulse, 0:12:40.840 --> 0:12:43.640 as betting through equities on that impulse, and if we 0:12:43.720 --> 0:12:46.560 fail to get a move in that direction, then of 0:12:46.559 --> 0:12:49.480 course we could see a significant correction. When you talk 0:12:49.480 --> 0:12:51.439 about the border adjustment tax, it's it's something that the 0:12:51.440 --> 0:12:53.600 President didn't bring up in his speech before joined session 0:12:53.600 --> 0:12:55.480 of Congress. We don't have a clear sense of whether 0:12:55.559 --> 0:12:57.640 or not the White House is back at Steven manoge In, 0:12:57.640 --> 0:12:59.559 the Treasury Secretary, WHI was in Berlin before heading on 0:12:59.600 --> 0:13:01.679 to Boton Botton and was asked about it, and he 0:13:01.720 --> 0:13:03.360 said that they're weighing a lot of things they haven't 0:13:03.400 --> 0:13:06.000 yet committed to backing. And how integral is it to 0:13:06.080 --> 0:13:09.680 tax reform? Do you think if there isn't that component 0:13:10.120 --> 0:13:11.880 to a tax reform package, do you think it stands 0:13:11.880 --> 0:13:14.640 a chance of getting through. It's huge. It's huge in 0:13:14.640 --> 0:13:16.800 the sense that the amount that one is there's a 0:13:16.840 --> 0:13:20.800 tremendous amount of resistance coming from the retail, from refiners, 0:13:21.200 --> 0:13:23.960 from other industries that are heavily opposed to it. But 0:13:24.000 --> 0:13:26.079 if you can imagine this is a carrot and stick, 0:13:26.360 --> 0:13:28.439 and there's a big stick of the stick is the 0:13:28.520 --> 0:13:30.400 B A T. Whether they're using the B A T 0:13:30.559 --> 0:13:33.400 is to achieve political gains abroad, and these means of 0:13:33.520 --> 0:13:36.920 changes in monetary policy, mostly for example, the ECB turning 0:13:37.000 --> 0:13:39.240 less dovish and mentioning the fact that they could move 0:13:39.240 --> 0:13:42.480 away from negative interest right before they do QUI, some 0:13:42.520 --> 0:13:45.040 signs that the p B U C might be marginally 0:13:45.320 --> 0:13:49.480 tightening policy. And generally speaking, the center max are on 0:13:49.559 --> 0:13:52.040 the whole less do wish than they once were. They're 0:13:52.040 --> 0:13:54.120 trying to weaken their currency less than they used to, 0:13:54.280 --> 0:13:56.800 and so it is part of a very complex set 0:13:56.840 --> 0:13:58.720 of policies. You have people who come in on it 0:13:58.760 --> 0:14:01.280 who are irrelevant, people who come in on it who 0:14:01.280 --> 0:14:04.640 actually are relevant, and the ones who are commenting the 0:14:04.679 --> 0:14:07.400 most may or may not be the most relevant. One. 0:14:08.520 --> 0:14:12.040 Help me your sub galy with with the dynamics of 0:14:12.080 --> 0:14:15.840 the dollar. The surprise ending the first quarter hard to 0:14:15.840 --> 0:14:19.880 believe with the frigid fifth avenue today, but ending the 0:14:19.920 --> 0:14:23.160 first quarter. Uh, the surprise is the idea of the 0:14:23.200 --> 0:14:26.120 dollar not in Nancy, it's been I think all in 0:14:26.160 --> 0:14:29.440 all that consensu surprise, what's the catalyst to get the 0:14:29.480 --> 0:14:32.880 dollar to lift? You would need to get better data, 0:14:32.880 --> 0:14:35.000 and unfortunately Q one is is probably going to be 0:14:35.080 --> 0:14:37.640 relatively weak. So you need to get a sense that 0:14:37.760 --> 0:14:40.320 the economic data. It is continuing that labor market has 0:14:40.360 --> 0:14:43.600 continued to toighten and salaries are continuing to improve, and 0:14:43.640 --> 0:14:46.520 for now the salary side remains relatively weak. Productivity in 0:14:46.520 --> 0:14:50.000 the US is relatively weak, and so the catalysts on 0:14:50.040 --> 0:14:54.720 the pure dollar side, the GDP is not out there. Qen. 0:14:54.800 --> 0:14:57.040 We expect for seasonal reasons to be a week we 0:14:57.080 --> 0:14:59.240 go get in some cases what about the second quarter 0:14:59.320 --> 0:15:02.680 quickly probably around two, so where you basically average out 0:15:02.680 --> 0:15:05.960 a wait wait wait, if you get your fiscal package 0:15:06.080 --> 0:15:08.120 and the likes, then what you can imagine is that 0:15:08.200 --> 0:15:11.160 trend growth would actually increase quite significantly. That's what part 0:15:11.160 --> 0:15:13.240 in the market is betting on. Semest Gilly, thank you 0:15:13.360 --> 0:15:15.920 so much. The wheels A power records so Pierre Hotels 0:15:15.960 --> 0:15:31.840 stay with us. Anthony Dwyer with his kindicort jenuity, Tony 0:15:31.880 --> 0:15:34.400 Dwyer has been a massive bull on the markets. Tony 0:15:34.440 --> 0:15:37.400 were clumsy on television this morning with all the u 0:15:37.960 --> 0:15:40.560 reporting from London, and of course with a Prime minister 0:15:40.680 --> 0:15:43.440 speech a little more quiet now with you, are you 0:15:43.520 --> 0:15:47.520 still a bull on a bull market? You should never, ever, ever, ever, 0:15:47.640 --> 0:15:52.640 ever ever sell and get negative unless you can identify 0:15:52.680 --> 0:15:55.120 a close proximity to a recession. That doesn't mean the 0:15:55.160 --> 0:15:57.200 market can't pull back. We're actually kind of calling for 0:15:57.240 --> 0:16:00.640 one now. But ultimately it's too hard to call the 0:16:00.720 --> 0:16:03.720 pull back and then get back in if you get 0:16:03.760 --> 0:16:07.640 really negative and back in is what the amateurs don't understand. 0:16:07.720 --> 0:16:10.440 That's what the professionals don't understand either. By the way, 0:16:10.720 --> 0:16:13.200 it's we're getting back. You can get defensive and you 0:16:13.280 --> 0:16:14.880 call it right, and all of a sudden the market 0:16:14.880 --> 0:16:17.880 turns really quickly. It's up four from the loan. You said, wait, 0:16:17.920 --> 0:16:20.160 hold on, I can't buy it because it's up too much. 0:16:20.240 --> 0:16:22.760 Turn back. This is different. The two gentlemen over here 0:16:22.760 --> 0:16:25.960 at table fourteen at the Pier Hotel, they're taking notes, 0:16:26.440 --> 0:16:30.440 So be careful, be careful. You don't need one of 0:16:30.440 --> 0:16:41.120 those regulatory disclaimers. Burn the sausage. It's good. Correction underway, 0:16:41.440 --> 0:16:43.920 opportunity ahead. In your most recent no talk to us 0:16:43.920 --> 0:16:46.960 a bit about finding that opportunity. Well, that opportunity is 0:16:47.000 --> 0:16:51.520 extraordinary because you have a global synchronized economic recovery. When 0:16:51.680 --> 0:16:53.600 we had upgraded the tape, we had been neutral last 0:16:53.600 --> 0:16:56.280 summer and upgraded to our opinion of the market and 0:16:56.320 --> 0:17:01.320 the offensive sectors meaning financials, tech, um in industrials ahead 0:17:01.360 --> 0:17:04.119 of the election. Not because we thought Donald Trump would win. 0:17:04.200 --> 0:17:06.800 I wish I was that smart. I had no idea. Um, 0:17:07.000 --> 0:17:10.000 what we did it because you had economic improvement in 0:17:10.119 --> 0:17:13.800 the Eurozone, economic improvement in Asia coming off of last 0:17:13.840 --> 0:17:17.200 year's January and February low David, it was an extraordinary 0:17:17.640 --> 0:17:21.360 positive trajectory that nobody was talking about because of the election. 0:17:22.040 --> 0:17:25.080 That's why you you should be That's why I am positive, 0:17:25.520 --> 0:17:28.240 is because you're having a recovery and earnings. You're having 0:17:28.240 --> 0:17:31.240 a recovery and economic activity this morning and while we're 0:17:31.280 --> 0:17:34.760 on the show that I didn't feel it was so clumsy. Um, 0:17:34.880 --> 0:17:37.640 the UK reported retail sales that were better than expected. 0:17:37.640 --> 0:17:39.760 But wait, say it isn't Britain supposed to fall into 0:17:39.760 --> 0:17:43.920 the ocean because of Brexit. No, it accelerated, their currency declined, 0:17:44.200 --> 0:17:47.159 credit opened up. Same thing happened in the Eurozone. The 0:17:47.200 --> 0:17:49.879 same thing happened in Asia, so you're seeing this better 0:17:50.040 --> 0:17:54.040 economic activity globally, and for the investors uh that are listening, 0:17:54.280 --> 0:17:57.400 the market is most closely correlated to the direction of earnings. 0:17:57.760 --> 0:18:01.360 That's driven by economic activity. That's driven by the money 0:18:01.400 --> 0:18:04.040 availability via the slope of the yield curve, and that's 0:18:04.080 --> 0:18:06.840 driven by Fed policy. So as long as the Fed 0:18:07.000 --> 0:18:09.879 stays somewhat accommodative, even on more hikes, are going to 0:18:09.920 --> 0:18:14.000 be accommodative. You have you have probably years before you 0:18:14.000 --> 0:18:15.800 picked this thing out. This guy is always as tough 0:18:15.800 --> 0:18:17.720 as critic, by the way, in terms of the clumbliness, 0:18:17.760 --> 0:18:20.440 clumsiness of the TV. That's think that's why he's so good. 0:18:21.280 --> 0:18:24.159 You know. I just think that a lot of people 0:18:24.200 --> 0:18:26.480 have missed this bullmarket. Let me ask you the question 0:18:26.520 --> 0:18:29.440 I ask everyone, and Tony has said, with great respect 0:18:29.480 --> 0:18:34.000 for your intellectual courage, how do you catch up? You 0:18:34.080 --> 0:18:36.880 have to in a world where all the money is going. 0:18:36.960 --> 0:18:40.240 Don't love passive? Well, you can at certain times time 0:18:40.320 --> 0:18:43.439 you don't think about this analogy. It's very hard to 0:18:43.480 --> 0:18:46.120 stretch a rubber band that has already been fully stretched. 0:18:46.480 --> 0:18:48.800 It's a lot easier to stretch a rubber band once 0:18:48.840 --> 0:18:51.240 it's been neutral and gone back to its normal state. 0:18:51.800 --> 0:18:54.240 There's periods of time where you have these multi month 0:18:54.359 --> 0:18:56.800 runs like we recently have, where you just kind of 0:18:56.800 --> 0:18:58.600 pulling the horns a little bit and you just say, Okay, 0:18:58.680 --> 0:19:00.119 let's wait for a little bit of a pull at 0:19:00.240 --> 0:19:03.359 a better opportunity for that rubber band to contract. Once 0:19:03.400 --> 0:19:06.600 it does, then you get offensive. Then you buy the financials. Well, 0:19:06.680 --> 0:19:09.720 most people don't realize is yes, the SMP Dow when 0:19:09.720 --> 0:19:12.560 all the industries are right up against an all time high, 0:19:12.600 --> 0:19:16.720 but on a relative performance basis, the banks have underperformed 0:19:17.040 --> 0:19:21.800 since early last December, the SMP financial sector. So you're 0:19:21.840 --> 0:19:24.200 hard pressed to say that you're reversing the Trump trade. 0:19:24.760 --> 0:19:29.479 You've already have Energy has been terrible, Materials meaning you know, 0:19:29.880 --> 0:19:33.520 commodity stocks have been terrible. Financials have been up but 0:19:33.760 --> 0:19:36.959 underperforming the overall market. So the Trump trade has already 0:19:36.960 --> 0:19:40.639 been reversed. You mentioned, you mentioned the earnings, You mentioned 0:19:40.640 --> 0:19:43.359 fed policy. You have a lot of people who are 0:19:43.359 --> 0:19:45.760 watching what's happening or not happening in Washington with with 0:19:45.840 --> 0:19:49.240 some concern. How are you regarding all of that as 0:19:49.240 --> 0:19:51.200 a as a strategist, What are you making of what's 0:19:51.200 --> 0:19:54.879 happening in Washington. You look for excuses versus reasons. The 0:19:54.960 --> 0:19:58.879 market is has an excuse to sell off. If the 0:19:58.920 --> 0:20:01.480 Healthcare Act doesn't to vote tonight, you could have a 0:20:01.560 --> 0:20:04.840 sell off. But the reason, the only reason you really 0:20:04.880 --> 0:20:07.679 go defensive sustainably. I mean, I wish I were a 0:20:07.680 --> 0:20:10.000 good trader. I'm a terrible trader. The reason that you 0:20:10.080 --> 0:20:14.639 go defensive or negative sustainably is when you when bank 0:20:14.760 --> 0:20:17.000 lending shuts down, and you can measure that, as Tom 0:20:17.040 --> 0:20:20.000 mentioned earlier, um from the three month and five year 0:20:20.080 --> 0:20:23.080 yield curve war the two tenants is a measured but 0:20:23.240 --> 0:20:25.760 that's how you measure how close you are to a recession. 0:20:25.960 --> 0:20:28.639 If you take the current Fed dot plot and you 0:20:28.680 --> 0:20:30.800 look at where the tenure note is right now and 0:20:30.920 --> 0:20:33.119 keep it there, you're not going to even invert the 0:20:33.160 --> 0:20:36.760 curve until mid two thousand eighteen. Your median inversion is 0:20:36.800 --> 0:20:39.320