WEBVTT - Davos Ultimately Loves Power, Ferguson Says 0:00:00.080 --> 0:00:13.800 Ye, Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane Jaily. 0:00:13.960 --> 0:00:17.560 We bring you insight from the best in economics, finance, investment, 0:00:18.000 --> 0:00:23.480 and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, 0:00:23.600 --> 0:00:33.639 Bloomberg dot Com, and of course on the Bloomberg Let 0:00:33.640 --> 0:00:35.840 me bring in our our our first guest, John Farrell, 0:00:35.880 --> 0:00:39.040 who you know quite well. Robin nibolodies with Chatham House. Uh. 0:00:39.080 --> 0:00:43.440 They do wonderful work and thinking about international relations. Robin, 0:00:43.560 --> 0:00:45.159 let me give you an open question to start. What 0:00:45.320 --> 0:00:49.880 is the chadow House lead essay for this January? UM? 0:00:49.920 --> 0:00:53.440 The lead essay for US is Europe UM. I think 0:00:53.640 --> 0:00:56.960 it's not just about Brexit. It's about the Italian election. 0:00:57.120 --> 0:01:01.680 It's about whether Macran and Anglo Meracle can get it together, 0:01:01.720 --> 0:01:04.440 if Angler Mercle can get a government put together to 0:01:04.760 --> 0:01:09.760 lead a rejuvenation of European integration. This matters because the 0:01:09.800 --> 0:01:13.720 United States is self obsessed UM, and where Europe goes 0:01:13.760 --> 0:01:15.840 I think matters for big questions like the future of 0:01:15.880 --> 0:01:18.840 the global economy and global cooperation. So Europe is our 0:01:18.840 --> 0:01:20.880 main focus, well, my main folk. Eric Nelson of the 0:01:20.959 --> 0:01:23.520 UNI Credit was right out of it that Europe arguably 0:01:23.560 --> 0:01:25.520 is doing better than the United States. Do you buy 0:01:25.520 --> 0:01:31.640 that idea, not only economically but almost politically. Um, let's see, 0:01:31.800 --> 0:01:35.160 everything is relative. I think the United uh, Europe and 0:01:35.160 --> 0:01:36.920 the European Union are doing better in the sense that 0:01:36.959 --> 0:01:39.160 they waived off some of the big popular scares of 0:01:39.200 --> 0:01:42.200 twenty seventeen. They're seeing some I think, what looks like 0:01:42.280 --> 0:01:46.800 sustainable growth, which has picked out of the drug program, 0:01:46.800 --> 0:01:50.240 of fiscal easing of monetariesing um, And yeah, I do 0:01:50.320 --> 0:01:52.560 think there's some quite deep roots to it. You're seeing 0:01:52.560 --> 0:01:56.880 it as diverse economies as Portugal, Spain, Italy, some parts 0:01:56.880 --> 0:01:58.680 of Central Europe still keeping it up. And of course 0:01:58.680 --> 0:02:01.480 Germany is just remarkable with the surpluses it's achieving right 0:02:01.480 --> 0:02:04.120 now and it's on its budget. It actually gives a 0:02:04.120 --> 0:02:06.760 lot of room. You know, you think the country's in trouble, 0:02:06.800 --> 0:02:08.320 but here we are sitting, what with the twenty five 0:02:08.400 --> 0:02:10.760 billion euros surplus on its budget this year and maybe 0:02:10.760 --> 0:02:15.799 being up tote incredible. Robin. What's been remarkable about Germany 0:02:15.880 --> 0:02:18.440 is it doesn't have a government and it's taken Chancellor 0:02:18.480 --> 0:02:20.960 Merkell over three months, more than three months to get 0:02:20.960 --> 0:02:23.120 it together. Do you see signs that Chancellor Merkel is 0:02:23.160 --> 0:02:26.760 finally getting it together. And what are the main objectives 0:02:26.760 --> 0:02:29.600 of this government this time around? Well, I think it's 0:02:30.200 --> 0:02:33.160 uh to your first part of your question. It is 0:02:33.200 --> 0:02:35.359 getting it together in the sense at least the two 0:02:35.400 --> 0:02:38.280 party leaderships have come up with a program between the 0:02:38.440 --> 0:02:41.240 SPD and her cd U C s U coalition. I 0:02:41.240 --> 0:02:43.520 think there's a long way to go with the SPD 0:02:44.080 --> 0:02:46.840 UH and the rank and file. The coalition agreement has 0:02:46.840 --> 0:02:48.799 to be approved by them, so I don't think we're 0:02:48.800 --> 0:02:50.480 out of the woods yet actually, and her authority, of 0:02:50.480 --> 0:02:53.239 course is much much less strong than it was when 0:02:53.240 --> 0:02:56.200 she created the other governments. If they can achieve it. However, 0:02:56.600 --> 0:02:59.320 I think their priority is to invest in infrastructure, which 0:02:59.360 --> 0:03:01.720 is we've talked for some time now, is one of 0:03:02.000 --> 0:03:05.200 Germany's growing Achilles heels. There's quite a bit of a 0:03:05.240 --> 0:03:08.600 sense of how do you redistribute the the you know, 0:03:08.639 --> 0:03:12.640 the positive economic news, and this can be some easing off, 0:03:12.680 --> 0:03:16.359 as I understand it, of pension tightening up on pension contributions. 0:03:16.360 --> 0:03:19.400 Instead of that, they'll carry on being relatively generous and 0:03:19.440 --> 0:03:21.680 better healthcare provisions. So what you can see here as 0:03:21.720 --> 0:03:24.519 an effort to say to the German people there are 0:03:25.360 --> 0:03:29.399 benefits socially too strong economic growth over time, and it's 0:03:29.400 --> 0:03:30.920 not all about belt tightening, and that would be an 0:03:30.919 --> 0:03:33.240 important shift of message for Germany to be frank robin 0:03:33.280 --> 0:03:36.840 their domestic objectives. Emmanuel mccran, the President of France, will 0:03:36.840 --> 0:03:40.280 be hoping there will be some European objectives. Does she 0:03:40.400 --> 0:03:42.840 have the political capital at home to drive through the 0:03:43.200 --> 0:03:47.640 vision of Emmanuel Macron across Europe to a more integrated Eurozone. 0:03:48.360 --> 0:03:51.520 I I I try to put my cards on one 0:03:51.560 --> 0:03:53.920 side of the table. I'd say I don't think she does. Actually, 0:03:54.000 --> 0:03:56.120 her own party, the c d U c s U, 0:03:56.360 --> 0:04:00.640 remain very skeptical about deeper integration of the Azern without 0:04:00.680 --> 0:04:05.320 actually having seen at least real French structural reform in 0:04:05.440 --> 0:04:09.640 place and delivering results. The SPD her partners much more 0:04:09.680 --> 0:04:12.240 in favor, but remember they only polled about in the 0:04:12.320 --> 0:04:16.919 last election. Um and where the where the growth is 0:04:16.960 --> 0:04:20.120 on the margins that are skeptical about European integration, much 0:04:20.160 --> 0:04:22.720 like the Labor Party is skeptical in the United Kingdom 0:04:22.760 --> 0:04:25.520 about the EU as a whole. So I don't think so. 0:04:25.640 --> 0:04:27.719 The good news, of course, on the ANA for Germany's 0:04:27.720 --> 0:04:31.320 I don't think Macron personally is that committed in the 0:04:31.440 --> 0:04:34.719 near term to deeper Eurozone integration. What he wants is 0:04:34.760 --> 0:04:38.200 an ear that can protect him as he conducts really 0:04:38.200 --> 0:04:41.520 difficult domestic reforms. So I think he's more interested in 0:04:41.800 --> 0:04:46.120 immigration controls, more intersted in protections against foreign investment by 0:04:46.120 --> 0:04:48.680 state and companies like the Chinese. You know, he's I 0:04:48.720 --> 0:04:52.200 think the protection agenda of Europe, almost slightly old Fortress 0:04:52.240 --> 0:04:56.240 Europe two point oh is more his priority. I look 0:04:57.200 --> 0:05:01.760 where we are, Robin, and almost what the theory is 0:05:01.839 --> 0:05:04.960 of international relations. Now, to Ian Bremer's point, it does 0:05:05.040 --> 0:05:13.120 seem like every nation and almost every theory for itself, Um, 0:05:13.160 --> 0:05:18.480 there is. I think there is a theory of change 0:05:18.480 --> 0:05:22.120 in a theory of good government. I believe that remains 0:05:22.360 --> 0:05:25.760 in the future applicable for everyone, and I do think 0:05:25.800 --> 0:05:30.400 that is reflected in the economies of Europe, the United States, 0:05:31.080 --> 0:05:34.119 you know, Australia, let's call it the West. The reason 0:05:34.160 --> 0:05:35.640 I say that is, although there seems to be a 0:05:35.640 --> 0:05:39.600 lot of competition for these different approaches, um, not all 0:05:39.640 --> 0:05:42.000 countries at the same stage of economic development. So it's 0:05:42.040 --> 0:05:45.000 fine for China to run a centralized approach. But China 0:05:45.400 --> 0:05:48.320 is not yet a fully functioning consumer economy driven by 0:05:48.320 --> 0:05:51.040 innovation and technology. The demands of the people are not 0:05:51.160 --> 0:05:54.320 the same. So I still think there may be one theory. 0:05:54.360 --> 0:05:56.240 The problem is getting there is gonna take a lot 0:05:56.279 --> 0:05:59.119 longer than anyone expected before. Let me cut to the chase. 0:05:59.600 --> 0:06:03.120 How the president we greeted in Davos, freed Zakaria wrote 0:06:03.160 --> 0:06:07.159 about a post American world. You almost wonder what the 0:06:07.200 --> 0:06:09.760 post Trumpian world world will be like, whether it's one 0:06:09.839 --> 0:06:13.080 term or two terms. Um. And actually I had a 0:06:13.080 --> 0:06:15.279 piece that came out in the Berlin Policy Journal earlier 0:06:15.320 --> 0:06:17.200 this week where I think I picked up probably on 0:06:17.240 --> 0:06:19.480 some of that theme that you mentioned. Free Zakaria mentioned 0:06:19.520 --> 0:06:21.600 as well. I think we're moving to a stage of 0:06:21.640 --> 0:06:25.720 the world where America's traditional allies cannot count on America 0:06:26.200 --> 0:06:29.560 to have their back except on issues of existential threats 0:06:29.560 --> 0:06:32.719 to their security. We are not on a common agenda 0:06:32.839 --> 0:06:37.440 right now. America is fixing America first, but I think 0:06:37.480 --> 0:06:39.280 this is helping other parts of the world, if I 0:06:39.320 --> 0:06:42.200 may say so, to grow up. Europe needs to grow 0:06:42.279 --> 0:06:44.760 up and take more care of its own regional security. 0:06:45.120 --> 0:06:48.040 Japan is going to have to grow up and find 0:06:48.040 --> 0:06:50.279 ways to get on better with South Korea so that 0:06:50.320 --> 0:06:53.960 they can protect themselves against China's rise. Um in the 0:06:54.000 --> 0:06:56.719 Middle East, we've already seen it. The Saluadis have decided 0:06:56.760 --> 0:07:00.240 they better grow up and look after that. So, you know, 0:07:00.279 --> 0:07:02.719 even though they like Trump, I do think they trust America. 0:07:02.839 --> 0:07:05.000 That's a good place to go. John, It's a tough 0:07:05.040 --> 0:07:07.240 decision what we should do with Robin Nivlet next. Should 0:07:07.240 --> 0:07:09.960 we talk about Saudi Arabia and the massive changes in 0:07:10.000 --> 0:07:12.200 the Middle East? Or should we talk about the continued 0:07:12.280 --> 0:07:16.240 collapse of a Milan. I can't. Robert has got to 0:07:16.280 --> 0:07:18.280 say about that. It's got something to add some value 0:07:18.280 --> 0:07:20.440 wad for a c Meland. Then then I would love that. 0:07:20.560 --> 0:07:23.360 Robin Nivlet, I love American football. You know, do you 0:07:23.400 --> 0:07:25.160 want to do that? We can? We can do that then, Robert, 0:07:25.240 --> 0:07:27.840 Robin Nivolett, the Chatham House Director, We'll be sticking with 0:07:27.920 --> 0:07:45.280 us here on Bloomberg Surveillance. It's twenty eighteen, the year 0:07:45.400 --> 0:07:49.000 the reflation trade materializes. Brent crude had to push through 0:07:49.080 --> 0:07:52.000 seventy dollars for the first time in several years. The 0:07:52.080 --> 0:07:55.200 dollar has weakened to a multi year low, a three 0:07:55.480 --> 0:07:57.840 year low, unemployment in Germany at an all time low, 0:07:57.960 --> 0:08:00.760 and unemployment here in the United States, and a decade low. 0:08:00.960 --> 0:08:03.800 All the ingredients you would think for an inflation pick up. 0:08:03.880 --> 0:08:06.920 Let's get across the David Page Acts or investment Managements 0:08:06.920 --> 0:08:12.320 senior economists. David, is this the year that it actually materializes? Well, yes, 0:08:12.360 --> 0:08:13.880 we think it is, but I don't think it's going 0:08:13.880 --> 0:08:15.560 to be a dramatic story, and I think it's something 0:08:15.600 --> 0:08:18.360 that unfolds over over a couple of quarters. We do 0:08:18.480 --> 0:08:20.840 expect to see evidence of firm inflation, particularly in the 0:08:20.840 --> 0:08:23.240 economies that look like they've got tighter markets. We're thinking 0:08:23.240 --> 0:08:26.280 of the US, we're thinking the UK. I think in Eurozone, 0:08:26.280 --> 0:08:28.360 where there's more stair capacity, it's going to take more 0:08:28.360 --> 0:08:30.600 time to emerge. But as you say, I think the 0:08:30.600 --> 0:08:32.920 oil price is something that's going to provide a slight 0:08:32.960 --> 0:08:34.880 list at the start. We don't expect that to run 0:08:34.920 --> 0:08:37.920 too much more Dollar weakness exacerbates. But I think what 0:08:38.040 --> 0:08:40.400 really is pushing is likely to come through here is 0:08:40.400 --> 0:08:43.040 wage inflation. We've been looking for this for so long, 0:08:43.200 --> 0:08:45.199 but the tightness of the US labor market I think 0:08:45.240 --> 0:08:47.600 really does suggest that we start see more visible evidence 0:08:47.640 --> 0:08:50.840 of that cyclical pickup in inflation coming through and offsetting 0:08:50.840 --> 0:08:54.079 some of the headwinds that kept inflation so subdued last year. David, 0:08:54.120 --> 0:08:56.800 at the moment we witness what could be more evidence 0:08:56.840 --> 0:09:01.040 of a dysfunctional Washington d C over the last several months, though, 0:09:01.080 --> 0:09:03.680 what we got was the tax built for markets and 0:09:03.760 --> 0:09:06.040 for the investors that you speak with the fund managers 0:09:06.360 --> 0:09:09.160 at actor. Is it okay to have a dysfunctional d 0:09:09.280 --> 0:09:11.800 C again because we've got the tax bill and therefore 0:09:12.120 --> 0:09:16.280 investors have got what they wanted and nothing else matters. Well, 0:09:16.320 --> 0:09:19.160 I think markets have become used to dysfunction from Washington. 0:09:19.440 --> 0:09:21.520 Bear in mind, this is not something that's just come 0:09:21.520 --> 0:09:24.160 along with the Trump administration. We've seen this basically for 0:09:24.200 --> 0:09:26.400 the last six years of the Obama administration as well, 0:09:26.679 --> 0:09:29.760 So we now expect this sort of backdrop, I think, 0:09:29.800 --> 0:09:31.640 to some extent, as long as we see the implementation 0:09:31.679 --> 0:09:34.080 as the tax reform, which of course requires a budget 0:09:34.160 --> 0:09:36.679 to be enacted, rather than these continuing resolutions that we 0:09:36.920 --> 0:09:38.680 seem to be heading towards again at the end of 0:09:38.720 --> 0:09:41.439 this week. But by and Marge, as long as we 0:09:41.480 --> 0:09:43.800 get that tax reform come through, then we are going 0:09:43.840 --> 0:09:47.240 to see markets broadly satisfied. We don't expect to see 0:09:47.240 --> 0:09:49.560 too much more come from this administration, certainly not ahead 0:09:49.600 --> 0:09:52.600 of the midterms. David, I'm looking at my screen May 0:09:52.640 --> 0:09:59.120 Bloomberg screen equities, binds, currencies, commodities, and it's truly a 0:09:59.240 --> 0:10:03.560 too good to be true screen. What's There's always an 0:10:03.600 --> 0:10:07.439 exaginous shark at some point that gets in the way. 0:10:07.800 --> 0:10:10.920 What is it? Well, I think in the very short 0:10:11.000 --> 0:10:13.840 term we can look not only to the debate around 0:10:13.960 --> 0:10:16.760 fists or spending plans, but also to the possibility of 0:10:16.840 --> 0:10:20.439 trade or trade wars ramping up the agenda. Again, bear 0:10:20.440 --> 0:10:23.320 in mind that we've seen the Trumps administration bring forwards 0:10:23.640 --> 0:10:26.360 the reports it's going to get on steel production, to 0:10:26.400 --> 0:10:29.440 some expand on intellectual property. We do expect this to 0:10:29.440 --> 0:10:31.280 be included in the States of the Union. Could that 0:10:31.320 --> 0:10:33.800 provide the shock? Could we see a shock turning from China? 0:10:34.559 --> 0:10:37.120 It's very hard, as you know, to anticipate exactly what 0:10:37.240 --> 0:10:39.120 one of these shots could be coming for other forwards. 0:10:39.120 --> 0:10:41.120 But what we see from you know, the period of 0:10:41.120 --> 0:10:43.120 time that we haven't seen, for example, of correction in 0:10:43.280 --> 0:10:46.760 SMP over the last best part of a year. That's 0:10:46.840 --> 0:10:50.000 quite an unusual period. We would expect to see some 0:10:50.320 --> 0:10:52.480 correction comes through across the course of this year. They're 0:10:52.480 --> 0:10:54.920 not balanced. That's something that we think that will probably 0:10:55.480 --> 0:10:57.720 see the Federal Reserve have to pause at one point, 0:10:57.840 --> 0:11:01.720 even though generically it's looking to tighten conthropology across the board. 0:11:01.880 --> 0:11:04.440 I mean, an exager and shock Joan could be Milan 0:11:04.520 --> 0:11:06.080 went two games in a row. That would be a 0:11:06.120 --> 0:11:08.000 serious shock to my life. I can tell you that, 0:11:08.080 --> 0:11:10.000 David Page, Let's talk about trade and then we can 0:11:10.000 --> 0:11:12.800 talk about the Federal Reserve. On the trade issue, I 0:11:12.840 --> 0:11:15.079 can't think of a single subject over the last I 0:11:15.120 --> 0:11:17.720 don't know eighteen months that has consumed so much time 0:11:18.000 --> 0:11:22.559 and produced so little. Nothing has actually happened. Those fears 0:11:22.679 --> 0:11:26.960 have not materialized in any real way, shape or form. 0:11:27.040 --> 0:11:31.040 Will they well, to some extent they have. I mean 0:11:31.080 --> 0:11:33.640 we are in naptal negotiations. We are in a naptal 0:11:33.640 --> 0:11:38.080 negotiation that look continually and increasingly threatened to see the 0:11:38.200 --> 0:11:41.600 US pull out. Certainly, Nahal negotiations at this stage aren't 0:11:41.600 --> 0:11:43.560 making progress. We have seen the U s but let's 0:11:43.600 --> 0:11:46.880 be David, Eighteen months ago we were worried about a 0:11:47.160 --> 0:11:50.200 trade war between the United States and China. If I 0:11:50.360 --> 0:11:54.600 told you eighteen months ago that it's sitting here January eighteen, 0:11:55.080 --> 0:11:58.160 trade relations between China and the United States would be 0:11:58.160 --> 0:12:01.280 exactly the same, and for that matter, trade relations between 0:12:01.280 --> 0:12:03.080 the United States and pretty much the rest of the 0:12:03.120 --> 0:12:06.920 world would be very much unchanged. I think some people 0:12:06.960 --> 0:12:09.920 would have been surprised. Some may have been, but I 0:12:09.920 --> 0:12:12.600 don't think many. I mean, certainly we weren't. We suggested 0:12:12.640 --> 0:12:14.360 that the first outlook was going to be for the 0:12:14.400 --> 0:12:17.520 administration to deal with tax reform. They've done that. I 0:12:17.559 --> 0:12:20.720 think the trade issue is something that now comes into play, 0:12:20.920 --> 0:12:23.560 and more dramatically, could come into play if we see 0:12:23.720 --> 0:12:27.000 a significant deterioration in Republicans control of Congress at the midterms. 0:12:27.320 --> 0:12:29.280 Then you look to a president that still wants to 0:12:29.280 --> 0:12:31.200 talk to his base, and that looks to some of 0:12:31.200 --> 0:12:33.880 the remaining pools that he may have in the absence 0:12:33.880 --> 0:12:36.960 of control. I look at the Apple computer nine hundred 0:12:36.920 --> 0:12:40.439 and one billion dollar market cap, amazonic course over to 0:12:40.600 --> 0:12:44.199 standard deviations higher as well. David Page, you look at 0:12:44.600 --> 0:12:47.600 all this good feeling in America, do you believe within 0:12:47.679 --> 0:12:51.240 your economics? Do you believe in trickle down theory. Is 0:12:51.280 --> 0:12:53.920 all that I'm seeing on the Bloomberg screen as all 0:12:53.960 --> 0:12:57.000 that I'm witnessing here in London is a trickling down 0:12:57.000 --> 0:13:01.240 to the greater Republic. Yes, of it surely is. And 0:13:01.280 --> 0:13:04.200 what's been the remarkable thing as the last fifteen months 0:13:04.200 --> 0:13:06.120 has been the sharp pickup in sentiment and now that 0:13:06.160 --> 0:13:08.719 has delivered firm and growth. We were surprised to the 0:13:08.800 --> 0:13:11.120 upside to see two point three growth across the course 0:13:11.160 --> 0:13:13.560 of two thousand and seventeen. We forecast growth of two 0:13:13.600 --> 0:13:16.360 and a half percent in the US acceleration eight. The 0:13:16.360 --> 0:13:18.520 Bloomber consensus is for eason more than that, is at 0:13:18.520 --> 0:13:21.600 two point six. So yes, there is some growth coming 0:13:21.640 --> 0:13:24.520 through um and part of that, obviously is is the 0:13:24.520 --> 0:13:27.520 tax reform stimulus that we're seeing coming through. But I 0:13:27.559 --> 0:13:30.239 think the key question that we have is how sustainable 0:13:30.280 --> 0:13:32.120 is this? Do we see this seeing a pickup in 0:13:32.160 --> 0:13:35.960 business investment that raises sustainable growth in the States, And 0:13:36.000 --> 0:13:37.760 the answer to stay is no, we don't see that 0:13:37.840 --> 0:13:41.080 coming through. We still think that sustainable growth is somewhat 0:13:41.360 --> 0:13:44.560 more subdued. And I think this period of very welcome 0:13:44.840 --> 0:13:47.199 robust growth coming from the US is something that's like 0:13:47.320 --> 0:13:49.320 to fade over the coming couple of years. I mean, 0:13:49.320 --> 0:13:51.800 I'm looking Jannsfu, I did not realize that, David Page 0:13:51.840 --> 0:13:56.199 brilliant on this Bloomber consumer Comfort index is above where 0:13:56.240 --> 0:13:58.400 it was in the spring of two thousand and seven. 0:13:58.640 --> 0:14:00.960 I didn't know that. Should I put that chart out 0:14:01.040 --> 0:14:05.240 and do it? Radial sees it first, do it? We 0:14:05.280 --> 0:14:07.720 should do that. The soft data and the hard data 0:14:07.800 --> 0:14:10.040 really picking up in the United States. David, I think 0:14:10.080 --> 0:14:12.880 something that's a confused some not many, A lot of 0:14:12.880 --> 0:14:15.040 people in the markets kind of understand what's happening in 0:14:15.080 --> 0:14:18.040 the effects market. But for you, David, can you explain 0:14:18.559 --> 0:14:22.640 this dollar weakness? Well, I think there's a couple of things. 0:14:22.640 --> 0:14:24.440 I think in the short term, there are some risks 0:14:24.480 --> 0:14:27.440 and we're thinking again, trade, were thinking again, government shutdown. 0:14:27.600 --> 0:14:29.360 But I think it's much bigger than this. I think 0:14:29.400 --> 0:14:31.800 what we're seeing is a sickly call development come through. 0:14:31.840 --> 0:14:35.160 Here is a consistent scene that as we move towards 0:14:35.160 --> 0:14:37.840 the later stages of global economic growth, a point where 0:14:37.880 --> 0:14:40.120 we start to see commodities starting to pick up, that 0:14:40.200 --> 0:14:43.000 the dollar tends to underperform. Many of us and looked 0:14:43.040 --> 0:14:45.080 the sort of short term relationship between the dollar and 0:14:45.120 --> 0:14:47.520 interest rate differentials, and that of course leads us to 0:14:47.560 --> 0:14:50.560 suggest both the Federal Reserve is tightening monetary policy other 0:14:50.640 --> 0:14:53.960 jurisdictions are only considering this over the medium term, so 0:14:54.000 --> 0:14:56.400 surely the dollar should rise. But think back to two 0:14:56.400 --> 0:14:58.480 thousand and four two thousand six, the last time we 0:14:58.520 --> 0:15:00.480 went into a sort of to war to the end 0:15:00.520 --> 0:15:02.560 of a cycle. Here we saw the Federal is a 0:15:02.680 --> 0:15:06.640 consistently tightening monetary policy, and yet trade weighted dollar fell 0:15:06.680 --> 0:15:08.560 by about five and a quarter percent from the start 0:15:08.600 --> 0:15:10.360 of A four to the end of O six. This 0:15:10.400 --> 0:15:13.040 is a consistent theme. It reflects the fact that yes, 0:15:13.120 --> 0:15:15.240 the US is doing well, but to some extent that's 0:15:15.280 --> 0:15:17.800 in the price that dollars appreciated markably over the last 0:15:17.840 --> 0:15:21.800 four or five years um and looks relatively expensive. Now 0:15:22.480 --> 0:15:25.000 many investors are thinking that other regions of the globe 0:15:25.240 --> 0:15:27.320 may actually be doing better as well, and so it's 0:15:27.320 --> 0:15:30.240 a relative story coming through. David. Thank you so much, 0:15:30.320 --> 0:15:36.359 David Page access accent indefinitely. Managers really appreciate his attendance. 0:15:48.960 --> 0:15:50.880 John Farrell in New York, I'm champ Keen in London 0:15:50.880 --> 0:15:54.480 and with us and Lindsay Pieza joins us DR Pieza, 0:15:55.160 --> 0:15:57.240 where's your run rate and g d P. Can you 0:15:57.280 --> 0:15:59.840 get to a Trumpian three percent or are you more 0:16:00.040 --> 0:16:03.440 subdued for the fourth quarter. I think we're still looking 0:16:03.480 --> 0:16:06.120 for something below three percent, and we did see the 0:16:06.160 --> 0:16:11.200 consumers still on very solid footing, but there's several other 0:16:11.280 --> 0:16:13.800 pieces that just seemed to have lost momentum as we 0:16:13.920 --> 0:16:16.440 did a final quarter of the year. So I think 0:16:16.960 --> 0:16:20.640 three percent is very optimistic. I think a strong two 0:16:20.760 --> 0:16:23.520 ish percent is really what we're going to be seeing. 0:16:24.000 --> 0:16:28.480 Where are those momentum dampeners? I mean, it's Steve Nicholas, 0:16:28.520 --> 0:16:31.720 You've got a great pulse of a huge body of 0:16:31.720 --> 0:16:35.040 the nation away from the three zip codes on Global 0:16:35.440 --> 0:16:40.800 New York Wall Street. Where where have we slipped or stumbled? Well, 0:16:40.840 --> 0:16:43.520 I think a good lost momentum surround what we saw 0:16:43.520 --> 0:16:46.080 out of Washington. There was a lot of euphoria, a 0:16:46.120 --> 0:16:49.720 lot of excitement built into the marketplace. Consumers were actually 0:16:49.800 --> 0:16:54.280 going out and spending an anticipation of receiving larger refund checks. 0:16:54.320 --> 0:16:57.120 But I think there was some disappointment when we actually 0:16:57.160 --> 0:17:00.720 saw the numbers of the amount of additional after tax 0:17:00.760 --> 0:17:04.720 income that consumers can expect to receive uh come with 0:17:04.800 --> 0:17:08.560 those refunds, and so I think some of the realization 0:17:09.160 --> 0:17:11.840 that the tax reform will not be a silver bullet, 0:17:11.920 --> 0:17:14.879 will not be a flip the switch scenario to five 0:17:15.000 --> 0:17:18.480 or six percent, as the President I believe I promised 0:17:18.480 --> 0:17:21.679 at one point. I think that alone is starting to 0:17:21.760 --> 0:17:24.720 eat into some of this confidence, both on the consumer 0:17:24.760 --> 0:17:27.879 side as well as on the business side. Within that 0:17:27.960 --> 0:17:31.439 lindsay is I guess the consumer John and I are 0:17:31.480 --> 0:17:36.359 looking at the screen down thousand eleven on futures, SMP, 0:17:37.680 --> 0:17:40.480 it's a melt up. Why are we seeing the melt up? 0:17:40.600 --> 0:17:43.919 As you look through the prism of economics, Well, the 0:17:43.920 --> 0:17:46.879 equity market seems to benefit regardless of what the outcome 0:17:46.920 --> 0:17:49.120 of tax reform is. If we do in fact see 0:17:49.240 --> 0:17:53.439 organic growth companies taking that additional cash, putting that to work, 0:17:53.840 --> 0:17:57.199 growing their business, increase hiring, which eventually will lead to 0:17:57.240 --> 0:18:00.680 upward pressure on wages. And GDP does seem to see 0:18:00.680 --> 0:18:04.280 a sizeable increase maybe of one to two percentage points 0:18:04.280 --> 0:18:07.520 above this trend rate, Well, that's fantastic for the equity market. 0:18:07.800 --> 0:18:10.960 On the flip side, if we see inorganic activity with 0:18:11.000 --> 0:18:14.119 this increase in cash for corporations, meaning they keep the 0:18:14.160 --> 0:18:17.480 cash on the balance sheet, or corporation it is debt 0:18:17.600 --> 0:18:20.399 or buy back stock. Well, guess what. That's also fantastic 0:18:20.440 --> 0:18:23.160 for the equity market, at least in the near term. 0:18:23.200 --> 0:18:25.760 It does seem as if it's a win win for equities. 0:18:25.840 --> 0:18:29.399 But longer term, unless we see the underlying momentum of 0:18:29.400 --> 0:18:32.680 the economy pick up to justify where these levels are, 0:18:33.160 --> 0:18:35.680 we would expect at some point a correction back down 0:18:35.720 --> 0:18:39.359 to the more realistic two ish economy that we're seeing 0:18:39.359 --> 0:18:42.080 out in the marketplace. Lindsay, away from equities elsewhere on 0:18:42.119 --> 0:18:44.800 the screen, you've got all the ingredients a recipe for 0:18:44.840 --> 0:18:48.399 a pickup in inflation. You've got crude approaching seventy dollars 0:18:48.400 --> 0:18:51.320 a barrel a US dollar, that's the weakest has been 0:18:51.359 --> 0:18:54.080 in about three years. You've mentioned some of the economic 0:18:54.119 --> 0:18:58.040 indicator's unemployment, et cetera, pointing to a really tight labor market, 0:18:58.080 --> 0:19:00.200 not just here in the United States but elsewhere as Wow, 0:19:00.600 --> 0:19:04.080 how does J. Powell at the Federal Reserve guide the 0:19:04.119 --> 0:19:07.280 market through that? This year? Just three are protected? Three 0:19:07.359 --> 0:19:11.320 hikes moved to four. Well, actually, I think the risk 0:19:11.600 --> 0:19:13.760 is to the downside. I think we're going to see 0:19:13.800 --> 0:19:16.080 fewer rate hikes than the SET is promising, and it's 0:19:16.119 --> 0:19:19.840 because of that inflation conundrum and the idea that we've 0:19:19.880 --> 0:19:23.960 seen this this equation that that's perfectly which should be 0:19:24.040 --> 0:19:27.720 perfectly baking inflation into the cake, has not been and 0:19:27.800 --> 0:19:29.920 I don't see any evidence that that's going to change. 0:19:29.920 --> 0:19:34.040 Particularly from the labor market standpoint. We've seen the unemployment 0:19:34.119 --> 0:19:37.160 rate well within the sets target range of full employment 0:19:37.200 --> 0:19:40.720 for years now, and yet that hasn't translated into wage pressures. 0:19:40.800 --> 0:19:44.439 Why because the civilian unemployment rates, in our opinion, no 0:19:44.560 --> 0:19:47.600 longer captures the true health of the labor market. And 0:19:47.640 --> 0:19:50.280 when we look at all the structural changes that are occurring, 0:19:50.720 --> 0:19:54.640 it's actually more keen to eight or nine percent unemployment. 0:19:55.080 --> 0:19:57.879 And I don't see that evaporating and don't see corporations 0:19:57.880 --> 0:20:02.240 absorbing that pool of available labor anytime soon. Even if 0:20:02.240 --> 0:20:05.280 we use the investment pick up, it's mostly the structural 0:20:05.359 --> 0:20:08.080 or equipment side as opposed to the employee side. So 0:20:08.119 --> 0:20:10.520 I do think inflation is going to continue to invade 0:20:10.600 --> 0:20:14.080 us for making it very difficult for a power fed 0:20:14.119 --> 0:20:17.200 to push through three rate hypes. Lindsay px stay fold 0:20:17.240 --> 0:20:20.359 the chief Economists joining us to discuss the economic in 0:20:20.359 --> 0:20:22.199 the United States of America and what it means for J. 0:20:22.359 --> 0:20:39.600 Powe and the Federal Reserve. It is our pleasure now 0:20:39.600 --> 0:20:43.040 to introduce Neil Ferguson. He is a noted author, but 0:20:43.200 --> 0:20:46.800 his most recent book is entitled The Square and the Tower, 0:20:47.040 --> 0:20:50.800 Networks and Power from the Freemasons to Facebook, and he 0:20:50.920 --> 0:20:54.360 joins us here in our eleven three oh studio. Neil, 0:20:54.400 --> 0:20:56.919 thank you very much for being here and congratulations on 0:20:56.960 --> 0:21:01.840 the new book. Let's begin with a part of the 0:21:01.920 --> 0:21:04.240 sort of thought I think that runs through this, which 0:21:04.320 --> 0:21:06.359 is the lesson of history and this is your writing, 0:21:06.480 --> 0:21:09.199 is that trusting in networks to run the world is 0:21:09.200 --> 0:21:13.119 a recipe for anarchy. I wonder how you could connect 0:21:13.119 --> 0:21:16.320 that with your desire to actually write the book. Well, 0:21:16.640 --> 0:21:20.080 we live at a time when the people who run 0:21:20.359 --> 0:21:25.840 giant online social networks, people like say Mark Zuckerberg, have 0:21:26.119 --> 0:21:29.640 been arguing everything is going to be awesome if we're 0:21:29.640 --> 0:21:32.240 all connected. I mean, that has been the riff out 0:21:32.240 --> 0:21:35.800 of Silicon Valley for the better part of twenty years. 0:21:36.760 --> 0:21:41.000 And yet we saw in Sien that if you allowed 0:21:41.119 --> 0:21:44.320 giant online social networks to play a big part in politics. 0:21:45.119 --> 0:21:48.080