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Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane. Along

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Speaker 1: with Jonathan Ferrell and Lisa Abramowitz. Daily we bring you

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

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Speaker 1: To find Bloomberg Surveillance on Apple podcast, Suncloud, Bloomberg dot Com,

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Speaker 1: and of course on the Bloomberg terminal. We're gonna pause

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Speaker 1: and usually a slot that we have at eight thirty

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Speaker 1: one Wall Street time on economics and look at the

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Speaker 1: reality of asset manager. When we do this with Oliver Beta,

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Speaker 1: he's the chief executive officer of Alian's. He's been on

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Speaker 1: a tour of duty for a good number of years

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Speaker 1: to see their success. All John and I want to

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Speaker 1: know is you have the football sponsorship of the soccer team,

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Speaker 1: the football team from Munich as well. We see the

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Speaker 1: sponsorship of sports. What's the value to Alian's payoff of

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Speaker 1: Byron Munich. Oh, it's a hugely positive because that's the

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Speaker 1: best brand in sports and at least in our country,

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Speaker 1: and we've been associated with it for many, many years.

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Speaker 1: I'm very very proud of it. Now you have a

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Speaker 1: bond bear market. Some would say your best brand and

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Speaker 1: acquisition was the gross Hill area in combine of Pacific

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Speaker 1: Investment Management Company years ago. Give us an update on

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Speaker 1: bond asset management in the view forward given this great

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Speaker 1: bond bear market. Well, the current circumstances are tough, but

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Speaker 1: it's very good to be with the best company in

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Speaker 1: these environments. Right, so we see a flight quality over time.

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Speaker 1: People are watching. But if because we have a very

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Speaker 1: very long duration business model, we look forward, we believe

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Speaker 1: it's going to be fantastic for Pinko and us over

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Speaker 1: the next few years as the interst rate stabilized, because

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Speaker 1: the money will come back into bonds, and think about

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Speaker 1: accumulation at the interest rates that we have people off.

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Speaker 1: You don't run in a simple MPV model and say

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Speaker 1: what does it mean if you're reinvested at five percent

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Speaker 1: or four point seven five rather than zero. You buried

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Speaker 1: an important line there. It was in there, but it

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Speaker 1: was buried. When interest rates stabilize, they're not stable. What

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Speaker 1: did you make of what happened in the guilt market

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Speaker 1: in the last couple of weeks. What are the lessons

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Speaker 1: you've learned from that? The first one is um if

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Speaker 1: you have a political idea that it's not anchored in economics,

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Speaker 1: it's very dangerous, particularly if you're not the world reserve

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Speaker 1: currency like the US dollar. We have learned that number

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Speaker 1: one brexit now will start to pay the price and

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Speaker 1: you see them. And the second thing is that markets

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Speaker 1: have become to dominate again. We're coming out of fifteen

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Speaker 1: years of quantitative using, no price for risk, nothing, no

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Speaker 1: fiscal discipline, no monetary discipline, and suddenly that's back and

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Speaker 1: people have to get used to the fact that the

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Speaker 1: laws of physics hold again even for governments. Well, and

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Speaker 1: we were talking about how this gives room and gives rise,

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Speaker 1: and once again to bond vigilantes, are you the bond

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Speaker 1: vigilantes do you actually actively go through some of the

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Speaker 1: policies and say not going to buy this company, not

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Speaker 1: going to buy this nation because of what they're doing.

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Speaker 1: I wouldn't be thinking about negative selection, because that's what

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Speaker 1: not what we should talk about. But we're looking at

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Speaker 1: countries and companies that properly manage. Now, if you have

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Speaker 1: a dual, definitely think about that. Three years ago we

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Speaker 1: had three times the financial stimulus in the United Kingdom

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Speaker 1: that we saw a few days ago. Nothing happened in

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Speaker 1: the market, right, nothing happened everybody was sleeping and then

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Speaker 1: suddenly people wake up to the fact that what has

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Speaker 1: been done is really a disaster, and suddenly the prices

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Speaker 1: are coming. Why is that? Because of inflation? People have

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Speaker 1: started to reprice assets fundamentally, not just bonds. And by

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Speaker 1: the way, we are not even at the midpoint of

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Speaker 1: repricing of assets. We've just seen the liquid assets reprice.

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Speaker 1: The rest will come. Now. When you said actively selecting

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Speaker 1: specific companies, specific nations, that speaks to the active selection

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Speaker 1: that so many different fund managers talk about now as

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Speaker 1: really rating supreme. Where does that leave passive management. It's

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Speaker 1: really interesting. So it is different between equity markets. If

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Speaker 1: you have large cab equity, you can invest in them

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Speaker 1: very effectively through index. If you're in the bond market,

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Speaker 1: you and you don't know where things are going to

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Speaker 1: better be with the people that know what is happening

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Speaker 1: and can differentiate. It's a great proofpoint. So I hope

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Speaker 1: that all our colleagues are proving themselves now to repeat

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Speaker 1: something you said moments ago, the liquid markets have reprice,

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Speaker 1: their liquid markets haven't yet. What's that going to look like.

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Speaker 1: We spent a long time talking about putting back the

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Speaker 1: veil and some of the carnage that might take place

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Speaker 1: because of ten years worth of zero interest rates. And

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Speaker 1: what we get told is that in public markets and

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Speaker 1: credit balance sheets are strong, the resilience is there, the

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Speaker 1: maturity walls is way out on the horizon, not coming soon.

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Speaker 1: What's going to happen in private markets? I'm not a

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Speaker 1: great investor, so let's just we're not trying to do.

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Speaker 1: To be is very hard, but it's very hard to

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Speaker 1: see it, and therefore it doesn't mean it doesn't exist.

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Speaker 1: So people have to face a lot of scrutiny now

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Speaker 1: on how the funding is. So watch out more not

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Speaker 1: just leverage, but liquidity, I think, and we saw that

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Speaker 1: in the in the guilt market. People do underestimate liquidity

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Speaker 1: uh traps, and that's something that we need to look for.

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Speaker 1: And you see that in private equity when people look

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Speaker 1: where our earning is really coming from. Our there trading

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Speaker 1: amongst each other's are their true exits? What are the

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Speaker 1: funding structure? So it's going to go through real estate

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Speaker 1: private equity just slow slow motion, but it's gonna come.

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Speaker 1: The gravity is back, the risk free rate is back

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Speaker 1: as well. Talk about conservative money, pension money, forget about

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Speaker 1: all d I and the gyrations in London, just normal

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Speaker 1: institutional money. What's the shock going to be is the

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Speaker 1: risk free rate returns. So the key thing is really

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Speaker 1: and that's what we also have to do, think about resilience. Right.

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Speaker 1: The point is the shops were the shocks will be

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Speaker 1: harder than people anticipate. The diversification is the thing that

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Speaker 1: is never there when you needed the most. So people

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Speaker 1: really need to look at their models and saying, you know,

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Speaker 1: how come the world completely missed out on inflation. I

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Speaker 1: mean when you think about the fact that in November

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Speaker 1: of last year we've started to buy inflation link bonds

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Speaker 1: lot a lot of people are still saying yeah, but

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Speaker 1: in the middle of this was all central banks, even

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Speaker 1: some of our best economy. So the question is why

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Speaker 1: is that happening? And the first answer is I don't

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Speaker 1: know why. But what I know is we have to

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Speaker 1: de risk. And so how do you dus you just

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Speaker 1: bring in duration? Do you have to change your actual

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Speaker 1: how system? Yeah? The adult money is basically yes, if

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Speaker 1: we were, you know, completely in an endowment, you would

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Speaker 1: really selectively take risk. In this environment, we can't with

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Speaker 1: a double A rating and one of the few places

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Speaker 1: in the world and even give the impression that we

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Speaker 1: don't have our Telerisk under control. Given that you're based

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Speaker 1: in Europe right now, how concerned are you about the

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Speaker 1: prospect that the pain that you're experiencing now both my

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Speaker 1: business and an investment perspective, is not just going to

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Speaker 1: be this winter. It's also going to be next winter.

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Speaker 1: It's also going to be potentially for years to come

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Speaker 1: if there is not some sort of sustainable energy plan

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Speaker 1: put into effect. So I have to be a real list,

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Speaker 1: but I'm also a bone optimius. Otherwise I think I

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Speaker 1: couldn't do the job right. So the first thing is,

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Speaker 1: I think particularly the key thing is that people I

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Speaker 1: think have been over selling Germany, if I may say so.

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Speaker 1: So I'll give you an example. We have had demand

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Speaker 1: contraction on gas fifteen percent already this year. Now much

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Speaker 1: for example, it's been only two so we will have

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Speaker 1: most likely enough gas to come through the winter. People

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Speaker 1: do not factor that in now. The second question is

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Speaker 1: what will be the implication for industry to reprice its

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Speaker 1: products and its production supply change to a higher energy price.

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Speaker 1: And that's happening. I really believe in in our engineering

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Speaker 1: capability is very comparable to Western Switzerland, where everybody said,

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Speaker 1: when you know the Swiss frank was floated, that all

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Speaker 1: the manufacturing companies would die. No, no, we invest in innovation,

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Speaker 1: will be very good. The key thing is, however, we

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Speaker 1: need for Europe to realize now one important thing. Germany

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Speaker 1: needs to really focus on reinventing its business model. It's

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Speaker 1: over with cheap energy from usha Um. Successful Um exports

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Speaker 1: to China and America providing all the security. I mean

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Speaker 1: that three formula is ending and that would require a

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Speaker 1: lot of energy on the German people to fix it small,

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Speaker 1: which means we have less attention and tolerance for dolling

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Speaker 1: out money to other people. This has been really really informatives.

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Speaker 1: Are just wonderful to have you in with this, but

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Speaker 1: this isn't why we had you in. You people finance

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Speaker 1: baron Munich, the soccer team in Munich. Are you guys

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Speaker 1: gonna steal Harry Kane from Tottenham? I mean that's the

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Speaker 1: only reason we had you. Are you going to bankroll

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Speaker 1: this football team in Munich to steal the jewel of

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Speaker 1: the United Kingdom? Even if I knew the answer, I

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Speaker 1: wouldn't be able to tell you. I mean, this is

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Speaker 1: this is that's the only reason we had the I

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Speaker 1: called up Quantis and I said, get the guy from

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Speaker 1: Alliance Alian's in. I said, get him in because these

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Speaker 1: are the people they're gonna steal. Harry Kane are we're

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Speaker 1: going to do the show from from bay Munich. I

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Speaker 1: think October. So I have to say I do like

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Speaker 1: the dormant too, though. You know, every forced German is

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Speaker 1: our clients, so we have a lot of a lot

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Speaker 1: of fancies. It's going to be very difficult. And then

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Speaker 1: you Ventus and you ventors. How the stadiums do you

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Speaker 1: have quite a few, but if you're twelve twelve across

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Speaker 1: Europe or worldwide, no worldwide. For example in sub Paolo,

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Speaker 1: the stadiums also branded Alliance has been a great investment. Amazing. Yeah,

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Speaker 1: it's really and people pay a lot of attention, and

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Speaker 1: you know football, that's something that politics can do. This

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Speaker 1: as we unite people, we bring people together, we make

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Speaker 1: them enjoy their lives regardless by the way, most often

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Speaker 1: on both sides, you know, whether winners and losers. And

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Speaker 1: therefore it's it's great, it's bipartisan. You realize if Harry

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Speaker 1: Kane goes from Tottenham to Munich. It's un American's been

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Speaker 1: trying to have some greatest sport in the world. Just

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Speaker 1: the greatest sport in the world, nothing close to it.

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Speaker 1: It just is truly the most brilliant. I don't recover

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Speaker 1: regardless whether it's Juventus or Bayan, would would be the

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Speaker 1: lated dost. You'll thank you, We will take that under.

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Speaker 1: But can you too have a discussion in the World Cup?

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Speaker 1: First discussion in the World Cup and Bloomberg surveillance like

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Speaker 1: you want to throw that in Germany and Kata? What

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Speaker 1: are you looking for, sir? Do you think you can

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Speaker 1: make it happen when a world come another one? I

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Speaker 1: don't know. It's a lot of a lot about passion,

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Speaker 1: but it's also about you know, the right moment and

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Speaker 1: to have the energy when it really matters. Certainly crossing

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Speaker 1: my fingers. But the most important thing is to have

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Speaker 1: a great, great, great tournament. Can you tell faifor we

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Speaker 1: never want to do this Winter World Cup ever again?

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Speaker 1: I think it's a travesty, I really do. We're taking

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Speaker 1: a month off in the middle of the season to

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Speaker 1: that's it. It's been air conditioning in the football stadiums. Yeah,

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Speaker 1: interesting choice, but it is there, and so I think

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Speaker 1: we're always great at criticizing things. I think critic think

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Speaker 1: that's what this shows about. Thank you for right now

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Speaker 1: and this is a joy with the chaotic weeks that

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Speaker 1: we've had in a Monday into another week of chaos.

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Speaker 1: Bob be aild to joins us. He's head of America's

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Speaker 1: Fundamental fixed income at black Rock, with decades of experience. Bob,

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Speaker 1: I want to cut to the chase in the great

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Speaker 1: bond bear market. What is the level of pain on level?

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Speaker 1: I was talking to Axel Weber in Washington and he said,

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Speaker 1: forget about the numbers the spreads. Look at level. Bond

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Speaker 1: prices are down. What does it signal? Well, Tom, I

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Speaker 1: think that's a great point about spreads versus all in levels.

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Speaker 1: So the cost you know, debt spreads for example, I G.

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Speaker 1: And high yield spreads aren't at recessionary wides that we've

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Speaker 1: seen historically, but the all in cost of capital has

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Speaker 1: gone up substantially, right and and and in the investment

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Speaker 1: grade space, you're talking about an index that's now a

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Speaker 1: six percent yield. And in high yield space you've got

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Speaker 1: companies that were funding a year a year and a

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Speaker 1: half ago at four to that now can't get funded

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Speaker 1: inside of ten and and may not be able to

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Speaker 1: fund at all. So the cost of capital has gone

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Speaker 1: up substantially. And I understand that there are a lot

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Speaker 1: of really good savvy liability management UH strategies that firms

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Speaker 1: employed and households employed by refinancing their mortgages two years ago,

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Speaker 1: and that there's got they's got these very attractive liabilities

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Speaker 1: on the balance sheet. But the incremental spend right, the

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Speaker 1: next thing that one might invest in, whether it's residential

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Speaker 1: or or commercial, is going to be substantially more expensive

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Speaker 1: from a debt capital standpoint. Let's talk about the great

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Speaker 1: Dan Fuss at loomas sales and he would say, that's great,

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Speaker 1: you've got the free lunch of a high nominal yield,

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Speaker 1: But do you buy that nominal yield into reduced credit

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Speaker 1: quality across all of fixed income assets? Is there credit

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Speaker 1: clouds out there that make this not an easy decision? Yeah?

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Speaker 1: I think so. I mean, look, you guys were just

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Speaker 1: talking about this. The FED is on a mission. This

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Speaker 1: is a very intentional and aggressive tightening of domestic monetary

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Speaker 1: conditions in an effort to slow growth, slow demands specifically

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Speaker 1: loosen up the labor market a little bit um to

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Speaker 1: get inflation back to target. So so definitionally there there

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Speaker 1: are going to be some things that probably break along

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Speaker 1: the way. It will be really really hard to do

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Speaker 1: it without some of that happening. And and but but

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Speaker 1: I also think at the same time, here's one of

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Speaker 1: the interesting things. Volatility is so high in the rates

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Speaker 1: market right now that it's really hard to look, you know,

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Speaker 1: three months forward or six months forward. It's it's hard

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Speaker 1: to look more than three to six days forward because

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Speaker 1: the vall is so high. Right But I think if

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Speaker 1: you can take a step back and think about the

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Speaker 1: valuation of high quality fixed income assets today, you can

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Speaker 1: build a pretty reasonable portfolio treasuries, agency mortgages, investment grade

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Speaker 1: corporates where you can go in and do the name

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Speaker 1: selection so that you can avoid some of the more

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Speaker 1: stressed or potentially forward distressed names. You can build a

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Speaker 1: high quality portfolio intermediate maturity in the five to six

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Speaker 1: percent range, including treasuries. So you've got to flight the

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Speaker 1: quality asset in there in in a shock scenario. That's

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Speaker 1: we haven't been able to do that in nearly two

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Speaker 1: decades it's it's things are starting to look reasonable. I

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Speaker 1: get it that we're probably not at the bottom and

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Speaker 1: there's more stress to come, but things are starting to

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Speaker 1: look pretty reasonable if you can take a longer time horizon.

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Speaker 1: That that is the key point, if you could take

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Speaker 1: it a longer time horizon. And I wonder about some

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Speaker 1: of these mutual funds or open ended funds where they

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Speaker 1: could potentially be withdrawals, especially when it comes to investment

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Speaker 1: grade credit. It makes sense perhaps on a thesis basis,

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Speaker 1: but on a real basis, investment grade is underperformed dramatically

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Speaker 1: because of the rate story as well as this forced

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Speaker 1: selling that we've seen international investors that sell what you can,

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Speaker 1: not what you want to. How much you concerned about

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Speaker 1: that creating some sort of fissure in the short term

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Speaker 1: as you see things like what happened in the UK

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Speaker 1: for some sellingently. So that is exactly the right thing

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Speaker 1: to be focused on. We've seen this movie before, right

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Speaker 1: when when you tighten financial conditions this aggressively, this abruptly,

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Speaker 1: things are going to break And where do they break first?

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Speaker 1: Almost always it's in the levered strategy, the levered business model.

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Speaker 1: You know, I would look at I would argue in

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Speaker 1: the UK that yes, the push toward you know, a

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Speaker 1: much more aggressive fiscal policy kicked off more pressure in

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Speaker 1: an already deteriorating market, But the proximate cause of the

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Speaker 1: real stress in the long end volatility was the levered

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Speaker 1: ld I business model and the increased margin calls. Right So,

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Speaker 1: if you're if you're levered, if you have to borrow

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Speaker 1: to sustain your strategy, and importantly, if you have to

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Speaker 1: pay higher margin calls margin costs, excuse me to to

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Speaker 1: to to to maintain your leverage, you're in a really

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Speaker 1: difficult spot right now. So those business models, you know,

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Speaker 1: kind of should be stressed, and I wouldn't be surprised

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Speaker 1: if we don't see some more of that before this

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Speaker 1: is over over the next three to six months. Thank you, sir.

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Speaker 1: As that of black Crop, Lori Cavasina joins us now

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Speaker 1: they had a FEU secuity strategy at IBBC Capital Markets, Laurie,

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Speaker 1: it wasn't about three Q earnings, it was about gun

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Speaker 1: it's a four Q and beyond what are we learning

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Speaker 1: so far? So look, I think if so far in

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Speaker 1: reporting season, John, I've been a little bit disappointed that

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Speaker 1: it sounded a lot like the last couple of reporting season.

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Speaker 1: So we're hearing things like the tone around labors improving

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Speaker 1: a little bit, not seeing any major crack chat in

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Speaker 1: terms of either the consumer or demand UM. But companies

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Speaker 1: are battening down the hatches and getting ready for chopp

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Speaker 1: of your time. So at least there's that UM. But

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Speaker 1: I think that in terms of you know, if you

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Speaker 1: wanted the earnings band aid ripped off, and that's what

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Speaker 1: a lot of investors have been telling me so far,

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Speaker 1: what I'm hearing is, I don't know if we're going

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Speaker 1: to get it this reporting season. I think we may

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Speaker 1: have to wait till, you know, February March to get that. Laura,

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Speaker 1: you and Ben Laylor on the same page. Ben Laylor

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Speaker 1: starts off by saying, the first ever so slight glance

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Speaker 1: here at earnings are less bad. Start and then you

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Speaker 1: talk about moving to high quality. Define what high quality

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Speaker 1: is is a comfortable place to be. So high quality

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Speaker 1: is a factor discussion that I have with a lot

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Speaker 1: of investors. If you talk to your average portfolio manager,

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Speaker 1: small cap or large cap, especially in the small cap space,

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Speaker 1: odds are they've done some sort of back test that

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Speaker 1: tells them that things like positive earnings and high are

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Speaker 1: O we outperform over time, So come invest with me,

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Speaker 1: because that's the portfolio I run. And so what we're

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Speaker 1: starting to see is that after a summer in which

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Speaker 1: the low quality stats so negative earners, highly shorted names,

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Speaker 1: negative r OWE, low r O WE, those names were

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Speaker 1: actually working pretty well coming off the June low on

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Speaker 1: a relative basis, And what we're seeing now is that

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Speaker 1: more of the high quality versions, positive earners, the high

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Speaker 1: r OE, the lowly shorted names are starting to work, which, frankly, Tom,

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Speaker 1: is a silver lining heading into the end of the

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Speaker 1: year because that actually bodes well for active manager perpartment.

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Speaker 1: To me, Laurie, this goes to the risk free rate

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Speaker 1: returning here. And maybe it has to do with big

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Speaker 1: combinations like Kroger and Albertson. But all of a sudden

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Speaker 1: zombies have to report. Is what we're really talking about

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Speaker 1: here is not high quality, but that all of a sudden,

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Speaker 1: it's zombie November. I think that's a fair way to

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Speaker 1: look at it, Tom, But you know, I would also

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Speaker 1: say it depends on your definition of zombie a little bit. Um.

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Speaker 1: I think that in general, when you're going into sort

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Speaker 1: of a lower growth uncertain time. Investors do cling to

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Speaker 1: those higher quality names, and typically those are the ones

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Speaker 1: that do come through manage through challenging situations a little

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Speaker 1: bit better. So I think that you know, investors are

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Speaker 1: sort of circling, circling, not closing the ranks um and

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Speaker 1: really just clinging to what's worked over time. And there's

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Speaker 1: a lot of PM say to me, you're not gonna

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Speaker 1: get beaten up by sticking to your philosophy where you're

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Speaker 1: going to get beaten up as if you underperform when

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Speaker 1: you deviated from your philosophy. Lorie, how much could you

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Speaker 1: see the SMP getting to that thirty two level, which

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Speaker 1: is the base case for Mike Wilson over at Morgan Stanley,

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Speaker 1: even with some of the constructive field that you have

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Speaker 1: in select names and select industries. So I think it's

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Speaker 1: a great question, Lisa, and and I understand why that

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Speaker 1: number is important. You know, when I talked to my

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Speaker 1: friends in the Technical Strategy Commune it they'll often say

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Speaker 1: thirty hundred or kind of the next big battle grounds.

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Speaker 1: And I see that as well. From a fundamental perspective,

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Speaker 1: thirty five hundred is your median recession draw down draw

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Speaker 1: down from peak. But if the market starts to think

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Speaker 1: that the FETE is not going to be able to

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Speaker 1: pull that off, and that we're going to price in

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Speaker 1: something more challenging from an economic perspective, an average draw

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Speaker 1: down was about thirty two percent from uh in a

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Speaker 1: recession going back to the thirties, and that takes to

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Speaker 1: that thirty two d mark. And if you go back

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Speaker 1: to the pandemically, so we lost thirty fo peak to trough,

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Speaker 1: and so I think that thirty two hundred mark. If

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Speaker 1: thirty five doesn't hold, I think thirty two hundred is

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Speaker 1: the next natural place to go. But it's hard for

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Speaker 1: me to imagine we go too much lower than that,

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Speaker 1: just because in the face of the pandemic, I mean, frankly,

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Speaker 1: when life was on the line and there was just

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Speaker 1: a massive uncertainty ahead of investors. That's only as bad

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Speaker 1: as the market fell. So I think thirty two hundred

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Speaker 1: is a good place to look if thirty five dred

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Speaker 1: doesn't hold. But thirty five is proving to be a

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Speaker 1: major battleground here for good reason. Glor How how hard

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Speaker 1: is it to convince some of your clients to be

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Speaker 1: optimistic to be constructive when there is this high likelihood

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Speaker 1: of that psychological level on the index. I think that

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Speaker 1: what's interesting is I talked to people about it from

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Speaker 1: a positioning perspective, what is the next big thing that

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Speaker 1: you need to do? And I show them my charts

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Speaker 1: basically showing that defensives are at peak valuation relative to

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Speaker 1: both cyclicals and secular growth. And I tell them, you know,

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Speaker 1: I've been traveling around the country pretty NonStop since June,

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Speaker 1: and I tell them, you know, everyone I talked to

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Speaker 1: has plenty of defense. They've cleaned up their portfolios, they

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Speaker 1: own as much staples or utilities as they're ever gonna own.

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Speaker 1: The next thing to do is to go on offense.

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Speaker 1: And that really resonates with a lot of people because

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Speaker 1: they know from that experience over the summer, going back

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Speaker 1: to the conversation with Tom about quality, when the low

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Speaker 1: quality stuff started to move, that is not where they

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Speaker 1: were positioned, and that's where they started to see some

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Speaker 1: underperformance in their portfolio. So I think people understand that

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Speaker 1: if you're a longer term investor, eventually the tide will turn.

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Speaker 1: And frankly, there's just not a lot people need to

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Speaker 1: do anymore. On the defensive side. They're already there the

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Speaker 1: cat you have with your Lorrie Cavasina there on the

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Speaker 1: license in this market from our b say the research

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Speaker 1: piece of the weekend and foreign exchange Everyhing Rovari wrote it.

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Speaker 1: He is global head of Effects Analysis. City Groper thrilled

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Speaker 1: he could join us after his attendance in Washington. Everym.

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Speaker 1: What I noticed in Washington is little focus on central

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Speaker 1: banks and maximum focus on dollar liquidity among the flushed

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Speaker 1: countries and the ones more challenged. How critical is a

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Speaker 1: dollar shortage worldwide? Well, I would say the dollar was

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Speaker 1: the talk of the town in in Washington, but the

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Speaker 1: message that we came away with was actually a little

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Speaker 1: bit different. We did come away with thinking the FED

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Speaker 1: is still the central focus, and when it comes to

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Speaker 1: the dollar, there's a lot of concern, but really the

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Speaker 1: sense that isn't very much that could be done about

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Speaker 1: it unless the FED was going to wear off its

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Speaker 1: unique focus on inflation at present, And when it comes

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Speaker 1: to foreign exchange markets as much of a concern as

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Speaker 1: they are right now, they seem to be operating in

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Speaker 1: a relatively orderly way. So yes, effect funding markets have

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Speaker 1: started to show some signs of concern, But we're not

430
00:22:11,240 --> 00:22:14,520
Speaker 1: nearly at a point where policy interventions are likely to

431
00:22:14,520 --> 00:22:16,480
Speaker 1: be in I've got to go to the immediate everyone.

432
00:22:16,560 --> 00:22:19,320
Speaker 1: What does what does the Bank of Japan, the Ministry

433
00:22:19,320 --> 00:22:22,720
Speaker 1: of Finance do in Japan with their unique experience, What

434
00:22:22,920 --> 00:22:28,080
Speaker 1: is the reality of a second interventions efficacy after a

435
00:22:28,240 --> 00:22:32,680
Speaker 1: failed first intervention? Well, we expect more of the same.

436
00:22:32,960 --> 00:22:37,080
Speaker 1: So we think that second intervention is is We're going

437
00:22:37,119 --> 00:22:39,760
Speaker 1: to come likely very soon, copy as early as today.

438
00:22:39,800 --> 00:22:42,840
Speaker 1: And we saw the rhetoric ramp up late on Friday,

439
00:22:43,000 --> 00:22:45,840
Speaker 1: and at the same time we got Governor Coroda reassert

440
00:22:45,960 --> 00:22:49,960
Speaker 1: that Japan was different, that more monetary easing was required

441
00:22:50,000 --> 00:22:52,359
Speaker 1: to bring inflation back up. So we see no reason

442
00:22:52,440 --> 00:22:56,560
Speaker 1: for the efficacy to change in the Japanese case. And

443
00:22:56,600 --> 00:22:59,240
Speaker 1: therefore we do think that just as in the first case,

444
00:22:59,359 --> 00:23:02,160
Speaker 1: dollar and come down once you see those signs of intervention,

445
00:23:02,240 --> 00:23:04,200
Speaker 1: and then they will creep right back up as US

446
00:23:04,280 --> 00:23:06,280
Speaker 1: rates go back up. Well ibriem, some people say it's

447
00:23:06,280 --> 00:23:09,040
Speaker 1: sort of failed intervention the first time around. Their goal

448
00:23:09,200 --> 00:23:12,520
Speaker 1: was simply to slow the pace of the depreciation of

449
00:23:12,520 --> 00:23:15,520
Speaker 1: the end versus the dollar. If that's the case, where

450
00:23:15,600 --> 00:23:18,399
Speaker 1: is the new red line in the sand, this idea

451
00:23:18,520 --> 00:23:21,080
Speaker 1: of when they will get really concerned and have to

452
00:23:21,119 --> 00:23:24,359
Speaker 1: rethink the whole host of issues. Is it one fifty?

453
00:23:24,520 --> 00:23:28,080
Speaker 1: Is it when sixty? Is it one eight? So I

454
00:23:28,119 --> 00:23:31,240
Speaker 1: am sympathy with with that statement. So we think there

455
00:23:31,280 --> 00:23:33,920
Speaker 1: is no clearly defined redline, but if there is one,

456
00:23:34,000 --> 00:23:38,439
Speaker 1: it's probably defined by the politics or when inflation starts

457
00:23:38,480 --> 00:23:41,639
Speaker 1: to credibly be above about two percent and that is

458
00:23:41,680 --> 00:23:45,280
Speaker 1: certainly north of one sixty on that letter criterion, and

459
00:23:45,359 --> 00:23:48,280
Speaker 1: we don't think the politics will probably become acute before then,

460
00:23:48,359 --> 00:23:50,479
Speaker 1: so it's quite a long way away from here. And

461
00:23:50,560 --> 00:23:54,120
Speaker 1: until then, the premiers that Kishida in New York said

462
00:23:54,200 --> 00:23:57,199
Speaker 1: himself that he was dolly and moving thirty handles in

463
00:23:57,200 --> 00:23:59,480
Speaker 1: the year, two handles in a day. That was raising

464
00:23:59,560 --> 00:24:01,720
Speaker 1: his concern. So it was about the pace of appreciation

465
00:24:01,760 --> 00:24:04,520
Speaker 1: in dollar n not at the level. So we don't

466
00:24:04,560 --> 00:24:07,119
Speaker 1: see a line in the sand anywhere close to the

467
00:24:07,119 --> 00:24:10,120
Speaker 1: current land. So perhaps as the future crisis the current crisis,

468
00:24:10,200 --> 00:24:12,280
Speaker 1: or perhaps it's been somewhat averted as in the United

469
00:24:12,359 --> 00:24:14,600
Speaker 1: Kingdom where we're going to be hearing from Jeremyhind a

470
00:24:14,640 --> 00:24:17,480
Speaker 1: couple of times throughout the day trying to stave off

471
00:24:17,560 --> 00:24:19,600
Speaker 1: some of the pain that we saw over the past

472
00:24:19,640 --> 00:24:23,040
Speaker 1: few weeks of holatility. How much credence do you give

473
00:24:23,440 --> 00:24:25,800
Speaker 1: to this idea of foreign investors coming back to the

474
00:24:25,920 --> 00:24:29,120
Speaker 1: UK at a time when the bond vigilantes, if they want,

475
00:24:29,280 --> 00:24:33,560
Speaker 1: that means a sooner and potentially deeper recession. So we

476
00:24:33,640 --> 00:24:36,560
Speaker 1: think the bar for foreign investors to return to the

477
00:24:36,640 --> 00:24:40,120
Speaker 1: UK en mass is very high. And at the heart

478
00:24:40,160 --> 00:24:42,840
Speaker 1: of that, I would quote what we think are probably

479
00:24:42,880 --> 00:24:46,080
Speaker 1: the two most relevant statistics and eight percent current account deficit,

480
00:24:46,359 --> 00:24:48,800
Speaker 1: which I think reflects some of the broader challenges the

481
00:24:48,880 --> 00:24:51,879
Speaker 1: UK is facing, and real interest rates that are still

482
00:24:51,960 --> 00:24:55,439
Speaker 1: just about negative and certainly one to two percent below

483
00:24:55,480 --> 00:24:57,199
Speaker 1: those in the US. So I think that kind of

484
00:24:57,280 --> 00:25:00,760
Speaker 1: environment the bar for foreign investors to see major appeal

485
00:25:00,840 --> 00:25:03,920
Speaker 1: in the UK is incredibly high. There was something in

486
00:25:04,119 --> 00:25:06,639
Speaker 1: him to talk to Rock and Roger and a boost School,

487
00:25:06,680 --> 00:25:10,280
Speaker 1: the former leader of the Indian Central Bank, about the

488
00:25:10,400 --> 00:25:15,000
Speaker 1: flow realities of emerging markets. Is it like the nineties

489
00:25:15,240 --> 00:25:19,280
Speaker 1: for emerging markets right now? Well, I would say there

490
00:25:19,359 --> 00:25:22,760
Speaker 1: is a there's a lot of optimism, maybe a touch

491
00:25:22,800 --> 00:25:25,399
Speaker 1: of complacency when it comes to the large emerging markets

492
00:25:25,400 --> 00:25:27,960
Speaker 1: at present and if you take foreign exchange as an example,

493
00:25:28,320 --> 00:25:31,360
Speaker 1: the appreciation of the dollar has been much more extensive

494
00:25:31,400 --> 00:25:35,159
Speaker 1: against the developed markets than it's been against emerging markets.

495
00:25:35,160 --> 00:25:39,879
Speaker 1: So at present we see more concerned about frontier markets

496
00:25:39,880 --> 00:25:42,240
Speaker 1: a lot less about the emerging markets. But one of

497
00:25:42,400 --> 00:25:44,399
Speaker 1: one of the issues I'm concerned with is that that

498
00:25:44,480 --> 00:25:46,960
Speaker 1: could change that maybe there is a bit too much

499
00:25:47,000 --> 00:25:50,359
Speaker 1: complacency that the large emerging markets are in a better

500
00:25:50,400 --> 00:25:54,159
Speaker 1: position on on the balance sheet side economically to some degree,

501
00:25:54,160 --> 00:25:57,040
Speaker 1: even even for inflation. So we're concerned. But the base

502
00:25:57,080 --> 00:26:00,040
Speaker 1: case is that maybe we have to watch some of

503
00:26:00,119 --> 00:26:02,800
Speaker 1: the developed markets, like the UK bit more closely. Then

504
00:26:02,840 --> 00:26:06,040
Speaker 1: there's all this macro babble, Ibraham, where's the trade I

505
00:26:06,080 --> 00:26:08,680
Speaker 1: can make money on in the queue four? I mean,

506
00:26:08,720 --> 00:26:12,640
Speaker 1: forget about the I m F sixty feet stuff. Where

507
00:26:12,640 --> 00:26:16,159
Speaker 1: gonna make some money in the next ninety days. So

508
00:26:16,200 --> 00:26:18,119
Speaker 1: we we think it's more of the same, So that

509
00:26:18,480 --> 00:26:23,000
Speaker 1: that pattern of higher global interest rates, lower equity prices,

510
00:26:23,040 --> 00:26:26,359
Speaker 1: and a stronger dollar we think will continue into your end.

511
00:26:26,400 --> 00:26:29,080
Speaker 1: And there are these balantee pressures that make that even

512
00:26:29,119 --> 00:26:32,360
Speaker 1: more likely. So in foreign exchange we see further dollar upsiding,

513
00:26:32,359 --> 00:26:37,000
Speaker 1: and in particular the risk epeign currencies, so, for example,

514
00:26:37,040 --> 00:26:39,679
Speaker 1: continue to be short the Australian dollar against the U

515
00:26:39,720 --> 00:26:42,280
Speaker 1: S dollar. We think has promised into the end of

516
00:26:42,280 --> 00:26:44,000
Speaker 1: the year. Just to be clear, to elaborate a little

517
00:26:44,000 --> 00:26:46,680
Speaker 1: bit on that point, is the faith in a stronger

518
00:26:46,680 --> 00:26:49,240
Speaker 1: dollar from here predicated on this idea that the Federal

519
00:26:49,280 --> 00:26:52,000
Speaker 1: Reserve is going to raise rates close to five percent

520
00:26:52,320 --> 00:26:54,560
Speaker 1: by early next year, or is it predicated on the

521
00:26:54,560 --> 00:26:57,280
Speaker 1: idea that the economic data coming in will continue to

522
00:26:57,320 --> 00:27:00,000
Speaker 1: be strong and that is the reason for these rates,

523
00:27:00,040 --> 00:27:02,399
Speaker 1: except really it's the resilience of the economy rather than

524
00:27:02,400 --> 00:27:06,360
Speaker 1: the rateags themselves. The two are related, but I would

525
00:27:06,400 --> 00:27:10,240
Speaker 1: put more weight on on the FED and and those rateags,

526
00:27:10,280 --> 00:27:12,520
Speaker 1: and that is because they do reflect to some degree

527
00:27:12,560 --> 00:27:15,760
Speaker 1: the economic performans of the US. But the central driver

528
00:27:15,920 --> 00:27:19,160
Speaker 1: of dollar strength has been the decline in asset prices

529
00:27:19,240 --> 00:27:22,040
Speaker 1: around the world, and for that FED interest rates in

530
00:27:22,160 --> 00:27:25,080
Speaker 1: US real rates are the primary driver. So both matter,

531
00:27:25,240 --> 00:27:27,480
Speaker 1: But it's more about the FED right now than about us.

532
00:27:27,520 --> 00:27:30,480
Speaker 1: From Abraham, always wonderful to hear from me, Sir Abraham

533
00:27:30,520 --> 00:27:44,879
Speaker 1: Rothbary that f citsy not a rare occurreds is a

534
00:27:44,880 --> 00:27:48,399
Speaker 1: discussion with Leland Miller of China Beige Book to illuminate

535
00:27:48,600 --> 00:27:51,800
Speaker 1: on China. He is just outstanding, the co founder and

536
00:27:52,000 --> 00:27:56,439
Speaker 1: CEO of the hugely prestigious effort Leland, I gotta go

537
00:27:56,480 --> 00:28:00,240
Speaker 1: to the immediate news. The great George magnus over In

538
00:28:00,320 --> 00:28:04,639
Speaker 1: today says he's never seen anything, even in pestilence and

539
00:28:04,840 --> 00:28:09,560
Speaker 1: conflict like a postponing of China g d P. This

540
00:28:09,680 --> 00:28:13,920
Speaker 1: is your wheelhouse. What was your response when they postponed

541
00:28:14,080 --> 00:28:18,840
Speaker 1: Q three g d P. Well, look, I think the

542
00:28:18,880 --> 00:28:23,000
Speaker 1: most obvious, uh, the reason is that they are very

543
00:28:23,080 --> 00:28:25,160
Speaker 1: busy on the Party Congress. You know, you saw all

544
00:28:25,200 --> 00:28:28,360
Speaker 1: those uh pictures of people in wrapped attention to jails

545
00:28:28,359 --> 00:28:31,840
Speaker 1: and statistic bureaus just sitting there very very silently and

546
00:28:31,880 --> 00:28:35,080
Speaker 1: without moving watching she speech. They probably just can't can't

547
00:28:35,080 --> 00:28:37,320
Speaker 1: work because they're too busy listening. But now that I

548
00:28:37,400 --> 00:28:40,840
Speaker 1: don't think there's anything terribly nefarious behind it. You know,

549
00:28:40,880 --> 00:28:43,200
Speaker 1: we we see what the data are week. They've been

550
00:28:43,200 --> 00:28:45,920
Speaker 1: admitting the data week. I think this is probably making

551
00:28:45,920 --> 00:28:48,640
Speaker 1: sure that there's not just another bomb dropping off in

552
00:28:48,680 --> 00:28:51,440
Speaker 1: the middle of a very choreographed event. Forget about the

553
00:28:51,520 --> 00:28:55,280
Speaker 1: choreographed event. What happens in the un choreographed two thousand

554
00:28:55,400 --> 00:29:01,440
Speaker 1: twenty three to the new dynastic g Well, look, it'll

555
00:29:01,480 --> 00:29:04,000
Speaker 1: take a few months for for she to formally get

556
00:29:04,080 --> 00:29:06,800
Speaker 1: the three positions, and so the question then we'll be,

557
00:29:07,280 --> 00:29:10,320
Speaker 1: you know, where does he pivot if at all? Um,

558
00:29:10,360 --> 00:29:13,320
Speaker 1: everyone wants to see a pivot on COVID zero. Uh,

559
00:29:13,360 --> 00:29:16,360
Speaker 1: it's there's been no indication that that pivot's coming. You know,

560
00:29:16,400 --> 00:29:18,880
Speaker 1: you could see how they would do it the rollout

561
00:29:18,920 --> 00:29:22,040
Speaker 1: in three, but you know, it's a it's a it's

562
00:29:22,080 --> 00:29:25,640
Speaker 1: not just announcing COVID zero is over. It is saying, uh,

563
00:29:25,800 --> 00:29:28,520
Speaker 1: you know, you know, here's the policy. Here's harder to

564
00:29:28,560 --> 00:29:29,800
Speaker 1: do the roll out. Here's hard going to deal with

565
00:29:29,840 --> 00:29:32,320
Speaker 1: the fallout. And and and it's not at all clear

566
00:29:32,360 --> 00:29:35,280
Speaker 1: that this isn't a you know, you know, many months

567
00:29:35,280 --> 00:29:38,880
Speaker 1: maybe year long transition. So is she canna pivot on economy?

568
00:29:38,880 --> 00:29:41,000
Speaker 1: Probably not. Is he gonna pivot on COVID zero at

569
00:29:41,040 --> 00:29:43,560
Speaker 1: some point, yes, but it probably not soon. Weren't there

570
00:29:43,640 --> 00:29:46,920
Speaker 1: some small pivots thloughly Land within this speech basically around

571
00:29:47,320 --> 00:29:51,640
Speaker 1: basically having a more business friendly environment both for national

572
00:29:51,680 --> 00:29:56,560
Speaker 1: and international companies. Yeah, look, I mean it's hard at

573
00:29:56,560 --> 00:29:58,720
Speaker 1: this point to see what's talking what's not. I mean,

574
00:29:58,720 --> 00:30:01,320
Speaker 1: if you if you remember how sited investors got all

575
00:30:01,360 --> 00:30:06,080
Speaker 1: throughout two and you know, some party official hood cut

576
00:30:06,080 --> 00:30:08,080
Speaker 1: you on would come out and say, look, we're doing

577
00:30:08,120 --> 00:30:11,040
Speaker 1: this differently, or we're easing this crackdown, We're gonna provide

578
00:30:11,040 --> 00:30:14,400
Speaker 1: this stimulus, and nothing meaningful ever happened, so we'll have

579
00:30:14,480 --> 00:30:16,600
Speaker 1: to wait and see. I think it would behoove sheet

580
00:30:16,640 --> 00:30:20,160
Speaker 1: to to have some sort of outreach, particularly with the

581
00:30:20,240 --> 00:30:22,200
Speaker 1: U S. Hina attentions to you know, to the Europeans.

582
00:30:22,200 --> 00:30:24,280
Speaker 1: I think you're gonna see some of that going forward.

583
00:30:24,680 --> 00:30:28,000
Speaker 1: But in terms of making China more appealing to investors,

584
00:30:28,240 --> 00:30:30,800
Speaker 1: you have to have regulatory certainty, you have to have

585
00:30:30,880 --> 00:30:32,760
Speaker 1: some sort of idea of growth. You have to end

586
00:30:32,760 --> 00:30:35,800
Speaker 1: COVID zero. You know there there's there's a lot of obstacles.

587
00:30:35,880 --> 00:30:38,960
Speaker 1: It's not just saying we're gonna be We're gonna be friendly. Yeah,

588
00:30:39,000 --> 00:30:41,280
Speaker 1: the idea of growth is key here. Economist predict that

589
00:30:41,400 --> 00:30:44,360
Speaker 1: Chinese growth will slow to three point three percent so

590
00:30:44,520 --> 00:30:46,680
Speaker 1: this year. A lot of people say that that's probably

591
00:30:46,720 --> 00:30:49,200
Speaker 1: a high ball estimate. I'm assuming that you probably think so,

592
00:30:49,240 --> 00:30:51,760
Speaker 1: given that you've talked about a two handle. The official

593
00:30:52,080 --> 00:30:54,760
Speaker 1: target is five and a half percent. The gap between

594
00:30:54,760 --> 00:30:57,520
Speaker 1: those would be the biggest since they started setting GDB

595
00:30:57,640 --> 00:31:00,560
Speaker 1: targets in the early nine How do you think that

596
00:31:00,600 --> 00:31:02,560
Speaker 1: this is going to be a problem for this government

597
00:31:02,560 --> 00:31:04,960
Speaker 1: where they start to inject more stimulus and start to

598
00:31:05,040 --> 00:31:08,240
Speaker 1: support the housing market versus a reality of the new

599
00:31:08,360 --> 00:31:12,120
Speaker 1: China in a new regime with a bigger middle class. Yeah,

600
00:31:12,160 --> 00:31:13,440
Speaker 1: I don't think it's a problem at all for them,

601
00:31:13,440 --> 00:31:16,560
Speaker 1: because I think once they descended into lockdowns in the spring,

602
00:31:16,920 --> 00:31:19,120
Speaker 1: the five and a half handle was not only gone,

603
00:31:19,160 --> 00:31:22,320
Speaker 1: but even the fake let's pretend that we got somewhere

604
00:31:22,360 --> 00:31:24,920
Speaker 1: near five was gone. So look, they can blame this

605
00:31:25,000 --> 00:31:27,160
Speaker 1: on COVID zero. Yeah, it's their fault, but they you know,

606
00:31:27,200 --> 00:31:29,520
Speaker 1: there's a reason for not hitting these numbers, and and

607
00:31:29,520 --> 00:31:32,200
Speaker 1: and the the larger. The larger thing is that they've

608
00:31:32,320 --> 00:31:35,360
Speaker 1: changed the priority set. So yes, they still talk about

609
00:31:35,440 --> 00:31:38,240
Speaker 1: high levels of growth for some reason, although the narratives changing,

610
00:31:38,240 --> 00:31:40,720
Speaker 1: particularly in the last couple of weeks. But but that

611
00:31:40,880 --> 00:31:42,800
Speaker 1: is that's not what they're focused on. It's not what

612
00:31:42,800 --> 00:31:45,080
Speaker 1: they're worried about. They're gonna try to deliver enough growth,

613
00:31:45,080 --> 00:31:47,400
Speaker 1: so they don't have a political problem. But the reality

614
00:31:47,560 --> 00:31:49,640
Speaker 1: is they're trying to do some structural changes that are

615
00:31:49,720 --> 00:31:51,960
Speaker 1: very painful, and they're not going to be worried about

616
00:31:51,960 --> 00:31:54,320
Speaker 1: the high hitting the high levels of growth anymore. Leland

617
00:31:57,120 --> 00:32:00,239
Speaker 1: gets you out, not to two thousand five, but just

618
00:32:00,280 --> 00:32:02,040
Speaker 1: all of a sudden gets you out to a new

619
00:32:02,120 --> 00:32:06,080
Speaker 1: week ran Memby strategy. What's the level of ran Memby

620
00:32:06,120 --> 00:32:08,960
Speaker 1: where that unravels? Do you have in your head a

621
00:32:09,040 --> 00:32:14,160
Speaker 1: seven point xx level that this becomes difficult? I don't

622
00:32:14,280 --> 00:32:16,960
Speaker 1: because it's a it's a dollar story, not a not

623
00:32:17,040 --> 00:32:19,960
Speaker 1: a yuan story. Um. You know, if this word, if

624
00:32:19,960 --> 00:32:24,320
Speaker 1: this were uh sort of a reman By exploding because

625
00:32:24,360 --> 00:32:26,760
Speaker 1: of the weak Chinese economy while the dollars stays pad

626
00:32:26,800 --> 00:32:29,680
Speaker 1: against other currencies, you have a different dynamic. People would

627
00:32:29,680 --> 00:32:33,160
Speaker 1: read into it differently. Right now everything is weakening against

628
00:32:33,160 --> 00:32:36,240
Speaker 1: the dollars, so right, the Chinese goal is to maintain

629
00:32:36,400 --> 00:32:40,800
Speaker 1: relative stability, relative strength as much as possible against against

630
00:32:40,840 --> 00:32:43,080
Speaker 1: the rest of the world, but but making sure that

631
00:32:43,120 --> 00:32:44,960
Speaker 1: things don't break on the way up. So so they

632
00:32:45,000 --> 00:32:47,600
Speaker 1: want stability. There isn't a number. It all depends on

633
00:32:47,640 --> 00:32:49,240
Speaker 1: how strong the dollar gets over the next you know,

634
00:32:49,360 --> 00:32:52,320
Speaker 1: six to twelve months. Leyland, Thank you, sir. Always important

635
00:32:52,360 --> 00:32:54,480
Speaker 1: stuff with in the mid It's great, isn't it In

636
00:32:54,480 --> 00:32:56,880
Speaker 1: the middle of that, the China Facebook, It's a national

637
00:32:57,360 --> 00:33:01,080
Speaker 1: This is the Bloomberg Surveillance Podcast. Thanks are listening. Join

638
00:33:01,200 --> 00:33:04,520
Speaker 1: us live weekdays from seven to ten am Eastern on

639
00:33:04,640 --> 00:33:08,880
Speaker 1: Bloomberg Radio and on Bloomberg Television each day from six

640
00:33:09,000 --> 00:33:13,840
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641
00:33:14,000 --> 00:33:19,000
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642
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Speaker 1: Apple podcast, SoundCloud, Bloomberg dot com, and of course on

643
00:33:23,040 --> 00:33:27,240
Speaker 1: the terminal. I'm Tom Keene and this is Bloomberg