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Speaker 1: Member s I p C. Welcome to the Bloomberg Surveillance Podcast.
Speaker 1: I'm Tom Keen with David Gura. Daily we bring you
Speaker 1: insight from the best in economics, finance, investment, and international relations.
Speaker 1: Find Bloomberg Surveillance on iTunes, SoundCloud, Bloomberg dot Com, and
Speaker 1: of course on the Bloomberg Friends of the Quad in London.
Speaker 1: I'm Tom Keene in New York and we celebrate today
Speaker 1: the Leader's Bookshelf. It is a book by Admiral James
Speaker 1: Travitas of Tufts and the Fletcher School, and I'm gonna
Speaker 1: tell you it's totally original. It is beyond original. Admiral Stevinus,
Speaker 1: congratulations on the book. Chapter two, making time for reading
Speaker 1: before you go into many many people in the military
Speaker 1: and what book change their lives and is important to
Speaker 1: them for leadership. How do you make time for reading,
Speaker 1: Admiral Stevinus, If we don't have a lecture being stuck
Speaker 1: on a destroyer's Yeah, if you can't go out to
Speaker 1: sea for extended forward deployments. There are other things you
Speaker 1: can do, tom, So I would start by saying you
Speaker 1: can use your downtime productively. So often on an airplane,
Speaker 1: for example, we just kind of default to a glass
Speaker 1: of Scotch and a couple of movies, but you know
Speaker 1: that's incredibly valuable real estate. Secondly, when you are traveling
Speaker 1: in the car audio books are incredibly powerful, and I
Speaker 1: would say a third trick of the trade with reading
Speaker 1: is to read books quickly, obviously, but also to um
Speaker 1: dive in deep when you find a book that really
Speaker 1: has meanings. So skim a lot of books in order
Speaker 1: to read powerfully a handful of books. An't well, what
Speaker 1: was the strangest thing when you were writing the book?
Speaker 1: Is there a book that you saw over and over?
Speaker 1: I know I speak to a lot of CEOs here
Speaker 1: in the UK, and actually I'm surprised I always look
Speaker 1: at military books when talking about business. Yeah. One that
Speaker 1: jumps out for business people is The Art of War
Speaker 1: by Sun Sue, who was an ancient strategist, and he
Speaker 1: talks a lot about innovation, about cleverness, about trying to
Speaker 1: get behind your enemy. The Jiu jitsu of war, which
Speaker 1: certainly all applies in business. We often forget though, that
Speaker 1: Sun Sus said went on death ground fight, which is
Speaker 1: about the determination you have to have as a CEO.
Speaker 1: At times do people ask you a question of what
Speaker 1: are they? You know? They should be reading secrets because
Speaker 1: it's it's now a bad thing being an intellectual or
Speaker 1: an academic, you know. I don't think reading books has
Speaker 1: gone out of style. As I motor around and talked
Speaker 1: to a wide variety of people, and that's one of
Speaker 1: the nice things not being the dean of a graduate school.
Speaker 1: You get to speak to people all around the world.
Speaker 1: People still read and they want to exchange book ideas.
Speaker 1: And a great way to start any conversation is what
Speaker 1: are you reading these days? Well, I'll go with that
Speaker 1: and dive into the book. I mentioned this earlier. Thomas
Speaker 1: Hayward one of our great admirals, and there's there's memos
Speaker 1: from you, Lewisy's grand he goes to World War two
Speaker 1: and nimits I mean, and that there's that fear I
Speaker 1: think in a lot of kids today not to go
Speaker 1: back into our history to find the books to read.
Speaker 1: There's something I can't read a book that's twenty years old,
Speaker 1: like the new book, John Tucker, I'm reading Bard Schwartz
Speaker 1: on the Supreme Court from twenty four years ago, and
Speaker 1: yet it's like it was written yesterday. I think that's
Speaker 1: true of so many books. And I'll make another point, Tom,
Speaker 1: which is that a book you read in your twenties
Speaker 1: and get a lot out of at that point in time,
Speaker 1: say A Connecticut Yankee and King Arthur's Court by Mark Twain.
Speaker 1: I went back and read that book again in doing
Speaker 1: the Leader's Bookshelf and got an incredibly different experience out
Speaker 1: of it. So there's real power in reading a nineteenth
Speaker 1: century book, and even when you've read in your youth,
Speaker 1: picking it up again. And now we go sensitive with
Speaker 1: James Travitas page Are you kidding me? A River Runs
Speaker 1: through It? Norman McLean Grog Johnson recommended this one. Uh.
Speaker 1: A River Runs through It is a marvelous book about families.
Speaker 1: And part of a leader's job is life balance, Tom,
Speaker 1: and I bet many of your CEOs and senior business
Speaker 1: people listening want to try to understand how to attain
Speaker 1: a balance in life. Not everything is about out making
Speaker 1: money and building your resume. And the novel a river
Speaker 1: runs through. It is about a troubled family in Montana
Speaker 1: and how they work through some of the great challenges
Speaker 1: that impact them. I think it's also just a spectacularly
Speaker 1: written book, like reading poetry page after page. Yeah, I
Speaker 1: like you know, there's a definitely theme, Admiral, when I
Speaker 1: go through your book the leader's bookshelf is that it's
Speaker 1: all about preparation. And so maybe it's also a good
Speaker 1: idea for a lot of businessmen to read books a
Speaker 1: little bit more like army generals, because you can't leave
Speaker 1: anything to hope or chance. That's exactly right, Francine. And
Speaker 1: let's face it, um, our lives are preparation and we
Speaker 1: get a chance to build ourselves as leaders by the
Speaker 1: gifts were given. Are you tall and good looking? Which
Speaker 1: I am not? But do you get parents who nurture
Speaker 1: you and bring you along? Um? Do you have experiences?
Speaker 1: But the one consistent thing you can do you have
Speaker 1: control over, is to read, and to read consciously, to
Speaker 1: try and learn leadership as you read, by using these
Speaker 1: books almost as simulators, to put yourself in other leadership situations.
Speaker 1: It is all about preparation when you look at the
Speaker 1: state of politics. But also the state of diplomacy around
Speaker 1: the world. Can we actually look back at history and
Speaker 1: books on this or is two thousand and seventeen different. No.
Speaker 1: I think I'll give you two books that I think
Speaker 1: provide marvelous lessons, one positive, one negative. UM Winston Churchill's
Speaker 1: The Second World War, which is really a series of books,
Speaker 1: but it's it's the story of coalition building and determination
Speaker 1: and overcoming enormous challenges. UM. Very inspirational read. On the
Speaker 1: negative side, the current National Security Advisor, Lieutenant General H. R.
Speaker 1: McMaster wrote a book about the Vietnam War called Dereliction
Speaker 1: of Duty of the Failure of the generals to speak
Speaker 1: truth to power. UM. Both of those books I think
Speaker 1: are examples of UH stories that help us be better leaders.
Speaker 1: And now we go to the question that only matters
Speaker 1: to all listening, Amristavite, is how do we get our
Speaker 1: kids to read? What's what's the what's the secret to
Speaker 1: get them off minecraft? Well, first of all, I would
Speaker 1: say you have to talk books with your kids and
Speaker 1: get put good ideas of books in front of them. Secondly,
Speaker 1: use electronics. This is a generation that doesn't resonate like
Speaker 1: you and I do. Tom to picking up a dusty
Speaker 1: volume of The Rise and Fall of the Third Reich. Um,
Speaker 1: but they're happy to pick up a kindle and learn
Speaker 1: to read on that. You can also read very effectively
Speaker 1: on an iPhone, So give the kids electronic options for reading.
Speaker 1: And thirdly, use the tie into movies and videos. Um.
Speaker 1: What often sparks a young persons having seen a movie
Speaker 1: like Enders Game, say gosh, you like that movie, why
Speaker 1: don't you read the novel? So there's three things you
Speaker 1: can try. I'm me, I'm very European today. I feel
Speaker 1: very European. Where was Macavelli and all of this? Did
Speaker 1: anyone mention the Prince and Machiavelli? Um? Machiavelli is in
Speaker 1: our just outside the top fifty Francine, But I think
Speaker 1: fell behind Sun Sue in the Art of War, which
Speaker 1: is probably a metaphor for Asia and Europe these days.
Speaker 1: I want to go to one book and we'll talk
Speaker 1: current events here where that was to vetus after we
Speaker 1: celebrate the leader's bookshelf, and this goes right to the
Speaker 1: President Lee's lieutenants. A study in Command Douglas South of
Speaker 1: Freedom Freeman, absolutely classic World War Two vintage book. General
Speaker 1: Conway gave this to you from the U. S. Marine Corps. Boy,
Speaker 1: do we need some Lee's lieutenants right now? We do?
Speaker 1: And I'm gonna throw right back at you, agreeing with you. Um.
Speaker 1: The compliment to it is Doris Kern's Goodwins, just magisterial
Speaker 1: book on Lincoln's uh team of rivals that he put together. Um, boy,
Speaker 1: Lincoln has some powerful lessons for our president, I think, um,
Speaker 1: a sense of humor, a sense of humility, Um, of
Speaker 1: breaching out across not only the aisle, but across personality.
Speaker 1: In a very important book because at the time Admirals
Speaker 1: to Venus is amidshipman was on the monitor of the Merrimacame,
Speaker 1: which one of the two admiral One more book question
Speaker 1: before we get to the snub of NATO. Is this
Speaker 1: library on the cover of your book? Is this is
Speaker 1: Travenas Library? Don't I wish? No, that's the library at
Speaker 1: Johns Hopkins University. Isn't it beautiful? It is gorgeous. It is.
Speaker 1: When I first saw the photo, I thought it was
Speaker 1: an old British library. But it's right here in colonial America. Yeah,
Speaker 1: I know. And Professor Cole Over Columbia would talk of
Speaker 1: Johns Hopkins and Chicago is being two of our great institutions. Okay,
Speaker 1: let's get serious. U fell apart today on TV. What
Speaker 1: a is snub? The Secretary of Treasury of State rather
Speaker 1: will not visit the NATO meetings is for NATO meetings,
Speaker 1: and I guess they'll go on a junk at the
Speaker 1: Russia China. I don't know translate this for the I
Speaker 1: R community. What does it symbolize? Well, it's just a mistake.
Speaker 1: When you, uh, when you begin a new administration, a
Speaker 1: new role, you want to kind of work from the
Speaker 1: inside out. You want to kind of begin with your
Speaker 1: closest allies and then out to your partners, then out
Speaker 1: to your friends. Then, having consolidated the base a term
Speaker 1: of political administration, not understand, you then start working with
Speaker 1: your opponents and those with whom you disagree. So it's
Speaker 1: not only Frankly he's going to go to Russia potentially,
Speaker 1: but he's going to miss the meeting in order to
Speaker 1: have a meeting with President g at a summit with
Speaker 1: President Trump. I just think it's a mistake. At a minimum,
Speaker 1: we ought to go to NATO and ask them to
Speaker 1: move the dates for the meeting, but to simply not attend.
Speaker 1: I think is UH is diplomacy one oh one violation?
Speaker 1: What is this is game theory? Well, what if the
Speaker 1: this is a starting point as long as they pay
Speaker 1: in tonight to write for now and they're not going anywhere,
Speaker 1: this would be a bargaining chip to make sure that
Speaker 1: they get a better deal or a better Say. Yeah,
Speaker 1: I think that the UH the from the NATO side,
Speaker 1: that is just not going to be very well received.
Speaker 1: And it's worth knowing that. And I credit the Trump
Speaker 1: administration for this. Since they took over, spending rates on
Speaker 1: defense in Europe have been going up and up. Um,
Speaker 1: this is not the time to cash that chip in.
Speaker 1: Now is the time to really show solidarity and respond
Speaker 1: to that first play by the Europeans. All right, but
Speaker 1: the Secretary of State has been in the past a
Speaker 1: couple of weeks absent from several meetings with foreign leaders.
Speaker 1: Does this say that he's being cautious or this is
Speaker 1: a mistake, or does it mean that he doesn't have
Speaker 1: that much influence over foreign policy in Trump's administration. I
Speaker 1: think it's a bit of both friend scene and I'll
Speaker 1: add a third, which is he's not being well staffed
Speaker 1: he doesn't have a Deputy Secretary of State aid. He
Speaker 1: has no uh, no leadership below himself in that department.
Speaker 1: Right now, he's kind of home alone, and I think
Speaker 1: the department wouldn't let him make this kind of misstep.
Speaker 1: Help me here with the battle over the weekend of
Speaker 1: the press attending. You've had to put up with the
Speaker 1: press for years. I'm sure there's been some ugly moments. Um.
Speaker 1: I mean, there's a tradition to it. Is it a
Speaker 1: good tradition to have the press tag along? It absolutely is?
Speaker 1: And um, as a senior leader, I often took small
Speaker 1: press pools. Nothing like a sec deaf for a sex state.
Speaker 1: But yeah, it's inconvenient. It's occasionally annoying. Sometimes they get
Speaker 1: the story slightly wrong. But wouldn't you rather have them
Speaker 1: inside the tent than outside trying to figure it out,
Speaker 1: trying to speculate, trying to work with leakers. Um. So
Speaker 1: I think that again a mistake not to have the
Speaker 1: press come along on these trips. And I know Secretary Matters,
Speaker 1: for example, has been bringing the press on his trip.
Speaker 1: I hope that Secretary Tillerson uh does so as well.
Speaker 1: You mentioned team arrivals earlier, I mean, part of the
Speaker 1: problem here and getting warm bodies and foggy bottom is
Speaker 1: if you ever said anything negative about Mr Trump, you're
Speaker 1: off the list, right, That's absolutely true. And then secondly,
Speaker 1: let's face it thus far, the fact that you're watching
Speaker 1: the current Secretary of State Uh not be invited to
Speaker 1: the White House frequently, not seeming to consult on occasion,
Speaker 1: not coming to the big meetings. So I think there's
Speaker 1: a significant morale problem in foggy Bottom, and it's hard
Speaker 1: to recruit people to go into an organization that doesn't
Speaker 1: appear to be getting traction in Washington. That needs to
Speaker 1: be reversed because as a nation, we can't afford ineffective
Speaker 1: diplomacy anymore than we can afford ineffective defense. But there
Speaker 1: must be someone I don't know if you call it
Speaker 1: a dissenter or someone who criticizes the president behind closed
Speaker 1: door that he listens to. Is that his family? Is
Speaker 1: that his daughter Vane? Yeah, Well, let's hope that's the case.
Speaker 1: And I saw recently a correlation drawn between the tweeting
Speaker 1: cycle was much diminished during periods of time that Ivanka
Speaker 1: and Jared are around the president. Um, and let's hope
Speaker 1: that cabinet officials like Jim Madison, John Kelly and Rex
Speaker 1: Jillerson over time can have influence on him as well. Um.
Speaker 1: These are strong individuals who I think will be unafraid
Speaker 1: to speak truth to power. But they got to get
Speaker 1: in the room. And I think that's where uh Secretary
Speaker 1: Killerson has had his challenges thus far. Um, and don't
Speaker 1: well talk to me about the GOP. Is there a
Speaker 1: kind of um, you know, steak and carrots way of
Speaker 1: working where they say, look, President Trump, you need to
Speaker 1: follow us on diplomacy and actually not start trade with
Speaker 1: this country in this country, and in return, we'll give
Speaker 1: you more support for I don't know if it's tax
Speaker 1: cots or funding for some of the infrastructure projects. Does
Speaker 1: it work like that? Yes, it does. And you can
Speaker 1: see this tension in the GUP base in the international
Speaker 1: sphere right now. Um. Some in the GOP want to
Speaker 1: um effectively build those walls, not just the one with Mexico,
Speaker 1: but tariff barriers returned to the country, cut down or
Speaker 1: overseas military presence, whereas others, people like Paul Ryan, UH
Speaker 1: Max Thornbury, the Chairman of the House Arm Services Committee,
Speaker 1: are quite internationally oriented and have good views on defense.
Speaker 1: That tension will play out in the domestic back and
Speaker 1: forth over the issues you just mentioned. Francine, help us
Speaker 1: with the idea of the philosophy of our domestics debate
Speaker 1: on healthcare. We get to a vote Thursday onto a
Speaker 1: Senate where Steve Dennis says the health bill has minimal
Speaker 1: chance to get through and the basic ideas we need
Speaker 1: that money, that Butter money for our guns money. How
Speaker 1: do you filter that core question? I think that, Uh,
Speaker 1: it's not an on and off switch, Tom, we don't
Speaker 1: simply become a highly militarized nation at the expense of
Speaker 1: domestic policy. Um, it's a real stat and I think
Speaker 1: for the last eight years the real stat has been
Speaker 1: dialed strongly in the direction of Butter. It needs to
Speaker 1: come back a bit too. Guns. But I want to
Speaker 1: make a point about guns. It's not just guns. It's
Speaker 1: a state department, and it's budget, it's foreign aid, it
Speaker 1: is all of the international programs that helps create security.
Speaker 1: So you have to dial that real stat a bit.
Speaker 1: That's why there is a defense increase. But at the
Speaker 1: same time, as a nation, UM, we have big problems,
Speaker 1: and it's not just health it's our deficit um and
Speaker 1: I think that what's needed here back to books is
Speaker 1: the team of rivals approach, the ability to reach across
Speaker 1: the aisles if we if we dial those real stats individually,
Speaker 1: it's a lot less painful than whip sawing back and
Speaker 1: forth between administrations. James Trevita, thank you so much with
Speaker 1: TuS Fletcher School. I can't say enough, folks about the
Speaker 1: Leaders Bookshelf. Admiral James Devitis Uh never retired in our
Speaker 1: manning Angel as well, on a great way to find
Speaker 1: a lot of other books quickly and also get a
Speaker 1: core message, an important message from each of these Uh books,
Speaker 1: some of them very painful books about ordeal of military combat,
Speaker 1: the memoirs of Ulysses, s. Grant and here Um. This
Speaker 1: kind of work from the sixt T. R. Ferrenbach is
Speaker 1: mentioned in many others. James trevidis with a successful effort
Speaker 1: the Leaders Bookshelf. This is a wonderful treat This is
Speaker 1: why we do Bloomberg surveillance. His book is classic. It
Speaker 1: is The Banker to the World. His name is William Rhodes.
Speaker 1: If you don't know the name. He was Banker to
Speaker 1: the World for City Group and City Bank decades ago
Speaker 1: his public service to Brown University. UH speaks volumes. Bill Rhodes,
Speaker 1: You're the only one I wanted to talk to, maybe
Speaker 1: James Diamond about David Rockefeller passing away, dying in a
Speaker 1: hundred and one years old. What was David Rockefeller like
Speaker 1: as you were a young banker. It's City Group. First
Speaker 1: of all, David was a great man and I was
Speaker 1: privileged to first meet him when I came back from
Speaker 1: Latin America. Was City Bank, uh almost forty years ago.
Speaker 1: It was forty years ago in v seven, and we
Speaker 1: shared a mutual interest in Latin America. David, obviously everybody knows,
Speaker 1: was a world statesman, particularly in finance, one of the
Speaker 1: great bankers and financeeries of our age. But he had
Speaker 1: a he had a particular love for Latin America. And
Speaker 1: he founded the Council of the America's America Society in
Speaker 1: nineteen sixty five, and he got me in very involved
Speaker 1: with that. I became chairman later on for nine years,
Speaker 1: and David was the founder and chairman for a number
Speaker 1: of years, and he did he did tremendous work on
Speaker 1: improving relations between the United States and Latin America. He
Speaker 1: was patrician, and he was distant, and there was discretion
Speaker 1: and control at every moment, and behind that was prodigious
Speaker 1: economic abilities. He was a PhD in economics from Chicago.
Speaker 1: Is a kid. He actually did the academic work, didn't
Speaker 1: he exactly? But I think his lasting memory will be,
Speaker 1: UH what he believed in in the sense of the
Speaker 1: relationships between the United States and the rest of the world,
Speaker 1: and particularly with my personal experience, UH was what he
Speaker 1: did with Latin America. He is a revered figure in
Speaker 1: Latin America. UH and always UH connected the United States
Speaker 1: UH with Latin America and our culture, our trade UH.
Speaker 1: And UH did tremendous work philanthropically for all areas of
Speaker 1: the world, but particularly I would suggested the Latin America.
Speaker 1: And he founded a center in his name for Latin
Speaker 1: studies at Harvard. I mean he was also really a
Speaker 1: confident of world leaders from dangsher opinion China to Nelson
Speaker 1: Mandela in South Africa. What would he be advising President Trump? Well,
Speaker 1: I would I think what he would be advising President
Speaker 1: Trump at this point in time is to make sure
Speaker 1: that we don't get in a series of trade wars
Speaker 1: around the world. Because he always believed that free and
Speaker 1: fair markets were very very important for the growth of
Speaker 1: the world economy, and had been always a big supporter
Speaker 1: of the International Monetary Fund and the World Bank. Uh.
Speaker 1: And he dedicated his life to these relationships. You didn't
Speaker 1: apologize for being an American banker, and that was just
Speaker 1: Mr Rockefeller and his disciples over at the evil firm
Speaker 1: A Chase didn't apologize for being capitalists and bankers. We've
Speaker 1: got a lot of bankers now after this crisis, reticent
Speaker 1: about trumpeting capitalism, about traveling abroad, about showing the American
Speaker 1: banking flag. How do we get back to pride and banking.
Speaker 1: That is a key question, Tom, which you and I
Speaker 1: have discussed quite a lot. As you know, I've done
Speaker 1: a lot of work on on on banking culture. Uh.
Speaker 1: And I think it's it's key and David was a
Speaker 1: good example of that because he believed that he should
Speaker 1: use that platform to improve relationships around the world, to
Speaker 1: to make the world closer. Uh And Uh, I think
Speaker 1: he achieved that. And I think that, uh, this is
Speaker 1: what the banking community ought to be doing, trying to
Speaker 1: help it's it's it's communities to bring back the trust
Speaker 1: and banking, which David was a good example of because
Speaker 1: somewhere along the way, I think in the United States,
Speaker 1: Europe and other parts of the world, trust has been
Speaker 1: lost in in banking and we must get back to
Speaker 1: those basic thoughts of you know, a bankers there to
Speaker 1: help the community. Uh. And that was number one, and
Speaker 1: that certainly was the way David looked at things. Bill
Speaker 1: Roods thrilled to have you with us today, Mr Rhose,
Speaker 1: of course, the author of Banker to the World in
Speaker 1: the City Bank for years, UH, William Rhodes in honor
Speaker 1: of David Rockefeller, brought you by Bank of America. Mary Lynch.
Speaker 1: Dedicated to bringing our clients insights solutions to meet the
Speaker 1: challenges of a transforming world. That's the power of global connections.
Speaker 1: Mary Lynch, Pierce, Feeder and Smith Incorporated Member s I
Speaker 1: p C. This is a wonderful moment to speak to
Speaker 1: Paul Quincy. We're talking with Bill Rhodes earlier about David
Speaker 1: Rockefeller and discretion and being proper. That's what you do
Speaker 1: at JP Morgan Asset Management, where you're in the greatest
Speaker 1: bull market since time began. And with within that, Paul Quincy,
Speaker 1: if I look at the equity market. The basic emotion
Speaker 1: is so many people have missed this bull market. How
Speaker 1: do we catch up? Well, one way to catch up
Speaker 1: is to look outside the US and look at markets
Speaker 1: that have not yet been in the greatest bull market
Speaker 1: of all time, where valuations are still more depressed, and
Speaker 1: where I think, really importantly, we're seeing actually finally profitability
Speaker 1: really beginning to improve. So if you just look at
Speaker 1: the returns over the last five years, then you've compounded
Speaker 1: a mid teens rate of gaining the SMP. That's a
Speaker 1: tremendous result of historical standards. The compound return in U
Speaker 1: S dollars on emerging markets over the same period one
Speaker 1: the compound return on European equities again if you measured
Speaker 1: in U S dollars around five So those are not
Speaker 1: yet anything like the type of numbers that people feel
Speaker 1: like they've missed very much on. And yet when we
Speaker 1: look at those regions, we see valuations as you'd expect,
Speaker 1: looking pretty reasonable, but also profitability really starting to improve
Speaker 1: in a much more convincing way than we've seen for
Speaker 1: some time. Paul, what is the one thing that you
Speaker 1: can go wrong in Europe? Though? Is it the right time.
Speaker 1: If you like European equity, should we not wait until
Speaker 1: most of the big elections have been and gone because
Speaker 1: they could be potentially life changing for the Eurozone. Absolutely,
Speaker 1: and I think most people are waiting until the elections
Speaker 1: have come and gone, and a lot of money is
Speaker 1: sitting on the sidelines while the fundamentals continue to improve.
Speaker 1: The problem is, of course, once you know what's going
Speaker 1: to happen, then will be priced in fairly quickly. So
Speaker 1: I think in a diversified portfolio and with an eight
Speaker 1: A risk, it's worth putting some money to work now,
Speaker 1: and rather than waiting for everything to become absolutely clear.
Speaker 1: I can't claim to know exactly how all of these
Speaker 1: election results are going to play out. Of course nobody does.
Speaker 1: France seems in charge of that. Yes, we'll ask her
Speaker 1: them the crystal ball. Yes, But I do think that
Speaker 1: if maybe a year ago, investors were a little bit
Speaker 1: overconfident in their ability to predict, for example, the vote
Speaker 1: in Brexit or the outcome of the presidential election here,
Speaker 1: then maybe now people are a little bit under confident,
Speaker 1: and they're ignoring opinion polls and ignoring the fact that
Speaker 1: I think it would require a much bigger shift in
Speaker 1: opinion that we saw in either of those two instances
Speaker 1: to have a genuine anti euro upset in France. Of
Speaker 1: course it could still happen, but perhaps that the risks
Speaker 1: of that are being a little bit over, a little
Speaker 1: bit overestimated at the moment in markets. Well do you
Speaker 1: think that economistsy or too optimistic about Europe? But it seems,
Speaker 1: you know, when you're on the ground. I'm Italian, I
Speaker 1: go out there and people are really unhappy. You have
Speaker 1: huge youth unemployment. And then when you look at the
Speaker 1: numbers and Tom we had an economist on a little
Speaker 1: bit earlier on on TV, they say, but it's getting better.
Speaker 1: You know, growth over on the Eurozone is around one
Speaker 1: and a half and two percent. What are they missing?
Speaker 1: Growth does seem to be getting a little bit better.
Speaker 1: I wouldn't I wouldn't want to exaggerate just how how
Speaker 1: fast it is, but growth improving a little bit at
Speaker 1: the margin. But we're really focused on companies, and of
Speaker 1: course corporate profits are not the same thing as g
Speaker 1: d P. There's a lot more leverage in the European
Speaker 1: corporate sector to what's happening globally than is the case
Speaker 1: in many other regions. Well, this is important, I mean
Speaker 1: a multiple. I think most of our audience has a
Speaker 1: real understanding of a blue chip multinational in the United States,
Speaker 1: is a blue chip multinational the same beast in Europe,
Speaker 1: If anything, they're little more multinationals. So I think that
Speaker 1: the very fact that the European economies haven't been terribly
Speaker 1: exciting over the last decade is so has incur many
Speaker 1: European companies to invest heavily abroad. And as they did that,
Speaker 1: they picked up a fair amount of exposure to emerging markets.
Speaker 1: So in the downturn that we saw in the emerging
Speaker 1: economies that lasted until the middle or early last year,
Speaker 1: they were unusually exposed to that, and that really hurt profitability,
Speaker 1: but we weren't always hurt. You. Let me ask the
Speaker 1: delicate question, Quincy, are they going to become more Anglo Saxon?
Speaker 1: I mean, that's sort of the hope and prayer not
Speaker 1: only of retail and people that you know, trying to
Speaker 1: catch up here, but institutional as well. The continental multinationals.
Speaker 1: They've got their moments, but they've also got a cultural heritage.
Speaker 1: Is that going to shift in the next number of years? Yes,
Speaker 1: and no, I think there are signs that are shifting
Speaker 1: a little bit. I don't think you need an enormous
Speaker 1: shift in corporate behavior to have a much better outcome
Speaker 1: in terms of profits in the near term. So if
Speaker 1: you've been a European investor, you've been disappointed pretty much
Speaker 1: every year for the last five years. Typically at the
Speaker 1: start of the year, the consensus said earnings will grow
Speaker 1: by ten percent, and by the end of the year
Speaker 1: you find out they've actually slightly shrunk. I really do
Speaker 1: think this time is different. This year we will see
Speaker 1: and we're already seeing it, proper real profits growth coming through.
Speaker 1: Longer term, we do see some changes in behavior to
Speaker 1: be more shareholder friendly, but there's a long long way
Speaker 1: to go before you see, for example, a kind of
Speaker 1: share buy back activity that's been such a critical component
Speaker 1: of the bullmarket here in the US, it really hasn't
Speaker 1: spread to Europe in any convincing way yet, despite the
Speaker 1: fact that, of course, with bond deals solo in Europe,
Speaker 1: the advantages of levering up your balance sheet a bit
Speaker 1: and buying backstock at lower prices are even more compelling
Speaker 1: than they are to the typical US corporate here, But
Speaker 1: our earnings really on the upside or is it just
Speaker 1: on cast cutting? And these animal spirits still have to
Speaker 1: take real place. With investments, you can feel better about life,
Speaker 1: but unless you put money on a new project, it's
Speaker 1: just hot air. I think a number of things will
Speaker 1: conspire to help earnings this year, so currency moves help
Speaker 1: a little more revenue growth, both in Europe and in
Speaker 1: the rest of the world. European companies have a surprisingly
Speaker 1: large degree of commodity exposure, as we know, the commodity
Speaker 1: cycle seemed to trough out about a year ago and
Speaker 1: is looking generally better now. And then, of course we
Speaker 1: come to the banks that have been such a focus
Speaker 1: for investors in Europe. But where there are there are
Speaker 1: leaders and laggert's. But on average, European banks have been
Speaker 1: raising capital, are getting healthier and are pretty attractively priced
Speaker 1: as well for that manner. And now with Quincy, we
Speaker 1: go where we dare to tread and getting him in
Speaker 1: trouble with a general council of the JP Morgan Banking Company.
Speaker 1: Is everybody going to move to Dublin? That's the that's
Speaker 1: the zeitgeist today at Bloomberg is Bank a bank b
Speaker 1: Bank Cee Bank De We're gonna you know, we've looked
Speaker 1: at our European grid and we're gonna move to Dublin.
Speaker 1: You've lived this with Schroeder's, with City Bank, now with
Speaker 1: JP Morgan. Are you going to move to Dublin? So
Speaker 1: until we know what as we're dealing with, this is
Speaker 1: gonna happen. Look, until until we know, until we know
Speaker 1: what the rules look like, it's very very hard to
Speaker 1: say it's really it's just an extraordinary amount of uncertainty.
Speaker 1: So I think at this point lots of different options
Speaker 1: are on the table. My litmus paper here is the
Speaker 1: middle child doing the you know you're abroad, going to
Speaker 1: every city every weekend, called up drunk from Dublin and said, hey,
Speaker 1: I love this city. You're the young troops of JP
Speaker 1: Morgan going to one to migrate from London to Dublin.
Speaker 1: Dublin is a great city. There are many great cities
Speaker 1: in Europe too, but I think in general, people particularly
Speaker 1: in sort of mid late careers, would rather stay where
Speaker 1: they are. We just have to see whether or not
Speaker 1: that's going to be possible when we see what exactly
Speaker 1: what rules we're dealing with. AV I'm moving to Dublin
Speaker 1: Paul Quincy, Thank you so much. Jp Morgan manager, Mr
Speaker 1: Diamonds be nice and sandum when he gets back to
Speaker 1: the office. Wonderful to talk to you today. Thank you
Speaker 1: so much. Our process is to look at a really
Speaker 1: interesting research note from Capital Economics. Neil Shearing joins us
Speaker 1: the chief Emerging um Emerging Markets economists for Capital. Neil,
Speaker 1: I thought your note was very provocative and it really
Speaker 1: comes down to something I think most Americans have missed.
Speaker 1: Mexico has leverage, They have bargaining power. How possibly could
Speaker 1: they have power against the mighty United States of America. Well,
Speaker 1: this is true. I think that there's there's two areas
Speaker 1: where they have power. In economic terms, they hold quite
Speaker 1: a lot of sway, particularly over agricultural important a lot
Speaker 1: of agricultural imports from the US and whether those agricultural
Speaker 1: imports come from Midwestern states that helped to elect President Trump.
Speaker 1: The second point is they hold political swade. The US
Speaker 1: needs Mexico on side the war on drugs, particularly also
Speaker 1: immigration through Central America to the US. So I don't
Speaker 1: think it's quite right to say that the US holds
Speaker 1: all the cards when it when it comes to renegotiating
Speaker 1: naught and trading relations. I look at this and I go,
Speaker 1: how long is the timeline? I mean, we're looking at
Speaker 1: Brexit in Europe is being months, quarters even in the years.
Speaker 1: How long will the left the timeline be. I think
Speaker 1: it's going to be years rather than months. Um. I
Speaker 1: suspect something's going to get kicked off quite soon, but
Speaker 1: it's going to go on for a long time. Trade
Speaker 1: deals take a long while to negotiate, and unless particularly
Speaker 1: they want to do something substantive, if it's not going
Speaker 1: to be substantive, then perhaps you can get wrapped up
Speaker 1: this year. The issue, though, is the economic cycles and
Speaker 1: trade negotiations cycles don't necessarily go inside with political cycles.
Speaker 1: We've got US midterms at the end of next year.
Speaker 1: We've got Mexican presidential elections at the middle of next year.
Speaker 1: So it's quite possible that that all of this gets
Speaker 1: bound up in political cycles and held back to I
Speaker 1: think it's gonna be quite tricky to get something substantive done,
Speaker 1: you know. I I look at nafter when when when
Speaker 1: we look at the after? We look at very simplistic terms,
Speaker 1: but needs the headline data on the after. What is
Speaker 1: the distinction or attribute you would make visible to our listeners.
Speaker 1: The main thing that actually, this is the whole discourse
Speaker 1: around trade is stop thinking about trade in terms of
Speaker 1: deficits and surfaces and balances. That's not how a country
Speaker 1: benefits from trade. Uh, Your benefits from trade gains from
Speaker 1: trade coming through the exchange of goods and services and
Speaker 1: the fact that the US or Mexico can then move
Speaker 1: into its areas of comparative advantage specialized where in production,
Speaker 1: that where it has a comparative advantage. So it's not
Speaker 1: really about how big Mexico survices with the U s
Speaker 1: or how big China services with the US. It's about
Speaker 1: does trade allie the US the specially concentrate in areas
Speaker 1: of production where it holds a comparative advantage, And that's
Speaker 1: where the games from trade come from. And actually, when
Speaker 1: you look at it, Mexico has not been that big
Speaker 1: a beneficiary from lafter. It's seen a bit of a
Speaker 1: duptick and productivity growth after has been introduced, but it's
Speaker 1: not been that big. Have you been surprised by piece
Speaker 1: or strength twenty two and nineteen and Mexican pace, So
Speaker 1: that's impressive, It is impressive and obviously it's not just
Speaker 1: the pace of the pacer has been one of the
Speaker 1: biggest beneficiaries, but all the currencies. Indeed, most currencies E
Speaker 1: M and d M are up against the dollar um
Speaker 1: this year. It seems to me that we're in a
Speaker 1: bit of a holding pattern in financial markets. We're waiting
Speaker 1: to see who bears influence in in economic policy terms
Speaker 1: within the White House. Is it the Liberals Gary Cohen
Speaker 1: and Wilbert Ross or is it the hawks Navaro, perhaps
Speaker 1: Steve Bannon too. At the moment, it looks like we've
Speaker 1: kind of backed away from the more immediate hawk ish
Speaker 1: signs that we were seeing at not on the campaign trail,
Speaker 1: and that's given a bit of support to to riscuss it.
Speaker 1: Thanks so much. Have to keep it short today too
Speaker 1: short sharing with a smart note from Capital Economics. Thanks
Speaker 1: for listening to the Bloomberg Surveillance podcast. Subscribe and listen
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