1 00:00:00,040 --> 00:00:02,640 Speaker 1: Who you put your trust in matters investors have put 2 00:00:02,680 --> 00:00:07,000 Speaker 1: their trust and independent registered investment advisors to the two 3 00:00:07,280 --> 00:00:11,360 Speaker 1: four trillion dollars. Why learn more and find your independent 4 00:00:11,400 --> 00:00:26,960 Speaker 1: advisor dot com. Welcome to the Bloomberg Surveillance Podcast. I'm 5 00:00:27,040 --> 00:00:30,920 Speaker 1: Tom Keene with David Gura. Daily we bring you insight 6 00:00:31,040 --> 00:00:35,560 Speaker 1: from the best in economics, finance, investment and international relations. 7 00:00:35,960 --> 00:00:40,559 Speaker 1: Find Bloomberg Surveillance on iTunes, SoundCloud, Bloomberg dot com, and 8 00:00:40,640 --> 00:00:48,240 Speaker 1: of course on the Bloomberg A lot to talk about 9 00:00:48,240 --> 00:00:51,040 Speaker 1: this morning with Jeffrey You, investment Strategisy at ups Wealth Management, 10 00:00:51,040 --> 00:00:55,000 Speaker 1: who joins us from London. Morning. Jeffrey, good morning. Let's 11 00:00:55,000 --> 00:00:57,320 Speaker 1: start with with that dollar strength in your sense of 12 00:00:57,360 --> 00:00:59,600 Speaker 1: how long that's that's going to persist? Again, We're looking 13 00:00:59,640 --> 00:01:01,920 Speaker 1: down the barrel here of a transition to a new 14 00:01:02,120 --> 00:01:04,040 Speaker 1: a new presidency here in the US. How is that 15 00:01:04,040 --> 00:01:07,120 Speaker 1: going affect things? We do think that pretty much and 16 00:01:07,160 --> 00:01:08,720 Speaker 1: I should have run its course against some of the 17 00:01:08,760 --> 00:01:11,959 Speaker 1: development again, some of the developed market currencies like Sterling 18 00:01:12,000 --> 00:01:14,880 Speaker 1: and Europe for example. UM, we are going to get 19 00:01:14,920 --> 00:01:17,880 Speaker 1: to a point where politics aside, the FED is going 20 00:01:17,920 --> 00:01:20,319 Speaker 1: to be looking at this again saying okay, we thought 21 00:01:20,319 --> 00:01:22,240 Speaker 1: we had a good inflation profile, but the dollar looks 22 00:01:22,280 --> 00:01:24,360 Speaker 1: a bit too toppy right now? Is that going to 23 00:01:24,520 --> 00:01:27,000 Speaker 1: affect our inflation profile? And the moment they signal that 24 00:01:27,040 --> 00:01:29,240 Speaker 1: it will be doing so, then I think we're going 25 00:01:29,280 --> 00:01:31,760 Speaker 1: to see a dollar reversal. So, um, I would you 26 00:01:31,800 --> 00:01:33,800 Speaker 1: know the whole things a bit before saying right now, 27 00:01:33,800 --> 00:01:36,000 Speaker 1: this is going to be the onset of another dollar surge, 28 00:01:36,360 --> 00:01:38,720 Speaker 1: even after the recent moves that we've had a headline 29 00:01:38,760 --> 00:01:40,840 Speaker 1: crossing the Bloomberg right now, Donald Trump said to pick 30 00:01:40,920 --> 00:01:43,480 Speaker 1: Jeff Session, Senator Jeff Sessions of Alabama to be his 31 00:01:43,520 --> 00:01:47,400 Speaker 1: attorney general, again reiterating that headline crossing the terminal here, 32 00:01:47,440 --> 00:01:49,920 Speaker 1: Donald Trump said to pick Jeff Sessions for attorney general. 33 00:01:49,960 --> 00:01:53,240 Speaker 1: Senator Sessions met with Donald Trump yesterday at Trump Tower 34 00:01:53,600 --> 00:01:56,720 Speaker 1: in Midtown, Manhattan, the transition team releasing a statement thereafter 35 00:01:56,920 --> 00:01:59,080 Speaker 1: commenting on how positive the meeting was, but not going 36 00:01:59,080 --> 00:02:01,920 Speaker 1: so far ast it to aim the pick. Yesterday Bloomberg 37 00:02:01,920 --> 00:02:04,680 Speaker 1: reporting Jeff Sessions will be the next attorney general or 38 00:02:04,760 --> 00:02:07,680 Speaker 1: Donald Trump's pick to be the next attorney general pending confirmation. 39 00:02:07,840 --> 00:02:10,400 Speaker 1: Of course, Jenny, when you look at what we know 40 00:02:10,480 --> 00:02:12,959 Speaker 1: about Donald Trump from a policy perspective. What we've learned 41 00:02:12,960 --> 00:02:15,240 Speaker 1: here over the last ten days or so, what conclusions 42 00:02:15,240 --> 00:02:18,079 Speaker 1: can you draw about dollar strength? What have we heard 43 00:02:18,080 --> 00:02:19,760 Speaker 1: that gives you an indication of where it might be 44 00:02:20,080 --> 00:02:23,040 Speaker 1: in one word, reflationary, Right, so you know that that 45 00:02:23,240 --> 00:02:24,840 Speaker 1: is the view right now, and I think you know 46 00:02:24,880 --> 00:02:27,000 Speaker 1: several people have commented on this already. We were in 47 00:02:27,040 --> 00:02:30,880 Speaker 1: a very deflationary mindset, secular stagnation, and then suddenly someone 48 00:02:30,919 --> 00:02:34,320 Speaker 1: comes along which rips apart um like the playbook and says, Okay, 49 00:02:34,320 --> 00:02:36,560 Speaker 1: now we are going to go for a reflationary wave 50 00:02:36,680 --> 00:02:39,000 Speaker 1: coming out of the world's largest economy. And this is 51 00:02:39,000 --> 00:02:42,040 Speaker 1: in a context where say, in China we are seeing 52 00:02:42,760 --> 00:02:44,600 Speaker 1: of secular down trends and growth, but they still have 53 00:02:44,639 --> 00:02:47,359 Speaker 1: the ability to actually reflate as well, and I'll be 54 00:02:47,360 --> 00:02:49,200 Speaker 1: eaten a bad way. So now I think actually the 55 00:02:49,240 --> 00:02:51,320 Speaker 1: onus is on Europe and so in the UK, and 56 00:02:51,320 --> 00:02:53,240 Speaker 1: we've got the Autumn statement coming up, there's been talk 57 00:02:53,280 --> 00:02:56,440 Speaker 1: of minor reflation to can the Eurozone, right, can the 58 00:02:56,480 --> 00:03:00,360 Speaker 1: Eurozone actually now come through with reflationary policies. If this happens, 59 00:03:00,560 --> 00:03:04,200 Speaker 1: then this mindset for seculate for secular stagnation, that we've 60 00:03:04,240 --> 00:03:06,000 Speaker 1: had over the last few years, you know, might just 61 00:03:06,040 --> 00:03:08,440 Speaker 1: start to turn around. But you know, it's only one 62 00:03:08,480 --> 00:03:11,040 Speaker 1: piece of the puzzle right now, and talking about it 63 00:03:11,080 --> 00:03:13,840 Speaker 1: is one thing. Implementation is another thing. I can be 64 00:03:13,880 --> 00:03:15,960 Speaker 1: as guilty as any of having a short term memory 65 00:03:16,000 --> 00:03:18,440 Speaker 1: here going back to previous transitions, did we see the 66 00:03:18,480 --> 00:03:20,880 Speaker 1: amount of market movement that we've seen in this one? 67 00:03:20,919 --> 00:03:23,440 Speaker 1: It has been extraordinary and it seems like investors trying 68 00:03:23,480 --> 00:03:26,240 Speaker 1: desperately here to process what's happening, what what could be happening? 69 00:03:26,360 --> 00:03:29,080 Speaker 1: How different is this time versus the past? It's very different, 70 00:03:29,080 --> 00:03:32,639 Speaker 1: one because the result was so unexpected. And two it's 71 00:03:32,639 --> 00:03:36,160 Speaker 1: so different because as people have highlighted the president elector 72 00:03:36,240 --> 00:03:39,520 Speaker 1: he has no policy trail, right, and some it's it's 73 00:03:39,720 --> 00:03:42,000 Speaker 1: a bit difficult to you know, take what he said, 74 00:03:42,040 --> 00:03:45,200 Speaker 1: you en during the campaign of various sometimes and things 75 00:03:45,200 --> 00:03:48,720 Speaker 1: contradicted each other, and try to apply a unique economic 76 00:03:48,760 --> 00:03:52,920 Speaker 1: philosophy there. But I think as the nominees start to, 77 00:03:53,000 --> 00:03:54,800 Speaker 1: you know, fall in place, we get a better sense 78 00:03:54,840 --> 00:03:57,760 Speaker 1: of their philosophies and we should have a better sense of, 79 00:03:57,880 --> 00:04:00,520 Speaker 1: you know, how the economic policy is going to implemented. 80 00:04:00,560 --> 00:04:02,320 Speaker 1: Up ahead, Jeff, for you with us with you be 81 00:04:02,480 --> 00:04:05,120 Speaker 1: a skood morning everyone, Tom Keenan London with Mr You, 82 00:04:05,680 --> 00:04:09,480 Speaker 1: David Gura in New York. Maybe David Gura transitioning this 83 00:04:09,520 --> 00:04:12,320 Speaker 1: weekend in New Jersey. I'm not sure of that. Everyone 84 00:04:12,360 --> 00:04:14,600 Speaker 1: else seems to be doing it. Mr Trump will migrate 85 00:04:14,680 --> 00:04:19,400 Speaker 1: out to Bedminster, New Jersey, perhaps from Midtown relief just 86 00:04:19,600 --> 00:04:21,760 Speaker 1: for you. We didn't have time to talk about this morning, 87 00:04:21,760 --> 00:04:24,799 Speaker 1: and I hope David will let me do this, which 88 00:04:24,839 --> 00:04:28,719 Speaker 1: is we know the euro was linked with Germany and 89 00:04:28,760 --> 00:04:33,560 Speaker 1: say the peripherals Spain, Portugal, Greece, etcetera. Earlier this week, 90 00:04:33,760 --> 00:04:37,080 Speaker 1: literally the first chart I made in London was synthetic 91 00:04:37,240 --> 00:04:42,599 Speaker 1: Deutscher Mark Italian Lira. Italy has a very expensive euro, 92 00:04:42,760 --> 00:04:46,000 Speaker 1: doesn't it. It does most of Southern Europe, of the 93 00:04:46,000 --> 00:04:50,080 Speaker 1: low growth countries, they have an expensive domestic currency and 94 00:04:50,160 --> 00:04:52,120 Speaker 1: the only way for them to achieve competitiveness, as we've 95 00:04:52,120 --> 00:04:56,279 Speaker 1: seen in Greece um is through internality evaluation, very very painful, 96 00:04:56,320 --> 00:04:58,240 Speaker 1: and that drives poplar. So I want you to get 97 00:04:58,279 --> 00:05:01,040 Speaker 1: in the debate. Let me frame it Horger Schmiding a 98 00:05:01,120 --> 00:05:04,279 Speaker 1: barren Berg Bank saying do what the Spanish did, Do 99 00:05:04,360 --> 00:05:08,880 Speaker 1: what the Irish did reform now and someone like Douglas 100 00:05:09,160 --> 00:05:12,400 Speaker 1: David fokers landour Deutsche Bank saying no, they're not going 101 00:05:12,480 --> 00:05:16,400 Speaker 1: to reform and this is an urgent matter to assist 102 00:05:16,560 --> 00:05:20,960 Speaker 1: Italy towards some form of change given the linkage to 103 00:05:21,040 --> 00:05:23,000 Speaker 1: Germany in the Europe. Do you think the view is 104 00:05:23,279 --> 00:05:27,479 Speaker 1: with this constitutional shift, Well, the the referendum is required 105 00:05:27,520 --> 00:05:31,240 Speaker 1: if Italy is to reform whatsoever. But what needs reform 106 00:05:31,360 --> 00:05:33,919 Speaker 1: right now in Italy is its entire growth structure. The 107 00:05:33,920 --> 00:05:35,920 Speaker 1: problem playing in Italy. People often talk about it's a 108 00:05:35,960 --> 00:05:39,720 Speaker 1: least debt ratios italyast debt has actually been relatively sustainable. Right. 109 00:05:39,720 --> 00:05:42,080 Speaker 1: It's growth that has always been the problem. It's demographics 110 00:05:42,080 --> 00:05:44,080 Speaker 1: and be that's been the problem as well. So now 111 00:05:44,120 --> 00:05:46,960 Speaker 1: those things that takes time. So yes there can can 112 00:05:47,040 --> 00:05:49,839 Speaker 1: be a sense of urgency. But right now, ever since 113 00:05:49,839 --> 00:05:51,920 Speaker 1: some of the US election, I think the shift has 114 00:05:51,920 --> 00:05:56,400 Speaker 1: suddenly um the focus suddenly shifted towards right now. It's 115 00:05:56,400 --> 00:05:59,200 Speaker 1: actually not an attacking game where we push for reform. 116 00:05:59,200 --> 00:06:01,400 Speaker 1: It's a defensive gained suttenly, we pushed back against the 117 00:06:01,400 --> 00:06:04,520 Speaker 1: populous forces. That's a completely different strategy that the Eurozone 118 00:06:04,560 --> 00:06:06,280 Speaker 1: elite so to say that they need to look at 119 00:06:06,720 --> 00:06:09,799 Speaker 1: what happens if this this referenumentally doesn't pass. What happens 120 00:06:09,800 --> 00:06:12,960 Speaker 1: to the Italian economy, Well, at this point it's going 121 00:06:13,000 --> 00:06:17,440 Speaker 1: to I wouldn't say prolonged uncertainty or anything, but people 122 00:06:17,480 --> 00:06:19,440 Speaker 1: just think, Okay, nothing's ever going to change. You're not 123 00:06:19,480 --> 00:06:21,719 Speaker 1: going to lift your trend growth forecast for Italy or 124 00:06:21,760 --> 00:06:25,440 Speaker 1: anyway whatsoever. But for the Eurozone as a whole. I 125 00:06:25,440 --> 00:06:28,000 Speaker 1: think people are indeed concerned that this is another domino 126 00:06:28,160 --> 00:06:30,880 Speaker 1: that the inexorable rise of populism, and they will lead 127 00:06:30,960 --> 00:06:34,360 Speaker 1: on to potentially disruptive results next year. In the French 128 00:06:34,400 --> 00:06:37,719 Speaker 1: and German votes, we saw investors process that Brexit referentum 129 00:06:37,760 --> 00:06:40,080 Speaker 1: in real time, perhaps influenced how they process the U 130 00:06:40,160 --> 00:06:43,120 Speaker 1: S presidential elections going here into the Italian referendum in 131 00:06:43,160 --> 00:06:45,760 Speaker 1: these other elections in Europe in the next few months. 132 00:06:45,920 --> 00:06:48,120 Speaker 1: Would investors know now that that they didn't know what 133 00:06:48,200 --> 00:06:51,560 Speaker 1: those first two rounds. Always expect the unexpected. So what 134 00:06:51,600 --> 00:06:53,880 Speaker 1: you thought was consensus, you know what you thought that 135 00:06:54,440 --> 00:06:57,320 Speaker 1: very very accurate polling models and whatnot. No, we're telling 136 00:06:57,360 --> 00:07:00,240 Speaker 1: you you must have a hedge the other way, so 137 00:07:00,960 --> 00:07:05,839 Speaker 1: as you mentioned see how Sterling performed um overnight when 138 00:07:06,200 --> 00:07:08,680 Speaker 1: the referend results came out in versus S ANDP futures 139 00:07:08,680 --> 00:07:11,400 Speaker 1: and for example, almost exactly the same. But then the 140 00:07:11,440 --> 00:07:14,440 Speaker 1: reaction afterwards it was quite similar, was quite similar in 141 00:07:14,440 --> 00:07:16,520 Speaker 1: the way that the foot tea was doing fine and 142 00:07:16,520 --> 00:07:18,920 Speaker 1: now the smps don't fine too. I want to expand 143 00:07:18,960 --> 00:07:22,040 Speaker 1: with you right now, and the basically because you're with 144 00:07:22,200 --> 00:07:24,360 Speaker 1: UBS Wealth Management, I'm going to say it's a more 145 00:07:24,440 --> 00:07:29,440 Speaker 1: conservative test to money management. Are people getting shell ACKed? 146 00:07:29,880 --> 00:07:33,280 Speaker 1: That's an American phrase, Jeoffrey, and maybe that's lost in translation, Rachel. 147 00:07:33,960 --> 00:07:38,000 Speaker 1: I'm not sure shell act shell actors are getting clobered pounded. 148 00:07:38,280 --> 00:07:41,960 Speaker 1: Are people taking losses now? Or is everybody pretty much 149 00:07:42,360 --> 00:07:45,760 Speaker 1: out of the big trade of this big dollar move. Actually, 150 00:07:45,800 --> 00:07:49,000 Speaker 1: if you look at in both events, are clients one 151 00:07:49,120 --> 00:07:51,600 Speaker 1: they were over positioned in cash to begin with. You know, 152 00:07:51,640 --> 00:07:53,559 Speaker 1: I think that that's a challenge that's been playing asset 153 00:07:53,560 --> 00:07:56,240 Speaker 1: management in general over the last a few quarters. Also, 154 00:07:56,320 --> 00:07:58,440 Speaker 1: so much uncertainty out there, you don't know how it's 155 00:07:58,440 --> 00:08:00,360 Speaker 1: going to play out. I'd rather just staying ash and 156 00:08:00,440 --> 00:08:03,640 Speaker 1: it's sort of work out, especially for UK clients holding 157 00:08:03,720 --> 00:08:06,680 Speaker 1: a common assets for example, what's the level, what's the 158 00:08:06,760 --> 00:08:11,240 Speaker 1: level of opportunity? Now in the foreign exchange world, are 159 00:08:11,280 --> 00:08:14,480 Speaker 1: you thinking big figures? Are you thinking I got to 160 00:08:14,480 --> 00:08:17,320 Speaker 1: get the January? So right now in the FFX world, 161 00:08:17,360 --> 00:08:20,960 Speaker 1: we are seeing massive distortions in terms of valuations, right 162 00:08:21,160 --> 00:08:23,960 Speaker 1: Mexican pay so you know that? So how where whereas 163 00:08:24,000 --> 00:08:26,840 Speaker 1: fair value should be seventeen eighteen something like that, and 164 00:08:27,080 --> 00:08:29,840 Speaker 1: it's four big figures, are three big figures of absolutely no, 165 00:08:29,960 --> 00:08:31,920 Speaker 1: Sterling wears fair value over the mediums a longer term. 166 00:08:31,920 --> 00:08:34,240 Speaker 1: Euro wears fair value over the mediums a longer term 167 00:08:34,240 --> 00:08:36,480 Speaker 1: if you look at it as an economic and aggregate, right, 168 00:08:36,559 --> 00:08:38,760 Speaker 1: So that gives you opportunities. And for our clients, we 169 00:08:38,800 --> 00:08:41,240 Speaker 1: say eighty percent of your returns are still going to 170 00:08:41,280 --> 00:08:43,800 Speaker 1: be delivered on your strategic as allocation. You take a 171 00:08:43,800 --> 00:08:46,040 Speaker 1: five to seven year of you So in that context 172 00:08:46,040 --> 00:08:48,120 Speaker 1: then there can be something to capture from the currency side, 173 00:08:48,120 --> 00:08:51,400 Speaker 1: depending on your base currency of critically the alpha of 174 00:08:51,480 --> 00:08:53,200 Speaker 1: big Well, we're gonna have to come back on this 175 00:08:53,280 --> 00:08:56,000 Speaker 1: is too much. Mathematics are for Friday, Jeff, for you 176 00:08:56,040 --> 00:08:59,720 Speaker 1: with this ubs Jennifer Jacobs of course reporting a number 177 00:08:59,720 --> 00:09:02,240 Speaker 1: of men. Let's go ten minutes ago. Uh, this is 178 00:09:02,280 --> 00:09:05,520 Speaker 1: from two sources. The President alex said to pick the 179 00:09:05,559 --> 00:09:11,160 Speaker 1: senator from Alabama, Jeffrey Jefferson Sessions, Jeff Sessions for Attorney General. 180 00:09:11,240 --> 00:09:13,880 Speaker 1: I want to make clear that's from two sources. Uh. 181 00:09:14,040 --> 00:09:17,800 Speaker 1: Jennifer Jacobs saying that, Uh, it is unclear if Mr 182 00:09:17,840 --> 00:09:22,720 Speaker 1: Trump is formally offered the job to Mr Sessions. We've 183 00:09:22,720 --> 00:09:25,880 Speaker 1: offered the job of explanation of foreign exchange to Jeffrey, 184 00:09:25,920 --> 00:09:30,760 Speaker 1: you of ubs Um, who always gives a clarity and 185 00:09:30,760 --> 00:09:33,440 Speaker 1: and and it helps with that. A strong dollar, now, 186 00:09:34,200 --> 00:09:36,800 Speaker 1: is it different than a strong dollar of the eighties 187 00:09:36,840 --> 00:09:40,040 Speaker 1: pre Plaza accord or the strong dollar of the late 188 00:09:40,120 --> 00:09:43,880 Speaker 1: nineties to two thousand one associated as a Reuben dollar. 189 00:09:44,280 --> 00:09:46,960 Speaker 1: Is this strong dollar different? I do think it is 190 00:09:47,160 --> 00:09:49,679 Speaker 1: because the US has balance of payments and the exposures 191 00:09:49,679 --> 00:09:52,440 Speaker 1: the USS balance of payments actually completely different. Now around 192 00:09:52,440 --> 00:09:55,320 Speaker 1: the time the Plaza chord and clearly current accounts adjustment 193 00:09:55,640 --> 00:09:59,199 Speaker 1: was needed and enduring the Reuben phase. Uh, the U 194 00:09:59,320 --> 00:10:01,280 Speaker 1: s cycle was at sync with the e M cycle. 195 00:10:01,600 --> 00:10:04,480 Speaker 1: This time around, I would say the main difference is 196 00:10:04,720 --> 00:10:08,880 Speaker 1: the US can broadly afford a strong reflationary dollar and 197 00:10:08,960 --> 00:10:11,040 Speaker 1: not really care about what happens the rest of the world. 198 00:10:11,080 --> 00:10:14,520 Speaker 1: I knew your answer. That's tricky on my part, jeff 199 00:10:14,559 --> 00:10:19,400 Speaker 1: You if that's your answer about us, is it their problem? 200 00:10:19,600 --> 00:10:24,680 Speaker 1: Is it Mexico's problem, Malaysia's problem, Turkey's problem. The theory 201 00:10:24,840 --> 00:10:27,640 Speaker 1: is they're less exposed than you they used to be. 202 00:10:27,720 --> 00:10:30,400 Speaker 1: I don't buy it, um, Turkey, you hit the nail 203 00:10:30,400 --> 00:10:31,880 Speaker 1: on the head there. You know that probably if you 204 00:10:31,920 --> 00:10:37,480 Speaker 1: measure debt ratios as a proportion or in the relative 205 00:10:37,760 --> 00:10:41,040 Speaker 1: to their funding abilities, probably one of the most of 206 00:10:41,120 --> 00:10:44,360 Speaker 1: those currencies out there. So in that sense, Um, I 207 00:10:44,400 --> 00:10:47,320 Speaker 1: would say, e M. Right now, use this how many 208 00:10:47,360 --> 00:10:49,320 Speaker 1: moon period where markets are not really gunning for your 209 00:10:49,360 --> 00:10:52,439 Speaker 1: currencies right now, look at your liabilities, look at your 210 00:10:52,440 --> 00:10:55,120 Speaker 1: dollar exposures, try to hedge them, or just try to 211 00:10:55,160 --> 00:10:57,600 Speaker 1: generate some savings as quickly as possible. Jeffer, you mentioned 212 00:10:57,640 --> 00:11:00,520 Speaker 1: emerging markets, and I think about the potential for real 213 00:11:00,600 --> 00:11:04,000 Speaker 1: change to trade policy in this country and globally when 214 00:11:04,000 --> 00:11:06,680 Speaker 1: you look at currencies. What could the potential effect there 215 00:11:06,720 --> 00:11:08,679 Speaker 1: be if we see more protectionism, if we see the 216 00:11:08,720 --> 00:11:11,200 Speaker 1: kind of terrors that people have been talking about. Now 217 00:11:11,240 --> 00:11:13,719 Speaker 1: here's where it gets interesting, because I do think there 218 00:11:13,800 --> 00:11:15,760 Speaker 1: is an opening. So let's assume that the US, you know, 219 00:11:15,840 --> 00:11:20,400 Speaker 1: does turn its back to globalization. There is a unique 220 00:11:20,400 --> 00:11:23,600 Speaker 1: opportunity for countries, especially in Asia and emerging market so 221 00:11:23,679 --> 00:11:25,880 Speaker 1: to actually find their new trader courts and actually just 222 00:11:25,920 --> 00:11:28,520 Speaker 1: trade amongst themselves. The US is the biggest economy in 223 00:11:28,520 --> 00:11:30,240 Speaker 1: the world, but it's not the only economy in the world, 224 00:11:30,320 --> 00:11:32,120 Speaker 1: right so you know, they can actually generate demand that 225 00:11:32,160 --> 00:11:33,840 Speaker 1: way as well. I don't think it's going to happen 226 00:11:33,880 --> 00:11:36,199 Speaker 1: in the Eurozone. But this is why people are looking 227 00:11:36,200 --> 00:11:38,320 Speaker 1: at the r CEP, you know, looking at a CM 228 00:11:38,360 --> 00:11:42,320 Speaker 1: plus China, Japan, South Korea and New Zealand, India and Australia. 229 00:11:42,360 --> 00:11:44,680 Speaker 1: You know, that's a chunky economic block they're put together. 230 00:11:44,960 --> 00:11:47,079 Speaker 1: Not going to be the same rules as what happened 231 00:11:47,120 --> 00:11:49,920 Speaker 1: through on t t P or what probably APEC had 232 00:11:49,920 --> 00:11:52,800 Speaker 1: in mind general. But it doesn't mean that with the 233 00:11:52,880 --> 00:11:55,120 Speaker 1: US out of the game globalization and f t A 234 00:11:55,200 --> 00:11:56,720 Speaker 1: is that's not going to be the way forward. And 235 00:11:56,760 --> 00:11:59,640 Speaker 1: I was just saying UK doesn't really have a Pacific 236 00:11:59,640 --> 00:12:02,320 Speaker 1: border right now, but why shouldn't UK joined the our 237 00:12:02,360 --> 00:12:04,880 Speaker 1: CEP if it's so desperate for such agreements amongst like 238 00:12:05,040 --> 00:12:07,679 Speaker 1: Minded countries and Eurozone. It's also sorts of turning its 239 00:12:07,720 --> 00:12:10,800 Speaker 1: back against globalization right now. So this is a challenge 240 00:12:10,880 --> 00:12:13,800 Speaker 1: but also represents an opportunity. Big trade summit this weekend 241 00:12:13,960 --> 00:12:16,040 Speaker 1: in Lima, Lima, Peru. We are you gonna be watching 242 00:12:16,080 --> 00:12:18,880 Speaker 1: that closely for free signs? I think we will. But 243 00:12:19,000 --> 00:12:23,280 Speaker 1: also the commentary um and than the body language between 244 00:12:23,600 --> 00:12:27,079 Speaker 1: you know, the bilactual meetings between Asian leaders and President 245 00:12:27,120 --> 00:12:31,080 Speaker 1: Obama and probably some of the comments that actually less 246 00:12:31,080 --> 00:12:33,400 Speaker 1: interesting the comments are from Obama. Probably more interesting the 247 00:12:33,480 --> 00:12:37,120 Speaker 1: questions and that Asian leaders will be asking Obama. I'm 248 00:12:37,120 --> 00:12:39,800 Speaker 1: gonna put this on on Twitter for its extraordinary chart 249 00:12:39,920 --> 00:12:44,000 Speaker 1: of Turkish Lira and Jeffrey there's the mathematics of a 250 00:12:44,040 --> 00:12:47,520 Speaker 1: curve on a log, which is called log quadratic. I'm sorry, 251 00:12:47,559 --> 00:12:51,640 Speaker 1: this is log moon shot. It is a real depreciation 252 00:12:52,200 --> 00:12:55,000 Speaker 1: of Turkish leader. We know the politics of Turkey and 253 00:12:55,240 --> 00:12:59,439 Speaker 1: the interesting dual interest rate, etcetera. When do they scream 254 00:12:59,600 --> 00:13:05,360 Speaker 1: uncle to uncle drunk Uncle Donald? Well, so is it really, uh, 255 00:13:05,440 --> 00:13:07,480 Speaker 1: you know, something that the Turkish government can actually do 256 00:13:07,520 --> 00:13:09,400 Speaker 1: about if you look at what has fuel Turkish growth 257 00:13:09,440 --> 00:13:11,520 Speaker 1: over the last few years, you know, borrowing in dollar debt, 258 00:13:12,280 --> 00:13:15,120 Speaker 1: strong investment growth. Has been a lot of investment in 259 00:13:15,120 --> 00:13:17,600 Speaker 1: the in the property sector as well, and now that's 260 00:13:17,600 --> 00:13:22,600 Speaker 1: proving to be difficult to sustain. So they need reforms 261 00:13:22,640 --> 00:13:25,640 Speaker 1: domestically right now to rebalance the economy in the same way. 262 00:13:25,880 --> 00:13:28,080 Speaker 1: You know that that China has been trying to rebalanced 263 00:13:28,080 --> 00:13:31,680 Speaker 1: its company. You're seeing similar credit to GDP ratios. So again, 264 00:13:31,840 --> 00:13:34,240 Speaker 1: use this window of opportunity to do so, otherwise it 265 00:13:34,240 --> 00:13:36,800 Speaker 1: could be too late to have standard deviations off a 266 00:13:36,840 --> 00:13:39,360 Speaker 1: monthly church that isn't ugly charge. Jeff for you, Thank 267 00:13:39,360 --> 00:13:42,120 Speaker 1: you so much. Always good to see you in London. 268 00:13:42,160 --> 00:13:57,880 Speaker 1: Here is with ubs Well management. David Gurraw. You know 269 00:13:58,320 --> 00:14:01,080 Speaker 1: back and forth that will whether we see appointments today. 270 00:14:01,480 --> 00:14:04,000 Speaker 1: Do you see any reporting that we may see further 271 00:14:04,120 --> 00:14:08,280 Speaker 1: appointments than the sources said on Jeff Sessions. I don't know. 272 00:14:08,360 --> 00:14:10,800 Speaker 1: It's it's it's funny. I mentioned that we got a 273 00:14:10,840 --> 00:14:13,200 Speaker 1: press release from the Trump transition team last night. Let 274 00:14:13,200 --> 00:14:15,199 Speaker 1: me just pull that up quickly because it was so extraordinary. 275 00:14:15,200 --> 00:14:18,120 Speaker 1: I thought, uh, he said here this was This was 276 00:14:18,160 --> 00:14:21,720 Speaker 1: after he met with Donald Trump yesterday, noting the meeting, saying, well, 277 00:14:21,800 --> 00:14:23,520 Speaker 1: nothing has been fine. Lights and he's still talking with 278 00:14:23,560 --> 00:14:25,600 Speaker 1: others as he forms his cabinet. The president elect has 279 00:14:25,600 --> 00:14:28,760 Speaker 1: been unbelievably impressed with Senator Sessions and his phenomenal record 280 00:14:28,960 --> 00:14:31,480 Speaker 1: as Alabama's Attorney general and U S Attorney. It's no 281 00:14:31,520 --> 00:14:34,080 Speaker 1: wonder that the people of alabam are reelected him without opposition. 282 00:14:34,120 --> 00:14:36,320 Speaker 1: So no clues like that, and maybe that's what we 283 00:14:36,320 --> 00:14:39,240 Speaker 1: should be looking for. Statements like that after these meetings, 284 00:14:39,240 --> 00:14:41,200 Speaker 1: you know, if they if they go well, an indication 285 00:14:41,240 --> 00:14:43,280 Speaker 1: that could be formalized. Shortly there after, he wrote a 286 00:14:43,320 --> 00:14:45,760 Speaker 1: script looking for white smoke coming out of the Trump 287 00:14:45,800 --> 00:14:51,520 Speaker 1: Tower at some points, Secretary of State, whatever it is, 288 00:14:51,600 --> 00:14:54,520 Speaker 1: there's the the news Slow has been fierce over the 289 00:14:54,600 --> 00:14:59,160 Speaker 1: last uh ten days. Also fierce in his economics has 290 00:14:59,160 --> 00:15:03,040 Speaker 1: been Michael fre of JP Morgan. He has been absolutely 291 00:15:03,200 --> 00:15:08,080 Speaker 1: brilliant about identifying the glide pass to a new level. 292 00:15:08,440 --> 00:15:11,800 Speaker 1: I knew what's called terminal value, terminal rate, and this 293 00:15:12,000 --> 00:15:16,520 Speaker 1: linkages of our economic growth or subpar economic growth, two 294 00:15:16,560 --> 00:15:18,880 Speaker 1: interest rates. All of that turned on its head with 295 00:15:18,920 --> 00:15:24,200 Speaker 1: a Trump election, higher yield, stronger dollar. Michael Faroli his 296 00:15:24,280 --> 00:15:27,040 Speaker 1: head spinning as he gets to the acclaimed JP Morgan note, 297 00:15:27,400 --> 00:15:30,480 Speaker 1: no doubt to be published at six o'clock tonight. Help 298 00:15:30,520 --> 00:15:33,000 Speaker 1: us here, Michael Farley, give us a head start. You 299 00:15:33,080 --> 00:15:36,840 Speaker 1: talked about three percent GDP the other day. What will 300 00:15:36,880 --> 00:15:40,640 Speaker 1: be the theme tonight of your JP Morgan note, Thomas, 301 00:15:40,720 --> 00:15:42,960 Speaker 1: you know, I would say we have the possibility of 302 00:15:43,000 --> 00:15:45,520 Speaker 1: three GDP for a year or two if all of 303 00:15:45,560 --> 00:15:51,600 Speaker 1: Trump's UH fiscal policy plans that he announces during his 304 00:15:51,640 --> 00:15:54,240 Speaker 1: campaign where I'm so he talked about a tax cut 305 00:15:54,320 --> 00:15:56,800 Speaker 1: that would run close to five billion dollars a year 306 00:15:56,840 --> 00:15:59,360 Speaker 1: or six trillion dollars over ten years, and then's some 307 00:15:59,400 --> 00:16:03,520 Speaker 1: pretty big members on institution and spending. So that's that's 308 00:16:03,600 --> 00:16:08,320 Speaker 1: kind of there in principle. I'm not political person, but 309 00:16:08,360 --> 00:16:11,120 Speaker 1: I you know, I suspect we get something much smaller 310 00:16:11,160 --> 00:16:14,480 Speaker 1: than that. So, uh, three percent for a year or 311 00:16:14,480 --> 00:16:17,040 Speaker 1: two seems, but we don't think that's the most likely. 312 00:16:17,120 --> 00:16:21,000 Speaker 1: If I'm one of your Booth school seminars, University of Chicago. 313 00:16:21,520 --> 00:16:26,000 Speaker 1: The money question, Dr Feroli is simple, do you amend 314 00:16:26,520 --> 00:16:29,720 Speaker 1: your new level of potential g d P or the 315 00:16:29,840 --> 00:16:34,800 Speaker 1: terminal value of GDP because of Trump election and Trump economics? 316 00:16:35,840 --> 00:16:39,280 Speaker 1: We are not so Tom when you talk about potential 317 00:16:39,320 --> 00:16:41,560 Speaker 1: GDP growth as you know, the commists usually like to 318 00:16:41,600 --> 00:16:44,720 Speaker 1: think about labor supply and labor productivity and the two 319 00:16:44,760 --> 00:16:48,360 Speaker 1: of those together kind of give you potential potential growth, 320 00:16:48,400 --> 00:16:52,960 Speaker 1: and we don't really see these policy changes fundamentally altering 321 00:16:53,000 --> 00:16:54,920 Speaker 1: those things in the long run. So when I just 322 00:16:55,000 --> 00:16:57,320 Speaker 1: mentioned these tax cuts, is in the spending we think 323 00:16:57,360 --> 00:16:59,000 Speaker 1: I could give you, you know, a nice short run 324 00:16:59,040 --> 00:17:02,600 Speaker 1: philippas of activity, but not something that is going to 325 00:17:02,640 --> 00:17:06,320 Speaker 1: really change the productive capacity economy. We actually see the risks, 326 00:17:06,359 --> 00:17:08,480 Speaker 1: you know, when we talk about potential GDP. Perhaps there 327 00:17:08,480 --> 00:17:10,560 Speaker 1: are two kind of off setting risks. One is that 328 00:17:11,240 --> 00:17:15,000 Speaker 1: you know, some of these more restrictive immigration policies could 329 00:17:15,000 --> 00:17:18,560 Speaker 1: actually lower labor supply. Uh. And there you know, an 330 00:17:18,640 --> 00:17:22,200 Speaker 1: argument could be made that some of the tax policies 331 00:17:22,240 --> 00:17:26,240 Speaker 1: would increase labor productivity, particularly if you reduce taxes on 332 00:17:26,400 --> 00:17:30,119 Speaker 1: capital income and corporate income taxes in principle that should 333 00:17:30,160 --> 00:17:33,080 Speaker 1: reduce the cost of capital to increase capital deepening and 334 00:17:33,160 --> 00:17:37,239 Speaker 1: therefore productivity. Um, you know, we see those as kind 335 00:17:37,240 --> 00:17:40,320 Speaker 1: of pretty small risks around the view that longer run 336 00:17:40,359 --> 00:17:42,840 Speaker 1: trend growth is. You know, we have it at a 337 00:17:42,840 --> 00:17:44,760 Speaker 1: little bit below one and a half percent, and we 338 00:17:44,760 --> 00:17:46,879 Speaker 1: don't know, as I said, we're not changing based on 339 00:17:47,560 --> 00:17:51,320 Speaker 1: these kind of short run influences and disturbances to aggreate 340 00:17:51,320 --> 00:17:54,160 Speaker 1: demand that would likely come about through some of these policies. 341 00:17:54,320 --> 00:17:56,240 Speaker 1: Michael Fairlie pulled back the curtain if you wouldn't just 342 00:17:56,280 --> 00:17:59,600 Speaker 1: talk about the complexities of forecasting for for what this 343 00:17:59,680 --> 00:18:01,280 Speaker 1: might look like in terms of what we know and 344 00:18:01,560 --> 00:18:05,720 Speaker 1: what we're learning here as this transition goes on, I 345 00:18:05,720 --> 00:18:07,600 Speaker 1: imagine you're you're playing with a lot of variables here. 346 00:18:07,600 --> 00:18:10,240 Speaker 1: There's a lot we still don't know. Yeah, there are 347 00:18:10,359 --> 00:18:12,919 Speaker 1: more than usual. So first we don't know what the 348 00:18:12,960 --> 00:18:15,720 Speaker 1: policy we're gonna get is going to be. And then 349 00:18:15,880 --> 00:18:17,600 Speaker 1: once we get that policy, there's still a lot of 350 00:18:17,680 --> 00:18:22,200 Speaker 1: uncertainty among economists how different aspects of fiscal policy kind 351 00:18:22,240 --> 00:18:26,000 Speaker 1: of ricochet through the economy. So usually economists are just 352 00:18:26,119 --> 00:18:28,280 Speaker 1: kind of dealing with the second part of the uncertainty, 353 00:18:28,720 --> 00:18:31,320 Speaker 1: and the first. Being trained economists, I don't really know 354 00:18:31,359 --> 00:18:33,280 Speaker 1: what's going to happen and wash and I read the 355 00:18:33,280 --> 00:18:36,080 Speaker 1: papers like everyone else, and it seems like a you know, 356 00:18:36,520 --> 00:18:39,320 Speaker 1: a fall right now. So we're dealing with I think 357 00:18:39,320 --> 00:18:42,080 Speaker 1: two layers of uncertainty, and that's really just on the 358 00:18:42,119 --> 00:18:46,399 Speaker 1: fiscal policy. Um, there are other aspects of a the 359 00:18:46,440 --> 00:18:50,199 Speaker 1: new administration that could also impact the economy, most notably 360 00:18:50,200 --> 00:18:53,359 Speaker 1: trade policies. And that is a big wild card to 361 00:18:53,440 --> 00:18:56,159 Speaker 1: degree to which he will follow through on some of 362 00:18:56,160 --> 00:18:58,040 Speaker 1: the things he said in the campaign. Yeah. I think 363 00:18:58,080 --> 00:18:59,879 Speaker 1: about that and the greed which we've been talking about 364 00:18:59,880 --> 00:19:02,560 Speaker 1: the contours of that fiscal policy package, how much will 365 00:19:02,600 --> 00:19:04,920 Speaker 1: be tax cuts, how much we'll be spending on infrastructure. 366 00:19:04,920 --> 00:19:07,800 Speaker 1: There hasn't been a lot of talk about trade, and 367 00:19:07,840 --> 00:19:09,800 Speaker 1: I wonder if that leads you and others to believe 368 00:19:09,840 --> 00:19:11,399 Speaker 1: that maybe we should take at face value what he 369 00:19:11,440 --> 00:19:14,520 Speaker 1: said on the campaign trail. Are you able to forecast 370 00:19:14,600 --> 00:19:16,840 Speaker 1: what what you know a change in tariffs might mean 371 00:19:16,880 --> 00:19:20,640 Speaker 1: for for the GDP, for for the economy generally. So 372 00:19:21,040 --> 00:19:24,080 Speaker 1: that's a great question. You know, economists, UM, being pro 373 00:19:24,240 --> 00:19:28,480 Speaker 1: free trade is almost an occupational requirement. UM. But we 374 00:19:28,520 --> 00:19:32,080 Speaker 1: see the benefits of trade as being long run ones 375 00:19:32,119 --> 00:19:35,439 Speaker 1: that deal with efficiency and efficient allocation of resources. We 376 00:19:35,480 --> 00:19:38,520 Speaker 1: don't really think about benefits of free trade, or even 377 00:19:38,520 --> 00:19:40,120 Speaker 1: the impacts of free trade from kind of a short 378 00:19:40,200 --> 00:19:43,879 Speaker 1: run business cycle standpoint. Uh. And so we're kind of 379 00:19:43,960 --> 00:19:47,040 Speaker 1: flying blind and thinking about if we were suddenly, you know, 380 00:19:47,080 --> 00:19:51,680 Speaker 1: erect tariff walls. How that would impact economy. We tend 381 00:19:51,720 --> 00:19:54,640 Speaker 1: to think that it would be pretty disruptive because there 382 00:19:54,680 --> 00:19:57,920 Speaker 1: are a lot of domestic producers who are even now 383 00:19:57,960 --> 00:20:01,240 Speaker 1: even more intertwined in global supply chain. Uh. You know, 384 00:20:01,320 --> 00:20:04,399 Speaker 1: so as he thought saw like the Tohuco earthquake, that 385 00:20:04,440 --> 00:20:06,600 Speaker 1: you know, once the supply chains get disrupted, that can 386 00:20:06,640 --> 00:20:10,560 Speaker 1: really kind of reverberate through uh, through a lot of 387 00:20:10,560 --> 00:20:14,560 Speaker 1: sections econmy So it's not clear that, um, yeah, I 388 00:20:14,560 --> 00:20:16,680 Speaker 1: think there's a good kid to be made that you know, 389 00:20:16,840 --> 00:20:20,399 Speaker 1: sort of rapidly erecting tariffs would uh, you know, it 390 00:20:20,400 --> 00:20:23,560 Speaker 1: could be pretty disruptive. I mean that really goes back 391 00:20:23,600 --> 00:20:25,040 Speaker 1: to one of the one of the hearts of the 392 00:20:25,040 --> 00:20:28,760 Speaker 1: selection and the linkage into your world, Michael faroli is, 393 00:20:28,760 --> 00:20:32,119 Speaker 1: is the idea of new protectionalism, and around that the 394 00:20:32,280 --> 00:20:36,480 Speaker 1: idea of neo mercantilism, which can be defined eight ways. Folks, 395 00:20:36,480 --> 00:20:39,040 Speaker 1: it's the Friday, We're not going to do that. All 396 00:20:39,080 --> 00:20:42,359 Speaker 1: it means is a more closed society, a zero sim society, 397 00:20:42,720 --> 00:20:48,480 Speaker 1: a non growthy philosophy. Is that where we're heading. I 398 00:20:48,520 --> 00:20:51,280 Speaker 1: don't know, so certainly there was a lot of chatter 399 00:20:51,440 --> 00:20:56,320 Speaker 1: that not just chatter during the campaign. Um, it seems 400 00:20:56,400 --> 00:20:59,240 Speaker 1: like that has not been talked about quite as much 401 00:21:01,119 --> 00:21:03,520 Speaker 1: since the election. Another thing I would say is that 402 00:21:03,520 --> 00:21:05,560 Speaker 1: that doesn't seem to be a big priority of Congress 403 00:21:05,760 --> 00:21:09,280 Speaker 1: uh enacting new tariffs. Now, there are you know a 404 00:21:09,320 --> 00:21:12,040 Speaker 1: lot of gray areas in terms of where Congress and 405 00:21:12,080 --> 00:21:16,159 Speaker 1: the President can act in terms of trade policy. Um, 406 00:21:16,200 --> 00:21:20,399 Speaker 1: But in things that are going to fall into Congress, Uh, 407 00:21:20,560 --> 00:21:22,320 Speaker 1: we don't see that, you know, big sea change in 408 00:21:22,440 --> 00:21:25,480 Speaker 1: terms of the attitudes towards TORD trade. I mean, even 409 00:21:25,520 --> 00:21:27,639 Speaker 1: with TPP, we are already seeing some of that step 410 00:21:27,680 --> 00:21:33,160 Speaker 1: back before the election. UM. So we're not expecting openness, 411 00:21:33,200 --> 00:21:35,280 Speaker 1: of course, but but we don't see commerce kind of 412 00:21:35,480 --> 00:21:38,720 Speaker 1: rushing to to enact the legislatively that would that would 413 00:21:38,760 --> 00:21:42,080 Speaker 1: tear to Michael. To get us to our next section. 414 00:21:42,160 --> 00:21:45,080 Speaker 1: Are the dots moving? Everything else seems to be moving, 415 00:21:45,119 --> 00:21:49,040 Speaker 1: including the ground underbe Are the dots moving in real time? 416 00:21:50,119 --> 00:21:53,640 Speaker 1: I don't. Well, we still have a couple of weeks 417 00:21:53,640 --> 00:21:58,600 Speaker 1: ago evidence things can change, But you know, I'm not 418 00:21:58,720 --> 00:22:00,359 Speaker 1: not convinced that the dots are going to move. So 419 00:22:00,400 --> 00:22:03,679 Speaker 1: on the one hand, some may choose some on the 420 00:22:03,680 --> 00:22:08,600 Speaker 1: committee may choose to incorporate some added fiscal thrust into 421 00:22:08,640 --> 00:22:11,919 Speaker 1: their outlook for next year and beyond. Others may not 422 00:22:11,960 --> 00:22:14,720 Speaker 1: have sounded like yes, sir Terry Yellen was kind of 423 00:22:14,760 --> 00:22:19,359 Speaker 1: taking weights the attitude. Um. On the other hand, we've 424 00:22:19,359 --> 00:22:24,360 Speaker 1: had a I would say, um, kind of material tightening 425 00:22:24,359 --> 00:22:27,359 Speaker 1: in some financial conditions over the past week and a half. 426 00:22:27,400 --> 00:22:31,480 Speaker 1: In particular, the dollar has moved, as I checked, about 427 00:22:31,520 --> 00:22:34,280 Speaker 1: four percent, and that's you know, that does impact not 428 00:22:34,359 --> 00:22:36,639 Speaker 1: only growth, but but inflation. It pushes them away from 429 00:22:36,640 --> 00:22:39,879 Speaker 1: them from the branded on inflation. Michael Frowley was JP Morgan. 430 00:22:39,960 --> 00:22:43,080 Speaker 1: They put out in a clay note Friday afternoons must 431 00:22:43,160 --> 00:22:46,200 Speaker 1: read on the street. And I do hope Michael, at 432 00:22:46,240 --> 00:22:50,359 Speaker 1: some point your team puts their heads together about the 433 00:22:50,359 --> 00:22:55,280 Speaker 1: conundrum of inflation adjusted wages. Tell us about the dynamic 434 00:22:55,720 --> 00:22:59,080 Speaker 1: if inflation rises, rates up, dollar stronger. I get it. All. 435 00:22:59,800 --> 00:23:04,120 Speaker 1: If inflation rises, is it just a given that nominal 436 00:23:04,200 --> 00:23:08,440 Speaker 1: wages rise as well, so the real wage stays equal 437 00:23:08,800 --> 00:23:13,479 Speaker 1: or even the real wage increases. Uh. I don't think 438 00:23:13,480 --> 00:23:15,920 Speaker 1: it's given, certainly in the short run, and we've seen 439 00:23:15,920 --> 00:23:18,600 Speaker 1: this over you know, the last few years. Is when 440 00:23:18,680 --> 00:23:22,359 Speaker 1: you get moves and headline inflation that can tend to 441 00:23:22,400 --> 00:23:25,080 Speaker 1: be more volatile than than moves nominal wages that can 442 00:23:25,080 --> 00:23:28,280 Speaker 1: depress real wages. But you know, over the long run, 443 00:23:28,440 --> 00:23:30,800 Speaker 1: theory would suggest that real wages should grow in line 444 00:23:30,800 --> 00:23:34,320 Speaker 1: with labor productivity, which has been um as you know, 445 00:23:34,480 --> 00:23:37,560 Speaker 1: not doing so well. And and for that reason, perhaps 446 00:23:37,640 --> 00:23:40,560 Speaker 1: the kind of nominal wage boogie that that one should 447 00:23:40,560 --> 00:23:44,520 Speaker 1: expect when things are you know, operating as they should 448 00:23:44,600 --> 00:23:46,560 Speaker 1: at full you know, full employment might be quite a 449 00:23:46,600 --> 00:23:48,919 Speaker 1: bit lower than it was. You know, what we used 450 00:23:48,960 --> 00:23:50,520 Speaker 1: to think when we grew up, when we when we 451 00:23:50,560 --> 00:23:54,480 Speaker 1: thought maybe nominal wages consistent with two percent inflation should 452 00:23:54,520 --> 00:23:58,120 Speaker 1: be four percent. Maybe now nominal wages wage growth should 453 00:23:58,160 --> 00:24:01,359 Speaker 1: be more like three percent, because productivity growth just isn't 454 00:24:01,440 --> 00:24:03,800 Speaker 1: the same as it was a decade or two ago. 455 00:24:04,160 --> 00:24:05,800 Speaker 1: I just want to interject here. We're getting some news 456 00:24:05,840 --> 00:24:08,000 Speaker 1: crossing the bloomberg here about Donald Trump's picked to head 457 00:24:08,040 --> 00:24:11,000 Speaker 1: the c I. A representative Mike Pompeio said to be 458 00:24:11,359 --> 00:24:13,760 Speaker 1: tapped by Trump to head the Central Intelligence Agency. He 459 00:24:13,800 --> 00:24:16,679 Speaker 1: is a congressman from Kansas, the fourth district in Kansas, 460 00:24:16,720 --> 00:24:20,879 Speaker 1: which encompasses Wichita. Graduate of Harvard Law School, worked at 461 00:24:20,920 --> 00:24:24,080 Speaker 1: Williams and Connolly Army veteran as well. Again. Frank Pompeo 462 00:24:24,320 --> 00:24:26,280 Speaker 1: reportedly picked here by Donald Trump to be the head 463 00:24:26,320 --> 00:24:28,480 Speaker 1: of the CIA. Michael, let me ask you about what 464 00:24:28,480 --> 00:24:32,240 Speaker 1: we heard yesterday from Janet Yellen on Capitol Hill, tom 465 00:24:32,280 --> 00:24:35,160 Speaker 1: asking about inflation. What's your sense of how fast inflation 466 00:24:35,200 --> 00:24:37,080 Speaker 1: will will rise here in the new year, And did 467 00:24:37,119 --> 00:24:39,840 Speaker 1: Janet Yellen say anything about the pace of rate increases 468 00:24:39,960 --> 00:24:45,040 Speaker 1: in two thousand seventeen UM. So, we've been looking for 469 00:24:45,080 --> 00:24:49,800 Speaker 1: inflation to continue moving higher. We think core PC inflation 470 00:24:49,800 --> 00:24:52,320 Speaker 1: gets a two percent by year end. You know, the 471 00:24:52,320 --> 00:24:58,200 Speaker 1: markets obviously had a big change of heart or big 472 00:24:58,280 --> 00:25:00,800 Speaker 1: change of views lately on inflation. Not sure really what 473 00:25:01,200 --> 00:25:04,080 Speaker 1: what would justify that given what we see are likely 474 00:25:04,119 --> 00:25:06,200 Speaker 1: going to be pretty modest changes in the growth outlook 475 00:25:06,280 --> 00:25:10,320 Speaker 1: next year, given the the fiscal policy back drops, So uh, 476 00:25:10,520 --> 00:25:12,480 Speaker 1: we could always see inflation break a little bit higher 477 00:25:12,480 --> 00:25:14,320 Speaker 1: than that. We certainly are. I think there's a lot 478 00:25:14,320 --> 00:25:17,640 Speaker 1: of evidence we're close to full employment, UM. But also 479 00:25:17,920 --> 00:25:19,880 Speaker 1: we just don't know what the composition said is gonna 480 00:25:19,880 --> 00:25:21,840 Speaker 1: look like in in in a year or two, and 481 00:25:22,160 --> 00:25:24,080 Speaker 1: are they going to be more hawkish or dubbish. I 482 00:25:24,280 --> 00:25:27,040 Speaker 1: don't think anyone has a good sense. But in terms 483 00:25:27,119 --> 00:25:30,840 Speaker 1: of yelling signaling for next year, she she's stuck with 484 00:25:30,920 --> 00:25:35,480 Speaker 1: the gradual pace uh, and once again defended it by 485 00:25:35,920 --> 00:25:38,200 Speaker 1: referencing what me and Tom were talking about earlier, which 486 00:25:38,240 --> 00:25:41,400 Speaker 1: is this idea that neutral rates are probably pretty low, 487 00:25:41,480 --> 00:25:43,320 Speaker 1: and so that the distance they have to go to 488 00:25:43,400 --> 00:25:47,359 Speaker 1: get uh the overnight and just right back to normal 489 00:25:47,480 --> 00:25:50,160 Speaker 1: is actually not all that great. So she she said, 490 00:25:50,240 --> 00:25:54,440 Speaker 1: you know, for seventeen probably um, not a very fast 491 00:25:54,440 --> 00:25:59,520 Speaker 1: paced pace of rate. You highlight the conundrum. Whatever anybody's politics, 492 00:26:00,160 --> 00:26:05,040 Speaker 1: which is Cherry Yellen's normal or Michael Faroli's normal, is 493 00:26:05,080 --> 00:26:09,840 Speaker 1: not the president alex normal. He has a mandate, in 494 00:26:10,520 --> 00:26:15,720 Speaker 1: a clear mandate, to do better than normal, doesn't he. Well, 495 00:26:15,760 --> 00:26:19,919 Speaker 1: he's talked about getting four GDP growth real GDP growth 496 00:26:20,200 --> 00:26:25,359 Speaker 1: um as his normal, and uh, I wish him luck. Um. 497 00:26:25,720 --> 00:26:27,439 Speaker 1: It's I think there are some of these things that 498 00:26:27,480 --> 00:26:31,520 Speaker 1: are very hard for policy to change, demographics being the 499 00:26:31,520 --> 00:26:34,840 Speaker 1: most obvious, but then even productivity growth is a bit 500 00:26:34,840 --> 00:26:38,360 Speaker 1: of a mystery where new ideas and new technology come from. 501 00:26:38,640 --> 00:26:40,280 Speaker 1: You know, I think we know there are certain policies 502 00:26:40,320 --> 00:26:43,480 Speaker 1: that can encourage it, but you know R and D 503 00:26:43,600 --> 00:26:46,560 Speaker 1: tax credits and so so on, but they're not guaranteed 504 00:26:46,600 --> 00:26:48,520 Speaker 1: to deliver it, and certainly not guaranteed to deliver it 505 00:26:48,560 --> 00:26:52,800 Speaker 1: in a short time span. So yeah, Michael, thank you 506 00:26:52,840 --> 00:26:55,359 Speaker 1: so much. Michael far Eli on this Friday morning with 507 00:26:55,480 --> 00:26:59,639 Speaker 1: great great news flow as well. He is with JP Morgan, 508 00:27:09,119 --> 00:27:12,520 Speaker 1: who you put your trust in matters. Investors have put 509 00:27:12,520 --> 00:27:16,560 Speaker 1: their trust in independent registered investment advisors to the tune 510 00:27:16,560 --> 00:27:20,080 Speaker 1: of four trillion dollars. Why they see their roles to serve, 511 00:27:20,359 --> 00:27:23,720 Speaker 1: not sell. That's why Charles Schwab is committed to the 512 00:27:23,800 --> 00:27:29,920 Speaker 1: success over seven thousand independent financial advisors who passionately dedicate 513 00:27:30,000 --> 00:27:34,720 Speaker 1: themselves to helping people achieve their financial goals. Learn more 514 00:27:35,280 --> 00:27:44,560 Speaker 1: and find your independent advisor dot com. David Gura in 515 00:27:44,600 --> 00:27:47,680 Speaker 1: New York, Tom Keene in London, Bloomick Surveillance on Bloomberg Radio. 516 00:27:48,520 --> 00:27:51,920 Speaker 1: We're getting reports that James Bullard, president and CEO of 517 00:27:51,960 --> 00:27:54,680 Speaker 1: the St. Louis Fed in Germany, speaking with our colleague 518 00:27:54,680 --> 00:27:57,560 Speaker 1: Matt Miller, talking about low productivity. Let's see what he 519 00:27:57,640 --> 00:28:01,159 Speaker 1: had to say. It's really really low compared to what 520 00:28:01,240 --> 00:28:05,600 Speaker 1: it was historically. And uh, you know what exactly is 521 00:28:05,680 --> 00:28:08,239 Speaker 1: driving down as a subject of research, but but just 522 00:28:08,320 --> 00:28:11,080 Speaker 1: for purposes of thinking about the next two years or 523 00:28:11,119 --> 00:28:14,359 Speaker 1: two and a half years, our approaches that probably that 524 00:28:14,400 --> 00:28:18,200 Speaker 1: will continue going forward, probably will still see a slow 525 00:28:18,240 --> 00:28:22,000 Speaker 1: productivity growth. Some of these programs, some of those fiscal change, 526 00:28:22,600 --> 00:28:27,200 Speaker 1: physical initiatives, might help productivity go higher, but we'll we'll 527 00:28:27,200 --> 00:28:30,600 Speaker 1: see as this thing develops. There's a lot of ifs 528 00:28:30,640 --> 00:28:32,679 Speaker 1: in your statements. There's a lot you know, at this 529 00:28:32,720 --> 00:28:35,280 Speaker 1: point we're very early on and as what do you 530 00:28:35,320 --> 00:28:38,160 Speaker 1: see they but do you see the risks to the 531 00:28:38,240 --> 00:28:41,480 Speaker 1: upside or the risks to the downside? Looking at say 532 00:28:41,520 --> 00:28:44,040 Speaker 1: the dot plot in two thousand seventeen. You know, even 533 00:28:44,040 --> 00:28:46,680 Speaker 1: if a lot of I know markets are talking about well, 534 00:28:46,720 --> 00:28:50,280 Speaker 1: maybe the FED would raise rates faster than previously expected. 535 00:28:50,720 --> 00:28:52,920 Speaker 1: But it's supposed we did that, that would be a 536 00:28:53,000 --> 00:28:55,600 Speaker 1: reaction to faster growth, that would be a reaction to 537 00:28:55,680 --> 00:28:59,440 Speaker 1: faster inflation. It would be appropriate monetary policy given those 538 00:28:59,560 --> 00:29:03,120 Speaker 1: those kind of development. So I think I'd like to 539 00:29:03,160 --> 00:29:07,480 Speaker 1: make a distinction between an appropriate monetary policy that's responding 540 00:29:07,520 --> 00:29:10,120 Speaker 1: to things that are going on in the economy versus 541 00:29:10,440 --> 00:29:13,520 Speaker 1: h we're just raising rates even though the forecast hasn't 542 00:29:13,600 --> 00:29:17,000 Speaker 1: changed so um, so I think if we got into 543 00:29:18,040 --> 00:29:20,720 Speaker 1: a faster rate rise environment, it would be for good reasons. 544 00:29:20,960 --> 00:29:23,640 Speaker 1: Let me ask about some things, uh, that we've seen 545 00:29:23,680 --> 00:29:26,760 Speaker 1: in the markets. That dollar strength has been incredible lately 546 00:29:26,800 --> 00:29:28,880 Speaker 1: on the d X, y up over a hundred um. 547 00:29:28,920 --> 00:29:32,200 Speaker 1: The euro weakness. I think this is the longest streak 548 00:29:32,320 --> 00:29:35,240 Speaker 1: of daily drops for the euro against the dollar in 549 00:29:35,360 --> 00:29:39,080 Speaker 1: the history of the single currency. Does that concern you 550 00:29:39,120 --> 00:29:42,720 Speaker 1: the speed with which we're seeing these assets fluctuate. Uh, 551 00:29:42,760 --> 00:29:47,520 Speaker 1: there has been some volatility post election that the tenure 552 00:29:47,560 --> 00:29:50,360 Speaker 1: has come up, tenure yield has come up. But if 553 00:29:50,400 --> 00:29:52,400 Speaker 1: you look at it in a bigger picture, over the 554 00:29:52,480 --> 00:29:55,960 Speaker 1: last year since the Fed first made a move on 555 00:29:56,080 --> 00:29:58,760 Speaker 1: the policy rate, you know, really we're coming back to 556 00:29:58,960 --> 00:30:03,520 Speaker 1: levels that are consisting with December, and so that gives 557 00:30:03,560 --> 00:30:07,920 Speaker 1: me some comfort that, uh, this these kinds of prices 558 00:30:07,960 --> 00:30:10,480 Speaker 1: are probably not out of line. So basically what happened 559 00:30:10,560 --> 00:30:16,120 Speaker 1: was we raised rates in the dollar. Actually during actually 560 00:30:16,160 --> 00:30:20,240 Speaker 1: fell and the yields fell, but almost seventy bases points 561 00:30:20,240 --> 00:30:22,320 Speaker 1: contrary to what the Fed was trying to do, which 562 00:30:22,440 --> 00:30:24,840 Speaker 1: was the opposite of what you would have thought. But 563 00:30:24,920 --> 00:30:27,239 Speaker 1: now we're coming back up to those previous levels. So 564 00:30:27,800 --> 00:30:30,880 Speaker 1: and a lot of that is expected inflation, which has 565 00:30:30,920 --> 00:30:33,760 Speaker 1: been too low. And so to the extent it's been 566 00:30:33,840 --> 00:30:37,440 Speaker 1: moving expected inflation closer to our two percent target, I 567 00:30:37,440 --> 00:30:39,880 Speaker 1: think that's encouraging from a central banker's point of view. 568 00:30:39,920 --> 00:30:43,240 Speaker 1: So at least as of today, looking at the data, 569 00:30:43,280 --> 00:30:47,080 Speaker 1: as of today, these moves are not uh, not shocking. 570 00:30:47,880 --> 00:30:50,280 Speaker 1: That was St. Louis FED President James Bullard speaking to 571 00:30:50,280 --> 00:30:53,160 Speaker 1: our colleague Matt Miller and Frankfort earlier today. This is 572 00:30:53,200 --> 00:30:55,920 Speaker 1: Bloombrick Surveillance, brought you by Commonwealth Financial Network. When it's 573 00:30:55,920 --> 00:30:58,240 Speaker 1: time to change the conversation, talk with the broker dealer 574 00:30:58,360 --> 00:31:00,680 Speaker 1: r I A that's ready to listen eight six six 575 00:31:00,680 --> 00:31:02,520 Speaker 1: four or six two three six three eight or visit 576 00:31:02,560 --> 00:31:04,800 Speaker 1: Commonwealth dot com to learn more. I want to bring 577 00:31:04,800 --> 00:31:08,480 Speaker 1: you Lny Shulativa Bloomberg Intelligence joining us now. She us 578 00:31:08,480 --> 00:31:11,400 Speaker 1: economist at at Bloomberg Intelligence. And later just react a 579 00:31:11,400 --> 00:31:13,680 Speaker 1: bit to what James Bullard had to say there, especially 580 00:31:13,680 --> 00:31:19,000 Speaker 1: when it comes to productivity. Absolutely so a lot of sets, 581 00:31:19,080 --> 00:31:23,440 Speaker 1: because not just James Board, but many of them already 582 00:31:23,480 --> 00:31:28,040 Speaker 1: told us that they're really concerned about productivity. Uh, that's 583 00:31:28,080 --> 00:31:33,000 Speaker 1: why they see potential growth being lower this time around, 584 00:31:33,200 --> 00:31:38,360 Speaker 1: and that's why the neutral rate is lower. So that's 585 00:31:38,360 --> 00:31:42,040 Speaker 1: a big concern. And and and obviously they hope that 586 00:31:43,080 --> 00:31:48,280 Speaker 1: new um policy, new fiscal stimulus that hopefully we're gonna 587 00:31:48,840 --> 00:31:53,400 Speaker 1: get at sometime next year, will help with low productivity. 588 00:31:53,720 --> 00:31:58,800 Speaker 1: But this kinds of similus. They take time. They take 589 00:31:58,840 --> 00:32:02,240 Speaker 1: time because first of all, they need we need the details, 590 00:32:02,320 --> 00:32:06,000 Speaker 1: and we need time to England. Okay, well said Elena. 591 00:32:06,320 --> 00:32:08,640 Speaker 1: What I think is the debate here, and folks, we 592 00:32:08,680 --> 00:32:11,080 Speaker 1: had some great interviews on this Good Morning Steve Major 593 00:32:11,520 --> 00:32:14,840 Speaker 1: and the team at HSBC. Is this a one off 594 00:32:15,120 --> 00:32:19,000 Speaker 1: level change whatever you're looking at, and then we sustain 595 00:32:19,480 --> 00:32:23,240 Speaker 1: that level change or is it a one off level 596 00:32:23,640 --> 00:32:26,840 Speaker 1: change and we dampened back to where we were pre 597 00:32:26,960 --> 00:32:32,640 Speaker 1: the election? Which is it? I think it's Uh, it's 598 00:32:32,720 --> 00:32:38,120 Speaker 1: moll a continued growth and expectations for the economy to 599 00:32:39,680 --> 00:32:43,200 Speaker 1: grow at a higher rate. First of all, it's not 600 00:32:43,320 --> 00:32:48,840 Speaker 1: just the fiscal stimulates that will probably boost growth. Remember 601 00:32:48,840 --> 00:32:54,200 Speaker 1: we're approaching full employment, and the economy by itself will 602 00:32:54,920 --> 00:32:59,080 Speaker 1: you know, grow more, will grow faster just just because 603 00:32:59,120 --> 00:33:04,400 Speaker 1: of the fund mental Really Uh, income growth will pick up. 604 00:33:04,920 --> 00:33:09,280 Speaker 1: That's our foecust for next year, and consumer spending will 605 00:33:09,320 --> 00:33:13,800 Speaker 1: need to provide the growth breach until infrastructure spending kicks in. 606 00:33:14,800 --> 00:33:19,160 Speaker 1: Do you have any increase in investment spending with your 607 00:33:19,320 --> 00:33:24,800 Speaker 1: enthusiasm about the consumer? I think that will take time 608 00:33:24,840 --> 00:33:30,920 Speaker 1: to materialize. Obviously, uncertainty has increased right after the election, 609 00:33:31,040 --> 00:33:35,160 Speaker 1: but then it kind of sell and uh ass as 610 00:33:35,200 --> 00:33:38,440 Speaker 1: long as we find out more about the ciscal plan 611 00:33:38,600 --> 00:33:43,880 Speaker 1: and as the details start to emerge, we're gonna businesses 612 00:33:43,960 --> 00:33:49,360 Speaker 1: will feel better about investing, about hiring people. In the 613 00:33:49,480 --> 00:33:53,600 Speaker 1: meantime though, it's it's all up to the consumer. Yeah, 614 00:33:53,680 --> 00:33:56,080 Speaker 1: just very quickly here, How in line is James Bullard 615 00:33:56,120 --> 00:33:58,040 Speaker 1: sense of timing with with Janet Yellens from what we 616 00:33:58,080 --> 00:34:04,000 Speaker 1: heard yesterday in terms of of hikes for the new year, Yes, 617 00:34:04,640 --> 00:34:09,800 Speaker 1: I think well, James Bullards dot we basically we knew 618 00:34:10,040 --> 00:34:12,400 Speaker 1: where he was, right, He told us where he was 619 00:34:12,480 --> 00:34:16,040 Speaker 1: one hike this year and then flat there upter So 620 00:34:16,640 --> 00:34:20,239 Speaker 1: he's in line with what the consensus of the committee 621 00:34:20,719 --> 00:34:25,600 Speaker 1: is expecting this year. But we'll see, Yeah, he's I 622 00:34:25,600 --> 00:34:28,320 Speaker 1: think he's not a boat the next year, right, Okay, 623 00:34:29,360 --> 00:34:31,480 Speaker 1: Elena will have to leave it there. Elena Scholeva with 624 00:34:31,640 --> 00:34:47,399 Speaker 1: us at Bloomberg Economics. We're gonna finish our last half 625 00:34:47,440 --> 00:34:50,080 Speaker 1: hour here in London, and David I might mention, we 626 00:34:50,160 --> 00:34:53,200 Speaker 1: finished strong with Yakholm Fell's of Pimco. We've got a 627 00:34:53,239 --> 00:34:57,680 Speaker 1: surprise last guest which really captures the fabric and emotion 628 00:34:57,719 --> 00:35:01,000 Speaker 1: of this London post Brexit, but of Yakom fells On 629 00:35:01,560 --> 00:35:05,000 Speaker 1: is profoundly important after the key debate here in London 630 00:35:05,040 --> 00:35:08,400 Speaker 1: this week, Yakom fells you have been one of the 631 00:35:08,400 --> 00:35:13,000 Speaker 1: most articulate voices in thinking about the breakup of Europe. 632 00:35:13,160 --> 00:35:16,480 Speaker 1: Algersh Meeting earlier this week with Baron Bank was adamant 633 00:35:17,160 --> 00:35:20,960 Speaker 1: that the German model everybody be responsible and do your 634 00:35:20,960 --> 00:35:24,360 Speaker 1: domestic economy can work. And David folcus Land out of 635 00:35:24,400 --> 00:35:27,920 Speaker 1: Deutsche Bank just flat out disagreeing and saying Italy is 636 00:35:27,920 --> 00:35:31,400 Speaker 1: in severe problem and the I m F may have 637 00:35:31,480 --> 00:35:33,799 Speaker 1: to come in and assist. You're one of the leading 638 00:35:33,840 --> 00:35:37,560 Speaker 1: of voices on this. Which way will this cut? Well? Look, 639 00:35:37,600 --> 00:35:40,239 Speaker 1: tom As Meeting is a good old friend of mine, 640 00:35:40,280 --> 00:35:42,320 Speaker 1: we worked together more than thirty years ago. But I 641 00:35:42,640 --> 00:35:46,240 Speaker 1: disagree with him on this one um. And the reason 642 00:35:46,400 --> 00:35:49,680 Speaker 1: is that I think the politics of Europe has changed 643 00:35:49,960 --> 00:35:53,319 Speaker 1: over the past year, and what we've seen in in 644 00:35:53,440 --> 00:35:55,720 Speaker 1: the UK with the Brexit vote and in the US 645 00:35:55,840 --> 00:35:58,880 Speaker 1: with Trump being elected. I think that's just a taste 646 00:35:58,920 --> 00:36:02,040 Speaker 1: of things to come in Europe. And the reason why 647 00:36:02,120 --> 00:36:06,160 Speaker 1: Europe held together in the past, and why each crisis 648 00:36:06,280 --> 00:36:09,640 Speaker 1: was followed by a step towards more integration, it was 649 00:36:09,680 --> 00:36:12,400 Speaker 1: simply that there was the political will to make this 650 00:36:12,520 --> 00:36:15,360 Speaker 1: work and to hold together. And I think what's happening 651 00:36:15,760 --> 00:36:19,600 Speaker 1: in in countries like France, in the Netherlands and in 652 00:36:19,640 --> 00:36:24,880 Speaker 1: Germany UH means that this will to keep things together 653 00:36:24,960 --> 00:36:28,600 Speaker 1: is no longer there. Governments. Established governments are under pressure 654 00:36:28,760 --> 00:36:32,920 Speaker 1: from populist movements and that's why I worry that if 655 00:36:33,040 --> 00:36:36,160 Speaker 1: and when the next crisis hits, the euro may actually 656 00:36:36,280 --> 00:36:39,440 Speaker 1: break up. David, I find this just extraordinary to hear 657 00:36:39,520 --> 00:36:42,120 Speaker 1: this from doctor Fills. Yeah, you saw it though in 658 00:36:42,120 --> 00:36:44,160 Speaker 1: acute focus, though, Doctor Fels when you when you looked 659 00:36:44,200 --> 00:36:46,680 Speaker 1: at the images of President Obama in Europe this week, 660 00:36:46,719 --> 00:36:49,120 Speaker 1: meeting with the Chancellor angel A Mercal, meeting with Premister 661 00:36:49,200 --> 00:36:52,839 Speaker 1: Lexacy prison in Greece, He's delivering one message. I think 662 00:36:52,840 --> 00:36:55,360 Speaker 1: there are those who are open to hearing his message, 663 00:36:55,360 --> 00:36:57,200 Speaker 1: but there is an awareness in Europe at the times 664 00:36:57,200 --> 00:37:02,080 Speaker 1: have changed. Yes, absolutely, and I think you know Europe 665 00:37:02,120 --> 00:37:04,560 Speaker 1: is now out on its own because they cannot be 666 00:37:04,640 --> 00:37:09,000 Speaker 1: sure that they still have an ally in the United States. Uh, 667 00:37:09,040 --> 00:37:13,839 Speaker 1: they're very tricky negotiations coming with the UK on on Brexit. Um. 668 00:37:13,880 --> 00:37:18,000 Speaker 1: And again governments are under pressure from populist movements. And 669 00:37:18,040 --> 00:37:20,160 Speaker 1: as you know, we have a series of elections coming 670 00:37:20,239 --> 00:37:24,200 Speaker 1: up next year. This December, we have the Italian vote 671 00:37:24,239 --> 00:37:27,400 Speaker 1: on the constitutional reform. We have an Austrian presidential election 672 00:37:27,520 --> 00:37:31,440 Speaker 1: that may see a nationalist president who is anti immigration 673 00:37:31,520 --> 00:37:34,359 Speaker 1: and anti you come into power. And then we have 674 00:37:34,440 --> 00:37:38,000 Speaker 1: the Dutch, the French and the German elections next year 675 00:37:38,040 --> 00:37:42,399 Speaker 1: in March, May and September. So I think the risk 676 00:37:42,480 --> 00:37:46,520 Speaker 1: premium on European assets is likely to rise, um, and 677 00:37:46,560 --> 00:37:48,560 Speaker 1: it's not going to be comfortable. What is the argum 678 00:37:48,600 --> 00:37:52,319 Speaker 1: falls outlook for for oars of a recession you mean 679 00:37:52,360 --> 00:37:55,480 Speaker 1: in Europe? Yes, I don't think your recession is on 680 00:37:55,520 --> 00:37:59,239 Speaker 1: the table because the ECB is very supportive. Um. What 681 00:37:59,280 --> 00:38:01,560 Speaker 1: we've seen after the US election is that the euro 682 00:38:01,640 --> 00:38:05,520 Speaker 1: has weakened versus the dollar and some other currencies, so 683 00:38:05,560 --> 00:38:08,480 Speaker 1: that will help export US. No, I think Europe, the 684 00:38:08,520 --> 00:38:12,160 Speaker 1: European economy is likely to bump sideways in a range 685 00:38:12,160 --> 00:38:14,680 Speaker 1: of around one to one point five pc growth. So 686 00:38:14,800 --> 00:38:16,960 Speaker 1: recession is not the thing I worry about. What I 687 00:38:17,000 --> 00:38:20,759 Speaker 1: really worry about is the fabric and political fabric of Europe. Well, 688 00:38:20,760 --> 00:38:24,480 Speaker 1: I'm glad you mentioned the political fabric without question. Um, 689 00:38:24,640 --> 00:38:28,920 Speaker 1: Yakom on surveillance today the image this was on Bloomberg television, folks, 690 00:38:29,000 --> 00:38:31,839 Speaker 1: and you'd be amazed, folks, how we try to get 691 00:38:31,920 --> 00:38:34,600 Speaker 1: lucky with the video footage that comes in and we 692 00:38:34,719 --> 00:38:36,759 Speaker 1: fly with it in real time. And there we were 693 00:38:37,400 --> 00:38:40,200 Speaker 1: Yacom fells with waiting for the camera in there in 694 00:38:40,239 --> 00:38:43,360 Speaker 1: my years saying it's troops marching and this that the 695 00:38:43,400 --> 00:38:46,880 Speaker 1: other thing. And right as we went to the tape, 696 00:38:47,320 --> 00:38:52,359 Speaker 1: we had Chancellor Miracles standing alone saying goodbye to President Obama. 697 00:38:53,000 --> 00:38:55,480 Speaker 1: Is it your sense? Is one of our great watchers 698 00:38:55,520 --> 00:38:58,279 Speaker 1: on Germany. This is a changing of the tide for 699 00:38:58,360 --> 00:39:01,280 Speaker 1: Europe and for Germany. As we see a new president 700 00:39:01,360 --> 00:39:04,719 Speaker 1: in the US. Well, we'll have to see what what 701 00:39:04,920 --> 00:39:08,040 Speaker 1: his policies will be. But um, I think there is 702 00:39:08,080 --> 00:39:12,040 Speaker 1: at least a possibility that you know Trump will turn 703 00:39:12,160 --> 00:39:14,920 Speaker 1: more or that the US will turn more inward looking. 704 00:39:15,920 --> 00:39:19,600 Speaker 1: Europe has always relied on the United States as as 705 00:39:19,680 --> 00:39:24,319 Speaker 1: as a very strong ally. Um Trump has seemingly good 706 00:39:24,320 --> 00:39:27,440 Speaker 1: relationships to Russia to put in, I think that warries 707 00:39:27,600 --> 00:39:30,120 Speaker 1: some people in Europe. So yeah, I think it's a 708 00:39:30,160 --> 00:39:32,399 Speaker 1: turning of the tide. We'll have to see how how 709 00:39:32,560 --> 00:39:37,640 Speaker 1: US foreign policy evolves, but I think what is clear 710 00:39:37,719 --> 00:39:40,440 Speaker 1: is that Europe will have to take a tougher stance 711 00:39:40,480 --> 00:39:43,320 Speaker 1: on its own. And I think it is clear to 712 00:39:43,400 --> 00:39:46,160 Speaker 1: governments that they will have to raise defense spending because 713 00:39:46,200 --> 00:39:48,560 Speaker 1: this is something that that that that Trump wants to see. 714 00:39:48,760 --> 00:39:52,080 Speaker 1: The tide turns into the gravitational force of president like 715 00:39:52,160 --> 00:39:54,719 Speaker 1: Donald Trump. When it comes to the federal reserve, how 716 00:39:54,760 --> 00:39:58,200 Speaker 1: do you begin to forecast out think about what the economy, 717 00:39:58,239 --> 00:40:01,920 Speaker 1: the US economy looks like with a radically re envisioned 718 00:40:01,920 --> 00:40:06,719 Speaker 1: federal Reserve. Well, I think that the key thing to 719 00:40:06,920 --> 00:40:09,560 Speaker 1: watch is what we will actually get in terms of 720 00:40:09,600 --> 00:40:13,600 Speaker 1: fiscal expansion in the US. So will we really see 721 00:40:13,680 --> 00:40:16,480 Speaker 1: the big tax cuts that Trump has been talking about? 722 00:40:17,160 --> 00:40:21,000 Speaker 1: Will we see higher infrastructure spending? My guesses will get 723 00:40:21,840 --> 00:40:25,200 Speaker 1: both of it, and that means the landscape for monetary 724 00:40:25,200 --> 00:40:28,680 Speaker 1: policy for the FED has has has really changed. UM. 725 00:40:28,719 --> 00:40:32,360 Speaker 1: I think it is is almost impossible to conceive a 726 00:40:32,440 --> 00:40:36,000 Speaker 1: situation where you get very expansionary fiscal policy and a 727 00:40:36,120 --> 00:40:40,040 Speaker 1: FED that hikes interest rates more aggressively or even starts 728 00:40:40,080 --> 00:40:43,160 Speaker 1: to uh starts to to to reduce its balance sheet, 729 00:40:43,560 --> 00:40:46,200 Speaker 1: which is something that is being discussed, because that would 730 00:40:46,239 --> 00:40:48,760 Speaker 1: be a scenario where you would see a very sharp 731 00:40:48,880 --> 00:40:52,960 Speaker 1: increase in interest rates, and that could actually undo the 732 00:40:53,080 --> 00:40:57,040 Speaker 1: consensus in markets that rates will be lower for longer. UM. 733 00:40:57,080 --> 00:41:00,560 Speaker 1: It could drive the dollar to unprecedented tie. We're already 734 00:41:00,560 --> 00:41:02,440 Speaker 1: seeing some of this if you look at if you 735 00:41:02,480 --> 00:41:05,200 Speaker 1: look at the d X Y today, which has has 736 00:41:05,239 --> 00:41:09,480 Speaker 1: moved above on one. So uh, that kind of policy 737 00:41:09,520 --> 00:41:14,839 Speaker 1: would actually fire back because a strong dollar would be 738 00:41:14,880 --> 00:41:18,520 Speaker 1: bad for the US manufacturing sector UM and thus bad 739 00:41:18,640 --> 00:41:23,040 Speaker 1: for the people who voted President Trump into office. Let's 740 00:41:23,080 --> 00:41:25,000 Speaker 1: leave it there, YACOLM. Fels, thank you so much for 741 00:41:25,000 --> 00:41:28,720 Speaker 1: a short visit today. Greatly appreciate your comments on Europe. 742 00:41:28,760 --> 00:41:39,239 Speaker 1: Yulcolm Fells is with Pim Good. Thanks for listening to 743 00:41:39,280 --> 00:41:45,359 Speaker 1: the Bloomberg Surveillance podcast. Subscribe and listen to interviews on iTunes, SoundCloud, 744 00:41:45,760 --> 00:41:50,040 Speaker 1: or whichever podcast platform you prefer. I'm out on Twitter 745 00:41:50,120 --> 00:41:53,920 Speaker 1: at Tom Keene. David Gura is at David Gura. Before 746 00:41:53,920 --> 00:41:58,279 Speaker 1: the podcast, you can always catch us worldwide. I'm Bloomberg Radio. 747 00:42:10,719 --> 00:42:13,399 Speaker 1: Who you put your trust in matters. Investors have put 748 00:42:13,400 --> 00:42:17,759 Speaker 1: their trust and independent registered investment advisors to the two 749 00:42:17,760 --> 00:42:21,399 Speaker 1: and four trillion dollars. Why Learn more at find your 750 00:42:21,480 --> 00:42:24,279 Speaker 1: Independent Advisor dot com