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Speaker 1: Yeah. Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene

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Speaker 1: Jay Leye. We bring you insight from the best in economics, finance, investment,

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Speaker 1: and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud,

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Speaker 1: Bloomberg dot Com, and of course on the Bloomberg. Yeah,

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Speaker 1: it's all been about Turkey and the President's silence this

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Speaker 1: week amid the market blood math was remarkable, and so

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Speaker 1: was his message when he finally reservice President Urduwan, saying,

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Speaker 1: don't forget this. If they have got dollars, we have

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Speaker 1: got our people are right? Are all state media quoting

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Speaker 1: the President as saying that coming from President Urduwan overnight

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Speaker 1: and driving some significant weakness and a fragile global market

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Speaker 1: joining us to discusses. Mark Chander Brown Brothers Harriman, head

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Speaker 1: of Currency Market, morning to you. What a morning. Your

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Speaker 1: thoughts on Turkey please? Yeah. So, I think that there's

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Speaker 1: really Turkeys in the between a rock and hard place.

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Speaker 1: I think there's three possible courses of acting for them,

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Speaker 1: and none of them are very good. First, Turkey could

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Speaker 1: make a bold announcement, and that would be to regain investor.

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Speaker 1: Conference has got to return to the orthodox policies that

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Speaker 1: the investors. That goes with money value and that is

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Speaker 1: giving back the independence of the central bank, raising interest

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Speaker 1: rates sharply, curb inflation, slow down the economy, to bring

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Speaker 1: the current account deficit back into closer balance. They don't

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Speaker 1: want to do that. Let's talk about management. Mark the

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Speaker 1: president Urdwan set to speak in the next hour, what

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Speaker 1: kind of words does he need to drive towards an

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Speaker 1: international audience? And the policies you talk about the central bank,

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Speaker 1: what kind of policy do you want to see at

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Speaker 1: five dred basis point move on short rates? What do

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Speaker 1: you need to see? Well, I I think to regain

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Speaker 1: confidences can't just be about interest rate because think about

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Speaker 1: what's happened plunge in the in the Turkish era, there's

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Speaker 1: no level of interest rate they will compensate and invest

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Speaker 1: it for say a ten percent slide in one week.

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Speaker 1: The kind of overnight interest rate they have seventeen and

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Speaker 1: three quarters percent, that's an annualized rate. We talked about

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Speaker 1: a currentcly as plunging ten percent in the past week.

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Speaker 1: So interest rates aren't you enough. They've got to change policies,

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Speaker 1: but they could also impose capital controls but capital controls

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Speaker 1: are temporary measure just to buy some time to do

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Speaker 1: the right things. Alternatively, they could go to the I

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Speaker 1: m F, but the IMF will demand conditionality which they

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Speaker 1: cannot accept because it requires the return of the orthodox policies.

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Speaker 1: So I think that Turkey is fighting a losing battle,

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Speaker 1: and I think the Turkish there is gonna have to

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Speaker 1: weaken further. Maybe you know we we we said we

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Speaker 1: test the sixth level today after moving about five earlier

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Speaker 1: in the week. I think we might not be on

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Speaker 1: our way towards seven. And then I think then the

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Speaker 1: sort of the crisis mentality default. And this is why

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Speaker 1: you've got the euro making new new loads for the

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Speaker 1: year today and the dollar making new highs for the

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Speaker 1: year as well, and reports coming out of Turkey suggesting

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Speaker 1: that the president now says Tom that Turkey is to

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Speaker 1: prevail in economic warfare. The lyra is prevailing right now.

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Speaker 1: We had to spake up almost touching six. John the

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Speaker 1: last time we were at six lera per dollar. I'm

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Speaker 1: eyeball on this with the official surveillance mouse. And Friday

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Speaker 1: was four fifteen a m. New York time. Yeah, I

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Speaker 1: call it three hours. We've never seen this before. Well, well,

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Speaker 1: we've we've had a better tape over the last two

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Speaker 1: or three hours and had abruptly reversed off the single

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Speaker 1: headline we see at seven zero zero. For anyone not

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Speaker 1: familiar with the situation in Turkey at the moment, in

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Speaker 1: terms of the management of the situation, it is the

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Speaker 1: equivalent of President Trump putting Jared Cushner in charge of

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Speaker 1: the Treasury. That's what's happened. It's the son in law

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Speaker 1: running the treasury in Turkey, right, It's very hard. It's

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Speaker 1: the equivalent. It's the equivalent of the president pushing out

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Speaker 1: j power from the Federal Reserve and running monetary policy himself.

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Speaker 1: I mean, that's how crazy the situation is in Turkey.

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Speaker 1: Here in the United States that isn't familiar with how

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Speaker 1: bad the league this is being managed. And Mark Chandler,

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Speaker 1: there's a real question coming from from Financial Times reporting

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Speaker 1: this morning suggesting now that the ECB is concerned because

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Speaker 1: there are several European banks with exposure to loans in

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Speaker 1: Turkey and those loans are paid in what foreign currency?

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Speaker 1: Does it become a little bit of a problem around

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Speaker 1: the corner. How close are we Mark Well, I think

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Speaker 1: that Uh, the e c B is there, so it's

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Speaker 1: watching things. And we're not talking about systemic risk in Europe.

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Speaker 1: We're talking about a handful of banks with substantial exposure

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Speaker 1: that the most Uh, this is not really effecting the

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Speaker 1: outlook for the European Central Bank monetary policy, which you

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Speaker 1: know is they've indicated not going to raise interest rate

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Speaker 1: for another year. And so of course, the pressure on

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Speaker 1: Turkey it's part of the end. The pressure on the

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Speaker 1: euro today, it's part of a larger picture of this divergence.

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Speaker 1: It's been papering the dollar. In any event, the reason

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Speaker 1: we can make new loans in the euroityas because you're

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Speaker 1: so close to them yesterday, in the day before, in

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Speaker 1: the week before. Mark within your study, and we should

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Speaker 1: point out that Mr Chandler has written two very thoughtful

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Speaker 1: books on the astronomy of the political economic system. I

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Speaker 1: don't think we understand mark interest rates and what that

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Speaker 1: does to a society. How does the society work in

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Speaker 1: a I'm going to guess ten real rate or twelve

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Speaker 1: percent inflation adjusted rate. Yeah, and I think I think

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Speaker 1: you have a right question. I think this is a

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Speaker 1: really the lemon, not only for Turkey, but the other

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Speaker 1: countries and remindine of what Thomas Friedman, his book about

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Speaker 1: the Electors and the Oil Tree, talked about many years ago,

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Speaker 1: and that is that given the mobility of capital, many

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Speaker 1: countries are have the golden street jackets, which they do

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Speaker 1: not pursue orthdox policies, they get punished. And this is

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Speaker 1: what spurs people like Aerogan's nationalism. It's it's it's sort

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Speaker 1: of a battle between piecing investors during the orthodox policies,

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Speaker 1: but at the same time the unorthodox policies they're gonna

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Speaker 1: are leading to high inflation, is going to lead to

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Speaker 1: the weaker economy. It's the people are gonna win. Okay,

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Speaker 1: But but mark, I mean, I mean, folks, it's a

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Speaker 1: log hyperbolic chart. I'll put a whole bunch of charts

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Speaker 1: out today. I already put one out on standard deviations

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Speaker 1: in Turkish Lira. Let me cut to the non mathematical angle.

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Speaker 1: Are we on the edge of Zimbabwe here? I think

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Speaker 1: it's a bit earlier to say that. I think that

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Speaker 1: Turkey is a much more diversified economy, much more integrated economy.

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Speaker 1: But I think that's in the bigger scheme. Do I

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Speaker 1: think you're right? That we need to worry about is

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Speaker 1: just you know, many years ago, the EU has made

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Speaker 1: it clear to Turkey in many different ways that it's

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Speaker 1: not really going to be welcomed as an EU member

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Speaker 1: anytime soon. So Turkey's future it's been turned away from

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Speaker 1: the West, even though it's a NATO member, And so

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Speaker 1: that leaves it with allies that we personally don't like.

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Speaker 1: We in the US don't like Russia. I ran, where

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Speaker 1: else is Turkey going to look towards future? And I

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Speaker 1: think that the geo political issues here are probably a bigger,

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Speaker 1: longer laughing than the economics. Mark Chennith, thank you so much.

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Speaker 1: With Brown Brothers hereman greatly appreciate that. Away from his

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Speaker 1: desk and his advisement to Brown Brothers and Herriman clients

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Speaker 1: as well. For four minutes, folks, we've got to do

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Speaker 1: the most important interview you will hear into the weekend

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Speaker 1: on TESLA. This is Teresa Goody. Formally, of course, we're

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Speaker 1: the Securities Exchange Commission. She was personal counsel to Chairman

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Speaker 1: Pitt in Washington and she joins us now in private

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Speaker 1: practice with her a Goody group. Teresa, thank you so

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Speaker 1: much for joining us under uh this incredible news flow

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Speaker 1: that we have. What is Mr Musk's decision point this weekend?

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Speaker 1: What does he need to do and think about to

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Speaker 1: stabilize the Tesla story? Well, thank you for having me.

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Speaker 1: And what he needs to do is find a way

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Speaker 1: to assimilate all of the information that he has, to

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Speaker 1: show that all of his tweets were true as I

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Speaker 1: mean that they are true, and make that disseminate that

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Speaker 1: through the customary ordinary means of disclosing information to your

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Speaker 1: shareholders into the marketplace through an eight K, through press

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Speaker 1: releases and get all this information out to the marketplace.

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Speaker 1: Mr Musk needs to clarify everything. Tesla now has a

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Speaker 1: duty to clarify everything and just put full accurate information

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Speaker 1: out there as to whether or not this offer is

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Speaker 1: going forward, whether it's true statements and um and and

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Speaker 1: the company has this has a duty now to do

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Speaker 1: that as well. Theresa, two more questions if we could,

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Speaker 1: before you're busy at work day, what should be the

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Speaker 1: response of the board and particularly more visible board direct

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Speaker 1: board of directors such as James Murdock. What is there

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Speaker 1: to do list in a conference call during this Friday.

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Speaker 1: I think that they also need to find whether or

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Speaker 1: not everything that he said was true. And I think

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Speaker 1: they also need to talk about using Twitter to disclose

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Speaker 1: this type of information. You know, I've heard a lot

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Speaker 1: of people reporting out how Twitter and social media has

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Speaker 1: been okayed by the SEC as though it was unqualified.

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Speaker 1: When the SEC came out and said you can use

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Speaker 1: social media, it was very qualified. There's a rigorous analysis

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Speaker 1: that that goes under that has to be undergone before

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Speaker 1: you can put that kind of information out. So the

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Speaker 1: board needs to be talking figuring out why this happened,

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Speaker 1: why he came out and said it this way, Did

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Speaker 1: it with the board actually approve this. I don't think

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Speaker 1: that they did, but they really need to find all

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Speaker 1: of the facts and circumstances around this and get their

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Speaker 1: arms around it, and then they need to get it

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Speaker 1: out in the marketplace. So it's a one more question

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Speaker 1: if we can within the crushing news slow this morning.

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Speaker 1: The criticism of your SEC when you work there was

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Speaker 1: always you guys are too slow, too slow, too slow.

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Speaker 1: Defend the Securities and Exchange Commission process. The process is

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Speaker 1: going to be a little bit different in this case

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Speaker 1: because my understanding is the was already an investigation under way,

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Speaker 1: in which case they are broadening an already existing investigation,

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Speaker 1: so they can much move much more quickly. I think

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Speaker 1: that maybe one reason why we've heard reports that they've

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Speaker 1: already the SEC has already been getting information out, requests

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Speaker 1: out there, and they've already started this inquiry process. Because

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Speaker 1: usually the SEC has to start with it's a more

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Speaker 1: slow process to start and there's a lot of checks

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Speaker 1: and balances that take place. But this has been able

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Speaker 1: to move more swiftly. So a full investigation that is

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Speaker 1: fair and takes into consideration all of the many different

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Speaker 1: rules that are that are taking place there that are

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Speaker 1: in play here, as well as everything that's taken place

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Speaker 1: and all of the facts. It takes a while to

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Speaker 1: go through that, so any investigation is going to take

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Speaker 1: considerable time. But I think they're moving very swiftly in

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Speaker 1: this case, if they indeed have already requested information. Well,

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Speaker 1: Teresa Goody, thank you so much. Under huge news slow

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Speaker 1: this morning course formally with the Securities Exchange Commission working

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Speaker 1: with your pit and now are their company and consultancy

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Speaker 1: in Washington, Finance Minister of Turkey talking about budgetary discipline

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Speaker 1: structural reforms and then as lera weakened. He moved over

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Speaker 1: finally to what people want to know, Megan, which is

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Speaker 1: an anti inflation fight and GDP growth not alternatives. How

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Speaker 1: do you do, Megan in your textbooks? How do you

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Speaker 1: do an anti inflation fight as non alternative with an

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Speaker 1: imploding crisis? Yeah, So the the only way to get

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Speaker 1: out of this this what is it now currency crisis

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Speaker 1: is to high rate massively. That is the only way,

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Speaker 1: and then accepts that you're going to go into your recession. Um.

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Speaker 1: And everyone doesn't want to do that. Um. And I

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Speaker 1: don't really see him betting on that. There's some talk about,

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Speaker 1: you know, Turkey maybe going to be I M s instead,

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Speaker 1: but the I M s going to demand the same thing,

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Speaker 1: so absent that, UM, I don't know how Turkey gets

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Speaker 1: out of this. Um. Certainly what the finance minister has

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Speaker 1: been talking about sort of his philosophy is not what

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Speaker 1: investors are looking for. I think they want to see

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Speaker 1: talk of race going up, but I think they'd also

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Speaker 1: need to see some personnel changing. And and to be honest,

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Speaker 1: you know son in Law as Finance minister would be

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Speaker 1: a key candidate to change with your with your London background,

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Speaker 1: your a student on the allies of Turkey, who is

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Speaker 1: Mr r to Wan's friend in Europe. So there are

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Speaker 1: a couple of smaller European countries that he's trying to

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Speaker 1: cozy up to. But in terms of real players with

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Speaker 1: real money, UM, you know, he who he would need

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Speaker 1: on his side would be Germany probably if he's looking

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Speaker 1: for any real backstop. Relations between Germany and Turkey have

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Speaker 1: have been following significantly. Um. I would say though, that

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Speaker 1: Turkey does have one card to play with Europe, and

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Speaker 1: that's the refuse d deal that was struck a couple

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Speaker 1: of years ago. So Turkey could say, look, I need

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Speaker 1: more money if you really want me to stop refugees

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Speaker 1: at our border rather than opening the Flight eight because

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Speaker 1: it would pose huge problems for America in particulars he

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Speaker 1: did have refugees start flowing into Europe. Our relations with

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Speaker 1: Turkey are not good at this time. Exclamation point finishes

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Speaker 1: the President's tweet on sanctions, and yet that folds into

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Speaker 1: political economics and the knock on effects. What are the

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Speaker 1: knock on effects to London into the European economies of

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Speaker 1: this US Turkey tension. So I think they're not going

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Speaker 1: to affect for the U S and Turkey tensions is

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Speaker 1: just a general rejiggering of um of allies. So Turkeys

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Speaker 1: now actually posing up to Russia UM and Iran potentially,

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Speaker 1: So there's there's just a total re of UM who's

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Speaker 1: actually an ally of who? And of course that's been

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Speaker 1: called into question. UM move noticeably by Germany with respect

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Speaker 1: to the US, right, we're not obvious allies anymore. So

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Speaker 1: I think there is a redrawing that map if you're

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Speaker 1: just joining US. Megan Green with US of Manuel Life.

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Speaker 1: Let me do a data check and Jonathan helped me

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Speaker 1: here with the repeat of the Trump tweet. First on

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Speaker 1: the data negative thirteen down future SMB futures earlier, we're

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Speaker 1: negative sixteen. There's a true stability within the risk off

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Speaker 1: versus UH Turkey and you see that in yen one

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Speaker 1: eleven point zero zero did not strengthen off of the

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Speaker 1: Trump tweet, as we see Turkish lyra at six point

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Speaker 1: to four and it has gone through the early two

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Speaker 1: am weakness is well, gold doesn't move all that much,

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Speaker 1: and I'm watching the German two year yield moving more

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Speaker 1: negative hours ago and right now with some German to

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Speaker 1: year yield stability. Jonathan review that important tweet again that

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Speaker 1: was market moving. Well. Basically, what it boils down to

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Speaker 1: is the President of the United States has authorized a

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Speaker 1: doubling of tariffs on Turkey steel and aluminum. Let me

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Speaker 1: read you the direct tweet. I've just authorized a doubling

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Speaker 1: of tariffs and still an aluminium. Megan Green says, I

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Speaker 1: have to say aluminium, even though the President wouldn't say

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Speaker 1: that with respect to Turkey, is their currency. The Turkish

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Speaker 1: lira slides rapidly downward against our very strong dollar. Goes

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Speaker 1: on to say, our relations with Turkey are not good

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Speaker 1: at this time, so it's almost like fire can of gasoline.

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Speaker 1: We're going to continue to follow this, but with Megan Green,

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Speaker 1: we must divert to her Financial Times essay of the

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Speaker 1: other day, which Megan really really plays into asset management

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Speaker 1: in the bombshell from Fidelity of a week ago that

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Speaker 1: they will offer a set of funds fee free that

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Speaker 1: are index funds. You have studied our wave of passive

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Speaker 1: passive investing in its effects, discuss that please? Yeah. Sure.

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Speaker 1: So we've had a huge change in market structure over

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Speaker 1: the past decade towards passive investing and that's index funds ets,

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Speaker 1: but also kind of AI quant funds. And what all

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Speaker 1: these different funds have in common is they're completely priced agnostics.

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Speaker 1: They don't care about fundamentals at all, so they're not

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Speaker 1: waiting for my analysis of CPI data today to trade.

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Speaker 1: For example, they don't care why markets moves. They've just

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Speaker 1: cared that the view. And there's a huge piling on effect.

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Speaker 1: When a strategy works, everybody jumps into it, or when

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Speaker 1: a stock goes up, all the EPs bloat up on

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Speaker 1: more of that stock, and so stocks that are doing

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Speaker 1: well get disproportionately bought on the way up. But that

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Speaker 1: means that on the way down the will probaly just

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Speaker 1: be distently solved and there will be a liquidity crunch.

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Speaker 1: I think in a downturn, let's go math thee here.

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Speaker 1: If they go up and they go down, is it

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Speaker 1: a symmetric dynamics like a Bell curve or a Gaussian space,

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Speaker 1: or there's some log normal joys here that makes going

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Speaker 1: to own more painful. So I think in good times

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Speaker 1: they provide a lot of liquidity, but in in bad times,

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Speaker 1: I think it might be symmetric. Actually, they provide as

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Speaker 1: bigger risk to liquidity um as they as they contribute

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Speaker 1: to liquidity on their way up and and the impact

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Speaker 1: is that on growth so is much bigger. If you

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Speaker 1: get liquidity crunch, It's not clear who's going to step in.

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Speaker 1: Is it really going to be thanks who are being

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Speaker 1: a market maker when times are good? I'm not sure

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Speaker 1: that they'll be willing to or if they can. So

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Speaker 1: if you get a usual liquidity crunch, UM the FED

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Speaker 1: could maybe step in, but that could have huge impacts

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Speaker 1: not just on the markets, but on economic growth as well.

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Speaker 1: So if we get the start of a downturn, UM

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Speaker 1: funds could really exacerbate it. Megan twenty seconds. Can the

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Speaker 1: Red Sox sustain seven D baseball? Yes, definitely, thank you

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Speaker 1: as long as I keep going to their games because

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Speaker 1: they keep winning when I'm there. That's very good Beggy Green,

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Speaker 1: thank you so much for that, and we say good

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Speaker 1: morning Boston one of six one FM. She is with

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Speaker 1: Manual Life, which has a nod to a firm called

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Speaker 1: Johnny Hancock. I should say in Boston as all Josh

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Speaker 1: Brown's wisdom is perfect to speak to. Phoenix Kalin, a

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Speaker 1: suck gen right now is expert in emerging market Phoenix

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Speaker 1: to Josh Brown's wisdom there, why are we so upset

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Speaker 1: about Turkish lira if it's so small? Well, I think

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Speaker 1: still in terms of the debt markets, it's quite sizeable,

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Speaker 1: and a lot of investors have exposures to Turkish assets,

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Speaker 1: both on the currency side, equities and across six income

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Speaker 1: as well. UM. And I think more importantly, it's it's

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Speaker 1: very strategic to the whole global security infrastructure in terms

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Speaker 1: of you know where we stand in the US versus

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Speaker 1: NATO and our relationship with our our European peers, and

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Speaker 1: so it's plays such such a regional UM, it's such

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Speaker 1: a regional critical importance to that infrastructure. What is the

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Speaker 1: symbolism of seven lira per dollar? We're spiked out the

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Speaker 1: six point eight seven, we've come back since you started

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Speaker 1: talking Phoenix Kalen single handedly strengthening lira right now? Is

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Speaker 1: there a big deal to seven lira per dollar? There

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Speaker 1: is UM. That's typically the level at which the capital

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Speaker 1: adequacy buffers of the Turkish banks get eroded to the

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Speaker 1: minimum required levels UM, and so they'll run out of capital,

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Speaker 1: they'll need to face UM lots of considerations around what

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Speaker 1: they'll do to protect capital and that means cutting dividends,

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Speaker 1: that means curbing lending appetite UM, and that can accelerate

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Speaker 1: the economic um contraction in Turkey. Yeah, one nine yen strength,

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Speaker 1: the down negative one sixty seven, SP negative sixteen, the

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Speaker 1: VIX moves a stick in thirty eight one point three

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Speaker 1: eight points twelve point six five Phoenix. Does this mean

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Speaker 1: that Turkey's gon I have to pay a visit to

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Speaker 1: the International Monetary Fund in Washington? Well, I think that

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Speaker 1: is one possibility, but it does not look likely because

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Speaker 1: well we've seen already that the US has UM is

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Speaker 1: trying to pass a bill through Congress to UH restrict

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Speaker 1: Turkey's ability to access international financial institutions like the I

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Speaker 1: m F or the World Bank or even the e

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Speaker 1: B r D. So I think the vito's power that

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Speaker 1: the US has is quite imposing, and they can place

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Speaker 1: a lot of conditionality around any I M S packages

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Speaker 1: that might be eventually awarded to Turkey. And I don't

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Speaker 1: think that's a pallorable situation for for the Turkish population.

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Speaker 1: Does the decline in the Turkish lira affect other emerging

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Speaker 1: market currencies? Oh, certainly, today we are seeing some contagion

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Speaker 1: across markets um or across Russia, across South Africa, so

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Speaker 1: the dollar block is getting disproportionately hit UM. But overall,

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Speaker 1: the amount of linkages that we have seen over the

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Speaker 1: past several months between Turkey and the rest of em

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Speaker 1: has has decoupled. Essentially, it's it's weakened, so there's less

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Speaker 1: contagion than we might have experienced in years previously. So

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Speaker 1: that's of some comfort to emerging market investors any opportunities

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Speaker 1: in emerging markets as a result of today's sell off

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Speaker 1: in the Lira, so I think we're we're seeing um

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Speaker 1: a lot of valuation dislocations in places like South Africa.

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Speaker 1: I think that's still a very attractive place to invest in,

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Speaker 1: especially on the fixed income side, if you hedge out

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Speaker 1: your currency exposure, especially given the kind of normative economic

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Speaker 1: policies that the Round Process administration is trying to put

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Speaker 1: in place. Within all of this, everybody has to regroup

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Speaker 1: what's going on right now as we right for the

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Speaker 1: weekend in e M strategy and what's going on right

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Speaker 1: now in global wall streets, e M desks. I mean,

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Speaker 1: is there a lot of sweat out there? Are people

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Speaker 1: worried about red Sox Yankees what's going on? Well, I

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Speaker 1: think what we've seen today with President air to one

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Speaker 1: speech and with m President Trump's tweets in retaliation is

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Speaker 1: is a lot of further posturing. I think there's still

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Speaker 1: a lot that we're not not seeing behind the scenes

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Speaker 1: in terms of still diplomatic channels seeing open and further negotiations.

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Speaker 1: Are you are you you know you're you're one of

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Speaker 1: the sophisticated trades as you just discussed on South Africa.

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Speaker 1: Are you constructing trades today? Are you going to take

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Speaker 1: it early lunch? I mean, what's the action that pros

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Speaker 1: do on a day like this. On a day like this,

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Speaker 1: you have to sit back and watch all the forecasts

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Speaker 1: go out the window. It's not a time to It's

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Speaker 1: not a time to put on trade because you're the

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Speaker 1: moves are magnitude order magnitude higher than your stoplasses. You

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Speaker 1: can go to lunch with kid chooks, right, Phoenix. If,

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Speaker 1: as you say, the decline in the Turkish lira will

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Speaker 1: affect other emerging market currencies, or at least some of them,

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Speaker 1: are there other emerging market economies that have similar structure

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Speaker 1: that would be affected because they cannot repay their dollar

401
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Speaker 1: denominated debts because their currency is fast devalue against the

402
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Speaker 1: US dollar. UM. A lot of the places where there

403
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Speaker 1: are vulnerabilities, UM. You know, previously we would talk about

404
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Speaker 1: the Fragile five for instance. UM. A lot of those

405
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Speaker 1: places have reduced their external vulnerabilities dramatically over the past

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Speaker 1: five years, UM, since the Taper tantrum, and they've made

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Speaker 1: a lot of progress. So I think you know, there

408
00:23:41,760 --> 00:23:46,520
Speaker 1: are a few places remaining, like Turkey, Argentina where these

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00:23:47,119 --> 00:23:52,040
Speaker 1: these vulnerabilities are still high in persistent. Phoenix, Thank you

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Speaker 1: so much, Phoenix Kalen, where this sarch on this morning,

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00:23:54,600 --> 00:24:11,560
Speaker 1: very very valuable as well. Word we are thrilled to

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Speaker 1: bring you as we just spoke with Phoenix Kalen of

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Speaker 1: her colleague and crime Kit Jukes, who has seen this before.

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Speaker 1: Mr Jukes, we have a certain ancient to us were

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00:24:24,480 --> 00:24:27,720
Speaker 1: you and I have seen this? How correlated are we

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Speaker 1: right now? And what's different this time? UM? Well, I

417
00:24:32,800 --> 00:24:36,520
Speaker 1: guess you know, if if this is the biggest single

418
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Speaker 1: day move in a I mean a major traded currency

419
00:24:39,359 --> 00:24:42,320
Speaker 1: and TA does get traded since since probably two thousand

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Speaker 1: and eight, I can't I can't think of an alternative candidate.

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00:24:46,119 --> 00:24:49,680
Speaker 1: And if I look at in that sense, Um, this

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00:24:49,760 --> 00:24:53,000
Speaker 1: is still while it's getting a bit more correlated at

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00:24:53,000 --> 00:24:56,560
Speaker 1: the moment, it's it's still less correlated than we have

424
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Speaker 1: been used to you and I over the over the

425
00:24:59,280 --> 00:25:02,719
Speaker 1: last decade. So um, much of all sorts of assets

426
00:25:02,720 --> 00:25:05,760
Speaker 1: are looking as if, um that they're correlating, and stalks

427
00:25:05,760 --> 00:25:07,720
Speaker 1: are down and volatilities up. In the end is strong,

428
00:25:07,760 --> 00:25:11,320
Speaker 1: and gold prices are higher on the dollars strong against

429
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Speaker 1: everything including the euro. Much as though a lot of

430
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Speaker 1: that is going on, Um, it's still less correlated than

431
00:25:17,359 --> 00:25:18,919
Speaker 1: than you would have thought. So that that's you know,

432
00:25:19,720 --> 00:25:24,640
Speaker 1: look at it as it is on the day. One

433
00:25:24,640 --> 00:25:26,840
Speaker 1: of the things is different. And I've got a chart up,

434
00:25:26,840 --> 00:25:31,600
Speaker 1: folks of Indonesian rupea back a zillion years, and I'm

435
00:25:31,640 --> 00:25:34,719
Speaker 1: going to do a bloomberg percent change on this and

436
00:25:34,840 --> 00:25:37,800
Speaker 1: long ago and far away. In the course of a

437
00:25:37,800 --> 00:25:44,280
Speaker 1: week or so, we enjoyed a hundred percent weakness in

438
00:25:44,440 --> 00:25:49,320
Speaker 1: Indonesian rupia from out to um, excuse me, in five

439
00:25:49,720 --> 00:25:54,800
Speaker 1: fifty seven percent weakness Indonesian rupia, we didn't have the

440
00:25:54,840 --> 00:25:58,840
Speaker 1: President of the United States piling on kit. How critical

441
00:25:58,960 --> 00:26:02,520
Speaker 1: is it the press? And Trump chooses to pile on

442
00:26:02,560 --> 00:26:07,480
Speaker 1: a Turkey flat on its financial back. Well it you know,

443
00:26:07,800 --> 00:26:09,560
Speaker 1: it makes it, it makes it more personal in the

444
00:26:09,560 --> 00:26:12,439
Speaker 1: eyes of the market on both sides. The You know

445
00:26:12,680 --> 00:26:16,040
Speaker 1: that some of this is there's an underlying economic problem

446
00:26:16,080 --> 00:26:18,200
Speaker 1: with the size of the current account deficit, that the

447
00:26:18,320 --> 00:26:22,240
Speaker 1: need to reassure foreign investors that you're not going to

448
00:26:22,600 --> 00:26:24,639
Speaker 1: slap on capital controls and that you are going to

449
00:26:24,760 --> 00:26:29,200
Speaker 1: run a credible monetary policy to encourage them to finance

450
00:26:29,240 --> 00:26:33,600
Speaker 1: your construction industry. Um. But but some of it has

451
00:26:33,640 --> 00:26:36,600
Speaker 1: become You're not personal, but it's become a spat between

452
00:26:36,600 --> 00:26:40,199
Speaker 1: two countries and two leaders with neither side wanting to

453
00:26:40,640 --> 00:26:44,160
Speaker 1: um wanting to to give in at this point in time,

454
00:26:44,320 --> 00:26:48,240
Speaker 1: and that just leaves I think investors in the middle

455
00:26:48,680 --> 00:26:55,280
Speaker 1: feeling extremely nervous on that specific issue. Kit Chukes, with

456
00:26:55,320 --> 00:26:58,600
Speaker 1: your experience, can you describe what it would be like

457
00:26:58,680 --> 00:27:01,159
Speaker 1: in the meeting rooms of b b v A and

458
00:27:01,520 --> 00:27:05,600
Speaker 1: Unique Credit and BNP party bar today there are among

459
00:27:05,840 --> 00:27:09,600
Speaker 1: some of the biggest lenders to Turkey in the European Union,

460
00:27:10,920 --> 00:27:13,880
Speaker 1: I think today for anybody, for anybody implicated, and part

461
00:27:13,880 --> 00:27:15,879
Speaker 1: of the problem is, you know, again, when when you

462
00:27:15,920 --> 00:27:17,919
Speaker 1: have a fiftcent moving a currency on a day, and

463
00:27:18,000 --> 00:27:20,440
Speaker 1: you know that, you know that the response maybe a

464
00:27:21,240 --> 00:27:23,800
Speaker 1: maybe a very aggressive interest rate rise, although the hints

465
00:27:23,840 --> 00:27:25,560
Speaker 1: are not that way. It may be just to kind

466
00:27:25,600 --> 00:27:28,240
Speaker 1: of tough it out for a while and hope it's okay.

467
00:27:28,240 --> 00:27:31,679
Speaker 1: Which hasn't gone well today. Um, you know, what do

468
00:27:31,720 --> 00:27:35,400
Speaker 1: you do before the weekend? You can't necessarily do much.

469
00:27:35,480 --> 00:27:37,679
Speaker 1: There's not many things. You know, in the past, if

470
00:27:37,720 --> 00:27:41,199
Speaker 1: we if we went back to the taper tantram that

471
00:27:41,320 --> 00:27:44,280
Speaker 1: the fund managers who were concerned about was what was

472
00:27:44,320 --> 00:27:49,120
Speaker 1: happening as that started that they sold other emerging market currencies,

473
00:27:49,160 --> 00:27:51,240
Speaker 1: if you remember, in two thousand and thirteen, to get

474
00:27:51,320 --> 00:27:54,880
Speaker 1: some kind of a partial hedge. So so wherever it started.

475
00:27:54,920 --> 00:27:57,359
Speaker 1: Once the bond market was selling off in the US,

476
00:27:57,800 --> 00:28:00,679
Speaker 1: people started selling Brazilian rail, South afric and Rand, Turkish

477
00:28:00,760 --> 00:28:03,560
Speaker 1: rror then as well, but they chose the big liquid

478
00:28:03,640 --> 00:28:06,199
Speaker 1: emerging market currencies and sold them across the board. So

479
00:28:06,240 --> 00:28:08,600
Speaker 1: in a sense, at the moment, the people directly affected

480
00:28:08,680 --> 00:28:11,159
Speaker 1: with this, they have a problem, they have a problem

481
00:28:11,240 --> 00:28:14,959
Speaker 1: with with assets in Turkey and they it's not entirely

482
00:28:14,960 --> 00:28:17,560
Speaker 1: clear that there's a really clever hedge by going out

483
00:28:17,560 --> 00:28:20,080
Speaker 1: and selling the rand. So the rand is down, but

484
00:28:20,160 --> 00:28:22,760
Speaker 1: it's you know, it's not keeping up on the rands

485
00:28:22,760 --> 00:28:24,960
Speaker 1: down two point seven percent on the day that that's

486
00:28:25,000 --> 00:28:27,960
Speaker 1: a seventh of the move in the Turkish lerror. Does

487
00:28:28,000 --> 00:28:32,600
Speaker 1: the fact that Turkey remains a member of NATO and

488
00:28:32,800 --> 00:28:37,280
Speaker 1: that it is involved in political and military issues in

489
00:28:37,359 --> 00:28:40,600
Speaker 1: the Middle East? Does that complicate the ability of an

490
00:28:40,600 --> 00:28:45,760
Speaker 1: investor to figure out whether their investments are money good? Um,

491
00:28:46,800 --> 00:28:49,480
Speaker 1: I'm not sure it complicated me does lots of complicated bits.

492
00:28:49,520 --> 00:28:51,920
Speaker 1: And certainly if if access for Turkey to the large

493
00:28:51,920 --> 00:28:55,880
Speaker 1: international institutions gets limited, and that complicates it if if

494
00:28:55,920 --> 00:28:59,800
Speaker 1: you know, I'm not you know, Turkey is politically important,

495
00:29:00,000 --> 00:29:04,240
Speaker 1: are politically important, It's economically important, um, both in the region,

496
00:29:04,280 --> 00:29:06,200
Speaker 1: and it's it's a it's a player. So there are

497
00:29:06,240 --> 00:29:10,680
Speaker 1: there are huge complications out of a deepening spat between

498
00:29:10,720 --> 00:29:14,240
Speaker 1: Turkey and the United States. Um. But for for someone

499
00:29:14,280 --> 00:29:17,800
Speaker 1: who's for someone who's got money at risk in the country, um,

500
00:29:18,240 --> 00:29:19,920
Speaker 1: you know that they're trying to work out what they

501
00:29:19,960 --> 00:29:22,680
Speaker 1: can do to hedge anything. And actually on a daylight

502
00:29:22,680 --> 00:29:25,200
Speaker 1: to day the answer is not necessarily a great deal.

503
00:29:25,360 --> 00:29:27,160
Speaker 1: Can you if you don't take that. You don't have

504
00:29:27,200 --> 00:29:30,080
Speaker 1: the courage to take a position on Lira weak or short?

505
00:29:30,320 --> 00:29:32,600
Speaker 1: Can you go to other currency pairs to take a

506
00:29:32,640 --> 00:29:36,760
Speaker 1: position or is it just so risky you don't I

507
00:29:36,800 --> 00:29:39,600
Speaker 1: think people are. I mean, there is clearly some contagion.

508
00:29:39,640 --> 00:29:41,840
Speaker 1: Everything in Latin America is down this week now, and

509
00:29:42,880 --> 00:29:45,480
Speaker 1: it's the big liquid one. So Brazil is down, Mexico,

510
00:29:45,520 --> 00:29:48,320
Speaker 1: which has been very popular, down the rams popular. But

511
00:29:48,680 --> 00:29:50,760
Speaker 1: you know, don't look too much further and say this

512
00:29:50,840 --> 00:29:52,960
Speaker 1: is why we've taken Europe or through one fifteen and

513
00:29:52,960 --> 00:29:55,520
Speaker 1: we're driving it. We're driving it down. There was a

514
00:29:55,520 --> 00:29:58,000
Speaker 1: technical level in place. There's a head and shoulders formation

515
00:29:58,040 --> 00:30:01,200
Speaker 1: to push and the market is pushing. Okay, well you

516
00:30:01,280 --> 00:30:03,479
Speaker 1: gotta go back to Sterling here because you've been so

517
00:30:03,560 --> 00:30:07,440
Speaker 1: kind to be with us in your London afternoon arsenal,

518
00:30:07,520 --> 00:30:11,120
Speaker 1: Manchester City. What is it this weekend? Kid? It's a

519
00:30:11,240 --> 00:30:13,640
Speaker 1: Sunday four pm my time? Are you like a gold

520
00:30:13,760 --> 00:30:16,080
Speaker 1: level guy? Like are you down, you know, like throwing

521
00:30:16,120 --> 00:30:18,920
Speaker 1: the ball in let's sit on the countdown or are

522
00:30:18,960 --> 00:30:23,600
Speaker 1: you up in the cheap seats? I'm I'm in perfectly nicely.

523
00:30:23,760 --> 00:30:26,440
Speaker 1: Thank you very much. Oh my daughter this weekend. Oh

524
00:30:26,440 --> 00:30:28,920
Speaker 1: with your daughter? Very good? Are you gonna feel more

525
00:30:29,000 --> 00:30:35,160
Speaker 1: brokenfied there? Because Sterling is at one I've I've seen

526
00:30:35,160 --> 00:30:37,480
Speaker 1: Sterling go up and down against it. I'm still more

527
00:30:37,480 --> 00:30:39,880
Speaker 1: concerned about what's happened to Sterling against the Euro. But

528
00:30:41,000 --> 00:30:43,680
Speaker 1: I'm frankly right now I'm going to be looking at

529
00:30:43,720 --> 00:30:45,600
Speaker 1: what's happening to the Euro and worrying that I might

530
00:30:45,640 --> 00:30:48,480
Speaker 1: see I might see Sterling at one twenty five next week.

531
00:30:48,520 --> 00:30:50,800
Speaker 1: If you're at allar break through, what does that mean

532
00:30:50,840 --> 00:30:56,680
Speaker 1: for U K society with a one euro? Literally in

533
00:30:56,760 --> 00:30:59,520
Speaker 1: terms of not moving to I think it's going to um.

534
00:30:59,560 --> 00:31:01,760
Speaker 1: It's going to principally make this a place. Whether we

535
00:31:01,800 --> 00:31:03,800
Speaker 1: have a huge number of American tourists and found at

536
00:31:03,840 --> 00:31:06,080
Speaker 1: the moment, I'm all of them getting rained on today,

537
00:31:06,120 --> 00:31:09,480
Speaker 1: but this will be tourists full. I will probably have

538
00:31:09,520 --> 00:31:13,080
Speaker 1: American friends arriving on planeloads asking me if they can

539
00:31:13,120 --> 00:31:15,440
Speaker 1: come and watch the best football team in England. Okay,

540
00:31:15,480 --> 00:31:17,840
Speaker 1: what's what's your most important bet right now? What is

541
00:31:17,880 --> 00:31:20,760
Speaker 1: your currency pair? This is a pin fox question. What's

542
00:31:20,800 --> 00:31:24,560
Speaker 1: your currency pair of great interest? Right now? Mr jukes Um,

543
00:31:24,960 --> 00:31:26,800
Speaker 1: they're all a bit marginal in the sense that I

544
00:31:27,000 --> 00:31:29,239
Speaker 1: think we're supposed to be long again against things like

545
00:31:29,280 --> 00:31:32,239
Speaker 1: the Korean one because this this this volatilty will pick

546
00:31:32,320 --> 00:31:34,000
Speaker 1: up at this point. I think we're supposed to be

547
00:31:34,000 --> 00:31:36,240
Speaker 1: short the pound against things like the Swedish crona or

548
00:31:36,280 --> 00:31:38,880
Speaker 1: the Norwegian chrona, things that have been held out by

549
00:31:38,920 --> 00:31:41,480
Speaker 1: the Euro but but are not the Euro. They're the

550
00:31:41,520 --> 00:31:44,320
Speaker 1: same political provinces. Thank you to you and Phoenix Kalen

551
00:31:44,400 --> 00:31:48,280
Speaker 1: for making a smarter today from society General Mr Jukes,

552
00:31:48,280 --> 00:31:51,200
Speaker 1: who provides wisdom and well have they pim like seriously

553
00:31:51,880 --> 00:31:57,640
Speaker 1: hugely anticipated early Monday morning note for all Bloomberg US

554
00:31:57,720 --> 00:32:08,320
Speaker 1: investors ye thanks for listening to the Bloomberg Surveillance podcast.

555
00:32:08,680 --> 00:32:13,600
Speaker 1: Subscribe and listen to interviews on Apple Podcasts, SoundCloud, or

556
00:32:13,760 --> 00:32:18,080
Speaker 1: whichever podcast platform you prefer. I'm on Twitter at Tom

557
00:32:18,200 --> 00:32:22,000
Speaker 1: Keene before the podcast. You can always catch us worldwide.

558
00:32:22,520 --> 00:32:23,600
Speaker 1: I'm Bloomberg Radio