WEBVTT - All FX Forecasts Are Out The Window, Kalen Says 0:00:00.080 --> 0:00:12.960 Yeah. Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene 0:00:13.480 --> 0:00:17.560 Jay Leye. We bring you insight from the best in economics, finance, investment, 0:00:18.000 --> 0:00:23.520 and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, 0:00:23.600 --> 0:00:28.160 Bloomberg dot Com, and of course on the Bloomberg. Yeah, 0:00:34.240 --> 0:00:37.120 it's all been about Turkey and the President's silence this 0:00:37.200 --> 0:00:40.720 week amid the market blood math was remarkable, and so 0:00:41.080 --> 0:00:44.280 was his message when he finally reservice President Urduwan, saying, 0:00:44.400 --> 0:00:47.040 don't forget this. If they have got dollars, we have 0:00:47.120 --> 0:00:50.479 got our people are right? Are all state media quoting 0:00:50.479 --> 0:00:54.320 the President as saying that coming from President Urduwan overnight 0:00:54.400 --> 0:00:58.360 and driving some significant weakness and a fragile global market 0:00:58.560 --> 0:01:01.240 joining us to discusses. Mark Chander Brown Brothers Harriman, head 0:01:01.440 --> 0:01:04.120 of Currency Market, morning to you. What a morning. Your 0:01:04.120 --> 0:01:07.760 thoughts on Turkey please? Yeah. So, I think that there's 0:01:07.800 --> 0:01:09.839 really Turkeys in the between a rock and hard place. 0:01:10.160 --> 0:01:12.680 I think there's three possible courses of acting for them, 0:01:12.880 --> 0:01:16.520 and none of them are very good. First, Turkey could 0:01:16.560 --> 0:01:19.240 make a bold announcement, and that would be to regain investor. 0:01:19.319 --> 0:01:22.640 Conference has got to return to the orthodox policies that 0:01:22.760 --> 0:01:26.720 the investors. That goes with money value and that is 0:01:27.480 --> 0:01:30.280 giving back the independence of the central bank, raising interest 0:01:30.360 --> 0:01:34.440 rates sharply, curb inflation, slow down the economy, to bring 0:01:34.480 --> 0:01:37.959 the current account deficit back into closer balance. They don't 0:01:38.000 --> 0:01:40.400 want to do that. Let's talk about management. Mark the 0:01:40.440 --> 0:01:43.959 president Urdwan set to speak in the next hour, what 0:01:44.080 --> 0:01:46.240 kind of words does he need to drive towards an 0:01:46.240 --> 0:01:49.320 international audience? And the policies you talk about the central bank, 0:01:49.360 --> 0:01:50.920 what kind of policy do you want to see at 0:01:50.920 --> 0:01:53.600 five dred basis point move on short rates? What do 0:01:53.640 --> 0:01:56.520 you need to see? Well, I I think to regain 0:01:56.600 --> 0:01:59.200 confidences can't just be about interest rate because think about 0:01:59.200 --> 0:02:03.160 what's happened plunge in the in the Turkish era, there's 0:02:03.200 --> 0:02:06.040 no level of interest rate they will compensate and invest 0:02:06.040 --> 0:02:08.120 it for say a ten percent slide in one week. 0:02:08.360 --> 0:02:10.840 The kind of overnight interest rate they have seventeen and 0:02:10.880 --> 0:02:14.399 three quarters percent, that's an annualized rate. We talked about 0:02:14.400 --> 0:02:17.079 a currentcly as plunging ten percent in the past week. 0:02:17.560 --> 0:02:19.880 So interest rates aren't you enough. They've got to change policies, 0:02:20.040 --> 0:02:23.919 but they could also impose capital controls but capital controls 0:02:23.960 --> 0:02:26.320 are temporary measure just to buy some time to do 0:02:26.360 --> 0:02:29.160 the right things. Alternatively, they could go to the I 0:02:29.320 --> 0:02:32.440 m F, but the IMF will demand conditionality which they 0:02:32.480 --> 0:02:35.880 cannot accept because it requires the return of the orthodox policies. 0:02:36.120 --> 0:02:38.200 So I think that Turkey is fighting a losing battle, 0:02:38.480 --> 0:02:39.880 and I think the Turkish there is gonna have to 0:02:39.919 --> 0:02:42.280 weaken further. Maybe you know we we we said we 0:02:42.600 --> 0:02:46.079 test the sixth level today after moving about five earlier 0:02:46.080 --> 0:02:47.440 in the week. I think we might not be on 0:02:47.440 --> 0:02:50.240 our way towards seven. And then I think then the 0:02:50.320 --> 0:02:53.600 sort of the crisis mentality default. And this is why 0:02:53.600 --> 0:02:55.919 you've got the euro making new new loads for the 0:02:56.000 --> 0:02:57.799 year today and the dollar making new highs for the 0:02:57.880 --> 0:03:00.480 year as well, and reports coming out of Turkey suggesting 0:03:00.480 --> 0:03:03.080 that the president now says Tom that Turkey is to 0:03:03.080 --> 0:03:07.639 prevail in economic warfare. The lyra is prevailing right now. 0:03:07.720 --> 0:03:10.760 We had to spake up almost touching six. John the 0:03:10.840 --> 0:03:14.160 last time we were at six lera per dollar. I'm 0:03:14.200 --> 0:03:17.640 eyeball on this with the official surveillance mouse. And Friday 0:03:17.720 --> 0:03:20.760 was four fifteen a m. New York time. Yeah, I 0:03:20.800 --> 0:03:23.680 call it three hours. We've never seen this before. Well, well, 0:03:23.760 --> 0:03:25.960 we've we've had a better tape over the last two 0:03:26.040 --> 0:03:29.560 or three hours and had abruptly reversed off the single 0:03:29.720 --> 0:03:32.640 headline we see at seven zero zero. For anyone not 0:03:32.680 --> 0:03:35.400 familiar with the situation in Turkey at the moment, in 0:03:35.480 --> 0:03:37.520 terms of the management of the situation, it is the 0:03:37.520 --> 0:03:40.200 equivalent of President Trump putting Jared Cushner in charge of 0:03:40.240 --> 0:03:43.080 the Treasury. That's what's happened. It's the son in law 0:03:43.360 --> 0:03:46.440 running the treasury in Turkey, right, It's very hard. It's 0:03:46.480 --> 0:03:50.160 the equivalent. It's the equivalent of the president pushing out 0:03:50.240 --> 0:03:53.120 j power from the Federal Reserve and running monetary policy himself. 0:03:53.360 --> 0:03:55.640 I mean, that's how crazy the situation is in Turkey. 0:03:56.960 --> 0:03:59.680 Here in the United States that isn't familiar with how 0:03:59.760 --> 0:04:02.600 bad the league this is being managed. And Mark Chandler, 0:04:02.640 --> 0:04:05.360 there's a real question coming from from Financial Times reporting 0:04:05.440 --> 0:04:08.720 this morning suggesting now that the ECB is concerned because 0:04:08.760 --> 0:04:11.560 there are several European banks with exposure to loans in 0:04:11.640 --> 0:04:15.760 Turkey and those loans are paid in what foreign currency? 0:04:15.920 --> 0:04:18.000 Does it become a little bit of a problem around 0:04:18.000 --> 0:04:20.920 the corner. How close are we Mark Well, I think 0:04:20.920 --> 0:04:23.440 that Uh, the e c B is there, so it's 0:04:23.440 --> 0:04:26.280 watching things. And we're not talking about systemic risk in Europe. 0:04:26.600 --> 0:04:30.520 We're talking about a handful of banks with substantial exposure 0:04:30.640 --> 0:04:33.120 that the most Uh, this is not really effecting the 0:04:33.160 --> 0:04:36.400 outlook for the European Central Bank monetary policy, which you 0:04:36.440 --> 0:04:38.960 know is they've indicated not going to raise interest rate 0:04:39.040 --> 0:04:41.359 for another year. And so of course, the pressure on 0:04:41.440 --> 0:04:43.640 Turkey it's part of the end. The pressure on the 0:04:43.680 --> 0:04:46.760 euro today, it's part of a larger picture of this divergence. 0:04:46.760 --> 0:04:48.760 It's been papering the dollar. In any event, the reason 0:04:48.800 --> 0:04:50.640 we can make new loans in the euroityas because you're 0:04:50.680 --> 0:04:52.760 so close to them yesterday, in the day before, in 0:04:52.800 --> 0:04:56.599 the week before. Mark within your study, and we should 0:04:56.600 --> 0:04:59.320 point out that Mr Chandler has written two very thoughtful 0:04:59.360 --> 0:05:03.760 books on the astronomy of the political economic system. I 0:05:03.800 --> 0:05:09.240 don't think we understand mark interest rates and what that 0:05:09.320 --> 0:05:13.480 does to a society. How does the society work in 0:05:13.680 --> 0:05:16.920 a I'm going to guess ten real rate or twelve 0:05:16.960 --> 0:05:21.400 percent inflation adjusted rate. Yeah, and I think I think 0:05:21.440 --> 0:05:23.000 you have a right question. I think this is a 0:05:23.040 --> 0:05:25.400 really the lemon, not only for Turkey, but the other 0:05:25.440 --> 0:05:28.280 countries and remindine of what Thomas Friedman, his book about 0:05:28.320 --> 0:05:31.159 the Electors and the Oil Tree, talked about many years ago, 0:05:31.160 --> 0:05:34.280 and that is that given the mobility of capital, many 0:05:34.360 --> 0:05:37.240 countries are have the golden street jackets, which they do 0:05:37.360 --> 0:05:40.200 not pursue orthdox policies, they get punished. And this is 0:05:40.200 --> 0:05:44.920 what spurs people like Aerogan's nationalism. It's it's it's sort 0:05:44.920 --> 0:05:49.360 of a battle between piecing investors during the orthodox policies, 0:05:49.720 --> 0:05:52.680 but at the same time the unorthodox policies they're gonna 0:05:52.880 --> 0:05:54.880 are leading to high inflation, is going to lead to 0:05:54.880 --> 0:05:58.520 the weaker economy. It's the people are gonna win. Okay, 0:05:58.640 --> 0:06:00.800 But but mark, I mean, I mean, folks, it's a 0:06:00.839 --> 0:06:03.239 log hyperbolic chart. I'll put a whole bunch of charts 0:06:03.240 --> 0:06:06.320 out today. I already put one out on standard deviations 0:06:06.320 --> 0:06:10.640 in Turkish Lira. Let me cut to the non mathematical angle. 0:06:11.000 --> 0:06:14.880 Are we on the edge of Zimbabwe here? I think 0:06:14.880 --> 0:06:16.719 it's a bit earlier to say that. I think that 0:06:17.520 --> 0:06:21.080 Turkey is a much more diversified economy, much more integrated economy. 0:06:21.360 --> 0:06:23.120 But I think that's in the bigger scheme. Do I 0:06:23.120 --> 0:06:24.919 think you're right? That we need to worry about is 0:06:24.960 --> 0:06:27.479 just you know, many years ago, the EU has made 0:06:27.480 --> 0:06:29.920 it clear to Turkey in many different ways that it's 0:06:29.960 --> 0:06:32.120 not really going to be welcomed as an EU member 0:06:32.160 --> 0:06:36.000 anytime soon. So Turkey's future it's been turned away from 0:06:36.040 --> 0:06:38.600 the West, even though it's a NATO member, And so 0:06:38.680 --> 0:06:41.240 that leaves it with allies that we personally don't like. 0:06:41.320 --> 0:06:44.520 We in the US don't like Russia. I ran, where 0:06:44.520 --> 0:06:46.160 else is Turkey going to look towards future? And I 0:06:46.200 --> 0:06:49.599 think that the geo political issues here are probably a bigger, 0:06:49.760 --> 0:06:52.839 longer laughing than the economics. Mark Chennith, thank you so much. 0:06:53.040 --> 0:06:55.600 With Brown Brothers hereman greatly appreciate that. Away from his 0:06:55.720 --> 0:06:59.960 desk and his advisement to Brown Brothers and Herriman clients 0:07:00.240 --> 0:07:16.440 as well. For four minutes, folks, we've got to do 0:07:16.520 --> 0:07:20.120 the most important interview you will hear into the weekend 0:07:20.560 --> 0:07:23.800 on TESLA. This is Teresa Goody. Formally, of course, we're 0:07:23.840 --> 0:07:27.800 the Securities Exchange Commission. She was personal counsel to Chairman 0:07:27.840 --> 0:07:30.920 Pitt in Washington and she joins us now in private 0:07:30.960 --> 0:07:34.880 practice with her a Goody group. Teresa, thank you so 0:07:34.960 --> 0:07:38.080 much for joining us under uh this incredible news flow 0:07:38.120 --> 0:07:42.920 that we have. What is Mr Musk's decision point this weekend? 0:07:43.320 --> 0:07:46.280 What does he need to do and think about to 0:07:46.480 --> 0:07:50.600 stabilize the Tesla story? Well, thank you for having me. 0:07:51.280 --> 0:07:54.239 And what he needs to do is find a way 0:07:54.320 --> 0:07:57.800 to assimilate all of the information that he has, to 0:07:57.880 --> 0:08:00.040 show that all of his tweets were true as I 0:08:00.120 --> 0:08:03.480 mean that they are true, and make that disseminate that 0:08:03.560 --> 0:08:08.320 through the customary ordinary means of disclosing information to your 0:08:08.320 --> 0:08:11.760 shareholders into the marketplace through an eight K, through press 0:08:11.800 --> 0:08:15.080 releases and get all this information out to the marketplace. 0:08:15.960 --> 0:08:19.400 Mr Musk needs to clarify everything. Tesla now has a 0:08:19.480 --> 0:08:24.480 duty to clarify everything and just put full accurate information 0:08:24.560 --> 0:08:27.720 out there as to whether or not this offer is 0:08:27.760 --> 0:08:33.240 going forward, whether it's true statements and um and and 0:08:33.320 --> 0:08:35.679 the company has this has a duty now to do 0:08:35.720 --> 0:08:38.160 that as well. Theresa, two more questions if we could, 0:08:38.240 --> 0:08:40.520 before you're busy at work day, what should be the 0:08:40.559 --> 0:08:43.520 response of the board and particularly more visible board direct 0:08:43.559 --> 0:08:47.000 board of directors such as James Murdock. What is there 0:08:47.040 --> 0:08:51.199 to do list in a conference call during this Friday. 0:08:51.840 --> 0:08:54.880 I think that they also need to find whether or 0:08:54.880 --> 0:08:57.040 not everything that he said was true. And I think 0:08:57.080 --> 0:09:01.120 they also need to talk about using Twitter to disclose 0:09:01.160 --> 0:09:03.959 this type of information. You know, I've heard a lot 0:09:04.000 --> 0:09:07.160 of people reporting out how Twitter and social media has 0:09:07.160 --> 0:09:09.880 been okayed by the SEC as though it was unqualified. 0:09:10.160 --> 0:09:12.040 When the SEC came out and said you can use 0:09:12.120 --> 0:09:15.520 social media, it was very qualified. There's a rigorous analysis 0:09:15.559 --> 0:09:18.120 that that goes under that has to be undergone before 0:09:18.200 --> 0:09:20.160 you can put that kind of information out. So the 0:09:20.240 --> 0:09:24.800 board needs to be talking figuring out why this happened, 0:09:25.040 --> 0:09:26.800 why he came out and said it this way, Did 0:09:26.800 --> 0:09:29.120 it with the board actually approve this. I don't think 0:09:29.160 --> 0:09:31.560 that they did, but they really need to find all 0:09:31.600 --> 0:09:35.480 of the facts and circumstances around this and get their 0:09:35.559 --> 0:09:37.960 arms around it, and then they need to get it 0:09:37.960 --> 0:09:40.240 out in the marketplace. So it's a one more question 0:09:40.280 --> 0:09:43.480 if we can within the crushing news slow this morning. 0:09:44.000 --> 0:09:47.120 The criticism of your SEC when you work there was 0:09:47.160 --> 0:09:50.440 always you guys are too slow, too slow, too slow. 0:09:50.840 --> 0:09:56.959 Defend the Securities and Exchange Commission process. The process is 0:09:57.000 --> 0:09:58.800 going to be a little bit different in this case 0:09:58.840 --> 0:10:02.360 because my understanding is the was already an investigation under way, 0:10:02.880 --> 0:10:06.360 in which case they are broadening an already existing investigation, 0:10:06.480 --> 0:10:09.200 so they can much move much more quickly. I think 0:10:09.200 --> 0:10:11.520 that maybe one reason why we've heard reports that they've 0:10:11.559 --> 0:10:16.360 already the SEC has already been getting information out, requests 0:10:16.400 --> 0:10:20.079 out there, and they've already started this inquiry process. Because 0:10:20.160 --> 0:10:24.120 usually the SEC has to start with it's a more 0:10:24.200 --> 0:10:27.520 slow process to start and there's a lot of checks 0:10:27.520 --> 0:10:29.760 and balances that take place. But this has been able 0:10:29.800 --> 0:10:33.040 to move more swiftly. So a full investigation that is 0:10:33.120 --> 0:10:36.280 fair and takes into consideration all of the many different 0:10:36.360 --> 0:10:39.200 rules that are that are taking place there that are 0:10:39.200 --> 0:10:41.800 in play here, as well as everything that's taken place 0:10:41.920 --> 0:10:43.560 and all of the facts. It takes a while to 0:10:43.559 --> 0:10:45.840 go through that, so any investigation is going to take 0:10:45.920 --> 0:10:49.000 considerable time. But I think they're moving very swiftly in 0:10:49.000 --> 0:10:52.680 this case, if they indeed have already requested information. Well, 0:10:52.840 --> 0:10:55.680 Teresa Goody, thank you so much. Under huge news slow 0:10:55.760 --> 0:10:59.680 this morning course formally with the Securities Exchange Commission working 0:10:59.679 --> 0:11:03.000 with your pit and now are their company and consultancy 0:11:03.160 --> 0:11:22.760 in Washington, Finance Minister of Turkey talking about budgetary discipline 0:11:22.840 --> 0:11:27.520 structural reforms and then as lera weakened. He moved over 0:11:27.679 --> 0:11:30.720 finally to what people want to know, Megan, which is 0:11:30.760 --> 0:11:36.800 an anti inflation fight and GDP growth not alternatives. How 0:11:36.840 --> 0:11:39.800 do you do, Megan in your textbooks? How do you 0:11:39.840 --> 0:11:44.640 do an anti inflation fight as non alternative with an 0:11:44.640 --> 0:11:49.280 imploding crisis? Yeah, So the the only way to get 0:11:49.320 --> 0:11:52.320 out of this this what is it now currency crisis 0:11:52.440 --> 0:11:55.120 is to high rate massively. That is the only way, 0:11:55.160 --> 0:11:58.160 and then accepts that you're going to go into your recession. Um. 0:11:58.200 --> 0:12:01.120 And everyone doesn't want to do that. Um. And I 0:12:01.120 --> 0:12:03.520 don't really see him betting on that. There's some talk about, 0:12:03.640 --> 0:12:06.160 you know, Turkey maybe going to be I M s instead, 0:12:06.240 --> 0:12:08.080 but the I M s going to demand the same thing, 0:12:08.360 --> 0:12:11.760 so absent that, UM, I don't know how Turkey gets 0:12:11.760 --> 0:12:14.400 out of this. Um. Certainly what the finance minister has 0:12:14.400 --> 0:12:17.120 been talking about sort of his philosophy is not what 0:12:17.240 --> 0:12:20.000 investors are looking for. I think they want to see 0:12:20.320 --> 0:12:22.520 talk of race going up, but I think they'd also 0:12:22.559 --> 0:12:25.440 need to see some personnel changing. And and to be honest, 0:12:25.840 --> 0:12:28.000 you know son in Law as Finance minister would be 0:12:28.040 --> 0:12:31.800 a key candidate to change with your with your London background, 0:12:32.040 --> 0:12:38.960 your a student on the allies of Turkey, who is 0:12:39.080 --> 0:12:43.760 Mr r to Wan's friend in Europe. So there are 0:12:43.760 --> 0:12:46.520 a couple of smaller European countries that he's trying to 0:12:46.559 --> 0:12:49.280 cozy up to. But in terms of real players with 0:12:49.360 --> 0:12:53.000 real money, UM, you know, he who he would need 0:12:53.040 --> 0:12:55.080 on his side would be Germany probably if he's looking 0:12:55.120 --> 0:12:59.280 for any real backstop. Relations between Germany and Turkey have 0:12:59.280 --> 0:13:02.679 have been following significantly. Um. I would say though, that 0:13:02.760 --> 0:13:05.040 Turkey does have one card to play with Europe, and 0:13:05.080 --> 0:13:07.360 that's the refuse d deal that was struck a couple 0:13:07.360 --> 0:13:09.480 of years ago. So Turkey could say, look, I need 0:13:09.480 --> 0:13:12.319 more money if you really want me to stop refugees 0:13:12.360 --> 0:13:15.600 at our border rather than opening the Flight eight because 0:13:15.720 --> 0:13:18.599 it would pose huge problems for America in particulars he 0:13:18.679 --> 0:13:22.200 did have refugees start flowing into Europe. Our relations with 0:13:22.280 --> 0:13:26.559 Turkey are not good at this time. Exclamation point finishes 0:13:26.640 --> 0:13:30.320 the President's tweet on sanctions, and yet that folds into 0:13:30.320 --> 0:13:33.800 political economics and the knock on effects. What are the 0:13:33.880 --> 0:13:38.880 knock on effects to London into the European economies of 0:13:39.000 --> 0:13:44.680 this US Turkey tension. So I think they're not going 0:13:44.720 --> 0:13:46.800 to affect for the U S and Turkey tensions is 0:13:46.880 --> 0:13:51.400 just a general rejiggering of um of allies. So Turkeys 0:13:51.480 --> 0:13:57.079 now actually posing up to Russia UM and Iran potentially, 0:13:57.280 --> 0:14:01.360 So there's there's just a total re of UM who's 0:14:01.400 --> 0:14:04.319 actually an ally of who? And of course that's been 0:14:04.360 --> 0:14:08.200 called into question. UM move noticeably by Germany with respect 0:14:08.200 --> 0:14:11.280 to the US, right, we're not obvious allies anymore. So 0:14:11.320 --> 0:14:13.640 I think there is a redrawing that map if you're 0:14:13.640 --> 0:14:15.800 just joining US. Megan Green with US of Manuel Life. 0:14:15.840 --> 0:14:18.400 Let me do a data check and Jonathan helped me 0:14:18.440 --> 0:14:20.880 here with the repeat of the Trump tweet. First on 0:14:20.920 --> 0:14:25.040 the data negative thirteen down future SMB futures earlier, we're 0:14:25.120 --> 0:14:29.000 negative sixteen. There's a true stability within the risk off 0:14:29.640 --> 0:14:32.880 versus UH Turkey and you see that in yen one 0:14:32.960 --> 0:14:36.320 eleven point zero zero did not strengthen off of the 0:14:36.360 --> 0:14:39.760 Trump tweet, as we see Turkish lyra at six point 0:14:40.280 --> 0:14:43.040 to four and it has gone through the early two 0:14:43.080 --> 0:14:46.840 am weakness is well, gold doesn't move all that much, 0:14:47.000 --> 0:14:50.440 and I'm watching the German two year yield moving more 0:14:50.600 --> 0:14:54.720 negative hours ago and right now with some German to 0:14:54.960 --> 0:14:58.560 year yield stability. Jonathan review that important tweet again that 0:14:58.640 --> 0:15:01.560 was market moving. Well. Basically, what it boils down to 0:15:01.680 --> 0:15:03.800 is the President of the United States has authorized a 0:15:03.880 --> 0:15:08.160 doubling of tariffs on Turkey steel and aluminum. Let me 0:15:08.200 --> 0:15:11.840 read you the direct tweet. I've just authorized a doubling 0:15:11.920 --> 0:15:15.720 of tariffs and still an aluminium. Megan Green says, I 0:15:15.760 --> 0:15:18.600 have to say aluminium, even though the President wouldn't say 0:15:18.640 --> 0:15:22.000 that with respect to Turkey, is their currency. The Turkish 0:15:22.040 --> 0:15:26.920 lira slides rapidly downward against our very strong dollar. Goes 0:15:26.960 --> 0:15:29.400 on to say, our relations with Turkey are not good 0:15:29.400 --> 0:15:34.280 at this time, so it's almost like fire can of gasoline. 0:15:34.400 --> 0:15:36.720 We're going to continue to follow this, but with Megan Green, 0:15:36.760 --> 0:15:39.840 we must divert to her Financial Times essay of the 0:15:39.880 --> 0:15:45.160 other day, which Megan really really plays into asset management 0:15:45.800 --> 0:15:49.680 in the bombshell from Fidelity of a week ago that 0:15:49.760 --> 0:15:54.360 they will offer a set of funds fee free that 0:15:54.440 --> 0:15:59.800 are index funds. You have studied our wave of passive 0:16:00.320 --> 0:16:05.480 passive investing in its effects, discuss that please? Yeah. Sure. 0:16:05.600 --> 0:16:07.920 So we've had a huge change in market structure over 0:16:07.960 --> 0:16:12.200 the past decade towards passive investing and that's index funds ets, 0:16:12.280 --> 0:16:15.560 but also kind of AI quant funds. And what all 0:16:15.600 --> 0:16:18.640 these different funds have in common is they're completely priced agnostics. 0:16:18.640 --> 0:16:20.960 They don't care about fundamentals at all, so they're not 0:16:21.040 --> 0:16:24.200 waiting for my analysis of CPI data today to trade. 0:16:24.240 --> 0:16:26.560 For example, they don't care why markets moves. They've just 0:16:26.640 --> 0:16:29.520 cared that the view. And there's a huge piling on effect. 0:16:29.640 --> 0:16:32.120 When a strategy works, everybody jumps into it, or when 0:16:32.120 --> 0:16:34.160 a stock goes up, all the EPs bloat up on 0:16:34.200 --> 0:16:36.920 more of that stock, and so stocks that are doing 0:16:36.920 --> 0:16:39.280 well get disproportionately bought on the way up. But that 0:16:39.320 --> 0:16:41.360 means that on the way down the will probaly just 0:16:41.560 --> 0:16:44.360 be distently solved and there will be a liquidity crunch. 0:16:44.440 --> 0:16:47.080 I think in a downturn, let's go math thee here. 0:16:47.720 --> 0:16:50.440 If they go up and they go down, is it 0:16:50.520 --> 0:16:55.640 a symmetric dynamics like a Bell curve or a Gaussian space, 0:16:56.280 --> 0:16:59.680 or there's some log normal joys here that makes going 0:16:59.760 --> 0:17:03.240 to own more painful. So I think in good times 0:17:03.240 --> 0:17:07.119 they provide a lot of liquidity, but in in bad times, 0:17:07.200 --> 0:17:10.000 I think it might be symmetric. Actually, they provide as 0:17:10.040 --> 0:17:13.080 bigger risk to liquidity um as they as they contribute 0:17:13.080 --> 0:17:16.240 to liquidity on their way up and and the impact 0:17:16.280 --> 0:17:18.639 is that on growth so is much bigger. If you 0:17:18.640 --> 0:17:21.280 get liquidity crunch, It's not clear who's going to step in. 0:17:21.359 --> 0:17:23.600 Is it really going to be thanks who are being 0:17:23.600 --> 0:17:26.240 a market maker when times are good? I'm not sure 0:17:26.280 --> 0:17:28.360 that they'll be willing to or if they can. So 0:17:28.840 --> 0:17:31.440 if you get a usual liquidity crunch, UM the FED 0:17:31.520 --> 0:17:33.840 could maybe step in, but that could have huge impacts 0:17:34.080 --> 0:17:36.640 not just on the markets, but on economic growth as well. 0:17:36.760 --> 0:17:39.760 So if we get the start of a downturn, UM 0:17:40.160 --> 0:17:43.199 funds could really exacerbate it. Megan twenty seconds. Can the 0:17:43.240 --> 0:17:48.000 Red Sox sustain seven D baseball? Yes, definitely, thank you 0:17:48.200 --> 0:17:50.280 as long as I keep going to their games because 0:17:50.280 --> 0:17:53.600 they keep winning when I'm there. That's very good Beggy Green, 0:17:53.720 --> 0:17:55.080 thank you so much for that, and we say good 0:17:55.119 --> 0:17:57.600 morning Boston one of six one FM. She is with 0:17:57.680 --> 0:18:00.360 Manual Life, which has a nod to a firm called 0:18:00.400 --> 0:18:15.600 Johnny Hancock. I should say in Boston as all Josh 0:18:15.640 --> 0:18:19.080 Brown's wisdom is perfect to speak to. Phoenix Kalin, a 0:18:19.119 --> 0:18:22.480 suck gen right now is expert in emerging market Phoenix 0:18:22.480 --> 0:18:26.320 to Josh Brown's wisdom there, why are we so upset 0:18:26.359 --> 0:18:32.320 about Turkish lira if it's so small? Well, I think 0:18:32.640 --> 0:18:35.160 still in terms of the debt markets, it's quite sizeable, 0:18:35.280 --> 0:18:38.480 and a lot of investors have exposures to Turkish assets, 0:18:38.520 --> 0:18:41.879 both on the currency side, equities and across six income 0:18:41.920 --> 0:18:44.960 as well. UM. And I think more importantly, it's it's 0:18:45.080 --> 0:18:48.880 very strategic to the whole global security infrastructure in terms 0:18:48.920 --> 0:18:51.560 of you know where we stand in the US versus 0:18:51.640 --> 0:18:55.840 NATO and our relationship with our our European peers, and 0:18:55.880 --> 0:19:00.560 so it's plays such such a regional UM, it's such 0:19:00.720 --> 0:19:04.680 a regional critical importance to that infrastructure. What is the 0:19:04.800 --> 0:19:08.560 symbolism of seven lira per dollar? We're spiked out the 0:19:08.600 --> 0:19:11.439 six point eight seven, we've come back since you started 0:19:11.480 --> 0:19:15.720 talking Phoenix Kalen single handedly strengthening lira right now? Is 0:19:15.720 --> 0:19:19.560 there a big deal to seven lira per dollar? There 0:19:19.720 --> 0:19:23.840 is UM. That's typically the level at which the capital 0:19:24.280 --> 0:19:28.159 adequacy buffers of the Turkish banks get eroded to the 0:19:28.200 --> 0:19:31.879 minimum required levels UM, and so they'll run out of capital, 0:19:31.920 --> 0:19:35.239 they'll need to face UM lots of considerations around what 0:19:35.280 --> 0:19:38.000 they'll do to protect capital and that means cutting dividends, 0:19:38.000 --> 0:19:43.000 that means curbing lending appetite UM, and that can accelerate 0:19:43.040 --> 0:19:49.040 the economic um contraction in Turkey. Yeah, one nine yen strength, 0:19:49.200 --> 0:19:52.800 the down negative one sixty seven, SP negative sixteen, the 0:19:52.880 --> 0:19:55.800 VIX moves a stick in thirty eight one point three 0:19:55.840 --> 0:19:59.280 eight points twelve point six five Phoenix. Does this mean 0:19:59.320 --> 0:20:00.920 that Turkey's gon I have to pay a visit to 0:20:00.960 --> 0:20:06.639 the International Monetary Fund in Washington? Well, I think that 0:20:06.800 --> 0:20:10.000 is one possibility, but it does not look likely because 0:20:10.160 --> 0:20:14.080 well we've seen already that the US has UM is 0:20:14.119 --> 0:20:18.080 trying to pass a bill through Congress to UH restrict 0:20:18.240 --> 0:20:22.520 Turkey's ability to access international financial institutions like the I 0:20:22.640 --> 0:20:24.920 m F or the World Bank or even the e 0:20:25.040 --> 0:20:28.600 B r D. So I think the vito's power that 0:20:28.640 --> 0:20:32.240 the US has is quite imposing, and they can place 0:20:32.280 --> 0:20:35.080 a lot of conditionality around any I M S packages 0:20:35.520 --> 0:20:37.960 that might be eventually awarded to Turkey. And I don't 0:20:38.000 --> 0:20:41.200 think that's a pallorable situation for for the Turkish population. 0:20:41.680 --> 0:20:44.359 Does the decline in the Turkish lira affect other emerging 0:20:44.440 --> 0:20:49.440 market currencies? Oh, certainly, today we are seeing some contagion 0:20:49.520 --> 0:20:53.600 across markets um or across Russia, across South Africa, so 0:20:53.720 --> 0:20:57.480 the dollar block is getting disproportionately hit UM. But overall, 0:20:57.760 --> 0:21:00.440 the amount of linkages that we have seen over the 0:21:00.480 --> 0:21:03.680 past several months between Turkey and the rest of em 0:21:03.680 --> 0:21:07.960 has has decoupled. Essentially, it's it's weakened, so there's less 0:21:07.960 --> 0:21:11.479 contagion than we might have experienced in years previously. So 0:21:11.520 --> 0:21:15.480 that's of some comfort to emerging market investors any opportunities 0:21:15.480 --> 0:21:18.440 in emerging markets as a result of today's sell off 0:21:18.480 --> 0:21:23.000 in the Lira, so I think we're we're seeing um 0:21:23.040 --> 0:21:26.960 a lot of valuation dislocations in places like South Africa. 0:21:27.040 --> 0:21:31.000 I think that's still a very attractive place to invest in, 0:21:31.119 --> 0:21:33.560 especially on the fixed income side, if you hedge out 0:21:33.600 --> 0:21:39.560 your currency exposure, especially given the kind of normative economic 0:21:39.600 --> 0:21:43.120 policies that the Round Process administration is trying to put 0:21:43.160 --> 0:21:47.520 in place. Within all of this, everybody has to regroup 0:21:47.800 --> 0:21:51.359 what's going on right now as we right for the 0:21:51.440 --> 0:21:55.560 weekend in e M strategy and what's going on right 0:21:55.600 --> 0:21:59.399 now in global wall streets, e M desks. I mean, 0:21:59.480 --> 0:22:01.639 is there a lot of sweat out there? Are people 0:22:01.680 --> 0:22:07.359 worried about red Sox Yankees what's going on? Well, I 0:22:07.359 --> 0:22:09.679 think what we've seen today with President air to one 0:22:09.800 --> 0:22:14.000 speech and with m President Trump's tweets in retaliation is 0:22:14.119 --> 0:22:16.879 is a lot of further posturing. I think there's still 0:22:17.320 --> 0:22:19.560 a lot that we're not not seeing behind the scenes 0:22:19.600 --> 0:22:23.760 in terms of still diplomatic channels seeing open and further negotiations. 0:22:23.760 --> 0:22:25.679 Are you are you you know you're you're one of 0:22:25.720 --> 0:22:28.920 the sophisticated trades as you just discussed on South Africa. 0:22:29.119 --> 0:22:32.200 Are you constructing trades today? Are you going to take 0:22:32.200 --> 0:22:35.480 it early lunch? I mean, what's the action that pros 0:22:35.600 --> 0:22:39.720 do on a day like this. On a day like this, 0:22:39.880 --> 0:22:42.080 you have to sit back and watch all the forecasts 0:22:42.119 --> 0:22:46.400 go out the window. It's not a time to It's 0:22:46.440 --> 0:22:49.439 not a time to put on trade because you're the 0:22:49.480 --> 0:22:54.080 moves are magnitude order magnitude higher than your stoplasses. You 0:22:54.080 --> 0:22:59.240 can go to lunch with kid chooks, right, Phoenix. If, 0:22:59.280 --> 0:23:02.760 as you say, the decline in the Turkish lira will 0:23:02.800 --> 0:23:06.640 affect other emerging market currencies, or at least some of them, 0:23:06.680 --> 0:23:10.720 are there other emerging market economies that have similar structure 0:23:10.800 --> 0:23:13.919 that would be affected because they cannot repay their dollar 0:23:14.040 --> 0:23:18.399