1 00:00:09,840 --> 00:00:13,800 Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene Jay Lee. 2 00:00:13,960 --> 00:00:17,560 Speaker 1: We bring you insight from the best in economics, finance, investment, 3 00:00:18,000 --> 00:00:23,520 Speaker 1: and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, 4 00:00:23,600 --> 00:00:28,000 Speaker 1: Bloomberg dot Com, and of course, on the Bloomberg Front 5 00:00:28,040 --> 00:00:30,880 Speaker 1: and Center. The main story this morning talks in Washington, 6 00:00:31,040 --> 00:00:34,040 Speaker 1: high level between the Chinese and the United States, and 7 00:00:34,080 --> 00:00:37,200 Speaker 1: a conversation, according to our team down in Washington about 8 00:00:37,200 --> 00:00:39,440 Speaker 1: a currency pack to Ibrahim rack Barry joining us here 9 00:00:39,440 --> 00:00:42,160 Speaker 1: in New York City's global head of f X analysis, 10 00:00:42,320 --> 00:00:44,560 Speaker 1: a currency packed. We talked about this earlier in the year. 11 00:00:44,800 --> 00:00:46,600 Speaker 1: We have no detail on what it would entail, no 12 00:00:46,680 --> 00:00:48,840 Speaker 1: detail on whether both sides would agree, and no detail 13 00:00:48,920 --> 00:00:52,080 Speaker 1: whatsoever and what the enforcement mechanism might be. Abraham, I'm 14 00:00:52,120 --> 00:00:54,480 Speaker 1: sure you've given this thought before today, because it's been 15 00:00:54,480 --> 00:00:56,720 Speaker 1: a story through much of the last twelve months. What 16 00:00:56,760 --> 00:00:59,440 Speaker 1: are your thoughts on it now? So, I think that 17 00:00:59,520 --> 00:01:01,760 Speaker 1: the prince able things to keep in mind is that 18 00:01:02,120 --> 00:01:04,720 Speaker 1: the currency issues are actually pretty easy to resolve between 19 00:01:04,720 --> 00:01:06,839 Speaker 1: the U S and China because their interests are fairly 20 00:01:07,040 --> 00:01:09,840 Speaker 1: fairly aligned. The US doesn't want a stronger dollar, The 21 00:01:10,040 --> 00:01:12,360 Speaker 1: Chinese don't want a weaker and men b at at 22 00:01:12,400 --> 00:01:15,959 Speaker 1: this time. They don't want to encourage even more capital outlaws. 23 00:01:16,160 --> 00:01:18,119 Speaker 1: So overall, I think this issue will be dealt with. 24 00:01:18,880 --> 00:01:20,800 Speaker 1: It won't be very far reaching. I think we have 25 00:01:20,920 --> 00:01:23,600 Speaker 1: the template. The template is what the US agreed with Korea. 26 00:01:23,720 --> 00:01:26,319 Speaker 1: What's part of the U s m C A agreement 27 00:01:26,400 --> 00:01:30,840 Speaker 1: in in essence, which is effectively more transparency around FS 28 00:01:30,880 --> 00:01:35,680 Speaker 1: interventions and some commitment not to quote unquote manipulate X. 29 00:01:36,080 --> 00:01:38,240 Speaker 1: So I don't think it's a big deal. It's relatively 30 00:01:38,280 --> 00:01:41,680 Speaker 1: easy to resolve. The timing is just the Chinese are 31 00:01:41,800 --> 00:01:43,920 Speaker 1: expecting to get something out of it, and I'm not 32 00:01:44,000 --> 00:01:46,160 Speaker 1: quite sure we're there this week. The agreement in and 33 00:01:46,160 --> 00:01:48,360 Speaker 1: of itself feels very superficial if this is what they 34 00:01:48,400 --> 00:01:50,480 Speaker 1: agree on. Ultimately, the good news that I think for 35 00:01:50,520 --> 00:01:52,720 Speaker 1: investors is that, according to our reporting, if we can 36 00:01:52,720 --> 00:01:55,080 Speaker 1: secure some kind of packed around this, it would be 37 00:01:55,080 --> 00:01:57,880 Speaker 1: phase one on the road to perhaps phase two and three, 38 00:01:58,120 --> 00:02:00,440 Speaker 1: which is securing a deal around the tougher things and 39 00:02:00,440 --> 00:02:04,639 Speaker 1: avoiding the terrified of next week. Abraham, We've been here before. 40 00:02:04,720 --> 00:02:07,400 Speaker 1: We've been here so many times. This market is being 41 00:02:07,400 --> 00:02:10,959 Speaker 1: whip sword by headline after headline, what is your advice 42 00:02:11,000 --> 00:02:14,200 Speaker 1: to your clients right now? So we we think overall 43 00:02:14,320 --> 00:02:16,560 Speaker 1: this is still a This is still a pretty cautious 44 00:02:16,600 --> 00:02:19,440 Speaker 1: and challenging global environment. We're right at the cusp of 45 00:02:19,440 --> 00:02:22,320 Speaker 1: what's consistent data wise with the soft landing, but it 46 00:02:22,360 --> 00:02:25,600 Speaker 1: doesn't take much to steep us into the hard landing scenario. 47 00:02:25,680 --> 00:02:29,480 Speaker 1: So you're definitely better off having exposure to hard lending hedges. 48 00:02:29,520 --> 00:02:31,800 Speaker 1: So in fect space that will certainly be two more 49 00:02:31,919 --> 00:02:34,600 Speaker 1: yen upside. For instance, down the line, the dollar is 50 00:02:34,639 --> 00:02:37,000 Speaker 1: not a bad place to be either, but it is 51 00:02:37,000 --> 00:02:38,880 Speaker 1: still a pretty diffuse environment, so you don't want to 52 00:02:39,080 --> 00:02:41,160 Speaker 1: fully commit to a hard lending environment. I want to 53 00:02:41,160 --> 00:02:44,880 Speaker 1: translate the currency chat yen upside means stronger yen stronger 54 00:02:44,960 --> 00:02:47,320 Speaker 1: yet yes, stronger, yeah, I mean, I mean Japan pay 55 00:02:47,320 --> 00:02:50,480 Speaker 1: is a huge pivot point here, frankly, like Turkey does 56 00:02:50,520 --> 00:02:54,080 Speaker 1: in the Middle East, but Japan, in the Eastern Asia, 57 00:02:54,200 --> 00:02:57,679 Speaker 1: in the Pacific Rim do they want a strong yend. 58 00:02:58,280 --> 00:03:00,800 Speaker 1: No they don't. And in fact, I should be very clear, 59 00:03:00,960 --> 00:03:03,320 Speaker 1: we are at at a pretty pivotal moment this month. 60 00:03:03,400 --> 00:03:05,520 Speaker 1: We have a BOJ meeting coming up later this month 61 00:03:05,560 --> 00:03:08,280 Speaker 1: where they're likely to at least have some action, and 62 00:03:08,320 --> 00:03:11,640 Speaker 1: we have an important five yearly review from the government 63 00:03:11,639 --> 00:03:14,360 Speaker 1: pension fund which again will probably try and stem the 64 00:03:14,400 --> 00:03:18,440 Speaker 1: appreciation pressure. But my point here is in the general 65 00:03:18,440 --> 00:03:21,400 Speaker 1: context we're in, that's probably not enough to to put 66 00:03:21,680 --> 00:03:23,960 Speaker 1: to put a cap on on the n in particularly 67 00:03:23,960 --> 00:03:25,800 Speaker 1: if things get worse. I think that's going to be 68 00:03:26,040 --> 00:03:28,119 Speaker 1: just because the time and you and I meant talked 69 00:03:28,200 --> 00:03:32,079 Speaker 1: earlier about how quiet the market's pen the eurostasis now 70 00:03:32,120 --> 00:03:36,240 Speaker 1: seems critical. What is the news flow that will make 71 00:03:36,560 --> 00:03:39,880 Speaker 1: euro move a demonstrable set of figures where I can 72 00:03:39,920 --> 00:03:42,839 Speaker 1: make money? Is it le Guard or is it something else? 73 00:03:42,880 --> 00:03:45,080 Speaker 1: I don't see how there. I think it should be 74 00:03:45,120 --> 00:03:48,080 Speaker 1: something else. Now, we we have argued that you were 75 00:03:48,120 --> 00:03:50,520 Speaker 1: actually able to make money on euro because it kept 76 00:03:50,560 --> 00:03:52,920 Speaker 1: on drifting lower over the last twelve months, and particularly 77 00:03:52,920 --> 00:03:55,720 Speaker 1: euro dollar has been quite inefficiently. But now what yes, 78 00:03:55,800 --> 00:03:58,920 Speaker 1: and and now we think what would be the big 79 00:03:59,000 --> 00:04:01,720 Speaker 1: driver isn't act that we see real recession risk in 80 00:04:01,720 --> 00:04:03,960 Speaker 1: Germany and if that spreads to the rest of Europe, 81 00:04:04,080 --> 00:04:07,240 Speaker 1: that I think would be a serious potential further downside 82 00:04:07,680 --> 00:04:09,640 Speaker 1: for for Europe. But for what we actually think we 83 00:04:09,640 --> 00:04:12,480 Speaker 1: will see the continued drift rather than an acceleration of 84 00:04:12,480 --> 00:04:15,200 Speaker 1: the trend. Well, Abraham, let's explore your baseline, your base case. 85 00:04:15,480 --> 00:04:17,880 Speaker 1: You believe we can engineer a soft landing. Care is 86 00:04:17,880 --> 00:04:20,400 Speaker 1: that still your base case? It is, but only only 87 00:04:20,440 --> 00:04:23,680 Speaker 1: really just this is a low conviction call, exactly. We 88 00:04:23,680 --> 00:04:26,719 Speaker 1: we we are in very mixed circumstances. So we we 89 00:04:26,839 --> 00:04:29,480 Speaker 1: weighed up both of those scenarios, and right now we're 90 00:04:29,520 --> 00:04:31,880 Speaker 1: you know, we're really in the middle of the road 91 00:04:32,200 --> 00:04:35,239 Speaker 1: between the two. We think that there's a soft landing 92 00:04:35,240 --> 00:04:37,480 Speaker 1: because we're actually still seeing some positive signs out of 93 00:04:37,520 --> 00:04:40,200 Speaker 1: China in terms of the data, credit markets, which historically 94 00:04:40,200 --> 00:04:42,599 Speaker 1: have been a good indicated also still looking quite okay, 95 00:04:42,640 --> 00:04:45,120 Speaker 1: and in fact, the US still has some positive signs. 96 00:04:45,160 --> 00:04:48,760 Speaker 1: How dependent is that low conviction baseline call of yours 97 00:04:48,800 --> 00:04:51,480 Speaker 1: to engineer a soft landing? How dependent is that call 98 00:04:51,880 --> 00:04:54,560 Speaker 1: on what happens between the Chinese and the United States 99 00:04:54,560 --> 00:04:56,760 Speaker 1: over the next couple of months. Quite quite dependent. So 100 00:04:56,880 --> 00:04:59,480 Speaker 1: within that is an expectation that we will not see 101 00:04:59,760 --> 00:05:02,640 Speaker 1: my further escalation from here. We should all be clear 102 00:05:03,000 --> 00:05:05,320 Speaker 1: ahead of the U S election, the US is extremely 103 00:05:05,400 --> 00:05:07,960 Speaker 1: unlikely to roll back tariffs so we don't think we'll 104 00:05:07,960 --> 00:05:10,200 Speaker 1: see a deal that resolves a lot of the issues, 105 00:05:10,680 --> 00:05:12,320 Speaker 1: but we are at a point where we think there's 106 00:05:12,320 --> 00:05:15,919 Speaker 1: only really tactical changes to the US China dynamic for 107 00:05:15,960 --> 00:05:17,640 Speaker 1: the next few months, So that gives you a fighting 108 00:05:17,720 --> 00:05:19,640 Speaker 1: chance to keep the software. We wanna get a final 109 00:05:19,680 --> 00:05:21,320 Speaker 1: question to you, because no doubt, through much of this 110 00:05:21,360 --> 00:05:23,680 Speaker 1: program will be dedicating it to what's happening with the 111 00:05:23,680 --> 00:05:26,120 Speaker 1: trade talks down in Washington, d C. That will no 112 00:05:26,160 --> 00:05:28,200 Speaker 1: doubt be the number one story for many people through 113 00:05:28,200 --> 00:05:30,680 Speaker 1: the training week as well. Yeah, Abraham, a thing we 114 00:05:30,720 --> 00:05:32,560 Speaker 1: go back to on this program is that typically for 115 00:05:32,640 --> 00:05:35,560 Speaker 1: investors were always overly focused on the shark closest to 116 00:05:35,600 --> 00:05:37,360 Speaker 1: the boat, and we need to be thinking about what's 117 00:05:37,360 --> 00:05:41,279 Speaker 1: happening out swhere. Do you think we are underestimating events 118 00:05:41,520 --> 00:05:44,279 Speaker 1: around the periphery of the main story at the moment 119 00:05:44,279 --> 00:05:46,279 Speaker 1: that perhaps needs a little bit more attention, And if so, 120 00:05:47,040 --> 00:05:50,159 Speaker 1: where is that attention where should it be? So we 121 00:05:50,240 --> 00:05:52,320 Speaker 1: think there are a couple of other important storys around. 122 00:05:52,320 --> 00:05:55,039 Speaker 1: We already touched on Japan, including ahead of those g 123 00:05:55,160 --> 00:05:57,320 Speaker 1: P i F reviews later this month. The big story 124 00:05:57,320 --> 00:05:59,159 Speaker 1: in G ten of X for US is also the 125 00:05:59,279 --> 00:06:03,119 Speaker 1: candies where we see a lot of sensitivity to weaker 126 00:06:03,120 --> 00:06:05,160 Speaker 1: global environment, but also central banks that seemed to be 127 00:06:05,200 --> 00:06:08,600 Speaker 1: a little bit behind the curve. So exactly so weaker, 128 00:06:08,720 --> 00:06:12,039 Speaker 1: weaker Swedish crona and at least no further upside on 129 00:06:12,080 --> 00:06:14,039 Speaker 1: the on the Norwegian side as well. And then of 130 00:06:14,040 --> 00:06:16,200 Speaker 1: course the other big topic, including an f X land 131 00:06:16,320 --> 00:06:19,720 Speaker 1: is Brexit. Abraham, thanks so much. It has just been 132 00:06:19,760 --> 00:06:39,080 Speaker 1: a crazy day. Thank you, thank you so much. We're 133 00:06:39,160 --> 00:06:41,800 Speaker 1: focused on trade, We're focused on the markets. We welcome 134 00:06:41,880 --> 00:06:44,839 Speaker 1: all of you coast to coast and worldwide. But right 135 00:06:44,880 --> 00:06:48,000 Speaker 1: now the interview of my day on Turkey. This is 136 00:06:48,000 --> 00:06:52,240 Speaker 1: Stephen Cook, his book faced on absolutely extraordinary on the 137 00:06:52,320 --> 00:06:55,160 Speaker 1: Path from the Arab Spring. He joins us now with 138 00:06:55,200 --> 00:06:58,360 Speaker 1: the Counseil on Foreign Relations from our studios. And while 139 00:06:58,400 --> 00:07:01,800 Speaker 1: she did, Steve Stephen good more warning, um I I 140 00:07:01,880 --> 00:07:04,040 Speaker 1: look at the events and let's bring it forward from 141 00:07:04,200 --> 00:07:08,600 Speaker 1: new questions coming off of Mr Aradjan's lengthy speech uh 142 00:07:08,640 --> 00:07:12,080 Speaker 1: in Anchora, what is next for Mr ra to Wan? 143 00:07:12,440 --> 00:07:16,760 Speaker 1: Who does he have to sell the message to next? Well, really, 144 00:07:16,760 --> 00:07:18,720 Speaker 1: the only people that he has to sell the message 145 00:07:18,760 --> 00:07:21,680 Speaker 1: to is the Turkish public. Uh and the real risk 146 00:07:21,760 --> 00:07:25,120 Speaker 1: for aer to one is that this incursion ends up 147 00:07:25,200 --> 00:07:31,280 Speaker 1: being a more serious and protracted military conflict. UH. The 148 00:07:31,320 --> 00:07:34,760 Speaker 1: Turks have now entered an area that had been controlled 149 00:07:34,760 --> 00:07:37,240 Speaker 1: by this Syrian Kurdish fighting force known as the People's 150 00:07:37,280 --> 00:07:41,760 Speaker 1: Protection Units. There's fighters aren't likely to take on Turkey directly, 151 00:07:41,800 --> 00:07:44,440 Speaker 1: but engaged in more of a guerilla warfare. So for 152 00:07:44,720 --> 00:07:47,560 Speaker 1: the moment, are One is riding high. He gave a 153 00:07:47,640 --> 00:07:51,119 Speaker 1: very tough speech UH in Anchora not long ago. But 154 00:07:51,480 --> 00:07:55,400 Speaker 1: if this operation unfolds and UH and and keeps Turkey 155 00:07:55,440 --> 00:07:57,960 Speaker 1: in in Syria for a long period of time, he 156 00:07:58,000 --> 00:08:00,600 Speaker 1: may run into some political problems. Stated. Can you explore 157 00:08:00,640 --> 00:08:02,480 Speaker 1: where the EU stands on all of this? There was 158 00:08:02,480 --> 00:08:05,320 Speaker 1: a threat from the Turkish president today to open the 159 00:08:05,360 --> 00:08:09,280 Speaker 1: doors to the three point six million Syrian refugees. Who 160 00:08:09,320 --> 00:08:12,800 Speaker 1: speaks for the EU at the moment, who's dealing with this? Well, 161 00:08:12,840 --> 00:08:15,280 Speaker 1: this is a very important issue, and the and the 162 00:08:15,360 --> 00:08:18,200 Speaker 1: presence of so many refugees in Turkey for which the 163 00:08:18,280 --> 00:08:21,040 Speaker 1: European Union has been paying Turkey to keep them. There 164 00:08:21,400 --> 00:08:25,440 Speaker 1: has been a point of leverage with President Air Juan 165 00:08:25,520 --> 00:08:28,720 Speaker 1: every time the European Union or individual European states have 166 00:08:28,800 --> 00:08:32,880 Speaker 1: grown critical of Airduan's domestic behavior. Uh, and he certainly 167 00:08:32,880 --> 00:08:36,000 Speaker 1: has proven himself to be an authoritarian like many others 168 00:08:36,000 --> 00:08:39,920 Speaker 1: in the region. Uh. He has threatened to open the doors. 169 00:08:40,200 --> 00:08:42,720 Speaker 1: So uh, there's going to be a UN Security Council 170 00:08:42,720 --> 00:08:45,440 Speaker 1: meeting today. THEU is going to meet and discuss this. 171 00:08:46,000 --> 00:08:48,160 Speaker 1: He is warning them not to take a strong stance 172 00:08:48,160 --> 00:08:51,720 Speaker 1: against Stephen Cooking. I'm so glad to bring this up. 173 00:08:51,800 --> 00:08:54,839 Speaker 1: But John, Yes, exactly the right question. I, as the 174 00:08:55,080 --> 00:09:00,480 Speaker 1: ignorant American, was close about the unique Germanic Turkish access. 175 00:09:00,600 --> 00:09:03,680 Speaker 1: I began with sabelt Ka Kelly, the actress in Game 176 00:09:03,720 --> 00:09:06,480 Speaker 1: of Thrones and her charity work in her Germany for 177 00:09:06,520 --> 00:09:09,960 Speaker 1: the Turkish community. Let's go right there. How does Chancellor 178 00:09:10,120 --> 00:09:15,400 Speaker 1: Miracle adapt and adjust to what President Trump has wrought? Well, 179 00:09:15,440 --> 00:09:18,080 Speaker 1: this is something that the Europeans have been trying to 180 00:09:18,080 --> 00:09:20,559 Speaker 1: deal with since the beginning of the Trump presidency. The 181 00:09:20,679 --> 00:09:24,280 Speaker 1: decision to stand aside as the Turks rolled into Syria 182 00:09:24,679 --> 00:09:27,240 Speaker 1: is one of those impulsive decisions that I think no 183 00:09:27,280 --> 00:09:30,480 Speaker 1: one has really quite gotten used to. And the problem 184 00:09:30,600 --> 00:09:33,560 Speaker 1: that is that it presents to the Europeans is that 185 00:09:33,640 --> 00:09:39,480 Speaker 1: the resulting instability has an impact on European politics. UH 186 00:09:39,800 --> 00:09:43,040 Speaker 1: Syrian refugees have been a flashpoint in European politics. There 187 00:09:43,080 --> 00:09:47,520 Speaker 1: were Neo Nazis in Europe well before the conflict in 188 00:09:47,559 --> 00:09:50,200 Speaker 1: Syria began in March two thousand eleven, but the presence 189 00:09:50,240 --> 00:09:53,840 Speaker 1: of so many Syrian refugees who have traveled through Turkey 190 00:09:53,880 --> 00:09:56,800 Speaker 1: on the way to Europe, particularly in Germany, has UH 191 00:09:57,640 --> 00:10:01,480 Speaker 1: encouraged and provided fuel for the extreme right in Europe 192 00:10:01,480 --> 00:10:04,040 Speaker 1: to make political gains. Stephen, there are so many different 193 00:10:04,080 --> 00:10:06,720 Speaker 1: angles to explore around this story, the response from Europe, 194 00:10:06,720 --> 00:10:08,520 Speaker 1: but also the response here in the United States. A 195 00:10:08,559 --> 00:10:12,240 Speaker 1: real divide in the Republican Party now between the executive 196 00:10:12,280 --> 00:10:15,679 Speaker 1: branch and senators, including Senator Lindsay Graham, an ally of 197 00:10:15,760 --> 00:10:18,960 Speaker 1: the President, close out of the President introducing a bipartisan 198 00:10:18,960 --> 00:10:21,800 Speaker 1: bill to sanction Turkey. Stephen, how do you see the 199 00:10:21,880 --> 00:10:26,480 Speaker 1: US response evolving in the coming months and the separation, 200 00:10:26,559 --> 00:10:30,720 Speaker 1: the division between the White House and Congress. It really 201 00:10:30,760 --> 00:10:33,559 Speaker 1: is rather extraordinary that it has taken a Turkish and 202 00:10:33,600 --> 00:10:36,760 Speaker 1: cruision and to herd them Syria to get the Democrats 203 00:10:36,760 --> 00:10:39,760 Speaker 1: and the Republicans together, which I think demonstrates the depth 204 00:10:39,880 --> 00:10:46,040 Speaker 1: of anger on Capitol Hill towards Turkey, once well regarded 205 00:10:46,080 --> 00:10:49,240 Speaker 1: by almost everyone on Capitol Hill is a strategic partner 206 00:10:49,280 --> 00:10:53,520 Speaker 1: of the United States, but this action has fueled concerns 207 00:10:53,679 --> 00:10:56,880 Speaker 1: that UM, it will take the pressure off the Islamic State, 208 00:10:56,920 --> 00:10:59,880 Speaker 1: which is regrouping and rebuilding, and will once again threaten 209 00:10:59,920 --> 00:11:03,199 Speaker 1: the region in American interests in perhaps the United States. Uh. 210 00:11:03,480 --> 00:11:06,840 Speaker 1: All that said, UH, it doesn't strike me that there's 211 00:11:07,000 --> 00:11:10,360 Speaker 1: much that the Congress can view to prevent UH further 212 00:11:10,400 --> 00:11:14,559 Speaker 1: Turkish action or the American or the Trump administration's tacit 213 00:11:14,640 --> 00:11:17,199 Speaker 1: support for what the Turks are doing. Stephen Cooke too 214 00:11:17,240 --> 00:11:22,200 Speaker 1: quickly here from your book False Dawn, Chapter two, Bread Freedom, 215 00:11:22,559 --> 00:11:26,480 Speaker 1: Social Justice, Where will be the bread for the disrupted 216 00:11:27,040 --> 00:11:31,280 Speaker 1: on the Turkish Syrian border? Where will that come from? Well, 217 00:11:31,320 --> 00:11:36,360 Speaker 1: that is an extremely important question, and already aid groups 218 00:11:36,720 --> 00:11:40,400 Speaker 1: have pointed out that much of this population is dependent 219 00:11:40,559 --> 00:11:45,000 Speaker 1: upon international non governmental organizations and their work is being 220 00:11:45,040 --> 00:11:49,040 Speaker 1: disrupted by UH this Turkish incursion. So people who are 221 00:11:49,080 --> 00:11:52,959 Speaker 1: already quite vulnerable and once again finding themselves in an 222 00:11:52,960 --> 00:11:56,160 Speaker 1: even more difficult situation. Stephen, we appreciate its on this morning, 223 00:11:56,200 --> 00:11:59,000 Speaker 1: Stephen Cook of the Council and farm Relations. Cinia Fellow 224 00:11:59,000 --> 00:12:02,280 Speaker 1: for Middle East and Africa Studies. Tell me a really original, 225 00:12:02,400 --> 00:12:18,280 Speaker 1: unique situation that could end really quite badly. Now I'll 226 00:12:18,280 --> 00:12:20,800 Speaker 1: get lots of talk about on trade with an esteemed 227 00:12:20,800 --> 00:12:23,719 Speaker 1: equity guest, the mechanical engineer from Pennsylvania knows how to 228 00:12:23,800 --> 00:12:26,200 Speaker 1: use a slide rule. David Pearl where this was epic 229 00:12:26,679 --> 00:12:28,560 Speaker 1: Partner's David, I want to go to the ramcode deal 230 00:12:28,679 --> 00:12:30,520 Speaker 1: just out what did they say, John, They're gonna now 231 00:12:30,640 --> 00:12:34,800 Speaker 1: they're gonna announce a perspectus to give the green light 232 00:12:34,840 --> 00:12:39,000 Speaker 1: for the world's biggest But we're only green lighting. It's 233 00:12:39,000 --> 00:12:43,440 Speaker 1: not an I p O. It's a stub diliquefy am 234 00:12:43,440 --> 00:12:47,400 Speaker 1: I right, David defined price. Ah right, It's just a 235 00:12:47,400 --> 00:12:50,760 Speaker 1: way to monetize their holding because they're really not selling 236 00:12:50,840 --> 00:12:54,240 Speaker 1: much the public. You're not any real ownership. But then 237 00:12:54,280 --> 00:12:57,439 Speaker 1: you just described Silicon Valley. I mean Silicon Valley will 238 00:12:57,440 --> 00:13:01,920 Speaker 1: put out what six eight of an equity A Ramco 239 00:13:02,000 --> 00:13:05,920 Speaker 1: is putting out one to whatever within all you've seen 240 00:13:05,920 --> 00:13:09,640 Speaker 1: in the last ninety days is a Silicon Valley Unicorn parade. 241 00:13:10,280 --> 00:13:13,199 Speaker 1: Is it over? I do think it is over right 242 00:13:13,240 --> 00:13:18,640 Speaker 1: now because the market is seeing a concern about companies 243 00:13:18,679 --> 00:13:23,000 Speaker 1: continually losing money. These are companies that bleed free cash flow. 244 00:13:23,600 --> 00:13:26,880 Speaker 1: They have to continue they have exactly, they have to 245 00:13:26,920 --> 00:13:30,080 Speaker 1: go to market continually to stay in business. And the 246 00:13:30,120 --> 00:13:32,360 Speaker 1: markets are getting a little leery of this. You're seeing 247 00:13:32,400 --> 00:13:35,600 Speaker 1: that in numerous recent I p o s and bond offers. 248 00:13:35,760 --> 00:13:37,240 Speaker 1: So we've got a bit of detail here, Tom, so 249 00:13:37,320 --> 00:13:39,880 Speaker 1: let's go through it. The people involved in the deal. It's, 250 00:13:39,880 --> 00:13:43,320 Speaker 1: according to our reporting here at Bloomberg, looking to sell 251 00:13:43,480 --> 00:13:46,960 Speaker 1: two p of a RAM, which could raise forty billion. 252 00:13:47,000 --> 00:13:48,640 Speaker 1: Now you can do the math on that. I'm just 253 00:13:48,679 --> 00:13:50,840 Speaker 1: wondering how ambitious it is to sell two per at 254 00:13:50,880 --> 00:13:54,880 Speaker 1: forty billion dollars, David. They've they've continually trying to value 255 00:13:54,880 --> 00:13:57,240 Speaker 1: this company at two trillion, and I'm not sure the 256 00:13:57,280 --> 00:13:59,840 Speaker 1: market wants to deal with that valuation. That that that 257 00:14:00,000 --> 00:14:03,040 Speaker 1: it's the entire issue. So the smaller amount that they sell, 258 00:14:03,120 --> 00:14:07,240 Speaker 1: the more likely they can keep the price higher because 259 00:14:07,280 --> 00:14:09,040 Speaker 1: there isn't that much of a market looking at the 260 00:14:09,080 --> 00:14:12,360 Speaker 1: rest of the energy stocks around COOS, that's such a 261 00:14:12,400 --> 00:14:14,440 Speaker 1: premium if you do this, do you get the sense 262 00:14:14,480 --> 00:14:17,200 Speaker 1: that this is a very original IPO and there could 263 00:14:17,200 --> 00:14:20,280 Speaker 1: be some favors coult In here to support the valuation 264 00:14:20,600 --> 00:14:23,400 Speaker 1: of this issue. Well, again, the the beauty of UM 265 00:14:23,680 --> 00:14:26,080 Speaker 1: doing a traditional i p O is the placement and 266 00:14:26,160 --> 00:14:29,840 Speaker 1: so finding some strong buyers and keeping the share size 267 00:14:29,840 --> 00:14:32,160 Speaker 1: as small as you can will help. Can we back 268 00:14:32,240 --> 00:14:35,200 Speaker 1: up and long ago and far away? In my ute, 269 00:14:36,640 --> 00:14:39,240 Speaker 1: an i p O was what David eight percent of 270 00:14:39,280 --> 00:14:44,520 Speaker 1: a company? Secent of a company. Maybe there's a little 271 00:14:44,560 --> 00:14:47,680 Speaker 1: private stub off. I mean, John, we flipped this on 272 00:14:47,760 --> 00:14:50,360 Speaker 1: its head. What you just said there I would have 273 00:14:50,440 --> 00:14:53,680 Speaker 1: told you twenty years ago was impossible. Well, in fact, 274 00:14:53,720 --> 00:14:56,200 Speaker 1: the usually the reason you would go public is because 275 00:14:56,240 --> 00:14:59,760 Speaker 1: you're raising capital to grow. That's not the case in 276 00:14:59,840 --> 00:15:03,200 Speaker 1: the one at all. This is about monetization of you know, 277 00:15:03,240 --> 00:15:05,480 Speaker 1: the owners. And that's that's why I struggle with the 278 00:15:05,960 --> 00:15:08,640 Speaker 1: valuation of this company because you know what the intent 279 00:15:08,720 --> 00:15:11,840 Speaker 1: and the objective is of the Kingdom. They quite clearly 280 00:15:11,840 --> 00:15:14,120 Speaker 1: see a top for this business if they want to 281 00:15:14,160 --> 00:15:16,480 Speaker 1: sell it down. And if you're an investor looking at 282 00:15:16,480 --> 00:15:20,040 Speaker 1: it knowing that that's what the Kingdom sees, why would 283 00:15:20,040 --> 00:15:22,760 Speaker 1: you be a buyer of that story? Well, all I 284 00:15:22,800 --> 00:15:25,320 Speaker 1: can say is it is a well run company. On 285 00:15:25,360 --> 00:15:28,680 Speaker 1: the positive side, it is. It is for dividend for income. 286 00:15:29,040 --> 00:15:31,960 Speaker 1: It will generate cash. But but again the valuation I 287 00:15:32,000 --> 00:15:34,760 Speaker 1: can't really speak to because right now the comparables are 288 00:15:34,840 --> 00:15:38,560 Speaker 1: much much lower that That is Ambre Horden's really smart 289 00:15:38,640 --> 00:15:42,200 Speaker 1: interview yesterday Rochelle Oil John. She started with the dividend 290 00:15:43,080 --> 00:15:45,840 Speaker 1: Shell has basically done nothing. I mean X on mobile 291 00:15:45,880 --> 00:15:49,440 Speaker 1: tenures trailing three point one percent per year, you get 292 00:15:49,440 --> 00:15:52,200 Speaker 1: a big US dividends? Shall you get John? Is six 293 00:15:52,240 --> 00:15:54,840 Speaker 1: percent dividend? I mean shall should be on the real 294 00:15:54,920 --> 00:15:57,360 Speaker 1: you and change almost six and a half percent? Is 295 00:15:57,400 --> 00:15:59,400 Speaker 1: your is your dividend? Are we going to get the 296 00:15:59,480 --> 00:16:01,680 Speaker 1: dividend for Mariam Coo? Would you suggest? I know, not 297 00:16:01,920 --> 00:16:04,200 Speaker 1: there like yeah, I really doubt it's going to be 298 00:16:04,240 --> 00:16:06,400 Speaker 1: that high. But the dividend is definitely one of the 299 00:16:06,440 --> 00:16:09,800 Speaker 1: ways that they will be paying investors and themselves, So 300 00:16:10,280 --> 00:16:12,360 Speaker 1: it makes sense to have a dividend, but it's not 301 00:16:12,440 --> 00:16:15,400 Speaker 1: going to be as high as David. I want to 302 00:16:15,400 --> 00:16:17,080 Speaker 1: talk about what's happening with the trade story as well, 303 00:16:17,320 --> 00:16:19,600 Speaker 1: and on a single name issue, because I think this 304 00:16:19,600 --> 00:16:21,760 Speaker 1: this week has really taken it from a global macro 305 00:16:21,960 --> 00:16:24,720 Speaker 1: story from top down to a single name story with 306 00:16:24,800 --> 00:16:27,760 Speaker 1: the likes of Activision, Blizzard, the likes of the NBA 307 00:16:27,800 --> 00:16:31,280 Speaker 1: as well. These names the Walt Disney Company because of 308 00:16:31,520 --> 00:16:35,880 Speaker 1: ESPN getting caught up in two completely different value systems. 309 00:16:36,240 --> 00:16:38,200 Speaker 1: If you want to operate in the United States and 310 00:16:38,200 --> 00:16:41,080 Speaker 1: you want to operate in China, to satisfy the consumers 311 00:16:41,080 --> 00:16:44,600 Speaker 1: in the United States and simultaneously satisfy the state in 312 00:16:44,720 --> 00:16:48,640 Speaker 1: China is becoming increasingly difficult. As a stock selector, a 313 00:16:48,760 --> 00:16:51,640 Speaker 1: stock picker. How are you thinking about that at the moment, David? 314 00:16:52,320 --> 00:16:54,840 Speaker 1: This is this is an incredibly complex area. We could 315 00:16:54,880 --> 00:16:56,480 Speaker 1: talk about this for a while and I will tell 316 00:16:56,520 --> 00:16:59,760 Speaker 1: you the question is if you run a company, who 317 00:17:00,040 --> 00:17:03,760 Speaker 1: are you responsible to if it's creating value for your 318 00:17:03,920 --> 00:17:08,560 Speaker 1: shareholders and owners or is it the stakeholders, including society 319 00:17:08,600 --> 00:17:12,600 Speaker 1: at large, the customers. It's almost undoable right now because 320 00:17:12,680 --> 00:17:14,920 Speaker 1: of the issues you just said that there's no way 321 00:17:14,960 --> 00:17:18,680 Speaker 1: for a company to satisfy all their stakeholders. But as 322 00:17:18,680 --> 00:17:23,200 Speaker 1: an investor, their duty is to create value for shareholders, 323 00:17:23,520 --> 00:17:26,960 Speaker 1: and so they have to make an economic decision that's 324 00:17:27,000 --> 00:17:29,239 Speaker 1: best for the company, no matter what the politics, and 325 00:17:29,280 --> 00:17:32,280 Speaker 1: that is going to be very difficult in this environment 326 00:17:32,280 --> 00:17:34,199 Speaker 1: and many of these companies flick the switch on that 327 00:17:34,240 --> 00:17:35,960 Speaker 1: in the last couple of months and said that the 328 00:17:36,320 --> 00:17:39,879 Speaker 1: shareholders no longer the number one priority. That was some 329 00:17:39,920 --> 00:17:42,080 Speaker 1: news that came out led by the likes of JP 330 00:17:42,119 --> 00:17:44,520 Speaker 1: Mork and I believe David, Do you believe that in 331 00:17:44,560 --> 00:17:46,400 Speaker 1: the first place? And if that is to be true, 332 00:17:46,440 --> 00:17:49,440 Speaker 1: if we're meant to take account of all the stakeholders 333 00:17:49,600 --> 00:17:52,560 Speaker 1: in our business now as a business leader, how complex 334 00:17:52,600 --> 00:17:55,680 Speaker 1: will it be to navigate two completely different markets the 335 00:17:55,720 --> 00:17:58,359 Speaker 1: United States and China. Oh, it's going to be a 336 00:17:58,440 --> 00:18:00,800 Speaker 1: much harder world to invest stint and to run a 337 00:18:00,840 --> 00:18:03,040 Speaker 1: company in. I mean as a as a as a 338 00:18:03,040 --> 00:18:06,480 Speaker 1: shareholder and investor. I'm going to make an economic decision 339 00:18:06,520 --> 00:18:08,680 Speaker 1: on whether the company is doing the right thing for 340 00:18:08,800 --> 00:18:12,120 Speaker 1: us as owners. But that does include to some degree 341 00:18:12,240 --> 00:18:16,520 Speaker 1: these um, you know, stakeholder issues and you know, ethical 342 00:18:16,560 --> 00:18:22,360 Speaker 1: political issues, epic partners, foundational sharp ratio, risk free rate. 343 00:18:22,640 --> 00:18:26,800 Speaker 1: Where's the risk free rate right now? To three decimal points? 344 00:18:27,680 --> 00:18:30,440 Speaker 1: It's pretty low. And actually this is this has been 345 00:18:30,480 --> 00:18:33,399 Speaker 1: one of the scary things that has happened since QUEI 346 00:18:33,640 --> 00:18:38,920 Speaker 1: started in and has almost restarted this year, that many 347 00:18:39,000 --> 00:18:43,320 Speaker 1: companies back to the unicorns who probably shouldn't exist, can 348 00:18:43,359 --> 00:18:47,200 Speaker 1: still raise money. And you know this is still concerning 349 00:18:47,240 --> 00:18:49,960 Speaker 1: as a free cash flow investor because the law of 350 00:18:50,000 --> 00:18:53,960 Speaker 1: economics is the competitor who is more profitable eventually wins. 351 00:18:54,000 --> 00:18:56,359 Speaker 1: But now the person who can lose the most money 352 00:18:56,720 --> 00:19:00,640 Speaker 1: can disrupt the profitable companies. Quickly walk through an example. 353 00:19:00,640 --> 00:19:02,280 Speaker 1: You don't even have to mention the name of a 354 00:19:02,320 --> 00:19:04,880 Speaker 1: company you got wrong. Where you looked at the free 355 00:19:04,920 --> 00:19:08,440 Speaker 1: cashow it looked legitimate, and three or five years later 356 00:19:08,480 --> 00:19:11,639 Speaker 1: you guys said, man, we mess that up. How do 357 00:19:11,680 --> 00:19:15,720 Speaker 1: you get there? Yeah, it's usually because of some change 358 00:19:15,720 --> 00:19:19,000 Speaker 1: in the market or competition. Um, we're pretty good about 359 00:19:19,080 --> 00:19:22,600 Speaker 1: the profitability of the company's note issue. No, But as 360 00:19:22,600 --> 00:19:25,159 Speaker 1: a disruptor, let's put it this way. Walt Disney was 361 00:19:25,160 --> 00:19:27,959 Speaker 1: one of the most profitable companies, has been a great stock. 362 00:19:28,600 --> 00:19:32,440 Speaker 1: Netflix disrupted the industry. It can lose. It's losing three 363 00:19:32,440 --> 00:19:34,440 Speaker 1: and a half billion dollars this year and we'll lose 364 00:19:34,480 --> 00:19:37,440 Speaker 1: more next year. Keeps reading your mind and has spent 365 00:19:37,560 --> 00:19:41,600 Speaker 1: more money on content than even Disney had. Uh, and 366 00:19:41,680 --> 00:19:44,880 Speaker 1: yet will never make money. But it is affecting Disney, 367 00:19:44,880 --> 00:19:47,200 Speaker 1: and Disney now will have to invest a lot of money, 368 00:19:47,240 --> 00:19:51,760 Speaker 1: basically hurt shareholder value to compete and they will, uh, 369 00:19:51,800 --> 00:19:53,960 Speaker 1: they'll probably be successful as a matter of fact in 370 00:19:53,960 --> 00:19:56,720 Speaker 1: the long term, but they've hurt shareholder value in the 371 00:19:56,720 --> 00:19:58,880 Speaker 1: short Does ample change if they've got to get into 372 00:19:58,960 --> 00:20:02,440 Speaker 1: content Paul Sweeney suggest that won't be nearly as profitable 373 00:20:02,440 --> 00:20:06,119 Speaker 1: as the Apple combine. Oh, yeah, absolutely. I think Apple. 374 00:20:06,280 --> 00:20:11,600 Speaker 1: Apple does want to transition to recurring revenue services, including content, 375 00:20:11,800 --> 00:20:15,280 Speaker 1: but this is an area they don't have any competitive advantage, 376 00:20:15,280 --> 00:20:17,040 Speaker 1: and to begin with, they're going to spend a lot 377 00:20:17,080 --> 00:20:20,639 Speaker 1: of money, and once again, it does hurt shareholder value. 378 00:20:20,680 --> 00:20:22,960 Speaker 1: In fact, that was one of the issues we had 379 00:20:23,320 --> 00:20:25,680 Speaker 1: with Apple as a long term hold. Just to clear 380 00:20:25,720 --> 00:20:27,119 Speaker 1: hit David, just to clean this up, because I think 381 00:20:27,119 --> 00:20:29,520 Speaker 1: it's really really important if we do describe this era 382 00:20:29,760 --> 00:20:31,560 Speaker 1: as the era of easy money, and some people might 383 00:20:31,560 --> 00:20:33,640 Speaker 1: push aggressively back on that, but if this era came 384 00:20:33,680 --> 00:20:37,080 Speaker 1: to a close and this very unique era of exceptionally 385 00:20:37,119 --> 00:20:39,120 Speaker 1: easy money, and did you saying that some of these 386 00:20:39,119 --> 00:20:41,200 Speaker 1: business models that have been established to the likes of 387 00:20:41,200 --> 00:20:43,760 Speaker 1: the Walt Disney Company and others are getting involved in 388 00:20:44,000 --> 00:20:47,679 Speaker 1: are ultimately unsustainable at this price level. That unsustainable business 389 00:20:47,680 --> 00:20:50,800 Speaker 1: models well, for Walt Disney, they have the capital to 390 00:20:50,920 --> 00:20:54,080 Speaker 1: survive this. It's just hurting near term profits and mid 391 00:20:54,200 --> 00:20:57,159 Speaker 1: term profit Netflix. But for the disrupts like Netflix, this 392 00:20:57,200 --> 00:21:00,320 Speaker 1: would be a disaster. Uh. They literally have to go 393 00:21:00,359 --> 00:21:03,320 Speaker 1: to market at least once to twice a year to 394 00:21:03,400 --> 00:21:06,480 Speaker 1: stay in business, and they have successfully done that, but 395 00:21:06,760 --> 00:21:09,560 Speaker 1: that could come to an end. We're out of time 396 00:21:09,600 --> 00:21:12,640 Speaker 1: doing the interesting stuff, Thank you, partners are in particularly 397 00:21:12,720 --> 00:21:16,120 Speaker 1: untrade and the ramifications of China. It's the story. John 398 00:21:16,119 --> 00:21:33,160 Speaker 1: and I are watching. What a session it was overnight, 399 00:21:33,200 --> 00:21:35,560 Speaker 1: the market dropping on a report from the South China 400 00:21:35,640 --> 00:21:38,960 Speaker 1: Morning Post suggesting that deputy level talks had gone poorly. 401 00:21:39,280 --> 00:21:42,200 Speaker 1: The Chinese delegation may leave early. Then the market rallied 402 00:21:42,200 --> 00:21:44,920 Speaker 1: on reports they will stay through Friday. Then we rolled over, 403 00:21:45,040 --> 00:21:47,800 Speaker 1: then bounced back as Bloomberg report of the US may 404 00:21:47,880 --> 00:21:50,120 Speaker 1: roll out a currency pack as part of a deal 405 00:21:50,160 --> 00:21:53,400 Speaker 1: that could also suspend a planned tariff increase next week. 406 00:21:53,440 --> 00:21:56,320 Speaker 1: The talks at a high level haven't even started yet. 407 00:21:56,320 --> 00:21:59,040 Speaker 1: Equity futures all over the place right now. We are 408 00:21:59,080 --> 00:22:02,040 Speaker 1: negative around about five points on the SMP five hundred, 409 00:22:02,119 --> 00:22:04,240 Speaker 1: down a round about a tenth of one percent for 410 00:22:04,280 --> 00:22:06,440 Speaker 1: the fetes view on all of this. I'm really pleased 411 00:22:06,480 --> 00:22:08,040 Speaker 1: to say that we can now catch up with the 412 00:22:08,119 --> 00:22:11,840 Speaker 1: Dallas FAT President Robert Kaplan alongside our colleague bloom Bugs 413 00:22:11,880 --> 00:22:13,960 Speaker 1: Michael McKee. Thank you very much. We would like to 414 00:22:14,280 --> 00:22:17,920 Speaker 1: welcome Rob Kaplan to Bloomberg Radio and Television worldwide. Thank 415 00:22:17,920 --> 00:22:20,480 Speaker 1: you for joining us this morning. Thanks for being in Texas. 416 00:22:20,600 --> 00:22:22,879 Speaker 1: As we noted just minutes ago, you released an essay 417 00:22:23,040 --> 00:22:26,600 Speaker 1: on the economy and Monetary policy in which you say, 418 00:22:26,640 --> 00:22:29,960 Speaker 1: at this juncture, having adjusted the policy rate twice this year, 419 00:22:30,200 --> 00:22:32,840 Speaker 1: it is my intention to take some time to carefully 420 00:22:32,880 --> 00:22:36,560 Speaker 1: monitor economic developments. It sounds like you're not convinced that 421 00:22:36,600 --> 00:22:40,520 Speaker 1: you need to cut rates on OCT I'll withhold judgment 422 00:22:40,680 --> 00:22:45,080 Speaker 1: until right before the meeting. I was supportive of the 423 00:22:45,200 --> 00:22:49,160 Speaker 1: July cut, also was an advocate of the September cut, 424 00:22:49,720 --> 00:22:51,760 Speaker 1: And the reason I was in favor of those cuts 425 00:22:51,880 --> 00:22:56,360 Speaker 1: is I feel that decelerating global growth weakness and manufacturing 426 00:22:56,800 --> 00:23:00,119 Speaker 1: weakness and business investment, there's a risk at those that 427 00:23:00,280 --> 00:23:03,720 Speaker 1: those weaknesses may intensify and spread to other parts of 428 00:23:03,720 --> 00:23:05,879 Speaker 1: the U. S economy, and I felt it was appropriate 429 00:23:05,920 --> 00:23:09,040 Speaker 1: for us to take some action. Now that we've acted twice. 430 00:23:10,160 --> 00:23:13,359 Speaker 1: I'm gonna withhold judgment here and take We've got about 431 00:23:13,359 --> 00:23:15,280 Speaker 1: twenty days to the next meeting. I planned to take 432 00:23:15,359 --> 00:23:17,400 Speaker 1: most of it to make a judgment. Well, you also 433 00:23:17,520 --> 00:23:20,520 Speaker 1: say in your essay, I believe that moves in US 434 00:23:20,600 --> 00:23:24,399 Speaker 1: market determined rates are consistent with concerns about economic weakness 435 00:23:24,440 --> 00:23:27,280 Speaker 1: spreading more broadly to other parts of the US economy. 436 00:23:27,520 --> 00:23:31,400 Speaker 1: Now market rates, particularly Fed funds futures, have priced in 437 00:23:31,560 --> 00:23:34,480 Speaker 1: a rate cut. Do you have to ratify what the 438 00:23:34,520 --> 00:23:37,520 Speaker 1: markets are thinking. No, the market rates are referring to 439 00:23:37,880 --> 00:23:41,919 Speaker 1: our particularly particularly looking at the treasury curve, and and 440 00:23:42,119 --> 00:23:45,920 Speaker 1: since the fall of two thousand eighteen, over the last year, 441 00:23:46,320 --> 00:23:48,760 Speaker 1: the tenure treasury has gone from three and a quarter 442 00:23:50,040 --> 00:23:53,560 Speaker 1: yield to high one fifties today, is about a hundred 443 00:23:53,560 --> 00:23:57,399 Speaker 1: and sixty five basis point rally. It's a substantial rally. 444 00:23:57,800 --> 00:24:00,560 Speaker 1: In that same time, the Fed funds rate has only 445 00:24:00,600 --> 00:24:02,960 Speaker 1: moved down about fifty basis points at least since the 446 00:24:03,040 --> 00:24:06,720 Speaker 1: beginning of this year. So we've had a substantial financial 447 00:24:06,880 --> 00:24:10,239 Speaker 1: move in market determined rates. I think some of it 448 00:24:10,359 --> 00:24:14,520 Speaker 1: is global liquidity, but some of it is increased pessimism 449 00:24:14,560 --> 00:24:18,879 Speaker 1: about future growth, mainly due to trade tensions and and no, 450 00:24:19,160 --> 00:24:21,760 Speaker 1: I don't. I don't think the Fed has to chase 451 00:24:22,320 --> 00:24:25,400 Speaker 1: uh that move, but I think it did tell me 452 00:24:25,640 --> 00:24:27,840 Speaker 1: that substantial move tell me that the setting of the 453 00:24:27,880 --> 00:24:31,600 Speaker 1: FED funds rate was probably too tight in July and September. 454 00:24:31,640 --> 00:24:34,240 Speaker 1: It may still be too tight, but that's a judgment 455 00:24:34,240 --> 00:24:36,320 Speaker 1: I want to make as as we go through the 456 00:24:36,359 --> 00:24:39,119 Speaker 1: next few weeks. Given the investors are so certain of 457 00:24:39,160 --> 00:24:42,320 Speaker 1: a rate cut, do you risk maybe a reductive the 458 00:24:42,320 --> 00:24:45,320 Speaker 1: taper tantrum if you don't ratify with it. So I 459 00:24:45,720 --> 00:24:48,240 Speaker 1: think the one thing you've heard me say before, market 460 00:24:48,280 --> 00:24:51,560 Speaker 1: expectations can change on a dime. UH. And I don't 461 00:24:51,600 --> 00:24:54,520 Speaker 1: think my job is to satisfy the markets. It is 462 00:24:54,640 --> 00:24:57,399 Speaker 1: to figure out whether we've got the right policy setting, 463 00:24:57,640 --> 00:25:02,200 Speaker 1: particularly a setting that fosters you can I'm a growth also. UH. 464 00:25:02,960 --> 00:25:04,399 Speaker 1: Other part of my job, by the way, is to 465 00:25:04,440 --> 00:25:09,040 Speaker 1: call out it's not just monetary policy that has been 466 00:25:09,080 --> 00:25:12,440 Speaker 1: a cause of this slowdown, and monetary more than monetary. 467 00:25:12,520 --> 00:25:14,879 Speaker 1: Monetary policy is going to be needed if we're going 468 00:25:14,960 --> 00:25:19,560 Speaker 1: to grow faster. And I'm talking about growing the workforce, UH, 469 00:25:19,640 --> 00:25:25,760 Speaker 1: improving UH trade UH and de escalating trade tensions and 470 00:25:25,840 --> 00:25:29,360 Speaker 1: also other moves on education, skills trained, and other things 471 00:25:29,359 --> 00:25:33,119 Speaker 1: that would increase our ability to grow. The minutes of 472 00:25:33,160 --> 00:25:35,840 Speaker 1: your September meeting show a discussion about whether to put 473 00:25:35,880 --> 00:25:39,159 Speaker 1: something in the statement or publicly suggest when you would 474 00:25:39,320 --> 00:25:43,040 Speaker 1: end this cutting cycle. Do we get something like that? Uh, 475 00:25:44,200 --> 00:25:49,040 Speaker 1: I'm not necessarily sure that that's appropriate. I think when 476 00:25:49,080 --> 00:25:52,280 Speaker 1: you start hearing people like me and others say I'm 477 00:25:52,359 --> 00:25:57,440 Speaker 1: agnostic about whether we move from here, that would tell 478 00:25:57,520 --> 00:26:01,240 Speaker 1: you that if nothing changes, we're gonna stay where we are. 479 00:26:01,480 --> 00:26:04,720 Speaker 1: But but uh, I think we're We've got so much 480 00:26:04,800 --> 00:26:09,120 Speaker 1: uncertainty and so much policy uncertainty. I think it would 481 00:26:09,200 --> 00:26:12,560 Speaker 1: be wise for us not to over telegraph where we 482 00:26:12,600 --> 00:26:15,320 Speaker 1: are in the in the cycle. I have said though, 483 00:26:15,800 --> 00:26:20,040 Speaker 1: that I thought that this, uh, this cutting we're doing 484 00:26:20,320 --> 00:26:25,240 Speaker 1: should be limited, restrained, and modest, and not the start 485 00:26:25,240 --> 00:26:27,480 Speaker 1: of a full fledged cutting cycle. I still believe that 486 00:26:28,000 --> 00:26:30,119 Speaker 1: well in your SAU note, as the Chairman did just 487 00:26:30,160 --> 00:26:33,040 Speaker 1: a few days ago, that growth is being affected by 488 00:26:33,119 --> 00:26:36,960 Speaker 1: slowing economies elsewhere and trade tensions in particular. So I 489 00:26:36,960 --> 00:26:38,399 Speaker 1: have to ask a question I get asked all the 490 00:26:38,400 --> 00:26:41,000 Speaker 1: time by people on Wall Street, what is the FED 491 00:26:41,280 --> 00:26:44,200 Speaker 1: get out of cutting rates? Because We're not suffering from 492 00:26:44,240 --> 00:26:49,080 Speaker 1: an aggregate demand shortfall here, how do you help? So? 493 00:26:49,600 --> 00:26:53,280 Speaker 1: I do think when rates are this low UH fed 494 00:26:53,359 --> 00:26:57,200 Speaker 1: funds cuts, maybe the marginal additional effect might be less 495 00:26:57,200 --> 00:27:00,080 Speaker 1: than it would be if rates were higher credit conditions 496 00:27:00,080 --> 00:27:02,640 Speaker 1: were tighter. But that doesn't mean that cutting the Fed 497 00:27:02,640 --> 00:27:05,600 Speaker 1: Funds rate doesn't have an impact. It does. There's still 498 00:27:05,640 --> 00:27:09,040 Speaker 1: a substantial number of borrowers that borrow based on the 499 00:27:09,080 --> 00:27:13,800 Speaker 1: short term rate UH. And in addition, I've been concerned 500 00:27:13,800 --> 00:27:16,479 Speaker 1: about the shape of the yield curve, particularly if the 501 00:27:16,480 --> 00:27:20,520 Speaker 1: Fed Funds rate is above the tenure Treasury UH and 502 00:27:20,560 --> 00:27:24,760 Speaker 1: there's a substantial gap it, it has a tendency to 503 00:27:24,880 --> 00:27:27,119 Speaker 1: make it harder to bar short and lend long. And 504 00:27:27,160 --> 00:27:30,440 Speaker 1: I think that if it was prolonged, would eventually cause 505 00:27:30,480 --> 00:27:34,159 Speaker 1: a tightening and financial conditions. So sometimes when you're cutting rates, 506 00:27:34,400 --> 00:27:37,640 Speaker 1: there is a short term positive economic effect, but there's 507 00:27:37,680 --> 00:27:41,639 Speaker 1: also you have to look over the horizon, particularly UH 508 00:27:42,720 --> 00:27:45,800 Speaker 1: as to whether you think there's some distortion in the 509 00:27:45,800 --> 00:27:49,200 Speaker 1: curve that I think suggests our policy settings too tight. Well, 510 00:27:49,200 --> 00:27:51,359 Speaker 1: you're not concerned about running out of ammunition when we 511 00:27:51,400 --> 00:27:55,159 Speaker 1: do face it down town, I'm I'm, I'm worried about 512 00:27:55,200 --> 00:27:59,879 Speaker 1: that argument, but I'd rather use ammunition when it matters most. 513 00:28:00,400 --> 00:28:03,000 Speaker 1: And I've said a number of times, if we wait 514 00:28:03,800 --> 00:28:07,240 Speaker 1: and withhold our ammunition and wait to see a broader 515 00:28:07,359 --> 00:28:10,560 Speaker 1: slowing in the economy, I we wait for this slowing 516 00:28:10,840 --> 00:28:13,240 Speaker 1: to reach the consumer, and then we have a more 517 00:28:13,280 --> 00:28:16,199 Speaker 1: severe slowing, we will have waited too long, and that 518 00:28:16,359 --> 00:28:18,720 Speaker 1: all the ammunition we have I don't think will be 519 00:28:18,840 --> 00:28:22,479 Speaker 1: enough to arrest that slowing. I think moving modestly now 520 00:28:22,960 --> 00:28:26,600 Speaker 1: gives us the best chance to avoid a more severe slowing. 521 00:28:26,920 --> 00:28:29,000 Speaker 1: And that's why I want to use the ammunition now, 522 00:28:29,280 --> 00:28:31,720 Speaker 1: even though yes, it means we'll have a little less 523 00:28:31,760 --> 00:28:35,040 Speaker 1: ammunition for later. We're speaking with Robert Capitlan, the president 524 00:28:35,080 --> 00:28:37,960 Speaker 1: of the Dallas Fed, on Blueberg Television and Radio worldwide. 525 00:28:38,120 --> 00:28:41,720 Speaker 1: Dallas Fed specialty is trade. So given the fact that 526 00:28:41,800 --> 00:28:44,440 Speaker 1: everybody is talking about that as the source of our problems, 527 00:28:44,680 --> 00:28:48,160 Speaker 1: can you quantify what it means? Is it a headwind? 528 00:28:48,320 --> 00:28:51,280 Speaker 1: Is it an anchor? If they reach some kind of deal, 529 00:28:51,360 --> 00:28:54,200 Speaker 1: does the economy turn around? If they don't, does it tank? 530 00:28:54,480 --> 00:28:58,480 Speaker 1: So here's the here's the confusing or vexcine thing about trade. 531 00:28:58,520 --> 00:29:02,080 Speaker 1: If you just took the amount of goods we're talking 532 00:29:02,120 --> 00:29:06,560 Speaker 1: about UH and and save visa v s in China 533 00:29:06,920 --> 00:29:11,360 Speaker 1: and other countries, and multiplied the potential tariff on those goods, 534 00:29:11,680 --> 00:29:13,960 Speaker 1: you'd say the impact on GDP growth in the the United 535 00:29:13,960 --> 00:29:18,680 Speaker 1: States should be very modest. Here's there's a second order effect, though, 536 00:29:18,720 --> 00:29:21,400 Speaker 1: we believe at the Dallas FT is far more substantial, 537 00:29:21,760 --> 00:29:25,400 Speaker 1: and that's the impact of trade uncertainty on business investment 538 00:29:26,240 --> 00:29:28,880 Speaker 1: UH and and on manufacturing. And what do I mean 539 00:29:28,920 --> 00:29:32,000 Speaker 1: by that? UH. A lot of these trade relationships, particularly 540 00:29:32,040 --> 00:29:36,520 Speaker 1: as I've mentioned before with Mexico, our our logistics supply 541 00:29:36,600 --> 00:29:39,280 Speaker 1: chain relationships that are critical to the country U S. 542 00:29:39,400 --> 00:29:42,720 Speaker 1: M c A isn't yet ratified. But the uncertainty we've 543 00:29:42,720 --> 00:29:45,560 Speaker 1: had first good part of this year about trade with 544 00:29:45,640 --> 00:29:48,680 Speaker 1: Mexico we think took the wind out of business investment. 545 00:29:49,080 --> 00:29:51,840 Speaker 1: And this trade dispute with China, which we think is 546 00:29:52,040 --> 00:29:57,400 Speaker 1: very appropriate. UH. Intellectual property rights, technology transfer mean more 547 00:29:57,440 --> 00:29:59,880 Speaker 1: to us probably than the size of the trade deaf 548 00:30:00,080 --> 00:30:06,000 Speaker 1: sit UH strategically, but the uncertainty about that relationship and 549 00:30:06,440 --> 00:30:10,360 Speaker 1: UH and news of new events that occur every week 550 00:30:10,480 --> 00:30:13,840 Speaker 1: or two that change the view on this, we we 551 00:30:13,960 --> 00:30:17,680 Speaker 1: find are causing businesses to say let's just time out, 552 00:30:18,080 --> 00:30:21,040 Speaker 1: let's just put business investment on hold. I'm not going 553 00:30:21,080 --> 00:30:23,640 Speaker 1: to cancel it, but let's put on hold for this year, 554 00:30:23,720 --> 00:30:26,640 Speaker 1: maybe all of next year. And that's why you're seeing 555 00:30:26,640 --> 00:30:30,600 Speaker 1: business decon direct investments so weak. Now, that's not a 556 00:30:30,680 --> 00:30:33,920 Speaker 1: huge part of g d P business direct investment, but 557 00:30:34,000 --> 00:30:37,360 Speaker 1: if that slows, it can start to seep in to 558 00:30:37,480 --> 00:30:40,120 Speaker 1: other parts of the economy. So it's the second and 559 00:30:40,160 --> 00:30:43,080 Speaker 1: maybe the third order effects from trade uncertainty and trade 560 00:30:43,080 --> 00:30:45,960 Speaker 1: tensions that I think have a more significant effect on 561 00:30:46,000 --> 00:30:49,240 Speaker 1: the economy, which is harder to measure. It's time when 562 00:30:49,240 --> 00:30:53,240 Speaker 1: businesses are planning for you suggest they're gonna stay on hold. 563 00:30:53,440 --> 00:30:55,840 Speaker 1: So what we're seeing now, the kind of growth one 564 00:30:55,880 --> 00:31:00,840 Speaker 1: point seven to is what we get. Our forecast for 565 00:31:00,880 --> 00:31:02,720 Speaker 1: this year, at least for the second half of the 566 00:31:02,800 --> 00:31:06,200 Speaker 1: year is one point seven Uh. Maybe it will be 567 00:31:06,240 --> 00:31:09,920 Speaker 1: in that neighborhood for I'm not sure what we see 568 00:31:09,920 --> 00:31:11,720 Speaker 1: that will make it better than say one or three 569 00:31:11,800 --> 00:31:15,000 Speaker 1: quarters to two percent. Uh. And yeah, most businesses I 570 00:31:15,040 --> 00:31:18,120 Speaker 1: talked to right now are want to stay nimble and 571 00:31:18,160 --> 00:31:23,320 Speaker 1: they realize that there could be new policy pronouncements any time. 572 00:31:23,840 --> 00:31:26,640 Speaker 1: And with that amount of uncertainty. They're not cutting back 573 00:31:26,680 --> 00:31:31,400 Speaker 1: their business, but they're putting new projects on hold. And 574 00:31:31,440 --> 00:31:34,160 Speaker 1: the other thing they're doing is watching very carefully if 575 00:31:34,200 --> 00:31:37,080 Speaker 1: there's a broader slowing, and if there's a broader slowing 576 00:31:37,120 --> 00:31:40,360 Speaker 1: they see saying the consumer, I think they're at least 577 00:31:40,480 --> 00:31:43,560 Speaker 1: on their toes that they will take further action, and 578 00:31:43,600 --> 00:31:45,920 Speaker 1: that would cause even a further slowing. So I think 579 00:31:45,920 --> 00:31:49,000 Speaker 1: we're in a fragile period in here, which is why 580 00:31:49,080 --> 00:31:51,480 Speaker 1: I'm glad the FED has taken some action in July 581 00:31:51,600 --> 00:31:54,240 Speaker 1: and September. But I think this could go either way. 582 00:31:54,280 --> 00:31:56,760 Speaker 1: We can avert a more severe slowdown, but I think 583 00:31:56,760 --> 00:31:59,560 Speaker 1: the jury is out right now. In the minutes, UH, 584 00:32:00,200 --> 00:32:03,120 Speaker 1: you've got a report on what happened with REPO, because 585 00:32:03,200 --> 00:32:06,200 Speaker 1: it's been just a day or two before you met UH, 586 00:32:06,240 --> 00:32:09,120 Speaker 1: and yet you didn't discuss what to do. The chairman 587 00:32:09,440 --> 00:32:12,200 Speaker 1: this week said you've reached some decisions that you're going 588 00:32:12,240 --> 00:32:14,440 Speaker 1: to move forward. So did you have a conference call 589 00:32:14,560 --> 00:32:17,480 Speaker 1: or something in between and make decisions and set things up. 590 00:32:17,680 --> 00:32:20,120 Speaker 1: So I'm not going to disclose things that haven't been 591 00:32:20,440 --> 00:32:24,920 Speaker 1: publicly disclosed, other than to say UH, at the time 592 00:32:25,000 --> 00:32:28,800 Speaker 1: of the f o MC meeting in September, we announced 593 00:32:28,920 --> 00:32:33,040 Speaker 1: these daily repo facilities, and just for people who are listening, 594 00:32:33,360 --> 00:32:39,080 Speaker 1: what that basically does is helped distribute a repo across 595 00:32:39,200 --> 00:32:42,320 Speaker 1: the system, i e. If big banks aren't lending their 596 00:32:42,360 --> 00:32:45,959 Speaker 1: reserves and overnight in the overnight funding markets, a standing 597 00:32:45,960 --> 00:32:50,360 Speaker 1: repo facility or an over daily repo facility has the 598 00:32:50,720 --> 00:32:53,800 Speaker 1: purpose of getting rid of those frictions. So we've been 599 00:32:53,840 --> 00:32:58,040 Speaker 1: doing that every day. We are having more deliberations. I 600 00:32:58,080 --> 00:33:01,200 Speaker 1: don't want to foreshadow those, but we'll be making some 601 00:33:01,240 --> 00:33:04,920 Speaker 1: announcements in the very near future, not just about REPO, 602 00:33:05,000 --> 00:33:07,760 Speaker 1: but also about increasing the size of our balance sheet 603 00:33:07,760 --> 00:33:13,440 Speaker 1: in a way that improves the reserve levels UH, especially 604 00:33:13,480 --> 00:33:18,400 Speaker 1: in light of increase US Treasury issuance, tax payments, and 605 00:33:18,520 --> 00:33:21,240 Speaker 1: other frictions that we're seeing. So I think that we 606 00:33:21,920 --> 00:33:24,200 Speaker 1: believe and I believe there's a need to do both 607 00:33:24,240 --> 00:33:26,920 Speaker 1: REPO and increase the size of the balance sheet to 608 00:33:26,960 --> 00:33:30,720 Speaker 1: some extent in order to raise the reserve levels. And 609 00:33:30,720 --> 00:33:34,480 Speaker 1: and UH and and we've lost reserve since early September, 610 00:33:34,960 --> 00:33:38,160 Speaker 1: mainly because of tax payments and because the Treasury issuance. 611 00:33:38,360 --> 00:33:40,920 Speaker 1: We need to restore some of what we've lost. J 612 00:33:41,040 --> 00:33:43,560 Speaker 1: Pal said you're not allowed to finish your interviews without saying, 613 00:33:43,560 --> 00:33:46,400 Speaker 1: but it's not que it's not quee uh. And he's 614 00:33:46,480 --> 00:33:48,920 Speaker 1: right to say that, and it's and it's it's correct 615 00:33:49,000 --> 00:33:51,680 Speaker 1: that that's not the case because we're just buying bills. 616 00:33:51,760 --> 00:33:54,280 Speaker 1: If we do this, whatever we announce will just be 617 00:33:54,360 --> 00:33:59,960 Speaker 1: buying bills, whereas QI historically has been buying securities out 618 00:34:00,080 --> 00:34:03,320 Speaker 1: along the curve in order to lower those term rates 619 00:34:03,640 --> 00:34:07,479 Speaker 1: in order to incentivize maybe mortgage lending and risk taking. 620 00:34:07,720 --> 00:34:11,040 Speaker 1: This will be just related to bills and primarily targeted 621 00:34:11,160 --> 00:34:15,400 Speaker 1: the overnight funding markets and making sure we can appropriately 622 00:34:15,440 --> 00:34:18,360 Speaker 1: set the FED funds rate in the target range. Probert Camplin, 623 00:34:18,400 --> 00:34:20,319 Speaker 1: thank you very much for joining us this morning. Thanks 624 00:34:20,560 --> 00:34:22,480 Speaker 1: from the Dallas Fed. We'll send it back to you. 625 00:34:22,640 --> 00:34:26,320 Speaker 1: I my great work. As always splinder set it sitting 626 00:34:26,360 --> 00:34:29,840 Speaker 1: down with the Dallas FED President, Mr Robert Camplin. Thanks 627 00:34:29,920 --> 00:34:34,160 Speaker 1: for listening to the Bloomberg Surveillance podcast. Subscribe and listen 628 00:34:34,400 --> 00:34:39,719 Speaker 1: to interviews on Apple Podcasts, SoundCloud, or whichever podcast platform 629 00:34:39,840 --> 00:34:44,120 Speaker 1: you prefer. I'm on Twitter at Tom Keane Before the podcast, 630 00:34:44,200 --> 00:35:00,319 Speaker 1: you can always catch us worldwide. I'm Bloomberg Radio eight