Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney alongside
Speaker 1: my co host Matt Miller. Every business day we bring
Speaker 1: you interviews from CEOs, market pros, and Bloomberg experts, along
Speaker 1: with essential market moving news. Find the Bloomberg Markets podcast
Speaker 1: called Apple Podcast or wherever you listen to podcasts, and
Speaker 1: at Bloomberg dot com Slash Podcast. You've gone on this
Speaker 1: roller coaster wide with Elon Musk, with the Twitter CEO
Speaker 1: as well, and really just shareholders trying to figure out
Speaker 1: what exactly is Twitter going to look like? And then
Speaker 1: we get the earnings well, I mean massive emphasis on
Speaker 1: the monetization this time around. H Yeah, and you've gotta
Speaker 1: wonder whether it really matters if it's just going to
Speaker 1: be a private company tomorrow. But there's other companies pretty
Speaker 1: that we'd like to talk to. We're gonna get into
Speaker 1: it now with Lauren Gilbert. She is the CEO of
Speaker 1: wealth Wise Discussing. She's going to discuss how markets are
Speaker 1: going to react to all of these massive, massive earnings.
Speaker 1: You know, as our analysts like to remind us, Twitter
Speaker 1: is just a small company compared to Apple, All and
Speaker 1: Amazon and some of the big numbers we have had, Lorien,
Speaker 1: thank you so much for joining us. When you look
Speaker 1: at the risks that these big big companies Apple, Amazon, Facebook,
Speaker 1: the they're just so big when you look at them
Speaker 1: compared to the rest of the market. So when you're
Speaker 1: looking at the next set of earnings, what are the
Speaker 1: biggest risks to you to not just these companies, but
Speaker 1: the broader markets at large. Right, Well, this is a
Speaker 1: big week for earnings with technology and focus and understanding
Speaker 1: where are these companies heading and get some guidance from
Speaker 1: these companies, and so you know what we're looking at.
Speaker 1: We want to hear from Apple, what are what do
Speaker 1: they see with the consumer. Apple has been very good
Speaker 1: at predicting consumer behavior um predicting how the consumer will
Speaker 1: be able to spend, and we want to hear if
Speaker 1: new products are going to be focused on more affordable
Speaker 1: products or if the consumer they expect will still be
Speaker 1: strong with some of the products that are more expensive. Well,
Speaker 1: so glad you mentioned that consumer behavior beacon, because I
Speaker 1: remember when the markets were trading, the entire market would
Speaker 1: rally or tank on these Apple store closures, which was
Speaker 1: essentially this idea of uh kind of Apple companies and
Speaker 1: these services that they provide for iPhone repairs, that foot
Speaker 1: traffic essentially being almost a proxy for mobility data, which
Speaker 1: is interesting to me. And speaking of that mobility data,
Speaker 1: we're getting uh, not so great mobility data from China
Speaker 1: and this idea that COVID lockdowns in China will have
Speaker 1: ripple effects around the world. How worried shure investors being
Speaker 1: about that. Well, that's a great point. That's another thing
Speaker 1: that we want to hear from companies like Apple. How
Speaker 1: are the lockdowns impacting them as far as um product
Speaker 1: completion as well as shipping, so all of those things
Speaker 1: are very important and how is that going to affect
Speaker 1: these companies going forward? So when we do look at
Speaker 1: risk the risks, there are many risks to look at.
Speaker 1: Um however, if so far in earning season, companies continue
Speaker 1: to be profitable, so, you know, looking to see how
Speaker 1: the companies are able to pass along price increases to
Speaker 1: consumers and who are those price setters. And I think
Speaker 1: that's a very important thing for investors to look at
Speaker 1: when they're deciding which companies to invest in. You know,
Speaker 1: I'm really curious here about what the limit is. One
Speaker 1: person we spoke to is the CEO of Chippotle, for example,
Speaker 1: where prices have increased. They're seeing avocado prices, paper prices,
Speaker 1: all these prices rising, but he's not quite willing to
Speaker 1: raise prices more. And so when you look at the
Speaker 1: next couple of months, how much inslation can consumers really
Speaker 1: take and how much our company is going to have
Speaker 1: to start eating the costs well, and that is the
Speaker 1: big question. And and Chippotle has done a great job
Speaker 1: of continuing to raise prices and maintain profit margins. But
Speaker 1: to your point, how far can they go and how
Speaker 1: far will the consumers allow these companies to go? So
Speaker 1: I think now is when you start seeing us some
Speaker 1: consumers just saying In fact, a recent poll that came
Speaker 1: out said of Americans, we're looking to decrease their expenses
Speaker 1: because of their concerns of inflation, because of the cost
Speaker 1: of goods rising, right, And we're also looking for the
Speaker 1: consumers to be shifting from good spending to services spending.
Speaker 1: And so we do see there. I think there's going
Speaker 1: to be some weakness there on durables as consumers then
Speaker 1: shift over to services and hopefully do some shifting, you know,
Speaker 1: like we're seeing in travel. Yeah, And I got to
Speaker 1: ask here. I mean, we've we've seen all of these
Speaker 1: really just downside moves, a lot of stocks just tanking
Speaker 1: across the board. Where are the dip buyers? Where are
Speaker 1: the what the dip buyers? Dip buyers? You would think
Speaker 1: if it sells off long enough, someone would say, well,
Speaker 1: that's that's a state, right right, right, Well, we've got
Speaker 1: some cash on the sidelines for that very purpose, and
Speaker 1: we don't see capitulation yet, So I think the dip
Speaker 1: buyers are looking for capitulation, which I don't think we've
Speaker 1: seen yet, So I still see some more downside pressure.
Speaker 1: I think for any big bank or asset manager, the
Speaker 1: question is what's the low what's the downside? How do
Speaker 1: you know? And and frankly it's a question for anyone
Speaker 1: who's looking to buy a stock, So how how low
Speaker 1: can it go from here? SMP for example, Well, we've
Speaker 1: already seen a correction, so we're in correction territory. And
Speaker 1: the big question when you're in a correction is are
Speaker 1: you heading into a recession? Because if we are heading
Speaker 1: into a recession, there could be quite a bit more
Speaker 1: downside pressure. However, when we look at a lot of
Speaker 1: the data, including employment, numbers which continue to be very strong,
Speaker 1: and the demand for employers to hire more people. When
Speaker 1: we look at that, we still see the economy being strong.
Speaker 1: When we look at p m I manufacturing numbers still
Speaker 1: very strong. So you know, I think we will see
Speaker 1: some capitulation. Hard to know exactly where that bottom is
Speaker 1: going to be, but we're probably pretty close before we
Speaker 1: start seeing some more rallies. Well, Laureen Gilbert found to
Speaker 1: see a Wealthwise Financial Services joining us right here in
Speaker 1: our interactive broker studio, making the track all the way
Speaker 1: from Dallas, Texas. Let's stick with the market perspective. Because
Speaker 1: we talked about G ten currencies with John Authors, we've
Speaker 1: got to talk about the e M side of things.
Speaker 1: There are so many countries out there who who have
Speaker 1: a whole other set of issues that the average American
Speaker 1: probably can't even fathom. No better person to break it
Speaker 1: all down with then Damien sass Our, chief EM fixed
Speaker 1: income strategist at Bloomberg Intelligence. We just like to call
Speaker 1: him the master of e M over here. But we're
Speaker 1: so good, so good, so good, and and decided to
Speaker 1: come into the office today, which we extra appreciate. Damian.
Speaker 1: Let's start with these Chinese lockdowns, how seriously should we
Speaker 1: be taking them? We need to be taking them seriously.
Speaker 1: I mean, if you look at the mobility data which
Speaker 1: everybody is talking about Shanghai and Ningbao, poor congestion is
Speaker 1: still egregious. And you know, basically if you just look
Speaker 1: at peak traffic in in Shanghai, it's running at lower
Speaker 1: than on a year over year basis. If you look
Speaker 1: at the two major airports in Shanghai, I think capacities
Speaker 1: running up below ten percent. So certainly the lockdowns are
Speaker 1: having an impact. But really the story in China isn't China.
Speaker 1: It's the Japanese yen and the fact that we have
Speaker 1: seen this depreciation of the end and how that's spilling
Speaker 1: over into the broader Asian block. I mean, that is
Speaker 1: really why you see China u on now it's six
Speaker 1: sixty three. Just to put things in perspective, that is
Speaker 1: a thirty big figure move this month alone. We haven't
Speaker 1: seen something like that since, so I think that's got
Speaker 1: a lot of people's attentions. And certainly the Korean juan
Speaker 1: and some mothers are are are are are depreciating as well,
Speaker 1: so you know, it's got a broader impact on Asia
Speaker 1: and that's spilling over into the broader young pop U
Speaker 1: m complex. Do we get a seven handle on the Uan?
Speaker 1: What do you think? I think that's definitely possible. I
Speaker 1: mean we were there just a few years back, right
Speaker 1: during the during you know, the Trump and the trade war.
Speaker 1: But I think you know, for me, it's it's it's
Speaker 1: it's about the near term. And if you look at
Speaker 1: the offshore on shore China Uan basis, we're now running
Speaker 1: it close to four hundred pips. That's like on three
Speaker 1: three and a half standard deviations above the five year average.
Speaker 1: So that just shows the stress. Let's be clear, the
Speaker 1: ento you on has a two percent band on either side,
Speaker 1: so it's kind of managed by the government. It's not
Speaker 1: allowed to move as freely as the offshore you on.
Speaker 1: And so this offshore you on is starting to really
Speaker 1: depreciate aggressively, which is you know, a sign of capital flight.
Speaker 1: So this is why they put me in Cretty together.
Speaker 1: It's the one to punch. She gives you the Macara,
Speaker 1: the trading strategy, so you know, the carry trade. Can
Speaker 1: you explain how this is playing out on Wall Street?
Speaker 1: And really what Critty has kept on outlining here truly
Speaker 1: is a historic moment for markets. Yeah, there are there
Speaker 1: are really three primary factors when you're looking at investing
Speaker 1: in currencies, right, There's there's carry what you mentioned, there's value,
Speaker 1: and there's trend. But the carry element of it has
Speaker 1: been very, very volatile. So anybody who has been investing
Speaker 1: in carry trades the the e M currency volatility has
Speaker 1: made it very very prohibitive to take advantage of that strategy.
Speaker 1: And it's still look am currency volatility is still relatively high.
Speaker 1: I mean, it's not high relative to fixed income equity,
Speaker 1: but it's certainly high relative to d MS. But d
Speaker 1: M f X is now starting to take up higher
Speaker 1: as well, so that may actually make the carry trade
Speaker 1: look a little bit a little bit more attractive. And
Speaker 1: certainly we have resource rich high carry currencies in Latin
Speaker 1: America like Brazil, Chile, Colombia even which which stand out,
Speaker 1: I mean you know that as being perhaps a good
Speaker 1: place to park your money and basically watch the paint dry.
Speaker 1: If if the volatility fits. Translation here, the people who
Speaker 1: have made a lot of money in the first three
Speaker 1: months of the year are about to make a lot
Speaker 1: more money trading currencies in the next two months of
Speaker 1: the year. But you know these do have devastating consequences.
Speaker 1: Let's let's be clear for many emerging markets. Damon, Yeah no,
Speaker 1: I mean, look, you know you can't ignore the currency
Speaker 1: impacted for for years and years now, I mean better
Speaker 1: part of the last decade. If you're a fixed income investor,
Speaker 1: I mean talking not just emerging market fixed income, developed
Speaker 1: market fixed income, you know you really didn't care so
Speaker 1: much about about the currency impact because currency vall was
Speaker 1: was was suppressed, it was low, and you're carrying so
Speaker 1: well with bonds rallying. Now yields your fall a rising
Speaker 1: and bond prices are falling and currency fall is high,
Speaker 1: So you know you need to I mean, if you're
Speaker 1: fixed income investor, you've got to be an f X investor,
Speaker 1: you've gotta look at the currency impact on your returns,
Speaker 1: and it's it's growing in terms of the active contribution
Speaker 1: to total returns. So I mean, yeah, you know, to
Speaker 1: your point, you really have to have a strategy about
Speaker 1: how you're looking at currencies. I mean, I've heard a
Speaker 1: lot of people talking about care. If you're a Japanese
Speaker 1: yet investor, it still makes sense to to carry in
Speaker 1: US treasuries on a hedge basis and all this crazy stuff. Look,
Speaker 1: a lot of that's going by the wayside because the
Speaker 1: cost of funding across borders is going up incrementally as
Speaker 1: we speak, and so I think it makes a lot
Speaker 1: of those strategies a little bit more challenging and a
Speaker 1: little bit more difficult to hold onto. Those interest rate
Speaker 1: differentials are really messing with I think almost every other
Speaker 1: every country in the world right now. As Michael mckeep
Speaker 1: pointed out, the Federal Reserve really can't do anything about
Speaker 1: it right there. This Their job is to focus on
Speaker 1: the American economy, but we have to talk about as
Speaker 1: Chanelie pointed out, the consequences for the e M space,
Speaker 1: the food consequence. I really want to point out record
Speaker 1: high food prices, especially when it comes to the bread
Speaker 1: basket Egypt is something Tom Keane does not stop talking
Speaker 1: about um. But there's other places as well that are
Speaker 1: really going to be feeling the pinch of the food spot.
Speaker 1: The food prices in addition to perhaps some other fears.
Speaker 1: I am F Managing Director Crystallina gorgeva In at the
Speaker 1: I'M of Spring Meetings underscoring the possibility of sovereign debt
Speaker 1: crises in emerging markets? What is the likelihood of that?
Speaker 1: So you're hitting on the nerve here, where will inflation
Speaker 1: peak and how far will growth decline? Effectively, monetary tightening
Speaker 1: is colliding with a it's it's colliding with the cost
Speaker 1: of living crisis, specifically an emerging market. So you're right
Speaker 1: to focus on you know, the Egypts, the Pakistans and
Speaker 1: Nigeria's who are most at risk. I mean, the UN
Speaker 1: International Food Price Index is something is up, something in
Speaker 1: the order of seventy May. But let's talk about the
Speaker 1: countries who are net food exporters, the ones that are
Speaker 1: supposed to benefit. I think that's what isn't really being
Speaker 1: talked about as much. So those countries Brazil, Chile, Thailand
Speaker 1: are probably less at risk than some of the others.
Speaker 1: And I think that's an interesting point that not a
Speaker 1: lot of people are looking at the net food exporters
Speaker 1: and how quite frankly, a lot of their currencies have
Speaker 1: outperformed in amidst the crisis. I have a perhaps fun
Speaker 1: slash not fun question. I know it's a dumb question.
Speaker 1: I'm gonna ask you to you anyway, we have to
Speaker 1: talk about Russia. We we've talked about everything else, we
Speaker 1: got to talk about Russia. It's pretty clear that if
Speaker 1: Russia ever perhaps rejoins uh the previous stage that it was,
Speaker 1: and it might take years before before it does that
Speaker 1: even in the best of circumstances. Does that mean the
Speaker 1: no brainer trade here is to just buy CDs is
Speaker 1: on Russian debt. No, I would not go near that.
Speaker 1: And and look, I mean it's not as a no
Speaker 1: brainer trade because really the credit the fal Simat market
Speaker 1: isn't open to retail investors or really to your average investor.
Speaker 1: It's more of an institutional headers market. But I think,
Speaker 1: you know, just if we're focusing on Russia, we gotta
Speaker 1: look to next week. May fourth is a key day.
Speaker 1: That's when the grace period ends for the six hundred
Speaker 1: and fifty million odd that Russia has paid its creditors roubles,
Speaker 1: which would constitute a default in the eyes of the
Speaker 1: raiding agency. So this could be again, you know, the first,
Speaker 1: uh really the first of fault we've seen on external
Speaker 1: debt from Russia in I mean since the early ten
Speaker 1: nine hundreds. But I think what's also interesting is soon
Speaker 1: thereafter we've got victory Day and that's when Russia prances.
Speaker 1: It's military out there, they parade, they in the streets,
Speaker 1: and a lot of people are thinking that May nine,
Speaker 1: that they're gonna want to deliver something to the Russian populace,
Speaker 1: a victory of some sort, something in Ukraine that you
Speaker 1: can hang your hat on. I think the one thing,
Speaker 1: um you know about the Russia Ukraine War that's kind
Speaker 1: of getting interesting here is you know, Ukraine's got a
Speaker 1: lot of external debt outstanding. They've got GDP warrants and whatnot.
Speaker 1: And if you're now the belief that Ukraine, whether or
Speaker 1: not they come out of this, you know, in whatever
Speaker 1: form they come out of this, the positive goodwill and
Speaker 1: the sentiment behind them, they're gonna have enough in the
Speaker 1: kitty that these bonds are starting to look very very
Speaker 1: attractive from a from a from an investor standpoint. And
Speaker 1: so I think that's an interesting point amidst all of it,
Speaker 1: is that you know, Ukraine, there is a place for
Speaker 1: Ukraine debt and people's portfolios. It's gotten absolutely coabered. You
Speaker 1: look at CDs in Ukraine. I mean, it's just as
Speaker 1: bad as Russia. But I would if I were I
Speaker 1: guess a betting man, I'd probably rather put my money
Speaker 1: in Ukraine CDs. Uh. Well, you know, looking for spreads
Speaker 1: to tighten rather relative to Russia. Yeah, that's less controversial
Speaker 1: of a trade to Yeah. Right, you can answer to
Speaker 1: your fiduciaries a whole hell of a lot more easily. Well,
Speaker 1: let's stick with the Russia theme here and talk about
Speaker 1: the ruble, because there are plenty of headlines that we're
Speaker 1: bringing this back to our worldwide audience here. European buyers,
Speaker 1: some of them paying in rubles, seving, some of them
Speaker 1: refusing to pay in rubles and getting their gas flows halted. Poland,
Speaker 1: Bulgaria come to mind. Is this potentially the start of
Speaker 1: a broader move by Russia to block those flows, that's
Speaker 1: the question. And how much of it is actually helping
Speaker 1: the ruble? Well, let's put a date on it. May fifteen.
Speaker 1: That's when the European gays to gas payments come do, right,
Speaker 1: And that's when we're gonna get real color and clarity
Speaker 1: on how that's handled, specifically by the CE three, the
Speaker 1: Eastern European block like Poland, Romania, Czech Republican, Hungary. I mean, look,
Speaker 1: if you look at the Hungarian Fiens that currency has gotten.
Speaker 1: I mean, they just had two high rates again and
Speaker 1: it's still not doing anything to stem the bleeding on
Speaker 1: on the foreign So I mean, you know, if you
Speaker 1: look at some of these countries, now, let's just be clear,
Speaker 1: Poland has definitively pivoted away from Russia, and you know,
Speaker 1: we're obviously providing all sorts of arms to Ukraine and
Speaker 1: very supportive. Hungry not so much, and so Hungry can't
Speaker 1: get out of its own way, it seems. And it
Speaker 1: seems like a lot of these countries that are kind
Speaker 1: of like Serbia for example, that are kind of signing
Speaker 1: with Russia, are really getting penalized in the capital markets
Speaker 1: because of it. And I don't see that changing anytime soon.
Speaker 1: So that's certainly something that you know, a lot of
Speaker 1: investors are taking advantage of and that we're monitoring very closely.
Speaker 1: Tabian sass Hour as brilliant as promised chief em Fixed
Speaker 1: Income Strategies over Bloomberg Intelligence. We thank you so much.
Speaker 1: I literally think in the span of I'm just looking
Speaker 1: at the clock here, ten minutes, we literally went around
Speaker 1: the world, right, so the world with you, pretty and
Speaker 1: it is most fun to do it. With Damien, who
Speaker 1: somehow knows everything about every detail of every bond being
Speaker 1: traded in the world. And it's really I don't know
Speaker 1: how well you know, guys. He comes in with his
Speaker 1: piece of paper and I've got no it's with yellow
Speaker 1: highlights on highlights ribbles. Let me tell you one time, Shinnali,
Speaker 1: I caught him in the TV set and he's about
Speaker 1: to throw this piece of paper and the recycling and
Speaker 1: I said, no, I want that, and I still have it. Actually,
Speaker 1: the other day Damien pulled up his screen, shared it
Speaker 1: with me and went through all the different Russian bonds.
Speaker 1: If only audience was as lucky as we are to
Speaker 1: get inside access to Damien's mind. We know you are
Speaker 1: a very busy man, Damien, so we will let you go,
Speaker 1: release you of us picking your brains, which will not
Speaker 1: stop anytime. Then. I think the strongest move here is
Speaker 1: going to be in the currency market. Extremely strong dollar,
Speaker 1: a one thirty on dollar. Yet who better to break
Speaker 1: it all down with than Christina Quino, our team leader,
Speaker 1: really the head of our coverage for FX and rates
Speaker 1: based out of London. Christine, thank you so much for
Speaker 1: joining us. How much lower can the Japanese yen fall.
Speaker 1: How much weaker can it get? Well? Pretty I think
Speaker 1: people now are starting to look at one thirty five
Speaker 1: versus the US dollar as the next level to watch.
Speaker 1: But you know, we really looking at a twenty year
Speaker 1: history of of Japan's history of interventions, which there have
Speaker 1: been several I think was the past trigger for end
Speaker 1: weakness that convinced policymakers to jump in and strengthen the currency.
Speaker 1: So that's definitely going to be a key level to
Speaker 1: watch as well. But certainly it seems like there's a
Speaker 1: lot of upper momentums here, probably a lot more end
Speaker 1: weakness to come. I mean, we're also saying weakness in
Speaker 1: the euro here, right one oh five and one. It's
Speaker 1: gonna comes down to the same story, these interest rate differentials,
Speaker 1: an inflationary environment, a hawkish federal reserve. A lot of
Speaker 1: people are calling for parody on the euro dollar. How
Speaker 1: long will it take to get us there? And what
Speaker 1: happens when you get parody? Well, cratty, you know, we
Speaker 1: already have a number of forecasters saying that parody is
Speaker 1: going to come in a matter of months, so potentially
Speaker 1: by the summer months here in the Northern Hemisphere and
Speaker 1: what that actually means in terms of hitting that level
Speaker 1: is it's quite a significant level. Of course, it's it's
Speaker 1: something that we haven't seen in years and years over
Speaker 1: here in in Europe and potentially a very very big
Speaker 1: implications depending on whether you're an exporting company in Germany
Speaker 1: or whether you're an energy importing economy elsewhere in the
Speaker 1: year Zone. You know, because again the level of your
Speaker 1: exchange it really determines how much pricing power, or rather
Speaker 1: how much purchasing power you have internationally. And so if
Speaker 1: you're an exporter, good for you. If you are someone
Speaker 1: who's buying up for instance, energy or supplies or anything
Speaker 1: that kind of counts as intermediate goods, then your costs
Speaker 1: are probably going to be a lot higher. Well, Christina
Speaker 1: and Kane, now I mean I think you hit it
Speaker 1: right on the head ahead of our FS and rate coverage.
Speaker 1: Coming out of the heart of the currency exchanges in London.
Speaker 1: We also have John Authors. I want to pose the
Speaker 1: same questions we pose to Mike to John John Authors
Speaker 1: of Bloomer Opinion. Thank you again for joining us UM.
Speaker 1: One of the things we have to discuss here to
Speaker 1: you specifically is the currency which is not in the end,
Speaker 1: not in these e M currencies down the pound, but
Speaker 1: in the Euro. For our listeners who don't know this,
Speaker 1: John Authors has written several books on the European crisis
Speaker 1: of the last decade. And I'm curious about the parody question.
Speaker 1: We're looking at one or four on euro dollars. Is
Speaker 1: parody realistic? Yes, Its just though it is at the
Speaker 1: moment very startled to be able to say that. But
Speaker 1: the current trajectory, it's quite difficult to see how that
Speaker 1: gets interrupted. It requires the e c B to be,
Speaker 1: you know, to change its approach in a way that
Speaker 1: could be very damaging for its credibility to make quite
Speaker 1: a strong u turn. If if we're not going to
Speaker 1: see the dollar continue to continue to strengthen, if we
Speaker 1: do continue to see the dollars continue to see the
Speaker 1: dollar strengthening, what ramifications does that have globally, especially for
Speaker 1: emerging markets, which would be very negatively tilted towards the scenario. Yes, um,
Speaker 1: I do think it's fair to say that emerging markets
Speaker 1: are less vulnerable to a strong dollar than they have
Speaker 1: been in the past because they tend, with some exceptions,
Speaker 1: to be less dependent on dollar denominated debt. That being said, plainly,
Speaker 1: this is still an alarming situation, particularly if you are
Speaker 1: not a commodity bought backed currency. So for example, the
Speaker 1: Korean one has come under under pressure recently. UM. It
Speaker 1: has fascinating, fascinating impact on China, which is now allowing
Speaker 1: its currency to weaken in a very swift way. But
Speaker 1: this can't be seen as some kind of an attempt
Speaker 1: to get ahead of the game as it was twenty
Speaker 1: years ago in an artificially weak currency. And then the
Speaker 1: yen is altogether extraordinary if you truly a historic moment
Speaker 1: on Dolian, and that has the important implications for China
Speaker 1: because obviously China cares about its relative competitiveness compared to
Speaker 1: compared to the end, and the Chinese currency started to
Speaker 1: turn down once it had reached the level at which
Speaker 1: to the yen, which it reversed course back in twif
Speaker 1: causing you know, minor crisis. Elaborate on that a little bit.
Speaker 1: What levels does China have, especially because we're thinking about
Speaker 1: this in the context also of the China lockdowns in China, UM,
Speaker 1: how do we think about the ability of the country
Speaker 1: to control its currency. Here well, it continues to control
Speaker 1: capital in a much greater way than anyone else. It's
Speaker 1: it's an odd hybrid currency where it is um subject
Speaker 1: to market winds, market forces, but it's also subject to
Speaker 1: the whims of the of the leadership. So there is
Speaker 1: some there is some possibility there you can continue. You
Speaker 1: could continue to see, um, the China actually abandon its
Speaker 1: hopes for fiding up the light word the real estate sector,
Speaker 1: for for for moving away from any risk of a
Speaker 1: of a Lehman style incidents in China. You could see
Speaker 1: them just decide, Okay, we're going to we're going to
Speaker 1: print money again. We're going to let the credits figots
Speaker 1: open again. Very intriguingly, despite everything kind of really hasn't
Speaker 1: done that this time around, or anything like the extent
Speaker 1: it's had with all its previous growth slowdowns over the
Speaker 1: last twenties. So I guess that's one main thing they
Speaker 1: could do which would make a lot of people very happy. Money.
Speaker 1: What does this all mean in the context of reserves.
Speaker 1: You know, when we started, when when Russia's war in
Speaker 1: Ukraine had started, there was a large conversation about the
Speaker 1: dollar being the reserve currency of the world. And now
Speaker 1: with the dollar strengthening as it is, you know, does
Speaker 1: it still pose questions about the meaning of the dollar
Speaker 1: for for countries around the world. Yes, one of the
Speaker 1: really interesting suggestions Creaty could tell you. I'm also very
Speaker 1: interested in the Britain Woods agreement, which finally ended fifty
Speaker 1: years ago. I think it makes it makes it appearance
Speaker 1: almost every other sense. I'm Indian, and so it's pretty
Speaker 1: So we understand the meaning of gold. Well, you do
Speaker 1: have the monetary global politics behind Russia saying they're going
Speaker 1: to back the ruble with gold as an attempt to
Speaker 1: make them established themselves as some kind of a plausible,
Speaker 1: um applausible second alternative currency and asking for payment in rubles.
Speaker 1: Because this was actually a move made way back when
Speaker 1: Nixon had pulled out of Breton Woods. They were no
Speaker 1: longer the dollar was no longer backed by gold, but
Speaker 1: they extracting an agreement that from OPEC that oil transactions
Speaker 1: would be denominated in dollars, which meant that you did
Speaker 1: have some kind of an oil standard to replace the
Speaker 1: gold standard. Um, if you try to bring that under challenge,
Speaker 1: that's a big deal. So yes, you you the risk here,
Speaker 1: and China is the pivot on this. Russia's obviously committed
Speaker 1: to its confrontational course. China has to decide if it's
Speaker 1: prepared to throw in its lot into more of an
Speaker 1: Eastern Asian block and rather than continue to steadily tensively
Speaker 1: become more a part of the Western bloc. John, this
Speaker 1: is a conversation that's not just hitting the b o
Speaker 1: J or the p BOC for that matter. This is
Speaker 1: a truly global conversation in terms of gtawn currency. Sweden,
Speaker 1: for example, Essential Bank of Sweden, the Reichs Bank hiking
Speaker 1: their rates today a really big u turn when it
Speaker 1: comes to montery global policy. I think no one said
Speaker 1: it better than one of our guests on Bloomberg Surveillance
Speaker 1: this morning, when then he was a currency strategist on
Speaker 1: Brown Brothers Harriman. He said, yeah, he said, the ricks
Speaker 1: Bank delivered a rate hike, and when they're more hawkish
Speaker 1: than you, that's saying something. So I think when it
Speaker 1: comes to a lot of these kind of more devish
Speaker 1: governments or or central banks, the b o J, the
Speaker 1: p b o C, is there anything that they can
Speaker 1: really do currency intervention aside to kind of stop this
Speaker 1: falling knife. I'm supposed to be able to have a
Speaker 1: good answer to that, I'm saying it's in the case
Speaker 1: of in the case in the case of most of them,
Speaker 1: it's that they can they can, they can tighten. In
Speaker 1: the case of Japan, where you still have much lower inflation,
Speaker 1: I guess it is plausible for them to continue on
Speaker 1: their their current course. In the case of the e
Speaker 1: c B, it's very much more painful because obviously they
Speaker 1: really do have an inflation problem. But in the you know,
Speaker 1: the inheritance from the crisis. You know, it's almost a
Speaker 1: decade since drug he said, whatever it takes, so it's
Speaker 1: it's it's a long way back, but you can still
Speaker 1: see its effect. The peripheral European countries still have very
Speaker 1: high unemployment by by the standards of of the West. Um,
Speaker 1: it's what they what they can do is tighten uh
Speaker 1: and that's by strengthening the Euro. Would reduce inflation that
Speaker 1: way as well, but they really don't want to because
Speaker 1: their economy is in a more palless state than than
Speaker 1: the States. I suspect that the CP has no choice
Speaker 1: but to to tighten, but I wouldn't more aggressively than
Speaker 1: they're currently suggesting. I think that's the way. Christine Legard
Speaker 1: seems to be going last week and everything that's happened
Speaker 1: since would intensify the pressure for her to do so.
Speaker 1: But it's there are no good solutions for the CP
Speaker 1: at this point. I mean, I have to ask when
Speaker 1: it comes to I mean, let's tie all of these
Speaker 1: things together, right. We have currency weakness on the one hand,
Speaker 1: you have recession odds really hitting I think Europe the
Speaker 1: hardest of all three regions. I mean, just recently when
Speaker 1: you look at the market narrative questions about a growth
Speaker 1: not slow down, but like a complete stop to growth
Speaker 1: has really taken over these markets. This idea that if
Speaker 1: you have COVID lockdowns can hinue in China, Americans for example,
Speaker 1: will not get the physical goods. At the same time
Speaker 1: that American purchasing power is actually increasing. So I mean
Speaker 1: there's a lot going on here, John, And I mean
Speaker 1: I wish we could have an hour or so with you,
Speaker 1: because I mean a podcast even would be handy. But yeah,
Speaker 1: I mean, I mean it, this, this really is fascinating.
Speaker 1: I mean, we're gonna stick with you or we're actually
Speaker 1: going to bring you back for Nope, We're gonna stick
Speaker 1: with you. A lot going on here, A lot of
Speaker 1: balls to be juggling for our listeners. We are waiting
Speaker 1: a press conference from President Biden to discuss his latest
Speaker 1: American assistance for Ukraine to stick with us as we
Speaker 1: kind of balance everything going on in the market with
Speaker 1: everything going on with the geopolitics as well. But John, quickly,
Speaker 1: if I can post to you, how do you square this?
Speaker 1: Are these growth fears in the market really worth considering?
Speaker 1: I I would have said no with greater confidence before
Speaker 1: the GDP number came out this morning, which did genuinely
Speaker 1: surprised me. Um, A lot of this is about timing.
Speaker 1: There's going to be another recession at some point. All
Speaker 1: of economic history tells you that periodically economy is slowed down.
Speaker 1: The question is how quickly it comes and whether the
Speaker 1: market has got ahead of itself in thinking that the
Speaker 1: economic logic is going to play out so that we
Speaker 1: actually have a recession this year, which I don't think
Speaker 1: is is very likely. The amount of the amount of
Speaker 1: consumer strength, particularly here in there in the US, makes
Speaker 1: it hard to to make that assertion. That said, it
Speaker 1: does look as though, um, the economy is already feeling
Speaker 1: some of the effects. Who are just talking about that
Speaker 1: that inflation is beginning to destroy demand, that that there
Speaker 1: have been the issues caused that that the renewed supply
Speaker 1: chain problems have had an effect. Um. The one big
Speaker 1: possibility that, trying to be positive, I'd like to this
Speaker 1: is this is something Dari Perkins at TS Lombard but
Speaker 1: which which was that if the economy flows a little
Speaker 1: quicker and a little earlier, it becomes more possible to
Speaker 1: get out of this without engineering a really serious recession.
Speaker 1: You could become more like a mid cycle slowdown or
Speaker 1: a very shallow recession. Allab I'm wondering about the recessionary
Speaker 1: impacts that we might see here. I mean the fact
Speaker 1: that this might have really serious ramifications for inequality moving forward.
Speaker 1: Have you thought about what this could mean in terms of,
Speaker 1: you know, coming out of pandemic where already the rich
Speaker 1: got richer, the poor got poorer, and they're facing inflation
Speaker 1: where you can't pay for food. So what would a
Speaker 1: recession then due to that backdrop, it's we're now getting
Speaker 1: into areas it's really painful even to even the councidence.
Speaker 1: One thing that has been positive about the last twelve
Speaker 1: months is that inequality has actually dampened somewhat because there's
Speaker 1: been greater earning power and greater negotiating power for people
Speaker 1: on low wages, so that there has been some sign
Speaker 1: of reducing inequality. That is, ultimately what is really poisoning
Speaker 1: society at the moment. I think it's why we're why. Ultimately,
Speaker 1: it's why the debate is polarized and as unpleasant as
Speaker 1: it is. Um, if you look at where the recession
Speaker 1: is moving at this point, or sorry, where the economy
Speaker 1: is moving at this point, Um, it's possible that you
Speaker 1: get a move in an egalitarian direction because asset prices
Speaker 1: take the hit, um, rather than therefore therefore that the
Speaker 1: rich feel it more than the poor. But but, but,
Speaker 1: but there's no denying your opening opening point. We've just
Speaker 1: been through COVID. If we're going to if people's patients
Speaker 1: is going to be tried by another recession this quickly
Speaker 1: with inflation this time, that's that's a very concerning. Look.
Speaker 1: That's that's not easy for any society to deal with.
Speaker 1: John Arthur's of Bloomberg Opinion, everybody, I mean, a real
Speaker 1: treat to have. He can talk about anything, We can
Speaker 1: throw anything at him. Thanks for listening to the Bloomberg
Speaker 1: Markets podcast. You can subscribe and listen to interviews of
Speaker 1: Apple Podcasts or whatever podcast platform you prefer. I'm Matt Miller.
Speaker 1: I'm on Twitter at Matt Miller nineteen seventy three. Put
Speaker 1: on fal Swoeney. I'm on Twitter at p T. Sweeney.
Speaker 1: Before the podcast, you can always catch us worldwide at
Speaker 1: Bloomberg Radio