WEBVTT - Surveillance: There's Potential For Some Inflation, Mann Says 0:00:00.080 --> 0:00:12.960 Ye, Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene 0:00:13.480 --> 0:00:17.560 Jay Ley. We bring you insight from the best in economics, finance, investment, 0:00:18.000 --> 0:00:23.520 and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, 0:00:23.600 --> 0:00:27.360 Bloomberg dot Com, and of course on the Bloomberg Full 0:00:27.440 --> 0:00:30.040 Studio here in New York City. Formerly the Chief economist 0:00:30.040 --> 0:00:32.160 of the O E c D and now the Cities 0:00:32.200 --> 0:00:35.199 Global Chief Economists Catherine Man dropping by. Good morning to 0:00:35.320 --> 0:00:39.720 Catherine too. Can we talk about the faith in en 0:00:39.840 --> 0:00:42.040 rate hikes that seemed to take a big smash in 0:00:42.080 --> 0:00:45.880 the face last week? Does it make much sense? What 0:00:46.159 --> 0:00:49.960 have red hikes? Know? The fact that the Federal Reserve's 0:00:50.000 --> 0:00:52.280 resolve is seriously being tested by this market, and the 0:00:52.360 --> 0:00:55.880 implied rate hikes through safe Fed fund futures has rolled 0:00:55.920 --> 0:01:00.080 over well. I think that there's on the horizon and 0:01:00.160 --> 0:01:03.680 some potential surprises UM that might change the market's view 0:01:04.160 --> 0:01:06.199 on whether or not there's going to be more rate hikes. 0:01:06.240 --> 0:01:09.399 I mean, there's inflation has been extremely quiescent, and I 0:01:09.440 --> 0:01:13.240 think that's really the key ingredient, UH, that's keeping the 0:01:13.280 --> 0:01:18.080 market um complacent about what the trajectory should look like 0:01:18.280 --> 0:01:21.840 for the um policy rate going forward. I think that 0:01:21.959 --> 0:01:25.760 there's a potential for some inflation surprises coming in the 0:01:25.880 --> 0:01:28.280 at the beginning of the year. I want to pick 0:01:28.360 --> 0:01:31.119 up on that word complacency because we've had some communication 0:01:31.160 --> 0:01:33.479 from the Federal Reserve recently that some people have sort 0:01:33.480 --> 0:01:36.720 of latched onto and said, look, this isn't about complacency anymore. 0:01:37.080 --> 0:01:39.039 I can see the Federal Reserve is stepping back a 0:01:39.080 --> 0:01:41.640 little bit from projections for next year. What do you 0:01:41.640 --> 0:01:43.840 make of that? Well, I think that you know, there 0:01:43.880 --> 0:01:47.280 are data driven institution. We've had data come in and 0:01:47.440 --> 0:01:51.840 suggests that the global economy is slowing down somewhat. Uh, 0:01:51.880 --> 0:01:53.760 and yes, that's going to have an impact on the 0:01:53.800 --> 0:01:57.400 US economy. What is in an important ingredient in thinking 0:01:57.440 --> 0:01:59.600 about what the Fed has to do is they have 0:01:59.640 --> 0:02:02.040 to bound onto what the signals are coming from the 0:02:02.040 --> 0:02:05.320 global economy with the signals that are coming from uh, 0:02:05.440 --> 0:02:08.440 sort of the domestic economy, and the domestic economy is 0:02:08.520 --> 0:02:11.560 really very strong and continues to be so. It also 0:02:11.639 --> 0:02:14.240 has to take signals from the financial markets. And again 0:02:14.280 --> 0:02:17.200 there's a distinction between companies that are sort of more 0:02:17.280 --> 0:02:21.959 domestically oriented, they are not financially market engaged. Uh. Those 0:02:22.000 --> 0:02:24.760 companies are feeling very good. They did get a tax 0:02:24.800 --> 0:02:28.720 cut there using it to enhance their capital and labor. Uh. 0:02:28.760 --> 0:02:32.679 And then there are the other companies who are outwardly oriented. 0:02:32.840 --> 0:02:35.040 In other words, they care a lot about the gluble economy, 0:02:35.160 --> 0:02:39.480 and they are very financially market engaged. They they look 0:02:39.520 --> 0:02:42.760 at Wall Street, they worry about Wall Street volatility, and 0:02:42.919 --> 0:02:46.639 it's very important for the Fed to balance those two. Uh. 0:02:46.720 --> 0:02:49.919 One is a tailwind, one's a headwind. Dr Man the news. 0:02:49.960 --> 0:02:52.440 So this morning has been so extraordinary. We really haven't 0:02:52.480 --> 0:02:56.680 gotten to that wheelhouse discussion with you, which is the 0:02:56.720 --> 0:03:00.000 meetings of the G twenty over the weekend. Vice President 0:03:00.040 --> 0:03:03.160 and pens I guess advanced the story into a non 0:03:03.240 --> 0:03:06.480 story and that both sides see miles apart. Is that 0:03:06.520 --> 0:03:10.400 going to be the outcome that we see in Buenos Aires? Well, 0:03:10.840 --> 0:03:14.800 if we think of Apeck as being the the triple 0:03:14.919 --> 0:03:19.200 A ball compared to the big leagues of me, I 0:03:19.200 --> 0:03:22.680 think a lot of our listeners really don't understand what 0:03:22.800 --> 0:03:29.440 is it as Pacific economic cooperation. Thank goodness, ye, I've 0:03:29.440 --> 0:03:31.640 worked with them before, so I don't know which one 0:03:31.680 --> 0:03:33.919 is the big league. Perhaps I should not have said 0:03:33.919 --> 0:03:38.200 one's the big league in one's triple A, indeed. But 0:03:38.280 --> 0:03:40.400 the point is is that if this was the dry run, 0:03:40.480 --> 0:03:45.000 if APEC was the dry run for G twenty, you 0:03:45.040 --> 0:03:47.200 can either you can say, well it was a dry run. 0:03:47.280 --> 0:03:49.720 We're going to be very tough. We're gonna say we 0:03:49.800 --> 0:03:54.280 don't have any grounds for agreement. Uh. And then let's 0:03:54.320 --> 0:03:57.000 see what the market responds. How does the market respond 0:03:57.040 --> 0:04:00.560 to that kind of behavior, and then use that as 0:04:00.640 --> 0:04:04.280 a key for well, maybe we should agree to something 0:04:04.400 --> 0:04:07.200 in the G twenty, or maybe we shouldn't, depending on 0:04:07.240 --> 0:04:09.400 how the market absorbs this. We all wake up to 0:04:09.440 --> 0:04:12.440 the same headlines, Catherine, and sometimes they say tensions rising 0:04:12.520 --> 0:04:15.560 than twenty four as they say tensions rolling go for 0:04:15.720 --> 0:04:17.680 things are getting better. But it just seems to me 0:04:17.800 --> 0:04:21.320 that different parts of the administration say different things about 0:04:21.360 --> 0:04:24.800 the same thing the same topic. So Vice President Mike 0:04:24.880 --> 0:04:27.240 Pence seems to be playing bad cop, and fun enough, 0:04:27.320 --> 0:04:30.240 President Trump seem to be playing good cop on the 0:04:30.279 --> 0:04:32.680 trade issue over the last few weeks or so. How 0:04:32.720 --> 0:04:35.279 do you sort of distill that and communicates clients exactly 0:04:35.279 --> 0:04:38.560 what is going on ahead of the G twenty. Well, 0:04:38.600 --> 0:04:42.159 I think there are multiple voices that are are coming 0:04:42.160 --> 0:04:48.320 out of the administration, and um that is the administration. 0:04:48.400 --> 0:04:52.520 People are also taking their cue from the data as 0:04:52.520 --> 0:04:56.440 they come in and some of the market volatility as 0:04:56.480 --> 0:04:59.520 it comes in, and are tuning what they think they 0:04:59.560 --> 0:05:02.680 should be doing based on that. That's not unreasonable. It's 0:05:03.040 --> 0:05:07.600 a good idea to plumb the opinions of the business community, 0:05:07.640 --> 0:05:10.320 and of the policy community, and and of your own base. 0:05:10.720 --> 0:05:13.960 So all of that's important information for thinking about how 0:05:14.000 --> 0:05:17.039 you should move forward with an agreement or or no 0:05:17.160 --> 0:05:19.480 agreement in twenty in the G twenty, Well, I'm just 0:05:19.520 --> 0:05:21.760 wondering how you frame it for clients as well, because 0:05:21.800 --> 0:05:23.920 there are some people that have this very short time 0:05:23.960 --> 0:05:27.240 horizon who are looking for a truce at the end 0:05:27.279 --> 0:05:30.039 of the month, which generates a real squeeze into year 0:05:30.160 --> 0:05:32.560 end in risk assets. And there are some people that 0:05:32.640 --> 0:05:35.200 take a thirty five thou feet view and say, look, 0:05:35.240 --> 0:05:37.400 this is a generational problem. It's not going to be 0:05:37.400 --> 0:05:39.599 solved at the G twenty at the end of this month. 0:05:39.600 --> 0:05:42.160 It's going to take years, maybe decades to play out. 0:05:42.200 --> 0:05:45.000 Where do you stand on those two things, Catherine, Well, 0:05:45.040 --> 0:05:48.640 I think, there, of course some some some market participants 0:05:48.680 --> 0:05:51.560 that just like the volatility from from who says what, 0:05:51.680 --> 0:05:54.160 when and and and play off of that. So there's 0:05:54.440 --> 0:05:57.200 plenty of plenty of things to do there if you're 0:05:57.279 --> 0:06:00.800 that type of market participant for the longer term ones. Um, 0:06:00.839 --> 0:06:04.440 it does matter if there was to be positive language 0:06:04.480 --> 0:06:07.400 that came out of the G twenty as as I 0:06:07.440 --> 0:06:10.440 was saying earlier. Um, you know, if you can't even 0:06:10.480 --> 0:06:14.160 agree on a sentence that has ten words in it 0:06:14.560 --> 0:06:17.840 to have it as a as a as a communicate, 0:06:18.320 --> 0:06:20.960 you know, that's that's pretty that's a pretty low bar 0:06:21.640 --> 0:06:24.240 because it's not a legal agreement. Whatever you say in 0:06:24.240 --> 0:06:27.320 that in that communicate, it's not a legal agreement. So 0:06:27.360 --> 0:06:30.080 you are in our house this weekend we had we 0:06:30.160 --> 0:06:34.000 had a ten ten word communicating the house this weekend. 0:06:34.200 --> 0:06:36.920 You agreed on we did not agree on it, right, 0:06:37.040 --> 0:06:39.040 But that's every weekend of the Kane house. It is. 0:06:39.080 --> 0:06:41.120 It is as a communicat. I like that. Can I 0:06:41.160 --> 0:06:44.600 steal that word? It's a standard word. It's a standard 0:06:44.600 --> 0:06:48.320 word communicating. Cather Man, thank you so much. We hope 0:06:48.360 --> 0:06:52.520 to speak to in some form around the around. I 0:06:52.520 --> 0:06:54.360 feel like you would be great just for Tom King 0:06:54.480 --> 0:06:58.720 corrections the magic. I mean, why don't we do surveillance 0:06:58.760 --> 0:07:01.479 besides hanging out with Mike a bar and talking about 0:07:01.480 --> 0:07:04.760 the hideous Detroit Lion uniforms in silver gray. I mean, 0:07:04.800 --> 0:07:06.720 that's one of the reasons why we hang out. Well, 0:07:06.720 --> 0:07:10.440 who does I mean but John? The magic of having 0:07:10.520 --> 0:07:13.480 Luigi's in Gallis and Katherine Man in the same room, 0:07:13.960 --> 0:07:18.200 same conversation, the history of that Luigi's up next. They're 0:07:18.200 --> 0:07:21.120 both at the Massachusetts Institute of Technology, and it's just 0:07:21.160 --> 0:07:25.000 the the history of what they live. Were you in 0:07:25.160 --> 0:07:29.120 seminar with Rudiger Dornbush. I know you're saying history as 0:07:29.120 --> 0:07:32.680 if it's like, you know, you seem like she's you, 0:07:32.720 --> 0:07:37.080 all right, She's not Rudy Dornbush. They're after you or 0:07:37.720 --> 0:07:41.960 Ruddy good Dornbush. He was your advice and Rudy dormbuschh 0:07:41.960 --> 0:07:45.720 for my advice. I am channeling Rudy Dornbush every day 0:07:45.800 --> 0:07:47.640 when I go look at the markets and I think 0:07:47.760 --> 0:07:51.040 overshoot that is so. What was it like being with 0:07:51.120 --> 0:07:55.640 Ruddy Dornbush in clase and he was quick? Is what 0:07:55.720 --> 0:07:59.560 I remember? Absolutely fascinating. Katherine Man with us from m 0:07:59.600 --> 0:08:03.720 I T Luigi's and Gardless with US University of Chicago, 0:08:03.760 --> 0:08:07.240 Both School of Business Finance Professor Luigi Coan, morning to you. 0:08:07.400 --> 0:08:10.000 Good morning Luigi de Mayo, speaking in the last twenty 0:08:10.000 --> 0:08:13.280 four hours the Italian deputy Prime minister. I wouldn't say 0:08:13.320 --> 0:08:16.200 he's ready for a reconciliation, but he's certainly open to dialogue. 0:08:16.200 --> 0:08:18.280 And it makes me wonder where these conversations between the 0:08:18.320 --> 0:08:21.840 Commission and the Italian government are going and where the 0:08:21.840 --> 0:08:24.480 Italian government can actually pull back a little bit in 0:08:24.600 --> 0:08:28.360 terms of the budget deficit. Yes, I think he did 0:08:29.000 --> 0:08:32.680 show some sign of willness to reconcile. To be honest, 0:08:32.720 --> 0:08:35.200 I think that the Luigi Maya has always been more 0:08:35.520 --> 0:08:40.040 moderate visa vida European Union. That's just Salvini. So there 0:08:40.120 --> 0:08:42.320 is a little bit of a good cop get bad 0:08:42.360 --> 0:08:46.480 cap playing there, but also some strategic differences. I think 0:08:46.520 --> 0:08:49.880 that Salvini in the past did campaign to exit the 0:08:49.880 --> 0:08:54.360 You are LUIGII. Mayo never did that, and so I 0:08:54.400 --> 0:08:58.120 think that if it comes to the fist that movement, 0:08:58.960 --> 0:09:02.719 they are more willing to reconcile. They're less ideological, I think, 0:09:02.760 --> 0:09:07.600 more flexible. I fear that Salvini wants a confrontation for 0:09:07.720 --> 0:09:14.240 political reasons. He understood that confronting the U buercrets making 0:09:14.840 --> 0:09:19.120 gains vote at at home, and then he plays that 0:09:19.320 --> 0:09:21.160 they aggressive or just to sort of shine a light 0:09:21.240 --> 0:09:23.719 on that a Lega mat her Salveny. Now, while I 0:09:23.760 --> 0:09:25.840 had in the pulse, if you had an election today 0:09:25.880 --> 0:09:30.880 in Italy, who would win? I think that most likely 0:09:32.559 --> 0:09:36.079 the LEGA depends on whether the LEGA get allied with 0:09:37.200 --> 0:09:41.800 its former Allia Belusconi. With that alliance, they would probably 0:09:41.800 --> 0:09:44.599 reach an absolute majority. But it's not obvious. But the 0:09:44.640 --> 0:09:47.560 important point that most people miss is that the Italy 0:09:47.640 --> 0:09:50.000 is not like the UK, where the prime minister called 0:09:50.040 --> 0:09:54.360 new election. It is the president who uh calls new 0:09:54.360 --> 0:09:58.160 election and the president as a Monday to try to 0:09:58.240 --> 0:10:02.800 find if in Parliament that are majority. So if there 0:10:03.000 --> 0:10:07.000 was a confrontation today, I think that the president will 0:10:07.040 --> 0:10:11.160 look for new majorities, and potentially there is an alternative 0:10:11.200 --> 0:10:13.280 majority which is not a majority, with a five Star 0:10:13.400 --> 0:10:16.640 movement and the Democratic Party. So I think that Salvini 0:10:16.720 --> 0:10:19.560 needs to be careful in playing the game too aggressively 0:10:19.640 --> 0:10:22.760 because he might end up being out of power. I 0:10:22.760 --> 0:10:26.240 sound like a conversation in fifth century fifteenth century Italy 0:10:26.559 --> 0:10:30.199 dose singalles if we look at the split between Genoa 0:10:30.200 --> 0:10:32.240 and Italy. If you look at the actual culture here, 0:10:32.640 --> 0:10:34.840 the reality of me. I just looked it up. The 0:10:34.920 --> 0:10:39.400 Italian economy is eighteen or twenty times bigger than the 0:10:39.480 --> 0:10:41.880 economy of Greece. I mean, I think first of all, 0:10:42.200 --> 0:10:45.720 all of us, including me, don't realize that does Germany 0:10:45.760 --> 0:10:49.160 and the rest in Europe? Do they understand how big 0:10:49.200 --> 0:10:52.320 the Italian economy is? Are they treating it like Greece? 0:10:53.520 --> 0:10:56.520 I think that they understand how big the Italian economy is, 0:10:56.640 --> 0:11:01.480 but they don't want to make any fence. And I 0:11:01.520 --> 0:11:03.960 think there is one point in which I'm pretty convinced 0:11:04.040 --> 0:11:08.760 is that if we go to a confrontation, Germans are 0:11:08.840 --> 0:11:13.280 willing to pay any costs not to give up on principle. 0:11:13.679 --> 0:11:18.080 I think that unlike the Italians were very pragmatic, Germans 0:11:18.080 --> 0:11:22.520 are they dogmatic and they're willing to h lose significantly 0:11:22.520 --> 0:11:25.400 on the economic side in order to make a point 0:11:25.720 --> 0:11:28.320 on the principal side. Surveillance correction, John, I was doing 0:11:28.360 --> 0:11:30.760 math with the afterthought last night. In my head's all 0:11:31.000 --> 0:11:34.760 filled with decimals and fractions. Italyast ten times bigger than Greece. 0:11:34.880 --> 0:11:37.559 It's not just the economy. It's the problem, I'm Luigi. 0:11:37.600 --> 0:11:40.160 It's the debt market. I believe it's the third biggest 0:11:40.160 --> 0:11:43.440 sovereign debt market on the planet. I mean, the Italian 0:11:43.440 --> 0:11:46.840 bond market is the real deal in terms society, Luigi, 0:11:47.960 --> 0:11:50.160 there is no doubt that it is a real deal. Um, 0:11:50.480 --> 0:11:54.800 and that's what what is everybody. I think that if 0:11:55.320 --> 0:11:59.000 Italy does not start going at a healthy rate again, 0:11:59.760 --> 0:12:04.079 that that is not sustainable. So I think that we 0:12:04.320 --> 0:12:08.920 fear greatly a recession coming because I fear the data 0:12:08.960 --> 0:12:11.440 session would be the Keece of death. We are the 0:12:11.480 --> 0:12:14.400 point in which we could start to bring down that 0:12:14.559 --> 0:12:18.959 that ratio. But if we go back into our session, 0:12:19.240 --> 0:12:22.440 there's no way this is gonna happen. Not enough time. 0:12:22.520 --> 0:12:24.400 Let just in goals. Thank you so much, look forward 0:12:24.400 --> 0:12:27.920 to speaking and thank you. Thank you for the conversation 0:12:27.960 --> 0:12:33.400 with cat Man my last Massachusetts Institute of Technology moment 0:12:33.480 --> 0:12:39.120 as well. Let's bring in someone who synthesizes for Black 0:12:39.240 --> 0:12:42.160 Rocks so much of their multi assets strategy and particularly 0:12:42.200 --> 0:12:45.920 working off of the fixed income views of Jeffrey Rosenberg 0:12:45.920 --> 0:12:49.400 and others, and that is Isabel Mateos at Lago. Always 0:12:49.480 --> 0:12:52.440 enjoy to have her uh with this Smith Mateos, Sit Lagos, 0:12:52.480 --> 0:12:57.439 Good morning to you. What is the yield pullbacks signal? 0:12:57.520 --> 0:12:59.840 What do we what do we think when we see 0:13:00.760 --> 0:13:03.360 us full faith and credit yields set at a three 0:13:03.400 --> 0:13:07.640 oh seven? Good morning Tom, and thanks for the kind words. 0:13:07.960 --> 0:13:11.360 Pleasure always to uh to answer your questions. So, look, 0:13:11.400 --> 0:13:15.000 there's there's obviously different drivers. It's it's hard to pinpoint 0:13:15.040 --> 0:13:18.120 anyone in particular. But but but I think, as your 0:13:18.160 --> 0:13:20.920 comments just made clear, people are very much trying to 0:13:20.960 --> 0:13:25.200 read the tea leaves in terms of f MC members commentary, 0:13:25.640 --> 0:13:27.960 and certainly there was a bit of a sense that 0:13:28.440 --> 0:13:31.360 maybe they were dialing back on some of the earlier 0:13:31.400 --> 0:13:35.160 more hawkish comments of of term in Powerell. That may 0:13:35.160 --> 0:13:38.199 be a little premature. We'll see, we'll, we'll, we'll, we'll 0:13:38.240 --> 0:13:43.720 see pretty pretty soon about that. But um so, certainly, uh, 0:13:44.240 --> 0:13:46.520 that's going to be a key driver for that longer term, 0:13:46.800 --> 0:13:48.680 for that longer term rate, what does the feed do? 0:13:49.080 --> 0:13:51.400 And really it's the first time in a in a 0:13:51.440 --> 0:13:54.800 while that there's some uncertainty about about what the FED 0:13:54.920 --> 0:13:57.280 is going to do, not you know, not for December obviously, 0:13:57.320 --> 0:13:59.720 but in terms of when is when is the Paul's 0:13:59.760 --> 0:14:03.200 going to come are and and and that's been driving 0:14:03.520 --> 0:14:05.920 some of that volatility in rates. You know, in addition 0:14:05.960 --> 0:14:08.040 to the to the sort of risk on risk of 0:14:08.240 --> 0:14:10.960 environment is about I expect a range of opinions at 0:14:10.960 --> 0:14:13.640 the Federal Reserve. I do also expect that the Vice 0:14:13.720 --> 0:14:16.040 Chairman and the Chairman to be quite closely alligned. So 0:14:16.080 --> 0:14:18.640 it's interesting that within the space of about six weeks 0:14:18.960 --> 0:14:21.240 we've had the Chairman say that we are a long 0:14:21.240 --> 0:14:24.120 way away from neutral and the Vice Chairman suggest we're 0:14:24.160 --> 0:14:26.840 a lot closer than that. Is the truth somewhere in 0:14:26.880 --> 0:14:29.840 between or is the communication changing? What do you make 0:14:29.880 --> 0:14:33.560 of the communication of the last six weeks. Yeah, I mean, 0:14:33.600 --> 0:14:38.160 look at as they as the Fed gets close. I mean, 0:14:38.320 --> 0:14:40.640 the thing that they probably all agree on is they're 0:14:40.640 --> 0:14:43.320 getting closer to neutral, They're closing in on it, and 0:14:43.360 --> 0:14:46.480 that means at some point in the not to distant future, 0:14:46.600 --> 0:14:49.480 policy is no longer going to be accommodating. That's a 0:14:49.560 --> 0:14:52.520 big turning point, and so they have to kind of 0:14:52.680 --> 0:14:57.720 really adjust how they how they communicate about it. Now, 0:14:57.840 --> 0:15:00.360 let's assume, like you know, by our estimate, it's we've 0:15:00.400 --> 0:15:03.840 got the we've got the short term neutral rate at 0:15:03.840 --> 0:15:06.680 around a hundred twenty basis points. So that's kind of 0:15:06.720 --> 0:15:10.760 you know, four rate hikes from uh uh from here? 0:15:10.880 --> 0:15:12.720 Is that a long way or not? How do you 0:15:12.760 --> 0:15:15.560 describe it? You know, maybe they didn't sit down altogether 0:15:15.680 --> 0:15:18.080 and say, Okay, this is exactly the terminology that we're 0:15:18.080 --> 0:15:20.440 going to use to describe where where we are. And 0:15:20.800 --> 0:15:23.280 I think we're seeing the results of that in and 0:15:23.280 --> 0:15:27.200 and and sort of trial and error communication. But I 0:15:27.200 --> 0:15:29.440 think they're going to need to be a bit more 0:15:29.480 --> 0:15:32.160 specific in the in the next meeting and then certainly 0:15:32.160 --> 0:15:36.520 in the next statements. What's the operative plan for next year? 0:15:36.840 --> 0:15:39.120 Are we going to clip a coupon? Or can we 0:15:39.200 --> 0:15:45.840 dream of total return? There's a raging debate, isn't it. Yes. 0:15:46.040 --> 0:15:49.560 I think we're still I mean, obviously, as you said, 0:15:49.600 --> 0:15:54.280 there's uh, there's uh, there's different views. Uh, we're I 0:15:54.360 --> 0:15:58.600 think in the camp of modest total return. Uh. To 0:15:58.600 --> 0:16:02.720 to to put in that way, credit spreads winding out 0:16:02.720 --> 0:16:05.040 through last week is about if you're in the camp 0:16:05.080 --> 0:16:11.880 of modest total return, what does that mean for credit specifically? Well, 0:16:12.160 --> 0:16:15.840 so you know, the last I don't know how do 0:16:15.960 --> 0:16:19.560 they many weeks, but there's been clearly something else driving 0:16:20.040 --> 0:16:24.479 higher interest rates than than just than just FED expectations 0:16:24.560 --> 0:16:29.760 or growth expectations, and that's been uh, growing rice premium frankly, 0:16:29.840 --> 0:16:33.000 across all all risk athetes. We think that has a 0:16:33.040 --> 0:16:39.000 lot to do with geopolitical risks and in particular trade tensions, 0:16:39.040 --> 0:16:43.520 which you know affect people's I mean, create uncertainty around 0:16:44.360 --> 0:16:47.040 macroeconomic outcomes. And we think if we could get some 0:16:47.240 --> 0:16:49.960 relief on the front, and if it's not great or 0:16:50.160 --> 0:16:53.080 terribly long lasting, but that would help, you know, irrespective 0:16:53.120 --> 0:16:55.360 of what the FED is going, okay, but within and 0:16:55.640 --> 0:16:58.920 this is important, folks, because this works with multi multi 0:16:59.000 --> 0:17:02.960 assets strategy, which I think we all do. What is 0:17:03.040 --> 0:17:07.600 the multi assets strategy of black Rock? Away from this 0:17:07.680 --> 0:17:11.880 political story, that political story, what's the actual to do 0:17:12.720 --> 0:17:17.119 across assets? So at this point, you know, we still 0:17:17.200 --> 0:17:21.399 have a clear preference for for equities over bonds, but 0:17:21.680 --> 0:17:24.199 that equity risk, we want to take it in a 0:17:24.240 --> 0:17:27.840 way that is that is resilient to to growth scares 0:17:27.960 --> 0:17:31.280 or to interest rate scares, frankly, and that means focusing 0:17:31.359 --> 0:17:36.040 on focusing on quality, focusing on the less liverard balance sheets. 0:17:36.080 --> 0:17:40.920 The corporates with the strongest cat close. Uh yeah, and 0:17:41.600 --> 0:17:46.119 you know, maybe moving towards a bit of a barble 0:17:46.160 --> 0:17:48.880 strategy if you will, you know, take both equity risk 0:17:48.960 --> 0:17:53.480 and then and then some some some safe bonds, preferably 0:17:53.520 --> 0:17:56.359 at the short end of the curve. Thank you so 0:17:56.440 --> 0:18:01.840 much for the black rock today. Treat them works light today, 0:18:02.080 --> 0:18:04.240 and we really want to dive back into that and 0:18:04.280 --> 0:18:07.240 we can do that best with Brown Brothers Harriman's Win Thinn, 0:18:07.359 --> 0:18:11.720 who joins us uh this morning, head of Currency Strategy 0:18:12.160 --> 0:18:15.960 and Foreign Exchange at Brown Brothers Harriman, Dr Thin, Good 0:18:15.960 --> 0:18:18.040 morning to you. Let me begin with the base call 0:18:18.160 --> 0:18:21.359 for two thousand nineteen, a wide set of opinions at 0:18:21.359 --> 0:18:26.439 Bloomberg Surveillance on dollar weakness, dollar strength, dollar range bound, 0:18:26.480 --> 0:18:31.679 dollar ambiguity. Which is it? Well, first, thanks again for 0:18:31.720 --> 0:18:35.239 having me, Thomas with a pleasure. I'm right now. I'm 0:18:35.280 --> 0:18:37.919 thinking with my strong dollar call. Up until about a 0:18:37.920 --> 0:18:41.080 week ago, I was extremely confident because the market had 0:18:41.119 --> 0:18:43.960 had taken their form C meeting as a hawker signal 0:18:44.000 --> 0:18:45.800 from the Fed. But I went out of the country 0:18:45.840 --> 0:18:47.439 for the last week. I was down in South America. 0:18:47.720 --> 0:18:51.359 I'm shocked um at how quickly the sentiments turned, the 0:18:51.400 --> 0:18:54.840 market is taken back a rate a rate hikes on 0:18:54.920 --> 0:18:57.160 the FED and and we've gotten to a more published 0:18:57.200 --> 0:19:00.760 take again amazing speed over the last week. I do 0:19:00.840 --> 0:19:03.600 think that the the reaction in the FED funds and 0:19:03.640 --> 0:19:07.320 futures market, the the financial market has overdone. Um. I 0:19:07.359 --> 0:19:09.919 think the Fed will continue to hike next year, but 0:19:10.160 --> 0:19:12.120 I think the market right now is in a consolidated 0:19:12.160 --> 0:19:13.879 phase and til we sort of clear up this, this 0:19:14.359 --> 0:19:17.199 really quite muddy waters, now, you know whin thin. I 0:19:17.240 --> 0:19:20.639 look at the cover of your fourth quarter report, the 0:19:20.680 --> 0:19:26.119 Global Overview, and the title is Thorny Issues Threatening Foreign 0:19:26.119 --> 0:19:31.760 Exchange in Q four and it looks terrifying on the cover. 0:19:32.160 --> 0:19:35.360 It's red with thorns. I mean, I don't know where 0:19:35.400 --> 0:19:38.639 you cut the roses, but all I see are stems 0:19:38.720 --> 0:19:42.760 and thorns. What are people going to hurt themselves on 0:19:42.800 --> 0:19:45.080 this year? What do you think they're gonna do that's 0:19:45.080 --> 0:19:49.680 gonna be changed because of the way the market really operates. Yeah, no, 0:19:49.720 --> 0:19:51.160 it's a good question. First of all, I I didn't 0:19:51.200 --> 0:19:52.880 choose the picture, but I think it's it's like something 0:19:53.000 --> 0:19:54.919 right out of American horror story. It is frightening. I 0:19:54.960 --> 0:19:57.960 keep it face down on my desk. Um, look the 0:19:57.960 --> 0:20:00.760 thorny issues that we pointed out. This came out at 0:20:00.800 --> 0:20:04.600 the the end of September. Uh, and it's coming true. Now. 0:20:04.640 --> 0:20:08.360 We've got Brexit which is a total chaos. We've got 0:20:08.400 --> 0:20:12.960 Italy muddying the waters. We've got US trade attentions threatening 0:20:13.119 --> 0:20:15.160 a global trade that those things all I think will 0:20:15.200 --> 0:20:18.880 remain in play well until next year. Um. That's it's 0:20:18.920 --> 0:20:21.240 not going away soon. Um. I think to me that 0:20:21.320 --> 0:20:23.200 the problem is getting in deeper. I think that there's 0:20:23.320 --> 0:20:26.200 the risk of a no deal Brexit have written the 0:20:26.240 --> 0:20:29.320 significantly high levels. I think there's a risk that Italy 0:20:29.400 --> 0:20:32.480 will be sanctioned by the EU for its successive deficits. 0:20:33.320 --> 0:20:35.840 And I think the U S and China will will 0:20:36.240 --> 0:20:38.920 eventually reach an agreement, but not until there's more pain felt. 0:20:39.000 --> 0:20:40.800 And that I think that's that's more a Q one 0:20:40.880 --> 0:20:43.159 Q two story. I mean Q one Q two and 0:20:43.240 --> 0:20:45.800 all that is the degrees of freedom that the FED has, 0:20:46.000 --> 0:20:49.399 particularly versus other central banks. One of your great charms, 0:20:49.560 --> 0:20:52.959 Dr Thinn is a focus on emerging markets. I mean, 0:20:53.119 --> 0:20:56.440 are they all going to be constrained by emerging market 0:20:56.560 --> 0:21:00.320 dynamics or do they act as they will in ammerging 0:21:00.400 --> 0:21:04.920 markets follow on UH. In terms of FED policy making, 0:21:05.160 --> 0:21:08.399 its first and foremost UH done for the state of 0:21:08.440 --> 0:21:10.960 the U. S. Economy. I mean the FED officials fat 0:21:10.960 --> 0:21:14.840 efficials are dumb. They realized their repercussions. UM. But when 0:21:14.880 --> 0:21:16.680 all said and done, you know, buying some sort of 0:21:16.760 --> 0:21:21.280 triggering global financial crisis. The FED is basically saying, look, 0:21:21.320 --> 0:21:23.840 you guys, you guys em benefited from our low rates 0:21:24.040 --> 0:21:26.359 for for years and years. We're taking that back because 0:21:26.359 --> 0:21:29.480 the U. S. Economy is is on track and unfortunately 0:21:29.520 --> 0:21:31.000 guys gonna have to deal with it. And I think 0:21:31.040 --> 0:21:33.760 that's to me, the basic message that that's sent. I 0:21:33.800 --> 0:21:35.440 think I think that's true. I mean, I think, you know, 0:21:35.520 --> 0:21:38.320 the world in general has just gotten too used to 0:21:38.480 --> 0:21:41.680 to abnormally low interest rates. UH. And you know we 0:21:41.760 --> 0:21:44.720 had that issued like there know tomorrow and at some 0:21:44.760 --> 0:21:47.000 point the pipe is gonna, you know, have to be paid. Okay, 0:21:47.080 --> 0:21:49.000 how much is a percent move on dollar? I mean, 0:21:49.119 --> 0:21:52.480 David Bloom at HSBC is is hugely optimistic, like you 0:21:53.040 --> 0:21:55.359 on dollar consensus goes the other way. Give us a 0:21:55.440 --> 0:22:02.800 percent move on dollar that could upset consensus, surprise consensus. Okay, Well, 0:22:02.960 --> 0:22:04.960 I think Tom, I think you you hit the nail 0:22:05.000 --> 0:22:08.000 on the head, though, I think you know, there's more 0:22:08.320 --> 0:22:11.360 um dollar pairs have been emerged in the last couple 0:22:11.400 --> 0:22:13.879 of weeks. Uh. You know, I thought, you know, for 0:22:13.920 --> 0:22:16.400 a while, I thought are about bullsh dollar calls consensus, 0:22:16.400 --> 0:22:17.679 But I think it's it's moved a little bit out 0:22:17.720 --> 0:22:21.720 of consensus um, you know, due to developments with the etcetera. 0:22:22.359 --> 0:22:25.159 So uh, you know, I think that in order to 0:22:25.200 --> 0:22:28.800 get the bears, uh sort of think again, I think 0:22:28.800 --> 0:22:31.800 we need to get another five percent move in the dollar. 0:22:32.880 --> 0:22:34.800 And likewise, you know, I think we have to get 0:22:34.800 --> 0:22:36.440 another five percent moved the other way for me to 0:22:36.480 --> 0:22:37.720 sort of throw in the towel. You know, I think 0:22:37.720 --> 0:22:41.520 we're still within recent I think I would point out 0:22:41.640 --> 0:22:44.720 him five percent is a large move in the world 0:22:44.800 --> 0:22:50.680