WEBVTT - Deutsche Bank's Ozan Tarman and Aditya Singhal on Understanding the Macro Risks 0:00:02.720 --> 0:00:14.000 Bloomberg Audio Studios, Podcasts, Radio News. 0:00:18.520 --> 0:00:21.440 Hello and welcome to another episode of the au Thoughts podcast. 0:00:21.520 --> 0:00:22.840 I'm Tracy Alloway. 0:00:22.560 --> 0:00:23.120 And I'm Joe. 0:00:23.120 --> 0:00:24.439 Why isn't thal Joe? 0:00:24.640 --> 0:00:27.720 Our live show in London recorded May seventh at Wilton's 0:00:27.800 --> 0:00:31.360 Music Hall. A lot has happened since then. Him Markets, 0:00:31.400 --> 0:00:34.199 it's hard to have a markets conversation that you know 0:00:34.600 --> 0:00:38.239 isn't out of date within like a minute or two. Yeah, 0:00:37.600 --> 0:00:40.960 but I think this one, this one carries on. I 0:00:41.000 --> 0:00:42.320 think this one is still relevant. 0:00:42.400 --> 0:00:44.480 Well, you know, I have to say I always feel 0:00:44.479 --> 0:00:46.960 a little anxious about recording Markets episodes because of this 0:00:47.080 --> 0:00:49.120 very phenomenon. But this is true for our live and 0:00:49.200 --> 0:00:51.279 our recorded shows that by the time it comes out, 0:00:51.520 --> 0:00:53.040 who knows how much hole have changed. 0:00:53.120 --> 0:00:54.560 This is why you should go to the list, is why. 0:00:54.920 --> 0:00:56.040 That's exactly where I was going to go. 0:00:56.400 --> 0:00:58.760 It's actually good to record markets episodes of the live 0:00:58.800 --> 0:01:01.080 show because that's like, all right, create an inducement to 0:01:01.080 --> 0:01:03.680 get people to buy a ticket. But again, you know, 0:01:03.720 --> 0:01:05.720 with a lot of these things, like how traders are 0:01:05.760 --> 0:01:09.560 digesting this particular moment in time. Sure, the headlines and 0:01:09.600 --> 0:01:12.160 the prices on the screen change, but there are certain 0:01:12.200 --> 0:01:15.360 like principles and frameworks for understanding what's going on that 0:01:15.520 --> 0:01:18.000 will be sort of useful regardless of what's happened in 0:01:18.040 --> 0:01:18.560 the meantime. 0:01:18.640 --> 0:01:21.600 You mentioned frameworks, and that is the perfect framing for 0:01:21.760 --> 0:01:24.280 this discussion. So we indeed had the perfect guests. We 0:01:24.319 --> 0:01:27.080 spoke to someone who's been on quite a few times before, 0:01:27.440 --> 0:01:29.360 one of our favorites for letting us know what the 0:01:29.400 --> 0:01:32.360 big money is actually thinking about and trading. We spoke 0:01:32.400 --> 0:01:34.760 with Ozan Tarman. He is, of course vice chair of 0:01:34.800 --> 0:01:37.800 Global Macro over at Deutsche Bank. We also spoke to 0:01:37.840 --> 0:01:41.039 his colleague, someone who hasn't been on the show before, 0:01:41.120 --> 0:01:44.480 but who has quite a reputation, one of Deutsche Bank's 0:01:44.520 --> 0:01:48.120 star bond traders, A ditcha single. He is the head 0:01:48.160 --> 0:01:52.600 of em trading across rates, FX and Credit at Deutsche Bank. 0:01:52.680 --> 0:01:56.040 So take a listen. Okay, let's start with the obvious question. 0:01:56.520 --> 0:02:00.559 Lines on the chart keep going up despite what would 0:02:00.560 --> 0:02:03.040 seem to be some challenges to the global economy. To 0:02:03.040 --> 0:02:04.840 put it mildly, why. 0:02:05.120 --> 0:02:07.240 First of all, even when I walked in, I was 0:02:07.320 --> 0:02:10.320 checking for you guys. It wasn't like that fifteen minutes ago. 0:02:10.600 --> 0:02:15.760 When we're now recording this at seven three twenty seconds. 0:02:15.960 --> 0:02:20.919 When one agency claimed that Operation Freedom was back on, 0:02:21.040 --> 0:02:24.640 that President Trump could try to open the hormones by force, 0:02:25.480 --> 0:02:28.000 SMP and oil SMP didn't like that at all. Oil 0:02:28.080 --> 0:02:31.639 was surging higher than al Jeza denied. So we're all 0:02:31.639 --> 0:02:35.280 calmer again. But bottom line is why we keep going 0:02:35.360 --> 0:02:37.600 higher despite everything that how we are in orkin steeds 0:02:38.280 --> 0:02:41.440 because buses are empty. When I say buses are empty, 0:02:41.600 --> 0:02:44.480 I don't only talk to my portular managers, but men 0:02:44.520 --> 0:02:47.000 on the streets, to my college classmates. One of them 0:02:47.040 --> 0:02:48.600 was like, what do you mean busses are empty? That 0:02:48.680 --> 0:02:50.240 means investors. 0:02:49.680 --> 0:02:50.160 Don't have it. 0:02:50.639 --> 0:02:54.000 The analogy is a bit like closer to April second 0:02:54.080 --> 0:02:56.200 April nine off last year, when we had the big 0:02:56.240 --> 0:02:59.280 tariff shock billboard up. We thought that it would be 0:02:59.320 --> 0:03:01.560 the end of the year and of the markets. Then 0:03:01.560 --> 0:03:05.360 President Trump stepped back and Marcus never looked back. 0:03:06.000 --> 0:03:07.680 A bit similar coincidence or not. 0:03:07.919 --> 0:03:11.799 March thirty first is the first time he claimed through 0:03:11.880 --> 0:03:14.800 Walls the Journal that he would separate State or Foremost 0:03:14.880 --> 0:03:18.240 and Operation, that the two could go separately. 0:03:18.720 --> 0:03:19.960 None of that happened, but that. 0:03:20.040 --> 0:03:23.399 Was the first big brief market took and on April nine, 0:03:23.680 --> 0:03:27.239 exactly on the same day the big first postponement came 0:03:27.440 --> 0:03:30.040 and said you're not going to do anything for two weeks, 0:03:30.880 --> 0:03:35.200 and since then markets never looked back the historic led 0:03:35.240 --> 0:03:38.720 by tech Nazak and SMP rally. And you know, I 0:03:38.800 --> 0:03:43.000 talked to a lot of people at you know, Key ladies, guys. Honestly, 0:03:43.240 --> 0:03:47.000 maybe three four five people really believed in this rally 0:03:47.360 --> 0:03:52.280 since April first, April nine. That's one big part of it, 0:03:52.320 --> 0:03:57.760 but it can be all positioning also fundamentals right, earnings. 0:03:56.680 --> 0:03:59.240 Again, head of sales. One of my. 0:03:59.720 --> 0:04:03.200 Legend the researchers, Jim Read just today he was on 0:04:03.240 --> 0:04:06.000 Bloomberg as well, talking about earnings in Q four of 0:04:06.080 --> 0:04:09.800 last year, just thirteen percent growth. Q one records biggest 0:04:09.840 --> 0:04:14.120 in five years late by take twenty four percent. And 0:04:14.200 --> 0:04:16.360 that engine keeps us, keeps us going. 0:04:16.600 --> 0:04:18.800 Yeah, the earnings are what they are, So I'm here's 0:04:18.839 --> 0:04:21.320 some they're curious. So Ozon came in and he gave 0:04:21.400 --> 0:04:23.680 us the latest headlines. Thank you, because I haven't I 0:04:23.680 --> 0:04:25.039 hadn't been looking at my job. 0:04:25.320 --> 0:04:27.720 Yeah, exactly, look at his phone for fifteen minutes. 0:04:27.440 --> 0:04:29.760 Which it might be a record, a record how do 0:04:29.960 --> 0:04:34.880 traders deal with the market in which they're just the sheer. 0:04:34.680 --> 0:04:35.560 Number of headlines? 0:04:35.839 --> 0:04:36.279 How would you? 0:04:36.480 --> 0:04:39.680 And how do they know what to take seriously? And 0:04:39.960 --> 0:04:42.240 like what's real? What's not real? 0:04:42.279 --> 0:04:43.719 Like how are they interesting news? 0:04:43.839 --> 0:04:48.279 So from a trading perspective, right, mostly almost everybody that 0:04:48.480 --> 0:04:51.000 the fundamentally five asset classes, right, so you have a 0:04:51.040 --> 0:04:55.760 thematic view and raised effects credit equities and commodities, and 0:04:55.880 --> 0:04:59.120 a lot of people are fixated or are mandated or 0:04:59.160 --> 0:05:02.240 asset class per se, right, so they have no choice 0:05:02.240 --> 0:05:04.960 but to stick within that kind of region. And then 0:05:05.000 --> 0:05:06.880 of course are you if you're a real many investor, 0:05:06.960 --> 0:05:09.680 a hedge fund, or if you are a sell side trader, 0:05:10.080 --> 0:05:12.159 just depending on how you are positioned, right, it's not 0:05:12.200 --> 0:05:14.120 really it's difficult to get in and out right, So 0:05:14.160 --> 0:05:17.080 thematically you have to take a structure long term, you 0:05:17.160 --> 0:05:19.800 see what every asset class is pricing on that particular 0:05:19.880 --> 0:05:24.200 view and define an upside downside kind of scenario and 0:05:24.240 --> 0:05:26.880 based on the liability profile you have, and that how 0:05:26.920 --> 0:05:28.880 you define that is the function of the money you 0:05:28.920 --> 0:05:32.920 have or what kind of drawdowns are acceptable. You take 0:05:32.960 --> 0:05:35.200 a particular position and you let it play out. So 0:05:35.839 --> 0:05:39.240 in this kind of environment, it's difficult. So what is 0:05:39.279 --> 0:05:42.440 the upcoming kind of positive news that you can rely 0:05:42.520 --> 0:05:44.120 onto the market right today? If you were to sit 0:05:44.160 --> 0:05:46.440 here today, you say, okay. So the fact that not 0:05:46.560 --> 0:05:49.159 much action has happened in the last three to four 0:05:49.160 --> 0:05:52.600 weeks within the straight means that at some point or 0:05:52.640 --> 0:05:56.040 the other the resolution will come. Pakistan is mediating as 0:05:56.080 --> 0:05:58.560 we can see, there's been enough talks happening, so you 0:05:58.839 --> 0:06:00.480 assume that a resolution and should come. 0:06:00.520 --> 0:06:02.200 That's what the market is pricing. Theoretically. 0:06:03.080 --> 0:06:05.679 You also have a situation with Russia which is developing 0:06:05.720 --> 0:06:08.640 right Russia Ukraine war, which could keep positive worse. And 0:06:08.680 --> 0:06:12.240 then you have the visit, the US visit to China, 0:06:13.120 --> 0:06:15.240 which also is the positive. Now, of course there's a 0:06:15.240 --> 0:06:17.159 lot of it is at the price per se, But 0:06:17.320 --> 0:06:21.760 fundamentally speaking, as a trader, you position yourself and then 0:06:21.760 --> 0:06:24.919 you just choose, you know, at some point to close 0:06:24.920 --> 0:06:26.200 it to the time but get out. 0:06:26.360 --> 0:06:29.599 But just like just and that all makes sense to me, 0:06:29.720 --> 0:06:33.799 But like are traders sitting there with a truth social 0:06:33.800 --> 0:06:37.400 window open, like the literal like ingestion of news? 0:06:37.440 --> 0:06:38.440 How do you do it? 0:06:38.480 --> 0:06:40.240 And how just getting the messages from me? 0:06:40.520 --> 0:06:40.680 Yeah? 0:06:40.720 --> 0:06:40.880 Right? 0:06:40.960 --> 0:06:41.400 Just kidding. 0:06:41.640 --> 0:06:45.960 Well, someone needs to make like a motivational poster that says, Lord, 0:06:46.000 --> 0:06:48.719 give me the confidence of an equity investor trading on 0:06:48.760 --> 0:06:51.480 an Axios headline. Yeah, like I feel like that would 0:06:51.680 --> 0:06:52.000 that would? 0:06:52.040 --> 0:06:53.599 So yes, we have one open. 0:06:53.760 --> 0:07:00.000 Yeah, genuinely we we we have no choice. But fundamentally 0:07:00.400 --> 0:07:03.640 it's like this, right, so you make up you see 0:07:03.640 --> 0:07:06.080 what's so? We had a if you would look at 0:07:06.080 --> 0:07:08.240 the rates market for example, this is an example, right, 0:07:08.520 --> 0:07:12.320 there was a six IgA event that happened within it. 0:07:12.680 --> 0:07:14.920 At some point the pricing gets to a level where 0:07:14.960 --> 0:07:18.000 it doesn't make any irrational sense. So you start to 0:07:18.280 --> 0:07:20.640 look at that on a most structural basis and you 0:07:20.640 --> 0:07:24.200 start to ignore the noise in the middle, and whether 0:07:24.240 --> 0:07:25.800 we like it or not, we have to operate with 0:07:25.840 --> 0:07:27.880 that kind of philosophy. So you take one side or 0:07:27.920 --> 0:07:31.559 the other. It's very difficult to trade the headline because 0:07:31.560 --> 0:07:35.000 it's impossible because as of now you had two conflicting 0:07:35.000 --> 0:07:40.560 headlines and you can get caught out. So most people 0:07:40.600 --> 0:07:43.760 have come to that understanding. So you've taken a perspective review. 0:07:44.360 --> 0:07:46.000 Either this is going to get resolved, or if you 0:07:46.080 --> 0:07:48.160 believe it's not going to get resolved, there's a way 0:07:48.200 --> 0:07:50.800 of expressing it within the five asset classes where you 0:07:50.880 --> 0:07:53.640 might get the most convexity. Similarly, if it gets resolved, 0:07:53.720 --> 0:07:56.440 there is certain things that actually might work which haven't 0:07:56.520 --> 0:07:58.720 yet worked. So you take those sides and you just 0:07:58.800 --> 0:07:59.440 certain wait. 0:08:00.080 --> 0:08:04.440 Mentioned irrationality just then, which means we should talk about AI, right, 0:08:04.520 --> 0:08:07.480 because all of the stock market rally at this point 0:08:07.600 --> 0:08:11.720 essentially seems to be a bet on AI. What are 0:08:11.760 --> 0:08:15.080 you hearing from your clients on how comfortable they feel 0:08:15.200 --> 0:08:15.840 with us? 0:08:16.040 --> 0:08:20.600 Well, just two days before the Iran war began, we 0:08:20.600 --> 0:08:23.720 were in West bam Beach and Miami with Aditya as well, 0:08:24.520 --> 0:08:27.680 visiting clients, and then the whole talk of at least 0:08:27.680 --> 0:08:31.520 that town but us in general was that famous Strenny piece, 0:08:31.680 --> 0:08:34.760 the other fifteen million stampiece. Something big is about to happen. 0:08:35.480 --> 0:08:38.480 How in twelve to eighteen months, fifty percent of white 0:08:38.480 --> 0:08:42.360 color jobs could be wiped out. What that could mean 0:08:42.480 --> 0:08:45.320 for rates? That in itself is very very telling, right, 0:08:45.720 --> 0:08:50.240 And because of that, and one Solstal claims numbers if 0:08:50.280 --> 0:08:53.679 you remember us ten years that Friday before the bumps 0:08:53.720 --> 0:08:57.280 came in closed that three ninety three, and one of 0:08:57.320 --> 0:08:59.960 my more famous Frans Clients sends me a message on 0:09:00.040 --> 0:09:02.839 that Friday Night bond is the new gold three Night 0:09:02.920 --> 0:09:07.720 three top tic clothes. Then eraon war happens. Not that's surprising, 0:09:07.800 --> 0:09:09.960 but of course the how it played out is very 0:09:10.040 --> 0:09:15.600 very surprising. War inflation hikes getting priced in for people 0:09:16.240 --> 0:09:20.480 completely pushed aside the slow down job growth, labor part 0:09:20.520 --> 0:09:24.559 of it, and then started completely focusing on the equity, 0:09:24.840 --> 0:09:27.720 the growth the AI engine. Again, if you just go 0:09:27.840 --> 0:09:31.600 back to January February, we were quote unquote happy because 0:09:31.640 --> 0:09:33.640 the thing was broadening out. It was a rally, but 0:09:33.760 --> 0:09:36.360 it was a rally late by Russell as well, would 0:09:36.360 --> 0:09:40.319 it be Magnicude four, Magnicum three, Magnificent seven was forgotten 0:09:40.640 --> 0:09:43.680 and lord behold, some of us, thank god, have three 0:09:43.679 --> 0:09:47.640 month memories. Now now we're complaining about oh, it's all 0:09:47.679 --> 0:09:51.640 about seven stocks. The brief is to we're just fighting 0:09:51.679 --> 0:09:55.920 ways to try to fight and wrestle away the rally. 0:09:55.960 --> 0:09:58.440 But so back to your question at the moment, Yeah, 0:09:58.480 --> 0:10:00.800 the kool aid is to believe that this AI run 0:10:01.040 --> 0:10:04.600 may have another one to two years to go. Pull 0:10:04.679 --> 0:10:08.080 to the Jones public one of definitely my more famous 0:10:08.080 --> 0:10:11.520 transplants today claimed that that's the case and made the 0:10:11.600 --> 0:10:15.520 nineteen ninety nine analogy. So either you swim with that 0:10:16.559 --> 0:10:17.360 or try to fade it. 0:10:18.080 --> 0:10:19.679 You know, this is the other thing, all right, So 0:10:19.720 --> 0:10:23.959 we talk about these very worrisome scenarios the price surgeon oil, 0:10:24.040 --> 0:10:28.560 but very worrisome scenarios about deep shortages in various commodities. 0:10:28.640 --> 0:10:31.400 So that's one reason to be worried. But then there's 0:10:31.440 --> 0:10:35.400 this other thing that basically, you know, the disinflation is 0:10:35.520 --> 0:10:38.400 stalled out if arguably it's going in the other direction. 0:10:39.120 --> 0:10:42.000 Rates around the world and you know, we're I think, 0:10:42.040 --> 0:10:44.920 you know, there's some sort of what was UK thirty. 0:10:44.640 --> 0:10:46.880 Year high since nineteen ninety eight. 0:10:47.080 --> 0:10:50.840 Yeah, So again, just intuitively, you would say, do these 0:10:50.880 --> 0:10:52.079 things compound each other? 0:10:52.120 --> 0:10:54.360 It should really take the wind out of the sales 0:10:54.400 --> 0:10:57.640 of risk appetite. And yet so. 0:10:57.720 --> 0:10:59.880 How is it the like even like you know, what 0:11:00.080 --> 0:11:03.240 we see going on and selling of how does the 0:11:03.360 --> 0:11:06.800 selling in sovereign bonds mix into this market in review? 0:11:07.080 --> 0:11:09.240 So let me take this to actually give you a 0:11:09.240 --> 0:11:11.280 thematic kind of how to think about things, right, Okay, 0:11:11.400 --> 0:11:13.839 just to give a perspective, right, So ultimately there is 0:11:13.880 --> 0:11:17.160 only one thematic view that matters for the next few years. Right, 0:11:17.200 --> 0:11:19.680 And that is if you were to assume you have 0:11:19.760 --> 0:11:22.280 China and China aligned countries and you have the West. Right, 0:11:23.040 --> 0:11:25.480 if you were to take China and China aligned countries 0:11:25.559 --> 0:11:29.080 right and they were in space, what does West need 0:11:29.679 --> 0:11:33.800 theoretically in both manufacturing and services? And if you were 0:11:33.800 --> 0:11:36.320 to the reverse the rules, and if the West person space, 0:11:36.360 --> 0:11:38.760 put is China and China aligned countries needs both in 0:11:38.760 --> 0:11:41.520 manufacturing and services. And the reason I'm bringing to this 0:11:41.559 --> 0:11:44.320 point is because I want to give a perspective. So 0:11:44.960 --> 0:11:47.240 what happened right in the last many years. So this 0:11:47.280 --> 0:11:50.240 microphone for example, right, this most of the material and 0:11:50.320 --> 0:11:53.079 here comes from China or China A lined countries almost 0:11:53.360 --> 0:11:56.200 ninety percent. Right, manufacturing capacity the world is fifty five 0:11:56.200 --> 0:11:58.480 percent China or China link, but some places almost ninety 0:11:58.480 --> 0:12:01.880 to ninety five percent. An example of cobalt, cobalt refining 0:12:01.920 --> 0:12:05.240 all in China. Now, in the past, what happened was 0:12:05.240 --> 0:12:07.000 they would give you this microphone and you would give 0:12:07.040 --> 0:12:11.320 them dollars or pounds or euros or whatever it is. 0:12:11.760 --> 0:12:12.480 So they hold that. 0:12:12.600 --> 0:12:15.640 So China holds that, what is the most rational thing 0:12:15.679 --> 0:12:17.400 for them to do? The most rational thing for them 0:12:17.440 --> 0:12:20.000 to do was to buy your land with that money, 0:12:20.320 --> 0:12:20.960 but you said no. 0:12:21.440 --> 0:12:23.440 Then they said I'll buy your equities. You said no 0:12:23.559 --> 0:12:24.000 to that too. 0:12:24.920 --> 0:12:27.360 Then they said, what, you know what, I'm going to 0:12:27.360 --> 0:12:29.360 buy the commodities that you might need in the future. 0:12:29.920 --> 0:12:32.320 You said, fine, do it, which is what China did 0:12:32.360 --> 0:12:36.400 for years. Then here's the interesting thing. You said in return, 0:12:36.480 --> 0:12:38.280 let me sell you my services. So let me sell 0:12:38.280 --> 0:12:43.320 you fine wine, let me send you the gucci you know, 0:12:43.440 --> 0:12:48.560 more phenomenal bags, top education, education, and a lot of 0:12:48.600 --> 0:12:52.200 other things. And then also services services, whether it's a 0:12:52.240 --> 0:12:55.960 Microsoft Excel or whatever it is. Right, But now what's 0:12:55.960 --> 0:12:58.120 happening is you have that side of the world which 0:12:58.160 --> 0:13:00.679 is also building their own services. Tax durdism is now 0:13:00.679 --> 0:13:02.920 on shore. They started building their own cars up the 0:13:03.000 --> 0:13:05.120 chain value chain. So you're getting to a stage where 0:13:05.480 --> 0:13:09.000 if you expand this thematic que you in the West 0:13:09.280 --> 0:13:11.320 have to literally build all of it from ground up. 0:13:11.360 --> 0:13:12.880 So if you assume China was a space, they can 0:13:12.880 --> 0:13:15.160 still disrupt the services sector, but they can't disrupt the 0:13:15.200 --> 0:13:19.480 manufacturing sector theretary anymore, because you can you will have 0:13:19.520 --> 0:13:22.480 to build it all up. So if you want cobalt, 0:13:22.880 --> 0:13:24.959 and if they say no, you have to refine it, 0:13:25.400 --> 0:13:27.720 mine it, refine it. You need to have companies that 0:13:27.760 --> 0:13:31.240 refine it. You need to have the engineers do that work. 0:13:31.640 --> 0:13:34.880 And fundamentally, that's what the fundamental paradigm of the world is. 0:13:34.960 --> 0:13:38.160 So when you talk about sovereign debt or any holding 0:13:38.160 --> 0:13:41.960 of or any equity holding, ultimately the creditor is China 0:13:42.040 --> 0:13:44.560 and China alligned countries. They are the creditor to the 0:13:44.559 --> 0:13:48.160 West and we are the debtor. And this is only increasing. 0:13:48.400 --> 0:13:51.280 So if you believe the wizard, what does the ultimate 0:13:51.320 --> 0:13:55.280 objective agenda of the Wizard of the US China is 0:13:55.320 --> 0:13:58.640 to balance the current account to some extent, that's one agenda, 0:13:58.720 --> 0:14:00.640 and this, of course there's certain other spectual it. But 0:14:00.720 --> 0:14:05.000 fundamentally that's what defines the kind of makeshift of the 0:14:05.040 --> 0:14:08.680 next kind of year two three years, and whether we 0:14:08.800 --> 0:14:10.320 like it or not, we have to build this. 0:14:26.560 --> 0:14:29.280 I want to come back to China versus the US 0:14:29.320 --> 0:14:32.160 on AI in just a second, but I definitely want 0:14:32.200 --> 0:14:34.760 to also ask this question, because we are in London, 0:14:35.800 --> 0:14:39.000 how big a deal are the UK elections from your 0:14:39.160 --> 0:14:43.200 respective purchase, the local elections that are happening tonight. 0:14:43.520 --> 0:14:46.640 It is important because basically UK and broad there is 0:14:46.880 --> 0:14:49.600 for the past two years at least a big fight 0:14:49.680 --> 0:14:54.640 between fiscal dominance beliefs ten years, thirty years, more importantly 0:14:54.640 --> 0:14:58.040 thirty years around the world. Will they get more out 0:14:58.120 --> 0:15:00.720 of control since we are in London, have the dear 0:15:00.840 --> 0:15:06.640 least trust two moments? Or will financial repression mean meaning 0:15:07.080 --> 0:15:11.600 emerging market style, Treasury and central banks working more close together, 0:15:12.080 --> 0:15:16.680 especially on issues issuing less on the long end, more 0:15:16.720 --> 0:15:21.400 on the short end, taking a risk, but making sure 0:15:21.400 --> 0:15:24.520 that ten and thirty years are under the leash. 0:15:24.640 --> 0:15:26.920 In fact, a very key investor. 0:15:27.120 --> 0:15:30.760 Last summer, as in a smaller round table, what happens 0:15:30.800 --> 0:15:33.640 if all four of them this was probably August is 0:15:33.720 --> 0:15:38.960 before back to school September races began a US, Frans, 0:15:39.080 --> 0:15:42.280 Japan and UK if all of them had their transponments 0:15:42.560 --> 0:15:45.320 and then September came in. I remember us talking about this. 0:15:45.680 --> 0:15:47.720 Yes it happened, but only four hours in the guilt 0:15:47.760 --> 0:15:48.840 market and that was it. 0:15:48.920 --> 0:15:50.760 I remember that little many moment. 0:15:51.040 --> 0:15:53.920 So now there's an excitement again because UK has a 0:15:53.920 --> 0:15:58.040 different risk premium, a net international investment portfolio i e. 0:15:58.160 --> 0:16:01.000 Has a budget deficit and the current counterfeicit. Has to 0:16:01.000 --> 0:16:03.080 be nice to the foreigners because they will buy your 0:16:03.480 --> 0:16:09.000 our debts. Question Marks on what this local election may 0:16:09.080 --> 0:16:12.120 mean for the government. Will there be a change there 0:16:12.240 --> 0:16:14.560 or in the chancellor, will somebody more to the left 0:16:14.600 --> 0:16:19.520 come in? All these are under question mark famous last word. 0:16:19.600 --> 0:16:22.640 My feel is for the moment still, this financial repression 0:16:23.680 --> 0:16:26.480 will win. We won't have the trust moment two, but 0:16:26.600 --> 0:16:30.760 obviously they will need a little bit of luck for 0:16:31.000 --> 0:16:35.440 the Rand situation to continue to calm down, because unlike 0:16:35.480 --> 0:16:38.680 the trust moment Trust moment one. Now all of this 0:16:38.720 --> 0:16:41.520 is happening for reasons much beyond the UK. 0:16:41.880 --> 0:16:44.360 Joe, I am impressed that we always managed to schedule 0:16:44.400 --> 0:16:48.400 these macro conversations for maximum event risk between when we 0:16:48.440 --> 0:16:51.760 record and what it publishes. So we have the UK elections, 0:16:51.800 --> 0:16:54.840 everything happening with Iran, and we have non farm payrolls tomorrow. 0:16:54.880 --> 0:16:57.800 There's so much going on and we just apologize in 0:16:57.800 --> 0:16:59.880 an advent. This is why people should buy tickets to 0:16:59.880 --> 0:17:02.880 the event, because if you have to hear this conversation 0:17:03.000 --> 0:17:05.360 on the podcast feed, who knows it could be out 0:17:05.400 --> 0:17:07.960 of date, but those who are here don't have that 0:17:08.080 --> 0:17:16.239 issue is emification of Western policy making. Is that an 0:17:16.280 --> 0:17:20.600 apt characterization of it? Sinning aside specific you know, elections 0:17:20.600 --> 0:17:24.160 here or there. You hear that term emification of end 0:17:24.200 --> 0:17:24.960 is that appt. 0:17:25.240 --> 0:17:28.520 It depends right, So it's country to country this again 0:17:28.600 --> 0:17:34.240 paradigm you have. So let's the legalistic UK is an example. 0:17:34.320 --> 0:17:38.000 Let's elaborate further. Real rates are reasonably high. The country 0:17:38.040 --> 0:17:39.840 has gone through a difficult situation. You court see what 0:17:39.880 --> 0:17:42.760 happened with oil the pass through effect, but it's happening 0:17:42.760 --> 0:17:45.920 pretty much everywhere else in the world. You have a 0:17:47.000 --> 0:17:50.280 current account, which matters mostly in most countries, including UK. 0:17:50.520 --> 0:17:52.600 You have an input factor of energy and you have 0:17:52.640 --> 0:17:56.199 an output factor of services effectively that you said, so 0:17:56.320 --> 0:17:58.959 depending on where you are in the world, which country, 0:17:59.600 --> 0:18:03.240 depending on who you are. If you have a situation 0:18:03.280 --> 0:18:06.560 where you an energy importer M and your exports are 0:18:06.720 --> 0:18:10.680 highly dependent on effective services which you are getting disrupted 0:18:10.760 --> 0:18:15.040 courtesy AI, if you're in trouble alongside, if you're an 0:18:15.080 --> 0:18:19.560 importer of manufacturing also or goods, again you're in trouble. 0:18:19.880 --> 0:18:24.440 So this adjustment will happen. So you have to have allies. 0:18:24.640 --> 0:18:26.280 You have to have people who you do a quick 0:18:26.320 --> 0:18:29.920 proprove with, and that adjustment is what we're seeing effectively, 0:18:30.440 --> 0:18:34.000 and markets are finding a true balance of risk cleepia alongside. 0:18:34.160 --> 0:18:37.439 Well, okay, so on this point, two things you've said 0:18:37.720 --> 0:18:43.000 which sound very rational on stage, having a series of allies, 0:18:43.640 --> 0:18:46.719 I don't know if those are stable. And then also 0:18:47.240 --> 0:18:50.920 you know this aspiration to balance the current account between 0:18:50.960 --> 0:18:54.320 the US and China. It sounds nice, but like do 0:18:54.359 --> 0:18:57.639 you think, like, are there actually any real prospects of 0:18:57.680 --> 0:18:59.520 moving the dialogue that kind of thing. 0:18:59.720 --> 0:19:01.479 So again I don't want to comment here. 0:19:01.520 --> 0:19:04.359 This is in terms of our house view, but a 0:19:04.560 --> 0:19:06.600 general will I give you a general perspective on the 0:19:06.640 --> 0:19:09.439 same example, if you were to get west in space 0:19:09.480 --> 0:19:11.120 and ask China, what does it deed from the West? 0:19:11.320 --> 0:19:14.040 Yeah, it's not not. Yeah, I've heard apart from. 0:19:13.960 --> 0:19:16.159 Bowing in air buspare parts if you were to just 0:19:16.160 --> 0:19:19.400 look at from that perspective. So there is a desire 0:19:20.240 --> 0:19:23.880 and maybe there is an they will oblige. I do 0:19:23.960 --> 0:19:27.800 think there is certain things, like for example, agricultural products 0:19:27.840 --> 0:19:32.280 that could benefit. There are certain aspects, but fundamentally, unless 0:19:32.960 --> 0:19:36.399 we choose within the West to build the whole manufacturer stack, 0:19:36.680 --> 0:19:38.400 it's going to be very difficult to keep this current 0:19:38.400 --> 0:19:40.040 account balanced and. 0:19:40.080 --> 0:19:41.280 On top of it. 0:19:41.359 --> 0:19:45.159 The biggest worry, and again I'm maybe jumping on this point, 0:19:45.240 --> 0:19:47.399 is when people took about the as attack that the 0:19:47.400 --> 0:19:49.840 West is investing in the Capex stack, that the West 0:19:49.880 --> 0:19:52.440 is investing in. The key is not what the West 0:19:52.480 --> 0:19:54.520 is doing. The key is to understand what China is 0:19:54.560 --> 0:19:58.560 doing in it. Understand what they are doing with the 0:19:58.560 --> 0:20:01.840 deep sea version for models, glm FI, the Hawaii clusters. 0:20:01.880 --> 0:20:04.400 I can go on with an optical compute, there are 0:20:04.680 --> 0:20:06.920 quantum computing. There are many more things that they're actually 0:20:07.000 --> 0:20:12.600 investing a lot and which effectively becomes a true competition 0:20:12.920 --> 0:20:14.199 and a cost factor of reduction. 0:20:15.080 --> 0:20:17.439 If there is a risk, that is the risk to 0:20:17.480 --> 0:20:18.000 watch out for. 0:20:18.119 --> 0:20:20.160 Right It's not to study what we are doing here, 0:20:20.200 --> 0:20:23.320 because we will find ways to keep evolving. But you 0:20:23.480 --> 0:20:27.000 have an ecosystem there which is actually quite well worsed 0:20:27.000 --> 0:20:29.880 and also has a lot of capital behind it. And 0:20:30.640 --> 0:20:32.359 there was somebody who was quoted as most of the 0:20:32.359 --> 0:20:35.439 engineers today actually are that part of the world. 0:20:35.480 --> 0:20:38.480 And another thing that the market miscalculated right right after 0:20:38.600 --> 0:20:42.119 Trump got elected the second time December twenty fourth January 0:20:42.119 --> 0:20:44.840 twenty five, by far, the big CONSTANTUS straight. Besides, the 0:20:44.920 --> 0:20:46.879 us NI year is going to five fifty. You know, 0:20:47.359 --> 0:20:49.920 everybody being done a long was to buy these dollars 0:20:50.119 --> 0:20:53.160 NH options like that seven to seventy five. 0:20:53.280 --> 0:20:55.400 Everyone I knew was buying dollars C and nature. 0:20:55.480 --> 0:20:58.600