1 00:00:05,120 --> 00:00:09,200 Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane. Along 2 00:00:09,200 --> 00:00:13,200 Speaker 1: with Jonathan Farrell and Lisa Abramowitz. Daily we bring you 3 00:00:13,280 --> 00:00:18,600 Speaker 1: insight from the best and economics, finance, investment, and international relations. 4 00:00:18,840 --> 00:00:23,759 Speaker 1: To find Bloomberg Surveillance on Apple podcast, SoundCloud, Bloomberg dot Com, 5 00:00:23,920 --> 00:00:30,560 Speaker 1: and of course, on the Bloomberg terminal. Right now, let 6 00:00:30,640 --> 00:00:33,559 Speaker 1: us look at possibly your book of the year, my 7 00:00:33,600 --> 00:00:35,360 Speaker 1: book of the year for the first time ever. I 8 00:00:35,400 --> 00:00:37,280 Speaker 1: did it so early in the year on the shock 9 00:00:37,320 --> 00:00:40,760 Speaker 1: of the war and Vladimir Putin and what we saw. 10 00:00:41,560 --> 00:00:44,080 Speaker 1: Putin's World is my book of the year. But look 11 00:00:44,120 --> 00:00:49,960 Speaker 1: at this short readable, mega threads, mega threats. Noira Rabini, 12 00:00:50,440 --> 00:00:53,120 Speaker 1: crisis economics, coming out of the crisis, and now this 13 00:00:53,800 --> 00:00:58,240 Speaker 1: shockingly readable Noira Rabini joins us for the entire half hour. 14 00:00:58,360 --> 00:01:00,240 Speaker 1: I'm gonna go back. I want to give people little 15 00:01:00,280 --> 00:01:04,120 Speaker 1: vineyard of years in my relationship. We're sitting at a 16 00:01:04,160 --> 00:01:08,160 Speaker 1: wood panel doubles like bar and it's a very famous 17 00:01:08,160 --> 00:01:11,400 Speaker 1: Secretary of Treasury sitting somewhat near us. And you and 18 00:01:11,440 --> 00:01:15,600 Speaker 1: I walked through the excesses of oh five, oh six, 19 00:01:16,000 --> 00:01:22,480 Speaker 1: and you nailed two thousand eight. Are we there? Again. Yes, 20 00:01:22,520 --> 00:01:26,880 Speaker 1: we're here again. But in addition to the economic, monetary 21 00:01:26,880 --> 00:01:29,360 Speaker 1: and financial risks, and there are new ones. Now we're 22 00:01:29,360 --> 00:01:33,280 Speaker 1: going towards stagflation like we've never seen since the seventies. 23 00:01:33,640 --> 00:01:35,440 Speaker 1: In the book, I point out that there are also 24 00:01:36,080 --> 00:01:40,560 Speaker 1: geopolitical risk like we're on the confrontation with some revisionist 25 00:01:40,560 --> 00:01:44,160 Speaker 1: powers like China, Russia, Run or Korea that are challenging 26 00:01:44,200 --> 00:01:46,480 Speaker 1: the geobolical order of the US and the West, and 27 00:01:46,520 --> 00:01:50,640 Speaker 1: that's going to lead potentially to conflict. There are environmental 28 00:01:50,720 --> 00:01:53,880 Speaker 1: risks that are very severe. There are health tries coming 29 00:01:53,920 --> 00:01:56,480 Speaker 1: from pandemics, and there is a relation between global climate 30 00:01:56,560 --> 00:02:01,920 Speaker 1: change and pandemics. There are technological coming from AI, machine learning, 31 00:02:02,040 --> 00:02:05,760 Speaker 1: robotic automation, the section of jobs. There's a backlass against 32 00:02:05,760 --> 00:02:07,640 Speaker 1: globalization and we're going to go to a world that 33 00:02:07,760 --> 00:02:11,480 Speaker 1: is globalized. The political risk with polarization, and we have 34 00:02:11,600 --> 00:02:14,720 Speaker 1: radical extremist party of the extreme right and extreme lefts 35 00:02:14,760 --> 00:02:18,200 Speaker 1: coming to power both in advanced economies and in emerging markets. 36 00:02:18,360 --> 00:02:20,280 Speaker 1: And on top of it, we have amount of the 37 00:02:20,360 --> 00:02:22,959 Speaker 1: debt like we've never seen before. Explicit that well, that 38 00:02:25,240 --> 00:02:27,360 Speaker 1: is a confluence of all these mega threats and of 39 00:02:27,360 --> 00:02:30,040 Speaker 1: them together the Lipsky and I am F was heated 40 00:02:30,240 --> 00:02:32,480 Speaker 1: about the debt build up. On the back of your book, 41 00:02:32,480 --> 00:02:35,680 Speaker 1: you've got a guy named Rogof from Harvard, Bremer of Eurasia. 42 00:02:35,880 --> 00:02:39,440 Speaker 1: Dr Larian from Cambridge, Martin Wolf always wonderful at the 43 00:02:39,520 --> 00:02:42,280 Speaker 1: ft and at the very top the quote of the 44 00:02:42,320 --> 00:02:46,280 Speaker 1: season from TALEB the gravity is returned to the physics. 45 00:02:46,520 --> 00:02:49,280 Speaker 1: We've got a higher real yield. Now we've got a 46 00:02:49,400 --> 00:02:52,639 Speaker 1: risk free rate. Now what are the ramifications in our 47 00:02:52,720 --> 00:02:57,040 Speaker 1: economic system that the gravity is returned to our physics. Well, 48 00:02:57,040 --> 00:03:00,359 Speaker 1: there were many insolvent agents in the economy because private 49 00:03:00,360 --> 00:03:02,720 Speaker 1: and public debt as a sturgy DP has gone from 50 00:03:04,320 --> 00:03:07,400 Speaker 1: to three fifty globally between two thousand and today in 51 00:03:07,440 --> 00:03:10,840 Speaker 1: advanced economies more like four h twenty and rising in 52 00:03:10,880 --> 00:03:13,720 Speaker 1: the US is now higher than after the Great Depression 53 00:03:14,000 --> 00:03:16,160 Speaker 1: and after World two. And we're not out of a 54 00:03:16,200 --> 00:03:20,000 Speaker 1: great depression or a major war. And until now, even 55 00:03:20,040 --> 00:03:25,400 Speaker 1: if you had zombie households, corporates, banks, shadow banks, governments, countries, 56 00:03:25,639 --> 00:03:27,359 Speaker 1: they were built out. There were built out during the 57 00:03:27,360 --> 00:03:31,960 Speaker 1: global financial crisis, zero policy rates, negative quantities, creditizing, and 58 00:03:32,040 --> 00:03:35,520 Speaker 1: even during the COVID crisis, many of them were fragile, 59 00:03:35,680 --> 00:03:37,520 Speaker 1: they were built out again we went back to to 60 00:03:37,560 --> 00:03:39,880 Speaker 1: do even more of the same this time around instead 61 00:03:40,000 --> 00:03:43,280 Speaker 1: is different because we have so much debt and central 62 00:03:43,280 --> 00:03:46,640 Speaker 1: banks like the father to increase interest rates to fight inflation. 63 00:03:46,960 --> 00:03:49,880 Speaker 1: So the zombie institutions are going to go bankrupt. That's 64 00:03:49,920 --> 00:03:52,960 Speaker 1: why not only we're gonna have inflation and stack flation, 65 00:03:53,000 --> 00:03:56,720 Speaker 1: but whatever stack flationary debt crisis. In the seventies, we 66 00:03:56,840 --> 00:03:59,760 Speaker 1: had negative supply shocks seventy three seventy nine, but we're 67 00:03:59,840 --> 00:04:01,560 Speaker 1: very a lot of dead racials, so we didn't have 68 00:04:01,600 --> 00:04:05,960 Speaker 1: a dead crisis in advanced economies with one in Latin America, Argentina, Mexico, 69 00:04:06,080 --> 00:04:08,800 Speaker 1: Bazil borrowed to match in the seventies were all jacked 70 00:04:08,840 --> 00:04:13,040 Speaker 1: up interested went bankrupt after the DUFC. We had the 71 00:04:13,160 --> 00:04:17,160 Speaker 1: debt problem, mortgages that at housing, that bank that, and 72 00:04:17,160 --> 00:04:19,599 Speaker 1: we had the dead crisis, but was a negative aggregate 73 00:04:19,640 --> 00:04:22,320 Speaker 1: demn shock, and therefore we had low flation and deflation 74 00:04:22,680 --> 00:04:25,520 Speaker 1: today with the worst of the seventies with a massive 75 00:04:25,560 --> 00:04:28,960 Speaker 1: amount of stag flassery negative supply shock. In the book, 76 00:04:29,040 --> 00:04:32,480 Speaker 1: identify eleven new ones over the medium term. And at 77 00:04:32,520 --> 00:04:34,280 Speaker 1: the same time we have that racial like we've never 78 00:04:34,279 --> 00:04:37,120 Speaker 1: seen before, so we get stack flashery, dead crisis. Don't 79 00:04:37,160 --> 00:04:39,359 Speaker 1: give us to eleven. The general will be here. I 80 00:04:39,400 --> 00:04:42,200 Speaker 1: was waiting for the elevents jumped in used this phrase 81 00:04:42,279 --> 00:04:44,400 Speaker 1: in there. I could tell your in the sun bite. 82 00:04:45,120 --> 00:04:48,080 Speaker 1: I'm not going to give it. You said, zombie institutions. 83 00:04:49,040 --> 00:04:51,680 Speaker 1: Where aren't they? And you're talking about countries now and 84 00:04:51,760 --> 00:04:54,800 Speaker 1: not companies, not households, not private banage sheet, So you're 85 00:04:54,839 --> 00:04:58,400 Speaker 1: talking about countries sovereigns. Well, there are plenty of solveigns 86 00:04:58,440 --> 00:05:00,760 Speaker 1: that are in trouble in emergen market. We know what 87 00:05:00,800 --> 00:05:03,919 Speaker 1: has happened in Lebanon, what has happened in Zambia, what 88 00:05:04,000 --> 00:05:07,159 Speaker 1: has happened in Sri Lanka, And there's about forty of 89 00:05:07,200 --> 00:05:09,119 Speaker 1: them that the m F in the World Bank said 90 00:05:09,160 --> 00:05:11,480 Speaker 1: that they are on the version of having a dead crisis, 91 00:05:11,480 --> 00:05:14,320 Speaker 1: severe dead crisis because of what's happening. And look what 92 00:05:14,360 --> 00:05:16,640 Speaker 1: happened to the United Kingdom. But now it started to 93 00:05:16,640 --> 00:05:19,120 Speaker 1: be priced in like an emerging market with the fiscal 94 00:05:19,120 --> 00:05:22,680 Speaker 1: stimulus reckless, forcing the Bank of England essentially to monetize it, 95 00:05:23,080 --> 00:05:25,640 Speaker 1: and then the currency falling and it's going much higher 96 00:05:25,720 --> 00:05:28,520 Speaker 1: until they reverse themselves so it has happened in Greece, 97 00:05:28,640 --> 00:05:31,679 Speaker 1: it's happening in the UK, it could happen in Italy. 98 00:05:31,880 --> 00:05:34,200 Speaker 1: Of course, we have a large number of not only 99 00:05:34,279 --> 00:05:37,080 Speaker 1: emerging markets that are at risks, but also of advanced 100 00:05:37,080 --> 00:05:39,080 Speaker 1: economies that there is a risk. So over the last 101 00:05:39,120 --> 00:05:42,160 Speaker 1: ten years we've had a series of kind of cyclical circuit. Right, yes, 102 00:05:42,520 --> 00:05:45,200 Speaker 1: fiscal had the capacity to do that, central banks had 103 00:05:45,240 --> 00:05:47,880 Speaker 1: the capacity to do that. Seemingly we're questioning the capacity 104 00:05:47,920 --> 00:05:51,360 Speaker 1: of those institutions, central banks, soft foreigns to be able 105 00:05:51,400 --> 00:05:53,440 Speaker 1: to do so this time around. You offer solutions in 106 00:05:53,440 --> 00:05:56,520 Speaker 1: this book too, What aren't they Well, for every one 107 00:05:56,560 --> 00:05:59,760 Speaker 1: of these mega threats, there is a solution. But then 108 00:05:59,800 --> 00:06:03,240 Speaker 1: the two final chapter one about a dystopian future where 109 00:06:03,279 --> 00:06:06,440 Speaker 1: all these threads materialized. They feed on each other, and 110 00:06:06,480 --> 00:06:08,400 Speaker 1: it's not just the end of the world economy, could 111 00:06:08,400 --> 00:06:10,920 Speaker 1: be even global war. And there is a less dystopian 112 00:06:10,960 --> 00:06:14,480 Speaker 1: future in chapter twelve, where we have the policies nationally 113 00:06:14,680 --> 00:06:17,839 Speaker 1: and international delids to a better outcome. The problem is 114 00:06:17,880 --> 00:06:22,320 Speaker 1: that are both domestic political constraints and geopolitical political constraints 115 00:06:22,520 --> 00:06:24,720 Speaker 1: to achieving the best solution. And I'll give you an 116 00:06:24,720 --> 00:06:28,000 Speaker 1: example of global climate change. Domestically in this country, half 117 00:06:28,000 --> 00:06:30,240 Speaker 1: of the county doesn't believe into it too. There is 118 00:06:30,279 --> 00:06:33,800 Speaker 1: a conflict between generation. The young people care about the 119 00:06:33,800 --> 00:06:36,240 Speaker 1: future of the elder care less. At the international level, 120 00:06:36,279 --> 00:06:38,479 Speaker 1: there is a free rider problem. If a country catch 121 00:06:38,520 --> 00:06:41,160 Speaker 1: a mission to zero, nobody else does it, then they 122 00:06:41,160 --> 00:06:43,560 Speaker 1: don't get benefit and only the cost. And now because 123 00:06:43,600 --> 00:06:46,960 Speaker 1: of geopolitics, we are telling Indian China, you should cut 124 00:06:47,000 --> 00:06:49,200 Speaker 1: your emission out to zero the next twenty years. But 125 00:06:49,279 --> 00:06:52,360 Speaker 1: we created a problem in the last years. The stock 126 00:06:52,680 --> 00:06:54,880 Speaker 1: of a mission came from advanced economies, and now we're 127 00:06:54,880 --> 00:06:58,080 Speaker 1: telling them, don't grow, don't become rich because there is 128 00:06:58,080 --> 00:07:00,640 Speaker 1: a problem. It's through the flow of new issues coming 129 00:07:00,640 --> 00:07:03,200 Speaker 1: mostly from China and India. So there are four elements 130 00:07:03,200 --> 00:07:07,760 Speaker 1: of conflict to domestic and to international that essentially implied 131 00:07:07,760 --> 00:07:09,479 Speaker 1: that we're not going to find their solutions. So there's 132 00:07:09,560 --> 00:07:12,560 Speaker 1: lots of greenwashing, duren wishing during thick Leaves. A lot 133 00:07:12,600 --> 00:07:15,440 Speaker 1: of the SG is just talk and action. Glasgow cop 134 00:07:15,520 --> 00:07:18,720 Speaker 1: was just a total failure and order, slow motion train wreck, 135 00:07:18,920 --> 00:07:21,400 Speaker 1: which goes to your point on about electric vehicles and 136 00:07:22,480 --> 00:07:25,320 Speaker 1: nine pounds evs in the United States, because they are Green. 137 00:07:25,560 --> 00:07:28,400 Speaker 1: There is an issue they're going forward with the central banks, 138 00:07:28,440 --> 00:07:30,840 Speaker 1: and whether a lot of your thesis and real is 139 00:07:31,000 --> 00:07:33,880 Speaker 1: predicated on their inability to go through with what they 140 00:07:33,920 --> 00:07:37,080 Speaker 1: need to do to get inflation down. Is that your 141 00:07:37,080 --> 00:07:40,760 Speaker 1: base case is that the most likely outcome? Yeah, right now, 142 00:07:40,800 --> 00:07:43,280 Speaker 1: all central banks are playing tough and talking tough and 143 00:07:43,360 --> 00:07:46,560 Speaker 1: acting tough hawkish because they have a problem of credibility. 144 00:07:46,600 --> 00:07:49,400 Speaker 1: But in my view, there are two problems. One problem 145 00:07:49,440 --> 00:07:51,160 Speaker 1: is that they if they try to get to two 146 00:07:51,200 --> 00:07:54,520 Speaker 1: percent inflation, they cause a recession. And this recession is 147 00:07:54,520 --> 00:07:56,520 Speaker 1: not going to be short and shallow, is not gonna 148 00:07:56,520 --> 00:07:58,520 Speaker 1: be guarded. Valiety is not going to be playing the neal. 149 00:07:58,560 --> 00:08:00,920 Speaker 1: It's not gonna be two quarters of negative growth and 150 00:08:00,960 --> 00:08:03,960 Speaker 1: the inflation collapses and they can ease again. In the book, 151 00:08:04,000 --> 00:08:05,760 Speaker 1: I explain all the reasons why it's going to be 152 00:08:05,800 --> 00:08:08,680 Speaker 1: a severe session because of the that ratio, because we're 153 00:08:08,680 --> 00:08:11,840 Speaker 1: going into physical and monetary tightening, and at the same 154 00:08:11,880 --> 00:08:14,080 Speaker 1: time you not only have an economic crush, You're gonna 155 00:08:14,120 --> 00:08:16,600 Speaker 1: have also a physical crush. We're not only in physical 156 00:08:16,640 --> 00:08:19,720 Speaker 1: dominance in this game of chicken between treasury and central bank, 157 00:08:19,840 --> 00:08:22,480 Speaker 1: wherein what the folks at the Bank of International Settlement 158 00:08:22,520 --> 00:08:25,120 Speaker 1: called a debt trap. There is so much private and 159 00:08:25,200 --> 00:08:28,680 Speaker 1: public debt that if central banks try to fight inflation, 160 00:08:28,960 --> 00:08:31,640 Speaker 1: because a crash of financial markets and not just the 161 00:08:31,640 --> 00:08:35,400 Speaker 1: stock market that's the least important credit market, bond markets, 162 00:08:35,600 --> 00:08:38,240 Speaker 1: and that crush and financial crash feeds on the economic 163 00:08:38,280 --> 00:08:41,160 Speaker 1: crush and vice versa, and therefore they're gonna winp out, 164 00:08:41,320 --> 00:08:42,959 Speaker 1: and they're gonna break. And the first one was the 165 00:08:42,960 --> 00:08:45,079 Speaker 1: Bank of England. The FED is gonna do the same. 166 00:08:45,120 --> 00:08:46,600 Speaker 1: This is going to do the same. Have you been 167 00:08:46,640 --> 00:08:49,200 Speaker 1: surprised that we haven't seen some sort of catalysts, some 168 00:08:49,240 --> 00:08:52,760 Speaker 1: sort of financial stress so far, given how quickly quickly 169 00:08:52,800 --> 00:08:55,560 Speaker 1: the FEDS already hied rates, Well, we have not yet seen. 170 00:08:55,600 --> 00:08:59,160 Speaker 1: It's some people worried some major financial institution not in 171 00:08:59,160 --> 00:09:02,320 Speaker 1: the US may go bust. I think that the financial 172 00:09:02,320 --> 00:09:04,679 Speaker 1: strains are going to become more severe because right now 173 00:09:04,720 --> 00:09:06,680 Speaker 1: the FED is on the way to go from three 174 00:09:06,720 --> 00:09:10,000 Speaker 1: towards five percent. You already have a stock market down 175 00:09:10,040 --> 00:09:13,720 Speaker 1: twenty five percent NASA given more public reads thirty three percent. 176 00:09:14,080 --> 00:09:17,280 Speaker 1: You have the crash of Mimi of spark, bubble, of 177 00:09:17,320 --> 00:09:21,480 Speaker 1: the crypto bubble, private equity venture capital growth. Everything is down, 178 00:09:22,080 --> 00:09:25,280 Speaker 1: credit is down, leverage market is shutting down, Celo market 179 00:09:25,320 --> 00:09:27,200 Speaker 1: shutting down. And the only thing they used to be 180 00:09:27,240 --> 00:09:30,439 Speaker 1: saved there were government bonds. Now the price is correlated 181 00:09:30,480 --> 00:09:34,160 Speaker 1: positive equities because when inflation is rising, you lose money 182 00:09:34,200 --> 00:09:36,520 Speaker 1: on your equity side, use money on your bond side. 183 00:09:36,760 --> 00:09:39,000 Speaker 1: You'll have gone from one to four. And the price 184 00:09:39,040 --> 00:09:41,480 Speaker 1: action downward on bond has been worse than an equities 185 00:09:41,559 --> 00:09:45,040 Speaker 1: thirty percent losses. So any sixty forty seventy thirty or 186 00:09:45,160 --> 00:09:47,760 Speaker 1: is party portfolio lost money on both hands. There was 187 00:09:47,800 --> 00:09:50,480 Speaker 1: no worthwide even cash give you a negative real return 188 00:09:50,520 --> 00:09:53,800 Speaker 1: because of inflation. There are other alternatives that can protect 189 00:09:53,800 --> 00:09:56,240 Speaker 1: you against the stale risk, but they're not the traditional ones. 190 00:09:56,320 --> 00:09:58,280 Speaker 1: You're a man of high conviction. We know it was 191 00:09:58,559 --> 00:10:01,960 Speaker 1: some very smart friends. Any pushback to this book that's 192 00:10:01,960 --> 00:10:05,600 Speaker 1: convinced you absolutely anything makes you rethink how bad things 193 00:10:05,720 --> 00:10:08,120 Speaker 1: might be, impossibly made you think that possibly they could 194 00:10:08,160 --> 00:10:11,679 Speaker 1: turn out better than you think. Honestly, everyone was ready 195 00:10:11,840 --> 00:10:15,120 Speaker 1: at any level. As said, the threats you're talking about 196 00:10:15,160 --> 00:10:18,480 Speaker 1: their all too reel. Of course, there may bee solution 197 00:10:18,559 --> 00:10:21,080 Speaker 1: to them, and I discussed them chapter by chapter. In 198 00:10:21,120 --> 00:10:24,719 Speaker 1: the final chapter, about the last dystopian future. But think 199 00:10:24,760 --> 00:10:26,760 Speaker 1: of it this way. I have gray hair. I grew 200 00:10:26,840 --> 00:10:30,240 Speaker 1: up in the sixties seventies in in in Italy. At 201 00:10:30,240 --> 00:10:33,000 Speaker 1: that time, did I ever hear about climate change? The 202 00:10:33,160 --> 00:10:35,520 Speaker 1: never concept? Did I worry about the nuclear war? After that? 203 00:10:35,600 --> 00:10:38,400 Speaker 1: The town between Soviet US, there was nothing they worry 204 00:10:38,400 --> 00:10:41,040 Speaker 1: about AI destroying. Most jobs were in the eye winter. 205 00:10:41,240 --> 00:10:44,200 Speaker 1: With the stable democracy, we didn't have pandemics. Last time 206 00:10:44,240 --> 00:10:47,439 Speaker 1: around was nineteen eighteen. We had low that ratios, We 207 00:10:47,520 --> 00:10:49,920 Speaker 1: had law implicit that because there was no aging of 208 00:10:50,000 --> 00:10:52,360 Speaker 1: population and all that fund the liabilities, there were no 209 00:10:52,440 --> 00:10:56,280 Speaker 1: major financial economic crisis. This is the quantum shift. There 210 00:10:56,320 --> 00:10:59,400 Speaker 1: was a period in nine and the mid eighties that 211 00:10:59,520 --> 00:11:03,439 Speaker 1: was something of a stable period of global prosperity, welfare, 212 00:11:03,840 --> 00:11:06,920 Speaker 1: peace and so on. Today these are threats that did 213 00:11:07,040 --> 00:11:09,960 Speaker 1: not exist, and those threats are more similar to the 214 00:11:10,000 --> 00:11:12,760 Speaker 1: period in nineteen eighteen and teen forty five when word 215 00:11:12,800 --> 00:11:15,959 Speaker 1: World War one, World two, the Great Depression, trade war, 216 00:11:16,240 --> 00:11:22,280 Speaker 1: financial crisis, inflation, hyper inflation, deflation, Nazis, fascists in German, Italy, 217 00:11:23,400 --> 00:11:26,480 Speaker 1: Spain and Japan, and word World War two, and then 218 00:11:26,520 --> 00:11:29,560 Speaker 1: with the Holocaust, and then where the Korean war, as 219 00:11:29,679 --> 00:11:32,520 Speaker 1: as Neil Ferguson on Bloomberg is saying right now this 220 00:11:32,720 --> 00:11:35,240 Speaker 1: column this week, he says, we'll be lucky if you 221 00:11:35,360 --> 00:11:38,200 Speaker 1: repeat the nineteen seventies, because it's more possible we end 222 00:11:38,280 --> 00:11:40,720 Speaker 1: up like in the mteen fourties, meaning it's talking about 223 00:11:41,000 --> 00:11:43,240 Speaker 1: World War three. I love Can we be clear that 224 00:11:43,280 --> 00:11:46,960 Speaker 1: wasn't a column, that was a book. If you read that, 225 00:11:47,000 --> 00:11:50,360 Speaker 1: it's can you tell Neil the columns are short. I 226 00:11:50,400 --> 00:11:52,520 Speaker 1: love his column because you know he's speaking about it. 227 00:11:52,600 --> 00:11:55,200 Speaker 1: He's speaking about the fact that's a meaningful chance that 228 00:11:55,240 --> 00:11:58,000 Speaker 1: we have to inflict between I write it about in 229 00:11:58,040 --> 00:12:00,640 Speaker 1: my own book. There's chapter about the new cold within 230 00:12:00,760 --> 00:12:03,440 Speaker 1: us and these revisionist power and I say it could 231 00:12:03,520 --> 00:12:06,480 Speaker 1: end up into a haltwer it's a significant risk. I 232 00:12:06,520 --> 00:12:08,480 Speaker 1: want to go to the past. And I was so 233 00:12:08,559 --> 00:12:12,320 Speaker 1: pleased that you mentioned on page thirty seven your colleague 234 00:12:12,360 --> 00:12:16,120 Speaker 1: Alberto Alssina. I still can't believe we lost them at 235 00:12:16,160 --> 00:12:19,720 Speaker 1: such a young age. You two looked at the politics 236 00:12:19,920 --> 00:12:24,560 Speaker 1: of our economic system Rubini and Albert Alberto Alsina. I 237 00:12:24,600 --> 00:12:26,800 Speaker 1: want to bring it forward to where we are now, 238 00:12:27,320 --> 00:12:30,640 Speaker 1: which is a massive dollar shortage and central banks that 239 00:12:30,800 --> 00:12:33,920 Speaker 1: got a plan but they're gonna be overrun by a 240 00:12:34,000 --> 00:12:38,439 Speaker 1: global dollar shortage any m and frankly in developing economies 241 00:12:38,720 --> 00:12:41,680 Speaker 1: as well. Is there a dollar shortage now? And is 242 00:12:41,720 --> 00:12:45,760 Speaker 1: that the catalyst for central banks to blink is going 243 00:12:45,800 --> 00:12:48,400 Speaker 1: to be one of the catalysts. There is a dollar shortage, 244 00:12:48,559 --> 00:12:50,600 Speaker 1: and there is an interests in the United States is 245 00:12:50,640 --> 00:12:53,840 Speaker 1: particularly dramatic for em They have in terms of trade, chalk, 246 00:12:53,960 --> 00:12:58,000 Speaker 1: those that are important commodities, They have rising interest rates 247 00:12:58,040 --> 00:12:59,640 Speaker 1: because of what the fat does, and they have they're 248 00:12:59,679 --> 00:13:02,080 Speaker 1: on the take inflation, and that the weakening of the 249 00:13:02,120 --> 00:13:05,199 Speaker 1: currency that increases the real value in local currency of 250 00:13:05,320 --> 00:13:08,440 Speaker 1: drown debt. So for them is this is a perfect storm. 251 00:13:08,559 --> 00:13:10,600 Speaker 1: Some of them have a lot of reserves, some of 252 00:13:10,640 --> 00:13:12,960 Speaker 1: them don't have reserves, Some of them are received I 253 00:13:13,080 --> 00:13:15,600 Speaker 1: left money. But there is right now a strengthening of 254 00:13:15,640 --> 00:13:18,960 Speaker 1: the dollar that is implying even further tightening of financial 255 00:13:18,960 --> 00:13:22,080 Speaker 1: conditions in the rest of the world. Now, I think 256 00:13:22,120 --> 00:13:24,600 Speaker 1: that eventually the dollar is gonna have to fall very 257 00:13:24,600 --> 00:13:28,120 Speaker 1: sharply because we have a twin physical and current account eficits. 258 00:13:28,240 --> 00:13:30,840 Speaker 1: In other advanced ecology of a physical deficit, but the 259 00:13:30,840 --> 00:13:34,440 Speaker 1: current account surplus and now we're essentially using the dollar 260 00:13:34,559 --> 00:13:37,720 Speaker 1: is a tool of national security and foreign policy. We're 261 00:13:37,720 --> 00:13:43,200 Speaker 1: weaponizing it rightly, so sanctions against Russia, against Iran, nor Korea, China, 262 00:13:43,280 --> 00:13:46,800 Speaker 1: we're starting, by the way, tact war with China. Economic 263 00:13:46,840 --> 00:13:51,640 Speaker 1: world is weakness. How do we get there? Forget about this? Plus, 264 00:13:52,040 --> 00:13:55,560 Speaker 1: the company of Left is going to be essentially the 265 00:13:55,600 --> 00:13:59,080 Speaker 1: FED whimping out. Once you see a severe resertion, that 266 00:13:59,120 --> 00:14:02,559 Speaker 1: means blinking, blinking, They're gonna blink and wimp out because 267 00:14:02,600 --> 00:14:10,120 Speaker 1: you'll have a severe session financial out. Well, either you're 268 00:14:10,400 --> 00:14:13,079 Speaker 1: how care you'r a whimp or a dog in this case, 269 00:14:13,720 --> 00:14:15,679 Speaker 1: But that's going to happen. And once the fact is 270 00:14:15,720 --> 00:14:19,240 Speaker 1: going to essentially prevent an economic and financial KASO, try 271 00:14:19,280 --> 00:14:23,080 Speaker 1: to prevent it by essentially stop raising rates. Even inflation 272 00:14:23,360 --> 00:14:25,240 Speaker 1: is too high, then the dollar is going to start 273 00:14:25,320 --> 00:14:27,880 Speaker 1: sharply weakened. That's gonna be the trigger for it. What's 274 00:14:27,960 --> 00:14:30,600 Speaker 1: raising the dollar is of course the type monetary policy 275 00:14:30,840 --> 00:14:32,920 Speaker 1: viewer wrote in and wants to know what you're doing 276 00:14:32,920 --> 00:14:36,080 Speaker 1: with your money, considering that it seems pretty bleak out there. 277 00:14:36,280 --> 00:14:38,480 Speaker 1: You know, if you just stuff into a mattress, No, 278 00:14:38,680 --> 00:14:41,520 Speaker 1: you don't stuff in the matters because then even cash 279 00:14:41,640 --> 00:14:44,800 Speaker 1: loses money because of inflation. There are three solutions to 280 00:14:44,880 --> 00:14:49,560 Speaker 1: the problems of inflation the basement of yet currency, political 281 00:14:49,640 --> 00:14:53,200 Speaker 1: and geopolitical risk, and environmental risk. Solution Number one is 282 00:14:53,240 --> 00:14:55,640 Speaker 1: to have very very short term treasuries that are just 283 00:14:55,920 --> 00:14:59,480 Speaker 1: in rates and don't have the price action of long 284 00:14:59,520 --> 00:15:02,920 Speaker 1: bonds that ever fall enterprise. Secondly, you want to be 285 00:15:03,000 --> 00:15:05,680 Speaker 1: into tips, even if tips right now have not yet 286 00:15:05,720 --> 00:15:08,960 Speaker 1: done well because in pression expectations are not yet the anchored. 287 00:15:09,240 --> 00:15:12,040 Speaker 1: I think you want to go into gold and precious metal. Again, 288 00:15:12,040 --> 00:15:14,400 Speaker 1: gold is not done very well because you have tight 289 00:15:14,520 --> 00:15:17,600 Speaker 1: multi REPULSI strong dollar. But if central banks are gonna 290 00:15:17,600 --> 00:15:20,160 Speaker 1: blink and win pout, gold is gonna rise in value. 291 00:15:20,280 --> 00:15:23,160 Speaker 1: Gold are gonna rising values because the enemies of the 292 00:15:23,240 --> 00:15:26,280 Speaker 1: US are subject to sanctions China Andize worried. There are 293 00:15:26,320 --> 00:15:28,800 Speaker 1: three dollars of reserves in dollar have to move to 294 00:15:28,840 --> 00:15:31,080 Speaker 1: other things. It's you're in the end. They can be seized. 295 00:15:31,240 --> 00:15:33,400 Speaker 1: The only thing that cannot be seis is gold. Of course, 296 00:15:33,400 --> 00:15:35,440 Speaker 1: not in the volved in New York or London, but 297 00:15:35,560 --> 00:15:39,040 Speaker 1: in Beijing or in mosculines on and finally, appropriate types 298 00:15:39,040 --> 00:15:42,200 Speaker 1: of real estate that are environmentally resilient because real estate 299 00:15:42,240 --> 00:15:45,040 Speaker 1: compared to equities in a recessions as well because you 300 00:15:45,080 --> 00:15:47,200 Speaker 1: have more pricing power for rents and so on. So 301 00:15:47,240 --> 00:15:50,640 Speaker 1: a combination of these assets provide you, in an optimized way, 302 00:15:50,760 --> 00:15:53,080 Speaker 1: a hedge against some of these theris. On the flip side, 303 00:15:53,240 --> 00:15:55,880 Speaker 1: you've always been brilliant, un leveraged in the system. I'm 304 00:15:55,960 --> 00:15:59,320 Speaker 1: credit and we've heard from one fund manager after another 305 00:15:59,400 --> 00:16:01,880 Speaker 1: that there is reason alliance in this corporate credit sector, 306 00:16:02,240 --> 00:16:04,400 Speaker 1: even with the death that they have, even with the 307 00:16:04,440 --> 00:16:07,160 Speaker 1: low coupons that are currently paying that what we set higher. 308 00:16:07,560 --> 00:16:09,760 Speaker 1: Do you disagree? Do you think that people are overly 309 00:16:09,880 --> 00:16:13,680 Speaker 1: sanguine about the upcoming credit cycle? They are. Right before 310 00:16:13,680 --> 00:16:17,800 Speaker 1: the COVID crisis, the FED was writing reports on financial stability, 311 00:16:18,000 --> 00:16:21,080 Speaker 1: pointing out the leverage of the corporate sector of course 312 00:16:21,160 --> 00:16:24,480 Speaker 1: high yield and fallen angels. But then during COVID these 313 00:16:24,480 --> 00:16:26,480 Speaker 1: folks should have gone past, but they were built out. 314 00:16:26,680 --> 00:16:30,080 Speaker 1: We both even high yield that you remember, commercial paper 315 00:16:30,120 --> 00:16:33,480 Speaker 1: and everybody under the sun. So the zombies were built out, 316 00:16:33,760 --> 00:16:37,320 Speaker 1: and the excesses of having leverage loans CEE los Co 317 00:16:37,440 --> 00:16:40,320 Speaker 1: of Light got even worse, and people got even more indebted. 318 00:16:40,640 --> 00:16:42,840 Speaker 1: This time around, the party is over because the FED 319 00:16:43,040 --> 00:16:45,720 Speaker 1: for now left to raise rates because that service rations 320 00:16:45,760 --> 00:16:48,160 Speaker 1: got become impossible. And you get the double one me 321 00:16:48,440 --> 00:16:50,880 Speaker 1: for those corporates, you get a p n L because 322 00:16:51,000 --> 00:16:53,280 Speaker 1: income is gonna fall because of the recession, and you 323 00:16:53,360 --> 00:16:56,360 Speaker 1: get that problem with that service in racial rising, and 324 00:16:56,400 --> 00:16:58,520 Speaker 1: therefore there will be a corporate that crisis one we 325 00:16:58,600 --> 00:17:01,880 Speaker 1: avoided during the GFS and during the COVID crimes. It's scarring. 326 00:17:01,960 --> 00:17:04,800 Speaker 1: Now they see a low and leverageable market are shutting 327 00:17:04,840 --> 00:17:07,080 Speaker 1: down right now. I want to get to chapter twelve. 328 00:17:07,200 --> 00:17:10,679 Speaker 1: You talk about a more optimistic future, utopian future. You 329 00:17:10,760 --> 00:17:13,560 Speaker 1: started by quoting the economist Yogi Barra. I thought that 330 00:17:13,640 --> 00:17:16,240 Speaker 1: was very good. You go right in there about predictions 331 00:17:16,240 --> 00:17:18,679 Speaker 1: and Yogi in the future and all that. How do 332 00:17:18,720 --> 00:17:22,280 Speaker 1: you get from Yogi Berra to a more optimistic future. Well, 333 00:17:22,320 --> 00:17:24,800 Speaker 1: the more the place in the future starts with essentially 334 00:17:25,119 --> 00:17:28,160 Speaker 1: technologically innovations, like for example, I don't think it's gonna 335 00:17:28,160 --> 00:17:31,760 Speaker 1: be renewable, maybe fusion. If fusion happens, then you can 336 00:17:31,800 --> 00:17:35,760 Speaker 1: have unlimited amount of essentially energy and cheap costs with 337 00:17:35,880 --> 00:17:38,760 Speaker 1: no green out gas emissions. We look like we are however, 338 00:17:38,880 --> 00:17:42,480 Speaker 1: only fifteen to twenty years away from fusion becoming a reality. 339 00:17:42,640 --> 00:17:45,800 Speaker 1: If it comes faster than we can increase the economic pie. 340 00:17:46,119 --> 00:17:48,240 Speaker 1: We're gonna reduce the cost of energy, We're gonna stop 341 00:17:48,240 --> 00:17:52,359 Speaker 1: greenout emissions. We can grow more. What about fractured What 342 00:17:52,440 --> 00:17:55,680 Speaker 1: about our fractured political system, whether you're Italy in the 343 00:17:55,800 --> 00:17:57,600 Speaker 1: turn there to the right or what we see in 344 00:17:57,640 --> 00:18:00,159 Speaker 1: the election He're coming up in two weeks. How we 345 00:18:00,240 --> 00:18:04,359 Speaker 1: get beyond this fractured political system? For now we're going 346 00:18:04,400 --> 00:18:07,280 Speaker 1: to god the world that is even more divided domestic 347 00:18:07,320 --> 00:18:10,520 Speaker 1: and there's more polarization, there's lack of partnership, and it's happening. 348 00:18:10,640 --> 00:18:13,919 Speaker 1: I mean, you have outwoor Tanni regimes in power. You 349 00:18:13,920 --> 00:18:16,760 Speaker 1: have put In in Russia, you have Erdogan in Turkey, 350 00:18:16,880 --> 00:18:20,159 Speaker 1: you have Kausinsky in Poland, you have Urban in Hungary, 351 00:18:20,200 --> 00:18:23,280 Speaker 1: you have Melane in Italy. You have these Nazi Swedish Democrats. 352 00:18:23,440 --> 00:18:26,040 Speaker 1: Now in Sweden you have the Brexit phenomenal, you have 353 00:18:26,160 --> 00:18:28,520 Speaker 1: the Trump phenomenal. And in Latin America used to be 354 00:18:28,520 --> 00:18:31,560 Speaker 1: only Venezuela Argentina populist of the left, but in the 355 00:18:31,640 --> 00:18:38,360 Speaker 1: last two years, Chile, Ecuador, Peru, Colombia or the left. 356 00:18:40,040 --> 00:18:42,320 Speaker 1: That's the world we're going, unfortunately, is a world that 357 00:18:42,440 --> 00:18:45,760 Speaker 1: is not liberal Democratsy if you saw the movie right here, No, 358 00:18:45,840 --> 00:18:49,680 Speaker 1: not the Capri who love playing Rubini nor Roubini. Where 359 00:18:49,680 --> 00:19:05,480 Speaker 1: this's the book is mega threats. We get lucky this morning, 360 00:19:05,520 --> 00:19:07,200 Speaker 1: jump Ovan around the table with us. They had of 361 00:19:07,240 --> 00:19:10,719 Speaker 1: the Black Rock Investment Institute and formerly so much more 362 00:19:10,760 --> 00:19:13,080 Speaker 1: than that, joan fantasticy catch up with the s. I 363 00:19:13,119 --> 00:19:15,800 Speaker 1: read the weekly note from the Black Rock Investment Institute 364 00:19:15,800 --> 00:19:18,840 Speaker 1: that came out just yesterday, and you talked about the 365 00:19:18,960 --> 00:19:21,800 Speaker 1: significance of the mid terms, and you guys don't think 366 00:19:21,840 --> 00:19:25,000 Speaker 1: they're that significant. The future returns over the next several months. Why, 367 00:19:25,760 --> 00:19:28,399 Speaker 1: First of all, it's so great to be here. Um. No, 368 00:19:28,520 --> 00:19:31,200 Speaker 1: we think the usual playbook for the mid term is that, 369 00:19:31,280 --> 00:19:34,280 Speaker 1: you know, if you have divided government, divided government or houses, um, 370 00:19:34,320 --> 00:19:37,400 Speaker 1: it tends to be a booze for markets. But as 371 00:19:37,480 --> 00:19:40,320 Speaker 1: anything else this time around them and usual playbooks don't apply. 372 00:19:40,400 --> 00:19:42,920 Speaker 1: We think, um, the main stories about their fore told 373 00:19:42,960 --> 00:19:46,240 Speaker 1: recession that we're gonna have, we believe in in the 374 00:19:46,320 --> 00:19:49,640 Speaker 1: quarantin the next year. And as a result, we think 375 00:19:49,680 --> 00:19:53,200 Speaker 1: that this is the second side show um, the the 376 00:19:53,240 --> 00:19:55,399 Speaker 1: important for the future of the country and everything, but 377 00:19:55,440 --> 00:19:57,440 Speaker 1: in terms of markets, we don't think that's an important driver. 378 00:19:57,680 --> 00:20:01,080 Speaker 1: Swap lines front and center. Major question at the meetings 379 00:20:01,080 --> 00:20:04,439 Speaker 1: in Washington here a week or so ago. Give us 380 00:20:04,480 --> 00:20:08,119 Speaker 1: black Rocks estimate of how countries will have to go 381 00:20:08,200 --> 00:20:11,920 Speaker 1: to the FED given a global dollar shortage the liquidities 382 00:20:11,960 --> 00:20:13,840 Speaker 1: that are out there. Is seeing in f R A 383 00:20:14,000 --> 00:20:17,840 Speaker 1: oh yes, yeah, um, you know the important thing is 384 00:20:18,119 --> 00:20:20,440 Speaker 1: here we were seeing like the most rapid tightening of 385 00:20:20,480 --> 00:20:23,600 Speaker 1: financial condition in a in a generation, in a very 386 00:20:23,600 --> 00:20:27,479 Speaker 1: long time. We haven't seen ready the cracks yet here 387 00:20:27,480 --> 00:20:29,800 Speaker 1: in the system. It's remarkable to see all the all 388 00:20:29,800 --> 00:20:32,800 Speaker 1: the strengthening of the US dollar we you've seen without 389 00:20:33,000 --> 00:20:35,159 Speaker 1: like the knock on effect or cracks, we would have 390 00:20:35,200 --> 00:20:38,000 Speaker 1: seen another circumstances. I think that creates a level of 391 00:20:38,040 --> 00:20:40,119 Speaker 1: anxiety that was really clear at the I m F 392 00:20:40,160 --> 00:20:41,919 Speaker 1: A lot of conversations about how we show up the 393 00:20:41,960 --> 00:20:45,040 Speaker 1: system in that context. Swap line will be uh will 394 00:20:45,080 --> 00:20:48,040 Speaker 1: be a key, key tool potentially in that environment. But 395 00:20:48,080 --> 00:20:50,000 Speaker 1: I think so far what is very surprising is that 396 00:20:50,640 --> 00:20:54,200 Speaker 1: you know it's been very stable despite despite what your 397 00:20:54,240 --> 00:20:58,720 Speaker 1: academics at Princeton and your work with the Bank of Canada. 398 00:20:59,000 --> 00:21:03,080 Speaker 1: If we believe it's nonlinear as we disinflate, do you 399 00:21:03,160 --> 00:21:06,840 Speaker 1: think we can succeed that with stability or are there 400 00:21:06,840 --> 00:21:10,359 Speaker 1: going to be instabilities witnessed with Damian says are yesterday 401 00:21:10,400 --> 00:21:13,120 Speaker 1: we looked at the Columbia piece going from ninety eight 402 00:21:13,160 --> 00:21:15,920 Speaker 1: down to sixty three on a price of bund that's 403 00:21:15,920 --> 00:21:18,480 Speaker 1: a crack. I think it's very hard to see something 404 00:21:18,520 --> 00:21:21,480 Speaker 1: that's gonna be smooth landing in any way. That's true 405 00:21:21,480 --> 00:21:23,399 Speaker 1: for the economy, that's true for the financial market in 406 00:21:23,400 --> 00:21:25,639 Speaker 1: this context. That's why you know, we think we're in 407 00:21:25,680 --> 00:21:29,080 Speaker 1: the clear part towards over tightening of Montree policy, but 408 00:21:29,240 --> 00:21:32,639 Speaker 1: it's gonna be very rocky. We're underweight equities, you know, 409 00:21:32,880 --> 00:21:35,480 Speaker 1: as as various as we've ever been against in terms 410 00:21:35,520 --> 00:21:38,120 Speaker 1: of broad risk taking at this moment. At some point 411 00:21:38,160 --> 00:21:41,280 Speaker 1: that's going to change. But the reason is really because um, 412 00:21:41,400 --> 00:21:44,760 Speaker 1: that tightening is um is it could be nonlinear, as 413 00:21:44,800 --> 00:21:47,399 Speaker 1: you say, and um, we haven't seen its cry. I 414 00:21:47,400 --> 00:21:49,880 Speaker 1: think the UK we've seen over the last month is 415 00:21:49,920 --> 00:21:53,239 Speaker 1: like an accelerated peak in the future. Uh, And I 416 00:21:53,240 --> 00:21:55,439 Speaker 1: think that's um. That's where we need to guard against 417 00:21:55,680 --> 00:21:57,800 Speaker 1: Jean If you believe in a hard landing, why not 418 00:21:57,840 --> 00:22:01,639 Speaker 1: by treasuries here, How that's a that's a great question, 419 00:22:01,640 --> 00:22:04,000 Speaker 1: and that's another aspect of the current environment. We wear 420 00:22:04,040 --> 00:22:06,399 Speaker 1: the playbook. The typical playbook might not be applying. We 421 00:22:06,440 --> 00:22:09,400 Speaker 1: don't think it's gonna apply. We are going to see 422 00:22:09,400 --> 00:22:12,240 Speaker 1: a recession, but it's gonna be a recession the context 423 00:22:12,280 --> 00:22:15,080 Speaker 1: where inflation is gonna won't be under control, and it's 424 00:22:15,080 --> 00:22:18,600 Speaker 1: aftone recession. It's ready the recession caused by Montrey policy. Ready, 425 00:22:18,680 --> 00:22:21,080 Speaker 1: that's the way by which inflation will get under control. 426 00:22:21,520 --> 00:22:23,320 Speaker 1: And as a result, when we get to that recession, 427 00:22:23,320 --> 00:22:26,320 Speaker 1: you won't see the typical reaction of yields falling uh 428 00:22:26,680 --> 00:22:30,360 Speaker 1: and bonds playing their safety role. So the typical playbook 429 00:22:30,440 --> 00:22:33,880 Speaker 1: of go find refugion bonds in this recession, I think multiply. 430 00:22:34,119 --> 00:22:36,480 Speaker 1: Is this part of the reason why perhaps the stability 431 00:22:36,520 --> 00:22:39,840 Speaker 1: that you talked about, the surprising resilience of markets is 432 00:22:39,840 --> 00:22:42,800 Speaker 1: almost a headwind to them because it won't necessarily stop 433 00:22:43,040 --> 00:22:46,040 Speaker 1: the rising rate environment. It won't necessarily change where we 434 00:22:46,080 --> 00:22:48,919 Speaker 1: are in a wholesale value. How high can yields go 435 00:22:49,080 --> 00:22:51,919 Speaker 1: and stay for a prolonged period of time before something 436 00:22:52,000 --> 00:22:56,280 Speaker 1: breaks in the financial system. So in our estimates, like 437 00:22:56,320 --> 00:22:58,640 Speaker 1: if we go to five percent as now, we kind 438 00:22:58,640 --> 00:23:01,280 Speaker 1: of assume for early next year, Uh, this is a 439 00:23:01,320 --> 00:23:04,360 Speaker 1: world where we're gonna see a very significant slowdown of activity, 440 00:23:04,440 --> 00:23:07,400 Speaker 1: decline activities. That two percent we think as a as 441 00:23:07,400 --> 00:23:10,960 Speaker 1: a minimum of GDP, it's three million jobs that would 442 00:23:11,000 --> 00:23:12,600 Speaker 1: need to be lost in that context. That so in 443 00:23:12,600 --> 00:23:16,080 Speaker 1: the world where five percent to sustain UM and I 444 00:23:16,160 --> 00:23:18,960 Speaker 1: think in the world like this, the financial system leverage 445 00:23:19,000 --> 00:23:20,720 Speaker 1: as it is as it is, we'll start to see 446 00:23:20,760 --> 00:23:24,959 Speaker 1: some some response and and that's the So five percent 447 00:23:25,240 --> 00:23:27,480 Speaker 1: is um is where we're heading. We don't think we 448 00:23:27,480 --> 00:23:29,560 Speaker 1: can go much further than that. That's why over the 449 00:23:29,600 --> 00:23:31,320 Speaker 1: course of the first half of next year, we're going 450 00:23:31,359 --> 00:23:35,439 Speaker 1: to see central banks having forced into some stopping pause 451 00:23:36,680 --> 00:23:39,520 Speaker 1: before they can go further. It only said recession forced out. 452 00:23:39,840 --> 00:23:42,840 Speaker 1: I'm interested by that phrase. You've also talked about the 453 00:23:42,920 --> 00:23:46,359 Speaker 1: appropriate time horizon to bring inflation back to target, and 454 00:23:46,400 --> 00:23:49,440 Speaker 1: I think you've explained conveyed your disappointment that central banks 455 00:23:49,440 --> 00:23:52,040 Speaker 1: aren't having that discussion a whole lot more. Does it 456 00:23:52,160 --> 00:23:55,360 Speaker 1: have to pay this way? I think what is very interesting. 457 00:23:55,359 --> 00:23:57,959 Speaker 1: And yeah, and we we've written about this is the 458 00:23:57,960 --> 00:24:00,440 Speaker 1: fact that you know there's your you to be two 459 00:24:00,480 --> 00:24:02,720 Speaker 1: sides to any decision in central banking, Like it's not 460 00:24:02,800 --> 00:24:05,600 Speaker 1: typically obvious what you have to do. UM. And I 461 00:24:05,600 --> 00:24:07,720 Speaker 1: think this environment is as tricky as it has ever been. 462 00:24:07,760 --> 00:24:10,440 Speaker 1: I mean, I don't think there's been any so sharp 463 00:24:10,480 --> 00:24:12,520 Speaker 1: trade up that we had to deal with. UM. You know, 464 00:24:12,560 --> 00:24:14,160 Speaker 1: we have to go back the seventies and the seventies 465 00:24:14,160 --> 00:24:17,240 Speaker 1: with a different situation altogether. UM, there's a tendency to 466 00:24:17,240 --> 00:24:19,960 Speaker 1: apply the apply the playbook of the seventies. But we're 467 00:24:19,960 --> 00:24:22,960 Speaker 1: not in the seventies. And so this lack of two 468 00:24:23,000 --> 00:24:26,000 Speaker 1: sided debate on what's gonna happen or nuance is troubling. 469 00:24:26,520 --> 00:24:28,600 Speaker 1: And UM that's why we think that we are going 470 00:24:28,680 --> 00:24:31,760 Speaker 1: to get over tightening. Um. That's not necessarily the outcome 471 00:24:31,840 --> 00:24:34,960 Speaker 1: that had to be, but I think it's happening. Um. 472 00:24:35,000 --> 00:24:37,360 Speaker 1: At some point, I think the pressure the forces will 473 00:24:37,400 --> 00:24:39,800 Speaker 1: be pretty pretty strong. And we've seen that in the UK, right, 474 00:24:39,800 --> 00:24:42,000 Speaker 1: I mean we've seen the accenrated version. You're go in 475 00:24:42,000 --> 00:24:45,439 Speaker 1: one direction. Um, markets will put some pressure and I 476 00:24:45,480 --> 00:24:49,119 Speaker 1: think we'll see some forced pause. That's not great for credibility. 477 00:24:49,160 --> 00:24:50,919 Speaker 1: I think it's better for central banks to be on 478 00:24:50,920 --> 00:24:53,560 Speaker 1: the front foot. And UM, you know, I've signaled that 479 00:24:53,560 --> 00:24:56,560 Speaker 1: there are some nuances here we might need to deal with. UM, 480 00:24:56,600 --> 00:24:58,359 Speaker 1: but this is not the situation where and so I 481 00:24:58,400 --> 00:25:00,840 Speaker 1: think we're gonna be forced into, you know, a wake 482 00:25:00,920 --> 00:25:05,000 Speaker 1: up call, and and we'll look like a pause, but 483 00:25:05,359 --> 00:25:07,160 Speaker 1: one that has been forced as opposed to be playing 484 00:25:07,240 --> 00:25:09,480 Speaker 1: quickly here. And I could go for an hour with 485 00:25:09,560 --> 00:25:12,440 Speaker 1: you on this. There was a guy named Bernanke who 486 00:25:12,520 --> 00:25:14,440 Speaker 1: emailed you when you were a kid and said, do 487 00:25:14,480 --> 00:25:17,119 Speaker 1: you want to try for a PhD at Princeton. You 488 00:25:17,200 --> 00:25:19,520 Speaker 1: talked about it the day he won the Nobel Prize. 489 00:25:20,119 --> 00:25:23,760 Speaker 1: What did he and Anna Schwartz and Milton Friedman do 490 00:25:24,600 --> 00:25:29,320 Speaker 1: so he didn't repeat a depression? Well, I think the 491 00:25:29,400 --> 00:25:32,520 Speaker 1: key lesson of the Great Depression that uh An, Ashwartz 492 00:25:32,520 --> 00:25:35,679 Speaker 1: and Freeman at first like more from an anecdotal perspective 493 00:25:35,760 --> 00:25:39,600 Speaker 1: or documenting the depression was and the Ben Bernanki and 494 00:25:39,600 --> 00:25:43,760 Speaker 1: others of more formalized was that, um, if you tightened 495 00:25:43,800 --> 00:25:47,639 Speaker 1: montre policy as the economy is uh is is going down, 496 00:25:48,720 --> 00:25:52,760 Speaker 1: you create this financial acceperator dynamic. By the true the 497 00:25:52,760 --> 00:25:55,480 Speaker 1: banking systems. That what we're doing right now and with 498 00:25:55,720 --> 00:25:58,439 Speaker 1: and with bank runs. UM. And I think that was 499 00:25:58,520 --> 00:26:00,800 Speaker 1: very much in his mind when two thousand came. I 500 00:26:01,160 --> 00:26:03,119 Speaker 1: was interesting in the speech he gave in two thousand 501 00:26:03,119 --> 00:26:06,199 Speaker 1: two in the anniversary of Freeman that he said, we 502 00:26:06,280 --> 00:26:09,119 Speaker 1: heard you, we won't do it again. That was that 503 00:26:09,200 --> 00:26:11,800 Speaker 1: was reference to the depression. He said he was abusing 504 00:26:11,800 --> 00:26:15,160 Speaker 1: his status at the time, but not his future status. 505 00:26:15,480 --> 00:26:17,600 Speaker 1: He was he was he was a governor, but became 506 00:26:17,680 --> 00:26:20,879 Speaker 1: chairman afterwards. The thing though, is at this time, I 507 00:26:20,880 --> 00:26:22,399 Speaker 1: don't think this is the playbook. This is not the 508 00:26:22,400 --> 00:26:24,919 Speaker 1: playbook for the current situation. This is not a demand 509 00:26:25,000 --> 00:26:29,880 Speaker 1: driven financial crisis bank run story. This is a massive 510 00:26:29,920 --> 00:26:32,800 Speaker 1: supply shock that we're dealing through. UM. I'm not sure 511 00:26:32,840 --> 00:26:34,879 Speaker 1: that those lessons apply right now. So that was for 512 00:26:34,920 --> 00:26:37,000 Speaker 1: two thousand and eight in the city. For twenty twenty 513 00:26:37,040 --> 00:26:39,560 Speaker 1: and after. Joan Vvan of Black Crock Jean fantastic to 514 00:26:39,560 --> 00:26:45,520 Speaker 1: have you within the shade. If you were a student 515 00:26:45,800 --> 00:26:49,480 Speaker 1: of the Midwest and you had parents that were industrial 516 00:26:49,800 --> 00:26:53,720 Speaker 1: on your college list was the West Point of manufacturing 517 00:26:54,119 --> 00:26:58,680 Speaker 1: and engineering. It was called General Motors Institute, now cattering 518 00:26:58,880 --> 00:27:01,760 Speaker 1: and never did they know that one of their students 519 00:27:01,840 --> 00:27:05,159 Speaker 1: would come out to provide leadership for General Motors. She 520 00:27:05,240 --> 00:27:08,360 Speaker 1: has Marie Barra and Matt Miller brings us to her 521 00:27:08,440 --> 00:27:12,560 Speaker 1: today the engineer from the General Motors. I'm looking forward 522 00:27:12,560 --> 00:27:14,840 Speaker 1: to it. Mary, thanks so much for joining us, Really 523 00:27:14,880 --> 00:27:17,399 Speaker 1: appreciated on such a busy day for you. Let me 524 00:27:17,400 --> 00:27:19,600 Speaker 1: pick up where these guys left off and ask you 525 00:27:19,640 --> 00:27:23,280 Speaker 1: about the stronger dollar. Obviously, the lion share of your 526 00:27:23,320 --> 00:27:27,640 Speaker 1: revenue comes here in the US, but you still buy 527 00:27:27,920 --> 00:27:30,400 Speaker 1: purchase a lot of parts in your supply chain from 528 00:27:30,400 --> 00:27:33,639 Speaker 1: outside of the country. Is the stronger dollar a tail 529 00:27:33,680 --> 00:27:37,840 Speaker 1: wind for you? Well, I think you know there's a 530 00:27:37,840 --> 00:27:40,280 Speaker 1: lot of pressures right now. When you look at commodity 531 00:27:40,359 --> 00:27:44,239 Speaker 1: cost transportation, it's just one of the elements and that 532 00:27:44,280 --> 00:27:47,919 Speaker 1: we're facing, UH is not as significant for as it 533 00:27:48,040 --> 00:27:50,920 Speaker 1: is for other companies, just based on our strong position 534 00:27:50,960 --> 00:27:54,439 Speaker 1: in North America, but we continue to monitor and be 535 00:27:54,560 --> 00:27:57,840 Speaker 1: impacted by each of these factors. Rate's obviously a huge 536 00:27:57,920 --> 00:28:02,480 Speaker 1: factor as well. We've seen it UM impacting other lenders, 537 00:28:02,520 --> 00:28:07,560 Speaker 1: and I'm wondering how it's impacting GM Financial. Well, we 538 00:28:07,880 --> 00:28:11,480 Speaker 1: are seeing GM Financial get back to I would say 539 00:28:11,800 --> 00:28:15,480 Speaker 1: historically strong performance. I think we had especially strong performance 540 00:28:15,680 --> 00:28:18,040 Speaker 1: last year in the year prior due to the strength 541 00:28:18,040 --> 00:28:20,800 Speaker 1: of use cares pricing that's coming down with interest rates. 542 00:28:20,800 --> 00:28:23,520 Speaker 1: We are seeing a little softening on leasing, but overall 543 00:28:23,800 --> 00:28:27,320 Speaker 1: GMF is performing very well. You know, the CEOs of 544 00:28:27,359 --> 00:28:30,359 Speaker 1: JP Morgan and Goldman Sachs both UH this morning, have 545 00:28:30,440 --> 00:28:33,439 Speaker 1: said they see a recession as likely for the US. 546 00:28:33,520 --> 00:28:37,880 Speaker 1: I'm wondering your view. You have an unique position. Um, 547 00:28:37,920 --> 00:28:40,280 Speaker 1: what's the economy look like to you? How how is 548 00:28:40,280 --> 00:28:45,280 Speaker 1: it unfolding and car sales specifically, Well, I'm gonna let 549 00:28:45,320 --> 00:28:50,760 Speaker 1: calling a recession to the economists, not not my UH expertise, 550 00:28:50,800 --> 00:28:52,800 Speaker 1: but what I'll tell you what I We are seeing 551 00:28:52,840 --> 00:28:55,840 Speaker 1: and we're seeing still very strong demand for our products. 552 00:28:55,920 --> 00:29:00,840 Speaker 1: We're seeing uh strong UH average transaction prior seen that 553 00:29:00,880 --> 00:29:04,280 Speaker 1: we we continue to be able to build on and 554 00:29:04,360 --> 00:29:06,680 Speaker 1: so you know, we are starting to see inventory build 555 00:29:06,720 --> 00:29:09,000 Speaker 1: just a little bit, but well below levels that were 556 00:29:09,000 --> 00:29:11,240 Speaker 1: in the past. So overall, we're still seeing a very 557 00:29:11,280 --> 00:29:14,760 Speaker 1: strong consumer for our products. And uh, you know, we're 558 00:29:14,800 --> 00:29:18,400 Speaker 1: watching carefully all the different signs, but right now it's 559 00:29:18,400 --> 00:29:21,720 Speaker 1: still very strong. But what about inflation and the pressure 560 00:29:21,720 --> 00:29:25,160 Speaker 1: on margins. I mean, um, does the stronger dollar balance 561 00:29:25,280 --> 00:29:29,560 Speaker 1: that out? Are you seeing a big inflation in arise 562 00:29:29,600 --> 00:29:31,320 Speaker 1: in the costs that you need to pay out for 563 00:29:31,760 --> 00:29:36,440 Speaker 1: UM parts? And is that sort of squeezing your margins here? Well, 564 00:29:36,440 --> 00:29:40,680 Speaker 1: we have, yes, we we have seen you know, commodities, logistics, uh. 565 00:29:40,720 --> 00:29:43,000 Speaker 1: You know, we work with our suppliers to make sure 566 00:29:43,080 --> 00:29:46,280 Speaker 1: that we have a very healthy supplier base. So all 567 00:29:46,280 --> 00:29:48,880 Speaker 1: of those factors we tend to work to offset. And 568 00:29:48,920 --> 00:29:50,960 Speaker 1: you know, we predicted this year would be about a 569 00:29:51,000 --> 00:29:54,600 Speaker 1: five thousand or excuse me, five billion dollar impact and 570 00:29:55,000 --> 00:29:57,400 Speaker 1: we are seeing that. But we have worked effectively to 571 00:29:57,440 --> 00:29:59,800 Speaker 1: find offsets and and that's you know, part of our 572 00:30:00,000 --> 00:30:03,240 Speaker 1: we're all uh equation for this year, which is allowing 573 00:30:03,320 --> 00:30:06,760 Speaker 1: us to still maintain guidance. One big boost is going 574 00:30:06,840 --> 00:30:09,880 Speaker 1: to be the Inflation Reduction Act at least UVS says 575 00:30:10,240 --> 00:30:13,200 Speaker 1: they see the i R a A is very generous. 576 00:30:13,240 --> 00:30:15,440 Speaker 1: They say it has the potential to make the US 577 00:30:15,520 --> 00:30:18,400 Speaker 1: a global evy battery hub. How do you see the 578 00:30:18,440 --> 00:30:23,240 Speaker 1: Inflation Reduction Act for GM? Well, General Motors was already 579 00:30:23,240 --> 00:30:27,080 Speaker 1: investing in North America or in the United States for instance. 580 00:30:27,120 --> 00:30:29,200 Speaker 1: You know, we have a battery plant in Ohio that's 581 00:30:29,280 --> 00:30:32,320 Speaker 1: ramping right now. We have two others, one in Michigan 582 00:30:32,400 --> 00:30:34,840 Speaker 1: one in Tennessee that are also ramping. So we were 583 00:30:34,920 --> 00:30:37,520 Speaker 1: making the investments because we wanted to make sure we 584 00:30:37,560 --> 00:30:40,440 Speaker 1: had a resilient supply chain after we've lived through so 585 00:30:40,520 --> 00:30:43,920 Speaker 1: much disruption over the last few years. So as the 586 00:30:44,000 --> 00:30:46,840 Speaker 1: i ra A came into UH was passed and we're 587 00:30:46,840 --> 00:30:49,640 Speaker 1: looking now for Treasury to set the rules. We think 588 00:30:49,640 --> 00:30:52,880 Speaker 1: we're very very well positioned and we do believe that 589 00:30:53,160 --> 00:30:57,280 Speaker 1: the benefits of our ira A will drive stronger EV 590 00:30:57,400 --> 00:30:59,680 Speaker 1: adoption with the American consumers. So we think it's going 591 00:30:59,720 --> 00:31:02,080 Speaker 1: to do a exactly what was intended to do, and 592 00:31:02,120 --> 00:31:05,760 Speaker 1: we're well positioned to benefit and and work with our 593 00:31:05,760 --> 00:31:08,959 Speaker 1: consumers to make sure they have an EV that's affordable 594 00:31:09,360 --> 00:31:12,240 Speaker 1: that they can really enjoy the benefits of an e V. 595 00:31:12,520 --> 00:31:14,400 Speaker 1: Are you still on track to sell a million e 596 00:31:14,520 --> 00:31:20,440 Speaker 1: vis and beyond? We absolutely are. You know, when you 597 00:31:20,480 --> 00:31:22,640 Speaker 1: look at the lineup that we have, you know, starting 598 00:31:22,640 --> 00:31:24,680 Speaker 1: with the Hummer to the Lyric to now that the 599 00:31:24,760 --> 00:31:28,080 Speaker 1: Chevy Silverado e V. We just last week I'll launch 600 00:31:28,160 --> 00:31:32,720 Speaker 1: the GMC Sierra e V along with the Chevrolet Blazer 601 00:31:32,800 --> 00:31:35,240 Speaker 1: e V and the Equinox EV. I think we're going 602 00:31:35,280 --> 00:31:38,520 Speaker 1: to be well positioned covering the important segments in the 603 00:31:38,560 --> 00:31:42,880 Speaker 1: portfolio to reach that million unit level. By you do 604 00:31:42,960 --> 00:31:47,240 Speaker 1: get a huge boost also from big truck margins, and 605 00:31:47,280 --> 00:31:50,000 Speaker 1: I imagine that helps you um to fund the e 606 00:31:50,120 --> 00:31:52,920 Speaker 1: V business and and get towards that target. If we 607 00:31:53,000 --> 00:31:56,600 Speaker 1: have a recession and you see sales of those big trucks, 608 00:31:56,640 --> 00:31:59,120 Speaker 1: those big I C trucks drop, can you continue to 609 00:31:59,640 --> 00:32:04,520 Speaker 1: fund e V boost? We very much believe we're We 610 00:32:04,560 --> 00:32:06,520 Speaker 1: have a strong enough balance sheet and the strength of 611 00:32:06,520 --> 00:32:08,239 Speaker 1: the business. When you look at the truck we have 612 00:32:08,320 --> 00:32:13,200 Speaker 1: truck leadership, we've had it since and we just did 613 00:32:13,240 --> 00:32:16,880 Speaker 1: a major refresh to our late duty UH full size trucks. 614 00:32:17,160 --> 00:32:20,040 Speaker 1: We have strong SUVs as well, and now the heavy 615 00:32:20,080 --> 00:32:22,080 Speaker 1: duties we just revealed they'll be next year. So we 616 00:32:22,120 --> 00:32:25,200 Speaker 1: think our product portfolio is going to position us well 617 00:32:25,240 --> 00:32:27,840 Speaker 1: in the truck market. I would also say mid sized 618 00:32:27,880 --> 00:32:31,480 Speaker 1: crossovers are very strong as well, and the truck consumer, 619 00:32:31,560 --> 00:32:34,920 Speaker 1: especially the full size truck consumer, they generally are not 620 00:32:35,040 --> 00:32:37,920 Speaker 1: They don't shop as many segments as maybe other customers 621 00:32:37,920 --> 00:32:40,720 Speaker 1: of other segments to so we think we're well positioned 622 00:32:40,880 --> 00:32:44,320 Speaker 1: and obviously will moderate based on what happens from an economy, 623 00:32:44,360 --> 00:32:46,880 Speaker 1: in a in a consumer buying perspective. You know, earlier 624 00:32:46,880 --> 00:32:49,040 Speaker 1: this year, people were asking if we were going to 625 00:32:49,080 --> 00:32:52,560 Speaker 1: get back to a seventeen million star. UM. Now I'm 626 00:32:52,600 --> 00:32:55,120 Speaker 1: hearing people ask if we're gonna go down to a 627 00:32:55,200 --> 00:32:58,440 Speaker 1: twelve million star. What do you expect for car sales 628 00:32:58,480 --> 00:33:02,680 Speaker 1: next year? Well, we UM, you know, because of all 629 00:33:02,720 --> 00:33:06,080 Speaker 1: of the economic UH conditions around the globe. You know, 630 00:33:06,120 --> 00:33:08,720 Speaker 1: we are looking and we're planning for a more modest level. 631 00:33:09,160 --> 00:33:11,320 Speaker 1: We're still going to protect for the upside because we 632 00:33:11,360 --> 00:33:15,120 Speaker 1: don't know next year. But you know, we're at really 633 00:33:15,160 --> 00:33:18,400 Speaker 1: depressed levels right now because of all the semiconductor shortages 634 00:33:18,400 --> 00:33:21,280 Speaker 1: and other supply chain issues. So we think there's an 635 00:33:21,280 --> 00:33:23,760 Speaker 1: opportunity to go up ever so slightly next year. But 636 00:33:23,800 --> 00:33:26,040 Speaker 1: we're going to be very conservative as we plan for 637 00:33:26,120 --> 00:33:29,280 Speaker 1: next year, but be ready to take advantage if there 638 00:33:29,360 --> 00:33:31,680 Speaker 1: is upside and there's still a lot of unknowns. Will 639 00:33:31,720 --> 00:33:35,720 Speaker 1: provide more information on how we view UH and early 640 00:33:35,760 --> 00:33:38,160 Speaker 1: next year. All right, Mary, thanks so much for joining us. 641 00:33:38,160 --> 00:33:41,640 Speaker 1: Real pleasure talking to you on earnings day. General Motors 642 00:33:41,760 --> 00:33:45,640 Speaker 1: Chief executive Officer Mary barrat Mila just awesome as always. 643 00:33:55,480 --> 00:33:58,720 Speaker 1: We're gonna catch up with Jordan Rochester now the strategist 644 00:33:58,800 --> 00:34:01,080 Speaker 1: over Nomura and Jordan, I taste it a little bit earlier, 645 00:34:01,120 --> 00:34:03,000 Speaker 1: a few minutes ago. Let's go there. I saw the 646 00:34:03,080 --> 00:34:06,120 Speaker 1: number one sixty and Dolly next to it in your 647 00:34:06,160 --> 00:34:09,479 Speaker 1: note walk us through it. Well, that wasn't my view, John, 648 00:34:09,480 --> 00:34:11,719 Speaker 1: that was the view from clients. So this time last 649 00:34:11,719 --> 00:34:14,000 Speaker 1: week on Monday, I'll set next to you guys in 650 00:34:14,040 --> 00:34:16,439 Speaker 1: that table. So we met clients around the New York 651 00:34:16,480 --> 00:34:19,520 Speaker 1: area in Connecticut as well, and we're looking for one 652 00:34:19,600 --> 00:34:22,359 Speaker 1: fifty five at num in Dolly n I think after 653 00:34:22,360 --> 00:34:24,800 Speaker 1: this banker Jopan intervention, what you've clearly seen over the 654 00:34:24,800 --> 00:34:28,279 Speaker 1: past let's say twelve hours is extreme lack of qualite city. 655 00:34:28,320 --> 00:34:31,640 Speaker 1: Now we're in a forty pit range where the previous 656 00:34:31,680 --> 00:34:34,399 Speaker 1: two weeks we've been a big vol higher in terms 657 00:34:34,480 --> 00:34:37,280 Speaker 1: of that march up to nearly a D fifty two. 658 00:34:37,560 --> 00:34:40,640 Speaker 1: Then that near six n swing down on that intervention 659 00:34:40,640 --> 00:34:43,759 Speaker 1: on Friday, done during New York hours when liquidity was 660 00:34:43,840 --> 00:34:46,800 Speaker 1: very thin, and just after that Wall Street Journal article 661 00:34:47,080 --> 00:34:49,840 Speaker 1: talking about the FED. Because perhaps a bit more dovish 662 00:34:49,920 --> 00:34:51,799 Speaker 1: in terms of when they will slow down rate hikes. 663 00:34:51,840 --> 00:34:54,120 Speaker 1: So I think we've had some temporary setbacks for that 664 00:34:54,200 --> 00:34:57,680 Speaker 1: long dollar dolly n trade, but the fundamentals still pretty 665 00:34:57,680 --> 00:35:00,680 Speaker 1: clear John that the US interest rate a rising, the 666 00:35:00,800 --> 00:35:03,719 Speaker 1: Japanese are not. That is your long dollar Dolly Enne 667 00:35:03,760 --> 00:35:05,920 Speaker 1: Carrie trade. But for me on the fundamental side, from 668 00:35:05,960 --> 00:35:09,200 Speaker 1: the trade side, the dolly n is likely to keep 669 00:35:09,320 --> 00:35:13,400 Speaker 1: rising from Japanese importers this winter going out and buying energy, 670 00:35:13,600 --> 00:35:16,960 Speaker 1: buying coal, buying oil, even though energy prices are cooling 671 00:35:17,040 --> 00:35:21,360 Speaker 1: down seasonally. As we get into winter, those poems should accelerate, 672 00:35:21,400 --> 00:35:24,920 Speaker 1: pushing dolly and higher towards one fifty five. The honor 673 00:35:25,160 --> 00:35:27,400 Speaker 1: of a formal tea at the Bank of Japan with 674 00:35:27,520 --> 00:35:30,280 Speaker 1: all the pump and circumstances different than the FED. Folks 675 00:35:30,280 --> 00:35:32,840 Speaker 1: at the FED. You're over at Starbucks and you're paying 676 00:35:32,880 --> 00:35:35,160 Speaker 1: for it. That's how they do it in America. Jordan, 677 00:35:35,280 --> 00:35:38,680 Speaker 1: give us an insight on the debate at the Bank 678 00:35:38,719 --> 00:35:42,640 Speaker 1: of Japan. Is a corota son only or is there 679 00:35:42,800 --> 00:35:46,319 Speaker 1: actually a debate there like there is a bore at FED. 680 00:35:47,560 --> 00:35:51,480 Speaker 1: It's definitely a debate. Qurotas of course, representing the rest 681 00:35:51,480 --> 00:35:53,400 Speaker 1: of the bank Japan when he speaks on their behalf, 682 00:35:53,640 --> 00:35:56,439 Speaker 1: but he is also the guy in charge. And when 683 00:35:56,440 --> 00:35:58,800 Speaker 1: we get to March and April, the question for clients 684 00:35:58,920 --> 00:36:01,719 Speaker 1: is Krotas comes to an end, who will be the 685 00:36:01,800 --> 00:36:04,520 Speaker 1: next to lead the Bank Japan? And will that leads 686 00:36:04,560 --> 00:36:06,960 Speaker 1: to policy change? And if you look at rates markets, 687 00:36:07,360 --> 00:36:09,960 Speaker 1: rates markets would tell you yes, we think that something 688 00:36:10,000 --> 00:36:12,160 Speaker 1: will change, at least on the ten year parts of 689 00:36:12,160 --> 00:36:14,680 Speaker 1: the curve. Will the bands be wider on the yield 690 00:36:14,760 --> 00:36:17,200 Speaker 1: curve control? Will they give it up altogether on the 691 00:36:17,200 --> 00:36:19,160 Speaker 1: ten year move it to the five If you look 692 00:36:19,239 --> 00:36:23,480 Speaker 1: at the Japanese JGB curve, even tenors below ten years 693 00:36:23,760 --> 00:36:26,680 Speaker 1: are trading above the sort of levels set by the 694 00:36:26,719 --> 00:36:30,080 Speaker 1: ten year yield curve control. So the markets are challenging 695 00:36:30,120 --> 00:36:32,560 Speaker 1: the Bank Japan. As we speak, they're holding onto their 696 00:36:32,600 --> 00:36:35,680 Speaker 1: their their ten year but the rest of the curve 697 00:36:35,760 --> 00:36:38,239 Speaker 1: is pricing a change in policy to come. And it's 698 00:36:38,280 --> 00:36:41,160 Speaker 1: a message so far for this year Jordan's the currency 699 00:36:41,200 --> 00:36:44,040 Speaker 1: vigilantes will win that we're seeing that when it comes, 700 00:36:44,040 --> 00:36:47,360 Speaker 1: perhaps eventually to Japan, although it hasn't happened yet, and 701 00:36:47,360 --> 00:36:50,160 Speaker 1: then it will has come already to a Great Britain 702 00:36:50,280 --> 00:36:53,120 Speaker 1: where you see a little bit more upside at least 703 00:36:53,280 --> 00:36:56,279 Speaker 1: versus where you used to with the pound. Indeed, well 704 00:36:56,320 --> 00:36:58,560 Speaker 1: for the beginning, used to be everyone's risk off hedge 705 00:36:58,600 --> 00:37:01,759 Speaker 1: of choice. The only lines I've met who are long 706 00:37:01,840 --> 00:37:04,520 Speaker 1: the yen are using it in their portfolio as their 707 00:37:04,520 --> 00:37:07,000 Speaker 1: potential risk off in case we get dollar weakness, and 708 00:37:07,040 --> 00:37:09,919 Speaker 1: as you've seen over past year, that just hasn't worked. 709 00:37:09,920 --> 00:37:13,640 Speaker 1: The fundamentals really did change for the end compared to 710 00:37:13,680 --> 00:37:17,080 Speaker 1: the global financial crash. The carry trade still drives the pair. 711 00:37:17,480 --> 00:37:20,279 Speaker 1: It does track U S yields quite well, but on 712 00:37:20,360 --> 00:37:22,359 Speaker 1: the trade side now have a trade deaf sit. It's 713 00:37:22,400 --> 00:37:24,800 Speaker 1: not your risk off currency of choice when this is 714 00:37:24,840 --> 00:37:26,960 Speaker 1: a risk off driven by energy prices. And then for 715 00:37:27,000 --> 00:37:29,160 Speaker 1: the UK, I think the UK is the canary in 716 00:37:29,160 --> 00:37:31,800 Speaker 1: the coal mine for everybody around the world, for even 717 00:37:31,840 --> 00:37:34,759 Speaker 1: for the US, for Janet Yellen, for the Fed. You 718 00:37:34,800 --> 00:37:36,560 Speaker 1: don't want to do a UK seems to be the 719 00:37:36,600 --> 00:37:39,799 Speaker 1: conclusion from talking to foreign policymakers. When it comes to 720 00:37:39,840 --> 00:37:42,759 Speaker 1: budgetary constraints, don't push it. And also when it comes 721 00:37:42,800 --> 00:37:45,880 Speaker 1: to interest rates, don't suddenly get dubbish and allow inflation 722 00:37:45,960 --> 00:37:47,959 Speaker 1: to run hot. I know we were just talking about 723 00:37:47,960 --> 00:37:50,680 Speaker 1: the previous section use car prices. I think they will 724 00:37:50,719 --> 00:37:54,440 Speaker 1: continue to fall, perhaps quite aggressively, but labor markets are 725 00:37:54,480 --> 00:37:57,080 Speaker 1: really tight, and the risk now it's the second round 726 00:37:57,080 --> 00:38:00,440 Speaker 1: effects for services and that's a lot harder to tain 727 00:38:00,520 --> 00:38:03,239 Speaker 1: that inflation dragon. So I think for the time being 728 00:38:03,239 --> 00:38:05,279 Speaker 1: the Fed to go do seventy five. Then they'll do 729 00:38:05,320 --> 00:38:07,960 Speaker 1: seventy five again, then slow down into the new year. 730 00:38:08,280 --> 00:38:10,800 Speaker 1: That Wall Street Journal talking about the idea of perhaps 731 00:38:10,800 --> 00:38:13,880 Speaker 1: slowing down to fifties come December. That's the debate for 732 00:38:13,880 --> 00:38:16,160 Speaker 1: the dollar right now. That's why you're own cable will 733 00:38:16,200 --> 00:38:19,200 Speaker 1: become quite boring to trade. Just that everyone everyone's waiting 734 00:38:19,200 --> 00:38:21,520 Speaker 1: for this FED meeting next week. I think the message 735 00:38:21,520 --> 00:38:23,920 Speaker 1: will be noe, we're going ahead, We're still staying hawkish, 736 00:38:24,160 --> 00:38:26,320 Speaker 1: and the dollar will rally and Christmas and then waiting 737 00:38:26,320 --> 00:38:28,880 Speaker 1: for the CPI print the week after that. Jordan awesome 738 00:38:28,920 --> 00:38:32,040 Speaker 1: to catch up. Buddy has always Jordan Rochester there of Nomura. 739 00:38:32,160 --> 00:38:35,919 Speaker 1: This is the Bloomberg Surveillance Podcast. Thanks for listening. Join 740 00:38:36,040 --> 00:38:39,080 Speaker 1: us live weekdays from seven to ten a m Eastern. 741 00:38:39,280 --> 00:38:43,720 Speaker 1: I'm Bloomberg Radio and Bloomberg Television each day from six 742 00:38:43,800 --> 00:38:48,680 Speaker 1: to nine am for insight from the best in economics, finance, investment, 743 00:38:48,840 --> 00:38:53,840 Speaker 1: and international relations. And subscribe to the Surveillance podcast on 744 00:38:53,920 --> 00:38:57,719 Speaker 1: Apple podcast, SoundCloud, Bloomberg dot com, and of course, on 745 00:38:57,840 --> 00:39:01,880 Speaker 1: the terminal. I'm Tom Keene, and this is Bloomer