1 00:00:00,080 --> 00:00:13,000 Speaker 1: Yeah, Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane 2 00:00:13,480 --> 00:00:17,560 Speaker 1: Jay Lee. We bring you insight from the best in economics, finance, investment, 3 00:00:18,000 --> 00:00:23,520 Speaker 1: and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, 4 00:00:23,600 --> 00:00:28,120 Speaker 1: Bloomberg dot Com, and of course, on the Bloomberg Yeah. 5 00:00:33,520 --> 00:00:35,560 Speaker 1: It's it almost as cold as daval switzdend should we 6 00:00:35,560 --> 00:00:37,600 Speaker 1: shall we reveal the secret of Davil Switzer under the 7 00:00:37,640 --> 00:00:42,760 Speaker 1: world On one night at the World Economic Forum Skybridge 8 00:00:42,800 --> 00:00:46,240 Speaker 1: get together and have a wine tasting night. Scaramucci shows 9 00:00:46,320 --> 00:00:50,480 Speaker 1: up and sometimes Troy Gaysky flies in just to taste 10 00:00:50,520 --> 00:00:53,360 Speaker 1: some of the wine. I missed out. I missed out. 11 00:00:53,360 --> 00:00:55,080 Speaker 1: I went to bed early for a cup of tea. 12 00:00:55,680 --> 00:00:58,680 Speaker 1: Tom Kane went, How was it? Tom? It was very good. 13 00:00:58,760 --> 00:01:01,360 Speaker 1: It's a It's a lovely kick off to Davos. There's 14 00:01:01,400 --> 00:01:05,440 Speaker 1: any number of these parties in Seriously, Troy, It's become 15 00:01:05,480 --> 00:01:11,520 Speaker 1: a Davos tradition. It's a gentler party, isn't it. It's 16 00:01:11,560 --> 00:01:14,199 Speaker 1: just a quieter party, which is nice. Well, quite honestly, 17 00:01:14,200 --> 00:01:16,280 Speaker 1: I've heard so much hype about it from you and others. 18 00:01:16,319 --> 00:01:19,040 Speaker 1: I was so super excited to go. This year's first 19 00:01:19,080 --> 00:01:21,000 Speaker 1: time there, and it was a great happen and you 20 00:01:21,040 --> 00:01:23,440 Speaker 1: had it was nicely bad good music from your good 21 00:01:23,440 --> 00:01:27,000 Speaker 1: friend the piano player, Um good. That would be Mr Coulson, 22 00:01:27,120 --> 00:01:31,480 Speaker 1: Mr Colson, Berry Berry Coulson and the Brunese firm, the 23 00:01:31,480 --> 00:01:34,040 Speaker 1: Boone firm that you served was just great. And the 24 00:01:34,880 --> 00:01:42,280 Speaker 1: MDD record strike for Mrs Kane College finally found one. 25 00:01:43,319 --> 00:01:47,280 Speaker 1: Tom did leave off the twenty minutes, didn't hear it 26 00:01:47,400 --> 00:01:49,160 Speaker 1: wasn't that very long. But in time, I gotta tell you, 27 00:01:49,200 --> 00:01:52,200 Speaker 1: I haven't heard of mad dog reference in a long time. 28 00:01:54,400 --> 00:01:56,600 Speaker 1: I left becond quick was there with the NBC. We 29 00:01:56,720 --> 00:01:59,080 Speaker 1: shutted up our children and all that, and it's like 30 00:01:59,120 --> 00:02:02,680 Speaker 1: a celebration Davos. But what's so important about this is 31 00:02:02,680 --> 00:02:05,040 Speaker 1: when they break out the cold duck. I'd already left 32 00:02:05,040 --> 00:02:07,200 Speaker 1: too early. You left too early. You don't know what 33 00:02:07,320 --> 00:02:10,000 Speaker 1: called duck? What you're talking about? Now? What did I 34 00:02:10,040 --> 00:02:15,000 Speaker 1: miss college? When you were in college? This is before 35 00:02:15,480 --> 00:02:19,080 Speaker 1: one point seven five. In college, you'd go for the 36 00:02:19,080 --> 00:02:22,480 Speaker 1: cold duck, which this is a few years ago. It'd 37 00:02:22,520 --> 00:02:27,279 Speaker 1: be five nine a bottle. It was a nice like champagne, 38 00:02:27,320 --> 00:02:29,839 Speaker 1: but not this is like one in the monks kind 39 00:02:29,840 --> 00:02:34,800 Speaker 1: of thing. Oh no, this is old English. Can you 40 00:02:34,919 --> 00:02:38,080 Speaker 1: talk to alternative investor? I want to talk to him 41 00:02:38,080 --> 00:02:42,160 Speaker 1: about China first, if I made concerns far and wide, 42 00:02:42,200 --> 00:02:44,880 Speaker 1: We've had profit warnings from the likes of Apple, caterpillam 43 00:02:44,919 --> 00:02:49,160 Speaker 1: or recently the world's largest economy, seemingly Troy the epicenter 44 00:02:49,240 --> 00:02:52,040 Speaker 1: not just for economic concerns, but now legal and political 45 00:02:52,120 --> 00:02:54,840 Speaker 1: concerns as well. And I'm just wondering whether we learn 46 00:02:54,880 --> 00:02:57,320 Speaker 1: and I think this week, look, I mean from earnings 47 00:02:57,320 --> 00:02:59,639 Speaker 1: you should get more indication that there is a slowdown. 48 00:02:59,720 --> 00:03:02,720 Speaker 1: That's no surprise to anyone that's been following China for 49 00:03:02,800 --> 00:03:05,000 Speaker 1: quite some time. The question is the degree and what 50 00:03:05,120 --> 00:03:08,160 Speaker 1: it's impact on on revenue and earnings will be. And 51 00:03:08,280 --> 00:03:11,480 Speaker 1: so far not so good, right, And you know, we 52 00:03:11,480 --> 00:03:14,040 Speaker 1: we have focused rightfully, so we think on FED policy 53 00:03:14,080 --> 00:03:17,840 Speaker 1: for the domestic economy, but in terms of revenue streams 54 00:03:17,880 --> 00:03:21,480 Speaker 1: for you know, more international focused SMP companies that will 55 00:03:21,480 --> 00:03:23,720 Speaker 1: continue to be the biggest drag going forward. We think 56 00:03:23,760 --> 00:03:25,440 Speaker 1: not whether the US grows at two and a half 57 00:03:25,520 --> 00:03:27,440 Speaker 1: or two this year, but whether China can hold it 58 00:03:27,480 --> 00:03:29,840 Speaker 1: together at six percent. So what she'll base case or 59 00:03:29,840 --> 00:03:32,200 Speaker 1: our base case is China slow six percent this year, right, 60 00:03:32,200 --> 00:03:34,000 Speaker 1: I mean if you look at you know, from a 61 00:03:34,120 --> 00:03:36,640 Speaker 1: from a base case standpoint, you're talking China slows to six, 62 00:03:36,960 --> 00:03:38,840 Speaker 1: Europe slows to one to one and a half. The 63 00:03:38,880 --> 00:03:40,200 Speaker 1: US is somewhere in that two to two and a 64 00:03:40,240 --> 00:03:42,760 Speaker 1: half percent range, which is certainly enough to keep the 65 00:03:42,840 --> 00:03:45,119 Speaker 1: bowl market going. But you know, as we talked about 66 00:03:45,200 --> 00:03:47,520 Speaker 1: last year, last year we had peak earnings growth. We 67 00:03:47,560 --> 00:03:50,480 Speaker 1: haven't yet had peak earnings, but it will be tough 68 00:03:50,520 --> 00:03:53,040 Speaker 1: for markets to reclaim new highs. We think that's going 69 00:03:53,120 --> 00:03:55,560 Speaker 1: to happen in Q three and then at some point 70 00:03:55,680 --> 00:03:58,560 Speaker 1: in Q four markets start focusing on twenty where you 71 00:03:58,560 --> 00:04:01,360 Speaker 1: could get another significant correction. There are some people listening 72 00:04:01,400 --> 00:04:03,600 Speaker 1: to this program right now, I'm sure, and they're thinking, 73 00:04:03,800 --> 00:04:06,960 Speaker 1: so China is slowing down, what's new? I knew that 74 00:04:07,320 --> 00:04:09,640 Speaker 1: well before the back end of last year. What am 75 00:04:09,640 --> 00:04:13,040 Speaker 1: I learning? As progressive? Am I learning that? It's worse 76 00:04:13,040 --> 00:04:15,880 Speaker 1: than you thought? It was well, certainly worse in Europe 77 00:04:15,880 --> 00:04:18,720 Speaker 1: and China than most market watchers thought as earlier as 78 00:04:18,800 --> 00:04:21,039 Speaker 1: recently as Sectober of last year. So so the hard 79 00:04:21,120 --> 00:04:23,360 Speaker 1: data that's come out has been you know, somewhere between 80 00:04:23,360 --> 00:04:25,960 Speaker 1: five and seven percent below what those expectations were. So 81 00:04:26,000 --> 00:04:29,600 Speaker 1: that's confirming that trend, but at a at an accelerating rate. 82 00:04:29,920 --> 00:04:34,000 Speaker 1: The other thing I think people um continue to focus on, 83 00:04:34,000 --> 00:04:37,560 Speaker 1: including ourselves, is what drag on business fixed investment will 84 00:04:37,600 --> 00:04:40,479 Speaker 1: that be? So remember the whole point of tax reform 85 00:04:40,920 --> 00:04:43,839 Speaker 1: was to drive more business fixed investment, which drove productivity, 86 00:04:43,839 --> 00:04:46,720 Speaker 1: growth and long term growth. We've already seen business fixed 87 00:04:46,720 --> 00:04:49,760 Speaker 1: investment come down. That's before you have China and Europe slowing, 88 00:04:49,839 --> 00:04:52,800 Speaker 1: and before he had energy collaps recently. So that will 89 00:04:52,839 --> 00:04:55,320 Speaker 1: be another key driver of whether we can achieve a 90 00:04:55,400 --> 00:04:57,360 Speaker 1: higher growth rate in US this year. So these are 91 00:04:57,360 --> 00:04:59,880 Speaker 1: big macro themes. How are they shaping around a CA 92 00:05:00,000 --> 00:05:02,120 Speaker 1: in the capital at the moment? Yes, so we think, 93 00:05:02,279 --> 00:05:04,960 Speaker 1: you know, God bless the USA. I mean, we love Gavos, 94 00:05:05,040 --> 00:05:07,080 Speaker 1: We we love emerging markets. But at the end of 95 00:05:07,120 --> 00:05:09,799 Speaker 1: the day, if you think of where fundamentals continue to strengthen, 96 00:05:09,839 --> 00:05:12,840 Speaker 1: they continue to strengthen from a credit quality standpoint, but 97 00:05:13,000 --> 00:05:16,440 Speaker 1: within the regional community banking system and also in the consumer. Uh. 98 00:05:16,480 --> 00:05:18,200 Speaker 1: The one big change and it's great to see it 99 00:05:18,200 --> 00:05:20,479 Speaker 1: because you brought this up several times and interviews last 100 00:05:20,560 --> 00:05:23,000 Speaker 1: year is when do you start to fade the floating 101 00:05:23,040 --> 00:05:25,800 Speaker 1: rate exposure. Yeah, so that's very much in our mind. 102 00:05:25,880 --> 00:05:27,760 Speaker 1: It looks like in hindsight, three percent in the two 103 00:05:27,800 --> 00:05:29,760 Speaker 1: year was the time to do it. But hopefully we 104 00:05:29,760 --> 00:05:31,560 Speaker 1: can get another FED hike in here and start to 105 00:05:31,560 --> 00:05:33,480 Speaker 1: fade that at two point six to two point eight, 106 00:05:33,760 --> 00:05:35,800 Speaker 1: and then then you're in a situation where you're long 107 00:05:36,279 --> 00:05:40,680 Speaker 1: fundamentally improving credit risk, tied to the best economy in 108 00:05:40,680 --> 00:05:42,720 Speaker 1: the world in our opinion from a growth standpoint, right 109 00:05:42,720 --> 00:05:45,680 Speaker 1: now the most insulated to overseas woes, and you could 110 00:05:45,720 --> 00:05:47,760 Speaker 1: go flip that over it from floating to fix. That's 111 00:05:47,760 --> 00:05:49,320 Speaker 1: a nice set up for the balance of the year. 112 00:05:49,440 --> 00:05:52,680 Speaker 1: Can you start a hedge fund in February of two 113 00:05:52,720 --> 00:05:56,880 Speaker 1: thousand nine? Man, it's a brutal business, right Uh. You know, 114 00:05:56,920 --> 00:06:00,960 Speaker 1: from our standpoint, the key launches will continue to be 115 00:06:01,120 --> 00:06:04,080 Speaker 1: where you have established pedigrees coming out of large multi 116 00:06:04,120 --> 00:06:08,120 Speaker 1: strategy shops. That does not guarantee success by any stretchy imagination, 117 00:06:08,520 --> 00:06:10,919 Speaker 1: but at least it gives you a high probability of 118 00:06:10,960 --> 00:06:13,719 Speaker 1: getting investors intention. You saw a few of those last year. 119 00:06:14,160 --> 00:06:17,080 Speaker 1: You know, our focus for newer managers tends to be 120 00:06:17,440 --> 00:06:20,640 Speaker 1: with with um. You know groups or teams that have 121 00:06:20,720 --> 00:06:23,080 Speaker 1: come out of established shops we've invested in the past 122 00:06:23,120 --> 00:06:26,320 Speaker 1: that we have have had active dialogue with for five seven, 123 00:06:26,400 --> 00:06:29,440 Speaker 1: nine years, that are focused on niche strategies such as 124 00:06:29,440 --> 00:06:32,359 Speaker 1: bank trump c d os such as multi family commercial 125 00:06:32,360 --> 00:06:34,799 Speaker 1: real estate. Those are the five million to a billion 126 00:06:34,800 --> 00:06:36,680 Speaker 1: dollar launches where that we think they have a fighting 127 00:06:36,760 --> 00:06:38,680 Speaker 1: chance to run a viable business. Do you guys have 128 00:06:38,720 --> 00:06:42,920 Speaker 1: a conviction trite? Yeah, So, Look, the conviction is US 129 00:06:43,000 --> 00:06:45,800 Speaker 1: consumer regional community banks. I mean, that's been are We've 130 00:06:45,800 --> 00:06:47,719 Speaker 1: been locked and loaded in that for quite some time. 131 00:06:47,880 --> 00:06:51,359 Speaker 1: Always seen a fundamental improvement. We don't see any reason 132 00:06:51,520 --> 00:06:54,680 Speaker 1: to go on an adventure in Europe and hope for 133 00:06:54,720 --> 00:06:57,120 Speaker 1: a bounce, or go on an adventure emerging markets and 134 00:06:57,160 --> 00:07:00,520 Speaker 1: hope the dollar weekends by seven percent. Uh, I guess you. 135 00:07:00,560 --> 00:07:20,720 Speaker 1: Thank you so much, greatly appreciation, Thank you. So. Where 136 00:07:20,760 --> 00:07:23,600 Speaker 1: As Jeffrey Curry of Golden Sex, jeff let's cut right 137 00:07:23,600 --> 00:07:25,960 Speaker 1: to the chase. I haven't said this in years. There's 138 00:07:26,000 --> 00:07:30,240 Speaker 1: been a trend the peak for gold going back five years. 139 00:07:30,240 --> 00:07:32,680 Speaker 1: This year we break out how does gold move higher? 140 00:07:33,280 --> 00:07:37,160 Speaker 1: Three reasons. One, the fear around recessions, has increased tremendency. 141 00:07:37,240 --> 00:07:40,720 Speaker 1: So while we're not forecasting a direct slowdown in economic activity, 142 00:07:41,120 --> 00:07:44,080 Speaker 1: the fear of a recession will remain high and likely 143 00:07:44,160 --> 00:07:47,320 Speaker 1: even increased. Second, hey, we've seen a weakness in the dollar, 144 00:07:47,400 --> 00:07:50,240 Speaker 1: the seeing why the rupie are getting stronger, and that's 145 00:07:50,240 --> 00:07:53,680 Speaker 1: typically correlated with more physical demand for gold. We'd like 146 00:07:53,720 --> 00:07:56,200 Speaker 1: to call that the wealth effects. So fear is high, 147 00:07:56,480 --> 00:07:58,760 Speaker 1: wealth is high. And then finally, the central banks are 148 00:07:58,760 --> 00:08:02,240 Speaker 1: buying India step him with seventy tons last year, China 149 00:08:02,320 --> 00:08:04,680 Speaker 1: came in in December the first times the two thousand 150 00:08:04,680 --> 00:08:06,960 Speaker 1: and sixteen. In total, you have a hundred tons of 151 00:08:07,000 --> 00:08:09,680 Speaker 1: buying out essential bank. Those three factors we think will 152 00:08:09,720 --> 00:08:12,240 Speaker 1: push you up to fourteen fifty fourteen fifty other what 153 00:08:12,360 --> 00:08:15,320 Speaker 1: Tim Arizon Jeff um a twelve month target, but just 154 00:08:15,800 --> 00:08:18,440 Speaker 1: the central bank buying alone just gives you to fourteen 155 00:08:19,200 --> 00:08:20,960 Speaker 1: really right? So you know, I think you know the 156 00:08:21,000 --> 00:08:24,120 Speaker 1: momentum right now, particularly given the recent move um, you 157 00:08:24,160 --> 00:08:25,960 Speaker 1: know we may be there a lot sooner than we expect. 158 00:08:26,080 --> 00:08:28,440 Speaker 1: What do you make of the inflation story? Several years 159 00:08:28,440 --> 00:08:30,800 Speaker 1: ago it was by gold, by gold, inflation is coming 160 00:08:31,040 --> 00:08:33,920 Speaker 1: than inflation didn't come? Does that play into any of this. 161 00:08:34,040 --> 00:08:35,760 Speaker 1: What do you think something Actually, the one thing I 162 00:08:35,880 --> 00:08:39,840 Speaker 1: learned um during the financial crisis is that gold prices 163 00:08:39,880 --> 00:08:42,800 Speaker 1: independent of the price level. Why is I had clients 164 00:08:42,840 --> 00:08:44,720 Speaker 1: calling me up in No. Nine going gold is up 165 00:08:44,760 --> 00:08:47,920 Speaker 1: today because of inflationary concerns? Gold is up today because inflationary. 166 00:08:48,360 --> 00:08:51,040 Speaker 1: It cannot be both at the same time. What gold 167 00:08:51,080 --> 00:08:55,280 Speaker 1: prices is debasement and the concerns around a recession and 168 00:08:55,320 --> 00:08:58,040 Speaker 1: other types of dynamics or you know, we can need 169 00:08:58,120 --> 00:09:00,800 Speaker 1: of the dollar or all debasement that that's what supports this. 170 00:09:00,840 --> 00:09:02,120 Speaker 1: So what does that mean for the rest of the 171 00:09:02,120 --> 00:09:04,360 Speaker 1: commodity complex? The argument you will make him right now 172 00:09:04,480 --> 00:09:07,120 Speaker 1: around gold, what does it make for crude? Well, we 173 00:09:07,120 --> 00:09:09,480 Speaker 1: we look at the overall demand environment. We like to 174 00:09:09,480 --> 00:09:12,400 Speaker 1: say it's relatively benign um. The demand numbers that came 175 00:09:12,400 --> 00:09:14,800 Speaker 1: out of China to fight the fact that you had 176 00:09:14,800 --> 00:09:17,400 Speaker 1: the concerns around U slow down China, well show that 177 00:09:17,440 --> 00:09:19,720 Speaker 1: demand was up six percent. So if you have a 178 00:09:19,760 --> 00:09:23,200 Speaker 1: relatively modest demand outlook, which we think it is, combine 179 00:09:23,240 --> 00:09:25,400 Speaker 1: that with the opeque production cuts that appear to be 180 00:09:25,440 --> 00:09:28,160 Speaker 1: more shock and are right now, Um, we've got upsideing. 181 00:09:28,559 --> 00:09:30,920 Speaker 1: You're in Hong Kong, two cups of coffee A goo. 182 00:09:31,120 --> 00:09:34,480 Speaker 1: What did you observe there? About six point x per 183 00:09:34,559 --> 00:09:38,559 Speaker 1: cent China g D p UM. You're likely to hit it, 184 00:09:38,640 --> 00:09:41,560 Speaker 1: but it's going to be through selective easing as opposed 185 00:09:41,559 --> 00:09:44,040 Speaker 1: to blanket easy. But the biggest thing I picked up 186 00:09:44,120 --> 00:09:48,040 Speaker 1: in in Asia was that there is structural concerns that 187 00:09:48,120 --> 00:09:50,720 Speaker 1: are not going to go away with um an eked 188 00:09:50,800 --> 00:09:54,559 Speaker 1: trade deal. And I think that's gonna basically weigh on 189 00:09:54,640 --> 00:09:57,520 Speaker 1: these markets, particularly the metals markets, and the fact that 190 00:09:57,640 --> 00:10:00,360 Speaker 1: you have selective easy city by city make it more 191 00:10:00,400 --> 00:10:02,640 Speaker 1: difficult to see. So what it means you're gonna have 192 00:10:02,640 --> 00:10:04,760 Speaker 1: to see the physical markets performed. So I remember when 193 00:10:04,760 --> 00:10:07,760 Speaker 1: you would put commodities into two buckets for China, Jeff, 194 00:10:07,800 --> 00:10:09,360 Speaker 1: and I wonder whether you would continue to do that. 195 00:10:09,720 --> 00:10:13,359 Speaker 1: You put a bucket of commodities for operational reasons, continue 196 00:10:13,440 --> 00:10:16,400 Speaker 1: success within the modern China that we think of now, 197 00:10:16,520 --> 00:10:18,240 Speaker 1: and then you had a bucket of commodities for the 198 00:10:18,280 --> 00:10:21,360 Speaker 1: old economy. The big investment boom we saw sad decade ago. 199 00:10:21,440 --> 00:10:23,319 Speaker 1: Is that the way you're still thinking about absolutely, I 200 00:10:23,360 --> 00:10:25,640 Speaker 1: mean the ones that are under pressure right now, and 201 00:10:25,679 --> 00:10:27,600 Speaker 1: you can see it in the demand. Are the capex 202 00:10:27,640 --> 00:10:31,480 Speaker 1: commodities like base metals in the bulks, um, the you know, 203 00:10:31,600 --> 00:10:34,440 Speaker 1: you go back to that oil demand number, gasoline, diesel, 204 00:10:34,559 --> 00:10:37,199 Speaker 1: jet fuel, All those demand numbers were stellar in the 205 00:10:37,240 --> 00:10:42,160 Speaker 1: most recently the commodities. They still look rock solid, which 206 00:10:42,200 --> 00:10:44,439 Speaker 1: is why we we would favor out of the cyclical 207 00:10:44,520 --> 00:10:47,760 Speaker 1: commodities oil oil. Is Vienna going to be a big 208 00:10:47,840 --> 00:10:50,000 Speaker 1: deal this year? I mean, I mean, I can't figure 209 00:10:50,000 --> 00:10:53,480 Speaker 1: out if opexa yawner and nobody cares, or can there 210 00:10:53,520 --> 00:10:57,839 Speaker 1: actually be some genuine tension there. They're already cutting substantially, 211 00:10:57,960 --> 00:11:00,360 Speaker 1: and I think the point and the less and learn 212 00:11:00,440 --> 00:11:04,240 Speaker 1: from the cuts in sixteen and seventeen is um, don't 213 00:11:04,320 --> 00:11:06,760 Speaker 1: waste time. The longer you wait, the bigger the market 214 00:11:06,800 --> 00:11:09,040 Speaker 1: share that the shie of producers can take. UM. The 215 00:11:09,160 --> 00:11:11,400 Speaker 1: numbers that came out yesterday, they're cutting more than two 216 00:11:12,000 --> 00:11:14,319 Speaker 1: tho barrels per day. So I would tend to think 217 00:11:14,520 --> 00:11:16,240 Speaker 1: it's shock and are right. Now by time we get 218 00:11:16,280 --> 00:11:17,880 Speaker 1: to Vienna will be a different one. So, Jeff, this 219 00:11:17,880 --> 00:11:19,199 Speaker 1: is a question I've got to ask because at the 220 00:11:19,200 --> 00:11:21,720 Speaker 1: back end of last year they would boosting production too 221 00:11:21,800 --> 00:11:24,160 Speaker 1: much and they found themselves with a supply clot Are 222 00:11:24,200 --> 00:11:26,640 Speaker 1: they cutting too much? Now? The Venezuela issue on the 223 00:11:26,679 --> 00:11:29,600 Speaker 1: horizon for a lot of people. After the Trump administration 224 00:11:29,640 --> 00:11:33,600 Speaker 1: issued French sanctions on Pita Asa. This effectively blocks any 225 00:11:33,679 --> 00:11:37,520 Speaker 1: kind of crude exports coming out of Venezuela. The Venezuelan 226 00:11:37,600 --> 00:11:41,640 Speaker 1: supply would be disrupted for maybe a month as redirect supplies. Um, 227 00:11:41,720 --> 00:11:43,720 Speaker 1: but I think you built a hundred and forty million 228 00:11:43,800 --> 00:11:45,840 Speaker 1: barrels of oil at the end of last year. They 229 00:11:45,920 --> 00:11:47,839 Speaker 1: got to take that out of the market. So the 230 00:11:47,960 --> 00:11:51,040 Speaker 1: deeper and faster they cut, the faster that inventory overhang 231 00:11:51,120 --> 00:11:54,280 Speaker 1: is resolved, then they can bring the production back online. Well, 232 00:11:54,320 --> 00:11:57,120 Speaker 1: I think can bring the production back online. But let 233 00:11:57,160 --> 00:11:59,240 Speaker 1: me ask a question anythink I has three weeks ago. 234 00:11:59,840 --> 00:12:03,880 Speaker 1: Is it's still a cartel? Was it ever a cartel? Okay, 235 00:12:04,080 --> 00:12:06,960 Speaker 1: but I think it was a cartel and they made 236 00:12:07,040 --> 00:12:09,280 Speaker 1: a lesson. But but the question about being able to 237 00:12:09,760 --> 00:12:13,000 Speaker 1: run a cartel is you need to have a steep 238 00:12:13,200 --> 00:12:16,680 Speaker 1: residual supply curve, and what Shale has done is flattened 239 00:12:16,679 --> 00:12:19,520 Speaker 1: out that supply curve, which makes it really difficult, if 240 00:12:19,559 --> 00:12:23,640 Speaker 1: not impossible, to run a cartel outside of very short horizons. 241 00:12:24,120 --> 00:12:27,199 Speaker 1: I mean what you're saying to translate this as a response, 242 00:12:27,520 --> 00:12:30,800 Speaker 1: does he sound like a Chicago microeconomics professor. I think 243 00:12:30,840 --> 00:12:37,640 Speaker 1: he does. They've completely changed the response functions of global 244 00:12:37,679 --> 00:12:40,599 Speaker 1: oil totally changed. Absolutely. In fact, we call that the 245 00:12:40,640 --> 00:12:43,480 Speaker 1: new oil order. And it's the fact that, hey, if 246 00:12:43,520 --> 00:12:46,040 Speaker 1: I'm OPAC over a six to twelve month horizon cut 247 00:12:46,080 --> 00:12:48,679 Speaker 1: back production prices go too high, I will lose a 248 00:12:48,720 --> 00:12:50,680 Speaker 1: lot of market share. And we saw it. But what's 249 00:12:50,720 --> 00:12:53,839 Speaker 1: interesting you think about opex reaction function. The supply that 250 00:12:53,920 --> 00:12:56,800 Speaker 1: scares them is not shale. It is the international oil, 251 00:12:56,840 --> 00:12:59,840 Speaker 1: those big deep water offshore projects, because once you bring 252 00:13:00,000 --> 00:13:02,319 Speaker 1: on of those online, they don't disappear in two or 253 00:13:02,400 --> 00:13:06,280 Speaker 1: three years like shale. They're online for an interesting Jeff Curry, 254 00:13:06,320 --> 00:13:08,480 Speaker 1: thank you so much. With Goldman Sachs leading off there 255 00:13:08,559 --> 00:13:26,000 Speaker 1: with a long on gold Willpower. With Baird on Apple, well, 256 00:13:26,080 --> 00:13:29,800 Speaker 1: let's start with where you are on Apple by hold cell. 257 00:13:30,040 --> 00:13:34,240 Speaker 1: Where's Willpower? Yeah, no, good question. We're recommending the stock. 258 00:13:34,320 --> 00:13:36,120 Speaker 1: We have for some time. We've kind of taken the 259 00:13:36,200 --> 00:13:38,520 Speaker 1: long view on it, and I think really the view 260 00:13:38,600 --> 00:13:40,480 Speaker 1: that you've got to be willing to write some of 261 00:13:40,520 --> 00:13:43,400 Speaker 1: the upside downs with the idea that longer term they 262 00:13:43,480 --> 00:13:46,280 Speaker 1: still benefit from from the broader ecosystem. The stock is 263 00:13:46,360 --> 00:13:50,000 Speaker 1: up fifty six percent from the summer of two thousand 264 00:13:50,000 --> 00:13:53,600 Speaker 1: and sixteen. You and I and everyone else have enjoyed 265 00:13:53,760 --> 00:13:58,440 Speaker 1: a thirty nine percent draw down now thirty three off. 266 00:13:59,240 --> 00:14:02,199 Speaker 1: Is this a style in a bear market or is 267 00:14:02,240 --> 00:14:06,760 Speaker 1: it the mother of all will power opportunities? Well, we 268 00:14:06,880 --> 00:14:09,560 Speaker 1: we like the opportunity longer term. I mean, I will 269 00:14:09,600 --> 00:14:12,040 Speaker 1: say Tom about caveat with the with the notion that 270 00:14:12,360 --> 00:14:13,760 Speaker 1: you know, I think there's still some risk to the 271 00:14:13,800 --> 00:14:17,199 Speaker 1: full year estimates. We had a preview out last week 272 00:14:18,040 --> 00:14:19,920 Speaker 1: was suggested we think street estimates are a bit too 273 00:14:20,000 --> 00:14:22,240 Speaker 1: high for the March quarter, in the in the full year. Now, 274 00:14:22,280 --> 00:14:24,520 Speaker 1: some of that's likely in the stock, So I guess, 275 00:14:24,640 --> 00:14:27,000 Speaker 1: you know, we would like to get estimates fully reset. 276 00:14:27,640 --> 00:14:29,400 Speaker 1: But you know, if you take a longer term view, 277 00:14:29,480 --> 00:14:32,040 Speaker 1: I respective of that, we like it off these UH 278 00:14:32,480 --> 00:14:34,960 Speaker 1: levels longer term. Well, do you think there's a real 279 00:14:35,080 --> 00:14:37,160 Speaker 1: chance in the short term that they could be krming 280 00:14:37,240 --> 00:14:41,040 Speaker 1: estimates again at the company? Well, I think the focus 281 00:14:41,160 --> 00:14:42,320 Speaker 1: on the call the night it's going to be the 282 00:14:42,400 --> 00:14:44,800 Speaker 1: March quarter, and of course they hadn't addressed the March 283 00:14:44,880 --> 00:14:47,400 Speaker 1: quarter or beyond the December quarter, and I think our 284 00:14:47,480 --> 00:14:51,080 Speaker 1: near term judgment is estimates having fallen quite far enough. 285 00:14:51,240 --> 00:14:53,080 Speaker 1: And now again, we'll obviously get more color on that 286 00:14:53,280 --> 00:14:55,240 Speaker 1: here in a few hours from now, or I guess 287 00:14:55,280 --> 00:14:57,880 Speaker 1: after the close. Uh you know that that may be 288 00:14:57,920 --> 00:15:00,440 Speaker 1: splitting hairs a bit given the weakness we've all really seen. 289 00:15:00,520 --> 00:15:02,800 Speaker 1: But I guess the real answer is yes, I think, uh, 290 00:15:03,080 --> 00:15:04,920 Speaker 1: the estimates could still come down from where they are 291 00:15:05,000 --> 00:15:06,400 Speaker 1: right now. Well, it's not clear to me how the 292 00:15:06,440 --> 00:15:09,160 Speaker 1: company is actually responding to this. I've had a lot 293 00:15:09,200 --> 00:15:12,120 Speaker 1: of excuses to why we had this dreadful performance in 294 00:15:12,240 --> 00:15:14,520 Speaker 1: China at the back end of last year, but little 295 00:15:14,600 --> 00:15:16,800 Speaker 1: indication of how they'll respond to it. I caught up 296 00:15:16,800 --> 00:15:19,840 Speaker 1: with Dan ives a pair of yours that follows Apple 297 00:15:19,920 --> 00:15:22,760 Speaker 1: as well, and Dan reckons they've got to cut prices 298 00:15:22,960 --> 00:15:24,880 Speaker 1: and they've got to do it this year. What's your 299 00:15:24,920 --> 00:15:28,280 Speaker 1: view on that? Well, yeah, you know that that clearly 300 00:15:28,320 --> 00:15:31,040 Speaker 1: hasn't been in the playbook. Uh, you know for Apple, 301 00:15:31,280 --> 00:15:33,840 Speaker 1: you know historically, and I guess I'm less convinced they'll 302 00:15:33,880 --> 00:15:36,040 Speaker 1: cut prices that you know, they other way to look 303 00:15:36,040 --> 00:15:38,080 Speaker 1: at that is perhaps they won't raise prices by as 304 00:15:38,200 --> 00:15:40,800 Speaker 1: much when they brought you know, the next model. Uh, 305 00:15:41,120 --> 00:15:42,640 Speaker 1: you know that. My guess is they'll have to be 306 00:15:42,680 --> 00:15:45,120 Speaker 1: a little less aggressive on that front. But there, but 307 00:15:45,120 --> 00:15:46,840 Speaker 1: they're also a still catering to the high end. You know, 308 00:15:46,920 --> 00:15:49,880 Speaker 1: they're not trying to attract you know, every consumer out there. 309 00:15:50,000 --> 00:15:52,200 Speaker 1: But yeah, yes, to your point that is you know, 310 00:15:52,280 --> 00:15:56,280 Speaker 1: impeding you know, sales, given price sensitivity in global macro 311 00:15:56,400 --> 00:15:58,640 Speaker 1: pressures out there, Well, would you buy the story that 312 00:15:58,760 --> 00:16:03,440 Speaker 1: the upgrades side pleas lengthening somehow? Well, we've seen that, 313 00:16:03,640 --> 00:16:05,160 Speaker 1: you know, I've done a lot of work on the carriers, 314 00:16:05,200 --> 00:16:07,280 Speaker 1: covered many of them for many years as well, whether 315 00:16:07,320 --> 00:16:10,160 Speaker 1: it's the A, T and T verizons you know, et cetera, 316 00:16:10,200 --> 00:16:12,640 Speaker 1: And and little question as you look at their results, 317 00:16:13,120 --> 00:16:15,320 Speaker 1: customers are holding on to the phones longer. You know, 318 00:16:15,360 --> 00:16:17,560 Speaker 1: that's benefit of them in some respects with regard to 319 00:16:18,000 --> 00:16:23,320 Speaker 1: lower subsidy um And let's go all agarithmic on you 320 00:16:23,520 --> 00:16:27,000 Speaker 1: you have a fundamental view a free cash flow that 321 00:16:27,120 --> 00:16:31,240 Speaker 1: has a certain vector, a certain trajectory upwards. There's be, 322 00:16:31,520 --> 00:16:35,400 Speaker 1: there's been, and is in now an adjustment in that 323 00:16:35,760 --> 00:16:40,880 Speaker 1: vector down when Apple moves on from the present challenges. 324 00:16:41,640 --> 00:16:45,760 Speaker 1: Does it reassert that upward slope or is it a 325 00:16:45,920 --> 00:16:50,440 Speaker 1: new slope? Well, I think I think it can return 326 00:16:50,560 --> 00:16:53,040 Speaker 1: to at least, you know, a similar slope. You know, 327 00:16:53,120 --> 00:16:55,440 Speaker 1: does it get to the same slope it was on it? 328 00:16:55,640 --> 00:16:57,480 Speaker 1: I guess we'll see. I mean that that will hinge 329 00:16:57,520 --> 00:17:01,000 Speaker 1: in part on new products, new services opportunities. I mean, 330 00:17:01,040 --> 00:17:03,320 Speaker 1: a big part of our bet is still that they 331 00:17:03,400 --> 00:17:07,159 Speaker 1: can capitalize on these one point four billion active devices, 332 00:17:07,320 --> 00:17:10,920 Speaker 1: you know, globally and again this growing services stream and 333 00:17:10,960 --> 00:17:13,320 Speaker 1: opportunities there the candily, I think they've been you know, 334 00:17:13,600 --> 00:17:15,800 Speaker 1: slow to capitalize on. I think they'll continue to be 335 00:17:16,920 --> 00:17:20,080 Speaker 1: a myriad of opportunities they can take advantage of there 336 00:17:20,119 --> 00:17:22,160 Speaker 1: with what's a big captive customer base. And look, when 337 00:17:22,160 --> 00:17:24,760 Speaker 1: I step back on this company, I covered BlackBerry and Nokia, 338 00:17:24,800 --> 00:17:26,399 Speaker 1: and I know those have been thrown in his potential 339 00:17:26,480 --> 00:17:30,120 Speaker 1: reference points. This is a company that in terms of competition, 340 00:17:30,240 --> 00:17:32,359 Speaker 1: I think really still dominates the high end. There's not 341 00:17:32,440 --> 00:17:34,080 Speaker 1: a provider you look at and say, oh my god. 342 00:17:34,160 --> 00:17:41,480 Speaker 1: That was my next question here. Who is Apple's competition? Right? Well, answer, yeah, 343 00:17:41,560 --> 00:17:43,560 Speaker 1: it's themselves in the market. I mean, look, if you 344 00:17:43,600 --> 00:17:46,320 Speaker 1: Samsung has good products at the high end, but that's 345 00:17:46,440 --> 00:17:49,320 Speaker 1: not new. And of course they are getting you know, 346 00:17:49,480 --> 00:17:52,479 Speaker 1: picked away at at the lower end from a lot 347 00:17:52,520 --> 00:17:55,800 Speaker 1: of the Chinese providers, uh, you know, and others. But 348 00:17:55,960 --> 00:17:58,080 Speaker 1: by and large, there's not a new technology to look 349 00:17:58,119 --> 00:18:00,160 Speaker 1: at and say, wow, this is really gonna white these 350 00:18:00,200 --> 00:18:02,920 Speaker 1: guys out. I mean, I think Apple still has a 351 00:18:03,040 --> 00:18:05,320 Speaker 1: strong position and I think you know, there's still an 352 00:18:05,320 --> 00:18:08,320 Speaker 1: annuity element even if the upgrade cycle is One more 353 00:18:08,400 --> 00:18:11,399 Speaker 1: question on China, well, why is this company struggling with 354 00:18:11,520 --> 00:18:16,200 Speaker 1: near term visibility and a really important market for them? Well, 355 00:18:16,800 --> 00:18:20,159 Speaker 1: you know it. And we saw some announcemential companies yesterday too. 356 00:18:20,240 --> 00:18:23,200 Speaker 1: They claimed they were impacted by you know, slowing economic 357 00:18:23,560 --> 00:18:26,240 Speaker 1: activity in China, and I think that's likely what it 358 00:18:26,320 --> 00:18:29,840 Speaker 1: comes down to. Uh, you know how much trades factored 359 00:18:29,840 --> 00:18:31,879 Speaker 1: into that, you know, tough to know, but you know, 360 00:18:31,960 --> 00:18:34,640 Speaker 1: it appears to Chinese consumers, you know, spending up sping 361 00:18:34,680 --> 00:18:37,280 Speaker 1: a bit less. Uh and in the case of Apple, 362 00:18:37,400 --> 00:18:39,840 Speaker 1: focused a bit more on some of the local brands, 363 00:18:40,119 --> 00:18:41,639 Speaker 1: and that comes back to some of the you know, 364 00:18:41,720 --> 00:18:43,720 Speaker 1: the price sensitivity. I think, you know, we're still to 365 00:18:43,800 --> 00:18:45,760 Speaker 1: view the longer term. That's still a nice market for them. 366 00:18:45,960 --> 00:18:50,639 Speaker 1: What's in appropriate multiple for them? I mean twelve months forward? Uh, 367 00:18:50,960 --> 00:18:54,400 Speaker 1: maybe it's twelve times or thirteen times pe multiple that's 368 00:18:54,440 --> 00:18:58,240 Speaker 1: extraordinarily low. Do you have a normalized rate for Apple? 369 00:18:58,359 --> 00:19:03,200 Speaker 1: The should where they're price earnings ratio should be. Well, this, 370 00:19:03,320 --> 00:19:05,959 Speaker 1: of course has always been one of the big battlegrounds, uh, 371 00:19:06,200 --> 00:19:07,840 Speaker 1: you know, on the stock as you know, I think 372 00:19:07,920 --> 00:19:10,520 Speaker 1: she look, I mean, I I think there's rationale the 373 00:19:11,119 --> 00:19:13,439 Speaker 1: you know, suggested you traded a premium to the market. 374 00:19:13,600 --> 00:19:15,960 Speaker 1: But even just getting in line with the market, you know, 375 00:19:16,000 --> 00:19:19,400 Speaker 1: what's suggested upside from here, by and large, the market 376 00:19:19,520 --> 00:19:22,119 Speaker 1: is suggested as you traded a discount right in that 377 00:19:22,200 --> 00:19:25,320 Speaker 1: consumer like products bucket and never been willing to go 378 00:19:25,480 --> 00:19:30,600 Speaker 1: much beyond the market multiple. Go ahead, please please, I'm sorry. Well, 379 00:19:30,600 --> 00:19:32,240 Speaker 1: I think you should look at the combination of the 380 00:19:32,320 --> 00:19:36,040 Speaker 1: cash flow the brand. What are still some growth opportunities 381 00:19:36,119 --> 00:19:39,119 Speaker 1: over time? You know, I think you can justify market multiple. 382 00:19:39,520 --> 00:19:40,840 Speaker 1: I want to get to the story of the morning 383 00:19:41,280 --> 00:19:44,920 Speaker 1: that I can cool Tom Keane on face time. Then 384 00:19:44,960 --> 00:19:49,639 Speaker 1: before you answer, I can conference call myself in and 385 00:19:49,720 --> 00:19:53,280 Speaker 1: apparently I can listen to your audio even though can 386 00:19:53,359 --> 00:19:57,040 Speaker 1: hear about you have an answered the phone. It is 387 00:19:57,080 --> 00:19:59,440 Speaker 1: a buck in Apple. What's the latest on that? Will 388 00:19:59,480 --> 00:20:02,840 Speaker 1: it broken? The lost twenty four hours? Can I listen 389 00:20:03,160 --> 00:20:07,000 Speaker 1: to Tom Kane talk to his dog? Yeah? Well is 390 00:20:07,080 --> 00:20:08,760 Speaker 1: that something you want to do? I don't know there's 391 00:20:08,760 --> 00:20:10,880 Speaker 1: something I want to do. I'm just trying to work 392 00:20:10,920 --> 00:20:13,639 Speaker 1: out whether it's something I can do. Yeah, well, it 393 00:20:13,720 --> 00:20:15,800 Speaker 1: just would be just here. Is based on the reports 394 00:20:15,840 --> 00:20:19,640 Speaker 1: that I've also seen that there there was a bug 395 00:20:19,800 --> 00:20:22,280 Speaker 1: in the software they're enabled you to effectively you drop 396 00:20:22,440 --> 00:20:25,919 Speaker 1: on a on a conversation. My understanding is they may 397 00:20:25,960 --> 00:20:29,399 Speaker 1: have already shut off that capability and are also working 398 00:20:29,440 --> 00:20:31,720 Speaker 1: on a software update. They expect that in a few days, 399 00:20:31,800 --> 00:20:35,000 Speaker 1: so it doesn't appear they had initial issue there in 400 00:20:35,080 --> 00:20:38,280 Speaker 1: the bared world? Will power? One final question? In the 401 00:20:38,400 --> 00:20:42,760 Speaker 1: bared world? I mean, it's gonna be seven below zero 402 00:20:42,920 --> 00:20:47,119 Speaker 1: or whatever up north. You're down in Texas maybe this morning? Man? 403 00:20:47,160 --> 00:20:50,959 Speaker 1: How cold is cold out in the bared world? Well, 404 00:20:51,000 --> 00:20:52,760 Speaker 1: it's a little better in Dallas than it is up 405 00:20:52,840 --> 00:20:56,520 Speaker 1: and if you're up in Milwaukee, in Minneapolis, things are 406 00:20:56,680 --> 00:20:58,479 Speaker 1: you know, at least a bared I know we're still functioning. 407 00:20:58,640 --> 00:21:01,480 Speaker 1: You've got to have that your DNA or yeah, you 408 00:21:01,600 --> 00:21:05,080 Speaker 1: have some Bronson beer and you there you go for 409 00:21:05,119 --> 00:21:06,879 Speaker 1: a couple of days. There's an app on your Apple 410 00:21:06,960 --> 00:21:08,480 Speaker 1: you can use to figure out where to get the 411 00:21:08,520 --> 00:21:11,040 Speaker 1: Bronson beer will Power. Thank you so much. With a 412 00:21:11,119 --> 00:21:14,239 Speaker 1: Bared update from the Midwest. He is in Texas. UH 413 00:21:14,480 --> 00:21:32,320 Speaker 1: this morning. Julia Karnado with US right now with macro policy. Julia, 414 00:21:32,359 --> 00:21:35,879 Speaker 1: good morning, Good morning. What did they do with labor 415 00:21:36,000 --> 00:21:38,840 Speaker 1: to catch up? I mean the data comes in, they 416 00:21:38,920 --> 00:21:41,000 Speaker 1: have to massage it. Is it routine or is there 417 00:21:41,000 --> 00:21:44,080 Speaker 1: a lot of hoops to jump through? Oh my goodness. Well, so, 418 00:21:44,280 --> 00:21:47,520 Speaker 1: first of all, Department of Labor actually continued operating through 419 00:21:47,560 --> 00:21:50,119 Speaker 1: the shutdown, and so the employment data is going to 420 00:21:51,000 --> 00:21:53,679 Speaker 1: be released as usual on Friday. But it's the Bureau 421 00:21:53,720 --> 00:21:57,600 Speaker 1: of Economic Analysis and the Census Bureau, which are responsible 422 00:21:57,680 --> 00:22:01,080 Speaker 1: for pretty much everything else we care about out UH, 423 00:22:01,320 --> 00:22:05,800 Speaker 1: and they have imagined losing a month of the year's 424 00:22:05,920 --> 00:22:09,040 Speaker 1: work and trying to make that up. It's going to 425 00:22:09,200 --> 00:22:13,240 Speaker 1: be you know, some of the data collection was continuing 426 00:22:13,560 --> 00:22:19,119 Speaker 1: because it was classified as essential, but processing that data, 427 00:22:19,480 --> 00:22:22,960 Speaker 1: organizing the data going, and meanwhile trying not to fall 428 00:22:23,040 --> 00:22:26,119 Speaker 1: behind on next month's data. So it's going to be 429 00:22:26,320 --> 00:22:29,800 Speaker 1: quite a struggle for the federal employees, and they don't 430 00:22:29,840 --> 00:22:32,760 Speaker 1: get paid over time. So so, Julia, where are your 431 00:22:32,800 --> 00:22:35,639 Speaker 1: blind spots, so to speak? In the US economy to 432 00:22:35,760 --> 00:22:39,600 Speaker 1: the moment? Where don't you have information that you want information? Well, 433 00:22:39,680 --> 00:22:43,080 Speaker 1: pretty much all the sectoral information we're missing, I would say, 434 00:22:43,240 --> 00:22:46,240 Speaker 1: right now in the current environment, when we're looking for 435 00:22:46,520 --> 00:22:50,680 Speaker 1: signs of whether the global slowdown is washing ashore, things 436 00:22:50,840 --> 00:22:56,360 Speaker 1: like durable goods orders are particularly important. Investment data um, 437 00:22:56,760 --> 00:23:01,000 Speaker 1: things like housing, investment, retail sales, how well is the 438 00:23:01,080 --> 00:23:04,479 Speaker 1: consumer holding up? All of this sort of granular sector 439 00:23:04,600 --> 00:23:08,879 Speaker 1: level information is pretty critical for getting a good assessment 440 00:23:08,920 --> 00:23:11,000 Speaker 1: of how the economy is holding up. Let's move to 441 00:23:11,080 --> 00:23:12,760 Speaker 1: the FED. What is the important Let's just do you 442 00:23:12,920 --> 00:23:14,920 Speaker 1: we met so many distracts, Julie, do you want to 443 00:23:14,960 --> 00:23:20,159 Speaker 1: weigh in on brexit? Okay, good, good. That's that's why 444 00:23:20,240 --> 00:23:24,560 Speaker 1: she's got inside everybody. We are on the same page. 445 00:23:24,960 --> 00:23:28,600 Speaker 1: It's it's chaos. It's chaos. Seriously, Prime Minister may may 446 00:23:28,680 --> 00:23:30,840 Speaker 1: speak and we'll do something with that if we get 447 00:23:30,840 --> 00:23:34,200 Speaker 1: to it. Julia, this FED meeting, I know it's changed 448 00:23:34,200 --> 00:23:36,800 Speaker 1: in the last six weeks. How is this FED meeting 449 00:23:36,960 --> 00:23:40,560 Speaker 1: change in the last three days. So I think one 450 00:23:40,600 --> 00:23:45,399 Speaker 1: of the interesting nuances for Fed geeks like myself and 451 00:23:45,520 --> 00:23:47,639 Speaker 1: many others is what they're going to say on the 452 00:23:47,800 --> 00:23:50,960 Speaker 1: balance sheet, So whether they're going to start socializing that 453 00:23:51,880 --> 00:23:54,280 Speaker 1: um as with interest rates, they may be getting a 454 00:23:54,320 --> 00:23:58,200 Speaker 1: bit more cautious, and really actually, for some technical reasons 455 00:23:58,640 --> 00:24:03,440 Speaker 1: that reflect market plumbing, they may contemplate a higher balance 456 00:24:03,480 --> 00:24:06,480 Speaker 1: sheet in an earlier end to the balance sheet reduction. 457 00:24:06,640 --> 00:24:10,480 Speaker 1: So I think for for people watching the nuances very closely, 458 00:24:11,040 --> 00:24:14,159 Speaker 1: that's going to be the interesting uh part of the 459 00:24:14,240 --> 00:24:17,679 Speaker 1: press conference. We know they're on hold for a while, uh, 460 00:24:17,760 --> 00:24:21,399 Speaker 1: and particularly given the lack of government data, you know 461 00:24:21,560 --> 00:24:24,320 Speaker 1: that's going to be beyond March, so that that's not 462 00:24:24,480 --> 00:24:26,720 Speaker 1: in question. So, Julie, let's talk about this balance sheet 463 00:24:26,800 --> 00:24:28,560 Speaker 1: runoff story. There was an article in the Wall Street 464 00:24:28,640 --> 00:24:30,600 Speaker 1: Journal last week. They've got a lot of attention that 465 00:24:30,640 --> 00:24:33,520 Speaker 1: basically said exactly what you're saying. I want to understand 466 00:24:33,640 --> 00:24:36,359 Speaker 1: the rationale. I know that market participants are many of 467 00:24:36,440 --> 00:24:39,280 Speaker 1: market participants, not everyone, but a lot are unhappy with 468 00:24:39,320 --> 00:24:42,600 Speaker 1: the balance sheet runoff. If the Federal Reserve says, okay, 469 00:24:42,720 --> 00:24:44,399 Speaker 1: we'll slow it down and we'll end up with a 470 00:24:44,400 --> 00:24:46,240 Speaker 1: bigger balance sheet than we thought we would end up with. 471 00:24:46,680 --> 00:24:50,399 Speaker 1: What's their rationale for doing that? Well, one of the 472 00:24:50,600 --> 00:24:55,159 Speaker 1: sort of technical rationale is that reserves in the system, 473 00:24:55,280 --> 00:24:59,520 Speaker 1: which has become a pretty crucial part of just market liquidity, 474 00:24:59,720 --> 00:25:04,640 Speaker 1: just funding the financial system. UM, they have been declining 475 00:25:04,760 --> 00:25:08,879 Speaker 1: much faster than the securities portfolio, reflecting a variety of 476 00:25:09,640 --> 00:25:13,159 Speaker 1: of technical factors. So the set is trying to figure 477 00:25:13,200 --> 00:25:16,480 Speaker 1: out what is the equilibrium level of reserves that the 478 00:25:16,560 --> 00:25:20,720 Speaker 1: banking system needs. They don't know that, um, but the 479 00:25:20,840 --> 00:25:24,639 Speaker 1: fact that we are reducing reserves very rapidly means that 480 00:25:24,760 --> 00:25:27,520 Speaker 1: wherever that is, we're going to get there sooner. And 481 00:25:28,040 --> 00:25:31,000 Speaker 1: market tightening not and I'm not talking about the Q 482 00:25:31,240 --> 00:25:37,159 Speaker 1: four volatility. Volatility, just front end market spreads, financing funding 483 00:25:37,280 --> 00:25:40,440 Speaker 1: costs at the front end did show some signs of 484 00:25:40,560 --> 00:25:44,399 Speaker 1: tightness and volatility. And I think most people in the market, 485 00:25:44,480 --> 00:25:47,399 Speaker 1: and even a lot of said people, believe that that 486 00:25:47,680 --> 00:25:51,479 Speaker 1: equilibrium level of reserves might be higher than we than 487 00:25:51,520 --> 00:25:53,639 Speaker 1: we originally thought. And we've never been here before. This 488 00:25:53,720 --> 00:25:56,439 Speaker 1: is a new system. We just don't know. They may 489 00:25:56,520 --> 00:25:59,080 Speaker 1: want to kind of feel their way towards that equilibrium 490 00:25:59,400 --> 00:26:02,160 Speaker 1: a question. We have a news conference tomorrow as well. 491 00:26:02,280 --> 00:26:06,760 Speaker 1: We have a bracing apparently every single mating no brexit 492 00:26:06,880 --> 00:26:09,120 Speaker 1: at least, we'll probably have a news conference on that tomorrow. 493 00:26:09,160 --> 00:26:12,359 Speaker 1: To Jenny, if you had a question, if you had 494 00:26:12,359 --> 00:26:15,640 Speaker 1: a question for the chairman, what would it be. Well, again, 495 00:26:15,760 --> 00:26:19,520 Speaker 1: my my open question is on the balance sheet. So 496 00:26:19,800 --> 00:26:23,840 Speaker 1: what is their assessment of the equilibrium level of reserve? 497 00:26:24,400 --> 00:26:27,800 Speaker 1: Do they think it's wise to maybe paper their treasury 498 00:26:27,960 --> 00:26:31,960 Speaker 1: roll off incoming months in order to sort of slow 499 00:26:32,080 --> 00:26:35,000 Speaker 1: down this process and figure out where that equilibrium is. 500 00:26:35,119 --> 00:26:37,200 Speaker 1: That would be my question. We'll try and get Michael 501 00:26:37,280 --> 00:26:40,400 Speaker 1: McKay to ask it for you. Please do I would 502 00:26:40,400 --> 00:26:56,879 Speaker 1: appreciate that, Thank you, Thank you very much. Right now 503 00:26:56,920 --> 00:27:00,399 Speaker 1: where it's James Travide has of course for Mernato, Mander 504 00:27:00,600 --> 00:27:02,639 Speaker 1: and for years with a Fletcher School, now with the 505 00:27:02,680 --> 00:27:06,560 Speaker 1: Carlisle Group amals tevitas. I want to dovetail in here 506 00:27:07,520 --> 00:27:13,400 Speaker 1: the policy of trade negotiations, the very real Whahwei events 507 00:27:13,480 --> 00:27:16,920 Speaker 1: which got very serious yesterday with a substantial set of 508 00:27:17,000 --> 00:27:21,080 Speaker 1: indictments by the Justice Department of the United States of America, 509 00:27:21,600 --> 00:27:25,760 Speaker 1: with your perception of how China will react to this 510 00:27:26,080 --> 00:27:29,639 Speaker 1: Western event. What will that be Amal's to be is 511 00:27:29,680 --> 00:27:33,600 Speaker 1: how will China react? They will react very badly, And 512 00:27:33,720 --> 00:27:36,760 Speaker 1: of course we we know that there's shown us the tell, 513 00:27:36,880 --> 00:27:40,760 Speaker 1: which is the arrest of a group of Canadian uh 514 00:27:41,040 --> 00:27:44,120 Speaker 1: diplomats and citizens. Tom and I think what we're seeing 515 00:27:44,160 --> 00:27:47,800 Speaker 1: more broadly is a real shift from what we traditionally 516 00:27:47,840 --> 00:27:51,920 Speaker 1: think of as geopolitics, which tends to have a military overlay, 517 00:27:52,240 --> 00:27:56,439 Speaker 1: to geo economics and the use of economic tools more 518 00:27:56,480 --> 00:28:00,359 Speaker 1: aggressively going both ways. So I would say on Lahwei coup, 519 00:28:00,920 --> 00:28:03,359 Speaker 1: one more question as we await the Prime Minister of 520 00:28:03,359 --> 00:28:08,000 Speaker 1: the United Kingdom all of this Brexit debate, Amiral Stevita's 521 00:28:08,119 --> 00:28:12,720 Speaker 1: will it diminish the British Navy? Will it diminish the 522 00:28:12,840 --> 00:28:16,960 Speaker 1: British fighting force, which is of course legendary, Beck sentries. 523 00:28:18,040 --> 00:28:21,760 Speaker 1: Unfortunately it will, and this is Brexit itself is bad 524 00:28:21,840 --> 00:28:24,399 Speaker 1: news not only for Britain in my view, and for 525 00:28:24,560 --> 00:28:29,480 Speaker 1: the United States, but for NATO because it undermines Tom 526 00:28:29,600 --> 00:28:34,040 Speaker 1: this unified European voice. One of my predecessors is Supreme 527 00:28:34,040 --> 00:28:38,040 Speaker 1: Alley Commander. General Eisenhower said that the greatest strategic advantage 528 00:28:38,080 --> 00:28:41,080 Speaker 1: of the United States is a unified Europe and we're 529 00:28:41,120 --> 00:28:44,800 Speaker 1: watching it being pulled apart. That will affect the Navy 530 00:28:45,080 --> 00:28:47,720 Speaker 1: as well as the other branches of the British armed Forces. 531 00:28:48,080 --> 00:28:52,360 Speaker 1: In all of the distraction that follows here, and particularly 532 00:28:52,440 --> 00:28:56,120 Speaker 1: Tom if someone like Jeremy Corbin comes into power, look 533 00:28:56,200 --> 00:28:58,960 Speaker 1: for massive cuts. He would make Bernie Sanders look like 534 00:28:59,400 --> 00:29:02,160 Speaker 1: Santa Claus in terms of what he would be doing 535 00:29:02,240 --> 00:29:05,800 Speaker 1: for the British military. And some of this, James tra Venus, 536 00:29:06,080 --> 00:29:10,400 Speaker 1: is the assumption of why NATO exists Now. A lot 537 00:29:10,480 --> 00:29:12,920 Speaker 1: of people are saying, you know, it's not nineteen sixty, 538 00:29:13,000 --> 00:29:17,520 Speaker 1: it's not ninety, it's not even two thousand. Is the 539 00:29:17,800 --> 00:29:23,400 Speaker 1: is the NATO structure solely because of the perceived threat 540 00:29:23,480 --> 00:29:27,920 Speaker 1: of Mr Putin and of Russia? Not at all. And 541 00:29:28,280 --> 00:29:31,680 Speaker 1: if you go back to the original premise of NATO, 542 00:29:31,840 --> 00:29:36,240 Speaker 1: it was to keep the Russians out, keep the Germans down, 543 00:29:36,600 --> 00:29:40,480 Speaker 1: and keep the Americans in was the catchphrase for it. 544 00:29:40,880 --> 00:29:43,920 Speaker 1: That still exists. The power of NATO is probably not 545 00:29:44,160 --> 00:29:47,560 Speaker 1: that no outside nation has attacked to NATO nation. Is 546 00:29:47,640 --> 00:29:51,800 Speaker 1: that after two thousand years of European wars, no NATO 547 00:29:51,920 --> 00:29:55,720 Speaker 1: member has attacked another NATO member. So there's a unifying 548 00:29:55,840 --> 00:30:00,560 Speaker 1: function that we ought to be historically mindful enough to appreciate. 549 00:30:00,720 --> 00:30:03,760 Speaker 1: And oh, by the way, Russia hasn't gone away, as 550 00:30:05,440 --> 00:30:07,600 Speaker 1: James Scooby is. Thank you so much with Carlisle Grip 551 00:30:07,760 --> 00:30:12,000 Speaker 1: this morning. Thanks for listening to the Bloomberg Surveillance podcast. 552 00:30:12,360 --> 00:30:17,280 Speaker 1: Subscribe and listen to interviews on Apple Podcasts, SoundCloud, or 553 00:30:17,480 --> 00:30:21,720 Speaker 1: whichever podcast platform you prefer. I'm on Twitter at Tom 554 00:30:21,880 --> 00:30:25,719 Speaker 1: Keane before the podcast. You can always catch us worldwide. 555 00:30:26,200 --> 00:30:27,280 Speaker 1: I'm Bloomberg Radio