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Speaker 1: Brought to you by Bank of America. Merrill Lynch seeing

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Speaker 1: what others have seen, but uncovering what others may not.

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Speaker 1: Global Research that helps you Harness disruption voted top global

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Speaker 1: research from five years running. Merrill Lynch, Pierce, Fenner, and

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Speaker 1: Smith incorporated the trick with the pessimist guy that we

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Speaker 1: and I hope we walk the line is to come

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Speaker 1: up with scenarios that are just about within the realms

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Speaker 1: of the feasible. Yeah. The risk, the danger is that

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Speaker 1: we're in an environment now where you know, suddenly everything

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Speaker 1: is thinkable. Like you haven't mentioned aliens here. Did you

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Speaker 1: have any deliberations about that about aliens? No, not not

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Speaker 1: not this year, but you know, you never know. Guide

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Speaker 1: we could. We could take that one for a walk.

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Speaker 1: Welcome to Bloomberg Benchmark, a show about the global economy.

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Speaker 1: I'm Daniel Moss, Bloomberg's exact gutive editor for Global Economics

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Speaker 1: in New York, and I'm Keith Smith and editor with

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Speaker 1: Bloomberg News here in New York. As well. Brexit Trump

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Speaker 1: they came to pass this year as unlikely as they

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Speaker 1: may have sounded in December last year. But wait, wait,

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Speaker 1: there could be more. Our guest and colleague John Frere

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Speaker 1: is co author of Bloomberg's Pessimists Guide to Twenties seventeen.

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Speaker 1: When he's not writing about doom and Gloom, he's executive

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Speaker 1: editor for International Government. John. Welcome, Thanks, thanks for having me.

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Speaker 1: Good to be here. So what exactly is the Pessimists

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Speaker 1: Guide and what's its origin? How did you come up

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Speaker 1: with this idea? So this is actually our third Pessimist Guide.

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Speaker 1: We start we started it two years ago and essentially,

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Speaker 1: you know, it's not it's not a list of predictions

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Speaker 1: of events that will happen in the next year. Um,

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Speaker 1: it's essentially and it's a thought exercise. We're encouraging our

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Speaker 1: readers to think about all of the unimagined outcomes that

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Speaker 1: could happen in the in the following twelve months. And

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Speaker 1: the origins really were after Putin went into Ukraine. That

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Speaker 1: was such a sort of a sizing to your political

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Speaker 1: event that it prompted us two years ago to think about, Okay,

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Speaker 1: what are the other events around the world, Where where

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Speaker 1: are the other fault lines in global politics where you

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Speaker 1: could see you could see ruptures next year. So essentially

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Speaker 1: we're encouraging readers to look at the consensus and then

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Speaker 1: look outside the consensus and think about the tail risk

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Speaker 1: events UM that could upend their business models, that could

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Speaker 1: upend their forecasting models. And goodness knows, over the last

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Speaker 1: twelve months, we've seen enough of those. We certainly have UM.

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Speaker 1: So in your pessimist guide, it's full of scenarios. They

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Speaker 1: range from year one of Trump elections in Europe study really,

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Speaker 1: how did you so, how did you come up with

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Speaker 1: this year's Instead of not predictions, I should say, well, so,

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Speaker 1: so first that we were I was very keen that

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Speaker 1: we had a good geographical range around the world. So

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Speaker 1: we went through week we know, we we got editors

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Speaker 1: and reporters on the phone from Asia, from the Middle East,

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Speaker 1: from the U S and Europe, and again we encouraged

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Speaker 1: and encourage and to think through um the you know,

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Speaker 1: the range of risk possibilities, and then push those risk

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Speaker 1: scenarios even further. So, for example, take this out the

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Speaker 1: Saudi Arabian model. One of the great stories of sixteen

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Speaker 1: has been the rise of the Deputy Crown Prince Mohammed

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Speaker 1: bin Salmon and his his his vision for the future

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Speaker 1: of the Saudi Arabian economy. So so that was one

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Speaker 1: of the big stories. Often you asked yourself, Okay, if

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Speaker 1: you flip that on its head, what would that story

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Speaker 1: look like? And the more we we spoke with the

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Speaker 1: reporters and readd, you know, the more interesting we became,

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Speaker 1: more interested. We became in this idea of rivalries within

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Speaker 1: the Saudi Arabian court, which then leads you to the thought, Okay,

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Speaker 1: what if there was a palace coup and this this

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Speaker 1: young upstart who is sort of in a way jumped

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Speaker 1: the line of succession. What if he was pushed out

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Speaker 1: of the way. What would that mean for you as

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Speaker 1: an investor? If you had already double down on this vision,

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Speaker 1: on this reformist vision for Saudi Arabia, how should you

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Speaker 1: think about that when you think about the UN investments

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Speaker 1: in the Middle East. So that sort of gives you

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Speaker 1: a flavor of the thought processes that we went through.

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Speaker 1: And to be very you throughout the guide, you're you're

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Speaker 1: very much at pains to make sure the readers understand

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Speaker 1: that these are by no means predictions. They're just kind

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Speaker 1: of speculation, kind of what if scenarios. But nevertheless, I

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Speaker 1: mean I have to say we are putting it in

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Speaker 1: front of them. In readers to these reads, I mean,

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Speaker 1: was it hard for you to walk that line? Sometimes

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Speaker 1: it can be. I mean, it's interesting last year, but

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Speaker 1: probably the most heated debate we had about this in

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Speaker 1: the three years we've done this now, it was last

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Speaker 1: year when we put the scenario in the sixteen guide

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Speaker 1: of Donald Trump becoming president of the United States, and

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Speaker 1: there were voices and our sort of in our council,

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Speaker 1: there were some voices and in Washington saying, if you

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Speaker 1: do this, it could look stupid. This is just a

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Speaker 1: belt way, It's just a belt way obsession. It's going

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Speaker 1: to be over by February. This guy doesn't have a chance. Um.

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Speaker 1: I think there were peop well who have thought that

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Speaker 1: it would be irresponsible to put that, to put that

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Speaker 1: on on on the list. Likewise, well, this year when

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Speaker 1: we went through the China, the China scenarios, you know,

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Speaker 1: I was in Hong Kong at the time, and there

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Speaker 1: were there was another wave of protests going on. So

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Speaker 1: you ask yourself the question, Okay, how how far can

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Speaker 1: we push this um in terms of uh, what scenarios

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Speaker 1: I might see in China, and how do you risk

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Speaker 1: There is the risk that it could seem fantastical if

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Speaker 1: you sort of said, okay, maybe could you ever imagine

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Speaker 1: a situation in which the p l A, the People's

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Speaker 1: Liberation Army would show up in the streets of Hong Kong.

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Speaker 1: That sort of scenario probably we deemed maybe just a

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Speaker 1: little bit too outlandish. The trick with the pessimist guy

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Speaker 1: that we and I hope we walk the line is

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Speaker 1: to come up with scenarios that are just about within

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Speaker 1: the realms of the feasible. Yet the risk, the danger

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Speaker 1: is that we're in an environment now where you know,

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Speaker 1: suddenly everything is thinkable. Like you haven't mentioned aliens here.

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Speaker 1: Did you have any deliberations about that about aliens? No, not,

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Speaker 1: not not this year, but you know, you never know.

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Speaker 1: Guide we could, we could take that one for a walk. Okay,

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Speaker 1: So bringing this back down to down to earth, just

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Speaker 1: one quick question before we move on. I'm curious. I

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Speaker 1: did not. I have to admit I did not read

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Speaker 1: the Pessimist Guides to sixteen. No. No, like last year's

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Speaker 1: and the year before. Dan is rolling his eyes at me.

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Speaker 1: I think he's going to get a headache. I hurt

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Speaker 1: so much. But so Trump obviously did win. What other

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Speaker 1: ones actually happened. So Brexit that was in the Guy

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Speaker 1: so Brexit Trump. Now I'm nervous to read the pessimist Guy.

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Speaker 1: Um we did have a scenario with Taiwan becoming a

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Speaker 1: major issue that that you would see you would see

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Speaker 1: sort of attentions between a new US president um and

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Speaker 1: and China in which timeline will become a horn. So

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Speaker 1: that so that was in there, um And and the

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Speaker 1: sort of the rise of Putin in the Middle East. Well, again,

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Speaker 1: con sidering where we've been, John, some of the stuff

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Speaker 1: in the Pessimists guide doesn't seem that far fetched. For instance,

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Speaker 1: protests after the inauguration of Trump. Yeah, I think we

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Speaker 1: can see that he signed some executive orders reversing Obama's legacy. Yeah,

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Speaker 1: I think we can see that presidents have increasingly, as

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Speaker 1: Congress has become more recalcilitrant, resorted to executive orders with

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Speaker 1: some of these. Isn't it what's expected to happen? So

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Speaker 1: that that particular it in the Trump Landia item. The

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Speaker 1: point we're trying to make there is that you see

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Speaker 1: a president who is almost actively doubling down and as

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Speaker 1: agenda and as making no efforts whatsoever to to bring

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Speaker 1: to bring the country together. Um, And there certainly there

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Speaker 1: are some fears if you look at some of the

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Speaker 1: people who's appointed to his sort of inner council, there

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Speaker 1: are fears that he will that he will govern like that.

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Speaker 1: And I think, but you do raise an interesting point

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Speaker 1: with the election of Trump that in and of itself

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Speaker 1: was such an outlandership event, um, that it's suddenly a

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Speaker 1: lot of other things, that the range of risk outcomes

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Speaker 1: is much broader now than it ever has been in

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Speaker 1: the path. Well, you of course forgot to mention Howard

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Speaker 1: Stern being nominated to the vacancy on the Supreme Court

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Speaker 1: caused by Celia's death. So we're going to take a

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Speaker 1: break and come back and talk about I guess what

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Speaker 1: might be called White Swans brought to you by Bank

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Speaker 1: of America Merrill Lynch, seeing what others have seen, but

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Speaker 1: uncovering what others may not. Global Research that helps you

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Speaker 1: harness disruption voted top global research from five years running,

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Speaker 1: Merrill Lynch, Pierce, Venner and Smith Incorporated. So John would

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Speaker 1: like to turn things around in this second segment and

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Speaker 1: run a couple of white Swans past here before you do, though,

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Speaker 1: what exactly do you mean by white Swans. Well after

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Speaker 1: the year we've had, perhaps something that would appear utterly

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Speaker 1: unremarkable in normal times in effect becomes a huge outlier,

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Speaker 1: at least in terms of the psychology at the moment,

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Speaker 1: and as a result, it's perceived to be overwhelmingly positive.

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Speaker 1: So let's run through some white Swans and John please

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Speaker 1: handicaptam for us. Okay, here we go. Merkele wins Lapin

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Speaker 1: Losers discuss. That's very possible. And it's interesting if you

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Speaker 1: look at Lapin, the hurdle that she has to cross

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Speaker 1: um that that she has to jump over is actually

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Speaker 1: much higher than the one that Donald Trump had to

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Speaker 1: had to exceed. You you have to remember, if you're

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Speaker 1: if you're if you're running on the Republican ticket, you're

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Speaker 1: probably no matter who you are, you're probably already guaranteed

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Speaker 1: about four, let's say, of the vote that's your The

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Speaker 1: Republican ticket brings with you, you know, a huge swaith

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Speaker 1: of the electorate for La Marine the pen Because she's

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Speaker 1: not running for one of the traditional traditional parties and

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Speaker 1: French politics, she's probably only guaranteed about the vote. So again,

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Speaker 1: the hurdle of the hurdle that she has to jump

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Speaker 1: over as much higher. And again looking at Germany, it's

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Speaker 1: sort of the interesting thing with Germany is it depends

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Speaker 1: what you mean by Marco winning. She probably will be

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Speaker 1: the head of the largest party. Sorry you should rephrase,

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Speaker 1: I mean leader government. She will probably end up leading

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Speaker 1: a government. But the question is will the election bloody

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Speaker 1: her and batter her so much that she would essentially

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Speaker 1: lose her political authority and that she would then probably

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Speaker 1: step down two years later. I think in Germany the

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Speaker 1: question is the size, how big will will her party be?

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Speaker 1: Will she actually will she will it be a commanding

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Speaker 1: victory for her party, or will it be just will

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Speaker 1: she just will she just scraped through? And that's the

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Speaker 1: key thing to watch. But probably to answer your question,

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Speaker 1: you know, that's probably the consensus. That's probably the base

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Speaker 1: based scenario. And there we are again base case consensus

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Speaker 1: and that and that's where after the year that we've had,

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Speaker 1: I think people are almost traumatized now when you hear

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Speaker 1: the word consensus. People are discarred by the shock of

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Speaker 1: bregsit In, the shock of trump. Um. If I had

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Speaker 1: a handicap at Marco winning, leapin losing probably yeah, So

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Speaker 1: that means you flip that on its head. Chance of

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Speaker 1: the opposite high, Okay, moving a little bit north, Brexit

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Speaker 1: ends up looking a lot like the current situation Brexit decaf.

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Speaker 1: If you will discuss what's what when we say the

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Speaker 1: current situation, do we mean just we don't We don't

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Speaker 1: get a triggering of article fifty and we just muddled

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Speaker 1: through or what I think Dan and they were talking

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Speaker 1: about yesterdays. We do get the trigger of article fifty,

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Speaker 1: but in reality it ends up looking a little bit

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Speaker 1: like Norway, not kind of this like hard brass that

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Speaker 1: we've talked about, kind of they get isolated, and it

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Speaker 1: seems like mas position changes week by wood very hard

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Speaker 1: to keep up. And she is she she probably doesn't

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Speaker 1: necessarily know herself what her best you know, what, what

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Speaker 1: her negotiating position is going to be, because she is

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Speaker 1: not only she's not only in this position where she's

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Speaker 1: trying to interpret the referendum result of of of of

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Speaker 1: last June, but she's also trying to balance all these

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Speaker 1: different forces with her own within her own party. But

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Speaker 1: if I had a handicap that if you look at

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Speaker 1: the worries that are coming, the concerns that are being

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Speaker 1: expressed by business by the banks. I know she says

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Speaker 1: she's not going to govern for the banks, but she

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Speaker 1: can't ignore it either. The idea of it does seem

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Speaker 1: likely that we'll get some sort of soft breaksit like

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Speaker 1: at least a transitional deal that will that will soften

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Speaker 1: the blow of of of Britain leaving the EU. The

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Speaker 1: big question though for her to square will be the

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Speaker 1: question of freedom of movement. That was if you had

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Speaker 1: to interpret any message from the referendum is that British

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Speaker 1: people were sick of what they see as unlimited immigration.

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Speaker 1: So she's going to have to That's where the deal

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Speaker 1: for her to be done. And that's the really tricky

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Speaker 1: part for her. How and she how can she do

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Speaker 1: get a beneficial deal from the EU while while also

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Speaker 1: doing a deal with her right wing on on immigration. Um,

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Speaker 1: it's really that will be the ultimate question of European

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Speaker 1: politics next year, beyond the le pen Mercle. Question is

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Speaker 1: can merco can? Can can may square that circle? And

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Speaker 1: if you had a handicap at will she will she

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Speaker 1: managed to engineer a soft except again I would say

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Speaker 1: thirty chance of that, but again that's like a three

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Speaker 1: or four year as a three or four year time

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Speaker 1: horizon on that scenario. Okay, here's something that's only been

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Speaker 1: around for about four decades, so you know, it's a

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Speaker 1: babe in the woods. One China policy remains and trade

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Speaker 1: continues to flourish between the US and China unabated discuss

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Speaker 1: So I think we're going to have I think that

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Speaker 1: would probably happen, but I think there will be It

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Speaker 1: would be getting from here to there there. It will

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Speaker 1: be a very umpy process. I think the really interesting thing,

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Speaker 1: probably one of the most interesting things things that Trump

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Speaker 1: has done or said or tweeted since he's become presidential

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Speaker 1: act is testing China's commitment to the to the One China,

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Speaker 1: to the One China policy. It's unheard of for any

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Speaker 1: American president to do this after the last fourty years.

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Speaker 1: I think I was in I was in Beijing about

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Speaker 1: two or three weeks ago, and the consensus there was

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Speaker 1: that they want to see a dealmaker. They want to

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Speaker 1: see Trump um as someone that they can do business with.

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Speaker 1: And the big question is is that is Trump just

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Speaker 1: testing the Chinese um? Is this just a negotiating strategy

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Speaker 1: and he that this idea of linking the sovereignty Sue

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Speaker 1: of Taiwan to trade. Could that actually can the unthinkable

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Speaker 1: sometimes work? Or will China literally, you know, stick to

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Speaker 1: its guns and and force the issue and say that No,

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Speaker 1: Taiwan is much more important than any economic question, um,

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Speaker 1: and it is a core interest for US, and we

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Speaker 1: will do to to sort of mix my my Bloomberk metaphors,

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Speaker 1: we will do whatever it takes to to to make

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Speaker 1: sure the US understands that we when we when we

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Speaker 1: say the one China policy, we really mean it. That's

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Speaker 1: sort of the key question hanging over that. But you

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Speaker 1: would think that ultimately the people around Trump will realize

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Speaker 1: that the trade war is not in the interests of

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Speaker 1: the US, and that you would have thought that this

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Speaker 1: is rhetoric, it's negotiating strategy, and ultimately what you just

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Speaker 1: said down that the one one China policy remains and

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Speaker 1: trade continues and abated. That is the rational way. That

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Speaker 1: is the I think a rational outcome. Okay, so one

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Speaker 1: more Jenny Ellen, like her predecessors, gets a second term.

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Speaker 1: I get that sort of comes back to the same point.

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Speaker 1: I guess, does Trump really want to upset the apple cart?

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Speaker 1: I mean, again, there's lots of things he wants to

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Speaker 1: do and is it really worth him expending political capital

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Speaker 1: on that. I think the other if you were Donald Trump,

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Speaker 1: you might say, or the people around them, I'd say, why,

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Speaker 1: why is that uncertainty a bad thing? You know? One

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Speaker 1: of the things that I think people we've lived in

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Speaker 1: a world for the last fifty to twenty years where

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Speaker 1: investors and executives kind of new the business environments that

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Speaker 1: they were going to be faced with over the next

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Speaker 1: you know, ten, let's say, over the next two or

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Speaker 1: three years. And this whole idea looking at central banking,

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Speaker 1: the idea that central banks can never upset the apple cart,

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Speaker 1: and that that monetary policy needs to be predictable, that's

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Speaker 1: been sort of a whole that's been a common received understanding.

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Speaker 1: But the world we're living in right now, and again

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Speaker 1: this gets back to the original idea of the pestimal

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Speaker 1: s guide. People are going to have to learn to

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Speaker 1: deal with the world that's much riskier and more uncertain

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Speaker 1: than it's been at any point probably in the last

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Speaker 1: twenty five years. And that's that that comes. Whether you're

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Speaker 1: where you're looking at what central bankers might do or

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Speaker 1: what politicians looking at geopolitics might do, it's just a

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Speaker 1: much more in certain world now, and we're all going

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Speaker 1: to have to just get used to that, to scenarios

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Speaker 1: to sign off with, which is more likely the Malaysian

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Speaker 1: airliner is found, or inflation breaks out in the Eurozone

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Speaker 1: in Japan. Now you're getting to the multimillion dollar questions. Um,

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Speaker 1: you know. I mean it's if you look at the

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Speaker 1: European and Japanese inflation, they have been dogs that haven't

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Speaker 1: barked for for a long long time. So, you know,

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Speaker 1: I think that if you look at the great mysteries

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Speaker 1: of the world, I think finding the Malaysian jet, I

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Speaker 1: think that's probably something that everyone, everyone wants, everyone wants

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Speaker 1: to hap. Oh my gosh. So John, we'll have to

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Speaker 1: come back to this in December next year and see

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Speaker 1: how we went. Thanks for joining us. Looking forward to that.

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Speaker 1: Thanks Son. That's it for Benchmark this week. In the meantime,

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Speaker 1: you can find us on iTunes, pocket Cast, Stitcher, SoundCloud,

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Speaker 1: Benchmark as well as a host of other wonderful Bloomberg podcasts.

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Speaker 1: Twitter for all of our other musings on the global economy.

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Speaker 1: You can find me at by Kate Smith. You could

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Speaker 1: Moss Underscore Eco, and you can find our guests at

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