WEBVTT - GOP Is Struggling to Sew Up Divides From Within, O'Brien Says 0:00:00.680 --> 0:00:12.799 Yeah, Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene 0:00:12.800 --> 0:00:16.239 with David Gura. Daily we bring you insight from the 0:00:16.239 --> 0:00:21.640 best of economics, finance, investment, and international relations. Find Bloomberg 0:00:21.720 --> 0:00:26.640 Surveillance on Apple Podcasts, SoundCloud, Bloomberg dot Com and of 0:00:26.680 --> 0:00:33.599 course on the Bloomberg David Gerr and Tom Keane Here 0:00:33.640 --> 0:00:36.239 as we look ahead to two thousand and eighteen, and 0:00:36.280 --> 0:00:38.280 it is good to do that with Axel Murk of 0:00:38.360 --> 0:00:42.680 work Investments of course, with a real focus on dollar dynamics. 0:00:43.360 --> 0:00:46.640 Um Kama Charmer was with us from Bank of American 0:00:46.720 --> 0:00:50.120 Maryland today and he really discussed the ambiguity of the 0:00:50.159 --> 0:00:53.560 dollar right now. Is it imbute, is it ambiguous dollar 0:00:53.640 --> 0:00:56.760 direction right now or do you have a strong conviction 0:00:56.920 --> 0:00:59.840 in the next year. Well, one of the themes I've 0:00:59.880 --> 0:01:01.800 had at is that we have far more advanced in 0:01:01.840 --> 0:01:04.080 the hiking second the US and in your zone. But 0:01:04.200 --> 0:01:06.480 unlike what everybody else is saying that the dollars should 0:01:06.480 --> 0:01:08.640 go to the roof because of that, I'm actually thinking 0:01:08.680 --> 0:01:11.759 the opposite. I think quantitative tightening if anything, is going 0:01:11.760 --> 0:01:14.080 to expand with premia, which is going to cause treasuries 0:01:14.120 --> 0:01:16.640 to rally, which means the interstructor referention is going to 0:01:16.720 --> 0:01:19.679 be get less. I also think Drugg is hopelessly behind, 0:01:19.840 --> 0:01:22.080 and while he's not going to change his mind tomorrow, 0:01:22.240 --> 0:01:24.480 it means the dynamics are shifting more favor of the 0:01:24.520 --> 0:01:27.720 europe Treasury is rarely. We've got a collar treasury rarely 0:01:27.800 --> 0:01:30.320 up to two fifty to sixty, and then we've got 0:01:30.400 --> 0:01:32.840 others that says suggests we could migrate to three percent. 0:01:32.920 --> 0:01:34.920 Where are you? I don't think we're gonna go that 0:01:35.000 --> 0:01:37.759 high anytime soon. And partially is that at some point 0:01:37.800 --> 0:01:40.039 we're gonna get volatilion the markets. That's gonna get treasures 0:01:40.080 --> 0:01:42.840 to rally. I think the tax reform is going to 0:01:42.920 --> 0:01:46.160 be disappointing and uh, and just look at the election 0:01:46.240 --> 0:01:48.400 last night. I think that Republicans are going to be 0:01:48.480 --> 0:01:52.280 less inclined to kind of align with the the current administration. 0:01:52.520 --> 0:01:55.360 And so all of that doesn't speak for higher yells. Now, 0:01:55.800 --> 0:01:58.080 maybe maybe inflation near pressure is going to pick up 0:01:58.120 --> 0:02:00.880 a tad, but I do think that the um if 0:02:00.920 --> 0:02:03.640 the feed is an autopilot, that means higher rates that's 0:02:03.640 --> 0:02:05.800 going to flatten the yield curve and the flattened yeld 0:02:05.800 --> 0:02:08.520 curve can happen various ways, but I don't think treasures 0:02:08.520 --> 0:02:10.959 are gonna actually move all that much. But later this morning, 0:02:10.960 --> 0:02:13.040 Michael McKee is going to sit down with the Steve Manusian, 0:02:13.120 --> 0:02:14.760 and I imagine a question he could ask. I don't 0:02:14.760 --> 0:02:15.959 know if he's gonna ask it, is that what this 0:02:16.040 --> 0:02:20.000 administration's dollar policy is? Have you detected the change in it? 0:02:20.040 --> 0:02:21.960 Do you have a clear sense of whether we're seeing 0:02:21.960 --> 0:02:24.519 a continuation of that Ruben dollar policy. Well, it used 0:02:24.560 --> 0:02:26.520 to be after rum in any way that if you 0:02:26.520 --> 0:02:28.079 were able to aufer those words that we have a 0:02:28.080 --> 0:02:31.560 strong dollar policy, that you qualified for the job. Um. 0:02:31.639 --> 0:02:34.520 And and nowadays those the treasure sectary minution has has 0:02:34.520 --> 0:02:36.280 a stronger view of what they want to do. Clearly 0:02:36.360 --> 0:02:38.399 they want to boost the exports, so clearly they want 0:02:38.400 --> 0:02:41.239 to have a week or dollar from that point of view. Um. 0:02:41.360 --> 0:02:42.880 But they of course they want to always want to 0:02:42.919 --> 0:02:46.160 have it both ways, and and so ultimately the policies matter. 0:02:46.240 --> 0:02:47.640 And he had a quick question, is that we're going 0:02:47.680 --> 0:02:49.320 to get a trade war or not? Um? Is it 0:02:49.360 --> 0:02:52.400 all just talk or something gonna happen? Um. I continue 0:02:52.440 --> 0:02:54.240 to think the biggest tail risk. I'm not saying it's 0:02:54.240 --> 0:02:56.760 the most likely risk, because but something's gonna gong with China, 0:02:56.919 --> 0:02:58.800 some dispute over the South China Sea, and they're going 0:02:58.840 --> 0:03:01.640 to retaliate with some trade policy. Right now. Of course, 0:03:01.680 --> 0:03:04.000 everybody is trying to put up a happy face with 0:03:04.000 --> 0:03:06.079 with the president's visit Overada, and so in the meet Tom, 0:03:06.120 --> 0:03:08.240 there's nothing on the horizon. We're broadcasting a day from 0:03:08.240 --> 0:03:10.000 the yearhead. Someone I saw from across the way that 0:03:10.040 --> 0:03:11.680 you were sitting down with David co talks someone I 0:03:11.680 --> 0:03:16.200 know he is thinking a lot about cryptocurrencies versus gold. Uh, 0:03:16.240 --> 0:03:18.240 he's considering himself maybe a bit of a neo Luddite 0:03:18.240 --> 0:03:21.600 here as he struggles to embrace cryptocurrencies and bitcoin in particular. 0:03:21.720 --> 0:03:23.720 Where do you fall in all of this? Probably in this, 0:03:23.800 --> 0:03:26.639 in this still nascent argument about the worth of cryptocurrency, 0:03:26.760 --> 0:03:29.880 I'm based in Santrtisco. I get called about cryptocurrency's probably 0:03:29.960 --> 0:03:33.560 once a week by venture capitalists, loyals, all kinds of folks. Um. 0:03:33.600 --> 0:03:37.160 I do think if you had a bitcoin tied to gold, say, um, 0:03:37.200 --> 0:03:39.720 it's an interesting way to to trade it. I think 0:03:39.720 --> 0:03:43.160 the blockchain technology is fascinating A bitcoin bad by nothing. 0:03:43.600 --> 0:03:45.920 It's ninety nine all over again. That's that's kind of 0:03:45.920 --> 0:03:48.240 fun too, if you want to get into adrenaline. Is 0:03:48.480 --> 0:03:52.320 ninety nine all over again? Or is it seventeen thirty 0:03:52.360 --> 0:03:56.280 whatever in tulips all over again? Which is it? Well, 0:03:56.400 --> 0:03:59.360 the tulips without to Bitcoin. That said, I compare a 0:03:59.360 --> 0:04:02.480 cryptocurren is a bit like Netscape to the Internet. Netscape 0:04:02.520 --> 0:04:05.520 isn't around anymore, but the Internet certainly is. And so 0:04:05.560 --> 0:04:07.000 I think there's a lot to be done with a 0:04:07.040 --> 0:04:09.680 blockchain technology. There's gonna be a lot of this hype 0:04:09.720 --> 0:04:11.760 is going to translate the value somewhere. Go on your 0:04:11.840 --> 0:04:14.600 hard currency, guy, can you go along Bitcoin? Let's cut 0:04:14.640 --> 0:04:17.279 to this. It's not a currency, uh, And so it is. 0:04:17.360 --> 0:04:19.760 It is something called the currency. Um. It is a 0:04:19.760 --> 0:04:22.480 TOOLIP and that's gonna well, just like many fiat currencies 0:04:22.520 --> 0:04:25.039 will UM. But I think the question David had is 0:04:25.360 --> 0:04:27.920 linking it to something else. There is a blockchain technology 0:04:28.240 --> 0:04:33.200 linking contracts um to to the decentralized ledger. And you 0:04:33.240 --> 0:04:35.159 can do that with securities. You can do that with gold, 0:04:35.200 --> 0:04:37.560 you can do that with the real estate. Um. Not 0:04:37.640 --> 0:04:40.279 all of these things are gonna happen but very smart 0:04:40.320 --> 0:04:43.880 minds are putting the brain into it and and something 0:04:43.920 --> 0:04:45.440 is going to come of it. I don't think there's 0:04:45.440 --> 0:04:48.719 any stock or cryptocurrency you can buy right now due 0:04:48.720 --> 0:04:50.960 to to enjoy that, especially not a good value that 0:04:51.000 --> 0:04:53.680 I'm not suggesting anybody by a bitcoin um but if 0:04:53.680 --> 0:04:56.719 I were to, for example, one thing I've been contemplating 0:04:56.800 --> 0:05:00.000 is built an interface between a cryptocontract and to secure 0:05:00.000 --> 0:05:04.279 at these world UM say have a UM gold etf 0:05:04.520 --> 0:05:06.600 link it to a crypto and then go to your 0:05:06.600 --> 0:05:08.159 broke and saying, hey, I want to take delivery and 0:05:08.200 --> 0:05:10.760 facilitate that. That would say something of interest. You know. 0:05:10.760 --> 0:05:13.200 It used to be easier, but it shares the general 0:05:13.240 --> 0:05:19.360 electric and the president is In China, I did trade 0:05:19.360 --> 0:05:22.560 weighted rend mimby today, which is up up. It's a 0:05:22.680 --> 0:05:25.960 thirty three percent trade weted red mimby. Since that a 0:05:26.040 --> 0:05:29.760 storic July two thousand five days, the Chinese done their 0:05:29.920 --> 0:05:35.159 fair share to go strong you wan weaker dollar. The 0:05:35.279 --> 0:05:38.000 Chinese just had the People's Congress. They wanted everything to 0:05:38.040 --> 0:05:41.080 look good. They wanted a strong currency, and that's the 0:05:41.080 --> 0:05:42.880 policy of the day. When you look at China, it's 0:05:42.920 --> 0:05:46.000 always a step forward and reform and then two steps backwards. 0:05:46.000 --> 0:05:48.719 As long as the economy is running, they talk open markets. 0:05:48.760 --> 0:05:51.120 I mean, the most telling thing was that President she 0:05:51.440 --> 0:05:53.920 had a speech about opening the world up, and then 0:05:53.960 --> 0:05:55.560 towards the end of the speech, um in the p 0:05:55.720 --> 0:05:57.440 F that there was market intervention to make sure the 0:05:57.480 --> 0:06:00.600 market goes higher. Now that is China for you. Um, 0:06:00.640 --> 0:06:04.120 it is a market that's still not being driven by 0:06:04.200 --> 0:06:06.840 the bye, by the by the broad masses, but by 0:06:06.880 --> 0:06:09.279 the fame all drive. And as long as that's the case, 0:06:09.360 --> 0:06:12.200 it's anew unsustainable in the right here where it's right now, 0:06:12.279 --> 0:06:15.040 Axel murk out a Brown University. And of course, as 0:06:15.040 --> 0:06:18.080 you mentioned earlier abouting in San Francisco, I want to 0:06:18.160 --> 0:06:20.440 rip up the script here for a couple of minutes. 0:06:21.000 --> 0:06:24.479 How do mere mortals live in your San Francisco. You're 0:06:24.520 --> 0:06:28.200 a prosperous guy. And this has come up in conversation 0:06:28.600 --> 0:06:32.120 four times in the last ten days of of well 0:06:32.160 --> 0:06:35.800 meeting people saying ignorance, ignation, just got a job in 0:06:35.880 --> 0:06:39.600 San Francisco. Where are they gonna live kind of thing. 0:06:39.640 --> 0:06:41.760 I mean, there was a photo on Twitter of a 0:06:41.800 --> 0:06:44.280 woman with a legitimate job sleeping in a car in 0:06:44.360 --> 0:06:47.120 a parking garage. And I'm not talking about homeless. I'm 0:06:47.160 --> 0:06:51.600 talking about you know, professional class slash front class. What's 0:06:51.600 --> 0:06:54.800 gonna happen to your city? Well, I live in about 0:06:54.800 --> 0:06:57.560 what in Sanma says good fellow who cuts my hYP periodically, 0:06:57.600 --> 0:06:59.920 lived in Tracy. That's like a ninety minute drive a 0:07:00.120 --> 0:07:03.880 good day. Um. And and absolutely if you if you'll 0:07:03.920 --> 0:07:07.200 firefight a police officer, it is very difficult to live locally. 0:07:07.240 --> 0:07:10.920 Any service provider cannot. So yeah, price is going to 0:07:11.040 --> 0:07:13.280 go up. Um. But at the same time, yes, you 0:07:13.360 --> 0:07:16.080 do have people sleep and my my daughter, one of 0:07:16.120 --> 0:07:18.280 my kids, is going to community colleges high school student 0:07:18.560 --> 0:07:21.560 and a third of the students don't have a permanent home. 0:07:21.760 --> 0:07:24.720 They do couch not they don't sleep under the bridge, 0:07:24.800 --> 0:07:28.280 but they hop between friends to to just get by 0:07:28.400 --> 0:07:32.600 and did my first three years exactly. But it's happening 0:07:32.600 --> 0:07:34.400 to an ever greater part of the population, not just 0:07:34.520 --> 0:07:36.600 down the privileged compaims of the world. Are you seeing 0:07:36.600 --> 0:07:38.440 cultural fishers as a result of that? I think back 0:07:38.480 --> 0:07:41.160 a year year plus ago when we had a very 0:07:41.200 --> 0:07:44.320 stark divide between uh, those new wealthy people in San 0:07:44.360 --> 0:07:46.200 Francisco and those who were in these service jobs, who've 0:07:46.200 --> 0:07:47.600 been in San Francisco for a long time, who were 0:07:47.600 --> 0:07:49.720 in the artist community. Are we seeing that play out 0:07:49.720 --> 0:07:53.200 as acutely as it did. I'm probably not the expert 0:07:53.280 --> 0:07:56.080 on on local politics in San Francisco from what I 0:07:56.120 --> 0:07:58.320 can tell. Although I listened to blew my radios and 0:07:58.640 --> 0:08:03.440 the local RADIANC I already these things. There was this 0:08:03.520 --> 0:08:06.560 big wave about the Google bosses and so forth, and 0:08:06.600 --> 0:08:10.320 clearly they always discussions dispute that said home would home 0:08:10.560 --> 0:08:13.320 a San Francisco has always been a magnet for the 0:08:13.400 --> 0:08:16.160 homeless and others because they provide many services amongst others, 0:08:16.200 --> 0:08:18.440 and so day it is very, very visible, especially when 0:08:18.440 --> 0:08:20.760 I walked to the office every morning and before dawn. 0:08:21.120 --> 0:08:24.840 Um it is. It is very the contrast of various 0:08:24.880 --> 0:08:26.880 one final question when you're on it. So we get 0:08:26.880 --> 0:08:31.880 a huge turnout from the Austrian economic screw. They love 0:08:31.920 --> 0:08:35.240 it when you come on. Do you sense any Austrian 0:08:35.480 --> 0:08:40.400 in the new Federal Reserve? Absolutely not, Mr Powell. I 0:08:40.520 --> 0:08:43.760 down't doubt his intellect, I down't doubt his integrity, but 0:08:43.880 --> 0:08:46.800 I happen to believe he's completely agnostic to monetary a 0:08:46.840 --> 0:08:48.439 policy and what I mean with that, does that mean 0:08:48.440 --> 0:08:51.880 he can become Austrians And it means it means that 0:08:51.920 --> 0:08:54.800 he's on autopilot, and if something happens, autopia is gonna 0:08:54.800 --> 0:08:56.920 come off, he's gonna have a route awakening. And what 0:08:56.960 --> 0:09:00.320 I mean is that historically the lawyers on the govern 0:09:00.480 --> 0:09:02.959 us who allaw us, which on most of them, historically, 0:09:03.240 --> 0:09:05.560 they don't know monitory policy. They don't have their own staff, 0:09:05.720 --> 0:09:07.640 so they look at awe at the presentation of the 0:09:07.760 --> 0:09:09.800 fat and sign of what the chair does. Now the 0:09:09.800 --> 0:09:11.960 guys in charge, and I've no doubt he'll do something, 0:09:12.240 --> 0:09:14.319 but I don't think he has experienced that. If everybody 0:09:14.320 --> 0:09:16.480 says he does, um, it's going to be very interesting 0:09:16.520 --> 0:09:18.680 securities right over here in our food parts. So they're 0:09:18.679 --> 0:09:22.160 when to come get you. Is the Phillips curve dead? Yes? 0:09:23.040 --> 0:09:27.480 In some ways. How would you respond to Mr Manutian 0:09:27.559 --> 0:09:30.920 today saying that Philip's curve is alive and will Well, 0:09:30.960 --> 0:09:32.920 he's a trade of secretary. I guess his word counts, 0:09:33.240 --> 0:09:35.199 but I I can trade. I can buy ourselves, so 0:09:35.320 --> 0:09:37.959 I can always take an opposing you. It's very good, excellent, 0:09:38.160 --> 0:09:40.280 Thank you so much for joining us on the dollar 0:09:41.120 --> 0:09:43.840 with some thoughts there of a lesser, not strong dolor 0:09:43.920 --> 0:09:46.319 and of course that somewhere those are great comments in 0:09:46.400 --> 0:09:50.920 San Francisco. It's the brightest of the social tests of 0:09:50.920 --> 0:09:53.560 our society. No one, no one can look. Then we've 0:09:53.559 --> 0:09:55.320 talked about in the context of real estate. People are 0:09:55.320 --> 0:09:59.520 getting out of college. I want to move there. Well, exactly. 0:10:12.120 --> 0:10:14.960 This is a very important interview, particularly those at Global 0:10:15.000 --> 0:10:18.280 Wall Street. You know Stephen Major, he's an HSBC and 0:10:18.360 --> 0:10:21.680 he has been uh smarter than most about saying no 0:10:22.080 --> 0:10:24.440 rates won't go up. Now is a particularly good time 0:10:24.880 --> 0:10:27.320 to speak to Mr Major from our studios in London. 0:10:27.720 --> 0:10:30.599 UM this morning. This is people begin to percolate of 0:10:30.679 --> 0:10:34.839 a higher rate environment. Stephen, have you changed your call? 0:10:35.200 --> 0:10:37.360 Do you give way to two point four, two point 0:10:37.440 --> 0:10:42.400 six or three percent ten year yield? No? Our forecast, 0:10:42.480 --> 0:10:44.880 but the end of two thousand eighteen, Tommy is two 0:10:44.960 --> 0:10:48.800 point three UM. We haven't hits our one point nine 0:10:49.040 --> 0:10:52.959 and seventeen forecast, but we're not there yet. It's still 0:10:53.000 --> 0:10:56.000 possibilit of course. But I I I completely reject the 0:10:56.040 --> 0:10:59.320 idea that yields are going higher. People have been calling 0:10:59.440 --> 0:11:03.040 for two and a half to sixty UM from a 0:11:03.080 --> 0:11:05.400 break above two forty. At the start of the year, 0:11:05.440 --> 0:11:07.600 people were calling a break of to sixty would mean 0:11:07.640 --> 0:11:10.600 three percent or three and a half and they're going 0:11:10.640 --> 0:11:12.800 to have to wait a long time. What is the 0:11:12.840 --> 0:11:15.480 why of that? Is it an economic analysis? I think 0:11:15.480 --> 0:11:18.520 a Michael foul yet JP Morrigan with one point four 0:11:18.600 --> 0:11:22.280 potential g d P? Is it a yield analysis? Is 0:11:22.440 --> 0:11:25.480 fluor dynamics? What's the y well? The ten year rate 0:11:25.559 --> 0:11:28.760 is a function of longer term growth. It's much more 0:11:28.800 --> 0:11:32.319 global in nature. So the Fed doesn't have a great 0:11:32.360 --> 0:11:35.319 deal of influence over the ten year rate. Ten year 0:11:35.360 --> 0:11:38.240 bonds of priced off of the five year rate five 0:11:38.320 --> 0:11:42.040 year forward if you like. So we're thinking about five 0:11:42.120 --> 0:11:45.800 year start for a five year bond, the yield shouldn't 0:11:45.840 --> 0:11:49.560 be that dramatically above current levels. And I think this 0:11:49.640 --> 0:11:52.560 is what people are missing, is that the Feds almost 0:11:52.559 --> 0:11:57.840 certainly gonna experience a turn in the economy to the 0:11:57.920 --> 0:12:01.120 worse at some point in the next few years. The 0:12:01.200 --> 0:12:04.240 peak in the rate cycle is much nearer than they 0:12:04.280 --> 0:12:08.440 probably want to think, so in five years time we 0:12:08.480 --> 0:12:12.040 could well be in an easing environment. In that case, 0:12:12.160 --> 0:12:14.400 it's appropriate to look at five year rates that are 0:12:14.480 --> 0:12:18.079 lower than today's spot rate. That's how you can get 0:12:18.280 --> 0:12:20.360 a ten year year that doesn't want to go above 0:12:20.559 --> 0:12:23.400 two point four And to me, we're stuck in that 0:12:23.559 --> 0:12:26.800 range maybe two percent to two and a half for 0:12:26.840 --> 0:12:28.920 the next year or so. And Stephen, let me ask 0:12:28.960 --> 0:12:31.439 you about how your prices in geo political risk at 0:12:31.440 --> 0:12:33.520 this point in Europe in particularly, been watching what's been 0:12:33.520 --> 0:12:36.920 happening in northern Spain, certainly paying attention to Italy as well. 0:12:36.920 --> 0:12:39.000 How much other this should we make, How big a 0:12:39.000 --> 0:12:40.800 deal is what we've seen that in those two countries 0:12:40.800 --> 0:12:42.959 in particular, what we have to we have to build 0:12:42.960 --> 0:12:45.400 an internal process, there's no doubt about that. But just 0:12:45.400 --> 0:12:49.880 just just as a quick comment on this, the ten 0:12:49.960 --> 0:12:53.400 year rate ten years forward, so again, the ten year 0:12:53.480 --> 0:12:56.640 rates starting in ten years time has gone below four 0:12:56.720 --> 0:13:01.080 percent and is pushing three seventy in both Italy and Spain. 0:13:01.360 --> 0:13:04.040 And this has been happening in the last month or so. 0:13:04.040 --> 0:13:06.640 So whilst you've got all of the disruption that you 0:13:06.679 --> 0:13:10.920 can imagine in Spain around Catalan in particular, and the 0:13:11.040 --> 0:13:15.400 concern about Italian politics for two thousand and eighteen, the 0:13:15.480 --> 0:13:19.320 longer dated bondyards have been falling. Now that tells me 0:13:19.600 --> 0:13:22.680 all I need to know. The ECB has confirmed that 0:13:22.720 --> 0:13:25.640 they are low for longer. The ECB policy rate is 0:13:25.640 --> 0:13:30.400 going nowhere until two thousand nineteen earliest, and we'll wait 0:13:30.440 --> 0:13:32.880 and see what the world looks like in two thousand nineteen. 0:13:33.559 --> 0:13:36.920 I suspect the ECB has missed the chance to hike 0:13:37.400 --> 0:13:40.880 this cycle. The data is good, right, The growth data 0:13:41.040 --> 0:13:43.120 is good looking back the last year, but it doesn't 0:13:43.120 --> 0:13:44.640 tell you where the next year is going to be. 0:13:45.200 --> 0:13:47.360 It could be that we're as good as it gets 0:13:47.679 --> 0:13:50.160 at the moment. And I think that many economists are 0:13:50.160 --> 0:13:54.240 finding this frustrating because they're trying to use whatever, some 0:13:54.320 --> 0:13:57.840 kind of neo classic call or Cansian framework to to 0:13:57.880 --> 0:14:01.360 try and guess where the growth rate is and then 0:14:01.400 --> 0:14:03.760 from that guess on the growth rate. They're trying to 0:14:03.760 --> 0:14:07.280 figure out what it means for bonds. Now, the ten 0:14:07.400 --> 0:14:11.600 year German government bond is not point three. It doesn't 0:14:11.640 --> 0:14:15.400 reflect a three point zero growth rate and hasn't done 0:14:15.440 --> 0:14:17.560 for a long time. It looks much more like a 0:14:17.640 --> 0:14:21.480 Japanese yield that is a handful of basis points, and 0:14:21.560 --> 0:14:23.880 so you know, the Japanese yield has been stuck there 0:14:23.920 --> 0:14:25.680 for years it's going to stay there for years. The 0:14:25.720 --> 0:14:28.040 German yield has got more in common with the Japanese 0:14:28.120 --> 0:14:32.160 yield than it does with what's happening in Brazil or Mexico. 0:14:32.560 --> 0:14:36.480 So so, so that's the frustration for economists who find 0:14:36.520 --> 0:14:41.840 themselves somewhat disenfranchised from the process because they're looking at 0:14:41.880 --> 0:14:45.440 cyclical patterns, trying to guess where the growth is, and 0:14:45.480 --> 0:14:47.880 then trying to link the bond yield to that growth rate. 0:14:48.120 --> 0:14:52.040 The two are disconnected. In fact, the three things are disconnected. Okay, 0:14:52.080 --> 0:14:56.120 So so focusing on cyclical patterns when you've got structural 0:14:56.160 --> 0:15:00.240 and secular drivers seems a bit naive. That's if you've 0:15:00.240 --> 0:15:02.520 try an distinction here listening to what we've hear an 0:15:02.520 --> 0:15:05.800 ECB speeches between a focus on stark as opposed to 0:15:05.640 --> 0:15:08.120 to flower face. Why is that significant what the ECB 0:15:08.160 --> 0:15:10.560 has been focusing on talking about. Yeah, I pointed it 0:15:10.600 --> 0:15:14.760 out in the Asset Allocation that was published today because 0:15:14.760 --> 0:15:18.200 I was quite moved by a couple of recent speeches, 0:15:18.360 --> 0:15:23.080 most most recently Peter Pratt, the Chief Economist. He's emphasizing 0:15:23.120 --> 0:15:27.400 the stock effect, and he's doing this with some authority. 0:15:27.760 --> 0:15:31.880 Markets have focused on flow because they're looking at monthly 0:15:32.000 --> 0:15:37.240 patterns and nets supply outlooks. The stock is not just 0:15:37.320 --> 0:15:40.680 the bonds held inside the central banks, which, by the way, 0:15:40.800 --> 0:15:45.560 and never coming back out. That the non reinvestment decision 0:15:45.560 --> 0:15:48.360 in the US, which will later be faced by the 0:15:48.360 --> 0:15:51.480 ECB is not the same as selling bonds at all. Okay, 0:15:51.520 --> 0:15:54.720 so those bonds are not coming out. That The important 0:15:54.720 --> 0:15:57.200 thing is that the stock is not just the bonds 0:15:57.240 --> 0:15:59.920 held inside the central bank. It's the impact that the 0:16:00.000 --> 0:16:05.240 buctresses have on the flute. So the diminished float is 0:16:05.280 --> 0:16:08.800 the main is the main explanation for why Japan trades 0:16:08.880 --> 0:16:11.560 at three or four basis points and why Burns trade 0:16:11.560 --> 0:16:14.200 where they are. Steve Major one final question. If we 0:16:14.240 --> 0:16:19.400 look at Navarro Ross economics, ross Naviro economics or zero 0:16:19.520 --> 0:16:22.960 some society and antagonism towards China, if you were the 0:16:23.000 --> 0:16:26.320 advisor president the United States today, would you tell them 0:16:26.360 --> 0:16:28.520 that China is never going to start buying our paper 0:16:28.600 --> 0:16:32.920 and it's priced up yield down as a China tendency. 0:16:33.200 --> 0:16:38.280 China in the US have a relationship that's very strong 0:16:38.440 --> 0:16:42.680 behind the scenes. Let's forget all the noise because the 0:16:42.720 --> 0:16:48.280 two countries need each other so the Chinese by US 0:16:48.360 --> 0:16:53.640 paper as a choice because they are basically importing a 0:16:53.960 --> 0:16:57.040 monetary policy from outside, whilst they choose to peg their 0:16:57.040 --> 0:17:00.520 currency and actually deny their people of concer umption if 0:17:00.520 --> 0:17:03.480 you like that. The two countries are in a in 0:17:03.560 --> 0:17:07.040 a relationship that works very well for both sides. So 0:17:07.359 --> 0:17:11.280 there may be some phony games going on on the outside, 0:17:11.320 --> 0:17:13.600 but I think behind the closed doors, when the serious 0:17:13.640 --> 0:17:16.400 people are talking, they all realize how much they need 0:17:16.440 --> 0:17:19.359 each other. So so the fear of their being a 0:17:19.400 --> 0:17:22.679 wall of money coming out of China that would somehow 0:17:22.800 --> 0:17:25.439 disrupt the treasury market, I don't think is one that 0:17:25.480 --> 0:17:28.560 we have to worry about for now. Steve Major, thank 0:17:28.600 --> 0:17:33.080 you so much, greatly appreciated from HSBC's just incredibly pressure 0:17:33.160 --> 0:17:47.000 about Laurie's of course said I think the biggest interview 0:17:47.000 --> 0:17:49.439 of the days make McKee's interview with the Treasury Secretary 0:17:49.440 --> 0:17:51.520 sty Moolution down in Washington, d C. A little bit 0:17:51.560 --> 0:17:55.320 later this morning, and it is a changed interview from 0:17:55.320 --> 0:17:57.879 twenty four hours ago. To give us perspective on that. 0:17:58.840 --> 0:18:02.920 Right now, timothy'r uh joins us, I can say he's 0:18:02.920 --> 0:18:05.160 with Bloomberg view, I can say he's done this, He's 0:18:05.160 --> 0:18:08.800 done that. All you need to know, whatever your politics is, 0:18:08.840 --> 0:18:13.000 he is definitive on the finances of the citizen Donald Trump, 0:18:13.000 --> 0:18:17.720 who has become president and in China right now, Tim, 0:18:17.760 --> 0:18:21.359 the Bloomberg View team is a sprawling team of of 0:18:21.640 --> 0:18:26.200 political experts, economic experts. How is your task changed today 0:18:26.280 --> 0:18:30.600 off the election results of last night? Well, you know, 0:18:30.640 --> 0:18:32.520 I think there's a lot of sentiment this morning that 0:18:32.720 --> 0:18:36.359 Virginia and the results they're represented a wave. I I 0:18:37.200 --> 0:18:40.359 want to I guess can genitally want to step back 0:18:40.440 --> 0:18:43.080 from received wisdom a little bit in moments like this. 0:18:43.200 --> 0:18:46.359 I I'm sort of waiting for the mid terms to 0:18:46.480 --> 0:18:48.560 be the real bell weather if we're gonna see whether 0:18:48.640 --> 0:18:52.639 or not there's a ground swell uh in response to 0:18:52.720 --> 0:18:56.199 Trump and Trump is um um. You know, just on 0:18:56.240 --> 0:18:59.200 the data alone, the demographics have gonna change in Virginia 0:18:59.480 --> 0:19:01.720 and you've got big turnout. You had a you know, 0:19:01.840 --> 0:19:05.600 a a cast scade in the suburbs, so it was 0:19:05.640 --> 0:19:07.879 an interesting race on the numbers. To review here, I 0:19:07.920 --> 0:19:09.920 don't want to go Michael Brown on the two of you, 0:19:09.920 --> 0:19:13.359 you're the political experts, but to review in November eighth 0:19:13.359 --> 0:19:16.720 of two thousand sixteen was the turnout issue that the 0:19:16.760 --> 0:19:23.840 Democrats didn't show up for Secretary Clinton. Uh, for sure. 0:19:23.920 --> 0:19:26.639 I mean particularly I mean voters of color. That was 0:19:27.240 --> 0:19:29.200 that was a huge issue, and I think you saw 0:19:29.880 --> 0:19:32.879 voters of color turnout in this race. Now, Virginia is 0:19:32.920 --> 0:19:36.119 also home to Charlotte'sville obviously, and there was a huge, 0:19:37.000 --> 0:19:41.280 uh controversy around the riots there that were racially charged. 0:19:41.760 --> 0:19:43.879 So yeah, I mean I think you saw a change that. 0:19:43.920 --> 0:19:45.560 I don't know if that's a change that translates to 0:19:45.560 --> 0:19:47.720 other states. I just don't know. We saw the president 0:19:47.720 --> 0:19:50.240 tweet yesterday after these election jolts Kim in he tweeting 0:19:50.320 --> 0:19:54.320 from South Korea or in transit that glassbe worked hard, 0:19:54.359 --> 0:19:56.080 but did not embrace me or what I stand for. 0:19:56.320 --> 0:19:57.800 What does that look like as we look ahead to 0:19:57.840 --> 0:20:00.320 the mid terms, as you say, are we see more 0:20:00.320 --> 0:20:02.800 and more candidates on the Republican side doing that? What 0:20:02.960 --> 0:20:05.240 is that? What is what is embracing this president fully? 0:20:05.320 --> 0:20:07.200 You know, David, I think the first thing it says 0:20:07.280 --> 0:20:10.040 is the President Trump in the in the batting of 0:20:10.119 --> 0:20:14.080 and I will throw someone under the bus if it suits. 0:20:14.119 --> 0:20:16.399 How he wants to spend an event because there's no 0:20:16.520 --> 0:20:20.320 question that Ed Gillespie clothed himself fully in Trump is 0:20:20.400 --> 0:20:28.040 um law and order, um hm, immigration, embracing the Confederate statues, um, 0:20:28.119 --> 0:20:30.879 and and that's not escapable. He presented himself as a 0:20:30.920 --> 0:20:33.720 proxy for Trump and he got thumped. But again, whether 0:20:33.720 --> 0:20:35.880 that's going to translate to other races, I don't know. 0:20:36.119 --> 0:20:39.040 You know, I think every GOP candidate has to think 0:20:39.040 --> 0:20:42.680 back to Mike what happened to Mike Huckabee in Arkansas 0:20:42.840 --> 0:20:47.240 when he went was proceeded consoft on crime and and 0:20:47.280 --> 0:20:49.280 he paid for to the polls, and it killed a 0:20:49.320 --> 0:20:52.080 presidential candidacy for him. I think you're gonna see that 0:20:52.160 --> 0:20:54.680 continue to be a theme that Republicans al hits regardless 0:20:54.720 --> 0:20:56.800 of Trump. What are you watching for after we saw 0:20:56.840 --> 0:21:01.600 the indictments last week, as the investigation by Bob Mueller continues, 0:21:01.720 --> 0:21:04.960 as we've seen UH Secretary of Commerce Wolver Ross I 0:21:04.960 --> 0:21:08.280 dont want say implicated, but brought up in these Paradise papers. 0:21:08.320 --> 0:21:09.760 What are you watching for on the money side of 0:21:09.800 --> 0:21:12.320 things going forward? Well? I think that you know, I've 0:21:12.320 --> 0:21:14.840 always kind of thought, David that the collusion stuff is 0:21:14.880 --> 0:21:16.680