WEBVTT - Surveillance: Mayo on Future of GS 0:00:05.120 --> 0:00:08.480 This is the Bloomberg Surveillance Podcast. I'm Tom Keane, along 0:00:08.520 --> 0:00:12.360 with Jonathan Farrow and Lisa Abramowitz. Join us each day 0:00:12.400 --> 0:00:16.880 for insight from the best an economics, geopolitics, finance and investment. 0:00:17.280 --> 0:00:22.079 Subscribe to Bloomberg Surveillance on demand on Apple, Spotify and 0:00:22.320 --> 0:00:26.600 anywhere you get your podcasts, and always on Bloomberg dot Com, 0:00:26.640 --> 0:00:31.600 the Bloomberg Terminal, and the Bloomberg Business app. In nineteen 0:00:31.760 --> 0:00:35.960 ninety nine, Mike Mayo got hiss butt fired at a 0:00:36.080 --> 0:00:39.960 major bank. It was a testament to all of us 0:00:40.000 --> 0:00:45.280 in the racket about independent securities analysis. The culmination of 0:00:45.320 --> 0:00:49.040 that was the Forestall Award, John's the number one award 0:00:49.040 --> 0:00:53.159 at the CFA and I can't tell you. In twenty thirteen, 0:00:53.600 --> 0:00:59.160 the symbolism of Mike Mayo fired one evening for being independent, 0:00:59.480 --> 0:01:03.360 winning top ward CFA on ethics. This is a guy 0:01:03.400 --> 0:01:05.800 to speak to, mister Solomon. 0:01:05.360 --> 0:01:08.400 The star analyst at whilst Fango. Now my Mayo joins 0:01:08.440 --> 0:01:10.280 us Mike Wander for to catch up with you, sir. 0:01:10.520 --> 0:01:13.160 Let's talk about this story and the criticism around the 0:01:13.160 --> 0:01:15.400 Goldman Sachs leader. Do you get the sense this is 0:01:15.440 --> 0:01:17.280 strategic or deeply personal. 0:01:17.840 --> 0:01:19.880 Thanks for having me on and thanks for bringing up 0:01:19.920 --> 0:01:23.160 the CFA, which is the pre eminent accreditation for a 0:01:23.240 --> 0:01:25.880 financial analyst. And I actually go back to those roots 0:01:25.959 --> 0:01:30.000 to think how should I approach the situation about the 0:01:30.040 --> 0:01:37.560 CEO Goldman Sachs and the differentiation between the external metrics 0:01:37.800 --> 0:01:42.640 which are good, and potential internal metrics which might not 0:01:42.720 --> 0:01:46.440 be so good. The issue here is I'm not seeing 0:01:46.680 --> 0:01:49.880 these metrics. I don't have these internal metrics. The company 0:01:49.960 --> 0:01:53.919 said they've not had any unusual turnover in the partner 0:01:54.040 --> 0:01:58.640 ranks relative by the numbers, So I'd say, look, what 0:01:58.680 --> 0:02:00.960 it comes down to is winning cures. 0:02:01.040 --> 0:02:01.240 All. 0:02:02.040 --> 0:02:06.040 Goldman's had recent performance issues. They've missed expectations two of 0:02:06.080 --> 0:02:09.359 the last three quarters, and when that happens, other issues 0:02:09.680 --> 0:02:12.040 moved more to the four And if I were to 0:02:12.120 --> 0:02:15.400 summarize the three issues, it'd be the three fs. One 0:02:15.520 --> 0:02:19.760 is the consumer expansion that was a debacle. Second is 0:02:19.800 --> 0:02:24.840 the cultural change David Salman running Goldman more like a 0:02:24.880 --> 0:02:28.640 public company almost twenty five years after they went public. 0:02:28.919 --> 0:02:33.400 And the third would be his character and some attacks 0:02:33.400 --> 0:02:35.760 and the press on that character. So I'll go wherever 0:02:35.800 --> 0:02:36.400 you'd like to go. 0:02:36.600 --> 0:02:38.760 Well, Mike, I want to go to what has to 0:02:38.840 --> 0:02:41.760 happen in order for the character issues to not be 0:02:42.040 --> 0:02:44.440 center stage anymore. In other words, has he lost the 0:02:44.520 --> 0:02:47.000 room to such degree that they need to have blowout 0:02:47.080 --> 0:02:49.360 performance and growth in an area that has yet to 0:02:49.360 --> 0:02:50.120 be identified. 0:02:51.200 --> 0:02:55.799 Well, going back to the CFA the basis on how 0:02:55.840 --> 0:02:58.640 I should perform my job. It is the job of 0:02:58.680 --> 0:03:02.280 a CEO to up hold the reputation of the firm. 0:03:02.680 --> 0:03:05.360 But that is important. But when we talk about upholding 0:03:05.360 --> 0:03:08.320 the reputation in the firm, we're talking about being number 0:03:08.360 --> 0:03:11.639 one in advisory for the last twenty years. For talking 0:03:11.680 --> 0:03:16.040 about Goldman growing capital markets twice the pace of Peers 0:03:16.560 --> 0:03:19.160 over the last you know, three or so years. We're 0:03:19.200 --> 0:03:25.040 talking about reputation of the firm to their multinational companies, 0:03:25.360 --> 0:03:29.640 to governments, to their most important investors. So where it 0:03:29.680 --> 0:03:33.320 matters the most, they are upholding the reputation the firm 0:03:33.360 --> 0:03:36.640 based on the business that they're doing. But could there 0:03:36.680 --> 0:03:40.920 be a point where there's enough upheaval that, you know, 0:03:41.040 --> 0:03:45.760 the media the tail wags the dog. I suppose it's possible. 0:03:45.800 --> 0:03:48.440 It's just not going to happen, you know, right now. 0:03:48.280 --> 0:03:50.960 Mike, you said the turnover that we've seen the partner 0:03:51.040 --> 0:03:54.160 ranks hasn't been that unusual. And yet we're hearing about 0:03:54.240 --> 0:03:58.400 Lloyd Blankfeind being brought back to the firm and really 0:03:58.480 --> 0:04:01.800 going after David sala Men having some pretty strong words 0:04:01.800 --> 0:04:02.200 for him. 0:04:02.680 --> 0:04:03.720 What do you make of that? 0:04:03.840 --> 0:04:06.240 I mean, do you think that just basically there are 0:04:06.240 --> 0:04:10.520 a lot of bitter people talking to members of the media. 0:04:10.680 --> 0:04:12.480 You know what I really think is happening here. I 0:04:12.520 --> 0:04:16.280 think it's and I don't have the numbers back this up, 0:04:16.279 --> 0:04:18.080 so I'm just going to get ballpark numbers. But I 0:04:18.080 --> 0:04:21.280 think it's like, you know, traders who are earning six 0:04:21.320 --> 0:04:23.800 million dollars a year who got paid down last year 0:04:23.839 --> 0:04:26.120 to four million dollars a year or something like that, 0:04:26.839 --> 0:04:29.760 just zip code wise. I mean, they had a blowout 0:04:29.880 --> 0:04:32.839 year in twenty twenty one. Last year was a bad 0:04:32.960 --> 0:04:35.760 year for Goldman. People were paid down when they had 0:04:35.800 --> 0:04:39.640 great years. They were partly subsidizing this failed foray in 0:04:39.680 --> 0:04:43.240 consumer banking, and they're they're upset and they're taking their 0:04:43.520 --> 0:04:46.239 and they probably go to the CEO, and the CEO 0:04:46.400 --> 0:04:48.839 it's like, look, when it's the Goldman tax CEO have 0:04:48.880 --> 0:04:51.960 been a warm and fuzzy person David Solomon. I mean, 0:04:51.960 --> 0:04:55.880 you have to have strong opinions to change your culture 0:04:55.960 --> 0:04:59.360 like he's doing while trying to generate profitability. I think 0:04:59.400 --> 0:05:01.719 a lot of people or are upset about what they're 0:05:01.720 --> 0:05:03.240 getting paid. They're going to the press with it. 0:05:03.600 --> 0:05:06.480 Mike, you're expert on board analysis. We have a new 0:05:06.480 --> 0:05:10.920 board member, mister Montag obviously Goldman Sex Timber over at 0:05:10.920 --> 0:05:14.200 Bank of America. He returns. You've got someone like David 0:05:14.279 --> 0:05:16.360 vinnie Or who ran the ship in two thousand and 0:05:16.440 --> 0:05:21.520 seven under crisis, color the board makeup and decision right now? 0:05:21.600 --> 0:05:24.200 How do you look at the Golden Sex board. 0:05:27.400 --> 0:05:30.799 Tom, You know, I've been a critic of bank boards, 0:05:30.800 --> 0:05:34.800 and it probably represents corporate boards, you know, more generally, 0:05:35.000 --> 0:05:39.039 I feel like they're soft. They don't really hold managements accountable, 0:05:39.960 --> 0:05:43.040 they don't listen to shareholder concerns. So when I look 0:05:43.080 --> 0:05:46.480 at Goldman Sachs board more than anything else, like any 0:05:46.560 --> 0:05:52.240 bank board, I think their push for change is probably 0:05:52.440 --> 0:05:56.599 not that much. That's the reality of corporate America. And 0:05:56.640 --> 0:05:59.400 you know, I've wrote my book about it and I 0:05:59.480 --> 0:06:02.480 still see it. And you know, there's some other banks today. 0:06:02.480 --> 0:06:04.960 I'm happy to talk about where I think there's much 0:06:05.000 --> 0:06:08.680 more need for change than than at Goldman Sachs. So uh, 0:06:08.960 --> 0:06:10.920 you know, and wait in mind, and I do want 0:06:10.960 --> 0:06:14.800 to address your Lloyd blank Bind comment. You know, he 0:06:15.080 --> 0:06:18.200 Lloyd's lif find started to push a consumer seven years 0:06:18.240 --> 0:06:21.200 ago and he amplified and it took up, you know, 0:06:21.360 --> 0:06:25.040 all the discussion in the room almost in the meetings. 0:06:25.160 --> 0:06:28.279 And now David thom A doubled down on consumer, but 0:06:28.360 --> 0:06:31.599 it was Lloyd originally. And Lloyd probably doesn't like to 0:06:31.640 --> 0:06:33.800 be you know, tainted with some of these you know, 0:06:33.839 --> 0:06:37.159 three billion dollars of losses they're getting out of you know, 0:06:37.200 --> 0:06:40.960 the Marcus business, aside from the deposits. So you know, 0:06:41.040 --> 0:06:44.280 his hands aren't completely clean in this whole situation either. 0:06:44.400 --> 0:06:46.360 Mike, we've got about sixty seconds left. If we could 0:06:46.360 --> 0:06:48.680 finish by asking you appointed question that would be good. 0:06:49.279 --> 0:06:51.880 How would this stock respond if that headline dropped across 0:06:51.880 --> 0:06:53.200 the Bloomberg that he was out. 0:06:54.880 --> 0:06:56.640 I don't think the stock would go up. The fact 0:06:56.680 --> 0:06:59.920 that stock might even go down. So that's remember I 0:07:00.680 --> 0:07:04.120 called for the to have the City Group CEO fired 0:07:05.400 --> 0:07:08.200 back around after the global fancier crisis, and I think 0:07:08.200 --> 0:07:10.280 the stock went up that day, and that was a 0:07:10.280 --> 0:07:14.800 good moment, and we've seen that other places where the 0:07:14.840 --> 0:07:18.480 CEO goes. But if David Solomon were to be fired today, 0:07:18.600 --> 0:07:20.480 I think the stock would actually go down because it 0:07:20.480 --> 0:07:22.600 don't be like, Wow, you're running the company based on 0:07:22.640 --> 0:07:25.560 media reports as opposed to financial results. And by the way, 0:07:25.600 --> 0:07:28.600 when I talk to investors, investors aren't saying, oh, get 0:07:28.680 --> 0:07:31.200 rid of David Tobam. They were really asking the questions 0:07:31.200 --> 0:07:36.040 You're asking, Hey, does the media impact their performance? I'd 0:07:36.080 --> 0:07:39.720 say no so far. Having said that David Salmon has 0:07:39.760 --> 0:07:42.200 to earn his job every day, and so I can 0:07:42.200 --> 0:07:44.320 come back in three months or six months and he 0:07:44.360 --> 0:07:46.880 doesn't get the job done, I'll be on the other side. 0:07:46.960 --> 0:07:50.640 We appreciate your opinion. Mike, as always of welsh Sonco, 0:08:01.720 --> 0:08:04.560 Sebastian Phase joined us now head a global modi asset 0:08:04.640 --> 0:08:07.800 and CIO at t ro Price. Sebastian, you can be 0:08:07.840 --> 0:08:10.080 one of the five this morning. What's behind that bond 0:08:10.080 --> 0:08:11.640 market move higher? 0:08:11.680 --> 0:08:16.560 Inflation expectations? Look, we're all seeing inflation coming down. But 0:08:16.760 --> 0:08:19.320 when I look at my one year break events this 0:08:19.480 --> 0:08:22.520 morning on my Bloomberg, I see one point five six 0:08:22.600 --> 0:08:26.640 percent to me, that is too low. If I think 0:08:26.680 --> 0:08:30.720 of the risk to inflation, it's not to the downside, 0:08:30.880 --> 0:08:34.440 it's to the upside. And Jonathan, you nail the reason. 0:08:35.080 --> 0:08:39.600 It's the commodities oil prices being up quietly twenty percent. 0:08:40.320 --> 0:08:44.240 You need energy to produce goods and services, and I 0:08:44.280 --> 0:08:49.199 think sometimes we underestimate the impact on even core inflation 0:08:49.559 --> 0:08:54.520 of higher energy prices. So I'm not saying inflation's coming 0:08:54.559 --> 0:08:57.400 back to the levels we see, you know, a year ago, 0:08:57.400 --> 0:08:59.280 a year and a half ago. But to me, I 0:08:59.280 --> 0:09:01.280 look at this in the risk is to the upside, 0:09:01.320 --> 0:09:04.160 and that's what the bond market, even in the long end, 0:09:04.280 --> 0:09:05.800 is starting to smell. 0:09:06.040 --> 0:09:08.760 Sebastian and for radio, this is my most important chart 0:09:08.840 --> 0:09:11.160 right now. It's a Bloomberg total return chart. This is 0:09:11.200 --> 0:09:15.160 the all in soup the nuts chart as well. And 0:09:15.320 --> 0:09:17.520 in the bottom line here is we're about ready to 0:09:17.520 --> 0:09:20.800 break down to new price weakness off the carnage of 0:09:20.840 --> 0:09:24.080 two or three years ago. And I just, you know, 0:09:24.120 --> 0:09:27.040 I just don't know what to say here about price down. 0:09:27.480 --> 0:09:29.719 If we get the bond market to break down to 0:09:29.800 --> 0:09:33.160 lower prices, what does that do to equities. 0:09:34.240 --> 0:09:38.640 It's always a risk to equities because you're revaluing and 0:09:38.880 --> 0:09:42.280 year today, equities have rallied on the price earnings ratio 0:09:42.280 --> 0:09:45.719 and the evaluation and that is sensitive to rates, and 0:09:45.920 --> 0:09:50.200 earnings are kind of soft down seven percent year over year, 0:09:50.320 --> 0:09:53.120 So it is a risk to equities tom But one 0:09:53.120 --> 0:09:55.280 thing I want to say is this isn't the time 0:09:55.320 --> 0:09:58.440 to panic about duration. If anything, now you have a 0:09:58.440 --> 0:10:02.400 better entry point on our fixed income portfolios. We have 0:10:02.720 --> 0:10:06.760 added duration this year. It is a quote unquote and 0:10:06.800 --> 0:10:11.440 I use quotation marks hedge against a real growth shock. 0:10:11.880 --> 0:10:15.200 We know that the most anticipated recession in history is 0:10:15.240 --> 0:10:19.280 becoming the most delayed recession in history. But there's pressure 0:10:19.320 --> 0:10:21.880 building in the system. So here's what we're doing in 0:10:21.920 --> 0:10:25.480 our fixed income portfolios. We're not panicking about duration right now. 0:10:25.679 --> 0:10:30.240 I think we have duration and we're pairing it with credit. 0:10:30.360 --> 0:10:33.079 I call this the magic Barbelle. But I'm getting nine 0:10:33.160 --> 0:10:35.920 percent total yield out of high yield. So I like 0:10:35.960 --> 0:10:39.040 my fixed income factors to be diversified. And now you 0:10:39.080 --> 0:10:42.599 get paid. You get paid for the protection of treasuries. 0:10:43.000 --> 0:10:45.400 If you get a growth shock, it won't protect you 0:10:45.440 --> 0:10:47.400 for an inflation shock, which is kind of we're not 0:10:47.400 --> 0:10:50.040 talking about an inflation shock but inflation pressures, which is 0:10:50.080 --> 0:10:52.000 kind of what you're seeing now. But I think you 0:10:52.080 --> 0:10:55.200 have to step back and look at what's the greater 0:10:55.320 --> 0:10:58.679 risk right now? Is yes, sell off in stocks. 0:10:58.920 --> 0:11:01.320 Okay a second, let me try to make sure that 0:11:01.360 --> 0:11:01.920 I understand this. 0:11:02.000 --> 0:11:05.280 You're saying that the risk with inflation is an upside 0:11:05.280 --> 0:11:07.800 surprise that it could reaccelerate, and yet you're leaning into 0:11:07.880 --> 0:11:11.360 duration because it's not inflation shock, it's just an inflation 0:11:11.480 --> 0:11:12.240 grind higher. 0:11:12.360 --> 0:11:13.400 What is the difference? 0:11:14.080 --> 0:11:17.920 So we're using duration as a hedge to a growth shock. 0:11:17.960 --> 0:11:21.520 We're not going fully overweight duration. To me, the risks 0:11:21.520 --> 0:11:25.840 to inflation is three six months. It starts speaking back up, 0:11:26.600 --> 0:11:28.520 but at the end of the day, if you take 0:11:28.559 --> 0:11:30.960 a six to eighteen month horizon, So Lisa, it's a 0:11:30.960 --> 0:11:34.000 difference in horizon here. You do want some hedges in 0:11:34.040 --> 0:11:37.040 your portfolio, and where do you get those hedges right now? 0:11:37.080 --> 0:11:40.200 You get them a little cheaper than you have in 0:11:40.240 --> 0:11:43.840 the past. So it's nuanced, right. It's just diversifying the 0:11:43.840 --> 0:11:45.000 different risk factors. 0:11:45.240 --> 0:11:47.000 And one thing that you talked about is the commodity 0:11:47.040 --> 0:11:49.360 is pressure to really fuel some of the reinflation, and 0:11:49.400 --> 0:11:51.520 this comes as we take a look at China and 0:11:51.559 --> 0:11:55.280 the potential threats there, the risks to growth if let's 0:11:55.320 --> 0:11:58.360 say there is a reversal in oil prices and that 0:11:58.440 --> 0:12:01.319 comes with a lot of weakness. How do you rearrange 0:12:01.360 --> 0:12:04.240 the time where you're preferring high yeald ponds over equities, 0:12:04.240 --> 0:12:07.160 where you're preferring sort of some Barbell approach, to really 0:12:07.200 --> 0:12:10.960 being a more conservative kind of acid allocator right now? 0:12:11.559 --> 0:12:14.280 Yeah, look at the spread for high yield it's not 0:12:14.440 --> 0:12:19.440 particularly attractive, although if you adjust it for forecasted default risks, 0:12:19.559 --> 0:12:22.480 it's not bad. But I'm an asset allocator. I really 0:12:22.520 --> 0:12:26.040 care about the total yield, and Lisa, the comparison with 0:12:26.120 --> 0:12:31.439 the earnings yield is really advantageous. Eightieth ninetieth personile in 0:12:31.559 --> 0:12:35.240 favor of high yield bonds. I'm getting nine percent out 0:12:35.280 --> 0:12:38.080 of high yield bonds globally, and the earnings yield is 0:12:38.120 --> 0:12:41.880 down to say, five percent on stocks. That's spread right 0:12:41.920 --> 0:12:46.680 now is really advantageous. We're not forecasting a really hard 0:12:46.760 --> 0:12:51.400 landing wave of defaults, even if things slow down in China, 0:12:51.520 --> 0:12:54.680 which they are so on a relative basis. Look, we 0:12:54.720 --> 0:12:57.840 always invested in stocks, but we're close to neutral right now. 0:12:57.880 --> 0:13:00.800 Slightly underway. If we're going to add the portfolio on 0:13:00.840 --> 0:13:02.560 the risk side, might as well do it high yield. 0:13:02.679 --> 0:13:06.000 Sebastian very quickly your acclaimed book, which is folks. I 0:13:06.040 --> 0:13:09.160 can't say enough about this effort by Sebastian bay Page, 0:13:09.160 --> 0:13:13.199 A really sophisticated effort. Do I want to be diversified 0:13:13.400 --> 0:13:16.600 or do I want to be more acutely focused right now? 0:13:17.360 --> 0:13:22.200 Look, I think diversification remains critically important when you're going 0:13:22.320 --> 0:13:25.840 through a regime shift, Tom, which is what we're going through. 0:13:25.880 --> 0:13:28.880 You've talked about this on the show. Gravity is back 0:13:28.920 --> 0:13:32.000 in financial markets. We have a ton of cash in 0:13:32.080 --> 0:13:34.720 the sidelines. So you don't want to go all the 0:13:34.720 --> 0:13:38.120 way to cash right and just miss the upside of 0:13:38.160 --> 0:13:40.520 stocks in the long run. I don't think you want 0:13:40.559 --> 0:13:43.000 to go all the way to stocks right now, and 0:13:43.080 --> 0:13:47.679 there are other opportunities. Look, Tom, let's just think about valuations. Okay. 0:13:47.679 --> 0:13:51.640 The tech sector's trading at a price earnings ratio of thirty. 0:13:52.040 --> 0:13:54.160 So let's say you missed the rally. Do you want 0:13:54.200 --> 0:13:56.880 to chase that momentum or maybe wait to buy the dip. 0:13:57.040 --> 0:14:00.640 You actually have a third option which speaks to diversification, 0:14:01.160 --> 0:14:03.480 which is to get in parts of the markets that 0:14:03.559 --> 0:14:07.920 have really not participated. Quality small caps price earnings ratio 0:14:08.000 --> 0:14:12.520 of thirteen, that's hard recession level. Emerging market stocks price 0:14:12.559 --> 0:14:16.400 earnings ratio at eleven. We mentioned hyal bonds yields at 0:14:16.480 --> 0:14:21.320 nine percent, you know, so the energy sector trading at 0:14:21.440 --> 0:14:24.040 twelve pe ratio. So there are ways to get in 0:14:24.080 --> 0:14:28.440 the market where you're not just chasing the momentum. And 0:14:28.480 --> 0:14:30.440 I saw I call this the third option. Either you 0:14:30.520 --> 0:14:33.560 chase the momentum, wait for the dip, or take a 0:14:33.600 --> 0:14:37.080 diversified approach to your question, Tom and get in parts 0:14:37.080 --> 0:14:40.560 of the market that haven't participated. Energy em in a 0:14:40.680 --> 0:14:45.440 very high yield, higher yield in the high yield bond space. 0:14:45.520 --> 0:14:48.440 So there are opportunities to get into and diverse five. 0:14:48.600 --> 0:14:51.600 Sebastian, Always enjoy your insights, sir, good friend of this program. 0:14:51.600 --> 0:14:53.840 Sebast I page there a t row price. 0:14:58.480 --> 0:15:00.720 We are going to migrate now to an importan conversation. 0:15:00.840 --> 0:15:03.280 This is our conversation of the day on foreign exchange, 0:15:03.320 --> 0:15:06.280 the limits paper of the system. Else a Lingos brings 0:15:06.360 --> 0:15:10.240 serious ECV and EU credit to RBC Capital. Marcus Global 0:15:10.240 --> 0:15:14.080 head of Foreign Exchange Strategy, also open question right now, 0:15:14.160 --> 0:15:16.880 what is your biggest mystery in sleepy August. You're the 0:15:16.880 --> 0:15:21.520 only one in Europe working what's your biggest mystery right now? Forward? 0:15:21.600 --> 0:15:22.720 In foreign exchange? 0:15:24.360 --> 0:15:26.800 I think you touched on it earlier Tom at the 0:15:26.800 --> 0:15:30.160 top of the hour. The uncertainty around what's going on 0:15:30.200 --> 0:15:32.200 in China, and part of the struggle for us as 0:15:32.200 --> 0:15:35.200 outside is trying to understand the reality on the ground 0:15:35.240 --> 0:15:38.720 when there's actually been a move away from sharing information. 0:15:39.520 --> 0:15:42.400 The underlying GDP data, the kind of the breakdown of 0:15:42.480 --> 0:15:45.080 components just isn't there. And on top of that, we 0:15:45.200 --> 0:15:48.440 just don't have the visibility onto these trouble developers and 0:15:48.480 --> 0:15:49.880 asset managers balance sheets. 0:15:50.040 --> 0:15:53.560 Does China bring in instability? I was talking about euro 0:15:53.680 --> 0:15:56.240 yen to one sixty and through a strong euro week, 0:15:56.440 --> 0:16:00.520 en dollar yen back up towards one fifty. Can you 0:16:00.560 --> 0:16:03.800 see that instability out there? Given the events in China? 0:16:05.480 --> 0:16:08.280 And I think people are reluctant to take positions. As 0:16:08.320 --> 0:16:10.960 you kind of mentioned, it's the middle of August. A 0:16:10.960 --> 0:16:13.280 lot of investors we speak to have just shut up shop, 0:16:13.360 --> 0:16:15.800 particularly if they've had a good summer so far. They're 0:16:15.840 --> 0:16:18.240 just not seeing the opportunities out there. You know, you've 0:16:18.240 --> 0:16:20.920 got effex very much in a tight range. I mean, 0:16:20.960 --> 0:16:23.120 you're a dollar to the PIP is almost exactly where 0:16:23.120 --> 0:16:25.640 it was a month ago. And even when we do 0:16:25.800 --> 0:16:28.880 attempt to get breakouts, as we did earlier in July, 0:16:29.240 --> 0:16:31.280 it just doesn't seem to follow through. And I think 0:16:31.280 --> 0:16:33.600 people are really struggling with that dynamic at the moment. 0:16:33.920 --> 0:16:36.080 Just leaves us all looking at carry trades and selling 0:16:36.120 --> 0:16:37.120 well ELSA. 0:16:37.160 --> 0:16:39.320 If everybody's just basically on the beach right now, does 0:16:39.360 --> 0:16:41.160 that mean when everybody comes back you start to see 0:16:41.200 --> 0:16:44.640 more concern about the potential for contagion from China and 0:16:44.680 --> 0:16:48.160 all of the potential in financial instability in certain sectors. 0:16:49.560 --> 0:16:52.520 I think we need to see bit more information. I mean, clearly, 0:16:52.520 --> 0:16:56.440 the fact that you're seeing developers missing interest payments on 0:16:56.480 --> 0:16:59.600 their bonds has people concerned. But more than anything, you know, 0:16:59.640 --> 0:17:01.880 we've been in this situation. I mean, I could go 0:17:02.000 --> 0:17:04.960 back ten years when people were panicking about the big 0:17:05.080 --> 0:17:07.520 China cliff and suddenly growth was going to collapse, And 0:17:07.760 --> 0:17:09.879 there've been people that have cried wolf one too many times, 0:17:09.920 --> 0:17:12.320 and so markets are just naturally reluctant to believe that 0:17:12.359 --> 0:17:15.320 this time it could be happening for real. What I 0:17:15.320 --> 0:17:17.760 think we're missing in order to get bigger trends is 0:17:17.800 --> 0:17:20.080 a bit of global divergence. You know, at the moment, 0:17:20.119 --> 0:17:21.920 it feels like a lot of the themes are affecting 0:17:21.960 --> 0:17:23.959 a lot of countries in a very similar fashion. If 0:17:24.000 --> 0:17:26.600 I look at developed markets in particular, whether it's the 0:17:26.680 --> 0:17:28.800 UCB or the FED, or the Bank of Canada, the OBBA, 0:17:28.840 --> 0:17:31.080 they all seem to be in very similar positions. We 0:17:31.200 --> 0:17:33.080 need that to break down and diverge in order to 0:17:33.080 --> 0:17:33.880 get those trends. 0:17:34.080 --> 0:17:36.400 But aren't we seeing that in the actual data, Elsa, 0:17:36.480 --> 0:17:39.440 and I'm talking about, for example, the US and Europe 0:17:39.520 --> 0:17:40.600 Germany in particular. 0:17:40.680 --> 0:17:42.240 We are seeing that divergence. 0:17:42.400 --> 0:17:44.199 We're just not seeing it when it comes to a 0:17:44.240 --> 0:17:46.760 currency that seems to have flatlined because everyone's on vacation. 0:17:48.640 --> 0:17:51.000 I mean, it's a great question, Lisa, because even more 0:17:51.000 --> 0:17:53.440 so than the currency, what I find really perplexing is 0:17:53.480 --> 0:17:56.919 if you look ahead, you look at twenty twenty four expectations, 0:17:57.280 --> 0:18:00.159 there's still this widespread consensus that the UR area is 0:18:00.160 --> 0:18:03.639 going to outperform the US, and cyclically that doesn't seem 0:18:03.640 --> 0:18:05.199 to ad up At the moment. I mean, yes, the 0:18:05.240 --> 0:18:08.360 FED has delivered more tightening, but the US also delivered 0:18:08.520 --> 0:18:12.000 a whole lot more fiscal stimulus. And actually the titening 0:18:12.040 --> 0:18:14.239 delivered by the US is not that much more than 0:18:14.240 --> 0:18:18.480 the UCB for the local realities on the ground. Though. 0:18:18.520 --> 0:18:22.760 I do think eventually we will get that unexpected break 0:18:22.760 --> 0:18:25.400 lower in euro dollar. That's not the consensus. Everybody's looking 0:18:25.400 --> 0:18:27.320 for it to trade up at one thirteen by year ed. 0:18:27.600 --> 0:18:29.119 I just think we may need to wait for the 0:18:29.160 --> 0:18:31.000 autumn for that to really start taking hold. 0:18:31.280 --> 0:18:33.320 I need to rip up the script. Also, Lingos so 0:18:33.320 --> 0:18:35.320 and I can do this with you. There's a number 0:18:35.359 --> 0:18:36.960 of ways to look at the fiction known as the 0:18:37.040 --> 0:18:41.240 Russian ruble, dollar, ruble, euro ruble, and also a basket 0:18:41.280 --> 0:18:44.480 of ruble. I'm just going to go to the headline drama. Also, 0:18:44.560 --> 0:18:49.919 Lingos of dollar is compared to Russian ruble through one hundred. 0:18:49.960 --> 0:18:52.400 I just did a lord regression of it back twenty years. 0:18:52.440 --> 0:18:55.440 Ecuse me back to seven. Also, what do I make 0:18:55.520 --> 0:18:59.560 of the newly weakened ruble? What does its signal? Given 0:18:59.600 --> 0:19:02.840 the lack of flows, the lack of information that we. 0:19:02.840 --> 0:19:07.399 Have, and it's very clear that if this is a 0:19:07.440 --> 0:19:11.680 war of attrition that puts Russian a weaker state visa 0:19:11.800 --> 0:19:13.560 vi the rest of the world. You know the fact 0:19:13.600 --> 0:19:17.200 that it relies on foreign currency, hard currency in order 0:19:17.280 --> 0:19:21.280 to buy whether it's military goods and so on, and 0:19:21.320 --> 0:19:23.240 then it relies on help from partners. 0:19:23.240 --> 0:19:23.600 You know, it. 0:19:23.560 --> 0:19:26.320 Relies on high oil prices, and we've seen a wild 0:19:26.400 --> 0:19:28.800 trying to break higher, but it's not really following through. 0:19:29.040 --> 0:19:30.960 And so I do think that in terms of that 0:19:31.000 --> 0:19:33.560 war of attrition, it does all else equal just put 0:19:33.600 --> 0:19:36.240 Russian in a slightly weaker spot. Can you read anything 0:19:36.440 --> 0:19:39.000 in terms of capital flow? Is almost sadly not. You know, 0:19:39.040 --> 0:19:42.200 it's a kind of controlled currency at the moment. 0:19:42.119 --> 0:19:44.199 But it's unraveling. I'm not going to say it's a 0:19:44.240 --> 0:19:47.119 Zimbabeli equivalent because it's not. Or you know, even the 0:19:47.119 --> 0:19:51.399 complexities of the Turkish lira, how do they respond to 0:19:51.480 --> 0:19:52.640 it or does no one care? 0:19:54.400 --> 0:19:56.439 I don't think there is a response as such. I 0:19:56.440 --> 0:20:00.199 mean it's it's a very different economy to even say 0:20:00.240 --> 0:20:04.040 the Turkish lera, where it's an economy turkysh an economy 0:20:04.040 --> 0:20:06.359 that's dependent on commodity imports. I mean being in a 0:20:06.400 --> 0:20:08.919 position where you're a commodity exporter does put you in 0:20:08.960 --> 0:20:11.320 a position of relative strength, and so there will always 0:20:11.320 --> 0:20:15.119 be some hard currency coming in, and so in that sense, 0:20:15.160 --> 0:20:17.720 the currency the ruble is less of a signal for 0:20:17.800 --> 0:20:20.240 the underlying strength or state of the Russian economy. 0:20:20.359 --> 0:20:23.440 A Selenos, thank you of ABC Capital Markets and the 0:20:23.480 --> 0:20:24.679 latest in the FX market. 0:20:35.680 --> 0:20:38.840 Speaking of an immoderate Capitol Hill. Henrietta Trace joins now 0:20:38.840 --> 0:20:42.560 economic policy research director Data Partners, who was on fire 0:20:42.640 --> 0:20:45.800 last week, get a dragger back here this morning to 0:20:45.920 --> 0:20:50.480 talk about exactly where we are, Henrietta, is a broad statement. 0:20:50.720 --> 0:20:53.720 Is the debt debate now the same old, same old 0:20:53.800 --> 0:20:57.800 you've heard for years? Or is there something new about 0:20:57.840 --> 0:20:59.920 our worry of our debt and our debt. 0:21:01.600 --> 0:21:05.560 I had a really interesting conversation with some senior counsel 0:21:05.640 --> 0:21:08.280 on the Hell late last week that I would share 0:21:08.320 --> 0:21:11.560 with y'all. The conversation around the debt and a government 0:21:11.640 --> 0:21:14.280 shut down in federal spending has obviously been with us 0:21:14.280 --> 0:21:17.480 for a couple of months now, since the Republicans came 0:21:17.480 --> 0:21:19.959 into control of the House. And that's great, you want 0:21:20.000 --> 0:21:23.800 to see that conversation, But the tension that we see 0:21:23.840 --> 0:21:27.720 between a small faction of House Republicans and the moderate 0:21:28.000 --> 0:21:30.760 or sort of middle ground of the House Caucus and 0:21:30.840 --> 0:21:34.520 certainly the Senate is so far apart that the dialogue 0:21:34.520 --> 0:21:37.440 on the hell now is not about reducing federal spending 0:21:37.480 --> 0:21:39.360 as a way to get over this impast that we're 0:21:39.400 --> 0:21:41.600 going to face at the end of September. It's about 0:21:41.680 --> 0:21:44.960 who can we impeach, can we get money for the border, 0:21:45.359 --> 0:21:47.760