1
00:00:00,080 --> 00:00:13,040
Speaker 1: Yea. Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene

2
00:00:13,480 --> 00:00:17,560
Speaker 1: Jay Lee. We bring you insight from the best in economics, finance, investment,

3
00:00:18,000 --> 00:00:23,520
Speaker 1: and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud,

4
00:00:23,600 --> 00:00:33,839
Speaker 1: Bloomberg dot Com, and of course on the Bloomberg. So

5
00:00:33,920 --> 00:00:37,240
Speaker 1: let's start with emerging markets. First it was Turkey, then Argentina,

6
00:00:37,280 --> 00:00:40,280
Speaker 1: now Brazil. The some pain emerging in Am and e

7
00:00:40,479 --> 00:00:43,280
Speaker 1: M central bankers are asking the Fed for help. Indonesia's

8
00:00:43,320 --> 00:00:46,199
Speaker 1: new central bank chief joined his counterpart in India in

9
00:00:46,280 --> 00:00:48,760
Speaker 1: calling on the Federal Reserve to be more mindful of

10
00:00:48,840 --> 00:00:52,080
Speaker 1: the global repercussions of policy. Technik jointed me to discusses.

11
00:00:52,159 --> 00:00:54,120
Speaker 1: David Balin, I'm really pleased to say who joins us

12
00:00:54,120 --> 00:00:57,280
Speaker 1: here in New York City Private Bank Global head of Investments.

13
00:00:57,280 --> 00:00:59,360
Speaker 1: Good morning, David, Good morning, Thank you for having me.

14
00:00:59,640 --> 00:01:02,280
Speaker 1: Another central bank Kaike, this one coming from Turkey and

15
00:01:02,400 --> 00:01:06,680
Speaker 1: e M is constantly responding now to precious coming from

16
00:01:06,680 --> 00:01:08,680
Speaker 1: our swhere. Talk to me about the pain that e

17
00:01:08,800 --> 00:01:10,800
Speaker 1: M could be about sick out through Well, let's talk

18
00:01:10,800 --> 00:01:13,080
Speaker 1: about you know what's really happening in the sense that

19
00:01:13,080 --> 00:01:15,600
Speaker 1: you've got um the US actually sort of sucking up

20
00:01:15,640 --> 00:01:19,720
Speaker 1: capital because you had a huge, you know, tax um

21
00:01:20,000 --> 00:01:22,840
Speaker 1: overhaul in the United States which has created both fiscal stimulus,

22
00:01:22,880 --> 00:01:25,120
Speaker 1: has created a larger deficit at the same time that

23
00:01:25,200 --> 00:01:28,520
Speaker 1: the FED is actually uh selling securities back to the market,

24
00:01:28,560 --> 00:01:31,000
Speaker 1: you know, and raising rates. So this is sort of

25
00:01:31,000 --> 00:01:33,880
Speaker 1: one two three punch for emerging market currency. So that's

26
00:01:33,880 --> 00:01:37,480
Speaker 1: the what's what's taking place now. The emerging markets have

27
00:01:37,520 --> 00:01:39,800
Speaker 1: different stories. If we take a look at Asian emerging markets,

28
00:01:39,840 --> 00:01:41,560
Speaker 1: their currencies have done better. If you take a look

29
00:01:41,560 --> 00:01:44,040
Speaker 1: at Latin America and Turkey, they've done worse. And in

30
00:01:44,120 --> 00:01:47,319
Speaker 1: those circumstances. It really is the fact that they've got

31
00:01:47,319 --> 00:01:50,000
Speaker 1: their own economic issues and growth issues that are taking place.

32
00:01:50,400 --> 00:01:52,400
Speaker 1: So you know, there's a lot going on. They're not

33
00:01:52,440 --> 00:01:54,160
Speaker 1: going to get much help from the FED. The FED

34
00:01:54,240 --> 00:01:56,720
Speaker 1: is going to continue along its policy exactly as it

35
00:01:56,720 --> 00:01:59,520
Speaker 1: intends to over the course of the next eighteen months.

36
00:01:59,560 --> 00:02:01,880
Speaker 1: So they're gonna have to make an independent decision about

37
00:02:01,880 --> 00:02:04,000
Speaker 1: what their reach should be and that and they're still

38
00:02:04,040 --> 00:02:05,680
Speaker 1: going to be under currency pressure. In my mind in

39
00:02:06,040 --> 00:02:09,000
Speaker 1: even sexture twelve months. This is what I was going

40
00:02:09,040 --> 00:02:11,160
Speaker 1: to ask you about, just looking at what J. Powell

41
00:02:11,160 --> 00:02:13,560
Speaker 1: has said very recently in the last month. This was

42
00:02:13,600 --> 00:02:15,639
Speaker 1: a month ago, almost to the day. This was J

43
00:02:15,760 --> 00:02:18,360
Speaker 1: p the Chairman of the Federal Reserve. Monetary stimulus by

44
00:02:18,400 --> 00:02:21,520
Speaker 1: the FED and other advanced economy central bankers played a

45
00:02:21,560 --> 00:02:24,239
Speaker 1: relatively limited role in the search of capital flows to

46
00:02:24,320 --> 00:02:26,720
Speaker 1: emerging markets. There is good reason to think that the

47
00:02:26,760 --> 00:02:31,400
Speaker 1: normalization of monetary policies and advanced economies should continue to

48
00:02:31,480 --> 00:02:34,400
Speaker 1: prove manageable for e ms. What do you think of

49
00:02:34,400 --> 00:02:37,239
Speaker 1: that statement from the Chairman of the Federal Reserve UM

50
00:02:37,240 --> 00:02:39,240
Speaker 1: It's very It's supposed to be a calming statement in

51
00:02:39,240 --> 00:02:42,840
Speaker 1: indicating that everything will happen gradually. And you know, in

52
00:02:42,919 --> 00:02:45,280
Speaker 1: his defense, if you take a look at the speed

53
00:02:45,360 --> 00:02:48,200
Speaker 1: with which the feed is moving, given the unemployment rate

54
00:02:48,240 --> 00:02:50,880
Speaker 1: in the United States and different debates about inflation, you

55
00:02:50,919 --> 00:02:53,080
Speaker 1: could argue that the Fed is moving very deliberately and

56
00:02:53,120 --> 00:02:55,760
Speaker 1: relatively slowly. However, if you were to look at that

57
00:02:55,800 --> 00:02:58,480
Speaker 1: from the emerging markets perspective, you would sit there and say,

58
00:02:58,520 --> 00:03:00,760
Speaker 1: my goodness, you can imagine that there could be two

59
00:03:00,800 --> 00:03:03,280
Speaker 1: four sixth rate hikes from here, and that that's gonna

60
00:03:03,280 --> 00:03:07,120
Speaker 1: have a materially negative impact on on on emerging market currency.

61
00:03:07,240 --> 00:03:10,120
Speaker 1: So again, I think what he's seeing is we're going

62
00:03:10,160 --> 00:03:13,160
Speaker 1: to do this um and he's not really holding their

63
00:03:13,240 --> 00:03:15,640
Speaker 1: view to any quarter whatsoever. So if you're just churning

64
00:03:15,680 --> 00:03:18,120
Speaker 1: in more pain than emerging markets in Brazil in the

65
00:03:18,200 --> 00:03:20,440
Speaker 1: last couple of days, we've seen it in Argentina, we've

66
00:03:20,480 --> 00:03:23,080
Speaker 1: seen it in Turkey. Turkey hiked interest rates in an

67
00:03:23,120 --> 00:03:25,920
Speaker 1: emergency meeting just a couple of weeks ago. They've hiked

68
00:03:25,960 --> 00:03:29,359
Speaker 1: interest rates again at the scheduled meeting today, taking rates

69
00:03:29,400 --> 00:03:33,240
Speaker 1: up to seventeen point seven five. A rally in the

70
00:03:33,280 --> 00:03:37,200
Speaker 1: Turkish lira, taking dollar lira back through four fifty four

71
00:03:37,360 --> 00:03:40,240
Speaker 1: forty six forty one is how we're trading in the

72
00:03:40,280 --> 00:03:42,880
Speaker 1: here and now, Tom Keane, lots going on in the

73
00:03:43,040 --> 00:03:46,120
Speaker 1: m It's extraordinary new. So I did not expect this

74
00:03:46,240 --> 00:03:49,520
Speaker 1: today for a Thursday the economics. The economist didn't expect

75
00:03:49,520 --> 00:03:51,720
Speaker 1: another hike from Turkey today either. And you know, I'm

76
00:03:51,720 --> 00:03:54,080
Speaker 1: working out right now. I'll function and I'll eventually get

77
00:03:54,080 --> 00:03:56,040
Speaker 1: it done and get it out on Twitter, Bloomberg Radio,

78
00:03:56,080 --> 00:03:58,720
Speaker 1: you'll see it first. But you take that one week

79
00:03:58,800 --> 00:04:01,600
Speaker 1: repo Turkey rate, it's like their Fed Funds target rate.

80
00:04:01,640 --> 00:04:06,040
Speaker 1: Whatever seventeen and three quarters percent less twelve percent inflation.

81
00:04:06,160 --> 00:04:09,200
Speaker 1: I think, John, the math is, that's a five percent

82
00:04:09,720 --> 00:04:13,560
Speaker 1: real interest rate, David Balan is compared to real rates

83
00:04:14,040 --> 00:04:16,520
Speaker 1: as they look west to Europe or frankly as they

84
00:04:16,560 --> 00:04:19,680
Speaker 1: look self more troubled economies. I mean, that is an

85
00:04:19,760 --> 00:04:25,200
Speaker 1: unsustainable real rate for any economy general. That's right, um.

86
00:04:25,240 --> 00:04:27,000
Speaker 1: And certainly if you take a look at it compared

87
00:04:27,040 --> 00:04:29,120
Speaker 1: to to the you know, the developed world, where you

88
00:04:29,160 --> 00:04:32,960
Speaker 1: have you know, zero arguably negative rates in terms of

89
00:04:32,960 --> 00:04:37,720
Speaker 1: what you're earning. Certainly across across Europe, that's exactly right. Um.

90
00:04:37,760 --> 00:04:39,760
Speaker 1: You know, Turkey is is its own case, and I

91
00:04:39,800 --> 00:04:42,000
Speaker 1: think we know by focusing on it, you actually we

92
00:04:42,040 --> 00:04:43,799
Speaker 1: have to look at the emerging markets as a whole

93
00:04:44,000 --> 00:04:47,080
Speaker 1: and and there I think the picture is quite different. Um.

94
00:04:47,200 --> 00:04:49,320
Speaker 1: You know, they didn't get the benefits of Kwei and

95
00:04:49,360 --> 00:04:51,040
Speaker 1: they're they're gonna have a little bit of pain as

96
00:04:51,080 --> 00:04:53,520
Speaker 1: QUI comes off. And so it's gonna be at the

97
00:04:53,560 --> 00:04:55,800
Speaker 1: end of the day for an investor to look at

98
00:04:55,800 --> 00:04:57,920
Speaker 1: the actual economy and to look at the value of

99
00:04:57,960 --> 00:05:00,359
Speaker 1: those stocks, and to look at the growth rate of

100
00:05:00,400 --> 00:05:03,719
Speaker 1: earnings in those companies and their ability obviously to handle

101
00:05:04,200 --> 00:05:06,400
Speaker 1: their their own foreign currency risk, and and and and

102
00:05:06,520 --> 00:05:09,080
Speaker 1: in general, I have to say that that in contrast,

103
00:05:09,120 --> 00:05:11,279
Speaker 1: you know, we think that you know, three quarters of

104
00:05:11,320 --> 00:05:13,520
Speaker 1: the emerging market economies are actually going to be a

105
00:05:13,520 --> 00:05:16,320
Speaker 1: decent place to put money um over the course of

106
00:05:16,360 --> 00:05:19,120
Speaker 1: the next couple of years. So I do agree that

107
00:05:19,160 --> 00:05:22,280
Speaker 1: these are flashpoints. But on the other hand, as an investor,

108
00:05:22,400 --> 00:05:24,720
Speaker 1: I don't look upon them as bell weathers. Let's get

109
00:05:24,760 --> 00:05:27,599
Speaker 1: to the three quotas. What are the three quartes? So

110
00:05:27,640 --> 00:05:29,680
Speaker 1: the quota that you don't want to be in, well,

111
00:05:29,720 --> 00:05:32,280
Speaker 1: I mean certainly Turkey would be a good example of that,

112
00:05:32,360 --> 00:05:34,239
Speaker 1: and and and and in my mind Russia as well,

113
00:05:34,680 --> 00:05:37,360
Speaker 1: which is very very um you know, never diversified, never

114
00:05:37,400 --> 00:05:39,440
Speaker 1: diversified away from from oil. But if you were to

115
00:05:39,480 --> 00:05:42,760
Speaker 1: look at you know, basically all across all across Asia,

116
00:05:42,880 --> 00:05:44,960
Speaker 1: if you were to look at at Latin America as

117
00:05:45,000 --> 00:05:46,920
Speaker 1: a whole, uh, if you were to look at the

118
00:05:47,480 --> 00:05:49,680
Speaker 1: sort of multinational companies operating there, if you were to

119
00:05:49,760 --> 00:05:52,159
Speaker 1: look at everything when it comes to mining, whether it

120
00:05:52,200 --> 00:05:57,080
Speaker 1: comes to actual agricultural values companies, these companies are in

121
00:05:57,120 --> 00:06:01,120
Speaker 1: some way cases very very inexpensive and healthy. Remember that

122
00:06:01,120 --> 00:06:03,440
Speaker 1: they've had a chance to repair their balance sheets as well.

123
00:06:03,680 --> 00:06:05,520
Speaker 1: It's not as if only U S companies are only

124
00:06:05,520 --> 00:06:08,400
Speaker 1: European companies are only easier companies have benefited. So we

125
00:06:08,480 --> 00:06:10,840
Speaker 1: when we look at individual baskets of companies and their

126
00:06:10,839 --> 00:06:13,159
Speaker 1: ability to sort of get major shares of market, we

127
00:06:13,240 --> 00:06:16,680
Speaker 1: think that they're quite quite uh dupily approached. There is

128
00:06:16,720 --> 00:06:18,760
Speaker 1: this hope that in latam and let's take Brazil as

129
00:06:18,800 --> 00:06:22,279
Speaker 1: one example, there will be this liberalization, they will move

130
00:06:22,320 --> 00:06:25,600
Speaker 1: towards free markets and there will be great investable opportunities.

131
00:06:25,760 --> 00:06:27,520
Speaker 1: What we've seen in the last month with a country

132
00:06:27,560 --> 00:06:30,400
Speaker 1: like Petro Bass is ultimately, when crude prices went up,

133
00:06:30,720 --> 00:06:33,680
Speaker 1: when petrol prices, gas prices went up, the truckers went

134
00:06:33,720 --> 00:06:36,719
Speaker 1: on strike and the government lent on Petro Bass to

135
00:06:36,760 --> 00:06:39,560
Speaker 1: get rid of the CEO. The CEO goes just like that.

136
00:06:39,560 --> 00:06:44,360
Speaker 1: That's how quickly things move and stops, and all of

137
00:06:44,400 --> 00:06:47,159
Speaker 1: a sudden we have to rethink Brazil. It's Brazil kind

138
00:06:47,160 --> 00:06:49,719
Speaker 1: to be that bastion of free markets and capitalism with

139
00:06:49,800 --> 00:06:53,840
Speaker 1: available investable opportunities. The last month, the lesson is maybe not,

140
00:06:54,160 --> 00:06:56,320
Speaker 1: maybe not, but but I think that you know, that's

141
00:06:56,360 --> 00:06:58,560
Speaker 1: not how you can invest looking at the last month.

142
00:06:58,600 --> 00:06:59,800
Speaker 1: And you also have to remember that they're in a

143
00:07:00,240 --> 00:07:02,800
Speaker 1: cycle now where they have the same type of political issue.

144
00:07:02,800 --> 00:07:04,800
Speaker 1: They can choose the middle of the road candidate, far left,

145
00:07:04,839 --> 00:07:07,520
Speaker 1: far right. All of it's still alive right now. Polls

146
00:07:07,520 --> 00:07:09,600
Speaker 1: are very fluid, the candidates themselves are not, you know,

147
00:07:09,720 --> 00:07:12,800
Speaker 1: especially dynamic, and so you know, you can't make it.

148
00:07:12,960 --> 00:07:15,240
Speaker 1: The judgment. Our view on Brazil in terms of where

149
00:07:15,280 --> 00:07:18,240
Speaker 1: it is and its economic recovery is that very very early,

150
00:07:18,360 --> 00:07:20,320
Speaker 1: you know, and that for us is very very attractive.

151
00:07:20,600 --> 00:07:23,600
Speaker 1: So you have to be willing to tolerate volatility in

152
00:07:23,680 --> 00:07:25,560
Speaker 1: order to make these investments, and and of course you

153
00:07:25,600 --> 00:07:28,200
Speaker 1: have to get paid for it at the end. You

154
00:07:28,240 --> 00:07:30,640
Speaker 1: can't show me a city private bank global head of

155
00:07:30,720 --> 00:07:48,640
Speaker 1: investments also lagnus with us with OURBC capital markets, and

156
00:07:48,720 --> 00:07:52,040
Speaker 1: she is a student of foreign exchange and the concept

157
00:07:52,080 --> 00:07:57,920
Speaker 1: elsa excuse me, it's Berry, Ike and Green, Ricardo Houseman

158
00:07:58,760 --> 00:08:03,320
Speaker 1: and Ugio Paniza. Original sin in the Great Fear and

159
00:08:03,400 --> 00:08:08,320
Speaker 1: the original sin of Argentina, Brazil in Turkey is you're

160
00:08:08,360 --> 00:08:09,520
Speaker 1: not going to be able to go out to the

161
00:08:09,520 --> 00:08:13,200
Speaker 1: debt markets because you're so troubled. How close are we

162
00:08:13,920 --> 00:08:19,040
Speaker 1: to where these emerging market economies can't function in the

163
00:08:19,120 --> 00:08:25,480
Speaker 1: global debt market. Well, Turkey's problem in particular is UM.

164
00:08:25,520 --> 00:08:30,840
Speaker 1: It's overseas borrowing, particularly borrowing in US dollars by the

165
00:08:30,880 --> 00:08:35,160
Speaker 1: corporate sector. And I think, you know, the central bank

166
00:08:35,280 --> 00:08:37,880
Speaker 1: is doing what it can to bring the situation under control,

167
00:08:38,640 --> 00:08:40,719
Speaker 1: having come under a lot of political pressure earlier on

168
00:08:40,760 --> 00:08:43,920
Speaker 1: in the year to keep rapes low UM. I think

169
00:08:44,080 --> 00:08:47,480
Speaker 1: the political leadership in Turkey has admitted and acknowledged that's

170
00:08:47,559 --> 00:08:50,480
Speaker 1: really not working UM. And so today's decision by the

171
00:08:50,520 --> 00:08:55,280
Speaker 1: central banker larger than expected hike UM is really throwing

172
00:08:55,320 --> 00:08:57,199
Speaker 1: everything they have at the problem to try and spend

173
00:08:57,280 --> 00:09:02,040
Speaker 1: the weakness in Can the tools of our textbooks and

174
00:09:02,080 --> 00:09:05,839
Speaker 1: the tools of previous moments and even crisis can they

175
00:09:05,880 --> 00:09:11,120
Speaker 1: work today? Or is the world of em changed? You know,

176
00:09:11,200 --> 00:09:14,839
Speaker 1: A lot will depend on broader risk appetite. And what

177
00:09:14,880 --> 00:09:19,800
Speaker 1: we've seen so far is global markets less willing to

178
00:09:19,960 --> 00:09:23,160
Speaker 1: forgive policy mistakes. We've seen that in Argentina, see that

179
00:09:23,200 --> 00:09:26,760
Speaker 1: in Turkey. UM. But this is not an em led

180
00:09:26,840 --> 00:09:29,319
Speaker 1: route where the good get punished along with the bad.

181
00:09:29,600 --> 00:09:34,320
Speaker 1: UM and Argentina went down this route of hiking rates

182
00:09:34,320 --> 00:09:38,040
Speaker 1: substantially and somewhat stemmed there out there, Turkey is trying

183
00:09:38,080 --> 00:09:40,880
Speaker 1: the same. Can it work? That's your question, Um, you know,

184
00:09:40,960 --> 00:09:42,880
Speaker 1: remains to be seen. I think the problem all of

185
00:09:42,880 --> 00:09:44,640
Speaker 1: these central banks are going to face is that the

186
00:09:44,679 --> 00:09:46,920
Speaker 1: FED is going to be hiking rates US you are

187
00:09:46,960 --> 00:09:49,240
Speaker 1: going higher, um, and that's going to put more and

188
00:09:49,280 --> 00:09:51,640
Speaker 1: more pressure over the longer term. Also, just to get

189
00:09:51,640 --> 00:09:53,880
Speaker 1: to the central bank response from the Federal Reserve, we're

190
00:09:53,880 --> 00:09:56,920
Speaker 1: seeing a plea for help from India the central bank

191
00:09:56,960 --> 00:09:58,880
Speaker 1: governor in an o heed in the Financial Times over

192
00:09:58,920 --> 00:10:01,120
Speaker 1: the last week. The indones In central bank doing the

193
00:10:01,160 --> 00:10:04,679
Speaker 1: same thing. This is Federal Reserve Chairman J Powell about

194
00:10:04,720 --> 00:10:07,720
Speaker 1: a month ago. He's basically saying there is good reason

195
00:10:07,800 --> 00:10:10,600
Speaker 1: to think that the normalization of monetary policies and advanced

196
00:10:10,640 --> 00:10:15,040
Speaker 1: economies should continue to prove manageable for EMS. Is this

197
00:10:15,160 --> 00:10:18,319
Speaker 1: a Federal Reserve that's increasingly less sensitive to what is

198
00:10:18,320 --> 00:10:23,240
Speaker 1: happening abroad. I don't think they've ever I think they've

199
00:10:23,240 --> 00:10:25,440
Speaker 1: always been sensive, let me pay my words carefully, but

200
00:10:25,480 --> 00:10:27,880
Speaker 1: they've never made it their their key focus. And I

201
00:10:27,880 --> 00:10:30,240
Speaker 1: think that's fair enough. You know, Channen pal has enough.

202
00:10:30,280 --> 00:10:32,720
Speaker 1: One has played worrying about managing the U s economy

203
00:10:33,040 --> 00:10:36,000
Speaker 1: and achieving his targets there without also worrying about the

204
00:10:36,040 --> 00:10:38,880
Speaker 1: rest of the world unless it feeds through to the

205
00:10:38,880 --> 00:10:41,080
Speaker 1: outlook for the US. So we saw that a couple

206
00:10:41,080 --> 00:10:43,360
Speaker 1: of years ago, when you know, capital was going out

207
00:10:43,360 --> 00:10:45,880
Speaker 1: of China and people were very worried about the pressure

208
00:10:45,880 --> 00:10:48,120
Speaker 1: on the remombies the central bank. The FED did step

209
00:10:48,120 --> 00:10:50,840
Speaker 1: back and it didn't high rates um and that was

210
00:10:50,840 --> 00:10:53,000
Speaker 1: seen as quite a rational thing to do. But if

211
00:10:53,000 --> 00:10:56,560
Speaker 1: this is Turkey, Argentino, countries, like Tom said, which you know,

212
00:10:56,600 --> 00:10:59,200
Speaker 1: have committed the original sin, I don't think it's really

213
00:10:59,240 --> 00:11:02,079
Speaker 1: the federal reserve place to sort it out for them.

214
00:11:02,280 --> 00:11:03,920
Speaker 1: So I think you make a really good point, especially

215
00:11:03,920 --> 00:11:06,040
Speaker 1: when these are the same countries that we're complaining about

216
00:11:06,120 --> 00:11:09,760
Speaker 1: relative currency strength about five, seven, eight years ago, and

217
00:11:09,800 --> 00:11:12,760
Speaker 1: now they're complaining about completely the opposite. So just in

218
00:11:12,880 --> 00:11:16,280
Speaker 1: terms of em right now, over the last few months,

219
00:11:16,400 --> 00:11:19,240
Speaker 1: we've heard people say, well, these are all idiosynchronic, very

220
00:11:19,280 --> 00:11:23,000
Speaker 1: unique stories. Local to Turkey, another one too local to Argentina.

221
00:11:23,080 --> 00:11:25,720
Speaker 1: We've got another one local to Brazil, local to India,

222
00:11:26,000 --> 00:11:28,520
Speaker 1: local to Indonesia. We're starting to see it be more

223
00:11:28,559 --> 00:11:31,920
Speaker 1: than just a couple of cracks, aren't we. I think

224
00:11:31,920 --> 00:11:34,320
Speaker 1: we're seeing a couple of things. One is that currencies

225
00:11:34,320 --> 00:11:36,720
Speaker 1: are doing what they're supposed to do, which is act

226
00:11:36,840 --> 00:11:39,360
Speaker 1: as a shock absorber. You know, we've seen that in

227
00:11:39,360 --> 00:11:41,400
Speaker 1: the case of Brazil, We've seen in the case of Mexico,

228
00:11:41,520 --> 00:11:44,400
Speaker 1: India another good example. Turkey face is a different problem,

229
00:11:44,559 --> 00:11:46,760
Speaker 1: just because so much of the borrowing has been done

230
00:11:46,800 --> 00:11:49,640
Speaker 1: in foreign currency UM. And the second thing is that,

231
00:11:50,280 --> 00:11:53,800
Speaker 1: more broadly speaking, we're getting into an environment where em

232
00:11:53,880 --> 00:11:57,319
Speaker 1: carry trades on a wil adjusted basis no longer necessarily

233
00:11:57,360 --> 00:11:59,200
Speaker 1: makes sense. You know, there's a lot of places now

234
00:11:59,240 --> 00:12:01,640
Speaker 1: with in g turn um that you can get a

235
00:12:01,640 --> 00:12:04,440
Speaker 1: decent amount of carry with a lot less volatility. And

236
00:12:04,480 --> 00:12:07,160
Speaker 1: I think more broadly speaking, investors are taking another look

237
00:12:07,160 --> 00:12:10,120
Speaker 1: at great term carry trades and thinking, actually, in relative terms,

238
00:12:10,120 --> 00:12:13,000
Speaker 1: it doesn't look as bad. So what do you do

239
00:12:13,280 --> 00:12:19,800
Speaker 1: opportunistically given the interesting mili we're in right now. I

240
00:12:19,840 --> 00:12:22,920
Speaker 1: think they're still good trades out there. We've been trading

241
00:12:23,000 --> 00:12:26,680
Speaker 1: very tactically for some time now, you know, and so

242
00:12:26,880 --> 00:12:30,960
Speaker 1: we'll have our longer term fundamental views. You know, we've

243
00:12:31,000 --> 00:12:33,240
Speaker 1: been calling your a dollar as you know, UM to

244
00:12:33,360 --> 00:12:36,640
Speaker 1: end the year round one eighteen UM. Now that's pretty

245
00:12:36,720 --> 00:12:38,560
Speaker 1: much where we are. But of course two months ago

246
00:12:38,600 --> 00:12:41,280
Speaker 1: that looked like a much more barrish euro dollar call. UM.

247
00:12:41,360 --> 00:12:45,360
Speaker 1: But within that I think you can find oportunistically trades

248
00:12:45,400 --> 00:12:47,440
Speaker 1: that go the other way. So, for example, this week

249
00:12:47,480 --> 00:12:50,440
Speaker 1: we're long. You're a cat that's working very nicely. UM.

250
00:12:50,480 --> 00:12:53,600
Speaker 1: I think there's a good opportunity next week to look

251
00:12:53,600 --> 00:12:57,720
Speaker 1: for some Sterling strength, potentially around the June twelve vote. Obviously,

252
00:12:57,720 --> 00:12:59,760
Speaker 1: Sterling has been very hard hit in the last half

253
00:12:59,800 --> 00:13:02,680
Speaker 1: hour or so, so we'll see how that picks out. UM.

254
00:13:02,720 --> 00:13:04,560
Speaker 1: You know, there are good opportunities out there. You just

255
00:13:04,559 --> 00:13:07,960
Speaker 1: have to be more tactical. What is your strategic dollar call?

256
00:13:08,040 --> 00:13:10,840
Speaker 1: Forget about making money, you know, very trying to make

257
00:13:10,880 --> 00:13:14,280
Speaker 1: money to get to St. Petersburg for Italy versus the US,

258
00:13:14,440 --> 00:13:18,600
Speaker 1: but forgetting forgetting about that. Also, what's the strategic call

259
00:13:18,679 --> 00:13:22,439
Speaker 1: on dollar? I think it's got to be very careful

260
00:13:23,080 --> 00:13:26,080
Speaker 1: about jumping onto the bearish dollar bandwagon. And I know

261
00:13:26,160 --> 00:13:28,920
Speaker 1: we've discussed this together a number of times before, UM,

262
00:13:28,920 --> 00:13:31,160
Speaker 1: and I still stick to that view. I'm not saying

263
00:13:31,160 --> 00:13:32,920
Speaker 1: that dollar is going to go up across the board

264
00:13:32,920 --> 00:13:35,800
Speaker 1: against every single ot of currency. UM. But there are

265
00:13:35,840 --> 00:13:38,400
Speaker 1: places where I think the dollar can strengthen materially dollar

266
00:13:38,480 --> 00:13:41,400
Speaker 1: yen for example, UM. And there are other places where

267
00:13:41,520 --> 00:13:43,480
Speaker 1: I think it pays to be a lot more cautious,

268
00:13:43,720 --> 00:13:46,640
Speaker 1: UM about getting too bearish on the dollar. You know,

269
00:13:46,920 --> 00:13:49,960
Speaker 1: euro dollar. I just don't see one thirty anytime soon.

270
00:13:50,080 --> 00:13:53,200
Speaker 1: So I think your broader dollar call has to be

271
00:13:54,120 --> 00:13:56,640
Speaker 1: looks for the opportunity and don't get carried away with

272
00:13:56,679 --> 00:13:59,120
Speaker 1: the dollar barousness. I think, can we go into the

273
00:13:59,200 --> 00:14:01,160
Speaker 1: capital of foreign exchange, Tom, You and I were going

274
00:14:01,200 --> 00:14:04,520
Speaker 1: to see ALSA in London because cables rolling over again. UM.

275
00:14:04,559 --> 00:14:07,000
Speaker 1: Sterling at one thirty three eighty four, down about two

276
00:14:07,000 --> 00:14:10,760
Speaker 1: tents of one on the session Alsa Brexit politics. We

277
00:14:10,800 --> 00:14:12,920
Speaker 1: don't spend a lot of time talking about it on

278
00:14:12,920 --> 00:14:15,960
Speaker 1: this program for very good reason. It's been going nowhere

279
00:14:16,240 --> 00:14:18,839
Speaker 1: for a long time. But Sterling is starting to look

280
00:14:18,840 --> 00:14:20,600
Speaker 1: painful over the last couple of months. Just give me

281
00:14:20,600 --> 00:14:26,560
Speaker 1: your thoughts. An interesting picture, you know. Obviously some live

282
00:14:26,600 --> 00:14:30,680
Speaker 1: developments at the moment, speculation over David Davis and whether

283
00:14:30,720 --> 00:14:34,600
Speaker 1: he was threatening to resign. UM. I do think the

284
00:14:34,960 --> 00:14:37,160
Speaker 1: verte next week will be really critical, very interesting to

285
00:14:37,160 --> 00:14:40,480
Speaker 1: see how the Commons will react to the Lord's amendments.

286
00:14:40,520 --> 00:14:42,840
Speaker 1: You know, more than anything, I think this is one

287
00:14:42,840 --> 00:14:46,560
Speaker 1: where you've absolutely got to be tactical. Um, but there

288
00:14:46,640 --> 00:14:48,560
Speaker 1: could be an opportunity to look for a bit of

289
00:14:48,600 --> 00:14:51,360
Speaker 1: Sterling recovery next week. Now, Selena's going to catch up

290
00:14:51,360 --> 00:14:54,240
Speaker 1: with you. RBC Global Head of Effects Strategy. We don't

291
00:14:54,280 --> 00:14:57,040
Speaker 1: do Brexit very much, Tom and I would say I'm

292
00:14:57,040 --> 00:15:00,640
Speaker 1: happy about that because not much as being achieved between

293
00:15:00,680 --> 00:15:03,120
Speaker 1: the United Kingdom and the rest of Europe. Yeah, I'll

294
00:15:03,120 --> 00:15:06,080
Speaker 1: agree with the rest of Europe. But even the the

295
00:15:06,200 --> 00:15:09,480
Speaker 1: day to day battles of the Conservative Party the Tories

296
00:15:09,640 --> 00:15:12,840
Speaker 1: in England with each other. I'm sorry it does get

297
00:15:12,880 --> 00:15:15,480
Speaker 1: lost in translation. I mean I read about it, folks.

298
00:15:15,480 --> 00:15:18,720
Speaker 1: I'm trying, you know, seriously, Simon Kennedy and Flavian the

299
00:15:18,760 --> 00:15:20,520
Speaker 1: rest of them are doing a great job over there

300
00:15:20,520 --> 00:15:24,000
Speaker 1: trying to explain it to me. But I just I mean,

301
00:15:24,160 --> 00:15:28,120
Speaker 1: David Davies is running the Brexit debate basically he is

302
00:15:28,520 --> 00:15:33,120
Speaker 1: upset with the Prime Minister. He is strong leave Europe right,

303
00:15:33,280 --> 00:15:36,760
Speaker 1: he wants to leave, and Mr Johnson wants to leave.

304
00:15:37,560 --> 00:15:40,000
Speaker 1: What is Prime Minister may want is she's just got

305
00:15:40,000 --> 00:15:41,960
Speaker 1: to try and please as many people as she possibly can,

306
00:15:42,000 --> 00:15:44,600
Speaker 1: and clearly she can't do that. So I just think

307
00:15:44,400 --> 00:15:48,680
Speaker 1: for most investors worldwide outside of the UK, they wake

308
00:15:48,760 --> 00:15:50,280
Speaker 1: up in the morning and they're just like, tell me

309
00:15:50,280 --> 00:15:52,760
Speaker 1: when I should care. And when Alista says we get

310
00:15:52,760 --> 00:15:54,600
Speaker 1: into a crucial point, I feel like we've been saying

311
00:15:54,800 --> 00:15:57,160
Speaker 1: the last eighteen months, we get into it. I remember

312
00:15:57,200 --> 00:15:59,880
Speaker 1: that I remember the day after Brexit. We knew a

313
00:16:00,160 --> 00:16:02,400
Speaker 1: ten pm the night of Brexit that it would pass,

314
00:16:02,480 --> 00:16:05,160
Speaker 1: which was a shock, and I remember being with you

315
00:16:05,200 --> 00:16:08,960
Speaker 1: and our London team in watching, watching, and then then

316
00:16:09,160 --> 00:16:13,080
Speaker 1: you went to a Mayfair five star dinner. I went

317
00:16:13,160 --> 00:16:17,680
Speaker 1: to the McDonald's at Liverpool Station and I remember this clearly,

318
00:16:17,880 --> 00:16:20,160
Speaker 1: and you know, I remember the shock of the streets,

319
00:16:20,160 --> 00:16:24,040
Speaker 1: whether at the McDonald's at Liverpool's. Can we tell the

320
00:16:24,040 --> 00:16:29,040
Speaker 1: real story? Can we tell the real story? Were freighting

321
00:16:29,080 --> 00:16:32,360
Speaker 1: as straight? You went to go to the bow tie

322
00:16:32,400 --> 00:16:34,480
Speaker 1: store where was it turn Blanassa that you wanted a

323
00:16:34,520 --> 00:16:39,520
Speaker 1: special boat time and then someone spotted you and said,

324
00:16:39,560 --> 00:16:44,680
Speaker 1: comforts come to our Brexit party and you went for

325
00:16:44,800 --> 00:16:49,560
Speaker 1: cigars and whiskey, And I went to work and did

326
00:16:49,560 --> 00:16:53,080
Speaker 1: eighteen as straight. So let's at a Mayfair restaurant. That

327
00:16:53,160 --> 00:16:55,360
Speaker 1: was you and I on the Brexit tour. You were

328
00:16:55,360 --> 00:17:00,360
Speaker 1: in a restaurant with cigars and I was on I'll

329
00:17:00,400 --> 00:17:04,320
Speaker 1: make it up too. We'll go to the mcdonals. I

330
00:17:04,359 --> 00:17:06,879
Speaker 1: can't wait, I can't wait. I can't wait to actually

331
00:17:06,880 --> 00:17:08,560
Speaker 1: see you that I'm gonna I'm gonna run through the

332
00:17:08,720 --> 00:17:10,960
Speaker 1: rice sections please quickly, just to get one up to

333
00:17:10,960 --> 00:17:27,200
Speaker 1: spade this Thursday morning, John Farrell, This is really perfect

334
00:17:27,240 --> 00:17:31,359
Speaker 1: with a less forty eight hours of debate about G

335
00:17:31,520 --> 00:17:34,800
Speaker 1: seven and coming into Professor Keane no relations for Stephen

336
00:17:34,960 --> 00:17:37,320
Speaker 1: k e n. Stephen Keene will be with us with

337
00:17:37,400 --> 00:17:42,400
Speaker 1: Kingston University the President of the United States four minutes ago.

338
00:17:43,480 --> 00:17:51,680
Speaker 1: Isn't it ironic? Already? Get that? That was at channeling

339
00:17:51,680 --> 00:17:55,920
Speaker 1: alanis the tweet? Isn't it ironic? Question Mark getting ready

340
00:17:55,920 --> 00:17:57,680
Speaker 1: to go to the G seven in Canada to fight

341
00:17:57,760 --> 00:18:00,760
Speaker 1: for our country on trade. Parent the sees we have

342
00:18:00,800 --> 00:18:05,120
Speaker 1: the worst trade deals ever made close parentheses. Then off

343
00:18:05,119 --> 00:18:08,880
Speaker 1: the Singapore to meet with North Korea and the nuclear problem.

344
00:18:08,920 --> 00:18:12,080
Speaker 1: But back home we still have the thirteen angry Democrats

345
00:18:12,800 --> 00:18:15,199
Speaker 1: pushing the which hunt. So I guess this first tweet

346
00:18:15,240 --> 00:18:18,480
Speaker 1: is an all encompassing tweet. It is a good time

347
00:18:18,560 --> 00:18:23,520
Speaker 1: maybe to speak on our fractured Western capitalism with Steve Keane,

348
00:18:23,520 --> 00:18:26,720
Speaker 1: who has been a student of labor and of course

349
00:18:26,760 --> 00:18:29,480
Speaker 1: harketing back to the work of Mr Marks of a

350
00:18:29,520 --> 00:18:32,800
Speaker 1: hundred years ago, Professor Keene, the state of labor here

351
00:18:32,800 --> 00:18:36,159
Speaker 1: and the professor of the level of economic growth that

352
00:18:36,160 --> 00:18:40,280
Speaker 1: we're seeing is a backdrop to G seven. Which G

353
00:18:40,480 --> 00:18:46,400
Speaker 1: seven country is doing best right now? That's a tough question, Tom.

354
00:18:47,000 --> 00:18:49,280
Speaker 1: I think in some ways it probably is the States

355
00:18:49,720 --> 00:18:52,720
Speaker 1: and Lange because Trump's uh, you know, bull in a

356
00:18:52,800 --> 00:18:56,440
Speaker 1: China Shop project awaken on my policy is meant as

357
00:18:56,440 --> 00:18:58,800
Speaker 1: a huge government stimulus on it's way into the economy

358
00:18:58,840 --> 00:19:03,120
Speaker 1: bouts where the tax cuts and increased levels of spending.

359
00:19:03,520 --> 00:19:06,439
Speaker 1: So in that sense, I think that that's top topping

360
00:19:06,440 --> 00:19:08,560
Speaker 1: on top of the momentum that QE gave the economy,

361
00:19:08,800 --> 00:19:11,120
Speaker 1: very expensive momentum, I might add, but it still gave

362
00:19:11,160 --> 00:19:13,520
Speaker 1: it to it for the last ten years, and I

363
00:19:13,520 --> 00:19:16,040
Speaker 1: think we're approaching probably a level where you're likely to

364
00:19:16,040 --> 00:19:18,639
Speaker 1: finally start seeing wage rises coming through. But as I

365
00:19:18,640 --> 00:19:21,119
Speaker 1: said earlier on surveillance with you it's likely to spike,

366
00:19:21,160 --> 00:19:24,280
Speaker 1: it won't be a gradual rise. But what's fascinating, Stephen,

367
00:19:24,359 --> 00:19:26,160
Speaker 1: this goes to the heart of your study in your

368
00:19:26,160 --> 00:19:31,199
Speaker 1: decades of work. Is the wage increases going in any

369
00:19:31,240 --> 00:19:35,240
Speaker 1: way to all most sum of labor or is it

370
00:19:35,320 --> 00:19:38,960
Speaker 1: really defined to a gilded age narrow pie of people.

371
00:19:39,560 --> 00:19:42,080
Speaker 1: It's a guilt it. We're in a guilded age, definitely,

372
00:19:42,119 --> 00:19:43,800
Speaker 1: and that the real sign of a guilded age is

373
00:19:43,800 --> 00:19:46,920
Speaker 1: the level of leverage the global economy has. And one

374
00:19:46,960 --> 00:19:48,840
Speaker 1: side effect of that leverage. This is something which has

375
00:19:48,840 --> 00:19:51,760
Speaker 1: only come out of my mathematical modeling of Minski's financial

376
00:19:51,800 --> 00:19:55,359
Speaker 1: instability hypothesis, is that increase in leverage is actually paid

377
00:19:55,400 --> 00:19:58,639
Speaker 1: for by the workers, even if they're doing no borrowing whatsoever.

378
00:19:59,080 --> 00:20:01,880
Speaker 1: And what actually happened, effectively is an income distribution effect,

379
00:20:01,880 --> 00:20:04,240
Speaker 1: where the capital hast end up with a roughly the

380
00:20:04,320 --> 00:20:06,840
Speaker 1: rate of profit that leads them to reach an average

381
00:20:06,920 --> 00:20:10,040
Speaker 1: level of investment, and the increasing share going to bankers

382
00:20:10,080 --> 00:20:12,600
Speaker 1: comes at the expensive workers getting a lower share, and

383
00:20:12,680 --> 00:20:14,240
Speaker 1: at the moment, in some ways, I think probably the

384
00:20:14,280 --> 00:20:17,879
Speaker 1: worker's share of income in America and possibly globally is

385
00:20:17,920 --> 00:20:20,640
Speaker 1: the lowest has been in the history of capitalism. So, Professor,

386
00:20:20,680 --> 00:20:23,280
Speaker 1: big question, can the president tackle the issue off the

387
00:20:23,320 --> 00:20:27,320
Speaker 1: worker's share of overall income and support global markets at

388
00:20:27,320 --> 00:20:29,439
Speaker 1: the same time. And what I mean by that is,

389
00:20:29,480 --> 00:20:34,120
Speaker 1: can you simultaneously have risk assets performing global markets stock markets,

390
00:20:34,440 --> 00:20:38,720
Speaker 1: and at the same time have more capital go to labor. Well,

391
00:20:38,760 --> 00:20:41,399
Speaker 1: not that you're hardly talking about sacrificing a lot. I

392
00:20:41,480 --> 00:20:44,439
Speaker 1: mean labor's labor share used to be. You used to

393
00:20:44,600 --> 00:20:47,200
Speaker 1: talk in terms of a sort of seventy thirty labor

394
00:20:47,200 --> 00:20:52,520
Speaker 1: share of income, with thirty including both industrial and financial capital.

395
00:20:53,160 --> 00:20:55,760
Speaker 1: Now is something in the order of sixty two. I

396
00:20:55,760 --> 00:20:58,640
Speaker 1: think something about that means something above sixty five. So

397
00:20:58,760 --> 00:21:01,239
Speaker 1: to get back to the previous levels is hardly going

398
00:21:01,280 --> 00:21:04,000
Speaker 1: to be taking a lot off the of the industrial

399
00:21:04,000 --> 00:21:06,240
Speaker 1: and financial capital. But I don't think it will even

400
00:21:06,280 --> 00:21:07,800
Speaker 1: get that far. I think what's more like that to

401
00:21:07,840 --> 00:21:10,240
Speaker 1: happen is once there is a set of wage rises

402
00:21:10,280 --> 00:21:13,280
Speaker 1: coming through the federal reserve, will that will respond in

403
00:21:13,359 --> 00:21:17,400
Speaker 1: typical neoclassical Pavlovian fashion put up interest rates, believing they're

404
00:21:17,680 --> 00:21:20,439
Speaker 1: balancing the flows of the economy and completely ignoring the

405
00:21:20,480 --> 00:21:23,000
Speaker 1: stock of debt private debt that's out there, and you'll

406
00:21:23,040 --> 00:21:25,320
Speaker 1: see the private sector to go back into d leveraging again,

407
00:21:25,560 --> 00:21:28,320
Speaker 1: and we'll go from a short, sharp inflationary boom too

408
00:21:28,400 --> 00:21:31,399
Speaker 1: higher interest rates, followed by another slump as the private

409
00:21:31,400 --> 00:21:33,960
Speaker 1: sector starts to cut its debt levels once more. Professor,

410
00:21:34,000 --> 00:21:37,000
Speaker 1: tell me why the Federals hiking interest rates is the

411
00:21:37,000 --> 00:21:41,320
Speaker 1: wrong idea? Then why why should they stop? Well, they

412
00:21:41,440 --> 00:21:45,119
Speaker 1: they believe that interest rates can control the global national economy.

413
00:21:45,320 --> 00:21:48,040
Speaker 1: And about twenty years ago I argued to Australia's equivalent

414
00:21:48,560 --> 00:21:51,199
Speaker 1: Inquiry into the financial sector of the Wallace Committee that

415
00:21:51,240 --> 00:21:54,440
Speaker 1: you simply couldn't control that when you had massive levels

416
00:21:54,440 --> 00:21:57,840
Speaker 1: of debt, because it simply was too blunt and instrument.

417
00:21:57,840 --> 00:21:59,760
Speaker 1: It would always come in too late and too heavy.

418
00:22:00,200 --> 00:22:02,760
Speaker 1: And the same thing applies here. There is a center

419
00:22:02,840 --> 00:22:06,720
Speaker 1: of the Reserve bank. All all central banks have three

420
00:22:06,800 --> 00:22:09,480
Speaker 1: numbers in their heads. Two percent is their desired rate

421
00:22:09,480 --> 00:22:12,600
Speaker 1: of inflation, three is the desired rate of economic growth,

422
00:22:12,760 --> 00:22:14,600
Speaker 1: and four percent is where they think their interest rate

423
00:22:14,640 --> 00:22:17,200
Speaker 1: should be. And that is a world in which there's

424
00:22:17,240 --> 00:22:20,880
Speaker 1: no role whatsoever for private debt. So they'll they'll get

425
00:22:20,880 --> 00:22:22,240
Speaker 1: the two or three four right, and I'll blow up

426
00:22:22,240 --> 00:22:24,600
Speaker 1: the global economy. Stick keen. In the time that we've

427
00:22:24,600 --> 00:22:26,879
Speaker 1: got with you today, I want to step back and

428
00:22:26,920 --> 00:22:28,720
Speaker 1: look at some of your work and this goes back

429
00:22:28,760 --> 00:22:32,520
Speaker 1: to Marxist theory and modern capitalism, which is a study

430
00:22:32,520 --> 00:22:35,600
Speaker 1: of profitability. And I say this in homage to you

431
00:22:35,680 --> 00:22:38,040
Speaker 1: and all sort of megden to say of the London

432
00:22:38,119 --> 00:22:44,439
Speaker 1: School of economics, is our profitability today equality profitability or

433
00:22:44,520 --> 00:22:48,000
Speaker 1: is it an engineered profitability? Good question, Tom, and either

434
00:22:48,000 --> 00:22:50,639
Speaker 1: go over the engineered side of things. Because you're talking

435
00:22:50,640 --> 00:22:52,560
Speaker 1: earlier in the show about level of share buy backs

436
00:22:52,560 --> 00:22:55,840
Speaker 1: that are occurring. That is a sign of a the

437
00:22:55,920 --> 00:22:58,600
Speaker 1: management of industrial capitalism that that doesn't think it has

438
00:22:58,600 --> 00:23:00,480
Speaker 1: any better ideas than to hand them any back to

439
00:23:00,520 --> 00:23:03,919
Speaker 1: the shareholders rather than actually investing it and innovating. So,

440
00:23:03,960 --> 00:23:06,280
Speaker 1: if you want to find a really vibrant stage of

441
00:23:06,280 --> 00:23:09,280
Speaker 1: American capitalism, it was the forties to the sixties where

442
00:23:09,280 --> 00:23:12,160
Speaker 1: there was dramatic levels of investment and nobody would even

443
00:23:12,200 --> 00:23:15,160
Speaker 1: think of handing money back to shareholders, excepted dividends from

444
00:23:15,160 --> 00:23:18,480
Speaker 1: successful in your product launchers. Um that that said, we

445
00:23:18,560 --> 00:23:23,080
Speaker 1: still have the outstanding characters that the billionaires like Musk

446
00:23:23,200 --> 00:23:26,879
Speaker 1: and Bozis and so on, who are using their incredible

447
00:23:26,920 --> 00:23:31,439
Speaker 1: fortunes for various quite off the off the scale innovative investments.

448
00:23:31,480 --> 00:23:33,400
Speaker 1: But as a whole, I think it can say it's

449
00:23:33,400 --> 00:23:37,320
Speaker 1: a pretty moribund and engineered level of capital. Let's reve

450
00:23:37,400 --> 00:23:40,080
Speaker 1: up the scripture. Secretary Ross over with Becky Quick on

451
00:23:40,119 --> 00:23:43,560
Speaker 1: CNBC right now, UM saying that there will be an

452
00:23:43,680 --> 00:23:48,800
Speaker 1: enforcement team installed ZTE. This is a controversial tech story

453
00:23:49,560 --> 00:23:52,720
Speaker 1: in China. Mr Ross, as a U S and ZT

454
00:23:53,000 --> 00:23:56,240
Speaker 1: have reached an agreement that in itself is headline making.

455
00:23:56,359 --> 00:24:00,800
Speaker 1: Steve Keene, what is your take on the new China commerce?

456
00:24:00,960 --> 00:24:03,600
Speaker 1: I guess is how I would put it. Their ability

457
00:24:03,640 --> 00:24:06,560
Speaker 1: to do business is that business is usual for China?

458
00:24:06,720 --> 00:24:09,160
Speaker 1: Or are they gonna take a new road that President

459
00:24:09,200 --> 00:24:11,600
Speaker 1: Trump and others will have to adapt to. They won't.

460
00:24:11,680 --> 00:24:13,360
Speaker 1: They certainly won't take the road the Trump wants them

461
00:24:13,400 --> 00:24:15,920
Speaker 1: to follow. Um. If there's not a long enough memory

462
00:24:15,920 --> 00:24:18,920
Speaker 1: in China political circles to say we're getting even for

463
00:24:18,960 --> 00:24:21,000
Speaker 1: the opium Wars and not about the let to America

464
00:24:21,080 --> 00:24:26,440
Speaker 1: dictate them anything after that identity for two centuries ago. Um,

465
00:24:26,560 --> 00:24:28,680
Speaker 1: So I think what the new model in China is

466
00:24:28,720 --> 00:24:30,560
Speaker 1: that they've gone past the stage where they can rely

467
00:24:30,640 --> 00:24:33,080
Speaker 1: upon credit for the private sector as a driver of

468
00:24:33,119 --> 00:24:35,560
Speaker 1: economic growth. That's what they've relied upon since two thousand

469
00:24:35,560 --> 00:24:37,600
Speaker 1: and ten. What they're now doing, I think is the

470
00:24:37,640 --> 00:24:41,760
Speaker 1: Silk Road and all the major infrastructure projects as the

471
00:24:41,840 --> 00:24:44,119
Speaker 1: driver of growth because the last thing they can afford

472
00:24:44,160 --> 00:24:47,919
Speaker 1: us to have rising unemployment amongst the industrial working class

473
00:24:48,000 --> 00:24:51,879
Speaker 1: in China, because Chinese are much better revolution than Americans are. Well,

474
00:24:51,960 --> 00:24:54,680
Speaker 1: let's see that there, Steve King thinking so much. Greatly appreciated,

475
00:24:54,720 --> 00:24:58,479
Speaker 1: and folks, whatever your beliefs and politics, I would suggest

476
00:24:58,480 --> 00:25:01,880
Speaker 1: a careful study of Mr Keen, Professor Keene would be

477
00:25:02,080 --> 00:25:19,360
Speaker 1: uh important because we saw Turkish leira coming in earlier.

478
00:25:19,440 --> 00:25:23,880
Speaker 1: Brazil announces extra foreign exchange intervention for the second time

479
00:25:23,880 --> 00:25:28,320
Speaker 1: in three days. That's an official headline again, Brazilia raises

480
00:25:28,520 --> 00:25:33,800
Speaker 1: f X intervention again these are swap transactions. Is Brazilian

481
00:25:33,840 --> 00:25:37,159
Speaker 1: real gets out to a three ninety one? Uh? Certainly

482
00:25:37,160 --> 00:25:40,560
Speaker 1: getting near that four level gets your attention and the

483
00:25:40,640 --> 00:25:43,440
Speaker 1: major headline there is the activity two times in three

484
00:25:43,520 --> 00:25:48,000
Speaker 1: days on Brazilian at real right now, um, Brazil, if

485
00:25:48,040 --> 00:25:52,720
Speaker 1: my eyes don't fail me three point nine zero on

486
00:25:52,880 --> 00:25:56,119
Speaker 1: Brazilian real. He may not look at Brazilian real. He

487
00:25:56,200 --> 00:25:59,000
Speaker 1: may not look at Turkish lera, but his luck does

488
00:25:59,040 --> 00:26:02,840
Speaker 1: look at down twenty five futures up sixty five in

489
00:26:02,880 --> 00:26:05,560
Speaker 1: the dough. Right now joining us, Douglas Cast of Sea

490
00:26:05,600 --> 00:26:08,360
Speaker 1: Breeze Partners. Doug, you have been what I would call

491
00:26:08,480 --> 00:26:12,240
Speaker 1: a supple short, which is you know when to protect yourself.

492
00:26:12,840 --> 00:26:16,840
Speaker 1: How have you done with a cautious view given the

493
00:26:17,080 --> 00:26:19,640
Speaker 1: quality of this bull market, which seems to be tech

494
00:26:19,680 --> 00:26:25,359
Speaker 1: tech tech. Um, I have basically of the view that

495
00:26:25,440 --> 00:26:27,639
Speaker 1: the market is stretched. We're at the top end of

496
00:26:27,640 --> 00:26:30,560
Speaker 1: where I see the trading range for two thousand eighteen.

497
00:26:31,600 --> 00:26:34,639
Speaker 1: I'm staying long, but I'm using trailing stops to short

498
00:26:34,680 --> 00:26:38,960
Speaker 1: the market and basically for the purpose of immunizing my

499
00:26:39,119 --> 00:26:42,840
Speaker 1: portfolio should the price momentum abruptly change, which I suspect

500
00:26:42,880 --> 00:26:46,720
Speaker 1: could happen at any time. So um, you know we

501
00:26:46,720 --> 00:26:50,400
Speaker 1: we are in this extraordinary market which is distorted by

502
00:26:50,440 --> 00:26:54,280
Speaker 1: machines and al goes and other price momentum based strategies

503
00:26:54,280 --> 00:26:58,400
Speaker 1: and products, and they result in these exaggerated short term

504
00:26:58,400 --> 00:27:02,440
Speaker 1: moves and is in to market landscape in which buyers

505
00:27:02,440 --> 00:27:06,159
Speaker 1: live higher and sellers live lower. Um. So it's a

506
00:27:06,200 --> 00:27:10,520
Speaker 1: great environment for opportunistic and impassioned trading. I would say, Tom,

507
00:27:11,000 --> 00:27:13,480
Speaker 1: not so great for the buy and whole crowd. How

508
00:27:13,600 --> 00:27:17,960
Speaker 1: narrow is this market? I mean Mr Kramer dusk Star

509
00:27:18,119 --> 00:27:20,400
Speaker 1: came up with saying, is it an all saying, all

510
00:27:20,400 --> 00:27:24,560
Speaker 1: the time market. Well, we're in a complicated market. You know,

511
00:27:24,680 --> 00:27:28,320
Speaker 1: the investment mosaic is always complicated. It's not simple to

512
00:27:28,400 --> 00:27:33,360
Speaker 1: explain or simple to respond to. UM. If you consider

513
00:27:33,440 --> 00:27:36,240
Speaker 1: Tom as Jonathan on the wire too, No, John's not

514
00:27:36,359 --> 00:27:40,560
Speaker 1: here today, okay, okay, Hey, Then with all the great

515
00:27:40,560 --> 00:27:43,240
Speaker 1: news on the earnings front, the SMP is only up

516
00:27:43,280 --> 00:27:45,399
Speaker 1: about three percent year to day. So we're seeing a

517
00:27:45,440 --> 00:27:49,200
Speaker 1: contraction and valuations after last year's or at a large

518
00:27:49,400 --> 00:27:52,360
Speaker 1: three multiple point rise in the SMP. So the complexion

519
00:27:52,359 --> 00:27:55,520
Speaker 1: of the market seems to be changing. So this year

520
00:27:55,800 --> 00:28:00,200
Speaker 1: main Main Street is beating Wall Street. Last year, uh,

521
00:28:00,200 --> 00:28:03,600
Speaker 1: Wall Street, the Main Street and UM. The action in

522
00:28:03,640 --> 00:28:06,600
Speaker 1: the last couple of a couple of days is particularly odd.

523
00:28:07,320 --> 00:28:10,120
Speaker 1: The market seems to have no sector memory from day

524
00:28:10,160 --> 00:28:13,880
Speaker 1: to day. Earlier in the week, tech spurted than retail

525
00:28:14,440 --> 00:28:17,880
Speaker 1: was on fire. Both were subdued yesterday and financials took

526
00:28:17,880 --> 00:28:20,359
Speaker 1: over on the up side. So it strikes me that

527
00:28:20,480 --> 00:28:22,960
Speaker 1: the buying and swift rotation in the last couple of

528
00:28:23,000 --> 00:28:25,959
Speaker 1: days is kind of panicky and a possible event by

529
00:28:26,000 --> 00:28:28,600
Speaker 1: managers to catch up. Let's bring in Pim Fox in

530
00:28:28,640 --> 00:28:31,080
Speaker 1: Florida with the gas. They're about a stand in home

531
00:28:31,160 --> 00:28:34,720
Speaker 1: run away from each other. And how about those Yankees.

532
00:28:34,760 --> 00:28:37,000
Speaker 1: The real question of the day is whether the Yankees

533
00:28:37,040 --> 00:28:39,600
Speaker 1: Pim will be going to the White House after they

534
00:28:39,600 --> 00:28:43,240
Speaker 1: win the World Series. I'm just gonna let that question

535
00:28:43,320 --> 00:28:47,800
Speaker 1: float somewhere over. How about the Cubs, Tom Off grand

536
00:28:47,840 --> 00:28:50,080
Speaker 1: slam by Hayward? Are you kidding me? It was? It

537
00:28:50,120 --> 00:28:55,400
Speaker 1: was you always want the Cubs to participate? Mr Fox Well, Doug,

538
00:28:55,600 --> 00:28:57,200
Speaker 1: you know that's where I was going with the with

539
00:28:57,320 --> 00:29:00,720
Speaker 1: the change in the rotation in where box are are

540
00:29:00,840 --> 00:29:03,400
Speaker 1: being traded. And I'm wondering if you could just step

541
00:29:03,400 --> 00:29:07,040
Speaker 1: back and give us your thoughts about passive versus active

542
00:29:07,720 --> 00:29:11,520
Speaker 1: management right now and this widespread use of e T

543
00:29:11,880 --> 00:29:15,200
Speaker 1: s and do you have any idea what happens if

544
00:29:15,200 --> 00:29:18,040
Speaker 1: there's a big down draft in the market and people

545
00:29:18,080 --> 00:29:20,080
Speaker 1: don't realize what they actually own in their E T

546
00:29:20,320 --> 00:29:23,480
Speaker 1: F s. I'll be very direct, there is an underlying

547
00:29:23,680 --> 00:29:29,840
Speaker 1: assumption by retail investors that the ets themselves will behave

548
00:29:29,880 --> 00:29:35,080
Speaker 1: in a much more stable condition than their components, and

549
00:29:35,160 --> 00:29:38,440
Speaker 1: I suspect just the opposite will will happen. And we

550
00:29:38,520 --> 00:29:40,840
Speaker 1: saw this a couple of summers ago, I think it

551
00:29:40,920 --> 00:29:44,320
Speaker 1: was two thousand sixteen, where they were imbalanced as an

552
00:29:44,360 --> 00:29:48,760
Speaker 1: E T S VISAVI the components of the E T F.

553
00:29:49,320 --> 00:29:53,800
Speaker 1: So um, we're we're in a in a very precarious

554
00:29:53,880 --> 00:29:59,280
Speaker 1: time in which markets are distorted by these machines and

555
00:29:59,360 --> 00:30:05,440
Speaker 1: al goes uh, and by by quant strategies like volatility, trending,

556
00:30:05,440 --> 00:30:09,600
Speaker 1: and risk parity, but also importantly by leveraged and unleveraged

557
00:30:09,600 --> 00:30:15,000
Speaker 1: passive ets that you mentioned. I mean this is this

558
00:30:15,200 --> 00:30:20,160
Speaker 1: is a great, a great, great backdrop if you're an

559
00:30:20,320 --> 00:30:26,560
Speaker 1: unemotional trader and an opportunistic trader who has no fear. Well,

560
00:30:26,680 --> 00:30:28,320
Speaker 1: that's why I wanted to go next, is that the

561
00:30:28,480 --> 00:30:34,640
Speaker 1: speed of market reaction can really catch people unawares, and

562
00:30:34,880 --> 00:30:38,160
Speaker 1: there's an opportunity to take advantage when people react. Are

563
00:30:38,200 --> 00:30:40,680
Speaker 1: you surprised by the speed of market reaction to I mean,

564
00:30:40,680 --> 00:30:44,920
Speaker 1: you've written about this, yes, Yes, the discounting is extraordinarily efficient.

565
00:30:45,440 --> 00:30:50,320
Speaker 1: It happens within minutes or hours um, and I think

566
00:30:51,120 --> 00:30:58,719
Speaker 1: some measure it's um um. I think it's like if

567
00:30:58,760 --> 00:31:02,560
Speaker 1: I can do an analog. It's like it's like accepting

568
00:31:03,400 --> 00:31:08,640
Speaker 1: Trump's rhetoric before he makes a substance of policy decision.

569
00:31:09,600 --> 00:31:14,720
Speaker 1: Market participants are beginning to understand that these um exaggerated

570
00:31:14,720 --> 00:31:18,640
Speaker 1: short term moves are providing short term opportunities. But then

571
00:31:19,240 --> 00:31:21,280
Speaker 1: you know, we have a we have an unusual backdrop.

572
00:31:21,400 --> 00:31:24,040
Speaker 1: We have Deutsche Bank, Will you have an Italian dead crisis?

573
00:31:24,120 --> 00:31:26,720
Speaker 1: We have a number of potential In a prior segment,

574
00:31:26,920 --> 00:31:28,760
Speaker 1: three or four segments ago, maybe an hour and a

575
00:31:28,800 --> 00:31:30,960
Speaker 1: half ago, Tom, you guys were talking. You were talking

576
00:31:31,040 --> 00:31:34,240
Speaker 1: to a woman about the potential funding stress of US

577
00:31:34,280 --> 00:31:40,440
Speaker 1: dollar dis Yeah, it was a great segments. Equities Dog Cass,

578
00:31:40,480 --> 00:31:42,360
Speaker 1: the series partners, that we don't talk to him about

579
00:31:42,360 --> 00:31:46,240
Speaker 1: the equity markets. Possibly we will talk to Doug Cass

580
00:31:46,360 --> 00:31:56,760
Speaker 1: about the dreaded New York Yankees. Thanks for listening to

581
00:31:56,840 --> 00:32:01,320
Speaker 1: the Bloomberg Surveillance podcast. Subscribe and listen to interviews on

582
00:32:01,400 --> 00:32:07,280
Speaker 1: Apple Podcasts, SoundCloud, or whichever podcast platform you prefer. I'm

583
00:32:07,320 --> 00:32:10,600
Speaker 1: on Twitter at Tom Keene Before the podcast, you can

584
00:32:10,640 --> 00:32:13,840
Speaker 1: always catch us worldwide I'm Bloomberg Radio