WEBVTT - EMs Have Different Growth Issues, Bailin Says 0:00:00.080 --> 0:00:13.040 Yea. Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene 0:00:13.480 --> 0:00:17.560 Jay Lee. We bring you insight from the best in economics, finance, investment, 0:00:18.000 --> 0:00:23.520 and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, 0:00:23.600 --> 0:00:33.839 Bloomberg dot Com, and of course on the Bloomberg. So 0:00:33.920 --> 0:00:37.240 let's start with emerging markets. First it was Turkey, then Argentina, 0:00:37.280 --> 0:00:40.280 now Brazil. The some pain emerging in Am and e 0:00:40.479 --> 0:00:43.280 M central bankers are asking the Fed for help. Indonesia's 0:00:43.320 --> 0:00:46.199 new central bank chief joined his counterpart in India in 0:00:46.280 --> 0:00:48.760 calling on the Federal Reserve to be more mindful of 0:00:48.840 --> 0:00:52.080 the global repercussions of policy. Technik jointed me to discusses. 0:00:52.159 --> 0:00:54.120 David Balin, I'm really pleased to say who joins us 0:00:54.120 --> 0:00:57.280 here in New York City Private Bank Global head of Investments. 0:00:57.280 --> 0:00:59.360 Good morning, David, Good morning, Thank you for having me. 0:00:59.640 --> 0:01:02.280 Another central bank Kaike, this one coming from Turkey and 0:01:02.400 --> 0:01:06.680 e M is constantly responding now to precious coming from 0:01:06.680 --> 0:01:08.680 our swhere. Talk to me about the pain that e 0:01:08.800 --> 0:01:10.800 M could be about sick out through Well, let's talk 0:01:10.800 --> 0:01:13.080 about you know what's really happening in the sense that 0:01:13.080 --> 0:01:15.600 you've got um the US actually sort of sucking up 0:01:15.640 --> 0:01:19.720 capital because you had a huge, you know, tax um 0:01:20.000 --> 0:01:22.840 overhaul in the United States which has created both fiscal stimulus, 0:01:22.880 --> 0:01:25.120 has created a larger deficit at the same time that 0:01:25.200 --> 0:01:28.520 the FED is actually uh selling securities back to the market, 0:01:28.560 --> 0:01:31.000 you know, and raising rates. So this is sort of 0:01:31.000 --> 0:01:33.880 one two three punch for emerging market currency. So that's 0:01:33.880 --> 0:01:37.480 the what's what's taking place now. The emerging markets have 0:01:37.520 --> 0:01:39.800 different stories. If we take a look at Asian emerging markets, 0:01:39.840 --> 0:01:41.560 their currencies have done better. If you take a look 0:01:41.560 --> 0:01:44.040 at Latin America and Turkey, they've done worse. And in 0:01:44.120 --> 0:01:47.319 those circumstances. It really is the fact that they've got 0:01:47.319 --> 0:01:50.000 their own economic issues and growth issues that are taking place. 0:01:50.400 --> 0:01:52.400 So you know, there's a lot going on. They're not 0:01:52.440 --> 0:01:54.160 going to get much help from the FED. The FED 0:01:54.240 --> 0:01:56.720 is going to continue along its policy exactly as it 0:01:56.720 --> 0:01:59.520 intends to over the course of the next eighteen months. 0:01:59.560 --> 0:02:01.880 So they're gonna have to make an independent decision about 0:02:01.880 --> 0:02:04.000 what their reach should be and that and they're still 0:02:04.040 --> 0:02:05.680 going to be under currency pressure. In my mind in 0:02:06.040 --> 0:02:09.000 even sexture twelve months. This is what I was going 0:02:09.040 --> 0:02:11.160 to ask you about, just looking at what J. Powell 0:02:11.160 --> 0:02:13.560 has said very recently in the last month. This was 0:02:13.600 --> 0:02:15.639 a month ago, almost to the day. This was J 0:02:15.760 --> 0:02:18.360 p the Chairman of the Federal Reserve. Monetary stimulus by 0:02:18.400 --> 0:02:21.520 the FED and other advanced economy central bankers played a 0:02:21.560 --> 0:02:24.239 relatively limited role in the search of capital flows to 0:02:24.320 --> 0:02:26.720 emerging markets. There is good reason to think that the 0:02:26.760 --> 0:02:31.400 normalization of monetary policies and advanced economies should continue to 0:02:31.480 --> 0:02:34.400 prove manageable for e ms. What do you think of 0:02:34.400 --> 0:02:37.239 that statement from the Chairman of the Federal Reserve UM 0:02:37.240 --> 0:02:39.240 It's very It's supposed to be a calming statement in 0:02:39.240 --> 0:02:42.840 indicating that everything will happen gradually. And you know, in 0:02:42.919 --> 0:02:45.280 his defense, if you take a look at the speed 0:02:45.360 --> 0:02:48.200 with which the feed is moving, given the unemployment rate 0:02:48.240 --> 0:02:50.880 in the United States and different debates about inflation, you 0:02:50.919 --> 0:02:53.080 could argue that the Fed is moving very deliberately and 0:02:53.120 --> 0:02:55.760 relatively slowly. However, if you were to look at that 0:02:55.800 --> 0:02:58.480 from the emerging markets perspective, you would sit there and say, 0:02:58.520 --> 0:03:00.760 my goodness, you can imagine that there could be two 0:03:00.800 --> 0:03:03.280 four sixth rate hikes from here, and that that's gonna 0:03:03.280 --> 0:03:07.120 have a materially negative impact on on on emerging market currency. 0:03:07.240 --> 0:03:10.120 So again, I think what he's seeing is we're going 0:03:10.160 --> 0:03:13.160 to do this um and he's not really holding their 0:03:13.240 --> 0:03:15.640 view to any quarter whatsoever. So if you're just churning 0:03:15.680 --> 0:03:18.120 in more pain than emerging markets in Brazil in the 0:03:18.200 --> 0:03:20.440 last couple of days, we've seen it in Argentina, we've 0:03:20.480 --> 0:03:23.080 seen it in Turkey. Turkey hiked interest rates in an 0:03:23.120 --> 0:03:25.920 emergency meeting just a couple of weeks ago. They've hiked 0:03:25.960 --> 0:03:29.359 interest rates again at the scheduled meeting today, taking rates 0:03:29.400 --> 0:03:33.240 up to seventeen point seven five. A rally in the 0:03:33.280 --> 0:03:37.200 Turkish lira, taking dollar lira back through four fifty four 0:03:37.360 --> 0:03:40.240 forty six forty one is how we're trading in the 0:03:40.280 --> 0:03:42.880 here and now, Tom Keane, lots going on in the 0:03:43.040 --> 0:03:46.120 m It's extraordinary new. So I did not expect this 0:03:46.240 --> 0:03:49.520 today for a Thursday the economics. The economist didn't expect 0:03:49.520 --> 0:03:51.720 another hike from Turkey today either. And you know, I'm 0:03:51.720 --> 0:03:54.080 working out right now. I'll function and I'll eventually get 0:03:54.080 --> 0:03:56.040 it done and get it out on Twitter, Bloomberg Radio, 0:03:56.080 --> 0:03:58.720 you'll see it first. But you take that one week 0:03:58.800 --> 0:04:01.600 repo Turkey rate, it's like their Fed Funds target rate. 0:04:01.640 --> 0:04:06.040 Whatever seventeen and three quarters percent less twelve percent inflation. 0:04:06.160 --> 0:04:09.200 I think, John, the math is, that's a five percent 0:04:09.720 --> 0:04:13.560 real interest rate, David Balan is compared to real rates 0:04:14.040 --> 0:04:16.520 as they look west to Europe or frankly as they 0:04:16.560 --> 0:04:19.680 look self more troubled economies. I mean, that is an 0:04:19.760 --> 0:04:25.200 unsustainable real rate for any economy general. That's right, um. 0:04:25.240 --> 0:04:27.000 And certainly if you take a look at it compared 0:04:27.040 --> 0:04:29.120 to to the you know, the developed world, where you 0:04:29.160 --> 0:04:32.960 have you know, zero arguably negative rates in terms of 0:04:32.960 --> 0:04:37.720 what you're earning. Certainly across across Europe, that's exactly right. Um. 0:04:37.760 --> 0:04:39.760 You know, Turkey is is its own case, and I 0:04:39.800 --> 0:04:42.000 think we know by focusing on it, you actually we 0:04:42.040 --> 0:04:43.799 have to look at the emerging markets as a whole 0:04:44.000 --> 0:04:47.080 and and there I think the picture is quite different. Um. 0:04:47.200 --> 0:04:49.320 You know, they didn't get the benefits of Kwei and 0:04:49.360 --> 0:04:51.040 they're they're gonna have a little bit of pain as 0:04:51.080 --> 0:04:53.520 QUI comes off. And so it's gonna be at the 0:04:53.560 --> 0:04:55.800 end of the day for an investor to look at 0:04:55.800 --> 0:04:57.920 the actual economy and to look at the value of 0:04:57.960 --> 0:05:00.359 those stocks, and to look at the growth rate of 0:05:00.400 --> 0:05:03.719 earnings in those companies and their ability obviously to handle 0:05:04.200 --> 0:05:06.400 their their own foreign currency risk, and and and and 0:05:06.520 --> 0:05:09.080 in general, I have to say that that in contrast, 0:05:09.120 --> 0:05:11.279 you know, we think that you know, three quarters of 0:05:11.320 --> 0:05:13.520 the emerging market economies are actually going to be a 0:05:13.520 --> 0:05:16.320 decent place to put money um over the course of 0:05:16.360 --> 0:05:19.120 the next couple of years. So I do agree that 0:05:19.160 --> 0:05:22.280 these are flashpoints. But on the other hand, as an investor, 0:05:22.400 --> 0:05:24.720 I don't look upon them as bell weathers. Let's get 0:05:24.760 --> 0:05:27.599 to the three quotas. What are the three quartes? So 0:05:27.640 --> 0:05:29.680 the quota that you don't want to be in, well, 0:05:29.720 --> 0:05:32.280 I mean certainly Turkey would be a good example of that, 0:05:32.360 --> 0:05:34.239 and and and and in my mind Russia as well, 0:05:34.680 --> 0:05:37.360 which is very very um you know, never diversified, never 0:05:37.400 --> 0:05:39.440 diversified away from from oil. But if you were to 0:05:39.480 --> 0:05:42.760 look at you know, basically all across all across Asia, 0:05:42.880 --> 0:05:44.960 if you were to look at at Latin America as 0:05:45.000 --> 0:05:46.920 a whole, uh, if you were to look at the 0:05:47.480 --> 0:05:49.680 sort of multinational companies operating there, if you were to 0:05:49.760 --> 0:05:52.159 look at everything when it comes to mining, whether it 0:05:52.200 --> 0:05:57.080 comes to actual agricultural values companies, these companies are in 0:05:57.120 --> 0:06:01.120 some way cases very very inexpensive and healthy. Remember that 0:06:01.120 --> 0:06:03.440 they've had a chance to repair their balance sheets as well. 0:06:03.680 --> 0:06:05.520 It's not as if only U S companies are only 0:06:05.520 --> 0:06:08.400 European companies are only easier companies have benefited. So we 0:06:08.480 --> 0:06:10.840 when we look at individual baskets of companies and their 0:06:10.839 --> 0:06:13.159 ability to sort of get major shares of market, we 0:06:13.240 --> 0:06:16.680 think that they're quite quite uh dupily approached. There is 0:06:16.720 --> 0:06:18.760 this hope that in latam and let's take Brazil as 0:06:18.800 --> 0:06:22.279 one example, there will be this liberalization, they will move 0:06:22.320 --> 0:06:25.600 towards free markets and there will be great investable opportunities. 0:06:25.760 --> 0:06:27.520 What we've seen in the last month with a country 0:06:27.560 --> 0:06:30.400 like Petro Bass is ultimately, when crude prices went up, 0:06:30.720 --> 0:06:33.680 when petrol prices, gas prices went up, the truckers went 0:06:33.720 --> 0:06:36.719 on strike and the government lent on Petro Bass to 0:06:36.760 --> 0:06:39.560 get rid of the CEO. The CEO goes just like that. 0:06:39.560 --> 0:06:44.360 That's how quickly things move and stops, and all of 0:06:44.400 --> 0:06:47.159 a sudden we have to rethink Brazil. It's Brazil kind 0:06:47.160 --> 0:06:49.719 to be that bastion of free markets and capitalism with 0:06:49.800 --> 0:06:53.840 available investable opportunities. The last month, the lesson is maybe not, 0:06:54.160 --> 0:06:56.320 maybe not, but but I think that you know, that's 0:06:56.360 --> 0:06:58.560 not how you can invest looking at the last month. 0:06:58.600 --> 0:06:59.800 And you also have to remember that they're in a 0:07:00.240 --> 0:07:02.800 cycle now where they have the same type of political issue. 0:07:02.800 --> 0:07:04.800 They can choose the middle of the road candidate, far left, 0:07:04.839 --> 0:07:07.520 far right. All of it's still alive right now. Polls 0:07:07.520 --> 0:07:09.600 are very fluid, the candidates themselves are not, you know, 0:07:09.720 --> 0:07:12.800 especially dynamic, and so you know, you can't make it. 0:07:12.960 --> 0:07:15.240 The judgment. Our view on Brazil in terms of where 0:07:15.280 --> 0:07:18.240 it is and its economic recovery is that very very early, 0:07:18.360 --> 0:07:20.320 you know, and that for us is very very attractive. 0:07:20.600 --> 0:07:23.600 So you have to be willing to tolerate volatility in 0:07:23.680 --> 0:07:25.560 order to make these investments, and and of course you 0:07:25.600 --> 0:07:28.200 have to get paid for it at the end. You 0:07:28.240 --> 0:07:30.640 can't show me a city private bank global head of 0:07:30.720 --> 0:07:48.640 investments also lagnus with us with OURBC capital markets, and 0:07:48.720 --> 0:07:52.040 she is a student of foreign exchange and the concept 0:07:52.080 --> 0:07:57.920 elsa excuse me, it's Berry, Ike and Green, Ricardo Houseman 0:07:58.760 --> 0:08:03.320 and Ugio Paniza. Original sin in the Great Fear and 0:08:03.400 --> 0:08:08.320 the original sin of Argentina, Brazil in Turkey is you're 0:08:08.360 --> 0:08:09.520 not going to be able to go out to the 0:08:09.520 --> 0:08:13.200 debt markets because you're so troubled. How close are we 0:08:13.920 --> 0:08:19.040 to where these emerging market economies can't function in the 0:08:19.120 --> 0:08:25.480 global debt market. Well, Turkey's problem in particular is UM. 0:08:25.520 --> 0:08:30.840 It's overseas borrowing, particularly borrowing in US dollars by the 0:08:30.880 --> 0:08:35.160 corporate sector. And I think, you know, the central bank 0:08:35.280 --> 0:08:37.880 is doing what it can to bring the situation under control, 0:08:38.640 --> 0:08:40.719 having come under a lot of political pressure earlier on 0:08:40.760 --> 0:08:43.920 in the year to keep rapes low UM. I think 0:08:44.080 --> 0:08:47.480 the political leadership in Turkey has admitted and acknowledged that's 0:08:47.559 --> 0:08:50.480 really not working UM. And so today's decision by the 0:08:50.520 --> 0:08:55.280 central banker larger than expected hike UM is really throwing 0:08:55.320 --> 0:08:57.199 everything they have at the problem to try and spend 0:08:57.280 --> 0:09:02.040 the weakness in Can the tools of our textbooks and 0:09:02.080 --> 0:09:05.839 the tools of previous moments and even crisis can they 0:09:05.880 --> 0:09:11.120 work today? Or is the world of em changed? You know, 0:09:11.200 --> 0:09:14.839 A lot will depend on broader risk appetite. And what 0:09:14.880 --> 0:09:19.800 we've seen so far is global markets less willing to 0:09:19.960 --> 0:09:23.160 forgive policy mistakes. We've seen that in Argentina, see that 0:09:23.200 --> 0:09:26.760 in Turkey. UM. But this is not an em led 0:09:26.840 --> 0:09:29.319 route where the good get punished along with the bad. 0:09:29.600 --> 0:09:34.320 UM and Argentina went down this route of hiking rates 0:09:34.320 --> 0:09:38.040 substantially and somewhat stemmed there out there, Turkey is trying 0:09:38.080 --> 0:09:40.880 the same. Can it work? That's your question, Um, you know, 0:09:40.960 --> 0:09:42.880 remains to be seen. I think the problem all of 0:09:42.880 --> 0:09:44.640 these central banks are going to face is that the 0:09:44.679 --> 0:09:46.920 FED is going to be hiking rates US you are 0:09:46.960 --> 0:09:49.240 going higher, um, and that's going to put more and 0:09:49.280 --> 0:09:51.640 more pressure over the longer term. Also, just to get 0:09:51.640 --> 0:09:53.880 to the central bank response from the Federal Reserve, we're 0:09:53.880 --> 0:09:56.920 seeing a plea for help from India the central bank 0:09:56.960 --> 0:09:58.880 governor in an o heed in the Financial Times over 0:09:58.920 --> 0:10:01.120 the last week. The indones In central bank doing the 0:10:01.160 --> 0:10:04.679 same thing. This is Federal Reserve Chairman J Powell about 0:10:04.720 --> 0:10:07.720 a month ago. He's basically saying there is good reason 0:10:07.800 --> 0:10:10.600 to think that the normalization of monetary policies and advanced 0:10:10.640 --> 0:10:15.040 economies should continue to prove manageable for EMS. Is this 0:10:15.160 --> 0:10:18.319 a Federal Reserve that's increasingly less sensitive to what is 0:10:18.320 --> 0:10:23.240 happening abroad. I don't think they've ever I think they've 0:10:23.240 --> 0:10:25.440 always been sensive, let me pay my words carefully, but 0:10:25.480 --> 0:10:27.880 they've never made it their their key focus. And I 0:10:27.880 --> 0:10:30.240 think that's fair enough. You know, Channen pal has enough. 0:10:30.280 --> 0:10:32.720 One has played worrying about managing the U s economy 0:10:33.040 --> 0:10:36.000 and achieving his targets there without also worrying about the 0:10:36.040 --> 0:10:38.880 rest of the world unless it feeds through to the 0:10:38.880 --> 0:10:41.080 outlook for the US. So we saw that a couple 0:10:41.080 --> 0:10:43.360 of years ago, when you know, capital was going out 0:10:43.360 --> 0:10:45.880 of China and people were very worried about the pressure 0:10:45.880 --> 0:10:48.120 on the remombies the central bank. The FED did step 0:10:48.120 --> 0:10:50.840 back and it didn't high rates um and that was 0:10:50.840 --> 0:10:53.000 seen as quite a rational thing to do. But if 0:10:53.000 --> 0:10:56.560 this is Turkey, Argentino, countries, like Tom said, which you know, 0:10:56.600 --> 0:10:59.200 have committed the original sin, I don't think it's really 0:10:59.240 --> 0:11:02.079 the federal reserve place to sort it out for them. 0:11:02.280 --> 0:11:03.920 So I think you make a really good point, especially 0:11:03.920 --> 0:11:06.040 when these are the same countries that we're complaining about 0:11:06.120 --> 0:11:09.760 relative currency strength about five, seven, eight years ago, and 0:11:09.800 --> 0:11:12.760 now they're complaining about completely the opposite. So just in 0:11:12.880 --> 0:11:16.280 terms of em right now, over the last few months, 0:11:16.400 --> 0:11:19.240 we've heard people say, well, these are all idiosynchronic, very 0:11:19.280 --> 0:11:23.000 unique stories. Local to Turkey, another one too local to Argentina. 0:11:23.080 --> 0:11:25.720 We've got another one local to Brazil, local to India, 0:11:26.000 --> 0:11:28.520 local to Indonesia. We're starting to see it be more 0:11:28.559 --> 0:11:31.920 than just a couple of cracks, aren't we. I think 0:11:31.920 --> 0:11:34.320 we're seeing a couple of things. One is that currencies 0:11:34.320 --> 0:11:36.720 are doing what they're supposed to do, which is act 0:11:36.840 --> 0:11:39.360 as a shock absorber. You know, we've seen that in 0:11:39.360 --> 0:11:41.400 the case of Brazil, We've seen in the case of Mexico, 0:11:41.520 --> 0:11:44.400 India another good example. Turkey face is a different problem, 0:11:44.559 --> 0:11:46.760 just because so much of the borrowing has been done 0:11:46.800 --> 0:11:49.640 in foreign currency UM. And the second thing is that, 0:11:50.280 --> 0:11:53.800 more broadly speaking, we're getting into an environment where em 0:11:53.880 --> 0:11:57.319 carry trades on a wil adjusted basis no longer necessarily 0:11:57.360 --> 0:11:59.200 makes sense. You know, there's a lot of places now 0:11:59.240 --> 0:12:01.640 with in g turn um that you can get a 0:12:01.640 --> 0:12:04.440 decent amount of carry with a lot less volatility. And 0:12:04.480 --> 0:12:07.160 I think more broadly speaking, investors are taking another look 0:12:07.160 --> 0:12:10.120 at great term carry trades and thinking, actually, in relative terms, 0:12:10.120 --> 0:12:13.000 it doesn't look as bad. So what do you do 0:12:13.280 --> 0:12:19.800 opportunistically given the interesting mili we're in right now. I 0:12:19.840 --> 0:12:22.920 think they're still good trades out there. We've been trading 0:12:23.000 --> 0:12:26.680 very tactically for some time now, you know, and so 0:12:26.880 --> 0:12:30.960 we'll have our longer term fundamental views. You know, we've 0:12:31.000 --> 0:12:33.240 been calling your a dollar as you know, UM to 0:12:33.360 --> 0:12:36.640 end the year round one eighteen UM. Now that's pretty 0:12:36.720 --> 0:12:38.560 much where we are. But of course two months ago 0:12:38.600 --> 0:12:41.280 that looked like a much more barrish euro dollar call. UM. 0:12:41.360 --> 0:12:45.360 But within that I think you can find oportunistically trades 0:12:45.400 --> 0:12:47.440 that go the other way. So, for example, this week 0:12:47.480 --> 0:12:50.440 we're long. You're a cat that's working very nicely. UM. 0:12:50.480 --> 0:12:53.600 I think there's a good opportunity next week to look 0:12:53.600 --> 0:12:57.720 for some Sterling strength, potentially around the June twelve vote. Obviously, 0:12:57.720 --> 0:12:59.760 Sterling has been very hard hit in the last half 0:12:59.800 --> 0:13:02.680 hour or so, so we'll see how that picks out. UM. 0:13:02.720 --> 0:13:04.560 You know, there are good opportunities out there. You just 0:13:04.559 --> 0:13:07.960 have to be more tactical. What is your strategic dollar call? 0:13:08.040 --> 0:13:10.840 Forget about making money, you know, very trying to make 0:13:10.880 --> 0:13:14.280 money to get to St. Petersburg for Italy versus the US, 0:13:14.440 --> 0:13:18.600 but forgetting forgetting about that. Also, what's the strategic call 0:13:18.679 --> 0:13:22.439 on dollar? I think it's got to be very careful 0:13:23.080 --> 0:13:26.080 about jumping onto the bearish dollar bandwagon. And I know 0:13:26.160 --> 0:13:28.920 we've discussed this together a number of times before, UM, 0:13:28.920 --> 0:13:31.160 and I still stick to that view. I'm not saying 0:13:31.160 --> 0:13:32.920 that dollar is going to go up across the board 0:13:32.920 --> 0:13:35.800 against every single ot of currency. UM. But there are 0:13:35.840 --> 0:13:38.400 places where I think the dollar can strengthen materially dollar 0:13:38.480 --> 0:13:41.400 yen for example, UM. And there are other places where 0:13:41.520 --> 0:13:43.480 I think it pays to be a lot more cautious, 0:13:43.720 --> 0:13:46.640 UM about getting too bearish on the dollar. You know, 0:13:46.920 --> 0:13:49.960 euro dollar. I just don't see one thirty anytime soon. 0:13:50.080 --> 0:13:53.200 So I think your broader dollar call has to be 0:13:54.120 --> 0:13:56.640 looks for the opportunity and don't get carried away with 0:13:56.679 --> 0:13:59.120 the dollar barousness. I think, can we go into the 0:13:59.200 --> 0:14:01.160 capital of foreign exchange, Tom, You and I were going 0:14:01.200 --> 0:14:04.520 to see ALSA in London because cables rolling over again. UM. 0:14:04.559 --> 0:14:07.000 Sterling at one thirty three eighty four, down about two 0:14:07.000 --> 0:14:10.760 tents of one on the session Alsa Brexit politics. We 0:14:10.800 --> 0:14:12.920 don't spend a lot of time talking about it on 0:14:12.920 --> 0:14:15.960 this program for very good reason. It's been going nowhere 0:14:16.240 --> 0:14:18.839 for a long time. But Sterling is starting to look 0:14:18.840 --> 0:14:20.600 painful over the last couple of months. Just give me 0:14:20.600 --> 0:14:26.560 your thoughts. An interesting picture, you know. Obviously some live 0:14:26.600 --> 0:14:30.680 developments at the moment, speculation over David Davis and whether 0:14:30.720 --> 0:14:34.600 he was threatening to resign. UM. I do think the 0:14:34.960 --> 0:14:37.160 verte next week will be really critical, very interesting to 0:14:37.160 --> 0:14:40.480 see how the Commons will react to the Lord's amendments. 0:14:40.520 --> 0:14:42.840 You know, more than anything, I think this is one 0:14:42.840 --> 0:14:46.560 where you've absolutely got to be tactical. Um, but there 0:14:46.640 --> 0:14:48.560 could be an opportunity to look for a bit of 0:14:48.600 --> 0:14:51.360 Sterling recovery next week. Now, Selena's going to catch up 0:14:51.360 --> 0:14:54.240 with you. RBC Global Head of Effects Strategy. We don't 0:14:54.280 --> 0:14:57.040 do Brexit very much, Tom and I would say I'm 0:14:57.040 --> 0:15:00.640 happy about that because not much as being achieved between 0:15:00.680 --> 0:15:03.120 the United Kingdom and the rest of Europe. Yeah, I'll 0:15:03.120 --> 0:15:06.080 agree with the rest of Europe. But even the the 0:15:06.200 --> 0:15:09.480 day to day battles of the Conservative Party the Tories 0:15:09.640 --> 0:15:12.840 in England with each other. I'm sorry it does get 0:15:12.880 --> 0:15:15.480 lost in translation. I mean I read about it, folks. 0:15:15.480 --> 0:15:18.720 I'm trying, you know, seriously, Simon Kennedy and Flavian the 0:15:18.760 --> 0:15:20.520 rest of them are doing a great job over there 0:15:20.520 --> 0:15:24.000 trying to explain it to me. But I just I mean, 0:15:24.160 --> 0:15:28.120 David Davies is running the Brexit debate basically he is 0:15:28.520 --> 0:15:33.120 upset with the Prime Minister. He is strong leave Europe right, 0:15:33.280 --> 0:15:36.760 he wants to leave, and Mr Johnson wants to leave. 0:15:37.560 --> 0:15:40.000 What is Prime Minister may want is she's just got 0:15:40.000 --> 0:15:41.960 to try and please as many people as she possibly can, 0:15:42.000 --> 0:15:44.600 and clearly she can't do that. So I just think 0:15:44.400 --> 0:15:48.680 for most investors worldwide outside of the UK, they wake 0:15:48.760 --> 0:15:50.280 up in the morning and they're just like, tell me 0:15:50.280 --> 0:15:52.760 when I should care. And when Alista says we get 0:15:52.760 --> 0:15:54.600 into a crucial point, I feel like we've been saying 0:15:54.800 --> 0:15:57.160 the last eighteen months, we get into it. I remember 0:15:57.200 --> 0:15:59.880 that I remember the day after Brexit. We knew a 0:16:00.160 --> 0:16:02.400 ten pm the night of Brexit that it would pass, 0:16:02.480 --> 0:16:05.160 which was a shock, and I remember being with you 0:16:05.200 --> 0:16:08.960 and our London team in watching, watching, and then then 0:16:09.160 --> 0:16:13.080 you went to a Mayfair five star dinner. I went 0:16:13.160 --> 0:16:17.680 to the McDonald's at Liverpool Station and I remember this clearly, 0:16:17.880 --> 0:16:20.160 and you know, I remember the shock of the streets, 0:16:20.160 --> 0:16:24.040 whether at the McDonald's at Liverpool's. Can we tell the 0:16:24.040 --> 0:16:29.040 real story? Can we tell the real story? Were freighting 0:16:29.080 --> 0:16:32.360 as straight? You went to go to the bow tie 0:16:32.400 --> 0:16:34.480 store where was it turn Blanassa that you wanted a 0:16:34.520 --> 0:16:39.520 special boat time and then someone spotted you and said, 0:16:39.560 --> 0:16:44.680 comforts come to our Brexit party and you went for 0:16:44.800 --> 0:16:49.560 cigars and whiskey, And I went to work and did 0:16:49.560 --> 0:16:53.080 eighteen as straight. So let's at a Mayfair restaurant. That 0:16:53.160 --> 0:16:55.360 was you and I on the Brexit tour. You were 0:16:55.360 --> 0:17:00.360 in a restaurant with cigars and I was on I'll 0:17:00.400 --> 0:17:04.320 make it up too. We'll go to the mcdonals. I 0:17:04.359 --> 0:17:06.879 can't wait, I can't wait. I can't wait to actually 0:17:06.880 --> 0:17:08.560 see you that I'm gonna I'm gonna run through the 0:17:08.720 --> 0:17:10.960 rice sections please quickly, just to get one up to 0:17:10.960 --> 0:17:27.200 spade this Thursday morning, John Farrell, This is really perfect 0:17:27.240 --> 0:17:31.359 with a less forty eight hours of debate about G 0:17:31.520 --> 0:17:34.800 seven and coming into Professor Keane no relations for Stephen 0:17:34.960 --> 0:17:37.320 k e n. Stephen Keene will be with us with 0:17:37.400 --> 0:17:42.400 Kingston University the President of the United States four minutes ago. 0:17:43.480 --> 0:17:51.680 Isn't it ironic? Already? Get that? That was at channeling 0:17:51.680 --> 0:17:55.920 alanis the tweet? Isn't it ironic? Question Mark getting ready 0:17:55.920 --> 0:17:57.680 to go to the G seven in Canada to fight 0:17:57.760 --> 0:18:00.760 for our country on trade. Parent the sees we have 0:18:00.800 --> 0:18:05.120 the worst trade deals ever made close parentheses. Then off 0:18:05.119 --> 0:18:08.880 the Singapore to meet with North Korea and the nuclear problem. 0:18:08.920 --> 0:18:12.080 But back home we still have the thirteen angry Democrats 0:18:12.800 --> 0:18:15.199 pushing the which hunt. So I guess this first tweet 0:18:15.240 --> 0:18:18.480 is an all encompassing tweet. It is a good time 0:18:18.560 --> 0:18:23.520 maybe to speak on our fractured Western capitalism with Steve Keane, 0:18:23.520 --> 0:18:26.720 who has been a student of labor and of course 0:18:26.760 --> 0:18:29.480 harketing back to the work of Mr Marks of a 0:18:29.520 --> 0:18:32.800 hundred years ago, Professor Keene, the state of labor here 0:18:32.800 --> 0:18:36.159 and the professor of the level of economic growth that 0:18:36.160 --> 0:18:40.280 we're seeing is a backdrop to G seven. Which G 0:18:40.480 --> 0:18:46.400 seven country is doing best right now? That's a tough question, Tom. 0:18:47.000 --> 0:18:49.280 I think in some ways it probably is the States 0:18:49.720 --> 0:18:52.720 and Lange because Trump's uh, you know, bull in a 0:18:52.800 --> 0:18:56.440 China Shop project awaken on my policy is meant as 0:18:56.440 --> 0:18:58.800 a huge government stimulus on it's way into the economy 0:18:58.840 --> 0:19:03.120 bouts where the tax cuts and increased levels of spending. 0:19:03.520 --> 0:19:06.439 So in that sense, I think that that's top topping 0:19:06.440 --> 0:19:08.560 on top of the momentum that QE gave the economy, 0:19:08.800 --> 0:19:11.120 very expensive momentum, I might add, but it still gave 0:19:11.160 --> 0:19:13.520 it to it for the last ten years, and I 0:19:13.520 --> 0:19:16.040 think we're approaching probably a level where you're likely to 0:19:16.040 --> 0:19:18.639 finally start seeing wage rises coming through. But as I 0:19:18.640 --> 0:19:21.119 said earlier on surveillance with you it's likely to spike, 0:19:21.160 --> 0:19:24.280 it won't be a gradual rise. But what's fascinating, Stephen, 0:19:24.359 --> 0:19:26.160 this goes to the heart of your study in your 0:19:26.160 --> 0:19:31.199 decades of work. Is the wage increases going in any 0:19:31.240 --> 0:19:35.240 way to all most sum of labor or is it 0:19:35.320 --> 0:19:38.960 really defined to a gilded age narrow pie of people. 0:19:39.560 --> 0:19:42.080 It's a guilt it. We're in a guilded age, definitely, 0:19:42.119 --> 0:19:43.800 and that the real sign of a guilded age is 0:19:43.800 --> 0:19:46.920 the level of leverage the global economy has. And one 0:19:46.960 --> 0:19:48.840 side effect of that leverage. This is something which has 0:19:48.840 --> 0:19:51.760 only come out of my mathematical modeling of Minski's financial 0:19:51.800 --> 0:19:55.359 instability hypothesis, is that increase in leverage is actually paid 0:19:55.400 --> 0:19:58.639 for by the workers, even if they're doing no borrowing whatsoever. 0:19:59.080 --> 0:20:01.880 And what actually happened, effectively is an income distribution effect, 0:20:01.880 --> 0:20:04.240 where the capital hast end up with a roughly the 0:20:04.320 --> 0:20:06.840 rate of profit that leads them to reach an average 0:20:06.920 --> 0:20:10.040 level of investment, and the increasing share going to bankers 0:20:10.080 --> 0:20:12.600 comes at the expensive workers getting a lower share, and 0:20:12.680 --> 0:20:14.240 at the moment, in some ways, I think probably the 0:20:14.280 --> 0:20:17.879 worker's share of income in America and possibly globally is 0:20:17.920 --> 0:20:20.640 the lowest has been in the history of capitalism. So, Professor, 0:20:20.680 --> 0:20:23.280 big question, can the president tackle the issue off the 0:20:23.320 --> 0:20:27.320 worker's share of overall income and support global markets at 0:20:27.320 --> 0:20:29.439 the same time. And what I mean by that is, 0:20:29.480 --> 0:20:34.120 can you simultaneously have risk assets performing global markets stock markets, 0:20:34.440 --> 0:20:38.720 and at the same time have more capital go to labor. Well, 0:20:38.760 --> 0:20:41.399 not that you're hardly talking about sacrificing a lot. I 0:20:41.480 --> 0:20:44.439 mean labor's labor share used to be. You used to 0:20:44.600 --> 0:20:47.200 talk in terms of a sort of seventy thirty labor 0:20:47.200 --> 0:20:52.520 share of income, with thirty including both industrial and financial capital. 0:20:53.160 --> 0:20:55.760 Now is something in the order of sixty two. I 0:20:55.760 --> 0:20:58.640 think something about that means something above sixty five. So 0:20:58.760 --> 0:21:01.239 to get back to the previous levels is hardly going 0:21:01.280 --> 0:21:04.000 to be taking a lot off the of the industrial 0:21:04.000 --> 0:21:06.240 and financial capital. But I don't think it will even 0:21:06.280 --> 0:21:07.800 get that far. I think what's more like that to 0:21:07.840 --> 0:21:10.240