WEBVTT - Global Growth Isn't Sustainable, Silvia Says 0:00:00.080 --> 0:00:13.040 Yeah, Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene 0:00:13.480 --> 0:00:17.560 Jay Leye. 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 --> 0:00:33.600 Bloomberg dot Com, and of course on the Bloomberg. The 0:00:33.680 --> 0:00:36.760 story is just the data. Globally, it's fantastic, whether it's 0:00:36.760 --> 0:00:39.640 the United States, Europe or Asia. Couldn't get much better. 0:00:39.880 --> 0:00:43.680 John Sylvia Wells, Fargo Chief Economists, joins us now here 0:00:43.720 --> 0:00:45.760 in New York City. John, always great to catch up 0:00:45.800 --> 0:00:47.400 with you. Thank you. Is this peak growth? Can it 0:00:47.440 --> 0:00:50.159 get any better? Oh? I think that peak growth for 0:00:50.280 --> 0:00:53.560 this year eighteen, But I don't think it gets better 0:00:53.680 --> 0:00:58.080 and it's not sustainable going into I think you've got 0:00:58.080 --> 0:01:01.520 a big jump here. You've got a good would gain equipment. Uh, 0:01:01.600 --> 0:01:05.200 spending in the United States housing starts has improved. Also 0:01:05.200 --> 0:01:07.479 in the United States, and as you just mentioned, Uh, 0:01:07.520 --> 0:01:10.880 the European economies have surprised US in the last year, 0:01:10.880 --> 0:01:13.479 and they continue to surprise us, but they will settle 0:01:13.560 --> 0:01:16.280 down to a more longer term trend. But it is 0:01:16.319 --> 0:01:18.360 good to see those positives. John, What do you see 0:01:18.440 --> 0:01:20.400 is more sustainable. What's happening in Europe or what is 0:01:20.400 --> 0:01:24.280 happening in the United States. Well, I think for more sustainable, 0:01:24.280 --> 0:01:26.520 I would go with Europe. I think there there have 0:01:26.640 --> 0:01:29.920 been some changes there. They continue to do fundamental reform 0:01:30.200 --> 0:01:34.039 for different nations, and I think they've got their story together. 0:01:34.080 --> 0:01:37.800 With respect to trade, I am more concerned Jonathan with trade, 0:01:38.400 --> 0:01:41.800 as Tom and I had discussed earlier today. Uh, you know, 0:01:41.840 --> 0:01:43.679 what are we actually going to do to NAFTA? Do 0:01:43.720 --> 0:01:46.240 we understand the importance of naftal the United States? So 0:01:46.400 --> 0:01:49.920 I like the European sustainability. Do you see reason for 0:01:50.120 --> 0:01:52.280 that to be enthusiasm in the equity market? With the 0:01:52.320 --> 0:01:55.040 Dow set to go through twenty five thousand today for 0:01:55.080 --> 0:01:59.160 the first time ever, the SMP northred yesterday for the 0:01:59.200 --> 0:02:02.240 first time ever, we keep grinding our old time highs. 0:02:02.280 --> 0:02:04.480 Does it make sense to you, John right now? It 0:02:04.560 --> 0:02:08.640 does because you've gotten changes in fiscal policy, You've got 0:02:08.680 --> 0:02:10.440 the p M I s that have done really well, 0:02:10.800 --> 0:02:14.880 sustainable gains and employment means the consumer continues to move forward, 0:02:15.320 --> 0:02:19.919 and you have relative peace in the world. Good morning, everyone, 0:02:20.000 --> 0:02:21.920 John farre and time Keene thrilled you with us and 0:02:21.960 --> 0:02:25.400 We've got some really constructive news here. This is the 0:02:25.440 --> 0:02:28.960 micro news. It's made John Sylvia's career in particularly with 0:02:29.000 --> 0:02:34.080 his work of the National Association for Business and Pharmaceutical Economics. 0:02:34.160 --> 0:02:39.639 Walgreens Boots. What's boots? John Boots is um like Dwayne 0:02:39.639 --> 0:02:42.960 read here. Okay, so it's like British Walens. Yes, so 0:02:43.040 --> 0:02:45.000 you go and you can buy like what you need 0:02:45.040 --> 0:02:47.600 for the bathroom to have a wash and brush your teeth. 0:02:48.600 --> 0:02:52.280 I just had the December teeth brush. Walgreens Boots out 0:02:52.360 --> 0:02:54.880 with important numbers and in the one headline and want 0:02:54.880 --> 0:02:56.919 to with their upgrade the one headline, I want to 0:02:56.960 --> 0:03:00.200 mention John Sylvia, which folds into your economics reach l 0:03:00.280 --> 0:03:04.600 Pharmacy comp sales four point seven percent, which is away 0:03:04.680 --> 0:03:09.480 from fed mombo jumbo nominal g d P shows corporate 0:03:09.639 --> 0:03:13.960 indications of picking up absolutely and for a traveler who 0:03:14.040 --> 0:03:17.440 does go to London least twice a year, Boots is 0:03:17.520 --> 0:03:25.920 essential for all those little things. Honestly, Boots fantastic, Tom, 0:03:25.960 --> 0:03:28.960 It is fantastic. When I go into the airport at 0:03:29.040 --> 0:03:31.919 JFK and I don't see a Boots. There is a 0:03:32.000 --> 0:03:35.800 Boot to every airport in the UK and it's got everything. 0:03:35.920 --> 0:03:38.960 Thank you for that important information, Mr Fer. But it 0:03:39.000 --> 0:03:41.480 shows you consumer strength. That's what it's telling you. That 0:03:41.600 --> 0:03:44.880 people are going into those stores and actually communing things ahead. 0:03:44.920 --> 0:03:46.960 So I'm working with Dr hass In, the President of 0:03:47.040 --> 0:03:49.600 United States, and I'm saying, all this doom and gloom, 0:03:49.960 --> 0:03:53.560 look at the animal spirit. How much bigger will the 0:03:53.600 --> 0:03:56.000 animal spirit be? Do we go from the gloom of 0:03:56.080 --> 0:03:59.040 four percent nominal GDP? Can you get to a six 0:03:59.080 --> 0:04:02.760 percent nominal? I can't get get to six percent, and 0:04:02.800 --> 0:04:06.280 maybe someone else can get there. The President would do that. Wow, 0:04:06.320 --> 0:04:08.320 But I'll give you a two and a half percent 0:04:08.640 --> 0:04:11.120 g d P. Let's say a year from now, and 0:04:11.160 --> 0:04:13.560 I'll give you two two and a quarter percent, So 0:04:13.600 --> 0:04:16.440 maybe four four and a half to five is a 0:04:16.480 --> 0:04:19.040 six percent is a little bit too. But these corporate Honeywell, 0:04:19.120 --> 0:04:22.000 Walgreens and many others, I'm beginning to see the lift 0:04:22.040 --> 0:04:26.040 and you know organic absolutely yeah, I mean we can 0:04:26.040 --> 0:04:28.240 see that. For the last four or five years, it's 0:04:28.279 --> 0:04:30.600 been economic growth around to two and a quarter and 0:04:30.640 --> 0:04:32.360 now we're moving up to two and a half maybe 0:04:32.360 --> 0:04:34.839 two and three quoters. That's great. Give us a briefing 0:04:34.880 --> 0:04:36.960 before we go to Jim blast One and Bill Gross Tomorrow, 0:04:37.040 --> 0:04:40.239 Dr Sylvia give us a briefing on what we need 0:04:40.279 --> 0:04:45.000 to know about the immediacy of wage growth. Our wages 0:04:45.120 --> 0:04:49.440 actually going up adjusted for inflation. Yes, that's a point 0:04:49.600 --> 0:04:52.880 point time that's overlooked. It's real wages. But total real 0:04:53.000 --> 0:04:57.680 compensation has really improved because once again people care about 0:04:57.720 --> 0:05:01.400 their benefits, particularly healthcare benefit. Company station is not part 0:05:01.440 --> 0:05:06.360 of the unemployment number. That's plain to our audience. How 0:05:06.400 --> 0:05:09.960 that's published, Well, it's published again by the federal government 0:05:10.000 --> 0:05:13.919 in the United States, but it takes into consideration the pensions, 0:05:14.360 --> 0:05:19.320 takes into considerate healthcare, life insurance, disability insurance, all those 0:05:19.360 --> 0:05:23.000 other things that Tom are not taxed. So the wages 0:05:23.040 --> 0:05:25.760 attacks and workers have realized over the last three or 0:05:25.760 --> 0:05:29.919 forty years, if I'm getting the compensation through insurance that 0:05:30.080 --> 0:05:33.080 is not tax then my total income actually goes up. 0:05:33.120 --> 0:05:34.960 It's a really good point, John. Before we let you go, 0:05:35.080 --> 0:05:37.880 can we get to the economics of cold weather. It's 0:05:37.920 --> 0:05:40.760 snowing outside. Tom doesn't want to talk about the hysteria. 0:05:41.040 --> 0:05:44.480 But Q one after Q one, after Q one after 0:05:44.600 --> 0:05:47.400 Q one in the United States of America, we have 0:05:47.480 --> 0:05:51.800 had soft growth after soft growth, and economists continually missed 0:05:51.800 --> 0:05:54.440 the story to your important observation, what we have around 0:05:54.440 --> 0:05:56.919 at John Farroll is a big asterisk every first quarter. 0:05:57.320 --> 0:05:59.680 And are you it wasn't like that. Now we've got 0:05:59.680 --> 0:06:01.599 this and it feels like we're going to do it 0:06:01.640 --> 0:06:04.800 all over again, and we are. How many economists, including yourself, John, 0:06:04.800 --> 0:06:06.120 are going to come out of the next couple of 0:06:06.120 --> 0:06:08.680 weeks and say with downgrade and knock Q one estimates 0:06:08.720 --> 0:06:11.000 because of the weather. I would say the majority will 0:06:11.040 --> 0:06:17.920 again because this again, when you're impacting New Jersey, New York, Connecticut, Massachusetts, 0:06:17.960 --> 0:06:21.200 southern New England, that is a huge economic powerhouse in 0:06:21.240 --> 0:06:24.279 the United States. You know, as as Tom was mentioning earlier, 0:06:24.360 --> 0:06:26.599 if you have an earthquake in San Francisco, that's a 0:06:26.600 --> 0:06:30.479 minor earthquake, okay, but if it's significant, that economic impact 0:06:30.480 --> 0:06:32.359 is significant. We got one minute left with you. No 0:06:32.400 --> 0:06:34.960 one cares about this. How did the Boston Red Sox 0:06:35.080 --> 0:06:38.360 respond to the New York Yankees? The Yankees have going 0:06:38.400 --> 0:06:40.719 to Aaron Judge is gonna lead off. They've got this 0:06:40.800 --> 0:06:43.400 guy from Miami, this piece of meat from Miami. It's 0:06:43.400 --> 0:06:46.280 gonna win a hundred and forty baseball games. How does 0:06:46.320 --> 0:06:50.960 Team Red Sox respond? Uh? Pitch around the opening Uh? 0:06:51.320 --> 0:06:54.520 Eight intentional walks per game? Eight intentional walks per game? 0:06:54.600 --> 0:06:56.839 Just walk them and deal with all the rest of 0:06:56.839 --> 0:06:59.280 the line up. You don't see any strategic thing like 0:06:59.320 --> 0:07:01.640 in a case of there against lager beer or anything. 0:07:02.120 --> 0:07:06.880 Now he's coming back, is coming back. It's coming entrepreneurial 0:07:07.000 --> 0:07:10.480 spirit of New England, right, John Sylvia, thank you so much. 0:07:10.480 --> 0:07:29.320 With Wills Fargo now living in the Carolina is our 0:07:29.400 --> 0:07:32.680 last conversation with the amble from Toughs Lector School was 0:07:33.320 --> 0:07:36.960 most distressing. James Tavitis has been a student of our Navy, 0:07:37.040 --> 0:07:41.040 of our military, and now teaches students on international relations 0:07:41.080 --> 0:07:44.280 at Tufts. Admiral stevinus, wonderful to have you with us 0:07:44.800 --> 0:07:48.440 this morning. Our men are in danger, or sailors are 0:07:48.480 --> 0:07:50.800 in danger? Are women are in danger? Off boost on 0:07:50.880 --> 0:07:54.520 South Korea? Where it's a chilly thirty five degrees this morning. 0:07:54.840 --> 0:07:59.000 We've got boats out at sea, UH doing what our 0:07:59.080 --> 0:08:04.679 military show the flag, et cetera. How damaged are they 0:08:04.760 --> 0:08:10.560 by the silliness the discourse of Washington? I think they 0:08:10.720 --> 0:08:13.160 are able to tune it out. Tom and that's kind 0:08:13.160 --> 0:08:16.000 of the good news. First of all, particularly our worships 0:08:16.000 --> 0:08:21.520 at sea. Uh, don't gather around and watch CNN seven. 0:08:21.920 --> 0:08:25.160 They're so busy. They've got contacts in the ocean around them, 0:08:25.160 --> 0:08:29.920 they've got planes overhead, they're tracking missile flying. They are 0:08:30.120 --> 0:08:34.080 not focused on Washington. And if they did, I think 0:08:34.080 --> 0:08:36.480 they would still tune it out because they have that 0:08:36.559 --> 0:08:39.000 kind of ethos that says, we're out here, we stand 0:08:39.000 --> 0:08:41.360 on the wall to protect our nation. We're not going 0:08:41.400 --> 0:08:43.120 to get caught up in the day to day. So 0:08:43.440 --> 0:08:46.120 on that score, I feel pretty good. Give us your 0:08:46.280 --> 0:08:50.840 update on the adult nous of the adults our General Kelly, 0:08:51.000 --> 0:08:55.520 our General Madis, and other adults of Washington doing this morning. 0:08:56.640 --> 0:08:59.080 Uh Well, I would say on a scale of one 0:08:59.120 --> 0:09:01.760 to ten, they have a job that's about a thirteen. 0:09:02.400 --> 0:09:07.240 This is a tough operation to effectively put guard rails 0:09:07.400 --> 0:09:12.640 around a presidency that is too impulsive, too erratic, too unpredictable. 0:09:12.720 --> 0:09:15.800 I would say they're still in the game, particularly the 0:09:15.800 --> 0:09:18.600 two you mentioned or four star US Marine Corps. General's 0:09:18.600 --> 0:09:21.319 seen a lot of combat. Uh, you know, they've seen worse. 0:09:21.520 --> 0:09:24.360 They'll they'll stay with the program. We also ought to 0:09:24.360 --> 0:09:29.280 be concerned about three star General hr McMaster national Security Advisor. 0:09:29.520 --> 0:09:31.800 He's just done a very good job getting out a 0:09:31.920 --> 0:09:37.679 new national security strategy which is actually shockingly shockingly normal. 0:09:38.200 --> 0:09:40.600 So I think that team is doing pretty well. The 0:09:40.640 --> 0:09:43.239 one to watch that I'm worried about is Rex Tillerson 0:09:44.000 --> 0:09:47.160 over at State. I think his stock is very low. 0:09:47.559 --> 0:09:49.760 I think his morale is very low. I know his 0:09:49.880 --> 0:09:53.040 department's morale is very low. I suspect we'll see that 0:09:53.160 --> 0:09:55.679 change earlier this year. And I'm really you worried about 0:09:55.679 --> 0:09:58.120 Rex Titterson, the Secretary of State? Are you worried about 0:09:58.120 --> 0:10:02.760 the State Department? The latter um secretaries come and go. 0:10:03.000 --> 0:10:07.840 The department is a generational operation. You have to bring 0:10:07.960 --> 0:10:11.480 in young foreign service officers who are willing to devote 0:10:11.480 --> 0:10:15.720 themselves for ten twenty thirty years to create that cadre 0:10:15.840 --> 0:10:19.320 of professional ambassadors. At the far end, the State Department 0:10:19.360 --> 0:10:23.760 is down fifty five zero percent in applications this year. 0:10:24.040 --> 0:10:26.920 That's shocking. There is a concern that the State Department 0:10:27.080 --> 0:10:29.320 is being gutted. There's a lot being written about it 0:10:29.360 --> 0:10:31.880 and reported about it over the last twelve months. Key 0:10:31.880 --> 0:10:34.160 individuals that should be in key areas of the world 0:10:34.200 --> 0:10:37.400 representing the United States no longer there animal. What are 0:10:37.400 --> 0:10:40.520 the consequences of that? Are they immediate? Are they around 0:10:40.520 --> 0:10:43.960 the corner or they slow burning over several decades. You know, 0:10:44.040 --> 0:10:47.240 they're all three and I'll give you a practical example 0:10:47.320 --> 0:10:51.480 of each. In the immediate term. What this does is 0:10:51.559 --> 0:10:55.040 it overweights us in the military instrument. Believe me, We've 0:10:55.040 --> 0:10:57.719 got all the generals and admirals we need um. If 0:10:57.760 --> 0:11:00.719 we don't have ambassadors to kind of put balance, our 0:11:00.720 --> 0:11:04.560 program overweights towards hard power in the if you will, 0:11:04.679 --> 0:11:08.320 medium term, we don't have the expertise on the ground. 0:11:08.400 --> 0:11:12.280 In the long term diplomatic efforts in the Balkans, in Afghanistan, 0:11:12.600 --> 0:11:14.959 and long term, as I said, we lose that cadre 0:11:15.040 --> 0:11:18.760 of professional ambassadors twenty thirty years from now. So I'm 0:11:18.840 --> 0:11:21.719 very worried about State Department and Stavids. Were you ever 0:11:21.760 --> 0:11:26.240 on a p T boat. I never was assigned to 0:11:26.280 --> 0:11:28.120 the crew of one time, but of course I've been 0:11:28.160 --> 0:11:31.000 on the many many times all over, particularly in the 0:11:31.040 --> 0:11:34.680 Caribbean for example, doing counter narcotics. I mean, folks, that 0:11:34.760 --> 0:11:37.319 it resonates so much. Of course, with President Kennedy, I 0:11:37.400 --> 0:11:39.920 think of a close quarters p T boats in the 0:11:40.000 --> 0:11:44.600 United States Navy. Robert bots a classic text Admiral Stevidez. 0:11:44.840 --> 0:11:47.920 Here's the latest tweet I guess on p T boats 0:11:47.960 --> 0:11:50.880 by the President United States. Well, all of the failed 0:11:50.960 --> 0:11:54.200 quote experts on quote, he doesn't mention you animal weighing in? 0:11:54.679 --> 0:11:57.640 Does anybody really believe that talks and dialogues would be 0:11:57.679 --> 0:12:01.160 going on between North and South Korea right now if 0:12:01.200 --> 0:12:05.640 I wasn't firm, strong and willing to commit our total 0:12:05.840 --> 0:12:11.000 quote might unquote against the North fools? But talks are 0:12:11.040 --> 0:12:15.160 a good thing. What is what is an amateur like 0:12:15.240 --> 0:12:19.120 Tom Keane or President Trump or John Ferrell? What do 0:12:19.160 --> 0:12:22.120 we know about? Might you lived it? What? What is 0:12:22.200 --> 0:12:27.640 the might of our military? How would you lecture civilians? Well, 0:12:27.679 --> 0:12:29.120 first of all, I think this is part of the 0:12:29.160 --> 0:12:33.240 pattern of a president who thinks he's the reason that 0:12:33.960 --> 0:12:37.440 airlines are not crashing out of the sky. Um, it's 0:12:37.480 --> 0:12:41.640 just he is living in a fantasy world. And I 0:12:41.640 --> 0:12:44.440 would say that the might of the United States is 0:12:44.480 --> 0:12:47.240 certainly part of this. But the real driver of the 0:12:47.320 --> 0:12:49.360 chain of events were in the middle of is Kim 0:12:49.440 --> 0:12:52.600 Jong Hunt And he is the one that is step 0:12:52.679 --> 0:12:55.280 or two ahead of US tactically. So I think the 0:12:55.320 --> 0:12:59.040 president ought to get some balance in his rhetoric, rely 0:12:59.200 --> 0:13:03.160 on the professional US around him, build a coherent deterrent, 0:13:03.640 --> 0:13:08.480 you cyber offensively, put up maritime interception operations. He's done 0:13:08.520 --> 0:13:11.160 none of that um so far. What we see as 0:13:11.200 --> 0:13:15.040 a chain of events driven by a young, unpredictable dictator 0:13:15.080 --> 0:13:18.720 in the North. In our own unpredictable president needs to 0:13:19.000 --> 0:13:22.000 up his game if we're going to succeed diplomatically in 0:13:22.080 --> 0:13:25.080 resolving this. John, and on the plane flight back from 0:13:25.679 --> 0:13:28.720 the Old World, thank you British Air for the great flight. 0:13:29.000 --> 0:13:32.200 I watched one of the recent Churchill epics yea, and 0:13:32.280 --> 0:13:35.040 there was Churchill being lectured by the general from the 0:13:35.120 --> 0:13:38.920 United States in a kind way, Dwight David Eisenhower about 0:13:39.120 --> 0:13:42.199 excuse me, sir, you're a civilian. I mean, John Ferroll. 0:13:42.280 --> 0:13:45.760 This this is not just about America now, its every institution, 0:13:45.840 --> 0:13:48.360 about the world response and global institutions. But Adam Well, 0:13:48.360 --> 0:13:51.040 you've touched on something really important, and that's the overweight 0:13:51.120 --> 0:13:54.880 of hard power, the over dependence on hard power. Is 0:13:54.920 --> 0:13:58.679 this an administration that you think fails to understand seft 0:13:58.720 --> 0:14:01.400 power or is it an administration that has said, well, 0:14:01.440 --> 0:14:03.439 it hasn't worked for the last twenty years to deal 0:14:03.480 --> 0:14:05.520 with the threat of North Korea, so why should we 0:14:05.559 --> 0:14:09.360 continue down this path? I think the former John and 0:14:09.520 --> 0:14:12.760 if we think about where we've used the mix of 0:14:12.880 --> 0:14:16.160 hard and soft power, that's where we succeed. And that's 0:14:16.200 --> 0:14:19.960 the subtlety that this administration thus far has not grasped. 0:14:20.360 --> 0:14:23.720 For example, in the Balkans, we use hard power initially, 0:14:23.720 --> 0:14:27.840 but it's been soft power, the economics, the private public partnering, 0:14:27.920 --> 0:14:30.800 the development aid that's brought to Balkans where it is 0:14:30.920 --> 0:14:35.160 same in Columbia for example, same in Sri Lanka. It's 0:14:35.200 --> 0:14:38.400 that balance of hard and soft power in that Back 0:14:38.440 --> 0:14:41.240 to your earlier question is why worry about a lack 0:14:41.280 --> 0:14:43.960 of the State Department in the case of the United States, 0:14:44.160 --> 0:14:47.920 where we don't have influencers who drive us towards balancing 0:14:48.360 --> 0:14:50.800 hard power when you need it, but soft power for 0:14:50.840 --> 0:14:53.000 the long came to win. In the scenario, I'm gonna 0:14:53.000 --> 0:14:56.800 assume it's not the Philippines. You're not going to line 0:14:56.840 --> 0:14:59.880 up the Missouri sixty miles offshore of North Korea and 0:15:00.040 --> 0:15:05.920 bombom what is a quote unquote might attack that the 0:15:05.920 --> 0:15:09.600 President would envision. I mean, how do you attack North Korea? 0:15:10.000 --> 0:15:16.320 I don't understand tactically, how do you attack You cannot 0:15:16.920 --> 0:15:21.840 conduct an attack that does not escalate into a war 0:15:21.960 --> 0:15:25.600 on the peninsula, which will cause at a minimum a 0:15:25.680 --> 0:15:28.040 million but somewhere in the range of two to four 0:15:28.080 --> 0:15:32.320 million casualty stomp. And that's because of the geography where 0:15:32.400 --> 0:15:35.760 Soul sits right under the guns of North Korea, and 0:15:35.840 --> 0:15:39.520 because we have a dictator in the North who already 0:15:39.600 --> 0:15:42.760 has tactical nuclear weapons that he can use in the 0:15:42.800 --> 0:15:47.119 immediate context of the conflict. So any kind of military 0:15:47.160 --> 0:15:51.000 response is highly, highly fraught. Edmill, thank you so much. 0:15:51.040 --> 0:15:54.480 Here into the lecture, unlike this morning with animals, David, 0:15:54.600 --> 0:16:09.440 is the Tufts in the Fletcher School, m Let's said. 0:16:09.440 --> 0:16:11.600 The longest joint is now port folio manager over at 0:16:11.640 --> 0:16:14.360 Oppenheimer Funds. As we see, what did you say, Tompson 0:16:14.440 --> 0:16:17.680 Warmth on the tape future is positive at five points 0:16:17.680 --> 0:16:20.840 on the SMP five Dow futures up a six twenty 0:16:20.920 --> 0:16:23.840 five K and site nor hundred on the SMP five 0:16:23.880 --> 0:16:26.720 hundred yesterday, Alessio, is this as good as it gets? 0:16:26.720 --> 0:16:29.040 With the data on both sides of the Atlantic looking 0:16:29.200 --> 0:16:33.120 very very nice Good morning, Tom and John. Yes, I 0:16:33.120 --> 0:16:37.640 mean we we couldn't wish for a better global economic outlook. 0:16:37.680 --> 0:16:40.320 I mean, we've seen the recent data literally over the 0:16:40.360 --> 0:16:43.440 last couple of days, especially with the business services such 0:16:43.480 --> 0:16:48.080 as the p mzing IM survey, really suggesting a continuation 0:16:48.320 --> 0:16:51.440 of this very strong momentum in the development markets. But 0:16:51.520 --> 0:16:54.160 also we're seeing good news in the emerging world. So 0:16:54.520 --> 0:16:58.200 we continue to see what looks like the best global 0:16:58.280 --> 0:17:02.320 growth synchronization, the best global growth acceleration we have seen 0:17:02.360 --> 0:17:05.880 in over a decade, So peak growth. When we start 0:17:05.880 --> 0:17:10.639 talking about peak growth, that that's a very important point 0:17:10.680 --> 0:17:14.640 because we m we begin to see, particularly in the 0:17:14.760 --> 0:17:19.560 US UM the flattening of the yield curve um which 0:17:19.880 --> 0:17:22.320 and we're very early stages, but that's flattening of the 0:17:22.400 --> 0:17:24.639 yield curve. Is a reminder, of course that the FED 0:17:24.720 --> 0:17:27.320 has been tightening rates now for a while. I'll date 0:17:27.359 --> 0:17:30.920 at the at a gradual pace. I think it's still 0:17:31.040 --> 0:17:35.439 early to talk about growth peak. We we seem to 0:17:35.520 --> 0:17:38.520 be in a solid fooding throughout the first half of 0:17:38.560 --> 0:17:41.479 the year, and you know, of course the economy always 0:17:41.520 --> 0:17:45.920 go through some some soft patches, but I think we 0:17:45.920 --> 0:17:49.879 we can't really start worrying about a serious downturn for 0:17:50.000 --> 0:17:53.240 at least at least another year. What is your calling dollar? 0:17:53.320 --> 0:17:55.000 I mean, it's really a way from your remit, but 0:17:55.040 --> 0:17:56.359 I want to go there. I mean, you look at 0:17:56.359 --> 0:17:59.040 dollar dynamics and and John and I saw a lot 0:17:59.080 --> 0:18:01.840 of different opinions at the end of the year. Is 0:18:01.840 --> 0:18:05.240 it a flow story with money flowing into Euro money 0:18:05.240 --> 0:18:09.439 flowing into the American system as well? Well, you know, 0:18:09.520 --> 0:18:13.520 the dollar question is is a particularly interesting one given 0:18:13.560 --> 0:18:16.639 the anomalies that we've seen last year, that we expect 0:18:16.720 --> 0:18:19.879 a dollar to continue to UH, to continue the weakening 0:18:19.960 --> 0:18:25.560 trend that has experienced in sev outbet maybe at a 0:18:25.600 --> 0:18:29.119 more gradual pace and some more rangebound price dynamics. But 0:18:29.240 --> 0:18:32.040 why that dollar weakening? Because the first question is why 0:18:32.080 --> 0:18:35.480 is the dollar weakening when the FED is raising rates? UH. 0:18:35.680 --> 0:18:41.040 There has been almost an unprecedented disconnect between rate differentials 0:18:41.200 --> 0:18:43.760 and currency performance, and you see it particularly with the 0:18:43.760 --> 0:18:47.399 euro last year. We expect that to continue somewhat. This 0:18:47.640 --> 0:18:50.520 environment is very reminiscent to me of what we saw 0:18:50.560 --> 0:18:53.639 in the early two thousands, say two thousand, two, two 0:18:54.040 --> 0:18:57.560 and four, where despite the FED raising rates and the 0:18:57.720 --> 0:19:01.000 c B not raising rates the or of strengthen the 0:19:01.040 --> 0:19:05.040 dollar weekend. Why we are seeing that late cycle dynamics 0:19:05.080 --> 0:19:08.440 for the US where the current account differential between the 0:19:08.600 --> 0:19:11.919 US and the Eurozone is extremely wide. The Eurozone and 0:19:12.040 --> 0:19:16.160 Japan have very wide current account surpluses. And and those 0:19:16.200 --> 0:19:18.479 are some of the structural flows that you Tom are 0:19:18.520 --> 0:19:21.480 referring to, some of the structural frows in the background 0:19:21.560 --> 0:19:25.639 that are supporting UH foreign currencies. On top of it, 0:19:25.720 --> 0:19:29.320 we believe that the biggest driver of capital flows will 0:19:29.359 --> 0:19:33.480 be the equity side. We continued to expect our performance 0:19:33.680 --> 0:19:38.160 of European and emerging market growth versus US growth, and 0:19:38.320 --> 0:19:43.920 that typically leads US capital US investors to deploy capital 0:19:44.000 --> 0:19:48.840 into foreign markets, which we know is typically unheedged unless 0:19:48.920 --> 0:19:53.080 you know, there's a point where bond market dynamics really 0:19:53.119 --> 0:19:57.840 and abruptly folds into stock market dynamics. Review for US, 0:19:57.840 --> 0:20:01.520 how does that work? Rising yield? How does it fold 0:20:01.560 --> 0:20:06.879 into stock market effects? UM? I would say there's a 0:20:06.920 --> 0:20:09.280 two three channels here to to keep in mind, there 0:20:09.359 --> 0:20:12.639 is the the and and bond markets effect equity markets 0:20:12.680 --> 0:20:16.959 with a with a long UM lead UH. The The 0:20:17.000 --> 0:20:19.600 first and most important channel in my opinion is the 0:20:19.840 --> 0:20:22.480 is the tightening of financial conditions that is represented the 0:20:22.520 --> 0:20:25.600 first and foremost by the flattening of the yolker. Right, 0:20:25.680 --> 0:20:29.320 so as the as the yelker flattens gradually that these 0:20:29.359 --> 0:20:34.640 incentivizes the banks from credit creation over time. Right, they 0:20:34.640 --> 0:20:36.760 borrow in the short end and they land at the 0:20:36.840 --> 0:20:40.679 long end of plus a credit spread. As as the 0:20:40.680 --> 0:20:44.480 availability of the term premium over time in the long 0:20:44.600 --> 0:20:48.080 term um gets reduced. Banks of course have less of 0:20:48.119 --> 0:20:51.720 an incentive to to land, to extend credit, and most 0:20:51.760 --> 0:20:54.840 importantly in some cases, to even roll over credit. So 0:20:54.880 --> 0:20:57.240 what happens is then towards the end of the cycle, 0:20:57.640 --> 0:21:02.280 if banks stopped rolling over their credit, highly level companies UH, 0:21:02.359 --> 0:21:04.760 towards the end of the cycle find themselves with an 0:21:04.800 --> 0:21:08.800 economy they're explowing and with credit not being rolled over. 0:21:08.840 --> 0:21:11.320 And that's how then it translates. I would say, the 0:21:11.320 --> 0:21:14.359 transmission mechanism is from the yield curve to the bond 0:21:14.400 --> 0:21:17.520 market and credit spreads and then eventually to the stock market. 0:21:17.560 --> 0:21:20.040 But unless yeah, that's not happening yet. Because deposit better 0:21:20.119 --> 0:21:22.399 is so low for many of these banks, the the 0:21:22.440 --> 0:21:26.040 interest that they pay on deposits to depositors is incredibly love. 0:21:26.080 --> 0:21:27.960 It hasn't been picking up. So the net interest margin, 0:21:28.040 --> 0:21:31.640 despite the flat yield curve, has been picking up because 0:21:31.680 --> 0:21:33.800 they're passing on the higher rates over at the FED 0:21:34.200 --> 0:21:37.800 two loans that they create. Do you see that dynamic 0:21:37.840 --> 0:21:39.920 staying in place over the next couple of years, really 0:21:39.920 --> 0:21:43.359 low deposit beta, and that essentially means that net interest 0:21:43.359 --> 0:21:47.960 marches at banks hold up. Yes, and you see some 0:21:47.960 --> 0:21:50.600 some some continuation of death for quite some time. And 0:21:50.600 --> 0:21:52.399 actually if you look in Tom you were alluding to 0:21:52.440 --> 0:21:54.960 the two stands, but if we actually look at the 0:21:55.000 --> 0:21:57.760 three months of ten year, we're still about a hundred 0:21:57.840 --> 0:22:01.399 hundred and ten basis points. Uh so. And also to 0:22:01.440 --> 0:22:03.560 the point that John was making, so three month rade 0:22:03.920 --> 0:22:06.840 are are much lower than than two year rates, and 0:22:06.880 --> 0:22:09.960 I think for the purpose of the credit transmission, the 0:22:10.040 --> 0:22:14.320 three month a ten year is more indicative. Furthermore, I 0:22:14.359 --> 0:22:18.320 would say that the first confirmation of that transmission mechanism 0:22:18.720 --> 0:22:21.160 is still be seen in lending standards. And at the moment, 0:22:21.200 --> 0:22:25.000 all the set surveys show the lending standards remained very generous, 0:22:25.040 --> 0:22:29.040 both for large firms and small firms. So that's where 0:22:29.080 --> 0:22:32.320 we're not worried yet about the flatting of the yield curve. 0:22:32.640 --> 0:22:35.600 N should we dazzle Bloomberg Radio audience and put the 0:22:35.600 --> 0:22:38.640 threes tens chart out on Twitter place? I think we should. 0:22:38.720 --> 0:22:40.520 You should absolutely do that. What you're doing that, I 0:22:40.560 --> 0:22:43.400 want to make the horizontal line that beautiful Appenheimer Funds. 0:22:44.720 --> 0:22:46.760 I'm going to ask the lessie an important question. Now. 0:22:47.200 --> 0:22:49.600 We just talked about really strong data, really decent a 0:22:49.720 --> 0:22:52.359 d P report. We had our sam yesterday, the strongest 0:22:52.359 --> 0:22:55.439 sense I believe, two thousand and four. Yet we're reconciling 0:22:55.480 --> 0:22:58.440 that with a flatter yield curve. Why is it only 0:22:58.520 --> 0:23:00.919 the front end of the curve of the s adjusting 0:23:01.280 --> 0:23:03.960 to a better economy. Why are we not saying you'll 0:23:04.000 --> 0:23:08.119 to pick up further down a curve unlessia Because the 0:23:08.119 --> 0:23:11.640 three month is really controlled by the set. The two 0:23:11.720 --> 0:23:13.720 year part of the curve is really driven by market 0:23:13.760 --> 0:23:18.600 participants anticipating FED hikes. The three months is really ultimately 0:23:18.640 --> 0:23:21.919 the fat funds rate, and it's a reflection of the 0:23:21.960 --> 0:23:26.080 fact that the seed is hiking at a much much 0:23:26.160 --> 0:23:30.159 more gradual taste than historically we have seen with this 0:23:30.359 --> 0:23:33.280 strength in the economic data, and there reason being as 0:23:33.320 --> 0:23:36.800