1 00:00:10,039 --> 00:00:13,720 Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane. Always 2 00:00:14,000 --> 00:00:17,560 Speaker 1: with Michael McKee. Daily we bring you insight from the 3 00:00:17,560 --> 00:00:22,760 Speaker 1: best in economics, finance, investment, and international relations. Find Bloomberg 4 00:00:22,840 --> 00:00:27,240 Speaker 1: Surveillance on iTunes, SoundCloud, Bloomberg dot Com, and of course, 5 00:00:27,760 --> 00:00:35,120 Speaker 1: on the Bloomberg Where were you nine years ago? August seventeen, 6 00:00:35,240 --> 00:00:38,000 Speaker 1: two thousand and seven, That's where I marked the beginning 7 00:00:38,159 --> 00:00:41,639 Speaker 1: of the financial crisis. Some debate about which date to use, 8 00:00:41,680 --> 00:00:43,680 Speaker 1: but I'll go with the seventeenth. That big move we 9 00:00:43,720 --> 00:00:47,680 Speaker 1: saw in three months t bell are remember UH interviewing 10 00:00:47,800 --> 00:00:52,240 Speaker 1: David Malpass and Alan Meltzer on the afternoon of the seventeen, 11 00:00:52,479 --> 00:00:56,400 Speaker 1: nine years ago. That was an extraordinary interview with Professor 12 00:00:56,480 --> 00:00:59,760 Speaker 1: Meltzer about how the Central Bank of the United States 13 00:01:00,040 --> 00:01:01,960 Speaker 1: would come to the rescue. That'll be one of our 14 00:01:02,000 --> 00:01:04,720 Speaker 1: themes through all of this morning. Michael McKee and Tom 15 00:01:04,800 --> 00:01:08,039 Speaker 1: Key trilled you with us worldwide, particularly thrilled you with us. 16 00:01:08,080 --> 00:01:11,120 Speaker 1: If you're part of Global Wall Street and you survived 17 00:01:11,520 --> 00:01:16,000 Speaker 1: UH nine years There is no one more perfect to 18 00:01:16,080 --> 00:01:19,959 Speaker 1: talk about nine years back and looked nine years forward 19 00:01:19,959 --> 00:01:23,640 Speaker 1: than Jason trying to of strategous research for years with 20 00:01:23,880 --> 00:01:26,920 Speaker 1: Ed Himan at I S High, and then one day 21 00:01:26,959 --> 00:01:29,560 Speaker 1: you had to walk into Ed's office and say, I 22 00:01:29,560 --> 00:01:32,840 Speaker 1: want to set up shop because Ed, I want to 23 00:01:32,880 --> 00:01:36,200 Speaker 1: set up Strategus Research. So there could be a financial 24 00:01:36,240 --> 00:01:40,720 Speaker 1: crisis right xcells later. Yeah, I mean, you know, sometimes 25 00:01:40,760 --> 00:01:42,640 Speaker 1: you're better. We often joked that if we were such 26 00:01:42,680 --> 00:01:46,280 Speaker 1: great financial uh you know, sears, we would we would 27 00:01:46,319 --> 00:01:48,640 Speaker 1: have been too afraid to leave Ed and the cozy 28 00:01:48,680 --> 00:01:52,160 Speaker 1: home that we had developed their The you know, the 29 00:01:52,200 --> 00:01:54,000 Speaker 1: irony is that it wound up being It's good thing 30 00:01:54,040 --> 00:01:55,640 Speaker 1: we didn't know there was gonna be a financial crisis 31 00:01:55,680 --> 00:01:57,840 Speaker 1: because we wouldn't have set up Strategus, and then we 32 00:01:58,360 --> 00:02:01,000 Speaker 1: benefited in some ways by the crisis, to the extent 33 00:02:01,040 --> 00:02:04,920 Speaker 1: to which Macro we're talking about it before became very 34 00:02:04,960 --> 00:02:08,200 Speaker 1: extraordinarily important. Then we hooked up with Dan Clifton, who 35 00:02:08,240 --> 00:02:11,639 Speaker 1: runs are Washington office and the entire investment world and 36 00:02:11,800 --> 00:02:13,800 Speaker 1: largely being driven by ble Washington. So do we blame 37 00:02:13,880 --> 00:02:16,560 Speaker 1: Dan Clifton for Trump is or in Clinton is that? Well, 38 00:02:16,840 --> 00:02:20,000 Speaker 1: this election, you know, you know I'm gonna blame We're 39 00:02:20,000 --> 00:02:21,400 Speaker 1: gonna talk about a little bit. But I think the 40 00:02:21,400 --> 00:02:23,560 Speaker 1: elites and I think central banks. I think a lot 41 00:02:23,680 --> 00:02:26,359 Speaker 1: of the benefits are a cruiting to the wrong people, 42 00:02:26,400 --> 00:02:28,880 Speaker 1: and I think a lot of average everyday people are 43 00:02:29,480 --> 00:02:31,200 Speaker 1: getting federal That's right where I want to go to. 44 00:02:31,320 --> 00:02:34,520 Speaker 1: But let's first do a quick look back nine years ago. 45 00:02:34,680 --> 00:02:38,400 Speaker 1: I remember speaking with Professor Rubini in Davos at a 46 00:02:38,560 --> 00:02:41,960 Speaker 1: quiet evening bar. We were sharing a beverage of our choice, 47 00:02:42,520 --> 00:02:45,520 Speaker 1: and it was amazing how he and to an extent me, 48 00:02:45,680 --> 00:02:49,280 Speaker 1: we got it right. We saw it coming, Jason. What 49 00:02:49,400 --> 00:02:52,920 Speaker 1: we didn't see coming was the amplitudes involved. Were you 50 00:02:52,960 --> 00:02:56,560 Speaker 1: in any way prepared paranel for the sinodal amplitudes of 51 00:02:56,600 --> 00:03:00,760 Speaker 1: this crisis? I mean, and what you're talking about in particular, 52 00:03:00,880 --> 00:03:02,399 Speaker 1: I think that you know, it's one thing to worry 53 00:03:02,400 --> 00:03:06,280 Speaker 1: about risk assets when you start worrying about cash, which 54 00:03:06,360 --> 00:03:09,160 Speaker 1: is what happened a year later. You know, after Lehman 55 00:03:09,720 --> 00:03:12,480 Speaker 1: failed people you saw four hundred billion dollars who have 56 00:03:12,520 --> 00:03:16,240 Speaker 1: added money market funds because people are worried about cash. Um, 57 00:03:16,320 --> 00:03:18,280 Speaker 1: that's that's in the you know, actually far away from 58 00:03:18,280 --> 00:03:21,280 Speaker 1: the barter system at that point. I mean, so, um, 59 00:03:21,440 --> 00:03:24,520 Speaker 1: we we certainly didn't see it coming. And um, I'm 60 00:03:24,560 --> 00:03:26,400 Speaker 1: not sure a lot of other people did either. You 61 00:03:26,480 --> 00:03:28,960 Speaker 1: have been long and right forever. As you mentioned, this 62 00:03:29,000 --> 00:03:32,160 Speaker 1: has been the elites ball market. Is this a bubble 63 00:03:32,720 --> 00:03:35,880 Speaker 1: or is there a foundation a free cash flow and 64 00:03:36,040 --> 00:03:40,360 Speaker 1: responsible revenue growth supporting equity prices. Well, I don't think 65 00:03:40,360 --> 00:03:42,200 Speaker 1: it's a bubble. I think there are certain elements of 66 00:03:42,240 --> 00:03:46,000 Speaker 1: the market, maybe telecom utilities to a lesser extent, maybe staples. 67 00:03:46,160 --> 00:03:48,800 Speaker 1: You might call that frothy. I don't know if i'd 68 00:03:48,840 --> 00:03:52,120 Speaker 1: call it a bubble um. Those are you have very 69 00:03:52,160 --> 00:03:54,680 Speaker 1: predictable cash flows in a world of negative interest rates 70 00:03:54,680 --> 00:03:57,680 Speaker 1: and low interest rates, that's extraordinarily attractive. We looked at 71 00:03:57,720 --> 00:04:00,000 Speaker 1: valuations in our report this morning. We look at valuations. 72 00:04:00,040 --> 00:04:06,119 Speaker 1: They're high, but they're not extraordinary nifty fifty type of events. 73 00:04:06,160 --> 00:04:09,000 Speaker 1: But listen, I think you are in many ways this 74 00:04:09,160 --> 00:04:11,840 Speaker 1: is the bull market that no one loved. The people 75 00:04:11,880 --> 00:04:14,040 Speaker 1: who have largely been driving the bull market have been 76 00:04:14,080 --> 00:04:17,280 Speaker 1: corporations themselves. Uh, there's not been a lot of retail 77 00:04:17,320 --> 00:04:19,240 Speaker 1: flow at all. I want to talk now about the 78 00:04:19,279 --> 00:04:23,800 Speaker 1: philosophy that we've had, which is the mass criticism of 79 00:04:23,800 --> 00:04:27,960 Speaker 1: the elites is this has been a central bank solution 80 00:04:28,040 --> 00:04:31,960 Speaker 1: that's only benefited the upper one maybe I use a 81 00:04:32,040 --> 00:04:36,120 Speaker 1: Pew number, Pew Research upper seven percent. It's been an 82 00:04:36,120 --> 00:04:39,440 Speaker 1: elite benefit, right, it has. And I think that's what 83 00:04:39,160 --> 00:04:42,640 Speaker 1: you've seen so far in the Senator Sanders and Senator 84 00:04:42,680 --> 00:04:45,560 Speaker 1: Standard investor Trump, and you're seeing it with Brexit, You're 85 00:04:45,600 --> 00:04:48,280 Speaker 1: seeing it with the five star movement in Italy, You're 86 00:04:48,279 --> 00:04:51,520 Speaker 1: seeing it. It's a global The populism is a global phenomenon. 87 00:04:51,560 --> 00:04:53,680 Speaker 1: I think it gets back to this idea that there's 88 00:04:53,720 --> 00:04:55,279 Speaker 1: been a lot of things that have been part of 89 00:04:55,279 --> 00:05:01,120 Speaker 1: the intellectual orthodoxy. UH open borders, free trade, UH, negative 90 00:05:01,120 --> 00:05:03,599 Speaker 1: interest rates. Now that people are starting to see, you know, 91 00:05:03,600 --> 00:05:05,160 Speaker 1: I'm not so sure. You know, I know this may 92 00:05:05,160 --> 00:05:08,440 Speaker 1: be good for you, you know, the Mr. Politician or 93 00:05:08,520 --> 00:05:10,680 Speaker 1: Mrs politician, but I'm not so sure it's good for me. 94 00:05:10,720 --> 00:05:13,520 Speaker 1: It's a sitting here in the middle of the country. 95 00:05:13,640 --> 00:05:16,159 Speaker 1: If we continue this, if we have you know, Bill 96 00:05:16,160 --> 00:05:20,400 Speaker 1: Gross has talked about a continued financial repression, low real rates, 97 00:05:20,440 --> 00:05:25,760 Speaker 1: the frustration of well meaning policymakers buried in their orthodoxy, 98 00:05:25,760 --> 00:05:29,080 Speaker 1: and within a static million. Do we go back, forget 99 00:05:29,120 --> 00:05:31,520 Speaker 1: about nine years back, Do we go back to a 100 00:05:31,560 --> 00:05:35,680 Speaker 1: global economy that hearkens to the thirties, the twenties, or 101 00:05:35,760 --> 00:05:38,280 Speaker 1: even back to the nineteenth century. It might just the 102 00:05:38,360 --> 00:05:40,120 Speaker 1: extent to which there's gonna be a political I think 103 00:05:40,160 --> 00:05:42,600 Speaker 1: you're already seeing the political reaction. And these things can't 104 00:05:42,640 --> 00:05:45,480 Speaker 1: happen in a vacuum, right, you know, I'm not particularly 105 00:05:45,520 --> 00:05:48,960 Speaker 1: a big fan of UM the idea of income and equality, 106 00:05:49,320 --> 00:05:53,320 Speaker 1: although there's no question that it's widening, that it's not 107 00:05:53,360 --> 00:05:56,080 Speaker 1: widen over the past seven or eight years, and I 108 00:05:56,120 --> 00:06:00,400 Speaker 1: think that's gonna result in in very significant political changes 109 00:06:00,680 --> 00:06:03,520 Speaker 1: that may not happen right away, but bregsit in many ways, 110 00:06:03,560 --> 00:06:05,640 Speaker 1: in my opinion, was kind of the first domino. And 111 00:06:05,640 --> 00:06:08,880 Speaker 1: I put out on Twitter this weekend Chad Jones terrific 112 00:06:08,920 --> 00:06:11,880 Speaker 1: book on economic growth math warning, it's got some math 113 00:06:12,400 --> 00:06:15,400 Speaker 1: in it, but it's iconic on this this idea of 114 00:06:15,440 --> 00:06:19,719 Speaker 1: productivity and where economic growth comes from. How does strateguous 115 00:06:19,760 --> 00:06:25,599 Speaker 1: research synthesize multi productivity and flat industrial production? Well, it's 116 00:06:25,640 --> 00:06:27,800 Speaker 1: I mean, it's a great. Productivity is a toughie because 117 00:06:27,960 --> 00:06:32,120 Speaker 1: and I almost never say the numbers are wrong, because 118 00:06:32,160 --> 00:06:35,320 Speaker 1: that's that's not particularly fruitful exerci. I do think the 119 00:06:35,400 --> 00:06:39,320 Speaker 1: numbers are probably understated. Man, that's just mainly as an 120 00:06:39,360 --> 00:06:42,520 Speaker 1: equity person. I'm looking at profit margins. Margins, in my view, 121 00:06:42,520 --> 00:06:48,200 Speaker 1: are one of the best indications of productivity, profitability, profitability right, So, um, 122 00:06:48,320 --> 00:06:50,960 Speaker 1: and there seems to be something that's off because you 123 00:06:51,000 --> 00:06:53,679 Speaker 1: have economic growth of are not two percent employment growth 124 00:06:53,720 --> 00:06:56,840 Speaker 1: of of one productivity at point three just doesn't add 125 00:06:56,960 --> 00:06:59,719 Speaker 1: up as far as I'm concerned. Still, though, I think 126 00:06:59,760 --> 00:07:03,320 Speaker 1: that there is a it's hard to have sustained productivity 127 00:07:03,440 --> 00:07:08,000 Speaker 1: without capital investment, and and told and told companies feel 128 00:07:08,080 --> 00:07:11,960 Speaker 1: more comfortable about what's the future is. It's the perativity 129 00:07:12,000 --> 00:07:14,200 Speaker 1: is going to be under pressure. Let's bringing my colleague 130 00:07:14,200 --> 00:07:18,880 Speaker 1: Michael McKee here in the ninth anniversary of Michael. I 131 00:07:18,880 --> 00:07:23,000 Speaker 1: feel terrible I didn't get you anything for the anniversary tone. Um, Jason, 132 00:07:23,040 --> 00:07:26,880 Speaker 1: you're on the supply side, talking about the the lack 133 00:07:26,920 --> 00:07:29,880 Speaker 1: of business investment. What does it take to get that 134 00:07:30,000 --> 00:07:33,680 Speaker 1: the FED has supplied all the credit necessary but nobody 135 00:07:33,680 --> 00:07:36,560 Speaker 1: wants it. It It seems to be a demand failure. Well, listen, 136 00:07:36,560 --> 00:07:39,600 Speaker 1: I think certainly there are things you can do, um 137 00:07:40,040 --> 00:07:42,960 Speaker 1: that would allow monetary policy to work better. I think 138 00:07:43,000 --> 00:07:46,040 Speaker 1: if I think in many ways monetary policy has been 139 00:07:46,600 --> 00:07:50,080 Speaker 1: uh sterilized by very tight regulatory policy on banks, and 140 00:07:50,120 --> 00:07:52,480 Speaker 1: that's part of the reason why that's why the velocity 141 00:07:52,520 --> 00:07:56,200 Speaker 1: of money has continued to go down. I think ultimately 142 00:07:56,360 --> 00:08:00,400 Speaker 1: liquidity UH is really a function of confidence. I think 143 00:08:00,400 --> 00:08:02,800 Speaker 1: there's been a lot of hyperactivity out of Washington where 144 00:08:02,840 --> 00:08:05,200 Speaker 1: you don't know what the rules are Dodd Frank As 145 00:08:05,200 --> 00:08:07,040 Speaker 1: far as as far as I know, I don't think 146 00:08:07,160 --> 00:08:09,600 Speaker 1: the bill has actually been completed yet. I mean, I 147 00:08:09,640 --> 00:08:11,720 Speaker 1: think there are three nine provisions that have to be 148 00:08:11,760 --> 00:08:14,320 Speaker 1: completed that I don't think they've finished it yet. So 149 00:08:14,480 --> 00:08:16,560 Speaker 1: it's hard to make long term investments when you don't 150 00:08:16,560 --> 00:08:18,680 Speaker 1: know what the rules are. So I do agree that 151 00:08:18,720 --> 00:08:21,000 Speaker 1: there there is a demand element of those but um, 152 00:08:21,240 --> 00:08:23,559 Speaker 1: I also believe in says law. I think supply creates 153 00:08:23,560 --> 00:08:26,280 Speaker 1: its own demand, and I do think if you did 154 00:08:26,320 --> 00:08:29,640 Speaker 1: things that were stimulative of capital formation, I have a 155 00:08:29,640 --> 00:08:32,920 Speaker 1: feeling demand would come back. On the side, yeah, fiscal side, 156 00:08:32,960 --> 00:08:34,840 Speaker 1: I also think regulatory side. We've done a lot of 157 00:08:34,880 --> 00:08:37,280 Speaker 1: easing on the monetary side, no question about it, but 158 00:08:37,360 --> 00:08:40,080 Speaker 1: we've tightened on the tighten on the regulatory side. We've 159 00:08:40,080 --> 00:08:44,520 Speaker 1: tightened fiscally as far as higher taxes, um and trade. 160 00:08:44,520 --> 00:08:46,679 Speaker 1: I would say as a wash, but we have to 161 00:08:46,720 --> 00:08:49,880 Speaker 1: do more. Nobody's going to do it, though, well, we'll see. 162 00:08:49,920 --> 00:08:53,360 Speaker 1: I think both parties, Hillary Clinton and Donald Trump, there's 163 00:08:53,360 --> 00:08:55,400 Speaker 1: two things that they're they're talking about which I think 164 00:08:55,440 --> 00:08:58,400 Speaker 1: are are quite positive. There's this seemed to be some overlap. 165 00:08:58,440 --> 00:09:01,760 Speaker 1: One is infrastructure spending, and I think that at least 166 00:09:01,760 --> 00:09:04,000 Speaker 1: you get something for that from a productivity point of view, 167 00:09:04,040 --> 00:09:06,920 Speaker 1: is supposed to transfer patent something like that. Um. I 168 00:09:06,920 --> 00:09:10,439 Speaker 1: think they're also talking about some corporate tax reform, tax simplification. 169 00:09:10,520 --> 00:09:13,120 Speaker 1: Both Hillary Clinton and Donald Trump for talking about that. 170 00:09:13,120 --> 00:09:15,480 Speaker 1: That is just what, in my opinion, just what the 171 00:09:15,520 --> 00:09:19,320 Speaker 1: doctor ordered. I think some simplification of tax code, some 172 00:09:19,440 --> 00:09:22,760 Speaker 1: easing on the regulatory side would would would certainly couldn't hurt. 173 00:09:22,840 --> 00:09:25,200 Speaker 1: Didn't we have this conversation nine or ten or eight 174 00:09:25,280 --> 00:09:28,320 Speaker 1: or five years ago? We did, and we did, and 175 00:09:28,360 --> 00:09:31,040 Speaker 1: it's uh. I think politically now it's uh. With growth 176 00:09:31,160 --> 00:09:34,680 Speaker 1: this low, you have may have more of a ninth anniverse. 177 00:09:34,679 --> 00:09:37,280 Speaker 1: You've been looking back here, Michael McKee, Where were you 178 00:09:37,360 --> 00:09:41,320 Speaker 1: nine years ago? Here? We were all here watching what 179 00:09:41,400 --> 00:09:43,840 Speaker 1: was going on in the market. That was Yeah, August 180 00:09:43,960 --> 00:09:47,480 Speaker 1: nine was when BNP. Parry froze a couple of its 181 00:09:47,600 --> 00:09:50,040 Speaker 1: funds and said you couldn't have your money back, we 182 00:09:50,080 --> 00:09:53,320 Speaker 1: can't value the securities that are in them. And then 183 00:09:53,440 --> 00:09:55,760 Speaker 1: then there was a bit of a delay you know, 184 00:09:56,200 --> 00:09:58,640 Speaker 1: that kicked it off, and then we had a four 185 00:09:58,720 --> 00:10:02,000 Speaker 1: standard deviation move, as I recalling t billing. As George 186 00:10:02,040 --> 00:10:05,280 Speaker 1: Conalis mentioned this morning Morning Laborar, why don't you jump 187 00:10:05,280 --> 00:10:08,800 Speaker 1: in Michael McKee with Mr Trinner here's fatigas research. Well, 188 00:10:08,840 --> 00:10:12,520 Speaker 1: I suppose we should ask because it is the the 189 00:10:12,520 --> 00:10:14,680 Speaker 1: the story that they hanging over the markets. I don't know. 190 00:10:15,280 --> 00:10:17,520 Speaker 1: The minutes never really lead to a lot of trading, 191 00:10:18,120 --> 00:10:21,040 Speaker 1: but until two o'clock everybody will be talking about it. 192 00:10:21,640 --> 00:10:24,880 Speaker 1: You got Dudley on one side, along with Dennis Lockhart 193 00:10:24,960 --> 00:10:27,400 Speaker 1: saying don't take September off the table. We've seen FED 194 00:10:27,440 --> 00:10:31,360 Speaker 1: funds futures pull forward a rate move to December. So far, 195 00:10:31,679 --> 00:10:34,120 Speaker 1: you've got John Williams saying we need to ratchet down 196 00:10:34,240 --> 00:10:38,280 Speaker 1: rate expectations because neutral rate is much lower. What's a 197 00:10:38,360 --> 00:10:41,280 Speaker 1: market participant to do? Yeah, listen, I I think you 198 00:10:41,320 --> 00:10:43,520 Speaker 1: have to go with uh kind of what what brong 199 00:10:43,600 --> 00:10:48,040 Speaker 1: you here? And I think that's generally speaking, Um, disappointment 200 00:10:48,080 --> 00:10:50,319 Speaker 1: as far as we're just managing expectation of what the 201 00:10:50,320 --> 00:10:52,199 Speaker 1: Fed is gonna do. As we remember when the Fed 202 00:10:52,280 --> 00:10:55,199 Speaker 1: titan last December, they were talking about four rate hikes. 203 00:10:55,800 --> 00:10:58,920 Speaker 1: Uh this year. I think September is my own opinion 204 00:10:59,200 --> 00:11:01,520 Speaker 1: is extremely unlike. I think we'll be lucky if we 205 00:11:01,600 --> 00:11:03,640 Speaker 1: get one before the end of the year. I know, 206 00:11:04,120 --> 00:11:06,920 Speaker 1: you know, Mr Dudley certainly has a role. I think 207 00:11:06,920 --> 00:11:10,240 Speaker 1: the FED desperately wants to raise rates, but it's it's 208 00:11:10,280 --> 00:11:13,679 Speaker 1: a very difficult proposition. I think, given where the economic 209 00:11:13,720 --> 00:11:16,560 Speaker 1: growth is right now, don't we have two different sort 210 00:11:16,600 --> 00:11:19,520 Speaker 1: of decision trees going on here or or effects going on. 211 00:11:20,400 --> 00:11:22,080 Speaker 1: If you're sitting on a trading desk and the FED 212 00:11:22,160 --> 00:11:25,040 Speaker 1: is going to raise rates, you know in September or December, 213 00:11:25,080 --> 00:11:28,200 Speaker 1: you're adjusting your portfolio. But for the average American, with 214 00:11:28,240 --> 00:11:30,240 Speaker 1: the neutral rate as low as it is, even if 215 00:11:30,760 --> 00:11:33,440 Speaker 1: Williams isn't correct and they go higher than you know, 216 00:11:33,520 --> 00:11:36,720 Speaker 1: one percent or something like that, to the average American, 217 00:11:36,760 --> 00:11:39,120 Speaker 1: it doesn't matter. And this is this is this is 218 00:11:39,160 --> 00:11:42,199 Speaker 1: the definition of market schizophrenia. Well, I think that's right. 219 00:11:42,400 --> 00:11:44,079 Speaker 1: I think, you know, one of the things that probably 220 00:11:44,080 --> 00:11:46,000 Speaker 1: gives a FED a little bit more leeway, and I 221 00:11:46,080 --> 00:11:48,000 Speaker 1: agree that the average person doesn't care except to the 222 00:11:48,000 --> 00:11:49,480 Speaker 1: extent to which they might get a little bit more 223 00:11:49,480 --> 00:11:51,600 Speaker 1: on their savings. You know, Tom and I were talking before, 224 00:11:51,720 --> 00:11:57,600 Speaker 1: but it's something right, But you've you've largely penalized savers 225 00:11:58,320 --> 00:12:00,400 Speaker 1: over the last seven or eight years. But you know, 226 00:12:00,440 --> 00:12:03,120 Speaker 1: the dollar probably gives a FED a little bit more leeway. 227 00:12:03,200 --> 00:12:06,719 Speaker 1: I my opinion that the big dollar is largely the 228 00:12:07,559 --> 00:12:11,360 Speaker 1: speedometer of how quickly the FED can titan. And one 229 00:12:11,360 --> 00:12:12,880 Speaker 1: of the problems at the start of the year was 230 00:12:12,920 --> 00:12:18,120 Speaker 1: that the dollar strengthened so dramatically that you saw obviously 231 00:12:18,120 --> 00:12:20,400 Speaker 1: they just locations in both the credit markets and the 232 00:12:20,440 --> 00:12:23,080 Speaker 1: stock market. You don't have that risk right right now 233 00:12:23,520 --> 00:12:25,599 Speaker 1: in the time we have left in folks, this is 234 00:12:25,640 --> 00:12:28,800 Speaker 1: sort of how we make the sausage here now, nine 235 00:12:28,880 --> 00:12:31,000 Speaker 1: years ago, or when I first walked in the door. 236 00:12:31,960 --> 00:12:35,080 Speaker 1: We'll say little stupid things to each other, and it's 237 00:12:35,160 --> 00:12:38,079 Speaker 1: always brilliant because Mike and I look at totally different things. 238 00:12:38,600 --> 00:12:41,959 Speaker 1: So Jason, this morning McKee goes Tom look at Portuguese yields, 239 00:12:42,480 --> 00:12:45,720 Speaker 1: Peter book far over at Lindsay Group. Mike McKee writes 240 00:12:45,800 --> 00:12:48,800 Speaker 1: up Portuguese yields, which has to do with the ECB. 241 00:12:48,920 --> 00:12:51,400 Speaker 1: They may get a credit rating decline, and then I 242 00:12:51,480 --> 00:12:55,880 Speaker 1: believe Mike Droggy can't buy Portuguese paper if they get 243 00:12:55,920 --> 00:12:58,520 Speaker 1: the rate. As part of their current program, they have 244 00:12:58,600 --> 00:13:01,559 Speaker 1: to have investment grade pay Burn. There's only one rating 245 00:13:01,600 --> 00:13:06,079 Speaker 1: service that's still giving them an investment grade. And they're 246 00:13:06,120 --> 00:13:09,840 Speaker 1: they're they're reassisting on October twenty one, and they're they're 247 00:13:09,880 --> 00:13:12,480 Speaker 1: not happy with the way things are going. Why Jason 248 00:13:12,520 --> 00:13:14,920 Speaker 1: can't we clear markets? I would go back to a 249 00:13:14,960 --> 00:13:19,040 Speaker 1: conversation I had a Secretary Gightener eight nine years ago, 250 00:13:19,559 --> 00:13:22,080 Speaker 1: which is we're just going to delay and delay and delay. 251 00:13:22,200 --> 00:13:24,839 Speaker 1: That's actually what we've done, right it is and and 252 00:13:24,840 --> 00:13:27,080 Speaker 1: and you know what what's gonna wind up happening is 253 00:13:27,320 --> 00:13:29,400 Speaker 1: I would describe it as schoolyard rules. I mean, the 254 00:13:29,520 --> 00:13:32,000 Speaker 1: CV is making these things up as they go along. 255 00:13:32,440 --> 00:13:35,400 Speaker 1: The only rules are there are no rules. Uh, And 256 00:13:35,520 --> 00:13:39,000 Speaker 1: we're not allowing markets to clear. And that's why you're 257 00:13:39,080 --> 00:13:41,720 Speaker 1: not you're not getting the economic growth that you're hoping 258 00:13:41,840 --> 00:13:44,439 Speaker 1: from the policy. To our audience, who doesn't believe in 259 00:13:44,520 --> 00:13:48,400 Speaker 1: Jason Trent, it's bull market? How do you stay invested. 260 00:13:48,520 --> 00:13:51,880 Speaker 1: If it's schoolyard rules, well it's it's just a lack 261 00:13:51,920 --> 00:13:56,000 Speaker 1: of other alternatives. And the good news, I would argue 262 00:13:56,120 --> 00:13:59,240 Speaker 1: is that, UM, you do have very mild inflation and 263 00:13:59,240 --> 00:14:02,440 Speaker 1: low interest rate and net present value of future discount, 264 00:14:02,960 --> 00:14:04,800 Speaker 1: this kind of cash flows is going to be higher, 265 00:14:04,800 --> 00:14:07,280 Speaker 1: so that that that can keep you in the markets. 266 00:14:07,360 --> 00:14:10,880 Speaker 1: But frankly, UM, it's hard to get really enthusiastic until 267 00:14:10,920 --> 00:14:13,760 Speaker 1: we have I think some policy changes. I do think 268 00:14:13,760 --> 00:14:17,120 Speaker 1: you're going to get that in November, regardless of who wins. 269 00:14:17,400 --> 00:14:19,560 Speaker 1: I do think that whoever wins is going to have 270 00:14:19,600 --> 00:14:22,440 Speaker 1: some political capital and they're probably gonna do some things 271 00:14:22,440 --> 00:14:25,680 Speaker 1: on the fiscal side. Just published it ten minutes ago. 272 00:14:25,720 --> 00:14:29,320 Speaker 1: Great value, UM making very clear agrees with you that 273 00:14:29,520 --> 00:14:32,120 Speaker 1: this maybe we actually get tax refor him. I think, 274 00:14:32,160 --> 00:14:35,440 Speaker 1: I listen, I think that infrastructure. UM. I also we 275 00:14:35,520 --> 00:14:38,160 Speaker 1: also and this isn't particually great way of going about it. 276 00:14:38,320 --> 00:14:41,120 Speaker 1: I do think defense, aerospace and defense is in a 277 00:14:40,960 --> 00:14:44,560 Speaker 1: is a growth market, is UH. And that's true globally, 278 00:14:44,600 --> 00:14:46,120 Speaker 1: and that has to do with a lot of the 279 00:14:46,120 --> 00:14:49,560 Speaker 1: other things we're talking about before, as far as populism, nationalism, 280 00:14:49,560 --> 00:14:52,120 Speaker 1: all the other things that are I think a function 281 00:14:52,160 --> 00:14:55,040 Speaker 1: of low growth. See in nine years, I think, I 282 00:14:55,120 --> 00:14:56,920 Speaker 1: hope I get I hope I come back sooner out. 283 00:14:57,600 --> 00:15:01,000 Speaker 1: I appreciate it. Guys, Thank you Jason trying statigas research. 284 00:15:01,040 --> 00:15:19,440 Speaker 1: He was giving us wisdom longer than nine years. Just 285 00:15:19,480 --> 00:15:21,520 Speaker 1: a few moments ago, we uh, we're talking with Jason 286 00:15:21,520 --> 00:15:24,560 Speaker 1: Trent and he made the observation that the dollar, it's 287 00:15:24,560 --> 00:15:27,240 Speaker 1: sort of the spedometer for the Fed. Uh. You know, 288 00:15:27,280 --> 00:15:29,520 Speaker 1: whether the dollars going up or down seems to determine 289 00:15:29,760 --> 00:15:31,680 Speaker 1: how fast or slow they think they are going to 290 00:15:31,720 --> 00:15:35,680 Speaker 1: be moving. Derren r is head of foreig Strategy for HSBC. 291 00:15:36,280 --> 00:15:39,120 Speaker 1: He's joined us here in the studio if if that 292 00:15:39,240 --> 00:15:41,560 Speaker 1: is indeed the case, and you can argue it if 293 00:15:41,600 --> 00:15:45,640 Speaker 1: you want. Uh, dollar basically has been stuck in cruise 294 00:15:45,640 --> 00:15:49,480 Speaker 1: control for the last two years. Um it goes up, 295 00:15:49,800 --> 00:15:51,720 Speaker 1: you know, look at the dollar index. It goes up, 296 00:15:51,720 --> 00:15:54,040 Speaker 1: a ticket goes down to take but basically since two 297 00:15:54,040 --> 00:15:56,640 Speaker 1: thousand fourteen it hadn't moved. Yeah, but prior to that 298 00:15:56,720 --> 00:15:58,880 Speaker 1: we had a big, big old move in the dollar, 299 00:15:58,960 --> 00:16:00,320 Speaker 1: you know, And I think that's a ball got the 300 00:16:00,360 --> 00:16:02,320 Speaker 1: FED energize because they're trying to work out, look, why 301 00:16:02,400 --> 00:16:05,480 Speaker 1: is inflation missing our target by this quantum? And when 302 00:16:05,520 --> 00:16:07,720 Speaker 1: they looked into the numbers, what they found actually was 303 00:16:07,760 --> 00:16:10,440 Speaker 1: that the strength of the dollar was one of the 304 00:16:10,520 --> 00:16:14,160 Speaker 1: key constituents that explained why why we were undershooting here 305 00:16:14,200 --> 00:16:16,720 Speaker 1: here in the US on inflation. So since then, you're right, 306 00:16:16,760 --> 00:16:20,480 Speaker 1: they've they've absolutely moved the dollar to being not kind 307 00:16:20,520 --> 00:16:22,800 Speaker 1: of the key determinant of policy, but certainly you know, 308 00:16:22,960 --> 00:16:26,840 Speaker 1: central to to the policy making decision. For me, what 309 00:16:26,920 --> 00:16:29,520 Speaker 1: it actually where do we end up? We we end 310 00:16:29,600 --> 00:16:32,880 Speaker 1: up with this peculiar circularity because people say to me, oh, 311 00:16:32,920 --> 00:16:35,800 Speaker 1: look we've had good US numbers, the Feder gonna raise rates, 312 00:16:35,840 --> 00:16:37,640 Speaker 1: Let's buy the dollar. And then, of course, because you 313 00:16:37,720 --> 00:16:39,400 Speaker 1: bought the dollar means a FED or less likely to 314 00:16:39,480 --> 00:16:41,760 Speaker 1: raise rates, which means you should sell the dollar, which 315 00:16:41,760 --> 00:16:43,360 Speaker 1: of course then opens the door to a FED hike. 316 00:16:43,640 --> 00:16:45,840 Speaker 1: So where do you end up? You end up with 317 00:16:45,880 --> 00:16:49,320 Speaker 1: the dollar really capped top and bottom because of this 318 00:16:49,520 --> 00:16:52,000 Speaker 1: self correcting mechanism in terms of water would mean for 319 00:16:52,000 --> 00:16:55,120 Speaker 1: the interest right outlook, which you know, as we've been saying, 320 00:16:55,400 --> 00:16:57,560 Speaker 1: the market actions this summer around the FED sort of 321 00:16:57,560 --> 00:17:01,880 Speaker 1: defined market schizophrenia in terms of how they think about this. 322 00:17:01,960 --> 00:17:05,719 Speaker 1: But since we've been stable for two years, the percentage 323 00:17:05,720 --> 00:17:10,480 Speaker 1: gain is going to fall out of people's calculations. Should 324 00:17:10,480 --> 00:17:13,640 Speaker 1: we now think of it as no longer an inflation 325 00:17:14,000 --> 00:17:17,800 Speaker 1: that we're not going to still be importing disinflation because 326 00:17:18,240 --> 00:17:21,280 Speaker 1: we're not seeing changes, we're seeing stability. Yeah, I mean 327 00:17:21,320 --> 00:17:24,040 Speaker 1: on a year in year effect, we should that that 328 00:17:24,119 --> 00:17:27,760 Speaker 1: kind of dollar disinflation impulse should be fading from the story. 329 00:17:27,800 --> 00:17:29,639 Speaker 1: But you know, FED speakers have said, and this is 330 00:17:29,680 --> 00:17:31,639 Speaker 1: their kind of rule of thumb, that a four or 331 00:17:31,680 --> 00:17:33,679 Speaker 1: five percent move in the trade, weay the dollar is 332 00:17:33,720 --> 00:17:36,480 Speaker 1: like a twenty five basis point hike, and we were 333 00:17:36,520 --> 00:17:39,119 Speaker 1: agonizing over whether they go once again this year, you 334 00:17:39,160 --> 00:17:41,800 Speaker 1: know as a market. So what you're saying is, well, 335 00:17:41,840 --> 00:17:44,000 Speaker 1: that whole debate could be negated just by a four 336 00:17:44,119 --> 00:17:46,000 Speaker 1: or five percent move in the dollar. What what what 337 00:17:46,200 --> 00:17:47,800 Speaker 1: would it take to get that kind of moving the 338 00:17:47,800 --> 00:17:50,639 Speaker 1: dollar now? Uh? Not too much? I mean what do 339 00:17:50,680 --> 00:17:53,400 Speaker 1: we do yesterday? We did about one percent yesterday, Um, 340 00:17:53,960 --> 00:17:57,560 Speaker 1: after the Williams speech, you know, dollar weaker, and then 341 00:17:57,560 --> 00:18:00,960 Speaker 1: we did about one percent back. So does that at zero? 342 00:18:01,160 --> 00:18:03,280 Speaker 1: So that's what I mean, how do you get a 343 00:18:03,320 --> 00:18:07,000 Speaker 1: sustained move of that size absently a black swan that 344 00:18:07,080 --> 00:18:08,879 Speaker 1: we can't well, I don't know. I mean, you can 345 00:18:08,960 --> 00:18:11,359 Speaker 1: imagine yelling at Jackson Hole if she sounded a little 346 00:18:11,359 --> 00:18:15,600 Speaker 1: bit more like her ext deputy Williams, then then I 347 00:18:15,680 --> 00:18:19,000 Speaker 1: think you get a significant dollar weakening move, and in 348 00:18:19,040 --> 00:18:21,240 Speaker 1: a way she might like that because that then opens 349 00:18:21,320 --> 00:18:24,160 Speaker 1: up this door for an interest rate high at some point. 350 00:18:24,200 --> 00:18:27,600 Speaker 1: As as we talked about the circularity um, and you know, 351 00:18:27,640 --> 00:18:30,760 Speaker 1: although a dollar move is equivalent to an interest rate move, 352 00:18:30,760 --> 00:18:34,440 Speaker 1: they aren't actually identical because of course, a tightening via 353 00:18:34,480 --> 00:18:37,359 Speaker 1: interest rates allows you for this conventional leasing at some 354 00:18:37,400 --> 00:18:39,960 Speaker 1: distant point, whereas a tightening via the dollar, you you 355 00:18:40,119 --> 00:18:43,280 Speaker 1: haven't built in that kind of that reaction future reaction 356 00:18:43,560 --> 00:18:46,200 Speaker 1: space in the interest rate sphere. It's the outlier hour 357 00:18:46,800 --> 00:18:50,520 Speaker 1: were derham Er of HSBC, who's got an outlier call 358 00:18:50,600 --> 00:18:53,480 Speaker 1: on a weaker dollars? Steve Major with that huge call 359 00:18:53,560 --> 00:18:57,239 Speaker 1: on on one point uh five zero. As well as 360 00:18:57,280 --> 00:19:00,639 Speaker 1: you sort this through in to the end of the 361 00:19:00,720 --> 00:19:04,840 Speaker 1: year and into next year, doesn't it just lead to 362 00:19:05,000 --> 00:19:12,440 Speaker 1: tensions which lead to a currency war, whether admitted or not. Well, 363 00:19:12,520 --> 00:19:15,159 Speaker 1: to be honest, okay, the shortown side. I think a 364 00:19:15,160 --> 00:19:17,080 Speaker 1: lot depends on the outcome of the U S election. 365 00:19:17,520 --> 00:19:19,760 Speaker 1: You can envisage a situation if we go down the 366 00:19:19,760 --> 00:19:22,560 Speaker 1: trade war route, that currency war becomes part of that story, 367 00:19:22,640 --> 00:19:26,600 Speaker 1: part of that reaction I think absent that kind of outcome. Actually, 368 00:19:26,600 --> 00:19:29,760 Speaker 1: what we've seen now is central banks beginning to accept 369 00:19:30,240 --> 00:19:34,080 Speaker 1: that their ability to engineer currency weakness is on the wayne. 370 00:19:34,160 --> 00:19:37,320 Speaker 1: I mean the Japanese have tried and failed how much 371 00:19:37,320 --> 00:19:39,680 Speaker 1: throughout this year. You know, the ECB gave up back 372 00:19:39,680 --> 00:19:42,159 Speaker 1: in March they said, let's constraint. I mean, we're in 373 00:19:42,200 --> 00:19:45,919 Speaker 1: the show business here, so yesterday with ends rough. Now 374 00:19:46,080 --> 00:19:48,520 Speaker 1: now we talk about intervention in the game of when 375 00:19:48,560 --> 00:19:51,879 Speaker 1: will they intervene and all that. If I say currency 376 00:19:52,000 --> 00:19:56,440 Speaker 1: war is a proxy for quiet intervention. Are we seeing 377 00:19:56,440 --> 00:19:59,040 Speaker 1: more of that now or less? I think we're seeing less. 378 00:19:59,080 --> 00:20:02,000 Speaker 1: I think we're seeing less. Not not because there's there's 379 00:20:02,040 --> 00:20:04,919 Speaker 1: a lack of desire to get an economic advantage through 380 00:20:04,960 --> 00:20:07,040 Speaker 1: a weaker currency, but there's just a lack of ability 381 00:20:07,119 --> 00:20:10,240 Speaker 1: to deliver it. I mean, the Japanese try negative interest 382 00:20:10,320 --> 00:20:13,600 Speaker 1: rates and the end strengthened and they've they've delivered extra 383 00:20:13,960 --> 00:20:16,399 Speaker 1: QUEI they've delivered another fiscal ease, and and and the 384 00:20:16,440 --> 00:20:21,240 Speaker 1: currency continues to grind stronger. So that that is the difficulty. 385 00:20:21,280 --> 00:20:23,480 Speaker 1: And actually for emerging markets, would you know, it's interesting 386 00:20:23,480 --> 00:20:26,359 Speaker 1: in emerging markets, they were crime, we were nervous about them, 387 00:20:26,400 --> 00:20:27,919 Speaker 1: and now actually we begin to see the likes of 388 00:20:27,960 --> 00:20:30,080 Speaker 1: Brazil and others saying, actually, maybe we're getting a bit 389 00:20:30,119 --> 00:20:34,760 Speaker 1: too much currency strength. Mexican pay so Mike from nineteen 390 00:20:36,119 --> 00:20:39,560 Speaker 1: rallying to a strong eighteen point one three this morning 391 00:20:39,960 --> 00:20:44,480 Speaker 1: with the the safe haven flows that we're seeing today, 392 00:20:44,520 --> 00:20:47,119 Speaker 1: that it seemed to you had safe haven flows and 393 00:20:47,160 --> 00:20:50,240 Speaker 1: then you get to carry trade sort of mixed together. Uh, 394 00:20:50,359 --> 00:20:54,400 Speaker 1: does anybody have any control over their exchange rate values 395 00:20:54,600 --> 00:20:57,919 Speaker 1: these days? Chinese maybe, but other than they're not really 396 00:20:58,160 --> 00:21:00,919 Speaker 1: um But but think you make a good point one 397 00:21:00,960 --> 00:21:03,240 Speaker 1: of the peculiarities at the moment, even about this yend 398 00:21:03,280 --> 00:21:05,960 Speaker 1: strength that we've seen, it's not particularly been a safe 399 00:21:06,000 --> 00:21:08,679 Speaker 1: haven flow. I mean, you know, we've had old time 400 00:21:08,800 --> 00:21:11,320 Speaker 1: highs on on the US equity markets, and yet we 401 00:21:11,400 --> 00:21:15,280 Speaker 1: have still have a strong yen. I think there's there's 402 00:21:15,280 --> 00:21:17,720 Speaker 1: a mix of drivers. Sometimes the safe haven sometimes this 403 00:21:17,840 --> 00:21:21,159 Speaker 1: carry chasing. But for a lot of these currencies. It 404 00:21:21,240 --> 00:21:23,879 Speaker 1: just seems to be a mean reversion. Maybe if you 405 00:21:24,000 --> 00:21:26,639 Speaker 1: like UM, and you know, we talked to Tom earlier 406 00:21:26,800 --> 00:21:28,399 Speaker 1: just about this idea that could we go back to 407 00:21:28,440 --> 00:21:32,000 Speaker 1: a d On Dolly and absolutely if ebonomics fails UM, 408 00:21:32,040 --> 00:21:34,480 Speaker 1: but you know it sounds like a great economist. Equally, 409 00:21:34,480 --> 00:21:36,840 Speaker 1: you could go to one forty um if they do 410 00:21:36,880 --> 00:21:40,639 Speaker 1: helicopter money in Japan. So I don't would I wouldn't 411 00:21:40,640 --> 00:21:42,760 Speaker 1: say policy makes of control over their currencies, but they 412 00:21:42,800 --> 00:21:44,960 Speaker 1: still have an influence over their currencies, as we saw 413 00:21:45,040 --> 00:21:47,359 Speaker 1: yesterday with those FED speakers to and fro in the dollars. 414 00:21:47,480 --> 00:21:51,680 Speaker 1: Do you think anybody is trying to conduct currency worse 415 00:21:51,960 --> 00:21:54,960 Speaker 1: I hate that term, but you know, trying to manipulate 416 00:21:55,000 --> 00:21:58,680 Speaker 1: their currency for their own good. Yeah, I mean I think, well, 417 00:21:58,720 --> 00:22:00,919 Speaker 1: I think many are. I mean, in the US does 418 00:22:00,960 --> 00:22:02,680 Speaker 1: not want a stronger dollar, at least the US FED 419 00:22:02,720 --> 00:22:04,719 Speaker 1: does not want a stronger dollar. The UCP does want 420 00:22:04,720 --> 00:22:07,600 Speaker 1: a stronger euro, the Japanese strong You know, sterling is 421 00:22:07,600 --> 00:22:10,280 Speaker 1: a necessary part of an adjustment in the UK. So 422 00:22:10,400 --> 00:22:13,119 Speaker 1: to that extent, there is a currency war ongoing, but 423 00:22:13,359 --> 00:22:16,080 Speaker 1: it's not one necessarily we're actively trying to weaken your currency. 424 00:22:16,119 --> 00:22:18,639 Speaker 1: You're just doing what you can try and fight against 425 00:22:18,720 --> 00:22:20,840 Speaker 1: any any currency strength. You don't want to be the 426 00:22:21,160 --> 00:22:25,119 Speaker 1: safety valve for weakness elsewhere. And and at this point 427 00:22:25,760 --> 00:22:28,600 Speaker 1: that's what would happen if somebody gave up, everybody would 428 00:22:29,480 --> 00:22:32,320 Speaker 1: pile into the same trade. Yeah, I think so. I mean, 429 00:22:33,000 --> 00:22:35,800 Speaker 1: in a way for me, euro dollar or Euro upside 430 00:22:35,920 --> 00:22:38,320 Speaker 1: is the path of least resistance at the moment, because 431 00:22:38,640 --> 00:22:40,919 Speaker 1: you don't get the sense that Drag is actively talking 432 00:22:40,960 --> 00:22:42,960 Speaker 1: down the Euro. But you get the sense that the 433 00:22:43,080 --> 00:22:45,600 Speaker 1: Japanese for better worse of trying to get a weaker yea. 434 00:22:45,760 --> 00:22:47,800 Speaker 1: And as I mentioned, the FED don't want a stronger dollar. 435 00:22:47,880 --> 00:22:50,320 Speaker 1: So that's why I think you're getting this grind higher 436 00:22:50,320 --> 00:22:53,280 Speaker 1: and your daughter while we challenge one thirteen yesterday, is 437 00:22:53,320 --> 00:22:56,440 Speaker 1: that the view forward grind is that that the singular 438 00:22:56,480 --> 00:22:59,359 Speaker 1: word everything feels like a grind. And I agree that 439 00:22:59,440 --> 00:23:01,600 Speaker 1: what's atles to get us out of grind is it 440 00:23:02,040 --> 00:23:04,680 Speaker 1: the the idiot see and simplicity of a FED rate 441 00:23:04,720 --> 00:23:08,040 Speaker 1: hike or is there some other moment, and particularly looking 442 00:23:08,080 --> 00:23:11,600 Speaker 1: at Dragging in his choice. Yeah, to be honest, I 443 00:23:11,600 --> 00:23:13,359 Speaker 1: don't think there is an obvious grind. And when I 444 00:23:13,359 --> 00:23:16,040 Speaker 1: talk to investors and they tell me about it. The 445 00:23:16,119 --> 00:23:18,880 Speaker 1: idea of making easy money and currencies, you know, that 446 00:23:19,000 --> 00:23:21,119 Speaker 1: feels like a thing of the past. We're not getting 447 00:23:21,119 --> 00:23:23,760 Speaker 1: these big dollar trends, big end trends, big euro trends. 448 00:23:24,280 --> 00:23:26,520 Speaker 1: Maybe the one is Sterling. I mean, I still think 449 00:23:26,520 --> 00:23:30,800 Speaker 1: the market is miss miss misrepresenting Sterling. Yes, it's weaker, 450 00:23:31,080 --> 00:23:33,680 Speaker 1: But does this suggestion we've had a step adjustment it stops? 451 00:23:33,720 --> 00:23:36,120 Speaker 1: I think Sterling carries on. We We've got one ten 452 00:23:36,760 --> 00:23:39,280 Speaker 1: end of next year on cable. That's like the most 453 00:23:39,320 --> 00:23:43,439 Speaker 1: bearish on the street HSBC, most barish in Sterling, I did, 454 00:23:43,560 --> 00:23:46,520 Speaker 1: when did you make this decision? Well, we went one 455 00:23:46,560 --> 00:23:48,920 Speaker 1: twenty since Brexit the end next year, and then about 456 00:23:48,960 --> 00:23:51,399 Speaker 1: three weeks ago we revised and taking the car coming 457 00:23:51,440 --> 00:23:53,720 Speaker 1: over here this morning. Well that's that's where I get 458 00:23:53,760 --> 00:23:55,640 Speaker 1: most of my inspiration. But no, we've had a couple 459 00:23:55,680 --> 00:23:57,200 Speaker 1: of We're going to be out with Mike in time. 460 00:23:57,240 --> 00:24:02,320 Speaker 1: I gotta stunt him. You're at a one ten and Sterling. Yeah, stop, 461 00:24:02,320 --> 00:24:08,280 Speaker 1: our Prime minister, may what will be your exceptionally limited 462 00:24:08,440 --> 00:24:12,720 Speaker 1: choice set when we're at one fourteen migrate into your 463 00:24:12,720 --> 00:24:15,960 Speaker 1: one tent? Is she gonna be want to. I think 464 00:24:16,000 --> 00:24:18,399 Speaker 1: she'll be actually okay. Without bear in mind, this is 465 00:24:18,440 --> 00:24:21,479 Speaker 1: a we talked about a grind. This is a grind 466 00:24:21,520 --> 00:24:24,439 Speaker 1: to one ten course of fifteen months. I'll go with that. 467 00:24:24,520 --> 00:24:27,480 Speaker 1: It's a vector at fifteen months. Great. I think a 468 00:24:27,520 --> 00:24:29,879 Speaker 1: pebble beach in the Japanese buy what they buy the 469 00:24:29,880 --> 00:24:34,920 Speaker 1: Empire State Building, Rocket Fellers Center. I mean, come on 470 00:24:34,920 --> 00:24:38,919 Speaker 1: one ten yen but they just excuse me? Is h 471 00:24:38,920 --> 00:24:42,280 Speaker 1: just BC gonna move back? Everybody back to London. I'm honestly, 472 00:24:42,320 --> 00:24:43,879 Speaker 1: I'm talking my book. I need to get back. But 473 00:24:44,119 --> 00:24:47,360 Speaker 1: that's a look what it does exactly what you say. 474 00:24:47,560 --> 00:24:49,280 Speaker 1: You've got a current account depth that let's call it, 475 00:24:49,320 --> 00:24:51,639 Speaker 1: six percent of GDP in the UK. You've got to 476 00:24:51,760 --> 00:24:54,480 Speaker 1: suck in capital too, if you like finance, to be simplistic, 477 00:24:55,960 --> 00:24:58,399 Speaker 1: that's what that sterling at one ten does. It makes 478 00:24:58,600 --> 00:25:01,760 Speaker 1: it makes your Rockefeller s cheap. But does the vector 479 00:25:01,880 --> 00:25:04,840 Speaker 1: of the current account my single chart from brexit, does 480 00:25:04,880 --> 00:25:07,760 Speaker 1: that widen from seven percent out? No, not particular, but 481 00:25:07,760 --> 00:25:12,000 Speaker 1: I don't think it narrows sustains. That's the key. What folks, 482 00:25:12,000 --> 00:25:14,480 Speaker 1: what we're talking here is in inertial force. You've got 483 00:25:14,480 --> 00:25:17,760 Speaker 1: these inertial forces of big money mass that most of 484 00:25:17,800 --> 00:25:21,080 Speaker 1: us can't even visualize. You've got the inertial force of 485 00:25:21,119 --> 00:25:25,119 Speaker 1: a chronic six or seven percent current account deficit in 486 00:25:25,119 --> 00:25:28,880 Speaker 1: in England. In her single solution is your one ten 487 00:25:28,960 --> 00:25:31,440 Speaker 1: sterling has to be part of the solution because otherwise, 488 00:25:31,720 --> 00:25:33,560 Speaker 1: if you allow to find that that current account death 489 00:25:33,600 --> 00:25:36,320 Speaker 1: and maybe sticky, you know, throwing out the old text 490 00:25:36,320 --> 00:25:39,560 Speaker 1: books about how exchange rates affect these externals, then you 491 00:25:39,680 --> 00:25:42,280 Speaker 1: need to ensure that you've you've made your asset base 492 00:25:42,520 --> 00:25:45,399 Speaker 1: attractive enough at a price and exchange rate that brings 493 00:25:45,400 --> 00:25:48,280 Speaker 1: that much account. Speaking terms with your UK economists, what 494 00:25:48,320 --> 00:25:52,040 Speaker 1: do they say if they get Derren Myers one ten sterling? 495 00:25:52,119 --> 00:25:55,119 Speaker 1: What does it do to aggregate real economy g d 496 00:25:55,280 --> 00:25:57,600 Speaker 1: P in the United Kingdom were one big happy family. 497 00:25:58,240 --> 00:26:01,119 Speaker 1: The big impact is on of course, on inflation. You 498 00:26:01,160 --> 00:26:04,399 Speaker 1: know that's you know you saw yesterday and inflation oh 499 00:26:04,480 --> 00:26:07,800 Speaker 1: well well above yeah, so you know that okay, bank 500 00:26:07,800 --> 00:26:09,479 Speaker 1: having it looks through that that's where the big game 501 00:26:09,480 --> 00:26:11,600 Speaker 1: pact because in that trade I've just said it's not massive, 502 00:26:11,720 --> 00:26:16,880 Speaker 1: so it's six so you over fifteen months you get 503 00:26:16,920 --> 00:26:21,000 Speaker 1: to if growth picks up too then the Bank of 504 00:26:21,040 --> 00:26:24,440 Speaker 1: England can take action and they that's what they know 505 00:26:24,480 --> 00:26:30,399 Speaker 1: how to go. But that's mission accomplished. Darren mar is 506 00:26:30,440 --> 00:26:34,200 Speaker 1: going to be the new Chancellor of the Exchequer. No thanks, 507 00:26:35,760 --> 00:26:39,840 Speaker 1: it's extraordinary. I mean, these are folks, these are ginormous dynamics. 508 00:26:40,040 --> 00:26:42,600 Speaker 1: I go back to the Wells Fargo acquisition. Just after 509 00:26:42,680 --> 00:26:45,399 Speaker 1: Brexit they make cash for a building in London. Do 510 00:26:45,520 --> 00:26:48,840 Speaker 1: you predict a boom London? I am personally, folks. I've been, 511 00:26:49,040 --> 00:26:51,520 Speaker 1: you know, talking to people saying the doom and bloom 512 00:26:51,560 --> 00:26:54,399 Speaker 1: on in London. I just don't get one. Ten London 513 00:26:54,960 --> 00:26:58,600 Speaker 1: is a global free for all, isn't it. That's exactly 514 00:26:58,640 --> 00:27:01,639 Speaker 1: what we need. We that's you need to have for 515 00:27:01,800 --> 00:27:05,520 Speaker 1: sale substantial discount, you know, come bias, because if you 516 00:27:05,600 --> 00:27:07,520 Speaker 1: do not, then you've got a problem. Then you have 517 00:27:07,560 --> 00:27:10,639 Speaker 1: your balance of payments issue, you know, because this the 518 00:27:10,640 --> 00:27:12,879 Speaker 1: week sterling is not going to swing your current account 519 00:27:12,880 --> 00:27:15,880 Speaker 1: balanced by any big quantum. Do you agree with Governor King? 520 00:27:15,920 --> 00:27:18,680 Speaker 1: That is just a level change in sterling. And frankly 521 00:27:18,720 --> 00:27:22,040 Speaker 1: he is optimistic in the UK experiment. I think that 522 00:27:22,040 --> 00:27:24,000 Speaker 1: could play that, it could play that way, It could 523 00:27:24,000 --> 00:27:26,200 Speaker 1: play that way. This is a level change, it will 524 00:27:26,280 --> 00:27:30,639 Speaker 1: have a destabilizing effect for a period. But this idea 525 00:27:30,680 --> 00:27:32,960 Speaker 1: that we've had one step one fifty to one thirty 526 00:27:32,960 --> 00:27:35,520 Speaker 1: and we're sorted for it just doesn't work. I've got Mike, 527 00:27:35,560 --> 00:27:38,040 Speaker 1: this is typical. I gotta see him for two hours 528 00:27:38,400 --> 00:27:40,400 Speaker 1: before I figured out he's got a one ten call 529 00:27:40,520 --> 00:27:43,359 Speaker 1: on cable. Do you think I should read the research 530 00:27:43,400 --> 00:27:46,840 Speaker 1: notes every once in a while, Mike, Yeah, particular because 531 00:27:46,960 --> 00:27:49,119 Speaker 1: we have been right so even for this year. Novelty 532 00:27:49,119 --> 00:27:53,120 Speaker 1: of reading stuff that's right. We would love when when 533 00:27:53,160 --> 00:27:54,879 Speaker 1: Mike and Iron London. We would love to have you 534 00:27:54,920 --> 00:27:59,040 Speaker 1: and Steve majoring together. You guys are so outlied. It 535 00:27:59,119 --> 00:28:01,880 Speaker 1: keeps the center to m from New Jersey, says um. 536 00:28:01,920 --> 00:28:06,600 Speaker 1: The inertial things we don't do physics on in August 537 00:28:06,880 --> 00:28:22,280 Speaker 1: Row equals m V. It's August Michael McKee and Tom Kane, 538 00:28:23,240 --> 00:28:25,960 Speaker 1: Gregory Peters, it has been way too long. The Credential 539 00:28:26,000 --> 00:28:29,360 Speaker 1: Fixed Income joins us and they put out an incredibly 540 00:28:29,400 --> 00:28:33,960 Speaker 1: intelligent note. Then Martin Haggerty yesterday at black Rock had 541 00:28:34,000 --> 00:28:38,480 Speaker 1: the same idea. We have never seen this in twenty years. 542 00:28:38,520 --> 00:28:44,800 Speaker 1: Sticky inflation, which is where sticky inflation or Martin said, 543 00:28:44,880 --> 00:28:50,320 Speaker 1: highball inflation is way above inflation. Inflation that's sticky. Inflation 544 00:28:50,400 --> 00:28:55,280 Speaker 1: is not in bond prices, is it. No, it's definitely not. UM. 545 00:28:55,760 --> 00:28:59,400 Speaker 1: The other side of inflation, or the sticky inflation as 546 00:28:59,400 --> 00:29:03,200 Speaker 1: you call UM, is that you have central banks pressing 547 00:29:03,280 --> 00:29:07,240 Speaker 1: down on rates globally, and I think that is the 548 00:29:07,360 --> 00:29:11,160 Speaker 1: key driving element in here. And just look at the 549 00:29:11,240 --> 00:29:15,200 Speaker 1: reaction and the focus the past two days on the 550 00:29:15,240 --> 00:29:18,280 Speaker 1: FED rhetoric and what's going to come out of the minutes, 551 00:29:18,480 --> 00:29:22,480 Speaker 1: It's clear that the markets are tied to what central 552 00:29:22,520 --> 00:29:27,480 Speaker 1: bank policy is much more than UH inflation at this point. 553 00:29:27,640 --> 00:29:30,800 Speaker 1: What sticky is that like the rents? Do? Is it 554 00:29:30,920 --> 00:29:33,360 Speaker 1: like the stuff and inflation that we have to It's 555 00:29:33,360 --> 00:29:37,520 Speaker 1: stuff that matters, right, So it's the less volatile elements 556 00:29:37,960 --> 00:29:42,120 Speaker 1: of of inflation. UH. And on the inflation side, as 557 00:29:42,120 --> 00:29:44,800 Speaker 1: you well know, a lot of the measures are driven 558 00:29:44,840 --> 00:29:48,800 Speaker 1: by UM owner's equivalent rent and other types of things 559 00:29:48,840 --> 00:29:52,000 Speaker 1: that are more of a gauge than, you know, than 560 00:29:52,040 --> 00:29:56,240 Speaker 1: anything else. Nobody talks about inflation in the markets these days, 561 00:29:56,280 --> 00:29:59,240 Speaker 1: and you know, you look at market UH pricing of 562 00:29:59,320 --> 00:30:03,680 Speaker 1: inflation X spectations and it's very very low. UM. They 563 00:30:03,680 --> 00:30:06,840 Speaker 1: didn't seem to be any buddy worried about sticky inflation 564 00:30:07,160 --> 00:30:10,160 Speaker 1: out there. No, it's been right to lean against it too. 565 00:30:10,200 --> 00:30:13,040 Speaker 1: So I thought it was interesting in Germany, uh they 566 00:30:12,840 --> 00:30:18,280 Speaker 1: actually printed pretty healthy inflation numbers. Yet the five year 567 00:30:18,360 --> 00:30:21,760 Speaker 1: five year forward UH is lower today than it was 568 00:30:21,800 --> 00:30:24,400 Speaker 1: at the beginning of the year. Um So the markets 569 00:30:24,440 --> 00:30:28,360 Speaker 1: continue to to move the prices down in terms of 570 00:30:28,400 --> 00:30:33,280 Speaker 1: what the inflation expectations are UH and uh and that's 571 00:30:33,320 --> 00:30:36,560 Speaker 1: not completely unrealistic in my mind. Uh so I was 572 00:30:36,600 --> 00:30:41,280 Speaker 1: talking about earlier. What could really change this dynamic is 573 00:30:41,320 --> 00:30:45,280 Speaker 1: the fiscal side uh and so I think we really 574 00:30:45,280 --> 00:30:49,560 Speaker 1: have to be vigilant around any change around fiscal policy, 575 00:30:49,640 --> 00:30:52,760 Speaker 1: not only here in the US but globally, as that 576 00:30:52,800 --> 00:30:57,400 Speaker 1: could be one element to perhaps push inflation to a 577 00:30:57,480 --> 00:31:02,239 Speaker 1: higher level. We'll see though, perhaps perhaps push with that 578 00:31:02,320 --> 00:31:05,640 Speaker 1: qualifying word. Perhaps is there a trade right now or 579 00:31:05,680 --> 00:31:07,280 Speaker 1: do you know just something you want to keep an 580 00:31:07,280 --> 00:31:11,440 Speaker 1: eye on. I think it's too early. Uh So, there 581 00:31:11,560 --> 00:31:13,800 Speaker 1: is definitely a trade, and there's a lot of moving 582 00:31:13,880 --> 00:31:16,880 Speaker 1: parts and uh, I'm not sure how it's gonna play 583 00:31:16,880 --> 00:31:21,000 Speaker 1: out per se. But but we've been in this UH 584 00:31:21,600 --> 00:31:25,720 Speaker 1: very low yield camp for quite some time. And I 585 00:31:25,760 --> 00:31:29,640 Speaker 1: think what could really change that is that change around 586 00:31:30,000 --> 00:31:33,120 Speaker 1: the fiscal spending side. And it's a big if. Right, 587 00:31:33,200 --> 00:31:36,360 Speaker 1: So we're market players, were not uh, we're not knee 588 00:31:36,400 --> 00:31:39,000 Speaker 1: deep in politics, and it's a but it seems politically 589 00:31:39,320 --> 00:31:41,200 Speaker 1: this year you gotta watch that more. I mean, you're 590 00:31:41,200 --> 00:31:43,800 Speaker 1: gonna be paying attention on November eight. You're gonna want 591 00:31:43,800 --> 00:31:46,200 Speaker 1: to know who's elected not just to the White House, 592 00:31:46,240 --> 00:31:51,239 Speaker 1: but but in absolutely absolutely and and it seems if 593 00:31:51,280 --> 00:31:53,920 Speaker 1: you part some of the rhetoric coming out, which is 594 00:31:54,200 --> 00:31:59,640 Speaker 1: difficult of course. Um uh, it seems like both sides, 595 00:32:00,080 --> 00:32:02,560 Speaker 1: not that that matters per se, but both sides kind 596 00:32:02,600 --> 00:32:04,960 Speaker 1: of are are moving in that direction a little more 597 00:32:05,120 --> 00:32:07,480 Speaker 1: than they were in the past. I call this the 598 00:32:07,600 --> 00:32:10,240 Speaker 1: ninth anniversary of the crisis when we went for standard 599 00:32:10,280 --> 00:32:12,880 Speaker 1: deviations and Tebow might goes a couple of days earlier 600 00:32:13,240 --> 00:32:18,120 Speaker 1: to the BNP Perry two funds. Uh, date, we've had 601 00:32:18,120 --> 00:32:21,080 Speaker 1: a financial repression. Can you agree with Mr Gross and 602 00:32:21,160 --> 00:32:25,680 Speaker 1: Janis and others that the financial repression just continues for savers? 603 00:32:26,080 --> 00:32:28,760 Speaker 1: I think so. I I think that's the world that 604 00:32:28,800 --> 00:32:32,880 Speaker 1: we live in, which is inherently deflationary. All right, So 605 00:32:33,000 --> 00:32:36,760 Speaker 1: go back to why inflation expectations are so low. I 606 00:32:36,800 --> 00:32:44,000 Speaker 1: think what central banks miscalibrated is that dynamic actually that 607 00:32:44,000 --> 00:32:50,880 Speaker 1: that low rates, negative rates UH actually have a disinflation 608 00:32:51,040 --> 00:32:54,960 Speaker 1: deflationary type of component to it, much more than a 609 00:32:55,000 --> 00:32:58,920 Speaker 1: stimulating one. And I think that's that's where you know, 610 00:32:59,000 --> 00:33:02,920 Speaker 1: it ties into final shol repression. I mean, look at it, 611 00:33:03,080 --> 00:33:06,080 Speaker 1: Mike and a one fifty seven. I mean we were 612 00:33:06,120 --> 00:33:09,240 Speaker 1: below one fifty the other day on the tenure yield? 613 00:33:09,520 --> 00:33:12,600 Speaker 1: Is there a scarcity of bonds? Could what's going on 614 00:33:12,720 --> 00:33:15,520 Speaker 1: in Europe actually happened in the United States, But there's 615 00:33:15,520 --> 00:33:18,400 Speaker 1: a you know, John Templeton set a shortage of paper. 616 00:33:19,120 --> 00:33:22,880 Speaker 1: I don't think there's a shortage per se um um. 617 00:33:23,600 --> 00:33:26,600 Speaker 1: It's not the same same situation that they have UH 618 00:33:26,920 --> 00:33:32,320 Speaker 1: in Europe, by by any stretch um um. So I 619 00:33:32,480 --> 00:33:35,400 Speaker 1: I don't worry about the shortage. But but there's a 620 00:33:35,640 --> 00:33:40,400 Speaker 1: clear desire to own US debt US treasuries in particular, 621 00:33:41,160 --> 00:33:43,720 Speaker 1: UH and UH And why wouldn't you? Alright, So, not 622 00:33:43,920 --> 00:33:48,840 Speaker 1: only are the yields really attractive visa v other developed markets, 623 00:33:48,920 --> 00:33:53,600 Speaker 1: it's the largest, most deepest, well well respected market in 624 00:33:53,640 --> 00:33:55,720 Speaker 1: the world. Well we we don't have to, you know, 625 00:33:56,000 --> 00:33:58,320 Speaker 1: hedge currencies either being here in the United States, which 626 00:33:58,320 --> 00:34:00,440 Speaker 1: seems to be a problem for others over sees. But 627 00:34:01,080 --> 00:34:03,920 Speaker 1: even if you're buying into the treasury market, you're getting 628 00:34:03,920 --> 00:34:07,120 Speaker 1: bupkuts for yield. So would you rather be in corporates, 629 00:34:07,360 --> 00:34:11,840 Speaker 1: especially exploring the high yield spaces? Yeah, well that's the 630 00:34:11,880 --> 00:34:18,840 Speaker 1: whole portfolio channel effect that has not a jargon channel 631 00:34:20,719 --> 00:34:23,640 Speaker 1: continue to channel, Mr Peter, No, you know, I'm trying 632 00:34:23,680 --> 00:34:28,160 Speaker 1: to obtuscate maybe, but um no, it clearly the low 633 00:34:28,600 --> 00:34:32,600 Speaker 1: yields are pushing investors out not only the duration curve 634 00:34:33,239 --> 00:34:36,319 Speaker 1: so at maturities, but out the risk curve as well. Uh. 635 00:34:36,480 --> 00:34:39,359 Speaker 1: And so you're seeing it most notably in investment grade 636 00:34:39,360 --> 00:34:44,200 Speaker 1: corporate bonds. That's more of a easy step, um, than 637 00:34:44,239 --> 00:34:45,600 Speaker 1: going to the high yield. But you're saying it in 638 00:34:45,680 --> 00:34:49,040 Speaker 1: high yield as well. Um and so um. You know, 639 00:34:49,120 --> 00:34:52,239 Speaker 1: investors have no choice, they have absolutely no choice. If 640 00:34:52,280 --> 00:34:56,080 Speaker 1: they need to earn income, you need to earn yield. 641 00:34:56,120 --> 00:34:59,840 Speaker 1: They are forced into higher yielding products whatever that is. 642 00:35:00,040 --> 00:35:03,880 Speaker 1: And that is what quantitative easing is all about. Do 643 00:35:04,080 --> 00:35:09,839 Speaker 1: you see bubbles distortions out there? Likely don't The high 644 00:35:09,880 --> 00:35:12,880 Speaker 1: old side is always front and center around that, and 645 00:35:13,000 --> 00:35:16,399 Speaker 1: quite frankly, I don't see it, uh I. I look 646 00:35:16,440 --> 00:35:18,960 Speaker 1: at leverage and aggregate on the high old side. I 647 00:35:19,080 --> 00:35:23,480 Speaker 1: look at the false x energy on the false X 648 00:35:23,600 --> 00:35:27,759 Speaker 1: energy quite low, very low um and so there was 649 00:35:27,800 --> 00:35:32,680 Speaker 1: a clear bubble in retrospect on the energy space. So 650 00:35:32,840 --> 00:35:36,759 Speaker 1: there was too much lent to energy companies. Um So 651 00:35:37,000 --> 00:35:41,040 Speaker 1: that is uh being cleaned up, if you would. But 652 00:35:41,120 --> 00:35:44,719 Speaker 1: I don't really see any real bubble, at least on 653 00:35:44,800 --> 00:35:48,560 Speaker 1: the fixed income side. It's clear though investment grade corporates 654 00:35:48,719 --> 00:35:53,040 Speaker 1: is an area that companies have really feasted on the 655 00:35:53,120 --> 00:35:57,759 Speaker 1: low rate environment. Gregory peters with US with credential, What 656 00:35:57,960 --> 00:36:00,759 Speaker 1: is the linkage of foreign exchange to you? I mean, 657 00:36:00,840 --> 00:36:03,759 Speaker 1: I get the irving Fisher thing, but do you just 658 00:36:03,880 --> 00:36:09,440 Speaker 1: assume weaker currency higher yields? No, not necessarily um uh 659 00:36:09,719 --> 00:36:13,400 Speaker 1: So what's amazing about this, uh this market is that 660 00:36:13,560 --> 00:36:18,160 Speaker 1: over the past several years, clearly the the adjustment mechanism 661 00:36:18,239 --> 00:36:21,880 Speaker 1: has been the currency market um um. And so you 662 00:36:21,960 --> 00:36:25,200 Speaker 1: saw that most prevalently on the e M currency side 663 00:36:25,400 --> 00:36:28,920 Speaker 1: last year. That was a powerful and much needed adjustment, 664 00:36:28,960 --> 00:36:33,919 Speaker 1: and I could allow those countries to operate Uh, much 665 00:36:34,000 --> 00:36:37,879 Speaker 1: better as a consequence this year, what you're saying this year, 666 00:36:37,960 --> 00:36:40,719 Speaker 1: I think, Uh, what is quite interesting is where the 667 00:36:40,840 --> 00:36:46,960 Speaker 1: negative yield environment is forcing UH money out of those jurisdictions. 668 00:36:47,000 --> 00:36:51,440 Speaker 1: So it's creating capital flight into the US market. UM. 669 00:36:51,680 --> 00:36:55,560 Speaker 1: And so that's where the currency is related. And that's 670 00:36:55,640 --> 00:37:00,319 Speaker 1: what you're seeing in Japan. So UM, just money having 671 00:37:00,360 --> 00:37:04,040 Speaker 1: to move out to seek yield to get returned. Even 672 00:37:04,160 --> 00:37:07,319 Speaker 1: with the the cross currency basis, which I know you're 673 00:37:07,360 --> 00:37:12,239 Speaker 1: focused on, tom um, investors still have no choice uh. 674 00:37:12,440 --> 00:37:14,719 Speaker 1: And so that is I think a big driver of 675 00:37:14,760 --> 00:37:20,160 Speaker 1: the currency market in here is central bank policy broken 676 00:37:20,280 --> 00:37:22,360 Speaker 1: or no longer effective then, I mean you seem to 677 00:37:22,400 --> 00:37:24,400 Speaker 1: be arguing it's effective in doing what they said it 678 00:37:24,440 --> 00:37:28,359 Speaker 1: would do, which was forced investors to seek yield. Yeah, 679 00:37:28,400 --> 00:37:30,800 Speaker 1: I'm not sure what that benefits ultimately though from a 680 00:37:30,880 --> 00:37:35,720 Speaker 1: real economy standpoint. UM, So I would I actually personally 681 00:37:35,760 --> 00:37:40,360 Speaker 1: believe in what our firm UH is also quite concerned 682 00:37:40,400 --> 00:37:43,759 Speaker 1: around the negative yield environment and the real impact that's 683 00:37:43,800 --> 00:37:47,759 Speaker 1: having UH and efficacy of that policy that doesn't work, 684 00:37:48,000 --> 00:37:52,680 Speaker 1: and UH that doesn't work yet what you're seeing, particularly 685 00:37:52,760 --> 00:37:57,920 Speaker 1: in Japan just can continued pressing on that pedal. Uh 686 00:37:58,840 --> 00:38:02,719 Speaker 1: you saw the b O E. I think UM be 687 00:38:02,960 --> 00:38:05,920 Speaker 1: overly aggressive early on, kind of jumped the shark if 688 00:38:05,960 --> 00:38:11,760 Speaker 1: you would, um last month? Uh so, I know this policy, 689 00:38:11,840 --> 00:38:16,480 Speaker 1: while it is wildly accepted as not being positive, central 690 00:38:16,520 --> 00:38:18,360 Speaker 1: banks are still doing it. And then you get to 691 00:38:18,440 --> 00:38:20,799 Speaker 1: this word grind, which I know is a financial word. 692 00:38:21,560 --> 00:38:23,240 Speaker 1: I mean that's what we're in, right, It's a grind. 693 00:38:23,960 --> 00:38:28,759 Speaker 1: It's a grind unless unless there is some shock to 694 00:38:28,920 --> 00:38:34,200 Speaker 1: the system. Albeit um uh well it would be through inflation. 695 00:38:34,920 --> 00:38:38,120 Speaker 1: So that's why inflation is so key. That's why fiscal policy, 696 00:38:39,000 --> 00:38:40,880 Speaker 1: Mike good I mean to interrupt, I think this is critical. 697 00:38:40,960 --> 00:38:44,160 Speaker 1: How do you respond to three or four percent inflation 698 00:38:44,239 --> 00:38:47,280 Speaker 1: in the United Kingdom that's got a knock on effect 699 00:38:47,360 --> 00:38:52,960 Speaker 1: to your world by definition? Absolutely absolutely? Well? What then 700 00:38:53,640 --> 00:38:56,799 Speaker 1: we talked about fiscal absent of absent fiscal What should 701 00:38:56,840 --> 00:39:00,120 Speaker 1: central banks do? Should they at this point say no 702 00:39:00,520 --> 00:39:05,440 Speaker 1: more negative yields and then do what raise rates to 703 00:39:05,480 --> 00:39:07,960 Speaker 1: see how that works? What do they do? That's a 704 00:39:08,000 --> 00:39:10,680 Speaker 1: good question, right, It's always easy to complain about the 705 00:39:11,000 --> 00:39:15,160 Speaker 1: current policy. So what what I hear you there? But 706 00:39:16,040 --> 00:39:20,080 Speaker 1: but but if you're going to be aggressive around your 707 00:39:20,160 --> 00:39:23,480 Speaker 1: rate policy, on the central bank side. I think it's 708 00:39:23,520 --> 00:39:28,239 Speaker 1: a wasted opportunity if nothing's done on the fiscal side. Uh. 709 00:39:28,360 --> 00:39:33,240 Speaker 1: And so central bank policy with negative rates and highly 710 00:39:33,360 --> 00:39:39,759 Speaker 1: comminative policy UH and QE in a vacuum is ineffective. 711 00:39:40,680 --> 00:39:43,040 Speaker 1: So that's why I'm really focused on the fiscal side, 712 00:39:43,200 --> 00:39:47,640 Speaker 1: because that will allow perhaps allow better inflation and growth 713 00:39:47,719 --> 00:39:51,360 Speaker 1: dynamics to come out if the fiscal side follows. So 714 00:39:51,520 --> 00:39:54,680 Speaker 1: I don't have a I mean, raising rates doesn't make sense, right. 715 00:39:54,719 --> 00:39:57,359 Speaker 1: All the economic models tell you that that's not how 716 00:39:57,440 --> 00:40:01,719 Speaker 1: it is, right. Uh. But but going so negative and 717 00:40:01,800 --> 00:40:05,880 Speaker 1: increasingly negative, uh, what has a real effect? And we 718 00:40:06,040 --> 00:40:09,279 Speaker 1: know it has an effect on the banking system, which 719 00:40:09,400 --> 00:40:12,880 Speaker 1: is the tried and true place where you extend credit 720 00:40:13,000 --> 00:40:16,200 Speaker 1: to get the economy to grow. So Jackson Hole will 721 00:40:16,239 --> 00:40:19,440 Speaker 1: be interesting, right. So they're you know, they're looking at this, 722 00:40:20,000 --> 00:40:22,680 Speaker 1: and the FED has been i think, someone on the 723 00:40:22,760 --> 00:40:26,080 Speaker 1: forefront and talking about it and much more cynical and 724 00:40:26,160 --> 00:40:30,320 Speaker 1: critical around it. Sure they have the luxury versus some 725 00:40:30,440 --> 00:40:34,640 Speaker 1: other central banks, but but I uh, definitely respecting amyer 726 00:40:34,800 --> 00:40:37,960 Speaker 1: that they've been thinking about this much more critically than 727 00:40:38,400 --> 00:40:41,759 Speaker 1: some of their counterparts across the globe. Can you this 728 00:40:41,840 --> 00:40:44,759 Speaker 1: has been forecast forever as as Tom and I know 729 00:40:45,239 --> 00:40:47,400 Speaker 1: the end of the bond market rally. Can you actually 730 00:40:48,120 --> 00:40:51,759 Speaker 1: see it? Can you game out when this is going 731 00:40:51,800 --> 00:40:55,480 Speaker 1: to end? Or do you just go along for the right? Well? 732 00:40:55,520 --> 00:40:59,239 Speaker 1: I wish I could game it out, as you say, um, 733 00:41:00,160 --> 00:41:02,600 Speaker 1: but I think we're all along for the ride to 734 00:41:02,680 --> 00:41:06,560 Speaker 1: a certain degree. That's not to say we're trapped. So 735 00:41:07,480 --> 00:41:10,400 Speaker 1: you know, in my mind, you know, the closer we 736 00:41:10,560 --> 00:41:15,600 Speaker 1: get too fiscal moves, the more we get a sense 737 00:41:15,680 --> 00:41:18,560 Speaker 1: from the Fed as an example that you know they're 738 00:41:18,600 --> 00:41:23,520 Speaker 1: looking to normalize policy, whatever that means, then I think 739 00:41:24,080 --> 00:41:26,680 Speaker 1: I think, uh, you know, yields have a chance of 740 00:41:26,719 --> 00:41:30,480 Speaker 1: moving higher. But let's not forget there is a demographic 741 00:41:30,800 --> 00:41:34,320 Speaker 1: issue here, there's a global growth issue here, uh, that 742 00:41:35,080 --> 00:41:38,759 Speaker 1: that will constrain rates. Uh. And so for all the 743 00:41:38,800 --> 00:41:43,120 Speaker 1: things I worry about, rates moving powerfully higher is definitely 744 00:41:43,160 --> 00:41:44,920 Speaker 1: not one of them. From where you sit. And this 745 00:41:45,120 --> 00:41:47,080 Speaker 1: is on the issue side. We talked the strategy of 746 00:41:47,080 --> 00:41:49,880 Speaker 1: the yield how to make money side too much? What 747 00:41:50,239 --> 00:41:54,120 Speaker 1: does the CFO do they have to issue debt in 748 00:41:54,200 --> 00:41:56,960 Speaker 1: this million right? I mean literally to keep their job? 749 00:41:57,920 --> 00:42:01,200 Speaker 1: Do you just assume record issuance. Yes, yes, and so 750 00:42:01,480 --> 00:42:04,240 Speaker 1: the after tax costs the capital on investment grade corporate 751 00:42:04,280 --> 00:42:07,640 Speaker 1: debt is zero. So if you can't beat a hurdle 752 00:42:07,719 --> 00:42:10,359 Speaker 1: rate of zero, then it begs the question of why 753 00:42:10,440 --> 00:42:14,239 Speaker 1: you have the CFO. From a particularly on the immergence standpoint, 754 00:42:14,360 --> 00:42:18,040 Speaker 1: what is your presumed just general statement amount of debt 755 00:42:18,160 --> 00:42:22,320 Speaker 1: on a big multinational corporate Boulty. It's not I get it, 756 00:42:22,440 --> 00:42:24,640 Speaker 1: that's too much. But do you have that in your head? 757 00:42:24,719 --> 00:42:26,800 Speaker 1: Do you have like a you know, a bogey that 758 00:42:26,920 --> 00:42:30,000 Speaker 1: everybody's sort of got aspire to. Now think what what 759 00:42:30,120 --> 00:42:32,800 Speaker 1: I think? Each business is different, Uh, and so the 760 00:42:32,880 --> 00:42:37,880 Speaker 1: more cyclical businesses, obviously UH can hold a lot less 761 00:42:38,040 --> 00:42:42,480 Speaker 1: than the more stable types of businesses. But either way, Uh, 762 00:42:42,640 --> 00:42:47,120 Speaker 1: it makes sense assuming the debt stock doesn't go to 763 00:42:47,440 --> 00:42:51,359 Speaker 1: extraordinarily high levels to to take advantage of these low 764 00:42:51,400 --> 00:42:54,600 Speaker 1: interest rates. Uh. The issue that we're having, though, from 765 00:42:55,000 --> 00:42:58,400 Speaker 1: from an economy standpoint and a corporate standpoint, is that 766 00:42:59,600 --> 00:43:03,880 Speaker 1: company are borrowing, but what are they doing with those proceeds. 767 00:43:04,440 --> 00:43:09,680 Speaker 1: They're not plowing it back in footing, but they're buying backstock, 768 00:43:09,760 --> 00:43:14,000 Speaker 1: which is not helping anyone other than the shareholders. It 769 00:43:14,040 --> 00:43:17,160 Speaker 1: helps us see you'll keep his job. It does and 770 00:43:17,320 --> 00:43:18,880 Speaker 1: make us hurdle rate and all that. I mean to 771 00:43:18,960 --> 00:43:21,000 Speaker 1: get help, but but you know, I think that's the 772 00:43:21,080 --> 00:43:23,040 Speaker 1: issue that we have is not being plowed back into 773 00:43:23,120 --> 00:43:25,960 Speaker 1: Capex and other things that could help the broader economy. 774 00:43:26,040 --> 00:43:27,600 Speaker 1: But what I love when you show up is I 775 00:43:27,680 --> 00:43:29,719 Speaker 1: come up with like four charts in my head. I 776 00:43:29,800 --> 00:43:31,440 Speaker 1: got one of them right here. You'll see it on 777 00:43:31,480 --> 00:43:34,279 Speaker 1: Bloomberg TV. Thron Gregory Peters, thank you so much. He 778 00:43:34,440 --> 00:43:41,000 Speaker 1: is with Prudential. Thanks for listening to the Bloomberg Surveillance podcast. 779 00:43:41,400 --> 00:43:46,440 Speaker 1: Subscribe and listen to interviews on iTunes, SoundCloud, or whichever 780 00:43:46,640 --> 00:43:50,480 Speaker 1: podcast platform you prefer. I'm on Twitter at Tom Keane. 781 00:43:50,960 --> 00:43:54,920 Speaker 1: Michael McKee is at Economy Before the podcast. You can 782 00:43:54,960 --> 00:43:58,200 Speaker 1: always catch us worldwide. I'm Bloomberg Radio.