WEBVTT - Two Percent Inflation Target Is Achievable, Plosser Says 0:00:09.720 --> 0:00:12.880 Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene with 0:00:13.600 --> 0:00:16.560 David Gura. Daily we bring you insight from the best 0:00:16.560 --> 0:00:22.279 of economics, finance, investment, and international relations. Find Bloomberg Surveillance 0:00:22.320 --> 0:00:27.000 on Apple Podcasts, SoundCloud, Bloomberg dot Com, and of course, 0:00:27.320 --> 0:00:34.240 on the Bloomberg Welcome back to Bloomberg Surveillance. I'm Matt 0:00:34.320 --> 0:00:36.839 Miller here filling in for Pen Fox. He seemed to 0:00:36.840 --> 0:00:39.440 be burning the candle at both ends, working way too 0:00:39.479 --> 0:00:41.680 many hours and has lost his voice, so I've been 0:00:41.680 --> 0:00:44.960 called in. It's an honor actually for me my all 0:00:45.040 --> 0:00:48.680 time favorite radio show, Bloomberg Surveillance. I happen to be 0:00:48.720 --> 0:00:50.680 in from Berlin for a couple of days, and U 0:00:51.080 --> 0:00:54.600 Joe Wisn'tal joins me here in the studio anchor of 0:00:54.640 --> 0:00:56.480 What You Amiss? Now, I want to get to a 0:00:56.560 --> 0:00:59.960 very special guest. I'm sure Joe also is a cred 0:01:00.120 --> 0:01:03.480 excited to talk to Charles Plosser, former Philadelphia Fed President 0:01:04.000 --> 0:01:07.440 um joining us from Washington, d C. Charles, thanks so 0:01:07.520 --> 0:01:10.040 much for your time right now. Let me first ask 0:01:10.120 --> 0:01:14.600 you about a question I was talking about earlier this 0:01:14.640 --> 0:01:19.080 morning on my television show The European open um. Why 0:01:19.360 --> 0:01:22.399 is the FED we're losing Stanley Fisher now and their 0:01:22.480 --> 0:01:25.319 questions about who's going to replace Jenny Allen? Why has 0:01:25.400 --> 0:01:29.080 the FED never been completely filled over the last ten years. 0:01:29.080 --> 0:01:31.880 It seems like we've never had a full fedboard. Well, 0:01:31.959 --> 0:01:33.920 it's good to be with you, And I think that's 0:01:33.920 --> 0:01:36.920 a very interesting question. It's a difficult question. What I'm 0:01:36.920 --> 0:01:41.119 concerned about is it is that it reflects in part 0:01:41.280 --> 0:01:46.319 the politicization of the FED um and the fights, contentious 0:01:46.360 --> 0:01:50.840 partisan fights over nominees and who gets nominated and what 0:01:51.040 --> 0:01:54.760 they're what's expected of them and um. I think that's 0:01:54.880 --> 0:01:58.600 very concerning, and it's it's obviously a huge workload on 0:01:58.720 --> 0:02:01.240 the remaining three governors. I mean, we knew, we knew 0:02:01.280 --> 0:02:03.720 pretty much that stan was not going to stay around. 0:02:03.880 --> 0:02:07.400 His term ended what will would have ended in the spring, 0:02:08.040 --> 0:02:10.520 and he probably wasn't gonna stay. So the fact that 0:02:10.560 --> 0:02:13.280 he's leaving is not a huge surprise. It's happening a 0:02:13.280 --> 0:02:16.840 few months earlier than it might otherwise have, but that's 0:02:16.880 --> 0:02:20.240 not a big surprise. It's it's the concern about who's 0:02:20.240 --> 0:02:22.760 gonna who's gonna be on the board, and what's the 0:02:22.800 --> 0:02:26.040 criteria being used to select him, and what's the criteria 0:02:26.120 --> 0:02:31.560 being used to to uh, um, you know, uh confirmed 0:02:31.600 --> 0:02:33.840 them and in the in the political process. And I 0:02:33.840 --> 0:02:37.440 think that's the some troubling aspects to this. Obviously, these 0:02:37.440 --> 0:02:40.400 sort of questions about who will replace all these vacancies 0:02:40.639 --> 0:02:44.560 is of utmost important to investors. But I'm curious about 0:02:44.560 --> 0:02:46.800 what something you said in terms of the workload on 0:02:46.840 --> 0:02:50.960 the remaining FED Board members. I read today something that 0:02:51.560 --> 0:02:55.640 Lyle Brainer now on about seven different committees. What is 0:02:55.720 --> 0:02:58.880 that like for someone on the FED Board in terms 0:02:58.919 --> 0:03:03.639 of workload to have to carry so much? Well, I 0:03:04.120 --> 0:03:07.040 the workload goes up tremendously. There are lots of committees 0:03:07.120 --> 0:03:10.400 that have things to do that go beyond just making 0:03:10.440 --> 0:03:14.559 monetary policy or regulatory poddle policy. It's a huge institution 0:03:14.639 --> 0:03:19.200 that where um, the committees and as you say, the 0:03:19.520 --> 0:03:22.480 Layle and and J. Powell, I mean all these people 0:03:22.520 --> 0:03:26.399 now are used to have workloads of not only regular workload, 0:03:26.440 --> 0:03:29.359 but committee two or three committees there were on and 0:03:29.440 --> 0:03:32.000 now they're on five or six and maybe chairing two 0:03:32.120 --> 0:03:35.480 or three of them. I mean it's um, it's it's 0:03:35.480 --> 0:03:38.280 almost a distraction in some sense. And therefore makes that 0:03:38.440 --> 0:03:42.400 makes it harder for them to focus on policy issues 0:03:42.440 --> 0:03:45.400 in some in some cases than it should be. I 0:03:45.440 --> 0:03:48.480 wonder about the structure structural changes that we've seen in 0:03:48.480 --> 0:03:50.440 the economy, not only here but in Europe as well 0:03:50.480 --> 0:03:53.360 around the world. Is it still um do you think 0:03:53.360 --> 0:03:56.320 two percent is still a good inflation target? And is 0:03:56.320 --> 0:04:00.320 it achievable as far as the core is concerned. Well, 0:04:00.400 --> 0:04:04.960 I think the actual inflation target, whether it's two percent, 0:04:05.520 --> 0:04:07.800 one and a half percent, one percent, two and a 0:04:07.840 --> 0:04:10.960 half percent, you know within a range there the two 0:04:10.960 --> 0:04:15.000 percent is is not um it's not that critical one 0:04:15.040 --> 0:04:18.880 way that what's critical is having a target and uh 0:04:19.000 --> 0:04:22.599 and not manipulating that target or changing it very often. 0:04:22.680 --> 0:04:25.080 So I think that's what's the important part here. I mean, 0:04:25.160 --> 0:04:27.560 when we created the two percent inflation target, I was 0:04:27.600 --> 0:04:30.080 involved in that, and I would have argued for one 0:04:30.120 --> 0:04:32.200 and a half I have been perfectly happy with that. 0:04:32.680 --> 0:04:35.440 But um, I think it is achievable. I think it 0:04:35.800 --> 0:04:41.960 is um. Uh is important that in an international context 0:04:42.080 --> 0:04:44.719 that central banks around the world, whether it be the 0:04:44.760 --> 0:04:47.159 e c B or the or the Bank a Billion, 0:04:47.200 --> 0:04:49.960 that they have something close to the same inflation target. 0:04:49.960 --> 0:04:51.400 All right, Well, great to get a chance to talk 0:04:51.440 --> 0:04:54.400 with you. Created that Charles Ploster, a former president of 0:04:54.400 --> 0:05:11.160 the Federal Bank of Philadelphia. This is Bloomberg June. We're 0:05:11.200 --> 0:05:13.840 back here on Bloomberg Surveillance. I'm Joe. Why isn't they 0:05:14.200 --> 0:05:17.120 along with Matt Miller, who's in form in from Berlin. 0:05:17.680 --> 0:05:19.240 Uh And I want to bring in our next guest, 0:05:19.279 --> 0:05:22.359 Greg Lemcow He's co head of investment banking at Goldman 0:05:22.440 --> 0:05:26.200 Sex Gregg, thank you very much for joining us here. 0:05:26.200 --> 0:05:29.400 Thanks Joe. UM. In the wake of the election, I 0:05:29.400 --> 0:05:33.279 think there was a ton of optimism about deregulation and 0:05:33.440 --> 0:05:35.960 animal spirits and how this would get all kinds of 0:05:36.200 --> 0:05:39.320 business investments and deals and I p O s and 0:05:39.320 --> 0:05:42.880 stuff really surging again. I think some of that story 0:05:43.560 --> 0:05:46.920 in general has faded. UM, But what how is the 0:05:47.040 --> 0:05:50.159 landscape right now? Do people feel today about the deal 0:05:50.200 --> 0:05:54.360 making landscape versus say December? It's so it's interesting we've 0:05:54.360 --> 0:05:57.520 actually seen UM. I'd say that the deal environment is 0:05:57.600 --> 0:05:59.760 good and building momentum, you know. M and A activity 0:05:59.800 --> 0:06:02.200 year to date is roughly flat. It's up about one 0:06:02.200 --> 0:06:05.200 percent in terms of overall volumes, and the number of 0:06:05.200 --> 0:06:07.400 deals is up about six percent. So that the difference 0:06:07.400 --> 0:06:09.520 between those two has been actually a lack of really 0:06:09.520 --> 0:06:12.159 big transactions. You've seen a I think, you know, the 0:06:12.240 --> 0:06:15.440 ninth biggest transaction this year. The biggest transactiontion would have 0:06:15.440 --> 0:06:17.720 been the ninth biggest transaction last year. And so we've 0:06:17.760 --> 0:06:20.040 we've seen a lack of confidence to pursue big deals. 0:06:20.080 --> 0:06:23.359 And that's a change and probably out of line with 0:06:23.400 --> 0:06:25.360 the expectations we would have had coming into the year. 0:06:25.440 --> 0:06:27.880 And so, as you said in December, post election, coming 0:06:27.880 --> 0:06:31.360 into the year, you had a reasonable amount of momentum 0:06:31.360 --> 0:06:35.120 and optimism around in an expectation of tax reform, corporate 0:06:35.160 --> 0:06:38.719 tax reform, which would include some element of cash repatriation, 0:06:38.960 --> 0:06:40.719 of which there's a lot of US cash overseas that 0:06:40.720 --> 0:06:42.080 could come back in and be used for M and A, 0:06:42.560 --> 0:06:44.800 and then a much more friendly regulatory environment than I 0:06:44.800 --> 0:06:47.680 think we saw under the Obama administration. And so most 0:06:47.720 --> 0:06:50.200 companies and boards had spent the first couple of months 0:06:50.240 --> 0:06:52.719 of the year waiting to get clarity on this, with 0:06:52.800 --> 0:06:54.919 the expectation it would launch a big wave of M 0:06:54.920 --> 0:06:57.960 and A, and that clarity just hasn't come. We saw 0:06:58.000 --> 0:07:00.480 a study out or we put to they're a study 0:07:00.520 --> 0:07:04.479 here at Bloomberg rather that showed deregulation could lift bank 0:07:04.640 --> 0:07:09.440 profit UM by about across the board, with Goldman sacts 0:07:09.480 --> 0:07:13.000 about six. These are some UM calculations Bloomberg did with 0:07:13.040 --> 0:07:17.440 analysts and and banks disclosures and analysts um UH looks 0:07:17.480 --> 0:07:20.640 at this. Where do you think deregulation would be the 0:07:20.680 --> 0:07:24.480 most helpful greg, I mean from your business perspective investment banking, 0:07:25.240 --> 0:07:28.360 What could Congress do that would be the best for 0:07:28.400 --> 0:07:31.160 the bank and for a growth so MICUs, I've not 0:07:31.200 --> 0:07:33.080 seen the study. My guess is that most of the 0:07:33.120 --> 0:07:35.960 deregulation will impact other parts of the business. Might might 0:07:36.320 --> 0:07:38.360 free up capital and allow us to deploy it more 0:07:38.400 --> 0:07:40.800 actively in our investing parts of the business or securities 0:07:40.840 --> 0:07:43.240 business within investment banking. I think the biggest impact the 0:07:43.280 --> 0:07:45.280 deregulation could happen is more going to be on deal 0:07:45.280 --> 0:07:50.200 flow UH and the greater likelihood of larger transactions, larger 0:07:50.240 --> 0:07:53.880 consolidating transactions happening, which tends to create clearly M and 0:07:53.960 --> 0:07:56.040 A and M and A fee opportunities. It creates securities 0:07:56.080 --> 0:07:59.920 around that UM and financing opportunities. Sometimes it creates devest 0:08:00.520 --> 0:08:02.640 when they can't get all the transactions approved without selling 0:08:02.640 --> 0:08:05.600 off pieces. So it's the biggest impact on deregulation is 0:08:05.640 --> 0:08:09.120 likely to drive enhanced deal activity, which can drive revenue 0:08:09.120 --> 0:08:12.120 in the investment banking side of the business. Um. You know, 0:08:12.160 --> 0:08:15.240 it's funny because I think, like UM, obviously, the sort 0:08:15.240 --> 0:08:18.640 of traditional expectation is or Republican president comes in, you 0:08:18.680 --> 0:08:21.960 get this wave of deregulation, as you said, maybe a 0:08:21.960 --> 0:08:25.880 wave of deals off of that. But this particular Republican 0:08:25.960 --> 0:08:29.080 president has some ways in which he's different. He calls 0:08:29.120 --> 0:08:33.320 out companies by name. He there are concerns when it 0:08:33.360 --> 0:08:37.880 comes to deals that perhaps his own preferences could get 0:08:37.880 --> 0:08:40.360 in the way of a deal, perhaps being chief among 0:08:40.440 --> 0:08:42.880 them the A T and T Time Warner deal, where 0:08:42.880 --> 0:08:46.000 people are concerned that his own political beliefs could be 0:08:46.320 --> 0:08:49.160 uh an issue or that's been a concern at times. 0:08:49.200 --> 0:08:52.360 How does that play into this and does that go 0:08:52.520 --> 0:08:55.200 against or cut it, you know, as a cross winds 0:08:55.240 --> 0:08:58.040 against the sort of benefits of deregulation. Yeah, I think 0:08:58.080 --> 0:09:00.960 the biggest challenge UM or this administration is the lack 0:09:01.000 --> 0:09:02.439 of predictability. So I think you're right. I think the 0:09:02.880 --> 0:09:05.840 general wave of deregulation should be a positive I think again, 0:09:05.880 --> 0:09:07.839 the expectations at the beginning of the year, would there 0:09:07.840 --> 0:09:11.960 would be less regulation, a more friendly environment around transactions. 0:09:12.040 --> 0:09:13.360 You know, heck, he had a president who wrote the 0:09:13.360 --> 0:09:14.640 book called The Art of the Deal. You think it 0:09:14.640 --> 0:09:16.839 would be friendly towards deal making. Um, But it's the 0:09:16.920 --> 0:09:20.680 lack of predictability that has people pausing. We'll see what 0:09:20.679 --> 0:09:22.520 happens on at and t time. Runner, I've got every 0:09:22.520 --> 0:09:26.360 expectation that deal closes, notwithstanding all the rhetoric around it. Now. 0:09:26.400 --> 0:09:30.760 We heard similar rhetoric around Amazon Whole Foods because the 0:09:30.840 --> 0:09:32.959 key principle of Amazon also wants the Washington Post and 0:09:33.000 --> 0:09:35.000 people said it's not going to be an impact now 0:09:35.040 --> 0:09:37.160 that deal got approved, and so I think for all 0:09:37.200 --> 0:09:40.040 the rhetoric uh that we hear out there, you know, 0:09:40.080 --> 0:09:42.640 so far, the results have been reasonably positive. I think 0:09:42.679 --> 0:09:44.640 the more results like that we see put on the board, 0:09:44.679 --> 0:09:46.760 the more people would feel comfortable and confidant to go 0:09:46.760 --> 0:09:49.079 out and do transactions. What do you think about the 0:09:49.120 --> 0:09:51.439 interest rate environment? How does that affecting your job? I mean, 0:09:51.480 --> 0:09:54.640 obviously we're in a fairly low and straight environment here, 0:09:54.840 --> 0:09:57.880 and we're looking at negative rates in other major markets 0:09:57.920 --> 0:10:01.160 that you play in does it make it easier to 0:10:01.200 --> 0:10:05.000 do deals? Yeah, the the the low interest rate environment 0:10:05.040 --> 0:10:09.040 definitely helps transaction activity. And you've got an unbelievable amount 0:10:09.080 --> 0:10:11.120 of capital available just in terms of the aggregate sums 0:10:11.160 --> 0:10:14.400 for companies to do transactions at historically low levels. And 0:10:14.440 --> 0:10:18.240 so from a pure mathematical standpoint, almost every transaction that 0:10:18.240 --> 0:10:21.000 a company looks at that has earnings is going to 0:10:21.080 --> 0:10:22.880 be a creative to earnings for shared just by definition, 0:10:22.920 --> 0:10:24.760 because you can borrow money so cheaply. Well, and when 0:10:24.760 --> 0:10:27.960 when you when you are doing the math for a deal, um, 0:10:28.000 --> 0:10:30.560 what's your outlook like? I mean, it looks like the 0:10:30.600 --> 0:10:32.640 Fed isn't going to move as quickly as maybe they 0:10:32.760 --> 0:10:35.120 thought they were going to. And it even looks like 0:10:35.440 --> 0:10:37.360 drag hands are kind of tied a little bit by 0:10:37.400 --> 0:10:40.400 the strength of the Euro. When you sit down and 0:10:40.440 --> 0:10:42.880 do the back of the napkin math on a deal, 0:10:43.200 --> 0:10:45.480 what do you factor in? So I think the expectation 0:10:45.520 --> 0:10:48.520 will be that will have a slow and steadily rising 0:10:48.559 --> 0:10:52.120 interest rate environment, um, but it will be foreshadowed well enough, 0:10:52.280 --> 0:10:55.560 and the increases will be will be slow enough and 0:10:55.600 --> 0:10:58.120 small enough that it's not going to create a rush 0:10:58.160 --> 0:10:59.920 to activity. I think I think you're still at his 0:11:00.000 --> 0:11:03.080 historically low levels over any longer period of time. Uh. 0:11:03.120 --> 0:11:06.120 And people are able to lock in rates uh at 0:11:06.280 --> 0:11:09.880 transaction announcement as their ability to finance things immediately or 0:11:09.880 --> 0:11:11.480 put hedges in place to lock at interest rates. And 0:11:11.520 --> 0:11:13.719 so it's it's interesting. I think people are attracted by 0:11:13.760 --> 0:11:16.720 the low interest rate environment. They're not that anxious about 0:11:17.080 --> 0:11:20.080 an increase in rates, although everyone expects it. But no 0:11:20.120 --> 0:11:21.800 one seems to be rushing to do a deal today 0:11:21.840 --> 0:11:24.800 because because rates are gonna be higher six months from hour, 0:11:24.800 --> 0:11:27.120 twelve months from now. Let's talk about I p o 0:11:27.200 --> 0:11:30.120 s because we had some We've had some high profile 0:11:30.240 --> 0:11:32.800 I p o s this year, most notably I would 0:11:32.800 --> 0:11:35.600 say Snap Inc. Which has been a real flop since 0:11:35.640 --> 0:11:38.720 it got on the public market. Blue Apron not that 0:11:38.760 --> 0:11:41.520 big of a deal, but also a flop. And then 0:11:41.800 --> 0:11:44.800 some of these silicon valleys, so called unicorns that people 0:11:44.840 --> 0:11:48.599 are very hyped about, uh, you know, losing some momentum 0:11:48.720 --> 0:11:51.640 or uber would be chief among them, at least a 0:11:51.760 --> 0:11:54.760 sort of internal issues, where do you see the I 0:11:54.920 --> 0:11:57.880 p O market? People always sort of see it coming 0:11:57.920 --> 0:12:00.240 back and then push back that date for in the 0:12:00.280 --> 0:12:03.000 big pipeline opens up. But what do how do these 0:12:03.040 --> 0:12:06.880 stories affect, you know, the prospects for more I pos. 0:12:07.160 --> 0:12:09.480 So it's interesting. I think the expectation is that the 0:12:09.520 --> 0:12:11.200 IPO market will come back. It has been a lot 0:12:11.280 --> 0:12:13.040 slower to return, and I think a lot of that 0:12:13.080 --> 0:12:15.280 has been just the evolution of the private capital market. 0:12:15.320 --> 0:12:18.920 These companies, as as private entities, are able to raise 0:12:19.000 --> 0:12:22.679 significant amounts of capital and delay into for the need 0:12:22.800 --> 0:12:25.120 to go public. Used to have to go public to 0:12:25.200 --> 0:12:27.760 raise capital. Um. There's lots of capital available. There's even 0:12:27.800 --> 0:12:30.840 secondary capital available um for lots of these companies, and 0:12:30.880 --> 0:12:33.920 so for the most part, they've delayed going public as 0:12:33.920 --> 0:12:35.720 long as they can to try to build their businesses 0:12:35.760 --> 0:12:38.160 privately and they have not been constrained by capital. At 0:12:38.200 --> 0:12:40.160 some point that changes, And I think there's a number 0:12:40.160 --> 0:12:43.280 of of unicorn companies out there, really big private companies 0:12:43.320 --> 0:12:45.040 that will be attracted to the public markets that will 0:12:45.080 --> 0:12:47.720 come over the next one to three years, but none 0:12:47.760 --> 0:12:49.360 of them seem to be in any rush to get public. 0:12:49.600 --> 0:12:52.360 Is there anything unhealthy or bad about that development that 0:12:52.480 --> 0:12:55.720 companies can get much bigger and stay private for longer, 0:12:55.840 --> 0:12:58.440 or is that just you know, markets change over time. 0:12:58.600 --> 0:13:00.240 I think it's a markets change over time. I think 0:13:00.280 --> 0:13:03.719 there's there's lots of smart capital that's that's chasing those 0:13:03.760 --> 0:13:06.680 investment opportunities, including many of the public market investors who've 0:13:06.679 --> 0:13:09.320 crossed over to become private market pre I p O investors. 0:13:09.559 --> 0:13:11.840 So I think it's it's healthy. I think the companies 0:13:11.880 --> 0:13:13.960 would tell you it's given them the flexibility to build 0:13:13.960 --> 0:13:16.520 their businesses in ways that they might be constrained as 0:13:16.559 --> 0:13:19.719 a public market quarterly reporting business. And so I think 0:13:19.720 --> 0:13:22.080 it's been healthy for the growth of companies. UM. But 0:13:22.120 --> 0:13:24.560 I do think ultimately for the public markets, there's value 0:13:24.600 --> 0:13:26.840 in being a public company, and these companies all recognize 0:13:26.840 --> 0:13:28.160 that and we'll get there. They'll just get there at 0:13:28.160 --> 0:13:29.800 thro own pace. Greg, let me ask. We got a 0:13:29.840 --> 0:13:32.480 lot of students who listened to Bloomberg Surveillance. I know, 0:13:32.800 --> 0:13:37.280 and your career has been a strong one. You're you're 0:13:37.320 --> 0:13:38.720 part of what a lot of people referred to as 0:13:38.760 --> 0:13:41.120 kind of a new generation of leaders. At Goldman Sachs 0:13:41.280 --> 0:13:44.480 Um just promoted to run the investment banking unit. Um, 0:13:44.480 --> 0:13:46.720 what would you tell a kid who wants to get 0:13:46.760 --> 0:13:49.960 into banking today? What should he do? Where should he go? Well? 0:13:50.720 --> 0:13:52.439 If he's if he's talented, if he or she is 0:13:52.480 --> 0:13:53.920 talented's smart and hard working, I tell him to go 0:13:53.960 --> 0:13:56.320 to Golden Sacks. No, No, I mean do you want 0:13:56.760 --> 0:13:59.320 should he be IB should he go for trading? You know? 0:13:59.520 --> 0:14:02.440 I mean we which area of financial So I get, 0:14:02.520 --> 0:14:04.360 you know, biased by my own history, but I would 0:14:04.360 --> 0:14:07.760 say I think there's no better job out of university 0:14:07.760 --> 0:14:10.880 than the the analyst job analyst program at an investment bank. 0:14:10.880 --> 0:14:14.000 I think the skills you learn, the ability to analyze companies, 0:14:14.080 --> 0:14:17.880 understand businesses, understand balance sheets, see CEOs and boards, and 0:14:17.920 --> 0:14:21.520 actually understand how companies work is second and none there. 0:14:21.600 --> 0:14:23.480 It's a it's a heavily war intensive job, and I 0:14:23.520 --> 0:14:24.880 guess it is in two years. You may get four 0:14:24.920 --> 0:14:27.400 years of work, um, but the benefits you get out 0:14:27.440 --> 0:14:29.280 of that are incredible. In the platform it gives you 0:14:29.360 --> 0:14:31.800 either to continue on a career investment banking or to 0:14:31.880 --> 0:14:34.160 go anywhere else in the finance world or anywhere else 0:14:34.160 --> 0:14:36.720 in the corporate world is fantastic. So I I am, 0:14:36.800 --> 0:14:38.640 you know, again biased by my own experience, but I 0:14:38.680 --> 0:14:41.560 think that program for anyone coming out of university is fantastic. 0:14:41.640 --> 0:14:43.800 All right, Greg Well, I appreciate the advice. Appreciate the 0:14:43.840 --> 0:14:47.200 time Greg lem coow Co had investment banking at Goldman Sachs. 0:14:47.320 --> 0:15:02.600 This is Bloomberg. Welcome back to Bloomberg Surveillance. I'm Matt Miller. 0:15:02.840 --> 0:15:05.400 Just dropped in from Berlin for a couple of days 0:15:05.440 --> 0:15:08.600 and was given the honor of sitting in this seat 0:15:09.360 --> 0:15:12.560 with Joe Wisenthal Um for the co anchor of What 0:15:12.720 --> 0:15:14.480 You Missed, formerly a colleague of mine. I used to 0:15:14.480 --> 0:15:15.840 be on that show with him as well, so it's 0:15:15.880 --> 0:15:17.840 kind of a reunion of sorts, and I'm really glad 0:15:17.880 --> 0:15:21.840 to be I miss you two, dude, and uh, I say, 0:15:22.040 --> 0:15:25.040 Surveillance has been for years and years my favorite radio show, 0:15:25.080 --> 0:15:27.040 so it's great to be on here right now. I 0:15:27.080 --> 0:15:29.880 want to bring in a guess, a tool late. He 0:15:30.040 --> 0:15:32.720 is Deltech International Group c i O. And he's gonna 0:15:32.880 --> 0:15:36.560 talk to us a little bit about, UM, the outlook 0:15:36.640 --> 0:15:40.520 for investment. I guess. I don't want to be callous, 0:15:40.600 --> 0:15:43.840 but during this kind of national disaster, a tool you're 0:15:44.000 --> 0:15:47.800 a specialist on emerging markets, UM, what do you think 0:15:47.800 --> 0:15:49.960 about what we see going on? I was the human 0:15:50.000 --> 0:15:55.200 cost is tragic? What about the financial costs of Harvey 0:15:55.440 --> 0:15:59.480 of Irma and the three other uh hurricanes that are 0:15:59.640 --> 0:16:02.080 that are they're near your home in the Caribbean. Okay, 0:16:02.160 --> 0:16:04.120 thanks for having me. So, I mean, we're we're at 0:16:04.160 --> 0:16:06.360 del Tech. Weere global macro investors. So we look at 0:16:07.120 --> 0:16:10.840 not only disasters as you put it, that the impact 0:16:10.920 --> 0:16:13.080 from a temporary perspective, but also we look at where 0:16:13.080 --> 0:16:16.880 the global cycle is. And as much as these issues 0:16:17.080 --> 0:16:21.360 are significant, what we're really more focused on as investors 0:16:21.520 --> 0:16:24.360 is looking at the broader cycle. And right now we 0:16:24.440 --> 0:16:26.840 can see other risks that are uh, you know, not 0:16:27.040 --> 0:16:31.400 as important from a you know, from the perspective of 0:16:31.440 --> 0:16:33.880 the world, but certainly from the perspective of the cycle 0:16:34.000 --> 0:16:36.200 that is where global growth momentum is going. We can 0:16:36.240 --> 0:16:39.400 see that I s M manufacturing data P and MY 0:16:39.520 --> 0:16:41.840 data from around the world is peaking right now that 0:16:41.920 --> 0:16:45.880 should lead to a temporary slowdown in growth momentum. We 0:16:45.960 --> 0:16:48.880 can see that liquidity conditions are clearly changing, not only 0:16:48.960 --> 0:16:51.000 with the SCB but also with regards to the FED, 0:16:51.040 --> 0:16:53.080 and that's really what we're more focused on right now. 0:16:53.400 --> 0:16:55.520 But do you get do you get a significant boost 0:16:55.600 --> 0:16:58.760 in activity after a big storm or a couple of 0:16:58.800 --> 0:17:00.680 big storms we know that people go and start up 0:17:00.720 --> 0:17:03.760 on stuff that got destroyed and then that growth is 0:17:03.800 --> 0:17:07.199 kind of taken up later. Um. What about the kind 0:17:07.240 --> 0:17:10.760 of disasters that we're seeing now. Yeah, so you typically 0:17:10.840 --> 0:17:14.840 what you do see is a sharp increase in activity, 0:17:14.920 --> 0:17:17.800 but that's really compensate commensurate with the sharp decrease that 0:17:17.840 --> 0:17:21.600 you see in activity when such events occur. Uh. And 0:17:21.800 --> 0:17:25.040 so we are clearly seeing a sharp decrease in activity 0:17:25.640 --> 0:17:27.920 on the back of some of the recent issues that 0:17:27.960 --> 0:17:30.040 were seen. So with regards to Hurricane Harvey, we've seen 0:17:30.080 --> 0:17:32.920 it happen. With regards to army, you're likewise going to 0:17:32.960 --> 0:17:35.399 see a sharp decrease in activity. So, yes, there's a 0:17:35.440 --> 0:17:37.840 sharp increase on the other side of it. Um, But 0:17:38.080 --> 0:17:40.560 we certainly don't take the view that, oh, look, this 0:17:40.720 --> 0:17:42.920 is going to be great for economic activity, but because 0:17:42.960 --> 0:17:45.240 there's just no way at all the characterized that it 0:17:45.240 --> 0:17:49.560 would be great for economic activity. Um, any natural disaster tool. 0:17:49.680 --> 0:17:53.520 Let's talk about the global macro landscape. You mentioned some 0:17:53.800 --> 0:17:57.720 signs that momentum maybe feeding a little bit based on 0:17:57.800 --> 0:18:00.720 the p M, is that the financial condition might be 0:18:01.400 --> 0:18:05.360 becoming a little less favorable. What about sort of political 0:18:05.560 --> 0:18:09.200 and geopolitical headline risk. So far, you know, we get 0:18:09.240 --> 0:18:12.000 these small blips, but they tend not to last very 0:18:12.119 --> 0:18:16.040 much in markets. Markets more focused on the economic conditions. 0:18:16.680 --> 0:18:19.880 We could we have a period where suddenly people really 0:18:19.960 --> 0:18:23.119 do care about politics, or really do care about the 0:18:23.200 --> 0:18:25.800 situation with North Korea to the point where it affects markets. 0:18:26.240 --> 0:18:29.360 That's a that's a really great question, because what we've 0:18:29.400 --> 0:18:32.200 been saying in recent months and certainly since the last 0:18:32.200 --> 0:18:35.600 November is policy uncertainty, and there's a measure of policy 0:18:35.720 --> 0:18:38.680 uncertainty that we use. Policy uncertainty, not only in the 0:18:38.840 --> 0:18:41.960 US but also around the world has been declining quite significantly, 0:18:42.440 --> 0:18:45.199 and that's consistent typically with a rise in risk assets, 0:18:45.240 --> 0:18:47.479 which is what we've seen as well. But we are 0:18:47.560 --> 0:18:51.359 in a period now that is very very calm as 0:18:51.440 --> 0:18:55.120 far as policy uncertainty is concerned, certainly in the context 0:18:55.200 --> 0:18:56.760 of some of the event risks that we have coming 0:18:56.840 --> 0:18:59.760 up with regards to the US debt situation, the event 0:19:00.080 --> 0:19:02.160 we have in Europe with regards to Brexit as well. 0:19:02.480 --> 0:19:05.920 So we are expecting that policy uncertainty is going to rise, 0:19:06.320 --> 0:19:10.680 but taking a step back and looking at things strategically, 0:19:10.800 --> 0:19:14.679 so from a three to five year perspective, this economic 0:19:14.840 --> 0:19:18.480 recovery and expansion has been driven almost entirely by the 0:19:18.560 --> 0:19:23.640 private sector, more than almost any time in history. We're 0:19:23.720 --> 0:19:26.639 just not really that reliant on the public sector, and 0:19:26.800 --> 0:19:28.760 we haven't been reliant on the public sector for the 0:19:28.800 --> 0:19:31.040 better part of seven or eight years in the US 0:19:31.200 --> 0:19:33.720 or indeed globally, and we measure that by looking at 0:19:33.720 --> 0:19:36.320 the amount of fiscal stimulus that's been added into economies, 0:19:36.359 --> 0:19:39.040 not in the US, but again globally. So from a 0:19:39.080 --> 0:19:43.960 shorter term context, I entirely agree with with what you're saying, 0:19:44.000 --> 0:19:47.280 which is that we are in this unusual lull at 0:19:47.280 --> 0:19:49.600 the moment in terms of policy uncertainty, and we are 0:19:49.680 --> 0:19:51.399 expecting that to pick up as we move into the 0:19:51.520 --> 0:19:53.359 end of the year, and that has the potential to 0:19:53.480 --> 0:19:57.159 cause friction and volatility in markets. But from a medium 0:19:57.200 --> 0:20:00.560 to longer term perspective, this is a private secretory and recovery. 0:20:00.760 --> 0:20:03.240 So what we're seeing in global growth, medium global liquidity 0:20:03.280 --> 0:20:06.800 conditions will ultimately matter more from an e M specific 0:20:06.960 --> 0:20:09.040 context where find you know, obviously this has been a 0:20:09.080 --> 0:20:13.600 tremendous year for e M after several years of underperformance. 0:20:14.520 --> 0:20:18.760 Is the has the nature of these economies changed since 0:20:18.840 --> 0:20:22.320 the last time that e ms were outperforming globally, such 0:20:22.400 --> 0:20:25.760 that they're more robust, say, less dependent on US or 0:20:26.119 --> 0:20:31.040 Chinese growth, and have more positive domestic stories. Look that's uh. 0:20:31.800 --> 0:20:35.520 The simple answer is yes, things have changed. But with 0:20:35.760 --> 0:20:39.800 emerging markets, it's very much an idiosyncratic story, as in, 0:20:39.960 --> 0:20:44.240 certain economies have successfully restructured their economies. Certain economies have 0:20:44.400 --> 0:20:47.560 become less reliant on the US dollar liquidity in US 0:20:47.600 --> 0:20:50.560 dollar capital influence to fund themselves. But then there's other 0:20:50.640 --> 0:20:55.040 economies which simply haven't undertaken those very difficult restructuring steps. 0:20:55.160 --> 0:20:58.520 So the simple answer again is is yes, we are 0:20:58.600 --> 0:21:02.280 seeing a more healthy emerging market environment courtesy of the 0:21:02.320 --> 0:21:04.520