Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene with
Speaker 1: David Gura. Daily we bring you insight from the best
Speaker 1: of economics, finance, investment, and international relations. Find Bloomberg Surveillance
Speaker 1: on Apple Podcasts, SoundCloud, Bloomberg dot Com, and of course,
Speaker 1: on the Bloomberg Welcome back to Bloomberg Surveillance. I'm Matt
Speaker 1: Miller here filling in for Pen Fox. He seemed to
Speaker 1: be burning the candle at both ends, working way too
Speaker 1: many hours and has lost his voice, so I've been
Speaker 1: called in. It's an honor actually for me my all
Speaker 1: time favorite radio show, Bloomberg Surveillance. I happen to be
Speaker 1: in from Berlin for a couple of days, and U
Speaker 1: Joe Wisn'tal joins me here in the studio anchor of
Speaker 1: What You Amiss? Now, I want to get to a
Speaker 1: very special guest. I'm sure Joe also is a cred
Speaker 1: excited to talk to Charles Plosser, former Philadelphia Fed President
Speaker 1: um joining us from Washington, d C. Charles, thanks so
Speaker 1: much for your time right now. Let me first ask
Speaker 1: you about a question I was talking about earlier this
Speaker 1: morning on my television show The European open um. Why
Speaker 1: is the FED we're losing Stanley Fisher now and their
Speaker 1: questions about who's going to replace Jenny Allen? Why has
Speaker 1: the FED never been completely filled over the last ten years.
Speaker 1: It seems like we've never had a full fedboard. Well,
Speaker 1: it's good to be with you, And I think that's
Speaker 1: a very interesting question. It's a difficult question. What I'm
Speaker 1: concerned about is it is that it reflects in part
Speaker 1: the politicization of the FED um and the fights, contentious
Speaker 1: partisan fights over nominees and who gets nominated and what
Speaker 1: they're what's expected of them and um. I think that's
Speaker 1: very concerning, and it's it's obviously a huge workload on
Speaker 1: the remaining three governors. I mean, we knew, we knew
Speaker 1: pretty much that stan was not going to stay around.
Speaker 1: His term ended what will would have ended in the spring,
Speaker 1: and he probably wasn't gonna stay. So the fact that
Speaker 1: he's leaving is not a huge surprise. It's happening a
Speaker 1: few months earlier than it might otherwise have, but that's
Speaker 1: not a big surprise. It's it's the concern about who's
Speaker 1: gonna who's gonna be on the board, and what's the
Speaker 1: criteria being used to select him, and what's the criteria
Speaker 1: being used to to uh, um, you know, uh confirmed
Speaker 1: them and in the in the political process. And I
Speaker 1: think that's the some troubling aspects to this. Obviously, these
Speaker 1: sort of questions about who will replace all these vacancies
Speaker 1: is of utmost important to investors. But I'm curious about
Speaker 1: what something you said in terms of the workload on
Speaker 1: the remaining FED Board members. I read today something that
Speaker 1: Lyle Brainer now on about seven different committees. What is
Speaker 1: that like for someone on the FED Board in terms
Speaker 1: of workload to have to carry so much? Well, I
Speaker 1: the workload goes up tremendously. There are lots of committees
Speaker 1: that have things to do that go beyond just making
Speaker 1: monetary policy or regulatory poddle policy. It's a huge institution
Speaker 1: that where um, the committees and as you say, the
Speaker 1: Layle and and J. Powell, I mean all these people
Speaker 1: now are used to have workloads of not only regular workload,
Speaker 1: but committee two or three committees there were on and
Speaker 1: now they're on five or six and maybe chairing two
Speaker 1: or three of them. I mean it's um, it's it's
Speaker 1: almost a distraction in some sense. And therefore makes that
Speaker 1: makes it harder for them to focus on policy issues
Speaker 1: in some in some cases than it should be. I
Speaker 1: wonder about the structure structural changes that we've seen in
Speaker 1: the economy, not only here but in Europe as well
Speaker 1: around the world. Is it still um do you think
Speaker 1: two percent is still a good inflation target? And is
Speaker 1: it achievable as far as the core is concerned. Well,
Speaker 1: I think the actual inflation target, whether it's two percent,
Speaker 1: one and a half percent, one percent, two and a
Speaker 1: half percent, you know within a range there the two
Speaker 1: percent is is not um it's not that critical one
Speaker 1: way that what's critical is having a target and uh
Speaker 1: and not manipulating that target or changing it very often.
Speaker 1: So I think that's what's the important part here. I mean,
Speaker 1: when we created the two percent inflation target, I was
Speaker 1: involved in that, and I would have argued for one
Speaker 1: and a half I have been perfectly happy with that.
Speaker 1: But um, I think it is achievable. I think it
Speaker 1: is um. Uh is important that in an international context
Speaker 1: that central banks around the world, whether it be the
Speaker 1: e c B or the or the Bank a Billion,
Speaker 1: that they have something close to the same inflation target.
Speaker 1: All right, Well, great to get a chance to talk
Speaker 1: with you. Created that Charles Ploster, a former president of
Speaker 1: the Federal Bank of Philadelphia. This is Bloomberg June. We're
Speaker 1: back here on Bloomberg Surveillance. I'm Joe. Why isn't they
Speaker 1: along with Matt Miller, who's in form in from Berlin.
Speaker 1: Uh And I want to bring in our next guest,
Speaker 1: Greg Lemcow He's co head of investment banking at Goldman
Speaker 1: Sex Gregg, thank you very much for joining us here.
Speaker 1: Thanks Joe. UM. In the wake of the election, I
Speaker 1: think there was a ton of optimism about deregulation and
Speaker 1: animal spirits and how this would get all kinds of
Speaker 1: business investments and deals and I p O s and
Speaker 1: stuff really surging again. I think some of that story
Speaker 1: in general has faded. UM, But what how is the
Speaker 1: landscape right now? Do people feel today about the deal
Speaker 1: making landscape versus say December? It's so it's interesting we've
Speaker 1: actually seen UM. I'd say that the deal environment is
Speaker 1: good and building momentum, you know. M and A activity
Speaker 1: year to date is roughly flat. It's up about one
Speaker 1: percent in terms of overall volumes, and the number of
Speaker 1: deals is up about six percent. So that the difference
Speaker 1: between those two has been actually a lack of really
Speaker 1: big transactions. You've seen a I think, you know, the
Speaker 1: ninth biggest transaction this year. The biggest transactiontion would have
Speaker 1: been the ninth biggest transaction last year. And so we've
Speaker 1: we've seen a lack of confidence to pursue big deals.
Speaker 1: And that's a change and probably out of line with
Speaker 1: the expectations we would have had coming into the year.
Speaker 1: And so, as you said in December, post election, coming
Speaker 1: into the year, you had a reasonable amount of momentum
Speaker 1: and optimism around in an expectation of tax reform, corporate
Speaker 1: tax reform, which would include some element of cash repatriation,
Speaker 1: of which there's a lot of US cash overseas that
Speaker 1: could come back in and be used for M and A,
Speaker 1: and then a much more friendly regulatory environment than I
Speaker 1: think we saw under the Obama administration. And so most
Speaker 1: companies and boards had spent the first couple of months
Speaker 1: of the year waiting to get clarity on this, with
Speaker 1: the expectation it would launch a big wave of M
Speaker 1: and A, and that clarity just hasn't come. We saw
Speaker 1: a study out or we put to they're a study
Speaker 1: here at Bloomberg rather that showed deregulation could lift bank
Speaker 1: profit UM by about across the board, with Goldman sacts
Speaker 1: about six. These are some UM calculations Bloomberg did with
Speaker 1: analysts and and banks disclosures and analysts um UH looks
Speaker 1: at this. Where do you think deregulation would be the
Speaker 1: most helpful greg, I mean from your business perspective investment banking,
Speaker 1: What could Congress do that would be the best for
Speaker 1: the bank and for a growth so MICUs, I've not
Speaker 1: seen the study. My guess is that most of the
Speaker 1: deregulation will impact other parts of the business. Might might
Speaker 1: free up capital and allow us to deploy it more
Speaker 1: actively in our investing parts of the business or securities
Speaker 1: business within investment banking. I think the biggest impact the
Speaker 1: deregulation could happen is more going to be on deal
Speaker 1: flow UH and the greater likelihood of larger transactions, larger
Speaker 1: consolidating transactions happening, which tends to create clearly M and
Speaker 1: A and M and A fee opportunities. It creates securities
Speaker 1: around that UM and financing opportunities. Sometimes it creates devest
Speaker 1: when they can't get all the transactions approved without selling
Speaker 1: off pieces. So it's the biggest impact on deregulation is
Speaker 1: likely to drive enhanced deal activity, which can drive revenue
Speaker 1: in the investment banking side of the business. Um. You know,
Speaker 1: it's funny because I think, like UM, obviously, the sort
Speaker 1: of traditional expectation is or Republican president comes in, you
Speaker 1: get this wave of deregulation, as you said, maybe a
Speaker 1: wave of deals off of that. But this particular Republican
Speaker 1: president has some ways in which he's different. He calls
Speaker 1: out companies by name. He there are concerns when it
Speaker 1: comes to deals that perhaps his own preferences could get
Speaker 1: in the way of a deal, perhaps being chief among
Speaker 1: them the A T and T Time Warner deal, where
Speaker 1: people are concerned that his own political beliefs could be
Speaker 1: uh an issue or that's been a concern at times.
Speaker 1: How does that play into this and does that go
Speaker 1: against or cut it, you know, as a cross winds
Speaker 1: against the sort of benefits of deregulation. Yeah, I think
Speaker 1: the biggest challenge UM or this administration is the lack
Speaker 1: of predictability. So I think you're right. I think the
Speaker 1: general wave of deregulation should be a positive I think again,
Speaker 1: the expectations at the beginning of the year, would there
Speaker 1: would be less regulation, a more friendly environment around transactions.
Speaker 1: You know, heck, he had a president who wrote the
Speaker 1: book called The Art of the Deal. You think it
Speaker 1: would be friendly towards deal making. Um, But it's the
Speaker 1: lack of predictability that has people pausing. We'll see what
Speaker 1: happens on at and t time. Runner, I've got every
Speaker 1: expectation that deal closes, notwithstanding all the rhetoric around it. Now.
Speaker 1: We heard similar rhetoric around Amazon Whole Foods because the
Speaker 1: key principle of Amazon also wants the Washington Post and
Speaker 1: people said it's not going to be an impact now
Speaker 1: that deal got approved, and so I think for all
Speaker 1: the rhetoric uh that we hear out there, you know,
Speaker 1: so far, the results have been reasonably positive. I think
Speaker 1: the more results like that we see put on the board,
Speaker 1: the more people would feel comfortable and confidant to go
Speaker 1: out and do transactions. What do you think about the
Speaker 1: interest rate environment? How does that affecting your job? I mean,
Speaker 1: obviously we're in a fairly low and straight environment here,
Speaker 1: and we're looking at negative rates in other major markets
Speaker 1: that you play in does it make it easier to
Speaker 1: do deals? Yeah, the the the low interest rate environment
Speaker 1: definitely helps transaction activity. And you've got an unbelievable amount
Speaker 1: of capital available just in terms of the aggregate sums
Speaker 1: for companies to do transactions at historically low levels. And
Speaker 1: so from a pure mathematical standpoint, almost every transaction that
Speaker 1: a company looks at that has earnings is going to
Speaker 1: be a creative to earnings for shared just by definition,
Speaker 1: because you can borrow money so cheaply. Well, and when
Speaker 1: when you when you are doing the math for a deal, um,
Speaker 1: what's your outlook like? I mean, it looks like the
Speaker 1: Fed isn't going to move as quickly as maybe they
Speaker 1: thought they were going to. And it even looks like
Speaker 1: drag hands are kind of tied a little bit by
Speaker 1: the strength of the Euro. When you sit down and
Speaker 1: do the back of the napkin math on a deal,
Speaker 1: what do you factor in? So I think the expectation
Speaker 1: will be that will have a slow and steadily rising
Speaker 1: interest rate environment, um, but it will be foreshadowed well enough,
Speaker 1: and the increases will be will be slow enough and
Speaker 1: small enough that it's not going to create a rush
Speaker 1: to activity. I think I think you're still at his
Speaker 1: historically low levels over any longer period of time. Uh.
Speaker 1: And people are able to lock in rates uh at
Speaker 1: transaction announcement as their ability to finance things immediately or
Speaker 1: put hedges in place to lock at interest rates. And
Speaker 1: so it's it's interesting. I think people are attracted by
Speaker 1: the low interest rate environment. They're not that anxious about
Speaker 1: an increase in rates, although everyone expects it. But no
Speaker 1: one seems to be rushing to do a deal today
Speaker 1: because because rates are gonna be higher six months from hour,
Speaker 1: twelve months from now. Let's talk about I p o
Speaker 1: s because we had some We've had some high profile
Speaker 1: I p o s this year, most notably I would
Speaker 1: say Snap Inc. Which has been a real flop since
Speaker 1: it got on the public market. Blue Apron not that
Speaker 1: big of a deal, but also a flop. And then
Speaker 1: some of these silicon valleys, so called unicorns that people
Speaker 1: are very hyped about, uh, you know, losing some momentum
Speaker 1: or uber would be chief among them, at least a
Speaker 1: sort of internal issues, where do you see the I
Speaker 1: p O market? People always sort of see it coming
Speaker 1: back and then push back that date for in the
Speaker 1: big pipeline opens up. But what do how do these
Speaker 1: stories affect, you know, the prospects for more I pos.
Speaker 1: So it's interesting. I think the expectation is that the
Speaker 1: IPO market will come back. It has been a lot
Speaker 1: slower to return, and I think a lot of that
Speaker 1: has been just the evolution of the private capital market.
Speaker 1: These companies, as as private entities, are able to raise
Speaker 1: significant amounts of capital and delay into for the need
Speaker 1: to go public. Used to have to go public to
Speaker 1: raise capital. Um. There's lots of capital available. There's even
Speaker 1: secondary capital available um for lots of these companies, and
Speaker 1: so for the most part, they've delayed going public as
Speaker 1: long as they can to try to build their businesses
Speaker 1: privately and they have not been constrained by capital. At
Speaker 1: some point that changes, And I think there's a number
Speaker 1: of of unicorn companies out there, really big private companies
Speaker 1: that will be attracted to the public markets that will
Speaker 1: come over the next one to three years, but none
Speaker 1: of them seem to be in any rush to get public.
Speaker 1: Is there anything unhealthy or bad about that development that
Speaker 1: companies can get much bigger and stay private for longer,
Speaker 1: or is that just you know, markets change over time.
Speaker 1: I think it's a markets change over time. I think
Speaker 1: there's there's lots of smart capital that's that's chasing those
Speaker 1: investment opportunities, including many of the public market investors who've
Speaker 1: crossed over to become private market pre I p O investors.
Speaker 1: So I think it's it's healthy. I think the companies
Speaker 1: would tell you it's given them the flexibility to build
Speaker 1: their businesses in ways that they might be constrained as
Speaker 1: a public market quarterly reporting business. And so I think
Speaker 1: it's been healthy for the growth of companies. UM. But
Speaker 1: I do think ultimately for the public markets, there's value
Speaker 1: in being a public company, and these companies all recognize
Speaker 1: that and we'll get there. They'll just get there at
Speaker 1: thro own pace. Greg, let me ask. We got a
Speaker 1: lot of students who listened to Bloomberg Surveillance. I know,
Speaker 1: and your career has been a strong one. You're you're
Speaker 1: part of what a lot of people referred to as
Speaker 1: kind of a new generation of leaders. At Goldman Sachs
Speaker 1: Um just promoted to run the investment banking unit. Um,
Speaker 1: what would you tell a kid who wants to get
Speaker 1: into banking today? What should he do? Where should he go? Well?
Speaker 1: If he's if he's talented, if he or she is
Speaker 1: talented's smart and hard working, I tell him to go
Speaker 1: to Golden Sacks. No, No, I mean do you want
Speaker 1: should he be IB should he go for trading? You know?
Speaker 1: I mean we which area of financial So I get,
Speaker 1: you know, biased by my own history, but I would
Speaker 1: say I think there's no better job out of university
Speaker 1: than the the analyst job analyst program at an investment bank.
Speaker 1: I think the skills you learn, the ability to analyze companies,
Speaker 1: understand businesses, understand balance sheets, see CEOs and boards, and
Speaker 1: actually understand how companies work is second and none there.
Speaker 1: It's a it's a heavily war intensive job, and I
Speaker 1: guess it is in two years. You may get four
Speaker 1: years of work, um, but the benefits you get out
Speaker 1: of that are incredible. In the platform it gives you
Speaker 1: either to continue on a career investment banking or to
Speaker 1: go anywhere else in the finance world or anywhere else
Speaker 1: in the corporate world is fantastic. So I I am,
Speaker 1: you know, again biased by my own experience, but I
Speaker 1: think that program for anyone coming out of university is fantastic.
Speaker 1: All right, Greg Well, I appreciate the advice. Appreciate the
Speaker 1: time Greg lem coow Co had investment banking at Goldman Sachs.
Speaker 1: This is Bloomberg. Welcome back to Bloomberg Surveillance. I'm Matt Miller.
Speaker 1: Just dropped in from Berlin for a couple of days
Speaker 1: and was given the honor of sitting in this seat
Speaker 1: with Joe Wisenthal Um for the co anchor of What
Speaker 1: You Missed, formerly a colleague of mine. I used to
Speaker 1: be on that show with him as well, so it's
Speaker 1: kind of a reunion of sorts, and I'm really glad
Speaker 1: to be I miss you two, dude, and uh, I say,
Speaker 1: Surveillance has been for years and years my favorite radio show,
Speaker 1: so it's great to be on here right now. I
Speaker 1: want to bring in a guess, a tool late. He
Speaker 1: is Deltech International Group c i O. And he's gonna
Speaker 1: talk to us a little bit about, UM, the outlook
Speaker 1: for investment. I guess. I don't want to be callous,
Speaker 1: but during this kind of national disaster, a tool you're
Speaker 1: a specialist on emerging markets, UM, what do you think
Speaker 1: about what we see going on? I was the human
Speaker 1: cost is tragic? What about the financial costs of Harvey
Speaker 1: of Irma and the three other uh hurricanes that are
Speaker 1: that are they're near your home in the Caribbean. Okay,
Speaker 1: thanks for having me. So, I mean, we're we're at
Speaker 1: del Tech. Weere global macro investors. So we look at
Speaker 1: not only disasters as you put it, that the impact
Speaker 1: from a temporary perspective, but also we look at where
Speaker 1: the global cycle is. And as much as these issues
Speaker 1: are significant, what we're really more focused on as investors
Speaker 1: is looking at the broader cycle. And right now we
Speaker 1: can see other risks that are uh, you know, not
Speaker 1: as important from a you know, from the perspective of
Speaker 1: the world, but certainly from the perspective of the cycle
Speaker 1: that is where global growth momentum is going. We can
Speaker 1: see that I s M manufacturing data P and MY
Speaker 1: data from around the world is peaking right now that
Speaker 1: should lead to a temporary slowdown in growth momentum. We
Speaker 1: can see that liquidity conditions are clearly changing, not only
Speaker 1: with the SCB but also with regards to the FED,
Speaker 1: and that's really what we're more focused on right now.
Speaker 1: But do you get do you get a significant boost
Speaker 1: in activity after a big storm or a couple of
Speaker 1: big storms we know that people go and start up
Speaker 1: on stuff that got destroyed and then that growth is
Speaker 1: kind of taken up later. Um. What about the kind
Speaker 1: of disasters that we're seeing now. Yeah, so you typically
Speaker 1: what you do see is a sharp increase in activity,
Speaker 1: but that's really compensate commensurate with the sharp decrease that
Speaker 1: you see in activity when such events occur. Uh. And
Speaker 1: so we are clearly seeing a sharp decrease in activity
Speaker 1: on the back of some of the recent issues that
Speaker 1: were seen. So with regards to Hurricane Harvey, we've seen
Speaker 1: it happen. With regards to army, you're likewise going to
Speaker 1: see a sharp decrease in activity. So, yes, there's a
Speaker 1: sharp increase on the other side of it. Um, But
Speaker 1: we certainly don't take the view that, oh, look, this
Speaker 1: is going to be great for economic activity, but because
Speaker 1: there's just no way at all the characterized that it
Speaker 1: would be great for economic activity. Um, any natural disaster tool.
Speaker 1: Let's talk about the global macro landscape. You mentioned some
Speaker 1: signs that momentum maybe feeding a little bit based on
Speaker 1: the p M, is that the financial condition might be
Speaker 1: becoming a little less favorable. What about sort of political
Speaker 1: and geopolitical headline risk. So far, you know, we get
Speaker 1: these small blips, but they tend not to last very
Speaker 1: much in markets. Markets more focused on the economic conditions.
Speaker 1: We could we have a period where suddenly people really
Speaker 1: do care about politics, or really do care about the
Speaker 1: situation with North Korea to the point where it affects markets.
Speaker 1: That's a that's a really great question, because what we've
Speaker 1: been saying in recent months and certainly since the last
Speaker 1: November is policy uncertainty, and there's a measure of policy
Speaker 1: uncertainty that we use. Policy uncertainty, not only in the
Speaker 1: US but also around the world has been declining quite significantly,
Speaker 1: and that's consistent typically with a rise in risk assets,
Speaker 1: which is what we've seen as well. But we are
Speaker 1: in a period now that is very very calm as
Speaker 1: far as policy uncertainty is concerned, certainly in the context
Speaker 1: of some of the event risks that we have coming
Speaker 1: up with regards to the US debt situation, the event
Speaker 1: we have in Europe with regards to Brexit as well.
Speaker 1: So we are expecting that policy uncertainty is going to rise,
Speaker 1: but taking a step back and looking at things strategically,
Speaker 1: so from a three to five year perspective, this economic
Speaker 1: recovery and expansion has been driven almost entirely by the
Speaker 1: private sector, more than almost any time in history. We're
Speaker 1: just not really that reliant on the public sector, and
Speaker 1: we haven't been reliant on the public sector for the
Speaker 1: better part of seven or eight years in the US
Speaker 1: or indeed globally, and we measure that by looking at
Speaker 1: the amount of fiscal stimulus that's been added into economies,
Speaker 1: not in the US, but again globally. So from a
Speaker 1: shorter term context, I entirely agree with with what you're saying,
Speaker 1: which is that we are in this unusual lull at
Speaker 1: the moment in terms of policy uncertainty, and we are
Speaker 1: expecting that to pick up as we move into the
Speaker 1: end of the year, and that has the potential to
Speaker 1: cause friction and volatility in markets. But from a medium
Speaker 1: to longer term perspective, this is a private secretory and recovery.
Speaker 1: So what we're seeing in global growth, medium global liquidity
Speaker 1: conditions will ultimately matter more from an e M specific
Speaker 1: context where find you know, obviously this has been a
Speaker 1: tremendous year for e M after several years of underperformance.
Speaker 1: Is the has the nature of these economies changed since
Speaker 1: the last time that e ms were outperforming globally, such
Speaker 1: that they're more robust, say, less dependent on US or
Speaker 1: Chinese growth, and have more positive domestic stories. Look that's uh.
Speaker 1: The simple answer is yes, things have changed. But with
Speaker 1: emerging markets, it's very much an idiosyncratic story, as in,
Speaker 1: certain economies have successfully restructured their economies. Certain economies have
Speaker 1: become less reliant on the US dollar liquidity in US
Speaker 1: dollar capital influence to fund themselves. But then there's other
Speaker 1: economies which simply haven't undertaken those very difficult restructuring steps.
Speaker 1: So the simple answer again is is yes, we are
Speaker 1: seeing a more healthy emerging market environment courtesy of the
Speaker 1: fact that global growth has picked up, and their leverage
Speaker 1: play on that courtesy of the fact that liquidity conditions
Speaker 1: are quite supportive and they benefit from that. UM But
Speaker 1: you know, it really is an idiosyncratic argument as to
Speaker 1: whether emerging markets has improved them. You talk about the
Speaker 1: amount of growth that's driven by private investment, UM, I
Speaker 1: automatically think of how much debt the world central banks
Speaker 1: are holding and the fact that they seem to be
Speaker 1: at least some of them about to start to unravel
Speaker 1: those holdings. Um, how does that affect your investment outlook? Look,
Speaker 1: that's a great point. It's a central tenant to our
Speaker 1: investment outlook, So Deltech. When we manage money, we look
Speaker 1: at the inter relationship between global economic growth, global liquidity
Speaker 1: conditions or money supply, and global asset prices. And so
Speaker 1: what you're discussing is really hitting very hard at that
Speaker 1: second point, which is global liquidity conditions. As liquidity is
Speaker 1: withdrawn from markets and from economies, you start to see, uh,
Speaker 1: really carry trade sensitive assets, whether it's emerging mark, its
Speaker 1: commodities high, your credit underperformed. So from an investment perspective,
Speaker 1: those changes that we're seeing in central bank policy have
Speaker 1: a huge impact on carry trade sensitive assets, which is
Speaker 1: why we're positioning right now towards more growth sensitive, productivity
Speaker 1: growth sensitive assets as opposed to liquidity growth and interest
Speaker 1: rate sensitive assets. So if markets not I mean, obviously
Speaker 1: everyone is trying to figure out the exact timing of
Speaker 1: say the Fed's balance sheet wind down, whether it's this
Speaker 1: year early next year not totally clear. Are you saying?
Speaker 1: Would you argue that whenever it is that it hasn't
Speaker 1: fully been discounted the ramifications of what that will mean. Well,
Speaker 1: it hasn't been fully discounted because there's still a lot
Speaker 1: of uncertainty is to not only the Fed's next move,
Speaker 1: but the moves beyond that. And there's a lot of
Speaker 1: things that play in the US dollar liquidity conditions beyond
Speaker 1: the FED. Because money supplies and only driven by the FED.
Speaker 1: It's also an U S dollar liquidity is and only
Speaker 1: driven by the FED. It's also driven by the US
Speaker 1: trade deficit. It's also driven by the amount of credit
Speaker 1: creation of a monthly multiplier existing in the banking system.
Speaker 1: And so the feed is a really important element and
Speaker 1: clearly the biggest driver, but it's these other elements that
Speaker 1: we're watching very closely as well. The dollar obviously has
Speaker 1: gotten crushed of late. In fact, I'm just pulling out
Speaker 1: the index real quick to see I think if we're
Speaker 1: down again today on the Bloomberg Dollar in decks, it
Speaker 1: will be the first time it's fallen for seven consecutive
Speaker 1: days since two thousand eleven. How does that play into
Speaker 1: what you what you do around the world, because, um,
Speaker 1: it seems against any currency, the dollars down, but there's
Speaker 1: some currencies have done strikingly well, um like the EUR.
Speaker 1: So it plays in a lot. As global macro investors,
Speaker 1: we look across all major asset classes and all asset types,
Speaker 1: and so it plays into the extent of how much
Speaker 1: that weakness in the US dollar benefits carry trade sensitive assets,
Speaker 1: emerging markets, commodities, high your credit. But it also plays
Speaker 1: into our security selection in terms of looking at those
Speaker 1: companies those sectors that are beneficiaries of a weaker US dollar,
Speaker 1: and also looking at global flows. I mean, there's certain
Speaker 1: markets where you've just seen flows out of, such as
Speaker 1: Europe because of some of the strength that you've seen
Speaker 1: in the euro which is starting to weigh on their
Speaker 1: domestic economic conditions. So it weighs on not only our
Speaker 1: investment and asset allocation decisions, but also our outlook for
Speaker 1: economic growth. So real quickly, from a global perspective, what
Speaker 1: region is most interesting to right now? To US? Number
Speaker 1: one region is Japan. It's it's it's it's a leveraged
Speaker 1: play on global industrial production growth. It's deeply undervalued relative
Speaker 1: to the US and relative to its own history. It's
Speaker 1: a beneficiary of the fact that oil is closer to
Speaker 1: fifty dollars a bottle than twenty dollars about that it
Speaker 1: has a high oil imports as a percentage of GDP,
Speaker 1: and longer term, we're very focused on this idea that
Speaker 1: productivity growth should come through and Japan has been doing
Speaker 1: that and automating since their demographic bubble burst, so they
Speaker 1: are ahead of the curve on that front. Alright to
Speaker 1: literally del tech international groups. Ci Oh, this is Bloomberg.
Speaker 1: Thanks for listening to the Bloomberg Surveillance podcast. Subscribe and
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Speaker 1: platform you prefer. I'm on Twitter at Tom Keene. David
Speaker 1: Gura is at David Gura. Before the podcast, you can
Speaker 1: always catch us World one. I'm Bloomberg Radio