1 00:00:00,120 --> 00:00:02,920 Speaker 1: Brought you by Bank of America Mary Lynch. Investing in 2 00:00:03,000 --> 00:00:07,840 Speaker 1: local communities, economies and a sustainable future. That's the power 3 00:00:08,080 --> 00:00:12,360 Speaker 1: of global connections, Mary Lynch, Pierce Fenner and Smith Incorporated 4 00:00:12,760 --> 00:00:27,400 Speaker 1: member s I p C. Welcome to the Bloomberg Surveillance Podcast. 5 00:00:27,800 --> 00:00:31,520 Speaker 1: I'm Tom Keene with David Gura. Daily we bring you 6 00:00:31,560 --> 00:00:36,600 Speaker 1: insight from the best in economics, finance, investment, and international relations. 7 00:00:37,000 --> 00:00:41,600 Speaker 1: Find Bloomberg Surveillance on iTunes, SoundCloud, Bloomberg dot Com, and 8 00:00:41,680 --> 00:00:48,760 Speaker 1: of course on the Bloomberg Born On a Monday, the 9 00:00:48,760 --> 00:00:51,320 Speaker 1: tenth of April. This is Bloomberg Surveillance on Bloomberg Radio. 10 00:00:51,400 --> 00:00:53,880 Speaker 1: David Garay in New York, Francy Lakway in London, and 11 00:00:54,000 --> 00:00:56,480 Speaker 1: for Tom Keene, who is out this week and joining 12 00:00:56,560 --> 00:00:58,680 Speaker 1: us now here in our Bloomberg eleven three oh studios 13 00:00:58,680 --> 00:01:01,400 Speaker 1: in New York, the founder of Frequency Economics, Carl Winder. 14 00:01:01,480 --> 00:01:03,440 Speaker 1: Great to have you with this. Carl, and let me 15 00:01:03,480 --> 00:01:05,880 Speaker 1: start just by asking you to to to give us 16 00:01:05,880 --> 00:01:07,679 Speaker 1: your take on the jobs report we got last week. 17 00:01:07,720 --> 00:01:09,800 Speaker 1: We're gonna be waiting for markets to open see how 18 00:01:09,800 --> 00:01:12,200 Speaker 1: investors who were processing what they saw in that report 19 00:01:12,400 --> 00:01:14,679 Speaker 1: on Friday after they chewed it over over the weekend. 20 00:01:14,880 --> 00:01:16,960 Speaker 1: Dig past the headlines. Force When you looked at that report, 21 00:01:17,000 --> 00:01:19,720 Speaker 1: what was the greatest interest to you? Well, good, good morning, David. 22 00:01:19,720 --> 00:01:22,560 Speaker 1: There's really nothing beyond the headline to to look at. 23 00:01:22,680 --> 00:01:26,080 Speaker 1: That four point five percent unemployment rate is the story 24 00:01:26,120 --> 00:01:29,840 Speaker 1: the FEDS mandate is couched in terms of the unemployment rate. 25 00:01:29,840 --> 00:01:33,440 Speaker 1: The unemployment rate continues to fall. Our chief economist u 26 00:01:33,480 --> 00:01:37,160 Speaker 1: S economists that high Frequency Economics UM Jim O'Sullivan has 27 00:01:37,160 --> 00:01:39,040 Speaker 1: been arguing for a long time that the drop in 28 00:01:39,120 --> 00:01:41,880 Speaker 1: the unemployment rate is real. It's sustainable. It's not a 29 00:01:41,920 --> 00:01:43,880 Speaker 1: trick of the maths or a change in the labor 30 00:01:43,920 --> 00:01:46,920 Speaker 1: force participation rate or anything like that. The FEDS now 31 00:01:46,959 --> 00:01:49,480 Speaker 1: at the point where the unemployment rate is where it 32 00:01:49,520 --> 00:01:52,600 Speaker 1: wants it to be. It's time to move, time for action. 33 00:01:52,680 --> 00:01:54,800 Speaker 1: There you go. Let me ask you about the retail sector. 34 00:01:54,840 --> 00:01:57,440 Speaker 1: We saw diminishment in jobs in the retail sector. This 35 00:01:57,560 --> 00:02:00,000 Speaker 1: what just adds further color to a sector that's already 36 00:02:00,080 --> 00:02:02,800 Speaker 1: not not doing great. Yeah, well, the retail sector has 37 00:02:02,800 --> 00:02:04,880 Speaker 1: some problems. We're also going to get a soft retail 38 00:02:04,920 --> 00:02:07,640 Speaker 1: sales report this week, although that's more in value than 39 00:02:07,720 --> 00:02:10,360 Speaker 1: volume terms. The lower gasoline prices are going to hold 40 00:02:10,360 --> 00:02:12,960 Speaker 1: down that component of it. But net net, you know, 41 00:02:13,080 --> 00:02:16,880 Speaker 1: the economy continues to grow at about a two percent rate. 42 00:02:16,919 --> 00:02:19,280 Speaker 1: To borrow the language that other people are using this morning, 43 00:02:19,560 --> 00:02:21,680 Speaker 1: and that seems to be more than enough to keep 44 00:02:21,680 --> 00:02:25,560 Speaker 1: the unemployment rate falling. That's the policy challenge, right, But Carl, 45 00:02:25,639 --> 00:02:28,840 Speaker 1: let's go back to the employment rate that we had, 46 00:02:29,280 --> 00:02:31,720 Speaker 1: right and the FED fund futures are moving on the 47 00:02:31,720 --> 00:02:33,920 Speaker 1: back of it. So what does it tell us about 48 00:02:33,960 --> 00:02:36,680 Speaker 1: nervousness on the markets? Do we need, like the last hike, 49 00:02:36,840 --> 00:02:39,720 Speaker 1: for it to be telegraphed by five to six presidents 50 00:02:39,760 --> 00:02:43,600 Speaker 1: before the markets make sure that there's a hike next Well, 51 00:02:43,639 --> 00:02:46,000 Speaker 1: I think that the market is pretty much tuned into 52 00:02:46,000 --> 00:02:48,760 Speaker 1: the program at this point, and the market is pretty 53 00:02:48,840 --> 00:02:52,560 Speaker 1: universally looking for at least two more rate hikes this 54 00:02:52,639 --> 00:02:55,880 Speaker 1: year followed by some start to adjustment of the balance sheet. 55 00:02:55,919 --> 00:02:58,400 Speaker 1: I think that's been pretty clearly telegraphed. I think the 56 00:02:58,480 --> 00:03:01,040 Speaker 1: message is out there, and I think now it's a 57 00:03:01,120 --> 00:03:04,760 Speaker 1: question more of execution will beyond the preparation stage. If 58 00:03:04,800 --> 00:03:07,000 Speaker 1: you're right and the Fed is behind the curve, what 59 00:03:07,080 --> 00:03:09,560 Speaker 1: will that look like? Does it mean that they have 60 00:03:09,639 --> 00:03:12,280 Speaker 1: to hike a lot more quicker in the second half 61 00:03:12,320 --> 00:03:14,840 Speaker 1: of the year. Well, you know, that's always the concern. 62 00:03:14,919 --> 00:03:17,160 Speaker 1: You know that the FED, coming from behind the curve, 63 00:03:17,480 --> 00:03:20,600 Speaker 1: racist to get above the curve, hikes faster than the 64 00:03:20,639 --> 00:03:24,080 Speaker 1: market expects, and that causes some upset in terms of 65 00:03:24,120 --> 00:03:26,920 Speaker 1: the economy, maybe a little bit more heavy footed on 66 00:03:26,960 --> 00:03:29,200 Speaker 1: the brake pedal than they would like to be. And 67 00:03:29,400 --> 00:03:32,920 Speaker 1: this traditionally is the problem with the FED, which is 68 00:03:32,960 --> 00:03:36,000 Speaker 1: probably the biggest single cause of recessions in the history 69 00:03:36,000 --> 00:03:40,040 Speaker 1: of the economy, that they get going too far out 70 00:03:40,040 --> 00:03:41,760 Speaker 1: of sync and then they try to catch up and 71 00:03:42,000 --> 00:03:43,920 Speaker 1: they headed a little bit too hard. The FED chair 72 00:03:43,960 --> 00:03:46,400 Speaker 1: speaking today in an arbor, Michigan, let's go back to 73 00:03:46,400 --> 00:03:49,000 Speaker 1: the speech that she gave in Chicago a few weeks ago. 74 00:03:49,080 --> 00:03:51,040 Speaker 1: She was adamant the FED was not behind the curve. 75 00:03:51,120 --> 00:03:53,480 Speaker 1: So so de fend your position, Carl, if you would 76 00:03:53,480 --> 00:03:55,080 Speaker 1: hear what's what's the argument that you would make that 77 00:03:55,160 --> 00:03:57,320 Speaker 1: Janet Yell in this case is wrong. Well, it's her 78 00:03:57,400 --> 00:03:59,640 Speaker 1: job to say that she's not behind the curve, and 79 00:04:00,040 --> 00:04:03,440 Speaker 1: obviously you know that's uh where where where you know 80 00:04:03,760 --> 00:04:06,400 Speaker 1: her official position is. But you look at the unemployment 81 00:04:06,440 --> 00:04:08,640 Speaker 1: rate at four point five percent. You look at the 82 00:04:08,720 --> 00:04:12,160 Speaker 1: FED governors saying that neutral is four point seven, and uh, 83 00:04:12,360 --> 00:04:14,480 Speaker 1: where they want to be for this year is four 84 00:04:14,520 --> 00:04:16,880 Speaker 1: point five and we're there already. I mean, it's just 85 00:04:16,960 --> 00:04:19,599 Speaker 1: the question of of the of the facts that they 86 00:04:19,880 --> 00:04:23,240 Speaker 1: are in March and April where they wanted to be 87 00:04:23,320 --> 00:04:25,640 Speaker 1: by the end of the year, and something has to 88 00:04:25,640 --> 00:04:27,719 Speaker 1: be done to keep them from going too far. You 89 00:04:27,760 --> 00:04:29,720 Speaker 1: looked at those minutes from from last week, the FMC 90 00:04:29,960 --> 00:04:32,279 Speaker 1: minutes from the March meeting, and there was this healthy 91 00:04:32,320 --> 00:04:35,200 Speaker 1: dialogue about the balance sheet. Were you surprised by that? 92 00:04:35,240 --> 00:04:37,200 Speaker 1: The degree to which the FED is already entertaining that 93 00:04:37,320 --> 00:04:40,160 Speaker 1: really digging its teeth into that. Well, I think that 94 00:04:40,279 --> 00:04:42,440 Speaker 1: you know something, it's time to start thinking about the 95 00:04:42,480 --> 00:04:45,479 Speaker 1: balance sheet. You know, what's not clear is how to 96 00:04:45,520 --> 00:04:47,839 Speaker 1: go about it and what the timing should be, what 97 00:04:47,920 --> 00:04:50,400 Speaker 1: the messaging should be, and what the mechanics of it 98 00:04:50,440 --> 00:04:53,400 Speaker 1: should be. And that's of course we're in unexplored territory. 99 00:04:53,760 --> 00:04:55,880 Speaker 1: So yeah, I'd expect there to be a lot of 100 00:04:55,920 --> 00:04:58,280 Speaker 1: debate about how to get there. I think the end 101 00:04:58,320 --> 00:05:00,520 Speaker 1: result that everyone has to expect that was that the 102 00:05:00,520 --> 00:05:03,000 Speaker 1: balance sheet is going to come down, and that's going 103 00:05:03,080 --> 00:05:05,840 Speaker 1: to have both the stock and a flow impact on 104 00:05:05,880 --> 00:05:09,640 Speaker 1: the markets. Carly, I'll play devil's advocate. So that is 105 00:05:09,680 --> 00:05:13,039 Speaker 1: behind the curve. It's very unlikely. Um, but what if 106 00:05:13,360 --> 00:05:15,800 Speaker 1: you know they are concerned without saying to be politically 107 00:05:15,880 --> 00:05:19,440 Speaker 1: very difficult for say, uh to, They're they're concerned about 108 00:05:19,440 --> 00:05:22,359 Speaker 1: where President Trump takes the U. S economy right, so 109 00:05:22,400 --> 00:05:24,800 Speaker 1: that we don't really have the tax reform yet, we 110 00:05:24,839 --> 00:05:27,600 Speaker 1: don't really know what kind of geo politics world we're 111 00:05:27,839 --> 00:05:30,760 Speaker 1: living in for the next twelve months, and so that 112 00:05:30,880 --> 00:05:33,920 Speaker 1: may be one of their main concerns in not hiking 113 00:05:33,960 --> 00:05:36,920 Speaker 1: too soon. Well, I think you have a very valid point, 114 00:05:36,960 --> 00:05:38,880 Speaker 1: which is that there is a lot of uncertainty on 115 00:05:38,920 --> 00:05:41,760 Speaker 1: the fiscal policy side. So what does a central bank 116 00:05:41,920 --> 00:05:44,320 Speaker 1: do when it doesn't know what fiscal policy is going 117 00:05:44,360 --> 00:05:48,160 Speaker 1: to be? And the the accepted technique for dealing with 118 00:05:48,200 --> 00:05:50,640 Speaker 1: that is to assume that nothing happens until it does. 119 00:05:50,680 --> 00:05:54,080 Speaker 1: In other words, that policy remains as written as stated 120 00:05:54,360 --> 00:05:57,239 Speaker 1: in place with no changes until we get a clear 121 00:05:57,320 --> 00:06:00,880 Speaker 1: change being legislated. So I think that that's the way 122 00:06:00,880 --> 00:06:03,200 Speaker 1: they're going to move forward with this. It seems a 123 00:06:03,200 --> 00:06:05,200 Speaker 1: little bit stodgy from our point of view. But their 124 00:06:05,279 --> 00:06:08,240 Speaker 1: job is not to forecast the economy. Their job is 125 00:06:08,320 --> 00:06:11,200 Speaker 1: to keep a lid on the unemployment rate from getting 126 00:06:11,360 --> 00:06:14,200 Speaker 1: so low that it challenges price stability. So they just 127 00:06:14,240 --> 00:06:16,279 Speaker 1: have to work with what they have. But Carli, if 128 00:06:16,279 --> 00:06:18,880 Speaker 1: they don't forecast the economy, then they can't prempt and I, 129 00:06:19,240 --> 00:06:20,960 Speaker 1: you know, I understand your point. But at the end 130 00:06:20,960 --> 00:06:22,479 Speaker 1: of the day, that's not what the Bank of England 131 00:06:22,520 --> 00:06:24,960 Speaker 1: did when it came to Bregsity. Well, you know they, 132 00:06:25,240 --> 00:06:27,320 Speaker 1: Mark Arni took a lot of criticism for that. Also, 133 00:06:27,600 --> 00:06:30,400 Speaker 1: I think you wanted to distinguish between forecasting the economy 134 00:06:30,640 --> 00:06:34,320 Speaker 1: and forecasting fiscal policy. Al Right, so what they forecast 135 00:06:34,360 --> 00:06:38,160 Speaker 1: the economy by assuming no change in fiscal policy, and 136 00:06:38,279 --> 00:06:41,280 Speaker 1: that way they remain completely a political in terms of 137 00:06:41,560 --> 00:06:44,960 Speaker 1: the process that goes behind formulating fiscal policy. And frankly, 138 00:06:45,000 --> 00:06:47,600 Speaker 1: I think there's some some merit to that. As far 139 00:06:47,640 --> 00:06:50,640 Speaker 1: as Mark Arney is concerned. You know, he I didn't. 140 00:06:50,640 --> 00:06:53,279 Speaker 1: I don't think he messaged what he did very clearly. 141 00:06:53,520 --> 00:06:57,640 Speaker 1: What he did was he prepared the nation or right 142 00:06:57,640 --> 00:07:01,240 Speaker 1: for the worst possible outcome. And that's one style of management. 143 00:07:01,279 --> 00:07:03,359 Speaker 1: And you could argue that it's the job of a 144 00:07:03,400 --> 00:07:07,680 Speaker 1: central banker to prevent the worst possible occurrence from occurring. 145 00:07:07,960 --> 00:07:10,440 Speaker 1: So he had a very specific kind of a shock there, 146 00:07:10,480 --> 00:07:12,240 Speaker 1: and I think he's viewed the bank is having a 147 00:07:12,360 --> 00:07:15,720 Speaker 1: very specific task of keeping the worst from occurring. Uh. 148 00:07:15,760 --> 00:07:18,400 Speaker 1: The FED doesn't have that, all right. The Fed has 149 00:07:18,760 --> 00:07:21,120 Speaker 1: con concerned about an inflation in the longer term, but 150 00:07:21,200 --> 00:07:23,560 Speaker 1: they don't have an immediate dagger hanging over their head 151 00:07:23,680 --> 00:07:26,240 Speaker 1: where there could be, in particular, an interruption to the 152 00:07:26,320 --> 00:07:30,040 Speaker 1: functioning of financial markets, which is what Governor Carney was 153 00:07:30,040 --> 00:07:32,520 Speaker 1: looking at. In the UK. Let's stick with Govinor Carney 154 00:07:32,520 --> 00:07:34,560 Speaker 1: here for a moment. We had the speech by Theresa May, 155 00:07:34,800 --> 00:07:37,240 Speaker 1: the speech by Donald Tusk. Things are in motion here 156 00:07:37,240 --> 00:07:39,400 Speaker 1: when it comes to the triggering of Article of fifty. 157 00:07:39,440 --> 00:07:41,400 Speaker 1: How is it? How is Mark Carney watching that unfold 158 00:07:41,400 --> 00:07:45,120 Speaker 1: from thread Needle Street. Well, he's Governor Carney has warned 159 00:07:45,120 --> 00:07:48,320 Speaker 1: the banks to prepare for the most difficult contingency. He 160 00:07:48,400 --> 00:07:51,080 Speaker 1: wants them to have an action plan in mind, so 161 00:07:51,120 --> 00:07:54,000 Speaker 1: that if something does happen, as things do happen, that 162 00:07:54,080 --> 00:07:56,640 Speaker 1: they know what they're going to do next, and to 163 00:07:56,720 --> 00:07:59,720 Speaker 1: try to put some kind of control over the situation. 164 00:08:00,040 --> 00:08:02,720 Speaker 1: This has been both a Governor Carney's approach and I 165 00:08:02,760 --> 00:08:05,040 Speaker 1: think the Bank of England general approach to the entire 166 00:08:05,120 --> 00:08:08,800 Speaker 1: Brexit situation. I think it's an interesting effort, and I 167 00:08:08,800 --> 00:08:12,400 Speaker 1: think it's certainly challenges banks to think about hard questions 168 00:08:12,720 --> 00:08:15,880 Speaker 1: and perhaps even to state and reveal some of their strategies. 169 00:08:16,080 --> 00:08:17,640 Speaker 1: But at the end of the day, this is going 170 00:08:17,680 --> 00:08:21,040 Speaker 1: to unfold and probably a way that nobody can anticipate fully, 171 00:08:21,360 --> 00:08:23,040 Speaker 1: and I think that it's going to be very, very 172 00:08:23,040 --> 00:08:27,280 Speaker 1: difficult to insulate financial markets from shocks emerging from Brexit, 173 00:08:27,640 --> 00:08:29,880 Speaker 1: especially if it goes the way that I think it's 174 00:08:29,880 --> 00:08:32,240 Speaker 1: going to go, which is that it's going to extract 175 00:08:32,240 --> 00:08:34,559 Speaker 1: a toll on the city in terms of its passporting 176 00:08:35,040 --> 00:08:37,920 Speaker 1: into Europe. We got some new and disappointed consumer data 177 00:08:37,960 --> 00:08:39,880 Speaker 1: out of the UK as well. Help us with this 178 00:08:39,880 --> 00:08:43,120 Speaker 1: this ongoing debate, this argument over soft data and hard data. 179 00:08:43,360 --> 00:08:45,920 Speaker 1: To what degree do you think that soft data portends 180 00:08:46,040 --> 00:08:48,520 Speaker 1: or predicts where the hard data is going to go? Well, 181 00:08:48,559 --> 00:08:50,760 Speaker 1: there you go, David, you hit the nail right on 182 00:08:50,800 --> 00:08:53,839 Speaker 1: the head, all right. The soft data tell us where 183 00:08:54,000 --> 00:08:56,280 Speaker 1: we think the hard data are heading. They inform us, 184 00:08:56,280 --> 00:08:59,240 Speaker 1: they help us generate our forecasts and our expectations for it. 185 00:08:59,520 --> 00:09:01,760 Speaker 1: But at the end of the day, the hard data 186 00:09:01,800 --> 00:09:05,400 Speaker 1: are what matter. So the purchasing managers in disease for 187 00:09:05,440 --> 00:09:08,880 Speaker 1: Europe or at a record high, and industrial production is 188 00:09:08,920 --> 00:09:11,640 Speaker 1: just bopping along near zero, bopping a little bit above it, 189 00:09:11,720 --> 00:09:14,280 Speaker 1: maybe a percenter to right, who do you believe? At 190 00:09:14,280 --> 00:09:15,720 Speaker 1: the end of the day, it's the hard data that 191 00:09:15,800 --> 00:09:19,360 Speaker 1: tells the story. So I inform myself by looking at 192 00:09:19,360 --> 00:09:21,120 Speaker 1: the soft data, but at the end of the day, 193 00:09:21,360 --> 00:09:23,560 Speaker 1: I have models of the hard data that I depend 194 00:09:23,600 --> 00:09:25,640 Speaker 1: on much more to tell me what the economy is doing. 195 00:09:25,760 --> 00:09:27,920 Speaker 1: Fancy Lackaway in London, David Gurra in New York, Tom 196 00:09:27,960 --> 00:09:30,360 Speaker 1: keene off this week, Carl Weinberg sitting in his seat. 197 00:09:30,400 --> 00:09:34,920 Speaker 1: We won't tell Tom, but chair here at our eleven three. Oh, 198 00:09:34,960 --> 00:09:36,840 Speaker 1: it's Carl. We were talking about the FED. I know 199 00:09:36,880 --> 00:09:39,080 Speaker 1: you're looking at at bond yields as well, looking at 200 00:09:39,080 --> 00:09:41,680 Speaker 1: correlations and German yields. What are you seeing as you 201 00:09:41,679 --> 00:09:44,319 Speaker 1: look in that space. Well, the thing that catches your 202 00:09:44,320 --> 00:09:48,320 Speaker 1: eye right away are very very intensely negative yields both 203 00:09:48,320 --> 00:09:51,480 Speaker 1: in Germany and in the UK and um it's hard 204 00:09:51,520 --> 00:09:55,160 Speaker 1: to reconcile that with either appropriate policy or with what 205 00:09:55,280 --> 00:09:59,320 Speaker 1: the market will continue to sustain. In Germany, historically you 206 00:09:59,360 --> 00:10:02,360 Speaker 1: go back over last thirty years, and ten year Bundy 207 00:10:02,400 --> 00:10:04,800 Speaker 1: yields tend to run about two and three quarter percentage 208 00:10:04,840 --> 00:10:08,080 Speaker 1: points above current inflation, which is about one point four 209 00:10:08,160 --> 00:10:12,320 Speaker 1: percent core inflation we're talking about here, So um that 210 00:10:12,360 --> 00:10:15,080 Speaker 1: means Bundy yield should be around four percent at the 211 00:10:15,120 --> 00:10:18,040 Speaker 1: ten year mark, and we're looking at twenty one two 212 00:10:18,080 --> 00:10:22,480 Speaker 1: basis points. Obviously some big disconnect what could trigger a 213 00:10:22,520 --> 00:10:24,840 Speaker 1: correction there. While the Fed is one thing, is a 214 00:10:24,920 --> 00:10:28,880 Speaker 1: huge correlation between budden yields and ten year bond yields 215 00:10:28,920 --> 00:10:30,760 Speaker 1: over time, and of course the e c B is 216 00:10:30,880 --> 00:10:33,040 Speaker 1: out of bunds to buy. They're stepping away from the 217 00:10:33,080 --> 00:10:35,000 Speaker 1: market over the course of this year and they'll be 218 00:10:35,040 --> 00:10:36,679 Speaker 1: out of the government bond market by the end of 219 00:10:36,760 --> 00:10:39,240 Speaker 1: next year. So those are two pretty big things that 220 00:10:39,320 --> 00:10:42,439 Speaker 1: could give a kick up to the German bond yields 221 00:10:42,600 --> 00:10:44,360 Speaker 1: towards the direction where I think they have to go. 222 00:10:44,520 --> 00:10:46,920 Speaker 1: Incredible piece on the bloomberg here about to the quantity 223 00:10:46,960 --> 00:10:50,320 Speaker 1: of negative yielding government bonds three trillion dollars worth of 224 00:10:50,360 --> 00:10:52,640 Speaker 1: them and we're seeing those begin to transition here. What 225 00:10:52,640 --> 00:10:54,840 Speaker 1: does that mean for the the US bond market, all 226 00:10:54,840 --> 00:10:58,000 Speaker 1: of those negative old inching toward positive territory. Well, you know, 227 00:10:58,120 --> 00:11:00,320 Speaker 1: being an old fashioned kind of guy, I tend to 228 00:11:00,360 --> 00:11:03,400 Speaker 1: think that, um, when the FED is hiking rates and 229 00:11:03,440 --> 00:11:05,440 Speaker 1: the rest of the world is not, spreads widen in 230 00:11:05,480 --> 00:11:08,080 Speaker 1: favor of the dollar, and that's dollar positive. So I 231 00:11:08,120 --> 00:11:12,400 Speaker 1: think that the place where this widening spread UH comes 232 00:11:12,400 --> 00:11:15,320 Speaker 1: into play is that it's a dollar positive and that's 233 00:11:15,320 --> 00:11:18,360 Speaker 1: our outlook at high frequency economics grosso motto. We see 234 00:11:18,360 --> 00:11:21,680 Speaker 1: the dollar continuing to move stronger on most of the 235 00:11:21,679 --> 00:11:25,480 Speaker 1: major cross rates. Is that not a headache for the Fed? Well, 236 00:11:25,520 --> 00:11:28,400 Speaker 1: you know, it's its heightening of monetary conditions. Again, that's 237 00:11:28,400 --> 00:11:30,400 Speaker 1: a very old school point of view. It's one that 238 00:11:30,520 --> 00:11:33,640 Speaker 1: not all central bankers embrace. But the reality of it 239 00:11:33,679 --> 00:11:36,840 Speaker 1: is is that if a stronger dollar does restrain exports 240 00:11:36,840 --> 00:11:39,280 Speaker 1: and restrain GDP growth a little bit, it will do 241 00:11:39,400 --> 00:11:41,880 Speaker 1: some of the Fed's work for it. So I don't 242 00:11:41,920 --> 00:11:44,520 Speaker 1: think it's a headache. Again, with the unemployment rate at 243 00:11:44,520 --> 00:11:46,720 Speaker 1: four and a half percent and dropping like a stone, 244 00:11:46,800 --> 00:11:49,160 Speaker 1: and the economy creating jobs at a one and a 245 00:11:49,240 --> 00:11:52,520 Speaker 1: half percent yearly rate and the labor force only growing 246 00:11:52,559 --> 00:11:55,280 Speaker 1: by two thirds of that. Um. You know it's not 247 00:11:55,360 --> 00:11:58,719 Speaker 1: necessarily unwelcome. Um Carl. Let's go back to the c 248 00:11:58,800 --> 00:12:00,960 Speaker 1: B and when you look at negative rate, it's for 249 00:12:01,040 --> 00:12:04,640 Speaker 1: some of these bond yields. Do you see them less 250 00:12:04,679 --> 00:12:09,600 Speaker 1: negative in Europe before they become less negative in Japan? Well, Japan, 251 00:12:09,679 --> 00:12:11,840 Speaker 1: of course is a special case because they're the Bank 252 00:12:11,880 --> 00:12:13,600 Speaker 1: of Japan can come in and buy the whole thing 253 00:12:13,600 --> 00:12:16,400 Speaker 1: if they want. They already owned of the market and 254 00:12:16,400 --> 00:12:19,120 Speaker 1: they're committed to putting yields exactly where they want them, 255 00:12:19,400 --> 00:12:21,600 Speaker 1: So we'll get the yol curve where they want it 256 00:12:21,640 --> 00:12:23,599 Speaker 1: to be, which is where it is right now. It 257 00:12:23,880 --> 00:12:27,720 Speaker 1: ain't going anywhere in Europe. The ECB operates as as 258 00:12:27,800 --> 00:12:30,920 Speaker 1: Mario Droi says, under institutional constraints, and some of those 259 00:12:30,960 --> 00:12:34,160 Speaker 1: are legal as well as their own operational parameters. And 260 00:12:34,200 --> 00:12:36,080 Speaker 1: the biggest one is that they can't hold more than 261 00:12:37,040 --> 00:12:39,240 Speaker 1: of any single bond that's out there, and now there 262 00:12:39,240 --> 00:12:42,160 Speaker 1: are some exceptions and newer bonds, but gross gross omoto, 263 00:12:42,280 --> 00:12:45,360 Speaker 1: that's what their constraint is, and they're they're so by 264 00:12:45,400 --> 00:12:46,760 Speaker 1: the end of this year, they're going to have to 265 00:12:46,800 --> 00:12:49,240 Speaker 1: stop buying bonds, and that means they're going to lose 266 00:12:49,240 --> 00:12:51,400 Speaker 1: control of the Yolk curve. I think that what we 267 00:12:51,440 --> 00:12:55,000 Speaker 1: should be expecting is higher yields in Europe across the 268 00:12:55,200 --> 00:12:57,920 Speaker 1: entire Yeolk curve, but especially at the longer end. Carl, 269 00:12:58,000 --> 00:13:00,000 Speaker 1: quick question about trade here before we have to let 270 00:13:00,040 --> 00:13:01,800 Speaker 1: you go. We have this meeting in Florida last week, 271 00:13:01,800 --> 00:13:04,360 Speaker 1: President Trump and President She meeting trade. I'm sure we 272 00:13:04,400 --> 00:13:05,960 Speaker 1: was on the agenda. We didn't learn a whole lot 273 00:13:06,440 --> 00:13:08,800 Speaker 1: about the plan going forward. From from that meeting, you 274 00:13:08,840 --> 00:13:11,520 Speaker 1: have Commerce Secretary Wilbert Ross embarking on I think a 275 00:13:11,600 --> 00:13:15,200 Speaker 1: ninety days study of our trade relationship with China. What 276 00:13:15,240 --> 00:13:17,800 Speaker 1: are the next steps when it comes to trade? Well, 277 00:13:18,160 --> 00:13:20,800 Speaker 1: nobody except me seems to be talking this morning about 278 00:13:20,840 --> 00:13:24,679 Speaker 1: President She's commitment to a one day program to come 279 00:13:24,760 --> 00:13:28,040 Speaker 1: up with a way to increase us X exports to China. 280 00:13:28,480 --> 00:13:31,240 Speaker 1: And that's something positive that I didn't expect to come 281 00:13:31,240 --> 00:13:34,640 Speaker 1: out of this summit. I mean, we've been worried about protectionism, 282 00:13:34,720 --> 00:13:37,520 Speaker 1: the kinds of things that clamped down on world trade 283 00:13:37,520 --> 00:13:40,320 Speaker 1: and slow down the growth of the global economy, and 284 00:13:40,360 --> 00:13:43,400 Speaker 1: instead we got a positive proposal from China to boost 285 00:13:43,520 --> 00:13:47,719 Speaker 1: US exports. That's a globalism enhancing, a trade enhancing. It's 286 00:13:47,720 --> 00:13:50,719 Speaker 1: a positive development. And if something can come of it, 287 00:13:50,960 --> 00:13:52,880 Speaker 1: if the US can find things that it can sell 288 00:13:52,960 --> 00:13:55,680 Speaker 1: to China that Chinese want to buy, and probably in 289 00:13:55,720 --> 00:13:58,400 Speaker 1: technology and capital goods, there's a lot of stuff that 290 00:13:58,400 --> 00:14:00,640 Speaker 1: they're interested in, then I think we could get some 291 00:14:00,720 --> 00:14:04,080 Speaker 1: good resolution of the US trade deficit with China, not 292 00:14:04,240 --> 00:14:07,720 Speaker 1: from cutting off our access to inexpensive goods from China, 293 00:14:07,840 --> 00:14:11,280 Speaker 1: but rather by improving our access of American exporters to 294 00:14:11,360 --> 00:14:14,280 Speaker 1: the Chinese market. Carl, thanks so much. Carl Winburg there, 295 00:14:14,440 --> 00:14:26,240 Speaker 1: chief economist at Height Frequency Economics, brought you by Bank 296 00:14:26,280 --> 00:14:30,320 Speaker 1: of America. Mary Lynch. Dedicated to bringing our clients insights 297 00:14:30,320 --> 00:14:33,960 Speaker 1: and solutions to meet the challenges of a transforming world. 298 00:14:34,440 --> 00:14:38,280 Speaker 1: That's the power of global connections. Mary Lynch, Pierce Federin 299 00:14:38,360 --> 00:14:46,040 Speaker 1: Smith Incorporated, Member s I PC, David Gura, and Francy 300 00:14:46,160 --> 00:14:48,480 Speaker 1: Laqua on Bloombergs Valance to day. Tom Keane is off 301 00:14:48,600 --> 00:14:51,400 Speaker 1: for the week and suffice to say political risk well 302 00:14:51,400 --> 00:14:53,680 Speaker 1: on the minds of investors today after those strikes on 303 00:14:53,680 --> 00:14:56,200 Speaker 1: a Syrian airstrip last week and news that an aircraft 304 00:14:56,280 --> 00:14:59,240 Speaker 1: carrier has been diverted in Asia, moving closer towards the 305 00:14:59,320 --> 00:15:02,040 Speaker 1: Korean peninsul in light of escalating tensions there. I want 306 00:15:02,040 --> 00:15:04,800 Speaker 1: to bring in now Thomas Right. He joins US Director 307 00:15:04,960 --> 00:15:07,960 Speaker 1: of the Project on International Order and Strategy at the 308 00:15:07,960 --> 00:15:11,000 Speaker 1: Brookings Institution. Tom, great to speak with you once again here. 309 00:15:11,080 --> 00:15:13,200 Speaker 1: Let me ask you first of all about who's driving 310 00:15:13,240 --> 00:15:16,720 Speaker 1: foreign policy in this administration. We've seen the schism within 311 00:15:16,760 --> 00:15:19,600 Speaker 1: the administration playing out over these last few months. You've 312 00:15:19,600 --> 00:15:22,680 Speaker 1: got Secretary State Rex Tillerson, a new Director of the 313 00:15:22,720 --> 00:15:26,360 Speaker 1: National Security Council, new National Security Advisor, General hr McMaster. 314 00:15:26,400 --> 00:15:29,040 Speaker 1: Who's calling the shots? Here? Are those shots being called 315 00:15:29,040 --> 00:15:32,520 Speaker 1: from within the White House or from foggy bottom? I 316 00:15:32,560 --> 00:15:36,160 Speaker 1: think there's no It's great to be with you, Um, 317 00:15:36,200 --> 00:15:40,720 Speaker 1: there's no clear uh individuals who's sort of first among 318 00:15:40,840 --> 00:15:46,440 Speaker 1: sequels thus far, it's really still a struggle between different factions. 319 00:15:46,520 --> 00:15:48,960 Speaker 1: But I would say that the story of the last month, 320 00:15:49,000 --> 00:15:51,360 Speaker 1: I think has been the rise of General H. R. 321 00:15:51,440 --> 00:15:56,680 Speaker 1: McMaster as National Security Advisor. He came into his position 322 00:15:56,760 --> 00:16:01,280 Speaker 1: with very few guarantees about staffing, are access to the President, 323 00:16:01,480 --> 00:16:04,520 Speaker 1: and since he's been in the role, he's really consolidated 324 00:16:04,640 --> 00:16:08,520 Speaker 1: this position. He's managed to push out Steve Bannon as 325 00:16:08,520 --> 00:16:12,040 Speaker 1: a former member of the National Security Council Principles Committee. 326 00:16:12,680 --> 00:16:17,200 Speaker 1: He's managed to appoint a new deputy uh Dina Powell, 327 00:16:17,320 --> 00:16:22,080 Speaker 1: replacing Katie McFarland, and he seems to have a good 328 00:16:22,480 --> 00:16:26,440 Speaker 1: a good rapport with the President. So I think that 329 00:16:26,440 --> 00:16:28,880 Speaker 1: that sort of change in the balance of power within 330 00:16:29,000 --> 00:16:33,239 Speaker 1: the White House will be widely welcomed by America's allies 331 00:16:33,720 --> 00:16:36,160 Speaker 1: around the world, because it shows that the foreign policy, 332 00:16:36,200 --> 00:16:38,680 Speaker 1: if not quite normal, is becoming a little bit more 333 00:16:38,760 --> 00:16:41,880 Speaker 1: normal and than it was at the beginning. You have 334 00:16:41,920 --> 00:16:44,720 Speaker 1: members of this administration, among them rextillers in the Secretary 335 00:16:44,760 --> 00:16:47,080 Speaker 1: of State, in the National Security Advisor H. R. McMaster 336 00:16:47,200 --> 00:16:49,160 Speaker 1: saying what we saw in Syria was a one off. 337 00:16:49,160 --> 00:16:51,600 Speaker 1: In other words, it's not a uh something emblematic of 338 00:16:51,640 --> 00:16:54,960 Speaker 1: a change in strategy in Syria. How difficult is it 339 00:16:55,000 --> 00:16:57,640 Speaker 1: to maintain that position light of doing what they did? 340 00:16:57,640 --> 00:16:59,840 Speaker 1: In other words, you had this red line, uh they 341 00:17:00,000 --> 00:17:02,200 Speaker 1: they emphasize it here with an indelible marker, making it 342 00:17:02,240 --> 00:17:05,080 Speaker 1: perhaps rather than it was. Are we likely to see 343 00:17:05,080 --> 00:17:07,880 Speaker 1: more strikes like the one that we saw last week. Um, well, 344 00:17:07,920 --> 00:17:10,000 Speaker 1: they would. They will certainly be hoping not. I mean, 345 00:17:10,000 --> 00:17:12,920 Speaker 1: they don't really have a plan for what comes next. 346 00:17:12,960 --> 00:17:15,040 Speaker 1: But they may actually get away with this in a 347 00:17:15,119 --> 00:17:18,679 Speaker 1: narrow sense. I mean, if they're objective of the strike 348 00:17:18,800 --> 00:17:20,880 Speaker 1: was to send a message to us that don't use 349 00:17:20,960 --> 00:17:23,960 Speaker 1: chemical weapons, I think it's quite likely that he will 350 00:17:24,000 --> 00:17:26,679 Speaker 1: sort of take that message on board and won't use 351 00:17:26,760 --> 00:17:30,080 Speaker 1: chemical weapons again. He may commit he probably will commit 352 00:17:30,119 --> 00:17:34,960 Speaker 1: mass atrocities and mass murder with conventional weapons, but he 353 00:17:35,040 --> 00:17:39,000 Speaker 1: may avoid the chemical attacks for one reason, not because 354 00:17:39,000 --> 00:17:41,920 Speaker 1: he's uh, you know, he's open to the argument, or 355 00:17:42,240 --> 00:17:45,960 Speaker 1: he's persuaded by a moral position, but because he I think, 356 00:17:46,000 --> 00:17:49,080 Speaker 1: does not want to drag Trump into the civil war 357 00:17:49,240 --> 00:17:53,440 Speaker 1: against him. He wants to have Trump either be neutral 358 00:17:53,600 --> 00:17:57,560 Speaker 1: or generally supportive of the regime, and the best way 359 00:17:57,560 --> 00:18:00,199 Speaker 1: to do that is to take the hint and use 360 00:18:00,280 --> 00:18:03,600 Speaker 1: chemical weapons again. So they may they would have to 361 00:18:03,720 --> 00:18:07,280 Speaker 1: use force again if a SAD juiced chemical weapons again, 362 00:18:07,359 --> 00:18:11,760 Speaker 1: Otherwise they would have no credibility whatsoever. Um, But I 363 00:18:11,800 --> 00:18:13,840 Speaker 1: think they may get away with it in that a 364 00:18:13,920 --> 00:18:18,639 Speaker 1: SAD may just go back to the conventional attacks, and 365 00:18:18,760 --> 00:18:21,000 Speaker 1: you'll sort of return to some sort of status quo 366 00:18:21,040 --> 00:18:25,280 Speaker 1: pre last week. But if a sad so called you know, 367 00:18:25,320 --> 00:18:28,040 Speaker 1: falls into line and stops using these chemical attacks with 368 00:18:28,280 --> 00:18:31,520 Speaker 1: that not weak in Russia. And so my question is, really, 369 00:18:32,080 --> 00:18:34,840 Speaker 1: is Donald Trump trying to send a message to Assad 370 00:18:35,359 --> 00:18:38,600 Speaker 1: or did he on purpose or inadvertently gave a very 371 00:18:38,640 --> 00:18:42,960 Speaker 1: strong message to Russia. UM I I think he's he 372 00:18:43,080 --> 00:18:45,000 Speaker 1: sent a message, but I don't know if it's a 373 00:18:45,000 --> 00:18:48,840 Speaker 1: particularly strong message because he They very quickly followed up 374 00:18:48,840 --> 00:18:51,920 Speaker 1: by saying that they weren't fundamentally changing their serious strategy. 375 00:18:51,920 --> 00:18:54,000 Speaker 1: I mean, if you listen to REXT, taylorson Nikki Haley 376 00:18:54,040 --> 00:18:57,560 Speaker 1: said something sort of different, but Tillerson was saying, they're 377 00:18:57,560 --> 00:19:00,000 Speaker 1: going to remain focused on isis they're going to coordinate 378 00:19:00,119 --> 00:19:02,879 Speaker 1: with the regime. Um, you know, they're not. They're not 379 00:19:02,920 --> 00:19:07,120 Speaker 1: fundamentally changing their strategy here, and McMaster said something similar. 380 00:19:07,320 --> 00:19:10,840 Speaker 1: So if I was putin I would think, you know, yes, 381 00:19:11,240 --> 00:19:13,240 Speaker 1: he's sort of setting down a red line of chemical 382 00:19:13,240 --> 00:19:17,840 Speaker 1: weapons usage, but they're not actually intervening to try to 383 00:19:17,920 --> 00:19:20,640 Speaker 1: change the situation on the ground. And so I think 384 00:19:20,680 --> 00:19:25,160 Speaker 1: it's not quite as bad from Moscow's perspective, um as 385 00:19:25,880 --> 00:19:28,600 Speaker 1: as some people are making out right, But then the 386 00:19:28,720 --> 00:19:32,840 Speaker 1: encounters are the words between Russia and UM Washington d C. 387 00:19:33,040 --> 00:19:36,440 Speaker 1: Were pretty curt pretty tense, right, I think Rex Dolorson 388 00:19:36,680 --> 00:19:40,720 Speaker 1: accused Russia and the Kremlin of being incompetent. How tense? 389 00:19:40,800 --> 00:19:44,440 Speaker 1: Will will the next meeting be on Wednesday? Yeah, it 390 00:19:44,480 --> 00:19:46,840 Speaker 1: will be a very interesting meeting. I mean, I think 391 00:19:46,840 --> 00:19:51,199 Speaker 1: that the Russians were clearly opposing at the strikes, but 392 00:19:51,680 --> 00:19:54,160 Speaker 1: one has to look also what they do in addition 393 00:19:54,160 --> 00:19:56,320 Speaker 1: to what they say, and I think their actions were 394 00:19:56,720 --> 00:19:59,560 Speaker 1: relatively limited. I mean, they have many different means of 395 00:19:59,600 --> 00:20:03,919 Speaker 1: retali leading, and they just really seemed to be satisfied 396 00:20:03,920 --> 00:20:07,480 Speaker 1: for the time being with strong words of condemnation with 397 00:20:07,560 --> 00:20:11,800 Speaker 1: strengthening Serrian air defense rather than retaliating on the ground 398 00:20:11,880 --> 00:20:14,239 Speaker 1: or another way. So, um, so I think we need 399 00:20:14,320 --> 00:20:17,160 Speaker 1: to keep an eye on it there at the meeting 400 00:20:17,200 --> 00:20:19,359 Speaker 1: on Wednesday, A material will be a key part of that. 401 00:20:19,440 --> 00:20:22,240 Speaker 1: But also this is the first meeting really between a 402 00:20:22,320 --> 00:20:25,520 Speaker 1: senior Trump official and Russia, and so they think we'll 403 00:20:25,520 --> 00:20:28,560 Speaker 1: be trying to find out if there is scope for 404 00:20:28,560 --> 00:20:33,160 Speaker 1: for an accommodation or for broader cooperation going forward. Since 405 00:20:33,200 --> 00:20:36,639 Speaker 1: Trump has had a very pro putent pro Russian line. 406 00:20:37,160 --> 00:20:41,640 Speaker 1: But of course allies and key people within the administration 407 00:20:41,680 --> 00:20:44,520 Speaker 1: will be very wary of that and will be sort 408 00:20:44,560 --> 00:20:49,080 Speaker 1: of determined to ensure that you know that Taylorson sends 409 00:20:49,080 --> 00:20:52,080 Speaker 1: a message of support for Alliance as support for NATO. 410 00:20:53,040 --> 00:20:56,840 Speaker 1: You know, no fundamental shift on Ukraine as so quite 411 00:20:56,880 --> 00:21:00,320 Speaker 1: how Moscow may not respond very positively to asked, So 412 00:21:00,320 --> 00:21:03,679 Speaker 1: it could be attempts meeting. We're talking to Thomas right, 413 00:21:03,720 --> 00:21:05,720 Speaker 1: the author of the forthcoming book All Measures short of 414 00:21:05,760 --> 00:21:08,080 Speaker 1: Were the Contest for the century and the future of 415 00:21:08,119 --> 00:21:10,960 Speaker 1: American power. Tom, let me ask you about this G 416 00:21:11,080 --> 00:21:14,560 Speaker 1: seven meeting in Tuscany, this meeting of foreign ministers. The 417 00:21:14,600 --> 00:21:18,439 Speaker 1: President very firmly committed to an America First policy. Is 418 00:21:18,520 --> 00:21:21,080 Speaker 1: Secretary State Rex Tillerson expected to carry the water for that? 419 00:21:21,119 --> 00:21:22,680 Speaker 1: In other words, do you think that that's going to 420 00:21:22,760 --> 00:21:25,560 Speaker 1: be the starting point for conversations with with his contemporaries 421 00:21:25,560 --> 00:21:29,359 Speaker 1: at that meeting. Well, I think they will try to 422 00:21:29,400 --> 00:21:32,040 Speaker 1: send a message of reassurance. I mean that the America 423 00:21:32,119 --> 00:21:36,920 Speaker 1: First rhetoric is very strong. That'scluded President's preference, as Certainty 424 00:21:36,920 --> 00:21:40,280 Speaker 1: Watts when he came into office, But since then it's 425 00:21:40,320 --> 00:21:44,320 Speaker 1: been somewhat alluded. There's been these internal contradictions and really 426 00:21:44,320 --> 00:21:47,320 Speaker 1: a structural and coherence between the America First position and 427 00:21:47,400 --> 00:21:50,879 Speaker 1: his cabinet UM, and I think allies will be looking 428 00:21:51,000 --> 00:21:53,920 Speaker 1: for sort of a shift away from that. So if 429 00:21:53,960 --> 00:21:58,800 Speaker 1: he sort of reiterated, um, the America first doctrine and 430 00:21:58,880 --> 00:22:01,120 Speaker 1: sort of said that the who asked was not all 431 00:22:01,160 --> 00:22:04,440 Speaker 1: that committed to Europe, I think that would be pretty alarming. UM. 432 00:22:04,520 --> 00:22:06,639 Speaker 1: So I hope that he will he will try to 433 00:22:06,680 --> 00:22:09,240 Speaker 1: sort of tread the needle and say, you know, President 434 00:22:09,280 --> 00:22:12,760 Speaker 1: Trump has his position, but he will behave in a 435 00:22:12,800 --> 00:22:15,919 Speaker 1: responsible way, and you know is committed to NATO and 436 00:22:15,920 --> 00:22:20,560 Speaker 1: other alliances. UM. And to some degree, Trump's cabinet have 437 00:22:20,640 --> 00:22:22,800 Speaker 1: been able to say that. Of course, as the president 438 00:22:22,880 --> 00:22:27,480 Speaker 1: that has difficulty actually expressing those words themselves. And so 439 00:22:27,960 --> 00:22:30,359 Speaker 1: the summit this summer may go well. I think the 440 00:22:30,440 --> 00:22:33,160 Speaker 1: Native summer later on in a couple of months, where 441 00:22:33,200 --> 00:22:35,960 Speaker 1: Trump will be there himself, will be much I think 442 00:22:36,040 --> 00:22:38,399 Speaker 1: higher risk, because of course there's always a chance that 443 00:22:38,440 --> 00:22:42,720 Speaker 1: Trump may say something and that could be destabilizing or 444 00:22:42,760 --> 00:22:44,840 Speaker 1: sort of a script to last question here, we got 445 00:22:44,840 --> 00:22:46,480 Speaker 1: about a minute left. Let me ask you about the 446 00:22:46,680 --> 00:22:48,679 Speaker 1: relationships that the president is forging with the with the 447 00:22:48,760 --> 00:22:50,919 Speaker 1: leader of Egypt right now. We saw tweets over the 448 00:22:50,920 --> 00:22:54,160 Speaker 1: weekend saying a President Trump believes that President CC will 449 00:22:54,440 --> 00:22:57,800 Speaker 1: handle what happened over the weekend, those two bombings. Uh, well, 450 00:22:58,200 --> 00:23:01,199 Speaker 1: I'm paraphrasing there. How important is it for him to 451 00:23:01,200 --> 00:23:03,240 Speaker 1: have this relationship. It is a radical departure from the 452 00:23:03,240 --> 00:23:07,240 Speaker 1: relationship the previous administration had with the Egyptian leadership. Yeah, 453 00:23:07,240 --> 00:23:11,480 Speaker 1: I mean they are very Uh, they see eye to eye. 454 00:23:11,720 --> 00:23:15,560 Speaker 1: You know, CC met Trump during the campaign in New 455 00:23:15,640 --> 00:23:19,160 Speaker 1: York around the UN General Assembly. UM. He is an 456 00:23:19,200 --> 00:23:24,399 Speaker 1: extremely tough line on political Islam and you know, the 457 00:23:24,480 --> 00:23:27,760 Speaker 1: Muslim brotherhood that's very much aligned with where the Trump 458 00:23:27,800 --> 00:23:31,119 Speaker 1: campaign was and even where the Trump administration is. And 459 00:23:31,200 --> 00:23:34,480 Speaker 1: so I think they they get along. The problem is 460 00:23:34,520 --> 00:23:38,120 Speaker 1: that what CC is doing in Egypt UM is quite 461 00:23:38,160 --> 00:23:42,240 Speaker 1: counterproductive in the long term of failure to reform politically 462 00:23:42,440 --> 00:23:46,040 Speaker 1: or economically, and a very harsh line on legitimate type 463 00:23:46,119 --> 00:23:49,439 Speaker 1: of political activity, and so by not putting any pressure 464 00:23:49,440 --> 00:23:52,199 Speaker 1: and m I think Trump is storing up problems in 465 00:23:52,240 --> 00:23:55,080 Speaker 1: the long run. Thomas right there, of the Brookings Institution, 466 00:23:55,080 --> 00:23:57,680 Speaker 1: author of all measures short of War. This is Bloomberg 467 00:24:09,960 --> 00:24:13,159 Speaker 1: Toyota announcing a one point three billion dollar investment in 468 00:24:13,160 --> 00:24:16,679 Speaker 1: an existing US factory in Georgetown, Kentucky this morning. The 469 00:24:16,720 --> 00:24:19,200 Speaker 1: President of the United States commenting on that, saying, it's 470 00:24:19,240 --> 00:24:22,200 Speaker 1: further evidence that manufacturers are now confident that the economic 471 00:24:22,240 --> 00:24:25,679 Speaker 1: climate has greatly improved under my administration. With more on 472 00:24:25,720 --> 00:24:28,720 Speaker 1: this investment, we're joined now by the president of Toyota Motive, 473 00:24:28,720 --> 00:24:32,120 Speaker 1: that's Will James and Kentucky's Governor Matt Bevan, Republican Matt Bevin, 474 00:24:32,320 --> 00:24:34,840 Speaker 1: both joining us from that factory in Kentucky. Great to 475 00:24:34,880 --> 00:24:36,840 Speaker 1: have both of you with us. And Will James, let 476 00:24:36,840 --> 00:24:39,080 Speaker 1: me start with you here. Uh, this is something that's 477 00:24:39,119 --> 00:24:40,800 Speaker 1: been in the work set for a long time. What 478 00:24:40,800 --> 00:24:42,840 Speaker 1: what should we make of the President's statement there? To 479 00:24:42,920 --> 00:24:45,479 Speaker 1: what extent was this guided, if at all, by the 480 00:24:45,480 --> 00:24:49,119 Speaker 1: policies of Donald Trump. Well, this is a program that 481 00:24:49,160 --> 00:24:52,200 Speaker 1: we started well before you know, any commerce were made 482 00:24:52,200 --> 00:24:55,120 Speaker 1: towards that. But basically, for the most part, I think 483 00:24:55,200 --> 00:24:58,879 Speaker 1: this just uh solidifies the point that we're in pretty 484 00:24:58,920 --> 00:25:01,960 Speaker 1: much in alignment. Are looking for very much the same things. 485 00:25:01,960 --> 00:25:04,760 Speaker 1: We're looking for, jobs and jobs for attention, and trying 486 00:25:04,760 --> 00:25:08,760 Speaker 1: to find ways to import the improve the economy, and 487 00:25:08,800 --> 00:25:12,040 Speaker 1: we're pretty pleased with the opportunity to make this one 488 00:25:12,080 --> 00:25:17,560 Speaker 1: point three three billion dollar investment to improve our plan, 489 00:25:17,680 --> 00:25:21,000 Speaker 1: improve our overall efficiency, and to bring products like this 490 00:25:21,119 --> 00:25:25,720 Speaker 1: two thousand and eighteen camera Uh to the public. Will James, 491 00:25:25,760 --> 00:25:28,040 Speaker 1: you've you've got to the new economy here under a 492 00:25:28,080 --> 00:25:30,800 Speaker 1: new president. Let me just ask you about the rhetoric 493 00:25:30,840 --> 00:25:32,640 Speaker 1: of the president as well. Of course he's called out 494 00:25:32,680 --> 00:25:35,560 Speaker 1: Toyota for at one point one billion dollar factory in 495 00:25:35,960 --> 00:25:39,000 Speaker 1: Mexico for the Corolla Compact. This is a new reality, 496 00:25:39,040 --> 00:25:40,600 Speaker 1: isn't it that you wake up in the morning maybe 497 00:25:40,640 --> 00:25:43,040 Speaker 1: wondering what, if anything the President may have tweeted about 498 00:25:43,040 --> 00:25:45,240 Speaker 1: you and your company. How does that change the way 499 00:25:45,240 --> 00:25:47,879 Speaker 1: that you do business? You know, really, I think the 500 00:25:47,920 --> 00:25:50,560 Speaker 1: way we do business is the way we'll continue. We've 501 00:25:50,600 --> 00:25:52,840 Speaker 1: always looked at things from a long term point of view, 502 00:25:53,359 --> 00:25:56,359 Speaker 1: and uh, you know, this is just one step in 503 00:25:56,440 --> 00:26:00,600 Speaker 1: that evolution. Now. Obviously, earlier this year at Toyota made 504 00:26:00,600 --> 00:26:04,199 Speaker 1: the commitment that will be spending about ten billion dollars 505 00:26:04,200 --> 00:26:06,359 Speaker 1: over the next five years, and this is that first 506 00:26:06,800 --> 00:26:10,040 Speaker 1: a move or installment towards that. With this investment here 507 00:26:10,040 --> 00:26:13,560 Speaker 1: in Georgetown, Kentucky, Toyota's largest manufacturing plant in the world 508 00:26:13,560 --> 00:26:15,879 Speaker 1: and home of the best selling car in America, the 509 00:26:15,920 --> 00:26:19,639 Speaker 1: Camera for the last fifteen years running. Governor Bevan, is 510 00:26:19,640 --> 00:26:23,680 Speaker 1: President Trump good for business in Kentucky? I eat, certainly, 511 00:26:23,800 --> 00:26:26,679 Speaker 1: I think gonna be good for business in America period. 512 00:26:26,760 --> 00:26:30,760 Speaker 1: And the most American made car, surprising probably to many people, 513 00:26:31,720 --> 00:26:34,400 Speaker 1: is the Toyota Camera. Not the number one seller in America, 514 00:26:34,440 --> 00:26:37,000 Speaker 1: which it also happens to be, but the most American 515 00:26:37,080 --> 00:26:40,560 Speaker 1: made car in the world is the Toyota Camera, made 516 00:26:40,560 --> 00:26:43,960 Speaker 1: here in Kentucky. So I think an emphasis on manufacturing 517 00:26:43,960 --> 00:26:48,720 Speaker 1: and emphasis on engineering and selling highly sophisticated products is 518 00:26:48,760 --> 00:26:51,680 Speaker 1: good for America. It's good for Kentucky. Uh in Toyota 519 00:26:51,760 --> 00:26:54,760 Speaker 1: is the embodiment of that. But Governor, do you worry 520 00:26:54,800 --> 00:26:58,359 Speaker 1: about tariffs? Do you worry about trade wars? Even if 521 00:26:58,400 --> 00:27:02,560 Speaker 1: they're minimal, they would significantly hurt your economy. They have 522 00:27:02,640 --> 00:27:04,480 Speaker 1: the potential to do so. And this is the thing 523 00:27:04,520 --> 00:27:06,320 Speaker 1: that I take comfort and is this. And I've met 524 00:27:06,359 --> 00:27:08,680 Speaker 1: with the President on a number of occasions. He is 525 00:27:08,720 --> 00:27:11,480 Speaker 1: a businessman. He is a very intelligent businessman. He is 526 00:27:11,480 --> 00:27:16,240 Speaker 1: a man who understands global business. He understands global commerce, 527 00:27:16,560 --> 00:27:18,880 Speaker 1: and I would encourage people to look very much at 528 00:27:18,880 --> 00:27:21,760 Speaker 1: the things that he does, uh, and not to disregard 529 00:27:21,840 --> 00:27:25,119 Speaker 1: that which he says. But he is known for intentionally 530 00:27:25,520 --> 00:27:28,840 Speaker 1: creating dialogue through things that he writes or things that 531 00:27:28,920 --> 00:27:34,520 Speaker 1: he says to start discussion that ultimately results in better outcomes. 532 00:27:34,560 --> 00:27:36,920 Speaker 1: And I think that's healthy. I think it's very cathartic. 533 00:27:37,240 --> 00:27:38,439 Speaker 1: And I think at the end of the day, he 534 00:27:38,600 --> 00:27:42,560 Speaker 1: is very aware of the fact that so many products 535 00:27:42,600 --> 00:27:46,200 Speaker 1: made in this country that may be owned by foreign 536 00:27:46,520 --> 00:27:51,480 Speaker 1: headquartered companies are a significant contributor to our economy. Uh, 537 00:27:51,480 --> 00:27:55,439 Speaker 1: and he is not going to quickly upset that for 538 00:27:55,560 --> 00:28:00,800 Speaker 1: lack of information. Mr will James. I spoke to Keshisham 539 00:28:00,840 --> 00:28:04,040 Speaker 1: out of the chairman of Toyota Motors and DeVos, and 540 00:28:04,040 --> 00:28:06,120 Speaker 1: we had quite a lengthy conversation. This was a couple 541 00:28:06,119 --> 00:28:09,199 Speaker 1: of weeks after that famous tweet by President Trump. Do 542 00:28:09,240 --> 00:28:12,359 Speaker 1: you feel in any way intimidated actually by President Trump? 543 00:28:12,400 --> 00:28:17,760 Speaker 1: And are you concerned about tariffs impacting Toyota? Well, I 544 00:28:17,800 --> 00:28:21,520 Speaker 1: think I think there's certainly some some anxiety around the 545 00:28:22,160 --> 00:28:25,879 Speaker 1: concept of the border ejects adjustment tax. For example. You 546 00:28:25,880 --> 00:28:29,680 Speaker 1: know the early estimates suggest that a border adjustment tax 547 00:28:29,760 --> 00:28:33,760 Speaker 1: might add anywhere from two thousand dollars on the cost 548 00:28:33,800 --> 00:28:36,480 Speaker 1: of a vehicle, and for the most American made camera 549 00:28:36,560 --> 00:28:41,280 Speaker 1: with the highest American made content, we estimate maybe a 550 00:28:41,320 --> 00:28:44,400 Speaker 1: thousand dollars on top of that. So there's concern about 551 00:28:44,440 --> 00:28:47,600 Speaker 1: what that may do to the industry in terms of 552 00:28:47,640 --> 00:28:50,680 Speaker 1: sales when we're passing those costs on to the consumers. 553 00:28:50,760 --> 00:28:52,920 Speaker 1: We're talking with Will James, the president of Toyota Motor 554 00:28:52,960 --> 00:28:55,520 Speaker 1: in Kentucky Governor Matt Bevin. Will James, let me just 555 00:28:55,600 --> 00:28:58,480 Speaker 1: ask you about your message to the President about manufacturing. 556 00:28:58,480 --> 00:29:00,680 Speaker 1: We see this investment, we see that sort of high 557 00:29:00,680 --> 00:29:04,400 Speaker 1: tech manufacturing that Toyota is doing in Kentucky. Uh. The 558 00:29:04,440 --> 00:29:07,360 Speaker 1: President talks a lot about manufacturing. What what nuance would 559 00:29:07,400 --> 00:29:09,440 Speaker 1: you suggest he adds to that message in light of 560 00:29:09,480 --> 00:29:12,840 Speaker 1: how your company approaches manufacturing in the US. I'll just 561 00:29:12,920 --> 00:29:15,840 Speaker 1: generally say that I think, uh, you know, manufacturing is 562 00:29:16,120 --> 00:29:19,080 Speaker 1: moving at a very very good pace, a very rapid 563 00:29:19,120 --> 00:29:22,840 Speaker 1: pace towards the future. Everybody's thinking forward. We certainly are 564 00:29:22,840 --> 00:29:25,480 Speaker 1: trying to show that through the investments that we're making 565 00:29:25,480 --> 00:29:28,520 Speaker 1: here in this plant, this new t N g A 566 00:29:28,560 --> 00:29:32,600 Speaker 1: program that we have the opportunity to be the first 567 00:29:32,640 --> 00:29:36,400 Speaker 1: one to introduce is going to revolutionize this plant sextually, 568 00:29:36,440 --> 00:29:39,280 Speaker 1: going to you know, make modification from the from the 569 00:29:39,280 --> 00:29:43,000 Speaker 1: beginning and stamping all the way through to the assembly plant. 570 00:29:43,040 --> 00:29:46,800 Speaker 1: That's why the investment is so significant. But it streamlines 571 00:29:46,800 --> 00:29:51,440 Speaker 1: our operation, It modernizes our our equipment. It provides much 572 00:29:51,480 --> 00:29:54,520 Speaker 1: more flexibility for our plant to provide us to be 573 00:29:54,600 --> 00:29:57,720 Speaker 1: able to bring in even different products or or more 574 00:29:57,720 --> 00:30:00,840 Speaker 1: products into into this site. So I think that's what 575 00:30:00,960 --> 00:30:03,760 Speaker 1: manufacturing is all about. It's not just about building a 576 00:30:03,800 --> 00:30:07,880 Speaker 1: product today, but it's also planning for and preparing yourselves 577 00:30:08,280 --> 00:30:10,560 Speaker 1: to be able to build you know, even better products 578 00:30:10,600 --> 00:30:13,480 Speaker 1: going going forward. So we're pretty excited about it, and 579 00:30:13,520 --> 00:30:17,320 Speaker 1: we think we're barely aligned with what the President's thinking 580 00:30:17,360 --> 00:30:19,160 Speaker 1: in that regard. Coming to Bevin, want to get your 581 00:30:19,160 --> 00:30:21,160 Speaker 1: thoughts on that as well, sort of what what kind 582 00:30:21,160 --> 00:30:23,800 Speaker 1: of manufacturing you'd like to see in Kentucky and maybe 583 00:30:23,840 --> 00:30:25,960 Speaker 1: what you'd like the President to know about the manufacturing 584 00:30:26,000 --> 00:30:28,720 Speaker 1: environment in Kentucky, but also go a bit broader, if 585 00:30:28,600 --> 00:30:30,800 Speaker 1: if if I could, Will James talking about sort of 586 00:30:30,800 --> 00:30:33,560 Speaker 1: the forward lookingness of this decision when you hear the 587 00:30:33,560 --> 00:30:37,440 Speaker 1: President talking about coal, for instance, is the coal industry 588 00:30:37,440 --> 00:30:39,400 Speaker 1: in Kentucky gonna look the same as it is it 589 00:30:39,520 --> 00:30:41,920 Speaker 1: used to look in Kentucky. Well, I mean to the 590 00:30:42,000 --> 00:30:44,800 Speaker 1: latter point, of course, nothing looks the same in the 591 00:30:44,840 --> 00:30:47,680 Speaker 1: future as it does even currently, or that it did 592 00:30:47,720 --> 00:30:51,520 Speaker 1: in the past. Specifically to my vision for the future. 593 00:30:51,520 --> 00:30:53,960 Speaker 1: It's been said often enough that without vision, the people 594 00:30:53,960 --> 00:30:56,520 Speaker 1: will perish. I think the same is very true for 595 00:30:56,560 --> 00:31:00,280 Speaker 1: an economy, for a state, for a nation, And in Kentuck, Hockey, 596 00:31:00,280 --> 00:31:03,240 Speaker 1: it is my vision that we become the engineering and 597 00:31:03,280 --> 00:31:07,800 Speaker 1: manufacturing hub of North America that bar no other state 598 00:31:08,440 --> 00:31:11,480 Speaker 1: that there is literally nowhere else that people would think 599 00:31:11,520 --> 00:31:14,920 Speaker 1: of as the pre eminent place to engineer and manufacture 600 00:31:14,920 --> 00:31:17,680 Speaker 1: products of the highest degree of quality. Toyota is a 601 00:31:17,680 --> 00:31:21,040 Speaker 1: good example of that, and indeed Kentucky is the third 602 00:31:21,320 --> 00:31:25,040 Speaker 1: largest auto producer in America. We are the second largest 603 00:31:25,080 --> 00:31:29,680 Speaker 1: producer of advanced aviation related components. So already it exists, 604 00:31:29,720 --> 00:31:31,680 Speaker 1: and yet to a degree that much of the world 605 00:31:31,960 --> 00:31:34,560 Speaker 1: is not even yet aware of. And so my focus 606 00:31:34,600 --> 00:31:37,400 Speaker 1: as I look to the future is what can we 607 00:31:37,440 --> 00:31:41,160 Speaker 1: do from a workforce development standpoint, from an education standpoint, 608 00:31:41,360 --> 00:31:44,480 Speaker 1: from an attacks incentive standpoint, and by incentive, I mean 609 00:31:44,520 --> 00:31:47,920 Speaker 1: what kind of attacks environment, what kind of a legal environment, 610 00:31:47,960 --> 00:31:50,680 Speaker 1: What can we do to cut regulation? What can we 611 00:31:50,760 --> 00:31:54,920 Speaker 1: do overall to make Kentucky the most attractive place for 612 00:31:55,240 --> 00:31:58,720 Speaker 1: manufacturers to come and produce their products for the twenty 613 00:31:58,720 --> 00:32:01,040 Speaker 1: one century? The governor, do you do that? And again, 614 00:32:01,080 --> 00:32:04,120 Speaker 1: do you feel displaced by globalization or do you feel 615 00:32:04,120 --> 00:32:07,320 Speaker 1: displaced by innovation? And depending on the answer to that, 616 00:32:07,360 --> 00:32:11,320 Speaker 1: you have very different qualities in terms of manufacturing lines. 617 00:32:13,400 --> 00:32:16,840 Speaker 1: Now I'm encouraged by globalization, I'm incentivized by it. It's 618 00:32:16,880 --> 00:32:20,520 Speaker 1: not even remotely a threat. It's an incredible opportunity. Kentucky 619 00:32:20,640 --> 00:32:23,400 Speaker 1: is just one of fifty states. America is just one 620 00:32:23,440 --> 00:32:26,280 Speaker 1: of two and some odd countries. So the reality is 621 00:32:26,320 --> 00:32:29,280 Speaker 1: from here in Kentucky we can touch the world. We 622 00:32:29,360 --> 00:32:32,360 Speaker 1: have the world's logistical shipping hubs of UPS and d 623 00:32:32,560 --> 00:32:35,600 Speaker 1: h L and Amazon now building their world shipping hub here, 624 00:32:35,640 --> 00:32:38,680 Speaker 1: So we literally have the ability to send products made 625 00:32:38,680 --> 00:32:42,400 Speaker 1: in Kentucky to every single corner of the world overnight. 626 00:32:42,840 --> 00:32:47,800 Speaker 1: And so for us there is incredible upside opportunity. Things change. Yes, 627 00:32:48,000 --> 00:32:50,880 Speaker 1: you asked earlier about the coal industry, there are fewer 628 00:32:50,920 --> 00:32:54,080 Speaker 1: people working in the coal industry today than there were 629 00:32:54,520 --> 00:32:57,080 Speaker 1: even ten years ago. There's literally one third as many. 630 00:32:57,120 --> 00:32:59,680 Speaker 1: And while some of those jobs will come back, some 631 00:32:59,800 --> 00:33:03,120 Speaker 1: of the those jobs will morph into other opportunities. And 632 00:33:03,200 --> 00:33:07,560 Speaker 1: that is actually a good thing for Kentucky for listening, 633 00:33:07,640 --> 00:33:11,160 Speaker 1: looking to the future, not relying entirely on exactly what 634 00:33:11,200 --> 00:33:13,600 Speaker 1: we've been in the past. Governor, thank you so much, 635 00:33:13,640 --> 00:33:15,880 Speaker 1: the Kentucky Governor. There at Matt Bevan and the Toyota 636 00:33:15,920 --> 00:33:19,000 Speaker 1: Motor President Will James. And of course it's been in 637 00:33:19,040 --> 00:33:22,160 Speaker 1: dollar investment. President Trump has been tweeting about it quite 638 00:33:22,160 --> 00:33:23,960 Speaker 1: a lot, So I urge everyone to go and check 639 00:33:24,000 --> 00:33:35,640 Speaker 1: out Twitter, maybe one thing that keeps it alive. Thanks 640 00:33:35,640 --> 00:33:40,080 Speaker 1: for listening to the Bloomberg Surveillance podcast. Subscribe and listen 641 00:33:40,160 --> 00:33:45,479 Speaker 1: to interviews on iTunes, SoundCloud, or whichever podcast platform you prefer. 642 00:33:46,240 --> 00:33:49,120 Speaker 1: I'm out on Twitter at Tom Keene. David Gura is 643 00:33:49,240 --> 00:33:52,960 Speaker 1: at David Gura. Before the podcast, you can always catch 644 00:33:53,080 --> 00:34:09,040 Speaker 1: us worldwide. I'm Bloomberg Radio M brought you by Bank 645 00:34:09,080 --> 00:34:13,120 Speaker 1: of America Mary Lynch, dedicated to bringing our clients insights 646 00:34:13,120 --> 00:34:16,760 Speaker 1: and solutions to meet the challenges of a transforming world. 647 00:34:17,239 --> 00:34:20,960 Speaker 1: That's the power of global connections. Mary Lynch, Pierce, Fenner 648 00:34:21,040 --> 00:34:24,520 Speaker 1: and Smith Incorporated, Member s I p C