WEBVTT - Both Sides Benefit from Trade, Jessop Says 0:00:00.080 --> 0:00:12.960 Yeah, Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane 0:00:13.480 --> 0:00:17.560 Jai Lely. We bring you insight from the best in economics, finance, investment, 0:00:18.000 --> 0:00:23.520 and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, 0:00:23.600 --> 0:00:33.440 Bloomberg dot Com, and of course on the Bloomberg So, 0:00:33.520 --> 0:00:35.479 you know, we've been focusing so much with respect to 0:00:35.920 --> 0:00:38.840 trade talks between the US and China that we forgot 0:00:38.880 --> 0:00:41.200 about all the other places in the world, including in Europe, 0:00:41.240 --> 0:00:44.520 where evidently, uh, they are kind of not that please. 0:00:44.720 --> 0:00:47.120 You have them trying to negotiate their own trade deal 0:00:47.159 --> 0:00:49.440 with China. Uh. And then you also have a fact 0:00:49.440 --> 0:00:52.559 that President Trump now just throughout these potential tariffs on 0:00:52.680 --> 0:00:56.480 the of all autos that come into the US that 0:00:56.600 --> 0:00:59.480 are from outside countries. I want to bring Richard Bravo. 0:00:59.560 --> 0:01:01.960 He is a Blo and Broke news editor who has 0:01:01.960 --> 0:01:05.120 been tracking this. What's the mood there when it comes 0:01:05.200 --> 0:01:10.880 to trade discussions. Well, there's certainly a lot of confusion 0:01:11.000 --> 0:01:15.920 right now in Europe because nobody really knows what this 0:01:16.000 --> 0:01:19.320 means and what the likelihood of these tariffs actually being 0:01:19.360 --> 0:01:23.280 instituted are. Um. But as you know, the EU is 0:01:23.319 --> 0:01:28.160 currently in negotiations with Washington over steel tariffs, and these 0:01:28.200 --> 0:01:32.280 steel aluminium tariffs are set to go into effect starting 0:01:32.360 --> 0:01:36.520 June one unless they can make some kind of side agreement. 0:01:37.120 --> 0:01:41.560 So uh, this new set of possible tariffs on automobiles 0:01:41.720 --> 0:01:45.520 really does throw a wrench into those negotiations, which which 0:01:45.560 --> 0:01:50.440 are ongoing. So I think the overriding sentiment right now 0:01:50.560 --> 0:01:53.640 is confusion in Europe. So I'm trying to get a 0:01:53.720 --> 0:01:56.360 sense of how realistic people think it is that the 0:01:56.440 --> 0:01:59.320 US is going to impose tariffs on foreign cars coming 0:01:59.320 --> 0:02:01.440 into the US this point, do you have a sense 0:02:01.480 --> 0:02:05.400 of that, Um, it's it's hard to gauge at this point. 0:02:05.560 --> 0:02:08.760 But when the steel tariffs were imposed, those went into 0:02:08.800 --> 0:02:13.600 effect in March, but the initial threat was about a 0:02:13.680 --> 0:02:17.440 year ago. So even if these auto tariffs do you 0:02:17.520 --> 0:02:20.359 go into effect, it's not something that people expect would 0:02:20.400 --> 0:02:24.639 happen immediately. But I mean looking at at how the 0:02:24.720 --> 0:02:32.040 Trump administration engages in these deals, UM, many times they 0:02:32.160 --> 0:02:36.240 don't come about, but it obviously because Germany has so 0:02:36.280 --> 0:02:38.600 many auto exports, it is a threat that they do 0:02:38.720 --> 0:02:42.160 need to take seriously, irrespective of whether or not they 0:02:42.200 --> 0:02:45.600 think it will eventually come to pass. All bark, no 0:02:46.000 --> 0:02:49.240 bite that it has been the mantra. Richard Robert, thank 0:02:49.240 --> 0:02:50.760 you so much for joining us. Richard Bravo is a 0:02:50.760 --> 0:02:55.120 Bloomberg News editor coming to us from London. Volkswagen shares 0:02:55.200 --> 0:02:59.080 down almost three looking at BMW shares down also almost 0:02:59.080 --> 0:03:01.440 three percent. Jonathan knows they try to weigh what these 0:03:01.440 --> 0:03:05.120 potential tariffs could mean. You found some price action. Congratulations, 0:03:05.160 --> 0:03:08.120 because futures are doing absolutely inspect to start on any 0:03:08.160 --> 0:03:09.919 of this, I want to bring in Julian jess Up 0:03:09.919 --> 0:03:13.000 of the Institute of Economic Affairs, the chief economist joining 0:03:13.040 --> 0:03:15.600 us from London. I'm Julian. How do you view the 0:03:15.639 --> 0:03:18.680 events and the reporting around the trade issue, the threat 0:03:19.040 --> 0:03:22.000 of global auto terrorists from the United States? Is this 0:03:22.120 --> 0:03:25.080 just a negotiaring strategy? Well, I mean to be honest, 0:03:25.120 --> 0:03:27.280 I find it a bit depressing either way. You know, 0:03:27.280 --> 0:03:29.600 whether or not you think it's good or bad politics. 0:03:29.639 --> 0:03:33.240 It's certainly bad economics. This sort of protectionist measure is 0:03:33.320 --> 0:03:37.600 both unfair and inefficient. It's it's unfair because it forces 0:03:37.680 --> 0:03:41.000 US consumers to pay higher prices and have less choice 0:03:41.000 --> 0:03:44.040 than what otherwise have done. And it's inefficient because it's 0:03:44.080 --> 0:03:47.760 reducing the competitive pressure on domestic auto manufacturers in the 0:03:47.840 --> 0:03:50.520 US too, to improve the quality and price of the 0:03:50.560 --> 0:03:52.800 things they want to try and sell. So it may 0:03:52.880 --> 0:03:55.240 or may not score some short term political points, but 0:03:55.240 --> 0:03:56.960 but in the long run, I think it leads everybody 0:03:56.960 --> 0:03:59.600 worse off, just in terms of political points scoring. Chancellor 0:03:59.720 --> 0:04:03.200 Murka and Premier League saying they're committed to free and 0:04:03.360 --> 0:04:07.120 fair trade representing two countries with the biggest trade surpluses 0:04:07.520 --> 0:04:11.640 on the planet, Julian distincts of hypocrisy, doesn't it well, 0:04:11.760 --> 0:04:14.120 not really, I think as far as Germany is concerned, 0:04:14.120 --> 0:04:16.280 that the reason why they run such a huge current 0:04:16.279 --> 0:04:20.000 account surplus is essentially because they hold back domestic demand. 0:04:20.000 --> 0:04:23.279 It's not that they cheat somehow in international markets. China 0:04:23.320 --> 0:04:25.720 perhaps is a bit more guilty of that, the manipulation 0:04:25.760 --> 0:04:29.239 of the of the currency there and also sometimes dumping 0:04:29.440 --> 0:04:31.920 of things like steel on on on world markets. I 0:04:31.920 --> 0:04:33.840 think that is one of the few areas where some 0:04:33.920 --> 0:04:35.920 form of intervention and some sort of trade barrier might 0:04:35.960 --> 0:04:38.560 be justified. But I don't really see any of those 0:04:38.600 --> 0:04:41.720 arguments applying to the exports of cars from from Europe 0:04:41.760 --> 0:04:44.200 to the US, which is simply meeting a demand from 0:04:44.279 --> 0:04:47.920 US consumers themselves. So what I'm trying to figure out 0:04:48.000 --> 0:04:50.560 is from an economics perspective, you started out saying this 0:04:50.600 --> 0:04:53.240 is depressing regardless of whether it goes through. Do you 0:04:53.279 --> 0:04:56.679 expect that the increased trade tensions, regardless of what actually 0:04:56.720 --> 0:05:00.120 happens from them, will actually reduce economic growth in the 0:05:00.160 --> 0:05:03.160 world over the next couple of years. Um, well, I 0:05:03.720 --> 0:05:05.719 think they will, and we've got a preston for that. 0:05:05.800 --> 0:05:08.520 I mean, in the wake of the global recession in 0:05:08.560 --> 0:05:10.640 two thousands and two thousand and eight, lots of countries 0:05:10.680 --> 0:05:14.800 started to introduce new trade barriers that they didn't have before. Um. 0:05:14.839 --> 0:05:16.960 You know, it's much easier to argue for protectionism when 0:05:16.960 --> 0:05:20.200 your own economy is weak, and that I think actually 0:05:20.720 --> 0:05:24.000 prolonged the slump. It certainly led to more weakness in 0:05:24.080 --> 0:05:26.799 well trade than you you might have expected. So again 0:05:26.839 --> 0:05:29.240 there's there's this contrast. You score some sort of short 0:05:29.360 --> 0:05:33.479 term populist points. Maybe it's good politics, but economically it 0:05:33.560 --> 0:05:36.960 holds back growth. Certainly, if we're looking at the future 0:05:36.960 --> 0:05:39.760 of growth in over the next ten twenty thirty years, 0:05:39.920 --> 0:05:42.160 a lot of it is going to come from emerging markets, 0:05:42.640 --> 0:05:45.200 and China has been leading, but others will will start 0:05:45.200 --> 0:05:47.880 to catch up, in which case you certainly want more 0:05:47.960 --> 0:05:50.760 free trade. It might be you end up importing more 0:05:50.800 --> 0:05:53.360 from these countries yourself, but you've got more opportunities to 0:05:53.440 --> 0:05:56.799 exports too. Something has got lost over the last couple 0:05:56.800 --> 0:05:59.800 of weeks, Julian, the focus seems to be once again 0:06:00.480 --> 0:06:04.520 on the trade surplus or trade deficit with respective countries, 0:06:04.880 --> 0:06:07.719 when for a moment it was driven by Wilbur Ross, 0:06:07.720 --> 0:06:09.479 the Commerce Secretary, and it was about the theft of 0:06:09.480 --> 0:06:12.200 American genius, It was about intellectual property, it was about 0:06:12.200 --> 0:06:16.080 real issues about the future, not just headline grabbing stories 0:06:16.320 --> 0:06:20.240 about getting trade surpluses down two billion dollars. Has this 0:06:20.279 --> 0:06:23.120 administration sort of lost its way a little bit as 0:06:23.120 --> 0:06:25.800 to what it wants out of the Chinese? Well, I 0:06:25.839 --> 0:06:27.800 think this sort of illustration in particular has always been 0:06:27.839 --> 0:06:30.039 a bit muddled about what trade is about. So it 0:06:30.080 --> 0:06:32.440 sees a trade surplus as a as a good thing 0:06:32.480 --> 0:06:34.600 and a trade deficit as as a bad thing, whereas 0:06:34.800 --> 0:06:37.919 all those things really are is the result of decisions 0:06:37.960 --> 0:06:40.880 made by consumers and companies that you know they might 0:06:40.960 --> 0:06:44.480 choose to buy good from overseas, wether than one produced domestically, 0:06:44.520 --> 0:06:46.920 it's not not a zero sum game. You know, both 0:06:46.920 --> 0:06:49.160 sides benefit from trade, whether you're an import ural or 0:06:49.200 --> 0:06:53.039 the exporter. Um. What I'm also worried about is increasingly 0:06:53.040 --> 0:06:57.880 spurious reasons being used to justify intervention in markets. And 0:06:58.080 --> 0:07:01.840 a good example is the ctential security concerns over over 0:07:01.880 --> 0:07:04.600 intellectual property and so on. Sometimes that's valid, but it's 0:07:04.600 --> 0:07:07.440 not obvious to me it's valid enoughy single occasion. Another 0:07:07.600 --> 0:07:10.720 is food safety standards or animal welfare standards in the 0:07:10.720 --> 0:07:14.200 agricultural sector. I think people are finding excuses to intervene 0:07:14.240 --> 0:07:17.080 for very narrow protectionist interests rather than thinking about the 0:07:17.080 --> 0:07:21.320 broad economics and whether they're security issues, whether the auto 0:07:21.400 --> 0:07:24.520 situation is a national security issue and aid to the president. 0:07:24.560 --> 0:07:27.600 The headline just coming across the Bloomberg Julian, the trade 0:07:27.640 --> 0:07:31.360 deficits are a national security concern? Should they be? Julian, 0:07:31.800 --> 0:07:37.360 that's absolutely ludicrous, Um, you know exactly. I mean, you know, 0:07:37.400 --> 0:07:40.160 I run a run a deficit with various high street 0:07:40.200 --> 0:07:43.520 shops in the UK because you know, try as hard 0:07:43.560 --> 0:07:45.320 as I like, there's nothing that they want to buy 0:07:45.320 --> 0:07:47.080 from me, but they've got plenty of things I want 0:07:47.120 --> 0:07:49.240 to buy from them. I'm not worse off because I 0:07:49.320 --> 0:07:52.080 run a trade deficit with my local coffee shop. Coffee 0:07:52.080 --> 0:07:55.160 shops not looking to dominate the world though, is it, Julian, Well, 0:07:55.920 --> 0:07:58.640 some of the high street chains particularly are. But um, 0:07:59.240 --> 0:08:01.280 we have to we have to recognize that, you know, 0:08:01.360 --> 0:08:04.840 China is already the world's second biggest economy. In time 0:08:04.840 --> 0:08:07.760 it will become the become the biggest. We want free 0:08:07.760 --> 0:08:10.560 trade with them, of course, and if there are particular 0:08:10.640 --> 0:08:13.040 areas where they're cheating or we don't trust them fair enough, 0:08:13.080 --> 0:08:15.760 we might want to intervene. But but the idea that 0:08:15.800 --> 0:08:19.520 you can measure the strength or witness of relationship purely 0:08:19.560 --> 0:08:23.040 by the bilateral trade surplus or deficit Parde is economically illiterate, 0:08:23.440 --> 0:08:26.960 Julian jessup Sellagasari really feels. I think of the Institute 0:08:26.960 --> 0:08:29.840 of Economic Affairs, the chief economist joining us from London. 0:08:43.160 --> 0:08:45.880 I want to cross over to Allison Williams of Bloomberg Intelligence, 0:08:45.920 --> 0:08:50.160 the senior analyst for US banks here in New York. Allison, 0:08:50.200 --> 0:08:52.679 you've been following Deutsche Bank very closely, and what have 0:08:52.760 --> 0:08:56.280 we learned about the strategy this morning? So I think 0:08:56.360 --> 0:09:00.320 that I guess a little surprise in terms of you know, 0:09:00.520 --> 0:09:04.960 cuts to the equity business, cutting head count, um, you know, 0:09:05.080 --> 0:09:08.680 giving some new targets. The key for Joute bank is 0:09:08.679 --> 0:09:11.040 going to be, um you know, firstly meeting these targets. 0:09:11.080 --> 0:09:13.000 I think that's been the disappointment with some of the 0:09:13.040 --> 0:09:19.600 prior management and um you know, in my opinion, um 0:09:19.679 --> 0:09:22.280 and and Argent Bauwer who co covers Deutsche Bank with me. 0:09:22.760 --> 0:09:24.400 You know, our view is really just that it's the 0:09:24.440 --> 0:09:27.160 revenue side of things that are that's much more difficult. 0:09:27.240 --> 0:09:29.240 Keep in mind that um, you know, trading is a 0:09:29.240 --> 0:09:33.160 significant portion of the business. Uh, the equity has really 0:09:33.200 --> 0:09:35.560 been the the area that's trailed. We focus on fixed 0:09:35.600 --> 0:09:38.360 income mostly because it's more important to them, but equity 0:09:38.559 --> 0:09:41.160 is really where they've sort of not been able to 0:09:41.240 --> 0:09:44.120 regain market share. And then you know, looking at other businesses, 0:09:44.160 --> 0:09:47.960 the German retail business has not been one with a 0:09:48.000 --> 0:09:51.720 lot of opportunity, and as a management they've they've sold 0:09:51.720 --> 0:09:55.280 off some of that. Um So I think, you know, 0:09:55.440 --> 0:09:59.280 delivering on costs I think is something that Sewing has 0:09:59.320 --> 0:10:01.760 made it very there that he is going to deliver 0:10:01.880 --> 0:10:04.560 on that the whole second, Allison, because this is actually 0:10:04.600 --> 0:10:07.360 really important, you say, delivering on costs, in other words, 0:10:07.480 --> 0:10:10.400 job cuts. But I want to quote the head of 0:10:10.400 --> 0:10:14.040 Hermes Eos on Bloomberg Television saying, job cuts in itself 0:10:14.080 --> 0:10:17.680 are not a new strategy and they're also not value creating. 0:10:18.120 --> 0:10:20.200 So do they actually give a strategy or do they 0:10:20.240 --> 0:10:25.440 just look at cost savings? So from a true strategic perspective, 0:10:26.280 --> 0:10:28.720 UM the changes, and I think they're really more sort 0:10:28.760 --> 0:10:30.560 of at the at the margin. You know what what 0:10:30.600 --> 0:10:32.880 they had said with the last quarters earnings is that 0:10:33.480 --> 0:10:35.480 UM they are going to try to you know, reign 0:10:35.520 --> 0:10:38.160 in and just focus more on their core competencies, more 0:10:38.160 --> 0:10:40.840 of a focus on the European business, pull back from 0:10:40.880 --> 0:10:43.840 the US rates business about ten percent. And then you know, 0:10:44.520 --> 0:10:48.920 similarly within the global equities unit, UM again just trying 0:10:48.920 --> 0:10:51.240 to to cut down the business and focus more on 0:10:51.280 --> 0:10:56.040 the profitability aspect of that UM and so UM, you know, 0:10:56.080 --> 0:10:58.640 to your point, job cuts in and of itself, and 0:10:58.760 --> 0:11:00.520 it sort of doesn't matter this thought eyes of the cut. 0:11:00.600 --> 0:11:02.880 That matters where you're cutting in, how effective it's going 0:11:02.920 --> 0:11:05.520 to be. And you know, the tougher part of it is, 0:11:05.880 --> 0:11:07.360 you know you can come in and cut jobs, but 0:11:07.480 --> 0:11:10.240 can you do it in a way that you can 0:11:10.320 --> 0:11:13.360 kind of still keep your good people that you um. 0:11:13.480 --> 0:11:15.360 And that's not to say that everyone is not good, 0:11:15.400 --> 0:11:18.080 but to keep the people that are, you know, imperative 0:11:18.120 --> 0:11:20.160 to the strategy of the people that are in the 0:11:20.240 --> 0:11:22.880 units that they want to focus on. You know, you're 0:11:22.880 --> 0:11:25.200 gonna want to keep morale up and keep those people 0:11:25.760 --> 0:11:28.240 UM And can you do that successfully when you're in 0:11:28.640 --> 0:11:31.520 this more broadly cutting mode that creates a lot of 0:11:31.600 --> 0:11:35.520 uncertainty for everyone? Now, Allison also doing it quickly enough, 0:11:36.000 --> 0:11:37.720 we all know to keep going back to this. We 0:11:37.760 --> 0:11:41.760 all know some really talented individuals at Deutsche Bank who 0:11:41.760 --> 0:11:44.760 have stayed with the bank despite the last few years 0:11:44.760 --> 0:11:47.120 which have been terribly difficult for morale. But at the 0:11:47.160 --> 0:11:50.000 same time, Allison, this equity story has been hanging over 0:11:50.040 --> 0:11:52.120 this bank now for months and months and months. Could 0:11:52.160 --> 0:11:54.679 you imagine trying to work in the equities business over 0:11:54.720 --> 0:11:57.040 the last few months at Deutsche Bank and trying to 0:11:57.080 --> 0:11:59.920 gain any kind of business from anywhere at all when 0:12:00.080 --> 0:12:02.880 our reports that that unit is going to be demolished 0:12:02.920 --> 0:12:05.320 over the next couple of months. And I think that 0:12:05.440 --> 0:12:08.200 is what you've seen in the equities of revenue numbers 0:12:08.240 --> 0:12:10.880 and keep in mind, you know, the prime business was 0:12:10.960 --> 0:12:14.920 one of the businesses that that really suffered with some 0:12:15.000 --> 0:12:18.600 of the legal concerns. That's not surprising, you know, versus 0:12:18.640 --> 0:12:20.400 several years ago when all of the banks were weak 0:12:20.480 --> 0:12:22.560 during the crisis. Here you had someone that people were 0:12:22.600 --> 0:12:25.640 worried about the viability of the of the franchise and 0:12:25.679 --> 0:12:27.719 they had other people to pick from. And what we 0:12:27.800 --> 0:12:30.280 learned from the crisis is once people make those decisions, 0:12:30.320 --> 0:12:33.040 they generally tend not to go back. So even though 0:12:33.080 --> 0:12:36.480 Deutsche Mac may have retained those clients, UM, part of 0:12:36.520 --> 0:12:39.120 the wallet may have going to Peer. Peer's JP Morgan 0:12:39.160 --> 0:12:41.440 talked about some of the progress they've made an international 0:12:41.480 --> 0:12:44.360 prime over the years, and even though Deutscha said they've 0:12:44.360 --> 0:12:47.480 won back the clients, they haven't had, you know, the 0:12:47.480 --> 0:12:49.800 the upside and growth that some of the US piers had. 0:12:49.840 --> 0:12:52.959 So I think that gives UM you know, credence to 0:12:53.000 --> 0:12:56.440 the story that it has been tough to try to UM, 0:12:56.480 --> 0:12:58.680 you know, not only win back market share but sort 0:12:58.679 --> 0:13:02.000 of keep what you have UM you know, with with 0:13:02.000 --> 0:13:05.680 with a tough environment at one company, in general, environments 0:13:05.760 --> 0:13:09.760 challenging but stronger competitors. Alison Williams of Bloomberg in Stelligence. 0:13:09.800 --> 0:13:11.600 Great to cant shop with you on the story that 0:13:11.720 --> 0:13:30.000 keeps on giving. And the big question, you know, John, honestly, 0:13:30.160 --> 0:13:33.920 is are we watching the beginnings of an emerging markets crisis? 0:13:34.480 --> 0:13:37.000 It's a good question. And does the central bank in 0:13:37.080 --> 0:13:40.880 Turkey have any credibility with the market because quite clearly 0:13:40.880 --> 0:13:44.920 three basis points in an interest rate hike yesterday wasn't 0:13:45.040 --> 0:13:48.200 enough to to stem the bleeding of the Turkish lira. Yeah. Well, 0:13:48.320 --> 0:13:50.000 one person who says this is not a crisis is 0:13:50.120 --> 0:13:52.520 Jeff Dennis. Let's bring him in. He is the head 0:13:52.520 --> 0:13:55.600 of Global Emerging Markets at UBS Investment Bank. We love 0:13:55.640 --> 0:13:57.640 having him on. Jeff, thank you so much for being 0:13:57.679 --> 0:14:00.320 with us. You wrote in a report this is not 0:14:00.360 --> 0:14:03.240 a crisis. In another report, this is not a crisis. 0:14:03.760 --> 0:14:06.400 So you know, at a certain point you have an 0:14:06.400 --> 0:14:09.479 increasing number of voices saying this could be the precursor 0:14:09.520 --> 0:14:12.439 of something that we saw in Why do you think 0:14:12.440 --> 0:14:17.000 it is not? I think the comparisons of n are 0:14:17.160 --> 0:14:21.080 frankly ridiculous. Um what was Certainly there are countries like 0:14:21.120 --> 0:14:24.160 Turkey that do have very weak fundamentals that are being 0:14:24.160 --> 0:14:27.600 picked over by investors in a rising dollar environment we've 0:14:27.640 --> 0:14:29.880 got at the moment. But in the late nineties you 0:14:29.960 --> 0:14:32.360 had a number of Asian countries running six seven eight 0:14:32.360 --> 0:14:35.120 percent current account depth as they will have fixed exchange rates, 0:14:35.440 --> 0:14:38.360 they're running out of reserves um. It was just a 0:14:38.480 --> 0:14:41.160 much less table environment than we've got today. One of 0:14:41.160 --> 0:14:44.080 the advantages for emerging markets of a floating exchange rate regime, 0:14:44.120 --> 0:14:47.440 which of course is what everybody's started to adopt instigation 0:14:47.520 --> 0:14:50.440 crisis of the late nineties, it gives you a uh 0:14:50.720 --> 0:14:52.360 an ability to take some of the pressure at the 0:14:52.400 --> 0:14:55.000 pressure cooker by actually allowing the currency to go down. 0:14:55.520 --> 0:14:57.360 I still think you have to look at Turkey as 0:14:57.400 --> 0:15:00.160 a little bit of a one off in this environment. Think, 0:15:00.160 --> 0:15:03.200 what's very interesting about the situation of this warnings, Although 0:15:03.640 --> 0:15:05.760 there's still a lot of doubts about what's hapving in Turkey, 0:15:05.800 --> 0:15:07.520 some of the other em currencies that have been out 0:15:07.560 --> 0:15:10.040 of pressure recently, like the random like the pasto in 0:15:10.120 --> 0:15:13.240 Mexico and the Brazilian rayal are well off their loads. 0:15:13.280 --> 0:15:17.000 And so this still feels to me like an individual 0:15:17.080 --> 0:15:20.120 country problem, not a general emerging market problem. Jeff. To 0:15:20.160 --> 0:15:21.760 that point, the price sanction of the last couple of 0:15:21.800 --> 0:15:24.600 days to suggest that Turkey is decoupled from the wider 0:15:24.960 --> 0:15:26.880 em story. So let's spend a little bit of time 0:15:27.000 --> 0:15:30.880 talking about Turkey an emergency three hundred basis point hike yesterday. 0:15:30.920 --> 0:15:32.680 But the events and how they rolled out and how 0:15:32.680 --> 0:15:35.480 they played out were really interesting. First we find out 0:15:35.600 --> 0:15:38.120 there's a Central Bank meeting, an emergency one because we 0:15:38.120 --> 0:15:40.680 weren't expecting one until the first week of June. And 0:15:40.760 --> 0:15:44.120 then the Deputy Prime Minister of Turkey goes on Twitter 0:15:44.520 --> 0:15:47.560 and says it's time to regain the confidence of investors. 0:15:48.160 --> 0:15:50.360 Was that the government given the central bank the green 0:15:50.440 --> 0:15:56.080 light yesterday, Jeff Um, I suspect that is the case. 0:15:56.320 --> 0:15:58.400 It was the government giving the Central bout of the 0:15:58.400 --> 0:16:01.160 green lights, and and if that was a kind of 0:16:01.200 --> 0:16:03.920 oblique signal to do that, that that's kind of helpful 0:16:03.960 --> 0:16:07.480 because of course, as you imply by your question there, Jonathan, 0:16:07.520 --> 0:16:10.640 And actually the backdrop to all of this is the 0:16:10.720 --> 0:16:14.200 clear desire of present eard One to get involved directly 0:16:14.200 --> 0:16:16.800 in monetary policy in Turkey, which is obviously what he 0:16:16.880 --> 0:16:19.120 said in the statements a few days ago, which is 0:16:19.160 --> 0:16:22.240 what sets the thing going. So I think, to be honest, 0:16:22.280 --> 0:16:25.080 the speed with which, even though a great rise was 0:16:25.160 --> 0:16:29.080 definitely needed, and the speeder which it came through was 0:16:29.280 --> 0:16:32.680 somewhat surprising and perhaps does indicate that the government, so 0:16:32.800 --> 0:16:35.320 to speak, might have given them a you know, a 0:16:35.400 --> 0:16:38.360 behind the hand if you like green light. Um. I 0:16:38.360 --> 0:16:41.640 think the point we make here is that this is 0:16:41.640 --> 0:16:44.320 probably the minimum they had to do. It's pushed real 0:16:44.400 --> 0:16:48.760 interest rates in Turkey up to about five basis points plus. 0:16:49.160 --> 0:16:52.440 There's still concerns about things such as the high price 0:16:52.480 --> 0:16:55.400 of oil, a very wide currenting count death that. As 0:16:55.440 --> 0:16:57.880 I've said, so it remains to be seen whether this 0:16:57.960 --> 0:16:59.960 will be enough, and certainly we're not changing our record 0:17:00.000 --> 0:17:02.920 inndations on Tokey were underweight in equities, we don't like 0:17:03.000 --> 0:17:05.640 the currency generally, so it's a wait to see here. 0:17:05.640 --> 0:17:08.280 But this probably did move through a bit quicker than 0:17:08.320 --> 0:17:12.080 we'd anticipated. Yeah, So the answer, Jonathan Varrow is that 0:17:12.280 --> 0:17:14.960 Jeff Dennis overt Eubs is not sticking his hand in 0:17:15.040 --> 0:17:20.640 this blender. It's like trade in a blend. It's just, God, 0:17:20.760 --> 0:17:22.639 what a brutal image, Jeff. I do want to get 0:17:22.680 --> 0:17:24.840 your sense that you're saying that that Turkey is an 0:17:24.840 --> 0:17:27.480 idiosyncratic story. We have a bunch of idiosyncratic stories. We 0:17:27.520 --> 0:17:30.160 also have Argentina. We also have elections that are coming 0:17:30.240 --> 0:17:33.320 up in Mexico. We have some issues in Southeast Asia. 0:17:33.359 --> 0:17:36.800 I'm just wondering, at what point do these idiosyncratic stories 0:17:36.840 --> 0:17:38.920 add up to something more, especially given the fact that 0:17:38.920 --> 0:17:41.560 we've seen so much money go into emerging markets through 0:17:41.680 --> 0:17:46.480 exchange traded funds, through index strategies that are indiscriminate. The 0:17:46.560 --> 0:17:48.480 point we make about all of this is, this is 0:17:48.520 --> 0:17:50.720 all of the margin being driven by the rebound of 0:17:50.760 --> 0:17:53.919 the dollar. The dollars gone against the euro to one 0:17:54.000 --> 0:17:57.240 seventeen over the last several months. That always pulls money 0:17:57.240 --> 0:17:59.560 out of them and pushes currencies under pressure. And of 0:17:59.600 --> 0:18:01.920 course that has done as as they poked holes in 0:18:02.000 --> 0:18:05.320 some of the weaker stories. Now, Um, the house view 0:18:05.400 --> 0:18:07.720 here is the dollar goes back down again later this 0:18:07.840 --> 0:18:11.360 year towards the one thirty level. Obviously, the talent situation 0:18:11.440 --> 0:18:12.840 is a bit of a risk to that view, but 0:18:13.280 --> 0:18:16.320 that's what the house view is here. Now. If that's wrong, um, 0:18:16.400 --> 0:18:18.880 and the dollar continues to rally, well, these things will 0:18:19.000 --> 0:18:21.840 become a more generalized crisis. I think the point we're 0:18:21.880 --> 0:18:24.320 trying to make here is on our long term view 0:18:24.400 --> 0:18:26.600 on the U. S. Dollar. There's not enough going wrong 0:18:26.680 --> 0:18:29.720 in the emerging markets overall. Even though you've got politics 0:18:29.760 --> 0:18:32.919 in Brazil and politics in Mexico and Argentina has obviously 0:18:33.000 --> 0:18:35.600 been a concern, there's not enough negative going on in 0:18:35.640 --> 0:18:38.879 them to cause a major crisis here now, especially if 0:18:38.920 --> 0:18:40.800 the dollar goes back down again. Now, your last point 0:18:40.920 --> 0:18:43.160 is very important. We've seen massive amounts of money coming 0:18:43.240 --> 0:18:45.480 to the M fifty four billion dollars into e M 0:18:45.520 --> 0:18:47.920 equity funds so far this year, and very little that 0:18:48.240 --> 0:18:49.920 seems to have gone out so far. If some of 0:18:50.000 --> 0:18:51.960 that does start to come out, that will be a 0:18:52.000 --> 0:18:53.879 little bit of a negative. But we see this as 0:18:53.920 --> 0:18:57.560 a temporary decline in the M driven by a stronger dollar, 0:18:57.800 --> 0:19:00.240 which ultimately we think we'll roll over and we'll give 0:19:00.320 --> 0:19:03.200 us a better environment for emergency markets later this year. Jeff, 0:19:03.240 --> 0:19:05.479 It's almost the e M equivalent of a stock pickers 0:19:05.560 --> 0:19:08.840 market at the moment. Pick your spots, take your opportunities, 0:19:08.880 --> 0:19:11.040 and make sure you've got a long time arising. If 0:19:11.080 --> 0:19:12.879 you apply that to we am right now, Jeff, what 0:19:12.880 --> 0:19:16.600 are you looking at? Well? We um we as actually 0:19:16.640 --> 0:19:18.760 not a lot of markets. Why major markets we have 0:19:18.800 --> 0:19:21.080 got big overweights, and we like Russia, we liked we 0:19:21.200 --> 0:19:23.480 like career, where we think the earnings numbers are going 0:19:23.520 --> 0:19:26.720 to start to improve again. We actually in terms of 0:19:27.040 --> 0:19:30.240 markets that have been under pressure recently, we're taking h well, 0:19:30.400 --> 0:19:33.080 you know, we haven't overweight Indonesia, so we'd buy that back. 0:19:33.400 --> 0:19:35.760 Those are three markets that I think are worth looking at. 0:19:36.080 --> 0:19:41.120 Selective exposure in Central Europe, um more neutral in countries 0:19:41.160 --> 0:19:43.240 like India and China. But those some of the markets 0:19:43.280 --> 0:19:46.399 that we're looking at um um in this environment. But 0:19:46.440 --> 0:19:48.440 our big call here is the dollars going back down 0:19:48.480 --> 0:19:50.720 again eventually, and that's going to bring these sentiment back. 0:19:50.760 --> 0:19:53.359 I think for m Jeff, what would have to happen 0:19:53.480 --> 0:19:55.720 to make you rethink your thesis that this is not 0:19:56.080 --> 0:19:59.399 a crisis and that everything is just fine. Two things. 0:19:59.600 --> 0:20:04.040 First all, an ongoing dollar rally, dollar continues to move 0:20:04.119 --> 0:20:06.280 up to say, US inflation goes up more than we think, 0:20:06.320 --> 0:20:08.480 and the Fed's got to do more. Our house few 0:20:08.560 --> 0:20:10.480 here for examples, the US and placing pressure is going 0:20:10.560 --> 0:20:11.960 to fade a little bit in the second half of 0:20:11.960 --> 0:20:14.200 the year, but if inflation continues to rise, the Fed's 0:20:14.240 --> 0:20:15.960 got to get more aggressive. Bond yours get up a 0:20:16.000 --> 0:20:18.960 lot more, pushing the dollar higher. That would obviously mean 0:20:19.080 --> 0:20:22.760 more outflows from me. From a fundamental point of view, 0:20:22.880 --> 0:20:25.879 what I'm watching above all is the earnings momentum now, 0:20:25.960 --> 0:20:28.800 corporate earnings growth, and e M last year was extremely strong. 0:20:28.920 --> 0:20:33.679 North of that, the forecast are running around fifteen this year. 0:20:33.760 --> 0:20:36.120 Our own numbers a little higher than that. If those 0:20:36.160 --> 0:20:39.400 earnings numbers start to come under pressure, that would indicate 0:20:39.560 --> 0:20:42.280 that the pressure we've had on currencies recently, on the 0:20:42.320 --> 0:20:45.560 markets generally, is starting to contaminate the corporate story, and 0:20:45.680 --> 0:20:47.560 that would make me a little bit more cautious. So 0:20:47.920 --> 0:20:50.000 from a fundamental point of view, would definitely look at 0:20:50.040 --> 0:20:52.520 the earnings numbers as well as of course monitoring the 0:20:52.680 --> 0:20:55.280 U S currency. Just to wrap things up, just finally, Jeff, 0:20:55.680 --> 0:20:57.800 what's the response of the Federal Reserve if e M 0:20:57.880 --> 0:20:59.440 does fall out of bed? Do we have a federal 0:20:59.480 --> 0:21:02.640