1 00:00:00,080 --> 00:00:12,960 Speaker 1: Yeah, welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene 2 00:00:13,480 --> 00:00:17,560 Speaker 1: Jay Leye. We bring you insight from the best in economics, finance, investment, 3 00:00:18,000 --> 00:00:23,520 Speaker 1: and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, 4 00:00:23,600 --> 00:00:28,120 Speaker 1: Bloomberg dot Com, and of course on the Bloomberg. Yeah. 5 00:00:33,720 --> 00:00:34,880 Speaker 1: What do you want to start with? You want to 6 00:00:34,880 --> 00:00:37,200 Speaker 1: start with Bank of England and their growth forecast cards? 7 00:00:37,200 --> 00:00:38,360 Speaker 1: You want to go to banks? What do you want 8 00:00:38,360 --> 00:00:39,680 Speaker 1: to do? We can start with a Bank of England 9 00:00:39,680 --> 00:00:43,400 Speaker 1: because we have Adam Posts on the phone. Wonder fetus 10 00:00:43,440 --> 00:00:45,600 Speaker 1: an Institute president. Did you bring us in? And does 11 00:00:45,640 --> 00:00:48,320 Speaker 1: growth forecast? On the phone? The Bank of England leaving 12 00:00:48,320 --> 00:00:51,959 Speaker 1: interest rates unchanged at zero point seven five, leaving its 13 00:00:52,000 --> 00:00:55,320 Speaker 1: asset purchase program unchanged as well. I'll get you some 14 00:00:55,360 --> 00:00:57,160 Speaker 1: of the details on the forecast in just a moment. 15 00:00:57,200 --> 00:00:59,760 Speaker 1: I just want to get to Adam Pit, Adam Post 16 00:00:59,840 --> 00:01:01,840 Speaker 1: and on what is happening with the Bank of England? 17 00:01:01,880 --> 00:01:05,000 Speaker 1: How on earth they're meant to respond to the global 18 00:01:05,040 --> 00:01:06,960 Speaker 1: slowdown at the same time there is a Brexit to 19 00:01:07,000 --> 00:01:11,000 Speaker 1: play taking place in the background. No, they can't, they can't. Jonathan, 20 00:01:11,280 --> 00:01:13,800 Speaker 1: By the way, I'm in the Bloomberg Radio Studio. But um, 21 00:01:14,080 --> 00:01:18,080 Speaker 1: the the Bank of England at some point has to 22 00:01:18,200 --> 00:01:21,959 Speaker 1: just say a we we have to where we go 23 00:01:22,120 --> 00:01:26,080 Speaker 1: depends on how Bregg works out and be a real 24 00:01:26,200 --> 00:01:28,679 Speaker 1: shock to the economy. And that's what this is. Not 25 00:01:28,800 --> 00:01:32,800 Speaker 1: a monetary inflation shock is something we can't necessarily offset. 26 00:01:33,400 --> 00:01:36,200 Speaker 1: So with then this is how does the institution react? 27 00:01:36,240 --> 00:01:38,720 Speaker 1: If we understand how imposing in you and you know, 28 00:01:38,760 --> 00:01:40,920 Speaker 1: I think of John Riding and a saw Danny, David 29 00:01:40,920 --> 00:01:43,319 Speaker 1: blanche Flower and select few that really have a working 30 00:01:43,400 --> 00:01:47,000 Speaker 1: knowledge of this, How does Bank of England react differently 31 00:01:47,520 --> 00:01:51,880 Speaker 1: than so many of our American listeners perception of the FED. Well, 32 00:01:51,920 --> 00:01:55,280 Speaker 1: it's partly that it's a different institution. As you said, Tom, 33 00:01:55,320 --> 00:01:58,920 Speaker 1: I mean the FED. There's just so much more freighting 34 00:01:58,960 --> 00:02:02,360 Speaker 1: around the chair. As important as Governor Crrney is, the 35 00:02:02,480 --> 00:02:04,680 Speaker 1: MPC at the Bank of England has a lot more independent, 36 00:02:04,760 --> 00:02:08,359 Speaker 1: a lot more voice than theform C does in members 37 00:02:08,440 --> 00:02:11,040 Speaker 1: do in the US. And so you have the fact 38 00:02:11,120 --> 00:02:14,679 Speaker 1: that when they say nine zero unanimity at the Bank 39 00:02:14,680 --> 00:02:17,120 Speaker 1: of England, it actually carries more weight. That's one thing 40 00:02:17,240 --> 00:02:19,560 Speaker 1: it certainly, Empha. Let's go through some of the new 41 00:02:19,600 --> 00:02:22,960 Speaker 1: shall we said. The Bank of England cuttingp forecast at 42 00:02:23,040 --> 00:02:27,880 Speaker 1: one point two versus the one point seven percent forecast previously, 43 00:02:28,200 --> 00:02:30,639 Speaker 1: seeing inflation at two point one percent on a two 44 00:02:30,720 --> 00:02:34,760 Speaker 1: year three year horizon, just slightly above the target there, 45 00:02:34,800 --> 00:02:37,520 Speaker 1: but the growth forecast being cut. The Bank of England 46 00:02:37,639 --> 00:02:40,200 Speaker 1: essentially saying that the damage being done by the Brexit 47 00:02:40,280 --> 00:02:43,440 Speaker 1: situation has increased. Adam, you put it all together, it's 48 00:02:43,440 --> 00:02:45,840 Speaker 1: a really difficult position for the Bank of England. The 49 00:02:45,960 --> 00:02:48,320 Speaker 1: caution that a lot of people are having at the moment. 50 00:02:48,360 --> 00:02:50,840 Speaker 1: It's Governor Carney essentially saying we don't know what the 51 00:02:50,880 --> 00:02:53,480 Speaker 1: next move would be in the event of a no 52 00:02:53,639 --> 00:02:56,880 Speaker 1: deal hard Brexit. Would it be a hike to control 53 00:02:56,960 --> 00:02:59,640 Speaker 1: prices or would it be a cut to support output? Adam, 54 00:02:59,680 --> 00:03:02,679 Speaker 1: can we We'll just assume they would just support output. No, 55 00:03:02,840 --> 00:03:05,760 Speaker 1: look for and look through the price pressure. No, Jonathan, 56 00:03:05,840 --> 00:03:07,919 Speaker 1: we can't. I mean I've predicted this two and a 57 00:03:07,960 --> 00:03:09,720 Speaker 1: half years ago that this is where the Bank of 58 00:03:09,720 --> 00:03:12,400 Speaker 1: England would end up if we got to Brexit, and 59 00:03:12,600 --> 00:03:16,799 Speaker 1: Governor Carne and the NPC are being totally responsible. Basically, 60 00:03:17,040 --> 00:03:21,080 Speaker 1: if if if you thought that the hard Brexit was 61 00:03:21,120 --> 00:03:23,040 Speaker 1: going to be a one time shock, like when the 62 00:03:23,160 --> 00:03:26,720 Speaker 1: UK dropped out of the e r M. You know, 63 00:03:26,800 --> 00:03:29,320 Speaker 1: then the bank can say, okay, we're gonna look through us. 64 00:03:29,720 --> 00:03:33,000 Speaker 1: But if you think it is a regime shift, which 65 00:03:33,080 --> 00:03:36,160 Speaker 1: I think it must be considered to be, and a 66 00:03:36,280 --> 00:03:40,080 Speaker 1: representation of how divided and dysfunctional British politics are, then 67 00:03:40,120 --> 00:03:43,560 Speaker 1: there's fundamental confidence doubts about the pound and about the 68 00:03:43,640 --> 00:03:45,680 Speaker 1: viability and so therefore you've got to be prepared to 69 00:03:45,760 --> 00:03:47,320 Speaker 1: raise is that who I was going to go to 70 00:03:47,360 --> 00:03:50,360 Speaker 1: that Adam posing knowing you wanted to on pounds sterling. 71 00:03:50,400 --> 00:03:54,440 Speaker 1: The historic local at one off of Brexit is the 72 00:03:54,480 --> 00:03:59,160 Speaker 1: wealth destruction of pounds sterling. The only thing that will 73 00:03:59,160 --> 00:04:02,120 Speaker 1: get the elites to wake up to getting this debate solved. 74 00:04:03,280 --> 00:04:06,480 Speaker 1: I'm not sure I I Tom, I think we've got 75 00:04:06,480 --> 00:04:09,640 Speaker 1: a real as tight as in little England there is 76 00:04:09,720 --> 00:04:13,600 Speaker 1: between the city and the political elites. It's now out 77 00:04:13,640 --> 00:04:16,159 Speaker 1: of out of the so called elites hands. It's in 78 00:04:16,200 --> 00:04:20,400 Speaker 1: the hands of Theresa May and her backbenchers and uh 79 00:04:20,560 --> 00:04:25,560 Speaker 1: Jeremy Corbyn and the Unite Radical Union and those they're determining, 80 00:04:25,640 --> 00:04:28,840 Speaker 1: and both of them ideologically and their their clack are 81 00:04:28,880 --> 00:04:33,200 Speaker 1: committed to ending free movement, meaning movement of other people 82 00:04:33,200 --> 00:04:35,040 Speaker 1: in Europe, in and out of the UK, and UK 83 00:04:35,200 --> 00:04:37,080 Speaker 1: people in and out of Europe. So Adam, we've got 84 00:04:37,160 --> 00:04:39,080 Speaker 1: much more to talk about than just Brexit. The European 85 00:04:39,080 --> 00:04:42,680 Speaker 1: Commission out about an hour or so ago, slashing forecast 86 00:04:42,760 --> 00:04:46,040 Speaker 1: for Euros own growth and slashing forecast feridity as well. 87 00:04:46,080 --> 00:04:49,120 Speaker 1: The Italian want much more dramatic from one point forecast 88 00:04:49,160 --> 00:04:53,280 Speaker 1: in November slash down to just zero point two future. 89 00:04:53,320 --> 00:04:54,680 Speaker 1: The softer off the back of this here in the 90 00:04:54,760 --> 00:04:56,719 Speaker 1: United States, just the mood music is a whole lot 91 00:04:56,760 --> 00:04:59,280 Speaker 1: more dramatic, I think this morning. And the central bank 92 00:04:59,320 --> 00:05:02,000 Speaker 1: response uncertain, not just the Bank of England down, and 93 00:05:02,040 --> 00:05:04,359 Speaker 1: we've had the a B I, the Reserve Bank of 94 00:05:04,360 --> 00:05:06,920 Speaker 1: India with a surprise, right Cup. We had a Stridia 95 00:05:06,960 --> 00:05:09,880 Speaker 1: back away the other day, and we still struggle to 96 00:05:09,880 --> 00:05:11,720 Speaker 1: get our hands around how the CP is going to 97 00:05:11,800 --> 00:05:15,880 Speaker 1: respond to a slower, gloomy around look for the Euros one, 98 00:05:15,920 --> 00:05:19,240 Speaker 1: what's your base case, Adam? My base case is that 99 00:05:19,320 --> 00:05:22,600 Speaker 1: everybody goes on hold um that the ECB will be 100 00:05:22,720 --> 00:05:26,120 Speaker 1: this uncertainty whether they raise once or mess with the 101 00:05:26,320 --> 00:05:30,360 Speaker 1: deposit rate, because there's this Bruno Meyer backwards effect on banks, 102 00:05:30,920 --> 00:05:33,760 Speaker 1: but they're basically going to be on hold. I would 103 00:05:33,800 --> 00:05:36,040 Speaker 1: discount the Reserve Bank of India. I mean, this is 104 00:05:36,080 --> 00:05:38,560 Speaker 1: why they pushed out the previous two governors was something 105 00:05:38,680 --> 00:05:40,800 Speaker 1: they could have a governor who would be soft on 106 00:05:40,839 --> 00:05:44,520 Speaker 1: bank reform and soft on on inflation ahead of the election. 107 00:05:44,680 --> 00:05:48,120 Speaker 1: So that that doesn't represent anything. But the underlying theme, 108 00:05:48,160 --> 00:05:51,760 Speaker 1: which I talked about Tom on TV surveillance is you 109 00:05:51,800 --> 00:05:54,719 Speaker 1: know Larry Summer's secure stagnation, that we've got a very 110 00:05:54,839 --> 00:05:58,479 Speaker 1: low real rate of interest, very low investment demand around 111 00:05:58,480 --> 00:06:01,880 Speaker 1: the world. If central bank try to raise rates, terrible 112 00:06:01,960 --> 00:06:04,440 Speaker 1: things happen. I mean, I just John, I can't I 113 00:06:04,480 --> 00:06:06,560 Speaker 1: want to excuse in one more question, John Farrell if 114 00:06:06,600 --> 00:06:09,400 Speaker 1: I could with dr Posing, But John, I can't convey 115 00:06:09,520 --> 00:06:11,800 Speaker 1: the shift in the last ten weeks. And I want 116 00:06:11,839 --> 00:06:14,600 Speaker 1: to say once again, folks, John and I are having 117 00:06:14,600 --> 00:06:17,200 Speaker 1: a beverage of our choice pre Christmas. And John, you 118 00:06:17,320 --> 00:06:19,760 Speaker 1: said that here doesn't start till much first, and you 119 00:06:19,880 --> 00:06:22,960 Speaker 1: look like a genius right now. A lot of happy 120 00:06:23,040 --> 00:06:27,360 Speaker 1: till three January of growth action. People were saying Larry 121 00:06:27,400 --> 00:06:30,239 Speaker 1: Summers was wrong, and well here we are, Dr POS 122 00:06:30,279 --> 00:06:33,000 Speaker 1: and I want you to fold in secular stagnation with 123 00:06:33,160 --> 00:06:36,400 Speaker 1: Greg its brilliant column today in the Wall Street Journal 124 00:06:36,839 --> 00:06:42,960 Speaker 1: defining true socialism versus American redistributive policy, which has taken 125 00:06:43,000 --> 00:06:46,279 Speaker 1: as socialism but is not. Are we any we near 126 00:06:46,279 --> 00:06:50,159 Speaker 1: a socialism that the Peterson Institute can study in America? 127 00:06:50,760 --> 00:06:53,280 Speaker 1: Now we're not. I mean, it doesn't happen here. What 128 00:06:53,440 --> 00:06:57,080 Speaker 1: we do have, as some people joking we call socialism 129 00:06:57,160 --> 00:06:59,919 Speaker 1: for rich people or socialism for special interests. We've got 130 00:07:00,000 --> 00:07:03,239 Speaker 1: all kinds of tax breaks and subsidies for established interest 131 00:07:03,320 --> 00:07:06,840 Speaker 1: groups and not going to the working poor. So you know, 132 00:07:07,040 --> 00:07:13,040 Speaker 1: socialism really nowadays means social democracy means Western Europe. Frankly, 133 00:07:13,120 --> 00:07:15,800 Speaker 1: and as you've said, Tom, and many people have observed, 134 00:07:16,160 --> 00:07:18,880 Speaker 1: you know, the the the boogeyman, as Greg it points out, 135 00:07:18,880 --> 00:07:21,320 Speaker 1: can be Venezuela, it can be Sweden, you know, and 136 00:07:21,480 --> 00:07:25,160 Speaker 1: it's socialized medicine. In these terms don't do any work. 137 00:07:25,320 --> 00:07:28,400 Speaker 1: As we say in the in the intellectual business, what 138 00:07:28,560 --> 00:07:31,560 Speaker 1: you really need is a readjustment that the US is 139 00:07:31,680 --> 00:07:34,440 Speaker 1: so far off the track of every other rich democracy 140 00:07:34,480 --> 00:07:37,040 Speaker 1: in terms of the security provides its citizens, in terms 141 00:07:37,080 --> 00:07:39,560 Speaker 1: of the revenue it gets for its government, in terms 142 00:07:39,600 --> 00:07:42,440 Speaker 1: of the public goods it provides US has to get 143 00:07:42,480 --> 00:07:45,280 Speaker 1: back on track for that. Whether as Greg it talks 144 00:07:45,280 --> 00:07:47,520 Speaker 1: about we're going to make it a backyard taunt or 145 00:07:47,520 --> 00:07:50,920 Speaker 1: whether we're gonna make it through demand, I don't know. 146 00:07:51,520 --> 00:07:55,280 Speaker 1: But ultimately this is not pitchforks in the streets. Uh. 147 00:07:55,440 --> 00:07:57,440 Speaker 1: If there were pitchforks in the streets, they should have 148 00:07:57,480 --> 00:08:00,200 Speaker 1: come out a few weeks ago when Trump official, we're 149 00:08:00,240 --> 00:08:04,880 Speaker 1: laughing at the load US workers, government workers, the new 150 00:08:05,160 --> 00:08:08,360 Speaker 1: Thank you Dr Poston, the news flow John has just extraordinary. Adam, 151 00:08:08,400 --> 00:08:27,560 Speaker 1: Thank you Adam posting there the Peterson Institute President the 152 00:08:27,720 --> 00:08:30,480 Speaker 1: Fog of Brexit and on the fog of Brexit, Danny 153 00:08:30,520 --> 00:08:33,120 Speaker 1: Blanche Flower, formerly of the MPC at the Bank of 154 00:08:33,160 --> 00:08:37,120 Speaker 1: England and now at Dartmouth College professor, always appreciate your time, 155 00:08:37,280 --> 00:08:39,800 Speaker 1: your thoughts on the fog of Brexit. I keep saying 156 00:08:39,840 --> 00:08:41,520 Speaker 1: the fog of Brexit because he used the word about 157 00:08:41,520 --> 00:08:44,160 Speaker 1: fifty times. Danny, um your thoughts on what it all 158 00:08:44,240 --> 00:08:51,320 Speaker 1: means well, I think listening to Cannie at the press comments, 159 00:08:51,360 --> 00:08:55,000 Speaker 1: he's clearly trying to calm nerves. I mean he talked 160 00:08:55,040 --> 00:08:57,400 Speaker 1: about fog, I mean the worry in the fog is 161 00:08:57,480 --> 00:09:01,280 Speaker 1: that ships hit things, and it's obviously kind of the 162 00:09:01,360 --> 00:09:04,160 Speaker 1: worry and this is a wait and see calm nerves 163 00:09:04,960 --> 00:09:09,160 Speaker 1: worried about um that that there have been implications and brakes, 164 00:09:09,200 --> 00:09:11,719 Speaker 1: and already talked about the fact of the investment was 165 00:09:11,840 --> 00:09:14,760 Speaker 1: down three percent on the year, the housing market looked 166 00:09:14,800 --> 00:09:18,959 Speaker 1: to be slowing, household spending was down um so and 167 00:09:19,160 --> 00:09:21,440 Speaker 1: how hard it was to forecast. But this is really 168 00:09:21,800 --> 00:09:26,959 Speaker 1: wait and see calm nerves. But again emphasizing that this 169 00:09:27,160 --> 00:09:30,000 Speaker 1: is all subject to a deal that's likely to have 170 00:09:30,120 --> 00:09:33,000 Speaker 1: to take place in fifty days. So you know, it's 171 00:09:33,040 --> 00:09:36,600 Speaker 1: pretty tough, Dave, to be a forecaster at the MPC UM. 172 00:09:37,360 --> 00:09:39,920 Speaker 1: I mean, it's it's a very tough time. In the 173 00:09:40,040 --> 00:09:43,319 Speaker 1: last question we just had from Chris Giles says, your 174 00:09:43,400 --> 00:09:45,520 Speaker 1: forecast says there's a one in four chance of a 175 00:09:45,600 --> 00:09:47,760 Speaker 1: recession in the next twelve months, and it could be 176 00:09:47,840 --> 00:09:50,760 Speaker 1: higher than that, couldn't it. Um and Carnie had to 177 00:09:50,840 --> 00:09:52,760 Speaker 1: kind of go along with that. So I think the 178 00:09:52,880 --> 00:09:56,240 Speaker 1: downside risk of substantial, But who knows the deal could 179 00:09:56,240 --> 00:09:59,559 Speaker 1: be struck. That doesn't seem very likely, especially given the 180 00:09:59,600 --> 00:10:02,959 Speaker 1: comment so Donald Tusk, who talked about the place in 181 00:10:03,080 --> 00:10:05,920 Speaker 1: hell that the Brexiteers would go to because they have 182 00:10:06,040 --> 00:10:09,280 Speaker 1: no plan. So this is the fog of brexit. Um 183 00:10:09,480 --> 00:10:12,719 Speaker 1: not really clarifying, and this is a holding pattern. But 184 00:10:12,880 --> 00:10:14,560 Speaker 1: I mean I would have done the same. I would 185 00:10:14,559 --> 00:10:18,080 Speaker 1: have I would have voted for this, for this decision 186 00:10:18,360 --> 00:10:20,600 Speaker 1: and just gone on hold and waited. I mean, that's 187 00:10:20,600 --> 00:10:23,840 Speaker 1: where they are, and the markets are in the same position, 188 00:10:23,880 --> 00:10:26,199 Speaker 1: waiting to see what the government has to say. Danny. 189 00:10:26,320 --> 00:10:28,880 Speaker 1: Can you draw a distinction though, between what is Brexit 190 00:10:28,960 --> 00:10:30,839 Speaker 1: induced and what is just to slow down across the 191 00:10:30,920 --> 00:10:35,400 Speaker 1: whole continent. The forecast for UK growth they're not great 192 00:10:35,720 --> 00:10:37,680 Speaker 1: at one point two percent from the Bank of England. 193 00:10:37,720 --> 00:10:39,880 Speaker 1: The European Commission has them at one point three percent 194 00:10:39,960 --> 00:10:42,480 Speaker 1: for this year. Must be clear. The forecast from the 195 00:10:42,480 --> 00:10:45,560 Speaker 1: European Commission this morning for Germany was just one point. 196 00:10:46,559 --> 00:10:49,040 Speaker 1: It's not as if the UK is alone here facing 197 00:10:49,080 --> 00:10:52,719 Speaker 1: slower growth. No, no, I agree with that, although I think, 198 00:10:53,080 --> 00:10:55,520 Speaker 1: I mean many commentators this morning have been out there 199 00:10:55,600 --> 00:10:58,400 Speaker 1: myself include Howard Archer and others saying that the EU 200 00:10:58,600 --> 00:11:03,280 Speaker 1: forecast for Germany and Tally actually probably looks overly optimistic 201 00:11:03,400 --> 00:11:06,240 Speaker 1: given the p M eyes that we've been in the 202 00:11:06,360 --> 00:11:08,680 Speaker 1: last few days. So I agree with you. There certainly 203 00:11:08,760 --> 00:11:13,000 Speaker 1: looks to be slowing in Germany, perhaps even headed to recession. 204 00:11:13,080 --> 00:11:16,520 Speaker 1: Certainly in Italy. France looks to be slowing too, So yes, 205 00:11:16,600 --> 00:11:19,880 Speaker 1: you're right that you know the slowing going on in Europe, 206 00:11:20,040 --> 00:11:23,040 Speaker 1: and it's hard to separate these things out. But I 207 00:11:23,120 --> 00:11:25,360 Speaker 1: think the big, the big issue is I mean, it's 208 00:11:25,720 --> 00:11:28,720 Speaker 1: the best analogy is that you're you're in You're in London, 209 00:11:28,800 --> 00:11:31,520 Speaker 1: You're headed towards Dover, hopefully you get to the ferry. 210 00:11:31,600 --> 00:11:33,880 Speaker 1: But the worriors, you might be headed towards Beachy Head, 211 00:11:34,120 --> 00:11:37,240 Speaker 1: which are those white cliffs. I agree with Tom now 212 00:11:37,360 --> 00:11:42,040 Speaker 1: generalized slowing going on in Europe. Companies and firms, companies 213 00:11:42,040 --> 00:11:44,559 Speaker 1: and individuals are worried. I mean, the big deal that 214 00:11:44,720 --> 00:11:47,880 Speaker 1: Carnie talked about was the survey from the agents suggested 215 00:11:47,920 --> 00:11:51,440 Speaker 1: that half of British firms have basically made no preparations 216 00:11:51,520 --> 00:11:54,480 Speaker 1: for Brexit. So that's a chest. You know that if 217 00:11:54,600 --> 00:11:57,840 Speaker 1: something cataclysmic happens and there's a no deal, there's going 218 00:11:57,880 --> 00:11:59,839 Speaker 1: to be big implications. So I agree with you, there's 219 00:12:00,000 --> 00:12:03,760 Speaker 1: analyze slowing perhaps a really bad time that this year 220 00:12:03,840 --> 00:12:06,319 Speaker 1: to to actually have that decision. But none of it 221 00:12:06,480 --> 00:12:09,880 Speaker 1: really looks that good, you know, Professor Blanche, First of all, 222 00:12:09,960 --> 00:12:12,480 Speaker 1: I want to give you a massive victory. Lab You know, 223 00:12:12,600 --> 00:12:14,920 Speaker 1: it's never the why that you expect to the path 224 00:12:15,080 --> 00:12:19,240 Speaker 1: that you expect, but you have absolutely nailed the idea 225 00:12:19,240 --> 00:12:22,160 Speaker 1: of the central banks in verbiage are gonna have to 226 00:12:22,280 --> 00:12:27,520 Speaker 1: retrench from moving to neutral, moving to a restriction, etcetera, etcetera. 227 00:12:27,760 --> 00:12:30,960 Speaker 1: But what I don't understand the degrees of freedom they 228 00:12:31,040 --> 00:12:34,480 Speaker 1: have versus QUI one to three of X years ago. 229 00:12:35,040 --> 00:12:38,240 Speaker 1: When I see the German tenure popping under a point 230 00:12:38,320 --> 00:12:41,959 Speaker 1: one too new weakness there, etcetera. How close are we 231 00:12:42,640 --> 00:12:47,040 Speaker 1: after Governor Kearney, this is material That was the key quote. 232 00:12:47,520 --> 00:12:52,439 Speaker 1: How close are we two talks about stimulus instead of austerity? 233 00:12:54,880 --> 00:12:57,680 Speaker 1: Excellent point as ever. I mean, if you look back 234 00:12:57,800 --> 00:12:59,959 Speaker 1: to to let's say we look back to August two 235 00:13:00,040 --> 00:13:03,600 Speaker 1: thousand and eight, UM interest rates were in the five. 236 00:13:04,040 --> 00:13:05,920 Speaker 1: I mean, the US had started to cut but there 237 00:13:06,040 --> 00:13:08,319 Speaker 1: was room to go. There was room to room to 238 00:13:08,520 --> 00:13:10,959 Speaker 1: cut UM. And the problem right now in the UK 239 00:13:11,200 --> 00:13:14,840 Speaker 1: interest rates are at point seven five unclear if they 240 00:13:14,840 --> 00:13:17,080 Speaker 1: could go through zero. They've never been lower than point 241 00:13:17,120 --> 00:13:20,640 Speaker 1: to five. So the ability to on the interest rate front, 242 00:13:20,920 --> 00:13:24,880 Speaker 1: if there's a cataclysmic Brexit are limited. Obviously, then the 243 00:13:25,000 --> 00:13:28,760 Speaker 1: question is what what queue could you do? And obviously 244 00:13:28,880 --> 00:13:30,640 Speaker 1: that looks like the only way they can go. And 245 00:13:30,720 --> 00:13:33,040 Speaker 1: then the third thing is what could what could the 246 00:13:33,080 --> 00:13:36,079 Speaker 1: fiscal authorities do? And obviously we have a government that 247 00:13:36,160 --> 00:13:38,360 Speaker 1: looks right now is if it couldn't really do anything. 248 00:13:38,679 --> 00:13:41,400 Speaker 1: So the worry is on the fiscal front's posing something 249 00:13:41,440 --> 00:13:44,080 Speaker 1: bad happens come, would they be able to cut text? 250 00:13:44,080 --> 00:13:46,040 Speaker 1: There's the worry is there's no arrows. Okay, I know, 251 00:13:46,160 --> 00:13:48,440 Speaker 1: but there's the rumor in hand over Dr Blanche Flower, 252 00:13:48,480 --> 00:13:50,920 Speaker 1: is that you teach history. Is there ever been a 253 00:13:51,040 --> 00:13:54,600 Speaker 1: time and history of our economic thought? And I'm going 254 00:13:54,679 --> 00:13:59,400 Speaker 1: back pre Smithion, where central bankers had little room to 255 00:13:59,640 --> 00:14:03,000 Speaker 1: move then they do now if we have a second 256 00:14:03,200 --> 00:14:09,680 Speaker 1: bout of what posing just called summer secular stagnation, well yeah, 257 00:14:09,840 --> 00:14:12,319 Speaker 1: well what's happened now I think in the last decade 258 00:14:12,440 --> 00:14:15,520 Speaker 1: is because we had austerity, the fiscal guys stepped back 259 00:14:16,120 --> 00:14:19,640 Speaker 1: and basically handed it over to the monetary authorities who 260 00:14:19,800 --> 00:14:22,800 Speaker 1: hoped at some point that enough growth would come they 261 00:14:22,840 --> 00:14:25,880 Speaker 1: could raise rates, so the next recession they could cut them. 262 00:14:25,920 --> 00:14:28,680 Speaker 1: I mean, this is really the big issue and why 263 00:14:28,760 --> 00:14:31,680 Speaker 1: markets have to worry. What could the central bank do? 264 00:14:32,120 --> 00:14:36,840 Speaker 1: What would the authorities do in economic terms to rescue things? 265 00:14:36,960 --> 00:14:38,720 Speaker 1: And the answer is not a lot. And that's why 266 00:14:38,800 --> 00:14:41,680 Speaker 1: the consumm will be about the currency. I mean, obviously 267 00:14:41,720 --> 00:14:44,440 Speaker 1: there's going to be presumably downward pressure on the currency, 268 00:14:44,640 --> 00:14:47,520 Speaker 1: which might well be the sort of rescuer. But it's 269 00:14:47,680 --> 00:14:50,840 Speaker 1: very concerning, and Karnie really didn't talk about it. I mean, 270 00:14:50,880 --> 00:14:53,480 Speaker 1: the one thing they've retrenched from was they talked about 271 00:14:53,520 --> 00:14:56,000 Speaker 1: if there was if there was this sort of disastrous Brexit, 272 00:14:56,040 --> 00:14:58,040 Speaker 1: the worry would be inflation would rise and they'd have 273 00:14:58,120 --> 00:15:01,240 Speaker 1: to raise interest rates. A lot of us objected to that, 274 00:15:01,400 --> 00:15:03,920 Speaker 1: and now Cannie's saying, it's not clear what our response 275 00:15:04,000 --> 00:15:06,120 Speaker 1: would be. It could be in any direction, so they've 276 00:15:06,120 --> 00:15:08,840 Speaker 1: had to back off that. But the worriors, he rightly says, 277 00:15:09,320 --> 00:15:12,320 Speaker 1: what would you do in the face of a big 278 00:15:12,400 --> 00:15:16,160 Speaker 1: down with spiraling activity, And the answer is, we don't 279 00:15:16,200 --> 00:15:18,560 Speaker 1: really know. Maybe we'll go to negative rates, maybe we 280 00:15:18,600 --> 00:15:20,840 Speaker 1: have another huge splurge of quie, but what do you 281 00:15:20,960 --> 00:15:23,160 Speaker 1: buy and what's the effect of it? So Q one 282 00:15:23,280 --> 00:15:25,240 Speaker 1: was the most effective Q two, Q three. What if 283 00:15:25,280 --> 00:15:27,440 Speaker 1: we get to Q eight. I think that's a really 284 00:15:27,480 --> 00:15:31,680 Speaker 1: big worry. Danny. We can't talk about Cardiff and relegation. No, 285 00:15:31,880 --> 00:15:35,760 Speaker 1: we we won last week. We want from Neil Warnut. 286 00:15:35,840 --> 00:15:41,160 Speaker 1: The coach of Cardiff has been very fiery recently, Yes, 287 00:15:41,960 --> 00:15:45,600 Speaker 1: very fiery. Thank you so much as well, you know, 288 00:15:46,000 --> 00:15:50,240 Speaker 1: very outspoken on brext the coach of Cardiff City. Yeah. 289 00:15:50,880 --> 00:15:53,200 Speaker 1: One of the five things you need to know, David Blashfard, 290 00:15:53,320 --> 00:15:57,080 Speaker 1: thank you so much. A beautiful redux of his work 291 00:15:57,120 --> 00:16:14,240 Speaker 1: on labor and wages with this David mel pass Uh, 292 00:16:14,400 --> 00:16:18,240 Speaker 1: formerly with bear Stearns, formerly many times on Bloomberk surveillance, 293 00:16:18,520 --> 00:16:22,240 Speaker 1: including an exceptionally important interview in two thousand and seven 294 00:16:22,280 --> 00:16:25,480 Speaker 1: with Alan Meltzer and the crucible of the crisis. Of course, 295 00:16:25,560 --> 00:16:28,720 Speaker 1: working with President Trump out of his effort in New 296 00:16:28,800 --> 00:16:32,120 Speaker 1: York State and Republican politics. And he has been nominated 297 00:16:32,520 --> 00:16:35,360 Speaker 1: to be the new president of the World Bank Group. David, 298 00:16:35,400 --> 00:16:38,680 Speaker 1: I know you expected the controversy over your nomination. I 299 00:16:38,800 --> 00:16:41,760 Speaker 1: want you to address your critics right now. Why are 300 00:16:41,840 --> 00:16:45,240 Speaker 1: you qualified to be the American representative to the World 301 00:16:45,320 --> 00:16:49,600 Speaker 1: Bank Group? Hi? Tom Uh, well, as you know and 302 00:16:49,800 --> 00:16:55,360 Speaker 1: from from our long relationship, I'm deeply in engaged in development, 303 00:16:55,480 --> 00:16:58,040 Speaker 1: in how to how to get growth faster and how 304 00:16:58,120 --> 00:17:01,320 Speaker 1: to raise living standards. That's my my lifetime career, so 305 00:17:01,480 --> 00:17:04,320 Speaker 1: forty years working to try to see people do better. 306 00:17:04,480 --> 00:17:07,280 Speaker 1: So I'm excited, thrilled about the chance to do that 307 00:17:07,520 --> 00:17:10,000 Speaker 1: at the at the World Bank. Um So we have 308 00:17:10,080 --> 00:17:12,760 Speaker 1: a core mission. I've been heavily involved in the reforms 309 00:17:13,119 --> 00:17:15,400 Speaker 1: that are part of the capital increase of the World 310 00:17:15,440 --> 00:17:18,480 Speaker 1: Bank right now, and so we'll be trying to implement 311 00:17:18,560 --> 00:17:22,119 Speaker 1: those reforms and helping the Bank be very effective. I 312 00:17:22,200 --> 00:17:24,200 Speaker 1: want to get to that in a moment. It is 313 00:17:24,280 --> 00:17:27,200 Speaker 1: widely understood in folks. You literally feel it when you 314 00:17:27,320 --> 00:17:29,240 Speaker 1: walk into the building next to the I m F 315 00:17:29,359 --> 00:17:33,040 Speaker 1: in Washington, that it's something leveled on the bureaucracy of 316 00:17:33,080 --> 00:17:37,399 Speaker 1: the Vatican. David mel Pass ages ago twelve executive directors, 317 00:17:37,760 --> 00:17:41,160 Speaker 1: twenty two executive directors. I believe we're up into account 318 00:17:41,200 --> 00:17:45,199 Speaker 1: with sub Saharan Africa of twenty five directors. What can 319 00:17:45,320 --> 00:17:49,240 Speaker 1: doctor Kim of Dartmouth or David mel Pass of New York, 320 00:17:49,400 --> 00:17:55,040 Speaker 1: what can you do given the bureaucracy underneath those executive directors. 321 00:17:56,760 --> 00:17:59,880 Speaker 1: My view is that if we focused the mission core 322 00:18:00,040 --> 00:18:02,600 Speaker 1: mission of having people do better in the countries that 323 00:18:02,680 --> 00:18:05,000 Speaker 1: are borrowing from the bank, then that will focus the 324 00:18:05,080 --> 00:18:08,600 Speaker 1: staff and focus the bureaucracy um and so you you 325 00:18:09,080 --> 00:18:12,760 Speaker 1: have to find and listen to the to the customers 326 00:18:12,840 --> 00:18:15,840 Speaker 1: of the bank, to the shareholders of the bank, and 327 00:18:15,960 --> 00:18:18,520 Speaker 1: to the staff and find a way forward that makes 328 00:18:18,560 --> 00:18:21,560 Speaker 1: it more effective. It can. I'm optimistic that this can 329 00:18:21,640 --> 00:18:24,639 Speaker 1: be done well. You were optimistic in the reform that 330 00:18:24,720 --> 00:18:28,280 Speaker 1: we got additional funding for the World Bank, and part 331 00:18:28,320 --> 00:18:32,639 Speaker 1: of that was this fractious relationship between the US. In China, 332 00:18:33,040 --> 00:18:35,919 Speaker 1: the World Bank give eighty nine countries. They give out 333 00:18:36,240 --> 00:18:40,560 Speaker 1: all sorts of loans, including the China specify an example 334 00:18:40,680 --> 00:18:44,680 Speaker 1: of a Chinese loan that doesn't pass the Trump litmus test. 335 00:18:47,520 --> 00:18:50,199 Speaker 1: In general, the World Bank has had more of its 336 00:18:50,280 --> 00:18:54,159 Speaker 1: loans going for what's called budget support, and so in China, 337 00:18:54,480 --> 00:18:57,159 Speaker 1: some of the loans are in too far regions of 338 00:18:57,480 --> 00:19:02,159 Speaker 1: China that actually need the UH need assistance. But the 339 00:19:02,320 --> 00:19:04,399 Speaker 1: question is whether the World Bank has to be the 340 00:19:04,440 --> 00:19:08,119 Speaker 1: one to do it. China is, as the world's second 341 00:19:08,200 --> 00:19:12,200 Speaker 1: largest economy, has ample resources in private sector markets, and 342 00:19:12,359 --> 00:19:15,119 Speaker 1: so one of the things the world can help do 343 00:19:15,800 --> 00:19:18,320 Speaker 1: is help China find a way that it's not dependent 344 00:19:18,520 --> 00:19:22,440 Speaker 1: on multilateral organizations. One of our goals is to leave 345 00:19:22,840 --> 00:19:27,040 Speaker 1: more resources for poorer countries that actually need the capital 346 00:19:27,080 --> 00:19:29,359 Speaker 1: and can't get it elsewhere. I want to make clear, folks, 347 00:19:29,400 --> 00:19:33,440 Speaker 1: and I always nod to Xavier Salet Martin of Columbia University, 348 00:19:33,920 --> 00:19:38,040 Speaker 1: who has been definitive about the success of relieving the 349 00:19:38,160 --> 00:19:41,480 Speaker 1: world of extreme poverty. That is a foundational goal to 350 00:19:41,560 --> 00:19:45,200 Speaker 1: the World Bank is established by Dr Kim over the 351 00:19:45,320 --> 00:19:47,800 Speaker 1: last number of years. David, I know you agree that 352 00:19:47,920 --> 00:19:51,960 Speaker 1: we need to relieve extreme poverty. How do we do 353 00:19:52,119 --> 00:19:56,720 Speaker 1: it within the ethos of this President of the United States? Well, 354 00:19:57,040 --> 00:20:00,119 Speaker 1: his ethos I think is very useful in that the 355 00:20:00,560 --> 00:20:03,280 Speaker 1: US is growing strongly. That's one of the big benefits 356 00:20:03,400 --> 00:20:06,000 Speaker 1: to the rest of the world. As we then look 357 00:20:06,040 --> 00:20:09,000 Speaker 1: at the countries themselves, they can improve their policies and 358 00:20:09,119 --> 00:20:11,760 Speaker 1: one by one, and it's different in different countries how 359 00:20:11,840 --> 00:20:14,520 Speaker 1: to do that. And from the standpoint of the World Bank, 360 00:20:14,800 --> 00:20:18,480 Speaker 1: it can help identify where those pockets of extreme poverty 361 00:20:18,560 --> 00:20:21,360 Speaker 1: are and then have a country program and actual plan 362 00:20:21,840 --> 00:20:25,080 Speaker 1: for how you can alleviate that. So again I'm optimistic 363 00:20:25,200 --> 00:20:28,840 Speaker 1: that this that more progress can be made on extreme poverty, 364 00:20:29,400 --> 00:20:31,399 Speaker 1: that it's a core mission of the World Bank for 365 00:20:31,560 --> 00:20:36,040 Speaker 1: all in international economics. Listening to this conversation, Mr mel Pass, 366 00:20:36,160 --> 00:20:39,520 Speaker 1: we go back to the Arch American debate, indeed Manhattan 367 00:20:39,600 --> 00:20:43,320 Speaker 1: debate of Jeffrey Sachs at Columbia and William Easterly at 368 00:20:43,400 --> 00:20:47,440 Speaker 1: New York University. Easterly changed the dialogue with the white 369 00:20:47,480 --> 00:20:50,120 Speaker 1: Man's burden. Why the West efforts to aid the rest 370 00:20:50,480 --> 00:20:54,000 Speaker 1: have done so much ill in so little good? Clearly 371 00:20:54,080 --> 00:20:57,719 Speaker 1: America shifted the World Bank towards an Easterly world. Are 372 00:20:57,800 --> 00:21:01,520 Speaker 1: you suggesting we need to do more accountability at the 373 00:21:01,600 --> 00:21:05,959 Speaker 1: World Bank or nudge forward what Dr Kim was successful 374 00:21:06,000 --> 00:21:10,639 Speaker 1: in creating? Good? Question well framed? Uh, I think what 375 00:21:10,880 --> 00:21:15,640 Speaker 1: we need to do is UH find core um core 376 00:21:15,840 --> 00:21:19,760 Speaker 1: themes that actually work in the countries themselves. So while 377 00:21:19,800 --> 00:21:24,040 Speaker 1: there there there are challenges because in the past mistakes 378 00:21:24,080 --> 00:21:25,960 Speaker 1: have been made and some and a lot of the 379 00:21:26,080 --> 00:21:28,639 Speaker 1: AIGE just hasn't gotten to the people that actually needed 380 00:21:28,680 --> 00:21:31,680 Speaker 1: in the in in these countries. So we need a 381 00:21:31,760 --> 00:21:36,280 Speaker 1: better program to find ways to have accountability within the 382 00:21:36,359 --> 00:21:40,640 Speaker 1: Bank Why why our loans not working in certain countries? David, 383 00:21:40,640 --> 00:21:43,280 Speaker 1: there's two buildings out past the Sistine Chapel where the 384 00:21:43,359 --> 00:21:45,880 Speaker 1: real bureaucracy of the Vatican is. You're gonna go into 385 00:21:45,920 --> 00:21:48,320 Speaker 1: the World Bank, gonna get a point, and there's gonna 386 00:21:48,320 --> 00:21:51,280 Speaker 1: be a huge upward David mel Pass shows up. What 387 00:21:51,520 --> 00:21:55,320 Speaker 1: you just said, everybody can say is common sense at 388 00:21:55,320 --> 00:22:00,719 Speaker 1: a common ground. How do you then address the executive directors, 389 00:22:01,080 --> 00:22:04,800 Speaker 1: the assistance to the executive directors, and the other nine thousand, 390 00:22:04,920 --> 00:22:07,760 Speaker 1: nine hundred and eighty two people at the World Bank. 391 00:22:08,000 --> 00:22:11,320 Speaker 1: How does an odd guy like you fit in at 392 00:22:11,359 --> 00:22:15,320 Speaker 1: that building? Not not at at all. So I'm going 393 00:22:15,359 --> 00:22:17,600 Speaker 1: to try to use common sense. So that means partly 394 00:22:17,840 --> 00:22:20,320 Speaker 1: listening to the people in the bank itself, but also 395 00:22:20,440 --> 00:22:23,440 Speaker 1: listening to the others the community around. And I like 396 00:22:23,600 --> 00:22:25,359 Speaker 1: the way you phrase that. You know there is in 397 00:22:25,440 --> 00:22:28,640 Speaker 1: the academic community a debate over what's the best way 398 00:22:28,720 --> 00:22:32,640 Speaker 1: to do this. How do you get actual effective assistance 399 00:22:32,720 --> 00:22:36,119 Speaker 1: from multi lateral organizations into countries that really need it. 400 00:22:36,440 --> 00:22:39,000 Speaker 1: That's what I'm going to be about. That takes a 401 00:22:39,080 --> 00:22:41,720 Speaker 1: lot of work, that takes a challenge. We've set in 402 00:22:41,880 --> 00:22:44,399 Speaker 1: motion the reforms you know that are part of the 403 00:22:44,520 --> 00:22:46,760 Speaker 1: current capital increase of the World Bank. So part of 404 00:22:46,840 --> 00:22:50,320 Speaker 1: this is to implement those reforms. That means moving the 405 00:22:50,480 --> 00:22:55,399 Speaker 1: higher income countries away from lending, from from borrowing from 406 00:22:55,440 --> 00:22:58,000 Speaker 1: the World Bank and allow more of the resources to 407 00:22:58,119 --> 00:23:01,600 Speaker 1: go to countries that really what's the What's day one 408 00:23:01,680 --> 00:23:04,080 Speaker 1: for David meyl Pass besides figuring out where the food 409 00:23:04,119 --> 00:23:06,800 Speaker 1: court is or at the restaurant at the World Bank? 410 00:23:06,840 --> 00:23:09,159 Speaker 1: I mean, David seriously here, I mean at the i 411 00:23:09,400 --> 00:23:13,159 Speaker 1: m F. There's a raging battle about old Europe with 412 00:23:13,280 --> 00:23:16,840 Speaker 1: their votes versus the new em and particularly China. What 413 00:23:17,080 --> 00:23:21,879 Speaker 1: is your day one task? To meld that bureaucracy with 414 00:23:22,160 --> 00:23:26,760 Speaker 1: some sense of Trumpian political theology. I'll be over over 415 00:23:26,840 --> 00:23:28,880 Speaker 1: the next several weeks. I'll be getting a good sense 416 00:23:29,000 --> 00:23:31,399 Speaker 1: from the shareholders as I talked with them about what 417 00:23:31,600 --> 00:23:34,600 Speaker 1: their goals are in the bank. US is the biggest shareholders, 418 00:23:34,680 --> 00:23:37,680 Speaker 1: so I'm I'm pretty familiar with u S goals, but 419 00:23:37,760 --> 00:23:39,920 Speaker 1: I want to hear the goals of other shareholders. I'll 420 00:23:39,960 --> 00:23:42,600 Speaker 1: be switching to be president of the World Bank. That 421 00:23:42,680 --> 00:23:46,159 Speaker 1: means representing shareholders and the boards of directors they have. 422 00:23:46,640 --> 00:23:48,639 Speaker 1: They have a lot of insight into what can be 423 00:23:48,760 --> 00:23:51,280 Speaker 1: done better. UH so listening as part of it, and 424 00:23:51,359 --> 00:23:54,240 Speaker 1: then also setting out the theme that we've already gone 425 00:23:54,320 --> 00:23:56,159 Speaker 1: over of a core mission. If you think of it 426 00:23:56,320 --> 00:23:59,000 Speaker 1: that way, I think we can make progress. David meyl 427 00:23:59,040 --> 00:24:01,560 Speaker 1: Pass Gregg Right in the Wall Street Journal, You've written 428 00:24:01,640 --> 00:24:04,760 Speaker 1: beautiful opens. I've said this before, Folks. Malpass has the 429 00:24:04,840 --> 00:24:08,240 Speaker 1: best English skills of anyone I know in market economics. 430 00:24:08,520 --> 00:24:13,359 Speaker 1: Greg Yepp writing a gorgeous essay today on socialism. The 431 00:24:13,480 --> 00:24:15,840 Speaker 1: belief of the President United States, not that I was 432 00:24:15,920 --> 00:24:18,800 Speaker 1: speaking with Mr Trump this morning, is a World Bank 433 00:24:18,920 --> 00:24:22,639 Speaker 1: is on the edge of a socialistic institution of redistributing 434 00:24:23,040 --> 00:24:26,440 Speaker 1: wealth in the in the world over to that you know, 435 00:24:26,560 --> 00:24:29,399 Speaker 1: people he doesn't like, etcetera. What are you gonna do 436 00:24:29,600 --> 00:24:33,560 Speaker 1: to make the World Bank more democratic where people in 437 00:24:33,720 --> 00:24:36,760 Speaker 1: it feel like they have a voice and incentives to 438 00:24:36,880 --> 00:24:41,960 Speaker 1: do good. I haven't read that article, but I don't 439 00:24:42,080 --> 00:24:47,840 Speaker 1: view it as UH shifting resources. It's it's making sense 440 00:24:47,880 --> 00:24:49,800 Speaker 1: out of what the theme of the World Bank has 441 00:24:49,840 --> 00:24:52,080 Speaker 1: been for decades. Really, that there's supposed to be a 442 00:24:52,160 --> 00:24:56,480 Speaker 1: graduation process that allows the resources to UH countries that 443 00:24:56,600 --> 00:24:59,800 Speaker 1: are doing better to reduce their drain their drag on 444 00:25:00,040 --> 00:25:02,600 Speaker 1: up and on the Bank and put it into other countries. 445 00:25:02,840 --> 00:25:05,199 Speaker 1: So I really don't view it as a fight against 446 00:25:05,520 --> 00:25:08,919 Speaker 1: socialism versus capitalism. It's got to be a fight against uh, 447 00:25:09,480 --> 00:25:12,800 Speaker 1: good policies and bad policies in each individual country. I 448 00:25:12,920 --> 00:25:14,760 Speaker 1: love to go on your next junk at the Beijing 449 00:25:14,880 --> 00:25:18,040 Speaker 1: David Male flying to Beijing, You're gonna speak to China 450 00:25:18,400 --> 00:25:20,399 Speaker 1: about the World Bank? What will you tell them? As 451 00:25:20,440 --> 00:25:23,760 Speaker 1: President of the World Bank Group. I won't be president yet. 452 00:25:23,840 --> 00:25:27,760 Speaker 1: I'm planning to be there next week as still as 453 00:25:27,840 --> 00:25:30,359 Speaker 1: a Treasury employee. But what I do with China is 454 00:25:30,440 --> 00:25:33,359 Speaker 1: full engagement. So we talk with China about ways that 455 00:25:33,520 --> 00:25:36,600 Speaker 1: they can have policies that really work better for them, 456 00:25:36,960 --> 00:25:38,800 Speaker 1: that work better for the rest of the world in 457 00:25:38,960 --> 00:25:42,240 Speaker 1: terms of structural reforms. Because China is the world's second 458 00:25:42,240 --> 00:25:45,600 Speaker 1: biggest economy, it's very important in how the world grows. 459 00:25:46,080 --> 00:25:49,159 Speaker 1: Uh and so China has to interact. So we're we 460 00:25:49,520 --> 00:25:51,359 Speaker 1: have a good dialogue with them. I have a lot 461 00:25:51,440 --> 00:25:54,560 Speaker 1: of respect for their senior finance people, UH. And so 462 00:25:54,640 --> 00:25:57,200 Speaker 1: I'm looking forward to a good relationship between the World 463 00:25:57,240 --> 00:26:00,520 Speaker 1: Bank and China. David, I've got like another hour questions 464 00:26:00,560 --> 00:26:02,520 Speaker 1: that we run out of time. Mr mele Pass, thank 465 00:26:02,560 --> 00:26:05,439 Speaker 1: you so much, of course, International Affairs of the Treasure 466 00:26:05,520 --> 00:26:09,320 Speaker 1: Department of the Trump administration. Mr mele Pass nominated by 467 00:26:09,400 --> 00:26:12,240 Speaker 1: the dominant shareholder to be the new president of the 468 00:26:12,320 --> 00:26:16,119 Speaker 1: World Bank Group, and we appreciate his time this morning 469 00:26:32,119 --> 00:26:36,200 Speaker 1: with us. Now, Gina Martin Adams on the equity markets, 470 00:26:36,840 --> 00:26:39,119 Speaker 1: and I want to talk about the word of the moment, Gina, 471 00:26:39,160 --> 00:26:43,080 Speaker 1: and just let you translate it for me and Paul Sweeney. Scale. 472 00:26:44,160 --> 00:26:46,399 Speaker 1: Scale wasn't in any of the books I talked about 473 00:26:46,440 --> 00:26:49,960 Speaker 1: except economics books. What does scale mean to a corporate 474 00:26:50,080 --> 00:26:54,679 Speaker 1: officer of a Southern bank? Uh, it's a great question. 475 00:26:54,800 --> 00:26:57,160 Speaker 1: I think that it's really interesting this merger that we've 476 00:26:57,240 --> 00:27:00,320 Speaker 1: come upon today, mostly because the biggest piece seen in 477 00:27:00,400 --> 00:27:05,080 Speaker 1: ten years comes after a pretty big regulatory wave that 478 00:27:05,200 --> 00:27:08,359 Speaker 1: really prevented a tremendous amount of mergers. But the nineties 479 00:27:08,400 --> 00:27:11,840 Speaker 1: are a perfect example of what scale means for banks. Right. 480 00:27:12,240 --> 00:27:17,480 Speaker 1: We went from being an incredibly overbanked society to having 481 00:27:17,520 --> 00:27:21,280 Speaker 1: a more rationalized banking industry and the result was pretty 482 00:27:21,320 --> 00:27:24,680 Speaker 1: tremendous profit growth. A sector that moved from formerly being 483 00:27:24,720 --> 00:27:27,000 Speaker 1: a value sector to being a growth sector in the 484 00:27:27,080 --> 00:27:30,440 Speaker 1: sequense of just a decade. As a decade represented the 485 00:27:30,480 --> 00:27:35,280 Speaker 1: opportunity for companies to utilize scale scale up um become 486 00:27:35,520 --> 00:27:39,200 Speaker 1: significantly more efficient. And so, you know, something like this, 487 00:27:39,320 --> 00:27:42,120 Speaker 1: an announcement like this is probably going to be pretty 488 00:27:42,119 --> 00:27:44,440 Speaker 1: good news for the Regional Banking Group, which has been 489 00:27:45,240 --> 00:27:47,399 Speaker 1: sort of the hold into a lot of regulations that 490 00:27:47,480 --> 00:27:51,840 Speaker 1: have held them back um from becoming more efficient enterprises 491 00:27:51,880 --> 00:27:55,320 Speaker 1: than being able to utilize scale. Tom. You know Gina, 492 00:27:55,400 --> 00:27:57,639 Speaker 1: I can tell here from our Bloomberg terminal. She's up 493 00:27:57,640 --> 00:27:59,200 Speaker 1: in Boston for a couple of days meeting with some 494 00:27:59,240 --> 00:28:01,480 Speaker 1: of the biggest mood tool funds in the business. So 495 00:28:01,640 --> 00:28:03,159 Speaker 1: get to what I want to know is what are 496 00:28:03,200 --> 00:28:06,240 Speaker 1: you telling them about some of the volatility that we've 497 00:28:06,240 --> 00:28:08,240 Speaker 1: seen in the market place. What kind of guidance are 498 00:28:08,240 --> 00:28:10,600 Speaker 1: you giving it? What is your view? Yeah, so our 499 00:28:10,680 --> 00:28:14,160 Speaker 1: view is fair value for the SMP five hundred, based 500 00:28:14,200 --> 00:28:17,879 Speaker 1: upon a subset of macroeconomic indicators is still a bit 501 00:28:17,960 --> 00:28:20,720 Speaker 1: higher than current levels um. The shift in the FED 502 00:28:21,320 --> 00:28:25,600 Speaker 1: that we experience from December to January is enough to 503 00:28:25,680 --> 00:28:29,480 Speaker 1: support valuation multiples. At the same time, the decline that 504 00:28:29,600 --> 00:28:32,600 Speaker 1: we had in the fourth quarter of last year priced 505 00:28:32,640 --> 00:28:36,120 Speaker 1: in a tremendous amount of earnings weakness. So our view 506 00:28:36,240 --> 00:28:38,480 Speaker 1: is at the pain trade for stocks probably is still 507 00:28:38,520 --> 00:28:41,640 Speaker 1: a bit higher here. At some point we will reach 508 00:28:41,720 --> 00:28:44,360 Speaker 1: fair value on the multiple. UM. You know, the fed's 509 00:28:44,440 --> 00:28:47,840 Speaker 1: not likely to cut anytime soon. They probably do remain 510 00:28:47,920 --> 00:28:50,320 Speaker 1: on hold, and that keeps some support under the multiple. 511 00:28:50,360 --> 00:28:52,280 Speaker 1: But without a FED cut, you're not likely to get 512 00:28:52,360 --> 00:28:56,280 Speaker 1: to valuations like we saw last year. Instead, it becomes 513 00:28:56,320 --> 00:28:59,040 Speaker 1: the more earnings driven market. That makes our sensitivity going 514 00:28:59,120 --> 00:29:02,840 Speaker 1: into the first core or two earning season UM ever 515 00:29:03,000 --> 00:29:05,920 Speaker 1: so greater, and we will need to get some confidence 516 00:29:05,960 --> 00:29:08,200 Speaker 1: that earnings are troughing here in the first half and 517 00:29:08,320 --> 00:29:13,720 Speaker 1: likely to recover into for stock suppressed too much higher. So, Gina, 518 00:29:14,000 --> 00:29:17,280 Speaker 1: it certainly felt to me at least that December the 519 00:29:17,360 --> 00:29:21,520 Speaker 1: market was melting down. How do you characterize January here? 520 00:29:21,600 --> 00:29:25,080 Speaker 1: Is it a melt up? Yeah, it's a mini melts up. 521 00:29:25,200 --> 00:29:27,200 Speaker 1: Maybe when we look at what melts ups really are 522 00:29:27,280 --> 00:29:29,320 Speaker 1: in the past, we think a little bit longer term 523 00:29:29,400 --> 00:29:33,719 Speaker 1: than UM such short time periods. Uh. Classic melt up 524 00:29:33,800 --> 00:29:37,840 Speaker 1: was the experienced stock market went through to two thousand, 525 00:29:38,400 --> 00:29:43,960 Speaker 1: where valuations were expanding, prices were rising on increasing volatility 526 00:29:44,760 --> 00:29:50,320 Speaker 1: um and sentiment was incredibly optimistic, ever so optimistic represented 527 00:29:50,400 --> 00:29:53,880 Speaker 1: by tremendous influence to the equity market. At the same time, 528 00:29:54,040 --> 00:29:58,640 Speaker 1: rates of growth of earnings started decelerating and consistently decelerated 529 00:29:58,680 --> 00:30:00,640 Speaker 1: over that live year period, really tip to the five 530 00:30:00,720 --> 00:30:04,040 Speaker 1: years prior. I'd say, you know, January is too short 531 00:30:04,080 --> 00:30:06,520 Speaker 1: of a month to really classify it as a true 532 00:30:06,600 --> 00:30:11,120 Speaker 1: melt up. But certainly prices are rising um driven by valuations, 533 00:30:11,240 --> 00:30:15,120 Speaker 1: not a lot of earnings optimism evidence. I don't think 534 00:30:15,160 --> 00:30:18,160 Speaker 1: there's a tremendous amount of positive sentiment to suggest it 535 00:30:18,560 --> 00:30:20,240 Speaker 1: is true malt up. Yet. Do you know one of 536 00:30:20,280 --> 00:30:22,880 Speaker 1: your great hallmarks is I believe I've never heard you 537 00:30:23,000 --> 00:30:26,000 Speaker 1: say go to cash. You're always someone who has a 538 00:30:26,120 --> 00:30:29,440 Speaker 1: reality that you've got to be in the market. Am 539 00:30:29,520 --> 00:30:32,960 Speaker 1: I being in the market now? Defensive? Do I want 540 00:30:33,000 --> 00:30:36,280 Speaker 1: to buy the beat up bear market value crew? Do 541 00:30:36,440 --> 00:30:38,200 Speaker 1: I want to buy the buns the ones that have 542 00:30:38,360 --> 00:30:43,200 Speaker 1: barely gone down? What say you? Yeah? So, our sector 543 00:30:43,280 --> 00:30:47,120 Speaker 1: model says you want to be positioned more cyclically than defensive. 544 00:30:47,440 --> 00:30:51,800 Speaker 1: Certainly valuations support that notion. The idea that we are 545 00:30:51,840 --> 00:30:54,320 Speaker 1: in the point at the point of experiencing and earning 546 00:30:54,400 --> 00:30:57,840 Speaker 1: strath with recovery yet to come, would support that notion. 547 00:30:58,360 --> 00:31:01,240 Speaker 1: Our factor spectrums suggest you do want to lean towards 548 00:31:01,360 --> 00:31:04,280 Speaker 1: value and maybe some of the junk that's out there. 549 00:31:04,600 --> 00:31:07,480 Speaker 1: And that's a reflection of the fact that rates have 550 00:31:08,200 --> 00:31:11,760 Speaker 1: stopped writing at least in the interim. And frankly, when 551 00:31:11,880 --> 00:31:14,480 Speaker 1: you see like what we saw in the fourth quarter 552 00:31:15,240 --> 00:31:19,080 Speaker 1: um defensive securities such as consumer staples and utilities, I'll 553 00:31:19,120 --> 00:31:22,280 Speaker 1: perform the broad market by more than eleven based points 554 00:31:22,320 --> 00:31:24,040 Speaker 1: over that. So what does that mean? It's brilliant? What 555 00:31:24,120 --> 00:31:27,240 Speaker 1: does that mean? That type of It's just this massive 556 00:31:27,280 --> 00:31:31,480 Speaker 1: defensive trade that only occurs in at a point in 557 00:31:31,560 --> 00:31:34,920 Speaker 1: which markets are bottoming. Okay, okay, exactly. So what do 558 00:31:35,000 --> 00:31:38,600 Speaker 1: you do if you see eleven percentage points of improvement 559 00:31:38,760 --> 00:31:41,840 Speaker 1: off you know, soap stocks and toothpaste stocks. Yeah, you 560 00:31:41,920 --> 00:31:44,720 Speaker 1: start to move toward more ceclically oriented companies. You start 561 00:31:44,760 --> 00:31:47,560 Speaker 1: to move toward more value oriented companies, the companies that 562 00:31:47,680 --> 00:31:50,320 Speaker 1: have been beaten down in the corrective process, because they're 563 00:31:50,360 --> 00:31:53,160 Speaker 1: the companies that will ride fastest and in earning security. Paul, 564 00:31:53,200 --> 00:31:56,240 Speaker 1: did we just hear Gina Martin say market bottom? I 565 00:31:56,320 --> 00:31:59,880 Speaker 1: think we did, I think we did were parting her. 566 00:32:00,280 --> 00:32:03,440 Speaker 1: You didn't have to stay in Boston. Band in Boston, Gina, 567 00:32:03,520 --> 00:32:08,440 Speaker 1: Martin Adams, thank you so much for Bloomberg Intelligence. Thanks 568 00:32:08,480 --> 00:32:12,720 Speaker 1: for listening to the Bloomberg Surveillance podcast. Subscribe and listen 569 00:32:12,960 --> 00:32:18,280 Speaker 1: to interviews on Apple Podcasts, SoundCloud, or whichever podcast platform 570 00:32:18,400 --> 00:32:22,680 Speaker 1: you prefer. I'm on Twitter at Tom Keane before the podcast. 571 00:32:22,760 --> 00:32:26,240 Speaker 1: You can always catch us worldwide. I'm Bloomberg Radio