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Speaker 1: Welcome to the Bloomberg P and L Podcast. I'm Pim Fox.

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Speaker 1: Along with my co host Lisa Abramowitz. Each day we

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Speaker 1: bring you the most important, noteworthy, and useful interviews for

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Speaker 1: you and your money, whether at the grocery store or

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Speaker 1: the trading floor. Find the Bloomberg pm L podcast on iTunes,

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Speaker 1: SoundCloud and at Bloomberg dot com. It is that time

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Speaker 1: of year when we are bombarded with different expectations for

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Speaker 1: people are so optimistic and potentially wary about some of

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Speaker 1: the risks and pitfalls ahead. We have Jim Paulson, chief

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Speaker 1: investment strategist and economist at Wells Capital Management with billion

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Speaker 1: dollars under management, here with his expectations for the year ahead. Um, Jim,

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Speaker 1: you know, I want to start out with one particular

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Speaker 1: expectation of yours, which is that the US dollar surprisingly weekends.

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Speaker 1: This is what our our analysts, our effects analyst, Vince

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Speaker 1: Cinerella was talking about earlier in the program. So, Jim,

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Speaker 1: why do you think that we're going to see a

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Speaker 1: weekending in the dollar? Well, I think the primary reason

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Speaker 1: Li said that there's such a strong consensus about the

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Speaker 1: dollar going straight northward here is because the Fed is

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Speaker 1: going to raise interest rates, which I totally concur that

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Speaker 1: that's going to happen. And if you look back since nine,

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Speaker 1: during the five previous recovery cycles, every time the Fed

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Speaker 1: embarked on it on raising interest rates during the recoveries,

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Speaker 1: the dollar declined. It didn't go up and came down.

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Speaker 1: And I think it's going to happening in this time

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Speaker 1: is the Fed commences on a titany cycle. And the reason,

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Speaker 1: I think because you have to look at why they're

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Speaker 1: raising interest rates. Interest rates are not don't go up

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Speaker 1: in isolation. If that was the case and the FED

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Speaker 1: just raised rates and nothing else happened, that'd be great

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Speaker 1: for the dollar, bring in foreign capital flow. But almost

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Speaker 1: always the Fed starts to raise in truth because they're

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Speaker 1: concerned about inflation, and rising inflation is a huge negative

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Speaker 1: for the U. S. Dollar, destroying the purchasing power globally.

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Speaker 1: And usually when the Fed's involved in the titany cycle,

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Speaker 1: it means that inflationary expectations are rising, there's concerns about

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Speaker 1: being behind the curve, and the dollar is sold. Jim

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Speaker 1: Paulson tell us your thoughts about treasuries specifically the tenure,

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Speaker 1: and then also when I get your ideas about wage

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Speaker 1: inflation and consumer inflation. Maybe some numbers, yeah, uh p M. I.

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Speaker 1: You know, I think that we've got a backdrop as

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Speaker 1: we had into this year, not only have a pickup

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Speaker 1: in US uh growth. You know, the reports just keep

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Speaker 1: coming in every day a lot better than expected, and

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Speaker 1: we're probably going to do three percent growth this year

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Speaker 1: in the United States, but we got to pick up

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Speaker 1: around the globe and manufacturing commodity price of recoveries happening everywhere,

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Speaker 1: and I think we've got one of the rare synchronized

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Speaker 1: bounces in globally, not the activity going on as we

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Speaker 1: had this year, and it happens to come at the

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Speaker 1: precise moment that the US has finally returned to full

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Speaker 1: employment in this recovery for the first time, so we're

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Speaker 1: going to see the first acceleration on full full employeed economy.

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Speaker 1: I think wages are gonna uh go up quite a

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Speaker 1: bit in the next year, maybe three and a half

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Speaker 1: to four percent year on year by the end of

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Speaker 1: the year. I think headline and co inflation maybe CPI

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Speaker 1: moved towards three and I think that's gonna be a

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Speaker 1: very uncomfortable situation both for the feder reserve, and for

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Speaker 1: bond vigilantes, I wouldn't be surprised if we see the

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Speaker 1: tenure yield spike about three and a half to three

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Speaker 1: and three quarters at some point during the year. You know.

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Speaker 1: There is an article article earlier this week on the

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Speaker 1: Bloomberg siting Paul Smeltzing. He's a PhD candidate at Harvard University,

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Speaker 1: who said, looking back over eight centuries of data, I

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Speaker 1: find that bull market was indeed one of the largest

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Speaker 1: ever recorded history suggests this reverse will be driven by

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Speaker 1: inflation fundamentals and leave investors worse off than bond massacres.

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Speaker 1: And otherwise he's predicting a pretty dire circumstance this year

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Speaker 1: for bonds. Do you agree, well, you know I do

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Speaker 1: in this stance that you know, um, we pigged free

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Speaker 1: market prices throughout the United States history. We packed the dollar,

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Speaker 1: you know much early post war period, we packed gold

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Speaker 1: at thirty announced the said regularly pigs the funds rate

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Speaker 1: in the implementation of monetary policy, but we have never

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Speaker 1: I don't think in the history of the United States

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Speaker 1: exercise this massive of an artificial pegging of an important

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Speaker 1: free market price. We're not just pigging the short term

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Speaker 1: interest rate, We're pigging the entire sovereign yield bond curve

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Speaker 1: across from cash to thirty years, and we're doing it

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Speaker 1: not just in the United States, but we're doing it

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Speaker 1: all over the globe. This is the mother of all pigs,

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Speaker 1: and we are finally the elephant is going to lift

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Speaker 1: off that peck. And in the balance of this recovery,

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Speaker 1: we're going to start the process of the great unwind

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Speaker 1: of that artificial price setting. And I think because rates

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Speaker 1: have been low for so long, because we've developed a

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Speaker 1: population and culture worried about deflation, reversing that suddenly is

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Speaker 1: going to be shocking for most participants, including bond and

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Speaker 1: stock investors. And I do think there's gonna be some

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Speaker 1: pain associated with the unwind of this great deal. Pick Jim,

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Speaker 1: I want to continue with your animal theme, perhaps even

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Speaker 1: animal spirits theme. You say that we are going to

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Speaker 1: enter or are in a bunny market. It's not a bullet,

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Speaker 1: it's not a bear, it's a bunny market. Well, how

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Speaker 1: do you profit from a bunny market? What do you

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Speaker 1: invest in and what do you stay away from? Yeah,

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Speaker 1: well you don't um. I think that the reason I

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Speaker 1: say a bunny marks because I take a bear market

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Speaker 1: HM is not like until the next recession, and I

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Speaker 1: don't see that happening this year or maybe for the

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Speaker 1: next few years. So I don't really think we're in

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Speaker 1: a bear a bullmark and a lot of the foundation

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Speaker 1: of this bull has already been spent. Uh. We can't

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Speaker 1: take p motibles from ten to twenty again, We've already

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Speaker 1: done it. We can't lower yields from six to one,

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Speaker 1: We've already done it. Uh. We we can't have chronic disinflation.

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Speaker 1: We're going to deal with inflation challenging evaluation levels. We're

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Speaker 1: going to have to have rising rates now and the

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Speaker 1: Feds moving to the sidelines. A lot of the earning

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Speaker 1: cycle is not going to be near as good going

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Speaker 1: forward now that it's mature. So the bull camp two

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Speaker 1: is left. So what are you left If you're not

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Speaker 1: in a bull, you're not in a bear. I would

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Speaker 1: suggest a bunny. And what what the bunny is? It's

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Speaker 1: an animal that hops around a lot but doesn't go

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Speaker 1: very far, and I think that's what we're in. I

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Speaker 1: still think we're gonna move higher over the next few years,

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Speaker 1: but much much less on buy and hold than what

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Speaker 1: we've done up till now. The best of the bulls

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Speaker 1: behind many things you can do in this I think

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Speaker 1: bunnies often happen in the in the second half of recoveries,

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Speaker 1: once you're reachable employment. They tend to have more inflationary

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Speaker 1: and interest rate overtones about them um, and they also

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Speaker 1: tend to be hoppy. So a little market timing, if

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Speaker 1: the bunny hops up big, coming back to risk off,

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Speaker 1: if the bunny hops down big, going back to risk on. Uh,

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Speaker 1: using a little bit of that makes sense. Overall. I

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Speaker 1: think one way to deal with this is maybe to

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Speaker 1: move away from the United States because I think much

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Speaker 1: of the rest of the world is behind us in

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Speaker 1: this recovery cycle, and they're not in the bunny market

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Speaker 1: yet they might still be more in the bull phase.

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Speaker 1: I don't know if people would really want to consider

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Speaker 1: the the year of the bunny, do you think? I

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Speaker 1: don't know. It's the year of the rooster, but it's

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Speaker 1: also maybe the year of the bunny. Who knows? I

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Speaker 1: like that. Maybe we'll call him Jim Bunny Paulson. He

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Speaker 1: is the chief investment strategist and economist for Wells Capital Management,

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Speaker 1: helping to manage more than three and fifty billion dollars. Well,

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Speaker 1: corporate debt has been rising at a pretty fast clip.

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Speaker 1: Consumers have been holding off and really have not been

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Speaker 1: incurring as much debt, at least on a proportionate basis.

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Speaker 1: But perhaps this is about to change. I want to

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Speaker 1: bring in Ellen Zentner, Chief US Economists and managing director

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Speaker 1: at Morgan Stanley. She has been named to Bloomberg Best's

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Speaker 1: list of top forecasters for the U S economy with

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Speaker 1: more than seventeen years experience as a FED watcher, Ellen,

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Speaker 1: thank you so much for being with us. UM. Why

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Speaker 1: do you think that US consumers are going to build

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Speaker 1: their debtloads more this year? Well, I think one of

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Speaker 1: the things that we look at is when you expect

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Speaker 1: higher income in the future, it tends to dictate how

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Speaker 1: we spend today UM. And the same can be said

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Speaker 1: for revolving credit credit cards. If you think a raise

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Speaker 1: is coming, or in today's case, a tax cut is coming, UM,

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Speaker 1: you might be willing to carry more debt levels, higher

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Speaker 1: debt levels today with the comfort of knowing that you're

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Speaker 1: probably going to be better able to pay that debt

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Speaker 1: in the future. And so what we've seen is that

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Speaker 1: when consumer confidence rises, and we've seen a pretty big

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Speaker 1: rising confidence since the election, about six months later, revolving

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Speaker 1: credit tends to pick up. Uh. And so we think

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Speaker 1: that's going to be some of the dynamics that we

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Speaker 1: see play out this year as consumer has been more

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Speaker 1: in anticipation of the tax cuts. Do you think that's

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Speaker 1: going to be a bad thing? No? I I certainly

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Speaker 1: don't want to see a return to pre crisis growth

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Speaker 1: rates in consumer credit. I mean, first of all, the

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Speaker 1: demographic trends don't support that kind of return to that

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Speaker 1: incredible pace of of debt accumulation. But also we've regulated

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Speaker 1: away the ability of households to accumulate that type of

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Speaker 1: debt or that level of debt burden. Uh, sort of

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Speaker 1: saving saving us from ourselves, if you will, with all

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Speaker 1: the regularation that's gone into place. But we certainly expect

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Speaker 1: a healthy pickup. There's a healthy certain amount of debt

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Speaker 1: to carry, um and with tax cuts coming better income prospects,

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Speaker 1: consumers are heartened by that. The only risk there is

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Speaker 1: if tax cuts are not delivered right. But if they are,

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Speaker 1: um then we expect that to be reflected in a

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Speaker 1: faster pace of spending in the course of faster pace

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Speaker 1: of certain types of debt accumulation, like credit cards revolving credit. Well,

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Speaker 1: I'm glad you mentioned credit cards because I'm wondering if

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Speaker 1: the picture for an equity investor, try to imagine yourself

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Speaker 1: walking the aisles of a home depot or a Lows

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Speaker 1: store and using your Visa or your American Express or

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Speaker 1: another charge card, is that the image that we should

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Speaker 1: hold in our minds for successful investing in Well, I

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Speaker 1: think that brings up a great point because there are

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Speaker 1: a lot of pitfall pitfalls in the retail sector, right

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Speaker 1: and not all retail stores are are doing well. Uh.

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Speaker 1: And so one thing that our our chief US equity

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Speaker 1: strited just Adam Parker likes um is credit card companies

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Speaker 1: as a play to capture that stronger consumer without specific

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Speaker 1: retail risk um And so I think that that you

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Speaker 1: know that that could be a nugget for equity investors

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Speaker 1: this year. We've also done a lot of work around

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Speaker 1: where typically do consumers spin tax cuts. So rather than

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Speaker 1: concentrating on does it benefit the low income consumer more,

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Speaker 1: the high income consumer more, let's just concentrate on what

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Speaker 1: products um benefit from tax cuts? And ironically, we saw

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Speaker 1: auto sales sore yesterday. And one of the biggest categories

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Speaker 1: that garnered those dollars when we get tax cuts is

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Speaker 1: new autos, not used, but new autos, new cars and trucks, motorcycles,

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Speaker 1: other highly discretionary recreational goods. You mentioned home depot, you know,

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Speaker 1: furnished furniture and home furnishings um. And so home improvement

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Speaker 1: stores could do well uh in this environment. Uh. And travel,

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Speaker 1: all right, this is also a stronger all are wrapped

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Speaker 1: up in this theme. Uh. And Uh. It has increased

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Speaker 1: the buying power of American consumers. And so we've seen

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Speaker 1: foreign travel by US residents and just air transportation in

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Speaker 1: general UM typically garner a lot of those tax dollars. Uh.

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Speaker 1: And so that's we're really encouraged about about the the

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Speaker 1: those kinds of dynamics that might play out this year

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Speaker 1: with broader tax reform. You know, I love that phim

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Speaker 1: goes to where are the opportunities for equities and I'm thinking, wow,

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Speaker 1: more debt. Let's think where the delinquency is going to

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Speaker 1: pick up, and especially since we've already seen delinquencies pick

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Speaker 1: up among auto loans. You know, how what are you

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Speaker 1: looking for to determine whether the level of debt is unsustainable?

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Speaker 1: And a lot of people have come on this show

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Speaker 1: and talked about how you know President elect Trump may

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Speaker 1: not deliver on all of his plans that are that

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Speaker 1: are going to be supposedly so stimulative. Well, I think

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Speaker 1: one thing that we look at is, uh, debt obligations

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Speaker 1: as a share of income. So uh, you know, pre crisis,

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Speaker 1: so leading up to the financial crisis, dead as a

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Speaker 1: share of disposable income peaked at at a hundred and

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Speaker 1: thirty five pretty incredible. Um. And since that time, we've

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Speaker 1: cut debt so much and with incomes rising, Uh, we

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Speaker 1: we've cut that back dramatically. Uh. And so we watch

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Speaker 1: that very closely, right, we want to be able to

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Speaker 1: see that households are carrying their debt burden. Well, we

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Speaker 1: also want to look at the household balance sheet how

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Speaker 1: much of it is exposed to a variable rate, because,

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Speaker 1: of course, when the Fed starts raising interest rates more quickly, Uh,

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Speaker 1: you know, historically that interest expense incurred from the balance

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Speaker 1: sheet has crimped income pretty quickly and causes a knee

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Speaker 1: knee jerk reaction on the part of consumers, pulling back, Um,

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Speaker 1: what we see today is an unprecedented household balance sheet.

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Speaker 1: We're only about ten percent of it is subject to

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Speaker 1: a variable rate. Think of all those mortgages that have

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Speaker 1: been refied through the government programs or through organic refined

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Speaker 1: a very low fixed rates. Uh, you know, that's the

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Speaker 1: majority of the household balance sheet, and unlike pre crisis,

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Speaker 1: it's almost all fixed. I want to thank you very

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Speaker 1: much for spending time with us. Ellen Zentner is the

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Speaker 1: chief US economist managing director for Morgan Stanley. I want

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Speaker 1: to bring in Dave Wilson, Bloomberg Stocks Commas to tell

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Speaker 1: us what's going on in the market. And Dave, I

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Speaker 1: just look at retail and it is a wreck today,

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Speaker 1: yes and no, pim. I mean, it's an interesting sort

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Speaker 1: of contrast going on here. And I bring this up

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Speaker 1: because sure, if you look at the department store chains,

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Speaker 1: they are taking quite the hit. Macy's down, Calls down

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Speaker 1: eighteen percent, both those companies coming out late yesterday with

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Speaker 1: the holiday sales figures that were worse than analysts were expecting.

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Speaker 1: J C. Penny down seven percent as well, Nordstrom down

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Speaker 1: eight percent. And and I bring this up. I was

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Speaker 1: actually just looking at this for a market's block. We

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Speaker 1: do here for the Bloomberg terminal. I'm one of the

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Speaker 1: contributors to the blog. The S and P five hundred

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Speaker 1: Department Store index is now down four headed for its

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Speaker 1: biggest loss ever. It is a component of the broader

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Speaker 1: SNP five hundred retailing index, and you want to know

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Speaker 1: how that's doing. It's down two tents of percent. So

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Speaker 1: basically what's happening is that the retailing index, the broader one,

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Speaker 1: has Amazon dot Com, Amazon benefiting at the expense of

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Speaker 1: the likes of Macy's and Coals and Pennies and Northstrom

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Speaker 1: that stocks up, so it's actually helping to hold up

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Speaker 1: the retailing index. And then you can throw in while

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Speaker 1: you're at it, Netflix and price Line Group in terms

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Speaker 1: of today's performance, and what do those companies have in

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Speaker 1: common with Amazon? You're talking about internet based businesses, So

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Speaker 1: what's really happening here. It's another marker in terms of

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Speaker 1: the broader shift that's going on in retailing. People don't

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Speaker 1: want to go to the store. They want to go

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Speaker 1: to the website, buy what they want, have it shipped

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Speaker 1: to the house or maybe to uh, you know, one

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Speaker 1: of the stores. Per pick up. But that's as far

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Speaker 1: as it goes, and that's what's happening here, and we're

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Speaker 1: seeing that play out in terms of the holiday sales figures,

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Speaker 1: and a whole lot of retail stocks are down, no question. Nonetheless,

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Speaker 1: it's more of a transitional story than a people don't

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Speaker 1: want to shop story. You know. Another part of this

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Speaker 1: story is the dollar, and there was this incredible strengthening

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Speaker 1: of the US dollar last year to the strongest level

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Speaker 1: in more than a decade. A lot of people thought

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Speaker 1: that this rally would only gain steam as President elect

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Speaker 1: Trump's policies were implemented. I want to bring in someone

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Speaker 1: who's going to cast some shade on that, vincinere Ella,

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Speaker 1: FX strategist here at Bloomberg. You wrote a piece about

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Speaker 1: the five ways the dollar rally may end if Trump's

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Speaker 1: policies do not get implemented as expected. So walk us

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Speaker 1: through this sort of path of doom. Sure, and good

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Speaker 1: morning to everyone. Well, I mean, five is a fun number,

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Speaker 1: but there are quite a few ways. Actually. I think

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Speaker 1: one of the things that we need to look at

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Speaker 1: is it's one thing for the president elect to have

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Speaker 1: run the table in the Electrical College, and and one

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Speaker 1: the election, it's another to run the table in the Senate,

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Speaker 1: in a Congress and enact all the policies, particularly in

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Speaker 1: the first one days, that he would like to do

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Speaker 1: to stimulate the economy. One of the things that was

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Speaker 1: outlined was repatriation of corporate profits overseas. We have something

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Speaker 1: of two and a half trillion dollars that is available

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Speaker 1: to be brought home. It's meant to spur investment and

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Speaker 1: economic growth. But in two thousand and four we try

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Speaker 1: this once a tax holiday. Companies brought the money back,

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Speaker 1: They paid down dividends, they repurchase shares, they streamline their operations,

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Speaker 1: and actually fired people. So it actually hurt the U. S. Treasury,

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Speaker 1: not helped. So Evince, I'm just going to ask about

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Speaker 1: whether we are at peak dollar, because you know, if

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Speaker 1: we get a weaker US dollar, if we change the

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Speaker 1: if somehow the strong dollar policy of the U. S.

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Speaker 1: Treasury changes or at least goes mute for a while,

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Speaker 1: that's going to be very beneficial to US trade and

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Speaker 1: it could put the kind of pressure that is necessary

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Speaker 1: in order to get these trade negotiations on track. Because

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Speaker 1: the one thing that you know, emerging markets have is

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Speaker 1: that their currency is a weakening, and that means their

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Speaker 1: products are more attractive to US consumers. Well, it is

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Speaker 1: good for US trade, but it tends to be good

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Speaker 1: for US multinationals, and those profits tend to stay once

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Speaker 1: again overseas and then I brought back home necessarily to

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Speaker 1: create jobs really here in the States. It actually creates

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Speaker 1: jobs overseas. So you know one of the things that

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Speaker 1: that's jobs, but not the value of the dollar. I'm saying,

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Speaker 1: is the dollar at a peak value right now? I

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Speaker 1: would not be one to try to catch the following knife,

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Speaker 1: so to speak, and say the dollars at a peak,

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Speaker 1: But it certainly has turned the corner um since mid December,

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Speaker 1: and it's definitely on a downtrend. And we've seen it

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Speaker 1: again and get hit overnight. Um, there are a lot

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Speaker 1: of factors working against it, not us the things that

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Speaker 1: i've I've outlined, but but certainly that whenever you have

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Speaker 1: a currency that's moved in a broad sense very quickly, um,

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Speaker 1: it tends to run out of steam and reverse. So, Dave,

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Speaker 1: you were talking about Sears and ord strum, some of

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Speaker 1: these big retailers, how much in their equation does the

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Speaker 1: dollar factor? Well, I mean only to the extent that

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Speaker 1: you know, we're talking about what does it cost them

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Speaker 1: to say import the products are going to sell. And

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Speaker 1: by the way, I would take issue with the idea

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Speaker 1: of Sears is a big retailer. It's the incredible shrinking retailer.

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Speaker 1: I mean, it's comes in Florida. There are plenty of

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Speaker 1: Sears still there, well still, but you know, they just

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Speaker 1: came out and said they're gonna get rid of a

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Speaker 1: hundred and fifty more stores. They're selling their Craftsman tool

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Speaker 1: brand to Stanley Black and Decker for nine million dollars.

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Speaker 1: That's why the Scots, all right, But the others, Okay,

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Speaker 1: the multinational retailers. Does this matter to them? How much?

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Speaker 1: Is it certainly matters in terms of their ability to

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Speaker 1: source products, you might say, and it matters, you know

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Speaker 1: more broadly. Let's be honest, and I bring this up

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Speaker 1: because we got results out of Constellation Brands today. You know,

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Speaker 1: this is a company that's in the beer, win and

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Speaker 1: spirits business. Corona and Medello, those are the two. So

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Speaker 1: we're talking about Mexico and certainly that's not a front

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Speaker 1: and center when it comes to currencies at this point.

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Speaker 1: And actually their earnings beat analysts average estimates and Bloomberg

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Speaker 1: survey for the fiscal third quarter. Here's the thing, though,

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Speaker 1: was all about tax advantages from reinvesting foreign earnings. So

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Speaker 1: you know, that's sort of really front and center, and

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Speaker 1: the stocks down in the wake of their results, even though,

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Speaker 1: like I said, they beat estimates and it's one of

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Speaker 1: the worst performers on the day and the S and

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Speaker 1: P five hundred down five points. Well, so, Vince, what

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Speaker 1: are you looking for to sort of be a marker

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Speaker 1: for how much more the dollar could potentially fall? Well,

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Speaker 1: I mean, one of the things that just a quick

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Speaker 1: point on what Dave was saying is that one of

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Speaker 1: the one of Trump policies is a consumption or a

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Speaker 1: destination text if that isn't acted, and essentially what that

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Speaker 1: does is will say where can where goods are consumed

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Speaker 1: is where the tax will be applied. So if we

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Speaker 1: bring product from Mexico, for instance, there will be a

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Speaker 1: tax placed on it. It's the equivalent of a tariff.

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Speaker 1: Raises the price of goods, raises inflation essentially will weaken

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Speaker 1: weaken international corporate profits, and that will weaken growth. Uh.

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Speaker 1: That type of process is a quasi protection of protection

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Speaker 1: is amendment and and would certainly weaken the dollar both

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Speaker 1: the dollar gets weaker, Does that mean that the Federal

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Speaker 1: Reserve gets to normalize US interest rate? Well, one of

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Speaker 1: the things about the dollar, it's a sort of a

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Speaker 1: back of the envelope calculation, is that a four percent

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Speaker 1: grade weighted move in the US dollar, either up or down,

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Speaker 1: is equivalent to roughly twenty five basis points for the Fed.

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Speaker 1: So if the dollar would drop by four percent, that

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Speaker 1: essentially loosens financial conditions, makes the FEDS job easier. Thank

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Speaker 1: you very much for joining us. Always a pleasure, Vincent Signarella.

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Speaker 1: He is an effect strategist for Bloomberg. He knows everything

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Speaker 1: about currencies and he knows everything about stocks. Dave Wilson,

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Speaker 1: Bloomberg Stocks calm Is. The description is that the United

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Speaker 1: States under President Trump will abdicate its role as a

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Speaker 1: global leader and there will be repercussions around the world.

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Speaker 1: Here to tell us more, Willis Sparks. He is the

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Speaker 1: director of Global Macro for the Eurasia Group. So Willis

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Speaker 1: maybe explain that description and what you for it see

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Speaker 1: as being some of the consequences. Sure, I mean we're

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Speaker 1: talking about uncertainty. You were just talking about, you know,

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Speaker 1: the uncertainty of what role Jared Kushner and Ivanka Trump

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Speaker 1: may play. That's that's a normal part of a transition,

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Speaker 1: and we don't know how strong the Secretary of State

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Speaker 1: will be or which advisers the new president will listen to.

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Speaker 1: But this is much bigger than that in terms of

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Speaker 1: the uncertainty that's been created. We all know that Donald

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Speaker 1: Trump is the first person ever elected president who has

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Speaker 1: never served in government of the military. And frankly, there

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Speaker 1: are a lot of people who voted for it because

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Speaker 1: he doesn't have that experience, and that's fine, But the

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Speaker 1: rest of the world is thinking what does this mean

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Speaker 1: for the role that the US intends to play? And

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Speaker 1: Donald Trump, if you take him at his word, a

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Speaker 1: lot of the things that he said his America First

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Speaker 1: approach to US foreign policy will be one which looks

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Speaker 1: out for American taxpayers the interests of American voters, without

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Speaker 1: regard for the impact on broader stability around the world.

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Speaker 1: In other words, the the idea has been for a

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Speaker 1: long time that US presidents have an interest in creating

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Speaker 1: a stable world because the stable world is good for

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Speaker 1: the world's only superpower. Trump's formulation is different. Trump's formulation

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Speaker 1: is the U S investing and stability allies allows allies

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Speaker 1: and rivals to free ride off the US, and I'm

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Speaker 1: going to go out and get a better deal for

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Speaker 1: the American people. Okay, So given that perspective, let's take

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Speaker 1: a little look around the world at what the potential

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Speaker 1: responses will be from other world powers. What about China,

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Speaker 1: What do you expect the response from Well, China is

430
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Speaker 1: trying to figure out how to interpret Donald Trump's tweets.

431
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Speaker 1: They take Trump absolutely but and they're trying to figure

432
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Speaker 1: out when when the question is, is North Korea close

433
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Speaker 1: to being able to put a warhead onto an intercontinental

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Speaker 1: ballistic missile they can hit California? And Trump says he

435
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Speaker 1: tweets not going to happen. If you're in Beijing, you're thinking,

436
00:24:24,560 --> 00:24:26,880
Speaker 1: I wonder what he means by that. Does he mean

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Speaker 1: that he doesn't think the North Koreans are smart enough

438
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Speaker 1: to pull this off? Or does he mean that he

439
00:24:31,040 --> 00:24:33,960
Speaker 1: would invade North Korea before he would allow that to happen.

440
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Speaker 1: They don't know what that means, and allies also don't

441
00:24:37,880 --> 00:24:41,399
Speaker 1: know what Trump's intentions are. You know, NATO allies in

442
00:24:41,480 --> 00:24:44,640
Speaker 1: Europe for example. So what you have is a lot

443
00:24:44,680 --> 00:24:46,960
Speaker 1: of allies that are going to begin to hedge their

444
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Speaker 1: bets on US intentions. Yeah, but well, let's let me

445
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Speaker 1: just push back on this to start with Europe for example.

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Speaker 1: I mean, if you can accomplish with a tweet or

447
00:24:55,280 --> 00:24:59,600
Speaker 1: speech an increase in military spending on the part of

448
00:25:00,080 --> 00:25:03,800
Speaker 1: TELL allies, doesn't that come off as being a pretty

449
00:25:03,840 --> 00:25:06,960
Speaker 1: shrewd move. Sure, if you can do it, well, haven't

450
00:25:06,960 --> 00:25:10,080
Speaker 1: the European having certain European NATO allies already said that

451
00:25:10,119 --> 00:25:13,399
Speaker 1: they are going to increase their contribution to the military budgets.

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Speaker 1: They have said so, but they have said so in

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Speaker 1: the past as well. They have not lived up to

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Speaker 1: the obligations that they've set in the past. So we'll

455
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Speaker 1: have to see what they do. But you know, again,

456
00:25:23,840 --> 00:25:26,240
Speaker 1: I'm not saying that this is all negative, but but

457
00:25:26,320 --> 00:25:28,879
Speaker 1: there is a lot of uncertainty here and so a

458
00:25:28,920 --> 00:25:31,680
Speaker 1: lot of allies are trying to figure out, well, will

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Speaker 1: we get what we want from Trump if we promise

460
00:25:34,160 --> 00:25:35,920
Speaker 1: to do more of what he asked us to do?

461
00:25:36,200 --> 00:25:39,399
Speaker 1: And that's not clear. If Russia starts to to to

462
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Speaker 1: play with Lafia and Estonia the way that it's played

463
00:25:41,880 --> 00:25:44,560
Speaker 1: with Ukraine, for example, will be you how will the

464
00:25:44,680 --> 00:25:47,000
Speaker 1: US respond, Will it respond as it has in the

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Speaker 1: past or not? And if not, are we wasting our money?

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Speaker 1: It raises a lot of questions for which we don't

467
00:25:52,920 --> 00:25:54,920
Speaker 1: have a lot of good answers right now. The point

468
00:25:54,960 --> 00:25:57,159
Speaker 1: here is not to vilify Trump or to suggest that

469
00:25:57,200 --> 00:25:59,360
Speaker 1: everything he's gonna do is going to be some kind

470
00:25:59,359 --> 00:26:02,880
Speaker 1: of mistake. But he certainly has different assumptions about what

471
00:26:03,080 --> 00:26:06,280
Speaker 1: role US power should play in the world than pretty

472
00:26:06,359 --> 00:26:09,240
Speaker 1: much all of his predecessors, and that's creating a lot

473
00:26:09,240 --> 00:26:11,880
Speaker 1: of uncertainty in every region of the world among both

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00:26:11,960 --> 00:26:16,760
Speaker 1: US allies and rivals. Some uncertainty in certain regions, for example,

475
00:26:16,760 --> 00:26:20,760
Speaker 1: in Europe has not necessarily been caused by President elect Trump,

476
00:26:20,800 --> 00:26:24,560
Speaker 1: as uch as the populist uprising there. I mean, a

477
00:26:24,600 --> 00:26:26,640
Speaker 1: lot of people who I've spoken to are are more

478
00:26:26,680 --> 00:26:29,600
Speaker 1: concerned about Europe frankly than they are even the US,

479
00:26:29,640 --> 00:26:32,919
Speaker 1: just because of the fragility, frankly of the Union in

480
00:26:33,040 --> 00:26:35,720
Speaker 1: light of the Brexit vote, as well as the Italian

481
00:26:35,800 --> 00:26:39,040
Speaker 1: or friendom uh last year. What what do you see

482
00:26:39,080 --> 00:26:42,840
Speaker 1: happening there? Well, Europe has got so many problems. I mean, really,

483
00:26:42,880 --> 00:26:44,920
Speaker 1: if you want to describe the risk for Europe, it's

484
00:26:45,000 --> 00:26:48,520
Speaker 1: it's the sheer number of different challenges that European leaders

485
00:26:48,560 --> 00:26:52,000
Speaker 1: are facing in a big election year in Europe. We've

486
00:26:52,000 --> 00:26:55,640
Speaker 1: got presidential elections in France, followed by parliamentary elections both

487
00:26:55,640 --> 00:26:58,760
Speaker 1: in the spring. We have elections in the Netherlands and Germany.

488
00:26:59,000 --> 00:27:01,840
Speaker 1: We could have earlier elections in both Italy and Greece.

489
00:27:01,920 --> 00:27:06,000
Speaker 1: In the Brexit thing is only getting started and it's

490
00:27:06,040 --> 00:27:09,159
Speaker 1: probably not going to go very far because politicians in

491
00:27:09,240 --> 00:27:13,240
Speaker 1: EU countries running for reelection have no incentive to seriously

492
00:27:13,280 --> 00:27:16,840
Speaker 1: negotiate with the British until next year. But the negotiations

493
00:27:16,840 --> 00:27:19,160
Speaker 1: are going to take up a lot of time. Meanwhile,

494
00:27:19,280 --> 00:27:22,240
Speaker 1: relations with Turkey are getting more complicated at a time

495
00:27:22,520 --> 00:27:25,720
Speaker 1: when the migrant deal between the EU and Turkey is

496
00:27:25,840 --> 00:27:28,959
Speaker 1: crucial for maintaining stability in an election year in Europe

497
00:27:29,160 --> 00:27:33,359
Speaker 1: avoiding another wave of the migrant crisis. Russia maybe wanting

498
00:27:33,400 --> 00:27:36,679
Speaker 1: to to to play some kind of undermining role in

499
00:27:36,880 --> 00:27:39,320
Speaker 1: some of these elections in France and Germany, for example,

500
00:27:39,520 --> 00:27:42,040
Speaker 1: if you believe that they've played that role in this country.

501
00:27:42,480 --> 00:27:44,960
Speaker 1: So yes, there are a lot of problems in Europe

502
00:27:45,000 --> 00:27:47,359
Speaker 1: that have absolutely nothing to do with Donald Trump or

503
00:27:47,400 --> 00:27:50,680
Speaker 1: Barack Obama or the United States. But it is compounded

504
00:27:50,720 --> 00:27:52,920
Speaker 1: by the fact that in trying to figure out how

505
00:27:52,920 --> 00:27:56,040
Speaker 1: to respond to these challenges, the US is no longer

506
00:27:56,080 --> 00:27:58,720
Speaker 1: the predictable actor that it has been in the past. Well,

507
00:27:58,920 --> 00:28:01,920
Speaker 1: it's is it worth noting that the United States maintains

508
00:28:01,960 --> 00:28:07,119
Speaker 1: about eight military bases in more than seventy countries? Sure? Absolutely,

509
00:28:07,160 --> 00:28:10,600
Speaker 1: I mean that's you know, Britain, France, Russia, I think

510
00:28:10,680 --> 00:28:14,359
Speaker 1: got thirty foreign bases combined. It's a compelling argument for

511
00:28:14,400 --> 00:28:17,200
Speaker 1: Donald Trump to say, why on Earth do we allow

512
00:28:17,359 --> 00:28:21,080
Speaker 1: countries as rich as Germany and Japan to outsource their

513
00:28:21,119 --> 00:28:25,000
Speaker 1: security to the United States? And American taxpayers responded to

514
00:28:25,040 --> 00:28:28,120
Speaker 1: that message. It is a very good question that deserves

515
00:28:28,160 --> 00:28:31,359
Speaker 1: a very good answer. But in this period of uncertainty,

516
00:28:31,400 --> 00:28:33,400
Speaker 1: we're going to see a lot of governments that are

517
00:28:33,440 --> 00:28:36,200
Speaker 1: not sure how to make decisions based on the new

518
00:28:36,280 --> 00:28:40,160
Speaker 1: environment until they have some better sense of what Donald

519
00:28:40,160 --> 00:28:43,840
Speaker 1: Trump will and will not do in response to conflict

520
00:28:43,960 --> 00:28:47,600
Speaker 1: real and hypothetical around the world. So this was some

521
00:28:47,680 --> 00:28:51,160
Speaker 1: of these risks were highlighted in Eurasia groups. Top risks

522
00:28:51,240 --> 00:28:55,320
Speaker 1: for two thousand and seventeen. Going back the top risks

523
00:28:55,360 --> 00:28:58,600
Speaker 1: for two thousand sixteen, which of them came to fruition? Well,

524
00:28:58,880 --> 00:29:00,720
Speaker 1: you know, I mean, I think at what we tried

525
00:29:00,760 --> 00:29:02,800
Speaker 1: to do this year was to draw attention to the

526
00:29:02,840 --> 00:29:07,120
Speaker 1: fact that there's been a move away from risk in

527
00:29:07,160 --> 00:29:10,520
Speaker 1: the emerging market world back to the developed world. So

528
00:29:10,640 --> 00:29:12,400
Speaker 1: I think, you know, we had a lot of focus

529
00:29:12,520 --> 00:29:15,239
Speaker 1: this year on Europe. We didn't in the end, we

530
00:29:15,280 --> 00:29:17,400
Speaker 1: did not believe Brexit would happen, but we knew it

531
00:29:17,400 --> 00:29:19,240
Speaker 1: was going to be a close enough vote and there

532
00:29:19,320 --> 00:29:21,360
Speaker 1: was a high enough likelihood that we've done a lot

533
00:29:21,360 --> 00:29:26,440
Speaker 1: of writing for our clients about preparation for that possibility. Um,

534
00:29:26,480 --> 00:29:29,160
Speaker 1: you know, I think that what we're seeing is a

535
00:29:29,200 --> 00:29:32,400
Speaker 1: continuation of that and maybe an intensification of that. End

536
00:29:31,920 --> 00:29:35,320
Speaker 1: of the risks are really focused in Europe and the

537
00:29:35,400 --> 00:29:37,560
Speaker 1: United States much more than they are in the emerging

538
00:29:37,640 --> 00:29:40,360
Speaker 1: market world at the moment. Thank you so much. Willis Sparks,

539
00:29:40,360 --> 00:29:43,400
Speaker 1: director of Global Macro at your AGIA Group, talking to

540
00:29:43,480 --> 00:29:53,280
Speaker 1: us from New York. This is thanks for listening to

541
00:29:53,320 --> 00:29:56,360
Speaker 1: the Bloomberg P and L podcast. You can subscribe and

542
00:29:56,400 --> 00:30:01,360
Speaker 1: listen to interviews at iTunes. SoundCloud or whatever podcast platform

543
00:30:01,520 --> 00:30:04,240
Speaker 1: you prefer. I'm pim Fox. I'm out there on Twitter

544
00:30:04,400 --> 00:30:08,040
Speaker 1: at pim Fox. I'm out there on Twitter at Lisa Abramo.

545
00:30:08,200 --> 00:30:10,600
Speaker 1: It's one before the podcast. You can always at Catch

546
00:30:10,680 --> 00:30:12,440
Speaker 1: us worldwide on Bloomberg Radio