1 00:00:00,440 --> 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 Lee. 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 --> 00:00:28,240 Speaker 1: Bloomberg dot Com, and of course on the Bloomberg I'm 5 00:00:28,240 --> 00:00:30,760 Speaker 1: placed to say that in London, famous for attackis Joins 6 00:00:30,800 --> 00:00:33,960 Speaker 1: us now the UBS cohead of FX and rates and Females. 7 00:00:34,000 --> 00:00:36,600 Speaker 1: I want to begin with something that's front and center 8 00:00:36,680 --> 00:00:38,760 Speaker 1: for the world of politics, but certainly not front and 9 00:00:38,840 --> 00:00:41,839 Speaker 1: center for global markets. And that's the potential of the 10 00:00:41,840 --> 00:00:44,360 Speaker 1: government shutdown in the United States of America. When the 11 00:00:44,360 --> 00:00:46,800 Speaker 1: clients call you famous and ask you what does it mean? 12 00:00:46,840 --> 00:00:50,760 Speaker 1: What are the consequences? What do you say? Well, long term, 13 00:00:50,920 --> 00:00:56,000 Speaker 1: no US legislative body has basically allowed this to go 14 00:00:56,160 --> 00:00:59,640 Speaker 1: over the cliff in a way that disrupts the payment 15 00:00:59,680 --> 00:01:03,000 Speaker 1: flow for the US. So the long term it's probably 16 00:01:03,120 --> 00:01:05,240 Speaker 1: something that will mean reverted. The short term, it can 17 00:01:05,280 --> 00:01:08,680 Speaker 1: cause some noise in particularly for money markets, as the 18 00:01:08,760 --> 00:01:13,160 Speaker 1: government runs up and down. It's um it's cash balances, 19 00:01:13,480 --> 00:01:19,399 Speaker 1: it creates significant excess or are are less than that 20 00:01:19,600 --> 00:01:22,800 Speaker 1: supply in uh in money markets and that's what's the 21 00:01:22,840 --> 00:01:25,320 Speaker 1: most important short of impact. Well famous in the money 22 00:01:25,319 --> 00:01:27,920 Speaker 1: markets and in the ferry front end of the treasury curve, 23 00:01:27,959 --> 00:01:30,280 Speaker 1: you can get these kind of little kinks and the 24 00:01:30,400 --> 00:01:32,080 Speaker 1: kind of account for when you might get a shut 25 00:01:32,120 --> 00:01:34,920 Speaker 1: down and when things will reopen again. Our swhere though, 26 00:01:35,200 --> 00:01:37,560 Speaker 1: does this actually have any impact for the effects market, 27 00:01:37,600 --> 00:01:41,080 Speaker 1: et cetera. Uh not really, We've done a detailed study. 28 00:01:41,400 --> 00:01:43,320 Speaker 1: This has a lot to do. This with a lot 29 00:01:43,360 --> 00:01:46,240 Speaker 1: of fixed income instruments and how they trade against one another, 30 00:01:46,640 --> 00:01:49,680 Speaker 1: But in terms of money market directions, not that much. 31 00:01:49,800 --> 00:01:52,400 Speaker 1: The thing so far famous it's a weaker dollar. It's 32 00:01:52,400 --> 00:01:54,960 Speaker 1: been you know, dollar that's crept lower lower lower, had 33 00:01:55,000 --> 00:01:57,920 Speaker 1: its worst year in a decade on the dollar index 34 00:01:58,000 --> 00:02:00,840 Speaker 1: last year and continues to plunge through three year. Love's 35 00:02:00,880 --> 00:02:03,320 Speaker 1: on my screen, weaker against the era once again. We 36 00:02:03,400 --> 00:02:06,680 Speaker 1: had someone from Deutsche Bank last week on this program 37 00:02:06,800 --> 00:02:09,040 Speaker 1: saying that we could get to one thirty on euro 38 00:02:09,160 --> 00:02:11,360 Speaker 1: dollar sooner than you think, Tha mus What takes us 39 00:02:11,400 --> 00:02:15,640 Speaker 1: to one thirty from four on my screen? Uh? Well, 40 00:02:16,280 --> 00:02:19,239 Speaker 1: one thirty is our long term target as well, maybe 41 00:02:19,240 --> 00:02:21,120 Speaker 1: not as quickly as we have gone so far, but 42 00:02:21,240 --> 00:02:23,320 Speaker 1: that's the direction of travel. There's a lot of things 43 00:02:23,560 --> 00:02:27,160 Speaker 1: going on. First of all, the dollar is still expensive. Secondly, 44 00:02:27,240 --> 00:02:30,360 Speaker 1: police normalization is not priced outside of the US. So 45 00:02:30,400 --> 00:02:32,120 Speaker 1: the fact that the rest of the world is growing 46 00:02:32,200 --> 00:02:36,920 Speaker 1: quite handsomely means that there is more to pricing currencies 47 00:02:36,919 --> 00:02:40,320 Speaker 1: outside of the US UM And at the same time, 48 00:02:40,360 --> 00:02:44,320 Speaker 1: what is hugely important is that UH, typically when financial 49 00:02:44,320 --> 00:02:47,600 Speaker 1: conditions you get this, you get weaker dollar, you get 50 00:02:47,639 --> 00:02:51,400 Speaker 1: higher oil prices, you get higher youths as equity Israeli 51 00:02:51,440 --> 00:02:54,840 Speaker 1: and this is a good kind of reflationary dynamic. Good 52 00:02:54,840 --> 00:02:56,919 Speaker 1: morning everyone, John Faro in New York on time, keen 53 00:02:56,960 --> 00:02:58,919 Speaker 1: in London on Friday, and it's a Friday to get 54 00:02:58,919 --> 00:03:02,680 Speaker 1: brief done market dynamics and of course a huge focus 55 00:03:02,720 --> 00:03:06,120 Speaker 1: on Washington, but also almost weekend reading to get the 56 00:03:06,200 --> 00:03:08,639 Speaker 1: next week, which will be spirited the same in the 57 00:03:08,720 --> 00:03:12,079 Speaker 1: least and perhaps we'll see President Trump and Davos later. 58 00:03:12,639 --> 00:03:15,800 Speaker 1: Uh in the week theme of fiatokus with us he 59 00:03:15,960 --> 00:03:18,680 Speaker 1: is with ubs Tea mus when I look at the 60 00:03:18,680 --> 00:03:22,160 Speaker 1: dollar dynamics and I look at exogenous shocks, and it 61 00:03:22,320 --> 00:03:25,480 Speaker 1: occur to me. One of the great exogynist shocks last 62 00:03:25,560 --> 00:03:27,880 Speaker 1: year was a single headline by Donald Karney in the 63 00:03:27,919 --> 00:03:30,480 Speaker 1: Bank of England where there was just one point where 64 00:03:30,520 --> 00:03:34,240 Speaker 1: he said, just almost in a whisper, there is no inflation. 65 00:03:35,400 --> 00:03:38,040 Speaker 1: You people see inflation. I get that. You told us 66 00:03:38,040 --> 00:03:41,000 Speaker 1: an hour ago. You're looking for three ish inflation, which 67 00:03:41,040 --> 00:03:43,960 Speaker 1: is a lot. How do you get there? What is 68 00:03:44,000 --> 00:03:48,640 Speaker 1: the catalyst to finally jump start a higher rate of 69 00:03:48,680 --> 00:03:51,840 Speaker 1: price change? So there's a very good question. There's always 70 00:03:52,240 --> 00:03:54,400 Speaker 1: to begin with. There are different things when you talk 71 00:03:54,400 --> 00:03:58,640 Speaker 1: about inflation. When you're talking about underlying core PC, it's 72 00:03:59,160 --> 00:04:01,400 Speaker 1: it's there's a lot of one of components that will 73 00:04:01,440 --> 00:04:04,240 Speaker 1: fall off next year, and we'll take you somewhere around 74 00:04:04,240 --> 00:04:07,160 Speaker 1: one point seven one point eight in core PC, which 75 00:04:07,200 --> 00:04:09,560 Speaker 1: is not astonishing, but at the very least it's better 76 00:04:09,600 --> 00:04:12,680 Speaker 1: than where we are here. That's one layer. The second layer, 77 00:04:12,720 --> 00:04:15,400 Speaker 1: which goes from a quarter headline, particularly when it comes 78 00:04:15,440 --> 00:04:21,040 Speaker 1: to CPI against PC, is the commodities um and commodities. 79 00:04:21,160 --> 00:04:23,880 Speaker 1: You know, if you compare from the middle of the 80 00:04:23,960 --> 00:04:27,240 Speaker 1: year last year until the current levels, oil price have 81 00:04:27,360 --> 00:04:30,440 Speaker 1: almost doubled, and that's going to have an impact which 82 00:04:30,480 --> 00:04:31,800 Speaker 1: will show up in the middle of the year and 83 00:04:31,839 --> 00:04:35,760 Speaker 1: we'll take headline CPI higher depending on how higher oil 84 00:04:35,800 --> 00:04:38,120 Speaker 1: prices go from here you could end up slightly shy. 85 00:04:38,160 --> 00:04:41,200 Speaker 1: A three percent on headline CPI. Is that something that 86 00:04:41,240 --> 00:04:44,800 Speaker 1: should scare us completely. No, it's going to be temporary, 87 00:04:44,839 --> 00:04:48,000 Speaker 1: but at the same time it's going to revive some 88 00:04:48,120 --> 00:04:50,360 Speaker 1: confidence because the risk was that we would continue to 89 00:04:50,400 --> 00:04:54,839 Speaker 1: print that super low prints so far within that, you know, 90 00:04:55,000 --> 00:04:58,920 Speaker 1: super low prints is the parsing almost on an international 91 00:04:59,000 --> 00:05:03,440 Speaker 1: basis of good inflation. It's not there or service sector 92 00:05:03,640 --> 00:05:07,800 Speaker 1: inflation in America. I see it in Cleveland CPI, which 93 00:05:07,839 --> 00:05:10,160 Speaker 1: to me gives me much more of like the reality 94 00:05:10,360 --> 00:05:14,640 Speaker 1: higher CPI. Are we looking at inflation correctly? Is it 95 00:05:14,680 --> 00:05:18,120 Speaker 1: comes over to dollar dynamics and FECs dynamics or are 96 00:05:18,160 --> 00:05:22,039 Speaker 1: we are we askewed because of goods dynamics in China? 97 00:05:22,560 --> 00:05:25,680 Speaker 1: I think that's a very good observation. I think that 98 00:05:26,480 --> 00:05:31,039 Speaker 1: particularly if you look at goods in the US due 99 00:05:31,040 --> 00:05:34,039 Speaker 1: to past dollar strength, and what's going on globally with 100 00:05:34,080 --> 00:05:36,960 Speaker 1: disinflation is not just China, it's also the huge output 101 00:05:36,960 --> 00:05:40,120 Speaker 1: gap in Europe as well. When you're looking at goods 102 00:05:40,120 --> 00:05:42,839 Speaker 1: inflation that has uh you know, it's about a quarter 103 00:05:42,960 --> 00:05:46,080 Speaker 1: of core PC and it has been near zero for 104 00:05:46,160 --> 00:05:49,400 Speaker 1: the last few years. Right, that's a huge disinflationary pressure. 105 00:05:49,760 --> 00:05:52,760 Speaker 1: You need the global output gap to narrow for that 106 00:05:52,880 --> 00:05:54,720 Speaker 1: to start picking up. And that's why we have not 107 00:05:54,880 --> 00:05:57,799 Speaker 1: been on the side of high inflation up until recently. 108 00:05:58,160 --> 00:06:00,839 Speaker 1: And when we don't expect that now either, just gradual 109 00:06:00,920 --> 00:06:03,200 Speaker 1: grind higher from current levels, which should be healthy for 110 00:06:03,279 --> 00:06:06,279 Speaker 1: the markets. That's the macro bank drop. How do central 111 00:06:06,320 --> 00:06:10,359 Speaker 1: banks respond to the world you've just described, So for 112 00:06:10,440 --> 00:06:13,559 Speaker 1: now most central banks are warning for a tighter pace 113 00:06:14,080 --> 00:06:18,240 Speaker 1: of adjustment or normalization. I would add one more point 114 00:06:18,240 --> 00:06:21,320 Speaker 1: to what she said. It's also about what's priced, right, 115 00:06:21,839 --> 00:06:25,400 Speaker 1: So we can talk about the front end in the US, 116 00:06:25,440 --> 00:06:27,000 Speaker 1: but with the long end of the curve at two 117 00:06:27,000 --> 00:06:29,720 Speaker 1: point six destined to rise, I don't know the two 118 00:06:29,760 --> 00:06:33,240 Speaker 1: point seven this year in our forecast, and probably approached something, 119 00:06:33,360 --> 00:06:36,119 Speaker 1: you know, slight side of three percent next couple of years. 120 00:06:36,800 --> 00:06:40,000 Speaker 1: A lot is already priced in UH. The European bond market, 121 00:06:40,040 --> 00:06:42,120 Speaker 1: on the other hand, and the Japanese bond market. The 122 00:06:42,279 --> 00:06:45,280 Speaker 1: yields there are to load their expensive bond markets, and 123 00:06:45,360 --> 00:06:48,600 Speaker 1: the market is trying to gauge when UH these yields 124 00:06:48,600 --> 00:06:50,960 Speaker 1: will adjust, when these central banks will adjust and when 125 00:06:50,960 --> 00:06:53,359 Speaker 1: they adjust, UH, it's going to have an impact on 126 00:06:53,360 --> 00:06:57,160 Speaker 1: those bond markets, and that translates into the currency frontloading 127 00:06:57,200 --> 00:06:59,280 Speaker 1: some of that, which is part of what's happening famous 128 00:06:59,440 --> 00:07:01,120 Speaker 1: US saying that the the front end in Europe that 129 00:07:01,160 --> 00:07:04,960 Speaker 1: needs to adjust more than anywhere else, the overall level 130 00:07:05,000 --> 00:07:08,040 Speaker 1: of the curve and the long end as well, UH, 131 00:07:08,040 --> 00:07:11,800 Speaker 1: and probably particularly outside of Germany, the curve can actually steep, 132 00:07:11,800 --> 00:07:15,239 Speaker 1: and so as the front and just across countries, probably 133 00:07:15,240 --> 00:07:18,520 Speaker 1: outside of Germany, the long and should adjust even further. 134 00:07:20,120 --> 00:07:22,640 Speaker 1: I look, seems just just one more question if we could, 135 00:07:22,760 --> 00:07:27,320 Speaker 1: uh quickly here at the linkage that we see of 136 00:07:27,440 --> 00:07:30,800 Speaker 1: dollar dynamics and fects dynamics with gold. Is there any 137 00:07:30,880 --> 00:07:33,200 Speaker 1: linkage still? It seems like the old maxims are just 138 00:07:33,280 --> 00:07:35,800 Speaker 1: out the door, out the window. Absolutely, But it's not 139 00:07:35,920 --> 00:07:39,360 Speaker 1: just that dollar. It's also the level of real rates UH, 140 00:07:39,400 --> 00:07:43,280 Speaker 1: and and real rates in the US are fair there 141 00:07:43,280 --> 00:07:45,520 Speaker 1: where they should be, if not on the high side, 142 00:07:45,560 --> 00:07:49,240 Speaker 1: which has been something that has anchored gold a lot 143 00:07:49,280 --> 00:07:51,920 Speaker 1: more than other commodities which are a lot more closely 144 00:07:51,920 --> 00:08:02,200 Speaker 1: correlated to oil the dollar as such as oil. This 145 00:08:02,280 --> 00:08:04,080 Speaker 1: is a joy. This is something John Fair and I've 146 00:08:04,080 --> 00:08:08,000 Speaker 1: really looked forward to Conahegan, who I first met through aluminum. 147 00:08:08,240 --> 00:08:13,160 Speaker 1: Uh is truly expert at the detailed fundamental of the softs. 148 00:08:13,160 --> 00:08:14,800 Speaker 1: It's a British thing, John, you have to have a 149 00:08:14,800 --> 00:08:17,440 Speaker 1: British accent to do this. It's just part of the 150 00:08:17,480 --> 00:08:21,239 Speaker 1: act and it is the romance of the commodity business. 151 00:08:21,320 --> 00:08:26,040 Speaker 1: Forget about something boring like oil, you know something like that. 152 00:08:26,240 --> 00:08:29,720 Speaker 1: It's it's the part that we all learned about, which 153 00:08:29,760 --> 00:08:32,800 Speaker 1: is making opportunities and things like cocoa and things like coffee. 154 00:08:32,800 --> 00:08:37,880 Speaker 1: Conahegan's with e DA and f Man ConA. The coffee 155 00:08:37,920 --> 00:08:43,480 Speaker 1: market now seems to be multinational. It seems to be 156 00:08:43,800 --> 00:08:48,680 Speaker 1: all the same physical characteristics of an agricultural commodity. What's 157 00:08:48,720 --> 00:08:51,640 Speaker 1: the demand side of coffee? Look like we talk in 158 00:08:51,760 --> 00:08:58,839 Speaker 1: oil demands better oil up? Is that elasticity there in coffee? Um? 159 00:08:58,920 --> 00:09:03,520 Speaker 1: So No, I'm the industrial commodities like energy or I 160 00:09:03,520 --> 00:09:07,960 Speaker 1: suppose it doesn't move with economic cycles. This is a 161 00:09:08,000 --> 00:09:11,200 Speaker 1: trend that's very long term. So at the moment, coffee 162 00:09:11,280 --> 00:09:14,480 Speaker 1: demand globally is going about two percent per year. There 163 00:09:14,559 --> 00:09:16,840 Speaker 1: was a time was actually going about three percent. This 164 00:09:16,880 --> 00:09:20,240 Speaker 1: was when you were seeing the Asian emerging market in 165 00:09:20,280 --> 00:09:24,560 Speaker 1: particular moving away from tea into coffee, and that's definitely 166 00:09:24,600 --> 00:09:29,000 Speaker 1: been compensating for a slowdown in growth in the mature 167 00:09:29,080 --> 00:09:31,480 Speaker 1: marketers as Europe and America. But don't get me wrong, 168 00:09:31,520 --> 00:09:34,520 Speaker 1: even in Europe and America, compared to consumption of sugar, 169 00:09:34,600 --> 00:09:38,240 Speaker 1: which is static to maybe declining, coffee consumption is still 170 00:09:38,400 --> 00:09:42,240 Speaker 1: very much, very much a desirable commodity and growing still 171 00:09:42,480 --> 00:09:45,400 Speaker 1: within that is the elephant in the room. China. And 172 00:09:45,480 --> 00:09:47,560 Speaker 1: we talk about China, and you know, John Fair and 173 00:09:47,600 --> 00:09:50,280 Speaker 1: I have ten or fifteen topics on China that we 174 00:09:50,360 --> 00:09:53,160 Speaker 1: circle around, but we don't get down to the nitty gritty, 175 00:09:53,240 --> 00:09:56,320 Speaker 1: like I understand that pork is a huge part of 176 00:09:56,320 --> 00:09:59,520 Speaker 1: the Chinese inflation dynamic, and I would believe part of 177 00:09:59,559 --> 00:10:03,120 Speaker 1: the China He's diet where does coffee is just one 178 00:10:03,120 --> 00:10:06,280 Speaker 1: example of a soft command and he fits into China's 179 00:10:06,440 --> 00:10:09,840 Speaker 1: day to day life. So it's definitely not as a 180 00:10:09,840 --> 00:10:13,760 Speaker 1: staple commodity, nothing like pork as you mentioned, or even grains. 181 00:10:14,480 --> 00:10:20,280 Speaker 1: We are talking about a substitution away from your traditional tea, 182 00:10:20,520 --> 00:10:24,440 Speaker 1: green tea, jasmine tea, and a marked shift from that 183 00:10:24,600 --> 00:10:27,920 Speaker 1: towards coffee. And this is definitely a Western influence. So 184 00:10:28,240 --> 00:10:31,360 Speaker 1: as you start seeing more and more coffee shops like 185 00:10:31,440 --> 00:10:34,640 Speaker 1: the Starbucks or independent coffee shops start coming into um 186 00:10:35,120 --> 00:10:37,679 Speaker 1: into China, we are seeing a lot of the middle 187 00:10:37,720 --> 00:10:42,240 Speaker 1: class consumers really tapping into that conda. I can't see 188 00:10:42,320 --> 00:10:45,839 Speaker 1: John Farrell drinking sipping jasmine tea down at Fortnum and 189 00:10:45,920 --> 00:10:50,199 Speaker 1: Mason and just can' I am caffeine free? Believe it? Yeah, yeah, 190 00:10:50,240 --> 00:10:54,400 Speaker 1: believe it or not? Now kind of you? Instead to 191 00:10:54,400 --> 00:10:56,920 Speaker 1: two important things, and it was on the middle class, 192 00:10:57,240 --> 00:11:00,680 Speaker 1: the middle class in China and the consumption of of coffee. 193 00:11:00,840 --> 00:11:05,280 Speaker 1: Does that extend to India as well in the urban 194 00:11:05,320 --> 00:11:09,240 Speaker 1: cities yes, so for sure. In the rural areas no, 195 00:11:09,840 --> 00:11:16,280 Speaker 1: But once you start seeing the delis, the Shanghai's, the Bombays, Mumbai's, 196 00:11:16,600 --> 00:11:19,480 Speaker 1: that is the country's. Those are the cities where high 197 00:11:19,559 --> 00:11:22,559 Speaker 1: urban population growth is seeing a big demand for that 198 00:11:22,679 --> 00:11:25,680 Speaker 1: sort of quick coffee fix, that caffeine boost, which is 199 00:11:25,679 --> 00:11:28,640 Speaker 1: associated with big city dwellers. Because the big E M 200 00:11:28,760 --> 00:11:31,800 Speaker 1: bricks trade of many many years ago was to go long. 201 00:11:31,840 --> 00:11:37,120 Speaker 1: Soft commodities go along, things like coffee and meet as well, 202 00:11:37,160 --> 00:11:39,240 Speaker 1: because it was going to be consumed by a rising 203 00:11:39,280 --> 00:11:42,959 Speaker 1: middle class and seemingly these prices could only go higher, 204 00:11:43,080 --> 00:11:45,520 Speaker 1: higher higher. Is that's still the theme here kind of 205 00:11:45,600 --> 00:11:47,760 Speaker 1: or has it changed? No? I think that theme is 206 00:11:47,760 --> 00:11:51,000 Speaker 1: still very much there. It's just that lately, because agricultural 207 00:11:51,000 --> 00:11:53,719 Speaker 1: commodities have been so well supplied, prices have just been 208 00:11:53,840 --> 00:11:56,800 Speaker 1: flapped to doing nothing. I think that the stories sort 209 00:11:56,840 --> 00:12:00,520 Speaker 1: of disappeared. But there in the middle clas Us wants 210 00:12:00,520 --> 00:12:04,200 Speaker 1: to move away from carbohydrates and basic staples like wheat 211 00:12:04,240 --> 00:12:07,400 Speaker 1: and rice, and they're definitely moving towards high proteins. So 212 00:12:07,760 --> 00:12:10,880 Speaker 1: it's the polks, it's the chickens, it's the beefs, it's 213 00:12:10,920 --> 00:12:15,120 Speaker 1: the dairies milk, and you name it high cafe. It 214 00:12:15,120 --> 00:12:18,000 Speaker 1: sounds like Tom Caine. This was this was the morning 215 00:12:18,400 --> 00:12:21,200 Speaker 1: you got that right, Um, John Field. This was amazing. 216 00:12:21,240 --> 00:12:23,480 Speaker 1: We got through a discussion with Conor Hay without talking 217 00:12:23,559 --> 00:12:26,160 Speaker 1: about bitcoin. That's soft. Do you want to do that? No, 218 00:12:26,280 --> 00:12:28,040 Speaker 1: we shouldn't do that. We did that already and she 219 00:12:28,240 --> 00:12:39,040 Speaker 1: almost stormed out of she did not. Isaac Boltansky is 220 00:12:39,240 --> 00:12:43,160 Speaker 1: more than interesting. Uh he is acclaimed coming out of 221 00:12:43,200 --> 00:12:49,880 Speaker 1: the troubled Asset Relief Program TARP over to Compass Point Research, 222 00:12:50,360 --> 00:12:56,800 Speaker 1: Ian Lucas Devas right, a hyper hyper detailed note on 223 00:12:56,920 --> 00:13:00,440 Speaker 1: all the Washington dynamics. We protect the copyright of our guests. 224 00:13:00,440 --> 00:13:03,000 Speaker 1: We're not going to send you out the note, Isaac, 225 00:13:03,160 --> 00:13:06,000 Speaker 1: how do you put I'm just curious, how do the 226 00:13:06,080 --> 00:13:10,640 Speaker 1: two of you put your note together? It's extraordinary how 227 00:13:10,679 --> 00:13:16,960 Speaker 1: detailed it is. There is a plethora of information that 228 00:13:17,040 --> 00:13:18,840 Speaker 1: comes out of d C, and I think our job 229 00:13:18,960 --> 00:13:22,520 Speaker 1: is to try to track all of it, synthesize it, 230 00:13:22,520 --> 00:13:27,440 Speaker 1: and make it digestible for institutional investors. If the Democrats 231 00:13:27,440 --> 00:13:31,400 Speaker 1: spoke to you today, Senator Schumer and others with your 232 00:13:30,880 --> 00:13:35,600 Speaker 1: your the fire hose of data you have coming in, 233 00:13:36,040 --> 00:13:40,480 Speaker 1: can they actually deflect shut down over to blaming the Republicans? 234 00:13:42,480 --> 00:13:44,200 Speaker 1: You know, I think Tom, the way this is going 235 00:13:44,280 --> 00:13:46,160 Speaker 1: to play out is it's going to be viewed as 236 00:13:46,200 --> 00:13:50,319 Speaker 1: a pox on both their houses. And in that scenario, 237 00:13:50,520 --> 00:13:54,400 Speaker 1: you have to expect a lengthier shutdown if it does occur, because, 238 00:13:54,440 --> 00:13:59,360 Speaker 1: as we all know, thinking polls tend to catalyze lawmakers. 239 00:13:59,520 --> 00:14:02,760 Speaker 1: And if the polls holed up, which right now they 240 00:14:02,800 --> 00:14:06,880 Speaker 1: show general blame for Republicans and Democrats at around the 241 00:14:07,080 --> 00:14:11,400 Speaker 1: world thirties, then neither side is going to be incentivized 242 00:14:11,440 --> 00:14:15,360 Speaker 1: to blink Isaac. Right now, the markets not blinking. The 243 00:14:15,400 --> 00:14:18,080 Speaker 1: market strugging this off. In terms of the price action 244 00:14:18,120 --> 00:14:21,360 Speaker 1: on my screen, Futures firmer. Yes, the dollars weak, but 245 00:14:21,400 --> 00:14:23,160 Speaker 1: the dollar has been weak for over a year now, 246 00:14:23,400 --> 00:14:25,920 Speaker 1: Treasury yields climbing harder. I would say that most people 247 00:14:25,920 --> 00:14:28,920 Speaker 1: on Wall Street aren't really too bothered about this. I 248 00:14:28,920 --> 00:14:30,720 Speaker 1: don't see the urgency on the screen. Do you see 249 00:14:30,760 --> 00:14:32,760 Speaker 1: any urgency from the clients you speak to, from the 250 00:14:32,800 --> 00:14:34,800 Speaker 1: investor base you speak to, and what are they asking 251 00:14:34,840 --> 00:14:38,880 Speaker 1: you about what's happening in Washington, d C. You won't 252 00:14:38,880 --> 00:14:41,360 Speaker 1: hear this often from a DC policy analyst, but I 253 00:14:41,440 --> 00:14:45,239 Speaker 1: have been telling clients to look away from the nonsense 254 00:14:45,320 --> 00:14:48,520 Speaker 1: in my city right now. The reality is that the 255 00:14:48,560 --> 00:14:51,960 Speaker 1: market impact from a government shutdown at this point should 256 00:14:51,960 --> 00:14:55,520 Speaker 1: be muted because it doesn't encompass the debt ceiling, which 257 00:14:55,560 --> 00:14:58,520 Speaker 1: is perhaps the most important component of all of the 258 00:14:58,560 --> 00:15:01,200 Speaker 1: fiscal fights. And as we've seen in the past, the 259 00:15:01,360 --> 00:15:05,160 Speaker 1: missed economic activity will be recovered at a later point, 260 00:15:05,360 --> 00:15:07,560 Speaker 1: so all the folks who aren't getting paid during this, 261 00:15:08,040 --> 00:15:10,680 Speaker 1: all the contracts that get held up will be made up. 262 00:15:11,280 --> 00:15:14,720 Speaker 1: The only cautionary note within that viewpoint is I have 263 00:15:14,800 --> 00:15:19,560 Speaker 1: sent some degree of of jitterariness among equity investors, and 264 00:15:19,640 --> 00:15:23,640 Speaker 1: so there could be a push to use this government 265 00:15:24,720 --> 00:15:28,640 Speaker 1: shut down to justify a risk off bias that was 266 00:15:28,680 --> 00:15:34,400 Speaker 1: already present and maybe not a reason absolutely right. My 267 00:15:34,400 --> 00:15:36,800 Speaker 1: my advice today is we've got to look past this 268 00:15:36,920 --> 00:15:39,920 Speaker 1: and realize that DC has delivered on the one thing 269 00:15:40,000 --> 00:15:42,560 Speaker 1: that it could have possibly delivered on, which was the 270 00:15:42,600 --> 00:15:45,720 Speaker 1: tax cuts. There wasn't much that was going to happen 271 00:15:45,760 --> 00:15:49,040 Speaker 1: this year, and I feel highly confident that the debt 272 00:15:49,080 --> 00:15:51,680 Speaker 1: ceiling is not going to be used in a game 273 00:15:51,720 --> 00:15:56,040 Speaker 1: of chicken between these two parties. Is how many sections 274 00:15:56,080 --> 00:15:58,760 Speaker 1: of the Democratic Party where there are there? I would 275 00:15:58,800 --> 00:16:02,320 Speaker 1: say that within the media over the last excellent number 276 00:16:02,320 --> 00:16:06,040 Speaker 1: of years, the focus has been hugely on the Republicans 277 00:16:06,200 --> 00:16:09,160 Speaker 1: on the hill, and we forget about how fractious the 278 00:16:09,200 --> 00:16:12,520 Speaker 1: Democratic Party has been in our history. How fractious is 279 00:16:12,560 --> 00:16:17,320 Speaker 1: the Democratic Party right now. There's an old line that 280 00:16:17,760 --> 00:16:20,920 Speaker 1: trying to get Democrats to caucus together and and agree 281 00:16:20,960 --> 00:16:22,880 Speaker 1: on a bill is like trying to make cats walk 282 00:16:22,920 --> 00:16:28,560 Speaker 1: in line. And it's been interesting because this year, excusely, 283 00:16:28,560 --> 00:16:32,560 Speaker 1: this Congress they've actually been incredibly unified. And I think 284 00:16:32,600 --> 00:16:34,280 Speaker 1: it's important to note that there's a bit of a 285 00:16:34,320 --> 00:16:37,920 Speaker 1: shifting of the guard going on here, and Chuck Schumer 286 00:16:38,000 --> 00:16:40,640 Speaker 1: has been able to hold his party in line and 287 00:16:40,760 --> 00:16:45,680 Speaker 1: is really orchestrating um a cohesive pushback here. He's only 288 00:16:45,680 --> 00:16:48,480 Speaker 1: lost one of his members in the Senate, Joe Mansion 289 00:16:48,600 --> 00:16:51,200 Speaker 1: from West Virginia, a state that the President won by 290 00:16:51,240 --> 00:16:55,480 Speaker 1: forty two points, and so it's actually been impressive that 291 00:16:55,560 --> 00:16:57,720 Speaker 1: he's been able to hold those Democrats in line. So 292 00:16:57,720 --> 00:16:59,960 Speaker 1: why does it helped me out with something? If getting 293 00:17:00,040 --> 00:17:02,160 Speaker 1: the Democrats together is like herding cats, and we know 294 00:17:02,200 --> 00:17:04,960 Speaker 1: how divided the GOP is right now, why are you 295 00:17:05,040 --> 00:17:08,000 Speaker 1: so confident that the debt scening issue isn't going to 296 00:17:08,040 --> 00:17:12,320 Speaker 1: be an issue at all? Sure, it's a fair question. 297 00:17:12,600 --> 00:17:17,359 Speaker 1: It's a it's a belief that ultimately the markets can 298 00:17:17,359 --> 00:17:20,520 Speaker 1: dictate action in d C and if there is a 299 00:17:20,680 --> 00:17:25,320 Speaker 1: sign that the debt ceiling is being used as a 300 00:17:25,359 --> 00:17:29,040 Speaker 1: bargaining chip unfairly, there will be a market reaction. And 301 00:17:30,000 --> 00:17:34,320 Speaker 1: while most Congress people don't have Bloomberg or CNB, is 302 00:17:34,320 --> 00:17:38,359 Speaker 1: CNBC or any of the markets on their excusing yes, 303 00:17:38,800 --> 00:17:42,879 Speaker 1: um uh, they do have. They do see the screen 304 00:17:42,920 --> 00:17:45,320 Speaker 1: when there's a three or five percent sell off, and 305 00:17:45,400 --> 00:17:48,240 Speaker 1: so that's why I feel confident that the market can 306 00:17:48,280 --> 00:17:51,200 Speaker 1: force action on the debt ceiling. Some came a note 307 00:17:51,200 --> 00:17:53,879 Speaker 1: coming from an official, a headline crossing the Bloomberg terminal. 308 00:17:53,960 --> 00:17:56,680 Speaker 1: Right now, the President United States is said to stay 309 00:17:56,680 --> 00:18:01,040 Speaker 1: in Washington, d C. Until the shutdown is averted. So 310 00:18:01,119 --> 00:18:04,120 Speaker 1: that can have some consequences for his trip next week 311 00:18:04,160 --> 00:18:07,360 Speaker 1: potentially to Dana, Switzerland, if this hasn't been down with 312 00:18:07,800 --> 00:18:11,600 Speaker 1: by then. Yeah, and that percolated in the zeitgeist this morning. 313 00:18:11,600 --> 00:18:13,880 Speaker 1: If you've seen that headline. I don't see that here 314 00:18:13,880 --> 00:18:17,520 Speaker 1: in our London studios, John, but if you see that headline, 315 00:18:18,160 --> 00:18:21,920 Speaker 1: that really begins to turn into news the rumor and 316 00:18:22,000 --> 00:18:25,560 Speaker 1: speculation that was seen earlier. UM, I don't have any 317 00:18:25,600 --> 00:18:28,080 Speaker 1: you know, I'm not doing a Michael Beschlaus act, but 318 00:18:28,680 --> 00:18:32,359 Speaker 1: I don't understand how a president travels during a government shutdown. 319 00:18:32,800 --> 00:18:36,080 Speaker 1: I find that bizarre. But uh, you know, we'll have 320 00:18:36,160 --> 00:18:38,920 Speaker 1: to see. Yeah, you would assume you would assume Isaac 321 00:18:39,000 --> 00:18:41,160 Speaker 1: that he doesn't travel to Dava, Switzerland if the government 322 00:18:41,200 --> 00:18:43,879 Speaker 1: does shut down. Is that something you would assume? I 323 00:18:43,880 --> 00:18:46,520 Speaker 1: think you're absolutely right. Look, the optics of him traveling 324 00:18:46,520 --> 00:18:49,639 Speaker 1: were already ub optimal, so it would be all it 325 00:18:49,680 --> 00:18:52,840 Speaker 1: would be much worse given if there was a government shutdown. 326 00:18:52,960 --> 00:18:55,320 Speaker 1: And then we should say, John Farrell, this is Kazia 327 00:18:55,400 --> 00:18:59,760 Speaker 1: clemens Is. I'll get it right, Klemazinska. There it is 328 00:19:00,160 --> 00:19:04,040 Speaker 1: of Bloomberg. Bloomberg first word. And this is from quote 329 00:19:04,119 --> 00:19:09,159 Speaker 1: unquote an official, which you know usually coming out of Bloomberg. Uh, 330 00:19:09,400 --> 00:19:15,840 Speaker 1: that's got some substance to it. Averted. There it is, Isaac. 331 00:19:16,000 --> 00:19:18,119 Speaker 1: What what do the Democrats want to get out of this? 332 00:19:18,320 --> 00:19:20,760 Speaker 1: All of this? You know, I think I can speak 333 00:19:20,760 --> 00:19:23,320 Speaker 1: for a hundred of our listeners are all sort of 334 00:19:23,359 --> 00:19:27,000 Speaker 1: exhausted by it. It's your fault, Isaac. But what do 335 00:19:27,080 --> 00:19:29,000 Speaker 1: the Democrats want to get out of this? Where do 336 00:19:29,040 --> 00:19:32,480 Speaker 1: they want to be? One week, three weeks, the shutdowns done, 337 00:19:32,520 --> 00:19:35,320 Speaker 1: we all kiss it, makeup, We get to the dead ceiling, 338 00:19:35,359 --> 00:19:37,000 Speaker 1: we all kiss it, makeup. Where do they want to 339 00:19:37,040 --> 00:19:43,520 Speaker 1: be as the campaign season begins for November six? Sure 340 00:19:44,480 --> 00:19:48,800 Speaker 1: Democrats recognize that this is their only leverage point this year. 341 00:19:49,960 --> 00:19:54,639 Speaker 1: Totally agree because that's the heart of the matter, right right, 342 00:19:54,720 --> 00:19:56,880 Speaker 1: So they want they want it all they want to 343 00:19:56,920 --> 00:20:00,680 Speaker 1: They want everything they can get realistically, if they will 344 00:20:00,960 --> 00:20:02,840 Speaker 1: hope to get out of this is a deal over 345 00:20:02,920 --> 00:20:06,600 Speaker 1: DACA funding for the children Health Insurance program, and I 346 00:20:06,640 --> 00:20:09,080 Speaker 1: think if you get that up from the six years 347 00:20:09,160 --> 00:20:12,120 Speaker 1: it's currently being offered to ten years and a deal 348 00:20:12,200 --> 00:20:16,480 Speaker 1: on just DAKA, Democrats would blink. Um. There isn't much 349 00:20:16,480 --> 00:20:21,120 Speaker 1: optimism about a broader immigration deal at this point. Get 350 00:20:21,119 --> 00:20:23,119 Speaker 1: me to the midterms. You get a deal on DHAKA. 351 00:20:23,520 --> 00:20:27,640 Speaker 1: Is that enough to sound the electorate? I think right 352 00:20:27,680 --> 00:20:31,280 Speaker 1: now this is about placating to the base, and the 353 00:20:31,359 --> 00:20:34,399 Speaker 1: base of the Democratic Party has shown that the DOCA 354 00:20:34,440 --> 00:20:37,399 Speaker 1: issue is important to them. It is a central pillar 355 00:20:37,520 --> 00:20:41,280 Speaker 1: for them. It's also an issue that many Democrats uh 356 00:20:42,240 --> 00:20:46,480 Speaker 1: feel they can run on in certain congressional districts. I 357 00:20:46,520 --> 00:20:49,159 Speaker 1: don't think that alone is enough to deliver them the 358 00:20:49,400 --> 00:20:51,439 Speaker 1: House or the Senate, but I still believe that the 359 00:20:51,440 --> 00:20:55,840 Speaker 1: odds heaverly favored Democrats taking the House and Republicans holding 360 00:20:55,840 --> 00:21:06,600 Speaker 1: the Senate. Andrew Bishop Um is quietly legendary Eurasia group 361 00:21:06,640 --> 00:21:11,000 Speaker 1: working with Dr Bremer among others. UM and we're working 362 00:21:11,040 --> 00:21:14,520 Speaker 1: on sort of not only Europe, but the interdependencies of 363 00:21:14,520 --> 00:21:16,520 Speaker 1: Europe and the synthesis of Europe with the rest of 364 00:21:16,520 --> 00:21:19,679 Speaker 1: the global economy. He wrote up with Courts last summer 365 00:21:19,720 --> 00:21:22,680 Speaker 1: on Germany and other nations as well. Andrew Bishop with 366 00:21:22,720 --> 00:21:26,040 Speaker 1: the European Briefing right now with Eurasia Group and Andres 367 00:21:26,040 --> 00:21:28,320 Speaker 1: thrilled to have you with us in Chess or a 368 00:21:28,359 --> 00:21:30,880 Speaker 1: miracle I believe is not going to have a government shutdown. 369 00:21:31,000 --> 00:21:34,960 Speaker 1: Perhaps you'll actually get to Dabos. What is the strength 370 00:21:35,160 --> 00:21:38,960 Speaker 1: and power of the most powerful leader in Europe after 371 00:21:39,040 --> 00:21:42,359 Speaker 1: a coalition battle and frankly after just the years that 372 00:21:42,440 --> 00:21:46,720 Speaker 1: have gone by good morning, I think that's a good point. 373 00:21:46,760 --> 00:21:49,239 Speaker 1: Mercle is, you know, sort of towards the tail end 374 00:21:49,280 --> 00:21:53,760 Speaker 1: of her of her tenure, but she's strong enough, especially 375 00:21:53,800 --> 00:21:57,240 Speaker 1: when combined with President mccronel to send a powerful message 376 00:21:57,240 --> 00:21:59,800 Speaker 1: to to President Trump next week. And I think that 377 00:21:59,800 --> 00:22:02,240 Speaker 1: that truly the spirit behind her going once against the 378 00:22:02,320 --> 00:22:05,240 Speaker 1: Davos and I believe she and McCrow will both be 379 00:22:05,320 --> 00:22:08,040 Speaker 1: speaking on Wednesday, so two days before Trump. We've all 380 00:22:08,080 --> 00:22:11,080 Speaker 1: been fascinated by the frequent flyer Miles on Air France 381 00:22:11,119 --> 00:22:13,760 Speaker 1: and Mr mccrosben. He's been on a road like I 382 00:22:14,119 --> 00:22:17,520 Speaker 1: believe I've never seen. Let's back up, what's the why 383 00:22:17,520 --> 00:22:21,480 Speaker 1: why is Mr McCraw hit the road before these important meetings. 384 00:22:23,080 --> 00:22:26,120 Speaker 1: I think that the main reason is that he perceives opportunity. 385 00:22:26,160 --> 00:22:28,320 Speaker 1: He sees the window of opportunity and the fact that Merkel, 386 00:22:28,400 --> 00:22:31,200 Speaker 1: as you just said, is busy with domestic issues, uh 387 00:22:31,240 --> 00:22:34,280 Speaker 1: and President Trump neither has the interest nor necessarily the 388 00:22:34,320 --> 00:22:36,800 Speaker 1: appeal uh to really be the world's leader, you know. 389 00:22:36,840 --> 00:22:39,800 Speaker 1: And so President she has seen that opportunity as well, 390 00:22:39,840 --> 00:22:42,440 Speaker 1: but he's taking a much slower approach. President McCrow is 391 00:22:42,520 --> 00:22:44,760 Speaker 1: essentially doing the same thing as she, but in a 392 00:22:44,840 --> 00:22:48,280 Speaker 1: in a much more opportunistic and tactical way, really trying 393 00:22:48,320 --> 00:22:52,119 Speaker 1: to find little crises like when Lebanon's Prime minister was was, 394 00:22:52,200 --> 00:22:55,159 Speaker 1: you know, held in in riad to to score some points. 395 00:22:55,680 --> 00:22:59,000 Speaker 1: What can Mircael achieve in her final term, which is 396 00:22:59,040 --> 00:23:04,040 Speaker 1: most likely to be her final term, Andrew, I think 397 00:23:04,080 --> 00:23:06,280 Speaker 1: that the greatest thing she could achieve is to to 398 00:23:06,520 --> 00:23:10,920 Speaker 1: maintain the German polity sort of on on a stable track. 399 00:23:11,040 --> 00:23:14,040 Speaker 1: I mean, one of the big concerns is that, you know, 400 00:23:14,119 --> 00:23:17,640 Speaker 1: yet another grand coalition will further aggravate voters who feel 401 00:23:17,680 --> 00:23:20,320 Speaker 1: like they don't really have a choice that all centrist 402 00:23:20,359 --> 00:23:23,040 Speaker 1: parties are the same and that they're banning together. Uh. 403 00:23:23,080 --> 00:23:25,159 Speaker 1: And and that's part of what's driven all of this 404 00:23:25,240 --> 00:23:27,560 Speaker 1: populism in the first place. So I think the best 405 00:23:27,560 --> 00:23:31,480 Speaker 1: thing she could achieve is actually delivering results that convinced 406 00:23:31,560 --> 00:23:35,200 Speaker 1: voters that centrist parties remain worth trusting. Dare I say 407 00:23:35,240 --> 00:23:38,080 Speaker 1: that this term and her four terms might look back 408 00:23:38,119 --> 00:23:40,880 Speaker 1: on what's going to be perceived as a lost decade. 409 00:23:40,920 --> 00:23:43,480 Speaker 1: And I raised this question, Andrew because in terms of 410 00:23:43,520 --> 00:23:46,399 Speaker 1: the reforms that came before her, economists are looking at 411 00:23:46,440 --> 00:23:50,120 Speaker 1: Germany right now and seeing an opportunity squandered, an opportunity 412 00:23:50,119 --> 00:23:53,760 Speaker 1: to really invest into the economy, to build our infrastructure 413 00:23:53,960 --> 00:23:55,560 Speaker 1: and to continue the hard work that was done in 414 00:23:55,600 --> 00:23:58,800 Speaker 1: the nineteen nineties. Andrew, it seems now that the German 415 00:23:58,840 --> 00:24:02,000 Speaker 1: government is very content and building up a surplus, not 416 00:24:02,080 --> 00:24:05,480 Speaker 1: spending too much money and just hoping things continuous they are. 417 00:24:05,720 --> 00:24:09,159 Speaker 1: Is this a squanded opportunity? Andrew? Yeah, I think the 418 00:24:09,280 --> 00:24:10,919 Speaker 1: last decade is a bit of a strong term in 419 00:24:10,960 --> 00:24:13,679 Speaker 1: the sense that you know, Germany has been performing extremely 420 00:24:13,720 --> 00:24:17,200 Speaker 1: well both politically in terms of stability, uh and economically. 421 00:24:17,520 --> 00:24:20,080 Speaker 1: Now to your point that was partly a legacy of 422 00:24:20,119 --> 00:24:23,440 Speaker 1: what had been laid down before she joined uh government. 423 00:24:23,480 --> 00:24:25,639 Speaker 1: And so there is a question you're right about what 424 00:24:25,760 --> 00:24:28,199 Speaker 1: comes next. I think the bigger issue for Germany. Of 425 00:24:28,200 --> 00:24:31,280 Speaker 1: course everyone's been talking about investment, and that's particularly important 426 00:24:31,320 --> 00:24:33,919 Speaker 1: in the tech sector. But the bigger question is, you know, 427 00:24:34,000 --> 00:24:36,960 Speaker 1: how does a German economy that's highly reliant on exports 428 00:24:37,240 --> 00:24:39,280 Speaker 1: continue to dominate in the world that's going to be 429 00:24:39,320 --> 00:24:43,119 Speaker 1: increasingly protectionist. Is it as simple as the euro is 430 00:24:43,160 --> 00:24:45,800 Speaker 1: a fiction and they're looking at the euro that ought 431 00:24:45,840 --> 00:24:51,080 Speaker 1: to be one sixty whatever, that their distortion of their 432 00:24:51,119 --> 00:24:54,720 Speaker 1: domestic flows a distortion, is Madame Leguarde mentions of their 433 00:24:54,720 --> 00:25:01,399 Speaker 1: trade surplus is strictly the European experiment. Uh, you know, 434 00:25:01,440 --> 00:25:03,159 Speaker 1: I mean we said group look at more at the 435 00:25:03,200 --> 00:25:05,480 Speaker 1: politics of the of the issue rather than the sort 436 00:25:05,520 --> 00:25:08,640 Speaker 1: of evaluation of the asset itself. But um, I think 437 00:25:08,680 --> 00:25:11,640 Speaker 1: there definitely is a question about Germany's long term sustainability 438 00:25:11,640 --> 00:25:14,160 Speaker 1: on that front. Yeah. And and the thing is, now 439 00:25:14,200 --> 00:25:16,680 Speaker 1: that you know, the Greek crisis seems to be behind us, 440 00:25:17,160 --> 00:25:19,119 Speaker 1: the real question is whether she and Macrow will be 441 00:25:19,200 --> 00:25:22,560 Speaker 1: able to reform to Eurozone. And we're unfortunately not extremely 442 00:25:22,600 --> 00:25:24,920 Speaker 1: hopeful about that, both because of her domestic concerns and 443 00:25:25,040 --> 00:25:27,359 Speaker 1: because they don't meet idae on that issue. We've been 444 00:25:27,359 --> 00:25:30,640 Speaker 1: talking with Andrew Bishop of the Eurasia Group, UH, and 445 00:25:30,680 --> 00:25:32,960 Speaker 1: in talking to when we were freely focused on Germany 446 00:25:33,040 --> 00:25:36,320 Speaker 1: and and what we've been really remiss here of taking 447 00:25:36,320 --> 00:25:38,560 Speaker 1: our eye off Russia. There was a point where Russia 448 00:25:38,600 --> 00:25:41,399 Speaker 1: was in the news day after day after day. And 449 00:25:41,440 --> 00:25:43,520 Speaker 1: I don't mean the Mueller scandal and you know, the 450 00:25:43,600 --> 00:25:47,159 Speaker 1: Muller investigation rather and all that, but just whether Russia 451 00:25:47,320 --> 00:25:50,520 Speaker 1: there was play in the London press today Mr Putin 452 00:25:50,920 --> 00:25:55,080 Speaker 1: uh taking some kind of ice cold baptismal baths or 453 00:25:55,119 --> 00:25:58,160 Speaker 1: whatever in Russia. What is the state of Mr Putin? 454 00:25:58,280 --> 00:26:01,760 Speaker 1: He's not going to Davo, Sizzy. I don't believe he 455 00:26:01,800 --> 00:26:03,760 Speaker 1: is going to Davos this year. Um. And the reason 456 00:26:03,800 --> 00:26:07,520 Speaker 1: why you're not not hearing about Russia is because Putin 457 00:26:07,600 --> 00:26:09,600 Speaker 1: has nothing to do. He can just sit back and relax. 458 00:26:09,720 --> 00:26:13,439 Speaker 1: Everything he's been orchestrating in terms of weakening Europe to 459 00:26:13,480 --> 00:26:16,520 Speaker 1: a certain extent, weakening the United States and gaining power 460 00:26:16,520 --> 00:26:18,960 Speaker 1: projection in the Middle East has been working. So for 461 00:26:19,040 --> 00:26:21,360 Speaker 1: him to change anything at this stage would be would 462 00:26:21,400 --> 00:26:26,199 Speaker 1: be an unnecessarily unnecessary risk. Yeah, an unnecessary risk. You 463 00:26:26,200 --> 00:26:28,920 Speaker 1: can just sit back and watch the folies continue or that. 464 00:26:29,359 --> 00:26:33,840 Speaker 1: Then I guess it comes down to the prescriptive desire 465 00:26:34,080 --> 00:26:37,440 Speaker 1: of what the president should do in Davos. What should 466 00:26:38,160 --> 00:26:41,639 Speaker 1: the president do is he approaches an important speech a 467 00:26:41,640 --> 00:26:45,000 Speaker 1: week from today. So I think what President Trump is 468 00:26:45,000 --> 00:26:47,040 Speaker 1: going to going to try to do in Davos is 469 00:26:47,080 --> 00:26:50,080 Speaker 1: address three different audiences. The first is obviously the Davos 470 00:26:50,080 --> 00:26:52,840 Speaker 1: crowd itself, with a clear message, which is, you know, 471 00:26:52,920 --> 00:26:55,720 Speaker 1: the United States remains the world's leading economy. Invest in 472 00:26:55,760 --> 00:26:58,960 Speaker 1: the US, We're reliable. The second message is probably going 473 00:26:59,000 --> 00:27:00,720 Speaker 1: to be geared towards this eight and it's gonna be 474 00:27:00,800 --> 00:27:03,200 Speaker 1: quite different, right, It's going to be more about maybe 475 00:27:03,200 --> 00:27:05,399 Speaker 1: not insulting, but trying to send a message to the 476 00:27:05,400 --> 00:27:08,560 Speaker 1: global elite that they can't get away with murder, etcetera. 477 00:27:08,960 --> 00:27:10,800 Speaker 1: And then the third thing is he's probably going to 478 00:27:10,840 --> 00:27:13,560 Speaker 1: be trying to send a discrete message to China as well, saying, 479 00:27:13,600 --> 00:27:15,840 Speaker 1: you know, you work year last year, I'm here this year, 480 00:27:15,880 --> 00:27:18,320 Speaker 1: and we're we're still in the G two situation at 481 00:27:18,359 --> 00:27:20,679 Speaker 1: at at worst. But that's the heart of it. And 482 00:27:20,720 --> 00:27:24,520 Speaker 1: I get the privilege speaking with Dr Bremer Eurasia Group 483 00:27:24,520 --> 00:27:27,280 Speaker 1: as we begin our year with the Eurasia Group. Top risks. 484 00:27:27,840 --> 00:27:30,520 Speaker 1: You just use the word discreet. This is not a 485 00:27:30,600 --> 00:27:36,280 Speaker 1: discreete center of message, is it. No? I'm not sure 486 00:27:36,280 --> 00:27:40,320 Speaker 1: he's going to be discreet per se, but no, no, yeah, 487 00:27:40,400 --> 00:27:43,000 Speaker 1: I definitely wouldn't go for a discreet actually. Um, but 488 00:27:43,119 --> 00:27:46,000 Speaker 1: he's he's going to be trying to tailor his message 489 00:27:46,000 --> 00:27:48,000 Speaker 1: that I do believe. And I think there's a difference 490 00:27:48,040 --> 00:27:50,800 Speaker 1: between the President being loud spoken, uh and him not 491 00:27:50,840 --> 00:27:53,359 Speaker 1: being strategic. And he actually is quite um, you know, 492 00:27:53,440 --> 00:27:56,240 Speaker 1: quite a great communicator if you think in pure strategy terms. 493 00:27:56,280 --> 00:27:58,720 Speaker 1: So I think he's going to be nuanced in his 494 00:27:59,119 --> 00:28:02,040 Speaker 1: tailored messages. Boy, I wish I could climb on board 495 00:28:02,080 --> 00:28:04,280 Speaker 1: that My answer, I don't have an opinion, folks, about 496 00:28:04,320 --> 00:28:06,200 Speaker 1: what the President is going to do with Davos other 497 00:28:06,240 --> 00:28:10,399 Speaker 1: than it's to me it's beyond unpredictable what he will do. 498 00:28:10,760 --> 00:28:13,920 Speaker 1: What will you listen for from his entourage? I believe 499 00:28:13,960 --> 00:28:16,119 Speaker 1: he's bringing two d and twenty two people with him. 500 00:28:16,119 --> 00:28:20,120 Speaker 1: I'm kidding, folks, but it's a huge entourage, is I mean? 501 00:28:20,160 --> 00:28:23,760 Speaker 1: Basically in my right, Andrew Bishop America descends on Davos. 502 00:28:23,880 --> 00:28:28,120 Speaker 1: Is that an exaggeration? Yeah? So, I mean the United 503 00:28:28,160 --> 00:28:31,720 Speaker 1: States has regularly sent a fairly large delegation, especially on 504 00:28:31,760 --> 00:28:34,360 Speaker 1: the business side, to Davos. So the big change here 505 00:28:34,400 --> 00:28:36,200 Speaker 1: is the president's visit. I think the last time was 506 00:28:36,240 --> 00:28:38,400 Speaker 1: in two thousands. That's really the big change. That the 507 00:28:38,480 --> 00:28:42,600 Speaker 1: huge American contingent isn't particularly surprising in terms of what 508 00:28:42,600 --> 00:28:44,920 Speaker 1: what we're gonna be looking at is whether he's in 509 00:28:45,040 --> 00:28:48,960 Speaker 1: a sort of dissonance visa vias entourage. I mean, you know, 510 00:28:49,040 --> 00:28:51,480 Speaker 1: there's a clums not a clumsy, but there's just this 511 00:28:51,600 --> 00:28:54,880 Speaker 1: odd new soul this morning of whether the president, given 512 00:28:54,880 --> 00:28:56,960 Speaker 1: the shutdown, and I mean the president getting this Sunday 513 00:28:57,040 --> 00:29:01,000 Speaker 1: or getting to Monday, forget about jetting over to Geneva 514 00:29:01,120 --> 00:29:05,640 Speaker 1: zero wherever in heading up uh two Davos, will he 515 00:29:05,760 --> 00:29:09,080 Speaker 1: go if there's a shutdown. I find it unimaginable that 516 00:29:09,160 --> 00:29:11,240 Speaker 1: he will travel if there's a shutdown. But am I 517 00:29:11,280 --> 00:29:15,120 Speaker 1: wrong on that? First of all, I think he you know, 518 00:29:15,200 --> 00:29:17,360 Speaker 1: he could go even if there's a shutdown. I'm not 519 00:29:17,400 --> 00:29:19,840 Speaker 1: really that he is the kind of person to actually 520 00:29:20,240 --> 00:29:22,880 Speaker 1: canceled as plans for that reason. But but more importantly, 521 00:29:22,880 --> 00:29:25,000 Speaker 1: I think it goes the other way around. I think, um, 522 00:29:25,080 --> 00:29:28,440 Speaker 1: we're more likely to see Republicans uh not cave but 523 00:29:28,520 --> 00:29:31,400 Speaker 1: you know, compromise on the doctor issue in order to 524 00:29:31,440 --> 00:29:34,160 Speaker 1: avoid a shutdown, or in order to sort of pass 525 00:29:34,320 --> 00:29:36,479 Speaker 1: a very short term cr that will allow the presidents 526 00:29:36,680 --> 00:29:41,720 Speaker 1: to go to Davos without a wrinkle. The US dollar 527 00:29:41,840 --> 00:29:44,600 Speaker 1: trading at the weakest level in three years. Here to 528 00:29:44,600 --> 00:29:47,160 Speaker 1: help us understand what's going on is Alan Ruskin. He 529 00:29:47,280 --> 00:29:50,800 Speaker 1: is Deutsche Bank's global head of G ten FX strategy 530 00:29:51,040 --> 00:29:53,600 Speaker 1: and he joins us here in our eleven three oh studios. Alan, 531 00:29:53,640 --> 00:29:56,320 Speaker 1: thank you very much for being here. So what what 532 00:29:56,600 --> 00:29:59,960 Speaker 1: explanation are you offering clients and customers about the weakness 533 00:30:00,000 --> 00:30:02,840 Speaker 1: of the U S dollar and its pervasiveness. Well, I 534 00:30:02,840 --> 00:30:05,000 Speaker 1: think what we're seeing as a continuation of what we 535 00:30:05,040 --> 00:30:08,200 Speaker 1: saw much for much of really last year, and last 536 00:30:08,240 --> 00:30:12,560 Speaker 1: year's story was one where, um, particularly after the French election, 537 00:30:12,600 --> 00:30:15,520 Speaker 1: you had a rerating of the euro both in terms 538 00:30:15,520 --> 00:30:18,560 Speaker 1: of political risk and then I think, you know, coincident 539 00:30:18,600 --> 00:30:21,640 Speaker 1: to that, really a rerating in terms of what was 540 00:30:21,680 --> 00:30:25,880 Speaker 1: going on on the economy side of things, and the 541 00:30:26,000 --> 00:30:30,880 Speaker 1: market has been also reconsidering what's going to go on 542 00:30:31,000 --> 00:30:33,720 Speaker 1: in terms of ECB policy and the changes in the 543 00:30:33,760 --> 00:30:37,040 Speaker 1: retreat from really emergency easing that you've had in the ECB, 544 00:30:37,280 --> 00:30:40,480 Speaker 1: and is in fact um much more intent in terms 545 00:30:40,520 --> 00:30:43,800 Speaker 1: of trading off that than what we see from the 546 00:30:43,840 --> 00:30:46,520 Speaker 1: Federal Reserve. Well when do you think, when do you 547 00:30:46,560 --> 00:30:48,360 Speaker 1: think we're going to find out? I mean, it is 548 00:30:48,400 --> 00:30:50,400 Speaker 1: just just going to use to trade at these levels 549 00:30:50,480 --> 00:30:54,960 Speaker 1: until that is resolved. Um, we you know, it seemed 550 00:30:54,960 --> 00:30:58,040 Speaker 1: to be frontloading a lot of the euro positive news 551 00:30:58,120 --> 00:31:04,920 Speaker 1: so far. So we definitely see um a more constructive 552 00:31:05,160 --> 00:31:07,240 Speaker 1: view on the euro early in the year than we 553 00:31:07,320 --> 00:31:09,880 Speaker 1: might have anticipated. Really, it's you know, it's it's one 554 00:31:10,000 --> 00:31:13,680 Speaker 1: where Um, if there is going to be challenges to 555 00:31:13,720 --> 00:31:16,200 Speaker 1: the view, I think it will have to come more 556 00:31:16,280 --> 00:31:19,240 Speaker 1: from the dollar positive side than the euronegative side. So 557 00:31:19,720 --> 00:31:24,160 Speaker 1: in that sense, sometime later this year, the market will 558 00:31:24,320 --> 00:31:27,920 Speaker 1: I think pricing more fed tightening than they're currently pricing 559 00:31:27,960 --> 00:31:30,520 Speaker 1: in and that could be you know, a moment in 560 00:31:30,520 --> 00:31:33,120 Speaker 1: which the dollar we actually get some relief. Is there 561 00:31:33,120 --> 00:31:36,400 Speaker 1: a bet now, alan Is there a trade as there 562 00:31:36,400 --> 00:31:39,760 Speaker 1: are a consensus trade, as there a big bet being placed, 563 00:31:41,440 --> 00:31:44,120 Speaker 1: not as big as you might think. I think, you know, 564 00:31:44,160 --> 00:31:48,440 Speaker 1: we started the year with Euro leverage positions um fairly flat, 565 00:31:48,920 --> 00:31:52,280 Speaker 1: surprisingly so, and it was really asset managers that were 566 00:31:52,520 --> 00:31:54,760 Speaker 1: long Euros, and that was more a story I think 567 00:31:54,840 --> 00:32:00,080 Speaker 1: of building up long euro exposure, particularly as it relates 568 00:32:00,120 --> 00:32:04,400 Speaker 1: to equity markets, and particularly as it relates to hedge ratios. 569 00:32:04,480 --> 00:32:06,880 Speaker 1: The foreigners heade ratios were way too high in Urine, 570 00:32:06,880 --> 00:32:09,760 Speaker 1: They're now wanted some Euro exposures. I think that was, 571 00:32:10,040 --> 00:32:12,560 Speaker 1: you know, a shift we saw last year. This year, 572 00:32:12,640 --> 00:32:14,480 Speaker 1: in the beginning of this year, you are seeing some 573 00:32:14,560 --> 00:32:17,719 Speaker 1: build up in leverage positions and as we know, that 574 00:32:17,760 --> 00:32:19,640 Speaker 1: can be more fly by night as it were, so 575 00:32:20,040 --> 00:32:22,520 Speaker 1: you can get a squeeze of that position going forward. 576 00:32:22,880 --> 00:32:26,800 Speaker 1: I really agree with you that everybody what what Pim 577 00:32:26,800 --> 00:32:28,760 Speaker 1: and I saw ellen end of the end of the 578 00:32:28,840 --> 00:32:33,840 Speaker 1: year was massive ambiguity, uncertainty, lack of belief in calls, 579 00:32:34,520 --> 00:32:37,240 Speaker 1: and it seems with a vengeance that slammed it in 580 00:32:37,280 --> 00:32:39,520 Speaker 1: the last three or four weeks. Do you sense that 581 00:32:39,560 --> 00:32:42,719 Speaker 1: at Deutsche Banker now look at George Sarah Ellis's publish 582 00:32:42,800 --> 00:32:46,920 Speaker 1: call on stronger Euro People are really starting to stake 583 00:32:46,920 --> 00:32:50,880 Speaker 1: our territory aren't they much more so? Tom, definitely, Yeah. 584 00:32:50,920 --> 00:32:55,000 Speaker 1: I think we've had internally obviously much more debate really 585 00:32:55,080 --> 00:32:58,240 Speaker 1: on the framework behind currencies. And I would say I've 586 00:32:58,280 --> 00:33:00,600 Speaker 1: had really, you know, for at least in years since 587 00:33:00,640 --> 00:33:02,760 Speaker 1: two thousand and eight. So that tells you something about 588 00:33:03,000 --> 00:33:06,440 Speaker 1: the uncertainty in terms of the actual underlying forces driving 589 00:33:06,440 --> 00:33:10,800 Speaker 1: currencies right now. But I think people have staked things out. 590 00:33:11,320 --> 00:33:13,160 Speaker 1: We've seen in the past, of course, that the first 591 00:33:13,200 --> 00:33:16,040 Speaker 1: couple of weeks of a year are not necessary, you know, 592 00:33:16,080 --> 00:33:19,040 Speaker 1: indicative of underlying trend really, so I think one has 593 00:33:19,040 --> 00:33:20,640 Speaker 1: to be a little bit cautious, and I think one 594 00:33:20,680 --> 00:33:23,840 Speaker 1: would be definitely cautious if those leverage positions move up, 595 00:33:24,080 --> 00:33:26,200 Speaker 1: you know, another nights. Really I think that, you know, 596 00:33:26,280 --> 00:33:29,800 Speaker 1: that's that would be a cautionary sign Alright, so we've 597 00:33:29,800 --> 00:33:32,000 Speaker 1: got your call there. I want to just step back 598 00:33:32,000 --> 00:33:34,520 Speaker 1: for a second. Commodity based currencies. I know your G 599 00:33:34,680 --> 00:33:37,760 Speaker 1: ten strategies, but where where does the commodity play come 600 00:33:37,800 --> 00:33:43,080 Speaker 1: into into focus? For for for traders, well, I think 601 00:33:43,320 --> 00:33:45,880 Speaker 1: the Euro is still very important because pretty much everyone 602 00:33:45,960 --> 00:33:48,680 Speaker 1: gets caught in the draft of the Euro. The Euro 603 00:33:48,760 --> 00:33:51,200 Speaker 1: is more more or less the anti pole of the dollars, 604 00:33:51,200 --> 00:33:52,840 Speaker 1: so it's on the other side of the dollar and 605 00:33:52,880 --> 00:33:55,760 Speaker 1: it sort of drags everyone with it. So that creates 606 00:33:55,760 --> 00:33:58,400 Speaker 1: a natural propensity for the dollar to be weaker. But 607 00:33:58,640 --> 00:34:01,640 Speaker 1: I think the commodity currency side has had quite a 608 00:34:01,720 --> 00:34:05,040 Speaker 1: special story over the last month or so. Around the 609 00:34:05,040 --> 00:34:07,680 Speaker 1: middle of December, commodity prices went crearly weak, and then 610 00:34:07,680 --> 00:34:10,800 Speaker 1: they went on a real race to the top side. 611 00:34:11,400 --> 00:34:14,239 Speaker 1: Lead in the no small pot by oil, but it 612 00:34:14,320 --> 00:34:18,360 Speaker 1: was more than oils based seven right now for w T. 613 00:34:18,560 --> 00:34:21,239 Speaker 1: I yeah, But I think what we feel there is that, 614 00:34:21,640 --> 00:34:24,160 Speaker 1: if anything, we're gonna see some topping out in terms 615 00:34:24,160 --> 00:34:27,520 Speaker 1: of sending the energy complex because at these kind of 616 00:34:27,520 --> 00:34:29,799 Speaker 1: oil prices, US supply is going to kick in. You're 617 00:34:29,800 --> 00:34:32,840 Speaker 1: gonna say, as riccounts going up again and constraint to 618 00:34:32,880 --> 00:34:35,799 Speaker 1: the top side and beautifully said, and that goes to 619 00:34:35,920 --> 00:34:38,360 Speaker 1: this word, folks, with the word I use in lectures, 620 00:34:38,400 --> 00:34:43,399 Speaker 1: this responsiveness and the fancy Ruskin word is elasticities. There's 621 00:34:43,440 --> 00:34:48,680 Speaker 1: a new elasticity in oil supply. Are those same elasticities 622 00:34:48,680 --> 00:34:51,480 Speaker 1: out there in other commodities? Like if you look at Brazil, 623 00:34:51,680 --> 00:34:55,840 Speaker 1: Allen and you want to play Brazil, are the responsiveness 624 00:34:55,960 --> 00:34:58,840 Speaker 1: is of copper the same as they used to be. No, 625 00:34:58,960 --> 00:35:01,480 Speaker 1: I'd be shous there really. I mean, you know a 626 00:35:01,520 --> 00:35:05,920 Speaker 1: lot of these other commodities need huge capital expenditure UM 627 00:35:05,960 --> 00:35:09,640 Speaker 1: to really lift up supply, and there needs to be 628 00:35:09,719 --> 00:35:13,640 Speaker 1: spare capacity. And I think you know they're on the 629 00:35:13,680 --> 00:35:17,080 Speaker 1: oil side, you know that there's plenty of spare capacity 630 00:35:17,120 --> 00:35:19,839 Speaker 1: at the right price. Effectively, Yeah, I think you can 631 00:35:19,880 --> 00:35:23,279 Speaker 1: say that less confidently with most other commodities. And I 632 00:35:23,320 --> 00:35:26,120 Speaker 1: want to just turn attention to politics and the reaction 633 00:35:26,200 --> 00:35:31,279 Speaker 1: that currency markets have when elections surprised. And I know, 634 00:35:31,360 --> 00:35:33,960 Speaker 1: for example, if you go back to the second election 635 00:35:34,080 --> 00:35:38,680 Speaker 1: for Theresa May in seventeen and the calls for the 636 00:35:38,760 --> 00:35:41,239 Speaker 1: British pound what it would do as a result of 637 00:35:41,280 --> 00:35:45,399 Speaker 1: the election. What election now do you most look at, 638 00:35:45,680 --> 00:35:50,080 Speaker 1: and what are the different scenarios that you're gaming. Well, 639 00:35:50,080 --> 00:35:53,440 Speaker 1: in the political sphere, obviously we have the shutdown story 640 00:35:53,480 --> 00:35:56,000 Speaker 1: here in the US. I think that's does that really 641 00:35:56,000 --> 00:35:58,680 Speaker 1: matter to me? Not really. I don't think I think 642 00:35:58,680 --> 00:36:02,040 Speaker 1: it tends to any enthusiasm that you could have in 643 00:36:02,040 --> 00:36:06,400 Speaker 1: the dollar theoretically at least, or it sounds good, yeah, 644 00:36:06,440 --> 00:36:08,520 Speaker 1: but I don't think that's that that's obviously not the 645 00:36:08,560 --> 00:36:12,520 Speaker 1: big one. Um, there is a big story in Germany 646 00:36:12,560 --> 00:36:15,600 Speaker 1: of course, right that the spd A is still voting 647 00:36:16,120 --> 00:36:18,000 Speaker 1: as to whether you know, they're prepared to go in 648 00:36:18,040 --> 00:36:21,239 Speaker 1: with sort of a grand coalition with Merkele. Merkele is 649 00:36:21,239 --> 00:36:24,240 Speaker 1: the bulk that holds the euro together to some extent 650 00:36:24,360 --> 00:36:27,560 Speaker 1: and in terms of at least political terms. And is 651 00:36:27,560 --> 00:36:30,680 Speaker 1: it surprising to you that there isn't as there isn't 652 00:36:30,680 --> 00:36:32,759 Speaker 1: a lot of cacophony as Tom would say, or a 653 00:36:32,840 --> 00:36:37,719 Speaker 1: noise about the lack of a of a government in Germany. Yeah, 654 00:36:37,760 --> 00:36:40,080 Speaker 1: I think it's a sense sense that when it all 655 00:36:40,120 --> 00:36:43,600 Speaker 1: comes out in the wash, Merkel will still you know, 656 00:36:43,680 --> 00:36:47,640 Speaker 1: be chancell effectively and it'll all be good. So I 657 00:36:47,640 --> 00:36:52,160 Speaker 1: think there's an optimistic view there. Um, you know what 658 00:36:52,239 --> 00:36:55,680 Speaker 1: that future government will look like. Is it a grand coalition? 659 00:36:55,800 --> 00:36:59,520 Speaker 1: Is a so called Jamaica type coalition is still in 660 00:36:59,600 --> 00:37:01,800 Speaker 1: question and I think but the feeling is that Merkel 661 00:37:01,840 --> 00:37:04,000 Speaker 1: will come through in the end, even if you have 662 00:37:04,080 --> 00:37:06,120 Speaker 1: another election. So that's a big one. And then the 663 00:37:06,160 --> 00:37:09,480 Speaker 1: Italian election in March and early March. I think that's 664 00:37:09,520 --> 00:37:13,280 Speaker 1: that's certainly one that could get the market more interested. 665 00:37:13,400 --> 00:37:15,600 Speaker 1: But there's nothing quite like the French election that we 666 00:37:15,719 --> 00:37:18,360 Speaker 1: just had. You know, obviously last year, I think in 667 00:37:18,480 --> 00:37:22,640 Speaker 1: terms of having ramifications for the currency market. Ellen Ruskin 668 00:37:22,760 --> 00:37:25,680 Speaker 1: with Deutsche Bank PIM, I'm glad you mentioned cacophony because 669 00:37:25,719 --> 00:37:28,040 Speaker 1: every time I say a four syllable word, I get 670 00:37:28,080 --> 00:37:30,640 Speaker 1: paid extra. I don't know if you knew that. That's 671 00:37:30,640 --> 00:37:32,400 Speaker 1: why I rely on you. Yeah, you know, we go 672 00:37:32,440 --> 00:37:35,080 Speaker 1: to four syllable words as we can. Kcomphony off the 673 00:37:35,120 --> 00:37:38,080 Speaker 1: Oxford English Dictionary. Ellen Ruskin has it on his desk. 674 00:37:38,520 --> 00:37:41,600 Speaker 1: We have it on the Bloomberg terminal. Sixteen fifties six 675 00:37:41,640 --> 00:37:45,319 Speaker 1: was the first citation for cacophony. Um, I want to 676 00:37:45,480 --> 00:37:47,120 Speaker 1: go Allen, and I don't want to get you in 677 00:37:47,200 --> 00:37:50,880 Speaker 1: trouble here with your compliance people, So you know, dance 678 00:37:50,920 --> 00:37:57,480 Speaker 1: around this observation, which is you remember when foreign exchange 679 00:37:57,840 --> 00:38:03,640 Speaker 1: strategy hedging speculation was of a different beast. All you 680 00:38:03,680 --> 00:38:08,120 Speaker 1: guys drove red ferraris and wrote out written tickets and 681 00:38:08,239 --> 00:38:11,120 Speaker 1: everything was done over the phone. The world is changing 682 00:38:11,160 --> 00:38:13,200 Speaker 1: in PIM fox and I saw that this week with 683 00:38:13,239 --> 00:38:16,200 Speaker 1: a thick trading at the different banks. And I don't 684 00:38:16,200 --> 00:38:18,200 Speaker 1: want you to speak at all about Deutsche bank that 685 00:38:18,200 --> 00:38:22,200 Speaker 1: would be inappropriate. But for the younger people listening who 686 00:38:22,239 --> 00:38:24,880 Speaker 1: want to be Ellen, Ruskin and Alan, there are a 687 00:38:24,960 --> 00:38:29,000 Speaker 1: lot of them. Is there a future in the ballet 688 00:38:29,200 --> 00:38:34,960 Speaker 1: of foreign exchange? Oh? Absolutely, I think at least in 689 00:38:35,000 --> 00:38:40,640 Speaker 1: the strategy area. UM. I think there's still room for 690 00:38:40,920 --> 00:38:45,439 Speaker 1: people for thought process where neural networks, having quite caught 691 00:38:45,520 --> 00:38:49,120 Speaker 1: up with really the cacophony of forces driving currencies, it 692 00:38:49,239 --> 00:38:51,879 Speaker 1: still kind of need people in a sense. I think 693 00:38:51,920 --> 00:38:54,719 Speaker 1: that's that's sitting in the case. UM. At the same time, 694 00:38:54,760 --> 00:38:56,719 Speaker 1: I think when you look at, at least on the 695 00:38:56,880 --> 00:39:01,759 Speaker 1: cell side, UM, electronic trading is sidley taking hold in 696 00:39:01,760 --> 00:39:04,920 Speaker 1: a way in which there are few and fewer spot traders, 697 00:39:04,920 --> 00:39:07,000 Speaker 1: for example, I think that would be a pattern that 698 00:39:07,040 --> 00:39:10,480 Speaker 1: one can say across banks. UM. So it really depends 699 00:39:10,520 --> 00:39:12,840 Speaker 1: where you are, you know. I think you want to 700 00:39:12,840 --> 00:39:15,840 Speaker 1: be at the more knowledge end of the industry. UM. 701 00:39:15,880 --> 00:39:19,480 Speaker 1: And that's probably the same for pretty much every industry. 702 00:39:19,800 --> 00:39:21,560 Speaker 1: You know. I think him of what you and I 703 00:39:21,600 --> 00:39:23,680 Speaker 1: saw this week with the banks, and you're wondering, is 704 00:39:23,719 --> 00:39:25,040 Speaker 1: it a one off? You know, they had a bad 705 00:39:25,080 --> 00:39:27,640 Speaker 1: quarter in trading. I get that, but or is there 706 00:39:27,680 --> 00:39:30,840 Speaker 1: something bigger going on here? Well, the banks are turning 707 00:39:30,840 --> 00:39:34,239 Speaker 1: into commodities. So with all due respect, Alan, I mean, 708 00:39:34,280 --> 00:39:36,320 Speaker 1: you know, a lot of the services that banks offer 709 00:39:36,360 --> 00:39:39,319 Speaker 1: are now being threatened by the advance of a technology, 710 00:39:39,360 --> 00:39:42,160 Speaker 1: whether that is for the retail customer, even for the 711 00:39:42,200 --> 00:39:46,200 Speaker 1: institutional customer. I'd be curious to know your thoughts about bitcoin. 712 00:39:46,280 --> 00:39:51,040 Speaker 1: Everybody's talking about it, and it just defies real explanation 713 00:39:51,120 --> 00:39:53,840 Speaker 1: because I keep hearing bitcoin, I'm not so sure, and 714 00:39:53,880 --> 00:39:57,279 Speaker 1: then the next sentences, Oh, but blockchain, that's great, that's 715 00:39:57,320 --> 00:39:59,920 Speaker 1: a fabulous thing. And I always try to put the 716 00:40:00,000 --> 00:40:01,880 Speaker 1: too together, and I confess I'm much smart enough to 717 00:40:01,920 --> 00:40:04,319 Speaker 1: do so. I don't have any for syllable words for it. 718 00:40:04,800 --> 00:40:08,280 Speaker 1: I think you summed it up perfectly there. I think people, 719 00:40:08,760 --> 00:40:11,800 Speaker 1: I think have question marks about bitcoin as an asset 720 00:40:12,200 --> 00:40:14,920 Speaker 1: if you look at the underlying value in terms of 721 00:40:15,680 --> 00:40:19,440 Speaker 1: you can't you know same Coessentially there's nothing they are 722 00:40:19,520 --> 00:40:22,200 Speaker 1: really I mean, that's that's very very difficult to assess. 723 00:40:22,200 --> 00:40:25,640 Speaker 1: Which you can see is volatility, right, and the extreme 724 00:40:25,760 --> 00:40:29,520 Speaker 1: volatility makes one think that this is not you know, 725 00:40:29,560 --> 00:40:32,000 Speaker 1: this is not the new gold as it were really 726 00:40:32,040 --> 00:40:34,920 Speaker 1: in terms of a stable long term acid or it's 727 00:40:34,960 --> 00:40:37,000 Speaker 1: not there yet it might not be there for a 728 00:40:37,040 --> 00:40:39,439 Speaker 1: long long time. I think to your point in terms 729 00:40:39,480 --> 00:40:41,880 Speaker 1: of blockchain as a technology, I think that you know, 730 00:40:41,880 --> 00:40:44,440 Speaker 1: there's the perception that that can be used in a 731 00:40:44,520 --> 00:40:47,759 Speaker 1: variety of different industries. I think Kodak has obviously put 732 00:40:47,800 --> 00:40:50,800 Speaker 1: their foot forward. UM, So I think there's some logic 733 00:40:50,880 --> 00:40:55,200 Speaker 1: there within the sale is big moves. Guys like big 734 00:40:55,239 --> 00:40:58,439 Speaker 1: figure moves and that are are we at a point 735 00:40:58,440 --> 00:41:00,600 Speaker 1: where we could see big figure your moves or do 736 00:41:00,640 --> 00:41:02,280 Speaker 1: you just look at like we look at a damping 737 00:41:02,400 --> 00:41:05,240 Speaker 1: vix or we look at dampen FX follow it's another 738 00:41:05,360 --> 00:41:08,840 Speaker 1: quiet year, where do we see big figure moves? So 739 00:41:09,040 --> 00:41:11,759 Speaker 1: I think the arbit on that is still the bond 740 00:41:11,800 --> 00:41:16,279 Speaker 1: market and the things not the central banks, No, I 741 00:41:16,320 --> 00:41:19,120 Speaker 1: think less. I think if the bond markets don't respond 742 00:41:19,160 --> 00:41:22,120 Speaker 1: that much to the central banks, then as we saw 743 00:41:22,239 --> 00:41:24,839 Speaker 1: so far in terms of fair tightening, then I think 744 00:41:24,840 --> 00:41:27,759 Speaker 1: that's less problematic. I think a couple of issues in 745 00:41:27,840 --> 00:41:30,960 Speaker 1: terms of bond markets which suggests there is more volatility 746 00:41:30,960 --> 00:41:34,239 Speaker 1: in the air. Um. One of them, of course is inflation, 747 00:41:34,360 --> 00:41:37,280 Speaker 1: and I think that is starting to turn up just slightly. 748 00:41:37,280 --> 00:41:40,560 Speaker 1: I think there's just enough force. I just gotta tell you, Alan, 749 00:41:40,600 --> 00:41:44,320 Speaker 1: you just got a twenty percent increase in the cost 750 00:41:44,560 --> 00:41:50,040 Speaker 1: of your Amazon monthly membership? Did I? Yeah, everybody, everybody did. 751 00:41:50,160 --> 00:41:52,640 Speaker 1: Everybody that's signed up Amazon has raising the price of 752 00:41:52,920 --> 00:41:56,359 Speaker 1: the prime monthly membership by nearly twent How is that 753 00:41:56,480 --> 00:41:59,760 Speaker 1: not inflation? Yeah? No, I think you know, there's questions 754 00:41:59,760 --> 00:42:02,680 Speaker 1: about what inflation we're measuring. Obviously, there's a lot of 755 00:42:02,719 --> 00:42:05,600 Speaker 1: acid inflation, for one thing, So I think, you know 756 00:42:05,640 --> 00:42:08,759 Speaker 1: there's that as an issue for central bankers. But I 757 00:42:08,760 --> 00:42:12,600 Speaker 1: think even in the metrics that we use core PC really, 758 00:42:12,600 --> 00:42:15,239 Speaker 1: which is the central banks focus, I think you'll see 759 00:42:15,320 --> 00:42:18,200 Speaker 1: the beginnings thereof some uptick. You're seeing a little bit 760 00:42:18,280 --> 00:42:20,479 Speaker 1: on the wage side. You see lots of headlines about 761 00:42:20,520 --> 00:42:24,319 Speaker 1: the tax reform passing on or getting passed on too 762 00:42:24,440 --> 00:42:26,920 Speaker 1: higher wages really, so I think that's going to be important. 763 00:42:27,080 --> 00:42:29,080 Speaker 1: You're going to see it in terms of demand. We 764 00:42:29,160 --> 00:42:31,799 Speaker 1: saw a soft patch and inflation in the middle of 765 00:42:31,880 --> 00:42:35,160 Speaker 1: last year that related to what was happening about eighteen 766 00:42:35,200 --> 00:42:37,520 Speaker 1: months prior to that in the economy. As the economy 767 00:42:37,560 --> 00:42:39,279 Speaker 1: has improved, so I think you're going to start to 768 00:42:39,320 --> 00:42:41,400 Speaker 1: see some pick up there. And I think to the 769 00:42:41,400 --> 00:42:43,840 Speaker 1: point in terms of a weeker dollar and stronger oil. 770 00:42:44,000 --> 00:42:47,080 Speaker 1: All those forces are effectively saying, look here, um, it's 771 00:42:47,120 --> 00:42:49,160 Speaker 1: going to all error to the top side. Now, if 772 00:42:49,160 --> 00:42:51,040 Speaker 1: you get a little bit of inflation and the central 773 00:42:51,040 --> 00:42:53,200 Speaker 1: banks are not adding to their balance sheets in the 774 00:42:53,239 --> 00:42:56,120 Speaker 1: same way, then those two forces, I think, in combination 775 00:42:56,520 --> 00:42:58,440 Speaker 1: are actually going to tighten things up as far as 776 00:42:58,719 --> 00:43:00,719 Speaker 1: the back in the bond market, and it's going to 777 00:43:00,800 --> 00:43:06,279 Speaker 1: create more volatility. Thanks for listening to the Bloomberg Surveillance podcast. 778 00:43:06,640 --> 00:43:11,560 Speaker 1: Subscribe and listen to interviews on Apple Podcasts, SoundCloud, or 779 00:43:11,719 --> 00:43:16,040 Speaker 1: whichever podcast platform you prefer. I'm on Twitter at Tom 780 00:43:16,160 --> 00:43:20,040 Speaker 1: Keane before the podcast. You can always catch us worldwide. 781 00:43:20,480 --> 00:43:21,560 Speaker 1: I'm Bloomberg Radio