1 00:00:09,720 --> 00:00:12,880 Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keen with 2 00:00:13,560 --> 00:00:16,520 Speaker 1: David Gura. Daily we bring you insight from the best 3 00:00:16,560 --> 00:00:22,239 Speaker 1: of economics, finance, investment, and international relations. Find Bloomberg Surveillance 4 00:00:22,320 --> 00:00:27,000 Speaker 1: on Apple Podcasts, SoundCloud, Bloomberg dot Com, and of course 5 00:00:27,320 --> 00:00:33,600 Speaker 1: on the Bloomberg When we kick things off this morning 6 00:00:33,600 --> 00:00:35,520 Speaker 1: with Torsten's lock. He's here in our Bloomberg and eleven 7 00:00:35,560 --> 00:00:38,560 Speaker 1: three studios. He's the chief international economist at Deutsche Banks. 8 00:00:38,600 --> 00:00:40,360 Speaker 1: Right to have you with us, And let's start with 9 00:00:40,400 --> 00:00:42,839 Speaker 1: this election in Japan. Let me get your thoughts on 10 00:00:43,240 --> 00:00:44,800 Speaker 1: sort of how it panned out better than I think 11 00:00:44,840 --> 00:00:46,440 Speaker 1: the that's an app election in the UK a few 12 00:00:46,479 --> 00:00:48,360 Speaker 1: months ago did for for the person who called it, 13 00:00:48,920 --> 00:00:51,400 Speaker 1: What does it mean for for the economy? Looking look 14 00:00:51,440 --> 00:00:53,640 Speaker 1: as though it seems like Asians obvious going to continue 15 00:00:53,640 --> 00:00:55,520 Speaker 1: with another term as Prime minister. Yeah, I mean as 16 00:00:55,600 --> 00:01:00,600 Speaker 1: usual investors want continuation of current policies. Say in some case, 17 00:01:00,640 --> 00:01:02,400 Speaker 1: of course they want change, but in this case the 18 00:01:02,520 --> 00:01:05,920 Speaker 1: mandate seems to be strong of Ebionomics to just continue 19 00:01:05,959 --> 00:01:08,800 Speaker 1: pushing on in particularly the third era of doing structural reform, 20 00:01:08,840 --> 00:01:12,160 Speaker 1: of helping liberalizing labor markets. Liberalizing product markets get the 21 00:01:12,200 --> 00:01:15,120 Speaker 1: economy more competitive. So I think the first point is 22 00:01:15,160 --> 00:01:18,800 Speaker 1: that yes, this will continue our current policies, and I 23 00:01:18,840 --> 00:01:20,720 Speaker 1: think that will probably be good news for the market. 24 00:01:20,959 --> 00:01:23,640 Speaker 1: The second thing that's also critical is that in April 25 00:01:23,920 --> 00:01:27,320 Speaker 1: Caruda's term runs out. So another issue, of course that's 26 00:01:27,319 --> 00:01:30,280 Speaker 1: been discussed a lot is and I've be seen both 27 00:01:30,319 --> 00:01:33,959 Speaker 1: with clients here and abroad, we debate will will corrode 28 00:01:33,959 --> 00:01:36,520 Speaker 1: A continue, and it looks like this will probably not 29 00:01:36,600 --> 00:01:40,160 Speaker 1: be a continuation and therefore in some sense also a 30 00:01:40,160 --> 00:01:42,240 Speaker 1: continuation of the policies that have been going on with 31 00:01:42,319 --> 00:01:44,800 Speaker 1: q QI. We focus there on on who's going to 32 00:01:44,840 --> 00:01:46,520 Speaker 1: be leading that central bank. To focus here in the 33 00:01:46,600 --> 00:01:49,240 Speaker 1: US is squarely on that as well. How do you 34 00:01:49,240 --> 00:01:51,200 Speaker 1: begin to forecast what it would mean to have a 35 00:01:51,320 --> 00:01:54,160 Speaker 1: John Taylor FED or a Kevin Wassh FED or any 36 00:01:54,160 --> 00:01:56,320 Speaker 1: other permutation of of FED reserve? How much does that 37 00:01:56,360 --> 00:01:58,520 Speaker 1: matter at this point in your estimation who's leading the fan? 38 00:01:59,280 --> 00:02:02,440 Speaker 1: It's just I mean, I think it's extremely important. The 39 00:02:02,480 --> 00:02:05,400 Speaker 1: problem is that I just don't have a modeled way 40 00:02:05,520 --> 00:02:07,360 Speaker 1: on the left hand side, have the fit chair, because 41 00:02:07,360 --> 00:02:08,560 Speaker 1: I don't know what to put on the right hand 42 00:02:08,560 --> 00:02:12,040 Speaker 1: side and predict that. So, in other words, all joking aside. 43 00:02:12,040 --> 00:02:14,400 Speaker 1: I just think that it is a very important issue, 44 00:02:14,440 --> 00:02:16,640 Speaker 1: but the market has been grappling with how to quantify 45 00:02:16,720 --> 00:02:19,240 Speaker 1: that risk if it is one candidate, is that candidate 46 00:02:19,320 --> 00:02:21,359 Speaker 1: going to follow through on what they have promised and 47 00:02:21,440 --> 00:02:24,320 Speaker 1: said earlier? Are those Candida is going to change their minds? 48 00:02:24,840 --> 00:02:26,800 Speaker 1: Those Candida is going to listen maining to what Trump 49 00:02:26,880 --> 00:02:29,000 Speaker 1: is saying a lot of things that just go into 50 00:02:29,040 --> 00:02:31,679 Speaker 1: making this a really difficult thing for markets to deal 51 00:02:31,720 --> 00:02:35,440 Speaker 1: with because it's just so unquantifiable in so many dimensions. 52 00:02:35,600 --> 00:02:38,400 Speaker 1: That doesn't mean that markets don't really care too much, 53 00:02:38,919 --> 00:02:41,280 Speaker 1: but this story has in some sense been battling with 54 00:02:41,280 --> 00:02:45,280 Speaker 1: the short sellers of all valatility. Despite this uncertaintyvaltility remains 55 00:02:45,320 --> 00:02:48,840 Speaker 1: remained incredibly low, not only vis but also swaption ball 56 00:02:48,960 --> 00:02:52,560 Speaker 1: or ficting convole both incredit and in rates remains incredibly low. 57 00:02:52,639 --> 00:02:54,760 Speaker 1: Despite that, we just don't know what the outcome into 58 00:02:54,840 --> 00:02:56,960 Speaker 1: this front, and this is just not something people have 59 00:02:57,000 --> 00:02:59,680 Speaker 1: been willing to bid all high on because you just 60 00:02:59,720 --> 00:03:02,680 Speaker 1: don't really know how to quantify the different risks on 61 00:03:02,720 --> 00:03:05,320 Speaker 1: this trade towards the New Britain. Most recently about normalization 62 00:03:05,320 --> 00:03:07,760 Speaker 1: of volatility, and I wonder what's going to catalyze that, 63 00:03:07,800 --> 00:03:09,120 Speaker 1: what does it mean, and what's it gonna What's going 64 00:03:09,160 --> 00:03:10,840 Speaker 1: to be the catalyst that brings it abound. Yeah, so 65 00:03:10,919 --> 00:03:13,000 Speaker 1: this is a really important question in my mind. I mean, 66 00:03:13,000 --> 00:03:14,959 Speaker 1: the whole reason why equities are doing well, the whole 67 00:03:14,960 --> 00:03:17,160 Speaker 1: reason why credit is doing well, the whole reason why 68 00:03:17,240 --> 00:03:20,119 Speaker 1: rates remain so low is because we just don't yet 69 00:03:20,360 --> 00:03:23,200 Speaker 1: have any signs of inflation. If you are your Bloomberg 70 00:03:23,200 --> 00:03:26,440 Speaker 1: screen type E c FC GO, you will see that 71 00:03:26,520 --> 00:03:30,519 Speaker 1: the expectation to inflation over the next two years is 72 00:03:30,560 --> 00:03:33,160 Speaker 1: that inflation here we're talking about core pc inflation, which 73 00:03:33,160 --> 00:03:34,760 Speaker 1: is what they FIT is looking at, is going to 74 00:03:34,840 --> 00:03:37,360 Speaker 1: remain low, is sensitive up to the second quarter of 75 00:03:37,440 --> 00:03:40,040 Speaker 1: next year. So in other words, this is saying that 76 00:03:40,080 --> 00:03:42,680 Speaker 1: the music is still playing and therefore if the first 77 00:03:42,680 --> 00:03:46,080 Speaker 1: dominant brick we're waiting phototople here is inflation, and if 78 00:03:46,120 --> 00:03:49,280 Speaker 1: we will only see that in considerous expectations in the 79 00:03:49,280 --> 00:03:52,320 Speaker 1: second quarter of next year, then I think that equities 80 00:03:52,320 --> 00:03:54,200 Speaker 1: will continue to do well, credits press will do well, 81 00:03:54,240 --> 00:03:56,120 Speaker 1: and rates are probably not going to go up much 82 00:03:56,120 --> 00:03:57,800 Speaker 1: and the FIT is probably going to be still more 83 00:03:57,800 --> 00:03:59,360 Speaker 1: on the red, to be tobbish side, at least in 84 00:03:59,440 --> 00:04:01,840 Speaker 1: terms of what they saying. Good morning everyone, David Gerden, 85 00:04:02,000 --> 00:04:05,000 Speaker 1: I'm keep getting your Monday started. It was a sports weekend. 86 00:04:05,960 --> 00:04:10,920 Speaker 1: Yankees done in flames, Jets down in Flames, Giants Giants 87 00:04:10,960 --> 00:04:14,440 Speaker 1: down in sort of a New York inflames kind of weekend. 88 00:04:14,680 --> 00:04:18,880 Speaker 1: Towards and slack with this well to that point, how 89 00:04:19,040 --> 00:04:24,680 Speaker 1: critical is the hard data to the December one? December 90 00:04:25,279 --> 00:04:28,159 Speaker 1: f o MC meeting. They've got a November one maybe, 91 00:04:28,200 --> 00:04:30,480 Speaker 1: in which I'm told is a non event, then they 92 00:04:30,520 --> 00:04:34,559 Speaker 1: have December. Am I right towards them? There's no data 93 00:04:34,960 --> 00:04:39,520 Speaker 1: showing inflation yet at that time. All my expectation is 94 00:04:39,640 --> 00:04:43,240 Speaker 1: the fit's own expectation is and the consensuous expectation is yes, 95 00:04:43,520 --> 00:04:46,479 Speaker 1: as you say, absolutely correct, there is not an expectation 96 00:04:46,520 --> 00:04:49,280 Speaker 1: of inflation at that time. That's why some fm C members, Evans, 97 00:04:49,680 --> 00:04:52,480 Speaker 1: Brain ut Casary have come out and said, hey, wait 98 00:04:52,480 --> 00:04:54,400 Speaker 1: a minute, why are we actually going to high rates 99 00:04:54,400 --> 00:04:56,520 Speaker 1: in December if there's really not a waf of inflation 100 00:04:56,520 --> 00:04:59,159 Speaker 1: at the time. What's critical with your great observation is 101 00:04:59,240 --> 00:05:01,320 Speaker 1: each of those p but put their pants on different 102 00:05:01,320 --> 00:05:05,520 Speaker 1: like car is different than bullet, etcetera. Evans is a 103 00:05:05,680 --> 00:05:11,159 Speaker 1: grizzled Carnegie melon data guy. He wants He's like Larry Meyers. 104 00:05:11,200 --> 00:05:15,120 Speaker 1: He wants to see the data. Right. Absolutely, it's show 105 00:05:15,160 --> 00:05:17,279 Speaker 1: me the money. When the good stands in the door, 106 00:05:17,360 --> 00:05:19,120 Speaker 1: then I will know it. And if I don't then 107 00:05:19,160 --> 00:05:20,960 Speaker 1: I will have to wait a little bit longer. And 108 00:05:21,000 --> 00:05:23,159 Speaker 1: I think for them it's really an issue and Evans 109 00:05:23,160 --> 00:05:26,119 Speaker 1: has been saying that very clearly. Why should we hike 110 00:05:26,400 --> 00:05:29,200 Speaker 1: if there is no signs of inflation? Daven The problem 111 00:05:29,279 --> 00:05:32,160 Speaker 1: with dealing with Torsten Slack and these Europeans is I've 112 00:05:32,160 --> 00:05:34,799 Speaker 1: got to know about good Can you make a note 113 00:05:35,200 --> 00:05:36,800 Speaker 1: call one of the twins? Can you get me the 114 00:05:36,800 --> 00:05:39,479 Speaker 1: cliff notes? And waiting for good dough? You know, I 115 00:05:39,520 --> 00:05:42,880 Speaker 1: gotta I gotta get you know, come on, let's do 116 00:05:42,960 --> 00:05:45,240 Speaker 1: bad waiting for good dough. Let me look it up 117 00:05:45,240 --> 00:05:48,560 Speaker 1: in Wikipedia. Let's look ahead to Thursday here the East 118 00:05:49,000 --> 00:05:50,960 Speaker 1: Council and meeting. What are you looking for out of 119 00:05:50,960 --> 00:05:52,120 Speaker 1: that meeting this week? What do you what do you 120 00:05:52,160 --> 00:05:54,320 Speaker 1: expect the commentary to be like surrounding it? So the 121 00:05:54,320 --> 00:05:56,599 Speaker 1: bottom line and that is is the e CP going 122 00:05:56,640 --> 00:05:59,320 Speaker 1: to give an end date to their QUEI. They have 123 00:05:59,400 --> 00:06:01,359 Speaker 1: done que now for the last few years, they have 124 00:06:01,400 --> 00:06:03,680 Speaker 1: an easy possy for the last five six years, and 125 00:06:03,720 --> 00:06:05,880 Speaker 1: if they have an easier negative industrates and if they're 126 00:06:05,880 --> 00:06:08,239 Speaker 1: going to put an end date to this, the worry 127 00:06:08,279 --> 00:06:10,039 Speaker 1: you can have is that bonds that are trading on 128 00:06:10,120 --> 00:06:12,960 Speaker 1: the day after the end date to their purchases could 129 00:06:13,000 --> 00:06:15,520 Speaker 1: start to move. And most importantly, of course, the fear 130 00:06:15,640 --> 00:06:19,400 Speaker 1: in the marketplace is that if the ECB is no 131 00:06:19,520 --> 00:06:23,520 Speaker 1: longer buying government bonds in the periphery, Italy other countries, 132 00:06:23,839 --> 00:06:25,520 Speaker 1: of course, then the fear is that who will then 133 00:06:25,560 --> 00:06:28,280 Speaker 1: be buying it the day after. So that's why significant 134 00:06:28,320 --> 00:06:31,080 Speaker 1: focus of attention here for the EZB meeting on Thursday 135 00:06:31,120 --> 00:06:33,640 Speaker 1: is will they provide an end date to the purchases 136 00:06:33,760 --> 00:06:35,920 Speaker 1: or will they keep it open? And what's your thinking 137 00:06:35,960 --> 00:06:38,960 Speaker 1: on that. I think it's likely too, so I mean 138 00:06:39,000 --> 00:06:40,480 Speaker 1: we're coming down on the side of saying that they're 139 00:06:40,480 --> 00:06:44,040 Speaker 1: likely to give nine months, are going into September therefore 140 00:06:44,080 --> 00:06:46,680 Speaker 1: next year. But obviously this is a really difficult call, 141 00:06:46,800 --> 00:06:49,280 Speaker 1: but it does become extremely important how they face out, 142 00:06:49,279 --> 00:06:52,520 Speaker 1: and it tells you because the magnitude of QUEI that 143 00:06:52,560 --> 00:06:54,040 Speaker 1: they have done. As Tom and I just boke on 144 00:06:54,120 --> 00:06:55,880 Speaker 1: on TV, the magnitude of where they've done is just 145 00:06:55,920 --> 00:06:59,640 Speaker 1: so much bigger. They have bought seven times issuance in 146 00:06:59,720 --> 00:07:02,960 Speaker 1: the last a few years. And this significant firepower that 147 00:07:02,960 --> 00:07:05,520 Speaker 1: has been brought to the market by the easyb once 148 00:07:05,560 --> 00:07:09,040 Speaker 1: that reverses, is therefore at risk also of having significant 149 00:07:09,040 --> 00:07:11,800 Speaker 1: implications for not only of course rates, but most importantly 150 00:07:11,840 --> 00:07:14,360 Speaker 1: all the assets that people are buying, credit and equities included. 151 00:07:14,560 --> 00:07:17,400 Speaker 1: Then then what does it mean that the Swiss national banks, 152 00:07:17,960 --> 00:07:19,840 Speaker 1: you know, not with the challenges of the e c 153 00:07:20,000 --> 00:07:22,680 Speaker 1: b AM. I correct, they own like x amount of 154 00:07:22,760 --> 00:07:26,800 Speaker 1: Apple shares, They own equities, so they own aities. Explain it? 155 00:07:26,840 --> 00:07:29,920 Speaker 1: Why does the central bank own an equity portfolio? So 156 00:07:30,000 --> 00:07:32,240 Speaker 1: I should know the Japanese also have been buying ETFs, 157 00:07:32,280 --> 00:07:37,320 Speaker 1: but I mean they The answer here is that the 158 00:07:37,440 --> 00:07:40,760 Speaker 1: Swiss came to the conclusion that it was difficult probably 159 00:07:40,800 --> 00:07:44,360 Speaker 1: to buy Swiss companies, so therefore they are buying non 160 00:07:44,360 --> 00:07:47,360 Speaker 1: Swiss companies and now they end up holding significant amounts 161 00:07:47,360 --> 00:07:50,920 Speaker 1: of non Swiss companies. Absolutely quickly, he let me ask 162 00:07:50,920 --> 00:07:53,200 Speaker 1: you about the ramifications of what we've seen play out 163 00:07:53,200 --> 00:07:57,160 Speaker 1: in northern Spain. Uh, the tension persists there between those 164 00:07:57,160 --> 00:07:59,560 Speaker 1: in Catalonia and Spanish coming how do you see that 165 00:07:59,600 --> 00:08:04,320 Speaker 1: affecting Europe as a whole. So obviously the political landscape 166 00:08:04,360 --> 00:08:08,880 Speaker 1: in Europe has been shifting in different ways and it 167 00:08:09,120 --> 00:08:11,520 Speaker 1: always fluctuates a big back and forth. It's a bit 168 00:08:11,560 --> 00:08:14,360 Speaker 1: of a tanko in many different ways. But I still 169 00:08:14,400 --> 00:08:15,600 Speaker 1: think that at the end of the day that the 170 00:08:15,640 --> 00:08:18,160 Speaker 1: e CP looks at that mainly from a perspective of 171 00:08:18,200 --> 00:08:20,840 Speaker 1: how has it impacted markets from up two now and 172 00:08:20,880 --> 00:08:23,880 Speaker 1: the answer is not that much? And what is the 173 00:08:23,920 --> 00:08:25,800 Speaker 1: impact like is going to be the future? And the 174 00:08:25,840 --> 00:08:29,320 Speaker 1: conclusion probably could also be not that much. Then they 175 00:08:29,320 --> 00:08:32,160 Speaker 1: are probably a sigh of relief in Frankfort at the 176 00:08:32,160 --> 00:08:37,079 Speaker 1: moment that at least so far it seems manageable from 177 00:08:37,080 --> 00:08:40,680 Speaker 1: a monetary policy perspective. First, it's like, thank you so much, David, 178 00:08:41,200 --> 00:08:45,800 Speaker 1: I'm up to speed now, Thomas A. Becket waiting for 179 00:08:45,960 --> 00:08:49,640 Speaker 1: good Oh you know, I gotta be honest, holiday can 180 00:08:49,679 --> 00:08:51,800 Speaker 1: do traumatic? Do? I need to? Like? I need to 181 00:08:51,840 --> 00:08:54,440 Speaker 1: get through this play right? Well? Did you do? I mean? 182 00:08:55,000 --> 00:08:57,600 Speaker 1: You did? This is what six high school? I don't know, 183 00:08:57,720 --> 00:08:59,840 Speaker 1: it's been a while, but share the cliff notes with 184 00:08:59,840 --> 00:09:03,360 Speaker 1: me and you're dead. You know the phrase Bucky freaking Dent. 185 00:09:03,720 --> 00:09:07,840 Speaker 1: Now be careful here on radio. There's now a new phrase. 186 00:09:07,920 --> 00:09:13,200 Speaker 1: But justin I mean, come on, Michael bar did you 187 00:09:13,240 --> 00:09:16,679 Speaker 1: see this? Was it fun? It was fun? Well, I 188 00:09:16,720 --> 00:09:19,480 Speaker 1: think I thought the Yankees would make it in game seven, 189 00:09:20,280 --> 00:09:22,600 Speaker 1: Game six none because very Lander was great. Tell of 190 00:09:22,640 --> 00:09:26,920 Speaker 1: you worldwide. It was a fun weekend in New York. 191 00:09:26,960 --> 00:09:29,840 Speaker 1: Even though it went down and flames, it was It 192 00:09:29,960 --> 00:09:45,120 Speaker 1: was good to see. Let's go out of John Vale. 193 00:09:45,160 --> 00:09:47,240 Speaker 1: He joins us now in Bloobrook eleventh three. We call 194 00:09:47,280 --> 00:09:48,600 Speaker 1: on him from time to time here to talk about 195 00:09:48,679 --> 00:09:51,880 Speaker 1: Japan from political perspective, economic perspective. He is a chief 196 00:09:51,880 --> 00:09:54,360 Speaker 1: Global strategy of Nico Asset Management. Joins us here as 197 00:09:54,360 --> 00:09:56,360 Speaker 1: I sent on a Bloombrook eleventh three studios in New York. 198 00:09:56,400 --> 00:09:58,800 Speaker 1: Great to have you with us. Thank you. David Tom 199 00:09:58,840 --> 00:10:01,199 Speaker 1: mentioned that the landslide in of the election that we 200 00:10:01,240 --> 00:10:03,600 Speaker 1: saw over the weekend help us understand the economic import 201 00:10:03,640 --> 00:10:05,719 Speaker 1: of this um as towardstens Loock of Deutsche Bank was 202 00:10:05,760 --> 00:10:08,360 Speaker 1: saying at the top of the show, the Governor of 203 00:10:08,360 --> 00:10:10,280 Speaker 1: the Bank of Japan sees his tenure coming to a close, 204 00:10:10,360 --> 00:10:12,360 Speaker 1: perhaps here in a few months at time. Does this 205 00:10:12,480 --> 00:10:15,920 Speaker 1: change that necessarily having this this victory that we saw 206 00:10:15,960 --> 00:10:19,200 Speaker 1: over the weekend, I think it changes things in an 207 00:10:19,240 --> 00:10:22,439 Speaker 1: intermediate term because I think the success of this election 208 00:10:22,559 --> 00:10:25,960 Speaker 1: does mean a mandate for him to raise the v 209 00:10:26,040 --> 00:10:29,720 Speaker 1: A T and that will start to affect the economy 210 00:10:29,920 --> 00:10:32,080 Speaker 1: even at the end of next year as people sort 211 00:10:32,120 --> 00:10:35,840 Speaker 1: of pre buy their goods before the v A T hike, 212 00:10:35,880 --> 00:10:39,040 Speaker 1: which always happens in Japan, So that would be a 213 00:10:39,120 --> 00:10:42,240 Speaker 1: pretty major fiscal effect. As for Monterey policy, I think 214 00:10:42,320 --> 00:10:46,080 Speaker 1: Kuroda was pretty much assumed to stay on even before 215 00:10:46,200 --> 00:10:49,160 Speaker 1: this election. But if the election had been a disaster, 216 00:10:49,400 --> 00:10:53,400 Speaker 1: then perhaps Kuroda would not have stayed. It's not that 217 00:10:53,440 --> 00:10:55,640 Speaker 1: he will stay, he's old, he's having too and uh, 218 00:10:56,640 --> 00:11:00,360 Speaker 1: but I think he's pretty game to see his his 219 00:11:01,280 --> 00:11:05,120 Speaker 1: effort through and reached the inflation target. You mentioned that 220 00:11:05,440 --> 00:11:08,079 Speaker 1: via T hike. Explained sort of what that is, what 221 00:11:08,280 --> 00:11:10,880 Speaker 1: he's proposed, and how that factored into calling this an 222 00:11:10,880 --> 00:11:13,640 Speaker 1: app election. Well, they've been The Ministry of Finance has 223 00:11:13,679 --> 00:11:18,160 Speaker 1: been pushing for a sales tax increase, essentially for ages, 224 00:11:18,400 --> 00:11:21,640 Speaker 1: and it originally wanted it to be twenty so European 225 00:11:21,720 --> 00:11:27,080 Speaker 1: levels by the year the Olympics. But Abbe has delayed 226 00:11:27,160 --> 00:11:29,760 Speaker 1: over the years in terms of raising it. He raised 227 00:11:29,760 --> 00:11:32,520 Speaker 1: it once and it had a huge shock effect on 228 00:11:32,960 --> 00:11:36,240 Speaker 1: the economy two thousand and fourteen, and he's very reluctant 229 00:11:36,280 --> 00:11:39,760 Speaker 1: to do it again. But this time he's couched it 230 00:11:39,960 --> 00:11:42,360 Speaker 1: quite well and it uh. It was part of his 231 00:11:42,400 --> 00:11:44,640 Speaker 1: platform basically to raise the v A ten, to spend 232 00:11:44,679 --> 00:11:47,880 Speaker 1: the money on education and training, I mean, just to 233 00:11:47,880 --> 00:11:52,560 Speaker 1: give people an idea. The budget balance of Japan is 234 00:11:52,720 --> 00:11:57,400 Speaker 1: five point six seven percent of GDP. That sound about right, John, Yes, 235 00:11:57,480 --> 00:12:01,600 Speaker 1: five seven. The United States it's just three point seven percent. 236 00:12:02,320 --> 00:12:09,079 Speaker 1: Japan's deficit to GDP ratio is fifty three larger than 237 00:12:09,120 --> 00:12:13,160 Speaker 1: the United States. Their tri lama is different than ours. 238 00:12:13,679 --> 00:12:18,240 Speaker 1: Their degrees or freedom of ability to move is way 239 00:12:18,320 --> 00:12:22,439 Speaker 1: different than our institutions, isn't it in a way, because 240 00:12:22,520 --> 00:12:26,200 Speaker 1: their interest rates are sort of locked at a low level, 241 00:12:26,320 --> 00:12:28,800 Speaker 1: first of all because the BOJ policy, but just because 242 00:12:28,800 --> 00:12:32,840 Speaker 1: of this persistent pessimism about their economy that their interest 243 00:12:32,920 --> 00:12:35,360 Speaker 1: rates always remained quite low. So it almost seems it's 244 00:12:35,400 --> 00:12:38,840 Speaker 1: so dangerous supposition. But no matter the budget deficit. It 245 00:12:38,880 --> 00:12:43,600 Speaker 1: was at ten percent of GDP uh what seven years ago? UM. 246 00:12:43,640 --> 00:12:46,719 Speaker 1: Their their interest rates don't seem to worry too much 247 00:12:46,760 --> 00:12:52,400 Speaker 1: about the deficit. Why is that, Well, they're pessimistic about 248 00:12:52,440 --> 00:12:54,240 Speaker 1: their own economy. To be honest, a lot of the 249 00:12:54,240 --> 00:12:56,600 Speaker 1: institutional investors are quite happy to get one or two 250 00:12:56,600 --> 00:12:59,920 Speaker 1: percent because they don't think that if they ever go 251 00:13:00,120 --> 00:13:02,000 Speaker 1: is that high. I mean, to get to two percent 252 00:13:02,080 --> 00:13:07,000 Speaker 1: would be quite something. But they're just not really that worried. Um. 253 00:13:07,040 --> 00:13:08,959 Speaker 1: They are actually more worried about the rest of the 254 00:13:09,000 --> 00:13:13,600 Speaker 1: world than they are the Japanese with the landslide election tomorrow. 255 00:13:13,679 --> 00:13:19,439 Speaker 1: Phrase from President Reagan, is it morning in Japan? I'm sorry, 256 00:13:19,440 --> 00:13:22,439 Speaker 1: what way morning? I don't know, just psychologically is it 257 00:13:22,559 --> 00:13:25,240 Speaker 1: morning in Japan? I think Gary Showing keeps talking about 258 00:13:25,320 --> 00:13:29,440 Speaker 1: good deflation in Japan? Is it well? I think low 259 00:13:29,520 --> 00:13:32,960 Speaker 1: inflation is good for Japan. UM. But I would say 260 00:13:32,960 --> 00:13:35,120 Speaker 1: that there's a pretty good chance that things could get 261 00:13:35,240 --> 00:13:38,720 Speaker 1: rather ebulent there in the markets, because if if there's 262 00:13:38,760 --> 00:13:42,600 Speaker 1: global reflation, then you have interest rates probably rising in 263 00:13:42,640 --> 00:13:45,360 Speaker 1: the States, and if that happens in the end, tends 264 00:13:45,400 --> 00:13:48,040 Speaker 1: to weaken the end, tends to weaken the stock market. 265 00:13:48,040 --> 00:13:51,040 Speaker 1: Tends to go up and with the longest serving prime 266 00:13:51,040 --> 00:13:53,600 Speaker 1: minister of their political stability. I mean there'll be a 267 00:13:53,679 --> 00:13:55,960 Speaker 1: hiccup obviously with his v a T hike at the 268 00:13:56,040 --> 00:13:58,840 Speaker 1: end of next year when when they start planning. It 269 00:13:58,960 --> 00:14:03,000 Speaker 1: won't happen until October of two nineteen, right before the Olympics, 270 00:14:03,600 --> 00:14:06,920 Speaker 1: but I think there could be a period of yeah, 271 00:14:07,360 --> 00:14:10,160 Speaker 1: a fresh news start sort of in the market. I 272 00:14:10,160 --> 00:14:14,280 Speaker 1: mean in da in end terms, David Gura, the Japanese 273 00:14:14,360 --> 00:14:16,800 Speaker 1: markets up twenty six percent in the last twelve months. 274 00:14:17,120 --> 00:14:22,400 Speaker 1: That's a terrible return, John, John, what does uh, what 275 00:14:22,480 --> 00:14:25,360 Speaker 1: does the opposition look like in Japan today? We were 276 00:14:25,360 --> 00:14:28,400 Speaker 1: talking a few weeks back about Governor Quoiki of of Tokyo, 277 00:14:28,440 --> 00:14:31,480 Speaker 1: who mounted an opposition campaign here, started a party of 278 00:14:31,520 --> 00:14:33,760 Speaker 1: her own, the Party of Hope, and I think they 279 00:14:33,800 --> 00:14:37,840 Speaker 1: secured just under fifty seats in the lower House. Um, 280 00:14:37,960 --> 00:14:40,080 Speaker 1: what do we learn about the opposition from her running? 281 00:14:40,120 --> 00:14:42,560 Speaker 1: And do you suspect she's going to play a prominent 282 00:14:42,640 --> 00:14:46,200 Speaker 1: role here going forward? Is this her her early debut 283 00:14:46,280 --> 00:14:48,840 Speaker 1: and do you think we're going to see more of her? Yeah, 284 00:14:48,920 --> 00:14:52,760 Speaker 1: she's not happy, nor is her party happy about their result. 285 00:14:52,880 --> 00:14:55,520 Speaker 1: And it was and as we mentioned, the last time 286 00:14:55,880 --> 00:14:58,520 Speaker 1: he timed the result, they had actually been quite uh 287 00:14:58,760 --> 00:15:02,600 Speaker 1: truly really good. Yeah, she was not ready as she 288 00:15:02,680 --> 00:15:07,000 Speaker 1: was expecting. The election probably happened in the spring. And yes, 289 00:15:07,080 --> 00:15:10,520 Speaker 1: she made a few uh mistakes during the election and 290 00:15:10,800 --> 00:15:14,640 Speaker 1: her party really underperformed quite badly. David. Something not in 291 00:15:14,680 --> 00:15:17,400 Speaker 1: the news today, but we're a number of our listeners 292 00:15:17,400 --> 00:15:21,840 Speaker 1: have sent this in his Mr mccram uh in touch 293 00:15:21,880 --> 00:15:26,280 Speaker 1: with the common Man, has acquired a dog named nemo um. 294 00:15:26,360 --> 00:15:30,160 Speaker 1: And to put things in perspective, the house that the 295 00:15:30,200 --> 00:15:33,040 Speaker 1: President France lives in makes a white house look like, 296 00:15:34,000 --> 00:15:38,040 Speaker 1: you know, a shock even with the upgrades Mr Trump 297 00:15:38,080 --> 00:15:44,280 Speaker 1: has done. So they're in the Golden Room lea sal do. Yeah, 298 00:15:44,400 --> 00:15:46,440 Speaker 1: which goes back to like you know, I don't know 299 00:15:46,480 --> 00:15:51,040 Speaker 1: before Napoleon, I'm guessing, and seriously the presidents have been 300 00:15:51,080 --> 00:15:56,000 Speaker 1: in since. Nemo enjoyed the fireplace during the meeting. I 301 00:15:56,040 --> 00:15:59,160 Speaker 1: guess it went a little too long. Yes, the meeting 302 00:16:00,920 --> 00:16:04,560 Speaker 1: sizeable gardens did not have a presidential walk, but try 303 00:16:04,640 --> 00:16:07,680 Speaker 1: the fireplace surveillance of course, doing research with Kevin Surly 304 00:16:08,280 --> 00:16:12,480 Speaker 1: on the Oval office, which has a screen across the fireplace. Yes, 305 00:16:12,600 --> 00:16:14,840 Speaker 1: the prime minister is saying to one of his aids, 306 00:16:14,840 --> 00:16:17,760 Speaker 1: you've sparked a totally unusual behavior in my dog. You're 307 00:16:17,760 --> 00:16:21,280 Speaker 1: going to tweet. I know I can't go there. We'll 308 00:16:21,320 --> 00:16:24,760 Speaker 1: just say move on from there with us. And these 309 00:16:24,760 --> 00:16:27,720 Speaker 1: of course go to cultural touches. Is John Vale, as 310 00:16:27,720 --> 00:16:31,600 Speaker 1: we look at the Japanese that's a good security, there's 311 00:16:31,600 --> 00:16:37,040 Speaker 1: no question about that from from the cultural shift in Japan. 312 00:16:37,280 --> 00:16:40,760 Speaker 1: And this goes back to the crossin Ruth Benedict in 313 00:16:40,840 --> 00:16:44,360 Speaker 1: other great books of World War two and out of it. 314 00:16:44,640 --> 00:16:48,440 Speaker 1: First of all, the constitution of Japan now is essentially 315 00:16:48,440 --> 00:16:53,720 Speaker 1: the constitution that McArthur dictated. Is that a true statement? Yes? 316 00:16:53,840 --> 00:16:57,040 Speaker 1: I think they didn't write it exactly, but he they 317 00:16:57,120 --> 00:16:59,200 Speaker 1: they did it very carefully and there's been a lot 318 00:16:59,240 --> 00:17:01,960 Speaker 1: of study on that. They want to change the constitution. 319 00:17:02,720 --> 00:17:06,400 Speaker 1: What what? What's the hint? The tinge that they want 320 00:17:06,400 --> 00:17:10,360 Speaker 1: to go towards. Their constitution says they will have no 321 00:17:10,560 --> 00:17:13,440 Speaker 1: army basically, and they already have an army and basically 322 00:17:13,520 --> 00:17:16,400 Speaker 1: abbey with I think US support wants to be able 323 00:17:16,440 --> 00:17:19,600 Speaker 1: to say, yes, we have an army. That's basically it. 324 00:17:20,280 --> 00:17:23,800 Speaker 1: That's it's just to just get away from the first 325 00:17:23,800 --> 00:17:28,000 Speaker 1: step of the agony of the Middle. Yes, he feels 326 00:17:28,080 --> 00:17:31,840 Speaker 1: that Japanese today, you know, who grew up, the generations 327 00:17:31,840 --> 00:17:34,400 Speaker 1: that grew up after the war, who bear no responsibility 328 00:17:34,640 --> 00:17:37,879 Speaker 1: for the war, should not have to have this hanging 329 00:17:37,920 --> 00:17:40,199 Speaker 1: over their head, that they should be more normal nation 330 00:17:40,800 --> 00:17:42,880 Speaker 1: and having an army just like any other. And they're 331 00:17:42,920 --> 00:17:44,800 Speaker 1: the unique exception of this. I mean not that we're 332 00:17:44,880 --> 00:17:46,960 Speaker 1: running a history lesson here, but I can't think of 333 00:17:47,000 --> 00:17:50,480 Speaker 1: another country out of any given war. Maybe we didn't 334 00:17:50,480 --> 00:17:54,040 Speaker 1: say to the French after Napoleon, you can't have an army. 335 00:17:54,080 --> 00:17:57,880 Speaker 1: I believe, Yes, that's correct. I think maybe a few 336 00:17:57,920 --> 00:18:00,520 Speaker 1: small countries don't have armies, like coastal recurs something like that. 337 00:18:00,560 --> 00:18:03,119 Speaker 1: But yes, Japan is quite unique in that. But they 338 00:18:03,160 --> 00:18:05,639 Speaker 1: have a huge military and it's it's one of the 339 00:18:05,720 --> 00:18:09,040 Speaker 1: largest in the world. David is Brooklyn haven't army, we know, 340 00:18:09,280 --> 00:18:12,479 Speaker 1: but yet we have see if the Constitutional Convention delivers 341 00:18:12,520 --> 00:18:15,080 Speaker 1: one a few of them. John uh, let me ask 342 00:18:15,080 --> 00:18:17,960 Speaker 1: you about the relationship between Japan and the US economically 343 00:18:17,960 --> 00:18:21,280 Speaker 1: and politically, sort of overlaying what we're just talking about. Um, 344 00:18:21,359 --> 00:18:23,280 Speaker 1: you have a present here in this country who is 345 00:18:23,359 --> 00:18:25,560 Speaker 1: keen to see Japan take on a bigger role, perhaps 346 00:18:25,600 --> 00:18:28,520 Speaker 1: have an necessity here is North Korea continues to test 347 00:18:28,400 --> 00:18:30,840 Speaker 1: at missiles and rockets and the like. But I wonder 348 00:18:30,880 --> 00:18:33,520 Speaker 1: sort of about the strength of the economic relationship between 349 00:18:33,560 --> 00:18:35,680 Speaker 1: the two countries and what you think we're going to 350 00:18:35,760 --> 00:18:38,800 Speaker 1: see when the President United States goes to Japan here 351 00:18:38,800 --> 00:18:41,640 Speaker 1: in a few weeks time on his fairly long trip 352 00:18:41,680 --> 00:18:43,480 Speaker 1: to to Asia. What do you think the conversation is 353 00:18:43,520 --> 00:18:47,159 Speaker 1: going to center on while he's there. The relationship is 354 00:18:47,240 --> 00:18:49,880 Speaker 1: quite good at this stage. Even though Japan does run 355 00:18:49,920 --> 00:18:52,560 Speaker 1: a very large trade surplus with the US, it's not 356 00:18:52,600 --> 00:18:54,119 Speaker 1: as large as as it used to be. And of 357 00:18:54,200 --> 00:18:58,280 Speaker 1: course they've shifted a lot of production here already, especially automobiles. 358 00:18:58,960 --> 00:19:02,760 Speaker 1: But I'm sure President Trump would like more that to happen. 359 00:19:02,840 --> 00:19:05,560 Speaker 1: He would like more production to be shifted to the 360 00:19:05,600 --> 00:19:09,840 Speaker 1: United States, especially into the Rust Belt, and to form 361 00:19:09,920 --> 00:19:16,280 Speaker 1: better partnerships on high technology projects like the plant in Wisconsin, 362 00:19:16,320 --> 00:19:19,960 Speaker 1: which is with a Taiwanese company, but it's allied with Sharp, 363 00:19:20,440 --> 00:19:24,120 Speaker 1: one of the biggest h consumer electronics companies in Japan, 364 00:19:24,160 --> 00:19:27,119 Speaker 1: to produce l C D. So I think, um, he 365 00:19:27,160 --> 00:19:29,679 Speaker 1: would like a lot more of that sort of investment, 366 00:19:30,160 --> 00:19:31,560 Speaker 1: and Tom, I know they are going to play golf 367 00:19:31,600 --> 00:19:34,320 Speaker 1: when President Trump visits there. That was your follow up. 368 00:19:34,359 --> 00:19:39,480 Speaker 1: I'm sure what's whether there be a what is the 369 00:19:39,520 --> 00:19:43,520 Speaker 1: relationship now of Japan with China and North Korea? We 370 00:19:43,560 --> 00:19:47,080 Speaker 1: talked earlier this morning about this. I mean, this was 371 00:19:47,200 --> 00:19:51,400 Speaker 1: not a foreign policy election, wasn't It was a bit. 372 00:19:51,520 --> 00:19:53,199 Speaker 1: I mean, I think the fact that North Korea has 373 00:19:53,240 --> 00:19:57,800 Speaker 1: been so threatening has helped a in many ways because 374 00:19:57,840 --> 00:20:01,520 Speaker 1: he is a bit of a hawk on defense issues 375 00:20:01,520 --> 00:20:06,879 Speaker 1: and that Japan should be ready to deal with threats 376 00:20:06,920 --> 00:20:09,440 Speaker 1: like this, and so that actually helped him quite a bit. 377 00:20:10,280 --> 00:20:14,600 Speaker 1: The relationship with China is warming really quite rapidly, actually 378 00:20:14,640 --> 00:20:21,679 Speaker 1: in the last three to six months. I think it 379 00:20:21,840 --> 00:20:25,320 Speaker 1: maybe is more from China's perspective than it is Japan's. 380 00:20:25,480 --> 00:20:33,399 Speaker 1: But uh, Japanese officials have been attending Chinese events in Japan. Uh, 381 00:20:33,480 --> 00:20:37,560 Speaker 1: they're talking about having bilateral summits in each other's countries. 382 00:20:37,920 --> 00:20:42,000 Speaker 1: The economic relations have always been very strong, um, with 383 00:20:42,040 --> 00:20:44,840 Speaker 1: a few hiccups from time to time, but essentially they 384 00:20:44,880 --> 00:20:48,440 Speaker 1: need each other quite a lot, and uh, they're finding 385 00:20:48,440 --> 00:20:51,800 Speaker 1: a lot of common ground. Is Tokyo ever present, I mean, 386 00:20:51,800 --> 00:20:53,359 Speaker 1: it's a zealion people. I don't know what is it 387 00:20:53,400 --> 00:20:57,159 Speaker 1: twenty million or right something along that line. Is it 388 00:20:57,240 --> 00:20:59,399 Speaker 1: the same Tokyo as ten years ago? I mean, forget 389 00:20:59,400 --> 00:21:03,200 Speaker 1: about you know the history of quake at all. That 390 00:21:03,359 --> 00:21:06,000 Speaker 1: is it the same Tokyo ten years ago? Is this 391 00:21:06,119 --> 00:21:09,480 Speaker 1: ever moving forward ers or some radical shift when you 392 00:21:09,560 --> 00:21:12,920 Speaker 1: go there now? I think it's basically the same as 393 00:21:12,920 --> 00:21:14,520 Speaker 1: it was ten years ago. I mean, there's still some 394 00:21:14,640 --> 00:21:17,800 Speaker 1: underlying tensions with China, and these things go up and 395 00:21:17,880 --> 00:21:19,879 Speaker 1: they go down. It depends on whether they have some 396 00:21:19,960 --> 00:21:22,760 Speaker 1: island issue or not. But essentially they've had a very 397 00:21:22,760 --> 00:21:27,760 Speaker 1: strong relationship with China economically for a long time. And 398 00:21:27,880 --> 00:21:30,840 Speaker 1: um no, I don't sense any major new wave of 399 00:21:30,920 --> 00:21:34,520 Speaker 1: anti Chinese behavior in Japan. In fact, quite the opposite. 400 00:21:34,840 --> 00:21:39,240 Speaker 1: The people aren't electing Bay to be a war monger 401 00:21:39,520 --> 00:21:43,800 Speaker 1: at all, and they don't want a bad relationship with China. 402 00:21:44,480 --> 00:21:48,639 Speaker 1: But there still are always some underlying currents on the 403 00:21:48,640 --> 00:21:51,560 Speaker 1: issue of trade policy. Of course, the US withdrew from 404 00:21:51,600 --> 00:21:55,320 Speaker 1: the Trans Pacific Partnership, How has trade policy in Japan 405 00:21:55,520 --> 00:21:58,160 Speaker 1: adjusted as a result of that. This was a country 406 00:21:58,200 --> 00:22:01,800 Speaker 1: that was banking on the ratfic of that deal. Are 407 00:22:01,800 --> 00:22:04,960 Speaker 1: we seeing move ahead with the TPP minus the t TP, 408 00:22:05,040 --> 00:22:08,760 Speaker 1: minus the the US what directions that's right policy, trying 409 00:22:08,840 --> 00:22:11,680 Speaker 1: to push the t p P for at US and 410 00:22:11,720 --> 00:22:15,960 Speaker 1: maybe hoping that eventually with a few tweaks that the 411 00:22:16,000 --> 00:22:19,280 Speaker 1: US will come back in. I don't think that will 412 00:22:19,280 --> 00:22:21,920 Speaker 1: happen with Trump, but he's just not interested in multi layers. 413 00:22:22,040 --> 00:22:24,480 Speaker 1: But they are working on a well there's they're trying 414 00:22:24,520 --> 00:22:27,080 Speaker 1: to convince Japan to do an f t A with 415 00:22:27,359 --> 00:22:30,280 Speaker 1: the US and free trade agreement. Yes even I got that, 416 00:22:32,200 --> 00:22:35,639 Speaker 1: which Japan is a bit reluctant, I think because they're 417 00:22:35,720 --> 00:22:39,360 Speaker 1: still trying with this TPP thing. But that could well 418 00:22:39,400 --> 00:22:43,320 Speaker 1: happen because that's certainly what Trump's interested. John Ville, thank 419 00:22:43,320 --> 00:22:47,240 Speaker 1: you so much. Great briefing Nico Nico asset management with 420 00:22:47,400 --> 00:22:49,199 Speaker 1: us this morning. I love that we're trying to go 421 00:22:49,240 --> 00:22:51,439 Speaker 1: beyond the economics and the numbers and all that we 422 00:22:51,480 --> 00:22:55,360 Speaker 1: do that of course, but interesting discussions are really through 423 00:22:55,400 --> 00:22:58,840 Speaker 1: the morning on Asia. Dana Talva of a Nodo as 424 00:22:58,880 --> 00:23:03,119 Speaker 1: well in the higher Chinese inflation that she sees coming. 425 00:23:14,280 --> 00:23:16,840 Speaker 1: It has been too long to speak with Lupin Raman 426 00:23:16,880 --> 00:23:21,680 Speaker 1: of PIMCO on emerging markets. She is just exquisite tearing 427 00:23:21,720 --> 00:23:26,639 Speaker 1: apart those trends to go take a baseball phrase loopen 428 00:23:27,040 --> 00:23:29,760 Speaker 1: of one through nine innings, Which inning are we in 429 00:23:30,640 --> 00:23:34,760 Speaker 1: in the resurgence of emerging markets? Hi, Tom good to 430 00:23:34,800 --> 00:23:38,359 Speaker 1: be back, UM, I would say that we're probably looking 431 00:23:38,440 --> 00:23:41,560 Speaker 1: at a mature phase of the cycle. So looking at 432 00:23:41,600 --> 00:23:46,040 Speaker 1: six to seven part of the cycle here, UM, we've 433 00:23:46,119 --> 00:23:50,000 Speaker 1: really seen very strong growth, very strong macro fundamentals of 434 00:23:50,040 --> 00:23:53,600 Speaker 1: the last four quarters. This is playing out in terms 435 00:23:53,640 --> 00:23:57,600 Speaker 1: of strong growth and being reflected in relatively low inflation. 436 00:23:58,040 --> 00:24:01,280 Speaker 1: And what that's resulted in is a significant inflows coming 437 00:24:01,320 --> 00:24:05,280 Speaker 1: back into emerging markets. But I fear that valuations are 438 00:24:05,600 --> 00:24:10,000 Speaker 1: getting somewhat stretched UM, and the basis for future investment 439 00:24:10,080 --> 00:24:14,199 Speaker 1: seems to be continued influence, which is significantly dependent on 440 00:24:14,280 --> 00:24:18,320 Speaker 1: the global backdround. The distinction then is do you go 441 00:24:18,520 --> 00:24:22,960 Speaker 1: to other emerging markets that are less frothy or do 442 00:24:23,000 --> 00:24:26,119 Speaker 1: you shift back to the developed world. That's always a 443 00:24:26,160 --> 00:24:30,920 Speaker 1: great debate, um. I. I think that the search really 444 00:24:30,960 --> 00:24:33,760 Speaker 1: has to go for finding new sources of alpha. So 445 00:24:33,800 --> 00:24:37,399 Speaker 1: those emerging markets where you're still seeing miss pricing in 446 00:24:37,520 --> 00:24:41,080 Speaker 1: terms of the credit and local rate risk UM, and 447 00:24:41,119 --> 00:24:43,840 Speaker 1: where investors either have a very different view to what 448 00:24:43,960 --> 00:24:46,520 Speaker 1: the market is pricing in the reason being, if you're 449 00:24:46,520 --> 00:24:48,959 Speaker 1: looking at investment grade and high yield spreads in the 450 00:24:49,040 --> 00:24:52,560 Speaker 1: US and Europe, they're incredibly tight, so the scope for 451 00:24:52,720 --> 00:24:56,760 Speaker 1: rotating back into developed markets is relatively limited at the moment. 452 00:24:57,359 --> 00:24:59,560 Speaker 1: How cyclical an issue is this here in the US, 453 00:24:59,600 --> 00:25:01,960 Speaker 1: We're here often from the chair of the FED among others, 454 00:25:02,040 --> 00:25:04,919 Speaker 1: that we're seeing inflation is a transitory thing. When you 455 00:25:04,920 --> 00:25:08,400 Speaker 1: look at disinflation globally, is it is it a secular phenomenon, 456 00:25:08,440 --> 00:25:10,080 Speaker 1: Is it's something that you see. Is is cyclical? How 457 00:25:10,119 --> 00:25:12,720 Speaker 1: do you process what we're seeing in emerging markets around 458 00:25:12,720 --> 00:25:15,480 Speaker 1: the world? Well, for emerging markets, my sense is that 459 00:25:15,520 --> 00:25:17,960 Speaker 1: this is much more of a of a cyclical phenomena 460 00:25:18,080 --> 00:25:21,480 Speaker 1: rather than a structural phenomena. When you break down headline 461 00:25:21,480 --> 00:25:26,439 Speaker 1: inflation into components that are core focused versus energy, fuel, 462 00:25:26,520 --> 00:25:29,960 Speaker 1: and food, you see that the biggest deceleration has really 463 00:25:30,000 --> 00:25:33,440 Speaker 1: come from food and energy prices, and a big component 464 00:25:33,480 --> 00:25:36,720 Speaker 1: of that is base effects. Um Core inflation, which is 465 00:25:36,760 --> 00:25:40,480 Speaker 1: determined by much more structural components of the economy, really 466 00:25:40,520 --> 00:25:43,720 Speaker 1: hasn't come down that significantly, or at least at least 467 00:25:43,800 --> 00:25:46,800 Speaker 1: not lower than the historical average that we've seen. So 468 00:25:46,960 --> 00:25:49,719 Speaker 1: my I suspect that after we've gone through this cycle 469 00:25:49,720 --> 00:25:53,600 Speaker 1: of disinflation, we should see emerging market inflation actually creep 470 00:25:53,680 --> 00:25:56,800 Speaker 1: back to the averages that we had UM pre two 471 00:25:56,880 --> 00:26:00,200 Speaker 1: thousand and fifteen, which is playing more outsize role here 472 00:26:00,240 --> 00:26:04,000 Speaker 1: in emerging markets. Is it politics, political upheaval or is 473 00:26:04,000 --> 00:26:07,920 Speaker 1: it central banking? What's what's in the vanguard position? UM? 474 00:26:07,960 --> 00:26:11,159 Speaker 1: I would say that it really is a combination I 475 00:26:11,200 --> 00:26:14,800 Speaker 1: think for the beta investor in emerging markets, central banks 476 00:26:14,840 --> 00:26:17,640 Speaker 1: and particularly global central banks, and what they are doing 477 00:26:17,680 --> 00:26:21,360 Speaker 1: in terms of UM withdrawal of balance sheet UM that 478 00:26:21,400 --> 00:26:25,360 Speaker 1: has previously been extended. It is going to be incredibly important. However, 479 00:26:25,800 --> 00:26:30,760 Speaker 1: politics is now the source of alpha within EM getting 480 00:26:30,760 --> 00:26:35,159 Speaker 1: the political terms correct. So we've just seen very strong 481 00:26:35,240 --> 00:26:38,600 Speaker 1: results in the Argentine mid terms where the incumbent party 482 00:26:38,640 --> 00:26:41,840 Speaker 1: has done exceptionally well, and we believe that this is 483 00:26:41,880 --> 00:26:45,520 Speaker 1: a continuation of the Argentine alpha story. In Brazil, we 484 00:26:45,560 --> 00:26:47,959 Speaker 1: have elections coming up next year and that will be 485 00:26:48,240 --> 00:26:51,240 Speaker 1: a complete um see change in terms of what we 486 00:26:51,280 --> 00:26:54,520 Speaker 1: may have seen previously with the PT government. UM. We 487 00:26:54,600 --> 00:26:58,280 Speaker 1: also have the A and C in South Africa debating 488 00:26:58,359 --> 00:27:01,320 Speaker 1: whether they should have a differ leadership and this will 489 00:27:01,400 --> 00:27:04,359 Speaker 1: change the course of that party and South Africa for 490 00:27:04,440 --> 00:27:07,080 Speaker 1: the next decade. Then I mean the easy question did 491 00:27:07,080 --> 00:27:10,040 Speaker 1: you go along in South Africa? But far more fractious. 492 00:27:10,560 --> 00:27:14,800 Speaker 1: How how does PIMCO play Turkey? I mean that's not 493 00:27:15,600 --> 00:27:19,239 Speaker 1: like a single decision like an Argentinean election. What does 494 00:27:19,320 --> 00:27:23,399 Speaker 1: Lupan Raman do with something is complex? Is Turkey? I 495 00:27:23,440 --> 00:27:27,280 Speaker 1: think Turkey is one of those economies and political situations 496 00:27:27,280 --> 00:27:29,600 Speaker 1: where really you have to invest from the short side, 497 00:27:29,600 --> 00:27:32,840 Speaker 1: and that that means that structurally, UM, we believe Turkey 498 00:27:32,920 --> 00:27:36,480 Speaker 1: is going to be negative in terms of a secular 499 00:27:36,600 --> 00:27:40,440 Speaker 1: credit decline negatively. There are hardly any reforms that are 500 00:27:40,560 --> 00:27:43,840 Speaker 1: that are occurring, and the bastion of Turkey's macro, which 501 00:27:43,920 --> 00:27:47,920 Speaker 1: was the fiscal anchor, is slowly slipping. UM. Monetary policy 502 00:27:47,960 --> 00:27:50,840 Speaker 1: has always been relatively heterodox in Turkey versus the other 503 00:27:50,880 --> 00:27:54,480 Speaker 1: emerging markets. So we have a very negative secular view 504 00:27:54,480 --> 00:27:58,680 Speaker 1: on Turkey. But the market is extremely volatile, and so 505 00:27:59,000 --> 00:28:01,439 Speaker 1: the way we invest in Turkey is to really be 506 00:28:01,640 --> 00:28:05,720 Speaker 1: slightly underweight and then basically by when we see significant 507 00:28:05,760 --> 00:28:09,600 Speaker 1: overshoot UM in the Lira. Well, we'll come back and 508 00:28:09,640 --> 00:28:10,960 Speaker 1: talk more about this, but let me just ask you 509 00:28:10,960 --> 00:28:13,760 Speaker 1: a broad question about trade policy. As the US president 510 00:28:13,800 --> 00:28:17,440 Speaker 1: prepares to go to Asia, how how front of center 511 00:28:17,560 --> 00:28:19,679 Speaker 1: is that issue going to be as he talks to 512 00:28:19,720 --> 00:28:23,639 Speaker 1: counterparts in China, in Japan, in South Korea? Is there 513 00:28:23,720 --> 00:28:26,600 Speaker 1: still too much uncertainty in your estimation about trade policy 514 00:28:26,960 --> 00:28:29,800 Speaker 1: as as driven by the US. Yes. I think that's 515 00:28:29,800 --> 00:28:32,080 Speaker 1: one of the key uncertainties that we have in terms 516 00:28:32,080 --> 00:28:36,439 Speaker 1: of global policy. After Central Banks UM and discussions that 517 00:28:36,480 --> 00:28:40,840 Speaker 1: Trump may have with both China, the South Asian Block 518 00:28:41,000 --> 00:28:45,400 Speaker 1: as well as NAFTA, UM is extremely important in driving 519 00:28:45,440 --> 00:28:49,800 Speaker 1: both risks sentiment and global growth sentiment. The reason being 520 00:28:49,840 --> 00:28:52,560 Speaker 1: emerging markets tend to be a beta and have been 521 00:28:52,600 --> 00:28:55,480 Speaker 1: a beta on US growth for the last couple of 522 00:28:55,520 --> 00:28:58,760 Speaker 1: decades UM. And if there is a signal that the 523 00:28:58,880 --> 00:29:02,560 Speaker 1: US is retrenched in terms of both of both its 524 00:29:02,560 --> 00:29:05,960 Speaker 1: current account and its source of external growth, then emerging 525 00:29:06,000 --> 00:29:10,520 Speaker 1: markets will feel both a fundamental impact as well as 526 00:29:10,800 --> 00:29:13,800 Speaker 1: marketing impact in terms of risk golf. Let's come back 527 00:29:13,840 --> 00:29:16,520 Speaker 1: Lupan Roman with US pim COAD just a lovely ever 528 00:29:16,560 --> 00:29:20,320 Speaker 1: with us UH. Given the focus to some of the 529 00:29:20,400 --> 00:29:24,320 Speaker 1: double digit returns, huge returns, I should say in emerging markets. 530 00:29:24,320 --> 00:29:28,080 Speaker 1: We'll review those here in a moment. Continue this discussion. 531 00:29:28,320 --> 00:29:31,280 Speaker 1: Luban Roman with this pim CO and you know lout 532 00:29:31,320 --> 00:29:35,240 Speaker 1: But I look at twelve month return based in US dollars, 533 00:29:35,320 --> 00:29:41,320 Speaker 1: and there's just some remarkable emerging market uh performance. Is 534 00:29:41,360 --> 00:29:45,080 Speaker 1: it a melt up in emerging market values? I think 535 00:29:45,080 --> 00:29:49,360 Speaker 1: that basically what we're seeing is um structural investors, institutional 536 00:29:49,400 --> 00:29:54,040 Speaker 1: investors recognizing that emerging markets have a very long term story. 537 00:29:54,480 --> 00:29:57,480 Speaker 1: I think that story had been derailed somewhat in the 538 00:29:57,560 --> 00:30:00,320 Speaker 1: last couple of years, given the oil price shock, some 539 00:30:00,400 --> 00:30:03,240 Speaker 1: of the politics that we've seen in EM, particularly in 540 00:30:03,280 --> 00:30:07,000 Speaker 1: Brazil and Russia. But now we're seeing the re emergence 541 00:30:07,040 --> 00:30:09,600 Speaker 1: of those investors coming back to the asset class, which 542 00:30:09,680 --> 00:30:13,480 Speaker 1: is extremely favorable. What we're seeing really now is the 543 00:30:13,520 --> 00:30:16,240 Speaker 1: pull factor of EM. All the positive factors that we've 544 00:30:16,240 --> 00:30:19,240 Speaker 1: been talking about for many years, the low debt, the 545 00:30:19,600 --> 00:30:22,000 Speaker 1: fact that you have much higher growth rates, you have 546 00:30:22,200 --> 00:30:26,080 Speaker 1: regime changes that are becoming much more market oriented. All 547 00:30:26,120 --> 00:30:29,280 Speaker 1: of those factors are pulling investors in. At the same time, 548 00:30:29,280 --> 00:30:33,680 Speaker 1: we're actually seeing relative value across emerging markets really being 549 00:30:33,720 --> 00:30:37,320 Speaker 1: able to differentiate between themselves. UM. And so investors are 550 00:30:37,600 --> 00:30:42,520 Speaker 1: looking for those turnaround alpha opportunities in EM rather than 551 00:30:42,560 --> 00:30:45,600 Speaker 1: being indiscriminate buyers of EM as they were perhaps a 552 00:30:45,600 --> 00:30:48,200 Speaker 1: few years ago. Luke, and what role is the dollar 553 00:30:48,320 --> 00:30:51,640 Speaker 1: playing in the emerging market story right now? Um? It's 554 00:30:51,680 --> 00:30:55,240 Speaker 1: it's very important, particularly in the local rate side. UM. 555 00:30:55,360 --> 00:30:58,360 Speaker 1: What we expect to see is the dollar moving more 556 00:30:58,440 --> 00:31:01,640 Speaker 1: or less sideways. UM. There has been some volatility as 557 00:31:01,680 --> 00:31:04,880 Speaker 1: we've seen FED rate hikes being priced in and priced 558 00:31:04,880 --> 00:31:07,920 Speaker 1: out depending on what markets expect on the fiscal front 559 00:31:07,960 --> 00:31:11,200 Speaker 1: in the US. But in general, UM, this view that 560 00:31:11,240 --> 00:31:15,480 Speaker 1: the dollar will not have a significant appreciation secular trend 561 00:31:15,880 --> 00:31:19,680 Speaker 1: from here means that emerging market currencies, particularly those high 562 00:31:19,760 --> 00:31:24,200 Speaker 1: carry currencies, are looking relatively attractive. We're talking about the 563 00:31:25,160 --> 00:31:28,040 Speaker 1: dueling roles here of of politics and central banking. Let 564 00:31:28,040 --> 00:31:30,080 Speaker 1: me focus on Brazil for a little bit, if if 565 00:31:30,320 --> 00:31:32,760 Speaker 1: we could, uh there, it seems like we've almost become 566 00:31:32,760 --> 00:31:35,600 Speaker 1: inured to the political upheaval. How how do you how 567 00:31:35,640 --> 00:31:38,240 Speaker 1: do you navigate environment like that where there still seems 568 00:31:38,240 --> 00:31:41,440 Speaker 1: to be so much uncertainty politically? Is there opportunity to 569 00:31:41,440 --> 00:31:44,560 Speaker 1: be found in Brazil today. Well, I think yes on 570 00:31:44,640 --> 00:31:47,040 Speaker 1: you on your question on whether there are opportunities, um, 571 00:31:47,040 --> 00:31:48,520 Speaker 1: and I think one has to be a bit more 572 00:31:48,560 --> 00:31:51,360 Speaker 1: of a long term player there. In Brazil. We've seen 573 00:31:51,400 --> 00:31:56,160 Speaker 1: a significant decline in political noise compared to when President 574 00:31:56,200 --> 00:32:00,080 Speaker 1: Dilma was impeached. Basically, now we have a caretake a 575 00:32:00,160 --> 00:32:04,360 Speaker 1: government until the next presidential elections, and our base case 576 00:32:04,360 --> 00:32:08,120 Speaker 1: scenario outside of a tail risk, is that we see 577 00:32:08,320 --> 00:32:11,720 Speaker 1: a centrist coalition party come back into power. This is 578 00:32:11,760 --> 00:32:14,520 Speaker 1: incredibly important for them to actually push through on the 579 00:32:14,640 --> 00:32:17,800 Speaker 1: pension and social security reform that they were trying to 580 00:32:17,920 --> 00:32:20,920 Speaker 1: enact over the last couple of quarters. Um, Where do 581 00:32:20,960 --> 00:32:23,280 Speaker 1: I see value in Brazil? I think the local rate 582 00:32:23,360 --> 00:32:27,160 Speaker 1: story there is still very compelling. The Central Bank governor 583 00:32:27,240 --> 00:32:30,560 Speaker 1: is extremely credible and he's done an excellent job of 584 00:32:30,640 --> 00:32:35,000 Speaker 1: anchoring expectations. And even in terms of being long the currency, 585 00:32:35,360 --> 00:32:38,120 Speaker 1: given the very high carry that you're earning, you're more 586 00:32:38,200 --> 00:32:41,280 Speaker 1: or less sheltered against any periods of volatility they that 587 00:32:41,360 --> 00:32:44,520 Speaker 1: may come about because of politics. I mean, just to 588 00:32:44,560 --> 00:32:46,560 Speaker 1: give us an example and a little bit. I don't 589 00:32:46,560 --> 00:32:49,880 Speaker 1: know if you're up to speed on this piece, but unfascintly. 590 00:32:50,000 --> 00:32:55,000 Speaker 1: This is in US dollar terms of Philippine twenty five 591 00:32:55,080 --> 00:32:59,920 Speaker 1: year bond yielding three points seven percent training near power, 592 00:33:00,880 --> 00:33:03,760 Speaker 1: it's sixty seven pace points over the full faith and 593 00:33:03,840 --> 00:33:08,640 Speaker 1: credit US Treasury. Right, Why would someone buy that? Given 594 00:33:08,920 --> 00:33:12,800 Speaker 1: the economics and politics of the Philippines. That's a decision 595 00:33:12,880 --> 00:33:17,520 Speaker 1: you face every day. Is that something you own? UM, 596 00:33:17,640 --> 00:33:21,520 Speaker 1: what we're seeing in the Asian credit complex is almost 597 00:33:21,800 --> 00:33:25,640 Speaker 1: a circularity in terms of how funds and assets are 598 00:33:25,920 --> 00:33:28,280 Speaker 1: put to work. So in the Asian credit complex, and 599 00:33:28,400 --> 00:33:31,800 Speaker 1: this is not just Philippines, UM spreads are incredibly tight 600 00:33:32,440 --> 00:33:35,160 Speaker 1: relative to their credit fundamentals. And part of the reason 601 00:33:35,280 --> 00:33:39,760 Speaker 1: is Asian investors have a kind of regional home bias, 602 00:33:39,800 --> 00:33:41,880 Speaker 1: if you want to call it that, in terms of 603 00:33:41,920 --> 00:33:45,360 Speaker 1: wanting to be invested within their economies and within the 604 00:33:45,720 --> 00:33:49,480 Speaker 1: Southeast Asian region as a whole. And that's really what's 605 00:33:49,560 --> 00:33:53,080 Speaker 1: driving the complete spread tightening. What we do in our 606 00:33:53,120 --> 00:33:57,480 Speaker 1: portfolios is be underweight those credits that we think are misvalued, 607 00:33:58,040 --> 00:34:02,440 Speaker 1: recognizing that sometimes this misvaluation can continue for some time. 608 00:34:03,240 --> 00:34:05,320 Speaker 1: I think Torsten's luck for the theme that we have 609 00:34:05,360 --> 00:34:08,000 Speaker 1: throughout the show today. We talked about normalization of volatility, 610 00:34:08,000 --> 00:34:10,480 Speaker 1: the potential for there to be more normalized that volatility 611 00:34:11,320 --> 00:34:14,799 Speaker 1: dovetail that with emerging markets. If you could hear, what 612 00:34:14,920 --> 00:34:16,960 Speaker 1: optimism do you have that there will be a catalyst 613 00:34:17,040 --> 00:34:19,600 Speaker 1: that brings a more normal sense of volatility here to 614 00:34:19,600 --> 00:34:22,799 Speaker 1: emerging markets in the near to medium term. UM. I 615 00:34:22,840 --> 00:34:25,719 Speaker 1: think that thinking about e M vall UM as an 616 00:34:25,760 --> 00:34:29,920 Speaker 1: asset classes is relatively m misleading. I think the reason 617 00:34:29,960 --> 00:34:33,760 Speaker 1: why we've seen low vall in in both fixing command 618 00:34:33,800 --> 00:34:36,000 Speaker 1: in e M in particular has been to do with 619 00:34:36,480 --> 00:34:39,759 Speaker 1: global factors and and the FED and the ECB in particular. 620 00:34:40,320 --> 00:34:44,360 Speaker 1: UM as those retrench, I do expect volatility to increase 621 00:34:44,760 --> 00:34:46,560 Speaker 1: and in e M there it is going to be 622 00:34:46,719 --> 00:34:50,160 Speaker 1: very very country specific UM and, as we've talked before, 623 00:34:50,239 --> 00:34:54,399 Speaker 1: it's related to politics, it's related to particular technicals, it's 624 00:34:54,640 --> 00:34:58,080 Speaker 1: related to US policy in places like Mexico, um and 625 00:34:58,120 --> 00:35:00,680 Speaker 1: in China UM So, I do think it's not going 626 00:35:00,719 --> 00:35:04,319 Speaker 1: to be a normalized average fall pick up, but it 627 00:35:04,400 --> 00:35:07,399 Speaker 1: really will be country specific. This has been wonderful. Lup 628 00:35:07,440 --> 00:35:10,120 Speaker 1: and Roman don't be a stranger with PIMCO greatly greatly 629 00:35:10,680 --> 00:35:14,040 Speaker 1: appreciate she is a global head of Sovereign credit for 630 00:35:14,840 --> 00:35:17,120 Speaker 1: Pimcoe David. That was fascinating. It was like a window 631 00:35:17,160 --> 00:35:19,799 Speaker 1: into how you pick up three innrd basis points. And 632 00:35:19,840 --> 00:35:22,040 Speaker 1: we didn't talk about this, but you know, I'm sure 633 00:35:22,080 --> 00:35:24,040 Speaker 1: that the recent means the I m F and the 634 00:35:24,040 --> 00:35:27,000 Speaker 1: World Bank are a great bedrocker platform to talk about 635 00:35:27,040 --> 00:35:28,480 Speaker 1: all this. What did you learn from being there in 636 00:35:28,560 --> 00:35:31,120 Speaker 1: d C talking to all of these central bank governors 637 00:35:31,120 --> 00:35:33,680 Speaker 1: and finance ministers, many of whom were from emerging markets, 638 00:35:33,680 --> 00:35:36,600 Speaker 1: about the health of ef right. It's a good question 639 00:35:36,640 --> 00:35:38,279 Speaker 1: and my answer is I called it the yeah but 640 00:35:39,560 --> 00:35:42,040 Speaker 1: and that and that everybody is more optimistic. I just 641 00:35:42,080 --> 00:35:44,200 Speaker 1: gave a speech for our good friends at Cone Reside 642 00:35:44,600 --> 00:35:47,080 Speaker 1: and I said, you know, it's the optimistic speech. Yeah 643 00:35:47,120 --> 00:35:51,080 Speaker 1: but and that that permeates everything that we see here 644 00:35:51,120 --> 00:35:54,239 Speaker 1: in the autumn of two thousand seventeen. Is there's no 645 00:35:54,400 --> 00:35:59,080 Speaker 1: question things are better across the board. And then you 646 00:35:59,160 --> 00:36:03,320 Speaker 1: have to measure your yeah butts, and you know, everybody's 647 00:36:03,320 --> 00:36:05,319 Speaker 1: got their own opinion on that. And that was just 648 00:36:05,360 --> 00:36:10,600 Speaker 1: a great dissertation with Luping on how finding those pockets 649 00:36:10,640 --> 00:36:14,120 Speaker 1: availue is difficult. Uh, And certainly keep take away from 650 00:36:14,120 --> 00:36:16,440 Speaker 1: me there is that when you look at politics when 651 00:36:16,440 --> 00:36:18,400 Speaker 1: you look at central banking. Either is more important to 652 00:36:18,760 --> 00:36:30,360 Speaker 1: at this point. Thanks for listening to the Bloomberg Surveillance podcast. 653 00:36:30,840 --> 00:36:36,040 Speaker 1: Subscribe and listen to interviews on Apple Podcasts, SoundCloud, or 654 00:36:36,120 --> 00:36:40,440 Speaker 1: whichever podcast platform you prefer. I'm on Twitter at Tom Keene, 655 00:36:40,560 --> 00:36:44,920 Speaker 1: David Gura is at David Gura. Before the podcast, you 656 00:36:44,920 --> 00:36:48,240 Speaker 1: can always catch us worldwide. I'm Bloomberg Radio