WEBVTT - Currency Wars 0:00:13.480 --> 0:00:16.240 Hello, and welcome to What Goes Up of Bloomberg Weekly 0:00:16.360 --> 0:00:19.800 Markets Podcast. I'm Mike Reagan, a senior editor of Bloomberg, 0:00:20.160 --> 0:00:23.239 and I'm Emily Barrett, a bonds and currencies reporter, and 0:00:23.280 --> 0:00:26.239 I'm filling in for a vacationing Theraponte this week on 0:00:26.280 --> 0:00:29.040 the show, has the trade war turned into a currency ward? 0:00:29.680 --> 0:00:32.520 On Monday, China led its currency weakened by the most 0:00:32.520 --> 0:00:36.159 since two thousand and fifteen, and that triggered volatility across 0:00:36.159 --> 0:00:38.840 all markets, and it's sent US stocks to their worst 0:00:38.840 --> 0:00:42.479 losses of the year. Then on Thursday, President Trump weighed in, 0:00:42.560 --> 0:00:45.320 putting more pressure on the Federal Reserve to take measures 0:00:45.400 --> 0:00:49.360 to weaken the US dollar. So why is everyone fixated 0:00:49.440 --> 0:00:52.519 on foreign exchange rates this week? And what exactly can 0:00:52.560 --> 0:00:55.200 Trump do about it? We've got some smart guests on 0:00:55.240 --> 0:00:57.160 the show to unpack it all for us, and then 0:00:57.200 --> 0:00:59.640 we'll close out the episode without tradition. The craziest thing 0:00:59.680 --> 0:01:02.200 I saw our markets this week, and Mike, I believe 0:01:02.240 --> 0:01:05.679 that we've got now what goes Up hotline? Indeed we do, 0:01:06.080 --> 0:01:09.840 and that number again is six four six three to 0:01:10.040 --> 0:01:13.960 four three four nine. Oh, so please do give us 0:01:13.959 --> 0:01:16.080 a call and tell us the craziest thing you saw 0:01:16.120 --> 0:01:18.440 in markets this week, and if you have a question 0:01:18.640 --> 0:01:20.720 for the hosts of the show, uh drop it on 0:01:20.720 --> 0:01:23.800 our voicemail as well, and we may even play your 0:01:23.880 --> 0:01:27.920 voicemail on the podcast. But Emily, let's introduce the guests here. 0:01:28.240 --> 0:01:30.720 The first guest, now, this is a guy who started 0:01:30.720 --> 0:01:33.120 out in the pits in Chicago back in the nineties 0:01:33.120 --> 0:01:36.440 making those crazy hand gestures. But he's had a variety 0:01:36.440 --> 0:01:39.760 of buying sell side market rolls over the last quarter century. 0:01:39.800 --> 0:01:43.360 He's a macro portfolio manager at Graham Capital in the 0:01:43.480 --> 0:01:46.920 US and Nylon Capital in London, but we're lucky now 0:01:46.959 --> 0:01:49.720 to have him here at Bloomberg. He's a market strategist, 0:01:49.880 --> 0:01:52.560 he's the author of the Macroman column, and he's a 0:01:52.560 --> 0:01:56.880 blogger for Bloomberg Markets Live Blog. Cameron Christ Welcome to 0:01:56.920 --> 0:01:59.880 the show. Always a pleasure. Also joining us this we 0:02:00.360 --> 0:02:04.160 Katie Greifeld. She's a rising star reporter on the bonds 0:02:04.160 --> 0:02:07.200 and FX team here at Bloomberg. Katie, nice to have you, 0:02:07.760 --> 0:02:09.960 Thanks for having me and Katie, I wanted to start 0:02:10.040 --> 0:02:14.919 with you because obviously f X is the story of 0:02:14.960 --> 0:02:18.240 the week by far, and you've done some some very 0:02:18.280 --> 0:02:21.440 interesting reporting. Yet a Business Week story a couple of 0:02:21.480 --> 0:02:24.480 weeks ago, I just want to read the headline. Chaotic 0:02:24.560 --> 0:02:28.320 messaging makes it hard to decode Trump's dollar policy. I 0:02:28.320 --> 0:02:30.799 gotta say I think President Trump may have read that story, 0:02:31.040 --> 0:02:35.400 because on Thursday then he tweeted this quote. As your president, 0:02:35.680 --> 0:02:37.520 one would think that I would be thrilled with our 0:02:37.600 --> 0:02:41.040 very strong dollar. I am not exclamation point. Yeah, he 0:02:41.080 --> 0:02:43.560 definitely answered the question for us, So we would have 0:02:43.600 --> 0:02:46.320 to tweak that headline if I wanted to write again today. 0:02:46.480 --> 0:02:48.720 But I kind of heard it from the horse's mouth 0:02:48.720 --> 0:02:51.680 there that he doesn't like this strong dollar. You know, 0:02:51.720 --> 0:02:53.760 that's echoing things we've heard before, but now we have 0:02:53.800 --> 0:02:56.560 the added twist where he's starting to take action. I mean, 0:02:56.600 --> 0:02:59.600 he labeled China currency manipulator. That's why I wanted to ask, 0:02:59.639 --> 0:03:01.680 if you get the currency market. There wasn't a huge 0:03:01.720 --> 0:03:04.880 reaction to that tweet. Um. You've also reported about how 0:03:04.880 --> 0:03:07.040 there is a lot of speculation in the market that 0:03:07.120 --> 0:03:10.680 the US will intervene and try to weaken the dollar. 0:03:11.200 --> 0:03:15.040 What exactly can President Trump do to accomplish that, other 0:03:15.080 --> 0:03:18.560 than to continue to put pressure on the federal reserve. Well, 0:03:18.600 --> 0:03:23.200 exactly that the US could intervene. I mean Trump complaining 0:03:23.240 --> 0:03:26.160 about the dollar strength, tweeting about it, you know, attacking 0:03:26.160 --> 0:03:29.200 the Federal Reserve. We've seen all of that. Now what 0:03:29.320 --> 0:03:31.560 markets are really waiting for is to see if you 0:03:31.560 --> 0:03:35.960 actually put some muscle behind that and directs Treasury to intervene, 0:03:36.240 --> 0:03:39.520 which would involve selling dollars to try to drive down 0:03:39.560 --> 0:03:42.080 the price. It's like, Kelly, my question to that quickly 0:03:42.240 --> 0:03:45.320 is you've written before, I think that investors have every 0:03:45.360 --> 0:03:47.440 intention of trying to buy up the dollar if there 0:03:47.520 --> 0:03:50.280 is a sign of the US heading to an intervention. 0:03:50.560 --> 0:03:52.560 Is it even a realistic proposition right now for the 0:03:52.640 --> 0:03:56.400 dollar weaken much on that basis? Probably not. I mean, 0:03:56.440 --> 0:03:59.080 that was one of the most fun stories I've written 0:03:59.120 --> 0:04:00.960 in the past few weeks, is that if the US 0:04:01.120 --> 0:04:03.800 did actually try to enter the market try to sell dollars, 0:04:03.880 --> 0:04:06.840 that would just create a great by the dip opportunity. 0:04:07.000 --> 0:04:11.760 Because the foreign exchange market trades over five trillion a day, 0:04:11.840 --> 0:04:15.840 so it's pretty huge, and the US and the Treasuries 0:04:15.920 --> 0:04:21.520 Exchange Stabilization Fund only has about ninety billion or something, 0:04:21.600 --> 0:04:24.720 so that's a drop in the bucket. Uh, And especially 0:04:24.720 --> 0:04:26.960 when you compare that to the reserves of China they 0:04:26.960 --> 0:04:30.000 have over three trillion. Uh, there's just not a lot 0:04:30.040 --> 0:04:32.840 of firepower on the U. S side. O Cameron, if 0:04:32.839 --> 0:04:35.520 you were back in your seat as a trader, I 0:04:35.560 --> 0:04:37.680 don't think you're a fan of this type of tweeting 0:04:37.720 --> 0:04:42.120 by our president. Uh, you know, can you trade on this? Um? 0:04:42.240 --> 0:04:44.240 How do you sort of get through this type of 0:04:44.560 --> 0:04:49.680 environment where the president is sort of unprecedentedly trying to 0:04:49.720 --> 0:04:53.040 force markets to to bend to his will. Well, it's yeah, 0:04:53.120 --> 0:04:56.120 I mean, it's the whole thing is broken. It's so depressing. 0:04:56.640 --> 0:04:58.520 It's like every day I come in and I've got 0:04:58.520 --> 0:05:01.960 a new rent about how the market. You know, markets 0:05:02.000 --> 0:05:04.599 don't clear anymore, they're not allowed to clear anymore because 0:05:04.600 --> 0:05:08.680 of politicians and central bankers and what have you. How 0:05:08.720 --> 0:05:11.200 do you trade it, Well, you don't really until they 0:05:11.200 --> 0:05:15.159 demonstrate that there's actually an action behind the words. All 0:05:15.160 --> 0:05:18.280 it is is kind of empty rhetoric, and as we know, 0:05:18.520 --> 0:05:24.680 the President sort of likes to hold mutually incompatible views simultaneously. 0:05:25.160 --> 0:05:27.760 You know, this is the greatest economy ever, but it's 0:05:27.800 --> 0:05:31.080 being killed by the Fed because interest rates are too high, 0:05:31.160 --> 0:05:33.520 the dollars too high, what have you. I mean, at least, 0:05:33.560 --> 0:05:35.800 at the very least you can say that the preference 0:05:35.800 --> 0:05:39.719 for a weaker dollar is consistent with his preference for 0:05:39.920 --> 0:05:44.359 narrowing the trade deficit with China, because I think, broadly speaking, 0:05:45.120 --> 0:05:49.000 it's fair to say that extreme currency strength or extreme 0:05:49.040 --> 0:05:54.920 currency weakness does lead to a decline or an improvement 0:05:55.320 --> 0:06:00.000 in export growth moving forward. Um, but let's face it again, 0:06:00.279 --> 0:06:03.640 certainly against developed market currencies, dollars not doing anything. I mean, 0:06:03.680 --> 0:06:05.559 we've been in what seems like a three big figure 0:06:05.680 --> 0:06:10.359 range against the Euro all year, so kind of what's 0:06:10.400 --> 0:06:12.680 the what's the point? Trump's had a pop at Mario 0:06:12.800 --> 0:06:15.520 drug and unfairness. Druggy does like to play his own 0:06:15.560 --> 0:06:18.880 little games. But we're not going anywhere on that point though. 0:06:18.920 --> 0:06:20.880 I mean, when we're talking about invoking the FED and 0:06:20.920 --> 0:06:23.120 how we know that Trump has obviously bashed the Fed 0:06:23.120 --> 0:06:25.640 an awful lot, um, do you see this being a 0:06:25.680 --> 0:06:28.680 sort of a counter productive effect. Do you think that 0:06:28.720 --> 0:06:30.760 it's possible. I've heard some people say, for instance, that 0:06:31.240 --> 0:06:34.760 you know Trump has actually possibly averted a deeper cut 0:06:34.880 --> 0:06:36.720 because of his attacks on the FED and the wish 0:06:36.760 --> 0:06:39.719 for the FED to stay independent. Well, the problem is 0:06:39.760 --> 0:06:42.920 we you know, we we never know the counterfactuals. Um. Certainly, 0:06:43.400 --> 0:06:48.760 the FED has changed course pretty dramatically this year from 0:06:48.760 --> 0:06:51.720 where they were at the end of last year, and 0:06:51.760 --> 0:06:56.520 it has had a demonstrable impact on financial conditions. Obviously, 0:06:56.720 --> 0:06:59.320 yields have gone down, equities have gone up, and I 0:06:59.400 --> 0:07:01.799 think you could argued that that, in turn has given 0:07:01.839 --> 0:07:05.440 Trump a platform upon which to keep sort of re 0:07:05.640 --> 0:07:09.160 upping the trade war rhetoric. And I suppose there's an 0:07:09.240 --> 0:07:12.640 argument to be made that if the FED sort of 0:07:13.720 --> 0:07:16.840 didn't deliver what Trump wanted, which is easier montary conditions, 0:07:16.840 --> 0:07:20.440 than Trump wouldn't have the wherewithal to keep sort of 0:07:20.480 --> 0:07:23.120 tweeting every few months that he wants to put more 0:07:23.160 --> 0:07:26.840 tariffs on China. So it's it's you know, it's it's 0:07:26.840 --> 0:07:30.840 it's it's a very difficult environment in which to operate 0:07:30.920 --> 0:07:34.960 because there's so many political levers that are that are 0:07:35.000 --> 0:07:38.800 being pulled, and it's not an easy thing to necessarily 0:07:38.880 --> 0:07:41.640 predict when the President is going to come out with 0:07:41.800 --> 0:07:45.520 some six pm tweet that now sends your beautiful trade 0:07:46.000 --> 0:07:48.240 down in you know, in flame. So you're really missing 0:07:48.280 --> 0:07:51.400 being a trader right now. I take it. Well, Um, 0:07:51.440 --> 0:07:53.240 I mean, I sleep a heck of a lot better 0:07:53.240 --> 0:07:55.880 than I would if I still run a portfolio, that's 0:07:55.880 --> 0:07:59.480 for sure. Katie. You also had an interesting story recently 0:08:00.160 --> 0:08:03.960 that you helped report. Um. Obviously, a lot of people 0:08:04.640 --> 0:08:09.520 sort of we're maybe not expecting, but speculating, worrying that 0:08:09.640 --> 0:08:13.040 China would take a step like this with its currency, 0:08:13.280 --> 0:08:15.560 and the other shoe that people are waiting to drop 0:08:15.760 --> 0:08:19.680 is uh, China's holdings of US treasuries. Tell us about 0:08:19.720 --> 0:08:24.280 that story. Are people worried that China could eventually unload 0:08:24.600 --> 0:08:28.360 its massive pile of treasuries? Would that backfire on them 0:08:28.400 --> 0:08:30.680 if they did? Um? You know, they call it the 0:08:30.760 --> 0:08:35.000 nuclear option, mutual assured destruction. What is sort of the 0:08:35.160 --> 0:08:38.840 thinking about that issue from the people you talked to, Well, 0:08:38.880 --> 0:08:41.720 it's definitely still seen as that nuclear option. It would 0:08:41.800 --> 0:08:44.480 hurt a lot for both sides, maybe more for China 0:08:44.559 --> 0:08:47.440 because uh, you know, if they sold a whole bunch 0:08:47.480 --> 0:08:50.719 of their treasuries holdings, that would sort of erode the 0:08:50.800 --> 0:08:53.840 value of whatever they had over But I mean talking 0:08:53.880 --> 0:08:56.400 to people on Monday after you know, we got in 0:08:56.480 --> 0:09:00.360 and saw that you wanted really screamed through seven the 0:09:00.400 --> 0:09:03.960 people we were speaking to said, if they let that happen, 0:09:04.040 --> 0:09:06.640 if they decided to stop holding the line at seven, 0:09:07.000 --> 0:09:10.480 you really can't rule out the treasuries option because I mean, 0:09:10.480 --> 0:09:12.840 there's a lot of pain that could come with a 0:09:12.880 --> 0:09:17.280 big devaluation in the currency. And uh, clearlyly there there 0:09:17.320 --> 0:09:20.640 was some calculus that they were willing to withstand that pain. 0:09:20.760 --> 0:09:24.520 So that's what people were applying that same logic to 0:09:24.600 --> 0:09:27.600 that huge pile of treasuries. It would still hurt, but 0:09:27.720 --> 0:09:29.959 it would send a pretty big message to the U 0:09:30.040 --> 0:09:32.320 S too. So, Katie, the trends that we've seen in 0:09:32.400 --> 0:09:35.520 terms of treasury auctions recently, there's been Uh, I know 0:09:35.559 --> 0:09:37.040 that you've been following a little bit of kind of 0:09:37.040 --> 0:09:39.760 the TIC data and that sort of stuff as well. Um, 0:09:39.840 --> 0:09:42.520 how can we sort of draw a line between China's 0:09:42.559 --> 0:09:46.520 behavior and actually buying versus holding treasuries. I mean, it 0:09:46.600 --> 0:09:48.560 does seem as if they've stepped back from auctions a 0:09:48.600 --> 0:09:50.280 little bit. That seems to be the theory, although it's 0:09:50.280 --> 0:09:52.080 hard to trace. What what kind of clarity do we 0:09:52.120 --> 0:09:55.400 have on that? Well, we spoke to Sebastian Gallle at 0:09:55.400 --> 0:09:57.720 NORDAIA and he said he will be watching the US 0:09:57.760 --> 0:10:01.160 treasury auctions for any signs of back. Of course, it's 0:10:01.160 --> 0:10:04.800 a little murky there because China can bid directly indirectly. 0:10:05.280 --> 0:10:06.920 But I mean, even with that in mind, if you 0:10:06.960 --> 0:10:09.120 just look at the bid for treasuries over the past week, 0:10:09.320 --> 0:10:12.320 clearly there's been demand. Maybe it's not from China, but 0:10:12.720 --> 0:10:15.679 people are really looking to scoop up treasuries here, Cameroon, 0:10:15.760 --> 0:10:17.800 let's bring you in on sort of both of the 0:10:17.880 --> 0:10:20.440 things Katie was just talking about. You know, A, is 0:10:20.480 --> 0:10:24.880 this nuclear option science fiction? Uh? And be talk about 0:10:24.920 --> 0:10:28.600 that level of seven you want to the US dollar? Um? 0:10:28.760 --> 0:10:31.960 Was it actually that sort of magic number being crossed 0:10:32.040 --> 0:10:34.480 or was it more basically that big rate of change 0:10:34.840 --> 0:10:37.080 in the weakening that we saw on Monday that sort 0:10:37.080 --> 0:10:39.520 of spooked out the rest of the markets? Well, the 0:10:39.600 --> 0:10:43.000 treasury sales stories nonsense, um. And people have been talking 0:10:43.040 --> 0:10:47.320 about this sort of thing happening for a dozen years. UM. 0:10:47.320 --> 0:10:49.520 We do have a little evidence of it happening in 0:10:49.520 --> 0:10:53.440 the past with Russia, who basically completely pulled out of 0:10:53.520 --> 0:10:56.400 the US fixed income market um, and really ran down 0:10:56.440 --> 0:11:00.760 their holdings of treasuries a couple of years when they 0:11:00.760 --> 0:11:03.000 had some sanctions apply to them. But the thing is 0:11:03.120 --> 0:11:06.200 that China's stock of treasuries is so big there's literally 0:11:06.200 --> 0:11:08.920 nowhere else they can put it. Okay, they can't put 0:11:08.920 --> 0:11:11.280 it in European fixed income A because the Payson negative 0:11:11.360 --> 0:11:14.520 yield and be because there's just not enough bonds for 0:11:14.559 --> 0:11:16.360 them to buy. So where are they going to put 0:11:16.360 --> 0:11:18.680 the dough? Are they gonna you know, get one of 0:11:18.720 --> 0:11:22.240 their diggers there that they're using to dig holes, uh 0:11:22.280 --> 0:11:25.600 for for infrastructure and just put a trillion dollars in 0:11:25.640 --> 0:11:27.720 a hole and hire some guys, you know, hire some 0:11:27.800 --> 0:11:29.720 guys to to guard it. Now, of course not well, 0:11:29.760 --> 0:11:32.000 but yeah, but say hypothetically they didn't unload it all 0:11:32.040 --> 0:11:35.679 at once, they sold a couple hundred billion, you know, 0:11:35.960 --> 0:11:39.600 big block trade one day at at a market. Would uh, 0:11:39.880 --> 0:11:41.920 you know, wouldn't that be enough to sort of get 0:11:41.960 --> 0:11:45.480 Donald Trump's attention? I mean, yeah, I theoretically, I suppose. 0:11:45.559 --> 0:11:48.040 But if it also were to submarine the value of 0:11:48.080 --> 0:11:51.360 their existing holdings, and let's fay, I mean, let's let's 0:11:51.360 --> 0:11:55.280 remember that a lot of these holdings are kind of 0:11:55.320 --> 0:11:57.640 they're trying to make some money off of it. Uh, 0:11:57.720 --> 0:12:00.400 you know, it's kind of cutting off your nose to 0:12:00.440 --> 0:12:02.760 despite your face a little bit in terms of seven 0:12:02.760 --> 0:12:04.319 of you want. Yeah, I mean it's a it was 0:12:04.360 --> 0:12:07.600 a big psychological level. I mean, people in the West, 0:12:07.679 --> 0:12:10.199 we all like to think of the function and all 0:12:10.240 --> 0:12:14.439 the sort of the mystical Chinese cultural things, but apparently 0:12:14.520 --> 0:12:20.320 eight is the real mystical number. Seven seven seven doesn't 0:12:20.320 --> 0:12:25.280 really hold much numerological allure, so there's no sort of 0:12:25.360 --> 0:12:29.520 hidden messages there. Um. Yeah, they did defend that level. Well, 0:12:29.559 --> 0:12:32.040 it's not so so much defending it as they just 0:12:32.080 --> 0:12:34.880 didn't you know, they didn't put the fix close enough 0:12:34.880 --> 0:12:38.640 to it that, um, the freely traded market would would 0:12:38.640 --> 0:12:42.160 push through it. That's obviously change, and it is a 0:12:42.240 --> 0:12:46.120 rational response to the tariff threat. The way that China 0:12:46.160 --> 0:12:48.280 can offset some of the impact of tariffs is to 0:12:48.320 --> 0:12:51.440 make the currency, um, make the currency more competitive, and 0:12:51.440 --> 0:12:54.480 if it comes in a context where it's not so 0:12:54.520 --> 0:12:59.400 severe that encourages capital flight. Um. Then for their perspective, 0:12:59.440 --> 0:13:02.320 it's a it's sort of a winning strategy. And you know, 0:13:02.360 --> 0:13:05.719 ask for the United States labeling them a currency manipulator. 0:13:06.240 --> 0:13:08.640 It's kind of like you've seen the movie Team America 0:13:09.040 --> 0:13:11.679 where Hans Blix is there in North Korea and he 0:13:11.760 --> 0:13:13.839 said we're very angry with you, and we're gonna write 0:13:13.840 --> 0:13:16.600 you an angry letter that essentially all that it entails 0:13:17.160 --> 0:13:24.720 is the US from Tea America. This is a family podcast. Uh, 0:13:24.800 --> 0:13:28.000 you know, it's essentially wagons. It's an angry wagging, an 0:13:28.000 --> 0:13:32.240 angry finger, um and and and nothing else. Um. But 0:13:32.320 --> 0:13:36.560 what is interesting actually is that the one has not 0:13:36.679 --> 0:13:38.839 only fixed too in sort of a new low against 0:13:38.840 --> 0:13:41.560 the dollar, but on his broad basket, and that has 0:13:41.600 --> 0:13:44.319 impact throughout the rest of the world. And we've already 0:13:44.360 --> 0:13:48.080 seen this week some of this impact materialized with sort 0:13:48.120 --> 0:13:52.120 of surprising rape cuts in a number of central banks 0:13:52.559 --> 0:13:55.680 in in the Asian region. The Kiwis did fifty instead 0:13:55.679 --> 0:13:59.760 of the expected rb I, preserved Bankiviny at thirty five 0:13:59.760 --> 0:14:03.640 by the expected, and Bank of Thailand out of sort 0:14:03.640 --> 0:14:08.319 of thin air that no one expected. So it's, you know, unfortunately, 0:14:08.360 --> 0:14:11.160 going back to the original question, Mike, we are kind 0:14:11.160 --> 0:14:14.199 of seeing the shots fired in a currency war. And 0:14:14.240 --> 0:14:17.839 the problem is is that if everyone cuts rates to 0:14:17.960 --> 0:14:21.160 weaken their currency, when you know, we're not on the 0:14:21.200 --> 0:14:24.200 gold standard, the whole world can't devalue against sort of 0:14:24.240 --> 0:14:27.520 a central peg. If everybody wants a weaker currency and 0:14:27.600 --> 0:14:30.720 cuts rates to deliver it. All you're gonna end up 0:14:31.160 --> 0:14:34.160 is essentially right back where you started on a relative basis, 0:14:34.520 --> 0:14:38.920 except with less ammunition in terms of conventional rate cuts 0:14:39.280 --> 0:14:42.840 to fight against the next global recession. So it's it's 0:14:42.840 --> 0:15:00.320 a pretty stupid policy in my opinion, just if we 0:15:00.360 --> 0:15:03.080 can backtrack to slightly, because I think this currency manipulator 0:15:03.120 --> 0:15:06.880 label is is interesting just from a political standpoint. Clearly 0:15:07.280 --> 0:15:11.120 the criteria aren't quite there right now, nowhere near there. 0:15:11.240 --> 0:15:14.120 So does this leave us in a really strange position 0:15:14.160 --> 0:15:16.560 where the government is now in the US is now 0:15:16.680 --> 0:15:19.640 kind of faced with a year of testing and and 0:15:20.320 --> 0:15:21.960 you know, thinking about whether or not this is a 0:15:22.040 --> 0:15:25.720 viable thing. What is the actual practical implication If it's 0:15:25.720 --> 0:15:27.240 possible that they're not going to be found to be 0:15:27.280 --> 0:15:30.720 a currency manipulator, what's the what's the upshot of Well, 0:15:31.120 --> 0:15:34.400 they they were found. Obviously I don't have insight information, 0:15:34.440 --> 0:15:39.080 but I'm strongly suspect that the state of play was 0:15:39.120 --> 0:15:42.680 that Donald Trump called up Steve Manusian and said, we're 0:15:42.720 --> 0:15:46.240 calling the most currency manipulator. And that was that because 0:15:46.320 --> 0:15:49.240 certainly on the basis of the criteria that the Treasury 0:15:49.240 --> 0:15:52.520 has been using in their semi annual report China. The 0:15:52.640 --> 0:15:55.480 level of intervention that China conduct which has basically been 0:15:55.600 --> 0:15:58.040 zero over the last several years on a net basis, 0:15:58.800 --> 0:16:01.040 is nowhere near where it needs to be, which I 0:16:01.040 --> 0:16:03.480 think is two percent of gdp UM to be called 0:16:03.480 --> 0:16:06.720 a currency manipulator. So I think Trump had tweeted out 0:16:06.720 --> 0:16:09.960 earlier that day that China was manipulating its currency isn't 0:16:10.000 --> 0:16:12.040 as awful, and I think he just rang up monutions 0:16:12.040 --> 0:16:14.440 said alright, bang, let's yeah, let's do it. Let's do 0:16:14.520 --> 0:16:17.200 this thing. Um. In terms of the practical implications, as 0:16:17.240 --> 0:16:19.760 I said, it's kind of just writing an angry letter 0:16:19.760 --> 0:16:23.360 of waving of finger and in in in disgust. The 0:16:23.480 --> 0:16:26.480 literal interpretation of the law is that they are supposed 0:16:26.520 --> 0:16:29.440 to consult with the I m F and with China 0:16:29.520 --> 0:16:34.040 hold talks about fixing this bilateral misalignment. But as we know, 0:16:34.360 --> 0:16:37.680 China and the United States are already engaged in sporadic 0:16:37.760 --> 0:16:40.040 trade talks of which the currency is one of the 0:16:40.680 --> 0:16:44.040 one of the issues. I don't think anyone expects Donald 0:16:44.040 --> 0:16:46.160 Trump to call him the I m F to adjudicate 0:16:46.560 --> 0:16:50.600 a dispute, because he's a master negotiator. So other than 0:16:51.960 --> 0:16:54.320 let's said about that the better, but but other than 0:16:54.360 --> 0:16:57.720 a diplomatic sort of chip that's now been kind of 0:16:57.800 --> 0:16:59.800 handed those. Yeah, that's the thing. Yeah, that the I 0:17:00.000 --> 0:17:03.160 and it is that it's now been played. And insofar 0:17:03.240 --> 0:17:07.000 as China was worried about weakening the currency so they could, 0:17:07.119 --> 0:17:09.280 you know, because I didn't want to be called a manipulator, 0:17:09.359 --> 0:17:11.399 Well now they've been called a manipulator. So what's to 0:17:11.440 --> 0:17:16.720 stop them from weakening the currency even further? There really 0:17:16.760 --> 0:17:19.800 isn't it. I wanted to get back to something you 0:17:20.000 --> 0:17:23.400 mentioned earlier, which was these shock rate cuts we saw 0:17:23.440 --> 0:17:26.720 this week. Well maybe not shocked, but India, Thailand, New 0:17:26.800 --> 0:17:30.600 Zealand all cut a little bit more than what the 0:17:30.960 --> 0:17:35.080 markets were expecting. We saw this uh, ferocious rally in 0:17:35.280 --> 0:17:39.200 bonds the world over in the wake of that. Now 0:17:40.320 --> 0:17:45.040 we're having people openly discussed and with a straight face, seriously, 0:17:45.080 --> 0:17:48.760 the idea of negative treasury yields in the US. You know, 0:17:48.800 --> 0:17:52.000 I know you've written before. Eventually people are going to 0:17:52.119 --> 0:17:54.600 just dig a hole and put their money in a hole. 0:17:55.400 --> 0:17:57.800 I mean, is there a real risk of sort of 0:17:57.840 --> 0:18:00.760 a major banking crisis if that, if if rates are 0:18:00.800 --> 0:18:03.680 to get too low, and especially say deposit rates on 0:18:03.680 --> 0:18:07.439 on savings accounts get deeply negative. I mean, how do 0:18:07.480 --> 0:18:11.120 you see this all going? If people predicting negative rates 0:18:11.160 --> 0:18:15.800 in the US are correct, well, I mean, we're all 0:18:15.840 --> 0:18:20.040 gonna have to find new jobs because frankly, there won't 0:18:20.080 --> 0:18:22.359 be very many Bloomberg terminal silver because a lot of 0:18:22.400 --> 0:18:23.879 a lot of people in our industry will be out 0:18:23.920 --> 0:18:28.959 of work. Um, the US is a very highly financialized economy. 0:18:29.440 --> 0:18:32.640 The money mark in industry by itself still runs three 0:18:32.720 --> 0:18:37.639 trillion dollars. If you basically impose negative yields at the 0:18:37.640 --> 0:18:39.840 short end of the curve, and that's the only place 0:18:39.880 --> 0:18:43.520 that these money market funds can operate, then why would 0:18:43.560 --> 0:18:46.840 I pay somebody you know a dollar today to get 0:18:47.160 --> 0:18:49.080 cents back in a year's time because he might get 0:18:49.160 --> 0:18:51.679 less otherwise? Well, no, I'll dig a hole. I mean literally, 0:18:52.520 --> 0:18:55.960 I'll buy a safe and dig a hole in the ground. Um, 0:18:56.040 --> 0:18:59.119 it's uh, let me, let me, Let me ask you 0:18:59.160 --> 0:19:03.880 guys a question. Let's turn the tables around. You make 0:19:03.920 --> 0:19:07.760 the okay, all right, So let's say, Um, we're just 0:19:07.760 --> 0:19:10.720 gonna I'm not I don't know what your wealth aspirations are. 0:19:11.000 --> 0:19:13.160 But let's say that you wanted to have a million 0:19:13.160 --> 0:19:16.440 dollars in twenty years. Whatever your income is. UH, say 0:19:16.480 --> 0:19:18.960 you make a hunder grand a year, and you've got whatever, 0:19:19.720 --> 0:19:23.320 kids and mortgages and all body body bob um and you. 0:19:23.359 --> 0:19:25.320 So you save a little bit every every you know, 0:19:25.600 --> 0:19:27.919 every month. You want to have a million dollars in 0:19:28.080 --> 0:19:31.720 twenty years time. If interest rates are five percent, consider 0:19:31.760 --> 0:19:34.520 how much money you would have to save every month 0:19:34.800 --> 0:19:38.199 for twenty years to get that million dollars. Now, consider 0:19:38.240 --> 0:19:40.680 how much you have to save if rates were minus one. 0:19:41.480 --> 0:19:44.600 Would you save more or would you save less? Would 0:19:44.600 --> 0:19:47.359 you spend more? Would you spend less? I would argue 0:19:47.840 --> 0:19:50.960 very strongly that you would spend less and save more 0:19:51.480 --> 0:19:55.119 because you aren't gonna get capital returns, or you're not 0:19:55.160 --> 0:19:59.000 gonna get returns interest returns um from that you would 0:19:59.040 --> 0:20:03.440 have had if you if ray where I say five um. 0:20:03.600 --> 0:20:06.520 So I think this idea that negative rates are going 0:20:06.600 --> 0:20:11.440 to sort of spur consumption and reflate the economy. There's 0:20:11.480 --> 0:20:14.199 been no empirical evidence that's happened in Japan. There's been 0:20:14.200 --> 0:20:17.000 no empirical evidence that's happened in Switzerland. There's been no 0:20:17.119 --> 0:20:19.840 empirical evidence that's happened in Europe. So the idea that 0:20:19.880 --> 0:20:22.760 it's somehow a good idea in the United States it's 0:20:22.800 --> 0:20:25.479 frankly absurd. Look at the banks in Europe, look at 0:20:25.480 --> 0:20:27.800 the banks in Japan, and look at the banks in 0:20:27.800 --> 0:20:30.159 the United States. One of these things is not like 0:20:30.240 --> 0:20:34.600 the other. Uh. The U S banks have done demonstrably 0:20:34.640 --> 0:20:37.000 better than banks in other parts of the world. I've 0:20:37.040 --> 0:20:40.879 had negative interest rates. Ask yourself why. Well, on that note, 0:20:41.040 --> 0:20:44.760 I think it's time to talk about the craziest things 0:20:44.880 --> 0:20:48.520 we've all seen this week in markets, and I'm gonna 0:20:48.560 --> 0:20:50.760 start with a call we got into the hotline from 0:20:51.240 --> 0:20:55.359 a character on Twitter known as Twiggy Sunday. Let's listen 0:20:55.560 --> 0:20:57.600 to what he believed to be the craziest thing he 0:20:57.640 --> 0:20:59.640 saw in markets this week, because I got amit. It's 0:20:59.640 --> 0:21:02.960 pretty goo. The tip of the hat goes to Tracy Alloway, 0:21:03.040 --> 0:21:07.439 who quoted at Quantaine stating that the biggest TTF in 0:21:07.440 --> 0:21:10.600 the world, s p Y, is organized around a secret 0:21:10.640 --> 0:21:15.040 list of eleven individuals age to twenty nine, and upon 0:21:15.080 --> 0:21:18.119 their death, the trust will be forced to delist liquid 0:21:18.160 --> 0:21:21.520 date and distributed its assets. I have no idea whether 0:21:21.600 --> 0:21:24.280 this is true. But if it's my definition of bonkers, 0:21:26.080 --> 0:21:28.560 that really does fit a definition of bonkers, I have 0:21:28.600 --> 0:21:31.119 to agree with Twiggy on that, and he's wondering if 0:21:31.160 --> 0:21:33.360 it's true and in fact is true. I asked our 0:21:33.760 --> 0:21:36.800 et F guru here, Eric Valcunas, about this, and he said, 0:21:37.200 --> 0:21:40.119 it is technically true with a lot of E T 0:21:40.240 --> 0:21:42.360 F s um, but it has to do with some 0:21:42.680 --> 0:21:46.360 arcane nuances of securities laws. But let me just read 0:21:46.400 --> 0:21:49.400 you the documents here. The trust is scheduled to terminate 0:21:49.480 --> 0:21:54.879 on the first to occur of a January or b 0:21:55.560 --> 0:21:58.080 the date twenty years after the death of the last 0:21:58.080 --> 0:22:01.159 survivor of eleven persons named in the trust agreement, the 0:22:01.160 --> 0:22:03.240 oldest of whom was born in nineteen ninety and the 0:22:03.280 --> 0:22:07.480 youngest of whom was born in ninete. So I imagine 0:22:07.560 --> 0:22:11.000 they'll fix that when eighteen were the death of those 0:22:11.040 --> 0:22:15.000 people approaches. But I don't think anyone knows who these 0:22:15.000 --> 0:22:18.840 people are. It's a very very bizarre thing in the 0:22:18.840 --> 0:22:23.080