1 00:00:09,880 --> 00:00:13,800 Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene Jay Lee. 2 00:00:13,960 --> 00:00:17,560 Speaker 1: We bring you insight from the best in economics, finance, investment, 3 00:00:18,000 --> 00:00:23,520 Speaker 1: and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, 4 00:00:23,600 --> 00:00:28,320 Speaker 1: Bloomberg dot Com, and of course, on the Bloomberg. Your 5 00:00:28,360 --> 00:00:32,720 Speaker 1: top story this morning, China emphasizing de escalation. One quote 6 00:00:32,720 --> 00:00:35,760 Speaker 1: from the Ministry of Commerce spokesperson. All it took to 7 00:00:35,800 --> 00:00:38,199 Speaker 1: give equity futures a big lift, he said the following 8 00:00:38,560 --> 00:00:41,879 Speaker 1: China has ample means for retaliation, but thinks the question 9 00:00:42,120 --> 00:00:44,839 Speaker 1: that should be discussed now it's about removing the new 10 00:00:44,880 --> 00:00:48,159 Speaker 1: tariffs to prevent escalation of the trade war. Here with 11 00:00:48,240 --> 00:00:51,560 Speaker 1: us in New York. Andrew Holland Hoorst, City Chief US Economists. 12 00:00:51,560 --> 00:00:54,320 Speaker 1: Good morning to Andrew. Let's just talk talk about that 13 00:00:54,400 --> 00:00:58,800 Speaker 1: news at about three am Eastern which give SMP futures 14 00:00:58,840 --> 00:01:01,880 Speaker 1: a rather big lift. How important is that approach from 15 00:01:01,880 --> 00:01:04,679 Speaker 1: the Chinese? So it's certainly begun to be a risk 16 00:01:04,720 --> 00:01:08,520 Speaker 1: positive development. But we've been down this path before. We've 17 00:01:08,520 --> 00:01:11,760 Speaker 1: had cycles of escalation and de escalation, so I think 18 00:01:11,880 --> 00:01:13,480 Speaker 1: you have to be a little bit careful here about 19 00:01:13,520 --> 00:01:16,119 Speaker 1: have we really changed the long term trajectory in some way. 20 00:01:16,640 --> 00:01:19,280 Speaker 1: But yeah, marginally good news. It did not look like 21 00:01:19,319 --> 00:01:22,600 Speaker 1: we would have an off ramp last Friday, Monday at 22 00:01:22,600 --> 00:01:25,840 Speaker 1: the G seven. Now this morning, this Thursday, it looks 23 00:01:25,880 --> 00:01:27,720 Speaker 1: like maybe we have a little bit of an off ramp. 24 00:01:27,800 --> 00:01:29,920 Speaker 1: Is that what they say is, I think both countries 25 00:01:29,959 --> 00:01:34,479 Speaker 1: are trying to create some off ramps, some flexibility, some 26 00:01:34,600 --> 00:01:37,240 Speaker 1: ability to actually get some kind of a deal done. 27 00:01:37,640 --> 00:01:40,160 Speaker 1: And on the trade issue especially, there would seem to 28 00:01:40,200 --> 00:01:43,320 Speaker 1: be a lot of potential for getting to a deal 29 00:01:43,480 --> 00:01:46,199 Speaker 1: in the sense that you have the US that would 30 00:01:46,200 --> 00:01:48,880 Speaker 1: like to sell things like soybeans and agricultural goods and 31 00:01:48,880 --> 00:01:51,800 Speaker 1: liquid natural gas, and China that probably has demand to 32 00:01:51,800 --> 00:01:55,440 Speaker 1: buy those things. So I think it, you know, cautiously 33 00:01:55,600 --> 00:01:58,280 Speaker 1: optimistic about the latest development, but again it has a 34 00:01:58,320 --> 00:02:01,080 Speaker 1: long term trajectory. The long term outlook really changed. I 35 00:02:01,080 --> 00:02:03,600 Speaker 1: think you can't say that's changed substantially with this announcement 36 00:02:03,640 --> 00:02:07,440 Speaker 1: this morning. To be with us this morning, you participate, 37 00:02:08,360 --> 00:02:12,840 Speaker 1: welcomes a terrible there's a stereop dary gloom and go 38 00:02:12,919 --> 00:02:15,480 Speaker 1: to cash. What are we three point six percent from 39 00:02:15,480 --> 00:02:17,600 Speaker 1: a record high? I think it is something like X 40 00:02:18,560 --> 00:02:21,040 Speaker 1: and yield. I mean what's great, John, Is it less 41 00:02:21,120 --> 00:02:25,680 Speaker 1: hysteria than Tuesday or Wednesday. But the levels that were 42 00:02:25,760 --> 00:02:29,079 Speaker 1: at are just extraordinary to see the optimism confirmed in 43 00:02:29,120 --> 00:02:32,359 Speaker 1: the bond market this morning, that's for sure. Comes in 44 00:02:32,400 --> 00:02:35,200 Speaker 1: another biasis point again, have you changed the city group 45 00:02:35,280 --> 00:02:39,280 Speaker 1: the Excel spreadsheets? I mean, how do you tweak substantial 46 00:02:39,360 --> 00:02:43,120 Speaker 1: Excel spreadsheets given the yield structure of the world. So, 47 00:02:43,360 --> 00:02:46,400 Speaker 1: I remember about ten years ago we had a view 48 00:02:46,560 --> 00:02:50,400 Speaker 1: that tenure yield should never go below three percent. You 49 00:02:50,480 --> 00:02:53,680 Speaker 1: just thought, well, there's some potential growth or you know, 50 00:02:53,760 --> 00:02:56,600 Speaker 1: can't be below one percent, and you get inflation that 51 00:02:56,639 --> 00:02:59,120 Speaker 1: will be around two percent, So shouldn't the tenure yield 52 00:02:59,160 --> 00:03:01,239 Speaker 1: be around three person then? And I think what has 53 00:03:01,320 --> 00:03:04,359 Speaker 1: changed is, you know, some recognition of the idea that 54 00:03:04,680 --> 00:03:08,400 Speaker 1: global growth may be slow for some time. Core inflation 55 00:03:08,760 --> 00:03:11,480 Speaker 1: um and inflation broadly is not gotten back to targets. 56 00:03:11,560 --> 00:03:14,400 Speaker 1: So that's giving these deals very low but very very 57 00:03:14,440 --> 00:03:17,839 Speaker 1: low levels. Irving Fisher way back, is this just going 58 00:03:17,840 --> 00:03:20,600 Speaker 1: to get down to a terminal value on inflation, a 59 00:03:20,720 --> 00:03:24,520 Speaker 1: terminal value on interest rates, a terminal value on GDP growth. 60 00:03:24,720 --> 00:03:27,440 Speaker 1: Flip that reciprocal and you get out to a thirty two, 61 00:03:27,520 --> 00:03:30,880 Speaker 1: multiple market, all all of those things that you mentioned 62 00:03:30,880 --> 00:03:33,880 Speaker 1: have been revised lower. I think that means exactly like 63 00:03:33,919 --> 00:03:36,600 Speaker 1: you're saying, you're discount rate is now lower. That means 64 00:03:36,600 --> 00:03:39,880 Speaker 1: you're going to support higher valuations for risk assets. So 65 00:03:40,160 --> 00:03:43,760 Speaker 1: all of that makes sense. So too much math, Too 66 00:03:43,840 --> 00:03:46,720 Speaker 1: much math for seven I four, But carry off and 67 00:03:46,960 --> 00:03:48,560 Speaker 1: let's talk about the new sham. Wait a little bit 68 00:03:48,600 --> 00:03:51,960 Speaker 1: late today we got another look at GDP, the trite dispute, 69 00:03:51,960 --> 00:03:54,760 Speaker 1: the trite war, however you want to characterize it. When 70 00:03:54,760 --> 00:03:56,800 Speaker 1: we get that second look at GDP, why do you 71 00:03:56,800 --> 00:04:00,680 Speaker 1: expect to see it? If that's all so the headline 72 00:04:00,760 --> 00:04:02,400 Speaker 1: number can come down a little bit. But I think 73 00:04:02,400 --> 00:04:05,320 Speaker 1: what's important in that second quarter GDP is that we 74 00:04:05,400 --> 00:04:09,360 Speaker 1: had very strong consumption, very weak investment. And that's been 75 00:04:09,440 --> 00:04:11,160 Speaker 1: kind of the story of the U S economy in 76 00:04:11,640 --> 00:04:14,840 Speaker 1: nineteen as we've gone to a scenario where all of 77 00:04:14,880 --> 00:04:18,400 Speaker 1: our hopes for strong growth and continued growth at or 78 00:04:18,440 --> 00:04:23,359 Speaker 1: above potential are are really right on the consumer and 79 00:04:23,440 --> 00:04:26,960 Speaker 1: not on business fixed investment. UM. Now, I think it's 80 00:04:26,960 --> 00:04:29,599 Speaker 1: an open question how much have trade concerns weighed into 81 00:04:29,640 --> 00:04:33,200 Speaker 1: that weak investment story. UM, there's probably some of that 82 00:04:33,240 --> 00:04:35,839 Speaker 1: they're Honestly, a lot of that is just the general 83 00:04:35,880 --> 00:04:39,680 Speaker 1: weakness in manufacturing. You're seeing that globally. UM that probably 84 00:04:39,680 --> 00:04:42,599 Speaker 1: would have been occurring with or without the trade tension, 85 00:04:42,680 --> 00:04:44,520 Speaker 1: so not not as clear that it's coming through. This 86 00:04:44,600 --> 00:04:46,320 Speaker 1: has been building for a long time. In fact, it 87 00:04:46,400 --> 00:04:49,320 Speaker 1: predates the real ramp up in escalation between China and 88 00:04:49,320 --> 00:04:54,719 Speaker 1: the United States has started last spring. It's a persistent overhang. 89 00:04:54,839 --> 00:04:59,080 Speaker 1: Now it's persistent and the damage is being dump Beyond manufacturing. 90 00:04:59,360 --> 00:05:02,480 Speaker 1: The story for much of the last year manufacturing radiogly 91 00:05:02,560 --> 00:05:06,320 Speaker 1: services in the labor market resilient worldwide. In Germany, we're 92 00:05:06,400 --> 00:05:09,680 Speaker 1: just starting to see some frenches in the labor market. 93 00:05:09,760 --> 00:05:12,400 Speaker 1: Are we starting to see it spill out from manufacturing 94 00:05:12,400 --> 00:05:14,880 Speaker 1: worldwide entry So we're not seeing that so much in 95 00:05:14,920 --> 00:05:17,560 Speaker 1: the US yet. I think that is concerning that you're 96 00:05:17,560 --> 00:05:20,000 Speaker 1: seeing it in Germany in the sense that in Europe 97 00:05:20,040 --> 00:05:22,440 Speaker 1: you would expect to see this very delayed response from 98 00:05:22,440 --> 00:05:25,120 Speaker 1: the labor market because you have a labor market that's 99 00:05:25,200 --> 00:05:27,279 Speaker 1: much less fast to it adjust in the In the 100 00:05:27,360 --> 00:05:30,520 Speaker 1: US you can have very fast adjustments in the labor market. Um, 101 00:05:30,720 --> 00:05:34,240 Speaker 1: we've had manufacturing that's been weak, like you were saying 102 00:05:34,279 --> 00:05:37,440 Speaker 1: for some time globally and in the US, we have 103 00:05:37,680 --> 00:05:41,000 Speaker 1: seen some of the non manufacturing indicators move a bit lower. 104 00:05:41,040 --> 00:05:44,360 Speaker 1: So I s M non manufacturing has come down now, Um, 105 00:05:44,360 --> 00:05:46,800 Speaker 1: it's still at a high level, but the direction of 106 00:05:46,839 --> 00:05:49,520 Speaker 1: travel is to a lower level. So we're not getting 107 00:05:49,520 --> 00:05:51,680 Speaker 1: too concerned in the US. And the labor market still 108 00:05:51,680 --> 00:05:54,040 Speaker 1: looks extremely strong in the US. Will get more information 109 00:05:54,040 --> 00:05:56,640 Speaker 1: about that with the jobs report next week, but so 110 00:05:56,680 --> 00:05:59,720 Speaker 1: far very low initial jobless claims and high payroll growth. 111 00:05:59,760 --> 00:06:04,120 Speaker 1: In your micro analysis, are you seeing service sector inflation 112 00:06:04,240 --> 00:06:09,800 Speaker 1: in the US come down to to uh goods producing disinflation? 113 00:06:10,160 --> 00:06:13,479 Speaker 1: Any indication of that yet? So services inflation has actually 114 00:06:13,520 --> 00:06:18,600 Speaker 1: been holding up relatively part of that rate. So you 115 00:06:18,600 --> 00:06:20,480 Speaker 1: can argue whether that's good news or bad news for 116 00:06:20,600 --> 00:06:24,359 Speaker 1: most people. So the cost of cost of house listeners 117 00:06:24,360 --> 00:06:29,320 Speaker 1: would argue that exactly. Um, but but that that's right. Yeah, 118 00:06:29,320 --> 00:06:31,920 Speaker 1: shelter in particular has been supporting the services inflation. I 119 00:06:32,040 --> 00:06:34,520 Speaker 1: gotta get your thoughts on the Treasury secretary as well. 120 00:06:34,880 --> 00:06:38,440 Speaker 1: Mr Manutrian speaking to Bloomberg an exclusive interview, talking up 121 00:06:38,720 --> 00:06:42,680 Speaker 1: ultra long bomb issuance and talking down currency intervention. Let's 122 00:06:42,680 --> 00:06:44,640 Speaker 1: just talk about the ultra loong bomb issuance. The first 123 00:06:44,640 --> 00:06:46,720 Speaker 1: thing I did was going back to seen just a 124 00:06:46,720 --> 00:06:48,960 Speaker 1: couple of years back, the last time we really discussed this, 125 00:06:49,400 --> 00:06:52,520 Speaker 1: and the Treasury Borrowing Advisory Committee pushed back and they 126 00:06:52,560 --> 00:06:55,920 Speaker 1: said the following, While an ultra long bond is most 127 00:06:56,040 --> 00:06:58,720 Speaker 1: likely to be demanded by those with longer dated liabilities, 128 00:06:58,760 --> 00:07:01,400 Speaker 1: the committee does not see in some strong or sustainable 129 00:07:01,400 --> 00:07:04,560 Speaker 1: demand for maturity's beyond thirty years. Is the advice going 130 00:07:04,600 --> 00:07:06,760 Speaker 1: to be any different this time around? I would think 131 00:07:06,760 --> 00:07:09,160 Speaker 1: that that advice would be fairly stable. I really don't 132 00:07:09,160 --> 00:07:12,040 Speaker 1: think we've changed the landscape significantly over you know, a 133 00:07:12,080 --> 00:07:14,760 Speaker 1: couple of couple of year period. UM. It doesn't mean 134 00:07:14,800 --> 00:07:17,720 Speaker 1: that the government can't go ahead and the treasure we 135 00:07:17,760 --> 00:07:19,960 Speaker 1: can ignore that advice and come ahead. Do you think 136 00:07:19,960 --> 00:07:22,360 Speaker 1: they will? But I would think that that advice is 137 00:07:22,400 --> 00:07:25,600 Speaker 1: the same. Um. My best guess would be that this 138 00:07:25,640 --> 00:07:28,840 Speaker 1: is something that's discussed and ultimately there takes a very 139 00:07:28,920 --> 00:07:30,840 Speaker 1: long time, or they don't actually get to that long 140 00:07:30,960 --> 00:07:33,520 Speaker 1: term issuance. UM. If you remember that, you know, when 141 00:07:33,560 --> 00:07:35,760 Speaker 1: the Treasury rolled out floating rate notes, when the Treasury 142 00:07:35,840 --> 00:07:39,280 Speaker 1: rolled out the tips program, um, these took multiple years 143 00:07:39,280 --> 00:07:41,520 Speaker 1: before you actually got there. So you know, we're seeing 144 00:07:41,560 --> 00:07:43,800 Speaker 1: yields move today and maybe that's a reflection of what 145 00:07:43,840 --> 00:07:46,400 Speaker 1: could happened um sometime from now, but this is probably 146 00:07:46,400 --> 00:07:48,960 Speaker 1: a long timeline led to some stateness last night, and 147 00:07:48,960 --> 00:07:52,000 Speaker 1: then we flamed back down again. Did you see our goal, well, 148 00:07:52,040 --> 00:07:53,840 Speaker 1: you were in makeup for radio. Did you see our 149 00:07:53,880 --> 00:07:57,320 Speaker 1: gold segment with Andrew Holland? Now I miss that. In 150 00:07:57,440 --> 00:08:00,280 Speaker 1: honor of his tenure at Berkeley, I should went out 151 00:08:00,280 --> 00:08:03,520 Speaker 1: where Mr Dudley went as well is tenure at Berkeley. 152 00:08:03,560 --> 00:08:10,600 Speaker 1: We killed on Barry ken Green's golden feathers nice twenty five. 153 00:08:10,720 --> 00:08:13,600 Speaker 1: I'm doing the math twenty five years ago, twenty six 154 00:08:13,680 --> 00:08:17,720 Speaker 1: years ago. I'm gold wedded. The conversation God the gold is, 155 00:08:17,760 --> 00:08:20,400 Speaker 1: you know is Andrew correctly said you don't buy gold 156 00:08:20,400 --> 00:08:22,640 Speaker 1: because it's low yield, but everything else is low yield 157 00:08:22,640 --> 00:08:25,240 Speaker 1: now because all of a sudden gold is like an equivalent, 158 00:08:26,480 --> 00:08:28,680 Speaker 1: the opportunity cost of holding gold a shifted. We've told 159 00:08:28,720 --> 00:08:30,760 Speaker 1: about that many times on this shock. I know we 160 00:08:31,160 --> 00:08:33,880 Speaker 1: gave a moment of silence for Edward Morrison City Group, 161 00:08:33,880 --> 00:08:35,480 Speaker 1: and you know, come out of the analysis and I'm 162 00:08:35,520 --> 00:08:37,160 Speaker 1: gonna get missed the most back on a problems have 163 00:08:37,160 --> 00:08:38,960 Speaker 1: been a drag him on as well. He andrew right 164 00:08:39,000 --> 00:08:42,840 Speaker 1: to call and thank you so much City Chief US economist. 165 00:08:55,840 --> 00:08:57,679 Speaker 1: When you look at the yield space and you go, 166 00:08:57,840 --> 00:09:01,040 Speaker 1: what is going on? Mitch Ramen with us with eraisor 167 00:09:01,080 --> 00:09:03,520 Speaker 1: group to answer questions on this and Midge this is 168 00:09:03,559 --> 00:09:05,360 Speaker 1: within a broader year. But I know we gotta do 169 00:09:05,400 --> 00:09:08,320 Speaker 1: Brexit here in a moment. But as John Ferrell mentioned, 170 00:09:08,320 --> 00:09:11,520 Speaker 1: the Chinese come out with what jan one sentence, just 171 00:09:11,600 --> 00:09:16,440 Speaker 1: one hope we go. Midge. My arch question to you 172 00:09:17,200 --> 00:09:21,080 Speaker 1: is all this China US stuff. Is it of an 173 00:09:21,120 --> 00:09:25,960 Speaker 1: advantage to Europe? Actually, I think it's a to a 174 00:09:26,040 --> 00:09:29,280 Speaker 1: to a big disadvantage Tom, because it creates a broader 175 00:09:29,320 --> 00:09:33,720 Speaker 1: global context with a tremendous amount of uncertainty, which ultimately 176 00:09:33,720 --> 00:09:37,240 Speaker 1: at the margin I think hurts hurts confidence in the EU. 177 00:09:37,360 --> 00:09:40,920 Speaker 1: I mean there's also the big risk of the US 178 00:09:40,920 --> 00:09:43,960 Speaker 1: EU trade war. In the short term. I think as 179 00:09:43,960 --> 00:09:46,320 Speaker 1: we moved through the second half of the year, there's 180 00:09:46,360 --> 00:09:48,680 Speaker 1: been a lot of uncertainty in Italy, although the government 181 00:09:48,679 --> 00:09:51,880 Speaker 1: does seem to be coming together now. And of course 182 00:09:52,000 --> 00:09:55,120 Speaker 1: the big, the big risk, which is the Brexit questions. 183 00:09:55,320 --> 00:09:57,320 Speaker 1: I do think, you know, the economic cycle in Europe 184 00:09:57,360 --> 00:10:00,839 Speaker 1: is not robust. Broader can turn about the state of 185 00:10:00,840 --> 00:10:02,600 Speaker 1: the global economy, I think feeds into that in a 186 00:10:02,640 --> 00:10:05,040 Speaker 1: negative way. So maybe let's talk about that and what 187 00:10:05,080 --> 00:10:07,319 Speaker 1: the polity response in a place like Germany might be. 188 00:10:07,360 --> 00:10:09,800 Speaker 1: Here in the United States, this narrative is building that 189 00:10:09,840 --> 00:10:12,160 Speaker 1: the German government's about to do fiscal stimulus. What's the 190 00:10:12,200 --> 00:10:14,079 Speaker 1: reality on the ground at the moment for you, Madge? 191 00:10:15,280 --> 00:10:17,160 Speaker 1: I mean, I think, you know, when when we talk 192 00:10:17,160 --> 00:10:20,319 Speaker 1: about fiscal stimulus in Germany, one has to think contextually 193 00:10:20,840 --> 00:10:23,679 Speaker 1: about the debate in Germany over fiscal policy, the role 194 00:10:23,720 --> 00:10:26,199 Speaker 1: of fiscal policy, and then of course think much more 195 00:10:26,200 --> 00:10:28,680 Speaker 1: seriously about how robust that stimulus would likely to be, 196 00:10:28,679 --> 00:10:30,720 Speaker 1: even if the government were to open up the spending 197 00:10:30,760 --> 00:10:34,440 Speaker 1: taps a little bit. I don't think you're looking for 198 00:10:34,760 --> 00:10:37,920 Speaker 1: you know, we're not. We're not looking to see anything substantializing. 199 00:10:38,040 --> 00:10:40,720 Speaker 1: I think that's unlikely. If you think about the political 200 00:10:40,840 --> 00:10:43,280 Speaker 1: context in Germany, it may be helpful a string of 201 00:10:43,320 --> 00:10:46,800 Speaker 1: regional elections where there's social Democrats are set to perform 202 00:10:46,880 --> 00:10:50,960 Speaker 1: extremely badly. The Christine Democrats in crisis to some degree, 203 00:10:51,040 --> 00:10:54,240 Speaker 1: is the transition between Merkel and her successor a KK 204 00:10:54,480 --> 00:10:57,120 Speaker 1: doesn't play well. I mean, that's not a context in 205 00:10:57,120 --> 00:10:59,880 Speaker 1: which it's popular to make an argument about opening the 206 00:11:00,000 --> 00:11:02,040 Speaker 1: first strings. And I think one does have to think 207 00:11:02,040 --> 00:11:05,840 Speaker 1: politically and contextually about how robust any stimulus will be 208 00:11:05,880 --> 00:11:09,199 Speaker 1: forthcoming out of Germany. I'd also say at the European level, 209 00:11:09,400 --> 00:11:12,560 Speaker 1: you're not likely to really see any coordinated or aggregate 210 00:11:13,080 --> 00:11:17,199 Speaker 1: response on the fiscal side. No, I don't mean to 211 00:11:17,360 --> 00:11:19,600 Speaker 1: interrupt meent. I just think there's so much flow going 212 00:11:19,640 --> 00:11:24,040 Speaker 1: on between European dynamics, all this distraction of Brexit and 213 00:11:24,240 --> 00:11:27,600 Speaker 1: such in the real issues of China, US and frankly 214 00:11:28,160 --> 00:11:30,760 Speaker 1: China and the rest of the world. How does your 215 00:11:30,760 --> 00:11:34,720 Speaker 1: Eurasia group in international relations? How do you synthesize in 216 00:11:35,160 --> 00:11:37,760 Speaker 1: where the bond market is? And John, I haven't even 217 00:11:37,840 --> 00:11:42,000 Speaker 1: mentioned this this morning continued subtle dours strength as well. 218 00:11:42,000 --> 00:11:47,080 Speaker 1: How do you fold that in? As I say, John, 219 00:11:47,120 --> 00:11:50,320 Speaker 1: I think Tom rather that the international context I think 220 00:11:50,440 --> 00:11:55,720 Speaker 1: is is certainly on the minds of policymakers in the EU, 221 00:11:56,000 --> 00:11:59,920 Speaker 1: and it will certainly galvanize those in the euro where 222 00:12:00,000 --> 00:12:02,800 Speaker 1: you're in particular, that are looking to Germany to move 223 00:12:02,800 --> 00:12:05,520 Speaker 1: on the fiscal side. But I just I just think 224 00:12:05,520 --> 00:12:09,359 Speaker 1: when one thing is contextually and politically about where Germany 225 00:12:09,400 --> 00:12:13,640 Speaker 1: is at this moment, at this current juncture, meaningful stimulus 226 00:12:13,679 --> 00:12:16,880 Speaker 1: that's likely to have a big impact on the economic cycle, 227 00:12:16,880 --> 00:12:19,400 Speaker 1: I think that's still unlikely. So Mitch, let's talk about 228 00:12:19,400 --> 00:12:21,640 Speaker 1: what happens at the EU level. We get someone new 229 00:12:21,720 --> 00:12:25,000 Speaker 1: running the European Union Commission. At the moment, we have 230 00:12:25,040 --> 00:12:28,480 Speaker 1: a Growth and Stability Pact and ultimately the goals of 231 00:12:28,520 --> 00:12:32,600 Speaker 1: that for debt to GDP and budget deficits within three 232 00:12:32,600 --> 00:12:35,400 Speaker 1: percent of GDP. Mitch, do we have to rethink some 233 00:12:35,520 --> 00:12:40,480 Speaker 1: of those numbers and will they rethink some of those targets? 234 00:12:40,480 --> 00:12:43,120 Speaker 1: So the vonder Lane Commission, I think will probably have 235 00:12:43,240 --> 00:12:49,480 Speaker 1: a go up streamlining and simplifying the fiscal the fiscal rules. 236 00:12:49,480 --> 00:12:51,600 Speaker 1: There's there's a whole set of crazy metrics. You know, 237 00:12:51,640 --> 00:12:53,839 Speaker 1: you've talked about the debt and the nominal deficit. There's 238 00:12:53,880 --> 00:12:57,160 Speaker 1: also a structural target, so accounting to the economic cycle, 239 00:12:57,280 --> 00:13:01,280 Speaker 1: you know how much how much of government's actually cutting 240 00:13:01,280 --> 00:13:03,520 Speaker 1: on the fiscal side when you when you can take 241 00:13:03,559 --> 00:13:06,800 Speaker 1: off the impact of the economic cycle. There's also a 242 00:13:06,880 --> 00:13:09,640 Speaker 1: debt to GDP reduction target, and it all gets it 243 00:13:09,640 --> 00:13:11,480 Speaker 1: all gets very complicated. So I think there is a 244 00:13:11,559 --> 00:13:16,000 Speaker 1: desire to streamline and simplify again. There will be opposition 245 00:13:16,040 --> 00:13:19,720 Speaker 1: in Northern Europe, in Berlin, but certainly from other countries, 246 00:13:19,760 --> 00:13:24,720 Speaker 1: the Netherlands, Finland to any suggestion that the rules should 247 00:13:24,760 --> 00:13:28,240 Speaker 1: be um you know, should be made should be made easier, 248 00:13:28,320 --> 00:13:30,720 Speaker 1: more lax, and there will be big opposition to that. 249 00:13:30,720 --> 00:13:32,560 Speaker 1: But I do think the wonder Lane Commission will try 250 00:13:33,200 --> 00:13:36,680 Speaker 1: made say to so much about any more questions. But 251 00:13:36,679 --> 00:13:38,280 Speaker 1: we're at a time we'll get them out again. Here 252 00:13:53,080 --> 00:13:55,960 Speaker 1: Jordan Rochester, just before we went to air this morning 253 00:13:56,280 --> 00:13:59,400 Speaker 1: out of Namural, London, wrote this note and there was 254 00:13:59,559 --> 00:14:08,680 Speaker 1: shimmer the Brexity thing. It's shimmering, shimmer of the tunnel shimmering. 255 00:14:08,960 --> 00:14:11,440 Speaker 1: Shall I read you that first line In Jordan Rochester's 256 00:14:11,480 --> 00:14:15,720 Speaker 1: latest poetry, Dickensian, the pound will inherently remain difficult to trade, 257 00:14:15,960 --> 00:14:19,160 Speaker 1: but the latest moves by boris as galvanized opposition MP 258 00:14:19,840 --> 00:14:22,480 Speaker 1: and there is a shimmer of light at the end 259 00:14:22,520 --> 00:14:26,080 Speaker 1: of the tunnel. Nomura's Jordan Rochester joins us right now, 260 00:14:26,120 --> 00:14:28,800 Speaker 1: good morning to Jordan, just explain a little bit more 261 00:14:28,840 --> 00:14:31,400 Speaker 1: for us, where is the shimmer of light in the 262 00:14:31,440 --> 00:14:35,720 Speaker 1: Brexit tunnel? Well with hey, you guys, we've been here before. 263 00:14:35,960 --> 00:14:39,200 Speaker 1: So let's set this thing about Q one we had. 264 00:14:39,600 --> 00:14:42,600 Speaker 1: You're stirring the pound at the highs or the pounds 265 00:14:42,600 --> 00:14:45,840 Speaker 1: at the lows, and when you're at these historical lows, 266 00:14:45,840 --> 00:14:47,720 Speaker 1: you gotta ask yourself what are the odds of a 267 00:14:47,760 --> 00:14:52,240 Speaker 1: no deal brexit the high But the answers no, And 268 00:14:52,360 --> 00:14:55,080 Speaker 1: we're already at fresh historical lows pretty much give will 269 00:14:55,120 --> 00:14:59,280 Speaker 1: take now. And in Q one, MPs started to legislate, 270 00:14:59,400 --> 00:15:02,160 Speaker 1: they started to block no deal, They forced Teresa May 271 00:15:02,200 --> 00:15:04,680 Speaker 1: to extend Article fifty and the show went on and 272 00:15:05,000 --> 00:15:06,760 Speaker 1: we know how that went. So I think they're going 273 00:15:06,800 --> 00:15:08,240 Speaker 1: to try and do the same, and the market is 274 00:15:08,280 --> 00:15:10,400 Speaker 1: going to try and use the same playbook. The pound's 275 00:15:10,440 --> 00:15:14,320 Speaker 1: going to likely strengthen if opposition MPs next week legislate 276 00:15:14,360 --> 00:15:17,880 Speaker 1: for no deal or the nuclear button, they go for 277 00:15:17,920 --> 00:15:21,600 Speaker 1: a vote of no confidence and seek a temporary unity 278 00:15:21,640 --> 00:15:26,200 Speaker 1: government and extend Article fifty. And guys, no matter what happens, 279 00:15:26,320 --> 00:15:28,440 Speaker 1: at some point, there's going to be an election. And 280 00:15:28,480 --> 00:15:30,960 Speaker 1: I think the market has priced that in such an 281 00:15:30,960 --> 00:15:34,440 Speaker 1: extent now that the path of least resistance in the 282 00:15:34,480 --> 00:15:36,880 Speaker 1: short term is that we have some sterling shorts that 283 00:15:36,880 --> 00:15:39,440 Speaker 1: were put on over August reduced going forward and the 284 00:15:39,440 --> 00:15:41,840 Speaker 1: pound goes slightly higher. What's the catalyst for that, the 285 00:15:41,880 --> 00:15:47,600 Speaker 1: immediate catalyst that galvanizes some sterling short covering. Well, it's 286 00:15:47,640 --> 00:15:50,960 Speaker 1: just this. If you're holding short starting positions right now, 287 00:15:51,080 --> 00:15:55,200 Speaker 1: you'll actually quite fearful of something next week that throws 288 00:15:55,240 --> 00:15:58,200 Speaker 1: a spanner into the works of the no deal Brexit pricing. 289 00:15:58,480 --> 00:16:00,480 Speaker 1: So if you look at the bookmakers, they have no 290 00:16:00,640 --> 00:16:04,960 Speaker 1: deal Brexit this year at fort probability. That's the highest 291 00:16:05,000 --> 00:16:07,600 Speaker 1: it's basically being during this whole run up to Brexit. 292 00:16:08,200 --> 00:16:12,120 Speaker 1: And if you have opposition MPs legislates extend narscal fifty 293 00:16:12,240 --> 00:16:14,760 Speaker 1: or do that vote in a complement, that probability is 294 00:16:14,760 --> 00:16:17,360 Speaker 1: going to go down. And the pound, guys, it really 295 00:16:17,360 --> 00:16:19,800 Speaker 1: does track these odds. You're gonna see the pounds fly 296 00:16:19,920 --> 00:16:22,240 Speaker 1: high on the back of that just moments ago. And 297 00:16:22,320 --> 00:16:24,040 Speaker 1: you know it's like in in August day, it's like, 298 00:16:24,080 --> 00:16:26,680 Speaker 1: so what except right now I think it's actually Germaine. 299 00:16:27,000 --> 00:16:30,560 Speaker 1: These are all the places John Farrow's visited in Germany. Saxony, 300 00:16:30,840 --> 00:16:35,680 Speaker 1: Brandenburg has Bavaria Baden Wurtemburg am I pronouncing that correctly, 301 00:16:35,680 --> 00:16:37,480 Speaker 1: you going through the regional break and going down to 302 00:16:37,560 --> 00:16:40,840 Speaker 1: regional breakdown. So they come out with CPI in Germany, 303 00:16:40,920 --> 00:16:43,800 Speaker 1: and the answer is it came in a little sealthy. 304 00:16:43,960 --> 00:16:46,760 Speaker 1: Do you assume it Nomura. That's gonna be what we're 305 00:16:46,760 --> 00:16:51,280 Speaker 1: gonna see through the autumn is is disinflation nation to nation. 306 00:16:52,640 --> 00:16:55,800 Speaker 1: I mean, we we've had a bit of fex depreciation, 307 00:16:55,880 --> 00:17:00,560 Speaker 1: which helps you European CPI, but that wasn't enough. And 308 00:17:01,000 --> 00:17:03,200 Speaker 1: the ECB is go do all of it all it can, 309 00:17:03,720 --> 00:17:06,480 Speaker 1: but the options it has left really don't add much 310 00:17:06,520 --> 00:17:10,280 Speaker 1: to inflation. Add to that, you've got globalization still going on. 311 00:17:10,359 --> 00:17:14,320 Speaker 1: You've got tech impulse, you've got the sort of delivery's 312 00:17:14,400 --> 00:17:18,439 Speaker 1: the Amazon economy, the digitalization of inflation. It's all dis 313 00:17:18,560 --> 00:17:22,080 Speaker 1: inflation ryes. So these central banks are dealing with cyclical 314 00:17:22,200 --> 00:17:25,160 Speaker 1: which is growth is going lower, which means inflation will 315 00:17:25,200 --> 00:17:27,080 Speaker 1: be on the back burner and go lower as well. 316 00:17:27,160 --> 00:17:29,639 Speaker 1: And then you've got this long term structural story about 317 00:17:29,680 --> 00:17:32,679 Speaker 1: the rise of Asia, the rise of globalization, and in 318 00:17:32,720 --> 00:17:34,560 Speaker 1: the future we'll be talking about the rise of Africa. 319 00:17:34,920 --> 00:17:38,200 Speaker 1: So it's really hard in the Western world to think 320 00:17:38,280 --> 00:17:41,920 Speaker 1: of high inflation expectations, and essentially we're all becoming like Japan. 321 00:17:42,080 --> 00:17:44,360 Speaker 1: We just talk about market conditions in Europe right now. 322 00:17:44,800 --> 00:17:47,280 Speaker 1: So much attention on the Italian tenure dropping below one 323 00:17:47,280 --> 00:17:49,600 Speaker 1: percent in yesterday's session, and it continues to drive far 324 00:17:49,640 --> 00:17:54,560 Speaker 1: away conditions with negatives like the investment grade euro denominated 325 00:17:54,640 --> 00:17:57,600 Speaker 1: debt right now is all in negative. Right, the yield 326 00:17:57,720 --> 00:18:00,520 Speaker 1: right now is south the twenty five basis points. Just 327 00:18:00,560 --> 00:18:03,280 Speaker 1: pause for a moment. Imagine that your an investment grade 328 00:18:03,320 --> 00:18:07,560 Speaker 1: corporate in Europe and you can borrow a less than 329 00:18:07,600 --> 00:18:11,320 Speaker 1: twenty five basis points. Well, let's translate that a hundred 330 00:18:11,320 --> 00:18:18,040 Speaker 1: dollars your interest costs precisely. I do. Okay, you did, fantastic. 331 00:18:18,400 --> 00:18:19,960 Speaker 1: I could be on the real yield at some point, 332 00:18:19,960 --> 00:18:22,919 Speaker 1: I mean, Jordan, can you imagine? That's the situation with 333 00:18:23,000 --> 00:18:27,080 Speaker 1: financial conditions in Europe? Which makes me wonder incrementally. Additional 334 00:18:27,080 --> 00:18:29,560 Speaker 1: easing is not going to address anything much at all. 335 00:18:29,600 --> 00:18:31,760 Speaker 1: I just wonder whether they have to, because if they don't, 336 00:18:32,200 --> 00:18:36,439 Speaker 1: financial conditions will titan Absolutely it would be things will 337 00:18:36,440 --> 00:18:38,280 Speaker 1: be a lot harder for them to achieve their mandates. 338 00:18:38,320 --> 00:18:41,119 Speaker 1: If they were to suddenly give up and throw in 339 00:18:41,119 --> 00:18:44,159 Speaker 1: the towel. But you're right. We live in a world John, 340 00:18:44,320 --> 00:18:47,840 Speaker 1: where because of negative yields and sixth income, for you 341 00:18:47,920 --> 00:18:51,560 Speaker 1: to make money, you have to hope for capital appreciation 342 00:18:51,880 --> 00:18:54,520 Speaker 1: in what typically is you know you buy You used 343 00:18:54,560 --> 00:18:57,560 Speaker 1: to buy bonds for yield. Now it's capital appreciation. On 344 00:18:57,600 --> 00:19:00,840 Speaker 1: the flip side, you now buy ecutive yield for these 345 00:19:00,840 --> 00:19:03,760 Speaker 1: dividend yields because at least that's still positive. The real 346 00:19:03,880 --> 00:19:07,359 Speaker 1: yields negative. It means that these these stories can't go 347 00:19:07,359 --> 00:19:09,439 Speaker 1: on forever. At some point there has to be a 348 00:19:09,480 --> 00:19:13,000 Speaker 1: reallocation out of these things. But we are as we're 349 00:19:13,040 --> 00:19:15,840 Speaker 1: seeing the ECB is going to buy more bonds at 350 00:19:15,880 --> 00:19:17,800 Speaker 1: some point. The FED in the future might do the 351 00:19:17,840 --> 00:19:20,960 Speaker 1: same as well. So just like Japan, yes it seems 352 00:19:20,960 --> 00:19:24,280 Speaker 1: a bit mad, but you've got these central banks, You've 353 00:19:24,320 --> 00:19:27,360 Speaker 1: got this one big buyer out there consistently on the bid. 354 00:19:27,600 --> 00:19:30,199 Speaker 1: It's just law of supply and demand. For Jordan. This 355 00:19:30,240 --> 00:19:33,160 Speaker 1: is important for the foreign exchange conversation as well. Where's 356 00:19:33,200 --> 00:19:35,400 Speaker 1: the positive yield? Where's the high yielder in G ten? 357 00:19:35,560 --> 00:19:38,840 Speaker 1: Right now it's in the United States. How difficult is 358 00:19:38,840 --> 00:19:42,000 Speaker 1: it to construct an argument that we're about to see 359 00:19:42,000 --> 00:19:46,560 Speaker 1: dollar weakness. So the one thing that makes everybody in 360 00:19:46,640 --> 00:19:49,760 Speaker 1: the long term point for dollar weakness is the double 361 00:19:49,800 --> 00:19:52,160 Speaker 1: death tim which is the current account for the US 362 00:19:52,200 --> 00:19:55,760 Speaker 1: and the budget of the government. It's really expanding in 363 00:19:55,800 --> 00:20:01,240 Speaker 1: the negative world exactly. So over are a five year period, 364 00:20:01,359 --> 00:20:03,840 Speaker 1: this always tends to work for the direction of the 365 00:20:03,840 --> 00:20:06,960 Speaker 1: broader dollar. However, for the next year, we're dealing with 366 00:20:07,000 --> 00:20:09,800 Speaker 1: global slowdown, recession risks. And in this environment, just like 367 00:20:09,840 --> 00:20:13,720 Speaker 1: Mark Kearney's mentioned at the Jackson Whole Symposium, it still 368 00:20:13,760 --> 00:20:16,520 Speaker 1: acts as the reserve currency of the world, and it 369 00:20:16,640 --> 00:20:19,040 Speaker 1: still has a positive yield versus others. Then how does 370 00:20:19,080 --> 00:20:21,520 Speaker 1: that play in the year we're hearing an interviews Jordan right, 371 00:20:21,560 --> 00:20:23,920 Speaker 1: just did a lot of people played off euro what's 372 00:20:23,960 --> 00:20:28,280 Speaker 1: the number of Europe call? We're currently short, Tom, it's 373 00:20:28,320 --> 00:20:31,080 Speaker 1: a grind lower. I think we're about one oh nine 374 00:20:31,119 --> 00:20:33,560 Speaker 1: in euro Why is it a grind? Why isn't it 375 00:20:33,640 --> 00:20:37,080 Speaker 1: a bangalover? It's because European investors, with all the qui 376 00:20:37,200 --> 00:20:39,480 Speaker 1: rounds we've had in over the years, they put a 377 00:20:39,480 --> 00:20:42,400 Speaker 1: lot of money into emerging markets and with themself, we've 378 00:20:42,440 --> 00:20:45,639 Speaker 1: we've been seeing and the uncertainty rising. Yes, there's a 379 00:20:45,640 --> 00:20:49,359 Speaker 1: good argument to sell euroverse the dollar. But European investors 380 00:20:49,359 --> 00:20:53,160 Speaker 1: have been bringing back their investments back home in size. 381 00:20:53,480 --> 00:20:55,800 Speaker 1: So the basic balance, which is like it's all these 382 00:20:55,800 --> 00:20:59,439 Speaker 1: flows combined for Europe, has really shut higher to a 383 00:20:59,480 --> 00:21:03,800 Speaker 1: historical high in one regard. So that's why euros so boring. 384 00:21:04,480 --> 00:21:07,760 Speaker 1: It's just a grind lower, very little. Volve, you're the 385 00:21:07,760 --> 00:21:11,280 Speaker 1: most important question in the morning. Place Villa on Saturday? 386 00:21:11,560 --> 00:21:14,200 Speaker 1: What are you looking for? Well, Villa has been doing 387 00:21:14,240 --> 00:21:16,800 Speaker 1: better than expected. I was at the first game of 388 00:21:16,840 --> 00:21:19,639 Speaker 1: the season. We were one nil up against Tottenham h 389 00:21:19,840 --> 00:21:22,040 Speaker 1: and then we lost it and fold in the second half. 390 00:21:23,800 --> 00:21:27,560 Speaker 1: Could be I mean what was harder for me? I 391 00:21:27,560 --> 00:21:29,600 Speaker 1: was sat at the home end with the Tottenham fans, 392 00:21:29,680 --> 00:21:31,879 Speaker 1: so I had to pretend when Villa got that one 393 00:21:31,960 --> 00:21:33,439 Speaker 1: nail at the beginning, I had to pretend that I 394 00:21:33,480 --> 00:21:36,880 Speaker 1: was very angry. Did you were certain? Tie? I mean, 395 00:21:37,280 --> 00:21:39,240 Speaker 1: I mean, is it? It's the coolest thing to me, 396 00:21:39,359 --> 00:21:42,840 Speaker 1: this relegation, Jordan's how's it different? You know, being in 397 00:21:42,920 --> 00:21:45,000 Speaker 1: one league and then going up the next year Premiers? 398 00:21:45,040 --> 00:21:47,720 Speaker 1: It like the same Sunday or Saturday at noises or 399 00:21:47,760 --> 00:21:51,000 Speaker 1: is it different. It's really punishing for the club as 400 00:21:51,000 --> 00:21:54,359 Speaker 1: a whole. So you get much less revenue from not 401 00:21:54,359 --> 00:21:57,320 Speaker 1: not ticket sales, but from the TV rights, and you 402 00:21:57,359 --> 00:22:00,119 Speaker 1: start to lose key players as well. So you'll have 403 00:22:00,240 --> 00:22:04,000 Speaker 1: some players in their contracts. If they get demoted, they're gone, 404 00:22:04,000 --> 00:22:06,399 Speaker 1: and we saw that last time around. So it takes 405 00:22:06,400 --> 00:22:08,840 Speaker 1: a while to come back unless you get big investment 406 00:22:08,920 --> 00:22:13,200 Speaker 1: from a new champ, which we did have, but it 407 00:22:13,280 --> 00:22:15,919 Speaker 1: took a Jordan. We played Joe Elliott and def Leppard 408 00:22:15,960 --> 00:22:19,280 Speaker 1: when Sheffield United steps on the field, would you play 409 00:22:20,200 --> 00:22:23,840 Speaker 1: it as Osborne? There you go, Michael Bard. Do you 410 00:22:23,840 --> 00:22:29,359 Speaker 1: see how encyclopedic they are around this. I'm a local 411 00:22:29,359 --> 00:22:33,000 Speaker 1: boy the Midlands too, so Jordan and I the brothers 412 00:22:33,000 --> 00:22:38,320 Speaker 1: of the change there see yeah, Jordan, thank you. We're 413 00:22:38,400 --> 00:22:43,280 Speaker 1: really interesting with the shimmar of don't watch Peaky Blinders. 414 00:22:43,880 --> 00:22:46,560 Speaker 1: I have no season coming out in October here, it's 415 00:22:46,600 --> 00:22:48,959 Speaker 1: already out in the UK. What we are real London, 416 00:22:49,000 --> 00:23:04,160 Speaker 1: It's brilliant. She is a senior vice president for Hurting 417 00:23:04,240 --> 00:23:08,399 Speaker 1: Cats at Bloomberg. That means she's managing editor of Economics, 418 00:23:08,600 --> 00:23:12,680 Speaker 1: one of our most challenging jobs. Margaret Collins joins US Now, Peggy, 419 00:23:13,000 --> 00:23:15,920 Speaker 1: Matthew Brockett and Rich Miller writing up the latest jab 420 00:23:15,960 --> 00:23:19,520 Speaker 1: bowing right now, What are you hearing from your reporters 421 00:23:20,040 --> 00:23:25,840 Speaker 1: about the delicacies of the comments forward of presidents and governors? 422 00:23:25,880 --> 00:23:28,800 Speaker 1: I mean, are they hanging on every word or do 423 00:23:28,840 --> 00:23:33,800 Speaker 1: we just wait for September. We're absolutely hang on every word, Tom. 424 00:23:33,840 --> 00:23:36,360 Speaker 1: I think the reporters here coming out of Jackson Hole 425 00:23:36,440 --> 00:23:38,560 Speaker 1: last weekend, and then as you said, we've had a 426 00:23:38,600 --> 00:23:41,720 Speaker 1: couple of the regional FED presidents speak this week. They're 427 00:23:41,760 --> 00:23:45,639 Speaker 1: really trying to determine what the FED will do in September, 428 00:23:45,680 --> 00:23:48,159 Speaker 1: but not even just September, in terms of how central 429 00:23:48,200 --> 00:23:50,840 Speaker 1: bankers around the world, how much room do they really 430 00:23:50,880 --> 00:23:54,440 Speaker 1: have to potentially stave off a recession and as Powell 431 00:23:54,520 --> 00:23:57,240 Speaker 1: has to kind of keep the economic expansion at a 432 00:23:57,320 --> 00:24:00,560 Speaker 1: record links in the US going when you have all 433 00:24:00,600 --> 00:24:05,560 Speaker 1: of these headwinds and particularly the uncertainty around trade. Robert 434 00:24:05,640 --> 00:24:08,480 Speaker 1: Kaplan and Mary Daily with Bloomberg here with Matthew Brockett 435 00:24:08,480 --> 00:24:10,959 Speaker 1: and Rich Miller writing in the last couple of hours, 436 00:24:11,200 --> 00:24:13,440 Speaker 1: give me a g d P update. I mean, there 437 00:24:13,600 --> 00:24:17,760 Speaker 1: is the uh, Peggy recession watch, how does your recession 438 00:24:17,800 --> 00:24:21,320 Speaker 1: meter look this morning in Washington, so we're waiting anxiously 439 00:24:21,359 --> 00:24:23,600 Speaker 1: for the GDP figures to come in and about ten 440 00:24:23,640 --> 00:24:28,560 Speaker 1: minutes around eight thirty, and the nuances is essentially what 441 00:24:28,640 --> 00:24:31,080 Speaker 1: do we see. Do we see consumers which haven't been 442 00:24:31,119 --> 00:24:34,880 Speaker 1: basically holding up this economy continue to do so, or 443 00:24:34,920 --> 00:24:38,480 Speaker 1: do we see more signs that the uncertainty and the 444 00:24:38,560 --> 00:24:42,159 Speaker 1: impact of the trade war is slowing down manufacturing and 445 00:24:42,200 --> 00:24:45,119 Speaker 1: potentially dragging down growth. Let's talk about trade, shall we. 446 00:24:45,160 --> 00:24:47,560 Speaker 1: Peggy in the latest comments from the Treasury Secretary catching 447 00:24:47,640 --> 00:24:50,919 Speaker 1: up with Bloomberg exclusive interview with you guys in Washington, 448 00:24:51,440 --> 00:24:53,640 Speaker 1: one line really stood out for me. We've talked about 449 00:24:53,680 --> 00:24:56,639 Speaker 1: the ultra long debt. I want to talk about the currency. 450 00:24:56,960 --> 00:25:00,959 Speaker 1: It's the quote no intention of intervention at this time, 451 00:25:01,600 --> 00:25:06,919 Speaker 1: no dollar intervention dot dot dot for now. Peggy hardly 452 00:25:07,000 --> 00:25:10,240 Speaker 1: rules it out, does it. That's right, Jonathan, that question 453 00:25:10,280 --> 00:25:12,760 Speaker 1: mark is still swirling. You know, our colleagues, as who 454 00:25:12,760 --> 00:25:15,560 Speaker 1: says lay emotion, had a great exclusive interview with the 455 00:25:15,600 --> 00:25:18,960 Speaker 1: Treasury Secretary yesterday and she really kind of pinned him down, 456 00:25:19,040 --> 00:25:22,160 Speaker 1: or tried to on this issue of currency intervention. Will 457 00:25:22,240 --> 00:25:25,920 Speaker 1: the Treasury try to do that and basically as you said, 458 00:25:26,040 --> 00:25:28,040 Speaker 1: left the question. He left the question up in the 459 00:25:28,040 --> 00:25:30,480 Speaker 1: air and said, we don't have any intention of intervention 460 00:25:30,520 --> 00:25:34,200 Speaker 1: at this time, but situations could change in this This 461 00:25:34,240 --> 00:25:37,399 Speaker 1: is critical. I mean, John's question, I think is really apt. Folks. 462 00:25:37,800 --> 00:25:40,399 Speaker 1: Do we have any sense in our reporting in Washington 463 00:25:40,920 --> 00:25:44,200 Speaker 1: that the President or the Secretary of Treasury have any 464 00:25:44,400 --> 00:25:49,560 Speaker 1: understanding of the history of unilateral intervention. Yes, And that's 465 00:25:49,560 --> 00:25:52,480 Speaker 1: why this interview was so much more interesting because the 466 00:25:52,560 --> 00:25:56,520 Speaker 1: quote that follows is the big one. In general, it's 467 00:25:56,560 --> 00:26:00,000 Speaker 1: more optimal to do these things on a coordinated basis 468 00:26:00,119 --> 00:26:03,080 Speaker 1: because of the size and scale of these currency markets. 469 00:26:03,160 --> 00:26:06,480 Speaker 1: Not to do that, Peggy, they need to get other countries, 470 00:26:06,880 --> 00:26:10,359 Speaker 1: other regions to come along with them, don't they They do, 471 00:26:10,480 --> 00:26:12,320 Speaker 1: but they do. But also they need to get the 472 00:26:12,320 --> 00:26:16,000 Speaker 1: FED support, potentially, because the Treasury holds about nine billion 473 00:26:16,119 --> 00:26:18,560 Speaker 1: that it could use to try to impact the currency markets. 474 00:26:18,600 --> 00:26:21,320 Speaker 1: But as you said, this is a giant, multi trillion 475 00:26:21,359 --> 00:26:24,880 Speaker 1: dollar market. So traditionally in history, the FED has gone 476 00:26:24,880 --> 00:26:27,200 Speaker 1: along and matched what the Treasury has done in a 477 00:26:27,280 --> 00:26:30,600 Speaker 1: currency intervention, and that is a big question mark of 478 00:26:30,600 --> 00:26:33,080 Speaker 1: whether or not they'd get the FEDS for Peggy. Thank 479 00:26:33,080 --> 00:26:36,960 Speaker 1: you so much. Peggy Collins managing PEG economic efforts out 480 00:26:36,960 --> 00:26:52,280 Speaker 1: of Washington. I like to say, this is the interview 481 00:26:52,280 --> 00:26:55,280 Speaker 1: of the day. Maybe this is the interview of back 482 00:26:55,320 --> 00:26:58,080 Speaker 1: to school, or even more so, maybe this is the 483 00:26:58,119 --> 00:27:02,440 Speaker 1: interview of your future, kid's future, your grandchildren's future. Where 484 00:27:02,440 --> 00:27:05,040 Speaker 1: gonna get to that technology with the Lauria Paul Romer 485 00:27:05,480 --> 00:27:08,840 Speaker 1: in a moment. But I've got to go back. Everybody 486 00:27:08,880 --> 00:27:12,120 Speaker 1: listening worldwide didn't check the box in December of last 487 00:27:12,200 --> 00:27:15,399 Speaker 1: year like you did. She were Oscar Dela Renta. You 488 00:27:15,520 --> 00:27:18,880 Speaker 1: got married the day you got the Nobel Prize in Stockholm. 489 00:27:19,080 --> 00:27:22,320 Speaker 1: That is so cool. It was this was this Mrs 490 00:27:22,359 --> 00:27:26,280 Speaker 1: Romer's idea or was this Mr Rohmer's idea? Well, she remembers, 491 00:27:26,320 --> 00:27:30,560 Speaker 1: she's she's miss Webber. She's of course a claimed that 492 00:27:30,680 --> 00:27:36,040 Speaker 1: this was actually my idea. I surprised her, um and uh, 493 00:27:36,359 --> 00:27:39,119 Speaker 1: I wanted. I thought she would enjoy and appreciate the 494 00:27:39,119 --> 00:27:41,879 Speaker 1: idea of a surprise wedding. So we had a wedding 495 00:27:41,960 --> 00:27:45,520 Speaker 1: that we invited our family members too. But nobody in 496 00:27:45,560 --> 00:27:47,639 Speaker 1: the family knew what was going to happen at that 497 00:27:47,760 --> 00:27:52,320 Speaker 1: little slot that said family photo on on Nobel day, 498 00:27:52,400 --> 00:27:54,960 Speaker 1: but it was perfect. They had to be dressed up anyway, 499 00:27:55,040 --> 00:27:57,399 Speaker 1: so they just stopped at the church and then surprise, 500 00:27:57,440 --> 00:27:59,159 Speaker 1: we're gonna get married. That's great. And there was no 501 00:27:59,240 --> 00:28:03,160 Speaker 1: open bar. Listen, it was great. We had no toasts, 502 00:28:03,400 --> 00:28:06,200 Speaker 1: no none of that stuff. That that completely It was 503 00:28:06,280 --> 00:28:08,600 Speaker 1: just like a ceremony with the you know, the the 504 00:28:08,640 --> 00:28:10,680 Speaker 1: priest and the church. And you know, it's a que 505 00:28:10,720 --> 00:28:13,399 Speaker 1: way to do it. Enhanced productivity, which is of course 506 00:28:13,400 --> 00:28:16,080 Speaker 1: your claim. We have so many things we could talk about, 507 00:28:16,119 --> 00:28:18,960 Speaker 1: including some of the more controversial things you've done, But 508 00:28:19,160 --> 00:28:23,680 Speaker 1: I get so much mail about our mystery of this 509 00:28:23,840 --> 00:28:27,480 Speaker 1: overlay of technology. Let's start with the data. Are we 510 00:28:27,720 --> 00:28:35,160 Speaker 1: underestimating the value or harm of technology in our statistics? Yeah? 511 00:28:35,359 --> 00:28:39,840 Speaker 1: I think the most important lesson as I've lived through 512 00:28:39,880 --> 00:28:43,920 Speaker 1: this economy and thought about technology is that every technology 513 00:28:44,040 --> 00:28:48,040 Speaker 1: brings both good and bad, and we always focus on 514 00:28:48,080 --> 00:28:50,280 Speaker 1: the good part, but there's always bad as well. So 515 00:28:50,480 --> 00:28:53,440 Speaker 1: part of the role of government is to react to 516 00:28:53,560 --> 00:28:56,840 Speaker 1: the new bad that emerges, to stop it from happening, 517 00:28:56,880 --> 00:28:59,400 Speaker 1: and then we get the good parts of technology. But 518 00:28:59,480 --> 00:29:02,960 Speaker 1: I think we've been slow to react on signs recently 519 00:29:03,080 --> 00:29:07,120 Speaker 1: that there's react because it's skewed. The benefits are skewed 520 00:29:07,160 --> 00:29:10,000 Speaker 1: to the elite. The elite control things. I mean, saida 521 00:29:10,080 --> 00:29:13,560 Speaker 1: Warren wants, you know, another she's not alone, want coach 522 00:29:13,640 --> 00:29:16,400 Speaker 1: to coach internet access. That seems to me almost the 523 00:29:16,400 --> 00:29:21,440 Speaker 1: American way. Yeah, I think that the what we see 524 00:29:21,480 --> 00:29:24,960 Speaker 1: are there's some things that are profitable but harmful to 525 00:29:25,400 --> 00:29:30,760 Speaker 1: the society, and the concentrated interests that are capturing those 526 00:29:30,800 --> 00:29:33,680 Speaker 1: profits want to continue in that vein. So we need 527 00:29:33,720 --> 00:29:36,400 Speaker 1: to have a system that's strong enough to say, we 528 00:29:36,440 --> 00:29:39,240 Speaker 1: don't care if you're making money on it, it's harmful 529 00:29:39,280 --> 00:29:41,920 Speaker 1: for people, and we're going to stop it. Michael Mabusian 530 00:29:41,960 --> 00:29:45,080 Speaker 1: wrote an incredibly important paper for Credit Suez. I'm gonna 531 00:29:45,120 --> 00:29:48,880 Speaker 1: say pushing fifteen years ago, which is to the victors 532 00:29:49,080 --> 00:29:51,480 Speaker 1: and the few victors they get all the gains, all 533 00:29:51,480 --> 00:29:54,000 Speaker 1: the gains go to a few. They go to the Amazons, 534 00:29:54,000 --> 00:29:56,600 Speaker 1: the apples, And it was plotted on a log y 535 00:29:56,680 --> 00:29:59,920 Speaker 1: access log acts access for those you driving, don't drive 536 00:30:00,000 --> 00:30:03,680 Speaker 1: off the road. All that means is straight lines become 537 00:30:03,760 --> 00:30:07,760 Speaker 1: curve linear. It's it's an ugly shot. Are we getting there? 538 00:30:07,800 --> 00:30:10,400 Speaker 1: Where the games go to so few and that has 539 00:30:10,600 --> 00:30:15,720 Speaker 1: harmful effects. So one of the costs the harms associated 540 00:30:15,760 --> 00:30:18,800 Speaker 1: with this these new digital technologies is they seem to 541 00:30:18,840 --> 00:30:22,920 Speaker 1: have strengthened the returns to the biggest firms. They've created 542 00:30:22,960 --> 00:30:26,960 Speaker 1: this winner take all environment, and that's also induced a 543 00:30:27,040 --> 00:30:30,680 Speaker 1: more ruthless form of competition. Every firm feels like unless 544 00:30:30,720 --> 00:30:33,880 Speaker 1: it becomes the winner, it'll just be crushed and disappear. 545 00:30:34,360 --> 00:30:39,040 Speaker 1: So there's a ruthlessness about this pursuit of markets right now, 546 00:30:39,160 --> 00:30:45,080 Speaker 1: did you tea I've taught mathick? Did you inflict micro 547 00:30:45,320 --> 00:30:48,520 Speaker 1: on people? I did. I wasn't personally responsible for inflicting 548 00:30:48,640 --> 00:30:52,320 Speaker 1: micro But the dynamics have changed. Is this Federal Reserve 549 00:30:52,400 --> 00:30:57,760 Speaker 1: system using a micro structure that is dated and outmoded 550 00:30:58,120 --> 00:31:01,400 Speaker 1: because the increasing in deec reseeing returns to scale now 551 00:31:01,640 --> 00:31:05,160 Speaker 1: are so different? Well, I think, uh. I think the 552 00:31:05,240 --> 00:31:08,120 Speaker 1: FED is the kind of the classic example of an 553 00:31:08,200 --> 00:31:13,400 Speaker 1: organization that moves cautiously because they understand how close we 554 00:31:13,480 --> 00:31:17,600 Speaker 1: always are two things starting to unravel, and so they 555 00:31:17,680 --> 00:31:20,320 Speaker 1: are cautious. I think the thing they're really cautious about 556 00:31:20,400 --> 00:31:23,760 Speaker 1: right now is the implications of an environment where lots 557 00:31:23,800 --> 00:31:27,920 Speaker 1: of interest rates are negative and fear that if we 558 00:31:28,000 --> 00:31:30,200 Speaker 1: get too close to in the U S at least 559 00:31:30,200 --> 00:31:32,560 Speaker 1: in the world's reserve currency, we get too close to 560 00:31:32,680 --> 00:31:36,160 Speaker 1: zero interest rates that we may trigger or set the 561 00:31:36,200 --> 00:31:40,320 Speaker 1: conditions for another financial crisis, trigger a bubble, which then 562 00:31:40,520 --> 00:31:44,200 Speaker 1: leads to crisis. So they're they're moving cautiously. And if 563 00:31:44,240 --> 00:31:46,360 Speaker 1: we feel like we need some other way to stimulate 564 00:31:46,400 --> 00:31:49,240 Speaker 1: the economy right now, we should be looking for new 565 00:31:49,640 --> 00:31:53,240 Speaker 1: approaches on the fiscal side to do that, because monetary 566 00:31:53,280 --> 00:31:55,920 Speaker 1: policy is really in a bind right now. Paul Roma, 567 00:31:55,920 --> 00:31:58,880 Speaker 1: where us de laureate folks of New York universities are 568 00:31:58,880 --> 00:32:02,040 Speaker 1: you literally down a hall from Spence and Sergeant and 569 00:32:02,080 --> 00:32:05,080 Speaker 1: the rest of them. Yeah, that's a pretty cool we're 570 00:32:05,160 --> 00:32:07,240 Speaker 1: enjoying Berkeley this morning when de Long and I con 571 00:32:07,240 --> 00:32:11,800 Speaker 1: Green and the rest. Paul Romer, if you look at 572 00:32:11,960 --> 00:32:16,200 Speaker 1: your expertise and our growthiness in our technology, and you 573 00:32:16,320 --> 00:32:21,320 Speaker 1: dovetailed in to the frustration so many have about FED 574 00:32:21,440 --> 00:32:24,680 Speaker 1: policy and its gains to the elite, How do we 575 00:32:24,760 --> 00:32:28,760 Speaker 1: break apart from that given the modern age? Yeah, well, 576 00:32:28,800 --> 00:32:31,920 Speaker 1: I think we've we've been inattentive and and frankly, it's 577 00:32:32,000 --> 00:32:35,920 Speaker 1: it's me and my Chicago colleagues, my Chicago mentors. We've 578 00:32:35,960 --> 00:32:40,160 Speaker 1: been inattentive to UH some trends that have been moving 579 00:32:40,280 --> 00:32:43,440 Speaker 1: in a negative direction, that the market all by itself 580 00:32:43,520 --> 00:32:46,880 Speaker 1: isn't solving everything. We were inattentive in particular to this 581 00:32:47,000 --> 00:32:51,800 Speaker 1: growing UH gap between the wealthy and the poor. That 582 00:32:51,880 --> 00:32:55,240 Speaker 1: the inequality has continued to increase, and if you look 583 00:32:55,280 --> 00:32:58,400 Speaker 1: at surveys like this a puse survey out, people expect 584 00:32:58,440 --> 00:33:01,440 Speaker 1: this will continue in the few ture. This is something 585 00:33:01,480 --> 00:33:03,640 Speaker 1: that we could decide to change. There are countries that 586 00:33:03,680 --> 00:33:06,600 Speaker 1: don't have as much inequality. We could change our policies 587 00:33:06,640 --> 00:33:08,840 Speaker 1: to minimize that. It in colleague, but we have to 588 00:33:08,880 --> 00:33:11,520 Speaker 1: focus on and take responsibility for it and said it 589 00:33:11,560 --> 00:33:13,320 Speaker 1: as a as a goal. But I don't think I 590 00:33:13,320 --> 00:33:16,600 Speaker 1: would blame the FED for that inequality. Are your students 591 00:33:16,920 --> 00:33:20,760 Speaker 1: better because they have the advantage of an HP twelve 592 00:33:20,840 --> 00:33:24,000 Speaker 1: C on their Apple iPhone? Or were we better when 593 00:33:24,040 --> 00:33:26,240 Speaker 1: we had a cool ful iness or slide rule where 594 00:33:26,240 --> 00:33:29,280 Speaker 1: we had to actually feel the logarithm I saw. I 595 00:33:29,320 --> 00:33:32,520 Speaker 1: saw a news article recently about the abacus competition. Yeah 596 00:33:33,680 --> 00:33:38,240 Speaker 1: when you can you do an abacus? I cannot? There 597 00:33:38,240 --> 00:33:42,240 Speaker 1: you go. The Ebicus article was reverse polish notations that 598 00:33:44,200 --> 00:33:47,160 Speaker 1: I think the other way Spence doesn't do that, okay, 599 00:33:47,240 --> 00:33:49,800 Speaker 1: but to help us with abacus and the more visceral 600 00:33:49,840 --> 00:33:53,479 Speaker 1: mathematics of our childhood versus the fanciness. Now, are we 601 00:33:53,560 --> 00:33:57,240 Speaker 1: smarter now? I think that, Like my kids went to 602 00:33:57,280 --> 00:33:59,719 Speaker 1: a Montessori school where you know, they had number rods, 603 00:33:59,760 --> 00:34:03,480 Speaker 1: where they experienced the physical sense of number. I think 604 00:34:03,960 --> 00:34:09,440 Speaker 1: physical interaction can be a good way to reinforce basic intuitions. 605 00:34:09,440 --> 00:34:11,560 Speaker 1: But I think the main thing I would emphasize right 606 00:34:11,560 --> 00:34:16,000 Speaker 1: now is we have to learn how to interact with 607 00:34:16,040 --> 00:34:18,120 Speaker 1: other people. We have to learn how to get mad 608 00:34:18,160 --> 00:34:21,640 Speaker 1: at them, how to kind of reconcile. So what would 609 00:34:21,680 --> 00:34:24,200 Speaker 1: Taylor of Chicago say about this? You and Taylor? Did 610 00:34:24,200 --> 00:34:26,399 Speaker 1: you go to Cubs games with Taylor? No? No, No, 611 00:34:26,480 --> 00:34:29,640 Speaker 1: you should do that. But what would Taylors say about this? Well, 612 00:34:29,680 --> 00:34:32,799 Speaker 1: you know, he would say that we're very responsive to 613 00:34:33,239 --> 00:34:36,560 Speaker 1: the social cues we're picking up, but we're not. I 614 00:34:36,600 --> 00:34:39,120 Speaker 1: think kids these days are spending so little time with 615 00:34:39,200 --> 00:34:43,400 Speaker 1: face to face interaction. They don't understand their own responsiveness 616 00:34:43,440 --> 00:34:45,879 Speaker 1: to these things. What should are We're running out of time, 617 00:34:46,480 --> 00:34:48,840 Speaker 1: and I mean it's a great respect. Professor Ruhmer, what 618 00:34:48,960 --> 00:34:52,960 Speaker 1: is your advice to our listeners worldwide about what to 619 00:34:53,000 --> 00:34:55,880 Speaker 1: do with their kids and the technology you helped that. 620 00:34:56,360 --> 00:34:59,280 Speaker 1: The problem here is it's hard to act unilaterally as 621 00:34:59,120 --> 00:35:01,840 Speaker 1: as a parent. Jonathan heid Up Callague at an n 622 00:35:01,960 --> 00:35:04,080 Speaker 1: y U and I've been talking about, is suppose each 623 00:35:04,080 --> 00:35:06,839 Speaker 1: school system said here's a middle school where you can 624 00:35:06,880 --> 00:35:09,000 Speaker 1: come to this middle school only if you, the kid 625 00:35:09,080 --> 00:35:11,520 Speaker 1: and the parents promise that you're going to stay off 626 00:35:11,520 --> 00:35:13,799 Speaker 1: of social media. So it's not just that your kids 627 00:35:13,840 --> 00:35:16,200 Speaker 1: off social media, but everybody in the school is on 628 00:35:16,360 --> 00:35:18,799 Speaker 1: social media. I think it would be great if there 629 00:35:18,800 --> 00:35:21,439 Speaker 1: were that kind of option because I think kids need 630 00:35:21,480 --> 00:35:23,800 Speaker 1: to have more of this face to face interaction before 631 00:35:23,800 --> 00:35:26,640 Speaker 1: they go into cyber world. Well, never enough time, Paul Rober, 632 00:35:26,760 --> 00:35:28,640 Speaker 1: thank you so much for being with this Lord of 633 00:35:28,760 --> 00:35:31,040 Speaker 1: n y U and just so much to talk about. 634 00:35:31,080 --> 00:35:34,200 Speaker 1: It's not the most. The most male I get is 635 00:35:34,320 --> 00:35:37,759 Speaker 1: on the idea of of wages and wage growth. The 636 00:35:37,800 --> 00:35:40,680 Speaker 1: next most I get us on this effective technology on 637 00:35:40,719 --> 00:35:46,480 Speaker 1: our society. Paul of New York University, thanks for listening 638 00:35:46,520 --> 00:35:51,080 Speaker 1: to the Bloomberg Surveillance podcast. Subscribe and listen to interviews 639 00:35:51,080 --> 00:35:56,360 Speaker 1: on Apple Podcasts, SoundCloud, or whichever podcast platform you prefer 640 00:35:56,880 --> 00:36:00,120 Speaker 1: I'm on Twitter at Tom Keane before the podcast US. 641 00:36:00,200 --> 00:36:03,680 Speaker 1: You can always catch us worldwide. I'm Bloomberg Radio