WEBVTT - Surveillance: Monetary Policy In A Bind, Romer Says 0:00:09.880 --> 0:00:13.800 Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene Jay Lee. 0:00:13.960 --> 0:00:17.560 We bring you insight from the best in economics, finance, investment, 0:00:18.000 --> 0:00:23.520 and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, 0:00:23.600 --> 0:00:28.320 Bloomberg dot Com, and of course, on the Bloomberg. Your 0:00:28.360 --> 0:00:32.720 top story this morning, China emphasizing de escalation. One quote 0:00:32.720 --> 0:00:35.760 from the Ministry of Commerce spokesperson. All it took to 0:00:35.800 --> 0:00:38.199 give equity futures a big lift, he said the following 0:00:38.560 --> 0:00:41.879 China has ample means for retaliation, but thinks the question 0:00:42.120 --> 0:00:44.839 that should be discussed now it's about removing the new 0:00:44.880 --> 0:00:48.159 tariffs to prevent escalation of the trade war. Here with 0:00:48.240 --> 0:00:51.560 us in New York. Andrew Holland Hoorst, City Chief US Economists. 0:00:51.560 --> 0:00:54.320 Good morning to Andrew. Let's just talk talk about that 0:00:54.400 --> 0:00:58.800 news at about three am Eastern which give SMP futures 0:00:58.840 --> 0:01:01.880 a rather big lift. How important is that approach from 0:01:01.880 --> 0:01:04.679 the Chinese? So it's certainly begun to be a risk 0:01:04.720 --> 0:01:08.520 positive development. But we've been down this path before. We've 0:01:08.520 --> 0:01:11.760 had cycles of escalation and de escalation, so I think 0:01:11.880 --> 0:01:13.480 you have to be a little bit careful here about 0:01:13.520 --> 0:01:16.119 have we really changed the long term trajectory in some way. 0:01:16.640 --> 0:01:19.280 But yeah, marginally good news. It did not look like 0:01:19.319 --> 0:01:22.600 we would have an off ramp last Friday, Monday at 0:01:22.600 --> 0:01:25.840 the G seven. Now this morning, this Thursday, it looks 0:01:25.880 --> 0:01:27.720 like maybe we have a little bit of an off ramp. 0:01:27.800 --> 0:01:29.920 Is that what they say is, I think both countries 0:01:29.959 --> 0:01:34.479 are trying to create some off ramps, some flexibility, some 0:01:34.600 --> 0:01:37.240 ability to actually get some kind of a deal done. 0:01:37.640 --> 0:01:40.160 And on the trade issue especially, there would seem to 0:01:40.200 --> 0:01:43.320 be a lot of potential for getting to a deal 0:01:43.480 --> 0:01:46.199 in the sense that you have the US that would 0:01:46.200 --> 0:01:48.880 like to sell things like soybeans and agricultural goods and 0:01:48.880 --> 0:01:51.800 liquid natural gas, and China that probably has demand to 0:01:51.800 --> 0:01:55.440 buy those things. So I think it, you know, cautiously 0:01:55.600 --> 0:01:58.280 optimistic about the latest development, but again it has a 0:01:58.320 --> 0:02:01.080 long term trajectory. The long term outlook really changed. I 0:02:01.080 --> 0:02:03.600 think you can't say that's changed substantially with this announcement 0:02:03.640 --> 0:02:07.440 this morning. To be with us this morning, you participate, 0:02:08.360 --> 0:02:12.840 welcomes a terrible there's a stereop dary gloom and go 0:02:12.919 --> 0:02:15.480 to cash. What are we three point six percent from 0:02:15.480 --> 0:02:17.600 a record high? I think it is something like X 0:02:18.560 --> 0:02:21.040 and yield. I mean what's great, John, Is it less 0:02:21.120 --> 0:02:25.680 hysteria than Tuesday or Wednesday. But the levels that were 0:02:25.760 --> 0:02:29.079 at are just extraordinary to see the optimism confirmed in 0:02:29.120 --> 0:02:32.359 the bond market this morning, that's for sure. Comes in 0:02:32.400 --> 0:02:35.200 another biasis point again, have you changed the city group 0:02:35.280 --> 0:02:39.280 the Excel spreadsheets? I mean, how do you tweak substantial 0:02:39.360 --> 0:02:43.120 Excel spreadsheets given the yield structure of the world. So, 0:02:43.360 --> 0:02:46.400 I remember about ten years ago we had a view 0:02:46.560 --> 0:02:50.400 that tenure yield should never go below three percent. You 0:02:50.480 --> 0:02:53.680 just thought, well, there's some potential growth or you know, 0:02:53.760 --> 0:02:56.600 can't be below one percent, and you get inflation that 0:02:56.639 --> 0:02:59.120 will be around two percent, So shouldn't the tenure yield 0:02:59.160 --> 0:03:01.239 be around three person then? And I think what has 0:03:01.320 --> 0:03:04.359 changed is, you know, some recognition of the idea that 0:03:04.680 --> 0:03:08.400 global growth may be slow for some time. Core inflation 0:03:08.760 --> 0:03:11.480 um and inflation broadly is not gotten back to targets. 0:03:11.560 --> 0:03:14.400 So that's giving these deals very low but very very 0:03:14.440 --> 0:03:17.839 low levels. Irving Fisher way back, is this just going 0:03:17.840 --> 0:03:20.600 to get down to a terminal value on inflation, a 0:03:20.720 --> 0:03:24.520 terminal value on interest rates, a terminal value on GDP growth. 0:03:24.720 --> 0:03:27.440 Flip that reciprocal and you get out to a thirty two, 0:03:27.520 --> 0:03:30.880 multiple market, all all of those things that you mentioned 0:03:30.880 --> 0:03:33.880 have been revised lower. I think that means exactly like 0:03:33.919 --> 0:03:36.600 you're saying, you're discount rate is now lower. That means 0:03:36.600 --> 0:03:39.880 you're going to support higher valuations for risk assets. So 0:03:40.160 --> 0:03:43.760 all of that makes sense. So too much math, Too 0:03:43.840 --> 0:03:46.720 much math for seven I four, But carry off and 0:03:46.960 --> 0:03:48.560 let's talk about the new sham. Wait a little bit 0:03:48.600 --> 0:03:51.960 late today we got another look at GDP, the trite dispute, 0:03:51.960 --> 0:03:54.760 the trite war, however you want to characterize it. When 0:03:54.760 --> 0:03:56.800 we get that second look at GDP, why do you 0:03:56.800 --> 0:04:00.680 expect to see it? If that's all so the headline 0:04:00.760 --> 0:04:02.400 number can come down a little bit. But I think 0:04:02.400 --> 0:04:05.320 what's important in that second quarter GDP is that we 0:04:05.400 --> 0:04:09.360 had very strong consumption, very weak investment. And that's been 0:04:09.440 --> 0:04:11.160 kind of the story of the U S economy in 0:04:11.640 --> 0:04:14.840 nineteen as we've gone to a scenario where all of 0:04:14.880 --> 0:04:18.400 our hopes for strong growth and continued growth at or 0:04:18.440 --> 0:04:23.359 above potential are are really right on the consumer and 0:04:23.440 --> 0:04:26.960 not on business fixed investment. UM. Now, I think it's 0:04:26.960 --> 0:04:29.599 an open question how much have trade concerns weighed into 0:04:29.640 --> 0:04:33.200 that weak investment story. UM, there's probably some of that 0:04:33.240 --> 0:04:35.839 they're Honestly, a lot of that is just the general 0:04:35.880 --> 0:04:39.680 weakness in manufacturing. You're seeing that globally. UM that probably 0:04:39.680 --> 0:04:42.599 would have been occurring with or without the trade tension, 0:04:42.680 --> 0:04:44.520 so not not as clear that it's coming through. This 0:04:44.600 --> 0:04:46.320 has been building for a long time. In fact, it 0:04:46.400 --> 0:04:49.320 predates the real ramp up in escalation between China and 0:04:49.320 --> 0:04:54.719 the United States has started last spring. It's a persistent overhang. 0:04:54.839 --> 0:04:59.080 Now it's persistent and the damage is being dump Beyond manufacturing. 0:04:59.360 --> 0:05:02.480 The story for much of the last year manufacturing radiogly 0:05:02.560 --> 0:05:06.320 services in the labor market resilient worldwide. In Germany, we're 0:05:06.400 --> 0:05:09.680 just starting to see some frenches in the labor market. 0:05:09.760 --> 0:05:12.400 Are we starting to see it spill out from manufacturing 0:05:12.400 --> 0:05:14.880 worldwide entry So we're not seeing that so much in 0:05:14.920 --> 0:05:17.560 the US yet. I think that is concerning that you're 0:05:17.560 --> 0:05:20.000 seeing it in Germany in the sense that in Europe 0:05:20.040 --> 0:05:22.440 you would expect to see this very delayed response from 0:05:22.440 --> 0:05:25.120 the labor market because you have a labor market that's 0:05:25.200 --> 0:05:27.279 much less fast to it adjust in the In the 0:05:27.360 --> 0:05:30.520 US you can have very fast adjustments in the labor market. Um, 0:05:30.720 --> 0:05:34.240 we've had manufacturing that's been weak, like you were saying 0:05:34.279 --> 0:05:37.440 for some time globally and in the US, we have 0:05:37.680 --> 0:05:41.000 seen some of the non manufacturing indicators move a bit lower. 0:05:41.040 --> 0:05:44.360 So I s M non manufacturing has come down now, Um, 0:05:44.360 --> 0:05:46.800 it's still at a high level, but the direction of 0:05:46.839 --> 0:05:49.520 travel is to a lower level. So we're not getting 0:05:49.520 --> 0:05:51.680 too concerned in the US. And the labor market still 0:05:51.680 --> 0:05:54.040 looks extremely strong in the US. Will get more information 0:05:54.040 --> 0:05:56.640 about that with the jobs report next week, but so 0:05:56.680 --> 0:05:59.720 far very low initial jobless claims and high payroll growth. 0:05:59.760 --> 0:06:04.120 In your micro analysis, are you seeing service sector inflation 0:06:04.240 --> 0:06:09.800 in the US come down to to uh goods producing disinflation? 0:06:10.160 --> 0:06:13.479 Any indication of that yet? So services inflation has actually 0:06:13.520 --> 0:06:18.600 been holding up relatively part of that rate. So you 0:06:18.600 --> 0:06:20.480 can argue whether that's good news or bad news for 0:06:20.600 --> 0:06:24.359 most people. So the cost of cost of house listeners 0:06:24.360 --> 0:06:29.320 would argue that exactly. Um, but but that that's right. Yeah, 0:06:29.320 --> 0:06:31.920 shelter in particular has been supporting the services inflation. I 0:06:32.040 --> 0:06:34.520 gotta get your thoughts on the Treasury secretary as well. 0:06:34.880 --> 0:06:38.440 Mr Manutrian speaking to Bloomberg an exclusive interview, talking up 0:06:38.720 --> 0:06:42.680 ultra long bomb issuance and talking down currency intervention. Let's 0:06:42.680 --> 0:06:44.640 just talk about the ultra loong bomb issuance. The first 0:06:44.640 --> 0:06:46.720 thing I did was going back to seen just a 0:06:46.720 --> 0:06:48.960 couple of years back, the last time we really discussed this, 0:06:49.400 --> 0:06:52.520 and the Treasury Borrowing Advisory Committee pushed back and they 0:06:52.560 --> 0:06:55.920 said the following, While an ultra long bond is most 0:06:56.040 --> 0:06:58.720 likely to be demanded by those with longer dated liabilities, 0:06:58.760 --> 0:07:01.400 the committee does not see in some strong or sustainable 0:07:01.400 --> 0:07:04.560 demand for maturity's beyond thirty years. Is the advice going 0:07:04.600 --> 0:07:06.760 to be any different this time around? I would think 0:07:06.760 --> 0:07:09.160 that that advice would be fairly stable. I really don't 0:07:09.160 --> 0:07:12.040 think we've changed the landscape significantly over you know, a 0:07:12.080 --> 0:07:14.760 couple of couple of year period. UM. It doesn't mean 0:07:14.800 --> 0:07:17.720 that the government can't go ahead and the treasure we 0:07:17.760 --> 0:07:19.960 can ignore that advice and come ahead. Do you think 0:07:19.960 --> 0:07:22.360 they will? But I would think that that advice is 0:07:22.400 --> 0:07:25.600 the same. Um. My best guess would be that this 0:07:25.640 --> 0:07:28.840 is something that's discussed and ultimately there takes a very 0:07:28.920 --> 0:07:30.840 long time, or they don't actually get to that long 0:07:30.960 --> 0:07:33.520 term issuance. UM. If you remember that, you know, when 0:07:33.560 --> 0:07:35.760 the Treasury rolled out floating rate notes, when the Treasury 0:07:35.840 --> 0:07:39.280 rolled out the tips program, um, these took multiple years 0:07:39.280 --> 0:07:41.520 before you actually got there. So you know, we're seeing 0:07:41.560 --> 0:07:43.800 yields move today and maybe that's a reflection of what 0:07:43.840 --> 0:07:46.400 could happened um sometime from now, but this is probably 0:07:46.400 --> 0:07:48.960 a long timeline led to some stateness last night, and 0:07:48.960 --> 0:07:52.000 then we flamed back down again. Did you see our goal, well, 0:07:52.040 --> 0:07:53.840 you were in makeup for radio. Did you see our 0:07:53.880 --> 0:07:57.320 gold segment with Andrew Holland? Now I miss that. In 0:07:57.440 --> 0:08:00.280 honor of his tenure at Berkeley, I should went out 0:08:00.280 --> 0:08:03.520 where Mr Dudley went as well is tenure at Berkeley. 0:08:03.560 --> 0:08:10.600 We killed on Barry ken Green's golden feathers nice twenty five. 0:08:10.720 --> 0:08:13.600 I'm doing the math twenty five years ago, twenty six 0:08:13.680 --> 0:08:17.720 years ago. I'm gold wedded. The conversation God the gold is, 0:08:17.760 --> 0:08:20.400 you know is Andrew correctly said you don't buy gold 0:08:20.400 --> 0:08:22.640 because it's low yield, but everything else is low yield 0:08:22.640 --> 0:08:25.240 now because all of a sudden gold is like an equivalent, 0:08:26.480 --> 0:08:28.680 the opportunity cost of holding gold a shifted. We've told 0:08:28.720 --> 0:08:30.760 about that many times on this shock. I know we 0:08:31.160 --> 0:08:33.880 gave a moment of silence for Edward Morrison City Group, 0:08:33.880 --> 0:08:35.480 and you know, come out of the analysis and I'm 0:08:35.520 --> 0:08:37.160 gonna get missed the most back on a problems have 0:08:37.160 --> 0:08:38.960 been a drag him on as well. He andrew right 0:08:39.000 --> 0:08:42.840 to call and thank you so much City Chief US economist. 0:08:55.840 --> 0:08:57.679 When you look at the yield space and you go, 0:08:57.840 --> 0:09:01.040 what is going on? Mitch Ramen with us with eraisor 0:09:01.080 --> 0:09:03.520 group to answer questions on this and Midge this is 0:09:03.559 --> 0:09:05.360 within a broader year. But I know we gotta do 0:09:05.400 --> 0:09:08.320 Brexit here in a moment. But as John Ferrell mentioned, 0:09:08.320 --> 0:09:11.520 the Chinese come out with what jan one sentence, just 0:09:11.600 --> 0:09:16.440 one hope we go. Midge. My arch question to you 0:09:17.200 --> 0:09:21.080 is all this China US stuff. Is it of an 0:09:21.120 --> 0:09:25.960 advantage to Europe? Actually, I think it's a to a 0:09:26.040 --> 0:09:29.280 to a big disadvantage Tom, because it creates a broader 0:09:29.320 --> 0:09:33.720 global context with a tremendous amount of uncertainty, which ultimately 0:09:33.720 --> 0:09:37.240 at the margin I think hurts hurts confidence in the EU. 0:09:37.360 --> 0:09:40.920 I mean there's also the big risk of the US 0:09:40.920 --> 0:09:43.960 EU trade war. In the short term. I think as 0:09:43.960 --> 0:09:46.320 we moved through the second half of the year, there's 0:09:46.360 --> 0:09:48.680 been a lot of uncertainty in Italy, although the government 0:09:48.679 --> 0:09:51.880 does seem to be coming together now. And of course 0:09:52.000 --> 0:09:55.120 the big, the big risk, which is the Brexit questions. 0:09:55.320 --> 0:09:57.320 I do think, you know, the economic cycle in Europe 0:09:57.360 --> 0:10:00.839 is not robust. Broader can turn about the state of 0:10:00.840 --> 0:10:02.600 the global economy, I think feeds into that in a 0:10:02.640 --> 0:10:05.040 negative way. So maybe let's talk about that and what 0:10:05.080 --> 0:10:07.319 the polity response in a place like Germany might be. 0:10:07.360 --> 0:10:09.800 Here in the United States, this narrative is building that 0:10:09.840 --> 0:10:12.160 the German government's about to do fiscal stimulus. What's the 0:10:12.200 --> 0:10:14.079 reality on the ground at the moment for you, Madge? 0:10:15.280 --> 0:10:17.160 I mean, I think, you know, when when we talk 0:10:17.160 --> 0:10:20.319 about fiscal stimulus in Germany, one has to think contextually 0:10:20.840 --> 0:10:23.679 about the debate in Germany over fiscal policy, the role 0:10:23.720 --> 0:10:26.199 of fiscal policy, and then of course think much more 0:10:26.200 --> 0:10:28.680 seriously about how robust that stimulus would likely to be, 0:10:28.679 --> 0:10:30.720 even if the government were to open up the spending 0:10:30.760 --> 0:10:34.440 taps a little bit. I don't think you're looking for 0:10:34.760 --> 0:10:37.920 you know, we're not. We're not looking to see anything substantializing. 0:10:38.040 --> 0:10:40.720 I think that's unlikely. If you think about the political 0:10:40.840 --> 0:10:43.280 context in Germany, it may be helpful a string of 0:10:43.320 --> 0:10:46.800 regional elections where there's social Democrats are set to perform 0:10:46.880 --> 0:10:50.960 extremely badly. The Christine Democrats in crisis to some degree, 0:10:51.040 --> 0:10:54.240 is the transition between Merkel and her successor a KK 0:10:54.480 --> 0:10:57.120 doesn't play well. I mean, that's not a context in 0:10:57.120 --> 0:10:59.880 which it's popular to make an argument about opening the 0:11:00.000 --> 0:11:02.040 first strings. And I think one does have to think 0:11:02.040 --> 0:11:05.840 politically and contextually about how robust any stimulus will be 0:11:05.880 --> 0:11:09.199 forthcoming out of Germany. I'd also say at the European level, 0:11:09.400 --> 0:11:12.560 you're not likely to really see any coordinated or aggregate 0:11:13.080 --> 0:11:17.199 response on the fiscal side. No, I don't mean to 0:11:17.360 --> 0:11:19.600 interrupt meent. I just think there's so much flow going 0:11:19.640 --> 0:11:24.040 on between European dynamics, all this distraction of Brexit and 0:11:24.240 --> 0:11:27.600 such in the real issues of China, US and frankly 0:11:28.160 --> 0:11:30.760 China and the rest of the world. How does your 0:11:30.760 --> 0:11:34.720 Eurasia group in international relations? How do you synthesize in 0:11:35.160 --> 0:11:37.760 where the bond market is? And John, I haven't even 0:11:37.840 --> 0:11:42.000 mentioned this this morning continued subtle dours strength as well. 0:11:42.000 --> 0:11:47.080 How do you fold that in? As I say, John, 0:11:47.120 --> 0:11:50.320 I think Tom rather that the international context I think 0:11:50.440 --> 0:11:55.720 is is certainly on the minds of policymakers in the EU, 0:11:56.000 --> 0:11:59.920 and it will certainly galvanize those in the euro where 0:12:00.000 --> 0:12:02.800 you're in particular, that are looking to Germany to move 0:12:02.800 --> 0:12:05.520 on the fiscal side. But I just I just think 0:12:05.520 --> 0:12:09.359 when one thing is contextually and politically about where Germany 0:12:09.400 --> 0:12:13.640 is at this moment, at this current juncture, meaningful stimulus 0:12:13.679 --> 0:12:16.880 that's likely to have a big impact on the economic cycle, 0:12:16.880 --> 0:12:19.400 I think that's still unlikely. So Mitch, let's talk about 0:12:19.400 --> 0:12:21.640 what happens at the EU level. We get someone new 0:12:21.720 --> 0:12:25.000 running the European Union Commission. At the moment, we have 0:12:25.040 --> 0:12:28.480 a Growth and Stability Pact and ultimately the goals of 0:12:28.520 --> 0:12:32.600 that for debt to GDP and budget deficits within three 0:12:32.600 --> 0:12:35.400 percent of GDP. Mitch, do we have to rethink some 0:12:35.520 --> 0:12:40.480 of those numbers and will they rethink some of those targets? 0:12:40.480 --> 0:12:43.120 So the vonder Lane Commission, I think will probably have 0:12:43.240 --> 0:12:49.480 a go up streamlining and simplifying the fiscal the fiscal rules. 0:12:49.480 --> 0:12:51.600 There's there's a whole set of crazy metrics. You know, 0:12:51.640 --> 0:12:53.839 you've talked about the debt and the nominal deficit. There's 0:12:53.880 --> 0:12:57.160 also a structural target, so accounting to the economic cycle, 0:12:57.280 --> 0:13:01.280 you know how much how much of government's actually cutting 0:13:01.280 --> 0:13:03.520 on the fiscal side when you when you can take 0:13:03.559 --> 0:13:06.800 off the impact of the economic cycle. There's also a 0:13:06.880 --> 0:13:09.640 debt to GDP reduction target, and it all gets it 0:13:09.640 --> 0:13:11.480 all gets very complicated. So I think there is a 0:13:11.559 --> 0:13:16.000 desire to streamline and simplify again. There will be opposition 0:13:16.040 --> 0:13:19.720 in Northern Europe, in Berlin, but certainly from other countries, 0:13:19.760 --> 0:13:24.720 the Netherlands, Finland to any suggestion that the rules should 0:13:24.760 --> 0:13:28.240 be um you know, should be made should be made easier, 0:13:28.320 --> 0:13:30.720 more lax, and there will be big opposition to that. 0:13:30.720 --> 0:13:32.560 But I do think the wonder Lane Commission will try 0:13:33.200 --> 0:13:36.680 made say to so much about any more questions. But 0:13:36.679 --> 0:13:38.280 we're at a time we'll get them out again. Here 0:13:53.080 --> 0:13:55.960 Jordan Rochester, just before we went to air this morning 0:13:56.280 --> 0:13:59.400 out of Namural, London, wrote this note and there was 0:13:59.559 --> 0:14:08.680 shimmer the Brexity thing. It's shimmering, shimmer of the tunnel shimmering. 0:14:08.960 --> 0:14:11.440 Shall I read you that first line In Jordan Rochester's 0:14:11.480 --> 0:14:15.720 latest poetry, Dickensian, the pound will inherently remain difficult to trade, 0:14:15.960 --> 0:14:19.160 but the latest moves by boris as galvanized opposition MP 0:14:19.840 --> 0:14:22.480 and there is a shimmer of light at the end 0:14:22.520 --> 0:14:26.080 of the tunnel. Nomura's Jordan Rochester joins us right now, 0:14:26.120 --> 0:14:28.800 good morning to Jordan, just explain a little bit more 0:14:28.840 --> 0:14:31.400 for us, where is the shimmer of light in the 0:14:31.440 --> 0:14:35.720 Brexit tunnel? Well with hey, you guys, we've been here before. 0:14:35.960 --> 0:14:39.200 So let's set this thing about Q one we had. 0:14:39.600 --> 0:14:42.600 You're stirring the pound at the highs or the pounds 0:14:42.600 --> 0:14:45.840 at the lows, and when you're at these historical lows, 0:14:45.840 --> 0:14:47.720 you gotta ask yourself what are the odds of a 0:14:47.760 --> 0:14:52.240 no deal brexit the high But the answers no, And 0:14:52.360 --> 0:14:55.080 we're already at fresh historical lows pretty much give will 0:14:55.120 --> 0:14:59.280 take now. And in Q one, MPs started to legislate, 0:14:59.400 --> 0:15:02.160 they started to block no deal, They forced Teresa May 0:15:02.200 --> 0:15:04.680 to extend Article fifty and the show went on and 0:15:05.000 --> 0:15:06.760 we know how that went. So I think they're going 0:15:06.800 --> 0:15:08.240 to try and do the same, and the market is 0:15:08.280 --> 0:15:10.400 going to try and use the same playbook. The pound's 0:15:10.440 --> 0:15:14.320 going to likely strengthen if opposition MPs next week legislate 0:15:14.360 --> 0:15:17.880 for no deal or the nuclear button, they go for 0:15:17.920 --> 0:15:21.600 a vote of no confidence and seek a temporary unity 0:15:21.640 --> 0:15:26.200 government and extend Article fifty. And guys, no matter what happens, 0:15:26.320 --> 0:15:28.440 at some point, there's going to be an election. And 0:15:28.480 --> 0:15:30.960 I think the market has priced that in such an 0:15:30.960 --> 0:15:34.440 extent now that the path of least resistance in the 0:15:34.480 --> 0:15:36.880 short term is that we have some sterling shorts that 0:15:36.880 --> 0:15:39.440 were put on over August reduced going forward and the 0:15:39.440 --> 0:15:41.840 pound goes slightly higher. What's the catalyst for that, the 0:15:41.880 --> 0:15:47.600 immediate catalyst that galvanizes some sterling short covering. Well, it's 0:15:47.640 --> 0:15:50.960 just this. If you're holding short starting positions right now, 0:15:51.080 --> 0:15:55.200 you'll actually quite fearful of something next week that throws 0:15:55.240 --> 0:15:58.200 a spanner into the works of the no deal Brexit pricing. 0:15:58.480 --> 0:16:00.480 So if you look at the bookmakers, they have no 0:16:00.640 --> 0:16:04.960 deal Brexit this year at fort probability. That's the highest 0:16:05.000 --> 0:16:07.600 it's basically being during this whole run up to Brexit. 0:16:08.200 --> 0:16:12.120 And if you have opposition MPs legislates extend narscal fifty 0:16:12.240 --> 0:16:14.760 or do that vote in a complement, that probability is 0:16:14.760 --> 0:16:17.360 going to go down. And the pound, guys, it really 0:16:17.360 --> 0:16:19.800 does track these odds. You're gonna see the pounds fly 0:16:19.920 --> 0:16:22.240 high on the back of that just moments ago. And 0:16:22.320 --> 0:16:24.040 you know it's like in in August day, it's like, 0:16:24.080 --> 0:16:26.680 so what except right now I think it's actually Germaine. 0:16:27.000 --> 0:16:30.560 These are all the places John Farrow's visited in Germany. Saxony, 0:16:30.840 --> 0:16:35.680 Brandenburg has Bavaria Baden Wurtemburg am I pronouncing that correctly, 0:16:35.680 --> 0:16:37.480 you going through the regional break and going down to 0:16:37.560 --> 0:16:40.840 regional breakdown. So they come out with CPI in Germany, 0:16:40.920 --> 0:16:43.800 and the answer is it came in a little sealthy. 0:16:43.960 --> 0:16:46.760 Do you assume it Nomura. That's gonna be what we're 0:16:46.760 --> 0:16:51.280 gonna see through the autumn is is disinflation nation to nation. 0:16:52.640 --> 0:16:55.800 I mean, we we've had a bit of fex depreciation, 0:16:55.880 --> 0:17:00.560 which helps you European CPI, but that wasn't enough. And 0:17:01.000 --> 0:17:03.200 the ECB is go do all of it all it can, 0:17:03.720 --> 0:17:06.480 but the options it has left really don't add much 0:17:06.520 --> 0:17:10.280 to inflation. Add to that, you've got globalization still going on. 0:17:10.359 --> 0:17:14.320 You've got tech impulse, you've got the sort of delivery's 0:17:14.400 --> 0:17:18.439 the Amazon economy, the digitalization of inflation. It's all dis 0:17:18.560 --> 0:17:22.080 inflation ryes. So these central banks are dealing with cyclical 0:17:22.200 --> 0:17:25.160 which is growth is going lower, which means inflation will 0:17:25.200 --> 0:17:27.080 be on the back burner and go lower as well. 0:17:27.160 --> 0:17:29.639 And then you've got this long term structural story about 0:17:29.680 --> 0:17:32.679 the rise of Asia, the rise of globalization, and in 0:17:32.720 --> 0:17:34.560 the future we'll be talking about the rise of Africa. 0:17:34.920 --> 0:17:38.200 So it's really hard in the Western world to think 0:17:38.280 --> 0:17:41.920 of high inflation expectations, and essentially we're all becoming like Japan. 0:17:42.080 --> 0:17:44.360 We just talk about market conditions in Europe right now. 0:17:44.800 --> 0:17:47.280 So much attention on the Italian tenure dropping below one 0:17:47.280 --> 0:17:49.600 percent in yesterday's session, and it continues to drive far 0:17:49.640 --> 0:17:54.560 away conditions with negatives like the investment grade euro denominated 0:17:54.640 --> 0:17:57.600 debt right now is all in negative. Right, the yield 0:17:57.720 --> 0:18:00.520 right now is south the twenty five basis points. Just 0:18:00.560 --> 0:18:03.280 pause for a moment. Imagine that your an investment grade 0:18:03.320 --> 0:18:07.560 corporate in Europe and you can borrow a less than 0:18:07.600 --> 0:18:11.320 twenty five basis points. Well, let's translate that a hundred 0:18:11.320 --> 0:18:18.040 dollars your interest costs precisely. I do. Okay, you did, fantastic. 0:18:18.400 --> 0:18:19.960 I could be on the real yield at some point, 0:18:19.960 --> 0:18:22.919 I mean, Jordan, can you imagine? That's the situation with 0:18:23.000 --> 0:18:27.080 financial conditions in Europe? Which makes me wonder incrementally. Additional 0:18:27.080 --> 0:18:29.560 easing is not going to address anything much at all. 0:18:29.600 --> 0:18:31.760 I just wonder whether they have to, because if they don't, 0:18:32.200 --> 0:18:36.439 financial conditions will titan Absolutely it would be things will 0:18:36.440 --> 0:18:38.280 be a lot harder for them to achieve their mandates. 0:18:38.320 --> 0:18:41.119 If they were to suddenly give up and throw in 0:18:41.119 --> 0:18:44.159 the towel. But you're right. We live in a world John, 0:18:44.320 --> 0:18:47.840 where because of negative yields and sixth income, for you 0:18:47.920 --> 0:18:51.560 to make money, you have to hope for capital appreciation 0:18:51.880 --> 0:18:54.520 in what typically is you know you buy You used 0:18:54.560 --> 0:18:57.560 to buy bonds for yield. Now it's capital appreciation. On 0:18:57.600 --> 0:19:00.840 the flip side, you now buy ecutive yield for these 0:19:00.840 --> 0:19:03.760 dividend yields because at least that's still positive. The real 0:19:03.880 --> 0:19:07.359 yields negative. It means that these these stories can't go 0:19:07.359 --> 0:19:09.439 on forever. At some point there has to be a 0:19:09.480 --> 0:19:13.000 reallocation out of these things. But we are as we're 0:19:13.040 --> 0:19:15.840 seeing the ECB is going to buy more bonds at 0:19:15.880 --> 0:19:17.800 some point. The FED in the future might do the 0:19:17.840 --> 0:19:20.960 same as well. So just like Japan, yes it seems 0:19:20.960 --> 0:19:24.280 a bit mad, but you've got these central banks, You've 0:19:24.320 --> 0:19:27.360 got this one big buyer out there consistently on the bid. 0:19:27.600 --> 0:19:30.199 It's just law of supply and demand. For Jordan. This 0:19:30.240 --> 0:19:33.160 is important for the foreign exchange conversation as well. Where's 0:19:33.200 --> 0:19:35.400 the positive yield? Where's the high yielder in G ten? 0:19:35.560 --> 0:19:38.840 Right now it's in the United States. How difficult is 0:19:38.840 --> 0:19:42.000 it to construct an argument that we're about to see 0:19:42.000 --> 0:19:46.560 dollar weakness. So the one thing that makes everybody in 0:19:46.640 --> 0:19:49.760 the long term point for dollar weakness is the double 0:19:49.800 --> 0:19:52.160 death tim which is the current account for the US 0:19:52.200 --> 0:19:55.760 and the budget of the government. It's really expanding in 0:19:55.800 --> 0:20:01.240 the negative world exactly. So over are a five year period, 0:20:01.359 --> 0:20:03.840 this always tends to work for the direction of the 0:20:03.840 --> 0:20:06.960 broader dollar. However, for the next year, we're dealing with 0:20:07.000 --> 0:20:09.800 global slowdown, recession risks. And in this environment, just like 0:20:09.840 --> 0:20:13.720 Mark Kearney's mentioned at the Jackson Whole Symposium, it still 0:20:13.760 --> 0:20:16.520 acts as the reserve currency of the world, and it 0:20:16.640 --> 0:20:19.040 still has a positive yield versus others. Then how does 0:20:19.080 --> 0:20:21.520 that play in the year we're hearing an interviews Jordan right, 0:20:21.560 --> 0:20:23.920 just did a lot of people played off euro what's 0:20:23.960 --> 0:20:28.280 the number of Europe call? We're currently short, Tom, it's 0:20:28.320 --> 0:20:31.080 a grind lower. I think we're about one oh nine 0:20:31.119 --> 0:20:33.560 in euro Why is it a grind? Why isn't it 0:20:33.640 --> 0:20:37.080 a bangalover? It's because European investors, with all the qui 0:20:37.200 --> 0:20:39.480 rounds we've had in over the years, they put a 0:20:39.480 --> 0:20:42.400 lot of money into emerging markets and with themself, we've 0:20:42.440 --> 0:20:45.639 we've been seeing and the uncertainty rising. Yes, there's a 0:20:45.640 --> 0:20:49.359 good argument to sell euroverse the dollar. But European investors 0:20:49.359 --> 0:20:53.160 have been bringing back their investments back home in size. 0:20:53.480 --> 0:20:55.800 So the basic balance, which is like it's all these 0:20:55.800 --> 0:20:59.439 flows combined for Europe, has really shut higher to a 0:20:59.480 --> 0:21:03.800 historical high in one regard. So that's why euros so boring. 0:21:04.480 --> 0:21:07.760 It's just a grind lower, very little. Volve, you're the 0:21:07.760 --> 0:21:11.280 most important question in the morning. Place Villa on Saturday? 0:21:11.560 --> 0:21:14.200 What are you looking for? Well, Villa has been doing 0:21:14.240 --> 0:21:16.800 better than expected. I was at the first game of 0:21:16.840 --> 0:21:19.639 the season. We were one nil up against Tottenham h 0:21:19.840 --> 0:21:22.040 and then we lost it and fold in the second half. 0:21:23.800 --> 0:21:27.560 Could be I mean what was harder for me? I 0:21:27.560 --> 0:21:29.600 was sat at the home end with the Tottenham fans, 0:21:29.680 --> 0:21:31.879 so I had to pretend when Villa got that one 0:21:31.960 --> 0:21:33.439 nail at the beginning, I had to pretend that I 0:21:33.480 --> 0:21:36.880 was very angry. Did you were certain? Tie? I mean, 0:21:37.280 --> 0:21:39.240 I mean, is it? It's the coolest thing to me, 0:21:39.359 --> 0:21:42.840 this relegation, Jordan's how's it different? You know, being in 0:21:42.920 --> 0:21:45.000 one league and then going up the next year Premiers? 0:21:45.040 --> 0:21:47.720 It like the same Sunday or Saturday at noises or 0:21:47.760 --> 0:21:51.000 is it different. It's really punishing for the club as 0:21:51.000 --> 0:21:54.359 a whole. So you get much less revenue from not 0:21:54.359 --> 0:21:57.320