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Speaker 1: Brought you by Bank of America Mary Lynch. Investing in

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Speaker 1: local communities, economies and a sustainable future. That's the power

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Speaker 1: of global connections. Mary Lynch, Pierce Fenner, and Smith Incorporated

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Speaker 1: member s I p C. Welcome to the Bloomberg Surveillance Podcast.

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Speaker 1: I'm Tom Keene with David Gura. Daily we bring you

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Speaker 1: insight from the best in economics, finance, investment, and international relations.

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Speaker 1: Find Bloomberg Surveillance on iTunes, SoundCloud, Bloomberg dot Com, and

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Speaker 1: of course on the Bloomberg. We begin with an Urgen,

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Speaker 1: Vice Chairman h S. Market, author of the prize and

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Speaker 1: the Quest, and he joins us here in New York

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Speaker 1: on bloom Big Surveillance. And Dan, let me start with

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Speaker 1: that news we got yesterday about Saudi Arabia telling OPE

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Speaker 1: could produced production last by the most in eight years,

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Speaker 1: more than it had pledged to do. Give us the

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Speaker 1: significance of that and why were they able to cut

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Speaker 1: more than they forecast that they'd be able to. What's

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Speaker 1: going on is a very high degree of compliance within OPEC.

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Speaker 1: People have always been skeptical with good reason of OPEC cuts,

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Speaker 1: and two thousand and eight when they cut, they only

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Speaker 1: cut about sixty percent, and now it looks like they've

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Speaker 1: cut over. Saudi Arabia has taken the lead, and I

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Speaker 1: think Saudi Arabia is the most important member by far,

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Speaker 1: and they want this, uh this, this and this new

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Speaker 1: type of agreement between OPEC and non OPEC to be

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Speaker 1: a success. And we can see the impact in the

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Speaker 1: marketplace more. And this is just one we want to

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Speaker 1: break a headline here crossing the Bloomberg, Etna and Humana

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Speaker 1: are ending their merger pack that had been called into

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Speaker 1: question by the federal government and it's not going to

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Speaker 1: pay one billion dollar fee. Having spoken Mark Bertolini, the

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Speaker 1: CEO of in a couple of weeks ago, it sounded

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Speaker 1: like they were weighing whether or not to go forward. Indeed,

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Speaker 1: and no human I have decided not to go forward

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Speaker 1: with their merger pack. Now back to Dan, you're get

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Speaker 1: how surprising was this news about Saudi Arabie said, The

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Speaker 1: importance can't be understated. How surprising was the news that

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Speaker 1: they had cut so much. I don't think it was

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Speaker 1: surprising uh so much because you saw that the new

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Speaker 1: relatively new Saudi patrollingum minister called alf Fala, that he

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Speaker 1: really was taking the lead in making this work, and

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Speaker 1: I think that the cuts are demonstration and a message

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Speaker 1: to everybody else. And just before they made a deal

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Speaker 1: last November, they said, if there's not a deal, we're

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Speaker 1: going to produce as much as we can. So the

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Speaker 1: other side of it is that there is a deal

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Speaker 1: and if it's holding with other people, including the Russians

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Speaker 1: by the way, who are cutting back, which there was

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Speaker 1: skepticism about. Uh, they want to do their part to

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Speaker 1: make this work. We're gonna have the Minister at our

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Speaker 1: conference in Houston in a couple of weeks and I

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Speaker 1: think he's going to give a strong message about wanting

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Speaker 1: to see some stability in the oil market. When you

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Speaker 1: survey when you look at the parties to that agreement,

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Speaker 1: both OPEC and NON who's having the biggest trouble keeping

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Speaker 1: up the end of the bargain? Uh, Well, there's certain

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Speaker 1: countries that are out of it. Libya and Nigeria were

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Speaker 1: given a free pass. I think the al of the cults,

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Speaker 1: the most determined people are there, Saudi Arabia and the

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Speaker 1: other Gulf countries. They're the ones who really stand out.

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Speaker 1: People were looking very carefully at the Russians have been

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Speaker 1: cutting they still have more to cut. And the Iranians.

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Speaker 1: It was a very unusual deal because they sort of

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Speaker 1: there was a kind of a deal or everybody could

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Speaker 1: claim a victory. The Iranians could have a higher quota,

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Speaker 1: except the others field they can't reach that quota. A

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Speaker 1: couple of nights ago, there was a small matter of

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Speaker 1: the Ninth District Court in San Francisco, and I, like

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Speaker 1: everybody else, was riveted with a phone call on television

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Speaker 1: of the appeals court going to the process and David Gura.

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Speaker 1: The bad news was. I was watching MSNBC and they

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Speaker 1: kept playing in the upper right corner the President meeting

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Speaker 1: with muckety MUCKs within the oil business, and he walked

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Speaker 1: around the table shaking hands. And I swear every time

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Speaker 1: he walked around the table and shook Dan Jurgen's hand,

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Speaker 1: he was there. You handed him a copy of Commanding Heights.

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Speaker 1: I only you love that book so much time that

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Speaker 1: you imagined that you saw it happened. I only wish

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Speaker 1: that were the case. But it is a very uh.

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Speaker 1: That was the media of the Presidential Strategic and Policy community.

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Speaker 1: Um I learned that. I mean, there are a couple

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Speaker 1: of things that really jumped out. One was just this

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Speaker 1: whole question of regulation, not just is there too much regulation,

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Speaker 1: but contradictory regulation from too many different agencies. And the

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Speaker 1: other was a really big focus on infrastructure. Within this

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Speaker 1: is if you had had handed the president your iconic

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Speaker 1: book Commanding Heights, what in it should he learn? Well,

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Speaker 1: I think that these things go in cycles. The role

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Speaker 1: of the frontier between governments and markets is shifting and

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Speaker 1: continually shifts, and I think we're seeing that now and

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Speaker 1: I think kind of right now around the world there's

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Speaker 1: kind of confusion about kind of what are the new

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Speaker 1: rules of globalization. But your book is the arch non

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Speaker 1: zero sum book. Your book is one primal scream about

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Speaker 1: anti mercantilism, about a value to cooperation and ord nation.

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Speaker 1: Do you see any likelihood of that within this administration? Well,

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Speaker 1: I think that if with some of the people, I

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Speaker 1: think that there's still the you know, the US. We

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Speaker 1: have forty million jobs, over forty million jobs in the

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Speaker 1: US that the result of foreign trade, and I think

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Speaker 1: that number has kind of been left out of the debate.

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Speaker 1: What have you heard from the administration about energy policy

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Speaker 1: at this point? How inco it is it? Do we

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Speaker 1: have a sense of what it's going to be. Well,

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Speaker 1: I think it's gonna be uh not. First of all,

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Speaker 1: it's going to be not more regulation. And secondly, I

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Speaker 1: think it's going to be trying to solve this bottleneck

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Speaker 1: about infrastructure where it takes seven years and several billion

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Speaker 1: dollars not to approve a pipeline. Things have to be

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Speaker 1: done in reasonable times, and there has to be reasonable

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Speaker 1: times in terms of challenges to it. But there's a

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Speaker 1: mismatch between where our new supplies are and our infrastructure,

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Speaker 1: and we've got to get that fixed. How catalytic is

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Speaker 1: that Keystone exhale? In other words, if if Donald Trump

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Speaker 1: pushes it through, if we get it built, are we

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Speaker 1: going to see more like it? What's it going to

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Speaker 1: lead to? Well, that was a very particular case because

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Speaker 1: it needed State Department approval to just cross the border.

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Speaker 1: And I think it will be a message trans Canada.

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Speaker 1: The pipeline company has to decide that it wants to

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Speaker 1: go ahead and build it. To some degree, we've seen

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Speaker 1: a shift in uh where new supplies coming from it.

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Speaker 1: There's a lot of new Canadian supplies coming from I

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Speaker 1: think it would be a big message because you know,

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Speaker 1: pipeline approval. It seems to be as exciting as watching

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Speaker 1: paint dry. But then now that became really a potemic. Well,

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Speaker 1: these pipelines that are in the news, will they change

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Speaker 1: the price of oil? Uh? If you build yes, I

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Speaker 1: mean I think if you if you have more flexible supply, uh,

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Speaker 1: and if you can bring more supply to markets, then

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Speaker 1: that thing called supply and demand will work. It's talked

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Speaker 1: a lot about how rex dealers and skills add accent

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Speaker 1: moble would be applicable to the State Department. Let's take

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Speaker 1: another step back and just look at sort of the

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Speaker 1: degree to which the Secretary of State has to deal

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Speaker 1: with oil and energy issues. How how how big, how

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Speaker 1: big a portion of the plate does that occupy? Well,

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Speaker 1: there is an energy aurow in this State Department that

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Speaker 1: was set up a few years ago, and so energy

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Speaker 1: is one of the geopolitical issues that the President the

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Speaker 1: Secretary of State will deal with. But I think that

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Speaker 1: it's going to be a relatively small part, and I

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Speaker 1: think that Mr Tillerson is going to focus on the

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Speaker 1: you know, the big complicated questions are out there. He's

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Speaker 1: a very experienced person in the global economy. He knows

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Speaker 1: a lot of countries and UH, and he's very measured

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Speaker 1: in terms of his decision making. Help us with the

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Speaker 1: interplay here between the dollar, which is slightly weaker this morning,

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Speaker 1: and the price of oil. But what's the what's the

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Speaker 1: correlation there? Well, there isn't always a correlation, but often

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Speaker 1: there's a correlation in which a stronger dollar means oil

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Speaker 1: prices are down and vice versa. But of course there

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Speaker 1: are a lot of other factors that go into it,

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Speaker 1: and the predictions about what the dollar is going to

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Speaker 1: do is one of the UH factors. In the discussion

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Speaker 1: about this border adjustment tax, we started out talking about

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Speaker 1: Saudi Arabia OPEC and UH and the deal, the agreement. UH.

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Speaker 1: Let's mean, why back at the ranch. What's happening here

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Speaker 1: in the US? When you look at the energy landscape

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Speaker 1: right now, it's perman mania. The Permian basin is the

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Speaker 1: place to be. That's where people are spending money. And

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Speaker 1: we've seen that US production has bottomed out and it's

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Speaker 1: going to start increasing, and it's an industry that's a

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Speaker 1: lot more efficient than it was a couple of years ago.

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Speaker 1: At I H S market we were we just did

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Speaker 1: this analysis and see if you spend a dollar today,

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Speaker 1: you're gonna get about two and a half times as

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Speaker 1: much oil for that dollar as you would have in

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Speaker 1: I have the clearest recollection too many years ago you're

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Speaker 1: talking about forty dollar oil and basically being left off

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Speaker 1: the show. You were more than right. Okay, the fifty

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Speaker 1: plus a minus ten bucks. Who's counting? What is the

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Speaker 1: Urgan five year out call the barrel? You know, don't

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Speaker 1: have a single number. I think this year we're probably

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Speaker 1: in a fifty to sixty dollar range. I think at

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Speaker 1: the end of the decade we'll see price We should

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Speaker 1: probably see prices, uh, you know, higher than they are today,

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Speaker 1: because you're gonna need it in order to get the

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Speaker 1: kind of long, mid term and long term investment that

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Speaker 1: isn't happening right now around the world. I mentioned you're

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Speaker 1: gonna hear from the minister at that conference in Houston.

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Speaker 1: Who else you're looking forward to hearing from? When when

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Speaker 1: you look at who's talking to whom and where where

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Speaker 1: the conversation is at, Well, we're gonna we'll we'll have

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Speaker 1: the Russian minister will be there. Uh. The we're hoping

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Speaker 1: we'll have the new people from the administration and we'll

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Speaker 1: have a lot of the uh CEOs from the major

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Speaker 1: companies there. So I think it's you know, altogether, we're

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Speaker 1: gonna have three hundred speakers, so it's gonna be a

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Speaker 1: very rich conference in terms of content. Will have both

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Speaker 1: the Secretary General of OPEC and the head of the

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Speaker 1: International Energy Agency together and so uh And I think

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Speaker 1: of what a tension does that create on stage? Well,

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Speaker 1: it's you know that used to be budding heads, but

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Speaker 1: now it's like a dialogue between the two of them. Uh.

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Speaker 1: I think the other thing, there's a big question about

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Speaker 1: what's happening with mobility. Dan, You're gonna thank you so much.

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Speaker 1: And again, folks, some more modern work I mentioned commanding Eyes.

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Speaker 1: Look at the quest It is outstanding. David Gura and

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Speaker 1: Tom Keene in New York. This is Bloomberg Surveillance on Bloombergerdy.

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Speaker 1: I'm looking at the latest issue of Foreign Affairs magazine,

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Speaker 1: the March April issue. Trump Time is the headline. Donald

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Speaker 1: Trump picture there surveying his domain and others looking at

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Speaker 1: the world. We see Vladimir putting their stride a horse.

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Speaker 1: A number of great pieces in this issue, including one

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Speaker 1: by Peter Fever with whom we spoke yesterday of Duke University.

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Speaker 1: A great conversation. You can check it out on our

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Speaker 1: podcast as well. The editor of Foreign Affairs, Gideon Roses

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Speaker 1: with us now, and let's pick up with what Chris

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Speaker 1: Kirkin was just talking about their the resignation of Michael

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Speaker 1: Flynn's national security advisor. How much of Donald Trump's foreign

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Speaker 1: policy was a Flynn foreign policy? Well, nobody knows, uh.

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Speaker 1: And the biggest question that people in my area are

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Speaker 1: wondering now is, okay, if Pence was out of the loop,

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Speaker 1: was the president out of the loop as well or not?

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Speaker 1: And nobody knows. And we will just have to see

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Speaker 1: where do we go from here. There were all of

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Speaker 1: these allegations that General Flynt had spoken with the ambassador

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Speaker 1: from Russia to the United States during this interregnum between

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Speaker 1: the election and when Donald Trump was sworn in. Will

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Speaker 1: there be an investigation we have any sense of where

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Speaker 1: things go from here? Well, there is going to be investgation.

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Speaker 1: There already are investigations about contacts between the Trump campaign

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Speaker 1: and Trump Operation and Russia. Um. Look, basically, there's this

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Speaker 1: nagging possibility that keep that can't be denied of something

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Speaker 1: truly nefarious, but nobody can really believe that there actually

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Speaker 1: is anything nefarious going on, and it so so people

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Speaker 1: are puzzled. Right, There's been this positive relationship with Russia

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Speaker 1: that the Trump campaign has been steadfast about the only

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Speaker 1: thing in fact, that they've been really constantly consistent about. Uh,

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Speaker 1: And no one can quite figure out why. And so

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Speaker 1: you can't quite No one can believe the notion that

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Speaker 1: there's some weird behind this conspiracy, but no one can

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Speaker 1: fully dismiss it on the basis of the evidence so far. Either.

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Speaker 1: I mentioned we were talking with Peter Fever yesterday about

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Speaker 1: the National Security Council staff and the reported disarray within.

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Speaker 1: What does this mean for that? Fold this into that

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Speaker 1: you've got You've got Michael Flynn out now, does that

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Speaker 1: stand to complicate things further or is this an opportunity

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Speaker 1: for the NSC and its staff to reset. Well. Uh.

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Speaker 1: The NSC is basically the president's personal foreign policy and

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Speaker 1: national security staff, so the president gets whatever the president wants.

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Speaker 1: It'll be fascinating to see who the replacement for Flynn

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Speaker 1: will be. One thing that's already interesting is they promoted

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Speaker 1: Kellogg to the number one spot, the acting spot, rather

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Speaker 1: than the number two. Technically, Katie McFarland, Uh, that would

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Speaker 1: suggest that they don't have a whole lot of confidence

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Speaker 1: in her necessarily, But we don't know, and um the

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Speaker 1: we you know. Look, the best way I can talk

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Speaker 1: about the difficulty in analyzing this administration is to look

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Speaker 1: at the number two at State. So Rec Tillerson impressive guy,

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Speaker 1: but somebody who's never had much foreign policy experience doesn't

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Speaker 1: know the building and so forth. So there's been everybody

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Speaker 1: has said, well, that's why he's going to get a

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Speaker 1: deputy who actually is a farm policy professional. But they've

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Speaker 1: kept floating names people like Richard Hass, people like Elliott Abram's,

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Speaker 1: people like John Bolton, and the names all get shot down.

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Speaker 1: So they still haven't filled that post. But the names

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Speaker 1: themselves range across the farm policy spectrum, from realists to

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Speaker 1: neo conservatives to other things people you would never actually

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Speaker 1: think of as being sent up by the same people

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Speaker 1: for uh, for suggestions. So no one really knows what's

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Speaker 1: going on or who they'll actually pick away from General Flynn.

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Speaker 1: And we'll all be buried in this in the next

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Speaker 1: couple of days. You had cell phone national security over

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Speaker 1: dessert at Mara Lago. I was stunned that they did

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Speaker 1: the photos of the nuclear bag, the atomic bag. How

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Speaker 1: to prose like you respond to that nobody who's a

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Speaker 1: foreign policy profession and all that I know is anything

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Speaker 1: other than just flabbergasted by the last month. They're they're

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Speaker 1: they're trying to be like a tech company and fail

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Speaker 1: faster because the pace at which this is playing out

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Speaker 1: is so uh rapid uh that that nobody knows where

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Speaker 1: it's gonna go. The visibility, you know, the five day

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Speaker 1: forecast is three days. I can't fathom the vice president

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Speaker 1: doing anything but being stunned at the juvenility of some

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Speaker 1: of these actions. Um. The problem is that you know

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Speaker 1: what was it? That was it George Bush who GARYT. Trudeau,

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Speaker 1: George Bush father that Garret Judo said had his manhood

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Speaker 1: and the blind trust. A lot of the people of

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Speaker 1: this administration, uh unfortunately, seemed to have their manhood or

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Speaker 1: femalehood in a in a blind trust because the boss

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Speaker 1: is doing something and when the boss says that you

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Speaker 1: have to go and do whatever the boss says, just

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Speaker 1: too short to the Guindeon Rose, thank you so much?

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Speaker 1: What a half hour if a dan you're going to

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Speaker 1: Gideon Rose together. I mean, David, is this right? This

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Speaker 1: is incredible, by the way it is with the tweets,

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Speaker 1: with the little birds tweeting around Foreign Affairs magazine, folks

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Speaker 1: check it out, is superb. It's the price of a

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Speaker 1: fancy Martini. Geon Rosen was going to go to the

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Speaker 1: cheap Martini. But a subscription, a print subscription, is something

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Speaker 1: John Tucker looks forward to every month. I don't know

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Speaker 1: these days we could use the fancy Martini times Trump times,

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Speaker 1: Trump time rather Okay, we like a little tension here.

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Speaker 1: Robert Sinch nailing the strong Sterling call and certainly calling

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Speaker 1: for Sterling stability, stability. Agreeing with him. Shahab Jollinus at

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Speaker 1: Credit sweets really looking for moderate moderation within Sterling, and Shahab,

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Speaker 1: we've got other houses looking for really dramatically weak Sterling.

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Speaker 1: George servelis at Deutsche Bank looking under one ten HSBC's

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Speaker 1: at long term one ten call. What is the distinctive

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Speaker 1: feature between your call of Sterling stability versus those that

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Speaker 1: have a much gloomier outlook. Well, I guess it also

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Speaker 1: depends on what time horizon we look at this on.

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Speaker 1: In the sense that uh, you know, over the next

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Speaker 1: year or so, it's unclear to us what type of

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Speaker 1: new political news is going to materialize that dramatically moves

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Speaker 1: Sterling relative to the news we've had in the past year.

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Speaker 1: And I think if we see in that time period

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Speaker 1: obvious signs that is going to be huge disruption in

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Speaker 1: terms of the talks between the EU and the UK,

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Speaker 1: then I'd be prepared to look again at my forecast.

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Speaker 1: But in the absence of that, there's not really a

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Speaker 1: strong catalyst for a dramatic fall at this point in time.

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Speaker 1: Better in mind, this currency has already had a very

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Speaker 1: substantial fall in the past year um and kind tend

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Speaker 1: not to move in straight lines on a permanent basis

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Speaker 1: without fresh information how much it is going to change

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Speaker 1: here when Article fifty is triggered, when this all begins.

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Speaker 1: In other words, there's a lot that's priced in, but

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Speaker 1: there is still a great, a huge unknown they're living

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Speaker 1: on the horizon. Well, certainly an Article fifty, you know,

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Speaker 1: has been discussed now for a long time and as

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Speaker 1: timing as well. And I think the other very important

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Speaker 1: dimension here is that for some time the market wasn't

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Speaker 1: sure whether we'd see hard brexit or soft Brexit, hard

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Speaker 1: Brexit being the idea that you have a more disruptive,

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Speaker 1: potentially break in trade links. But what's been chriced in

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Speaker 1: now is effectively that is heart Brexit. Nobody is really

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Speaker 1: discussing anymore the idea of a of a soft Brexit,

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Speaker 1: so that's already going a long way towards some of

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Speaker 1: the worst scenarios that people had for the pound if

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Speaker 1: you go back to un let's say six months ago, um,

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Speaker 1: which really means that going forward we have to ask

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Speaker 1: ourselves a new question, are you going to see a

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Speaker 1: disruptive Brexit or a more benign version of hard Brexit.

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Speaker 1: I think disruptive would require very obvious signs of stresses

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Speaker 1: um in the negotiations between the rest of the EU

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Speaker 1: and the UK UM And as I said, I think

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Speaker 1: that will take time to materialize, not least because we

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Speaker 1: don't even know what position the EU will take, given

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Speaker 1: that many believe that you have to get through the

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Speaker 1: French and German elections this year before there's even a

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Speaker 1: very clear perspective on that. So that's many many months

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Speaker 1: ahead from our perspectives. The bigger driver here now is

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Speaker 1: a politics is at Central Bank. I look at the

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Speaker 1: Swiss National Bank and we wonder about the potential for

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Speaker 1: more intervention. Same thing with the Bank of Japan. I mean,

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Speaker 1: is politics trumping everything at this point? I think I

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Speaker 1: think that's right. I think politics is now ascendant. UM.

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Speaker 1: And really, uh what the Trump election is obviously one

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Speaker 1: factor behind that, um, in fact, probably the key factor.

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Speaker 1: For example, let's look at the Swiss frank. You mentioned

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Speaker 1: that the Swiss National Bank has had an intervention strategy

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Speaker 1: on the currency for some period of time, um, even

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Speaker 1: after the floor went UM. Now, if the US decides

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Speaker 1: to press on the issue of currency manipulation, um, not

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Speaker 1: just on China, but on other countries as well. Are

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Speaker 1: the trading regions that puts Switzerland in a potentially vulnerable place,

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Speaker 1: And I think it makes the market have to consider whether,

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Speaker 1: for example, the Swiss National Bank would feel its politically

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Speaker 1: expedient to continue with the current strategy. UM. So that's

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Speaker 1: one of the areas we need to consider. How will

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Speaker 1: politics come through into central bank policy decisions. Another way

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Speaker 1: to think about this as well, UM, if for example,

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Speaker 1: the US pushes through with border adjust to taxation on

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Speaker 1: the fiscal front, and that leads to strong dollar rally.

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Speaker 1: Will there be political pressure, for example, in the Federal

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Speaker 1: Reserve not to high grates in that type of environment

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Speaker 1: as a function of having to acknowledge the unusual physical

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Speaker 1: reasons that the dollar is rallying. These are all new

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Speaker 1: things for the market to digest and not easy to

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Speaker 1: do at this point. Where are we in the digestion

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Speaker 1: of US policy towards Mexico and how that's playing out

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Speaker 1: in in the Mexican currency. We've, as you said, had

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Speaker 1: a long relation about article fifties since since back in

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Speaker 1: June UM we've seen this sort of the potential for

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Speaker 1: a wall or new policies play out in Mexico every

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Speaker 1: sometimes as well. Is that priced in there when you

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Speaker 1: look at at the value of the Mexican currency. Well,

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Speaker 1: certainly the Mexican policy felt so substantially last year. It's

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Speaker 1: a bit like the pound discussion, um, that it became

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Speaker 1: harder for new news to take it even even lower,

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Speaker 1: or at least, let's just put it another way, the

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Speaker 1: absence of new news was enough reason for it to

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Speaker 1: go higher, especially as interest rates in Mexico or relatively

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Speaker 1: high as well. So it's not easy to just sit

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Speaker 1: there with a short Mexican past of position. Um, I

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Speaker 1: think really for the currency to start to fall again,

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Speaker 1: you do need to see bad news come through on

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Speaker 1: the NAFTA renegotiation front. Now, what we saw yesterday, for example,

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Speaker 1: when Canadian Prime Minister Trudeau visited the US was a

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Speaker 1: more benign outcome for Canada at least um, and that

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Speaker 1: would have raised hopes that maybe in Mexico will get

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Speaker 1: will catch a break as well. So I think while

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Speaker 1: that feeling persists, the Mexican petsons should hold up quite well.

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Speaker 1: We've been getting great currency pair trades off of the

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Speaker 1: simple question where's the opportunity right now? We're all buried

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Speaker 1: in the politics. I get that you just give us

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Speaker 1: a great review. Where's the single trade to make ALFA

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Speaker 1: this morning? Well this morning, you know, we we still

401
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Speaker 1: like the high Carrie currencies, so that the likes of

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Speaker 1: the Brazilian rao are performing well, the Russian rouble, in

403
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Speaker 1: our view, will continue to perform well. These trades are

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Speaker 1: seen as crowded trades by some, but in the same

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Speaker 1: way that the market believes that, for example, the US

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Speaker 1: stock market is very high. Um, that doesn't necessarily mean

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Speaker 1: it doesn't have more underline, momentum to go high. So

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Speaker 1: which pairer within real and ruble do you like. Well,

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Speaker 1: we've for a long time like the ruble best in

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Speaker 1: the emerging market space dollar, ruble, euro, ruble, sterling, ruble,

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Speaker 1: Euro at the time is our favorite short position um

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Speaker 1: and for for a number of reasons. Firstly, the political

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Speaker 1: environment in Europe is clearly more more stressful than in

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Speaker 1: many other regions. And while people say that the French

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Speaker 1: election is now what understood in fully price in our

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Speaker 1: view when we look at things like option volatilities, we

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Speaker 1: don't we disagree with that. There's more room to price

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Speaker 1: in more risk for the era. Of course, you also

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Speaker 1: have the fact that you still have the Euro is

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Speaker 1: still a negative rate currency. So the combination of offering

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Speaker 1: negative rates and a lots of political risk that's not

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Speaker 1: really a good a good one from a NFX perspective.

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Speaker 1: So Euro is definitely a one of our favorite funding currencies.

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Speaker 1: And as I mentioned it, right to summarize your strong

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Speaker 1: ruble week euro, that's what we like at the moment,

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Speaker 1: and we've as I said, buying the Russian ruble was

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Speaker 1: one of our trades of the year at the start

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Speaker 1: of the year. Uh and I haven't changed my view

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Speaker 1: on that one. UM and Euro as we approached the

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00:22:44,240 --> 00:22:47,040
Speaker 1: French election has much more downside. It's lastly here, how

431
00:22:47,080 --> 00:22:49,919
Speaker 1: are you watching Beijing in the year two thousand and seventeen.

432
00:22:49,960 --> 00:22:51,359
Speaker 1: What are you looking for when you look at the

433
00:22:51,560 --> 00:22:56,440
Speaker 1: Chinese currency? A number of things. Firstly, capital controls. Are

434
00:22:56,480 --> 00:23:00,360
Speaker 1: the Chinese going to increase capital controls? Because if if

435
00:23:00,400 --> 00:23:02,840
Speaker 1: the currency is under downward pressure, one of the most

436
00:23:02,840 --> 00:23:05,800
Speaker 1: effective ways to stop that is to basically stop the

437
00:23:05,800 --> 00:23:08,040
Speaker 1: selling and stop the locals trying to get out of

438
00:23:08,040 --> 00:23:11,320
Speaker 1: their own currency. The second aspect I'm looking at is

439
00:23:11,400 --> 00:23:14,959
Speaker 1: interest rates local interest rates in China. Is China prepared

440
00:23:14,960 --> 00:23:19,600
Speaker 1: to raise rates significantly to alleviate the downward pressure on

441
00:23:19,600 --> 00:23:23,000
Speaker 1: the currency against the backdrop of an economy that many

442
00:23:23,040 --> 00:23:26,480
Speaker 1: believe is still very leveraged and vulnerable to a sharp

443
00:23:26,600 --> 00:23:29,440
Speaker 1: rise in interest rates. UM and I think these two

444
00:23:29,480 --> 00:23:31,840
Speaker 1: factors in the near term of the most important factors

445
00:23:31,840 --> 00:23:34,120
Speaker 1: to consider. In fact, what we've seen so far this

446
00:23:34,200 --> 00:23:37,359
Speaker 1: year is movement on both fronts, and that's one of

447
00:23:37,440 --> 00:23:41,000
Speaker 1: the reasons an argue that Chinese currency has outperformed expectations

448
00:23:41,359 --> 00:23:43,960
Speaker 1: so far this year. The question really is Canada, Chinese

449
00:23:44,000 --> 00:23:48,720
Speaker 1: economy tolerate persistent application of these policies. This has been great.

450
00:23:48,720 --> 00:23:50,760
Speaker 1: I just put on a Twitter that chart of the Bloomberg.

451
00:23:50,760 --> 00:23:53,520
Speaker 1: Will do that on Facebook Live and most certainly will

452
00:23:53,520 --> 00:23:56,600
Speaker 1: put that on TV. That's tomorrow morning. The idea of

453
00:23:56,720 --> 00:24:01,000
Speaker 1: stronger ruble against weaker You're I love doing that, David.

454
00:24:01,000 --> 00:24:03,240
Speaker 1: We get the most interesting things that the pair yesterday

455
00:24:03,320 --> 00:24:08,639
Speaker 1: was something. It was Sterling Kiwia Stronger New Zealand versus

456
00:24:08,680 --> 00:24:12,360
Speaker 1: the Brexity Sterling. Although you just heard jobs, look there

457
00:24:12,400 --> 00:24:25,040
Speaker 1: for some Sterling resilience versus the gloom crowd. Brought you

458
00:24:25,119 --> 00:24:28,760
Speaker 1: by Bank of America, Mary Lynch. Dedicated to bringing our

459
00:24:28,800 --> 00:24:32,399
Speaker 1: clients insights and solutions to meet the challenges of a

460
00:24:32,440 --> 00:24:36,840
Speaker 1: transforming world. That's the power of global connections, Mary Lynch.

461
00:24:37,000 --> 00:24:45,200
Speaker 1: Pierce Federan Smith Incorporated Member s I P. C. Robin

462
00:24:45,280 --> 00:24:48,560
Speaker 1: Niblett with us right now with Chatham House on short notice.

463
00:24:48,600 --> 00:24:50,840
Speaker 1: So good to catch up with you, Robin. After I

464
00:24:50,960 --> 00:24:56,439
Speaker 1: saw General Flynn exit uh last night. Tell us about

465
00:24:56,440 --> 00:25:00,560
Speaker 1: the disarray within any government. When you have to move

466
00:25:00,680 --> 00:25:05,200
Speaker 1: people out abruptly, it's got to be a destabilizer, isn't it. Well,

467
00:25:05,240 --> 00:25:09,879
Speaker 1: I think it will be destabilizing, not least given the

468
00:25:09,920 --> 00:25:12,119
Speaker 1: fact that this is a presidency that obviously did not

469
00:25:12,359 --> 00:25:16,480
Speaker 1: have a deep bench to draw upon from the outset

470
00:25:16,560 --> 00:25:20,800
Speaker 1: when it was establishing its administration. You know, for Hillary

471
00:25:20,840 --> 00:25:23,280
Speaker 1: Clinton had one people say she had the first four

472
00:25:23,320 --> 00:25:26,480
Speaker 1: thousand positions already lined up to to take their their

473
00:25:26,480 --> 00:25:29,080
Speaker 1: you know, their position in the government. The talk of

474
00:25:29,119 --> 00:25:32,840
Speaker 1: the Trump administration is fairly empty corridors in the West wing.

475
00:25:33,040 --> 00:25:35,879
Speaker 1: And so if you lose somebody at such a central

476
00:25:35,960 --> 00:25:38,480
Speaker 1: node in government, um, and you don't have a deep

477
00:25:38,480 --> 00:25:41,760
Speaker 1: bench behind it, it's going to make life even more complicated.

478
00:25:41,800 --> 00:25:44,120
Speaker 1: And we have very complicated well to deal with. What

479
00:25:44,200 --> 00:25:47,840
Speaker 1: was appealing to President Trump about General Flynn? What did

480
00:25:47,880 --> 00:25:51,960
Speaker 1: you like about him? I think the loyalty factor. Here's

481
00:25:51,960 --> 00:25:54,919
Speaker 1: somebody you stepped up close to the president right from

482
00:25:54,960 --> 00:25:58,200
Speaker 1: the beginning, uh, you know, stood, took his back, took

483
00:25:58,240 --> 00:26:03,440
Speaker 1: the most ardent and campaign worthy messages, including the locker

484
00:26:03,520 --> 00:26:08,920
Speaker 1: up on Harry Clinton. Uh, completely uncompromising stance on radical Islam,

485
00:26:08,960 --> 00:26:12,960
Speaker 1: but on fighting isis He was really the general that

486
00:26:13,080 --> 00:26:16,960
Speaker 1: gave Trump credibility when at that point the Republican defense

487
00:26:17,080 --> 00:26:21,560
Speaker 1: establishment was best leery and in many cases stepping out

488
00:26:21,600 --> 00:26:24,159
Speaker 1: against him. So I think the loyalty stakes um, and

489
00:26:24,280 --> 00:26:27,879
Speaker 1: that kind of get it done military figure who had

490
00:26:27,920 --> 00:26:30,760
Speaker 1: played importantly in Afghanistan with the key issues for him. Yeah,

491
00:26:30,800 --> 00:26:33,240
Speaker 1: the general who gave him credibility with the defense establishment.

492
00:26:33,480 --> 00:26:35,960
Speaker 1: Are you thinking here that the replacement is going to

493
00:26:35,960 --> 00:26:37,560
Speaker 1: be somebody who's been in the military as well? It

494
00:26:37,600 --> 00:26:40,440
Speaker 1: seems like President Trump has an affinity for likes to

495
00:26:40,440 --> 00:26:42,560
Speaker 1: to surround himself in the foreign policy round by those

496
00:26:42,560 --> 00:26:45,280
Speaker 1: who have served in the military. Well, just yeah, on

497
00:26:45,359 --> 00:26:49,399
Speaker 1: on the credibility, I think Flynn had credibility in terms

498
00:26:49,520 --> 00:26:51,280
Speaker 1: with President Trump for being a tough guy and with

499
00:26:51,359 --> 00:26:53,560
Speaker 1: somebody who stepped up as part of the defense establishment.

500
00:26:53,560 --> 00:26:56,320
Speaker 1: But of course he was not popular within the defense

501
00:26:56,440 --> 00:27:00,000
Speaker 1: establishment itself, having been in essencis fired from his position

502
00:27:00,040 --> 00:27:03,560
Speaker 1: and a head of the Defense Intelligence Agency. So where

503
00:27:03,600 --> 00:27:06,280
Speaker 1: we go here is potentially that if he sticks with

504
00:27:06,400 --> 00:27:09,679
Speaker 1: the military track, and there's a a general who stepped in,

505
00:27:09,680 --> 00:27:13,440
Speaker 1: General Keith Kellogg who stepped in as acting Nation Security Advisor, Um,

506
00:27:13,840 --> 00:27:16,600
Speaker 1: you know, with David Petrays's name in the in the frame,

507
00:27:16,880 --> 00:27:19,720
Speaker 1: another at least Admiral Harward's name as well in the frame.

508
00:27:20,119 --> 00:27:23,159
Speaker 1: It looks highly likely that we would get another military figure,

509
00:27:23,200 --> 00:27:26,000
Speaker 1: and we can clearly see that the present feels comfortable

510
00:27:26,040 --> 00:27:29,520
Speaker 1: with them, given the appointments he's made to Secretary Defense. However,

511
00:27:29,720 --> 00:27:32,480
Speaker 1: you know, I think he's gonna think very carefully about

512
00:27:32,480 --> 00:27:35,960
Speaker 1: the balance. You know, when we saw Steve Bannon appointed

513
00:27:36,000 --> 00:27:38,639
Speaker 1: as a principal to National Security Council, you felt there

514
00:27:38,680 --> 00:27:42,320
Speaker 1: was a desire to balance let's call it establishment defense

515
00:27:42,840 --> 00:27:47,240
Speaker 1: with the more some more you know, unpredictable and and

516
00:27:47,480 --> 00:27:50,200
Speaker 1: tough voices. So you've got to work out who would

517
00:27:50,240 --> 00:27:52,000
Speaker 1: it be in the defense establishment who could play the

518
00:27:52,040 --> 00:27:54,760
Speaker 1: kind of flint type role and be a counter balance

519
00:27:54,800 --> 00:27:57,520
Speaker 1: to the more uh predictable. How can I put it?

520
00:27:57,640 --> 00:28:03,440
Speaker 1: Um straightforward internationalist realist approach you associate with general matters,

521
00:28:03,480 --> 00:28:06,240
Speaker 1: so picking the right persons can be very complicated. We're

522
00:28:06,240 --> 00:28:08,600
Speaker 1: talking with Peter Fever yesterday from Duke University about the

523
00:28:08,680 --> 00:28:11,479
Speaker 1: NSC and he said that he has gotten pretty size. Well,

524
00:28:11,520 --> 00:28:13,320
Speaker 1: Donald Trump hasn't been shy about saying he wants to

525
00:28:13,359 --> 00:28:16,720
Speaker 1: reduce its its size. Help us understand how the foreign

526
00:28:16,800 --> 00:28:20,520
Speaker 1: policy landscape changes in Washington, d C. Under President Trump.

527
00:28:20,520 --> 00:28:23,200
Speaker 1: Do we see the Defense Department getting more power back

528
00:28:23,240 --> 00:28:27,440
Speaker 1: power that had been transitioned over to the NSC. Well,

529
00:28:28,119 --> 00:28:30,080
Speaker 1: I you know, my first singing would be to say

530
00:28:30,119 --> 00:28:33,160
Speaker 1: that in all countries, not just in the US, UM

531
00:28:33,400 --> 00:28:36,520
Speaker 1: security and foreign policy is concentrating more and more at

532
00:28:36,520 --> 00:28:38,600
Speaker 1: the heart of the executive. You don't just see this

533
00:28:38,680 --> 00:28:41,440
Speaker 1: in the United States. You saw it under present Obama,

534
00:28:41,720 --> 00:28:45,600
Speaker 1: where in many cases, uh, you know, senior advice was

535
00:28:45,680 --> 00:28:50,160
Speaker 1: coming from Secretary Clinton, Foreign Secretary, from Leon Panetta, mothers

536
00:28:50,240 --> 00:28:52,840
Speaker 1: was ignored, if for example, in the case of Syria.

537
00:28:53,240 --> 00:28:58,120
Speaker 1: So the whole idea of a centralization of power I

538
00:28:58,160 --> 00:29:01,040
Speaker 1: think is going to continue even under President Trump. It

539
00:29:01,040 --> 00:29:04,600
Speaker 1: will be very difficult given the way that people look

540
00:29:04,680 --> 00:29:07,560
Speaker 1: to presidents these days or heads of government in any

541
00:29:07,600 --> 00:29:10,040
Speaker 1: country to take the lead on foreign policy. We're even

542
00:29:10,040 --> 00:29:13,120
Speaker 1: seen this in China, you know, at the momentum, I

543
00:29:13,280 --> 00:29:15,120
Speaker 1: think would be very hard to turn that back and

544
00:29:15,160 --> 00:29:19,080
Speaker 1: suddenly find big power fiefdoms um in other parts of government.

545
00:29:19,200 --> 00:29:22,360
Speaker 1: That being said, the Pentagon has a huge budget. General

546
00:29:22,400 --> 00:29:25,080
Speaker 1: Flynn has great experience, and it's probably likely the most

547
00:29:25,080 --> 00:29:27,600
Speaker 1: powerful agency of the lot at the moment. How did

548
00:29:27,640 --> 00:29:30,920
Speaker 1: the adults get back in the room, if you presume

549
00:29:31,000 --> 00:29:33,600
Speaker 1: they're not there now, how did you get back in

550
00:29:33,640 --> 00:29:37,080
Speaker 1: the room? Well, as I think I was indicating earlier

551
00:29:37,160 --> 00:29:40,360
Speaker 1: to him, I think the if general you know, we're

552
00:29:40,360 --> 00:29:44,520
Speaker 1: General Flynn gone, there's going to be a hope that adults, uh,

553
00:29:44,640 --> 00:29:47,760
Speaker 1: you know, will will will reassert. I think a lot

554
00:29:47,800 --> 00:29:51,200
Speaker 1: depends on whether the president you know who who likes

555
00:29:51,240 --> 00:29:53,240
Speaker 1: to be the leader, the man who's in charge. He

556
00:29:53,320 --> 00:29:55,360
Speaker 1: does not want to be seen as somebody who's having

557
00:29:55,400 --> 00:29:58,760
Speaker 1: to cow chow to advice from more experienced people. He

558
00:29:58,800 --> 00:30:01,880
Speaker 1: wants his own voice, especially in the National Security Council,

559
00:30:01,920 --> 00:30:04,960
Speaker 1: which really is leave through to the security sector. So

560
00:30:05,040 --> 00:30:07,160
Speaker 1: I think, you know, how does how do how do we?

561
00:30:07,760 --> 00:30:10,160
Speaker 1: He may not want a return to the sense of

562
00:30:10,160 --> 00:30:12,440
Speaker 1: adults in the room. The whole idea of a more

563
00:30:12,520 --> 00:30:15,840
Speaker 1: unpredictable foreign policy is one that I think he's championed.

564
00:30:15,880 --> 00:30:18,480
Speaker 1: He feels at the moment the cards have ended up

565
00:30:18,520 --> 00:30:22,160
Speaker 1: being stacked against the US and the very unpredictability he

566
00:30:22,280 --> 00:30:26,200
Speaker 1: brings is part of America reacquiring strength, not least visa

567
00:30:26,240 --> 00:30:29,920
Speaker 1: the Russia. A number of articles about this resignation, including

568
00:30:30,000 --> 00:30:32,800
Speaker 1: artist Bloomberg, reference the Munich Security Conference, which has taken

569
00:30:32,800 --> 00:30:35,480
Speaker 1: place in a couple of days and it made me

570
00:30:35,480 --> 00:30:39,120
Speaker 1: me wonder about how this administration sees multilateral gatherings like

571
00:30:39,200 --> 00:30:41,240
Speaker 1: those versus what we've seen play out here over the

572
00:30:41,240 --> 00:30:43,960
Speaker 1: past few weeks. Meetings with Prime Minister May, meetings with

573
00:30:44,000 --> 00:30:47,640
Speaker 1: Prime Minister Sian zo Abe, meetings with Prime Minister Trudeau yesterday.

574
00:30:48,240 --> 00:30:51,320
Speaker 1: Clearly it seems like the personal relationship is being prioritized,

575
00:30:51,320 --> 00:30:53,640
Speaker 1: at least in these early days, over the multilateral meetings.

576
00:30:54,640 --> 00:30:58,200
Speaker 1: I think this is a time for the to establish

577
00:30:58,480 --> 00:31:01,080
Speaker 1: his personal relationships with the other heads of state, given

578
00:31:01,080 --> 00:31:02,719
Speaker 1: as I said a minute ago, you know, these are

579
00:31:02,760 --> 00:31:07,000
Speaker 1: the people who make the big decisions on foreign security policy. However,

580
00:31:07,160 --> 00:31:10,120
Speaker 1: you know the Munich Security Conference is what it says

581
00:31:10,120 --> 00:31:13,520
Speaker 1: on the tin, it's probably the top security conference takes

582
00:31:13,520 --> 00:31:15,880
Speaker 1: place in Europe each year. This would be a good

583
00:31:15,880 --> 00:31:18,880
Speaker 1: place for General Matthis to to show up. He's at

584
00:31:18,920 --> 00:31:22,640
Speaker 1: some meetings to NATO and Brussels this week. He may

585
00:31:22,840 --> 00:31:25,560
Speaker 1: stop buying. This has been a traditional position for U

586
00:31:25,560 --> 00:31:28,520
Speaker 1: S Secretary Defense to come and share the view of

587
00:31:28,560 --> 00:31:32,840
Speaker 1: the administration with other gathered figures. Now this is different,

588
00:31:32,920 --> 00:31:36,120
Speaker 1: I would say, from the kind of multilateralism that maybe

589
00:31:36,160 --> 00:31:38,600
Speaker 1: the G twenty or NATO or the European Union or

590
00:31:38,640 --> 00:31:41,160
Speaker 1: even the U N represents here. I think we can

591
00:31:41,200 --> 00:31:44,800
Speaker 1: see a more muscular uh U S approach to all

592
00:31:44,840 --> 00:31:48,440
Speaker 1: of those institutions than we've seen in the past. What

593
00:31:48,480 --> 00:31:50,560
Speaker 1: do you make of the role the General Maddis now

594
00:31:50,600 --> 00:31:53,560
Speaker 1: Secretary Madis has played thus far? How well has he

595
00:31:53,600 --> 00:31:57,160
Speaker 1: fit into that new role as Secretary of Defense As

596
00:31:57,280 --> 00:31:59,200
Speaker 1: as somebody looking at this from the outside from London,

597
00:31:59,240 --> 00:32:01,720
Speaker 1: I think he's aided very well. Um. You know, he

598
00:32:01,880 --> 00:32:05,120
Speaker 1: was the person who was sent out to calm nerves

599
00:32:05,160 --> 00:32:08,920
Speaker 1: in East Asia, in particular after the uh you know,

600
00:32:08,960 --> 00:32:12,000
Speaker 1: the uncertainty there would a company the president's arrival, not

601
00:32:12,000 --> 00:32:15,160
Speaker 1: at least giving his comments about Japan being a currency manipulator,

602
00:32:15,240 --> 00:32:17,600
Speaker 1: and his comments about to South Korea and Japan and

603
00:32:17,640 --> 00:32:19,960
Speaker 1: maybe aming to look after their own defense and nuclear weapons.

604
00:32:20,080 --> 00:32:23,760
Speaker 1: You know, these are incendury comments in normal circumstances, but

605
00:32:23,840 --> 00:32:27,720
Speaker 1: with North Korea looking unpredictable, you needed somebody who could

606
00:32:27,720 --> 00:32:31,280
Speaker 1: go out and and and carry the message of continuity.

607
00:32:31,320 --> 00:32:34,200
Speaker 1: And I think without looking like he's on the wrong

608
00:32:34,240 --> 00:32:37,280
Speaker 1: side of the president, without looking like he's overtaking his position,

609
00:32:37,280 --> 00:32:39,720
Speaker 1: he's played it very well. The most striking moment for

610
00:32:39,760 --> 00:32:42,920
Speaker 1: me was when the President in the press conference with

611
00:32:42,960 --> 00:32:45,720
Speaker 1: Prime Minister Treasa Mayor the UK said look, I I

612
00:32:46,200 --> 00:32:49,400
Speaker 1: think what your works, but on this is Hume. General

613
00:32:49,400 --> 00:32:52,080
Speaker 1: Maddis overrides me. I mean that was a powerful statement.

614
00:32:52,760 --> 00:32:54,920
Speaker 1: Rabbin Nibbles, thank you so much, and short notice this

615
00:32:54,960 --> 00:32:59,080
Speaker 1: morning after General Flynn exits last night, Rabbi nibble with

616
00:32:59,360 --> 00:33:15,840
Speaker 1: Chatham House. Uh this morning. Bob Haber, who worked at

617
00:33:15,840 --> 00:33:20,760
Speaker 1: Fortress Johnson for years and essentially invented the oddity of

618
00:33:20,840 --> 00:33:25,280
Speaker 1: convertible and preferred analysis. Bob Haber has worked for years

619
00:33:25,280 --> 00:33:28,960
Speaker 1: at Fidelity. Among other things, he teaches or has taught

620
00:33:29,000 --> 00:33:33,560
Speaker 1: it Tough I should say Toughs University, on Federal Reserve history,

621
00:33:34,000 --> 00:33:37,080
Speaker 1: and most particularly on the board of the Boston Celtics. Bob,

622
00:33:37,160 --> 00:33:41,440
Speaker 1: let's get serious. Nine and one, six fifty five ball.

623
00:33:41,920 --> 00:33:44,880
Speaker 1: The Celtics are the real thing. There's a modest team

624
00:33:44,920 --> 00:33:47,880
Speaker 1: from Cleveland a little bit better than them. Can they

625
00:33:47,920 --> 00:33:52,200
Speaker 1: do it to Cleveland? Well, um, happy Valentine's Day. I

626
00:33:52,240 --> 00:33:54,719
Speaker 1: thought you were going to give us some some trade

627
00:33:55,320 --> 00:33:58,760
Speaker 1: ideas that you know the trade deadlines coming up so

628
00:34:00,040 --> 00:34:05,520
Speaker 1: on fire so yeah, yeah, um, but no, uh, we're

629
00:34:05,720 --> 00:34:07,480
Speaker 1: I think we're right in the mix. Yeah, you're in

630
00:34:07,480 --> 00:34:09,279
Speaker 1: the mix nine and one. It's actually like a real

631
00:34:09,280 --> 00:34:12,240
Speaker 1: Celtics very little grounds for basketball optimism in New York City.

632
00:34:12,520 --> 00:34:16,960
Speaker 1: That's true. Well, we have to talk Celtics. Good morning, Bloomberg, Boston, Bob.

633
00:34:17,080 --> 00:34:21,239
Speaker 1: It is a melt up long ago at Fidelity. You

634
00:34:21,280 --> 00:34:25,279
Speaker 1: didn't witness twenty thousand or twenty one thousand now, but

635
00:34:25,400 --> 00:34:28,760
Speaker 1: you did arguably invent the idea of grabbing a coupon

636
00:34:28,920 --> 00:34:32,719
Speaker 1: in some form of optionality into the future with convertibles

637
00:34:32,719 --> 00:34:36,960
Speaker 1: and preferreds. Tell me about total return right now within

638
00:34:37,000 --> 00:34:42,440
Speaker 1: a melt up? Should I pay respect to total return? Um? Yeah,

639
00:34:42,640 --> 00:34:45,040
Speaker 1: we should, you know, should always pay respect to total return.

640
00:34:45,080 --> 00:34:48,000
Speaker 1: I was looking back up, you know, at some of

641
00:34:48,080 --> 00:34:50,800
Speaker 1: the securities I got to own when I started the

642
00:34:50,840 --> 00:34:55,560
Speaker 1: Fidelity Convertible Securities Final and comparing UH yields and dividends

643
00:34:55,640 --> 00:34:58,879
Speaker 1: and the convertible market to now, and it's it's it's

644
00:34:58,920 --> 00:35:04,040
Speaker 1: an entirely different solar system. Back then, convertibles UH just

645
00:35:04,120 --> 00:35:06,319
Speaker 1: traded not so much on all the Greeks, but they

646
00:35:06,360 --> 00:35:11,680
Speaker 1: actually traded on yield relative to premium. They were spectacular securities.

647
00:35:11,719 --> 00:35:13,879
Speaker 1: They were the best that if you look back over

648
00:35:13,920 --> 00:35:16,400
Speaker 1: that period, I think the Convertible Securities Fund was one

649
00:35:16,440 --> 00:35:19,760
Speaker 1: of the best funds in the country. That's all changed,

650
00:35:20,160 --> 00:35:25,640
Speaker 1: that's obviously all changed, and with great still silly low um,

651
00:35:25,680 --> 00:35:28,719
Speaker 1: a lot of those games have moved on. Do you

652
00:35:28,800 --> 00:35:33,200
Speaker 1: assume when we normalize at some point Bill Gross would

653
00:35:33,200 --> 00:35:35,800
Speaker 1: suggest it's going to be years out, decades out, Others

654
00:35:35,800 --> 00:35:39,480
Speaker 1: would say tomorrow. But when we normalize, do you just

655
00:35:39,600 --> 00:35:44,320
Speaker 1: assume bond prices move, sell sell sells and the only

656
00:35:44,320 --> 00:35:50,480
Speaker 1: place to find protection is equities, you know, normalized um.

657
00:35:50,760 --> 00:35:52,719
Speaker 1: You know. One of the series that I keep is

658
00:35:52,800 --> 00:35:56,399
Speaker 1: that over a long period of time, the twenty year

659
00:35:56,480 --> 00:36:00,279
Speaker 1: government bond UH is attracted to the nominal g DP.

660
00:36:00,600 --> 00:36:02,960
Speaker 1: It's like a magnet. It doesn't happen as you know,

661
00:36:03,080 --> 00:36:06,080
Speaker 1: these things take some time to work, but over long

662
00:36:06,120 --> 00:36:10,600
Speaker 1: periods of time, that's the magnet. So people can think

663
00:36:10,680 --> 00:36:13,920
Speaker 1: what their nominal GDP estimate is right now on the

664
00:36:13,920 --> 00:36:17,200
Speaker 1: Bloomberg you can look and say that for the gues

665
00:36:17,280 --> 00:36:21,799
Speaker 1: estimates are that nominal will be about five. Well, if

666
00:36:21,800 --> 00:36:25,520
Speaker 1: the if the your bond actually gets the five were

667
00:36:25,520 --> 00:36:28,000
Speaker 1: in trouble and a lot of asset classes, so it

668
00:36:28,040 --> 00:36:31,080
Speaker 1: will take time. UM and it will take a lot

669
00:36:31,120 --> 00:36:33,400
Speaker 1: of action by the FETE, because this still may be

670
00:36:33,560 --> 00:36:36,920
Speaker 1: the easiest fed ever. Yes, you just quickly about the

671
00:36:36,920 --> 00:36:39,360
Speaker 1: Trump trade will come back. But what do you what

672
00:36:39,400 --> 00:36:42,120
Speaker 1: do you make of the Trump trade that we've seen, uh,

673
00:36:42,200 --> 00:36:44,200
Speaker 1: and and the life that it had here and now

674
00:36:44,200 --> 00:36:45,920
Speaker 1: sort of reckoning I think with the reality of the

675
00:36:45,960 --> 00:36:47,319
Speaker 1: fact that tax form is going to take a lot

676
00:36:47,360 --> 00:36:50,600
Speaker 1: of time to get downe. Yeah, that's that's one of

677
00:36:50,600 --> 00:36:53,640
Speaker 1: the things I've written about recently in Forbes that you

678
00:36:53,680 --> 00:36:56,120
Speaker 1: can measure. I mean, I think people understand the Trump

679
00:36:56,200 --> 00:37:00,160
Speaker 1: trade now is coming back. Uh. The idea is going

680
00:37:00,200 --> 00:37:02,600
Speaker 1: to get a full economic cycle, which is before in

681
00:37:02,600 --> 00:37:04,880
Speaker 1: the corner of what was called the new normal, it

682
00:37:04,960 --> 00:37:07,800
Speaker 1: really was nothing we'd seen before. Now I think people

683
00:37:07,840 --> 00:37:11,239
Speaker 1: are imagining a full economic cycle. By that, I mean

684
00:37:11,719 --> 00:37:15,640
Speaker 1: animal spirits, banks making loans to people that really shouldn't

685
00:37:15,640 --> 00:37:17,120
Speaker 1: get them and they don't pay it back, and so

686
00:37:17,200 --> 00:37:20,239
Speaker 1: on and so forth, some inflation of fat eventually having

687
00:37:20,280 --> 00:37:22,360
Speaker 1: to take the punch ball away. That's a full economic

688
00:37:22,400 --> 00:37:26,080
Speaker 1: cycle that we could only dream about when the Trump

689
00:37:26,120 --> 00:37:29,120
Speaker 1: trade started. Right now, what we see in the Trump

690
00:37:29,160 --> 00:37:33,560
Speaker 1: trade is an enormous uh increase in the confidence surveys.

691
00:37:33,600 --> 00:37:36,040
Speaker 1: So surveys. Surveys are way up no matter how you

692
00:37:36,080 --> 00:37:39,200
Speaker 1: look at them. The national um, small business surveys Michigan,

693
00:37:39,640 --> 00:37:42,399
Speaker 1: you know the conference board, but it's a long way

694
00:37:42,440 --> 00:37:45,880
Speaker 1: from there to actual economic um growth. Right now, with

695
00:37:46,000 --> 00:37:48,680
Speaker 1: this bomb Habor, many of you older know the name

696
00:37:48,760 --> 00:37:53,880
Speaker 1: from Fidelity ages ago in convertible securities and preferreds Bob

697
00:37:53,880 --> 00:37:56,880
Speaker 1: Abor with Proficio and of course are not in acquaintance

698
00:37:56,880 --> 00:38:00,200
Speaker 1: with a basketball team from Boston as well. But I

699
00:38:00,239 --> 00:38:02,600
Speaker 1: want to go back to dividends. I believe Mr Lynch

700
00:38:02,640 --> 00:38:06,240
Speaker 1: paid homage to dividends and be Tina Dalton, Will Danoff

701
00:38:06,239 --> 00:38:10,240
Speaker 1: would pay attentions. But now dividend and dividend growth borders

702
00:38:10,320 --> 00:38:13,919
Speaker 1: on religion. How does Bob Behavior respond to the new

703
00:38:13,960 --> 00:38:19,120
Speaker 1: religion that is, dividends are a yield equivalent. Yeah, I

704
00:38:19,120 --> 00:38:23,920
Speaker 1: won't surprise you that our our families UM like yield.

705
00:38:24,200 --> 00:38:27,080
Speaker 1: I like dividend yield. Uh, but we've got to be

706
00:38:27,120 --> 00:38:30,879
Speaker 1: careful where we source it from. Uh. So we've kind

707
00:38:30,920 --> 00:38:34,520
Speaker 1: of come off some of the traditional names and utilities

708
00:38:34,560 --> 00:38:38,919
Speaker 1: and telecom and right now we think people might want

709
00:38:38,920 --> 00:38:43,080
Speaker 1: to take a look at the MLPs and own them individually.

710
00:38:43,120 --> 00:38:45,560
Speaker 1: If they can because there's some good tax benefits. So

711
00:38:46,200 --> 00:38:48,680
Speaker 1: that looks like an area that's had a you know,

712
00:38:48,719 --> 00:38:53,520
Speaker 1: it's had a complete flame out, it's stabilized. And the

713
00:38:53,600 --> 00:38:57,080
Speaker 1: parts of the Trump agenda that looked to be moving

714
00:38:57,160 --> 00:39:01,359
Speaker 1: forward include infrastructure, which tends to include a lot of

715
00:39:01,360 --> 00:39:04,719
Speaker 1: pipelines and the types of stuff the MLPs are involved in.

716
00:39:04,800 --> 00:39:08,800
Speaker 1: So that's an area that we really um are excited about.

717
00:39:09,000 --> 00:39:11,360
Speaker 1: Help me understand how you're regarding volatility right now, I

718
00:39:11,360 --> 00:39:14,239
Speaker 1: look at the vixit of you hovering around eleven. What

719
00:39:14,280 --> 00:39:15,239
Speaker 1: do you make of that? What do you make a

720
00:39:15,320 --> 00:39:19,200
Speaker 1: volatility at this moment? Yeah, so that's both vote both

721
00:39:19,200 --> 00:39:24,600
Speaker 1: for treasuries and um for equities. Almost vix is almost

722
00:39:24,960 --> 00:39:29,400
Speaker 1: record low and treasury volatility is low, so you know,

723
00:39:29,480 --> 00:39:32,560
Speaker 1: it makes UM. It's an opportunity that the market can

724
00:39:32,560 --> 00:39:35,279
Speaker 1: give you. So it's also an indicator. It's not it's

725
00:39:35,280 --> 00:39:37,120
Speaker 1: not an indicator of higher price is usually it's an

726
00:39:37,120 --> 00:39:40,080
Speaker 1: indicator of of you know, a yellow light of caution.

727
00:39:40,600 --> 00:39:43,680
Speaker 1: But just for example, one trade you know that we're

728
00:39:43,719 --> 00:39:47,919
Speaker 1: looking at that people could consider is you can take

729
00:39:47,960 --> 00:39:50,520
Speaker 1: out a lot of capital in the market by some

730
00:39:50,600 --> 00:39:54,120
Speaker 1: short term investment grade paper and combine that with very

731
00:39:54,200 --> 00:39:58,359
Speaker 1: cheap call options and get yourself a terrific asymmetric risk

732
00:39:58,480 --> 00:40:01,879
Speaker 1: trade where you virtually have no downside over a couple

733
00:40:01,920 --> 00:40:04,480
Speaker 1: of three years if you pick the credit correctly, and

734
00:40:04,560 --> 00:40:07,359
Speaker 1: you'll ride in something like three quarters or eight percent

735
00:40:07,440 --> 00:40:10,440
Speaker 1: of the upside. So we try and look for opportunities

736
00:40:10,480 --> 00:40:13,960
Speaker 1: when the market is at these you know, whatever extremes.

737
00:40:13,960 --> 00:40:17,040
Speaker 1: How different is this post election environment than those in

738
00:40:17,040 --> 00:40:18,400
Speaker 1: the past. He had a great line, I think in

739
00:40:18,400 --> 00:40:20,200
Speaker 1: a recent column of your as you said, the twist

740
00:40:20,280 --> 00:40:22,360
Speaker 1: and turns have already begun, because twisty is going to

741
00:40:22,400 --> 00:40:25,600
Speaker 1: be the new reality as you're allocating, as you're looking

742
00:40:25,600 --> 00:40:30,319
Speaker 1: at portfolios. What's different about this moment in time? Well,

743
00:40:30,400 --> 00:40:34,960
Speaker 1: I think what's different is where seven years into a

744
00:40:35,040 --> 00:40:39,719
Speaker 1: bull market and an economic cycle, and just now the

745
00:40:39,760 --> 00:40:43,000
Speaker 1: market seems to want to think we're entering a full

746
00:40:43,040 --> 00:40:48,440
Speaker 1: economic cycle, and assets are expensive, almost all are expensive.

747
00:40:48,480 --> 00:40:53,440
Speaker 1: So we think hedging or thoughts about hedging and really

748
00:40:53,480 --> 00:40:57,359
Speaker 1: paying attention to sentiment are important. But help me here

749
00:40:57,800 --> 00:41:01,640
Speaker 1: with the double digit realities is too thousand nine and

750
00:41:01,719 --> 00:41:05,279
Speaker 1: the cult of a single digit return and actual assumptions

751
00:41:05,320 --> 00:41:08,759
Speaker 1: going down down. We saw Harvard Management step aside from

752
00:41:08,800 --> 00:41:12,040
Speaker 1: fancy investments. I guess to go back to something where

753
00:41:12,080 --> 00:41:16,520
Speaker 1: Bob behabor vanilla, what what what do we do now

754
00:41:16,640 --> 00:41:19,799
Speaker 1: to catch up if we haven't been in a buy

755
00:41:19,880 --> 00:41:25,839
Speaker 1: and holding on the SMP. Yeah, so you know, I'm sure,

756
00:41:25,920 --> 00:41:27,879
Speaker 1: as you know better than me, that you'd never want

757
00:41:27,920 --> 00:41:30,520
Speaker 1: to feel like you've got to catch up. Um. And

758
00:41:30,600 --> 00:41:35,440
Speaker 1: so what we believe in, what we preach is extreme diversification,

759
00:41:35,600 --> 00:41:40,000
Speaker 1: especially at this point in time. So we have holdings

760
00:41:40,040 --> 00:41:45,520
Speaker 1: in equities, bonds, commodities, precious metals, and then truly uncorrelated

761
00:41:45,640 --> 00:41:50,640
Speaker 1: assets as well. And at this point, because the future

762
00:41:50,680 --> 00:41:53,000
Speaker 1: really is so cloudy and so many things are at

763
00:41:53,120 --> 00:41:56,440
Speaker 1: extreme uh, that that's the way we've approached it. We

764
00:41:56,480 --> 00:41:59,840
Speaker 1: think there's value in holding all of those and getting

765
00:41:59,840 --> 00:42:01,400
Speaker 1: an I get of co variance and all those are

766
00:42:01,400 --> 00:42:04,359
Speaker 1: the kind of great mass things and getting h looked

767
00:42:04,440 --> 00:42:07,200
Speaker 1: to risk adjusted return because if you try and catch up,

768
00:42:07,239 --> 00:42:10,200
Speaker 1: if you've missed the bolmarket train catch up, um, you're

769
00:42:10,200 --> 00:42:14,840
Speaker 1: buying everything at very expensive prices. How do you define

770
00:42:15,080 --> 00:42:19,560
Speaker 1: or discover or use a risk adjusted approach, say a

771
00:42:19,680 --> 00:42:23,960
Speaker 1: sharp ratio approach in a time of financial distortion? Do

772
00:42:24,000 --> 00:42:29,920
Speaker 1: you plug in your own guestimate. We we only use

773
00:42:30,000 --> 00:42:33,959
Speaker 1: instruments that have reasonably long trading histories, and that means

774
00:42:33,960 --> 00:42:37,400
Speaker 1: they've got to they must have gone through the you know,

775
00:42:37,480 --> 00:42:42,120
Speaker 1: the recent financial turbulence, so that we can check out

776
00:42:42,200 --> 00:42:45,480
Speaker 1: if they are truly uncorrelated, because as you know, in

777
00:42:45,520 --> 00:42:48,920
Speaker 1: those periods, everything the correlations go to one. So we

778
00:42:49,000 --> 00:42:51,319
Speaker 1: want to make sure we try and battle test it

779
00:42:51,400 --> 00:42:53,880
Speaker 1: that way. And then we use a common sense test,

780
00:42:54,280 --> 00:42:58,319
Speaker 1: so when we buy catastrophe bonds for people, we think, well,

781
00:42:58,400 --> 00:43:02,000
Speaker 1: that really is just common sense, not correlated to the

782
00:43:02,000 --> 00:43:05,200
Speaker 1: equity market. So it's a combination of the mass to

783
00:43:05,280 --> 00:43:08,200
Speaker 1: science and common sense. At the top of the segment

784
00:43:08,239 --> 00:43:10,000
Speaker 1: here Tom mentioned that you taught a course of Tufts

785
00:43:10,000 --> 00:43:12,600
Speaker 1: on the history of the Federal Reserve. Uh, and I

786
00:43:12,600 --> 00:43:14,360
Speaker 1: don't need to tell you. We're a very interesting moment

787
00:43:14,360 --> 00:43:16,800
Speaker 1: for the FED. As Jannet Young prepares to testify on

788
00:43:16,840 --> 00:43:19,040
Speaker 1: Capitol Hill today, we had the resignation of Dan Tarulo

789
00:43:19,120 --> 00:43:21,359
Speaker 1: on on Friday. There are three seats to be filled

790
00:43:21,400 --> 00:43:24,359
Speaker 1: here filled on the Board of Governors. Let's look back

791
00:43:24,400 --> 00:43:27,080
Speaker 1: and look forward, and what does history tell us about

792
00:43:27,080 --> 00:43:30,480
Speaker 1: where the FEED is headed? Do you think the FED

793
00:43:30,560 --> 00:43:34,560
Speaker 1: has entered a tightening cycle, right, so the pace of which, uh,

794
00:43:35,080 --> 00:43:37,319
Speaker 1: you can have like a thousand shows on. But we

795
00:43:37,360 --> 00:43:40,560
Speaker 1: know what the direction is. It's a tightening cycle. But

796
00:43:40,680 --> 00:43:45,120
Speaker 1: it is so incredibly easy because of the excess reserve amount.

797
00:43:45,920 --> 00:43:48,640
Speaker 1: That is no history on this. It's this is all

798
00:43:49,040 --> 00:43:51,839
Speaker 1: the great human experiment the FED has created for us.

799
00:43:51,880 --> 00:43:55,240
Speaker 1: So we know the direction, but we have no idea

800
00:43:55,480 --> 00:43:58,080
Speaker 1: the time frame, and and and the other you know,

801
00:43:58,120 --> 00:44:00,319
Speaker 1: some of the other factors. Bob Heyri thinks so much,

802
00:44:00,360 --> 00:44:03,719
Speaker 1: greatly appreciated for years with fidelity, Bob behavior with Officio

803
00:44:04,400 --> 00:44:07,000
Speaker 1: UH and of course his work on the Pillow Reserve

804
00:44:07,040 --> 00:44:18,320
Speaker 1: at Tough University of Note as well. Thanks for listening

805
00:44:18,440 --> 00:44:23,120
Speaker 1: to the Bloomberg Surveillance podcast. Subscribe and listen to interviews

806
00:44:23,239 --> 00:44:28,600
Speaker 1: on iTunes, SoundCloud, or whichever podcast platform you prefer. I'm

807
00:44:28,600 --> 00:44:31,560
Speaker 1: out on Twitter at Tom Keene. David Gura is at

808
00:44:31,719 --> 00:44:36,040
Speaker 1: David Gura. Before the podcast, you can always catch us worldwide.

809
00:44:36,520 --> 00:44:52,399
Speaker 1: I'm Bloomberg Radio, brought you by Bank of America Mary Lynch,

810
00:44:52,520 --> 00:44:56,799
Speaker 1: dedicated to bringing our clients insights and solutions to meet

811
00:44:56,800 --> 00:45:00,160
Speaker 1: the challenges of a transforming world. That's the po were

812
00:45:00,280 --> 00:45:04,920
Speaker 1: of global connections. Mary Lynch, Pierce, Fenner and Smith Incorporated,

813
00:45:05,080 --> 00:45:06,719
Speaker 1: Member s i p C,