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Speaker 1: member s I p C. Welcome to the Bloomberg Surveillance Podcast.
Speaker 1: I'm Tom Keene with David Gura. Daily we bring you
Speaker 1: insight from the best in economics, finance, investment, and international relations.
Speaker 1: Find Bloomberg Surveillance on iTunes, SoundCloud, Bloomberg dot Com, and
Speaker 1: of course on the Bloomberg. We begin with an Urgen,
Speaker 1: Vice Chairman h S. Market, author of the prize and
Speaker 1: the Quest, and he joins us here in New York
Speaker 1: on bloom Big Surveillance. And Dan, let me start with
Speaker 1: that news we got yesterday about Saudi Arabia telling OPE
Speaker 1: could produced production last by the most in eight years,
Speaker 1: more than it had pledged to do. Give us the
Speaker 1: significance of that and why were they able to cut
Speaker 1: more than they forecast that they'd be able to. What's
Speaker 1: going on is a very high degree of compliance within OPEC.
Speaker 1: People have always been skeptical with good reason of OPEC cuts,
Speaker 1: and two thousand and eight when they cut, they only
Speaker 1: cut about sixty percent, and now it looks like they've
Speaker 1: cut over. Saudi Arabia has taken the lead, and I
Speaker 1: think Saudi Arabia is the most important member by far,
Speaker 1: and they want this, uh this, this and this new
Speaker 1: type of agreement between OPEC and non OPEC to be
Speaker 1: a success. And we can see the impact in the
Speaker 1: marketplace more. And this is just one we want to
Speaker 1: break a headline here crossing the Bloomberg, Etna and Humana
Speaker 1: are ending their merger pack that had been called into
Speaker 1: question by the federal government and it's not going to
Speaker 1: pay one billion dollar fee. Having spoken Mark Bertolini, the
Speaker 1: CEO of in a couple of weeks ago, it sounded
Speaker 1: like they were weighing whether or not to go forward. Indeed,
Speaker 1: and no human I have decided not to go forward
Speaker 1: with their merger pack. Now back to Dan, you're get
Speaker 1: how surprising was this news about Saudi Arabie said, The
Speaker 1: importance can't be understated. How surprising was the news that
Speaker 1: they had cut so much. I don't think it was
Speaker 1: surprising uh so much because you saw that the new
Speaker 1: relatively new Saudi patrollingum minister called alf Fala, that he
Speaker 1: really was taking the lead in making this work, and
Speaker 1: I think that the cuts are demonstration and a message
Speaker 1: to everybody else. And just before they made a deal
Speaker 1: last November, they said, if there's not a deal, we're
Speaker 1: going to produce as much as we can. So the
Speaker 1: other side of it is that there is a deal
Speaker 1: and if it's holding with other people, including the Russians
Speaker 1: by the way, who are cutting back, which there was
Speaker 1: skepticism about. Uh, they want to do their part to
Speaker 1: make this work. We're gonna have the Minister at our
Speaker 1: conference in Houston in a couple of weeks and I
Speaker 1: think he's going to give a strong message about wanting
Speaker 1: to see some stability in the oil market. When you
Speaker 1: survey when you look at the parties to that agreement,
Speaker 1: both OPEC and NON who's having the biggest trouble keeping
Speaker 1: up the end of the bargain? Uh, Well, there's certain
Speaker 1: countries that are out of it. Libya and Nigeria were
Speaker 1: given a free pass. I think the al of the cults,
Speaker 1: the most determined people are there, Saudi Arabia and the
Speaker 1: other Gulf countries. They're the ones who really stand out.
Speaker 1: People were looking very carefully at the Russians have been
Speaker 1: cutting they still have more to cut. And the Iranians.
Speaker 1: It was a very unusual deal because they sort of
Speaker 1: there was a kind of a deal or everybody could
Speaker 1: claim a victory. The Iranians could have a higher quota,
Speaker 1: except the others field they can't reach that quota. A
Speaker 1: couple of nights ago, there was a small matter of
Speaker 1: the Ninth District Court in San Francisco, and I, like
Speaker 1: everybody else, was riveted with a phone call on television
Speaker 1: of the appeals court going to the process and David Gura.
Speaker 1: The bad news was. I was watching MSNBC and they
Speaker 1: kept playing in the upper right corner the President meeting
Speaker 1: with muckety MUCKs within the oil business, and he walked
Speaker 1: around the table shaking hands. And I swear every time
Speaker 1: he walked around the table and shook Dan Jurgen's hand,
Speaker 1: he was there. You handed him a copy of Commanding Heights.
Speaker 1: I only you love that book so much time that
Speaker 1: you imagined that you saw it happened. I only wish
Speaker 1: that were the case. But it is a very uh.
Speaker 1: That was the media of the Presidential Strategic and Policy community.
Speaker 1: Um I learned that. I mean, there are a couple
Speaker 1: of things that really jumped out. One was just this
Speaker 1: whole question of regulation, not just is there too much regulation,
Speaker 1: but contradictory regulation from too many different agencies. And the
Speaker 1: other was a really big focus on infrastructure. Within this
Speaker 1: is if you had had handed the president your iconic
Speaker 1: book Commanding Heights, what in it should he learn? Well,
Speaker 1: I think that these things go in cycles. The role
Speaker 1: of the frontier between governments and markets is shifting and
Speaker 1: continually shifts, and I think we're seeing that now and
Speaker 1: I think kind of right now around the world there's
Speaker 1: kind of confusion about kind of what are the new
Speaker 1: rules of globalization. But your book is the arch non
Speaker 1: zero sum book. Your book is one primal scream about
Speaker 1: anti mercantilism, about a value to cooperation and ord nation.
Speaker 1: Do you see any likelihood of that within this administration? Well,
Speaker 1: I think that if with some of the people, I
Speaker 1: think that there's still the you know, the US. We
Speaker 1: have forty million jobs, over forty million jobs in the
Speaker 1: US that the result of foreign trade, and I think
Speaker 1: that number has kind of been left out of the debate.
Speaker 1: What have you heard from the administration about energy policy
Speaker 1: at this point? How inco it is it? Do we
Speaker 1: have a sense of what it's going to be. Well,
Speaker 1: I think it's gonna be uh not. First of all,
Speaker 1: it's going to be not more regulation. And secondly, I
Speaker 1: think it's going to be trying to solve this bottleneck
Speaker 1: about infrastructure where it takes seven years and several billion
Speaker 1: dollars not to approve a pipeline. Things have to be
Speaker 1: done in reasonable times, and there has to be reasonable
Speaker 1: times in terms of challenges to it. But there's a
Speaker 1: mismatch between where our new supplies are and our infrastructure,
Speaker 1: and we've got to get that fixed. How catalytic is
Speaker 1: that Keystone exhale? In other words, if if Donald Trump
Speaker 1: pushes it through, if we get it built, are we
Speaker 1: going to see more like it? What's it going to
Speaker 1: lead to? Well, that was a very particular case because
Speaker 1: it needed State Department approval to just cross the border.
Speaker 1: And I think it will be a message trans Canada.
Speaker 1: The pipeline company has to decide that it wants to
Speaker 1: go ahead and build it. To some degree, we've seen
Speaker 1: a shift in uh where new supplies coming from it.
Speaker 1: There's a lot of new Canadian supplies coming from I
Speaker 1: think it would be a big message because you know,
Speaker 1: pipeline approval. It seems to be as exciting as watching
Speaker 1: paint dry. But then now that became really a potemic. Well,
Speaker 1: these pipelines that are in the news, will they change
Speaker 1: the price of oil? Uh? If you build yes, I
Speaker 1: mean I think if you if you have more flexible supply, uh,
Speaker 1: and if you can bring more supply to markets, then
Speaker 1: that thing called supply and demand will work. It's talked
Speaker 1: a lot about how rex dealers and skills add accent
Speaker 1: moble would be applicable to the State Department. Let's take
Speaker 1: another step back and just look at sort of the
Speaker 1: degree to which the Secretary of State has to deal
Speaker 1: with oil and energy issues. How how how big, how
Speaker 1: big a portion of the plate does that occupy? Well,
Speaker 1: there is an energy aurow in this State Department that
Speaker 1: was set up a few years ago, and so energy
Speaker 1: is one of the geopolitical issues that the President the
Speaker 1: Secretary of State will deal with. But I think that
Speaker 1: it's going to be a relatively small part, and I
Speaker 1: think that Mr Tillerson is going to focus on the
Speaker 1: you know, the big complicated questions are out there. He's
Speaker 1: a very experienced person in the global economy. He knows
Speaker 1: a lot of countries and UH, and he's very measured
Speaker 1: in terms of his decision making. Help us with the
Speaker 1: interplay here between the dollar, which is slightly weaker this morning,
Speaker 1: and the price of oil. But what's the what's the
Speaker 1: correlation there? Well, there isn't always a correlation, but often
Speaker 1: there's a correlation in which a stronger dollar means oil
Speaker 1: prices are down and vice versa. But of course there
Speaker 1: are a lot of other factors that go into it,
Speaker 1: and the predictions about what the dollar is going to
Speaker 1: do is one of the UH factors. In the discussion
Speaker 1: about this border adjustment tax, we started out talking about
Speaker 1: Saudi Arabia OPEC and UH and the deal, the agreement. UH.
Speaker 1: Let's mean, why back at the ranch. What's happening here
Speaker 1: in the US? When you look at the energy landscape
Speaker 1: right now, it's perman mania. The Permian basin is the
Speaker 1: place to be. That's where people are spending money. And
Speaker 1: we've seen that US production has bottomed out and it's
Speaker 1: going to start increasing, and it's an industry that's a
Speaker 1: lot more efficient than it was a couple of years ago.
Speaker 1: At I H S market we were we just did
Speaker 1: this analysis and see if you spend a dollar today,
Speaker 1: you're gonna get about two and a half times as
Speaker 1: much oil for that dollar as you would have in
Speaker 1: I have the clearest recollection too many years ago you're
Speaker 1: talking about forty dollar oil and basically being left off
Speaker 1: the show. You were more than right. Okay, the fifty
Speaker 1: plus a minus ten bucks. Who's counting? What is the
Speaker 1: Urgan five year out call the barrel? You know, don't
Speaker 1: have a single number. I think this year we're probably
Speaker 1: in a fifty to sixty dollar range. I think at
Speaker 1: the end of the decade we'll see price We should
Speaker 1: probably see prices, uh, you know, higher than they are today,
Speaker 1: because you're gonna need it in order to get the
Speaker 1: kind of long, mid term and long term investment that
Speaker 1: isn't happening right now around the world. I mentioned you're
Speaker 1: gonna hear from the minister at that conference in Houston.
Speaker 1: Who else you're looking forward to hearing from? When when
Speaker 1: you look at who's talking to whom and where where
Speaker 1: the conversation is at, Well, we're gonna we'll we'll have
Speaker 1: the Russian minister will be there. Uh. The we're hoping
Speaker 1: we'll have the new people from the administration and we'll
Speaker 1: have a lot of the uh CEOs from the major
Speaker 1: companies there. So I think it's you know, altogether, we're
Speaker 1: gonna have three hundred speakers, so it's gonna be a
Speaker 1: very rich conference in terms of content. Will have both
Speaker 1: the Secretary General of OPEC and the head of the
Speaker 1: International Energy Agency together and so uh And I think
Speaker 1: of what a tension does that create on stage? Well,
Speaker 1: it's you know that used to be budding heads, but
Speaker 1: now it's like a dialogue between the two of them. Uh.
Speaker 1: I think the other thing, there's a big question about
Speaker 1: what's happening with mobility. Dan, You're gonna thank you so much.
Speaker 1: And again, folks, some more modern work I mentioned commanding Eyes.
Speaker 1: Look at the quest It is outstanding. David Gura and
Speaker 1: Tom Keene in New York. This is Bloomberg Surveillance on Bloombergerdy.
Speaker 1: I'm looking at the latest issue of Foreign Affairs magazine,
Speaker 1: the March April issue. Trump Time is the headline. Donald
Speaker 1: Trump picture there surveying his domain and others looking at
Speaker 1: the world. We see Vladimir putting their stride a horse.
Speaker 1: A number of great pieces in this issue, including one
Speaker 1: by Peter Fever with whom we spoke yesterday of Duke University.
Speaker 1: A great conversation. You can check it out on our
Speaker 1: podcast as well. The editor of Foreign Affairs, Gideon Roses
Speaker 1: with us now, and let's pick up with what Chris
Speaker 1: Kirkin was just talking about their the resignation of Michael
Speaker 1: Flynn's national security advisor. How much of Donald Trump's foreign
Speaker 1: policy was a Flynn foreign policy? Well, nobody knows, uh.
Speaker 1: And the biggest question that people in my area are
Speaker 1: wondering now is, okay, if Pence was out of the loop,
Speaker 1: was the president out of the loop as well or not?
Speaker 1: And nobody knows. And we will just have to see
Speaker 1: where do we go from here. There were all of
Speaker 1: these allegations that General Flynt had spoken with the ambassador
Speaker 1: from Russia to the United States during this interregnum between
Speaker 1: the election and when Donald Trump was sworn in. Will
Speaker 1: there be an investigation we have any sense of where
Speaker 1: things go from here? Well, there is going to be investgation.
Speaker 1: There already are investigations about contacts between the Trump campaign
Speaker 1: and Trump Operation and Russia. Um. Look, basically, there's this
Speaker 1: nagging possibility that keep that can't be denied of something
Speaker 1: truly nefarious, but nobody can really believe that there actually
Speaker 1: is anything nefarious going on, and it so so people
Speaker 1: are puzzled. Right, There's been this positive relationship with Russia
Speaker 1: that the Trump campaign has been steadfast about the only
Speaker 1: thing in fact, that they've been really constantly consistent about. Uh,
Speaker 1: And no one can quite figure out why. And so
Speaker 1: you can't quite No one can believe the notion that
Speaker 1: there's some weird behind this conspiracy, but no one can
Speaker 1: fully dismiss it on the basis of the evidence so far. Either.
Speaker 1: I mentioned we were talking with Peter Fever yesterday about
Speaker 1: the National Security Council staff and the reported disarray within.
Speaker 1: What does this mean for that? Fold this into that
Speaker 1: you've got You've got Michael Flynn out now, does that
Speaker 1: stand to complicate things further or is this an opportunity
Speaker 1: for the NSC and its staff to reset. Well. Uh.
Speaker 1: The NSC is basically the president's personal foreign policy and
Speaker 1: national security staff, so the president gets whatever the president wants.
Speaker 1: It'll be fascinating to see who the replacement for Flynn
Speaker 1: will be. One thing that's already interesting is they promoted
Speaker 1: Kellogg to the number one spot, the acting spot, rather
Speaker 1: than the number two. Technically, Katie McFarland, Uh, that would
Speaker 1: suggest that they don't have a whole lot of confidence
Speaker 1: in her necessarily, But we don't know, and um the
Speaker 1: we you know. Look, the best way I can talk
Speaker 1: about the difficulty in analyzing this administration is to look
Speaker 1: at the number two at State. So Rec Tillerson impressive guy,
Speaker 1: but somebody who's never had much foreign policy experience doesn't
Speaker 1: know the building and so forth. So there's been everybody
Speaker 1: has said, well, that's why he's going to get a
Speaker 1: deputy who actually is a farm policy professional. But they've
Speaker 1: kept floating names people like Richard Hass, people like Elliott Abram's,
Speaker 1: people like John Bolton, and the names all get shot down.
Speaker 1: So they still haven't filled that post. But the names
Speaker 1: themselves range across the farm policy spectrum, from realists to
Speaker 1: neo conservatives to other things people you would never actually
Speaker 1: think of as being sent up by the same people
Speaker 1: for uh, for suggestions. So no one really knows what's
Speaker 1: going on or who they'll actually pick away from General Flynn.
Speaker 1: And we'll all be buried in this in the next
Speaker 1: couple of days. You had cell phone national security over
Speaker 1: dessert at Mara Lago. I was stunned that they did
Speaker 1: the photos of the nuclear bag, the atomic bag. How
Speaker 1: to prose like you respond to that nobody who's a
Speaker 1: foreign policy profession and all that I know is anything
Speaker 1: other than just flabbergasted by the last month. They're they're
Speaker 1: they're trying to be like a tech company and fail
Speaker 1: faster because the pace at which this is playing out
Speaker 1: is so uh rapid uh that that nobody knows where
Speaker 1: it's gonna go. The visibility, you know, the five day
Speaker 1: forecast is three days. I can't fathom the vice president
Speaker 1: doing anything but being stunned at the juvenility of some
Speaker 1: of these actions. Um. The problem is that you know
Speaker 1: what was it? That was it George Bush who GARYT. Trudeau,
Speaker 1: George Bush father that Garret Judo said had his manhood
Speaker 1: and the blind trust. A lot of the people of
Speaker 1: this administration, uh unfortunately, seemed to have their manhood or
Speaker 1: femalehood in a in a blind trust because the boss
Speaker 1: is doing something and when the boss says that you
Speaker 1: have to go and do whatever the boss says, just
Speaker 1: too short to the Guindeon Rose, thank you so much?
Speaker 1: What a half hour if a dan you're going to
Speaker 1: Gideon Rose together. I mean, David, is this right? This
Speaker 1: is incredible, by the way it is with the tweets,
Speaker 1: with the little birds tweeting around Foreign Affairs magazine, folks
Speaker 1: check it out, is superb. It's the price of a
Speaker 1: fancy Martini. Geon Rosen was going to go to the
Speaker 1: cheap Martini. But a subscription, a print subscription, is something
Speaker 1: John Tucker looks forward to every month. I don't know
Speaker 1: these days we could use the fancy Martini times Trump times,
Speaker 1: Trump time rather Okay, we like a little tension here.
Speaker 1: Robert Sinch nailing the strong Sterling call and certainly calling
Speaker 1: for Sterling stability, stability. Agreeing with him. Shahab Jollinus at
Speaker 1: Credit sweets really looking for moderate moderation within Sterling, and Shahab,
Speaker 1: we've got other houses looking for really dramatically weak Sterling.
Speaker 1: George servelis at Deutsche Bank looking under one ten HSBC's
Speaker 1: at long term one ten call. What is the distinctive
Speaker 1: feature between your call of Sterling stability versus those that
Speaker 1: have a much gloomier outlook. Well, I guess it also
Speaker 1: depends on what time horizon we look at this on.
Speaker 1: In the sense that uh, you know, over the next
Speaker 1: year or so, it's unclear to us what type of
Speaker 1: new political news is going to materialize that dramatically moves
Speaker 1: Sterling relative to the news we've had in the past year.
Speaker 1: And I think if we see in that time period
Speaker 1: obvious signs that is going to be huge disruption in
Speaker 1: terms of the talks between the EU and the UK,
Speaker 1: then I'd be prepared to look again at my forecast.
Speaker 1: But in the absence of that, there's not really a
Speaker 1: strong catalyst for a dramatic fall at this point in time.
Speaker 1: Better in mind, this currency has already had a very
Speaker 1: substantial fall in the past year um and kind tend
Speaker 1: not to move in straight lines on a permanent basis
Speaker 1: without fresh information how much it is going to change
Speaker 1: here when Article fifty is triggered, when this all begins.
Speaker 1: In other words, there's a lot that's priced in, but
Speaker 1: there is still a great, a huge unknown they're living
Speaker 1: on the horizon. Well, certainly an Article fifty, you know,
Speaker 1: has been discussed now for a long time and as
Speaker 1: timing as well. And I think the other very important
Speaker 1: dimension here is that for some time the market wasn't
Speaker 1: sure whether we'd see hard brexit or soft Brexit, hard
Speaker 1: Brexit being the idea that you have a more disruptive,
Speaker 1: potentially break in trade links. But what's been chriced in
Speaker 1: now is effectively that is heart Brexit. Nobody is really
Speaker 1: discussing anymore the idea of a of a soft Brexit,
Speaker 1: so that's already going a long way towards some of
Speaker 1: the worst scenarios that people had for the pound if
Speaker 1: you go back to un let's say six months ago, um,
Speaker 1: which really means that going forward we have to ask
Speaker 1: ourselves a new question, are you going to see a
Speaker 1: disruptive Brexit or a more benign version of hard Brexit.
Speaker 1: I think disruptive would require very obvious signs of stresses
Speaker 1: um in the negotiations between the rest of the EU
Speaker 1: and the UK UM And as I said, I think
Speaker 1: that will take time to materialize, not least because we
Speaker 1: don't even know what position the EU will take, given
Speaker 1: that many believe that you have to get through the
Speaker 1: French and German elections this year before there's even a
Speaker 1: very clear perspective on that. So that's many many months
Speaker 1: ahead from our perspectives. The bigger driver here now is
Speaker 1: a politics is at Central Bank. I look at the
Speaker 1: Swiss National Bank and we wonder about the potential for
Speaker 1: more intervention. Same thing with the Bank of Japan. I mean,
Speaker 1: is politics trumping everything at this point? I think I
Speaker 1: think that's right. I think politics is now ascendant. UM.
Speaker 1: And really, uh what the Trump election is obviously one
Speaker 1: factor behind that, um, in fact, probably the key factor.
Speaker 1: For example, let's look at the Swiss frank. You mentioned
Speaker 1: that the Swiss National Bank has had an intervention strategy
Speaker 1: on the currency for some period of time, um, even
Speaker 1: after the floor went UM. Now, if the US decides
Speaker 1: to press on the issue of currency manipulation, um, not
Speaker 1: just on China, but on other countries as well. Are
Speaker 1: the trading regions that puts Switzerland in a potentially vulnerable place,
Speaker 1: And I think it makes the market have to consider whether,
Speaker 1: for example, the Swiss National Bank would feel its politically
Speaker 1: expedient to continue with the current strategy. UM. So that's
Speaker 1: one of the areas we need to consider. How will
Speaker 1: politics come through into central bank policy decisions. Another way
Speaker 1: to think about this as well, UM, if for example,
Speaker 1: the US pushes through with border adjust to taxation on
Speaker 1: the fiscal front, and that leads to strong dollar rally.
Speaker 1: Will there be political pressure, for example, in the Federal
Speaker 1: Reserve not to high grates in that type of environment
Speaker 1: as a function of having to acknowledge the unusual physical
Speaker 1: reasons that the dollar is rallying. These are all new
Speaker 1: things for the market to digest and not easy to
Speaker 1: do at this point. Where are we in the digestion
Speaker 1: of US policy towards Mexico and how that's playing out
Speaker 1: in in the Mexican currency. We've, as you said, had
Speaker 1: a long relation about article fifties since since back in
Speaker 1: June UM we've seen this sort of the potential for
Speaker 1: a wall or new policies play out in Mexico every
Speaker 1: sometimes as well. Is that priced in there when you
Speaker 1: look at at the value of the Mexican currency. Well,
Speaker 1: certainly the Mexican policy felt so substantially last year. It's
Speaker 1: a bit like the pound discussion, um, that it became
Speaker 1: harder for new news to take it even even lower,
Speaker 1: or at least, let's just put it another way, the
Speaker 1: absence of new news was enough reason for it to
Speaker 1: go higher, especially as interest rates in Mexico or relatively
Speaker 1: high as well. So it's not easy to just sit
Speaker 1: there with a short Mexican past of position. Um, I
Speaker 1: think really for the currency to start to fall again,
Speaker 1: you do need to see bad news come through on
Speaker 1: the NAFTA renegotiation front. Now, what we saw yesterday, for example,
Speaker 1: when Canadian Prime Minister Trudeau visited the US was a
Speaker 1: more benign outcome for Canada at least um, and that
Speaker 1: would have raised hopes that maybe in Mexico will get
Speaker 1: will catch a break as well. So I think while
Speaker 1: that feeling persists, the Mexican petsons should hold up quite well.
Speaker 1: We've been getting great currency pair trades off of the
Speaker 1: simple question where's the opportunity right now? We're all buried
Speaker 1: in the politics. I get that you just give us
Speaker 1: a great review. Where's the single trade to make ALFA
Speaker 1: this morning? Well this morning, you know, we we still
Speaker 1: like the high Carrie currencies, so that the likes of
Speaker 1: the Brazilian rao are performing well, the Russian rouble, in
Speaker 1: our view, will continue to perform well. These trades are
Speaker 1: seen as crowded trades by some, but in the same
Speaker 1: way that the market believes that, for example, the US
Speaker 1: stock market is very high. Um, that doesn't necessarily mean
Speaker 1: it doesn't have more underline, momentum to go high. So
Speaker 1: which pairer within real and ruble do you like. Well,
Speaker 1: we've for a long time like the ruble best in
Speaker 1: the emerging market space dollar, ruble, euro, ruble, sterling, ruble,
Speaker 1: Euro at the time is our favorite short position um
Speaker 1: and for for a number of reasons. Firstly, the political
Speaker 1: environment in Europe is clearly more more stressful than in
Speaker 1: many other regions. And while people say that the French
Speaker 1: election is now what understood in fully price in our
Speaker 1: view when we look at things like option volatilities, we
Speaker 1: don't we disagree with that. There's more room to price
Speaker 1: in more risk for the era. Of course, you also
Speaker 1: have the fact that you still have the Euro is
Speaker 1: still a negative rate currency. So the combination of offering
Speaker 1: negative rates and a lots of political risk that's not
Speaker 1: really a good a good one from a NFX perspective.
Speaker 1: So Euro is definitely a one of our favorite funding currencies.
Speaker 1: And as I mentioned it, right to summarize your strong
Speaker 1: ruble week euro, that's what we like at the moment,
Speaker 1: and we've as I said, buying the Russian ruble was
Speaker 1: one of our trades of the year at the start
Speaker 1: of the year. Uh and I haven't changed my view
Speaker 1: on that one. UM and Euro as we approached the
Speaker 1: French election has much more downside. It's lastly here, how
Speaker 1: are you watching Beijing in the year two thousand and seventeen.
Speaker 1: What are you looking for when you look at the
Speaker 1: Chinese currency? A number of things. Firstly, capital controls. Are
Speaker 1: the Chinese going to increase capital controls? Because if if
Speaker 1: the currency is under downward pressure, one of the most
Speaker 1: effective ways to stop that is to basically stop the
Speaker 1: selling and stop the locals trying to get out of
Speaker 1: their own currency. The second aspect I'm looking at is
Speaker 1: interest rates local interest rates in China. Is China prepared
Speaker 1: to raise rates significantly to alleviate the downward pressure on
Speaker 1: the currency against the backdrop of an economy that many
Speaker 1: believe is still very leveraged and vulnerable to a sharp
Speaker 1: rise in interest rates. UM and I think these two
Speaker 1: factors in the near term of the most important factors
Speaker 1: to consider. In fact, what we've seen so far this
Speaker 1: year is movement on both fronts, and that's one of
Speaker 1: the reasons an argue that Chinese currency has outperformed expectations
Speaker 1: so far this year. The question really is Canada, Chinese
Speaker 1: economy tolerate persistent application of these policies. This has been great.
Speaker 1: I just put on a Twitter that chart of the Bloomberg.
Speaker 1: Will do that on Facebook Live and most certainly will
Speaker 1: put that on TV. That's tomorrow morning. The idea of
Speaker 1: stronger ruble against weaker You're I love doing that, David.
Speaker 1: We get the most interesting things that the pair yesterday
Speaker 1: was something. It was Sterling Kiwia Stronger New Zealand versus
Speaker 1: the Brexity Sterling. Although you just heard jobs, look there
Speaker 1: for some Sterling resilience versus the gloom crowd. Brought you
Speaker 1: by Bank of America, Mary Lynch. Dedicated to bringing our
Speaker 1: clients insights and solutions to meet the challenges of a
Speaker 1: transforming world. That's the power of global connections, Mary Lynch.
Speaker 1: Pierce Federan Smith Incorporated Member s I P. C. Robin
Speaker 1: Niblett with us right now with Chatham House on short notice.
Speaker 1: So good to catch up with you, Robin. After I
Speaker 1: saw General Flynn exit uh last night. Tell us about
Speaker 1: the disarray within any government. When you have to move
Speaker 1: people out abruptly, it's got to be a destabilizer, isn't it. Well,
Speaker 1: I think it will be destabilizing, not least given the
Speaker 1: fact that this is a presidency that obviously did not
Speaker 1: have a deep bench to draw upon from the outset
Speaker 1: when it was establishing its administration. You know, for Hillary
Speaker 1: Clinton had one people say she had the first four
Speaker 1: thousand positions already lined up to to take their their
Speaker 1: you know, their position in the government. The talk of
Speaker 1: the Trump administration is fairly empty corridors in the West wing.
Speaker 1: And so if you lose somebody at such a central
Speaker 1: node in government, um, and you don't have a deep
Speaker 1: bench behind it, it's going to make life even more complicated.
Speaker 1: And we have very complicated well to deal with. What
Speaker 1: was appealing to President Trump about General Flynn? What did
Speaker 1: you like about him? I think the loyalty factor. Here's
Speaker 1: somebody you stepped up close to the president right from
Speaker 1: the beginning, uh, you know, stood, took his back, took
Speaker 1: the most ardent and campaign worthy messages, including the locker
Speaker 1: up on Harry Clinton. Uh, completely uncompromising stance on radical Islam,
Speaker 1: but on fighting isis He was really the general that
Speaker 1: gave Trump credibility when at that point the Republican defense
Speaker 1: establishment was best leery and in many cases stepping out
Speaker 1: against him. So I think the loyalty stakes um, and
Speaker 1: that kind of get it done military figure who had
Speaker 1: played importantly in Afghanistan with the key issues for him. Yeah,
Speaker 1: the general who gave him credibility with the defense establishment.
Speaker 1: Are you thinking here that the replacement is going to
Speaker 1: be somebody who's been in the military as well? It
Speaker 1: seems like President Trump has an affinity for likes to
Speaker 1: to surround himself in the foreign policy round by those
Speaker 1: who have served in the military. Well, just yeah, on
Speaker 1: on the credibility, I think Flynn had credibility in terms
Speaker 1: with President Trump for being a tough guy and with
Speaker 1: somebody who stepped up as part of the defense establishment.
Speaker 1: But of course he was not popular within the defense
Speaker 1: establishment itself, having been in essencis fired from his position
Speaker 1: and a head of the Defense Intelligence Agency. So where
Speaker 1: we go here is potentially that if he sticks with
Speaker 1: the military track, and there's a a general who stepped in,
Speaker 1: General Keith Kellogg who stepped in as acting Nation Security Advisor, Um,
Speaker 1: you know, with David Petrays's name in the in the frame,
Speaker 1: another at least Admiral Harward's name as well in the frame.
Speaker 1: It looks highly likely that we would get another military figure,
Speaker 1: and we can clearly see that the present feels comfortable
Speaker 1: with them, given the appointments he's made to Secretary Defense. However,
Speaker 1: you know, I think he's gonna think very carefully about
Speaker 1: the balance. You know, when we saw Steve Bannon appointed
Speaker 1: as a principal to National Security Council, you felt there
Speaker 1: was a desire to balance let's call it establishment defense
Speaker 1: with the more some more you know, unpredictable and and
Speaker 1: tough voices. So you've got to work out who would
Speaker 1: it be in the defense establishment who could play the
Speaker 1: kind of flint type role and be a counter balance
Speaker 1: to the more uh predictable. How can I put it?
Speaker 1: Um straightforward internationalist realist approach you associate with general matters,
Speaker 1: so picking the right persons can be very complicated. We're
Speaker 1: talking with Peter Fever yesterday from Duke University about the
Speaker 1: NSC and he said that he has gotten pretty size. Well,
Speaker 1: Donald Trump hasn't been shy about saying he wants to
Speaker 1: reduce its its size. Help us understand how the foreign
Speaker 1: policy landscape changes in Washington, d C. Under President Trump.
Speaker 1: Do we see the Defense Department getting more power back
Speaker 1: power that had been transitioned over to the NSC. Well,
Speaker 1: I you know, my first singing would be to say
Speaker 1: that in all countries, not just in the US, UM
Speaker 1: security and foreign policy is concentrating more and more at
Speaker 1: the heart of the executive. You don't just see this
Speaker 1: in the United States. You saw it under present Obama,
Speaker 1: where in many cases, uh, you know, senior advice was
Speaker 1: coming from Secretary Clinton, Foreign Secretary, from Leon Panetta, mothers
Speaker 1: was ignored, if for example, in the case of Syria.
Speaker 1: So the whole idea of a centralization of power I
Speaker 1: think is going to continue even under President Trump. It
Speaker 1: will be very difficult given the way that people look
Speaker 1: to presidents these days or heads of government in any
Speaker 1: country to take the lead on foreign policy. We're even
Speaker 1: seen this in China, you know, at the momentum, I
Speaker 1: think would be very hard to turn that back and
Speaker 1: suddenly find big power fiefdoms um in other parts of government.
Speaker 1: That being said, the Pentagon has a huge budget. General
Speaker 1: Flynn has great experience, and it's probably likely the most
Speaker 1: powerful agency of the lot at the moment. How did
Speaker 1: the adults get back in the room, if you presume
Speaker 1: they're not there now, how did you get back in
Speaker 1: the room? Well, as I think I was indicating earlier
Speaker 1: to him, I think the if general you know, we're
Speaker 1: General Flynn gone, there's going to be a hope that adults, uh,
Speaker 1: you know, will will will reassert. I think a lot
Speaker 1: depends on whether the president you know who who likes
Speaker 1: to be the leader, the man who's in charge. He
Speaker 1: does not want to be seen as somebody who's having
Speaker 1: to cow chow to advice from more experienced people. He
Speaker 1: wants his own voice, especially in the National Security Council,
Speaker 1: which really is leave through to the security sector. So
Speaker 1: I think, you know, how does how do how do we?
Speaker 1: He may not want a return to the sense of
Speaker 1: adults in the room. The whole idea of a more
Speaker 1: unpredictable foreign policy is one that I think he's championed.
Speaker 1: He feels at the moment the cards have ended up
Speaker 1: being stacked against the US and the very unpredictability he
Speaker 1: brings is part of America reacquiring strength, not least visa
Speaker 1: the Russia. A number of articles about this resignation, including
Speaker 1: artist Bloomberg, reference the Munich Security Conference, which has taken
Speaker 1: place in a couple of days and it made me
Speaker 1: me wonder about how this administration sees multilateral gatherings like
Speaker 1: those versus what we've seen play out here over the
Speaker 1: past few weeks. Meetings with Prime Minister May, meetings with
Speaker 1: Prime Minister Sian zo Abe, meetings with Prime Minister Trudeau yesterday.
Speaker 1: Clearly it seems like the personal relationship is being prioritized,
Speaker 1: at least in these early days, over the multilateral meetings.
Speaker 1: I think this is a time for the to establish
Speaker 1: his personal relationships with the other heads of state, given
Speaker 1: as I said a minute ago, you know, these are
Speaker 1: the people who make the big decisions on foreign security policy. However,
Speaker 1: you know the Munich Security Conference is what it says
Speaker 1: on the tin, it's probably the top security conference takes
Speaker 1: place in Europe each year. This would be a good
Speaker 1: place for General Matthis to to show up. He's at
Speaker 1: some meetings to NATO and Brussels this week. He may
Speaker 1: stop buying. This has been a traditional position for U
Speaker 1: S Secretary Defense to come and share the view of
Speaker 1: the administration with other gathered figures. Now this is different,
Speaker 1: I would say, from the kind of multilateralism that maybe
Speaker 1: the G twenty or NATO or the European Union or
Speaker 1: even the U N represents here. I think we can
Speaker 1: see a more muscular uh U S approach to all
Speaker 1: of those institutions than we've seen in the past. What
Speaker 1: do you make of the role the General Maddis now
Speaker 1: Secretary Madis has played thus far? How well has he
Speaker 1: fit into that new role as Secretary of Defense As
Speaker 1: as somebody looking at this from the outside from London,
Speaker 1: I think he's aided very well. Um. You know, he
Speaker 1: was the person who was sent out to calm nerves
Speaker 1: in East Asia, in particular after the uh you know,
Speaker 1: the uncertainty there would a company the president's arrival, not
Speaker 1: at least giving his comments about Japan being a currency manipulator,
Speaker 1: and his comments about to South Korea and Japan and
Speaker 1: maybe aming to look after their own defense and nuclear weapons.
Speaker 1: You know, these are incendury comments in normal circumstances, but
Speaker 1: with North Korea looking unpredictable, you needed somebody who could
Speaker 1: go out and and and carry the message of continuity.
Speaker 1: And I think without looking like he's on the wrong
Speaker 1: side of the president, without looking like he's overtaking his position,
Speaker 1: he's played it very well. The most striking moment for
Speaker 1: me was when the President in the press conference with
Speaker 1: Prime Minister Treasa Mayor the UK said look, I I
Speaker 1: think what your works, but on this is Hume. General
Speaker 1: Maddis overrides me. I mean that was a powerful statement.
Speaker 1: Rabbin Nibbles, thank you so much, and short notice this
Speaker 1: morning after General Flynn exits last night, Rabbi nibble with
Speaker 1: Chatham House. Uh this morning. Bob Haber, who worked at
Speaker 1: Fortress Johnson for years and essentially invented the oddity of
Speaker 1: convertible and preferred analysis. Bob Haber has worked for years
Speaker 1: at Fidelity. Among other things, he teaches or has taught
Speaker 1: it Tough I should say Toughs University, on Federal Reserve history,
Speaker 1: and most particularly on the board of the Boston Celtics. Bob,
Speaker 1: let's get serious. Nine and one, six fifty five ball.
Speaker 1: The Celtics are the real thing. There's a modest team
Speaker 1: from Cleveland a little bit better than them. Can they
Speaker 1: do it to Cleveland? Well, um, happy Valentine's Day. I
Speaker 1: thought you were going to give us some some trade
Speaker 1: ideas that you know the trade deadlines coming up so
Speaker 1: on fire so yeah, yeah, um, but no, uh, we're
Speaker 1: I think we're right in the mix. Yeah, you're in
Speaker 1: the mix nine and one. It's actually like a real
Speaker 1: Celtics very little grounds for basketball optimism in New York City.
Speaker 1: That's true. Well, we have to talk Celtics. Good morning, Bloomberg, Boston, Bob.
Speaker 1: It is a melt up long ago at Fidelity. You
Speaker 1: didn't witness twenty thousand or twenty one thousand now, but
Speaker 1: you did arguably invent the idea of grabbing a coupon
Speaker 1: in some form of optionality into the future with convertibles
Speaker 1: and preferreds. Tell me about total return right now within
Speaker 1: a melt up? Should I pay respect to total return? Um? Yeah,
Speaker 1: we should, you know, should always pay respect to total return.
Speaker 1: I was looking back up, you know, at some of
Speaker 1: the securities I got to own when I started the
Speaker 1: Fidelity Convertible Securities Final and comparing UH yields and dividends
Speaker 1: and the convertible market to now, and it's it's it's
Speaker 1: an entirely different solar system. Back then, convertibles UH just
Speaker 1: traded not so much on all the Greeks, but they
Speaker 1: actually traded on yield relative to premium. They were spectacular securities.
Speaker 1: They were the best that if you look back over
Speaker 1: that period, I think the Convertible Securities Fund was one
Speaker 1: of the best funds in the country. That's all changed,
Speaker 1: that's obviously all changed, and with great still silly low um,
Speaker 1: a lot of those games have moved on. Do you
Speaker 1: assume when we normalize at some point Bill Gross would
Speaker 1: suggest it's going to be years out, decades out, Others
Speaker 1: would say tomorrow. But when we normalize, do you just
Speaker 1: assume bond prices move, sell sell sells and the only
Speaker 1: place to find protection is equities, you know, normalized um.
Speaker 1: You know. One of the series that I keep is
Speaker 1: that over a long period of time, the twenty year
Speaker 1: government bond UH is attracted to the nominal g DP.
Speaker 1: It's like a magnet. It doesn't happen as you know,
Speaker 1: these things take some time to work, but over long
Speaker 1: periods of time, that's the magnet. So people can think
Speaker 1: what their nominal GDP estimate is right now on the
Speaker 1: Bloomberg you can look and say that for the gues
Speaker 1: estimates are that nominal will be about five. Well, if
Speaker 1: the if the your bond actually gets the five were
Speaker 1: in trouble and a lot of asset classes, so it
Speaker 1: will take time. UM and it will take a lot
Speaker 1: of action by the FETE, because this still may be
Speaker 1: the easiest fed ever. Yes, you just quickly about the
Speaker 1: Trump trade will come back. But what do you what
Speaker 1: do you make of the Trump trade that we've seen, uh,
Speaker 1: and and the life that it had here and now
Speaker 1: sort of reckoning I think with the reality of the
Speaker 1: fact that tax form is going to take a lot
Speaker 1: of time to get downe. Yeah, that's that's one of
Speaker 1: the things I've written about recently in Forbes that you
Speaker 1: can measure. I mean, I think people understand the Trump
Speaker 1: trade now is coming back. Uh. The idea is going
Speaker 1: to get a full economic cycle, which is before in
Speaker 1: the corner of what was called the new normal, it
Speaker 1: really was nothing we'd seen before. Now I think people
Speaker 1: are imagining a full economic cycle. By that, I mean
Speaker 1: animal spirits, banks making loans to people that really shouldn't
Speaker 1: get them and they don't pay it back, and so
Speaker 1: on and so forth, some inflation of fat eventually having
Speaker 1: to take the punch ball away. That's a full economic
Speaker 1: cycle that we could only dream about when the Trump
Speaker 1: trade started. Right now, what we see in the Trump
Speaker 1: trade is an enormous uh increase in the confidence surveys.
Speaker 1: So surveys. Surveys are way up no matter how you
Speaker 1: look at them. The national um, small business surveys Michigan,
Speaker 1: you know the conference board, but it's a long way
Speaker 1: from there to actual economic um growth. Right now, with
Speaker 1: this bomb Habor, many of you older know the name
Speaker 1: from Fidelity ages ago in convertible securities and preferreds Bob
Speaker 1: Abor with Proficio and of course are not in acquaintance
Speaker 1: with a basketball team from Boston as well. But I
Speaker 1: want to go back to dividends. I believe Mr Lynch
Speaker 1: paid homage to dividends and be Tina Dalton, Will Danoff
Speaker 1: would pay attentions. But now dividend and dividend growth borders
Speaker 1: on religion. How does Bob Behavior respond to the new
Speaker 1: religion that is, dividends are a yield equivalent. Yeah, I
Speaker 1: won't surprise you that our our families UM like yield.
Speaker 1: I like dividend yield. Uh, but we've got to be
Speaker 1: careful where we source it from. Uh. So we've kind
Speaker 1: of come off some of the traditional names and utilities
Speaker 1: and telecom and right now we think people might want
Speaker 1: to take a look at the MLPs and own them individually.
Speaker 1: If they can because there's some good tax benefits. So
Speaker 1: that looks like an area that's had a you know,
Speaker 1: it's had a complete flame out, it's stabilized. And the
Speaker 1: parts of the Trump agenda that looked to be moving
Speaker 1: forward include infrastructure, which tends to include a lot of
Speaker 1: pipelines and the types of stuff the MLPs are involved in.
Speaker 1: So that's an area that we really um are excited about.
Speaker 1: Help me understand how you're regarding volatility right now, I
Speaker 1: look at the vixit of you hovering around eleven. What
Speaker 1: do you make of that? What do you make a
Speaker 1: volatility at this moment? Yeah, so that's both vote both
Speaker 1: for treasuries and um for equities. Almost vix is almost
Speaker 1: record low and treasury volatility is low, so you know,
Speaker 1: it makes UM. It's an opportunity that the market can
Speaker 1: give you. So it's also an indicator. It's not it's
Speaker 1: not an indicator of higher price is usually it's an
Speaker 1: indicator of of you know, a yellow light of caution.
Speaker 1: But just for example, one trade you know that we're
Speaker 1: looking at that people could consider is you can take
Speaker 1: out a lot of capital in the market by some
Speaker 1: short term investment grade paper and combine that with very
Speaker 1: cheap call options and get yourself a terrific asymmetric risk
Speaker 1: trade where you virtually have no downside over a couple
Speaker 1: of three years if you pick the credit correctly, and
Speaker 1: you'll ride in something like three quarters or eight percent
Speaker 1: of the upside. So we try and look for opportunities
Speaker 1: when the market is at these you know, whatever extremes.
Speaker 1: How different is this post election environment than those in
Speaker 1: the past. He had a great line, I think in
Speaker 1: a recent column of your as you said, the twist
Speaker 1: and turns have already begun, because twisty is going to
Speaker 1: be the new reality as you're allocating, as you're looking
Speaker 1: at portfolios. What's different about this moment in time? Well,
Speaker 1: I think what's different is where seven years into a
Speaker 1: bull market and an economic cycle, and just now the
Speaker 1: market seems to want to think we're entering a full
Speaker 1: economic cycle, and assets are expensive, almost all are expensive.
Speaker 1: So we think hedging or thoughts about hedging and really
Speaker 1: paying attention to sentiment are important. But help me here
Speaker 1: with the double digit realities is too thousand nine and
Speaker 1: the cult of a single digit return and actual assumptions
Speaker 1: going down down. We saw Harvard Management step aside from
Speaker 1: fancy investments. I guess to go back to something where
Speaker 1: Bob behabor vanilla, what what what do we do now
Speaker 1: to catch up if we haven't been in a buy
Speaker 1: and holding on the SMP. Yeah, so you know, I'm sure,
Speaker 1: as you know better than me, that you'd never want
Speaker 1: to feel like you've got to catch up. Um. And
Speaker 1: so what we believe in, what we preach is extreme diversification,
Speaker 1: especially at this point in time. So we have holdings
Speaker 1: in equities, bonds, commodities, precious metals, and then truly uncorrelated
Speaker 1: assets as well. And at this point, because the future
Speaker 1: really is so cloudy and so many things are at
Speaker 1: extreme uh, that that's the way we've approached it. We
Speaker 1: think there's value in holding all of those and getting
Speaker 1: an I get of co variance and all those are
Speaker 1: the kind of great mass things and getting h looked
Speaker 1: to risk adjusted return because if you try and catch up,
Speaker 1: if you've missed the bolmarket train catch up, um, you're
Speaker 1: buying everything at very expensive prices. How do you define
Speaker 1: or discover or use a risk adjusted approach, say a
Speaker 1: sharp ratio approach in a time of financial distortion? Do
Speaker 1: you plug in your own guestimate. We we only use
Speaker 1: instruments that have reasonably long trading histories, and that means
Speaker 1: they've got to they must have gone through the you know,
Speaker 1: the recent financial turbulence, so that we can check out
Speaker 1: if they are truly uncorrelated, because as you know, in
Speaker 1: those periods, everything the correlations go to one. So we
Speaker 1: want to make sure we try and battle test it
Speaker 1: that way. And then we use a common sense test,
Speaker 1: so when we buy catastrophe bonds for people, we think, well,
Speaker 1: that really is just common sense, not correlated to the
Speaker 1: equity market. So it's a combination of the mass to
Speaker 1: science and common sense. At the top of the segment
Speaker 1: here Tom mentioned that you taught a course of Tufts
Speaker 1: on the history of the Federal Reserve. Uh, and I
Speaker 1: don't need to tell you. We're a very interesting moment
Speaker 1: for the FED. As Jannet Young prepares to testify on
Speaker 1: Capitol Hill today, we had the resignation of Dan Tarulo
Speaker 1: on on Friday. There are three seats to be filled
Speaker 1: here filled on the Board of Governors. Let's look back
Speaker 1: and look forward, and what does history tell us about
Speaker 1: where the FEED is headed? Do you think the FED
Speaker 1: has entered a tightening cycle, right, so the pace of which, uh,
Speaker 1: you can have like a thousand shows on. But we
Speaker 1: know what the direction is. It's a tightening cycle. But
Speaker 1: it is so incredibly easy because of the excess reserve amount.
Speaker 1: That is no history on this. It's this is all
Speaker 1: the great human experiment the FED has created for us.
Speaker 1: So we know the direction, but we have no idea
Speaker 1: the time frame, and and and the other you know,
Speaker 1: some of the other factors. Bob Heyri thinks so much,
Speaker 1: greatly appreciated for years with fidelity, Bob behavior with Officio
Speaker 1: UH and of course his work on the Pillow Reserve
Speaker 1: at Tough University of Note as well. Thanks for listening
Speaker 1: to the Bloomberg Surveillance podcast. Subscribe and listen to interviews
Speaker 1: on iTunes, SoundCloud, or whichever podcast platform you prefer. I'm
Speaker 1: out on Twitter at Tom Keene. David Gura is at
Speaker 1: David Gura. Before the podcast, you can always catch us worldwide.
Speaker 1: I'm Bloomberg Radio, brought you by Bank of America Mary Lynch,
Speaker 1: dedicated to bringing our clients insights and solutions to meet
Speaker 1: the challenges of a transforming world. That's the po were
Speaker 1: of global connections. Mary Lynch, Pierce, Fenner and Smith Incorporated,
Speaker 1: Member s i p C,