1 00:00:00,080 --> 00:00:06,760 Speaker 1: Bloomberg Audio Studios, Podcasts, radio News. 2 00:00:11,600 --> 00:00:15,440 Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along 3 00:00:15,440 --> 00:00:18,360 Speaker 2: with Lisa Bromwitz and am Marie Hordern. Join us each 4 00:00:18,480 --> 00:00:21,360 Speaker 2: day for insight from the best in markets, economics, and 5 00:00:21,400 --> 00:00:24,720 Speaker 2: geopolitics from our global headquarters in New York City. We 6 00:00:24,760 --> 00:00:27,400 Speaker 2: are live on Bloomberg Television weekday mornings from six to 7 00:00:27,480 --> 00:00:31,000 Speaker 2: nine am Eastern. Subscribe to the podcast on Apple, Spotify 8 00:00:31,200 --> 00:00:33,479 Speaker 2: or anywhere else you listen, and as always on the 9 00:00:33,479 --> 00:00:36,920 Speaker 2: Bloomberg Terminal and the Bloomberg Business App. Here's the take 10 00:00:36,960 --> 00:00:39,440 Speaker 2: on the economy, Nathan sheets of City rising the following. 11 00:00:39,479 --> 00:00:41,640 Speaker 2: We see global growth this year softening to two point 12 00:00:41,680 --> 00:00:44,680 Speaker 2: one percent, down from under three percent last year. Given 13 00:00:44,720 --> 00:00:47,360 Speaker 2: the trajectory of recent developments, the risk to our forecast 14 00:00:47,440 --> 00:00:50,360 Speaker 2: are skewed to the downside. Nathan joins us now for more. Nathan, 15 00:00:50,400 --> 00:00:52,480 Speaker 2: good morning, good to be here. How much has changed 16 00:00:52,520 --> 00:00:54,080 Speaker 2: for you in the team in the last four months? 17 00:00:54,680 --> 00:00:58,880 Speaker 3: Oh, this is this is a completely different world one 18 00:00:59,120 --> 00:01:02,040 Speaker 3: as you read our view as the global growth this 19 00:01:02,120 --> 00:01:04,320 Speaker 3: year and next year are both going to be much weaker, 20 00:01:04,680 --> 00:01:08,880 Speaker 3: but even beyond that, it's deeply structural and I think 21 00:01:08,920 --> 00:01:11,600 Speaker 3: we felt that this week during the Bank Fund meetings. 22 00:01:11,880 --> 00:01:14,520 Speaker 3: The US has been the center of the system for decades, 23 00:01:14,959 --> 00:01:17,480 Speaker 3: and now the US is standing up and rejecting in 24 00:01:17,600 --> 00:01:22,280 Speaker 3: very fundamental ways key features of this system. And I 25 00:01:22,319 --> 00:01:23,760 Speaker 3: think the rest of the world is just kind of 26 00:01:23,760 --> 00:01:25,720 Speaker 3: looking around and saying, what's next. 27 00:01:25,880 --> 00:01:29,400 Speaker 4: They're the near term effects and they're the longer term ramifications. 28 00:01:29,440 --> 00:01:31,959 Speaker 4: In the near term, all of the finance ministers and 29 00:01:32,000 --> 00:01:33,880 Speaker 4: central bankers are saying, we need the dollar to be 30 00:01:33,920 --> 00:01:36,720 Speaker 4: the reserve currency. How much do you expect that, though, 31 00:01:36,760 --> 00:01:38,959 Speaker 4: to change longer term? And are they questioning that in 32 00:01:38,959 --> 00:01:40,080 Speaker 4: private conversations with you. 33 00:01:40,440 --> 00:01:42,840 Speaker 3: I think that's one of the leading questions that I'm 34 00:01:42,880 --> 00:01:45,560 Speaker 3: hearing is what about the dollar's role over the medium 35 00:01:45,600 --> 00:01:49,120 Speaker 3: belong run as reserve currency? But even if we extrapolate 36 00:01:49,200 --> 00:01:51,560 Speaker 3: out five to ten years, it's still not clear that 37 00:01:51,600 --> 00:01:56,040 Speaker 3: there are really any real challengers for the dollar in 38 00:01:56,120 --> 00:01:59,200 Speaker 3: that role. And I think most say, well, you know, 39 00:01:59,240 --> 00:02:01,680 Speaker 3: we're kind of stuck with the dollar. But then the 40 00:02:01,800 --> 00:02:05,920 Speaker 3: question comes at what price? And I think that question 41 00:02:06,000 --> 00:02:10,119 Speaker 3: of risk premium on US assets is one that markets 42 00:02:10,160 --> 00:02:11,680 Speaker 3: are struggling with as we. 43 00:02:11,680 --> 00:02:14,320 Speaker 4: Speak, which goes to the question of weakness, and if 44 00:02:14,360 --> 00:02:16,320 Speaker 4: there is some sort of downturn in the United States, 45 00:02:16,360 --> 00:02:18,280 Speaker 4: what is the fiscal impulse and the ability for the 46 00:02:18,360 --> 00:02:21,480 Speaker 4: United States to borrow into weakness at a time where 47 00:02:21,480 --> 00:02:24,080 Speaker 4: we have near record deficits as a per percentage of 48 00:02:24,120 --> 00:02:25,240 Speaker 4: GDP and you have. 49 00:02:25,240 --> 00:02:28,920 Speaker 3: The structural shift going on if we have a downturn, 50 00:02:29,160 --> 00:02:33,200 Speaker 3: and that is a very reasonable, plausible scenario. Many people 51 00:02:33,240 --> 00:02:36,000 Speaker 3: have that as their baseline forecast. If we have a 52 00:02:36,040 --> 00:02:40,200 Speaker 3: downturn in the United States, the implications for the US 53 00:02:40,200 --> 00:02:43,840 Speaker 3: fiscal deficit or grim. We could be again easily knocking 54 00:02:43,880 --> 00:02:47,520 Speaker 3: on the door of ten percent fiscal deficits. And in 55 00:02:47,560 --> 00:02:50,160 Speaker 3: that environment, do I think the Treasury can issue I do, 56 00:02:50,560 --> 00:02:53,240 Speaker 3: but again at what price? What do those yields look like? 57 00:02:53,560 --> 00:02:55,960 Speaker 3: What are the risk premiums? And I think that's the 58 00:02:56,080 --> 00:02:59,480 Speaker 3: question we're going to be struggling with in the years ahead, 59 00:02:59,680 --> 00:03:01,480 Speaker 3: is where is this first premium going. 60 00:03:01,639 --> 00:03:04,360 Speaker 1: The President this morning speaking to Time magazine saying that 61 00:03:04,720 --> 00:03:05,680 Speaker 1: he didn't get the yips. 62 00:03:05,720 --> 00:03:06,720 Speaker 5: The bond market got. 63 00:03:06,560 --> 00:03:08,880 Speaker 1: The yips, but it wasn't the reason why he came 64 00:03:08,919 --> 00:03:11,160 Speaker 1: out with that pause, even though everyone is saying that 65 00:03:11,240 --> 00:03:12,400 Speaker 1: was the Trump put in action. 66 00:03:12,880 --> 00:03:14,560 Speaker 5: Do you think that it is this bond. 67 00:03:14,360 --> 00:03:16,919 Speaker 1: Market that is putting pressure up against this administration to 68 00:03:17,000 --> 00:03:19,320 Speaker 1: come out and tweak and change policy. 69 00:03:19,960 --> 00:03:23,000 Speaker 3: I think the bond market has been front and center 70 00:03:23,040 --> 00:03:25,960 Speaker 3: in this. I think it's the financial markets more broadly. 71 00:03:26,280 --> 00:03:30,800 Speaker 3: But I also think gets the discussion with CEOs and 72 00:03:30,840 --> 00:03:33,920 Speaker 3: what he's hearing, and I think it's political reality. So 73 00:03:33,960 --> 00:03:37,160 Speaker 3: I think there was a lot of pushback to this 74 00:03:37,280 --> 00:03:40,600 Speaker 3: tarift policy, and I think the upshot of that is 75 00:03:40,640 --> 00:03:44,680 Speaker 3: that we've officially now moved, it seems, from the phase 76 00:03:44,760 --> 00:03:49,080 Speaker 3: of announcing tariffs to the phase of negotiating what these 77 00:03:49,120 --> 00:03:53,280 Speaker 3: tariffs are ultimately going to look like. And maybe that's progress. 78 00:03:53,560 --> 00:03:55,480 Speaker 1: When it comes to China, one hundred and forty five 79 00:03:55,520 --> 00:03:58,600 Speaker 1: percent is unsustainable. Everyone continues to say that, But even 80 00:03:58,600 --> 00:04:00,880 Speaker 1: if we go to sixty percent, which was what the 81 00:04:00,880 --> 00:04:03,080 Speaker 1: President talked about in the campaign trail, is that still 82 00:04:03,080 --> 00:04:06,520 Speaker 1: in essence a trade embargo between Washington and Beijing. 83 00:04:06,880 --> 00:04:10,200 Speaker 3: One hundred and forty five percent tariff is prohibitive. And 84 00:04:10,480 --> 00:04:14,040 Speaker 3: I argue during the election that a sixty percent tariff 85 00:04:14,080 --> 00:04:18,640 Speaker 3: would be prohibitive. It would destroy many supply chains and 86 00:04:19,200 --> 00:04:22,440 Speaker 3: mean a lot of shelves at various stores were empty. 87 00:04:22,920 --> 00:04:27,520 Speaker 3: So absolutely sixty percent. We're going to still see sharp 88 00:04:27,680 --> 00:04:33,279 Speaker 3: declines in imports from China with negative ramifications throughout the economy. 89 00:04:33,320 --> 00:04:35,560 Speaker 2: We've seen some pill forward and Sunday. We've seen that 90 00:04:35,600 --> 00:04:37,680 Speaker 2: in retail sales, and we're probably going to see that 91 00:04:37,680 --> 00:04:40,560 Speaker 2: in invantries too. I want to understand from your perspective 92 00:04:40,560 --> 00:04:42,479 Speaker 2: how much time we actually have here. It takes somewhere 93 00:04:42,480 --> 00:04:44,280 Speaker 2: between twenty to forty days to got a shift from 94 00:04:44,320 --> 00:04:47,560 Speaker 2: China to the United States. Taris went on an April second. 95 00:04:47,560 --> 00:04:48,400 Speaker 2: How close are we? 96 00:04:48,920 --> 00:04:52,479 Speaker 3: This is another issue that we're debating in real time. 97 00:04:53,040 --> 00:04:56,479 Speaker 3: My view is that the second quarter is likely to 98 00:04:56,520 --> 00:04:59,680 Speaker 3: be okay, that we've seen the soft data fall off, 99 00:04:59,720 --> 00:05:02,000 Speaker 3: but the hard data are lagging and they're going to 100 00:05:02,000 --> 00:05:06,839 Speaker 3: continue to lag as people continue to front load inventories 101 00:05:06,880 --> 00:05:11,160 Speaker 3: and probably certain types of consumption. But the third and 102 00:05:11,200 --> 00:05:13,880 Speaker 3: fourth quarter could be pretty ugly. How can that's the 103 00:05:13,920 --> 00:05:14,719 Speaker 3: heart of darkness? 104 00:05:14,720 --> 00:05:17,440 Speaker 2: How convinced are you and the tame that that'd respond quickly? 105 00:05:17,520 --> 00:05:20,400 Speaker 2: The Federal Reserve being thy to any sign of weakness. 106 00:05:20,640 --> 00:05:24,600 Speaker 3: The FAT is in a very tough place here where 107 00:05:24,600 --> 00:05:28,360 Speaker 3: the bond market is equally focused, if not more focused 108 00:05:28,360 --> 00:05:31,360 Speaker 3: on what's going to happen with inflation, and so what 109 00:05:31,400 --> 00:05:33,800 Speaker 3: the FED has got to do is make sure that 110 00:05:33,839 --> 00:05:38,600 Speaker 3: the inflation expectations are well anchored, and once that's achieved, 111 00:05:38,640 --> 00:05:40,960 Speaker 3: then they can pivot to rate cuts. And I do 112 00:05:41,080 --> 00:05:43,440 Speaker 3: expect by the end of the year will be seeing 113 00:05:43,560 --> 00:05:46,320 Speaker 3: ray cuts, but it could take us a few months 114 00:05:46,320 --> 00:05:48,960 Speaker 3: and it may not be a conferred side of weakness. 115 00:05:48,480 --> 00:05:49,800 Speaker 2: And that could mean a lot of hand in this 116 00:05:49,880 --> 00:05:52,840 Speaker 2: market stone account absolutely could nice and it's going to 117 00:05:52,880 --> 00:05:55,279 Speaker 2: say thank you, sir nice and shakes that of sisy. 118 00:06:05,400 --> 00:06:07,000 Speaker 2: Here's a take from a man who's seen it, or 119 00:06:07,040 --> 00:06:10,240 Speaker 2: the former Deputy Treasury Secretary Wally Otama writing, the only 120 00:06:10,240 --> 00:06:12,719 Speaker 2: way we can address the China problem is by working 121 00:06:12,720 --> 00:06:15,080 Speaker 2: with other countries. But for many of them, they're still 122 00:06:15,120 --> 00:06:17,760 Speaker 2: waiting to hear while the US even wants while he 123 00:06:17,839 --> 00:06:19,240 Speaker 2: joins to snaf for more. What a good money. So 124 00:06:19,320 --> 00:06:20,320 Speaker 2: it's good to see you, Good. 125 00:06:20,160 --> 00:06:21,800 Speaker 6: To see you here, Thanks for coming to Washington, DC. 126 00:06:22,120 --> 00:06:23,880 Speaker 2: You've been in the room of the Chinese many times. 127 00:06:24,120 --> 00:06:26,560 Speaker 2: How difficult is it to negotiate with them? Just set 128 00:06:26,560 --> 00:06:27,760 Speaker 2: the scene? What is it like? 129 00:06:28,080 --> 00:06:30,719 Speaker 7: The reality for the Chinese is they are very systematic 130 00:06:30,760 --> 00:06:33,480 Speaker 7: in trying to find your weaknesses by both talking to 131 00:06:33,520 --> 00:06:35,520 Speaker 7: you directly but also talking. 132 00:06:35,240 --> 00:06:36,360 Speaker 6: Around you to other people. 133 00:06:36,440 --> 00:06:39,159 Speaker 7: So when you are negotiating with the Chinese, you have 134 00:06:39,240 --> 00:06:41,680 Speaker 7: to be very clear about what you want. You have 135 00:06:41,720 --> 00:06:43,360 Speaker 7: to repeat it over and over. You need to tell 136 00:06:43,400 --> 00:06:45,640 Speaker 7: your friends and your allies in the hopes that you'll 137 00:06:45,640 --> 00:06:48,000 Speaker 7: get fifty percent of what you want in that conversation. 138 00:06:48,400 --> 00:06:50,800 Speaker 7: And it's always about how do you make progress rather 139 00:06:50,839 --> 00:06:52,680 Speaker 7: perfect than perfection with the Chinese. 140 00:06:52,720 --> 00:06:55,359 Speaker 2: You refer to the China problem. What is the problem 141 00:06:55,480 --> 00:06:56,960 Speaker 2: and what you make of the approach so far? 142 00:06:57,640 --> 00:06:59,440 Speaker 7: The reality is and over the course of this week, 143 00:06:59,480 --> 00:07:01,279 Speaker 7: in addition to getting to see you, I've gotten to 144 00:07:01,279 --> 00:07:05,039 Speaker 7: see a number of my former counterparts. And the thing 145 00:07:05,080 --> 00:07:08,320 Speaker 7: you've heard from our closest allies is just disappointment because 146 00:07:08,560 --> 00:07:11,400 Speaker 7: they all face the same challenge, which is that China 147 00:07:11,520 --> 00:07:16,040 Speaker 7: takes steps to subsidize their industries and export access capacity 148 00:07:16,160 --> 00:07:19,360 Speaker 7: to the world. And the challenge we have in the 149 00:07:19,440 --> 00:07:21,800 Speaker 7: United States is the same challenge they have in Europe, 150 00:07:22,120 --> 00:07:24,440 Speaker 7: the same challenge they have in parts of Southeast Asia, 151 00:07:24,760 --> 00:07:26,480 Speaker 7: And for many of them, they want to work with 152 00:07:26,560 --> 00:07:30,360 Speaker 7: us to address this because if the US blocks Chinese 153 00:07:30,360 --> 00:07:33,200 Speaker 7: goods from coming to America. The people today who are 154 00:07:33,200 --> 00:07:34,840 Speaker 7: afraid those goods are kind of show up on their 155 00:07:34,840 --> 00:07:37,600 Speaker 7: shores are in Southeast Asia and in Europe, and they 156 00:07:37,600 --> 00:07:39,200 Speaker 7: now need to think through what are they going to 157 00:07:39,200 --> 00:07:41,240 Speaker 7: do to deal with China's access capacity is coming in 158 00:07:41,240 --> 00:07:41,680 Speaker 7: their direction. 159 00:07:41,920 --> 00:07:43,960 Speaker 5: Let's look at Europe. Are they speaking with one voice? 160 00:07:43,960 --> 00:07:46,640 Speaker 1: We had the Spanish Finance minister in the room here 161 00:07:46,760 --> 00:07:49,280 Speaker 1: yesterday and John picked up on something he said, he 162 00:07:49,320 --> 00:07:52,000 Speaker 1: called it China an ally and we have seen the 163 00:07:52,000 --> 00:07:55,680 Speaker 1: Prime Minister Pedro Sanchez go to Beijing three times in 164 00:07:55,720 --> 00:07:58,400 Speaker 1: the past two years. It feels like they're playcating to 165 00:07:58,600 --> 00:08:01,600 Speaker 1: China and actually not coming on board with the United States. 166 00:08:01,800 --> 00:08:03,720 Speaker 7: So I think you're right that's part of the challenges 167 00:08:03,760 --> 00:08:06,160 Speaker 7: that Europe doesn't speak with one voice, because today, if 168 00:08:06,200 --> 00:08:07,960 Speaker 7: Europe did speak with one voice, they'd be in a 169 00:08:08,000 --> 00:08:12,520 Speaker 7: better position to negotiate terms. Europe is the third largest 170 00:08:12,520 --> 00:08:14,640 Speaker 7: economy in the world. If they were willing to work 171 00:08:14,680 --> 00:08:17,600 Speaker 7: together to do things like put in place the free 172 00:08:17,640 --> 00:08:21,120 Speaker 7: trade agreement they have with countries like with other countries, 173 00:08:21,400 --> 00:08:24,200 Speaker 7: and to go and work with the TPP countries, they'd 174 00:08:24,200 --> 00:08:26,000 Speaker 7: have the ability to dictate more terms. 175 00:08:26,160 --> 00:08:27,480 Speaker 6: But today, because they're unwilling to. 176 00:08:27,520 --> 00:08:30,280 Speaker 7: They're caught between China and the US, and that's the 177 00:08:30,320 --> 00:08:33,600 Speaker 7: most important thing for the Chinese. They're concerned that if 178 00:08:33,640 --> 00:08:37,040 Speaker 7: they don't find a way to dial back this, they're 179 00:08:37,040 --> 00:08:39,400 Speaker 7: going to end up in a place where countries like Europe, 180 00:08:39,520 --> 00:08:41,839 Speaker 7: or regions like Europe or other countries will choose the 181 00:08:41,960 --> 00:08:45,199 Speaker 7: US over them. But unfortunately the approach the Trump administration 182 00:08:45,240 --> 00:08:48,040 Speaker 7: has taken as instead of bringing Europe closer to US, 183 00:08:48,080 --> 00:08:50,079 Speaker 7: put them in a place where they're up to for debate. 184 00:08:50,080 --> 00:08:52,000 Speaker 7: And you hear things like that from the Spanish in 185 00:08:52,080 --> 00:08:53,880 Speaker 7: terms of are we allies with the US? 186 00:08:53,960 --> 00:08:55,120 Speaker 6: Are we allies with China? 187 00:08:55,160 --> 00:08:56,800 Speaker 1: And then Rachel Reeves in the UK and along the 188 00:08:56,800 --> 00:08:59,040 Speaker 1: sidelines to the IMF is saying things like Trump is right, 189 00:08:59,200 --> 00:09:02,360 Speaker 1: China does need to rebalance their economy. How difficult was 190 00:09:02,400 --> 00:09:05,160 Speaker 1: it for you and Treasure Secretary Jadet Yellen to get 191 00:09:05,160 --> 00:09:07,800 Speaker 1: that message across to China. You have to start rebalancing 192 00:09:07,840 --> 00:09:08,559 Speaker 1: your economy. 193 00:09:08,679 --> 00:09:11,120 Speaker 7: And this is not a new message, Secretary Pulson center 194 00:09:11,160 --> 00:09:15,520 Speaker 7: to the Chinese Secretary Geidner, Secretary Lou Secretary Yellen, and 195 00:09:15,760 --> 00:09:18,079 Speaker 7: I know that the current secretary is sending it as well. 196 00:09:18,360 --> 00:09:20,880 Speaker 7: The truth is that China is only going to respond 197 00:09:20,920 --> 00:09:22,719 Speaker 7: if they feel pressure, and it's not just going to 198 00:09:22,720 --> 00:09:24,439 Speaker 7: be from the United States. They've got to feel it 199 00:09:24,480 --> 00:09:26,120 Speaker 7: from the UK, they have to feel it from Europe. 200 00:09:26,120 --> 00:09:27,680 Speaker 7: And the best way to do that is to work 201 00:09:27,679 --> 00:09:31,439 Speaker 7: together to confront the Chinese. Today, the Chinese feel empowered 202 00:09:31,480 --> 00:09:34,200 Speaker 7: because instead of being confronted by the world who's suffering 203 00:09:34,200 --> 00:09:36,560 Speaker 7: from their access capacity, the United States. 204 00:09:36,360 --> 00:09:38,360 Speaker 6: In lots of ways, has alienated the world. 205 00:09:38,480 --> 00:09:40,920 Speaker 7: The hope over the next few weeks is that a 206 00:09:41,040 --> 00:09:43,559 Speaker 7: Secretary Bessett and the President are going to be able 207 00:09:43,600 --> 00:09:45,600 Speaker 7: to work with our allies and partners to find an 208 00:09:45,600 --> 00:09:47,440 Speaker 7: approach that works, because the people who are going to 209 00:09:47,440 --> 00:09:50,160 Speaker 7: suffer most from this are American consumers. 210 00:09:50,559 --> 00:09:51,480 Speaker 6: You can see their bills go. 211 00:09:51,440 --> 00:09:54,160 Speaker 7: Up by three thousand dollars, and that's not just the statistics. 212 00:09:54,200 --> 00:09:56,880 Speaker 7: You've heard all of the CEOs who've been doing earning 213 00:09:56,920 --> 00:09:59,160 Speaker 7: calls who have said that they're going to have to 214 00:09:59,240 --> 00:10:02,319 Speaker 7: raise prices, and they've all said that they had great 215 00:10:02,360 --> 00:10:05,000 Speaker 7: first quarters because the economy is doing quite well. So 216 00:10:05,200 --> 00:10:07,280 Speaker 7: we're in a place right now where if the United 217 00:10:07,320 --> 00:10:09,679 Speaker 7: States doesn't get into a posture of working with our 218 00:10:09,679 --> 00:10:12,600 Speaker 7: allies and partners and reducing these tariff rates. I can't 219 00:10:12,640 --> 00:10:14,760 Speaker 7: guarantee that we're going to have a recession, but I 220 00:10:14,760 --> 00:10:16,400 Speaker 7: can say that prices are going to go up for 221 00:10:16,400 --> 00:10:17,319 Speaker 7: American consumers. 222 00:10:17,480 --> 00:10:18,559 Speaker 5: Is it too late to. 223 00:10:18,559 --> 00:10:21,120 Speaker 4: Really create that alliance and go after China, as China 224 00:10:21,160 --> 00:10:25,040 Speaker 4: already made inroads in terms of making alliances, whether it's 225 00:10:25,040 --> 00:10:27,520 Speaker 4: with the stains of the world or even in Southeast Asia. 226 00:10:27,600 --> 00:10:29,439 Speaker 7: So the interesting thing I've heard over the course the 227 00:10:29,520 --> 00:10:32,800 Speaker 7: last few days here is that people are equally as 228 00:10:32,840 --> 00:10:36,400 Speaker 7: nervous of American tariffs as they are of Chinese access capacity. 229 00:10:36,640 --> 00:10:39,600 Speaker 7: So the people who live in Southeast Asia, the people 230 00:10:39,640 --> 00:10:41,920 Speaker 7: in Europe are worried that all those goods that were 231 00:10:41,920 --> 00:10:45,080 Speaker 7: headed to the United States, that we're hurting our industrial base, 232 00:10:45,360 --> 00:10:47,840 Speaker 7: are heading to a port near you, and that China's 233 00:10:47,880 --> 00:10:51,040 Speaker 7: access capacity is going to overwhelm them. So I don't 234 00:10:51,080 --> 00:10:53,480 Speaker 7: think it's too late, but our allies and partners are 235 00:10:53,480 --> 00:10:55,760 Speaker 7: going to be more cautious about dealing with us. But 236 00:10:55,800 --> 00:10:57,760 Speaker 7: the reason that countries are coming to the United States 237 00:10:57,880 --> 00:11:00,720 Speaker 7: is because they want to make sure that the industries 238 00:11:00,720 --> 00:11:03,760 Speaker 7: and their countries aren't overwhelmed by Chinese overcapacity either. So 239 00:11:03,960 --> 00:11:06,640 Speaker 7: there is an opportunity here, but it's not one that's 240 00:11:06,640 --> 00:11:09,000 Speaker 7: going to be open forever, and the Chinese are working 241 00:11:09,000 --> 00:11:11,400 Speaker 7: hard to try and counter that. President She's visit was 242 00:11:11,440 --> 00:11:14,920 Speaker 7: all about trying to buttress their ability to have allies 243 00:11:14,960 --> 00:11:18,520 Speaker 7: and partners as the US confronts them. But Vietnam, in 244 00:11:18,520 --> 00:11:21,760 Speaker 7: addition to gaining a great deal of economic value from 245 00:11:21,760 --> 00:11:24,800 Speaker 7: their relationship with China, has to be worried about Chinese 246 00:11:25,160 --> 00:11:26,800 Speaker 7: capacity showing up there as well. 247 00:11:26,960 --> 00:11:28,640 Speaker 4: There was a story in the Financial Times and on 248 00:11:28,679 --> 00:11:32,520 Speaker 4: Bloomberg about how Apple was moving all of its iPhone 249 00:11:32,559 --> 00:11:36,080 Speaker 4: production away from China into India hopefully by the end 250 00:11:36,120 --> 00:11:38,520 Speaker 4: of next year. This hopefully for them. That is the 251 00:11:38,559 --> 00:11:40,880 Speaker 4: projection they put out there is that how this is 252 00:11:40,880 --> 00:11:43,600 Speaker 4: going to work from what you hear that essentially India 253 00:11:43,679 --> 00:11:45,680 Speaker 4: is going to be the big beneficiary from a lot 254 00:11:45,679 --> 00:11:48,200 Speaker 4: of the tariffs, particularly on China. 255 00:11:48,240 --> 00:11:51,800 Speaker 7: That's how it's worked the entire time since basically the 256 00:11:51,840 --> 00:11:54,920 Speaker 7: Obama administration, a number of companies have been moving to 257 00:11:55,040 --> 00:11:58,040 Speaker 7: a China plus one strategy, where they build for China 258 00:11:58,160 --> 00:12:00,560 Speaker 7: in China and they build for everybody else somewhere else. 259 00:12:00,840 --> 00:12:04,800 Speaker 7: That's been Vietnam, Malaysia and India but the problem has 260 00:12:04,880 --> 00:12:08,280 Speaker 7: been Chinese companies have taken a China plus one strategy too. 261 00:12:08,520 --> 00:12:10,320 Speaker 7: They've moved away from the terrorists they put in China 262 00:12:10,360 --> 00:12:14,079 Speaker 7: by setting up shops in Vietnam, Malaysia and probably now 263 00:12:14,080 --> 00:12:16,280 Speaker 7: in India too. That's why we have to work with 264 00:12:16,320 --> 00:12:19,320 Speaker 7: these countries because the Chinese are being very clever about this. 265 00:12:19,480 --> 00:12:21,439 Speaker 7: They see the huge tariffs have been placed on them 266 00:12:21,440 --> 00:12:24,040 Speaker 7: in China, so they're setting up shop. And my understanding 267 00:12:24,080 --> 00:12:26,720 Speaker 7: is that a big part of the negotiations with Mexico 268 00:12:26,720 --> 00:12:30,199 Speaker 7: and Canada is around making sure that Chinese firms can't 269 00:12:30,240 --> 00:12:33,439 Speaker 7: set up plants in Mexico. Ultimately, I think that they 270 00:12:33,480 --> 00:12:35,160 Speaker 7: should be able to get to a deal with Mexico 271 00:12:35,400 --> 00:12:39,079 Speaker 7: and Canada because we're such an integrated economy, but it's 272 00:12:39,120 --> 00:12:40,599 Speaker 7: going to be harder to get to those kind of 273 00:12:40,640 --> 00:12:42,520 Speaker 7: deals with countries that are closer to China. 274 00:12:42,640 --> 00:12:44,640 Speaker 2: Well, I've got thirty seconds left. Is there anything you 275 00:12:44,679 --> 00:12:47,400 Speaker 2: wish you'd done differently with regards to this topic. 276 00:12:48,440 --> 00:12:50,439 Speaker 7: I think the reality is that the thing you always 277 00:12:50,480 --> 00:12:51,880 Speaker 7: hope that you could do is get to a deal 278 00:12:51,920 --> 00:12:54,200 Speaker 7: with your allies and partners that confront the Chinese. But 279 00:12:54,240 --> 00:12:56,200 Speaker 7: the other thing that I think is clear is that 280 00:12:57,200 --> 00:12:59,000 Speaker 7: terrorists work when you use them strategically. 281 00:12:59,160 --> 00:13:00,880 Speaker 6: They don't work when you use them in. 282 00:13:00,880 --> 00:13:03,000 Speaker 7: A broad based way, because what that does is it 283 00:13:03,040 --> 00:13:05,319 Speaker 7: causes more pain for your consumers and your allies. 284 00:13:05,559 --> 00:13:06,760 Speaker 6: And the thing that's worried me a. 285 00:13:06,679 --> 00:13:10,360 Speaker 7: Great deal is talking to asset allocators around the world, 286 00:13:10,720 --> 00:13:12,800 Speaker 7: and for each one of them, they've been overweighted the 287 00:13:12,920 --> 00:13:16,319 Speaker 7: United States for a long time because of the exceptionals 288 00:13:16,440 --> 00:13:19,720 Speaker 7: of our economy. But today each one is talking about 289 00:13:19,880 --> 00:13:23,000 Speaker 7: reallocating their assets. Hard to find other places to do 290 00:13:23,040 --> 00:13:25,199 Speaker 7: that in the short term, but if over the long 291 00:13:25,320 --> 00:13:28,079 Speaker 7: term we don't provide clarity and certainty the things the US, 292 00:13:28,640 --> 00:13:31,520 Speaker 7: the American economy has done over the last decades, I 293 00:13:31,520 --> 00:13:33,800 Speaker 7: do worry about our ability to attract capital into the 294 00:13:33,880 --> 00:13:34,520 Speaker 7: United States. 295 00:13:34,720 --> 00:13:36,400 Speaker 2: Wale, it's going to see us a great to see 296 00:13:36,480 --> 00:13:38,640 Speaker 2: nice bit of this. So let's just talk about particularly 297 00:13:38,679 --> 00:13:40,600 Speaker 2: the deficit. I'm let to talk about that with Wally 298 00:13:40,679 --> 00:13:43,880 Speaker 2: at another time. They FOMA definitely try to resacretrate Wale 299 00:13:43,920 --> 00:13:56,040 Speaker 2: out of YMI. We begin this SA with this week's 300 00:13:56,080 --> 00:13:59,520 Speaker 2: rally on Hold as Chinatown place progress in trit and negustiations. 301 00:13:59,640 --> 00:14:02,280 Speaker 2: Jason Thomas of Carlia, writing, if treasury yields do not 302 00:14:02,440 --> 00:14:06,080 Speaker 2: decline when stocks sell off, investors may discover they've been 303 00:14:06,120 --> 00:14:09,440 Speaker 2: paying for a hedge that no longer works. Jason joined 304 00:14:09,440 --> 00:14:11,120 Speaker 2: a snaff for more. Jason, good morning, good to see it, 305 00:14:11,200 --> 00:14:11,680 Speaker 2: Good to see you. 306 00:14:11,679 --> 00:14:12,320 Speaker 8: Thanks for having me. 307 00:14:12,360 --> 00:14:14,200 Speaker 2: I'm pleased you've picked up on that piece, because I 308 00:14:14,200 --> 00:14:15,760 Speaker 2: want to pick up on it with you as well. 309 00:14:16,000 --> 00:14:18,800 Speaker 2: This em type dynamic that started to take hold of 310 00:14:18,920 --> 00:14:23,240 Speaker 2: US assets dollar denominated assets. What's behind it? One? And 311 00:14:23,320 --> 00:14:25,080 Speaker 2: do you think it's sustainable too? 312 00:14:25,720 --> 00:14:25,920 Speaker 6: Well? 313 00:14:25,960 --> 00:14:27,760 Speaker 9: I think, first of all, we have to remember that 314 00:14:27,880 --> 00:14:30,960 Speaker 9: bonds are volatile in a way that cash is not so. 315 00:14:31,000 --> 00:14:33,240 Speaker 9: At the start of this month, if you had a 316 00:14:33,280 --> 00:14:35,800 Speaker 9: one hundred dollars invested in money markets, it was yielding 317 00:14:35,880 --> 00:14:38,400 Speaker 9: four point three percent the ten year treasury at the 318 00:14:38,440 --> 00:14:42,240 Speaker 9: time four percent. A week later, the cash was still 319 00:14:42,240 --> 00:14:45,280 Speaker 9: at poor as it always is, the bond was down 320 00:14:45,360 --> 00:14:48,480 Speaker 9: at ninety six. And so in the past there's generally been, 321 00:14:48,480 --> 00:14:51,160 Speaker 9: of course, a term premium to compensate for the volatility 322 00:14:51,560 --> 00:14:54,880 Speaker 9: that went away in the decade after the GFC. Why 323 00:14:55,480 --> 00:14:58,040 Speaker 9: because anytime there was a hint of weakness in the economy, 324 00:14:58,600 --> 00:15:02,280 Speaker 9: anytime there was decline in stocks, the FED would launch 325 00:15:02,320 --> 00:15:06,400 Speaker 9: another round of QE, with of course the intention of 326 00:15:06,480 --> 00:15:09,000 Speaker 9: driving down bond yields. So of course there are many 327 00:15:09,080 --> 00:15:13,320 Speaker 9: risk parity strategies. You had investors who are hedging their 328 00:15:13,360 --> 00:15:16,480 Speaker 9: stock market risk through leverage positions and bonds. 329 00:15:16,600 --> 00:15:17,480 Speaker 8: That worked very well. 330 00:15:17,680 --> 00:15:21,440 Speaker 9: Some years, stocks down twelve percent, those leverage bond positions 331 00:15:21,520 --> 00:15:24,800 Speaker 9: up fifteen percent. Now I think we're in a somewhat 332 00:15:24,800 --> 00:15:28,960 Speaker 9: different world. Partly, of course, that's the external sector wondering 333 00:15:29,000 --> 00:15:33,560 Speaker 9: about being over allocated to the US. That's stocks, that's bonds. 334 00:15:33,560 --> 00:15:37,040 Speaker 9: I think, more broadly, the deficit. When you think about 335 00:15:37,240 --> 00:15:42,160 Speaker 9: how large the deficit is this year, treasury net issuance 336 00:15:42,560 --> 00:15:46,760 Speaker 9: is consuming over forty two percent of US private savings 337 00:15:47,280 --> 00:15:49,760 Speaker 9: that is, the savings of the household sector, the free 338 00:15:49,840 --> 00:15:53,280 Speaker 9: cash flow of the corporate sector. So you know, if 339 00:15:53,280 --> 00:15:55,320 Speaker 9: this is not going to be financed in large part 340 00:15:55,760 --> 00:15:59,600 Speaker 9: by external investors, you have to wonder what the market 341 00:15:59,640 --> 00:16:02,600 Speaker 9: clearing interest rate is going to be. So I think 342 00:16:02,640 --> 00:16:04,800 Speaker 9: that what we're seeing is that if there is not 343 00:16:04,920 --> 00:16:10,200 Speaker 9: this hedge, if treasuries do not predictably rise when stocks fall, 344 00:16:10,840 --> 00:16:13,600 Speaker 9: then there has to be a much larger risk premium 345 00:16:13,640 --> 00:16:16,960 Speaker 9: on bonds relative to cash, and if you look historically 346 00:16:17,040 --> 00:16:19,480 Speaker 9: the nineteen eighties nineteen nineties, that was in the range 347 00:16:19,480 --> 00:16:21,280 Speaker 9: of about one hundred and fifty basis points. 348 00:16:21,640 --> 00:16:24,280 Speaker 2: So fill signe that that process is underway. Where can 349 00:16:24,320 --> 00:16:26,000 Speaker 2: our way through it? Without doubt? You can say on 350 00:16:26,040 --> 00:16:28,320 Speaker 2: the screen and the price sanction of the last several weeks, 351 00:16:28,480 --> 00:16:30,080 Speaker 2: I want to want to stand from your perspective, how 352 00:16:30,120 --> 00:16:32,840 Speaker 2: investors should now manage that risk. They've got very used 353 00:16:32,840 --> 00:16:35,400 Speaker 2: to having this ballast in the portfolio. The treasuries typically 354 00:16:35,480 --> 00:16:37,120 Speaker 2: provide where do you go now? 355 00:16:37,600 --> 00:16:39,680 Speaker 9: Well, of course I would recommend that people go to 356 00:16:39,920 --> 00:16:43,520 Speaker 9: private assets, particularly private credit, but I think that the 357 00:16:44,000 --> 00:16:48,960 Speaker 9: general portfolio thoughts have to be re examined. There's talks 358 00:16:48,960 --> 00:16:51,680 Speaker 9: that you know of a fifty to thirty twenty portfolio, 359 00:16:51,960 --> 00:16:55,080 Speaker 9: but in general it's that what has worked, what works 360 00:16:55,120 --> 00:16:58,160 Speaker 9: so well in that decade after the GFC, is not 361 00:16:58,240 --> 00:16:59,880 Speaker 9: going to work today. 362 00:16:59,680 --> 00:17:00,760 Speaker 8: So whatever your. 363 00:17:00,600 --> 00:17:04,240 Speaker 9: Solution is, there needs to be a rethink. And I 364 00:17:04,280 --> 00:17:08,280 Speaker 9: think that again it's been so ingrained that treasuries are 365 00:17:08,280 --> 00:17:11,399 Speaker 9: supposed to rise in value when stocks fall. There's no 366 00:17:11,600 --> 00:17:14,840 Speaker 9: mathematical law that that's supposed to occur. And again, the 367 00:17:15,200 --> 00:17:19,040 Speaker 9: return correlation with stocks and bonds was positive in the 368 00:17:19,080 --> 00:17:22,360 Speaker 9: nineteen eighties and nineteen nineties, so this is not entirely new. 369 00:17:22,680 --> 00:17:22,880 Speaker 5: Yet. 370 00:17:23,000 --> 00:17:25,680 Speaker 4: There is a larger consequence here, though. I'm thinking through 371 00:17:25,720 --> 00:17:27,320 Speaker 4: as you're saying this, and if you're talking about a 372 00:17:27,320 --> 00:17:29,919 Speaker 4: clearing price, it's different for treasuries to account for that 373 00:17:29,960 --> 00:17:31,320 Speaker 4: additional res risk premium. 374 00:17:31,440 --> 00:17:32,320 Speaker 5: We could be talking. 375 00:17:32,080 --> 00:17:34,639 Speaker 4: About five five and a half percent on ten your 376 00:17:34,640 --> 00:17:37,960 Speaker 4: treasury is pretty easily based on your calculations, which would 377 00:17:37,960 --> 00:17:40,760 Speaker 4: have a massive effect on private aid valuations. 378 00:17:40,240 --> 00:17:42,080 Speaker 5: Which would have a massive effect on. 379 00:17:42,359 --> 00:17:45,159 Speaker 4: Stock valuations, which just kind of really speaks to this 380 00:17:45,240 --> 00:17:47,200 Speaker 4: question of whether it's a sell America trade. 381 00:17:47,440 --> 00:17:50,280 Speaker 9: Well, I think that again, it's if I were thinking 382 00:17:50,320 --> 00:17:53,160 Speaker 9: about exposure today, it would be short duration. I see 383 00:17:53,160 --> 00:17:55,119 Speaker 9: a lot of duration risk in the market, and I 384 00:17:55,119 --> 00:17:57,760 Speaker 9: think it's a generally investors have not had to worry 385 00:17:57,800 --> 00:18:02,240 Speaker 9: about duration risk. It's again, and the mindset is, whenever 386 00:18:02,240 --> 00:18:05,240 Speaker 9: we get into trouble, there's going to be another round 387 00:18:05,240 --> 00:18:08,440 Speaker 9: of QE and they're going to drive down longer term yields. 388 00:18:08,560 --> 00:18:11,400 Speaker 9: Now we're in a situation where where those prices could 389 00:18:11,400 --> 00:18:14,440 Speaker 9: move in the opposite direction, and that actually compounds losses. 390 00:18:14,960 --> 00:18:16,520 Speaker 8: I think that the issue right now. 391 00:18:16,560 --> 00:18:20,480 Speaker 9: Also, the Treasury is funding twenty two percent of the 392 00:18:20,520 --> 00:18:22,760 Speaker 9: outstanding stock of debt in the bill market. 393 00:18:22,920 --> 00:18:23,840 Speaker 8: In the money. 394 00:18:23,600 --> 00:18:27,160 Speaker 9: Market, there's of course a desire to turn that out, 395 00:18:27,800 --> 00:18:30,680 Speaker 9: but there's a of course a hesitancy. You want to 396 00:18:30,720 --> 00:18:32,960 Speaker 9: write wait for the right time. I think people were 397 00:18:33,000 --> 00:18:36,000 Speaker 9: hoping that the tenure would fall below four percent, then 398 00:18:36,080 --> 00:18:38,880 Speaker 9: let's turn out some of that debt, and by waiting 399 00:18:39,000 --> 00:18:41,000 Speaker 9: they might be in a situation where they have to 400 00:18:41,040 --> 00:18:43,840 Speaker 9: turn it out at much higher yields. 401 00:18:43,600 --> 00:18:44,919 Speaker 8: So it's certainly a concern. 402 00:18:45,000 --> 00:18:47,800 Speaker 9: And I think you know, as was mentioned earlier, if 403 00:18:47,840 --> 00:18:50,320 Speaker 9: you do have a downturn, if you have a decline 404 00:18:50,320 --> 00:18:53,480 Speaker 9: in tax receipts, if you have an increase in transfer payments, 405 00:18:54,080 --> 00:18:55,960 Speaker 9: that just the scale of debt issuins and now it's 406 00:18:56,440 --> 00:18:58,840 Speaker 9: go from forty percent to fifty or sixty percent of 407 00:18:58,880 --> 00:19:00,200 Speaker 9: private savings being concerned. 408 00:19:00,480 --> 00:19:01,600 Speaker 8: So again, I think it's. 409 00:19:01,800 --> 00:19:06,280 Speaker 9: Taking the short term assets. You know, sometimes the credit 410 00:19:06,320 --> 00:19:09,520 Speaker 9: spread on that is less risky than the duration spread 411 00:19:09,720 --> 00:19:11,600 Speaker 9: of holding longer dated assets. 412 00:19:11,600 --> 00:19:14,640 Speaker 4: As this dynamic removed a lot of the power from 413 00:19:14,680 --> 00:19:17,560 Speaker 4: the Fed Reserve to really address downturns, and I say 414 00:19:17,560 --> 00:19:19,680 Speaker 4: this at a time where potentially if they drop rates 415 00:19:19,760 --> 00:19:22,720 Speaker 4: right now, that will only lead to a furthering of 416 00:19:22,720 --> 00:19:25,000 Speaker 4: this trend of yields in the long end going up. 417 00:19:25,240 --> 00:19:27,400 Speaker 9: It's a great point, but we have to remember the 418 00:19:27,440 --> 00:19:32,479 Speaker 9: FED is an extremely dubbish institution. I mean, you know, 419 00:19:32,960 --> 00:19:35,360 Speaker 9: and of course they say that's because of the dual mandate, 420 00:19:35,440 --> 00:19:38,600 Speaker 9: but I mean, think about nineteen ninety eight, the US 421 00:19:38,600 --> 00:19:41,840 Speaker 9: economy and real terms growing of four percent, employment to 422 00:19:41,880 --> 00:19:45,919 Speaker 9: population ratios at all time highs, the enthusiasm of the 423 00:19:45,920 --> 00:19:46,480 Speaker 9: stock market. 424 00:19:46,480 --> 00:19:47,960 Speaker 8: This is two years removed from. 425 00:19:47,880 --> 00:19:51,879 Speaker 9: Alan Greenspan's irrational exuberance speech, and they cut rates by 426 00:19:51,880 --> 00:19:57,440 Speaker 9: seventy five basis points because the hedge fund failed. When 427 00:19:57,440 --> 00:19:59,320 Speaker 9: you think about twenty twenty, the way they did the 428 00:19:59,359 --> 00:20:02,400 Speaker 9: autopsy the last ten years and the statement for policy 429 00:20:02,440 --> 00:20:05,439 Speaker 9: goals going forward, they said the big mistake in the 430 00:20:05,480 --> 00:20:09,960 Speaker 9: decade of record monetary accommodation was hiking too fast and 431 00:20:10,040 --> 00:20:13,160 Speaker 9: twenty fifteen, So the FED is going to cut this year. 432 00:20:13,280 --> 00:20:17,159 Speaker 9: I mean, it's funny that this is like controversial or oh, 433 00:20:17,200 --> 00:20:19,719 Speaker 9: the Fed's in a box. The FED is going to 434 00:20:19,760 --> 00:20:21,600 Speaker 9: cut and likely by September. 435 00:20:22,080 --> 00:20:25,960 Speaker 1: But how much has the pandemic actually hit them hard 436 00:20:26,000 --> 00:20:28,280 Speaker 1: in terms of wanting to make that mistake again. Governor 437 00:20:28,320 --> 00:20:31,360 Speaker 1: Waller said that to Mike McKee, that idea of being transient. 438 00:20:31,680 --> 00:20:34,440 Speaker 1: He's even nervous to say that word out loud. 439 00:20:34,720 --> 00:20:38,560 Speaker 9: I think that this is what Chair Powell has made clear, 440 00:20:38,880 --> 00:20:40,520 Speaker 9: is they can't do preemptive cuts. 441 00:20:41,600 --> 00:20:42,320 Speaker 8: They have to wait. 442 00:20:42,400 --> 00:20:45,240 Speaker 1: They have to see preemptively cut before the election. 443 00:20:46,000 --> 00:20:48,679 Speaker 9: Well, I think there was certainly a strong case for 444 00:20:48,760 --> 00:20:51,440 Speaker 9: raid cuts in September now whether they needed to cut 445 00:20:51,480 --> 00:20:54,000 Speaker 9: by one hundred basis points in just over three months. Again, 446 00:20:54,240 --> 00:20:56,320 Speaker 9: this is sort of the dubbsh nature of the institution 447 00:20:56,840 --> 00:20:59,639 Speaker 9: coming to the foe. But I think that this is 448 00:20:59,680 --> 00:21:03,400 Speaker 9: a sit situation where if you are cutting as tariffs 449 00:21:03,400 --> 00:21:05,919 Speaker 9: are first taking effect in terms of the increase in 450 00:21:05,920 --> 00:21:08,960 Speaker 9: the price level, you could accommodate a spiral. So they 451 00:21:08,960 --> 00:21:11,080 Speaker 9: have to have to wait. But we're talking about waiting 452 00:21:11,119 --> 00:21:13,760 Speaker 9: a couple of months. This isn't really you know, an 453 00:21:13,800 --> 00:21:15,920 Speaker 9: elongated pause or anything of that sort. 454 00:21:16,119 --> 00:21:18,360 Speaker 2: You said a lot of things that require some real 455 00:21:18,440 --> 00:21:21,639 Speaker 2: date thought, this one thing that scans me typically in 456 00:21:21,680 --> 00:21:24,879 Speaker 2: an economic downtnd bonce rally, and that allows a government 457 00:21:24,920 --> 00:21:28,880 Speaker 2: to act counca cyclically. A developed market government am of course, 458 00:21:28,920 --> 00:21:31,119 Speaker 2: fights a very different dynamic. And you saying that if 459 00:21:31,119 --> 00:21:33,399 Speaker 2: we come into a downs end a long end doesn't rally. 460 00:21:33,840 --> 00:21:35,639 Speaker 8: I think that the rally is going to be muted. 461 00:21:35,720 --> 00:21:37,640 Speaker 9: And so again if we think, I think the fat 462 00:21:37,680 --> 00:21:40,080 Speaker 9: will be more cautious this time, of course, but imagine 463 00:21:40,080 --> 00:21:43,320 Speaker 9: that we have base rates in the three sixty five range. 464 00:21:43,640 --> 00:21:45,840 Speaker 8: Well, well, these yields actually might. 465 00:21:45,760 --> 00:21:48,960 Speaker 9: Be appropriate given the risk premium, the term premium that 466 00:21:48,960 --> 00:21:50,960 Speaker 9: that is required. You know, maybe you get down to 467 00:21:51,040 --> 00:21:53,800 Speaker 9: something closer to four percent. But again, I think the 468 00:21:53,800 --> 00:21:56,880 Speaker 9: important thing as investors think about the next five years 469 00:21:57,240 --> 00:22:00,280 Speaker 9: is that if bonds do not rally in this scenario, 470 00:22:00,880 --> 00:22:04,480 Speaker 9: that on our prospective basis, when the economy recovers that 471 00:22:04,600 --> 00:22:06,800 Speaker 9: they're going to need to target much higher yields that 472 00:22:06,880 --> 00:22:10,840 Speaker 9: compensation for the bond price volatility that doesn't exist in cash. 473 00:22:11,240 --> 00:22:13,520 Speaker 2: Jason, this is an important exercise, and please you drop 474 00:22:13,560 --> 00:22:14,040 Speaker 2: by this morning. 475 00:22:14,080 --> 00:22:14,600 Speaker 8: Thanks so much for. 476 00:22:14,640 --> 00:22:17,000 Speaker 2: Having me, Thanks for being here, Jason Thomas. That of 477 00:22:17,119 --> 00:22:29,320 Speaker 2: call up Nastak hoping to provide stability in this volatile environment, 478 00:22:29,359 --> 00:22:31,280 Speaker 2: and the nast neax see a. Dana Friedman joined us 479 00:22:31,280 --> 00:22:32,720 Speaker 2: now for more day of Good morning, good to see you. 480 00:22:32,800 --> 00:22:34,280 Speaker 5: It's great to see you, great to be here. 481 00:22:34,400 --> 00:22:36,720 Speaker 2: Can you describe the last month for us if you can, 482 00:22:36,880 --> 00:22:39,399 Speaker 2: just how busy have things been, described, the volume, the 483 00:22:39,680 --> 00:22:41,840 Speaker 2: activity coming through your business. 484 00:22:42,160 --> 00:22:43,520 Speaker 5: Well, thanks, thanks for having me. 485 00:22:43,800 --> 00:22:46,080 Speaker 10: First of all, we just announced earnings yesterday, so I 486 00:22:46,080 --> 00:22:47,360 Speaker 10: think that shows a little bit. 487 00:22:47,359 --> 00:22:50,040 Speaker 5: Of what we've been what we've been working with. We 488 00:22:50,080 --> 00:22:51,680 Speaker 5: had twelve and a half percent revenue growth. 489 00:22:51,720 --> 00:22:54,760 Speaker 10: We had double digit growth in each of our three divisions, 490 00:22:55,520 --> 00:22:58,200 Speaker 10: and a couple of highlights. One is within our Capital 491 00:22:58,200 --> 00:23:01,480 Speaker 10: Access Platforms division, our index business screw twenty six percent 492 00:23:01,520 --> 00:23:04,359 Speaker 10: in the first quarter because of inflows. We had twenty 493 00:23:04,359 --> 00:23:07,160 Speaker 10: seven billion dollars of inflows in the quarter, very strong 494 00:23:07,200 --> 00:23:09,720 Speaker 10: futures volumes as well in our nas like one hundred franchise. 495 00:23:10,240 --> 00:23:12,320 Speaker 10: And then we look at our Fintech division that grew 496 00:23:12,359 --> 00:23:14,520 Speaker 10: ten percent, and one of the highlights there is our 497 00:23:14,560 --> 00:23:18,120 Speaker 10: anti financial crime business grew twenty one percent, and that's 498 00:23:18,160 --> 00:23:20,880 Speaker 10: an important key grower for us. And then within our 499 00:23:20,880 --> 00:23:24,000 Speaker 10: Market Services division, which is our trading business, that grew 500 00:23:24,080 --> 00:23:26,760 Speaker 10: nineteen percent in the first quarter because of record volumes 501 00:23:26,760 --> 00:23:28,800 Speaker 10: in the first quarter, and we continue to see those 502 00:23:28,880 --> 00:23:30,440 Speaker 10: volumes persist and actually. 503 00:23:30,240 --> 00:23:31,760 Speaker 5: Grow into April. 504 00:23:32,000 --> 00:23:34,480 Speaker 10: The first ten days of April we had five of 505 00:23:34,560 --> 00:23:37,920 Speaker 10: the top six trading days ever in US equities, four 506 00:23:37,960 --> 00:23:40,959 Speaker 10: of the top six trading days ever in options, and 507 00:23:41,000 --> 00:23:43,000 Speaker 10: in one of the days, like our we also measured 508 00:23:43,040 --> 00:23:45,800 Speaker 10: message traffic because that's how how many messages our systems 509 00:23:45,800 --> 00:23:48,640 Speaker 10: handling during a given day. On the peak day, which 510 00:23:48,680 --> 00:23:51,040 Speaker 10: was April seventh, we had five hundred and fifty billion 511 00:23:51,040 --> 00:23:54,080 Speaker 10: messages flow through our systems on that single day. So 512 00:23:54,480 --> 00:23:56,600 Speaker 10: it has been an incredible period of time from a 513 00:23:56,600 --> 00:23:57,480 Speaker 10: trading perspective. 514 00:23:57,920 --> 00:24:00,879 Speaker 5: And the one thing to note talked about this earlier. 515 00:24:00,960 --> 00:24:03,080 Speaker 10: You know, you don't get necessarily credit for this, but 516 00:24:03,119 --> 00:24:06,240 Speaker 10: the fact is that the plumbing within the markets, all 517 00:24:06,320 --> 00:24:10,080 Speaker 10: of the markets has done really, really well, hyper resilient. 518 00:24:10,400 --> 00:24:12,399 Speaker 10: I think we've all been able to manage this volume 519 00:24:12,440 --> 00:24:15,560 Speaker 10: extraordinarily well. We're very proud of that at NASAC, and 520 00:24:15,600 --> 00:24:17,399 Speaker 10: I can tell you that, you know, our markets have 521 00:24:17,480 --> 00:24:20,600 Speaker 10: done quite well in this period of heightened volatility, and we. 522 00:24:20,600 --> 00:24:22,080 Speaker 2: Don't thank you when it goes right, but we'd be 523 00:24:22,200 --> 00:24:24,000 Speaker 2: very quick to criticize you when it goes wrong. That's 524 00:24:24,000 --> 00:24:26,800 Speaker 2: for sure. You've handled a lot of volume. Volatility good, 525 00:24:26,800 --> 00:24:28,840 Speaker 2: when does holatility become bad? 526 00:24:29,200 --> 00:24:31,639 Speaker 10: Well, I think the one thing to recognize is volatility 527 00:24:31,640 --> 00:24:35,199 Speaker 10: in short term volatility that then can resolve itself. I 528 00:24:35,200 --> 00:24:38,160 Speaker 10: think that's something that we've seen, frankly multiple times over 529 00:24:38,200 --> 00:24:41,679 Speaker 10: the last five years. I think the concern is, of course, 530 00:24:41,920 --> 00:24:44,800 Speaker 10: is if we cannot have some certainty in the markets. 531 00:24:44,840 --> 00:24:46,919 Speaker 10: You know, investors like certainty, and right now it's a 532 00:24:47,000 --> 00:24:49,280 Speaker 10: very uncertain environment, so they tend to take a. 533 00:24:49,320 --> 00:24:51,400 Speaker 5: Risk off and attitude about that. 534 00:24:51,800 --> 00:24:54,520 Speaker 10: And as we know, we are hoping to see more 535 00:24:54,560 --> 00:24:56,840 Speaker 10: companies go public this year. We did have forty five 536 00:24:56,880 --> 00:25:00,240 Speaker 10: IPOs in the first quarter, raising five billion dollars. One 537 00:25:00,320 --> 00:25:03,160 Speaker 10: little side fact also, as we had seven companies switch 538 00:25:03,200 --> 00:25:06,359 Speaker 10: from New York to NASACK in the first quarter, and 539 00:25:06,400 --> 00:25:09,760 Speaker 10: we crossed three trillion dollar threshold of companies that have 540 00:25:09,800 --> 00:25:12,280 Speaker 10: switched to NASSACK since we started our switch program twenty 541 00:25:12,320 --> 00:25:15,080 Speaker 10: years ago. But I also would say, though we have 542 00:25:15,160 --> 00:25:16,840 Speaker 10: a lot of companies that are looking to go public 543 00:25:17,000 --> 00:25:21,040 Speaker 10: this year, we and right now, of course, investors are 544 00:25:21,080 --> 00:25:23,280 Speaker 10: not really in a mode of underwriting a lot of risks, 545 00:25:23,280 --> 00:25:26,200 Speaker 10: so we're seeing them take a wait and see attitude 546 00:25:26,920 --> 00:25:29,119 Speaker 10: in terms of how to tap the public markets and 547 00:25:29,160 --> 00:25:30,640 Speaker 10: when to tap the public markets this year. 548 00:25:30,680 --> 00:25:33,600 Speaker 4: That was a very subtle but well placed shot over. 549 00:25:33,480 --> 00:25:35,320 Speaker 5: At the New York Sack Exchange. I'm sure that they 550 00:25:35,359 --> 00:25:36,480 Speaker 5: will be listening. 551 00:25:36,480 --> 00:25:38,840 Speaker 4: I am curious about what that pipeline looks like now 552 00:25:38,880 --> 00:25:41,320 Speaker 4: and how much smaller it is now in terms of 553 00:25:41,359 --> 00:25:43,919 Speaker 4: IPOs than it was earlier in the year. You know, 554 00:25:43,960 --> 00:25:46,080 Speaker 4: there's this big question how much of deal's been sort 555 00:25:46,080 --> 00:25:47,560 Speaker 4: of put on hold and how much have they just 556 00:25:47,600 --> 00:25:48,760 Speaker 4: been scrapped altogether. 557 00:25:48,960 --> 00:25:50,520 Speaker 5: Do you have a sense of that. I think there 558 00:25:50,520 --> 00:25:51,680 Speaker 5: are more being put on hold. 559 00:25:51,720 --> 00:25:54,000 Speaker 10: I mean, we have not seen companies suddenly decide they're 560 00:25:54,000 --> 00:25:54,680 Speaker 10: not going to go public. 561 00:25:54,720 --> 00:25:56,240 Speaker 5: It's really a matter of they've gotten. 562 00:25:55,960 --> 00:25:59,840 Speaker 10: Themselves ready, They've gotten approval, all the approvals they need. 563 00:26:00,000 --> 00:26:01,760 Speaker 10: It's really now a matter of just having a wait 564 00:26:01,800 --> 00:26:03,879 Speaker 10: and see attitude. And they should be, you know, in 565 00:26:03,920 --> 00:26:06,720 Speaker 10: terms of thinking about how can they maximize value for 566 00:26:06,760 --> 00:26:09,560 Speaker 10: their shareholders, how can they make sure that they're entering 567 00:26:09,600 --> 00:26:12,880 Speaker 10: the markets in an environment that's welcoming and that could 568 00:26:12,920 --> 00:26:16,359 Speaker 10: be you could find windows and pockets of time throughout 569 00:26:16,359 --> 00:26:18,320 Speaker 10: the year to be able to do that, and we did, 570 00:26:18,400 --> 00:26:20,440 Speaker 10: as I said, still have forty five IPOs in the 571 00:26:20,440 --> 00:26:22,920 Speaker 10: first quarter. So it wasn't like the markets are shut. 572 00:26:22,960 --> 00:26:25,840 Speaker 10: It's just a matter of finding those windows of opportunity 573 00:26:25,920 --> 00:26:27,240 Speaker 10: within a more volatile environment. 574 00:26:27,359 --> 00:26:30,240 Speaker 4: Do you see companies trying to decide or having a 575 00:26:30,240 --> 00:26:33,479 Speaker 4: harder time deciding whether to IPO in New York or 576 00:26:33,520 --> 00:26:35,800 Speaker 4: in the United States and the deepest markets of the 577 00:26:35,840 --> 00:26:39,200 Speaker 4: world versus somewhere else base the turmoil that we've. 578 00:26:39,040 --> 00:26:42,879 Speaker 10: Seen, Well, we are really the home to global companies 579 00:26:43,000 --> 00:26:46,760 Speaker 10: as well as American companies. The conversations continue to be 580 00:26:46,960 --> 00:26:51,800 Speaker 10: very constructive, robust. They're they're very interested in coming and 581 00:26:51,800 --> 00:26:54,960 Speaker 10: tapping the American investor and frankly the global investor race. 582 00:26:55,160 --> 00:26:57,119 Speaker 5: I mean the United States. We are the most liquid 583 00:26:57,119 --> 00:26:57,960 Speaker 5: markets in the world. 584 00:26:58,080 --> 00:27:02,840 Speaker 10: We have the most the most variety of investors. 585 00:27:02,400 --> 00:27:04,080 Speaker 5: We have the deepest fools of liquidity. 586 00:27:04,320 --> 00:27:07,560 Speaker 10: I think those things are you know, constant attractions in 587 00:27:07,640 --> 00:27:09,920 Speaker 10: terms of companies who want to go public. Again, it's 588 00:27:09,960 --> 00:27:12,119 Speaker 10: really more a matter of timing than it's more a 589 00:27:12,119 --> 00:27:14,320 Speaker 10: matter of when than if they want to come into 590 00:27:14,480 --> 00:27:15,119 Speaker 10: the public. 591 00:27:14,920 --> 00:27:16,320 Speaker 5: Public markets in the United States. 592 00:27:16,440 --> 00:27:18,960 Speaker 1: I was here during Trump's inauguration while you were speaking 593 00:27:18,960 --> 00:27:20,720 Speaker 1: to John and Lisa over in Davos, and you were 594 00:27:20,840 --> 00:27:23,320 Speaker 1: very constructive on the incoming administration when it came to 595 00:27:23,359 --> 00:27:27,000 Speaker 1: the excitement around IPOs, also deregulation. You're pushing for this 596 00:27:27,119 --> 00:27:30,960 Speaker 1: regulation overhaul. Are you seeing what you were expecting back 597 00:27:31,000 --> 00:27:33,199 Speaker 1: in Davos from mis administration now in their first one 598 00:27:33,240 --> 00:27:33,840 Speaker 1: hundred days. 599 00:27:33,920 --> 00:27:38,040 Speaker 10: From a regulatory perspective, we are very excited about the 600 00:27:38,040 --> 00:27:41,560 Speaker 10: fact that we can work constructively with the regulators that 601 00:27:41,560 --> 00:27:45,520 Speaker 10: are coming into with the positions. With Chair Atkins coming 602 00:27:45,600 --> 00:27:48,920 Speaker 10: into the SEC, he has deep understanding of the markets. 603 00:27:48,920 --> 00:27:51,440 Speaker 10: He has a deep understanding of US capital. 604 00:27:51,119 --> 00:27:53,200 Speaker 5: Markets and also the need for. 605 00:27:53,200 --> 00:27:55,639 Speaker 10: Companies to have a good public company experience and how 606 00:27:55,680 --> 00:27:59,080 Speaker 10: important that is in terms of giving citizens access to 607 00:27:59,119 --> 00:28:02,440 Speaker 10: the growth of our economy. So we are looking forward 608 00:28:02,480 --> 00:28:04,320 Speaker 10: to engaging with him. We just put out a white 609 00:28:04,320 --> 00:28:08,480 Speaker 10: paper on the need for reform in the regulatory landscape 610 00:28:08,520 --> 00:28:12,439 Speaker 10: for public companies have to be able to have a 611 00:28:12,480 --> 00:28:14,159 Speaker 10: life as a public company and not have it be 612 00:28:14,840 --> 00:28:17,560 Speaker 10: oh gosh moment, but more I can't wait moment, And 613 00:28:17,640 --> 00:28:19,680 Speaker 10: so I think that that's something that we're really looking 614 00:28:19,680 --> 00:28:21,359 Speaker 10: forward to engaging Chair Atkins on. 615 00:28:21,600 --> 00:28:24,280 Speaker 1: How big is the tone shift from the Biden administration 616 00:28:24,359 --> 00:28:26,120 Speaker 1: in Gary Gensler to chair Atkins. 617 00:28:26,200 --> 00:28:28,560 Speaker 10: Well, he just came into office, so we are going 618 00:28:28,640 --> 00:28:31,320 Speaker 10: to introduce ourselves to him. We actually do know him 619 00:28:31,320 --> 00:28:33,159 Speaker 10: from when he was a commissioner many years ago, but 620 00:28:33,240 --> 00:28:36,520 Speaker 10: reintroduce ourselves to him and we'll look forward to engaging 621 00:28:36,520 --> 00:28:38,960 Speaker 10: with him as he gets going in his new seat. 622 00:28:39,200 --> 00:28:41,120 Speaker 2: You've been through a lot of different market right, James, 623 00:28:41,520 --> 00:28:43,640 Speaker 2: how would you describe this one? How unique is it? 624 00:28:44,840 --> 00:28:45,840 Speaker 5: Well, you know, it's funny. 625 00:28:46,000 --> 00:28:50,560 Speaker 10: I have actually been part of many, many market events. 626 00:28:50,720 --> 00:28:52,600 Speaker 10: I've been at NASAC started in as like thirty two 627 00:28:52,640 --> 00:28:54,920 Speaker 10: years ago, so I've seen a lot and this is 628 00:28:55,000 --> 00:28:56,960 Speaker 10: every single one of them is different. I have to say, 629 00:28:57,040 --> 00:28:59,560 Speaker 10: there's no two situations where you see a lot of 630 00:28:59,600 --> 00:29:01,960 Speaker 10: relative that are exactly the same. 631 00:29:01,960 --> 00:29:03,600 Speaker 5: In terms of the causes of volatility. 632 00:29:03,960 --> 00:29:06,240 Speaker 10: What we've seen in terms of the reactions from investors 633 00:29:06,360 --> 00:29:08,720 Speaker 10: is pretty consistent. You know, when they know the thing, 634 00:29:08,760 --> 00:29:11,000 Speaker 10: as I mentioned before, is that they the thing that 635 00:29:11,040 --> 00:29:14,360 Speaker 10: they like the least is uncertainty, and in any period 636 00:29:14,400 --> 00:29:18,520 Speaker 10: of time where you suddenly have a big moment of uncertainty, 637 00:29:18,760 --> 00:29:21,120 Speaker 10: they take the same attitude, which is a risk off attitude. 638 00:29:21,160 --> 00:29:24,040 Speaker 10: I'm going to take take someone positions out of the market. 639 00:29:24,160 --> 00:29:26,200 Speaker 10: I'm going to sit and wait and understand what's happening, 640 00:29:26,240 --> 00:29:28,600 Speaker 10: and then I'm going to re engage in a smart way. 641 00:29:29,040 --> 00:29:32,040 Speaker 10: That's a very consistent reaction, but the causes of every 642 00:29:32,080 --> 00:29:34,920 Speaker 10: single period of market relativity have been different. 643 00:29:34,960 --> 00:29:36,240 Speaker 5: Actually, over the last thirty. 644 00:29:36,080 --> 00:29:38,640 Speaker 2: Two years, Sidney Sol's unique this moment, that's for sure. Data, 645 00:29:38,680 --> 00:29:40,600 Speaker 2: thanks for dropping by, Thanks you all the times. Thanks 646 00:29:40,600 --> 00:29:42,480 Speaker 2: for beam with us a Data Fredmen. They're the chair 647 00:29:42,560 --> 00:29:46,920 Speaker 2: and CEO of Nasdaq. This is the Bloomberg Survenance Podcast, 648 00:29:47,040 --> 00:29:50,960 Speaker 2: bringing you the best in markets, economics, and geopolitics. You 649 00:29:50,960 --> 00:29:53,760 Speaker 2: can watch the show live on Bloomberg TV weekday mornings 650 00:29:53,760 --> 00:29:56,720 Speaker 2: from six am to nine am Eastern. Subscribe to the 651 00:29:56,720 --> 00:30:00,240 Speaker 2: podcast on Apple, Spotify, or anywhere else you listen, and 652 00:30:00,280 --> 00:30:03,160 Speaker 2: as always on the Bloomberg Terminal and the Bloomberg Business 653 00:30:03,160 --> 00:30:03,320 Speaker 2: out 654 00:30:07,360 --> 00:30:07,800 Speaker 4: Mm hmm.