WEBVTT - Surveillance: Lew Urges Fiscal Action 0:00:09.880 --> 0:00:13.800 Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene Jay Lee. 0:00:13.960 --> 0:00:17.560 We bring you insight from the best in economics, finance, investment, 0:00:18.000 --> 0:00:23.520 and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, 0:00:23.600 --> 0:00:27.240 Bloomberg dot Com, and of course on the Bloomberg We 0:00:27.280 --> 0:00:29.000 can catch you with Tony two. I right now kind 0:00:29.000 --> 0:00:32.880 of call genuity equity strategist Tony. He's starting to feel 0:00:32.920 --> 0:00:36.120 I'm comfortable with where this market as is right now, 0:00:36.240 --> 0:00:39.639 given what he's going around all around the world, around us, 0:00:39.640 --> 0:00:42.040 in Europe, in the United States, even more so in 0:00:42.040 --> 0:00:46.680 the last twenty four hours. It just is um It's 0:00:46.720 --> 0:00:50.280 disheartening to hear, but it just goes to show what 0:00:50.600 --> 0:00:52.960 drives the market is money. It's always driven the market, 0:00:52.960 --> 0:00:56.840 and it's unfortunately the social side of it isn't as 0:00:56.880 --> 0:00:59.840 important as the excess liquidity side of it, and the 0:01:00.000 --> 0:01:02.120 access liquidity side of it, as you guys know, is 0:01:02.160 --> 0:01:05.520 absolutely extraordinary. But just a quick comment John on the dollar. 0:01:06.080 --> 0:01:08.479 So if you look back over the last since two 0:01:08.560 --> 0:01:13.240 thousand nine, since the Great Financial Crisis, there's been three 0:01:13.280 --> 0:01:17.200 other periods of such a pronouncedly weak dollar. Historically when 0:01:17.240 --> 0:01:19.240 it gets down more than eight percent, which it did 0:01:19.280 --> 0:01:22.560 in the summertime. It ends up going down between thirteen 0:01:22.600 --> 0:01:24.520 to seventeen percent, And of course I'm talking about the 0:01:24.600 --> 0:01:27.560 US dollar index, and the reason that that's important is 0:01:28.120 --> 0:01:31.800 people always try to make it about deficits and access debt, 0:01:32.040 --> 0:01:35.000 and what it always comes down to is the dollar 0:01:35.080 --> 0:01:38.839 gets weaker in that second leg lower where it goes 0:01:38.840 --> 0:01:42.480 down into the mid teens, because it starts to understand 0:01:42.520 --> 0:01:46.679 and accept that there is a synchronized global recovery, and 0:01:46.840 --> 0:01:49.400 that I believe is the movement of the dollar versus 0:01:49.440 --> 0:01:55.760 some kind of panic over Brexit or panic over access debt. Tony, 0:01:55.840 --> 0:01:59.960 good morning. Your number one call is own stocks until 0:02:00.040 --> 0:02:03.200 there's a recession. Are you gonna sell stocks because you 0:02:03.280 --> 0:02:07.160 see a recession coming, tom We are in the beginning 0:02:07.520 --> 0:02:11.240 beginning of a new economic and market cycle. Um. If 0:02:11.240 --> 0:02:13.400 you look back at at how the markets acting and 0:02:13.440 --> 0:02:16.440 how all the indicators are acting, it's very similar to 0:02:16.480 --> 0:02:18.519 what happened towards the end of two thousand and nine 0:02:19.040 --> 0:02:21.800 where you had back if I take you back there, 0:02:22.120 --> 0:02:25.359 there was historic access liquidity just like there is now, 0:02:25.760 --> 0:02:28.400 and you had this synchronized global recovery coming out of 0:02:28.400 --> 0:02:31.959 the Great financial crisis. So even though the market was 0:02:32.040 --> 0:02:34.480 up fifty in the summertime at two thousand and nine, 0:02:34.880 --> 0:02:38.760 it kept going up because there was this excess liquidity 0:02:38.800 --> 0:02:42.600 and this understanding that the globe was recovering all at 0:02:42.639 --> 0:02:45.840 the same time. And that's that's been the impact of 0:02:45.880 --> 0:02:49.400 the pandemic globally, is that everything shut down in March, 0:02:49.520 --> 0:02:52.840 like the whole world shut down. And now we're coming 0:02:52.880 --> 0:02:55.480 off of that low alow. You know, obviously there's gonna 0:02:55.480 --> 0:02:57.320 be fits and starts of the very near term here. 0:02:57.600 --> 0:03:00.440 So a lot of equity strategists, yourself include did have 0:03:00.600 --> 0:03:05.000 been pointing to signs of euphoria extreme buying, particularly in 0:03:05.040 --> 0:03:07.760 this moment, based on those terrible numbers that we're getting 0:03:07.960 --> 0:03:11.280 out of hospitals and deaths on the heels of the 0:03:11.320 --> 0:03:14.680 COVID pandemic. What do you do as a longer term investor. 0:03:14.760 --> 0:03:17.520 Do you just ignore it and basically say long term, 0:03:17.600 --> 0:03:19.400 it's all gonna work out, or do you try to 0:03:19.440 --> 0:03:23.480 play this in the real time? At least, I'm not 0:03:23.840 --> 0:03:27.919 very good at chasing excessive optimism and strength, and again, 0:03:27.960 --> 0:03:29.959 it's not a sign that we're about to collapse. Going 0:03:29.960 --> 0:03:33.080 back to Tom's question, this is the only time you 0:03:33.160 --> 0:03:36.920 really get sustainably defensive on equities. In other words, cell 0:03:36.960 --> 0:03:40.960 cell cell is when you can predict the recessions coming, 0:03:40.960 --> 0:03:43.680 and you can do that through the Yeld curve. When 0:03:43.680 --> 0:03:45.280 you have an inversion of the yield curve. Is one 0:03:45.280 --> 0:03:48.040 of the reasons we downgraded the market in January of 0:03:48.040 --> 0:03:50.840 this year. The Yeld curve. Remember the heel curvet inverted 0:03:50.920 --> 0:03:53.400 last August, so at least that the yel curve is 0:03:53.480 --> 0:03:56.520 just st deepening, right, that's a sign, just like it's 0:03:56.520 --> 0:03:59.160 a sign of a recession is coming when it inverts. 0:03:59.360 --> 0:04:02.600 When it goes from an inversion back to a positive slope, 0:04:02.840 --> 0:04:06.440 it's a sign of economic activity. So our play is 0:04:06.520 --> 0:04:10.920 to buy periods of weakness like the September swoon where 0:04:10.920 --> 0:04:12.880 the market was dead since he was down ten percent, 0:04:13.240 --> 0:04:16.960 and the October wash where the market was down eight 0:04:16.960 --> 0:04:19.800 percent in two weeks. Those are the kind of environments 0:04:19.800 --> 0:04:22.920 where I think you want to attack the opportunity versus 0:04:23.000 --> 0:04:26.280 feeling like your quote unquote missing something and chasing this 0:04:26.360 --> 0:04:29.839 kind of optimism that's out there, Tony. Isn't that a 0:04:29.839 --> 0:04:32.360 story for everyone? Though everyone's waiting for the pullback to buy, 0:04:32.520 --> 0:04:34.600 Everyone's got the same trade on right now, I'm trying 0:04:34.640 --> 0:04:36.880 to work out what would test the patience of this 0:04:37.000 --> 0:04:39.599 market at the moment to actually lead to some kind 0:04:39.640 --> 0:04:42.160 of pulled back. The data has been soft on claims 0:04:42.160 --> 0:04:44.279 over the last couple of weeks. Maybe it's softer again 0:04:44.520 --> 0:04:46.200 this morning as well. It just seems to me that 0:04:46.200 --> 0:04:49.800 everything is so firmly anchored by the expectation that vaccinations 0:04:49.800 --> 0:04:52.720 will begin in the UK next week, in America maybe 0:04:52.760 --> 0:04:56.120 the next couple of weeks, Tony John. As you guys know, 0:04:56.960 --> 0:04:59.360 it always comes out of nowhere. People like me are 0:04:59.400 --> 0:05:01.400 famous for I'm on TV and saying, oh, I think 0:05:01.440 --> 0:05:03.640 this is gonna call it. It's not. It's not predictable. 0:05:04.000 --> 0:05:06.960 What causes, you know, a real kind of sharp two 0:05:06.960 --> 0:05:10.760 weeks sell off, and again I'm not expecting anything too dramatic, 0:05:11.200 --> 0:05:13.480 is when you it's it's a news item that you 0:05:13.520 --> 0:05:17.000 can't predict and it comes from well. While folks like us, 0:05:17.080 --> 0:05:18.400 you guys in the media and me and the in 0:05:18.440 --> 0:05:21.200 the Cell Side Strategy group are saying, Okay, the markets 0:05:21.240 --> 0:05:24.200 due for a pullback, investors aren't playing it that way 0:05:24.240 --> 0:05:27.200 because that optimism is so high. We we trecked this 0:05:27.240 --> 0:05:30.280 thing called the National Association of Active Independent Managers. It 0:05:30.279 --> 0:05:33.400 looks like it looks at active money managers, real money 0:05:33.440 --> 0:05:36.760 movers um that are that range from small to large, 0:05:37.000 --> 0:05:40.680 and it's at a level that was the most recent 0:05:40.720 --> 0:05:42.920 time it was there was around the August peak, right 0:05:42.920 --> 0:05:45.880 before we had that time percent decline, and again before 0:05:45.920 --> 0:05:49.280 that about three years ago. So optimism is very high 0:05:49.360 --> 0:05:53.040 among actual investors, which is actually a good thing when 0:05:53.040 --> 0:05:56.800 you're corting off of a historic flow. Tony, fantastic it 0:05:56.839 --> 0:05:59.360 catch up. You're always looking well, tony to that kind 0:05:59.360 --> 0:06:05.159 of gently, thank you sir. Right now, the bond dynamic 0:06:05.560 --> 0:06:08.400 is John mentioned. Kathleen Jones joins us right now with 0:06:08.480 --> 0:06:12.480 Schwab and their Center for Financial Research. Kathy Jones, we're 0:06:12.520 --> 0:06:15.839 seeing the bon move. I see the Bloomberg Barkley's Total 0:06:15.880 --> 0:06:19.320 Return Index up, up, up. It doesn't compare to the 0:06:19.320 --> 0:06:23.720 equity markets, but still it's been an extraordinary two year 0:06:23.880 --> 0:06:27.719 run for bonds. When the bonds breathe and we see 0:06:27.760 --> 0:06:31.159 price down and yield up, I think we're starting to 0:06:31.200 --> 0:06:33.359 see it, particularly in the long end. Now you know, 0:06:33.400 --> 0:06:37.480 we've seen the steepening of the curve with a tenure 0:06:37.520 --> 0:06:40.919 treasury pushing up against that one percent, and we're looking 0:06:40.960 --> 0:06:43.719 for a further stepening, that bear stepening where the fat 0:06:43.839 --> 0:06:47.280 is anchored short term rates near zero, long term rates 0:06:47.320 --> 0:06:51.120 try to edge higher. Not looking for a huge move 0:06:51.600 --> 0:06:53.800 at this stage of the game, because the economy still 0:06:53.800 --> 0:06:57.479 has a pretty dark period to go through here. But 0:06:57.560 --> 0:06:59.440 I think as we look into the second half of 0:06:59.520 --> 0:07:02.960 next year, if we really get the vaccines distributed and 0:07:03.000 --> 0:07:06.640 the economy fully reopens, people get back to work, it's 0:07:06.640 --> 0:07:09.640 not unlikely that tenure yields her in that one to 0:07:09.720 --> 0:07:12.400 one and a half percent area. There's a consensus in 0:07:12.440 --> 0:07:15.000 markets that bond yield to be much higher if it 0:07:15.040 --> 0:07:17.760 weren't for the widespread belief that the FED will step 0:07:17.840 --> 0:07:21.480 in and suppress yields if they climb too high. What 0:07:21.800 --> 0:07:26.320 is that level that triggers the Fed's concerned. Yeah, I 0:07:26.680 --> 0:07:28.920 wish I knew. I wish there was like a line 0:07:28.960 --> 0:07:31.120 in the sand that they're going to draw, But I 0:07:31.160 --> 0:07:34.480 don't think that that's realistic. I think it's more likely 0:07:34.520 --> 0:07:37.800 that the FED looks at the rate of change and 0:07:37.840 --> 0:07:40.680 the underlying nature of what's driving it. So if you're 0:07:40.680 --> 0:07:42.680 sitting at the FED and you see rates move up 0:07:42.680 --> 0:07:45.240 to one and a quarter, and it's off the back 0:07:45.280 --> 0:07:49.880 of good economic data, falling unemployment, rising consumption. You might 0:07:49.960 --> 0:07:54.360 destroy your shelf and say that's not a terrible thing. Um. 0:07:54.400 --> 0:07:59.280 If it's disorderly and a sudden jump because inflation expectations 0:07:59.280 --> 0:08:02.200 are really become one board, then it might be an 0:08:02.280 --> 0:08:04.520 area to worry about. But at this dame of the game, 0:08:04.600 --> 0:08:07.880 financial conditions are really easy, and even with a quarter 0:08:08.000 --> 0:08:12.640 point move from here, they'd still probably be pretty easy. Cathey, 0:08:12.680 --> 0:08:15.160 expectations matter, though, and you and I know a ton 0:08:15.200 --> 0:08:17.560 of people who believe that yields won't gone much higher 0:08:17.800 --> 0:08:21.240 because the Fed will step in December six and extend 0:08:21.240 --> 0:08:24.080 the average maturity they're bond buying. I'm wondering if they 0:08:24.120 --> 0:08:29.920 don't how big the air pocket is for treasuries. Yeah, 0:08:30.160 --> 0:08:32.960 there does seem to be a widespread consensus about that. 0:08:33.040 --> 0:08:35.160 I'm not really sure why. When I read the minutes 0:08:35.200 --> 0:08:37.520 of the last meeting, I don't get the sense that 0:08:37.559 --> 0:08:39.800 they're eager to jump in at the stage of the 0:08:39.840 --> 0:08:43.080 game or to extend duration. Um. So maybe that does 0:08:43.160 --> 0:08:45.520 give us a bit of a pop here, But the 0:08:45.600 --> 0:08:49.360 realistic situation is we still have a lot of a 0:08:49.400 --> 0:08:51.880 lot of bad news to get through over the next 0:08:52.000 --> 0:08:54.080 quarter or so, and I think that that in and 0:08:54.120 --> 0:08:57.240 of itself would probably limit the appreciation in terms of 0:08:57.320 --> 0:09:00.520 yields from here. So it's interesting to make Kathy that 0:09:00.600 --> 0:09:03.680 the disruption of the next few months would keep a 0:09:03.720 --> 0:09:06.760 lid on treasury yields, but it won't keep a floor 0:09:06.800 --> 0:09:10.240 on how tight credit spreads can go. Credit keeps rallying, 0:09:10.679 --> 0:09:14.280 but yields are limited on treasuries. Square that for me. 0:09:14.400 --> 0:09:17.760 Kathy makes sense of that for me. If it matters 0:09:17.800 --> 0:09:21.720 for treasuries, why doesn't it matter for credit. Yeah, I 0:09:21.760 --> 0:09:24.160 think credit spreads are about as tight as they can 0:09:24.200 --> 0:09:27.400 go for the time being, particularly in high yield. Maybe 0:09:27.400 --> 0:09:29.640 they can extend a bit further. You know, the market 0:09:30.080 --> 0:09:33.240 it's certainly high yield, and and much of the world 0:09:33.280 --> 0:09:35.640 of credit it's much more like the stock market than 0:09:35.760 --> 0:09:39.160 the treasury market, and so they're looking forward at earnings 0:09:39.200 --> 0:09:42.800 coming back and cash flows improving the search for yield. 0:09:42.840 --> 0:09:47.720 It's all driving this sort of cyclical rallially in um credit, 0:09:48.120 --> 0:09:50.920 and I think it continues over the next six months 0:09:50.960 --> 0:09:53.480 to a year or so, but a lot of it's 0:09:53.480 --> 0:09:56.720 been done already, and the lower credit quality is certainly 0:09:56.840 --> 0:10:01.760 vulnerable to some sort of bad news here, because, particularly 0:10:01.760 --> 0:10:05.679 in the high yield world, the lowest rated bonds of 0:10:05.760 --> 0:10:09.079 triple seas, etcetera. Have rallied so much there's not much 0:10:09.200 --> 0:10:12.840 in the way of reward left for the risk. Kathy, 0:10:12.920 --> 0:10:16.000 what are people actually doing with their money? Now? Schwab 0:10:16.120 --> 0:10:19.720 has a wonderful ability to see not what we say, 0:10:19.840 --> 0:10:23.240 not what we talk, but what we do. What are 0:10:23.280 --> 0:10:28.360 we doing when you look at bond bill and note flows. Yeah, 0:10:28.400 --> 0:10:32.160 we we see a lot of our clients sticking with 0:10:32.280 --> 0:10:37.560 shorter duration, higher quality bonds UM. They like munis UM. 0:10:37.600 --> 0:10:41.760 You know, we have a pretty large cohort of retirees 0:10:41.880 --> 0:10:45.120 or people near retirement and there is still committed to 0:10:45.160 --> 0:10:49.760 their municipal bonds, UM bond ladders. Uh. They really haven't 0:10:49.840 --> 0:10:52.680 changed the way they look at things. But shortening duration, 0:10:52.840 --> 0:10:56.640 keeping durations short, waiting for yields to move up seems 0:10:56.679 --> 0:11:01.160 to be the major trend amongst the bonding serves. So 0:11:01.200 --> 0:11:02.880 I want to go to something that John was talking 0:11:02.880 --> 0:11:05.160 about earlier when he started this segment and was looking 0:11:05.160 --> 0:11:08.000 at the equity market and said, this doesn't feel comfortable. 0:11:08.280 --> 0:11:10.280 And I'm looking at credit markets, and I'm looking at 0:11:10.320 --> 0:11:13.640 triple C of bond yields. Basically, these are the bonds 0:11:13.640 --> 0:11:16.840 that are the riskiest of risky. They're the closest to default, 0:11:17.040 --> 0:11:19.640 and yields on this debt are the lowest since two 0:11:19.720 --> 0:11:22.920 thousand and fourteen. I'm also looking at the fact that 0:11:22.960 --> 0:11:26.520 you have companies burning through cash an increasing number before 0:11:26.520 --> 0:11:29.920 they even pay interest in other expenses. At what point 0:11:30.080 --> 0:11:33.280 is this unsustainable? In other words, how long do they 0:11:33.320 --> 0:11:36.400 have before we have to get that vaccine or something 0:11:36.520 --> 0:11:41.400 to end the pandemic for them to stay in business. Yeah, 0:11:41.440 --> 0:11:43.960 and this is the worrisome part about high yield. The 0:11:44.040 --> 0:11:48.559 real risk um that cash burn is really picking up, 0:11:48.679 --> 0:11:52.360 and the leverage is very high, and so they need 0:11:52.400 --> 0:11:55.600 to get things to improve pretty quickly. I would say, 0:11:55.600 --> 0:11:57.720 if we don't get real light at the end of 0:11:57.720 --> 0:12:00.559 the tunnel in the first quarters, so we're gonna see 0:12:00.600 --> 0:12:03.679 those bankruptcies picked up and those defaults increase. And what 0:12:03.679 --> 0:12:06.160 we're worried about in the default side of the recovery 0:12:06.240 --> 0:12:08.240 rates are going to be quite low. And that's why 0:12:08.240 --> 0:12:11.240 we're really pretty cautious about the high yield market. Kathy, 0:12:11.320 --> 0:12:15.360 Who's going to bear the brunt of those losses? Oh, 0:12:15.440 --> 0:12:19.880 gosh um uh. You know it's gonna be probably spread 0:12:19.880 --> 0:12:24.000 out pretty well. We have a pretty wide swap of 0:12:24.040 --> 0:12:27.400 people who have been in the ets. So if you're 0:12:27.440 --> 0:12:30.440 in a broad based high yield E t U, there's 0:12:30.559 --> 0:12:34.320 defaults and losses, you're gonna feel it in any index 0:12:34.400 --> 0:12:40.800 following up um investment. But also some of the specialized funds. 0:12:40.800 --> 0:12:43.240 You know, they active managers always like to tell you 0:12:43.280 --> 0:12:46.360 that they know which are the good bonds and which 0:12:46.360 --> 0:12:50.920 are not, so we'll see all they do, but then 0:12:51.440 --> 0:12:54.640 shade any of the creditors. Uh, you known feel the 0:12:54.880 --> 0:12:59.680 up I'm just reflecting what I'm told that I hate 0:12:59.679 --> 0:13:02.400 the sec think, Kathy, they always held the good bonds, 0:13:02.920 --> 0:13:06.599 they never held the bad bank you Kathy Jones a 0:13:06.720 --> 0:13:14.319 cha Swab the Center for Financial Research. Right now, we've 0:13:14.320 --> 0:13:17.000 been talking about this cel morning. Perfect timing to speak 0:13:17.040 --> 0:13:20.640 to kid Juice because the scientists general yes, and foreign exchange, 0:13:20.679 --> 0:13:24.200 but he wonderfully folds it into the political economies of 0:13:24.440 --> 0:13:27.520 the world's financial system. Kit Jukes, let me start with 0:13:27.559 --> 0:13:32.560 the why why is the euro appreciating? I think the 0:13:32.600 --> 0:13:38.040 euro is appreciating because the dollars falling, simple, simple starting point, 0:13:38.440 --> 0:13:41.280 because the real interest rate advantage that the dollar built 0:13:41.400 --> 0:13:45.360 up against the euros since two thousand and eleven has collapsed. 0:13:46.080 --> 0:13:49.199 Um and as the global economy starts to look forward 0:13:49.280 --> 0:13:52.720 to the better tomorrow with vaccines, we can't have the 0:13:52.720 --> 0:13:57.280 euro this undervalued against the dollar. Most of the move 0:13:57.320 --> 0:13:59.680 has to come from a week of dollar But but 0:14:00.080 --> 0:14:03.320 that that relationship is wrong, and you can see it 0:14:03.360 --> 0:14:06.320 in so many ways that the capital flows that kept 0:14:06.320 --> 0:14:10.440 the Euro down are beginning to unwind um and yeah, 0:14:10.520 --> 0:14:12.319 we we we need to end up in two years 0:14:12.320 --> 0:14:15.920 time at one thirty four year a dollar somehow, kit 0:14:16.320 --> 0:14:18.679 the roads are one thirty. Where's the pain threshold for 0:14:18.720 --> 0:14:20.680 the e c P? Is it the pace? The level? 0:14:20.800 --> 0:14:25.560 What are you looking for? It's the pace and um 0:14:25.600 --> 0:14:29.360 and how it happens so pace because you affect obviously 0:14:29.400 --> 0:14:32.680 exporters and also inflation, which is huge. So Philip Laine 0:14:32.800 --> 0:14:34.560 really really wanted to put the brakes on when we 0:14:34.640 --> 0:14:37.680 moved up to one twenty quickly in the summer. That 0:14:37.680 --> 0:14:40.560 that worked, so we can go back there now without 0:14:40.600 --> 0:14:43.560 too much pain. But he'll be worried again because the 0:14:43.600 --> 0:14:47.680 Europeans don't want any more disinflation deflation um. And then 0:14:47.760 --> 0:14:49.880 and then and then the way it's made up, because 0:14:50.280 --> 0:14:52.800 what really matters for the economy is going to be 0:14:52.840 --> 0:14:56.800 the trade weighted Euro and not just Euro dollar. The 0:14:56.840 --> 0:15:00.120 biggest the biggest unit in a trade weighted europ row 0:15:00.280 --> 0:15:03.000 is a Chinese yuan, which you've been talking about. If 0:15:03.080 --> 0:15:06.040 the Chinese will let their currency appreciate, you can get 0:15:06.080 --> 0:15:09.520 to one pretty much faster. It's likely they won't let 0:15:09.520 --> 0:15:12.160 it get much further at all than we are now, 0:15:12.720 --> 0:15:15.160 and that is why the whole thing has to happen 0:15:15.160 --> 0:15:17.320 really slowly. But but at the other side of all 0:15:17.360 --> 0:15:19.880 of this, you know that the Euro when it was 0:15:19.960 --> 0:15:25.080 trading one oh five one fifteen was very artificially very 0:15:25.120 --> 0:15:29.280 weak as a result of ECB policies in fifteen, and 0:15:29.400 --> 0:15:31.520 we have to go back and remember that it is 0:15:31.560 --> 0:15:35.480 down here because of quantitative easing and negative interest rates 0:15:35.600 --> 0:15:39.560 under Mario dragging kid Jukes. The only reason I'm talking 0:15:39.560 --> 0:15:41.440 about the Chinese currency is because you talk about it, 0:15:41.440 --> 0:15:43.320 and you taught me everything I know about effects about 0:15:43.320 --> 0:15:46.240 eight years ago. I'm looking at euro China right now, 0:15:46.440 --> 0:15:49.440 five days five days kit we've had a move on 0:15:49.560 --> 0:15:52.640 Euro un Now, I understand that the previous few weeks 0:15:52.680 --> 0:15:55.600 was a lot about dollar broad based dollar weakness. The 0:15:55.680 --> 0:15:58.920 last couple of days though, China started to break down 0:15:58.960 --> 0:16:00.840 a little bit as well against the euro. How do 0:16:00.840 --> 0:16:02.320 you think they sets us up next week for the 0:16:02.320 --> 0:16:05.720 e c B here, I think it means that they 0:16:05.720 --> 0:16:07.960 continue to be dolish. I think they'll say something about 0:16:08.000 --> 0:16:09.520 the euro at some point to try to spell this 0:16:09.640 --> 0:16:13.040 down unless it steadies. So you know, we've broken above 0:16:13.120 --> 0:16:15.760 one twenty, but I don't think we can just break 0:16:15.840 --> 0:16:18.560 quickly to one. I think we have to stop here 0:16:18.880 --> 0:16:21.280 because there is no doubt that the ECP wants to 0:16:21.280 --> 0:16:24.560 do more. The problem for the ECB to some degree, 0:16:24.600 --> 0:16:27.040 and they'll talk about it quite a lot. Is that, 0:16:27.120 --> 0:16:30.000 as as they've said lots of times, that they don't 0:16:30.000 --> 0:16:34.280 have that much room in terms of policy maneuver from here. 0:16:34.800 --> 0:16:36.680 What what do you get by getting rates a bit 0:16:36.680 --> 0:16:38.440 more negative? What do you get with a bit more 0:16:38.520 --> 0:16:43.440 quantitative easing? What Europe needs is is easier fiscal policy. Um, 0:16:43.480 --> 0:16:45.480 so they can't you know that they don't have a 0:16:45.800 --> 0:16:48.720 they don't have the magic bullet they had fourteen of 0:16:49.200 --> 0:16:51.640 let's buy all the bonds and cut rates to negatives 0:16:51.680 --> 0:16:53.400 so that you all have to put your money somewhere 0:16:53.400 --> 0:16:56.840 else that's not available. But but they will push back 0:16:57.120 --> 0:17:00.480 and resist, um and and they will come out with 0:17:00.560 --> 0:17:03.120 some more some more accommodation of some kind. This is 0:17:03.160 --> 0:17:05.280 exactly where I wanted to go. The question of the 0:17:05.320 --> 0:17:08.680 efficacy of central bank policy on FX moves, and there's 0:17:08.720 --> 0:17:11.879 a question have central banks and their policies lost the 0:17:11.920 --> 0:17:15.760 same efficacy in uh perhaps manipulating I don't want to 0:17:15.800 --> 0:17:19.639 use that word loaded word, excuse me, in affecting FX 0:17:19.760 --> 0:17:23.000 rates or are we looking right now and actually the 0:17:23.040 --> 0:17:28.400 economy that's determining where we are seeing currencies valued? Yeah, 0:17:28.480 --> 0:17:30.119 I think we'll I think we're going back to a 0:17:30.160 --> 0:17:31.919 world where if we all look, if we all have 0:17:32.280 --> 0:17:34.520 zero interest rates and let's call them zero bondials to 0:17:34.600 --> 0:17:38.000 keep ourselves happy, then then all the countries with big 0:17:38.040 --> 0:17:42.160 current account surpoces will end up with overvalued currencies because um, 0:17:42.240 --> 0:17:46.119 you know that they won't have an incentive to recycle those. 0:17:46.560 --> 0:17:50.040 What we've done for a while is we've kind of 0:17:50.080 --> 0:17:52.320 played with that and sort of change it around with rates. 0:17:52.320 --> 0:17:54.560 So um, you know, you've managed to get to person 0:17:54.720 --> 0:17:58.080 that the Japanese with with the ebonomics, managed to get 0:17:58.080 --> 0:18:01.439 a very weak currency with your curve and role bond buying, 0:18:01.680 --> 0:18:05.760 equity buying negative rates there as well, um and all 0:18:05.800 --> 0:18:08.399 of this, all of this becomes less effective. If you 0:18:08.520 --> 0:18:11.600 wanted a model for how it's not so bad, Dolly 0:18:11.680 --> 0:18:14.960 Yan went from under eighty to over a hundred and twenty. 0:18:15.200 --> 0:18:18.240 And as we've eroded all those relative interest rates away, 0:18:18.240 --> 0:18:20.960 as we've all started doing what the Japanese have been doing, 0:18:21.200 --> 0:18:24.520 we're only back at a hundred and four. So in 0:18:24.560 --> 0:18:27.440 a sense, you know, the Japanese are still keeping their 0:18:27.480 --> 0:18:31.399 currency competitive here um. You know, for longer than I 0:18:31.600 --> 0:18:35.679 thought that they would manage um because because of of 0:18:35.800 --> 0:18:38.000 the you know, their aggression in terms of what they've done. 0:18:38.240 --> 0:18:39.960 So I think they still you know that the central 0:18:40.000 --> 0:18:43.640 banks aren't powerless. But the problem is you can't fight 0:18:43.680 --> 0:18:46.639 the current in the same way because what was so 0:18:46.720 --> 0:18:51.240 successful was I moved my rates relative to yours. We 0:18:51.320 --> 0:18:53.840 all have the same rates now almost yeah, there rates 0:18:53.880 --> 0:18:56.080 to the bottom. And so there's a question for the 0:18:56.119 --> 0:18:59.760 ECB next week that pay perhaps is what you're seeing 0:19:00.000 --> 0:19:03.159 in your own whereas currently being valued that if they 0:19:03.200 --> 0:19:06.440 can't really do that much to stave off the strengthening, 0:19:06.720 --> 0:19:11.760 why not jump on this consensus trade is that your view, um, 0:19:12.160 --> 0:19:14.800 My view is the consensus trade, you know, has to 0:19:14.840 --> 0:19:17.920 happen that that the market, the consensus trade is they 0:19:17.960 --> 0:19:21.400 work because when when we change a regime let's call 0:19:21.480 --> 0:19:24.879 this the regime of of U of post COVID zero 0:19:25.040 --> 0:19:28.600 rate for a long time, um, the consensus tends to 0:19:28.640 --> 0:19:31.480 be quite good once that regime change is clear. And 0:19:31.560 --> 0:19:34.840 the danger is that as as the consensus starts to 0:19:34.920 --> 0:19:38.040 make money, everybody gets on board it because as you know, 0:19:38.080 --> 0:19:41.240 all the dausers start start realizing what's happening, um, and 0:19:41.240 --> 0:19:43.560 then you can't stop it. But if I'm a central bank, 0:19:43.680 --> 0:19:46.520 my only goal is to slow this down as much 0:19:46.560 --> 0:19:49.800 as possible, just like the Japanese. A kid, it's great 0:19:49.800 --> 0:19:51.480 that we talk to effects with you, and you know 0:19:51.520 --> 0:19:53.400 I can look at, you know, the history being made 0:19:53.400 --> 0:19:55.480 here as we back, go back to the nines and 0:19:55.520 --> 0:19:58.159 the Plaza chord. Kid, I've got to note a small 0:19:58.240 --> 0:20:01.520 soccer match this weekend. I call the Derby feral cause 0:20:01.560 --> 0:20:04.560 of the derby and I can't believe Arsenals on the 0:20:04.680 --> 0:20:08.119 edge of relegation. I thought we'd never get here. They 0:20:08.200 --> 0:20:10.840 got to play the Tarts. What is their chance against 0:20:10.880 --> 0:20:14.960 the tarts. Oh there are better side against good sides 0:20:15.040 --> 0:20:17.560 than against mediocre sides. At the moment, I think if 0:20:17.560 --> 0:20:20.520 I'm probably to get myself some comfort, we we you know. 0:20:20.680 --> 0:20:25.480 I hope that that game puts some put some steel 0:20:25.720 --> 0:20:28.960 into the into the boots of the Arsenal players and 0:20:28.960 --> 0:20:32.040 they realize what there is their duty to look over 0:20:32.480 --> 0:20:40.520 happiness of people like me. You're just drawing jo John 0:20:40.560 --> 0:20:43.120 Farrell jump in here on the importance of this game 0:20:43.200 --> 0:20:45.960 to London. We've got to let him go. But let 0:20:45.960 --> 0:20:48.280 me say thanks to Kit and then I'll talk about that, Kitukes, 0:20:48.280 --> 0:20:52.400 thank you. The importance of North London. Let's be clear 0:20:52.400 --> 0:20:55.000 about this, Tom, this is North London. It is the 0:20:55.080 --> 0:20:59.120 North London Derby between Tottenham Hospice and Arsenal. You pick 0:20:59.160 --> 0:21:01.480 a side, typic Lee, if you live in North London, 0:21:01.560 --> 0:21:05.080 which side a North London resident? Kit jukes him south 0:21:05.119 --> 0:21:08.040 has clearly picked Arsenal. That is his site, So it's 0:21:08.040 --> 0:21:11.200 a big North London derby. Tom. Typically, over the years, 0:21:11.280 --> 0:21:14.440 Arsenal has come out on top in lead position. This 0:21:14.520 --> 0:21:16.480 year and over the last few years, Spurs have been 0:21:16.520 --> 0:21:20.280 far more competitive, particularly this year, fighting for the title. 0:21:20.359 --> 0:21:22.800 Maybe Tom, you're taught doing a whole lot better than 0:21:23.240 --> 0:21:28.440 Lisa's Arsenal good explanation. Did that help? That helped a lot, 0:21:28.880 --> 0:21:32.159 just didn't help to grind Lisa into the ground. I mean, Lisa, 0:21:32.680 --> 0:21:34.800 is there needs to be a coaching switch at Arsenal. 0:21:35.640 --> 0:21:38.639 I just know that I picked a losing team yet again, 0:21:39.000 --> 0:21:41.320 after all of the New York teams, Lisa, You've picked 0:21:41.359 --> 0:21:49.400 me and John. That's enough said right there. I must ask, 0:21:49.600 --> 0:21:53.640 Mr Secretary, have you been contacted by the Biden administration 0:21:54.000 --> 0:21:59.760 about service there? As we've seen from Vice President Carry 0:22:00.080 --> 0:22:01.359 have a lot of friends who are going to be 0:22:01.359 --> 0:22:05.800 in the new administration, from the top through the leadership levels. 0:22:06.160 --> 0:22:10.000 I'm happy to offer my advice whenever asked, and we'll 0:22:10.000 --> 0:22:12.760 continue to do so. Let us speak of stimulus, Jack 0:22:12.840 --> 0:22:15.879