1 00:00:06,320 --> 00:00:13,040 Speaker 1: Yeah, Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene 2 00:00:13,480 --> 00:00:16,960 Speaker 1: Jay Leye. We bring you insight from the best in economics, finance, 3 00:00:17,040 --> 00:00:23,520 Speaker 1: investment and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, 4 00:00:23,600 --> 00:00:33,640 Speaker 1: Bloomberg dot Com, and of course on the Bloomberg Ready. 5 00:00:33,640 --> 00:00:35,640 Speaker 1: Please to say, a friend of this program and an 6 00:00:35,680 --> 00:00:37,879 Speaker 1: old friend of mine, Danny Blanche Flack enjoyed us now 7 00:00:38,000 --> 00:00:42,000 Speaker 1: Dartmouth College, professor of Economics and former member of the 8 00:00:42,159 --> 00:00:45,400 Speaker 1: MPC at the Bank of England. Danny, your thoughts as 9 00:00:45,440 --> 00:00:49,360 Speaker 1: we switched from seven to to six three at the 10 00:00:49,360 --> 00:00:54,720 Speaker 1: b o E. Well that's really quite a surprise. So 11 00:00:54,840 --> 00:00:57,720 Speaker 1: if you're Andy Haldane, you have to explain to me 12 00:00:57,960 --> 00:01:01,520 Speaker 1: and to other connentators why last month and the month 13 00:01:01,600 --> 00:01:05,120 Speaker 1: before you voted against a rate rise and since then 14 00:01:05,240 --> 00:01:08,480 Speaker 1: the data of all worth, every piece of data that exists, 15 00:01:08,520 --> 00:01:11,600 Speaker 1: has got worse. So the question simply is did you 16 00:01:11,640 --> 00:01:13,520 Speaker 1: make a mistake then are you making a mistake now? 17 00:01:13,520 --> 00:01:17,280 Speaker 1: Of both um, the answer clearly is that the economy 18 00:01:17,400 --> 00:01:21,319 Speaker 1: is flowing. Industrial production figures got a pretty bad no 19 00:01:21,440 --> 00:01:24,760 Speaker 1: way it grows at all, Brexit them having a major 20 00:01:24,800 --> 00:01:28,600 Speaker 1: impact on investment so I'm haven't had chance. That's obviously 21 00:01:28,640 --> 00:01:32,320 Speaker 1: a decision has just can't. But this is completely astonishing. 22 00:01:32,319 --> 00:01:34,480 Speaker 1: And how you to possibly vote for a rate wise 23 00:01:34,959 --> 00:01:38,199 Speaker 1: in these circumstances seems to me to be a major puzzle. 24 00:01:38,520 --> 00:01:40,600 Speaker 1: Um And I asked this question, and I'm happy for 25 00:01:40,959 --> 00:01:43,640 Speaker 1: anybody to call in and tell me. Tell me any 26 00:01:43,760 --> 00:01:47,120 Speaker 1: data in the real world that actually sustains a claim 27 00:01:47,200 --> 00:01:50,360 Speaker 1: that you should raise rates. There is none well, especially 28 00:01:50,400 --> 00:01:52,600 Speaker 1: in the Indian Kingdom at the moment, Danniel. For our 29 00:01:52,640 --> 00:01:54,800 Speaker 1: listeners that might not be familiar with the members of 30 00:01:54,800 --> 00:01:57,040 Speaker 1: the Monetary Politicy Committee at the Bank of England, the 31 00:01:57,080 --> 00:01:59,800 Speaker 1: two individuals that have been hiking or at least voting 32 00:01:59,800 --> 00:02:02,800 Speaker 1: for great hike at the b O A Michael Saunders 33 00:02:02,840 --> 00:02:06,480 Speaker 1: formerly of City Group, Ian McCafferty. These are the hawks 34 00:02:06,520 --> 00:02:08,360 Speaker 1: on the Bank of England. We expect those two to 35 00:02:08,400 --> 00:02:11,840 Speaker 1: pop up. Andy Haldane is not just the chief economist, Danny, 36 00:02:12,040 --> 00:02:15,760 Speaker 1: He's been the chief due what's going on there when 37 00:02:15,760 --> 00:02:18,080 Speaker 1: he wandered he made a very strange, strange speech the 38 00:02:18,120 --> 00:02:21,200 Speaker 1: other day which had really nothing to do with Monty policy. 39 00:02:21,280 --> 00:02:24,080 Speaker 1: I mean, I'm finding it pretty hard to understand. I mean, 40 00:02:24,200 --> 00:02:27,639 Speaker 1: especially because of the bank failures in its forecast, to 41 00:02:27,760 --> 00:02:32,360 Speaker 1: forecast wage growth, to forecast productivity. I'm trying to find 42 00:02:32,400 --> 00:02:35,560 Speaker 1: where it says the reason that he voted for this rise, 43 00:02:36,280 --> 00:02:40,320 Speaker 1: and I'm really afraid I'm struggling to see it. Um. 44 00:02:40,400 --> 00:02:44,000 Speaker 1: Maybe maybe others can see, but I don't quite understand 45 00:02:44,040 --> 00:02:47,480 Speaker 1: why he's changed his position. Um. I think it's a 46 00:02:47,480 --> 00:02:51,120 Speaker 1: pretty embarrassing change because there's the question that everybody should 47 00:02:51,120 --> 00:02:53,680 Speaker 1: ask him. Blasfere would like to ask you a single question, 48 00:02:54,080 --> 00:02:57,040 Speaker 1: what data in the world A has been there and 49 00:02:57,080 --> 00:02:59,640 Speaker 1: B has changed since he voted against one a month ago, 50 00:02:59,720 --> 00:03:03,160 Speaker 1: And the answer is there is none. Just to bring 51 00:03:04,680 --> 00:03:06,600 Speaker 1: got to jump in. Danny gotta say good morning to 52 00:03:06,639 --> 00:03:09,200 Speaker 1: my car anchor, Tom Kane. I'm good money to you, Tom. 53 00:03:09,480 --> 00:03:11,840 Speaker 1: The Bank of England, the consensus is that they slow 54 00:03:11,919 --> 00:03:16,560 Speaker 1: down in the first quarter is temporary. That it's temporary. David, 55 00:03:16,560 --> 00:03:19,320 Speaker 1: you've pushed against us to great criticism. The conservators love 56 00:03:19,360 --> 00:03:21,280 Speaker 1: to go after you because you're doom and gloom and 57 00:03:21,600 --> 00:03:25,240 Speaker 1: there's no economic growth for a spot spout. There wasn't 58 00:03:25,280 --> 00:03:28,480 Speaker 1: even in the United States or substantial economic growth. But 59 00:03:28,639 --> 00:03:33,280 Speaker 1: we are not seeing the blanche flower industry wages go up, 60 00:03:34,080 --> 00:03:37,440 Speaker 1: and and I'm fascinated the United Kingdom, how you raise 61 00:03:37,600 --> 00:03:41,480 Speaker 1: raids into flat or even negative real wages. Does that 62 00:03:41,520 --> 00:03:45,080 Speaker 1: ever happen in monetary theory. No, So we've just kind 63 00:03:45,080 --> 00:03:47,800 Speaker 1: of studied on it. The real wages today in the 64 00:03:47,920 --> 00:03:50,600 Speaker 1: UK are six and a half percent below what they 65 00:03:50,640 --> 00:03:53,160 Speaker 1: were in two thousand and eight, and the study has 66 00:03:53,160 --> 00:03:55,640 Speaker 1: been done showing this is the worst performance of real 67 00:03:55,680 --> 00:03:58,320 Speaker 1: wages in two hundred ten years of which we have data. 68 00:03:58,840 --> 00:04:02,160 Speaker 1: So so basically the I've just found the paragraph it's 69 00:04:02,160 --> 00:04:07,160 Speaker 1: a wing and a prayer. Um, everything's really bad. But honestly, boss, honestly, honestly, honestly, 70 00:04:07,200 --> 00:04:09,680 Speaker 1: it's going to get better. It was erratic as due 71 00:04:09,680 --> 00:04:12,200 Speaker 1: to the weather, it's due to who knows what sounds like, 72 00:04:14,120 --> 00:04:17,160 Speaker 1: sounds like review, you know it's going to get better 73 00:04:17,360 --> 00:04:23,000 Speaker 1: from ver erratic. Sorry, So let's make this a little 74 00:04:23,040 --> 00:04:26,640 Speaker 1: bit more broader, Danny, that just seems to be willingness 75 00:04:26,680 --> 00:04:29,480 Speaker 1: a month central bankers right now to get away from 76 00:04:29,480 --> 00:04:32,719 Speaker 1: emergency policy settings. Let's be clear, they're at about fifty 77 00:04:32,720 --> 00:04:34,840 Speaker 1: basis points at the Bank of England. The ECB is 78 00:04:34,839 --> 00:04:38,000 Speaker 1: a negative forty basis points. Quite clearly, we don't have 79 00:04:38,040 --> 00:04:41,760 Speaker 1: an economic situation that warrants an emergency policy setting on 80 00:04:41,800 --> 00:04:45,120 Speaker 1: a global basis, Danny, So what are they doing and 81 00:04:45,320 --> 00:04:47,480 Speaker 1: what do you think has really made them maybe a 82 00:04:47,480 --> 00:04:51,080 Speaker 1: little bit more nervous about the future. Well, I don't know. 83 00:04:51,120 --> 00:04:53,640 Speaker 1: I'm I'm reading this through. They say, we're they don't 84 00:04:53,680 --> 00:04:56,240 Speaker 1: think there are benefits of waiting for additional information. That 85 00:04:56,400 --> 00:05:00,440 Speaker 1: seems I mean, I think the obvious argument is that 86 00:05:00,520 --> 00:05:04,360 Speaker 1: bankers want rates to be higher. They obviously realized that 87 00:05:05,200 --> 00:05:07,440 Speaker 1: at some point they're they're going to need to cut 88 00:05:07,480 --> 00:05:10,000 Speaker 1: them again. But this is this is this is the 89 00:05:10,040 --> 00:05:12,480 Speaker 1: economics of making up things as you go along, and 90 00:05:12,640 --> 00:05:15,800 Speaker 1: you raise rates and that's gonna because you worry about 91 00:05:15,800 --> 00:05:18,400 Speaker 1: a recession. But by raising rates, you cause the recession. 92 00:05:18,720 --> 00:05:22,320 Speaker 1: I mean that that's the reality. Um. I mean, if 93 00:05:22,360 --> 00:05:24,000 Speaker 1: you if you look at what they said, there is 94 00:05:24,040 --> 00:05:26,880 Speaker 1: absolutely nothing in what they say. They say, honestly, it's 95 00:05:26,880 --> 00:05:29,200 Speaker 1: all going to get better, And we don't believe anything 96 00:05:29,240 --> 00:05:31,440 Speaker 1: in the real world. We just know that things are 97 00:05:31,800 --> 00:05:34,040 Speaker 1: fine and we can raise rates. Well that's just gibberish. 98 00:05:35,040 --> 00:05:39,440 Speaker 1: Nothing in the data whatsoever to sustain that. Quickly here, professor, 99 00:05:39,480 --> 00:05:42,280 Speaker 1: we've got to move on to important topics. But what 100 00:05:42,279 --> 00:05:45,920 Speaker 1: what is the catalyst for central banks to cave in 101 00:05:46,640 --> 00:05:49,440 Speaker 1: given this difficult data? How do they how do they 102 00:05:49,440 --> 00:05:52,680 Speaker 1: get there and safe face? Well, obviously I think you're 103 00:05:52,680 --> 00:05:54,560 Speaker 1: asking the wrong person. I mean, it has to be 104 00:05:54,640 --> 00:05:57,760 Speaker 1: based on a forecast. It has to be that as 105 00:05:57,839 --> 00:06:02,880 Speaker 1: unemployment moves to the lower everything in the past is 106 00:06:02,880 --> 00:06:06,760 Speaker 1: going to generate for you wage growth and that's inflation. 107 00:06:06,800 --> 00:06:08,880 Speaker 1: And you care about information, so you want to get 108 00:06:08,880 --> 00:06:10,960 Speaker 1: your risk out here. Okay, first, but they've been saying 109 00:06:10,960 --> 00:06:13,560 Speaker 1: that for the last ten years. We haven't seen any 110 00:06:13,600 --> 00:06:17,000 Speaker 1: of that. It's complete misunderstanding of the labor market. Papers 111 00:06:17,040 --> 00:06:20,080 Speaker 1: says exactly that. So I just think this is you know, 112 00:06:20,200 --> 00:06:22,880 Speaker 1: these people are just very pulsing because they've they're stuck 113 00:06:22,880 --> 00:06:28,240 Speaker 1: in the nineties seventies. No, no, FIFA is stuck in 114 00:06:28,240 --> 00:06:31,599 Speaker 1: the nine seventies. And now for our global audience, we 115 00:06:31,640 --> 00:06:35,120 Speaker 1: go to the important topic of the game. Professor Blanche Flower, 116 00:06:35,279 --> 00:06:38,680 Speaker 1: would you explain why Gareth Bale is not playing for 117 00:06:38,760 --> 00:06:42,760 Speaker 1: the United Kingdom in the World Cup. I mean, Wales 118 00:06:42,880 --> 00:06:46,680 Speaker 1: can't even score against the Republic of Ireland, they're thrown out. 119 00:06:47,200 --> 00:06:50,760 Speaker 1: Wouldn't England have a better chance against Germany and belgiumir 120 00:06:50,760 --> 00:06:53,440 Speaker 1: in a couple of days if Gareth Bale was playing 121 00:06:53,480 --> 00:06:56,360 Speaker 1: for them and not this this view of the nineties 122 00:06:56,480 --> 00:07:00,159 Speaker 1: seventies of Wales or Scotland, the two Brits on this 123 00:07:00,600 --> 00:07:04,880 Speaker 1: cool We'll find it extremely hard to explain why all 124 00:07:04,960 --> 00:07:08,400 Speaker 1: four countries played together in the Olympics but in soccer 125 00:07:08,480 --> 00:07:11,440 Speaker 1: they don't. So clearly having a bigger pool to pull 126 00:07:11,560 --> 00:07:15,400 Speaker 1: from is better. But England ly speech tunis yet my 127 00:07:16,640 --> 00:07:18,640 Speaker 1: team ain't there, just like the America. I want to 128 00:07:18,680 --> 00:07:20,920 Speaker 1: ask a really important question and it's going to give 129 00:07:21,120 --> 00:07:23,120 Speaker 1: Tom a little bit of an insight to the competitive 130 00:07:23,200 --> 00:07:26,480 Speaker 1: nature of the United Kingdom. Um does the Welsh Danny 131 00:07:26,520 --> 00:07:32,600 Speaker 1: Blanche Flyer support England when they play Panama this weekend? Uh? Well, 132 00:07:32,680 --> 00:07:36,960 Speaker 1: Cardig didn't. Do you hear the hesitation? Hesitations are? Do 133 00:07:37,000 --> 00:07:41,000 Speaker 1: you hear that? You love how that works? The rest 134 00:07:41,040 --> 00:07:43,280 Speaker 1: of the world thinks we're friends. This is not how 135 00:07:43,320 --> 00:07:49,560 Speaker 1: it works. Are you really going to root for Panama 136 00:07:49,640 --> 00:07:57,480 Speaker 1: this weekend? Professor, No, I can't watch it. I just 137 00:07:57,600 --> 00:08:00,480 Speaker 1: learned a lot. You know, folks, your work in here, 138 00:08:00,480 --> 00:08:02,320 Speaker 1: and I'll tell you I just learned a lot about 139 00:08:02,360 --> 00:08:06,679 Speaker 1: this disunited I'm so competitive, Professor Blanche Flower goal away, 140 00:08:06,800 --> 00:08:09,720 Speaker 1: thank you so much. He's with Darkness College and ever John, 141 00:08:09,760 --> 00:08:13,320 Speaker 1: I am learning so much about this idiocy. Isn't it ridiculous? 142 00:08:15,440 --> 00:08:18,640 Speaker 1: Said Everyone outside the UK looks in and thinks it's 143 00:08:18,640 --> 00:08:21,160 Speaker 1: a United Kingdom. I mean, when it comes to sport, 144 00:08:21,200 --> 00:08:23,520 Speaker 1: it couldn't be more at this united And am I 145 00:08:23,640 --> 00:08:26,520 Speaker 1: right if he said correctly that in the Olympics you're 146 00:08:26,560 --> 00:08:29,960 Speaker 1: all in it together, but not Yeah, team g B, 147 00:08:30,200 --> 00:08:32,000 Speaker 1: team Great Britain. But when it comes to when it 148 00:08:32,040 --> 00:08:35,920 Speaker 1: comes to football, Michael Barr didn't know this until like 149 00:08:36,160 --> 00:08:39,080 Speaker 1: a week ago. Ferrell, that's like the Olympics for the US, 150 00:08:39,160 --> 00:08:42,000 Speaker 1: We're all in until it comes to Vane just David 151 00:08:42,040 --> 00:08:45,319 Speaker 1: Blanche Flower pause. He will not support English? Can we go? 152 00:08:45,440 --> 00:09:03,800 Speaker 1: Bloomberg headline, Flower, thank you. We need to draw your 153 00:09:03,800 --> 00:09:07,560 Speaker 1: attention to Forbes magazine a number of days ago with 154 00:09:07,760 --> 00:09:12,520 Speaker 1: a lengthy article on how Secretary of Commerce Wilbur Ross 155 00:09:12,520 --> 00:09:16,400 Speaker 1: has trying to extricate himself from his investments as he 156 00:09:16,520 --> 00:09:20,640 Speaker 1: joined the Trump administration. Now in conversation with our David Weston, 157 00:09:20,960 --> 00:09:24,280 Speaker 1: here is Secretary Ross Bloomberg Television. As we talked with 158 00:09:24,320 --> 00:09:26,600 Speaker 1: the man at the center of the United States trade policy. 159 00:09:26,679 --> 00:09:29,280 Speaker 1: Secretary of Commerce Wilbur Ross coming to us today from 160 00:09:29,320 --> 00:09:32,320 Speaker 1: Select USA Investment Summit in Washington. Thank you very much, 161 00:09:32,360 --> 00:09:35,920 Speaker 1: Mr Secretary for being with us, well, thank you for 162 00:09:35,960 --> 00:09:38,680 Speaker 1: having me. H. We all have been focusing in part 163 00:09:38,760 --> 00:09:40,319 Speaker 1: on what the central bankers have been saying over the 164 00:09:40,360 --> 00:09:42,400 Speaker 1: ECB meetings in Europe, and I'm sure you have been 165 00:09:42,440 --> 00:09:45,439 Speaker 1: as well. And j Pal, the Fed chair, actually talked 166 00:09:45,520 --> 00:09:48,920 Speaker 1: yesterday about the extent to which he's seeing businesses really 167 00:09:49,000 --> 00:09:53,080 Speaker 1: looking at the trade tensions, frictions, even perhaps incipient war. 168 00:09:53,320 --> 00:09:54,840 Speaker 1: Listen to what he had to say. I'm sure you 169 00:09:54,840 --> 00:09:56,120 Speaker 1: know what it was, but listen to what he had 170 00:09:56,160 --> 00:09:59,920 Speaker 1: to say. We have a very wide, wide range of 171 00:10:00,120 --> 00:10:02,720 Speaker 1: context in the business world in the United States and 172 00:10:02,720 --> 00:10:05,880 Speaker 1: around the world, and as we talk to them, uh, 173 00:10:05,920 --> 00:10:10,920 Speaker 1: they continually and increasingly expressed concern over trade developments. Those 174 00:10:10,960 --> 00:10:13,200 Speaker 1: concerns seem to be rising for the first time. We're 175 00:10:13,200 --> 00:10:18,960 Speaker 1: hearing about decisions to postpone investment, postpone hiring so much 176 00:10:19,000 --> 00:10:20,640 Speaker 1: a secondary You heard what he had to say. He 177 00:10:20,800 --> 00:10:23,599 Speaker 1: is seeing really postponement of decisions to invest. One of 178 00:10:23,640 --> 00:10:25,760 Speaker 1: the things that's been a priority for this administration. Are 179 00:10:25,800 --> 00:10:31,760 Speaker 1: you seeing that now? I'm here at select USA, which 180 00:10:31,840 --> 00:10:36,680 Speaker 1: is our big annual foreign direct Investment conference. We have 181 00:10:36,800 --> 00:10:41,960 Speaker 1: over three thousand delegates here from sixties six foreign countries, 182 00:10:42,440 --> 00:10:46,800 Speaker 1: and they are all here because they're interested in increasing 183 00:10:47,040 --> 00:10:50,920 Speaker 1: their investment in the United States. And I believe over 184 00:10:50,960 --> 00:10:53,760 Speaker 1: the next couple of days we will have some very 185 00:10:53,840 --> 00:10:58,560 Speaker 1: big announcements to make about new transactions that these folks 186 00:10:58,640 --> 00:11:02,560 Speaker 1: are entering into. So I don't think that that's true 187 00:11:03,040 --> 00:11:07,120 Speaker 1: that there's some big change. I think the media have 188 00:11:07,280 --> 00:11:11,120 Speaker 1: been very negative on the Trump administration. They pick out 189 00:11:11,240 --> 00:11:15,680 Speaker 1: some little companies somewhere, then they say, oh, my goodness, uh, 190 00:11:15,720 --> 00:11:19,640 Speaker 1: this guy is having troubles, and they extrapolate that into 191 00:11:19,760 --> 00:11:22,160 Speaker 1: the whole country. Okay, fair enough, Mr. Second, Let's take 192 00:11:22,200 --> 00:11:24,600 Speaker 1: one that's not a little company. Let's take Daimler, which 193 00:11:24,640 --> 00:11:27,040 Speaker 1: is a big company that this this morning said because 194 00:11:27,280 --> 00:11:30,199 Speaker 1: of the issues with China, they're taking down their profitiment 195 00:11:30,360 --> 00:11:32,400 Speaker 1: and that, as you probably know, the stock price went 196 00:11:32,440 --> 00:11:34,480 Speaker 1: down and took the stock six sounded round with it 197 00:11:34,600 --> 00:11:36,720 Speaker 1: and actually took SMP futures with that with it. That's 198 00:11:36,720 --> 00:11:41,680 Speaker 1: not a small company, sir, No, it's not. But I 199 00:11:41,720 --> 00:11:45,960 Speaker 1: don't hear what we've done that hurt them. Well, what 200 00:11:46,080 --> 00:11:49,160 Speaker 1: it is is the position in position by China of 201 00:11:49,200 --> 00:11:52,400 Speaker 1: tariffs in response to what we've done on exporting SUVs 202 00:11:52,400 --> 00:11:54,880 Speaker 1: from South Carolina to China, and that was in direct 203 00:11:54,920 --> 00:12:01,040 Speaker 1: response to the actions we've taken, oh the Retalia and short. Well, 204 00:12:01,120 --> 00:12:06,320 Speaker 1: naturally there's going to be some retaliation by the foreign company, 205 00:12:06,520 --> 00:12:10,400 Speaker 1: but countries and they will try to pick out politically 206 00:12:10,520 --> 00:12:13,960 Speaker 1: sensitive areas to deal with. But at the end of 207 00:12:13,960 --> 00:12:19,120 Speaker 1: the day, we are a net importer, not a net exporter. 208 00:12:19,640 --> 00:12:24,880 Speaker 1: And that means a very fundamental truth. Take China, they 209 00:12:24,880 --> 00:12:28,000 Speaker 1: sell us around a half a billion, half a trillion 210 00:12:28,040 --> 00:12:31,640 Speaker 1: dollars a year of goods. We only sell them around 211 00:12:31,679 --> 00:12:36,679 Speaker 1: a hundred and fifty billion. That means once they put tariffs, 212 00:12:36,679 --> 00:12:40,520 Speaker 1: if it went that far on the whole hundred and fifty, 213 00:12:40,600 --> 00:12:43,559 Speaker 1: they have nothing more that they can do. We could 214 00:12:43,559 --> 00:12:46,640 Speaker 1: go theoretically all the way up to the five hundred. 215 00:12:47,400 --> 00:12:50,720 Speaker 1: That's not a very easy game for them to play. 216 00:12:50,920 --> 00:12:54,720 Speaker 1: And it's similar ratios with the other countries. That's what 217 00:12:54,840 --> 00:12:58,600 Speaker 1: President Trump means when he says that if it really 218 00:12:58,679 --> 00:13:01,520 Speaker 1: does get to be a big war, we have many 219 00:13:01,600 --> 00:13:04,600 Speaker 1: more bullets than any of these other countries right when 220 00:13:04,600 --> 00:13:07,920 Speaker 1: it comes to tariffs, But there are other ways obviously 221 00:13:07,920 --> 00:13:10,840 Speaker 1: of hurting imports non tariff barriers. And in the last 222 00:13:10,840 --> 00:13:13,920 Speaker 1: stambout of China, actually what they specifically said was quantitative 223 00:13:14,000 --> 00:13:16,920 Speaker 1: and qualitative so that terrifs are not the only way 224 00:13:16,920 --> 00:13:21,960 Speaker 1: that they can retaliate. No, it's true, and it's nor 225 00:13:22,040 --> 00:13:25,640 Speaker 1: are they the only way that we can retaliate. The 226 00:13:25,679 --> 00:13:29,800 Speaker 1: truth is that China, Europe, a lot of other big 227 00:13:29,840 --> 00:13:34,400 Speaker 1: countries have been using non tariff trade barriers for a 228 00:13:34,440 --> 00:13:39,040 Speaker 1: long long time. They put on weird standards that it's 229 00:13:39,080 --> 00:13:43,000 Speaker 1: impossible for American products to meet. They put in all 230 00:13:43,080 --> 00:13:48,199 Speaker 1: sorts of elaborate and non science based restrictions. For example, 231 00:13:48,360 --> 00:13:52,880 Speaker 1: some of these countries keep complaining, oh, we can import 232 00:13:53,040 --> 00:13:57,280 Speaker 1: US beef because of mad cow disease. Well, do you 233 00:13:57,360 --> 00:14:01,040 Speaker 1: think mad cow disease is really rampant in the US? 234 00:14:01,240 --> 00:14:04,640 Speaker 1: I have been heard a report a bit in years. Similarly, 235 00:14:04,840 --> 00:14:09,240 Speaker 1: some countries say, well, we can't import your chickens because 236 00:14:09,320 --> 00:14:12,360 Speaker 1: of asion flew. Whence the last time you heard a 237 00:14:12,440 --> 00:14:16,239 Speaker 1: case of asion flew in the United States. It's all nonsense. 238 00:14:16,800 --> 00:14:21,040 Speaker 1: The truth is that they've been very protectionists. We have 239 00:14:21,160 --> 00:14:24,840 Speaker 1: been very close to free market, and now that we're 240 00:14:24,920 --> 00:14:30,160 Speaker 1: trying to defend ourselves against their bad practices, they're screaming 241 00:14:30,200 --> 00:14:34,160 Speaker 1: and yelling. Well, they've been spoiled for many, many years 242 00:14:34,240 --> 00:14:38,200 Speaker 1: and that game is over. And Mr Second, I really 243 00:14:38,240 --> 00:14:40,040 Speaker 1: think there's no one who knows about the situation who 244 00:14:40,080 --> 00:14:42,920 Speaker 1: would deny that China has been protectionists in all sorts 245 00:14:42,960 --> 00:14:44,920 Speaker 1: of different ways. I don't think anyone would take issue 246 00:14:44,920 --> 00:14:47,840 Speaker 1: with that in the media or otherwise. At the same time, 247 00:14:48,120 --> 00:14:50,600 Speaker 1: what happens when there's a tension between on the one hand, 248 00:14:50,800 --> 00:14:54,000 Speaker 1: growth and jobs, which was what the President's first order 249 00:14:54,000 --> 00:14:56,080 Speaker 1: of business was tension between that on the one hand, 250 00:14:56,200 --> 00:14:59,320 Speaker 1: and getting fairness and reciprocity. If you have to choose 251 00:14:59,360 --> 00:15:01,840 Speaker 1: between the two, which you either have less trade and 252 00:15:01,920 --> 00:15:07,440 Speaker 1: less growth and have it be fairer and more reciprocal, well, 253 00:15:07,560 --> 00:15:12,200 Speaker 1: we wanted to be fairer and more reciprocal. Reciprocity is 254 00:15:12,240 --> 00:15:16,720 Speaker 1: an important keynote to our trade policy. The question is 255 00:15:17,040 --> 00:15:19,760 Speaker 1: how do you get there? And the only way we're 256 00:15:19,760 --> 00:15:25,560 Speaker 1: gonna get foreign countries to lower their inordinate barriers is 257 00:15:25,600 --> 00:15:29,640 Speaker 1: by making it more painful for them to continue those 258 00:15:29,680 --> 00:15:32,960 Speaker 1: practices than to get rid of them. That's what this 259 00:15:33,080 --> 00:15:37,160 Speaker 1: is all about. This is about an endgame that really 260 00:15:37,440 --> 00:15:43,040 Speaker 1: is free, fair and reciprocal trade. It's not about trying 261 00:15:43,080 --> 00:15:45,800 Speaker 1: to make money out of tariffs. So that's not really 262 00:15:45,840 --> 00:15:49,640 Speaker 1: the endgame here at all. But we need something to 263 00:15:49,840 --> 00:15:54,120 Speaker 1: induce changes in their behavior, and it's already happening and 264 00:15:54,320 --> 00:15:59,520 Speaker 1: seal and aluminum. Once we put our tariffs on, suddenly 265 00:15:59,720 --> 00:16:04,040 Speaker 1: you're up is taking safeguard measures all over the place 266 00:16:04,320 --> 00:16:07,760 Speaker 1: to protect their border. They weren't doing that before we 267 00:16:07,880 --> 00:16:12,440 Speaker 1: put the tariffs on. Japan had never had a trade 268 00:16:12,600 --> 00:16:18,480 Speaker 1: enforcement group in matting their big government agency. Now they 269 00:16:18,520 --> 00:16:22,520 Speaker 1: have the twenty person trade enforcement group. We're going to 270 00:16:22,720 --> 00:16:27,320 Speaker 1: fix the problem of protectionism around the world, and we're 271 00:16:27,360 --> 00:16:30,400 Speaker 1: going to fix it by making it more painful for 272 00:16:30,480 --> 00:16:34,800 Speaker 1: those countries to do bad practices than to do the 273 00:16:34,920 --> 00:16:38,400 Speaker 1: right thing, which is to lower the trade barriers and 274 00:16:38,520 --> 00:16:41,560 Speaker 1: lower their tower and once againistrict. I don't think anyone 275 00:16:41,560 --> 00:16:44,680 Speaker 1: would quibble with that as a goal, a laudatory goal. 276 00:16:44,960 --> 00:16:47,360 Speaker 1: The question is, though, how much pain are we willing 277 00:16:47,360 --> 00:16:48,920 Speaker 1: to suffer in order to get that done? Because the 278 00:16:48,960 --> 00:16:51,560 Speaker 1: pain goes both ways, and for example, Deutsche Bank is 279 00:16:51,600 --> 00:16:54,440 Speaker 1: out with estimates that in fact, a trade war actually 280 00:16:54,480 --> 00:16:57,040 Speaker 1: could take three tents off of GDP growth. If you 281 00:16:57,120 --> 00:16:59,520 Speaker 1: knew today that that was the price you had to pay, 282 00:16:59,680 --> 00:17:01,440 Speaker 1: would be willing to pay it in order to get 283 00:17:01,440 --> 00:17:05,760 Speaker 1: to reciprocal trade. Well, it's very hard to make an 284 00:17:05,760 --> 00:17:09,199 Speaker 1: omelet if you don't break some eggs, and so we 285 00:17:09,359 --> 00:17:12,960 Speaker 1: really have to. We have no choice but to change 286 00:17:13,240 --> 00:17:18,000 Speaker 1: the way that these other Benese can in countries using 287 00:17:18,200 --> 00:17:22,920 Speaker 1: unfair trade practices against us. We have to do it. 288 00:17:23,280 --> 00:17:26,720 Speaker 1: It's unfortunate that it wasn't done at an earlier point 289 00:17:26,760 --> 00:17:30,120 Speaker 1: in time. Would have been a lot simpler, a lot easier, 290 00:17:30,480 --> 00:17:34,160 Speaker 1: and a lot less painful. But it's really important that 291 00:17:34,200 --> 00:17:38,919 Speaker 1: we do it because we're talking about our future and 292 00:17:38,960 --> 00:17:41,440 Speaker 1: that is more important than the growth goal, because, I mean, 293 00:17:41,840 --> 00:17:44,720 Speaker 1: the Republicans came up with the President put forward a 294 00:17:44,800 --> 00:17:48,600 Speaker 1: tax plan that really was growing GDP nicely. Are you 295 00:17:48,640 --> 00:17:50,720 Speaker 1: getting a fair amount of that back in order to 296 00:17:50,760 --> 00:17:55,119 Speaker 1: get to the reciprocal world that you want? But we 297 00:17:55,160 --> 00:17:58,440 Speaker 1: don't think so. And uh, we think that you will 298 00:17:58,680 --> 00:18:03,960 Speaker 1: continue to see very strong employment. The biggest problem most 299 00:18:04,000 --> 00:18:09,520 Speaker 1: American companies have now is finding enough qualified labor to 300 00:18:09,720 --> 00:18:13,680 Speaker 1: do the expansions that they're putting forward. That's why you're 301 00:18:13,720 --> 00:18:18,080 Speaker 1: seeing all of these apprenticeship programs, all of these joint 302 00:18:18,119 --> 00:18:23,400 Speaker 1: programs with local community colleges. Finding workers is the biggest 303 00:18:23,440 --> 00:18:28,880 Speaker 1: problem right now for American industry, not anything else. Because 304 00:18:28,960 --> 00:18:34,040 Speaker 1: we've cut the regulations, released those shackles. We've cut both 305 00:18:34,119 --> 00:18:40,600 Speaker 1: individual and corporate taxes, making America a wonderful destination for 306 00:18:40,600 --> 00:18:45,000 Speaker 1: foreign investment and direct US And that's why we have 307 00:18:45,200 --> 00:18:50,879 Speaker 1: here at Select USA Summit, well but three thousand attendees. 308 00:18:51,400 --> 00:18:56,280 Speaker 1: We have sixties six countries represented here. That's fifteen more 309 00:18:56,359 --> 00:19:00,720 Speaker 1: countries than we had a year ago. We have Cabinet 310 00:19:00,800 --> 00:19:06,919 Speaker 1: secretaries here, We've got fourteen ambassadors, US ambassadors to foreign countries. 311 00:19:07,400 --> 00:19:10,280 Speaker 1: This is a real turnout, and we will be making 312 00:19:10,320 --> 00:19:16,440 Speaker 1: some announcements about new foreign direct investment into the US. 313 00:19:16,440 --> 00:19:21,119 Speaker 1: That's the real world, not the whiners who have criticized 314 00:19:21,240 --> 00:19:25,240 Speaker 1: every single thing that the President has done. They said 315 00:19:25,240 --> 00:19:27,960 Speaker 1: he'd never get a tax bill through, Well he did. 316 00:19:28,520 --> 00:19:30,919 Speaker 1: Then they said, well, it won't do any good for 317 00:19:30,960 --> 00:19:35,679 Speaker 1: the economy, that will only help rich people. Well, unemployment 318 00:19:36,119 --> 00:19:43,880 Speaker 1: is that record lows um corporate enthusiasm, corporate optimism relatively 319 00:19:43,960 --> 00:19:50,080 Speaker 1: all time highs, small business optimism, low unemployment overall, very 320 00:19:50,119 --> 00:19:55,719 Speaker 1: low unemployment for women, very low unemployment for African Americans, 321 00:19:56,240 --> 00:20:00,359 Speaker 1: very low unemployment for Hispanics. So anybody with thinks the 322 00:20:00,400 --> 00:20:04,880 Speaker 1: economy is being wrecked simply doesn't know what they're talking about. No, Joe, 323 00:20:04,880 --> 00:20:06,919 Speaker 1: please only us understanding. I was not suggesting all the 324 00:20:07,160 --> 00:20:09,040 Speaker 1: economy is being wrecked. The question is is there a 325 00:20:09,040 --> 00:20:11,600 Speaker 1: price being paid? Let me ask a specific question that's 326 00:20:11,600 --> 00:20:13,240 Speaker 1: come up in the trade context, and that is the 327 00:20:13,320 --> 00:20:16,760 Speaker 1: ZTE situation. I know that we're negotiations last night up 328 00:20:16,760 --> 00:20:18,879 Speaker 1: in Capitol Hill. Do you believe that there would be 329 00:20:18,920 --> 00:20:21,600 Speaker 1: a compromise that will allow ZT to continue to do 330 00:20:21,640 --> 00:20:26,560 Speaker 1: business the United States? Well, there may very well be. 331 00:20:26,960 --> 00:20:30,639 Speaker 1: The President and Secretary Minuchtion and I met with a 332 00:20:30,680 --> 00:20:35,480 Speaker 1: bunch of Republican congressional leaders yesterday and that was one 333 00:20:35,480 --> 00:20:38,639 Speaker 1: of the many topics that we covered. I think the 334 00:20:38,720 --> 00:20:43,239 Speaker 1: important thing is to modify z TES behavior from what 335 00:20:43,320 --> 00:20:47,639 Speaker 1: it was before. We have now taken over two billion 336 00:20:47,760 --> 00:20:51,440 Speaker 1: dollars and finds out of them. For the first time ever, 337 00:20:51,960 --> 00:20:56,440 Speaker 1: we've had the ability to implant into a country company 338 00:20:56,600 --> 00:21:01,879 Speaker 1: that had violated sanctions our code of our Code of 339 00:21:02,600 --> 00:21:08,440 Speaker 1: Export Control and we have unfettered access to the company 340 00:21:08,560 --> 00:21:12,879 Speaker 1: in order to monitor it. If there are any further violations, 341 00:21:13,160 --> 00:21:15,800 Speaker 1: we will shut them down just as we did before, 342 00:21:16,040 --> 00:21:18,600 Speaker 1: and we have the power to do that. Okay. Finally, 343 00:21:18,640 --> 00:21:21,760 Speaker 1: Mssion Secretary, there's been this issue about short selling some 344 00:21:21,880 --> 00:21:23,600 Speaker 1: shares in a shipping company. I don't want to go 345 00:21:23,640 --> 00:21:25,359 Speaker 1: into the details of that. Frankly, I'm not sure I 346 00:21:25,440 --> 00:21:27,639 Speaker 1: fully understand them, but you've certainly had to talk about 347 00:21:27,640 --> 00:21:30,320 Speaker 1: them plenty. I have a more general question. Many of 348 00:21:30,359 --> 00:21:33,240 Speaker 1: us were surprised in fact that senior government officials are 349 00:21:33,280 --> 00:21:36,720 Speaker 1: involved in short selling or derivatives of any sort. For example, 350 00:21:36,720 --> 00:21:39,480 Speaker 1: here at Blueboard, we're not allowed to do that. In retrospect, 351 00:21:39,480 --> 00:21:41,119 Speaker 1: given what you've been put through, would it be a 352 00:21:41,160 --> 00:21:44,159 Speaker 1: better policy or rule to just say senior government officials 353 00:21:44,280 --> 00:21:48,479 Speaker 1: shouldn't be engaged in things like short selling at all. Now, 354 00:21:48,720 --> 00:21:53,080 Speaker 1: this is not what you would call a typical short sale. 355 00:21:53,160 --> 00:21:58,879 Speaker 1: What happened some shares in one company we're not physically 356 00:21:59,080 --> 00:22:02,359 Speaker 1: in my possession, and there was a whole process I 357 00:22:02,440 --> 00:22:05,720 Speaker 1: had to go through to get them into possession so 358 00:22:05,800 --> 00:22:09,080 Speaker 1: I could sell them. I had begun selling those shares 359 00:22:09,160 --> 00:22:12,440 Speaker 1: the ones that I did have possession of months before. 360 00:22:13,160 --> 00:22:16,520 Speaker 1: So when I learned about the new shares, wanted to 361 00:22:16,560 --> 00:22:19,200 Speaker 1: close out that holding. What happened to be a company 362 00:22:19,240 --> 00:22:24,760 Speaker 1: called Navigator, And it was when the shares were delivered 363 00:22:24,800 --> 00:22:29,320 Speaker 1: to me my own shares, I used them to substitute. 364 00:22:29,400 --> 00:22:32,720 Speaker 1: So there was no profit or loss on the so 365 00:22:32,800 --> 00:22:37,320 Speaker 1: called short sale. It was simply a means of implementing 366 00:22:37,440 --> 00:22:40,840 Speaker 1: a transaction, and then I had no gain or loss 367 00:22:40,920 --> 00:22:43,520 Speaker 1: by change in the market. Please understand, there was nothing 368 00:22:43,520 --> 00:22:45,800 Speaker 1: in my question. It's just anything improper had been done 369 00:22:45,880 --> 00:22:48,720 Speaker 1: or anything that gotten gains, nothing like that. I'm actually 370 00:22:48,720 --> 00:22:50,879 Speaker 1: asking a more basic question, sort of a concession to 371 00:22:50,920 --> 00:22:52,840 Speaker 1: the shortness of life as it were. I mean, I'm 372 00:22:52,840 --> 00:22:54,240 Speaker 1: sure it wasn't pleasant for you to even have to 373 00:22:54,280 --> 00:22:56,480 Speaker 1: explain all this, wouldn't it just be better just have 374 00:22:56,520 --> 00:22:59,600 Speaker 1: a simple rule that said, senior gard officials don't participate 375 00:22:59,680 --> 00:23:04,520 Speaker 1: in thing like short telling. Well, this is not a 376 00:23:04,840 --> 00:23:09,080 Speaker 1: typical short sale. A typical short sale is you borrowed 377 00:23:09,119 --> 00:23:13,240 Speaker 1: stock that you do not own. You sell the borrowed stock, 378 00:23:13,640 --> 00:23:17,879 Speaker 1: putting up collateral for it, and then when the stock 379 00:23:17,920 --> 00:23:20,960 Speaker 1: goes down, you cover it and make a profit. That 380 00:23:21,160 --> 00:23:25,160 Speaker 1: simply is not what happened here. I do think that 381 00:23:25,160 --> 00:23:28,200 Speaker 1: that kind of short sale is not a good thing 382 00:23:28,320 --> 00:23:31,879 Speaker 1: for government officials to do. But this is simply a 383 00:23:32,040 --> 00:23:36,359 Speaker 1: technical means of complying with the delivery rules of the 384 00:23:36,400 --> 00:23:40,480 Speaker 1: New York stock exchanged. I didn't gain or lose regardless 385 00:23:40,520 --> 00:23:44,560 Speaker 1: of what the stock did after I entered into the transaction, 386 00:23:45,200 --> 00:23:48,359 Speaker 1: whereas in a short sale, if the stock went down, 387 00:23:48,560 --> 00:23:51,679 Speaker 1: I would profit. If the stock went up, I would lose. 388 00:23:52,440 --> 00:23:57,440 Speaker 1: My situation was one where I was totally indifferent as 389 00:23:57,520 --> 00:24:00,439 Speaker 1: to the subsequent price of the stock and us it 390 00:24:00,520 --> 00:24:04,040 Speaker 1: happens the stock is now at a higher level than 391 00:24:04,119 --> 00:24:07,800 Speaker 1: it was when I sold it. Anyway, Okay, fair enough, 392 00:24:08,520 --> 00:24:10,840 Speaker 1: I think I do understand. I really want to thank 393 00:24:10,880 --> 00:24:13,560 Speaker 1: you for taking a time, Mr Secretary. I know you 394 00:24:13,600 --> 00:24:16,520 Speaker 1: want to get back to your investment summit there in Washington. 395 00:24:16,720 --> 00:24:17,959 Speaker 1: It's good if you to spend time with this, as 396 00:24:17,960 --> 00:24:21,960 Speaker 1: Wilber Ross, US Commerce Secretary. Well from David Weston with 397 00:24:22,119 --> 00:24:37,479 Speaker 1: the Secretary of Commerce and now joining us from Vienna 398 00:24:37,840 --> 00:24:40,119 Speaker 1: gentleman who has been a great supporter of the program. 399 00:24:40,240 --> 00:24:43,920 Speaker 1: Is classic, the Commanding Heights and the original the prize. 400 00:24:44,040 --> 00:24:46,919 Speaker 1: In a way underestimated, and I urge all of you 401 00:24:46,960 --> 00:24:51,280 Speaker 1: to dive into it, the quest energy security and the 402 00:24:51,320 --> 00:24:54,879 Speaker 1: remaking of all of this. Daniel Jurgen joins us right now. 403 00:24:54,960 --> 00:24:58,320 Speaker 1: Dr You're wonderful to have you with us with ol 404 00:24:58,400 --> 00:25:01,440 Speaker 1: Peck in Vienna and to take a title of one 405 00:25:01,480 --> 00:25:05,400 Speaker 1: of your chapters in the quest. Is there a breaking 406 00:25:05,680 --> 00:25:09,440 Speaker 1: of the bargain at OPEC? Are the pressures so great 407 00:25:09,440 --> 00:25:15,399 Speaker 1: in the cartel that that cartel bargain will be broken? No? 408 00:25:15,520 --> 00:25:18,000 Speaker 1: I don't think so. I mean the feeling. I think 409 00:25:18,080 --> 00:25:21,679 Speaker 1: the sense here is that it's been expanded. And the 410 00:25:21,800 --> 00:25:24,639 Speaker 1: phrase that people are using we've used as the Vienna 411 00:25:24,640 --> 00:25:28,600 Speaker 1: Alliance because the key factor is that this isn't just 412 00:25:28,760 --> 00:25:33,080 Speaker 1: the old band of OPEC, but it's also Russia in 413 00:25:33,119 --> 00:25:37,240 Speaker 1: particular and other non Opeque countries that came together, you know, 414 00:25:37,320 --> 00:25:41,240 Speaker 1: after the price collapse, to stabilize the price and get 415 00:25:41,240 --> 00:25:44,960 Speaker 1: invested going. What's interesting that the tom tom just to 416 00:25:45,000 --> 00:25:47,600 Speaker 1: say please is interesting. I was reflecting with that one 417 00:25:47,640 --> 00:25:50,679 Speaker 1: of the biggest beneficiaries of this has been, uh, the 418 00:25:50,760 --> 00:25:52,919 Speaker 1: United States in terms of the recovery of the do 419 00:25:52,960 --> 00:25:56,679 Speaker 1: bestic us oil industry. What is the fair price of 420 00:25:56,760 --> 00:26:01,240 Speaker 1: a barrel of oil right now, Well, I think that's 421 00:26:01,280 --> 00:26:06,240 Speaker 1: a for thousands of years almost philosophers have been arguing 422 00:26:06,280 --> 00:26:12,040 Speaker 1: about that, at least thousands of pages according to the books. Yes, 423 00:26:12,560 --> 00:26:15,720 Speaker 1: but I think you know what one was hearing here, 424 00:26:16,240 --> 00:26:17,920 Speaker 1: you know, as the people saying it was sort of 425 00:26:18,200 --> 00:26:20,840 Speaker 1: fifty five to seventy was described by a couple of 426 00:26:20,920 --> 00:26:25,720 Speaker 1: people as the fairway that would uh assure sufficient investment 427 00:26:25,840 --> 00:26:31,600 Speaker 1: and without impact on uh, you know, the overall economy 428 00:26:31,720 --> 00:26:35,639 Speaker 1: in fact, acting as a stimulus to what an interesting 429 00:26:35,680 --> 00:26:39,000 Speaker 1: thing that came out is you know how much manufacturing 430 00:26:39,040 --> 00:26:43,920 Speaker 1: companies around the world uh depend upon the market, the 431 00:26:45,240 --> 00:26:49,800 Speaker 1: energy markets for their equipment. So you know, I you know, 432 00:26:49,840 --> 00:26:53,200 Speaker 1: probably at another time could be another fair way. But 433 00:26:54,160 --> 00:26:59,359 Speaker 1: you can remember before the oil price collapsed in it 434 00:26:59,520 --> 00:27:01,399 Speaker 1: was set a under dollars a barrel was good for 435 00:27:01,440 --> 00:27:06,720 Speaker 1: consumers and producers. So it's a those goal posts shift, Okay. 436 00:27:07,119 --> 00:27:10,560 Speaker 1: One of the things shifting, Dr Jurgen is the immigration 437 00:27:10,600 --> 00:27:13,600 Speaker 1: debate in Germany and of course the immediacy of the 438 00:27:13,640 --> 00:27:18,359 Speaker 1: cultural and immigration debate in America. You're commanding heights maybe 439 00:27:18,440 --> 00:27:23,240 Speaker 1: does not take on immigration in our history of immigration directly, 440 00:27:23,760 --> 00:27:28,440 Speaker 1: but it permeates all of your classic book, The Commanding Heights. 441 00:27:28,560 --> 00:27:33,639 Speaker 1: Daniel Jurgen on the newness of this immigration debate or 442 00:27:33,720 --> 00:27:39,520 Speaker 1: is it something that we're simply revisiting across our history. Well, 443 00:27:39,560 --> 00:27:42,720 Speaker 1: it's certainly be imperious. There was a Chinese Exclusion Act 444 00:27:43,640 --> 00:27:46,919 Speaker 1: a century ago, um, but for the most part in 445 00:27:46,920 --> 00:27:50,840 Speaker 1: the nineteenth century it was open. It was very much 446 00:27:51,040 --> 00:27:56,080 Speaker 1: open borders. Um. But obviously, you know now it's such 447 00:27:56,080 --> 00:27:59,440 Speaker 1: a divisive issue in the United States and in Germany. 448 00:27:59,480 --> 00:28:04,320 Speaker 1: It's a huge problem for Angelo and Merkel. Within that 449 00:28:04,680 --> 00:28:08,440 Speaker 1: is the spirit of capitalism, which is you need population 450 00:28:09,359 --> 00:28:13,280 Speaker 1: to make capitalism go. Would we be a better company 451 00:28:13,600 --> 00:28:19,200 Speaker 1: was simply more immigrants allowing for greater population growth. Well, 452 00:28:19,240 --> 00:28:24,320 Speaker 1: I think economists certainly say that that, Uh, one of 453 00:28:24,320 --> 00:28:28,560 Speaker 1: the strengths of the US economy is immigration, and that 454 00:28:28,760 --> 00:28:32,679 Speaker 1: increases the overall productivity of the economy. And you know, 455 00:28:32,720 --> 00:28:35,480 Speaker 1: you can see and I mean we're you know, we're 456 00:28:35,480 --> 00:28:39,640 Speaker 1: in a period now we're labored in many many markets 457 00:28:39,640 --> 00:28:43,080 Speaker 1: are very tight. Let's see, dar Daniel, you're gonna thank 458 00:28:43,080 --> 00:28:46,040 Speaker 1: you so much from Vienna today in the OPEC meetings. 459 00:28:46,080 --> 00:28:48,320 Speaker 1: And I really can't say enough about his latest The 460 00:28:48,400 --> 00:28:52,160 Speaker 1: quest really a wonderful book on the changes going on 461 00:28:52,240 --> 00:28:56,960 Speaker 1: in some of which he's widely predicted within h the 462 00:28:57,000 --> 00:29:14,200 Speaker 1: global economies. This is the interview of the day for 463 00:29:14,280 --> 00:29:17,320 Speaker 1: Global Wall Street. No not about the trading errant Deutsche Bank. 464 00:29:17,440 --> 00:29:22,480 Speaker 1: Thank you Sinali Basik for this. This is brilliant, brilliant 465 00:29:22,600 --> 00:29:26,719 Speaker 1: work by mckenze Group on the state of corporate bonds. 466 00:29:26,760 --> 00:29:30,880 Speaker 1: Susan Lunn joins us now with Mackenzie on this exceptionally 467 00:29:31,560 --> 00:29:38,400 Speaker 1: important fifty page reports. Susan congratulations on advancing Reinhardt and 468 00:29:38,600 --> 00:29:42,280 Speaker 1: rogue Off and that they said this time is different 469 00:29:42,360 --> 00:29:46,520 Speaker 1: in all the focuses on government debt and instead we 470 00:29:46,520 --> 00:29:48,680 Speaker 1: should look at private debt. And there's households on that, 471 00:29:48,760 --> 00:29:53,000 Speaker 1: but there's corporate debt which just builds and builds. Are 472 00:29:53,040 --> 00:29:56,920 Speaker 1: we reducing two thousand five and two thousand and six. 473 00:29:59,160 --> 00:30:02,000 Speaker 1: Thank you for having in me. Well, it's true that 474 00:30:02,240 --> 00:30:05,640 Speaker 1: corporate debt or debt of non financial companies has grown 475 00:30:05,680 --> 00:30:08,520 Speaker 1: almost as much as government debt since the Financial crisis, 476 00:30:08,840 --> 00:30:10,720 Speaker 1: and there's not been a lot of attention paid to this. 477 00:30:11,080 --> 00:30:13,880 Speaker 1: So in this report we looked specifically at what's happening 478 00:30:13,880 --> 00:30:16,040 Speaker 1: in the corporate bond markets. Which is that they've really 479 00:30:16,400 --> 00:30:19,360 Speaker 1: taken off. As banks have retrenched, companies have turned to 480 00:30:19,440 --> 00:30:23,080 Speaker 1: bond and they've tripled in size. We actually think this 481 00:30:23,200 --> 00:30:27,560 Speaker 1: is a welcome diversification, but there are definitely signs of risk, 482 00:30:28,040 --> 00:30:32,719 Speaker 1: and already defaults on corporate debt obligations are above thirty 483 00:30:32,960 --> 00:30:36,320 Speaker 1: year average, and you think they could rise further. You've 484 00:30:36,320 --> 00:30:39,800 Speaker 1: got folks, As always with mackenzie, the charts are stunning. 485 00:30:40,320 --> 00:30:43,400 Speaker 1: There's the U S, there's Western Europe, and then there's 486 00:30:43,400 --> 00:30:46,080 Speaker 1: what I'm gonna call Susan. The mystery of China, other 487 00:30:46,160 --> 00:30:51,600 Speaker 1: developing economies and other advanced economies. Is there a transparency 488 00:30:51,640 --> 00:30:54,640 Speaker 1: out there that was not there in two thousand six 489 00:30:55,200 --> 00:30:59,800 Speaker 1: or is too much of your bar chart a mystery? Well, 490 00:30:59,840 --> 00:31:03,719 Speaker 1: there is more transparency. This is why economists like myself 491 00:31:03,760 --> 00:31:06,720 Speaker 1: have long said that bond markets are a good alternative 492 00:31:06,760 --> 00:31:10,440 Speaker 1: to bank loan because their priced in the market. Credit 493 00:31:10,520 --> 00:31:13,360 Speaker 1: ating agencies are out there raiding the bond, so there 494 00:31:13,440 --> 00:31:17,320 Speaker 1: is more transparency. But as you noted, the growth has 495 00:31:17,360 --> 00:31:21,080 Speaker 1: been in the United States, but also in Europe. In 496 00:31:21,320 --> 00:31:24,800 Speaker 1: China has been staggering. So their corporate bond market went 497 00:31:24,840 --> 00:31:29,160 Speaker 1: from virtually nothing ten years ago to two trillion dollars, 498 00:31:29,160 --> 00:31:32,280 Speaker 1: one of the largest in the world today, and other 499 00:31:32,400 --> 00:31:35,440 Speaker 1: emerging markets have been able to issue bonds as well. 500 00:31:36,040 --> 00:31:38,480 Speaker 1: I mean, I can't say this enough, folks. Susan Lund 501 00:31:38,560 --> 00:31:41,680 Speaker 1: with us A Mackenzie Group, and the title of the 502 00:31:41,760 --> 00:31:46,080 Speaker 1: story of this essay is let me get it up here, 503 00:31:46,080 --> 00:31:49,560 Speaker 1: hold on, I just lost it. Rising corporate debt parallel 504 00:31:49,680 --> 00:31:53,840 Speaker 1: or promise And basically, Susan, every single executive on every 505 00:31:53,840 --> 00:31:57,040 Speaker 1: single airline should be reading this thing. What Let me 506 00:31:57,080 --> 00:32:00,360 Speaker 1: ask an open question, what in your thirties six page 507 00:32:00,400 --> 00:32:05,080 Speaker 1: report is a number one message to chief financial officers 508 00:32:05,320 --> 00:32:08,280 Speaker 1: burdened with the idea of should we do the next trunch? 509 00:32:08,320 --> 00:32:12,840 Speaker 1: Should we do the next issuance? Yeah, the big messages 510 00:32:13,000 --> 00:32:17,640 Speaker 1: that look, the market has probably crested, so it's tripled 511 00:32:17,640 --> 00:32:20,800 Speaker 1: in size, but now we've got rising interest rates. And 512 00:32:20,840 --> 00:32:24,240 Speaker 1: the analysis we've done in this report looks at how 513 00:32:24,280 --> 00:32:28,200 Speaker 1: many companies have issued debt and in fact they're in 514 00:32:28,240 --> 00:32:32,040 Speaker 1: a risky position to repay, and so we're likely to 515 00:32:32,120 --> 00:32:35,480 Speaker 1: see some phone out in the market. Now. Long term, 516 00:32:35,560 --> 00:32:39,040 Speaker 1: there's lots of potentials for further correct but short term 517 00:32:39,280 --> 00:32:42,240 Speaker 1: we would expect defaults to continue to rise. And now 518 00:32:42,360 --> 00:32:47,440 Speaker 1: Fox folks want surveillance with Tom Keane, Pim Fox and 519 00:32:47,520 --> 00:32:49,960 Speaker 1: John Farrell where we get nerdy with you with Susan 520 00:32:50,040 --> 00:32:53,400 Speaker 1: Lun of Mackensee Group. Okay, Susan, here's the reality, with 521 00:32:53,440 --> 00:32:55,760 Speaker 1: a major shout out to David Goldman and his his 522 00:32:56,040 --> 00:32:59,440 Speaker 1: classic work at Bank of America. If there's a trunch 523 00:32:59,560 --> 00:33:03,880 Speaker 1: or a of issuances of a given nation or housing 524 00:33:03,920 --> 00:33:08,560 Speaker 1: bond or corporate bond, everybody focuses on the garbage, which 525 00:33:08,560 --> 00:33:12,200 Speaker 1: gets bad and gets worse. But the real problem is 526 00:33:12,240 --> 00:33:16,440 Speaker 1: the senior quality loans that are priced at ninety eight 527 00:33:16,640 --> 00:33:20,120 Speaker 1: or nineties six, and they moved down in crisis to 528 00:33:21,600 --> 00:33:24,960 Speaker 1: are we in that same position again where the real 529 00:33:25,120 --> 00:33:28,920 Speaker 1: risk is not the junk that's identified as junk, but 530 00:33:29,000 --> 00:33:33,760 Speaker 1: the real risk is quality senior corporate paper that could 531 00:33:33,800 --> 00:33:40,520 Speaker 1: see a price decline of equality down to eighty seven. 532 00:33:40,600 --> 00:33:44,240 Speaker 1: Is that where the real risk is. That's one of 533 00:33:44,280 --> 00:33:48,200 Speaker 1: the two big risks so UM and our analysis we 534 00:33:48,280 --> 00:33:52,200 Speaker 1: find up of an overall corporate bonds and they do 535 00:33:52,360 --> 00:33:55,400 Speaker 1: west or now triple b according to SMP, so it's 536 00:33:55,440 --> 00:34:00,000 Speaker 1: just one notch above junk. So the average credit quality 537 00:34:00,000 --> 00:34:03,440 Speaker 1: of the investment great issuers that you're pointing out has 538 00:34:03,520 --> 00:34:08,360 Speaker 1: slowly gone down in this era of ultru low interest rates, 539 00:34:08,520 --> 00:34:13,960 Speaker 1: and so economic shocks maybe from trade from other factors, 540 00:34:14,120 --> 00:34:17,400 Speaker 1: could actually push those companies now down below the box. 541 00:34:17,680 --> 00:34:20,440 Speaker 1: And by the way, the high yield bonds already are 542 00:34:20,440 --> 00:34:24,880 Speaker 1: at record size is twillion dollars outstanding. You've got a 543 00:34:25,000 --> 00:34:28,239 Speaker 1: chart on e M that's just stunning Exhibit ten for 544 00:34:28,360 --> 00:34:31,520 Speaker 1: those you keeping score at home, and the delta here 545 00:34:31,640 --> 00:34:35,640 Speaker 1: on share of issuers at high risk of default for Brazil, China, 546 00:34:35,760 --> 00:34:41,359 Speaker 1: India is it's a jump condition over everybody else. When 547 00:34:41,400 --> 00:34:46,200 Speaker 1: you see EM currency depreciation against strong dollar, can you 548 00:34:46,320 --> 00:34:51,239 Speaker 1: overlay that with your debt study into some form of crisis, 549 00:34:51,280 --> 00:34:58,120 Speaker 1: some form of reducts of well, definitely they're going to 550 00:34:58,200 --> 00:35:02,720 Speaker 1: be losses in EM debt. So as we've shown, roughly 551 00:35:02,760 --> 00:35:06,840 Speaker 1: a quarter of issuers in Brazil and China um have 552 00:35:07,280 --> 00:35:10,240 Speaker 1: evena over interest payments of less than one and a half. 553 00:35:10,320 --> 00:35:12,799 Speaker 1: Sorry for being so wonky, but those of you who 554 00:35:12,880 --> 00:35:16,040 Speaker 1: understand interest coverage, it means that they can basically finance 555 00:35:16,080 --> 00:35:18,799 Speaker 1: their debt today, but they've got very little cushion. So 556 00:35:18,880 --> 00:35:24,120 Speaker 1: if their finances go south or if their currencies depreciate. Uh, 557 00:35:24,160 --> 00:35:26,960 Speaker 1: they're in a lot of trouble. And that's today, that's 558 00:35:27,000 --> 00:35:30,680 Speaker 1: before you know, the FED started raising interest rates. So 559 00:35:30,719 --> 00:35:32,640 Speaker 1: we're seeing rates head up and it means a lot 560 00:35:32,680 --> 00:35:35,080 Speaker 1: of these companies are not going to be able to 561 00:35:35,440 --> 00:35:39,040 Speaker 1: afford this as debt matures. One of the things we 562 00:35:39,440 --> 00:35:42,240 Speaker 1: documented this report is that over the next five years 563 00:35:42,719 --> 00:35:45,800 Speaker 1: you're going to have somewhere between one point six trillion 564 00:35:46,239 --> 00:35:49,920 Speaker 1: and two trillion dollars each year these corporate bonds come 565 00:35:49,960 --> 00:35:52,640 Speaker 1: and do, and you'll have to rewrite the report because 566 00:35:52,640 --> 00:35:56,560 Speaker 1: of Fox Disney Comcast from your distance and with great 567 00:35:56,600 --> 00:36:00,480 Speaker 1: respect for mckensey group, their goal is not to model 568 00:36:00,520 --> 00:36:03,800 Speaker 1: out the latest hot transaction. But how do you respond, 569 00:36:03,920 --> 00:36:06,640 Speaker 1: Susan Lunnon when you see lex and the f T. 570 00:36:07,440 --> 00:36:09,920 Speaker 1: I believe it was one or two bids ago at 571 00:36:10,000 --> 00:36:13,360 Speaker 1: seventeen times ibata and I don't know where that number 572 00:36:13,480 --> 00:36:18,000 Speaker 1: is now with the latest Disney the Disney um uh offer. 573 00:36:18,080 --> 00:36:20,560 Speaker 1: But you know we're out of twenty times IBATA on 574 00:36:20,640 --> 00:36:23,640 Speaker 1: a given m and a transaction. Does that denote silly 575 00:36:23,680 --> 00:36:28,040 Speaker 1: season for mckensey Group. Well, look, there's a lot of 576 00:36:28,040 --> 00:36:30,360 Speaker 1: pressure in the market. I don't want to predict the 577 00:36:30,400 --> 00:36:33,880 Speaker 1: next crisis. The one thing I will say that gives 578 00:36:33,960 --> 00:36:38,200 Speaker 1: me some ability to sleep at night over corporate debt. Please, 579 00:36:39,400 --> 00:36:42,160 Speaker 1: you have not. I don't think this is two thousand 580 00:36:42,200 --> 00:36:46,000 Speaker 1: and eight all over again, because in the mortgage crisis, 581 00:36:46,040 --> 00:36:50,000 Speaker 1: those assets were securitized and then created into cdeos and 582 00:36:50,120 --> 00:36:53,640 Speaker 1: CDEO squared, So there was a lot of assets built 583 00:36:53,719 --> 00:36:57,279 Speaker 1: upon the underlying mortgage. You don't see that in the 584 00:36:57,360 --> 00:37:00,360 Speaker 1: corporate bond market. So yes, some in the sters are 585 00:37:00,400 --> 00:37:05,760 Speaker 1: gonna face mosses. Companies may be forced into bankruptcy. It'll 586 00:37:05,800 --> 00:37:09,040 Speaker 1: be a real test for China. But I don't see 587 00:37:09,040 --> 00:37:12,080 Speaker 1: the systemic risk and the interlinkages that you saw ten 588 00:37:12,160 --> 00:37:15,560 Speaker 1: years ago. Susan Lun Congratulations to you and Richard Dobbs 589 00:37:15,560 --> 00:37:18,319 Speaker 1: and the rest of McKenzie Global Institute. Folks. I'll put 590 00:37:18,320 --> 00:37:21,000 Speaker 1: this out on Twitter Twitter and early sell it over 591 00:37:21,040 --> 00:37:24,720 Speaker 1: the next couple of days. Rising Corporate Debt Parallel Promise 592 00:37:24,840 --> 00:37:29,120 Speaker 1: thirty six brilliant page is well charted by McKinsey and Company. 593 00:37:29,239 --> 00:37:32,239 Speaker 1: Just a tour to force on the state of our 594 00:37:32,440 --> 00:37:34,759 Speaker 1: private debt. And this is said with great respect for 595 00:37:34,800 --> 00:37:44,239 Speaker 1: the classic Ryan Heart and Roga. Thanks for listening to 596 00:37:44,280 --> 00:37:48,839 Speaker 1: the Bloomberg Surveillance podcast. Subscribe and listen to interviews on 597 00:37:48,880 --> 00:37:54,719 Speaker 1: Apple Podcasts, SoundCloud, or whichever podcast platform you prefer. I'm 598 00:37:54,760 --> 00:37:58,040 Speaker 1: on Twitter at Tom Keane before the podcast. You can 599 00:37:58,080 --> 00:38:01,280 Speaker 1: always catch us worldwide. I'm Bloomberg Radio