WEBVTT - Surveillance: Donovan, Blain, Schmieding 0:00:10.039 --> 0:00:13.720 Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane. Always 0:00:14.000 --> 0:00:17.560 with Michael McKee. Daily we bring you insight from the 0:00:17.560 --> 0:00:22.800 best in economics, finance, investment, and international relations. Find Bloomberg 0:00:22.840 --> 0:00:27.240 Surveillance on iTunes, SoundCloud, Bloomberg dot Com, and of course 0:00:27.760 --> 0:00:35.880 on the Bloomberg. We are here with Paul Donovan from UBS. 0:00:35.960 --> 0:00:39.280 He's the managing director of Global Economics. And I suppose 0:00:40.280 --> 0:00:44.040 that it's fairly obvious that, um, there would be an 0:00:44.040 --> 0:00:49.600 impact on Great Britain should the country vote to leave, 0:00:50.080 --> 0:00:52.000 and there've been all kinds of estimates about what that 0:00:52.080 --> 0:00:54.400 might be. But I'm a little I'm curious about what 0:00:54.480 --> 0:00:57.120 the impact on the rest of the world will be 0:00:57.480 --> 0:00:59.400 and on the US. Janet Yellen goes up to Capitol 0:00:59.480 --> 0:01:02.280 Hill today for her semi annual Monetary policy testimony, and 0:01:02.280 --> 0:01:04.920 I'm sure she'll be asked the same thing, because she 0:01:04.959 --> 0:01:07.360 said last week it would have an impact on the 0:01:07.440 --> 0:01:09.800 US and they took that into consideration when they decided 0:01:09.840 --> 0:01:13.679 to hold rates. But how bad an impact would it be? Well, 0:01:13.720 --> 0:01:16.560 you've got two areas where you get an impact. I 0:01:16.560 --> 0:01:20.960 think on the first, you have obviously an impact on 0:01:21.160 --> 0:01:24.440 the European Union itself. There would be consequences of this 0:01:24.520 --> 0:01:27.920 for the European Union. European Union is an enormous trade 0:01:27.920 --> 0:01:30.360 partner for the United States, so there's got to be 0:01:30.400 --> 0:01:32.560 a concern about trade linkage. Is it's not just the 0:01:32.680 --> 0:01:35.559 UK as the fifth or sixth largest economy in the world. 0:01:35.560 --> 0:01:39.040 You've got the EU as arguably the largest or second 0:01:39.120 --> 0:01:41.800 largest economy in the world that would also be affected. 0:01:42.200 --> 0:01:44.319 And then the second thing, of course, is the financial 0:01:44.400 --> 0:01:47.760 system into linkages and the financial contagion now here. I 0:01:47.760 --> 0:01:49.400 think we need to be a bit cautious. This is 0:01:49.440 --> 0:01:52.520 not two thousand and seven. What happened after two thousand 0:01:52.520 --> 0:01:58.919 and seven has caused a parochialization of finance around the world, 0:01:59.280 --> 0:02:01.600 and so we don't have the interlinkages that we did have, 0:02:01.920 --> 0:02:04.920 But there are still sufficient interlinkages there that if you 0:02:04.960 --> 0:02:08.359 get disruption in the financial markets, that may have implications 0:02:08.440 --> 0:02:12.160 for the US financial sector. Is it something that would 0:02:12.720 --> 0:02:16.240 seriously disrupt I mean, would we see the yeah, George 0:02:16.240 --> 0:02:18.919 Soros out saying we're going to see crash in the pound, 0:02:19.240 --> 0:02:23.560 Would we see a concominant level of stress on US 0:02:23.600 --> 0:02:27.080 financial markets or is it a second order effect? I 0:02:27.080 --> 0:02:29.800 don't think it would be quite so dramatic, and it 0:02:29.840 --> 0:02:32.720 may evolve more slowly. I think that there is the 0:02:32.720 --> 0:02:35.960 prospect for a more immediate reaction in the UK, which 0:02:36.000 --> 0:02:38.640 will in the event of an exit vote, would would 0:02:38.639 --> 0:02:41.200 then have a period of uncertainty, so you would then 0:02:41.240 --> 0:02:46.360 see reactions in financial markets to that in the United States. 0:02:46.360 --> 0:02:49.480 I think this would be a slower burn and evolution 0:02:49.960 --> 0:02:53.920 of the economic consequences um and so not an immediate 0:02:54.200 --> 0:02:57.320 dramatic change in financial markets, but something that comes out 0:02:57.360 --> 0:03:00.359 over the course of several months. What is your aptermism 0:03:00.440 --> 0:03:03.200 of stability? I mean everybody des as you and I 0:03:03.320 --> 0:03:07.040 talked earlier about first derivative and second derivative moves. I mean, 0:03:07.040 --> 0:03:09.840 the heart of the matter, particularly for Global Wall Street, 0:03:09.919 --> 0:03:13.400 is not levels that movement not change, but brutal is 0:03:13.440 --> 0:03:16.519 Trouchet would put it. Are we entering a brutal period 0:03:16.560 --> 0:03:19.360 whatever this vote turns out to be. Well, I think 0:03:19.440 --> 0:03:23.760 that a remain vote has consequences as well as an 0:03:23.760 --> 0:03:25.720 exit vote, so we you know, we can't look at 0:03:25.760 --> 0:03:30.079 this as just being um A one way better remain 0:03:30.160 --> 0:03:32.400 vote will also change things, and it will change things 0:03:32.400 --> 0:03:35.080 in Europe. But of course this isn't the only political 0:03:35.120 --> 0:03:37.960 event that we've got this year, you know. We we've 0:03:38.000 --> 0:03:41.520 just had Italian local elections which proved to be anti establishment, 0:03:41.520 --> 0:03:45.240 We've got the Spanish elections. We've got over thirty elections 0:03:45.280 --> 0:03:48.200 taking place in the States in November um or, most 0:03:48.200 --> 0:03:50.320 of which will have some bearing on where we're going. 0:03:50.520 --> 0:03:53.320 So this whole issue about political risk is not going 0:03:53.320 --> 0:03:56.360 away from the markets. And my concern is that when 0:03:56.360 --> 0:04:01.040 we look at politics today, it's becoming more more polarized, 0:04:01.320 --> 0:04:04.160 and I think this is about the way that politics 0:04:04.160 --> 0:04:07.400 is being organized. The new social media aspects of politics 0:04:07.680 --> 0:04:10.840 tend to drive people to more extreme positions, it seems, 0:04:10.880 --> 0:04:14.640 and that is something markets don't handle very well. How 0:04:14.680 --> 0:04:18.760 do you get, I don't know, at chance of Trump 0:04:18.760 --> 0:04:21.200 and a sixty chance of Clinton, for example, how do 0:04:21.240 --> 0:04:23.360 you price in the probability of that when they are 0:04:23.520 --> 0:04:30.120 so diametrically opposed on their policies. I find extraordinary the 0:04:30.240 --> 0:04:35.120 challenge that you guys walking by your headquarters today, walking 0:04:35.120 --> 0:04:38.840 over from the hotel, have to synthesize the politics of 0:04:38.920 --> 0:04:41.880 the moment. Yeah, it's to me, Mike, it's absolutely original. 0:04:42.120 --> 0:04:44.280 And it's not just the US the United Kingdom, it's 0:04:44.760 --> 0:04:47.880 nation and nation. Literally, I mean the dialogue just in 0:04:47.880 --> 0:04:50.560 the last twenty four hours of Mr Putin and Mr 0:04:50.600 --> 0:04:53.839 Trump just as one example, absolutely original, I think. I 0:04:53.839 --> 0:04:56.680 mean this is of course, in in the nineties, I mean, 0:04:56.720 --> 0:04:58.680 who cared who was president of the United States in 0:04:58.720 --> 0:05:01.039 the nineties. As long as al Greenspan was alive and 0:05:01.080 --> 0:05:03.359 well and running a federal reserve, that's all you focused on. 0:05:03.960 --> 0:05:06.280 But things have changed now. And of course the real 0:05:06.839 --> 0:05:09.719 risk for me that comes of this is again this 0:05:09.800 --> 0:05:13.919 parochialization effect. Economics is global. I can go anywhere in 0:05:13.920 --> 0:05:16.760 the world and talk about CPI and people hopefully will 0:05:16.760 --> 0:05:20.039 know what I'm talking about. But politics is local, it's cultural, 0:05:20.240 --> 0:05:23.039 it's embedded in in the society in which you live. 0:05:23.440 --> 0:05:27.599 It's if political risk is rising, that's something that is very, 0:05:27.720 --> 0:05:31.880 very difficult for international investors to necessarily understand. And so 0:05:31.920 --> 0:05:33.560 the instinct is to say, well, actually, you know what, 0:05:33.560 --> 0:05:35.080 I'm just going to invest at home. I'm not going 0:05:35.080 --> 0:05:37.400 to invest overseas. And then I think the mistake because 0:05:37.400 --> 0:05:40.279 you lose the diversification of your portfolio. But that's the 0:05:40.360 --> 0:05:42.680 gut instinct. In this sort of environment that we were 0:05:42.720 --> 0:05:46.839 talking about, extraordinary monetary policy, I want to get your 0:05:46.880 --> 0:05:49.960 feeling and whether it is still working. Certainly, the the 0:05:50.040 --> 0:05:52.200 FAN is keeping rates low and holding under its balance 0:05:52.240 --> 0:05:55.840 sheet even though they're not currently buying other than reinvesting 0:05:55.839 --> 0:05:58.800 with the Japanese are buying, the European Central Bank is buying. 0:05:59.480 --> 0:06:04.359 Are we seeing any progress, Are we seeing loans grow? 0:06:05.000 --> 0:06:09.039 We're not seeing any additional growth or inflation anywhere? Well, 0:06:09.360 --> 0:06:11.280 that's that's not entirely true. I mean, if we look 0:06:11.279 --> 0:06:13.640 at the United States, so the Federal Reserve is actually 0:06:13.720 --> 0:06:17.320 tightening quantitative policy now in the sense that their balance 0:06:17.360 --> 0:06:20.800 sheet is falling as a share of GDP, and economically speaking, 0:06:20.800 --> 0:06:23.880 that's tightening. But they're tightening policy at a time when 0:06:24.320 --> 0:06:27.360 core inflation analyzed to and a half percent in the 0:06:27.400 --> 0:06:30.799 first half of this year. When you've got core inflation, 0:06:30.920 --> 0:06:34.400 the trimmed mean inflation rate, service sector inflation all out 0:06:34.480 --> 0:06:36.919 or above twenty year averages, so we are seeing an 0:06:36.920 --> 0:06:39.240 inflation issue and the third is tightening in response to that. 0:06:39.720 --> 0:06:42.719 In the Eurozone, we can see that when we lose 0:06:42.760 --> 0:06:45.680 the oil base effect, we will get higher inflation coming through. 0:06:46.080 --> 0:06:49.440 Growth in the Eurozone this year probably comes in a 0:06:49.480 --> 0:06:51.359 round about one and a half percent, but that's above 0:06:51.400 --> 0:06:55.400 trend for the Eurozone. And I think that the improvement 0:06:55.440 --> 0:06:58.680 in bank lending, the improvement in the transmission mechanism in 0:06:58.720 --> 0:07:02.480 Europe where banks pushing money into the economy, that's helping 0:07:02.480 --> 0:07:05.919 the Eurozone economy. One can question how much of a 0:07:05.960 --> 0:07:09.520 help negative interest rates are. I don't regard that as 0:07:09.560 --> 0:07:11.960 a monetary policy. I regard that as a fiscal policy. 0:07:12.800 --> 0:07:16.080 But for the most part, I think the extraordinary measures 0:07:16.120 --> 0:07:19.160 have helped imagine what would have happened if we didn't 0:07:19.200 --> 0:07:21.440 have them. That's the thing we've got to do. I've 0:07:21.480 --> 0:07:24.040 never asked this question, and I embarrassed to say that 0:07:23.840 --> 0:07:29.000 that's the case. Is the United Kingdom productive? Front and center? 0:07:29.040 --> 0:07:32.880 And Janet Yellen will mention this inner testimony today. Productivity 0:07:32.880 --> 0:07:35.760 in the United States is front and center. Is the 0:07:35.880 --> 0:07:40.760 United Kingdom productive? Looking at capital, labor and that mysterious 0:07:40.800 --> 0:07:44.160 total factor productivity. So, I mean, the great problem economists 0:07:44.160 --> 0:07:46.680 have with productivity is that productivity is the bit of 0:07:46.720 --> 0:07:50.520 the economy we don't understand. Literally, we we work out 0:07:50.520 --> 0:07:52.520 what we do understand, and then everything else we call 0:07:52.520 --> 0:07:56.200 it productivity. In the UK, productivity has been lower. It's 0:07:56.280 --> 0:07:58.200 it's been a bit like the United States, we've had 0:07:58.320 --> 0:08:02.440 very good employment honin old GDP has been okay, but 0:08:02.520 --> 0:08:05.880 the productivity numbers have have been lower. Part of the 0:08:05.920 --> 0:08:07.920 problem though we've got in the UK, as we've got 0:08:07.920 --> 0:08:09.920 in the States, is the data is being revised all 0:08:09.920 --> 0:08:12.080 the time. Nobody's really sure what's happened. We've got an 0:08:12.120 --> 0:08:16.000 island nation, essentially a smaller nation with great respect for 0:08:16.480 --> 0:08:22.040 scale issues. We've got odd capital dynamics, a hugely weighted 0:08:22.120 --> 0:08:26.040 London financial was seventeen percent of GDP. It's financial something 0:08:26.440 --> 0:08:31.520 something along that wine an interesting original manufacturing component. I 0:08:31.560 --> 0:08:34.720 can't even begin to have to measure productivity in a 0:08:34.760 --> 0:08:37.160 more polarized island. Well, I mean this is this is 0:08:37.200 --> 0:08:39.120 one of the challenges, particularly with the role of the 0:08:39.120 --> 0:08:42.360 financial sector. You know, what is the productivity of an economist? 0:08:42.360 --> 0:08:49.520 What's the value of an economist? But this, of course 0:08:49.640 --> 0:08:52.800 is a real problem. How do we we accurately capture 0:08:52.920 --> 0:08:57.199 in an economy like the United Kingdom, which is basically 0:08:57.280 --> 0:09:00.720 leading in terms of the move towards service sector growth. 0:09:00.760 --> 0:09:02.200 I mean, it's one of the first economies to go 0:09:02.280 --> 0:09:06.080 down that route. So what is it um that actually 0:09:06.880 --> 0:09:09.760 dictates what our productivity is? When so much is service 0:09:09.760 --> 0:09:11.920 section that's so difficult to measure. Then we've got things 0:09:12.000 --> 0:09:14.320 like the rise and self employment. Number of companies in 0:09:14.320 --> 0:09:17.480 the UK has risen twenty five cent since the crisis, 0:09:17.800 --> 0:09:21.360 nearly all self employed people. How do you measure their productivity? 0:09:21.360 --> 0:09:24.240 A lot more difficult to capture? What could be done 0:09:24.240 --> 0:09:27.280 about it? If there were if you were a member 0:09:27.320 --> 0:09:29.960 of Congress, or if you were Janet Yellen or Mario 0:09:30.040 --> 0:09:33.560 Dragging today before the European Parliament and they said what's 0:09:33.600 --> 0:09:37.840 the policy change that would affect that? What would you say, Well, 0:09:37.920 --> 0:09:42.600 I don't think in terms of trying to improve productivity, 0:09:42.679 --> 0:09:44.960 it comes from the monetary policy side. This is not 0:09:45.040 --> 0:09:48.480 what monetary policy is for. This is supply side economics. 0:09:48.480 --> 0:09:52.200 This is flexibility of labor markets. It's skills training, but 0:09:52.240 --> 0:09:56.480 it's also flexibility of skills. One of the great problems 0:09:56.520 --> 0:09:58.720 I think at the moment is that in some parts 0:09:58.760 --> 0:10:01.600 of the world we're churning out university graduates who are 0:10:01.600 --> 0:10:04.040 low skilled workers because all they've got to do is 0:10:04.080 --> 0:10:07.559 memorize the textbook to pass the exam. That's great, until 0:10:07.559 --> 0:10:10.360 the textbook becomes obsolete. In two years time. You two 0:10:10.400 --> 0:10:13.000 are obsolete. So we need to get that flexibility of 0:10:13.040 --> 0:10:15.280 skills and wanting. I gotta get this question is critical 0:10:15.320 --> 0:10:19.040 The Guardian, which is clearly a Remain paper headline Soros 0:10:19.679 --> 0:10:24.680 EU exit risks Black Friday. Do we risk a Black 0:10:24.720 --> 0:10:29.079 Friday's Mr Soros out over his skis. I think we 0:10:29.240 --> 0:10:32.640 risk many things, both on exit and on Remain. I 0:10:32.679 --> 0:10:37.160 think that one of the features of the campaign from 0:10:37.240 --> 0:10:41.400 both sides has been a strong language which is not 0:10:41.640 --> 0:10:45.720 necessarily helping understand the debate that's going on that we 0:10:45.760 --> 0:10:48.840 should be having. This has not perhaps been a terribly 0:10:49.760 --> 0:10:54.199 measured negotiation and debate between the two sides, and the 0:10:54.480 --> 0:10:57.480 strong language has been very common. Paul donavent very valuable 0:10:57.480 --> 0:10:59.880 to have you with us today. Paul Donovan is with UBS. 0:11:00.040 --> 0:11:04.280 We greatly appreciate. I am being with television and radio 0:11:04.400 --> 0:11:18.559 Michael McKee and Tom King globally on Bloomberg Radio from London. Well. 0:11:18.559 --> 0:11:21.080 As I mentioned, Tom and I are here in London 0:11:21.200 --> 0:11:26.520 for the Brexit vote. A lot of possible outcomes remain. 0:11:27.040 --> 0:11:30.000 We don't know yet which side will come away with 0:11:30.040 --> 0:11:32.959 the victory since it is too close to call officially 0:11:33.120 --> 0:11:35.679 with the polls, which means that if you are investing 0:11:36.440 --> 0:11:39.200 and you want to take a stand, you also want 0:11:39.200 --> 0:11:42.240 to hedge that stand. Bill Blaine is an old friend 0:11:42.400 --> 0:11:45.400 of Bloomberg Surveillance, a strategist at mid Partners. It's always 0:11:45.400 --> 0:11:48.920 good to be in the same city as you. Um, 0:11:48.920 --> 0:11:53.680 and we're curious, what are people doing too to take 0:11:53.840 --> 0:11:57.880 risk off in this uh in this time. Well, that's 0:11:57.880 --> 0:12:02.040 an absolutely fascinating question, Mike quota people doing to prepare 0:12:02.520 --> 0:12:07.000 for the vote? Well, and that everyone's got different guesses 0:12:07.360 --> 0:12:09.880 and that's all they are about what's going to happen. 0:12:09.960 --> 0:12:12.360 We do have a binary outcome. Britain is either going 0:12:12.400 --> 0:12:14.600 to vote in or out. At the moment, it is 0:12:14.679 --> 0:12:18.680 looking pretty unclear which one it will be. I guess 0:12:18.760 --> 0:12:21.520 we'll know by four o'clock in the morning Friday morning. 0:12:21.960 --> 0:12:26.000 But what then happens following it? A lot of people 0:12:26.080 --> 0:12:28.600 expect that Sterling is going to crash out of bed 0:12:28.679 --> 0:12:31.760 and it will be the end of all things British. 0:12:31.960 --> 0:12:33.840 A lot of people take the opposite view to that 0:12:33.960 --> 0:12:37.000 and think, well, look, if Britain decides to leave Europe, 0:12:37.000 --> 0:12:40.000 then it's not a British problem. It immediately becomes a 0:12:40.080 --> 0:12:43.280 European problem. So I'm afraid for the people who are 0:12:43.280 --> 0:12:46.840 looking to short term trade this market, It's very much 0:12:46.880 --> 0:12:50.840 a question of guestimates and placing your bets on anything 0:12:50.880 --> 0:12:54.040 except for Green. The real issue is what is the 0:12:54.160 --> 0:12:59.520 long term investment scenario here. If you're a serious investor 0:12:59.600 --> 0:13:02.120 in your thinking about the next five to ten, fifteen 0:13:02.160 --> 0:13:05.040 to twenty five years for the insurance money and the 0:13:05.040 --> 0:13:08.040 pension money, which is going to be better for Europe 0:13:08.240 --> 0:13:11.439 and the UK? Is it going to be in or out? Well, 0:13:11.480 --> 0:13:13.800 I suppose you probably don't want to make that decision 0:13:13.960 --> 0:13:17.360 until you get to Friday. We're seeing a lot of 0:13:17.400 --> 0:13:20.199 money on the sidelines now, well, I think there's there's 0:13:20.440 --> 0:13:22.560 there's a growing I mean that this has been an 0:13:22.600 --> 0:13:25.800 absolutely fascinating campaign, Mike. I mean a lot of us 0:13:25.840 --> 0:13:28.080 started off looking at it and saying it would be 0:13:28.160 --> 0:13:31.200 madness for Britain to pull out, it would be foolish, 0:13:31.240 --> 0:13:33.520 look at the risks were running. That's very much a 0:13:33.600 --> 0:13:36.880 status quo type of arguments, and I do think that 0:13:37.000 --> 0:13:39.080 is the way the vote is going to be. So 0:13:39.160 --> 0:13:41.760 many people just don't know whether it's a better thing 0:13:41.840 --> 0:13:43.559 to be in or out, So the easy thing to 0:13:43.640 --> 0:13:46.240 do is just stick with the status quo and stay 0:13:46.280 --> 0:13:49.000 in and I rather suspect that's the way the vote comes. 0:13:49.280 --> 0:13:51.720 But I think now there is enough lot of the 0:13:51.760 --> 0:13:55.439 financial markets, and I mean by that the serious investment 0:13:55.520 --> 0:13:59.600 money that is considering the long term implications of the 0:13:59.640 --> 0:14:02.720 Euro and Europe. And I think one of the issues 0:14:02.760 --> 0:14:07.160 there is the Euro simply doesn't work very well. You've 0:14:07.160 --> 0:14:10.240 got all these countries trying to adapt very quickly to 0:14:10.400 --> 0:14:13.240 using an unfamiliar currency. The only thing that can use 0:14:13.360 --> 0:14:17.559 is monettery policy. Fiscal policies not on the table. That 0:14:17.600 --> 0:14:20.800 means that these economies aren't working. And it's just like communism, 0:14:20.840 --> 0:14:24.760 which was a great idea in economics but fundamentally didn't worked. 0:14:25.200 --> 0:14:27.560 And I think the worry for long term investors are 0:14:27.800 --> 0:14:31.560 is that if Britain stays in Europe long term, does 0:14:31.600 --> 0:14:34.520 that create long term financial damage. Well that's certainly been 0:14:35.360 --> 0:14:40.640 the view of a lot of people on the leave side. Um, 0:14:40.680 --> 0:14:43.400 but you really don't know the answer to that either. 0:14:44.160 --> 0:14:47.000 Guess the thing that this this referendum might none of 0:14:47.040 --> 0:14:50.640 us know the answers to anything. Everything is speculation. I 0:14:50.760 --> 0:14:54.240 happen to go with the David Cameron and Remain Camp 0:14:54.320 --> 0:14:58.120 are probably right. You're going to have tremendous dislocation, but 0:14:58.240 --> 0:15:01.760 probably not as bad as people think because if sterling weekends, 0:15:02.040 --> 0:15:03.960 people are going to jump in and buy it. I 0:15:04.000 --> 0:15:08.360 saw analysis today that said you want to own British 0:15:08.360 --> 0:15:11.840 hotel stocks if if they vote to leave because sterling 0:15:11.840 --> 0:15:14.680 will weekend and then you know you'll be overrun with 0:15:14.760 --> 0:15:18.560 US Yanks. You know you may not want that. Yeah, 0:15:18.600 --> 0:15:22.720 that's a very good point. Michael McKee and Tim keenan London, 0:15:22.960 --> 0:15:28.280 thrilled to finally meet Bill Blaine uh who writes the 0:15:28.400 --> 0:15:34.960 Morning Porridge, People's Healthy Breakfast Street absolutely Healthy bread rated 0:15:35.040 --> 0:15:38.200 every morning. What my porridge? You with your porche your 0:15:38.200 --> 0:15:40.560 surveillance point when I mean in the United States we 0:15:40.760 --> 0:15:43.160 have oatmeal. Here we come here we have like porridge 0:15:43.160 --> 0:15:45.680 is one the longest established health foods on the planet. 0:15:45.880 --> 0:15:48.760 The reason we Scots are so big, strong and powerful 0:15:49.080 --> 0:15:52.880 is every morning scotsman start the day bullet porridge and 0:15:53.080 --> 0:15:55.960 glasso whiskey. I'm sure that Lord LaMotte did I got 0:15:56.000 --> 0:15:57.840 the map out? I had no I knew. I think 0:15:57.920 --> 0:16:01.400 I knew the sheld Islands north of Scotland, but I 0:16:01.440 --> 0:16:05.160 didn't know three hundred some miles north of Scotland. So 0:16:05.280 --> 0:16:07.760 it's along the long way. I think Shetland's needer to 0:16:07.880 --> 0:16:12.200 Norway then instead. That's exactly what he said. Chancellor Darling 0:16:12.280 --> 0:16:15.040 is from that neck of the woods jail, Prime Minister 0:16:15.120 --> 0:16:18.280 Brown and others. I I know them. I when I 0:16:18.360 --> 0:16:21.160 was a student, I used to canvas for Alistair Darling. 0:16:21.920 --> 0:16:26.080 How will they respond? Is? I mean, I'm trying to 0:16:26.120 --> 0:16:29.400 get through the hysteria in the panic like the Guardian 0:16:29.440 --> 0:16:32.680 George sort of world. I think you're hitting in one 0:16:32.720 --> 0:16:35.000 of the main things that is going to happen. Let's 0:16:35.000 --> 0:16:37.680 forget about the vote and why you should go one 0:16:37.680 --> 0:16:41.640 way or the other and talk about the unintended consequences thereof. 0:16:42.080 --> 0:16:43.640 And one of the ones is going to be in 0:16:43.720 --> 0:16:47.680 British politics the Labor Party here in the UK the 0:16:47.720 --> 0:16:51.520 traditional opposition to the current government, which are the Conservatives 0:16:51.520 --> 0:16:54.000 are the Tories, or it's the other way around that 0:16:54.040 --> 0:16:56.800 the Conservatives are the opposition to Labor. But at the 0:16:56.840 --> 0:16:59.960 moment Labor Party is very very weak after damaging lead 0:17:00.120 --> 0:17:04.280 ship run and they had a strong leader in David Cameron. 0:17:04.520 --> 0:17:07.480 But of course David Cameron has called this referendum which 0:17:07.520 --> 0:17:10.639 looks like backfiring terribly on him and we've seen a 0:17:10.680 --> 0:17:14.840 new challenger arrive in the form of Boris Johnson, Everyone's 0:17:14.920 --> 0:17:18.600 favorite mop topped blonde as they call them. Um, it 0:17:18.800 --> 0:17:21.600 is likely that we will see a change around in 0:17:21.640 --> 0:17:25.160 the Conservative Party with a new leader emerging. The question 0:17:25.280 --> 0:17:27.800 is does that mean Labor will be able to reinstitution 0:17:27.920 --> 0:17:31.440 insinuate itself in British political thinking. We're not terribly sure. 0:17:31.840 --> 0:17:36.280 It is there a delineation in uh in policies that's 0:17:36.600 --> 0:17:39.480 significant to the British people right now because you've got 0:17:39.920 --> 0:17:43.919 Corbyn and Cameron campaign together on the Brexit issue. Well 0:17:43.960 --> 0:17:46.800 that that's again a very good question because it used 0:17:46.840 --> 0:17:50.440 to be that the best Conservative Prime minister that we 0:17:50.560 --> 0:17:54.800 had since Margaret Thatcher was of course Tony Blair, who 0:17:54.960 --> 0:17:58.000 was in fact elected by the Labor Party, and Tony 0:17:58.040 --> 0:18:02.200 Blair fold very right wing policies, which works extremely well 0:18:02.600 --> 0:18:05.480 and one of the reasons that the Conservative got in 0:18:05.680 --> 0:18:09.080 last time as they were pursuing effectively the same old 0:18:09.160 --> 0:18:12.240 Blay right policies. But now we have a Labor Party 0:18:12.280 --> 0:18:15.840 that has gone hard left or harder left, and it 0:18:15.880 --> 0:18:18.879 seems to be we have a Conservative Party that is 0:18:19.480 --> 0:18:22.560 on the verge of implosion now. I think that's very 0:18:22.600 --> 0:18:24.600 interesting because if you look at what's going on in 0:18:24.640 --> 0:18:27.000 the rest of the world, whether it's in Europe where 0:18:27.040 --> 0:18:32.680 you have far left, far right and other protest parties emerging, 0:18:32.720 --> 0:18:36.399 and even in the States where the massive protest vote 0:18:36.400 --> 0:18:40.639 against established politicians looks to us to be exactly the 0:18:40.680 --> 0:18:44.520 same thing. Can I reb up the script of Alan 0:18:44.600 --> 0:18:48.280 Campbell is of the United Kingdom and he does great 0:18:48.320 --> 0:18:51.600 statistical work for Bloomberg. He's come up with a d 0:18:51.800 --> 0:18:56.280 x Y equivalent for the pound and it's a shocking picture. 0:18:56.320 --> 0:18:59.199 It will be my single best chart tomorrow on television 0:18:59.640 --> 0:19:02.480 here of London, and and and Bill. I'm thrilled to 0:19:02.520 --> 0:19:07.160 speak to you about it right now. This is a 0:19:07.160 --> 0:19:12.040 an index with focused waitings on the majing major trading 0:19:12.160 --> 0:19:15.720 partners of the United Kingdom, and I think people would 0:19:15.720 --> 0:19:21.479 be shocked by the waitings euro thirty six US dollar. 0:19:22.040 --> 0:19:25.919 It's a real balance between Europe and the UK in 0:19:25.960 --> 0:19:30.160 America that David Cameron and others have to deal with. 0:19:30.560 --> 0:19:34.600 I think that this this index is absolutely the question 0:19:34.840 --> 0:19:38.560 of the moment. Let's forget all list nonsense about whether 0:19:38.600 --> 0:19:40.240 we should be in or out in terms of what 0:19:40.359 --> 0:19:43.920 it means for UK taxpayers or whatever. But this focus 0:19:44.040 --> 0:19:49.719 on UK p LC or UK INC. Because my whole 0:19:49.920 --> 0:19:52.280 thinking at the moment is this is not about This 0:19:52.359 --> 0:19:55.200 is far too important to leave to politics. This is 0:19:55.240 --> 0:19:57.960 an issue about how the UK performs. Is one of 0:19:58.000 --> 0:20:01.000 the strongest marcantile nations on the country, and you can 0:20:01.040 --> 0:20:04.080 see from this index that we're pretty finally balanced between 0:20:04.119 --> 0:20:06.520 our trade with Europe and the rest of the world. 0:20:06.880 --> 0:20:09.280 The problem is our trade with Europe is in danger 0:20:09.400 --> 0:20:13.120 because of the failed economic theory that lies behind the Euro. 0:20:13.280 --> 0:20:15.680 I'll go with that, but the chart is studying in folks. 0:20:15.720 --> 0:20:17.680 I'll put this chart on a radio plus you'll see 0:20:17.680 --> 0:20:21.080 it featured heavily for the next three days here in 0:20:21.119 --> 0:20:24.639 the United Kingdom. The single message of the chart is 0:20:24.680 --> 0:20:29.119 on a currency basis. The index is pound index p 0:20:29.320 --> 0:20:32.879 O U n D on the Bloomberg, the United Kingdom 0:20:33.000 --> 0:20:35.960 is not recovered from the crisis of oh eight because 0:20:36.000 --> 0:20:38.359 they're getting no help from Europe. And what I'd like 0:20:38.480 --> 0:20:42.000 to look at is the Euro on the same basis, 0:20:42.000 --> 0:20:45.920 because I rather suspect that you'll find exactly the same 0:20:45.960 --> 0:20:50.439 thing that Europe and the UK have languished in the 0:20:50.440 --> 0:20:53.000 wake of the crisis in fact, I would argue that 0:20:53.480 --> 0:20:58.680 the UK is the strongest performing European economy since the crisis, 0:20:59.000 --> 0:21:01.560 So we can do the same analysis on the rest. 0:21:02.080 --> 0:21:05.720 I'll think that will be very very thoughtful piece of 0:21:05.760 --> 0:21:09.160 analysis to present people as to why the Euro isn't 0:21:09.200 --> 0:21:11.760 working and ultimately that's the problem here. So we're they 0:21:11.880 --> 0:21:14.160 on Campbell and our team over on the death Star 0:21:14.240 --> 0:21:18.119 Bloomberg gil P Mike. We announced pound index go p 0:21:18.320 --> 0:21:21.280 O U N D and it's it's I I. You know, 0:21:21.440 --> 0:21:23.359 they talked to me about this a few days ago 0:21:23.920 --> 0:21:28.600 and it beautifully shows the tension that you hear from 0:21:28.600 --> 0:21:30.600 the chance to learned from the Prime minister. Yeah. But 0:21:30.680 --> 0:21:32.720 here's the other thing. I mean, one of the reasons 0:21:32.760 --> 0:21:36.040 the UK economy is successful is we have our own economy. 0:21:36.400 --> 0:21:39.320 One of the reasons that Europe is struggling is because 0:21:39.400 --> 0:21:42.480 it's using somebody else's economy, unless, of course, she happens 0:21:42.480 --> 0:21:44.240 to be a jam Mike. I put this out on 0:21:44.280 --> 0:21:46.879 Bloomberg Radio Plus. The first look at it. I'm Bloomberg 0:21:46.920 --> 0:21:51.480 Radio Plus. Uh. It's interesting because you as a not 0:21:51.600 --> 0:21:55.199 a brit but a United Kingdom. You're a Scott We 0:21:55.240 --> 0:21:57.600 have to make that clear. But you get old scott 0:21:57.640 --> 0:22:01.920 and British too, and you have been agonizing over this 0:22:02.040 --> 0:22:06.119 as we follow your your daily notes. Um, you're you 0:22:06.640 --> 0:22:08.840 come down at a different times on both sides, and 0:22:08.960 --> 0:22:11.200 you know what I feel like, Paul on the road 0:22:11.240 --> 0:22:14.520 to Damascus there was I I started off saying, hey, 0:22:14.520 --> 0:22:16.800 this is an absolutely no brainer. We've got to stay 0:22:16.800 --> 0:22:19.840 in Europe. We mustn't rope that rock the boat. But 0:22:19.920 --> 0:22:23.160 then I started looking at stuff like this and thinking 0:22:23.480 --> 0:22:26.440 what is the long term effect of tying yourself and 0:22:26.600 --> 0:22:30.320 your economy to an economic theory that doesn't work? And 0:22:30.359 --> 0:22:32.199 it was actually jailed for me. This is quite a 0:22:32.200 --> 0:22:34.359 funny story. It was actually jailed for me. I was 0:22:34.359 --> 0:22:37.639 on the BBC one morning. They are another broadcaster by 0:22:37.640 --> 0:22:40.959 the way, So I was on the BBC and they 0:22:41.000 --> 0:22:45.000 had this Chinese academic complaining that in China they spend 0:22:45.040 --> 0:22:49.680 far too much time in economics analyzing failed Western economics, 0:22:49.760 --> 0:22:52.760 and they want to spend more time doing Marxism. So 0:22:52.800 --> 0:22:55.600 I just simply reminded him that dask Capital and the 0:22:55.600 --> 0:22:58.880