WEBVTT - Populism: As Popular as Ever 0:00:13.880 --> 0:00:17.120 Hello, and welcome to What Goes Up, A Bloomberg Weekly 0:00:17.160 --> 0:00:21.360 Markets podcast. I'm Sarah Plantze, reporter on the Cross Asset team, 0:00:21.400 --> 0:00:24.240 and I'm Mike Reagan, a senior editor on the Markets team. 0:00:24.239 --> 0:00:26.840 This week on the show, did the reflation trade come 0:00:26.880 --> 0:00:29.920 back just a little bit too quickly? All of a sudden, 0:00:29.920 --> 0:00:32.479 the yield curve is flattening once again, and markets are 0:00:32.479 --> 0:00:37.120 playing defense. Some investors say they also see shades of August. 0:00:37.560 --> 0:00:39.640 It's also that time of year, with less than six 0:00:39.680 --> 0:00:43.199 weeks togo until firms across Wall Street are starting to 0:00:43.240 --> 0:00:45.680 share their thoughts and ideas for the year ahead. And 0:00:45.800 --> 0:00:48.040 of course we'll close out the episode with our tradition 0:00:48.200 --> 0:00:51.320 the Craziest Thing I saw in Markets this week? And Sarah, 0:00:51.400 --> 0:00:53.599 before we get to, I gotta say I'm excited as 0:00:53.680 --> 0:00:56.720 usual on podcast A. I'm excited about about two things. 0:00:57.200 --> 0:00:58.840 One is, we got a pretty good call to the 0:00:58.920 --> 0:01:01.400 podcast hotline, to the What Goes Up Hotline this We'll 0:01:01.440 --> 0:01:03.959 save that for the Craziest Thing. The other thing I'm 0:01:04.000 --> 0:01:06.440 excited about is I don't know if you've noticed, but 0:01:06.600 --> 0:01:10.679 my Delaware Blue Hens basketball team is undefeated six and 0:01:10.720 --> 0:01:13.920 oh the woebegone basketball team of the University of Delaware. 0:01:14.000 --> 0:01:20.840 I must say I hadn't noticed many people. Your Michigan 0:01:20.840 --> 0:01:24.039 team's also undefeated at three and oh though, so we 0:01:24.120 --> 0:01:26.680 are twice as undefeated as you. I'm just gonna throw 0:01:26.680 --> 0:01:28.560 that out there, probably not for long. We'll see how 0:01:28.600 --> 0:01:31.520 we do it. But to honor the occasion, we actually 0:01:31.560 --> 0:01:34.080 have a guest from the great state of Delaware joining 0:01:34.160 --> 0:01:37.240 us here. Unfortunately, he did not go to the University 0:01:37.240 --> 0:01:40.000 of Delaware. He went to our conference rival, James Madison, 0:01:40.040 --> 0:01:42.840 so we won't we won't talk basketball with him about that, 0:01:43.680 --> 0:01:46.200 but we're happy to have him. His name is Luke Tilly. 0:01:46.240 --> 0:01:49.760 He's the chief economist at Wilmington's Trust in Wilmington, Delaware, 0:01:49.760 --> 0:01:52.960 and he's a former officer at the Philadelphia Federal Reserve. Luke, 0:01:53.000 --> 0:01:55.160 welcome to the show. Thank you for having me. Okay, 0:01:55.200 --> 0:01:58.640 also joining us our very own Bonds and f X 0:01:58.680 --> 0:02:03.040 reporter and skilled a question I would say, Katie Greifeld, 0:02:03.080 --> 0:02:04.840 welcome to the show. Thank you. I'm so glad you 0:02:04.840 --> 0:02:06.920 brought that up right. How's the horse stone. His name 0:02:07.000 --> 0:02:09.359 is Batman and he's doing great. It's good. I used 0:02:09.360 --> 0:02:11.760 to think his name is Fatman, but I was mistaken. 0:02:11.840 --> 0:02:15.560 It is Batman is a much better, maybe more polite, 0:02:15.600 --> 0:02:21.280 accepting name than right. Right, I misunderstood my bed anyway, Luke, 0:02:21.360 --> 0:02:24.360 let's start with you. I downloaded Welmington Trust has a 0:02:24.480 --> 0:02:28.799 very interesting capital markets forecast for twenty on the website. 0:02:28.840 --> 0:02:31.280 I uh. I advise everyone to download it's it's a 0:02:31.280 --> 0:02:33.880 pretty good read, and I like it because it gets 0:02:33.880 --> 0:02:36.920 into some of the sort of hot topics of the day, 0:02:37.000 --> 0:02:41.840 not just really financial but politics, populism, that sort of thing. 0:02:41.880 --> 0:02:44.200 I advise everyone print this out and bring it to 0:02:44.240 --> 0:02:46.800 Thanksgiving dinner so when it comes time to talk politics, 0:02:46.840 --> 0:02:49.160 you're you're well armed. But I just I wanted to 0:02:49.200 --> 0:02:52.760 read a line from it that I think is really fascinating. 0:02:52.800 --> 0:02:54.720 I think this explains a lot of what we're seeing 0:02:54.760 --> 0:02:57.519 in the world today, whether it be Hong Kong or Chili. 0:02:57.919 --> 0:03:01.280 We're sort of the the US political endscape and it 0:03:01.360 --> 0:03:04.359 goes the rise, and populism isn't part of an outgrowth 0:03:04.880 --> 0:03:09.160 of the unintended consequences of productivity, which includes more gains 0:03:09.160 --> 0:03:12.320 for owners than workers and the secular disruption of the 0:03:12.400 --> 0:03:16.280 labor force. For example, labor share of income remains low. 0:03:16.320 --> 0:03:19.240 The figure dropped from fifty six point five percent at 0:03:19.280 --> 0:03:22.280 the turn of the twentieth century to fifty point nine 0:03:22.320 --> 0:03:25.400 percent in two thousand and fourteen, and it will continue 0:03:25.440 --> 0:03:29.160 to drive populist sentiment. I find the stuff fascinating because 0:03:29.240 --> 0:03:32.280 I think this is a key theme of sort of 0:03:32.360 --> 0:03:35.360 global geopolitics. And like I said, this unrest we've seen 0:03:35.400 --> 0:03:38.600 in Hong Kong, in CHILEI a lot of Latin America. 0:03:39.400 --> 0:03:42.080 How does one take this and apply it to this 0:03:42.200 --> 0:03:45.080 sort of the investment landscape. Yeah, sure, so it's a 0:03:45.120 --> 0:03:46.840 it's quite a mouthful. I don't know if you would 0:03:46.840 --> 0:03:51.800 try and do it Thanksgiving dinner. But of course we 0:03:51.800 --> 0:03:54.960 were packing quite a bit of information into that paragraph. 0:03:55.080 --> 0:03:59.800 But UH, simply put the rise of populism around the globe. 0:04:00.320 --> 0:04:02.800 If you just read headlines, you might think is coming 0:04:02.880 --> 0:04:06.360 from uh sort of random success of populist leaders or 0:04:06.440 --> 0:04:09.960 particular movements that just happened to get more popular. But really, 0:04:10.120 --> 0:04:13.200 at its at its core, UH is this rise in 0:04:13.360 --> 0:04:17.039 productivity with firms, and firms have turned to robotics and 0:04:17.200 --> 0:04:22.680 artificial intelligence, UM, all kinds of technology that increases their productivity, 0:04:22.800 --> 0:04:25.400 and one of the UH, one of the outcomes of 0:04:25.440 --> 0:04:29.960 that is that less of income, less of GDP is 0:04:30.000 --> 0:04:32.120 actually going to the worker. We had a fairly steady 0:04:32.200 --> 0:04:34.800 share of GDP going to workers if you look at 0:04:34.880 --> 0:04:39.200 US data for about four or five decades until the 0:04:39.240 --> 0:04:42.000 past of fifteen or twenty years when you see this 0:04:42.400 --> 0:04:45.760 uh steady decline in the amount that's going to workers. 0:04:45.839 --> 0:04:48.960 So in our view, on top of some of the 0:04:48.960 --> 0:04:50.800 there admittedly there are some other things. You've got the 0:04:50.800 --> 0:04:52.799 outsourcing of jobs, You've got some of those other things, 0:04:52.800 --> 0:04:56.000 but both in the US and worldwide, you've got less 0:04:56.080 --> 0:04:58.560 and less income going to workers, and that tends to 0:04:58.600 --> 0:05:01.920 produce a pipe the sentiment. The connection makes sense. And 0:05:02.040 --> 0:05:03.680 looking at your research, I grouped it as a three 0:05:03.760 --> 0:05:08.320 piece you have productivity, populism, and then portfolio. But I 0:05:08.360 --> 0:05:10.960 can imagine some people coming to you and saying, what 0:05:11.000 --> 0:05:12.880 do you mean productivity is on the rise? You look 0:05:12.920 --> 0:05:15.680 at some data points and it still shows that productivity 0:05:15.760 --> 0:05:17.880 is really low. Is the problem that there's still the 0:05:17.920 --> 0:05:22.800 conundrum of people just not potentially measuring productivity in the 0:05:22.920 --> 0:05:27.760 right way in this new era of technology and other industries. Yes, exactly. 0:05:27.800 --> 0:05:29.920 So this is something that we dug into quite a 0:05:29.960 --> 0:05:33.080 bit this year, and it's uh it's twofold. Really. One 0:05:33.160 --> 0:05:36.359 is that it's very challenging to measure productivity uh. And 0:05:36.360 --> 0:05:38.920 then the second is that productivity tends to show up 0:05:38.920 --> 0:05:41.880 with a pretty significant lag. So on the first point, 0:05:42.360 --> 0:05:45.640 when the economy is changing very quickly as it is 0:05:45.680 --> 0:05:48.040 now we term this the fourth Industrial Revolution, with the 0:05:48.080 --> 0:05:50.960 development of all of these technologies. When the economy is 0:05:51.040 --> 0:05:54.920 changing very quickly, it's incredibly hard for our government statisticians 0:05:54.960 --> 0:05:56.960 down in d C to keep track of it. Uh. 0:05:57.000 --> 0:05:59.640 In the late nineteen nineties this happened as well. There 0:05:59.720 --> 0:06:02.280 was this same conundrum that we had right now. How 0:06:02.360 --> 0:06:03.840 is it possible that we have all this growth and 0:06:03.880 --> 0:06:06.520 we have low unemployment, yet we don't have inflation going up? 0:06:07.120 --> 0:06:09.200 And the answer at that time was productivity. When you 0:06:09.200 --> 0:06:12.320 went several years later, when they had a better handle 0:06:12.320 --> 0:06:14.960 on what was going on, productivity was revised up about 0:06:14.960 --> 0:06:16.640 one and a half percent for a three or four 0:06:16.720 --> 0:06:20.520 year period. And our view is that that's exactly what's 0:06:20.520 --> 0:06:22.400 going on right now. The government is not very good 0:06:22.400 --> 0:06:25.360 at keeping track of just how productive Amazon is, for example, 0:06:25.440 --> 0:06:27.760 or uber or some of these other companies. They'll get 0:06:27.800 --> 0:06:30.160 a better handle on it later, but right now we 0:06:30.200 --> 0:06:33.679 believe that that productivity is actually stronger than the statistics show, 0:06:34.080 --> 0:06:37.240 and that of course is what's helping keep inflation low 0:06:37.320 --> 0:06:40.440 right now and not not having those price pressures. Let's 0:06:40.480 --> 0:06:44.440 get right into those Thanksgiving political discussions with with your 0:06:44.480 --> 0:06:50.520 drunk uncles. But you have to have the ammunition to 0:06:51.120 --> 0:06:54.279 counter those drunk uncles. I'm probably the drunk uncle in 0:06:54.320 --> 0:06:57.440 my in my scenario, but for everyone else, for you 0:06:57.760 --> 0:07:02.559 nephews and nieces out there. Um, and you start off this, uh, 0:07:02.680 --> 0:07:06.520 this report, this Capital Markets Outlook, you kind of give 0:07:06.760 --> 0:07:10.160 the sort of the risks if there's a Democrat elected 0:07:10.440 --> 0:07:14.680 or a Republican. Very interesting one looking at if there's 0:07:15.080 --> 0:07:20.560 a left leaning government. The wealth tax, this is a 0:07:20.760 --> 0:07:24.119 third rail issue for a lot of people. Uh, woman 0:07:24.160 --> 0:07:26.320 can trust. According to this report, gives it a high 0:07:26.360 --> 0:07:29.760 chance of happening if a Democrat is elected, but a 0:07:29.800 --> 0:07:33.760 low impact on markets. Um, the walks through what the 0:07:33.840 --> 0:07:36.480 thinking is with that, right. So this is a obviously 0:07:36.520 --> 0:07:38.520 a politically sensitive one and we should say that all 0:07:38.560 --> 0:07:41.040 of our research is just really not meant to be 0:07:41.080 --> 0:07:42.960 a judgment over whether these things are good, bad, or 0:07:42.960 --> 0:07:45.000 and different, but just looking at what the impact would 0:07:45.000 --> 0:07:47.840 be on markets, but clearly, clearly the wealth tax is 0:07:47.880 --> 0:07:51.360 something that has the attention of voters on the left 0:07:51.440 --> 0:07:53.760 right now, in supporters of the of the candidates in 0:07:53.840 --> 0:07:57.440 the in the Democratic primaries. So a wealth tax would 0:07:57.440 --> 0:08:00.880 be incredibly challenging if it were implemented in terms of 0:08:00.920 --> 0:08:03.560 the execution of it and keeping track of wealth. We 0:08:03.600 --> 0:08:05.760 actually think it's more likely that will end up getting 0:08:05.800 --> 0:08:09.240 higher taxes in some other form, either the reversal of 0:08:09.280 --> 0:08:13.920 the taxes that were implemented in those tax cuts, or 0:08:14.200 --> 0:08:16.760 perhaps increases in taxes somewhere else. You know that that's 0:08:16.760 --> 0:08:18.880 on the personal side, that's also on the corporate side. 0:08:19.080 --> 0:08:21.760 But clearly there's some support for the wealth tax right now, 0:08:21.760 --> 0:08:23.520 but there's a lot of sort of devil in the 0:08:23.520 --> 0:08:26.640 details on how you would go about implementing that. Right, 0:08:26.640 --> 0:08:28.960 It would be very tough to appraise someone's wealth on 0:08:28.960 --> 0:08:31.120 a hear to your basis if you yeah, and then 0:08:31.160 --> 0:08:32.840 you get the dynamic effects they try to get their 0:08:32.880 --> 0:08:36.400 wealth out. Several several of the proposals want to penalize that. 0:08:36.480 --> 0:08:39.360 It would be incredibly messy, But it's clearly going to 0:08:39.440 --> 0:08:42.199 be a topic of discussion throughout. People digging holes in 0:08:42.240 --> 0:08:45.000 their backyard with filling it with golden and bitcoin. I 0:08:45.000 --> 0:08:48.199 guess that's what you do with bitcoin, Katie, right, is 0:08:48.200 --> 0:08:50.880 that that's what I hear? Yeah? Right. There was a 0:08:50.920 --> 0:08:55.719 really interesting story this week actually about high wealth individuals 0:08:55.800 --> 0:09:01.040 all of a sudden very interested in very normal type storage. Yeah, 0:09:01.080 --> 0:09:03.400 safety deposit box because who knows, who knows what's going 0:09:03.480 --> 0:09:06.600 to happen with rates lately. Um With that said though, 0:09:06.640 --> 0:09:09.840 and bringing it kind of into Katie's world of f 0:09:09.840 --> 0:09:12.240 FX and rates, Luke, I first want to ask you 0:09:12.280 --> 0:09:15.199 because also in the notes that were sent over to us, uh, 0:09:15.240 --> 0:09:17.679 they said that the way you guys see it, tightening 0:09:17.720 --> 0:09:20.160 of monetary policy is a ways off, which I think 0:09:20.160 --> 0:09:23.600 the Fed has made very clear despite global central banks 0:09:23.600 --> 0:09:27.440 taking a breather from incremental monetary easing. I want to 0:09:27.480 --> 0:09:29.680 get your take though, because a few people this week 0:09:29.720 --> 0:09:32.120 have said to me that now what it looks like 0:09:32.160 --> 0:09:34.680 the market is doing with yields moving lower once again 0:09:34.760 --> 0:09:38.400 to vnsives inequities, coming back to the fore, that maybe 0:09:38.400 --> 0:09:41.040 the market is actually pricing in the idea that the 0:09:41.080 --> 0:09:43.920 FED will have to cut again, and we're still stuck 0:09:43.920 --> 0:09:47.040 in this virtuous circle where the market prices in a 0:09:47.120 --> 0:09:49.240 cut and then the FED fields as though they have 0:09:49.400 --> 0:09:52.000 to cut. Do you think it's possible we do get 0:09:52.000 --> 0:09:54.600 back to this that scenario, say within the next year. 0:09:55.120 --> 0:09:56.920 We do think it's possible, but we don't think it's 0:09:57.000 --> 0:10:01.679 the highest chance outcome if will. So a lot of 0:10:01.679 --> 0:10:04.880 what the FED was doing was basically fixing the yield curve. 0:10:05.000 --> 0:10:07.440 If you will, uh listeners out there, you can't see 0:10:07.440 --> 0:10:11.040 me putting the air quotes around the word fixing, but um, 0:10:11.040 --> 0:10:12.839 but that's essentially what they were doing. So Jerome pal 0:10:12.920 --> 0:10:15.760 never used this term, but essentially when the old curve inverts, 0:10:15.760 --> 0:10:18.839 they get pretty nervous about that. Um. And even though 0:10:18.840 --> 0:10:20.520 they don't as as I said, they don't use that 0:10:20.600 --> 0:10:22.200 as well, we need to do that. That was clearly 0:10:22.200 --> 0:10:23.679 part of it. The the old curve back to where 0:10:23.720 --> 0:10:25.440 it is right now, as you said, flattening a little 0:10:25.440 --> 0:10:27.760 bit more this week. But the FED has gotten themselves 0:10:27.760 --> 0:10:29.560 in a spot where as they said, they want to 0:10:29.559 --> 0:10:31.720 wait and see how long it takes and what the 0:10:31.760 --> 0:10:34.840 impacts of their rate cuts are. Clearly it is having 0:10:35.000 --> 0:10:37.920 having an impact so far, but really we don't think 0:10:37.960 --> 0:10:39.800 that they would end up cutting more rates unless the 0:10:39.840 --> 0:10:43.440 economy took a material turned downwards. What could cause that 0:10:43.480 --> 0:10:45.840 to happen that are it's not our view that the 0:10:45.880 --> 0:10:48.280 economy is going to take a material turned downwards unless 0:10:48.320 --> 0:10:51.080 we get more tariffs. If you get more tariffs on 0:10:51.280 --> 0:10:54.439 between US and China, more brinksmanship there, we think that 0:10:54.440 --> 0:10:56.240 that would end up leading them down that way. But 0:10:56.280 --> 0:10:58.480 that's that's not our view right now. On the other 0:10:58.520 --> 0:11:02.439 side of whether they would be raising interest rates, uh, 0:11:02.480 --> 0:11:04.800 they don't have a history of reversing themselves in changing 0:11:04.840 --> 0:11:09.680 directions very quickly. UM. That would be obviously problematic to markets, 0:11:09.679 --> 0:11:12.280 which are maybe looking for for more cuts. And you're 0:11:12.280 --> 0:11:14.400 there's really not enough time over the next six to 0:11:14.480 --> 0:11:17.120 nine months for inflation to do a U turn and 0:11:17.160 --> 0:11:20.400 really move material upwards for them to want to be 0:11:20.480 --> 0:11:23.480 hiking rates, and so then you know, if you can't 0:11:23.480 --> 0:11:25.880 have material inflation within the next six to nine months, 0:11:25.880 --> 0:11:27.439 you get out the twelve months and then you're right 0:11:27.480 --> 0:11:29.360 before the election. They're not going to really want to 0:11:29.720 --> 0:11:32.720 uh cause problems just before that. So we think it's uh, 0:11:32.760 --> 0:11:35.000 we think it's pretty flat from from here unless you 0:11:35.040 --> 0:11:38.600 get that material downturn and that reversal in the year 0:11:38.640 --> 0:11:42.079 field curve is a lot more their open market operations 0:11:42.120 --> 0:11:45.560 to sort of fix the whole repo mess adding liquidity. 0:11:45.880 --> 0:11:48.719 I think the balance sheets expanded by close to three 0:11:49.200 --> 0:11:51.800 billion by now. I mean, um, is that that's just 0:11:52.280 --> 0:11:55.439 going to continue apace as long as that there's funding 0:11:55.440 --> 0:11:57.240 stress in the repo market, do you think? Yeah? So 0:11:57.280 --> 0:11:59.400 this is where it gets really confusing. At Thanksgiving dinner 0:11:59.400 --> 0:12:02.480 if you want to, if you want to talk about 0:12:02.520 --> 0:12:06.480 FED policy and their monetary policy at the short end 0:12:06.480 --> 0:12:08.120 of the curve, and what they're doing with rates, and 0:12:08.160 --> 0:12:10.959 then also what they're doing with buying treasuries to expand 0:12:10.960 --> 0:12:14.000 their balance sheet, it's it can get a little bit convoluted. Um. Clearly, 0:12:14.040 --> 0:12:16.360 their balance sheet, as you suggested, is now expanding, it 0:12:16.400 --> 0:12:18.680 has as it has been since the beginning of September. 0:12:18.679 --> 0:12:20.959 But that's not really on the rate cut side. That's 0:12:20.960 --> 0:12:23.200 providing the liquidity too markets and all those problems that 0:12:23.240 --> 0:12:26.680 happened uh in the repo market. So this is challenging 0:12:26.679 --> 0:12:28.640 for them to talk about. Really they have to keep 0:12:28.679 --> 0:12:31.120 doing that in order to provide liquidity, uh. And I 0:12:31.160 --> 0:12:33.080 think they're doing their best they can to convince people 0:12:33.080 --> 0:12:35.120 that it's not quantity of easing and it's not them 0:12:35.120 --> 0:12:38.360 easing policy, Katie, come in here. You had a story 0:12:38.440 --> 0:12:41.400 that ran on Sunday called the bond Market's fate hangs 0:12:41.400 --> 0:12:44.599 in balance before trade war crunch time, and when you 0:12:44.679 --> 0:12:46.960 talked about the rise up that we've seen in bond 0:12:47.040 --> 0:12:50.880 yield um and what comes next. As Luke mentioned, trade 0:12:50.960 --> 0:12:53.360 is really a large trigger that we have to keep 0:12:53.360 --> 0:12:56.120 an eye on. But what our investors telling you this week, 0:12:56.160 --> 0:12:58.480 because we've seen the ten year fall roughly twenty basis 0:12:58.520 --> 0:13:01.120 points are so or more? I mean, what's driving this 0:13:01.320 --> 0:13:04.840 and is the path for least resistance at this point lower? 0:13:05.559 --> 0:13:07.160 That's a great question. I mean it feels like the 0:13:07.200 --> 0:13:10.880 answer changes every day depending on the trade headlines we're 0:13:10.880 --> 0:13:14.560 getting as to where yields are headed next. And a 0:13:14.640 --> 0:13:17.040 stat I love that's in that article is that if 0:13:17.080 --> 0:13:20.560 you look at tenure treasure yields, they're extremely correlated to 0:13:20.600 --> 0:13:22.880 the Chinese you want right now, which I think just 0:13:23.000 --> 0:13:27.000 goes to show how much of sentiment in the bond 0:13:27.040 --> 0:13:30.079 market relies on trade. So when I talked to investors, 0:13:30.080 --> 0:13:33.640 I talked to strategists in the bond market specifically, it's trade. 0:13:33.679 --> 0:13:36.160 It's all about trade, and we're really entering you know, 0:13:36.200 --> 0:13:42.040 a crucial few weeks before December and that tariff deadline. Meanwhile, 0:13:42.080 --> 0:13:46.280 the other market you cover, Katie EFFCS has really been 0:13:46.559 --> 0:13:48.440 let's what's the word I'm looking for? I guess quite 0:13:48.480 --> 0:13:51.280 quite boring this year, right, Uh, you had you had 0:13:51.280 --> 0:13:54.280 another story out this week about the dollar being in 0:13:54.320 --> 0:13:57.160 the tightest range for a year, the dollar index, the 0:13:57.160 --> 0:14:00.560 the Ice Dollar index being in the tightest range for 0:14:00.720 --> 0:14:03.760 years since nineteen seventy six. Let's pretend I didn't edit 0:14:03.800 --> 0:14:06.800 that and you can just tell me what what the 0:14:06.840 --> 0:14:09.120 takeaway from that street. Yeah, it's really been feast and 0:14:09.160 --> 0:14:11.240 famly because the bond market has been going crazy, but 0:14:11.360 --> 0:14:14.880 nothing has been happening in FX. And you mentioned the 0:14:14.960 --> 0:14:17.240 d X Y and X that's how you can find 0:14:17.240 --> 0:14:19.480 it on the terminal. But yeah, it's stuck in its 0:14:19.520 --> 0:14:24.320 tightest range in about over four decades. Four decades. Yeah, 0:14:24.320 --> 0:14:27.400 I was not close to alive, But um, that really 0:14:27.560 --> 0:14:29.960 has to do with it's especially crazy if you were 0:14:30.000 --> 0:14:34.320 born before and have to think about how it's almost 0:14:34.320 --> 0:14:39.200 five decades go it's still got a four handle. But um, yeah, 0:14:39.240 --> 0:14:41.600 so that index is mostly made up of the euro 0:14:41.680 --> 0:14:45.240 dollar pair, which is this isn't even crazier status on 0:14:45.280 --> 0:14:48.560 track for its narrows yearly range on record, And I 0:14:48.600 --> 0:14:51.320 was talking to sock Jen about that, and Kit Jukes 0:14:51.360 --> 0:14:54.400 told me that's just because the market's almost been too 0:14:54.400 --> 0:14:58.360 accurate in pricing growth differentials in Europe in America or 0:14:58.440 --> 0:15:01.480 price for pretty good new was in America and bad 0:15:01.520 --> 0:15:04.760 economic news out of Europe and Germany in particular. And 0:15:04.760 --> 0:15:09.360 that's really what we're getting right now, Luke, this very 0:15:09.480 --> 0:15:12.760 quiet volatility in the FX market. It's terrible news to 0:15:12.800 --> 0:15:15.960 our FFS traders listeners. I'm sure it's the worst worst 0:15:16.000 --> 0:15:18.560 possible outcome one could ever think of. But I go, 0:15:18.960 --> 0:15:20.920 I have to wonder for the economy as far as 0:15:20.960 --> 0:15:24.080 looking at financial conditions. I mean that it's a tight range, 0:15:24.080 --> 0:15:27.120 it is elevated compared to last year, But I would 0:15:27.160 --> 0:15:30.560 think that uh sort of diminished volatility in the FX 0:15:30.600 --> 0:15:33.120 market is kind of good for financial conditions. Am I 0:15:33.240 --> 0:15:35.440 thinking about that right? Yeah? It hopes with financial conditions, 0:15:35.520 --> 0:15:38.320 especially with an increasingly integrated world where've got so many 0:15:38.320 --> 0:15:40.600 companies that are operating across borders and they basically have 0:15:40.680 --> 0:15:43.160 to deal with these FX rates on a on a daily, 0:15:43.200 --> 0:15:48.120 weekly and monthly basis, and those more um solid or 0:15:48.200 --> 0:15:51.080 less volatile ffex conditions just make it easier to operate, 0:15:51.120 --> 0:15:53.280 and they just definitely encourage more trade. When you have 0:15:53.680 --> 0:15:57.360 all of the uncertainty that Katie mentioned coming from trade 0:15:57.400 --> 0:15:59.800 and all of the all of the uncertainty that's coming 0:15:59.840 --> 0:16:02.480 from that, and even some uncertainty about fiscal policy, to 0:16:02.560 --> 0:16:05.000 have one thing that is a little bit more stable 0:16:05.080 --> 0:16:06.600 is going to be supportive of growth. In our view, 0:16:07.080 --> 0:16:09.480 all year long, I've heard about how a strong dollar 0:16:09.640 --> 0:16:13.200 is a headwind to corporate profits. Uh And finally, just 0:16:13.280 --> 0:16:15.160 a couple of months ago, people thought that, well, maybe 0:16:15.160 --> 0:16:17.120 that was about the change we saw the dollar started 0:16:17.160 --> 0:16:20.560 turning lower before it started picking up once again. But 0:16:20.640 --> 0:16:23.480 in your story, Katie, you talk about how corporates might 0:16:23.520 --> 0:16:25.840 be caught off guarded a different way. Can you walk 0:16:25.920 --> 0:16:28.640 us through that. Yeah. So usually when people think about 0:16:28.720 --> 0:16:30.800 f X effects, they think about, you know, how is 0:16:30.840 --> 0:16:35.400 it eating into earnings? But what reporting this story out 0:16:35.440 --> 0:16:38.800 showed is that corporations have become or might be at 0:16:38.880 --> 0:16:40.960 risk of becoming a bit complacent when it comes to 0:16:41.000 --> 0:16:43.840 just hedging the currency risk. And we spoke to a 0:16:43.840 --> 0:16:46.320 few different firms and they said it's not you know, 0:16:46.440 --> 0:16:50.600 they're huge multinational clients or the pension funds. It's these 0:16:51.000 --> 0:16:54.880 smaller companies, maybe you know, fifty to seventy employees, who 0:16:54.880 --> 0:17:00.720 have pretty bare bones treasury departments or accounting staff that are, uh, 0:17:00.800 --> 0:17:04.560 you know, after several years where nothing has happened in X, 0:17:04.600 --> 0:17:08.280 they're kind of stepping back their hedging activity because it's 0:17:08.280 --> 0:17:12.560 expensive and it hasn't paid off for several years. But obviously, 0:17:12.720 --> 0:17:17.280 you know, with record volatility at record lows um, you know, 0:17:17.359 --> 0:17:20.520 the risk is that it shoots up really quickly. So there, 0:17:20.560 --> 0:17:22.760 I think we have a quote in there that this puts, 0:17:23.119 --> 0:17:26.200 you know, destroy profits at risk, you know, if you're 0:17:26.200 --> 0:17:31.159 a small company hedging less. Look, any thoughts on what 0:17:31.200 --> 0:17:33.520 the dollar is going to do, Yeah, we don't really 0:17:33.720 --> 0:17:35.600 put out projections of that, but I would agree with 0:17:35.680 --> 0:17:40.280 Katie's sentiment that basically traders and FX traders are have 0:17:40.400 --> 0:17:43.159 been predicting the economies right because fundamentally what's going to 0:17:43.320 --> 0:17:46.679 end up driving currency and currency movements is how are 0:17:46.720 --> 0:17:49.720 the economies performing relative to one another and then what 0:17:49.800 --> 0:17:53.600 are central banks doing. So, as Katie said, a lot 0:17:53.640 --> 0:17:55.840 of what is going on right now has been predicted. 0:17:55.880 --> 0:17:58.800 We predicted a or we the industry or whatever was 0:17:58.840 --> 0:18:01.120 priced in, was a slowdown in US growth this year 0:18:01.760 --> 0:18:05.119 right now, not expecting a huge re acceleration in trade 0:18:05.119 --> 0:18:08.600 and tariffs. Uh, some sort of reasonable answer to the 0:18:08.880 --> 0:18:12.240 whole brexit question. Uh, and that the European un the 0:18:12.320 --> 0:18:14.560 e c B s are the European Central Bank has 0:18:14.600 --> 0:18:16.120 got a new leader and she's not gonna make any 0:18:16.119 --> 0:18:18.560 big changes right away. Right. So if all that's priced in, 0:18:18.640 --> 0:18:21.320 you still get those growth trajectories, Uh, then it should 0:18:21.359 --> 0:18:24.200 be fairly stable and we wouldn't expect any big movements 0:18:24.200 --> 0:18:27.800 in the dollar or any other currencies. You could imagine, uh, 0:18:28.040 --> 0:18:30.879 some sort of compilation and some sort of collection of 0:18:30.880 --> 0:18:34.040 of surprises such as trade and tariffs going bad, a 0:18:34.119 --> 0:18:36.760 hard brexit when it's not expected, or you know, any 0:18:36.760 --> 0:18:38.720 of any any of those things getting up ended, and 0:18:38.720 --> 0:18:42.440 then you would expect to see some more volatility. So um. 0:18:43.000 --> 0:18:45.960 So it's it's inherently hard thing to predict. But basically 0:18:45.960 --> 0:18:48.280 we're just putting our judgments around those risks of those 0:18:48.320 --> 0:18:50.400 things happening at all times. Right. I think when you're 0:18:50.400 --> 0:18:52.879 in a low volatility phase, the hardest thing to do 0:18:52.920 --> 0:18:54.680 is try to predict what's going to snap it out 0:18:54.680 --> 0:18:56.399 if everyone wants to do it, but it's it's it's 0:18:56.440 --> 0:18:59.760 almost impossible, right, And and one thing is usually certain 0:18:59.840 --> 0:19:02.120 is that has been this low volatility for this long. 0:19:02.119 --> 0:19:04.639 It's probably not gonna be same the next year. Right, 0:19:05.000 --> 0:19:21.800 Something's gonna happen. I wanted to get back to that 0:19:22.760 --> 0:19:26.879 look of from Wilmington's trust UM and especially talk about 0:19:27.040 --> 0:19:31.920 UM sort of the policies that have potentially bipartisan support. 0:19:32.440 --> 0:19:33.720 And I like the way you guys do this. You 0:19:33.720 --> 0:19:36.240 give these bubbles that say if it has a high 0:19:36.359 --> 0:19:39.240 chance or a low chance, and it's in big print, 0:19:39.240 --> 0:19:41.080 I can read it even without my reading glasses on. 0:19:41.160 --> 0:19:44.199 So I appreciate, appreciate that from US UH, from US 0:19:44.440 --> 0:19:50.400 on the older end here antitrust UH medium chance, medium impact, UH, 0:19:50.680 --> 0:19:54.720 Drug price reform medium chance, medium impact. So we'll skip those. 0:19:55.440 --> 0:19:59.520 China trade obviously another Thanksgiving topic that's bound to come up. 0:20:00.480 --> 0:20:03.160 You guys give it a high chance and a high 0:20:03.320 --> 0:20:07.840 high impact, which obviously I think I agree with, especially 0:20:08.240 --> 0:20:11.000 given that this is a bipartisan issue now. So I wonder, 0:20:11.560 --> 0:20:13.960 you know, so many people are trying to game theory out, 0:20:14.560 --> 0:20:19.320 you know, the Trump and President She negotiations, and who's 0:20:19.320 --> 0:20:21.520 got the upper hand, who's who's got the weaker hand, 0:20:22.119 --> 0:20:25.560 and what it means for when we'll actually see a deal, 0:20:25.680 --> 0:20:28.200 even a phase one deal. But what as you guys 0:20:28.240 --> 0:20:31.520 put out here, is that you know, a tougher stance 0:20:31.560 --> 0:20:34.000 on trying to trade is a bipartisan issue. I mean, 0:20:34.200 --> 0:20:40.359 is it conceivable believable that, um, sort of the A 0:20:40.359 --> 0:20:42.240 lot of the thinking is that, well, China will just 0:20:42.280 --> 0:20:44.640 wait out President Trump. They they think there's a decent 0:20:44.720 --> 0:20:48.119 chance you won't get reelected. They can stall and just 0:20:48.200 --> 0:20:51.600 wait for the next president to negotiate with. Is that 0:20:51.640 --> 0:20:53.240 a Is that a bad way of thinking about it? 0:20:53.280 --> 0:20:55.680 Do you think there's so many, so many different ways 0:20:55.720 --> 0:20:57.080