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Speaker 1: independent advisor dot com. Welcome to the Bloomberg Surveillance Podcast.
Speaker 1: I'm Tom Keene with David Gura. Daily we bring you
Speaker 1: insight from the best in economics, finance, investment, and international relations.
Speaker 1: Find Bloomberg Surveillance on iTunes, SoundCloud, Bloomberg dot com, and
Speaker 1: of course on the Bloomberg. You want to bring in
Speaker 1: Dirk Mater Now he is, as I said, head of
Speaker 1: Epic Strategy of hs BC. Give us the backdrop here
Speaker 1: to this BIOE decision. First of all, again the BOE
Speaker 1: leaving that key interest rate unchanged. We've seen that some
Speaker 1: strengthening in sterling here over the last a few weeks. Yeah,
Speaker 1: we have, and uh, in part, I guess it has
Speaker 1: been an echo of that that shift in the b
Speaker 1: O We you know, post Brexit voter it was meant
Speaker 1: to be run for the hills um and then we
Speaker 1: suddenly saw the data coming through better than expected and
Speaker 1: and the language changed at the last couple of meetings.
Speaker 1: So as you say, we arrived at today's meeting, expecting
Speaker 1: absolutely what we got, which is to say nothing at all.
Speaker 1: I'm not to be honest, I'm not really sure it
Speaker 1: matters that much for sterling generally what the bank thing
Speaker 1: is doing, and the sterling is a political currency is
Speaker 1: It's not a interest rate story. It's not a fed
Speaker 1: and the doll and these kind of bits and pieces.
Speaker 1: Sterling is a political story. I think it completely disregards today.
Speaker 1: The market cares more about what what Mr Hammond has
Speaker 1: to say, perhaps about fiscal policy potentially, though you know,
Speaker 1: we had the autumn statement and he, I guess he
Speaker 1: he kind of put a bit of a wet blanket
Speaker 1: on the idea that, you know, this this new Prime
Speaker 1: ministership would deliver fiscal easing. He all he really said
Speaker 1: is we're not going to tighten quite so aggressively. So
Speaker 1: I mean that could have been a very sterling positive angle,
Speaker 1: as we're seeing in the US the idea of a
Speaker 1: fiscal surge is very currency positive. But in the UK
Speaker 1: they just don't have the money to do it. Maybe
Speaker 1: the US doesn't but they're gonna do it anyway. But
Speaker 1: in the UK they've decided they don't have enough money
Speaker 1: to do it, so, you know, fiscal policy pretty neutral
Speaker 1: over there. Let's talk a bit about what we saw
Speaker 1: yesterday from from the Federal Reserve. Going into the meeting.
Speaker 1: I think you thought there'd be indications on the dot
Speaker 1: plot of two rate rises in two thousand seventeen, as
Speaker 1: many economists did. How surprised were you by the change
Speaker 1: to the dots? Yeah? Generally surprised. Um, you know, it's
Speaker 1: a what's interesting today? And you started by saying in
Speaker 1: the US raise race start. I don't think oh did
Speaker 1: they because it was like what that wasn't what we
Speaker 1: were talking about yesterday. We were talking about the dots
Speaker 1: all day U. So yeah, that was that was a surprise.
Speaker 1: And look they when you do a revision like that,
Speaker 1: you know the market impact is going to have. And
Speaker 1: that's what they played to. It's triangulation. Thursday, We're gonna
Speaker 1: do that here in a moment, David, time for a
Speaker 1: pro conversation. What the pros do, folks when something moves
Speaker 1: is they try to triangulate. It's no different than you know,
Speaker 1: you're in boy Scouts or Girl Scouts and you're out
Speaker 1: in the field with a compass and you go, why
Speaker 1: am I doing this. You know, John Tucker, where you're
Speaker 1: did you do this is before GPS? You know that?
Speaker 1: You know I was out in the bow of the Nina,
Speaker 1: the pint of the sander where one of those so
Speaker 1: darmy er. Here's what I did. When we get Carney's moved.
Speaker 1: I look at sterling sterling dollar, I look at euro
Speaker 1: dollar and I look at euro sterling and they're not correlated.
Speaker 1: They scream week euro. Why am I going to get
Speaker 1: a one oh three print on euro dollar off of
Speaker 1: what Carney says? You're getting the one oh three on
Speaker 1: euro dollar off the fact that we've just broken that
Speaker 1: support level. I really think this is a stop lost
Speaker 1: story rather than a reaction it's getting and a yeah
Speaker 1: on the usual. I mean to be honest, I just
Speaker 1: think this is like when you go to your doctor
Speaker 1: and he hasn't a clue what's wrong, so he says
Speaker 1: a stress related, when astrologist says it's positioning related. It's
Speaker 1: pretty much the equivalent. Where is the stress going to
Speaker 1: be within those three currency pairs? How does our audience
Speaker 1: monitor or heaven forbid, David even spaculate on what's going
Speaker 1: to happen between sterling, euro dollar in eurosterling. I think
Speaker 1: that price action we've seen this morning on euro dollar
Speaker 1: that will be the dominant element of that triangle. Um
Speaker 1: So what it points to is for now people are
Speaker 1: going to be exploring the downside and euro dollar they're
Speaker 1: gonna be looking for some downside less so on euro sterling.
Speaker 1: I mean you're you're acting right? Is that that that triangle?
Speaker 1: Normally it's kind of a nice relationship and Sterling is
Speaker 1: kind of the middle guy on your conversation exactly. But
Speaker 1: now at that break of of the March low, it
Speaker 1: opens up an entirely new conversation on euro dollar. David
Speaker 1: Garrow one of one oh four thirteen interday Low weakness
Speaker 1: one oh four zero five on euro dollar getting some
Speaker 1: headlines now with the economic outlook that it companied that
Speaker 1: statement from the Bank of England near term global outlook improved.
Speaker 1: Risks have elevated here this this remains the story will
Speaker 1: be the story you're going into two thousand seventeen. Yeah,
Speaker 1: I mean risks elevated. I love when a center bank
Speaker 1: tells us uncertainties high. I mean uncertainties always high. When
Speaker 1: have you ever had a certain outlook? So, but this
Speaker 1: is what they're coping with. But what's interesting is they're
Speaker 1: putting a positive spin on the global outlook, whereas what
Speaker 1: I would argue, we don't know what the global outlook is.
Speaker 1: We don't know what Trump's gonna give us, we don't
Speaker 1: know what the China response might be to a protectionist angle.
Speaker 1: There's a lot of moving parts out there, and so
Speaker 1: I still think the Bank of England, if although they
Speaker 1: won't say it, maybe overtly, they're still kind of thinking
Speaker 1: we might need to ease again in twenty seventeen, I
Speaker 1: still think that's the direction of travel. There a line
Speaker 1: from your most recent note you said that the FED
Speaker 1: is a cyclical driver here in the US dollar is
Speaker 1: more preoccupied with political drivers for now. Explain that a
Speaker 1: little bit. Yeah, So, if you think in terms of
Speaker 1: tradition how you approach the dollar, used to just just always
Speaker 1: look at the FED data, depend and FED so that
Speaker 1: was all about the economic cycle. The US election changed
Speaker 1: the dollar into a political beast because suddenly we came
Speaker 1: fixated on the politics of US, and I think yesterday's
Speaker 1: moved by the FED really reflected an acknowledgement that that
Speaker 1: the U s economic outlook is, if not partly, but
Speaker 1: I would say quite dominantly a political story now, and
Speaker 1: they have to take account of that in their forecasting,
Speaker 1: and they've done it to an extent in the It's
Speaker 1: not so much in GDP. They hardly revised GDP. It
Speaker 1: doesn't doesn't suggest their factoring in a big fiscal steaments.
Speaker 1: Imagine when if we do get a fiscal stiaminus, they
Speaker 1: have to revise their GDP forecast again, they have to
Speaker 1: revise their doults again, you know. So we're only they're
Speaker 1: only beginning that process. But the financial markets as ever
Speaker 1: ahead of the central Bank anticipating that process, and that's
Speaker 1: why we've had a strong dollar. That doesn't make the
Speaker 1: dollar an outlier. Right when you look at currency Perris,
Speaker 1: it seems like politics is what's driving most absolutely, I mean,
Speaker 1: and well, I guess we got used to it in
Speaker 1: emerging markets for a long time. We got used to
Speaker 1: it in Sterling post the Brexit vote. But now the
Speaker 1: dollars coming around give us some levels of where not
Speaker 1: that we unravel or we find instability. But in the
Speaker 1: HSBC grind every day, what's the trip point on dollar? Yet,
Speaker 1: what's the trip point on euro? What's the trip point
Speaker 1: on Malaysian ring something obscure, like I mean even Mexican
Speaker 1: pay so weekends out here. Yeah, I think um on
Speaker 1: Doliana doesn't feel quite so scary, doesn't because we've we've
Speaker 1: been up, let's around the twenty five and this kind
Speaker 1: of number before, so we've got so you're comfortable going
Speaker 1: to two week Yet I think it's it's conceivable without
Speaker 1: it being destabilizing, which I think is your your your question.
Speaker 1: But the first Secretary Treasury Monution's gonna have a strong
Speaker 1: dollar policy. Where's the trip point on this house of cards?
Speaker 1: I think the trip point comes for the Fed, not
Speaker 1: for the Treasury. You know, we've seen let's say Bullpark
Speaker 1: at ten percent moves and moving them. But let's say
Speaker 1: Bullpark ten ten percent move on the FEDS reckoning that
Speaker 1: somewhere between sixty basis points of tightening. So I think
Speaker 1: that the pain point is already coming through, like they
Speaker 1: already coming through. But you're a dollar. Obviously, people are
Speaker 1: going to talk about parody as being the weird level
Speaker 1: that we need to be cognizant of. I don't think
Speaker 1: we'll get there, to be honest, even with the momentum
Speaker 1: this morning. But that's going to be the conversation. I mean,
Speaker 1: David grew very quickly here. I don't want to monopolize,
Speaker 1: but we got off the election, and the worst case
Speaker 1: this is worst case, folks, humor me. Six percent move
Speaker 1: in the Bloomberg Dollar index, which is good math, but
Speaker 1: it's a six percent move. It's not a ten percent,
Speaker 1: right move. Yet, we haven't talked about oil yet. This morning,
Speaker 1: I'm seeing a brent here barrel. That upward momentum still there.
Speaker 1: To what extent is that driving currencies right now? Energy
Speaker 1: It's been a big story for ruble, for example, Canadian dollar.
Speaker 1: I mean you have to pick and choose. I mean,
Speaker 1: posts US election. As of yesterday, at least before the FED,
Speaker 1: the ruble was the best performing currency in the world.
Speaker 1: That's oil um or maybe it's a little bit of
Speaker 1: Trump like putin the um, you know, but Canadian dollar
Speaker 1: was the third best. So it's it's definitely a big
Speaker 1: part of the story. Of course, we've had the good news.
Speaker 1: Now they're gonna cut production. Now you have to see
Speaker 1: do they match what they've said they're going to do
Speaker 1: with what they actually do, you know, And so I
Speaker 1: have to have to follow that. But certainly good news
Speaker 1: for now and good news for those currencies go. I've
Speaker 1: been talking about a theme of overcome by events, and
Speaker 1: I'm bringing this up with great respect for the President
Speaker 1: elect because in a time of certitude and a methodology
Speaker 1: of certainitude, sometime parachuting in we are overcome by events.
Speaker 1: Der Mayor in London outside the South Hotel? Hotel is
Speaker 1: that wonderful statue of a worthy of the Crimean War
Speaker 1: where they were overcome by events? What's the event you're
Speaker 1: watching now within the financial system? I mean we can know, oh,
Speaker 1: Italian banks, or we can go President elect Trump Bologny.
Speaker 1: What's the thing that you want to observe into two
Speaker 1: thousand seventeen and monitor. Well, I wouldn't say Bologne, because
Speaker 1: I do actually think the thing we're gonna have to
Speaker 1: work out as Trump. I mean, we're still still struggling
Speaker 1: with that constantly. The market at the moment is assuming
Speaker 1: we get all the nice bits, we don't get any
Speaker 1: of the ugly bits. And I think that's a huge
Speaker 1: leap of faith that's been taken. Um. So you know,
Speaker 1: we look, we should have a little bit more cloudy
Speaker 1: and of Q one, But do you know, I really
Speaker 1: hate forecasting. Currency forecasters don't like forecasting generally. When it's
Speaker 1: just economics you gotta worry about. But when you've got
Speaker 1: to try and work out what's going non in politics,
Speaker 1: it becomes a whole lot messier. And that's but that's
Speaker 1: happening across the board now and currency, So Bologna or not,
Speaker 1: I think we do come back to just trying to
Speaker 1: figure Trump out and see what we're going to get
Speaker 1: in terms of actual policy, not promises. Comparing that in mind,
Speaker 1: I imagine you're watching their redmen be very closely. Yeah,
Speaker 1: I mean, look, this strong dollar complicates things. You know,
Speaker 1: it does complicate things for the Chinese authorities. They I
Speaker 1: think they would prefer that the dollar were not this strong.
Speaker 1: We saw overnight, you know, the fixing pushing higher again
Speaker 1: on dollar m and b um. And you're coming to January,
Speaker 1: and January is this seasonal part of the year where
Speaker 1: you have the biggest pressure on the balance of payments
Speaker 1: in China. There's Chinese demand for foreign currency tends to
Speaker 1: be peaking around this time, and the and the current account,
Speaker 1: the trade side tends to deterierate. So this is awkward
Speaker 1: timing and you just raise that flag. Do we do
Speaker 1: we start next year as we started this one, worried
Speaker 1: about worried about currencies and worried about em currencies. What
Speaker 1: does the US What the US policymakers want to see
Speaker 1: the Chinese currency doing at this point in terms of weakness,
Speaker 1: If they're prisible, they I think they should suggest that
Speaker 1: they don't see it do very much because the reman
Speaker 1: bey is is a vital anchor in terms of a
Speaker 1: stable remby is a vital anker in terms of just
Speaker 1: global financial markets. If if that currency d anchors, then
Speaker 1: then you've got a whole other whirlwind of issues to
Speaker 1: cope with. So if they're sensible, I think they'd prefer
Speaker 1: to see a stable I think obviously, if you're going
Speaker 1: to call China currency manipulator going down that path of trade,
Speaker 1: you know, wars, etcetera, then you want to see your
Speaker 1: reman be strengthened. But I mean, at the end of
Speaker 1: the day, the dollar is the one of the strengthening
Speaker 1: reman bees not doing very much. So that's that's the
Speaker 1: conundrum for them. I guess at the moment, ahead of
Speaker 1: the meeting yesterday, the FED meeting yesterday, we we speculated
Speaker 1: on the degree to which Danny Yellen would comment on
Speaker 1: the possibility of a big fiscal stimulus of tax reform.
Speaker 1: What did you make of what she did say yesterday.
Speaker 1: She wasn't completely silent on the matter. She did address
Speaker 1: the fact that some members of the committee were concerned
Speaker 1: about it. What does that tell you about the thinking
Speaker 1: of policy makers at the federal's roof right now? Yeah,
Speaker 1: I honestly thought that was interesting because they have had
Speaker 1: at least the option at the Fed to say, we're
Speaker 1: going to be reactive in the context of fiscal policy.
Speaker 1: We don't know what we're going to get, so let's
Speaker 1: see what we get and then we can adjust. We're
Speaker 1: not in a rush to hike anyway, so we can
Speaker 1: afford to be patient. But as you say, what she
Speaker 1: introduced yesterday was just this concept that we have to anticipate,
Speaker 1: you know, what the impact might be of politics. You know,
Speaker 1: the currency market, the bond market has said, look, politics
Speaker 1: is the driver here, and now the Fed yesterday is
Speaker 1: just taking the first few steps down that road. So
Speaker 1: it was a significant departure and one they didn't need
Speaker 1: to do, so they've chosen to do it. So I
Speaker 1: think that, as I say, significant. What are the lessons
Speaker 1: you've learned here in the wake of what we've seen
Speaker 1: that with the U S election, obviously the Brexit photo
Speaker 1: as well, and then the Italian referendum, we saw so
Speaker 1: little market reaction, at least comparatively. What does that tell
Speaker 1: you as we head to the next elections in France
Speaker 1: and the Netherlands across Europe. Well, one takeaway is the
Speaker 1: the euro it's just so bored with European politics, you know,
Speaker 1: it's um. We We've just had so much stuff to digest.
Speaker 1: I think that the the sensitivity. In fact, I think
Speaker 1: we're just completely desensitized to political turmoil. Um And so
Speaker 1: we had this kind of sell the rumor by the
Speaker 1: fact in euro And I think we're going to get
Speaker 1: to the Dutch elections in March, we're gonna get to
Speaker 1: the French election, You're gonna get the general elections, and
Speaker 1: we'll talk about and we'll spend endless hours negotiating it.
Speaker 1: But I suspect at the end of the day, yours
Speaker 1: not breaking up the political discount, however big it is
Speaker 1: that's in the currency, it's going to disappear. It will
Speaker 1: be done by the end of next year. Critically with
Speaker 1: the one of four five breaking down a euro down
Speaker 1: to a two thousand three weakness. Is it a different
Speaker 1: debate at a point nine five euro, I would suggest
Speaker 1: it is. I mean the dialogue changes. Yeah, it does.
Speaker 1: And you know, the if we were worrying about European
Speaker 1: political risk, when you had a little bit of breathing
Speaker 1: space above parity, then you can kind of say, okay, fine,
Speaker 1: we can we can see a few big figures lower
Speaker 1: it doesn't really matter. But if political risk in Europe
Speaker 1: is the thing that drives us to parody or drags
Speaker 1: us to parody, then it becomes much more of an issue,
Speaker 1: just just from a market psychology perspective, congrat relations to
Speaker 1: mayor and making all of us lean forward with a
Speaker 1: one ten call on Sterling out in the distance. But nevertheless,
Speaker 1: he maintains that even with what we've seen, you can
Speaker 1: it's a funny quirk of this incoming administration that so
Speaker 1: much of a spectacle is rested on Trump Tower, just
Speaker 1: a few blocks from here, and there's a camera trained
Speaker 1: on the elevators therein and last week we saw one
Speaker 1: Admiral James strid Us at Trump Tower meeting with the
Speaker 1: President elect He is now at the dean of the
Speaker 1: Fletcher School of Law and Diplomacy at Tufts University reportedly
Speaker 1: was in the running to become a Secretary of State.
Speaker 1: And it's great to have you on the show, as always,
Speaker 1: admirals to read us. Great to be with you, guys.
Speaker 1: How's it going today? Great? Give us a sense here.
Speaker 1: I'll let you let you decide what you want to
Speaker 1: share from that meeting. But I imagine that one of
Speaker 1: the things you guys discussed you in the president elect
Speaker 1: is what he is looking for in a Secretary of State?
Speaker 1: What are the parameters he's looking for? Who does he
Speaker 1: want to have in that job? What kind of person?
Speaker 1: I think he's looking for someone with a global perspective,
Speaker 1: who has experience on a world stage, as someone who
Speaker 1: has a broad circle of friends and colleagues in the world,
Speaker 1: and someone with whom he has a strong personal chemistry.
Speaker 1: When when you look at Rex Taylorson, the former now
Speaker 1: former ex Nonmobile executive, whom he's picked for that job,
Speaker 1: give us a sense of how he meets those those bars.
Speaker 1: I don't know if you've met him before, but what
Speaker 1: do you make of the pick? I have met him
Speaker 1: and I think he meets those bars quite well. He
Speaker 1: has uh an enormous global set of connections. He's run
Speaker 1: a huge, complex organization. He's someone that is instantly likable. Uh.
Speaker 1: There's very little to criticize. The only thing that I
Speaker 1: think is out there, and it's a legitimate concern given
Speaker 1: the way the wind is owing at the moment, is
Speaker 1: his evidently extraordinarily close relationship with Vladimir Putin. I think
Speaker 1: that's going to be a subject of considerable scrutiny on
Speaker 1: the hill. I'll probably watch football or soccer on Sky
Speaker 1: TV as well. David Gurrow. Very quickly, twentieth century Fox
Speaker 1: formalizes UH their purchase of Sky TV. The rest of
Speaker 1: Sky TV. The value is eleven point seven billion. That's
Speaker 1: a calculation, but it gets you out to a twelve
Speaker 1: billion sterling transaction. That gets me up to I don't
Speaker 1: know what that is. I'm doing the math quickly. I'm
Speaker 1: gonna say it's a fourteen billion dollar transactions. Track here
Speaker 1: owner of about thirty nine percent of that That company
Speaker 1: already something that he's that he's wanted to to acquire
Speaker 1: anmial strad as you mentioned that Russia connection, and we
Speaker 1: look forward to to these hearings, to to hearing more
Speaker 1: about that. What does it tell you and what did
Speaker 1: your meeting with Donald Trump tell you about the degree
Speaker 1: to which Russia foreign policy toward and involving Russia is
Speaker 1: going to be a priority for this administration. Well, I
Speaker 1: think it's got to be a priority for a couple
Speaker 1: of reasons. First of all, we have three enormous contations
Speaker 1: in progress with Russia. One is Putin's support for Vladimir
Speaker 1: a correction, his support for Assad in Syria. Uh, someone
Speaker 1: who's just butchering the city of Aleppo only the most
Speaker 1: recent of his war crimes. Secondly, the annexation of Crime,
Speaker 1: and thirdly, and most obviously, the cyber hack into the
Speaker 1: U S electoral process. So Russia really de facto is
Speaker 1: at the top of the agenda as we go into
Speaker 1: this new administration. Ed. Well, I've I've read a couple
Speaker 1: of articles on the uproar over the number of generals
Speaker 1: within the new cabinet. We need a Stevidia's dissertation. Now,
Speaker 1: is there a difference between a Marine general and an
Speaker 1: army general or a Navy admiral? Are they all the
Speaker 1: same rank? Etcetera? Um? All the ones. We're talking about
Speaker 1: our four star admirals or generals. Uh. The difference between
Speaker 1: them is in the specialty within the armed forces. So
Speaker 1: the Army four star general command soldiers on battlefields on land.
Speaker 1: The marine is kind of amphibious. He can be out
Speaker 1: at sea with his marines, or he can take his
Speaker 1: marines ashore. Also four star officer, a Navy admiral is
Speaker 1: in command of naval at sea forces, aircraft, terriers, cruisers,
Speaker 1: and can also command that amphibious force as it closes
Speaker 1: on the beach. Are they going to bring to Mr
Speaker 1: Trump a humility about certitude? He is a guy who's
Speaker 1: certain of what he's doing. Are they going to bring
Speaker 1: the humility of their military experience? I think they will, Tom.
Speaker 1: What they will bring is an appreciation of the fog
Speaker 1: of war, which can be extended to the fog of
Speaker 1: foreign relations. It's hard. This is complicated stuff, and to
Speaker 1: think you're gonna just cut through it like another through
Speaker 1: butter is a mistake. Moments ago, Richard Greenfield, one of
Speaker 1: the class acts of security analysts analysis at bt I
Speaker 1: G on viacom, we mentioned TV David, why bring this up?
Speaker 1: Viacom may never be great again? Reducing price target, but
Speaker 1: expectations are simply too low. This is classic Rich Greenfield.
Speaker 1: Our upgrade of Viacom to buy on June six was
Speaker 1: undoubtedly a mistake, as it was driven by our conviction
Speaker 1: that Viacom and CBS would merge, so they adjust, but
Speaker 1: they do maintain their by wrating just because it's been
Speaker 1: beat to death. There's not enough of that. A guy
Speaker 1: like Greenfield is really just out front. Dennis Garment does
Speaker 1: the same thing. He talks about the disasters as much
Speaker 1: as the successes. We'd expect that from Adimals Trevitas as well,
Speaker 1: joining US James Travitis at Fletcher School, Tough University, UM
Speaker 1: Admiral I'm sure there's a point is a young Navy
Speaker 1: type amidshipman. I don't know what the right phrases. Where
Speaker 1: there's somebody who's certain that they're certain, that they're certain,
Speaker 1: and they're sat down by a chief petty officer, says
Speaker 1: young lad out of Annapolis. This the certitude emanating from
Speaker 1: the Trump transition team is remarkable. Everybody is certain that
Speaker 1: there's certain. How do you deal with that? How within
Speaker 1: government are we going to deal with the ebbing away
Speaker 1: from certitude? To war, a more towards a more measured
Speaker 1: and balanced approach. Well, first of all the world will
Speaker 1: accomplish that in its own way, and they'll be enormous
Speaker 1: vectors that push in on UH people's ideas of what
Speaker 1: exactly ought to happen, and that will come like a
Speaker 1: freight train at this administration on January twentieth, starting with
Speaker 1: North Korea, cyber Russia, a number of other things in
Speaker 1: the foreign policy sphere alone. Secondly, Tom, you bring in
Speaker 1: people who can be that chief Petty Officer, Tom Keane.
Speaker 1: You know someone who's been around, who has experienced, and
Speaker 1: you listen to him, and so I am encouraged when
Speaker 1: I see pics like General Jim Maddis, General John Kelly,
Speaker 1: both of whom I know extremely well, and who who
Speaker 1: will be that that Dutch uncle to whoever. They will
Speaker 1: back down to nobody, and they seek They neither have
Speaker 1: fear nor do they seek favor within This is a
Speaker 1: military phrase, overcome by events, isn't it? And you're the
Speaker 1: pro we're the amateurs. We read our military history. There's
Speaker 1: O B E. If you were sitting with the President
Speaker 1: elect right now, what is the O B E? You
Speaker 1: would lecture him on, I'd probably start with Syria, which
Speaker 1: has been overcome by tragic events, and at this point
Speaker 1: we're not gonna be able to put Humpty Dumpty back
Speaker 1: together again in Syria. We're gonna have to I think
Speaker 1: partition Syria, and that means probably cutting a deal with
Speaker 1: the Russians, uh, taking ices out. I think that's firmly
Speaker 1: what has to occur that will give a base to
Speaker 1: a more moderate Syria out in the west and the north.
Speaker 1: But the idea that we're gonna be able to put
Speaker 1: Syria back together as a coherent say, that's overcome by events.
Speaker 1: As I hear your praise General Madis and General Kelly,
Speaker 1: and I think back to a conversation we had, I
Speaker 1: think before the before those picks were named, certainly, in
Speaker 1: which you you expressed some concern here about changing the
Speaker 1: law that says that somebody has to be out of
Speaker 1: a uniform for seven years before taking a position like
Speaker 1: the ones they are in fact taking. Have you come
Speaker 1: around to the idea, what what what concern remains about
Speaker 1: doing what Donald Trump here has proposed doing. I still
Speaker 1: have that concern in the broad scheme of things. In
Speaker 1: other words, I don't think for the Department of Defense,
Speaker 1: not for the other cabinet jobs, but for the Department
Speaker 1: of Defense. It's generally not a good idea to put
Speaker 1: a recently retired military in there, because you dilute the
Speaker 1: idea of civilian control of the military. However, I think
Speaker 1: General Jim Madis is an exception to that rule. A
Speaker 1: because he is who he is. He's very firm, he's
Speaker 1: very smart, he's very uh. He will stand in the
Speaker 1: wind that blows in that job, and I think there'll
Speaker 1: be a lot of wind blowing. And then secondly, because
Speaker 1: I think President Trump needs somebody like him and experienced
Speaker 1: hand that as Tom was saying, kind of that chief
Speaker 1: petty officer who can say, hey, we really got to
Speaker 1: do it this way, Mr President. For those two reasons,
Speaker 1: I support Jim Mattis as a one time exception in
Speaker 1: the blur Admiral I saw today some think tank etcetera.
Speaker 1: Taking aerial shots of coral atolls? Is that the right
Speaker 1: word in the South China Sea and gaming that there's
Speaker 1: military and I'm sorry, Damal and had the blush of
Speaker 1: Cuba of fifty years ago to it. How do we
Speaker 1: approach our intelligence within the South China sea. And how
Speaker 1: does the good Navy show the flag in a constructive way. Well, first,
Speaker 1: in terms of intelligence, tom As you're well aware, a
Speaker 1: great deal is now collected from satellites and we can
Speaker 1: position those so we can position satellite in a geosynchronious orbit,
Speaker 1: which means it just parks over one point on the Earth. Secondly,
Speaker 1: we can use unmanned vehicles UM air air unmanned vehicles
Speaker 1: and undersea unmanned vehicles. Uh. Those can be very surreptuous
Speaker 1: and they can operate from the decks of our ships.
Speaker 1: And that's really the third thing we can do is
Speaker 1: move our ships through that region collecting electronic intelligence. So
Speaker 1: we have a great deal of capability. We need to
Speaker 1: show the flag because here's the key point, tom, these
Speaker 1: are international waters. This is the high Seas, and we
Speaker 1: cannot seed that to China and simply let them treat
Speaker 1: the South China see as though we're their own personal lake.
Speaker 1: It is not. I think of all the times we've
Speaker 1: spoken with you and you've cautioned about the risks of
Speaker 1: cybersecurity going forward, here the risks of big hacks, and
Speaker 1: we certainly read the report in New York Times. A
Speaker 1: couple of days ago detailing how the d n C
Speaker 1: was was hacked by Russia, according to the New York
Speaker 1: Times and the documents that they've seen there. I wonder
Speaker 1: if from your conversations with the President, like you think
Speaker 1: he's taking that seriously enough. He doesn't seem to be
Speaker 1: backing to move by some lawmakers to investigate this fully.
Speaker 1: And what does that say to you about his willingness
Speaker 1: to see this is the great threat that it is.
Speaker 1: I think these are two separate strands of a of
Speaker 1: a combination that comes together so on cyber security. I
Speaker 1: think he is taking it very seriously, broadly speaking, not
Speaker 1: attaching a national label to it, but looking at China,
Speaker 1: North Korea, Iran, Russia, hackers, cyber crime, that basket, I
Speaker 1: think he's taking very seriously. UM. I think he's making
Speaker 1: a mistake to walk away from an investigation of the
Speaker 1: Russian piece of this, because it's so so much a
Speaker 1: dagger pointed at the heart of American democracy. And I
Speaker 1: think ultimately there will be a several investigations, certainly a
Speaker 1: congressional one, UM, and I think the executive branch would
Speaker 1: do well to participate in that and follow it wherever
Speaker 1: the facts lead us, I should Uh, I mean I
Speaker 1: I it was an astaging story, I thought, and like you,
Speaker 1: I I think the Congress is going to can to
Speaker 1: need to take it more and more seriously. Here, Uh're
Speaker 1: going forward here? What what's your advice to rex Dealers
Speaker 1: and somebody who is not accustomed to dealing with government
Speaker 1: in the way that he will be dealing accustomed to
Speaker 1: all the bureaucracy he's going to have to navigate here.
Speaker 1: What's the piece of advice you'd give him as he
Speaker 1: as he potentially enters that. Well, let's let's remember the
Speaker 1: exn is a big bureaucracy and he's navigated it quite successfully,
Speaker 1: So I suspect he'll he'll easily adapt himself to the
Speaker 1: culture of the State Department. But my advice to him
Speaker 1: would be to get the most professional, experienced, career diplomat
Speaker 1: he possibly can, someone who's been an ambassador at least
Speaker 1: three times, and make him the deputy, someone like Bill Burns,
Speaker 1: Ambassador Bill Burns, Ambassador Nick Burns. Uh, there are a
Speaker 1: group of real old hands at the State Department, because
Speaker 1: what he will need advice on is how to use
Speaker 1: this new bureaucracy that he's inherited um effectively around the world.
Speaker 1: He'll need someone from the inside to do that. He
Speaker 1: didn't mentioned John Bolton. There h John Bolton I think
Speaker 1: has experienced, but he hasn't been a three time career
Speaker 1: foreign service kind of person. But he has been an
Speaker 1: ambassador and that's a plus. Are you teaching this semester?
Speaker 1: Are you taking the Navy sabbatically? Tom? I always teach,
Speaker 1: and Uh I try to particularly focus in on leadership,
Speaker 1: teaching us. What's your number one message here? Given what
Speaker 1: we're witnessing in New York. I think that great leaders
Speaker 1: in the twenty one century have to do three things.
Speaker 1: They have to be innovators. That's what distinguishes a leader
Speaker 1: from a follower innovation. Secondly, they have to be great
Speaker 1: communicators and understand how to use all the elements of communication.
Speaker 1: And number three, and most importantly, they have to be collaborators.
Speaker 1: They have to build teams, they have to work with
Speaker 1: allies and partners. It's that third piece that I'm particularly
Speaker 1: hoping we'll see the administration season ed will have a
Speaker 1: huge holiday Sison. Mr Vitas of Tufts University has given
Speaker 1: us terrific for active Maybe we'll see him outside the
Speaker 1: Trump Tower, David Garl Remote. You can go over there
Speaker 1: and remote with camp Travides Cam. I like that very good.
Speaker 1: Who you put your trust in matters. Investors have put
Speaker 1: their trust in independent registered investment advisors to the two
Speaker 1: and of four trillion dollars. Why they see their roles
Speaker 1: to serve, not sell. That's why Charles Schwab is committed
Speaker 1: to the success over seven thousand independent financial advisors who
Speaker 1: passionately dedicate themselves to helping people achieve their financial goals.
Speaker 1: Learn more and find your independent advisor dot com. We
Speaker 1: spoke with Peter Whoper of Deutsche Bank. Two big figures
Speaker 1: on year ago. That's how much things have moved an
Speaker 1: x number of days, so we need a readjustment. Alan
Speaker 1: Ruskin joins us for Mr Hooper's shop over at Deutsche Bank.
Speaker 1: Alan dr Hooper brought up and he's in the economic
Speaker 1: area Macrow econom is hugely esteemed, widely considered on many
Speaker 1: shortlists for fed UH service. If you will, Alan Ruskin,
Speaker 1: he brought up Dominique Constant, who's worried about financial instability.
Speaker 1: And the problem is both Peter Hooper and Dominique Constant
Speaker 1: turned to you and they go Okay, Alan, Now what
Speaker 1: in foreign exchange help us this morning with this? Alan Ruskin?
Speaker 1: I mean you're a one oh five, we get a
Speaker 1: one oh three print. I mean we're back on the
Speaker 1: parody watch, aren't we. We're definitely in the parody watch. Tom.
Speaker 1: I think the important thing to consider when you look
Speaker 1: at the euro dollar and also the dollar index in
Speaker 1: general and a broadest sense, is that we are training
Speaker 1: a very wide range for a while, and you know,
Speaker 1: we're seeing one oh five to one fifteen is the
Speaker 1: you're a dollar range of a pretty much eighteen months
Speaker 1: or so, and so you know, breaking that level is
Speaker 1: a big deal, but it's not all that strong in
Speaker 1: relation to where we were eighteen months ago. I'll go
Speaker 1: with that. And a lot of people have said that
Speaker 1: the danger here is, you know, and you can only
Speaker 1: learn this, folks by enjoying losing money. Is only Ellen
Speaker 1: Ruskin and I have done is you begin to extrapolate,
Speaker 1: and that gets you into trouble. Are you extrapolating this morning? Well?
Speaker 1: I think what you're seeing is a pretty strong trending market.
Speaker 1: So if you mean by extrapolation trending, then yes, I
Speaker 1: would be, you know, thinking that we could go quite
Speaker 1: a bit further. Typically when you have arrangers of say,
Speaker 1: for example, you're a dollar one or five to one fifteen,
Speaker 1: when you break that, if that range is particularly well established,
Speaker 1: you'll move back down by another say ten big figures really,
Speaker 1: so that brings it to focus cents. And that's our
Speaker 1: your end forecast for two thousand and seventeen, which is
Speaker 1: coming up rather quickly. Now, okay, we've made some news
Speaker 1: this morning. That's good, very quick. I know David wants
Speaker 1: to jump in. Is this a real rate us versus
Speaker 1: them analysis? Or to capital flows kick in to get
Speaker 1: you two weaker euro point nine five? Well, look, you've
Speaker 1: got a big diversion story, you know, diversions with a
Speaker 1: capital d occurring. If you look at US interest rates
Speaker 1: in relation to pretty much all the G ten, you're
Speaker 1: spiraling out on a nominal basis and to real real
Speaker 1: basis as well. But it particularly normal interest rates spread
Speaker 1: basis to um if not multis then multi decade higher.
Speaker 1: So you've got a huge move on the go here
Speaker 1: from a rate spread standpoint, that's driving this. When you
Speaker 1: look at this move in the ear, what can you
Speaker 1: attribute it to the Fed principal? In other ways, what
Speaker 1: accounts for the breakout that we've seen. Yeah, I think
Speaker 1: it's primarily the FED, but I think you have to
Speaker 1: also consider that the euro side is not terribly attractive either,
Speaker 1: So you know, the market is looking at the on
Speaker 1: the euro side saying, okay, so we maybe got some
Speaker 1: sort of ECB elongated taper, but we're not going to
Speaker 1: hear from them for a long time now that we've
Speaker 1: got December's ECB meeting out the way, and in the meantime,
Speaker 1: you've probably got you know, four major elections at least
Speaker 1: three major elections coming up in Europe with all the
Speaker 1: political and certainties that that entails. So, you know, nothing
Speaker 1: terribly constructive on the euro side as well. How much
Speaker 1: our economic fundamentals reflected in what we're seeing right now?
Speaker 1: I think of industrial production out yesterday in the US
Speaker 1: and and in Europe as well. Are we seeing that
Speaker 1: reflected in the prose of view right now? Well, I
Speaker 1: think we're still trading really the promise of Donald Trump
Speaker 1: as much as the realities in terms of the economic data.
Speaker 1: I mean, the economic data that you're seeing in terms
Speaker 1: of acceleration, A lot of that is really sentiment data.
Speaker 1: You've seen the fully fed today, for example, of the
Speaker 1: six month outlook is extremely constructive. Um, you know, that's
Speaker 1: that's a sentiment indicator, the consumer confidence data, that's that's
Speaker 1: sentiment numbers. Really. But in general, probably before the Trump phenomena,
Speaker 1: you were seeing some acceleration from a low point in
Speaker 1: growth around the middle of this year, and you know
Speaker 1: into the third quarter you're seeing some acceleration. And I
Speaker 1: think related to the idea that financial conditions, which are
Speaker 1: tightened very early in the year, we're no longer tightening,
Speaker 1: and therefore we're being more helpful for the US economy,
Speaker 1: help us with Sterling. When we look at that is Brexit.
Speaker 1: Is the whole Brexit process now fully priced in? Do
Speaker 1: you think No? I don't think so. I think you know,
Speaker 1: what we've seen is the UK economy has been pretty resilient.
Speaker 1: If the UK economy does see some meaningful downtown in
Speaker 1: the first half of next year, then um, you know,
Speaker 1: all bets off again. You know again, I think sterling
Speaker 1: will weekend. I think what's interesting on the Sterling side
Speaker 1: is it's not just a Brexit story. If you actually
Speaker 1: look again at the interest rate spread side. Um, I
Speaker 1: think people don't realize, but Fed funds is not traded
Speaker 1: above the UK base rates by more than a hundred
Speaker 1: basis points for the better part of thirty plus years.
Speaker 1: So we are moving into terrain on a rate spread
Speaker 1: basis that we haven't seen on a really a multi
Speaker 1: decade basis. When you look ahead to two and seventeen,
Speaker 1: is the focus here on the euro? Principal are you?
Speaker 1: Are you looking at Redmond? What are the court of
Speaker 1: the what are the currency apearance that you're most most
Speaker 1: closely watching here as we had it to two seventeen. Well,
Speaker 1: you know, I'm I'm looking at pretty much everything really
Speaker 1: right now. I think we're focusing obviously on the Euro
Speaker 1: and the end they have been the principal vehicles that
Speaker 1: people have been expressing their long dollar view on UM.
Speaker 1: But I think from a risk perspective, we're clearly looking
Speaker 1: at dollar China in particular and seeing how that trade
Speaker 1: and whether it becomes disruptive. But that I noticed Philippine
Speaker 1: Paso today printing fifty, which is sort of like down
Speaker 1: ten thousand folks for Philippine Peel. And I don't mean
Speaker 1: that in a snarky way. It's like a huge, huge deal.
Speaker 1: Can our listeners monitor what we're doing by looking at
Speaker 1: the e M dynamics or should we really just focus
Speaker 1: on euro in Yen. Definitely look at them. Dynamics and
Speaker 1: e M dynamics are quite complex because you know, you've
Speaker 1: got the stronger dollars story in general, we've got FED tightening,
Speaker 1: you've got US long term interest rates backing up. None
Speaker 1: of that's very good for EM. E M is normally
Speaker 1: high beata, so normally trades badly in that environment. But
Speaker 1: against that, you have the prospect of US fiscal easing,
Speaker 1: you have the possibilities of stronger US growth, you have
Speaker 1: got some acceleration in global growth. So it's actually I
Speaker 1: think providing some protection from the e M side. I
Speaker 1: want to come back and talk about this Ellen, but
Speaker 1: very very simply, here is this a weekend where you
Speaker 1: blow up your Excel spreadsheet? Did you do? Is this
Speaker 1: sort of like a tipping point into the new year?
Speaker 1: Not quite? I think, you know, I think you know,
Speaker 1: we could. It's to some extent, one could see some
Speaker 1: of this happening. It's come a little bit quicker than anticipated,
Speaker 1: so you know, maybe we're bringing forward events I think,
Speaker 1: rather than its sort of really blowing up the screen
Speaker 1: like that idea. But we are strong with Ellen, Ruskin
Speaker 1: and Deutsche Bank with decades of experience with synthesizing foreign
Speaker 1: exchange dynamics into any and all else. It's going on
Speaker 1: right now to the dynamic that we're seeing. You just said,
Speaker 1: we're pulling forward movements anticipated six months, a year, even
Speaker 1: eighteen months out. Is that what the Fed is doing?
Speaker 1: Is there trying to get out front and pull forward
Speaker 1: the discussion? I don't think so. I think if you
Speaker 1: judge what Janet Yellen was saying, I think she was
Speaker 1: being very cautious and suggesting that the shift in the dots,
Speaker 1: for example, was tiny. But unfortunately these pesky little dots
Speaker 1: really even small movements, really mean quite a lot. So, um,
Speaker 1: you know, I think it's the market that's jumping ahead
Speaker 1: and taking uh you know, small tiplets from the feed
Speaker 1: and and and really running with it. When you look
Speaker 1: at the potential for protectionists and more protectionism here in
Speaker 1: the US, what are the currency piers that's going to
Speaker 1: affect the most? In other words, if if we see
Speaker 1: stronger shall we call it trade policy, if we see
Speaker 1: new tariffs, what's that going to affect? Well, I think
Speaker 1: you're going to see a different impact on developed market
Speaker 1: current incies and G four currencies in particular relative to
Speaker 1: the emerging markets world and commodity currencies. In the initial instance,
Speaker 1: I think if the market really smells that protectionism is real,
Speaker 1: then I think they're going to see a reshuffling in
Speaker 1: terms of fat expectations, which is actually, you know, going
Speaker 1: to be negative for the dollar versus the G four currencies,
Speaker 1: But protectionism and you know, it's impact on trade and
Speaker 1: commodity prices, etcetera, will be seen as negative for the
Speaker 1: emerging market currencies as well. So I think you're going
Speaker 1: to get this dichotomy really between you know, what's going
Speaker 1: on where the G four currencies, for example, the euro
Speaker 1: in particularly yen why actually do fine in that environment,
Speaker 1: but um, you're going to see the E M currencies suffer.
Speaker 1: How cop doesn't Do you think that the FED is
Speaker 1: of that happening? A We struck yesterday the degree to
Speaker 1: which Jena Yellen mentioned the fact that some of her
Speaker 1: colleagues were aware of the fact that there is this
Speaker 1: ongoing conversation about new economic stimulus or tax reform, but
Speaker 1: the argument about protectionism about what that could mean for
Speaker 1: the economy didn't seem to come up. Yeah, you know,
Speaker 1: I think, you know, it's a discussion that no one
Speaker 1: really wants to vocalize on too much. Again, it's being
Speaker 1: very preemptive, you know. I was saying earlier that the
Speaker 1: markets trading the promise of fiscal stimulus to some extent.
Speaker 1: You know, this is also conjecture in terms of where
Speaker 1: trade policy goes. And I think there's a perception that ultimately,
Speaker 1: you know, we will have a fairly rational outcome to this,
Speaker 1: and that um somewhat free trade will still prevail. It's Thursday,
Speaker 1: Monday seems ages ago out. On Monday I framed a
Speaker 1: Deutsche Bank optimism on the economy. Your colleague Peter Hooper
Speaker 1: adamant that we see a better reflation and higher yields
Speaker 1: from where we are now, which on Monday was a
Speaker 1: two fifty. I believe right now we're up seven basis
Speaker 1: points at one point to sixty, up ten basis points
Speaker 1: this morning. If there's three vectors, one is higher yields,
Speaker 1: one is stability from this new jump condition, and one
Speaker 1: as we migrate back to a lower yield environment. Can
Speaker 1: you dovetail with Peter Hooper's optimism or do you take
Speaker 1: a more nuanced, a different tack than Dr Hooper. Now
Speaker 1: I would run with the optimistic view to some extent,
Speaker 1: So I think that there are a few different elements. One,
Speaker 1: in the short term, I think you're really seeing the
Speaker 1: market taking of you that animal spirits. The more constructive
Speaker 1: views that you're seeing in terms of sentiment and confidence
Speaker 1: will prevail as far as the short term economic outlooks concerned.
Speaker 1: And then they are kind of projecting forward from that
Speaker 1: and saying okay, and then we're going to get a stimulus,
Speaker 1: and that probably hits towards the end of two thousand
Speaker 1: and seventeen and and into two thousand and eighteen, and
Speaker 1: that stimulus really becomes part of the growth story. So
Speaker 1: that's a growth story. We normalize, everybody mints money off
Speaker 1: Ellen Ruskin's picks, Then what does cheer yelling do? As
Speaker 1: was one of the questions yesterday in the press conference,
Speaker 1: with the balance sheet, she more than anyone, will have
Speaker 1: the luxury of reducing the balance sheet. Do you guys,
Speaker 1: when you all get together, do you believe she will
Speaker 1: affect a balance sheet reduction? I think it's going to
Speaker 1: be extremely difficult Tom in this environment where bond heels
Speaker 1: are backing up. The last thing this market needs really is,
Speaker 1: you know, a backup in heels that relates to a
Speaker 1: balance sheet adjustment. So I think she put it perfectly
Speaker 1: in a sense that she said, they look, they want
Speaker 1: to normalize rates to and let that be the lead
Speaker 1: element in terms of policy tightening rather than the balance sheet,
Speaker 1: because at some point in time they might actually have
Speaker 1: to cut rates, and it's a whole lot better cutting
Speaker 1: interest rates if you have a downturn and somehow expanding
Speaker 1: or re expanding the balance sheet. I'm gonna ask you
Speaker 1: just close here by asking about little more about about
Speaker 1: China and what you expect there in terms of the
Speaker 1: currency in the new year. Uh And and maybe if
Speaker 1: if you think the IMF is having any regrets here
Speaker 1: about including it in that in special basket in light
Speaker 1: of what we've seen with the currency here in these
Speaker 1: last few months. Yeah, I think you know, we've had
Speaker 1: a forecast for a while now of dollar China reaching
Speaker 1: seven point four at the end of two thousand and seventeen.
Speaker 1: That still seems reasonable. It's based on the idea that
Speaker 1: the dollar will be stronger. It's based on the idea
Speaker 1: that the Chinese currency remains very sensitive to US interest rates.
Speaker 1: That's something that's sometimes underestimated, and it works with the
Speaker 1: idea that China still is the resources effectively to martial
Speaker 1: a fairly subdued depreciation rather than an acceleration resources. I
Speaker 1: asked this question earlier today, what is the quality of
Speaker 1: reserves When the media spouts reserve statistics, are those accurate
Speaker 1: numbers or is a general statement there is the reserve
Speaker 1: bucket smaller country to country. Yeah, I think in terms
Speaker 1: of China's the market certainly has speculated that the China's
Speaker 1: ward book is fairly large, so that net reserves are
Speaker 1: actually maybe smaller than the headline number. Um. You know,
Speaker 1: that's as I said, is you know, just a speculation
Speaker 1: that's out there in the marketplace. It's it's a very
Speaker 1: common view, mind you. Um, so let's see. Um, you know,
Speaker 1: I think there's a view that if China's reserves go
Speaker 1: down by anything approaching say a hundred billion a month, again,
Speaker 1: then we've got some problems here that it just shows
Speaker 1: that there's a very significant capital outflow acceleration. Very valuable,
Speaker 1: Alan Ruskin, thank you so much. With deutche Bank a
Speaker 1: great updated Thanks for listening to the Bloomberg Surveillance podcast.
Speaker 1: Subscribe and listen to interviews on iTunes, SoundCloud, or whichever
Speaker 1: podcast platform you prefer. I'm out on Twitter at Tom Keene.
Speaker 1: David Gura is at David Gura. Before the podcast, you
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