WEBVTT - Models Don't Work in Crisis, says Spence. 0:00:00.080 --> 0:00:12.960 Ye, Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane 0:00:13.480 --> 0:00:17.560 Jai Ley. We bring you insight from the best in economics, finance, investment, 0:00:18.000 --> 0:00:23.480 and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, 0:00:23.600 --> 0:00:33.720 Bloomberg dot Com, and of course on the Bloomberg. Do 0:00:33.760 --> 0:00:35.920 you want to steal from John Ferroll right now, folks? 0:00:35.960 --> 0:00:37.599 You do that when you're speaking to the lawyer at 0:00:37.640 --> 0:00:41.800 Michael Spence of New York University, and that when you're 0:00:41.840 --> 0:00:47.120 a gentleman who changed graduate school education across this nation profoundly, 0:00:47.159 --> 0:00:51.319 as Michael Spence did it Stanford gsb Um a few 0:00:51.400 --> 0:00:53.960 years ago, and when you do what he did within 0:00:54.040 --> 0:00:59.240 economics across numerous economics platforms, including our study of information, 0:00:59.680 --> 0:01:03.320 how we receive, how we push, how we miss information? 0:01:03.840 --> 0:01:07.520 With his Nobel Prize, with Mr Aklof and Mr Stiglitz. 0:01:08.080 --> 0:01:09.959 There's a lot of ways to go. And of course 0:01:09.959 --> 0:01:13.399 Pharaoh is brilliant and goes right to the moment, which 0:01:13.480 --> 0:01:18.120 is in crisis. What do we do? Turkey's in crisis. 0:01:18.560 --> 0:01:21.520 The Central Bank comes out what John forty minutes ago says, 0:01:21.560 --> 0:01:25.200 we will take the necessary steps, whatever that means. And 0:01:25.200 --> 0:01:26.800 then the reports come out of Turkey that he'll be 0:01:26.840 --> 0:01:32.520 mating with them the president, Mr do models work? Everybody's 0:01:32.560 --> 0:01:36.040 got all this advice and help in that, and yet 0:01:36.120 --> 0:01:40.039 after Guy Jonson's interview with Mr Aeroine yesterday, nobody uses 0:01:40.040 --> 0:01:43.520 the models in crisis? Do they know? Because they don't 0:01:43.520 --> 0:01:45.840 work at crisis. I mean, what you have instead of 0:01:45.880 --> 0:01:51.360 models is m experience, a growing body of experience. And 0:01:51.440 --> 0:01:55.240 so if you if your currency comes under attack, um, 0:01:55.320 --> 0:01:58.000 you basically have to let it decline a bit and 0:01:58.040 --> 0:02:01.640 then and then raise interest rates and and do a 0:02:01.680 --> 0:02:06.360 balancing act. But the mode, the models themselves just don't 0:02:06.400 --> 0:02:10.639 capture this. How difficult is it to regain credibility with 0:02:10.720 --> 0:02:14.600 markets when markets no longer believe you have any Argentina 0:02:14.600 --> 0:02:16.720 with a great example of that over the last couple 0:02:16.760 --> 0:02:19.799 of weeks, How difficult is its response to that? Well, 0:02:19.840 --> 0:02:22.799 if you respond, I mean is you can do it, 0:02:23.880 --> 0:02:28.720 but but it's not easy. And if you make several 0:02:28.760 --> 0:02:31.560 mistakes in a row, then it's then it gets a 0:02:31.600 --> 0:02:33.960 lot harder. So I mean, I think, and you know, 0:02:34.000 --> 0:02:36.040 and then it takes a long time. But the Russian 0:02:36.080 --> 0:02:40.080 case was a good example. I mean the Russia Central Bank, 0:02:40.840 --> 0:02:43.840 it took quite a while, but then eventually re established 0:02:43.919 --> 0:02:48.160 its credibility and the and the currency stabilized several years ago. 0:02:48.240 --> 0:02:53.520 Remember this episode, So it um, it's better, it's certainly 0:02:53.600 --> 0:02:58.160 better not to make you know, well known mistakes in 0:02:58.240 --> 0:03:01.200 dealing with this. You mentioned the AMIS rate. Yeah, for 0:03:01.200 --> 0:03:03.560 for central banks looking at that currencies, walk us through 0:03:03.919 --> 0:03:06.720 what central banks may or may not have learned um 0:03:07.400 --> 0:03:10.040 economic history. Well, what I was saying is that, you know, 0:03:10.840 --> 0:03:13.920 I mean in the Asian financial crisis, I mean, some 0:03:14.000 --> 0:03:16.720 of these countries tried to hold up their currencies because 0:03:17.160 --> 0:03:20.640 they had um dollar or hard you know, hard currency 0:03:20.720 --> 0:03:24.720 denominated dead and they basically ran out of reserves doing that, 0:03:24.919 --> 0:03:29.200 at which point, you know, chaos ensues. That's the one 0:03:29.240 --> 0:03:32.359 side that's propping up your currency and you run out 0:03:32.360 --> 0:03:35.880 of ammunition. You know, you have the British case, a 0:03:35.960 --> 0:03:39.040 whole lot of experience. On on the other side, you 0:03:39.080 --> 0:03:41.880 can it's not necessarily a good idea if you overdo it, 0:03:41.960 --> 0:03:44.640 but you can hold down the currency by by accumulating 0:03:44.640 --> 0:03:48.240 reserves for a fairly long period of time. And so 0:03:48.600 --> 0:03:54.040 that's the asymmetry. There's there's much less severe limits in 0:03:54.920 --> 0:03:58.440 on that side of the Ledger. What you wrought It's 0:03:58.480 --> 0:04:03.400 Stanford was all intimately about executive leadership and government. We 0:04:03.480 --> 0:04:05.720 have not been able to speak to you since President 0:04:05.760 --> 0:04:09.840 g decided he would take more lengthy term with a 0:04:09.960 --> 0:04:14.960 new communist experiment in China. Your comments please on the 0:04:15.080 --> 0:04:19.800 distinction of one or two terms or forever terms, and 0:04:19.880 --> 0:04:24.239 particularly within the new template of a new more totalitarian 0:04:24.320 --> 0:04:27.919 regime in China. Right, So, China has moved in the 0:04:27.960 --> 0:04:31.560 direction of being having the party both clean up its 0:04:31.600 --> 0:04:35.600 act and be much more intrusive in multiple parts of 0:04:35.600 --> 0:04:39.800 the society and the economy. UM. I think Chinese are 0:04:39.960 --> 0:04:42.719 you know, when you get to find get them to 0:04:42.800 --> 0:04:46.080 speak frankly, you know, sort of off the record. Uh. 0:04:46.480 --> 0:04:50.520 Understand that the reform program is sufficiently large that they're 0:04:50.520 --> 0:04:54.560 willing to grant that maybe two terms wasn't ideal at 0:04:54.600 --> 0:04:57.440 this stage, you know, because he'd become a lame duck 0:04:57.480 --> 0:05:00.640 in the second term, and and therefore they they might 0:05:00.680 --> 0:05:03.640 have thought that, you know, extending that UM is not 0:05:03.760 --> 0:05:06.840 a bad idea. That's a little different than, you know, 0:05:07.040 --> 0:05:10.040 than leader for life. Uh. And so I I do 0:05:10.120 --> 0:05:13.280 think in within China there are people who are nervous 0:05:13.320 --> 0:05:20.159 about that um, that rather extreme version of UH, altering 0:05:20.279 --> 0:05:23.800 the term limits that they that they abided by for 0:05:24.440 --> 0:05:28.800 several transitions. Very quickly here on the linkage the correlations 0:05:28.839 --> 0:05:30.760 of the markets, I feel like I'm talking to professor 0:05:30.800 --> 0:05:34.800 Engel over. Do you see correlations that can cause challenges? 0:05:37.279 --> 0:05:39.120 I mean, I'm not an expert at this, but my 0:05:39.320 --> 0:05:42.400 sense is that correlations go up when there's turmoil or 0:05:42.440 --> 0:05:46.840 crisis for sure, UH. And and that certainly does cause problems. 0:05:46.880 --> 0:05:49.279 I mean it cause problems for investors because you know, 0:05:49.839 --> 0:05:55.680 reduces the benefits of diversification. UM. But it's also a 0:05:55.680 --> 0:05:59.320 signal that there's trouble somewhere. We're going to leave there. 0:05:59.320 --> 0:06:02.000 Michael Spence, thank you so much, greatly appreciated. He is 0:06:02.560 --> 0:06:05.880 at New York University, among other things. Can't say enough 0:06:05.920 --> 0:06:08.520 about his book. I'll throw it out my book Twitter 0:06:08.560 --> 0:06:12.200 site here from five, six, seven years ago as well, 0:06:26.600 --> 0:06:31.280 seen foreign exchange was boring. I can sally seen FX 0:06:31.520 --> 0:06:34.719 is anything but boring. Joining us now David Ranney Blue Bay, 0:06:34.920 --> 0:06:38.200 a set of management chief investment strategist. David just talked 0:06:38.200 --> 0:06:40.360 to me about what is happening in foreign exchange and 0:06:40.400 --> 0:06:45.880 how it is changing your world. Well, The big story 0:06:46.160 --> 0:06:49.720 is that we've seen this resurgence in the U S. Dollar, 0:06:49.760 --> 0:06:53.200 and I think that's a pain trade for the market 0:06:53.400 --> 0:06:56.800 more generally, I think for risk assets, and we've clearly 0:06:56.839 --> 0:07:01.760 seen that spill over into emerging markets. And you know, 0:07:01.839 --> 0:07:05.280 I think that rather than actually higher US rate has 0:07:05.360 --> 0:07:09.880 been the catalyst for exposing those emerging markets which have 0:07:10.160 --> 0:07:14.040 either weak fell up fundamentals and weak policy credibility. And 0:07:14.080 --> 0:07:18.040 that's really been Argentina and has been Turkey. So this 0:07:18.120 --> 0:07:20.600 raises the question, David. Over the last several weeks when 0:07:20.600 --> 0:07:24.680 I've asked many investors and strategists about the renewed resurgent 0:07:25.200 --> 0:07:28.760 US dollar strength story, the pushback I get is this 0:07:28.840 --> 0:07:31.360 is just a squaring of positions. I struggle to find 0:07:31.400 --> 0:07:35.640 the belief in the move um. The short story has 0:07:35.680 --> 0:07:39.560 been a slow burn to eventually capitulate. David, where are 0:07:39.600 --> 0:07:42.080 we Do people believe in this yet? That this could last? 0:07:44.840 --> 0:07:48.160 I still don't think people believe it will last. And 0:07:48.240 --> 0:07:50.840 Buddhist speaking, I mean I'd share that view. And I 0:07:50.880 --> 0:07:54.240 think what's fundamental to that view is during the course 0:07:54.280 --> 0:07:58.280 of seventeen and coming into this year, it was a 0:07:58.320 --> 0:08:02.680 global reflation story. The US was not the only economy 0:08:02.720 --> 0:08:05.400 that was growing strongly and where you could get both 0:08:05.480 --> 0:08:10.960 higher rates but also higher equities and risk grows sensitive 0:08:11.040 --> 0:08:14.840 risk assets. Emerging markets were doing well, China was doing well, 0:08:14.880 --> 0:08:19.120 Europe was really powering ahead and was a big upside surprise. 0:08:20.080 --> 0:08:22.160 What we have now is that we've had some weak data. 0:08:22.200 --> 0:08:25.040 We've got Japan printing a negative print on Q one GDP, 0:08:25.280 --> 0:08:30.400 Europe has come off the boil, and so I think 0:08:30.520 --> 0:08:34.160 the dollar move is really reflecting going back to that 0:08:34.360 --> 0:08:38.400 story whereby maybe the US is the only place in town, 0:08:38.400 --> 0:08:41.160 and that has implications both in terms of divergence in 0:08:41.400 --> 0:08:44.439 in rates, but also in terms of where you can 0:08:44.480 --> 0:08:48.920 get um, where you can get returns. If I think 0:08:48.960 --> 0:08:52.040 the market and we do believe here that we will 0:08:52.080 --> 0:08:54.920 get a rebounding global growth in the second quarter that 0:08:55.000 --> 0:08:58.760 slowed down in Europe is is largely transitory. China still 0:08:58.760 --> 0:09:01.160 holding up. And if had occurred and I think this 0:09:01.480 --> 0:09:03.760 rally and the dollar kind of runs out of steam, 0:09:03.800 --> 0:09:06.839 well you bring up rates though, and rate differentials are 0:09:06.880 --> 0:09:09.360 clearly a story that we should be talking about. It 0:09:09.400 --> 0:09:13.120 looks like rates of recoupling with foreign exchange. If you 0:09:13.160 --> 0:09:16.080 look at rates in the United states relative to rates 0:09:16.120 --> 0:09:19.040 in say Europe and look at Germany, that two year 0:09:19.080 --> 0:09:22.520 BUN treasury spread has blown out to three hundred and 0:09:22.559 --> 0:09:27.760 fourteen three hundred and fifteen basis points. That screams dollar strength. 0:09:27.840 --> 0:09:30.559 It screams euro dollar must go lower, David, Why does 0:09:30.600 --> 0:09:33.960 that relationship not re established itself in a more material 0:09:34.000 --> 0:09:39.240 way that is lasting. But I think that spread, the 0:09:39.400 --> 0:09:42.200 gap or that you yield gap on the two year 0:09:42.840 --> 0:09:47.320 is reflecting that the market has been pricing in higher 0:09:48.320 --> 0:09:51.840 fed hiking path uh. And we saw that in the 0:09:51.840 --> 0:09:56.040 back of yesterday's US sales data. Well, they've actually been 0:09:57.679 --> 0:10:02.200 taking out some sort of past or normalization starting next 0:10:02.280 --> 0:10:05.840 year in terms of ECB rates. And that's what's been 0:10:05.920 --> 0:10:09.160 driving What's what's been driving it. It's been disappointing growth 0:10:09.200 --> 0:10:12.200 data coming out of Europe and better than expected data 0:10:12.240 --> 0:10:14.280 coming out of the US. I think once we start 0:10:14.280 --> 0:10:16.640 getting convergence in the economic data, we'll start getting a 0:10:17.640 --> 0:10:19.880 closing in that two year gap, and then the dollar 0:10:19.960 --> 0:10:22.760 runs out of team David. What is fascinating to me 0:10:23.080 --> 0:10:25.280 is how all of us have any ilk have forgotten 0:10:25.280 --> 0:10:28.719 a ten percent correction in eighteen percent bear market and 0:10:28.800 --> 0:10:30.800 stocks and of course folks, we can go much worse 0:10:31.280 --> 0:10:35.320 than an eighteen percent bear market. Is our rationalization of 0:10:35.400 --> 0:10:39.959 these new instabilities different now because we really don't remember 0:10:40.440 --> 0:10:43.439 the volatility you and I studied and lived for years. 0:10:45.640 --> 0:10:49.760 I think it's a good point, Tom, that the market 0:10:50.240 --> 0:10:53.520 and investors for a very long period now have got 0:10:53.640 --> 0:10:56.880 used to having central banks and particularly the FED at 0:10:56.920 --> 0:11:01.600 your back, and therefore you know, they crust volatility. I think, 0:11:01.920 --> 0:11:06.319 um Jerome Pou made a remark some time ago about 0:11:06.400 --> 0:11:10.560 the FED balance sheet was essentially taking volatility out of 0:11:10.559 --> 0:11:13.000 the market. I had a sort of short volatility position, 0:11:13.520 --> 0:11:17.479 and with the FED running down his balance sheet gradually 0:11:17.520 --> 0:11:21.880 normalizing interest rates the famous FED put, I think is 0:11:22.000 --> 0:11:25.040 quite a long way out of the money. Then I 0:11:25.040 --> 0:11:28.839 think we're going to get more volatility. And where I 0:11:28.840 --> 0:11:30.680 think we're getting caught out a little bit on on 0:11:30.720 --> 0:11:35.800 the investor side is that we have not fully built 0:11:35.800 --> 0:11:39.360 that into the way that we're positioning. So I think 0:11:39.440 --> 0:11:42.840 part of the volatility that we've seen in uer sequities 0:11:43.360 --> 0:11:46.319 with the short et F and in places like Argentina 0:11:46.440 --> 0:11:49.200 for example, if we bring it to to there has 0:11:49.280 --> 0:11:52.520 been very crowded positioning, then you get a volatility shock 0:11:52.559 --> 0:11:56.839 called capitalist for volatility, and then everyone's scrambling and it's 0:11:56.960 --> 0:12:00.520 one way marketing, everyone scrambling for an exit. That's very narrow, David, 0:12:00.520 --> 0:12:02.360 we're talking about shocks. But I just wonder whether this 0:12:02.440 --> 0:12:05.760 is all sort of a natural, gradual process of rebalancing 0:12:05.760 --> 0:12:08.120 portfolios away from risk. If you think about what QUE 0:12:08.440 --> 0:12:14.000 was for, it was about rebalancing portfolios towards risk assets. Now, 0:12:14.000 --> 0:12:17.320 as they wind down QUEUE on a global basis and 0:12:17.440 --> 0:12:22.400 QUE becomes QT quantitative tightening, shouldn't the opposite apply that 0:12:22.480 --> 0:12:28.679 you rebalance away from risk to some degree. But it's 0:12:28.760 --> 0:12:34.480 also remember that QUEUE was taking um, you know, duration, 0:12:34.880 --> 0:12:39.439 and was squeezing the term premium. So if you're a 0:12:39.520 --> 0:12:43.560 Euro investor right now, um, is it an obvious thing 0:12:43.600 --> 0:12:46.040 to do to go out and buy ten year buns 0:12:46.360 --> 0:12:49.040 sixty basis points? Is it an obvious thing to do 0:12:49.160 --> 0:12:51.959 to go out and buy UK guilt which are given 0:12:51.960 --> 0:12:57.120 you a negative real rate of between one and two percent. 0:12:57.600 --> 0:12:59.920 I think treasury is for a U S investor as 0:13:00.040 --> 0:13:03.680 donting to look potentially pretty attractive. So I think we 0:13:03.720 --> 0:13:06.760 may well get some of that rotation that you're describing 0:13:07.400 --> 0:13:10.559 UM in in the US. But I think What's crucial 0:13:10.600 --> 0:13:14.280 in Europe is that even as the ECB brings Queie 0:13:14.360 --> 0:13:18.520 to an end, is their forward guidance do they anchor 0:13:18.800 --> 0:13:23.920 short term interest rate? And if they do, volatility remain constrained. 0:13:24.080 --> 0:13:26.720 And I think on that basis, things like you know, 0:13:26.800 --> 0:13:30.400 sovereign credit as well as corporate credit can actually do. Okay, David, 0:13:30.440 --> 0:13:32.760 what's a cash right now? I mean there's there's John 0:13:32.800 --> 0:13:36.480 mentioned earlier. On a real basis, cash has value and 0:13:36.480 --> 0:13:41.319 on a percent growth of yield, cash is outrageously wonderful 0:13:41.440 --> 0:13:45.760 versus what John six months ago is cash is cash 0:13:45.800 --> 0:13:50.360 like the new asset. Well, I think cash and that 0:13:50.400 --> 0:13:54.360 move higher in cash rates in the United States has 0:13:54.440 --> 0:13:58.160 been one of the most profound shifts during the first 0:13:58.200 --> 0:14:01.800 part of this year. I think some again, some of 0:14:01.840 --> 0:14:06.920 the repricing we've seen of emerging market credit has been 0:14:07.760 --> 0:14:12.360 uh a response to that higher US cash rate and 0:14:12.400 --> 0:14:16.280 also the higher effics hedging costs of that implied basically, 0:14:16.320 --> 0:14:20.440 you needed wider spreads UM and a repricing in order 0:14:20.480 --> 0:14:23.320 to justify why you would be holding UM an emerging 0:14:23.400 --> 0:14:28.720 market credit dollar asset versus exactly as you've alluded to, Tom, 0:14:28.720 --> 0:14:32.520 holding US cash. I think absolutely right. Like us, cash 0:14:32.520 --> 0:14:35.960 has become, you know, a factor. But again a comeback 0:14:36.000 --> 0:14:39.240 to the rest of the world. When we as investors 0:14:39.320 --> 0:14:42.080 decided that we're going to part some money into cash 0:14:42.120 --> 0:14:45.560 on some of our Euro denominator strategies, it's actually costing 0:14:45.680 --> 0:14:49.160 us fifty basis points to actually do that, let alonely 0:14:49.200 --> 0:14:52.160 apply because of the loss of carrier as well. So 0:14:52.840 --> 0:14:54.760 the moment is more of a U S story than 0:14:54.800 --> 0:14:56.760 a than the European and rest of the world story. 0:14:56.960 --> 0:14:59.280 David Raley, thank you so much from them this morning 0:14:59.640 --> 0:15:16.840 with a I'm really pleased to say that. A quick 0:15:16.880 --> 0:15:18.960 phone call away and Jane Foley joins us head of 0:15:19.000 --> 0:15:21.240 FX Strategy at rubber Bank and joining us out of 0:15:21.280 --> 0:15:24.040 the capital, the global capital of the foreign exchange, the 0:15:24.160 --> 0:15:26.160 city of London. Jen, it's always great to catch up 0:15:26.200 --> 0:15:29.040 with you. There is some euro weakness and dollar strength. 0:15:29.320 --> 0:15:32.040 How much of a pain trade is evolving in the 0:15:32.120 --> 0:15:35.360 FX market at the moment, Jane, Well, I think actually 0:15:35.440 --> 0:15:37.240 we can go back to February to see the beginning 0:15:37.320 --> 0:15:38.800 of this, and I think if you look back then 0:15:38.880 --> 0:15:41.280 we do see the dollar really began to perform well 0:15:41.320 --> 0:15:44.320 against the emerging markets, which are called suberhaps more sensitive 0:15:44.320 --> 0:15:48.680 to risk capitaes any more sensitive to hire US rates 0:15:49.240 --> 0:15:52.040 than perhaps some of the other markets. But it was 0:15:52.040 --> 0:15:54.880 any really a few weeks ago where the breakdown in 0:15:54.920 --> 0:15:57.560 neural dollar really began to focus on markets attention on 0:15:57.640 --> 0:16:01.120 the strength of the dollar. But I think really today 0:16:01.240 --> 0:16:04.760 there's there's now more attention on Italian politics and perhaps 0:16:04.880 --> 0:16:08.280 more attention on the structural weaknesses within the Euro as 0:16:08.320 --> 0:16:10.400 well as on dollar strength as well. Before we get 0:16:10.400 --> 0:16:12.200 to the European side of the trade, let's begin with 0:16:12.240 --> 0:16:16.360 the US dollar. Is the consensus short dollar position for 0:16:17.360 --> 0:16:20.720 is it capitulating? Jane, I think it probably is, and 0:16:20.760 --> 0:16:22.680 we changed the view it was. It was much the 0:16:22.720 --> 0:16:24.600 fift when when I took out the view for the 0:16:24.800 --> 0:16:27.560 higher year a dollar and put in a stronger dollar. 0:16:27.600 --> 0:16:29.880 And this was partly because of that that picture that 0:16:29.920 --> 0:16:32.720 was emerging with with lower levels of risk appetite, the 0:16:33.160 --> 0:16:36.080 fact that emerging markets were beginning to get a little 0:16:36.080 --> 0:16:38.920 bit more worried, and that I think was treating from 0:16:38.920 --> 0:16:42.000 these high risk or high yield trades back into the U. 0:16:42.120 --> 0:16:45.120 S dollar. So I think at that point also the 0:16:45.160 --> 0:16:48.480 market had built up pretty short dollar positions and was 0:16:48.480 --> 0:16:51.440 also pretty long in a lot of high risk markets 0:16:51.440 --> 0:16:56.120 and including long in euro as well. Within this chane. 0:16:56.560 --> 0:16:58.880 And we heard this yesterday from one guest, which is 0:16:58.880 --> 0:17:03.200 the rationalization and the people bet one way for whatever reason, 0:17:03.240 --> 0:17:07.359 we're removing another way. It will go on a step basis. 0:17:08.040 --> 0:17:11.919 To me, that's a market chat in trader chat for 0:17:12.000 --> 0:17:17.480 the idea of rationalizing moves. Is the rationalizing you see 0:17:17.520 --> 0:17:20.800 um a rabble bunk desks. Is it the same as 0:17:20.880 --> 0:17:26.640 other instabilities we've seen or is there something different this time? Well, 0:17:26.960 --> 0:17:29.479 I think that's I mean, this is this is not 0:17:29.680 --> 0:17:32.520 a crisis in the way that we've had prices before. 0:17:32.960 --> 0:17:35.000 And to be honest, I think with this one, I 0:17:35.040 --> 0:17:37.600 think a large part of it might be just positioned. 0:17:37.600 --> 0:17:40.679 And I think the market really got excited last year 0:17:40.720 --> 0:17:43.520 there was so much risk capitite in seventeen. We had 0:17:43.560 --> 0:17:47.040 far better global growth than most people had anticipated from 0:17:47.080 --> 0:17:50.359 places like Europe and places like Japan, and that really 0:17:50.400 --> 0:17:54.560 lifted a risk capitite and people were really pushing ahead 0:17:54.560 --> 0:17:56.320 of themselves to to get hold of a high risk, 0:17:56.400 --> 0:17:59.119 high yield et cetera. And I think that took it 0:17:59.240 --> 0:18:01.480 into this very first part of this year. But I 0:18:01.520 --> 0:18:04.359 think as we moved into February, that began to change, 0:18:04.520 --> 0:18:07.200 and I think the market was just positioned perhaps all right, 0:18:07.720 --> 0:18:10.760 in order to face a new world of Lester's appetite. 0:18:10.800 --> 0:18:12.760 I mean, just as an example in Folks, a bank 0:18:12.840 --> 0:18:15.680 like Robble Bank deals with this in the trenches. We're 0:18:15.680 --> 0:18:20.960 all talking dollar based speculation. Business has to get done 0:18:21.119 --> 0:18:24.879 and with a strong chairman Powell dollar for whatever reason, 0:18:24.880 --> 0:18:29.639 whatever anybody's theory, the fact is oil and goods in 0:18:29.720 --> 0:18:34.200 an e M economy, a non opec EM economy really 0:18:34.280 --> 0:18:38.160 begins to pain the public, which folds into the political process. 0:18:38.200 --> 0:18:42.480 I'm describing. Turkey is one example. What's that tension right now, 0:18:42.600 --> 0:18:47.359 Jane Foley that robble Bank hedger c not speculators. What 0:18:47.440 --> 0:18:50.840 are the hedger c in terms of domestic pain in 0:18:50.960 --> 0:18:56.200 e M. There's a huge amount of attention, a huge 0:18:56.200 --> 0:18:59.359 amount of pain, certainly in countries such as Turkeys, countries 0:18:59.359 --> 0:19:01.879 such as Urgent tina Um, and I think if we 0:19:01.920 --> 0:19:04.560 look at Poland also, I think the movement in that 0:19:04.640 --> 0:19:07.919 currency is not anticipated by the majority this year, so 0:19:08.400 --> 0:19:12.640 the companies that are trying to deal are certainly feeling 0:19:12.800 --> 0:19:14.960 a bronson and this will have an impact on investment 0:19:15.080 --> 0:19:17.000 and potentially on growth for a while to come. And 0:19:17.080 --> 0:19:19.520 what's so important, Jane, as you see it not you 0:19:19.560 --> 0:19:22.040 know they're not doing in Argentina, but Brazil was pretty 0:19:22.160 --> 0:19:25.840 ugly yesterday. Or Malaysia's bringing back at ninety two year old. 0:19:25.920 --> 0:19:28.960 I get it, and there's a popular recovery. But they're 0:19:29.000 --> 0:19:33.359 these set of tensions, folks, that aren't about three zip 0:19:33.359 --> 0:19:35.879 codes in New York. They're not about three zip codes 0:19:35.880 --> 0:19:38.199 in London. They're not about two zip codes in Hong 0:19:38.280 --> 0:19:43.040 Kong or Singapore, Jane. They're about these domestic economies. When 0:19:43.080 --> 0:19:46.640 do they begin to snap or break? Well, I think 0:19:46.680 --> 0:19:49.560 perhaps they are, and I would you know, in Argentina, 0:19:49.600 --> 0:19:52.400 I think they have broken Turkey. I think it's coming 0:19:52.400 --> 0:19:54.159 to a boiling point because we have an election in 0:19:54.200 --> 0:19:56.919 around about a month's time, and that's going to be 0:19:56.960 --> 0:19:58.720 really really telling whether they're not this stiff and or 0:19:58.760 --> 0:20:01.680 this this conge in the currency makes any difference in 0:20:01.760 --> 0:20:05.320 that result. So that's another really interesting one. But but certainly, 0:20:05.480 --> 0:20:08.760 you know, we are seeing very significant moves in foreign exchange, 0:20:09.160 --> 0:20:11.200 and some of these moves have been brewing for some time. 0:20:11.240 --> 0:20:13.640 And when I again, I would say go back to February, 0:20:13.720 --> 0:20:15.760 and we do see a lot of these these movements, 0:20:15.800 --> 0:20:18.679 a lot of these um distallar move really begin to 0:20:18.720 --> 0:20:21.399 take place. Back then, let's talk about Turkey and the 0:20:21.440 --> 0:20:24.880 Turkish laer a record weakness once again. Earlier in the session, 0:20:25.119 --> 0:20:27.240 a bit of strength came through as the central bank 0:20:27.560 --> 0:20:31.240 started talking about taking the necessary steps Jane, what are 0:20:31.280 --> 0:20:35.800 the necessary steps for the Turkish Central Bank to take now? Well, 0:20:36.119 --> 0:20:37.719 if you ask that question a week ago, I might 0:20:37.760 --> 0:20:39.880 give you a different answer because it was earlier than week. 0:20:39.920 --> 0:20:42.200 We did have president earlier and in London we had 0:20:42.200 --> 0:20:45.680 that interview with Bloomberg TV and you seemed to indicate 0:20:45.760 --> 0:20:49.399 that the central bank is no longer an independent central 0:20:49.440 --> 0:20:52.240 bank now. Really, for for many people in the foreign 0:20:52.280 --> 0:20:54.920 exchange market, that we would assume that if the currency 0:20:54.920 --> 0:20:56.720 goes into free fall, et central bank can come in 0:20:57.040 --> 0:20:59.480 and hike interest rates for protecting a temporary period of 0:20:59.520 --> 0:21:01.800 time and then start to draw back on that. If 0:21:01.840 --> 0:21:05.040 that center bank it is not independent, can they really 0:21:05.080 --> 0:21:07.199 do that? Argon was saying that he wants rights to 0:21:07.200 --> 0:21:10.080 be lower, and he thinks that needs to be down 0:21:10.119 --> 0:21:12.440 for the benefit of the Turkish economy, and that's really 0:21:12.480 --> 0:21:16.399 difficult for investors to to reconcile. It's a really important question, folks, 0:21:16.400 --> 0:21:20.000 and we must point out that since Ms Foley trumpets 0:21:20.000 --> 0:21:22.520 the Guy Johnson interview, Guy Johnson just email me and 0:21:22.520 --> 0:21:25.920 say you can have Jane back on again. But within 0:21:25.960 --> 0:21:28.920 that Jane is the old crux which you won't see 0:21:28.960 --> 0:21:31.880 in a CEFA exam, which is the idea that the 0:21:31.920 --> 0:21:36.080 markets test a central bank, whether it's the huns and 0:21:36.200 --> 0:21:39.680 silver a million years ago blah blah blah, or sorrows 0:21:39.800 --> 0:21:43.480 and sterling zillion years ago. Jane, is that what happens 0:21:43.720 --> 0:21:49.800 markets test a institution in trouble, Well, they can do, 0:21:49.960 --> 0:21:52.800 but you know these degrees of being in trouble, and 0:21:52.800 --> 0:21:54.800 and Turkey is always vulnerable because it does have a 0:21:54.880 --> 0:21:58.440 very large current account deficit, and that means it's it's 0:21:58.480 --> 0:22:02.080 more susceptible to the whims of of non domestic investors. 0:22:02.480 --> 0:22:05.680 And that is perhaps why you would expect a cential 0:22:05.720 --> 0:22:08.520 bank like Turkey or the government of Turkey to to 0:22:08.520 --> 0:22:11.960 to actually want to applicate the international investing community a 0:22:11.960 --> 0:22:14.119 little bit more than we saw at the start of 0:22:14.160 --> 0:22:16.800 this week. So um, that is a currency that can 0:22:16.840 --> 0:22:21.840 be volatile if you had a current account surplus currency, 0:22:21.960 --> 0:22:25.840 it's not so vulnerable to the whims of of of 0:22:25.960 --> 0:22:30.040 investors taking their money home. And unfortunately with Turkey, yes 0:22:30.080 --> 0:22:33.560 it can be quite it can be tested quite ferociously 0:22:33.840 --> 0:22:36.600 because of that current account deficit. Jane Foley, it's great 0:22:36.600 --> 0:22:38.160 to catch other you. Thank you for giving us your 0:22:38.160 --> 0:22:40.720 time at such short notice. This morning, as the foreign 0:22:40.720 --> 0:22:57.280 exchange starts to generate a few really interesting stories. One 0:22:57.280 --> 0:23:00.560 of the joys we have is to dive into economic 0:23:00.600 --> 0:23:05.800 research and investment research from firms that are hyper focused. 0:23:06.240 --> 0:23:09.520 Now would include High Tongue out of London. High Tongue 0:23:09.680 --> 0:23:13.680 really digs into Asia, tries to you know the phrase 0:23:13.720 --> 0:23:15.800 I use go beneath the headline data and really find 0:23:15.800 --> 0:23:18.720 out what is going on. Miranda car joins us now 0:23:19.240 --> 0:23:22.560 head of China China Thematic Research at High Tongue. Miranda, 0:23:22.560 --> 0:23:24.960 if you were to have a cup of coffee, not 0:23:25.080 --> 0:23:28.159 so much with the president, but just within anybody in Washington, 0:23:29.000 --> 0:23:33.359 what would you instruct them of how they are viewed 0:23:33.520 --> 0:23:43.920 or perceived from Beijing? How does Beijing perceive greater political Washington. Well, 0:23:43.960 --> 0:23:47.920 I think the Washington under Trump has thrown a lot 0:23:47.960 --> 0:23:51.320 of the sort of Beijing's calculations into into a slight 0:23:51.359 --> 0:23:54.040 disarray because it's it's it's much more difficult to deal 0:23:54.440 --> 0:23:58.760 with someone who's um where where you're conflicating a lot 0:23:58.800 --> 0:24:03.919 of the different issues where there it's trade, intellectual property UM, 0:24:04.160 --> 0:24:07.200 dominance in different global markets, plus with sort of North 0:24:07.280 --> 0:24:10.679 Korea UM. So how you then go and tackle that 0:24:11.119 --> 0:24:15.920 um in is raising quite a lot of questions domestically, 0:24:16.359 --> 0:24:18.720 But I think I mean, obviously sort of Leo her 0:24:18.840 --> 0:24:21.920 is over in over in Washington just now, and he's 0:24:21.960 --> 0:24:24.040 able to probably to offer sort of quite a bit 0:24:24.240 --> 0:24:28.239 in terms of trade concessions, but that they're still not 0:24:28.280 --> 0:24:30.719 going to give much ground on terms of you know, 0:24:30.920 --> 0:24:34.040 the made in China I p UM and trying to 0:24:34.119 --> 0:24:39.159 sort of stop trying technological process. Well, what so it 0:24:39.200 --> 0:24:41.720