1
00:00:00,080 --> 00:00:12,960
Speaker 1: Ye, Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane

2
00:00:13,480 --> 00:00:17,560
Speaker 1: jay Ley. We bring you insight from the best in economics, finance, investment,

3
00:00:18,000 --> 00:00:23,480
Speaker 1: and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud,

4
00:00:23,600 --> 00:00:34,760
Speaker 1: Bloomberg dot Com, and of course on the Bloomberg. This

5
00:00:34,840 --> 00:00:38,280
Speaker 1: is without question the interview of the day. And I

6
00:00:38,320 --> 00:00:42,600
Speaker 1: should say Arthur and immense, immense honor Arthur Lovitt, who

7
00:00:42,600 --> 00:00:44,720
Speaker 1: you know how he comes on, Chairman of the former

8
00:00:44,800 --> 00:00:48,560
Speaker 1: chairman of the SEC. Arthur Lovitt leveled the playing field

9
00:00:48,560 --> 00:00:52,120
Speaker 1: for the individual investor and the vicinity of the seventies

10
00:00:52,200 --> 00:00:55,240
Speaker 1: and into the nineteen eighties. And he did it with

11
00:00:55,360 --> 00:00:59,280
Speaker 1: John Poke. Arthur, you wrote the foreword for the Clash

12
00:00:59,440 --> 00:01:04,600
Speaker 1: of the Cult investment versus Speculation. For John Bogel, he

13
00:01:04,840 --> 00:01:08,520
Speaker 1: changed how all of us think of money, didn't he? Yes,

14
00:01:08,600 --> 00:01:13,560
Speaker 1: he did. He was a real master in terms of

15
00:01:14,440 --> 00:01:21,319
Speaker 1: understanding the costs of money, something frequently overlooked by investors,

16
00:01:21,400 --> 00:01:26,680
Speaker 1: particularly with respect too mutual funds. Those fees that are

17
00:01:26,800 --> 00:01:31,520
Speaker 1: upfront and seems so minute, are so massive in terms

18
00:01:31,560 --> 00:01:35,840
Speaker 1: of their implication of loss or gain. And Bogel was

19
00:01:35,880 --> 00:01:39,520
Speaker 1: the one who pioneered that from his beloved home in

20
00:01:39,640 --> 00:01:45,200
Speaker 1: Lake Placid, New York. Uh he wrote about accounting standards

21
00:01:45,280 --> 00:01:51,680
Speaker 1: and fought fearlessly for stronger accounting standards so that investors

22
00:01:51,680 --> 00:02:00,680
Speaker 1: could understand the implications of one funds costs over another. So, Arthur,

23
00:02:00,960 --> 00:02:04,560
Speaker 1: obviously you know just a you've had such a wonderful

24
00:02:04,600 --> 00:02:07,840
Speaker 1: long term relationship with Mr Boga. What do you think

25
00:02:07,880 --> 00:02:12,400
Speaker 1: his lasting legacy will be for the individual investor in

26
00:02:12,440 --> 00:02:20,320
Speaker 1: the marketplace? I think, above all else h he has

27
00:02:20,440 --> 00:02:28,480
Speaker 1: taught the last vast array of individual investors the true

28
00:02:28,600 --> 00:02:35,080
Speaker 1: costs of their investments. How minute changes and fees have

29
00:02:36,080 --> 00:02:41,560
Speaker 1: massive implications in terms of loss or gain. And I

30
00:02:41,600 --> 00:02:49,200
Speaker 1: think even today, the knowledgeable investor gravitates towards uh the

31
00:02:49,480 --> 00:02:56,920
Speaker 1: Vanguard fund formula of the lowest possible costs. And I

32
00:02:57,080 --> 00:03:05,639
Speaker 1: think that the vast number of sophisticated, knowledgeable investors understand that,

33
00:03:05,760 --> 00:03:11,160
Speaker 1: and that accounts for the extraordinary success of Vanguard funds.

34
00:03:11,240 --> 00:03:18,240
Speaker 1: It was ironical that Jack, because he spoke so openly

35
00:03:18,360 --> 00:03:24,519
Speaker 1: and fearlessly and not necessarily with discretion, was pushed from

36
00:03:24,560 --> 00:03:30,440
Speaker 1: the management of Vanguard Funds and operated solely out of

37
00:03:30,480 --> 00:03:35,520
Speaker 1: his home both here and both in the East Coast

38
00:03:35,640 --> 00:03:39,040
Speaker 1: end up in Lake Placid. So you know, it's it's amazing, Arthur.

39
00:03:39,200 --> 00:03:42,720
Speaker 1: If we think about it today, it's almost common knowledge

40
00:03:42,800 --> 00:03:46,200
Speaker 1: or accepted knowledge about index funds and ets tied to

41
00:03:46,280 --> 00:03:49,160
Speaker 1: index funds and minimizing fees. But when you go back

42
00:03:49,160 --> 00:03:52,040
Speaker 1: and you take a look at Mr Bogel's career, it

43
00:03:52,160 --> 00:03:55,400
Speaker 1: was so radical in the mid seventies what his thinking was.

44
00:03:55,480 --> 00:03:59,800
Speaker 1: He came from the traditional mutual fund business, Wellington one

45
00:03:59,800 --> 00:04:02,320
Speaker 1: of the big bohemus still today about the traditional muti

46
00:04:02,400 --> 00:04:05,280
Speaker 1: fund business. But it really wasn't in the mid seventies

47
00:04:05,320 --> 00:04:08,440
Speaker 1: early seventies when he brought this concept of indexing and

48
00:04:08,480 --> 00:04:12,040
Speaker 1: focusing on costs. It really was radical back then, wasn't it.

49
00:04:12,040 --> 00:04:15,720
Speaker 1: It was radical because the vast majority of investors like

50
00:04:15,880 --> 00:04:20,080
Speaker 1: to pick and choose among the array of stocks available

51
00:04:20,160 --> 00:04:23,480
Speaker 1: to them, and it took an index fund, which really

52
00:04:24,080 --> 00:04:26,839
Speaker 1: mimic the market as a whole, to be sold as

53
00:04:27,600 --> 00:04:32,560
Speaker 1: a single unit, and a huge number of investors have

54
00:04:32,720 --> 00:04:37,960
Speaker 1: gravitated towards that and have come to understand the implications

55
00:04:38,080 --> 00:04:43,680
Speaker 1: of fees as critical in terms of whether they win

56
00:04:43,800 --> 00:04:47,520
Speaker 1: or lose in the market. Yeah, it's just h yeah,

57
00:04:47,520 --> 00:04:49,479
Speaker 1: you're right, you're exactly right. It's just amazing kind of

58
00:04:49,520 --> 00:04:52,760
Speaker 1: how that evolved and kind of where we are today

59
00:04:52,880 --> 00:04:56,560
Speaker 1: and some of your more recent conversations with him, UM,

60
00:04:56,640 --> 00:05:00,400
Speaker 1: what were his thoughts about where he thinks invest will

61
00:05:00,440 --> 00:05:03,080
Speaker 1: go should go, the role of the individual investor, the

62
00:05:03,160 --> 00:05:05,359
Speaker 1: role of the hedge fund. How did he kind of

63
00:05:05,480 --> 00:05:09,159
Speaker 1: envision how maybe individual investing what will trend going forward.

64
00:05:09,720 --> 00:05:16,279
Speaker 1: I think that he hoped and believed that the individual

65
00:05:16,320 --> 00:05:20,480
Speaker 1: investor would take over more of the control of how

66
00:05:20,560 --> 00:05:28,120
Speaker 1: they invest using funds rather than picking and choosing stocks.

67
00:05:28,960 --> 00:05:33,520
Speaker 1: I think he had he had such a firm belief in,

68
00:05:34,360 --> 00:05:38,880
Speaker 1: uh mimicking the market as a whole rather than trying

69
00:05:38,920 --> 00:05:43,560
Speaker 1: to pick stock A or sell stock B. And I

70
00:05:43,600 --> 00:05:46,960
Speaker 1: think he felt that with the growth of Vanguard and

71
00:05:47,000 --> 00:05:52,239
Speaker 1: the success of Vanguard and the embrace of other funds

72
00:05:52,240 --> 00:05:56,440
Speaker 1: in the same concept, the market was going to continue

73
00:05:56,480 --> 00:06:00,320
Speaker 1: to move in that direction and that passive and nesting

74
00:06:00,560 --> 00:06:07,640
Speaker 1: was going to overtake and really beat out individual stock picking.

75
00:06:08,839 --> 00:06:11,480
Speaker 1: Arthur Levitt, thank you so very much for you know,

76
00:06:11,640 --> 00:06:14,960
Speaker 1: giving us your perspective on the life in the impact

77
00:06:15,000 --> 00:06:18,840
Speaker 1: of John Bobel, founder of Vanguard Group. UM. You know,

78
00:06:18,839 --> 00:06:38,200
Speaker 1: obviously revolutionary figure in the world of individual investing. We

79
00:06:38,240 --> 00:06:41,040
Speaker 1: wrap up the earning season on Wall Street with Morgan Stanley.

80
00:06:41,080 --> 00:06:43,920
Speaker 1: Those numbers are imminent when they drop across the Bloomberg

81
00:06:44,120 --> 00:06:46,000
Speaker 1: will bring you some of the headlines and some of

82
00:06:46,000 --> 00:06:48,520
Speaker 1: the commentary once the earnings called starts a little bit

83
00:06:48,560 --> 00:06:51,560
Speaker 1: later this morning. So worldwide, you've got to say, the

84
00:06:51,600 --> 00:06:54,880
Speaker 1: recession fears of December to some investors at least already

85
00:06:54,880 --> 00:06:57,960
Speaker 1: feeling like a distant memory. We've had the C suite

86
00:06:58,000 --> 00:07:01,960
Speaker 1: on Wall Street speaking pretty optimistically about nineteen, seeing few

87
00:07:01,960 --> 00:07:04,919
Speaker 1: signs of an imminent turned down. So what's ahead for

88
00:07:05,000 --> 00:07:07,920
Speaker 1: this market? Jane Foley joining US Rabba bankhead of ex

89
00:07:08,000 --> 00:07:11,760
Speaker 1: Strategy and senior currency analyst. We have faded much of

90
00:07:11,800 --> 00:07:15,960
Speaker 1: December already, Jane, before the data has validated that move,

91
00:07:16,120 --> 00:07:18,800
Speaker 1: especially over in China and in Asia as well. Your

92
00:07:18,800 --> 00:07:22,800
Speaker 1: thoughts on that, well, to be honest, I still think

93
00:07:22,840 --> 00:07:26,080
Speaker 1: that December really didn't mark a change in market sentiment.

94
00:07:26,120 --> 00:07:28,080
Speaker 1: The market really did take on board that the slower

95
00:07:28,480 --> 00:07:31,680
Speaker 1: slowing global growth, particularly with respect to the US economy.

96
00:07:31,760 --> 00:07:34,080
Speaker 1: But I think as we've moved into January, I think

97
00:07:34,080 --> 00:07:36,480
Speaker 1: the market is beginning to focus more on what that

98
00:07:36,560 --> 00:07:38,480
Speaker 1: has meant for Europe. And what we've seen, of course

99
00:07:38,560 --> 00:07:42,240
Speaker 1: is slower data from Germany. We've seen a talk of

100
00:07:42,280 --> 00:07:45,160
Speaker 1: even a technical recession in Germany at the end of

101
00:07:46,040 --> 00:07:48,960
Speaker 1: last year. That may not happen. The indication that we

102
00:07:49,040 --> 00:07:50,960
Speaker 1: got from the German authorities is that we what we

103
00:07:51,000 --> 00:07:52,960
Speaker 1: saw in the second half of last year, we're just

104
00:07:53,320 --> 00:07:56,800
Speaker 1: very moderate next to no growth, and hence we have

105
00:07:56,920 --> 00:07:59,840
Speaker 1: the sparring match, if you like, in Eurodonna with the

106
00:08:00,000 --> 00:08:03,800
Speaker 1: fundamentals of both of those major currencies haven't deteriorated. So

107
00:08:03,920 --> 00:08:06,720
Speaker 1: what's driving europe dollar? What are the dominant forces they're

108
00:08:06,720 --> 00:08:09,360
Speaker 1: going to drive that currency pair over the several the

109
00:08:09,440 --> 00:08:12,440
Speaker 1: next several months. Jane, you know, I think it's a

110
00:08:12,440 --> 00:08:15,000
Speaker 1: it's another sisters competition. I think it's it has been

111
00:08:15,000 --> 00:08:17,760
Speaker 1: for quite some times, some weeks at least, pretty easy

112
00:08:17,800 --> 00:08:21,800
Speaker 1: to put together a deteriorated version of fundamentals for the

113
00:08:21,840 --> 00:08:25,400
Speaker 1: dollar in terms of slower growth, concerns over fed policy, etcetera.

114
00:08:25,480 --> 00:08:27,800
Speaker 1: But I think over the next few weeks and the

115
00:08:27,800 --> 00:08:29,760
Speaker 1: market really does need to come to terms of what

116
00:08:29,840 --> 00:08:31,400
Speaker 1: does that mean for the ECB, what doesn't that mean

117
00:08:31,440 --> 00:08:33,840
Speaker 1: for European growth? And we do have an ECB policy

118
00:08:33,880 --> 00:08:37,160
Speaker 1: meeting coming over the next week or or two, and

119
00:08:37,360 --> 00:08:39,800
Speaker 1: that's going to be important because you know, the the

120
00:08:39,840 --> 00:08:42,840
Speaker 1: ECB have signal that they maybe I can interest rates

121
00:08:42,880 --> 00:08:45,400
Speaker 1: potentially in December. That's what they allowed the market to

122
00:08:45,400 --> 00:08:48,320
Speaker 1: believe last time around. But since then the market has

123
00:08:48,360 --> 00:08:50,000
Speaker 1: been thinking, well, you know what, they're going to have

124
00:08:50,160 --> 00:08:54,680
Speaker 1: to throw liquidity at Europe. There's going to be potentially teltos, etcetera.

125
00:08:54,760 --> 00:08:57,800
Speaker 1: So I think the market needs to reconcile its outlook

126
00:08:57,920 --> 00:09:02,360
Speaker 1: for the the ECB in terms of the guidance that

127
00:09:02,520 --> 00:09:05,080
Speaker 1: is officially out there. Jen It's interesting to me that

128
00:09:05,120 --> 00:09:07,200
Speaker 1: on the fom C, on the Federal Reserve, the most

129
00:09:07,200 --> 00:09:10,440
Speaker 1: hawk is representative of the fm C, Esther George, has

130
00:09:10,480 --> 00:09:13,920
Speaker 1: backed away from an imminent interest rate hike rate hikes

131
00:09:13,960 --> 00:09:16,640
Speaker 1: anytime soon, Yet one of the most hawk ish members

132
00:09:16,840 --> 00:09:19,679
Speaker 1: of the European Central banks have been louton Schlager is

133
00:09:19,720 --> 00:09:21,800
Speaker 1: still talking about rate hikes at the e c B.

134
00:09:22,640 --> 00:09:24,760
Speaker 1: Why is that still happening on the Government Council of

135
00:09:24,760 --> 00:09:27,000
Speaker 1: the European Central Bank? Why are they still having this

136
00:09:27,080 --> 00:09:30,760
Speaker 1: discussion Because nobody I speak to believes that the ECB

137
00:09:31,000 --> 00:09:34,440
Speaker 1: can deliver a rate hike against the backdrop that the

138
00:09:34,480 --> 00:09:37,720
Speaker 1: European economy has right now. I think one of the

139
00:09:37,720 --> 00:09:40,160
Speaker 1: reasons for that is is to do with normalization. If

140
00:09:40,160 --> 00:09:42,160
Speaker 1: we if we look at the level of interest rates

141
00:09:42,200 --> 00:09:44,240
Speaker 1: in the US to be, it is no wonder that

142
00:09:44,280 --> 00:09:46,320
Speaker 1: they want to normalize. They want to pull back at

143
00:09:46,360 --> 00:09:50,840
Speaker 1: some ammunition. If they do hike interest rates, then surely

144
00:09:50,880 --> 00:09:53,520
Speaker 1: they will be having to do it. What it's sort

145
00:09:53,520 --> 00:09:55,520
Speaker 1: of easy in liquidity on the other hand, so some

146
00:09:55,559 --> 00:09:58,679
Speaker 1: people are talking about an interestrate maybe, but Telto's on

147
00:09:58,679 --> 00:10:02,960
Speaker 1: the other hand, and and this very interesting scenario, very

148
00:10:02,960 --> 00:10:05,719
Speaker 1: interesting situation, and again this is one that I think

149
00:10:05,720 --> 00:10:09,720
Speaker 1: the market really does need clarity on. Certainly, it does

150
00:10:09,800 --> 00:10:12,840
Speaker 1: seem from a just a geological point, I feel difficult

151
00:10:12,840 --> 00:10:15,280
Speaker 1: to understand why the ECB could be. I can interstrate

152
00:10:15,559 --> 00:10:18,440
Speaker 1: when you have Germany slowing the way it has done

153
00:10:18,800 --> 00:10:21,920
Speaker 1: in losing momentum, and it's not just Germany. We've seen

154
00:10:21,920 --> 00:10:26,640
Speaker 1: weaker data from large countries in Europe such as Italy, etcetera.

155
00:10:27,200 --> 00:10:29,120
Speaker 1: And if at the same time you have the U

156
00:10:29,200 --> 00:10:32,760
Speaker 1: S sloan and China slowan, so it does seem perhaps

157
00:10:32,840 --> 00:10:35,920
Speaker 1: at this junction not particularly logical for the ECB two

158
00:10:36,120 --> 00:10:39,480
Speaker 1: pushing ahead with an interstrate hike until you look at

159
00:10:39,480 --> 00:10:41,360
Speaker 1: the level of the rates and you begin to understand

160
00:10:41,360 --> 00:10:44,920
Speaker 1: that they do want some normalization. Well, consumer spending expects

161
00:10:45,000 --> 00:10:47,400
Speaker 1: expected to accelerate over the coming week because our chief

162
00:10:47,480 --> 00:10:51,920
Speaker 1: Brexit correspondent is going to travel from London over to Switzerland.

163
00:10:52,040 --> 00:10:55,520
Speaker 1: So as he progresses through the continent, I imagine consumer

164
00:10:55,559 --> 00:10:57,440
Speaker 1: spending is going to get a lift top of there.

165
00:10:58,480 --> 00:11:00,520
Speaker 1: You're there some have you made it? I've made it

166
00:11:00,600 --> 00:11:03,880
Speaker 1: here Victorious Street. It was very difficult to put here

167
00:11:03,920 --> 00:11:06,520
Speaker 1: from the green is. You know, you look at the

168
00:11:06,600 --> 00:11:11,079
Speaker 1: Jane Fawley currency transfer station at UM at Heathrow. It's

169
00:11:11,080 --> 00:11:14,120
Speaker 1: amazing what she picks up on that, you know, on

170
00:11:14,240 --> 00:11:17,360
Speaker 1: a currency conversion. Someone's making a lot of money at Heathrow,

171
00:11:17,360 --> 00:11:21,360
Speaker 1: aren't they. Jane smitten money there as well. Jane. Seriously,

172
00:11:21,480 --> 00:11:26,199
Speaker 1: what happens to the sterling euro relationship of actual day

173
00:11:26,240 --> 00:11:32,319
Speaker 1: to day transactions if Brexit actually brexits? Well, you know,

174
00:11:32,440 --> 00:11:37,160
Speaker 1: once again, it's it's very difficult I think for real corporates.

175
00:11:37,160 --> 00:11:39,080
Speaker 1: I think a lot of people who have been able

176
00:11:39,160 --> 00:11:42,199
Speaker 1: to remain on the sidelines have remained on the sidelines.

177
00:11:42,240 --> 00:11:45,120
Speaker 1: But you know, there comes a time where real corporates,

178
00:11:45,160 --> 00:11:48,000
Speaker 1: real businesses have to hedge and they have to get

179
00:11:48,080 --> 00:11:51,719
Speaker 1: reinvolved and it becomes extremely difficult for them. So I

180
00:11:51,840 --> 00:11:53,920
Speaker 1: think over the next couple of weeks, clearly it's going

181
00:11:54,000 --> 00:11:56,120
Speaker 1: to be really really crucial. A lot of people in

182
00:11:56,200 --> 00:11:58,240
Speaker 1: the market, and we see this in the price are

183
00:11:58,320 --> 00:12:01,760
Speaker 1: betting that there will be some delay, that the heartbreaks

184
00:12:01,760 --> 00:12:03,800
Speaker 1: that will not happen. But of course, as it stands,

185
00:12:04,080 --> 00:12:07,000
Speaker 1: legally the UK is heading for heartbreaks on maybe the

186
00:12:07,040 --> 00:12:10,400
Speaker 1: twenty nine, and I think for investors to remain confident

187
00:12:10,480 --> 00:12:12,400
Speaker 1: that that isn't going to happen, there needs to be

188
00:12:12,520 --> 00:12:14,560
Speaker 1: some change. There needs to be some legislation in place.

189
00:12:14,760 --> 00:12:16,480
Speaker 1: But but on a you know, I think of rubble

190
00:12:16,520 --> 00:12:19,040
Speaker 1: bank and I understand their speculation, and there's a currency,

191
00:12:19,080 --> 00:12:21,360
Speaker 1: what's that you're going to do? What's polished a lot

192
00:12:21,360 --> 00:12:23,120
Speaker 1: are you going to do? I get that, But in

193
00:12:23,240 --> 00:12:29,000
Speaker 1: the commercial business of hedging business transactions, what actually happens

194
00:12:29,040 --> 00:12:34,320
Speaker 1: between pound, sterling and euro when all of this happens, well,

195
00:12:34,640 --> 00:12:36,880
Speaker 1: you know again, and we can go back to our

196
00:12:36,960 --> 00:12:38,760
Speaker 1: customers and they are asking us of the have been

197
00:12:38,800 --> 00:12:41,480
Speaker 1: asking us that question for a while. There are a

198
00:12:41,480 --> 00:12:44,439
Speaker 1: lot of board protection, but a lot of them will have,

199
00:12:44,800 --> 00:12:46,199
Speaker 1: you know, the some of the protection that they will

200
00:12:46,200 --> 00:12:48,600
Speaker 1: have learned out, we'll start to will start to fall

201
00:12:48,600 --> 00:12:51,880
Speaker 1: off the books after after March. So they do need

202
00:12:51,960 --> 00:12:56,200
Speaker 1: to be very considerate in terms of what is going

203
00:12:56,240 --> 00:12:58,920
Speaker 1: to happen for in exchange. But to be fair to them,

204
00:12:59,320 --> 00:13:04,120
Speaker 1: you know what, investments can look at the probability and think, well,

205
00:13:04,160 --> 00:13:05,680
Speaker 1: you know what, there's a good chance that there could

206
00:13:05,679 --> 00:13:08,920
Speaker 1: be a delay. We'll take an oppositions. Accordingly, businesses don't

207
00:13:08,960 --> 00:13:12,400
Speaker 1: have that luxury. They have to prepare for heartbreakit because

208
00:13:12,440 --> 00:13:15,800
Speaker 1: that is what legally is potentially going to happen. And

209
00:13:15,920 --> 00:13:18,120
Speaker 1: this puts them in a really quite difficult position. They

210
00:13:18,160 --> 00:13:21,079
Speaker 1: have to spend that money to make those preparations, and that,

211
00:13:21,280 --> 00:13:23,520
Speaker 1: to be honest, I think is the first consideration the

212
00:13:23,600 --> 00:13:28,040
Speaker 1: foreign exchange. It is just a complication for them. Jane

213
00:13:28,080 --> 00:13:30,720
Speaker 1: Greater to catch up with you, janet Folio their Rabbi

214
00:13:30,760 --> 00:13:48,199
Speaker 1: Bankhead of Effect Strategy, senior currency Analysts, Gerard Cassidy with

215
00:13:48,440 --> 00:13:51,719
Speaker 1: us with RBC Capital Marcus Gerard, what's the history in

216
00:13:51,880 --> 00:13:55,640
Speaker 1: other cycles where there are trading missus? Is there an

217
00:13:55,760 --> 00:13:59,000
Speaker 1: understanding in the C suite that you bounce back or

218
00:13:59,040 --> 00:14:01,640
Speaker 1: do you make a media it changes to the business plan.

219
00:14:02,480 --> 00:14:05,319
Speaker 1: I think Tom, what you do is you anticipate that

220
00:14:05,480 --> 00:14:09,280
Speaker 1: there will be some bouncing back or normality. We all

221
00:14:09,360 --> 00:14:12,679
Speaker 1: know the fourth quarter was quite unusual in terms of

222
00:14:12,760 --> 00:14:15,960
Speaker 1: the volatility. You might recall Tom, in the month of December,

223
00:14:16,440 --> 00:14:19,520
Speaker 1: we didn't see a single junk bond underwritten, or high

224
00:14:19,600 --> 00:14:21,600
Speaker 1: yield bonds as they call him today, but we didn't

225
00:14:21,600 --> 00:14:24,640
Speaker 1: see a single issue underwritten, and so this shows you

226
00:14:24,720 --> 00:14:27,560
Speaker 1: the severity of the downturn in Fick. So I don't

227
00:14:27,560 --> 00:14:30,920
Speaker 1: think there's no knee knee jerk reaction yet, but if

228
00:14:31,000 --> 00:14:34,160
Speaker 1: these trends continued through six months, that's when you have

229
00:14:34,240 --> 00:14:37,000
Speaker 1: to dust those issues. John Farrell, you've been all over this.

230
00:14:37,120 --> 00:14:40,520
Speaker 1: You absolutely nailed the idea of junk bonds being quiet

231
00:14:40,600 --> 00:14:43,520
Speaker 1: in December, John Farrell, has there been any indication on

232
00:14:43,640 --> 00:14:46,160
Speaker 1: your property that yield yield, real yield, that things have

233
00:14:46,240 --> 00:14:48,120
Speaker 1: bounced back. Well, the good news is the primary market

234
00:14:48,160 --> 00:14:50,240
Speaker 1: has reopened. But Gerard, I think that the issue for

235
00:14:50,360 --> 00:14:52,040
Speaker 1: high yield is that it was a story not just

236
00:14:52,160 --> 00:14:54,200
Speaker 1: through the fourth culta, it was a story through the

237
00:14:54,240 --> 00:14:57,360
Speaker 1: whole year. We had this very soft supply story, and

238
00:14:57,400 --> 00:14:59,520
Speaker 1: as you know, Jarard, it was made up by the

239
00:14:59,680 --> 00:15:02,120
Speaker 1: left loan, the leverage finance business for some of these

240
00:15:02,160 --> 00:15:04,720
Speaker 1: banks that did actually really well with the exception of

241
00:15:04,760 --> 00:15:08,240
Speaker 1: the last quarter. So jaredds we look out. I'm wondering

242
00:15:08,280 --> 00:15:11,240
Speaker 1: that you expecting the high yield supply to still be

243
00:15:11,360 --> 00:15:13,680
Speaker 1: pretty low and will be made up in the way

244
00:15:13,720 --> 00:15:16,840
Speaker 1: it was made up last year with some really solid

245
00:15:16,920 --> 00:15:20,120
Speaker 1: leverage loan issuance. It's really gonna come down to the

246
00:15:20,280 --> 00:15:23,120
Speaker 1: cost of raising this capital and you put your thumb

247
00:15:23,160 --> 00:15:25,520
Speaker 1: on it when you compare it to the leverage loan

248
00:15:25,720 --> 00:15:28,960
Speaker 1: versus the junk bomb market. And so if the yields

249
00:15:29,000 --> 00:15:32,120
Speaker 1: and the junk bomb market are attractive, companies could tap

250
00:15:32,240 --> 00:15:34,840
Speaker 1: that rather than going into the leverage loan market. We

251
00:15:35,000 --> 00:15:37,800
Speaker 1: did see withdrawals. You know, et f s and mutual

252
00:15:37,800 --> 00:15:40,360
Speaker 1: funds are big owners of these leverage loans now, and

253
00:15:40,480 --> 00:15:43,440
Speaker 1: the fund outflows in the fourth quarter were quite pronounced,

254
00:15:43,680 --> 00:15:45,800
Speaker 1: so the demand on the leverage loan side may not

255
00:15:45,960 --> 00:15:48,280
Speaker 1: be there as well. So I would suggest that it's

256
00:15:48,280 --> 00:15:50,520
Speaker 1: going to come down to the cost of raising the money,

257
00:15:50,600 --> 00:15:53,280
Speaker 1: and if it's more attractive and junk bond land, that's

258
00:15:53,280 --> 00:15:55,240
Speaker 1: where they will go the good news, Jared. If you

259
00:15:55,240 --> 00:15:57,200
Speaker 1: look at the likes of Golment Sacks answer that mana

260
00:15:57,240 --> 00:15:59,480
Speaker 1: Morkan standing this morning. The one beat that I can

261
00:15:59,560 --> 00:16:03,960
Speaker 1: see is on investment banking revenue. The investment banks, the

262
00:16:04,160 --> 00:16:07,240
Speaker 1: M and A, in fact the Vanilla retail banking last

263
00:16:07,280 --> 00:16:10,920
Speaker 1: quarters still seem to do okay. Jerrard, I totally agree

264
00:16:10,960 --> 00:16:13,280
Speaker 1: with you, especially in the Morgan Stanley numbers. When you

265
00:16:13,360 --> 00:16:16,400
Speaker 1: look at the three components of investment banking, which is

266
00:16:16,440 --> 00:16:21,880
Speaker 1: equity underwriting, dead underwriting and advisory. Advisory was very strong

267
00:16:21,960 --> 00:16:24,680
Speaker 1: way as the other two were under expectations. And that

268
00:16:24,840 --> 00:16:27,160
Speaker 1: was across the board from all of the investment banks.

269
00:16:28,360 --> 00:16:30,680
Speaker 1: Are they a bank? I mean I asked this about

270
00:16:30,720 --> 00:16:33,560
Speaker 1: Golden Sex as well. All this discussion you're having with

271
00:16:33,680 --> 00:16:36,840
Speaker 1: John Farroll, it doesn't sound like they're a bank. Are

272
00:16:36,920 --> 00:16:40,680
Speaker 1: they a bank? Tom? Is a really interesting question because

273
00:16:41,000 --> 00:16:43,320
Speaker 1: you know, prior to the crisis, clearly they were not.

274
00:16:43,480 --> 00:16:45,840
Speaker 1: But because of the crisis they had to become bank

275
00:16:45,920 --> 00:16:49,880
Speaker 1: holding companies. They might remember because the funding this was

276
00:16:50,000 --> 00:16:53,000
Speaker 1: before they FED opening up the window to everybody, including

277
00:16:53,080 --> 00:16:56,560
Speaker 1: General Electrication might recall. But to be able to access

278
00:16:56,600 --> 00:16:59,040
Speaker 1: the FED window, these two companies were forced to become

279
00:16:59,080 --> 00:17:02,200
Speaker 1: bank holding company and they signed a document that had

280
00:17:02,240 --> 00:17:05,119
Speaker 1: the Hotel California clause in it, which said you can

281
00:17:05,200 --> 00:17:07,760
Speaker 1: never leave once you come in. And so as a

282
00:17:07,840 --> 00:17:10,200
Speaker 1: result of these guys are permanently going to be bank

283
00:17:10,240 --> 00:17:12,919
Speaker 1: holding companies. Gerald the winner of earning season so far.

284
00:17:13,040 --> 00:17:14,879
Speaker 1: I think it's Bank America. And I know it's been

285
00:17:14,920 --> 00:17:16,600
Speaker 1: a big pick for you. Why did they have this

286
00:17:16,720 --> 00:17:19,080
Speaker 1: business model that's going to do well in the year

287
00:17:19,119 --> 00:17:21,639
Speaker 1: ahead compared to the Morgan Stanleys and Goldman Saxes of

288
00:17:21,680 --> 00:17:25,120
Speaker 1: this world? Is it really interesting? Because when you take

289
00:17:25,160 --> 00:17:28,320
Speaker 1: a look at as a percentage of total revenues, how

290
00:17:28,440 --> 00:17:35,040
Speaker 1: much the traditional trading sales investment banking represents of total revenues,

291
00:17:35,080 --> 00:17:38,320
Speaker 1: Morgan Stanley and Goldman Sacks are very high. Bank America

292
00:17:39,040 --> 00:17:43,640
Speaker 1: is more diversified. So that universal bank model that Brian Morninghan,

293
00:17:43,720 --> 00:17:45,840
Speaker 1: the CEO of Bank America, has been working on for

294
00:17:45,960 --> 00:17:49,080
Speaker 1: ten years ever since the crisis, is finally now opening

295
00:17:49,160 --> 00:17:51,960
Speaker 1: in stride. And boy, they really did John put up

296
00:17:52,000 --> 00:17:54,960
Speaker 1: really good numbers yesterday. It's funny Sacks. Jerry Cassidy. Is

297
00:17:55,000 --> 00:17:57,240
Speaker 1: this a pause? Is it just a one quarter pause?

298
00:17:57,480 --> 00:18:01,000
Speaker 1: A blip? Um in terms of trading, I would say yes,

299
00:18:01,160 --> 00:18:05,400
Speaker 1: I would. You're starting off better. Absolutely, Okay, kid, thank

300
00:18:05,400 --> 00:18:08,399
Speaker 1: you so much. As the capital markets really a foundational

301
00:18:08,480 --> 00:18:24,680
Speaker 1: guest of all we do at Bloomberg Surveillance. Tom, let's

302
00:18:24,680 --> 00:18:27,680
Speaker 1: bring in Simon French show we pen More Gordon, chief economist,

303
00:18:27,800 --> 00:18:29,960
Speaker 1: on the view for the global economy. And I want

304
00:18:30,000 --> 00:18:31,840
Speaker 1: to start here in the United States, Simon, because if

305
00:18:31,880 --> 00:18:35,800
Speaker 1: you take the commentary from the c suite on Wall Street,

306
00:18:36,359 --> 00:18:39,879
Speaker 1: they're saying, this economy is looking good for nineteen. If

307
00:18:39,920 --> 00:18:41,359
Speaker 1: you look at the data we're going to get initial

308
00:18:41,440 --> 00:18:43,560
Speaker 1: jobless claims in about twenty eight minutes of real time

309
00:18:43,600 --> 00:18:46,240
Speaker 1: indicator of the health of the US economy, it looks

310
00:18:46,280 --> 00:18:49,160
Speaker 1: pretty good. Any reason to believe there are serious cracks

311
00:18:49,200 --> 00:18:53,080
Speaker 1: out there, Simon, Well, the financial markets are telling us

312
00:18:53,160 --> 00:18:55,920
Speaker 1: that there are cracks out there. There is a there's

313
00:18:55,920 --> 00:18:58,720
Speaker 1: a breakdown, isn't there between where financial markets are starting

314
00:18:58,760 --> 00:19:01,280
Speaker 1: to price the outlook for the economy and what the

315
00:19:01,359 --> 00:19:04,320
Speaker 1: hard macro data is telling us. And at the moment,

316
00:19:04,480 --> 00:19:07,000
Speaker 1: I think the macro dator tells us there were certainly

317
00:19:07,000 --> 00:19:11,080
Speaker 1: getting a mean reversion movie here towards trend US growth,

318
00:19:11,200 --> 00:19:14,000
Speaker 1: which I don't think many people would have been on

319
00:19:14,119 --> 00:19:16,880
Speaker 1: your show in the last eighty months and say, look,

320
00:19:17,080 --> 00:19:20,000
Speaker 1: it was sustainable for us the US economy to expand

321
00:19:20,119 --> 00:19:22,240
Speaker 1: north of three percent year on year, So we are

322
00:19:22,320 --> 00:19:24,800
Speaker 1: thinking some mean reversion. While I spoke about with Tom

323
00:19:24,880 --> 00:19:27,640
Speaker 1: earlier on TV was the fact that the risk here

324
00:19:27,720 --> 00:19:30,440
Speaker 1: is you undershoot to the downside as inventory start to

325
00:19:31,400 --> 00:19:33,960
Speaker 1: de stock and some of the sentiment that were seeing

326
00:19:34,000 --> 00:19:36,639
Speaker 1: in financial markets may translate onto main streets. Well, the

327
00:19:36,720 --> 00:19:39,520
Speaker 1: risk also applies to Wall Street as well. Simon that

328
00:19:39,600 --> 00:19:41,600
Speaker 1: you felt to draw a distinction between what is a

329
00:19:41,720 --> 00:19:46,480
Speaker 1: deceleration back towards trend growth that and a potentially big

330
00:19:46,600 --> 00:19:49,160
Speaker 1: cyclical turn that leads us into a recession. I think

331
00:19:49,160 --> 00:19:50,720
Speaker 1: a lot of people have the last couple of months

332
00:19:50,760 --> 00:19:53,760
Speaker 1: struggling to get their hands around which one we're experiencing

333
00:19:53,880 --> 00:19:55,439
Speaker 1: right now? Which one do you think it is? Simon?

334
00:19:56,440 --> 00:19:58,640
Speaker 1: So so I think there's mean reversion going on here.

335
00:19:58,680 --> 00:20:01,600
Speaker 1: So so my own view, who is we'll see a

336
00:20:01,680 --> 00:20:05,040
Speaker 1: lot of the stimulus from both a softening of the

337
00:20:05,160 --> 00:20:08,080
Speaker 1: tone from central bankers around the world, the Chinese stimulus

338
00:20:08,200 --> 00:20:11,840
Speaker 1: that is a repeat of the twenty program, and then

339
00:20:11,920 --> 00:20:14,800
Speaker 1: also they pass through to consumers from lower energy prices

340
00:20:14,840 --> 00:20:18,080
Speaker 1: will start kicking in the second half of nineteen, which

341
00:20:18,119 --> 00:20:20,159
Speaker 1: means that people are gonna have to get used to

342
00:20:20,280 --> 00:20:24,119
Speaker 1: some fairly difficult comps in the first half of nineteen,

343
00:20:24,280 --> 00:20:27,240
Speaker 1: some soft macro data, but not draw a linear line

344
00:20:27,320 --> 00:20:30,680
Speaker 1: downwards into the red simon. One of the hallmarks of

345
00:20:30,720 --> 00:20:32,840
Speaker 1: our interview today on John Farrere. One of my other

346
00:20:32,920 --> 00:20:36,600
Speaker 1: properties was with us was Mr Rattler of Deutsche Bank

347
00:20:36,920 --> 00:20:42,720
Speaker 1: hugely optimistic within the gloom of Europe. As an economist,

348
00:20:43,320 --> 00:20:46,480
Speaker 1: does the stock market go with a view of economics

349
00:20:46,640 --> 00:20:49,840
Speaker 1: or is it a separate beast. It's a bit of

350
00:20:49,880 --> 00:20:51,920
Speaker 1: separate beast. And I think we've we don't have to

351
00:20:52,000 --> 00:20:55,960
Speaker 1: go back far in history to look at moments when

352
00:20:56,359 --> 00:21:00,720
Speaker 1: you've had economists and actually strategists on your shows giving

353
00:21:00,800 --> 00:21:04,359
Speaker 1: you the perspectives that are fundamentally decoupled. And the question

354
00:21:04,480 --> 00:21:07,240
Speaker 1: is who wins that that race on the data and

355
00:21:07,440 --> 00:21:09,600
Speaker 1: here and I think at the moment, what we're seeing

356
00:21:10,240 --> 00:21:14,640
Speaker 1: is valuations across Europe and eleven times twenty nineteen earnings

357
00:21:14,760 --> 00:21:20,720
Speaker 1: factoring in a fairly substantial recession, not just in the

358
00:21:20,920 --> 00:21:23,520
Speaker 1: UK but also in mainland Europe. And I think that's

359
00:21:23,600 --> 00:21:26,600
Speaker 1: overdoing it. Looked low trend growth in Europe of you know,

360
00:21:26,720 --> 00:21:30,160
Speaker 1: between one point two to one point five percent means

361
00:21:30,240 --> 00:21:32,719
Speaker 1: that a policy mistake could tip you into negative territory.

362
00:21:32,800 --> 00:21:36,320
Speaker 1: But I do think given the expansion of early twenty

363
00:21:36,400 --> 00:21:38,359
Speaker 1: eighteen was two and a half percent, you're just seeing

364
00:21:38,680 --> 00:21:42,480
Speaker 1: those numbers weighing on the year on year comps. Well,

365
00:21:42,520 --> 00:21:44,720
Speaker 1: the weighing on the year and your calves and the

366
00:21:44,800 --> 00:21:49,439
Speaker 1: answers corporations adapt I mean, is the adaption in this slowdown,

367
00:21:49,720 --> 00:21:52,639
Speaker 1: the adapting I should say, in this slowdown? Is it

368
00:21:52,760 --> 00:21:55,560
Speaker 1: just simply cost cutting? Is that what you and pan

369
00:21:55,640 --> 00:21:58,159
Speaker 1: mercy for not only for the United Kingdom but for

370
00:21:58,240 --> 00:22:02,560
Speaker 1: America as well well. The sort of looks start with Europe.

371
00:22:02,640 --> 00:22:05,840
Speaker 1: I mean, you're not seeing cost cutting front and center

372
00:22:05,880 --> 00:22:07,680
Speaker 1: at the moment. Where where you are seeing is some

373
00:22:07,880 --> 00:22:13,040
Speaker 1: caution over investment spending, meaning that you look at the

374
00:22:13,119 --> 00:22:16,240
Speaker 1: caution over spare capacity. Spare capacity has been the big

375
00:22:16,400 --> 00:22:19,240
Speaker 1: boom element for the global economy over the last six

376
00:22:19,359 --> 00:22:21,760
Speaker 1: or seven years. We've been able to put the spare

377
00:22:21,800 --> 00:22:25,520
Speaker 1: capacity there's been inactive back to work and that's workers

378
00:22:25,640 --> 00:22:29,760
Speaker 1: that factories that is broadly now run its course, now,

379
00:22:29,840 --> 00:22:33,320
Speaker 1: the last major economic area to use up its spare

380
00:22:33,320 --> 00:22:35,720
Speaker 1: capacity was the euro zones. Of course, corporates need to

381
00:22:35,760 --> 00:22:38,359
Speaker 1: start make decisions on whether they need to start bidding

382
00:22:38,400 --> 00:22:42,840
Speaker 1: up wages or investing in what looks distinctly end of cycle.

383
00:22:43,160 --> 00:22:45,920
Speaker 1: The US economy, though, is further down this route, and

384
00:22:45,960 --> 00:22:48,040
Speaker 1: I think it's far more about the policy mistake coming

385
00:22:48,080 --> 00:22:50,200
Speaker 1: out of the White House and the degree to which

386
00:22:50,280 --> 00:22:53,600
Speaker 1: that passes through the consumer investor sentiment, that being the

387
00:22:53,840 --> 00:22:56,040
Speaker 1: clinsurer as to whether we get a soft landing or

388
00:22:56,119 --> 00:22:57,960
Speaker 1: something more maligned with someone. It seems to be this

389
00:22:58,040 --> 00:23:00,200
Speaker 1: obsession and I'm not saying this is coming for you,

390
00:23:00,359 --> 00:23:02,280
Speaker 1: but more broadly, there seems to be an obsession with

391
00:23:02,320 --> 00:23:04,639
Speaker 1: a policy mistake in the United States. I'm looking at

392
00:23:04,680 --> 00:23:07,840
Speaker 1: Europe right now. I'm seeing a total reluctance to do

393
00:23:08,040 --> 00:23:11,639
Speaker 1: anything on the fiscal side, barely any capacity to do

394
00:23:11,720 --> 00:23:14,880
Speaker 1: it in Southern Europe, and on the monetary policy side,

395
00:23:14,920 --> 00:23:17,119
Speaker 1: an ECB that has not been able to get away

396
00:23:17,200 --> 00:23:20,800
Speaker 1: from negative forty basis points on a depot rate. Now

397
00:23:20,920 --> 00:23:25,359
Speaker 1: we're thinking about policy errors going into a late cycle story.

398
00:23:25,880 --> 00:23:28,040
Speaker 1: I am way more worried about Europe than I am

399
00:23:28,119 --> 00:23:30,960
Speaker 1: the United States. At least in the United States, there's

400
00:23:31,000 --> 00:23:33,480
Speaker 1: no real side of funding stress. Even though we've seen

401
00:23:33,480 --> 00:23:36,000
Speaker 1: the deaf sit explode, yields are still really low. So

402
00:23:36,119 --> 00:23:38,280
Speaker 1: that's the fiscal position. You can worry about it if

403
00:23:38,280 --> 00:23:40,480
Speaker 1: you like. Okay, we can have that debate separately. But

404
00:23:40,560 --> 00:23:43,760
Speaker 1: the monetary policy position is a whole lot better than Europe.

405
00:23:44,080 --> 00:23:47,720
Speaker 1: Europe looks weak on both fronts, and they don't have

406
00:23:47,880 --> 00:23:51,600
Speaker 1: the growth either. Yes, so I think it's just two

407
00:23:51,720 --> 00:23:54,920
Speaker 1: different potential policy mistakes going on here. Do see what

408
00:23:55,040 --> 00:23:57,960
Speaker 1: I've described as a structural policy mistake in Europe where

409
00:23:58,359 --> 00:24:02,840
Speaker 1: they haven't used period of exceptional monetary policy to repair

410
00:24:03,520 --> 00:24:08,320
Speaker 1: or repair the structural rigidities but also complete monetary union.

411
00:24:08,760 --> 00:24:11,000
Speaker 1: But then in the US it's a far more cyclical

412
00:24:11,080 --> 00:24:15,040
Speaker 1: policy mistake where you see, you know, the protectionist moves

413
00:24:15,080 --> 00:24:19,280
Speaker 1: that we're seeing starting to translate through to consumers and

414
00:24:19,359 --> 00:24:23,240
Speaker 1: investor sentiment, which I think means they're very different beasts.

415
00:24:23,280 --> 00:24:26,560
Speaker 1: And the reason why I think media attention focuses on

416
00:24:27,280 --> 00:24:33,600
Speaker 1: the US angle is simply because the European problem is

417
00:24:33,760 --> 00:24:36,000
Speaker 1: one that has been around for US for most of

418
00:24:36,160 --> 00:24:38,960
Speaker 1: European monetary unions. So coming on for twenty years. It

419
00:24:39,119 --> 00:24:41,359
Speaker 1: is quite difficult to get excited about a problem that

420
00:24:41,440 --> 00:24:45,000
Speaker 1: has been known and has grown in magnitude over that period,

421
00:24:45,320 --> 00:24:47,560
Speaker 1: rather than one that has appeared on the horizon and

422
00:24:47,600 --> 00:24:50,120
Speaker 1: the a question marks over its sustainability. But the question

423
00:24:50,160 --> 00:24:52,280
Speaker 1: that confronts investors is why do I want to allocate

424
00:24:52,320 --> 00:24:54,639
Speaker 1: capital into a region that I continue to get burned

425
00:24:54,640 --> 00:24:56,760
Speaker 1: every time I do it? Simon and I think, we

426
00:24:56,840 --> 00:24:59,600
Speaker 1: sit here again, and the answer is I don't want

427
00:24:59,640 --> 00:25:01,840
Speaker 1: to most of the investors that I speak to here

428
00:25:01,880 --> 00:25:05,879
Speaker 1: in the United States. Is the attitude any different in Europe? Yes? So,

429
00:25:06,119 --> 00:25:09,040
Speaker 1: so I think the answer in one word, evaluation. So

430
00:25:09,200 --> 00:25:13,600
Speaker 1: you look at the best part of sixteen times earnings

431
00:25:13,680 --> 00:25:16,520
Speaker 1: in the in the U S economy at eleven times

432
00:25:16,560 --> 00:25:19,640
Speaker 1: earnings largely in Europe, and you say, is that evaluation

433
00:25:19,760 --> 00:25:24,360
Speaker 1: mismach that I can take advantage of? Should the particularly

434
00:25:24,400 --> 00:25:28,280
Speaker 1: the geopolitical events in the UK, but war wider in

435
00:25:28,400 --> 00:25:31,119
Speaker 1: Europe star to or mayor eight during the course of

436
00:25:31,160 --> 00:25:33,920
Speaker 1: the year. If you think that isn't Normally that p

437
00:25:34,920 --> 00:25:36,960
Speaker 1: ranges around two and a half to three. So if

438
00:25:37,000 --> 00:25:38,960
Speaker 1: you think that delta has grown too large, then it's

439
00:25:39,160 --> 00:25:43,160
Speaker 1: it's simply a closing back to its its long term average,

440
00:25:43,320 --> 00:25:45,879
Speaker 1: rather than you're off to the races on the basis

441
00:25:45,920 --> 00:25:48,600
Speaker 1: of above trend growth the same inference. Thank you so

442
00:25:48,760 --> 00:26:04,640
Speaker 1: much to the Paymrick Gordon today. It is a joy

443
00:26:04,920 --> 00:26:07,440
Speaker 1: to wander over the next twenty seven minutes with Adam

444
00:26:07,520 --> 00:26:11,520
Speaker 1: Posen of the Peterson Institute. There are fourteen to seventeen

445
00:26:11,600 --> 00:26:14,680
Speaker 1: things we can talk about, including Dr pos is gonna

446
00:26:14,720 --> 00:26:18,159
Speaker 1: solve Brexit for us, But in lieu of that we

447
00:26:18,240 --> 00:26:22,160
Speaker 1: will talk to Adam posing about the economics of this moment.

448
00:26:22,680 --> 00:26:27,440
Speaker 1: Adam Posen, is the Phillips curve still in play as

449
00:26:27,480 --> 00:26:31,639
Speaker 1: an operative theory at the Echoes Building? Or is megden

450
00:26:31,720 --> 00:26:34,840
Speaker 1: de Side told me yesterday, are we in just simply

451
00:26:34,960 --> 00:26:38,640
Speaker 1: a state of dis equilibrium where it's every central bank

452
00:26:38,760 --> 00:26:42,399
Speaker 1: for itself. Oh that's really good, Tom, thank you for

453
00:26:42,520 --> 00:26:47,160
Speaker 1: having me Um. The answer is both, not, not one

454
00:26:47,280 --> 00:26:50,160
Speaker 1: or the other. So the Phillips curve is definitely still

455
00:26:50,240 --> 00:26:54,360
Speaker 1: in play. The widespread belief, including from my colleagues Olivia

456
00:26:54,400 --> 00:26:57,360
Speaker 1: Blanchard and Joseph Ganyon and from the leadership at the Fair,

457
00:26:58,240 --> 00:27:00,800
Speaker 1: is that it kicks in at some point, but that

458
00:27:01,280 --> 00:27:04,600
Speaker 1: we are clearly experimenting with how low we can go

459
00:27:04,800 --> 00:27:08,680
Speaker 1: before it kicks in, and how steep or accelerating it

460
00:27:08,800 --> 00:27:13,280
Speaker 1: will be. And I frankly I commend Chair Chair Pal

461
00:27:13,600 --> 00:27:16,560
Speaker 1: Vice Chair Clarinda Governor Brainerd everyone who's come out and

462
00:27:16,640 --> 00:27:20,720
Speaker 1: said we can afford to risk it um, and particularly

463
00:27:20,800 --> 00:27:24,600
Speaker 1: that they've been bringing out the fact that bankers like

464
00:27:25,280 --> 00:27:27,560
Speaker 1: not to say, which is that you can have wage

465
00:27:27,600 --> 00:27:31,240
Speaker 1: increases that can come at the expense of profits um

466
00:27:32,000 --> 00:27:37,240
Speaker 1: that are not necessarily inflationary. The phrase how low can

467
00:27:37,359 --> 00:27:40,520
Speaker 1: you go? Is so important, folks. And this goes back

468
00:27:40,600 --> 00:27:45,520
Speaker 1: to the diversity within economics of using interest rates the

469
00:27:45,600 --> 00:27:48,960
Speaker 1: nominal in the real rate down through negatives like the

470
00:27:49,040 --> 00:27:53,520
Speaker 1: German two year now has been chronically negative dr pos

471
00:27:53,600 --> 00:27:55,840
Speaker 1: and we can frame this is maybe Laurence Summer saying

472
00:27:56,359 --> 00:27:59,840
Speaker 1: maybe not and someone like Marvin good Friend of the

473
00:28:00,000 --> 00:28:02,720
Speaker 1: our conservative thoughts saying, use negative interest rates as a

474
00:28:02,760 --> 00:28:05,800
Speaker 1: constructive tool. How are we doing in our negative interest

475
00:28:05,920 --> 00:28:09,680
Speaker 1: rate experiment? Well, I think we have to keep re

476
00:28:09,840 --> 00:28:13,199
Speaker 1: emphasizing that the negative interest rates Mr. Keen are mostly

477
00:28:13,640 --> 00:28:15,840
Speaker 1: what the economy gives the central bank, not what the

478
00:28:15,920 --> 00:28:19,480
Speaker 1: central bank gives the interest Yeah, that it's it is.

479
00:28:19,560 --> 00:28:21,320
Speaker 1: And this is where I think Larry Summers made one

480
00:28:21,320 --> 00:28:25,280
Speaker 1: of his biggest contributions. It is arguably a reflection of

481
00:28:25,520 --> 00:28:30,360
Speaker 1: the low desire for investment, be at risk aversion after

482
00:28:30,480 --> 00:28:33,359
Speaker 1: the crisis. Be its cyclical, although it's harder to believe

483
00:28:33,359 --> 00:28:35,560
Speaker 1: at this point it could be cyclical or be it

484
00:28:35,680 --> 00:28:38,600
Speaker 1: be be it that we need a negative rate just

485
00:28:38,800 --> 00:28:41,320
Speaker 1: to keep the economy turning over. Now, this is a

486
00:28:41,440 --> 00:28:43,840
Speaker 1: very disturbing thing and it gets you into all the

487
00:28:44,040 --> 00:28:47,160
Speaker 1: issues of productivity. But from the central banks point of view,

488
00:28:47,720 --> 00:28:51,240
Speaker 1: if they're not, if they're finding that, you get a recession.

489
00:28:51,760 --> 00:28:54,480
Speaker 1: If you raise rates at this point, that's telling you

490
00:28:54,600 --> 00:28:56,880
Speaker 1: something about the real economy. It's not telling you something

491
00:28:56,920 --> 00:29:00,240
Speaker 1: about the central banks. So, Adam, I'm actually kind of

492
00:29:00,320 --> 00:29:03,760
Speaker 1: amazed at how well the sterling has kind of held

493
00:29:03,800 --> 00:29:05,760
Speaker 1: in there over the last week. Is you know, we've

494
00:29:05,800 --> 00:29:09,480
Speaker 1: had some very unprecedented things happening in the House of Parliament.

495
00:29:10,040 --> 00:29:12,960
Speaker 1: What do you think Theresa May can bring to the

496
00:29:13,040 --> 00:29:17,240
Speaker 1: House of Commons on Monday that might support the sanguine

497
00:29:17,240 --> 00:29:20,760
Speaker 1: outlooked at least the currency market seem to be forecasting well. Paul,

498
00:29:20,840 --> 00:29:23,120
Speaker 1: I think here I'm not very different from a lot

499
00:29:23,200 --> 00:29:26,000
Speaker 1: of what you all in Bloomberg. I've already been analyzing reporting.

500
00:29:26,080 --> 00:29:27,520
Speaker 1: I think it was just a lot of this was

501
00:29:27,560 --> 00:29:31,120
Speaker 1: already priced in, and people perhaps a bit wishfully, but

502
00:29:31,200 --> 00:29:35,400
Speaker 1: I think reasonably think that there's more chance of a

503
00:29:35,560 --> 00:29:39,240
Speaker 1: good resolution and less chance of a hard breggsit no

504
00:29:39,400 --> 00:29:43,239
Speaker 1: deal breggsit, so that's kept Sterling afloat um. What can

505
00:29:43,320 --> 00:29:45,840
Speaker 1: may bring on Monday is very difficult. I think the

506
00:29:46,160 --> 00:29:49,920
Speaker 1: ways we get out of this are either a people's vote,

507
00:29:50,760 --> 00:29:55,720
Speaker 1: meaning a referendum directly on no deal breggsit versus remain,

508
00:29:56,600 --> 00:30:03,240
Speaker 1: or basically make capitulates and she goes to um too,

509
00:30:03,320 --> 00:30:06,520
Speaker 1: essentially Norway plus plus plus, which means in the EU

510
00:30:06,640 --> 00:30:09,720
Speaker 1: and economic terms out in political terms. She won't do

511
00:30:09,880 --> 00:30:12,320
Speaker 1: that because she cares too much about free movement, she's

512
00:30:12,360 --> 00:30:15,400
Speaker 1: too anti immigration. She won't do that because the people

513
00:30:15,480 --> 00:30:18,440
Speaker 1: in her party on the right wing won't support it.

514
00:30:18,720 --> 00:30:21,240
Speaker 1: And she won't do that because Jeremy corbyin wants to

515
00:30:21,320 --> 00:30:23,920
Speaker 1: create chaos. Whether it should be as a cross party

516
00:30:24,000 --> 00:30:28,440
Speaker 1: vote in favor of suspension of Article fifty for the

517
00:30:28,480 --> 00:30:30,360
Speaker 1: good of the country, but that's not going to happen.

518
00:30:30,680 --> 00:30:34,280
Speaker 1: Do you expect the European Union to make any meaningful

519
00:30:34,360 --> 00:30:37,680
Speaker 1: concessions to allow May to get some kind of deal

520
00:30:37,800 --> 00:30:42,000
Speaker 1: through Parliament. As as my friend Jonathan Porteris is one

521
00:30:42,040 --> 00:30:45,080
Speaker 1: of the leading British analysts of breggsit has said, you know,

522
00:30:45,200 --> 00:30:47,120
Speaker 1: for the heart of hearing what the EU has said

523
00:30:47,360 --> 00:30:50,480
Speaker 1: is you compromise on freedom of movement. We're happy to

524
00:30:50,560 --> 00:30:54,040
Speaker 1: talk deal, but if you don't move any of your

525
00:30:54,120 --> 00:30:57,400
Speaker 1: red lines, don't expect us to change anything. Um And

526
00:30:57,640 --> 00:31:00,120
Speaker 1: so you know, there is are these rumors that they

527
00:31:00,200 --> 00:31:02,520
Speaker 1: might sell out the Irish in some sense because the

528
00:31:02,600 --> 00:31:07,040
Speaker 1: Irish backstop, which is a complicated issue, is very symbolic

529
00:31:07,280 --> 00:31:09,720
Speaker 1: for the right wing of the Conservative Party. But in

530
00:31:09,840 --> 00:31:12,280
Speaker 1: the end I don't think they will. And imposing this

531
00:31:12,400 --> 00:31:14,800
Speaker 1: is so important where your work at the Bank of

532
00:31:14,880 --> 00:31:18,880
Speaker 1: England and your expertise on Germanic society and the whole

533
00:31:19,160 --> 00:31:22,760
Speaker 1: continental historical economic movement, all this is great, But the

534
00:31:22,800 --> 00:31:26,000
Speaker 1: bottom line for Leave is in nostalgia for another time,

535
00:31:26,120 --> 00:31:28,719
Speaker 1: maybe to rebuild the empire or to go back out

536
00:31:28,800 --> 00:31:32,480
Speaker 1: into w t o say younger George Herbert Walker Bush

537
00:31:32,600 --> 00:31:36,320
Speaker 1: get kind of stuff. How do you frame that nostalgia

538
00:31:36,400 --> 00:31:39,840
Speaker 1: for two thousand thirty No, Tom, I think you've got

539
00:31:39,920 --> 00:31:43,000
Speaker 1: your finger on it exactly. This is the fantasists. I mean,

540
00:31:43,040 --> 00:31:45,120
Speaker 1: we saw this even from Neil Ferguson a couple of

541
00:31:45,160 --> 00:31:48,080
Speaker 1: years ago, though he since recanted that we're gonna break

542
00:31:48,160 --> 00:31:50,720
Speaker 1: up the EU and essentially and have you know, the

543
00:31:50,840 --> 00:31:55,760
Speaker 1: northern essentially white conservative uh states all come together and

544
00:31:55,920 --> 00:31:58,280
Speaker 1: we're gonna have a Hanseatic League and we're gonna do this,

545
00:31:58,560 --> 00:32:01,080
Speaker 1: and then these fantasies. That's for some reason India or

546
00:32:01,120 --> 00:32:04,560
Speaker 1: Australia would care more about trading of the UK at

547
00:32:04,640 --> 00:32:07,480
Speaker 1: this point than with the rest of the EU, even

548
00:32:07,520 --> 00:32:12,720
Speaker 1: if there wasn't resentment over the past uh uh colonialism.

549
00:32:13,560 --> 00:32:16,000
Speaker 1: It's just stupid for those countries to think that way now.

550
00:32:16,400 --> 00:32:19,000
Speaker 1: So it is an imperial fantasy. It is a right

551
00:32:19,080 --> 00:32:22,120
Speaker 1: wing fantasy. But unfortunately Corbin and some on the left

552
00:32:22,200 --> 00:32:25,959
Speaker 1: chair it because they have a different fantasy from the thirties,

553
00:32:26,000 --> 00:32:30,120
Speaker 1: which is Stalinist socialism in one country. Let us continue,

554
00:32:30,120 --> 00:32:32,840
Speaker 1: I'm posing with us wound up on Brexit and of course,

555
00:32:33,080 --> 00:32:35,640
Speaker 1: working at the Peterson Institute, where he has put together

556
00:32:36,120 --> 00:32:39,800
Speaker 1: a terrific team of people. He mentioned Dr Blanchard. I

557
00:32:40,400 --> 00:32:43,880
Speaker 1: sighted an Olivier Blanchard chart from I think ten years

558
00:32:43,920 --> 00:32:46,520
Speaker 1: ago in a A and one of our wonderful guests

559
00:32:46,520 --> 00:32:49,960
Speaker 1: today was using it to show Brexit dynamics. This was

560
00:32:50,040 --> 00:32:52,360
Speaker 1: on a log basis, So I don't know if we

561
00:32:52,360 --> 00:32:55,040
Speaker 1: should do logarithms on radio. Maybe that won't work. Are

562
00:32:55,080 --> 00:32:59,880
Speaker 1: you buying a snowshovel for this weekend and imposing I'm

563
00:33:00,000 --> 00:33:02,120
Speaker 1: out on the Davos Tom like you, so you can

564
00:33:02,200 --> 00:33:05,080
Speaker 1: shovel and I'm not wrong. I'm I'm in sunny Washington.

565
00:33:05,280 --> 00:33:07,600
Speaker 1: You'll stay in sunny Washington where you hear there's snow,

566
00:33:07,720 --> 00:33:10,640
Speaker 1: and yeah, the snow folks, seriously in Switzerland and Austria

567
00:33:11,080 --> 00:33:14,080
Speaker 1: is record levels. Adam Post and thank you so much.

568
00:33:20,840 --> 00:33:24,920
Speaker 1: Thanks for listening to the Bloomberg Surveillance podcast. Subscribe and

569
00:33:25,120 --> 00:33:30,400
Speaker 1: listen to interviews on Apple Podcasts, SoundCloud, or whichever podcast

570
00:33:30,480 --> 00:33:34,680
Speaker 1: platform you prefer. I'm on Twitter at Tom Keane before

571
00:33:34,760 --> 00:33:38,560
Speaker 1: the podcast. You can always catch us worldwide. I'm Bloomberg

572
00:33:38,680 --> 00:33:38,920
Speaker 1: Radio