WEBVTT - Why GE Is The Number One Large Cap Pick, According to Heymann 0:00:00.200 --> 0:00:04.040 Brunt You by Bank of America Mary Lynch with virtual reality, 0:00:04.320 --> 0:00:09.719 virtually everything will change. Discover opportunities in a transforming world 0:00:10.119 --> 0:00:14.440 be of a, mL dot Com, slash VR, Mary Lynch, 0:00:14.520 --> 0:00:29.240 Pierced Fenner and Smith Incorporated. Welcome to the Bloomberg Surveillance Podcast. 0:00:29.280 --> 0:00:32.760 I'm Tom Keene with David Gura. Daily we bring you 0:00:32.840 --> 0:00:37.640 insight from the best of economics, finance, investment and international relations. 0:00:38.080 --> 0:00:43.640 Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, Bloomberg dot Com, 0:00:43.640 --> 0:00:50.040 and of course, on the Bloomberg Nicholas Burns with us. 0:00:50.479 --> 0:00:52.760 Who needs no introduction on the program, David, Why don't 0:00:52.760 --> 0:00:54.840 you bring him Mr Burns? Since we spent the entire 0:00:54.880 --> 0:00:58.320 break talking about how the Red Sox did assigned Aaron 0:00:58.440 --> 0:01:02.840 Judge Ruthian. Are we talking about the election last week 0:01:02.840 --> 0:01:05.119 in the UK and in economic context a few minutes ago? 0:01:05.160 --> 0:01:07.920 Help us understand it in a in a political one. 0:01:07.959 --> 0:01:09.640 How does this change the amount of capital that the 0:01:09.880 --> 0:01:12.600 Prime Minister has? How optimistic are you? How likely is 0:01:12.640 --> 0:01:14.200 it do you think that she's going to be able 0:01:14.240 --> 0:01:17.840 to hold onto the to the job well, David, Prime 0:01:17.840 --> 0:01:21.360 Minister tourism is significantly weakened by this this now, she 0:01:21.360 --> 0:01:24.760 she didn't lose the election. Technically the Conservatives are still 0:01:24.760 --> 0:01:27.119 in power, probably with a minority party from Northern Ireland 0:01:27.160 --> 0:01:30.640 Democratic Union Party. But she didn't exceed, she didn't meet 0:01:30.680 --> 0:01:34.760 the expectations. Labor won many, many more seats, and so 0:01:35.400 --> 0:01:37.080 you have to ask is she going to be prime 0:01:37.080 --> 0:01:40.400 minister a year from now? Next week the United Kingdom 0:01:40.440 --> 0:01:43.320 begins it's Brexit negotiations with the European Union. This is 0:01:43.319 --> 0:01:45.560 gonna be very tough because now all the weight, the 0:01:45.680 --> 0:01:48.800 leverage has shifted over to the EU, and there's widespread 0:01:48.840 --> 0:01:51.880 speculation that at some point the next several months she 0:01:51.880 --> 0:01:54.280 could be out of power. Someone like Boris Johnson, the 0:01:54.320 --> 0:01:57.800 Foreign Secretary could be in power. Um and the country 0:01:57.800 --> 0:02:00.600 is still very much divided by Brexit. Need a clinic 0:02:00.720 --> 0:02:03.440 right now. This is a mystery to me. Through the 0:02:03.480 --> 0:02:05.800 weekend of a lot of different reading, and I understand 0:02:06.120 --> 0:02:10.440 the UK newspaper cadence is very different from what I 0:02:10.520 --> 0:02:13.680 see out of America. Ce E J. Dion's wonderful column 0:02:13.720 --> 0:02:18.840 today in the Washington Post Boris Johnson is prime Minister? 0:02:19.840 --> 0:02:25.040 How unimaginable is that to the British people? Well, you know, 0:02:26.639 --> 0:02:28.760 as inimaginable as it was that Donald Trump would be 0:02:28.760 --> 0:02:31.160 President of the United States. For the American people. Boris 0:02:31.240 --> 0:02:35.000 Johnson is um unique in British politics to say the 0:02:35.080 --> 0:02:41.359 least his personality. But he's experienced, highly intelligent, sophisticated about 0:02:41.400 --> 0:02:45.480 the world. I think it's not unimaginable. I take your 0:02:45.520 --> 0:02:48.639 point on he's highly intelligent. I get all that Gordon 0:02:48.680 --> 0:02:52.840 Brown off the chart ete side and someone like you, Ambassador, 0:02:53.440 --> 0:02:58.120 why why does he play the part? If he playss 0:02:58.720 --> 0:03:01.520 if he has the cut of hot cloth to be 0:03:01.680 --> 0:03:05.640 someone more conservative, right, it brings in votes and votes 0:03:05.680 --> 0:03:08.840 as part of his political identity. Um. But Britain is 0:03:08.880 --> 0:03:11.959 in I think trouble right now because you don't have 0:03:12.200 --> 0:03:14.560 any kind of unified direction on the part of the 0:03:14.600 --> 0:03:17.160 political class or the politicians as to what they should 0:03:17.200 --> 0:03:20.960 be doing in these Brexit negotiations. And correspondingly, we were 0:03:21.000 --> 0:03:24.560 talking um earlier on Bloomberg. If you had said a 0:03:24.600 --> 0:03:26.880 month and a half ago that France would be stable, 0:03:27.240 --> 0:03:30.280 that France would be strengthening, that France and Germany would 0:03:30.280 --> 0:03:32.280 be re emerging as the twin engines of the EU. 0:03:32.400 --> 0:03:35.480 Mat Kroll one another victory yesterday in the first round 0:03:35.480 --> 0:03:39.040 of the French legislative parliamentary elections. He's set up to 0:03:39.040 --> 0:03:42.200 win a complete victory next week. In the second round. 0:03:42.400 --> 0:03:45.720 He'll go for a pension and labor and tax reform. 0:03:45.760 --> 0:03:48.400 It'll be difficult, but you can see France and much 0:03:48.440 --> 0:03:51.080 better ship in David. To give you perspective on that, 0:03:51.240 --> 0:03:53.800 I was in France running up my m X and 0:03:53.840 --> 0:03:57.160 it was really questionable what McCrow would do. Those expenses 0:03:57.200 --> 0:04:00.680 haven't even cleared yet and mcross got the big victory. 0:04:00.800 --> 0:04:03.040 I'm looking for the big victory to what does all 0:04:03.040 --> 0:04:04.800 of that say about party what we've seen here in 0:04:04.800 --> 0:04:06.760 the UK, what we're seeing in France as well. Of course, 0:04:06.880 --> 0:04:10.080 he had his victory and there was uh interested enthusiasm 0:04:10.120 --> 0:04:12.160 about that from from many corners. But there was also 0:04:12.760 --> 0:04:14.160 a lot of doubt that he would be able to 0:04:14.200 --> 0:04:16.560 field candidates in every district and he would be able 0:04:16.560 --> 0:04:18.560 to assemble anything close to to a majority. How did 0:04:18.560 --> 0:04:21.240 that happen and what does that say about parties generally? Well, 0:04:21.279 --> 0:04:23.719 he's a uniquely gifted politician, much in the way that 0:04:23.760 --> 0:04:26.400 Barack Obama took America by storm in the two thousand 0:04:26.360 --> 0:04:28.760 and eight election. He has all the great skills and 0:04:28.800 --> 0:04:31.760 the charisma to succeed publicly. I think the French are 0:04:31.800 --> 0:04:35.760 also reacting to the prospect of Marine le Pen victory 0:04:35.839 --> 0:04:38.680 the populist right wing leader to the dissolution of the 0:04:38.680 --> 0:04:42.760 European Union. I think Americans don't fully understand the depth 0:04:42.839 --> 0:04:47.039 of support among many Europeans for this European project that 0:04:47.080 --> 0:04:49.880 they began just after the Second World War. And now 0:04:49.960 --> 0:04:53.200 France strengthening, Germany strengthening this could be very good news 0:04:53.200 --> 0:04:57.240 for the EU, in part fueled by insecurity about the 0:04:57.360 --> 0:05:00.800 United States. For the first time in three narrations, there's 0:05:00.800 --> 0:05:05.000 an American president who does not look upon Europe primarily 0:05:05.000 --> 0:05:08.200 as a strategic partner. He looks upon Germany as an 0:05:08.200 --> 0:05:12.080 economic competitor. He had a disastrous visit to Brussels three 0:05:12.160 --> 0:05:15.239 weeks ago, and I think that is fueling in part 0:05:15.920 --> 0:05:18.520 this belief in Europe. We've got to get our act together. 0:05:18.560 --> 0:05:20.839 We have to strengthen the European Union. These are the 0:05:20.839 --> 0:05:23.599 two countries France and Germany to do it. The great 0:05:23.640 --> 0:05:26.960 tragedy is that their second leading economy, their largest military, 0:05:27.120 --> 0:05:30.440 will soon be out Britain, and Britain itself is searching 0:05:30.560 --> 0:05:33.599 for an identity as it leads the European Union. Do 0:05:33.640 --> 0:05:35.560 you think that he thinks that he had a disastrous 0:05:35.640 --> 0:05:37.640 visit to Brussels? And then how do you you remedy 0:05:37.720 --> 0:05:39.760 that you look ahead to the G twenty in Hamburg, 0:05:39.760 --> 0:05:41.800 And we've read all of the reporting about what transpired 0:05:41.839 --> 0:05:44.560 in the dinner with leaders following the speech that he 0:05:44.600 --> 0:05:47.120 gave in Brussels. If if we have a leader who 0:05:47.160 --> 0:05:49.839 is convinced that the way that he spoke, what he 0:05:49.839 --> 0:05:53.479 addressed in Brussels was better than fine, how does that 0:05:53.560 --> 0:05:56.800 how does that change the political geopolitical landscape. Well, here's 0:05:56.800 --> 0:05:58.720 the I think here's the problem of the effectiveness and 0:05:58.800 --> 0:06:01.320 unity of the Trump administration. I think the President probably 0:06:01.320 --> 0:06:03.159 feels he had a good visit because he said what 0:06:03.279 --> 0:06:05.680 he's been saying as a politician for the last two 0:06:05.760 --> 0:06:09.200 years about the EU. They're freeloaders, they don't pay their dues, etcetera. 0:06:09.720 --> 0:06:13.200 The White House staff, the cabinet know what a disaster 0:06:13.279 --> 0:06:17.520 it was. This is our principal defense alliance in the world, NATO, 0:06:18.080 --> 0:06:19.920 and the core of it is an attack on one 0:06:19.960 --> 0:06:21.640 of us is an attack on all of us. The 0:06:21.680 --> 0:06:24.800 President's refusal to say those words, although he now said 0:06:24.839 --> 0:06:31.320 them Friday Um shocked the American political establishment, shocked his 0:06:31.400 --> 0:06:35.680 own administration because Secretary Teller student Secretary Maddis had every 0:06:35.720 --> 0:06:37.719 reason to believe that those words were in the speech 0:06:37.760 --> 0:06:40.480 until an hour before he gave it. And and the 0:06:40.480 --> 0:06:43.440 fact that Donald Trump, in addition, is not standing up 0:06:43.440 --> 0:06:46.359 to Russian interference in our election. It's got a lot 0:06:46.400 --> 0:06:49.360 of people worried about how he views his job of 0:06:49.480 --> 0:06:53.520 protecting this country. On that note, that was a through 0:06:53.560 --> 0:06:57.520 line throughout James Combe's testimony last Thursday. Essentially he said, 0:06:57.800 --> 0:07:00.560 we can't lose sight of the bigger picture here. Yes, 0:07:00.600 --> 0:07:03.000 there's a there's a debate over two principles in a 0:07:03.080 --> 0:07:04.680 room and what they said to each other, but there 0:07:04.760 --> 0:07:07.560 there is the threat of further intervention and elections and 0:07:07.600 --> 0:07:12.560 other events by the Russians. How do we How seriously 0:07:12.600 --> 0:07:14.400 are we taking that? Do you think as a country? 0:07:14.640 --> 0:07:16.160 You know, it's interesting. I thought that was the most 0:07:16.160 --> 0:07:19.560 effective part of Director Comy's testimony, when he said, with 0:07:19.680 --> 0:07:23.400 great confidence that they intervened in our election. Russia, they 0:07:23.440 --> 0:07:26.200 intervened in a massive way. We've got to guard against 0:07:26.280 --> 0:07:29.120 it. It It was a patriotic message, I thought, and you're 0:07:29.160 --> 0:07:32.640 seeing this week a sanctions bill against Russia. You will 0:07:32.640 --> 0:07:35.400 be debated on the Senate floor today led by by 0:07:35.520 --> 0:07:38.520 by John McCain and others. This is the right response. 0:07:39.040 --> 0:07:42.040 The Russians are a threat to us. The fact that 0:07:42.080 --> 0:07:45.880 the President never asked James Comey about the nature of 0:07:45.880 --> 0:07:48.000 the Russian intervention, never asked him what do we do 0:07:48.080 --> 0:07:50.800 about this? All the questions and the President James Comey 0:07:50.840 --> 0:07:53.440 were how does this affect me? Donald Trump? And I 0:07:53.440 --> 0:07:56.720 think you're seeing a reaction in the Republican Party, Republican 0:07:56.840 --> 0:07:58.840 leaders standing up to say we've got to do something 0:07:59.040 --> 0:08:01.480 to hit back against the Russians with sanctions and to 0:08:01.560 --> 0:08:03.920 prepare ourselves to defend ourselves the next time we have 0:08:03.920 --> 0:08:06.360 an election. Ambassador, what is your tool list to do 0:08:06.480 --> 0:08:08.600 list for the Secretary who state he is a chief 0:08:08.600 --> 0:08:12.600 executive officer? Are the true multinational one of our great companies? 0:08:12.600 --> 0:08:15.680 Whatever anybody thinks about it, all, etcetera, etcetera. What is 0:08:15.720 --> 0:08:18.920 your prescription for Secretary Tillers? And you know, I think 0:08:18.960 --> 0:08:23.000 he's got he needs to rebind our alliance with NATO 0:08:23.240 --> 0:08:25.720 and and and knitted up again. After after all the 0:08:25.800 --> 0:08:29.520 uncontaty about Article five number one. Number two, there's an 0:08:29.520 --> 0:08:33.240 assault on Roca now by American and Syrian forces. There's 0:08:33.280 --> 0:08:36.680 an assault on Mosul. This is a big movement to 0:08:36.679 --> 0:08:39.440 to move to force the Islamic State out of both 0:08:39.480 --> 0:08:42.200 Syria and Iraq. And he's the one who has to 0:08:42.280 --> 0:08:44.600 keep that coalition together. And you see him trying to 0:08:44.679 --> 0:08:47.840 do that in settling and diminishing the tensions between Gutter 0:08:47.880 --> 0:08:51.240 and Saudi Arabia. He also has to balance the fact 0:08:51.320 --> 0:08:54.079 that we're a partner with China economically in some respects, 0:08:54.120 --> 0:08:56.880 but we're a competitor and the Chinese are running amuck 0:08:56.920 --> 0:08:58.760 in the South China. See, this is a tough job. 0:08:59.160 --> 0:09:02.800 I hope that's kept us be happy with that. Yeah, 0:09:02.800 --> 0:09:04.719 but come on, isn't the toughest job. He's got to 0:09:04.880 --> 0:09:07.080 have a cup of coffee at the White House. The 0:09:07.120 --> 0:09:10.679 toughest problem is that he is not being backed up 0:09:11.160 --> 0:09:13.320 by the President of the United States a key moments. 0:09:13.400 --> 0:09:16.400 That's the toughest part of his job, the greatest. Thank 0:09:16.400 --> 0:09:19.320 you very much for Nicholas Burns, a professor to practice 0:09:19.400 --> 0:09:22.600 that come back when the Yankees lose, I surely will 0:09:24.280 --> 0:09:29.079 always Yes, David, it was extraordinary. I actually watched the 0:09:29.320 --> 0:09:34.120 entire Saturday game, just by chance. I haven't done in years. 0:09:34.440 --> 0:09:37.040 Actually watched it like a fan at the park, except 0:09:37.080 --> 0:09:41.320 I watched on the famous TV. And it's just it's 0:09:41.400 --> 0:09:44.280 just funny. You could be the greatest Yankee hater of 0:09:44.320 --> 0:09:47.319 all time. That would be me. And they're just glorious 0:09:47.320 --> 0:09:49.040 to watch. I imagine you were up late last night 0:09:49.040 --> 0:09:53.679 as well. Hoy, No, it's no foregone. I have trouble 0:09:53.840 --> 0:09:57.640 with the modern game. It's great, it's exciting. I'm glad 0:09:57.679 --> 0:10:00.920 they play. I just make gold like you gotta write 0:10:00.920 --> 0:10:03.480 a column, Bloomberge column on the MO. I just I'm 0:10:03.520 --> 0:10:06.720 all judge. I got my ninety nine jersey on underneath. 0:10:07.840 --> 0:10:11.800 That's true. I can verify the judge worldwide. This is 0:10:11.800 --> 0:10:30.680 Bloomberg Robert Sinch, who's good to have on because he's 0:10:30.679 --> 0:10:33.520 been so right about Sterling. It was weak. He said, 0:10:33.559 --> 0:10:36.720 get along. He was right a while back, he said, 0:10:36.760 --> 0:10:41.040 get short. Here we are on, Bob. I need to 0:10:41.080 --> 0:10:42.920 make some money off the weekend. I lost a lot 0:10:42.920 --> 0:10:46.240 of money betting against the Yankees. Uh, what do I 0:10:46.280 --> 0:10:49.800 do with Sterling? You know, I think there's still some 0:10:49.880 --> 0:10:53.000 downside for Sterling um in the short run. I think 0:10:53.040 --> 0:10:57.360 we're probably in a trading range. We're moving to the 0:10:57.360 --> 0:11:00.200 lower end of that range, as you suggested, and I 0:11:00.200 --> 0:11:02.480 think the next leg will have to be a stronger dollar, 0:11:02.559 --> 0:11:04.040 and we do think we're going to get that as 0:11:04.080 --> 0:11:08.600 the year progresses, as as markets are probably underestimating what 0:11:08.679 --> 0:11:10.839 the Fed is going to do. By your end, where 0:11:10.880 --> 0:11:13.120 do you stand on this whole argument about Briggs that 0:11:13.160 --> 0:11:15.880 a lot of people who were proponents of it say, look, 0:11:15.880 --> 0:11:18.200 we had it and the economy hasn't suffered that dramatically 0:11:18.200 --> 0:11:20.599 sterling sterling aside, there were those who were against it 0:11:20.640 --> 0:11:22.640 who are worried about what's going to happen here as 0:11:22.679 --> 0:11:26.160 we inch closer to June nineteen and still closer still 0:11:26.160 --> 0:11:30.080 to to that deadline two years from now. Are you 0:11:30.120 --> 0:11:34.640 sympathetic to that argument? You know? I think that that 0:11:34.720 --> 0:11:37.720 this is one that's um getting a little beaten to 0:11:37.760 --> 0:11:42.320 death UM excessive focus on something that goes into effect 0:11:42.360 --> 0:11:45.920 two years from now. UM. But certainly it keeps the 0:11:45.960 --> 0:11:52.520 dialogue going. Look, this is a long, UM, probably arduous negotiation. UM. 0:11:52.640 --> 0:11:55.920 When when we when we reached the conclusion, my view 0:11:55.960 --> 0:11:58.720 continues to be that the Europeans have as much to 0:11:58.760 --> 0:12:02.440 lose as the bridge to do in this Brexit process. 0:12:02.520 --> 0:12:06.839 If you look at Eurozone exports, UM, the US and 0:12:06.960 --> 0:12:10.120 the UK are right up there at the top, almost 0:12:10.160 --> 0:12:12.760 equal in terms of the amount of exports from the 0:12:13.080 --> 0:12:15.480 from the EU. So they don't really want to see 0:12:15.480 --> 0:12:18.160 a hard Brexit and a lack of trade going forward. 0:12:18.559 --> 0:12:20.480 So I think the rhetoric will be tough, but these 0:12:20.559 --> 0:12:24.959 are negotiations. They'll be long negotiations, um. And I don't 0:12:25.000 --> 0:12:27.240 think we're going to learn very much over the next month, 0:12:27.320 --> 0:12:30.880 three months, six months, except the fact that that that 0:12:30.960 --> 0:12:34.720 Prime Minister make kind of overstepped, overreached, and uh, I 0:12:34.760 --> 0:12:37.800 think this this moves us towards um, you know, sort 0:12:37.800 --> 0:12:40.760 of more of more balanced negotiations going forward. We're in 0:12:40.800 --> 0:12:45.520 a six percent dollar bear market off the Bloomberg Dollar Index. 0:12:46.400 --> 0:12:49.400 That's since the beginning of the year. We're in a 0:12:49.480 --> 0:12:54.480 four percent four point seven dollar beer market going back 0:12:54.559 --> 0:12:57.120 to the beginning of the year prior. There's a theme here, 0:12:57.400 --> 0:13:00.720 Bob sin Well, we'll turn dollar around. It just simply 0:13:01.320 --> 0:13:05.960 underestimating Janet yellow and rating increases. Yeah, I think that's 0:13:05.960 --> 0:13:08.680 a significant part of it. I also think that you know, 0:13:08.760 --> 0:13:12.240 we came into this year with the market very build 0:13:12.320 --> 0:13:15.320 up on the dollar, and we had long positions in 0:13:15.400 --> 0:13:18.880 the dollar against the whole variety of currencies based on 0:13:19.000 --> 0:13:22.280 expectations of what the FED would do this year UM 0:13:22.320 --> 0:13:25.640 and of course markets tend to sense out those those 0:13:25.679 --> 0:13:28.719 positions that are most extreme, and certainly if you look 0:13:28.760 --> 0:13:30.800 at some of the hedge fund returns this year, they 0:13:30.840 --> 0:13:33.240 would suggest that, in fact, a lot of funds got 0:13:33.240 --> 0:13:37.920 this dollar position wrong. However, we've now against a number 0:13:37.960 --> 0:13:41.720 of currencies shifted the opposite way, and we're seeing very 0:13:41.800 --> 0:13:45.000 large long positions in the in the Euro reported by 0:13:45.040 --> 0:13:49.280 the CFTC. I would also note big long positions now 0:13:49.320 --> 0:13:52.640 in the Mexican Paco of all currencies. So I think 0:13:52.679 --> 0:13:56.120 what we had was excessive long positions. The economy gave 0:13:56.200 --> 0:14:01.800 us another soft first quarter. UM Uncertainties have developed about 0:14:01.800 --> 0:14:04.320 what the FED is going to do after this June meeting, 0:14:04.800 --> 0:14:07.120 and so we've unwound a lot of those positions, and 0:14:07.160 --> 0:14:10.200 that that has brought the dollar lower. I think from 0:14:10.280 --> 0:14:13.360 this from these levels, we now have the market pretty 0:14:13.400 --> 0:14:16.360 negative on the dollar, positioning built up short the dollar, 0:14:17.240 --> 0:14:19.520 and I think, you know, another FED rate hike by 0:14:19.560 --> 0:14:22.120 the end of the year without much action in the 0:14:22.120 --> 0:14:23.480 rest of the world. I think we're going to see 0:14:23.480 --> 0:14:26.640 the dollar higher, David, I note that robertson just driving 0:14:26.720 --> 0:14:33.280 sterling lower one getting right near the weakness of June ninth, Friday. 0:14:33.880 --> 0:14:35.360 We'll come back with Bob, since you're in just a 0:14:35.360 --> 0:14:37.600 moment to talk a bit about dollar Mexico. Let me 0:14:37.640 --> 0:14:39.520 ask you quickly before we go to break here, though, Bob, 0:14:39.560 --> 0:14:42.040 about the yen. In light of the b o J 0:14:42.160 --> 0:14:45.440 meeting later this week. We got the FED first and 0:14:45.440 --> 0:14:48.400 then the BOJ meeting on the fifteen six. Are you 0:14:48.400 --> 0:14:52.720 expecting any sort of surprise out of that meeting this week? No, 0:14:52.760 --> 0:14:54.960 I don't think so. I mean, I think the the 0:14:54.960 --> 0:14:56.840 the only surprise you might see out of the b 0:14:57.000 --> 0:15:00.480 o J is them beginning to admit that this annotative 0:15:00.520 --> 0:15:05.280 easing thing, um, it just can't continue forever um. But 0:15:05.360 --> 0:15:07.840 I don't think that the yen is going to allow 0:15:07.880 --> 0:15:10.120 them that flexibility right now. I think they'd like to 0:15:10.160 --> 0:15:13.280 back away a little bit uh from continuing to add 0:15:13.720 --> 0:15:17.040 to their balance sheet and liquidity, But unfortunately, with the 0:15:17.200 --> 0:15:19.040 end strengthening, it's not a good time to do that. 0:15:19.320 --> 0:15:21.920 Robert Sinch with us, the Amber's Pierrepont too many things 0:15:21.960 --> 0:15:24.960 to speak about with Bob Sinch. Bob, what is the 0:15:25.040 --> 0:15:29.360 decision tree for chair yelling at the press conference to 0:15:29.400 --> 0:15:32.040 indicate what she's gonna do in the future. Is she 0:15:32.080 --> 0:15:34.920 gonna say, well, there's slack in the economy which was 0:15:34.960 --> 0:15:38.400 three years ago, or is it looking for Vice Chairman 0:15:38.440 --> 0:15:42.480 Fisher's alter accommodative shift. What's what's gonna be the buzz 0:15:42.520 --> 0:15:46.040 if you will, that she's gonna frame at the press 0:15:46.080 --> 0:15:50.200 conference to describe the next year. Well, I think the 0:15:50.600 --> 0:15:55.600 biggest difficulty she faces is reconciling the labor market data, 0:15:55.680 --> 0:15:58.960 which the FED even admits, even even the most dubbish 0:15:59.040 --> 0:16:01.360 members of the board, I admit the labor market is 0:16:01.360 --> 0:16:07.760 probably operating at at at full employment with still soft wages, 0:16:07.880 --> 0:16:10.480 and now this recent weakening of the inflation rate, which 0:16:10.560 --> 0:16:14.240 really kind of upsets I think the Fed's plan about 0:16:14.280 --> 0:16:18.080 where they're headed. Um, we've had some some funky numbers 0:16:18.080 --> 0:16:20.560 and a couple of categories in the technology area that 0:16:20.600 --> 0:16:24.080 have kind of messed up the readings that all of 0:16:24.120 --> 0:16:26.160 a sudden popped up out of nowhere. But I think 0:16:26.280 --> 0:16:30.560 that's the that's the the issues that that Mike McKee 0:16:30.560 --> 0:16:32.480 is going to bring up to her is is how 0:16:32.480 --> 0:16:36.040 do you reconcile the reported inflation and wage numbers with 0:16:36.120 --> 0:16:39.400 this very strong growth and employment. Now, I think the 0:16:39.680 --> 0:16:42.080 way to reconcile it is the growth and employment has 0:16:42.120 --> 0:16:45.680 been for the most part in some some lower wage industries, 0:16:46.400 --> 0:16:49.480 and so the way are our wage data works, it's 0:16:49.520 --> 0:16:52.200 a it's a weighted average of who's working in what 0:16:52.360 --> 0:16:55.160 jobs and what they get paid. And I think that's 0:16:55.160 --> 0:16:59.640 been biasing down a little bit um wage pressures, but nonetheless, 0:17:00.160 --> 0:17:03.800 um the inflation numbers themselves really create a difficult environment 0:17:03.840 --> 0:17:07.480 for the Fed, and I think she'll fall back on normalization. 0:17:07.640 --> 0:17:11.200 We need to normalize policy. Something that that Steve Stanley 0:17:11.200 --> 0:17:13.280 and I've been talking about a long a long time ago, 0:17:13.400 --> 0:17:15.159 is that what this kind of labor market and this 0:17:15.280 --> 0:17:18.080 kind of growth in the economy, why should the Fed 0:17:18.160 --> 0:17:20.960 funds the real Fed funds rate still be negative. And 0:17:20.960 --> 0:17:23.840 I think that's, uh, that's kind of the thought process 0:17:23.920 --> 0:17:25.800 as to why they want to bring the real Fed 0:17:25.840 --> 0:17:29.360 funds rate to neutral, which I think probably gets them 0:17:29.400 --> 0:17:32.000 to to somewhere around one and a half percent at 0:17:32.000 --> 0:17:34.119 this point. What stands in the way of her doing that? 0:17:34.200 --> 0:17:39.240 What could derail that that plan inflation inflation inflation? You know, 0:17:39.400 --> 0:17:41.440 I mean, I think there's sort of there are two 0:17:41.440 --> 0:17:43.880 schools of thought and thinking about what the Fed needs 0:17:43.920 --> 0:17:46.639 to do. Um, there's the school that I belong to, 0:17:47.359 --> 0:17:49.960 which is we need to normalize policies. I said, bring 0:17:50.000 --> 0:17:52.840 the real Fed funds rate back to neutral, and you know, 0:17:52.920 --> 0:17:56.359 I'd say that we would have to argue that whatever 0:17:56.440 --> 0:17:58.760 measure of inflation you're looking at, it's at least one 0:17:58.800 --> 0:18:02.000 and a half percent. Uh. And those who are arguing, 0:18:02.200 --> 0:18:04.960 why do you hike rades? Why do you tighten policy? 0:18:05.680 --> 0:18:09.160 What inflation is so low and not showing signs of acceleration, 0:18:09.240 --> 0:18:12.400 And one of them is an argument based on sort 0:18:12.440 --> 0:18:14.359 of the rate of change, what do we need to 0:18:14.480 --> 0:18:17.720 do to change policy because of inflation? And the other 0:18:17.760 --> 0:18:20.919 one is to say, let's get policy back to a 0:18:21.000 --> 0:18:24.760 normalized level after this ten years of crisis, and that 0:18:24.800 --> 0:18:28.200 does require having a different level of the Fed funds rates, 0:18:28.200 --> 0:18:30.359 So it's kind of a rate of change argument versus 0:18:30.359 --> 0:18:33.399 a level argument. Let's talk a bit about dollar Mexico here. 0:18:33.400 --> 0:18:35.200 You've written about that in a in a recent note, Bob, 0:18:35.240 --> 0:18:37.359 and I'm looking at it here and where at levels 0:18:37.359 --> 0:18:41.159 we haven't been out since the election. Uh what what 0:18:41.240 --> 0:18:44.000 accounts for that? How worried are you here about where 0:18:44.000 --> 0:18:47.280 where dollar Mexico might be heading? Boy, you talk about 0:18:47.440 --> 0:18:52.119 round trips post election and and and recently. Um, that 0:18:52.359 --> 0:18:54.919 is one of the biggest round trips. Mexico was in 0:18:55.000 --> 0:18:58.679 the in the Blueberg rankings of extended major currencies thirty 0:18:58.680 --> 0:19:03.280 one currencies. The Mexican peso was ranked thirty at thirty 0:19:03.320 --> 0:19:06.240 one in the second half of last year and first 0:19:06.600 --> 0:19:10.200 year to date this year, complete round trip. Um. Look, 0:19:10.240 --> 0:19:12.520 I think it's a it's it's a microcosm of the 0:19:12.560 --> 0:19:16.000 dollar story in general. Uh. We we had a very 0:19:16.119 --> 0:19:19.280 large short position in the pace, so long position of 0:19:19.320 --> 0:19:21.119 the dollar versus the pace. So at the end of 0:19:21.119 --> 0:19:24.080 the year, after all, you're going to have fed tightening 0:19:24.119 --> 0:19:26.200 that's probably bad for the pace. So you're going to 0:19:26.320 --> 0:19:29.760 have a border wall, You're going to have renegotiation of NAFTA. 0:19:30.119 --> 0:19:32.280 A lot of reasons for the market to be very 0:19:32.320 --> 0:19:36.040 negative to pay. So we've heard a lot less rhetoric 0:19:36.119 --> 0:19:40.720 about things like the wall and disagreements about NAFTA. Obviously, 0:19:40.760 --> 0:19:44.400 a big adjustment in uh in expectations or some adjustment 0:19:44.400 --> 0:19:47.520 and expectations about what the Fed will do, and those 0:19:47.560 --> 0:19:50.440 big short positions in the pace SO have gotten squeezed. 0:19:51.680 --> 0:19:54.040 What's kind of amazing to me now is we've gone 0:19:54.119 --> 0:19:57.399 to the opposite extreme. We have a multi year high 0:19:57.400 --> 0:19:59.639 in the long positions in the in the pace SO 0:19:59.760 --> 0:20:02.720 and in the speculative community, at least according to the CFTC. 0:20:03.960 --> 0:20:06.879 We have oil prices lower, which would normally be a 0:20:06.920 --> 0:20:10.119 negative for the pay so. We have interest rate spreads. 0:20:10.200 --> 0:20:12.639 You look at five year interest rate differential between the 0:20:12.760 --> 0:20:16.240 US and Mexico, and the Mexican advantages started to come 0:20:16.280 --> 0:20:18.840 down in the last couple of weeks. So I think 0:20:18.880 --> 0:20:21.720 the market has gotten very complacent about dollar mex As 0:20:21.720 --> 0:20:24.520 I said, it's been the best performing currency. A lot 0:20:24.560 --> 0:20:26.760 of folks have probably lost a lot of money being 0:20:26.800 --> 0:20:30.000 short to pay so this year. Um, but right when 0:20:30.000 --> 0:20:32.400 the market gives up on a position like that, that's 0:20:32.400 --> 0:20:34.240 when I think it's time to go the other direction. 0:20:34.280 --> 0:20:37.120 And I think, I think as we look out over 0:20:37.160 --> 0:20:40.960 the next three months, Uh, my favorite long dollar position 0:20:41.000 --> 0:20:43.960 now is shifted from pound. At these levels, I still 0:20:44.000 --> 0:20:46.080 like the dollar versus the pound, but I think our 0:20:46.119 --> 0:20:48.320 favorite position would now be long the dollar versus the 0:20:48.440 --> 0:20:52.480 Mexican pays. I look bother at this and I guess 0:20:52.480 --> 0:20:54.200 I got to go back to Sterling with the news 0:20:54.280 --> 0:20:58.480 flow we've got, Now, what does Prime Minister Johnson mean 0:20:59.200 --> 0:21:02.680 for Sterling? Can you hazard to guess that? Or is 0:21:02.720 --> 0:21:07.120 that just so arbitrary and irresponsible I shouldn't even ask 0:21:07.119 --> 0:21:12.200 the question. No, I mean I think that that Look, 0:21:12.480 --> 0:21:16.720 you know, Boris Johnson has had a pretty um significant 0:21:16.800 --> 0:21:19.840 rebound in terms of his political fortunes over the last 0:21:19.880 --> 0:21:23.040 six to nine months, and you look around the world, 0:21:23.080 --> 0:21:25.640 particularly places close to us around the world, he doesn't 0:21:25.680 --> 0:21:28.960 seem that extreme anymore. So, Um, you know, I think 0:21:29.000 --> 0:21:32.760 that's a that's a that's a potential outcome. It would 0:21:32.800 --> 0:21:35.800 tilt the UK back towards more of a of a 0:21:35.880 --> 0:21:39.800 harder line on the whole breggsit process. Um, you know, 0:21:39.840 --> 0:21:41.879 I find I find this very interesting. Who would have 0:21:41.920 --> 0:21:45.080 thought two weeks ago we'd be sitting here saying or 0:21:45.160 --> 0:21:47.679 three weeks ago, oh, we're gonna have political certainty in 0:21:47.720 --> 0:21:51.600 France with a with a party that didn't even exist 0:21:51.720 --> 0:21:54.960 eighteen months ago, and we're going to have political uncertainty 0:21:54.960 --> 0:21:56.880 in the UK. I mean, it just tells you how 0:21:57.400 --> 0:22:01.119