1
00:00:09,880 --> 00:00:13,800
Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane Jay Lee.

2
00:00:13,960 --> 00:00:17,560
Speaker 1: We bring you insight from the best in economics, finance, investment,

3
00:00:18,000 --> 00:00:23,520
Speaker 1: and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud,

4
00:00:23,600 --> 00:00:27,560
Speaker 1: Bloomberg dot Com, and of course on the Bloomberg unlooking.

5
00:00:27,640 --> 00:00:29,360
Speaker 1: Just a little bit of dollar weakness leaks. So the

6
00:00:29,440 --> 00:00:32,120
Speaker 1: data are in China stabilizing, just a little bit risk out,

7
00:00:32,159 --> 00:00:35,080
Speaker 1: the type picks up. Can this be a sustainable story?

8
00:00:35,120 --> 00:00:38,680
Speaker 1: Gun into I'm watching oil because oil is telling another story.

9
00:00:38,680 --> 00:00:41,440
Speaker 1: You're seeing a little bit of pressure. They're trying to

10
00:00:41,479 --> 00:00:44,680
Speaker 1: get above zero. But hard to say because right now

11
00:00:44,680 --> 00:00:47,519
Speaker 1: this trade deal isn't necessarily firmed up in any way,

12
00:00:47,520 --> 00:00:49,600
Speaker 1: shape or form and is not giving people confidence. But

13
00:00:49,640 --> 00:00:52,120
Speaker 1: for now, it's not just that, it's also the tone

14
00:00:52,240 --> 00:00:55,040
Speaker 1: out of Chinese manufacturing data as well as mother bids

15
00:00:55,080 --> 00:00:56,920
Speaker 1: as well. Bringing ed to know what figures with us

16
00:00:56,920 --> 00:00:58,520
Speaker 1: in the studio. Great to have him with us. Exam

17
00:00:58,600 --> 00:01:01,920
Speaker 1: Tate Data founder and see. Good morning to Jens, Thank you,

18
00:01:02,000 --> 00:01:05,520
Speaker 1: thank you your thoughts on the trade story, the trade truths,

19
00:01:05,600 --> 00:01:08,240
Speaker 1: the Phase one agreement. What are your ton of clients?

20
00:01:08,400 --> 00:01:12,160
Speaker 1: What is it? We have a deal I think even

21
00:01:12,160 --> 00:01:14,200
Speaker 1: though the document has not been signed, I think it's

22
00:01:14,200 --> 00:01:17,679
Speaker 1: going to be very, very difficult after the communication we've

23
00:01:17,680 --> 00:01:20,119
Speaker 1: had from both sides not to get this deal done.

24
00:01:20,640 --> 00:01:24,520
Speaker 1: So that's the direction we're heading, and it's a turning point.

25
00:01:24,600 --> 00:01:27,160
Speaker 1: Like we have some rollback of tariffs. It's not a

26
00:01:27,280 --> 00:01:31,360
Speaker 1: dramatic thing to lower from fifteen to seven and a

27
00:01:31,400 --> 00:01:34,000
Speaker 1: half on on a portion of the tariff stuff, but

28
00:01:34,040 --> 00:01:36,000
Speaker 1: it is a step in the right direction, and I

29
00:01:36,040 --> 00:01:39,399
Speaker 1: think it's important. So I think also just if you

30
00:01:39,440 --> 00:01:43,080
Speaker 1: think about the currency outlook, can China really allow their

31
00:01:43,080 --> 00:01:45,520
Speaker 1: currency to depreciate from here like we had that big

32
00:01:45,520 --> 00:01:48,720
Speaker 1: psychological break of seven a couple of months ago, and

33
00:01:48,760 --> 00:01:52,560
Speaker 1: now we're trading literally at seven zero zero. I don't

34
00:01:52,560 --> 00:01:55,639
Speaker 1: think we can have it trading weaker than than seven

35
00:01:55,680 --> 00:01:58,240
Speaker 1: on in a meaningful way in coming weeks. It's just

36
00:01:58,280 --> 00:01:59,760
Speaker 1: not going to make the deal look good. So I

37
00:01:59,760 --> 00:02:03,040
Speaker 1: think the downside is very capped for the Chinese currency.

38
00:02:03,040 --> 00:02:05,920
Speaker 1: That's very important for e M currencies globally, and it's

39
00:02:05,920 --> 00:02:08,080
Speaker 1: important for the dollar direction globally as well. So maybe

40
00:02:08,080 --> 00:02:10,880
Speaker 1: that fits in and this description what's going on with

41
00:02:10,880 --> 00:02:13,080
Speaker 1: the d H y as well well, with the trade.

42
00:02:13,240 --> 00:02:15,520
Speaker 1: There has to be an opportunity to play it. How

43
00:02:16,040 --> 00:02:19,720
Speaker 1: how do you play a phase one trade deal? I mean,

44
00:02:20,360 --> 00:02:23,880
Speaker 1: we want to clear uncertainty, we want to be more optimistic,

45
00:02:24,120 --> 00:02:27,800
Speaker 1: But then how do you affect that in currency pairs? Okay,

46
00:02:27,800 --> 00:02:32,720
Speaker 1: So I'll answer in two ways. First, like we can

47
00:02:32,800 --> 00:02:35,320
Speaker 1: we have some epirical models where you say, okay, what's

48
00:02:35,360 --> 00:02:38,200
Speaker 1: the new equilibrium based on these Teriffer leaves and that

49
00:02:38,320 --> 00:02:41,520
Speaker 1: gives you six ninety six. So there's a little bit

50
00:02:41,560 --> 00:02:45,440
Speaker 1: of appreciation store there. And then there's the broader global dynamic,

51
00:02:45,440 --> 00:02:49,320
Speaker 1: which is like an e M trending trade that can

52
00:02:49,400 --> 00:02:51,560
Speaker 1: can run much longer than that. John, I like that

53
00:02:51,600 --> 00:02:55,640
Speaker 1: you ask, is this sustainable? I you know, I'm struggling

54
00:02:55,639 --> 00:02:57,720
Speaker 1: with that question, and I'm struggling with the idea that

55
00:02:57,760 --> 00:03:00,560
Speaker 1: the dollar can continue to weaken because yes, we have

56
00:03:00,720 --> 00:03:03,040
Speaker 1: the fact that the December fifteen tariffs aren't going to

57
00:03:03,080 --> 00:03:06,480
Speaker 1: go into effect. But other than that, basically, this phase

58
00:03:06,520 --> 00:03:09,000
Speaker 1: one deal is let's figure it out as we go.

59
00:03:09,080 --> 00:03:13,760
Speaker 1: We'll roll back tariffs perhaps as China complies with different

60
00:03:14,080 --> 00:03:19,000
Speaker 1: different phases. How does this improve confidence among CEOs in

61
00:03:19,120 --> 00:03:21,320
Speaker 1: order to make investment, which is a key issue here, right,

62
00:03:22,240 --> 00:03:24,960
Speaker 1: So I think the CEO question is important that could

63
00:03:25,040 --> 00:03:27,840
Speaker 1: impact the timing when we get a lift to p

64
00:03:27,960 --> 00:03:29,520
Speaker 1: M I S and so forth. But there's a couple

65
00:03:29,520 --> 00:03:31,000
Speaker 1: of things going on at the same time. Right The

66
00:03:31,320 --> 00:03:34,840
Speaker 1: Brexit situation, where we have a removal of tail risk,

67
00:03:34,960 --> 00:03:36,800
Speaker 1: is also going to be helping to lift p M

68
00:03:36,840 --> 00:03:39,520
Speaker 1: I S in Europe, not in this week's numbers, but

69
00:03:39,880 --> 00:03:43,680
Speaker 1: probably in the next batch of two. So I I

70
00:03:43,720 --> 00:03:47,040
Speaker 1: do think in terms of global growth, we got to

71
00:03:47,400 --> 00:03:51,440
Speaker 1: very very low level of growth expectations, actually weaker than

72
00:03:51,480 --> 00:03:54,080
Speaker 1: in the downturn we had in two thousand fifteen sixteen,

73
00:03:54,760 --> 00:03:58,280
Speaker 1: so that the bar we have to beat is extremely low.

74
00:03:58,320 --> 00:04:00,320
Speaker 1: And I think there's a bunch of reason and now

75
00:04:00,360 --> 00:04:04,120
Speaker 1: I think that the momentum is improving. And for the dollar,

76
00:04:04,800 --> 00:04:07,000
Speaker 1: the most important veriable is global growth is much more

77
00:04:07,000 --> 00:04:09,200
Speaker 1: important than what the Fed is doing. So if we

78
00:04:09,280 --> 00:04:11,640
Speaker 1: have that bottom, I feel very strongly that the dollar

79
00:04:11,920 --> 00:04:14,760
Speaker 1: will trade weaker next year. So this is really important. Yends.

80
00:04:14,800 --> 00:04:16,680
Speaker 1: One thing you've done brilliantly over the last couple of

81
00:04:16,800 --> 00:04:20,360
Speaker 1: years is emphasize how little rank differentials tell you about

82
00:04:20,400 --> 00:04:23,000
Speaker 1: the direction of the dollar over the last couple of years.

83
00:04:23,000 --> 00:04:25,839
Speaker 1: So talked to me about global growth and flows, investor

84
00:04:25,880 --> 00:04:29,080
Speaker 1: flows into places like Europe, Asia, the committally unlocks and

85
00:04:29,120 --> 00:04:31,480
Speaker 1: dollar witness in the coming twelve months. Yes, so I think.

86
00:04:31,560 --> 00:04:33,360
Speaker 1: I think one of the things that's really important over

87
00:04:33,400 --> 00:04:37,839
Speaker 1: the last five six weeks is that you as investors

88
00:04:37,880 --> 00:04:40,240
Speaker 1: are starting to put more risk cappital to work in

89
00:04:40,360 --> 00:04:44,920
Speaker 1: international markets. So you as investors were incredibly cautious over

90
00:04:44,960 --> 00:04:48,560
Speaker 1: the summer and actually repatriated investments from abroad back to

91
00:04:48,640 --> 00:04:51,800
Speaker 1: the US, and that has changed. So this goes hand

92
00:04:51,880 --> 00:04:54,760
Speaker 1: in hand with this bottom of global growth expas expectations.

93
00:04:54,839 --> 00:04:58,560
Speaker 1: There's a very strong correlation between what those expectations are

94
00:04:58,680 --> 00:05:02,000
Speaker 1: and what those flows like, and that is key to

95
00:05:02,120 --> 00:05:04,360
Speaker 1: the dollar right. And that's the one of the factors

96
00:05:04,440 --> 00:05:07,359
Speaker 1: that can be separate from the right differentials is if

97
00:05:07,400 --> 00:05:10,479
Speaker 1: the equity flow goes more inter national. So, Tom Kane,

98
00:05:10,520 --> 00:05:13,680
Speaker 1: the key question is for your triple leverage cash fund, Uh,

99
00:05:13,920 --> 00:05:17,880
Speaker 1: is it going to be cash in dollars or hero

100
00:05:18,200 --> 00:05:21,960
Speaker 1: or or pound After your trip to Europe, Yeah, it's

101
00:05:22,080 --> 00:05:24,120
Speaker 1: the high point of the European trip was the interview

102
00:05:24,160 --> 00:05:28,080
Speaker 1: with a gentleman who runs Herod's over how to unload

103
00:05:28,120 --> 00:05:31,040
Speaker 1: the wall at Knight's Bridge. That was the high point.

104
00:05:31,560 --> 00:05:35,400
Speaker 1: Um did you pray tide that one missed? You were?

105
00:05:35,960 --> 00:05:39,000
Speaker 1: You were in the Manola Blonic up on the top floor.

106
00:05:39,360 --> 00:05:43,200
Speaker 1: The key us there. Yen's great, We're gonna get a

107
00:05:43,240 --> 00:05:46,080
Speaker 1: trade deal. We're gonna go week dollar. I still want

108
00:05:46,120 --> 00:05:47,840
Speaker 1: to know how to express it? Do I do it

109
00:05:47,920 --> 00:05:50,640
Speaker 1: through a bundled group of of em? Are there one

110
00:05:50,720 --> 00:05:53,320
Speaker 1: or two? Are they true Pacific? E? M are they

111
00:05:53,680 --> 00:05:57,240
Speaker 1: Eastern Europe? Are they and eleven? What are they? Okay? Yeah?

112
00:05:57,320 --> 00:06:01,760
Speaker 1: So I think initiative expresses was m so dollar max

113
00:06:01,880 --> 00:06:05,840
Speaker 1: is one dolla, Indonesia's one dollar, Taiwan is one. We

114
00:06:05,960 --> 00:06:08,280
Speaker 1: talked about it on the on the TV segment that

115
00:06:08,640 --> 00:06:11,360
Speaker 1: their places where they cannot intervene like them intervened in

116
00:06:11,400 --> 00:06:14,480
Speaker 1: the past. Taiwan could be a really interesting regime shift

117
00:06:14,520 --> 00:06:16,000
Speaker 1: on that front. So those are some of the ones

118
00:06:16,000 --> 00:06:18,160
Speaker 1: I would look at. Good, yes, thank you so much

119
00:06:19,600 --> 00:06:36,560
Speaker 1: today too short of visit, I do a little vamp

120
00:06:36,640 --> 00:06:39,040
Speaker 1: here in the United States of America before John Farroll

121
00:06:39,080 --> 00:06:41,400
Speaker 1: dies in with Lisa and water strategy. We can do

122
00:06:41,520 --> 00:06:44,440
Speaker 1: that with David Kelly, who's the JP Morgan. He's had

123
00:06:44,480 --> 00:06:46,760
Speaker 1: a global strategy for this, that and the other part

124
00:06:46,800 --> 00:06:49,120
Speaker 1: of the of the Great Beast, and he joins us

125
00:06:49,520 --> 00:06:52,800
Speaker 1: this morning. You you did a wonderful degree in Ireland

126
00:06:52,920 --> 00:06:56,240
Speaker 1: and then you enjoyed Lansing at Michigan. If you go

127
00:06:56,400 --> 00:07:00,840
Speaker 1: directly west from Lansing, Michigan, there's Kenosha, wiscons There's a

128
00:07:00,920 --> 00:07:04,040
Speaker 1: company there called snap On Tools, which is as basically

129
00:07:04,040 --> 00:07:08,040
Speaker 1: as you can get sixteen percent total return, sixteen percent

130
00:07:08,200 --> 00:07:13,120
Speaker 1: dividend growth, trading at next to nothing compared to this market.

131
00:07:13,640 --> 00:07:17,760
Speaker 1: Do I buy more snap On Tool Canona, Kenosha, Wisconsin,

132
00:07:18,160 --> 00:07:20,520
Speaker 1: Or do I end up buying some fancy pants tech

133
00:07:20,640 --> 00:07:24,400
Speaker 1: thing out on the West coast, Which I didn't think

134
00:07:24,400 --> 00:07:25,920
Speaker 1: that was a question you're gonna ask me this morning,

135
00:07:26,040 --> 00:07:31,040
Speaker 1: But that's the ar question after this year. I think,

136
00:07:31,160 --> 00:07:34,240
Speaker 1: I think there there's there are large distortions within US,

137
00:07:34,800 --> 00:07:36,720
Speaker 1: within the US market, but we've got to remember that

138
00:07:37,040 --> 00:07:39,040
Speaker 1: as it wasn't so long as you're in the momentum

139
00:07:39,200 --> 00:07:41,400
Speaker 1: up stage. I think there's more and more money going

140
00:07:41,480 --> 00:07:43,920
Speaker 1: into eat sid to pass the strategies, which is actually

141
00:07:44,000 --> 00:07:47,360
Speaker 1: helping momentum stocks. So I wouldn't want to make a

142
00:07:47,400 --> 00:07:49,320
Speaker 1: short term call. No, I think I think, I think

143
00:07:49,360 --> 00:07:53,280
Speaker 1: The bigger point for investors is international is cheap realts

144
00:07:53,280 --> 00:07:55,120
Speaker 1: of the US, and I think that I think you

145
00:07:55,160 --> 00:07:56,600
Speaker 1: know you need, you need to make your money these

146
00:07:56,640 --> 00:07:58,640
Speaker 1: big ascid allocation calls. I wanted to get that out

147
00:07:58,640 --> 00:08:00,800
Speaker 1: of the way, John, other than to say, the Spartans

148
00:08:00,840 --> 00:08:03,040
Speaker 1: of Michigan State have a hockey team this year to

149
00:08:03,200 --> 00:08:05,160
Speaker 1: die for, I feel like that's the only reason you

150
00:08:05,240 --> 00:08:08,680
Speaker 1: brought up that's right question, Spartan hockey. If you're not

151
00:08:08,800 --> 00:08:11,920
Speaker 1: familiar with some of the notes that David Kelly puts out,

152
00:08:12,000 --> 00:08:14,080
Speaker 1: please reach out to him because there's some great lines

153
00:08:14,120 --> 00:08:16,320
Speaker 1: in there. There's an old saying that the reason some

154
00:08:16,440 --> 00:08:18,480
Speaker 1: people bash their heads against the wall is because it

155
00:08:18,520 --> 00:08:22,080
Speaker 1: feels so good when they stop. What do you referring to, David,

156
00:08:22,120 --> 00:08:24,600
Speaker 1: I referring to all the all this progress on trade.

157
00:08:24,680 --> 00:08:26,680
Speaker 1: I mean, if you go back four years ago, we

158
00:08:26,760 --> 00:08:29,600
Speaker 1: didn't have brexit. We did we had an old nafter

159
00:08:30,000 --> 00:08:32,079
Speaker 1: and we didn't have trade war in China. And now

160
00:08:32,160 --> 00:08:34,199
Speaker 1: we've got some We've got a U. S m c

161
00:08:34,320 --> 00:08:36,040
Speaker 1: A which looks like it's going to pass to deal

162
00:08:36,120 --> 00:08:39,400
Speaker 1: with sort of an after one point zero zero zero

163
00:08:39,559 --> 00:08:43,800
Speaker 1: one we've got. I think Brexit will finally be resolved

164
00:08:43,840 --> 00:08:48,560
Speaker 1: in a more comfortable way than people fear um and uh,

165
00:08:49,040 --> 00:08:50,800
Speaker 1: you know, we we have a phase one deal with

166
00:08:50,920 --> 00:08:53,199
Speaker 1: China to move back a few steps on the on

167
00:08:53,240 --> 00:08:55,160
Speaker 1: the road we were on. But in the end, all

168
00:08:55,200 --> 00:08:58,439
Speaker 1: it's doing is, you know, reducing the amount of mutulation

169
00:08:58,520 --> 00:09:02,160
Speaker 1: we were doing to ourselves. It's not really progress in

170
00:09:02,800 --> 00:09:04,880
Speaker 1: the long scheme of things. Let's let's continue with this

171
00:09:05,040 --> 00:09:07,400
Speaker 1: metaphor of banging your head against the wall, uh, and

172
00:09:07,480 --> 00:09:09,839
Speaker 1: then stopping and being really happy that you stopped. The

173
00:09:09,960 --> 00:09:12,640
Speaker 1: question is we're now getting back to can the real

174
00:09:12,720 --> 00:09:16,079
Speaker 1: global economy generate the kind of growth that is baked

175
00:09:16,160 --> 00:09:19,640
Speaker 1: into the valuations and equities and risk assets in and

176
00:09:19,760 --> 00:09:23,120
Speaker 1: right now the consensus seems to be yes, given the

177
00:09:23,200 --> 00:09:26,000
Speaker 1: certainty that we're getting from the trade truth. But do

178
00:09:26,080 --> 00:09:28,600
Speaker 1: you disagree based on this idea that we're not moving

179
00:09:28,760 --> 00:09:31,199
Speaker 1: forward necessarily, we're just not banging our head against the

180
00:09:31,240 --> 00:09:32,640
Speaker 1: wall now? I think no, I think we. I think

181
00:09:32,679 --> 00:09:34,360
Speaker 1: you have to have a different story somewhat on the

182
00:09:34,400 --> 00:09:37,360
Speaker 1: economy and on markets. Uh. It is true that in

183
00:09:37,679 --> 00:09:40,600
Speaker 1: absolute terms valuations are expensive, but if you look at

184
00:09:40,640 --> 00:09:44,199
Speaker 1: it relative to to cash, relative to bonds around the world,

185
00:09:44,559 --> 00:09:47,079
Speaker 1: valuations are cheap, and so long as you buy the

186
00:09:47,240 --> 00:09:49,120
Speaker 1: idea that the global economy is going to grow slowly

187
00:09:49,160 --> 00:09:51,959
Speaker 1: but not generate inflation, you're gonna have these low rates.

188
00:09:51,960 --> 00:09:54,199
Speaker 1: You're gonna have central banks falling over themselves to be easy.

189
00:09:54,440 --> 00:09:56,280
Speaker 1: And that still means that there's nowhere else in the

190
00:09:56,320 --> 00:09:59,160
Speaker 1: money to go. Some money is getting funneled into into

191
00:09:59,200 --> 00:10:01,600
Speaker 1: global equities, so let's put some capital to work. Then

192
00:10:01,720 --> 00:10:05,839
Speaker 1: the regional breakdown gun into Europe, Asia AM. How you

193
00:10:05,960 --> 00:10:08,760
Speaker 1: thinking about that breakdown at the moment, David, I would

194
00:10:08,920 --> 00:10:15,440
Speaker 1: be uh, EM first, probably, UM, Yam Asia first, probably,

195
00:10:15,480 --> 00:10:20,319
Speaker 1: and then uh Europe, Japan, um, you know, second, and

196
00:10:20,360 --> 00:10:21,920
Speaker 1: the third I think that I think one of the

197
00:10:22,040 --> 00:10:25,120
Speaker 1: key things is rising trade tensions hurt the rest of

198
00:10:25,120 --> 00:10:27,599
Speaker 1: the world more than they hurt the US, and that

199
00:10:27,720 --> 00:10:31,360
Speaker 1: they also contribute to higher dollar. Falling trade tensions therefore

200
00:10:31,400 --> 00:10:34,839
Speaker 1: give you a lower dollar and also benefit the big

201
00:10:34,880 --> 00:10:37,120
Speaker 1: trade of the world, which your EM countries. So that's

202
00:10:37,160 --> 00:10:38,960
Speaker 1: where I think you'll see the bands, both in terms

203
00:10:39,000 --> 00:10:41,560
Speaker 1: of lower dollar and better performance from e M stocks.

204
00:10:41,600 --> 00:10:43,160
Speaker 1: That's kind of where I want to be over words, David,

205
00:10:43,160 --> 00:10:45,600
Speaker 1: I'm struggling right now because I'm thinking about what you're saying.

206
00:10:45,679 --> 00:10:48,920
Speaker 1: This idea of low inflation, central bank stimulating risk acids

207
00:10:49,160 --> 00:10:52,120
Speaker 1: outlook relatively cheap. That's been a story for ten years.

208
00:10:52,480 --> 00:10:54,760
Speaker 1: At what point does that run out? At what point

209
00:10:54,840 --> 00:10:57,480
Speaker 1: does this create a real problem. Well, it creates a

210
00:10:57,520 --> 00:10:59,559
Speaker 1: problem if inflation comes back. But there's a there's a

211
00:10:59,559 --> 00:11:01,319
Speaker 1: funny thing going on in the global economy, and that

212
00:11:01,440 --> 00:11:03,959
Speaker 1: is that income is getting less and less equally distributed.

213
00:11:04,360 --> 00:11:06,719
Speaker 1: And the you know, aggregate demand is when people with

214
00:11:06,880 --> 00:11:08,880
Speaker 1: money want to buy stuff. And the problem in in

215
00:11:08,920 --> 00:11:10,400
Speaker 1: the global economy right now as the people who have

216
00:11:10,440 --> 00:11:12,080
Speaker 1: money don't want to buy stuff, and the people want

217
00:11:12,120 --> 00:11:13,920
Speaker 1: to buy stuff don't have money. And so long as

218
00:11:13,960 --> 00:11:18,079
Speaker 1: that that income income inequality grows, you're actually drat. You

219
00:11:18,120 --> 00:11:20,120
Speaker 1: don't have enough aggregate demand to the economy. That's what's

220
00:11:20,160 --> 00:11:22,679
Speaker 1: holding inflation though. So you know, the the irony is

221
00:11:22,760 --> 00:11:24,839
Speaker 1: if you if we ever do fix the problem for

222
00:11:25,160 --> 00:11:28,320
Speaker 1: middle income consumers, for lower income consumers, then we'll have inflation,

223
00:11:28,440 --> 00:11:33,079
Speaker 1: and then that's The new Foreign Affairs Magazine is absolutely exquisite.

224
00:11:33,080 --> 00:11:35,679
Speaker 1: It's the strongest issue they've ever done, including the no

225
00:11:35,760 --> 00:11:39,679
Speaker 1: about Lawyer's jerryzy Mueller's in there on capitalism. How do

226
00:11:39,760 --> 00:11:45,000
Speaker 1: you affect a policy to lift the have nots without

227
00:11:45,160 --> 00:11:51,559
Speaker 1: diminishing the hats. Well, it's it's productivity. You're trying to

228
00:11:51,840 --> 00:11:54,760
Speaker 1: reduce some of the nonproductive things you do. And we've

229
00:11:55,040 --> 00:11:57,319
Speaker 1: got a lot of negative some games going on in

230
00:11:57,360 --> 00:12:01,280
Speaker 1: the world in things like defense, in trade, trade, trade, yeah,

231
00:12:01,480 --> 00:12:03,000
Speaker 1: all these things. So you're try and get rid of

232
00:12:03,040 --> 00:12:05,840
Speaker 1: the things that are hurting you. You introduce more certainty,

233
00:12:06,040 --> 00:12:08,560
Speaker 1: I think what you you also try to reduce currency

234
00:12:08,600 --> 00:12:10,400
Speaker 1: of volatility. I mean, we should get back to a

235
00:12:10,440 --> 00:12:14,600
Speaker 1: situation where the United States, Europe, China are actually talking about,

236
00:12:14,920 --> 00:12:16,760
Speaker 1: you know, exchange rates and trying to make this this

237
00:12:17,400 --> 00:12:19,760
Speaker 1: the less vo also goes right now, everybody's keeping rates low,

238
00:12:20,760 --> 00:12:23,160
Speaker 1: unreasonably low to try and push our currency down, and

239
00:12:23,240 --> 00:12:26,120
Speaker 1: that is I think in the end, just distorting for

240
00:12:26,160 --> 00:12:28,240
Speaker 1: the global economy. Can we do a ten year bet,

241
00:12:28,559 --> 00:12:29,760
Speaker 1: and that's what it is. It's going to be a

242
00:12:29,800 --> 00:12:31,319
Speaker 1: bit of a gamble. Let's do a ten year bet.

243
00:12:32,120 --> 00:12:34,000
Speaker 1: Where a rights going to be at the e C

244
00:12:34,200 --> 00:12:38,360
Speaker 1: Bay in ten years time? Higher or lower? I think

245
00:12:38,720 --> 00:12:40,920
Speaker 1: they could hardly be lower, so they will be higher.

246
00:12:40,960 --> 00:12:42,679
Speaker 1: The question is are they a little bit higher or

247
00:12:42,760 --> 00:12:44,840
Speaker 1: much higher. And that really gets back to the first

248
00:12:44,920 --> 00:12:47,319
Speaker 1: question I'm asking because eventually, you know, think about this

249
00:12:47,400 --> 00:12:50,000
Speaker 1: growth and financial assets. What is the financial asset. Of

250
00:12:50,040 --> 00:12:51,960
Speaker 1: financial asset is a coupon, which says that you can

251
00:12:52,040 --> 00:12:54,200
Speaker 1: buy some part of the goods and services produced by

252
00:12:54,200 --> 00:12:56,600
Speaker 1: the real economy. Now, what we've seen is an explosion

253
00:12:56,600 --> 00:12:59,680
Speaker 1: of the value of financial assets while the global economy

254
00:12:59,720 --> 00:13:02,760
Speaker 1: is kind like a tortoise. Eventually, when people cash in

255
00:13:02,800 --> 00:13:05,360
Speaker 1: those assets, you've got an inflation problem. We don't have

256
00:13:05,440 --> 00:13:07,880
Speaker 1: it right now, but if you're gonna ask me, could

257
00:13:07,920 --> 00:13:10,240
Speaker 1: we have that within the next ten years in Europe, Orange,

258
00:13:10,280 --> 00:13:11,800
Speaker 1: in the United States, yes we could. Well, let's have

259
00:13:11,840 --> 00:13:15,800
Speaker 1: the same question for the Federal Reserve. Then at the

260
00:13:15,840 --> 00:13:18,720
Speaker 1: Fed in the next ten years. I think again, by

261
00:13:18,800 --> 00:13:20,520
Speaker 1: the end of ten years, I think will be higher

262
00:13:20,559 --> 00:13:22,720
Speaker 1: than that, because that is it's still it's it's crazy,

263
00:13:22,760 --> 00:13:24,880
Speaker 1: it's it's a less than the rate of inflation. I mean,

264
00:13:25,200 --> 00:13:27,839
Speaker 1: you know, the whole the whole concept of saving is

265
00:13:27,920 --> 00:13:30,079
Speaker 1: that I don't eat ten apples today because you will

266
00:13:30,120 --> 00:13:32,160
Speaker 1: give me eleven apples in the future. What we're telling

267
00:13:32,200 --> 00:13:34,920
Speaker 1: people today is, you know, don't consume ten apples today

268
00:13:34,920 --> 00:13:36,839
Speaker 1: because we'll give you nine apples in the future. That

269
00:13:37,040 --> 00:13:39,160
Speaker 1: is nuts and it is not sustainable. Just to put

270
00:13:39,440 --> 00:13:40,959
Speaker 1: the reason I asked this is Bank of America have

271
00:13:41,000 --> 00:13:43,400
Speaker 1: come out with a fantastic pace about the last ten years.

272
00:13:43,480 --> 00:13:46,280
Speaker 1: What performed well? What didn't perform well? Which was the

273
00:13:46,320 --> 00:13:49,560
Speaker 1: most activist central bank? Which was the least activist central bank,

274
00:13:49,840 --> 00:13:52,880
Speaker 1: the least active if central bank worldwide over the last

275
00:13:52,920 --> 00:13:57,480
Speaker 1: ten years Japan one right cut, no hikes, and the

276
00:13:57,559 --> 00:13:59,760
Speaker 1: same is probably true for the ten years previous to that.

277
00:13:59,840 --> 00:14:01,640
Speaker 1: As wow that once we get down to these kind

278
00:14:01,679 --> 00:14:04,280
Speaker 1: of levels, we're stuck here. Why is that going to

279
00:14:04,320 --> 00:14:06,319
Speaker 1: be different for Europe, different from the United States of

280
00:14:06,400 --> 00:14:10,360
Speaker 1: the next decade. Well, because, as I said, it is

281
00:14:10,600 --> 00:14:15,600
Speaker 1: it is fostering a boom in financial assets. And eventually,

282
00:14:15,960 --> 00:14:18,559
Speaker 1: if those financial assets end up in the hands of

283
00:14:18,640 --> 00:14:20,560
Speaker 1: people who actually want to spend the money rather than

284
00:14:20,640 --> 00:14:23,240
Speaker 1: save the money, then you have a growth and inflation.

285
00:14:23,280 --> 00:14:24,960
Speaker 1: And the key thing here is inflation. I mean, I

286
00:14:25,040 --> 00:14:27,240
Speaker 1: know the Japanese have been looking for inflation, but if

287
00:14:27,240 --> 00:14:31,880
Speaker 1: they ever distributed income and it's somebody galtarian more egalitarian

288
00:14:32,280 --> 00:14:34,640
Speaker 1: in Japan, but just used to if you get more

289
00:14:34,680 --> 00:14:38,640
Speaker 1: consumers spending going and among lower middle incoln consumers, then

290
00:14:38,640 --> 00:14:41,280
Speaker 1: you could end up inflation, and that's what triggers so

291
00:14:41,480 --> 00:14:43,480
Speaker 1: changes this whole story. You and I know each other

292
00:14:43,600 --> 00:14:46,240
Speaker 1: long agoing far away in Boston when a CD was

293
00:14:46,360 --> 00:14:50,480
Speaker 1: nine or seven percent. It ain't there anymore. Is there

294
00:14:50,560 --> 00:14:56,480
Speaker 1: any evidence of central bank quote unquote reflate? Um? Well,

295
00:14:56,520 --> 00:14:59,080
Speaker 1: they push push up short term rates if if they

296
00:14:59,200 --> 00:15:00,920
Speaker 1: if they want to the home as they run, they

297
00:15:01,240 --> 00:15:03,280
Speaker 1: lose their nerve. I mean, you know, did the Federal

298
00:15:03,280 --> 00:15:05,400
Speaker 1: Reserve really need to ease three times this year? And no,

299
00:15:06,720 --> 00:15:09,320
Speaker 1: but they did it. Um So can they do it? Yes?

300
00:15:09,400 --> 00:15:11,320
Speaker 1: They can push up short term rates and and in

301
00:15:11,360 --> 00:15:13,120
Speaker 1: the end I think that they I think they should

302
00:15:13,920 --> 00:15:15,600
Speaker 1: because I think we should get back to more normal

303
00:15:15,640 --> 00:15:20,920
Speaker 1: monetary polican that will in the end reduce distortions around

304
00:15:20,920 --> 00:15:22,960
Speaker 1: the global economy. But they can do it. I'm not

305
00:15:23,000 --> 00:15:25,360
Speaker 1: saying they're going to next time. David Kelly on where

306
00:15:25,400 --> 00:15:27,280
Speaker 1: the Irish border is, I don't know where it is.

307
00:15:27,360 --> 00:15:29,960
Speaker 1: After the election, maybe we'll talk to him about that.

308
00:15:29,960 --> 00:15:31,320
Speaker 1: I think I think it's I think it's now in

309
00:15:31,360 --> 00:15:36,240
Speaker 1: the Irish seats. David Kelly, thank you so much, as always,

310
00:15:36,240 --> 00:15:51,320
Speaker 1: the GMP. Morgan just thrilled that time. Here. What we

311
00:15:51,440 --> 00:15:53,560
Speaker 1: need now not a clinic on the equity markets. Have

312
00:15:53,680 --> 00:15:55,400
Speaker 1: done that a little bit this morning, but John, I

313
00:15:55,480 --> 00:15:58,440
Speaker 1: think we've really got to dive into full faith and credit.

314
00:15:58,640 --> 00:16:00,040
Speaker 1: We did, and we can do that with pretty a

315
00:16:00,080 --> 00:16:02,440
Speaker 1: misery club ahead of right strategy at t D Security

316
00:16:02,520 --> 00:16:04,360
Speaker 1: is pretty great to have you with the summer program.

317
00:16:04,560 --> 00:16:06,840
Speaker 1: Tom's got a few questions on Repope, but let's start

318
00:16:06,960 --> 00:16:09,440
Speaker 1: this conversation where we picked up at the top of

319
00:16:09,480 --> 00:16:12,400
Speaker 1: the hour ten year rates one eighty four, no big

320
00:16:12,480 --> 00:16:16,840
Speaker 1: shift higher? Why so thanks for having me. I'll always

321
00:16:17,080 --> 00:16:19,600
Speaker 1: good to chat with you all. Um. So you know

322
00:16:19,760 --> 00:16:22,320
Speaker 1: what we heard on Friday in terms of the deal,

323
00:16:22,480 --> 00:16:26,040
Speaker 1: it's phase one. It's agricultural purchases. I mean, does it

324
00:16:26,160 --> 00:16:30,320
Speaker 1: remove entire business uncertainty around tariffs for all of next

325
00:16:30,400 --> 00:16:34,240
Speaker 1: year and and beyond, I would argue not. I think

326
00:16:34,360 --> 00:16:36,520
Speaker 1: just two weeks ago we heard from the President that

327
00:16:36,600 --> 00:16:39,600
Speaker 1: we were going to pose tariffs on Brazil and Argentina.

328
00:16:40,120 --> 00:16:43,360
Speaker 1: You know, the French tariffs are out there our viewers.

329
00:16:43,600 --> 00:16:46,360
Speaker 1: That's all we're gonna get for for US. China is

330
00:16:46,400 --> 00:16:48,040
Speaker 1: going to be phase one. I mean it took them

331
00:16:48,560 --> 00:16:51,440
Speaker 1: like three months after we had the deal in principle

332
00:16:51,760 --> 00:16:54,560
Speaker 1: to actually get this somewhat written down, so to try

333
00:16:54,600 --> 00:16:56,920
Speaker 1: and get Phase two, phase three, which are all much

334
00:16:57,000 --> 00:17:00,160
Speaker 1: more difficult structural issues. Our thought as were not she's

335
00:17:00,200 --> 00:17:02,960
Speaker 1: going to get this until the election. So the global

336
00:17:03,080 --> 00:17:06,080
Speaker 1: growth dynamic, I think you know it did take away.

337
00:17:06,160 --> 00:17:08,280
Speaker 1: I think some of the negative or or the the

338
00:17:08,359 --> 00:17:10,960
Speaker 1: worst case scenario has been removed. I think the escalation

339
00:17:11,000 --> 00:17:14,120
Speaker 1: of tariffs, which we've all nervous, could that happen on Sunday?

340
00:17:14,520 --> 00:17:16,840
Speaker 1: That's been taken off, and therefore I think equity is

341
00:17:16,880 --> 00:17:19,199
Speaker 1: liked it. But for rates to sell off much more

342
00:17:19,280 --> 00:17:21,879
Speaker 1: from here, I think we need clear evidence that business

343
00:17:21,960 --> 00:17:25,159
Speaker 1: uncertainty is going away, that business investment is going to

344
00:17:25,240 --> 00:17:28,160
Speaker 1: pick up, and the consumer remains resilient. I think all

345
00:17:28,240 --> 00:17:31,440
Speaker 1: of those questions are still there. So I would argue

346
00:17:31,440 --> 00:17:34,879
Speaker 1: you near the high end of the rate range if

347
00:17:34,920 --> 00:17:38,159
Speaker 1: that's the case. And is the rates market sending a

348
00:17:38,359 --> 00:17:41,240
Speaker 1: very different signal than the equity market in terms of

349
00:17:42,080 --> 00:17:45,760
Speaker 1: what we can expect with growth. Yes, I think you know,

350
00:17:45,880 --> 00:17:48,280
Speaker 1: to some extent, both rates and equities are telling you

351
00:17:48,400 --> 00:17:51,320
Speaker 1: that the FED is very unlikely to take back the

352
00:17:51,400 --> 00:17:54,639
Speaker 1: insurance cuts. So even if the consumer remains resilient. I

353
00:17:54,680 --> 00:17:56,320
Speaker 1: think what we saw in the dot plot is very

354
00:17:56,359 --> 00:17:59,280
Speaker 1: clear even the Hawks don't really want to take back

355
00:17:59,400 --> 00:18:02,440
Speaker 1: all of the joan cuts. So if that's a positive

356
00:18:02,520 --> 00:18:04,960
Speaker 1: tail wind for equities or or all risk asses, I

357
00:18:05,000 --> 00:18:07,520
Speaker 1: think that's fair and and and that tells you why

358
00:18:07,640 --> 00:18:09,880
Speaker 1: interest rate is probably do you know the tenure doesn't

359
00:18:09,880 --> 00:18:12,240
Speaker 1: go above two percent. Where I think the signals are

360
00:18:12,280 --> 00:18:15,560
Speaker 1: slightly different is the fact that the equity market takes

361
00:18:15,640 --> 00:18:18,399
Speaker 1: the straight deal to say okay, all downside risks behind us,

362
00:18:18,920 --> 00:18:20,960
Speaker 1: and the race market saying you know, not so fast.

363
00:18:21,520 --> 00:18:25,560
Speaker 1: All we've had is one tail risk being removed. We

364
00:18:25,720 --> 00:18:27,520
Speaker 1: still have to deal with them. And look at the

365
00:18:27,600 --> 00:18:30,080
Speaker 1: US one PM. I'm actually very surprised that Treasury is

366
00:18:30,160 --> 00:18:32,480
Speaker 1: this morning. I want to ignore that and just sort

367
00:18:32,520 --> 00:18:35,399
Speaker 1: of go off the China positive data. There's still a

368
00:18:35,480 --> 00:18:38,159
Speaker 1: lot of growth global growth headwinds, I think for the

369
00:18:38,320 --> 00:18:41,760
Speaker 1: US next year again into there's a view that the

370
00:18:41,800 --> 00:18:43,800
Speaker 1: FED is on hold, on hold through the whole of

371
00:18:43,800 --> 00:18:45,440
Speaker 1: the year. I get the sense from you over the

372
00:18:45,520 --> 00:18:47,000
Speaker 1: last couple of months that you don't think they are

373
00:18:47,040 --> 00:18:48,440
Speaker 1: on hold. In fact, you think right to go on

374
00:18:48,480 --> 00:18:52,200
Speaker 1: the other way, lower again, you're still thinking that prayer.

375
00:18:53,320 --> 00:18:55,480
Speaker 1: I still do. I think the FED has told us

376
00:18:55,520 --> 00:18:57,280
Speaker 1: that the bar to cut is higher than it was

377
00:18:57,359 --> 00:18:59,800
Speaker 1: over the last couple of months, so you know that's fair.

378
00:19:00,560 --> 00:19:04,040
Speaker 1: But if the consumer shows any signs of losing momentum,

379
00:19:04,480 --> 00:19:06,720
Speaker 1: and this is where I think the business investment side

380
00:19:06,840 --> 00:19:09,680
Speaker 1: is key, because it's very clear that US business investment

381
00:19:09,720 --> 00:19:13,320
Speaker 1: has slowed pretty dramatically, don't you because of the insert.

382
00:19:13,359 --> 00:19:16,160
Speaker 1: I would argue to an uncertainty shock, and that takes

383
00:19:16,200 --> 00:19:18,600
Speaker 1: a while, and if that doesn't go away, and at

384
00:19:18,680 --> 00:19:20,440
Speaker 1: some point it's going to affect the labor market and

385
00:19:20,520 --> 00:19:22,600
Speaker 1: therefore the consumer. So we expect the fact to actually

386
00:19:22,640 --> 00:19:25,639
Speaker 1: restart easing by the middle of next year. Something we

387
00:19:25,720 --> 00:19:28,320
Speaker 1: try to do on Bloomberg surveillance is speak to grizzled

388
00:19:28,400 --> 00:19:32,600
Speaker 1: pros like Priam of TV Securities about whatever the uproar

389
00:19:32,680 --> 00:19:35,920
Speaker 1: of the moment is. PREA, based on my reading coming

390
00:19:36,000 --> 00:19:39,159
Speaker 1: back among particularly the Gloom crew, the world's gonna end

391
00:19:39,720 --> 00:19:42,440
Speaker 1: like John at eleven am this morning or something that

392
00:19:42,920 --> 00:19:48,359
Speaker 1: we dashed into the Repo liquidity world and today or

393
00:19:48,480 --> 00:19:51,800
Speaker 1: Wednesday you get the video up before the world end, Pria,

394
00:19:52,480 --> 00:19:55,480
Speaker 1: should we have a sweat about the repo market in

395
00:19:55,600 --> 00:19:59,000
Speaker 1: the year end, So this is where you know, I

396
00:19:59,080 --> 00:20:01,959
Speaker 1: am worried about the onomy, But on repot, I actually

397
00:20:02,040 --> 00:20:05,520
Speaker 1: think the FED has understood what's happening and they're using

398
00:20:05,680 --> 00:20:08,240
Speaker 1: all the tools they have, and I think these tools

399
00:20:08,240 --> 00:20:11,000
Speaker 1: are effective. So I'm actually not as worried on the

400
00:20:11,080 --> 00:20:14,480
Speaker 1: repot year end and all strategies or or report people

401
00:20:14,520 --> 00:20:16,919
Speaker 1: are sort of divided into two gamps. Those I think

402
00:20:16,960 --> 00:20:19,000
Speaker 1: it's all going to end on December thirty one. It's

403
00:20:19,119 --> 00:20:21,720
Speaker 1: as bad as last year. I actually think last year

404
00:20:21,840 --> 00:20:24,040
Speaker 1: was very different. You had the thread that was letting

405
00:20:24,040 --> 00:20:26,840
Speaker 1: the portfolio run off. They were not doing any temporary

406
00:20:26,880 --> 00:20:29,640
Speaker 1: repo operations. What we heard last week was the FED

407
00:20:29,760 --> 00:20:32,480
Speaker 1: is actually now pumping almost five hundred billion of repot

408
00:20:32,520 --> 00:20:36,000
Speaker 1: around the turn and some dealers, So some dealers are

409
00:20:36,040 --> 00:20:39,600
Speaker 1: obviously capital constrained, balance sheet constraint, but the fact that

410
00:20:39,680 --> 00:20:42,560
Speaker 1: these operations are all getting oversubscribe actually tells me that

411
00:20:42,960 --> 00:20:44,840
Speaker 1: there are other dealers out there who are able to

412
00:20:44,920 --> 00:20:48,199
Speaker 1: expand their balance sheets, take the FED liquidity and distributed

413
00:20:48,240 --> 00:20:50,960
Speaker 1: in the system. So with the fact that the FED

414
00:20:51,080 --> 00:20:54,560
Speaker 1: is using this, plus they're adding to reserves permanently, I

415
00:20:54,640 --> 00:20:57,480
Speaker 1: think they've understood, they've acknowledged the problem, which is what

416
00:20:57,640 --> 00:21:01,119
Speaker 1: resulted in that September spike, and they're addressing it. This

417
00:21:01,280 --> 00:21:03,119
Speaker 1: raise is a really interesting question. If you take the

418
00:21:03,600 --> 00:21:06,080
Speaker 1: catastrophic view off the table, the end of the world,

419
00:21:06,600 --> 00:21:10,000
Speaker 1: that repo will ignite that we've all been worried about.

420
00:21:10,440 --> 00:21:12,159
Speaker 1: If you take that off the table, Let's take a

421
00:21:12,200 --> 00:21:15,520
Speaker 1: look at that half trillion dollars of stimulus essentially at

422
00:21:15,520 --> 00:21:18,280
Speaker 1: the Federal Reserve is pumped into the financial system, especially

423
00:21:18,640 --> 00:21:21,720
Speaker 1: if dealers are using it to make cheap loans. How

424
00:21:21,840 --> 00:21:24,320
Speaker 1: much is that supporting risk assets? How much has that

425
00:21:24,600 --> 00:21:27,879
Speaker 1: driven the rally more than people have really given credit to.

426
00:21:29,480 --> 00:21:31,240
Speaker 1: So you know, the FED will keep telling us that

427
00:21:31,359 --> 00:21:34,399
Speaker 1: it's not quee, but if you look at reserves or

428
00:21:34,440 --> 00:21:36,359
Speaker 1: look at the balon sheet, the FED balon sheet is

429
00:21:36,400 --> 00:21:39,240
Speaker 1: growing now. I actually don't agree that this should be

430
00:21:39,359 --> 00:21:42,240
Speaker 1: very positive for risk assets, but it's a sentiment issue.

431
00:21:42,480 --> 00:21:44,240
Speaker 1: We've heard from the FED for the last ten years

432
00:21:44,320 --> 00:21:47,680
Speaker 1: that QUI helps discuss it, and I think that that

433
00:21:47,840 --> 00:21:51,200
Speaker 1: is part of it. Um it's definitely stimulus into the

434
00:21:51,240 --> 00:21:54,000
Speaker 1: report market. I don't know if it should result in

435
00:21:54,080 --> 00:21:56,440
Speaker 1: highest stock market, but I think it is absolutely the

436
00:21:56,800 --> 00:21:58,760
Speaker 1: FAED banon sheet is growing by a lot over the

437
00:21:58,840 --> 00:22:02,000
Speaker 1: next month. Does that vector matter? I mean, does the

438
00:22:02,119 --> 00:22:04,680
Speaker 1: rate of change of the FED balance sheet growth matter?

439
00:22:04,720 --> 00:22:07,200
Speaker 1: If they do it in a gradual, measured way, does

440
00:22:07,280 --> 00:22:09,199
Speaker 1: that solve a lot of problems that you don't get

441
00:22:09,280 --> 00:22:12,080
Speaker 1: with the abruptness that we've seen the last number of quarters.

442
00:22:13,080 --> 00:22:16,080
Speaker 1: So the study is between stock and flow. They're fairly mixed.

443
00:22:16,359 --> 00:22:19,560
Speaker 1: I would argue the combination of both the stock and

444
00:22:19,680 --> 00:22:22,159
Speaker 1: the flow that matters. But you know, between over the

445
00:22:22,280 --> 00:22:25,200
Speaker 1: last two months, they've already injected two billion. Remember they're

446
00:22:25,200 --> 00:22:27,840
Speaker 1: also buying bills, and my viewers, I know they're only

447
00:22:27,920 --> 00:22:30,040
Speaker 1: staying into the second quarter. I think they're buying bills

448
00:22:30,040 --> 00:22:33,800
Speaker 1: almost all of next year because in an ample reserved regime,

449
00:22:34,080 --> 00:22:37,400
Speaker 1: the FED operations should not happen. So there's five hundred billion,

450
00:22:37,480 --> 00:22:39,760
Speaker 1: let's say, or five hundred billion gets used. That means

451
00:22:39,800 --> 00:22:42,399
Speaker 1: the FED needs to buy five billions of bills to

452
00:22:42,600 --> 00:22:46,280
Speaker 1: offset these thos over time. So that's a pretty big

453
00:22:46,359 --> 00:22:48,440
Speaker 1: stock and flow whichever way you look at it is

454
00:22:48,560 --> 00:22:51,320
Speaker 1: a huge increase in the balance sheet. Terrific briefing, Thank

455
00:22:51,359 --> 00:22:55,840
Speaker 1: you so much. Pretty misretenious Primities, Head of Global Rate Strategy.

456
00:23:10,080 --> 00:23:12,240
Speaker 1: This is a joy, Henry, the trades with the Surveta

457
00:23:12,359 --> 00:23:15,680
Speaker 1: partners here with futures up fifteen, futures up fifty nine.

458
00:23:16,080 --> 00:23:18,399
Speaker 1: And the joy of Henrietta on a Monday morning is

459
00:23:18,440 --> 00:23:20,080
Speaker 1: you don't have time to read, and she's got a

460
00:23:20,160 --> 00:23:23,680
Speaker 1: note that's wicked, concise and right at the top. Henrietta,

461
00:23:23,720 --> 00:23:28,359
Speaker 1: you nail it. How about that enforcement mechanism? The Mexicans

462
00:23:28,400 --> 00:23:31,760
Speaker 1: are flying north because they're worried about the enforcement mechanism

463
00:23:31,880 --> 00:23:34,639
Speaker 1: of labor in Mexico and that I don't even know

464
00:23:34,760 --> 00:23:37,920
Speaker 1: what the enforcement mechanism is of phase one or Phase

465
00:23:38,000 --> 00:23:42,360
Speaker 1: twelve or whatever. How are we doing on enforcement mechanisms

466
00:23:42,800 --> 00:23:46,840
Speaker 1: in a trade negotiation? Thanks so much for having me time. Well,

467
00:23:47,400 --> 00:23:50,280
Speaker 1: the interesting thing about enforcement mechanisms, UM, and the way

468
00:23:50,359 --> 00:23:52,480
Speaker 1: that it's been rolled out by Usdr Lifehiser over the

469
00:23:52,520 --> 00:23:55,760
Speaker 1: weekend sounds very much like what we expected. UM. The

470
00:23:55,840 --> 00:23:59,240
Speaker 1: most important word here is timing. It takes time to

471
00:23:59,600 --> 00:24:02,440
Speaker 1: inforce something, just a natural component of what it means

472
00:24:02,520 --> 00:24:05,600
Speaker 1: to enforce something. So the way that I'm expecting this

473
00:24:05,720 --> 00:24:08,080
Speaker 1: to roll out for investors to watch is that on

474
00:24:08,200 --> 00:24:10,640
Speaker 1: a one month, a two months and then a six

475
00:24:10,760 --> 00:24:14,000
Speaker 1: month basis, there's going to be a sort of rolling

476
00:24:14,119 --> 00:24:17,560
Speaker 1: series of checks and balances, much like what they're attempting

477
00:24:17,600 --> 00:24:20,040
Speaker 1: to accomplish with Mexico UM. And the way that it

478
00:24:20,119 --> 00:24:24,240
Speaker 1: happens is that businesses get a discrete um medium of

479
00:24:24,680 --> 00:24:28,679
Speaker 1: communication with the administration. They'll start speaking with the working

480
00:24:28,760 --> 00:24:32,760
Speaker 1: level train negotiators on a monthly basis, on a bi

481
00:24:32,880 --> 00:24:36,080
Speaker 1: monthly basis, so every two months they'll bump it up

482
00:24:36,080 --> 00:24:39,040
Speaker 1: to the Deputy director at the U s TR and

483
00:24:39,160 --> 00:24:41,040
Speaker 1: see if they've worked out any of their issues, whether

484
00:24:41,119 --> 00:24:44,119
Speaker 1: it's I P s AFT or Force Technology transfer, or

485
00:24:44,240 --> 00:24:48,640
Speaker 1: maybe China is stalling on purchasing its agriculture bio bioengineered

486
00:24:48,960 --> 00:24:52,280
Speaker 1: seeds UM. And then on a six month basis USTR

487
00:24:52,359 --> 00:24:55,159
Speaker 1: Lifefise or Advice Premier Luca, I assume it will be

488
00:24:55,240 --> 00:24:59,560
Speaker 1: Luka will be meeting to go through all those complaints

489
00:24:59,720 --> 00:25:01,879
Speaker 1: from the US side to make sure that they have

490
00:25:02,000 --> 00:25:05,479
Speaker 1: been complying with this phase one, so called deal UM.

491
00:25:05,560 --> 00:25:09,240
Speaker 1: And so every six months, expectively beginning I'd say June July,

492
00:25:10,280 --> 00:25:13,240
Speaker 1: where we should roughly be around that time, the US

493
00:25:13,240 --> 00:25:15,159
Speaker 1: side decides whether we want to ratch it up tariffs

494
00:25:15,560 --> 00:25:19,280
Speaker 1: or we want to reduce taris further andrietta given the rolling,

495
00:25:19,560 --> 00:25:22,720
Speaker 1: Given the rolling nature of this deal, the fact that

496
00:25:22,800 --> 00:25:25,680
Speaker 1: it it's sort of I is going to be implemented

497
00:25:25,800 --> 00:25:29,440
Speaker 1: as we go. How much certainty does it really give businesses?

498
00:25:30,720 --> 00:25:32,480
Speaker 1: Not a whole lot. And you know, a lot of

499
00:25:32,600 --> 00:25:35,760
Speaker 1: the response that we've gotten over the weekend has been

500
00:25:35,800 --> 00:25:39,200
Speaker 1: mostly from trade association saying they feel pretty comfortable about

501
00:25:39,280 --> 00:25:42,159
Speaker 1: what is included in a phase one deal. But for businesses,

502
00:25:42,400 --> 00:25:44,720
Speaker 1: unless you were assuming that these tarists would be in

503
00:25:44,800 --> 00:25:48,280
Speaker 1: place and perpetuity, which a lot of the big global manufacturers,

504
00:25:48,359 --> 00:25:51,920
Speaker 1: sort of the big multinational supply chains that we all

505
00:25:52,240 --> 00:25:54,440
Speaker 1: you know know what, are familiar with, they are able

506
00:25:54,520 --> 00:25:57,239
Speaker 1: to digest the fact that all these tires are going

507
00:25:57,280 --> 00:25:59,359
Speaker 1: to be in place for the remainder of President Trump's

508
00:25:59,440 --> 00:26:02,679
Speaker 1: tenure UM. But the smaller modern pop shops they now

509
00:26:02,760 --> 00:26:06,600
Speaker 1: have to face the reality that on two D fifty

510
00:26:06,600 --> 00:26:08,560
Speaker 1: billion dollars worth of goods are going to be in

511
00:26:08,640 --> 00:26:10,840
Speaker 1: effect for at least the first half of next year,

512
00:26:10,920 --> 00:26:14,760
Speaker 1: probably well into one UM. And the only remedy we

513
00:26:14,840 --> 00:26:17,600
Speaker 1: got here is that D billion dollars worth the tariffs

514
00:26:17,680 --> 00:26:20,000
Speaker 1: drop from fifteen percent to seven and a half. So

515
00:26:20,119 --> 00:26:23,280
Speaker 1: if you're a smaller multinational and you're shipping your goods

516
00:26:23,320 --> 00:26:26,040
Speaker 1: from China, you're paying these tariffs for the foreseeable future,

517
00:26:26,080 --> 00:26:28,040
Speaker 1: and that's not particularly helpful to them. And we're so

518
00:26:28,119 --> 00:26:30,240
Speaker 1: let's talk about and just round out this conversation with

519
00:26:30,320 --> 00:26:32,720
Speaker 1: the risk that this falls apart before it's fully implemented

520
00:26:32,920 --> 00:26:35,640
Speaker 1: between the United States and China. Was listening to embassat

521
00:26:35,680 --> 00:26:38,840
Speaker 1: a light Higher Speak on CBS just yesterday on Face

522
00:26:38,920 --> 00:26:41,399
Speaker 1: the Nation with Market Brennan. I got the sense that

523
00:26:41,920 --> 00:26:44,560
Speaker 1: there's a risk here that the success on this depends

524
00:26:44,600 --> 00:26:46,560
Speaker 1: on who implements the deal in China. Will it be

525
00:26:46,600 --> 00:26:50,400
Speaker 1: the hardliners or the reformers. What's your sense of things, Henrietta.

526
00:26:50,480 --> 00:26:52,520
Speaker 1: And the risk that this falls apart before it really

527
00:26:53,080 --> 00:26:56,720
Speaker 1: gets implemented, Well, once again, we have a three to

528
00:26:56,800 --> 00:26:59,880
Speaker 1: five week waiting period, so we're going to be transcribing

529
00:27:00,040 --> 00:27:04,280
Speaker 1: these texts into legal jargon for the next month at least,

530
00:27:04,359 --> 00:27:07,680
Speaker 1: which means it won't be signed until February. Based on

531
00:27:07,760 --> 00:27:10,200
Speaker 1: what we saw from China and you know, the extraordinary

532
00:27:10,240 --> 00:27:13,080
Speaker 1: pop and circumstance that went around their announcement at eleven

533
00:27:13,119 --> 00:27:16,680
Speaker 1: o'clock PM their time, on Friday. I don't think that

534
00:27:16,760 --> 00:27:18,960
Speaker 1: we should expect China to blow up the deal and

535
00:27:19,080 --> 00:27:21,240
Speaker 1: just say, hey, we're not going to comply. But I

536
00:27:21,280 --> 00:27:23,960
Speaker 1: could definitely see this dragging on, if you'll recalled, last

537
00:27:24,000 --> 00:27:26,119
Speaker 1: time we got this close and didn't have legal text

538
00:27:26,600 --> 00:27:30,720
Speaker 1: was in March of twenty nineteen, and we ultimately didn't

539
00:27:30,800 --> 00:27:33,639
Speaker 1: get a Phase one deal until Friday, though that was

540
00:27:33,680 --> 00:27:36,879
Speaker 1: almost nine months later. I could definitely see a delay

541
00:27:37,040 --> 00:27:39,520
Speaker 1: further from here. Great Henry Atatrice, thank you so much.

542
00:27:39,640 --> 00:27:43,959
Speaker 1: Nice update there, and really the Nte grite of I mean,

543
00:27:44,359 --> 00:27:49,879
Speaker 1: we forgot how thick is the Pias French. Thanks for

544
00:27:50,000 --> 00:27:54,359
Speaker 1: listening to the Bloomberg Surveillance podcast. Subscribe and listen to

545
00:27:54,560 --> 00:28:00,320
Speaker 1: interviews on Apple Podcasts, SoundCloud, or whichever podcast platform you refer.

546
00:28:00,880 --> 00:28:04,159
Speaker 1: I'm on Twitter at Tom Keene Before the podcast, you

547
00:28:04,240 --> 00:28:07,600
Speaker 1: can always catch us worldwide. I'm Bloomberg Radio