Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane Jay Lee.
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Speaker 1: Just a little bit of dollar weakness leaks. So the
Speaker 1: data are in China stabilizing, just a little bit risk out,
Speaker 1: the type picks up. Can this be a sustainable story?
Speaker 1: Gun into I'm watching oil because oil is telling another story.
Speaker 1: You're seeing a little bit of pressure. They're trying to
Speaker 1: get above zero. But hard to say because right now
Speaker 1: this trade deal isn't necessarily firmed up in any way,
Speaker 1: shape or form and is not giving people confidence. But
Speaker 1: for now, it's not just that, it's also the tone
Speaker 1: out of Chinese manufacturing data as well as mother bids
Speaker 1: as well. Bringing ed to know what figures with us
Speaker 1: in the studio. Great to have him with us. Exam
Speaker 1: Tate Data founder and see. Good morning to Jens, Thank you,
Speaker 1: thank you your thoughts on the trade story, the trade truths,
Speaker 1: the Phase one agreement. What are your ton of clients?
Speaker 1: What is it? We have a deal I think even
Speaker 1: though the document has not been signed, I think it's
Speaker 1: going to be very, very difficult after the communication we've
Speaker 1: had from both sides not to get this deal done.
Speaker 1: So that's the direction we're heading, and it's a turning point.
Speaker 1: Like we have some rollback of tariffs. It's not a
Speaker 1: dramatic thing to lower from fifteen to seven and a
Speaker 1: half on on a portion of the tariff stuff, but
Speaker 1: it is a step in the right direction, and I
Speaker 1: think it's important. So I think also just if you
Speaker 1: think about the currency outlook, can China really allow their
Speaker 1: currency to depreciate from here like we had that big
Speaker 1: psychological break of seven a couple of months ago, and
Speaker 1: now we're trading literally at seven zero zero. I don't
Speaker 1: think we can have it trading weaker than than seven
Speaker 1: on in a meaningful way in coming weeks. It's just
Speaker 1: not going to make the deal look good. So I
Speaker 1: think the downside is very capped for the Chinese currency.
Speaker 1: That's very important for e M currencies globally, and it's
Speaker 1: important for the dollar direction globally as well. So maybe
Speaker 1: that fits in and this description what's going on with
Speaker 1: the d H y as well well, with the trade.
Speaker 1: There has to be an opportunity to play it. How
Speaker 1: how do you play a phase one trade deal? I mean,
Speaker 1: we want to clear uncertainty, we want to be more optimistic,
Speaker 1: But then how do you affect that in currency pairs? Okay,
Speaker 1: So I'll answer in two ways. First, like we can
Speaker 1: we have some epirical models where you say, okay, what's
Speaker 1: the new equilibrium based on these Teriffer leaves and that
Speaker 1: gives you six ninety six. So there's a little bit
Speaker 1: of appreciation store there. And then there's the broader global dynamic,
Speaker 1: which is like an e M trending trade that can
Speaker 1: can run much longer than that. John, I like that
Speaker 1: you ask, is this sustainable? I you know, I'm struggling
Speaker 1: with that question, and I'm struggling with the idea that
Speaker 1: the dollar can continue to weaken because yes, we have
Speaker 1: the fact that the December fifteen tariffs aren't going to
Speaker 1: go into effect. But other than that, basically, this phase
Speaker 1: one deal is let's figure it out as we go.
Speaker 1: We'll roll back tariffs perhaps as China complies with different
Speaker 1: different phases. How does this improve confidence among CEOs in
Speaker 1: order to make investment, which is a key issue here, right,
Speaker 1: So I think the CEO question is important that could
Speaker 1: impact the timing when we get a lift to p
Speaker 1: M I S and so forth. But there's a couple
Speaker 1: of things going on at the same time. Right The
Speaker 1: Brexit situation, where we have a removal of tail risk,
Speaker 1: is also going to be helping to lift p M
Speaker 1: I S in Europe, not in this week's numbers, but
Speaker 1: probably in the next batch of two. So I I
Speaker 1: do think in terms of global growth, we got to
Speaker 1: very very low level of growth expectations, actually weaker than
Speaker 1: in the downturn we had in two thousand fifteen sixteen,
Speaker 1: so that the bar we have to beat is extremely low.
Speaker 1: And I think there's a bunch of reason and now
Speaker 1: I think that the momentum is improving. And for the dollar,
Speaker 1: the most important veriable is global growth is much more
Speaker 1: important than what the Fed is doing. So if we
Speaker 1: have that bottom, I feel very strongly that the dollar
Speaker 1: will trade weaker next year. So this is really important. Yends.
Speaker 1: One thing you've done brilliantly over the last couple of
Speaker 1: years is emphasize how little rank differentials tell you about
Speaker 1: the direction of the dollar over the last couple of years.
Speaker 1: So talked to me about global growth and flows, investor
Speaker 1: flows into places like Europe, Asia, the committally unlocks and
Speaker 1: dollar witness in the coming twelve months. Yes, so I think.
Speaker 1: I think one of the things that's really important over
Speaker 1: the last five six weeks is that you as investors
Speaker 1: are starting to put more risk cappital to work in
Speaker 1: international markets. So you as investors were incredibly cautious over
Speaker 1: the summer and actually repatriated investments from abroad back to
Speaker 1: the US, and that has changed. So this goes hand
Speaker 1: in hand with this bottom of global growth expas expectations.
Speaker 1: There's a very strong correlation between what those expectations are
Speaker 1: and what those flows like, and that is key to
Speaker 1: the dollar right. And that's the one of the factors
Speaker 1: that can be separate from the right differentials is if
Speaker 1: the equity flow goes more inter national. So, Tom Kane,
Speaker 1: the key question is for your triple leverage cash fund, Uh,
Speaker 1: is it going to be cash in dollars or hero
Speaker 1: or or pound After your trip to Europe, Yeah, it's
Speaker 1: the high point of the European trip was the interview
Speaker 1: with a gentleman who runs Herod's over how to unload
Speaker 1: the wall at Knight's Bridge. That was the high point.
Speaker 1: Um did you pray tide that one missed? You were?
Speaker 1: You were in the Manola Blonic up on the top floor.
Speaker 1: The key us there. Yen's great, We're gonna get a
Speaker 1: trade deal. We're gonna go week dollar. I still want
Speaker 1: to know how to express it? Do I do it
Speaker 1: through a bundled group of of em? Are there one
Speaker 1: or two? Are they true Pacific? E? M are they
Speaker 1: Eastern Europe? Are they and eleven? What are they? Okay? Yeah?
Speaker 1: So I think initiative expresses was m so dollar max
Speaker 1: is one dolla, Indonesia's one dollar, Taiwan is one. We
Speaker 1: talked about it on the on the TV segment that
Speaker 1: their places where they cannot intervene like them intervened in
Speaker 1: the past. Taiwan could be a really interesting regime shift
Speaker 1: on that front. So those are some of the ones
Speaker 1: I would look at. Good, yes, thank you so much
Speaker 1: today too short of visit, I do a little vamp
Speaker 1: here in the United States of America before John Farroll
Speaker 1: dies in with Lisa and water strategy. We can do
Speaker 1: that with David Kelly, who's the JP Morgan. He's had
Speaker 1: a global strategy for this, that and the other part
Speaker 1: of the of the Great Beast, and he joins us
Speaker 1: this morning. You you did a wonderful degree in Ireland
Speaker 1: and then you enjoyed Lansing at Michigan. If you go
Speaker 1: directly west from Lansing, Michigan, there's Kenosha, wiscons There's a
Speaker 1: company there called snap On Tools, which is as basically
Speaker 1: as you can get sixteen percent total return, sixteen percent
Speaker 1: dividend growth, trading at next to nothing compared to this market.
Speaker 1: Do I buy more snap On Tool Canona, Kenosha, Wisconsin,
Speaker 1: Or do I end up buying some fancy pants tech
Speaker 1: thing out on the West coast, Which I didn't think
Speaker 1: that was a question you're gonna ask me this morning,
Speaker 1: But that's the ar question after this year. I think,
Speaker 1: I think there there's there are large distortions within US,
Speaker 1: within the US market, but we've got to remember that
Speaker 1: as it wasn't so long as you're in the momentum
Speaker 1: up stage. I think there's more and more money going
Speaker 1: into eat sid to pass the strategies, which is actually
Speaker 1: helping momentum stocks. So I wouldn't want to make a
Speaker 1: short term call. No, I think I think, I think
Speaker 1: The bigger point for investors is international is cheap realts
Speaker 1: of the US, and I think that I think you
Speaker 1: know you need, you need to make your money these
Speaker 1: big ascid allocation calls. I wanted to get that out
Speaker 1: of the way, John, other than to say, the Spartans
Speaker 1: of Michigan State have a hockey team this year to
Speaker 1: die for, I feel like that's the only reason you
Speaker 1: brought up that's right question, Spartan hockey. If you're not
Speaker 1: familiar with some of the notes that David Kelly puts out,
Speaker 1: please reach out to him because there's some great lines
Speaker 1: in there. There's an old saying that the reason some
Speaker 1: people bash their heads against the wall is because it
Speaker 1: feels so good when they stop. What do you referring to, David,
Speaker 1: I referring to all the all this progress on trade.
Speaker 1: I mean, if you go back four years ago, we
Speaker 1: didn't have brexit. We did we had an old nafter
Speaker 1: and we didn't have trade war in China. And now
Speaker 1: we've got some We've got a U. S m c
Speaker 1: A which looks like it's going to pass to deal
Speaker 1: with sort of an after one point zero zero zero
Speaker 1: one we've got. I think Brexit will finally be resolved
Speaker 1: in a more comfortable way than people fear um and uh,
Speaker 1: you know, we we have a phase one deal with
Speaker 1: China to move back a few steps on the on
Speaker 1: the road we were on. But in the end, all
Speaker 1: it's doing is, you know, reducing the amount of mutulation
Speaker 1: we were doing to ourselves. It's not really progress in
Speaker 1: the long scheme of things. Let's let's continue with this
Speaker 1: metaphor of banging your head against the wall, uh, and
Speaker 1: then stopping and being really happy that you stopped. The
Speaker 1: question is we're now getting back to can the real
Speaker 1: global economy generate the kind of growth that is baked
Speaker 1: into the valuations and equities and risk assets in and
Speaker 1: right now the consensus seems to be yes, given the
Speaker 1: certainty that we're getting from the trade truth. But do
Speaker 1: you disagree based on this idea that we're not moving
Speaker 1: forward necessarily, we're just not banging our head against the
Speaker 1: wall now? I think no, I think we. I think
Speaker 1: you have to have a different story somewhat on the
Speaker 1: economy and on markets. Uh. It is true that in
Speaker 1: absolute terms valuations are expensive, but if you look at
Speaker 1: it relative to to cash, relative to bonds around the world,
Speaker 1: valuations are cheap, and so long as you buy the
Speaker 1: idea that the global economy is going to grow slowly
Speaker 1: but not generate inflation, you're gonna have these low rates.
Speaker 1: You're gonna have central banks falling over themselves to be easy.
Speaker 1: And that still means that there's nowhere else in the
Speaker 1: money to go. Some money is getting funneled into into
Speaker 1: global equities, so let's put some capital to work. Then
Speaker 1: the regional breakdown gun into Europe, Asia AM. How you
Speaker 1: thinking about that breakdown at the moment, David, I would
Speaker 1: be uh, EM first, probably, UM, Yam Asia first, probably,
Speaker 1: and then uh Europe, Japan, um, you know, second, and
Speaker 1: the third I think that I think one of the
Speaker 1: key things is rising trade tensions hurt the rest of
Speaker 1: the world more than they hurt the US, and that
Speaker 1: they also contribute to higher dollar. Falling trade tensions therefore
Speaker 1: give you a lower dollar and also benefit the big
Speaker 1: trade of the world, which your EM countries. So that's
Speaker 1: where I think you'll see the bands, both in terms
Speaker 1: of lower dollar and better performance from e M stocks.
Speaker 1: That's kind of where I want to be over words, David,
Speaker 1: I'm struggling right now because I'm thinking about what you're saying.
Speaker 1: This idea of low inflation, central bank stimulating risk acids
Speaker 1: outlook relatively cheap. That's been a story for ten years.
Speaker 1: At what point does that run out? At what point
Speaker 1: does this create a real problem. Well, it creates a
Speaker 1: problem if inflation comes back. But there's a there's a
Speaker 1: funny thing going on in the global economy, and that
Speaker 1: is that income is getting less and less equally distributed.
Speaker 1: And the you know, aggregate demand is when people with
Speaker 1: money want to buy stuff. And the problem in in
Speaker 1: the global economy right now as the people who have
Speaker 1: money don't want to buy stuff, and the people want
Speaker 1: to buy stuff don't have money. And so long as
Speaker 1: that that income income inequality grows, you're actually drat. You
Speaker 1: don't have enough aggregate demand to the economy. That's what's
Speaker 1: holding inflation though. So you know, the the irony is
Speaker 1: if you if we ever do fix the problem for
Speaker 1: middle income consumers, for lower income consumers, then we'll have inflation,
Speaker 1: and then that's The new Foreign Affairs Magazine is absolutely exquisite.
Speaker 1: It's the strongest issue they've ever done, including the no
Speaker 1: about Lawyer's jerryzy Mueller's in there on capitalism. How do
Speaker 1: you affect a policy to lift the have nots without
Speaker 1: diminishing the hats. Well, it's it's productivity. You're trying to
Speaker 1: reduce some of the nonproductive things you do. And we've
Speaker 1: got a lot of negative some games going on in
Speaker 1: the world in things like defense, in trade, trade, trade, yeah,
Speaker 1: all these things. So you're try and get rid of
Speaker 1: the things that are hurting you. You introduce more certainty,
Speaker 1: I think what you you also try to reduce currency
Speaker 1: of volatility. I mean, we should get back to a
Speaker 1: situation where the United States, Europe, China are actually talking about,
Speaker 1: you know, exchange rates and trying to make this this
Speaker 1: the less vo also goes right now, everybody's keeping rates low,
Speaker 1: unreasonably low to try and push our currency down, and
Speaker 1: that is I think in the end, just distorting for
Speaker 1: the global economy. Can we do a ten year bet,
Speaker 1: and that's what it is. It's going to be a
Speaker 1: bit of a gamble. Let's do a ten year bet.
Speaker 1: Where a rights going to be at the e C
Speaker 1: Bay in ten years time? Higher or lower? I think
Speaker 1: they could hardly be lower, so they will be higher.
Speaker 1: The question is are they a little bit higher or
Speaker 1: much higher. And that really gets back to the first
Speaker 1: question I'm asking because eventually, you know, think about this
Speaker 1: growth and financial assets. What is the financial asset. Of
Speaker 1: financial asset is a coupon, which says that you can
Speaker 1: buy some part of the goods and services produced by
Speaker 1: the real economy. Now, what we've seen is an explosion
Speaker 1: of the value of financial assets while the global economy
Speaker 1: is kind like a tortoise. Eventually, when people cash in
Speaker 1: those assets, you've got an inflation problem. We don't have
Speaker 1: it right now, but if you're gonna ask me, could
Speaker 1: we have that within the next ten years in Europe, Orange,
Speaker 1: in the United States, yes we could. Well, let's have
Speaker 1: the same question for the Federal Reserve. Then at the
Speaker 1: Fed in the next ten years. I think again, by
Speaker 1: the end of ten years, I think will be higher
Speaker 1: than that, because that is it's still it's it's crazy,
Speaker 1: it's it's a less than the rate of inflation. I mean,
Speaker 1: you know, the whole the whole concept of saving is
Speaker 1: that I don't eat ten apples today because you will
Speaker 1: give me eleven apples in the future. What we're telling
Speaker 1: people today is, you know, don't consume ten apples today
Speaker 1: because we'll give you nine apples in the future. That
Speaker 1: is nuts and it is not sustainable. Just to put
Speaker 1: the reason I asked this is Bank of America have
Speaker 1: come out with a fantastic pace about the last ten years.
Speaker 1: What performed well? What didn't perform well? Which was the
Speaker 1: most activist central bank? Which was the least activist central bank,
Speaker 1: the least active if central bank worldwide over the last
Speaker 1: ten years Japan one right cut, no hikes, and the
Speaker 1: same is probably true for the ten years previous to that.
Speaker 1: As wow that once we get down to these kind
Speaker 1: of levels, we're stuck here. Why is that going to
Speaker 1: be different for Europe, different from the United States of
Speaker 1: the next decade. Well, because, as I said, it is
Speaker 1: it is fostering a boom in financial assets. And eventually,
Speaker 1: if those financial assets end up in the hands of
Speaker 1: people who actually want to spend the money rather than
Speaker 1: save the money, then you have a growth and inflation.
Speaker 1: And the key thing here is inflation. I mean, I
Speaker 1: know the Japanese have been looking for inflation, but if
Speaker 1: they ever distributed income and it's somebody galtarian more egalitarian
Speaker 1: in Japan, but just used to if you get more
Speaker 1: consumers spending going and among lower middle incoln consumers, then
Speaker 1: you could end up inflation, and that's what triggers so
Speaker 1: changes this whole story. You and I know each other
Speaker 1: long agoing far away in Boston when a CD was
Speaker 1: nine or seven percent. It ain't there anymore. Is there
Speaker 1: any evidence of central bank quote unquote reflate? Um? Well,
Speaker 1: they push push up short term rates if if they
Speaker 1: if they want to the home as they run, they
Speaker 1: lose their nerve. I mean, you know, did the Federal
Speaker 1: Reserve really need to ease three times this year? And no,
Speaker 1: but they did it. Um So can they do it? Yes?
Speaker 1: They can push up short term rates and and in
Speaker 1: the end I think that they I think they should
Speaker 1: because I think we should get back to more normal
Speaker 1: monetary polican that will in the end reduce distortions around
Speaker 1: the global economy. But they can do it. I'm not
Speaker 1: saying they're going to next time. David Kelly on where
Speaker 1: the Irish border is, I don't know where it is.
Speaker 1: After the election, maybe we'll talk to him about that.
Speaker 1: I think I think it's I think it's now in
Speaker 1: the Irish seats. David Kelly, thank you so much, as always,
Speaker 1: the GMP. Morgan just thrilled that time. Here. What we
Speaker 1: need now not a clinic on the equity markets. Have
Speaker 1: done that a little bit this morning, but John, I
Speaker 1: think we've really got to dive into full faith and credit.
Speaker 1: We did, and we can do that with pretty a
Speaker 1: misery club ahead of right strategy at t D Security
Speaker 1: is pretty great to have you with the summer program.
Speaker 1: Tom's got a few questions on Repope, but let's start
Speaker 1: this conversation where we picked up at the top of
Speaker 1: the hour ten year rates one eighty four, no big
Speaker 1: shift higher? Why so thanks for having me. I'll always
Speaker 1: good to chat with you all. Um. So you know
Speaker 1: what we heard on Friday in terms of the deal,
Speaker 1: it's phase one. It's agricultural purchases. I mean, does it
Speaker 1: remove entire business uncertainty around tariffs for all of next
Speaker 1: year and and beyond, I would argue not. I think
Speaker 1: just two weeks ago we heard from the President that
Speaker 1: we were going to pose tariffs on Brazil and Argentina.
Speaker 1: You know, the French tariffs are out there our viewers.
Speaker 1: That's all we're gonna get for for US. China is
Speaker 1: going to be phase one. I mean it took them
Speaker 1: like three months after we had the deal in principle
Speaker 1: to actually get this somewhat written down, so to try
Speaker 1: and get Phase two, phase three, which are all much
Speaker 1: more difficult structural issues. Our thought as were not she's
Speaker 1: going to get this until the election. So the global
Speaker 1: growth dynamic, I think you know it did take away.
Speaker 1: I think some of the negative or or the the
Speaker 1: worst case scenario has been removed. I think the escalation
Speaker 1: of tariffs, which we've all nervous, could that happen on Sunday?
Speaker 1: That's been taken off, and therefore I think equity is
Speaker 1: liked it. But for rates to sell off much more
Speaker 1: from here, I think we need clear evidence that business
Speaker 1: uncertainty is going away, that business investment is going to
Speaker 1: pick up, and the consumer remains resilient. I think all
Speaker 1: of those questions are still there. So I would argue
Speaker 1: you near the high end of the rate range if
Speaker 1: that's the case. And is the rates market sending a
Speaker 1: very different signal than the equity market in terms of
Speaker 1: what we can expect with growth. Yes, I think you know,
Speaker 1: to some extent, both rates and equities are telling you
Speaker 1: that the FED is very unlikely to take back the
Speaker 1: insurance cuts. So even if the consumer remains resilient. I
Speaker 1: think what we saw in the dot plot is very
Speaker 1: clear even the Hawks don't really want to take back
Speaker 1: all of the joan cuts. So if that's a positive
Speaker 1: tail wind for equities or or all risk asses, I
Speaker 1: think that's fair and and and that tells you why
Speaker 1: interest rate is probably do you know the tenure doesn't
Speaker 1: go above two percent. Where I think the signals are
Speaker 1: slightly different is the fact that the equity market takes
Speaker 1: the straight deal to say okay, all downside risks behind us,
Speaker 1: and the race market saying you know, not so fast.
Speaker 1: All we've had is one tail risk being removed. We
Speaker 1: still have to deal with them. And look at the
Speaker 1: US one PM. I'm actually very surprised that Treasury is
Speaker 1: this morning. I want to ignore that and just sort
Speaker 1: of go off the China positive data. There's still a
Speaker 1: lot of growth global growth headwinds, I think for the
Speaker 1: US next year again into there's a view that the
Speaker 1: FED is on hold, on hold through the whole of
Speaker 1: the year. I get the sense from you over the
Speaker 1: last couple of months that you don't think they are
Speaker 1: on hold. In fact, you think right to go on
Speaker 1: the other way, lower again, you're still thinking that prayer.
Speaker 1: I still do. I think the FED has told us
Speaker 1: that the bar to cut is higher than it was
Speaker 1: over the last couple of months, so you know that's fair.
Speaker 1: But if the consumer shows any signs of losing momentum,
Speaker 1: and this is where I think the business investment side
Speaker 1: is key, because it's very clear that US business investment
Speaker 1: has slowed pretty dramatically, don't you because of the insert.
Speaker 1: I would argue to an uncertainty shock, and that takes
Speaker 1: a while, and if that doesn't go away, and at
Speaker 1: some point it's going to affect the labor market and
Speaker 1: therefore the consumer. So we expect the fact to actually
Speaker 1: restart easing by the middle of next year. Something we
Speaker 1: try to do on Bloomberg surveillance is speak to grizzled
Speaker 1: pros like Priam of TV Securities about whatever the uproar
Speaker 1: of the moment is. PREA, based on my reading coming
Speaker 1: back among particularly the Gloom crew, the world's gonna end
Speaker 1: like John at eleven am this morning or something that
Speaker 1: we dashed into the Repo liquidity world and today or
Speaker 1: Wednesday you get the video up before the world end, Pria,
Speaker 1: should we have a sweat about the repo market in
Speaker 1: the year end, So this is where you know, I
Speaker 1: am worried about the onomy, But on repot, I actually
Speaker 1: think the FED has understood what's happening and they're using
Speaker 1: all the tools they have, and I think these tools
Speaker 1: are effective. So I'm actually not as worried on the
Speaker 1: repot year end and all strategies or or report people
Speaker 1: are sort of divided into two gamps. Those I think
Speaker 1: it's all going to end on December thirty one. It's
Speaker 1: as bad as last year. I actually think last year
Speaker 1: was very different. You had the thread that was letting
Speaker 1: the portfolio run off. They were not doing any temporary
Speaker 1: repo operations. What we heard last week was the FED
Speaker 1: is actually now pumping almost five hundred billion of repot
Speaker 1: around the turn and some dealers, So some dealers are
Speaker 1: obviously capital constrained, balance sheet constraint, but the fact that
Speaker 1: these operations are all getting oversubscribe actually tells me that
Speaker 1: there are other dealers out there who are able to
Speaker 1: expand their balance sheets, take the FED liquidity and distributed
Speaker 1: in the system. So with the fact that the FED
Speaker 1: is using this, plus they're adding to reserves permanently, I
Speaker 1: think they've understood, they've acknowledged the problem, which is what
Speaker 1: resulted in that September spike, and they're addressing it. This
Speaker 1: raise is a really interesting question. If you take the
Speaker 1: catastrophic view off the table, the end of the world,
Speaker 1: that repo will ignite that we've all been worried about.
Speaker 1: If you take that off the table, Let's take a
Speaker 1: look at that half trillion dollars of stimulus essentially at
Speaker 1: the Federal Reserve is pumped into the financial system, especially
Speaker 1: if dealers are using it to make cheap loans. How
Speaker 1: much is that supporting risk assets? How much has that
Speaker 1: driven the rally more than people have really given credit to.
Speaker 1: So you know, the FED will keep telling us that
Speaker 1: it's not quee, but if you look at reserves or
Speaker 1: look at the balon sheet, the FED balon sheet is
Speaker 1: growing now. I actually don't agree that this should be
Speaker 1: very positive for risk assets, but it's a sentiment issue.
Speaker 1: We've heard from the FED for the last ten years
Speaker 1: that QUI helps discuss it, and I think that that
Speaker 1: is part of it. Um it's definitely stimulus into the
Speaker 1: report market. I don't know if it should result in
Speaker 1: highest stock market, but I think it is absolutely the
Speaker 1: FAED banon sheet is growing by a lot over the
Speaker 1: next month. Does that vector matter? I mean, does the
Speaker 1: rate of change of the FED balance sheet growth matter?
Speaker 1: If they do it in a gradual, measured way, does
Speaker 1: that solve a lot of problems that you don't get
Speaker 1: with the abruptness that we've seen the last number of quarters.
Speaker 1: So the study is between stock and flow. They're fairly mixed.
Speaker 1: I would argue the combination of both the stock and
Speaker 1: the flow that matters. But you know, between over the
Speaker 1: last two months, they've already injected two billion. Remember they're
Speaker 1: also buying bills, and my viewers, I know they're only
Speaker 1: staying into the second quarter. I think they're buying bills
Speaker 1: almost all of next year because in an ample reserved regime,
Speaker 1: the FED operations should not happen. So there's five hundred billion,
Speaker 1: let's say, or five hundred billion gets used. That means
Speaker 1: the FED needs to buy five billions of bills to
Speaker 1: offset these thos over time. So that's a pretty big
Speaker 1: stock and flow whichever way you look at it is
Speaker 1: a huge increase in the balance sheet. Terrific briefing, Thank
Speaker 1: you so much. Pretty misretenious Primities, Head of Global Rate Strategy.
Speaker 1: This is a joy, Henry, the trades with the Surveta
Speaker 1: partners here with futures up fifteen, futures up fifty nine.
Speaker 1: And the joy of Henrietta on a Monday morning is
Speaker 1: you don't have time to read, and she's got a
Speaker 1: note that's wicked, concise and right at the top. Henrietta,
Speaker 1: you nail it. How about that enforcement mechanism? The Mexicans
Speaker 1: are flying north because they're worried about the enforcement mechanism
Speaker 1: of labor in Mexico and that I don't even know
Speaker 1: what the enforcement mechanism is of phase one or Phase
Speaker 1: twelve or whatever. How are we doing on enforcement mechanisms
Speaker 1: in a trade negotiation? Thanks so much for having me time. Well,
Speaker 1: the interesting thing about enforcement mechanisms, UM, and the way
Speaker 1: that it's been rolled out by Usdr Lifehiser over the
Speaker 1: weekend sounds very much like what we expected. UM. The
Speaker 1: most important word here is timing. It takes time to
Speaker 1: inforce something, just a natural component of what it means
Speaker 1: to enforce something. So the way that I'm expecting this
Speaker 1: to roll out for investors to watch is that on
Speaker 1: a one month, a two months and then a six
Speaker 1: month basis, there's going to be a sort of rolling
Speaker 1: series of checks and balances, much like what they're attempting
Speaker 1: to accomplish with Mexico UM. And the way that it
Speaker 1: happens is that businesses get a discrete um medium of
Speaker 1: communication with the administration. They'll start speaking with the working
Speaker 1: level train negotiators on a monthly basis, on a bi
Speaker 1: monthly basis, so every two months they'll bump it up
Speaker 1: to the Deputy director at the U s TR and
Speaker 1: see if they've worked out any of their issues, whether
Speaker 1: it's I P s AFT or Force Technology transfer, or
Speaker 1: maybe China is stalling on purchasing its agriculture bio bioengineered
Speaker 1: seeds UM. And then on a six month basis USTR
Speaker 1: Lifefise or Advice Premier Luca, I assume it will be
Speaker 1: Luka will be meeting to go through all those complaints
Speaker 1: from the US side to make sure that they have
Speaker 1: been complying with this phase one, so called deal UM.
Speaker 1: And so every six months, expectively beginning I'd say June July,
Speaker 1: where we should roughly be around that time, the US
Speaker 1: side decides whether we want to ratch it up tariffs
Speaker 1: or we want to reduce taris further andrietta given the rolling,
Speaker 1: Given the rolling nature of this deal, the fact that
Speaker 1: it it's sort of I is going to be implemented
Speaker 1: as we go. How much certainty does it really give businesses?
Speaker 1: Not a whole lot. And you know, a lot of
Speaker 1: the response that we've gotten over the weekend has been
Speaker 1: mostly from trade association saying they feel pretty comfortable about
Speaker 1: what is included in a phase one deal. But for businesses,
Speaker 1: unless you were assuming that these tarists would be in
Speaker 1: place and perpetuity, which a lot of the big global manufacturers,
Speaker 1: sort of the big multinational supply chains that we all
Speaker 1: you know know what, are familiar with, they are able
Speaker 1: to digest the fact that all these tires are going
Speaker 1: to be in place for the remainder of President Trump's
Speaker 1: tenure UM. But the smaller modern pop shops they now
Speaker 1: have to face the reality that on two D fifty
Speaker 1: billion dollars worth of goods are going to be in
Speaker 1: effect for at least the first half of next year,
Speaker 1: probably well into one UM. And the only remedy we
Speaker 1: got here is that D billion dollars worth the tariffs
Speaker 1: drop from fifteen percent to seven and a half. So
Speaker 1: if you're a smaller multinational and you're shipping your goods
Speaker 1: from China, you're paying these tariffs for the foreseeable future,
Speaker 1: and that's not particularly helpful to them. And we're so
Speaker 1: let's talk about and just round out this conversation with
Speaker 1: the risk that this falls apart before it's fully implemented
Speaker 1: between the United States and China. Was listening to embassat
Speaker 1: a light Higher Speak on CBS just yesterday on Face
Speaker 1: the Nation with Market Brennan. I got the sense that
Speaker 1: there's a risk here that the success on this depends
Speaker 1: on who implements the deal in China. Will it be
Speaker 1: the hardliners or the reformers. What's your sense of things, Henrietta.
Speaker 1: And the risk that this falls apart before it really
Speaker 1: gets implemented, Well, once again, we have a three to
Speaker 1: five week waiting period, so we're going to be transcribing
Speaker 1: these texts into legal jargon for the next month at least,
Speaker 1: which means it won't be signed until February. Based on
Speaker 1: what we saw from China and you know, the extraordinary
Speaker 1: pop and circumstance that went around their announcement at eleven
Speaker 1: o'clock PM their time, on Friday. I don't think that
Speaker 1: we should expect China to blow up the deal and
Speaker 1: just say, hey, we're not going to comply. But I
Speaker 1: could definitely see this dragging on, if you'll recalled, last
Speaker 1: time we got this close and didn't have legal text
Speaker 1: was in March of twenty nineteen, and we ultimately didn't
Speaker 1: get a Phase one deal until Friday, though that was
Speaker 1: almost nine months later. I could definitely see a delay
Speaker 1: further from here. Great Henry Atatrice, thank you so much.
Speaker 1: Nice update there, and really the Nte grite of I mean,
Speaker 1: we forgot how thick is the Pias French. Thanks for
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Speaker 1: I'm on Twitter at Tom Keene Before the podcast, you
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