1 00:00:00,120 --> 00:00:02,920 Speaker 1: Brought you by Bank of America, Mary Lynch. Investing in 2 00:00:03,000 --> 00:00:07,960 Speaker 1: local communities, economies and a sustainable future. That's a power 3 00:00:08,080 --> 00:00:12,360 Speaker 1: of global connections, Mary Lynch, Pierce Fenner and Smith Incorporated 4 00:00:12,760 --> 00:00:26,400 Speaker 1: Member s I p C. Welcome to the Bloomberg Surveillance Podcast. 5 00:00:26,440 --> 00:00:29,920 Speaker 1: I'm Tom Keene with David Gura. Daily we bring you 6 00:00:29,960 --> 00:00:34,800 Speaker 1: insight from the best of economics, finance, investment, and international relations. 7 00:00:35,240 --> 00:00:40,760 Speaker 1: Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, Bloomberg dot Com, 8 00:00:40,800 --> 00:00:48,560 Speaker 1: and of course on the Bloomberg. This is a real joy, 9 00:00:48,720 --> 00:00:50,600 Speaker 1: really a high point that we planned for this trip. 10 00:00:50,640 --> 00:00:53,880 Speaker 1: A conversation with Sir Howard Davies of RBS and of 11 00:00:53,920 --> 00:00:57,520 Speaker 1: course formerly in Seance PO and LC and Jonathan Fenby 12 00:00:57,560 --> 00:00:59,880 Speaker 1: of T S. Lombard and of course Sir Howard and 13 00:00:59,880 --> 00:01:03,920 Speaker 1: I celebrate his wonderful one volume on Francis. Mr McCraw 14 00:01:04,040 --> 00:01:07,160 Speaker 1: mentioned in your book only briefly at the end, and 15 00:01:07,200 --> 00:01:08,720 Speaker 1: I'm afraid but I hope there'll be a new edition 16 00:01:08,720 --> 00:01:12,920 Speaker 1: out before afterward. Fair enough, he's only just come onto 17 00:01:12,920 --> 00:01:16,160 Speaker 1: the politics got any rapid form? What did you think 18 00:01:16,319 --> 00:01:19,520 Speaker 1: of the lou of celebration and that long walk It 19 00:01:19,800 --> 00:01:22,760 Speaker 1: wasn't something I would think John Fenne would approve. Oh 20 00:01:23,080 --> 00:01:24,959 Speaker 1: I did. I thought it was tremendous. I sat there 21 00:01:24,959 --> 00:01:27,160 Speaker 1: watching it on television and I thought, hey, you know 22 00:01:27,200 --> 00:01:29,399 Speaker 1: this guy, he's got the drama right. Whoever? Come on? 23 00:01:29,480 --> 00:01:32,400 Speaker 1: He's walking in the palace, the palace of the sixteenth 24 00:01:32,400 --> 00:01:35,640 Speaker 1: century kings, which you touched on early in your book. 25 00:01:35,720 --> 00:01:38,080 Speaker 1: Was there a symbolism there of a museum that we 26 00:01:38,120 --> 00:01:40,640 Speaker 1: all go to? Or is it the symbolism or royalty 27 00:01:40,720 --> 00:01:43,440 Speaker 1: from another time and place. He's a kind of modern monarch, 28 00:01:43,520 --> 00:01:44,760 Speaker 1: I think, And he was playing that and it was 29 00:01:44,760 --> 00:01:47,920 Speaker 1: wonderful if you looked at it. When the replays the shadow, 30 00:01:48,080 --> 00:01:50,480 Speaker 1: his shadow falling behind on the gateway as he came 31 00:01:50,520 --> 00:01:54,040 Speaker 1: through was absolutely out of a first rate film. He 32 00:01:54,080 --> 00:01:56,280 Speaker 1: was looking towards the carouselo as well. I can you 33 00:01:56,280 --> 00:02:01,240 Speaker 1: think about kind of Napoleon and you know it phoneography 34 00:02:02,960 --> 00:02:06,640 Speaker 1: when you think about what happens next. We heard it 35 00:02:06,680 --> 00:02:10,000 Speaker 1: described earlier as a as a four parts store. Absolutely, 36 00:02:10,240 --> 00:02:12,720 Speaker 1: and we're through two of them too, are still to come? 37 00:02:14,560 --> 00:02:17,000 Speaker 1: Is the easy bit over for Mr Macrol? Does I 38 00:02:17,080 --> 00:02:19,639 Speaker 1: get harder from here? I think in retrospect, yes, I 39 00:02:19,639 --> 00:02:22,240 Speaker 1: mean it's not never easy to win the presidency of France, 40 00:02:22,360 --> 00:02:24,400 Speaker 1: but he had such a lot of luck with the 41 00:02:24,600 --> 00:02:26,800 Speaker 1: or and other people, with the socialist splitting and so on. 42 00:02:26,840 --> 00:02:29,000 Speaker 1: I mean, you know this was handed to him on 43 00:02:29,040 --> 00:02:31,160 Speaker 1: a silver plate, and anybody up against the Penn in 44 00:02:31,160 --> 00:02:34,120 Speaker 1: the second round was going to win. So yes, but 45 00:02:34,200 --> 00:02:37,120 Speaker 1: actually there's probably five more acts to come. That are 46 00:02:37,120 --> 00:02:39,919 Speaker 1: the two rounds of the parliamentary election on June the 47 00:02:39,919 --> 00:02:42,799 Speaker 1: eleventh and June, and then I would guess there will 48 00:02:42,840 --> 00:02:46,480 Speaker 1: be a lot of street theater after that, from the 49 00:02:46,520 --> 00:02:50,120 Speaker 1: hard left to menon sean people with Lapen approving. So 50 00:02:50,160 --> 00:02:53,000 Speaker 1: we're probably into a long running saga. What kind of 51 00:02:53,040 --> 00:02:55,040 Speaker 1: a person? And I mean to get both your take 52 00:02:55,080 --> 00:02:58,799 Speaker 1: on this, does he need to appoint as prime minister? Howard? Well, 53 00:02:58,840 --> 00:03:00,880 Speaker 1: I think it depends on what kind of majority there 54 00:03:00,960 --> 00:03:04,920 Speaker 1: is in parliament. I mean, if there are them before Well, 55 00:03:05,400 --> 00:03:07,000 Speaker 1: I think that there will be an interim there's a 56 00:03:07,040 --> 00:03:10,720 Speaker 1: short term prime minister. Yes, I think that might stay 57 00:03:10,720 --> 00:03:13,639 Speaker 1: on if the unexpected happens and all marsh his party 58 00:03:13,919 --> 00:03:17,280 Speaker 1: gets a majority or close to a working majority in 59 00:03:17,320 --> 00:03:20,359 Speaker 1: the parliamentary election. Sir Howard, I I analyze everything through 60 00:03:20,440 --> 00:03:23,920 Speaker 1: uber drivers. I was going orally into the hotel and 61 00:03:24,040 --> 00:03:26,400 Speaker 1: the uber driver. The first thing he said is Madame 62 00:03:26,480 --> 00:03:29,839 Speaker 1: Legarde should be helping out. Should Christine Lagarde come back 63 00:03:29,880 --> 00:03:33,880 Speaker 1: to France and assist Mr mccron. Well, the difficulty about 64 00:03:33,960 --> 00:03:36,360 Speaker 1: Christine Lagard in francis of course that you know that 65 00:03:36,520 --> 00:03:40,600 Speaker 1: there was a legal case which where she was kind 66 00:03:40,640 --> 00:03:44,520 Speaker 1: of convicted but then not sentenced them and so whereas 67 00:03:44,560 --> 00:03:47,560 Speaker 1: that throw the forgotten about in Washington and elsewhere in France, 68 00:03:47,560 --> 00:03:50,240 Speaker 1: I'm afraid that still does resonate. So it's not completely 69 00:03:50,240 --> 00:03:54,840 Speaker 1: straightforward for Christine Lagarde to take a senior position in France. 70 00:03:54,880 --> 00:03:59,120 Speaker 1: How do somebody from that international world more likely to 71 00:03:59,160 --> 00:04:04,040 Speaker 1: come in? Is about me? Yes, yes, much much more 72 00:04:04,040 --> 00:04:07,400 Speaker 1: straightforward person. And of course you know that Madame lepen 73 00:04:07,480 --> 00:04:11,560 Speaker 1: did win the vote saying anti globalization, and there's nobody 74 00:04:11,600 --> 00:04:14,600 Speaker 1: more globalization than Christine Lagarde. So I'm not sure you'd 75 00:04:14,600 --> 00:04:17,000 Speaker 1: want to go there with Macron. Lagarde s let me 76 00:04:17,000 --> 00:04:19,520 Speaker 1: start with you. If we're doing hope in audacity, reducs 77 00:04:19,520 --> 00:04:21,760 Speaker 1: here with Mr mcgrahan, what is the audacity that the 78 00:04:21,839 --> 00:04:25,680 Speaker 1: new president of France needs? Well, I think he does 79 00:04:25,800 --> 00:04:30,080 Speaker 1: need to do some quite symbolic things on labor market reform, 80 00:04:30,400 --> 00:04:33,080 Speaker 1: because otherwise I think the rest of the world will 81 00:04:33,080 --> 00:04:36,279 Speaker 1: not believe that anything's changed in France. Unfortunately, some of 82 00:04:36,320 --> 00:04:38,120 Speaker 1: those things you can argue up in Hill and down 83 00:04:38,200 --> 00:04:40,240 Speaker 1: Dale about thirty five hour week and how significant it 84 00:04:40,320 --> 00:04:44,840 Speaker 1: really is, but internationally it has achieved a totemic status 85 00:04:44,880 --> 00:04:47,880 Speaker 1: and you have to do something about that because otherwise 86 00:04:47,920 --> 00:04:51,599 Speaker 1: I think your rhetoric about reopening France for business and 87 00:04:51,600 --> 00:04:53,800 Speaker 1: attracting it with investment will not work. Aren't you just 88 00:04:53,880 --> 00:04:56,400 Speaker 1: challenging headlong into the unions if you do that? Isn't 89 00:04:56,440 --> 00:04:58,760 Speaker 1: there a workaround? Isn't there a smarter way of doing it? 90 00:04:58,920 --> 00:05:01,040 Speaker 1: It's not so much question us. I mean, the unions 91 00:05:01,040 --> 00:05:04,040 Speaker 1: are not that significant. Frankly, they don't have very much membership. 92 00:05:04,080 --> 00:05:07,320 Speaker 1: It's more the street union. It's the street and also 93 00:05:07,360 --> 00:05:09,160 Speaker 1: the union is more nuanced so it used to be, 94 00:05:09,160 --> 00:05:12,240 Speaker 1: because the CFDT, which has always been the reformist union, 95 00:05:12,480 --> 00:05:15,360 Speaker 1: now has more members than the hardline CGS. But nevertheless, 96 00:05:15,400 --> 00:05:17,280 Speaker 1: in the point, well, isn't the point still stand that 97 00:05:17,279 --> 00:05:20,880 Speaker 1: that don't work around it, don't work against it. Well, 98 00:05:20,920 --> 00:05:23,159 Speaker 1: this is gonna be difficult. Everything that car would do, 99 00:05:23,200 --> 00:05:24,839 Speaker 1: the kind of thing, how it's talking about on the 100 00:05:24,880 --> 00:05:27,760 Speaker 1: working week, on cutting corporate attacks, which is the highest 101 00:05:27,800 --> 00:05:31,200 Speaker 1: in the EU, which is on exempting investments from the 102 00:05:31,200 --> 00:05:33,360 Speaker 1: wealth tax and sold. All these, of course will be 103 00:05:33,400 --> 00:05:36,040 Speaker 1: seen by the left and by the street as proof 104 00:05:36,200 --> 00:05:39,360 Speaker 1: that yes, indeed, here's the puppet of international globalized finance. 105 00:05:39,440 --> 00:05:41,760 Speaker 1: I'm going to say this worldwide. You've said it for weeks. 106 00:05:41,839 --> 00:05:44,640 Speaker 1: John Ferby's book, You rush through this history with a 107 00:05:44,680 --> 00:05:48,240 Speaker 1: beautiful writing skill in one of the great enigmas within 108 00:05:48,240 --> 00:05:51,680 Speaker 1: the book has just started to stay Compare McCraw is. 109 00:05:51,720 --> 00:05:54,320 Speaker 1: We heard an interview after an interview with Valories just 110 00:05:54,360 --> 00:05:57,080 Speaker 1: started to staying is that apt? Yes, absolutely, he's He's 111 00:05:57,080 --> 00:05:58,560 Speaker 1: the one I would go back to from that can 112 00:05:58,800 --> 00:06:00,720 Speaker 1: including the fact that, of course Scott didn't have a 113 00:06:00,720 --> 00:06:03,599 Speaker 1: parliamentary majority when he started and was dependent on the 114 00:06:03,640 --> 00:06:06,760 Speaker 1: Goal Lists who eventually stabbed him in the back with 115 00:06:06,880 --> 00:06:08,880 Speaker 1: Jack Shark. And you could have the same thing with 116 00:06:08,960 --> 00:06:12,800 Speaker 1: the Republicans being the main force in Parliament after June 117 00:06:12,839 --> 00:06:15,200 Speaker 1: the eighteenth and mac Hale dependent on them. Now, that 118 00:06:15,240 --> 00:06:17,919 Speaker 1: could work because a lot of their ideas are very similar. 119 00:06:18,120 --> 00:06:20,039 Speaker 1: But the Republicans are going to want just like the 120 00:06:20,040 --> 00:06:22,840 Speaker 1: Gold Lists in the seventies to preserve their own identity. 121 00:06:23,040 --> 00:06:26,359 Speaker 1: Sir Howard, does France need a different Euro than Germany? 122 00:06:26,360 --> 00:06:28,200 Speaker 1: And I means separate from the Euro? But what are 123 00:06:28,200 --> 00:06:31,680 Speaker 1: those relative valuations? How far apart is a good Euro 124 00:06:31,839 --> 00:06:35,200 Speaker 1: for Germany from a good Euro for France. I don't 125 00:06:35,200 --> 00:06:38,599 Speaker 1: personally think that there's a much difference between Germany and France. 126 00:06:38,600 --> 00:06:41,440 Speaker 1: There's a different argument if you're talking about Italy, for example, 127 00:06:41,760 --> 00:06:46,040 Speaker 1: But if you look, French productivity has actually matched German 128 00:06:46,040 --> 00:06:49,880 Speaker 1: productivity reasonably well over quite a long period. The French 129 00:06:49,960 --> 00:06:54,480 Speaker 1: problem is more that they do have sclerotic labor markets 130 00:06:54,520 --> 00:06:58,920 Speaker 1: and too high public expenditure and too high taxation. I 131 00:06:58,960 --> 00:07:02,640 Speaker 1: don't think it's a problem of the competitiveness of the 132 00:07:02,680 --> 00:07:06,080 Speaker 1: French trading sector, which is very highly competitive. Me in 133 00:07:06,080 --> 00:07:08,480 Speaker 1: the French produced you know, the almost per hour more 134 00:07:08,520 --> 00:07:12,000 Speaker 1: than we do in the traded sector. So I don't 135 00:07:12,000 --> 00:07:14,480 Speaker 1: think the answer for France is a decline in the 136 00:07:14,520 --> 00:07:17,000 Speaker 1: euro in The answer for France is a rebalancing of 137 00:07:17,040 --> 00:07:21,560 Speaker 1: their economy away from the public sector. Jonathan. As the 138 00:07:21,640 --> 00:07:26,760 Speaker 1: UK leaves, the relationship between Germany and France becomes closer, closer, 139 00:07:26,880 --> 00:07:30,480 Speaker 1: more interesting, and probably in favor of France as a 140 00:07:30,560 --> 00:07:34,160 Speaker 1: result of the kind of the three way split changing. 141 00:07:34,920 --> 00:07:39,200 Speaker 1: How does Mr McCraw take Germany along for the ride? 142 00:07:39,520 --> 00:07:41,360 Speaker 1: And and he is he the guy to do it? 143 00:07:41,480 --> 00:07:44,280 Speaker 1: He's very pro Europe. We heard the music, we've heard 144 00:07:44,360 --> 00:07:47,840 Speaker 1: seen the flags. Is he going to be changing Europe 145 00:07:47,840 --> 00:07:49,600 Speaker 1: in a meaningful way? And will the Germans be on 146 00:07:49,680 --> 00:07:52,000 Speaker 1: board with it? I think it's the best chance of 147 00:07:52,160 --> 00:07:54,640 Speaker 1: something meaningful happening over the next couple of years. He's 148 00:07:54,640 --> 00:07:58,240 Speaker 1: already worked with the Germans. He's drawn up various plans 149 00:07:58,400 --> 00:08:01,480 Speaker 1: for going into the fiscal side of the euro with 150 00:08:01,520 --> 00:08:04,440 Speaker 1: the Social Democrats. Submittedly, but I was in Berlin a 151 00:08:04,480 --> 00:08:06,840 Speaker 1: couple of weeks ago, and certainly the people around CDU, 152 00:08:06,920 --> 00:08:10,040 Speaker 1: around Merkel, they're very anxious to work with Machorn and 153 00:08:10,080 --> 00:08:13,320 Speaker 1: I think they may cut him a bit of easy 154 00:08:13,520 --> 00:08:15,960 Speaker 1: ease on the budget and the deficit things over the 155 00:08:16,040 --> 00:08:17,960 Speaker 1: next couple of years. So long as to go back 156 00:08:17,960 --> 00:08:21,000 Speaker 1: to what how it says he delivers some reforms, Sirard. 157 00:08:21,000 --> 00:08:23,040 Speaker 1: A final question to you before you start your day 158 00:08:23,080 --> 00:08:26,320 Speaker 1: for RBS, what do you need from Janet yelling? Right now? 159 00:08:26,560 --> 00:08:29,080 Speaker 1: We have you not talked about the American Central Bank? 160 00:08:29,400 --> 00:08:32,280 Speaker 1: What does cher yelling need to do in the coming weeks. Well, 161 00:08:32,280 --> 00:08:33,800 Speaker 1: I think she needs to do what she said she's 162 00:08:33,800 --> 00:08:36,080 Speaker 1: going to do, and that would be fine, I think. 163 00:08:36,280 --> 00:08:39,520 Speaker 1: And also I think probably the Fed does need some 164 00:08:39,679 --> 00:08:42,000 Speaker 1: greater clarity about how it's going to reduce the size 165 00:08:42,000 --> 00:08:43,920 Speaker 1: of this balance sheet. My own view is the central 166 00:08:43,920 --> 00:08:45,720 Speaker 1: bank balance sheet in the medium term, in the long 167 00:08:45,840 --> 00:08:47,319 Speaker 1: term are going to be bigger than they used to be, 168 00:08:47,520 --> 00:08:49,240 Speaker 1: but not as big as they are now. And I 169 00:08:49,240 --> 00:08:51,360 Speaker 1: think they need to find some way of edging that 170 00:08:51,400 --> 00:08:54,120 Speaker 1: balance sheet down, and that's I think the big conundrum 171 00:08:54,160 --> 00:08:56,920 Speaker 1: that we're looking for. Maybe edging is an uncer Howard 172 00:08:56,960 --> 00:08:59,360 Speaker 1: phrase for tapering as well. Thank you so much for 173 00:08:59,360 --> 00:09:02,240 Speaker 1: a generous set of time this morning, Sir Howard Davis, 174 00:09:02,240 --> 00:09:17,640 Speaker 1: as chairman of our Eric Nielsen joins us from Berlin. 175 00:09:17,720 --> 00:09:20,200 Speaker 1: He's the chief economist with the UniCredit group. And let's 176 00:09:20,200 --> 00:09:22,360 Speaker 1: start with the French election, if we could hear Eric 177 00:09:22,840 --> 00:09:24,360 Speaker 1: and let me just get your sense of of what 178 00:09:24,480 --> 00:09:27,239 Speaker 1: import we can draw from it. Of course there's domestic significance, 179 00:09:27,240 --> 00:09:30,240 Speaker 1: but when you look at its importance to Europe, to 180 00:09:30,320 --> 00:09:32,560 Speaker 1: the euro Zone, give us your sense of of what 181 00:09:32,559 --> 00:09:36,400 Speaker 1: what what we can draw from that. Yeah, I think 182 00:09:36,400 --> 00:09:40,760 Speaker 1: that it's good news on two accounts. First and foremost, 183 00:09:41,600 --> 00:09:45,880 Speaker 1: it sort of brings a French kind of a leadership 184 00:09:46,000 --> 00:09:49,040 Speaker 1: rule back in place as Europe had originally. I thought 185 00:09:49,080 --> 00:09:52,200 Speaker 1: we had been frozen during the Secosi and the Olan period. 186 00:09:52,280 --> 00:09:55,040 Speaker 1: So Germany has been looking for for a good friends 187 00:09:55,240 --> 00:09:58,440 Speaker 1: collection or a French ship partner in a lot of this. 188 00:09:58,960 --> 00:10:01,079 Speaker 1: And if anything, the risk is now that the Friends 189 00:10:01,080 --> 00:10:03,679 Speaker 1: are going to get more euro pro European than than 190 00:10:03,720 --> 00:10:06,640 Speaker 1: the Germans and wanted to do more than the present 191 00:10:06,640 --> 00:10:08,800 Speaker 1: German government want to do. But but certainly it's a 192 00:10:08,800 --> 00:10:13,120 Speaker 1: big move in that direction. Secondly, um, it's a big 193 00:10:13,200 --> 00:10:16,360 Speaker 1: message that they're, through the European politician and other places 194 00:10:16,360 --> 00:10:20,320 Speaker 1: including Italy, that there is a victory to be gained 195 00:10:20,320 --> 00:10:24,160 Speaker 1: by being unashamefully pro European. It's the first time you've 196 00:10:24,160 --> 00:10:28,720 Speaker 1: had a clear choice in a country between somebody really European. 197 00:10:28,840 --> 00:10:31,920 Speaker 1: Noticed when he walked out in front of the Roue 198 00:10:31,920 --> 00:10:35,040 Speaker 1: War he had did not have the French national anthems 199 00:10:35,040 --> 00:10:37,720 Speaker 1: playing for the European one. This is a big message 200 00:10:37,800 --> 00:10:40,600 Speaker 1: across Europe. I think drew the contrast, if you would, 201 00:10:40,640 --> 00:10:42,959 Speaker 1: between the economy in Germany where you are right now 202 00:10:43,240 --> 00:10:49,800 Speaker 1: in France. How different are these two economies within Europe? Uh? Different, 203 00:10:49,880 --> 00:10:52,120 Speaker 1: but not nearly as different as you think. Let me 204 00:10:52,160 --> 00:10:57,120 Speaker 1: stop by reminding you and the listeners that, since if 205 00:10:57,160 --> 00:10:59,640 Speaker 1: you look at real GDP, France has actually done better 206 00:10:59,679 --> 00:11:02,880 Speaker 1: than many so culatives since they introducted the Euro, the 207 00:11:02,920 --> 00:11:06,240 Speaker 1: French real GDP is up aside a couple of presentative points, 208 00:11:06,240 --> 00:11:09,320 Speaker 1: more than the German. So we get very excited about 209 00:11:09,360 --> 00:11:11,880 Speaker 1: these cycles and swings and and and all the rest 210 00:11:11,880 --> 00:11:14,760 Speaker 1: of it. But these are not that different economies at 211 00:11:14,760 --> 00:11:16,439 Speaker 1: the end of the day, and none of the two 212 00:11:16,480 --> 00:11:20,600 Speaker 1: economies have severe imbalances. If anything, Germany has a two 213 00:11:20,600 --> 00:11:24,120 Speaker 1: big current count surplus, but but not the negative ones 214 00:11:24,200 --> 00:11:27,960 Speaker 1: that that sort of spilled trouble right around the corner. Um. 215 00:11:28,320 --> 00:11:32,960 Speaker 1: That said, the labor market is more rigid, particularly for 216 00:11:33,040 --> 00:11:35,720 Speaker 1: younger people in France. But again, if you look at 217 00:11:35,720 --> 00:11:39,040 Speaker 1: the o c D indicators for rigidities, the two countries 218 00:11:39,080 --> 00:11:43,640 Speaker 1: are quite similar. But but surely there's more rigidities in 219 00:11:43,679 --> 00:11:47,040 Speaker 1: the French economy. That means that it dips less in 220 00:11:47,160 --> 00:11:51,040 Speaker 1: recessions and accelerate less in the recoveries. And that's exactly 221 00:11:51,040 --> 00:11:53,640 Speaker 1: what we've seen, but when you look through it for 222 00:11:53,640 --> 00:11:59,960 Speaker 1: for a decade or so, they perform incredibly uh incredibly alive. 223 00:12:00,320 --> 00:12:02,160 Speaker 1: Eric Nielsen with the UniCredit group with us here on 224 00:12:02,240 --> 00:12:05,320 Speaker 1: Bloomberg Surveillance from Bloomberg Gritty. You talk about labor market 225 00:12:05,840 --> 00:12:10,000 Speaker 1: rigidityes and this president elect has promised to change some 226 00:12:10,080 --> 00:12:12,200 Speaker 1: of those are less than some of those. What kind 227 00:12:12,240 --> 00:12:14,679 Speaker 1: of difference could that make to the French economy if 228 00:12:14,679 --> 00:12:17,319 Speaker 1: you were to make progress on that? And I use 229 00:12:17,440 --> 00:12:19,839 Speaker 1: the word were there? How difficult and undertaking is this 230 00:12:19,960 --> 00:12:24,800 Speaker 1: going to be? It's difficult. They have unions who are 231 00:12:24,840 --> 00:12:27,240 Speaker 1: already on the streets now. But he has a mandate. 232 00:12:27,360 --> 00:12:30,040 Speaker 1: You could argue, um, and I would suggest that what 233 00:12:30,120 --> 00:12:32,600 Speaker 1: he needs to do and probably want we'll do is 234 00:12:32,640 --> 00:12:35,800 Speaker 1: not a lot you could and he doesn't necessarily have 235 00:12:35,920 --> 00:12:38,280 Speaker 1: to do a whole lot what he I think that 236 00:12:38,400 --> 00:12:40,959 Speaker 1: the most obvious one would be to copy the German 237 00:12:41,640 --> 00:12:44,800 Speaker 1: flexible label laws for the youth unemployed that Germany did 238 00:12:44,840 --> 00:12:47,600 Speaker 1: with the Sword reforms so way back, and a lot 239 00:12:47,600 --> 00:12:50,960 Speaker 1: of these timber employments in Germany have actually been merged 240 00:12:51,000 --> 00:12:55,559 Speaker 1: into permanent employments since so there's certainly a live an 241 00:12:55,600 --> 00:12:57,760 Speaker 1: idea to be lifted there that that could help on 242 00:12:57,880 --> 00:12:59,960 Speaker 1: that side. The other one, which I think is important 243 00:13:00,160 --> 00:13:02,520 Speaker 1: not only in France but throughout Europe and in Italy 244 00:13:02,559 --> 00:13:06,240 Speaker 1: included is to lower the payroll tax. So they so 245 00:13:06,679 --> 00:13:09,360 Speaker 1: it is it is ironic the politicians say they want 246 00:13:09,360 --> 00:13:12,600 Speaker 1: people in employment, and the tax employers who try to 247 00:13:12,640 --> 00:13:15,840 Speaker 1: employ people, and particularly young people who in this world 248 00:13:15,840 --> 00:13:19,040 Speaker 1: economy in Europe struggled to make a return for the 249 00:13:19,080 --> 00:13:21,920 Speaker 1: company they work for that matches the cost of them. 250 00:13:22,120 --> 00:13:25,440 Speaker 1: So why not cut the tax on the payroll So 251 00:13:25,679 --> 00:13:28,400 Speaker 1: and I think that's something he will be doing. President 252 00:13:28,679 --> 00:13:31,080 Speaker 1: spoke with with the President elector of France, Amandel McCown 253 00:13:31,200 --> 00:13:33,920 Speaker 1: yesterday by by fun, I imagine the relationship that we're 254 00:13:33,960 --> 00:13:36,040 Speaker 1: going to be paying The closest attention to though, is 255 00:13:36,240 --> 00:13:40,640 Speaker 1: Mr mccrowen's relationship with Angela Merkel. How well do you 256 00:13:40,679 --> 00:13:43,640 Speaker 1: think they get along? How important is that relationship going 257 00:13:43,679 --> 00:13:48,240 Speaker 1: to be going forward? I think it's gonna be incredibly important. 258 00:13:48,520 --> 00:13:51,679 Speaker 1: Um I would, as I said, the Germans have been 259 00:13:51,840 --> 00:13:54,320 Speaker 1: been longing for a French leader who is willing to 260 00:13:54,320 --> 00:13:58,240 Speaker 1: to pick up joint leadership on issues with relations with 261 00:13:58,320 --> 00:14:01,120 Speaker 1: Russia and Ukraine and out with the US, which is 262 00:14:01,120 --> 00:14:04,280 Speaker 1: a becoming more tricky partner for sure, but to to 263 00:14:04,520 --> 00:14:07,520 Speaker 1: sort of obtaking on the European economic side. I think 264 00:14:07,559 --> 00:14:10,360 Speaker 1: the important thing here is that mccoon needs to do 265 00:14:10,440 --> 00:14:13,240 Speaker 1: something for the Germans. First. He needs to pledge at 266 00:14:13,240 --> 00:14:15,800 Speaker 1: degree of fiscal discipline, so he sort of puts the 267 00:14:15,840 --> 00:14:19,280 Speaker 1: rest is constant German fear that that the French are 268 00:14:19,360 --> 00:14:21,880 Speaker 1: just running away with the Fiskeland ultimately want to be 269 00:14:21,880 --> 00:14:24,040 Speaker 1: paid up by Germans. He needs to make that very 270 00:14:24,120 --> 00:14:26,080 Speaker 1: very clear, and he needs to address some of the 271 00:14:26,160 --> 00:14:30,080 Speaker 1: labor issues we've just talked about. And once he's done that, 272 00:14:30,120 --> 00:14:33,400 Speaker 1: there will be scope, probably only after the election in 273 00:14:33,440 --> 00:14:38,080 Speaker 1: Germany for for further corporation, certainly on security matters, but 274 00:14:38,480 --> 00:14:41,480 Speaker 1: there could also be other issues. The capital markets reform 275 00:14:41,520 --> 00:14:45,080 Speaker 1: could be accelerated, the banking before banking union could be completed, 276 00:14:45,480 --> 00:14:48,400 Speaker 1: and maybe maybe they're certainly talking in Berlin about it, 277 00:14:48,560 --> 00:14:52,120 Speaker 1: an attempt to do something on unemployment benefits. Eric Nielsen 278 00:14:52,160 --> 00:14:54,080 Speaker 1: with US. He's the chief economist at the Union Credit Group. 279 00:14:54,120 --> 00:14:56,240 Speaker 1: My co host Tom Keane has traded the send in 280 00:14:56,280 --> 00:14:59,160 Speaker 1: for the Thames joins us now from our bureau in 281 00:14:59,240 --> 00:15:02,560 Speaker 1: London and Tom I trust the Eurostar wide was uneventful. 282 00:15:03,000 --> 00:15:05,760 Speaker 1: Why can't this be in America? I think it's because 283 00:15:05,760 --> 00:15:07,760 Speaker 1: it's a sinkhole of money. But I'll tell you it 284 00:15:07,880 --> 00:15:11,360 Speaker 1: is a beautiful and very successful training right. Thank you 285 00:15:11,360 --> 00:15:15,640 Speaker 1: yours for your care. Yesterday from London, from New York, 286 00:15:15,680 --> 00:15:19,800 Speaker 1: Bloomberg Surveillance with it's Eric Nielsen from Berlin. This morning 287 00:15:19,800 --> 00:15:22,360 Speaker 1: he is with Uni Credit. Eric, we talked about this, 288 00:15:22,440 --> 00:15:24,800 Speaker 1: that and the other thing. But it does circle back, 289 00:15:24,840 --> 00:15:28,560 Speaker 1: certainly for our American listeners to the US dollar. What 290 00:15:28,680 --> 00:15:32,160 Speaker 1: is the Uni Credit call on dollars stability or do 291 00:15:32,240 --> 00:15:37,320 Speaker 1: we see a trichet like brutal move in the months ahead. No, 292 00:15:37,520 --> 00:15:39,000 Speaker 1: we don't have. We don't think it's going to be 293 00:15:39,080 --> 00:15:41,160 Speaker 1: a bruder move, Tom. I mean I think the so 294 00:15:41,240 --> 00:15:44,160 Speaker 1: we have we have just revised all your dollar a bit. 295 00:15:44,280 --> 00:15:47,040 Speaker 1: But this is more a euro appreciation story than a 296 00:15:47,120 --> 00:15:50,480 Speaker 1: dollar depreciation story right now. In other words, from an 297 00:15:50,520 --> 00:15:52,640 Speaker 1: American point of view, we think that Trump is going 298 00:15:52,680 --> 00:15:56,560 Speaker 1: to be rather ineffective and sort of talking the dollar weaker. 299 00:15:57,440 --> 00:15:59,520 Speaker 1: But but in trade way to terms, it will be 300 00:15:59,560 --> 00:16:02,880 Speaker 1: a bit because you're seeing quite a bit of interest 301 00:16:02,920 --> 00:16:05,800 Speaker 1: in European ass now that drives the euro stronger obviously, 302 00:16:05,800 --> 00:16:07,800 Speaker 1: and and on the trade with the trip that will 303 00:16:08,200 --> 00:16:10,280 Speaker 1: get the dollar a little bit weaker. But we don't know. 304 00:16:10,320 --> 00:16:14,240 Speaker 1: We don't expect very dramatic books. When you when you 305 00:16:14,320 --> 00:16:17,880 Speaker 1: look here at the future of the European project, Russia 306 00:16:17,920 --> 00:16:20,720 Speaker 1: has to loom large. We had Angela Merkel in Russia 307 00:16:20,800 --> 00:16:24,120 Speaker 1: last week meeting with Vladimir Putin. How how much of 308 00:16:24,600 --> 00:16:27,000 Speaker 1: the strength of the European Union right now has to 309 00:16:27,040 --> 00:16:30,359 Speaker 1: do just with the the change in in in political trajectory, 310 00:16:30,560 --> 00:16:33,560 Speaker 1: policy trajectory that we've seen in Russia. Is that is 311 00:16:33,560 --> 00:16:38,120 Speaker 1: that leading to more strength in the European Union? Eric, Yeah, 312 00:16:38,200 --> 00:16:40,200 Speaker 1: without a sount, but it's not the only one, right, 313 00:16:40,240 --> 00:16:43,520 Speaker 1: I mean, I think you contract the European relationship with 314 00:16:43,640 --> 00:16:47,520 Speaker 1: Pruting back to his re emergence as president was in 315 00:16:47,600 --> 00:16:50,240 Speaker 1: two thousand and twelve, right where and and he's handling 316 00:16:50,240 --> 00:16:53,880 Speaker 1: on the demonstrations where people starts a question whether he 317 00:16:54,040 --> 00:16:55,800 Speaker 1: was how much of a democratic it was. Then we 318 00:16:55,840 --> 00:16:58,400 Speaker 1: have this shock of Crimea and Ukraine, we have the 319 00:16:58,400 --> 00:17:01,120 Speaker 1: shock of of Syria and in the shock of the 320 00:17:01,240 --> 00:17:04,639 Speaker 1: apparent as almost proven right interference in the American election 321 00:17:04,720 --> 00:17:08,239 Speaker 1: and messing around in France apparently, so there's so this 322 00:17:08,320 --> 00:17:11,119 Speaker 1: is an interest. But your point is very interesting because 323 00:17:11,200 --> 00:17:14,160 Speaker 1: I think what you have seen from a European perspective 324 00:17:14,240 --> 00:17:16,960 Speaker 1: now is anybody who wanted to flirt with the idea 325 00:17:17,359 --> 00:17:20,600 Speaker 1: of sometimes these same politicians you know, in effective we 326 00:17:20,640 --> 00:17:22,679 Speaker 1: need a strong guy. So I think you look at 327 00:17:22,680 --> 00:17:24,800 Speaker 1: putting little ergon and you look at at least the 328 00:17:24,840 --> 00:17:28,600 Speaker 1: one want to be strong guy Trump and Europeans, the 329 00:17:28,720 --> 00:17:32,320 Speaker 1: vast majority majority of Europeans do not see something they like. 330 00:17:32,880 --> 00:17:36,320 Speaker 1: So you so these events outside Europe have for sure 331 00:17:37,080 --> 00:17:40,560 Speaker 1: is strengthened the ability of things being. Politicians say, this 332 00:17:40,640 --> 00:17:42,359 Speaker 1: is not where we're going, Eric, we gotta leave it there. 333 00:17:42,440 --> 00:17:51,040 Speaker 1: Eric Nielsen, chief economist of the UniCredit Group. Brought you 334 00:17:51,200 --> 00:17:55,280 Speaker 1: by Bank of America. Marylynch dedicated to bringing our clients 335 00:17:55,400 --> 00:17:59,520 Speaker 1: insights and solutions to meet the challenges of a transforming world. 336 00:18:00,080 --> 00:18:03,920 Speaker 1: That's the power of global connections. Mary Lynch, Pierce Federan 337 00:18:03,960 --> 00:18:13,520 Speaker 1: Smith Incorporated, Member s I p C. There's something new 338 00:18:13,560 --> 00:18:16,919 Speaker 1: from Bloomberg. It's called Lens. Starting right now, you can 339 00:18:17,040 --> 00:18:20,840 Speaker 1: use the Bloomberg Io s app off your iPhone or iPad, 340 00:18:21,440 --> 00:18:25,320 Speaker 1: or our new Google Chrome extension to read any news 341 00:18:25,400 --> 00:18:29,720 Speaker 1: story on any website, scan it, and then instantly see 342 00:18:29,760 --> 00:18:33,840 Speaker 1: the news stories relevant market data from Bloomberg. In addition, 343 00:18:34,200 --> 00:18:37,280 Speaker 1: see all the bios of the key people mentioned in 344 00:18:37,359 --> 00:18:40,399 Speaker 1: the story. It's called lens, and it is just that, 345 00:18:40,720 --> 00:18:43,760 Speaker 1: a lens into the people and the data of any 346 00:18:43,880 --> 00:18:47,720 Speaker 1: story you may be reading. Again, Lens brings you the 347 00:18:47,800 --> 00:18:51,320 Speaker 1: power of Bloomberg's news and data. Download or io s 348 00:18:51,359 --> 00:18:54,639 Speaker 1: app or search for the Bloomberg extension at the Chrome 349 00:18:54,760 --> 00:18:58,200 Speaker 1: Store to try lens out. Learn more at Bloomberg dot 350 00:18:58,240 --> 00:19:06,240 Speaker 1: com slash lens. Let's go to Steve Whiting. Now he is, 351 00:19:06,320 --> 00:19:08,600 Speaker 1: as I said, the global Chief Investment Strategic City. I've 352 00:19:08,600 --> 00:19:10,320 Speaker 1: probably been great to have you with us against Steve 353 00:19:10,520 --> 00:19:13,159 Speaker 1: un surveillance. Let's start with that. Your your read of 354 00:19:13,200 --> 00:19:16,399 Speaker 1: what's going on in Washington. The President chalked up a 355 00:19:16,520 --> 00:19:21,040 Speaker 1: legislative victory. Does that give you, as an investor any 356 00:19:21,160 --> 00:19:23,040 Speaker 1: any better sense of what's to come? In other words, 357 00:19:23,200 --> 00:19:25,320 Speaker 1: what did that signify to you? Getting that healthcare vote 358 00:19:25,359 --> 00:19:28,359 Speaker 1: through the House? You know, I tend to have a 359 00:19:28,440 --> 00:19:31,480 Speaker 1: little bit higher confidence that at the end of the day, 360 00:19:32,240 --> 00:19:36,000 Speaker 1: Congressional Republicans and the President will manage to cut taxes, 361 00:19:36,680 --> 00:19:39,480 Speaker 1: whether that will be a full blown reform or not 362 00:19:39,640 --> 00:19:41,840 Speaker 1: as to be seen. But you have to remember that 363 00:19:42,080 --> 00:19:44,680 Speaker 1: with all of the either failed votes or votes that 364 00:19:44,800 --> 00:19:48,560 Speaker 1: don't take place, it will take only one successful vote 365 00:19:48,760 --> 00:19:51,480 Speaker 1: to change the fiscal outlook in two thousand eighteen. As 366 00:19:51,640 --> 00:19:54,280 Speaker 1: late as that may come, um, you know, it could 367 00:19:54,320 --> 00:19:56,840 Speaker 1: come at the end of the August session, it could 368 00:19:56,880 --> 00:19:59,800 Speaker 1: come later. But you know, we think of this as 369 00:20:00,000 --> 00:20:02,840 Speaker 1: mostly a two thousand eighteen effect. And you know this 370 00:20:03,040 --> 00:20:06,920 Speaker 1: is one sign that ultimately they with a majority or 371 00:20:07,240 --> 00:20:13,119 Speaker 1: not in a single party gridlock. I saw Steve Whiting 372 00:20:14,000 --> 00:20:16,760 Speaker 1: once again. Earnings I think did better than good. You 373 00:20:16,840 --> 00:20:22,200 Speaker 1: are wonderfully skilled folding earnings dynamics into the economy. Do 374 00:20:22,280 --> 00:20:27,120 Speaker 1: you just equate over great earnings great g d P. Well, 375 00:20:27,240 --> 00:20:29,520 Speaker 1: I think that there's this translation issue, and you know 376 00:20:29,600 --> 00:20:32,480 Speaker 1: it's worth mentioning. It looks like first quarter EPs for 377 00:20:32,640 --> 00:20:36,400 Speaker 1: large CAPUS companies has grown fifteen percent from a year ago. 378 00:20:36,960 --> 00:20:39,280 Speaker 1: I have to remember g d p s typically not 379 00:20:39,440 --> 00:20:41,399 Speaker 1: in the United States reported on a year at a 380 00:20:41,480 --> 00:20:45,560 Speaker 1: year basis. Uh it's inflation adjusted, so reduced by the 381 00:20:45,720 --> 00:20:49,000 Speaker 1: rise of inflation, and we did have an excessive two 382 00:20:49,080 --> 00:20:52,639 Speaker 1: percent headline inflation in the first quarter, so it's not 383 00:20:52,760 --> 00:20:54,960 Speaker 1: a nominal figure. So you have to adjust for all 384 00:20:55,000 --> 00:20:57,640 Speaker 1: of those things. And you have to remember that profits 385 00:20:57,680 --> 00:21:00,639 Speaker 1: are just more cyclical than the economy. You know, they 386 00:21:00,720 --> 00:21:04,879 Speaker 1: boom and bust around a relatively steady, steady economy. You know, 387 00:21:05,080 --> 00:21:08,480 Speaker 1: laundromats and hair salons are in GDP, but not in 388 00:21:08,680 --> 00:21:11,600 Speaker 1: you know, S and P profits. See, we just had 389 00:21:11,640 --> 00:21:13,119 Speaker 1: actual work on the show a few minutes ago and 390 00:21:13,160 --> 00:21:15,600 Speaker 1: Tom asked him how he plays Asia. How do you 391 00:21:15,680 --> 00:21:17,600 Speaker 1: regard or look at Asia right now? Where is the 392 00:21:17,640 --> 00:21:22,680 Speaker 1: opportunity in Asia? Well, we've upgraded our view of emerging 393 00:21:22,760 --> 00:21:26,359 Speaker 1: Asia in particular, and you know, I would note that, 394 00:21:26,600 --> 00:21:31,240 Speaker 1: you know, we have seen uh decreased sensitivity in Asia 395 00:21:31,720 --> 00:21:35,000 Speaker 1: to rising US rates. Now you can couple that with 396 00:21:35,480 --> 00:21:39,399 Speaker 1: at least the feds U forecasts that it's tightening cycle 397 00:21:39,520 --> 00:21:42,320 Speaker 1: this time around in real terms is likely to be 398 00:21:42,440 --> 00:21:46,960 Speaker 1: only about half the average tightening cycle you have. Obviously, 399 00:21:47,040 --> 00:21:48,840 Speaker 1: they are all these questions, you know, what's sort of 400 00:21:48,960 --> 00:21:52,000 Speaker 1: dead is there in China? Questions all the time, But 401 00:21:52,240 --> 00:21:55,520 Speaker 1: so many investors just ignore the assets side of the 402 00:21:55,560 --> 00:21:59,000 Speaker 1: balance sheet in China. And so you couple this all together, 403 00:21:59,200 --> 00:22:02,000 Speaker 1: and if the US is not disrupting the world with 404 00:22:02,160 --> 00:22:06,320 Speaker 1: tremendously high interest rates UM or or trade disruptions of 405 00:22:06,359 --> 00:22:09,520 Speaker 1: any sort. Uh, then Asia should thrive. And I would 406 00:22:09,520 --> 00:22:12,600 Speaker 1: say that the export picture has actually been a real 407 00:22:13,200 --> 00:22:18,480 Speaker 1: new positive surprise there within the positive surprise is what 408 00:22:19,520 --> 00:22:22,800 Speaker 1: Schure yelling will do. And President drog and the rest. 409 00:22:23,119 --> 00:22:25,960 Speaker 1: Are they just behind? Is it just simple to say that, 410 00:22:26,119 --> 00:22:29,359 Speaker 1: given better economies and the micro news that David and 411 00:22:29,480 --> 00:22:33,400 Speaker 1: I hear every day, there are central banks are behind? Well, 412 00:22:33,440 --> 00:22:36,239 Speaker 1: I think there's um two ways to look at this. Um. 413 00:22:36,600 --> 00:22:38,480 Speaker 1: First of all, they would not tell you there behind. 414 00:22:38,720 --> 00:22:41,920 Speaker 1: I would say, to a certain extent, they've changed the game. 415 00:22:42,440 --> 00:22:46,040 Speaker 1: If you think about the United States, you know since uh, 416 00:22:46,600 --> 00:22:49,600 Speaker 1: you know, the nineteen seventies, most of that time it 417 00:22:49,720 --> 00:22:52,760 Speaker 1: was trying to force down the inflation rate, lock in 418 00:22:52,920 --> 00:22:56,720 Speaker 1: in ever lower inflation trend, use every recession as a 419 00:22:56,880 --> 00:23:01,639 Speaker 1: chance to make the inflation rate lower towards price stability. Uh. 420 00:23:01,760 --> 00:23:03,879 Speaker 1: And you know from most of this cycle the Federal 421 00:23:03,920 --> 00:23:07,320 Speaker 1: Reserve is argued that the trend inflation rate is too low. Um. 422 00:23:07,440 --> 00:23:09,920 Speaker 1: They think that they might overshoot if they don't tighten 423 00:23:10,000 --> 00:23:13,040 Speaker 1: to some extent. But again, the game has changed from 424 00:23:13,119 --> 00:23:16,600 Speaker 1: from that one, so naturally they go in a more 425 00:23:16,680 --> 00:23:19,480 Speaker 1: mild way. I do think that balance sheet adjustment on 426 00:23:19,560 --> 00:23:21,200 Speaker 1: the part of the Fed, the idea that they won't 427 00:23:21,240 --> 00:23:24,680 Speaker 1: hold more bonds than they need to to conduct monetary 428 00:23:24,760 --> 00:23:28,159 Speaker 1: policy the way they want. Uh, that is going to 429 00:23:28,240 --> 00:23:30,880 Speaker 1: be a volable event. And uh, you know it has 430 00:23:30,960 --> 00:23:33,320 Speaker 1: been over the last eight years at times when the 431 00:23:33,359 --> 00:23:37,080 Speaker 1: Federal Reserves balance sheet has shrunk pot passively when they 432 00:23:37,119 --> 00:23:39,520 Speaker 1: have not had a new quee program. There's been some 433 00:23:39,680 --> 00:23:42,280 Speaker 1: volatility around that. But I think that they will come 434 00:23:42,359 --> 00:23:45,399 Speaker 1: back and and look at that financial market impact and 435 00:23:45,520 --> 00:23:48,200 Speaker 1: say we are not going to allow, you know, balance 436 00:23:48,240 --> 00:23:51,480 Speaker 1: sheet normalization of this desire to have fewer bonds, you know, 437 00:23:51,720 --> 00:23:54,880 Speaker 1: to override you know, where they want to set financial 438 00:23:54,920 --> 00:23:57,399 Speaker 1: conditions and set monetary policy. So in the end, I 439 00:23:57,440 --> 00:23:59,600 Speaker 1: don't think the balance sheet will shrink very much. By 440 00:23:59,640 --> 00:24:01,880 Speaker 1: the way, thy Ben Bernanke has bitten written very well 441 00:24:01,920 --> 00:24:04,359 Speaker 1: about this recently. Yeah, and I certainly talked with Tom 442 00:24:04,359 --> 00:24:06,000 Speaker 1: a little about that as well, not just last week. 443 00:24:06,080 --> 00:24:07,720 Speaker 1: Let's talk more about the FED here and just woman 444 00:24:07,840 --> 00:24:10,080 Speaker 1: we'll come back with Steve White's the global chief Strategic 445 00:24:10,160 --> 00:24:12,520 Speaker 1: City Private Bank. So much to talk about when it 446 00:24:12,560 --> 00:24:15,440 Speaker 1: comes to the FED, also to the geopolitical landscape in 447 00:24:15,560 --> 00:24:18,160 Speaker 1: Europe as we look ahead to uh, the snap election 448 00:24:18,200 --> 00:24:20,640 Speaker 1: where you are Tom in one a month's time. Yeah, 449 00:24:20,720 --> 00:24:22,800 Speaker 1: we've really turned to it with a vengeance today and 450 00:24:23,200 --> 00:24:26,119 Speaker 1: it's certainly front and center all the newspapers. Guy Johnson 451 00:24:26,280 --> 00:24:30,920 Speaker 1: was translating the Labor Party festivities in Manchester today. Manchester. 452 00:24:31,080 --> 00:24:34,120 Speaker 1: David is a city. It's outside of London. Yes, home 453 00:24:34,200 --> 00:24:36,560 Speaker 1: to the home to the Guardian newspaper. If I'm not mistaken, 454 00:24:36,640 --> 00:24:39,680 Speaker 1: or it was Stephen. Wherever I go, wherever David goes. 455 00:24:40,320 --> 00:24:43,440 Speaker 1: It's all about the dearth of investment. I know you 456 00:24:43,560 --> 00:24:46,960 Speaker 1: thought hard about this. Is it possible that the new 457 00:24:47,040 --> 00:24:52,920 Speaker 1: investment is a global investment that we can't even observe? Well, look, 458 00:24:53,080 --> 00:24:58,320 Speaker 1: I think we take a peek within most developed markets 459 00:24:58,920 --> 00:25:02,200 Speaker 1: where the data are fine, the investment trend has been 460 00:25:02,840 --> 00:25:06,320 Speaker 1: very modest um. You know, I think people say there's 461 00:25:06,320 --> 00:25:09,520 Speaker 1: been no investment, no investment, only consumption. Really don't have 462 00:25:09,640 --> 00:25:12,399 Speaker 1: that right. You know, in the US we had a 463 00:25:12,520 --> 00:25:15,359 Speaker 1: massive investment in the energy sector. Here we are now 464 00:25:15,640 --> 00:25:19,320 Speaker 1: mid forties on oil, not in the hundred and fifteen range. 465 00:25:20,240 --> 00:25:23,639 Speaker 1: Other investment has been there, but it hasn't been powerful. 466 00:25:24,240 --> 00:25:26,840 Speaker 1: And if we take a look, you know, country by country, 467 00:25:26,880 --> 00:25:30,399 Speaker 1: there are areas where they're imbalances. China's had in some 468 00:25:30,560 --> 00:25:32,760 Speaker 1: cases probably the only country in the world with too 469 00:25:32,880 --> 00:25:37,280 Speaker 1: much infrastructure investment UM. So there are some imbalances between countries. 470 00:25:37,359 --> 00:25:39,800 Speaker 1: But I don't think that it's some some missing quotient 471 00:25:39,880 --> 00:25:43,400 Speaker 1: doubt there. What's your your sense? We talked about taxi 472 00:25:43,480 --> 00:25:44,840 Speaker 1: form at the top of the interview with you, and 473 00:25:45,240 --> 00:25:47,920 Speaker 1: you express your optimism. We'll see some how about for 474 00:25:48,200 --> 00:25:50,840 Speaker 1: for the kind of fiscal package that President Trump talked 475 00:25:50,880 --> 00:25:52,800 Speaker 1: about when he was a Canada Do you think we're 476 00:25:52,800 --> 00:25:56,240 Speaker 1: going to get anything from from the Congress this year? Well? 477 00:25:56,359 --> 00:25:59,080 Speaker 1: I think we will, I think, but there's so many questions. 478 00:25:59,400 --> 00:26:03,400 Speaker 1: How will it be financed? Does it need to be financed? Uh? 479 00:26:03,560 --> 00:26:06,480 Speaker 1: You know, is this something that is is really going 480 00:26:06,560 --> 00:26:11,000 Speaker 1: to be an effort to uh provide permanent tax reform 481 00:26:11,560 --> 00:26:15,959 Speaker 1: UM deficit neutral because it has to live beyond uh 482 00:26:16,080 --> 00:26:19,840 Speaker 1: ten years or you know, do quite practically what was 483 00:26:19,920 --> 00:26:22,960 Speaker 1: done in the early two thousand's and try something out 484 00:26:23,000 --> 00:26:26,119 Speaker 1: for ten years. If it's good and it helps, you 485 00:26:26,200 --> 00:26:29,520 Speaker 1: can extend it or or let it go. So all 486 00:26:29,560 --> 00:26:33,040 Speaker 1: of those questions haven't been answered, and there's this opening 487 00:26:33,119 --> 00:26:35,359 Speaker 1: position of the different parties and that will be worked 488 00:26:35,400 --> 00:26:38,960 Speaker 1: out until until something's agreed upon. But I do think 489 00:26:39,040 --> 00:26:43,360 Speaker 1: that you know, the potential to get taxes cut uh, 490 00:26:43,560 --> 00:26:46,720 Speaker 1: And some of these issues are really low franging hanging fruit, 491 00:26:46,920 --> 00:26:50,320 Speaker 1: like uh, the ability to bring profits that have never 492 00:26:50,400 --> 00:26:55,080 Speaker 1: been taxed at all at at some rate repatriating those 493 00:26:55,160 --> 00:26:58,200 Speaker 1: sorts of things can be done. Let me ask you 494 00:26:58,200 --> 00:27:00,280 Speaker 1: about political risk in Europe. We've just been through the 495 00:27:00,320 --> 00:27:02,960 Speaker 1: second round of the French election Thomas in London. Of course, 496 00:27:03,000 --> 00:27:05,400 Speaker 1: we have a snap election in London on the eighth 497 00:27:05,480 --> 00:27:08,560 Speaker 1: of June. Are we at a point where we're moving 498 00:27:08,640 --> 00:27:12,320 Speaker 1: past the preponderance of political risk? Are things less risky 499 00:27:12,359 --> 00:27:14,200 Speaker 1: when you look at politics than there were a couple 500 00:27:14,240 --> 00:27:17,840 Speaker 1: of months ago. Well, yes, we've just passed through a 501 00:27:18,040 --> 00:27:21,560 Speaker 1: potential shock and it hasn't occurred. And that's sort of 502 00:27:21,680 --> 00:27:23,680 Speaker 1: you know, the story and markets and the reason why 503 00:27:23,760 --> 00:27:26,159 Speaker 1: things are going well. There's been uh So, as we 504 00:27:26,240 --> 00:27:29,520 Speaker 1: mentioned before, no stimulus so far out of the United States, 505 00:27:29,920 --> 00:27:33,320 Speaker 1: but no disruptions and no shocks. Uh. In the case 506 00:27:33,400 --> 00:27:37,720 Speaker 1: of the near term in Europe, France was looming large. 507 00:27:37,760 --> 00:27:40,240 Speaker 1: You had a candidate who wanted to pull France out 508 00:27:40,320 --> 00:27:42,560 Speaker 1: of the Eurozone. Now, whether she would succeed or not, 509 00:27:42,760 --> 00:27:45,960 Speaker 1: that risk alone would threaten the periphery, and that risk 510 00:27:46,080 --> 00:27:48,040 Speaker 1: is off the table for the near term. Now, whether 511 00:27:48,119 --> 00:27:50,840 Speaker 1: it resumes, you have to consider the fact that Italy's 512 00:27:50,880 --> 00:27:53,119 Speaker 1: economy is the same size it was in two thousand 513 00:27:53,240 --> 00:27:57,960 Speaker 1: four and has a population that's uh, you know, feeling 514 00:27:58,000 --> 00:28:00,320 Speaker 1: like it doesn't benefit quite as much. And at the 515 00:28:00,359 --> 00:28:02,680 Speaker 1: time we've got left with you, let's drift over to 516 00:28:02,760 --> 00:28:06,760 Speaker 1: the investment world. Twenty one twelve, futures up three the 517 00:28:06,920 --> 00:28:12,359 Speaker 1: vix a Whiting like nine point six zero. How do 518 00:28:12,480 --> 00:28:19,520 Speaker 1: you stay invested? If I got pe multinationals? Is that 519 00:28:19,720 --> 00:28:23,640 Speaker 1: nifty fifty too, Stephen Whiting? Look, I think it's hard 520 00:28:23,720 --> 00:28:26,960 Speaker 1: for many investors. They're the ones that have not invested 521 00:28:27,119 --> 00:28:30,719 Speaker 1: or having a hard time committing H two markets at 522 00:28:30,720 --> 00:28:33,160 Speaker 1: these levels. I would tell them if they've been home 523 00:28:33,280 --> 00:28:36,399 Speaker 1: biased US dollar based investors, as we recommended for the 524 00:28:36,520 --> 00:28:40,560 Speaker 1: last few years, to start looking internationally. Consider that, you know, 525 00:28:40,640 --> 00:28:46,400 Speaker 1: global emerging markets equities are below their long term average valuation, 526 00:28:46,520 --> 00:28:51,160 Speaker 1: not relative but their own history. They're below average valuation. 527 00:28:51,320 --> 00:28:53,360 Speaker 1: There are plenty of warriors and risks, but that's why 528 00:28:53,440 --> 00:28:55,680 Speaker 1: there's going to be some future return. And in the 529 00:28:55,800 --> 00:28:59,440 Speaker 1: United States, Uh, if you have earnings going up as 530 00:28:59,480 --> 00:29:00,840 Speaker 1: much as they have, and I think they won't go 531 00:29:00,920 --> 00:29:05,000 Speaker 1: up fifteen percent to every quarter forever, but I certainly 532 00:29:05,040 --> 00:29:07,400 Speaker 1: think that this is not the valuation environment that we 533 00:29:07,480 --> 00:29:10,120 Speaker 1: were in the late nineteen nineties at all. Uh. This 534 00:29:10,320 --> 00:29:13,240 Speaker 1: is not even close to that kind of evaluation problem. 535 00:29:13,520 --> 00:29:16,160 Speaker 1: So the direction of earnings will set the direction of 536 00:29:16,240 --> 00:29:18,440 Speaker 1: markets for the most part. Do you sympathize with what 537 00:29:18,480 --> 00:29:21,480 Speaker 1: axel Work was saying about investors reluctance to hold on 538 00:29:21,600 --> 00:29:23,600 Speaker 1: to cash at this point? Do you think that the 539 00:29:23,680 --> 00:29:26,880 Speaker 1: investors should be holding onto more cash? Well, look, I 540 00:29:26,960 --> 00:29:30,640 Speaker 1: think investors have held on the cash. You know, there's been, um, 541 00:29:30,960 --> 00:29:33,600 Speaker 1: you know, a low volume, low confidence recovery since the 542 00:29:33,680 --> 00:29:38,480 Speaker 1: financial crisis, and cash has been you know, a tremendous overweight, 543 00:29:38,640 --> 00:29:43,760 Speaker 1: even in investment portfolios that are dedicated investment portfolios. UM. So, 544 00:29:44,160 --> 00:29:46,360 Speaker 1: you know, would we have a little dry powder in 545 00:29:46,560 --> 00:29:48,800 Speaker 1: the summer months is the time when we have frequent 546 00:29:48,960 --> 00:29:52,240 Speaker 1: corrections that are temporary. Um, would we want to be 547 00:29:52,320 --> 00:29:55,600 Speaker 1: able to allocate more with some cash, Yes, but I 548 00:29:55,680 --> 00:29:58,880 Speaker 1: think for the most part, investors didn't have confidence that 549 00:29:59,720 --> 00:30:02,240 Speaker 1: you know, we weren't doomed, and they've held on a 550 00:30:02,320 --> 00:30:04,200 Speaker 1: good proportion of them have held onto that view since 551 00:30:04,240 --> 00:30:06,040 Speaker 1: two thousand and eight. That's a quick last question here 552 00:30:06,040 --> 00:30:08,280 Speaker 1: about Latin America and what you're looking at there. I 553 00:30:08,320 --> 00:30:13,560 Speaker 1: look at dollar Mexico here amid still the rhetoric here 554 00:30:13,560 --> 00:30:15,840 Speaker 1: in the US about building a wall and how long 555 00:30:15,920 --> 00:30:18,240 Speaker 1: it will be. In all of that, where's the opportunity 556 00:30:18,240 --> 00:30:19,959 Speaker 1: in Latin America? Are you looking at sovereigns? Are you're 557 00:30:20,000 --> 00:30:23,360 Speaker 1: looking at corporate bonds? What's attractive to you? Well, what's 558 00:30:23,400 --> 00:30:25,280 Speaker 1: really fascinating is that if you just take again look 559 00:30:25,280 --> 00:30:29,760 Speaker 1: at emerging markets, sovereign bonds, most of which are investment grade. Uh, 560 00:30:29,920 --> 00:30:32,920 Speaker 1: you could get in the neighborhood of seven times the 561 00:30:33,040 --> 00:30:36,040 Speaker 1: yield out of government bonds and emerging markets and local currencies. 562 00:30:36,040 --> 00:30:39,240 Speaker 1: Then you could out of corporate bonds in the Eurozone 563 00:30:39,280 --> 00:30:43,280 Speaker 1: taking Euro risk. So uh. You know, Mexico, for example, 564 00:30:43,800 --> 00:30:46,560 Speaker 1: has seen its currency plunge and then get almost all 565 00:30:46,600 --> 00:30:49,400 Speaker 1: of it back, but it's bond market is hovering at 566 00:30:49,440 --> 00:30:52,960 Speaker 1: a seven percent local yield. So in Latin America. We 567 00:30:53,040 --> 00:30:55,880 Speaker 1: think that there are a good fixed income opportunities in particular, 568 00:30:55,960 --> 00:31:00,080 Speaker 1: but like as always, equities would follow. Steve Finning to 569 00:31:00,120 --> 00:31:02,160 Speaker 1: speak with you as all most winning with the City 570 00:31:02,160 --> 00:31:04,320 Speaker 1: Private Bank joining us here on Bloomberg Surveillance. He is 571 00:31:04,800 --> 00:31:07,720 Speaker 1: the global chief Investment Strategy Static City, a private bank. 572 00:31:20,000 --> 00:31:22,160 Speaker 1: David Gura in New York, Tom Keene in London. This 573 00:31:22,240 --> 00:31:24,680 Speaker 1: week this is Bloomberg Surveillance on Bloomberg Grady. The big 574 00:31:24,760 --> 00:31:27,440 Speaker 1: news out of the day in Korea today Moon jay 575 00:31:27,640 --> 00:31:30,800 Speaker 1: In poised to take power in South Korea according to 576 00:31:30,840 --> 00:31:33,040 Speaker 1: a leading exit poll as voter Sutton and a nine 577 00:31:33,120 --> 00:31:35,640 Speaker 1: year a conservative rule there in that country. Scott Snyder 578 00:31:35,720 --> 00:31:37,440 Speaker 1: joins us now. He is a Senior Fellow for Korea 579 00:31:37,480 --> 00:31:39,920 Speaker 1: Studies and director of the Program on US Korea Policy 580 00:31:39,960 --> 00:31:42,760 Speaker 1: at the Council on Foreign Relations. He joins us it Scott, 581 00:31:42,760 --> 00:31:44,160 Speaker 1: great to have you with us. Let's start with this 582 00:31:44,240 --> 00:31:46,960 Speaker 1: Candida who apparently is in the lead again by exit polls, 583 00:31:47,000 --> 00:31:48,920 Speaker 1: Moon jay And what can you tell us about him 584 00:31:48,960 --> 00:31:52,160 Speaker 1: and his party here the more liberal of the two parties. 585 00:31:54,440 --> 00:31:57,360 Speaker 1: That's right, he is what they call progressive Canada and 586 00:31:57,440 --> 00:32:01,200 Speaker 1: South Korea. It's a liberal plot form that has been 587 00:32:01,320 --> 00:32:06,680 Speaker 1: in opposition to the conservative leadership four nine years. Moon 588 00:32:06,800 --> 00:32:09,360 Speaker 1: does have experience with leadership as a former chief of 589 00:32:09,440 --> 00:32:14,440 Speaker 1: staff to then liberal President No Mu chan Uh in 590 00:32:14,520 --> 00:32:17,960 Speaker 1: the mid two thousands. A lot of his policy platforms 591 00:32:18,880 --> 00:32:23,640 Speaker 1: actually draw directly from that era. He is going to 592 00:32:23,720 --> 00:32:27,840 Speaker 1: be more favorable towards trying to have dialogue with North Korea. 593 00:32:28,720 --> 00:32:32,760 Speaker 1: He wants to have greater economic cooperation with North Korea 594 00:32:32,760 --> 00:32:35,480 Speaker 1: as a way of trying to change that country and 595 00:32:35,800 --> 00:32:39,640 Speaker 1: trying trying to ease the attention and conflict with the 596 00:32:39,760 --> 00:32:44,000 Speaker 1: North uh And he's also been h somebody who has 597 00:32:44,120 --> 00:32:48,880 Speaker 1: raised questions about the UHUM missile defense system that the 598 00:32:49,000 --> 00:32:52,440 Speaker 1: US has recently installed in South Korea. He's called for 599 00:32:52,680 --> 00:32:55,840 Speaker 1: view of that decision, but it doesn't necessarily mean that 600 00:32:55,880 --> 00:32:59,440 Speaker 1: he's gonna return it at this point because South Korean 601 00:32:59,440 --> 00:33:02,000 Speaker 1: public units largely in favor of it. I think a 602 00:33:02,080 --> 00:33:04,760 Speaker 1: departure would that be to have more engagement with North Korea. 603 00:33:04,800 --> 00:33:07,120 Speaker 1: What's the what's the status of dialogue between these two 604 00:33:07,240 --> 00:33:11,080 Speaker 1: nations at this point? But really nothing has been going 605 00:33:11,160 --> 00:33:13,600 Speaker 1: on in terms of dialogue for the past few years. 606 00:33:14,200 --> 00:33:19,720 Speaker 1: The progressive blame it on conservative efforts to squeeze North Korea, 607 00:33:20,560 --> 00:33:24,160 Speaker 1: UH and really to induce some kind of regime change. 608 00:33:25,320 --> 00:33:29,040 Speaker 1: But the North Korea's also are not configured to have 609 00:33:29,280 --> 00:33:33,280 Speaker 1: dialogue with the South. The leading individuals who had been 610 00:33:33,360 --> 00:33:36,200 Speaker 1: involved in inter Korean dialogue in the past are no 611 00:33:36,320 --> 00:33:39,760 Speaker 1: longer there, and at least as of now, Ki junglen 612 00:33:39,920 --> 00:33:43,280 Speaker 1: has a general who is in charge of trying to 613 00:33:43,400 --> 00:33:46,120 Speaker 1: support South Korea in charge of his South Korea policy. 614 00:33:46,760 --> 00:33:51,320 Speaker 1: Help us in all of our listeners with our coverage 615 00:33:51,360 --> 00:33:53,320 Speaker 1: of the Korea, as you are truly one of the 616 00:33:53,440 --> 00:33:57,400 Speaker 1: nations experts on all of this, when you hear what 617 00:33:57,600 --> 00:34:01,720 Speaker 1: I perceive is relatively simply us to coverage of North 618 00:34:01,880 --> 00:34:05,280 Speaker 1: and South Korea and the new South Korea, the new 619 00:34:05,360 --> 00:34:08,160 Speaker 1: government as well. What do we most get wrong in 620 00:34:08,239 --> 00:34:14,319 Speaker 1: our coverage? Scott Well? A lot of times the headlines 621 00:34:14,840 --> 00:34:20,720 Speaker 1: UH sees upon things that are a little bit more sensationalistic, 622 00:34:20,840 --> 00:34:24,160 Speaker 1: but when you start to dig in us it seems 623 00:34:24,200 --> 00:34:28,520 Speaker 1: like things are not as dramatic. Certainly on the North 624 00:34:28,640 --> 00:34:34,240 Speaker 1: Korean front. Kim Jong un is portrayed as a stereotypical 625 00:34:34,800 --> 00:34:39,480 Speaker 1: UM kind of joke, but it's a deadly serious joke 626 00:34:39,600 --> 00:34:43,600 Speaker 1: in terms of the nature of his leadership and the 627 00:34:43,719 --> 00:34:47,400 Speaker 1: nature of the threat that he poses in South Korea. 628 00:34:47,560 --> 00:34:49,919 Speaker 1: You've got a kind of you know, black and white 629 00:34:50,000 --> 00:34:56,320 Speaker 1: contrast between choices where you know, really South Korea is 630 00:34:56,360 --> 00:34:58,040 Speaker 1: going to be is going to continue to be an 631 00:34:58,040 --> 00:35:00,839 Speaker 1: ally of the United States, and it really a much 632 00:35:00,880 --> 00:35:05,680 Speaker 1: more constrained choice. Does our president understand the brilliance at 633 00:35:05,719 --> 00:35:12,640 Speaker 1: Scott Snyder just gave us, UM, Well, we'll see the 634 00:35:12,840 --> 00:35:18,440 Speaker 1: right strategy, the right strategy in dealing with a progressive 635 00:35:18,920 --> 00:35:25,000 Speaker 1: leader in South Korea. Uh, he's getting advice from different sources. 636 00:35:25,560 --> 00:35:28,200 Speaker 1: Some of them are pro Alliance and some of them 637 00:35:28,239 --> 00:35:30,719 Speaker 1: wanted distance from the United States. And so the key 638 00:35:30,840 --> 00:35:35,120 Speaker 1: to success is to cultivate the pro Alliance people in 639 00:35:35,239 --> 00:35:40,160 Speaker 1: the new administration and actually to welcome and um um 640 00:35:40,680 --> 00:35:45,799 Speaker 1: to bring bring along Moon as a leader, rather than 641 00:35:45,880 --> 00:35:49,959 Speaker 1: do things like um threatened to make South Korea paid 642 00:35:50,040 --> 00:35:53,520 Speaker 1: for a missile defense system that um it was understood 643 00:35:53,560 --> 00:35:55,520 Speaker 1: the US was going to pay for all along. What 644 00:35:55,640 --> 00:35:58,320 Speaker 1: are the dynamics like right now in in South Korea 645 00:35:58,400 --> 00:36:01,560 Speaker 1: between the presidency and the legislative branch. We talked about 646 00:36:01,560 --> 00:36:03,320 Speaker 1: that in the context of France. Her most most recently, 647 00:36:03,320 --> 00:36:06,400 Speaker 1: the challenges to the Manimu McColl face in France. In Korea, 648 00:36:06,480 --> 00:36:09,520 Speaker 1: is it the same situation? How how much how much 649 00:36:09,560 --> 00:36:11,120 Speaker 1: good faith is he going to get from the parliament 650 00:36:11,160 --> 00:36:15,320 Speaker 1: when he's inaugurated. Yeah, that's a great question, because you know, 651 00:36:15,440 --> 00:36:19,880 Speaker 1: South Korea really has a system that allows the winner 652 00:36:19,960 --> 00:36:23,839 Speaker 1: of the plurality to become the president. Uh. Frankly, if 653 00:36:23,960 --> 00:36:26,319 Speaker 1: the South Korean's had the French system, I'm not sure 654 00:36:26,360 --> 00:36:31,400 Speaker 1: whether Moon would be the next president because his party 655 00:36:31,560 --> 00:36:35,279 Speaker 1: holds a minority in the legislature. And frankly, it's a 656 00:36:35,400 --> 00:36:38,120 Speaker 1: system right now with four or five different parties that 657 00:36:38,600 --> 00:36:41,480 Speaker 1: is designed for gridlock. So he's going to have an 658 00:36:41,680 --> 00:36:46,960 Speaker 1: enormous leadership challenge simply trying to get supporting legislation for 659 00:36:47,239 --> 00:36:50,719 Speaker 1: the agenda that he brings um, you know, through the 660 00:36:51,040 --> 00:36:54,240 Speaker 1: National Assembly. David Guraa in New York, Tom Keene in London. 661 00:36:54,320 --> 00:36:56,719 Speaker 1: This week, this is Bloomberg Surveillance on Bloomberg Rady. We're 662 00:36:56,719 --> 00:36:59,880 Speaker 1: watching the election results come in in South Korea today. 663 00:37:00,200 --> 00:37:03,320 Speaker 1: A Moon j In poised to take power in South Korea. 664 00:37:03,880 --> 00:37:07,759 Speaker 1: He's leading his conservative opponent by forty four percent to 665 00:37:08,120 --> 00:37:11,000 Speaker 1: three point. Scott Snyder is with US he's director of 666 00:37:11,000 --> 00:37:12,880 Speaker 1: the program in U S Korea Policy at the Council 667 00:37:13,200 --> 00:37:14,919 Speaker 1: on Formulation. Scott, let me just ask you to remind 668 00:37:15,000 --> 00:37:17,800 Speaker 1: us how we got to where we are today. We 669 00:37:18,280 --> 00:37:21,360 Speaker 1: hear having this election earlier than expected. What led to 670 00:37:21,480 --> 00:37:25,120 Speaker 1: this moment? Yeah, that's very important because it really also 671 00:37:25,239 --> 00:37:30,719 Speaker 1: has shaped the election outcome. Essentially, the former president Uh, 672 00:37:30,840 --> 00:37:36,120 Speaker 1: it was discovered, was linked to corruption and bribery scheme 673 00:37:37,239 --> 00:37:41,160 Speaker 1: that was really led by her very close UM, lifelong 674 00:37:41,320 --> 00:37:45,880 Speaker 1: friend Uh and involved extortion of some of the major 675 00:37:47,160 --> 00:37:51,279 Speaker 1: business conglomerates in South Korea. When that became public as 676 00:37:51,280 --> 00:37:56,840 Speaker 1: a result of information being discovered on the discarded laptop, 677 00:37:58,000 --> 00:38:02,640 Speaker 1: everything kind of unraveled. You saw public protests UM every 678 00:38:02,719 --> 00:38:05,600 Speaker 1: weekend through the end of last year, and then a 679 00:38:05,680 --> 00:38:09,719 Speaker 1: formal motion of impeachment against the president Um that was 680 00:38:09,800 --> 00:38:13,960 Speaker 1: held up in the Constitutional Court on March tent and 681 00:38:14,040 --> 00:38:17,879 Speaker 1: that triggered a sixty day period during which South Korea 682 00:38:17,920 --> 00:38:19,880 Speaker 1: had to elect a new president. As you've been listening 683 00:38:19,960 --> 00:38:22,080 Speaker 1: to the rhetoric on the campaign trail ahead of the 684 00:38:22,160 --> 00:38:24,920 Speaker 1: vote today, how much of it has centered on that scandal? 685 00:38:24,960 --> 00:38:27,080 Speaker 1: In other words, how much of the platforms of these 686 00:38:27,120 --> 00:38:30,880 Speaker 1: two leading candidates centered on reform to the economic system 687 00:38:31,120 --> 00:38:37,320 Speaker 1: in South Korea. UM. Well, certainly each candidate had his 688 00:38:37,520 --> 00:38:43,240 Speaker 1: own or her own um policies for trying to improve 689 00:38:43,320 --> 00:38:47,160 Speaker 1: the economy and address corruption. But the main advantage that 690 00:38:47,320 --> 00:38:51,200 Speaker 1: Moon had was not in the candidate debates, where the 691 00:38:51,400 --> 00:38:54,680 Speaker 1: various differences among candidates were featured, but really in the 692 00:38:54,800 --> 00:38:58,279 Speaker 1: fact that his face had been in front a lot 693 00:38:58,440 --> 00:39:01,160 Speaker 1: of a lot of these citizen proch pests that had 694 00:39:01,200 --> 00:39:05,200 Speaker 1: occurred earlier in the year. Uh and I think that 695 00:39:05,360 --> 00:39:10,960 Speaker 1: he's basically written the frankly public anger with this to victory. 696 00:39:11,480 --> 00:39:14,080 Speaker 1: We talked about North Korean China. Scott, what is the 697 00:39:14,200 --> 00:39:19,520 Speaker 1: relationship of South Korea and Beijing. It's a very interesting 698 00:39:19,640 --> 00:39:24,759 Speaker 1: question because China has really been imposing pretty much comprehensive 699 00:39:24,800 --> 00:39:31,040 Speaker 1: economic retaliation in cultural um and consumer products against South 700 00:39:31,120 --> 00:39:36,040 Speaker 1: Korean retaliation for South Korea's decision to accept this MUSA 701 00:39:36,200 --> 00:39:40,640 Speaker 1: missile defense system that the US is deploying in South Korea, 702 00:39:41,239 --> 00:39:43,680 Speaker 1: and so that really has had a major impact on 703 00:39:44,160 --> 00:39:48,040 Speaker 1: South Korean views of China. We've seen about a twenty 704 00:39:48,120 --> 00:39:51,760 Speaker 1: or thirty point shift in Korean public opinion from positive 705 00:39:51,800 --> 00:39:55,960 Speaker 1: to negative. UH and UH. That's an area actually where 706 00:39:55,960 --> 00:39:58,799 Speaker 1: a new administration can try to pick up and get 707 00:39:58,880 --> 00:40:01,680 Speaker 1: things on the right track. But it's going to have 708 00:40:01,800 --> 00:40:05,400 Speaker 1: to be under conditions where uh, the new leader doesn't 709 00:40:05,760 --> 00:40:11,000 Speaker 1: succumb to China's rather brazen efforts to interfere with national 710 00:40:11,080 --> 00:40:14,520 Speaker 1: security decisions that have been made in South Korea. How 711 00:40:14,520 --> 00:40:17,480 Speaker 1: do you explain the way these these family run conglomerates 712 00:40:17,520 --> 00:40:21,239 Speaker 1: work to those who who don't know of them. How 713 00:40:21,320 --> 00:40:28,000 Speaker 1: do they work? It's incredibly difficult thing to explain because, uh, 714 00:40:28,280 --> 00:40:31,600 Speaker 1: you usually when specialists start to put up charts that 715 00:40:31,760 --> 00:40:37,160 Speaker 1: show the various cross shareholding arrangements that are used in 716 00:40:37,360 --> 00:40:40,800 Speaker 1: order to allow families to be able to maintain control 717 00:40:40,800 --> 00:40:45,160 Speaker 1: of the conglomerates, Uh, it involves a page full of 718 00:40:46,440 --> 00:40:51,279 Speaker 1: arrows from one intant to another that is truly mind boggling. UM. 719 00:40:51,600 --> 00:40:55,520 Speaker 1: But essentially, UM, you know, it's about kind of um 720 00:40:55,760 --> 00:41:02,040 Speaker 1: controlling holding companies that in combination, uh, have allowed the 721 00:41:02,200 --> 00:41:07,080 Speaker 1: family to still maintain control over these businesses that really 722 00:41:07,160 --> 00:41:11,080 Speaker 1: have grown to mammoth proportions compared to where they started. 723 00:41:11,920 --> 00:41:15,000 Speaker 1: What is that? What is President Trump's policy position toward 724 00:41:15,080 --> 00:41:16,560 Speaker 1: North Korea? At this point, we have a good sense 725 00:41:16,600 --> 00:41:18,839 Speaker 1: of it We've had his Secretary of State go through 726 00:41:18,840 --> 00:41:21,759 Speaker 1: the region of Secretary commerce. Do we know what it is? 727 00:41:21,840 --> 00:41:26,839 Speaker 1: Is it any sing in fifty words or less? Um? 728 00:41:27,520 --> 00:41:32,000 Speaker 1: The tagline is massive pressure, pressure, and engagement. But it's 729 00:41:32,040 --> 00:41:36,200 Speaker 1: been confusing because on the one hand he signaled willingness 730 00:41:36,320 --> 00:41:40,000 Speaker 1: to potentially use the military. At the same time he 731 00:41:40,120 --> 00:41:42,359 Speaker 1: called Kim Jong on a smart cookie and says he's 732 00:41:42,360 --> 00:41:47,000 Speaker 1: willing to sit down. Basically, it's pressuring North Korea into dialogue, 733 00:41:47,040 --> 00:41:49,920 Speaker 1: I think is really what they have in mind. Scott, 734 00:41:50,040 --> 00:41:54,960 Speaker 1: we killed thirty three thousand, sixty two is one count 735 00:41:55,760 --> 00:41:59,880 Speaker 1: in the Korean War. When you hear the president established 736 00:42:00,160 --> 00:42:03,800 Speaker 1: his foreign policy and maybe it's a foreign policy away 737 00:42:03,880 --> 00:42:08,080 Speaker 1: from Secretary Tillerson, is there any awareness of a sacrifice 738 00:42:08,120 --> 00:42:16,320 Speaker 1: Americans have made on this important peninsula? Um? Well, the 739 00:42:16,440 --> 00:42:19,320 Speaker 1: main thing that the administration needs to understand, and I 740 00:42:19,440 --> 00:42:23,880 Speaker 1: think the advisors understand, but it's not necessarily fully clear 741 00:42:24,640 --> 00:42:28,279 Speaker 1: the extent to which President Trump has absorbed it yet 742 00:42:28,400 --> 00:42:32,680 Speaker 1: because of his tension for maximizing uncertainty, you know, And 743 00:42:32,880 --> 00:42:35,960 Speaker 1: that's basically that you can say all options are on 744 00:42:36,040 --> 00:42:39,800 Speaker 1: the table, but given the consequences of military action on 745 00:42:39,840 --> 00:42:44,680 Speaker 1: the peninsula, all options are not feasible. Uh. And therefore, 746 00:42:45,640 --> 00:42:48,520 Speaker 1: you know, threatening to use the military option can come 747 00:42:48,560 --> 00:42:50,920 Speaker 1: off as a bluff or a false threat. But then 748 00:42:50,960 --> 00:42:53,880 Speaker 1: circle back to your original observation, which is the stability 749 00:42:53,960 --> 00:42:57,440 Speaker 1: of a leader of North Korea. UM, I mean we well, 750 00:42:57,600 --> 00:42:59,440 Speaker 1: we you know it's it's it's part of a Saturday 751 00:42:59,520 --> 00:43:04,200 Speaker 1: night life. Get this isn't funny, is it? No, it's not. 752 00:43:04,400 --> 00:43:08,919 Speaker 1: We're about to cross a threshold with regard to North 753 00:43:09,000 --> 00:43:12,960 Speaker 1: Korea's development of an I C B M. Given the 754 00:43:14,160 --> 00:43:19,560 Speaker 1: perception of the leader, even if he's rational, most Americans 755 00:43:20,280 --> 00:43:24,080 Speaker 1: would not want to be vulnerable to the possible use 756 00:43:24,160 --> 00:43:28,320 Speaker 1: of nuclear weapons by this leader, even if he's trying 757 00:43:28,400 --> 00:43:32,160 Speaker 1: to gain them and even the score with the UUs 758 00:43:32,520 --> 00:43:36,719 Speaker 1: UH and strengthen his own um ability to survive. I 759 00:43:36,920 --> 00:43:41,400 Speaker 1: urge all of you. Scott Snyder the Council on Foreign Relations, 760 00:43:41,480 --> 00:43:45,320 Speaker 1: and he is dedicated out of Rice University. His work 761 00:43:45,640 --> 00:43:49,680 Speaker 1: on Korea is just definitive. The backgrounders that you can 762 00:43:49,719 --> 00:43:52,719 Speaker 1: see at the sea if our site are just really 763 00:43:52,840 --> 00:44:05,560 Speaker 1: quite wonderful. YEA. Thanks for listening to the Bloomberg Surveillance podcast. 764 00:44:06,040 --> 00:44:11,200 Speaker 1: Subscribe and listen to interviews on Apple podcasts, SoundCloud, or 765 00:44:11,360 --> 00:44:15,600 Speaker 1: whichever podcast platform you prefer. I'm on Twitter at Tom Keene. 766 00:44:15,760 --> 00:44:20,080 Speaker 1: David Gura is at David Gura. Before the podcast, you 767 00:44:20,120 --> 00:44:34,480 Speaker 1: can always catch us worldwide. I'm Bloomberg Radio, brought you 768 00:44:34,640 --> 00:44:38,239 Speaker 1: by Bank of America Mary Lynch. Dedicated to bringing our 769 00:44:38,320 --> 00:44:41,880 Speaker 1: clients insights and solutions to meet the challenges of a 770 00:44:41,960 --> 00:44:46,359 Speaker 1: transforming world. That's the power of global connections. Mary Lynch, 771 00:44:46,520 --> 00:44:50,800 Speaker 1: Pierce Fetter and Smith Incorporated Member s I p C.