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Speaker 1: Member s I p C. Welcome to the Bloomberg Surveillance Podcast.
Speaker 1: I'm Tom Keene with David Gura. Daily we bring you
Speaker 1: insight from the best of economics, finance, investment, and international relations.
Speaker 1: Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, Bloomberg dot Com,
Speaker 1: and of course on the Bloomberg. This is a real joy,
Speaker 1: really a high point that we planned for this trip.
Speaker 1: A conversation with Sir Howard Davies of RBS and of
Speaker 1: course formerly in Seance PO and LC and Jonathan Fenby
Speaker 1: of T S. Lombard and of course Sir Howard and
Speaker 1: I celebrate his wonderful one volume on Francis. Mr McCraw
Speaker 1: mentioned in your book only briefly at the end, and
Speaker 1: I'm afraid but I hope there'll be a new edition
Speaker 1: out before afterward. Fair enough, he's only just come onto
Speaker 1: the politics got any rapid form? What did you think
Speaker 1: of the lou of celebration and that long walk It
Speaker 1: wasn't something I would think John Fenne would approve. Oh
Speaker 1: I did. I thought it was tremendous. I sat there
Speaker 1: watching it on television and I thought, hey, you know
Speaker 1: this guy, he's got the drama right. Whoever? Come on?
Speaker 1: He's walking in the palace, the palace of the sixteenth
Speaker 1: century kings, which you touched on early in your book.
Speaker 1: Was there a symbolism there of a museum that we
Speaker 1: all go to? Or is it the symbolism or royalty
Speaker 1: from another time and place. He's a kind of modern monarch,
Speaker 1: I think, And he was playing that and it was
Speaker 1: wonderful if you looked at it. When the replays the shadow,
Speaker 1: his shadow falling behind on the gateway as he came
Speaker 1: through was absolutely out of a first rate film. He
Speaker 1: was looking towards the carouselo as well. I can you
Speaker 1: think about kind of Napoleon and you know it phoneography
Speaker 1: when you think about what happens next. We heard it
Speaker 1: described earlier as a as a four parts store. Absolutely,
Speaker 1: and we're through two of them too, are still to come?
Speaker 1: Is the easy bit over for Mr Macrol? Does I
Speaker 1: get harder from here? I think in retrospect, yes, I
Speaker 1: mean it's not never easy to win the presidency of France,
Speaker 1: but he had such a lot of luck with the
Speaker 1: or and other people, with the socialist splitting and so on.
Speaker 1: I mean, you know this was handed to him on
Speaker 1: a silver plate, and anybody up against the Penn in
Speaker 1: the second round was going to win. So yes, but
Speaker 1: actually there's probably five more acts to come. That are
Speaker 1: the two rounds of the parliamentary election on June the
Speaker 1: eleventh and June, and then I would guess there will
Speaker 1: be a lot of street theater after that, from the
Speaker 1: hard left to menon sean people with Lapen approving. So
Speaker 1: we're probably into a long running saga. What kind of
Speaker 1: a person? And I mean to get both your take
Speaker 1: on this, does he need to appoint as prime minister? Howard? Well,
Speaker 1: I think it depends on what kind of majority there
Speaker 1: is in parliament. I mean, if there are them before Well,
Speaker 1: I think that there will be an interim there's a
Speaker 1: short term prime minister. Yes, I think that might stay
Speaker 1: on if the unexpected happens and all marsh his party
Speaker 1: gets a majority or close to a working majority in
Speaker 1: the parliamentary election. Sir Howard, I I analyze everything through
Speaker 1: uber drivers. I was going orally into the hotel and
Speaker 1: the uber driver. The first thing he said is Madame
Speaker 1: Legarde should be helping out. Should Christine Lagarde come back
Speaker 1: to France and assist Mr mccron. Well, the difficulty about
Speaker 1: Christine Lagard in francis of course that you know that
Speaker 1: there was a legal case which where she was kind
Speaker 1: of convicted but then not sentenced them and so whereas
Speaker 1: that throw the forgotten about in Washington and elsewhere in France,
Speaker 1: I'm afraid that still does resonate. So it's not completely
Speaker 1: straightforward for Christine Lagarde to take a senior position in France.
Speaker 1: How do somebody from that international world more likely to
Speaker 1: come in? Is about me? Yes, yes, much much more
Speaker 1: straightforward person. And of course you know that Madame lepen
Speaker 1: did win the vote saying anti globalization, and there's nobody
Speaker 1: more globalization than Christine Lagarde. So I'm not sure you'd
Speaker 1: want to go there with Macron. Lagarde s let me
Speaker 1: start with you. If we're doing hope in audacity, reducs
Speaker 1: here with Mr mcgrahan, what is the audacity that the
Speaker 1: new president of France needs? Well, I think he does
Speaker 1: need to do some quite symbolic things on labor market reform,
Speaker 1: because otherwise I think the rest of the world will
Speaker 1: not believe that anything's changed in France. Unfortunately, some of
Speaker 1: those things you can argue up in Hill and down
Speaker 1: Dale about thirty five hour week and how significant it
Speaker 1: really is, but internationally it has achieved a totemic status
Speaker 1: and you have to do something about that because otherwise
Speaker 1: I think your rhetoric about reopening France for business and
Speaker 1: attracting it with investment will not work. Aren't you just
Speaker 1: challenging headlong into the unions if you do that? Isn't
Speaker 1: there a workaround? Isn't there a smarter way of doing it?
Speaker 1: It's not so much question us. I mean, the unions
Speaker 1: are not that significant. Frankly, they don't have very much membership.
Speaker 1: It's more the street union. It's the street and also
Speaker 1: the union is more nuanced so it used to be,
Speaker 1: because the CFDT, which has always been the reformist union,
Speaker 1: now has more members than the hardline CGS. But nevertheless,
Speaker 1: in the point, well, isn't the point still stand that
Speaker 1: that don't work around it, don't work against it. Well,
Speaker 1: this is gonna be difficult. Everything that car would do,
Speaker 1: the kind of thing, how it's talking about on the
Speaker 1: working week, on cutting corporate attacks, which is the highest
Speaker 1: in the EU, which is on exempting investments from the
Speaker 1: wealth tax and sold. All these, of course will be
Speaker 1: seen by the left and by the street as proof
Speaker 1: that yes, indeed, here's the puppet of international globalized finance.
Speaker 1: I'm going to say this worldwide. You've said it for weeks.
Speaker 1: John Ferby's book, You rush through this history with a
Speaker 1: beautiful writing skill in one of the great enigmas within
Speaker 1: the book has just started to stay Compare McCraw is.
Speaker 1: We heard an interview after an interview with Valories just
Speaker 1: started to staying is that apt? Yes, absolutely, he's He's
Speaker 1: the one I would go back to from that can
Speaker 1: including the fact that, of course Scott didn't have a
Speaker 1: parliamentary majority when he started and was dependent on the
Speaker 1: Goal Lists who eventually stabbed him in the back with
Speaker 1: Jack Shark. And you could have the same thing with
Speaker 1: the Republicans being the main force in Parliament after June
Speaker 1: the eighteenth and mac Hale dependent on them. Now, that
Speaker 1: could work because a lot of their ideas are very similar.
Speaker 1: But the Republicans are going to want just like the
Speaker 1: Gold Lists in the seventies to preserve their own identity.
Speaker 1: Sir Howard, does France need a different Euro than Germany?
Speaker 1: And I means separate from the Euro? But what are
Speaker 1: those relative valuations? How far apart is a good Euro
Speaker 1: for Germany from a good Euro for France. I don't
Speaker 1: personally think that there's a much difference between Germany and France.
Speaker 1: There's a different argument if you're talking about Italy, for example,
Speaker 1: But if you look, French productivity has actually matched German
Speaker 1: productivity reasonably well over quite a long period. The French
Speaker 1: problem is more that they do have sclerotic labor markets
Speaker 1: and too high public expenditure and too high taxation. I
Speaker 1: don't think it's a problem of the competitiveness of the
Speaker 1: French trading sector, which is very highly competitive. Me in
Speaker 1: the French produced you know, the almost per hour more
Speaker 1: than we do in the traded sector. So I don't
Speaker 1: think the answer for France is a decline in the
Speaker 1: euro in The answer for France is a rebalancing of
Speaker 1: their economy away from the public sector. Jonathan. As the
Speaker 1: UK leaves, the relationship between Germany and France becomes closer, closer,
Speaker 1: more interesting, and probably in favor of France as a
Speaker 1: result of the kind of the three way split changing.
Speaker 1: How does Mr McCraw take Germany along for the ride?
Speaker 1: And and he is he the guy to do it?
Speaker 1: He's very pro Europe. We heard the music, we've heard
Speaker 1: seen the flags. Is he going to be changing Europe
Speaker 1: in a meaningful way? And will the Germans be on
Speaker 1: board with it? I think it's the best chance of
Speaker 1: something meaningful happening over the next couple of years. He's
Speaker 1: already worked with the Germans. He's drawn up various plans
Speaker 1: for going into the fiscal side of the euro with
Speaker 1: the Social Democrats. Submittedly, but I was in Berlin a
Speaker 1: couple of weeks ago, and certainly the people around CDU,
Speaker 1: around Merkel, they're very anxious to work with Machorn and
Speaker 1: I think they may cut him a bit of easy
Speaker 1: ease on the budget and the deficit things over the
Speaker 1: next couple of years. So long as to go back
Speaker 1: to what how it says he delivers some reforms, Sirard.
Speaker 1: A final question to you before you start your day
Speaker 1: for RBS, what do you need from Janet yelling? Right now?
Speaker 1: We have you not talked about the American Central Bank?
Speaker 1: What does cher yelling need to do in the coming weeks. Well,
Speaker 1: I think she needs to do what she said she's
Speaker 1: going to do, and that would be fine, I think.
Speaker 1: And also I think probably the Fed does need some
Speaker 1: greater clarity about how it's going to reduce the size
Speaker 1: of this balance sheet. My own view is the central
Speaker 1: bank balance sheet in the medium term, in the long
Speaker 1: term are going to be bigger than they used to be,
Speaker 1: but not as big as they are now. And I
Speaker 1: think they need to find some way of edging that
Speaker 1: balance sheet down, and that's I think the big conundrum
Speaker 1: that we're looking for. Maybe edging is an uncer Howard
Speaker 1: phrase for tapering as well. Thank you so much for
Speaker 1: a generous set of time this morning, Sir Howard Davis,
Speaker 1: as chairman of our Eric Nielsen joins us from Berlin.
Speaker 1: He's the chief economist with the UniCredit group. And let's
Speaker 1: start with the French election, if we could hear Eric
Speaker 1: and let me just get your sense of of what
Speaker 1: import we can draw from it. Of course there's domestic significance,
Speaker 1: but when you look at its importance to Europe, to
Speaker 1: the euro Zone, give us your sense of of what
Speaker 1: what what we can draw from that. Yeah, I think
Speaker 1: that it's good news on two accounts. First and foremost,
Speaker 1: it sort of brings a French kind of a leadership
Speaker 1: rule back in place as Europe had originally. I thought
Speaker 1: we had been frozen during the Secosi and the Olan period.
Speaker 1: So Germany has been looking for for a good friends
Speaker 1: collection or a French ship partner in a lot of this.
Speaker 1: And if anything, the risk is now that the Friends
Speaker 1: are going to get more euro pro European than than
Speaker 1: the Germans and wanted to do more than the present
Speaker 1: German government want to do. But but certainly it's a
Speaker 1: big move in that direction. Secondly, um, it's a big
Speaker 1: message that they're, through the European politician and other places
Speaker 1: including Italy, that there is a victory to be gained
Speaker 1: by being unashamefully pro European. It's the first time you've
Speaker 1: had a clear choice in a country between somebody really European.
Speaker 1: Noticed when he walked out in front of the Roue
Speaker 1: War he had did not have the French national anthems
Speaker 1: playing for the European one. This is a big message
Speaker 1: across Europe. I think drew the contrast, if you would,
Speaker 1: between the economy in Germany where you are right now
Speaker 1: in France. How different are these two economies within Europe? Uh? Different,
Speaker 1: but not nearly as different as you think. Let me
Speaker 1: stop by reminding you and the listeners that, since if
Speaker 1: you look at real GDP, France has actually done better
Speaker 1: than many so culatives since they introducted the Euro, the
Speaker 1: French real GDP is up aside a couple of presentative points,
Speaker 1: more than the German. So we get very excited about
Speaker 1: these cycles and swings and and and all the rest
Speaker 1: of it. But these are not that different economies at
Speaker 1: the end of the day, and none of the two
Speaker 1: economies have severe imbalances. If anything, Germany has a two
Speaker 1: big current count surplus, but but not the negative ones
Speaker 1: that that sort of spilled trouble right around the corner. Um.
Speaker 1: That said, the labor market is more rigid, particularly for
Speaker 1: younger people in France. But again, if you look at
Speaker 1: the o c D indicators for rigidities, the two countries
Speaker 1: are quite similar. But but surely there's more rigidities in
Speaker 1: the French economy. That means that it dips less in
Speaker 1: recessions and accelerate less in the recoveries. And that's exactly
Speaker 1: what we've seen, but when you look through it for
Speaker 1: for a decade or so, they perform incredibly uh incredibly alive.
Speaker 1: Eric Nielsen with the UniCredit group with us here on
Speaker 1: Bloomberg Surveillance from Bloomberg Gritty. You talk about labor market
Speaker 1: rigidityes and this president elect has promised to change some
Speaker 1: of those are less than some of those. What kind
Speaker 1: of difference could that make to the French economy if
Speaker 1: you were to make progress on that? And I use
Speaker 1: the word were there? How difficult and undertaking is this
Speaker 1: going to be? It's difficult. They have unions who are
Speaker 1: already on the streets now. But he has a mandate.
Speaker 1: You could argue, um, and I would suggest that what
Speaker 1: he needs to do and probably want we'll do is
Speaker 1: not a lot you could and he doesn't necessarily have
Speaker 1: to do a whole lot what he I think that
Speaker 1: the most obvious one would be to copy the German
Speaker 1: flexible label laws for the youth unemployed that Germany did
Speaker 1: with the Sword reforms so way back, and a lot
Speaker 1: of these timber employments in Germany have actually been merged
Speaker 1: into permanent employments since so there's certainly a live an
Speaker 1: idea to be lifted there that that could help on
Speaker 1: that side. The other one, which I think is important
Speaker 1: not only in France but throughout Europe and in Italy
Speaker 1: included is to lower the payroll tax. So they so
Speaker 1: it is it is ironic the politicians say they want
Speaker 1: people in employment, and the tax employers who try to
Speaker 1: employ people, and particularly young people who in this world
Speaker 1: economy in Europe struggled to make a return for the
Speaker 1: company they work for that matches the cost of them.
Speaker 1: So why not cut the tax on the payroll So
Speaker 1: and I think that's something he will be doing. President
Speaker 1: spoke with with the President elector of France, Amandel McCown
Speaker 1: yesterday by by fun, I imagine the relationship that we're
Speaker 1: going to be paying The closest attention to though, is
Speaker 1: Mr mccrowen's relationship with Angela Merkel. How well do you
Speaker 1: think they get along? How important is that relationship going
Speaker 1: to be going forward? I think it's gonna be incredibly important.
Speaker 1: Um I would, as I said, the Germans have been
Speaker 1: been longing for a French leader who is willing to
Speaker 1: to pick up joint leadership on issues with relations with
Speaker 1: Russia and Ukraine and out with the US, which is
Speaker 1: a becoming more tricky partner for sure, but to to
Speaker 1: sort of obtaking on the European economic side. I think
Speaker 1: the important thing here is that mccoon needs to do
Speaker 1: something for the Germans. First. He needs to pledge at
Speaker 1: degree of fiscal discipline, so he sort of puts the
Speaker 1: rest is constant German fear that that the French are
Speaker 1: just running away with the Fiskeland ultimately want to be
Speaker 1: paid up by Germans. He needs to make that very
Speaker 1: very clear, and he needs to address some of the
Speaker 1: labor issues we've just talked about. And once he's done that,
Speaker 1: there will be scope, probably only after the election in
Speaker 1: Germany for for further corporation, certainly on security matters, but
Speaker 1: there could also be other issues. The capital markets reform
Speaker 1: could be accelerated, the banking before banking union could be completed,
Speaker 1: and maybe maybe they're certainly talking in Berlin about it,
Speaker 1: an attempt to do something on unemployment benefits. Eric Nielsen
Speaker 1: with US. He's the chief economist at the Union Credit Group.
Speaker 1: My co host Tom Keane has traded the send in
Speaker 1: for the Thames joins us now from our bureau in
Speaker 1: London and Tom I trust the Eurostar wide was uneventful.
Speaker 1: Why can't this be in America? I think it's because
Speaker 1: it's a sinkhole of money. But I'll tell you it
Speaker 1: is a beautiful and very successful training right. Thank you
Speaker 1: yours for your care. Yesterday from London, from New York,
Speaker 1: Bloomberg Surveillance with it's Eric Nielsen from Berlin. This morning
Speaker 1: he is with Uni Credit. Eric, we talked about this,
Speaker 1: that and the other thing. But it does circle back,
Speaker 1: certainly for our American listeners to the US dollar. What
Speaker 1: is the Uni Credit call on dollars stability or do
Speaker 1: we see a trichet like brutal move in the months ahead. No,
Speaker 1: we don't have. We don't think it's going to be
Speaker 1: a bruder move, Tom. I mean I think the so
Speaker 1: we have we have just revised all your dollar a bit.
Speaker 1: But this is more a euro appreciation story than a
Speaker 1: dollar depreciation story right now. In other words, from an
Speaker 1: American point of view, we think that Trump is going
Speaker 1: to be rather ineffective and sort of talking the dollar weaker.
Speaker 1: But but in trade way to terms, it will be
Speaker 1: a bit because you're seeing quite a bit of interest
Speaker 1: in European ass now that drives the euro stronger obviously,
Speaker 1: and and on the trade with the trip that will
Speaker 1: get the dollar a little bit weaker. But we don't know.
Speaker 1: We don't expect very dramatic books. When you when you
Speaker 1: look here at the future of the European project, Russia
Speaker 1: has to loom large. We had Angela Merkel in Russia
Speaker 1: last week meeting with Vladimir Putin. How how much of
Speaker 1: the strength of the European Union right now has to
Speaker 1: do just with the the change in in in political trajectory,
Speaker 1: policy trajectory that we've seen in Russia. Is that is
Speaker 1: that leading to more strength in the European Union? Eric, Yeah,
Speaker 1: without a sount, but it's not the only one, right,
Speaker 1: I mean, I think you contract the European relationship with
Speaker 1: Pruting back to his re emergence as president was in
Speaker 1: two thousand and twelve, right where and and he's handling
Speaker 1: on the demonstrations where people starts a question whether he
Speaker 1: was how much of a democratic it was. Then we
Speaker 1: have this shock of Crimea and Ukraine, we have the
Speaker 1: shock of of Syria and in the shock of the
Speaker 1: apparent as almost proven right interference in the American election
Speaker 1: and messing around in France apparently, so there's so this
Speaker 1: is an interest. But your point is very interesting because
Speaker 1: I think what you have seen from a European perspective
Speaker 1: now is anybody who wanted to flirt with the idea
Speaker 1: of sometimes these same politicians you know, in effective we
Speaker 1: need a strong guy. So I think you look at
Speaker 1: putting little ergon and you look at at least the
Speaker 1: one want to be strong guy Trump and Europeans, the
Speaker 1: vast majority majority of Europeans do not see something they like.
Speaker 1: So you so these events outside Europe have for sure
Speaker 1: is strengthened the ability of things being. Politicians say, this
Speaker 1: is not where we're going, Eric, we gotta leave it there.
Speaker 1: Eric Nielsen, chief economist of the UniCredit Group. Brought you
Speaker 1: by Bank of America. Marylynch dedicated to bringing our clients
Speaker 1: insights and solutions to meet the challenges of a transforming world.
Speaker 1: That's the power of global connections. Mary Lynch, Pierce Federan
Speaker 1: Smith Incorporated, Member s I p C. There's something new
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Speaker 1: com slash lens. Let's go to Steve Whiting. Now he is,
Speaker 1: as I said, the global Chief Investment Strategic City. I've
Speaker 1: probably been great to have you with us against Steve
Speaker 1: un surveillance. Let's start with that. Your your read of
Speaker 1: what's going on in Washington. The President chalked up a
Speaker 1: legislative victory. Does that give you, as an investor any
Speaker 1: any better sense of what's to come? In other words,
Speaker 1: what did that signify to you? Getting that healthcare vote
Speaker 1: through the House? You know, I tend to have a
Speaker 1: little bit higher confidence that at the end of the day,
Speaker 1: Congressional Republicans and the President will manage to cut taxes,
Speaker 1: whether that will be a full blown reform or not
Speaker 1: as to be seen. But you have to remember that
Speaker 1: with all of the either failed votes or votes that
Speaker 1: don't take place, it will take only one successful vote
Speaker 1: to change the fiscal outlook in two thousand eighteen. As
Speaker 1: late as that may come, um, you know, it could
Speaker 1: come at the end of the August session, it could
Speaker 1: come later. But you know, we think of this as
Speaker 1: mostly a two thousand eighteen effect. And you know this
Speaker 1: is one sign that ultimately they with a majority or
Speaker 1: not in a single party gridlock. I saw Steve Whiting
Speaker 1: once again. Earnings I think did better than good. You
Speaker 1: are wonderfully skilled folding earnings dynamics into the economy. Do
Speaker 1: you just equate over great earnings great g d P. Well,
Speaker 1: I think that there's this translation issue, and you know
Speaker 1: it's worth mentioning. It looks like first quarter EPs for
Speaker 1: large CAPUS companies has grown fifteen percent from a year ago.
Speaker 1: I have to remember g d p s typically not
Speaker 1: in the United States reported on a year at a
Speaker 1: year basis. Uh it's inflation adjusted, so reduced by the
Speaker 1: rise of inflation, and we did have an excessive two
Speaker 1: percent headline inflation in the first quarter, so it's not
Speaker 1: a nominal figure. So you have to adjust for all
Speaker 1: of those things. And you have to remember that profits
Speaker 1: are just more cyclical than the economy. You know, they
Speaker 1: boom and bust around a relatively steady, steady economy. You know,
Speaker 1: laundromats and hair salons are in GDP, but not in
Speaker 1: you know, S and P profits. See, we just had
Speaker 1: actual work on the show a few minutes ago and
Speaker 1: Tom asked him how he plays Asia. How do you
Speaker 1: regard or look at Asia right now? Where is the
Speaker 1: opportunity in Asia? Well, we've upgraded our view of emerging
Speaker 1: Asia in particular, and you know, I would note that,
Speaker 1: you know, we have seen uh decreased sensitivity in Asia
Speaker 1: to rising US rates. Now you can couple that with
Speaker 1: at least the feds U forecasts that it's tightening cycle
Speaker 1: this time around in real terms is likely to be
Speaker 1: only about half the average tightening cycle you have. Obviously,
Speaker 1: they are all these questions, you know, what's sort of
Speaker 1: dead is there in China? Questions all the time, But
Speaker 1: so many investors just ignore the assets side of the
Speaker 1: balance sheet in China. And so you couple this all together,
Speaker 1: and if the US is not disrupting the world with
Speaker 1: tremendously high interest rates UM or or trade disruptions of
Speaker 1: any sort. Uh, then Asia should thrive. And I would
Speaker 1: say that the export picture has actually been a real
Speaker 1: new positive surprise there within the positive surprise is what
Speaker 1: Schure yelling will do. And President drog and the rest.
Speaker 1: Are they just behind? Is it just simple to say that,
Speaker 1: given better economies and the micro news that David and
Speaker 1: I hear every day, there are central banks are behind? Well,
Speaker 1: I think there's um two ways to look at this. Um.
Speaker 1: First of all, they would not tell you there behind.
Speaker 1: I would say, to a certain extent, they've changed the game.
Speaker 1: If you think about the United States, you know since uh,
Speaker 1: you know, the nineteen seventies, most of that time it
Speaker 1: was trying to force down the inflation rate, lock in
Speaker 1: in ever lower inflation trend, use every recession as a
Speaker 1: chance to make the inflation rate lower towards price stability. Uh.
Speaker 1: And you know from most of this cycle the Federal
Speaker 1: Reserve is argued that the trend inflation rate is too low. Um.
Speaker 1: They think that they might overshoot if they don't tighten
Speaker 1: to some extent. But again, the game has changed from
Speaker 1: from that one, so naturally they go in a more
Speaker 1: mild way. I do think that balance sheet adjustment on
Speaker 1: the part of the Fed, the idea that they won't
Speaker 1: hold more bonds than they need to to conduct monetary
Speaker 1: policy the way they want. Uh, that is going to
Speaker 1: be a volable event. And uh, you know it has
Speaker 1: been over the last eight years at times when the
Speaker 1: Federal Reserves balance sheet has shrunk pot passively when they
Speaker 1: have not had a new quee program. There's been some
Speaker 1: volatility around that. But I think that they will come
Speaker 1: back and and look at that financial market impact and
Speaker 1: say we are not going to allow, you know, balance
Speaker 1: sheet normalization of this desire to have fewer bonds, you know,
Speaker 1: to override you know, where they want to set financial
Speaker 1: conditions and set monetary policy. So in the end, I
Speaker 1: don't think the balance sheet will shrink very much. By
Speaker 1: the way, thy Ben Bernanke has bitten written very well
Speaker 1: about this recently. Yeah, and I certainly talked with Tom
Speaker 1: a little about that as well, not just last week.
Speaker 1: Let's talk more about the FED here and just woman
Speaker 1: we'll come back with Steve White's the global chief Strategic
Speaker 1: City Private Bank. So much to talk about when it
Speaker 1: comes to the FED, also to the geopolitical landscape in
Speaker 1: Europe as we look ahead to uh, the snap election
Speaker 1: where you are Tom in one a month's time. Yeah,
Speaker 1: we've really turned to it with a vengeance today and
Speaker 1: it's certainly front and center all the newspapers. Guy Johnson
Speaker 1: was translating the Labor Party festivities in Manchester today. Manchester.
Speaker 1: David is a city. It's outside of London. Yes, home
Speaker 1: to the home to the Guardian newspaper. If I'm not mistaken,
Speaker 1: or it was Stephen. Wherever I go, wherever David goes.
Speaker 1: It's all about the dearth of investment. I know you
Speaker 1: thought hard about this. Is it possible that the new
Speaker 1: investment is a global investment that we can't even observe? Well, look,
Speaker 1: I think we take a peek within most developed markets
Speaker 1: where the data are fine, the investment trend has been
Speaker 1: very modest um. You know, I think people say there's
Speaker 1: been no investment, no investment, only consumption. Really don't have
Speaker 1: that right. You know, in the US we had a
Speaker 1: massive investment in the energy sector. Here we are now
Speaker 1: mid forties on oil, not in the hundred and fifteen range.
Speaker 1: Other investment has been there, but it hasn't been powerful.
Speaker 1: And if we take a look, you know, country by country,
Speaker 1: there are areas where they're imbalances. China's had in some
Speaker 1: cases probably the only country in the world with too
Speaker 1: much infrastructure investment UM. So there are some imbalances between countries.
Speaker 1: But I don't think that it's some some missing quotient
Speaker 1: doubt there. What's your your sense? We talked about taxi
Speaker 1: form at the top of the interview with you, and
Speaker 1: you express your optimism. We'll see some how about for
Speaker 1: for the kind of fiscal package that President Trump talked
Speaker 1: about when he was a Canada Do you think we're
Speaker 1: going to get anything from from the Congress this year? Well?
Speaker 1: I think we will, I think, but there's so many questions.
Speaker 1: How will it be financed? Does it need to be financed? Uh?
Speaker 1: You know, is this something that is is really going
Speaker 1: to be an effort to uh provide permanent tax reform
Speaker 1: UM deficit neutral because it has to live beyond uh
Speaker 1: ten years or you know, do quite practically what was
Speaker 1: done in the early two thousand's and try something out
Speaker 1: for ten years. If it's good and it helps, you
Speaker 1: can extend it or or let it go. So all
Speaker 1: of those questions haven't been answered, and there's this opening
Speaker 1: position of the different parties and that will be worked
Speaker 1: out until until something's agreed upon. But I do think
Speaker 1: that you know, the potential to get taxes cut uh,
Speaker 1: And some of these issues are really low franging hanging fruit,
Speaker 1: like uh, the ability to bring profits that have never
Speaker 1: been taxed at all at at some rate repatriating those
Speaker 1: sorts of things can be done. Let me ask you
Speaker 1: about political risk in Europe. We've just been through the
Speaker 1: second round of the French election Thomas in London. Of course,
Speaker 1: we have a snap election in London on the eighth
Speaker 1: of June. Are we at a point where we're moving
Speaker 1: past the preponderance of political risk? Are things less risky
Speaker 1: when you look at politics than there were a couple
Speaker 1: of months ago. Well, yes, we've just passed through a
Speaker 1: potential shock and it hasn't occurred. And that's sort of
Speaker 1: you know, the story and markets and the reason why
Speaker 1: things are going well. There's been uh So, as we
Speaker 1: mentioned before, no stimulus so far out of the United States,
Speaker 1: but no disruptions and no shocks. Uh. In the case
Speaker 1: of the near term in Europe, France was looming large.
Speaker 1: You had a candidate who wanted to pull France out
Speaker 1: of the Eurozone. Now, whether she would succeed or not,
Speaker 1: that risk alone would threaten the periphery, and that risk
Speaker 1: is off the table for the near term. Now, whether
Speaker 1: it resumes, you have to consider the fact that Italy's
Speaker 1: economy is the same size it was in two thousand
Speaker 1: four and has a population that's uh, you know, feeling
Speaker 1: like it doesn't benefit quite as much. And at the
Speaker 1: time we've got left with you, let's drift over to
Speaker 1: the investment world. Twenty one twelve, futures up three the
Speaker 1: vix a Whiting like nine point six zero. How do
Speaker 1: you stay invested? If I got pe multinationals? Is that
Speaker 1: nifty fifty too, Stephen Whiting? Look, I think it's hard
Speaker 1: for many investors. They're the ones that have not invested
Speaker 1: or having a hard time committing H two markets at
Speaker 1: these levels. I would tell them if they've been home
Speaker 1: biased US dollar based investors, as we recommended for the
Speaker 1: last few years, to start looking internationally. Consider that, you know,
Speaker 1: global emerging markets equities are below their long term average valuation,
Speaker 1: not relative but their own history. They're below average valuation.
Speaker 1: There are plenty of warriors and risks, but that's why
Speaker 1: there's going to be some future return. And in the
Speaker 1: United States, Uh, if you have earnings going up as
Speaker 1: much as they have, and I think they won't go
Speaker 1: up fifteen percent to every quarter forever, but I certainly
Speaker 1: think that this is not the valuation environment that we
Speaker 1: were in the late nineteen nineties at all. Uh. This
Speaker 1: is not even close to that kind of evaluation problem.
Speaker 1: So the direction of earnings will set the direction of
Speaker 1: markets for the most part. Do you sympathize with what
Speaker 1: axel Work was saying about investors reluctance to hold on
Speaker 1: to cash at this point? Do you think that the
Speaker 1: investors should be holding onto more cash? Well, look, I
Speaker 1: think investors have held on the cash. You know, there's been, um,
Speaker 1: you know, a low volume, low confidence recovery since the
Speaker 1: financial crisis, and cash has been you know, a tremendous overweight,
Speaker 1: even in investment portfolios that are dedicated investment portfolios. UM. So,
Speaker 1: you know, would we have a little dry powder in
Speaker 1: the summer months is the time when we have frequent
Speaker 1: corrections that are temporary. Um, would we want to be
Speaker 1: able to allocate more with some cash, Yes, but I
Speaker 1: think for the most part, investors didn't have confidence that
Speaker 1: you know, we weren't doomed, and they've held on a
Speaker 1: good proportion of them have held onto that view since
Speaker 1: two thousand and eight. That's a quick last question here
Speaker 1: about Latin America and what you're looking at there. I
Speaker 1: look at dollar Mexico here amid still the rhetoric here
Speaker 1: in the US about building a wall and how long
Speaker 1: it will be. In all of that, where's the opportunity
Speaker 1: in Latin America? Are you looking at sovereigns? Are you're
Speaker 1: looking at corporate bonds? What's attractive to you? Well, what's
Speaker 1: really fascinating is that if you just take again look
Speaker 1: at emerging markets, sovereign bonds, most of which are investment grade. Uh,
Speaker 1: you could get in the neighborhood of seven times the
Speaker 1: yield out of government bonds and emerging markets and local currencies.
Speaker 1: Then you could out of corporate bonds in the Eurozone
Speaker 1: taking Euro risk. So uh. You know, Mexico, for example,
Speaker 1: has seen its currency plunge and then get almost all
Speaker 1: of it back, but it's bond market is hovering at
Speaker 1: a seven percent local yield. So in Latin America. We
Speaker 1: think that there are a good fixed income opportunities in particular,
Speaker 1: but like as always, equities would follow. Steve Finning to
Speaker 1: speak with you as all most winning with the City
Speaker 1: Private Bank joining us here on Bloomberg Surveillance. He is
Speaker 1: the global chief Investment Strategy Static City, a private bank.
Speaker 1: David Gura in New York, Tom Keene in London. This
Speaker 1: week this is Bloomberg Surveillance on Bloomberg Grady. The big
Speaker 1: news out of the day in Korea today Moon jay
Speaker 1: In poised to take power in South Korea according to
Speaker 1: a leading exit poll as voter Sutton and a nine
Speaker 1: year a conservative rule there in that country. Scott Snyder
Speaker 1: joins us now. He is a Senior Fellow for Korea
Speaker 1: Studies and director of the Program on US Korea Policy
Speaker 1: at the Council on Foreign Relations. He joins us it Scott,
Speaker 1: great to have you with us. Let's start with this
Speaker 1: Candida who apparently is in the lead again by exit polls,
Speaker 1: Moon jay And what can you tell us about him
Speaker 1: and his party here the more liberal of the two parties.
Speaker 1: That's right, he is what they call progressive Canada and
Speaker 1: South Korea. It's a liberal plot form that has been
Speaker 1: in opposition to the conservative leadership four nine years. Moon
Speaker 1: does have experience with leadership as a former chief of
Speaker 1: staff to then liberal President No Mu chan Uh in
Speaker 1: the mid two thousands. A lot of his policy platforms
Speaker 1: actually draw directly from that era. He is going to
Speaker 1: be more favorable towards trying to have dialogue with North Korea.
Speaker 1: He wants to have greater economic cooperation with North Korea
Speaker 1: as a way of trying to change that country and
Speaker 1: trying trying to ease the attention and conflict with the
Speaker 1: North uh And he's also been h somebody who has
Speaker 1: raised questions about the UHUM missile defense system that the
Speaker 1: US has recently installed in South Korea. He's called for
Speaker 1: view of that decision, but it doesn't necessarily mean that
Speaker 1: he's gonna return it at this point because South Korean
Speaker 1: public units largely in favor of it. I think a
Speaker 1: departure would that be to have more engagement with North Korea.
Speaker 1: What's the what's the status of dialogue between these two
Speaker 1: nations at this point? But really nothing has been going
Speaker 1: on in terms of dialogue for the past few years.
Speaker 1: The progressive blame it on conservative efforts to squeeze North Korea,
Speaker 1: UH and really to induce some kind of regime change.
Speaker 1: But the North Korea's also are not configured to have
Speaker 1: dialogue with the South. The leading individuals who had been
Speaker 1: involved in inter Korean dialogue in the past are no
Speaker 1: longer there, and at least as of now, Ki junglen
Speaker 1: has a general who is in charge of trying to
Speaker 1: support South Korea in charge of his South Korea policy.
Speaker 1: Help us in all of our listeners with our coverage
Speaker 1: of the Korea, as you are truly one of the
Speaker 1: nations experts on all of this, when you hear what
Speaker 1: I perceive is relatively simply us to coverage of North
Speaker 1: and South Korea and the new South Korea, the new
Speaker 1: government as well. What do we most get wrong in
Speaker 1: our coverage? Scott Well? A lot of times the headlines
Speaker 1: UH sees upon things that are a little bit more sensationalistic,
Speaker 1: but when you start to dig in us it seems
Speaker 1: like things are not as dramatic. Certainly on the North
Speaker 1: Korean front. Kim Jong un is portrayed as a stereotypical
Speaker 1: UM kind of joke, but it's a deadly serious joke
Speaker 1: in terms of the nature of his leadership and the
Speaker 1: nature of the threat that he poses in South Korea.
Speaker 1: You've got a kind of you know, black and white
Speaker 1: contrast between choices where you know, really South Korea is
Speaker 1: going to be is going to continue to be an
Speaker 1: ally of the United States, and it really a much
Speaker 1: more constrained choice. Does our president understand the brilliance at
Speaker 1: Scott Snyder just gave us, UM, Well, we'll see the
Speaker 1: right strategy, the right strategy in dealing with a progressive
Speaker 1: leader in South Korea. Uh, he's getting advice from different sources.
Speaker 1: Some of them are pro Alliance and some of them
Speaker 1: wanted distance from the United States. And so the key
Speaker 1: to success is to cultivate the pro Alliance people in
Speaker 1: the new administration and actually to welcome and um um
Speaker 1: to bring bring along Moon as a leader, rather than
Speaker 1: do things like um threatened to make South Korea paid
Speaker 1: for a missile defense system that um it was understood
Speaker 1: the US was going to pay for all along. What
Speaker 1: are the dynamics like right now in in South Korea
Speaker 1: between the presidency and the legislative branch. We talked about
Speaker 1: that in the context of France. Her most most recently,
Speaker 1: the challenges to the Manimu McColl face in France. In Korea,
Speaker 1: is it the same situation? How how much how much
Speaker 1: good faith is he going to get from the parliament
Speaker 1: when he's inaugurated. Yeah, that's a great question, because you know,
Speaker 1: South Korea really has a system that allows the winner
Speaker 1: of the plurality to become the president. Uh. Frankly, if
Speaker 1: the South Korean's had the French system, I'm not sure
Speaker 1: whether Moon would be the next president because his party
Speaker 1: holds a minority in the legislature. And frankly, it's a
Speaker 1: system right now with four or five different parties that
Speaker 1: is designed for gridlock. So he's going to have an
Speaker 1: enormous leadership challenge simply trying to get supporting legislation for
Speaker 1: the agenda that he brings um, you know, through the
Speaker 1: National Assembly. David Guraa in New York, Tom Keene in London.
Speaker 1: This week, this is Bloomberg Surveillance on Bloomberg Rady. We're
Speaker 1: watching the election results come in in South Korea today.
Speaker 1: A Moon j In poised to take power in South Korea.
Speaker 1: He's leading his conservative opponent by forty four percent to
Speaker 1: three point. Scott Snyder is with US he's director of
Speaker 1: the program in U S Korea Policy at the Council
Speaker 1: on Formulation. Scott, let me just ask you to remind
Speaker 1: us how we got to where we are today. We
Speaker 1: hear having this election earlier than expected. What led to
Speaker 1: this moment? Yeah, that's very important because it really also
Speaker 1: has shaped the election outcome. Essentially, the former president Uh,
Speaker 1: it was discovered, was linked to corruption and bribery scheme
Speaker 1: that was really led by her very close UM, lifelong
Speaker 1: friend Uh and involved extortion of some of the major
Speaker 1: business conglomerates in South Korea. When that became public as
Speaker 1: a result of information being discovered on the discarded laptop,
Speaker 1: everything kind of unraveled. You saw public protests UM every
Speaker 1: weekend through the end of last year, and then a
Speaker 1: formal motion of impeachment against the president Um that was
Speaker 1: held up in the Constitutional Court on March tent and
Speaker 1: that triggered a sixty day period during which South Korea
Speaker 1: had to elect a new president. As you've been listening
Speaker 1: to the rhetoric on the campaign trail ahead of the
Speaker 1: vote today, how much of it has centered on that scandal?
Speaker 1: In other words, how much of the platforms of these
Speaker 1: two leading candidates centered on reform to the economic system
Speaker 1: in South Korea. UM. Well, certainly each candidate had his
Speaker 1: own or her own um policies for trying to improve
Speaker 1: the economy and address corruption. But the main advantage that
Speaker 1: Moon had was not in the candidate debates, where the
Speaker 1: various differences among candidates were featured, but really in the
Speaker 1: fact that his face had been in front a lot
Speaker 1: of a lot of these citizen proch pests that had
Speaker 1: occurred earlier in the year. Uh and I think that
Speaker 1: he's basically written the frankly public anger with this to victory.
Speaker 1: We talked about North Korean China. Scott, what is the
Speaker 1: relationship of South Korea and Beijing. It's a very interesting
Speaker 1: question because China has really been imposing pretty much comprehensive
Speaker 1: economic retaliation in cultural um and consumer products against South
Speaker 1: Korean retaliation for South Korea's decision to accept this MUSA
Speaker 1: missile defense system that the US is deploying in South Korea,
Speaker 1: and so that really has had a major impact on
Speaker 1: South Korean views of China. We've seen about a twenty
Speaker 1: or thirty point shift in Korean public opinion from positive
Speaker 1: to negative. UH and UH. That's an area actually where
Speaker 1: a new administration can try to pick up and get
Speaker 1: things on the right track. But it's going to have
Speaker 1: to be under conditions where uh, the new leader doesn't
Speaker 1: succumb to China's rather brazen efforts to interfere with national
Speaker 1: security decisions that have been made in South Korea. How
Speaker 1: do you explain the way these these family run conglomerates
Speaker 1: work to those who who don't know of them. How
Speaker 1: do they work? It's incredibly difficult thing to explain because, uh,
Speaker 1: you usually when specialists start to put up charts that
Speaker 1: show the various cross shareholding arrangements that are used in
Speaker 1: order to allow families to be able to maintain control
Speaker 1: of the conglomerates, Uh, it involves a page full of
Speaker 1: arrows from one intant to another that is truly mind boggling. UM.
Speaker 1: But essentially, UM, you know, it's about kind of um
Speaker 1: controlling holding companies that in combination, uh, have allowed the
Speaker 1: family to still maintain control over these businesses that really
Speaker 1: have grown to mammoth proportions compared to where they started.
Speaker 1: What is that? What is President Trump's policy position toward
Speaker 1: North Korea? At this point, we have a good sense
Speaker 1: of it We've had his Secretary of State go through
Speaker 1: the region of Secretary commerce. Do we know what it is?
Speaker 1: Is it any sing in fifty words or less? Um?
Speaker 1: The tagline is massive pressure, pressure, and engagement. But it's
Speaker 1: been confusing because on the one hand he signaled willingness
Speaker 1: to potentially use the military. At the same time he
Speaker 1: called Kim Jong on a smart cookie and says he's
Speaker 1: willing to sit down. Basically, it's pressuring North Korea into dialogue,
Speaker 1: I think is really what they have in mind. Scott,
Speaker 1: we killed thirty three thousand, sixty two is one count
Speaker 1: in the Korean War. When you hear the president established
Speaker 1: his foreign policy and maybe it's a foreign policy away
Speaker 1: from Secretary Tillerson, is there any awareness of a sacrifice
Speaker 1: Americans have made on this important peninsula? Um? Well, the
Speaker 1: main thing that the administration needs to understand, and I
Speaker 1: think the advisors understand, but it's not necessarily fully clear
Speaker 1: the extent to which President Trump has absorbed it yet
Speaker 1: because of his tension for maximizing uncertainty, you know, And
Speaker 1: that's basically that you can say all options are on
Speaker 1: the table, but given the consequences of military action on
Speaker 1: the peninsula, all options are not feasible. Uh. And therefore,
Speaker 1: you know, threatening to use the military option can come
Speaker 1: off as a bluff or a false threat. But then
Speaker 1: circle back to your original observation, which is the stability
Speaker 1: of a leader of North Korea. UM, I mean we well,
Speaker 1: we you know it's it's it's part of a Saturday
Speaker 1: night life. Get this isn't funny, is it? No, it's not.
Speaker 1: We're about to cross a threshold with regard to North
Speaker 1: Korea's development of an I C B M. Given the
Speaker 1: perception of the leader, even if he's rational, most Americans
Speaker 1: would not want to be vulnerable to the possible use
Speaker 1: of nuclear weapons by this leader, even if he's trying
Speaker 1: to gain them and even the score with the UUs
Speaker 1: UH and strengthen his own um ability to survive. I
Speaker 1: urge all of you. Scott Snyder the Council on Foreign Relations,
Speaker 1: and he is dedicated out of Rice University. His work
Speaker 1: on Korea is just definitive. The backgrounders that you can
Speaker 1: see at the sea if our site are just really
Speaker 1: quite wonderful. YEA. Thanks for listening to the Bloomberg Surveillance podcast.
Speaker 1: Subscribe and listen to interviews on Apple podcasts, SoundCloud, or
Speaker 1: whichever podcast platform you prefer. I'm on Twitter at Tom Keene.
Speaker 1: David Gura is at David Gura. Before the podcast, you
Speaker 1: can always catch us worldwide. I'm Bloomberg Radio, brought you
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