WEBVTT - Attention Will Be on Fed's Language, Lignos Says 0:00:00.080 --> 0:00:12.960 Yea. Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene 0:00:13.480 --> 0:00:17.560 Jai Ley. We bring you insight from the best in economics, finance, investment, 0:00:18.000 --> 0:00:23.520 and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, 0:00:23.600 --> 0:00:34.680 Bloomberg dot Com, and of course, on the Bloomberg. On 0:00:34.800 --> 0:00:39.040 the question of where is Mark Zuckerberg, Lisa Axios reporting 0:00:39.400 --> 0:00:41.919 this morning that he might break his silence within the 0:00:41.920 --> 0:00:44.400 next twenty four hours, and my question is whether it's 0:00:44.440 --> 0:00:48.040 a fluffy webcast about making a world a better place 0:00:48.040 --> 0:00:50.000 in his commitment to do that, or whether he will 0:00:50.040 --> 0:00:52.519 actually sit in front of the reporter and take some 0:00:52.680 --> 0:00:54.680 serious questions in a way that he hasn't done it 0:00:54.720 --> 0:00:57.320 for a long time, or whether he will pledge to 0:00:57.400 --> 0:01:01.000 go to Washington, d C. And testify in front of Congress, 0:01:01.000 --> 0:01:04.399 which could end up being a tipping point. The other 0:01:04.440 --> 0:01:06.680 thing I'm looking at to see whether it is a 0:01:06.760 --> 0:01:10.360 tipping point is whether we have reached the level at 0:01:10.360 --> 0:01:14.240 which any additional FED rate hikes actually lead to a 0:01:14.360 --> 0:01:17.080 tightening of financial conditions, because John, as you were pointing 0:01:17.080 --> 0:01:21.000 out before, wisely, so far rate hikes have actually led 0:01:21.040 --> 0:01:25.160 to a loosening of financial conditions joining us now, John Sylvia, 0:01:25.360 --> 0:01:28.440 he is joining us from a snowy Boston and he 0:01:28.640 --> 0:01:31.600 is very proud to be here. Thank you so much, 0:01:31.680 --> 0:01:35.880 Chief economist at Wells Fargo. UM. So let's talk about that. 0:01:36.000 --> 0:01:39.480 Have we reached the tipping point? Now? If you look 0:01:39.520 --> 0:01:42.720 at the Bloomberg Financial Conditions Index, you'll see that the 0:01:42.800 --> 0:01:45.679 improvement over the last six months to a year in 0:01:45.680 --> 0:01:49.160 the equity market, as well as the weaker dollar has 0:01:49.240 --> 0:01:52.760 really meant that the financial conditions index is easier today 0:01:52.800 --> 0:01:55.600 than it was six months ago. So if the Fed 0:01:55.640 --> 0:01:59.440 would raise rates in March and June, I don't think 0:01:59.480 --> 0:02:03.760 we're reaching that tipping point now. Clearly, you know, given 0:02:03.800 --> 0:02:07.720 that your dad was a mathematician, Lisa Um, he'll explain 0:02:07.760 --> 0:02:11.040 to you that these linear projections oftentimes don't work out 0:02:11.240 --> 0:02:14.360 in a non linear world. And so we see in 0:02:17.600 --> 0:02:20.959 and again two thousand five, two thousand seven. Yes, the 0:02:21.040 --> 0:02:25.119 Fed can continue to project raising interest rate twenty five 0:02:25.200 --> 0:02:28.400 basis points every other meeting, but at some point there 0:02:28.440 --> 0:02:30.840 will be a challenge in the marketplace. Are we anywhere 0:02:30.840 --> 0:02:33.240 near to that? No? I think at this point in time. Now, 0:02:33.440 --> 0:02:35.359 this this year, you got two and a half to 0:02:35.400 --> 0:02:40.520 three percent growth in the economy and maybe, uh, maybe, Jonathan, 0:02:40.880 --> 0:02:44.280 when the Treasury continues to increase its financing of the deficit, 0:02:44.639 --> 0:02:47.120 that you may see some additional pressure on the economy. 0:02:47.120 --> 0:02:50.799 We're trying to understand the relationship between unemployment and inflation 0:02:50.840 --> 0:02:53.240 and trying to get some insight from Chairman Powell on 0:02:53.320 --> 0:02:57.320 his thoughts of that. The the estimated equilibrium for unemployment 0:02:57.360 --> 0:02:59.440 seems to be marked a market at the Federal Reserve 0:03:00.120 --> 0:03:03.760 just drifts lower because unemployment is just drifting lower. Did 0:03:03.760 --> 0:03:07.520 they have a clue, John, No, I think the markets 0:03:07.520 --> 0:03:10.080 themselves don't have a clue. It's been quite a surprise 0:03:10.600 --> 0:03:14.240 that the wage numbers have not increased in line with 0:03:14.320 --> 0:03:17.120 the decline the unemployment for the last year or so. 0:03:17.200 --> 0:03:20.480 We see total labor compensation rising. But no, I mean 0:03:20.520 --> 0:03:23.440 a lot of discussion about the flat, the flat Phillips 0:03:23.480 --> 0:03:27.679 curve um, the very very you know, slight slope to it. 0:03:28.040 --> 0:03:30.040 It's just totally up in the air. We don't know 0:03:30.080 --> 0:03:32.600 what the equilibrium interest rate is in terms of the 0:03:32.600 --> 0:03:35.960 Federal fund, right, And you're right, there's this problem in 0:03:36.040 --> 0:03:39.800 economics that the latest data dictates the equilibrium. All right, 0:03:39.840 --> 0:03:41.400 I want to push back a little bit, because you're 0:03:41.400 --> 0:03:43.920 saying we haven't reached that point where you're gonna get 0:03:43.920 --> 0:03:47.160 tightening financial conditions in response to rate hikes, and that 0:03:47.280 --> 0:03:51.640 we're nowhere near that, And yet libor is the big 0:03:51.680 --> 0:03:55.880 story tightening, rising rapidly to the highest level since two 0:03:55.960 --> 0:03:58.360 thousand and eight, and it's the factor are tightening of 0:03:58.400 --> 0:04:00.560 financial conditions? What do you make of that? Well? It 0:04:00.680 --> 0:04:03.680 is I think when you're looking at the short interest rate, 0:04:04.480 --> 0:04:09.040 you are seeing a tightening and financial conditions. But surprisingly, 0:04:09.200 --> 0:04:12.080 when you broaden that out to again look at the 0:04:12.080 --> 0:04:15.000 Bloomberg financial conditions in deck, and you look at the 0:04:15.040 --> 0:04:18.480 dollar and equity markets and the ability of corporations to 0:04:18.600 --> 0:04:21.600 finance or slee bonds, it's still pretty easy, all right. 0:04:21.640 --> 0:04:24.720 So how far does the Fed have to hike before 0:04:24.720 --> 0:04:26.880 it reaches that to big point? Mean, what's the what's 0:04:26.880 --> 0:04:31.160 the number? Um? I think, again, when you're looking at 0:04:31.400 --> 0:04:33.719 March and June, that's a layup. But I would say 0:04:33.720 --> 0:04:37.159 to September and December moves are much more challenging because 0:04:37.200 --> 0:04:39.000 at that point in time you do have the FED 0:04:39.080 --> 0:04:42.760 shrinking its balance sheet and the Treasury increasing its financing. 0:04:43.240 --> 0:04:45.680 That to me is a very very challenging purer. So 0:04:45.720 --> 0:04:48.280 the second half of this year could be challenging in 0:04:48.360 --> 0:04:50.520 some financial mark and the extra led to that as well. 0:04:50.600 --> 0:04:53.280 John is to to some extent, maybe even a greater extent, 0:04:53.520 --> 0:04:55.400 the c B has provided cover for them over the 0:04:55.480 --> 0:04:57.320 last couple of years. It's one of the reasons financial 0:04:57.320 --> 0:05:00.159 conditions of East Well again, one of the challenge just 0:05:00.360 --> 0:05:02.680 you know, Lisa and Jonathan, is the the e c 0:05:02.800 --> 0:05:06.119 B buys corporate debt, and so when you think about 0:05:06.160 --> 0:05:08.960 corporate bond issuance in the United States, it's a lot 0:05:09.000 --> 0:05:11.280 easier when you've got a central bank buying in Europe. 0:05:12.360 --> 0:05:14.640 John Sylvia, thank you so much for joining us. It's 0:05:14.680 --> 0:05:16.880 really a pleasure of having you. We'll be checking back 0:05:16.920 --> 0:05:19.679 with you to see whether you've changed that tipping point 0:05:19.760 --> 0:05:22.600 as soon. John Sylvia, Wells Fargo chief Economists joining us 0:05:22.600 --> 0:05:38.880 here in our Bloomberg eleven three oh studios. What does 0:05:39.080 --> 0:05:43.560 Facebook have to do to keep traders from continuing to sell? 0:05:44.040 --> 0:05:47.599 Answering that question, Eileen Bourbage, partner at Passionate Capital also 0:05:47.640 --> 0:05:51.080 known as tech City UK. She is a chair there. 0:05:51.440 --> 0:05:53.640 Uh and Eileen joins us now, thank you so much 0:05:53.680 --> 0:05:56.960 for being with us. Eileen So what does Facebook have 0:05:57.080 --> 0:05:59.800 to do to adequately respond to this crisis and uh 0:06:00.000 --> 0:06:04.159 prompt traders to buy again. Yeah, I think first and 0:06:04.200 --> 0:06:05.880 foremost they're going to have to write it out a 0:06:05.880 --> 0:06:07.800 little bit. But what will help is if they start 0:06:07.839 --> 0:06:10.719 to get in front of the messaging and in front 0:06:10.720 --> 0:06:13.440 of the information disclosure. And that's that's I think been 0:06:13.480 --> 0:06:16.880 a real problem. Their response to what's been happening now 0:06:16.920 --> 0:06:19.560 for the last few days has been largely one of 0:06:19.640 --> 0:06:23.039 silence or of just saying playing the victim and not 0:06:23.279 --> 0:06:26.440 coming from you know, Mark Zuckerberg himself or even Sheryl Sandburg, 0:06:26.520 --> 0:06:29.920 and I think that's what's worrying investors a bit. Um. 0:06:29.960 --> 0:06:32.000 I would assume that they want to hear from those 0:06:32.040 --> 0:06:36.080 two directly, and they also want to being slightly reassured 0:06:36.160 --> 0:06:38.839 that this isn't going to bring about um over the 0:06:38.920 --> 0:06:41.920 top regulation now as a consequence, and I would guess 0:06:41.960 --> 0:06:44.960 that those two things need to be addressed. Sp Eileen, 0:06:45.279 --> 0:06:48.920 We forget, actually how young Mark Zuckerberg still is. You've 0:06:48.920 --> 0:06:53.040 worked with so many young tech leaders, tech CEOs. He's 0:06:53.040 --> 0:06:57.159 shown a phenomenal ability to orientate this company to areas 0:06:57.160 --> 0:06:58.840 of growth. What he did with mobile a number of 0:06:58.960 --> 0:07:01.479 years ago was very, very impressive. But this is his 0:07:01.600 --> 0:07:04.440 first real crisis that he's had to deal with as 0:07:04.440 --> 0:07:08.000 the CEO of Facebook in terms of the pr around 0:07:08.040 --> 0:07:11.960 the company. Eilan, are we seeing some immaturity from Mark 0:07:12.040 --> 0:07:16.680 Zuckerberg at this point? I don't necessarily think that's the case. 0:07:16.720 --> 0:07:19.400 I mean, I think obviously he's got to continue to develop. 0:07:19.480 --> 0:07:21.840 But I recall years ago when you know, he used 0:07:21.840 --> 0:07:24.240 to get criticized for wearing his hoodies on stage, and 0:07:24.240 --> 0:07:26.640 and that's when the market sort of thought, really is 0:07:26.640 --> 0:07:28.600 this guy going to be able to take the company public? 0:07:28.720 --> 0:07:31.000 And how's he going to development? I think he's He's 0:07:31.200 --> 0:07:36.360 demonstrated a really really great wisdom and being very judicious 0:07:36.360 --> 0:07:40.000 and surrounding himself with really strong advisors or people such 0:07:40.000 --> 0:07:43.040 as Cheryl Sandberg or others who can compliment him really well. 0:07:43.080 --> 0:07:44.840 And I think this is going to be a team effort. 0:07:44.880 --> 0:07:47.000 It's not just him, but he's you know, he needs 0:07:47.040 --> 0:07:49.840 to be advised, he is to be fully briefed. He 0:07:49.880 --> 0:07:54.120 needs to own and and understand that he's as accountable 0:07:54.440 --> 0:07:56.680 or more accountable than anybody else for this, and to 0:07:56.720 --> 0:07:59.160 be able to sort of communicate that in a really 0:07:59.200 --> 0:08:02.400 passionate and efective way. Well, I mean strategically, yes, I 0:08:02.400 --> 0:08:04.640 mean he showed himself to be phenomenal. I was one 0:08:04.640 --> 0:08:07.160 of those individuals that also questioned what this gentleman was 0:08:07.200 --> 0:08:08.760 doing in a hoodie on a road show to take 0:08:08.800 --> 0:08:11.680 a company public. And he's proved everybody wrong. He's proved 0:08:11.720 --> 0:08:13.640 everyone wrong with his m and A strategy as well. 0:08:13.680 --> 0:08:17.000 But on this particular instance, he's been completely tone deaf 0:08:17.040 --> 0:08:21.960 to what's been happening over the last twelve months, hasn't he. Uh, 0:08:22.040 --> 0:08:25.720 it does seem that that he took it for granted actually, 0:08:25.880 --> 0:08:28.840 or he didn't realize or appreciate how big it was 0:08:28.880 --> 0:08:30.600 going to get. Yes, I think that's the case. And 0:08:30.640 --> 0:08:33.320 I think that's because, you know, the company position is 0:08:33.360 --> 0:08:35.800 probably one that right at the time that this happened, 0:08:36.120 --> 0:08:38.240 we had teas and teas that allowed this, but look 0:08:38.280 --> 0:08:43.160 we changed those subsequently. Um, it wasn't necessarily a leak 0:08:43.280 --> 0:08:45.720 as such or a breach as such, as you know, 0:08:45.800 --> 0:08:49.440 one person making use of our APIs sharing information which 0:08:49.440 --> 0:08:51.959 I shouldn't have done with another party, and so they 0:08:52.040 --> 0:08:55.439 kind of had a defensive approach or response as in 0:08:55.559 --> 0:08:58.560 sort of very technically, you know, we don't think we 0:08:58.600 --> 0:09:00.600 did anything wrong, and I think that from your right 0:09:00.679 --> 0:09:02.240 that is tone deak. You need to come out in 0:09:02.320 --> 0:09:04.200 front now, this whole team needs to come out and 0:09:04.200 --> 0:09:07.960 sort of acknowledge that whether it was technically you know, 0:09:08.000 --> 0:09:10.640 against their rules or not, or in any violation or anythink, 0:09:10.920 --> 0:09:13.840 it's not what people want the social network to be 0:09:13.920 --> 0:09:17.200 used for. You know, Eileen, yesterday we were talking about 0:09:17.400 --> 0:09:21.600 regulation and this was sinking a number of tech shares, 0:09:21.640 --> 0:09:25.720 in particular Twitter with shares following more than ten But 0:09:25.800 --> 0:09:30.280 today it looks like an increasingly Facebook specific story because 0:09:30.320 --> 0:09:33.520 Facebook shares are continuing to decline what Twitter is popping 0:09:33.520 --> 0:09:36.880 in pre market trade almost two percent. So what does 0:09:36.920 --> 0:09:39.760 that say to you about sort of the delineation here 0:09:39.960 --> 0:09:42.880 between the companies that are responding to these things well 0:09:43.120 --> 0:09:45.760 and those that don't and uh and sort of independent 0:09:45.840 --> 0:09:50.040 really of even regulatory action here. Yeah, I do think 0:09:50.040 --> 0:09:53.920 it does demonstrate that investors and customers more more to 0:09:54.080 --> 0:09:56.840 the point, really want to hear about the company ethos. 0:09:56.880 --> 0:10:00.360 They want to understand what the mindset is behind the company. 0:10:00.400 --> 0:10:03.360 They want to hear about their values, and they want 0:10:03.400 --> 0:10:07.000 to understand that executives are mindful of their sort of 0:10:07.000 --> 0:10:09.840 consumers point of view, and I think Twitter has handled 0:10:09.840 --> 0:10:11.960 that well. Of course they had less to sort of 0:10:11.960 --> 0:10:15.360 fall or to sort of stay off. But Facebook really 0:10:15.400 --> 0:10:18.640 hasn't done anything, and that is a massive problem. Yeah, Eileen. 0:10:18.720 --> 0:10:20.800 At the center of this is this business model for 0:10:20.920 --> 0:10:24.280 Facebook where essentially you get to use the platform for free, 0:10:24.360 --> 0:10:26.720 but the currency that they charge is your personal data, 0:10:26.760 --> 0:10:30.720 and they use that personal data to generate ad revenue. Ultimately, 0:10:30.800 --> 0:10:33.679 that's the core of the business model, Eileen. Is that 0:10:33.760 --> 0:10:36.920 business model being challenged? Is there an existential threat or 0:10:36.960 --> 0:10:40.640 is it too early to say that? I think I 0:10:40.640 --> 0:10:42.280 think it's too early to say that. I think it's 0:10:42.320 --> 0:10:45.080 an age old business model and I don't think it's 0:10:45.080 --> 0:10:48.320 going to go away. However, will the companies start to 0:10:48.400 --> 0:10:51.840 rely on or become stronger because of alternative business models, Yes, 0:10:51.880 --> 0:10:54.000 I think so. You know, it starts to make money 0:10:54.000 --> 0:10:56.040 off of other things that are not just advertising based, 0:10:56.040 --> 0:11:00.920 whether they're transactional related or even financial services like and 0:11:00.960 --> 0:11:02.920 I think that's going to continue to be more and 0:11:02.960 --> 0:11:06.520 more important. But I do think advertising is good here 0:11:06.600 --> 0:11:09.240 to stay. Then, I think the point about the regulatory 0:11:09.800 --> 0:11:13.400 situation is that we're in a new kind of operating dynamic, 0:11:13.520 --> 0:11:16.080 and there's there's got to be new rules around how 0:11:16.080 --> 0:11:19.400 aggressive or how deeply one can go, you know, Eileen, 0:11:19.559 --> 0:11:21.240 I just want to take a little bit of a 0:11:21.280 --> 0:11:24.600 broader look at sort of whether this marks in some 0:11:24.679 --> 0:11:29.800 ways the peak of the massive run up in tech 0:11:29.800 --> 0:11:33.200 shares and the incredible rally there just because at this 0:11:33.240 --> 0:11:36.960 point they're being treated like real companies, not just unicorns 0:11:37.160 --> 0:11:40.679 or uh you know, all growth, all potential and uh 0:11:40.880 --> 0:11:42.680 nothing to stop them. I mean, are we are we 0:11:42.720 --> 0:11:46.320 seeing sort of a tipping point here? I mean, I 0:11:46.320 --> 0:11:48.280 think it's a good sort of reset. It's a good 0:11:48.320 --> 0:11:51.079 time to take stock and to sort of understand more 0:11:51.360 --> 0:11:54.080 so for the executive teams of these companies that they 0:11:54.120 --> 0:11:58.120 have a great responsibility right to the customers that they service, 0:11:58.440 --> 0:12:01.199 and they have a huge responsibilit the uh as to 0:12:01.280 --> 0:12:04.920 how they impact maybe even geopolitical events, and whether they're 0:12:05.080 --> 0:12:09.720 they're acting transparently enough um and being upfront enough about 0:12:09.720 --> 0:12:12.880 what their business models are. How that might be you know, 0:12:13.000 --> 0:12:15.240 used by malicious characters or other people that you know, 0:12:15.280 --> 0:12:17.920 they're not there to service, but who could take advantage 0:12:18.040 --> 0:12:20.640 of what they offer. I think that's absolutely true. Well, 0:12:20.679 --> 0:12:22.680 and I say this in light of a number of 0:12:22.720 --> 0:12:25.920 initial public offerings from the tech companies. Were finally seeing 0:12:26.320 --> 0:12:30.120 these companies go public. And there is a question that 0:12:30.160 --> 0:12:33.160 one guest on radio yesterday was raising, which is does 0:12:33.200 --> 0:12:35.600 this mark sort of the peak where some of these 0:12:35.640 --> 0:12:38.560 founders want to cash in and get out UM? And 0:12:38.600 --> 0:12:42.680 I'm wondering, you know, from from an advisory standpoint, is 0:12:42.679 --> 0:12:46.760 that the mindset of some of these founders. I wouldn't 0:12:46.760 --> 0:12:48.680 have thought so. I mean, perhaps I'm too much of 0:12:48.679 --> 0:12:50.600 an idealist, But then again, I am an investor, so 0:12:50.640 --> 0:12:52.680 I'm going to be an optimist. But I don't think 0:12:52.880 --> 0:12:57.080 UM founders start businesses, first of all, to to necessarily help, 0:12:57.320 --> 0:13:00.680 you know, enable the various sort of actors. They don't 0:13:00.720 --> 0:13:04.720 start companies or platforms to try and help other people 0:13:04.760 --> 0:13:07.760 manipulate them. And so there I think these take them 0:13:07.760 --> 0:13:10.360 by surprise, and that is part of why there's such 0:13:10.400 --> 0:13:12.959 a backlash and a reaction now against Zuckerberger, against the 0:13:12.960 --> 0:13:15.480 company Facebook. It's sort of like, really, did you not, 0:13:15.600 --> 0:13:17.400 you know, expect that this might happen, or did you 0:13:17.440 --> 0:13:20.880 not consider your responsibility and trying to manage this kind 0:13:20.920 --> 0:13:24.079 of situation. UM. But then even when it doesn't happen. 0:13:24.480 --> 0:13:27.600 I don't think, um, you know, the strong entrepreneurs are 0:13:27.600 --> 0:13:30.480 looking to get out then I think, you know, if anything, 0:13:30.520 --> 0:13:32.960 there might be a sort of a battening down the hatches, 0:13:33.280 --> 0:13:36.280 you know, to remind people know the reason I said 0:13:36.280 --> 0:13:38.439 about doing this, or that we as a team wanted 0:13:38.480 --> 0:13:40.880 to do this because of all the positive you know, 0:13:40.920 --> 0:13:43.480 benefits that we can bring, whether they're commercial or otherwise. 0:13:43.760 --> 0:13:46.120 And I don't think they look to get out. Eileen, 0:13:46.160 --> 0:13:47.600 it's great to catch up with you. It's been way 0:13:47.679 --> 0:13:49.800 too long. Thank you very much for joining us on 0:13:49.920 --> 0:13:52.880 Bloomberg Radio. Eileen Bourberg, who haven't been able to speak 0:13:52.880 --> 0:13:54.520 to for a long long time, but it's such an 0:13:54.559 --> 0:13:58.600 insightful voice in the world of technology. Partner of Passion Capital, 0:13:58.840 --> 0:14:14.800 also the Text City you k cha hm Tresy. I 0:14:14.840 --> 0:14:18.200 want to just pick up on the weaker dollar versus 0:14:18.280 --> 0:14:21.960 it's peers today. I'm sure that comes as sweet satisfaction 0:14:21.960 --> 0:14:24.680 to a lot of people out there who are bearish 0:14:24.840 --> 0:14:28.040 on the dollar going forward, But what happens if they 0:14:28.160 --> 0:14:31.080 end up being wrong? Elsa Limnos joins us now. She's 0:14:31.160 --> 0:14:34.560 RBC Global head of FX Strategy. Also, thank you so 0:14:34.640 --> 0:14:38.440 much for being with us. Arguably, the bet that the 0:14:38.520 --> 0:14:42.520 dollar will continue to weaken is the most crowded trade 0:14:42.640 --> 0:14:44.920 out there right now, at least according to some analysts. 0:14:45.200 --> 0:14:47.520 I'm wondering, do you think that the likelihood of a 0:14:47.560 --> 0:14:54.120 reversal of some sort of strengthening actually is getting more realistic. Yeah, 0:14:54.120 --> 0:14:57.000 it's definitely one of the most crowded trades out there, um, 0:14:57.040 --> 0:14:59.840 and the most popular amongst the majors. And it's interesting 0:15:00.000 --> 0:15:03.560 because the dollar, having started the year very badly in January, 0:15:03.680 --> 0:15:07.280 hasn't actually been going anywhere through February and March. Um. 0:15:07.320 --> 0:15:11.120 And I think the longer you see this position stoll Um, 0:15:11.160 --> 0:15:14.600 the more likely there's people start questioning that very varish consensus. 0:15:15.360 --> 0:15:17.480 What's the story that backs up the dollar weakness? And 0:15:17.520 --> 0:15:20.840 we're looking at capital flows because rate differentials, certainly out 0:15:21.040 --> 0:15:23.560 for the last year or so, don't really explain the move. 0:15:24.920 --> 0:15:27.960 So there's a number of reasons that people are pointed to, 0:15:29.080 --> 0:15:32.640 none of them particularly well founded. Um. There's been a 0:15:32.680 --> 0:15:35.320 lot of talk around you know, when front end rate 0:15:35.320 --> 0:15:37.840 differentials didn't work, people looked at the long end, and 0:15:37.880 --> 0:15:40.600 then that stopped working, so people started scrambling around for 0:15:41.000 --> 0:15:44.040 other relationships at the moment, there's a lot of focus 0:15:44.120 --> 0:15:47.280 on the two fives part of the curve, the relationship 0:15:47.280 --> 0:15:50.240 with eurodollar, even that now seems to be breaking down. UM. 0:15:50.240 --> 0:15:52.000 So that's one thing, you know, people are kind of 0:15:52.000 --> 0:15:55.600 constantly looking for new rate relationships that may explain it. Um. 0:15:55.680 --> 0:15:57.800 The second one that gets a lot of traction with 0:15:57.840 --> 0:16:01.240 some people is this idea that the US budget deficit 0:16:01.320 --> 0:16:03.720 blowing out, we're going to go back into a twin 0:16:03.760 --> 0:16:07.200 deficit world like in the early two thousands, and that 0:16:07.280 --> 0:16:10.000 means dollar weakness across the board. And of course there 0:16:10.000 --> 0:16:13.920 are some key differences between now and then, um, namely 0:16:13.960 --> 0:16:16.720 the fact that the private sector is not in depth 0:16:16.800 --> 0:16:18.800 sit as it was back then. And so you can 0:16:18.880 --> 0:16:21.520 go through these reasons one by one and it's not 0:16:21.680 --> 0:16:24.560 really questioning whether or not they're really going to hold 0:16:24.560 --> 0:16:27.760 in practice. You know. Also, one thing that I'm struck 0:16:27.800 --> 0:16:30.920 by is that the economic data in Europe, which many 0:16:30.920 --> 0:16:34.680 people have had really high hopes for, has been disappointing 0:16:34.720 --> 0:16:38.160 again and again with each additional reading. And I wonder 0:16:38.160 --> 0:16:41.840 at what point this really becomes Europe versus US story. 0:16:42.000 --> 0:16:45.160 If those disappointments continue, could we just see a de 0:16:45.240 --> 0:16:48.440 facto strengthening in the dollar that could potentially be disruptive 0:16:48.920 --> 0:16:52.600 in response. So that's right. You know, you tend to 0:16:52.640 --> 0:16:57.200 see that with economic expectations and surprises, that they build 0:16:57.280 --> 0:17:00.920 up as economists have underestimated the ranks of the recovery, 0:17:01.000 --> 0:17:03.760 and you get all these positive surprises cumulating, and then 0:17:04.080 --> 0:17:06.879 expectations catch up to the reality and usually over shoot 0:17:07.320 --> 0:17:09.920 UM and then you start getting the negative surprises. That's 0:17:09.960 --> 0:17:12.040 certainly what we're seeing at the moment. In Europe. You know, 0:17:12.080 --> 0:17:15.160 we had a very long run of positive economic surprises 0:17:15.160 --> 0:17:18.240 on our indicators UM around thirty three out of thirty 0:17:18.240 --> 0:17:20.960 four weeks were positive, and that really came to an 0:17:21.040 --> 0:17:23.920 end a few weeks ago, and since then, um, we've 0:17:23.920 --> 0:17:26.440 seen Pierre mis this pointing we're going to get another 0:17:26.440 --> 0:17:30.160 batch of Pierre Mice tomorrow. The hard data are pointing 0:17:30.240 --> 0:17:33.520 to maybe a bit of softening momentum as well, And 0:17:33.560 --> 0:17:36.280 I think it really cools into question this thesis that 0:17:36.640 --> 0:17:38.400 you know, the US is slowing down and the rest 0:17:38.400 --> 0:17:40.520 of the world is still picking up at the same time. 0:17:40.560 --> 0:17:43.520 I just don't think that's validated by the data. Yeah, 0:17:43.560 --> 0:17:45.879 one thing I want to broaden out and talk about 0:17:45.920 --> 0:17:50.199 inherent leverage in this system tied to this bet on 0:17:50.480 --> 0:17:53.080 a weaker dollar. We see this with the emerging markets 0:17:53.280 --> 0:17:57.920 and how popular they've become investors going in unhedged, even 0:17:58.000 --> 0:18:02.199 though it really is a currency bet. UM. Has the 0:18:02.240 --> 0:18:05.760 market ever been this levered to the bet that the 0:18:05.800 --> 0:18:11.520 dollar will continue to weaken um. It's certainly been a 0:18:11.520 --> 0:18:15.320 while since consensus was this strong against the dollar. UM. 0:18:15.760 --> 0:18:18.639 You know, when you look at emerging markets, and typically 0:18:18.880 --> 0:18:20.800 m vets will always be on hedge because of course 0:18:20.800 --> 0:18:23.160 the cost of hedging is so high UM, but it's 0:18:23.240 --> 0:18:27.639 unusual for people to be unhedged in d m UM 0:18:27.840 --> 0:18:30.399 as well. So you know, when you're actually paid to 0:18:30.520 --> 0:18:34.679 hedge European exposure, Japanese exposure. At the moment, as a 0:18:34.760 --> 0:18:38.000 US investor, to take the decision to be on hedged, 0:18:38.520 --> 0:18:41.240 it means that you're actually giving up a bit of 0:18:41.280 --> 0:18:44.160 carry that you could pick up. And so that's where 0:18:44.200 --> 0:18:46.080 I would look for the first signs of the dollar 0:18:46.119 --> 0:18:49.400 bearish consensus cracking. It's really against the developed markets where 0:18:49.400 --> 0:18:51.760 you may see that fallings first. That's a really really 0:18:51.760 --> 0:18:54.080 interesting point. Else So I do want to pivot towards 0:18:54.359 --> 0:18:56.720 the federal reserve a little bit later today. What are 0:18:56.760 --> 0:18:59.159 you looking for from Chairman Pale and what would you 0:18:59.160 --> 0:19:04.240 like the first question to be for him? Nah? Um, 0:19:04.320 --> 0:19:06.960 you know, the testament, it may not be that different 0:19:07.520 --> 0:19:10.159 um to what we heard in his semi annual testament. 0:19:10.320 --> 0:19:13.080 You know, the press conference may not be that different. UM. 0:19:13.119 --> 0:19:15.280 There's a lot of focus clearly on what the median 0:19:15.320 --> 0:19:18.560 dots are going to show UM, although the hurdle for 0:19:19.280 --> 0:19:23.040 the median shifting from three to four dots is probably 0:19:23.040 --> 0:19:25.879 fairly high. UM. I think there'll be quite a bit 0:19:25.920 --> 0:19:29.760 of focused on the language around the statement. You know, 0:19:29.800 --> 0:19:31.840 what will they say about the balance of risks. A 0:19:31.840 --> 0:19:33.960 lot of people have been focusing on the brain Ard 0:19:34.040 --> 0:19:36.400 speech from a few weeks ago, and the fact that 0:19:36.800 --> 0:19:39.040 growth is expected to be high this year and next 0:19:39.320 --> 0:19:42.440 UM with the tax cards coming through UM, and so 0:19:42.560 --> 0:19:45.520 there will be a lot of attention on the language 0:19:45.520 --> 0:19:49.560 around the decision. So are those forecasts for growth to 0:19:49.560 --> 0:19:52.360 pick up this year and next anchored in hope more 0:19:52.400 --> 0:19:54.480 than anything else, because I don't see a pick up 0:19:54.520 --> 0:19:58.840 in the first quarter here in the United States, you know, 0:19:58.880 --> 0:20:02.119 for better or for worse, think most central bankers still 0:20:02.160 --> 0:20:06.879 rely heavily on their traditional economic models. UM. And typically 0:20:06.920 --> 0:20:10.320 when you see fiscal stimulus of the size that we've seen, UM, 0:20:10.520 --> 0:20:14.520 you'd expect that to lead to to high short term growth. UM. 0:20:14.560 --> 0:20:17.320 It's it remains to be seen how long that will 0:20:17.359 --> 0:20:20.199 take to feed through. It sometimes takes a little bit 0:20:20.240 --> 0:20:22.240 longer than expected. I mean, we've certainly seen that in 0:20:22.280 --> 0:20:25.080 other countries. Canada, for example, voted through quite a large 0:20:25.280 --> 0:20:28.000 UM fiscal use in package a few years back, and 0:20:28.200 --> 0:20:29.879 it took a while for that to come through in 0:20:29.920 --> 0:20:31.920 the data. But it does tend to come through eventually. 0:20:32.720 --> 0:20:34.639 Just that real quick, I'd love to get your sense 0:20:34.760 --> 0:20:37.800 on the just going back to the dollar weakness, and 0:20:37.800 --> 0:20:39.600 I wonder if how much the FED is sort of 0:20:39.600 --> 0:20:44.160 watching this is something that's easing financial conditions. I wondered 0:20:44.160 --> 0:20:48.119 to what degree that reflects political risk and what degree 0:20:48.400 --> 0:20:51.920 that reflects the deficit that you're talking about earlier. That's 0:20:51.920 --> 0:20:54.000 a good point because I think if you look at 0:20:54.040 --> 0:20:58.600 traditional explanatory factors for effects, whether that's great so capital 0:20:58.600 --> 0:21:02.840 flows or anything else, UM, it's hard to fully explain 0:21:02.960 --> 0:21:05.359 dollar weakness on those alone. And so some people have 0:21:05.560 --> 0:21:08.760 pointed to this unexplained gap and and said it reflects 0:21:08.760 --> 0:21:12.440 some kind of negative political risk premium UM rightly or 0:21:12.440 --> 0:21:15.960 wrongly UM. The problem with calling it that is that 0:21:16.040 --> 0:21:20.720 it's very difficult to identify whether it should grow or reduce, 0:21:20.800 --> 0:21:24.080 and what the mechanism is behind it. UM. I think 0:21:24.119 --> 0:21:26.560 the safest thing to say is that, you know, we 0:21:26.640 --> 0:21:31.320 are certainly seeing much more conventional policy from this administration. UM. 0:21:31.359 --> 0:21:35.840 But whether it's tariffs and the response from China, or 0:21:35.880 --> 0:21:39.920 whether it's UM the approach to tax cuts or anything else, 0:21:40.160 --> 0:21:42.919 the economic transmission mechanisms should actually be the same as 0:21:42.960 --> 0:21:46.560 always been. An easy episical policy means tighter monetary and 0:21:46.680 --> 0:21:48.639 SELENOS has been grebably catch up with your joining us 0:21:48.680 --> 0:21:51.359 from the City of London, the RBC Global head of 0:21:51.600 --> 0:22:08.840