1 00:00:02,720 --> 00:00:16,480 Speaker 1: Bloomberg Audio Studios, Podcasts, radio News. 2 00:00:18,640 --> 00:00:21,800 Speaker 2: Hello and welcome to another episode of the Authoughts podcast. 3 00:00:21,920 --> 00:00:23,360 Speaker 2: I'm Tracy Alloway. 4 00:00:23,000 --> 00:00:24,200 Speaker 3: And I'm Joe Wisenthal. 5 00:00:24,600 --> 00:00:27,400 Speaker 2: Joe, how about them JGB yields? 6 00:00:27,800 --> 00:00:29,880 Speaker 3: So this is the thing, which is that in some 7 00:00:29,960 --> 00:00:33,400 Speaker 3: sense the markets have quieted down certainly compared to early 8 00:00:33,440 --> 00:00:37,000 Speaker 3: April or mid April, but there are some major moves 9 00:00:37,280 --> 00:00:42,479 Speaker 3: still happening, particularly in rates, some currency stuff. If you 10 00:00:42,600 --> 00:00:45,200 Speaker 3: know where to look, these markets are not boring at all. 11 00:00:45,440 --> 00:00:47,440 Speaker 2: I don't even think you have to like actively go 12 00:00:47,640 --> 00:00:51,440 Speaker 2: looking for interesting moves. So we're recording this on May twentieth, 13 00:00:51,600 --> 00:00:55,200 Speaker 2: and the twenty year JGB yield was up something like 14 00:00:55,240 --> 00:00:59,280 Speaker 2: fifteen basis points to about two point five percent. That's 15 00:00:59,320 --> 00:01:02,400 Speaker 2: the highest since two thousand. So basically, back when I 16 00:01:02,480 --> 00:01:04,800 Speaker 2: was living in Tokyo going to high school. 17 00:01:05,720 --> 00:01:08,280 Speaker 3: Were telling how I measure everything, Well, what were you 18 00:01:08,319 --> 00:01:13,479 Speaker 3: borrowing from local Japanese banks or were you buying when 19 00:01:13,480 --> 00:01:14,319 Speaker 3: you were in high school? 20 00:01:14,520 --> 00:01:17,760 Speaker 2: Sadly, sadly not, although well they wouldn't have been a 21 00:01:17,760 --> 00:01:18,440 Speaker 2: great investment. 22 00:01:18,440 --> 00:01:21,240 Speaker 3: Well you should have watch of jgb's back. Then you 23 00:01:21,280 --> 00:01:24,760 Speaker 3: get great price appreciation, you get great yields. But yes, 24 00:01:24,800 --> 00:01:26,679 Speaker 3: there's a lot going on. It's a global thing. So 25 00:01:26,760 --> 00:01:31,040 Speaker 3: in the US we're also seeing fairly elevated rates lately, 26 00:01:31,600 --> 00:01:34,480 Speaker 3: and to some extent that might be a story of 27 00:01:34,760 --> 00:01:38,520 Speaker 3: expectations that the current budget negotiations are going to continue 28 00:01:38,640 --> 00:01:41,880 Speaker 3: widening the deficit, you know, the sort of moody story. 29 00:01:42,000 --> 00:01:45,640 Speaker 3: But there's clearly global factor here that cannot simply be 30 00:01:45,880 --> 00:01:50,000 Speaker 3: explained by, say, like the willingness or unwillingness of members 31 00:01:50,040 --> 00:01:52,760 Speaker 3: of Congress to like expand the salt deduction. There is 32 00:01:52,800 --> 00:01:56,080 Speaker 3: a bigger macro story unfolding that I don't think I 33 00:01:56,120 --> 00:01:58,200 Speaker 3: have my head fully wrapped around. Right. 34 00:01:58,280 --> 00:02:01,200 Speaker 2: So, as we're recording this, the year is back at 35 00:02:01,240 --> 00:02:04,520 Speaker 2: four point four eight percent, and perhaps more importantly, the 36 00:02:04,640 --> 00:02:07,800 Speaker 2: thirty year is creeping back towards five percent. The dollar 37 00:02:08,080 --> 00:02:11,320 Speaker 2: is falling again, so the Cell America theme is kind 38 00:02:11,360 --> 00:02:14,320 Speaker 2: of getting another airing. There are concerns over the fiscal 39 00:02:14,360 --> 00:02:17,680 Speaker 2: trajectory and the big beautiful bill that you know, you 40 00:02:17,800 --> 00:02:18,320 Speaker 2: just kind. 41 00:02:18,120 --> 00:02:21,640 Speaker 3: Of call is. I know it's a liter called beautiful, but. 42 00:02:21,720 --> 00:02:23,320 Speaker 2: I love that, And so the worry is that that 43 00:02:23,360 --> 00:02:26,600 Speaker 2: will push up the deficit and possibly inflation. Plus, of course, 44 00:02:26,639 --> 00:02:30,400 Speaker 2: we have tariffs Meanwhile, as rates appear to be going up, 45 00:02:30,440 --> 00:02:32,360 Speaker 2: there are plenty of people still out there who are 46 00:02:32,360 --> 00:02:35,120 Speaker 2: talking about the prospect of the economy, the US economy 47 00:02:35,120 --> 00:02:39,240 Speaker 2: actually slowing down and getting rate cuts later this year, 48 00:02:39,600 --> 00:02:42,079 Speaker 2: and the market is still pricing those in. So we're 49 00:02:42,120 --> 00:02:45,360 Speaker 2: at this really interesting juncture in the bond market where 50 00:02:45,440 --> 00:02:47,960 Speaker 2: we're getting a lot of conflicting signals, a lot of 51 00:02:48,000 --> 00:02:51,760 Speaker 2: confusing signals, as you mentioned, and it seems like maintaining 52 00:02:51,800 --> 00:02:55,480 Speaker 2: stable prices, low inflation, and trying to fight all these 53 00:02:55,520 --> 00:02:59,240 Speaker 2: different cross currents is going to fall almost entirely on 54 00:02:59,280 --> 00:03:01,800 Speaker 2: the FED. I think we should talk about all. 55 00:03:01,720 --> 00:03:04,160 Speaker 3: Of this absolutely. Let's jump right into it. We have 56 00:03:04,160 --> 00:03:05,080 Speaker 3: a great guest today. 57 00:03:05,120 --> 00:03:07,400 Speaker 2: We have the perfect guest, you might say. We're going 58 00:03:07,480 --> 00:03:09,920 Speaker 2: to be speaking with Steven Englander, the global head of 59 00:03:09,960 --> 00:03:15,160 Speaker 2: G ten FX Strategy at Standard Chartered, And to be honest, Joe, 60 00:03:15,240 --> 00:03:18,440 Speaker 2: I cannot believe we haven't had Stephen on the podcast before. 61 00:03:18,720 --> 00:03:23,120 Speaker 3: I've been reading Steven's notes for years and years and years. 62 00:03:23,280 --> 00:03:25,480 Speaker 3: I was actually really surprised to realize he's never been 63 00:03:25,480 --> 00:03:29,400 Speaker 3: on before. I know, our oversight, major our oversight. Lately, 64 00:03:29,680 --> 00:03:32,800 Speaker 3: his emails have become a must click for me, I 65 00:03:32,840 --> 00:03:35,600 Speaker 3: always open them and so yes, he's here with us 66 00:03:35,640 --> 00:03:36,120 Speaker 3: in studio. 67 00:03:36,240 --> 00:03:37,400 Speaker 2: Steven, welcome to the show. 68 00:03:37,600 --> 00:03:40,080 Speaker 4: Thank you very much. I'm honored to be here with 69 00:03:40,120 --> 00:03:41,800 Speaker 4: the best interviewers in the world. 70 00:03:42,080 --> 00:03:44,280 Speaker 3: That's right. We are going to clip that and save 71 00:03:44,320 --> 00:03:45,400 Speaker 3: it for our highlight reel. 72 00:03:45,600 --> 00:03:49,040 Speaker 2: That's very kind. So why don't we start with jgb's 73 00:03:49,200 --> 00:03:53,040 Speaker 2: and also UST's. Is there a common theme running through 74 00:03:53,040 --> 00:03:56,520 Speaker 2: that sell off or are they being driven by entirely 75 00:03:56,600 --> 00:03:57,840 Speaker 2: different things. 76 00:03:58,520 --> 00:04:01,280 Speaker 4: I think it's mostly different. There is a common element 77 00:04:01,520 --> 00:04:04,160 Speaker 4: in that if US yields are going up, everybody's yelds 78 00:04:04,160 --> 00:04:06,840 Speaker 4: are going to be going up. But I think in 79 00:04:06,880 --> 00:04:10,400 Speaker 4: the case of jgb's there's, you know, particular dynamics. There's 80 00:04:10,480 --> 00:04:14,160 Speaker 4: uncertainty about what they're going to do. On the QT side, 81 00:04:14,560 --> 00:04:18,400 Speaker 4: they had this very kind of painful twenty year auction 82 00:04:18,640 --> 00:04:22,960 Speaker 4: which was pretty close to failing. The BOJ published that 83 00:04:23,000 --> 00:04:26,159 Speaker 4: there was some debate as to what pace of quantitative 84 00:04:26,160 --> 00:04:30,320 Speaker 4: tightening they should be going at, if any, and I 85 00:04:30,400 --> 00:04:33,360 Speaker 4: think there's a general view in the world that yields 86 00:04:33,400 --> 00:04:37,000 Speaker 4: are too low and they're going to be going up. However, 87 00:04:37,640 --> 00:04:40,520 Speaker 4: it's puzzling because the market seems to like the end 88 00:04:41,160 --> 00:04:44,600 Speaker 4: and normally that would be associated with the lower yields. 89 00:04:44,880 --> 00:04:46,520 Speaker 3: Well, you're getting paid a lot to buy you and 90 00:04:46,560 --> 00:04:48,640 Speaker 3: I can I mean, right, isn't that part of the story, 91 00:04:48,800 --> 00:04:51,080 Speaker 3: Like yields are going up, so it's like I'll buy 92 00:04:51,080 --> 00:04:52,800 Speaker 3: some yen because at least they're paying me a lot 93 00:04:52,839 --> 00:04:53,760 Speaker 3: more yen to hold them. 94 00:04:53,960 --> 00:04:57,040 Speaker 4: Well, remarkably, today there have been times when the end 95 00:04:57,080 --> 00:04:59,440 Speaker 4: thirty year yield has been higher than the German thirty 96 00:04:59,520 --> 00:04:59,920 Speaker 4: year yield. 97 00:05:00,440 --> 00:05:04,880 Speaker 3: So just on this point, I'm looking so anticipated. I 98 00:05:05,000 --> 00:05:07,960 Speaker 3: literally on my terminal had just pulled up a chart 99 00:05:07,960 --> 00:05:11,600 Speaker 3: of German thirty year yields as well, which are above 100 00:05:11,760 --> 00:05:14,440 Speaker 3: three percent. That's crazy. They were at zero at the 101 00:05:14,440 --> 00:05:16,640 Speaker 3: start of twenty twenty two, and that's the thirty year 102 00:05:16,880 --> 00:05:19,719 Speaker 3: they're over three percent. There must be a global factor. 103 00:05:20,320 --> 00:05:23,160 Speaker 4: Well, some of it is fiscal, especially in Europe and 104 00:05:23,240 --> 00:05:26,960 Speaker 4: the US. The Europe had like ten twelve years of 105 00:05:27,400 --> 00:05:31,280 Speaker 4: debt crisis in which they didn't want to expand fiscal deficits. 106 00:05:31,320 --> 00:05:34,440 Speaker 4: The pressure was to do the opposite, and now they've 107 00:05:34,480 --> 00:05:38,560 Speaker 4: discovered that defense spending is the key to economic growth. 108 00:05:38,640 --> 00:05:40,599 Speaker 4: But the market, I think is looking at it, and 109 00:05:40,600 --> 00:05:43,880 Speaker 4: they're looking at the fiscal prospects in the US and 110 00:05:44,160 --> 00:05:46,080 Speaker 4: kind of guessing that we're not going to see zero 111 00:05:46,120 --> 00:05:46,880 Speaker 4: in German yields. 112 00:05:46,880 --> 00:05:50,240 Speaker 2: Again, just going back to the yen and people buying it. 113 00:05:50,320 --> 00:05:52,559 Speaker 2: How much of that is a strong yen story versus 114 00:05:52,680 --> 00:05:56,120 Speaker 2: a week dollar story. This is why I hate currencies. 115 00:05:56,160 --> 00:05:59,440 Speaker 4: By the way, well, they're good because you have two 116 00:05:59,520 --> 00:06:03,320 Speaker 4: chances to be wrong. I think that much of it 117 00:06:03,400 --> 00:06:06,880 Speaker 4: is a week dollar story. And looking to see in 118 00:06:06,960 --> 00:06:10,600 Speaker 4: terms of the negotiations on tariffs and in terms of 119 00:06:10,640 --> 00:06:14,960 Speaker 4: how kind of off base the currency is, which currencies 120 00:06:15,000 --> 00:06:17,920 Speaker 4: are most likely to move, which ones will face the 121 00:06:18,120 --> 00:06:22,440 Speaker 4: least resistance in appreciating against the dollar, and I think 122 00:06:22,839 --> 00:06:26,600 Speaker 4: Japan wins on several counts that the tariff negotiations will 123 00:06:26,640 --> 00:06:29,520 Speaker 4: be tough because they still have a very big trade 124 00:06:29,520 --> 00:06:33,159 Speaker 4: deficit with the US. Trade surplus, yes, trade surplus with 125 00:06:33,200 --> 00:06:36,680 Speaker 4: the US. The non tariff barriers, even if you really 126 00:06:36,720 --> 00:06:40,440 Speaker 4: can't quantify them, they're pretty significant, and you know, the 127 00:06:40,520 --> 00:06:43,080 Speaker 4: US has a point in complaining about some of them, 128 00:06:43,480 --> 00:06:46,599 Speaker 4: and there's a sense in the market, and I think 129 00:06:47,320 --> 00:06:51,520 Speaker 4: correctly that once you get past the ten percent baseline 130 00:06:51,560 --> 00:06:55,400 Speaker 4: tariff that the US needs for fiscal purposes that they 131 00:06:55,440 --> 00:06:58,760 Speaker 4: may be will link to trade, some of the reciprocal tariffs, 132 00:06:58,760 --> 00:07:03,320 Speaker 4: the you know, the beyond that ten percent for currency appreciation. 133 00:07:04,000 --> 00:07:06,520 Speaker 4: And there's been a number of currencies under discussion, but 134 00:07:06,680 --> 00:07:09,200 Speaker 4: you know, the end is one of the prime currencies, 135 00:07:09,240 --> 00:07:12,200 Speaker 4: given that it's so weak relative to any kind of 136 00:07:12,240 --> 00:07:14,040 Speaker 4: PPP type of basis. 137 00:07:14,160 --> 00:07:16,920 Speaker 3: Right, this is sort of a general East Asian story. 138 00:07:17,120 --> 00:07:17,280 Speaker 4: You know. 139 00:07:17,320 --> 00:07:19,840 Speaker 3: Obviously we talked about the Taiwanies dollar and the South 140 00:07:19,920 --> 00:07:22,240 Speaker 3: Korean one and so forth, and there is this view 141 00:07:22,640 --> 00:07:26,640 Speaker 3: that maybe some sort of different in currency policy could 142 00:07:26,640 --> 00:07:30,000 Speaker 3: be part of the packages here. Before we get more 143 00:07:30,040 --> 00:07:32,200 Speaker 3: to that, you know, one of the things that you 144 00:07:32,360 --> 00:07:35,520 Speaker 3: heard maybe six months ago or a year or even 145 00:07:36,080 --> 00:07:38,880 Speaker 3: a few months ago, they're like, oh, if we impose tariffs, 146 00:07:39,000 --> 00:07:41,400 Speaker 3: it will be offset because that will be a strengthening 147 00:07:41,400 --> 00:07:43,640 Speaker 3: of the US dollar. And we've seen literally the opposite. 148 00:07:43,680 --> 00:07:47,960 Speaker 3: But that was a common meme, a common conventional wisdom 149 00:07:48,080 --> 00:07:51,000 Speaker 3: among a lot of economists both Wall Street academia are 150 00:07:51,040 --> 00:07:53,800 Speaker 3: the ones who appear on TV et cetera. What is 151 00:07:53,840 --> 00:07:57,400 Speaker 3: this simple story for why the dollar has been so 152 00:07:57,560 --> 00:07:59,960 Speaker 3: weak since April second, even at a time when stop 153 00:08:00,320 --> 00:08:03,760 Speaker 3: rebounded interest rates have stabilized a little bit. The one 154 00:08:03,960 --> 00:08:06,800 Speaker 3: major move that hasn't really reversed is the dollar. What's 155 00:08:06,840 --> 00:08:08,000 Speaker 3: this simple story there. 156 00:08:08,400 --> 00:08:11,160 Speaker 5: Well for the complex story, well, it's a medium story, 157 00:08:11,160 --> 00:08:14,680 Speaker 5: but it basically goes something like this said, you know, 158 00:08:14,840 --> 00:08:16,960 Speaker 5: I might choose to pick your pocket if I thought 159 00:08:17,000 --> 00:08:20,760 Speaker 5: you wouldn't respond, but if you did respond, you know, 160 00:08:20,800 --> 00:08:22,920 Speaker 5: the consequences might not be as much fun for me. 161 00:08:23,360 --> 00:08:25,600 Speaker 4: And I think that if you start with the assumption 162 00:08:25,760 --> 00:08:28,920 Speaker 4: that the US can tariff everybody, yeah, and you know, 163 00:08:29,000 --> 00:08:30,960 Speaker 4: the market is not going to say, well, wait a second, 164 00:08:31,440 --> 00:08:34,200 Speaker 4: if they do tariffs, what about that Mara Lago stuff, 165 00:08:34,240 --> 00:08:37,200 Speaker 4: what about foreign policy? You know what, what is the 166 00:08:37,280 --> 00:08:42,360 Speaker 4: limit to which they can expand that policy envelope? You 167 00:08:42,400 --> 00:08:45,480 Speaker 4: had to risk premium to US assets. So the offset 168 00:08:45,559 --> 00:08:48,240 Speaker 4: to that is that the market is looking at US 169 00:08:48,280 --> 00:08:50,920 Speaker 4: assets and kind of saying, well, safe haven, maybe not 170 00:08:51,000 --> 00:08:54,079 Speaker 4: so much reliability, maybe not so much as it used 171 00:08:54,120 --> 00:08:54,320 Speaker 4: to be. 172 00:08:55,040 --> 00:08:59,240 Speaker 2: Is there good dollar depreciation and bad dollar depreciation? And 173 00:08:59,320 --> 00:09:01,360 Speaker 2: I remember one of your notes you talked about this 174 00:09:01,440 --> 00:09:05,679 Speaker 2: idea that you could get a weaker dollar that supports competitiveness, 175 00:09:05,840 --> 00:09:08,360 Speaker 2: but you could also get a weaker dollar that reduces 176 00:09:08,920 --> 00:09:11,720 Speaker 2: the amount of capital coming into the US. How would 177 00:09:11,720 --> 00:09:13,120 Speaker 2: you measure those two things? 178 00:09:13,720 --> 00:09:16,680 Speaker 4: Well, in a sense, we're getting some of that measurement 179 00:09:16,880 --> 00:09:19,760 Speaker 4: now when we look at the dollar weakening and interest 180 00:09:19,840 --> 00:09:23,000 Speaker 4: rates going up. I think it's a pretty good sign that, 181 00:09:23,559 --> 00:09:27,640 Speaker 4: notwithstanding the greater competitiveness on paper, at least of the US, 182 00:09:28,080 --> 00:09:31,680 Speaker 4: that investors aren't that enthusiastic about holding US assets. So 183 00:09:32,120 --> 00:09:35,520 Speaker 4: I think that's one real signal that the market's not 184 00:09:35,880 --> 00:09:39,800 Speaker 4: thinking that it's an unalloyed plus. But I'd say that 185 00:09:39,920 --> 00:09:43,040 Speaker 4: most of the time if the dollar goes down is 186 00:09:43,080 --> 00:09:46,640 Speaker 4: for bad reasons. The basic good story would be something 187 00:09:46,720 --> 00:09:50,360 Speaker 4: like this that the rest of the world, for whatever reason, 188 00:09:50,400 --> 00:09:54,040 Speaker 4: does fiscal policy and kind of expands consumption and they 189 00:09:54,040 --> 00:09:57,679 Speaker 4: start buying US assets. US foreign yields go up relative 190 00:09:57,760 --> 00:10:00,600 Speaker 4: to the US. Never mind what they're do. That picture 191 00:10:00,760 --> 00:10:04,800 Speaker 4: is over, you know, five, ten, fifteen years, and they say, okay, 192 00:10:04,880 --> 00:10:07,480 Speaker 4: you know, instead of buying US treasuries, we're going to 193 00:10:07,520 --> 00:10:11,080 Speaker 4: buy you know, German and European and Asian because they're 194 00:10:11,080 --> 00:10:14,040 Speaker 4: all expanding their fiscal deficits and their rates are going up. 195 00:10:14,120 --> 00:10:17,079 Speaker 4: The return is higher, and you can start say, yeah, 196 00:10:17,160 --> 00:10:19,520 Speaker 4: the dollar's weaker, but it's it's okay for the US, 197 00:10:19,600 --> 00:10:22,560 Speaker 4: they can do their own thing. I'd say that if 198 00:10:22,600 --> 00:10:25,600 Speaker 4: you're focused on the US, and this is something I 199 00:10:25,720 --> 00:10:30,280 Speaker 4: can't emphasize enough that just about for every major, even 200 00:10:30,320 --> 00:10:34,640 Speaker 4: medium sized country, ninety percent of the policy solution is 201 00:10:34,640 --> 00:10:38,600 Speaker 4: going to be domestic. The idea that you can fix 202 00:10:38,720 --> 00:10:43,560 Speaker 4: your economic problems by doing something on the international side, 203 00:10:43,559 --> 00:10:46,680 Speaker 4: I think is an illusion. If you did the right 204 00:10:46,679 --> 00:10:49,880 Speaker 4: thing on the domestic side, you might get good stuff 205 00:10:49,880 --> 00:10:53,680 Speaker 4: happening on the international side. But it's really really hard 206 00:10:53,840 --> 00:10:57,520 Speaker 4: to get around domestic issues by saying, oh, well, well, 207 00:10:57,559 --> 00:11:00,840 Speaker 4: just appreciate ten or fifteen percent. Most of the time 208 00:11:00,880 --> 00:11:04,600 Speaker 4: when you'd appreciate that way, something's going wrong. Either the 209 00:11:04,679 --> 00:11:07,160 Speaker 4: market says, hey, their real interest rates are too low 210 00:11:08,000 --> 00:11:09,679 Speaker 4: and they're not going to be able to push them up, 211 00:11:09,720 --> 00:11:12,559 Speaker 4: so there's no point to holding their paper, or they 212 00:11:12,600 --> 00:11:16,800 Speaker 4: say brisk premium should be higher, or something not going great. 213 00:11:16,880 --> 00:11:19,520 Speaker 4: So I'd say that even though there's a route by 214 00:11:19,520 --> 00:11:22,000 Speaker 4: which you can say that a week or dollar reflects 215 00:11:22,040 --> 00:11:24,960 Speaker 4: good stuff, that's not the most common rute. Most of 216 00:11:25,000 --> 00:11:28,200 Speaker 4: the time, a weaker currency reflects bad stuff happening on 217 00:11:28,240 --> 00:11:29,240 Speaker 4: the domestic side. 218 00:11:29,480 --> 00:11:31,800 Speaker 3: No, I think this is a really good point. I 219 00:11:31,840 --> 00:11:33,800 Speaker 3: wrote a thing in the newsletter. I call it like 220 00:11:33,880 --> 00:11:36,640 Speaker 3: one weird triconomics, because we have all of these things 221 00:11:36,640 --> 00:11:39,400 Speaker 3: that we can all talk about and sort of al 222 00:11:39,600 --> 00:11:43,040 Speaker 3: or plague the US economy. It's difficult to build here. 223 00:11:43,520 --> 00:11:46,680 Speaker 3: We seem to have lost our capacity to so. 224 00:11:46,760 --> 00:11:48,600 Speaker 2: If you do the whole list, we're going to be 225 00:11:48,640 --> 00:11:49,840 Speaker 2: here for like twenty minutes. 226 00:11:49,920 --> 00:11:52,199 Speaker 3: Right. We seem to have gotten worse at building airplanes, 227 00:11:52,200 --> 00:11:53,960 Speaker 3: which is one of the things that we actually still 228 00:11:53,960 --> 00:11:56,000 Speaker 3: do export to the world. In much of the ways, 229 00:11:56,480 --> 00:12:00,520 Speaker 3: these are really tough problems to solve, and it strikes 230 00:12:00,520 --> 00:12:04,080 Speaker 3: me as sort of fantasy that suddenly we can revive 231 00:12:04,160 --> 00:12:06,559 Speaker 3: all of these things just by coming to an agreement 232 00:12:06,600 --> 00:12:09,839 Speaker 3: with our foreign partners about some difference in currency or 233 00:12:09,840 --> 00:12:10,640 Speaker 3: a trade policy. 234 00:12:11,640 --> 00:12:14,280 Speaker 4: I completely agree. And the other fantasy I would add 235 00:12:14,280 --> 00:12:16,880 Speaker 4: to that is the implication all we got to do 236 00:12:16,920 --> 00:12:19,240 Speaker 4: is depreciate five or ten percent and that's going to 237 00:12:19,280 --> 00:12:22,120 Speaker 4: be enough. If you take a look at the way 238 00:12:22,320 --> 00:12:25,040 Speaker 4: the dollar has moved against the euros the end, you know, 239 00:12:25,080 --> 00:12:27,920 Speaker 4: the range over the last ten years for the euro 240 00:12:27,960 --> 00:12:30,480 Speaker 4: I think is ninety five to one twenty five, and 241 00:12:30,520 --> 00:12:35,600 Speaker 4: the US has run a trade deficit, significant trade against Europe. Yeah, 242 00:12:35,880 --> 00:12:37,920 Speaker 4: both at ninety five and at one twenty five. I 243 00:12:37,960 --> 00:12:41,760 Speaker 4: think there's too much faith that a weak currency is 244 00:12:41,760 --> 00:12:45,520 Speaker 4: is going to bail you out of your problems. But 245 00:12:45,720 --> 00:12:47,840 Speaker 4: it's the easy thing to do, and it kind of 246 00:12:47,880 --> 00:12:49,440 Speaker 4: sounds nice in principle. 247 00:13:05,080 --> 00:13:09,160 Speaker 3: Was there ever in Urine economic history in which economies 248 00:13:09,200 --> 00:13:13,240 Speaker 3: did stabilize more directly and more linear fashion? You know now? 249 00:13:13,240 --> 00:13:16,400 Speaker 3: And I think of like, okay specialization Tawan makes the chips, 250 00:13:16,480 --> 00:13:20,480 Speaker 3: Europe makes the engines, the US makes soybeans and complex 251 00:13:20,520 --> 00:13:24,600 Speaker 3: financial products. I get why currency adjustments don't have this 252 00:13:24,679 --> 00:13:29,320 Speaker 3: stabilizing effect. Was there a period when economic specialty was 253 00:13:29,360 --> 00:13:33,680 Speaker 3: more distributed, that there was a more clear link between 254 00:13:34,080 --> 00:13:37,240 Speaker 3: exchange rate fluctuations and trade balancing. 255 00:13:37,679 --> 00:13:40,240 Speaker 4: The simple answer I think is no. I think that 256 00:13:40,280 --> 00:13:44,559 Speaker 4: there was a time maybe when you had the gold standard. Yeah, 257 00:13:44,600 --> 00:13:47,440 Speaker 4: but there's also an issue that the movements of gold 258 00:13:47,679 --> 00:13:53,000 Speaker 4: reflected the confidence of markets that the economy was sustainable. 259 00:13:53,040 --> 00:13:55,559 Speaker 4: There were no imbalances. So if he ran a trade 260 00:13:55,559 --> 00:13:59,160 Speaker 4: deficit in the nineteenth century, yes, you know, we have 261 00:13:59,280 --> 00:14:01,880 Speaker 4: to be settled in gold eventually, but it wasn't a 262 00:14:01,920 --> 00:14:05,280 Speaker 4: problem until everyone decided that maybe you wouldn't be able 263 00:14:05,320 --> 00:14:08,360 Speaker 4: to do it, and then you would have these kinds 264 00:14:08,400 --> 00:14:11,480 Speaker 4: of crunches most of my careers. It's so funny because 265 00:14:11,480 --> 00:14:13,960 Speaker 4: when you go to school, all you learn is PPP 266 00:14:14,200 --> 00:14:18,400 Speaker 4: and trade balances and sort of adjustment of exchange rates 267 00:14:18,400 --> 00:14:21,800 Speaker 4: and so on to get trade into equilibrium. Once you're 268 00:14:21,800 --> 00:14:23,960 Speaker 4: sitting at a trading desk, all you see our capital 269 00:14:24,000 --> 00:14:28,720 Speaker 4: flows and that's kind of the driver. And the issue 270 00:14:28,760 --> 00:14:32,480 Speaker 4: is does the market have enough confidence to keep lending 271 00:14:32,520 --> 00:14:35,320 Speaker 4: you the money? And if you look at the US, 272 00:14:36,240 --> 00:14:39,000 Speaker 4: say for you know, the last twenty years or so, 273 00:14:39,520 --> 00:14:42,840 Speaker 4: through thick and thin till recently, the market was pretty 274 00:14:42,840 --> 00:14:47,040 Speaker 4: confident that the risk adju just returns into US would 275 00:14:47,080 --> 00:14:51,160 Speaker 4: be positive. And yeah, the US ran a trade deficit, 276 00:14:51,240 --> 00:14:53,360 Speaker 4: but it didn't seem to harm US welfare. 277 00:14:54,360 --> 00:14:56,680 Speaker 2: What do you see in the capitol flows now? Because 278 00:14:56,760 --> 00:14:59,240 Speaker 2: this seems to be one of the difficulties of the 279 00:14:59,240 --> 00:15:00,800 Speaker 2: current moment, which which is there are a lot of 280 00:15:00,800 --> 00:15:04,400 Speaker 2: people talking about the sell America idea, but if you 281 00:15:04,480 --> 00:15:06,680 Speaker 2: look at some of the data, and a lot of 282 00:15:06,680 --> 00:15:10,160 Speaker 2: it comes out on a lag, you don't really see 283 00:15:10,440 --> 00:15:13,680 Speaker 2: a lot of selling. For instance, foreign account selling, a 284 00:15:13,720 --> 00:15:16,920 Speaker 2: lot of US treasuries. Are you seeing any evidence of 285 00:15:16,920 --> 00:15:18,560 Speaker 2: the sell America theme emerging? 286 00:15:19,120 --> 00:15:21,040 Speaker 4: Well, I think you see it in the weaker dollar. 287 00:15:21,160 --> 00:15:23,440 Speaker 4: And you know, my best friend is the balance of 288 00:15:23,440 --> 00:15:26,720 Speaker 4: payments identity, and I might talk to it every day. 289 00:15:27,280 --> 00:15:29,920 Speaker 3: And this little sad but charming. 290 00:15:30,560 --> 00:15:34,160 Speaker 4: The thing is that when the market decides that it's 291 00:15:34,240 --> 00:15:37,920 Speaker 4: not going to lend you money at yesterday's interest rates 292 00:15:37,960 --> 00:15:41,560 Speaker 4: and exchange rates, there are two ways of getting that adjustment. 293 00:15:41,960 --> 00:15:45,600 Speaker 4: Either your demand for credit can go down, which we 294 00:15:45,640 --> 00:15:48,720 Speaker 4: sometimes see with emerging markets when they hit the wall 295 00:15:48,800 --> 00:15:53,440 Speaker 4: with respect to foreign funding, and the economy crashes because 296 00:15:53,480 --> 00:15:57,520 Speaker 4: basically they have to get into trade balance or surplus 297 00:15:57,560 --> 00:16:01,400 Speaker 4: even in order to meet their obligations. In G ten, 298 00:16:01,600 --> 00:16:05,360 Speaker 4: mostly and historically with the US, the adjustment has been 299 00:16:06,000 --> 00:16:10,960 Speaker 4: via the currency occasionally, like in seventy eight in April, 300 00:16:11,040 --> 00:16:15,000 Speaker 4: with the currency and interest rates, but there's no big 301 00:16:15,240 --> 00:16:19,160 Speaker 4: demand shock, there's no big shock to output because the 302 00:16:19,200 --> 00:16:21,880 Speaker 4: money's not there. The money's there, but it's at a 303 00:16:21,880 --> 00:16:24,560 Speaker 4: different price than you expect it to pay. So I 304 00:16:24,600 --> 00:16:28,080 Speaker 4: think you have to look at the path that's traced 305 00:16:28,120 --> 00:16:30,920 Speaker 4: by US interest rates in the exchange rates, you know, 306 00:16:30,960 --> 00:16:33,760 Speaker 4: as well as sentiment and seeing what people are saying 307 00:16:34,080 --> 00:16:39,080 Speaker 4: to understand whether the financing is coming easily or with difficulty. 308 00:16:39,880 --> 00:16:43,600 Speaker 3: Going back to Europe for a second, so Germany has suddenly, 309 00:16:44,320 --> 00:16:48,000 Speaker 3: maybe briefly, but suddenly found this willingness to spend more 310 00:16:48,000 --> 00:16:51,760 Speaker 3: money and that's going to benefit German defense companies. We 311 00:16:51,800 --> 00:16:56,080 Speaker 3: see higher rates, so maybe a longer term more inflationary 312 00:16:56,520 --> 00:17:01,720 Speaker 3: temperature in the European economy. Is Europe actually a desirable 313 00:17:01,760 --> 00:17:05,719 Speaker 3: destination though? For global capital? I mean it doesn't have 314 00:17:05,800 --> 00:17:09,560 Speaker 3: really an alternative to US treasuries. The fundamental growth prospects 315 00:17:09,560 --> 00:17:12,840 Speaker 3: still don't look great. Do you see any changing perspective? 316 00:17:12,920 --> 00:17:16,880 Speaker 3: And like the pure desirability of capital to enter Europe? 317 00:17:17,480 --> 00:17:20,240 Speaker 4: Some but I'd say most of what we're seeing is 318 00:17:20,480 --> 00:17:23,960 Speaker 4: the market beginning to debate whether the US is going 319 00:17:24,000 --> 00:17:26,919 Speaker 4: to fall back into the pack in terms of being attractive. 320 00:17:27,720 --> 00:17:30,280 Speaker 4: I don't think it's really that is Europe pulling away 321 00:17:30,320 --> 00:17:33,720 Speaker 4: from the pack in terms of attractiveness. And going back 322 00:17:33,760 --> 00:17:37,280 Speaker 4: to the first principle that I mentioned, when you list 323 00:17:37,320 --> 00:17:40,920 Speaker 4: the issues limiting growth in Europe, you know there's been there. 324 00:17:41,000 --> 00:17:43,879 Speaker 4: You know, energy policy which hasn't worked out, there's the 325 00:17:44,320 --> 00:17:50,040 Speaker 4: over regulation, there's taxation, lack of incentives, the labor market, 326 00:17:50,160 --> 00:17:53,240 Speaker 4: the inflexibility, all the issues that we've discussed for twenty 327 00:17:53,280 --> 00:17:57,000 Speaker 4: or thirty years. It would be remarkable if defense spending 328 00:17:58,119 --> 00:18:00,919 Speaker 4: was the answer to all of those. And you know, 329 00:18:01,359 --> 00:18:03,400 Speaker 4: I'm a bit skeptical in the short term it might 330 00:18:03,440 --> 00:18:05,640 Speaker 4: make a difference in the long term. You know, it's 331 00:18:05,680 --> 00:18:08,199 Speaker 4: not as if we study Attila the Hunts Textbook of 332 00:18:08,480 --> 00:18:11,879 Speaker 4: economics to see how, you know, preparing for war is 333 00:18:11,920 --> 00:18:13,280 Speaker 4: going to give you a better economy. 334 00:18:13,359 --> 00:18:17,439 Speaker 2: Yeah, that's another one weird triconomics thing. Yeah, the belief 335 00:18:17,480 --> 00:18:20,000 Speaker 2: that defense spending is going to change everything. I mean, 336 00:18:20,040 --> 00:18:22,199 Speaker 2: it is a big it is a big change, but 337 00:18:22,440 --> 00:18:25,520 Speaker 2: the idea that it's going to really reverberate across the 338 00:18:25,560 --> 00:18:30,520 Speaker 2: European Union. Going back to US problems for a second, 339 00:18:30,760 --> 00:18:33,399 Speaker 2: So if we can't count on a weaker dollar to 340 00:18:33,520 --> 00:18:37,159 Speaker 2: save us, and meanwhile it seems like we're going to 341 00:18:37,240 --> 00:18:41,800 Speaker 2: get probably more fiscal spending, a bigger deficit. Does the 342 00:18:41,960 --> 00:18:46,040 Speaker 2: job of reining in inflation now fall entirely to the 343 00:18:46,080 --> 00:18:47,600 Speaker 2: Fed pretty much. 344 00:18:47,880 --> 00:18:51,160 Speaker 4: Yeah, there's a hope that some spending can be reduced 345 00:18:51,200 --> 00:18:53,439 Speaker 4: because if you look at the share of government spending 346 00:18:53,440 --> 00:18:57,760 Speaker 4: and GDP. It's way higher than it was twenty eighteen, 347 00:18:57,800 --> 00:19:00,720 Speaker 4: twenty nineteen, you know, for the decade before we hit COVID, 348 00:19:01,400 --> 00:19:03,840 Speaker 4: and you know, the Republicans kind of got snookered by 349 00:19:04,240 --> 00:19:08,160 Speaker 4: Biden when they did the debt deal in that they 350 00:19:08,200 --> 00:19:11,360 Speaker 4: accepted a higher baseline level of spending that was way 351 00:19:11,400 --> 00:19:16,000 Speaker 4: above the historical norm for the US. So the question 352 00:19:16,080 --> 00:19:18,959 Speaker 4: is can they get that back down, and can they 353 00:19:18,960 --> 00:19:21,359 Speaker 4: do that in a way that's you know, fair equitable, 354 00:19:21,440 --> 00:19:24,760 Speaker 4: that's not really going to be on the backs of 355 00:19:25,000 --> 00:19:27,720 Speaker 4: you know, one segment of the population or you know, 356 00:19:27,960 --> 00:19:31,080 Speaker 4: the forest or the weakest or whatever. If they can, 357 00:19:31,160 --> 00:19:34,280 Speaker 4: it would be remarkable if dose can get rid of 358 00:19:34,359 --> 00:19:37,320 Speaker 4: wasteful spending. You know, if they can actually find waste, 359 00:19:37,320 --> 00:19:41,639 Speaker 4: fraud and abuse, that would be terrific. But if they can't, 360 00:19:41,880 --> 00:19:44,760 Speaker 4: and we know the history of these fiscal bills, which 361 00:19:44,880 --> 00:19:48,360 Speaker 4: is that the easiest thing to do is to kind 362 00:19:48,400 --> 00:19:51,120 Speaker 4: of say, well, we'll have a lot of supply side 363 00:19:51,160 --> 00:19:54,600 Speaker 4: effects or we're counting on this revenue or that revenue 364 00:19:54,600 --> 00:19:57,440 Speaker 4: which may or may not come. If it turns out 365 00:19:57,680 --> 00:20:01,679 Speaker 4: that it's kind of steepening the the deficit path in 366 00:20:01,720 --> 00:20:05,520 Speaker 4: the path of death accumulation, the FED may be the 367 00:20:05,560 --> 00:20:06,600 Speaker 4: only story in town. 368 00:20:07,000 --> 00:20:10,760 Speaker 3: You wrote an interesting piece earlier this week talking about 369 00:20:10,800 --> 00:20:14,480 Speaker 3: the sort of short to medium term outlook for the FED, 370 00:20:15,320 --> 00:20:19,040 Speaker 3: and it sounded like, you see the window for rate 371 00:20:19,080 --> 00:20:23,359 Speaker 3: cuts is being sort of narrow and shallow that basically 372 00:20:23,960 --> 00:20:26,520 Speaker 3: in twenty six, twenty twenty seven, we're going to be 373 00:20:26,520 --> 00:20:30,200 Speaker 3: getting a stimulative impact assuming this tax bill goes through, 374 00:20:30,200 --> 00:20:32,640 Speaker 3: and something that it looks like talk to us about like, 375 00:20:32,960 --> 00:20:35,720 Speaker 3: you know, what the market is pricing in for rate 376 00:20:35,800 --> 00:20:39,359 Speaker 3: cuts versus what realistically the FED might be able to 377 00:20:39,400 --> 00:20:39,680 Speaker 3: do here. 378 00:20:39,920 --> 00:20:42,240 Speaker 4: Yeah, I guess I'm kind of at odds with the market, 379 00:20:42,280 --> 00:20:43,960 Speaker 4: both in the short term and and the longer. 380 00:20:44,200 --> 00:20:46,240 Speaker 3: Love media, this is what makes an interesting conversation. 381 00:20:46,240 --> 00:20:48,720 Speaker 4: And in the short term I kind of think, Look, 382 00:20:48,960 --> 00:20:53,720 Speaker 4: every survey you get tells you that everybody's concerned about growth, 383 00:20:53,720 --> 00:20:57,520 Speaker 4: they expect growth to slow down. How many weak payroll 384 00:20:57,600 --> 00:21:01,159 Speaker 4: numbers do you need to say, Oh, wait a second, 385 00:21:01,480 --> 00:21:04,480 Speaker 4: the people have been telling us that nothing's happening, that 386 00:21:04,520 --> 00:21:07,119 Speaker 4: things are slowing down. Now we get evidence. Do you 387 00:21:07,160 --> 00:21:09,920 Speaker 4: need three, do you need six? Or do you just say, well, yeah, 388 00:21:09,920 --> 00:21:13,480 Speaker 4: that just confirms what everybody's been saying. So I actually 389 00:21:13,520 --> 00:21:15,800 Speaker 4: think that they will do the right thing, which would 390 00:21:15,840 --> 00:21:20,840 Speaker 4: be to ease in response to incoming economic data. Having 391 00:21:20,880 --> 00:21:24,040 Speaker 4: said that, I would see that as an insurance policy. 392 00:21:24,080 --> 00:21:28,760 Speaker 4: Because the fiscal bill is likely to introduce net stimulus, 393 00:21:29,320 --> 00:21:33,960 Speaker 4: We're going to get something uncertain inflation. We'll get certain 394 00:21:34,000 --> 00:21:37,760 Speaker 4: inflation effects from the tariffs. What's uncertain is whether they're 395 00:21:37,960 --> 00:21:42,199 Speaker 4: one off or persistent. So between the combination of tariff 396 00:21:42,240 --> 00:21:47,119 Speaker 4: and used inflation and fiscal stimulus, it's not clear to 397 00:21:47,160 --> 00:21:49,560 Speaker 4: me how they're going to cut. I think that the 398 00:21:50,160 --> 00:21:52,600 Speaker 4: FED might see themselves as having an issue and sitting 399 00:21:52,600 --> 00:21:56,040 Speaker 4: in terms of saying, well, if we cut in Q 400 00:21:56,119 --> 00:21:58,720 Speaker 4: two or Q three, can we take it back in 401 00:21:58,800 --> 00:22:01,680 Speaker 4: Q four and Q one, with you know, the president 402 00:22:01,680 --> 00:22:05,000 Speaker 4: over our shoulders saying, you know, don't do that. But 403 00:22:05,280 --> 00:22:08,800 Speaker 4: if you're running a model, you'd probably say, given all 404 00:22:08,920 --> 00:22:12,640 Speaker 4: the data that have come in, if you get confirmation 405 00:22:12,760 --> 00:22:16,120 Speaker 4: that the economy is blowing, you should cut, and then 406 00:22:16,160 --> 00:22:18,520 Speaker 4: you should keep your eyes open to see what's happening, 407 00:22:19,040 --> 00:22:20,760 Speaker 4: you know, at the end of the year, to turn 408 00:22:20,800 --> 00:22:23,080 Speaker 4: into twenty twenty six and see if you have to 409 00:22:23,119 --> 00:22:26,440 Speaker 4: take it back. Because the inflation picture has deteriorated. 410 00:22:27,000 --> 00:22:30,080 Speaker 2: Can I ask a basic question which I've kind of 411 00:22:30,119 --> 00:22:33,040 Speaker 2: always wanted to ask someone, and given your experience in 412 00:22:33,080 --> 00:22:35,399 Speaker 2: the market, I think I should ask you, what is 413 00:22:35,440 --> 00:22:38,240 Speaker 2: the central bank playbook for stagflation? 414 00:22:39,359 --> 00:22:44,560 Speaker 4: Pray look in some ways when you look at the history, 415 00:22:45,080 --> 00:22:48,960 Speaker 4: Arthur Burns got out a very bad deck and he 416 00:22:49,000 --> 00:22:51,720 Speaker 4: probably didn't play it well, but he didn't have a 417 00:22:51,720 --> 00:22:56,080 Speaker 4: good deck to play with green Span, Burnank, even yelling 418 00:22:56,160 --> 00:22:59,480 Speaker 4: to some degree, Greensprand and BERNANKI actually had pretty strong 419 00:22:59,520 --> 00:23:02,000 Speaker 4: product deep growth when they were there, so unit labor 420 00:23:02,000 --> 00:23:06,680 Speaker 4: costs were soft. Yellen had low inflation, so she could 421 00:23:06,680 --> 00:23:10,159 Speaker 4: be everybody's friend because they were trying to get to 422 00:23:10,200 --> 00:23:14,600 Speaker 4: their targets, you know, and even Powell in his first 423 00:23:14,680 --> 00:23:18,119 Speaker 4: term was faced with that issue. But do you think 424 00:23:18,160 --> 00:23:21,280 Speaker 4: with stagflation? Is really tough and there's no good answer 425 00:23:21,440 --> 00:23:25,080 Speaker 4: because you know in the longer term that you can't 426 00:23:25,119 --> 00:23:29,000 Speaker 4: accommodate the negative productivity shock or negative output shock because 427 00:23:29,000 --> 00:23:33,040 Speaker 4: you'll just have persistent inflation. The only question is how 428 00:23:33,160 --> 00:23:35,880 Speaker 4: quickly do you try and ring it out of the system, 429 00:23:35,920 --> 00:23:38,480 Speaker 4: And that's you know, that's a very hard decision to make. 430 00:23:39,440 --> 00:23:43,439 Speaker 3: Speaking of having views that are out of consensus. You 431 00:23:43,480 --> 00:23:45,440 Speaker 3: wrote an interesting note a couple of weeks ago. I 432 00:23:45,480 --> 00:23:48,280 Speaker 3: think it was before the quote did haunt with China, 433 00:23:48,800 --> 00:23:50,800 Speaker 3: but actually you were of the view, Yeah, and you've 434 00:23:50,800 --> 00:23:53,640 Speaker 3: been talking about this tariff. We'll have an inflationary impulse. 435 00:23:53,680 --> 00:23:56,320 Speaker 3: We'll see how far it goes. But that actually the 436 00:23:56,440 --> 00:24:00,520 Speaker 3: sort of short term disruption from the terriff you sort 437 00:24:00,560 --> 00:24:02,880 Speaker 3: of thought have been overstated, and I think the markets 438 00:24:03,119 --> 00:24:06,080 Speaker 3: increasingly come around to this view. I mean, if we 439 00:24:06,119 --> 00:24:08,800 Speaker 3: were trying to you in April early April, people were, 440 00:24:08,800 --> 00:24:10,600 Speaker 3: you know, sudden to stop to the economy. They pulled 441 00:24:10,600 --> 00:24:13,679 Speaker 3: the plug on the economy, so to speak. But at 442 00:24:13,760 --> 00:24:16,960 Speaker 3: least in the short term, your view is that it's 443 00:24:17,040 --> 00:24:19,159 Speaker 3: not quite as big of a deal from a sheer 444 00:24:19,160 --> 00:24:20,840 Speaker 3: like economic activity standpoint. 445 00:24:21,440 --> 00:24:25,400 Speaker 4: Yeah, Look, ten percent shocks the competitiveness. We get those 446 00:24:25,440 --> 00:24:27,760 Speaker 4: all the time via exchange rates, and life goes on. 447 00:24:28,359 --> 00:24:31,440 Speaker 4: You know, in the last ten years, the euro dollars 448 00:24:31,520 --> 00:24:34,440 Speaker 4: moved ten percent in a relatively short period of time, 449 00:24:34,520 --> 00:24:37,040 Speaker 4: three or four times. It's not it's not fun for 450 00:24:37,160 --> 00:24:40,080 Speaker 4: the business people on the wrong side of that move, 451 00:24:40,160 --> 00:24:44,320 Speaker 4: but they managed to deal with it. And China was different. 452 00:24:44,400 --> 00:24:47,080 Speaker 4: But you know, the imports from China in twenty twenty 453 00:24:47,080 --> 00:24:49,879 Speaker 4: four were like one point six percent of GDP at 454 00:24:49,920 --> 00:24:53,720 Speaker 4: the US GDP of US GDP correct and even at 455 00:24:53,720 --> 00:24:56,560 Speaker 4: the worst of the sort of you know when we 456 00:24:56,600 --> 00:24:59,920 Speaker 4: saw no boats there. Yeah, we're probably running at about 457 00:25:00,680 --> 00:25:03,760 Speaker 4: fifty sixty percent of normal. So you talk about one 458 00:25:03,760 --> 00:25:07,399 Speaker 4: point eight percent shock, and you start to say, okay, 459 00:25:07,480 --> 00:25:10,160 Speaker 4: you know, you look at other shocks that the US gets, 460 00:25:10,240 --> 00:25:12,240 Speaker 4: you know, either via the exchange rate when you have 461 00:25:12,280 --> 00:25:15,480 Speaker 4: a big move, or via energy prices, you know, which 462 00:25:15,520 --> 00:25:17,959 Speaker 4: is like seven or eight percent of the CPI. They 463 00:25:17,960 --> 00:25:20,480 Speaker 4: can easily move twenty or thirty percent. That's something that 464 00:25:20,520 --> 00:25:23,560 Speaker 4: everybody has to deal with. It's never comfortable, but the 465 00:25:23,600 --> 00:25:26,560 Speaker 4: economy can deal with it. Where I did see a 466 00:25:26,600 --> 00:25:29,520 Speaker 4: potential issue which I think is really important, is that 467 00:25:29,560 --> 00:25:32,520 Speaker 4: if we move from tariffs, which is a way of 468 00:25:32,560 --> 00:25:36,240 Speaker 4: adjusting relative prices, to start saying now we just don't 469 00:25:36,280 --> 00:25:40,120 Speaker 4: want x, y or Z from China, or we're going 470 00:25:40,160 --> 00:25:46,640 Speaker 4: to limit imports of stuff, using quantities to regulate trade 471 00:25:46,720 --> 00:25:50,919 Speaker 4: rather than prices potentially has a much deeper effect because 472 00:25:50,960 --> 00:25:54,119 Speaker 4: you really don't know how our prices will have to 473 00:25:54,200 --> 00:25:57,000 Speaker 4: move in the event of a shortage to clear the market, 474 00:25:57,280 --> 00:26:00,840 Speaker 4: so with that, you'd be playing with fire. But percent tariffs. 475 00:26:00,880 --> 00:26:02,919 Speaker 4: It's not that I'm endorsing it, I just don't. I 476 00:26:02,960 --> 00:26:05,000 Speaker 4: don't think that they are as big a deal as 477 00:26:05,000 --> 00:26:05,960 Speaker 4: they were made out to be. 478 00:26:22,119 --> 00:26:24,720 Speaker 2: It does feel to me like one of the complications 479 00:26:25,160 --> 00:26:28,480 Speaker 2: of the current environment other than uncertainty, which you know, 480 00:26:28,520 --> 00:26:30,800 Speaker 2: we've been joking on the podcast that we cannot get 481 00:26:30,840 --> 00:26:33,639 Speaker 2: through a single interview at the moment without mentioning the 482 00:26:33,680 --> 00:26:37,760 Speaker 2: word uncertainty. But one of the complications is you potentially 483 00:26:37,840 --> 00:26:43,320 Speaker 2: have the economy sort of moving in different directions, or 484 00:26:43,480 --> 00:26:47,680 Speaker 2: maybe the impacts of the tariffs are moving at different speeds, 485 00:26:47,720 --> 00:26:50,840 Speaker 2: So you could have an impact on inflation, you know, 486 00:26:51,040 --> 00:26:55,320 Speaker 2: relatively soon as prices start going up, but you could 487 00:26:55,320 --> 00:26:58,240 Speaker 2: have an impact on the labor market later on, because 488 00:26:58,280 --> 00:27:00,840 Speaker 2: it takes a while for you know, reduce demand to 489 00:27:00,880 --> 00:27:04,080 Speaker 2: work its way through the economy, and that strikes me 490 00:27:04,119 --> 00:27:07,040 Speaker 2: as something that's difficult to deal with for the FED 491 00:27:07,240 --> 00:27:10,520 Speaker 2: and also means they have a sort of limited window 492 00:27:10,760 --> 00:27:13,680 Speaker 2: to operate. And how realistic do you think that timing 493 00:27:13,720 --> 00:27:14,439 Speaker 2: scenario is. 494 00:27:15,119 --> 00:27:17,960 Speaker 4: It's pretty realistic, although I think that the effects on 495 00:27:18,040 --> 00:27:23,399 Speaker 4: labors show up sooner oh, okay, because the say import 496 00:27:23,440 --> 00:27:26,280 Speaker 4: from China crash, Are we going to build stuff in 497 00:27:26,320 --> 00:27:29,720 Speaker 4: the US, And the answer is probably not. The US 498 00:27:29,800 --> 00:27:32,399 Speaker 4: is probably not even with ten percent tariffs on a 499 00:27:32,440 --> 00:27:34,760 Speaker 4: bunch of countries. The US is probably not the second 500 00:27:34,760 --> 00:27:37,320 Speaker 4: lowest cost producer for most of the stuff that China 501 00:27:37,359 --> 00:27:40,160 Speaker 4: was producing. So you know, we would get the price 502 00:27:40,160 --> 00:27:43,600 Speaker 4: effects from China. I don't see that there would be 503 00:27:43,640 --> 00:27:48,800 Speaker 4: any significant increase in employment, So I think we'd get 504 00:27:48,800 --> 00:27:51,440 Speaker 4: them both at about the same time that demand was 505 00:27:51,480 --> 00:27:54,640 Speaker 4: getting squeezed because this is a decline in real wages 506 00:27:54,720 --> 00:27:57,840 Speaker 4: because of the price effects. But I think that they 507 00:27:57,880 --> 00:28:01,240 Speaker 4: are very hopeful in terms of the quantity effects the 508 00:28:01,720 --> 00:28:04,080 Speaker 4: output benefits that they expect to get in the short 509 00:28:04,160 --> 00:28:06,879 Speaker 4: term from the tariffs, and I suspect we're going to 510 00:28:06,880 --> 00:28:10,639 Speaker 4: see the downside of that quicker than any kind of 511 00:28:10,720 --> 00:28:12,320 Speaker 4: upside is likely to emerge. 512 00:28:12,440 --> 00:28:15,520 Speaker 3: Before I forget you said something at the beginning, there 513 00:28:15,560 --> 00:28:21,199 Speaker 3: actually are real non tear iff trade barriers employed by Japan. 514 00:28:21,400 --> 00:28:24,440 Speaker 3: Apparently it's not true that they have a bowling ball 515 00:28:24,520 --> 00:28:27,200 Speaker 3: test where they drop a bowling ball on a car 516 00:28:27,640 --> 00:28:30,600 Speaker 3: and if it dents, you're not allowed to sell the car. 517 00:28:30,720 --> 00:28:34,399 Speaker 3: There apparently that is something of an urban legend. But 518 00:28:34,440 --> 00:28:38,840 Speaker 3: whether it's Japan or anywhere else, what substantive non tear 519 00:28:38,840 --> 00:28:41,080 Speaker 3: iff trade barriers do you see out there that the 520 00:28:41,160 --> 00:28:45,680 Speaker 3: administration has a legitimate case should be modified in some way. 521 00:28:46,120 --> 00:28:50,200 Speaker 4: What trade in agriculture is very limited in most countries. 522 00:28:50,800 --> 00:28:54,040 Speaker 4: You know, there's certain health you know, with more processed food, 523 00:28:54,240 --> 00:28:57,200 Speaker 4: there are health regulations which may or may not be 524 00:28:57,320 --> 00:29:03,200 Speaker 4: completely justified. And there are sort of barriers that you've 525 00:29:03,240 --> 00:29:07,040 Speaker 4: seen documented over time. It's not that they're wrong. I mean, 526 00:29:07,080 --> 00:29:11,760 Speaker 4: the US put out this very thick book documenting non 527 00:29:11,840 --> 00:29:17,000 Speaker 4: tariff barriers, but I think the importance is probably overstated. 528 00:29:18,280 --> 00:29:21,160 Speaker 4: They should be gotten rid of. But it's not like 529 00:29:21,320 --> 00:29:24,800 Speaker 4: cataclysmic type of thing. I mean, look, I think US 530 00:29:24,880 --> 00:29:27,240 Speaker 4: demand has been stronger than that in the rest of 531 00:29:27,280 --> 00:29:29,480 Speaker 4: the world, so we've imported more and that's most of 532 00:29:29,520 --> 00:29:30,360 Speaker 4: the trade story. 533 00:29:30,640 --> 00:29:33,400 Speaker 2: I got distracted looking up the bowling ball test Joe. 534 00:29:34,320 --> 00:29:34,720 Speaker 3: Interesting. 535 00:29:35,120 --> 00:29:37,400 Speaker 2: It seems to be something that Donald Trump talked to 536 00:29:38,560 --> 00:29:40,880 Speaker 2: is probably not true by the way. 537 00:29:41,040 --> 00:29:43,120 Speaker 3: I know, we already had that agreement with the UK, 538 00:29:43,320 --> 00:29:46,560 Speaker 3: but I think they should let cars drive on the 539 00:29:46,640 --> 00:29:48,520 Speaker 3: right side of the road and would probably make it 540 00:29:48,560 --> 00:29:51,800 Speaker 3: a lot easier for Americans to you know, sell into 541 00:29:51,880 --> 00:29:52,400 Speaker 3: that market. 542 00:29:52,720 --> 00:29:55,080 Speaker 2: Joe, why do you feel the need to say these 543 00:29:55,080 --> 00:29:56,200 Speaker 2: things keep going? 544 00:29:56,480 --> 00:29:56,840 Speaker 4: All right? 545 00:29:57,160 --> 00:29:59,840 Speaker 2: Steven, I'm going to ask a very basic question, you know, 546 00:30:00,080 --> 00:30:03,080 Speaker 2: typical question for you, I imagine, But what are your 547 00:30:03,120 --> 00:30:06,000 Speaker 2: clients asking you about at the moment? What concerns are 548 00:30:06,000 --> 00:30:08,000 Speaker 2: you seeing out there? What are the questions that you're 549 00:30:08,000 --> 00:30:08,960 Speaker 2: getting repeatedly? 550 00:30:09,720 --> 00:30:13,160 Speaker 4: I think corporate clients, you know, people who are in 551 00:30:13,240 --> 00:30:16,479 Speaker 4: real businesses make things, sell things. I hate to use 552 00:30:16,480 --> 00:30:18,120 Speaker 4: the word uncertainty as much as you do. 553 00:30:18,600 --> 00:30:20,840 Speaker 2: It's okay, it is allowed, Okay. 554 00:30:20,720 --> 00:30:20,920 Speaker 1: You know. 555 00:30:20,960 --> 00:30:23,440 Speaker 4: The question for them is, you know, if I want 556 00:30:23,440 --> 00:30:26,080 Speaker 4: to increase capacity, where should I do it? Should I 557 00:30:26,160 --> 00:30:28,600 Speaker 4: do it in the US? Should I do it elsewhere? 558 00:30:29,240 --> 00:30:31,040 Speaker 4: How is this going to play out? Is it going 559 00:30:31,080 --> 00:30:33,000 Speaker 4: to play out for four years? Or is it going 560 00:30:33,040 --> 00:30:36,400 Speaker 4: to play out for eternity? And I think that they're 561 00:30:36,440 --> 00:30:39,600 Speaker 4: having a very hard time getting their hands around it, 562 00:30:39,760 --> 00:30:43,800 Speaker 4: and to them, that's the biggest issue. I think if 563 00:30:43,800 --> 00:30:47,720 Speaker 4: you're investors, people who manage portfolios, are you know, trying 564 00:30:47,720 --> 00:30:52,400 Speaker 4: to eke out gains in the market. The question about 565 00:30:52,440 --> 00:30:55,920 Speaker 4: where the dollar is going, where rates are going, how 566 00:30:55,960 --> 00:30:59,840 Speaker 4: fast they're going, and especially nobody wants to be the 567 00:31:00,080 --> 00:31:03,400 Speaker 4: sixth person on a trade because that makes you vulnerable. 568 00:31:03,480 --> 00:31:08,320 Speaker 4: So they're very obsessed with kind of understanding whether any 569 00:31:08,360 --> 00:31:10,720 Speaker 4: trade that they want to do is like I say, 570 00:31:10,720 --> 00:31:14,400 Speaker 4: a steepener trade in the rates market, has everybody else 571 00:31:14,440 --> 00:31:16,960 Speaker 4: done it already, or is there's still a room to 572 00:31:17,000 --> 00:31:20,640 Speaker 4: get in and be able to do well on that trade. 573 00:31:20,960 --> 00:31:21,240 Speaker 3: Yeah. 574 00:31:21,280 --> 00:31:23,200 Speaker 2: On this note, I was out last night. I was 575 00:31:23,200 --> 00:31:26,080 Speaker 2: talking to a couple investors, one of whom is involved 576 00:31:26,120 --> 00:31:28,240 Speaker 2: in a very large family office, but he was saying 577 00:31:28,240 --> 00:31:31,680 Speaker 2: that it feels like everyone is basically fully allocated at 578 00:31:31,680 --> 00:31:34,680 Speaker 2: this point, and like there's a lot of nervousness about 579 00:31:34,720 --> 00:31:37,160 Speaker 2: putting on new trades, and there's not a lot of 580 00:31:37,200 --> 00:31:39,560 Speaker 2: cash actually sitting on the sidelines anymore. 581 00:31:40,440 --> 00:31:42,320 Speaker 4: You know, I think we would welcome some of that 582 00:31:42,360 --> 00:31:44,880 Speaker 4: cash in the FX market because I don't think that 583 00:31:44,960 --> 00:31:50,040 Speaker 4: positions are very heavy one way or another, given the 584 00:31:50,080 --> 00:31:53,040 Speaker 4: moves that we've seen, say in the dollar the end 585 00:31:53,040 --> 00:31:56,640 Speaker 4: of last year, than the beginning the Liberation Day, then 586 00:31:57,080 --> 00:32:01,640 Speaker 4: post Liberation Day, and you know, after the semi accord 587 00:32:01,720 --> 00:32:04,640 Speaker 4: with China, I think a lot of people have actually 588 00:32:04,680 --> 00:32:07,080 Speaker 4: headed to the sidelines. As far as the FX goes, 589 00:32:08,000 --> 00:32:10,720 Speaker 4: I may be more positioning inequity is given the way 590 00:32:11,080 --> 00:32:14,240 Speaker 4: it's moved the last month or so, and on fixed 591 00:32:14,240 --> 00:32:17,840 Speaker 4: income as well. I mean, our view that rates will 592 00:32:17,840 --> 00:32:20,440 Speaker 4: probably be higher at the end of the year is 593 00:32:20,440 --> 00:32:22,320 Speaker 4: shared by a lot of people. Yeah, you know, it 594 00:32:22,320 --> 00:32:25,680 Speaker 4: doesn't mean it's wrong, but yeah, I think that the 595 00:32:25,720 --> 00:32:30,720 Speaker 4: caution about, say, buying bonds right now is very widespread. 596 00:32:31,160 --> 00:32:33,240 Speaker 2: What is your end of your target for the tenure. 597 00:32:33,960 --> 00:32:36,160 Speaker 4: I believe we're just under five percent, so we'll be 598 00:32:36,200 --> 00:32:37,880 Speaker 4: closer to five than to four and a half by 599 00:32:37,880 --> 00:32:38,520 Speaker 4: the end of the year. 600 00:32:39,320 --> 00:32:41,400 Speaker 3: You know. I want to go back actually to something 601 00:32:41,600 --> 00:32:43,840 Speaker 3: you said, which is that when you're in school, you're 602 00:32:43,880 --> 00:32:47,200 Speaker 3: sort of taught that purchasing power parody. These are the 603 00:32:47,240 --> 00:32:50,480 Speaker 3: things that help determine the fair value of currencies, and 604 00:32:50,520 --> 00:32:53,160 Speaker 3: then once you want it became on Wall Street areas. 605 00:32:53,200 --> 00:32:55,960 Speaker 3: It's all about capital flows and investment and things like that. 606 00:32:56,520 --> 00:32:58,320 Speaker 3: What else have you talked to us a little bit 607 00:32:58,320 --> 00:33:02,600 Speaker 3: more about the gap between academic economics. You have a 608 00:33:02,600 --> 00:33:07,840 Speaker 3: PhD in economics from Yale academic economics, and then the 609 00:33:07,920 --> 00:33:11,520 Speaker 3: type of economics that's actually useful and that people pay 610 00:33:11,560 --> 00:33:14,000 Speaker 3: money for on wallstream And what did you learn or 611 00:33:14,000 --> 00:33:15,000 Speaker 3: what did you have to unlearn? 612 00:33:15,600 --> 00:33:18,280 Speaker 4: Oh, that's a hard one. I think that you have 613 00:33:18,320 --> 00:33:22,400 Speaker 4: to learn to question things and you know the assumptions 614 00:33:22,400 --> 00:33:26,000 Speaker 4: that everyone makes. Yeah, and you mentioned one of the 615 00:33:26,040 --> 00:33:29,920 Speaker 4: pieces we did on how exposed is the US? Actually? 616 00:33:29,960 --> 00:33:32,280 Speaker 4: You know, you sort of look at what everyone's saying 617 00:33:32,280 --> 00:33:33,960 Speaker 4: and saying, can I find some data that well either 618 00:33:34,000 --> 00:33:37,160 Speaker 4: support it or oppose it? So the questioning of the data, 619 00:33:37,920 --> 00:33:43,160 Speaker 4: being willing to question central banks and their policies and 620 00:33:43,200 --> 00:33:46,720 Speaker 4: even their policy framework. I think that that's something that 621 00:33:46,720 --> 00:33:51,800 Speaker 4: that's really important, and it's something that is respected in 622 00:33:51,840 --> 00:33:53,680 Speaker 4: the market. I mean, you don't have to be right 623 00:33:53,720 --> 00:33:57,360 Speaker 4: all the time, but your arguments have to be well crafted. 624 00:33:58,200 --> 00:34:01,520 Speaker 4: And being able to formulate those arguments I think is 625 00:34:01,640 --> 00:34:02,320 Speaker 4: very important. 626 00:34:02,600 --> 00:34:04,240 Speaker 3: What was your PhD thesis about? 627 00:34:04,480 --> 00:34:09,279 Speaker 4: Oh? My goodness, it was about agricultural development, how transferable 628 00:34:09,320 --> 00:34:12,560 Speaker 4: technology was from one country to another. 629 00:34:12,920 --> 00:34:14,960 Speaker 3: And when you think about, like when you look at 630 00:34:15,000 --> 00:34:20,080 Speaker 3: your career in finance, like how helpful is this sort 631 00:34:20,080 --> 00:34:23,759 Speaker 3: of like core academic macro that you know all those 632 00:34:23,800 --> 00:34:25,240 Speaker 3: equations and all that stuff. 633 00:34:25,880 --> 00:34:28,160 Speaker 4: If it gives you the confidence to question what people 634 00:34:28,200 --> 00:34:32,799 Speaker 4: are saying is enormously helpful. If you're just another brick 635 00:34:32,840 --> 00:34:35,080 Speaker 4: on the wall sort of repeating with you know the 636 00:34:35,080 --> 00:34:37,600 Speaker 4: models that you got taught in graduate school and thinking 637 00:34:37,640 --> 00:34:39,759 Speaker 4: that they're right. I think you're going to have a 638 00:34:39,760 --> 00:34:43,480 Speaker 4: tough time. And I still use some of the techniques 639 00:34:43,560 --> 00:34:46,680 Speaker 4: that I used in my dissertation. But I think the 640 00:34:46,760 --> 00:34:50,200 Speaker 4: key thing is to walk away from this and being 641 00:34:50,239 --> 00:34:52,680 Speaker 4: able to say, Okay, I know the model says, this 642 00:34:53,360 --> 00:34:57,360 Speaker 4: is the model robust enough to actually capture what's essential 643 00:34:57,560 --> 00:35:00,759 Speaker 4: in the real world, and if not, how can I 644 00:35:00,800 --> 00:35:04,080 Speaker 4: do better? And that's the value I think of the PhD. 645 00:35:04,200 --> 00:35:07,240 Speaker 4: It enables you to question what everybody else is saying. 646 00:35:07,640 --> 00:35:11,120 Speaker 3: It's like an arms race, right. The PhD doesn't necessarily help, 647 00:35:11,160 --> 00:35:13,759 Speaker 3: But without the PhD, you don't have the confidence to 648 00:35:13,840 --> 00:35:17,440 Speaker 3: question the PhD. Everybody just needs to unilaterally agree no 649 00:35:17,480 --> 00:35:18,319 Speaker 3: more PhDs. 650 00:35:18,520 --> 00:35:19,920 Speaker 2: That's right, and everyone will. 651 00:35:21,040 --> 00:35:23,040 Speaker 4: That works for me, But I know a lot of 652 00:35:23,080 --> 00:35:26,520 Speaker 4: people without PhDs who are very very sharp. Okay, and 653 00:35:26,600 --> 00:35:29,600 Speaker 4: you know, even Powell, whom I respect for, Yeah, you know, 654 00:35:29,680 --> 00:35:33,959 Speaker 4: no PhD, but he gauges the weaknesses are star what's 655 00:35:33,960 --> 00:35:37,400 Speaker 4: the standard air or maybe plus or minus twenty You know, 656 00:35:37,480 --> 00:35:40,600 Speaker 4: that sort of understanding that having the intuition to sort 657 00:35:40,600 --> 00:35:44,480 Speaker 4: of know when something is really well founded versus something 658 00:35:44,520 --> 00:35:47,200 Speaker 4: that's you know, sounds nice, but it's all over the places. 659 00:35:47,400 --> 00:35:50,200 Speaker 4: You know, only works on a blackboard. That's really important. 660 00:35:50,640 --> 00:35:53,400 Speaker 2: I know we touched on a few areas where your 661 00:35:53,800 --> 00:35:57,480 Speaker 2: theories differ from the market stance at the moment. But 662 00:35:57,800 --> 00:36:00,080 Speaker 2: just on the note of, you know, the usefulness of 663 00:36:00,320 --> 00:36:05,640 Speaker 2: theoretical academic economics versus real world what's the biggest assumption 664 00:36:06,160 --> 00:36:10,440 Speaker 2: that the market or policy makers or investors are getting 665 00:36:10,640 --> 00:36:11,560 Speaker 2: wrong at the moment. 666 00:36:12,280 --> 00:36:15,719 Speaker 4: I think policy makers everywhere should pay a lot of 667 00:36:15,760 --> 00:36:20,480 Speaker 4: attention to the risk premium of having erratic policy and 668 00:36:20,600 --> 00:36:26,200 Speaker 4: policy uncertainty. And you read some of the stuff that's written, 669 00:36:26,440 --> 00:36:29,120 Speaker 4: and it's sometimes it's written almost as if it's in 670 00:36:29,160 --> 00:36:31,840 Speaker 4: a vacuum. I can do this and it will affect 671 00:36:31,840 --> 00:36:33,960 Speaker 4: this market, which is the one I'm trying to affect, 672 00:36:34,000 --> 00:36:36,160 Speaker 4: but kind of nobody else is going to pay attention 673 00:36:36,239 --> 00:36:38,799 Speaker 4: to it. You know, in the real world, everybody else 674 00:36:38,800 --> 00:36:41,439 Speaker 4: pays attention to it, and so I think that that's 675 00:36:41,480 --> 00:36:44,600 Speaker 4: sort of an issue that you want to take into account, 676 00:36:45,480 --> 00:36:49,120 Speaker 4: you know, I think more generally, especially central bank policy makers. 677 00:36:49,120 --> 00:36:53,879 Speaker 4: They're sometimes wedded to academic models, and if they don't 678 00:36:53,920 --> 00:36:58,319 Speaker 4: have an alternative model that's viewed as respectable in academics, 679 00:36:58,320 --> 00:37:00,960 Speaker 4: it's hard for them to say, well, doesn't matter that 680 00:37:01,000 --> 00:37:03,880 Speaker 4: it's not respectable, that it works, whereas the one that 681 00:37:04,000 --> 00:37:05,400 Speaker 4: is respectable doesn't work. 682 00:37:06,040 --> 00:37:09,279 Speaker 3: It strikes me that part of the reason that there's 683 00:37:09,280 --> 00:37:13,080 Speaker 3: so much uncertainty or confusion is that a lot of 684 00:37:13,120 --> 00:37:17,160 Speaker 3: the big topics being discussed right now to some extent, 685 00:37:17,320 --> 00:37:21,200 Speaker 3: precede economics because they're really about, like, you know, we're 686 00:37:21,200 --> 00:37:24,760 Speaker 3: getting to sort of like core questions about institutional structure 687 00:37:25,040 --> 00:37:28,960 Speaker 3: and politics, the quality of our political discourse, et cetera, 688 00:37:29,480 --> 00:37:32,000 Speaker 3: and like the quality of elected leaders all around the 689 00:37:32,000 --> 00:37:35,239 Speaker 3: world and so forth. And as such, it seems like 690 00:37:35,320 --> 00:37:38,680 Speaker 3: you sort of like run into a hard limit of 691 00:37:38,800 --> 00:37:43,200 Speaker 3: like how far you can go in understanding anything simply 692 00:37:43,239 --> 00:37:45,320 Speaker 3: by looking at the economic lens, which is no not 693 00:37:45,480 --> 00:37:49,319 Speaker 3: to economics. I love talking to economists such as yourself, 694 00:37:49,560 --> 00:37:53,120 Speaker 3: but at some level, the tools and the economists toolkit 695 00:37:53,160 --> 00:37:55,080 Speaker 3: are just not going to get you very far in 696 00:37:55,200 --> 00:37:57,600 Speaker 3: sort of like discerning which way some of these questions 697 00:37:57,600 --> 00:37:58,080 Speaker 3: are going to go. 698 00:37:58,480 --> 00:38:01,239 Speaker 4: Well. I think at a significant level. You don't need 699 00:38:01,280 --> 00:38:04,799 Speaker 4: a high school degree to understand the issues. If you 700 00:38:04,920 --> 00:38:09,440 Speaker 4: don't trust your trading partners to be reliable suppliers so 701 00:38:09,560 --> 00:38:12,200 Speaker 4: much so that you you're willing to forego the benefits 702 00:38:12,200 --> 00:38:15,960 Speaker 4: of trade, the benefits of economies of scale and efficiency, 703 00:38:16,800 --> 00:38:19,440 Speaker 4: that's a real pity. And then there's a real cost 704 00:38:19,480 --> 00:38:22,719 Speaker 4: to it. And if you know, we have to make 705 00:38:22,960 --> 00:38:27,920 Speaker 4: all the stuff that is made elsewhere, there's a cost. 706 00:38:27,960 --> 00:38:31,040 Speaker 4: And a bit of my own background, I come from Canada. 707 00:38:31,080 --> 00:38:33,440 Speaker 4: There are parts of Canada that make very good wine, 708 00:38:34,160 --> 00:38:36,720 Speaker 4: and there are parts of Canada that make very bad wine. 709 00:38:37,360 --> 00:38:39,959 Speaker 4: If you've ever had the bad wine, you're a free 710 00:38:39,960 --> 00:38:42,200 Speaker 4: trader and wine for the rest of your life. 711 00:38:42,640 --> 00:38:43,560 Speaker 3: Where's the bad wine? 712 00:38:43,600 --> 00:38:47,600 Speaker 4: Reader? I will not I will not denounce the country 713 00:38:47,600 --> 00:38:48,120 Speaker 4: of my birth. 714 00:38:49,160 --> 00:38:52,120 Speaker 3: I have a guess. Actually, oh, what do you think? 715 00:38:52,200 --> 00:38:52,359 Speaker 4: Well? 716 00:38:52,400 --> 00:38:56,320 Speaker 3: I was reading so I was recently talking to someone 717 00:38:56,400 --> 00:39:00,560 Speaker 3: actually while we were in Atlanta, and I randomly heard 718 00:39:00,560 --> 00:39:04,400 Speaker 3: someone talking about how there are some really good wine 719 00:39:04,480 --> 00:39:07,480 Speaker 3: tours that you can take in the sort of Finger 720 00:39:07,560 --> 00:39:10,879 Speaker 3: Lakes region of New York with the only caveat It's 721 00:39:10,960 --> 00:39:13,359 Speaker 3: very beautiful and you can take boats around from one 722 00:39:13,400 --> 00:39:16,160 Speaker 3: winery to another. The only caveat is that the wine 723 00:39:16,200 --> 00:39:18,560 Speaker 3: isn't very good, and so my guess is that it 724 00:39:18,560 --> 00:39:21,160 Speaker 3: would be somewhere on the other side of that New 725 00:39:21,239 --> 00:39:24,399 Speaker 3: York Canada border around there where the wine is not good. 726 00:39:24,400 --> 00:39:26,120 Speaker 3: But that's just my that's my hunt. 727 00:39:26,640 --> 00:39:29,720 Speaker 4: You can get a lot worse wine than the finger legs. 728 00:39:30,640 --> 00:39:34,320 Speaker 2: All right, we'll have to do a wine episode with Steven, 729 00:39:34,440 --> 00:39:36,720 Speaker 2: but for now we have to leave it there. Steven, 730 00:39:36,760 --> 00:39:38,520 Speaker 2: thank you so much for coming on the show. I'm 731 00:39:38,560 --> 00:39:40,960 Speaker 2: so glad we finally got a chance to talk with you. 732 00:39:41,280 --> 00:39:44,080 Speaker 4: Thank you both. It's a great pleasure, and you lived 733 00:39:44,160 --> 00:39:47,799 Speaker 4: up to your awesome reputation. 734 00:39:48,040 --> 00:39:48,839 Speaker 3: Thank you so much. 735 00:40:01,920 --> 00:40:02,760 Speaker 4: Joe, that was great. 736 00:40:02,800 --> 00:40:04,680 Speaker 2: I'm so glad we finally had Stephen on. 737 00:40:05,320 --> 00:40:09,000 Speaker 3: Steven's great You know, on that last point where he 738 00:40:09,120 --> 00:40:12,879 Speaker 3: is talking about the sort of the degradation of the 739 00:40:13,000 --> 00:40:16,920 Speaker 3: comfort that countries have with their trading partners, it strikes 740 00:40:16,960 --> 00:40:19,400 Speaker 3: me that this has to be a big part of 741 00:40:19,440 --> 00:40:22,160 Speaker 3: the global rate story because if every country, and it 742 00:40:22,200 --> 00:40:25,640 Speaker 3: fits into an episode we recently did with Scott back 743 00:40:25,719 --> 00:40:30,040 Speaker 3: about the risks of deglobalization, if every country suddenly needs 744 00:40:30,160 --> 00:40:33,800 Speaker 3: to start building its own things because their trading partners 745 00:40:33,840 --> 00:40:38,080 Speaker 3: are unreliable. That means A, you get less productivity and 746 00:40:38,120 --> 00:40:41,040 Speaker 3: b you just need more spending, whether it's private spending 747 00:40:41,160 --> 00:40:43,799 Speaker 3: or public spending. And so you get this story where 748 00:40:43,840 --> 00:40:47,440 Speaker 3: every country sort of logically feels it has to spend 749 00:40:47,520 --> 00:40:51,240 Speaker 3: more into an environment of less productivity, which means higher inflation, 750 00:40:51,360 --> 00:40:52,279 Speaker 3: which means higher rates. 751 00:40:52,640 --> 00:40:52,839 Speaker 4: Right. 752 00:40:52,880 --> 00:40:55,799 Speaker 2: And the irony I guess is that that happens at 753 00:40:55,800 --> 00:40:58,360 Speaker 2: the same time that a lot of countries, to Steven's 754 00:40:58,360 --> 00:41:01,759 Speaker 2: earlier point, think that they can solve all their domestic 755 00:41:01,800 --> 00:41:04,000 Speaker 2: problems through international trade policies. 756 00:41:04,360 --> 00:41:06,759 Speaker 3: Yeah, you know, I remember, like you know, it was 757 00:41:06,800 --> 00:41:09,640 Speaker 3: a popular thing to talk about, like currency wars in 758 00:41:09,680 --> 00:41:12,880 Speaker 3: the wake of two thousand and nine, twenty ten, twenty eleven, 759 00:41:13,440 --> 00:41:17,600 Speaker 3: and this sort of fantasy that countries can revive their 760 00:41:17,680 --> 00:41:21,879 Speaker 3: economic fortunes simply via the exchange rate. And I'm sure 761 00:41:22,200 --> 00:41:25,719 Speaker 3: within any country there are sectors of the economy for 762 00:41:25,760 --> 00:41:29,440 Speaker 3: which that is true. I suspect that a weaker currency 763 00:41:29,480 --> 00:41:32,200 Speaker 3: for the US is as always going to benefit our 764 00:41:32,239 --> 00:41:36,360 Speaker 3: soybean farmers and our corn farmers to some extent, but 765 00:41:36,480 --> 00:41:38,880 Speaker 3: it is not going to magically put us at the 766 00:41:38,920 --> 00:41:41,439 Speaker 3: front of the line when it comes to the high 767 00:41:41,520 --> 00:41:45,240 Speaker 3: value exports or the high value products period that typically 768 00:41:45,320 --> 00:41:46,960 Speaker 3: characterize in the advanced economy. 769 00:41:47,280 --> 00:41:51,480 Speaker 2: Just one more depreciation, bro, one more appreciation. 770 00:41:51,000 --> 00:41:55,840 Speaker 3: One more appreciation road. We're going to mage TSMC's Taiwan 771 00:41:55,960 --> 00:41:57,360 Speaker 3: semiconductor prowess. 772 00:41:57,520 --> 00:41:58,319 Speaker 2: That's right, all right? 773 00:41:58,320 --> 00:41:59,799 Speaker 3: Shall we leave it there. Let's leave it there. 774 00:42:00,000 --> 00:42:02,400 Speaker 2: This has been another episode of the oud Lots podcast. 775 00:42:02,520 --> 00:42:05,959 Speaker 2: I'm Tracy Alloway. You can follow me at Tracy Alloway and. 776 00:42:05,880 --> 00:42:08,480 Speaker 3: I'm Joe Wisenthal. You can follow me at the Stalwart. 777 00:42:08,760 --> 00:42:12,000 Speaker 3: Follow our producers Carmen Rodriguez at Kerman Ermann Dash, O 778 00:42:12,080 --> 00:42:16,160 Speaker 3: Bennett at Dashbod and Calebrooks at Kalebrooks. More odd Loads 779 00:42:16,200 --> 00:42:18,759 Speaker 3: content go to Bloomberg dot com slash odd Lots, where 780 00:42:18,760 --> 00:42:21,080 Speaker 3: we have a daily newsletter and all of our episodes, 781 00:42:21,360 --> 00:42:23,560 Speaker 3: and you can chat with fellow listeners twenty four seven 782 00:42:23,640 --> 00:42:27,440 Speaker 3: in our discord Discord dot gg slash odd Lots. 783 00:42:27,760 --> 00:42:30,279 Speaker 2: And if you enjoy odd Lots, if you like it 784 00:42:30,360 --> 00:42:33,439 Speaker 2: when we talk to economists like Stephen Englander, then please 785 00:42:33,520 --> 00:42:36,560 Speaker 2: leave us a positive review on your favorite podcast platform. 786 00:42:36,960 --> 00:42:39,680 Speaker 2: And remember, if you are a Bloomberg subscriber, you can 787 00:42:39,680 --> 00:42:43,040 Speaker 2: listen to all of our episodes absolutely ad free. All 788 00:42:43,040 --> 00:42:44,960 Speaker 2: you need to do is find the Bloomberg channel on 789 00:42:45,000 --> 00:42:48,680 Speaker 2: Apple Podcasts and follow the instructions there. Thanks for listening, 790 00:43:09,600 --> 00:43:10,080 Speaker 2: Benea