Speaker 1: Welcome to the Bloomberg P and L Podcast. I'm Pim Fox.
Speaker 1: Along with my co host Lisa Abramowitz. Each day we
Speaker 1: bring you the most important, noteworthy, and useful interviews for
Speaker 1: you and your money, whether you're at the grocery store
Speaker 1: or the trading floor. Find the Bloomberg P and L
Speaker 1: Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot com. Gasoline
Speaker 1: stations in Brazil are out of gas. Fresh food supplies
Speaker 1: in Brazilian supermarkets have dwindle, flights have been canceled. Many
Speaker 1: schools and universities have suspended classes, all because of a
Speaker 1: truckers strike. Paul McNamara is Investment director for Emerging Markets
Speaker 1: for g A m UK Limited, helping to manage more
Speaker 1: than eleven billion dollars in developing world assets, and he
Speaker 1: joins us from London. Paul, explain what's going on in Brazil. Well,
Speaker 1: what we've seen is a combination of the high oil
Speaker 1: prices that we've seen everywhere UM, plus a weakening in
Speaker 1: the Brazilian rail um. You know, there's a bunch of
Speaker 1: things gone on lower. They've had big interest rate cuts there.
Speaker 1: It's one of the most popular emerging currencies, so there's
Speaker 1: emerging currencies have sold off, but that combination means that
Speaker 1: the price of oil in rail has really shot up.
Speaker 1: And um, and you know it's not just Brazil. About
Speaker 1: sort of four or five years ago. We actually a
Speaker 1: bit longer, we saw something similar in the UK when
Speaker 1: tax raises on fuel. Truckers are the people in the
Speaker 1: modern world with a lot of power, and the government
Speaker 1: has to respond to that. Okay, So, Paul, thank you
Speaker 1: so much for being with us. I'm struck by the
Speaker 1: idea that we've had so off in emerging markets. More broadly,
Speaker 1: people were talking about Turkey and Argentina's idiosyncratic issues. Brazil
Speaker 1: was supposed to be a recovery story after just emerging
Speaker 1: from the worst financial crisis on record. Uh and here
Speaker 1: we are seeing something that will crimp growth, potentially eliminating
Speaker 1: two point six billion dollars from their economy this year.
Speaker 1: So as an investor, how does this change your perspective
Speaker 1: on Brazil? I mean, I think it's a demonstration of
Speaker 1: something that we already knew that Brazil was vulnerable on
Speaker 1: because I mean, the government has has effectively surrendered to
Speaker 1: the to the truckers by agreeing to absorb any further
Speaker 1: rises in the price of oil, that they'll they'll create
Speaker 1: subsidies as the price of oil goes up. Now, of
Speaker 1: all the emerging markets, Brazil is in one of the
Speaker 1: weakest positions to do so, although they've had some success
Speaker 1: in tightening fiscal policy because they pay much higher interest
Speaker 1: rates than anyone else. It's the one country where where
Speaker 1: the fiscal rather than the private sector is a bit
Speaker 1: of a problem. And I think, you know, that's why
Speaker 1: Brazil has been particularly badly hit. And also I think
Speaker 1: if you if you look at Petrobras, which is the
Speaker 1: company which is going to be bearing the brunt of this.
Speaker 1: I mean, their their share I mean I'm not an
Speaker 1: equity investor, but their share are off about fifteen percent
Speaker 1: or so in a week now. Michelle Tamara the president
Speaker 1: of Brazil. He's got a lame duck government and there's
Speaker 1: a presidential election in October. Does this mean that you
Speaker 1: wait until the results of the election before making an
Speaker 1: investment decision. I think it's you know, it increases the risk.
Speaker 1: I mean, what's different about Brazil this time around is
Speaker 1: that historically it's been the highest yielding emerging market. If
Speaker 1: you kind of go back to two thousand and thirteen,
Speaker 1: they were in the middle of a hiking cycle kind
Speaker 1: of rates peaked in low double digits. Now we've got
Speaker 1: a headline celebrate around below seven percent, which is, you know,
Speaker 1: which is historically very low by Brazilian standards, and it
Speaker 1: does mean that the price of waiting has never been lower.
Speaker 1: So I think you know that the you know that,
Speaker 1: whereas historically, you know, if you do, if you just
Speaker 1: sat still in Brazil marked time, you made a decent profits.
Speaker 1: I think the calculus is against Brazil and people are
Speaker 1: going to be less willing to hold low yielding Brazilian
Speaker 1: assets than they were high yielding assets in the past. So, Paul,
Speaker 1: how are you currently thinking about Brazil? Are you buying more?
Speaker 1: We're holding onto what's a what's a pretty substantial and
Speaker 1: to be honest, slightly expensive overweight we've held for some time.
Speaker 1: I mean, two things stand out for us in Brazil
Speaker 1: at the moment. One is that this government has actually
Speaker 1: may you know, combined with an economic recovery, has made
Speaker 1: a dent in their fiscal problems. They have about half
Speaker 1: the primary deficit from three percent of GDP to just
Speaker 1: over one and a half percent. And at the same
Speaker 1: time they're running trade surplus is bigger than they did
Speaker 1: in the peak of the commodity bubble, of around five
Speaker 1: and a half billion dollars a month. So that combination
Speaker 1: of decent activity numbers and a very strong external balance
Speaker 1: is something that we think should be supportive. The trouble
Speaker 1: is that when the U. S. Dollar is strong against
Speaker 1: the developed markets, it tends to be very strong against
Speaker 1: em and that's when we're caught. At the moment, Brazil
Speaker 1: is no place to try and fight a stronger dollar story. So,
Speaker 1: putting aside the currency issue, which nobody can seem to
Speaker 1: have much confidence in right now, if you talk to
Speaker 1: people that have a view on the dollar, and then
Speaker 1: quietly they'll say, but I have no idea. Um, I'm wondering, though.
Speaker 1: You talked about the export balance and how Brazil is
Speaker 1: such a big commodity exporter, and I'm wondering, given the
Speaker 1: fact that this trucker strikes so directly affects that industry,
Speaker 1: specifically with the soybean exports, how does that change or
Speaker 1: alter your view on your positive outlook on Brazil. I mean,
Speaker 1: I think you know this is this is that long
Speaker 1: standing an issue you know. I mean e M isn't
Speaker 1: that different different from d M in that investors can
Speaker 1: bear in mind one or factors bit national disasters or strikes.
Speaker 1: So you know, if we see slightly wobbly activity data,
Speaker 1: if we see slightly if he trade data for a
Speaker 1: month or two, I think I don't think that's going
Speaker 1: to be that that's going to be a problem. You know,
Speaker 1: it's the structural situation that investors are looking at. Yeah,
Speaker 1: I mean, I think we're probably going to get some
Speaker 1: ropey numbers, but that's not our our biggest concern. What
Speaker 1: about the reform of the pension system in in Brazil?
Speaker 1: Isn't that the sort of the key issue? It is
Speaker 1: absolutely a key issue, and you know it's one that
Speaker 1: investors remain generally quite bullishly biased on that. You know,
Speaker 1: although President Temor himself isn't particularly popular, the balance in
Speaker 1: Congress is broadly space broadly speaking centrist. And you know,
Speaker 1: if we get a pension reform that's that's correctly put
Speaker 1: together or you know, in some way politically palapable. I
Speaker 1: think the consensus is still that that should pass. Um
Speaker 1: if we get closer to actually getting that through, that's
Speaker 1: that's clearly going to be a positive because Brazil stands out,
Speaker 1: as I said, as the one emerging market where the
Speaker 1: government balance sheet, you know, rather than in Turkey where
Speaker 1: it's the banks which are the problem. But they absolutely
Speaker 1: You're absolutely right, they do need to fix that, that
Speaker 1: pension reform. Paul McNamara, thank you so much for joining us.
Speaker 1: So wonderful to have you. As always. Paul McNamara is
Speaker 1: investment or actor for emerging markets at GAM UK Limited
Speaker 1: with about eleven billion dollars in developing world assets. Joining
Speaker 1: us from London. We've been talking a lot about Italy today,
Speaker 1: in particular how markets are in turmoil in Italy as
Speaker 1: a result of the populist movement and increasing euroskeptic sentiment
Speaker 1: that is sweeping the government. But how is this affecting businesses.
Speaker 1: Let's bring in it Fernando napolitan No. He's President and
Speaker 1: chief executive officer of the Italian Business and Investment Initiative
Speaker 1: based in New York, although he is in Rome right now. Fernando,
Speaker 1: thank you so much for being with us. So what
Speaker 1: is the word from chief executives who you speak with
Speaker 1: in Italy about what's going on with the political sphere
Speaker 1: right now. Well, as you know, it's been quite a
Speaker 1: particularly new situation even for Italy that is used to
Speaker 1: along negotiations, So there is uh, let's say that there
Speaker 1: are two views. The first is that the President of
Speaker 1: Republic acted in the supreme interest making sure that there
Speaker 1: is order at least in the processes of forming a government,
Speaker 1: and I think it's given a very clear message that
Speaker 1: Italy is strong and solid within the Euro and will
Speaker 1: be respecting the European agreements starting from serving to that
Speaker 1: and of course the member of the euro currency. The
Speaker 1: second is, of course there is a general moral azarre
Speaker 1: by the population in Italy, and I think this is
Speaker 1: also the result of the quantity vision. There is this
Speaker 1: general unfunded perception that there's there's gonna be somebody who's
Speaker 1: going to footing the bill ultimately, and it's going to
Speaker 1: be the central Bank, and I think this is what
Speaker 1: has been fueling the discussions, especially over the last three weeks,
Speaker 1: that have created anxiety in the market, and also the
Speaker 1: difference between the Italian bonds and the German bonds that
Speaker 1: have skyrocket as we're speaking. And so this is something
Speaker 1: that I am expecting CEOs to take the lead and
Speaker 1: in addressing UH these issues more broadly, especially visa v
Speaker 1: the investors and the dead holders that as you know
Speaker 1: about of the Italian dad or two point seven trillion euros,
Speaker 1: it's owned by foreigners. Fernando Napolitano, do you believe that
Speaker 1: whoever becomes the prime minister or indeed populates the Italian
Speaker 1: government or to brush up on their German language skills,
Speaker 1: you know, And there's always been UH, you know, hateen
Speaker 1: lo of in UH, in the relationship with with the Germany,
Speaker 1: and of course on the emotion that have been comments
Speaker 1: that I would not subscribe. But angel A Miracle, I
Speaker 1: think I made a very clear statement visit the Italy
Speaker 1: and the respect that Italy Italy deserves. The new prime
Speaker 1: minister or appointed prime Minister A Carlo Corelli, I think
Speaker 1: is a huge job again, you know, in the next
Speaker 1: couple of weeks, making sure that he explains and communicates
Speaker 1: well to the Italian people. What is the status so
Speaker 1: that UH September's election. This is pretty much the Framewords
Speaker 1: agrees upon. We will have a cognizing electorate that will
Speaker 1: go to the ballots, understanding that it is not a
Speaker 1: lot of a leeway considering the fact again that we
Speaker 1: have a hundred percent of the GDP in terms of
Speaker 1: depth and and and any comparison with Japan is not
Speaker 1: founded because Japan it's all internally owned, so that there
Speaker 1: is uh, there is a bit of relationship going going
Speaker 1: with Germany. But we are confident and we're sure, especially
Speaker 1: the business imunity, that the number one partner of Germany
Speaker 1: in Europe cannot be a defaulting and we're expecting a
Speaker 1: lot of help coming from Germany. So Fernando, let's just
Speaker 1: take a step back here, because at the heart of
Speaker 1: a lot of the turmoil that we're seeing in Italian
Speaker 1: markets right now is this fear that the movement to
Speaker 1: break away from the shared currency is going to is
Speaker 1: going to gain steam. I'm wondering, from a business community standpoint,
Speaker 1: do you hear companies executives saying, you know what, if
Speaker 1: we had the lira back, if we could not have
Speaker 1: to be part of the shared currency, our businesses would
Speaker 1: be much stronger, our currency would be weaker, we would
Speaker 1: have better export power. Do you hear that? No? I
Speaker 1: don't I think that any business leader initialy, especially those
Speaker 1: that are that are fuelling the Italian export are really
Speaker 1: into the Euro and they are appreciating having a stable currency. Yes,
Speaker 1: there are the fluctuation is a bit of dollars that
Speaker 1: at times may hamper our export, but as you know,
Speaker 1: every year we are increasing our export, which is now
Speaker 1: about five hundred billion a year, and so everybody, especially
Speaker 1: in the medium sector, is not regretting a delta UH.
Speaker 1: As you want to do a step back, let's really
Speaker 1: understand that if we were not joining the the first
Speaker 1: year of the Group of the Euro currency UH, but
Speaker 1: seventeen years ago Italy would that most likely defaulted. If
Speaker 1: that it would have you know, a serious like what
Speaker 1: happened in Argentina at the time. So the business community
Speaker 1: is solidate in the back. And by the way, it's
Speaker 1: the same business community that largely has supported the one
Speaker 1: of the two political parties, the North League, because as
Speaker 1: you know, the the electoral split is that the Five
Speaker 1: Star Movement UH, the new UH political parties primarily um
Speaker 1: from the south the voters, while the North League is
Speaker 1: primarily from the north, where you know, the strong economic
Speaker 1: engines of Italy are. So I am not convinced that
Speaker 1: the business community would support any movement outside the Euro
Speaker 1: whose cost would be enormous. But most importantly, there is
Speaker 1: no process for quitting the euro Is this availed confrontation
Speaker 1: between the private sector and the public sector in Italy? No,
Speaker 1: I think that the the there there are. There are
Speaker 1: a number of things, of course which are not working uh.
Speaker 1: And number one is the unemployment rate. Number two, we
Speaker 1: have had a huge flood of immigrants with whose process
Speaker 1: has not been managing, manage been vented carefully. So there
Speaker 1: is a lot of anxiety, especially in the young people. UH,
Speaker 1: and the and the and the business community of course
Speaker 1: is concerned. But in a way we are going through
Speaker 1: a kind of recall, very not as healthy as we
Speaker 1: would that like. But I think the the the the
Speaker 1: future government and the future election unfortunately will be uh.
Speaker 1: Are we in Europe or out of the Europe? And
Speaker 1: so this is I think it's going to be the
Speaker 1: major team where the business community needs really to step
Speaker 1: up in a way that has never done in the
Speaker 1: history of Italy. So they need to speak up and
Speaker 1: h I think that's what's going to happen in the
Speaker 1: next sixth late weeks. Thank you very much for Noto
Speaker 1: Napolitano as the president and the chief executive of the
Speaker 1: Italian Business and Investment Initiative speaking about current events in
Speaker 1: Italy him. There is a story in Bloomberg Business Week
Speaker 1: this week by Peter Coy talking about how how there
Speaker 1: seems to be a much lower birth rate among US
Speaker 1: millennials and the question is why. And my question was
Speaker 1: how much does this have to do with the availability
Speaker 1: of childcare and how how cheaper expensive it is. And
Speaker 1: to weigh in on that is Betsy Stevenson who joins
Speaker 1: us now. She's Associate Professor of Public Policy at the
Speaker 1: Ford School of the University of Michigan, joining us from
Speaker 1: an Arbor, Michigan. She's also the former chief economist at
Speaker 1: the U S Department of Labor UH from and eleven.
Speaker 1: Thank you so much for joining us. Betsy, my pleasure.
Speaker 1: It's great to speak with you. So I wanted just
Speaker 1: to start with this idea that the birth rate has
Speaker 1: been falling among younger people, and I'm wondering, do you
Speaker 1: think that childcare has anything to do with that? So
Speaker 1: I do think that childcare has something to do with it,
Speaker 1: but I think it's actually um kind of a trifecta
Speaker 1: of not just the high cost of childcare but a
Speaker 1: lack of paid leave, paid family leave to you, you know,
Speaker 1: thinking about it. You go to have a child, you
Speaker 1: don't know that you're gonna be able to take any
Speaker 1: time off of work. If you do take time off,
Speaker 1: you may have to take it unpaid, and then you
Speaker 1: face enormous costs putting those children into childcare if you're
Speaker 1: going to go back to work, and then you often
Speaker 1: face discrimination in the workplace. And research shows that women
Speaker 1: can face a really steep wage penalty when they have children.
Speaker 1: So you put those three things together and you see
Speaker 1: a lot of young women who are saying, wait, this
Speaker 1: is really really expensive, um, and I'm just not sure
Speaker 1: I can do it, or I need to wait longer
Speaker 1: to do it. So we are seeing the age of
Speaker 1: first birth really getting pushed up quite rapidly. And I
Speaker 1: think part of what women are doing is delaying, and
Speaker 1: they're delaying so that they can save up for to
Speaker 1: pay that, you know, these these high costs of child care.
Speaker 1: And because research shows that every year you delay having
Speaker 1: a child, the motherhood wage penalty that you face is lower.
Speaker 1: So they know that if they can just you know, wait,
Speaker 1: their careers will turn out better and they'll be able
Speaker 1: to save up for childcare unfortunately for a lot of women. Though,
Speaker 1: Now wouldn't you wait and wait and wait to have
Speaker 1: a kid, You can often run out of time. So, Betsy,
Speaker 1: I'm just wondering, compared to other nations, where does the
Speaker 1: United States rank in terms of things such as paid
Speaker 1: maternity leave or indeed even paid childcare. So, uh, in
Speaker 1: terms of paid maternity leave, this one's easy because the
Speaker 1: United States is alone. UM. I think Papua New Guinea
Speaker 1: also uh no longer it doesn't have paid maternity leave.
Speaker 1: But aside from those two countries, the United States and
Speaker 1: Papua New Guinea, everybody else has paid maternity leave UM.
Speaker 1: And the research shows that that does increase fertility. So
Speaker 1: Australia has one of the more recent paid maternity leave policies.
Speaker 1: In two thousand eleven they introduced eighteen weeks of paid
Speaker 1: leave and then some additional unpaid leaves and there's some
Speaker 1: new research coming out that shows that women have more
Speaker 1: children as a result, so it did boost fertility rates. UM.
Speaker 1: In terms of childcare, you know, other countries do support
Speaker 1: childcare more. You know, the United States UM is mostly
Speaker 1: a system of private childcare, was very little government funding.
Speaker 1: So that's you know. One thing that I'm struck by
Speaker 1: is what would you say to people who said, look,
Speaker 1: you know, if people don't want to have have babies, and fine,
Speaker 1: don't have babies if they can't afford them, that's their issue.
Speaker 1: It's a lifestyle choice. If they want to make it work,
Speaker 1: they make it work. If they don't, they don't. Um,
Speaker 1: it's their choice. If they're not doing it, fine, What
Speaker 1: do you say to people who say that, I mean,
Speaker 1: why do why should we care? From a public policy perspective, Well,
Speaker 1: I think from a public policy perspective, as a nation,
Speaker 1: we're supposed to be forward looking um and not just
Speaker 1: you know, partying like there's no tomorrow. So that means
Speaker 1: that we need to be thinking about the next generation
Speaker 1: as well as thinking about what you know, the current
Speaker 1: generation would like. And the issue with early childhood education
Speaker 1: and child care is if you make those investments, they
Speaker 1: can pay huge dividends in the future. So UM research
Speaker 1: shows that children who've got uh good early childhood education
Speaker 1: go on to earn higher wages as adults and to
Speaker 1: pay more in taxes. So if we want to continue
Speaker 1: to have you know, uh, you know, a strong society
Speaker 1: with people who are productive and a lot of economic growth.
Speaker 1: But we need to support the next generation who's going
Speaker 1: to go on to be those workers that are productive
Speaker 1: and uh contributing to economic growth and paying taxes. Uh so.
Speaker 1: And the thing that makes it so difficult for parents
Speaker 1: is you have your kids early in life. It's you know,
Speaker 1: we spend a lot of time worrying about how parents
Speaker 1: are going to pay for college, but parents have eighteen
Speaker 1: years to save for their kids college. When your child
Speaker 1: is born, you face college tuition in that first year.
Speaker 1: In twenty eight states, the cost of center based care
Speaker 1: for a child in the first year of life is
Speaker 1: more than in state public tuition in those states. So
Speaker 1: you could have sent your kid to college for less
Speaker 1: than putting them in child care. And yet people can
Speaker 1: have their children when they're just getting their start in life.
Speaker 1: They haven't saved up to pay college tuition. In fact,
Speaker 1: some of them are still paying their own student loans.
Speaker 1: They're paying for their own college tuition. So if we
Speaker 1: want to invest in children that were investing in the
Speaker 1: next generation, we need to help parents out with these
Speaker 1: expenses because parents often can't do it, and certainly the
Speaker 1: kids can't do it. You know, a six month old
Speaker 1: can't go to a bank and say, can I have
Speaker 1: a loan? This is going to make me a more
Speaker 1: productive citizen and I'm going to be, you know, a
Speaker 1: better member of this it in twenty five years if
Speaker 1: you just pay for my early childhood education. Now, we
Speaker 1: that that's not the way the system works, and so
Speaker 1: it's one of the reasons why we really need the
Speaker 1: government to step in and support investments in early childhood education.
Speaker 1: By some estimates, the in the United States, couples spend
Speaker 1: more than more than a quarter of their income on
Speaker 1: childcare costs, and that if you happen to be a
Speaker 1: single parent, that number is about fifty of your income
Speaker 1: for childcare costs. Is that out of line when compared
Speaker 1: to other countries? That is out of line with compared
Speaker 1: to other countries. And you know, the the the United
Speaker 1: States spends less on UM safety net programs and other
Speaker 1: countries by a lot. We spend a much smaller share
Speaker 1: of gdp UM on social programs than other countries do.
Speaker 1: But and the money we do spend in the United
Speaker 1: States is way more tilted towards the elderly than in
Speaker 1: other countries. UM. So it's you know, in UH UM
Speaker 1: in the United States spent five the federal government spent
Speaker 1: five thousand dollars per child um. In comparison, the federal
Speaker 1: government spent thirty five thousand dollars per person over the
Speaker 1: age of sixty. So we have a system that's really
Speaker 1: tilted towards the elderly. And that's because we've passed a
Speaker 1: bunch of policies that are really beneficial to the elderly,
Speaker 1: like Social Security and Medicare. I haven't passed policies that
Speaker 1: support kids. We gotta leave, gotta run, Thank you very much,
Speaker 1: Betsy Stevenson, Associate Professor Public Policy, the Ford School, University
Speaker 1: of Michigan. Pam Me raised a good point earlier when
Speaker 1: you said you would think that banks would have learned
Speaker 1: after paying ten billion dollars and penalties and after a
Speaker 1: trader was sent to prison. Evidently not. And joining us
Speaker 1: to detail what is going on currently in the foreign
Speaker 1: exchange market is Lennon Nuian. She has FX reporter for
Speaker 1: Blue Broke News, and she wrote a story today detailing
Speaker 1: ongoing abuses frankly in the five point one trillion dollar
Speaker 1: a day f X market. Can you explain, Lenan, well, Lisa,
Speaker 1: what participants are worried about in this market is that
Speaker 1: there are a few lingering practices that are still you know,
Speaker 1: as far as regulators are concerned, kind of okay. And
Speaker 1: sou Anie Mack from Vanguard who's the head currency trader,
Speaker 1: they're warned of some abuses that potentially could happen as
Speaker 1: a result of these practices, like last look, where dealers
Speaker 1: can kind of reneg on a price and front running
Speaker 1: g front running. Um, that doesn't sound uh really good,
Speaker 1: does it? I mean that that that's getting in front
Speaker 1: of your own to in order to profit. Yes, So
Speaker 1: if you have knowledge in for an exchange of a
Speaker 1: customer trade in advance, you can kind of get ahead
Speaker 1: of it, which is not okay in other markets like equities. Um.
Speaker 1: Andy mac from Vanguard comes from the equities markets. So
Speaker 1: for a lot of people in other markets, this sounds
Speaker 1: very bizarre, But in foreign exchanges is actually okay. It's
Speaker 1: still under the FX Code of Conduct and the guidelines,
Speaker 1: it's still okay under certain circumstances. Let's take a step back,
Speaker 1: because from my understanding, a majority of the five point
Speaker 1: one trillion dollar a day of FX trading happens now
Speaker 1: over electronic systems. And there is a much more sort
Speaker 1: of algorithmic presence. What's the human component here? And you know,
Speaker 1: just can you give us a sense of why some
Speaker 1: traders still have so much power in setting prices? Well,
Speaker 1: first of all, the human component and the electronic components
Speaker 1: still uh, you know, the difference of speed. But the
Speaker 1: practices are still okay whether you're talking about a human
Speaker 1: being or computer or an electronic trade. So everything just
Speaker 1: happens quicker in these computerized markets. Um. But in terms
Speaker 1: of the power that you talk about, Lisa, it's more
Speaker 1: of the fact that this market still condones these practices
Speaker 1: as being legitimate and okay. Under the guidelines that regulators
Speaker 1: and industry participants have set, it's still all right to
Speaker 1: pre hedge an order, so they call it, which many people,
Speaker 1: including Van Guards say is purely front running. What is
Speaker 1: that pre hedge? Can you just describe it? It basically
Speaker 1: means that if you have advanced knowledge of a client order,
Speaker 1: you can kind of get ahead of it, so either
Speaker 1: buy or sell. But the tricky thing there is that
Speaker 1: if you buy or sell and you tell them you're
Speaker 1: going to do it, you can potentially move the market
Speaker 1: against your clients. So that's pre hedging, and in some
Speaker 1: circumstances it's fine in foreign exchange. Okay, I just want
Speaker 1: to understand here, because there's one thing that that volume
Speaker 1: can help determine price, right. In other words, if you
Speaker 1: have a lot of buyers or a lot of sellers,
Speaker 1: that can help move the price of a particular currency
Speaker 1: versus another currency. Um. But this is just an exchange, right,
Speaker 1: I mean it's not as if anybody in between is
Speaker 1: actually committing their own capital to invest, right. I mean,
Speaker 1: this is about an exchange of money, not an investment
Speaker 1: of money. It's not an investment of money. It is
Speaker 1: an exchange of money. So that's one reason why this
Speaker 1: is so Thorny's because you're basically, as a by side
Speaker 1: customer exchanging money with a bank or another participant in
Speaker 1: the market. And so that that's kind of the crux
Speaker 1: of why this market isn't regulated to want to just
Speaker 1: go to a feast a fee base structure. I mean,
Speaker 1: you know whether I mean, that's certainly what a lot
Speaker 1: of the equity world has moved towards. That's true, and
Speaker 1: that potentially is happening in foreign exchange, But the market
Speaker 1: has been so used to not having the fee structure
Speaker 1: for a long time that people just trade on the spread.
Speaker 1: They just look at a very narrow spread. So well,
Speaker 1: let's get a sense though, just also taking a step
Speaker 1: back when you were talking about first look, I just
Speaker 1: want to get a sense how frequently is the exchange
Speaker 1: rate set? Who sets it? You know, I mean, is
Speaker 1: there is just to sort of talk about, you know,
Speaker 1: how that whole dynamic plays out? Well, that dynamic again,
Speaker 1: because this market is so large, because it's over the counter,
Speaker 1: it's basically just a direct exchange between say him and I,
Speaker 1: We just we can decide what we want to exchange
Speaker 1: euros for dollars for exactly, and so that happens across
Speaker 1: this huge financial mark. This is the biggest world's biggest
Speaker 1: financial market, and that happens all the time, and there's
Speaker 1: no oversight over it because it's just you and I
Speaker 1: exchange money. So, um, that's why it's so tricky, Lisa,
Speaker 1: because there isn't this kind of overarching regulator in one
Speaker 1: region managing what the exchange rate is. It's happening, you know,
Speaker 1: bilaterally all the time. What's it going to take more
Speaker 1: lawsuits and more people going to jail? If they want
Speaker 1: to reform themselves before something bad happens. I think one
Speaker 1: person going to prison has already had an impact. This
Speaker 1: is the story. Is not to say that there hasn't
Speaker 1: been a change across the industry. People are super careful
Speaker 1: about what they say. They're very very cautious about conflicts
Speaker 1: of interests, and they really watch their backs. Um, there's
Speaker 1: a lot of surveillance now as well in the foreign
Speaker 1: exchange market. So it's not to say that nothing has changed,
Speaker 1: but there are a few red flag areas that some
Speaker 1: investors are very worried about. Which is last look in
Speaker 1: front running. Right, So that that admonition that you hear
Speaker 1: on a lot of recorded lines, you know this is
Speaker 1: being recorded for customer service purposes is something that may
Speaker 1: be heard more and more on the world of the
Speaker 1: telephones or on the systems of for X traders. Yeah,
Speaker 1: for X traders know their phones are being recorded, and
Speaker 1: they're much more careful with what they say. All right,
Speaker 1: Thanks very much for the story and for enlightening us
Speaker 1: much appreciated Land and new in our FX reporter for
Speaker 1: Bloomberg News. I encourage you to read the story at
Speaker 1: Bloomberg dot com. Thanks for listening to the Bloomberg P
Speaker 1: and L podcast. You can subscribe and listen to interviews
Speaker 1: at Apple Podcasts, SoundCloud, or whatever podcast platform you prefer.
Speaker 1: I'm Pim Fox. I'm on Twitter at pim Fox. I'm
Speaker 1: on Twitter at Lisa Abramo. It's one before the podcast.
Speaker 1: You can always catch us worldwide on Bloomberg Radio