Speaker 1: Yeah, Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene Jelie.
Speaker 1: We bring you insight from the best in economics, finance, investment,
Speaker 1: and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud,
Speaker 1: Bloomberg dot Com, and of course, on the Bloomberg. This
Speaker 1: is Bloomberg Surveillance with Jonathan Faraoh and Tom McKeene. The
Speaker 1: SMP five hundred heading for a fourth straight week of gains,
Speaker 1: but a little bit of weakness emerging in the past
Speaker 1: few days, sparks some would say, by jitters around tax
Speaker 1: cuts and whether the GOP has the votes to get
Speaker 1: this done next week. As far as futures are concerned,
Speaker 1: this Friday morning, a little bit firmer at five points
Speaker 1: on the SMP five hundred, positive sixty two points on
Speaker 1: the doubt in the bondom market. It's as you were,
Speaker 1: incredibly tight trading ranges through the year and over the
Speaker 1: last month as well. Somewhere in the two thirties were
Speaker 1: up another basis point at two thirty six on a
Speaker 1: US ten year. At the front end of the curve
Speaker 1: on a US two year, we are trading at one
Speaker 1: point eight two percent. Confidence that growth will improve and
Speaker 1: inflation will stay low, shared by most investors and central
Speaker 1: bankers are like going into ten. And in the FX market,
Speaker 1: it's just a story of dollar witness through the year
Speaker 1: and on the session as well, with one exception some
Speaker 1: dollar strength against the pound. Even as European leaders vote
Speaker 1: to go to Phase two of Brexit negotiations, the cable
Speaker 1: rate on the back fot south of one thirty four.
Speaker 1: At one thirty three ninety two, we're down a third
Speaker 1: of one percent for the year so far. Tho, it
Speaker 1: has been the pain trade of seventeen. All the ingredients
Speaker 1: for a year of dollar strength, rate hikes, better growth,
Speaker 1: pushing through fiscal stimulus seemingly, and yet we grind towards
Speaker 1: one of the worst years for the green back in
Speaker 1: a decade. To discuss Bob sinch Amherst Pierpont global strategist,
Speaker 1: Bob a man that has followed the FX market four decades,
Speaker 1: we have not seen a year like this for quite
Speaker 1: a while for the US dollar. Yet we had the
Speaker 1: recipe and the ingredients for a year that should have
Speaker 1: been good. What happened? You know? I think the markets
Speaker 1: discounted a lot of this. Remember the dollar had a
Speaker 1: huge run up from the election to the end of
Speaker 1: the year, and in fact peaked right around the year end.
Speaker 1: So you know, when we do these annual comparisons, we
Speaker 1: will be comparing the dollar move this year to just
Speaker 1: about its peak at the end of December of of
Speaker 1: last year. Uh And I think the market just got
Speaker 1: two builed up um on US growth earlier in the year.
Speaker 1: They got two builed up on on higher US interest rates,
Speaker 1: and two bowled up on the dollar. And so the
Speaker 1: the year was really one of trying to digest those
Speaker 1: long positions um and And I think also, you know,
Speaker 1: one of the big disappointments I think if you look
Speaker 1: at the year as a whole, is that the US
Speaker 1: trade balance and therefore current account balance hasn't really improved
Speaker 1: all that much, even though we're almost at balance in
Speaker 1: the oil trade balance for the US. So you know,
Speaker 1: the US trade balance and oil had gotten out to
Speaker 1: his wide is about forty billion dollars during the peak,
Speaker 1: and oil prices it's down down to less than five billion.
Speaker 1: Yet the total trade balances is why as it's ever been,
Speaker 1: which means we have records record deficit in the non
Speaker 1: oil trade balance. So I think that there were some
Speaker 1: expectations that trade would improve because of the U S
Speaker 1: improvement in the oil balance. There were expectations that, um,
Speaker 1: you know, that the markets would would embrace um, these reforms.
Speaker 1: In the US, it embraced growth, and I think a
Speaker 1: lot of it just got discounted in that big run
Speaker 1: up in the dollar in November and December. We've been
Speaker 1: digesting ever since. So if we think about excessive bullishness
Speaker 1: in the dollar at the end of two thousand and
Speaker 1: uh and sixteen and the response that we saw in
Speaker 1: two thousand seventeen of disappointment, you sort of look around
Speaker 1: and say, well, where's the greatest optimism right now in
Speaker 1: terms of market action in price action, it's bitcoin. So
Speaker 1: you're wonder where the bitcoin is going to be the
Speaker 1: disappointment of two thousand and eight. Maybe we're gonna spend
Speaker 1: a little bit more time talking about the fundamentals in
Speaker 1: this tax plan and where the GOP is at. I
Speaker 1: want to talk tactically just ahead of and you mentioned
Speaker 1: some of the positioning going into this year. Everyone seemingly
Speaker 1: on the one side of the boat for dollar strength,
Speaker 1: and you were wondering where the marginal bar was going
Speaker 1: to come through come from when net lungs was so big.
Speaker 1: What does the positioning look like coming into next year now, Bob,
Speaker 1: you know the market's a bit a bit underweighted on dollars,
Speaker 1: I think, a little bit overweighted on the euro, overweight
Speaker 1: on the Euro. But I don't think the positions are
Speaker 1: as extreme as we've seen because we just haven't seen
Speaker 1: the results this year in currency trading. We haven't seen
Speaker 1: the results in trading in a lot of the commodity markets.
Speaker 1: So I don't think going into the end of the
Speaker 1: year we have big, big positioning. But if we do, um,
Speaker 1: I think the one that's been embraced is euro strength
Speaker 1: because of the strength of the economy and that filtering through.
Speaker 1: You didn't mention that you had such great helpa. You're
Speaker 1: into the year. Happened about October. Packed it and I'm
Speaker 1: sure Bob sent you with this with AMers Uh Pure
Speaker 1: of Bloomberg Surveillance. This morning. Good morning, brought you by Investco.
Speaker 1: Investco dedicated to delivering an investment experience that can help
Speaker 1: you get more out of life. Learn more at investco
Speaker 1: dot com slash more out of life. What's the number
Speaker 1: one mistake, Bob sinch that people make when they bet
Speaker 1: on the dollar. We say the dollar, but you got
Speaker 1: to do the dollar against something else to make any money.
Speaker 1: What's the rookie mistake in a belief on dollars stronger
Speaker 1: or for that matter, dollar weaker. You know. I think
Speaker 1: that that we've been in a in a in an
Speaker 1: exchange rate market that's been dominated by capital flows for
Speaker 1: for a couple of decades now. And one thing that
Speaker 1: I think did come through in two thousand and seventeen
Speaker 1: UM is that current account balances still matter, and so
Speaker 1: big current account surplus in Japan, big current accounts surplus
Speaker 1: and the Eurozone, those currencies held up pretty well during
Speaker 1: the year. And as I said, big current account deficit
Speaker 1: in the US that requires continuing capital inflows into the US.
Speaker 1: If that's going to happen in two thousand and eighteen,
Speaker 1: and I think it will, I think it's not going
Speaker 1: to be because US short term rates go up. I
Speaker 1: think it's gonna it will be driven by long term
Speaker 1: US rates going higher. So I think that the dollars
Speaker 1: fortunes in two thousand and eighteen are similar to the
Speaker 1: bond market's fortunes, obviously inversely related to the bond market
Speaker 1: fortune fortunes and and I think one of the key
Speaker 1: issues will be to see whether US bond yields rise
Speaker 1: as the FED gets out of the way UM in
Speaker 1: terms of beginning to to sell bonds. At the same time,
Speaker 1: the deficit projections get get moved higher. Uh. And the
Speaker 1: question is, well, that creates some some congestion in the
Speaker 1: bond market. So what we've got to think about and
Speaker 1: then is structural forces reassertting themselves. That means stronger Euro, stronger,
Speaker 1: Swissy stronger, and weak compound and we could dollarways that
Speaker 1: how we've got to think about get ten next year. Well,
Speaker 1: I think that's what drove this year. I think that
Speaker 1: the markets were all boiled up on the cyclical story
Speaker 1: at the end of two thousand sixteen, and when the
Speaker 1: cyclical story didn't continue to drive those capital flows, we
Speaker 1: went back to um you know, the underlying current account balances.
Speaker 1: And I think that's what helped the end and the
Speaker 1: Euro this year. The question will become do those capital
Speaker 1: flows become bigger again in two thousand eighteen. And I
Speaker 1: think the driver of that is not short term rates
Speaker 1: and the FED. I think the driver of that is
Speaker 1: bonn yields, and so it's really dependent upon bon yields.
Speaker 1: We think bon yields are going higher in eighteen in
Speaker 1: the two thou eighteen in the US. To me, this
Speaker 1: is absolutely fascinating. As you say, there's almost a zeitgeist
Speaker 1: rain which is the theme for next year? Do they
Speaker 1: ever work out? Does the beliefs that John and I
Speaker 1: read about and typically, Yeah, I was gonna say, I mean,
Speaker 1: the dollar is going to be stronger, Trump won US ascendant.
Speaker 1: That worked out. But right now, whatever you read across
Speaker 1: all the literature, are you sitting there is a grizzled
Speaker 1: Bob since you're going are you guys kidding me? Yeah?
Speaker 1: I mean I think that that there is some pressure
Speaker 1: on people who are deeply involved in the business to
Speaker 1: come up with these ideas for the year. You know,
Speaker 1: the Trump trade, the higher US interest rates, fiscal stimulus,
Speaker 1: that all did drive the dollar. It drove it for
Speaker 1: eight weeks in November and December of two thousand and sixteen.
Speaker 1: And the problem is by that time everybody was on
Speaker 1: the trade in the position, Bob, we don't care. Here's
Speaker 1: what we care about. Pharaoh's so large, John, Pharaoh is
Speaker 1: now so large at Bloomberg that his entire compensation package
Speaker 1: is hedged. The problem is John's going back to London
Speaker 1: for the holidays to see mom, you know, and the
Speaker 1: rest of it can what sterling level does he need
Speaker 1: to live large in the United Kingdom in the next
Speaker 1: two weeks? You know, I think he's doing okay at
Speaker 1: one thirty. I don't. He's an unhappy camper full disclosure
Speaker 1: here funded in dollars and saying absolutely naked with no hedges. Okay,
Speaker 1: So as I'm going back into the UK, we're going
Speaker 1: pure on hedge dollars back into sterling. You know. The
Speaker 1: other issue is when Jonathan goes home, does he actually
Speaker 1: pay for anything? You know, I mean everybody's going to
Speaker 1: be paying for hands price on the Bloomberg as I see,
Speaker 1: it's nice spot price at the terminal at JFK. Was
Speaker 1: walking down thread Needle Street down towards our new office,
Speaker 1: and they like they bow, they do the head the
Speaker 1: tap thing from medieval England. When he walks by, what's
Speaker 1: your call on sterling for next year? Boring? You killed
Speaker 1: it this year? Full disclosure, Yeah, we had it was okay.
Speaker 1: I think it's relatively boring. You know. One of the
Speaker 1: things that I think may surprise us in in in
Speaker 1: the in two thousand and eighteen is the Brexit negotiations.
Speaker 1: I don't think they're going to be as difficult for
Speaker 1: the UK a on a relative basis as they were
Speaker 1: in Phase one. Look in Phase one, the the EU
Speaker 1: leadership had very little to give up, and this was
Speaker 1: primarily about how much money the UK was going to
Speaker 1: pay to get out of the deal. And so I
Speaker 1: think that that the EU leaders didn't have a lot
Speaker 1: of disagreement. I come back to the fact that that
Speaker 1: the EU has is a major exporter to the u K.
Speaker 1: And that creates a lot more strength for the UK
Speaker 1: and the trade negotiations than people generally perceive pay upon.
Speaker 1: The global strategist Gideon Rose with us with a really
Speaker 1: interesting and emotional issue of foreign affairs. The Undead Passed
Speaker 1: with two actual plaques from Auschwitz, was very, very very
Speaker 1: emotional cover. John Ferro, you look through it and you
Speaker 1: go to the challenges of the Middle East that are
Speaker 1: spoken of within the Undead Past getting and I'm thinking
Speaker 1: about the United States State Department in the era of
Speaker 1: the reluctant hedge him on what that means for the
Speaker 1: Middle East. So basically there's a big picture and the details.
Speaker 1: The big picture is we're getting a preview of what
Speaker 1: a post American world would look like. Um the essentially
Speaker 1: the United States. It's almost like we're in the Iliad
Speaker 1: and where the Greeks and the United States is Achilles,
Speaker 1: and essentially we're sulking in our tent. We walked off
Speaker 1: the battlefield, and the enemy, the Trojans, are winning because
Speaker 1: we're basically not fighting. And the question now is you
Speaker 1: have in Saudi Arabia interesting developments where there's both internal
Speaker 1: reform but also a regional uh a regional Hedgeman trying
Speaker 1: to be born. You have Iran doing the same thing
Speaker 1: in reverse from the north and the Gulf. You have
Speaker 1: Syria in which we've not only defeated Isis on one hand,
Speaker 1: but also the Russians have basically helped a sad win.
Speaker 1: So you're entering a new phase in Syria. And all
Speaker 1: this is playing out with essentially the US completely distracted,
Speaker 1: having no essential state department, no diplomatic apparatus, uh AT
Speaker 1: a half hearted attempt to do a piece deal, but
Speaker 1: with things like the move of the embassy to Jerusalem,
Speaker 1: there's no possible way you're gonna get a piece deal.
Speaker 1: So essentially the Middle East is working on its own
Speaker 1: dynamics going forward in interesting ways with stuff happening. In
Speaker 1: the United States is sort of watching from the sidelines,
Speaker 1: and nobody is quite sure just how long the unraveling
Speaker 1: will continue and if and when the US will ever
Speaker 1: come back to the diplomatic game. Gidion. We have an
Speaker 1: emerging alliance as this is happening, one that many years
Speaker 1: ago people might not have expected. Emerging alliance between Saudi
Speaker 1: Arabia and Israel, with the bond, the glue keeping those
Speaker 1: two together, a will and effort, the objective to to
Speaker 1: isolate Iran. How is this going to evolve in the
Speaker 1: coming year? Well, I mean essentially, Uh, you have guards,
Speaker 1: you know, guardians of the old order that are essentially
Speaker 1: happy with the status quo, Israel and Saudi Arabia, which
Speaker 1: actually are strong in their position and actually care about it,
Speaker 1: and Iran, which is trying to make inroads and essentially
Speaker 1: counter them and with its own allies. So you're having
Speaker 1: kind of regional teams pick sides, uh. And what the
Speaker 1: Saudis and the uh Israelis are happy about. What this administration.
Speaker 1: Is they felt the Obama administration was almost moving to
Speaker 1: be neutral between them and the Saudis, and now they're
Speaker 1: happy that the Trump administration is backing them. But the
Speaker 1: question in the long run is Israel and Saudi Arabia
Speaker 1: are not enough to make a Middle East policy with
Speaker 1: and they're actually uh gonna be. You need to have
Speaker 1: some way of bringing Iran into the negotiations and stabilizing
Speaker 1: the situation in some way, and the question of what
Speaker 1: happens with the future of the Iran nuclear deal is
Speaker 1: actually crucial and interest So, Gideon, as you think about
Speaker 1: the Middle East right now, there are several hot spots Yemen,
Speaker 1: Lebanon emerging so in the last couple of months much
Speaker 1: more so, and Syria as well. As you look at
Speaker 1: this evolving relationship between the saud East Israel, and there
Speaker 1: are oppositions wereran, Which region, which area of the Middle
Speaker 1: East You're most concerned about things bubbling over? Well, Syria
Speaker 1: is always has been in the last several years, the
Speaker 1: potential for regional conflagration. Um now we're moving into an
Speaker 1: interesting area there because we're not quite sure what's going
Speaker 1: to happen with a post Isis. But strengthened Assad regime
Speaker 1: and what will the future of Syria look like. Uh,
Speaker 1: that has potential. Yemen's a terrible tragedy, but I don't
Speaker 1: see it blowing up. The really interesting thing is the
Speaker 1: Saudi Iranian relationship. And also, frankly, it would be interesting
Speaker 1: to see if there are any repercussions between what happens
Speaker 1: in the American domestic political situation and the Middle Eastern situation, because, uh,
Speaker 1: the the the Saudias are close allies of the Trump
Speaker 1: administration as well as the Israelis, and if the Trump
Speaker 1: administration finds itself in real troubles in that could be
Speaker 1: a problematic for Middle Eastern diplomacy. Were the Middle Eastern
Speaker 1: plomacy and we all have, I mean literally, folks. The
Speaker 1: evening of September eleven, I picked up eight hundred pages
Speaker 1: of Albert Harani and as one volume, the History of
Speaker 1: the Arab People. That's a true story. I picked it
Speaker 1: up that evening and ran through it in about three months,
Speaker 1: two months. Maybe we all have our legacy knowledge of
Speaker 1: the Middle East. Gideon Rose, those books are old news.
Speaker 1: What's the new book being written? Now? What's what's the zeit?
Speaker 1: Guys that you would recommend we learn about about this
Speaker 1: new Middle East. It's a fascinating question. Basically, when you're
Speaker 1: looking at the Middle East, you always have to remember
Speaker 1: the past because you want to understand the problems and
Speaker 1: the motivations of the different actors. But you have to
Speaker 1: get past and transcend the past so that actually you
Speaker 1: can focus in the future. I think the question of
Speaker 1: whether we can actually create some kind of balance between
Speaker 1: the Saudias and the Iranians in which their regional rivalry
Speaker 1: can can be stabilized without destroying the region, where they
Speaker 1: can compete in a structure that for regional influence that
Speaker 1: is not destructive to everything around it. That will be
Speaker 1: the key question. I've had the privilege of meeting three
Speaker 1: of Faisal's immediate and directs, and it's what I believe
Speaker 1: it was maybe a brother, I'll be honest, I can't remember.
Speaker 1: And it's completely authentic tribal Aristocaracratic royal Middle East heritage.
Speaker 1: And we all were weaned on Lawrence of Arabian all
Speaker 1: of our false mythologies. This new guy is trying to
Speaker 1: get them away from that. How do you do that
Speaker 1: within a tribal legacy? I I find it fascinating. So
Speaker 1: what's happening with the Mohammed bin Salman in Saudi Arabia?
Speaker 1: Fantastic reform UH moves, but where it's actually going? Is
Speaker 1: this just an increased play for personal power and control?
Speaker 1: And what does he want to do with the power
Speaker 1: when he has it? Does he want to liberalize Saudi Arabia?
Speaker 1: Are we talking? Look at me? What's gonna happen with
Speaker 1: energy markets? With happened with religious extremism and control there?
Speaker 1: And foreign policy? It's actually really interesting because he's trying
Speaker 1: to It seems like he's trying to do interesting things domestically,
Speaker 1: but he's also been a strapper US on foreign policy
Speaker 1: and the m in side of things has not worked
Speaker 1: well at all. So the end, what will happen with
Speaker 1: Mohammed bin Salmans Saudi Arabia going forward is a really
Speaker 1: interesting question. Some people would argue Gideon that this is
Speaker 1: a power graph under the veil of reform, and there
Speaker 1: are still significant doubts whether he can really contain Wahabism
Speaker 1: in Saudi Arabia? Can he really do that? When he
Speaker 1: talks about a moderate Islam, I don't think of what
Speaker 1: hobbyism is that Uh look, any of these religions has
Speaker 1: variants that can be more militant or more pacific, and
Speaker 1: there's plenty of room for political authorities in a place
Speaker 1: like Saudi Arabia to shade the coverage and interpretation into
Speaker 1: various kinds of quiescence or not. Religious wise, So if
Speaker 1: he wanted to do some reform, he could, but we
Speaker 1: just don't know. And one of the things we'll all
Speaker 1: be watching is to see not just how the power
Speaker 1: play works out internally, but what the fruits of it
Speaker 1: are in terms of what does he do with the
Speaker 1: power position that he has consolidated. So, given what does
Speaker 1: success look like for MBS, success would look like maintaining
Speaker 1: domestic power, having sent a clear message that he won't
Speaker 1: tolerate opposition to his policies, and then some kind of
Speaker 1: attempt to gradually reform to be able to take the
Speaker 1: kingdom strengths, stabilize it, and move it forward into the
Speaker 1: twenty one century with a different kind of model that's
Speaker 1: more adapted to the future of the Middle East, energy wise, socially, religiously, etcetera.
Speaker 1: That's a big challenge, and uh, we don't know whether
Speaker 1: he can pull it off, find a question. This has
Speaker 1: been wonderful getting rose. What's your challenge with foreign affairs? Folks.
Speaker 1: I'm gonna make this simple, John, help me here, because
Speaker 1: I don't know if I have the pricing right. It's
Speaker 1: a price of two Manhattan's. Maybe it's a price of
Speaker 1: to Gibson's. Our our challenge is pretty simple. Actually, we
Speaker 1: are essentially shock troops of the Enlightenment. Our goal is
Speaker 1: simply to apply reason to public policy for the public benefit,
Speaker 1: to provide a forum for serious discussion of real issues.
Speaker 1: And this whole question of fake news, the whole question
Speaker 1: of trying to undermine standards of truth. That's the biggest
Speaker 1: single challenge, because it doesn't matter about which political side
Speaker 1: you're on. There should be as as Dan pat Monehan
Speaker 1: used to say, you can have the right to your
Speaker 1: own opinions, but not your own facts. And that's the
Speaker 1: biggest challenge we're in is that now facts and the
Speaker 1: logic themselves are creating a part of the environment on
Speaker 1: behalf of all the foreign affairs and counts on forign relations.
Speaker 1: What's the print subscription dynamic right now? To do this year?
Speaker 1: We're actually doing pretty well. We're up over a couple
Speaker 1: hundred thousand and you could basically subscribe anyway you want.
Speaker 1: Go to Foreign Affairs dot com and we're seeing a
Speaker 1: resurgence of journalism. Let me give you the real sales
Speaker 1: job here, folks. The Prince subscription has adult larger font
Speaker 1: you can actually read the damn thing. Two, you get
Speaker 1: a subscription for Foreign Affairs for the mouthy brat you
Speaker 1: have at home who's an undergraduate somewhere. You get on
Speaker 1: the subscription and you say, you don't get the Daily Pharaoh.
Speaker 1: You get a daily or weekly. Do understand that that
Speaker 1: kind of magazine is going to make the mouthy brand
Speaker 1: in the family even mouth yet it is, that's true.
Speaker 1: But you get on the subscription and you say you
Speaker 1: must read one article or you don't get the allowance
Speaker 1: to go to Florida for winter break. Hopefully it's not spinach,
Speaker 1: and hopefully they're already reading an online and using it
Speaker 1: for their debate teams and other kinds of preparation. But together,
Speaker 1: you're doing the digital and you're doing the producing Foreign
Speaker 1: Affairs magazine. You're end of my sales pitch. Joe Biden's
Speaker 1: in it some really interesting cross political analysis. The Undead
Speaker 1: Past John Farrell what's the one thing you see on
Speaker 1: the data screen here, I just say a week, a
Speaker 1: dollar that's just struggling to get a bit, not just
Speaker 1: today but throughout the whole of Tom and I know
Speaker 1: we've talked about this a lot in the last couple
Speaker 1: of days, but really, as we round out the year
Speaker 1: and look at and with a prestigious guest next to
Speaker 1: us as well, that's what I'm thinking about. What went
Speaker 1: wrong with the call for a stronger dollar this year?
Speaker 1: To bring him in, bring him involved. I don't know
Speaker 1: what's wrong with Tom Key this morning. I'm worried about Steelers,
Speaker 1: Patriots data CEO and founder. Yes, it's always great to
Speaker 1: catch up with you. Tax cutter set to go through,
Speaker 1: Fiscal stimulus is set to happen, g d P is exalerating,
Speaker 1: great hikes are going to continue through this year through
Speaker 1: next year. What's the dollar doing down here? Well, so
Speaker 1: I think when when you look at the dollar, it
Speaker 1: tends to move in cycles, and we had a really
Speaker 1: big dollar strengthening cycle from the summer of two thousand
Speaker 1: fourteen too January this year, depending on how you counted,
Speaker 1: and once you had one of these really big movement
Speaker 1: becomes hard to just to sustain the gains, and you
Speaker 1: need to have like continuously good news. And this year
Speaker 1: we've we've had a lot of good news, but a
Speaker 1: lot of us priced in and early in the year
Speaker 1: Trump arguably started to talk the currency down, So I
Speaker 1: think that was a part of the turning point. Another
Speaker 1: really important part of the turning point was that we
Speaker 1: started to have much better global growth. Right, So it's
Speaker 1: always very attempting to sort of be okay, we want
Speaker 1: to trade the dollars. Lets look, look, let's look at
Speaker 1: you as fundamentals, but effects is always a relative game,
Speaker 1: and we've had a lot better growth. Like just let
Speaker 1: me emphasize one point from the ECB press conference last
Speaker 1: year yesterday. The ESPN our projects essentially two and a
Speaker 1: half percent growth for two thousand and eighteen. That's the
Speaker 1: same as United States, and and they have no population growth.
Speaker 1: So in in in GDP per capital terms, it's it's
Speaker 1: growing faster than United States, even though United States has
Speaker 1: to do fiscal stimulus our at tax cuts to get there.
Speaker 1: It's kind of interesting. Yet we have a deposit rate
Speaker 1: in Europe negative forty basis. Noticed, I'm noticed, and at
Speaker 1: the front end in the United States, we continue to
Speaker 1: grind higher. I'm trying to reconcile those two things. Yes,
Speaker 1: can you help me? This is really good news for
Speaker 1: me because I have to make a living predicting currencies,
Speaker 1: and if it was easy, then I wouldn't have a job.
Speaker 1: So this this year has been really interesting, right, because
Speaker 1: we've had these huge divergence between the signal from interest
Speaker 1: rates and what currencies have actually done. So I think
Speaker 1: there's been some really important flow effects that has pushed
Speaker 1: the US higher, and I think that can continue. But
Speaker 1: since identified this an hour ago, let's go into this.
Speaker 1: There's two drivers of effects flows money slashing around, and
Speaker 1: am I right? Real interest rates inflation adjusted interest rates
Speaker 1: and their expectations that right versus president indust rates. Now
Speaker 1: you're really going into uh always religious debate. I'm on
Speaker 1: the edge of Michael. Help you here about the edge
Speaker 1: of Michael Rosenberg. One I want ends you'd be thinking
Speaker 1: about great differentials at the front end. Yeah, that would
Speaker 1: be effects one I want. And that's right. Um, if
Speaker 1: you're looking at emerging market country, I always look at
Speaker 1: real interest rates for detail countries. I think normal is
Speaker 1: more Chapter eight of your wonderful Important and I might
Speaker 1: point out at the time courageous book pounding the European
Speaker 1: society to get their act together. Chapter eight, where's the growth?
Speaker 1: The cost of deflation? Can you say now your book
Speaker 1: is old and the Europe is on a new regime
Speaker 1: and you need to write a new book about a
Speaker 1: European GDP that may be bigger than the U S
Speaker 1: g d P. Yes, that that book came out in
Speaker 1: two thousand thirty and I think a lot of things
Speaker 1: have changed as a fair few chapters I would like
Speaker 1: to add as the refugee crisis that was not in
Speaker 1: the book, and now we actually seem to have come
Speaker 1: through in a way where after ten years pretty much
Speaker 1: but no growth. Okay, let me help you with the
Speaker 1: title here, and I need a royalty on this. Are
Speaker 1: you going to write the Rise of the euro? Well,
Speaker 1: the first thing I have to do this, I have
Speaker 1: to get an approval from my wife to write another book,
Speaker 1: because it takes a thought. You needed to get an
Speaker 1: approval from Mrs Nordvig for me to get a royalty.
Speaker 1: He needs an approval for both. Is that what we
Speaker 1: faced out a Ryan seeing euro a rising Europe? Is
Speaker 1: the excitement justified? Yents I do so I was. I
Speaker 1: was just speaking with the Lisa Brahmas and Alex Steel
Speaker 1: this morning where we touched on this topic and the
Speaker 1: one chart actually just tweeted out now is about the
Speaker 1: public support for the euro So the whole thesis in
Speaker 1: the book that wrote back in two thousand and thirteen
Speaker 1: was that the project was very, very shaky if public
Speaker 1: support was going down, and now we're actually having a
Speaker 1: turning point in the public support. So this is really
Speaker 1: important because it means that the sort of forces in
Speaker 1: Europe that were ready to embrace a breakup potentially having
Speaker 1: a less less momentum, and that that could keep the
Speaker 1: thing together. So when we think about political forces reasserting
Speaker 1: themselves in I think most people think instantly they think
Speaker 1: Italy and what's going to happen with the Italian election
Speaker 1: and how that may kind of throw this whole, this
Speaker 1: whole happy talk around Europe of course with it. So
Speaker 1: this this is why I watched these opinion polls very
Speaker 1: very carefully, right, because if you look at the different
Speaker 1: part aunties in Italy, there are right wing parties that
Speaker 1: are anti Europe and there are left wing parties that
Speaker 1: are anti Europe, but they also look at opinion polls.
Speaker 1: If they can see it's actually not that popular to
Speaker 1: be anti Euro, they're gonna tone down the rhetoric. And
Speaker 1: we learn in France it's not in France in Italy. So,
Speaker 1: and Italy has always been the big public problem country
Speaker 1: in that support for the Euro is kind of fifty fifty, right,
Speaker 1: So it makes a big difference where the ten percent
Speaker 1: is going to swing six against it or in favor
Speaker 1: of it. Just because the time I want to go
Speaker 1: over to Asia, my recollection I could be wronging it
Speaker 1: is correctly, please is at the beginning of the year
Speaker 1: there was almost a partition of euro U S trans
Speaker 1: Atlantic dynamics and then a whole another beast called Asia
Speaker 1: d X Y or Asia Japan, whatever that dynamic is.
Speaker 1: Is dollar dynamics separate with Europe and then over here
Speaker 1: Asia or are they more of a converging set of dynamics. Well, so,
Speaker 1: I think you're making a really good point because as
Speaker 1: some flow dynamics that are very Asia specific. Yes, there's
Speaker 1: the capital flight that has been happening out of China
Speaker 1: up until earlier this year but stopped for various reasons.
Speaker 1: We go into then there's also a country like Korea,
Speaker 1: another very important country in Asia. They have essentially stopped
Speaker 1: intervening in the currency market this year. That allows the
Speaker 1: currency to go to a different level than we've seen
Speaker 1: in the the ones that great. Yeah, well, I want
Speaker 1: to rip the script up right now and if you
Speaker 1: don't want to answer this, that's okay, without question. On
Speaker 1: this Friday in December, the bitcoin focus is on the
Speaker 1: frenzy in Korea. With your work at Golden Section, work
Speaker 1: at the beautiful book you put out the Fall of
Speaker 1: the Euro, what do you see is the trading frenzy
Speaker 1: of China, Japan and Korea over this thing called bitcoin.
Speaker 1: You've lived that psychology, You've traveled there a million times.
Speaker 1: How do you distill the bitcoin z that we see
Speaker 1: within the Pacific rim was that they definitely have a
Speaker 1: gambling culture that is different from what we know here
Speaker 1: and you can see that on the exchanges for for
Speaker 1: bitcoin in Asia. But I would add one more thing.
Speaker 1: So there's more and more people who are serious investors
Speaker 1: that have managed institutional money over the last couple of
Speaker 1: decades that are telling me we're closing down our hedge fund,
Speaker 1: maybe multiple and dollar hedge fund. Our focus going forward
Speaker 1: is gonna be cryptocurrencies. It's stunning. It's not just a
Speaker 1: retail phenomenon. That's going to be an institutional chapter to this.
Speaker 1: This is so too important. Are they going to Kogermon
Speaker 1: the Long Short Cryptocurrency Fund? Are they going there because
Speaker 1: they want to? Are they going there because they think
Speaker 1: that's the only alpha creating game in town to make
Speaker 1: two and twenty. It's probably a mix. But I really
Speaker 1: think there are there is people who are fundamental believers
Speaker 1: in this. You can maybe call them religious about it,
Speaker 1: but there are smart people who have conviction this space.
Speaker 1: And sometimes when I sit down with these people who
Speaker 1: I'm known for years and hear what they say about it,
Speaker 1: I'm I'm surprised how broad baseds and and how it's
Speaker 1: mergings an institutional space. Now I'm not surprised the funds
Speaker 1: are closed and I'm surprised to go into cryptos. Global
Speaker 1: macro just got killed by central banks. Todd one data point.
Speaker 1: Even people who have been successful, been successful in macro
Speaker 1: are doing it. It's amazing. That's interesting. Now, that's interesting.
Speaker 1: The Interview of the Week Howard Ward, gam Coo and
Speaker 1: Gabelly up this year and he's not making two and twenty.
Speaker 1: I speak to Mario Gabelly on television today around twelve noonishing, yes,
Speaker 1: we will speak about the media Fox in Disney with
Speaker 1: Mr Gabelly as well. Yes, Nordvig, thank you so much, greatly,
Speaker 1: greatly appreciate your wisdom. It is good to catch up
Speaker 1: with Sony com or he's with Sony copor he's with Redefined.
Speaker 1: But far more than that, he takes a very broad,
Speaker 1: a holistic view of a europe Uh. That's really sort
Speaker 1: of in ascendency Sony, good morning. Did you did you
Speaker 1: ever think you would see forecast of European real g
Speaker 1: d P larger than American Um. Yes, even at the
Speaker 1: depth of the European crisis, I never lost my faith
Speaker 1: in the US ability uh to get together and be resilient.
Speaker 1: Part of it, of course, is simply a question of
Speaker 1: bouncing back. The sad reality is that even with the
Speaker 1: relatively optimistic forecast that we see today, many European countries,
Speaker 1: especially in the UA Zone, will still have g dps
Speaker 1: that are lower than they would than they were back
Speaker 1: in two thousand seven and eight. Uh So, yes, it
Speaker 1: looks good on a relative basis in a world that
Speaker 1: is otherwise confronted with slowing growth and rich economies. But
Speaker 1: we have had a lost decade in Europe. Certainly, we've
Speaker 1: had a lost decade in Europe, arguably because there was
Speaker 1: a man called three around the e c B and
Speaker 1: then we got a man called Drug that boiled everything out.
Speaker 1: Is this president dr recovery or is this Europe's recovery
Speaker 1: driven by politicians that got their act together? Well, I
Speaker 1: think part of it is simply again the question of
Speaker 1: bouncing back. At some point, real economic activity had to
Speaker 1: pick up. But yes, you are right that tre Set
Speaker 1: built a bad blow at the start by raising interest
Speaker 1: rate prematurely, by taking a divergent vie on monetary policy
Speaker 1: compared to what the Fed and the Bank of England
Speaker 1: were doing, and that probably cost Europe three or four
Speaker 1: years of much lower growth in a deeper recession than
Speaker 1: we would have needed to have had. And yes, Drug
Speaker 1: has contributed to restoring confidence, particularly to taking away the
Speaker 1: possibility of a breakup of the Eurozone that haunted investment
Speaker 1: and economic activity in Europe for several years. But some
Speaker 1: of this is simply the result of the asset prise
Speaker 1: inflation we have seen and may actually be temporary rather
Speaker 1: than real seal hell, one of the things we can
Speaker 1: do with you, and this goes of course your advice
Speaker 1: to the Norwegian government, your work with O. E. C.
Speaker 1: D and I m F. We got like eight ways
Speaker 1: to go here. But in the time that we've got left, Sony,
Speaker 1: both John and I are to be kind surprised that
Speaker 1: Germany can't get its act together. I guess the election
Speaker 1: is old news, but have you been surprised by the
Speaker 1: struggle to get to a two thousand eighteen coalition? Well
Speaker 1: not really, because there has been a president of the
Speaker 1: junior party in grand coalitions across Europe having to pay
Speaker 1: a significant electoral cost, and this time, after several such
Speaker 1: years and coalition of being the junior partner, the SPT
Speaker 1: decided that enough was enough and the mathematics simply didn't.
Speaker 1: But but we have to remember, and this is very important,
Speaker 1: that Germany is a federal economy, with most key critical
Speaker 1: economic decision making actually not lying with the federal government.
Speaker 1: So in that sense Germany can, as opposed to France
Speaker 1: and the UK, which are far more centralized, we afford
Speaker 1: afford to be without a federal government without any serious
Speaker 1: economic costs for far longer than these other centralized economies,
Speaker 1: and the example of Belgium, which set the record for
Speaker 1: not having a government while the economy did quite well,
Speaker 1: is perhaps the best comparison. Like Germany, Belgium itself has
Speaker 1: multiple levels of government. The federal government in Belgium is
Speaker 1: only responsible for some small decisions rather than being all important. Sonny,
Speaker 1: thank you so much. Nice to catch up, refels CDVO.
Speaker 1: Sony Kapor is managing director for Redefined with a Good
Speaker 1: Perspective and Europe jen if I just it is one
Speaker 1: of the great surprises of the year. I just thought
Speaker 1: a coalition would be doable in Germany. I think everyone
Speaker 1: just saw. Everyone just thought smooth sailing for Chancellor Angela Merkel.
Speaker 1: That probably was the political surprise this year. That was sunny,
Speaker 1: called Cappolla points out Tom Ready, the lesson is that
Speaker 1: you don't really need a government sometimes in Europe for
Speaker 1: things to be uncounty. Thanks for listening to the Bloomberg
Speaker 1: Surveillance podcast. Subscribe and listen to interviews on Apple Podcasts, SoundCloud,
Speaker 1: or whichever podcast platform you prefer. I'm on Twitter at
Speaker 1: Tom Keane Before the podcast. You can always catch us worldwide.
Speaker 1: I'm Bloomberg Radio