WEBVTT - Surveillance: Financial Conditions Do Matter, Crescenzi Says 0:00:00.080 --> 0:00:13.040 Ye, Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane 0:00:13.480 --> 0:00:17.560 Jay Lee. We bring you insight from the best in economics, finance, investment, 0:00:18.000 --> 0:00:23.480 and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, 0:00:23.600 --> 0:00:34.520 Bloomberg dot Com, and of course on the Bloomberg Den 0:00:34.600 --> 0:00:36.720 Edwards and I know we are as good as our team, 0:00:36.840 --> 0:00:39.839 and our teams sometimes will they do things because they're brilliant, 0:00:40.159 --> 0:00:43.479 and also the surveillance teams sometimes you get lucky. We 0:00:43.520 --> 0:00:46.760 did that before December thirty one when we said, Tony Cosenzi, 0:00:47.080 --> 0:00:49.680 you need to start our year, and then we enjoyed 0:00:49.720 --> 0:00:52.640 the summer thirty one where things fell out about concenz 0:00:52.840 --> 0:00:55.560 the PIMCO. He's definitive on short term paper. And bring 0:00:55.600 --> 0:00:58.000 up the chart of here McKinnon, if you would. This 0:00:58.200 --> 0:01:00.680 is the I've never shown this chart before. I'm only 0:01:00.720 --> 0:01:02.920 doing this because Conscendi showed up in an early hour 0:01:03.440 --> 0:01:06.920 one year two year difference in yield and you've got 0:01:06.920 --> 0:01:09.920 the oudities before the crisis and then the normality of 0:01:09.920 --> 0:01:12.039 a difference in yield between a two year in a 0:01:12.120 --> 0:01:14.959 one year, and we fell off a cliff. Tony Cocenzi, 0:01:15.080 --> 0:01:17.959 let's start with the why of the short term paper market. 0:01:18.240 --> 0:01:21.640 Why is the one year two year yield inverted? Where 0:01:21.720 --> 0:01:25.160 one year yields are higher than two year yields. This 0:01:25.200 --> 0:01:27.080 is a crystal ball is telling you about the future 0:01:27.080 --> 0:01:28.920 and what the market thinks of the Fed and what 0:01:28.959 --> 0:01:30.640 it will do with this policy rate. We know the 0:01:30.640 --> 0:01:32.800 Fed in December racist policy rate to two and a 0:01:32.880 --> 0:01:35.040 quarter two and a half. Here the market saying it 0:01:35.080 --> 0:01:37.640 will go back below two at some point. Are they 0:01:37.680 --> 0:01:40.640 predicting a rate cut at market point? Predicting a rate 0:01:40.720 --> 0:01:43.800 cut at the beginning part of next year, so we 0:01:43.840 --> 0:01:46.480 won't be roaring into the twenties like we did a 0:01:46.560 --> 0:01:49.480 hundred years ago. Well, you could be stumbling into the twenties, 0:01:49.560 --> 0:01:51.600 is what the market is saying. What everybody wants to 0:01:51.600 --> 0:01:53.800 know in global Wall Street from you is when we 0:01:53.880 --> 0:01:57.280 talk commercial paper or library ois and the other arcane 0:01:57.280 --> 0:01:59.960 stuff that you and and Jerome Schneider and others at 0:02:00.000 --> 0:02:03.120 PIMCO look at every day. Okay, great? Is that a 0:02:03.200 --> 0:02:07.880 liquidity crisis is an attention within the corporate space. Absolutely 0:02:07.960 --> 0:02:11.080 not a liquidity crisis. There's still over one trillion dollars 0:02:11.080 --> 0:02:14.120 of extra money that banks could utilize to keep themselves. Liquid. 0:02:14.160 --> 0:02:19.160 Banks are in exceptionally good shape today. Still many worry 0:02:19.160 --> 0:02:21.440 about it, but there's no there aren't the excessis there 0:02:21.560 --> 0:02:25.200 that many people cite. What is concerning is that we 0:02:25.520 --> 0:02:28.760 this all began in markets, the stress with political factors, 0:02:28.760 --> 0:02:31.960 not macroeconomic ones. It was related to briggsit was related 0:02:32.000 --> 0:02:35.000 to Italy, it was related to trade stories. Now what 0:02:35.080 --> 0:02:37.600 markets have to worry about is the feedback loop where 0:02:37.639 --> 0:02:40.880 what happened in markets because of politics sus to feedback 0:02:40.880 --> 0:02:43.679 into the real economy and then back into the markets. 0:02:44.120 --> 0:02:45.840 So there's one of the major questions for this year 0:02:45.880 --> 0:02:48.520 is whether we can get past the tenth year of 0:02:48.560 --> 0:02:51.040 expansion in June, making it a record dating back to 0:02:51.040 --> 0:02:53.560 the mid eighteen hundreds or not when we stumble into 0:02:53.600 --> 0:02:56.280 the twenties or roar like a hundred years ago. It 0:02:56.280 --> 0:02:58.520 looks like we may stumble, but there's a lot that 0:02:58.560 --> 0:03:01.840 could happen that changes things. When this sense of pessimism, 0:03:02.040 --> 0:03:04.480 of course, it's an accumulation period. Weren't you be thinking 0:03:04.520 --> 0:03:09.920 about building assets? But be careful, very careful about that. Okay, Tony, 0:03:09.960 --> 0:03:12.320 good morning to you. So if this inversion at the 0:03:12.400 --> 0:03:14.920 very short end, then it's telling us something kind of 0:03:14.919 --> 0:03:18.720 gloomy about where we'll be roaring or stumbling into the twenties. 0:03:19.000 --> 0:03:21.640 And what kind of lag does this normally deliver them? 0:03:21.639 --> 0:03:23.360 When you look at the shorter end of the curve, 0:03:24.040 --> 0:03:29.360 what kind of lag does this kind of signal usually require. Well, 0:03:29.440 --> 0:03:32.600 it depends. Markets will tend to be correct on this, 0:03:33.120 --> 0:03:35.680 but not only call. Let's say nine months would be 0:03:35.680 --> 0:03:40.040 a period where it has Christine accuracy. One looking out 0:03:40.160 --> 0:03:42.400 a year or two not so great. Think about a 0:03:42.480 --> 0:03:44.920 year ago markets said the Fed would put his policy 0:03:44.960 --> 0:03:48.880 very potentially yet around three now instead of rate hikes 0:03:49.000 --> 0:03:53.040 that would stay in place for through and even markets 0:03:53.080 --> 0:03:55.360 think there'll be a rate cut. So it shows you 0:03:55.440 --> 0:03:58.800 that looking past one year out becomes a bit precarious. 0:03:59.080 --> 0:04:01.520 And so this four cast that markets have today for 0:04:01.560 --> 0:04:04.520 an interest rate cut may not be correct. But is 0:04:04.520 --> 0:04:07.480 it that important anyway? The global story and interest rates 0:04:07.560 --> 0:04:10.000 is quite benign. Look at the German boon today, the 0:04:10.040 --> 0:04:13.360 tenure point one five. There are trillions of dollars and 0:04:13.600 --> 0:04:17.240 ten trillion dollars of bonds globally negative yielding. So the 0:04:17.279 --> 0:04:19.960 worry and markets today is very little to do with 0:04:20.040 --> 0:04:22.279 interest rates and the FEDS rate hikes. It has a 0:04:22.279 --> 0:04:24.480 lot to do with the other factors I mentioned. I 0:04:24.520 --> 0:04:27.279 think one final final point of breaks it. The Bank 0:04:27.320 --> 0:04:30.320 of England said the UK economy could shrink eight percent 0:04:30.680 --> 0:04:32.640 in the case of a heart breaks it. And so 0:04:32.680 --> 0:04:35.240 there are numerous other things markets are concerned about that 0:04:35.279 --> 0:04:38.360 need be resolved. And before this feedback loop starts to 0:04:38.400 --> 0:04:41.680 hit the economy and markets again, do you think the 0:04:41.720 --> 0:04:46.040 fet shured pools here? Tony, there is a very strong 0:04:46.120 --> 0:04:48.680 case for the Fed pausing at the March meeting when 0:04:48.680 --> 0:04:51.839 it's when the next rate hip potentially could occur. As 0:04:51.839 --> 0:04:56.640 many have postulated. Uh, financial conditions do matter. The transmission 0:04:56.720 --> 0:04:59.640 of Monterrey policy occurs through five channels at stock prices, 0:05:00.279 --> 0:05:03.200 bond deals, credit spreads, the dollar and bank lending stands. 0:05:03.240 --> 0:05:06.400 To send all these combined today suggests the US economy 0:05:06.440 --> 0:05:08.480 will be weaker this year than otherwise. Let's come back, 0:05:08.520 --> 0:05:11.280 Tony Consenzi with us without questioning our conversation with the dam. 0:05:11.320 --> 0:05:13.599 I'm gonna look to the terminal and tell you, Tony 0:05:13.640 --> 0:05:16.200 Consenzi has lifted the market here in the last ten minutes. 0:05:31.600 --> 0:05:34.800 What's great about free of amish with Pantheon in England? 0:05:35.520 --> 0:05:38.279 She has lived China, She's not only been there, but 0:05:38.440 --> 0:05:41.960 attempts at Mandarin? Can you order a pizza in Mandarin? Free? 0:05:41.960 --> 0:05:44.320 Are you to the point where your Mandarin is so 0:05:44.360 --> 0:05:47.520 good you can order a pizza to go? I'm I'm 0:05:47.520 --> 0:05:50.960 no fan of Chinese pizza, but um, yeah I can. Okay, Well, 0:05:50.960 --> 0:05:54.840 we got tom Honestly, you go to Shanghaio, Beijing and 0:05:54.920 --> 0:05:58.560 order pizza. Yeah, sure, that's what I would do anyways 0:05:58.560 --> 0:06:01.080 for you for a good morning? Are we what is 0:06:01.120 --> 0:06:04.880 the thing you're searching in in in China GDP? After 0:06:04.920 --> 0:06:07.960 the comments of President she over the last three or 0:06:08.000 --> 0:06:10.799 four days, he's made some speeches, I think they're below 0:06:10.839 --> 0:06:13.920 the radar, But what is the data thing that you're 0:06:13.920 --> 0:06:19.400 trying to observe to gauge where China is? Well? I 0:06:19.400 --> 0:06:21.719 guess the PMS that we had out this morning we're 0:06:21.720 --> 0:06:24.600 pretty unpleasant. I think the consensus was always a little 0:06:24.600 --> 0:06:26.400 bit high on that, especially we have we had the 0:06:26.440 --> 0:06:30.839 official out already, but um, in terms of the report 0:06:30.880 --> 0:06:33.040 itself and the kind of breakdowns that we had there, 0:06:33.080 --> 0:06:35.599 it was telling us that the employment situation is still 0:06:35.680 --> 0:06:39.760 quite um, quite shaky. We've still got producer price inflation 0:06:40.240 --> 0:06:43.360 slowing um, and that that feeds through obviously to the 0:06:43.400 --> 0:06:46.599 massive industrial sector, and it's a massive the tarrent on 0:06:46.600 --> 0:06:50.280 on future production um. The good news, I think we're 0:06:50.320 --> 0:06:52.919 all very focused at this stage on on the on 0:06:52.960 --> 0:06:55.640 the bad news, and certainly I'm not going to jumping 0:06:55.640 --> 0:06:58.560 on any kind of good news bandwagon, but I think 0:06:58.560 --> 0:07:00.719 it is relevant at this stage to point out a 0:07:00.720 --> 0:07:04.560 few um kind of good news elements from from the 0:07:04.640 --> 0:07:06.799 data that we're seeing at the moment. I think, first 0:07:06.839 --> 0:07:10.320 of all, that the p M I is probably going 0:07:10.360 --> 0:07:14.000 to trough above where we saw in ten, so that 0:07:14.840 --> 0:07:18.840 was the last kind was the last kind of real 0:07:18.960 --> 0:07:21.680 kind of significant downtourn that we had in China. I 0:07:21.720 --> 0:07:25.040 think we'll probably trough above that this time. The bad 0:07:25.120 --> 0:07:27.720 news is that we still have some further deterioration to 0:07:27.800 --> 0:07:30.600 go before before we get there. The leading indicators have 0:07:30.720 --> 0:07:34.640 kind of leveled off. We're starting to see the kind 0:07:34.680 --> 0:07:38.280 of the the most advanced leading indicators are pointing towards 0:07:38.280 --> 0:07:41.520 a pick up um in the second half of the year, 0:07:41.600 --> 0:07:44.480 but we still have some some further deterioration to go 0:07:44.640 --> 0:07:47.320 before then. In in the p MS and the GDP data. 0:07:47.360 --> 0:07:51.080 Although the headlines might not actually show that. So we've 0:07:51.120 --> 0:07:52.920 got we've got some good news out that we've certainly 0:07:52.960 --> 0:07:56.800 got stimulus in the pipeline, not really coming through yet 0:07:56.400 --> 0:08:00.760 the UM the the overall level, we've put our kind 0:08:00.760 --> 0:08:05.040 of infrastructure. We've got our season ping and the work 0:08:05.040 --> 0:08:06.760 conference that we had at the end of last year 0:08:06.800 --> 0:08:12.680 which sets out the the policy direction for for this year. UM. 0:08:12.720 --> 0:08:16.040 We had an important revelation there that there will be 0:08:16.800 --> 0:08:19.760 increase in the in the quota for local government bond 0:08:19.800 --> 0:08:22.520 issuance and that's where we get our infrastructure growth going 0:08:22.560 --> 0:08:25.520 from again. UM. And I think actually there is probably 0:08:25.560 --> 0:08:27.200 still room for a bit of a rate cut which 0:08:27.200 --> 0:08:30.360 would probably enhance the efficacy of the of the measures 0:08:30.360 --> 0:08:35.760 that they made, the targeted lending facility measures that they 0:08:35.920 --> 0:08:38.920 introduced at the end of last year. UM. So there's 0:08:38.920 --> 0:08:42.839 stimulus there, the stimulus potentially more coming through. And I 0:08:42.960 --> 0:08:44.880 think probably on the trade front as well, we can 0:08:44.960 --> 0:08:47.320 we can be a little bit positive and that in 0:08:47.360 --> 0:08:49.280 that sense as well. Let's start with the policy tools 0:08:49.320 --> 0:08:50.960 they've got available to them, and then we can talk 0:08:50.960 --> 0:08:54.880 about the trade negotiations. You mentioned the slowdown in fourteen 0:08:54.960 --> 0:08:57.959 fifteen that bled into sixteen as well, that slowdown was 0:08:58.000 --> 0:09:00.320 accompanied with some real policy shocks, and one of them 0:09:00.360 --> 0:09:03.160 was around the currency free Do you see the stage 0:09:03.200 --> 0:09:05.360 there for something similar again or is it very different 0:09:05.400 --> 0:09:10.240 this time? I think um, I think there's enough time 0:09:10.480 --> 0:09:13.200 for the PBOC to get a little bit scared in 0:09:13.240 --> 0:09:16.200 the first half UM that that things are not turning around. 0:09:16.200 --> 0:09:18.439 I think, as they said, the stimulus is actually in 0:09:18.480 --> 0:09:21.040 the pipeline, but that the lag seems to be UM 0:09:21.080 --> 0:09:23.400 a little bit longer this time around them previously, and 0:09:23.440 --> 0:09:26.760 that leaves the p BOC and policymakers in the position 0:09:26.840 --> 0:09:28.960 of having to kind of sit on their hands and 0:09:29.000 --> 0:09:31.920 wait until the stimulus comes through. And I'm not sure 0:09:31.960 --> 0:09:34.000 that they'll be willing to do that. So I think 0:09:34.000 --> 0:09:37.280 we will probably see a rate cut or something that 0:09:38.200 --> 0:09:40.280 is effectively like a rate cut. It might not be 0:09:40.320 --> 0:09:43.400 an actual publicized rate cut, but there will be something 0:09:43.760 --> 0:09:46.760 UM that will that will help to loosen monetary conditions 0:09:46.800 --> 0:09:51.080 further UM and that that obviously exerts a downward pressure 0:09:51.080 --> 0:09:53.480 and the women B But we are in a change 0:09:53.559 --> 0:09:56.600 situation here with with regards to the FED. UM, it's 0:09:56.679 --> 0:09:59.400 looking it's not looking likely anymore that they'll they'll hike 0:09:59.480 --> 0:10:02.280 in in March, and that gives the PBC a little 0:10:02.280 --> 0:10:05.720 bit more room there. Um. And also, as I said, 0:10:05.720 --> 0:10:08.520 when we get to talk about the trade deal, that 0:10:08.559 --> 0:10:11.959 will release a little bit of pressure of depreciation, pressure 0:10:12.000 --> 0:10:13.719 from the from the room and b So it gives 0:10:13.760 --> 0:10:16.640 them a little bit more room there. But but I 0:10:16.640 --> 0:10:19.199 think there's there's definitely the potential for the PBOC to 0:10:19.280 --> 0:10:21.760 kind of surprise markets with it with a bit more 0:10:21.800 --> 0:10:23.760 of a of a stimulus. So free you brought up trade, 0:10:23.800 --> 0:10:25.800 so let's talk about it. It's clear to me that 0:10:25.800 --> 0:10:28.240 there's an incentive for President Chesing Ping to come to 0:10:28.280 --> 0:10:30.240 the table and try and strike a deal with the 0:10:30.280 --> 0:10:32.920 President of United States Donald Trump through what's not clear 0:10:32.920 --> 0:10:34.959 to me as the concessions the president she is willing 0:10:34.960 --> 0:10:40.400 to make. What are those concessions? Well, the the UM 0:10:40.440 --> 0:10:42.280 in the policy setting meeting that we had at the 0:10:42.360 --> 0:10:44.840 end of last year. UM, you don't get a lot 0:10:44.880 --> 0:10:46.920 of detail in that kind of a of a redoubt, 0:10:46.920 --> 0:10:49.320 but there was one sentence which said that they were 0:10:49.320 --> 0:10:53.280 going to prioritize the the agreement, reaching the agreement UM 0:10:53.320 --> 0:10:55.520 and implementing the the agreement that was made at the 0:10:55.559 --> 0:10:58.200 G twenty meeting in November. So that's a good sign 0:10:58.240 --> 0:11:01.520 to start with, at least rhetorically, UM. But they they've 0:11:01.559 --> 0:11:04.720 also made moves in the direction of cutting pariffs. They've 0:11:04.760 --> 0:11:07.200 restarted or they've kind of signaled that they're about to 0:11:07.320 --> 0:11:10.360 restart UM imports from from the U S which they 0:11:10.360 --> 0:11:13.079 actually have pulled back on very sharply in the second 0:11:13.080 --> 0:11:16.280 half UM. And also they've they've critically made made kind 0:11:16.280 --> 0:11:18.520 of rumblings in the right direction with regard to the 0:11:18.679 --> 0:11:22.120 forced technology transfer. I like in your research note you're 0:11:22.160 --> 0:11:24.480 not going to affect to South Korea as well. What 0:11:24.520 --> 0:11:30.360 are your adjacency effects of this supposed slowdown in China. Yeah, 0:11:30.400 --> 0:11:32.160 I think we've seen it UM. We often see it 0:11:32.160 --> 0:11:35.240 actually first in some of the Korean data because Korean 0:11:35.800 --> 0:11:37.920 UM sitting at at the head of the of the 0:11:38.320 --> 0:11:40.880 supply chain, and they also happened to publish very early 0:11:40.920 --> 0:11:43.719 in the in the kind of the data calendar. So 0:11:44.440 --> 0:11:48.400 definitely we've seen a slowdown in Korean export volumes. Unfortunately, 0:11:48.440 --> 0:11:50.280 there's been a lot of noise there because of changing 0:11:50.360 --> 0:11:53.400 holidays and that kind of thing, but that the overall 0:11:53.440 --> 0:11:56.439 trend is one of of weakness from from Korea. We're 0:11:56.440 --> 0:11:59.000 starting to see that feed through to Japan as well. 0:11:59.480 --> 0:12:01.960 Um so it with there's there's definitely evidence there that 0:12:02.040 --> 0:12:05.559 these these economies are struggling as a result of China's slowdown. 0:12:05.840 --> 0:12:08.000 Free I have a great new year and we literally 0:12:08.080 --> 0:12:11.280 really look forward to catching up with you in Shanghai 0:12:11.320 --> 0:12:19.839 at DeMarco Pizza one f Golden Bridge Garden. I didn't ask, 0:12:20.679 --> 0:12:23.640 but it's there's many there's a lot of pizza places 0:12:23.640 --> 0:12:26.360 in Shanghai. You know that I really should do Shanghai 0:12:26.440 --> 0:12:28.320 with you. It sounds like you have a really different 0:12:28.320 --> 0:12:31.800 experience of it. It's a different experience to what many 0:12:31.800 --> 0:12:34.840 other people would free of Bemish, thank you so much. 0:12:35.040 --> 0:12:52.040 With Panthe on China. Serious news there out of China 0:12:53.200 --> 0:12:55.920 joining US now Dana Peterson with City Growth, their North 0:12:55.960 --> 0:13:00.199 American economist, Dana, If I look at the City group, well, 0:13:00.280 --> 0:13:04.640 have you people amended or adjusted your outlook for next 0:13:04.760 --> 0:13:07.920 year in the last two or three days, No, we haven't. 0:13:07.960 --> 0:13:10.320 We still expected the set is going to be raising 0:13:10.400 --> 0:13:13.280 rates at least a couple of times this year, potentially 0:13:13.280 --> 0:13:17.120 in March, and certainly the impass in the federal government 0:13:17.240 --> 0:13:20.720 is not going to be a major determining factor in 0:13:20.760 --> 0:13:23.720 the set delaying any of the activities for this year. 0:13:24.200 --> 0:13:28.439 Will tightening financial conditions be a big factor? Well, I mean, 0:13:28.520 --> 0:13:31.400 financial conditions have tightened a little bit, but there's still 0:13:31.880 --> 0:13:34.440 quite loose. But I'm certain that the set is going 0:13:34.480 --> 0:13:37.280 to be watching that along with all the other economic 0:13:37.280 --> 0:13:39.800 indicators that pays attention to when it's doing it's a 0:13:39.840 --> 0:13:43.840 monetary policy calculus. But at the moment, the only economic 0:13:43.840 --> 0:13:47.240 indicators that continues to surpass the economic expectations of the 0:13:47.240 --> 0:13:51.400 economists are the labor market and the household sector. Everything 0:13:51.480 --> 0:13:54.560 cows is deeply negative and disappointing to it. Do you 0:13:54.640 --> 0:13:57.720 see that turning around anytime soon? Well, I mean when 0:13:57.720 --> 0:14:00.800 I look at certainly the fourth quarter, the economy still 0:14:00.840 --> 0:14:02.640 grew pretty robustly in the two and a half to 0:14:02.760 --> 0:14:06.040 represent range UM. Yeah, some of the most recent economic 0:14:06.040 --> 0:14:08.760 indicators have been a little bit weak, but you know, 0:14:08.800 --> 0:14:11.880 the set is looking at UH inflation, the set is 0:14:11.880 --> 0:14:15.320 looking at UM certainly labor market, and also you know 0:14:15.360 --> 0:14:18.400 overall GDP, and still on most of those fronts we're 0:14:18.440 --> 0:14:21.040 doing well. I mean we will. We do anticipate some 0:14:21.080 --> 0:14:24.760 weakening of inflation, certainly because loil prices are are falling, 0:14:24.960 --> 0:14:28.480 and also you have some other underlying factors, and certainly 0:14:28.480 --> 0:14:31.040 that might cause us set to consider you hikes this 0:14:31.120 --> 0:14:35.120 year as you perceive it as an economist. Are the market? 0:14:35.200 --> 0:14:37.040 This has been my theme for this morning. I don't 0:14:37.040 --> 0:14:40.680 hate to bore people, but do you see markets is 0:14:41.400 --> 0:14:46.040 rational and normal with their new volatility or are there 0:14:46.040 --> 0:14:51.160 discontinuities here that get your attention? Sure? I think you 0:14:51.160 --> 0:14:54.720 know the different markets will be are reacting for different reasons. 0:14:54.720 --> 0:14:57.240 Certainly you know the bond market is concerned about the 0:14:57.560 --> 0:15:01.520 YE curve uh flattening um and what signals that gives us. 0:15:01.520 --> 0:15:03.080 I would suggest that maybe this time is a little 0:15:03.120 --> 0:15:05.840 bit different. We haven't had QUEI in the past uh 0:15:05.920 --> 0:15:08.920 kind of muddling the signals from the yolker. But certainly 0:15:08.960 --> 0:15:12.000 equity market has been very weak UM. I think some 0:15:12.080 --> 0:15:14.000 of that just a little bit of a steam coming out, 0:15:14.120 --> 0:15:17.440 but also concerns about the global economy as well as 0:15:17.760 --> 0:15:19.720 the trade to see. So then what do you see 0:15:19.720 --> 0:15:22.320 within your North American purview of YCLS C plus I 0:15:22.440 --> 0:15:24.720 plus G plus net X. I mean, is this all 0:15:24.760 --> 0:15:28.920 about the trade war or their investment and consumption dynamics 0:15:28.960 --> 0:15:32.440 that are leading to these instabilities? So I think consumption 0:15:32.480 --> 0:15:34.560 is still being super charged by the tax reform, but 0:15:34.600 --> 0:15:38.440 we are concerned about investment. Indeed, with the equity market weakening, 0:15:38.560 --> 0:15:42.080 that's certainly the signal for our investors, and certainly with 0:15:42.120 --> 0:15:44.640 respect to CAPEX, you know the businesses are not going 0:15:44.680 --> 0:15:47.680 to have another big injection from tax reform this year, 0:15:47.720 --> 0:15:52.360 and you still have concerns about trade. I guess Dan, 0:15:52.560 --> 0:15:55.520 with one final question than today you say you haven't 0:15:55.560 --> 0:15:58.160 changed the city view, what is your view on FED calls? 0:15:58.160 --> 0:16:00.520 Because what we're hearing from guest if your guests is 0:16:00.560 --> 0:16:06.080 a January thirty meeting has very suddenly become important. Yes, absolutely, 0:16:06.080 --> 0:16:09.280 I mean we we've we've always had a March hike 0:16:09.440 --> 0:16:11.400 and they did not have a hike in in January. 0:16:11.400 --> 0:16:13.400 But certainly January is gonna be important for how to 0:16:13.440 --> 0:16:18.400 said US easy economy, whether they're overly rather more concerned 0:16:18.440 --> 0:16:22.560 about weakening inflation, if they're more concerned about weakening in China, 0:16:22.640 --> 0:16:24.600 and certainly in the trade outlook for the US. And 0:16:24.640 --> 0:16:26.720 so I definitely think that's gonna be a very important 0:16:26.720 --> 0:16:28.520 meeting that we should be looking at. Dana, Thank you 0:16:28.600 --> 0:16:44.960 so much. Dana Peterson was City Group. Um, we have 0:16:45.040 --> 0:16:50.040 been remiss, and it's importantly been remiss with the sobering 0:16:50.120 --> 0:16:53.440 idea Pim Fox of how wrong so many got the 0:16:53.440 --> 0:16:57.280 transformation in Brazil when Mr Lula came on board. It 0:16:57.400 --> 0:16:59.720 was I say this in every speech I ever give. 0:17:00.320 --> 0:17:03.080 It was one of the great miscalls I made. I 0:17:03.200 --> 0:17:08.560 was incredibly wrong about the Brazilian economy, their resiliency under 0:17:08.640 --> 0:17:12.639 political change. Him. Here we are again with more political change, 0:17:12.840 --> 0:17:17.480 and we are all right, bringing Pim. I'll let you 0:17:17.520 --> 0:17:19.760 bring all right. Well, this all has to do, of course, 0:17:19.800 --> 0:17:24.400 with the new government of Mr Bullsonaro. President Bulsonaro taking 0:17:24.480 --> 0:17:27.480 office in the inauguration, and he's set to announce a 0:17:27.560 --> 0:17:31.880 variety of economic measures the design cut red tape and 0:17:32.000 --> 0:17:38.040 also fight retirement benefit fraud, while leaving pension reform for 0:17:38.119 --> 0:17:39.879 later on. Here to tell us about what's going on 0:17:40.000 --> 0:17:44.480 in the country, Oscar Decotelli, the chief executive of d 0:17:45.000 --> 0:17:48.680 x A Investment. Oscar Decotel tell us a little bit 0:17:48.720 --> 0:17:52.760 about the President of Bulsonaro and what you believe his 0:17:52.840 --> 0:17:57.320 agenda includes. Hi, Pim, Hi Tom, thank you very much 0:17:57.359 --> 0:18:00.200 for taking the time to talk to me. I think 0:18:00.680 --> 0:18:03.639 we're starting off a new year, a new administration that 0:18:03.720 --> 0:18:07.639 both on our government brings definitely a mentality of trying 0:18:07.680 --> 0:18:11.280 to reduce the size of the government with twenty two 0:18:11.359 --> 0:18:15.080 ministries only, with a mentality also of trying to reduce 0:18:15.160 --> 0:18:17.680 the whole corruption around the government what we've seen in 0:18:17.760 --> 0:18:20.240 this last year's but also trying to bring a new 0:18:20.240 --> 0:18:24.160 agenda of bringing growth back to the country. And I think, uh, 0:18:24.200 --> 0:18:26.560 for all of us here, we're quite hopeful that this 0:18:26.640 --> 0:18:29.040 is going to become a reality, but there are definitely 0:18:29.040 --> 0:18:32.320 some challenges to face in the next a hundred days. Right, 0:18:32.880 --> 0:18:36.240 What are some of the specific measures that the government 0:18:36.280 --> 0:18:40.600 needs to get right and get right quickly? Yeah? Sure. 0:18:40.640 --> 0:18:43.720 I think the first thing is that about the government 0:18:43.800 --> 0:18:47.680 spenditure are defined by the Constitution, and for that matter, 0:18:47.760 --> 0:18:49.359 there's not a lot of room to be able to 0:18:49.480 --> 0:18:53.280 change unless you go through a death very kind of 0:18:53.320 --> 0:18:56.639 a bureauratic process of voting through the Congress and the Senate. 0:18:57.000 --> 0:18:59.000 So what I think we're gonna be able to see 0:18:59.000 --> 0:19:02.000 in the short term are the new propositions for the 0:19:02.040 --> 0:19:06.320 social security reform and definitely a privatization agenda, trying to 0:19:06.400 --> 0:19:09.640 reduce the government that by selling some of these more 0:19:09.800 --> 0:19:12.919 kind of assets to the government owns. How will the 0:19:13.040 --> 0:19:16.159 elites react to this president as compared to how they 0:19:16.200 --> 0:19:20.600 reacted to Mr Lula a lifetime ago. Well, Tom, it's 0:19:20.600 --> 0:19:22.680 a great point. I think it's quite different than two 0:19:22.680 --> 0:19:24.879 thousand and two, and we saw Lula coming on coming 0:19:24.880 --> 0:19:27.680 on board, the elite was very negative on the country, 0:19:28.040 --> 0:19:30.400 thinking that it would be kind of a big problem 0:19:30.400 --> 0:19:31.880 for the country, and at the end of the day, 0:19:31.920 --> 0:19:35.840 Lula became really a president that helped out, especially around 0:19:35.880 --> 0:19:38.960 those years, for the country to grow. I think this 0:19:39.000 --> 0:19:41.240 time around is a little bit different. Now we're seeing 0:19:41.240 --> 0:19:44.120 the elite very positive, with a more of a right 0:19:44.240 --> 0:19:48.119 wing mentality government, and definitely the fact that he's bringing 0:19:48.119 --> 0:19:52.400 on board as ministers very technical guys that have very 0:19:52.440 --> 0:19:56.639 strong private sector success. I think it's been probably the 0:19:57.040 --> 0:19:59.600 government that people have been giving a lot more hope 0:19:59.640 --> 0:20:02.439 that we've seen in this last decades. Now. He just 0:20:02.520 --> 0:20:06.480 raised a minimum wage, correct correct? Yeah, So it was 0:20:06.920 --> 0:20:10.760 already expected to see that the former president Tamar was 0:20:10.800 --> 0:20:15.320 going to release that, but it was releasing middle of 0:20:15.359 --> 0:20:18.560 the afternoon, not not big news. This already kind of expected. 0:20:19.320 --> 0:20:21.960 Will this help the domestic economy at all? Or are 0:20:22.000 --> 0:20:26.919 people more concerned about corruption and crime. Uh, definitely, this 0:20:27.000 --> 0:20:30.760 was an election about corruption and crime. Uh, we didn't 0:20:30.760 --> 0:20:35.840 see I always say that Bosonado came as a representative 0:20:35.880 --> 0:20:38.680 of a cleaner government and not necessarily with a lot 0:20:38.720 --> 0:20:41.880 of the his propositions were Now seeing the propositions coming 0:20:41.920 --> 0:20:45.359 on board, uh and uh, so far they seemed positive. 0:20:45.800 --> 0:20:47.679 But I think this was much more of an election 0:20:47.680 --> 0:20:51.320 of discussing. I'm not wanting the old corruption scheme, of 0:20:51.320 --> 0:20:53.480 of the old politics go ahead on. Well, what's the 0:20:53.560 --> 0:20:57.720 opportunity here? I mean for global investors, we look at reality, 0:20:57.800 --> 0:21:01.520 have I think a highly simplistic view. What is the 0:21:01.680 --> 0:21:07.919 domestic opportunity for international investors within this new Brazil? I 0:21:07.920 --> 0:21:10.720 think it's a It's a great question because Brazilian if 0:21:10.720 --> 0:21:13.119 you add exports and imports, and we don't even come 0:21:13.200 --> 0:21:15.919 up to the GDP. So really eighty percent of the 0:21:15.920 --> 0:21:20.119 stories is about domestics. Right, We've seen some of the 0:21:20.200 --> 0:21:23.000 stocks and some of the of the stories are related 0:21:23.040 --> 0:21:26.040 to consumption going very well in these last year. I 0:21:26.040 --> 0:21:27.840 think we're gonna be able to see more of that. 0:21:28.000 --> 0:21:32.399 We see consumption related, we see healthcare related, education. I 0:21:32.440 --> 0:21:35.080 think we will be able to see now that there's 0:21:35.080 --> 0:21:37.119 a lot of slack in the economy with a very 0:21:37.200 --> 0:21:40.280 high unemployment rate, We're gonna be able to see some 0:21:40.359 --> 0:21:42.680 of these domestic stories coming on board, and I think 0:21:42.680 --> 0:21:45.720 that the wise investor will be able to select if 0:21:45.760 --> 0:21:48.080 he's going to go to public. Uh, there's some very 0:21:48.119 --> 0:21:50.879 kind of low pe multiples that are still kind of 0:21:50.880 --> 0:21:52.560 applying here in the market that you'll be able to 0:21:52.600 --> 0:21:55.239 buy them. I'm more of a private equity guy, as 0:21:55.280 --> 0:21:57.880 you guys know. So I think there's some very kind 0:21:57.880 --> 0:22:01.240 of uh multi year possibly that kid trends are gonna 0:22:01.280 --> 0:22:05.320 happen here that are positi no brainers for us. Can 0:22:05.359 --> 0:22:08.880 you give us one example? Yeah, of course. So I've 0:22:08.920 --> 0:22:11.680 invested in the logistics company just to give an idea. 0:22:11.800 --> 0:22:14.919