Latest / Bloomberg Intelligence / Yuan Devaluation Unlikely, Don’t Hit Panic Button: BBH’s Thin

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Yuan Devaluation Unlikely, Don’t Hit Panic Button: BBH’s Thin · Bloomberg Intelligence

• 0:05
  Speaker 1: Welcome to the Bloomberg p m L Podcast. I'm pim Fox.
• 0:08
  Speaker 1: Along with my co host Lisa Abramowitz. Each day we
• 0:11
  Speaker 1: bring you the most important, noteworthy, and useful interviews for
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  Speaker 1: you and your money, whether you're at the grocery store
• 0:17
  Speaker 1: or the trading floor. Find the Bloomberg p m L
• 0:20
  Speaker 1: Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot com. Well
• 0:32
  Speaker 1: as Greg Jarrett was just mentioning the dollar showing strength
• 0:34
  Speaker 1: at least against the Japanese end right now one ten forty,
• 0:38
  Speaker 1: also strength against the pounds sterling at one fifty three.
• 0:43
  Speaker 1: Here to tell us more about exchange rates and the
• 0:45
  Speaker 1: US dollars, Dr Win Thin, Global head of Emerging Markets
• 0:49
  Speaker 1: FX for Brown Brothers Harriman uh Win Thin, thanks very
• 0:53
  Speaker 1: much for being with us. The strength of the US
• 0:55
  Speaker 1: dollar is that going to continue against emerging market uh,
• 1:00
  Speaker 1: currencies such as Mexico and Brazil, as well as Indonesia,
• 1:04
  Speaker 1: Malaysia and so on. Yes, but first of all, thanks
• 1:07
  Speaker 1: thanks for having me. It's always a pleasure. Um. Yes,
• 1:10
  Speaker 1: uh I look for continued e M weakness. Um, it's
• 1:14
  Speaker 1: for a riot of reasons. You know. Obviously the big
• 1:16
  Speaker 1: stories is higher U S rates, but I think what's
• 1:19
  Speaker 1: really given this UH, this last leg lower in the
• 1:24
  Speaker 1: e M pushes the is the rising trade tensions, you know,
• 1:27
  Speaker 1: and strong global growth, strong global trade flows are are
• 1:30
  Speaker 1: really bullish for em and with all the risks that
• 1:33
  Speaker 1: are out there, all the tip for tat um uncertainty,
• 1:36
  Speaker 1: but where where the US WE stands, that's all hurting
• 1:40
  Speaker 1: the emerging markets. So yes, it's a broad based dollar rally.
• 1:44
  Speaker 1: It's not just against the e M, it's also been
• 1:46
  Speaker 1: rallied against the majors. So um that broad based rallually
• 1:51
  Speaker 1: being driven by the US interest rate outlook. So when
• 1:54
  Speaker 1: you know, one thing that I'm struck by is the
• 1:56
  Speaker 1: strengthening dollar has been a trend for many weeks now
• 2:00
  Speaker 1: and people have been adjusting to that. The rapid depreciation
• 2:04
  Speaker 1: of the Chinese un however, seems to be picking up speed.
• 2:07
  Speaker 1: Has been the biggest weekly drop since tu in that currency,
• 2:13
  Speaker 1: and you just have to wonder, you know, is this
• 2:15
  Speaker 1: UH an active devaluation by the Chinese government or does
• 2:19
  Speaker 1: this signal further and and rapidly deteriorating outlook for the
• 2:23
  Speaker 1: Chinese economy. Well, I think it's uh. Two thinks that
• 2:27
  Speaker 1: it's still early on so I don't want to tell
• 2:30
  Speaker 1: the alarm bells. It's it's certainly uh, you know, raising
• 2:32
  Speaker 1: eyebrows the speed of the move this week. But what
• 2:35
  Speaker 1: I've noted and what I've been telling our clients is
• 2:38
  Speaker 1: that this is a short period of you want under
• 2:41
  Speaker 1: performance follows a long extended period of you want a performance.
• 2:44
  Speaker 1: And when the rest of em was selling off in
• 2:46
  Speaker 1: uh do out most of Q two UM, the Chinese
• 2:50
  Speaker 1: one was really holding up pretty well. It was almost unchanged.
• 2:55
  Speaker 1: I would say a year to date, if you look
• 2:56
  Speaker 1: at your w c RS page, the Chinese you want
• 2:59
  Speaker 1: is the fifth best performing currency is down only one
• 3:04
  Speaker 1: against the dollar year to date. That compares to minus
• 3:07
  Speaker 1: for past though, minus seventeen and a half a turkey.
• 3:10
  Speaker 1: So I just want to keep things sort of in
• 3:12
  Speaker 1: in perspective. The other thing I would also add is
• 3:14
  Speaker 1: if you look at China's real effective exchange rate that
• 3:17
  Speaker 1: is just for the trade inflation, et cetera. UM, it's
• 3:22
  Speaker 1: done at the b I S. If you look on
• 3:23
  Speaker 1: your on your page, you carry that b I S
• 3:26
  Speaker 1: DCNR index. UM, it's it's been rising this past year,
• 3:30
  Speaker 1: and that's because the yuan is outperforming. That is is
• 3:34
  Speaker 1: it's training partners. The currency of its trading partners have
• 3:36
  Speaker 1: been weakening much more than yuan, and so the in
• 3:39
  Speaker 1: real effective terms, the yu want's actually appreciating. So again,
• 3:43
  Speaker 1: just things that sort of think about you know, I
• 3:46
  Speaker 1: know that you know these headlines, but you know, and
• 3:48
  Speaker 1: you have to think a sort of longer view that.
• 3:50
  Speaker 1: Uh and look, remember just that they're also reminded one
• 3:52
  Speaker 1: there in two thousands of team the last time China
• 3:54
  Speaker 1: shock the marks of evaluation, it ends up having contend
• 3:57
  Speaker 1: with the massive cap rout flows out of China, know, uh,
• 4:00
  Speaker 1: and it really roys CAPA marks. I don't think that's
• 4:03
  Speaker 1: something they want to do right now. So for now,
• 4:04
  Speaker 1: I think it's just sort of regular adjustment. Well, I
• 4:07
  Speaker 1: mean to talk about some of those headlines, I just
• 4:09
  Speaker 1: want to think give you one of them. China think
• 4:11
  Speaker 1: tank warns of financial panic risk and leaked note. I
• 4:14
  Speaker 1: mean there was a leaked report by a Chinese government
• 4:18
  Speaker 1: backed think tank talking about how with the rising defaulse,
• 4:21
  Speaker 1: with the trade tensions, liquidity shortages, China's looking pretty shaky
• 4:25
  Speaker 1: right now. What do you make of China? Like the
• 4:28
  Speaker 1: rest of them is struggling um with a global environment
• 4:34
  Speaker 1: that's that's not as friendly as it used to be.
• 4:35
  Speaker 1: Of course, China has its own domestic issues with the
• 4:37
  Speaker 1: banking sector, financials that I totally agree with that. My
• 4:40
  Speaker 1: base case has always been that that that it will
• 4:43
  Speaker 1: moddle through and I think that and the reason that's
• 4:46
  Speaker 1: one of the main things that I feel that evaluation
• 4:48
  Speaker 1: is unlikely is that's just gonna add just more uncertain
• 4:51
  Speaker 1: to the mix. Um they really in times uncertainty. I
• 4:55
  Speaker 1: think in general, the Chinese policy makers seemed a favor stability,
• 5:00
  Speaker 1: at least appearance of stability, and I think I'd be
• 5:02
  Speaker 1: sort of pushing the panic button if they were the
• 5:04
  Speaker 1: value now. So um, you know again it's keep we
• 5:07
  Speaker 1: gotta keep buying this. You know a lot of people
• 5:08
  Speaker 1: in calling for disaster and from China's last pan twenty years,
• 5:11
  Speaker 1: and you'll continue to model through and then that's that's
• 5:13
  Speaker 1: still my basic case. Win. Then give you about twenty seconds.
• 5:16
  Speaker 1: If emerging market currencies continue to weaken against the US dollar,
• 5:21
  Speaker 1: all things being equal, isn't that going to be better
• 5:23
  Speaker 1: for their exports? Uh? It's better for their exports, yes, Um,
• 5:28
  Speaker 1: But again it's for instance, a lot of these countries
• 5:30
  Speaker 1: that have taken on a lot of external debt in dollars,
• 5:33
  Speaker 1: so it becomes much more owners to repay that actor
• 5:36
  Speaker 1: in finance excellent nets. So there's pros and cons um
• 5:40
  Speaker 1: you know. To me, I think the emerging markets just
• 5:44
  Speaker 1: prefer a stable global environment, free trade, the currencies you
• 5:49
  Speaker 1: know rise, their currencies fall. But I think the possible
• 5:52
  Speaker 1: making the in which is like some clarity out of
• 5:53
  Speaker 1: the US. They like they have to step back from
• 5:56
  Speaker 1: uh this this trade war talk, um, and you know
• 5:59
  Speaker 1: that's what the US will take care of themselves. Dr Winton,
• 6:02
  Speaker 1: thank you so much for being with us. Dr Winton,
• 6:04
  Speaker 1: global head of Emerging Markets and Effects at Brown Brothers Harriman,
• 6:08
  Speaker 1: coming to us UH in New York and some some
• 6:11
  Speaker 1: good insight and good perspective when people start to wring
• 6:15
  Speaker 1: their hands over this really rapid evaluation of the UN
• 6:19
  Speaker 1: given the fact that it has appreciated for the most part.
• 6:22
  Speaker 1: In recent months, the US Food and Drug Administration has
• 6:40
  Speaker 1: approved g W Pharmaceuticals treatment for two rare forms of
• 6:45
  Speaker 1: childhood epilepsy. Now the treatment, it's a liquid. It's made
• 6:50
  Speaker 1: from a compound in the marijuana plant. And to tell
• 6:53
  Speaker 1: us more about this, we've got the chief executive of
• 6:56
  Speaker 1: g W Pharmaceuticals, Justin go over, Justin, thank you very
• 7:00
  Speaker 1: much for being with us. Tell us about this treatment
• 7:03
  Speaker 1: and is it epidialects or epity Alex, I beg your part.
• 7:09
  Speaker 1: That's correct, it's epidialects, So thank you very much for
• 7:12
  Speaker 1: having me on your show. Yes, the treatment is called epidialects.
• 7:16
  Speaker 1: It is made from a molecule called cannabi dial, which
• 7:21
  Speaker 1: is a part of the cannabis plant that does not
• 7:25
  Speaker 1: make you high. So it's a purified um cannabi dial
• 7:30
  Speaker 1: formulation administered to children in the form of an oral solution.
• 7:35
  Speaker 1: We have developed this treatment within the field of childhood
• 7:39
  Speaker 1: onset epilepsy, conducted three controlled clinical trials published in leading
• 7:45
  Speaker 1: medical journals, and obviously delighted earlier this week that the
• 7:48
  Speaker 1: FDA has approved this medication. The types of conditions that
• 7:52
  Speaker 1: we treat, these two examples of that are called lenox
• 7:56
  Speaker 1: gasto syndrome and travase syndrome are two of the most
• 7:59
  Speaker 1: difficult forms of epilepsy to treat, often uh commencing in
• 8:05
  Speaker 1: very early childhood, characterized by seizures that tend not to
• 8:09
  Speaker 1: respond to other anti epileptic drugs. So it's a real breakthrough.
• 8:13
  Speaker 1: The first medicine approved by FDA derived from the cannabis
• 8:16
  Speaker 1: plant and the first and a new type of anti
• 8:19
  Speaker 1: epileptic drug. So I see that the Drug Enforcement Administration
• 8:24
  Speaker 1: has yet to reclassify this form of cannabis and that
• 8:28
  Speaker 1: it has to do so before it can be put
• 8:30
  Speaker 1: to market. Can you give us a sense of how
• 8:32
  Speaker 1: long that could take and what the outreach has been
• 8:35
  Speaker 1: like there? Yes, So it's important to say that this
• 8:38
  Speaker 1: is not a political issue. It's very much a procedural
• 8:42
  Speaker 1: one that follows the FDA's approval. So under the rate
• 8:47
  Speaker 1: relevant regulations, the d e A has up to ninety
• 8:51
  Speaker 1: days um to what is termed reschedule this product Epidialects,
• 8:58
  Speaker 1: so that it can be prescribed by for positions and
• 9:00
  Speaker 1: available through pharmacy. So um, the the FDA will have
• 9:05
  Speaker 1: made a recommendation to the d e A as to
• 9:08
  Speaker 1: the schedule which they believe epidialect should be placed into.
• 9:12
  Speaker 1: The d e A will currently be reviewing that recommendation
• 9:16
  Speaker 1: and will rule on that within a ninety day period.
• 9:19
  Speaker 1: So what that means commercially is that the product will
• 9:22
  Speaker 1: be available. We believe in the early fall of this year,
• 9:27
  Speaker 1: could this could this drug to be used to treat
• 9:31
  Speaker 1: other types of conditions well, our focus for epidialects has
• 9:37
  Speaker 1: very much been in within the epilepsy arena and specifically
• 9:42
  Speaker 1: within these two forms of childhood epilepsy. UM. I think
• 9:47
  Speaker 1: it's fair to say that our focus for future development
• 9:50
  Speaker 1: of this product falls within the epilepsy arena. So there
• 9:54
  Speaker 1: are several other forms of epilepsy, particularly those in childhood,
• 10:00
  Speaker 1: which summer suffer similar we have suffer similar situations with
• 10:04
  Speaker 1: regard to seizures that are difficult to control. So there
• 10:08
  Speaker 1: really continues to be an unmet need within the field
• 10:10
  Speaker 1: of epilepsy, and our focus remains dedicated towards addressing those
• 10:14
  Speaker 1: patient needs. I mean, more broadly, I would say that
• 10:18
  Speaker 1: there are within the cannabis plant and within our own pipeline,
• 10:22
  Speaker 1: a range of other molecules which we call cannabinoids that
• 10:26
  Speaker 1: may not be epidone X, but maybe different molecules within
• 10:29
  Speaker 1: the plant that may well have applications and other disease areas.
• 10:33
  Speaker 1: And I certainly can provide a few examples well, but
• 10:36
  Speaker 1: justin before you get into that, I think that one
• 10:38
  Speaker 1: reason why we found this so particular particularly interesting is
• 10:43
  Speaker 1: because the FDA has been slow to approve medications that
• 10:48
  Speaker 1: are based on cannabis or marijuana. And I'm wondering, you know,
• 10:51
  Speaker 1: you've been in the industry, the pharmaceutical industry for nearly
• 10:54
  Speaker 1: two decades. Was the process of getting this drug approved
• 10:59
  Speaker 1: different when it comes to dealing with the FDA. Well,
• 11:03
  Speaker 1: i'd firstly, I would say, I think, I mean, the
• 11:05
  Speaker 1: FDA will be the first agency in the world to
• 11:08
  Speaker 1: have approved epidialects, So I'm not sure I would say
• 11:11
  Speaker 1: that they've been slow. In fact, I think this review
• 11:14
  Speaker 1: timeline has been rapid, and the engagement that we've had
• 11:18
  Speaker 1: with FDA over the last five years as we've developed
• 11:20
  Speaker 1: this medicine has been very constructive. Indeed, so I think
• 11:24
  Speaker 1: where I think, uh, And you saw statements from FDA
• 11:27
  Speaker 1: ear earlier this week which I think ring true with us,
• 11:30
  Speaker 1: which is when when it comes to the rigors of science,
• 11:33
  Speaker 1: when it comes to looking at the cannabis plant and
• 11:37
  Speaker 1: identifying molecules from it that may be developed as prescription medications. Um,
• 11:43
  Speaker 1: you know, the FDA are willing to assess and potentially
• 11:46
  Speaker 1: approve those kinds of medications and engage constructively. I think
• 11:50
  Speaker 1: what they have been pointing out is that that's a
• 11:53
  Speaker 1: different process and a different way of of approaching patients
• 11:58
  Speaker 1: treatment uh to um, you know, marijuana per se. So
• 12:03
  Speaker 1: I think it's what what this approval does do, is
• 12:07
  Speaker 1: it it very much signals the fact that if one
• 12:10
  Speaker 1: looks at cannabis and tries to apply rate modern pharmaceutical
• 12:15
  Speaker 1: principles to components of the cannabis plant, that f d
• 12:19
  Speaker 1: A will and have shown themselves to engage very constructively
• 12:23
  Speaker 1: with industry. Thank you so much for being with us.
• 12:25
  Speaker 1: Justin go Over, chief executive of GW Pharmaceuticals based in California,
• 12:31
  Speaker 1: coming to us after having their drug based aimed at
• 12:36
  Speaker 1: curing epilepsy approved by the FDA. Congratulations. Our next guest
• 12:57
  Speaker 1: has a fascinating story and he over sees a fascinating company.
• 13:01
  Speaker 1: So I'm very glad to bring in Abe and Kuma,
• 13:04
  Speaker 1: his chief executive and co founder of Nyanza, which is
• 13:07
  Speaker 1: based in San Francisco, but he joins us here in
• 13:09
  Speaker 1: our eleven three oh studios. Abe, your company is uh
• 13:14
  Speaker 1: pretty pretty significant and it does business with a lot
• 13:16
  Speaker 1: of the biggest companies out there. But I want to
• 13:20
  Speaker 1: start with your story because you hadn't even seen a
• 13:22
  Speaker 1: computer when you were growing up in Ghana before arriving
• 13:27
  Speaker 1: in the US. Tell us a little bit about that. Sure.
• 13:30
  Speaker 1: First of all, thanks for having me, um. So I
• 13:33
  Speaker 1: grew up in Ghana. As you mentioned, I went to
• 13:35
  Speaker 1: high school in Ghana, but moved to the United States
• 13:37
  Speaker 1: for college. And so I went to college at Caltech
• 13:40
  Speaker 1: in southern California, where I, without seeing a computer, I
• 13:45
  Speaker 1: did the crazy thing of deciding to major in computer
• 13:48
  Speaker 1: science and electrical engineering and so and so far it's
• 13:52
  Speaker 1: worked out great. Yeah, that's what everybody does, right. You know,
• 13:56
  Speaker 1: you don't know, you don't have a computer growing up,
• 13:58
  Speaker 1: and you decide comp you there's technology is where it's at.
• 14:01
  Speaker 1: Like you go to cal Tech and then you go
• 14:03
  Speaker 1: to Harvard Business School and then you've become a chief
• 14:05
  Speaker 1: executive of a tech Yeah. Right, that's those no stumbling
• 14:08
  Speaker 1: blocks there right now there you go. Um, let's talk
• 14:12
  Speaker 1: a little bit about how you decided that the founding
• 14:16
  Speaker 1: the answer that this company serves a need. What did
• 14:20
  Speaker 1: you see out there and what caused you to think
• 14:24
  Speaker 1: I can solve this problem? For sure? So, so I
• 14:27
  Speaker 1: started your answer, first of all with a group of
• 14:30
  Speaker 1: very talented UM other individuals as well. Um I have
• 14:32
  Speaker 1: two other co founders, um Dan and on and both immigrants,
• 14:36
  Speaker 1: both immigrants, UM a couple of m I T pH
• 14:39
  Speaker 1: d s. The problem that we saw was basically sort
• 14:43
  Speaker 1: of a melding of what's happening within large businesses today.
• 14:47
  Speaker 1: Right within large businesses, there there is an untapped opportunity
• 14:53
  Speaker 1: to actually make sense of the data that's flowing freely
• 14:56
  Speaker 1: on their networks today. Data is the new oil, and
• 15:00
  Speaker 1: what we do is we enable our customers actually makes
• 15:03
  Speaker 1: sense of the data on their networks to solve a
• 15:07
  Speaker 1: number of different business problems. One of the core business
• 15:10
  Speaker 1: problems we allow them to use the data for is
• 15:12
  Speaker 1: around user experience and performance management. In the world where
• 15:17
  Speaker 1: things are growing from the types and diversity of devices
• 15:21
  Speaker 1: connecting to their networks and the growth of IoT devices,
• 15:25
  Speaker 1: a lot of customers have the ability to harness and
• 15:29
  Speaker 1: generate tremendous new business value on the database on their networks.
• 15:33
  Speaker 1: Think about what we do as being akin to what
• 15:35
  Speaker 1: Google does with websites right. Google allows you to make
• 15:39
  Speaker 1: sense out of your websites. Google allows you to make
• 15:43
  Speaker 1: sense out of the data that UM your people are
• 15:46
  Speaker 1: searching on the Internet for we're doing something similar with
• 15:49
  Speaker 1: the data on computer networks. I don't think though of
• 15:52
  Speaker 1: Google Search as having artificial intelligence sort of algorithms trying
• 15:57
  Speaker 1: to parse out and turn in large codes in the
• 16:02
  Speaker 1: same way. I mean, perhaps that is the case, but
• 16:04
  Speaker 1: when you're talking, I wonder how important it is to
• 16:07
  Speaker 1: have some sort of intelligence in analyzing the data for
• 16:11
  Speaker 1: say an uber or what are the other companies you
• 16:14
  Speaker 1: work with? Yeah, so so what Whether it's um Uber
• 16:17
  Speaker 1: leveraging our technology for driving user experience on their computer networks.
• 16:23
  Speaker 1: Whether it is large universities um whether it's Stanford, whether
• 16:28
  Speaker 1: it's USC, whether it's Notre Dame leverage internet technology to
• 16:32
  Speaker 1: generate insights for the I T teams to better support
• 16:35
  Speaker 1: the students and the end users. Whether it's a large
• 16:38
  Speaker 1: global manufacturing organization leveraging the data on their networks in
• 16:42
  Speaker 1: order to effectively um UM if um UM drive the
• 16:47
  Speaker 1: manufacturing process because of the device land themselves, big data,
• 16:51
  Speaker 1: machine learning AI. It's all about making It allows us,
• 16:56
  Speaker 1: It allows our customers to see the invisible. It allows
• 16:59
  Speaker 1: our customers to make sense of invisible of what's happening
• 17:01
  Speaker 1: on their networks. By bringing you know, all this disparate
• 17:07
  Speaker 1: unstructured data, making sense of it to solve different business problems.
• 17:11
  Speaker 1: One of those could be performance, another one could be, um,
• 17:14
  Speaker 1: you know, improving the manufacturing process. Let's say I'm the
• 17:18
  Speaker 1: Atlanta Braves, I come to you, I say I need help.
• 17:23
  Speaker 1: You tell me great and tell people the story. Yeah.
• 17:27
  Speaker 1: So you know, whether it's the Atlanta Braves, whether it's
• 17:30
  Speaker 1: a large public venue that has lots and lots of
• 17:33
  Speaker 1: users leveraging the network. What we allow a company like
• 17:37
  Speaker 1: the Atlanta Braves to do is to actually ask questions
• 17:40
  Speaker 1: out of the data that's on their networks, right, ask
• 17:43
  Speaker 1: questions about, Hey, for this particular game or for this
• 17:46
  Speaker 1: particular time on the network, what were people actually doing,
• 17:50
  Speaker 1: all in an anonymised fashion, right. And so one of
• 17:53
  Speaker 1: the things with big data and data sciences, while there's
• 17:56
  Speaker 1: a fair bit of insights to clean out of that data,
• 18:00
  Speaker 1: companies that enable that data transformation also have a big
• 18:03
  Speaker 1: responsibility in terms of respecting sort of the privacy of
• 18:07
  Speaker 1: the users on their networks. And so for Atlanta Braves,
• 18:09
  Speaker 1: we give them the tools in order to sort of
• 18:11
  Speaker 1: ask questions of the networks and also give a world
• 18:13
  Speaker 1: class user experience off for their fans. Well done. Thanks
• 18:17
  Speaker 1: very much for being with us and giving us a
• 18:19
  Speaker 1: look inside the world of analyzing data on Internet systems
• 18:23
  Speaker 1: that are Internet networks that are based inside of corporations.
• 18:27
  Speaker 1: Much appreciated. Aba h on Kuma. He is the chief
• 18:31
  Speaker 1: executive and the co founder of Nyanswa, joining us here
• 18:35
  Speaker 1: in our eleven three oh studios. I do want to
• 18:52
  Speaker 1: just get a note here in on emerging markets because
• 18:56
  Speaker 1: the MSCI Emerging Markets Currency Index is now ropping today
• 19:01
  Speaker 1: for the biggest one day drop. It's the biggest since
• 19:05
  Speaker 1: March of last year. And our next guest has a
• 19:08
  Speaker 1: really interesting theory as to why. Dr Brendan Brown joins
• 19:10
  Speaker 1: US now chief economist and head of Economic research at
• 19:12
  Speaker 1: Mitsubishi u f J Securities. Dr Brown, so, how do
• 19:17
  Speaker 1: you interpret the weakness we've seen in emerging markets assets?
• 19:20
  Speaker 1: Interpreted for the the emerging market weakness as being a first
• 19:24
  Speaker 1: sign of a credit cycle turning globally And you have
• 19:28
  Speaker 1: to remember that the emerging markets have been the absolute
• 19:32
  Speaker 1: focal point of the credit inflation in this cycle. It's
• 19:37
  Speaker 1: been where the hunt for yield has been at its
• 19:39
  Speaker 1: greatest and where the various forms of financial engineering and
• 19:43
  Speaker 1: leverage have been the greatest. Okay, so this could be
• 19:49
  Speaker 1: sort of the canary in the coalbine that more than
• 19:52
  Speaker 1: a canary in a cor mine. Even the emerging market
• 19:54
  Speaker 1: economies these days PPP exchange rates account for six world GDP,
• 19:58
  Speaker 1: so so this was this could actually a signal a
• 20:01
  Speaker 1: real turning point. I'm just wondering how this relates to
• 20:06
  Speaker 1: monetary policies, which, yes, the US is tightening um, but
• 20:10
  Speaker 1: the e c B is still holding on so well.
• 20:12
  Speaker 1: I would make a general observation that monetary normalization at
• 20:16
  Speaker 1: this point is a fiction. Even in the US, we
• 20:18
  Speaker 1: have interest rates well below rate of inflation, negative real
• 20:22
  Speaker 1: interest rates, So from a point of view of money
• 20:24
  Speaker 1: supply from a central bank side of the equation, there
• 20:28
  Speaker 1: is really no normalization taking place. That maybe a bit
• 20:31
  Speaker 1: less in the US and elsewhere, but monetary policy is
• 20:33
  Speaker 1: still set at a pretty inflation redial. But there's another
• 20:37
  Speaker 1: there's another dynamic in monetary policy, and that's what's happening
• 20:40
  Speaker 1: on the credit side. You can have for central bank
• 20:42
  Speaker 1: still with their foot down on the accelerator, but if
• 20:45
  Speaker 1: the credit cycle is turning, the accelerator doesn't work so well.
• 20:48
  Speaker 1: And may even actually not work at some point, and
• 20:50
  Speaker 1: I think that's where we're approaching. Then, Okay, I'm just
• 20:55
  Speaker 1: going to do a brief list of, you know, supposedly
• 20:58
  Speaker 1: the problems in the world. Right, Okay, So you've got
• 21:01
  Speaker 1: the Brexit negotiations between the UK and the European Union.
• 21:05
  Speaker 1: They seem to be a mess. You have the political
• 21:08
  Speaker 1: situation in Italy and the potential for some kind of
• 21:14
  Speaker 1: challenge to the European Union in the euro and Angela
• 21:17
  Speaker 1: Merkel in Germany facing political uh pressure. Um, you had
• 21:21
  Speaker 1: a change of government in Spain recently. You have the
• 21:26
  Speaker 1: issues related to Venezuela and oil politics in the Middle East.
• 21:31
  Speaker 1: I raise all of the trade wars in the United
• 21:33
  Speaker 1: States and NAFTA and child I raise all these things.
• 21:36
  Speaker 1: At the same time, we haven't seen a big sell
• 21:38
  Speaker 1: off in stock prices, and I'm wondering why, well, stock
• 21:43
  Speaker 1: prices are not where this all starts. I mean, yes,
• 21:47
  Speaker 1: we can all talk about the bubble and the fangs
• 21:49
  Speaker 1: or whatever, but either I think the core of the
• 21:52
  Speaker 1: asset inflation process is in the credit markets. It's in
• 21:56
  Speaker 1: the irrational strategies we see for leverage. It's in the
• 21:59
  Speaker 1: financial engine nearing, which camouflages believe ridge and that's that's
• 22:03
  Speaker 1: where the irrational forces are. By the bye, you get
• 22:06
  Speaker 1: asset prices which may be too high, but that's not
• 22:08
  Speaker 1: where the unwinding starts, or it may and it may
• 22:11
  Speaker 1: unwind at any time, I think. Just to take your
• 22:13
  Speaker 1: points about Europe, the key point to watch there is
• 22:17
  Speaker 1: that the mercle era is coming to an end and
• 22:21
  Speaker 1: Germany is almost certainly or know nothing certain in politics,
• 22:24
  Speaker 1: but it's going to swing towards the right away from
• 22:27
  Speaker 1: the center euro center and and and that presents a
• 22:32
  Speaker 1: big change in the set of opportunities for Italy on
• 22:36
  Speaker 1: the one hand, and also for the UK. And my
• 22:38
  Speaker 1: view in the UK and Brexit is that everyone will
• 22:41
  Speaker 1: remain quiet amongst the Brexiteers in the UK until Britain
• 22:44
  Speaker 1: is actually out of the door next March. But that's
• 22:46
  Speaker 1: when the fun starts. But the fun will start, hopefully
• 22:50
  Speaker 1: when Merkel is also going out for the door quite soon.
• 22:52
  Speaker 1: So you know, you're saying that the the the asset
• 22:55
  Speaker 1: inflation that's really most important is in the credit markets
• 22:57
  Speaker 1: are where you need to really focus. Um. A lot
• 23:00
  Speaker 1: of people have been looking to the U S HIG
• 23:01
  Speaker 1: yield bond market as the canary in the coal mine
• 23:04
  Speaker 1: of cracks forming in credit markets globally, and you just
• 23:07
  Speaker 1: really haven't seen it. Why, what I would say was
• 23:11
  Speaker 1: two points there. Clearly in the US market, how yield
• 23:14
  Speaker 1: is related to a price of equity, So if you're
• 23:16
  Speaker 1: still in the middle of a real bull market in equities,
• 23:20
  Speaker 1: that sort of keeps for high yield market up. The
• 23:23
  Speaker 1: second point, which is more strange, is well, we're not
• 23:25
  Speaker 1: so strange, is that we had that volatility sell off
• 23:29
  Speaker 1: in February, but volatility is a way back down again.
• 23:32
  Speaker 1: I there is a key mathematical relationship, of course, which
• 23:35
  Speaker 1: every quant will tell you between rising volatility and the
• 23:38
  Speaker 1: price of hw yuel bonds, so that that's an accident
• 23:42
  Speaker 1: waiting to happen at some point in the future, but
• 23:44
  Speaker 1: it's not happened yet. So I think for key pressures
• 23:46
  Speaker 1: have been on the emerging markets rather than on the
• 23:48
  Speaker 1: US hi yield credit market. So do you think that
• 23:50
  Speaker 1: people who are saying now is a time to pick
• 23:52
  Speaker 1: up extra yield go into emerging markets are fooling themselves
• 23:55
  Speaker 1: and that there's more pain ahead. Absolutely, I think the
• 23:58
  Speaker 1: emerging markets situation is the center of the asset price
• 24:03
  Speaker 1: deflation when it comes, and it almost certainly will go further.
• 24:07
  Speaker 1: The question is how much contagion is going to be
• 24:09
  Speaker 1: onto other asset inflated markets. Give you about thirty seconds.
• 24:13
  Speaker 1: Trade wars and currency wars. Haven't heard much about currency wars,
• 24:17
  Speaker 1: have we, Which is sort of a big puzzle, because
• 24:20
  Speaker 1: if you were advising President Trump, you would think a
• 24:23
  Speaker 1: big point would now be being made about the manipulation
• 24:26
  Speaker 1: of currencies by Germany and Japan. After all, Japan sticking
• 24:30
  Speaker 1: long term interest rated zero with the economy at overheating,
• 24:34
  Speaker 1: and Germany and easy b chief Draggy, who's fully backed
• 24:39
  Speaker 1: by Bundas Bank and Chancellor Merkel keeping rates negative for
• 24:43
  Speaker 1: another eighteen months despite the German economy and boom. What
• 24:45
  Speaker 1: greater currency manipulation can you have? So it's very strange,
• 24:49
  Speaker 1: but this hasn't really a focal point of US trade negotiations.
• 24:52
  Speaker 1: Thank you very much. Dr Brendan Brown is the chief
• 24:54
  Speaker 1: economist and head of economic research for Mitsubishi u f
• 24:59
  Speaker 1: J Securities, also the author of the Global Monetary Plague,
• 25:03
  Speaker 1: Asset price Inflation, and Federal Reserve Quantitative Easing. Thanks for
• 25:11
  Speaker 1: listening to the Bloomberg p and L podcast. You can
• 25:14
  Speaker 1: subscribe and listen to interviews at Apple Podcasts, SoundCloud, or
• 25:18
  Speaker 1: whatever podcast platform you prefer. I'm pim Fox. I'm on
• 25:21
  Speaker 1: Twitter at pim Fox. I'm on Twitter at Lisa Abramo.
• 25:25
  Speaker 1: It's one before the podcast. You can always catch us
• 25:28
  Speaker 1: worldwide on Bloomberg Radio