Latest / Bloomberg Intelligence / Danger Is Building In Some Emerging Markets: Bill Rhodes

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Danger Is Building In Some Emerging Markets: Bill Rhodes · Bloomberg Intelligence

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  Speaker 1: Welcome to the Bloomberg p m L Podcast. I'm pim Fox.
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  Speaker 1: Along with my co host Lisa Bramowitz. Each day we
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  Speaker 1: or the trading floor. Find the Bloomberg p m L
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  Speaker 1: Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot com. US
• 0:32
  Speaker 1: equities are heading deeper into the red, with the down
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  Speaker 1: Jones Industrial Index down eight tenths of one percent after
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  Speaker 1: President Trump said that he was calling off his summit
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  Speaker 1: with North Korean leader Kim Jong un. Here to talk
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  Speaker 1: about the implications of this is the Banker to the World.
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  Speaker 1: He should know about what to expect from this, as
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  Speaker 1: he has been in a lot of these types of negotiations.
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  Speaker 1: Bill Rhodes. He is the President, chief executive officer of
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  Speaker 1: William Rhodes Global Eiser is also the author of the
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  Speaker 1: book Banker to the World Leadership Lessons from the front
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  Speaker 1: Lines of Global Finance. Bill Uh, I gather you weren't
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  Speaker 1: all that surprised that these have become some complicated discussions
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  Speaker 1: between North Korea and UH the US, But what did
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  Speaker 1: you make of today's announcement. First of all, it's great
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  Speaker 1: to be with you guys. Again, I'm not surprised because
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  Speaker 1: I know Korea quite well. I restructured their dead I
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  Speaker 1: led to discussions on the chorus FDA, the Free trade
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  Speaker 1: Agreement UH. And the North always, whether it be the
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  Speaker 1: grandfather who started the dynasty, Kim Il Song or his
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  Speaker 1: son Kim Jong il has passed to this one, they
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  Speaker 1: always agree to do things on the nucle disarmament and
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  Speaker 1: then they back off on it as soon as they
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  Speaker 1: get the goodies from US. Uh, you know, in the
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  Speaker 1: sense of food, grain, whatever. And so UH I was
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  Speaker 1: highly skeptical from the beginning that he would be willing
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  Speaker 1: to give up the one thing he's got, which is
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  Speaker 1: you know, is nuclear weapon and missile capacity as a
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  Speaker 1: as a chip uh and agree to do a Libya
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  Speaker 1: type thing where you know, Cadafe gave up everything. The
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  Speaker 1: question is where do we go from here? And UH,
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  Speaker 1: we still have a big problem in Korea and what
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  Speaker 1: are we gonna do about it? Uh? And so I
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  Speaker 1: think what we have to do is lean on China
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  Speaker 1: because remember on your show, I mentioned again and again
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  Speaker 1: the linkage between China UH and Korea and I've done
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  Speaker 1: our eds on it because of their energy comes in
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  Speaker 1: from China. And so if we don't get the Chinese
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  Speaker 1: willing to do the sanctions, there's there's no push to
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  Speaker 1: go ahead with US. But the US has been pushing
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  Speaker 1: them to do this, and North Korea, as so far
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  Speaker 1: as I can tell, hasn't really gotten anything yet from
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  Speaker 1: the US, and China seems to be working and playing
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  Speaker 1: ball with the US on trade negotiations. What broke down here? Why? Now?
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  Speaker 1: I think a couple of things. One you saw over
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  Speaker 1: the last few weeks, Uh Kim Kim jong loons made
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  Speaker 1: to trips to China. The Chinese or orchestrating this to
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  Speaker 1: a great degree, and the Chinese are using this as
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  Speaker 1: a pawn, the chip in the negotiations on trade with
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  Speaker 1: the US. UH. And I think we've been a little
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  Speaker 1: naive in the administration thinking that we could get the
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  Speaker 1: boast the best out of both worlds because we're asking
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  Speaker 1: the Chinese to reverse their policy, longstanding policy of taking
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  Speaker 1: advantage when the be intellectual property on trade. UH. And
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  Speaker 1: then expect, uh, you know, as we begin to push
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  Speaker 1: him as we should push them, then expect that uh,
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  Speaker 1: we're gonna get Chi Jin pain to push Kim Jong
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  Speaker 1: un to do a deal with us, So you really
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  Speaker 1: can't break that link between the two. And I think
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  Speaker 1: that if that was a view of the administration, and
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  Speaker 1: some people think it was, it was naive. UH. The
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  Speaker 1: other thing is, I think when we deal with the Chinese,
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  Speaker 1: we need a common front. And all the stories you're
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  Speaker 1: picking up in Washington. You've got the minutein UH and
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  Speaker 1: the Larry Cudlow and discussions on one side wanting to,
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  Speaker 1: you know, be more favorable to China. And then you
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  Speaker 1: you've got Leightheiser, who is the trade represent representative, tough
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  Speaker 1: guy on trade UH and Peter Navarro who always had
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  Speaker 1: a problem with China on the other side, with Wilbur Ross,
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  Speaker 1: Commerce Secretary in the middle, and UH. What we've got
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  Speaker 1: to understand is that getting Kim Jong un to the
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  Speaker 1: table UH is important, but you've got to have some
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  Speaker 1: preconditions there on the basis of what is his view
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  Speaker 1: of denuclearization And from what I can pick up, his
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  Speaker 1: view is step by step, which is what the Chinese
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  Speaker 1: have been advocating for years with the Six Party talks,
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  Speaker 1: and we thought we would go in there. John Bolton
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  Speaker 1: was saying we're going to get a Kadafi type deal
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  Speaker 1: where he just gives it up UH for uh, you know,
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  Speaker 1: removal of sanctions. So I think we've got ourselves a
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  Speaker 1: difficult situation here, and with the trade with China is
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  Speaker 1: key noting to the Chinese economy, but to our economy
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  Speaker 1: and the world economy. So I hope the administration can
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  Speaker 1: get its act together on how they're gonna work on
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  Speaker 1: both sides here, because there is that linkage between China
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  Speaker 1: and North Korea and you can't doubt it. The other
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  Speaker 1: problem we have is you have a very nice person
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  Speaker 1: who's president of South Korea, but his one goal in
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  Speaker 1: life because I know him going back to when his
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  Speaker 1: chief of staff of a former president, President Noe, that
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  Speaker 1: his one goal in life is reconciliation with North Korea
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  Speaker 1: and UH, so he'll virtually do anything to get that reconciliation.
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  Speaker 1: So it's a very very difficult point where we're at.
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  Speaker 1: And since we're talking about trade, I should mention that
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  Speaker 1: one of the things that I think we need to
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  Speaker 1: really move on. I was with President uh Prime Minister
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  Speaker 1: Trudeau last week. I sat with him in the diets
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  Speaker 1: of the New York Economic Club and He was making
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  Speaker 1: the point that you know they'll be flexible in Canada,
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  Speaker 1: but also they got to be realistic. He says, they'll
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  Speaker 1: be patient, but uh, we need a deal on after.
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  Speaker 1: And one of the things it troubles me is at
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  Speaker 1: the elections in Mexico or coming up July one, and
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  Speaker 1: you have a candidate there who basically says, if this
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  Speaker 1: isn't done by the time he takes office in December,
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  Speaker 1: he's gonna want tougher conditions. The topics are a trade
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  Speaker 1: political instability not only in Asia but also closer to
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  Speaker 1: home between Mexico, Canada, the United States, ongoing renegotiations of NAFTA,
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  Speaker 1: as well as deterioration in the Turkish Lera. Here to
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  Speaker 1: help us understand more about this is Bill Rhodes. He
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  Speaker 1: is Banker to the World. His book is called Banker
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  Speaker 1: to the World Leadership Lessons from the front Lines of
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  Speaker 1: Global Finance. And Bill, I would just offer that your
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  Speaker 1: book not only is about what you have done in
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  Speaker 1: the world of finance, but whom you have met, the
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  Speaker 1: people that you have met and interacted with, And I
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  Speaker 1: think that that's a key element to bring out because
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  Speaker 1: most action is done by people it's not something that
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  Speaker 1: falls from the sky. And I'm wondering if you could
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  Speaker 1: just describe for us what you believe is the sort
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  Speaker 1: of issue when it relates to the Mexican economy and
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  Speaker 1: the upcoming Mexican presidential elections and the people involved. Well,
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  Speaker 1: this is a big election year for Latin America. We
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  Speaker 1: all we already had this the blackle down in Venezuela,
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  Speaker 1: where you know, a dishonest election where less than half
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  Speaker 1: the people even showed up to vote. We have Mexico,
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  Speaker 1: as you mentioned, we also have Columbia, and we have Brazil. UH.
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  Speaker 1: This is the biggest election year in recent history in
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  Speaker 1: Latin America. So what happens here is key as far
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  Speaker 1: as Mexico goes. Lopezo Brador, who's to the far left UH,
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  Speaker 1: is running ahead in the polls. UM. Now some of
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  Speaker 1: the candidates have have dropped out, and we'll have to
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  Speaker 1: see what finally happens. But the election is is basically
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  Speaker 1: almost a month away. It's it's July first, and he's
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  Speaker 1: made statements that on two areas, one that UH that
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  Speaker 1: he's going to look at the the oil contracts have
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  Speaker 1: been given out by the pinion Yet of government which
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  Speaker 1: has helped the Mexican economy grow, to see if they
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  Speaker 1: were done fairly or in a corrupt way, which is
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  Speaker 1: you know, concerned people. And then the other thing is, uh,
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  Speaker 1: since we don't seem to be able to reach an
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  Speaker 1: agreement with Pinioneto and Trudeau in Canada, Uh, what will
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  Speaker 1: happen with NAFTA and after's key to all three countries
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  Speaker 1: and not only economically but security was and so it's
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  Speaker 1: a very concerning situation. Uh. And uh, the Mexicans are concerned. Uh,
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  Speaker 1: we should be concerned here and I know the Canadians
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  Speaker 1: just having sat with with Prime Minister Trudeau uh on
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  Speaker 1: the diets when he spoke last week. And by the way,
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  Speaker 1: I think I was very much impressed because he says
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  Speaker 1: he'll be patient, uh to get this thing done because
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  Speaker 1: it's so important, but it's got to get done. So
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  Speaker 1: you know we're talking about Maxo. I want to I
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  Speaker 1: want to just shift in general to emerging markets. You
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  Speaker 1: mentioned Venezuela also clearly there in a crisis of humanitarian, political,
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  Speaker 1: and economic proportions. The Turkish lira, meanwhile, is continuing to
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  Speaker 1: fall out of bed, down about four percent today, even
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  Speaker 1: after the emergency rate hike yesterday by the Turkish Central Bank. UM.
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  Speaker 1: Given your experience with restructuring debt and helping Brazil during
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  Speaker 1: the the e M crisis in the late nineteen nineties
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  Speaker 1: and as vice chair of senior vice chair of City Group,
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  Speaker 1: you know how significant is this? Are we heading toward
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  Speaker 1: another emerging markets crisis of that magnitude? I think it's
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  Speaker 1: a very good Uh, it's a very good question. I
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  Speaker 1: was with Paul Krugman a week ago in Argentina at
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  Speaker 1: a conference and he and I were talking about it,
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  Speaker 1: and I noticed he's come out with tweets since Yes,
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  Speaker 1: he has said that it is. It's actually resonate. Resonates
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  Speaker 1: because he and I I on the private sector side,
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  Speaker 1: he in academia, were the two who called the Asian
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  Speaker 1: financial crisis UH, and mine came out in the Financial
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  Speaker 1: Times article. His came out with a paper or study.
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  Speaker 1: I would say there are similarities, but there are big differences.
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  Speaker 1: I think the similarities are as you get some of
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  Speaker 1: this UH liquidity what's been slashing around now to get
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  Speaker 1: us out of the Great recession. I've said this on
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  Speaker 1: your program before and Bloomberg Television. We're gonna see rates
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  Speaker 1: go up in the United States, which we are, the
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  Speaker 1: quantitative easing is being ratchant back and some of this
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  Speaker 1: search and reach for yield is is going to come
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  Speaker 1: back and hit us. And one of the groups that
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  Speaker 1: took advantage of this a number of countries in the
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  Speaker 1: emerging markets borrowed heavily in foreign currency, sometimes short term
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  Speaker 1: as in the case of Turkey, in the case of Argentina,
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  Speaker 1: longer term and UH. Those countries who have fiscal deficits
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  Speaker 1: UH and aren't prepared to face this I think could
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  Speaker 1: be in trouble, particularly if we see the FED continuing
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  Speaker 1: to raise interest rates, which I think they will UH,
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  Speaker 1: and the quantitative eas in going out. Just having come
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  Speaker 1: back from Argentina, President Macari was very much the darling
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  Speaker 1: of the markets. But he has a program called Gradualismo,
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  Speaker 1: which is gradual reform. And the problem is when you
• 11:21
  Speaker 1: get into difficult situations, you can't be gradually about it.
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  Speaker 1: You've got to be more upfront. And I think he
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  Speaker 1: did the proper thing, although it was tough for him
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  Speaker 1: to do, to call in the I m F to
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  Speaker 1: get some support so he can implement the rest of
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  Speaker 1: the reforms. So Argentina was the one over the last
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  Speaker 1: few weeks where interest rates went up to they raised
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  Speaker 1: them three times. UH. The I m F and we
• 11:43
  Speaker 1: came one week, which caught the imagination. But Turkey, and
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  Speaker 1: something I said twice on Bloomberg Television over the last
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  Speaker 1: three months, Turkey has been hanging out there because their
• 11:53
  Speaker 1: heavy borrow is a private sector short term and they
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  Speaker 1: haven't moved interest rates up fast enough, and so you
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  Speaker 1: have tremendous pressure on the Turkish lira. UH. And Urvan
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  Speaker 1: keeps telling the central bank not to raise interest rates
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  Speaker 1: because his view of the of the of of of
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  Speaker 1: economics is that central bank should have low interest rates
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  Speaker 1: and then you won't have any inflation. Well, unfortunately, I
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  Speaker 1: don't think Devon ever took a course in economics. But
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  Speaker 1: that's another situation. And so I think that what you
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  Speaker 1: have here is you have the possibility of those countries
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  Speaker 1: UH that could have problems. And the other element to
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  Speaker 1: throw in this is that if the price of oil
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  Speaker 1: sticks in between seventy and eighty, that'll be big for
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  Speaker 1: the oil exporters, except as well where the production has collapsed,
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  Speaker 1: which I forecast in my early eighteen January oh ed.
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  Speaker 1: But I think that what will happen is those countries
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  Speaker 1: who are importers are going to be hit. So that's
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  Speaker 1: kind of a triple whammy. So we just have about
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  Speaker 1: forty five seconds here. Who is the next shooter drop
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  Speaker 1: which nation in developing markets? Not clear because it's going
• 13:03
  Speaker 1: to depend. Also if you have an ease up in
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  Speaker 1: uh by Opec uh and the Russians are talking about
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  Speaker 1: maybe easing up somewhat to keep the price from going
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  Speaker 1: too high in the South East. Han agreed. So it's
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  Speaker 1: it's not clear. But just in general, a lot of
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  Speaker 1: the African countries have barred very heavily in foreign currency,
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  Speaker 1: and I think that uh a number of them are
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  Speaker 1: oil importers, so they could have they could have problems.
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  Speaker 1: So we have to see how this, you know, this
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  Speaker 1: uncertainty uh that we're facing unfolds, but it's something that
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  Speaker 1: needs to be watched without a doubt. And uh, you know,
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  Speaker 1: I see people on on TV and radio and everything saying, oh,
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  Speaker 1: this is not going to be a problem. I think
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  Speaker 1: it could be a problem. It depends on how every
• 13:51
  Speaker 1: individual country handles. But if you told anyone even at
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  Speaker 1: the beginning of this year that Argentina would be asking
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  Speaker 1: for a standby line, they'd have laughed at you because
• 14:02
  Speaker 1: they have just bought those hundred year bonds and they Yeah.
• 14:04
  Speaker 1: Bill Rhodes unfortunately have to live it there. You could
• 14:06
  Speaker 1: continue for another hour. Bill Rhodes, President, chief executive officer
• 14:09
  Speaker 1: of William R. Rhodes Global Advisors, author of Banker to
• 14:13
  Speaker 1: the World, also former Seatre, Vice chair of City Group,
• 14:17
  Speaker 1: has been in all of these negotiations. A wonderful voice
• 14:20
  Speaker 1: on this day. This is Bloomberg. Shares of General Motors
• 14:37
  Speaker 1: higher today as well as Ford Motor. General Motors up
• 14:40
  Speaker 1: about seven tenths of a percent. Forward Motor up nearly
• 14:43
  Speaker 1: one percent. This comes after the Trump administration is trying
• 14:46
  Speaker 1: to use national security laws to consider imposing new tariffs
• 14:51
  Speaker 1: on vehicle and automobile parts imports. Here to tell us
• 14:55
  Speaker 1: more about this is Alan Boum. He is principal of
• 14:58
  Speaker 1: Boum and Associates and based in West Bloomfield, Michigan, and
• 15:02
  Speaker 1: he joins us now. Alan, thank you very much for
• 15:04
  Speaker 1: being with us. If these tariffs of as much as
• 15:10
  Speaker 1: on automobile imports, where do you put in place? What
• 15:13
  Speaker 1: would that do to US automobile manufacturers? Oh? Chaos, because
• 15:19
  Speaker 1: us automobile manufacturers is obviously a broad term, UM. And
• 15:24
  Speaker 1: you know, let's take the clock back to the nineteen
• 15:26
  Speaker 1: eighties when the Japanese were importing huge amounts of products
• 15:31
  Speaker 1: into the US, and we had voluntary agreements which in
• 15:35
  Speaker 1: fact worked far better than even the people at the
• 15:40
  Speaker 1: time thought. And what I mean by that is Toyota
• 15:43
  Speaker 1: and Nissan and Honda to start and others later established
• 15:47
  Speaker 1: production here in the US, and that it matters where
• 15:51
  Speaker 1: the vehicles come from, because if you're producing here in
• 15:54
  Speaker 1: the US, your supply is obviously much better than when
• 15:58
  Speaker 1: you're trying to get products from Japan, where a lot
• 16:01
  Speaker 1: of other markets might be trying to do it. And
• 16:04
  Speaker 1: so the result was, UM that the Japanese UH had
• 16:08
  Speaker 1: tremendous products, they were very efficient, and UH really presented
• 16:14
  Speaker 1: presented huge problems for the Detroit Three. So, Allen, I'm
• 16:21
  Speaker 1: just wondering, I'm sure after the reports have come out now, UH,
• 16:26
  Speaker 1: that there will be a host of lobbyists that will
• 16:27
  Speaker 1: head to President Trump's office and try to convince him
• 16:30
  Speaker 1: to either go through with the tariffs or to abandon
• 16:33
  Speaker 1: them all together. So I'm wondering General Motors and Ford,
• 16:37
  Speaker 1: for example, are they going to be for these or
• 16:40
  Speaker 1: against these? Well, obviously it depends upon uh, you know,
• 16:44
  Speaker 1: how they're put together. Uh. Just how Canada and Mexico
• 16:48
  Speaker 1: fit into all this. Um Ford, for example, brings in,
• 16:53
  Speaker 1: uh the Eco Sport from Turkey. Uh. They're talking about
• 16:56
  Speaker 1: bringing in the Focus, which is now no longer produced
• 17:00
  Speaker 1: in Michigan from China. Um and GM brings in the
• 17:04
  Speaker 1: Envision from China as well. UM. So all automakers are
• 17:10
  Speaker 1: global um and there it's not just their assembly footprint
• 17:15
  Speaker 1: but their supplier footprint. And this could be very destructive
• 17:20
  Speaker 1: to their relationships with their suppliers who are used to
• 17:24
  Speaker 1: a certain process. And that could mean higher prices for
• 17:28
  Speaker 1: the automakers to buy from the suppliers, and obviously that
• 17:32
  Speaker 1: gets backed on. So alan who is actually arguing for
• 17:36
  Speaker 1: these I mean, who's lobbying President Trump saying this is
• 17:39
  Speaker 1: a fantastic idea. Uh that's interesting question because I think
• 17:45
  Speaker 1: it's much more from the political side than it is
• 17:48
  Speaker 1: the business side. Uh. You know, this is obviously some
• 17:52
  Speaker 1: of the UH labor organizations might be comfortable with this,
• 17:57
  Speaker 1: but I say might because of the the unintended consequences,
• 18:02
  Speaker 1: and of course the other thing. Using this national security
• 18:06
  Speaker 1: law as part of the justification creates a whole lot
• 18:10
  Speaker 1: of problems in terms of legal and trade policy. And
• 18:14
  Speaker 1: of course this is a cliche, but it's true. Business
• 18:19
  Speaker 1: hates uncertainty, and this is clearly uncertain Alan. Is it
• 18:24
  Speaker 1: possible that this is also somehow entwined in the ongoing
• 18:28
  Speaker 1: NAFTA negotiations? Oh sure, and uh, you know that is
• 18:33
  Speaker 1: uh for all of the automakers. That's a critical thing.
• 18:38
  Speaker 1: You know. I was reading something this morning, uh, and
• 18:40
  Speaker 1: it said that eight million vehicles are are imported into
• 18:44
  Speaker 1: the US. And I looked at that and said, oh,
• 18:47
  Speaker 1: that's crazy. And then I realized that they were talking
• 18:50
  Speaker 1: about Canada and Mexico, which were half of that. Um.
• 18:54
  Speaker 1: And you know, we don't even think of those as imports.
• 18:57
  Speaker 1: NAFTA is obviously a fact of life. UM. And so yes,
• 19:01
  Speaker 1: there are four million imports from outside DAFTA. But clearly
• 19:06
  Speaker 1: the NAFTA processes is absolutely critical to the industry. And
• 19:10
  Speaker 1: again I go back to the supplier base where uh,
• 19:13
  Speaker 1: you know, the automakers have said, if you want to
• 19:16
  Speaker 1: supply US, we want the Mexico price or the China price,
• 19:20
  Speaker 1: and oftentimes that is meant suppliers have opened up new
• 19:24
  Speaker 1: plans in low cost UH locations. So, Ellen, when you
• 19:29
  Speaker 1: head into Detroit and meet with people at the big
• 19:32
  Speaker 1: US carmakers, is the feeling that this will all just
• 19:35
  Speaker 1: settle down and that it's mostly just a trade negotiation
• 19:39
  Speaker 1: tactic or is there real fear? Well, the you know,
• 19:44
  Speaker 1: there's so much uncertainty day to day in what the
• 19:47
  Speaker 1: policy is. And I go back to Mike Cliche, I mean,
• 19:51
  Speaker 1: look at the fuel economy is situation. The automakers want
• 19:55
  Speaker 1: some relief, but they didn't want relief that would get
• 20:00
  Speaker 1: the hornets going in in California to get legislaed, to
• 20:04
  Speaker 1: get the lawsuits going, and more uncertainty. And so now
• 20:08
  Speaker 1: they're saying, wait a minute, we really mean that we
• 20:12
  Speaker 1: just wanted a little little things on the edges here.
• 20:15
  Speaker 1: Please don't don't don't draw the whole system into the
• 20:19
  Speaker 1: correct Alan, and that's that's where we are Allan, thank
• 20:23
  Speaker 1: you so much for joining us. It's always fun having
• 20:25
  Speaker 1: you on. Alan Baum is the principle of Baum and Associates,
• 20:30
  Speaker 1: which is based in West Bloomfield, Michigan. Uh and is
• 20:33
  Speaker 1: a firm that's focused on automotive research for the analysis
• 20:37
  Speaker 1: of auto sales. Really interesting discussion and definitely uncertainty the
• 20:43
  Speaker 1: word of the day and the year, maybe the decade.
• 21:04
  Speaker 1: Donald Trump. President Donald Trump is set to as sign
• 21:08
  Speaker 1: a revamp of Dodd Frank financial legislation. He has expected
• 21:13
  Speaker 1: to sign that at the White House. We will of
• 21:15
  Speaker 1: course bring that to live. Uh. The final vote in
• 21:18
  Speaker 1: the House it was to fifty eight to one fifty
• 21:22
  Speaker 1: nine in favor. It was a bipartisan Senate crafted bill
• 21:26
  Speaker 1: and is designed to loosen regulations for many community banks
• 21:30
  Speaker 1: and regional lenders, including custodian banks such as a State Street.
• 21:34
  Speaker 1: Here to tell us more about this is our own
• 21:37
  Speaker 1: Arnold Cucuda. He is our banking and credit analyst for
• 21:40
  Speaker 1: Bloomberg Intelligence. Arnold, thank you very much for being here.
• 21:45
  Speaker 1: Maybe just tell people a little bit about I believe
• 21:46
  Speaker 1: there's sort of three areas that this is really going
• 21:50
  Speaker 1: to effect. Yes, so this bill is actually it's it's
• 21:53
  Speaker 1: more about helping the regional banks. So anybody really under
• 21:56
  Speaker 1: two billion of assets? Right, So basically the systemically important
• 22:00
  Speaker 1: financial institution threshold, which used to be a fifty billion,
• 22:04
  Speaker 1: is now going up. So what up to Basically what
• 22:08
  Speaker 1: that means is less regulation for those banks that fall
• 22:11
  Speaker 1: between this. Now for some of the bigger banks, like uh,
• 22:15
  Speaker 1: you know, I look more at them, the US systemically
• 22:18
  Speaker 1: important banks. So in that area State Street and Bank
• 22:23
  Speaker 1: in New York, they're going to get some capital relief
• 22:26
  Speaker 1: in terms of um, you know, not counting Central bank
• 22:29
  Speaker 1: deposits at at the FED and the e c B
• 22:32
  Speaker 1: from their denominator of of a ratio, which basically it
• 22:34
  Speaker 1: will help boost that ratio for those banks. So definitely
• 22:40
  Speaker 1: helped to some regional banks. And people have been saying
• 22:42
  Speaker 1: that we might see a consolidation in smaller banks as
• 22:45
  Speaker 1: a result of this. I want to shift gears a
• 22:47
  Speaker 1: little bit because we are seeing uh the shareholder meeting
• 22:50
  Speaker 1: of Deutsche Bank unfold and it shares down nearly five
• 22:54
  Speaker 1: percent in Germany. Uh, you know right now after announcing
• 22:58
  Speaker 1: that it would uh cut more than seven thousand people.
• 23:02
  Speaker 1: I think one big question is what's its plan? I mean,
• 23:05
  Speaker 1: what's its strategy? What does it want to be? Yes,
• 23:07
  Speaker 1: we know it wants to cut costs. What next? Well,
• 23:10
  Speaker 1: so it's it's funny because it was supposed to be
• 23:13
  Speaker 1: no more, no more crying, you know, faith and Christian.
• 23:16
  Speaker 1: But you know, I guess. You know, even though investors
• 23:19
  Speaker 1: got what they wanted, Uh, still you know, do what
• 23:21
  Speaker 1: do what they say? Still don't like it. So uh
• 23:24
  Speaker 1: the strategy is UM. You know, today was kind of
• 23:26
  Speaker 1: a reiteration and kind of filling in the blanks of hey,
• 23:29
  Speaker 1: you know, the new CEO came on board and said, hey,
• 23:31
  Speaker 1: we're gonna shift focus, you know, cut um our reliance
• 23:34
  Speaker 1: on the corporate investment bank. But it's it's only just
• 23:37
  Speaker 1: a little bit, right, so they're currently seen they had
• 23:40
  Speaker 1: about fifty percent revenue coming from the corporate investment bank.
• 23:44
  Speaker 1: That will be you know, uh sorry, uh they sent
• 23:47
  Speaker 1: from non c IB that'll go to So it's really
• 23:50
  Speaker 1: only your small shift. And in terms of the cuts
• 23:53
  Speaker 1: coming in equities of head count there that you know,
• 23:57
  Speaker 1: it kind of makes sense there because you know that's
• 23:59
  Speaker 1: an area that they've act UM technology UM. I guess
• 24:03
  Speaker 1: investments were lagging there UM And I think that carries
• 24:06
  Speaker 1: over into the whole firm where you're seeing leaks of
• 24:08
  Speaker 1: oh they had you know, posting collateral of of a couple,
• 24:11
  Speaker 1: you know, dozen billions and stuff. While you know these
• 24:14
  Speaker 1: for huge mistakes, they accidentally transferred millions in some cases
• 24:18
  Speaker 1: billions of dollars to other places mistakenly and had to
• 24:22
  Speaker 1: you know, beg for it back. I mean they say
• 24:24
  Speaker 1: they caught it in a few minutes. But you know,
• 24:25
  Speaker 1: just this kind of stuff happening is a little bit baffling,
• 24:29
  Speaker 1: to be honest. So, um, you know, it just goes
• 24:32
  Speaker 1: underscore kind of the the investment in technology that has
• 24:35
  Speaker 1: been lacking. And you know, even as they're cutting back,
• 24:38
  Speaker 1: they still need to do this kind of stuff. Right,
• 24:40
  Speaker 1: So even though maybe in cash equities where it makes
• 24:43
  Speaker 1: sense to pull back, you know, in other areas of
• 24:45
  Speaker 1: the firms, they still need to continue this um technology
• 24:47
  Speaker 1: investment just to keep up and comply with regulation. Right.
• 24:50
  Speaker 1: So arnold, what kind of bank would Deutsche Bank b
• 24:53
  Speaker 1: after they eliminate these seven thousand positions? Well, I mean,
• 24:58
  Speaker 1: so the thing is there there there ski ailing back
• 25:00
  Speaker 1: to not be global everywhere, but they're still going to
• 25:03
  Speaker 1: have a big presence. So it's kind of like, you know,
• 25:05
  Speaker 1: they're trying to show, hey, we're doing something, but you
• 25:07
  Speaker 1: know it's the sum. It may feel like it's not enough,
• 25:10
  Speaker 1: and and I guess you know, you see that today
• 25:12
  Speaker 1: where the stock is down almost six percent, and um,
• 25:15
  Speaker 1: you know, so so they are saying, hey, we are
• 25:17
  Speaker 1: cutting back, but you know what, are they doing this
• 25:20
  Speaker 1: for the shareholders or are they doing this because they
• 25:23
  Speaker 1: have an internal vision of what they really believe Deutsche
• 25:26
  Speaker 1: Bank can be in the next three to five years. Uh. Yeah,
• 25:30
  Speaker 1: so they have to do this in terms of Um,
• 25:33
  Speaker 1: the problem with Crying, they said, is, hey, there was
• 25:36
  Speaker 1: a vision John cry In, the former chief executive. He's
• 25:38
  Speaker 1: replaced by Christian Saving. Correct, Yes, so, um, the problem
• 25:42
  Speaker 1: with him is okay, fine, he set us on a course,
• 25:45
  Speaker 1: but he didn't execute in terms of the cost implementation
• 25:49
  Speaker 1: and things weren't going fast enough. So um, you know,
• 25:52
  Speaker 1: going with an insider Christian Saving in this case, Um,
• 25:56
  Speaker 1: kind of, it's really a continuation of the strategy almost,
• 25:59
  Speaker 1: although it's put more hard numbers and you know, so
• 26:02
  Speaker 1: so for him to execute, he has to come in
• 26:04
  Speaker 1: at this you know, billion of costs for this year,
• 26:07
  Speaker 1: twenty two billion next year. But it's it's only you know,
• 26:10
  Speaker 1: maybe going down to twenty one billion one. But in
• 26:13
  Speaker 1: terms of what is your profitability at that standpoint? And
• 26:17
  Speaker 1: then the whole issue is, uh, for Deutsche Bank, they
• 26:20
  Speaker 1: don't have like a great thing outside of the corporate
• 26:24
  Speaker 1: investment bank asset management. Yes, good, but it's very small.
• 26:27
  Speaker 1: They the i P at a quarter of it um.
• 26:29
  Speaker 1: But you know, unlike like a UBS or a Credit
• 26:32
  Speaker 1: Swiss which said all right, we're gonna scale back the
• 26:34
  Speaker 1: investment bank trading. Oh wow, this we have this great
• 26:37
  Speaker 1: wealth management business, highly profitable and uh you know, steady
• 26:40
  Speaker 1: business for Deutsche Bank where you have his core Germany,
• 26:44
  Speaker 1: and the returns they're are very meager, right, and so
• 26:46
  Speaker 1: and they're kind of more going into there with you know,
• 26:49
  Speaker 1: they they had the strategy reversal of Okay, initially they
• 26:53
  Speaker 1: wanted to sell post Bank. Now they're they said they're
• 26:56
  Speaker 1: gonna keep it and now they've more integrated it with
• 26:59
  Speaker 1: their with their core Blue bank in Germany. So but
• 27:02
  Speaker 1: but they are making progress, they're right. So they are
• 27:04
  Speaker 1: making progress there, and so you know, they expect going
• 27:07
  Speaker 1: forward that they'll have some expense savings down the line
• 27:10
  Speaker 1: um and and in terms of kind of adding to
• 27:13
  Speaker 1: the pool of profitability, they can add the post bank
• 27:15
  Speaker 1: um profitability to to help pay for their um you know,
• 27:19
  Speaker 1: additional two of one coupons. They're they're a T one cocos. Yeah,
• 27:22
  Speaker 1: talking about their cocos I'm looking right now at their
• 27:25
  Speaker 1: six perpetual bonds. Uh that mature well, their perpetuals uh.
• 27:31
  Speaker 1: And I remember people were watching these back in early
• 27:35
  Speaker 1: they tanked unconcerns that Deutsche Bank would have to raise
• 27:39
  Speaker 1: more capital and these could potentially be wiped out. They
• 27:42
  Speaker 1: since recover their value, but they've been declining, and I'm
• 27:45
  Speaker 1: wondering what this means. Does it mean that that investors
• 27:48
  Speaker 1: think that perhaps Deutsche Bank will be forced to raise
• 27:52
  Speaker 1: more capital again and that they will somehow be pressured
• 27:55
  Speaker 1: on that front. Well, there's definitely concern right. Um, you
• 27:59
  Speaker 1: know in the US marketing, I followed the seven and
• 28:01
  Speaker 1: halfs and stuff, but the dB seven and a halfs
• 28:04
  Speaker 1: and basically that that's down ten points on the year,
• 28:07
  Speaker 1: right and peeking out about a hundred and seven. Now
• 28:10
  Speaker 1: it's about nineties seven. So it's kind of steady decline
• 28:13
  Speaker 1: and you know one, yeah, but I mean still training
• 28:15
  Speaker 1: about parts. It's not like okay, hey, you know there anytime.
• 28:19
  Speaker 1: It's not gonna go bust any time, but you know
• 28:21
  Speaker 1: when at your annual showhold meeting where you're like where
• 28:24
  Speaker 1: the CEO is like we intend to pay the coupon,
• 28:27
  Speaker 1: I mean that's not a great scene. That's the big
• 28:30
  Speaker 1: news is that we're gonna remain current on our debt. Yes,
• 28:34
  Speaker 1: so um, but but but the concern is, hey, if
• 28:37
  Speaker 1: you have a bank that you know, the past three
• 28:39
  Speaker 1: years you had negative earnings, right, and so basically you're
• 28:43
  Speaker 1: in search of profit and so the pool to pay
• 28:46
  Speaker 1: these profits, you know, unless your firm is profitable, you're
• 28:50
  Speaker 1: not adding to that, right. So there definitely is concerned
• 28:52
  Speaker 1: that hey, maybe you know there there might you know,
• 28:55
  Speaker 1: the firm might have to kind of um stop paying coupons, right,
• 28:58
  Speaker 1: And so there's Ligalymking certain So in terms of where
• 29:01
  Speaker 1: their capital is right now, um, they're about a hundred
• 29:03
  Speaker 1: and fifty basis points above kind of where they need
• 29:06
  Speaker 1: to be. So capital looks okay, but but you remember,
• 29:10
  Speaker 1: you know last year they did an a billion capital
• 29:12
  Speaker 1: rays right, And so Deutsch has a history of setting
• 29:15
  Speaker 1: targets kind of falling short and then saying we don't
• 29:18
  Speaker 1: need capital. Oh huge capital rays right. So you can't
• 29:21
  Speaker 1: have this cycle repeating. And I think that's why you
• 29:24
  Speaker 1: have this new Seeo in place and hopefully he can
• 29:26
  Speaker 1: you know, turn their ship around. But even even the
• 29:28
  Speaker 1: target that you're spying to is not not all that
• 29:31
  Speaker 1: all in swaring and I think you know the six
• 29:34
  Speaker 1: percent stock down today, the reaction to that is, you
• 29:37
  Speaker 1: know it's not an on spine target, but can you
• 29:39
  Speaker 1: even get there? Right? That's I think the issue are
• 29:41
  Speaker 1: not just just a one last thing on on Deutsche Bank.
• 29:44
  Speaker 1: I'm looking at various league tagles, whether it's US investment
• 29:47
  Speaker 1: grade corporates, are high yield or even European bonds, loans,
• 29:53
  Speaker 1: equity or offerings and so on. They're not in the top.
• 29:56
  Speaker 1: They're not number one in anything. Well, I mean fixing
• 30:00
  Speaker 1: come is where they're strong at right and uh, but
• 30:03
  Speaker 1: you know they have lost talent over the years. Um.
• 30:07
  Speaker 1: I guess looking back you can say, hey, you know,
• 30:09
  Speaker 1: they had a lot of really good entrepreneurial uh folks
• 30:12
  Speaker 1: you know who are able to find, you know, ways
• 30:15
  Speaker 1: to make money, but you know at what cost? Right,
• 30:17
  Speaker 1: And I think that's what they're paying for right now,
• 30:19
  Speaker 1: is Hey, you know, maybe sometimes the right compliance was
• 30:22
  Speaker 1: in place, or or sometimes they you know, they kind
• 30:25
  Speaker 1: of bordered on the close of the edge and so
• 30:27
  Speaker 1: but you know, fixed income is still an area that
• 30:29
  Speaker 1: they're strong and although you know kind of they didn't
• 30:32
  Speaker 1: announced they're going to pull back in the US rates,
• 30:35
  Speaker 1: but some you know in the credit you know that's
• 30:37
  Speaker 1: that's a strong area structured credit that that's what they're gonna,
• 30:39
  Speaker 1: you know, still keep and they say they still are
• 30:42
  Speaker 1: going to maintain a global presence. So thank you so
• 30:45
  Speaker 1: much for being with us. An important story. We will
• 30:47
  Speaker 1: continue to follow it. Arnold Kukuda is a banking and
• 30:50
  Speaker 1: credit analyst for Bloomberg Intelligence, talking Deutsche Bank on this
• 30:54
  Speaker 1: day when they do have their annual shareholder meeting. What
• 31:10
  Speaker 1: we also are waiting for from the White House and
• 31:13
  Speaker 1: from Congress is some kind of infrastructure bill, which we
• 31:16
  Speaker 1: had been talking about and then it kind of died
• 31:19
  Speaker 1: down as we talked about everything else. Joining us now
• 31:21
  Speaker 1: is someone who knows a lot about the needs of
• 31:24
  Speaker 1: the U s infrastructure, Gary Nomic. He has a vice
• 31:27
  Speaker 1: president of Engineering and American Water based in where he's
• 31:30
  Speaker 1: at New Jersey. Gary, thank you so much for being
• 31:33
  Speaker 1: with us. You know, we've heard not that much about
• 31:37
  Speaker 1: the infrastructure plan that we have in this country. Do
• 31:39
  Speaker 1: you have a better sense of what's happening and what
• 31:42
  Speaker 1: needs to get done? When we talk about the aging
• 31:45
  Speaker 1: infrastructure of the United States. At first, it's a pleasure
• 31:48
  Speaker 1: to be here, happy, happy to be with you. UM.
• 31:51
  Speaker 1: The infrastructure situation is one with a lot of needs
• 31:58
  Speaker 1: and a lot of support among the among the public,
• 32:00
  Speaker 1: and I think it's fair to say that UM, to
• 32:04
  Speaker 1: solve our problem, it's going to take a unified effort
• 32:07
  Speaker 1: not only from the federal government but also local funding
• 32:12
  Speaker 1: and private capital sources. The American Society of Civil Engineers
• 32:17
  Speaker 1: came out with their report and it rates our drinking
• 32:21
  Speaker 1: water UM infrastructure as a Grade D and so we
• 32:26
  Speaker 1: we have work to do now. I'll also say that,
• 32:30
  Speaker 1: to use a bad pun the glasses maybe half full,
• 32:33
  Speaker 1: is that we're blessed in the United States with plentiful
• 32:37
  Speaker 1: supply in many places and you can go UH many
• 32:40
  Speaker 1: places and not worry about the quality of the water
• 32:44
  Speaker 1: you drink. But our infrastructure is aging. We are facing
• 32:49
  Speaker 1: UM extreme weather events that our water systems need to
• 32:54
  Speaker 1: be resilient to. So so we have our challenges UH,
• 32:57
  Speaker 1: and it's going to take continued funding to to meet
• 33:00
  Speaker 1: the needy. Is the infrastructure that exists in the United
• 33:05
  Speaker 1: States ready to withstand an upcoming hurricane season? One of
• 33:10
  Speaker 1: the UH. One of the unique things about drinking water
• 33:14
  Speaker 1: is that it's so local. There are fifty thousand water
• 33:19
  Speaker 1: utilities across the country because water is so heavy to move.
• 33:23
  Speaker 1: It's not like electricity where you can send an electron
• 33:26
  Speaker 1: from Florida to Michigan. So it's all local, so fair
• 33:29
  Speaker 1: fair answer to that question is that many places are ready,
• 33:34
  Speaker 1: but there are there are probably towns that need to
• 33:38
  Speaker 1: do work to be ready for that. UM My company,
• 33:42
  Speaker 1: American Water, where we have a continuous UH investment program
• 33:47
  Speaker 1: capital investment. We're going to be investing over seven million,
• 33:51
  Speaker 1: seven billion dollars over the next five years for these
• 33:55
  Speaker 1: type of preparedness things, both the sustainability and the resiliency
• 33:59
  Speaker 1: of our assets. Gary, you also formerly worked at the
• 34:04
  Speaker 1: US Environmental Protection Agency, and putting money into the infrastructure
• 34:08
  Speaker 1: is one thing. Having oversight and making sure that the
• 34:12
  Speaker 1: regulations are such that people are ensured to get clean
• 34:15
  Speaker 1: water is another. I'm wondering do you feel like the
• 34:19
  Speaker 1: current e p A is doing what it needs to
• 34:21
  Speaker 1: be doing to make sure that Americans have clean drinking water? UM.
• 34:27
  Speaker 1: I think the the e p A, and speaking mainly
• 34:31
  Speaker 1: on the health protection side, UH, the e p A
• 34:36
  Speaker 1: I think has been UH proactive and and appropriate there
• 34:43
  Speaker 1: are There are ninety contaminants that are regulated, and there
• 34:48
  Speaker 1: are many others that they're giving health guidance. And for
• 34:51
  Speaker 1: utilities like ourselves, we take that guidance and we proactively
• 34:57
  Speaker 1: try to take measures that are protective of the of
• 34:59
  Speaker 1: the customers that we serve. Gary. Is there any estimate
• 35:03
  Speaker 1: as to how much needs to be spent in order
• 35:06
  Speaker 1: to secure the nation's infrastructure? Yes, UM, there have been
• 35:10
  Speaker 1: several studies. UM e p A has done, one of
• 35:14
  Speaker 1: the American Water Works Association, also the American Society's Civil
• 35:18
  Speaker 1: Engineers have come up with slightly different numbers, but they
• 35:21
  Speaker 1: all converge around a really really big number, somewhere around
• 35:26
  Speaker 1: a trillion dollars over the next twenty to twenty five years.
• 35:31
  Speaker 1: And the perception is that the amount of investment on
• 35:36
  Speaker 1: average in the US that's happening is probably about half
• 35:41
  Speaker 1: of what the long term sustainable target should be. So
• 35:46
  Speaker 1: there is what is called the infrastructured gap. So I'm
• 35:52
  Speaker 1: just wanting you You said earlier that water and sort
• 35:56
  Speaker 1: of whether there could be a disruption really is a
• 35:58
  Speaker 1: local issue, and I'm wondering and given the fact that
• 36:01
  Speaker 1: we have seen some climate disruptions and increase in the
• 36:04
  Speaker 1: amount of hurricanes, etcetera. I'm wondering whether there are certain
• 36:08
  Speaker 1: regions in the United States that you view as more
• 36:12
  Speaker 1: vulnerable to some sort of disruption in the face of
• 36:16
  Speaker 1: some storm or frankly just rising tides. There are certainly
• 36:21
  Speaker 1: areas like coastal cities that have the potential impact from
• 36:28
  Speaker 1: climate change in sea level rise. But our our company,
• 36:34
  Speaker 1: American Waterworks, serves over two hundred water systems all across
• 36:38
  Speaker 1: the country, so we see it all, and I think
• 36:41
  Speaker 1: just about everywhere there's something we need to be worried
• 36:44
  Speaker 1: about by. By its nature, water plants are near near rivers,
• 36:49
  Speaker 1: very awesome, subject to flooding, um or or droughts or
• 36:55
  Speaker 1: you know, wildfires out west. Well, to comfort you a
• 36:59
  Speaker 1: little bit again, because many utilities are doing the proactive investment.
• 37:04
  Speaker 1: Give you example, we have a treatment plan in central
• 37:07
  Speaker 1: New Jersey which was built in the fifties with a floodwall. However,
• 37:12
  Speaker 1: um the storms have been higher than they used to be,
• 37:15
  Speaker 1: and so we're investing thirty seven million dollars to raise
• 37:19
  Speaker 1: the floodwall above a level um the historic level to
• 37:23
  Speaker 1: protect it in the future. So it's really all about
• 37:26
  Speaker 1: this proactive investment UM by cities, by UH companies like
• 37:35
  Speaker 1: ours to be to be proactive on on many of
• 37:38
  Speaker 1: those needs. Carry would the creation of an infrastructure bank
• 37:42
  Speaker 1: at the federal level be useful to jump starting much
• 37:46
  Speaker 1: greater expenditure of money on the private side to help
• 37:51
  Speaker 1: infrastructure be improved. I think it can be. I think
• 37:54
  Speaker 1: it's in all of the above solution where UM federal
• 38:01
  Speaker 1: funds or and or things like UM loan guarantees by
• 38:07
  Speaker 1: the states and so forth, they can leverage that funding
• 38:10
  Speaker 1: to bring in higher amounts of investment. Is all. H
• 38:15
  Speaker 1: is all a positive step. The need is so big
• 38:17
  Speaker 1: that it's going to take an all of the above commitment.
• 38:22
  Speaker 1: Local communities are going to need to recognize the true
• 38:25
  Speaker 1: cost of the service and the true cost of of
• 38:29
  Speaker 1: investing in it, and the federal government can can, as
• 38:33
  Speaker 1: you said, help jump start that. All right, Since you're
• 38:35
  Speaker 1: an expert in water, I I need you to admit
• 38:38
  Speaker 1: something on public radio UM right now that anyone who
• 38:43
  Speaker 1: grew up in New York and has traveled to Florida
• 38:45
  Speaker 1: knows New York City has the best tasting water, doesn't it. UM.
• 38:49
  Speaker 1: I've been told that we have some places we might
• 38:53
  Speaker 1: give you, uh, we might give you a taste steff
• 38:56
  Speaker 1: to run for the money. Really where oh um, I'm
• 39:01
  Speaker 1: trying to think where we've won awards. I know we
• 39:04
  Speaker 1: every states generally have a best Tasting I think we
• 39:06
  Speaker 1: wore may have warn Yeah, yeah, we have the best
• 39:10
  Speaker 1: tasting awards. Um, all matter. I guess of Palette, New York, certainly,
• 39:16
  Speaker 1: uh certainly was strong because it was an upland source.
• 39:19
  Speaker 1: So uh, I guess a lot of people would uh
• 39:23
  Speaker 1: would support your conclusion. I think we're going to leave it.
• 39:26
  Speaker 1: They're very diplomatic. Well done. Gary now Mick is the
• 39:30
  Speaker 1: vice president of engineering for American Water and also a
• 39:35
  Speaker 1: pretty good water taster. I would imagine h absolutely has
• 39:39
  Speaker 1: the best aging water, I mean, compared to Florida. Certainly.
• 39:45
  Speaker 1: Thanks for listening to the Bloomberg P and L podcast.
• 39:48
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• 39:56
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• 40:00
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• 40:02
  Speaker 1: catch us worldwide on Bloomberg Radio.