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Markets Uncertain After Messy China-U.S. Deal Rollout · Bloomberg Intelligence

0:02
Speaker 1: Welcome to the Bloomberg Penl Podcast. I'm Paul swing you,
0:05
Speaker 1: along with my co host Lisa Brahma wits. Each day
0:07
Speaker 1: we bring you the most noteworthy and useful interviews for
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Speaker 1: you and your money, whether at the grocery store or
0:12
Speaker 1: the trading floor. Find a Bloomberg Penl podcast on Apple
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Speaker 1: podcast or wherever you listen to podcasts, as well as
0:17
Speaker 1: at Bloomberg dot com. So it is trade all the time.
0:21
Speaker 1: It has to do with China. The details that we
0:25
Speaker 1: know at this point the both sides seem to have
0:27
Speaker 1: agreed upon is a There does appear to be some
0:30
Speaker 1: text that has been agreed upon and be the December
0:33
Speaker 1: fifteen tariffs will not go into affect Chinese negotiators saying
0:37
Speaker 1: that US has agreed to roll back some of the
0:39
Speaker 1: existing tariffs. President Trump tweeting out uh that perhaps some
0:44
Speaker 1: of the levies will be reduced, but sort of unclear
0:47
Speaker 1: as to what that is. Joining us here in our
0:49
Speaker 1: interactive broker studios, Leland Miller, chief executive officer of China
0:53
Speaker 1: beige Book International, and we've been framing a lot of
0:56
Speaker 1: the trade negotiations in the light of who does does
1:00
Speaker 1: the trade war hurt more the US or China. Can
1:04
Speaker 1: you give us a sense of whether that is a
1:06
Speaker 1: legitimate frame to view the negotiations through that. Basically, China's
1:10
Speaker 1: hurting so much that they need to come to the table.
1:13
Speaker 1: It's a it's a good framework, but it's only one
1:16
Speaker 1: of the many frameworks. I mean, you also have to
1:18
Speaker 1: look at what President Trump feels as pressure as you approach.
1:22
Speaker 1: That's why we're doing a deal right now. So there's
1:25
Speaker 1: there's various pressures on the on the on the two sides,
1:27
Speaker 1: and you know, China is hurt more by tariffs and
1:30
Speaker 1: in the US does have more leverage, but President Trump
1:33
Speaker 1: has more time sensitive pressure right now. So there's, uh,
1:37
Speaker 1: there's a lot going on, and I think both sides
1:39
Speaker 1: have been pushing towards a deal. And this is where
1:42
Speaker 1: we start. When you talk about China saying that they
1:45
Speaker 1: are going to roll back some of their tariffs in
1:49
Speaker 1: tandem with the US doing the same, how big of
1:52
Speaker 1: a victory is that? I mean, can you give us
1:53
Speaker 1: a sense of what kind of tariffs China does put
1:56
Speaker 1: on US imports and imports from other nations. Well, the
2:00
Speaker 1: problem at the very beginning for the Chinese is that
2:02
Speaker 1: they didn't have a reciprocal amount even close to be
2:05
Speaker 1: able to put tariff for tariff on US goods, so
2:08
Speaker 1: they applied UH tariffs. But these were never particularly damaging.
2:14
Speaker 1: The companies they hurt the most were ones that we're
2:16
Speaker 1: sort of facing it form both directions. They were paying
2:18
Speaker 1: China tariffs and they were paying US tariffs. They're sort
2:20
Speaker 1: of caught in the middle. So this is the pullback
2:23
Speaker 1: on the Chinese side is important in that it's another
2:28
Speaker 1: element of the escalation, but it's it's not the headline here.
2:30
Speaker 1: The headline is certainly what the Chinese are getting on
2:33
Speaker 1: teriff roll back and what the or reduction and what
2:36
Speaker 1: the US is getting in terms of reforms outside of purchases,
2:40
Speaker 1: which is which is the real big question right now? Well,
2:42
Speaker 1: and have we gotten any kind of detail on that whatsoever? No,
2:46
Speaker 1: And I think that's one of the reasons that this
2:48
Speaker 1: thing has been in flux all day long. What was
2:51
Speaker 1: being announced yesterday, Uh, it was interesting. Almost every news
2:55
Speaker 1: source had a different twist on what we're supposedly coming out,
2:57
Speaker 1: and but everybody had this gigantic, some level of gigantic
3:01
Speaker 1: deal with huge rollbacks and and this is very interesting
3:04
Speaker 1: from our perspective because very recently, even I mean this
3:07
Speaker 1: past week, there was still a lot of internal discussion
3:10
Speaker 1: amongst the you know, the administration's team on whether the
3:13
Speaker 1: best method to move forward was rate reductions or rollbacks,
3:17
Speaker 1: and so there there didn't see to be an agreement.
3:20
Speaker 1: Yet what we're seeing come into play right now is
3:22
Speaker 1: it looks like neither one out. They're both part of
3:25
Speaker 1: the solution, and you're gonna see a tariff rate reduction
3:27
Speaker 1: at first, and then you're going to probably see I
3:30
Speaker 1: think this is what's what's next. You're gonna be seeing
3:33
Speaker 1: at some of these other tariffs rolled back as the
3:36
Speaker 1: Chinese deliver on their purchase agreement. So this is sort
3:39
Speaker 1: of a combo deal that's that's being put in there
3:42
Speaker 1: so that the US maintains a little bit more leverage.
3:44
Speaker 1: Do we have a sense of whether the Phase two
3:46
Speaker 1: negotiations are baked into this Phase one deal? In other words,
3:50
Speaker 1: of time frame, what the issues are going to be
3:53
Speaker 1: something to get uh, you know a little bit more
3:56
Speaker 1: into the public domain. So so what I've been saying
3:59
Speaker 1: for several months now is that there there's not going
4:01
Speaker 1: to be a Phase two or a Phase three um
4:03
Speaker 1: now I have to I have to tweak that now
4:06
Speaker 1: because what Phase one has become is a multi phase
4:09
Speaker 1: agreement on itself, so that now Phase one B is
4:12
Speaker 1: going to be the equivalent of Phase two. And so
4:15
Speaker 1: this is basically people are gonna be able to call
4:16
Speaker 1: anything anyway they want. If whatever happens today in signing,
4:20
Speaker 1: you know, the next few days will be part of
4:22
Speaker 1: this first phase and the next part of it will
4:26
Speaker 1: be an extension of Phase one. But will it be
4:28
Speaker 1: Phase two or Phase one B? I mean, this is
4:30
Speaker 1: going to start getting really confusing. I'm just imagining the
4:33
Speaker 1: sort of uh, the Roman numeral outline that we're creating
4:37
Speaker 1: for Phase one is going to be extensive. What is
4:40
Speaker 1: the implication for the Chinese economy? In other words, will
4:43
Speaker 1: this allow an acceleration or at least uh ceasing in
4:48
Speaker 1: the deceleration that we've seen. Uh, it may not. It
4:52
Speaker 1: won't stop the deceleration of the Chinese economy overall, because
4:55
Speaker 1: that has a structural reason having to do with the
4:57
Speaker 1: fact that the Chinese economy has too much debt. But
5:00
Speaker 1: what the Chinese have been trying to do, they're trying
5:02
Speaker 1: to do here. They've been trying to do since the
5:03
Speaker 1: very beginning of the trade war is avert some of
5:05
Speaker 1: the worst case scenarios. They want to make the situation
5:08
Speaker 1: better for themselves. It's not tariffs that are that are
5:11
Speaker 1: crushing growth in China, but these make it very difficult
5:15
Speaker 1: to enact any type of reforms to allow businesses to
5:17
Speaker 1: go bust because there's there's just additional pressure added on.
5:21
Speaker 1: So the Chinese can lessen the amount of pressure from
5:23
Speaker 1: tariffs and from Trump, then all of a sudden it
5:26
Speaker 1: becomes a little bit easier to do the things that
5:28
Speaker 1: they need to do to fix the economy. All right,
5:30
Speaker 1: and so just can you give us a sense of
5:32
Speaker 1: the lay of the land in China's We've heard a
5:34
Speaker 1: lot about defaults and and picking up in China. How
5:37
Speaker 1: are things going? Well. We're gonna have data coming out
5:40
Speaker 1: in the in the coming days, and so I don't
5:41
Speaker 1: want to jump the gun on this, but what I
5:43
Speaker 1: will say is this, there is an enormous amount of
5:46
Speaker 1: credit being pumped to the system in China, and we
5:48
Speaker 1: saw that in Q two, Q three, we saw it
5:49
Speaker 1: early in our Q four data. There is this idea
5:52
Speaker 1: that that the Chinese economy is not getting sufficient stimulus.
5:55
Speaker 1: It's nonsense. We're seeing some of the highest credit provision
5:57
Speaker 1: levels that we've ever seen all the way back ten
6:00
Speaker 1: years in China Beige Book. We're not seeing the heavy
6:03
Speaker 1: infrastructure stimulus stuff yet we may never see it, hopefully
6:05
Speaker 1: we don't. But we are seeing plenty of credit going
6:08
Speaker 1: to firms from the banking sector, from the shadow banking sector.
6:12
Speaker 1: Of bond sales at at at an all time high.
6:15
Speaker 1: So there is plenty plenty of reason why they're keeping
6:18
Speaker 1: this thing fluffed up. And I think if you also
6:20
Speaker 1: get a relief from some of the tariff pressures, then
6:23
Speaker 1: you may see a little bit of improvement in the
6:25
Speaker 1: coming coming weeks and months. Leland Miller, thank you so
6:27
Speaker 1: much for coming in today. Fantastic insightly Lin Miller chie
6:31
Speaker 1: thinks I get the officer of China Beige Book International
6:33
Speaker 1: joining us here in our interactive broker studio. Quite a
6:50
Speaker 1: friday of news with We've got the China and US
6:54
Speaker 1: trade deal UH coming to some sort of fruition. We're
6:58
Speaker 1: getting some conflicting details. The most concrete aspect that we
7:02
Speaker 1: do know is that the US will not impose the
7:07
Speaker 1: December fifteen tariffs, both sides agreeing on that with Chinese
7:11
Speaker 1: negotiators saying that, and then President Trump following up with
7:14
Speaker 1: a tweet less clear about whether the US would roll
7:17
Speaker 1: back any existing tariffs, with China saying that they would
7:21
Speaker 1: and President Trump saying that they won't. How does a
7:24
Speaker 1: treat or negotiate with all of this data and figure
7:27
Speaker 1: out what to do in joining US now to speak
7:29
Speaker 1: about just that? David Coudla, He's chief executive officer and
7:32
Speaker 1: chief investment strategist Mainstain Capital Management. David, what don't you
7:38
Speaker 1: make of today? Good morning, Lisa. Well, I think that
7:42
Speaker 1: you know this is actually good news for investors and
7:45
Speaker 1: good news for the markets. Uh, there's a lot of
7:48
Speaker 1: confusion about what the Phase one deal really constitutes. But
7:53
Speaker 1: the good news for the markets and good news for
7:56
Speaker 1: investors is what we know at least is there's no
7:59
Speaker 1: further escalation of the trade war. The tariffs that we're
8:04
Speaker 1: going to go in on December fifteen won't go in.
8:07
Speaker 1: There won't be any retaliatory traiffs from uh the Chinese.
8:13
Speaker 1: And you know, the tariffs that were going in for
8:15
Speaker 1: the US we're not only punitive on on the the
8:20
Speaker 1: US tariffs for the Chinese were not only punitive on
8:23
Speaker 1: Chinese goods, but they were going to impact a lot
8:26
Speaker 1: of US companies as well, so it was very important
8:29
Speaker 1: in that respect. The UH, the result is is is
8:34
Speaker 1: we see no further escalation and and that's what the
8:37
Speaker 1: markets want to hear, right, That's what the markets want
8:39
Speaker 1: to hear. That's what we've been hearing all along. And
8:42
Speaker 1: yet you're looking right now at an SMP basically flat,
8:45
Speaker 1: the nastack up to tents of a percent, the Dow
8:48
Speaker 1: basically unchanged. I mean, how come we're not seeing a
8:51
Speaker 1: bigger pop. Well, there could be a little bit of
8:55
Speaker 1: by the room or sell the news. Because we've been
8:57
Speaker 1: hearing this over the past couple of days. I think
8:59
Speaker 1: there's been some expectation that this is what we get,
9:03
Speaker 1: that the tears. I think there's been an expectation by
9:05
Speaker 1: the markets that the tariffs would not go into an effect.
9:08
Speaker 1: So we've had a pretty good week for the market
9:10
Speaker 1: the last couple of days. Um, so you know we've
9:13
Speaker 1: we've got you know, green for the Dalla Nastac flat
9:16
Speaker 1: on the s and P five hundred. But the last
9:18
Speaker 1: couple of days, you know, we've had or at least
9:22
Speaker 1: you know, yesterday, pretty good market and I think though
9:26
Speaker 1: that if you take the combination of this UH and
9:29
Speaker 1: UH certainty on Brexit, with Boris Johnson's big win and
9:34
Speaker 1: what we were seeing with action out of the Fed
9:37
Speaker 1: and what's coming there, we've got a constructive environment for
9:40
Speaker 1: stocks here through the end of the year and headed
9:42
Speaker 1: into Okay. That's actually something similar to what Carcadona, Chief
9:46
Speaker 1: US Economists was saying earlier this morning. He was saying,
9:49
Speaker 1: if you get some sort of truce where you don't
9:51
Speaker 1: get the Desummer fifteen tariffs, we have that the UK
9:54
Speaker 1: election over, we're probably going to get Brexit pretty easily
9:59
Speaker 1: next month. That's going to to your turbo charge the
10:02
Speaker 1: US economy. How much do you think that that will
10:06
Speaker 1: translate into significant gains in US equities and other risk assets. Well,
10:11
Speaker 1: it's interesting when when we look at all the factors
10:15
Speaker 1: and we've had three quarters of negative earnings growth or
10:19
Speaker 1: basically earnings contraction and probably going to have you know,
10:24
Speaker 1: struggle in the fourth quarter again with earnings. We look
10:27
Speaker 1: for earnings to improve in UH, but earnings just haven't
10:31
Speaker 1: mattered really this year, as is evident by the advance
10:36
Speaker 1: we've seen in the major indexes, and even with uh,
10:39
Speaker 1: you know, all the anxiety over the trade war and
10:43
Speaker 1: the uncertainty over Brexit, these other factors. What it's really
10:47
Speaker 1: come back to, UH, I believe, we believe is the
10:50
Speaker 1: FED and the amount of liquidity that they are injecting
10:55
Speaker 1: into the system. We had at this time last year
10:58
Speaker 1: a very hostile Fed UH in terms of their tone
11:01
Speaker 1: towards the market, and that was a big part of
11:04
Speaker 1: what we think, you know, big part of the sell
11:06
Speaker 1: off we saw last year nineteen six percent by by
11:09
Speaker 1: Christmas eve of last year, the fourth quarter from September
11:13
Speaker 1: twenty through December. The FED changed their tone and the
11:17
Speaker 1: markets did a lot better starting on December and did
11:22
Speaker 1: well all year. Quantitative easy, Quantitative tightening has turned to
11:26
Speaker 1: quantitative easing. We've gotten that somewhat forced on the FED
11:31
Speaker 1: through these repo operations. But that money going into the system,
11:36
Speaker 1: that injection of liquidity is more money all the same
11:42
Speaker 1: that's going into It's making its way into into equities,
11:45
Speaker 1: making its way into the financial markets. And you know,
11:48
Speaker 1: we go back to that old adage, don't fight the FED.
11:51
Speaker 1: And I think that's one of the most important catalysts
11:53
Speaker 1: for the markets going forward. And that money is coming
11:56
Speaker 1: to the system, and it's pushing asset prices higher. David,
11:59
Speaker 1: that's a really elien point, especially as we see yields
12:01
Speaker 1: go lower today on this deal, and this comes after
12:05
Speaker 1: they rose quite a bit yesterday, yields up priced down
12:08
Speaker 1: with the prospect of some sort of trade deal looming
12:11
Speaker 1: ever imminent. And the idea is that you know, how
12:15
Speaker 1: high can treasury yields go given how much liquidity the
12:18
Speaker 1: FED is pumping into this system, and that that kind
12:21
Speaker 1: of reality where you have stable rates and you have
12:24
Speaker 1: a constructive business environment, is going to be perfect for
12:27
Speaker 1: US equities. And that's what people have been saying. What
12:30
Speaker 1: kind of returns are you expecting next year? Uh? For
12:33
Speaker 1: the SMP. Well, we've obviously had a better year this
12:38
Speaker 1: year than than many would have expected, and and I
12:41
Speaker 1: think that next year we could be surprised again. Uh.
12:45
Speaker 1: You know, I could give the normal forecast that everyone
12:48
Speaker 1: gives will get somewhere between six and nine percent returns
12:51
Speaker 1: that you hear a lot of people forecast every year.
12:54
Speaker 1: But I think I think next year we've got an
12:56
Speaker 1: election year. I'll say the same thing I said last
13:00
Speaker 1: year that the economy better than many expected. We had
13:04
Speaker 1: so many predicting a recession, so many predicting bear market
13:08
Speaker 1: last year at this time, and you know, I just
13:10
Speaker 1: wouldn't be surprised if we see double digit returns for
13:13
Speaker 1: the major indexes next year. Interesting and just real quick
13:17
Speaker 1: also because we do have you from Michigan, I'm wondering
13:20
Speaker 1: what the trade deal could mean for the auto industry
13:24
Speaker 1: given how beaten up. Are not beaten up, but but
13:27
Speaker 1: certainly with auto sales in decline for as long as
13:30
Speaker 1: they have are decelerating to the degree they have. Well,
13:33
Speaker 1: it's very important because uh, you know, and we've talked
13:37
Speaker 1: about this, it's it's just uh, the auto industry and
13:41
Speaker 1: when we talk about, uh, these tariffs on imports, it's
13:46
Speaker 1: not the same environment of four or fifty years ago. Uh.
13:50
Speaker 1: There is so many uh parts and subsystems and vehicles
13:56
Speaker 1: that are shipped abroad and cross international lines. When you
14:01
Speaker 1: look at between Michigan and Canada and between the US
14:06
Speaker 1: and Mexico, it's it's literally as if the assembly lines
14:09
Speaker 1: criss cross those international lines. Though it's very important that
14:14
Speaker 1: uh there's certainty certainly for supply chains and for where
14:19
Speaker 1: vehicles are being produced and ship to that that the
14:23
Speaker 1: auto companies have certainty as they're determining where they put plants,
14:28
Speaker 1: where they developed their supply chains. And because UH many
14:33
Speaker 1: of the automakers US and otherwise are global automakers. Now
14:38
Speaker 1: you know, what's going on here is very disruptive to
14:41
Speaker 1: the US automakers GM Ford, UH Chrysler and automakers around
14:46
Speaker 1: the world. So, you know, as much as anything, they
14:48
Speaker 1: want to see some certainty around in this. So the
14:50
Speaker 1: more this gets worked out, the better. David could Loud,
14:54
Speaker 1: chief executive officer and chief investment strategist at Mainstay Capital Management.
15:13
Speaker 1: Just to reiterate the headlines about China that the US
15:16
Speaker 1: has agreed not to implement the threatened December fifteen tariffs.
15:21
Speaker 1: We also have some discussion of a trade deal that
15:25
Speaker 1: has been signed off on at least by President Trump
15:28
Speaker 1: and Chinese negotiators. Exactly what that looks like, though, does
15:33
Speaker 1: remain to be seen. We are seeing corn and soy
15:36
Speaker 1: prices in particular rise on the heels of this. Michael
15:38
Speaker 1: Hurts are joining us now, an agricultural reporter for Bloomberg
15:42
Speaker 1: joining us for Chicago. Michael, can you first just give
15:44
Speaker 1: us a sense of what the impact of the trade
15:48
Speaker 1: skirmish between the U S and China has had on
15:50
Speaker 1: the agricultural sector over the past two years. Sure, so,
15:53
Speaker 1: I mean exports to China. You know that one of
15:56
Speaker 1: the top markets in the world have plunged from the US.
16:00
Speaker 1: They've started to recover a bit as the two sides
16:03
Speaker 1: have you know, had various bouts at the negotiating table,
16:06
Speaker 1: but still remain below levels you know seen as recently
16:10
Speaker 1: as and farmers are are struggling with prices. UM prices
16:16
Speaker 1: have gotten a little better, but there's still more supply
16:19
Speaker 1: than there is demand and they really want China to
16:22
Speaker 1: come back. What do we know so far about the
16:25
Speaker 1: agricultural component of the trade deal that appears to be
16:29
Speaker 1: struck between the U S and China. At the press
16:32
Speaker 1: conference that they just held, you know, eleven PM in Beijing,
16:35
Speaker 1: UM they said they would notably increase UM imports, but
16:40
Speaker 1: and that's kind of all we have. They did say
16:42
Speaker 1: they want to keep things UM on w t O
16:46
Speaker 1: rules and make purchases as the market dictates, which traders
16:51
Speaker 1: kind of took that as as China kind of continuing
16:54
Speaker 1: to buy UM as best suits them, which could be
16:57
Speaker 1: from the US, it could be from Brazil on the
17:00
Speaker 1: as far as sowbeans go. So the details remain elusive,
17:03
Speaker 1: and China did not confirm sort of reports of commitments
17:08
Speaker 1: of as many as fifty billion dollars of imports in
17:13
Speaker 1: and people are really hoping for that alright, So, um,
17:17
Speaker 1: what are some of the questions now that remain? Basically,
17:21
Speaker 1: you know, can can they can the import fifty billion
17:24
Speaker 1: dollars worth of US add goods? Is that even possible?
17:28
Speaker 1: Back in seventeen they imported about twenty billion, so this
17:32
Speaker 1: would be kind of double more than double pre trade
17:35
Speaker 1: war levels. And you could look at Hong Kong and
17:38
Speaker 1: that's maybe another four billion or so. And even if
17:41
Speaker 1: you add those together, um, getting to that fifty billion
17:46
Speaker 1: dollar number, even if China has committed to that is
17:49
Speaker 1: still just kind of a major question mark. One thing
17:52
Speaker 1: that I was struck by in the Beijing press conference
17:54
Speaker 1: by Chinese trade negotiators. They were saying that they're trying
17:57
Speaker 1: to develop their own internal agricultural and UH and poultry
18:03
Speaker 1: for example, exports and they were talking about exporting poultry.
18:07
Speaker 1: Is that going to be part of this that basically
18:09
Speaker 1: they want to develop their their products as well on
18:12
Speaker 1: this side, and are trying to promote that or is
18:15
Speaker 1: this just a messaging issue? You know that is that is? Um?
18:19
Speaker 1: This sort of a tip for tad on the poultry.
18:21
Speaker 1: Um they allowed for some I believe it's prepared Chinese
18:25
Speaker 1: poultry products to come into the US in exchange for
18:29
Speaker 1: reopening the Chinese market to US poultry. UM. So I
18:34
Speaker 1: think people think there might be some prepared products that
18:37
Speaker 1: would come back into the US. How how good do
18:41
Speaker 1: you think this deal will be for for farmers across America?
18:45
Speaker 1: I mean, do you think that this sort of certainty
18:47
Speaker 1: in China coming back into the market will save off
18:50
Speaker 1: some of the increase in bankruptcies that we've seen in
18:52
Speaker 1: the Upper Midwest? You know, I think that you know,
18:55
Speaker 1: it's still really remains to be seen. The fact that
18:57
Speaker 1: China was you know uplade on aliety having a press
19:00
Speaker 1: conference and publicly saying that you know, a phase one
19:03
Speaker 1: has been reached. Is is great news for farmers. But
19:07
Speaker 1: now kind of getting down to the brass tacks of
19:09
Speaker 1: how this is all going to play out, UM, it
19:12
Speaker 1: should be good? How good is kind of the question?
19:15
Speaker 1: Can you give us a sense of where we are
19:17
Speaker 1: in the shakeout? Because there have been uh, bankruptcies that
19:21
Speaker 1: have been with an increasing pace in the Upper Midwest.
19:24
Speaker 1: And this doesn't just have to do with trade skirmishes.
19:26
Speaker 1: This has to do with the price of grain and
19:29
Speaker 1: a whole host of other issues as well. Where are
19:31
Speaker 1: we in that shakeout? Yeah, so, you know, the US
19:34
Speaker 1: government has has doled out you know, I think twenty
19:37
Speaker 1: four billion dollars in aid payments as these trade disputes
19:40
Speaker 1: have gone on, which has helped um with farmer finances.
19:45
Speaker 1: But this could be sort of a reckoning um in
19:47
Speaker 1: the next six months to a year as as this
19:51
Speaker 1: stuff really starts to play out and farmers need things
19:55
Speaker 1: to get better to kind of smooth out a few
19:58
Speaker 1: down years on finance. Is um. It's getting to be.
20:01
Speaker 1: Credit conditions are are maybe improving slightly for farmers, but
20:05
Speaker 1: they're very stressed and they need some help. Michael hurts Or,
20:09
Speaker 1: thank you so much for being with us. Michael hurts Or,
20:11
Speaker 1: agricultural reporter for Bloomberg News, joining us from Chicago. We've
20:30
Speaker 1: been talking a lot about trade and the idea that
20:32
Speaker 1: the US and China have come to some sort of agreement,
20:34
Speaker 1: but we can't let that overshadow the incredible victory of
20:38
Speaker 1: Boris Johnson in the United Kingdom overnight. If you take
20:42
Speaker 1: a look, with all seats declared, the Conservatives had won
20:45
Speaker 1: three hundred and sixty five of the six hundred and
20:48
Speaker 1: fifty seats in the House of Commons. That is a
20:51
Speaker 1: gain of forty eight to Labors two oh three seats,
20:53
Speaker 1: which is down fifty nine, a massive win, possibly the
20:57
Speaker 1: most since the nineteen thirties. Joining us now Professor j
21:00
Speaker 1: Ney Blanche flower Well. He's professor of economics at Dartmouth College.
21:03
Speaker 1: He's in Geneva. What are you doing in Geneva, Danny Well?
21:06
Speaker 1: Interesting days. I'm actually in Geneva. I gave a keynote
21:09
Speaker 1: to the big conference here on full employment, sort of
21:13
Speaker 1: relevant to what's going on around the world and relevant
21:16
Speaker 1: to what's happened in the UK where basically lots of
21:20
Speaker 1: people are hurting. And I'm just looking at the list
21:22
Speaker 1: of seats that the Labor Party lost in the traditional
21:26
Speaker 1: Labor heartland Burnley, Derby, Glasgow, all around the country, Newcastle
21:35
Speaker 1: underlying Peterborough, Skundel. I mean, this is a devastating defeat
21:40
Speaker 1: and I think really driven by on the doorstep that
21:44
Speaker 1: the election in the end didn't come down to Brexit.
21:46
Speaker 1: It came down to the leader of the Labor Party
21:49
Speaker 1: who people saw unelectable um and have nothing to offer them.
21:54
Speaker 1: So I think it's very interesting. And the other point
21:56
Speaker 1: is that the polls, the opinion pollship have been bad
21:59
Speaker 1: in the past, got it absolutely spot on, okay. So
22:03
Speaker 1: I guess that is the takeaway here, that that that
22:08
Speaker 1: that UK citizens are just sick of Brexit discussions, just
22:12
Speaker 1: want it done. Or is the takeaway really that Brexit
22:15
Speaker 1: was sort of the back drop issue and then it
22:18
Speaker 1: was a lot of other things that took the four
22:21
Speaker 1: that really drove Boris Johnson to victory. Well, I think
22:24
Speaker 1: it was that, I mean the message in a way
22:26
Speaker 1: it was I mean, if you think of the Trump message,
22:29
Speaker 1: make America great again, and Boris's message was get Brexit
22:33
Speaker 1: dumb and nobody had to faint his clue what Jeremy
22:37
Speaker 1: Corbyn's view on Brexit was the biggest issue with fifty
22:40
Speaker 1: years in Britain. He said, well, I'll wait and I'll
22:43
Speaker 1: think about it later, because everyone knew that he was
22:45
Speaker 1: against it. I'm One of the big things that also
22:47
Speaker 1: happened was that he had the issues of anti Semitism
22:51
Speaker 1: in the Labor Party in the In the week before
22:53
Speaker 1: the election, he was asked on the one interview four
22:55
Speaker 1: times would he condemn anti semitism and he wouldn't. I mean,
22:59
Speaker 1: howing was this only name you wouldn't condemned anti semitism,
23:02
Speaker 1: but you didn't, and that had a huge electoral effect.
23:05
Speaker 1: So I think it was that Boris had a simple message,
23:09
Speaker 1: wanted to get things done, and the opposition just looked
23:12
Speaker 1: clueless and the and the interesting thing in a way
23:15
Speaker 1: was that the economic package that label was given was
23:18
Speaker 1: probably the most sensible spending on the NHS, infrastructure spending
23:23
Speaker 1: and actually some re nationalizations that were hugely popular. But
23:27
Speaker 1: that wasn't the message that came through. And on the
23:29
Speaker 1: doorstep it turned out the breaks it was kind of
23:31
Speaker 1: third It was about that this is not a credible opposition.
23:34
Speaker 1: I'm scared to death of having somebody like Jeremy Corbyn
23:38
Speaker 1: in there. And the other one is that the leader
23:40
Speaker 1: of the Third Party lost her seat and socially so
23:44
Speaker 1: she resigned from the Third Party. So this is this
23:46
Speaker 1: is the worst thing, the worst defeat for Labor since
23:49
Speaker 1: n How Jeremy Corbyn has not designed I don't know.
23:53
Speaker 1: I mean I was on his advisory channel in two
23:55
Speaker 1: thousand and sixteen along with Picoty and just Stiglets, the
23:58
Speaker 1: Nobel Prize winner, and we all bailed out when we
24:01
Speaker 1: realize very quickly that this was a disaster in the making.
24:05
Speaker 1: We had nothing to offer, And so it's a combination
24:07
Speaker 1: of things. And I think the take the take home
24:09
Speaker 1: in a sense of the United States is that populous
24:12
Speaker 1: leaders with simple messages which appeal to people who are
24:16
Speaker 1: hurting and don't really explain in full detail what they're
24:19
Speaker 1: going to do is electorally populous. What we saw in
24:22
Speaker 1: two thousand and sixteen, it may well be what we'll
24:25
Speaker 1: see in two thousand twenty. And Trump is going to
24:27
Speaker 1: take this as an indicator that maybe you know, if
24:29
Speaker 1: he goes along with this kind of message, he's going
24:31
Speaker 1: to go get reelected. So, given your political experience, and
24:35
Speaker 1: given your experience on the Bank of England Monetary Policy
24:39
Speaker 1: Committee as a member, can you give us a sense
24:41
Speaker 1: of what the victory means for the economy which you
24:44
Speaker 1: expect going forward for the United Kingdom? Yeah, I mean,
24:49
Speaker 1: I mean, I think the first thing is at least
24:50
Speaker 1: it settles the uncertainty markets know what's coming. We've seen
24:56
Speaker 1: a surge in the stock market, we've seen home builders
25:00
Speaker 1: utilities pushing forward, we've seen a gain in town. But
25:05
Speaker 1: my suspicion is that the NPC, it is voted at
25:08
Speaker 1: this meeting next week, may seriously consider doing a rap
25:12
Speaker 1: cup because the uncertainty has sort of being resolved, but
25:15
Speaker 1: the economy is sitting in the doldruns and the last
25:17
Speaker 1: meeting there were two dissenters looking for for a cup.
25:22
Speaker 1: I mean, so the reality is that the Bank of
25:24
Speaker 1: England is the only show in how right now? I mean, well,
25:27
Speaker 1: we'll get a new chance of the Exchequer and maybe
25:29
Speaker 1: in the next two or three weeks you and I
25:31
Speaker 1: will be talking about the appointment of a new governor
25:33
Speaker 1: that Boris is going to make. My suspicion is he
25:36
Speaker 1: might appoint my old my old college roommate, Jerry Lyons,
25:39
Speaker 1: who was his chief economist in London. He and I
25:43
Speaker 1: were pluditutes to get what he may well do. But
25:46
Speaker 1: we're wait, wait, wa wa wa. We you were roommates.
25:49
Speaker 1: You're not getting away with that, with saying that your roommates.
25:51
Speaker 1: What was he like as a roommate? Well, I mean,
25:54
Speaker 1: I mean when I say a roommate. He was actually
25:56
Speaker 1: my office mate. You know, we didn't share deegs, but
25:58
Speaker 1: we worked together. He's so let's get this clear, right
26:02
Speaker 1: many answer is a very well trained economist called PhD
26:06
Speaker 1: in economics and macro, got very well experienced in the
26:09
Speaker 1: City of London and a lot of money. Worked as
26:12
Speaker 1: an economist for for Boris Johnson when he was the mayor.
26:15
Speaker 1: And it's been strongly pro Brexit. I mean, he and
26:17
Speaker 1: I have disagreed on that, but you would certainly call
26:20
Speaker 1: him a credible trained economist. Um. He's been very kind
26:24
Speaker 1: of pro green, pretty pretty strong on boosting the economy
26:30
Speaker 1: and might well result in you know, some some move
26:33
Speaker 1: to the center. But my suspicion is now Boris can
26:35
Speaker 1: do whatever Boris likes, and I think Jerry lies now
26:39
Speaker 1: goes to the top of the heap. Um. I mean
26:41
Speaker 1: he's a smart, good guy. I disagree with. But you know,
26:45
Speaker 1: would you say to me it would he be a
26:47
Speaker 1: good appointment? I would say, yeah, I could work with
26:50
Speaker 1: the guy. All right, Just one minute here, I'm just
26:53
Speaker 1: wondering going forward. You know, people are saying that business
26:57
Speaker 1: confidence is going to be unleashed and people will spend again,
27:00
Speaker 1: is that accurate given the uncertainties that remain with an
27:02
Speaker 1: actual trade deal with the UK and the EU. Well,
27:06
Speaker 1: it's a really great question. I mean, obviously that the
27:08
Speaker 1: thing we've talked about is get breakfast done and you say, okay,
27:12
Speaker 1: we're going to do this in January. But Macron immediately
27:15
Speaker 1: came out today and said, well, okay, now the real
27:18
Speaker 1: business start. What are you going to do. Are you
27:20
Speaker 1: going to negotiate a deal with US that you're going
27:22
Speaker 1: to instead of just coming out with you know, with dreams,
27:26
Speaker 1: with dreamland stuff. Are you going to seriously negotiate with
27:30
Speaker 1: US um and and compromise. So I think that's what happens.
27:35
Speaker 1: And then of course what happens is you go into
27:37
Speaker 1: a long transition period. You need to resolve the issues
27:40
Speaker 1: in Ireland. He's certainly going to be faced with the
27:42
Speaker 1: prospect of losing Scotland. I mean that this mp UM
27:46
Speaker 1: basically swept the board in Scotland. They're going to ask
27:49
Speaker 1: for a second referenda. They're actually going to say we
27:51
Speaker 1: want to leave the Europe, leave the UK and go
27:54
Speaker 1: back to the EU. So there are going to be
27:55
Speaker 1: all these kinds of issues. In a sense, you win
27:58
Speaker 1: this thing, and you say every things easy, and now
28:01
Speaker 1: the hogs stops. So I think you know Macron has
28:03
Speaker 1: immediately gone in the system. What's your negotiating position. You
28:06
Speaker 1: can't make up this stuff. You've actually got to sit
28:09
Speaker 1: at the table with us, and you can't pick cherry
28:12
Speaker 1: pick a little bit that you like if you want
28:14
Speaker 1: to do that. It's a no deal breakfast. Yes, Unfortunately
28:17
Speaker 1: we have to leave it there. I could speak with
28:19
Speaker 1: you all day. Danny blanche Flower, professor of economics at
28:21
Speaker 1: Dartmouth College. Thank you, thank you, thank you for joining
28:24
Speaker 1: us and giving us that fantastic perspective from Geneva. Thanks
28:29
Speaker 1: for listening to the Bloomberg p L podcast. You can
28:31
Speaker 1: subscribe and listen to interviews at Apple Podcasts or whatever
28:34
Speaker 1: podcast platform you prefer. I'm Paul Sweeney. I'm on Twitter
28:37
Speaker 1: at pt Sweeney. I'm Lisa Abram Woyds. I'm on Twitter
28:40
Speaker 1: at Lisa A. Bram Woods One. Before the podcast, you
28:42
Speaker 1: can always catch us worldwide on Bloomberg Radio.