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P&L: What President Trump Means For U.S.-Russia Relations · Bloomberg Intelligence

• 0:04
  Speaker 1: Welcome to the Bloomberg pm L podcast. I'm Pim Fox.
• 0:08
  Speaker 1: Along with my co host Lisa Abramowitz. Each day we
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  Speaker 1: the trading floor. Find the Bloomberg p L podcast on iTunes,
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  Speaker 1: SoundCloud and at Bloomberg dot com. I want to solve
• 0:30
  Speaker 1: a question that a lot of people have had since
• 0:32
  Speaker 1: November eight, which is what does Donald Trump, presidents you
• 0:36
  Speaker 1: mean for US Russian relations with US? To extrapolate on
• 0:41
  Speaker 1: that is Richard Richard Khan, managing partner at Eurasia Advisors,
• 0:45
  Speaker 1: which is a problem solving and deal making firm focused
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  Speaker 1: on Russia advising Russian firms and in his spare time
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  Speaker 1: he also is intricately involved in chess. Richard, thank you
• 0:56
  Speaker 1: so much for being with us. Hi great to be here.
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  Speaker 1: So what are the applications for US Russian relations now
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  Speaker 1: that President Electrump is going to assume the White House
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  Speaker 1: in January. Well, from the Russian perspective, we have a
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  Speaker 1: shuffling of the deck, an entirely new team. Obviously, the
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  Speaker 1: hopes that this relationship will improve dramatically and UH, and
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  Speaker 1: I think that this even for those who may not
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  Speaker 1: be happy with the Trump presidency, this is certainly one
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  Speaker 1: silver lining. He does seem to have a genuine interest
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  Speaker 1: in improving relations, looking for areas of common cooperation, and
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  Speaker 1: so I think there's a highlighthood. Some of those might
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  Speaker 1: be security that obviously the we have common interests in
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  Speaker 1: dealing with terrorism, but we could over time set standards
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  Speaker 1: for technological security as well, although at the moment that's
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  Speaker 1: not something on the forefront, since it's possible Russia is
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  Speaker 1: not actually cooperating in that area at this stage. In addition,
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  Speaker 1: there's global warming. There are all all types of issues
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  Speaker 1: that UH, that are of concern own DestinE that we
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  Speaker 1: have difficulty handling without Russian cooperation, and where we might
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  Speaker 1: draw lines and say that, well, will cooperate here even
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  Speaker 1: if we're not able to work together in other fields.
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  Speaker 1: That would be the sort of the easy pickings. But
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  Speaker 1: there are other areas where more ambitiously we might solve
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  Speaker 1: problems and get back on track eliminating sanctions. And Trump
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  Speaker 1: is certainly going to be more amenable to that than
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  Speaker 1: I think the Clinton administration would have been. And Richard,
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  Speaker 1: how would you expect, Uh, this warmer relationship between the
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  Speaker 1: US and Russia, Will it have an influence on Russia's
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  Speaker 1: relationship with say Europe, the European Union, and with some
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  Speaker 1: of the former Soviet states? How does how does it
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  Speaker 1: all play out? Is the US influential enough um to
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  Speaker 1: you know, affect the prospects for sanctions from from some
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  Speaker 1: of the other countries out there. Well, we we certainly are.
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  Speaker 1: I mean, we're really taken a leadership role in promoting
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  Speaker 1: sanctions as a response to the Russian activity in Ukraine.
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  Speaker 1: But we don't want to jump ahead of ourselves. I mean,
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  Speaker 1: having the aspirations as I think the Trump team genuinely
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  Speaker 1: does to improve relations doesn't mean that will happen instantly.
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  Speaker 1: There's certainly more to this than interpersonal relations, but that's
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  Speaker 1: a starting point. And uh, whether he's able to uh
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  Speaker 1: master the history of this relationship and think through the
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  Speaker 1: complexities will tell us whether he's able to put together
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  Speaker 1: deals that address the concerns you're now raising, For example,
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  Speaker 1: the interplay between the handling of Ukraine and the Eurozone,
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  Speaker 1: as well as the essentially the composition of Europe itself.
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  Speaker 1: There are many nations in Europe that are very concerned
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  Speaker 1: with Russia right now, and uh so separating that out
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  Speaker 1: and just taking the perspective that we can be friendly
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  Speaker 1: with Russia without any concern for how Russia's behaving outside
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  Speaker 1: of his borders. Uh you know, it's a very complicated issue.
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  Speaker 1: And uh so where you draw those lines, what types
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  Speaker 1: of areas you can cooperate in, and where you sort
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  Speaker 1: of take the view that Russian sovereignty uh is is
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  Speaker 1: to be respected in in other areas where we feel
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  Speaker 1: we have a legitimate reason for having some of our
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  Speaker 1: policies affected by their behavior. These are very complex issues
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  Speaker 1: for a new president to try to master. Well, you know,
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  Speaker 1: last week Thursday, President Barack Obama said, I've sought a
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  Speaker 1: constructive relationship with Russia, but what I have also been
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  Speaker 1: is realistic and recognizing there are some significant differences in
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  Speaker 1: how Russia viewsed the world and how we view the world.
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  Speaker 1: Do you think that there is a risk that President
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  Speaker 1: elect Trump will not treat some of the risks seriously enough?
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  Speaker 1: And what are the risks? Well, I do think it's
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  Speaker 1: a legitimate concern in terms of how President Trump will
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  Speaker 1: look at the world. The Russians have more of a
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  Speaker 1: sort of social Darwinistic approach more of a rail politic approach.
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  Speaker 1: We in the West have historically been looking to establish
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  Speaker 1: international norms that fuel support rule of law and values
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  Speaker 1: that the West has traditionally lived by. And whether President
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  Speaker 1: Trump fully adopts those or seeks to modify those are
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  Speaker 1: certainly areas that I'm sure many people are concerned about.
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  Speaker 1: From the Russian perspective, I think they're happy to see
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  Speaker 1: someone coming into power who I think instinctively shares some
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  Speaker 1: of their values, some of their more real politic values.
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  Speaker 1: Certainly in my discussion party well, I can tell you that,
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  Speaker 1: you know, I had discussions just recently with was three
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  Speaker 1: people with Pskoff, who was his major advisor and spokesperson,
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  Speaker 1: Putins right, as well as uh Pilatov, who's heading the
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  Speaker 1: Russian chess Federation is here for the big match, and
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  Speaker 1: with a member of our team at your Age Advisors
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  Speaker 1: who was instrumental in picking Putin to come in after Yeltsin,
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  Speaker 1: Ghanadi Barbulas, who was chief of staff for Yelson Um.
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  Speaker 1: I think all are very hopeful that the US relations
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  Speaker 1: will strike a different chord now and more or less
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  Speaker 1: beget a fresh and a genuine manner. But they are
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  Speaker 1: I believe boried by the prospect that the president's instincts,
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  Speaker 1: that is, President Trump's instincts are designed more to deal
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  Speaker 1: with problems on a case by case, ad hoc basis
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  Speaker 1: that are practical, as opposed to dominated by philosophy by
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  Speaker 1: a doctrine. And from the Russian perspective, that's good news,
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  Speaker 1: because that is more or less how they come at it.
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  Speaker 1: They're very practical. We no longer have a division, if
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  Speaker 1: you will, in the world where Russia is promoting socialism
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  Speaker 1: or communism. Those days are long long gone. Uh. They
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  Speaker 1: are focused on making money, on promoting their own interests,
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  Speaker 1: and so in that respect, they want to do deals,
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  Speaker 1: and they're interested in achieving their goals and would very
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  Speaker 1: much like to see an administration that is operating on
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  Speaker 1: a similar basis as opposed to promoting philosophy. Richard, Let's
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  Speaker 1: bring it back to where the real geopolitical drama is
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  Speaker 1: these days, and that's obviously the World Chess Championship. Absolutely,
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  Speaker 1: Vladimir Putin has vested interest in this. Can you can
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  Speaker 1: you tell us about the sure And this is something
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  Speaker 1: our our new team would well understand. We we we
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  Speaker 1: have a president in the US who is an expert
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  Speaker 1: at branding, right, I mean, that's been his business and
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  Speaker 1: he's he's spectacular at that. Hopefully now he'll use that
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  Speaker 1: to brand the US very well and help us there.
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  Speaker 1: The Russians have not been, in fact that they diametrically
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  Speaker 1: opposed that they've been the worst, arguably in the world
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  Speaker 1: at branding, but they used chess as a major part
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  Speaker 1: of their brand. They want to win this championship in
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  Speaker 1: New York this week, and they've sent over the top
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  Speaker 1: people in their chess world and their political world to
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  Speaker 1: support it. Very exciting and Richards has been fascinating. Richard
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  Speaker 1: con managing partner at Eurasia Advisors, on what President elect
• 8:00
  Speaker 1: Trump's regime will mean for US Russia relations. This is Bloomberg.
• 8:18
  Speaker 1: We're gonna learn more Mike Regan about emerging markets and
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  Speaker 1: kind of what the opportunities there are, which with Richard Fees.
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  Speaker 1: He's a portfolio manager for dry House Capital Management who
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  Speaker 1: focuses on frontier markets. Uh, Richard, thank you so much
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  Speaker 1: for joining us. Thank you for having me so go.
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  Speaker 1: I want to pose the question to you that a
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  Speaker 1: lot of us have been wondering, which is you see
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  Speaker 1: that dollar denominated emerging markets dead is down more than
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  Speaker 1: three percent so far this month. Is this a buying opportunity, UM?
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  Speaker 1: I think it kind of depends on where you're where
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  Speaker 1: you're looking, obviously. I think I was listening in on
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  Speaker 1: you a little bit earlier, UM and heard the discussion
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  Speaker 1: regarding just how much dollar denominated that is out there
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  Speaker 1: and how much has been raised. I think the good
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  Speaker 1: news UM for emerging markets is that most of that
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  Speaker 1: debt is actually in places like the Chinese financial system,
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  Speaker 1: which has sort of shorter tenor um, which is a
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  Speaker 1: little bit less risky. And I think actually one thing
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  Speaker 1: that's getting lost in sort of the negativity towards the
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  Speaker 1: m the last couple of weeks is the fact that
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  Speaker 1: commodity prices really are increasing a lot UM, and a
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  Speaker 1: lot of places like Brazil, for example, UM has a
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  Speaker 1: lot of sensitivity to that, and I'm not corollary doesn't
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  Speaker 1: have a lot of downside UM from US trade like
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  Speaker 1: a lot of emerging markets do. Richard. I was reading
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  Speaker 1: one of the notes from your firm, UH called Making
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  Speaker 1: Money Mobile, really fascinating report about how in frontier markets,
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  Speaker 1: you know, not a lot of people have bank accounts.
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  Speaker 1: But more and more people are getting mobile phones and
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  Speaker 1: this idea that sort of the fintech revolution will allow
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  Speaker 1: them to start doing more banking and banking like services
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  Speaker 1: on their phones. Is that like one of the hottest
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  Speaker 1: opportunity use in frontier markets. And well, do you expect
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  Speaker 1: them to basically just bypass that the whole banking system
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  Speaker 1: and and come at it more from a fintech mobile
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  Speaker 1: phone up vantage point? Yeah exactly. UM. So that that
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  Speaker 1: is how we're seeing it, and that is one of
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  Speaker 1: the key areas of focus for our fund UM. And
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  Speaker 1: it's something an opportunity that you see in a number
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  Speaker 1: of different countries UM. For us, we're most UM interested
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  Speaker 1: in in the opportunity provided by mobile money in Bangladesh UM,
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  Speaker 1: but also it's it's happening in Kenya and and pretty
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  Speaker 1: much everywhere. UM. It's allowing countries to leap frog UM
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  Speaker 1: the modern banking system and not have the need for
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  Speaker 1: UM physical infrastructure and branches. Usually what they do is
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  Speaker 1: use an agency model UM and it allows UH users
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  Speaker 1: to be able to do basically anything UM on their phones,
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  Speaker 1: from deposits, sending money UM and even in some countries
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  Speaker 1: doing some short term borrowing. What's the difference between frontier
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  Speaker 1: and emerging markets. UM, Well, there's a classification and that's
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  Speaker 1: you know, done by the by the index makers, the
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  Speaker 1: gods there UM. But then I think they are UM.
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  Speaker 1: But more broadly, I think it's it's just a distinction
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  Speaker 1: that's based on overall levels of both economic and capital
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  Speaker 1: market development UM, as well as the types of sort
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  Speaker 1: of disclosure and UM financial UM, maybe integrity that you
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  Speaker 1: you see. So just since November eighth, since Donald Trump
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  Speaker 1: was elected the next president of the United States, has
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  Speaker 1: anything about your investing thesis changed UM? I would say no, Honestly,
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  Speaker 1: I think there's sort of we're struggling with sort of
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  Speaker 1: the same bigger picture issues that a lot of people are.
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  Speaker 1: You know what Donald Trump means for international institutions like
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  Speaker 1: the I m F and frontier obviously relies on that UM.
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  Speaker 1: But I think, you know, the trade story and the
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  Speaker 1: protectionists from the US is sort of a red herring.
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  Speaker 1: I think the the export attractiveness for a lot of
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  Speaker 1: these markets, like Vietnam, for example, goes a lot beyond
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  Speaker 1: UM trade deals and reliance on the US. For example,
• 12:03
  Speaker 1: you know, a manufacturing worker in China and in other
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  Speaker 1: parts of Asia make now already make about thirty dollars
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  Speaker 1: a day. In Vietnam that's about six dollars. So you know,
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  Speaker 1: companies like Samsung moving all of their production to Vietnam
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  Speaker 1: is not going to change because of the TPP or
• 12:18
  Speaker 1: because Donald Trump doesn't like international trade. Richard, I'm curious,
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  Speaker 1: what are there any specific frontier regions that have caught
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  Speaker 1: your attention that have the best growth prospects. And I'm
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  Speaker 1: also curious, is there the potential for sort of non
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  Speaker 1: correlated returns from frontier markets or is it you know, basically,
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  Speaker 1: are they relying on the same macro trends that developed
• 12:39
  Speaker 1: markets are, just maybe at even a higher beta. Sure,
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  Speaker 1: I'll take the second part of that first. I think
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  Speaker 1: that's sort of the great thing about the asset classes
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  Speaker 1: that it is a little bit more or it's definitely
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  Speaker 1: more uncorrelated than an emerging markets. And a lot of
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  Speaker 1: that has to do with the fact that, as you
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  Speaker 1: were discussing on emerging market debt side, the capital market
• 12:56
  Speaker 1: integration between the developed world and frontier markets is a
• 13:00
  Speaker 1: lot less. So, you know, since the election, um form
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  Speaker 1: emerging market equities are down about four percent UM and
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  Speaker 1: frontier markets aren't even down one percent, and the reason
• 13:09
  Speaker 1: is that there's not that kind of hot capital UM
• 13:12
  Speaker 1: to risk money inflow UM. So that's that's a nice
• 13:15
  Speaker 1: part of you know, why it's a good portfolio diversifier.
• 13:19
  Speaker 1: UM to the first part of your question. On the
• 13:21
  Speaker 1: regional side, we tend to focus more on the more
• 13:24
  Speaker 1: attractive structural and demographic stories, and we find those to
• 13:27
  Speaker 1: be most attractive in South Asia, So you'd see us
• 13:30
  Speaker 1: having most of our exposure in countries like Bangladesh, Pakistan
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  Speaker 1: and Vietnam. UM. Richard, you know, I was looking at
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  Speaker 1: your your fun dry House Frontier Emerging Markets fund. There's
• 13:40
  Speaker 1: less than a hundred billion dollars of assets in it.
• 13:43
  Speaker 1: Do you think that there is a big advantage to
• 13:45
  Speaker 1: being smaller? And at what point is a fund too
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  Speaker 1: big to really generate the returns in emerging markets? Yeah?
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  Speaker 1: So I do you think there is, particularly in frontier UM,
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  Speaker 1: there is a huge benefit to having a smaller size UM,
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  Speaker 1: and our fund is capacity constrained for that reason. UM.
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  Speaker 1: I think once you start managing more than something like
• 14:09
  Speaker 1: seven million dollars and UH in frontier equities, that that
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  Speaker 1: becomes a lot more challenging UM and you know the
• 14:17
  Speaker 1: median market cap and our fund is about eight hundred
• 14:20
  Speaker 1: million dollars, so UM, it does allow us to find
• 14:23
  Speaker 1: these like true growth, more idiosyncratic UM, really exciting stories. Richard,
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  Speaker 1: Who are some of the investors that UH you target
• 14:33
  Speaker 1: when you talk about frontier funds? I mean, is it
• 14:36
  Speaker 1: sort of a small diverse diversification from pension funds and
• 14:39
  Speaker 1: big institutional investors or do you actually go after retail
• 14:42
  Speaker 1: money to Yeah, no, we don't focus on retail investors. UM.
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  Speaker 1: I think the so far, there was a little bit
• 14:49
  Speaker 1: of a retail excitement a couple of years ago when
• 14:51
  Speaker 1: frontier was hot and oil prices were really high UM.
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  Speaker 1: But since then, most of the the inquiries we get
• 14:57
  Speaker 1: are from pension funds who are looking for UM diversifier
• 15:01
  Speaker 1: and specifically UM using it as sort of a better
• 15:04
  Speaker 1: emerging markets exposure. It is amazing. Eight point six is
• 15:08
  Speaker 1: the total return on emerging markets debt so far this year.
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  Speaker 1: So certainly the declines that we've seen recently are really
• 15:14
  Speaker 1: a divergence from that and really don't even cut into
• 15:18
  Speaker 1: the bulk of the returns which are these. Thank you
• 15:20
  Speaker 1: so much for being with us. Richards, these portfolio manager
• 15:22
  Speaker 1: at dry House Capital Management. My breaking. There is a
• 15:37
  Speaker 1: book with a very scary title, The Road to Ruin,
• 15:41
  Speaker 1: the Global Elite's Secret Plan for the Next Financial Crisis. Um.
• 15:45
  Speaker 1: Perhaps it would be easy to dismiss if it wasn't
• 15:47
  Speaker 1: written by Jim Rickards, who is an advisor to the
• 15:50
  Speaker 1: Defense Department, among many other areas, and is the best
• 15:55
  Speaker 1: selling author of The Currency War is the Death of
• 15:57
  Speaker 1: Money in the New Case for Cold Jim, thank you
• 16:00
  Speaker 1: for being with us. I really appreciate it, thanksfully. So
• 16:02
  Speaker 1: it's great to be with you. So, um, why don't
• 16:05
  Speaker 1: we start with the line in the title of this book,
• 16:09
  Speaker 1: what is the secret plan for the next financial crisis
• 16:12
  Speaker 1: by the global elites? Well, it's been in preparation for
• 16:15
  Speaker 1: a long time. At least I make the point in
• 16:17
  Speaker 1: the book. There are a lot of There are a
• 16:18
  Speaker 1: hundred end notes. Readers don't have to read them, but
• 16:21
  Speaker 1: they're there. But every claim, everything I say in the
• 16:23
  Speaker 1: book is very well documented. For example, um brisben Australia.
• 16:28
  Speaker 1: In November two thousand, fourteen g twanty meetings. So the
• 16:31
  Speaker 1: leaders of the Gouger twenty nations agreed on the final
• 16:34
  Speaker 1: communic k and then that was a plan. You have
• 16:36
  Speaker 1: to go to the working papers man. This is a
• 16:38
  Speaker 1: little bit kiki. But then there is the the global
• 16:41
  Speaker 1: bail and plan to freeze the financial system. So they're
• 16:44
  Speaker 1: not going to do bailouts anymore. They're going to do
• 16:46
  Speaker 1: bail in. The SEC recently changed money market regulations, so
• 16:49
  Speaker 1: the first time money market funds can suspend redemptions in
• 16:53
  Speaker 1: the crisis, they can act exactly like hedge funds. That
• 16:56
  Speaker 1: was not true in two thousand and eight when everybody
• 16:58
  Speaker 1: wanted their money back, there's money mark. The funds had
• 17:00
  Speaker 1: to give it to them. That meant they couldn't roll
• 17:02
  Speaker 1: over dollar liabilities to European banks. The European banks couldn't
• 17:06
  Speaker 1: get dollars. They went to the European Central Bank. The
• 17:08
  Speaker 1: European Central Bank had to do ten trillion dollars swap
• 17:11
  Speaker 1: print up euros given to the FED. The Fed up yours.
• 17:14
  Speaker 1: My point is always machinations were going on behind the scenes.
• 17:17
  Speaker 1: They fixed it by saying no. The next time, the
• 17:19
  Speaker 1: money market funds can suspend redemption. So Americans think they
• 17:22
  Speaker 1: can call the money market found sell the units. The
• 17:24
  Speaker 1: money's in the bank. The next day they're going to
• 17:26
  Speaker 1: find out the hardware in the next crisis. That's not true,
• 17:29
  Speaker 1: I guess, Jim. The question is when is the next crisis?
• 17:33
  Speaker 1: What would cause the next financial crisis that would trigger
• 17:36
  Speaker 1: these steps? Well, it's a long list, Mike and that.
• 17:38
  Speaker 1: But the way to understand it I used the dynamic
• 17:40
  Speaker 1: systems analysis and complexity theory. So I magine snow and
• 17:44
  Speaker 1: you've got a big pile snow on the side of
• 17:46
  Speaker 1: the mountain. Now one snowflight comes along, disturbs a few
• 17:49
  Speaker 1: more snow flights. That creates momentum and hoping post loose,
• 17:52
  Speaker 1: and you have an avalanche. Who do you blame in
• 17:54
  Speaker 1: that situation? What do you study? Do you blame the
• 17:56
  Speaker 1: snow flake or do you look at the instability of
• 17:58
  Speaker 1: the system. I look at the instabilit of the system.
• 18:01
  Speaker 1: But in terms of snowflakes, there could be a lot
• 18:03
  Speaker 1: of things, and it could be Deutsche Bank, it could
• 18:05
  Speaker 1: be the entire with random Chinese credit crisis. The biggest
• 18:08
  Speaker 1: thing right now there's a global dollar shortest. And that
• 18:11
  Speaker 1: sounds strange because I just say, hey, didn't the Fed
• 18:14
  Speaker 1: print you know, four trillion dollars after the Less crisis?
• 18:17
  Speaker 1: How could there be a dollar short as well. The
• 18:19
  Speaker 1: answer is said, yes, that's I printed four trillion dollars,
• 18:22
  Speaker 1: But the world created seventy trillion dollars of dollars denominated debt.
• 18:26
  Speaker 1: You have nine trillion dollars of dollars denominated corporate debts
• 18:29
  Speaker 1: from emerging markets. This is places like Turkey, Indonesia, Brazil, Malaysia, etcetera.
• 18:35
  Speaker 1: That's not sovereign debt, which the ion that can bail
• 18:37
  Speaker 1: out if they want to. That's corporate debt. Now, look
• 18:39
  Speaker 1: at you've been reporting since the election. I'm a strong dollar,
• 18:43
  Speaker 1: and that's right. The dollars going to the moon, and
• 18:45
  Speaker 1: that makes a dollar debt harder to repay, and we're
• 18:47
  Speaker 1: gonna have an emerging markets dollar default crisis worse than
• 18:51
  Speaker 1: what happened in UH and the eighties with the Latin market.
• 18:55
  Speaker 1: So there are a lot of things out there, But
• 18:56
  Speaker 1: my view is it doesn't really matter because it's one thing,
• 19:00
  Speaker 1: it will be another, and it could happen tomorrow. So
• 19:04
  Speaker 1: you know about the dollar shortage. People have been talking
• 19:06
  Speaker 1: about the dollar shortage. Is that just another way of
• 19:08
  Speaker 1: saying that the dollar could appreciate very suddenly and rapidly. Well, yes,
• 19:14
  Speaker 1: because there's a there's a mad scramble for dollars. That
• 19:16
  Speaker 1: the point is, yes, and more dollars around, but there's
• 19:18
  Speaker 1: a lot more dollar debt, and and these emerging markets,
• 19:21
  Speaker 1: you know the news turkeepers. So to anyone you like,
• 19:24
  Speaker 1: Nigeria is a good example South Africa. These countries borrowed
• 19:28
  Speaker 1: dollars during these seven years of zero interest rates. Why
• 19:31
  Speaker 1: wouldn't you get a little spreads for credit? But why
• 19:34
  Speaker 1: wouldn't you borrow the lowest possible rate? The local ecouncies
• 19:37
  Speaker 1: and were were more expensive, etcetera. But it was sort
• 19:40
  Speaker 1: of one an assumption that the rates would stay low
• 19:42
  Speaker 1: and the dollar would stay weak. That's not playing out.
• 19:44
  Speaker 1: The rates are going up, that's clear, the dollars getting
• 19:47
  Speaker 1: a lot stronger. Well. Trade is actually declining. That's one
• 19:50
  Speaker 1: of the scariest things you can think of me. It's
• 19:52
  Speaker 1: not I'm not doing that. Trade deficits and surpluses, those
• 19:55
  Speaker 1: things bounce around, but the absolute level of global imports
• 19:58
  Speaker 1: and exports is declining for very similar to what happened
• 20:01
  Speaker 1: in two thousand and eight. And the Great Depression was
• 20:03
  Speaker 1: the time before that. So these are these are dangerous warnings.
• 20:05
  Speaker 1: The other point I make least is that. Um, you know,
• 20:08
  Speaker 1: everyone's kind of excited about President Trump and his economic
• 20:11
  Speaker 1: policies and trying to figure them out. The stock markets
• 20:14
  Speaker 1: going out because you know he's gonna cut regulation in,
• 20:16
  Speaker 1: lower taxes, more infrastructure spending, so Caterpillar and John Deere
• 20:20
  Speaker 1: go up, and transportations. I understand all that, but these
• 20:24
  Speaker 1: dynamic uh, this dynamic systems analysis, this instability doesn't care
• 20:28
  Speaker 1: if you're a Republican or Democrat. These are the kinds
• 20:30
  Speaker 1: of things that can play out regardless of who's who's impacted.
• 20:34
  Speaker 1: These forces are bigger tan domestic economic policy. As George
• 20:37
  Speaker 1: Bush conduct two thousand, the next crisis will be bigger.
• 20:41
  Speaker 1: Jim Records with a frightening but fascinating look at what
• 20:45
  Speaker 1: to expect in the days and weeks and years ahead
• 20:48
  Speaker 1: in the financial system. Thank you so much, Jim Records.
• 21:02
  Speaker 1: In the grocery stores in England, a battle is raging.
• 21:06
  Speaker 1: Andrea Felsted of Bloomberg gad Fly in London, thank you
• 21:10
  Speaker 1: for joining us. Hello, Hi, um, you know I loved
• 21:14
  Speaker 1: your story today. It was talking about how supermarkets in
• 21:16
  Speaker 1: London are bracing for food price hikes as a result
• 21:21
  Speaker 1: of the depreciating pound. And can we talk a little
• 21:25
  Speaker 1: bit about which supermarkets will get hurt the most by this? Well,
• 21:30
  Speaker 1: all of the British supermarkets will be affected. Um, I
• 21:34
  Speaker 1: think the one that will probably do best is Tesco
• 21:36
  Speaker 1: because Tesco has had a terrible time over the last
• 21:39
  Speaker 1: few years, but it is actually growing sales for the
• 21:42
  Speaker 1: first time in three years. It's also the biggest so
• 21:45
  Speaker 1: it's growing from a bigger base. So if you're a supplier,
• 21:49
  Speaker 1: you want more volume, and Tesco gives you the most volume,
• 21:53
  Speaker 1: so you're likely to give it to your best deals.
• 21:56
  Speaker 1: The others are not so good. Morrison's william More, they
• 22:01
  Speaker 1: make about a quarter of all the food they sell,
• 22:03
  Speaker 1: so they've got their own factories and their chief executive
• 22:06
  Speaker 1: has been doing some deals with Amazon to supply them,
• 22:09
  Speaker 1: so he's putting more volume through those factories. But Sainsbury's
• 22:13
  Speaker 1: and Asday they are their sales are falling and so
• 22:18
  Speaker 1: they're not going to get as good deals from suppliers.
• 22:21
  Speaker 1: Andry I'm I'm amazed at your lead on this calm today,
• 22:25
  Speaker 1: Marma geddon to shrinking fish fingers. Fish fingers are shrinking,
• 22:31
  Speaker 1: I mean riots in the streets. This is a big,
• 22:37
  Speaker 1: big thing that's been happening. It's called sort of shrink
• 22:40
  Speaker 1: inflation or defilling, and basically so that retailers don't have
• 22:46
  Speaker 1: to put the price up. They they can keep the
• 22:50
  Speaker 1: price the same, but they make the products smaller. So
• 22:53
  Speaker 1: a classic one's been chocolate bars. The chocolate bars have
• 22:56
  Speaker 1: been getting smaller, or a boxing off in flakes. So
• 23:01
  Speaker 1: a box of conflicts is the same size box, but
• 23:04
  Speaker 1: it used to be full of conflicts and now it's
• 23:07
  Speaker 1: only half full. So expect much more of this um
• 23:11
  Speaker 1: as retailers deal with this inflation. Everybody is losing weight,
• 23:16
  Speaker 1: right you walk around the streets, No, not not yet.
• 23:20
  Speaker 1: How much money is on the line here, I mean
• 23:22
  Speaker 1: how much of these price increases potentially eating into grocery stores,
• 23:26
  Speaker 1: bottom wines. Well. Um, Retailers that I've talked to think
• 23:30
  Speaker 1: that this time next year, food prices could be up
• 23:33
  Speaker 1: by about five cent. And if you think over the
• 23:37
  Speaker 1: last two years they've been falling steadily, UM, then that's
• 23:41
  Speaker 1: a big impact. But the funny thing about this story
• 23:43
  Speaker 1: is there's kind of lots of moving parts because the
• 23:47
  Speaker 1: supermarket's actually been moaning for the past two years about
• 23:52
  Speaker 1: falling prices because it means they have to sell more
• 23:54
  Speaker 1: products to get the same value of sales. I mean,
• 23:58
  Speaker 1: it's great for the consumer with price is coming down,
• 24:01
  Speaker 1: and you know, notwithstanding you know, shrinking sizes, So if
• 24:05
  Speaker 1: there is a bit of inflation, they actually don't have
• 24:09
  Speaker 1: to sell so much to get the same amount of sales.
• 24:11
  Speaker 1: So why are they're sort of saying we're trying to
• 24:14
  Speaker 1: keep the prices down for consumers. Really they'd love a
• 24:18
  Speaker 1: bit of inflation just to get that top line going
• 24:20
  Speaker 1: a bit. And I'm curious how the dynamics between grocery
• 24:24
  Speaker 1: stores and restaurants are working. You know, I would think
• 24:27
  Speaker 1: is the same phenomenon happening at restaurants higher prices and
• 24:31
  Speaker 1: smaller portions, And is that actually buffering the supermarkets a
• 24:35
  Speaker 1: little bit? People eating out as much, and but you know,
• 24:38
  Speaker 1: cooking it on all that it could do. I mean,
• 24:40
  Speaker 1: the restaurants aren't going to be immune for this. They
• 24:43
  Speaker 1: they're going to either have to put prices up or
• 24:45
  Speaker 1: shrink portions if you know, this trend continues. And it's
• 24:50
  Speaker 1: funny because the restaurants have actually been a big competitor
• 24:53
  Speaker 1: to the grocers as as we've come out of recession.
• 24:57
  Speaker 1: We've been eating out more rather than petting more food
• 25:01
  Speaker 1: in our supermarkets another thing that the retailers have been
• 25:03
  Speaker 1: complaining about. So actually, if incomes do become squeezed a
• 25:08
  Speaker 1: bit next year, as as he's likely to happen, that
• 25:11
  Speaker 1: could in the short term be a bit of boost
• 25:14
  Speaker 1: grocers as they're eating at as people are eating out
• 25:17
  Speaker 1: less and maybe buying more in the supermarket. It was
• 25:20
  Speaker 1: a phenomenon in the last downturn. There was a big thing,
• 25:24
  Speaker 1: you know, people would eat at home or cook at
• 25:27
  Speaker 1: home rather than go out and more. Upmarket supermarkets such
• 25:32
  Speaker 1: as wait Trows and Mark Suspens has actually made a
• 25:35
  Speaker 1: virtue of this and they did these dining deals and
• 25:38
  Speaker 1: things like that. But that's kind of taken a bit
• 25:40
  Speaker 1: of a hit with the um as people have more
• 25:43
  Speaker 1: money and they go out again. Bloomberg Gadfly speaking to
• 25:49
  Speaker 1: us from London. Thank you so much, Mike. You're gonna
• 25:53
  Speaker 1: go get some tobler. Yeah, we should have saved that
• 25:55
  Speaker 1: one for after lunch and we said round on here
• 25:57
  Speaker 1: with my Greg and this is Bloomberg. Thanks for listening
• 26:05
  Speaker 1: to the Bloomberg pien L podcast. You can subscribe and
• 26:08
  Speaker 1: listen to interviews at iTunes, SoundCloud, or whatever podcast platform
• 26:13
  Speaker 1: you prefer. I'm pim Fox. I'm out there on Twitter
• 26:16
  Speaker 1: at pim Fox. I'm out there on Twitter at Lisa Abramo.
• 26:20
  Speaker 1: It's One before the Podcast. You can always catch us
• 26:23
  Speaker 1: worldwide on Bloomberg Radio