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Euro Relief Plan Gave Market Permission To Sell Dollar: Juckes · Bloomberg Intelligence

0:01
Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, along
0:04
Speaker 1: with my co host of Bonnie Quinn. Every business day
0:06
Speaker 1: we bring you interviews from CEOs, market pros, and Bloomberg experts,
0:10
Speaker 1: along with essential market moving news. Kind the Bloomberg Markets
0:13
Speaker 1: Podcast on Apple Podcasts or wherever you listen to podcasts,
0:17
Speaker 1: and on Bloomberg dot com. Well, for the longest time,
0:21
Speaker 1: when we talk foreign currencies, I've always asked our learned guests,
0:24
Speaker 1: give me a bear case for the U s dollar,
0:27
Speaker 1: because for the longest time, Uh, there was no bearer
0:31
Speaker 1: case for the US dollar, it seemed like. But again,
0:33
Speaker 1: all it takes is a global pandemic and a FED
0:36
Speaker 1: coming to the rescue, and there you go. Kid Jukes,
0:39
Speaker 1: global fex Strategist, Chief Global effect Strategist for Society General
0:43
Speaker 1: and one of our go to folks on all things currency,
0:46
Speaker 1: joins us. Uh, Kid, thanks so much for joining us here.
0:49
Speaker 1: Give us a sense here of what you think has
0:52
Speaker 1: been driving this dollar again down almost nine percent from
0:55
Speaker 1: its March twenty high. Give us your sense of what's
0:57
Speaker 1: happened to the dollar, how the market's treating the hour,
1:00
Speaker 1: and kind of how you think it proceeds from here.
1:03
Speaker 1: And I think the first thing that happened is if
1:05
Speaker 1: you looked back at that, that that sort of week
1:07
Speaker 1: in March, when the FED saved the market, fixed, the
1:10
Speaker 1: repo market, fixed the international swamp market, came up with
1:15
Speaker 1: the main Street program. I mean that that was a
1:18
Speaker 1: spectacular week for the FED, even by the history of
1:20
Speaker 1: central banks in the last decade and a bit um
1:23
Speaker 1: And you could you could write all of that down
1:25
Speaker 1: and say, what what makes the dollar go shooting up
1:28
Speaker 1: in times of crisis. It's that all the world needs dollars,
1:32
Speaker 1: because that's if you know, if you borrow money, you
1:34
Speaker 1: you have debts. You need to get hold of dollars
1:38
Speaker 1: to make the system work. And that's what caused that
1:41
Speaker 1: spike higher in March, and the FED effectively said, we
1:44
Speaker 1: are going to make sure that the rest of the
1:46
Speaker 1: world can have as many dollars as they need at
1:48
Speaker 1: a fair price. You know, we're standing by. And if
1:51
Speaker 1: you just took that face value, you'd say, right, I
1:54
Speaker 1: have a barish case for the dollar. What I don't
1:56
Speaker 1: have today, and very much the sense then is a
1:59
Speaker 1: bullish cave for anything else, because um, you know, at
2:02
Speaker 1: that point, very much the sense was this is going
2:05
Speaker 1: to be a terrible pandemic for emerging market economies. It
2:08
Speaker 1: will be worse in Europe than in the United States,
2:10
Speaker 1: and so on and so forth. And I think so
2:13
Speaker 1: so that that piece was was easy in a sense.
2:16
Speaker 1: That's why gold, gold did well straightaway, and the currencies
2:19
Speaker 1: that have been the most beaten up in the first
2:22
Speaker 1: half of March bounced back some of their last ground.
2:25
Speaker 1: I think that's evolved now in two ways in recent weeks.
2:30
Speaker 1: One has been that the European Recovery Fund announcement has
2:34
Speaker 1: given I think it's given the market permission to sell
2:36
Speaker 1: the dollar because the second biggest currency in the world,
2:39
Speaker 1: the euro now has actually at least an agreement for
2:44
Speaker 1: proactive fiscal policy, which is a big step forwards on
2:48
Speaker 1: the part of Europe's politicians, and that helps UM. And
2:52
Speaker 1: then I think there's also this sense, you know, studying
2:55
Speaker 1: more negatively for the US, that the FED is isn't
2:58
Speaker 1: necessarily done because the US economy he's fighting fighting the pandemic,
3:03
Speaker 1: perhaps less successfully at the moment than some of the
3:06
Speaker 1: other economies. Now, the announcement about the UM unemployment insurance
3:12
Speaker 1: transition will will help the US in that regard. But
3:15
Speaker 1: this there's this sense that maybe the US isn't going
3:18
Speaker 1: to come out of this best economically, and the growth
3:20
Speaker 1: differentials are going to be tighter as well as the
3:22
Speaker 1: interest rate differentials. But but I think the European thing,
3:26
Speaker 1: it just gave permission to the market to say, yep,
3:29
Speaker 1: if I'm allowed to buy other currencies, now I can
3:31
Speaker 1: sell the dollar. Because that was straightforward. So kid, where
3:35
Speaker 1: in the world are we going to see serious long
3:37
Speaker 1: term problems because of a weaker dollar and because of
3:41
Speaker 1: obviously the coronavirus impact. Are their currencies that are going
3:44
Speaker 1: to be in real trouble? Um? Not not wells? Okay?
3:49
Speaker 1: So there are coveries. One is, you know, historically a
3:52
Speaker 1: weaker dollar is usually a symptom that the world's in
3:54
Speaker 1: good shape because money is flowing out of the United
3:56
Speaker 1: States looking for opportunities. So usually I put a week
4:00
Speaker 1: of dollar down as being a good thing because the
4:02
Speaker 1: things that make it a good thing are encouraging. Now, economically,
4:07
Speaker 1: I'm still worried about emerging markets at the moment, because
4:10
Speaker 1: economically they're not in a good shape the kind of
4:12
Speaker 1: the the ability to do the kind of things the
4:15
Speaker 1: FED did. But you know, if you can help your
4:17
Speaker 1: economy with quantitative easing, if you can help your economy
4:20
Speaker 1: with with your central bank buying debt straight off the
4:23
Speaker 1: government or out of the market to keep interest rates
4:25
Speaker 1: super low while you come up with with fiscal help
4:28
Speaker 1: for your economy. All all of that's good. If you're
4:32
Speaker 1: an emerging market economy, you don't have anything like that
4:35
Speaker 1: degree of leeway in terms of policy, so you're you're
4:39
Speaker 1: left with fewer defenses against the pandemic. And your main
4:43
Speaker 1: markets are developed markets. So so I worry that the
4:46
Speaker 1: dollars weakening earlier than you know that the necessarily helps
4:51
Speaker 1: for for some of those and I think August could
4:54
Speaker 1: be a tricky month for some of those currencies. And
4:56
Speaker 1: then you've got the ones that have just moved very fast.
4:59
Speaker 1: You look at um, you look at the euro in
5:01
Speaker 1: in trade weighted terms, the euro is already significantly stronger
5:05
Speaker 1: than it was at the best level it reached at
5:07
Speaker 1: the beginning of eighteen when we saw a big ranny
5:11
Speaker 1: in seventeen, when the ECB said it was planning to
5:14
Speaker 1: taper its bond purchases. They've got growth over two We
5:17
Speaker 1: are all terribly excited with ourselves. Um, and that fizzled
5:21
Speaker 1: out spectacularly. For now. I you know, the Euro can't
5:25
Speaker 1: keep on going up at this pace without without having
5:30
Speaker 1: some economic impact. The economy is not in good enough shape.
5:32
Speaker 1: It's so much more open economy than the United States.
5:35
Speaker 1: So UM, I'm desperately hoping. I'm not wrong to be thinking.
5:41
Speaker 1: You know, I wish I could buy the Euro here
5:43
Speaker 1: or cheaper in a few months time. This is going
5:45
Speaker 1: too fast for me. On seventeen sixty nine. That roles
5:48
Speaker 1: pretty quickly, very briefly. We're out of time, kid, but
5:51
Speaker 1: a target for the British plans Sterling. The British pans Sterling,
5:56
Speaker 1: I think is going to run out because I think
5:58
Speaker 1: you're going to going to run out of momentum here
5:59
Speaker 1: the and just going to go on weakening against the Euro.
6:02
Speaker 1: And if the Euro tops out because it's going up
6:04
Speaker 1: too fast, I think we'll be back at us from
6:08
Speaker 1: eight right now, Kid Jukes, thank you always, such a
6:11
Speaker 1: pleasure to speak with you. Kitchen Jukes is chief Strategists
6:14
Speaker 1: Associated General but of course many decades following currencies and
6:19
Speaker 1: has a huge amount of insight into both develop markets
6:22
Speaker 1: and emerging market currencies and of course you mentioned the Fed, Paul,
6:25
Speaker 1: and you know we're waiting on what we hear from
6:28
Speaker 1: the Fed this week. Unlikely to be too much to celebrate,
6:31
Speaker 1: I imagine. No, I think we're gonna see lower for longer.
6:35
Speaker 1: I think the Fed's comfortably here and uh, and we're
6:37
Speaker 1: seeing that in the dollar, We've seen that in gold.
6:41
Speaker 1: Our next guest wrote a recent column saying Republicans have
6:44
Speaker 1: had four months to figure out their position on the
6:46
Speaker 1: next big pandemic relief bill. It sounds like today finally
6:49
Speaker 1: we're getting some proposals on that next big bill, although
6:53
Speaker 1: it's far from what most people would like. Let's check
6:56
Speaker 1: in now on our Bloomberg opinion columnist Jonathan Bernstein. Jonathan,
7:00
Speaker 1: we're just getting worried that Senate Republicans proposed cutting supplemental
7:03
Speaker 1: unemployment benefits to two dollars a week for a transitional
7:07
Speaker 1: period which would last two months. Of course, we know
7:10
Speaker 1: that Democrats do not agree with this. What do you
7:13
Speaker 1: make of a transitional period? Will it work well? They're
7:17
Speaker 1: also saying that they want to eventually get to this
7:22
Speaker 1: level um that the White House has been pushing, and
7:25
Speaker 1: that the states don't actually have the capacity to be
7:28
Speaker 1: able to administer. So that's a problem in their own proposal.
7:32
Speaker 1: And you know, it's apparently an internal problem within Republicans
7:36
Speaker 1: that some want to give nothing, some want to give more,
7:39
Speaker 1: and so they're sort of trying to find a way
7:43
Speaker 1: to negotiate. You know, again, this is something that they've
7:46
Speaker 1: had four months to figure out. They've had two months
7:49
Speaker 1: since the Democrats passed their bill, and they are only now,
7:52
Speaker 1: you know, essentially after the deadlines are passing, coming up
7:57
Speaker 1: with a proposal. But it's a proposal that the Democrats
7:59
Speaker 1: aren't going to have very much interested in at all. So,
8:03
Speaker 1: you know, we don't think that they're going to come
8:05
Speaker 1: up with a compromise by by August first. Are they
8:09
Speaker 1: going to come up with a compromise within one week,
8:11
Speaker 1: two weeks, three weeks? We don't know, Jonathan. Is there
8:14
Speaker 1: any sense of why it took the Republicans so long
8:16
Speaker 1: to come up with this package again, months after the
8:19
Speaker 1: Democrats came up with There is this simply a political
8:22
Speaker 1: negotiating tactics by the Republicans. If it is, it's a
8:25
Speaker 1: stupid one, um, But I think is that that you know,
8:29
Speaker 1: it's a the this functional party. There's Lindsay Graham said
8:33
Speaker 1: over the weekend that Republican senators are going to vote no, uh, no,
8:38
Speaker 1: matter what the package is. They essentially think, you know,
8:41
Speaker 1: there are Republicans who believe that unemployment benefits are the
8:46
Speaker 1: thing that is causing the recession. Now everybody here in
8:51
Speaker 1: the real world thinks that the coronavirus is the thing
8:54
Speaker 1: causing the recession. And you know, mainstream economists think the
8:58
Speaker 1: best thing the government can do is to give relief
9:02
Speaker 1: and give stimulus. But there's a lot of Republicans who
9:04
Speaker 1: don't believe that, and they think that, you know, money
9:06
Speaker 1: going to people is a problem. And so, you know,
9:10
Speaker 1: and Republicans over the last few years have been just
9:14
Speaker 1: terrified of their most conservative members, even if it's a
9:17
Speaker 1: minority within the party and a minority uh in a
9:21
Speaker 1: larger population. They just don't want to get on the
9:23
Speaker 1: wrong side of the conservatives, and that causes a lot
9:27
Speaker 1: of problems. So, Jonathan, what's the idea here? How will
9:30
Speaker 1: this work? People who were getting an extra six hundred
9:33
Speaker 1: maximum will now get two hundred extra and what some
9:38
Speaker 1: of them will be forced back to work? Is that
9:39
Speaker 1: the idea? That's the idea. But of course the jobs
9:43
Speaker 1: aren't there. You know, there's there's there aren't tons of
9:47
Speaker 1: people advertising jobs that can't find anybody. There's some anecdotal
9:51
Speaker 1: evidence that individual people here and there are saying, well,
9:54
Speaker 1: I'm not going to go back to work yet because
9:56
Speaker 1: of the six hundred dollar supplement. That probably is that
10:00
Speaker 1: there are occasional people out there. But so somebody also
10:03
Speaker 1: jump in and grabbed that job. So it's not, you know,
10:06
Speaker 1: a problem for the economy, a problem for jobs that. Um,
10:11
Speaker 1: you know that the benefits are generous and in fact
10:13
Speaker 1: what it has been, it's been very successful. Um you know, uh,
10:20
Speaker 1: the numbers on um retail spending and things like that
10:24
Speaker 1: have been surprisingly good, despite uh, the shutdown in April.
10:29
Speaker 1: So you know, it's been a successful program. But Republicans
10:32
Speaker 1: just don't like it, John, And remember this is only
10:36
Speaker 1: a piece of it. The Democrats are also pushing another
10:39
Speaker 1: two trillion dollars of a to state and local governments
10:43
Speaker 1: and a bunch of other things that are not in
10:45
Speaker 1: the Republican package. That's kinda where I want to go, Jonathan.
10:48
Speaker 1: I mean, as a former trader, I look at the
10:50
Speaker 1: bid Esque spread and I see a bit of a
10:52
Speaker 1: billion dollars here from the Republicans and ask on the
10:55
Speaker 1: other side of three three and a half trillion from
10:58
Speaker 1: the Democrats. That's a big, big gap. There's any realistic
11:02
Speaker 1: expectation that they can bridge that gap this week? I
11:06
Speaker 1: don't think so. Um, you know, Republicans are going to
11:09
Speaker 1: talk about, well, let's just do one thing to tie
11:12
Speaker 1: us over. But the Republican partial idea was to, oh,
11:17
Speaker 1: let's give us all the Republican preferences. Um, you know,
11:20
Speaker 1: they want a liability shield for employers. That's something Democrats
11:24
Speaker 1: don't want. It might be something that can be compromised,
11:27
Speaker 1: but it certainly isn't going to go into an additional
11:30
Speaker 1: tied us over plan. Nor is the Republican idea of
11:34
Speaker 1: unemployment insurance going to go into a you know, a
11:37
Speaker 1: short term extension. So no, I think that, um, you know,
11:42
Speaker 1: we're going to go to zero is what's going to happen.
11:46
Speaker 1: And then maybe they'll come up with something and it
11:47
Speaker 1: will take a few weeks. Yeah, it's pretty stunning. I mean,
11:51
Speaker 1: what if the data starts changing pretty quickly on consumer
11:54
Speaker 1: confidence starts tanking again, consumer spending starts tanking, and you know,
11:58
Speaker 1: the savings race start stanking, will Republicans change their mind? Possibly?
12:04
Speaker 1: You know, the crazy thing about this all is that
12:06
Speaker 1: there's an election coming up. Republicans in the incoming party
12:10
Speaker 1: they should be the ones who are desperate to douse
12:13
Speaker 1: the economy doing anything possible short term, you know, in
12:17
Speaker 1: advance of the election. And they you know, there are
12:19
Speaker 1: just some Republicans who, as far as I can tell,
12:22
Speaker 1: honestly believe that the best thing that the government can
12:25
Speaker 1: do is cut off funding. So it appears that Speaker
12:30
Speaker 1: Pelosi and Senator Schumern's and others are really leading a
12:34
Speaker 1: fairly unified effort on the part of the Democrats. Who's
12:37
Speaker 1: leading the Republican side? Is is it the President? Is it, um,
12:41
Speaker 1: Mitch McConnell, Who's really leading the Republican response here? That's
12:46
Speaker 1: an excellent question. Um. What it seems like is that
12:49
Speaker 1: the ah Republican senators are sort of in control of
12:55
Speaker 1: what they can ask what, but that the White House
12:58
Speaker 1: or um secret Erry Newton. I guess so not the
13:01
Speaker 1: White House is going to be the lead negotiator. But
13:04
Speaker 1: you know that's what that worked out last time in March.
13:07
Speaker 1: It was very successful, Um, but this time with a
13:11
Speaker 1: new White House, chief of staff, and with more Republican
13:14
Speaker 1: senators who are holding back, it's not clear how much
13:18
Speaker 1: authority manution is going to have to do the negotiations.
13:22
Speaker 1: You know. That's if there was a clear um you know,
13:26
Speaker 1: negotiating plan with a clear unified Republican party, well then
13:30
Speaker 1: maybe they could bridge that huge gap. But right now
13:33
Speaker 1: it doesn't really look like that's the case. So we
13:37
Speaker 1: have all these people, million unemployed people facing it back
13:41
Speaker 1: to school season with an extra two hundred dollars in
13:44
Speaker 1: their pockets. Is that is that going to work? Jonathan?
13:47
Speaker 1: Are we going to see you know, panic and mayhan Um?
13:52
Speaker 1: You know, that's a good question. Um, And I don't
13:56
Speaker 1: think they're gonna you know, there's not gonna be this
13:58
Speaker 1: two h because they're not gonna settle on anything, at
14:02
Speaker 1: least short term. You know, possibly maybe what they can
14:05
Speaker 1: do is do a quick bill with they're talking about
14:08
Speaker 1: a twelve another round of tw direct checks. That might
14:12
Speaker 1: be something they could do short term as a compromise.
14:14
Speaker 1: It's possible that, you know, once Republicans come to the
14:18
Speaker 1: table and realize that they're nowhere close to a deal,
14:21
Speaker 1: maybe they'll agree to extend the six hundred for longer,
14:25
Speaker 1: you know, it's it's just hard to see exactly how
14:27
Speaker 1: that happens. Hey, Jonathan, thanks for joining us. We'll be
14:30
Speaker 1: talking to you, i know, in the future here because
14:32
Speaker 1: this story is going to remain front and center. Johnthan Bernstein,
14:35
Speaker 1: Bloomberg Opinion, Politics Calumnist joining us. You can hear and
14:39
Speaker 1: read all of you can read all of Jonathan's work
14:41
Speaker 1: as well as the others at Bloomberg dot com slash Opinion.
14:47
Speaker 1: Well do you have political issues continue to have significant
14:50
Speaker 1: impacts on these markets as we trade day to day.
14:53
Speaker 1: Jack Devine, founding partner and president of the ARC Group,
14:57
Speaker 1: joins us. He's also former chief of the CIA's world
15:00
Speaker 1: wide Operations. We always appreciate getting his perspective on global geopolitics.
15:04
Speaker 1: Jack to so many areas to go here, I'd like
15:07
Speaker 1: to start with the topic that I thought at the
15:08
Speaker 1: time was hugely critical, but it feels like it's faded
15:11
Speaker 1: a little bit, And that's the Russian bounties. What's the
15:14
Speaker 1: latest there on what many people felt like was a big,
15:19
Speaker 1: big issue for our military. Right, Well, I do think
15:23
Speaker 1: it's faded. I mean, I think what what we're looking
15:27
Speaker 1: at here is um it shouldn't be surprising. In other words,
15:32
Speaker 1: the Russians are supporting the Taliban UH, and that they
15:37
Speaker 1: would be supporting the overall effort to undermine your forces.
15:43
Speaker 1: There is not a surprise. What was a surprise is
15:46
Speaker 1: a specific bounty. UH. The old days were you know,
15:51
Speaker 1: talking about taking scouts, right. So I think as they
15:55
Speaker 1: got into it, right, I think listening to the commander
15:59
Speaker 1: and forces out there that you know, there was no
16:03
Speaker 1: doubt that the Russians are aggressive, not only in Afghanistan
16:07
Speaker 1: but around the world, but they could actually tag it
16:11
Speaker 1: to a specific you know, so much for her head
16:16
Speaker 1: seemed to be a little bit more tenuous. It's not
16:18
Speaker 1: that I don't think it happened. I think the question
16:20
Speaker 1: also was how far up to change did it go
16:23
Speaker 1: all I did it take place? Was a local thing
16:26
Speaker 1: or was it approved by the Kremlin? So I think
16:29
Speaker 1: that sort of ordered it down, and I think it
16:32
Speaker 1: lost lost on steam. How much resentment is being built
16:36
Speaker 1: up in the armed forces because there is going to
16:39
Speaker 1: be no retaliation on things like this, and just Russian
16:43
Speaker 1: and in general the involvement in US politics, whether it's
16:49
Speaker 1: solicited or very unsolicited. But I think this is a
16:53
Speaker 1: really good question, and it's difficult one for us to
16:57
Speaker 1: grapple with. I'm just stunned. I mean, I'm a cold warrior,
17:00
Speaker 1: if you will. And the aggressive behavior of Russia used
17:06
Speaker 1: to be the United States and how it uses cyber
17:09
Speaker 1: and it's aggressive use of paramilitary forces, whether it's a Ukraine,
17:14
Speaker 1: Libia today, I mean, it is amazingly aggressive. And I
17:20
Speaker 1: think it's a surprise. The fact that people collect intelligence
17:26
Speaker 1: by all means there's no country around the world that
17:28
Speaker 1: isn't using its collection capabilities to become wiser that it
17:33
Speaker 1: becomes aggressive in the use of it, such as an
17:35
Speaker 1: elections or in going in and trying to co opt
17:40
Speaker 1: our science we should be. The virus disrupting elections and
17:46
Speaker 1: starring up and the stabilizing democracy in the West is
17:50
Speaker 1: really a very aggressive thing. Now, how do you respond?
17:53
Speaker 1: That's that's your question. I think we've we've moved to sanctions, right,
17:59
Speaker 1: but where does it stop? I mean, I actually was
18:01
Speaker 1: very surprised at the beginning, and the Russians went in
18:04
Speaker 1: in the sixteen if this doesn't make any sense, so
18:07
Speaker 1: how how does this help? How does it really help
18:09
Speaker 1: them that they would do it again in this election?
18:13
Speaker 1: Is surprising, but there was a notice put out yesterday
18:16
Speaker 1: saying they're going to They and others are doing it.
18:18
Speaker 1: So can I just jump in though? I mean, it's
18:20
Speaker 1: it's not just how do you respond, it's that the
18:24
Speaker 1: armed forces who are serving under a commander in chief
18:27
Speaker 1: in the president Donald Trump, know that there isn't going
18:30
Speaker 1: to be a response. Therefore, you know how much resentment
18:35
Speaker 1: is being built up? And what are the long term
18:37
Speaker 1: effects of resentment in you know, an army in what's
18:41
Speaker 1: purported to be very open democracy. Well, I think the
18:47
Speaker 1: question responds. Uh. I said, in order for you to
18:51
Speaker 1: react with force, to use force, you have to have
18:55
Speaker 1: at least, by my standard, concrete evidence that's just us
19:00
Speaker 1: that this is a Kremlin directed thing. Otherwise, when you
19:03
Speaker 1: respond with force, you're forcing you're responding government to government.
19:07
Speaker 1: So where I think there has been no pushback is
19:10
Speaker 1: and they hunt entire Well, the pit that I think
19:13
Speaker 1: is may be warranted now and that is a pushback
19:16
Speaker 1: in the cyber area. And uh, it's rather rather shocking. Again,
19:21
Speaker 1: And I would add the aggressive paramilitary thing. So do
19:26
Speaker 1: our forces are our forces agrieved by it? I mean,
19:29
Speaker 1: I think our forces are still as dedicated and loyal
19:33
Speaker 1: and well a polished as any army that ever existed.
19:37
Speaker 1: So I'm not sure it's having an impact on the morale.
19:41
Speaker 1: I just think it's, you know, a really egregious transgression
19:45
Speaker 1: of the rules of the game. And but what I
19:48
Speaker 1: think happened here is there wasn't enough to use force
19:52
Speaker 1: to go to go back, to go back on it.
19:55
Speaker 1: Often these responses need to be near real time, and
19:58
Speaker 1: it's really hard to get that type of evidence quick enough.
20:04
Speaker 1: But what about the elections, I mean, that's what's crossing
20:06
Speaker 1: my mind. I mean, or the egregious attempt both the
20:11
Speaker 1: Chinese and the Russians to get the virus. I mean,
20:13
Speaker 1: how are we going to respond to that? Now? I think,
20:17
Speaker 1: you know, the Russians have a different game plan, which
20:19
Speaker 1: is they don't really have they don't really abide by
20:22
Speaker 1: the rules anymore, and they are pressing the button in
20:24
Speaker 1: despite saying nice things in public, they're extremely aggressive. Will
20:29
Speaker 1: we become aggressive in terms of their internal affairs? I
20:33
Speaker 1: don't think we've gone down that bath, and I think
20:36
Speaker 1: if it continues, we're going to be pushed into it.
20:39
Speaker 1: And I think is a much more high risk aggressive
20:42
Speaker 1: leader than is generally recognized, Jack, Are you surprised at
20:47
Speaker 1: all or should we be surprised that our own intel
20:52
Speaker 1: technical intel people haven't been able to better defend our network.
20:56
Speaker 1: Something about the N s A and the c i
20:58
Speaker 1: A and maybe even the B I that you know,
21:01
Speaker 1: I'd rather depend upon them, I think than some kids
21:05
Speaker 1: out in Silicon Valley. Well, you know, we also have
21:08
Speaker 1: the Cyber Command and the armed forces as well. I mean,
21:11
Speaker 1: I honestly, I don't. I think where you get compromises
21:15
Speaker 1: are not are usually not technical compromises. It starts with
21:18
Speaker 1: the human being that that changes side, so to speak,
21:22
Speaker 1: usually for commercial reasons, and this encampment with the system
21:26
Speaker 1: because they didn't get promoted. So when you see a
21:29
Speaker 1: breach in N s A, it's usually because it's a
21:32
Speaker 1: human agent in the process. Right, And this famous case
21:37
Speaker 1: of a Walker who gave up all of our military
21:40
Speaker 1: communication system back in the eighties. I mean, that's how
21:44
Speaker 1: it gets done. I don't think. I don't think they're
21:46
Speaker 1: breaking into the c i AS communication system. I've ever
21:49
Speaker 1: seen anything that showed that the Russians had that capability
21:53
Speaker 1: where the N s A. Is there a leg up
21:56
Speaker 1: with the N s A. I still think we have
21:58
Speaker 1: a world criss capability that no one can match in
22:01
Speaker 1: this field. Having said that, will we use it offensively?
22:07
Speaker 1: And I don't know, And I think that's that's a
22:10
Speaker 1: question that in the democracy is obvious saying you're a democracy.
22:13
Speaker 1: How do you work your way through this? It's insensis
22:16
Speaker 1: down on the hill about read about it in the
22:18
Speaker 1: Washington Post the next day. It's a question for the
22:21
Speaker 1: next time you speak, which hopefully will be very soon.
22:23
Speaker 1: If Jack, thank you. That is Jack Divine, President of
22:26
Speaker 1: Arkan Group, former chief of c i a OPS. The
22:31
Speaker 1: consulate wars continue between the US and China. It is
22:35
Speaker 1: a situation that bears watching very closely. So we thought
22:39
Speaker 1: we'd speak with somebody who knows China inside out. Leland
22:41
Speaker 1: Miller is CEO of China Beije book and me and
22:44
Speaker 1: speak to Leland about China data, how transparent it is,
22:47
Speaker 1: how truthful it is. We'll get to the data in
22:50
Speaker 1: a moment, but Leland, welcome and thanks for joining my pleasure.
22:55
Speaker 1: What do you make of this tidfritat on consulates? Is
22:58
Speaker 1: it a distraction? Is it a deterioration in relations between
23:03
Speaker 1: the US and China that we really need to watch. Yeah.
23:08
Speaker 1: You know, I think the best way to look at
23:10
Speaker 1: this is as the calm before the storm. And when
23:12
Speaker 1: people saw shutdowns of consulates and and all these other
23:17
Speaker 1: very aggressive rhetoric being used lately, they think, wow, things
23:21
Speaker 1: are getting really nasty, But we really haven't seen anything yet.
23:23
Speaker 1: This there's a reason that we shut down uh, that
23:27
Speaker 1: we shut down one consulate and and not another. And
23:31
Speaker 1: that's the reason the Chinese shut down chang Do instead
23:33
Speaker 1: of shutting down Shanghai. So this is really the two
23:36
Speaker 1: sides starting to starting to get angry at each other,
23:38
Speaker 1: but not wanting to push the needle past a certain point.
23:42
Speaker 1: There's not a decision yet to truly escalate, but I
23:44
Speaker 1: think escalation is exactly where we're heading this fall, and
23:48
Speaker 1: maybe as suit his next month. Actually, what would escalation
23:51
Speaker 1: look like Leland in your mind? Well, again, you know,
23:54
Speaker 1: the thing that holds everything together is the trade deal,
23:57
Speaker 1: because you know, you've got a lot of anger in
23:59
Speaker 1: you Nied States, whether it's for COVID or trade and
24:02
Speaker 1: other things uh related to China. You've got the election
24:05
Speaker 1: coming up and and China be a major issue. But
24:08
Speaker 1: what's been holding everyone back thus far has been the
24:11
Speaker 1: fact that the President wants his purchases, and as a result,
24:15
Speaker 1: uh you know, there has been less aggressive stance in
24:18
Speaker 1: Republicans in Congress, and the Democrats haven't gotten going yet
24:21
Speaker 1: either because they don't know what to react to. To
24:22
Speaker 1: the extent that the Phase one trade deal fails, I
24:25
Speaker 1: think that this is wallace symbolic step, will really be
24:28
Speaker 1: sort of letting the gate open in terms of much
24:31
Speaker 1: more uh toxic environment between the two sides. Leland, what
24:35
Speaker 1: makes you so convinced that we are definitely headed for
24:37
Speaker 1: escalation and possibly even as soon as next month. Well,
24:41
Speaker 1: I think the timing wise, I look at the like
24:44
Speaker 1: how long can the presidents stand behind the trade deal? Now?
24:47
Speaker 1: It was a very set of a set of a
24:49
Speaker 1: very aggressive target to start with, but then you're at
24:52
Speaker 1: COVID and now because of the backlog and in in
24:55
Speaker 1: and the problems with supply chains and uh, you know
24:58
Speaker 1: you are you're guaranteed to have some shoo choose misses
25:01
Speaker 1: when first half data come out next month. So I
25:04
Speaker 1: think it's gonna be very hard to stand behind the
25:06
Speaker 1: trade deal when the Chinese haven't been hitting the targets
25:10
Speaker 1: that the president, the President Trump expects them to Uh.
25:13
Speaker 1: In addition, you have a a China is a very
25:16
Speaker 1: very big issue in in the November election. And while uh,
25:19
Speaker 1: Joe Biden hasn't been attacking Trump yet on on China,
25:23
Speaker 1: they're both gonna be going at each other saying you're
25:25
Speaker 1: weaker than I am, and as a result, policy is
25:27
Speaker 1: gonna be drifting to a much more hawkers direction. So, Leland,
25:31
Speaker 1: what do we know about the China economy right now?
25:34
Speaker 1: And I know there is obviously they reopened before we did.
25:38
Speaker 1: Just give us a kind of update on kind of
25:39
Speaker 1: what you're hearing about the reopening and its impact on
25:43
Speaker 1: their economy. Yeah. Again, the most difficult word to use
25:47
Speaker 1: is recovery, because of course you're seeing a recovery. You
25:50
Speaker 1: saw a recovery from a standstill economy earlier this year.
25:53
Speaker 1: But what there has band has been sort of month
25:55
Speaker 1: to month improvement, quarter to quarter improvement. Where I think
25:58
Speaker 1: people have really gotten as wrong by looking at official data,
26:01
Speaker 1: which is already claiming that year on year things have
26:03
Speaker 1: gotten better. In our data, nowhere is there any year
26:07
Speaker 1: on your expansion everything is still worse than last year.
26:10
Speaker 1: Now that's not an indictment. I mean, you've got it
26:11
Speaker 1: you've got some serious difficulties with with you know, the
26:15
Speaker 1: economy getting back on its feet after a very serious pandemic.
26:18
Speaker 1: But I think that the claims that there's a year
26:20
Speaker 1: and your improvement, we're already back to some level of normalcy,
26:23
Speaker 1: that's totally flawed. And I think the more that people
26:25
Speaker 1: from abroader looking at China's experience and thinking, hey, we
26:29
Speaker 1: can duplicate that. Uh, they're they're, they're they're they're really
26:31
Speaker 1: gonna have a school kicked out from under them. What
26:34
Speaker 1: did you make of Bridgewater? Is Ray Dalio warning that
26:36
Speaker 1: the conflict between the US and China could expand into
26:39
Speaker 1: a capital war? What would a capital war look like? Right? Well,
26:44
Speaker 1: the important part of that is could. So it is
26:46
Speaker 1: in the realm of the possible that we expand into
26:49
Speaker 1: yet another direction where say the United States cuts off
26:52
Speaker 1: capital flows, uh to China. There's even talk about abrogating
26:56
Speaker 1: dead obligations, Oh to the Chinese. These are extraordinary acts
27:00
Speaker 1: of financial warfare. I can tell you they are not
27:03
Speaker 1: being considered right now by the White House. I wouldn't
27:05
Speaker 1: think of Joe Biden presidency would have them in store either. Uh,
27:08
Speaker 1: They're not impossible because again, we're we're in a new
27:10
Speaker 1: environment where both sides are grasping for for for tools
27:14
Speaker 1: that they've never thought they would use before. But I
27:16
Speaker 1: think this is something to keep your eye on. You
27:18
Speaker 1: have to be aware of the risks. But we're nowhere
27:20
Speaker 1: near right now a situation where we're going to be
27:24
Speaker 1: doing a broad sort of capital war against China. What
27:27
Speaker 1: do we know, Leland, if anything about Vice President Joe
27:31
Speaker 1: Biden's view and potential policy towards China, Well, we don't
27:36
Speaker 1: know much because the Biden presidency, of the Biden campaign,
27:39
Speaker 1: I'm sorry, Biden campaign has been very very quiet behind
27:42
Speaker 1: the scenes, uh, thinking it's advantageous for them to sort
27:45
Speaker 1: of let the let the president gets you need to
27:47
Speaker 1: do what he's doing. And and you know, as as
27:49
Speaker 1: Biden keeps going up the polls, I think as we
27:52
Speaker 1: get closer to the debates, we're gonna start seeing a
27:54
Speaker 1: much more hawkish type China policy coming out of the campaign.
27:59
Speaker 1: For the reason that Biden is vulnerable based on what
28:03
Speaker 1: he's done in the past in his association with the
28:04
Speaker 1: last administration on being weak on China, and I think
28:07
Speaker 1: that's something the President will want to hit. So what
28:09
Speaker 1: what what Biden the campaign is gonna have to do
28:12
Speaker 1: is show the world that he's tough on China. He's
28:15
Speaker 1: even tough for the President Trump. And I think the
28:17
Speaker 1: two of them are gonna be going into a boxing
28:19
Speaker 1: match where everyone, you know, each is gonna be calling
28:21
Speaker 1: the other week on China, and of course means China
28:23
Speaker 1: policy is gonna be driven in only one direction, right,
28:26
Speaker 1: exactly to the right. Leland Miller, CEO China Basebook International
28:29
Speaker 1: Art go to expert on all things China. Lots of
28:31
Speaker 1: moving pieces as are typically are and as Leland points
28:35
Speaker 1: out to us, and make sure that we focus on,
28:37
Speaker 1: is election is coming up and likely that's going to
28:40
Speaker 1: push the rhetoric to China rhetoric more to the forefront.
28:43
Speaker 1: Uh and as Leland suggested, perhaps more to the right,
28:46
Speaker 1: as each candidate tries to U uh, you know, assess
28:50
Speaker 1: who is stronger on against China. Thanks for listening to
28:55
Speaker 1: the Boomberg Markets podcast. You can subscribe and listen to
28:58
Speaker 1: interviews at Apple Podcast or whatever podcast platform you prefer.
29:02
Speaker 1: I'm Bonnie Quinn. I'm on Twitter at Bonnie Quinn. And
29:05
Speaker 1: I'm Paul Sweeney. I'm on Twitter at pt Sweeney. Before
29:08
Speaker 1: the podcast. You can always catch us worldwide at Bloomberg
29:11
Speaker 1: Radio