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Boris Johnson, AI, Fed · Bloomberg Intelligence

0:02
Speaker 1: Welcome to the Bloomberg Penel Podcast. I'm Paul swing you
0:05
Speaker 1: along with my co host Lisa brahma Witz. Each day
0:07
Speaker 1: we bring you the most noteworthy and useful interviews for
0:10
Speaker 1: you and your money, whether at the grocery store or
0:12
Speaker 1: the trading floor. Find a Bloomberg Penel podcast on Apple
0:15
Speaker 1: podcast or wherever you listen to podcasts, as well as
0:17
Speaker 1: that Bloomberg dot Com. Time to check in with Bloomberg Opinion.
0:24
Speaker 1: We're joined by opinion calumnist John Authors. John is a
0:27
Speaker 1: senior editor for Bloomberg Markets, joining us here in our
0:29
Speaker 1: Bloomberg and Director Brooker Studio. So, John, we need an
0:32
Speaker 1: update on Brexit. A lot of moving pieces over the
0:34
Speaker 1: last twenty four hours. Can you give us kind of
0:37
Speaker 1: just the latest lay of the land and where army
0:39
Speaker 1: right now? The latest leg of the lands. We can
0:42
Speaker 1: assume that that the plan that's Boris Johnson was putting
0:48
Speaker 1: into place, that he would basically frighten everybody into letting
0:52
Speaker 1: him have a no deal Brexit is dead. Doesn't necessarily
0:56
Speaker 1: mean it won't happen some other way, but that strategy
0:58
Speaker 1: has been decisively to feed it. The question now is
1:02
Speaker 1: whether we actually have another general election and what point
1:09
Speaker 1: that happens now. The critical thing, and I think possibly
1:13
Speaker 1: the critical misjudgment that Johnson and his team made, is
1:17
Speaker 1: that there was a change in the rules under David Cameron.
1:22
Speaker 1: It was meant to be part of a big sweeping
1:24
Speaker 1: change of of the British constitution. In fact it was
1:27
Speaker 1: just about the only big thing that got passed, so
1:30
Speaker 1: that now we have something approaching a fixed term parliament.
1:34
Speaker 1: And for the previous century or so you had to
1:37
Speaker 1: have an election within five years of the previous one,
1:40
Speaker 1: but the prime minister could go to the country earlier
1:42
Speaker 1: than that if they felt like it greatly increased the
1:45
Speaker 1: strength of incumbency. In Factor and Blair were popular prime
1:48
Speaker 1: ministers and they went early rather than get another mandate
1:52
Speaker 1: before doing something unpopular. That is no longer an option.
1:56
Speaker 1: Now you have to serve five years and if you
1:59
Speaker 1: want to hold a another election you need sixty six
2:02
Speaker 1: point six percent of the MP's labor has thirty eight
2:06
Speaker 1: percent of MPs labor is not totally united, but it's
2:10
Speaker 1: probably able to block any attempt at an election. As um,
2:17
Speaker 1: we don't have a precedent for what goes on under
2:19
Speaker 1: these new sets of rules. Some people think that the
2:23
Speaker 1: rest of Parliament, we just say, Boris, you're stuck. You're there,
2:27
Speaker 1: you don't have a majority, but you're still in the job.
2:30
Speaker 1: I don't understand why this is positive. I'm trying to
2:33
Speaker 1: stay so there's no snap election. They're going to block that.
2:36
Speaker 1: But Boris Johnson basically doesn't have full authority or power
2:40
Speaker 1: to go forth with negotiations with lack thereof, so this
2:44
Speaker 1: just makes the UK kind of hamstrung. I don't see
2:47
Speaker 1: how this gets them further away from a hard Brexit.
2:49
Speaker 1: It gets okay, it's positive because precisely as you said,
2:54
Speaker 1: Boris Johnson doesn't have as much authority as people thought
2:57
Speaker 1: he did, and they weren't happy about Is having so
2:59
Speaker 1: much authority because they didn't trust his judgment. More broadly,
3:04
Speaker 1: the market really dislikes the idea of no deal brexit.
3:09
Speaker 1: We now know that we have a very strong majority
3:11
Speaker 1: in Parliament against it, and it looks thanks to the
3:14
Speaker 1: fact that Parliament has stronger power over deciding when an
3:17
Speaker 1: election happens and it used to that they can insist
3:21
Speaker 1: that a no deal is ruled out before we even
3:24
Speaker 1: have an election. It is an ungodly mess to use
3:29
Speaker 1: my own term from my column this morning, and the
3:33
Speaker 1: prospect for volatility is high, the prospect for good governance
3:36
Speaker 1: is very low. From the point of view of British assets,
3:40
Speaker 1: they have been priced on an increasing probability of no
3:45
Speaker 1: deal anything other than anything other than no deal. Frankly,
3:49
Speaker 1: they are amply priced for that risk, and that risk
3:53
Speaker 1: swamps all other things. It doesn't make Britain attractive investment particularly,
3:58
Speaker 1: but it does make it an appealingly priced investment. All right,
4:02
Speaker 1: So give us your best guess as to next steps.
4:06
Speaker 1: How does this play out? Are we? You know, as
4:08
Speaker 1: we get to October one? Well, it's going to be
4:13
Speaker 1: very difficult. I don't think. I don't think there is
4:18
Speaker 1: a lot that Johnson himself can do about it at
4:22
Speaker 1: this point, because his legs really have been cut from
4:26
Speaker 1: under him. They've basically overplake their hand and now they've
4:31
Speaker 1: the bluff has been called. Now the question becomes, can
4:37
Speaker 1: the opposition to Brexits actually get its act together and
4:41
Speaker 1: agree on something having failed to do so for the
4:45
Speaker 1: last three years? What's the deadline for Boris Johnson in
4:48
Speaker 1: terms of another election or when his tenure might be
4:51
Speaker 1: up just naturally? Okay, So again, I'm not seeing how
4:56
Speaker 1: this resolves in any positive way. There is there is
5:01
Speaker 1: no I really really cannot imagine he's going to be
5:05
Speaker 1: allowed to drag on for another three years. It might
5:08
Speaker 1: be moderately amusing Jacob, Jacob re smug decides he's going
5:13
Speaker 1: to make a habit of lying across three seats for
5:16
Speaker 1: this that that that really could be quite amusing. You
5:21
Speaker 1: how to do government better than yes? We do, yes,
5:24
Speaker 1: but but you did have a big revolution when you
5:26
Speaker 1: thought that you might have a better notion than we did.
5:29
Speaker 1: So there we go. Um No, thats basically this is
5:35
Speaker 1: purely the market reaction at the moment, and the notion
5:39
Speaker 1: that this is positive is purely because um people really,
5:44
Speaker 1: people in the investment community really think no deal is
5:48
Speaker 1: a bad idea, and I personally do agree with them,
5:50
Speaker 1: and no deal is not completely out of the question.
5:53
Speaker 1: Now there is still Nigel Farage out there. One of
5:56
Speaker 1: the possibilities is that this completely blessed burst the Conservatives
5:59
Speaker 1: balloon and that the Brexit Party becomes the biggest party
6:02
Speaker 1: when we finally have an election. But ultimately the ball
6:06
Speaker 1: is in the cult of the anti Brexity is they
6:09
Speaker 1: have to work out a way of doing things now
6:12
Speaker 1: that that bluff has been called for. John Boris Johnson
6:14
Speaker 1: and the Brexities. John Author's thank you so much for
6:17
Speaker 1: being with us. It's always fabulous get your perspective, especially
6:20
Speaker 1: on Brexit, which is I just shrug, which doesn't really
6:23
Speaker 1: translate on on radio. John Author is a senior editor
6:26
Speaker 1: for Bloomberg Markets, turning us here in our Bloomberger Active
6:29
Speaker 1: Broker Studios. As the market kind of jogs around this
6:47
Speaker 1: range and doesn't really make a big move in one
6:49
Speaker 1: way or another. There's a question kind of hanging over
6:53
Speaker 1: investment managers, which is when do they make a big move,
6:56
Speaker 1: when do they sort of dip their toe in or
6:58
Speaker 1: pull their money out? Winning us now, David Kotak, chairman
7:01
Speaker 1: and chief investment officer at Cumberland Advisers. He joins us
7:04
Speaker 1: here in our Bloomberg Intera Active Broker Studios. David, we
7:07
Speaker 1: love having you on. Thank you for being here. What
7:10
Speaker 1: are you doing at this point? Are you sitting on
7:13
Speaker 1: your hands like everybody says they are in terms of
7:16
Speaker 1: real money investment? At least it's always a pleasure. It's
7:20
Speaker 1: we've had a big change since the last time we
7:23
Speaker 1: talked last week we saw three rounds in our quantitative
7:29
Speaker 1: work on sentiment that was saying panic and fear is
7:34
Speaker 1: now rife in the markets. And that's appropriate when you
7:38
Speaker 1: see the kind of headline risk we've had day after day.
7:42
Speaker 1: We became nearly fully invested in the US stock market
7:45
Speaker 1: in those sell offs. So I said here today and yesterday,
7:49
Speaker 1: when I had my head handed to you, having just
7:52
Speaker 1: gone in the week before, it was looking pretty bleak.
7:55
Speaker 1: Today looks a little better. But the fact is we
7:59
Speaker 1: make the case three ways. Fiscal policy is expanding. That's
8:04
Speaker 1: a rising deficit's going to be over a trillion. That's
8:07
Speaker 1: a Trump deficit. Monetary policy is flat too easy. There
8:12
Speaker 1: isn't a chance interest rates go up in the United
8:15
Speaker 1: States for the next year. They go down or stay
8:18
Speaker 1: where they are. And the third one is the important one,
8:21
Speaker 1: because the entire distribution of U. S Government debt is
8:25
Speaker 1: somewhere between say one and a half and two percent
8:28
Speaker 1: interest rates, and the inflation rate in the United States
8:32
Speaker 1: is somewhere between one and a half and two percent,
8:35
Speaker 1: And if you put those together, that means the real
8:38
Speaker 1: interest rate in the United States is zero, which means
8:42
Speaker 1: money is free, money free loose monetary, loose fiscal and
8:49
Speaker 1: a hundred and sixty million people employed in the United
8:52
Speaker 1: States legally with wages, and it's the wages arising. Show
8:57
Speaker 1: me how you get to a big rush. I don't
9:01
Speaker 1: see it. So I don't like the policy. I don't
9:04
Speaker 1: like the trade war. I think it does a disservice
9:07
Speaker 1: to the nation in the world, and I think navarro
9:10
Speaker 1: Trump policy is wrong. I have to be agnostic on
9:14
Speaker 1: policy and apply as an investment professional what I think
9:18
Speaker 1: is the right choice. And that's what we did. Now
9:21
Speaker 1: we'll find out if it's good red, but it's we're
9:23
Speaker 1: in a new place here, and so of course what
9:26
Speaker 1: we've seen almost on a daily basis is the headline risk,
9:29
Speaker 1: which you talk about, and it kind of brings you
9:32
Speaker 1: back to what seems to be the number one driver
9:35
Speaker 1: of daily fluctuations in the in the markets is the
9:39
Speaker 1: trade risk. So you, from your perspective, just have to
9:42
Speaker 1: put that aside and think longer term. I guess, well,
9:45
Speaker 1: I we're evolving a different position on the trade poll.
9:49
Speaker 1: We used to think about this as a temporary phenomenon,
9:53
Speaker 1: and the markets played that for a year and a
9:55
Speaker 1: half and the politics of it seemed to suggest it,
9:59
Speaker 1: but it's really happened, is I think what Trump and
10:03
Speaker 1: his policy have done is permanently set back globalization and integration,
10:09
Speaker 1: which was at work for decades. And the result of
10:13
Speaker 1: globalization and integration was a declining protectionist path, and we
10:18
Speaker 1: had it and more or less growing peace, although we
10:23
Speaker 1: had hotspots. We are reversing that. It's a shame. What
10:28
Speaker 1: does it mean. It means we'll have enclaves geographically instead
10:34
Speaker 1: of globalization. So you take the US and you take Canada, Mexico,
10:39
Speaker 1: put them together and say that's a North American place.
10:41
Speaker 1: You have another and it'll be China centric. You have
10:43
Speaker 1: another and it will be Europe, which is dealing now
10:46
Speaker 1: with this monstrosity of negative interest rates. But it's a
10:50
Speaker 1: separate enclave. And so for us, the focus then is
10:55
Speaker 1: on this new world. We are going through what I
10:57
Speaker 1: think is a hundred year flood and it's a major change.
11:02
Speaker 1: And if you try to play by the old rules,
11:04
Speaker 1: they don't work. Good example, if I have another minute,
11:09
Speaker 1: if you take negative rates, are seventeen trillion in negative rates?
11:14
Speaker 1: I know you follow that closely, and Lisa especially follows bonds. Yes,
11:18
Speaker 1: for a long time, so you so you say, okay,
11:22
Speaker 1: discount any asset with a negative interest rate, and the
11:26
Speaker 1: ultimate mass says it's worth infinity. Now we know that's
11:30
Speaker 1: not possible. So all bond models don't work when the
11:35
Speaker 1: duration is longer than the maturity. The bond model doesn't work.
11:39
Speaker 1: When you discount assets at these interest rates, you get
11:44
Speaker 1: prices which change behavior extraordinarily. Okay, so all this kind
11:50
Speaker 1: of comes down to why you just shifted your money
11:54
Speaker 1: into equities? Is that correct? So? Well, that's right, we
11:58
Speaker 1: took up the weight in equities and we're fully invested.
12:00
Speaker 1: When the SNPI index yield is higher than the ten
12:05
Speaker 1: year treasury? Would you buy the ten year treasury with
12:10
Speaker 1: your money? My answer when that question comes to me
12:14
Speaker 1: is no. But then I guess the flip side of
12:17
Speaker 1: that is, do you think that that bonds are going
12:20
Speaker 1: to underperform given that relationship, or do you think that
12:23
Speaker 1: stocks just need to rally a whole bunch more to
12:25
Speaker 1: sort of right size everything and then just returns will
12:28
Speaker 1: generally be lower going forward. I think bonds underperform in
12:33
Speaker 1: price as yields get restored if we don't have a
12:37
Speaker 1: global recession or depression, If we don't repeat smooth, Holly.
12:43
Speaker 1: And in the mature economies and the US which is
12:47
Speaker 1: se now services, it's not that likely. You can't make
12:52
Speaker 1: that case so strongly, or at least I can't. I
12:55
Speaker 1: hear it all the time. The world's coming to an end.
12:58
Speaker 1: Here's a code talk forecast. The world won't come to
13:01
Speaker 1: an end. And if I'm wrong, you can tell me
13:04
Speaker 1: how wrong. So, David, should we be are you thinking?
13:07
Speaker 1: You know, when we've heard from some people as it
13:09
Speaker 1: is perhaps a new world order, less global perhaps, but
13:14
Speaker 1: that suggests that global growth is going to be less
13:17
Speaker 1: going forward over the next ten twenty years, and perhaps
13:20
Speaker 1: it was over the prior periods. I think you're right.
13:22
Speaker 1: I think, Paul, global growth slows because we have impediments
13:28
Speaker 1: to it now instead of assistance to it. You know,
13:32
Speaker 1: for me, this is tough. I spent my entire adult
13:36
Speaker 1: life in in philanthropic work and in geopolitical work with
13:40
Speaker 1: organizations devoted to globalization and integration, attaining peace and a
13:47
Speaker 1: higher standard of living worldwide. And it's all coming apart.
13:52
Speaker 1: And the reason it's coming apart is a misguided policy
13:56
Speaker 1: that originates in Washington. That's awful. So it's hard as
14:03
Speaker 1: on the policy. But I sit with my partners in
14:06
Speaker 1: the firm and I said, we don't make this policy.
14:08
Speaker 1: Our job is by cell hold for a client. And
14:11
Speaker 1: now we have an entry, and we have an entry
14:14
Speaker 1: because the world looks so ugly and crazy, right. Interesting.
14:17
Speaker 1: David Kota, thank you so much, as always, uh for
14:20
Speaker 1: your comments now saying I think very interesting to take away,
14:24
Speaker 1: lisays Mr Kotalk is fully invested in equities, using the
14:27
Speaker 1: recent volatility, of the recent weakness in the markets to
14:30
Speaker 1: get a little bit more restive on the equity side.
14:32
Speaker 1: I think that it's really poignant that he said that
14:35
Speaker 1: this is a hundred year of flood, that this is
14:37
Speaker 1: sort of turning a lot of fundamental assumptions on their heads,
14:42
Speaker 1: and what does that mean about how you look at
14:44
Speaker 1: investing and just in general, how to call your perceptions
14:48
Speaker 1: really important outlook. Yeah, very very it's a different view
14:50
Speaker 1: and it's certainly one that makes a lot of sense,
14:53
Speaker 1: and it's uh, it's probably perhaps just kind of recognizing
14:56
Speaker 1: how the markets have changed out there. David Kotak, chairman,
14:59
Speaker 1: a chief investor and officer Cumbler and Advisors, thank you
15:01
Speaker 1: very much for joining us, giving you your thoughts on
15:04
Speaker 1: the market. The question heading into the September f O
15:23
Speaker 1: m C meeting is not whether the Federal Reserve will
15:26
Speaker 1: cut rates, but whether they will signal substantial further cuts
15:30
Speaker 1: later in the year and next year. Joining us now
15:33
Speaker 1: to get a sense of what the pulse is in
15:34
Speaker 1: FED world is Christopher Condon, his Federal Reserve reporter for
15:37
Speaker 1: Bloomberg News. So, Chris, we are getting some Fed speak
15:41
Speaker 1: this week. We heard from Boston FED President Eric rosen
15:44
Speaker 1: Gren yesterday. We're going to hear from J. Powell on Friday.
15:46
Speaker 1: What have we heard? What are we expecting to hear? Well,
15:49
Speaker 1: we're hearing more about a split committee, really one I
15:52
Speaker 1: think where the majority still sits with J. Powell uh
15:57
Speaker 1: and his signal recently at Jackson Hole that there will
16:00
Speaker 1: be another rate cut coming in September. UM. But there's
16:04
Speaker 1: a good handful of regional presidents that are not comfortable
16:09
Speaker 1: with cutting again. A couple of them are voters, namely
16:12
Speaker 1: Eric rose and Gren. Esther George from Kansas City will
16:15
Speaker 1: probably be another dissenter. Although she hasn't spoken publicly since
16:21
Speaker 1: UM the last meeting. Rose and Gren has a couple
16:24
Speaker 1: of times, however, UM and he's making a case that, yes,
16:28
Speaker 1: the risks are growing to the US economy, obviously from
16:32
Speaker 1: the deteriorating trade picture, but the damage there is confined
16:37
Speaker 1: mainly to business sector, to manufacturing, especially whereas the consumer,
16:44
Speaker 1: which counts for about sevent of GDP in the US,
16:48
Speaker 1: is roaring on just fine because of tight labor market
16:52
Speaker 1: and UH steadily increasing wages, not dramatically, but steadily, and
16:56
Speaker 1: so the consumers continuing to spend in the consumer has
17:00
Speaker 1: the ability to carry the US economy to at least
17:04
Speaker 1: two percent growth this year. Yes, So, Christopher, you mentioned
17:07
Speaker 1: the manufacturing and business spending, and we saw that the
17:11
Speaker 1: I s M data came out the last week. We
17:14
Speaker 1: showed manufacturing contracting for the first time, I guess in
17:17
Speaker 1: three years, with at nine point one reading below that
17:20
Speaker 1: Matt at the important fifty level. So to what extent
17:23
Speaker 1: do you think that'll give the Hawks some ammunition? UM? Yeah,
17:27
Speaker 1: I think it certainly will. But you know, there's a
17:30
Speaker 1: lot of agreement on I would say, the diagnosis and
17:33
Speaker 1: not the prescription here across the committee, people seem to
17:38
Speaker 1: agree that the base case is still pretty good, um,
17:43
Speaker 1: and that the risks are rising. The question is it
17:46
Speaker 1: does all this turmoil and the business side, particularly in manufacturing,
17:50
Speaker 1: begin to infect the consumer side. And the bridge there
17:55
Speaker 1: is the jobs market. That's what a lot of people
17:57
Speaker 1: are going to be watching. We've got a big jobs
17:59
Speaker 1: number coming on Friday, the August non farm prey rolls.
18:03
Speaker 1: And you know, the idea is if um businesses which
18:07
Speaker 1: are already drawing back on plans for expansion, you know,
18:11
Speaker 1: delaying or even just canceling investment plans, if they also
18:15
Speaker 1: begin to lay off workers, and that gives us one
18:18
Speaker 1: or two bad jobs numbers that could spook the consumer.
18:23
Speaker 1: Rob Kaplan, the president of the Dallas FED, talked about that.
18:26
Speaker 1: He's he's supportive of a ray cut in September, and
18:29
Speaker 1: he worries that if the f o MC waits to
18:33
Speaker 1: see a real sign that consumer spending is starting to
18:36
Speaker 1: nose down, then they've waited a bit too long. Does
18:39
Speaker 1: the data even matter at this point? Oh well, that
18:42
Speaker 1: always matters, I think. But the reason why I ask
18:45
Speaker 1: that is because at this point it seems like uncertainty
18:48
Speaker 1: is the prevailing word. They're worried about uncertainty, creating some
18:51
Speaker 1: uncertainty for uncertainty at businesses with uncertainty, and you know
18:56
Speaker 1: that basically it's gonna slow spending and that they just
18:59
Speaker 1: want to get a out of that. I mean, it
19:01
Speaker 1: does not seem to be connected to you know, maybe
19:03
Speaker 1: perhaps the inflation readings, but I mean, it doesn't seem
19:06
Speaker 1: like anything could come out of the job's reporting Friday
19:08
Speaker 1: they would make them not cut rates. So I agree
19:11
Speaker 1: with that, Yes, yeah, I mean, and the short and
19:14
Speaker 1: you always you know that you're not going to get
19:16
Speaker 1: a dramatic move one way or the other based on
19:19
Speaker 1: one or two data points. It's more of the accumulation.
19:22
Speaker 1: So in that sense, I really do agree with you
19:24
Speaker 1: that they're they're going to cut in September um. But
19:27
Speaker 1: you know, there's a bigger decision waiting for this committee
19:31
Speaker 1: is and that's at what point do they switch, even
19:34
Speaker 1: the majority that's in favor of this mid cycle adjustment,
19:39
Speaker 1: what point do they change gears and say no, we're
19:42
Speaker 1: aheaded for a deeper downturn and we better start cutting harder.
19:47
Speaker 1: That's where the argument of trying to use your limited
19:51
Speaker 1: ammunition fast and aggressively starts to come into play. They
19:55
Speaker 1: are not there yet, but you know they're thinking about that,
20:00
Speaker 1: and the in the data as that accumulates will help
20:02
Speaker 1: inform them there for sure. So Chris, just real quickly, UM,
20:06
Speaker 1: how common is it to have you know the number
20:08
Speaker 1: of dissenters that we seem to have on the FMC
20:10
Speaker 1: right now? I would say it's not uncommon, particularly where
20:14
Speaker 1: it's confined to the regional presidents. Um, you know, you'll
20:17
Speaker 1: only have you know the potential for two dissenting voters there. Again,
20:22
Speaker 1: where in the background too, there will be some other
20:25
Speaker 1: uh certain probably I would say three or four other
20:29
Speaker 1: regional presidents that afterwards come out saying they weren't really
20:32
Speaker 1: comfortable with this. Uh. It gets a lot more dramatic
20:36
Speaker 1: if we eventually see a governor UM expressing severe discomfort.
20:41
Speaker 1: We're not quite there. So I don't think it's that
20:44
Speaker 1: highly unusual at this point. Very good, Christopher Connan, Thank
20:47
Speaker 1: you so much for joining us Chris as the Federal
20:49
Speaker 1: Reserve reporter for Bloomberg News, joining us from our Washington
20:52
Speaker 1: d C Bureau. Let's talk cryptocurrencies. Facebook made a big
21:11
Speaker 1: gus splash schuck a month or so ago with their
21:13
Speaker 1: libre product, their cryptocurrency entrance into the market. Let's get
21:17
Speaker 1: an update on kind of where that market stands. Welcome
21:19
Speaker 1: William Quickly. He's CEO of w a X Worldwide Asset Exchange.
21:25
Speaker 1: He's also co founder of Tether. He joins us from
21:28
Speaker 1: our l A studio. Williams, thanks so much for joining us.
21:30
Speaker 1: You know, I guess cryptocurrencies for the broad audience kind
21:34
Speaker 1: of took a higher profile when Facebook made that announcement
21:39
Speaker 1: about its Libra crypto product. Give us, give us a
21:42
Speaker 1: sense of kind of where you think the cryptocurrency market
21:45
Speaker 1: is right now. First, I would say, Uh, the fact
21:48
Speaker 1: that Facebook is finally considering doing what we call a
21:52
Speaker 1: stable coin, which is issuing a token that's backed by
21:56
Speaker 1: the US dollar and and a basket of other goods
21:59
Speaker 1: is a is a strong indication that companies of that
22:01
Speaker 1: size finally realized the value of incorporating blockchain into their
22:06
Speaker 1: basic business. So there's a lot of other reasons why
22:09
Speaker 1: why Facebook is is doing uh, what we call a
22:13
Speaker 1: stable coin, other than simply saving money. Uh. The entire
22:18
Speaker 1: uh cross border international payment business is very difficult. It's slow,
22:24
Speaker 1: it's expensive, and when you think about somebody like Facebook,
22:28
Speaker 1: they've got two billion people on their platform. They could
22:31
Speaker 1: instantly create a currency if you will that would be
22:35
Speaker 1: one of the biggest, if not the biggest, in the world.
22:38
Speaker 1: So this is it's a very good use case what
22:40
Speaker 1: we call stable coins, uh for for blockchain. Blockchain is
22:45
Speaker 1: not perfect for everything. Now, in terms of your question,
22:49
Speaker 1: what is the state of blockchain today? Uh, there has
22:52
Speaker 1: been a ton of investment since seen back in hundreds
22:58
Speaker 1: of businesses did what we called I c o s.
23:01
Speaker 1: They raised lots to capital and they've been building out
23:04
Speaker 1: really nice software systems. So we're going way beyond blockchain.
23:09
Speaker 1: From the bitcoin perspective, Bitcoin is a is a fantastic invention,
23:15
Speaker 1: but it lacks a lot of things. You know, it's slow,
23:18
Speaker 1: it's expensive, and it's difficult to use. So those particular
23:21
Speaker 1: problems are things that are now getting addressed and i'd
23:24
Speaker 1: suspect over the second maybe the next year or so,
23:28
Speaker 1: you're going to see a lot more businesses adopting crypto
23:33
Speaker 1: and you're going to see them using these new types
23:36
Speaker 1: of block chains that go way beyond the capabilities of
23:38
Speaker 1: of the bitcoin block chain. So the concept of a
23:41
Speaker 1: stable coin, and this is important and you're the perfect
23:44
Speaker 1: person to be speaking about this because you're a co
23:46
Speaker 1: founder of Tether, which is the stable coin probably that
23:49
Speaker 1: people most note, uh, and my understanding, it's basically backed
23:52
Speaker 1: by some currency or some commodity, or there's something backing
23:57
Speaker 1: the value. So it's not just uh, you know, its
24:00
Speaker 1: own kind of entity that that rises or falls based
24:03
Speaker 1: on speculation. Am I correct? That's exactly right. So I
24:07
Speaker 1: guess that there's there's a question, and this really gets
24:10
Speaker 1: kind of dicey sometimes, what would you like to see
24:14
Speaker 1: when it comes to the regulatory regime that overseas whether
24:18
Speaker 1: the stuff that's backing the currency is actually worth what
24:22
Speaker 1: it is. I mean, I'm I'm talking. I'm thinking about tether,
24:24
Speaker 1: and there have been some questions about whether there are
24:26
Speaker 1: enough dollars backing it or just sort of you know,
24:29
Speaker 1: whether there's any you know, demonstration that they're all backed
24:32
Speaker 1: by by dollars. Yeah. Well, first I would say, uh,
24:36
Speaker 1: whether or not tether was backed by a dollar or not,
24:39
Speaker 1: actually wouldn't matter if everybody agreed to take tether and
24:43
Speaker 1: to value it at a dollar themselves, And that's actually
24:46
Speaker 1: what's happened. There was some controversy about some cash I
24:49
Speaker 1: think was about eight and fifty million that Tether was
24:53
Speaker 1: unable to access because that bank account had been frozen,
24:57
Speaker 1: not due to anything they had done. And yet the
25:01
Speaker 1: price of tether continue to trade at just about a dollar.
25:05
Speaker 1: So I think a lot of people want it to
25:08
Speaker 1: be backed, and they and they would prefer it to
25:11
Speaker 1: be backed. But what's even more important is that people
25:14
Speaker 1: will exchange it for the value of a dollar. And UH,
25:18
Speaker 1: to give you a sense of what I would like
25:20
Speaker 1: to see, UH, it is almost impossible to get a
25:24
Speaker 1: bank account if you are a blockchain based business, whether
25:28
Speaker 1: that's tether or wax or any number of other businesses.
25:33
Speaker 1: It's very difficult, and yet there is no legislation that
25:36
Speaker 1: says it should be difficult. In fact, usually people talk
25:40
Speaker 1: about money laundering and tax evasion and and knowing your
25:45
Speaker 1: customer rules. The thing is blockchains can be designed to
25:50
Speaker 1: provide those things in an even easier way than traditional
25:53
Speaker 1: bank wires and payments. So what I'd like to see,
25:57
Speaker 1: but I'm not holding my breath, is Congress is give
26:00
Speaker 1: some guidance to the regulators. And the problem right now
26:04
Speaker 1: is no regulator in the United States anyway has been
26:07
Speaker 1: assigned to have jurisdiction over blockchain and crypto, and as
26:12
Speaker 1: a result, you have many, many regulators all saying, well,
26:16
Speaker 1: it's it's our turf. And as a result, if you're
26:19
Speaker 1: in the blockchain business, you are really forced to comply
26:22
Speaker 1: with numerous regulators, and there's many conflicting interpretations of what
26:29
Speaker 1: is a crypto, how blockchain works, what rules you have
26:31
Speaker 1: to follow. And keep in mind, blockchain is not just
26:35
Speaker 1: the United States phenomenon. In fact, the US is relatively small.
26:39
Speaker 1: It is a it is a global phenomenon, and therefore
26:43
Speaker 1: any business operating in blockchain is really a global business.
26:46
Speaker 1: Now that's one reason why, of course, I think Facebook
26:49
Speaker 1: sees the benefit. They've got two billion people. Most of
26:52
Speaker 1: those people on their platform are outside of the United States,
26:55
Speaker 1: and Facebook clearly has seen it needs to move away
27:00
Speaker 1: from simply advertising as its revenue model. Reason of course, yeah, wait,
27:05
Speaker 1: what do you think the business case is for Facebook
27:08
Speaker 1: with Libra? Well, I will first just say it's a
27:12
Speaker 1: fantastic idea for them to do, and I hope they
27:15
Speaker 1: take a lot of alernings that we've done from from
27:18
Speaker 1: Tether and incorporate them. But consider that, uh, most of
27:23
Speaker 1: the of the platforms today, social media platforms are really
27:27
Speaker 1: add supported and with all of the privacy concerns and
27:31
Speaker 1: and just concerns about advertising in general. It's pretty difficult
27:35
Speaker 1: to imagine Facebook is going to be able to continue
27:37
Speaker 1: to grow with that as its primary revenue model. They
27:40
Speaker 1: need to get into commerce. I think they're actually late
27:44
Speaker 1: to the game. They bought a business I would want
27:46
Speaker 1: to say about five or six years ago called What's App.
27:49
Speaker 1: What's Apps as a messaging app. Five million people globally
27:53
Speaker 1: use it. In Asia. Those messaging apps other than What's
27:57
Speaker 1: App have tons of commerce integrate it into them. You
28:01
Speaker 1: want to order food, you want to order a car,
28:03
Speaker 1: you want to book an Airbnb like experience, you do
28:05
Speaker 1: it through that app. So I've been quite surprised that
28:08
Speaker 1: Facebook has been so slow to exploit that on its
28:13
Speaker 1: on its What'sapp platform. But this is really about e commerce,
28:18
Speaker 1: global e commerce, and the biggest friction point in global
28:21
Speaker 1: e commerce is the payment mechanism because it is so
28:26
Speaker 1: complicated and there are so many individual entities that take
28:29
Speaker 1: a piece of every transaction and it's slow. Yeah, William Quickly,
28:35
Speaker 1: thank you so much for being with us. Really interesting discussion.
28:38
Speaker 1: William Quickly as chief executive officer of WAX, the Worldwide
28:42
Speaker 1: Asset Exchange. He also is co founder of Tether, which
28:46
Speaker 1: is probably the best known stable coin, one of the
28:49
Speaker 1: most popular crypto assets, which is tethered to the value
28:54
Speaker 1: of the dollar. Thanks for listening to the Bloomberg P
28:57
Speaker 1: and L podcast. You can subscribe and listen to inner
29:00
Speaker 1: used at Apple Podcasts or whatever podcast platform you prefer.
29:03
Speaker 1: Paul Sweeney, I'm on Twitter at pt Sweeney. I'm Lisa
29:06
Speaker 1: Abram Woyits. I'm on Twitter at Lisa Abram Wohits. One
29:09
Speaker 1: before the podcast, you can always catch us worldwide. I'm
29:11
Speaker 1: Bloomberg Radio.