Boris Johnson, AI, Fed

We're joined by opinion calumnist John Authors. John is a senior editor for Bloomberg Markets, joining us here in our Bloomberg and Director Brooker Studio. So, John, we need an update on Brexit. A lot of moving pieces over the last twenty four hours. Can you give us kind of just the latest lay of the land and where army right now? The latest leg of the lands. We can assume that that the plan that's Boris Johnson was putting into place, that he would basically frighten everybody into letting

him have a no deal Brexit is dead. Doesn't necessarily mean it won't happen some other way, but that strategy has been decisively to feed it. The question now is whether we actually have another general election and what point that happens now. The critical thing, and I think possibly the critical misjudgment that Johnson and his team made, is that there was a change in the rules under David Cameron. It was meant to be part of a big sweeping

change of of the British constitution. In fact it was just about the only big thing that got passed, so that now we have something approaching a fixed term parliament. And for the previous century or so you had to have an election within five years of the previous one, but the prime minister could go to the country earlier than that if they felt like it greatly increased the

strength of incumbency. In Factor and Blair were popular prime ministers and they went early rather than get another mandate before doing something unpopular. That is no longer an option. Now you have to serve five years and if you want to hold a another election you need sixty six point six percent of the MP's labor has thirty eight percent of MPs labor is not totally united, but it's probably able to block any attempt at an election. As um, we don't have a precedent for what goes on under

these new sets of rules. Some people think that the rest of Parliament, we just say, Boris, you're stuck. You're there, you don't have a majority, but you're still in the job. I don't understand why this is positive. I'm trying to stay so there's no snap election. They're going to block that. But Boris Johnson basically doesn't have full authority or power to go forth with negotiations with lack thereof, so this

just makes the UK kind of hamstrung. I don't see how this gets them further away from a hard Brexit. It gets okay, it's positive because precisely as you said, Boris Johnson doesn't have as much authority as people thought he did, and they weren't happy about Is having so much authority because they didn't trust his judgment. More broadly, the market really dislikes the idea of no deal brexit.

We now know that we have a very strong majority in Parliament against it, and it looks thanks to the fact that Parliament has stronger power over deciding when an election happens and it used to that they can insist that a no deal is ruled out before we even have an election. It is an ungodly mess to use my own term from my column this morning, and the prospect for volatility is high, the prospect for good governance

is very low. From the point of view of British assets, they have been priced on an increasing probability of no deal anything other than anything other than no deal. Frankly, they are amply priced for that risk, and that risk swamps all other things. It doesn't make Britain attractive investment particularly, but it does make it an appealingly priced investment. All right, So give us your best guess as to next steps. How does this play out? Are we? You know, as

we get to October one? Well, it's going to be very difficult. I don't think. I don't think there is a lot that Johnson himself can do about it at this point, because his legs really have been cut from under him. They've basically overplake their hand and now they've the bluff has been called. Now the question becomes, can the opposition to Brexits actually get its act together and agree on something having failed to do so for the

last three years? What's the deadline for Boris Johnson in terms of another election or when his tenure might be up just naturally? Okay, So again, I'm not seeing how this resolves in any positive way. There is there is no I really really cannot imagine he's going to be allowed to drag on for another three years. It might be moderately amusing Jacob, Jacob re smug decides he's going to make a habit of lying across three seats for this that that that really could be quite amusing. You

how to do government better than yes? We do, yes, but but you did have a big revolution when you thought that you might have a better notion than we did. So there we go. Um No, thats basically this is purely the market reaction at the moment, and the notion that this is positive is purely because um people really, people in the investment community really think no deal is a bad idea, and I personally do agree with them, and no deal is not completely out of the question.

Now there is still Nigel Farage out there. One of the possibilities is that this completely blessed burst the Conservatives balloon and that the Brexit Party becomes the biggest party when we finally have an election. But ultimately the ball is in the cult of the anti Brexity is they have to work out a way of doing things now that that bluff has been called for. John Boris Johnson and the Brexities. John Author's thank you so much for

being with us. It's always fabulous get your perspective, especially on Brexit, which is I just shrug, which doesn't really translate on on radio. John Author is a senior editor for Bloomberg Markets, turning us here in our Bloomberger Active Broker Studios. As the market kind of jogs around this range and doesn't really make a big move in one

way or another. There's a question kind of hanging over investment managers, which is when do they make a big move, when do they sort of dip their toe in or pull their money out? Winning us now, David Kotak, chairman and chief investment officer at Cumberland Advisers. He joins us here in our Bloomberg Intera Active Broker Studios. David, we love having you on. Thank you for being here. What are you doing at this point? Are you sitting on your hands like everybody says they are in terms of

real money investment? At least it's always a pleasure. It's we've had a big change since the last time we talked last week we saw three rounds in our quantitative work on sentiment that was saying panic and fear is now rife in the markets. And that's appropriate when you see the kind of headline risk we've had day after day. We became nearly fully invested in the US stock market

in those sell offs. So I said here today and yesterday, when I had my head handed to you, having just gone in the week before, it was looking pretty bleak. Today looks a little better. But the fact is we make the case three ways. Fiscal policy is expanding. That's a rising deficit's going to be over a trillion. That's a Trump deficit. Monetary policy is flat too easy. There isn't a chance interest rates go up in the United States for the next year. They go down or stay

where they are. And the third one is the important one, because the entire distribution of U. S Government debt is somewhere between say one and a half and two percent interest rates, and the inflation rate in the United States is somewhere between one and a half and two percent, And if you put those together, that means the real interest rate in the United States is zero, which means money is free, money free loose monetary, loose fiscal and

a hundred and sixty million people employed in the United States legally with wages, and it's the wages arising. Show me how you get to a big rush. I don't see it. So I don't like the policy. I don't like the trade war. I think it does a disservice to the nation in the world, and I think navarro Trump policy is wrong. I have to be agnostic on policy and apply as an investment professional what I think

is the right choice. And that's what we did. Now we'll find out if it's good red, but it's we're in a new place here, and so of course what we've seen almost on a daily basis is the headline risk, which you talk about, and it kind of brings you back to what seems to be the number one driver of daily fluctuations in the in the markets is the trade risk. So you, from your perspective, just have to

put that aside and think longer term. I guess, well, I we're evolving a different position on the trade poll. We used to think about this as a temporary phenomenon, and the markets played that for a year and a half and the politics of it seemed to suggest it, but it's really happened, is I think what Trump and his policy have done is permanently set back globalization and integration,

which was at work for decades. And the result of globalization and integration was a declining protectionist path, and we had it and more or less growing peace, although we had hotspots. We are reversing that. It's a shame. What does it mean. It means we'll have enclaves geographically instead of globalization. So you take the US and you take Canada, Mexico, put them together and say that's a North American place.

You have another and it'll be China centric. You have another and it will be Europe, which is dealing now with this monstrosity of negative interest rates. But it's a separate enclave. And so for us, the focus then is on this new world. We are going through what I think is a hundred year flood and it's a major change. And if you try to play by the old rules, they don't work. Good example, if I have another minute, if you take negative rates, are seventeen trillion in negative rates?

I know you follow that closely, and Lisa especially follows bonds. Yes, for a long time, so you so you say, okay, discount any asset with a negative interest rate, and the ultimate mass says it's worth infinity. Now we know that's not possible. So all bond models don't work when the duration is longer than the maturity. The bond model doesn't work. When you discount assets at these interest rates, you get

prices which change behavior extraordinarily. Okay, so all this kind of comes down to why you just shifted your money into equities? Is that correct? So? Well, that's right, we took up the weight in equities and we're fully invested. When the SNPI index yield is higher than the ten year treasury? Would you buy the ten year treasury with

your money? My answer when that question comes to me is no. But then I guess the flip side of that is, do you think that that bonds are going to underperform given that relationship, or do you think that stocks just need to rally a whole bunch more to sort of right size everything and then just returns will generally be lower going forward. I think bonds underperform in price as yields get restored if we don't have a global recession or depression, If we don't repeat smooth, Holly.

And in the mature economies and the US which is se now services, it's not that likely. You can't make that case so strongly, or at least I can't. I hear it all the time. The world's coming to an end. Here's a code talk forecast. The world won't come to an end. And if I'm wrong, you can tell me how wrong. So, David, should we be are you thinking?

You know, when we've heard from some people as it is perhaps a new world order, less global perhaps, but that suggests that global growth is going to be less going forward over the next ten twenty years, and perhaps it was over the prior periods. I think you're right. I think, Paul, global growth slows because we have impediments to it now instead of assistance to it. You know,

for me, this is tough. I spent my entire adult life in in philanthropic work and in geopolitical work with organizations devoted to globalization and integration, attaining peace and a higher standard of living worldwide. And it's all coming apart. And the reason it's coming apart is a misguided policy that originates in Washington. That's awful. So it's hard as on the policy. But I sit with my partners in the firm and I said, we don't make this policy.

Our job is by cell hold for a client. And now we have an entry, and we have an entry because the world looks so ugly and crazy, right. Interesting. David Kota, thank you so much, as always, uh for your comments now saying I think very interesting to take away, lisays Mr Kotalk is fully invested in equities, using the recent volatility, of the recent weakness in the markets to get a little bit more restive on the equity side.

I think that it's really poignant that he said that this is a hundred year of flood, that this is sort of turning a lot of fundamental assumptions on their heads, and what does that mean about how you look at investing and just in general, how to call your perceptions really important outlook. Yeah, very very it's a different view and it's certainly one that makes a lot of sense, and it's uh, it's probably perhaps just kind of recognizing

how the markets have changed out there. David Kotak, chairman, a chief investor and officer Cumbler and Advisors, thank you very much for joining us, giving you your thoughts on the market. The question heading into the September f O m C meeting is not whether the Federal Reserve will cut rates, but whether they will signal substantial further cuts

later in the year and next year. Joining us now to get a sense of what the pulse is in FED world is Christopher Condon, his Federal Reserve reporter for Bloomberg News. So, Chris, we are getting some Fed speak this week. We heard from Boston FED President Eric rosen Gren yesterday. We're going to hear from J. Powell on Friday.

What have we heard? What are we expecting to hear? Well, we're hearing more about a split committee, really one I think where the majority still sits with J. Powell uh and his signal recently at Jackson Hole that there will be another rate cut coming in September. UM. But there's a good handful of regional presidents that are not comfortable with cutting again. A couple of them are voters, namely Eric rose and Gren. Esther George from Kansas City will

probably be another dissenter. Although she hasn't spoken publicly since

UM the last meeting. Rose and Gren has a couple of times, however, UM and he's making a case that, yes, the risks are growing to the US economy, obviously from the deteriorating trade picture, but the damage there is confined mainly to business sector, to manufacturing, especially whereas the consumer, which counts for about sevent of GDP in the US, is roaring on just fine because of tight labor market and UH steadily increasing wages, not dramatically, but steadily, and

so the consumers continuing to spend in the consumer has the ability to carry the US economy to at least two percent growth this year. Yes, So, Christopher, you mentioned the manufacturing and business spending, and we saw that the I s M data came out the last week. We showed manufacturing contracting for the first time, I guess in three years, with at nine point one reading below that Matt at the important fifty level. So to what extent

do you think that'll give the Hawks some ammunition? UM? Yeah, I think it certainly will. But you know, there's a lot of agreement on I would say, the diagnosis and not the prescription here across the committee, people seem to agree that the base case is still pretty good, um, and that the risks are rising. The question is it does all this turmoil and the business side, particularly in manufacturing, begin to infect the consumer side. And the bridge there

is the jobs market. That's what a lot of people are going to be watching. We've got a big jobs number coming on Friday, the August non farm prey rolls. And you know, the idea is if um businesses which are already drawing back on plans for expansion, you know, delaying or even just canceling investment plans, if they also begin to lay off workers, and that gives us one or two bad jobs numbers that could spook the consumer. Rob Kaplan, the president of the Dallas FED, talked about that.

He's he's supportive of a ray cut in September, and he worries that if the f o MC waits to see a real sign that consumer spending is starting to nose down, then they've waited a bit too long. Does the data even matter at this point? Oh well, that always matters, I think. But the reason why I ask that is because at this point it seems like uncertainty

is the prevailing word. They're worried about uncertainty, creating some uncertainty for uncertainty at businesses with uncertainty, and you know that basically it's gonna slow spending and that they just want to get a out of that. I mean, it does not seem to be connected to you know, maybe perhaps the inflation readings, but I mean, it doesn't seem like anything could come out of the job's reporting Friday

they would make them not cut rates. So I agree with that, Yes, yeah, I mean, and the short and you always you know that you're not going to get a dramatic move one way or the other based on one or two data points. It's more of the accumulation. So in that sense, I really do agree with you

that they're they're going to cut in September um. But you know, there's a bigger decision waiting for this committee is and that's at what point do they switch, even the majority that's in favor of this mid cycle adjustment, what point do they change gears and say no, we're aheaded for a deeper downturn and we better start cutting harder. That's where the argument of trying to use your limited

ammunition fast and aggressively starts to come into play. They are not there yet, but you know they're thinking about that, and the in the data as that accumulates will help inform them there for sure. So Chris, just real quickly, UM, how common is it to have you know the number of dissenters that we seem to have on the FMC right now? I would say it's not uncommon, particularly where it's confined to the regional presidents. Um, you know, you'll

only have you know the potential for two dissenting voters there. Again, where in the background too, there will be some other uh certain probably I would say three or four other regional presidents that afterwards come out saying they weren't really comfortable with this. Uh. It gets a lot more dramatic if we eventually see a governor UM expressing severe discomfort. We're not quite there. So I don't think it's that

highly unusual at this point. Very good, Christopher Connan, Thank you so much for joining us Chris as the Federal Reserve reporter for Bloomberg News, joining us from our Washington d C Bureau. Let's talk cryptocurrencies. Facebook made a big gus splash schuck a month or so ago with their libre product, their cryptocurrency entrance into the market. Let's get an update on kind of where that market stands. Welcome William Quickly. He's CEO of w a X Worldwide Asset Exchange.

He's also co founder of Tether. He joins us from our l A studio. Williams, thanks so much for joining us. You know, I guess cryptocurrencies for the broad audience kind of took a higher profile when Facebook made that announcement about its Libra crypto product. Give us, give us a sense of kind of where you think the cryptocurrency market

is right now. First, I would say, Uh, the fact that Facebook is finally considering doing what we call a stable coin, which is issuing a token that's backed by the US dollar and and a basket of other goods is a is a strong indication that companies of that size finally realized the value of incorporating blockchain into their basic business. So there's a lot of other reasons why why Facebook is is doing uh, what we call a stable coin, other than simply saving money. Uh. The entire

uh cross border international payment business is very difficult. It's slow, it's expensive, and when you think about somebody like Facebook, they've got two billion people on their platform. They could instantly create a currency if you will that would be one of the biggest, if not the biggest, in the world. So this is it's a very good use case what we call stable coins, uh for for blockchain. Blockchain is not perfect for everything. Now, in terms of your question,

what is the state of blockchain today? Uh, there has been a ton of investment since seen back in hundreds of businesses did what we called I c o s. They raised lots to capital and they've been building out really nice software systems. So we're going way beyond blockchain. From the bitcoin perspective, Bitcoin is a is a fantastic invention, but it lacks a lot of things. You know, it's slow,

it's expensive, and it's difficult to use. So those particular problems are things that are now getting addressed and i'd suspect over the second maybe the next year or so, you're going to see a lot more businesses adopting crypto and you're going to see them using these new types of block chains that go way beyond the capabilities of

of the bitcoin block chain. So the concept of a stable coin, and this is important and you're the perfect person to be speaking about this because you're a co founder of Tether, which is the stable coin probably that people most note, uh, and my understanding, it's basically backed by some currency or some commodity, or there's something backing the value. So it's not just uh, you know, its own kind of entity that that rises or falls based

on speculation. Am I correct? That's exactly right. So I guess that there's there's a question, and this really gets kind of dicey sometimes, what would you like to see when it comes to the regulatory regime that overseas whether the stuff that's backing the currency is actually worth what

it is. I mean, I'm I'm talking. I'm thinking about tether, and there have been some questions about whether there are enough dollars backing it or just sort of you know, whether there's any you know, demonstration that they're all backed by by dollars. Yeah. Well, first I would say, uh, whether or not tether was backed by a dollar or not, actually wouldn't matter if everybody agreed to take tether and to value it at a dollar themselves, And that's actually

what's happened. There was some controversy about some cash I think was about eight and fifty million that Tether was unable to access because that bank account had been frozen, not due to anything they had done. And yet the price of tether continue to trade at just about a dollar. So I think a lot of people want it to be backed, and they and they would prefer it to be backed. But what's even more important is that people

will exchange it for the value of a dollar. And UH, to give you a sense of what I would like to see, UH, it is almost impossible to get a bank account if you are a blockchain based business, whether that's tether or wax or any number of other businesses. It's very difficult, and yet there is no legislation that says it should be difficult. In fact, usually people talk about money laundering and tax evasion and and knowing your

customer rules. The thing is blockchains can be designed to provide those things in an even easier way than traditional bank wires and payments. So what I'd like to see, but I'm not holding my breath, is Congress is give some guidance to the regulators. And the problem right now is no regulator in the United States anyway has been assigned to have jurisdiction over blockchain and crypto, and as a result, you have many, many regulators all saying, well,

it's it's our turf. And as a result, if you're in the blockchain business, you are really forced to comply with numerous regulators, and there's many conflicting interpretations of what is a crypto, how blockchain works, what rules you have to follow. And keep in mind, blockchain is not just the United States phenomenon. In fact, the US is relatively small. It is a it is a global phenomenon, and therefore any business operating in blockchain is really a global business.

Now that's one reason why, of course, I think Facebook sees the benefit. They've got two billion people. Most of those people on their platform are outside of the United States, and Facebook clearly has seen it needs to move away from simply advertising as its revenue model. Reason of course, yeah, wait, what do you think the business case is for Facebook

with Libra? Well, I will first just say it's a fantastic idea for them to do, and I hope they take a lot of alernings that we've done from from Tether and incorporate them. But consider that, uh, most of the of the platforms today, social media platforms are really add supported and with all of the privacy concerns and and just concerns about advertising in general. It's pretty difficult to imagine Facebook is going to be able to continue to grow with that as its primary revenue model. They

need to get into commerce. I think they're actually late to the game. They bought a business I would want to say about five or six years ago called What's App. What's Apps as a messaging app. Five million people globally use it. In Asia. Those messaging apps other than What's App have tons of commerce integrate it into them. You want to order food, you want to order a car, you want to book an Airbnb like experience, you do

it through that app. So I've been quite surprised that Facebook has been so slow to exploit that on its on its What'sapp platform. But this is really about e commerce, global e commerce, and the biggest friction point in global e commerce is the payment mechanism because it is so complicated and there are so many individual entities that take a piece of every transaction and it's slow. Yeah, William Quickly, thank you so much for being with us. Really interesting discussion.

William Quickly as chief executive officer of WAX, the Worldwide Asset Exchange. He also is co founder of Tether, which is probably the best known stable coin, one of the most popular crypto assets, which is tethered to the value of the dollar. Thanks for listening to the Bloomberg P and L podcast. You can subscribe and listen to inner used at Apple Podcasts or whatever podcast platform you prefer. Paul Sweeney, I'm on Twitter at pt Sweeney. I'm Lisa

Abram Woyits. I'm on Twitter at Lisa Abram Wohits. One before the podcast, you can always catch us worldwide. I'm Bloomberg Radio.