Could See A U.S. And Global Recession By End Of 2019: Sri-Kumar

He is president and founder of Street Kumar Global Strategy is also a Bloomberg opinion columnist. Coming to us from the lovely Santa Monica, California. Samal, Thank you so much, uh Sree, thank you so much for being with us. So what is your take on emerging markets currencies heading into your end here? Good to be with you and

PIM Lisa. In terms of what is happening, the emerging markets are clearly reacting to a stronger and stronger dollar that we have seen over the last several months, FED which insists that it has not stopped hiking, it is going to keep increasing interest rates, and we have a situation of trade war which is really very negative for many of the emerging markets. So it may not always be a conscious move to depreciate their currencies in order to fight a trade war, Lisa, but that clearly is

the ultimate result. We have seen that recently with the Turkish lira. We have seen the Argentine pace, so the Indian rupee. In the case of Argentina and India, they have been all time record lows, and Argentina is going to compete with the United States for Chinese markets. The Indian manufactured exports will become even more competitive globally. So I the problem here is that it is going to

worsen President Trump's problems. The U S trade deficit is going to worsen, and we are going to have to face some way to depreciate the US dollar. And once that happens, then you have the other countries reacting yet again, Shree. One of the area One of the things that I look at on a pretty regular basis is the price of copper as a proxy for industrial activity, as it is an industrial medal. The price of copper is down more than fifteen percent since it's high in mid June.

Do you believe that we're going to find that the world economy is not as robust as many economists belief.

That is a great question, and I would pare your answering your question to what we see as a message that is coming from one is from Dr Copper as it's popularly known for its record in predicting the global economy, along with what you see happening with the US equity market, which has been rushing up in the last few days because of corporate turnings, even as the bond market continues to give you dangerous signals and the two to ten years spread on the U S treasuries continues to be

below thirty basis points. The combination of weakness and copper and a very narrow spread suggests to me that if we could invert the Eelk curve even by September, if the FED were to high cut on September twenty six, and then you're looking possibly for a US recession and a global recession towards the end of next year, and if we have a trade war accelerating, it only pushes the world further into recession. Well, that's a pretty a pretty dire prediction, and there are a growing number of

people who do agree with you. Actually, I want to push back a little bit on this idea of the ongoing appreciation of emerging market currencies in the appreciation of the US dollar. First of all, you are being some of these developing nations deploying their foreign currency reserves to support the currencies. So that's is evidence that they don't

want to see such depreciation. Uh and and in the US is one country, but there are other countries that are increasingly dominant, including China and India, which can drive a lot of economic activities. So what do you say to people who argue for emerging market investments now? Based on those arguments, I would say emerging markets are going to look great, but not yet. In other words, the

emerging market currencies are going to continue to depreciate. In my opinion, Lisa, you were right on in saying that many countries don't want it to depreciate. Both India and Argentina are facing the prospect of higher domestic inflation as a result of weaker currencies. So for even for domestic reasons, they want to support currencies. The problem is the following

they are not in control of it. If the FED word to increase interest rates and if President Bush President Trump were to continue with the trade wars, their currencies are going to depreciate no matter what they do, or the central banks are going to figure out that they're going to spend more and more of their dollar reserves to defend the currencies, which is basically meaningless if the

fundamentals are suggesting a weaker currency. So it is may not be intentional that these countries are doing it, and you're right in saying that they are trying to control inflation. They don't want the currencies to depreciate, but it's beyond their control. Also taken to account that recently Larry Cudlow, economic advisor to the President, has suggested that the FED

go very slow on its rate heights. The concern here is if the Fed were to keep tightening, it's going to cause the dollar to strengthen even further, worse than the trade situation. So you're going to have a conflict between the Fed and the administration coming up between the next two to three months. All Right, we want to thank you very much for being with us. Kamal Ah Kumar as the president and the founder of a Shriek Kumar Global Strategies, he is also a Bloomberg opinion columnist.

Is based in Santa Monica, California, and you can follow Shri on Twitter at Shri s r i K Global. The United States spends the most on healthcare per person. It spends something on the order of about three point three trillion dollars. That's nearly of US g D P. Here to telp us about how this money is spent and can it be more efficiently used in order to bring high quality health care to Americans is VJ Governor de Rogin. He is a the Cox Distinguished Professor from

Dartmouth's Touch School of Business. Also joining us is Robbie Rama Murti. He is the University Distinguished Professor of International Business and Strategy and Director of the Center for Emerging Markets at Northeastern University. They are both the authors of the new book entitled Reverse Innovation in Healthcare, How to make Value Based Delivery Work. Gentlemen and professors, thank you very much for being with us. Professor Governor de Rogin, I want to begin with you and just set out

why did you decide to write this book? See the baby started on this book is both of us are from India, and what we found was India is a country which has got one billion population who are poor. Therefore they can't afford to pay a lot on healthcare. And India also has limited number of doctors and limited number of hospitals. So the question is how do you serve a large fraction of the population with limited hospital infrastructure and medical doctors. The only way you can do

it is through health care delivery innovations. So we said there has to be some hospitals which do breakthrough health care delivery innovations, and we found seven of them and we use that to really generate our insights about how you can lower health care costs dramatically. So Rob, come on in here. Can you give us a sense of what some of those innovations were that you found in

those hospitals. Yeah, one of the important innovations that these hospitals use is how they configure their assets into a hub and spoke network and they send advanced procedures and patients requiring advanced care to the hubs where they also have the most advanced specialists and the most advanced equipment, and in the spokes they deal with more routine cases. Now, this may seem like a simple idea, but in fact in the US it is something we don't see very

much of. We have, in other words, in the US too many hospitals that are aspire to be hubs and not enough spokes, and therefore you have hospitals that become very expensive because every hospital is trying to do every procedure. This is one example. Now, as a result of this configuration in the Indian situation, you actually have hospitals that too high volumes of various surgeries. And it's not because

there are many more Indians requiring those procedures. It's just that the available volume is funneled into the hubs, and so you can have a heart hospital that does six open heart surgeries in a year compared to about four thousand in even the most advanced, leading h heart hospital in the US. So this is one example. And we have five principles that we identified from the research. And this is one of the principles. If you if you want me that I can quickly balk you through the

other principles, sure give us one. Give us another one that you believe could be applicable to the United States. Another principle we identified, we call it tasks shifting and this is trying to free up doctors so they do the work that only doctors can do and allow others to do less sophisticated work. In the US, again, we have the opposite situation where doctors spent more than half

their time on administrative work. And if you look at the Indian example our hospitals, we studied, a doctor in one of the eye hospitals is surrounded by ten support staff who free up the doctor from all of the non medical work. So this doctor is three or four times as productive as an eye surgeon in the US. So we called the stash shifting. And the interesting thing about what the Indians do is not just that they

have nurses and nurse practitioners helping doctors. They have created entirely new categories of workers, each appropriately matched to the work required. And this not only saves money, but actually improves quality because each person is really qualified and motivated to do the task that they are assigned. Yeah. Well, one thing that is sort of interesting in light of healthcare conversations in the US right now is the cost

of pharmaceuticals. And j I want you to come on in here, because a lot of people say, yeah, healthcare is cheaper in other countries outside the US because drug companies can sell pharmaceuticals at lower prices, the generics are sold at lower prices. Do you think that that is a significant component of the lower cost of healthcare in some in India and other countries. Certainly generic drugs can contribute to lower costs in a kind tree like India. Certainly,

labor cost is also cheaper. For instance, doctors salaries or nurses salaries are cheaper in India's compared to the US. We kind of adjusted for all those and what we find is even after you adjust the Indian cost structure for US salaries and US drug prices, what we find is the Indian exemplars if you take open heart surgery, they are still of the cost of open heart surgery in this country and their quality is better than what

we find in the US. For instance, in open heart surgery, one measure of quality is mortality rates thirty days after surgery. For Nara and Health, which is one of our hospitals in India, their mortality rates thirty days after surgery is one point four and the US average is one point nine. So their quality is on part, maybe even slightly ahead so therefore, reverse innovation is not just about reducing cost. It is about delivering value that means very high quality

at very low cost. Professor Ramamorty, what you believe to be the biggest obstacle in the United States to implementing some of the described efficiencies and changes which would benefit the population. I think the fee for service system that we have is a major impediment because it motivates UH everyone in the system to provide services without looking keeping their eye on the ultimate objective, which is the health

of the patient. And now there are plans in place to move, especially in medicare, to a different system, which is more risk sharing with the hospital us in the providers. We think that's a step in the right direction. That's one reason they wrote the book at this time, because we think as hospitals move in that direction, they're going to be looking for ways to bring down their cost

without loading their quality. Ravi Rama Morty University Distinguished Professor of International Business and Strategy and Director of the Center for Emerging Markets at Northeastern University, and VJ. Govinda jan He is the Cocks Distinguished Professor at Dartmouth's Tuch School of Business. Authors of verse innovation and healthcare kind of bringing Dan Hansen. He is UK economist for Bloomberg Economics and he joins us from our London bureau. Dan, thank

you very much for being with us. Maybe you could just outline what has the analysis said about the future of the UK at economy if it is outside of the European Union. Thanks for having me. So if we're outside the European Union, the UK economies outside the European Union, that it's going to be costly for us. I mean, so much depends on the deal we get with the European Union, and that's why the events over the past

few days have been so important. You've seen the UK government appear at least to move towards a softer Brexit. But even that softer Brexit we think could see the economy around five smaller by about twenty thirties. That's a significant hit um. And if we go towards this dreaded no deal scenario, that cost could rise substantially up to maybe perhaps seven percent of GDP. So these are these are big numbers that we're talking about, and I think the really important point here is it's the form of

Brexit that matters the most. It's not that we're just leaving and there's just this cost. It really is the shape of the deal we're going to get the EU that will determine the ultimate cost of the UK economy. You know, Dan, whenever you talk about these projections, I'm sure you get a lot of feedback from people saying, Oh, you're just taking the worst case scenario and you're against brexits, you're trying to paint it this way, or you're four Brexits,

you're trying to paint it that way. And wondering is there any way to quantify what the economic effect has

already been stemming from the uncertainty that Brexit has introduced. Yes, sure, so we we've done some analysis on this and it really comes down to what's your counter factual um and the way we take We take quite a simple approach and just say what we have forecast had the UK not decided to leave the European Union, and our numbers suggests that the UK is about at the moment, it is about one per cent smaller than it otherwise would

have been. Now, you're quite right, it's uncertainty that's had an effect, especially on business investment in the United Kingdom. But it's also this drop in the pound that's fed through to inflation and that squeeze incomes in the UK. It's made things a lot more expensive for consumers and that's seeing consumer spending slow. So it's those two effects really that have that have seen the economy slow. But our number is about one of GDP, so or the economy we think about one percent of g d P

smaller than it otherwise would have been. What do you believe the reaction or the next moves on the part of the Bank of England are going to be given this scenario. So it's really difficult for the Bank of England because they've been struggling with this uh, this overshoot of inflation. So inflation has gone up at the end of last year it's up at three percent in the UK, but as I say, that was all sterling driven and

the Bank of Englan's target's actually two percent. But at the same time they've had a slowing economy, so you've had the monetary policy maker's nightmare. It's the trade off. They've got surging inflation, you've got a slowing economy. What you do um in the immediate aftermath of the Brexit vote, they loosen policy and quite significantly. But back in November they lifted rates very marginally by twenty five basis points

and took back some of that stimulus. And now we think they're nex meeting which comes on the second of August, they're going to lift rates again. The unemployment rate in the United Kingdoms at a forty two year low. Growth we saw figures today that showed growth likely to rebound in the second quarter UM and inflation is coming down but it's still above the two percent target, and pay

growth is picking up. So all of those factors together we think their next move is actually gonna come in a couple of weeks time, on the second of August. All right, although the manufacturing get out of the UK were somewhat disappointing, right well, I mean the manufacturing sector groom month or month. It was the broader factory sector, you're right, did contract, But part of that was due to erratic factors. One which is the it's been very hot weather here in the UK for once, and the weather.

I love the blaming of the weather. It's always a good thing to go to. I would just say I was watching our television coverage earlier today and Tom Keene was at the Parliament Square in front of Westminster and you could see all the grass has decidedly gone brown because of this hot Alright, alright, so whether weather matters, Dan, just just real quick here, I want to get your sense, going back to what you were saying, the form of

Brexit matters quite a bit. Do you see a much greater likelihood that we are going to get a so called no deal Brexit which would ultimately remove in your prediction, about seven percent of GDP annually by the end of At the moment, I think there is a risk simply because of what's happened in the last twenty four hours. It's quite clear in the UK cabinet too, of the most prominent Brexiteers have left, the resigned from the UK Cabinet and you've got a lot of hardline Conservative lawmakers.

So that's the party who are empower in the UK, who are quite keen to have a very clean break from the European Union. And now if they decide to challenge to reason as leadership, um, then it's quite possible that you end up getting a very uh anti EU or the pro Brexit leader in the Tory Party, and that lifts the chances quite significantly of a of a harder or even a no deal Brexit. Well, thank you so much. Unfortunately we've got to leave it there, but

we'll talk with you soon again about this issue. Dan Hanson, UK economist for Bloomberg Economics talking all about the various scenarios and effects of Brexit. Tessa shares up nearly two percent today, following a three percent gaining yesterday after news came out today that the company is planning a Chinese auto manufacturing plant with the capacity to produce five hundred thousand cars. Joining us now, Jamie Butter's US autos editor

for Bloomberg News, joining us from the Detroit bureau. Jamie, this is a really big deal. Explain why. I mean, there's there's sort of two sides to this. Tesla needs the sort of production haft that they could potentially get from this, but also tell us what it means about what's going on between the US and China. Well, yeah, those are those some pretty big things. So yeah, I mean, Tesla you know, has been so it's small, it's still

kind of starting up. They really only have the one car factory this, you know, to get one in China and then they'll announce by the end of the year, should announce some plans for a third assembly planned in Europe. You know, that really can go a long way towards them really kind of becoming a real automaker or something stable enough to survive a recession, um big enough to really gain some economies of scale. So it's this is

an important step. We've kind of seen it coming, he's been talking, I've been working on it for more than a year. But to actually get it to come together as a Holy owned Tesla plant in China, it's a big step for Tesla. Of course, they've got to pay for it, and there's some other issues there. But it is very interesting when you think about it in light

of all the trade chaos. You know that the Trump administration is created and we're seeing rising tariffs in the US US against China made products in China against US made products including automobiles as well as aluminum and steel,

and all these other things going on. And so here's the you know, the youngest publicly traded US automaker UH announcing plans to build a factory and basically double their capacity by building a factory in in Shanghai outside of Shanghai, uh so, which which will help it avoid the tariffs on both sides of the deal. But it'll be really I'll be really curious to see if President Trump has

anything to say about it. He's criticized Harley Davidson for their plans to move some work outside of the US and order to avoid Europe's tariffs against US made products. This is gonna take any work away from the US. But sometimes the President gets real sensitive about American companies creating manufacturing jobs anywhere other than the US. Of a Jamie Butters, Is it at all ironic that on this day, when we're talking about China and Tesla, that Tesla laid

off nine percent of its workforce. Um? Is it ironic? Well? Oh, and also I'll give you a moment to ponder that. As we recall in there was a story about how Tesla was going to produce electric vehicles in China. Oh but wait, that story surfaced again in and if they had actually started building that plant in it would already

be finished by now. Yeah. Uh, but they Tesla has moved at a very rapid pace to grow at the rate they have, and I don't know if they could have had the money or the uh you know, intellectual energy to need it to do all that. Uh. You know, Ellen Musk really does everything very his very hands on. Uh so having another operation on another continent may have been too much for them at the time. It is interesting, you're right. I mean, they're gonna add thousands, presumably thousands

of jobs. We don't know how many, but some number of thousands in China, and they're cutting uh thousands, you know about was about three thousand, mostly in the US. You know, it seems that a lot of the US cutbacks are related to the Solar City operations. We're certainly seeing a lot you know, the retail folks and installers from Solar City. So it may just be more of a business alignment. A lot, you know, a lot of things are fungible. I mean they're saying, you know, this

plant is only going to produce vehicles for China. The California plant will produce for the rest of the world, at least until Europe gets going. But well, you can't always move as people, you know. It's one thing. You know, it's hard enough for Nissan or Toyota to move people

from southern California to Texas or Tennessee. You're not going to move a bunch of factory workers from California to China, right and and certainly I mean two pims point though with a skepticism about sort of building a plant tests ability to do so they're kind of running out of cash. I just want to touch on one other thing, Jabe.

We've got about a minute left here. BMW also announced today that it will make many cars in China for the first time, and I'm just wondering, you know, whether quickly you could just give us an overview of just how much automakers globally are trying to expand their presences and manufacturing in China. Yeah. Well, I mean, China is the biggest market and it is still the fastest growing market in the world, and it's phenomenal to think about it.

It's now, you know, approaching twice as big as the United States market, which until the Great Recession was still the world's largest. It's still the most lucrative. But to avoid the to really cater to that market, you know, it is it is so big you want to have vehicles that are designed for Chinese people. That can reduce the costs of that your cost effective or you know,

more profitable. Uh. And of course, dealing with a government essentially controlled economy, it's always wise to keep those relationships strong, and creating jobs in a place helps helps with that. Thanks very much. Jamie Butters is our US autos analyst for Bloomberg. He joins us from Detroit. Thanks for listening to the Bloomberg P and L podcast. You can subscribe and listen to interviews at Apple Podcasts, SoundCloud, or whatever podcast platform you prefer. I'm pim Fox. I'm on Twitter

at pim Fox. I'm on Twitter at Lisa abramowits one before the podcast. You can always catch us worldwide on Bloomberg Radio.