Welcome to the Bloomberg p m L Podcast. I'm pim Fox. Along with my co host Lisa Abramowitz. Each day we bring you the most important, noteworthy, and useful interviews for you and your money, whether you're at the grocery store or the trading floor. Find the Bloomberg p m L Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot Com. I am honored to bring in if you told vash Chikovsky.
He is Minister of Foreign Affairs for the Republic of Poland and he comes to us from our Washington, d C. Office. Have you told? Thank you so much for joining us. I would love to start with a number of news news articles that have been running in the US. There seems to be a perception that laws that ultimately were rejected, that were brought up in Poland to possibly remove the independence of the judicial area were broadly slammed by the
European Union and if so, exacerbated the tensions. Do you think that the tensions between Poland and the European Union have been overblown? Do you think that they're getting worse? Uh? And what was sort of the endgame here? Yes, good morning, Thank you for for inviting me for this for this program. These are rumors, of course, sounds very scary, but not not true. We are trying to to finish on our transformation.
Transformation we started twenty seven eight years ago after the collapse of the Soviet Union, the Soviet Block and the last area which was not transformed, which was not modernized. It is a judicial system, legal system UH. And that was the demand of how people when two years ago we we were we won the election, so generally there was appeal of a population to to change, to modernize
this system. We are not inventing anything new. We are just importing the solution, existing solution which are existing already in the other members of the European Union. The problem is that we are engaged in a in a dialogue.
There are no tensions. There is a dialogue with the with the Commission because there are some of our standards in the Commission and Commission things that what is acceptable for other countries, especially the Western UH friends in the European Union, is not acceptable for the young democracy like Poland, is not acceptable for the country which has UH allegedly a different legal culture in our parts of Europe. This
is unacceptable for for us. We are as. I said, we are not inventing anything new, We are not breaking the tradition. We are not imposing any restriction on the judicial system. We just want to modernize the system, make it more efficient. Well, but what's what's at stake here? Because there is the potential for the European Union to even reduce the funding that it gives you, or to reduce voting rights. Do you think that that's at stake,
because that's just some of the things that have been positive. No, this is not at stake because they cannot reduce funding because the fundings are not for the good behavior or for certain pattern of behavior. The structural funds we are getting from from Brussels a part of the deal we signed when we join European Union. They are part of the European Treatise and this is a compensation for the
opening of the market. We join European Union two thousand four, but we open our markets at the beginning of ninety nineties, so more than twenty about twenty five years ago. So so this is the deal in your opinion, that the weaker economies can be can compensate the opening of the markets to the bigger and sow economy said, so this is nothing to do with status of democracy or or legal system. The other problem, of course is the voting
procedure Article seven of a treaty. But it requires the consensus in your opinion too to prevent us from participating voting. There is no such a consensus because there are a number of countries members of the opinion. They believe that
there is nothing wrong going on in Poland. Um One other, one other article that has definitely one other idea that has called the attention of the media in the United States is this request by Poland that Germany owes it at least one trillion dollars in reparations for World War two damages. Has a Poland discussed how to pursue this money and how this will impact relations between Warsaw and Berlin. This is there is no official decision of the government.
This is just ongoing discussion, discussion among her politicians in the media. Of course, the problem is that after the Second World War there was no peace treaty with Germany, and neither Poland nor many other countries which were devastated by the German occupation. German Nazi occupation never got any any money any compensation for the for the lost. Let me remind you that during the Second World War, Poland
lost six million people. Uh. They after the Second World War they moved the foreign countries, they moved our borders, and of course the number we lost in a material way. For instance, the capital of Poland, Warsaw, was devastated that more than eighty percent, maybe nine of the of the buildings were totally destroyed in the ninety five it was a stone desert. So uh, this is a discussion right now which is going on in Poland. Uh why we haven't got any conversation for the sort the tragic loss
during the Second World War. But decision is not taken by the by the government. So those figures who are just mentioned just figures which are existing in the media only. And just real quick with Poland, consider a similar request from Russia. Some have suggested that's another problem, of course, because uh we were partitioned, uh due to the UH from the German Soviet Pact. Uh. And Uh, that's the war started the nine thirty nine and Poland was occupied
parsonally by Nazi chairman, but party by by Soviets. And then of course we had forty five years or domination over over Poland. So all these things are considered right now and discussed in Poland. But as I said, there is no decision taking the government yet. Thank you so much for joining us. Truly a pleasure to speak with you and for setting the stage from a point of honesty, the told Vashtchikovsky, Minister of Foreign Affairs for the Republic of Poland. Uh coming to us from our Washington d
C Bureau. Definitely interesting as the Polish government forms and negotiates with the European Union for its place. Well, the dollar is pretty much a flat today after I guess surging yesterday, but I guess it's just a surge compared to the incredible weakening that we've seen throughout of the dollar versus it's peers. I want to be in Doug Barthwick, he's managing director and head of f X at Chapter
Lane and Company. And Doug, you know, this really is one of the key questions in financial markets of the year, which is the week dollar and how long it and keep weakening in light of the FEDS likely December rate hike. Why do you think the dollar has a good chance of continuing to weaken going forward well, rate hikes and you haven't been happening since the start of the year, and the dollars continue to weaken because as the US
hikes rates other countries that the dollar trades against. They also turned around their center banks to say, you know what, we're thinking about getting out of quantity of using as well. If you actually look at the numbers that were talked about yesterday on the quantity of using and the pullback for the balance sheet, it's going to be up until it it's gonna take until April of next year for
the balance she'd actually start getting reduced. Because really what they're doing is they're tapering the current quei or reinvestment that's happening right now. So if they turned around and said we're gonna stop reinvesting, that's one thing. But instead they said, you know what, we're gonna keep on doing. We're just gonna reduced to reinvestment by maybe six billion on the treasuries for the next three months, then after
that twelve and after that eighteen. So it's gonna take quite some time for them to get to a point where they're not still reinvesting. That's gonna be April of next year, at which time fatsy l and may not even be in her position now. The week the week dollar is something that's been going on for quite some time. It's a stated fact that the president right now once a week or dollar to make the US more competitive.
Secretary Treasury Nutans also pushed that point and said, it's not that the dollars we could set other there's other The dollar has been strongly as to the other countries have been way too weak. So he wants other currencies to strengthen their their currencies, and we see a continuation
of that. We see yesterday's move as being a pullback based upon stop losses because folks were very much looking for the fet to step back because of hurricanes that didn't happen, So you saw a pullback based on the stop losses. Today the year is up about forty points because you know from yesterday's lows because of that, as folks read through the numbers, all right, but you know, the dollars weakening has been the biggest decline against its
peers in about a decade. We're seeing a number of big investment managers starting to tiptoe back into the dollar. Implicit in your marks is the idea that European and other economies are accelerating faster than the U S is. Do you think that perhaps traders are discounting the strength that we're seeing in the economy in the US. Oh, for for sure. I don't think traders really believe that their strength in the US economy quite as much as
the FETE does. And remember what the FETE did yesterday is they stated an intention, they didn't actually move the rates. And I think that's important to understand is that since the start of the year, the fedsman aggressively talking about how they're going to start raising rates, and raised rates, you know, quickly, and what's happened is the Fed step back,
step back, step back. So certainly they've talked about having a rate rise at the end of this year in December, but it's still only six prices in the futures market, so folks aren't really buying into what the Feds thing. So, Doug, which is the most important cross to really watch. I'm looking at the US dollar versus the euro and it's currently at a zero point about zero point eight for euros uh per dollar. I'm wondering, where do you see
that go I mean, how low can it go. But we look at the euro against the dollars, so that's a one twenty right now. We believe in the fair point right now, it's probably around one. Remember we were trading one to one thirty before Greece came into the issue and we saw the move down to one four one oh five in the euro. Grease no longer has
talked about in the markets. Nobody is concerned about what's happening in greases, so there should be a natural bounce back to that level playing field of the level which we believe should happen. I think we see probably one twenty five by the end of next month, and we'll probably see one thirty by the end of the year. I think that this dollar weakness is something that isn't even talked about in Germany at all. You know, when the ECB was when drag he was asked what do
you think of the Euro? In his statement, he discussed about the volatility, but he didn't discuss the specific level. The Zoo index, talked about how German industry isn't thinking about the euro whatsoever. And marqual As she's gone around, you know, trying to push to get the votes so she can run and get re elected, hasn't taught, hasn't brought up the euro at all in any of her campaign speeches. So I don't think there's a concern right
now about the level of the europe by Germany. But certainly there's a concerned about the level of the dollar in the United States and the US administration certainly once a week or dollar going forward, Doug, what does this mean for emerging markets currencies which have had an incredible rally this year, do you expect them to continue going that direction as the dollar weekends do Yeah, and there's
a direct correlation here. As the dollar weekends against the yen, and there's a dollar weekends against the euro, emerging markets do well. If the dollar strengthens, the emerging markets don't have a problem because emerging markets have a considerable amount of external debt that's denominating US dollars. So if the dollars should weaken, let's say dollar Mexico is to jump from up to twenty again, Mexican companies would have a bit of an issue in paying back their external debt.
And so emerging markets are very sensitive to the strength of the dollar, but they do very well as the dollar weakens. Doug Borthwick, thank you so much. This is a crucial topic because even as the as a dollar, if the dollar does keep weakening, that will also provide a support to commodity prices and as Doug was saying, will also to provide ongoing support for emerging markets nations. Doug Borthwick, Managing Director and head of f X at
Chatelin and Company. This is certainly something that we will be watching. There are some pretty big money managers who recently have been talking about how they're actually going back and buying the dollar, including Melon Capital Management and State Street Global Advisors. There was a fantastic story in this week's edition of Bloomberg Business Week looking at Mark Zuckerberg, the head of Facebook, and looking at his political awakening.
The author of this wonderful article joins me now, Max Chafkin, technology reporter for Bloomberg Business Week, And you know, Max, I love that Mark Zuckerberg went on paternity leave almost to make a statement saying that men need to go and plut a paternity leave in order to take of their children and their families. At the end of August. But it's not exactly been in this peaceful period of absence. Has not been the most relaxing paternity leave I imagined.
Not not that any paternity leave would be not that relaxing, but uh, he you know, even before uh this this story that uh, the Robert Miller's special counsel is looking into stuff that happened on Facebook. He was getting involved in the DOCCA advocacy, He was raising money for the hurricane victims. He was sort of, you know, basically present on Facebook like he had never gone away. And I think and that speaks to the fact that, you know, over the last eight months or so, Mark Zuckerberg has
become a political figure. He's gone on this listening tour. He's putting himself out there in a way that you know, basically people who are running for president do. Now, that doesn't necessarily mean he's running for president, and I think that's pretty unlikely, but it is a shift for him, and it it speaks both to his influence and and power and also Facebook's um, you know, influence and power and and the fact that this company is worth like
a half a trillion dollars. Well, so when you talk about his politicking, we're talking about a national tour where he went to factories, where he went to churches, a very classic kind of, uh campaign run sort of affair. If it's not to set the stage for a possible political career, why is he doing it? So? I think it's it is possible that he's setting the stage for a political career if he's not UM and he says he's not running for president. He told me and my
co writer Sarah Fraar he's not running for president. I think what he's doing is basically playing a little bit of defense. I mean, I think the uh, the events over the last uh a few months, really pretty much since the election, UM have raised questions about how Facebook is affecting our discourse. Mark Zuckerberg kind of in the immediate aftermath at election said he didn't think that fake news, you know, was much of a thing and kind of
laughed it off. And as we've learned more both about you know, kind of what happened during the presidential campaign and how important social media was, and now these new revelations that maybe it wasn't just that um, you know, that Clinton and Trump used social media in the campaign, which we kind of knew, but that the you know, the Russian government or people connect to the Russian government,
we're also trying to use this thing. Um, it really cuts against the sort of brand promise of Facebook, and I think could lead to, you know, additional regulation. We're we're seeing, um, you know a lot of scrutiny in Europe right now. You know that there's there, there's several different actions going on, and and that scrutiny is now
migrating to the United States. So I think if he's not running for president, um, he is probably partly you know, just wants to get a better sense of whose customers are and I think partly wants to you know, show people that Facebook is is not to be feared. Yeah. Well, I imagined that the regulation is definitely something that they
talk a lot about internally at Facebook. Another tension that your article really highlighted, which I really loved, was this idea that while Mark Zuckerberg would like to think of Facebook is bringing people together and has espoused, uh, you know, sort of the universalism of a lot of tech companies, a lot of people criticize Facebook for alienating people and not being a satisfying kind of relationship building tool, but rather something that keeps people in their bubbles and frankly
away from actual human interaction, right. I mean this is he's sort of over the last few months he's developed this kind of political philosophy, which is that, uh, the reason that Donald Trump won, the reason that Brexit um, you know, happened, the reason that we have this rise of nationalism you know, around the world is that there's sort of a sense of isolation. People are not joining things in the way they used to. Church attendance is lower,
you know, little leagues are lower. This this idea became popular around two thousand with the publications book Bowling Alone. Zugerberg has kind of discovered the idea. The problem is that a lot of people think Facebook is sort of causing this exactly, and so so he his argument is sort of like the way to make the world better is with more Facebook, whereas a critic might say no, in fact, you know, you're this is this is like the an expression of all all the things that are
wrong with the world. And I think that is what is so dangerous about what's happening in Washington right now. Like that is why Facebook is worried, because this really cuts against the sort of promise of the of the company. Yeah, you you had a statistic in here that about five percent of Facebook users consider the interactions that they have to be meaningful on Facebook. That was stunning to me.
How does he respond to that? So, so the statistic is they're they're part of groups that they find meaningful. Um and and and a lot of almost everyone on facebooks sort of has interacted with the group's portion of it. It's it's like how you go to an event or or whatever. Pant suit Nation, the Hillary Clinton group was
a group. Um. Mark Zuckerberg is disp wointed in that he you know, the fact that only a hundred million people hundred million people sounds like a lot are in meaningful groups strikes him as as a failure of the platform and something that needs to be corrected. And he's told his employees, as we've as we wrote in the story, that he wants to get to a billion people in meaningful groups. Mark Zuckerberg loves things that come in you know, billions. Uh.
And so that's the big goal. That's the push. That would be like a tenfold improvement in in their group's products. So that's what they're working on right now. This is a fantastic story. I love the ending to or he really bristles against former coverage of Bloomberg Business Week and how he outsources some of his personalized Facebook page and
other um. It sort of highlights how he wants to seem like the guy next door, kind of can't be because he likes things and billions and most of us can't afford to Max chaff and thank you so much for joining me. Max chaffin his technology reporter for Bloomberg Business Week, really a fabulous story. I recommend checking it out well. Right now, I have two big questions about equity markets. One is will banks benefit as the FED
withdraw stimulus or not? And the second one is is tech the next shoe to drop with some of the big favorites of the year uh plunged facing a potential fall. To answer both of those questions, as Phil Orlando, chief equity strategistic Federated Investors who joins us now, Phil, I want to start with the first question. Bank stocks. They're up more than ten percent this year. A lot of people think that they're going to be in prime position
to capture extra profits. For many of volatility is the fedbacks away from their stimulus as well as higher yields. What we're seeing now is not a very clear picture. Volatility expectations not up even as the FED withdraw stimulus. Rates, Yes, in the short term up, but long term we're seeing that yield curve narrow. Is this a net benefit where the banks or frankly, is this going to make it
even harder for the banks going forward? So our view is that the banks are one of the prime beneficiaries of of what we believe will be this sort of unfolding FED policy. So Yelling yesterday lays out UH the case for beginning to balance sheet shrinkage starting in October. UH That shrinkage over the course of the next few years should gradually take the Fed's balance sheet down from about four and a half trillion to something in the order of two and a half to three trillion dollars.
That's the level that I think will be sort of the new normal for the FED. But the some of the experts have said that that process will be the equivalent of of moving interest rates up by about seventy five basis points over time UM with inflation UH troughing a little bit. Here. The FED wants to give itself a couple more months for the core PC to perk up. By the end of the year, we think that will happen. We think there's another rate high coming quarter point at
the end of the year. So the prospect of the withdrawal of accommodation from the Federal Reserve, both in terms of the balance sheet and adjusting the FED funds rate, we think will will allow interest rates to move up over time. I think the bond market has started to price that in already. Just in the last month or so, we've gone from just over the two percent level. We're up in the two and a quarter to two point
three percent level right now. And thank you benchmark ten's. UH. Banks will benefit from higher interest rates, it will lighten their margins. UH. Just what the Fed is doing implies that there is an expectation of firmer economic growth. Increased lending activity will help the banks as well. So we're absolutely right there with your first premise. Financial stock should benefit from this, and I think that's why they're they're starting a rally. So which banks in particular do you
like from here? Given current valuations and given that forecast for banks benefiting from the Feds withdrawal. Well, you know, I wasn't prepared to come on and drop a bunch of names, but certainly our favorite uh JP Morgan Chase in terms of UH, their their management, their their capitalization, the UH the breath of the markets that they're involved in, that they should be the poster child of of the large cap money center bank that that will benefit from
the trench we've discussed. What about. Okay, so let's let's shift. So your your bullish on banks from here, and you think that they they stand to benefit UH from the fed's withdrawal from their stimulus, Let's move on to tech because the fang stocks obviously have been huge drivers behind this year's rally and in the SP five hundred NASDAK.
I mean, I'm just wondering, from your perspective, do you think that they are threatened from here due to increased scrutiny from governments as well as frankly, not being able to really meet such high benchmarks that they have set for themselves. Well, you know, technology stocks are a sector that we've liked, and they've actually done pretty well here. If anything, we think that the pattern of regulation that we've seen over the last seven or eight years has
probably peaked and is starting to go the other way. Additionally, as as we would look at sort of this change in administration, one of the things that we're hoping to see frankly, that we expect to see over the next year or so is UH this whole repatriation idea UH. And and one of the one of the central tenets of that UH is that if we're successful on repatriation, literally a couple of trillion dollars is going to come flowing back into the United States from overseas coffers looking
for something productive to do with it. One of the things that that we think is going to happen is that companies, and if you study the US, the corporate cap X has just fallen off a cliff for the last five or six years. Companies have stopped investing in themselves. And I think if there's this incremental amount of cash flow that needs to find a home companies have not invested in themselves, that that we we are in need of a technology upgrade in a lot of of legacy
type companies. I think there's gonna be a technology upgrade cycle, UH as part of this cap X boom that we're looking for that will benefit technology companies. Now, maybe that's one of the reasons why tech companies have done so well to date. We think there's a little bit of a sort of a value rotation going on right now, energy stocks doing better, financial stocks doing better as opposed to the growth stocks like technology, which have had a
terrific year up until now. But I think looking longer term out into the cycle, we think technology stocks will be a beneficiary of some sort of an infrastructure you know, upgrade cycle based upon cap X dollars flowing back into the market. You know, I want to push back on that a little bit, because you know, there is this expectation that cash repatriation will create some kind of boon to uh to those particular companies, at least their stocks.
And yet a company like Apple has basically used a lot of the cash that they have stored overseas by way of borrowing money. They can issue as much dead as they want, and they've been issuing incredibly aggressively, more than seven issuances so far this year, and they've been using the proceeds to do buy back shares and do whatever they want. I mean, they've been buying back three billion dollars worth of shares through eighteen, I believe through
next year. So I mean you could argue that they already have been deploying that cash through the debt markets. Not every company is is as pristine as Apple. Uh you can make the argument though, And they've talked about the fact of trying to move some of their manufacturing from let's say China back into the United States. So so maybe if they got some of their cash home, uh, they may use that to uh, you know, build that
that that new you know, high end plants somewhere. Um. You know, Amazon has talked about building a second corporate headquarters somewhere in the United States, uh, you know, New York or Chicago or Detroit or whatever. We don't know
where they're going to do this. But so I think companies for the first time in a really long time, are looking at this sort of see change, if you will, in terms of mindset out of Washington, in terms of being either business friendly or not business friendly, or saying wait a second, you know, we had an environment where where Washington wasn't terribly friendly to us. Now that's changed.
Now we may get a couple of billion dollars back to to UH impart invest in things like like corporate capex, which frankly we haven't done for the last five or six years, So this may be an opportunity to sort of dust off those plans that we shelled and UH to take a look at whether or not it it makes sense to do something here. Fill Orlando, it's always a pleasure speaking with you. Thank you so much for joining us. Phil Orlando, Chief Equity Strategistic Federated Investors, bullish
on banks, seeing long term opportunity in tech stocks. Definitely an interesting issue to keep track of the cash repatriation and what that would do both respect to capital investment as well as share buybacks. 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 Abramo. It's one before the podcast.
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