Yale's Roach Sees a Dollar Decline of 35% Over Next 5 Years

more than that. His name is Stephen Roach and you will know him from his time as former chairman of Morgan Stanley Asia. Also, of course he's senior fellow at Yale University. Stephen want to talk to you about your call on the Dollar, but for us to have to ask you about this explosive book from John Bolton, all of the allegations that he didn't make when he had the chance to give testimony, but is now making in

a book. You know the Chinese administration, possibly as well as anybody in the administration, probably much much more so. Do you believe the allegation that President and Tom pleaded with Mr she to help him win reelection by buying American agricultural products which would help President Trump in farm States. You know, Bunny, I I do not know you know the veracity of he said, she said, allegations, Um, in any of this political intrigue from you know, the Ukraine

to UM Beijing. You you hear an awful lot. And you know it's it's clear that Um, you know, we we have a president who has pushed the envelope in his use of political leverage to achieve um, not just electoral results, but but economic results. And whether or not he did as um former National Scarity advisor of Bolton indicated, utilize that those tactics in addressing the China conflict for political purposes in the US, it remains to be seen. I mean, Trump will deny it, and Bolton has got

another point of view. And UM, you know, I have no idea as to whether or not Bolton is right or as Trump's as he's lying. Um, the president has a inclination to stretch the truth a little bit as well as we have gathered from his eighteen thousand plus lies that have been fact chuffed by the Washington Post since he's been president. But you know, I I just I don't know. So Stephen, let's switch gears to your

column here. Every time we have an f X strategist on, my first question is always give me the bear case for the U. S. Dollar. And I rarely get a good answer, or any answer at all, But I think you've got one force. What's your call on the U. S. Dollar. Well, unfortunately, I'm not an epic strategist, Paul, so I don't have to do this for a living, because you know, currency

calls are some of the toughest calls to do. But look, I worry about an unsustainable dynamic that is now emerging between domestic saving, or the lack of they are of in the US and our chronic current account problem, which requires US to borrow surplus foreign savings from abroad. We entered COVID with a historically low domestic savings rate of only one point four percent of national income in early

forty five year averages seven. So we're we we have very inadequate saving UH and reflecting these explosive budget deficit trajectory that we're on right now. Um, as you know the Congress and the Administration addresses precipitous decline in economic activity, our saving is going to go into negative territory. Did that once before? In the global financial crisis, the average was a negative one um uh, you know over the

uh two thousand nine to two thousand eleven period. But it's gonna go sharply negative, I think into the minus five area. And that's going to blow our current account deficit to a new record in excess of six and a half percent of GDP. The dollar serves the purpose of setting the equilibrium between savings and and you know, the current account, and so I'm looking for at client in the dollar over the next five years to address that. Yeah, it's a stunning call thirty five decline in the value

of the dollar. That would change the US economy irreptably, I imagine. Now you do say it's couched in terms of the comparison between the US the currencies of road basket of America's trading partners. Would that include the yuan?

Will China be a trading partner in the future, Stephen, Yeah, Vonnie, I mean, first of all, I mean it's a big number, but you know, if you look at the dollar, you know it's moved over the you know, the last um forty five years, we we had to we had two drops of in the seventies and again in the mid eighties, we had a drop of UM in the early two thousands. UM. These are against you know, broad trade weighted baskets of

all of our trading partners. So this is not outside the realm of the dollar declines we've seen in the past. And it would you know, the dollar would fall against UM I think the Chinese room and b. Yes, surprisingly against the euro, which is the most unloved major currency in the world, but also against you know, the the Canadian dollar in the Mexican pay so, and probably even

against gold and cryptocurrencies like the bitcoin. So I mean, this is a broad based decline reflecting some serious macroeconomic and balances that we're have long been evident in the US that are going from bad to worse as we speak, Stephen, very briefly, we only have just a couple of seconds. But good China really give the US dollar a run for reserve currency, not on an air term basis. I

think UM. China's got a long way to go to liberalize its financial system, to make its currency fully convertible, open up its capital account, and China's got issues of its own. But our reserve position has come down over the last twenty years, and it's likely to go further down with the dollar coming under the pressure that I envisioned. Stephen, it is always a pleasure to speak with you, never

enough time, but we thank you for joining us. Steven Roach is Senior Fellow at Yale Universe City, former chairman of Morganstown, the Asia and Bloomberg opinion columnists. Did you check out his latest column, how the coming crash and the Dollar will Unfold for more details on our conversation. Just then, looking at the market here again, let's think to step back a little bit. You think back to mid March when this all began, the market sank about

thirty four thirty five pc. It since retraced a lot of that move coming off the bottom, driven in large part by a federal reserve that has really been aggressive and in putting liquidity into the market. The question now for a lot of investors is what's the next step to help us answer that question. Lisa Schalett, chief investment Officer Wealth Management at Morgan Stanley. They have about almost two and a half a trillion dollars of client assets.

She joins us on the phone. Lisa, thanks so much for joining us once again, What are you hearing from great to have you? What are you hearing from your clients right now? Are they do they feel like, oh g I missed out on this rally, or I don't believe it is rally. What are you hearing most office, most often from the Morgan Stanley clients. Yeah, I think from our clients, and I think it's quite typical of

many private wealth clients. Is a continued level of skepticism, uh, skepticism that that the country is quote unquote in the clear with regard to the virus, skepticism that uh, you know, the market is reflecting the economic reality that they see on the ground. Uh. And and really skeptical about the

longer uh term. I mean, don't forget our typical client is uh you know someone uh that that's probably over fifty five over sixty uh And they have, you know, some historic perspective, and so they're asking us a lot of questions about what are the implications longer term of this rapid money growth by the FED, of the exploding deficits and debt. Uh. And so I think that there is a large amount of cash on the sidelines, which

is certainly a constructive element for this market. But our clients, for the most part, are are holding back, and I think that they're waiting for a little bit more evidence that things are truly improving, uh, and that you know, profits are catching up to the to this market which has anticipated a lot of recovery already, Lisa, are they not then embracing the V shaped recovery narrative? And in that situation, did the FED chair and give them all

the more ammunition to not embrace that? Yeah? So you know, we definitely, you know, we're writing about this. So look, uh, you know, my my team and the folks on the Global Investment Committee at Morgan Stanley have been trying to to lay out that narrative and explain to folks and our clients that, you know, the way markets work is, uh, it's not about the level. It's all about rates of change,

and it's all about upside surprises. And if you get positive rates of change and upside surprises, market tend to go up and climb the wall of worry. Um. That having been said, you know, when you have a FED that comes out and says, hey, you know, we don't think that, uh, that the economy is going to be back to where it was in January until the end of two I mean, my goodness, that's two and a half years from now. Uh. That's a pretty sobering statement,

uh from the Fed. And I think, uh, you know, for folks who are more conservative who've sat in the bond market, uh, you know, trying to take shelter, probably heard those messages and said, you know, holy gosh, you know, he the FED doesn't think we're going to get out of this anytime soon. So where what are you suggesting to your clients that they as as they think about perhaps even allocating some new capital. Is it a typical sixty forty allocation or you perhaps be a little bit

more cautious now. So we're on the other side of that. So again, you know, we're trying to encourage folks and race through the what we have learned through uh, you know, our history of of investing in markets, and that is uh that you know, uh bull markets, bear markets sent to end when recessions begin. The recession began uh in February. Uh, and we believe we're in the process of, you know, forming a bottom in this recession, and the market is

setting up uh for a new bowl market. Uh. And that ball market UH is probably going to behave the way others have coming out of a recession, which is a preference for early cyclicals things like financial industrials, materials, transport to energy UH. And those are the types of areas that are not excessively overvalued today, but where we

do think that there's upside surprise that could come. And so you know, we are encouraging folks UH to take some risk here and balance those conservative portfolios, many of which on the stock side have been loaded up with the usual names and you all know what they are, the right tech stocks. Very basicly though, Lisa, if it's not your typical recession, then will the market perform in

the typical pollst recession away after this? Uh? So, I guess my response to that is there's never a typical recession. And so while the economic composition of every every single recession is different, and where the excess is and where the stress points are and where the victims are UH is always different, the market playbook UH tends to be very very very similar. UH. And that's what we're trying to tell clients is, yes, you know, maybe in the

last recession we were worried about financials and housing. In the one before that, we were worried about the tech wreck. Uh, you know, perhaps this one we're worried about, you know, parts of consumer discretionary in retail that are structurally impaired. But never the last. We are going to have an economic recovery and the markets probably very similar way. Lisa, thanks for joining us this morning. That's Lisa's Challotte see

io of Wealth Management at Morgan Stanley. Of course, client assets, they're totally nearly two and a half trillion dollars, so a lot of money to put to work. Now. I want to bring in our next guest for a fascinating discussion on a certain book that has come to the attention of publishers all over the world. It's it's coming out. Apparently pre orders are through the roof, and there's also

a movement asking people not to buy the book. Of course, talking about the book that John Bolton has written about his time in the administration seventeen months as a National security adviser. Let's bring in somebody who can talk to this for us. Bloomberg New Economy Editorial Director Andy Brown. Andy, thanks for joining. Good be with you. How much heft does John Bolton have as a critic of President Trump.

I mean, he's always been a man of a little bit of bluster from time to time, partial to some dramatic moments, you could say, will it have an impact on concrete things like pulling like voters? Um. I think this is why the book is so sensational, UM, and why people are taking these allegations so seriously that you know, Bolton um has enormous credibility as a hawk. Um. He is an uber hook on China, on North Korea, on Iran, UM. You know, when he has a record of administer of

being in successive Republican administrations. I mean this, this is not some liberal tossing accusations that at Trump. This is somebody who was by his side as his National Security director for seventeen months, and he was privy to all of the conversations or many of the conversations that he had with heads of state all over the world, including

China's Ji Jimping. Let's go there, Andy. You know, they're interesting excerpts I've read about President Trump, you know, effectively begging for China to buy farm products US farm products to improve Presidents Trump's chances with those farm states in the election. What are some of your takeaways on the aspects of the book that have been reported as it relates to China. It's it's it's absolutely devastating. I mean, if if what Bolton is saying is true, it is

absolutely devastating for Donald Trump. I mean, a major plank in his re election campaign was supposed to be tough on China in contrast to Joe Biden, who is supposed to be feckless and weak. And in fact, the account of John Balton shows a US president who is a pushover in almost every on almost every issue, uh, in the U S. China relationship that matters, whether that national security, whether that's trade, whether that's human rights, whether that's Hong

Kong Um. He comes across as as you say, is an absolute supplicant begging Jim paying to buy you as agricultural products so that he could win the next election. If John Bolden felt so strongly about this though, and felt that these revelations were so explosive as to really dent the president's credibility, why didn't he testify in the

impeachment proceedings? Yeah, exactly, I mean that's a good point, and and and clearly that that that's that's where he's weak, and that's why the Democrats are hopping mad so, I mean, his his his accusation against the Democrats is that they focused their impeachment to narrowly on Ukraine. And if only they had known about the that the breadth of this, um, you know, effort to basically sell American interest in in return for private political favor that you know, this might

have got the president impeached. Um so, I mean if he had all this, why didn't he dish earlier during the impeachment process and instead of waiting for his lucrative book contract two million bucks with Simon and Schusters. So it does, it does to an extent undermine the the his central accusations. So Andy, as it relates to China, here, what do you think the Chinese are rooting for in the November presidential election? Did they want former years of

President Donald Trump? I think they'd be very happy to have another four years of Donald Trump. I mean, you know this is this is they had pegged him right from the start as as as a leader who would be susceptible to inducements, uh, to flattery. Um he was a businessman. He was transactional, and according to Bolton's account, that is precisely the way things have have turned out. And look, it's not just my opinion. We have some very good reporting out of out of our Beijing bureau

um uh, you know. Um Pete Martin wrote a story he had interviewed a whole bunch of senior, current and retired Chinese government officials. They said, we want Trump uh. And the reason they cited is that Trump under minds US alliances and that is the one thing that the Chinese fear that is their biggest to them, their biggest threat. It is the US alliance instruction. And of course, I mean it is true what Bolton says, this sort of

transactional nature. Putting everything on the table, including Huawei, including Zte, including the wig, is just tossing it all into the into the into into the part subsuming everything to getting a trade deal, in trading relations with um you know, with with with China. This is deeply corrosive of the trust that underpins US alliances all around the world, including

in Asia. Maybe I'll be a little cynical, but it doesn't make it more likely that we will actually get a trade deal with China now, because both sides will be sort of falling over themselves to prove that there was there was no back room dealings and therefore you know that the two countries can get on well in public. Again, it's it's it's really hard to read. I mean, just had this meeting in Hawaii between um, you know, Segre

State Pompeo and Young Jetro, China's top diplomat. UM. You know, trade would have trade, trade would have been on the table. We don't really know what the outcome of those talks was, although it doesn't appear to have to have it achieved anything that looks like a breakthrough, at least nothing that that that either side have announced. UM. It's also notable by the way that Robert Lightheiser, the chief US trade negotiator, has denied UM some of the more explosive claims that

John Bolton made in his book. Yeah, and those China claims were just the beginning of it. And our thanks to you Andy Brown, editorial director for Bloomberg New Economy, for joining us there. Bolton saying Trump not fit for office and and lacks the competence to service president in part because he's solely focused on his political fortunes. I don't know many presidents for him, that's not a priority either though. Also, we've been reporting this morning a historic

day from the Supreme Court on the immigration issue. A divided US Supreme Court stopped President Donald Trump from ending the Obama era program that shields young undocumented immigrants from deportation and lets them seek jobs. To take down deep into this, we're very fortunate to have our good friend June Grasso joined us June as a legal analyst and host of Bloomberg Law. You can hear that weekdays at ten pm Wall Street Time. June, thanks so much for

joining us here. Give us your quick thoughts on this five four decision out of the Supreme Court. Well, this is the second time this week that the Court has ruled against the Trump administration. And this is a case where Justice Chief Justice John Roberts sided with the four liberals in the court. So it's a five to four decision, and he basically said that no one's arguing that the Trump administration could terminate the DOCTA program. Everyone agrees it can,

but they went about it in the wrong way. They didn't provide a reasoned explanation for why they were doing this. The way they acted was arbitrary and capricious. This is a decision that we have been waiting for. It's the it's the decision that we've been waiting for the longest. It was argued early in the term, so you see, it took a long time because there are so many different opinions. There's not only the decent and the majority opinion.

There are concurrences, concurrencies in part, the scents in part. It's really complicated. So the line that I took from a tune was the appropriate recourse is therefore to remand to DHS so that it may consider the problem and new Does this mean that the Department of Holman Security will actually consider it, make better arguments and the Supreme Warrant won't have any objection at that point. Well, they could do that. This is what the chief said. You can take it back again and you can redo it.

But the thing is that would take a long time because they'd have to come up with some reasoned explanation. They have to follow the rules, so it's unlocked. They could do that within the end of the Trump term, if he's elected to a second term. They can try to do that and come up with better explanations that will satisfy the Court that they've really thought this through. But this sort of reminds you of the Census case where the Supreme Court's kicking it down the road, saying, okay,

you guys, take it back. Now, we're done with this and we'll see what you do next. So cho and for legal analysts like yourself, a Supreme Court watchers, how surprising, if at all, is it that how Justice Robert's voted here? Well, I thought it was surprising. This was a case that we didn't really have an inkling of how it was

going to go. In other words, the case earlier this week on LGBT rights, that was a case where during the oral arguments you could sort of tell that justice course which might be leaning in the direction of um gay rights. However, with this case, it was very hard to tell what was going on. So I was very surprised.

I think a lot of people we're very surprised. And also it's always surprising when you see the Chief Justice John Roberts is now the swing vote that Anthony Kennedy was, and in the two cases this week he sided with the three liberals. Yeah, I mean, there's a whole range of things to be surprised at, not least that this was a five four decision as well. June remind us exactly how many people and who were talking about these are the Dreamers, almost seven thousand kids that were born

here that would have had to leave if this wasn't upheld. Right, and President Barack Obama started this program that allows them to continue to work and find a way towards citizenship. President Trump said that it was not within his legal authority, president Obama's legal authority to have this program, so he ended it. So right now, the Dreamers have been in this sort of no man's land for so many months, and right now they can go on with the program,

they can re up for more of the program. They can feel comfortable that they're not going to be deported, and that's the big thing. There was this question of whether if the Supreme Court had said that this DOCTA decision was absolutely right and the Trump could go ahead, then the question was would these six hundred and seventies seven hundred thousand young immigrants be deported And some of them, remember,

don't even speak another language. They've been here so long they are American citizens, most of them are well employed, so it's it would be really it would be a torturous debate and it would really be controversial thing that would again cause you know, disruptions in the country. And I guess if if if it had gone the other way, then the potential was there for literally seven hundred thousand, you know, all but American and name kids to be deported, Uh you know a S A P. Just as Karence Thomas,

Samuel Alito, Neil Gorza, gen Bred Kavanaugh all dissented. Yes, now Clarence Thomas. Justice Thomas said that this was an effort to avoid a politically controversial but legally correct decision. So he said, this would find future administrations to what prior presidents doing executive order. So think about all the executive orders that President Trump has written and issued. Should the next president be bound by those? But of course,

you know that's that's the legal issue. But Chief Justice Roberts said that that's not really the case because it's just a question of how they did it. And this happens all the time to the Trump administration in the courts on environmental issues. They don't follow the rules when they do these things. June, we have to give you go, but thank you do so. Legal analyst and host of

Bloomberg Local. Thanks for listening to Boomberg Markets podcast. You can subscribe and listen to interviews at Apple Podcasts or whatever podcast platform you prefer. I'm Bonnie Quinn. I'm on Twitter at Bonny Quinn. And Paul Sweeney I'm on Twitter at pt Sweeney. Before the podcast. You can always catch us worldwide at Bloomberg Radio m