Yuan Devaluation Unlikely, Don’t Hit Panic Button: BBH’s Thin

Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot com. Well as Greg Jarrett was just mentioning the dollar showing strength at least against the Japanese end right now one ten forty, also strength against the pounds sterling at one fifty three. Here to tell us more about exchange rates and the US dollars, Dr Win Thin, Global head of Emerging Markets FX for Brown Brothers Harriman uh Win Thin, thanks very

much for being with us. The strength of the US dollar is that going to continue against emerging market uh, currencies such as Mexico and Brazil, as well as Indonesia, Malaysia and so on. Yes, but first of all, thanks thanks for having me. It's always a pleasure. Um. Yes, uh I look for continued e M weakness. Um, it's

for a riot of reasons. You know. Obviously the big stories is higher U S rates, but I think what's really given this UH, this last leg lower in the e M pushes the is the rising trade tensions, you know, and strong global growth, strong global trade flows are are really bullish for em and with all the risks that are out there, all the tip for tat um uncertainty, but where where the US WE stands, that's all hurting the emerging markets. So yes, it's a broad based dollar rally.

It's not just against the e M, it's also been rallied against the majors. So um that broad based rallually being driven by the US interest rate outlook. So when you know, one thing that I'm struck by is the strengthening dollar has been a trend for many weeks now and people have been adjusting to that. The rapid depreciation of the Chinese un however, seems to be picking up speed.

Has been the biggest weekly drop since tu in that currency, and you just have to wonder, you know, is this UH an active devaluation by the Chinese government or does this signal further and and rapidly deteriorating outlook for the Chinese economy. Well, I think it's uh. Two thinks that it's still early on so I don't want to tell the alarm bells. It's it's certainly uh, you know, raising

eyebrows the speed of the move this week. But what I've noted and what I've been telling our clients is that this is a short period of you want under performance follows a long extended period of you want a performance. And when the rest of em was selling off in uh do out most of Q two UM, the Chinese one was really holding up pretty well. It was almost unchanged.

I would say a year to date, if you look at your w c RS page, the Chinese you want is the fifth best performing currency is down only one against the dollar year to date. That compares to minus for past though, minus seventeen and a half a turkey. So I just want to keep things sort of in in perspective. The other thing I would also add is if you look at China's real effective exchange rate that

is just for the trade inflation, et cetera. UM, it's done at the b I S. If you look on your on your page, you carry that b I S DCNR index. UM, it's it's been rising this past year, and that's because the yuan is outperforming. That is is it's training partners. The currency of its trading partners have been weakening much more than yuan, and so the in

real effective terms, the yu want's actually appreciating. So again, just things that sort of think about you know, I know that you know these headlines, but you know, and you have to think a sort of longer view that. Uh and look, remember just that they're also reminded one there in two thousands of team the last time China shock the marks of evaluation, it ends up having contend with the massive cap rout flows out of China, know, uh, and it really roys CAPA marks. I don't think that's

something they want to do right now. So for now, I think it's just sort of regular adjustment. Well, I mean to talk about some of those headlines, I just want to think give you one of them. China think tank warns of financial panic risk and leaked note. I mean there was a leaked report by a Chinese government backed think tank talking about how with the rising defaulse, with the trade tensions, liquidity shortages, China's looking pretty shaky

right now. What do you make of China? Like the rest of them is struggling um with a global environment that's that's not as friendly as it used to be. Of course, China has its own domestic issues with the banking sector, financials that I totally agree with that. My base case has always been that that that it will moddle through and I think that and the reason that's one of the main things that I feel that evaluation is unlikely is that's just gonna add just more uncertain

to the mix. Um they really in times uncertainty. I think in general, the Chinese policy makers seemed a favor stability, at least appearance of stability, and I think I'd be sort of pushing the panic button if they were the value now. So um, you know again it's keep we gotta keep buying this. You know a lot of people in calling for disaster and from China's last pan twenty years, and you'll continue to model through and then that's that's

still my basic case. Win. Then give you about twenty seconds. If emerging market currencies continue to weaken against the US dollar, all things being equal, isn't that going to be better for their exports? Uh? It's better for their exports, yes, Um, But again it's for instance, a lot of these countries that have taken on a lot of external debt in dollars, so it becomes much more owners to repay that actor in finance excellent nets. So there's pros and cons um

you know. To me, I think the emerging markets just prefer a stable global environment, free trade, the currencies you know rise, their currencies fall. But I think the possible making the in which is like some clarity out of the US. They like they have to step back from uh this this trade war talk, um, and you know that's what the US will take care of themselves. Dr Winton,

thank you so much for being with us. Dr Winton, global head of Emerging Markets and Effects at Brown Brothers Harriman, coming to us UH in New York and some some good insight and good perspective when people start to wring their hands over this really rapid evaluation of the UN given the fact that it has appreciated for the most part. In recent months, the US Food and Drug Administration has approved g W Pharmaceuticals treatment for two rare forms of

childhood epilepsy. Now the treatment, it's a liquid. It's made from a compound in the marijuana plant. And to tell us more about this, we've got the chief executive of g W Pharmaceuticals, Justin go over, Justin, thank you very much for being with us. Tell us about this treatment and is it epidialects or epity Alex, I beg your part. That's correct, it's epidialects, So thank you very much for having me on your show. Yes, the treatment is called epidialects.

It is made from a molecule called cannabi dial, which is a part of the cannabis plant that does not make you high. So it's a purified um cannabi dial formulation administered to children in the form of an oral solution. We have developed this treatment within the field of childhood onset epilepsy, conducted three controlled clinical trials published in leading medical journals, and obviously delighted earlier this week that the

FDA has approved this medication. The types of conditions that we treat, these two examples of that are called lenox gasto syndrome and travase syndrome are two of the most difficult forms of epilepsy to treat, often uh commencing in very early childhood, characterized by seizures that tend not to respond to other anti epileptic drugs. So it's a real breakthrough. The first medicine approved by FDA derived from the cannabis plant and the first and a new type of anti

epileptic drug. So I see that the Drug Enforcement Administration has yet to reclassify this form of cannabis and that it has to do so before it can be put to market. Can you give us a sense of how long that could take and what the outreach has been like there? Yes, So it's important to say that this is not a political issue. It's very much a procedural

one that follows the FDA's approval. So under the rate relevant regulations, the d e A has up to ninety days um to what is termed reschedule this product Epidialects, so that it can be prescribed by for positions and available through pharmacy. So um, the the FDA will have made a recommendation to the d e A as to the schedule which they believe epidialect should be placed into. The d e A will currently be reviewing that recommendation and will rule on that within a ninety day period.

So what that means commercially is that the product will be available. We believe in the early fall of this year, could this could this drug to be used to treat other types of conditions well, our focus for epidialects has very much been in within the epilepsy arena and specifically within these two forms of childhood epilepsy. UM. I think it's fair to say that our focus for future development

of this product falls within the epilepsy arena. So there are several other forms of epilepsy, particularly those in childhood, which summer suffer similar we have suffer similar situations with regard to seizures that are difficult to control. So there really continues to be an unmet need within the field of epilepsy, and our focus remains dedicated towards addressing those

patient needs. I mean, more broadly, I would say that there are within the cannabis plant and within our own pipeline, a range of other molecules which we call cannabinoids that may not be epidone X, but maybe different molecules within the plant that may well have applications and other disease areas.

And I certainly can provide a few examples well, but justin before you get into that, I think that one reason why we found this so particular particularly interesting is because the FDA has been slow to approve medications that are based on cannabis or marijuana. And I'm wondering, you know, you've been in the industry, the pharmaceutical industry for nearly two decades. Was the process of getting this drug approved

different when it comes to dealing with the FDA. Well, i'd firstly, I would say, I think, I mean, the FDA will be the first agency in the world to have approved epidialects, So I'm not sure I would say that they've been slow. In fact, I think this review timeline has been rapid, and the engagement that we've had with FDA over the last five years as we've developed

this medicine has been very constructive. Indeed, so I think where I think, uh, And you saw statements from FDA ear earlier this week which I think ring true with us, which is when when it comes to the rigors of science, when it comes to looking at the cannabis plant and identifying molecules from it that may be developed as prescription medications. Um, you know, the FDA are willing to assess and potentially

approve those kinds of medications and engage constructively. I think what they have been pointing out is that that's a different process and a different way of of approaching patients

treatment uh to um, you know, marijuana per se. So I think it's what what this approval does do, is it it very much signals the fact that if one looks at cannabis and tries to apply rate modern pharmaceutical principles to components of the cannabis plant, that f d A will and have shown themselves to engage very constructively with industry. Thank you so much for being with us.

Justin go Over, chief executive of GW Pharmaceuticals based in California, coming to us after having their drug based aimed at curing epilepsy approved by the FDA. Congratulations. Our next guest has a fascinating story and he over sees a fascinating company. So I'm very glad to bring in Abe and Kuma, his chief executive and co founder of Nyanza, which is based in San Francisco, but he joins us here in

our eleven three oh studios. Abe, your company is uh pretty pretty significant and it does business with a lot of the biggest companies out there. But I want to start with your story because you hadn't even seen a computer when you were growing up in Ghana before arriving in the US. Tell us a little bit about that. Sure. First of all, thanks for having me, um. So I grew up in Ghana. As you mentioned, I went to high school in Ghana, but moved to the United States

for college. And so I went to college at Caltech in southern California, where I, without seeing a computer, I did the crazy thing of deciding to major in computer science and electrical engineering and so and so far it's worked out great. Yeah, that's what everybody does, right. You know, you don't know, you don't have a computer growing up, and you decide comp you there's technology is where it's at.

Like you go to cal Tech and then you go to Harvard Business School and then you've become a chief executive of a tech Yeah. Right, that's those no stumbling blocks there right now there you go. Um, let's talk a little bit about how you decided that the founding the answer that this company serves a need. What did you see out there and what caused you to think I can solve this problem? For sure? So, so I started your answer, first of all with a group of

very talented UM other individuals as well. Um I have two other co founders, um Dan and on and both immigrants, both immigrants, UM a couple of m I T pH d s. The problem that we saw was basically sort of a melding of what's happening within large businesses today. Right within large businesses, there there is an untapped opportunity to actually make sense of the data that's flowing freely

on their networks today. Data is the new oil, and what we do is we enable our customers actually makes sense of the data on their networks to solve a number of different business problems. One of the core business problems we allow them to use the data for is

around user experience and performance management. In the world where things are growing from the types and diversity of devices connecting to their networks and the growth of IoT devices, a lot of customers have the ability to harness and generate tremendous new business value on the database on their networks. Think about what we do as being akin to what Google does with websites right. Google allows you to make

sense out of your websites. Google allows you to make sense out of the data that UM your people are searching on the Internet for we're doing something similar with the data on computer networks. I don't think though of Google Search as having artificial intelligence sort of algorithms trying to parse out and turn in large codes in the

same way. I mean, perhaps that is the case, but when you're talking, I wonder how important it is to have some sort of intelligence in analyzing the data for say an uber or what are the other companies you work with? Yeah, so so what Whether it's um Uber leveraging our technology for driving user experience on their computer networks.

Whether it is large universities um whether it's Stanford, whether it's USC, whether it's Notre Dame leverage internet technology to generate insights for the I T teams to better support the students and the end users. Whether it's a large global manufacturing organization leveraging the data on their networks in order to effectively um UM if um UM drive the manufacturing process because of the device land themselves, big data, machine learning AI. It's all about making It allows us,

It allows our customers to see the invisible. It allows our customers to make sense of invisible of what's happening on their networks. By bringing you know, all this disparate unstructured data, making sense of it to solve different business problems. One of those could be performance, another one could be, um, you know, improving the manufacturing process. Let's say I'm the Atlanta Braves, I come to you, I say I need help. You tell me great and tell people the story. Yeah.

So you know, whether it's the Atlanta Braves, whether it's a large public venue that has lots and lots of users leveraging the network. What we allow a company like the Atlanta Braves to do is to actually ask questions out of the data that's on their networks, right, ask questions about, Hey, for this particular game or for this particular time on the network, what were people actually doing,

all in an anonymised fashion, right. And so one of the things with big data and data sciences, while there's a fair bit of insights to clean out of that data, companies that enable that data transformation also have a big responsibility in terms of respecting sort of the privacy of the users on their networks. And so for Atlanta Braves, we give them the tools in order to sort of ask questions of the networks and also give a world

class user experience off for their fans. Well done. Thanks very much for being with us and giving us a look inside the world of analyzing data on Internet systems that are Internet networks that are based inside of corporations. Much appreciated. Aba h on Kuma. He is the chief executive and the co founder of Nyanswa, joining us here in our eleven three oh studios. I do want to just get a note here in on emerging markets because the MSCI Emerging Markets Currency Index is now ropping today

for the biggest one day drop. It's the biggest since March of last year. And our next guest has a really interesting theory as to why. Dr Brendan Brown joins US now chief economist and head of Economic research at Mitsubishi u f J Securities. Dr Brown, so, how do you interpret the weakness we've seen in emerging markets assets?

Interpreted for the the emerging market weakness as being a first sign of a credit cycle turning globally And you have to remember that the emerging markets have been the absolute focal point of the credit inflation in this cycle. It's been where the hunt for yield has been at its greatest and where the various forms of financial engineering and leverage have been the greatest. Okay, so this could be sort of the canary in the coalbine that more than

a canary in a cor mine. Even the emerging market economies these days PPP exchange rates account for six world GDP, so so this was this could actually a signal a real turning point. I'm just wondering how this relates to monetary policies, which, yes, the US is tightening um, but the e c B is still holding on so well. I would make a general observation that monetary normalization at

this point is a fiction. Even in the US, we have interest rates well below rate of inflation, negative real interest rates, So from a point of view of money supply from a central bank side of the equation, there is really no normalization taking place. That maybe a bit less in the US and elsewhere, but monetary policy is still set at a pretty inflation redial. But there's another there's another dynamic in monetary policy, and that's what's happening

on the credit side. You can have for central bank still with their foot down on the accelerator, but if the credit cycle is turning, the accelerator doesn't work so well. And may even actually not work at some point, and I think that's where we're approaching. Then, Okay, I'm just going to do a brief list of, you know, supposedly the problems in the world. Right, Okay, So you've got the Brexit negotiations between the UK and the European Union.

They seem to be a mess. You have the political situation in Italy and the potential for some kind of challenge to the European Union in the euro and Angela Merkel in Germany facing political uh pressure. Um, you had a change of government in Spain recently. You have the issues related to Venezuela and oil politics in the Middle East. I raise all of the trade wars in the United States and NAFTA and child I raise all these things.

At the same time, we haven't seen a big sell off in stock prices, and I'm wondering why, well, stock prices are not where this all starts. I mean, yes, we can all talk about the bubble and the fangs or whatever, but either I think the core of the asset inflation process is in the credit markets. It's in the irrational strategies we see for leverage. It's in the financial engine nearing, which camouflages believe ridge and that's that's

where the irrational forces are. By the bye, you get asset prices which may be too high, but that's not where the unwinding starts, or it may and it may

unwind at any time, I think. Just to take your points about Europe, the key point to watch there is that the mercle era is coming to an end and Germany is almost certainly or know nothing certain in politics, but it's going to swing towards the right away from the center euro center and and and that presents a big change in the set of opportunities for Italy on

the one hand, and also for the UK. And my view in the UK and Brexit is that everyone will remain quiet amongst the Brexiteers in the UK until Britain is actually out of the door next March. But that's when the fun starts. But the fun will start, hopefully when Merkel is also going out for the door quite soon. So you know, you're saying that the the the asset inflation that's really most important is in the credit markets

are where you need to really focus. Um. A lot of people have been looking to the U S HIG yield bond market as the canary in the coal mine of cracks forming in credit markets globally, and you just really haven't seen it. Why, what I would say was two points there. Clearly in the US market, how yield is related to a price of equity, So if you're still in the middle of a real bull market in equities,

that sort of keeps for high yield market up. The second point, which is more strange, is well, we're not so strange, is that we had that volatility sell off in February, but volatility is a way back down again. I there is a key mathematical relationship, of course, which every quant will tell you between rising volatility and the price of hw yuel bonds, so that that's an accident waiting to happen at some point in the future, but

it's not happened yet. So I think for key pressures have been on the emerging markets rather than on the US hi yield credit market. So do you think that people who are saying now is a time to pick up extra yield go into emerging markets are fooling themselves and that there's more pain ahead. Absolutely, I think the emerging markets situation is the center of the asset price deflation when it comes, and it almost certainly will go further. The question is how much contagion is going to be

onto other asset inflated markets. Give you about thirty seconds. Trade wars and currency wars. Haven't heard much about currency wars, have we, Which is sort of a big puzzle, because if you were advising President Trump, you would think a big point would now be being made about the manipulation

of currencies by Germany and Japan. After all, Japan sticking long term interest rated zero with the economy at overheating, and Germany and easy b chief Draggy, who's fully backed by Bundas Bank and Chancellor Merkel keeping rates negative for another eighteen months despite the German economy and boom. What greater currency manipulation can you have? So it's very strange, but this hasn't really a focal point of US trade negotiations.

Thank you very much. Dr Brendan Brown is the chief economist and head of economic research for Mitsubishi u f J Securities, also the author of the Global Monetary Plague, Asset price Inflation, and Federal Reserve Quantitative Easing. 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.

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