Blockchain is the Game Changer, Dr. Alankar Says

But I'm going to go right to China and the domestic China Jeff Dennis, that you know, in their predilection towards reminiscence of a stock operator, they seem to like their investment fads within China, and China has a very large bitcoin interest, doesn't. Yes, yes, it does a pretty large bitcoin interest. UM. I think the fad with investment in China is though fading gradually over time. Your listeners will know that pretty much half the economy at one

stage was investment that is starting to come lower. The economy in China is beginning to rebalance there for away from investment, back towards consumer I know, back towards towards consumer spending, towards services and less manufacturing. And I think that's a long term trend. So although they've had this love affair with investment, and I'm sure bitcoin is part

of that. UM, the long term fate, so to speak, outlook for the Chinese economy is going to be much more driven by the resilience and the growth of consumer spending as as Chinese people, as indeed in a lot of countries, get wealthier. Jeff, I'm going to take a leaf from my colleagues book. Tom is always interested in

where the money flows, right, where does it go? Because there's smart money out there, and it seems as though there's a lot of money that's going into Asia, but it's not going into Japan and it's not going into exchange traded funds. Is that accurate? And what does that tell you? Um? I'm not sure that's entirely accurate. First of all, of course, the Japanese market has been very strong recently, and it's a market that we've we've favored

our strategies to favor that at the global level. UM. And although we've seen tremendous inflow into emerging market funds this year over fifty five billion dollars, which is pretty much the best year we've ever had except two thousand and ten UM. About seventy of that is still gone through the e t f UM channel, so to speak. So let's call that twelve billion dollars has gone to I've gone into active em funds, which is certainly a

big improvement in recent years. And it's very interesting because this year has been so disparate in terms of performance. Have you've been long technology and long growth, you've done very well. And if you've gone more the value way towards the commodity sectors energy and materials and also financials, you've done much less well. So it has been a

good year for active managers. But UM money has gone to Asia, has gone to Japan, but above all, in my world this year money has gone to Asian technology, which is of course blown the doors off in terms of price performance. Does that mean that you believe it will continue or is it time to rotate financial stocks? For example the regulation in the United States. We've got an interview with Lloyd blank Find of Golment Sex coming up. We we think the story is much more plain villa.

In terms of financials, we've about over fifty of the market in them. The index is financials and Technology so you've got to make a relative bet about them. We are arguing to our investors now that you should be a little bit more careful about being long technology. It's not my sively expensive, it's just very, very over owned. And we want people to rotate a bit more into financials, where you begin to see US colity improvements begin, see

loans growth cycles beginning to pick up. And indeed, if you are going to see a modest rise in bond deals around the world in two thousand nineteen, which is all cool, you may even have a bit of an interest margin story in financials as well. I mean, I mean, I'm looking, folks, as the way you do this in the Bloomberg you got to w E I go and it's got so much wonderful information and then you can currency adjust. Let's adjust this. I don't even know what

this exchange is. The whole cheat men's stock market. I'm guessing Vietnam very and you're still using w E I. You don't do the launch launchpad. You know more than I do. But I'm looking at the whole cheatman stock market up dollar based. Every single person Jeff Dennis and the Jeff Dennis world knows these puppies revert to the mean.

Is there a trend there that's discernible? Um? I mean, first of all, for upside in Vietnam, which is a frontier market according to the index provider, is actually not wildly out of line. It's not wildly strong. China is above the Hong Kong China Enterprise Index, which is the way we look at China in terms of foreign investment. Career has been very strong. You've seen some tremendous games this year. The really important thing has happened in emerging

markets this year. You've seen a sharp drop in the dollar, You've seen a nice rebounded commodity price, you've seen a boom in the technology sector. And you've seen a consequence of all of that, or or consequence of some of that, you've had a really big explosion of earnings growth in them, which looks like it's going to be well north of growth this year, best year since two thousand and ten.

So although EM has done very well this year, it is not actually got that much more expensive because the earning story has been very good. So the issue is if EM has got a little richer and the valuations are somewhat high, does the cost of capital stay low du bon less say low to justify those moves. So we're not worried that some of these markets are a it's really been broadly justified by a very strong recovery

and earnings growth. Well, let's pick up on something that time focused on, having to do with dollar denominated returns. You think the dollar is going to remain weak or get weaker. Our view is the dollar will go down again in two thousand and eighteen, not as much as it's gone down this year. We've got the dollar euro ending two thousand and eighteen at one five. It's about one eighteen today, so nothing, not as big a move

as as um as this year. What is interesting is, although the dollar has been weak this year, emerging mark currencies have not gone up that much against the dollar. We've gone up about four percent, whereas dollars gone down

a long way against the euro. But the bottom line is, even if you don't get much translation effect for EM returns because the dollar is is that week against some of these EM currencies, what you get is when the dollar goes down to liquidity comes out of the US and chases yield and chases risk overseas so you've got

a very beneficial uidity effect. And if the dollar goes down again next year, which is the U B S cool, that liquidity is going to continue at the margin to come towards em and it's going to give us a decent year again next year. Jeff Dennis with the UBS right now on oil, And let me just get this out of the way. We're not going to send out to you the Short Report, and it's gorgeous venusia on veils and pistons and pumps, because we protect the copyright

of our guests. Contact Mr Short when he's not watching the Tenant one Philadelphia Eagles. Stephen, good morning, Good morning. What is the distinctive feature here at the top of the home on the range. We're right up against the range on w T I in Brent. What's the thing you're watching as we hit this range peak right now? It's that big magical sixty number. There's nothing special about it, Tom, It's just the fact that it's a psychological number. The

next handle in the iteration. But to that point, we're getting up and we're pushing up eight dollars. Momentum is starting to stall, and in fact, some of the technical indicators, momentum oscillators so forth indicate that the market has peaked, at least for a short term. That is to say, we did get the announcement, Uh not unexpected that we're going to get the extension with OPEC and the quotas all right now. There really isn't any kind of follow

through on the NOMI strikes. This question came up like four times today. Does Vienna matter to American oil analysis? Uh? No, it's actually it's an excellent point. We essentially for the past ten years have I had a fiber caded markets in that the US now becoming a powerhouse with regard to its own entry production and becoming a significant exporter on the refined products and a burgeoning exporter in the crudel market. Essentially, we're having two different market areas here.

So you have the United States, North America essentially Canada and the United States. Unfortunately Mexico, given their infrastructure issues, is not part of that. But and then you have, of course the global market and the growth with Asian refiners. Pim Fox were here by pause a listener in London, Brandon emails in wait. The eagles are ten and one question mark best Inlite. Question Mark, thank you for listening

on Radio London this morning. Absolutely, we're here in Philadelphia, as shocked as anyone that about anyone that sounds like you're from Philadelphia A Steven. I want to put you back on track here having to do with oil and and perhaps something that I know I missed over the weekend. On Sunday, there was a big conclave in Saudi Arabia. UH, the Crown Prince Mohammed bin Salmon. He brought together forty other islam Islamic countries and they are in a agreement

of a counter terrorism alliance. I'm wondering if you could just speak about that and the calls by the Crown Prince to introduce what he describes as a more moderate form of Islam into Saudi Arabia and whether that will in some way change the dynamic of you know, Iran Saudi Arabia, because we'll get the geopolitics in a second. Yeah, absolutely, yeah him, And we essentially saw back when the bear market in oil began, it was prompted by Saudi Arabia's

refusal to take oil off of the market. UH. And that had and three Thanksgivings ago when A ministers met indianna Um. What was left on set is the previous Monday UH back in Vienna, the West sat down with Iran with reguards to the nuclear ambitions of Turan, and Tahurran got up and walked away from the table. UH. That simply, in my estimation, UH prompted Saudi Arabia to go into an economic warfare with with Iran, and hence we had oil plunge from seventy five dollars down to

about twenty five dollars a barrel. However, shortly thereafter be not exacquiesced and struck a deal with Iran. So that kind of put a Saudi Arabia's plans on hold, but certainly with the growing tension UH with a Saudi Arabia and Guitar essentially pushing potentially Quitar into Iran's arms, right because Iran and Qatar were not invited to this summit. Yeah, exactly. So, So it's the age old soony shea ripped within Opec UH, and that is certainly the black Swan event out there

for the new year. All right, So if that's the black Swan, how would you trade that You're at crewe to fifty seven and change right now. Absolutely, I'm yeah, I think that we are on the top of the range at this point. Uh. This is a level high fifties for North American producers, mid sixties, uh, for the global producers. Opportunities to hedge. And what what you always want to look at, guys, is who's been doing the buying,

who's been doing the selling? And right now the buyer has been a speculator Wall Street very short term view. More importantly, it's he's been doing the seller. To keep in mind that a crude all producer has to sell. He's the only one who has to sell his barrel. And we look at the hedging activity, we're looking at hedging at an all time high at these levels. Yes, well, that's a one way that you're you're predicting lower right, Uh, yeah,

I think we're at there. I think we are are really pushing up against the top of the market, and I would expect to see moderation uh into the new year. Okay, but why don't we go to Stephen short barrel or whatever you're predicting a year ago? I mean, is is it just because demand is kicked in to put a floor under the range. Yeah, we're essentially you know, we we yell yoed in between that that low forty dollar range,

mid fifty dollar range over the past year. Uh. Certainly we've had a significant rally UH in the market or fall since post Harvey. Actually uh, and then you had to disconnect, um to be expected between the Brent market and the oil market given the impact that they had on the storms had on logistics in North America. So at this point, yes, there there is demand. But let's keep in mind also that speculators have certainly come into

the market recently. For the latest update from the c FPC, Wall Street is now sitting on already six week high in their long position UH, and they've cut their short position to a thirty week glow. So certainly when you're cutting your short position, you're buying back the market, and that certainly has been in impetus to some of the strength in the market. Steven S, thank you so much. The short report greatly appreciated. Ashwin Alan Carr joins us.

He is, of course, said right, Jannis Henderson, Global Asset Allocation and Risk Management. And you know Ashwin, Tom during the break, we were talking about how fear and emotion can change the way you trade risk. And you mentioned something earlier that I just want you to maybe expand on having to do with people that are not experts or veterans of trading risk now participating in this market. Could they be the weak link where things go bad?

I think you're exactly right. I think they because they're not experienced. If fear is going to set in, it's going to set in first with those who are uncomfortable or exploring an unknown territory. And there are many, many investors, from very risk averse institutional investors to even retail investors who have jumped on this bandwagon of selling volatility, whether it be interest rate volatility, whether it be currency volatility, whether it be equity volatility, the first sign of stress.

Who are the first people to jump off the train? It's those who are not who are inexperienced, who haven't gone through these ebbs and flows before. So that is the weak link. UM that link drops, the whole chain is going to get impacted. UM. This is not only going to impact volatility levels, this will also impact the flattening we see in the term structure of interest rates UM. So those holders and everyone is moving into the long end of the curve um. Risk comes back term premium

by definition must come back term structure. Stephens. One of the biggest crowds today is long the long end of the curve um and underweight the short end of the What happens when that reverses, We'll have to see. I want to rip up the script or ash and I don't want to use in trouble with Mr gross or with a general council of Janice Anderson. But I've got to ask with your mathematics about the auction process, the bid asque process of bitcoin. We've all seen this before.

Market pros are like, how many times have we been down this road? And so much of this is not only the mystery of who's on the bid and who's on the asked, but the small set of people or institutions. Do I have that right? Do you exactly have that right? That bitcoin? A lot of people, in my opinion, are misinterpreting the bitcoin as the block chain. The blockchain has tremendous value to it because it's a ledger um. It's a real time authentic um apparently bulletproof ledger, distributed ledger.

It's a distributed ledger um. The bitcoin, however, is just one key to that ledger. There are many cryptocurrencies, there's many keys to the that that vault that the blockchain provides. Um So, Bitcoin by itself, it's not clear what value it has. It's very clear the blockchain has tremendous value. You the blockchain is a game changer, but bitcoin is just one key to that chain. Um So, people should

be wary of bitcoin. I don't believe bitcoin presents systemic risk for exactly the reasons you said, Tom right that a small group of people who are participating, um so, it's not a systemic event. But seeing me is going to launch futures on bitcoin. Um as more and more people have access to cryptocurrencies, and these people, once again are inexperience. They're not technologists, they don't really understand truly the intricacies of what a cryptocurrency are. Just like the

inexperienced people who are selling volatility today. It creates a dangerous recipe. This has been hugely valuable actually occur with us with Janis Henderson, Thank you so much. The single best essay of the day, and Marvin good Friend has been Mr Emmons of Intellectists of course for years at Pimco as well. Ben, I'm going to go right to the punchline, which is, with Mr good Friend coming on, it makes the Stanley Fisher's slot, the vice chair slot,

that much more important. How does it change the who of the vice chair? Hi, good morning, Tolum, Thanks for having me. Um, Well, it changes because good friends. You know, as you've been described montros econumnists, you know that vice chair is really the person that brings it all in balance right against the others and um, you know sort of so that is an important critical boymans. So if that would be someone was also a more monitors view of fat policy, then we really are shifting next year.

This is almost like the Supreme Court in that I guess if you get five to four monitors versus Keynesian, that's a big deal. How close equivalent is the f O m C process to a five four Supreme Court? Either way? Yeah, I think it's changing. My sense from this is that the you know, with power coming on this chair, that we are seeing somewhat of a shift of the agenda. At least, you know, there's there's a focus on growth. I thought that testimony that power was

emphasizing that this is my interpretation. So I think we are you know, as you described the Supreme Court's way, like yeah, you get this balance of different people on the board. You know, it's just expressing your view about the economy in a different way than before. The change in view that I think is the f has followed the law of the last number of years, maybe shifting. It may not be pure monitors, but it's that has

a certain tone in there. But then I just want to follow up on what you said having to do with with growth, as if the current makeup of the Federal Reserve is not focused on growth, it seems to be doing everything they can in order to maintain growth, whether it's you know, maintaining that nice big balance sheet although the runoff is beginning, or accommodative interest rates now that's rooping. I mean, it's it's it's it's not like

they actually are adverse to growth. But I think the point about it is more it is is that you know, we're a full employment on air and that's sort of

the conclusion. We know inflation remains on the target, but you know what's missing has been growth, really right, I mean, we have been you know, two percentage sort of growth, so that the way the fat can stimulate that is really about this coordination with the government right of what the type of reforms need to take place, whether it's through regulation or labor market reforms, in order to get

the growth really back on track. I think that's the key critical element which came It was a lot of that discussion in the Powell testimony. I think that's that's the change here. I mean, obviously, low interest rates have stimulated the economy to an extent, but not to degree that you would have expected that would have happened normally, right, that growth would have rebound aboff trend that only has

happened temporarily two and two fourteen. So really looking at something I think the Feathers focused on working with the government on the right amount of reforms in labor market

and bank regulation. You're bringing a smile to to Tom's to Tom's face here, yeah, I'm glad to hear that, because you know, it would be great if it actually works right And as of course, yeah that actually you know, if those those are difficult words when you're talking about the future of the economy, I just want to post you one one question here having to do with this appointment and growth is blowing a hole in the federal deficit?

Is that a way to do this? Yeah? And so there's a point about that that needed that deficits and recession or closely closely links, right, I mean that it's been the pass like that before. Right. That's that's critical of course, Like how can the depth shit that you increase really generators growth that avoid the recession? Right? That

that's what we're going to be challenged with. You know, the the yuker flattening that we've had this year could be interpreted shot shot that you know, it is not a streaming price in the yuker for the deficit rater. The market interprets the increases the deficit as a as an probability of a recession increasing over the number of next number of years. That's an opposing view to the point east that we're getting now on the board. Right.

That's with this more GDP focus, I want to get the phrases right here as we go to the nomination process, and what I would suggest will be important scrutiny of Professor good Friend. You keep using the word monitorius. Marvin good Friend is out of Union College connected a good morning Mohawk Valley and Brown University, which is the land of Bill Pool. I mean huge influence decades ago. The former president of the St. Louis FED. Is Marvin good Friend a monitoriust like M one, M two, M three

and Mr Pool? Or is he a deaf kind of moderist in a modern age? So I think the monterist idea of that is that you and referring to his paper at the Kansas Fat where he was focused on, you know, taking away the lower zero bounds because that's a constraint of multipolicy. Um. You know, that speaks to the view about price stability more thans opposed to the

target right. And I think that idea is about that that the ECB that has I think from that perspective of monsters view that Monterrey transmission works better on our price stability than then this target right because it sets too much of a numerical level on inflation as opposed to having you know, around about in faction at two or two. So I think that's really the idea other than they did a freedment view of about mount policy as in and and times velocity equals out boot times prices.

That's not what we're talking about here right now. I don't think so. I think it's I think it's important. Yeah, I agree to them. I think it's more about I think good Friend is more about I want to take away the constraint on multi policy on the lower Gero bounce. That's that's important. Okay, But Ben, but just because the time we're gonna have to run here in one minute, the great book by Lawrence Meyer of Washington University of St. Louis uh a term at the FED. He got nowhere

with Alan Greenspan. Why do we think any governor, including Professor good Friend, is going to get anywhere with Chairman Powell. Yeah, and that that's a fair point. I he will be one voice good Friends, one voice on the board. So that is the position. So again back to the earlier question, who's going to be the appointee of the vice chair

is critical in that respect. He will have influence. Of course, just point out in the note Charles Blosser and and and and the als past Fisher back into thousand thirteen made it a really strong case to and quee and ultimately Bernanke did follow somewhere through on that on their arguments right, and so a good friend will make that voice too of know how to conduct policy, but the vice chair makes a big difference there. So um I would agree that he will fully influence the policy by himself.

Obviously it really heightened the vice chair choice. Uh this morning, and I should mentioned Ben Emmon's thank you so much I'm short, not his terrific essay for his intellectist partners clients. Thanks for listening to the Bloomberg Surveillance podcast. Subscribe and listen to interviews on Apple Podcasts, SoundCloud, or whichever podcast platform you prefer. I'm on Twitter at Tom Keane. Before the podcast, you can always catch just worldwide. I'm Bloomberg Radio