Risk Is Localized To Turkey, Jalinoos Says

and both of those lead to the same source. US sanctions, Russia threatening to retaliate for a new round of sanctions announced by the United States, and Urdawan's delegation to the United States failing to secure any concessions from the administration in Washington. Join me to discuss this. Shahab John news Credit Sweete, Global head of FEC Strategy, Good morning to your Shahab wanning E m f X. Walk me through whether this is idiosyncratic or whether there's a much bigger

story taking place here. I think the underlying story is and has been, the rising global yields, which obviously puts pressure on all emerging markets. But on top of that you have clearly the trade story, the tariff's story as well, which is as a severe risk to export oriented economies and what that what happens then is if you don't throw in specific themes like sanctions as well, um, you've really got a very weak patience that's not necessarily ready,

you know, for yet another sickness. And I think that's for countries like Turkey. That's definitely what the problem we have is right now dot A Turkey moving by another two percentage points again today. I mean, we're seeing big moves in Turkish markets. And I think what a lot of people perhaps listening to this program are trying to figure out is how this bleeds, the contagion, the ripple effect,

the channels for that. How do you see this playing out at the moment, At the moment it might be contained to Turkish assets, do you see it bleeding into financial system and potentially beyond shaub So, I think the sanctions story, the way that bleeds is that the market looks at any other country that could have a sanctions risk as well, um, And of course Russia is right now clearly in that zone UM, and worries about those

and you need a bigger risk premium. And of course right now the U S seems to have a number of different spats with a number of different countries, so that's one factor in terms of more direct financial contagion.

The easiest way that could happen would be for severe losses on Turkish assets UM due to for example, default risk or something of that nature, leading markets to have to sell out of other places with risk UM Now at the moment, I think that the risk of that is relatively low, just because so many investors have already

sold the Turkish assets. Maybe that the risk is more localized right now to Turkey from that perspective, but it's something that you shouldn't rule out and definitely keep an eye. Something that we've explored on this program is how a technical issue can quickly become a fundamental one when you have to address what's happening in Turkey's markets, when you have to address what happens in Russia, Argentina and elsewhere.

All of a sudden, short term rates in these countries are just aggressively higher, and then you have to think about whether that chokes offt growth and chokes off earnings of local companies as well. Are we at that point now already? Sharp? I think for sure. In the case

of Argentina, we've we've passed that point. In Turkey's case, we are definitely at that point that the reality is that the reason why earlier going and others in Turkey don't want much higher rates is their knowledge that that will probably go hand in hand with the recession, and that's obviously something that's politically unpalatable. So that point has already been reached. The only question now is the path we take from here in terms of whether they go

for an early stabilization of the currency or not. Can I switch gears? You can? Can I do that? Permission? You have permission very quietly. You know, we're talking about Sterling blah blah blah and e M and all that. I get it. Euros is on the move. We haven't talked about Switzerland and this huge signal, if you will, this traffic signal for all of foreign exchange. Why is Swiss stronger versus the Euro? The Swiss franc continues to play a role as the ultimate barometer, explain it to

our audience well of local European problems. So we do have a situation still where the market knows that they have to be potentially contentious budget negotiations in Italy, UH and there is a risk premium, so it's a flight to quality. It's still in FX space. The Euro against the Swiss Franc remains the ultimate barometer of how intra European tensions are. So if A. C. Malona is going down the tubes and what's it called Juventus juveniles, they're

going up with with the Renault and all that. The answer Swiss Frank you just to Renaldo was renaled Renaldo? Anyways? I mean Swiss Frank's moving off of Italy, right it is. And look, at the end of the day, market also knows that the capacity of the Swiss National Bank to continue to intervene and Prince Swiss Frank's to expand this balance sheet is lower than in the past because the currency is much weaker than it was let's say a

year ago. And you know this, Switzerland want to be the only buyer, for example, of Italian debt at the time of budget crisis in Italy. Probably not. So the market knows this, and that's one of the reasons why the Swiss franc is going out. How does it effects guy like you react to central banks that own equity positions and I understand the Swiss ownership. I assume is way different than the Japanese ownership. But I mean, I don't know, maybe the Fed ons, you know, ten million

shares of Tesla for all I know. But how do you respond to the idea that a central bank is running a stack portfolio. Well, in the Switzerland's case, you have the central banks balance sheet being over in equities and I don't know, and it's as overseas equities as well, apple and different to Japan's. So that makes it a very leveraged and very uh I guess aggressive balance sheets.

That The problem, of course is that until such points as equities come off significantly, no one's going to talk too much about this issue as a potential problem for the Swiss if anything. Right now, what it does is a very positive carry balance sheet. Because John there was a massive jargon alert's two minutes in the penalty box. Well, what it means is that the Swiss of paying zero and negative or receiving you know, from negative rates on the Swiss francs they've printed in order to buy these

assets overseas which provide very positive dividend flows. So every year the Swiss National Bank has a very positive cash flow negative rates. Well, that's the that's the fact. So the reality is it's it's a very sustainable position because you print Swiss francs and you buy these obviously assets until such point as stakes for in a dramatic word, Jo and I didn't have a time to talk about

this on television this morning, but it's real simple. Nobody's talking about the chronic effect of these negative interest rates and be in place in a place like Switzerland. If I told you where monetary policy was in Switzerland, could you tell me that GDP would have a two handle year on year. I mean, growth is okay, the country is rich, it's a wealthy nation. What are they doing.

I think what they're trying to do is effectively keep everybody employed in a country where there's enough overseas wealth and enough returns from that overseas wealth to effectively mean that you don't absolutely need to do that. UM. In a sense, you have a very wealthy individual if you want to look at it as a person that still wants to work. UM. And so you're trying to find the exchange rate that allows both you know, the wealth stocks that Switzerland have has to come into the country

while allowing employment to remain high. It's not an easy thing to achieve, and that's why you have this awkward

situation that you have in Switzerland right now. Of course, inflation is always ready to be low in Switzerland too, Yeah, and so trying to at least maintain the illusion that you can reach two percent infigation requires these kinds of Honestly, I used to scratch my head every time I went over to Zurich um and I'd interviewed the Swiss National Bank governor and I'd sit down in front of him, and I scratched my head all the time because I was looking around and seeing all of these people driven

around and blanked out mercedes, incredibly wealthy individuals. And then we had this country there was exploring deeply negative interest rates and building up a balance sheet through buying equities, Tom, and it can't make sense of this. And Japan, by the way, it is doing the same things, an incredibly wealthy country per capita is totally fine. Yet they are exploring what is completely unprecedented in central bank history. Yeah, I agree. I mean, it's it's odd and the last really,

John lest bizarre. Yeah, there's just no other way to put it. Thank you. So much great, thank you, thank you very much with us today and SIS. But you know, a lot of these currencies really moving. I walked in John, I saw Turkish Lear and said, wow, we're looking at the media wars now and it's worse plural. There's so much going on, just extraordinary what we're seeing. To this

morning Tribune, Sinclair Tribune says no, oh yeah. And by the way, Sinclair, we're gonna sue you because it has to do with Sinclair wanted to hold on to their stations, etcetera, etcetera. And there's six other diversions as well. Exhausted In early August, Tuna Amobi joins us with see up our research about Tuna. When I say the media wars, how do you translate that?

You know, I think that's exactly the right terminology, Tom, And I think what we're seeing, you know, the events that are unfolding in the media landscape, what I see on the regulatory and legal UH side, or even the M and A and the implications, I think, you know, it's it's unprecedented, right you talk about the Sinclair Tresune, I mean this deal was you know, kind of uh had a lot of tip on its shoulder from the beginning, I think, um, the FCC when they voted to send

a deal for a judicial review, we were of the opinion that it was effectively a death sentence, and that's why we downgraded or shares on SYNC on Sinclair to hold. So at this point, I think a lot of parties in the media landscape are going to be trying to read the tales and trying to figure out what this means, especially with the Justice Department pushing ahead with the appeal of the A T and P time warners. There's a lot of a lot of things too, um, you know,

to to read into what's going on. Is our earnings, are cash flows our margins persistent into the future or are they threatened because of the competitive and technological lens gape. Well, I think there's no question that technology and advancements have been, uh, you know, one of the catalysts to some of the M and A announcements that we have witnessed, especially now that a lot of companies are looking to a direct consumer and the technology that supports that scale is also

another factor that comes into play here. So you've seen a lot of justly in among these companies just trying to you know, get exposures across areas, whether it's horizontal or vertical. Um. You know, my sense is that there is a little bit of hesitation right now because of all of these regulatory uncertainties. UM, but there's still some appetite out there. I think overall, we think the prevailing

sentiment in the landscape is still cautiously positive. But you know, I thought we had a little bit more regulatory certainty, not uncertainty, No, I think best. I think the signals have been mixed under the Trump administration, which they moved quickly to read stated the you Achev discount, which was the catalyst for this um you know sincular Tribune deal in the first place, right, and then fast forward latter they go ahead and challenge vehemently the A T and

T time one to merger. There's still appealing that transaction. So there's conflicting signals out there. Uh. And broadcasters are just kind of sitting trying to figure out what's going on in media companies in general. We saw the um, you know, the the Discovery um script deal was was supposed to be another supposed to be you know, well that's right, right, but not to interrupt you. But what's critical here is there's a lot of supposed to be going on. I mean, I mean I just find deal

to deal to deal. What's the what's supposed to be story? That's an opportunity right now for you. Well, we know there's a lot of dry powder out there sitting u looking to get to work media companies. I think the balance is a largely in good shape. Um you know. I think that what the Disney Fox deal um on the scores is that companies are willing to leverage up their balance sheets, uh significantly if they can proved investors and make a case that there's potential synergies. And that's

why investgent. Oh come on, you sound like a CEO. Come on, tuning, you sound like a CEO. Potential synergies. Did they do that deal and the other deals to coming in this supposedly environment? Did they do Disney Fox to do the deal or to be sure somebody else didn't get it? I would argue that it's a little bit of both, right. I think Bob Bagger has made a pretty compelling case that, um, you know, those synergies

can be achievable if not conservative. Right. Um, So I think you know, Comcast obviously wanted to just that as bad, and for Disney to get those that's just as strategic as not letting Comcast get them. And all played into this, Uh you know, playd to this rot race among these companies to get much bigger and more content in the pipeline to push out to consumers very quickly. Or give me a Brian Roberts update. How bad is this August? That's a very interesting question. Uh, you know, I think

the only good one he'll do just fine. Yeah, I mean, I mean the persistent of cash flow um speaks for itself. Tuna Mobi, thank you so much, CFI A research. I'm gonna bring in our next guest because John Ferrell made me smarter and George Freeman can add to it. George Friedman, one of our most popular guests working out of a bunker in Austin, is in cyclopedic on our political economics and how it folds into our defense in our offense. And George John Farrell just made me smarter by mentioning

the tensions within China. Your lead is circled wagons in China. What do you mean by that? Oh, China is in deep trouble aside from the Western you know, all of China. Uh China has reached a point where it cannot export competitively with other countries. The U S sanctions make that even more difficult. That means there's tremendous pressure in China.

China is a poor country, about a billion people live in pretty much third world of property and uh G is desperately trying to hold all these fashions together as he applies very painful solutions, and there is tension within China and whether or not it can possibly hold together uh For a hundred years before maut Sung, China was a highly fragmented country. So the Chinese are playing with existential problems. But we still think of China's it was

five or ten years ago. So what's changed, George, and how is this going to materialize in the coming months. Well, what change basically was that China built an industrial plan far too large for domestic consumption, and foreign consumption declined after two eight and competing countries like Vietnam and others were taken away the Chinese market. How this plays out

basically has little to do with economics. At this point, the economic reality is set, it's now a social and political problem, which is how does the Chinese regime and the Chinese public in various interests react to the fact that China's move is not only over, uh, it is now in a period of extreme stringency. So, George, this is an important question, and I imagine how that anybody

would speak to would say yes to this. But do you actually see existential risk to the Communist Party at this point, or at least you see an existential risk of evolving. Well, the Communist Party is monolithic, it has it's a compendium of interests. They are the interests of the coastal cities and party committees there, and their interest is basically to maintain good relations with the West. There

is the interior interior parties. Uh. They haven't benefited much from the major boom, and they want to see resources diverted from the coastal areas to their interests. This is a huge country. It's very diverse, it has a very diverse interest Obviously, when it was growing fantastically, you could cover up these things. But now when the question how to be distribute the pain is different. George. One of the great realities of our ute is how wrong we

got Russian and Soviet Union intelligence before their collapse. Do we have a knowledge of Chinese intelligence, Chinese society, the dynamic of their politics, or as we are we flying as blind as we were in six Americans have the strange tendency to overestimate and some enemies and underestimate others. We underestimated at Vietnamese, we underestimated Taliban. We vastly overestimated the Russian capability, and we're doing the same thing with

China now. We don't look at their weaknesses, and we don't look at the problems that they have, and above all, we don't look at the fact that what they were a decade ago is not what they are now. We tend to see them as a kind of static, monolithic entity that can understand anything. So George on the on the issue of overestimating also an issue of overestimating political rivalries. We saw this with Japan in the nineteen eighties, and

we saw how that turned out. If we think about why the sanctions push is coming through this arrist push to be more precise, from the U. S administration on China, do you think it's borne out of overestimating the economic rivalry that shine of poses. Are you saying they are weak than some people think they are going to be in the next ten years. It has much more to do with the fact that the United States has a reality didn't have ten years ago, which is his a

clienting industrial class. And that may not be a macro economic problem, but it's a massive political problem. And the question that we're doing and how do we take care of him? George, this came up yesterday. I want to rip up the script here, but with your abilities, it's a timely question. We had the great uh interview of

David Rubinstein and his peer to peer. We did that last night folks on Bloomberg Radio with a gentleman as the chief executive officer Boeing, and a gentleman emailed in and said, would somebody ask how we do defense contracts? And this came back to something called the case for was his genormous billion dollar airplane deal and there's cost overruns and Boeing, I guess, has to pay the US government a ga jillion million dollars. Do you, George Freeman,

have any clue how we spend money at the Pentagon? Well, the first thing is what is our strategy and how do we set it. And it's a very conventional understanding. I mean, look, the U. S. Navy wants there are two entities. They want to make China look super powerful. What is China? The other is the U. S. Navy. Because the U. S. Navy is able to say that the Chinese or a major threat, they're going to get

funded heavily. So the vision of the world of what the threats are, what the dangers are, these are essential. They drive the American economy. I mean one of the we talked about this Soviet Union and overestimating them. There was a major overestimation by the Pentagon. Other intelligence sources had different views, but the Pentagon view, and that's how we fund them. We identify threats. It takes it. It takes ten fifty years to build a weapon system and

at that time and we hold after its steady. I shall end up reading more about the case for which I don't know what that is. Do we know China's technology and military? I mean, all the interviews we do, and they've got a submarine base hanging off Vietnam there on that island, etcetera. Do we actually know their technology? I'm pretty sure that the military and intelligence people know what they're capable of. But again the question is not

what they're capable of, but how it's projected. So, yes, they've got an island they built, So what that island will disappear about fifteen minutes into a war. That's not a strategic capability. The Chinese are blocked by a string of islands. They can't get out of it because they have right, haven't have a military strength. Okay, one final question, Georgia will let you go. I was in Helsinki a

few weeks back. John wasn't and I was having a beverage of my choice down by the harbor, and I thought I saw a periscope stick up in the water. Are there really submarines floating around the Baltic He was like ten drinks, Dave. At that point brin with Mr Freedman, keep this serious, George's Baltic Sea are They're like submarines bouncing into each other in the Baltic Sea. We not bossing at each other. There's a lot of maneuvering, the Russians of maneuver there. We cannot to go too deep

into it. But yeah, there are submarines everywhere, and uh, if there were, a lot of them would be destroyed. Very how do they get through the Danish Straits? I mean out there, you know, way west of Helsinki, there's like island. The months gives them a little bit of a tuck tomb. Okay, we're gonna George, you're gonna have to answer that question. We'll do that the next time.

George Freedman with us on the Danish Straits. Francis Donald with us with Manual Life doing macro strategy there and right now we want a macro strategy through the core economic function. Let's start with g d P, which is the consumer. Francis, what's the dynamic of the consumer right now?

It's just fine. We could go through all the numbers, but the story is the same as been which is employment is strong, wages are steadily rising, the labor forces increasing, and there are wealth effects that occurring way not just through wages, but home prices at six and through the equity market. Consumer. That's the steady state that we don't

need to worry about right now. Where we need to shift our focus is to the eye and to the g Well, the eye always is variable, folks, I is what's what what Francis sev the economy, am I right on that it's up there, and it's incrementally important. It's volatile, it's followed tile up, but it's also increasingly going to be the pivot function here. So as we lose a little bit of steam into the end of the cycle, we probably have a year and a half two years.

We need the investment, We need the eye to come back online. And this is where my concern is. And some of the soft data that we've been looking at does suggest that that business confidence that we witnessed over the last eighteen months or so maybe peeking out. And I think this is where the Fuderle Reserved is going to be spending a lot of their research. But this

is critical, folks. So we've now we're going on months and months from the tax bill and all that I thought we incentivized corporations to invest, and we now see in tax receipts a hockey stick of lower tax receipts in a stand calendar, among others. The budget guy just publishing a trillion dollar deficit for next year. Where's the payoff of that? Which is the investment? That's a very good question, and it's the key question as to when

we see this cycle ending. Is it a year and a half out or do we push it out further because we get an investment impulse. Now, what worries when he comes back to this p p I data this morning, which is that these input prices across all of our input price metrics are rising. They're rising because of commodities, because of energy, but also because tariff. They're starting to work their way through the system. And at this point, this is when I start to worry about things like margins.

Can companies pass on costs to consumers? I'm not sure they can. So this is gonna work against some of the shield that we saw from the fiscal pulls. Now, explain the dynamic that everybody always ignores, which is the G government spending, and of course that's wrapped up in our fiscal policy and deficits. How does G shift in the next twenty four months. Well, G already shifted. We've got a sizeable fiscal pulse through a tax cut and

other measures. It was about one point two percentage points of GDP for this year, is going to be about one point six for next year. And this is one of the reasons why the US will be apable of withstanding some of the headwinds created by pariffs, but it won't be able to shield against all of them, and most importantly, it won't be able to field against the

hit to confidence. Okay, but but I'm doing my back of the bow time math, which is for take away whatever number you just gave me tells me right now, the run rate of this economy is sub three given all the G shenanigans were doing. Is that Is that an okay statement? That sounds about right? I mean, the US is not a economy, just like it's not a three percent inflation economy either. It's a two percent, two

percent type of world. That what we're going to see with the G is that the government spending adds some variability to that over time, and it should have also worked through the confidence channel. And those animal spirits were quite strong over the first half of this year. But my concern moving forward is that those animal spirits that came off of this tax cut may begin to face.

And so, finally, to round out the equation what everybody flunks on the exam, which is the dynamics of our exports and imports, I go back Francis to the rule that the media always focuses on imports and never on exports. Do we have a buoyant American export economy, well, we should, except the global trade activity has been decelerating. It probably peaked out about three months ago. If we get China back online, that should support global trade activity, and that's

a tide that lifts all boats. But generally, when we think about what's going to happen over the six to nine months, the export components, that's gonna stay relatively the same. It's do we get the offset coming from investment and government spending. That's where the key UM inflection point is going to be in the u S story. And now folks with this clinic and folks, this will be out in the podcast. We're gonna do this section with Francis Donald Manual Life out with Apple Um Apple Podcasts and

Spotify and our other venues. Thank you for the podcast feedback we're getting, Francis, it's rounded out, and that we all understand dollar dynamics effect net exports. I would respectfully suggest dollar dynamics affect the investment component you're focused on. They absolutely do, and they stronger dollar higher wages, input costs rising these are all things that are going to

weigh on margin's way on companies moving forward. And that's why over earning season, I just kept looking, what are we getting, What's what does the guidance look like from these companies. So far, it looks just fine. We don't get any particularly terrible guidance. Guidance for Q three has been better than typically for the first month of the quarter um so it looks like this is still kind of a weight and see type of environment, one that

I'm not overly concerned about right now. We might have noticed that New Zealand Governor Overnight made a really interesting comment. He said that they're watching, worrying and waiting, and I think that's a three words that we can take with us over the next couple of months across the entire world. But just sound like an economist when you say that, because that's what economists are paid to do, is to watch, worry and and wait. As well as chairman Paul Gonna wait,

I don't see it. I mean he's he's he's wedded to a rate increase in September and he moves right on from there. Do you pick predict a second rate increase? Towards two. Yeah, markets are predicting a second one. And what I say here is the risk is really asymmetric. It's not like we're going to move towards pricing in three rate hikes by the end of this year either. And the second point is that Powell has a lot

of optionality here. He's going into Jackson Hole with a three esque cp I. By the end of this year it should be down towards two pc He can choose how he wants to frame that we're at target or we're a little bit above target. He has a lot of room to do what he wants over the next half of this year. My senses is going to push towards normalization. The central banks have a pocket here before growth starts to meaningfully decelerate in ten I think they go for it. Francis, thank you so much. What a

great clinic from Francis. Donald head a macro strategy at Manual Life as well, and that will be out on our Apple podcast. 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 Keene before the podcast. You can always catch us worldwide. I'm Bloomberg Radio