Surveillance: ECB Not On Autopilot, Lagarde Says

But let's look at the facts. Let's look at how the economy evolves. That's what we do. We need to be fact driven. We need to be clear now communication and we will be. And I'm saying today don't assume that it will be on autopilot. Yesterday you talked to quite extensively about negative rates. He said, tearing is working well, but is there a point? Actually the side effects of negative rates means that you need to scale it back. We will be looking at the side effects as part

of the strategy review. There's no question about that. We need to be attentive to that. Financial stability is not our first driver of concern and consideration, but we will. We will have to look at it, of course is and we need don't forget that, we need to have a banking sector in the your area that acts as a good channel of transmission, which means that, which means one that you could extend hearing or the multiple responses. It's not, as I said yesterday, we're not considering that

at the moment. The President Trump left have also saying that actually still thinking about possible tariffs against Germany and Europe in general. You're seeing, you know, growth in Europe. How do you match up the two We're saying modest growth in Europe, we're saying a bit more modest downside risks as well. So that's probably the reason why it's it's kind of slightly balanced to the upside, but very

slightly um you know, we we shall see. What I was pleased about is to see that there had been a good first meeting between Lay and President of the European Commission and President Trump. So that's that's, you know, it's better to start off on on on a good footing, and there would be difficult relationships going forward and points of negotiations that will be hard, you know, whether it's trade, whether it's tags, whether it's technology, whether it's energy, the

multiple topics. But as a Usula said, Europe and the United States have been friends for a long long time. It will not go away. And in many instances they have joint interests. But Europe is different. Europe operates on different values with different systems and and that needs to be secured and preserved for the sake of the Europeans. There are our tears. The biggest concerned easy for for

the European economy. It's a big concern. Let's face it. Um, don't get that there is trade intra Europe and that would not need be affected, but trade with the United States, which is an important trade partner, would would be affected if there was a sudden rise on on ontariff's yes, or a terry fools where you know it for that you you you tariff me, I'll terryf you. That's going to operate as a break on the economy for sure. You've done a number of public events in the last

couple of weeks. What concerns that people raise with you? Um, you know it varies. UM. When I talked to when I talk to family members, they say, explain what you do mom? Please we don't really understand. And that's a real good signal for me that we need to to communicate in a more explicit way about what we procure. You know, because if we explain that exactly what we do,

it's it's technically sound. The experts will understand, family members and that actually drivers, the hairdressers and the shopkeepers are not going to understand. But if we explain that what we do actually procures growth, facilitates investment, and creates jobs, then it means something. But we should not be the only one to try to do that. So is it reconnecting with the citizens or I think that's an important factor. Yeah, because you know, the people of Europe, particularly the your area,

are quite bullish about the Euro. They're pleased to have the Euro as their currency, and we do everything we can to make sure that Euros can flow easily, that payments are secure, that what they have is solid stability. Um. But but I think we need we need to do a bit more And a lot of the focus here is on sustainability. You talked about sustainability. Is there a danger that we have outsized expectations about what central banks

can do to tackle this? Possibly? But I think that nonetheless, each and everyone of us has to floor what he or she can do about the current risks. And I think that it has been under The risks caused by climate change on corporates, on the economy, on general stability have been largely underestimated, and for good reasons, because many risks are difficult to assess. We are talking about what

happens in thirty years. It's not in the cards of a stress tester to anticipate what happens in thirty years. You know, you look at the immediate future, you do. You look at the market risks, you look at macro risks,

but the climate risks in thirty years that need action. Now, if we want to remedy those risks, that's difficult, but we need We need to do it absolutely the start you of what's available, and that's really one of the great focuses for Christine Lagarde to assist her economists with the tools available, given how odd the times are a perfect person to speak to honest the limitations that constraints that we see with an economics, finance and particularly investment

in Sheila Ptel, She's a golden Sax asset management. She is their chairman, and we're thrilled she could join us for what I wish was a four hour conversation, and we're not going to do that. Uh. Today, I have eight things to talk about and only a few times or two. I need to talk first of all about your core obligation to the Golden Sex company. Golden Sacks Asset Management for years has had not a stumble, But

I need to be focused. You have had great acclaim for bringing a new focus to Golden Sex Asset Management to compete out there? What's the Patel focus for Golden Sex Asset Management? Look? As an investor, you focus a number one has to be your client needs. And what I would say we've tried to do is refocused our entire investing team on the questions clients are asking us. What are they asking you right now? They're asking us

about E s G and sustainability. They're asking us about what to do in this low yield environment, and they're asking us how they should think about asset allocation in the broader context of all their stakeholders. What we heard this week and a Happy Valley is the arch question of the efficient frontier and asset allocation given low rates we've got boom bust, and I don't want to get into boom busted. You your your leader, David was quite it was quite good on that as well. Forget about that.

Forget about I gotta put my money in the market after bonds up, yields down, stocks up, up, up up is your answer to buy more tesla? Well, it doesn't necessarily have to be Tesla, but I would say people have been penalized more for trying to guess when the market would go down, then by keeping to a steady core asset allocation, particularly with exposure to equities, when you believe that growth is stable. Do we think that growth

is growing exponentially growing getting better over the next year. No, But do we think the US looks decent? There are hotspots in Europe of both growth and pain, and that we have interesting opportunities in em and particularly in Japan. Yes, Okay, your charm as you came up on the trading side, on the management side, on what I'm going to call the execution side. This isn't some Ivory Tower exercise for you.

Even though you've got prodigious academics from an execution trading side, your expert in the observance of liquidity, is a liquidity there in the market's given shocks. Right now, I would say liquidity is there. We're certainly in a better place

than we were a year ago at DAVAS. A year ago you had everyone worried about liquidity, extremely worried about where the markets went head and we were counseling carm and I think today you have people worried about liquidity given the mix of private to public that they have in their portfolios, particularly the way that various investors have

leaned into things like private credit. Where we see the balance is by making sure that the overall portfolio has liquidity needed for the needs That will be different for a pension than a sovereign wealth fund and for an insurance company. Can I go off script on a Friday? We can do that, Shela Patil portfolio insurance. This is before your time. Our e t s the new portfolio insurance. This is beneath you to talk about. I get that everybody listening and watching should they be petrified of the

certitude that ETFs are the only way to go. I don't think it's a new portfolio insurance, and I think there's a huge diversification of the options in the e t F markets, they span an incredible number. Well, it's a very very broad market. I think what we have to think about with e t s is really what is the purpose of having them in your portfolio? Is it the best exposure to a particular index is in an area where you just want beta versus alpha. And it goes back to the question of do you want

active or passive in certain segments of the market. I think that's a question that investors need to answer themselves over and over again, and it's become very binary. We love binaries. It's easier to say choose air, choose be, But the reality is we see a bounce portfolio includes both passive and active, depending on where you think the opportunity set is in an asset class. Unfortunately, last night I was talking about c D e F. I wasn't binary last night. Sheila was right, that's a simpler in

better world. What we're gona do today is trying to give you a recapitulation of the proper theory and foundation of this. Joining us later Robert Schiller, the Laureate of Yale University and joining us now someone as a claim Jacob Frankel joins as chairman of JP Morgan Chase International, former governor of the Bank of Israel and Chicago academic from just a few years ago as well. The uproar here is the sick locality of markets linked into your

world of economics. Possibly is done and there will be a more leaden, non vollow a trend because central banks have dragged us down to the zero bound. I don't see this in the academic literature. Is it an original idea that needs to be tested to begin with? It is being tested, and frankly, I think that the zero bound, or the driving down on interest rate to zero was emphasized, has been emphasized as the way in which the crisis that emanated twelve years ago came to the system so

called unconventional policies. But if we are talking now about a recovery, getting out of it, coming back to normalcy, I think that the zero interest rates has exhausted its benefits and it's time now to think again, how do we come to the highway from this particular detail, to return to the highway in which interest rates are at

normal level, in which financial industry can perform well. Because at the present time, engining systems, insurance, life insurance, even banking have to redesign their business model to accommodate zero interest rates, which makes no sense. I think that at this stage we will need to bring back the other policy instruments. The other policy instruments have to do with fiscal policy, have to do with structure policy. Today, the greatest danger to the economy is growth comes from fragmentation.

The world is global, policy making is local. The pressures on policy makers come from domestic pressures. And if you have great fragmentation within economies, you will end up having also great fugment fragmentations between economies and the bridges that are so essential for the functioning of the global economy. Maybe have your voice is so important. I have to get this on record. If we begin a path to normalcy, do we sustain a Latin non volatile state or do

we maintain the normal historic boom and bus cycles. At Rogof and Rhiner, I've talked about which is it is a binomial? Is a bipolar? Almost? Which is it? It's no, it's not a law of nature that it will be either or it depends on the policy. Let me give you an example here the recovery started, and suddenly the trade wall came in. Trade wall means you break a bridge between important partners. This creates volatility. Then there is a glimpse of hope that this trade wall may be settled,

at least as phase one. Then suddenly the markets like it again. Amusan coming down to Earth will say, hey, we have volatility. But let's understand that volatility is a reflection of the signals that policy makers give to markets, and in the market in which financial markets are important, that they are growing to be more and more important. That's the market in which expectations about the future transmitting

itself to current behavior. So let's be very careful worlds metals, expectations metters, and if things are still not done but they are expected to be done, volatility already comes in to your claim on to on on the bank of Israel, and folks, let's make clear here as we more. In the late Paul Worker, people talk of Frankel as a vocal equivalent with the courage of what he did in Israel years ago. You had a tool kit. Then Legard this morning with Francine talks about tools or finities is

written about this authoritatively at the FED. What's in the tool kit at the zero bound. Well, the tool kit today is much less potent than what it used to be, which is Bridgewater's point alately, but it is also not a cause of nature. It is again a policy maker making. What do I have in mind? The most important tool in the policy arsenal is interest rate. Of course, you

can always speak about macroprudential policies. You can speak about guidance, how to manipulate expectations, you can speak about many things. But let's face it, it is the interest rates the central bank is setting, which is the jewel in the

crown of policy making arsenal. If we think if it is being stuck at close to zero, in addition to the damage to the financial industry, it also projects that the monetary authority can do in the future less than what he did in the past, which is another reason to wake up other policy instruments. I think that the only game in town syndrome in which central banks have become two centered to the debate, has to be changed. It's a very very dubious compliment. The spirited conversation he

or Jacob Franklin. Some of the themes that we're seeing here from central banks and praticularly from those after a bang up successful two thousand nineteen Dr Frankel, of course, with JP Morgan International Panels continue a very important panel UH this morning on central banking and on treasury as well. What I like about this panel, it's a mixture of the bankers and the finance officials together and has led

to a spirited conversation about the mysteries. Of course, we can summarize that and maybe do better than five or six people talking at once to singularly talk to the gentleman from Mexico. I know Guria brings first rate academic economics to his job at the O E c D UH as their secretary General has held court for some times. And the good news here with Lawrence Boone and the other great analysts at the O E c D is

very simply he can synthesize a lot for us. He takes the sunglasses off now so we can do TV. I wore my sunglasses one and Saturn. They said, don't ever do that again. Wonderful they have you here. But the themes are so important. There's Qi, there's boomer bus, or this is that you're gonna go back to your lawns Boon and say this is what I want you to research. What is it. Basically, we have to get back to productivity, we have to get back to skills, and we basically have to find a way to lower

the trade tensions. They're still there. They've already cost us more than one percent of the world's GDP growth. Uh the rate of growth of trade went from five and a half percent to practically flat. The rate of growth of investment went from five six percent. Voices on held to the President of the United States, we're able to corner Donald Trump at the espresso bar and say, look, this is the way it is for the O. E c. D,

if not for your America. We have said it in so many ways, written it, we've insisted, we published it, and basically saying the trade tensions are causing disruption. Why because they're causing uncertainty. Uncertainty killed investment. Investment, of course, is the seed of the growth of tomorrow. So basically, by by creating the trade tensions, you kill the investment, you kill the growth. How this is what has happened.

How much of a headache is does the US and in particular does the US administration think that actually tears work and will they use them against Europe? Well, first of all, I hope that they don't use them against Europe. And I think there's when there's a will, there's a way. And yesterday we found a way. The French UH agreed to defer the action on their digital taxation law, and the Americans agreed to defer the actions on their three

or one you know, potentially the sanctions, et cetera. Because it was not just a question against French champagne or French wine. It was a European against the United States issue. Eventually, so and what happened they both agreed that they would give multilateral solutions a chance. That means to the o e c D the mandate to work on a final solution on digital taxation, so Europe can come together. So

how can the O c D come together on this? Well, because we have a hundred and thirty seven countries working on this solution, not just Europe, and by the way, a nightmare. We had pretty strong support from practically every European country and the US have been participating rather enthusiastically. Why because there are a number of elements of the package that we're proposing on digital taxation that are very akin to the to the tax reform that was done

in the United States a couple of years ago. So you think you'll be able to break a deal the in in the time that has run seen the think of the option instead of a multilateral solution which everybody will embrace, and they're all willing to sunset their own domestic laws and come to the multilateral solution. Imagine forty five fifty whatever different legislations with different types of taxes,

et cetera. And remember Europe is not on taxes. It's not Europe Brussels meaning the European Commission, every it's every country on its own. So I think that the alternative is so disruptive that they will all be trying very hard to get a deal within the the bureaucracy of the O E c D. Do you have a mercantile division? I mean, are we back to mercantilism here? Every every We have a trade division, we have a Trade Directorate, and we also have a director that deals with enterprise

and financial affairs. So yes, the answers, yes, So where's the you're the students, you taught a man or eight years ago. This is really important. Are we back to not multilateral, not back to bilateral trilateral? Are we back to a mercantilistic every nation for itself? That's what I heard from the President when he gave that press conference here. How are we going to deal with things like international trade if not multilaterally? How are we going to deal

with international investment flows if not multilaterally? How do we deal with migration flows if not multilaterally? How do you deal with things like climate? Are you predicting that the president United States policies will impinge on us multi multinational investment? Is he gonna limit the investment of Johnson and Johnson abroad? It is already having an impact lowering the rate of growth of the United States, just like it is having an impact on China. So already we know the cost

of these trade tensions. They impinge directly on uh, the well, they create uncertainty, they create they create you know, lower growth, they create lower jobs. So if we know the consequences, you know, and we know that there are better options, let's go in that direction. But have we reached peak multilateralism? Does it just go down from here? No? You never reached peak multilateralism. Actually, I would say that today we

have to defend multilateralism. We have to prove that this is no way, because otherwise there's gonna be a lot of pressure against multilateralism. There already is, and we're trying to push it back. And Gary as always, thank you so much for joining us. He as the obviously the Secretary General. And hell Guria was really eloquent off the microphone about the differential between the I M FEW and the grimmer oe us off the mic. No, no, but

this is published. It's published news that I M F is more optimistic right now than O. E. C. D. And all our good guests on Bloomberg Surveillance. We go back home with a variance of opinion while the guest coverage continues with Steve Paliuca Bank Capital C. Stephen. Great to have you with us, Great to be here, fantastic to have you with us in the studio. And I

finally tell you here let's talk about that. How's the economy got a series of businesses through the U. S economy at the moment worldwide for that matter, as well? What do you say? You know, I agree with Telman, it's kind of chugging along. Our businesses are doing well, record on record low unemployment in the US. We've had we've had kind of an oil dividend for six or seven years now. Oil is very cheap. Energy is very cheap. Uh, and so planes are full, you know, restaurants for fall

and things are going pretty well. What's the scale meter right now for bank capital that everybody's out there? We got to scale this scale, that defined scale and what it means for you, Well, we really try to just do the best transactions built. We wudn't want to be the biggest, We want to be the best. We have about a hundred and five billion dollars of assets today. We think that brings us an advantage because we're a

global firm. We actually stem from a consulting firm. We weren't really financial people, and the belief was back in from started with Bill Bain and mid Romney in that we could take the consulting skills and really transform business. This is a really important point. I'm gonna stake this and you tell me if I'm wrong. You're not slaves to internal ready to return. You're looking at it from a different view. Explain that, well, we try to take

a long term perspective. And the beauty of the model and why the model I think generally has grown so fast is that we don't have to coorely learnings. We can invest in new products, invest in new software. UM

don't have that kind of pressure. So private equity has grown from I don't know, ten or twelve companies back when I started, to four thousand companies and as a very significant factor in the economy right now and has a real place in the economy because the business model is working of kind of owner operators working in concert management to build a great companies. That's the bottom line. Let's talk about the business model because it comes under

five from a lot of people, as you know quite well. State, I'm just wondering, how is it is sustainable at the moment, given that there's so much more money in your industry compared to say, whether we're when we were twenty thirty years ago. Well, what's really interesting. I did an interview in Yeah where that was the exact same state question, UM, and then I did one in ninety nine. It was the same statement and Ferrell guided from good good learner

and it's a legitimate question. But what's happened from in the industry is in in eighty nine, it was mainly USA, and then it expanded in the in the nineties into global and then it expanded into technology and medicine and other products. And so the the ability to kind of put money to work and be global has expanded the industry. So I actually think there's a lot of money out there, but the returns the private equity are still world class

because the model has worked. Let's talk projects, patient capital, getting together public private in Italy cruise ships Richard Branson. All sounds very excelling. What are you talking about? This is something you guys are doing right, But we're really excited. Uh. Richard came to us about four years ago. My partner Ryan Cotton and I and UH said he wanted to start a brand new cruise line. It was gonna be different from everyone out there, and we went on that

journey with him. It's been a great partnership. And right now the first boat being built in Italy is going to be delivered to the US and we'll start sailing out of Miami. And this is in punishing the Italian government. Yes, the town government is into job creation and These boats create a lot of jobs, and so there's a they give you a financing package. So our seven fifty million equity plus a two point two billion financing package has increased.

What's what's gonna be the architectural or experiential distinction of this boat versus the other boats. That's the stereotype of the industry. These are very unique boats. That's going to be all adult. First of all, the only cruise line that's that's all adult. And then it has that Richard Branson touch. It's just like Love Island on the water. It's gonna be amazing. Love Island. Don't know what love? Could you please explain to our radio and television office.

But we are going to have a kind of a private island experience and in Bemity with the cruise and the boats are designed so there's a huge outside spaces, hammocks, restaurants, clubs. It's going to be incredible. The interview with you, Steve is always with a shift of basketball at the end, and we talked light about it, but this is really serious. And I'm gonna give an example here with some lightness and respect of Mr Stern. The giant has died in basketball,

but it's all of sport. John Farrell's A C. Milan is so bad, They've got to go out and spend a lot, a lot of money on talent. Mr Stern invented that with the NBA. With Mr Jordan's explain what David Stern did to the economics and the aspiration of

salary in the sport. David was a huge vision area, not only in terms of introducing UH players split in a salary cap, which is fair to everybody, but being way out ahead of the game, going to China fifteen years ago, going to going to Europe, having international offices at that time, many of the NBA owners were saying, hey, we're spending a lot of money and there's no basketball.

His view as best weall be a world game that would expand, it would expand viewership, and that vision became fulfilled. He was unique in that he had he was a visionary but but also a micro manager, so he was into every detail of the NBA to make sure it was running well, great for fans and he will he'll be really missed. It was a sad day at his funeral on Tuesday. Step you co owner at the Salt Sex Your friends are into European football. Mr Henry over

at Liverpool. Mr Pelatao at Roma in Italy. How much harder is it to make it in European football just in terms of how to franchisees run compared to say something like basketball in America. Well, they've done a fantastic job over there in Roma has really contended and hadn't contended before, and John Henry has a fantastic team that

they built. The structure is a lot more difficult than the USA sports structure because there really is not any salary controls um and and you can get relegated, so somebody can pay a lot of money for a franchise and then be in the minor leagues. So it introduces a new level of risks. So you have to be really on top of those clubs and and and really uh manage those titanings so you don't take too many risks. Should we relegate in American sports to provide a new tension?

I don't think so. You know, the great news right now is in both American football in basketball there's incredible parody. So any there's many teams that can win the NBA Championship. I hope it's gonna be the Celtics, but there are many teams really win that championship. So so there's been competitive attention in these cities, and I think relegation is just a pressure of this night the Patriots in the Super Bowl. Haw's it look not very good next year? Could you give us a call on the Super Bowl

coming up? Period a bit? I think I think that the forty Niners look good, but Kansas City looks like a very very strong team. And that's a younger team and it's more dynamic. I mean that game is changing. With a gentleman from Kansas City is absolutely. They look pretty devastating to me, and uh so it should be really funny. Well, what's the style of basketball that's gonna change? They're gonna ram the thirties three point line out further? I don't think so. I think the fans like the

way it is now. The big change in the game have been introducing more mobility and ability to shoot that three, and it's been very exciting. That was a full segment from Davila, Switzerland. It's David great to be here on sports see Tarqua floor here at Davos. It's a parquet Florida. 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 us worldwide. I'm Bloomberg Radio