Surveillance: Italy Needs IMF Assistance, DB Economist Says

Find Bloomberg Surveillance on iTunes, SoundCloud, Bloomberg dot com, and of course on the Bloomberg We're back with David Folgers Landau. He's Deutsche Bank chief economist. David, when I look, first of all, your Mario draggy right, and you've done everything you could with your mandate to try and reflect the economy or at least show us to your recovery. You've taken risk out of yields because that's exactly what you wanted, so that there are no bond vigilantes. But actually, how

do you deal with the Donald Trump presidency? Is it much more uncertainty? Again he's dealing with the exit of the UK from the European Union and we don't know what comes next. But continental Europe has been a challenged continent in economic terms for some time now. In that we have a central bank that's basically run out of ammunition and and overshot it's it's not it's mandate, but overshot its policy tools quite a bit, ending up with

a couple of chilion balance sheet pretty soon. We have a government securities markets that don't properly signal risk anymore because of m and others. Uh. And we've got plus unemployment, youth unemployment, frances regular unemployment. Uh and we've just marked down growth to almost half we had it's just six months ago. This election has a tremendous impact on Europe, tremendously negative. Um think of defense. Think of defense in the sense that Europe basically doesn't have a proper defense

posture except for NATO. If the President elect chooses to reduce his contributions to NATO, that will impose the tremendous burning Europeans. But can it be a wake up call? And in certain you know this US election result will shift European values or will it just spur the politicians attack that That is the big worry that people like me have, in the sense that yes, it should be a wake up call. It could be a wake up called Europe has the correct lead potential to catch up.

The question is the political arrangements are so entrenched and it's so difficult to get changed done in Europe and to get policy reactions done quickly that I'm very pessimistic about that. Well, well then that let's care that for bring up the charter, Anthony, if you would in London. This is the Italian tenure and I requested back to two thousand eleven. And it's amazing off that red line, the leg the move up. If I talk about Italy as an emerging market to the rescue, it is supposed

to come European fed realism. I don't observe it. Is it there? So what? It definitely is there? So here we have a country um that there has a hundred plus death the GDP ratio zero growth runs a deficit of three percent, so it keeps accumulating that um and it was trading a hundred PEPs above bond. Completely distorted. Now, given that the referendum is outcome is in doubt. You

see it all sund going up behund. The basis points My worry is that as we come closer to the referendum date and as Trump's changes make themselves felt that you're going to see external investors pulling back completely and instead of getting a hundred paces point, but we're gonna go to four percent and then you're going to have an impact on the banking system in Italy and the rest of Europe. So for me, Italy is the country that I would I would worry about as a flash

point for additional European princing jump in here? But what's so critical here? And you had Joe Stiglets is your morning mustard? This morning? There was a Stiglet's equation that even the most arch conservative ac car and a Mr Politician had to look at, which is that that g that growth rate in the formula of how a country moves forward? And as dr focus Landa Mensions, the little

G isn't there for Italy and so much more of Europe. Right, But I guess the question is as appalling as it may seem to more liberal factions of politics or what we're accustomed to. Would someone from the five Star movement jump start growth into the or is that just unthinkable? No, I think that would be It's probably not going to happen.

But what needs to happen is that if Italy gets into difficulty, it needs an I m F program, uh and others have to be a general realignment on the regular choice side, a market efficiency and labor market efficiency. And it's got to be done. But outside outside agency, I don't know actually will be accepted and withoud the alternative be for Italy to um sometimes choose to leave the European Union. At this is this is what I mean by saying this could be a wake up qualities.

Changes could be made, but we have seen since OMT that that changes haven't been made. Okay, this is haven't been done. This is the I m F program. Bring up this chart of francying. This is the Egyptian pound. Are you Are you equating Italy with the depreciation managed by the I m F of the Egyptian pound. I mean, it's a little bit entertainment, your folks. I'm not equating Cairo to Rome. But come on, and I am F bailout of Italy or an I m F reorganization of Italy.

That's strong language, not of the organization, not a bailout. Italy needs to reform its labor markets, its pension systems, legal systems, government governance, system, each banking system. This has not happened. It is not happened. It is posing at risk for the rest of Europe, and it isn't happening because of OMT. Once you take O m T D used to be out of the picture, you will see BTP rates going to four percent and then you will

have this particular problem. Fancy, and I want to begin uh with this conversation with you on Italy and your thoughts on what Dr Folgers Lando said about the I m F coming in. To me, that's almost unimaginable that they would do, right, I mean, the problem to you know, David's point is that we've been trying to reform the country for what ten fifteen years. We had a lot more Well, you could argue that the former political class wasn't that keen on reforming, but you know, since Terrans

he came into power, we're expecting many more things. Youth unemployment is absolutely true, and so what I agree with David on is that if you look at the Donald Trump presidency and the fact that he got elected when you have twenty percent even youth unemployment, that you are going to see a lot of people in it to the actually having for a protest vote, so it's very

likely that he will lose a referendum. What comes next time wouldn't be palable, palatable to to the Italians to actually get into an i m F program, no, very very difficult, and I suspect that the European would put Europeans would put something together by way of Troy or something like that, to have it domestically, to have an inside European financed and with European rules, attack through it um.

But that's not how the global financism is supposed to work the I m F since at the center if a country has debt difficulties, that's where the reforms are supposed to come from, and not just regionally. So I'm the actual outcome but probably not involved in I m F. But that's where it should be going. But again, the heart of the debate going back more than twenty years is Germany has the same currency as Italy and they're

not the same economies. Are there? So look at the statistic from nineteen seventy to the year two thousand, when the Europe began, Germany revalued against the lira BO eight zero. Now that's over. You can't do it anymore have the same currency. Now that means Italy has to continue. You have a domestic domestic devaluation in prices. You can only

and it's just very very hard to do. So this problem with Italy is going to be with us for a long time to come unless Italy implements very significant, very deep structural reform, and it can't do that by itself. David in twenty seconds, would it think be better off outside the Arizone? It's tough without reforms. Yes, with reforms, would be better inside the Eurozone obviously if it can put it to the uniforms stay in. Without it, you just have this. You're constantly on the village of crisis.

We continue to look forward here after the election of Donald Trump, to see what he might do policy wise, he might appointed his cabinet. Also useful here to look back and see how so many polls got it so wrong. Frank Newport is the editor in chief of Gallop, the venerable polling agency, and it's great to speak with you, Frank, Thanks for joining us. Thank you good to be with you. Help us understand here how so many people got this

so wrong. Going into the election, it seemed like a sure bat that that Hillary Clinton was going to win the presidency. What happened, Well, we we've of course been looking at that. Gallup was not involved in trying to predict the election, So I'm kind of looking at this as a dispassionate outside observer. This time a confluence of factors. Let me mention several or quickly. One is, Hillary Clinton did win the popular vote, and she's probably gonna win

by one to two percent. So it was a confusing election in that sense. Note that the national polls had said she would win the national vote were actually accurate and actually not that far off, probably going to be more accurate than they were in twelve. So these national polls had said, here's the popular vote. I think, given all the constraints that polling has underdid a pretty good job. Second, the problem was state polling, which is notoriously difficult in

state flight Wisconsin, in Michigan, and North Carolina. To a degree, the polling had suggested that she would win and she didn't. Uh, And when those polls went arrived the so called forecasting models, which became all the rage this time. All they do is take those state polls and crank them into some

pseudoscience models. So when those state polls weren't so good, these forecasting monum outles eight five percent ninety percent probability that you'll win, and everybody just took that as gospel. And that's why that compounded to make it really look like people were wrong. A nicely said Frank Newport. Helped me here with one over the square root of n in that, I find no one bothers to have pay

reverence and honor to margin of error. With all the killing of polars and strategists and pundits, are we just juvenile in our disrespect for margin of error? Well? I think so, margin of error we can you uh, I think it just symbolizes the fact that polling is an estimate of a population parameter, and they're gonna be it can't be precise. It's very difficult, particularly in a state.

Most states have hugely different voting in the metropolitan areas and outstate you know, truan Wisconsin, you know, Milwaukee is totally in Madison totally different than outstates. Tru in Pennsylvania, you know, Philadelphia is totally are strongly democratic, but the outstates, by Alabama, in Pennsylvania, so if you get those, you're trying to estimate turnout across these areas, and if you missed the turnout estimates, of course you're going to miss

the overall estimate. And it's hard. In Wisconsin, the last poll was done six days before the election, the lot amount have changed. So, yes, polls are just estimates. And in these closed swing states are close by definition, right, so they're the hardest states of all to try to estimate what's going to happen in. So it's very tricky business. Right going into election day, the Donald Trump campaign was very confident that it was very confident in its internal polling.

Help us understand the difference there between internal polling and the kind of polling that Gallop does that other polling houses do. Of course, success is a father, failure as many is an orphan. You know, success has many fathers. So, of course, to the people who want so, you know, we knew it all along. Internal polling is nothing but the polling that's paid for and done by the candidates. They just don't release the publicly. Is that sometimes it's

pretty good. They have pretty good posters and they do their own poll they do them in some unusual ways to try to predict what's had and going. A candidate says, my internal calling too was extra. Why he's talking about her, She's talking about the calling that they paid for, which can be good. These people are pretty skilled that work for the candidates very quickly here and we're gonna we're gonna have you stay with us. A lot of talk

about the the effect of the email investigation. How large did that loom here on voters minds going to the ballot box on Tuesday? It was huge. We asked with the project we did with Michigan University of Michigan, and George said, we were asking voters every day, what did you reach here here about Hillary Clinton and Trump? In the last day or two, an email just dominated, going all the way back to July. Um emails, emails, emails. I wrote this in a piece of emails with the

bane of Hillary Clinton's existence. She wishes she'd never seen an email. I'm sure, but a lot of voters just last on the emails in all their manifestations. You know whom I Avideen's emails or servers emails, Podesta's emails, all these different kind of emails came to symbolize it. Looked like to us for voters a lot of her weaknesses in terms of their perception she was dishonest and also

kind of colluding with the power. David Durry here with Tom Keene, also joined by Frank Newport, editor in chief of Gallup. We were talking about some of the issues on voters minds going to the ballot box on Tuesday. Frank, let me ask you what we know about turnout. Our conversations ahead of election, they all centered on how readily, how easily these candidates could get people to come to the pulse. What do we know now six days out

about how well they did that? Well? The vult are still being counted to some degree, but it looks like overall turnout is not was not high. In fact, it was lower than the last several elections. So overall this was not a robust turnout election, and that's important. Enthusiasm was at the lowest we've measured in Gallup before the election, so people just weren't excited about it. Two very unfavorably

evaluated candidates. It certainly doesn't look like um from what I've seen so far, that Hillary Clint was able to duplicate the turnout among certain groups of rock Obama had been able to generate. That would be young people and minorities, um. And to some degree, she didn't get the same level of vote Latino's actually did. It looked like when the acted polls slightly less for her than they did vote for Barack Obama against mid Remney back in two twelve.

So that was an issue as well. And if everybody has talked about and noted, the data clearly suggests that Trump was able to get higher than usual turn out in rural areas, areas outside metropolitan areas, and some of these key swing states, and that was very, very important for him. Newport, How will your world change? I'm in the camp of not wanting to bash on Polsters. I think there's a lot more moving parts going on. But is it the same old, same old four years from

now or will it forever change for Polsters? Well, I'm not sure it will forever change at all. Again, Gallup was not involved in the horse phrase estimate at all, which is a change. You know, we decided to put our effort elsewhere, we think, and I personally think there's too much effort on just trying to forecast who's gonna win which could spend more time on understanding why candidates winning and what the voters want candidates to do. All of this huge amount of effort in time, and the

forecasting goes away after the elections. Who carriage? You know that doesn't have any lasting value broadly speaking, it's a good question. The industry as a whole is always looking to change. You know. We used to do all of our interviewing in person. That shifted to the telephone. There's a lot of institutions that are doing internet polling now,

you know, trying to use the internet or smartphones. So I think the methods that posters us are going to change and may be different four years from now, regardless of the election, just in general. But our goal will remain the same, and that is trying which I think is critically important in the democracy. Trying to measure and understand what Americans are thinking and feeling. That's an important

goal and we need to keep doing that. Frank, some of our colleagues at another news outlet, I won't name it already, looking ahead to go ahead please. It's a piece in the hill looking at the top ten Democrats who might run for for the nomination in two thousand twenties. So here we are. You know, with five six days since election, we're already starting to look ahead to what what what? What do we learn from this campaign about

the persistence of campaigning in the year two thousand and sixteen. Well, we know the public thought this campaign was horrible. The tone was negative. They weren't satisfied was how it was wrung. It went on too long. The public doesn't like the electoral college, who would rather go to a direct popular vote. That's been evident for decades now. Public would like a

lot of change in this UM. It's hard to get a precise measure on how short the campaign should be, but I think Americans would be quite happy if we cut down this year and a half's worth of slug food campaigning UM down to something that was much more reasonable in terms of time, if that's what you're asking rather than I mean, you're right, these candidates are already assembling staffs now looking ahead to Frank. What will we see? Oh,

we think we just lost Frank Newport. Well we think him for his effort today, David, you and I can continue here. David, I thought, without question, the most important essay the weekend was Robert Skidelski, Lord Skadelsky writing in Project Syndicate, the great Keynesian biographer, who who gave us David immense history, and that's in so much of the analysis has been missing. We can barely get some people to go back to the nineteen sixty and the regime

change of JFK. We certainly have trouble going back to early Eisenhower, even back to the twenties and Calvin Coolidge and Skidelski did that with a vengeance of how things can unravel if it's not properly managed. Lord Skodolski, who I think you're gonna be speaking with with tomorrow, he's with us tomorrow. Incredible piece and and made me think of the conversation that we had with Neil Ferguson on on Friday. He was trying to view a bit of

it into the conversation. Now a couple of days out, I got around to reading that Michael Barone piece that that you wanted me to to check out in the Washington's amer Michael Brown's column on the heels of that election. He called, uh, it astounding. That was the lead to the piece. Astounding, That's the best word to describe the tumultuous election night into to most people's surprise victory of

Donald Trump. UH in that election really interesting as I began to sort of sift through the demographics looking at the at who voted something Frank Newport was talking about just a few moments ago, and who didn't vote? And I think that the headline there of the fact that so many fewer people went to the polls. It's gonna be something we're gonna be working with for a while.

Here I put the bar chart out. I can't remember, sorry, folks, I can't remember the citation, but a very simple bar chart that basically said, uh, the president of two thousand eight and the president of two thousand twelve, they simply didn't show up. For Secretary Clinton, David tell our global audience the color of protests Saturday and Sunday, UH in New York and around the country. Was it different than

the previous days? Was there something distinctive? I got the sense I wasn't in Manhattan on on Saturday, but from social media and talking to friends, I got a sense that the protests were growing in size. I think there was a march from from Union Square up Fifth Avenue. So I think that that that anger continues, and that anger seems to be getting channeled into these into these protests. I continue to wonder Tom sort of what the the the end result of that will be, In other words,

what are there Yes, there are grievances here. There are people who were upset with how the election turned out on Tuesday. Uh, they're they're making that dissatisfaction known. But I don't know what the the end game for that is. And of core, he said, this was something that Donald Trump talked about in that interview last night, Leslie Stall asking him, you know, if he had a message for for those protesters, and he said two words, stop it.

And CBS since then has gotten a lot of criticism for for holding that as we've seen a violence estimate, you know, in cities across the country. Donald Trump with a concise message to protesters there to lay off. It was interesting coming out of hethrow folks. The vibrancy, of course of the airport always visible. I got in on early Sunday morning, but they're driving out around the acclaimed rotary.

David Gurrow was the big billboard sign obviously talking their book of the runway coming up in eight or nine years ago. It was, you know, interesting to see the core infrastructure project of the Western world as we know it bannered across UH the entryway to the four lane highway into London. Speaking infrastructure here again that the conversation

here center on on on that infrastructure package. Donald Trump's promised to double what Hillary Clinton would have done, so so he will no doubt be hashing that out with how Speaker Paul Ryan and the Senate Majority Leader. I was struck over the weekend by how Donald Trump is beginning to piece together his his administration, obviously hiring Steve Bannon and runs previous for senior positions in his staff. He called the President of China last night, rather received

a phone call from the President of China last night. UH. He said that the president wished him well after the historic election, and according to the Trump transition team here, during the call, the leaders established a clear sense of mutual respect for one another, and President Electrump stated that he believes the two leaders will have one of the

strongest relationships for both countries moving forward. I'm just thinking what James Foley was saying here about the degree to which the rhetoric we heard on the campaign trail may erode. Who you put your trust in matters. Investors have put their trust in independent registered investment advisors to the two and of four trillion dollars. Why they see their roles

to serve, not sell. That's why Charles Schwab is committed to the success over seven thousand independent financial advisors who passionately dedicate themselves to helping people achieve their financial goals. Learn more at find your Independent Advisor dot com. David Gurr in New York, I'm in London and joining me now Charles Duma, who has been remarkably oppression about tepid

economic growth. He is with T. S. Lombard joins us. Now, I first must congratulate you on the acquisition of Jonathan Fenby. This is like cricketer baseball. This this involved massive negotiations. What a what a joy to see the thoughtful stuff, to has law where it doesn't, to bring Mr Fenby into it. Why did you hire Mr Fenby? We didn't know him. We merged with trusting sources and we're putting

the political into Lombard. That's it. This is fabulous. The two of you together, tell me about the T s. Lombard worldview. What will that be post Trump? Well, I think as far as post trumpers, he seems to be. It's interesting. You know, he's one thing as a candidate, something slightly different as um as an elected, if not yet inaugurated president. So um. You know, these contracts are quite usually a matter of fact, I learned this weekend Charles Duma that part of the known world doesn't know

who Nelson Rockefeller is, which surprised me. Is this Rockefeller Republicanism and the new guys? Well, he's certainly economically you could argue to the left of Mrs Clinton, which is an interesting point, although obviously if we're going for a much easier fiscal stance, it may well be more in the form of tax cuts at the top end of the range and corporation tax cuts. But of course the the infrastructure side is also extremely interesting and and rather positive.

To dig into the fiscal side there. How does a Donald Trump presidency complicate things for for the European Central Bank? Well, uh, never mind the European Center what about the fat um? You know, our view is that you're looking at inflation that's around two percent now, just over two for the CPI just under two for the consumity flater on a core basis, and oil prices are up over the course

of the year. So by early next year, the the CPI is going to be close to two and a half percent and the deflate is going to be around two percent. Now, if you look at when wages that are currently coming through it about two and a half three percent were formed, which is about a year back, inflation was virtually nil, so people are expecting or at five cent unemployment, they were were bargaining for two real gains and add that to to percent inflation and you're

looking at a wait by spot. I mean, David, your

question brings up something important. This doesn't work on Bloomberg Radio, but I'll probably do this David Girl tomorrow on television, which is to compare and contrast the dot chart of now versus where it was a click a go and the answer is the markets moved yeah, yeah, yeah, that's right, and and so to get back and so I guess what I'm saying is that the Fed has got a lot of catching up to do, and that inflation is likely to be too sent by early next year and

pushing towards sleeper center a year later. So you know, even if they tightened by a quarter percent every second meeting, they'd still be behind inflation in two years time. I had a conversation with it with a woman last week who's charged with heading up the monetary policy side of things for the Donald Trump transition team. It was it was a frustrating conversation, in part because she wasn't allowing very much. Here from where you sit, what does a

Donald Trump Fed looked like? Do we have any sense of of whom he might appointed these two vacancies who might replace Danny Yellen in two thousand eighteen, any sense of his his vision for monetary policy. No, I don't think he's got round to that in any kind of

serious way. But what I do think has become evident, particularly here in Britain over the last few months, is that there's no such thing as a non political monetary policy um and so I think the business of independence, whether the Fed Bank of England or anyone else, is liable to start being eroded. And with good reason I should have said, can you link all of the expectations, the set of expectations that we have and what has changed in our world. Can you link them in to

higher real GDP. I think in terms of longer term growth UM. Maybe tax cuts help a little bit UM and over time we're expecting some improved moment in labor mobility, which has been held back badly by student debt and the housing crisis. UM, and that should ease over time. UM. So that those are those are potential plus is only one of them is policy related of course, UM. The infrastructure siety, I suppose also may help goth more With

the point it's um. It supports the existing level of activity and a kind of decent life for people on a day to day basis, never mind measure GDP. Charles Duma with us in London or Ts Lombard David Gurr of course in New York as well. Charles Duma David focus Landau of Deutsche Bank today talked about the reality

of the euro experiment. You have been one of the foremost critics of a combined Euro and dr focus Landau focused on effect that Germany and Italy are pegged with the same currency, so all of Italian adjustment must come through themestic regime. Italian lira was nine lira per Deutsche Bank and it ought to be now twenty two d per Deutsche Bank, but it hasn't been allowed to appreciate. Yeah,

well that's the thing. I mean, it's Italian inflation has been much higher than Germans, and so the result is that the exchange rate reflects a blend of the two, if you like, for the euro, and that means it's too cheap for yours for for Germany and too expensive frily. In fact, if you look at the if you look at the long run average real level of German exchange rate, it's about below that long run average, even including the years of the ear in other words, the average going

back to Breton Woods. I mean, this is pretty simple geometry, you know, the parameters. Paul de Guar will be with us tomorrow with the School of Economics. He and Charles White Plots and others look for a clearing of the European market. Does President elect Trump help Europe towards tough decisions that have been delayed? Well, um, not really. I

don't think so. No. I think I think that the only way in which he does that is actually by making people feel making the establishment feel scared and maybe just a mite more self critical, because any normal establishment by now would have done somethingly about the euro. And we've had twenty three percent average unemployment in Spain for about six years on the trot um, and yet no one is proposing any major changes in the in the regime.

The growth rate has been pretty undistinguished, even in Germany. I mean, people talk about Germany being successful, but you've got to remember that if you measure it against the last three year, a year German and British GDP are up about the same. They're been per head about for Germany for Britain, but that's roughly the same. Now when you look at after tax income in real terms, are allowing for inflation um, the British number her head is up about the same twenty seven but the German number

is not only fifteen percents. So fundamentally they've sacrificed the interests of their citizens in order to earn these great surfaces, and the other guys are simply worse than that. I mean, Italy GDP is minus one percent ahead over seventeen years, it's minus one per center, and disposable income is down by fifty about sorry, by seven percentage points. They're actually

poorer than they were in their nineties. David Drill jumped into this conversation trust Tonight, President Obama board's air Force one for what's looking like his final trip as president overseas. He's traveling to Greece, to Athens tomorrow and then to Germany on the heels of that. What do you expect him to say? What do you expect him to say about the about the European Union, about the Euro in

that major speech he scheduled to deliver tomorrow and Athens. Well, unfortunately, I don't expect him to address the issues I'm talking about, because what someone needs to do is to tell these guys that actually, the Euro hasn't worked. And sometimes when you take a wrong turning, you know you soldier on, you find a new way to where you want to get. But other times you go back to the turning and

you take the other turning. And that's really what they need to do here, And I don't see Ovomer saying anything like that. The ECB meets in a couple of weeks time, they're going to reevaluate their their bond buying program. How big an issue is scarcely for for the ECB right now? And give us your sense of where things

are heading. Well, I think you know, they're gonna want to keep policy easy through the French election, which lasts until about May, and then they're going to want to be visibly tighter before the German election, which comes up in in September October. So we're expecting, therefore, a tapering to start in the in the summer, which is early. That's that you're you're expecting it to happen earlier than many. Yeah,

that's probably right. But you know, the the Eurozone economy has actually been growing above its trend for the last three years, believe it or not. That's because one and a half percent is about twice the trend because the trend so feeble. But I mean, it still means that there's no longer any serious fear of inflation, and the inflation rate is going to be about one percent, which is, you know, not too far from the from the from

from the target. So you know, you've got a situation where there's no particular reason to have negative interest rates, massively negative villa industrates. Add a whopping great quantity division on top. Just so you know, your colleague Jonathan Fenby has just written a fabulous new book on France. I don't know if his voice, yeah, yeah, yeah, I seen it. It's obnoxiously thick. It's a fabulous book. And I said that, Mr Fembi, what would Charles de gold do? What will

Marine Lapen do? Well? Depen, of course is a nicety placed and the and the real, the real issue here for the Eurozone is that there's a lot of momentum behind this protest voting these days. I mean, you know, Brexit may have seemed like a standout back in June, but that was a big enough shock. Now you've got what looks like a protest volt putting Donald Trump in

as president. And we've got a very powerful right wing protest voting blocks in Holland which comes up in February March, where frankly they're even better organized than Mrs le Pin. And then Mrs Lpin, as you say, in in April May, who will probably be head in the first round for president. She may not win the the runoff, but she'll probably

be ahead in the starting starting blocks. And then of course when we get to Germany, they hate these zero interest rates because they think that's how they subsidize the rest of Europe basically, and so so you can more or less guarantee that if you believe in political monastery economics, as I do, there's a high chance of taping having started by then. But of course in the near term the ECB may well extend the extend the quantity of eating for a few months just to keep the French happy.

And there's probably just to answer your question, there's probably just enough stuff out that they can buy under the current rules to last for another three months, possibly even six, and get them over the hump from March where it runs out now to just after the French election. Charles Duma, thank you so much with ts A Lombard. It's extraordinary. It doesn't get it doesn't, it doesn't get boring, doesn't it doesn't. Congratulations on trusted sources Lombard, tis A Lombard,

Jonathan Fenby and Charles Duma, among others as well. Then I'll tell you, folks, it's never doll um. I was making the joke this morning off of the acclaimed Keynes quote. This, of course Robert Skodolski's wonderful essay in the Project Syndicate. Today. When the facts change, I change. We're seeing all sorts of people on Wall Street adapt and adjust to the stunning election of Donald Trump. As we mentioned earlier, HSBC and Steve Major change what has been a brilliant call

on lower interest rates and lower for longer. Just put a chart out on Twitter showing this and will feature that chart tomorrow and Bloomberg Television. Julian Jessop with us with Capital Economics they do for those of you in America, particularly Capital Economics says just wonderfully dense research on the state of strategy and the state of oh everyone from Brexit. They've been brilliant on Brexit not being the end of London. And Julian Jessop joins us, now in our London studios,

you changed as well. Three percent the end of two thousand seventeen. What is the three percent inflation I yield? Rather, what is the three percent yield do to our listeners paychecks?

The inflation adjusted wage flat or will it be down? Well, I think down the context in which bondie right seeing um, if President Trump does indeed deliver stronger economic growth and a stronger labor market, then what would be seeing in the bond market is simply a normalization where yields and borrowing costs more generally were turned towards the sorts of levels that you'd hope for in economy growing at two to three and one way, the labor market is fairly tight,

so um, it's not necessarily bad news for your listeners, though it might be if a big sell off in the bond market tree that goes weakness in other asset markets, there's a big fall in in equity markets, or if a rise in borrowing costs across the board makes companies more cautious about investment. If it leads to higher mortgage rates and therefore bigger cost of owning your own home, then it could cause problems. But so far, at least

I see it actually is quite healthy. I agree that econ and one O one is the ambiguity when things change. What's the predominant effect that we will see that we see witnessing the Bloomberg screen? To them, what depends what's

driving what if? The if bond deels are rising is a symptom of increased optimism about the US economy and in particular the prospect that interest rates work need to remain near zero near emergency levels for much longer because the economy is doing well, then I think the bond market weakness is just something that we accepts as almost

something to be welcomed. If, on the other hand, the bond market weakness reflects either inflation taking off, which I think frankly as a possibility given how the U S economy is already operating close to capacity and arguably doesn't need a fiscal stimulus, or if the sell off in the bond market prompts wider weakness in in other financial assets, maybe even prompts an overreaction from the Fed, then I think it could be a problem. But the key point

is it doesn't necessarily have to be. This could be simply the long awaited normalization of interest rates and bond deals that we've frankly been hoping for for some time, that long awaited normalization. Did your view of when and how that will happen change at all after the election results of Tuesday? Oh? Absolutely. I mean our central scenario, like I think most people's, have been that real Clinton would win and the Fed would returned to raising rates

gradually in December, and therefore that bond deals would would rise. Um. The one thing that's changed, of course, is that maybe yields will rise even quicker, as indeed they have over the last few days, and get to a high level

rather rather sooner. I think that many things that you might think of President Alex Trump's new program, but one thing he's made very clear is that there's going to be increased emphasis on looser fiscal policy, and actually a positive welcome for tighter monetary policy is removing some sort of the artificial economy we're seeing in the financial markets. Um. So we're already expecting bond deals for rise, but now they've risen quicker, and we think they'll rise further than

we previously anticipated. Julie, When you think about that fiscal package, that that infrastructure plan, what does it have to look like to to make a difference. Well, definitely, lots of different aspects of it. Um I think the thing the markets would like to see most is infrastructure spending. That's the thing that has the biggest impact both on the demand side of the economy but also potentially boosting the

supply side. If all you do is cut taxes the relatively well off, they may well spend that money, they may will save it, but that doesn't necessarily boost growth in the longer term. The distinction Lawrence Somers put on it, I would suggest even his critics call him an economist.

Of note is what I call the how much idness which in so many mathematical relationships, particularly in finance, people overlook they get the vector right, but they overlook the how much idness the amplitude Professor Somers was advocating much bigger infrastructure then President Trump or his Republicans can stomach, do you is capital economics have a sense of the how much idness it's necessary to make infrastructure move the needle. Well.

First of all, I think a couple of reasons for thinking that the infrastructure boost won't be quite as big as the markets now seem to be anticipating. One is the constraints in the political system in the US. After all, Republicans by large are fiscally conservative. If he's planning to ben awful lot more infrastructure, he wouldn't have as much to do on on tax cuts, And of course there are constraints of the debt ceiling as well. So the first point is that it may be less than he's

planning anyway. The second point is it needs to be seen in context. If we're thinking about the global economy, then China this year alone has added an additional two hundred billion dollars worth of infrastructure spending in the first

nine months of the year alone. So if that spending drops off next year, as I think it will in the China economy slows, that could still have a much bigger negative impact on global industrial commodity prices than anything that Trump is likely to do over the next few years. Remembering that infrastructure spending tends to be slow, it takes a while to build up, and it won't be much happening next year. Go ahead, David, I'm sorry, no, I'll introduce this. We can come back and talk about it

here in a couple of minutes. But I just I wonder what's changed notionally. There was so much pushback when President of I'm proposed more more stimulus, more fiscal spending. And now we have the selections. Everything has changed. Let us explain this, Julian the young gera. Now it's our bridge. And we say that with thanks to Gina Romando, governor of Rhode Island, who showed up last week. It was great to have her in with the bridge challenges that

they haven't Rhode Island. David Gura in New York. I'm Tom keenan London. Shout out right now to the Victorian Albert Museum. They are just absolutely killing it with two shows right now. One of them is Revolution David Gura. I can't convey what it's like to go into a museum and see your childhood as an exhibition. Yeah, it was. It was odd to see Sergeant Pepper's Lonely Hearts Club band venerated if you will, it was I remember sitting on Mike hasan Ier is bad looking at this record album.

A record album, David, is a big thing you hold in your hands and spins around it. What else do they have a lot of Warhol Yeah, they got the whole sixties twig, this thing going, you know, the usual. But also they've got their Opus Anglican medieval embroidery show. Just you can't say enough about what the Vienna is doing as well. M Julian Jess appear with Capital Economics.

Who is telling us about modern Britain as we look at Opus Anglican and from Plantagenet times in places, But it speaks to the resiliency of our economic and political systems. We forget in our modern upward Julian. These are resilient societies, aren't they. Um Well, I think that's right. A lot

depends on the quality of the of the institutions. Has been a bit big argument, for example in the UK recently about the whether or not our judges should be allowed to decide whether or not Parliament or the government decides when we actually implement the legal framework necessary to lead the European Union. But but what's reassuring is that that debate is being carried out in with a free prayer US, It's been carried out in public. Some people

disagree about whether the judges should have this right or not. Um, but it's an open, honest debate, and the institutions by and large are are working pretty well. I think part of the benefit there is that we have had these institutions for an awful long period of time, you know, centuries in many cases, whereas some of the new things

that are coming along people are less comfortable with. I still think the European Union, certainly, the euro is relatively short lived if you set it against that long span of history, and hasn't got that sort of tradition behind it. I think people are far more willing to be, you know, dumping things like the EU or the Euro than there would be some of the underlying institutions that I think

are a lot stronger, have a lot better history. I know that you keep a close watch on the commodities space. We were talking earlier about what we've seen in industrial medals, Copper stronger than it's been in a long time. Here, it seems like folks are very willing, very eager to place a bit here. And the probability of of what's going to happen in a Donald Trump administration, how how fool hardy is that at this point to do that, well,

I think it's it's risky. I don't think anybody really knows what Donald Trump is going to do as president, including frankly, Donald Trump himself, So you're very brave to take a big directional bet on the on the back of this, my own feeling is that what markets have done in the in the last few days is that they've been willing to accept that or hope that Trump is going to do some of the good things that he promised during the election campaign, but frankly none of

the bad things. So all the concerns that many of us still have about the prospect of a trade war have been put to one side. A trade war would have major implications for the global economy and for demand for commodities worldwide, but also some of the domestic policies. I mean, we're you know, we're hearing fresh talk about possibly three million migrant workers being pushed out of the country.

That would have a substantial impact. We can talk about the politics if you like, but the economic impact of that in the short term at least would be quite damaging. So there's still some potentially quite difficult and nasty challenges for the markets to deal with. David, I'm over here in Merry Old London's some in the last twenty four hours explain how we migraat x amount of immigrants out of the country. No, and you've seen a good article

on this, not a good article on it yet. And it was something that Leslie Style asked Donald Trump about last night. Again, that's where that three million figure came from. He said he intends to do it, and to do it quickly. But I think that I think that Julian brings up a very good point there, which is there there there are all are all of these things that are eventualities variables that we don't know about yet. And

how worried are you about the trade war variable? Julian, Well, I'm a little bit less worried, to be fair, than I was when I initially heard the news that Trump had been elected. Um, I mean he has said some more moderate things in other areas. I mean he's not He's not, for example, going to dump all of Obamacare, and it has made some concidatory noises towards some of

the the overseas partners, including even China. So Um, I would hope that wiser voices prevailed and would be recognition that a trade war triggered by punitive tar on on China would at least in the short term, cause significant damage to the U. S economy as well, including many of the people who would have voted for Trump. Um. That said, there is of course a global trend against free trade, against globalization, which Trump has faced successfully tapped into,

which is nothing new. We're seeing the same things in Europe and across much of Asia actually as well. Um, So I would be concerned that some of the benefits of globalization will be will be rolled back. I'm not saying globalization is all good. It clearly has some important distributional impacts that some politicians haven't yet properly tackled. But overall, the world economy, including many of the world's poorest people,

have benefited. Sitting on the surveillance golf stream coming over, it's been a lot of time Julian thinking about NAFTA with the United Kingdom. Is there any feasibility that the United Kingdom would establish a bilateral or I got to figure out how to get Iceland in this regional agreement with Canada, Mexico, the United States, the United Kingdom. Well,

it's not a completely crazy idea. The big problem not well that from my executive unser Rachel's worst span, you have no idea how she can unload Fortunman Mason be free and I mean they need that, they need the carriage to get it out of the what if. I mean, geography is still important. We could relocate the UK somewhere in the middle of the Atlantic then, and I think it would be a serious runner. But the reality is that we do about half of our trade with the

rest of Europe for obvious geographical reasons. We do about twenty percent of our trade with the US. The US is our biggest single trading partner as a single country, but Europe is still going to be where most of our exports go. And also, of course in terms of the fastest growing markets, those will be in the emerging world.

They'll be India, they'll be China very quickly. Her as Prime Minister, May and government precluded from beginning discussions with Mr Trump because of the permanent agreements that they have prerexit. It's the government in the UK can't sign or imp any new trade but they can talk. They can certainly talk, and I'm absolutely certain that they will be. Were in India last week talking about these sorts of trade deals. So yes, talking can happen, just not yet signing. Julian Jessa,

thank you so much. With capital David, I think we're going to be employed for the next few years, and are gonna employed bringing back all those biscuits for Rachel's like the New York magazine. Thanks to Sylvia for putting this out on Twitter. They're out, of course with a acclaimed New York cartoon. It shows the President elect in front of the Chief Justice. Mrs Trump is wearing mink and will do the best of my ability, which is

terrific ability. By the way, everyone agrees I have fantastic ability, so there's no problem with my ability. Believe me. For the oath of office the New Yorker editorializing, perhaps with a cartoon to keep things light. Thanks for listening to the Bloomberg Surveillance podcast. Subscribe and listen to interviews on iTunes, SoundCloud, or whichever podcast platform you prefer. I'm out on Twitter

at Tom Keene. David Gura is at David Gura. Before the podcast, you can always catch us worldwide on Bloomberg Radio. Who you put your trust in matters. Investors have put their trust and independent registered investment advisors to the tune four trillion dollars. Why learn more and find your independent advisor dot com