Surveillance: Pound Must Have Upside From Lows, Barth Says

of course on the Bloomberg. This is a joy. David Gura and Tom Keene in our radio studios. I'm Finsbury Square, north of the city. We're sort of on the edge of the city and tomorrow we're gonna go take a tour of our new office. We'll put on the hard hats, boots, look at those screwts addresses allowed. Yeah, it's very st it's like a whole strict thing about like taking a tour of it. But it's really coming together. We hope

within the year to be the largest stone building in London. Well, I don't tell Parliament, you know it's gonna be good. Near Mansion House in the heart of the city, near the look for Twitter phos. Why don't you bring in our good guests. Who's dark in the door of mansion house? Any number? Very good? Mr Marvin barth here, a head of European f ex Strategy Barclays, joins this here in

our studios in London. As Tom mentioned, and Marvin, let me ask you just first of all, we're seeing a lot of anxiety play out here in the currency markets. Why is this the venue for it? Why why are we seeing so much anxiety and currencies right now? Well, I think it's one of the UH markets that touches every other market, is the key point. In fact, generally the way we look at currencies is it is the market that clears all other markets, trading goods and services,

trading financial services, whether it's UH equities, bonds, whichever. So it's one of the first ones that reacts um to economic news from the trade side. But also financial flows clearly are the biggest driver UH and so that you can have much more significant reactions there. And then the final reason is is that frankly, it's the most liquid market out there, so it's the easiest one for people to express and hedge themselves. Tom has been playing a

lepidopter is stall week talking about butterflies. Since we got here talking about emerging markets. Let me ask you how what we're seeing in Turkey this morning with with the Turkish lira we had the central bank they're intervening. What has caused that dramatic shift in the lira over these

last few days. Well, it's a it's a continuation of the political uncertainty uh there, and how the government is going to look at the banking system and their um dollar loans and deposits, by the way, they have both um what onshore rents and start going to do with those, uh. And the continued political uncertainty as we go into the

referendum which will probably take place uh in April. So all of those things have been sort of percolating for a while here, and this is just a further extension that, particularly as we come into the central bank meeting later this month. How does a strategist like you, how does an investor incurrencies react to intervention like the kind we saw today? Does it does it cheer you to see it?

Does it raise more concerns than it delays? Well, you know, I have a unique experience and I used to work in the Federal Reserve um in the form of exchange the global market section. And so I used to see intervention as it was happening. All the central banks would report to each other. And so I remember back in you know, the early two thousand's, watching Japan jump or dump several billion dollars at a time into the market

and watch it just dissipate and evaporate like nothing. And so one of the things I've come away with is that foreign exchange intervention, unless it's accompanied by a real shift in policy, just doesn't work, or you're at extremes. And I don't think you can claim that either of those in the case with Turkey right now. I mean the headline on Turkey, folks, and this goes to the cash spent. I'm going to use a working number that I may be wrong on, but I think it was

six billion uh used by Mexico to support Paso. You're a few days ago and the headline is there Turkeys urdam sites operation to rapidly depreciate lira. What I that's lost in translation for me, David Marvin, help me, what what the hell does that headline mean? I think your guesses is actually, I'm sure it's accurate. I don't I don't you know, I don't mean to. I just you know, you see the headlines come across the Bloomberg and you say, what Turkish lee or a weaker right now three seventy seven.

But um, you know it's not blowing out to a weaker Turkish lear right now. As you say there's unilateral depreciation or management of a currency, I should say, and the textbook says it just never never, never works. Who's the elephant in the room for Turkey or Malaysia or the others right now? Is it the I M F

Or is it the United States? Well? I think in many of those cases, it's actually their own citizens, right um, particularly in the case of Turkey, when you think about how much um uh Turkish citizens typically keep uh in dollar accounts. And you know, one of the interesting things about Turkey in the sort of post crisis period relative to the pre crisis period is you know, you remember the old days when the Turkish lyricist went one direction umu,

when it even had a different currency code. Um. Those in those days, when you had anything like this, the locals would immediately shift all their lira into dollars today. What you're seeing, or what you have seen in the post crisis period is they've shown greater confidence in their own policymakers and actually when the lira um dips down to low levels like this, they've come back and bought.

But that is the real question right now, that's the elephant in the room here, is in this incredible political uncertainty? Is that going to continue to happen? Thank you so much. Great to see it with Barclay's giving us perspective today on foreign exchange, Let's talk to Paul mort and more Lee now he's chief of commis bnp PA about joining us at by phone at Paul Morn would lead great to speak with you here this morning, joining us here,

Thanks very much for your time today. Let's pick up from what we're talking about a few moments where we're talking about trade. Boris Johnson, the Foreign Secretary of visiting the US UH, some senators talking about the relationship between the U S and the UK. Let's talk about US trade policy first year. How big a weight is that as you forecast out growth in the US going forward. Oh, we don't really know what's going to happen with trade policy.

I think that's that there's a major uncertainty about whether we will see very big moves or whether we'll see a more piecemeal, piecemeal approach. I think what we probably will see some really negotiation of some trade deal and therefore probably not a big surgey in protection is m but I think it's a worry and very probably it's dampening investment in some parts of the world in emerging markets who were thinking about are they going to have

problems exporting to the US in the future. And I think it is an uncertainty that will weigh somewhat on business. If we were to see major protectionist moves by the US, then we'd have to revise down our US growth forecast, and we'd have to revise up our inflation forecast in the US because clearly, if we're sourcing it currently from outside the US, and we source it, that's because it's cheaper, and so if there is protectionism, inflation is going to go up, and that will add to the risk that

the fens titans policy more than it's currently planning. Now, what's your growth forecast right now? Well, you know, we we think we think growth is going to be pretty strong this year, we're going to be up around two and a half two and a half market, and it depends on how much we get a fiscal boost that

will more probably affect two thousand and eighteen. What we are seeing at the moment, and we saw this this morning with the National Federation of Independent Business Optimism Index, which surged for the most We're seeing a huge surgery and optimism in businesses and in consumers. What's not clear is how much that's going to s spilled through to

spend hother in capex or in consumer spending. The consumer credit numbers this morning we're pretty strong, So there seems to be some evidence, and so I think there's definitely a possibility that we may be surprised on the upside by US growth, particularly in the first half of the year. Tam Keene and David David Palm momerately with US chief economist at BNP at pair about what we're talking about

trade economic growth in the US. You were mentioning emerging markets, and I wonder which are the ones that you see most likely to sort of feel pain going forward here. I just feel what to feel fling from trade or just yes, from from trade in particular from in particular, you're gont worry about China and therefore Southeast Asia. I mean it's you know, basically, commodity exporters should be fine,

right because they're complementary to US production. It's people who were producing competing with US style production that need to be worried. And I think particularly those who got big trade surpass, like China. And I think that's where the concern is. Because so much of the US empathy is with China. It's got to be a focus, and therefore all the economies that supply China in the regional linked to China have got reason to be concerned where we're going.

I think when when you look at what this administration to pursue, it's been a pretty strong strong dollar policy here over the last eight years. Do we have indications here that a president Donald Trump is going to pursue the same strong dollar policy. No one. I'm not convinced he will, because to some extent, the stronger the dollar, the more it's going to work against these um the impetus to boost manufacturing in the US. And so I think that I think that is a concern. I mean,

that might be one of the things. Why we've seen Southern Federal Reserve officials talking about moving the ball because the exchange rate seems much more sensitive to short term interest rates than to long term rates. So tightening of monetary policy switches a little away from raising spot rates but redging the FED funtons and towards running off the balance sheet. That could allow the Fed to tighten but not damage the exchange rate and therefore manufacturing. You Oh,

go ahead, please, They didn't mean to interrupt. Excuse me, No, I was going to say, you know that. I mean I think there are a number of other things but could push the exchange rate higher. You know, the cash based um cash flow based corporate tax change could could push the dollar higher. We could see some repatriation by corporates to the US that comes about push the dollar higher. So I think too strong dollar is a threat to

President Trum's ambitions to boost manufacturing. Definitely. You have a beautiful research headline which captures the emotion of so much of our listeners. Body yields burning down the house. There's an innate fear price down yield up not good for me? Are we going to burn down the house? I don't think we're going to burn down the house. But you know, we looked back at two thousand and thirteen when we had to taper tantrum and long bondul by other hundred

basis points. It definitely slows the housing market very, very sharply, and we've seen not not far off the same backup in bonduels, And the question is that going to hurt the housing market this time now? I think there are quite a lot of differences now between where we are and where we were in two thousands and thirteen. The unemployment rates three almost three percentage points lower for a start, but I think we will see something of a setback.

The lags back then. We're about six months, and I think we will see a slightly slower paced, probably more of the existing sales than new home sales. But I don't think it's a massive threat to the economy. Might not not point one maybe point two off growth as bond you go higher, but the consumer is not using mortgage finance in the same way as a decade ago to the fuel consumption, for example, and so I think the economy is going to be pretty resilient for the

higher bond you and the higher bond deals. The really a reflection of good news. Were expecting good news on the economy. What is back in thirteen it just like looked like the Fed was going to tighten without the good news coming. But this time the economy should be less sensitive. David, this is fascinating. I mean, you know, mortgage Jack, will you withdraw? Was a phrase of the ear in the moment. Shout at the young heart seas

at Goldman Sex was great work back then. But David, I just think this is a huge deal where it's a new world of rising rates. We just don't know, a new world of rising rates and and a big opportunity here for potential conflict. Imagine Palm Winimer Lee. If you have the Fed going forward raising rates at the same time as you have the Congress, expect the Congress here to pass a big fiscal stimulus and some tax reform.

How thorny is this going to be? How difficult is it going to be to navigate the economic landscape in Washington as you have these two institutions what a mile and a half apart from each other in Washington doing things they're sort of detrimental to each other. Why I think it's going to be very tricky. He's going to be very tricky in particular for the FED because I think, you know, the administration will say, look, you know, a lot of stimulus is not just the manse stimulus, supply stimulus.

And if you guys raise raised too quickly and stop this process, you're going to squeeze out supply. And therefore, I think the administration is going to be putting quite a lot of pressure on the FED not to overdo its tightening, but at the same time, the faise. I think that the key thing for the FED therefore will

be how inflation and costs, including wages evolved. Because strong demand, I think, because of the arguments from the Trump administrational supply, it makes quite difficult for the THREAD to snuff out demand. But if they see inflation move higher, that's a bit easier. And so I think the freds reaction functions changing and they're going to be more sensitive to inflation signals than than growth going forward, which is a kind of reverse

when we were in the past year. I think that we get minutes from the e CB this week on on Thursday, from its last meeting, and I think when when that happens I'm going to open it up and do control f for fine and typing the word taper to see if it appears. What do you are you going to be looking that? What are you going to be looking for those minutes far? I think you've come up with a big zero that I think that he's

not tapering, it's sailing back. I think the really disagreement. Yeah, yeah, I think there'd just be some There'll be some disagreement, clearly. I think I think the Halts probably wanted to have a shorter extension of the QWI, some of the Doves wanted a longer extension, and basically we did up with something of a compromise. I don't think they're very optimistic on growth. I think they think growth is pretty fragile.

And I think they're underlying picture on core inflation. Although headlines moving up, I don't think they have a big face in terms of core inflation shifting. But I think the message will continue to be to be dove it. I mean, I think they did a great job in tapering, and that they did taper, they did scale back, and yet the market interpreted it as very dumbish, which is a huge contract to what happened in two thousand and third, if you remember so, I believe I think they handled

it pretty skillfully. I have to leave it there. Palm order relief, thank you so much. With in New York is just a great set of opinions, and as usual David, it centers around the view of someone an economic growth and we haven't had that dovetailing of the housing market into into it before. Well the housing market there, but just basic g d P. There's two versus. Those were optimistic and of course that's what makes for the debate.

Absolutely brought you by Bank of America, Mary Lynch. Dedicated to bringing our clients insights and solutions to meet the challenges of a transforming world. That's the power of global connections, Mary Lynch, Pierce fennerin Smith Incorporated, Member s I p C. What been Charles Dumont Now he's the chairman in chief economist at Lambard Street Research, joining us here in this he wants join the spect of Enterprise phone line, Spectum

Enterprise Nationwide fiber based network and I T Infrastructure solutions. Charles, Great to speak with you again. Yeah, nice to talk to you, very good. Does your optimism persist here? We we we. We heard the comments from Theresa a Prime Minister over the weekend. Uh she feuding observations that the Brexit process is mudeled. What is your sense of of how it's going at this point? Well, I think it's certainly muddeled, but it was bound to be muddeled. I mean,

no one mainly plans for Brexit. It was the civil services completely side swiped by it, and and and now they're having to sort of get themselves together now. The other thing is that you can't really have a negotiation until the other side is in place. And the other side is not in place. I know the Commission is supposedly sitting there in Brussels with the negotiators sitting around waiting, but the decisions can't really get made until the French

elections happened and the German elections happened. So Mrs May is not going to sort of show her hand in any kind of detailed way or even specify what she's aiming for until she can get a sense from them of what's feasible. And what's feasible is going to depend very much on how the sort of people in France and Germany who were skeptical about free movement of labor

um do in these elections. So the whole thing is a whole whole sort of nexus of uncertainty, and people are just going to have to live with that for several months. I think. I just want to like something to your term that our colleague friends in Lockwood just sent this here. Dollar Mexico foundly with fresh all time low six to seven. Yeah, it was sudden and abrupt. I mentioned that out of Karen Moscow's data check, and we see that in the e M currencies. Let's rip

up the script. Charles Duma will usually talk G seven, G five, G one with you. Do you have a concern about erosion in currencies of emerging markets? Not really No, I think that the emerging market currencies have well. I mean too a year ago they got grossly oversold. A lot of these economies are doing quite are doing quite well. Um. The biggest issue for them clearly is what happens with

the Chinese. UM you on, because if that goes done a long way, then of course that therese competitive pressure and difficulties. Um. But we don't think that that is going to happen. Um. Starting from where we are now it is in the sort of a low six and nineties for the for the Ran dollar, and so I don't see any particular reason why the emerging markets should fill themselves under particularly heavy pressure. That's going to change

according to which one you're looking at. I mean, the main thing that emerging markets have in common is that therefore than us. The other thing that's important is to politics matter more than economics, or relatively more visibly economics than than in developed markets. But of course, as we're seeing nowadays, um, you've got rapidly increasing importance of politics

in the in Europe and in the United States. You talk about the Chinese currency, and I wonder sort of what your outlook is for it here in the year ahead. You think it's not gonna perhaps weekend as much as as as others would. What's your outlook for the the after you went this year for the for the Chinese? Yes, yeah, well, I think we're expecting it to go down a bit. But starting from where we are now, it's gone quite

a long way. And you're looking at a country where the you know, the ruling communist party is most of all naturally inclined to try to control things and they've particularly started to clamp down and try to control capital movements on on a big scale as you probably know, um and where, and they're going to want to preserve because the the sort of confidence and general feeling of good times at least through the Big Congress at the end of this year, which is the halfway mark for

the current leadership in its fire in his tenure, his tenure spelling power. The halfway mark is is this autumn so so on the whole we think that the Chinese currencies is going to go down, not up, but it's not going to go down big time. Charles Duma, thank you so much. Too short today with Lamber Street Research. Much to talk. I will come back with Charles Duma. Uh in the coming weeks on the Netherlands in the French election as Uh well, I guess it is a

passing of technological history. Mersa Mayor Alex Yahoo. Brian Weezer does detailed reports and usually in the back there's some form of discounted cash flow model. Brian Weezer joins us from Pivotal Research. Brian in an October note, you slotted in one, two, three, four or five, six, seven, eight nine lines with a couple of plug ins, and the mother law plugins is what Verizon is gonna pay for Yahoo? Is that the bombshell to come that Verizon is going to say, no, this is the new price. I think

that's entirely plausible. I mean it's it's difficult to know with any precision whatsoever. Um, we don't know how much a goal flexibility they have. Um, you know, but the thing from a Yahoo perspective and from a materiality perspective, it doesn't really matter very much. I mean, a billion here, a billion there. Of course, pretty soon we're talking real money. But um, for the purposes of how one looks at the stock still presently knows Yahoo. It's pretty irrelevant. Okay,

I'll go with that. And David, these numbers are important, David, I want want to jump in here. Weezer has the core business at three point eight billion, and the value of Japan is in the vicinity of six point eight billion. I mean that gives you an idea of the the stub you the Ali Baba group is a ginormous so what four seven? Yeah, by what happens to that company? You have this spinoff largely charged with caring for those shares of of Ali Baba and the Yahoo Japan holdings.

What's that company going to do? In other words, what would a director on that board be charged with doing here going forward? Good? Yeah, well, this is why it's been almost more surprising that anyone's been surprised or that there's been so much suppress about you know, the the AK filet yesterday. The future entity is all about tax optimization, and that's where the value is created. It's not about

operating anything. It's about UM being able to identify advisors and assess a different UH advice that they might provide in terms of different ways to structure the assets UM and involves a lot of waiting around. I think that's probably the best way to characterize it. UM anticipating you know, all the research that one could do around what tax policies will be I mean, which are obviously thrown up in greater flux. Now UM is probably some of the

most important work that anyone can theoretically do. UM. It's not it's it's not a company anymore. It's not operating business. I wonder sort of what the verdict is going to be here on Marissa Meyer. Remember hearing Mark Benny Off of salesforce on Bloomberg Television, really praising her as an executive and as a leader. I wonder what her future looks like once she is extricated from this company, where these companies, after this sale is complete, once the deal

is done, what happens to Marissa Meyer. That's a great question. Um, you know, I mean, I think there's a lot of people who try to be public company CEOs and it doesn't always work out. And uh, um, here was a situation where had someone elevated who wasn't particularly well prepared to run a large company. Um and um, you know that that that this person one will be very wealthy and able to do a lot of different things with

you know, her own or possibly other people's money. But um, it's hard to imagine, you know what, wall Street would not be supportive, I would say, Um, it's hard to imagine wall Street being supportive of her future public company. Um role Um. I don't think that they might have been support when this when she put into this world because there's something of a star or placed around her. Um. At the time, Um, and I don't know if you remember my notes at the time, I was just baffled

that they put her in the job. You've got a Star War two. Uh, Brian, Brian, this is outside your watch, but I'm gonna try it anyways because I think it's

something of interest to our listeners. Bloomberg Intelligence and John Butler, with their great work, have the eb dom margin the profit folks down the income statement, but before net income, it's fifty cents on the dollar for a T and T wire excuse me, Verizon Wireless forty seven cents on the dollar for a T and T. And the other two trail are the cell phone bills that we pay every month. Are they just basically organized theft of a monopoly or do appoly or twoperly? I mean, those are

stunning margins that Bloomberg Intelligence is calculating. Well, I'll of this out. You do need to be mindful of the capital expenditures. Uh. For starters, um knowing what the VADA of any given company is without knowing the CAPEX is, it's not a useful number, um. And in the capex intensive business. And this is true whether we're talking about the you know, m v p d s or the cable operators, or we're talking about wireless players infrastructure providers.

I mean how are we counting for the capital investment in in towers and all starts of equipment, UM subsidies that go into our UM handsets, etcetera. I don't cover the telco space, so I don't kind of pine uts to whether they're high or low relative to where they should be. But um, but no, it's not a particularly meaningful number by itself. Let's just ask you here, returning to Yahoo, UM, just sort of who will be on this board? I said, six members are leaving, none of

them that well known to me. Who's going to remain here? Uh? And then also just a question of attention to that, Uh, what's kind of due diligence? Is Verizon doing it this point? We've had these two big breaches. Where do these two big breaches? What is Verizon doing at this point? Yeah? Well, I actually I'm not particularly familiar with the board members either. UM. I mean we do have I believe the former CFO

of I sees there. But it really is optimally a board of of of financial UH and tax professionals, because ultimately that's the skill set, if you will, that's required to assess UM the direction of the corporate entity. So there's that UM, you know, to to rise in UM. You know, actually interestingly I should I should note that going back to your question on the BADA, I mean there's concerns around topline growth in general for telto's because

their legacy businesses of wireline phones is declining. UM that wireless services are not growing at a particularly to bus to pace if at all. UM, And I think there's been this view that that advertising can be a growth driver given the data that exists and which isn't really being monetized, so they degree that I think the terriers think it can be can can make the advertising more valuable. Now, to be clear, this is a very optimistic view, willfully optimistic.

One could even argue UM. Telcos around the world, from sin Tell to Telenor to Orange UM have all adhered to this strategy in one form or another, baby steps, mostly veries and arguably making the biggest steps with the push to buy first day well and technically the operating business of Yahoo. UM. Now, will they be able to negotiate some kind of price reduction? Probably how much hard to say, UM, But ultimately you know, will will they build a better business inside of a well than a

O L would have been on its own. I think almost certainly it doesn't necessarily change the broader narrative or necessarily reduce your phone bill. Okay, we have to believe it their prime Wiser. Thank you for the update, particularly there on who Mr Weezer is with Pivotal Research Group. 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. I'm Bloomberg Radio, brought you by Bank of America Mary Lynch. Dedicated to bringing our clients insights and solutions to meet the challenges of a transforming world. That's the power of global connections. Mary Lynch, Pierce Feeder and Smith Incorporated Member as I p C.