Surveillance: Stephen Stanley on the Part Time-ization of US

of course, on the Bloomberg. It says Bloomberg Surveillance on a Wednesday morning, the twelfth of October. Good morning to everyone around the world listening on Bloomberg Radio. I'm David Gurrow with Tom Keene in New York. Today the Federalserve releases minutes from its September meeting. We'll look for more detail on that seven to three decision not to raise rights and will continue to keep close eye on currencies. This morning, the pound strengthening from what was close to

a three decade low. UK Prime Minister Theresa May, signaling more of a willingness to work with Parliament on a plan for Brexit. As I mentioned, FED minutes out today at two pm in Washington, and Steven Stanley is going to be paying attention to that. He is AMers Pierrepont's chief Economy is kind enough to join us now in the studio in New York. And Stephen, let me just start by asking what you're gonna be looking for when those notes come out from the Ecoles building this afternoon.

What's the first thing you're gonna be looking for? Good morning? Well, I think the first thing I'm gonna be looking for is just how wide was the sentiment for a move? I mean, we know that three voters chose to dissent, but I think we also have a sense that there were others who wanted to move as well. So, um, just how close were they? You know? Vice Chair Fisher said it was a pretty close call, So I think how close was it? And how does that set up

for for a move in December. I'm sure you've been paying attention to what Eric Rosen, going to the Boston Fed, has been saying. Talk about the prominent role he's playing. Now is someone here advocating for a rate rye sooner rather than later? Sure? Well, I think the main significance of that is see someone that's traditionally been very dubbish um.

And the reasoning that he's using is one that I think resonates with more than a few of the people in the FED, which is that he's concerned that a long stretch of very easy monetary policy is leading to excessive asset prices, and in particular he's looking at commercial real estate and the effect that could have on the banking sector if in fact prices get a little too inflated and then start to head the other way. Sure, Yellen has had a great record of fostering and having

unanimity among the ranks at the f o MC. We're seeing that start to erode a little bit. How much of it concern do you think that is to her in terms of just management of that committee. Well, I mean, you know, she is more devilish, I think than the consensus of the committee. So there's a tension there where she certainly wants to represent the committee and and to bring the committee along, but at the same time I think she feels very strongly in pursuing an easier monetary policy.

This just came across the screen David Gura, n Nate Lanson, the Royal Mail of the United Kingdom will not allow Samsung's Galaxy Notes seven smartphones to be returned to Samsung through its postal network. That is remarkable. Yeah, I read that Korean Air was not allowing them to be on their planes turned on. But I guess you put it on a ship, right. I don't mean to interrupt Steve Stanley from uh, did you just Steve Stanley help us here? Do you have a sallexy a Galaxy seven? Don't? And

if I did, I think you'd have to evacuate me. Right, ken fellow, do you have a Galaxy seven? We're open column of the twins? He has a Galaxy seven. If you had a Galaxy seven column, we're gonna let you go home. So there it is. Seriously, folks, that's an important note on the challenges. It's Samson. Has Steve Stanley helped me with the minutes? How do you read the minutes? I mean I've seen them several, some many a few.

How does a pro like you read Janet Yellin's minutes? Well, I think that those words that you mentioned are the ones that you do have to pay attention to because they are often um dueling perspectives. So you'll have a hawkish view and a dovish view, and you have to pay attention to how many you know, what those words

suggest about how many are in each camp. And I think what we've seen over most of this year is that the Hawks have been, um, you know, pushing for a move and but they've always been in the minority. And it feels to me like the balance of power on the committee, at least for the moment, has changed a little bit. And it's it's a it's a somewhat more um open to a hike. U. Certainly before the end of the year, you always learned something new. I mean I I look at them, look at how people

process them. It's looking at word count, it's looking for instance, of certain words. How much new or novel do you get in the minutes each time? Well, I think it's it's not the same every time. Sometimes the minutes aren't really all that helpful. Um. And then there are other times where there's a there's a paragraph about a conversation that you know, a topic was discussed extensively that you

may not have expected. UM. So I think there's the there's the little breadcrumbs that are dropped, you know, the explicit policy signals that are sent in the minutes. But I think there's also sometimes uh I as an economist, I get an insight into things that they're looking at on a broader scale rather than just what's going to happen at the next meeting. And how about what the non voting members say? How much credence do you give what they're saying at the meeting with what's recorded from

them in the minutes. Well, you know, you look at this committee as it's currently constituted, and the board is is very debbish in general. And also over the years we've gotten to a point where the board basically governors just aren't going to dissent, right, So the chair basically has the votes to get whatever she wants done. There is this inner orbit in the outer order, the order

the banks, right. So then the non voters, I think as a rule, are typically more hawkish than the norm or the or the enter of the committee because the center is so dubbish. Um. So again it's a question of are they frustrated because they know they're not going to get what they want? Are they eager to move and and and feel like we're moving in the right direction, and they just like like to go a little more, or they just feel like they're just totally butting their

heads up against the wall. And you do get a little bit of a sense of that sometimes In a minute. I just did on the dots chart, folks, I may do this on television tomorrow and I'll send it out on Bloomberg Radio. Plus a linear regression of a dots chart translated, we get to two percent FED funds target in about February of two thousand eighteen. That seems almost preposterous. Where do those dots migrate too? Well, I think the

question really is about inflation going forward. We've had a we've had an economy where the labor market has improved a lot, but inflation is kind of stubbornly held below two percent. So uh, I think things change a little bit as we move into two thousand and seventeen, because I think we're going to start to see those inflation numbers get very close to two percent and by the end of this year, and probably move above it next year. So that would be the case for something like the dots.

And as you say, the market doesn't expect that at all, but do the market doesn't expect it even though there is language from adults like Stan Fisher of an overshoot. So we get near two percent, that's a big So what the chair yell and, isn't it? I think so. I think they'd be very happy to see inflation a few ticks above two percent. The question is, really, um, that's not a problem if you're fairly close to a

neutral policy. But if you're very far away from that, um and, and you're and you're not moving closer at a at a decent pace, when inflation is already above your target, then I think I think it becomes a problem. There is a quote from torstens Lock in a Bloomberg News piece this morning, talking about the whites of their eyes when it comes to inflation. He begs the question, what what does that mean in this day and age?

Is at one point seven? Is it too? How do you define the term what's their eyes when it comes to to inflation? Well? I think it's it's got to be two percent. I mean, the Fed is is even now we've on the core pc deflator, which is their preferred measure. Of course, that we've moved on a year over your basis from one three to one seven, and the year to date pace is very close to two percent.

And yet you know, you've got prominent people in the committee who are still talking about that it's a problem that inflation is too low. Why are they saying that if you and I see the same vectors, higher vectors don't matter anymore. Well, it's interesting. You know. Charlie Evans was out over the over the long weekend, and his view is simply, he's just skeptical. You know, we've spent so long below two percent. He's concerned about inflation expectations

having moved down. I don't necessarily agree with him about that, but I think he's just skeptical that we're gonna make it to two percent. So there's just disagreement about where we're headed very quickly. Here, one of the things I've noticed, David, I don't know if you've noticed this in Brooklyn, but the basic idea is, all of a sudden, businesses are having trouble keeping people and retaining people. Are I looked at the Jolts Survey, Michael McKee's favorite series. I'm sorry

I got a jolt out of it. It's it's above the last peak of like seven years ago, isn't it absolutely, the labor markets getting tight, and there's Mr the brilliant Mr Evans of Carnegie Mellon in Chicago, the land of the Chicago Cubs. Does he know that? Well? I think again that's where the kind of the hawk ish and the dovish predilections come in. I'm I tend to be more of a hawk. He's certainly very dubbish. And I think where I see the glass half full, he sometimes

sees the glass half empty. So he's looking at things like low labor force participation and elevated you six, and he's saying, hey, there's still some slash here, Michael Barr. Should we have a drinking game that whenever a guest comes in and says glass half full, glass empty, we take a shot half empty. We can just have the drinking. It's just amazing. Glass half That was Steve. That was just outstanding. Next, we're gonna do the Truman one hand

in this pocket, one hand in that pocket. A lot, it's more said to the great song of that David gurn Tom King. We're here with Stephen Stanley of Amir's pier Pond to remind you he was brilliant on a more subdued g DP call than consensus a year at a half or so uh ago, let's expand. I love the phrase proxy productivity. It's something you and Bob since you talk about it, the Amir's pierpont help us with productivity. And I love this idea of the demographic dynamics and

proxy productivity. What is that? Well, you know, I think what we're saying is obviously and this is not just in the US, but all around the world, we're saying low, very low productivity in this cycle, and so um if you look at the implications of that, as it has really important implications for GDP uh potential GDP growth, as the San Francisco FED put out a piece yesterday saying that potential GDP growth maybe one and a half to

one and three quarters. I think that's really important. Is something that I've been talking about for a long time. I think the other piece of that that that maybe people haven't caught onto quite yet, is the implications of productivity for wage growth, because people are still even at the FED, are still saying, well, we got to get back to three percent wage growth because that's what we

had in the last cycle. Well, if productivity slower businesses are not going to pay workers for productivity that doesn't exist and beautifully framed. And the idea here, and this is so important, folks, is how things mesh in. If I get a stronger dollar, if we go to the top of the recent range, or if I even breaks through that, is that an implied austerity for Janet yelling? And is that is something that diminishes growth and diminishes our ability to get productivity up. Does a dollar play

into it even if it's a little bit right? Well, I think where yes, it definitely is a dragged growth and it's also a a negative factor for inflation. And I think that was the bigger issue for the Fed in that fourteen fifteen period when the dollar strengthened so much, is that it helped to hold down inflation at a

time when they were hoping to get it up. I'm gonna try to get you to be prescriptive here, So you know, with this, with this negative time, with the US UH wage growth, real wage growth slowing UH and your forecast continuing to slow, what's gonna kickstart that? What's going to change things? Do you think? Well? I think on the wage side will probably be okay, because the labor market is tight, right, so if firms want to

hire workers, they're gonna have to pay more. And we're seeing more and more anecdotal evidence of that, and we've started to see some movement on the on the wage statistics average generally earning z C I whatnot. So I think that that real wage growth will be okay as long as inflation is only gradually moving higher um. And as a result, I think the consumers should be in pretty good shape here for the foreseeable future as well.

Why are demographics something more people aren't talking about. We talked about in the context of Japan, we talked about in the context of many other economies, but it isn't something that we talked about that much here in the US, probably because it moves very slow, um, which is actually good for someone like myself who's trying to forecast things, because demographics is one thing I can forecast pretty well. Um.

It's good for me because I'm never going to return. Um. Steve Stanley, how do you respond to very good charts and evidence? And I think of the Zero Edge team that have been great on this of part time full time America, and I get it. In some job categories, there is wage growth and there's a tightness of the labor market, but that doesn't speak to the part timization of the United States of America. Do you think that's just wrong analysis or can you say there's two Americas

and one of them is a part time America. Well, I think there's no question and that um that we're gonna see more part time jobs. Uh. And this is not a cyclical issue. This is a structural issue. And and I've kind of argued against the view coming out of chair Yelling and others at the FED that a lot of the you know that there's a lot of slack in the labor market, as demonstrated by higher part

time involuntary part timers, or by the U six unemployment rate. UM. I think a lot of that is structural, and I think it reflects a couple of things. One is that the economy itself, the structure the economy has changed. If you look at the sectors of the economy where we've seen job growth in this cycle, retail, restaurants, temp workers, a lot of places where zero hudges just kills us after the job's day. Zero hudge does like four or

five charts on this. I mean, come on, they're not hamburger flippers, but they're not the jobs that give us an aspiration do that. Yeah? Well, I will say I think over the last year or two we have seen a little more broad based UM job growth. Certainly early in the expansion, I think that was the case. Um. But but the point, my point would be that you can't look at the U six rate and say, oh, well, this is higher than it was in the in the you know, ten years ago, and conclude from that that

there's more cyclical slack. I think that's a structural change in our economy. What about this new group of workers that Alan Kruegery Princeton talks about, those who elect to do contract work or part time work through Uber, through other on demand services like that, Yeah, the gig it. Yeah, well, I think it's it's great for folks who are looking

for more flexibility. Um. You know, if it's the only thing you can find and you'd like to have a forty hour week, full time job, then obviously that's that's an issue. UM. But I think for a lot of folks, they would like to be able to move in and out of of of employment at their leisure to work whatever hours they'd like to work. And so for folks like that, it's a it's a great opportunity. I'm skeptical. To me, it's a lot of people forced into the gig.

I hate the phrase the gig economy, John Tucker, is that what we're doing? Are we part of the gig economy? You've always been part of the gig. It's just a great gig. Steven Sally, brilliant. Thank you so much for Amerson. Go out there with Bob. Send your gig through the gig economy, the gig job economy of Amberson. This has been fabulous, without any uh delay. Craig Moffatt joins us from moffat day. Craig, I'm watching Bob Costas kill it on MLB on cable, and one day they had Spanish

Baseball on MLB channel. I couldn't find where the other games are because they're spread out all over. It just seems almost like sports chaos in your cable world. Where are we going to be in five years if I want to watch Red Sox Cubs World Series? Well, hey, good morning time you know that. Look, there's a lot of talk about uh exclusivity for sports and things like that. UM. And and obviously there's been a lot of talk about

key sports leagues and games moving to online media. My best guests and um, and this is really more my partner Michael's Baileywick than mine. But our best guess is that, um, you're gonna see things stay the same more than they change. That sports are so central to the value proposition of live television and the cable package. They represent only about of viewers I say only, um is an enormous number

about of viewing points. Um. But in key demos, Fox just said last week what was it of their viewership or something was? Live sports and live sports are so central to the value proposition that uh, that the traditional media companies are going to continue to pay up and keep them in the traditional venues for a while longer. Well, the number one question I get cred I want David Gore to jump in here, is Apple TVs trying so

hard it ain't working. Mr Moffatt, I can tell you that from actual use, does Apple TV have any chance to be part of live sports? Well, I guess the the The obvious retort would be, are they really trying that hard? Um? I mean they're certainly trying hard to make Apple TV compelling device, but they haven't really tried all that hard to make it a compelling service. For all the talk of of Steve jobs Um having this deathbed revelation about how to crack the code for television, Um,

not much has happened on the Apple front um. They spent a lot of time trying to create a video bundle that they thought would be compelling and for intensive purposes. They dropped the exercise, whether it was over the lack of broadcast television or whatever it was. They don't seem to be presuing it anymore, David, So you understand, Craig Moffat is single handedly been trying to fix a lousy Apple remote control of Apple TV has failed. So forth,

Mr Gura jumping yeah, Craig. You talk about the importance of live sports right now to these broadcasters, and I wonder how you react to what we've seen when it comes to professional football in particular, over these last few weeks, viewership has been diminished, advertisers not getting the bang for their buck that they wanted. How much of a warning

sign is that about the importance of live sports? You know, it's a great question, David and and um my partner Michael just yesterday published a report, the conclusion of which was the jury still out that it's been a funny start to the season for the NFL in in that you've had a combination of very high profile injury UM those injuries in turn and suspensions obviously with Tom Brady, the loss of to retirement of Peyton Manning, and that

combination of things made it difficult for schedulers to put the best games on television because they didn't know which teams were actually going to be interesting. You know, it turned out that injuries really changed which teams were going to capture the imagination. And then add to that the presidential debates that have come on one Sunday night and one Monday night, UM that have taken huge ratings, and it's hard to say whether there's something really endemic going

on here. If this continues and we see for the balance of this season or certainly in the beginning of next season, UM that ratings aren't coming back, then there really is a reason to panic because football is the lynch pin. It's not just sports in general. It is football and one league against the NFL and if the NFL does crack, it's a huge problem. But I think it's two early to say that it really is. Let

me ask you about Twitter's ten million dollar bed. I put down my moff at Nathan's notes the other night, pick up the phone. They're on Twitter is an NFL game. This was characterized as an experiment, but I must say clarity of the game easy to watch. There is the conversation going on beneath to take it or leave it? But how successful has this been for Twitter? And is it more than experiment? Is the experiment paying off? Is

that's something we're going to see more of? Well, it certainly isn't paying off financially, although you can't really judge it based on a single game. But it was a Jets Bills game. The viewership was middling at best, I suppose, and you're right. While technologically it worked reasonably well, and I say worked reasonably well, that you had a good picture and what have you, it operated with a fairly significant delay, and the delay got longer and longer as

the game continued, um which created some jarring moments. Right, I mean, at the beginning of the game, you were about forty twonds delayed, and so part of the point of the exercise was to run tweets alongside the game. The tweets were forty seconds into the future versus what you were watching, and by the end of the game they were you might be hearing tweets about or seeing tweets about the next possession by the other team while

you're watching UM Drive. So I would say it was a roughly a success but um but certainly not a resounding one. And they didn't come close to making money on it, you know, they it was a tiny, tiny pool of viewers compared to what you would need for advertising revenue. You've written a lot about the transition from wired to wireless, the that will no longer use those

terms in the pretty near term. Here we're gonna be talking about the network and we're not gonna be making the distinction between the two of those things that as big cable operators get into the to the wireless space, how far out are we from that happening? You know, we're not as far away as you might think. Um. If you think about where the world is going with five G wireless, which is the next generation of wireless, when do we see that another upgrade. Yeah, that's right,

another upgrade. The technology UM is going to start to appear, at least in fixed applications, meaning you won't be able to use it on your handset, but you'll be able to use it for wireless broadband for your home. UM probably as early as en Morison seems to be the most aggressive in doing it. Yeah, I'm just trying to get my new iPhone seven in the mail, you know, started interrupt. No, look, it's so here. Here's here's what's

going to happen. Right. In order to support those new five G networks, you have to push wires deeper and deeper and deeper into neighborhoods because the nature of the of the new technologies is smaller and smaller cell sites that each of which sir of fewer and fewer people, in order to support higher and higher capacity. The problem is, as you do that, you become more and more like a wired network and less and less like a wireless network.

You know, if the old adage is that any wireless network is wires and ten percent wireless, well, in the future wireless networks are going to wires and five percent wireless, and if you take it to its logical conclusion UM, the ultimately competitive advantage in the wireless network comes from the most wires, and who has the most wires, it's actually the wired operators, say, it's the cable operators who

are best positioned for next generation wireless UM. At the same time, when you think about how you connect to your cable network today, you don't connect with a wire you connect with WiFi. Right you're watching on your iPad, you're watching on your or you're using your your wireless device in your home, your your iPhone UM. So these distinctions between network are going to go away. You're not going to say, in the future do I want wireless from the same company as I want my my TV from.

You're just gonna say, I have a network and I use it. Thrilled to have craigna craig, let me start in buy hoed cell. Verizon is in a state of flux. Is a dividends solid for I think Verizon's dividend is very solid, but the wireless business in general is going through a state of flux. And that's why you see Verizon UM trying new things, trying to to uh to change the business by buying first day oh well and

now buying Yahoo. They aren't big transactions for a company like Verizon, but they they I think point to the challenges of of operating in a wireless business that's just not growing anymore. And their business, their their dividend is a safe dividend. They have very good dividend coverage. But

it's a tough business that there is. I'm glad that you brought up that Yahoo deal, wondering in light of what Verizon has said here how it wants that one billion dollar reduction on what it said it would pay for you all. If you think that deal is a done deal, well, at first, I would say Verizon hasn'tformally confirmed UM that they're looking for that one billion dollar reduction that was reported, but Verizon has has not commented

formally on it. UM that said, I my sense is there's another issue here UM, separate and apart from the emails, and that is that the FCC UM has has said that they are going to impose privacy restrictions on i sp s like Verizon and cable operators and what have you, UM that are much stricter than the privacy restrictions that are used for companies like Google. And and edge providers as they're called. That difference is a really big difference,

including the difference of opt in versus opt out. If Verizon is subject to those much stricter privacy rules that limit how it can use the information that it has for selling average, then the whole strategy of advertising on the ad inventory of of Yahoo um is called into question is to can you really do what you wanted to do? If the FCC effectively says Yahoo is not going to be worth as much to a company that's an I s P as it would be to a

company that's not. Thank you. Thank you for pointing out to you that was the New York Post that reported about that one billion dollar reduction. Will see how Verizon responds to that. Let let me ask you about something I put to Tim Armstrong when I was at the Island Company conference a few months ago in Idaho. So many of these companies getting into content now investing large

sums of money and creating their own content. Tom kicking things off a few minutes ago saying how difficult it is to find the ball game giving given so much that's that's out there, Do you worry about saturation that there's too much content that there are companies here coming late to the party, spending a lot of money, and maybe some of that's going to get lost. Well, look, there's there's I think the fragmentation and amount of new

content is a problem. Are lots of reasons, um And you know, one of the unique things about the content business in general is try to think of another business where you don't just compete with all the other content that's being created today, you compete with all the content that's ever been created in history. Um. And the that creates a real deflationary issue for for the industry. And at first it was a real positive. It it meant that everybody could start mining their libraries and and selling

it to places like Netflix and what I do. But now suddenly that that temporal competition, I guess you would call it, is starting to be a real concern because it's it's hard for any piece of content to really break out today, um and certainly at anything like the levels we used to see. And you still get hits, but um, but it hit is now a couple of million viewers, not not tens of millions of viewers. Craig quickly, here, where is the best value in the land of Moffatt

or in the intent land of Nathanson. I have said for many, many years, every time you hear the phrase content is king go by distribution UM. And I think we're still in one of those cycles where where everybody loves the idea that there's going to be all these new distribution pathways and therefore it will drive up the value of content. UM. I suspect that, as it has been for the last twenty years, that the opposite is true. And remember, all of these supposed new distribution pathways are

not really distribution pathways, their new aggregators UM. And the aggregation layer isn't the core issue where the real value comes from is the physical layer of distribution where there are really scared assets. That's the cable pipe, to some extent, the wireless pipe. But there are just so many competitors and wireless or players that are hard for them to make money. UM. But the content players, as I said, are struggling with the fact that they've had a really

beautiful industry that it over earned. But it's hard to see how it keeps doing that at the same level. Craig never enough time. Thank you so much, Craig Moffatt with Moffatt Naked worldwide. This is Bloomberg. Who you put your trust in matters. Investors have put their trust in independent registered investment advisors to the tune of four trillion dollars. Why they see their role is to serve, not sell.

That's why Charles Schwab is committed to the success of over seven thousand independent financial advisors who passionately dedicate themselves to helping people achieve their financial goals. Learn more and find your independent advisor dot com accel work. We get a ton of mail on he is not so much an Austrian manager looking at Austrian economics. That would be

an unfair uh agorization. But nevertheless he's someone that really questions, UM, a lot of the modern economics wrapped around the US dollar is with MRK Investments and actually want to congratulate you. You've got a long short currency fund, the MURK Absolute Return Fund, which has had a spectacular two thousand sixteen, challenging performance over the years. Why is why is that portfolio done so well over the last eight months. Well,

it's great to be with you. When I am talking to you, I always talked talked about that reification and whatnot and and a long short strategy and in our case we do it with long short currencies. Provides the opportunity to really provide on coal it returns, which on a day like yesterday for example, might be quite valuable. And they specifically, um many long short strategies have struggled

when the markets were boring and volatility is low. When there's dispersion of risk, that sort of strategy does well. And if you've been eve that volatility is bound to rise at some point um and that's going to hurt risk gasses. In general, you want to be in something like that. And obviously we we love that Strategy's just this one oddball thing. And this is what's great about talking to excel work David is is he's the king

of oddball pieces. You have a Swedish regional two coupon KO M I N S piece that makes up a big chunk of that portfolio. Like probably it matures tomorrow. Give us a leg up. What are you gonna do with all that money? Goodness? You are gonna ask me about regulatory intricacies. I mean, the the after Ton currency

strategy is one where we go long short currencies. And what happens in those sort of strategies is we are by regulation required to invest in underlying securities such as a Swedish short term security, and this happens to be a concentrated position, but ultimately one uses forward currency contracts to be very partically Indeed, this this fund getting rebounce on a daily basis, and and so yes we hold the fixed income security. In the long run, we we

generate income from those things. But that's really only because we have this online cash. I mean, one of the beauties about the the the currency spaces that you can use forward contracts to be very agile and and and so. But at the end of the day, because it's a muture funstructure, we've got to do something with the cash, and the regulators don't want to stroll t bills, so we do go out and buy those sort of securities.

Is that okay, David, Inside people drove off the road, including me right now, let me let me get your react to what we saw out of London. This warning the UK Prime Minister here indicating a willingness to work with the Parliament. We saw movement in sterling on on the heels of that, take us, Take us through what you're thinking in light of what she had to say to that. I am shocked that she's going to work

with Parliament. I mean, it's a we have a currency that's been pounded and now the market was looking for an excuse to to let it bounce back a little bit. Of course you have to consult with Parliament, but none of that changes, of course what's ahead. It doesn't change that things are going to be difficult. And the ultimate reason why the sterling, in my view, is going to continue to weaken in the medium term independent what's gonna going to be doing today is that the the these

structural issues aren't being fixed. Um, they have a serious issue with the budget. They're gonna be spending more money, they're gonna have an inflation issue because they're going to kick out the phone workers. They they're gonna be having a weaker currency. They're gonna have all kinds of challenges and and we just don't have a good plan of how it's gonna embrace those sort of things. And and yes they'll chat with with Parliament, and maybe they're going

to soften some things. I mean, the same thing always happens you you put up a tough stance, they're going to soften, um and and and the the UK is going to continue. But it doesn't mean everything is going to be great in the UK. And I see them slipping down the slope like Italy used to have um where they're going to have big deficits and gonna finance them with a with a weaker currency. Is the word party crossing axel marks lips I. I was quoted on that.

I think during the breaks of talk that that might be might be getting there that set. Of course, the moment I say it, the sterling is probably going to reach the bottom for a few months um and so so to me, the risk of parody is certainly they are um am I betting on parody in the coming weeks and months, No um and so to me, the

sterling is structurally weak. If we're gonna look for a place in the world where where we're going to have a challenge that the central banks are not going to be able to keep control on the markets, the UK may well be a candidate because the markets are just much smaller. The UK continues to ride on its imperialistic vision that there are some grand nation and and can manage all of this, and the markets are showing them that no, you guys are a just yet another country

and you're going to be subject to market forces. And that's something that the UK will have to get used over time. We've been focusing on sterling here, but let me ask you about the rand force. The news yesterday that the Finance minister is going to be charged with fraud, the the background, the backdrop of political instability there gets larger. Yeah, well, I mean the difference between South Africa and the UK

is everybody expects South Africa every week. Everybody has been looking at this from kind from far away here anyway and saying, oh, it's it's really sad, how kind of the structurally South Africa is not getting his act together. And and yes year today the round is actually up, but only because it was so extremely weak at the end of last year. It's just that South Africa has a lot of homework cut out for itself and unfortunately things are not always going in the right direction. And

that's what you're see reflected in the week around. Yeah, excell, let me frame currencies as we come back to you in our next section. What you're calling euro right now. I've noticed all week not only Sterling worker but euro one tense sixteen. Where do you put the euro year out? Oh I love the euro UM and I think that's an overstatement. But but the UM I happen to think that this this, this, this idea in that we're going

to go through the status fee on interest rates. And that's why the NOMA has to be so strong, just as in recent years it was completely overblown. I think we actually close at the top of the interest rates cycle in the US and close at the bottom and Eurozone.

And the reason I say that is because in the Eurozone UM there is just no good way to continue to ease, Whereas in the US, yes, we're going to high rates, but nominal rates are going up, whereas real rates meaning net of inflation, raising rates at is going to get real rates of one explainer. Within interest rates and within g d P, you've got the actual growth of the underlying rate, and then you've got the inflation

overlay on top of that. David Gurrl bringing Axel Murk as we talk about the idea, if we get a burgeoning inflation, do you get real growth with that or not? I gotta just let Axel respond to that as John Tucker pumps his fist with excitement at that second quick take. I don't think people. People get real and nominal and then actually you have to explain that act. Yes, well, I mean we live in this world where we supposedly

don't have any inflation. If you if you look at the the core c core inflation indicator that the FED looks at, I mean, anytime there's inflation popping up, but it has substitution effects. So you're not going to see inflation in the kind of the things that Fed looks at until it really steals you in the face. But if you look at the labor market, the inflation precures are seeping through the system. Now, um, ultimately the FED

wants to have inflation. I think you had felts find on the Hobbit professor who has said the FED wants to be behind the curve. I I couldn't agree more. I mean, um, BERNANKI used to phrase it that when you're faced with the credit bust, you want to be late in in in raising rates. The worst thing you can do is hike race early. No, I don't agree with much of what the FED does, but the fed clearly, UM,

in my view, wants to be behind the curve. UM. I just chat with somebody who says, oh, I think inflation that is going to go up about five basis points at quarter. I think inflation is going to go up more than that. And if you now hike interest rates by your point to a year, you're going to be behind the curve. And so all this hoopla about tightening, we don't have tightening. We have tightening because of library is growing up. That's where we have tightening. But the

FETE doesn't do tightening these days. UM going up at twenty five basis point in December. If we do it, UM is not going to make the world much tide up. But there will be days in the market where the dollar surges and the media is gonna write, oh my god, the feed is going to high grate. We've had that so many times over recent years. Ultimately, the FETE and my view, cannot hike real interest rates because they have inflated air surprises so much and based the recovery on that.

UM I once chatted with a form of FT president who who told me that the only time the feed would be concerned about deflating assetprises if if they created a bubble, and then he pauses, and you can make your interpretation whether they've created an asset bubble or not. Actually, you've written a lot about dollar dominance. I'm looking at the u N. It's been weak getting weaker here. We've

seen the government, Chinese government allowing that to happen. Seemingly a few weeks back, the un was welcomed into the i m F Special Drawing Rights basket. There are people here who are uh flagging the the end of dollar dominance. That's something that you've written about yourself. Give us, give

us your sense of where things are headed. I know you've been looking at a new rule, a money markets rule that's supposed to go into effect on on Friday, and the fact that maybe having yes, well, the SDR changes I think are mostly symbolic. Very few nations, none, none that are relevant really managed to reserve based on SDR.

So that's really a symbolic move. Much more relevant is what what you're alluding to, these money market fund changes for institution money market funds that are are coming into effect at the end of the week. Now that said money market funds have been getting ready for that. And basically, if you go back to eleven, for example, half the prime money market fund positions were in commercial papers issued

by European banks UM. So there was one firm that we found that had three quarters of its paper that UM and just just indication that US money market funds are a major source of funding for everybody, UM be that US corporate unity, US municipal but also European banks,

point sovereigns. And now what's happening is that US money market funds are encouraged or discouraged from holding that sort of paper holding more government paper holdings in institution, money market funds have been have been plunging, and that means that there's going to be less funding available. We see that now in the in the cost of funding going up for European banks, and what that means is the

US is a less attractive place to get funding. And over time that's going to make the US currency less of a riginal currency because they've had this implicit guaranteed that was assumed that money market funds are safe, and that's no longer the case. Your critics, with respects say it's a great theory, but we're waiting. When do we begin to see the exorbitant privilege slip away of the US dollar. What's a gradual process. It's it's like a frog in a boiling pot. I mean you see starting

is that fraud trade weighted sterling? The f TV day working off Bank of England has sterling at a hundred and sixty eight year low. Is that an example? What? What? Now? The example is the US corporates issuing you already nominated debt for example. Um, the Euro is becoming a real competitor with all the trouble in the Eurozone. And I certainly don't dismiss those sort of issues that they have,

but the Euro has become a funding currency. And that's not just for traders, UM, it is a real funding currency. US business is funding itself in the Euro these days. There will be more Euro based funding. And that's the sort of competition that is going to get. That's the sterling. They have a bunch of issues obviously, um. And if anything that the sterling has been on the long term decline is going to continue. But there's going to be more local funding. The prime competitor to the dollar is

going to be more local funding. We we hadn't tempted of that in the last decade. It didn't work as well as it could. I think the wake up call has been there again. Clearly it takes a little bit more than than than just a um that that just a decision to do local funding. But the us IS is obviously going to be relevant. But the there is a gradual path that funding is taking place more in local currency. And the key reason for that is that

there had been this implicit subsidy that you has. Money market funds were kind of this free piggybank for for everybody where they could get funding. That's no longer the case. So why would you do dollar funding if you don't have the this implicit advantage anymore. It's not a god given right, it's something that has to be earned, and it was kind of um subsidized with those money market funding works that happened in place Excel. Thank you so much,

Jackson Markets with this on currency. 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 World Why at Bloomberg Radio. Who you put your trust in matters. Investors have put their trust in independent registered investment advisors to

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