U.S. Is An Importer, Not Exporter, Sec. Ross Says

MPC at the Bank of England. Danny, your thoughts as we switched from seven to to six three at the b o E. Well that's really quite a surprise. So if you're Andy Haldane, you have to explain to me and to other connentators why last month and the month before you voted against a rate rise and since then the data of all worth, every piece of data that exists, has got worse. So the question simply is did you make a mistake then are you making a mistake now?

Of both um, the answer clearly is that the economy is flowing. Industrial production figures got a pretty bad no way it grows at all, Brexit them having a major impact on investment so I'm haven't had chance. That's obviously a decision has just can't. But this is completely astonishing. And how you to possibly vote for a rate wise in these circumstances seems to me to be a major puzzle. Um And I asked this question, and I'm happy for

anybody to call in and tell me. Tell me any data in the real world that actually sustains a claim that you should raise rates. There is none well, especially in the Indian Kingdom at the moment, Danniel. For our listeners that might not be familiar with the members of the Monetary Politicy Committee at the Bank of England, the two individuals that have been hiking or at least voting for great hike at the b O A Michael Saunders formerly of City Group, Ian McCafferty. These are the hawks

on the Bank of England. We expect those two to pop up. Andy Haldane is not just the chief economist, Danny, He's been the chief due what's going on there when he wandered he made a very strange, strange speech the other day which had really nothing to do with Monty policy. I mean, I'm finding it pretty hard to understand. I mean, especially because of the bank failures in its forecast, to

forecast wage growth, to forecast productivity. I'm trying to find where it says the reason that he voted for this rise, and I'm really afraid I'm struggling to see it. Um. Maybe maybe others can see, but I don't quite understand why he's changed his position. Um. I think it's a pretty embarrassing change because there's the question that everybody should

ask him. Blasfere would like to ask you a single question, what data in the world A has been there and B has changed since he voted against one a month ago, And the answer is there is none. Just to bring got to jump in. Danny gotta say good morning to my car anchor, Tom Kane. I'm good money to you, Tom. The Bank of England, the consensus is that they slow down in the first quarter is temporary. That it's temporary. David,

you've pushed against us to great criticism. The conservators love to go after you because you're doom and gloom and there's no economic growth for a spot spout. There wasn't even in the United States or substantial economic growth. But we are not seeing the blanche flower industry wages go up, and and I'm fascinated the United Kingdom, how you raise raids into flat or even negative real wages. Does that ever happen in monetary theory. No, So we've just kind

of studied on it. The real wages today in the UK are six and a half percent below what they were in two thousand and eight, and the study has been done showing this is the worst performance of real wages in two hundred ten years of which we have data. So so basically the I've just found the paragraph it's a wing and a prayer. Um, everything's really bad. But honestly, boss, honestly, honestly, honestly,

it's going to get better. It was erratic as due to the weather, it's due to who knows what sounds like, sounds like review, you know it's going to get better from ver erratic. Sorry, So let's make this a little bit more broader, Danny, that just seems to be willingness a month central bankers right now to get away from emergency policy settings. Let's be clear, they're at about fifty basis points at the Bank of England. The ECB is

a negative forty basis points. Quite clearly, we don't have an economic situation that warrants an emergency policy setting on a global basis, Danny, So what are they doing and what do you think has really made them maybe a little bit more nervous about the future. Well, I don't know. I'm I'm reading this through. They say, we're they don't think there are benefits of waiting for additional information. That seems I mean, I think the obvious argument is that

bankers want rates to be higher. They obviously realized that at some point they're they're going to need to cut them again. But this is this is this is the economics of making up things as you go along, and you raise rates and that's gonna because you worry about a recession. But by raising rates, you cause the recession. I mean that that's the reality. Um. I mean, if you if you look at what they said, there is

absolutely nothing in what they say. They say, honestly, it's all going to get better, And we don't believe anything in the real world. We just know that things are fine and we can raise rates. Well that's just gibberish. Nothing in the data whatsoever to sustain that. Quickly here, professor, we've got to move on to important topics. But what what is the catalyst for central banks to cave in given this difficult data? How do they how do they

get there and safe face? Well, obviously I think you're asking the wrong person. I mean, it has to be based on a forecast. It has to be that as unemployment moves to the lower everything in the past is going to generate for you wage growth and that's inflation. And you care about information, so you want to get your risk out here. Okay, first, but they've been saying that for the last ten years. We haven't seen any of that. It's complete misunderstanding of the labor market. Papers

says exactly that. So I just think this is you know, these people are just very pulsing because they've they're stuck in the nineties seventies. No, no, FIFA is stuck in the nine seventies. And now for our global audience, we go to the important topic of the game. Professor Blanche Flower, would you explain why Gareth Bale is not playing for the United Kingdom in the World Cup. I mean, Wales can't even score against the Republic of Ireland, they're thrown out.

Wouldn't England have a better chance against Germany and belgiumir in a couple of days if Gareth Bale was playing for them and not this this view of the nineties seventies of Wales or Scotland, the two Brits on this cool We'll find it extremely hard to explain why all four countries played together in the Olympics but in soccer they don't. So clearly having a bigger pool to pull from is better. But England ly speech tunis yet my

team ain't there, just like the America. I want to ask a really important question and it's going to give Tom a little bit of an insight to the competitive nature of the United Kingdom. Um does the Welsh Danny Blanche Flyer support England when they play Panama this weekend? Uh? Well, Cardig didn't. Do you hear the hesitation? Hesitations are? Do you hear that? You love how that works? The rest of the world thinks we're friends. This is not how it works. Are you really going to root for Panama

this weekend? Professor, No, I can't watch it. I just learned a lot. You know, folks, your work in here, and I'll tell you I just learned a lot about this disunited I'm so competitive, Professor Blanche Flower goal away, thank you so much. He's with Darkness College and ever John, I am learning so much about this idiocy. Isn't it ridiculous? Said Everyone outside the UK looks in and thinks it's

a United Kingdom. I mean, when it comes to sport, it couldn't be more at this united And am I right if he said correctly that in the Olympics you're all in it together, but not Yeah, team g B, team Great Britain. But when it comes to when it comes to football, Michael Barr didn't know this until like a week ago. Ferrell, that's like the Olympics for the US, We're all in until it comes to Vane just David Blanche Flower pause. He will not support English? Can we go?

Bloomberg headline, Flower, thank you. We need to draw your attention to Forbes magazine a number of days ago with a lengthy article on how Secretary of Commerce Wilbur Ross has trying to extricate himself from his investments as he joined the Trump administration. Now in conversation with our David Weston, here is Secretary Ross Bloomberg Television. As we talked with the man at the center of the United States trade policy. Secretary of Commerce Wilbur Ross coming to us today from

Select USA Investment Summit in Washington. Thank you very much, Mr Secretary for being with us, well, thank you for having me. H. We all have been focusing in part on what the central bankers have been saying over the ECB meetings in Europe, and I'm sure you have been as well. And j Pal, the Fed chair, actually talked yesterday about the extent to which he's seeing businesses really looking at the trade tensions, frictions, even perhaps incipient war.

Listen to what he had to say. I'm sure you know what it was, but listen to what he had to say. We have a very wide, wide range of context in the business world in the United States and around the world, and as we talk to them, uh, they continually and increasingly expressed concern over trade developments. Those concerns seem to be rising for the first time. We're hearing about decisions to postpone investment, postpone hiring so much a secondary You heard what he had to say. He

is seeing really postponement of decisions to invest. One of the things that's been a priority for this administration. Are you seeing that now? I'm here at select USA, which is our big annual foreign direct Investment conference. We have over three thousand delegates here from sixties six foreign countries, and they are all here because they're interested in increasing

their investment in the United States. And I believe over the next couple of days we will have some very big announcements to make about new transactions that these folks are entering into. So I don't think that that's true that there's some big change. I think the media have been very negative on the Trump administration. They pick out some little companies somewhere, then they say, oh, my goodness, uh, this guy is having troubles, and they extrapolate that into

the whole country. Okay, fair enough, Mr. Second, Let's take one that's not a little company. Let's take Daimler, which is a big company that this this morning said because of the issues with China, they're taking down their profitiment and that, as you probably know, the stock price went down and took the stock six sounded round with it and actually took SMP futures with that with it. That's not a small company, sir, No, it's not. But I

don't hear what we've done that hurt them. Well, what it is is the position in position by China of tariffs in response to what we've done on exporting SUVs from South Carolina to China, and that was in direct response to the actions we've taken, oh the Retalia and short. Well, naturally there's going to be some retaliation by the foreign company, but countries and they will try to pick out politically

sensitive areas to deal with. But at the end of the day, we are a net importer, not a net exporter. And that means a very fundamental truth. Take China, they sell us around a half a billion, half a trillion dollars a year of goods. We only sell them around a hundred and fifty billion. That means once they put tariffs, if it went that far on the whole hundred and fifty, they have nothing more that they can do. We could go theoretically all the way up to the five hundred.

That's not a very easy game for them to play. And it's similar ratios with the other countries. That's what President Trump means when he says that if it really does get to be a big war, we have many more bullets than any of these other countries right when it comes to tariffs, But there are other ways obviously of hurting imports non tariff barriers. And in the last stambout of China, actually what they specifically said was quantitative and qualitative so that terrifs are not the only way

that they can retaliate. No, it's true, and it's nor are they the only way that we can retaliate. The truth is that China, Europe, a lot of other big countries have been using non tariff trade barriers for a long long time. They put on weird standards that it's impossible for American products to meet. They put in all sorts of elaborate and non science based restrictions. For example, some of these countries keep complaining, oh, we can import

US beef because of mad cow disease. Well, do you think mad cow disease is really rampant in the US? I have been heard a report a bit in years. Similarly, some countries say, well, we can't import your chickens because of asion flew. Whence the last time you heard a case of asion flew in the United States. It's all nonsense.

The truth is that they've been very protectionists. We have been very close to free market, and now that we're trying to defend ourselves against their bad practices, they're screaming and yelling. Well, they've been spoiled for many, many years and that game is over. And Mr Second, I really think there's no one who knows about the situation who would deny that China has been protectionists in all sorts of different ways. I don't think anyone would take issue

with that in the media or otherwise. At the same time, what happens when there's a tension between on the one hand, growth and jobs, which was what the President's first order of business was tension between that on the one hand, and getting fairness and reciprocity. If you have to choose between the two, which you either have less trade and less growth and have it be fairer and more reciprocal, well, we wanted to be fairer and more reciprocal. Reciprocity is

an important keynote to our trade policy. The question is how do you get there? And the only way we're gonna get foreign countries to lower their inordinate barriers is by making it more painful for them to continue those practices than to get rid of them. That's what this is all about. This is about an endgame that really is free, fair and reciprocal trade. It's not about trying to make money out of tariffs. So that's not really

the endgame here at all. But we need something to induce changes in their behavior, and it's already happening and seal and aluminum. Once we put our tariffs on, suddenly you're up is taking safeguard measures all over the place to protect their border. They weren't doing that before we put the tariffs on. Japan had never had a trade enforcement group in matting their big government agency. Now they

have the twenty person trade enforcement group. We're going to fix the problem of protectionism around the world, and we're going to fix it by making it more painful for those countries to do bad practices than to do the right thing, which is to lower the trade barriers and lower their tower and once againistrict. I don't think anyone would quibble with that as a goal, a laudatory goal. The question is, though, how much pain are we willing

to suffer in order to get that done? Because the pain goes both ways, and for example, Deutsche Bank is out with estimates that in fact, a trade war actually could take three tents off of GDP growth. If you knew today that that was the price you had to pay, would be willing to pay it in order to get to reciprocal trade. Well, it's very hard to make an omelet if you don't break some eggs, and so we

really have to. We have no choice but to change the way that these other Benese can in countries using unfair trade practices against us. We have to do it. It's unfortunate that it wasn't done at an earlier point in time. Would have been a lot simpler, a lot easier, and a lot less painful. But it's really important that we do it because we're talking about our future and that is more important than the growth goal, because, I mean, the Republicans came up with the President put forward a

tax plan that really was growing GDP nicely. Are you getting a fair amount of that back in order to get to the reciprocal world that you want? But we don't think so. And uh, we think that you will continue to see very strong employment. The biggest problem most American companies have now is finding enough qualified labor to do the expansions that they're putting forward. That's why you're seeing all of these apprenticeship programs, all of these joint

programs with local community colleges. Finding workers is the biggest problem right now for American industry, not anything else. Because we've cut the regulations, released those shackles. We've cut both individual and corporate taxes, making America a wonderful destination for foreign investment and direct US And that's why we have here at Select USA Summit, well but three thousand attendees. We have sixties six countries represented here. That's fifteen more

countries than we had a year ago. We have Cabinet secretaries here, We've got fourteen ambassadors, US ambassadors to foreign countries. This is a real turnout, and we will be making some announcements about new foreign direct investment into the US. That's the real world, not the whiners who have criticized every single thing that the President has done. They said he'd never get a tax bill through, Well he did. Then they said, well, it won't do any good for

the economy, that will only help rich people. Well, unemployment is that record lows um corporate enthusiasm, corporate optimism relatively all time highs, small business optimism, low unemployment overall, very low unemployment for women, very low unemployment for African Americans, very low unemployment for Hispanics. So anybody with thinks the economy is being wrecked simply doesn't know what they're talking about. No, Joe, please only us understanding. I was not suggesting all the

economy is being wrecked. The question is is there a price being paid? Let me ask a specific question that's come up in the trade context, and that is the ZTE situation. I know that we're negotiations last night up in Capitol Hill. Do you believe that there would be a compromise that will allow ZT to continue to do business the United States? Well, there may very well be. The President and Secretary Minuchtion and I met with a bunch of Republican congressional leaders yesterday and that was one

of the many topics that we covered. I think the important thing is to modify z TES behavior from what it was before. We have now taken over two billion dollars and finds out of them. For the first time ever, we've had the ability to implant into a country company that had violated sanctions our code of our Code of Export Control and we have unfettered access to the company in order to monitor it. If there are any further violations, we will shut them down just as we did before,

and we have the power to do that. Okay. Finally, Mssion Secretary, there's been this issue about short selling some shares in a shipping company. I don't want to go into the details of that. Frankly, I'm not sure I fully understand them, but you've certainly had to talk about them plenty. I have a more general question. Many of us were surprised in fact that senior government officials are involved in short selling or derivatives of any sort. For example,

here at Blueboard, we're not allowed to do that. In retrospect, given what you've been put through, would it be a better policy or rule to just say senior government officials shouldn't be engaged in things like short selling at all. Now, this is not what you would call a typical short sale. What happened some shares in one company we're not physically in my possession, and there was a whole process I had to go through to get them into possession so

I could sell them. I had begun selling those shares the ones that I did have possession of months before. So when I learned about the new shares, wanted to close out that holding. What happened to be a company called Navigator, And it was when the shares were delivered to me my own shares, I used them to substitute. So there was no profit or loss on the so called short sale. It was simply a means of implementing a transaction, and then I had no gain or loss

by change in the market. Please understand, there was nothing in my question. It's just anything improper had been done or anything that gotten gains, nothing like that. I'm actually asking a more basic question, sort of a concession to the shortness of life as it were. I mean, I'm sure it wasn't pleasant for you to even have to explain all this, wouldn't it just be better just have a simple rule that said, senior gard officials don't participate in thing like short telling. Well, this is not a

typical short sale. A typical short sale is you borrowed stock that you do not own. You sell the borrowed stock, putting up collateral for it, and then when the stock goes down, you cover it and make a profit. That simply is not what happened here. I do think that that kind of short sale is not a good thing for government officials to do. But this is simply a technical means of complying with the delivery rules of the

New York stock exchanged. I didn't gain or lose regardless of what the stock did after I entered into the transaction, whereas in a short sale, if the stock went down, I would profit. If the stock went up, I would lose. My situation was one where I was totally indifferent as to the subsequent price of the stock and us it happens the stock is now at a higher level than it was when I sold it. Anyway, Okay, fair enough, I think I do understand. I really want to thank

you for taking a time, Mr Secretary. I know you want to get back to your investment summit there in Washington. It's good if you to spend time with this, as Wilber Ross, US Commerce Secretary. Well from David Weston with the Secretary of Commerce and now joining us from Vienna gentleman who has been a great supporter of the program. Is classic, the Commanding Heights and the original the prize. In a way underestimated, and I urge all of you to dive into it, the quest energy security and the

remaking of all of this. Daniel Jurgen joins us right now. Dr You're wonderful to have you with us with ol Peck in Vienna and to take a title of one of your chapters in the quest. Is there a breaking of the bargain at OPEC? Are the pressures so great in the cartel that that cartel bargain will be broken? No? I don't think so. I mean the feeling. I think

the sense here is that it's been expanded. And the phrase that people are using we've used as the Vienna Alliance because the key factor is that this isn't just the old band of OPEC, but it's also Russia in particular and other non Opeque countries that came together, you know, after the price collapse, to stabilize the price and get invested going. What's interesting that the tom tom just to

say please is interesting. I was reflecting with that one of the biggest beneficiaries of this has been, uh, the United States in terms of the recovery of the do bestic us oil industry. What is the fair price of a barrel of oil right now, Well, I think that's a for thousands of years almost philosophers have been arguing

about that, at least thousands of pages according to the books. Yes, but I think you know what one was hearing here, you know, as the people saying it was sort of fifty five to seventy was described by a couple of people as the fairway that would uh assure sufficient investment and without impact on uh, you know, the overall economy in fact, acting as a stimulus to what an interesting thing that came out is you know how much manufacturing companies around the world uh depend upon the market, the

energy markets for their equipment. So you know, I you know, probably at another time could be another fair way. But you can remember before the oil price collapsed in it was set a under dollars a barrel was good for consumers and producers. So it's a those goal posts shift, Okay. One of the things shifting, Dr Jurgen is the immigration debate in Germany and of course the immediacy of the

cultural and immigration debate in America. You're commanding heights maybe does not take on immigration in our history of immigration directly, but it permeates all of your classic book, The Commanding Heights. Daniel Jurgen on the newness of this immigration debate or is it something that we're simply revisiting across our history. Well, it's certainly be imperious. There was a Chinese Exclusion Act a century ago, um, but for the most part in

the nineteenth century it was open. It was very much open borders. Um. But obviously, you know now it's such a divisive issue in the United States and in Germany. It's a huge problem for Angelo and Merkel. Within that is the spirit of capitalism, which is you need population to make capitalism go. Would we be a better company

was simply more immigrants allowing for greater population growth. Well, I think economists certainly say that that, Uh, one of the strengths of the US economy is immigration, and that increases the overall productivity of the economy. And you know, you can see and I mean we're you know, we're in a period now we're labored in many many markets are very tight. Let's see, dar Daniel, you're gonna thank you so much from Vienna today in the OPEC meetings.

And I really can't say enough about his latest The quest really a wonderful book on the changes going on in some of which he's widely predicted within h the global economies. This is the interview of the day for Global Wall Street. No not about the trading errant Deutsche Bank. Thank you Sinali Basik for this. This is brilliant, brilliant work by mckenze Group on the state of corporate bonds. Susan Lunn joins us now with Mackenzie on this exceptionally

important fifty page reports. Susan congratulations on advancing Reinhardt and rogue Off and that they said this time is different in all the focuses on government debt and instead we should look at private debt. And there's households on that, but there's corporate debt which just builds and builds. Are we reducing two thousand five and two thousand and six.

Thank you for having in me. Well, it's true that corporate debt or debt of non financial companies has grown almost as much as government debt since the Financial crisis, and there's not been a lot of attention paid to this. So in this report we looked specifically at what's happening in the corporate bond markets. Which is that they've really taken off. As banks have retrenched, companies have turned to

bond and they've tripled in size. We actually think this is a welcome diversification, but there are definitely signs of risk, and already defaults on corporate debt obligations are above thirty year average, and you think they could rise further. You've got folks, As always with mackenzie, the charts are stunning. There's the U S, there's Western Europe, and then there's what I'm gonna call Susan. The mystery of China, other

developing economies and other advanced economies. Is there a transparency out there that was not there in two thousand six or is too much of your bar chart a mystery? Well, there is more transparency. This is why economists like myself have long said that bond markets are a good alternative to bank loan because their priced in the market. Credit ating agencies are out there raiding the bond, so there is more transparency. But as you noted, the growth has

been in the United States, but also in Europe. In China has been staggering. So their corporate bond market went from virtually nothing ten years ago to two trillion dollars, one of the largest in the world today, and other emerging markets have been able to issue bonds as well. I mean, I can't say this enough, folks. Susan Lund with us A Mackenzie Group, and the title of the story of this essay is let me get it up here,

hold on, I just lost it. Rising corporate debt parallel or promise And basically, Susan, every single executive on every single airline should be reading this thing. What Let me ask an open question, what in your thirties six page report is a number one message to chief financial officers burdened with the idea of should we do the next trunch? Should we do the next issuance? Yeah, the big messages that look, the market has probably crested, so it's tripled

in size, but now we've got rising interest rates. And the analysis we've done in this report looks at how many companies have issued debt and in fact they're in a risky position to repay, and so we're likely to see some phone out in the market. Now. Long term, there's lots of potentials for further correct but short term we would expect defaults to continue to rise. And now Fox folks want surveillance with Tom Keane, Pim Fox and John Farrell where we get nerdy with you with Susan

Lun of Mackensee Group. Okay, Susan, here's the reality, with a major shout out to David Goldman and his his classic work at Bank of America. If there's a trunch or a of issuances of a given nation or housing bond or corporate bond, everybody focuses on the garbage, which

gets bad and gets worse. But the real problem is the senior quality loans that are priced at ninety eight or nineties six, and they moved down in crisis to are we in that same position again where the real risk is not the junk that's identified as junk, but the real risk is quality senior corporate paper that could see a price decline of equality down to eighty seven.

Is that where the real risk is. That's one of the two big risks so UM and our analysis we find up of an overall corporate bonds and they do west or now triple b according to SMP, so it's just one notch above junk. So the average credit quality of the investment great issuers that you're pointing out has slowly gone down in this era of ultru low interest rates, and so economic shocks maybe from trade from other factors, could actually push those companies now down below the box.

And by the way, the high yield bonds already are at record size is twillion dollars outstanding. You've got a chart on e M that's just stunning Exhibit ten for those you keeping score at home, and the delta here on share of issuers at high risk of default for Brazil, China,

India is it's a jump condition over everybody else. When you see EM currency depreciation against strong dollar, can you overlay that with your debt study into some form of crisis, some form of reducts of well, definitely they're going to be losses in EM debt. So as we've shown, roughly a quarter of issuers in Brazil and China um have evena over interest payments of less than one and a half.

Sorry for being so wonky, but those of you who understand interest coverage, it means that they can basically finance their debt today, but they've got very little cushion. So if their finances go south or if their currencies depreciate. Uh, they're in a lot of trouble. And that's today, that's before you know, the FED started raising interest rates. So we're seeing rates head up and it means a lot of these companies are not going to be able to

afford this as debt matures. One of the things we documented this report is that over the next five years you're going to have somewhere between one point six trillion and two trillion dollars each year these corporate bonds come and do, and you'll have to rewrite the report because of Fox Disney Comcast from your distance and with great respect for mckensey group, their goal is not to model

out the latest hot transaction. But how do you respond, Susan Lunnon when you see lex and the f T. I believe it was one or two bids ago at seventeen times ibata and I don't know where that number is now with the latest Disney the Disney um uh offer. But you know we're out of twenty times IBATA on a given m and a transaction. Does that denote silly season for mckensey Group. Well, look, there's a lot of pressure in the market. I don't want to predict the

next crisis. The one thing I will say that gives me some ability to sleep at night over corporate debt. Please, you have not. I don't think this is two thousand and eight all over again, because in the mortgage crisis, those assets were securitized and then created into cdeos and CDEO squared, So there was a lot of assets built upon the underlying mortgage. You don't see that in the corporate bond market. So yes, some in the sters are

gonna face mosses. Companies may be forced into bankruptcy. It'll be a real test for China. But I don't see the systemic risk and the interlinkages that you saw ten years ago. Susan Lun Congratulations to you and Richard Dobbs and the rest of McKenzie Global Institute. Folks. I'll put this out on Twitter Twitter and early sell it over the next couple of days. Rising Corporate Debt Parallel Promise thirty six brilliant page is well charted by McKinsey and Company.

Just a tour to force on the state of our private debt. And this is said with great respect for the classic Ryan Heart and Roga. Thanks for listening to the Bloomberg Surveillance podcast. Subscribe and listen to interviews on Apple Podcasts, SoundCloud, or whichever podcast platform you prefer. I'm on Twitter at Tom Keane before the podcast. You can always catch us worldwide. I'm Bloomberg Radio