Brought to you by Bank of America. Merrill Lynch seeing what others have seen, but uncovering what others may not. Global Research that helps you Harness disruption voted top global research from five years running. Merrill Lynch, Pierce, Fenner, and Smith incorporated the trick with the pessimist guy that we and I hope we walk the line is to come up with scenarios that are just about within the realms
of the feasible. Yeah. The risk, the danger is that we're in an environment now where you know, suddenly everything is thinkable. Like you haven't mentioned aliens here. Did you have any deliberations about that about aliens? No, not not not this year, but you know, you never know. Guide we could. We could take that one for a walk. Welcome to Bloomberg Benchmark, a show about the global economy.
I'm Daniel Moss, Bloomberg's exact gutive editor for Global Economics in New York, and I'm Keith Smith and editor with Bloomberg News here in New York. As well. Brexit Trump they came to pass this year as unlikely as they may have sounded in December last year. But wait, wait, there could be more. Our guest and colleague John Frere is co author of Bloomberg's Pessimists Guide to Twenties seventeen. When he's not writing about doom and Gloom, he's executive
editor for International Government. John. Welcome, Thanks, thanks for having me. Good to be here. So what exactly is the Pessimists Guide and what's its origin? How did you come up with this idea? So this is actually our third Pessimist Guide. We start we started it two years ago and essentially, you know, it's not it's not a list of predictions of events that will happen in the next year. Um,
it's essentially and it's a thought exercise. We're encouraging our readers to think about all of the unimagined outcomes that could happen in the in the following twelve months. And the origins really were after Putin went into Ukraine. That was such a sort of a sizing to your political event that it prompted us two years ago to think about, Okay, what are the other events around the world, Where where are the other fault lines in global politics where you
could see you could see ruptures next year. So essentially we're encouraging readers to look at the consensus and then look outside the consensus and think about the tail risk events UM that could upend their business models, that could upend their forecasting models. And goodness knows, over the last twelve months, we've seen enough of those. We certainly have UM.
So in your pessimist guide, it's full of scenarios. They range from year one of Trump elections in Europe study really, how did you so, how did you come up with this year's Instead of not predictions, I should say, well, so, so first that we were I was very keen that
we had a good geographical range around the world. So we went through week we know, we we got editors and reporters on the phone from Asia, from the Middle East, from the U S and Europe, and again we encouraged and encourage and to think through um the you know, the range of risk possibilities, and then push those risk scenarios even further. So, for example, take this out the
Saudi Arabian model. One of the great stories of sixteen has been the rise of the Deputy Crown Prince Mohammed bin Salmon and his his his vision for the future of the Saudi Arabian economy. So so that was one of the big stories. Often you asked yourself, Okay, if you flip that on its head, what would that story look like? And the more we we spoke with the reporters and readd, you know, the more interesting we became,
more interested. We became in this idea of rivalries within the Saudi Arabian court, which then leads you to the thought, Okay, what if there was a palace coup and this this young upstart who is sort of in a way jumped the line of succession. What if he was pushed out of the way. What would that mean for you as an investor? If you had already double down on this vision, on this reformist vision for Saudi Arabia, how should you think about that when you think about the UN investments
in the Middle East. So that sort of gives you a flavor of the thought processes that we went through. And to be very you throughout the guide, you're you're very much at pains to make sure the readers understand that these are by no means predictions. They're just kind of speculation, kind of what if scenarios. But nevertheless, I mean I have to say we are putting it in front of them. In readers to these reads, I mean, was it hard for you to walk that line? Sometimes
it can be. I mean, it's interesting last year, but probably the most heated debate we had about this in the three years we've done this now, it was last year when we put the scenario in the sixteen guide of Donald Trump becoming president of the United States, and there were voices and our sort of in our council, there were some voices and in Washington saying, if you do this, it could look stupid. This is just a belt way, It's just a belt way obsession. It's going
to be over by February. This guy doesn't have a chance. Um. I think there were peop well who have thought that it would be irresponsible to put that, to put that on on on the list. Likewise, well, this year when we went through the China, the China scenarios, you know, I was in Hong Kong at the time, and there
were there was another wave of protests going on. So you ask yourself the question, Okay, how how far can we push this um in terms of uh, what scenarios I might see in China, and how do you risk There is the risk that it could seem fantastical if you sort of said, okay, maybe could you ever imagine a situation in which the p l A, the People's Liberation Army would show up in the streets of Hong Kong. That sort of scenario probably we deemed maybe just a
little bit too outlandish. The trick with the pessimist guy that we and I hope we walk the line is to come up with scenarios that are just about within the realms of the feasible. Yet the risk, the danger is that we're in an environment now where you know, suddenly everything is thinkable. Like you haven't mentioned aliens here. Did you have any deliberations about that about aliens? No, not, not not this year, but you know, you never know.
Guide we could, we could take that one for a walk. Okay, So bringing this back down to down to earth, just one quick question before we move on. I'm curious. I did not. I have to admit I did not read the Pessimist Guides to sixteen. No. No, like last year's and the year before. Dan is rolling his eyes at me. I think he's going to get a headache. I hurt so much. But so Trump obviously did win. What other ones actually happened. So Brexit that was in the Guy
so Brexit Trump. Now I'm nervous to read the pessimist Guy. Um we did have a scenario with Taiwan becoming a major issue that that you would see you would see sort of attentions between a new US president um and and China in which timeline will become a horn. So that so that was in there, um And and the sort of the rise of Putin in the Middle East. Well, again, con sidering where we've been, John, some of the stuff in the Pessimists guide doesn't seem that far fetched. For instance,
protests after the inauguration of Trump. Yeah, I think we can see that he signed some executive orders reversing Obama's legacy. Yeah, I think we can see that presidents have increasingly, as Congress has become more recalcilitrant, resorted to executive orders with some of these. Isn't it what's expected to happen? So
that that particular it in the Trump Landia item. The point we're trying to make there is that you see a president who is almost actively doubling down and as agenda and as making no efforts whatsoever to to bring to bring the country together. Um, And there certainly there are some fears if you look at some of the people who's appointed to his sort of inner council, there are fears that he will that he will govern like that.
And I think, but you do raise an interesting point with the election of Trump that in and of itself was such an outlandership event, um, that it's suddenly a lot of other things, that the range of risk outcomes is much broader now than it ever has been in the path. Well, you of course forgot to mention Howard Stern being nominated to the vacancy on the Supreme Court
caused by Celia's death. So we're going to take a break and come back and talk about I guess what might be called White Swans brought to you by Bank of America Merrill Lynch, seeing what others have seen, but uncovering what others may not. Global Research that helps you harness disruption voted top global research from five years running,
Merrill Lynch, Pierce, Venner and Smith Incorporated. So John would like to turn things around in this second segment and run a couple of white Swans past here before you do, though, what exactly do you mean by white Swans. Well after the year we've had, perhaps something that would appear utterly unremarkable in normal times in effect becomes a huge outlier, at least in terms of the psychology at the moment, and as a result, it's perceived to be overwhelmingly positive.
So let's run through some white Swans and John please handicaptam for us. Okay, here we go. Merkele wins Lapin Losers discuss. That's very possible. And it's interesting if you look at Lapin, the hurdle that she has to cross um that that she has to jump over is actually much higher than the one that Donald Trump had to
had to exceed. You you have to remember, if you're if you're if you're running on the Republican ticket, you're probably no matter who you are, you're probably already guaranteed about four, let's say, of the vote that's your The Republican ticket brings with you, you know, a huge swaith of the electorate for La Marine the pen Because she's not running for one of the traditional traditional parties and
French politics, she's probably only guaranteed about the vote. So again, the hurdle of the hurdle that she has to jump over as much higher. And again looking at Germany, it's sort of the interesting thing with Germany is it depends what you mean by Marco winning. She probably will be the head of the largest party. Sorry you should rephrase, I mean leader government. She will probably end up leading
a government. But the question is will the election bloody her and batter her so much that she would essentially lose her political authority and that she would then probably step down two years later. I think in Germany the question is the size, how big will will her party be? Will she actually will she will it be a commanding victory for her party, or will it be just will she just will she just scraped through? And that's the key thing to watch. But probably to answer your question,
you know, that's probably the consensus. That's probably the base based scenario. And there we are again base case consensus and that and that's where after the year that we've had, I think people are almost traumatized now when you hear the word consensus. People are discarred by the shock of bregsit In, the shock of trump. Um. If I had a handicap at Marco winning, leapin losing probably yeah, So
that means you flip that on its head. Chance of the opposite high, Okay, moving a little bit north, Brexit ends up looking a lot like the current situation Brexit decaf. If you will discuss what's what when we say the current situation, do we mean just we don't We don't get a triggering of article fifty and we just muddled through or what I think Dan and they were talking
about yesterdays. We do get the trigger of article fifty, but in reality it ends up looking a little bit like Norway, not kind of this like hard brass that we've talked about, kind of they get isolated, and it seems like mas position changes week by wood very hard
to keep up. And she is she she probably doesn't necessarily know herself what her best you know, what, what her negotiating position is going to be, because she is not only she's not only in this position where she's trying to interpret the referendum result of of of of last June, but she's also trying to balance all these different forces with her own within her own party. But if I had a handicap that if you look at the worries that are coming, the concerns that are being
expressed by business by the banks. I know she says she's not going to govern for the banks, but she can't ignore it either. The idea of it does seem likely that we'll get some sort of soft breaksit like at least a transitional deal that will that will soften the blow of of of Britain leaving the EU. The big question though for her to square will be the
question of freedom of movement. That was if you had to interpret any message from the referendum is that British people were sick of what they see as unlimited immigration. So she's going to have to That's where the deal for her to be done. And that's the really tricky part for her. How and she how can she do get a beneficial deal from the EU while while also doing a deal with her right wing on on immigration. Um, it's really that will be the ultimate question of European
politics next year, beyond the le pen Mercle. Question is can merco can? Can can may square that circle? And if you had a handicap at will she will she managed to engineer a soft except again I would say thirty chance of that, but again that's like a three or four year as a three or four year time horizon on that scenario. Okay, here's something that's only been around for about four decades, so you know, it's a
babe in the woods. One China policy remains and trade continues to flourish between the US and China unabated discuss So I think we're going to have I think that would probably happen, but I think there will be It would be getting from here to there there. It will
be a very umpy process. I think the really interesting thing, probably one of the most interesting things things that Trump has done or said or tweeted since he's become presidential act is testing China's commitment to the to the One China, to the One China policy. It's unheard of for any American president to do this after the last fourty years. I think I was in I was in Beijing about two or three weeks ago, and the consensus there was
that they want to see a dealmaker. They want to see Trump um as someone that they can do business with. And the big question is is that is Trump just testing the Chinese um? Is this just a negotiating strategy and he that this idea of linking the sovereignty Sue of Taiwan to trade. Could that actually can the unthinkable
sometimes work? Or will China literally, you know, stick to its guns and and force the issue and say that No, Taiwan is much more important than any economic question, um, and it is a core interest for US, and we will do to to sort of mix my my Bloomberk metaphors, we will do whatever it takes to to to make sure the US understands that we when we when we say the one China policy, we really mean it. That's
sort of the key question hanging over that. But you would think that ultimately the people around Trump will realize that the trade war is not in the interests of the US, and that you would have thought that this is rhetoric, it's negotiating strategy, and ultimately what you just said down that the one one China policy remains and trade continues and abated. That is the rational way. That
is the I think a rational outcome. Okay, so one more Jenny Ellen, like her predecessors, gets a second term. I get that sort of comes back to the same point. I guess, does Trump really want to upset the apple cart? I mean, again, there's lots of things he wants to do and is it really worth him expending political capital on that. I think the other if you were Donald Trump, you might say, or the people around them, I'd say, why,
why is that uncertainty a bad thing? You know? One of the things that I think people we've lived in a world for the last fifty to twenty years where investors and executives kind of new the business environments that they were going to be faced with over the next you know, ten, let's say, over the next two or
three years. And this whole idea looking at central banking, the idea that central banks can never upset the apple cart, and that that monetary policy needs to be predictable, that's been sort of a whole that's been a common received understanding. But the world we're living in right now, and again this gets back to the original idea of the pestimal
s guide. People are going to have to learn to deal with the world that's much riskier and more uncertain than it's been at any point probably in the last
twenty five years. And that's that that comes. Whether you're where you're looking at what central bankers might do or what politicians looking at geopolitics might do, it's just a much more in certain world now, and we're all going to have to just get used to that, to scenarios to sign off with, which is more likely the Malaysian airliner is found, or inflation breaks out in the Eurozone in Japan. Now you're getting to the multimillion dollar questions. Um,
you know. I mean it's if you look at the European and Japanese inflation, they have been dogs that haven't barked for for a long long time. So, you know, I think that if you look at the great mysteries of the world, I think finding the Malaysian jet, I think that's probably something that everyone, everyone wants, everyone wants to hap. Oh my gosh. So John, we'll have to come back to this in December next year and see how we went. Thanks for joining us. Looking forward to that.
Thanks Son. That's it for Benchmark this week. In the meantime, you can find us on iTunes, pocket Cast, Stitcher, SoundCloud, and the newly redesigned Bloomberg app, where you can find Benchmark as well as a host of other wonderful Bloomberg podcasts. While you're doing that, please take the time to ripe to review us and You can also follow us on Twitter for all of our other musings on the global economy.
You can find me at by Kate Smith. You could find my co host Dan at his new Twitter handle Moss Underscore Eco, and you can find our guests at John Frere. Benchmark is produced by Sarah Pattison. Alec McCabe is head of Podcasts. Thanks for joining us. Brought to you by Bank of America. Merrill Lynch. Seeing what others have seen, but uncovering what others may not. Global Research that helps you harness disruption voted top global research from
five years running. Merrill Lynch, Pierce, Fenner and Smith Incorporated