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While You Were Working – January 25

Day 3 in Davos

7 min read


Steven Mnuchin

What I really meant was ... (Fabrice Coffrini/AFP/Getty Images)

Day 3 at the World Economic Forum worked toward a resolution (perhaps) to the Great Weak Dollar Kerfuffle, witnessed a titan of Wall Street promoting financial inclusion, delved deeper into cryptocurrencies and saw a central banker insult gambling. Here are some of the highlights of those panels, along with other news from Davos.

Wait … the Trump administration is actually on the same page?

There was only one major finance panel in Davos today: The Remaking of Global Finance.

And it didn’t come as a shock that the opening minutes of the panel were dedicated to Treasury Secretary Steven Mnuchin and his comments yesterday about a weaker dollar that moved markets. Ultimately, Mnuchin’s position is in-line with what he has said before about not being overly concerned about the day-to-day fluctuation of the dollar. And it might also come as a surprise that his comments were in-line with what Commerce Secretary Wilbur Ross said yesterday. And with President Trump saying earlier today that Mnuchin’s comments were misinterpreted, it also means the administration – including Ross, who was alleged less than a week ago to have been “sidelined” – is on the same page.

I come down on the side of the administration on the Great Weak Dollar Kerfuffle of Davos 2018, because the last time I checked, saying something “fluctuates” means it goes up and down. So it is OK for Mnuchin to say he doesn’t worry about the day-to-day fluctuations of the dollar and not have that mean he is promoting a weaker dollar.

In other comments from the panel, Mnuchin rejected a notion put forth by French President Emmanuel Macron yesterday that countries might race to the bottom on tax policy. The new US tax laws don’t mean the US is suddenly undercutting the rest of the developed world. If anything, the reforms mean the US is just on a more level playing field. And as Mnuchin pointed out, one of the goals of the tax reform is to pull money away from tax havens that do race to the bottom.

IMF Managing Director Christine Lagarde echoed the sentiments of Goldman Sachs boss Lloyd Blankfein and declared that with forecasts of 3.9% growth for the global economy for the next 2 years, global economy is indeed in a “sweet spot.” With that in mind, Lagarde urged policymakers not to screw it up by rolling back regulations. Despite the “moaning and groaning” of bankers, Lagarde credits post-crisis regulatory reform with providing part of the structure that has powered global growth into this sweet spot.

Speaking of policymakers, Jin Keyu, a professor of Economics at the London School of Economics and Political Science, said protectionist trade policies might pose a threat to future growth in that China is likely to respond in kind to moves it sees from partners like the US. And as China tries to shift away from lower-end manufacturing, Jin said Chinese businesses will pressure the government to take a stand.

BlackRock Chairman and CEO Larry Fink had a busy day in Davos and he really shined on this panel. Fink wasn’t a huge fan of tax reform in the US, but says what’s done is done.

“You do tax cuts when you can in our political system, unfortunately. Our political system does not allow us to do it at the most opportune time … at a time when the economy is really in deep trouble.”

One of Fink’s more entertaining comments was on the topic of cryptocurrencies.

“Presently it is an index on money-laundering.”

Fink then went on to explain that cryptocurrencies are here to stay.

Fink also went long on the topic of financial inclusion. During the panel and during various media hits, Fink explained that one of the great missed opportunities amid all the recent market froth is how so many people have kept their money in cash on the sidelines.

“As much as 72 percent of all savings is sitting in bank accounts in Germany and France, missing one of the biggest market rallies ever,” Fink explained. “Why? They’re frightened of the future.”

Now, Fink obviously has a vested interest in seeing as many people as possible get their cash off the sidelines and into the markets: More money in the markets means there is more money for BlackRock to manage. But I think Fink’s talk of people being afraid of the future only solves half the puzzle. Unlike many of the folks in Davos, those savers Fink it talking about remember the financial crisis. Those people don’t trust the markets. And there is a difference between being afraid of something and not trusting it. People can trust their bank or adviser and still be afraid of the market. But when people don’t trust their bank or adviser and are afraid of the market, why wouldn’t they stay on the sidelines?

UK has legacy seat at the table, but no voice in the conversation

I don’t know if this is some kind of harbinger of things to come about the status of a post-Brexit UK, but Chancellor of the Exchequer Phillip Hammond was a part of the panel above about the “Remaking of Global Finance” and Hammond didn’t say a word for the first 30 minutes. Not. A. Word.

It makes one wonder how much of a backseat the UK is apt to take in global finance if Brexit negotiations don’t go their way.

Bank of Canada’s Poloz needs to work on his analogies

There was one panel dedicated to cryptocurrencies and they have certainly been a hot topic in Davos. Opinions have been mixed, but perhaps Bank of Canada Governor Stephen Poloz should work on his analogies before he goes comparing Bitcoin trading to gambling.

Comparing any asset class to gambling is silly; and an affront to gambling. Depending on the game, I know my precise odds of winning before I sit down at the table. The same cannot be said for too many asset classes.

The CEO of RBC is hoping for a win-win deal on NAFTA

Doesn’t that mean he is going to have to negotiate what is essentially a tie with President Donald ‘Art of the Deal’ Trump?

A look ahead to Trump

President Trump was in Davos today with a schedule full of meetings, but the real spotlight will shine on him tomorrow when he addresses the crowd in Davos. Call me crazy, but I think he is gonna do well. The atmosphere in Davos seems to be growing more accepting of Trump by the hour. And much like the Troubled Asset Relief Program so infamously “foamed the runway” for banks in the aftermath of the financial crisis, bank CEOs have been doing the same for Trump in the Alps. All of them have had nothing but good things to say about the state of the economy not only in the US, but around the world.

A year ago, the Davos Man and Woman was afraid Trump would break things and disrupt the golbal economy. Smart people can argue about how much credit Trump deserves for the full-speed-ahead momentum of the global economy, but no one can accuse him of slamming on the brakes.

There are murmurs about Davos attendees walking out on Trump when he takes the stage tomorrow. I hope they don’t. Staging a walk-out was bush league when Vice President Pence did it at an NFL game a couple of months ago and it would be bush league tomorrow.

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