Trump will probably cut Powell's power. If Chairman Powell lowers interest rates only to the extent expected by the market, Trump will not be satisfied assuming his election. He will not be satisfied and will drop significantly. Then, what will happen to the U.S. interest rates? You may not know, but do you know that the Bank of Korea has already cut its base rate by 100 points? [MUSIC] Yes, I will be with Moon Hong-cheol, the head of the DB Financial Investment Asset Strategy Team. Come on in. Yes, hello. Welcome. Yes, welcome. Yes. I would like to ask you a question about the interest rate cut in the U.S., which has increased curiosity about the timing of the rate cut. First of all, how do you feel about the overall nuance of the minutes from the FOMC? Please tell us your feelings. Actually, as many people know, I don't really watch FOMC. Right, you've mentioned that on the show several times. In fact, rather than as a doctor.

Last week, after watching the presidential debate, I thought, I need to lower the interest rates right away. Why did you think that after watching the debate? Well, Biden has become very risky. He has no choice but to adopt all means available, right? As the incumbent president, then, shouldn't he immediately summon his subordinates? In there, aren't Yellen and Powell present? Even the people he appointed, right? Do you want them to be replaced as soon as Trump comes back? Behave wisely, cooperate. Cooperate. So, if you carefully read today's FOMC minutes, in fact, there were minutes of the FOMC, but now in Sintra, in Portugal, in Sintra, the central bank governors are all gathering, presenting research results, discussing monetary policies, and so on. But consistently, Chairman Powell is making more accommodative remarks. However, FOMC.

Some still talk about a rate hike, right? Of course, more evidence is needed to maintain a dovish monetary policy stance. Data is needed to confirm that prices are falling below the target range. This is the view of some FOMC members who do not support a rate hike. However, Chair Powell consistently emphasizes this stance. Actually, Chair Powell mentioned this directly at the Jackson Hole Symposium. Overall, it seems to lean slightly towards the dovish side. Naturally, the background is the President, right? This past week, I was watching the presidential debate on Friday or Thursday, not even a week has passed. I watched it around 10 o'clock that day. Although it might be hard to understand.

The feeling is so clear, oh really, too much. President Biden and later got a cold. For example, he said he had a hard time going around here and there due to jet lag, couldn't sleep well. There were stories like this. Actually, honestly, in the United States, you shouldn't talk about things like this. Drugs are a serious crime, right? Receiving them is not distribution. So, you have to be careful. In that position, the reputation of oneself and one's party is at stake. In such an important position, just talking and making expressions like this is a big deal. Of course, I still think it's half and half. Why? Because the presidential election is still a long way off. In this situation, there is a possibility that Democratic supporters will gather. When a crisis arises, people gather. We had a similar experience in our country. Just in case.

Do you know that there was a female president before, and when she was having a presidential debate, she was not good at speaking, um, yes, yes, yes, she was not good at speaking at all. So, she was heavily criticized during the debate, um, yes, completely. And the other candidates were very smart, just breaking her words and attacking her. So, because she couldn't speak well, the presidential debate almost ended in a defeatist atmosphere. However, this turned into a reversal of fortune. Instead, the concrete support base was like, Oh, this is a big problem, and they all united, raising her up. So, that's how it happened. So, I think, um, in this election, the Democratic Party, the American Democratic Party, um, the defeat in the debate is, uh, a real defeat for now. We still have to see more, so after looking at the summer surveys, the betting clearly shows that Trump is rising. That's right, there are many betting sites, you know.

However, Trump's rise now is not that significant. Surprisingly, if Trump doesn't come out, then who will rise? The governor of New York, there is a woman, Kathy Hochul. If Biden doesn't run, she might rise. If Trump rises, it's not that big of a deal to see. Also, according to other poll results, there has always been a certain difference after the presidential election. It's not a very unusual phenomenon. It seems to be heading in this direction. I think Trump's chances have increased significantly this time. In the international market as well. However, we still don't know. It could even be a reversal of fortune. The only thing certain is that interest rates need to be raised quickly. So, since you mentioned the presidential election, will Trump be elected?

As the probability increased, the national bond interest rate rose. Why did that happen? And regarding the presidential election, how should we assess the impact of the panic of the Democratic Party on the national bond interest rate? Well, first of all, regardless of whether it's Trump or Biden, I fundamentally believe that the fiscal impact is not significant. However, when Trump was elected president back in 2016, on November 2nd or 8th, until that date, everyone thought Hillary Clinton was almost certain to win. Even I thought so. Yes, the market and polls overwhelmingly predicted Hillary's victory. But as soon as Trump won, the national bond interest rate plummeted by 20 basis points. Yes, it dropped immediately. Then it rose by 40.

It's not over the course of a day, but oh, within just a few minutes. Yes, Trump was elected in just a few minutes, and now uncertainty has increased. This is a tremendous uncertainty. Then, in the international community, he started to plummet. Trump himself proclaimed to be the king of debt, so isn't it likely that the United States will use reflation policies to increase its national debt and inflation? In reality, that's what happened. As a result, bond yields dropped significantly. It just so happened that at that time, Brexit and the bond yields were low in June of the same year, 2016. Consequently, globally, due to concerns about uncertainty and economic downturn, interest rates were very low, and the market soared. Generally, it was rising, but it was after Trump's election that the United States

The government bond yield rose for two years. Other countries also increased, but only for a year and then dropped again. In the U.S., it rose for two years and then dropped sharply. The bond market experienced trauma during those two years. Oh, the trauma was when Trump was elected in 2016 and presented a tax cut plan in 2017. Many people talk about the wealthy tax cut plan, which will be in effect until 2025. Ah, it's a sunset provision. Yes, it's a sunset provision. Oh, next year, right? So, if Trump is re-elected this time and, of course, in order to implement the tax cut plan, Republican lawmakers also need to gather, and if the Republicans take the situation this far, well, if that happens, it will be an extension of the tax cut. Currently, according to the estimate of the U.S. Congressional Budget Office, tax revenue will decrease by $4 trillion over the next 10 years due to tax cuts. $4 trillion may not be significant compared to GDP, so ultimately

Now, in the financial market, there are some painful memories of Trump that led to an increase in interest rates. And looking at the tax cuts, if bond supply increases, bond yields will rise. But there's another thing. We need to look back at the memories of when Trump was in office from 2016 to 2020. Yes, back then, he put immense pressure on Chairman Powell. Powell's face visibly shrank because of that. Oh, really, compare Chairman Powell's face from 2016 and 2018. In just two years, his face, well, it used to be kind of plump, right? But suddenly, as we entered 2018, it shrank forward. His mouth also became smaller, and he lost weight. Imagine the stress he must have been under.

If it works, the actual interest rate was significantly lowered. It wasn't just because of Corona; there were also decreases before that. Well, Trump will probably cut the power, right? Do you see it that way? Can he cut it? Yes, he can cut it. He has the authority. Of course, back in 2018, he also tried to cut it, but that's not the case. So, it didn't work out because the advisors opposed it. However, since the interest rate has been lowered, there was no need to cut it. Right, if the interest rate is lowered this time, there's no reason to cut it, right? That's correct. So, if the interest rate is lowered, it shouldn't be just a little; it should be significantly lowered. Why? Because the base interest rate is 5.5%, and the U.S. inflation is around 3%. If it's expected to go down a bit in the future, then if Chairman Powell lowers the interest rate just as much as the market expects, assuming Trump is re-elected.

It will not be full and it will drop significantly. Then what about the U.S. Treasury yield? Short-term interest rates will drop significantly as they follow the benchmark interest rate. Yes. However, I don't think long-term interest rates will rise, just looking at the materials, the fiscal situation worsens. As debt increases, it faces upward pressure. So, they will likely create a very steep yield curve. With that in mind, we can estimate the interest rates when Trump is elected. So, if interest rates start to decrease, do you mean they will drop significantly? When Trump is elected, then what's next? It's in November, right? In November. If Trump wins, he will continue to pressure the central bank. If they don't listen to him, he will cut them off. To make them listen, interest rates will need to drop significantly. So, I believe if Trump is elected.

Under the assumption that the interest rate will drop significantly. If we only look at the presidential election, if we only look at the presidential election, yes, then how do you view the starting point of this rate on that day? I'm curious. The starting point is right after last week's presidential debate decided. So, we need to do it quickly in September. Quickly in September. The last monetary policy meeting before the presidential election in September, the last FOMC. Now, due to the September FOMC, yes, that will be the last chance. Or we need to almost certainly mention a rate cut. Oh, and then we move on. In November, Powell's statement suddenly, I thought it was a bit out of the blue, but do you, Mr. Moon, see it as exactly as expected? Do you feel that way? I feel it's exactly as expected. Oh, suddenly. It's not like a sudden number came up, but I felt it was out of the blue. Our production team had prepared a screen with data earlier, let's take a look together.

I think it would be good to pay attention, but suddenly the statement that inflation seems to be caught is disinflection, right? It's disinflection. Yes, right on that screen. But actually, recently, it has been confirmed by data that inflation has eased a bit. It has been confirmed in terms of CPI. However, as I mentioned earlier, Powell needs to quickly get Biden elected. So, a logic is needed. There is only one logic: Inflation is stable. However, that was a bit stronger than what I had in mind. When you talk about disinflation, what do people think of? They think of deflation, right? Yes, they can't understand dis-inflation well. So, if you know deflation, I actually looked it up. Yes, look it up. No, that's not really deflation, right? Definitely not. No, no.

Will Americans understand disinflation? Oh, I'm sorry. Will they understand disinflation? Not deflation, it's like this. This is an excellent communication by Powell. He says disinflation, and smart people prevent others from cursing. To the public, it gives the impression of deflation. Oh, this is a very good communication method. Even if interest rates go down, it doesn't make sense. People will have a perception of disinflation, not deflation. Because the central bank said such things, people will think, Oh, prices will drop in the future. Then, they will not think about it anymore. So, economics is psychology, so we can now reproduce reality.

Yes, so I think it was a quite intentional choice of words. So, the team leader actually appeared on the last broadcast and said, Interest rates should have been lowered already. Even if they lower the interest rates in September now, are they considered late? And what would be the market's reaction to a delayed interest rate cut? Actually, the opinion that the interest rate cut in September is considered late seems to be a minority opinion. There is also an extremely small minority opinion that it should have been lowered earlier. I am the only one who strongly argues for that. Why am I arguing like this now? Let's think about it. Economics is as complex as human beings. Just as the human body is complex, the economy is also complex. Let's all try to understand this. Sometimes, don't we have to work all night?

Now, drinking a lot of caffeine-containing beverages while taking off your coat, I completed a huge project by staying up all night for a week. Proud of it. Next, I will take a rest, right? Yes. And, um, it's not that intense, but there is a project that takes about 2 to 3 days to finish by taking some medication. Yes. The project that finishes by staying up all night, um, I can't mention a specific brand of caffeine drinks, but if you drink caffeine beverages a lot, it suddenly creates a force of weak strength. Does it have an awakening effect? Yes, there is an awakening effect, but it's not about creating non-existent strength; it's about pulling the future strength into the present. Oh, yes, yes. By contracting your body, in the end, when you rest later, you might end up in the hospital. Um, so if you work hard at night for a week, in that situation, your body should be fine and you should be able to endure it well, and in the end, your body should actually improve.

You know, because I rested, it's all over now. But ironically, there are many cases where people are taken to the hospital when their bodies are completely relaxed at that time, and sometimes they don't even make it back. Yes, it's the same with the economy. By raising interest rates, it creates tremendous tension like this. Then, the economy actually flows well. It seems to flow well. This is like an awakening. It's like a stimulant. When people whip themselves, have you ever tried whipping yourself? If you do, endorphins are released, like this. Some people enjoy being whipped when blood is flowing, and then they have a lot of mystical experiences in that situation. But a significant cause of those mystical experiences is the narcotics and analgesics secreted in the brain. These are very peculiar substances. But this has been tested through the body's resistance.

So, when interest rates rise, sometimes the economy actually enters a state of prosperity. This is because people get nervous. Why am I making this argument? Strangely, when interest rates are lowered, a recession comes. Lower them quickly, not slowly. Lowering them slowly is not good, right? Why would a recession come slowly? If you lower them slowly, it's already decided. Interest rates were raised too high. But when they are raised too high, as I mentioned earlier, it's like whipping your own body. Your body gets hurt, but you don't know it. Oh, I feel good. I can work. I just had caffeine. This is how you work. But that's not right. You should rest quickly. Yes, that's right. If you work like that, it's not good. If you rest in advance, a recession won't come. You won't collapse. But not knowing that, thinking, Oh, the economy is doing really well now. Employment is good. In reality, that's not the case.

While lowering the base interest rate too excessively now, if we proceed, ultimately, when people's tension is relieved, it leads to a phenomenon of failure. When will people relax? If you lower it, will they relax? When will they relax then? When it's lowered, they relax. It relaxed after lowering it twice in the past. In the past pattern, so, I have a drawing, but just search on the internet once. If you draw the base interest rate and recession periods, when you raise the base interest rate, it's actually fine, but when you lower it, it should improve, right? No, it's not like that. Rather, a recession comes, and you lower it. It's not that you lower it because a recession has come. The preference relationship is important. Lower it first, then comes the recession. Many people misunderstand this. Lower it first, then comes the recession. And now, many people misunderstand about lowering the insurance rate.

There are separate cases for the case where a recession comes and the case where a recession is induced. Think of it this way, but the start must always be a rate cut. The recession comes later, and even if the central bank doesn't want to, cutting interest rates has been a pattern eight or nine times out of ten in the past. I am worried that similar things may happen even in the current situation. So, if we summarize, no matter how the interest rate cut starts, a recession may follow. This is now a statistical pattern from the past. You mentioned it this way, so now let's hear the outlook on how our interest rates will be. For example, in the case of Korea, recently, the Korean market has not reflected well on the U.S. interest rate rebound due to Trump. Overall, there is a slight decoupling. The U.S. interest rates have been fluctuating at a high level due to Trump, but now they are fluctuating back and forth.

The flow of the Korean bond market is similar, but it keeps dropping steadily. The bottom is gradually decreasing. I fundamentally believe that compared to the United States, it's not about saying Korea is better than the U.S. In comparison to the U.S., Korea's fundamentals, including inflation, are coming out much better. Exports are good, right? It doesn't look good to me, but domestic sales, I don't have to say much about it. Regarding domestic sales, how surprising the growth in the first quarter is now seems to be declining, isn't it? Reflecting on those fundamentals, isn't it right that Korea's interest rates are lower than the U.S.? It seems that way. And if there might be any credit events or downturns next year, I don't know if events like that will happen, but the probability is high. If that happens, even Korea, no matter how much

There is nothing wrong, but even if I am strong, there are two whales fighting next to me right now, rolling around and causing chaos. Aren't I just going to be crushed to death? Korea has a very small economic scale, so we may still be affected by some patterns of risks together. We see it that way. Therefore, every time the team leader comes out, there is a possibility that Korea may lower interest rates before the United States. Looking at the past patterns, it doesn't always follow the same path as the United States. So, do you think Korea could lower rates first this time as well? Lately, such forecasts seem to come out occasionally. It's not about being right or wrong. There are viewers who see it that way. Indeed, there are people like that. In Korea, when we talk about it, we always mention it a bit as a side note.

I see, so in December, it's like once a year, you do a reshuffle or maybe you do it next year. That's how I saw it, but recently, various issues have been arising from the political circle and the running side. Now, one thing seems a bit perplexing. Yes, I think it's not just a matter of being perplexed now. It's not unusual to reshuffle quickly. There are constraints on exchange rates. If the exchange rate volatility eases, yes, I think... and it's right to look at the fundamentals first. In the current situation, the U.S. is... they say they are doing well now, so they might look at the fundamentals and delay. That's what they might do, but I don't think Korea is in a situation where they can do that at all. So, I think that's why I need to ask this question right away. From the perspective of the Bank of Korea, yes, because the strength is weak, thinking about the strength of the country, thinking about domestic economy...

It may be possible to consider an interest rate cut, so bond interest rates that are already reflecting the interest rate cut in the bond market in Korea. However, isn't there a problem in Korea with the exchange rate? The exchange rate between the Korean won and the US dollar is fluctuating, and there are talks that government intervention is needed or is already taking place. What do you think about this? If we go back to what you mentioned earlier, the Bank of Korea may need to cut interest rates, and there is a high possibility that they may need to do it even before the United States. In that case, will the exchange rate continue to face upward pressure? This is the question. Yes, it will face upward pressure, but not because of the interest rate. Then why is it? There are two factors: internal factors and external factors. External factors - if you think about it, Korea is a country that relies on exports. Because we rely on exports, the exchange rate...

It's important. However, China's manufacturing competitiveness has been weakening over the past 15 to 20 years. The place that took advantage of that is now Taiwan. Even Taiwan now. So, won't they take away even semiconductors now? Oh, if that happens, the exchange rate becomes even more important, right? Exactly. Why? Because the quality needs to be good. If the quality is not good or if they can't produce cheaper than China, they have to make the currency weaker. As a result, in Korea's economic structure, the influence of the exchange rate has become greater. When exporting, the competing countries are China and Japan, right? However, both countries' currencies are weakening. Yes, especially Japan. But you may not see it well these days, but even the yen is gradually weakening. Oh, I see. Also, Taiwan is very important because of semiconductors. Taiwan is practically a fixed entity. Well, it does fluctuate a bit.

The Thai baht fluctuates, and this fluctuation is adjusted based on the value of the currency of their trading partners. In fact, it is a country that practically fixes the exchange rate. What this means is that Korea has to compete heavily with China and Japan. If the yen weakens, there is no choice but for the won to weaken as well. They have to continue to weaken together. From that perspective, the currency policy of Japan or the trend of the yen can become quite important. Furthermore, China also needs to improve its economy. Otherwise, won't the won weaken? However, recently, there have been many negative news reports about China, especially regarding real estate and consumption. If China does not recover, then the won may face some downward pressure for the time being. Therefore, it seems that the Bank of Korea may not be able to raise interest rates. The important thing here is first.

When you try to draw a picture, it's not related to the interest rate gap between the US and Korea. It's not related at all. This doesn't mean the textbook is wrong. In other countries, the interest rate gap is important. Even China keeps its currency rate similar to the dollar. But Korea, on the other hand, doesn't follow this logic. What is the most important thing in Korea? It's the growth of exports. The growth of exports. But currently, even though semiconductors are leading the way, overall, it's not bad. So, what about the exchange rate level that is hard to understand? The exchange rate, well, what you're saying is, even though exports are still growing, shouldn't the Korean won be stronger? Why is it so weak? Well, in recent momentum, exports are fundamentally weak due to what I mentioned earlier about the yuan and yen being weak. Another two reasons are.

I mentioned earlier, there is another internal factor. That's about exports, which are not looking good. If you take a look at the exports this time, as I reviewed them, if you could briefly look at the picture on page 18. Yes, this is about the major items of exports in June announced by the government. Semiconductors are leading the way, accounting for 51%. Yes, right. However, if you look closely, in May it was 55%, so it has slightly decreased. The growth rate can decrease, right? It has decreased. And in April, it was at 56%. Oh, that's good. Still good. Yes, 50%. The issue is with petroleum products, chemicals, automobiles, steel, and even shipbuilding at the bottom. They are all slowing down. Except for semiconductors, all other items are slowing down. It seems they might even turn negative soon. Whereas, don't semiconductors usually increase more in the second half? That's what analysts are forecasting. Yes, yes. Except for us, in foreign exchange.

Are analysts wrong in their market outlooks? If you say that in the market, it could be a big problem. In the foreign exchange market, is it right for semiconductors to lead alone? It should be evenly distributed. Is it really okay for a big country like Korea to rely solely on semiconductors, not even Taiwan? This is a concern in the foreign exchange market, whether there are materials to support the Korean won. But as a foreigner, I feel uneasy because when it comes to semiconductors, including Nvidia, discussions should not be too optimistic about their performance outlook. Of course, if they achieve high performance expectations, the exchange rate may naturally fall. The exchange rate could fall, but from a foreigner's perspective, this seems to be a somewhat precarious trend. So, that's why I'm a bit uneasy about this. This company, in terms of stocks...

Let's be a bit more conservative in the second half of the year. We have revised our outlook a bit this time. As we went through May and June, our outlook on domestic stocks has shifted downward. No, not that, let's lower our expectations. Yes, the U.S. seems fine, but both the U.S. and Korea have the potential to lower expectations. Since we are talking about Korea now, in this situation, the dollar exchange rate will be on the rise for the time being, especially in terms of currency policy. However, if it goes upward, the journalists will go crazy, won't they? At times like this, interest rates should not go up. However, in reality, what the previous governor mentioned, is it really bad for the exchange rate to go up? It used to be bad because companies like it. Companies always like it when the exchange rate goes up.

However, ordinary citizens do suffer a bit because the prices are high for a long time. So, in general, when the currency of a country depreciates, it has the effect of transferring the pain of citizens to export companies. Or it has the effect of raising domestic demand through exports. That's why there are many complaints in Japan as well because of this. But if you look at it now, it's not exactly like that because many people have taken their pain to overseas assets, right? Almost everyone has a national pension, and a considerable number of the national pension's assets are in overseas portfolios. There are also many individual investors. So, this is not just my opinion. I will talk about the overall situation a bit. Yes, yes. So, isn't it necessary to view a high exchange rate differently from the past? There's no need to see it as a bad thing. However, volatility is important. In terms of volatility, if it moves abruptly.

Perhaps there is a possibility of government intervention, and we have a considerable number of dollars in bullets right now, so I think we can sufficiently adjust through intervention in terms of volatility. Yes, I am looking at it that way, and personally, I think the yen is a bit weak compared to the balance. I wanted to ask about the yen, but hello, this is Saeng. If you want to see more videos, please press the subscribe button on the right side of the screen. And remember, liking the video is essential. Thank you for always loving Infomax Live.

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