Speaker 1: Yea. Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene
Speaker 1: Jay Lee. We bring you insight from the best in economics, finance, investment,
Speaker 1: and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud,
Speaker 1: Bloomberg dot Com, and of course on the Bloomberg. If
Speaker 1: you wanted a quiet end to the year, I'm afraid
Speaker 1: you are not getting one. Joining us to discuss the
Speaker 1: legend of Wall Street, Abby Joseph Cowen Goldman Sachs Advisory
Speaker 1: Director and senior investment strategist, and she joins us, Now,
Speaker 1: good morning to you, Abby. Have we seen have we
Speaker 1: already seen the top of this bullmarket? Um? I think
Speaker 1: that we certainly reached stretched valuations in September or you know,
Speaker 1: based upon the arithmetic of earnings and economic growth and
Speaker 1: interest rates. We thought fifty for the S and P
Speaker 1: five hundred was fair value. We got a little bit higher,
Speaker 1: but we are of course having great difficulty holding that level.
Speaker 1: We've now moved down to the low ends of valuation ranges. UM.
Speaker 1: For all the obvious reasons, there's such uncertainty about the
Speaker 1: fundamental outlook and risk tolerance perhaps most importantly has changed.
Speaker 1: It's not that the arithmetic of earnings expectations or economic
Speaker 1: forecast have changed very much in recent weeks. What has
Speaker 1: changed is the perception of how willing investors are to
Speaker 1: write out this confusion about what's happening in Washington, and
Speaker 1: of course the deceleration we're seeing in other economies around
Speaker 1: the world. So we've had conversations about this through the week.
Speaker 1: The only certainty as we go into uncertainty, and as
Speaker 1: you touch on, it's the sentiment issue that really gets
Speaker 1: my attention. Sentiment appears to be totally battered, and I'm
Speaker 1: trying to understand where the comfort comes from. Is it
Speaker 1: the earnings, Will it be the data? Because even on
Speaker 1: the morning light this morning, when the Chinese come out
Speaker 1: and promise more tax cuts and signal looser monetary policy,
Speaker 1: this market abbey still can't catch a bit um. One
Speaker 1: of the issues, of course, is that we're dealing with
Speaker 1: this major change um with regard to risk tolerance, but
Speaker 1: it is being fueled and exacerbated by many of the
Speaker 1: decisions underway in Washington. And I'm not talking about the FED.
Speaker 1: I'm talking about the confusion having to do with government shutdown.
Speaker 1: I'm talking about the confusion um in the government, in
Speaker 1: the president's cabinet and so on, and perhaps most importantly
Speaker 1: for investors looking at economic policy, where the recognition is
Speaker 1: that that big fiscal stimulus through the tax cut really
Speaker 1: was perhaps only a sugar high um and trade policy
Speaker 1: is really at this point quite a erratic and I
Speaker 1: think that's what investors are concerned about. They're nervous that
Speaker 1: the arithmetic assumptions that they put into their models may
Speaker 1: be tossed up in the air. Add that to this
Speaker 1: change in risk tolerance, and I think you see the
Speaker 1: ugly mix that we've were now in. If you're just
Speaker 1: joining us John Farrell and Tom King with Abby Joseph
Speaker 1: Cohen of Goldman Sachs, we welcome all of you across
Speaker 1: this nation in worldwide. Abby, there is a thing called
Speaker 1: standard deviations, which is the price movement of gold is
Speaker 1: different than the price movement of general electric, is different
Speaker 1: than the price movement of sterling. I've noticed high yield
Speaker 1: is out to three point eight standard deviations price down,
Speaker 1: yield up. How do you define catharsis or panic in
Speaker 1: the market. Do you do it quantitatively or do you
Speaker 1: look at crystals and pyramids down at Goldman Sachs until
Speaker 1: you see it behaviorally. I've I've always been interested in crystallography, Tom,
Speaker 1: I didn't know that you were aware of that. UM.
Speaker 1: Clearly we are looking at things like UM standard deviation,
Speaker 1: but we always begin with the fundamentals and evaluations. And
Speaker 1: I hope I've been very clear every time I've spoken
Speaker 1: with you for more than the past two years that
Speaker 1: sixth incomes securities UH writ large were overpriced. UM. We
Speaker 1: saw that in treasuries that we thought were priced too low. Clearly,
Speaker 1: some of Chairman Powell's comments have indicated that where they
Speaker 1: feel they're just trying to get back to normal with
Speaker 1: regard to government yield. But the gaps the yield spreads
Speaker 1: have been so narrow UM in corporate securities and also
Speaker 1: it's been so narrow in term securities UM that this
Speaker 1: was a miss pricing in the sixth income market. So
Speaker 1: I think one of the things that happens when people
Speaker 1: get nervous is they take a look around and they said,
Speaker 1: we really have to price for the fundamental This is
Speaker 1: a problem. John Abby, Joseph Cohin's on the Y axis,
Speaker 1: going to drag her down on a Friday to an
Speaker 1: X axis analysis Abby, this is becoming chronic. We've had
Speaker 1: negative interest rates chronically forever. I spoke the Secretary Gightener
Speaker 1: about this eleven years ago. How do you perceive the
Speaker 1: X axis in the two thousand nineteen there's chronic nature
Speaker 1: of our fixed income distortions. Much of the distortion tom
Speaker 1: as you've already discussed previously, relates to not just the US,
Speaker 1: but to what's going on in other countries. Um if
Speaker 1: you look at interest rates, say two year government bonds
Speaker 1: for countries around the world, more than half of those
Speaker 1: developed countries have negative yields, and that of course drags
Speaker 1: down the yield on treasury securities. Because even if our
Speaker 1: mathematicians at Goldman Sachs say the yield on a US
Speaker 1: government bond should be fifty basis points higher or seventy
Speaker 1: five or whatever it might be based upon the term structure,
Speaker 1: there is international demand coming from other countries where those
Speaker 1: yields are dramatically lower. So we are in a world
Speaker 1: where there has been mispricing in fixed income, and that
Speaker 1: is part of the dilemma that we're now facing. Also
Speaker 1: in the world seemingly appy, where our tolerance for higher
Speaker 1: rates has diminished markedly over the last ten years. Leverages up,
Speaker 1: debt levels are up in our tolerance is down a lot.
Speaker 1: Appy Why every time we get to a one percent
Speaker 1: real yield and treasuries this market just creates why. What's
Speaker 1: fascinating is that the sensitivity is much more in markets
Speaker 1: than it is in the economy UM. And I think
Speaker 1: that though when the Fed makes decisions, they're thinking about
Speaker 1: just how sensitive um interest rate sensitive sectors will be
Speaker 1: UM in the real economy to the rise in interest rates.
Speaker 1: But you're right, markets are responding in a very dramatic way.
Speaker 1: I also think we may be overly concerned about corporate
Speaker 1: debt UM. We see so many corporations that are well runned,
Speaker 1: that are successful, have high returns on equity borrowing, and
Speaker 1: they're borrowing because they've been taking advantage of these extraordinarily
Speaker 1: low interest rates. You know, I sort of wonder why
Speaker 1: the Treasury didn't borrow for fifty years out um when well,
Speaker 1: why not, Peter Fisher that let me interrupt, that's a
Speaker 1: critical statement. Why can't we extenderation or do we have
Speaker 1: such a large deficit now and chronically down the road
Speaker 1: that we can't even get out to ten years I
Speaker 1: think that there has been this UH tendency at the
Speaker 1: Treasury UH to say, look, we're going to continue to
Speaker 1: do this sort of in a laddered function um and
Speaker 1: and and that has been the approach. That's been the
Speaker 1: cash management approach UM really for years and years. But
Speaker 1: corporations who have shall we say less pressure, people looking
Speaker 1: over their shoulders, etcetera, have been going extremely long and
Speaker 1: I think that's one of the reasons the debt levels
Speaker 1: are so high. Where I am concerned are companies that
Speaker 1: have raised their debt levels so that they could bolster
Speaker 1: their dividend payouts. That to me is a no win game.
Speaker 1: Good morning to all at General Electric this morning. Oh no,
Speaker 1: I didn't mean to say that, Abby, Joseph Cohen with us,
Speaker 1: with us right now, William Lee of the Milk and
Speaker 1: Institute for years at the International Monetary Fund and as
Speaker 1: City Group and Bill Lee. We look at the American economy,
Speaker 1: we see some revisions, but we see some negatives on
Speaker 1: the screen for durable goods at all. What is the
Speaker 1: animal spirit of business right now? You know it's been
Speaker 1: made even worse where they would have to really jolt
Speaker 1: the great optimism when trouble was elected, we had this
Speaker 1: big jolt of expectitious for investment coming in, and we
Speaker 1: see from these data that the uncertainty caused by the
Speaker 1: trade on confrontations with China, the unknowns about how China's
Speaker 1: go react, is causing everyone in the business world to say,
Speaker 1: let's pause, let's not do our investment plans. So all
Speaker 1: that tellne that we got is now being cut off
Speaker 1: by these headwinds of uncertainty caused by the trade that
Speaker 1: stuff in and that's really unfortunate because what we're hoping
Speaker 1: for was that the investment would really lead to a
Speaker 1: compositional change in GDP to give us the productivity gains
Speaker 1: that would allow us to grow at a fast pace
Speaker 1: without inflation. I think we've just got some really constructive
Speaker 1: news from China overnight. Bill, I don't want to let
Speaker 1: price set narrative too much. The idea that the policy
Speaker 1: makers are looking at supporting the economy a little bit more,
Speaker 1: cutting taxes, the idea that monety policy shifts away from
Speaker 1: neutral and maybe towards an easy bias. This is an
Speaker 1: important development. I think, Bill, do you share that view John,
Speaker 1: that that's absolutely the one hope that we have. That's
Speaker 1: blowing the wind is that China is hurting more than
Speaker 1: we are from all this trade confrontation. And China, I think,
Speaker 1: is ready to deal at whether they're really deal in
Speaker 1: a structural basis or it's just more rhetoric, that's the
Speaker 1: big unknown. And until that unknown is cleared up, I
Speaker 1: think American basses are not going to be investing. I
Speaker 1: have real trouble with the idea that we're gonna be
Speaker 1: better because they're gonna be worser to borrow, you know,
Speaker 1: sophisticated phrase for a guy like you. I mean, basically,
Speaker 1: what you're painting is a global slowdown, right, Oh, there's
Speaker 1: no questions. A global slowdown is whether we can come
Speaker 1: out of that slowdown or not. And China, because it's hurt, okay,
Speaker 1: they are more willing to deal at the table than
Speaker 1: they were six months ago. On the edge of surveillance,
Speaker 1: viral and break exclusive is William Lee speaking an hour
Speaker 1: ago calling Chairman Powell's performance pathetic? Is it pathetic because
Speaker 1: even if he raised rates, he didn't color a global slowdown. Well,
Speaker 1: you know the F and C instructions to the chairman, right,
Speaker 1: it was clear from the statement we're watching the world
Speaker 1: because of the global and certain game. We are lowering
Speaker 1: all of our forecasts of GDP and growth. How the
Speaker 1: hell did we go from there? Too? We're on autopilot
Speaker 1: with a balance sheet and we are looking to models
Speaker 1: to base our analysis. From a guy who denied models
Speaker 1: at Jackson Hall, this is a weird message, I have
Speaker 1: to say. And and not in the markets punished him
Speaker 1: for the doing of bad messaging. You know what, Bill,
Speaker 1: I'm tugging with you. I think the chairman had an
Speaker 1: absolute nightmare in that news conference. He was asked two
Speaker 1: really simple questions. You're forecasting another undershoot for inflation next year?
Speaker 1: Why you're raising interest rates? Gave a terrible answer. Jina
Speaker 1: smilt a bloombacks very I'm one of our finest reports.
Speaker 1: Some of the news conferences up it was Binion and Apple.
Speaker 1: Bob asked the question you're talking about if it's a
Speaker 1: symmetrical target, why are you allowing for a small overshoot
Speaker 1: after years of undershooting it now doesn't have an answer?
Speaker 1: Bell go ahead. All all you have to do is say,
Speaker 1: but we are pausing. We're seeing the data is causing
Speaker 1: us to lower the trajectory of interest rates and was
Speaker 1: slowing down the number of increases that we think it's appropriate. Bingo,
Speaker 1: that would have done it, but no, he said the balance.
Speaker 1: She's on pilot Friday Clinic William Lee. What do they
Speaker 1: mean by a symmetry? You know that they have yet
Speaker 1: to defined that. And the condition when he was there
Speaker 1: was trying to define a better communications for what the
Speaker 1: goals were. I don't think he did the job. And
Speaker 1: now it's up to Rich and I hope Rich is
Speaker 1: going to do a better job of coming from PIMCO
Speaker 1: and the not only a great academic career but also
Speaker 1: a market's career. He's got to have a better sense
Speaker 1: of what has to be communicated about the nature of symmetry.
Speaker 1: There was now day vice Chairman Clarada has done a
Speaker 1: much better job communicating to this market than the chairman
Speaker 1: himself has Tom And it's been a real problem if
Speaker 1: you change your view on what the chairman is saying
Speaker 1: three times in the space of two months, to go
Speaker 1: from Hawkes to divers to totally confused, then the problems
Speaker 1: with the chairman's communication in the vice chair in from
Speaker 1: the University of d s G. E. Fine, what's the
Speaker 1: symmetry asymmetry Is it inflation, is it jobs? Is it output?
Speaker 1: You know what? They have an egg salad sandwich. What's
Speaker 1: the symmetry asymmetry debate. I don't want to put words
Speaker 1: in Rich's mouth, but I'm guessing it kind of smells
Speaker 1: and looks like nominal GDP targeting, because that's that's the
Speaker 1: kind of place where you can get symmetry but at
Speaker 1: the same time get the looseness and and and and
Speaker 1: discretion you need to be able to put policy in
Speaker 1: place that is controversial. Williambe will be joining us here
Speaker 1: to a week or two and will continue this discussion
Speaker 1: country John H. Deck with us with Brookings. John, a
Speaker 1: single sentence from your note, the unstable behavior in erratic
Speaker 1: decision making is likely the biggest DC based issue to
Speaker 1: cause rockiness in markets in two thousand nineteen next year.
Speaker 1: That was penned by Brooking's quill dipped in ink before
Speaker 1: the Maddest resignation. Things changed yesterday, didn't they? Oh, things
Speaker 1: definitely changed yesterday. Although the Maddest resignation is certainly connected
Speaker 1: to that type of unstable behavior and erratic decision making
Speaker 1: I'm talking about. His resignation came in part because of
Speaker 1: the way that the President has been treating allies his
Speaker 1: decision making on Theoria and now possibly Afghanistan. And the
Speaker 1: President needs to recognize that these types of behaviors have
Speaker 1: ripple effects beyond just the one item he's talking about
Speaker 1: in that moment, and it's a real problem from market.
Speaker 1: One of your great expertise is the dialogue between institutions
Speaker 1: in Washington. Explain the ballet between the Pentagon in the Senate.
Speaker 1: You know, the Pentagon and the Senate have typically a
Speaker 1: very effective working relationship. These are two institutions that play
Speaker 1: extraordinary roles, not just in foreign policy, but in keeping
Speaker 1: really the entire administration on the same page in a
Speaker 1: variety of areas. The Defense Department touches a lot more
Speaker 1: than just the military. It touches issues around climate change
Speaker 1: and energy and a variety of topics. And oftentimes the
Speaker 1: Senate and the Pentagon are on the same page, whether
Speaker 1: they like to admit that or not. And I think
Speaker 1: we saw yesterday a Secretary of Defense stepping away and
Speaker 1: the Senate being shocked and really throwing their hands up
Speaker 1: in frustration at the President. And you know, folks, as
Speaker 1: you know, when I get bored, I either look at
Speaker 1: Red Sox Hot Stoves League Baseball, or I read the
Speaker 1: Congressional Budget Office and Johnny Hudak there it was a
Speaker 1: white paper, if you will, from the Congressional Budget Office,
Speaker 1: the cost of replacing two days Air Force Fleet. Now
Speaker 1: that's center tendency. General Maddis. I get that those dialogues
Speaker 1: don't end with a shock resignation, but what kind of
Speaker 1: Secretary of Defense are we going to have that could
Speaker 1: drive forward the day to day mundane discussion of billions
Speaker 1: of dollars of budgetary decision. Well, that's a great question.
Speaker 1: The president has a variety of choices, not just in
Speaker 1: terms of individuals, but sort of profiles of individuals. He
Speaker 1: could ask a current or reformer senator, he could ask
Speaker 1: another general. But it appears what this president wants as
Speaker 1: a sycophant and not a bureaucrat. And that's the real problem.
Speaker 1: A yes man in charge of the Defense Department is
Speaker 1: a recipe for disaster, not dust for the President's agenda,
Speaker 1: but for our military as well. I mean the first
Speaker 1: I want to read this first paragraph at all. It's
Speaker 1: a little nerdy, but folks, this is the real world.
Speaker 1: The US Air Force has about five thousand, six hundred aircraft,
Speaker 1: which range an age from just delivered to sixties six
Speaker 1: zero years old. Many of those aircraft, including the cost
Speaker 1: to replace F sixteen, fifteen fifty D E, C one
Speaker 1: thirty and B one B bombers, are nearing the end
Speaker 1: of their service life. Do you think that this president
Speaker 1: understands that there's a business to our military that has
Speaker 1: to be done day to day or is he just
Speaker 1: looking at whatever the latest debate is on Syria? Yeah?
Speaker 1: I don't think the president understands that there's a business
Speaker 1: on side to our military. Bureaucracy was invested in it,
Speaker 1: he would be, but he's not. And it's a real problem.
Speaker 1: You know. It's and it's not just our air Force,
Speaker 1: our Navy. We have ships that need to be replaced
Speaker 1: or repaired. There are enormous parts of our military that
Speaker 1: need resupply or need to be transformed for a modern
Speaker 1: military and in a modern world stage. And the President
Speaker 1: is behaving in ways that is turning away the best
Speaker 1: people equipped to help advance those interests. So how does
Speaker 1: this work out? Am I right? But I believe my
Speaker 1: colleague John Farrell mentioned this knowing more about American civics
Speaker 1: that I do. The Secretary Defense has to be confirmed, right, Yes,
Speaker 1: he has to be confirmed by the Senate. Yeah, here
Speaker 1: she has to be a confirmed Do you anticipate a
Speaker 1: brawl there are They just like, let's get a warm
Speaker 1: body and let's go. You know, Typically the Defense Secretary
Speaker 1: is a position that ends up not being terribly confrontational
Speaker 1: with the Senate, in part because the President and the
Speaker 1: Senate have a conversation about this um. But I think
Speaker 1: what was most surprising yesterday in a day full of surprises,
Speaker 1: was Mitch McConnell's response to the Maddest resignation. He essentially
Speaker 1: threw down a red line and said, you are going
Speaker 1: to pick someone who thinks like Jim Maddest and not
Speaker 1: someone who thinks like you. And I think it was
Speaker 1: a subtle threat to the White House that the confirmation
Speaker 1: is not just going to be automatic, but the Senate,
Speaker 1: especially Republicans in the Senate, are gonna look hard at
Speaker 1: what type of person the president. Then, thank you Anna
Speaker 1: Edgerton and Washington for our comments on that. Before let
Speaker 1: us talk pray tell within this news flow about the shutdown.
Speaker 1: I mean, I guess there's a shutdown in the media
Speaker 1: covers it, and there's a there's probably gonna be a
Speaker 1: countdown clock. Uh, I guess it's Friday night into Saturday tonight,
Speaker 1: and I see you in CNN. I'm looking here in
Speaker 1: our studios folks that I'm going to pick on CNN
Speaker 1: shutdown countdownturs six minutes, twenty one seconds. What are we
Speaker 1: counting down too? So what we're counting down to is
Speaker 1: appropriations running out for a group of federal agencies and
Speaker 1: departments that includes the Department of Justice, State Department, Homeland Security, Agriculture, Treasury. UM.
Speaker 1: Some of the government has been funded into next year,
Speaker 1: but there remains outstanding appropriations bills that not the office.
Speaker 1: They don't come into office Monday. Yeah, so actually the
Speaker 1: President has by executive order UM signed everyone to have
Speaker 1: Monday off. Of course, Monday would have been paid for
Speaker 1: those employees. John are we joined that at blue Here?
Speaker 1: Did you see a memo coming from mail from New Jersey?
Speaker 1: I will not be here's an executive on my shutdown
Speaker 1: begins at twelve, Johnny Deck, and I will be working
Speaker 1: on Monday. So really they shake that in Washington on Monday, right, Yeah,
Speaker 1: Monday will be shut down. Tuesday's Christmas, and so that
Speaker 1: Monday will be an unpaid holiday. UM. So so will Tuesday. Um,
Speaker 1: and then every day after that until Congress passes something,
Speaker 1: the President will signal employees at least in those departments
Speaker 1: will not come into work and they will not be paid.
Speaker 1: Tell me, okay, you sound like you're in the media, John.
Speaker 1: They're not going to be paid. But when they agree
Speaker 1: to agree again forward, they make up the pay right.
Speaker 1: Uh So that is Congress's discretion to do that. It's
Speaker 1: not a requirement. Congress has always done that. But but
Speaker 1: it's not a requirement. But that said, you're also not
Speaker 1: getting a paycheck during that time, and though if you
Speaker 1: have rent coming to no paycheck is coming in. Yeah,
Speaker 1: this has become a common feature. I mean, and are
Speaker 1: you this was a rare, rare discussion. But the President's
Speaker 1: really change that dialogue, hasn't he? He absolutely has, And
Speaker 1: I think, um, you know, one of the things that's
Speaker 1: flown under the radar this week is that there was
Speaker 1: actually quite a bit of cooperation between Mitch McConnell, Chuck Schumer,
Speaker 1: and Nancy Pelosi about a path forward, and it was
Speaker 1: the President and the Freedom Caucus who blew that up.
Speaker 1: I mean, how often is Nancy Pelosi and Mitch McConnell
Speaker 1: on the same page on a big budget decision. But
Speaker 1: they were here and they were ready to move forward
Speaker 1: with appropriations through February, and the President changed that overnight.
Speaker 1: One final question, then, I want to go into February
Speaker 1: into March, into April when the Red Sox redo their
Speaker 1: World Series new season, if you will, John, is this
Speaker 1: going to be legislative versus Trump? I mean, you mentioned
Speaker 1: the cooperation of Republicans and Democrats. Is that the new
Speaker 1: theme for next year? You know, I don't think so.
Speaker 1: I think there's still going to be a lot of
Speaker 1: partisan gridlock on Capitol Hill on a variety of issues.
Speaker 1: But there is a sort of opening, I think for
Speaker 1: members of Congress to start to recognize that they are
Speaker 1: the adults in the room, that it is incumbent upon
Speaker 1: them as a separate branch of government, a coequal branch,
Speaker 1: to be the ones who babysit the president. Um for
Speaker 1: for a long time Republicans and Congress and Democrats to
Speaker 1: sort of delegated that to some of the cabinet. But
Speaker 1: those cabinet members are gone now, or they're going to
Speaker 1: be gone soon, and I think Congress really needs there
Speaker 1: at a crossroads where they need to think about what
Speaker 1: kind of role they're going to play or whether they're
Speaker 1: going to abdicate that kind of authority. Jones, you Dieck,
Speaker 1: Thank you so much. What a terrific briefing. He is
Speaker 1: with Brookings and their governance study. Steve Gallow joins a
Speaker 1: Stephen Gallow with bemo capital Margaret, Steve, what's your calls
Speaker 1: the dollar? Let's get that out of the way. Is
Speaker 1: there ambiguity here? Are you going outlier dollar strength or
Speaker 1: do you go dollar weakness? Is dollar strength really an
Speaker 1: outlier view? Right now? We we um that's a question.
Speaker 1: I guess the the the cases that we started to
Speaker 1: we started to make a case for a stronger dollar
Speaker 1: around mid year. At the time, I think it was
Speaker 1: out of consensus. But now given the global backdrop, even
Speaker 1: though the FETE is turning a little bit more cautious,
Speaker 1: the global backdrop suggests that we're still going to we're
Speaker 1: still very much likely to get another like higher in
Speaker 1: the dollar in the first half of the year. I
Speaker 1: would say that the two biggest risks to that call,
Speaker 1: although we don't really see them materializing anytime soon. The
Speaker 1: two biggest risk to that call would be a significant
Speaker 1: mammoth uh stimulus package from China or a quick resolution
Speaker 1: of the of the U S China trade and pass. UM.
Speaker 1: We don't think those things will happen anytime soon or
Speaker 1: or at all. Indeed, So what do you how are
Speaker 1: all these the craziness we're seeing globally in a geopolitical realm,
Speaker 1: whether it's Brexit, whether it's the China you mentioned, whether
Speaker 1: it's potential US government shutdown, How do you and your
Speaker 1: clients kind of factor that into your assessment of kind
Speaker 1: of where you think various currencies are going well. Unfortunately,
Speaker 1: from the investor community, I mean, most of the FX
Speaker 1: manager returned into sees that I look at. They suggest
Speaker 1: that unlevered and levered FX specialty investors are are along
Speaker 1: the dollar. But they got into that those positions that
Speaker 1: trade pretty late in the cycle UM and with positioning
Speaker 1: holding back further gains in the dollar. Right now, it's
Speaker 1: still been a tough year for for f X investors UM.
Speaker 1: But look, I mean in this environment when like as
Speaker 1: you say, geopolitical risks are very elevated, and also now
Speaker 1: it seems economic risks at the global level are becoming
Speaker 1: um more realized or more palpable. The only game in
Speaker 1: down is the dollar. It has natural safe haven attributes.
Speaker 1: We could debate over the next three to five years
Speaker 1: if it will retain those safe haven attributes, but right now,
Speaker 1: in the short run, it has safe haven attributes and
Speaker 1: it also pays decent carry. It's a no brainer. UM.
Speaker 1: So the intensification of geopolitical and economic risks of materializing
Speaker 1: in the first half of the year suggests us there
Speaker 1: will be another leg higher in the dollar, but by
Speaker 1: around me year we're expecting that dollar strength to break
Speaker 1: a little bit. Is the leg higher in the dollar
Speaker 1: against everyone or is it partition M G seven whatever?
Speaker 1: I would say most of G ten. But E M.
Speaker 1: You know you have to you have to put pick um.
Speaker 1: You have to make your selections. Wisely, there will be
Speaker 1: our performers and under performers. Um. The reason is going
Speaker 1: into two and nineteen, we have already seen a very
Speaker 1: significant about face and in capital altflows for me and
Speaker 1: this was a story for a large portion of two eighteen,
Speaker 1: so those flows are very mature. At the beginning of
Speaker 1: Q four we were actually starting to see flows return
Speaker 1: to some em currencies. Obviously that stopped getting its tracks
Speaker 1: now in recent weeks given the financial term market TERMO
Speaker 1: we've seen, but but capital alflows from many E M
Speaker 1: S H that they've they're pretty well advanced at this stage.
Speaker 1: Are you're gonna have to pick and choose wisely what
Speaker 1: I would say a big, big theme for the U
Speaker 1: s Dollar in the first few months of the year.
Speaker 1: One reason why we don't see the dollar turning and
Speaker 1: heading south significantly is we expect more weakness in the
Speaker 1: R and B. The main point that I would make
Speaker 1: here is that this depreciation cycle which has been organized
Speaker 1: by the PBOC has not coincide with the same type
Speaker 1: of proficient, pernicious net capital albums were SWO so that
Speaker 1: gives them confidence that they can allow their currency to
Speaker 1: behave like a normal G ten free floating currency and
Speaker 1: weaken as fundamental shift to the downside. Okay, Stephen Gallows,
Speaker 1: thank you so much. It's be more capital. Thanks for
Speaker 1: listening to the Bloomberg Surveillance podcast. Subscribe and listen to
Speaker 1: interviews on Apple Podcasts, SoundCloud, or whichever podcast platform you prefer.
Speaker 1: I'm on Twitter at Tom Keane. Before the podcast, you
Speaker 1: can always catch us worldwide. I'm Bloomberg Radio.