Speaker 1: This is the Bloomberg Surveillance Podcast.
Speaker 2: I'm Tom Keene, along with Jonathan Farrow and Lisa Abramowitz.
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Speaker 2: Joining us now is really one of the key calls
Speaker 2: within the Bloomberg Surveillance world. It's rarely that you get
Speaker 2: somebody to give you a statistic or directional call and
Speaker 2: also throw a date on it. Matthew Lizetti and the
Speaker 2: team led by Peter Hooper and David Fokers Landau Deutsche
Speaker 2: Bank had the courage to do that a long long
Speaker 2: time ago. They said, there is going to be a slowdown,
Speaker 2: some form of Nber recession, but it's going to be
Speaker 2: out there. He nailed that call. We get an update
Speaker 2: this morning with mister Okay, let's go to the time delement.
Speaker 2: Now which week, which day, which hour do we get
Speaker 2: a recession?
Speaker 3: Yeah, you know that the timing is always very difficult
Speaker 3: to a month.
Speaker 4: We're still Q four.
Speaker 3: We updated our outlook this week, kept the recession timing
Speaker 3: in Q four. You know, I think it's based on
Speaker 3: we've seen the FED titan obviously very aggressively. You've seen
Speaker 3: credit conditions titan. You've seen some breadcrumbs within the labor
Speaker 3: market data of some softening. I'd be cautious about this
Speaker 3: morning's data just because there's a lot of volatility, there's
Speaker 3: seasonal adjustment issues, there's states that are they're moving around.
Speaker 3: But if you look at the last Friday's jobs report,
Speaker 3: it showed the permanent job losers really rising, and that's
Speaker 3: I think an important important indicator. And then as you
Speaker 3: look forward for the consumer, you have excess savings dissipating
Speaker 3: by the end of the year, you have student debt
Speaker 3: payments coming back, and so we think it's a consumer
Speaker 3: that looks a lot weaker by the end of the year.
Speaker 4: What gives you confidence, especially since people have been pushing
Speaker 4: out this date again and again and again.
Speaker 3: Yeah, I don't think you want to express too much
Speaker 3: confidence on any particular month or quarter, to be honest.
Speaker 3: You know, the labor market has proven to be more resilient,
Speaker 3: the consumer has proven to be more resilient, but I think,
Speaker 3: unfortunately for the Fed, so has inflation. And that was
Speaker 3: kind of our expectation as you go back to last year.
Speaker 3: It was that the labor market was strong, it was
Speaker 3: that the consumer was strong, and then therefore inflation was
Speaker 3: going to be more persistent and the Fed would have
Speaker 3: to move more aggressively. I think looking ahead, I think
Speaker 3: the Fed skips next week, barring a big upside surprise
Speaker 3: to CPI, but I also think that they tee up
Speaker 3: a rate hike over the next several meetings. We think
Speaker 3: that comes in July.
Speaker 4: If they skip. If they go through with that kind
Speaker 4: of shift, do you expect a meaningful move up in
Speaker 4: longer term yields or basically people say, maybe this is
Speaker 4: a sign that this Federal Reserve is willing to accept
Speaker 4: inflation that is a two point something over the longer term.
Speaker 1: Yeah.
Speaker 3: I think that's the worry from their perspective, that you
Speaker 3: get this upward shift in inflation expectations, because the market
Speaker 3: interprets it as they are losing some of their credibility
Speaker 3: or commitment to that two percent objective, and so I
Speaker 3: think they will want to do anything to push back
Speaker 3: or kind of tone that down that that notion. I
Speaker 3: think even from the doves you've heard, you know they
Speaker 3: want to skip, but they want to be very clear
Speaker 3: that this is not the peak of the tightening cycle,
Speaker 3: that there's very likely the potential for more rate hikes
Speaker 3: to come.
Speaker 2: We've given short shrifts this week to the crew, including
Speaker 2: Adheim and at evercore Isi, who say, look, we're going
Speaker 2: to disinflate with clarity in your note, and again you've
Speaker 2: got the courage to put a date on it year
Speaker 2: in twenty twenty four, December of two and twenty four,
Speaker 2: some kind of sub three percent inflation. How does our
Speaker 2: world change with say two point sixty five percent inflation.
Speaker 3: I think it's all about how you get to there.
Speaker 3: We for our forecast at the end of next year
Speaker 3: are down at two and a quarter percent core pc.
Speaker 3: So it looks like the Fed no one.
Speaker 1: Is very close to the way sing that in right now.
Speaker 3: Well, I think it depends on how you get there.
Speaker 5: Now.
Speaker 3: If it's an immaculate disinflation where a labor market stays
Speaker 3: where it is and that's in a kind of a
Speaker 3: fantastic outcome for the economy, for markets, If it's a
Speaker 3: recession that is needed to get you there that it's
Speaker 3: a labor market that very sure much needs to weekend.
Speaker 3: I think it's a very different dynamic the FED, you know,
Speaker 3: I think their own forecasts have shown a need for
Speaker 3: sum recession and rising unemployment. It's clear that the staff
Speaker 3: for the past several meetings have come to that conclusion
Speaker 3: as well. We still hold that view that they really
Speaker 3: do need this economy to slow materially the labor market
Speaker 3: the weekend to get close to two percent.
Speaker 2: And the legacy of Deutsche Bank analysis, it even goes
Speaker 2: back to Adam Siminsky and oil years ago, is always
Speaker 2: think dynamics. So I've got wage growth coming down, but
Speaker 2: I've got inflation screaming down to two point x percent.
Speaker 2: Can we have a quote unquote Lazetti recession with actual
Speaker 2: real wage stability or real wage growth.
Speaker 3: I think what you will see is that wages will
Speaker 3: come down materially as the labor market weekends, and that
Speaker 3: is I think part of the Fed's game plan. They
Speaker 3: talk about, you know, wages being a very important input
Speaker 3: into that X service core services, X shelter component. We
Speaker 3: think it's an important the overall labor market is an
Speaker 3: important input into too. Rental inflation to get back to
Speaker 3: two percent sustainably, I think you need a softer labor
Speaker 3: market and the FED needs wage growth to come down
Speaker 3: closer to that that metric that shairpalse site to three percent.
Speaker 4: Do you think that if they go again in July,
Speaker 4: assuming they skip next week, that the FED is done
Speaker 4: after that?
Speaker 3: I think there's still upside risks. You know, we have
Speaker 3: been I think everybody has been consistently surprised, and those
Speaker 3: surprises have all been in one direction, which is inflation,
Speaker 3: stickier labor market, stronger consumer, a bit more resilient than anticipated,
Speaker 3: and so you don't want to discount the kind of
Speaker 3: serial correlation in those in those surprises. Could we get
Speaker 3: more I think it's it's certainly possible, which could push
Speaker 3: the FED.
Speaker 4: To raise rates and yeah, again behind five and a
Speaker 4: half percent. I'm just wondering, though, from your perspective, as
Speaker 4: we headed to this mid year point and everybody writes
Speaker 4: their mid year outlooks, whether there's anything that you're kind
Speaker 4: of changing shifting second guessing from the first half that
Speaker 4: you think will be a driving theme heading into the
Speaker 4: next six months.
Speaker 3: Yeah, for us, it's definitely that the potential that this
Speaker 3: cycle takes a little bit longer to play out, and
Speaker 3: that therefore their session doesn't come by in this year,
Speaker 3: but but a little bit later. I think for us
Speaker 3: a key has been that we've pushed back the timing
Speaker 3: of rate cuts. We're now in March of next year,
Speaker 3: in part because the unemployment rate takes a bit longer
Speaker 3: to get there. I think just one important counterfactual here
Speaker 3: is that if we had not had these banking stresses emerge,
Speaker 3: it looked likely that the FED was going to raise
Speaker 3: rates by fifty basis points in March, and having done that,
Speaker 3: I think they probably would have done so in May,
Speaker 3: and so the counterfactions we'd probably be fifty basis points
Speaker 3: higher on the FED funds.
Speaker 1: Right.
Speaker 3: The key question for them is our credit condition is
Speaker 3: tightening enough to offset that.
Speaker 2: What's the counterfactual of China? Do the export disinflation even
Speaker 2: outright deflation? What do they do with the struggles they seem.
Speaker 1: To be having. How does that change the American model?
Speaker 3: Certainly the global growth impulse that people are expecting from
Speaker 3: China is seemingly not there as much as anticipated. I
Speaker 3: think the real concern from an inflation perspective in the
Speaker 3: US however, has been not only is services elevated, we've
Speaker 3: seen core goods inflation over the past three or four
Speaker 3: months also bounce back. Now, last month it was all
Speaker 3: about used cars, so you want to discount that a
Speaker 3: little bit. But go back three or four months before that,
Speaker 3: it was broad based. It was household furnishings, it.
Speaker 4: Was medical goods.
Speaker 3: And so there's even in that category that we have
Speaker 3: the most confidence that you're going to get this big disinflation.
Speaker 1: Aymils, tell me that you're not walking back to the office.
Speaker 6: I am.
Speaker 1: Actually you come on this. It's like deadly out there.
Speaker 4: You have a mask, and you do a mask.
Speaker 3: You guys have some down in the lobby.
Speaker 1: You're taking one of Mike's last mask. I brought myself.
Speaker 1: I'm going to go out there and die today.
Speaker 7: I'll leave one for you.
Speaker 1: I'll take you for you.
Speaker 2: Matt Zetti walking across Central Park. But what do you
Speaker 2: call the building?
Speaker 3: The deutsch Bank Center the time warne deutsch Center, just
Speaker 3: the deut Back Center.
Speaker 2: Very exciting. Well, we looked at we we'll do something
Speaker 2: over there. Sometimes Misteretti is a Deutsche Bank. But right
Speaker 2: now and this is really important. And radio on television.
Speaker 2: If you want to know what the margin were caate next,
Speaker 2: listen carefully to Kristin Bidderley, head of North America investments
Speaker 2: at City Global Wealth. Were thrilled she could join us today.
Speaker 2: There's a very sentence in the usual blatherer of a
Speaker 2: mid year outlook that you're released today, which is are
Speaker 2: you playing defense or you being on the sidelines. That
Speaker 2: is a perfect metaphor for the emotion right now.
Speaker 4: I think that's exactly right.
Speaker 8: There's this feeling out there that you're either all in
Speaker 8: or all out of the market that I think you
Speaker 8: guys were talking about this earlier on the program, this
Speaker 8: idea that you're either all in T bills and sitting
Speaker 8: in that five percent, or somehow you're chasing and finding
Speaker 8: a defensive play in tech stocks. And so what we've done,
Speaker 8: and this is something that we've done from the very
Speaker 8: beginning of the years, we've actually been very balanced in
Speaker 8: terms of our fixing come portfolios, our equity portfolios where
Speaker 8: we are fully invested, but we're picking our spots in
Speaker 8: those asset classes in terms of quality. And when you
Speaker 8: look at the performance of something like that year to date,
Speaker 8: it's actually high single digit returns for a balanced portfolio.
Speaker 8: It's not the twenty five percent of the NASDAC, but
Speaker 8: it's certainly strong returns.
Speaker 6: Here to date.
Speaker 7: Stan Jokimena was great, ye said, I with Shnali Basseki
Speaker 7: talked about the prospect of going into recession and compared
Speaker 7: almost staples to what's happening with AI in Nvidia. Can
Speaker 7: I compare can I put in the same bucket some
Speaker 7: of these tech names with consumer staples.
Speaker 8: I would love to hear that in more detail. I
Speaker 8: think that would be a challenging analysis to do. But
Speaker 8: I think when we talk about what's happened within the
Speaker 8: market more broadly, I do think this concentration and everyone's
Speaker 8: talking about this, this is not a new story about
Speaker 8: the breadth and the market. The breadth in the market,
Speaker 8: those seven stocks representing more than one hundred percent.
Speaker 5: Of the gains.
Speaker 8: Even if you look it's not a uniquely US story.
Speaker 8: That's a global story as well, that there's ten companies
Speaker 8: representing eighty five percent of the global gains. And so
Speaker 8: what does that tell me? It actually tells me that
Speaker 8: the market is pretty rational. Where the money has been
Speaker 8: going into has been these megacap companies with strong free
Speaker 8: cash flow generation, the ability to fund growth not dependent
Speaker 8: on credit. Markets have their balance sheets in order, and
Speaker 8: that a lot of them have raised guidance going forward.
Speaker 4: So given that, right, given that, maybe there's rationality, but
Speaker 4: maybe I want to play that because you can't really
Speaker 4: predict the AI future. Are you starting to now say
Speaker 4: that the rational plays of say regional banks, of say
Speaker 4: just generally financials. Areas that have gotten beaten up are
Speaker 4: looking good again if things aren't that bad.
Speaker 8: That's one of the themes in our outlook is actually
Speaker 8: this coming rotation within equity. So as I mentioned earlier,
Speaker 8: we have been playing defense. We've been invested in areas
Speaker 8: like global dividend growers, but some of the areas that
Speaker 8: we've been eyeing and adding exposure, so something like MidCap. Right,
Speaker 8: So looking at MidCap and the valuation differential trading at
Speaker 8: about a twenty eight percent discount to larger cap, looking
Speaker 8: at some of those themes, you have to be selective.
Speaker 8: This isn't just kind of a broad brush. You want
Speaker 8: profitable companies just like you want profitable companies in large cap.
Speaker 8: But that's an area when people ask the question, has
Speaker 8: this theme gotten away from me? You can actually find
Speaker 8: opportunities just going down the cap structure.
Speaker 4: One thing we've been talking about throughout the morning is
Speaker 4: the weight of people who have been hiding in T
Speaker 4: bills to go into Nvidia, to go into big tech,
Speaker 4: to look for those double digit returns that you were
Speaker 4: talking about, and not be happy with single digit returns
Speaker 4: even if they look pretty pretty good on a risk
Speaker 4: adjusted level. You've been traveling a lot talking with clients.
Speaker 4: What do they say? How much pressure are you hearing
Speaker 4: to get a little bit more with respect to earnings.
Speaker 8: I think everyone is asking that question of is tech
Speaker 8: a buy? Should I continue to chase this rally? And
Speaker 8: I think one of the most interesting things bringing it
Speaker 8: back to the AI conversation because we have to, right
Speaker 8: that's just the dominant conversation right now. I think there
Speaker 8: are fabulous companies out there, but they're valued at, you know,
Speaker 8: in even more extreme level, and so in terms of
Speaker 8: making money in any type of market, it's really that differential.
Speaker 8: And so some of the areas that if you think
Speaker 8: of the net beneficiaries of AI, the concentration has really
Speaker 8: been in those megacap companies. But then when you look
Speaker 8: at areas like cybersecurity that's going to have to come
Speaker 8: along for the ride. Areas like one of our long
Speaker 8: term term unstoppable trends is investing in longevity, a net
Speaker 8: beneficiary of this technology, where you have haven't seen that
Speaker 8: type of valuation and you haven't seen the funds really
Speaker 8: come into those areas. Those are ways to be invested,
Speaker 8: but not in a pure play.
Speaker 7: Just quickly, what's special about forty three hundred on the
Speaker 7: S and P.
Speaker 8: I don't think anything special about forty three hundred.
Speaker 7: Act this way, you could just stop in them pulling back.
Speaker 8: I think Look, I think the major conversation is once
Speaker 8: we hit that twenty percent appreciation level and this idea
Speaker 8: that all of a sudden it would turn into a
Speaker 8: true bull market, I think we have to look at
Speaker 8: whether you're in the camp of higher for longer in
Speaker 8: interest rates, or you're in the camp that we could
Speaker 8: see a cut at the end of this year. If
Speaker 8: there is some type of recession ultimately and some type
Speaker 8: of it has to signal that we're going to see
Speaker 8: further contraction within earnings. And that's something that I think
Speaker 8: the outlook right now is a little bit too rosy.
Speaker 8: We actually that was one thing. Coming into this year,
Speaker 8: we thought we were going to see about a ten
Speaker 8: percent contraction in earnings. We've reduced that. We think is
Speaker 8: about going to be about a six percent based on
Speaker 8: the strong Q one, but still a contraction.
Speaker 2: This conversation is of fifteen years ago. I'm not used
Speaker 2: to a normal conversation that was in fabosi or in
Speaker 2: you know, the CFA curricula. I mean, it's shocking to
Speaker 2: hear this. It's like, oh, a normal conversation after fifteen
Speaker 2: years of oddity.
Speaker 1: We're all recalibrating.
Speaker 7: Fifteen years Is there a rights? Is that what you're
Speaker 7: referring to.
Speaker 2: Yeah, and there was no risk free rate. The sharp
Speaker 2: ratio didn't work. I mean, it's all there is to it.
Speaker 2: And we all made it up as we went. And
Speaker 2: what's so important here, John, is all the focus of
Speaker 2: the media, the financial press is on short covering a
Speaker 2: short squeeze convexity to the upside stuff I don't even understand.
Speaker 2: And you know what it's about, the bitterly world, you know,
Speaker 2: the David Kelly world, which is the basic idea, do
Speaker 2: you have the courage to get off the sidelines.
Speaker 1: That's the heart of the matter.
Speaker 7: The cash trap. Yeah, it's been a fate for the
Speaker 7: shot for the last few weeks. Kristin, thank you, Thank you.
Speaker 7: Kristin Biddley, the City Global Wath Management at Any joining
Speaker 7: Us now the president of Any Research ED. I've loved
Speaker 7: the notes over the last couple of weeks. The mother
Speaker 7: of all mounts ups at a week closer to a
Speaker 7: mount up than a mount down.
Speaker 5: Well, I think we've definitely had a melt up in
Speaker 5: the Megacap eight stocks. As you've been highlighting, these stocks
Speaker 5: have kind of taken over the market in recent weeks.
Speaker 5: I think it really started with the banking crisis right
Speaker 5: in March March eighth or so, when we started having
Speaker 5: the banking crisis, the financials took a dive. Even energy
Speaker 5: took a dive on fears that if the financials are
Speaker 5: going down, that can't be good for the economy. And
Speaker 5: the energy stocks went down. But people still wanted to
Speaker 5: be in the market, and they ran into the Megacap
Speaker 5: eight because they have cash, they have cash flow, and
Speaker 5: they have a good business. I think the market's actually
Speaker 5: got broad now back to the financials. Right now, we've
Speaker 5: got some uncertainty concerns about whether there might be another
Speaker 5: rate hike, but I think the economic outlook is still
Speaker 5: pretty good, and I think that once people get more
Speaker 5: comfortable with the financials, so I think the market will
Speaker 5: broadened out in that direction.
Speaker 1: Yeah, I want to.
Speaker 2: Give a look back here quickly in a victory lab
Speaker 2: for you. You've had a set of victory laps over
Speaker 2: a lengthy career. In October, Ralphan Kampora and Edward Yardanny said,
Speaker 2: climb on board this bottom in the market. You're up
Speaker 2: nineteen percent from your October low. The triple leveraged Yard
Speaker 2: Denny fund. This is something in develop right now. Is
Speaker 2: a fifty seven percent at return since October. Yeah, that's
Speaker 2: before Yard Danny takes out. It's two and twenty. But
Speaker 2: the answer here, d Dar Danny, I want you to
Speaker 2: talk to people who missed it. They didn't listen to
Speaker 2: Ralphan kampor they didn't listen to Ben Ladler, they didn't
Speaker 2: listen to ed Yard Danny. Talk to the people who
Speaker 2: misses rally, how they get on board.
Speaker 5: Well, I'm still optimistic that the market is going to
Speaker 5: move higher by the end of the year into next year.
Speaker 5: I think next year is sort of the environ meant
Speaker 5: that the market is increasingly thinking about discounting, and I
Speaker 5: think the economy is going to be better. I think
Speaker 5: earnings are going to be better. However, we have had
Speaker 5: a heck of a move, and it's been in these
Speaker 5: large cap stocks. I think you know, as I said,
Speaker 5: look for where there's been laggards, and there certainly have
Speaker 5: been laggers in the financial they have been laggers and energy,
Speaker 5: even in industrials. In addition to the melt up scenario
Speaker 5: for megacaps, I've also been monitoring the situation for construction
Speaker 5: in the United States and it's absolutely booming for non
Speaker 5: residential construction, and I think it's about the boom for
Speaker 5: infrastructure spending, and so I think the industrials are another
Speaker 5: place to be.
Speaker 4: You were saying that the forty six hundred target that
Speaker 4: you currently have might be conservative. If this all bears out,
Speaker 4: what do you say to those who push back and say,
Speaker 4: if that comes to pass and all the people who
Speaker 4: are in cash decide it is the time to throw
Speaker 4: in the towel and go into equities that will give
Speaker 4: the FED more ammunition to high rates further and kill
Speaker 4: this off more quickly.
Speaker 5: Well, I think the Federal Reserve, the Federal official. Federal
Speaker 5: Reserve officials have been saying for quite some time that
Speaker 5: they want to get the interest rate, the Fed fund
Speaker 5: rate up to a restrictive level. I think five to
Speaker 5: five and a quarter percent is proving to be restrictive.
Speaker 5: There has been a banking crisis. We have seen surveys
Speaker 5: of loan officers saying that they are tightening lending standards.
Speaker 5: So I think they're where they want it to be,
Speaker 5: and I think they have to factor in that quantitative
Speaker 5: tightening as well as the tightening of lending standards probably
Speaker 5: amounts to at least another fifty one hundred basis points
Speaker 5: in effective federal funds rate hikes. So if the fund
Speaker 5: rate now is five to five and a quarter percent,
Speaker 5: I think effectively it's already sixty six and a quarter percent.
Speaker 4: But if that's not enough edge to slow any kind
Speaker 4: of growth, And you are seeing construction construction companies actually
Speaker 4: seeing a boom, You're seeing the housing market reignite, You're
Speaker 4: seeing all shoots of possibly some sort of recovery, and
Speaker 4: manufacturing sectors that have been beaten up. Doesn't this go
Speaker 4: against the idea that it is enough, that it is
Speaker 4: restrictive enough to bring about a decline in inflation to
Speaker 4: the degree that the FED would like well.
Speaker 5: Inflation has been coming down, as you know. Maybe it's
Speaker 5: not coming down as rapidly as some people think, but
Speaker 5: I think it's proven to be quite transitory in durable
Speaker 5: goods and even non durable goods. Where we still have
Speaker 5: stickiness or persistence is in services. And we know that
Speaker 5: rent inflation in the real world has come down pretty dramatically,
Speaker 5: and that's likely to mean that we get down to
Speaker 5: something like three to four percent inflation by the end
Speaker 5: of this year. Right now, we're about four to five percent,
Speaker 5: So I'm optimistic that inflation can very well can come
Speaker 5: down very well on its own without any more restriction.
Speaker 5: I think a lot of the inflation was pandemic related.
Speaker 5: It was a shock that had been after shocks, and
Speaker 5: I think we're sort of normalizing.
Speaker 2: Did jar Danny you talk about a broadening market? Helped
Speaker 2: me with package goods. Some of them are trading at
Speaker 2: nineteen twenty twenty one times earnings. Am I supposed to
Speaker 2: acquire new shares in those companies? I mean, I'm just
Speaker 2: just dazzled by the idea of buying new shares at
Speaker 2: a twenty one multiple that's got a single digit slow,
Speaker 2: single digit revenue growth.
Speaker 5: You know, the bearers have been certainly right about the
Speaker 5: fact that we have really never seen a situation where
Speaker 5: a bull market got started with multiples basically at fair value.
Speaker 5: The forward pe, the forward pe of the S and
Speaker 5: P five hundred was fifteen point one on October twelfth
Speaker 5: when the market bottomed, and that is troubling to a
Speaker 5: lot of people. But the reality is, if you take
Speaker 5: out the megacap eight, which are unusual stocks, you get
Speaker 5: a multiple of about sixteen, so again it's closer to
Speaker 5: fair value, whereas with them you're at eighteen eighteen and
Speaker 5: a half. So I think you have to really kind
Speaker 5: of slice and dicely the stock market and look for
Speaker 5: where the value is right now. And as I said,
Speaker 5: it's beating up financials that seem to be pretty good values.
Speaker 5: Industrials I don't think have discounted what we're seeing with
Speaker 5: on shoring and with building the chip plants in the
Speaker 5: United States, electric vehicle battery plants and so on. So
Speaker 5: I think there are still opportunities in the market.
Speaker 7: Great to catch up at what a coal just to
Speaker 7: be constructive. So far through this year, mine's constructive authorny research.
Speaker 7: Talking of the financials, let's continue on now when we
Speaker 7: do so with Jeffer you visiting with Paul Sweeney yesterday.
Speaker 2: It is b N Y Melon conference in Florida, and
Speaker 2: its jetted up to join us. He's senior market strate
Speaker 2: to just be and y Melon. It's a quiet period,
Speaker 2: but it's not a quiet period. I'm gonna ask you
Speaker 2: an open question to start equities, bonds, currencies come out
Speaker 2: of these, Where is your single focus now in.
Speaker 9: The I think those single focus is we need to
Speaker 9: acknowledge high for longer. By single focus is those residual
Speaker 9: fed cuts that still seem to be the market is
Speaker 9: intent on pricing and heading into next January probably needs
Speaker 9: to get rid of them.
Speaker 4: Now. We talked about the fog as being sort of
Speaker 4: a metaphor right now for a lot of the uncertainty
Speaker 4: that we have in the market. It's unfortunate and convenient. However,
Speaker 4: I do wonder how much this lack of conviction makes
Speaker 4: you have all that much more conviction in cash, because
Speaker 4: if you could just sit there and earn something, you know,
Speaker 4: even if you're not through, you know, throw blowing it
Speaker 4: out of the water. It's better than nothing.
Speaker 9: That's been the theme that we've observed in our flows
Speaker 9: and for the best part of the last six probably
Speaker 9: six months, if not longer. But having said that, there
Speaker 9: is one new dynamic seemingly coming through things of flat lines.
Speaker 9: So people not adding to more cash because they're seeing
Speaker 9: that allocations are just solo right now to risk and
Speaker 9: are the institutional investors that we custod for. I think
Speaker 9: they're starting to push some funds, not speculatively a bit
Speaker 9: or opportunistically, but they're looking at valuation and they're looking
Speaker 9: at the growth environment. It could be a bit more
Speaker 9: benign than we give it credit for, so funds are
Speaker 9: actually being pushed back in.
Speaker 4: In the next half hour, we're going to speak with
Speaker 4: Eddie Danny who's going to talk about the Mother of
Speaker 4: all meltups Mammo as he calls it. And I'm wondering
Speaker 4: how much this positioning right now of an increasing amount
Speaker 4: of cash is actually being fuel for this mother of
Speaker 4: our meltups. It could be coming.
Speaker 9: I think it is going to be the fundamental ass
Speaker 9: allocation story for the second half of the year. But
Speaker 9: on top of that, the macro picture is can we
Speaker 9: dirt and visage maybe a soft landing, and Gun was
Speaker 9: having a few conversations around this. If we can get
Speaker 9: to say year end with still pay rolls around two
Speaker 9: hundreds hundred and fifty thousand, but core inflation core PC
Speaker 9: on the way down to four four and a half percent,
Speaker 9: I think that is a good environment. That's a good result.
Speaker 9: So if that translates into the corporate profitability, stability and
Speaker 9: earnings growth as well, then with the cash on the
Speaker 9: sidelines your better return profile, why not push cash back
Speaker 9: into equity.
Speaker 7: I feel like right now there's two different views. Either
Speaker 7: you just sit in cash take five or you go
Speaker 7: to AI and chase types and dreams something in between.
Speaker 9: Right now, for you, it's that bubble story as well.
Speaker 9: If there's still one asset class I have of conviction
Speaker 9: on globally, I think it's an emerging market at asset
Speaker 9: it's a lot of interest in Latin right now. The
Speaker 9: benefiting from a US story is still positive. I do
Speaker 9: think a China stimulus is coming as well on the
Speaker 9: commodity side, and see credibility in that region. In terms
Speaker 9: of positive real rates, we always go back to the
Speaker 9: real rate story. The FED is giving you a one
Speaker 9: percent or so real rate buffer, but in Latin they're
Speaker 9: giving you two three, if not higher. So in terms
Speaker 9: of asset allocation, the residual flow, I think a lot
Speaker 9: can go there.
Speaker 7: To China stimulus. What do you expecting.
Speaker 9: So if we use the benchmark and from from years
Speaker 9: ago where they had that tax cut round as around
Speaker 9: two trillion woman b mark, that is the baseline that
Speaker 9: the bare minimum to really make a difference to the data.
Speaker 9: But on top of that, I think there needs to
Speaker 9: be a shift in expectations. You know, when I was
Speaker 9: there for the first time in many, many years a
Speaker 9: few months ago, you know, there was just this palpable
Speaker 9: fear that things could still go back to, you know,
Speaker 9: where they were a few months ago. But that clearly
Speaker 9: is not the case near right now. So there's got
Speaker 9: to be a governmental push, but again encouraging the private
Speaker 9: sector that they can leverage, they can add to their
Speaker 9: balance sheets and move on according because China has been
Speaker 9: de risking, deleveraging of the last two years.
Speaker 2: To China, and it's the last twenty four hours has
Speaker 2: been just extraordinary. How do you treat the IMF's cautious
Speaker 2: five year view, even what Oas did yesterday. Do you
Speaker 2: just instantly say I want to be suspect of that
Speaker 2: and take a contrarian, more optimistic view and global GDP.
Speaker 9: Well, I think global GDP is reflective of you know,
Speaker 9: where global productivity is, where global demographics are. You know,
Speaker 9: China's own growth forecast. If we go back to March,
Speaker 9: you know when they came out with the growth targets
Speaker 9: the NPC that was considered conservative at the time, especially
Speaker 9: if we take into account the rebound and the remands
Speaker 9: and coming through. But then if that is a warning signal,
Speaker 9: then I think it gives the impetus for government suspend
Speaker 9: to invest, a boost productivity, to boost growth and get
Speaker 9: things in a back on track.
Speaker 2: Leilan Miller at China Basebook is heated that the street
Speaker 2: has this wrong. He's far more optimistic of the domestic
Speaker 2: Chinese experience and says it'll even come over to a
Speaker 2: Pacific room statement, is this the mother of opportunities?
Speaker 1: Were missing?
Speaker 9: I wouldn't say it's the mother of all opportunities, but
Speaker 9: given the last three years, you know, China's almost been
Speaker 9: an afterthought in terms of AUST allocation because of lockdown,
Speaker 9: because of other factors. There is an opportunity set there
Speaker 9: as well. But having said that, going to the fiscal story,
Speaker 9: that's also one thing I deeply worry about globally right now.
Speaker 9: When the IMFIR and with them Chancellor Hunt just upgraded
Speaker 9: reports for the UK, one thing joor jy Over said was,
Speaker 9: please don't do additional fiscal stimulus right now. We've seen
Speaker 9: what happened in Turkey before the elections. We've seen what's
Speaker 9: happening in Poland right now New Zealand for example, pushing
Speaker 9: through stimulus that's lasting. Central banks certainly right now, to
Speaker 9: be honest, even the debt se debate, maybe the fiscal
Speaker 9: h consolidation, shall we say, was barely anything. So central banks,
Speaker 9: you know, they need some help from the governments.
Speaker 4: That was the most diplomatic way of saying they actually
Speaker 4: didn't make any progress and cutting any kind of spending
Speaker 4: whatsoever in the debt celling debate. Just sort of putting
Speaker 4: this all together. This is a time of media reviews. Yes,
Speaker 4: and there were a number of high conviction trades in
Speaker 4: the first half that were absolutely demolished annihilated. What are
Speaker 4: some of the conviction trades heading into the second half
Speaker 4: that you're concerned about and I think about the conviction
Speaker 4: trades that you talked about of AI in Lancash right.
Speaker 9: So in terms of AI, do we want to think
Speaker 9: you know that is that you do have a growth story,
Speaker 9: you have the innovation story, but is there a Tina
Speaker 9: focus in there? Again, and I do have some cash
Speaker 9: allocations to push for I will just go with via
Speaker 9: Tina theme. So I think that is one thing to
Speaker 9: bear in mind. But going back to my earlier point
Speaker 9: about FED cuts need to be priced at, one conviction
Speaker 9: view that we have is this high for longer narrative globally,
Speaker 9: and we're talking about potentially no cuts from major central
Speaker 9: banks at all until at least the second half of
Speaker 9: next year, whereas you know, that is not something that's
Speaker 9: priced and I would say the FED or anywhere globally
Speaker 9: because it's sticky inflation, persistent inflation, and fiscal is only
Speaker 9: going to make that worse. And we've got quite a
Speaker 9: few elections near coming up globally over the next eighty
Speaker 9: months as well, and we love electoral giveaways on the
Speaker 9: fiscal side, don't we. So that's where curve steepening bond yields.
Speaker 9: Will we even be looking at, say JGB ten years
Speaker 9: at one and a half a century, West teams are
Speaker 9: going to come through.
Speaker 7: A Jeff, that's interesting. Jeff, you there have been my man,
Speaker 7: and looking forward to eighteen months of politics and financial
Speaker 7: market volatility.
Speaker 1: I'm golf now.
Speaker 2: It would pay it to some to talk to somebody
Speaker 2: that actually understands sport. John Garrimandi is a Democrat from Sacramento,
Speaker 2: but far more than that, he's someone at Berkeley who
Speaker 2: was second team All American in football. He is someone
Speaker 2: that had a legit football prospect with the Dallas Cowboys
Speaker 2: and the Oakland Raiders, and he said, now I'm going
Speaker 2: to go over to the Peace Corps with the love
Speaker 2: of my life to Ethiopia, and that was the end
Speaker 2: of his football career. He did so well in California politics,
Speaker 2: Lieutenant governor, of course, insurance commissioner, and joins us here
Speaker 2: on the combat of modern sport. John, I can imagine
Speaker 2: the Saudis wanting to buy the Dallas Cowboys or something
Speaker 2: like it. Compare your analysis of this golf transaction regulation
Speaker 2: and monopoly with the shock if the Saudis or someone
Speaker 2: wanted to buy the Dallas Cowboys.
Speaker 10: Well, actually that kind of thing has happened in the
Speaker 10: soccer leagues of the world. The super wealthy, some of
Speaker 10: them from the Middle East, do own one of the
Speaker 10: key soccer teams in Europe. So yes, it does happen.
Speaker 10: But this situation in golf is really unparalleled. What has
Speaker 10: happened is.
Speaker 6: That the.
Speaker 10: Leagues, the PGA leave and the European leagues have formed
Speaker 10: a monopoly and they do not pay American taxes, so
Speaker 10: they can come into the United States make billions, which
Speaker 10: certainly the PGA already had at least a billion and
Speaker 10: a half annual revenue, and it considers itself a charity
Speaker 10: and does not pay corporate or any taxes at all.
Speaker 6: So we're going to end that piece of it.
Speaker 10: With regard to the monopoly, if I were a professional
Speaker 10: wanted to be a professional golfer, I have no choice
Speaker 10: now but to bend my knee to this new monopoly.
Speaker 10: And if I wanted to sell golf clubs or I
Speaker 10: had a golf course, I've only got one choice.
Speaker 6: I'm going to have to take whatever they offer to me.
Speaker 2: Gauge the bipartisan support. What's so different about Gara Mendi, Folks,
Speaker 2: is he's been in the depths as insurance commissioner in California.
Speaker 2: Trust me, it's the worst job in California. So John,
Speaker 2: explain to me how you're going to garner bipartisan support
Speaker 2: against the lobbying of the golf people. But frankly, the
Speaker 2: lobbying of football, basketball, hockey, and the rest.
Speaker 10: Well, hockey, basketball and the rest did have the same exemption.
Speaker 10: But over the years beginning all almost a decade and
Speaker 10: a half ago, those exemptions were eliminated. And they do
Speaker 10: pay taxes based on their net income. So there's only
Speaker 10: one left, and that's the PGA. It considers itself to
Speaker 10: be a charity, does not pay taxes on their income.
Speaker 10: They're exempt from corporate taxation. We're going to end that.
Speaker 10: I think we got a real good shot at it. Interestingly,
Speaker 10: in the twenty seventeen Trump Republican tax cut, this tax exemption,
Speaker 10: in the early drafts of that bill was there to
Speaker 10: be eliminated. A fellow by whose initials were let's see
Speaker 10: j N contacted the President or somebody in Congress and said,
Speaker 10: oh no, no, you can't do away with the tax exemption,
Speaker 10: and it was removed in the final version of the
Speaker 10: twenty seventeen tax bill. It's been floating around for a
Speaker 10: long while, the elimination of this exemption. My staff for
Speaker 10: one of my legislative guy he wakes up in the
Speaker 10: middle of nights and tries to identify the worst grossest
Speaker 10: tax loopholes, and this was on his list. Yeah, he
Speaker 10: pulled it out yesterday and said, why don't we run
Speaker 10: with this and eliminate this gross tax loophole.
Speaker 4: Congressman, There's a larger issue here as well, when it
Speaker 4: comes to US relations with the Middle East, with some
Speaker 4: of the areas that are trying to plow into a
Speaker 4: lot of the major sports that people really depend on,
Speaker 4: including golf. I'm wondering how much pushback you're getting from
Speaker 4: within your own party, especially at a time when Tony
Speaker 4: Blinkin right now is meeting with over in Riad with
Speaker 4: MBS trying to work out some peace tale. How much
Speaker 4: are people unwilling to really poke the bear in this
Speaker 4: particular instance.
Speaker 10: Well, we ought to do more than poke the bear.
Speaker 10: It really really angers me that we are forced to
Speaker 10: bend our knee to NBS, to Saudi Arabia that has
Speaker 10: the worst human rights record perhaps in the world, and
Speaker 10: we know h has assassinated and then hacked up a
Speaker 10: journalist who was critical of Saudi Arabia.
Speaker 6: We should never.
Speaker 10: Ever put ourselves in the position of being subservient to anybody,
Speaker 10: and certainly certainly not to Saudi Arabia. Now, just keep
Speaker 10: in mind, they've stuck the United States and really the
Speaker 10: world with an increase in petroleum prices. Just in the
Speaker 10: last week they decided to cut their production, the result
Speaker 10: of which is America is going to wind up paying
Speaker 10: more for the gasoline and fuel that we consume. At
Speaker 10: the same time, this merger is going to give Saudi
Speaker 10: Arabia access to the American market, access to American money,
Speaker 10: and not have to pay taxes.
Speaker 6: That just really pisses me off.
Speaker 4: Well, I just again, I wonder, though, and to your point,
Speaker 4: how much you have support from other members of the
Speaker 4: Congress at a time when they don't want necessarily opek
Speaker 4: plus making another They don't want a continuation of these cuts,
Speaker 4: they don't want oil prices to keep going up. How
Speaker 4: do they sort of gain leverage at a time where
Speaker 4: they might be equally angered as you, but might have
Speaker 4: these other interests as well.
Speaker 10: Well, let's put it this way. If Saudi Arabia thinks
Speaker 10: it can come to America, run a business in America
Speaker 10: and not pay taxes. Something is seriously wrong with that equation.
Speaker 10: And that's exactly where the situation is today. And we
Speaker 10: as Americans ought to say, yeah, fine, if you like
Speaker 10: this merger, I do not. But if you like this merger,
Speaker 10: then go ahead. But by God, you're part of this system,
Speaker 10: then you're going to pay taxes.
Speaker 6: And that's that.
Speaker 10: You're not a charity by any stretch of the imagination.
Speaker 10: And this loophole, this gross tax loophole, simply has to end.
Speaker 2: Congressman ten years ago or so, you decided that the
Speaker 2: nation had to honor a golfer named Jets. You put
Speaker 2: in legislation in the House. I'm not sure quite how
Speaker 2: it came out, but I want you to comment on
Speaker 2: a time past of Garamendy, on Palmer Nicholas and the
Speaker 2: sportsmanship that's out there. I saw that at Okill at
Speaker 2: the PGA Tournament of a couple weeks ago. It sounds like,
Speaker 2: because of greed and money, we're blowing up what we knew.
Speaker 2: What can your shop on Capitol Hill do to get
Speaker 2: out front of this?
Speaker 10: Well, there are two specific issues in play here. One
Speaker 10: is the tax loophole which my legislation would close, and
Speaker 10: this new monopoly would then have to pay corporate taxes
Speaker 10: adds with any other corporation, and that raises a whole
Speaker 10: other question about American corporations that do not pay taxes,
Speaker 10: But we'll let that go for a while. The other
Speaker 10: issue is one of competition, and what has been created
Speaker 10: here is an international monopoly on professional golf. That race
Speaker 10: is very very serious questions of competition or no competition.
Speaker 10: So they said at the outset here, if I wanted
Speaker 10: to be a professional golfer, I could have chosen to
Speaker 10: play golf in Europe, or in the United States, or
Speaker 10: in this new leave league.
Speaker 6: Now I have but one choice.
Speaker 10: I'm going to have to take whatever this new league
Speaker 10: offers me, and I have no negotiation opportunity. Similarly, if
Speaker 10: I have a golf course, I don't know, call it
Speaker 10: Deadmaster Trump's golf course, he could have gone and negotiated
Speaker 10: with two different leagues for the use of his golf course.
Speaker 10: Now he's going to take whatever they offer him. He's
Speaker 10: just no choice. There was a monopoly this year, and
Speaker 10: I would expect Congress.
Speaker 6: To take that up. And if we don't, certainly the
Speaker 6: European Union should congresson.
Speaker 1: Thank you so much.
Speaker 2: It's a gentleman from Sacramento, the Democrat John Berrimandy. Subscribe
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Speaker 1: Thanks for listening. I'm Tom Keen, and this is Bloomberg