WEBVTT - A Big Risk to Internet Companies 0:00:05.800 --> 0:00:08.720 Welcome to the Bloomberg p m L Podcast. I'm pim Fox. 0:00:08.760 --> 0:00:11.520 Along with my co host Lisa Bramowitz. Each day we 0:00:11.640 --> 0:00:15.120 bring you the most important, noteworthy, and useful interviews for 0:00:15.200 --> 0:00:17.840 you and your money, whether you're at the grocery store 0:00:17.960 --> 0:00:20.720 or the trading floor. Find the Bloomberg p m L 0:00:20.840 --> 0:00:31.240 Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot Com. Lots 0:00:31.240 --> 0:00:34.400 of news overnight on a big tech and here to 0:00:34.400 --> 0:00:36.080 break it down with us as Shia overday, She's a 0:00:36.080 --> 0:00:40.199 Bloomberg gad Fly columnists covering all things technology. Uh, and 0:00:40.280 --> 0:00:42.519 she writes triffic columns. You definitely should read them Bloomberg 0:00:42.560 --> 0:00:45.960 dot Com slash god Fly Shira. I want to start 0:00:46.000 --> 0:00:50.080 actually with a development where you have big technology companies, 0:00:50.159 --> 0:00:54.280 namely Google and Facebook opposing a bill that was raised 0:00:54.360 --> 0:00:59.120 in US Congress to prevent child sex trafficking, which seems 0:00:59.160 --> 0:01:02.400 like not really that good of a thing to oppose, 0:01:02.600 --> 0:01:06.039 because it seems like you should want to oppose child 0:01:06.120 --> 0:01:09.160 sex trafficking. What's going on? Right? So there there's this 0:01:09.280 --> 0:01:13.600 some bill circulating about ads on backpage dot com, which 0:01:13.680 --> 0:01:17.000 is a website that is sometimes used for nefarious purposes. 0:01:17.240 --> 0:01:20.720 And look the backdrop here why Google and Facebook are 0:01:21.080 --> 0:01:24.560 opposing this and other measures and congresses. They are terrified 0:01:24.880 --> 0:01:28.840 of UH having legal responsibility for what their users do 0:01:28.920 --> 0:01:32.880 on their websites, and that can be child child sex 0:01:32.920 --> 0:01:37.480 trafficking or can be if I UM have Beyonce's latest 0:01:37.520 --> 0:01:42.119 album and post it on YouTube, right, Google doesn't want 0:01:42.240 --> 0:01:47.520 legal responsibility for that music piracy either. But this also 0:01:47.600 --> 0:01:52.080 raises a question of the access that government has to 0:01:52.200 --> 0:01:56.160 prevent some of these nefarious activities that are conducted via 0:01:56.240 --> 0:02:00.760 Google via Facebook. UM. If you know the company themselves 0:02:00.800 --> 0:02:03.560 won't do it because they have are concerned about privacy, 0:02:03.720 --> 0:02:06.160 does that open up the door to the government saying 0:02:06.400 --> 0:02:08.679 we want to weigh in, we want to do that. Well, 0:02:08.960 --> 0:02:12.600 I mean, I'll just stipulate that Google and Facebook do 0:02:12.639 --> 0:02:16.160 not want child sex trafficking on their websites. That is 0:02:16.200 --> 0:02:19.520 not good for anybody. It is illegal. They have large 0:02:19.520 --> 0:02:22.000 groups of people that try to weed out this stuff 0:02:22.560 --> 0:02:26.240 UM from popping up on on their websites and apps. 0:02:26.280 --> 0:02:28.960 So it's not like they're doing nothing. It's again they're 0:02:29.000 --> 0:02:31.640 trying to do something both because they want to be 0:02:31.680 --> 0:02:34.160 responsible and it's in their interest to do so to 0:02:34.360 --> 0:02:38.880 avoid UM regulation. Because that's what they're trying to prevent. Uh. 0:02:39.320 --> 0:02:41.560 And the regulation they're trying to prevent is not because 0:02:41.560 --> 0:02:44.480 of a child sex trafficking stuff, but it's for things 0:02:44.520 --> 0:02:49.640 that are less nefarious. Again, um, piracy of music and videos, 0:02:49.960 --> 0:02:52.000 things that happen more common, that are do not have 0:02:52.080 --> 0:02:56.600 a negative consequences, but still have business ramifications for Google 0:02:56.600 --> 0:02:59.080 and Facebook. When you say business ramifications, you mean they 0:02:59.120 --> 0:03:00.800 still want to make a lot of money and they 0:03:00.840 --> 0:03:03.280 don't want to take any responsibility for what goes on 0:03:03.320 --> 0:03:05.640 their sites. Yes, they do not want to be in 0:03:05.639 --> 0:03:10.120 a position where they are blocking people from posting stuff 0:03:10.760 --> 0:03:15.440 because it might have a clip from Beyonce's latest music. Right. Um, okay, 0:03:15.440 --> 0:03:17.920 so wait a minute here. The Internet was funded by 0:03:17.960 --> 0:03:20.720 the US tax pair when you pay your cable or 0:03:20.760 --> 0:03:22.760 your mobile bill, or any kind of bill that allows 0:03:22.760 --> 0:03:26.080 you access, whether it's WiFi or lte, whatever you want 0:03:26.120 --> 0:03:28.799 to talk about their attaxes in there, so we continue 0:03:28.840 --> 0:03:31.799 to subsidize the very platform that they use in order 0:03:31.840 --> 0:03:35.080 to make billions and billions of dollars selling ads to people. Right, 0:03:36.000 --> 0:03:40.080 that's probably fair. I mean there, so they want but 0:03:40.120 --> 0:03:45.440 they want to make all the money, Yes, I sure, Yes, 0:03:45.480 --> 0:03:47.840 I mean they take a lot of risk of their 0:03:48.000 --> 0:03:50.240 on their business too, and they're creating a lot of 0:03:50.240 --> 0:03:53.720 Internet infrastructure that didn't exist before. But I hear what 0:03:53.760 --> 0:03:55.520 you're saying, but it's like you know, being you know, 0:03:55.600 --> 0:03:58.040 being able to have access to the public trunk system. 0:03:58.080 --> 0:03:59.480 I mean, you used to have to have an FCC 0:03:59.640 --> 0:04:03.200 license in order to And look, the interesting phenomenon that's 0:04:03.240 --> 0:04:05.200 really happened in the last year or so is that 0:04:05.240 --> 0:04:08.280 you're seeing um political figures on the left and on 0:04:08.320 --> 0:04:11.720 the right, including people like Steve Bannon, making an argument 0:04:11.800 --> 0:04:16.720 for regulating these companies like telephone companies, basically like regulated 0:04:16.800 --> 0:04:19.800 monopolies like phone companies. And this is this is a 0:04:19.839 --> 0:04:23.280 crucial point because you have people on the right like 0:04:23.400 --> 0:04:27.040 Steve Bannon, and you have people on the left also saying, 0:04:27.080 --> 0:04:30.039 you know what, these companies are getting too big and 0:04:30.080 --> 0:04:33.480 a little bit frightening and we need to impose more regulations. 0:04:34.040 --> 0:04:36.000 Does that make it more likely that there will be 0:04:36.080 --> 0:04:39.000 some sort of anti trust movement or at least something 0:04:39.040 --> 0:04:43.080 that would undermine some of the profitability of of these companies. 0:04:43.240 --> 0:04:46.320 I think that's the biggest question for these Internet companies 0:04:46.400 --> 0:04:51.960 is what is the regulation um and potential anti trust 0:04:52.040 --> 0:04:54.760 or regulatory crackdown look like in coming years. I think 0:04:54.760 --> 0:04:58.080 that's the biggest potential risk if you're Google or Facebook 0:04:58.160 --> 0:05:01.320 or Amazon. So what are some of the ideas that 0:05:01.400 --> 0:05:04.560 have been stipulated to with respect to what that kind 0:05:04.560 --> 0:05:06.799 of regulates. Right, So there's the sort of Steve Bannon idea, 0:05:06.960 --> 0:05:11.280 let's regulate these companies like utilities. Um. You know, there's 0:05:11.320 --> 0:05:14.440 this interesting academic argument that's been making the rounds this 0:05:14.520 --> 0:05:18.760 year about particularly around Amazon, applies to other companies too, 0:05:19.040 --> 0:05:21.799 of basically looking at US anti trust law and saying 0:05:21.839 --> 0:05:26.200 that this has become too narrowly focused on prices, on 0:05:26.279 --> 0:05:28.880 whether you know, our companies so big that they have 0:05:29.040 --> 0:05:30.800 the power to raise prices. If you look at a 0:05:30.800 --> 0:05:33.920 company like Amazon, it's doing the opposite, right. So the 0:05:34.040 --> 0:05:38.440 academic argument that's making the rounds, um, a leftist academic 0:05:38.520 --> 0:05:42.080 argument is let's look at other aspects of how these 0:05:42.080 --> 0:05:47.520 companies are abusing their power beyond pricing. Um, are they 0:05:48.080 --> 0:05:52.760 squashing the ability of you know, smaller companies to compete 0:05:53.240 --> 0:05:56.040 or to sell their companies on platforms like Amazon at 0:05:56.400 --> 0:05:58.960 on the same terms as Amazon itself. So it's again 0:05:59.000 --> 0:06:01.680 there's really thing things happening. I do not know if 0:06:01.680 --> 0:06:05.320 anything is really going to happen, but I agree that 0:06:05.360 --> 0:06:09.080 this kind of political and regulatory scrutiny is a huge 0:06:09.160 --> 0:06:12.720 business risk for Internet companies. Sure, do you feel that 0:06:12.839 --> 0:06:16.760 public utility commissions at the state level would like to 0:06:16.920 --> 0:06:21.520 be responsible for setting the rules and regulations about access 0:06:21.880 --> 0:06:25.440 to the Internet via these companies? I don't know. I 0:06:25.480 --> 0:06:28.400 don't know what professional regulators want. I mean, I mean 0:06:29.040 --> 0:06:31.120 regulators like to regulate. Well, let me just ask it 0:06:31.160 --> 0:06:34.640 another way. Do you feel that these companies are public utilities? 0:06:36.480 --> 0:06:38.479 I don't know. I don't know. I mean, if you 0:06:38.880 --> 0:06:40.359 have a good argument, I mean, if you could, if 0:06:40.400 --> 0:06:42.479 you if someone pulled the plug on your Facebook or 0:06:42.480 --> 0:06:47.320 your Google, um, you'd miss them for sure, Okay, for sure. 0:06:47.320 --> 0:06:49.760 But I don't know if that's the definition of a utility. 0:06:49.800 --> 0:06:51.680 I'm not you know, I'm not going to try to 0:06:51.720 --> 0:06:56.920 make legal Yeah, I don't know. Is the fairest answer? Interesting? 0:06:57.000 --> 0:06:59.200 All right, Well, obviously this is not a topic that's 0:06:59.200 --> 0:07:02.880 going away anytime soon. Um. Interesting how the intersection, as 0:07:02.920 --> 0:07:06.600 you said, Lisa, business government, particularly when it comes to 0:07:06.600 --> 0:07:08.920 the Internet. And we didn't even talk about the latest development, 0:07:08.920 --> 0:07:12.040 which is that Google is investing in lift uh, and 0:07:12.040 --> 0:07:14.840 they already have an investment in ubers. They're just you know, 0:07:15.240 --> 0:07:17.400 going towards world domination that way. Yea. I wonder if 0:07:17.440 --> 0:07:20.280 they'll pay taxes for using all those roads. Yeah. Um. 0:07:20.400 --> 0:07:23.680 Shia Overday, thank you very much. Technology columnists for Bloomberg 0:07:23.760 --> 0:07:38.680 gad Fly. Follow her on Twitter at Shira Overday. I'm 0:07:38.680 --> 0:07:41.200 want to bring in Henry Peabody. He is a portfolio 0:07:41.240 --> 0:07:43.800 manager at Eaton Vance, helping to manage more than three 0:07:43.880 --> 0:07:47.480 hundred billion dollars. He is at the Harvard Science Lab 0:07:47.520 --> 0:07:50.880 today in Boston. And Uh, Henry, thank you for being 0:07:51.000 --> 0:07:52.880 with us. I wonder if you could begin by just 0:07:52.920 --> 0:07:55.680 talking a little bit about the concept of liquidity and 0:07:55.720 --> 0:08:01.760 how that plays into what you believe people experienced investors 0:08:01.840 --> 0:08:05.600 and knowledgeable investors will do if, indeed, we do not 0:08:05.920 --> 0:08:11.000 get an interest rate increase this year from the Federal Reserve. Well, 0:08:11.520 --> 0:08:14.720 you know, liquidity, in our minds is not only what 0:08:14.920 --> 0:08:17.760 the Federal Reserve and central banks provide to the market, 0:08:17.800 --> 0:08:21.240 but it's also um a function of the ability to 0:08:21.280 --> 0:08:23.480 get in and out of positions. And you know, when 0:08:23.520 --> 0:08:27.640 we think about the markets and the risk potentially to 0:08:28.120 --> 0:08:33.120 higher rates and really how crowded positioning has become UM 0:08:33.200 --> 0:08:38.080 in index like products in core bond in rates and 0:08:38.160 --> 0:08:41.640 duration UM. It's something to consider. And what we're seeing 0:08:41.679 --> 0:08:43.840 today and over the past few days at least in 0:08:43.880 --> 0:08:47.760 the credit markets has been a big flood into new issue, 0:08:47.880 --> 0:08:51.080 which signals to us that there's a lot of demand 0:08:51.120 --> 0:08:55.880 out there for relatively high quality paper, which when turned 0:08:55.960 --> 0:08:58.480 the other way, UM, we're not really sure how the 0:08:58.520 --> 0:09:01.320 market is going to behave and it's important to maintain 0:09:01.360 --> 0:09:04.480 a bit of a defensive posture against that. So Henry, Uh, 0:09:04.679 --> 0:09:08.000 you know, you're you're illuminating some issues that a number 0:09:08.200 --> 0:09:12.720 of big investors have been talking about recently. Gallop Capital 0:09:12.800 --> 0:09:15.720 chief executive officers said overnight in a Bloomberg television interview 0:09:15.720 --> 0:09:17.960 in Asia that investors are not getting paid for the 0:09:18.040 --> 0:09:21.360 risks they're taking, particularly in US boardinated debt. I'm wondering, 0:09:21.400 --> 0:09:24.720 how do you maintain a defensive posture when you're seeing 0:09:24.880 --> 0:09:28.880 this kind of flood of cash going into in particular 0:09:28.920 --> 0:09:33.120 the highest quality paper, arguably pushing up values there more 0:09:33.160 --> 0:09:36.160 than anywhere else. You know, you hit the nail, run 0:09:36.240 --> 0:09:38.240 the head, and I think that what you need to 0:09:38.280 --> 0:09:42.400 do is both maintain liquidity in the form of cash, 0:09:42.600 --> 0:09:45.800 and don't forget the cost of holding that cash in 0:09:45.840 --> 0:09:49.480 the form of drag or actually foregone income is relatively 0:09:49.520 --> 0:09:51.880 low today. UM. The other thing you need to do 0:09:51.920 --> 0:09:55.440 is stay very diversified. UM. There's a great opportunity today 0:09:55.920 --> 0:09:59.880 to spread risk out among various asset classes and taking 0:10:00.000 --> 0:10:05.760 manage your flexibility. UM. Diversifying to local denominated, emerging and 0:10:05.800 --> 0:10:08.480 developed market debt depending on where you look, is an 0:10:08.480 --> 0:10:12.720 attractive place. Diversifying into, for example, folding rate loans or 0:10:12.760 --> 0:10:16.840 the high yield space when valuations are attractive, It's it's 0:10:16.920 --> 0:10:22.280 good to spread those bets out because benchmark like strategies 0:10:22.280 --> 0:10:26.840 have gone very far, and when the tide turns, you 0:10:26.920 --> 0:10:29.680 need to know where that liquidity is going to be demanded, 0:10:30.000 --> 0:10:32.120 who's demanding it, and what the net result on the 0:10:32.160 --> 0:10:34.559 market is going to be. And it's it's wise to 0:10:34.640 --> 0:10:37.560 stay clear of much of that risk. Here. I just 0:10:37.600 --> 0:10:39.839 want to point out that you're eating vance Multi sector 0:10:39.920 --> 0:10:42.319 income fund, which you help to oversee. It's about five 0:10:42.640 --> 0:10:46.120 million dollar fund has performed better than ninety nine percent 0:10:46.400 --> 0:10:49.760 of its peers over the past year to date and 0:10:49.960 --> 0:10:52.800 including the past twelve months, so far this year, you're 0:10:52.880 --> 0:10:57.000 up almost ten percent UM. Interesting that you're saying to 0:10:57.040 --> 0:10:59.679 go more towards cash. What's your boldest bet right now? 0:11:01.080 --> 0:11:04.200 Right now, the biggest level we have pulled is the 0:11:04.600 --> 0:11:07.600 non dollar space, and that's responsible for roughly half of 0:11:07.600 --> 0:11:12.360 that performance this year. UM. The dollar, you take, take, positioning, 0:11:12.440 --> 0:11:16.400 you take valuation, UM, you think about the influence that 0:11:16.480 --> 0:11:19.079 the U S has globally or or or sometimes lack 0:11:19.120 --> 0:11:23.360 thereof UM growth in Asia and synchronized global growth, and 0:11:23.760 --> 0:11:27.960 it all paints to our points to a weaker dollar. UM. 0:11:28.040 --> 0:11:30.400 We've moved a long way, and we could very well pause. 0:11:30.840 --> 0:11:34.880 But if you're able to look at individual countries across 0:11:34.960 --> 0:11:39.319 the span of the globe, not necessarily allocate to those indices, 0:11:39.720 --> 0:11:42.160 because as many of your guests point out, there's a 0:11:42.200 --> 0:11:45.920 great deal of richness in some of those inducries and concentration. 0:11:46.040 --> 0:11:49.240 But look at reform stories, look at Asian growth, look 0:11:49.280 --> 0:11:52.320 at the lack of populism and Latin for example, and 0:11:52.360 --> 0:11:56.160 you can get exposure to very positive fundamentals away from 0:11:56.520 --> 0:12:00.960 US credit and interest rate risk. So that flexibility to 0:12:01.000 --> 0:12:05.240 go across geographies and industries UM is fairly important in 0:12:05.280 --> 0:12:08.599 fixed income where things are valued very dearly, Henry, do 0:12:08.640 --> 0:12:10.600 you ever feel that you're whistling in the wind when 0:12:10.600 --> 0:12:13.800 it comes to talking about individual bond issues in a 0:12:13.880 --> 0:12:17.600 world where exchange traded funds and indexes seem to be 0:12:17.679 --> 0:12:22.040 the flavor of the year. It seems it more and 0:12:22.040 --> 0:12:25.240 more these days. However, UM, we're getting to the point 0:12:25.240 --> 0:12:29.000 where we've shown with our results of active management as 0:12:29.040 --> 0:12:32.719 a is a powerful tool in fixed income where opportunities 0:12:32.760 --> 0:12:36.520 to differentiate yourself and take advantage of market and liquidity 0:12:36.520 --> 0:12:38.719 conditions can be a real lever to pulse. So we've 0:12:38.760 --> 0:12:42.199 shown that it works. UM. We also think that where 0:12:42.280 --> 0:12:45.800 the market is now, with that flood of capital into 0:12:46.280 --> 0:12:50.480 one way positioning UM is going to prove exceptionally beneficial 0:12:50.600 --> 0:12:54.880 to investors when those positions are unwound. We don't want 0:12:54.920 --> 0:12:56.599 to be in the way of a great deal of 0:12:56.679 --> 0:12:59.920 capital looking for liquidity. Okay, so let's talk about that unwy. 0:13:00.440 --> 0:13:02.679 First of all, how much have you boosted your cash 0:13:02.679 --> 0:13:05.839 holdings recently? Uh? And and second of all, what would 0:13:05.840 --> 0:13:10.200 prompt that kind of reversal of the crowded positions? So 0:13:10.600 --> 0:13:15.280 we maintain UM, you know, roughly ten to fifteen percent 0:13:15.400 --> 0:13:19.120 cash UM in the fund and it's been that way 0:13:19.200 --> 0:13:24.160 for the recent past. And as for what might cause that, 0:13:24.840 --> 0:13:27.959 looking historically, just look at, for example, the slope of 0:13:27.960 --> 0:13:32.240 the euro dollar curve against funds, and you see that 0:13:32.320 --> 0:13:36.400 the market tends to underappreciate the FED. That the market 0:13:36.480 --> 0:13:40.200 tends to project current conditions in the future. And today 0:13:40.240 --> 0:13:44.080 that's low ball, that's low rates, that's low inflation, that's 0:13:44.080 --> 0:13:48.040 crowded positioning. We like to project that into the future. Collectively, 0:13:48.840 --> 0:13:51.839 the market will underappreciate the FED. Now, we don't need 0:13:52.400 --> 0:13:56.000 for hikes to get some ugly numbers in the tenure note. 0:13:56.000 --> 0:13:58.040 The tenure note has a nine year duration, it trades 0:13:58.160 --> 0:14:00.640 to twenty and it's traded in a hundred basis point 0:14:00.720 --> 0:14:02.480 range over the past couple of years, so you don't 0:14:02.559 --> 0:14:06.360 need much to get some negative numbers and the mark 0:14:06.480 --> 0:14:09.199 the market is not appreciating what the FETE is saying. 0:14:09.679 --> 0:14:13.079 Yellen wants to get the qui unlined up going before 0:14:13.240 --> 0:14:16.800 she potentially loses office. That's a much harder thing to reverse, 0:14:16.920 --> 0:14:19.920 so she wants her legacy to be that to be 0:14:21.520 --> 0:14:25.040 starting to go. So when we see that move higher, 0:14:25.160 --> 0:14:27.560 it's not gonna take much. We could see some of 0:14:27.600 --> 0:14:30.080 this unlined. So right now I'm looking at a tenure 0:14:30.320 --> 0:14:33.320 treasury yield of two point How high would it have 0:14:33.440 --> 0:14:35.600 to go to it to cause some some serious pain 0:14:35.640 --> 0:14:39.640 and which as a class is most vulnerable? UM. Hard 0:14:39.680 --> 0:14:42.440 to judge how high it needs to go to cause pain. UM. 0:14:42.480 --> 0:14:46.000 Probably I think there's probably some technical selling you know, 0:14:46.120 --> 0:14:50.480 north of to something like that. As I speculate, UM, 0:14:51.360 --> 0:14:55.520 the most vulnerable places are that high quality UM space. 0:14:55.640 --> 0:14:58.880 You've seen a flood of of high quality new issuance 0:14:58.920 --> 0:15:03.800 we've seen recent in recent days, focus on hold co issuance, 0:15:03.840 --> 0:15:06.960 focus on Carrie trades, to focus on relative value instead 0:15:06.960 --> 0:15:11.240 of total return preferred you know, coming to get some 0:15:11.280 --> 0:15:15.440 equity treatments. This is very late credit cycle behavior. That 0:15:15.520 --> 0:15:19.120 doesn't mean growth can extend things, but you're starting to 0:15:19.160 --> 0:15:22.800 see behavior that shows UM that the market is getting 0:15:22.800 --> 0:15:25.120 a bit on the extended side. So it's that high 0:15:25.200 --> 0:15:29.200 quality area that is likely subject to some some some 0:15:29.280 --> 0:15:32.840 negative signs and investor disappointment. Henry Peatbuddy, thank you so 0:15:32.920 --> 0:15:35.240 much for joining us. We love talking with you. Henry 0:15:35.240 --> 0:15:38.440 Peabody is a portfolio manager at Eaton Vance, which oversee 0:15:38.440 --> 0:15:42.080 these three hundred billion dollars of assets and is based 0:15:42.440 --> 0:15:55.960 in Boston. All right, let's turn our attention now to 0:15:56.000 --> 0:15:58.720 the US dollar. Have ad buying dollars, selling treasures and 0:15:58.760 --> 0:16:01.480 then waiting for the US Congress and the administration to 0:16:01.560 --> 0:16:05.440 agree on tax cuts. Is that a strategy? Well, Vincent 0:16:05.560 --> 0:16:09.080 Signerella are FX strategist for Bloomberg News, joins us here 0:16:09.080 --> 0:16:13.360 in our studio eleven three oh, Vincent, So is that 0:16:13.400 --> 0:16:16.480 the strategy that you see a lot of professionals employing. No, 0:16:16.560 --> 0:16:21.080 not really the by dollar trade, the Trump trade that 0:16:21.160 --> 0:16:25.680 has been um revised, shall we say, with the with 0:16:25.760 --> 0:16:31.120 the excitement, they're trying to try, as David said, you're 0:16:31.160 --> 0:16:33.600 trying to breathe some life in it. There's optimism everywhere. 0:16:33.600 --> 0:16:35.680 There's a hopium going on in the market right now 0:16:36.120 --> 0:16:39.280 that on September, we want to get a tax plan 0:16:39.640 --> 0:16:44.640 that the Trump administration can put forward and get bipartisan support, 0:16:45.040 --> 0:16:48.080 and we will see fiscal stimulus in two thousand eighteen, 0:16:48.160 --> 0:16:51.240 early in two thousand eighteen. The reality of the situation is, 0:16:51.280 --> 0:16:54.560 from what I've read of it so far, is there's 0:16:54.600 --> 0:16:57.120 a very small chance this is going to be revenue neutral, 0:16:57.200 --> 0:17:00.920 and without a revenue neutral budget, this will pass even 0:17:01.120 --> 0:17:03.280 Mitch McConnell is said he will not vote for a 0:17:03.320 --> 0:17:05.439 budget that is not revenue neutral. Will never get the 0:17:05.440 --> 0:17:08.679 conservatives in the Republican Party on board, certainly won't get 0:17:08.680 --> 0:17:10.680 the Democrats on board. The thing is dead in the water. 0:17:10.840 --> 0:17:14.320 So we'll see this old reverse. Okay, So since we've 0:17:14.359 --> 0:17:18.000 seen the Trump bet just totally destroyed earlier this year 0:17:18.000 --> 0:17:21.000 with the dollar plunging uh the most for a period 0:17:21.119 --> 0:17:25.159 on record in some in some ways, um, I just 0:17:25.240 --> 0:17:27.360 have to wonder, you know, people, you start to get 0:17:27.359 --> 0:17:29.520 conspiracy theorist saying that the dollar isn't going to be 0:17:29.600 --> 0:17:31.840 used as a reserve currency as much, it's not as 0:17:31.920 --> 0:17:34.520 much of a haven currency because of all the uncertainty. 0:17:34.920 --> 0:17:37.040 We're not seeing that much of a surge in the 0:17:37.119 --> 0:17:41.840 dollar on the heels of the yet another nuclear test 0:17:41.920 --> 0:17:45.760 or another missile test anyway by North Korea. What's going 0:17:45.840 --> 0:17:49.160 on here. The reason for that is that every time 0:17:49.200 --> 0:17:51.480 we've seen the dollar rally and every time we have 0:17:51.600 --> 0:17:55.159 seen a treasury sell off this year, it's been a 0:17:55.160 --> 0:17:59.080 great trade to fade. So when you see the situation 0:17:59.080 --> 0:18:03.600 in North Korea and there there's there's not the appetite 0:18:03.600 --> 0:18:06.960 to buy dollars as there was before, because the trade 0:18:06.960 --> 0:18:10.400 tends to revert and and it doesn't hold. So it's 0:18:10.400 --> 0:18:12.480 a very very it has been a very very short 0:18:12.640 --> 0:18:15.080 term game trade not a long term winner. As you 0:18:15.119 --> 0:18:17.840 mentioned this year, it's been a horrible in response by 0:18:17.880 --> 0:18:21.480 the debt. Yeah, I gotta move on just to ask 0:18:21.520 --> 0:18:25.200 you this this and move away from the Pavlovian response concept. 0:18:25.520 --> 0:18:28.560 You mentioned revenue neutral right, having to do with the 0:18:28.760 --> 0:18:32.440 tax reform plan that may or may not actually get past. 0:18:33.119 --> 0:18:35.920 How is it? Is it re election neutral as well? 0:18:35.960 --> 0:18:38.800 I mean, because what I understand Mitch McConnell. You know 0:18:38.840 --> 0:18:41.400 sentiment jarity leader, what he says, but you know all 0:18:41.400 --> 0:18:44.359 these congressmen and women they have to run for re 0:18:44.440 --> 0:18:50.400 election and the president is still popular in the districts 0:18:50.440 --> 0:18:55.200 where a lot of these conservative Republicans represent. What if 0:18:55.240 --> 0:18:58.119 we do get some kind of tax reform plan, what 0:18:58.119 --> 0:19:00.359 does that do? Then you will see the doll rally 0:19:00.440 --> 0:19:01.920 I mean, and you will see a sell off and 0:19:01.960 --> 0:19:05.840 treasuries because there will be essentially a positive fiscal response 0:19:06.280 --> 0:19:07.960 that will happen in two thousand and eighteen. And what 0:19:08.040 --> 0:19:11.120 follows on that is the assumption then that given you'll 0:19:11.119 --> 0:19:13.879 see fiscal stimulus that gives the Fed more room to 0:19:13.920 --> 0:19:16.280 take rates. Now, okay, and I'm just wondering, do you 0:19:16.320 --> 0:19:19.359 also see the possibility that companies will have to take 0:19:19.400 --> 0:19:21.600 the money that they have been using for buy backs 0:19:21.680 --> 0:19:24.840 and uh dividend increases and in order to get increased 0:19:24.840 --> 0:19:28.080 productivity rather than hiring more people. They're going to invest 0:19:28.119 --> 0:19:30.440 it in technology. They're gonna spend it on capital projects. 0:19:30.720 --> 0:19:33.119 They may it depends on what their cost of capital is. 0:19:33.240 --> 0:19:35.440 And that's the whole story about bringing money back overseas. 0:19:35.520 --> 0:19:37.240 If you bring back money overseas, it has to be 0:19:37.320 --> 0:19:39.920 cheaper than your current cost of capital. Otherwise it doesn't 0:19:39.920 --> 0:19:43.520 pay to reinvest. I think that if the dollar does strengthen, 0:19:43.560 --> 0:19:46.840 it's going to tank markets because if you think about it, uh, 0:19:46.960 --> 0:19:52.360 there's exquies well yeah, equities, and wouldn't it also be um. 0:19:52.400 --> 0:19:54.880 I mean, I don't know, I might might. Just I'm 0:19:54.920 --> 0:19:57.080 just seeing all the leverage trades that have been built 0:19:57.160 --> 0:20:01.600 on a week dollar, whether it's emerging markets, currency, emerging markets, 0:20:02.080 --> 0:20:06.159 whether it's oil and gold and things that are priced 0:20:06.200 --> 0:20:08.760 in the dollar. I mean, gold won't do well if 0:20:08.800 --> 0:20:10.800 the dollar rise is no will emerging markets because a 0:20:10.840 --> 0:20:13.760 lot of foreign A lot of the emerging market countries 0:20:14.160 --> 0:20:17.440 have dollar denominated loans, so as the dollar increases, the 0:20:17.680 --> 0:20:20.439 debt becomes more expensive. So e M tends not to 0:20:20.480 --> 0:20:22.280 do well when the dollar relies. And also there's been 0:20:22.280 --> 0:20:25.359 so much money that goes into local currency emerging markets 0:20:25.440 --> 0:20:29.240 from hard currency investors, namely US investors. So if the 0:20:29.320 --> 0:20:33.280 dollar strengthens, that means that those emerging market currencies weekend 0:20:33.440 --> 0:20:36.000 and poof the go returns. Well, there wasn't There won't 0:20:36.000 --> 0:20:37.520 be an incentive to go into e M if the 0:20:37.560 --> 0:20:41.920 dollar strengthens, because you'll the dollar invested in assets will 0:20:42.080 --> 0:20:46.960 will flourish. It'll be very interesting to see how this rolls. Vincent, 0:20:47.000 --> 0:20:48.880 thank you so much, and can you can you give 0:20:48.960 --> 0:20:51.280 us just really quickly what's your bet? I think it's 0:20:51.280 --> 0:20:53.480 going to weaken to the year end the dollar. Yeah, 0:20:53.560 --> 0:20:56.840 I don't like the odds of fiscal reform of passing, 0:20:56.920 --> 0:20:59.640 and I think, um, I think there are other things 0:20:59.680 --> 0:21:01.840 that are to hold the hand of the Fed. So 0:21:01.840 --> 0:21:04.639 we're not going to see us and interest rates the 0:21:04.680 --> 0:21:07.560 dollar higher. All right, Vincent sc Nerella, He is not 0:21:08.280 --> 0:21:12.199 drinking the glass of opium. Vincent is our FX strategist 0:21:12.359 --> 0:21:26.480 for Bloomberg. Well, there is a big, big question right 0:21:26.480 --> 0:21:30.520 now among many investors, which is gold doesn't matter anymore? 0:21:30.760 --> 0:21:33.600 Is it a haven asset? And should you be buying 0:21:33.640 --> 0:21:36.160 it as a lot of people expect inflation to pick 0:21:36.240 --> 0:21:40.080 up and are concerned about inflated asset prices. Here to 0:21:40.240 --> 0:21:42.320 give us his view, as Frank Holmes. He is the 0:21:42.359 --> 0:21:46.120 chief executive officer and chief investment officer of US Global Investors, 0:21:46.119 --> 0:21:48.440 which is based in San Antonio, Texas, but he joins 0:21:48.520 --> 0:21:53.639 US here in New York. Frank, you are bullish on gold, Gold, 0:21:54.040 --> 0:21:56.840 Go gold? Why? Well, I think if you looked back 0:21:56.880 --> 0:21:59.600 since this the two thousand, the year two thousand, gold 0:21:59.720 --> 0:22:04.200 is far row perform the SMP five D, which shocks people. Uh. 0:22:04.200 --> 0:22:07.240 And then there's these short term runs which we're experiencing again, 0:22:07.640 --> 0:22:10.919 and that's predominantly because of negative real interest rates. And 0:22:10.960 --> 0:22:13.840 whenever negative has explained to your listeners is whatever the 0:22:13.840 --> 0:22:16.560 governments saying, bly, my bonds, my two year, my five 0:22:16.640 --> 0:22:20.000 year bonds. Take away the monthly CPI number gives you 0:22:20.080 --> 0:22:23.680 a positive or negative real rate of return. And whenever 0:22:23.800 --> 0:22:26.879 that is negative, gold goes up, dollar goes down. Whenever 0:22:26.920 --> 0:22:29.800 it's positive, dollar goes up, gold goes down. So gold 0:22:29.920 --> 0:22:33.000 is money for half of the world, and it shows 0:22:33.080 --> 0:22:36.680 up in reserves, shows up a significant factor. China is 0:22:36.720 --> 0:22:40.240 not gonna be floating a Wan bond and it's backed 0:22:40.240 --> 0:22:43.840 by gold for them to make it, so the credibility internationally, 0:22:44.040 --> 0:22:46.879 people don't want to turn they can remember just their paper. 0:22:46.960 --> 0:22:49.280 They say, well, it's not gonna be collaterized with gold. 0:22:49.640 --> 0:22:52.280 So I think that's that's important. Um. And the other 0:22:52.320 --> 0:22:55.480 part is more a significant long term is the rise 0:22:55.600 --> 0:22:57.760 and I call the love trade the rise of g 0:22:57.880 --> 0:23:01.280 d P per capita in Hindia China, India affectually known 0:23:01.280 --> 0:23:05.080 as the world's population. Their rising GDP has led to 0:23:05.119 --> 0:23:09.119 a continuous and it comes in waves of buying for gifts. 0:23:09.480 --> 0:23:12.760 They buy care of gold jewelry. Uh, it only has 0:23:12.800 --> 0:23:16.000 a ten markup, so you get to wear your wealth. 0:23:16.920 --> 0:23:19.040 Wearing your wealth, I guess wearing it on your sleeve 0:23:19.119 --> 0:23:21.760 is as well. You know you mentioned there is this 0:23:21.880 --> 0:23:25.320 idea about gold. But I'm wondering do people buy gold 0:23:25.400 --> 0:23:28.280