Speaker 1: Welcome to the Bloomberg markets podcast. I'm Paul Sweeney. Alongside
Speaker 1: my co host Matt Miller, every business day we bring
Speaker 1: you interviews from CEOS, market pros and Bloomberg experts, along
Speaker 1: with essential market moving news. Find the Bloomberg markets podcast
Speaker 1: on Apple podcasts or wherever you listen to podcasts, and
Speaker 1: at Bloomberg Dot com slash podcast. Let's give it Jennifer
Speaker 1: Lee here, senior economist and managing director at BMO capital markets. Jennifer,
Speaker 1: thanks so much for joining us here. Lots of data
Speaker 1: crossing the Bloomberg Erman over the last week. Uh. Federal,
Speaker 1: you know, central banks around the world, seemingly in a
Speaker 1: concerted effort to tame global inflation, and led by the
Speaker 1: Federal Reserve yesterday, of course. What did you take away
Speaker 1: from Fed Chairman J PAL so? Good Morning. Um, you
Speaker 1: know what he uh, the sentify basis points. Obviously, was
Speaker 1: widely expected from most. I didn't take his comments as
Speaker 1: being too much focish than he has been already, if any.
Speaker 1: Think I think he made it even more clear. Um,
Speaker 1: I don't think he wanted to be there to be
Speaker 1: any ambiguity and, you know, to say that there's gonna
Speaker 1: be pain felt. You know, we're not there yet. Uh.
Speaker 1: He even just Um didn't he? He didn't even struck
Speaker 1: off the possibility of a recession, which was quite interesting
Speaker 1: as well. But you know, if there is any question,
Speaker 1: and he dealt about the resolves of getting inflation back
Speaker 1: down to two percent, everyone, anyone who has had any
Speaker 1: doubt so obviously put that aside because he made it
Speaker 1: pretty crystal clear that they are continuing to raise rates
Speaker 1: and probably into so talk to us about I guess
Speaker 1: the next thing on you know, investors minds is, all right,
Speaker 1: how bad is this gonna get? I mean we're, I guess,
Speaker 1: recessions now penciled into pretty much everybody's models. I would say,
Speaker 1: what if they go too far, except for it seemed
Speaker 1: pretty clear yesterday that they intend to go intend to
Speaker 1: go too far. So that brings up the recession scenario.
Speaker 1: So what do you, the good folks there, think about
Speaker 1: how deep it might be? Yeah, I think. I mean
Speaker 1: we've got out, we've we've actually been lowering our growth
Speaker 1: forecasts steadily like everyone else, and we've actually got zero
Speaker 1: growth now for three Um we still have only one
Speaker 1: quarter of negative growth. I guess the big difference here,
Speaker 1: you know, in terms of recession, is, you know, the
Speaker 1: labor market, and that's the situation. Yeah, so unique. I
Speaker 1: mean if if everyone was cutting jobs right now, you know,
Speaker 1: if we were seeing negative signs in front of pay rolls,
Speaker 1: and that would be a whole different story. But the
Speaker 1: fact that there is still strong demand out there, I
Speaker 1: mean it's it's it's still it's starting to disappear a
Speaker 1: little bit, but it's still people are still looking for work.
Speaker 1: You know, it's still hard to find truck drivers, for example, Um,
Speaker 1: and it's that's the big story. And and wage and
Speaker 1: wage pressures are still high because of that. Um. I mean,
Speaker 1: he also mentioned yesterday that the labor market has been
Speaker 1: very strong and there's still a strong, robust economy. So
Speaker 1: because of that, you know, he's you know, I think
Speaker 1: they're very comfortable. And there there's I think everyone sort
Speaker 1: of resolves themselves with that possibility that we're going to
Speaker 1: slide into a recession or or a deeper downtown turn
Speaker 1: than a usually had been anticipated. But if that's what
Speaker 1: it takes, too but with lower unemployment, right. I mean
Speaker 1: everyone yesterday was talking about four point four percent unemployment,
Speaker 1: which is, I think, Mike McKee had calculated, that's about
Speaker 1: another one point three million job losses. But still compared
Speaker 1: to the great recession, compared to Um, the Internet bubble burst, Um,
Speaker 1: you know, it's nothing. Four point four percent unemployment, right.
Speaker 1: I remember when five percent was like enviable in the US.
Speaker 1: So can we really hold to an unemployment number that's
Speaker 1: that low? We have it edging up to around maybe
Speaker 1: five percent, I think, by the end of next year.
Speaker 1: But again, let's not forget that, you know, there's still
Speaker 1: over ten million job vacancies out there. So some of
Speaker 1: that will get, you know, soaked up from from that
Speaker 1: point Um, from you know, some of the or some
Speaker 1: of the job openings, and of course some of the
Speaker 1: openings will also be taken off the table. Um. You know,
Speaker 1: as I've been saying for for a long time now,
Speaker 1: you know anyone who has multiple job offers out there,
Speaker 1: you know, take one because it's not gonna last. Um.
Speaker 1: But you know, again, this is all parted personal with
Speaker 1: what happens when there's a central bank who is aggressively tightening.
Speaker 1: You're gonna see that slower growth, you're gonna see it
Speaker 1: hit consumers bending and you're going to see the doubles
Speaker 1: rate to hire. And on that front, Jennifer just the
Speaker 1: consumer here is another kind of variable, and the consumer
Speaker 1: seems pretty dark strong. I mean you cannot get, uh,
Speaker 1: you know, a table at a restaurant even on a
Speaker 1: Wednesday night here in New York and and in the
Speaker 1: surrounding areas. The consumer seems pretty strong. How do you
Speaker 1: think that might play out? Well, that's the that's one
Speaker 1: of the wild cars, I guess. And and then you
Speaker 1: know again, I've always, sadly, I've never underestimate the US consumer,
Speaker 1: and that's one of the biggest things that you're mentioning
Speaker 1: about dying out. I mean, if anyone was seriously, truly, truly,
Speaker 1: truly worried about their balance, she is about their finances.
Speaker 1: You know, that's where you're gonna come back first dying out.
Speaker 1: You'RE gonna Brown bag it for for launch, YOU'RE NOT
Speaker 1: gonna go up for the drinks, for drinks after work,
Speaker 1: and that's still happening. So that speaks, I don't think,
Speaker 1: a lot about the US consumer, about the strength of
Speaker 1: about the US consumer. Until we start seeing that fold
Speaker 1: a little bit more, you know the ray hypes will
Speaker 1: continue um and that's a different story. By the way,
Speaker 1: I just mentioned what you guys talked about earlier about
Speaker 1: what's happening overseas. You know, this is all demand riven
Speaker 1: right now, whereas where you're looking at overseas with the
Speaker 1: big of England and the U C B, it's all
Speaker 1: energy driven. The supply chain, the supply side of the equation,
Speaker 1: we thought was getting better. We've heard recently from companies
Speaker 1: like Ford Um, you know, more concerning announcements on the
Speaker 1: supply chain. And obviously the chip situation also isn't expected
Speaker 1: to recover. A lot of companies are saying until twenty
Speaker 1: four really, or twenty five even. Is that side, though,
Speaker 1: of the equation getting better to the point where inflation
Speaker 1: is going to come down to the level power wants
Speaker 1: to see it, even without too much demand destruction, by
Speaker 1: like the middle of next year? Probably not enough. I
Speaker 1: mean I think you know, I've I've it's all anecdotes,
Speaker 1: but you know, you hear stories about some of the
Speaker 1: supply chains easing. Um, you know you saw the the
Speaker 1: supplier delivery delays from some of the regional fed surveys
Speaker 1: have been coming down sharply and that's because demand has
Speaker 1: cooled and that's even manufacturer's time to get through that backlog.
Speaker 1: But other areas like the computer chips, for the for
Speaker 1: the for the Automa auto sector, that's still in high demand, Um,
Speaker 1: and that's still pretty backed up. Jennifer, maybe some of
Speaker 1: our listeners don't know that BEMO is short for Bank
Speaker 1: of Montreal. You're in Canada. How are how is the
Speaker 1: economy in Canada? How's the consumer in Canada? How different
Speaker 1: is it maybe there versus the United States? Do you
Speaker 1: think it's actually fairly similar? We're also we've also got
Speaker 1: the heavy weight of the housing market and the housing
Speaker 1: takes of the larger share of Canadian economy here than
Speaker 1: than in the US, and there we're seeing a pretty
Speaker 1: you know, Um, we're seeing a correction right now in
Speaker 1: the housing market just given the weight of higher rates,
Speaker 1: and we actually had a one hundred basis point rate
Speaker 1: hike here from the Bank of Canada back in July, which,
Speaker 1: you know, that has yet to really filter through into
Speaker 1: the housing market. But but you're we're seeing some of
Speaker 1: the other great hips already filtering through. So we won't
Speaker 1: see a big, real big impact until later this year.
Speaker 1: But consumers so far, you know, is to holding up again,
Speaker 1: labor market and and waste pressures, and we're going to
Speaker 1: get a July retail sales number. We're kind of behind
Speaker 1: on that, by the way. We're getting our July retail
Speaker 1: sales numbers on Friday, so we'll see how the volumes
Speaker 1: pan up. But you know, we're looking for declines because
Speaker 1: you know, just like everywhere else, you know you're gonna
Speaker 1: get hit by higher prices and higher energy prices and
Speaker 1: higher boring costs. So how do you see housing markets? Um,
Speaker 1: you know, obviously it's very regional, but if you look at,
Speaker 1: for example, the US housing market versus Canada, versus the UK,
Speaker 1: which I think are the three places where you saw
Speaker 1: extreme heat, Um, are we going to get any, you know,
Speaker 1: serious financial disasters in terms of housing markets or our
Speaker 1: prices just going to, you know, come off ten and Um,
Speaker 1: you know, the frenzy will unravel without, you know, causing
Speaker 1: great financial arts, that's what you want to call it.
Speaker 1: That's Um. We already have seen prices decline and we
Speaker 1: I think we're seeing, for a toll of net pete
Speaker 1: trough decline. But there's still there's underlying demands. Like you know,
Speaker 1: there's still immigration you know, organic demand from you know,
Speaker 1: households moving out, like the millennials. Wins over is probably
Speaker 1: seeing the peak of that coming soon. So there's still that.
Speaker 1: But you're you're absolutely correct. It's very regional. Some places
Speaker 1: are going to get harder, hit harder than others. And
Speaker 1: a lot of this also, still forget, stem from the
Speaker 1: whole work from home situation, which is starting to you know,
Speaker 1: to fade a little bit as well. So but we
Speaker 1: don't see it again. We still we're still seeing a correction.
Speaker 1: There's still some more peam to come, but the Bank
Speaker 1: of Canada is also quite causing some of it. So
Speaker 1: we don't see the bank here raising rates as quickly
Speaker 1: or as aggressively as they said. And Jennifer, just real
Speaker 1: quickly the strong dollar. How high does it go? Is
Speaker 1: there any bear case for the U S dollar? Like
Speaker 1: goodness Um. It's interesting because I remember what at one
Speaker 1: point some people were talking about, you know peak US dollar.
Speaker 1: This is when Um at that one um good CPI report.
Speaker 1: I don't remember that in June where, you know, people
Speaker 1: started thinking that they're gonna be pivoting because of that
Speaker 1: one number. But I think you know, given that the case,
Speaker 1: that the Fed is still super aggressive. Um everyone else
Speaker 1: as raising rates, but not everyone, um so. I think
Speaker 1: we're still there's still a case for a strong invest dollar,
Speaker 1: you know, handing into three. But it was also very interesting,
Speaker 1: by the way, that not everybody was raising rates this week.
Speaker 1: You know, we had, UM, Brazil holding off, for example.
Speaker 1: You know, Norway raising rates. I think they said that.
Speaker 1: You know, that's gonna be it for a little bit because,
Speaker 1: you know, um Um so again it's it's it's interesting.
Speaker 1: And even the RBA, by the way, has been making
Speaker 1: noises and know how it may be time to turn
Speaker 1: it down a little bit. So that's kind of interesting.
Speaker 1: I meanwhile, the Fed is going the other way. They are,
Speaker 1: they certainly are. Jennifer Lee, senior economist, managing director at
Speaker 1: email capital markets. Thanks so much for joining us. Right now,
Speaker 1: let's check in with Greg Han. He's a C I
Speaker 1: O at winterp capital management get a sense, uh, what
Speaker 1: is he thinking about these markets? Greg thanks so much
Speaker 1: for joining us here again. Another uh, week day in
Speaker 1: the markets. Here we had the Federal Reserve yesterday raising rates,
Speaker 1: being very clear in their message that their number one
Speaker 1: mandate is to fight inflation and they will do that
Speaker 1: with the in part with their interest rate mechanisms, and
Speaker 1: today we had some more central banks from around the
Speaker 1: world following suit. Uh. What do you do at winthrop
Speaker 1: couple management with that type of background? Well, that's a Paul,
Speaker 1: is a great question. Uh. So these are difficult markets.
Speaker 1: We're going through a shift right now invaluation and how
Speaker 1: the markets are perceiving valuation. Um, and it's it's really
Speaker 1: that's the whole push higher and short term interest rates. Um,
Speaker 1: and then the dislocation and the equity markets. So we are,
Speaker 1: like I've said, we're kids in the candy store. In
Speaker 1: the fixed income markets. This is a window to Um
Speaker 1: to build portfolios in fixed income that can earn five
Speaker 1: percent without a lot of risk for in a quarter
Speaker 1: on a municipal portfolio. For investors, that the tax free income.
Speaker 1: So that that part of this is that's the easy part.
Speaker 1: The hard part is the the equity Um. We're about
Speaker 1: to hit a storm on the equity side because earnings
Speaker 1: are going to become more and more difficult it as
Speaker 1: we head into the third and fourth quarter because margin compression,
Speaker 1: increased labor costs, Um. It's it's a litany of things.
Speaker 1: And then the latest now is higher interest expense because
Speaker 1: we've got short term interest rates climbing. So what do
Speaker 1: you expect in terms of earnings this year and next year?
Speaker 1: Do you have a forecast? Well, we're, I think you know,
Speaker 1: consensus right now is what to thirty five on the
Speaker 1: S and p. The SUP is is we're looking at.
Speaker 1: Our expectation is we're sixteen and a half times earnings,
Speaker 1: which is now we're kind of kind of getting into
Speaker 1: fair value and we've come down from twenty times. I
Speaker 1: mean this is this is the adjustment, as we were
Speaker 1: so overvalued. The pain that investors are feeling is an
Speaker 1: adjustment from an overvalued market to one that is simply
Speaker 1: fairly valued. Markets overshoot and we can't overshoot when we
Speaker 1: can't go to an undervalued market, which we haven't seen
Speaker 1: in over fifteen years. And Amazing, amazing. That is. No, yeah, yeah, no,
Speaker 1: it's and that's but there's great companies out there. We
Speaker 1: are seeing. I mean he's got stocks that are down
Speaker 1: six are that are they're still great stocks, they're great companies.
Speaker 1: But Um, you just we just have to we're not
Speaker 1: going to pick the bottom. We just want to find
Speaker 1: we want to be able to invest in good, solid
Speaker 1: companies with solid business models. That's the pall. That's the
Speaker 1: other thing that's happening is business models are being challenged. Auto,
Speaker 1: when auto companies can't get cars onto lots, when the
Speaker 1: airline industry is capacity constraint and they can't get passengers
Speaker 1: on the planes because they don't have, you know, the
Speaker 1: the Labor to help support the UH, you know, the
Speaker 1: the business model we've got. That's those are challenges that
Speaker 1: are structural. Raising short term interest rates and isn't going
Speaker 1: to fix that. I just want to quickly jump in
Speaker 1: with the average analyst estimate for earnings is two fours
Speaker 1: for Um and in three I'm looking at an average
Speaker 1: of two and twenty nine dollars. It's not the median fall.
Speaker 1: The median is two thirty two. Yeah, that's what I'm
Speaker 1: looking out on my spx index e page like that.
Speaker 1: So anyway. So, Greg just real quickly, is there a
Speaker 1: sector that I should be looking at right now, given
Speaker 1: that we're likely to be going into a recession, or
Speaker 1: if we're not already in one? So look, I just
Speaker 1: the whole Infotech space, which bleeds over into the the
Speaker 1: communications sector. Uh, there's some those. Some of those stocks
Speaker 1: are just really undervalued. That's where we like and now
Speaker 1: it's it's hard because that's the part that's gotten hit hard.
Speaker 1: But in a storm we're ones to run into the storm,
Speaker 1: that run away from it, and so when stocks are
Speaker 1: down we want to buy loads. So I that kind
Speaker 1: of learned that my my my business school, Um and
Speaker 1: so you know the the you know Microsoft, alphabet. Those
Speaker 1: are the core holdings for us. We we love those stocks. Disneys,
Speaker 1: one that's come into our sweet spot in video, is
Speaker 1: in video has a valuation now that starts to make sense.
Speaker 1: So we're we are seeing opportunities, but it's going to
Speaker 1: get I mean we have the risk of it getting
Speaker 1: a little bit worse here and ending into the second
Speaker 1: half of the year. All right, Greg, I really appreciate it.
Speaker 1: Greg Han Cio, winthrop, but to management. He mentioned his
Speaker 1: business school. That would be Indiana. I get his undergraduate
Speaker 1: from the University of Wisconsin. So all big ten there
Speaker 1: for Greg Hand. Well, I guess after yesterday the question
Speaker 1: isn't so much is the Fed going higher. Yes, they are.
Speaker 1: The question is how high and for how long. Let's
Speaker 1: check up with Ben Emmon's managing director of global macro
Speaker 1: strategy at Medley Global Advisors. So, Ben, what do you
Speaker 1: take away from yesterday's statement and yesterday's comments by Fed
Speaker 1: Scherman J pal about how high are these interest rates
Speaker 1: going to go? Hi, Paul. Well, he was really explicit,
Speaker 1: I felt. You know, he said that at the very
Speaker 1: last question of the press conference, that you know, four
Speaker 1: point six percent fat funds rateing next year is likely,
Speaker 1: and then he also mentioned that one one to one
Speaker 1: and a half percent will rates is where they want
Speaker 1: to get to, to be a restrictive policy. So with
Speaker 1: Dan in mind, as you see the reaction today in
Speaker 1: the markets right, that's being factored in now the two
Speaker 1: you could probably move towards at four point six and
Speaker 1: it will pull up the rest of the you curve too,
Speaker 1: and that's in motion. So I think that was a
Speaker 1: big takeaway for me. In addition that they surprised, of course,
Speaker 1: with that medium dots for two being higher than why
Speaker 1: the market was price. And I think that shows too
Speaker 1: that within the inflorence see there's a real clear push
Speaker 1: of fact we must get quicker to restrictive sense, to
Speaker 1: put a little inflation or were in trouble and they wanted. Well,
Speaker 1: by the way, I was listening to this I thought
Speaker 1: it was a great press conference. UMS entertainment value. Um, yeah,
Speaker 1: I love when Steve Leesman his Mike went out or
Speaker 1: he didn't remember to ask the second question. The MIC
Speaker 1: and the PALSI I don't even want to answer your
Speaker 1: second question, which was pretty good. Yeah, at least. What
Speaker 1: I was thinking was he's so insistent that they want
Speaker 1: to get rates Um to more restrictive level as quickly
Speaker 1: as possible. Um, for from a layman's person, why in
Speaker 1: the hell don't they just say rates are four an
Speaker 1: a percent? Boom, there you go. Yeah, exactly a meth.
Speaker 1: I mean, what are you waiting for? We agree like you,
Speaker 1: sort of one of base points. Hight, that was, you know,
Speaker 1: but you know, envisued by the market. Right, I had
Speaker 1: an eighteen percent probability. It could have just done that yesterday, right,
Speaker 1: and the move is high and would shock it the markets,
Speaker 1: I guess, and maybe it's still holding them back. But
Speaker 1: if it comes down to inflation, you slatch hammered, right,
Speaker 1: so you would bring it up banged like that. But
Speaker 1: you know, it's a policy about seventy five is sort
Speaker 1: of the way to go, you know, touch feel still
Speaker 1: right tied in financial conditions and get to an end destination.
Speaker 1: You know, it does bring the risk that you you're
Speaker 1: not doing enough and you have to do more right,
Speaker 1: and then that will be the such hammer. So I
Speaker 1: think you know, it looks to me they have a
Speaker 1: wall set in speech about it. We Week and half ago,
Speaker 1: when the last time I saw you, that was sort
Speaker 1: of the four book to what happened yesterday within the
Speaker 1: from sea. There's like people banging official on the table. Yes,
Speaker 1: we've got a such hammer here, but it's a consensus.
Speaker 1: So that's why you end up with that seven five
Speaker 1: basis points. But it should move faster. I agree with it.
Speaker 1: I mean I would just do two hundred, except for
Speaker 1: I would stop. I would say inflation is peaked. Let's
Speaker 1: just see how these rate increases trickle through the country
Speaker 1: over the next six months. Is that? That seems to
Speaker 1: be completely off the table. Bed there burns. Yes, thank you. Yeah, yeah, yeah,
Speaker 1: that that is the art of burns issue, and that's
Speaker 1: basically even though the art of Burns, by the way,
Speaker 1: in seven, three, seventy four Hyde grates up to I think.
Speaker 1: So you did, didn't fat the tightening, but the underestimated
Speaker 1: economy being still too far above potential and too much
Speaker 1: stork on an easily economy in terms of both the
Speaker 1: pressure on inflation and so you should have actually done
Speaker 1: more at that time if you look back in history.
Speaker 1: And that's what they're struggling with right. But we're in
Speaker 1: an environment where, you know, at four percent rates, that's
Speaker 1: we're stored glow. Right. You will have to go a
Speaker 1: lot higher than that, and that's still worry in the markets.
Speaker 1: I think facts, you may have to do just so
Speaker 1: much more because because actually will interest rates are still
Speaker 1: too negative and the economy is still too strong. Right.
Speaker 1: It's still too overheated. The claims say that this morning.
Speaker 1: It's just just I think, part of the reason why
Speaker 1: use are up to claims against shoulder right, unbelievable. So
Speaker 1: it's just a strong economy. That's what they have to tackle. Well,
Speaker 1: for sure, judging by the labor market it still looks
Speaker 1: pretty strong. We do see some pink slips going out,
Speaker 1: we see banks starting to call the hurt a little bit,
Speaker 1: but that's just normal. Um. He mentioned a couple of times.
Speaker 1: There are a number of ways you can look at inflation.
Speaker 1: Expectations or inflation forecasts. So I want to ask you
Speaker 1: some dashboard questions. What do you look at Um for
Speaker 1: inflation forecast? Do you like the Um, you know, five year,
Speaker 1: five year, or do you like the any surveys specifically
Speaker 1: better than the others? And also financial conditions, Um, you know,
Speaker 1: I pull up F con go on the Bloomberg. They
Speaker 1: look so they don't look so tight to me, certainly
Speaker 1: not compared to what we saw in March of so
Speaker 1: what do you look at to measure Um? To look
Speaker 1: to sort of gauge inflation expectations or a market forecast?
Speaker 1: And what do you look at to measure financial conditions? Yeah,
Speaker 1: with inflation, what I found was that the Conference Board
Speaker 1: has the one year expectation in there and since the
Speaker 1: spring of that number has been six percent or higher
Speaker 1: and it has been a perfect predictor of where CPI
Speaker 1: actually ended up. So I find out a really strong
Speaker 1: indicator in this environment where inflations and that that one
Speaker 1: of your expectations. That I believe the last Sumer seven
Speaker 1: point six percent, so a little over than my head
Speaker 1: finess now, but that's still really elevated right. So that's one.
Speaker 1: You know that the market break even, the ditch break even.
Speaker 1: I'm a skeptical there because it's a real yield and
Speaker 1: phenomenal yield, and they move around right, so they actually
Speaker 1: react to one another. So find that less credible indicator
Speaker 1: the long term expectations from Michigan is something that the
Speaker 1: fact reacts. You would take that into account. And then
Speaker 1: there's this blue chip survey, which is, you know, you
Speaker 1: have to get this specific access to you know there
Speaker 1: is actually an expectation in there of what people think
Speaker 1: that real interest rates will look like. They're now rising
Speaker 1: in line where the market is. So I find those
Speaker 1: three interesting. COMFERENCE boards, Michigan Blue Chip, some more survey base.
Speaker 1: If you look at financial conditions, you know what's interesting
Speaker 1: on that function is that there's also a tap called
Speaker 1: market details. If you coun go and it shows really
Speaker 1: nicely what what is contributed to the standard of financial conditions.
Speaker 1: And you can tell right, it's particularly real interest rates,
Speaker 1: where the standard deviations is now over to two point
Speaker 1: two or so. So that's, I think, what's really driving
Speaker 1: at there. But not enough. Need to be even more tighter. So,
Speaker 1: as we talked earlier, real interesting actually go even higher
Speaker 1: from here, right, and settle and say one seventy five
Speaker 1: and two year and one on a quarter and antenue
Speaker 1: tip shields are still too low. Uh with safe leady
Speaker 1: are driving Frenchship conditions tight, but not tight enough. All right, Ben,
Speaker 1: good stuff as always, bringing in here. We appreciate it.
Speaker 1: Ben Emmon's, managing director of Global Macro Strategy Medley Global Advisors.
Speaker 1: I'm looking at him. We didn't ask him about Bank
Speaker 1: of Japan. What do you want to ask about? How
Speaker 1: how serious is this that they intervened the first time
Speaker 1: since strengthen the currency? I don't think they're a big
Speaker 1: carry trade. Do you think there's a big carry trade
Speaker 1: out there? Ben, I think we lost him. We'll get
Speaker 1: them next time. Carry Trade. You want to do a
Speaker 1: Japanese yen carry trade? I've been doing it all year.
Speaker 1: Have you nice in my head and you're okay, alright,
Speaker 1: good stuff there, Ben Emmon's we've always appreciate chatting with him.
Speaker 1: Looking at the markets here, SMP off about eight tenths
Speaker 1: of one percent, so still some selling pressure out there,
Speaker 1: given what we heard from our friender reserved. Yes, this
Speaker 1: is Wood Barker Kind O. Next guest in studio. Extra
Speaker 1: Points Gold Star, Amanda Rebello, head of passive sales us
Speaker 1: on shore. I don't know what that means at D
Speaker 1: W S group. Dws, that's Deutsche, that's Deutsche banks, Deutsche
Speaker 1: very wait, Deutsche very poppier specialists, and I believe, yeah,
Speaker 1: you just kind of have German. So what do you
Speaker 1: got for us? Let's talk about e t S. I mean,
Speaker 1: is it still a thing? Is Money still going to
Speaker 1: e t F s like crazy? We still see the
Speaker 1: broader trend. Yeah, so you can see so many benefits
Speaker 1: to e t F s. We see, Um, the DI
Speaker 1: diversification elements are really useful. Um, we see as well
Speaker 1: as an access vehicle, it's providing Um, good access to
Speaker 1: different markets that clients are looking to get into very
Speaker 1: quickly and I think, especially in light of the motility
Speaker 1: in the market at the moment, being able to get
Speaker 1: in and out of positions easily, quickly, efficiently cheaply is
Speaker 1: of the utmost importance. Now, first of all, step up
Speaker 1: to the mic a little bit here. Why do you
Speaker 1: think or why do you head of passive sales? What
Speaker 1: does that mean? Passive sales? Yeah, passive sales for us
Speaker 1: at dws is anything which is linked to an index.
Speaker 1: So we have our e t f range ex trackers
Speaker 1: and then we also offer segregated mandates tracking indices, b
Speaker 1: they on the equities, fix income or commodities. So you
Speaker 1: don't do all the e t f that are actively managed.
Speaker 1: We don't know at the stage now, but it's something
Speaker 1: we've seen in the market as an emerging trend. So
Speaker 1: what are the most popular products or what are the
Speaker 1: hardest products? When you get up in the morning and
Speaker 1: you're super pumped about a new product? What is it
Speaker 1: at the moment? Yeah, I really like hi yield. I
Speaker 1: think that there's going to be a time for it
Speaker 1: again in portfolios. I think it's been hammered. We see
Speaker 1: where spreads are at the moment, but especially in light
Speaker 1: of where the Fed action is. You know, we really
Speaker 1: need to be on the hunt for yield. Um we
Speaker 1: can get equities, but I think when we look at SMP,
Speaker 1: for example, historical defield is only two percent. You need
Speaker 1: to look at fixed income again, but also be willing
Speaker 1: to take on some risks. So fixed income not behaving
Speaker 1: as it historically does as a dampening portfolios y s G. Yes,
Speaker 1: I'm skeptical. Okay, tell me why I shouldn't be skeptical,
Speaker 1: because I know e s g themed e t s
Speaker 1: are very popular in getting a lot were right. We're
Speaker 1: I don't know. I mean I think we're all skeptical now, right,
Speaker 1: aren't we? Isn't the market pretty skeptical? Fair to ask questions,
Speaker 1: you know, I think that's everyone doing their job at
Speaker 1: the end of the day. Um, look, we but we're
Speaker 1: in climate week in New York at the moment, right. Um,
Speaker 1: I think all of us know and feel as well.
Speaker 1: We see record breaking summers. Um, all of us. We
Speaker 1: need to think that when we're making an investment, it's
Speaker 1: a deployment of capital. Right, so can we help the
Speaker 1: situation with that? Right. And so from our stance at dws,
Speaker 1: when we think about E S G, when often thinking
Speaker 1: about not being exclusionary. So I think some of the
Speaker 1: cynicism has come from this in the past, that you're
Speaker 1: just outright filtering names and energy sector, for example, when
Speaker 1: in fact they're part of the solution in terms of
Speaker 1: helping US bring down climate change or at least, you know,
Speaker 1: stabilize it. Right, we all need to have electricity at
Speaker 1: the end of the day. Things like this. So we're
Speaker 1: not really helping the problem there. Um. I think also
Speaker 1: the social components as well, now that we have more
Speaker 1: data points there as well. Um, it's not just something vague,
Speaker 1: it's something more demonstrable. So the kind of rigor that
Speaker 1: we have in investments built on the equities fixing come
Speaker 1: a community side. We can have the same rigor when
Speaker 1: we think about the e, s g Lens. That's a
Speaker 1: good point. The the S is probably Um, the easiest
Speaker 1: to quantify and deal with instantly, right, because the e
Speaker 1: is kind of soft and mushy. The Germans, for instance,
Speaker 1: would rather burn cold and use nuclear power, Um, and
Speaker 1: you can debate whether or not nuclear is green. Um
Speaker 1: The G. let's face it, when you have companies out
Speaker 1: there that are very powerful and make a lot of money,
Speaker 1: the CEO wants to be the chairman and the G
Speaker 1: gets thrown out the window. So the s that we
Speaker 1: can really make some progress on and you can measure
Speaker 1: it and we can all agree, you know, on what
Speaker 1: diversity looks like and how important that is. Um. So
Speaker 1: I think that's that's really fascinating. Let's talk about what
Speaker 1: you did to get into this position. You studied mathematics.
Speaker 1: I think it's interesting and and this is this is
Speaker 1: a great way to get into this kind of this
Speaker 1: kind of work, right. It is. Yeah, not go up
Speaker 1: and start a conversation with the math masters and mathematics person.
Speaker 1: You like engineers, though. You always ask people that engineers,
Speaker 1: why are you studying engineering and getting onto wallster? What
Speaker 1: would you say is the right path to get to
Speaker 1: Wall Street in terms of a major? Well, it's all different,
Speaker 1: and now it's now it is probably math and engineering
Speaker 1: computer you know what the mathematicians say? They say that
Speaker 1: engineers that just want to be mathematicians. In any case, what? What? What?
Speaker 1: What led you to this position? And you know, what
Speaker 1: would you tell others who want to get into into
Speaker 1: the field? Yeah, so, when I was younger, much younger,
Speaker 1: I actually was obsessed with news and probably wanted your
Speaker 1: job in fact. And well, I realized that was finance.
Speaker 1: was actually a really good way to be very engaged
Speaker 1: with news. At the end of the day, I'm talking
Speaker 1: about it as much on the daily basis as you
Speaker 1: are really Um and seeing then the implications in markets. Um,
Speaker 1: my maths background was quite useful for that. I think.
Speaker 1: I don't use any of the numeracy realistically, but I
Speaker 1: use a lot of the logic and argument forming. So
Speaker 1: I think that's Um maybe how the two are tied together. Yeah,
Speaker 1: I mean when we're covering the news, essentially what we
Speaker 1: do is kind of follow the money to find out
Speaker 1: what's going on in your the money friends, things like this. Um,
Speaker 1: the trend of e t F, I think, has been
Speaker 1: amazing to watch. I started looking into it and talking
Speaker 1: about it in hosting conferences about et f about ten
Speaker 1: years ago and I thought this is the future, and
Speaker 1: now we're there. I mean it is huge. So many people,
Speaker 1: not just the kids investing in ets, but so many people,
Speaker 1: because of regulations, can only invest in e TF. A
Speaker 1: lot of people have and having trouble getting into them.
Speaker 1: Now they are. You're seeing a lot of mutual funds
Speaker 1: convert over to E T S in this market. Right
Speaker 1: I P os, with the exception of Porsche, they're like dead,
Speaker 1: but people are launching new e t f s every week.
Speaker 1: It's incredible to see the growth it is. We were
Speaker 1: speaking with contacts at the exchanges, so at Cebo and Nicey,
Speaker 1: and they're saying that nowadays most of the bell ringings
Speaker 1: it's like e t f providers rather than which is super,
Speaker 1: super interesting actually right, when you think about the coverage
Speaker 1: that used to be from you guys, from from other wires,
Speaker 1: it was always about a new company listing, but now
Speaker 1: you know, we're fighting for slots really in terms of
Speaker 1: the bell ringings. So at dwus again, Deutsche Bank's asset
Speaker 1: management businesses. That the way to describe it? Okay, one
Speaker 1: trillion dollar global asset management manager. You guys are big.
Speaker 1: How much of that is passive? Would you say? Yeah, so,
Speaker 1: first and foremost we're actually separately listed from Deutsche Bank,
Speaker 1: but obviously they have a shareholding in us. And then
Speaker 1: about a quarter of our a U M is in passive,
Speaker 1: so in this indexed investment management piece. But do you
Speaker 1: see Um passive? Is that right now sort of on
Speaker 1: the back foot compared to active management in this kind
Speaker 1: of market? I would say Um, people are thinking it
Speaker 1: makes sense to pay a money manager to decipher these
Speaker 1: tough markets at the moment. But also if you have
Speaker 1: a robust index and if you feel then that you
Speaker 1: can add value through Acet allocation rather than through stock picking,
Speaker 1: then passive mandates and e t f s are definitely
Speaker 1: a very useful tool. So we do actually see this
Speaker 1: trend continuing, I think as well, just like, given how
Speaker 1: tough liquidity is at the moment, actually this has added
Speaker 1: fuel to the fire in terms of the growth of ets. Well,
Speaker 1: they're not across purposes really for you, because I could
Speaker 1: go to a money manager who uses your passive products
Speaker 1: to exectively manage my wealth. Exactly. Vanguard and black rock
Speaker 1: control the majority of the tip. Is that a good structure,
Speaker 1: do you think, for the ET F business or wrong?
Speaker 1: I would say that both of these providers add some value.
Speaker 1: I'm actually ex black rock myself. Fantastic leaders that. I
Speaker 1: would say that competition is always healthy, right, and I
Speaker 1: think that sometimes when you have some of these newer players,
Speaker 1: it's great that they innovate so quickly, you know, and
Speaker 1: they get products and markets so quickly. So I think
Speaker 1: there's a place for everyone. Um, I think that some
Speaker 1: of these established products from the likes of vanguard or
Speaker 1: black rock are so useful to clients we won't ever
Speaker 1: be able to compete with them. So there's still a
Speaker 1: place for them too. But you think the duopoly is
Speaker 1: going to stay? I mean, like there are a lot
Speaker 1: of competitors up and coming you do think that vanguard
Speaker 1: and black rock are going to remain these two anchors,
Speaker 1: though I wish I had a Christian it's always I
Speaker 1: always thought about you know, Bloomberg and Reuters are the
Speaker 1: two major. When I started we wanted to beat routers,
Speaker 1: you know, and they wanted to beat us. And throughout
Speaker 1: the years we've seen other upstarts coming business insider axios,
Speaker 1: what have you, but we're still kind of the two
Speaker 1: biggest in terms of business. I think it's basically us
Speaker 1: and then Reuter's all right, Amanda Rebello, head of passive
Speaker 1: sales us on shore for dws group, joining us here
Speaker 1: in our Bloomberg interactive broker studio. We appreciate that. Well then,
Speaker 1: guests are just kind of flowing into the studio these
Speaker 1: days that we're getting back to the old days, which
Speaker 1: is good. Getting people come in we can get in
Speaker 1: some good conversations. Amy O'Brien joins us. She's global head
Speaker 1: of responsible investing at nouvene. Amy, it is you know,
Speaker 1: it's climate week here in New York, in addition to
Speaker 1: being the UN General Assembly. So I'm guessing this is
Speaker 1: a big, big week for you. What how do you
Speaker 1: guys at nouvine kind of describe responsible investing. What's that
Speaker 1: mean to you? Well, responsible investing is our umbrella term
Speaker 1: for how we credibly embed E S G factors into
Speaker 1: investment decision making, how we use our influence in the
Speaker 1: market through our stewardship practices and how we measure and
Speaker 1: manage positive and negative impact. So we had a guest
Speaker 1: on here a few weeks ago, maybe a month ago,
Speaker 1: and he has an et f out calling. You might
Speaker 1: have her. I can remember his name, but he has
Speaker 1: et a D R I l drill, and he's saying basically,
Speaker 1: companies should just maximize profit. They should influence social policy.
Speaker 1: Their job is to maximize profit and if that's buying
Speaker 1: in a oil and gas company, fine, policymakers will take
Speaker 1: care of all the other stuff. How does how do
Speaker 1: you think about that at new vine? Yeah, I think
Speaker 1: that's a debate that's been going on. I mean the
Speaker 1: field is over five decades old and I think one
Speaker 1: of the realities, though, is the client interest in e
Speaker 1: s g investing, in stewardship practices and impact strategies is
Speaker 1: stronger than ever. There are a lot of companies themselves
Speaker 1: who have committed to tackling different types of issues like
Speaker 1: climate risk and investing in opportunity. So while we we
Speaker 1: certainly don't think that the whole world will just be
Speaker 1: E S G leaders tomorrow, we think that all the
Speaker 1: momentum around these factors and what's driving growth means that
Speaker 1: E S G is here to stay. Despite some of
Speaker 1: those some of those views. I'm old school Wall Street.
Speaker 1: My first job, my trader would just come up to
Speaker 1: me every single day, my head trader, and say make money,
Speaker 1: don't lose money and then walk away. That was my
Speaker 1: pep talk. E S G investing. Do I make do
Speaker 1: I get superior returns? Do I sacrifice some returns to
Speaker 1: do social good? What's the data show? So E S
Speaker 1: G and responsible investing is all about making money and
Speaker 1: that has been the approach that many of us who
Speaker 1: are based at commercially oriented firms, uh, you know, have
Speaker 1: to take. We have to be careful about what mean
Speaker 1: by e s G. is at e S G commitment,
Speaker 1: E S G outcome. You know, there are, you know,
Speaker 1: the devils in the details when we're talking about this field,
Speaker 1: but we are we're grounded in them, in the views
Speaker 1: that these factors can help us manage risk across multiple
Speaker 1: asset classes. They're uncovering very unique kinds of investment opportunities, um,
Speaker 1: that clients want and you know, based on where the
Speaker 1: policy environment is going, you know we're we're well position
Speaker 1: to to meet the future demand from clients. So we
Speaker 1: were just talking Um with a head of E T
Speaker 1: F business at at dws and she pointed out that
Speaker 1: it's e. The E is a little squishier. Right. The
Speaker 1: S is pretty easy to identify, Um, and as well
Speaker 1: as the g. But but e is where you get
Speaker 1: a debate. Germans will say nuclear is horrendous for the environment,
Speaker 1: and the rest of Europe, I think just made nuclear green.
Speaker 1: How do you deal with this kind of taxonomy issue? Um?
Speaker 1: That that we're still trying to figure out right. Well,
Speaker 1: it all gets down to data and taxonomy. But then
Speaker 1: it gets then you have to add on what are
Speaker 1: the client's own views, and so we have to build
Speaker 1: out a robust system for which our investment teams can
Speaker 1: have access to credible e s g information across all companies.
Speaker 1: Use that alongside the fundamental research. But increasingly we're seeing
Speaker 1: clients come to US and ask us for you know,
Speaker 1: very specific Um you know, portfolios, separately managed accounts that
Speaker 1: do express your views. So you have to be careful
Speaker 1: about what clients get when it comes to e s
Speaker 1: g versus, you know what across the board and in
Speaker 1: terms of investment discipline, versus what they're coming and asking.
Speaker 1: And many of us do have very customized beliefs depending
Speaker 1: on the region they're in, and we have to work
Speaker 1: with those clients accordingly. So and I guess the probably
Speaker 1: number one conundrum is something like uh, an oil company
Speaker 1: right like BP. Is that an e s g offender
Speaker 1: because they, you know, are pulling oil out of the
Speaker 1: ground and causing environmental problems, or is that a leader
Speaker 1: in E S G because they're looking at alternatives and
Speaker 1: trying to change the way we think of and use energy? Yeah,
Speaker 1: I think we have to also be careful to not
Speaker 1: to have black and white, you know, views on here.
Speaker 1: I mean a lot of investors are working with large
Speaker 1: companies such as BP and others to map out what
Speaker 1: the transition will be to a lower and you've seen
Speaker 1: a lot of proxy votes this year shielder resolutions on
Speaker 1: this topic, and so you know we we aren't taking
Speaker 1: a stand at new being, you know, energy good or bad.
Speaker 1: You know, it's really about a case by case working
Speaker 1: with each company, understanding what their strategy is for our
Speaker 1: views about the long term transition towards a low carbon
Speaker 1: economy and so bp Um, you know, could be used
Speaker 1: by different investors in different portfolios. But we have to
Speaker 1: be precise as asset managers about what our view is
Speaker 1: and when those companies are in a portfolio and when
Speaker 1: they're not. Cope is coming up. What is? Just tell
Speaker 1: us what copy seven is and how it impacts the
Speaker 1: E S G investing world. Yeah, so there's been, you know,
Speaker 1: cop twenty six, of course, was last year and last
Speaker 1: night I was at at an event at the British
Speaker 1: consulate that actually uh where, Um a look. He Sharma
Speaker 1: spoke about what what was achieved in this past year
Speaker 1: and we'll remember the timing here where a cop happened.
Speaker 1: And then we've had, you know, the war in Ukraine
Speaker 1: and all of the issues around covid and President Biden
Speaker 1: left cap twenty six on the phone with the Saudis
Speaker 1: saying please pump more oil. Right, I mean it was really,
Speaker 1: really interesting. Uh M, a time it is, but I
Speaker 1: mean I think what copies achieved for the industry is is,
Speaker 1: you know, bringing together. You know what a credible commitment
Speaker 1: could look like. I mean I think everyone understands that.
Speaker 1: You know, in terms of emissions, we are all long
Speaker 1: term looking for a downward trend. There a significant downward trend,
Speaker 1: but we may have periods where there there are some
Speaker 1: some blips and you know, what's happening in the energy
Speaker 1: markets has to affect our plans. But last night I
Speaker 1: heard a lot of talk from large asset owners, sovereign
Speaker 1: wealth funds, you know, around the world, who are still
Speaker 1: committed to making this transition possible. Believe there's investment to
Speaker 1: be made and money to be made in the transition
Speaker 1: to that long term. Um, you know outcome of net
Speaker 1: zero carbon. So cop twenty seven is coming up in November.
Speaker 1: I think you'll see a lot of the commitments that firms,
Speaker 1: companies and asset managers like us made last year coming
Speaker 1: out with stronger, more detailed implementation plans. I think that's
Speaker 1: really important for investors and other stakeholders. The regulators are
Speaker 1: looking at us on this very topic. Um, we are
Speaker 1: we are being regulated and have disclosure requirements being placed
Speaker 1: on us as an asset manager. More than ever before,
Speaker 1: you know, especially on the issue of climate risk. So
Speaker 1: what are the investment opportunities that you're that you're pumped
Speaker 1: about as we head into that? Yeah, I think we.
Speaker 1: You know, one way that I'd like Um to think
Speaker 1: about this is the investment opportunities here are cross sectors.
Speaker 1: We're placing a lot of emphasis on the energy sector,
Speaker 1: but when we look at other parts of the investable universe,
Speaker 1: there are many companies who are changing business models because
Speaker 1: of consumer preference. So we're looking across asset classes. Um.
Speaker 1: You know, Nuvine has been building out alternatives in a
Speaker 1: natural capital investment area to to kind of capitalize on
Speaker 1: that part of the equation. So there's a lot of
Speaker 1: emphasis on how how you lower emissions, but you know,
Speaker 1: how do we create syncs to which to to remove
Speaker 1: those from from the environment? Tell us about data, like
Speaker 1: it might buy a stock or a bond or company
Speaker 1: and look at the income statement, balance sheet, cash flow
Speaker 1: statement to get a sense of evaluation. Where do I
Speaker 1: go to get good, consistent data for e s G. Paul,
Speaker 1: how much more time do we have in the show?
Speaker 1: I mean this is certainly, you know, an area that
Speaker 1: I started my career out twenty six years ago in
Speaker 1: this space, working for one of the first firms organizations.
Speaker 1: It was a nonprofit Um. That those that's those days.
Speaker 1: That's who was producing E S G ratings Um and
Speaker 1: we were struggling with some of the same challenges we
Speaker 1: are now. But I do see, you know this, we'd
Speaker 1: have to, you know, make sure the world begins to
Speaker 1: align around e s g data needs, uh, disclosure requirements
Speaker 1: from issuers. Then regulators have to get on board about
Speaker 1: then what do they want from the investors themselves? So
Speaker 1: there's this whole data infrastructure ecosystem that we all and
Speaker 1: I would encourage us all to take a look at that,
Speaker 1: because that is really where the rubber is going to
Speaker 1: hit the road. Is when we have good data, we're
Speaker 1: gonna be able to make good decisions. We're gonna be
Speaker 1: able to show who's the leader, you know, in in
Speaker 1: on the S G you know who might be a
Speaker 1: laggard and then, more importantly, you know what were the
Speaker 1: real change that that happened. And you know that's still
Speaker 1: a little muddy right now. And you know, and investors
Speaker 1: to get the credibility and confidence to to further allocate Um.
Speaker 1: You know, we're gonna need to really that's one way
Speaker 1: that we could align as a as an industry. All right,
Speaker 1: Amyo Bryant, great, great stuff. Amy Brian, global head of
Speaker 1: responsible investing at Nouvine, I'll mention you know you go
Speaker 1: to the f a function on the Bloomberg terminal, one
Speaker 1: of the most widely used terminal functions for financial analysis.
Speaker 1: We have a big tab there of all E S
Speaker 1: G data for Jillions of companies. So, Amy Brian, thanks
Speaker 1: so much. We appreciate it. Thanks for listening to the
Speaker 1: Bloomberg markets podcast. You can subscribe and listen to interviews
Speaker 1: with apple podcasts or whatever podcast platform you prefer. I'm
Speaker 1: Matt Miller. I'm on twitter at Matt Leer in nineteen
Speaker 1: seventy three, and on ball sweeney. I'm on twitter at
Speaker 1: PT Sweeney. Before the podcast, you can always catch US
Speaker 1: worldwide at Bloomberg radio.