WEBVTT - Surveillance: Markets Not Pricing Risk, Coronado Says 0:00:09.840 --> 0:00:13.800 Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane Jay Ley. 0:00:13.960 --> 0:00:17.560 We bring you insight from the best in economics, finance, investment, 0:00:18.000 --> 0:00:23.480 and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, 0:00:23.600 --> 0:00:26.920 Bloomberg dot Com, and of course on the Bloomberg And 0:00:26.960 --> 0:00:28.920 I don't want to make him blush, but John Farrell 0:00:29.000 --> 0:00:32.440 changed the discussion and economics world wide at Davos or 0:00:32.479 --> 0:00:36.960 he Tora apart, Mr Prince of Bridgewater over boom and bust. 0:00:36.960 --> 0:00:39.360 It became a three day fund filled derby for us 0:00:39.720 --> 0:00:43.120 talking about the dynamics of our economics system at the 0:00:43.240 --> 0:00:46.559 zero bound. We didn't know then we'd be near a 0:00:46.640 --> 0:00:49.120 record low in the thirty year yield. We didn't know 0:00:49.280 --> 0:00:52.559 then we'd be a near seventeen hundred on gold. We 0:00:52.600 --> 0:00:55.200 didn't know then there would of course be this tragedy 0:00:55.200 --> 0:00:57.640 of a virus in China. To make sense of it 0:00:57.680 --> 0:01:01.480 with a really important FED confab today in New York. 0:01:01.520 --> 0:01:05.200 It's Julia Cornado of Macro Policy Perspectives, and you are 0:01:05.400 --> 0:01:09.920 perfect to talk to about the fear that's out there 0:01:10.480 --> 0:01:14.800 among public officials messaging we are the world happy Happy. 0:01:14.880 --> 0:01:17.840 Jim Bullard's over on the Death Star right now with Joe, 0:01:17.880 --> 0:01:22.440 Andrew and Becky. Everything's fine, Bologny, it's a Bullard regime change. 0:01:23.160 --> 0:01:28.800 Clarida Galli Girtler. The science of monetary policy, what's the 0:01:28.920 --> 0:01:32.200 science in two thousand twenty. Well, that's exactly what they're 0:01:32.240 --> 0:01:34.520 trying to figure out. I mean, they they It's a 0:01:34.560 --> 0:01:37.880 tricky communication challenge, especially at moments like this when there's 0:01:37.880 --> 0:01:39.839 a real threat to the out Okay, but the difference 0:01:39.880 --> 0:01:42.280 here is we're getting yeah, yeah, yeah from Clarida John 0:01:42.280 --> 0:01:47.120 who else will we talk to? Mike McKee's got messed today. Well, 0:01:47.160 --> 0:01:48.800 because you don't want to be the hair on you 0:01:48.840 --> 0:01:51.240 have your hair on fire, as a central bank, have 0:01:51.360 --> 0:01:54.520 your hair on fire. Speak Well, I don't think that 0:01:54.560 --> 0:01:57.400 we know the extent to which this is. It is 0:01:57.440 --> 0:02:00.760 not contained. The virus is not contained. It's spread to Korea. 0:02:00.840 --> 0:02:04.960 It's definitely causing damage in Japan. Uh So we we 0:02:05.160 --> 0:02:07.920 and we don't yet know when it's going to stabilize. 0:02:07.960 --> 0:02:10.560 There are projections that are stabilize by the end of 0:02:10.560 --> 0:02:15.799 the quarter at zero bound, we're very close. What did 0:02:15.840 --> 0:02:19.080 the optionality these bankers have that affects every one of 0:02:19.120 --> 0:02:21.680 our listeners, right So I think it's interesting time to 0:02:21.720 --> 0:02:24.600 have this conversation because, on the one hand, we know 0:02:24.680 --> 0:02:27.640 that the monetary policy officials are running out of tools. 0:02:27.639 --> 0:02:30.079 On the other hand, what we saw last year was 0:02:30.120 --> 0:02:32.280 that they can have a powerful impact with a few 0:02:32.360 --> 0:02:34.480 rate cuts, right, a few rate cuts, a little turn 0:02:34.520 --> 0:02:36.880 in the balance sheet, and all of a sudden, the 0:02:37.000 --> 0:02:41.360 sentiment like switched pretty hard, and the housing market responded, 0:02:41.440 --> 0:02:45.880 commercial real estate responded. So there is some Amma laughed. 0:02:45.960 --> 0:02:48.440 They did keep the train on the tracks last year. 0:02:49.440 --> 0:02:52.680 But if the shock is big enough, obviously you hit 0:02:52.720 --> 0:02:54.840 the zero or bound pretty quickly. Yeah, I agree with 0:02:54.880 --> 0:02:57.120 you here and not Stice. That's the story. And Jimny, 0:02:57.160 --> 0:03:00.880 it's not on the brink of contracting Japan. We're already 0:03:00.919 --> 0:03:03.720 there on the brink of recession. Let's talk about the 0:03:03.760 --> 0:03:05.680 other two biggest economies in the world, the number three 0:03:05.680 --> 0:03:08.080 and four. We can have them in recession by the 0:03:08.080 --> 0:03:10.000 middle of this year, can we do? We could? And 0:03:10.000 --> 0:03:12.320 And the question then is is it a recession that 0:03:12.480 --> 0:03:14.760 is sort of technical in nature in the sense that 0:03:15.040 --> 0:03:17.400 we've already stabilized the virus and we know everything is 0:03:17.520 --> 0:03:20.760 on its way back. That would be less worrisome. Then 0:03:20.919 --> 0:03:23.600 if there is sort of knock on effects to sentiment 0:03:23.880 --> 0:03:27.800 and that's spilling over into um services. And yeah, and 0:03:27.800 --> 0:03:29.760 I think this is key for the market, for this 0:03:29.800 --> 0:03:32.240 bullmarket to finish. A whole range of things can happen, 0:03:32.320 --> 0:03:34.640 but two of them that stand out to me. Either 0:03:34.680 --> 0:03:37.200 we lose faith in the ability and willingness of central 0:03:37.200 --> 0:03:39.160 bank is to act. Muhammad Andy has made that point 0:03:39.240 --> 0:03:41.200 very well over the last couple of weeks. All we 0:03:41.320 --> 0:03:45.480 start to see that tension, that weakness in manufacturing appearing services, 0:03:45.880 --> 0:03:48.920 damage the consumer, hit the labor market, then we've got 0:03:48.960 --> 0:03:51.800 a problem in America. How far away from even thinking 0:03:51.840 --> 0:03:54.160 about that scenario, Well, we've been pretty far. I mean, 0:03:54.200 --> 0:03:57.000 it's been actually a little worrisome that markets haven't been 0:03:57.080 --> 0:04:00.880 reactive to information that suggests risks. We've had almost no 0:04:00.960 --> 0:04:03.520 pricing of risks, So that means we have further to 0:04:03.640 --> 0:04:07.320 fall if in fact there is a materialization that's meaningful. Well, 0:04:07.360 --> 0:04:09.800 and that's exactly where I wanted to go. Sort of 0:04:09.800 --> 0:04:12.760 this tension. Is there too much complacency? We were talking 0:04:12.760 --> 0:04:15.920 earlier about this question. We've got the yield curve, the 0:04:15.920 --> 0:04:18.760 two tens yield curve at the narrowest level since the 0:04:18.880 --> 0:04:21.919 last year, almost inverting yet again. And yet you have 0:04:22.000 --> 0:04:25.560 borrowing costs for the top rated companies at record lows. 0:04:26.120 --> 0:04:29.279 What will another FED rate cut do to stimulate the 0:04:29.320 --> 0:04:33.039 economy given how low borrowing costs already are and the 0:04:33.080 --> 0:04:35.719 fact that asset prices are already so high right again. 0:04:35.760 --> 0:04:37.560 And I think that highlights like there was a little 0:04:37.560 --> 0:04:40.840 bit of ammo last year. They used it to address 0:04:40.920 --> 0:04:43.240 that worry middle of the year. Now we have If 0:04:43.240 --> 0:04:46.640 we have that same worry return, you have less ammunition. 0:04:46.680 --> 0:04:49.120 And I do think there's a lot of complacency in 0:04:49.120 --> 0:04:52.159 in market pricing right now. Julia, I'm gonna go to 0:04:52.200 --> 0:04:55.719 a line from I'm Clarida Gali Girdler twenty one years ago. 0:04:56.240 --> 0:04:59.359 It is then possible to represent the baseline model in 0:04:59.520 --> 0:05:02.039 terms of the I S curve, the real economy curve 0:05:02.520 --> 0:05:05.960 that relates the output gap to the real interest rate. 0:05:06.800 --> 0:05:09.919 There isn't a real interest rate. They wrote this paper 0:05:09.960 --> 0:05:13.240 when there was unimaginable imagine we have negative that where 0:05:13.279 --> 0:05:15.680 we are where we are, it's not that is not 0:05:15.720 --> 0:05:21.720 a roadmap anymore. Where are the new tools? So so 0:05:21.800 --> 0:05:24.600 I think it's been to me a little bit disappointing 0:05:24.640 --> 0:05:28.200 that in this policy review that the FED hasn't sort 0:05:28.240 --> 0:05:30.520 of endeavored to think a little bit more outside the box. 0:05:30.960 --> 0:05:33.480 We need there are a trillion let me help, is 0:05:33.520 --> 0:05:36.839 a trillion dollar deficit outside the box enough? Well? I 0:05:36.880 --> 0:05:40.000 mean the deficit is may need to expand more if 0:05:40.120 --> 0:05:42.120 we get hit with the real shock is John is 0:05:42.160 --> 0:05:46.479 a policy tool now thirty two. Look, financial conditions matter, 0:05:46.560 --> 0:05:49.039 and the FED responded to them quickly. I think what 0:05:49.080 --> 0:05:52.240 the FED really responded to though, in eighteen December eighteen 0:05:52.360 --> 0:05:54.840 was what happened in the credit market when the primary 0:05:55.040 --> 0:05:57.640 shut down the high yield We didn't say that. They 0:05:57.680 --> 0:06:01.680 always take credit as a much more material signal than 0:06:01.760 --> 0:06:04.720 the equity market fluctuation. So I think you're exactly right. 0:06:04.760 --> 0:06:07.800 In December there was nothing trading in credit markets, and 0:06:07.839 --> 0:06:10.560 that was a very meaningful signal for the FED. And 0:06:10.600 --> 0:06:12.640 they what do you do when you have limited ammunition? 0:06:12.680 --> 0:06:15.240 You look to Japan their experiencing right now, it's yield 0:06:15.240 --> 0:06:17.880 curve control right now. Isn't that the next stop for 0:06:17.920 --> 0:06:20.479 this federal reserve beyond q WA? Well they they're already 0:06:20.480 --> 0:06:22.800 talking about yield curve control, so yes, But I think 0:06:22.839 --> 0:06:26.320 there are other ideas out there. In the economics world, 0:06:26.320 --> 0:06:32.760 like automatic stabilizers, some kind of fiscal monetary coordination where 0:06:33.000 --> 0:06:36.360 you you know you you actually get to the problem, 0:06:36.360 --> 0:06:40.000 which is lack of demand. The transmission through financial markets 0:06:40.120 --> 0:06:42.960 is getting less and less powerful as we go on. 0:06:43.160 --> 0:06:45.200 As as as everybody knows that rates are going to 0:06:45.240 --> 0:06:47.600 stay low, they don't need to respond to every wiggle 0:06:47.640 --> 0:06:49.640 and rates, right, so you get less of a delta 0:06:50.200 --> 0:06:54.359 into housing into durable consumer spending. What you need is 0:06:54.360 --> 0:06:58.799 direct cash to consumers. Is that what you're recommending? Yes, 0:06:59.000 --> 0:07:03.080 can you make it up today? We start writing some checks. 0:07:03.440 --> 0:07:09.400 Great to see it. Yeah. That was One of the the 0:07:09.480 --> 0:07:13.280 great bias we have is towards broader strategists that have 0:07:13.320 --> 0:07:16.120 had the courage to go narrow in their earlier career. 0:07:16.120 --> 0:07:19.880 And Mr Leabovitz of JP Morgan Asset Management, Johnny has 0:07:19.920 --> 0:07:23.440 done that. Here the charm of really focusing on small 0:07:23.720 --> 0:07:27.800 in MidCap equities at one point, which is way different 0:07:27.840 --> 0:07:30.920 than saying we have a buy an apple, you bring 0:07:30.960 --> 0:07:37.000 him in now. David Lebovitz, JP market Strategists Microsoft. This 0:07:37.200 --> 0:07:39.320 market where a lot of people are focused and the 0:07:39.360 --> 0:07:41.760 big caps, I think is where most people are looking 0:07:41.760 --> 0:07:43.760 at the moment. Where we've bid up some of these 0:07:43.840 --> 0:07:47.840 massive names. The Economist, the front cover for this weekend 0:07:48.280 --> 0:07:54.960 is just some robotic bulls with the logos of Microsoft, Apple, Google, Amazon, Facebook, 0:07:55.000 --> 0:07:57.760 and the headline big text to trillion dollar bill run. 0:07:57.920 --> 0:08:00.360 And of course the bears said, this is the agument, 0:08:00.600 --> 0:08:03.240 that front page, this is the monument. Why is it 0:08:03.320 --> 0:08:06.080 not the monument? So I think a couple of things. 0:08:06.080 --> 0:08:08.480 First of all, when everybody tells you it's the moment, 0:08:08.560 --> 0:08:10.720 it's very rarely the moment. So I would just I 0:08:10.720 --> 0:08:13.200 would just start with that as a disclaimer. Um. In 0:08:13.240 --> 0:08:14.920 addition to that, you know, we see a lot of 0:08:15.080 --> 0:08:18.560 differences today in in the makeup of the tech sector, 0:08:18.560 --> 0:08:21.600 particularly from a fundamental standpoint, relative to what we saw 0:08:22.160 --> 0:08:23.840 during the tech bubble in the late nineties. And I 0:08:23.880 --> 0:08:26.320 think perhaps the most important thing is just when you 0:08:26.360 --> 0:08:29.720 look at the relationship between market capitalization and contribution to 0:08:29.760 --> 0:08:32.560 overall earnings growth, it's much more balanced today than it 0:08:32.720 --> 0:08:34.760 was during the tech bubble. I mean, during the tech bubble, 0:08:34.760 --> 0:08:36.800 these companies had no earnings. You were you were buying 0:08:36.800 --> 0:08:40.320 an idea. Today those earnings are coming through a little 0:08:40.320 --> 0:08:42.520 bit more. But what I would say is what gives 0:08:42.559 --> 0:08:44.600 me a little bit of pauses. A lot of these 0:08:44.640 --> 0:08:47.320 big tech names, right, they're the ones that are keeping 0:08:47.600 --> 0:08:49.640 the rest of the tech sector afloat. You know, if 0:08:49.679 --> 0:08:51.679 you think about the way that when one of these 0:08:51.720 --> 0:08:54.599 big tech firms spends money that trickles down into the 0:08:54.640 --> 0:08:57.040 broader tech sector and coming back and wearing my small 0:08:57.040 --> 0:08:59.959 and MidCap analyst hat. You know, if if something happens 0:09:00.080 --> 0:09:03.400 to these big names, they're not necessarily going to bear 0:09:03.480 --> 0:09:06.000 the full brunt of of that. It's going to be 0:09:06.000 --> 0:09:08.160 the smaller names that they've been keeping afloat through their 0:09:08.200 --> 0:09:10.400 through their various spending. What's fascinating that, David, is the 0:09:10.440 --> 0:09:13.079 amount of people that use this term secular growth story. 0:09:13.120 --> 0:09:15.040 I want to be in the secular growth stories. Some 0:09:15.080 --> 0:09:17.079 of these companies are old enough to have ever had 0:09:17.120 --> 0:09:20.000 a cyclical test, yet we have that this faith that 0:09:20.040 --> 0:09:22.400 they are the seculic growth story. They are almost the 0:09:22.440 --> 0:09:24.960 havens I dare I say. I remember when a guest 0:09:25.000 --> 0:09:27.400 came on my program and said that Amazon will say haven. 0:09:27.960 --> 0:09:29.920 Is that how some people are treating this just queuing 0:09:29.960 --> 0:09:32.080 off low rate, low yields. Looking at some of these 0:09:32.080 --> 0:09:35.120 big secular growth stories and bitten up software, I think 0:09:35.160 --> 0:09:36.520 I think that that's a big part of it. And 0:09:36.520 --> 0:09:39.160 you know, when when we look at the direction of travel, 0:09:39.240 --> 0:09:41.560 and I'm sympathetic to the secular argument, you know, you 0:09:41.559 --> 0:09:43.440 look at the labor market, you look at the increasing 0:09:43.480 --> 0:09:46.640 use of automation, that clearly benefits the tech sector more 0:09:46.679 --> 0:09:50.679 than it benefits other parts. You know. That said, I 0:09:51.080 --> 0:09:54.559 think that it's important not to get ahead of ourselves. 0:09:54.720 --> 0:09:56.920 And one of the things that's happening in tech more broadly, right, 0:09:56.920 --> 0:09:59.400 if we zoom out away from the public markets and 0:09:59.440 --> 0:10:02.079 think about happening on the private side of the equation. 0:10:02.320 --> 0:10:04.760 You know, you're seeing a lot of VC twop deals. 0:10:04.760 --> 0:10:07.120 You're seeing a lot of sponsor to sponsor deals. They 0:10:07.120 --> 0:10:09.360 don't really care about the earnings. All they care about 0:10:09.400 --> 0:10:11.120 is the revenue. And that makes me a little bit 0:10:11.200 --> 0:10:16.000 uncomfortable about the retroctor. I want to I want to 0:10:16.000 --> 0:10:18.000 flip what you're saying on its head, which is what 0:10:18.040 --> 0:10:22.040 you're saying is the gains in big tech might mask 0:10:22.120 --> 0:10:25.760 the vulnerability of smaller tech companies, but it might also 0:10:25.960 --> 0:10:30.280 mask the underperformance of other companies within the entire rest 0:10:30.320 --> 0:10:32.440 of the U. S economy as well. And I'm struck 0:10:32.480 --> 0:10:35.400 by this figure that John Author has put out that 0:10:35.400 --> 0:10:39.000 if you exclude the big five, Microsoft, Apple, Facebook, Alphabet, 0:10:39.040 --> 0:10:42.800 and Amazon US earnings were down significantly in the fourth quarter. 0:10:43.200 --> 0:10:45.640 If you look at the Russell two thousand, it's continuing 0:10:45.679 --> 0:10:49.920 to underport perform. The SMP five hundred. Is the rally, 0:10:49.960 --> 0:10:52.920 the two trillion dollar rally, and big Tech masking some 0:10:53.000 --> 0:10:56.920 serious underlying weakness. I think it absolutely is. And one 0:10:56.920 --> 0:11:00.440 of our big concerns looking ahead at is actually how 0:11:00.440 --> 0:11:03.160 the earning story plays out. Um. If you look at 0:11:03.200 --> 0:11:06.280 the eleven gifts sectors today, there are only four of 0:11:06.320 --> 0:11:09.959 them that are seeing margins expand. Right, Financial saw margins 0:11:09.960 --> 0:11:12.520 expand in the fourth quarter because of a favorable base effect. 0:11:12.760 --> 0:11:15.520 Staples are seeing their margins expand, Utilities are seeing their 0:11:15.520 --> 0:11:18.440 margins expand, and then tech is seeing its margins expand. 0:11:18.640 --> 0:11:21.200 The rest of the market is seeing profits come under 0:11:21.200 --> 0:11:23.640 a pretty significant amount of pressure. Yet you still have 0:11:23.679 --> 0:11:25.959 consensus looking for eight to nine percent earnings growth in 0:11:26.679 --> 0:11:29.280 which I just can't square that circle. What are your 0:11:29.320 --> 0:11:31.520 clients doing? I mean, part of your job is to 0:11:31.559 --> 0:11:33.240 go out and talk to the troops, and by that 0:11:33.360 --> 0:11:35.040 I mean the clients. We did the backdrop here of 0:11:35.040 --> 0:11:38.160 the Morgan Stanley Trade and you're talking to more substantial 0:11:38.200 --> 0:11:41.920 people at JP Morgan. Great, what are they actually doing 0:11:41.960 --> 0:11:45.920 with their money besides telling you they need more Apple? Yeah. 0:11:46.280 --> 0:11:49.280 So I think what's most interesting, the most interesting trend 0:11:49.280 --> 0:11:52.040 that we've seen over the past couple of quarters is 0:11:52.080 --> 0:11:56.280 primarily a phenomenon in the institutional world, so pensions, endowments, foundations, 0:11:56.280 --> 0:11:58.400 and what we're seeing a lot of folks do is 0:11:58.400 --> 0:12:01.840 is look at the world today, look at their portfolios. 0:12:02.080 --> 0:12:04.920 Not necessarily be keen to add more equity, beata to 0:12:04.960 --> 0:12:07.760 their overall allocation, but they look at fixed income and 0:12:07.760 --> 0:12:09.679 they're not getting paid. Come on, they're gonna making their 0:12:09.720 --> 0:12:12.520 actual assumption and their assumptions going down right now, they're 0:12:12.600 --> 0:12:14.800 under And John, this goes back to Jeff, you and 0:12:14.840 --> 0:12:17.040 the wall of money out there. You will be yes, 0:12:17.120 --> 0:12:22.560 these people are desperate at their actuarial underperformance. Plus Bruce 0:12:22.640 --> 0:12:25.240 Chasmas and Michael Faroli, you're gonna tell them the actual 0:12:25.280 --> 0:12:28.840 assumptions coming down as well. That pressure is immense, isn't 0:12:29.040 --> 0:12:30.960 exactly it is? And so what we're seeing a lot 0:12:31.000 --> 0:12:33.800 of people do because again, you know, adding high yield 0:12:33.800 --> 0:12:35.720 to get that income is just going to increase your 0:12:35.760 --> 0:12:38.360 overall sensitivity to equities. So we're seeing more and more 0:12:38.440 --> 0:12:42.280 people adopt things like real estate and infrastructure and transportation 0:12:42.320 --> 0:12:46.120 strategies as a source source of both diversification and yield 0:12:46.360 --> 0:12:48.400 within portfolios. You know. The flip side of that is 0:12:48.400 --> 0:12:50.760 when I talked to a lot of retail clients, everybody 0:12:50.760 --> 0:12:53.480 feels pretty good. Market was up thirty percent last year. 0:12:53.559 --> 0:12:56.840 Nobody really seems to remember what happened in December of eighteen. Yet, 0:12:56.880 --> 0:12:59.200 coming back to the profit story, we're seeing earnings begin 0:12:59.240 --> 0:13:02.360 to drive brilliant, folks. What you're hearing from Julia Cardano 0:13:02.440 --> 0:13:05.200 back to back with David LEVINWOZ is just outstanding. Okay, 0:13:05.280 --> 0:13:08.440 great is Apple, Amazon and the others? John and the 0:13:08.480 --> 0:13:11.280 cover of the economists this week. Are they under owned 0:13:11.880 --> 0:13:16.959 by institutions? I think that they're probably not under owned 0:13:16.960 --> 0:13:19.880 by institutions because more and more institutions that I speak 0:13:19.920 --> 0:13:23.240 with are are indexing their large cap public equity exposure. 0:13:23.280 --> 0:13:26.559 I mean, it's very difficult to add alpha in that market. 0:13:26.600 --> 0:13:28.720 I mean, there are what north of twenty analysts that 0:13:28.760 --> 0:13:31.319 cover Apple. There's there's no stone that goes that goes 0:13:31.440 --> 0:13:34.800 left up. Just mentioned three Greek letters, can he stay 0:13:35.720 --> 0:13:39.280 pain trade? In last year, equity markets just kept going higher, exactly, 0:13:39.280 --> 0:13:41.880 despite all the outflows. Equity markets kept going high, and 0:13:41.920 --> 0:13:44.600 the biggest risk wasn't a downside risk, it was upside risk. 0:13:44.640 --> 0:13:47.000 And the coals you needed to get right the policy 0:13:47.040 --> 0:13:51.520 coal and the cola multiples any different. I I don't 0:13:51.559 --> 0:13:53.440 think it is. You know, I think that one of 0:13:53.440 --> 0:13:55.840 the things that's been supporting this market as of late 0:13:56.160 --> 0:13:59.000 is an idea that a the coronavirus issue is is 0:13:59.040 --> 0:14:01.920 in fact transit to worry and be whoever ends up 0:14:01.920 --> 0:14:04.000 in the White House this fall. You know, when we 0:14:04.040 --> 0:14:06.720 look at governments more broadly around the world, the fiscal 0:14:06.760 --> 0:14:09.760 taps are staying open. So if there's no inflation, policy 0:14:09.800 --> 0:14:12.520 remains accommodative on the monetary side, and if the fiscal 0:14:12.559 --> 0:14:14.960 taps continue to flow, that's a pretty good environment for 0:14:15.000 --> 0:14:18.640 equity markets overall. Tommy, you asked if institutions under owned 0:14:18.720 --> 0:14:21.040 big tech. I was struck by a Wall Street Journal 0:14:21.080 --> 0:14:23.960 story yesterday about Warren Buffett's apple steak, and it's more 0:14:24.000 --> 0:14:26.440 than double to seventy nine billion dollars since he began 0:14:26.480 --> 0:14:29.600 buying in sixteen. He basically capitulated he still can't put 0:14:29.640 --> 0:14:31.160 in anyone of any of his money to work. But 0:14:31.200 --> 0:14:32.760 he said, I didn't go into Apple because it was 0:14:32.800 --> 0:14:35.360 a tech stock, but rather for its brand and capital 0:14:35.480 --> 0:14:38.040 return strategy. They have so much cash they can keep 0:14:38.160 --> 0:14:41.320 pouring it through investors here. So is that the underpinning here? 0:14:41.360 --> 0:14:43.280 I mean used to be in small cap, in MidCap 0:14:43.320 --> 0:14:45.600 where there was no share by that no dividend growth? 0:14:45.880 --> 0:14:48.000 Is that the mother of all underpinnings here in two 0:14:48.000 --> 0:14:50.800 thousand twenty, they use of cash that Leasta alludes to, 0:14:51.120 --> 0:14:54.040 I think it is. We actually just released a paper 0:14:54.120 --> 0:14:57.160 last Friday on how corporations have been using cash and 0:14:57.200 --> 0:15:00.720 thinking about investment spending versus R and DV is dividends 0:15:00.800 --> 0:15:03.760 versus buy backs. And the way that we're really informing 0:15:03.800 --> 0:15:06.760 ourselves and driving our own strategies this year is by 0:15:06.800 --> 0:15:10.040 focusing on this concept of total shareholder yields, so dividends 0:15:10.040 --> 0:15:12.440 plus buy backs. Right, everybody always wants to know what 0:15:12.480 --> 0:15:14.880 do you like more value or growth? Frankly, I think 0:15:14.920 --> 0:15:16.920 you can own both. The financial sector pays a six 0:15:16.960 --> 0:15:19.360 and a half percent total shareholder yield. Tech is paying 0:15:19.360 --> 0:15:21.920 you a four percent total shareholder yield, and you don't 0:15:21.920 --> 0:15:24.400 have that downside risk if rates do move higher that 0:15:24.400 --> 0:15:27.120 you're getting from utilities and staple John from Coventry emails 0:15:27.120 --> 0:15:29.120 in and says, what should I do with Uber? That's 0:15:29.160 --> 0:15:33.320 you know that what he said? That what he said 0:15:34.440 --> 0:15:41.560 you management Global market strategy Cornado, David levitts back to back, 0:15:47.800 --> 0:15:50.120 right down. Johnny ends to jump in here with the 0:15:50.160 --> 0:15:53.120 new slow we get lucky again. Jonathan Fenby joins us. 0:15:53.320 --> 0:15:56.640 His book on France is absolutely authoritative. I read it 0:15:56.680 --> 0:16:00.400 cover to cover, stunning history for Americans, all this on 0:16:00.480 --> 0:16:05.040 the European distinction. That's a sidecar transaction for him versus 0:16:05.080 --> 0:16:08.840 what he does with China. His monographed John three years ago, 0:16:08.920 --> 0:16:14.560 will China Dominate the century? Was absolutely definitive. And that's 0:16:14.560 --> 0:16:16.960 a little bit of an appoint a question right now 0:16:17.080 --> 0:16:19.520 is China is a bit distracted? Wonderful to bring in 0:16:19.600 --> 0:16:22.840 Jonathan Fambi now Ts Lombard, chairman of China Research. Jonathan, 0:16:22.840 --> 0:16:25.320 fantastic to have you with us on the program. Muhammedan 0:16:25.400 --> 0:16:28.000 Amon has talked about these sudden stop dynamics, and I'm 0:16:28.040 --> 0:16:30.400 interested to see how you think some of these things 0:16:30.480 --> 0:16:33.320 will cascade through the global economy in the coming months. 0:16:33.320 --> 0:16:36.680 How are you thinking about that at the moment, John, Well, 0:16:36.680 --> 0:16:41.400 the the outbreak of the virus, the coronavirus has come 0:16:41.480 --> 0:16:44.680 really as you know, it's it's a big, big test 0:16:44.760 --> 0:16:49.280 for the leadership in China and it's having pretty wide 0:16:49.320 --> 0:16:54.240 effects there obviously in China itself but now increasingly outside China, 0:16:54.840 --> 0:16:58.920 and for the leadership she's in thing the first priority 0:16:59.520 --> 0:17:03.640 is to show that they can sow, they can save 0:17:03.720 --> 0:17:09.040 the protect the nation, you know, prevent this virus taking 0:17:09.160 --> 0:17:12.040 yet more lives and so on, and bring things under control. 0:17:12.400 --> 0:17:15.719 But that comes with as we now are seeing a 0:17:15.720 --> 0:17:21.200 heavy economic price in the terms of the lockdown, the quarantining, 0:17:21.560 --> 0:17:26.000 the closed factories, particularly after the lunar New Year, and 0:17:26.280 --> 0:17:31.280 the disruption to the supply chains which globally depends so 0:17:31.359 --> 0:17:35.400 much on China and which are very very complicated, very 0:17:35.440 --> 0:17:41.200 complex um go both in and out of China, and 0:17:41.280 --> 0:17:44.440 to rebuild those is going to be a major element. 0:17:44.560 --> 0:17:47.280 So we're going to have a slow down in growth, 0:17:47.359 --> 0:17:51.639 probably quite serious in the first quarter. Depends how long 0:17:51.720 --> 0:17:55.480 obviously it is before industry gets going again, and that 0:17:55.560 --> 0:17:59.879 will lead to a stimulus package undoubtedly by the leadership. 0:18:00.160 --> 0:18:04.520 It won't be as big as too oh nine, which 0:18:04.600 --> 0:18:09.040 was mega, but it will be very considerable. It's already starting, 0:18:09.240 --> 0:18:13.760 and that will then in turn raise questions about the 0:18:13.880 --> 0:18:16.640 debt level in China and whether they're going to give 0:18:16.720 --> 0:18:21.440 up the attempt at de leveraging. So the whole series 0:18:21.680 --> 0:18:25.800 of choices and policy issues at the moment which is 0:18:25.800 --> 0:18:28.080 going to affect markets worldwide. Let's pick up on some 0:18:28.119 --> 0:18:29.840 of the issues that you've put out there at the moment. 0:18:30.080 --> 0:18:32.440 On the one hand, containing the virus, on the other hand, 0:18:32.680 --> 0:18:37.639 stabilizing the economy, and somewhere in between social instability issues 0:18:37.680 --> 0:18:41.879 as well, Jonathan, how does that fit into these two issues? Absolutely? 0:18:42.520 --> 0:18:46.880 And control, Controlling China, the Chinese society and that's one 0:18:46.920 --> 0:18:50.399 point four billion people, of course, has always been a 0:18:50.440 --> 0:18:55.080 major priority of the current leadership under Shijin thing Um, 0:18:55.720 --> 0:19:01.560 and that attempt to bring about stability, as it's called, 0:19:01.760 --> 0:19:05.040 in the face of consider a lot of public uncertainty 0:19:05.080 --> 0:19:09.199 and happiness, but also a certain degree of public anger 0:19:10.080 --> 0:19:14.480 which has been manifested through social media. At the way 0:19:14.680 --> 0:19:20.120 the virus has been combated is going to cause quite 0:19:20.119 --> 0:19:23.959 a big political problem. And we've already seen sting sending 0:19:24.000 --> 0:19:27.640 in trusted left tenants to take over key positions in 0:19:27.680 --> 0:19:31.359 the most affected areas of China. Jonathan, it's interesting that 0:19:31.400 --> 0:19:33.760 we had Tony Chris Ansia and from PIMCO earlier, and 0:19:33.760 --> 0:19:35.960 he wrote in a recent report that the general resilience 0:19:35.960 --> 0:19:38.600 that we've seen in equities demonstrates the existence of a 0:19:38.600 --> 0:19:41.720 new global monetary order, highlighted by the prominent rule that 0:19:41.800 --> 0:19:45.840 the PBOC now plays as a circuit breaker for world markets. 0:19:46.280 --> 0:19:50.160 Do you think that that is an accurate characterization? Well, 0:19:50.359 --> 0:19:56.320 it's that that depends on how effective the PBOC measures 0:19:56.359 --> 0:20:01.120 the easing measures which they've undertaken, together with US mentions 0:20:01.119 --> 0:20:05.639 taken by the government, how effective that will prove in 0:20:05.880 --> 0:20:09.159 buying up the economy in China, And frankly, with the 0:20:09.200 --> 0:20:12.800 degree of uncertainty around at the moment, this is something 0:20:12.800 --> 0:20:16.280 we have to watch and wait and watch. John. I 0:20:16.280 --> 0:20:19.160 I look at your expertise on China, the making of 0:20:19.280 --> 0:20:22.360 the history of China and and all that you've written. 0:20:22.720 --> 0:20:24.720 I guess it's you know, they had a script and 0:20:24.760 --> 0:20:27.720 the script has been derilled. If they don't get the 0:20:27.840 --> 0:20:31.520 v shape recovery, even if it's delayed by two three 0:20:31.640 --> 0:20:36.679 four quarters, what's the FENDI timeline where the script begins 0:20:36.760 --> 0:20:41.280 to fall apart. For President g Well, the difficulty is 0:20:41.359 --> 0:20:44.280 next year is a very important historic year. It's the 0:20:44.359 --> 0:20:47.560 hundredth anniversary of the foundation of the Chinese Communist Party, 0:20:47.600 --> 0:20:50.679 and this was due to be a great celebration of 0:20:50.800 --> 0:20:56.080 how China under the Communist Party has built itself up 0:20:56.320 --> 0:21:00.680 and was a model for the world to set alongside 0:21:00.760 --> 0:21:03.240 that of the Western the United States. And that will 0:21:03.280 --> 0:21:06.000 be a big political problems. I think they're gonna throw 0:21:06.040 --> 0:21:08.320 everything at it if it turns out to be a 0:21:08.520 --> 0:21:13.040 U shape or even more an L shaped. For the 0:21:13.080 --> 0:21:15.600 rest of this year, there's going to be a really 0:21:15.840 --> 0:21:18.800 major policy decision taking that's going to have to be 0:21:18.840 --> 0:21:22.719 taken in Beijing, which will affect the whole world. John Femby, 0:21:22.760 --> 0:21:25.760 we want you to fall back on economics, finance, and investment. 0:21:25.840 --> 0:21:28.800 Right now, you're expert on France. The lethargy of Europe 0:21:28.800 --> 0:21:32.280 as well, let's call it eurosclerosis. The yields are there, 0:21:32.320 --> 0:21:34.320 the negative rates are there, the yields are there this 0:21:34.359 --> 0:21:37.920 morning in the United States. What is the yield structure 0:21:38.080 --> 0:21:43.439 of Europe signal to you, well, that Europe is Europe 0:21:43.480 --> 0:21:46.920 is still pretty sluggish. It must be said eurosclerosis. I 0:21:46.960 --> 0:21:49.480