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Speaker 2: This is a joy. She is a Columbia university in
Speaker 2: for years with golden sas Abbie Joseph Cohen joins us
Speaker 2: now in an important time for the nation. Abby, let
Speaker 2: me go out to sixty thousand feet with this administration,
Speaker 2: with the ying and yang almost of this old administration
Speaker 2: to new and all, do we risk giving up American productivity?
Speaker 2: For whatever reason? Are we close to where we upset
Speaker 2: the long term glow in a f of America?
Speaker 3: Tom, I know that you've always had this focus on productivity,
Speaker 3: and I'm glad that you do because, as you and
Speaker 3: I both know, long term economic growth and long term
Speaker 3: wealth creation. And I'm talking about national wealth, personal wealth
Speaker 3: rather than stock market erratic wealth is very much related
Speaker 3: to productivity. And I do think that some decisions that
Speaker 3: have been made and continue to be made right now
Speaker 3: will be damaging the nation's long term productivity growth. I'll
Speaker 3: give you a few examples. First of all, even during
Speaker 3: prior administrations, we were seeing that our national investment in
Speaker 3: science and technology as a percentage of GDP had gone down,
Speaker 3: and it has gone down even further during the last
Speaker 3: few months. Cancelation just yesterday for example, or excuse me,
Speaker 3: postponement rather of all NIH grants announced yesterday is an
Speaker 3: indication of loss of productivity future productivity in the bio
Speaker 3: BioResearch area. We've also seen enormous cutbacks in grants from
Speaker 3: the National Science Foundation, NASA and so on, and these
Speaker 3: are the things that really gave us a leg up
Speaker 3: in terms of our technology, especially with regard to things
Speaker 3: like computer science and a number of other categories that
Speaker 3: are going to be so critical for the future.
Speaker 4: Happy we're going to hear from the Federal Reserve Bank today,
Speaker 4: and as you know, so much cross currents out there
Speaker 4: and probably some political pressures that this is a this
Speaker 4: FED has not had to deal with for a very
Speaker 4: very long time. What do you expect to hear today?
Speaker 3: I think, like everyone else, I will be on tender hooks,
Speaker 3: but I think the consensus probably has it right that
Speaker 3: the FED for the time being would like to hold
Speaker 3: tight on interest rate policy. Keep in mind that even
Speaker 3: the GDP report this morning had those cross currents in it.
Speaker 3: The top line might have looked good, but things like
Speaker 3: real final sales are showing signs of deceleration, consumer spending decelerating,
Speaker 3: and very importantly, back to Tom's question about productivity, we
Speaker 3: see that business investment capex, for example, is also slowing.
Speaker 3: And these are things that we need to be watching carefully.
Speaker 3: But let's remember that the FED is under pressure not
Speaker 3: just on interest rate policy, but on some other things,
Speaker 3: including its very important supervisory and regulatory function within financial services.
Speaker 3: And then, of course there are the questions about the building.
Speaker 3: I would say that I worked in two of those
Speaker 3: buildings and they were in desperate need of renovation, experate renovation.
Speaker 4: So again, so abby. When you think about, you know,
Speaker 4: these markets here today and some of the trade policies
Speaker 4: that maybe the market's trying to discount here, the political issues,
Speaker 4: the geopolitical issues for topics around the world. Are you
Speaker 4: surprised that the equity market snapped back as well as
Speaker 4: it did, and we're talking about new all time highs
Speaker 4: on a daily basis.
Speaker 3: Well, As you point out, the equity market did snap
Speaker 3: back especially after those announcements in April, and I think
Speaker 3: the key reason for it has been that economic data
Speaker 3: has been okay. As I mentioned before, there are now
Speaker 3: some signs of deceleration, but certainly procession and corporate profits
Speaker 3: have been quite robust. Particularly it's in sectors that have
Speaker 3: been favored. I think that the real question will be
Speaker 3: in the second half of this year once we see
Speaker 3: what happens as companies are now beginning to adjust for
Speaker 3: the tariff policies they see, for example, the announcements just
Speaker 3: over the last yeays Procter and Gamble and Hershey and
Speaker 3: of course some of these pharmacy companies.
Speaker 2: Abby Joseph Cohen with US of Columbia and of course
Speaker 2: decades of Goldman Sex. Abby, Are you a bull in
Speaker 2: this oddest of markets where people you and I know
Speaker 2: in respect have ten holdings that are forty even fifty
Speaker 2: percent of their portfolio. Is this a legitimate bull market
Speaker 2: that you can believe in?
Speaker 3: This is a legitimate bull market. The question is how
Speaker 3: much further can it go? The concentration that we've seen
Speaker 3: in a small number of extremely well performing shares, and
Speaker 3: of course the valuation valuations are just not all that appealing.
Speaker 3: If we look at the S and P five hundred overall,
Speaker 3: it is, you know, sort of at record deciles visa
Speaker 3: pe price to sales, price to book, and so on.
Speaker 3: Doesn't mean that there are some value opportunities, but I
Speaker 3: think that investors really need to be very careful. And
Speaker 3: one of the things that I always go back to
Speaker 3: is that when the market is undervalued, when the market
Speaker 3: is too cheap and there are disappointments perhaps on economics
Speaker 3: or geopolitics, the market has shock absorbers. But when things
Speaker 3: are already priced for perfection, then you really need to
Speaker 3: be careful because that's when the volatility picks up. And
Speaker 3: we have seen, for example, that when there are those
Speaker 3: periods in which it's not clear what economic policy will
Speaker 3: be or what's happening in the rest of the world,
Speaker 3: we do see that volatility picking up, and volatility works
Speaker 3: in both directions, not just up but also down.
Speaker 4: Abby what have you seen so far and what do
Speaker 4: you expect to see in the second quarter earnings that
Speaker 4: we're dealing with at the moment.
Speaker 3: The second quarter earnings have actually been quite good, and
Speaker 3: that I'm sure is a relief to many people. My focus, however,
Speaker 3: has on guidance. What are these companies telling us about
Speaker 3: the future. And we are hearing more and more companies
Speaker 3: saying they are concerned about tariffs. They've not been forced,
Speaker 3: if you will, to focus in detail on it, because
Speaker 3: nobody really knows what the tariff structure is going to be.
Speaker 3: There's been a sigh of relief that the tariff of
Speaker 3: focus will not be as high as it might have
Speaker 3: been in April. But where we are right now fifteen
Speaker 3: to eighteen percent on average expectation for tariff rates, that's
Speaker 3: extremely high, that smooth Hawley level. And the comments that
Speaker 3: have been made by some saying, oh, look how much
Speaker 3: money we're collecting from tariffs, that's great, it's going to
Speaker 3: help us on the deficit. Well, I would say, hold
Speaker 3: on a second. Those tariffs are being collected in large
Speaker 3: part from American businesses and American consumers. It's a sales tax,
Speaker 3: and it's something that is not helpful for economic growth.
Speaker 3: Thus far, what we have seen in corporate reports is
Speaker 3: that companies willing to absorb to this point, but as
Speaker 3: they have a better sense of what the tarips will
Speaker 3: really be, they may adjust their policies.
Speaker 2: Having I got twenty seconds it's one hundred degrees out
Speaker 2: Ken olvetch can do it one more year for the
Speaker 2: Washington Capitals.
Speaker 3: I certainly hope. So I've got my jersey ready.
Speaker 2: Very good Abby, and thank you so much. With Columbia
Speaker 2: University sitting right behind the bench in Washington Capitals opening
Speaker 2: that it'll be in October. I believe first week of
Speaker 2: October is the tradition.
Speaker 1: You're listening to the Bloomberg Surveillance Podcast. Catch us live
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Speaker 2: Studying me, I an't who was silber member with this
Speaker 2: now our RBC Capital Markets into the great fundamental analysis
Speaker 2: the mathematics of Abby Joseph Cohen at Columbia University when
Speaker 2: you were coming up and I was the same way.
Speaker 2: How did you study Abby Joseph Cohen? She was asconsdin
Speaker 2: gold and Sacks, hugely active within the CFA Institute. How
Speaker 2: did you study the applied mathematics of Abby Joseph Cohen?
Speaker 5: Well, first I was at Goldman and you know, Abby
Speaker 5: Joseph Cohen was the star. So it's very cool.
Speaker 6: Did you ever speak to her?
Speaker 5: I was too afraid that was like a lowly associate
Speaker 5: in the Derivas research department. I just you know, I
Speaker 5: looked from afar. But you know one thing I appreciated
Speaker 5: and that became part of the background is like a
Speaker 5: lot of the white paper analysis is kind of the fundamentals.
Speaker 5: It creates the background for a lot of our analysis
Speaker 5: going forward, looking at back test, looking at systematic factors,
Speaker 5: and that's our framework now at rbcun Derivetives.
Speaker 4: We look at the VIX here. Tom makes us look
Speaker 4: at the VIXI beats us over the head every day.
Speaker 7: You looking at the vix.
Speaker 4: What it's here at below sixteen? It just feels like
Speaker 4: it should be higher than that. I don't know, it's
Speaker 4: crazy out there, but we have a vix. It seems
Speaker 4: pretty benign here.
Speaker 2: How do you think about that's?
Speaker 5: It looks completely benign. You know, I've been joking that
Speaker 5: I've got to bring back my paddling duck market analogy
Speaker 5: because I think it still suits the market here.
Speaker 4: Look.
Speaker 5: The one fact I would add though, is that realize
Speaker 5: volatilely so thirty day SMP realize volatility is eight. So
Speaker 5: if you look at that volatility risk premium, it's actually
Speaker 5: fairly fat. But you know, our joke on the team
Speaker 5: has been it's a good time to rent Gamma, it's
Speaker 5: a good time to Essentially, it just means it's a
Speaker 5: good time to own a little bit of the idea
Speaker 5: that volatility could increase from here, because just given what
Speaker 5: you guys just said, think about the heavy weights reporting today,
Speaker 5: think about what Al could say today. And yet we're
Speaker 5: implying an S and P straddle that suggests nothing's going
Speaker 5: to happen today.
Speaker 2: Within the idea of betting on more volatility, betting on
Speaker 2: more acceleration, if you will, in price change. Is there
Speaker 2: a bet in this summer? Is there a bet on
Speaker 2: Wall Street? Are people exposed?
Speaker 5: So there is not a bet? Now there is a bet.
Speaker 5: We've talked about this before Tom longer term, so more
Speaker 5: in those October through December buckets, you're starting to see
Speaker 5: more hedging activity. But my one fun fact is when
Speaker 5: you look at August over the last decade, VIX typically
Speaker 5: rises about eighteen percent. August is a volatilely potthole month.
Speaker 5: It's a month where folks go one vacation. Investors maybe
Speaker 5: not as much at their desk, you get those liquidity vacuums,
Speaker 5: and maybe you get an August fifth where VIC spikes
Speaker 5: to you know, the sixties that's happened before. We're not
Speaker 5: prepared for that where we're still in July and we're
Speaker 5: happy as a clam.
Speaker 4: So, I mean, I've been in this market game since
Speaker 4: eighty six.
Speaker 7: October.
Speaker 4: I don't like those periods. I mean I was on
Speaker 4: the stock exchange floor in eighty seven.
Speaker 2: Not good.
Speaker 4: How do you think about that? Do you see clients
Speaker 4: positioning for volatility and the follow when people maybe.
Speaker 2: Do get back to their desks.
Speaker 5: Yeah, I think essentially clients are planning on positioning, but
Speaker 5: they have not yet because it's a little too early
Speaker 5: and the name of the game and options is not
Speaker 5: to have to burn premium. But what I'll tell you
Speaker 5: is there's been kind of too divergent narratives. Right, So
Speaker 5: the retail population has all has been about by the dip.
Speaker 5: It has worked for them, but there's always been this
Speaker 5: institutional angst. It really hasn't gone away. It's gone away,
Speaker 5: it has not. I think it's just being very tactical
Speaker 5: about one to deploy it.
Speaker 2: And this is so critical. If they are behind if
Speaker 2: their angst has not gone away. What's the emotion of
Speaker 2: institutions when they're oops, it's August or behind?
Speaker 4: Yeah?
Speaker 2: Are they like retail where they're like, let's get on board,
Speaker 2: hold your nose, let's buy apple or whatever.
Speaker 4: You know.
Speaker 5: The one thing we've seen in financial history since COVID
Speaker 5: is it's not just a left tail risk. There's also
Speaker 5: this right tail risk. And it's very real, Like you
Speaker 5: can no longer think of it as something that occasionally happens,
Speaker 5: like you've you've now gotten a May twenty twenty one.
Speaker 5: These meme crazes, right, these are very real risks that you,
Speaker 5: as a portfolio manager are just as exposed to. If
Speaker 5: your benchmark runs away from you, You're you're hedging on
Speaker 5: the upside as much as you're hedding on the downside.
Speaker 2: Tom Amy was silveran with US RBC Capital Markt's thrilled
Speaker 2: to have her with US. Ebby Joseph Cohen joining us
Speaker 2: in about twenty minute here ready green on the screen
Speaker 2: the vics fifteen six.
Speaker 4: So you mentioned meme stocks and Amy. Whenever I see that,
Speaker 4: and we see it from time to time, that to
Speaker 4: me is a red flag that all right, this market's
Speaker 4: getting a little silly here, and how do you pros
Speaker 4: think about it? Because just from a lay person, when
Speaker 4: I see that stuff, I get nervous.
Speaker 5: I'd say two things. The first is, and I'll bring
Speaker 5: this back to game stop. So the reason game stop
Speaker 5: became an issue for the broader market was at one
Speaker 5: point was actually forty percent of all of the XRT.
Speaker 5: So the retail etf it started to become a benchmark
Speaker 5: risk for folks who didn't want to have anything to
Speaker 5: do with it. I'd have investors tell me I don't care,
Speaker 5: this is a side show. But then they're starting to
Speaker 5: get that concentration risk in the benchmark. We're not there yet.
Speaker 5: It's been a little bit of you know, a storm
Speaker 5: and a tea kettle. But if that starts to spread,
Speaker 5: you better believe again that right tail risk is going
Speaker 5: to spread and people have to catch it.
Speaker 2: I look at the math, the math, and let's go
Speaker 2: to the cross moments. Folks, we're not going to get
Speaker 2: into it. It's the summer. My head's hurting. But if
Speaker 2: you look at the variant study, the cortosis study, the
Speaker 2: rest of it is the math working right now.
Speaker 5: For pros, you know, I think one thing that all
Speaker 5: us folks who work in the rivers have to do,
Speaker 5: and you know this is a slugs You got to
Speaker 5: date these spreadsheets. Maybe AI can help, but that the
Speaker 5: rise of zero data xpre trading really just changes how
Speaker 5: we have to think about things. You know, we used
Speaker 5: to have the standard monitor that's one month, three months,
Speaker 5: six months, twelve month, that's your standard substructure. It kind
Speaker 5: of has to be right because everything's happening in such
Speaker 5: shorter duration. You know, I've kind of called it this
Speaker 5: theme of duration shrinkage, meaning we're getting just as much
Speaker 5: activity to.
Speaker 2: LEB is that then on theta the X axis is
Speaker 2: the advantage because of the focus short term to make
Speaker 2: your bets out longer term is now seen to LEB
Speaker 2: took small, longer term bets.
Speaker 5: Yeah, so you can get. What I will say is
Speaker 5: the reason I think zero data XPRA is a healing
Speaker 5: is because you get less of that problem with fatal,
Speaker 5: a less of that carry problem. But what it has
Speaker 5: also done is people are paying less attention I think
Speaker 5: to the longer tenors which have been telling us something
Speaker 5: this entire time. So I think it has sliced bow
Speaker 5: ways and what you know what you want to deploy.
Speaker 5: I think it really depends on your risk framework.
Speaker 4: We're going to hear from a couple of big stocks
Speaker 4: after the closed day, Microsoft and Meta Slash Facebook, and
Speaker 4: that kind of goes to the concern that some people
Speaker 4: have about concentration risk in this market? How has that
Speaker 4: expressed AAR is your market? The derivatives market? Is that
Speaker 4: concern about concentration risk? Is that there? And are people
Speaker 4: trying to hedge it? Somehow?
Speaker 5: It's one hundred percent there? And so one thing we
Speaker 5: like to look at is to think about, you know,
Speaker 5: one of our other themes is just how the meat
Speaker 5: is made really matters. You know, what's in that sausage
Speaker 5: and so you get I'll just give an example. I'll
Speaker 5: give a component like XLC. So the SMP Communications ETF.
Speaker 5: You go into your Bloomberg and you go to MMB
Speaker 5: and what do you find there? Two to three stocks
Speaker 5: max right, And so some of the opportunities that we
Speaker 5: think are interesting is to essentially own the options of
Speaker 5: the ETFs where it's essentially the same meat, but it's
Speaker 5: not pricing as.
Speaker 7: If it is.
Speaker 2: Certainly your famous line here how the meat is made
Speaker 2: is a general statement you could go in cash market,
Speaker 2: buy the ETF buy whatever by Nvidia, or you can
Speaker 2: buy the option, which is basically four to one leverage.
Speaker 2: You're using one quarter the cash as a simplistic statement.
Speaker 2: Or you could buy futures ages ago before you were born,
Speaker 2: or it would be ten to one. You'd put up
Speaker 2: one tenth the money. Is there an implied leverage there
Speaker 2: based on how the meat is being made today?
Speaker 3: Sure?
Speaker 5: And so one thing I'll say that's interesting about Nvidia,
Speaker 5: And this is why I think when people ask me
Speaker 5: are we at peak froth? I say no, because if
Speaker 5: we were, we'd start to see that call exuberance in
Speaker 5: Nvidia the same way we saw it in May twenty
Speaker 5: twenty one, which which is when you have to start
Speaker 5: worrying about that right tail risk. It's very clear right
Speaker 5: now we are not pricing that way. Why I think
Speaker 5: because you know, like this one, the meme crazes its
Speaker 5: own thing right now, it hasn't spread. But two, there
Speaker 5: still are these institutional concerns that have not gone away,
Speaker 5: about tariff transmission, about valuation, about a whole host of
Speaker 5: other things that again you don't see the near term,
Speaker 5: but have not changed from the longer terms.
Speaker 4: You've mentioned ETFs several times this morning here. How pervasive
Speaker 4: are atfs. It's part of just deris trading and hedging
Speaker 4: and that kind of stuff.
Speaker 5: I mean, ETFs kind of trade like water, so something
Speaker 5: like the cues or spy you you know, from an
Speaker 5: options perspective, these are just as active as your big
Speaker 5: mag seven names. And then in options it gets even
Speaker 5: more fun because there it's not triple lever at all
Speaker 5: cash time, it's actually just triple lever queues or in
Speaker 5: video or what have you. And it just amazed, It
Speaker 5: never sees to amaze me how much people pile into leverage.
Speaker 2: But is there almost like a hidden Is there a
Speaker 2: hidden leverage in the market given legit derivatives or crafted
Speaker 2: marketing derivatives if you will, Is it like eighty seven?
Speaker 2: I didn't know what Portfolio and Assurance was until a
Speaker 2: Thursday evening at six pm with a cocktail in my
Speaker 2: hand in October of eighty seven? Is there a leverage
Speaker 2: issue out there because of all this new fangled stuff?
Speaker 5: So I get asked this a lot. My short answer
Speaker 5: is I don't think so. I think again, the meet
Speaker 5: is made has changed. I don't think we're in a
Speaker 5: February twenty eighteen volmaged situation, which you did have with
Speaker 5: a lot of the inverse levered ATPs. So like your
Speaker 5: your t VIX, your sbx Y that imploded lots of fun.
Speaker 5: But you know what we have in the market that's
Speaker 5: grown a lot and notional are more your plain vanilla
Speaker 5: overwriting strategies, which just has a different sense of leverage.
Speaker 4: I mean velocity shares two times fixed. I mean you
Speaker 4: can have a lot of fun. Yes, I mean you
Speaker 4: got to stay on top of this. Amy, does your
Speaker 4: world care about two o'clock today with the Federal Reserve
Speaker 4: chairman and what we hear?
Speaker 5: I think very much so. And I think there's been
Speaker 5: this hotly contested do we get do we get a
Speaker 5: crack into September? Does he admit that maybe there possibly
Speaker 5: couldn't be an opening? I think that's gonna that's going
Speaker 5: to be again a reasoner rent Gamma.
Speaker 2: Right to see, Amy was silvervan with us with RBC
Speaker 2: Capital Markets this morning. Let me get one more in
Speaker 2: here quickly. The idea here of this bull market in
Speaker 2: MEGS seven. Can you play derivatives in mags seven?
Speaker 5: Absolutely? And look if you are bulled up Tom in
Speaker 5: Nvidia again that that collsk you that call exuberants where
Speaker 5: everyone's piling to those options not seeing that yet. For
Speaker 5: August twenty seven.
Speaker 2: Thirty, it was Silvervan Thank YOUBC at Capital Market.
Speaker 1: This is the Bloomberg Surveillance Podcast. Listen live each weekday
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Speaker 2: My first intern at Bloomberg was a high achievement and
Speaker 2: got one of the great Covenant scholarships and jobs. He
Speaker 2: migrated to State Department years ago. Ryan Majaris was under
Speaker 2: Ramundo at Commerce and a very extinguished career in trade
Speaker 2: in law in Washington, and he joins US now. He's
Speaker 2: the former Assistant General Counsel for US Trade. Is a
Speaker 2: broad sense for President Biden. Ryan thrilled to have you
Speaker 2: with us. This is arguably our interview of the day.
Speaker 2: What was it like at Georgetown when you won a
Speaker 2: Harry S. Truman scholarship? That had to have been.
Speaker 8: Life changing, You know, it definitely set me on kind
Speaker 8: of a different trajectory for sure.
Speaker 7: And you'll get a kick out of this.
Speaker 8: But at Georgetown, my worst grade and undergrad was actually
Speaker 8: international trade. So I've always wanted to go back to
Speaker 8: and talk to that professor and say, you know, look
Speaker 8: what I've done since.
Speaker 2: Then they the quality see.
Speaker 7: Yeah.
Speaker 8: You know what's interesting is I think back on my
Speaker 8: college experience at the Hilltop, which was great, but you know,
Speaker 8: it was at a time when globalization was kind of
Speaker 8: at its peak, and really every lecture I had in
Speaker 8: college was about how globalization is a tie that lifts
Speaker 8: all boats. Everybody is better off from because the value
Speaker 8: added from globalization. And I sat there in those lectures thinking,
Speaker 8: I feel like we're missing half the story here, and
Speaker 8: I think what we've seen with this administration in the
Speaker 8: past decade kind of underscores that.
Speaker 2: What is so important here and why I think this
Speaker 2: series timely is all the smart people of whatever their politics,
Speaker 2: say these are verbal agreements in not written agreements of detail.
Speaker 2: Discuss how you perceive the Japanese and EU deals that
Speaker 2: the presidents as are massive, except does anything written down.
Speaker 8: So this is a very different way of negotiating trade agreements.
Speaker 8: And I actually don't think you can look at these
Speaker 8: framework deals in the traditional sense as trade agreements that
Speaker 8: we've seen in the past, where there's multiple negotiating rounds
Speaker 8: where you refine the text before it gets to the
Speaker 8: principle and then it's issued. I really view these as
Speaker 8: the start of negotiating rounds that we're going to see
Speaker 8: over the next weeks, months, and.
Speaker 7: Maybe even years.
Speaker 8: The reality is it takes a long time to get
Speaker 8: at this significant kind of politically entrenched trade issues between countries,
Speaker 8: and I do think at the end of the day,
Speaker 8: that is what they're trying to get at. They're frustrated
Speaker 8: by years and years of jobs getting offshore and want
Speaker 8: to deal with those non tariff barriers and unbalanced trade
Speaker 8: through through different levels of tariffs by trying to counteract that.
Speaker 7: And get folks to the negotiating table.
Speaker 8: There's clearly a shock and ah aspect of this to
Speaker 8: threaten the use of tariffs and bring them to the table.
Speaker 8: But right now I think we're seeing the result of that.
Speaker 8: There hasn't been enough time to really negotiate among the parties,
Speaker 8: and you're seeing these kind of like high level framework
Speaker 8: deals that have investment commitments, but it's unclear at the
Speaker 8: stage where they're going to go. I think we're going
Speaker 8: to see more discussions.
Speaker 4: Ryan, Why do you think that Trump administration believes it's
Speaker 4: good trade policy to tax American businesses and tax American
Speaker 4: consumers to bring back manufacturing jobs to an economy that
Speaker 4: is already at full employment.
Speaker 8: So I think the story is a bit more complicated
Speaker 8: than that. Certainly there is going to be degrees of
Speaker 8: tariffs getting passed on to consumers, that's unquestionable, But they're
Speaker 8: trying to deal with these kind of broader concerns of
Speaker 8: we have liberalized our market over the last seventy or
Speaker 8: eighty years and other countries have not done that to
Speaker 8: the same degree. And I really do think at the
Speaker 8: end of the day, you have to even with all
Speaker 8: the kind of shifting sands in the trade policy and
Speaker 8: the on again off again, at the end of the day,
Speaker 8: they're trying to bring back manufacturing jobs and rebalance trade
Speaker 8: and they think the tariffs are the best way to
Speaker 8: do that. That they create leverage and they're going to
Speaker 8: get folks to the table, and there's no question that's
Speaker 8: done that. I think the ultimate question will be what
Speaker 8: are the impacts of this. What are the kind of is.
Speaker 2: The President listening to our conversation.
Speaker 4: I'm sure he is sure ran aren't the greatest beneficiaries
Speaker 4: of globalization the American consumer.
Speaker 7: But undoubtedly we've been afit.
Speaker 4: Why are we changing policies?
Speaker 7: So there's two sides to the story.
Speaker 8: We've benefited from globalization, but there's no question that admitting
Speaker 8: China to the WTO and kind of the broader scope
Speaker 8: approach that we took a globalization as that impacts on
Speaker 8: the country, and so I think you're seeing kind of
Speaker 8: a response to that.
Speaker 2: Ryan, the President tweets, now, the August first deadline is
Speaker 2: the August first deadline. It stands strong and will not
Speaker 2: be extended. A big day for America, Ryan, is August first,
Speaker 2: a big day for all Americans.
Speaker 8: I honestly think they're going to issue a lot of
Speaker 8: tariffs on August first.
Speaker 7: I don't think we're going to see many extensions.
Speaker 8: I think we may see them on China, but you know,
Speaker 8: I think they feel empowered to. You know, despite the
Speaker 8: high level of tariffs that we're currently seeing, we have
Speaker 8: an average teriff rate of nearly twenty percent. The stock
Speaker 8: market's doing great, consumer prices have started to uptick, but
Speaker 8: aren't asked concerning as speared you know, inflation as an
Speaker 8: ticked up. So until those things start to become headwinds,
Speaker 8: significant headwinds, I think they're going to fill embolden to
Speaker 8: try this out and test it.
Speaker 2: And John Tucker, you had Hershey reporting and you stated
Speaker 2: the tariffs came in much higher for Hershey's Chocolate's unexpected.
Speaker 7: I think it was like one hundred and eighty million dollars.
Speaker 7: Is what the tab's going to be from the earlier
Speaker 7: projection in May? I think is this where we're heading?
Speaker 3: Ryan?
Speaker 2: I mean, is a final question? Is this where the
Speaker 2: path we're heading? Do is substantially a substantial intake on
Speaker 2: tariffs and expense?
Speaker 7: I think so.
Speaker 8: I think we're going to see that tariff rights stay
Speaker 8: in the fifteen to twenty percent rage going forward unless
Speaker 8: we start to see these headwinds take hold.
Speaker 2: This has been wonderful. Ryan, don't be a stranger. I
Speaker 2: love to have you and was king and spauling Ryan
Speaker 2: and Jeris with this the former Assistant General Counsel of Trade.
Speaker 1: This is the Bloomberg Surveillance Podcast. Listen live each weekday
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Speaker 2: Mark Hart with is now BNP Pariba with a really
Speaker 2: really smart folk talking about the optimist trifecta that could
Speaker 2: be out there. But you bring up a word which
Speaker 2: I'm going to associate, you know, ages ago with the
Speaker 2: likes of Robert Mandel and Jacob Frinkel, which is trilemma.
Speaker 2: And in the foreign exchange in international space, a trilemma
Speaker 2: indicates that within a system, there's a constraint. On this
Speaker 2: crazy Wednesday with the newsflow, we have, what is the
Speaker 2: constraint and the system that we have is it monetary policy?
Speaker 2: Is it this trade fiesco we're in. What's the constraint
Speaker 2: in our trilemma?
Speaker 6: Well, I guess Tom there number and good morning, thanks
Speaker 6: for having me. You know, I think the constraint has
Speaker 6: been for most of the year has been overarching uncertainty unknown,
Speaker 6: and that's been holding back corporate America, in particular away
Speaker 6: from the mag seven, it's been holding back animal spirits.
Speaker 7: And with the.
Speaker 6: Passage of the Big Beautiful Bill, with the resilience of
Speaker 6: the economy and with you know, getting deals, you know,
Speaker 6: preliminary deals done with with key partners like the UK,
Speaker 6: Japan and the EU. Some of that uncertainty is fading,
Speaker 6: and we're seeing animal spirits pick up. Tom, We're seeing
Speaker 6: M and A look at the Union Pacific deal, look
Speaker 6: at some other M and A that's that's in the works.
Speaker 6: And the comments we heard from big M and A
Speaker 6: banks recently. So the big constraint has been uncertainty, and
Speaker 6: I think that constraint is starting to wan.
Speaker 4: So what do we do here? I mean, I think
Speaker 4: that a lot of folks are saying, boy, the stocks
Speaker 4: look expensive twenty two ish times, pe credit spreads are tight. Boy,
Speaker 4: gold's had a rip. You know, where do you find?
Speaker 4: Are you looking for value or you're just looking for
Speaker 4: quality here and just saying I can hold my nose
Speaker 4: at values.
Speaker 6: You know, it's a little bit of both. And mean
Speaker 6: sometimes we're just looking for generic carry or yield. You know,
Speaker 6: it's not because that uncertainty can come back with just
Speaker 6: a tweet or two, or with a shock, a tsunami.
Speaker 6: Who knows, there's there's a lot of outliers that can
Speaker 6: destabilize these days. But but Yes, quality with growth that
Speaker 6: that is levered to a firm economy in the US
Speaker 6: and slightly diminishing uncertainty is what we're looking for talking about.
Speaker 2: I mean with the unknown of the European deal, the
Speaker 2: unknown of the Japanese deal, maybe the unknown of the legislation.
Speaker 2: Are al we living here on this huge day is
Speaker 2: a lot of stimulus in a lot of tone of deregulation.
Speaker 6: Tom, I think that's a.
Speaker 2: Great way to put it, is that some of where
Speaker 2: we are, Yeah.
Speaker 6: The Big Beautiful Bill is a lot of stimulus, tax
Speaker 6: cuts and targeted spending and.
Speaker 2: Overlaid on a union Pacific deregulation just a.
Speaker 6: Yes p train and in the banking sector deregulation. There
Speaker 6: changes at the FED and other recite bodies. But importantly
Speaker 6: there's also the AI evolution, and that's we're going to
Speaker 6: hear a lot of that today, like yourself. And that's
Speaker 6: also a catalyst not just for the mag seven but
Speaker 6: for your firm, for my firm. It's being deployed more
Speaker 6: broadly and that is fueling growth. That's the under the
Speaker 6: surface mark.
Speaker 4: So what are we doing here at US versus rest
Speaker 4: of the world. There was a trade earlier this year
Speaker 4: where a lot of folks were taking money out of
Speaker 4: the US, maybe even the US dollar, the US stock
Speaker 4: market and employment the rest of the world. Was that
Speaker 4: kind of a short term trade or is there something
Speaker 4: else going on out there?
Speaker 6: What do you see?
Speaker 9: Well?
Speaker 6: I think that was a tactical rebalance to reflect both
Speaker 6: the acute uncertainty in April and as well as the
Speaker 6: divergent prospects or hopes for more stimulus, more growth in Japan,
Speaker 6: in Europe and other parts of the world. Now we've
Speaker 6: seen a more of an equilibrium and the de dollarization,
Speaker 6: as people call it, I think as much more or
Speaker 6: of a slow burn. It's not it is not a
Speaker 6: significant theme that we're hearing from clients in the near term,
Speaker 6: but when you talk about twenty six twenty seven, I
Speaker 6: think it will continue to be a force, particularly with
Speaker 6: the steepness of the curve and the prospects for some
Speaker 6: cuts next year.
Speaker 2: BNP perrybat has a just fabulous specific rim heritage. I
Speaker 2: was honored to be part of that years ago, and
Speaker 2: I if I look at your study of EM, the
Speaker 2: fact is dollar is really doing well against EM. There's
Speaker 2: a lot I looked at Argentine peso today, it's grim.
Speaker 2: I mean, is this the main store. The surprise for
Speaker 2: the second half is dollar resilience.
Speaker 6: You know, I think that's that is a story, Tom.
Speaker 6: I don't know that that's the story. I think that
Speaker 6: the you know, we had a major you know, ten
Speaker 6: plus percent move in the dollar versus the basket, and
Speaker 6: that that's an outlier. You don't see that every year.
Speaker 6: So I think we're going to settle into more of
Speaker 6: a groove around that, and you know, other things will
Speaker 6: will influence the major pairs, including the EM pairs, but
Speaker 6: we're seeing a lot of money go into EM assets
Speaker 6: as you can imagine as the hunt for the hunter
Speaker 6: return and the hunt for yield and frankly an alternative
Speaker 6: to the dollar.
Speaker 2: Mark, thank you so much for starting as strong today.
Speaker 2: Mark Hawarden Studio with this. He is with BNP Burry Bob,
Speaker 2: his senior Multi Asset call specialist.
Speaker 1: This is the Bloomberg Surveillance Podcast. Listen live each weekday
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Speaker 1: say Alexa Play Bloomberg eleven thirty Arie World with us.
Speaker 2: Right now, I had a technical analysis Oppenheimer Ari. In
Speaker 2: the fundamental space, John stolf is making headlines with an
Speaker 2: optimism on a bullmarket. Is this bullmarket charterable? Does this
Speaker 2: bullmarket display a trend?
Speaker 9: Sure does only it's a fresh breakout above its February
Speaker 9: high points. I think the key message that we've been
Speaker 9: conveying to clients here is that the rally is surely overbought,
Speaker 9: but that doesn't mean that the bullmarket is over that. Historically,
Speaker 9: when you get these very swift recoveries from a fifty
Speaker 9: two week low to a fifty two week high actually
Speaker 9: been followed by above average forward returns for the S
Speaker 9: and P. So I think this is consistent with an
Speaker 9: intact bull market. We do want to invest for a
Speaker 9: third year bullmarket. However, with that said, so Ari.
Speaker 4: I'm just looking at the relative strength index for the
Speaker 4: S and P five hundred. It's now it's seventy one
Speaker 4: point eight, typically suggesting an over bought here. How do
Speaker 4: you think about that short term.
Speaker 9: It is, Well, that's a difficult timing indicator. I was
Speaker 9: looking at that. I heard you lead in with the
Speaker 9: RSI and I quickly checked it out myself. It hit
Speaker 9: seventy actually coming into July. That was right ahead of
Speaker 9: a three and a half percent rally in the S
Speaker 9: and P five hundred, So that relatives are the indicator.
Speaker 9: That's a measurement of the speed of price. It's indicating
Speaker 9: that price is still accelerating. That's actually a good thing.
Speaker 9: We call that confirmation in the technical analysis space. Typically
Speaker 9: you want to see those divergences and signs of deceleration
Speaker 9: before getting more concerned.
Speaker 2: How do you use volume? My school thought, ari is
Speaker 2: I really try to ignore volume as noise. I would
Speaker 2: suggest you go another way. How do you treat volume
Speaker 2: in this odd summer of a bull market.
Speaker 4: It's a great question.
Speaker 9: It's really become secondary confirmation for us tom as we
Speaker 9: think about the market since the Great Financial Crisis, we've
Speaker 9: had these lightly traded rallies followed by heavy volume selling,
Speaker 9: and the textbooks tell you that that's what you don't
Speaker 9: want to see. But it's been a terrific move to
Speaker 9: the upside since then, So it's secondary confirmation for us
Speaker 9: looking at individual stock ideas, I'd like to see volume
Speaker 9: with the breakouts, but it's not necessarily necessary.
Speaker 2: That's right where I wanted to go. I mean within
Speaker 2: Stolfus and walled. Oppenheimer's got some real experience. And the
Speaker 2: basic idea here is we haven't seen this before. Is
Speaker 2: it because of the index funds? Is it because of
Speaker 2: the ETFs? Is it because Michael Barr's in the triple
Speaker 2: leverage SBX fund? Is it a new market where technical
Speaker 2: analysis doesn't work? Oh?
Speaker 9: No, I think technical analysis is probably more important than ever,
Speaker 9: just given the acceleration in index scene and move towards ETFs.
Speaker 9: Now investors are saying, do I want to buy the
Speaker 9: XLK or XLF. It's not do I want to buy
Speaker 9: JP Morgan or Bank of America. They're all moving the same,
Speaker 9: and you're seeing the correlations rise and the importance of
Speaker 9: macro investing and getting me into the right ballpark. And
Speaker 9: I think technical analysis is a big part of that.
Speaker 4: Talk to us about breath in this market here, ari
Speaker 4: or lack thereof. It just seems like so much of
Speaker 4: the S and P five hundred fo romans is anchored
Speaker 4: in a handful of stocks here. Historically, how do you
Speaker 4: view that?
Speaker 9: Well, now we're getting into some of our concerns here.
Speaker 9: I think Anyone trying to say that breadth is healthy
Speaker 9: here is kidding themselves. This is probably our biggest concerns
Speaker 9: that this has been a more narrow move to the
Speaker 9: upside kind of thinking in terms of stocks trading above
Speaker 9: their two hundreday average on the Russell three thousand, got
Speaker 9: his high as fifty nine percent, more recently was as
Speaker 9: high as seventy percent throughout twenty twenty four. Net new
Speaker 9: highs on the NYC three hundred and seventy in twenty
Speaker 9: twenty four, only about one hundred and forty this time around.
Speaker 9: So this is a yellow light, it's a warning, it's
Speaker 9: what you don't want to see. I would say it
Speaker 9: doesn't become a red light until really trading starts to
Speaker 9: deteriorate here, and I would argue that there's been these
Speaker 9: offsetting positives. The leadership of the market been very pro cyclical.
Speaker 9: We've seen high data cyclicals outperforming low volatility defensive. So
Speaker 9: it is a mosaic for the bread piece of the
Speaker 9: puzzle being the more concerned here than us.
Speaker 2: Ariwald, thank you so much. With Oppenheimer on technical analysis.
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