WEBVTT - Fed Rate Cut Signals Strategy Shift; Trump & Xi Ease Trade Tensions 0:00:02.520 --> 0:00:13.760 Bloomberg Audio Studios, podcasts, radio news. This is the Bloomberg 0:00:13.840 --> 0:00:17.920 Surveillance Podcast. Catch us live weekdays at seven am Eastern 0:00:18.200 --> 0:00:21.240 on Apple car Play or Android Auto with the Bloomberg 0:00:21.320 --> 0:00:24.880 Business App. Listen on demand wherever you get your podcasts, 0:00:25.280 --> 0:00:27.160 or watch us live on YouTube. 0:00:27.440 --> 0:00:30.200 Joe Davis joints us here, global chief Economists and Global 0:00:30.200 --> 0:00:32.120 head of Investment Strategy, a little shop down here in 0:00:32.159 --> 0:00:35.400 Philadelphia called Vanguard. Joe, what did you make of FED 0:00:35.479 --> 0:00:40.240 Chairman Jpal's comments about rate policy maybe the December meeting. 0:00:40.280 --> 0:00:41.600 What's your takeaway from yesterday? 0:00:42.440 --> 0:00:44.360 Well, I think he's trying to really thread a needle. 0:00:44.400 --> 0:00:47.640 I mean, we've clearly downshifted on the labor market. Not 0:00:47.720 --> 0:00:50.280 all of it is because of weaker demand, but you 0:00:50.360 --> 0:00:53.120 got inflation sticky, and in a third factor that I 0:00:53.159 --> 0:00:56.280 don't think you know they're talking enough about, but probably will, 0:00:56.360 --> 0:00:59.080 and that is the prospect of asset price inflation. You 0:00:59.120 --> 0:01:01.680 look at the equity market. So I think they're trying 0:01:01.680 --> 0:01:04.039 to feel a way here in a data bline spot. 0:01:04.959 --> 0:01:05.800 So what about that duel? 0:01:05.840 --> 0:01:08.840 Mandy, We're talking about inflation and the stabilization and prices, 0:01:08.840 --> 0:01:11.880 but then also maximum and unemployment or maxim unemployment. 0:01:11.959 --> 0:01:14.240 Rather, how are you viewing this right now? 0:01:15.520 --> 0:01:16.560 Well, again, I did you know? 0:01:16.800 --> 0:01:20.199 Our view was that that they would weigh the job 0:01:20.319 --> 0:01:25.039 market over the inflation. This is has been generally a 0:01:25.120 --> 0:01:29.000 modestly dubbish institution, at least in recent years. 0:01:29.000 --> 0:01:30.880 Not a criticism. I think it's just a reality. 0:01:31.360 --> 0:01:33.120 And you also have to you have to at least 0:01:33.120 --> 0:01:36.920 make some assumption that some of this tariff induced inflation, 0:01:37.040 --> 0:01:37.959 you know, will dissipate. 0:01:38.000 --> 0:01:39.120 But the risks are growing. 0:01:39.160 --> 0:01:41.600 I think that's why you're seeing, you know, some of 0:01:41.640 --> 0:01:45.360 the sense at the Federal Reserve. It's actually somewhat commonplace 0:01:45.400 --> 0:01:47.960 once you get too close to where you think you 0:01:48.000 --> 0:01:50.280 should be. And we're definitely in that zone. 0:01:51.120 --> 0:01:54.000 Hey, Joe, we've we're right in the middle of tech 0:01:54.040 --> 0:01:58.240 earnings and the numbers continue to really impress us in 0:01:58.360 --> 0:02:00.840 terms of how much money these companies are spending on 0:02:00.680 --> 0:02:04.760 on AI. Is that how does that impacting the broader economy? 0:02:04.800 --> 0:02:06.800 Do you guys kind of take a stab at that? 0:02:07.760 --> 0:02:07.920 Well? 0:02:08.120 --> 0:02:11.280 Yeah, so, in fact, we've spent over three years really 0:02:11.280 --> 0:02:13.840 looking deep a where the economy how could it be 0:02:13.880 --> 0:02:17.560 affected as AI broadens and it's you know, it's not 0:02:17.600 --> 0:02:20.680 a foregone conclusion. But I think in two or three years, 0:02:21.200 --> 0:02:23.960 in our data driven framework, there is a possibility that 0:02:23.960 --> 0:02:26.360 we're growing at three percent real GDP, which I have 0:02:26.440 --> 0:02:30.080 not seen many firms or economists talk about. And again 0:02:30.120 --> 0:02:32.240 I'm not you have to you have to be cautious, right, 0:02:32.280 --> 0:02:34.440 there's going to be over investment in this cycle, even 0:02:34.480 --> 0:02:38.800 if AIS is transformative as we think, So we have 0:02:38.800 --> 0:02:40.240 to feel your way here. But we are not in 0:02:40.280 --> 0:02:43.399 bubble territory and this could really accelerate over the next 0:02:43.400 --> 0:02:43.880 two years. 0:02:45.080 --> 0:02:48.960 So caution is in the corporate tech space. What about consumers? 0:02:49.000 --> 0:02:51.680 How are we thinking about terror for related inflation? Are 0:02:51.680 --> 0:02:53.120 you seeing any of that right now? 0:02:54.440 --> 0:02:58.200 You definitely see it in households, particularly those at the 0:02:58.240 --> 0:03:00.480 lower at the lower income rackets. 0:03:00.480 --> 0:03:02.720 That that's not new, It's been there. 0:03:03.680 --> 0:03:05.560 It's where you also see you know, some of the 0:03:05.600 --> 0:03:08.000 wage growth that had slowed for a time. Yeah, you 0:03:08.040 --> 0:03:11.400 have hire income households, which again is not new, really 0:03:11.440 --> 0:03:14.680 supported by just the past five years. The increase in 0:03:14.760 --> 0:03:17.880 wealth in housing as well as the equity market. 0:03:18.360 --> 0:03:19.640 Is really a source of cushion. 0:03:20.120 --> 0:03:22.240 But you do see that bifurcation, and I don't think 0:03:22.280 --> 0:03:24.200 that's going to change in the near term. What's going 0:03:24.240 --> 0:03:26.640 to be key is do we see a firm firming 0:03:26.639 --> 0:03:29.840 in the labor market in twenty twenty six. That's our expectation, 0:03:30.000 --> 0:03:32.919 That's what our own indicators of vanguards show right now, 0:03:33.720 --> 0:03:36.880 given our proprietary data. But again there's there's still some 0:03:37.040 --> 0:03:38.720 tarif uncertainty to work through here. 0:03:39.600 --> 0:03:42.760 And Joe on the labor front, you know, I'm one 0:03:42.800 --> 0:03:45.640 of those people these early, early, early stages of AI. 0:03:46.000 --> 0:03:49.200 I just feel like AI is going to be net 0:03:49.480 --> 0:03:53.360 negative for the US labor market in terms of absolute 0:03:53.360 --> 0:03:56.520 bodies needed in it to fuel this economy. I know 0:03:56.560 --> 0:03:58.200 it's early, but do you guys have an opinion on that? 0:03:58.280 --> 0:04:01.360 Yes, yes, again, we we've we started to work, believe 0:04:01.360 --> 0:04:03.920 it or not on AI in the future work. I 0:04:03.960 --> 0:04:06.520 can't believe it's almost a decade ago. What we continue 0:04:06.560 --> 0:04:09.720 to find and expect it's been a learning process for 0:04:09.720 --> 0:04:12.760 all of us, is that roughly one in five occupations 0:04:12.760 --> 0:04:14.280 over next three to five years. I'm not going to 0:04:14.280 --> 0:04:17.600 sugarcoat it. You're going to see jobs start to decline, 0:04:18.200 --> 0:04:20.560 but for every job that declined, there's going to be 0:04:20.600 --> 0:04:23.120 three that benefit. But this is going to be disruptive 0:04:23.160 --> 0:04:27.280 in our baseline expectation. We see the most disruption in 0:04:27.400 --> 0:04:30.560 terms of how we spend our day at work changing 0:04:30.680 --> 0:04:33.360 in at least twenty five years, and so there's going 0:04:33.400 --> 0:04:36.200 to be anxiety along with some of these efficiency gains. 0:04:36.720 --> 0:04:39.719 More workers will benefit than not, but there is going 0:04:39.800 --> 0:04:43.400 to be some disruption here and that's a clear result 0:04:43.400 --> 0:04:44.080 from our work. 0:04:44.960 --> 0:04:47.480 I mean, how are you thinking about job opportunities coming 0:04:47.560 --> 0:04:50.039 from that or potentially lack thereof. I mean, if you 0:04:50.080 --> 0:04:52.760 think about the tech space right now, you hear people 0:04:52.800 --> 0:04:56.000 who are coder is even concerned about being replaced by AI. 0:04:56.160 --> 0:04:58.560 How are you thinking about that on the long term. 0:04:59.040 --> 0:05:01.000 Well, again, to my you know, I'm not going to 0:05:01.040 --> 0:05:03.560 sugarcoat it. There's going to be some industries where you're 0:05:03.560 --> 0:05:07.960 in occupations, you're going to see some pressure. But again 0:05:08.160 --> 0:05:10.560 it's almost I give to pick like which which issue 0:05:10.600 --> 0:05:12.560 to effectively deal with. The fact is is for the 0:05:12.560 --> 0:05:15.480 past ten or fifteen years in the US economy and 0:05:15.560 --> 0:05:18.200 most developed markets, we've had a lack of automation, which 0:05:18.240 --> 0:05:20.720 is why growth has generally been low and some of 0:05:20.760 --> 0:05:23.680 the wage growth outside of COVID was fairly tepid. And 0:05:23.720 --> 0:05:27.320 so you know, if disruption comes the prospect for productivity, 0:05:27.440 --> 0:05:30.119 higher wages. But but but that comes with that with change. 0:05:30.120 --> 0:05:32.480 I mean we've seen that throughout history, and so like pick, 0:05:32.760 --> 0:05:34.640 we have to we have to think about which world 0:05:34.640 --> 0:05:37.039 we're entering. It's more likely going to be a disruptive 0:05:37.080 --> 0:05:40.400 one higher growth, but it's not all not all boats 0:05:40.440 --> 0:05:41.719 will be lifted at the same time. 0:05:41.800 --> 0:05:44.200 And you know, it's just I'm not going to I mean, 0:05:44.240 --> 0:05:48.040 it just is what it is. That's clearly the diagnosis. Jo. 0:05:48.120 --> 0:05:50.520 How are you guys dealing with the fact that you're 0:05:50.560 --> 0:05:53.560 not getting a lot of government supplied economic data with 0:05:53.600 --> 0:05:55.800 this shutdown? Are you just kind of trying to find 0:05:55.839 --> 0:05:58.599 the best alternative data points out there? 0:05:59.480 --> 0:05:59.640 Yeah? 0:05:59.720 --> 0:06:03.080 Yeah, I mean, like like everyone, you know, we're where 0:06:03.080 --> 0:06:07.880 we have our own indicators. We know, for example, job 0:06:07.960 --> 0:06:10.440 growth because if you're in a four one K plan, 0:06:11.120 --> 0:06:14.640 uh and if we're the administrator through auto enrollment like 0:06:14.640 --> 0:06:17.159 for your for your actual retirement plan, we have some 0:06:17.320 --> 0:06:21.080 sense of new jobs being created, even promotion rates in 0:06:21.120 --> 0:06:24.680 real time and clearly an anonymoused way. It's not perfect 0:06:24.680 --> 0:06:27.520 because we clearly are not the only four one K provider, 0:06:27.920 --> 0:06:30.240 but nevertheless it's another indicator that we can look at it. 0:06:30.240 --> 0:06:32.839 And again there's other data points out there from other 0:06:32.960 --> 0:06:35.440 from other firms, a job hosting websites, So I think 0:06:35.760 --> 0:06:40.320 we always look at it as a distillation. So again 0:06:40.360 --> 0:06:44.839 it's right now, those indicators that we have are holding constant. 0:06:45.080 --> 0:06:47.400 You know, they're not super rosy, but they're not negative. 0:06:47.560 --> 0:06:49.440 And so that that would that would point us to 0:06:49.839 --> 0:06:53.080 that the labor markets should firm here. But that that's 0:06:53.120 --> 0:06:54.599 the key indicator for the next few months. 0:06:54.800 --> 0:06:56.919 Now, if you're wondering why Joe is this such a 0:06:56.960 --> 0:06:59.600 smart guy here any sense, is because he gets got 0:06:59.640 --> 0:07:03.240 his man there's n his PhD at Duke University. See 0:07:03.279 --> 0:07:04.880 what I did there, So you needed an. 0:07:04.839 --> 0:07:07.000 UNDERGRADUA, I knew you're going to work that in. You 0:07:07.040 --> 0:07:07.800 got to say, Duke. 0:07:10.200 --> 0:07:13.480 Absolutely, Joe Davis, thanks so much. We appreciate it. Joe Davis, 0:07:13.640 --> 0:07:17.080 Global chief Economists and Global head of Investment Strategy at Vanguard. 0:07:17.120 --> 0:07:17.600 Now, when you're a. 0:07:17.600 --> 0:07:19.880 Graduate student at Duke, no matter what school you're in, 0:07:20.680 --> 0:07:23.680 you don't have to camp out at night for Duke tickets. 0:07:24.040 --> 0:07:26.560 You just do it once the beginning of your graduate 0:07:26.600 --> 0:07:29.680 school career, one night, and then you get to keep 0:07:30.080 --> 0:07:33.600 those season tickets for your entire graduate school career. You 0:07:33.640 --> 0:07:35.360 don't have to do it every year. So if you're 0:07:35.360 --> 0:07:38.240 one of these PhD people will like philosophy. It takes 0:07:38.600 --> 0:07:41.360 stretch out over eight years. You got your season tickets care. 0:07:41.240 --> 0:07:43.280 It's all the undergrads have to sleep every. 0:07:43.080 --> 0:07:45.200 Sleepout for every game. Oh, we just have to do 0:07:45.240 --> 0:07:48.440 it once. That's because we're professional graduate space. So that's 0:07:48.520 --> 0:07:50.640 kind of earns it. Do they hate us for that? 0:07:50.800 --> 0:07:52.480 The undergrad so that we get a lot of agree 0:07:52.520 --> 0:07:55.360 for that. Stay with us. More from Bloomberg Surveillance coming 0:07:55.400 --> 0:07:56.320 up after this. 0:08:02.560 --> 0:08:06.160 You're listening to the Bloomberg Surveillance podcast. Catch us Live 0:08:06.200 --> 0:08:09.400 weekday afternoons from seven to ten am Eastern Listen on 0:08:09.440 --> 0:08:13.120 Applecarplay and Android Atto with the Bloomberg Business app, or 0:08:13.280 --> 0:08:14.760 watch us Live on YouTube. 0:08:14.840 --> 0:08:19.360 Heidi Crebo Rehticker. She's Adjunct Senior Fellow at the Council 0:08:19.400 --> 0:08:22.360 on Foreign Relations. She joins us here. Heidi, thanks so 0:08:22.400 --> 0:08:25.480 much for journey us here. A lot of headlines, a 0:08:25.480 --> 0:08:29.800 lot of tweeting coming out of Asia here. It was 0:08:29.840 --> 0:08:31.840 a long it was a long trip. A week in Asia, 0:08:31.920 --> 0:08:35.360 many countries, concluding maybe highlighting with a meeting yesterday with 0:08:35.400 --> 0:08:38.800 Shijing Ping and President Trump here, what's your takeaway from 0:08:38.800 --> 0:08:40.640 President Trump's Asia trip? 0:08:41.920 --> 0:08:44.400 So first, I think that there that it was a 0:08:44.480 --> 0:08:46.920 very positive trip all the way around. So this is 0:08:46.960 --> 0:08:50.000 a big feel good moment for Trump, and it takes 0:08:50.000 --> 0:08:54.440 the temperature down on trade, particularly you know, with with 0:08:54.520 --> 0:08:58.400 the meeting with Shijinping. You know, no big surprises in 0:08:58.440 --> 0:09:03.520 the in that that agreement. The contours of the framework 0:09:03.559 --> 0:09:06.600 agreement were pretty well telegraphed. But I think, you know, 0:09:07.080 --> 0:09:13.000 short term, good trip. Longer term, I always pay attention 0:09:13.080 --> 0:09:16.840 to this strategic direction of travel in the US China relationship, 0:09:16.840 --> 0:09:20.080 and I don't think that has changed. So as long as, 0:09:20.559 --> 0:09:24.720 for example, China keeps supporting Putin's war machine and threatens 0:09:24.760 --> 0:09:27.839 not only Taiwan but other Into Pacific partners, and we're 0:09:27.840 --> 0:09:30.520 going to have a bumpy ride ahead for the rest 0:09:30.600 --> 0:09:34.400 of the presidency and beyond. So we always have that 0:09:35.160 --> 0:09:39.760 issue of dual use technology. And even though the China 0:09:39.800 --> 0:09:43.360 Hawks in this administration have been pushed back, I think, 0:09:43.679 --> 0:09:48.640 particularly around around export controls, as long as as long 0:09:48.640 --> 0:09:54.160 as China continues a trajectory with swamping global markets with 0:09:54.200 --> 0:09:59.839 manufacturing and dialing up or dialing down, but dialing up 0:10:00.040 --> 0:10:04.080 the export their own export controls on rare earths and 0:10:04.120 --> 0:10:07.920 related technology. It's it's going to be a complicated relationship. 0:10:07.960 --> 0:10:10.400 And so I think in the longer run, uh, we 0:10:10.520 --> 0:10:13.320 have a clear direction of travel. It's it's not going 0:10:13.360 --> 0:10:14.080 in the right direction. 0:10:15.000 --> 0:10:17.520 So a short term fix here or band aid, if 0:10:17.559 --> 0:10:19.920 you will, But what are some of those other deeper 0:10:19.960 --> 0:10:23.320 structural issues between the US and China that you believe 0:10:23.440 --> 0:10:25.920 need to be resolved here over the long term. 0:10:26.480 --> 0:10:29.560 So I think we have I mean, they're they're the 0:10:29.640 --> 0:10:34.840 deep structural tensions in the commercial and economic relationship that 0:10:34.880 --> 0:10:39.320 we have with China. And you know, they're they're flying 0:10:39.360 --> 0:10:43.200 ahead in terms of their their innovation and capacity to 0:10:43.760 --> 0:10:47.720 uh to actually really implement a lot of the strategies 0:10:47.720 --> 0:10:51.600 and advanced manufacturing that you know, they they've just doubled 0:10:51.600 --> 0:10:54.200 down on the on you know, with this with this 0:10:54.320 --> 0:10:58.360 latest five year plan, on their desire to just be 0:10:58.600 --> 0:11:03.080 an even greater giant on the world stage. And the 0:11:04.240 --> 0:11:06.719 export controls on rare earth. You know, I was in 0:11:06.720 --> 0:11:11.320 Shanghai last week for the Blend Summit, Global Summit. They're global, 0:11:12.000 --> 0:11:16.800 those export controls they're here to stay. And the Chinese 0:11:16.840 --> 0:11:22.280 are very, very confident they're enjoying this checkmate moment, and 0:11:22.400 --> 0:11:26.200 so I think we'll see again these export controls on 0:11:26.280 --> 0:11:30.920 rare Earth's dial up, dial down, its asymmetric leverage. They 0:11:30.960 --> 0:11:33.800 have the ability to shut down industries of basically every 0:11:33.840 --> 0:11:38.839 country in the world with manufacturing. So I think that 0:11:39.000 --> 0:11:43.240 is that is the big picture moving forward on this. 0:11:43.320 --> 0:11:44.560 On the strategic side. 0:11:45.760 --> 0:11:48.720 Heidi, it seems, I don't know, maybe over the last 0:11:48.720 --> 0:11:51.920 ten years, maybe even longer, kind of a development of 0:11:51.960 --> 0:11:56.400 a technology cold war between China and the West. And 0:11:56.440 --> 0:11:58.680 at one point it seemed like the US's policy was 0:11:59.559 --> 0:12:03.040 let's a lot ally ourselves with everybody else out there 0:12:03.600 --> 0:12:07.880 against China and transpecific deal. Then it seemed to be 0:12:07.960 --> 0:12:11.320 a little bit of America first and we'll take it 0:12:11.360 --> 0:12:14.559 on solo. How do you think America and the West 0:12:15.200 --> 0:12:17.000 should deal with China going forward? 0:12:18.280 --> 0:12:25.479 So there were there were a lot of European experts, economists, 0:12:25.480 --> 0:12:30.200 financial leaders at this at this summit in Shanghai last week, 0:12:30.600 --> 0:12:33.800 and they were distancing themselves from the US and saying 0:12:33.800 --> 0:12:36.280 that they want no part of these export controls on them, 0:12:36.320 --> 0:12:40.319 on the on them. In the in terms of how 0:12:40.360 --> 0:12:45.520 the US moves forward, we have obviously taken at the 0:12:45.760 --> 0:12:48.800 You know, the Trump administration is not multilateral and its 0:12:48.800 --> 0:12:52.360 approach to really anything except for critical minerals and rare earths. 0:12:52.840 --> 0:12:55.960 So there is no way to do to develop any 0:12:56.040 --> 0:12:59.960 kind of capacity without friends and allies. We've seen big 0:13:00.040 --> 0:13:04.240 deals with Australia, We've seen the you know, the initiation 0:13:04.360 --> 0:13:07.920 of deals with Ukraine, d r c H. The one 0:13:07.920 --> 0:13:10.880 big missing pieces in Japan. The one big missing piece 0:13:10.920 --> 0:13:14.000 is Canada, which of course could be our you know, 0:13:14.120 --> 0:13:17.600 one of our greatest, our greatest friends when it comes 0:13:17.600 --> 0:13:22.000 to the critical minerals puzzle. So you know, I do 0:13:22.080 --> 0:13:24.880 think you'll see this on the G seven agenda. You'll 0:13:24.920 --> 0:13:28.640 see investment in technology to sort of leap frog some 0:13:28.679 --> 0:13:29.920 of the China choke holds. 0:13:30.400 --> 0:13:34.600 But we can't do that by ourselves. So what's your. 0:13:34.520 --> 0:13:38.120 Takeaway on the soybean purchase A situation I see here 0:13:38.240 --> 0:13:42.320 you say that it was symbolic but made good mewed music. 0:13:42.760 --> 0:13:43.800 It talk to me about that. 0:13:44.920 --> 0:13:47.640 So I do think that. I mean, so far, the 0:13:48.000 --> 0:13:51.320 volume that we know about has been been minimal. You know, 0:13:51.400 --> 0:13:54.520 we don't know what the details of what Trump's massive 0:13:54.520 --> 0:13:57.280 amounts agreed actually mean. So we have to wait and 0:13:57.360 --> 0:14:00.000 see where, you know, where that goes in terms of 0:14:00.240 --> 0:14:02.760 how much and whether or not the Chinese actually followed through. 0:14:03.160 --> 0:14:07.080 Really important to US farmers to actually to really get 0:14:07.080 --> 0:14:11.000 this fixed, and the shipping fees that we had the 0:14:11.040 --> 0:14:16.280 tariffs on on Chinese ships. If we're moving agricultural products 0:14:16.320 --> 0:14:20.960 to China, we don't actually we use Chinese ships to 0:14:21.080 --> 0:14:23.920 actually ship a good deal of our products because they dominate. 0:14:24.360 --> 0:14:25.960 So I think it was it was symbolic. 0:14:26.840 --> 0:14:29.320 They wanted to, you know, Bijing wanted to create a 0:14:29.360 --> 0:14:34.040 constructive atmosphere for negotiations, and you know, I think, you know, 0:14:34.080 --> 0:14:38.120 they did get tariff relief and some renewed agricultural trade. 0:14:38.200 --> 0:14:41.240 But we have to see what exactly what's in that deal. 0:14:41.480 --> 0:14:45.320 China already is well stocked for agricultural goods in South 0:14:45.360 --> 0:14:47.960 America is really set with a strong harvest. So we'll 0:14:47.960 --> 0:14:50.840 have to see where we have whether it's near term 0:14:50.920 --> 0:14:55.960 upside for US soybean producers or whether it's just you know, 0:14:56.000 --> 0:14:57.760 whether it'll be durable. 0:14:58.400 --> 0:15:00.400 I'm not even sure I know soy being if I 0:15:00.440 --> 0:15:05.080 tripped over one but not a very important twelve million 0:15:05.080 --> 0:15:08.280 metric tons twenty five million metric tons I don't know what's. 0:15:08.080 --> 0:15:09.800 Got a thousand times all all right, morning. 0:15:09.840 --> 0:15:12.160 All right, Heidi Creboat Hticker, thank you so much. We 0:15:12.200 --> 0:15:14.600 really appreciate getting your thoughts there. Heidi Krebo Reticker. She's 0:15:14.640 --> 0:15:17.880 the adjunct Senior Fellow on the council at Barn Relations. 0:15:17.960 --> 0:15:21.040 Stay with us. More from Bloomberg Surveillance coming up after this. 0:15:27.280 --> 0:15:30.880 You're listening to the Bloomberg Surveillance podcast. Catch us Live 0:15:30.920 --> 0:15:34.080 weekday afternoons from seven to ten am Eastern. Listen on 0:15:34.160 --> 0:15:37.840 Applecarplay and Android Auto with the Bloomberg Business app, or 0:15:38.000 --> 0:15:39.520 watch us live on YouTube. 0:15:39.520 --> 0:15:42.640 We've got earnings coming in pretty darn strong. That's a 0:15:42.680 --> 0:15:44.680 good thing for risk assets, I would think, So what 0:15:44.720 --> 0:15:46.520 are we doing here? Let's talk to somebody who has 0:15:46.600 --> 0:15:48.920 he gets paid to think about that stuff, Adam Farstrup. 0:15:49.040 --> 0:15:51.600 He's had a multi asset for the America's wor else 0:15:52.200 --> 0:15:55.040 for Schroeders. Adam, it seems like we've got a pretty 0:15:55.040 --> 0:15:59.720 constructive backdrop for risk assets here again with earnings. Yeah, 0:16:00.080 --> 0:16:03.120 with presumably an accommodative federal reserve. How are you guys 0:16:03.120 --> 0:16:06.080 thinking about allocating assets? Yeah, I mean I think it's 0:16:06.240 --> 0:16:07.040 in some ways. 0:16:07.400 --> 0:16:10.120 I talk about being a broken record, because really since 0:16:10.240 --> 0:16:14.800 Liberation Day it has been right to be long risk assets, 0:16:14.840 --> 0:16:17.720 particularly equities. Yep, we had at the beginning of this year, 0:16:17.760 --> 0:16:19.920 you had a bit of the Cell America trade, right, 0:16:19.960 --> 0:16:23.120 we saw Europe really doing well. 0:16:23.280 --> 0:16:24.760 That shifted to emerging markets. 0:16:24.760 --> 0:16:27.360 Emerging markets continue to do well, but the key shift 0:16:27.440 --> 0:16:30.160 was over the summer coming back into the US equity market. 0:16:30.680 --> 0:16:34.680 And from here we still see strength coming through the 0:16:34.840 --> 0:16:39.280 US and actually emerging markets where earnings are supporting things. 0:16:39.280 --> 0:16:43.000 So the valuations clearly not something that makes you really 0:16:43.040 --> 0:16:45.440 comfortable at night, but as long as we continue to 0:16:45.480 --> 0:16:47.920 have these earnings come through, we think investors should stay 0:16:48.200 --> 0:16:48.600 risk on. 0:16:49.320 --> 0:16:51.480 So what about the fact that data has been sparse? 0:16:51.720 --> 0:16:54.000 How have you all been navigating that given the fact 0:16:54.000 --> 0:16:56.000 that we're experiencing a government shutdown. 0:16:56.480 --> 0:16:58.440 Yeah, you know, I think our economists are wondering what 0:16:58.480 --> 0:17:01.200 they do with their day because that data to come in. 0:17:01.920 --> 0:17:03.320 They keep canceling meetings with us. 0:17:03.360 --> 0:17:07.240 Now we're really focused on the same kinds of alternative 0:17:07.320 --> 0:17:09.800 data sources that you see the FED talking about. You 0:17:09.880 --> 0:17:13.280 look at we still have high quality pieces of information 0:17:13.359 --> 0:17:16.160 coming out from say Atlanta FED, the GDP now which 0:17:16.200 --> 0:17:18.679 is showing you that the economy continues to grow. And 0:17:18.760 --> 0:17:22.200 even if GDP now is not always the most accurate assessment, 0:17:22.520 --> 0:17:25.240 you look at that sort of bracketing almost four percent 0:17:25.280 --> 0:17:28.679 growth for the quarter with consensus estimates around two percent. 0:17:29.200 --> 0:17:31.200 Let's say that GDP growth is falling. 0:17:31.040 --> 0:17:31.760 Somewhere in between. 0:17:31.800 --> 0:17:31.960 There. 0:17:31.960 --> 0:17:34.760 That tells you you're still in a supportive growth environment. 0:17:35.040 --> 0:17:39.639 And we're not seeing the unemployment data really tick up 0:17:39.640 --> 0:17:41.840 at this point yet, but it's a real knife edge 0:17:41.880 --> 0:17:43.600 for the employment market. I think that's one of the 0:17:43.680 --> 0:17:44.800 challenges we have right. 0:17:44.680 --> 0:17:47.240 Now in the market's in the equity markets. One of 0:17:47.280 --> 0:17:50.359 the concerns is equity market concentration. I'm looking at your 0:17:50.400 --> 0:17:52.080 notes that says it's higher than we saw in the 0:17:52.119 --> 0:17:55.080 tech bubble. But I like this. We think investors should 0:17:55.119 --> 0:17:57.640 be wary and not fearful. What do you mean by that? 0:17:57.880 --> 0:18:01.959 So we think in these period is of technological change. 0:18:02.240 --> 0:18:04.840 It's not unusual when you look through history to see 0:18:04.840 --> 0:18:09.080 concentration in markets. So the concentration within the US equity 0:18:09.160 --> 0:18:11.960 market means you need to be active. You need to 0:18:12.119 --> 0:18:15.119 understand the companies that you're investing in. Would be leery 0:18:15.160 --> 0:18:18.320 of just buying beta right now as opposed to having 0:18:18.400 --> 0:18:21.200 a view on the stocks that you're buying in the market. 0:18:21.240 --> 0:18:24.359 So that's point number one. But point number two that 0:18:24.480 --> 0:18:27.119 I think the concentration we're more worried about is the 0:18:27.160 --> 0:18:30.840 degree to which capital markets are oriented towards the US 0:18:30.920 --> 0:18:33.960 right now, and that has been kind of the big 0:18:34.080 --> 0:18:37.320 challenges a multi asset investors, an asset allocator is how 0:18:37.320 --> 0:18:42.000 do you diversify without being dramatically underweight what has been 0:18:42.240 --> 0:18:46.000 a high roe, high returning market in the US. And 0:18:46.040 --> 0:18:50.000 so we think looking towards global approaches capturing some of 0:18:50.040 --> 0:18:53.600 the real dynamics in emerging markets where if you say 0:18:53.600 --> 0:18:56.320 you want to play AI and you think that that trend, 0:18:56.359 --> 0:18:59.240 that technological change is going to continue, the place to 0:18:59.280 --> 0:19:00.560 play it Europe. 0:19:00.800 --> 0:19:04.520 It's emerging markets. That's the other strength outside the US. 0:19:04.880 --> 0:19:05.480 So where in. 0:19:05.400 --> 0:19:07.720 Emerging markets are you looking? Where do you see the 0:19:07.720 --> 0:19:08.440 most opportunity? 0:19:08.960 --> 0:19:10.800 I think it depends whether you're talking about debt markets 0:19:10.840 --> 0:19:14.880 or equity markets. So in equity markets there is you know, 0:19:15.000 --> 0:19:18.720 China is a real complex situation right now. The domestic 0:19:18.800 --> 0:19:23.560 consumption in China is still weak. The economy is being 0:19:23.600 --> 0:19:25.760 managed I think to some different inns than we would 0:19:25.760 --> 0:19:28.879 traditionally see in the US. But if you look at 0:19:29.040 --> 0:19:31.280 exports are picking up out of China. We just had 0:19:31.280 --> 0:19:35.280 the deal overnight announced between the latest deal announced between 0:19:35.320 --> 0:19:38.080 the US and China. We think that that starts to 0:19:38.119 --> 0:19:40.840 push out into countries like Taiwan and Korea where they're 0:19:40.880 --> 0:19:43.840 sort of involved in that supply chain. The tech names 0:19:43.880 --> 0:19:49.800 within China are very interesting to US as bottom up investors. 0:19:49.840 --> 0:19:52.080 You know, talking to the bottom up teams with in Schroeders, 0:19:52.359 --> 0:19:54.560 they get very excited about that. When you talk about 0:19:54.600 --> 0:19:58.880 the debt markets here, what's interesting is you've seen very 0:19:58.920 --> 0:20:03.360 high yields in a co enemies where the monetary policy 0:20:03.400 --> 0:20:06.760 has been managed in a very traditional way. They've been 0:20:06.800 --> 0:20:09.640 on top of the inflation pressures, and so we have 0:20:09.720 --> 0:20:15.919 this this monetary supportive cycle that is backing investors in 0:20:16.000 --> 0:20:18.480 Latin America in particular, where we see a lot of 0:20:18.480 --> 0:20:19.840 opportunities for real yields. 0:20:19.920 --> 0:20:22.440 I like Evany's multi asset pros because he can ask 0:20:22.480 --> 0:20:25.800 about anything. Whatever it sticks on the wall here, growth 0:20:26.800 --> 0:20:29.880 call on gold here. It just had this incredible rip 0:20:29.960 --> 0:20:31.480 up the forty three hundred. We've had a little bit 0:20:31.520 --> 0:20:33.800 of a pullback here we're saying just below what some 0:20:33.800 --> 0:20:35.560 folks will tell me as a kind of support level 0:20:35.560 --> 0:20:38.000 around four thy thirty nine to ninety. What do you 0:20:38.000 --> 0:20:39.640 guys make of what's happening gold this year? 0:20:39.760 --> 0:20:44.600 Yeah, I think gold is highly related to the fears 0:20:44.640 --> 0:20:47.080 about what might happen and change in policy in the 0:20:47.200 --> 0:20:51.760 US right. And so when we talk about diversification away 0:20:51.800 --> 0:20:55.000 from the dollar, it's not that the dollar suddenly loses 0:20:55.400 --> 0:20:59.080 its reserve status. It's really that we see a need 0:20:59.160 --> 0:21:02.679 to for central banks to diversify their holdings. We're seeing 0:21:02.800 --> 0:21:06.760 demand for physical gold in places like China and India. 0:21:06.880 --> 0:21:09.320 So we just think this is a consolidation into the 0:21:09.320 --> 0:21:11.840 next leg of a rally as investors see gold being 0:21:11.960 --> 0:21:15.919