Speaker 1: Welcome to the Bloomberg Penl Podcast. I'm Paul swing you
Speaker 1: along with my co host Lisa Brahma Waits. Each day
Speaker 1: we bring you the most noteworthy and useful interviews for
Speaker 1: you and your money. Whether at the grocery store or
Speaker 1: the trading floor. Find a Bloomberg Penl podcast on Apple
Speaker 1: podcast or wherever you listen to podcasts, as well as
Speaker 1: at Bloomberg dot com. One of the biggest consensus trades
Speaker 1: heading into next year is betting on reflation of steepening
Speaker 1: in the yield curve. This concept of perhaps better than
Speaker 1: expected earnings coming out of companies that have pretty weak
Speaker 1: comps to to beat. Basically joining us now is Ben
Speaker 1: Emmon's Medley Global Advisors Global macro Strategy, and Ben, I'm
Speaker 1: looking right now at what might be the initial phases.
Speaker 1: I don't want to see the death of their inflation trade,
Speaker 1: but the death of the inflation trade. You're seeing the
Speaker 1: yield curve continue to flatten, and you're seeing a measure
Speaker 1: of forward inflation five year five year up break even
Speaker 1: rates dropped near their lowest levels since two sixteen. What
Speaker 1: do you make of that? I can only say thanks
Speaker 1: for much for having us Um, well, there's obviously uncertainty
Speaker 1: has creeped in since the speech from Trump in New
Speaker 1: York last week when he started to voice his word
Speaker 1: about substantial rising tears as the deal doesn't happen. So
Speaker 1: I think the bond market listened to that closely and
Speaker 1: saw like, okay, you know, there's always a risk that
Speaker 1: there will be no deal or will be delayed, and
Speaker 1: then people are looking at these December fifteen tears as
Speaker 1: the first one of the substantial rise. I think this
Speaker 1: is what's in the market's mind right now, that that
Speaker 1: risk isn't totally abated yet, right. You know, the real
Speaker 1: reflationary trades you spoke about that happened in sort of
Speaker 1: mid October was only idea that the tears would be
Speaker 1: de escalated. So that's now been taken a little bit back.
Speaker 1: At least the market seems to be cautious that that
Speaker 1: that that the escalation may not happen so quickly. So
Speaker 1: therefore I think this is why the YUK flattened. In
Speaker 1: addition to that, what we have had in the meantime
Speaker 1: is really soft inflation data, right, whether you look at
Speaker 1: PPI data for example aland Germany today or import price
Speaker 1: in next last week in the US all shows very
Speaker 1: global disciplationary pressure from the trade wars. I think that
Speaker 1: too presses down on the UK whoy I get this flattening. So, Ben,
Speaker 1: if we do get a Phase one type of deal
Speaker 1: on schedule as we head into would you want to
Speaker 1: be you know, more exposure to the US or maybe
Speaker 1: have a little bit more of a global exposure. How
Speaker 1: do you view that? Yeah, I'm definitely on that idea, Paul,
Speaker 1: because you know, if you look at the performance, then yes,
Speaker 1: the US has outperformed this mostly this entire time in
Speaker 1: the trade war. And the areas that have been effected
Speaker 1: most by the trade war are an, Asia, Pacific in Europe,
Speaker 1: and so there is of course a valuation difference there
Speaker 1: that that you would presume that if the Phase one
Speaker 1: deal happens and as some confidence coming back that trade
Speaker 1: in particularly global trade, which seems to be pretty depressed
Speaker 1: at this point. Take for example, the export import data
Speaker 1: from Japan overnight is a good good indicator of death
Speaker 1: and that could see be some some rebound there and
Speaker 1: I think then countries that are very sensitive to the
Speaker 1: global trade are going to benefit from that. I think
Speaker 1: days where the value is as opposed to the U
Speaker 1: stock market, which could to perform, but maybe not as
Speaker 1: much as relative to those you know, undervalued markets. If
Speaker 1: if you, if you will, right like so, I think
Speaker 1: that is probably your trade next year, of course, condition
Speaker 1: upon that this Space one deal successfully gets completed. One
Speaker 1: thing I'm struggling to understand. Yesterday, at around I don't know,
Speaker 1: six fifteen pm Eastern time, Wall Street time, there was
Speaker 1: the headline about the Hong Kong Bill that was passed
Speaker 1: by the Senate, and this is basically UH saying that
Speaker 1: the U s stands in alliance with the Hong Kong
Speaker 1: protesters in asserting freedom and pushing back against Beijing. Beijing
Speaker 1: has come out vehemently against this. There was concern that
Speaker 1: this would impede or torpedo any potential for a Phase
Speaker 1: one trade deal. Come now, Uh, you know, several hours later,
Speaker 1: people are not even thinking about it or talking about it.
Speaker 1: It's and largely dismissed as no ways and being sort
Speaker 1: of symbolic more than anything else, not leading to any
Speaker 1: serious disruption. What's the right narrative here? Well, I think
Speaker 1: that is the right narrative at leastaid that that yes,
Speaker 1: it's an important signal by the Senate of course, to
Speaker 1: take a stance on pro democracy in Hong Kong. And
Speaker 1: that's that is I think well known out there and
Speaker 1: I think markets understand it. But the link between that
Speaker 1: bill and the progress in the trade talks that may
Speaker 1: be not so strong, and and probably the reason really
Speaker 1: is that the retaliation that China talks about may not
Speaker 1: just necessarily happen so quickly. I think one of the
Speaker 1: the news items that can out this morning is actually
Speaker 1: making the comparison to other measures that the US has
Speaker 1: threatened with or or even done, like the UAHWE case,
Speaker 1: that that China has not retaliated on those situations either.
Speaker 1: So I think this is probably what creeping into the
Speaker 1: market's mind of that this is an important bill and
Speaker 1: it matters, but it may not matter as much for
Speaker 1: the trade deal from here. With more matters is of course,
Speaker 1: ultimately the agreement on what is the there rollback going
Speaker 1: to be about and what is the agricultural agricultural purchase
Speaker 1: is going to be about to make this deal actually happen.
Speaker 1: In other words, will the deal phase one be really
Speaker 1: the sixty that Trump talks about, or will be less
Speaker 1: than six? I think that's ultimately with a market will
Speaker 1: trade on if it is a lot less than six,
Speaker 1: I think then you get more uncertainty about the future
Speaker 1: of the trade deal that you know phase two. So Ben,
Speaker 1: if we do again I'm operating assumption that mean we
Speaker 1: do get a Phase one deal on schedule. Is that
Speaker 1: my signal to maybe to dip my toe into emerging markets? Yeah,
Speaker 1: I mean that is I think the general consense out
Speaker 1: there that again, where is the value at the moment
Speaker 1: if you compare the US to other markets? Right? And
Speaker 1: that and that is indeed Asia specific or Europe and
Speaker 1: some parts of emerging markets. That's that's I think the
Speaker 1: catalysts that people feel confident that if Phase one is completed,
Speaker 1: it's in writing we really have a base for we
Speaker 1: can work off the more structural issues over long term.
Speaker 1: And what most of all that matters is that people
Speaker 1: probably discount that there will be a level of de
Speaker 1: escalation from the tears have been put in place over
Speaker 1: course in time next year into into that would have
Speaker 1: an economic impact, and that I think is why investors
Speaker 1: are pre positioning themselves on that Phase one complete. There's
Speaker 1: opportunity in these undervalued marketss Ben Emon's thank you so
Speaker 1: much for joining us. Bend is uh metally Global Advisors,
Speaker 1: global macro strategist, giving us some thoughts on kind of
Speaker 1: how this could play out. Trade still very much front
Speaker 1: and center for investors in the question is I have
Speaker 1: probably is you know, it seems like the consensus is
Speaker 1: a phase one deal is coming. Is there downside if
Speaker 1: it doesn't come? You know, and what is that downside?
Speaker 1: And trying to uh, you know, kind of put a
Speaker 1: handle on that. But there's certainly some arguments for taking
Speaker 1: on a little bit more risk should we get that
Speaker 1: phase one deal. What a year nineteen has been for
Speaker 1: equity markets, double digit increases across the SMP, the doll
Speaker 1: and NASDAK. Where do we go in? Phil Orlando, chief
Speaker 1: equity market strategist and had of client portfolio management at
Speaker 1: Federate Investors, I'm sure has some answers. Phil, thanks so
Speaker 1: much for joining us. You know, one of the discussions
Speaker 1: we have, you know, almost daily here is this is
Speaker 1: kind of the bull market that nobody really loves or trust.
Speaker 1: What is your sense of the market here given where
Speaker 1: we are at, you know, close to twenty thousand on
Speaker 1: the Dow. No one loves or trusted. This is the
Speaker 1: most hated bull market in the history of civilization. There
Speaker 1: you go, remember that that a year ago and after
Speaker 1: that waterfall decline that we saw that that ended in
Speaker 1: Christmas Eve because the market was pricing in with absolute
Speaker 1: certainty the fact that recession had you just started, it
Speaker 1: was about to start. Stocks were trading at fourteen times earnings.
Speaker 1: We had a very different view that that we did
Speaker 1: not believe that there was any near term risk of
Speaker 1: recession in twenty eighteen or twenty nineteen or twenty we
Speaker 1: still believe that multiples at fourteen times forward earnings in
Speaker 1: our view, we're way too pessimistic because you had very
Speaker 1: benign levels of both interest rates and inflation. Core inflation
Speaker 1: the PC sitting at one point seven percent right now.
Speaker 1: So the multiple at eighteen times earnings, where it was
Speaker 1: a year ago October was exactly where it should have been.
Speaker 1: In our view this year is that we would spend
Speaker 1: the year sort of grindering our way back to that level.
Speaker 1: So we're probably in around I don't know, seventeen seventeen
Speaker 1: a half times earnings right now. We're not quite there yet,
Speaker 1: but we have hit our thirty one hundred full year forecast, um,
Speaker 1: you know, six weeks before the end of the year. Indeed,
Speaker 1: so what drives things are here? Um, the consolidation that
Speaker 1: we saw on corporate earnings this year was was absolutely
Speaker 1: understandable because we were up twenty in calendar eighteen. That
Speaker 1: that's not sustainable. So we're gonna get back onto a
Speaker 1: growth trajectory for earnings next year. LI So we think
Speaker 1: maybe something in the eight percent neighborhood, give or take,
Speaker 1: we're gonna get a little bit more multiple expansion because
Speaker 1: inflation and interest rates are still relatively benign. So if
Speaker 1: we do a hundred and eighty dollars and earnings next year,
Speaker 1: which is our forecast, and and we get a multiple
Speaker 1: that's in that eighteen eighteen and a half times earnings neighborhood,
Speaker 1: we get to our thirty five hundred forecast on the
Speaker 1: SMP five hundred. Now we're sitting at thirty one hundred.
Speaker 1: Now that's not a huge move, but like you said
Speaker 1: at the very beginning, Paul, where we're up you know,
Speaker 1: thirty two percent or something like that in the last year,
Speaker 1: and and uh, if we can do another ten or
Speaker 1: fifteen percent next year, that ain't bad. That ain't bad. Indeed,
Speaker 1: I'm trying to figure out that what the leader is
Speaker 1: going to be here because it's really been tech driving
Speaker 1: a lot of the games that we've seen in Can
Speaker 1: You to Be Tech? So they understand what's going on
Speaker 1: as a result of of the reduction in tax rates,
Speaker 1: the repatriation of two point seven trillion dollars back into
Speaker 1: the United States and we've we've only brought a trillion
Speaker 1: dollars of it back so far, and the automatic expensing
Speaker 1: of cap X. We are going through, in my opinion,
Speaker 1: one of the most significant technology upgrade cycles we've seen
Speaker 1: since the White two K build up back in the
Speaker 1: late nineties. That that trend ought to continue through at
Speaker 1: least the end of next year. So you look at
Speaker 1: you say, well, texts had a pretty good year the
Speaker 1: last year or two. They should have had a good year,
Speaker 1: and we should have another good year as companies continue
Speaker 1: to you know, upgrade their software and whatever else they're
Speaker 1: doing in order to fix up their their technology platforms.
Speaker 1: So so you've been absolutely on it on this equity call,
Speaker 1: this bullish call here. Where could you be wrong in
Speaker 1: your here? Well, I think there's a very significant uh
Speaker 1: swing factor here and that's the results of the presidential
Speaker 1: election in in t I mean, our base case is
Speaker 1: that we get good election results that allow the market friendly,
Speaker 1: economic friendly, investor friendly fiscal policies that we've seen the
Speaker 1: last couple of years to continue. But that could be wrong.
Speaker 1: We we could have a very radically different set of
Speaker 1: fiscal policies, uh waking up to in calendar twenty one.
Speaker 1: And and the market is a forward looking discounting mechanism
Speaker 1: is going to price that in early based upon polling
Speaker 1: or based upon the the actual election results in November
Speaker 1: of next year. If if it looks as if there's
Speaker 1: gonna be a radically different change in fiscal policy approach
Speaker 1: and therefore economic growth, corporate earnings growth, and everything else.
Speaker 1: Phil Orlando, thank you so much for that. Phil Orlando
Speaker 1: is cheap equity market strategist at Federated Investors. Always wonderful insights.
Speaker 1: Interesting to think that tech will continue to drive the
Speaker 1: market towards that goal for the SMP five hundred and ten.
Speaker 1: That ain't bad. He's been right, He's been right. Let's
Speaker 1: shift gears a little bit to healthcare and what some
Speaker 1: people are calling a drug shortage, which is incredibly ironic
Speaker 1: considering the focus on the costs of certain drugs catering
Speaker 1: to specific niche diseases. Michael al kare joining us here
Speaker 1: in our Interactive Broker Studios, President of Premier Inc. Healthcare
Speaker 1: Management Company, and I'm wondering from your person, Factive, what
Speaker 1: is this shortage all about? Yeah, thank you for having
Speaker 1: me first. First of all, the drug shortages pertain to
Speaker 1: a certain part of the pharmacy market. So it's it's
Speaker 1: related to generic drugs. So as you are well aware,
Speaker 1: in the sort of the evolution of a drug, a
Speaker 1: drug comes out typically it's a branded and then um,
Speaker 1: after a number of years, that drug goes to a
Speaker 1: generic status. What happens then is obviously the price goes down.
Speaker 1: And I'll just use an analogy. It starts at a
Speaker 1: hundred bucks, it sometimes ends up at two bucks. Along
Speaker 1: the way, you have various producers of that product that
Speaker 1: have to exit the market because they can't make margins.
Speaker 1: So some may have high cost and at fifty bucks
Speaker 1: to share they exit. Some have to exit at twenty
Speaker 1: and then you know, when the market sort of settles out,
Speaker 1: you may only have one or two suppliers. When you
Speaker 1: have either a monopoly or a duopoly. That's when obviously
Speaker 1: drug prices actually go back up. Uh. And then our
Speaker 1: job at Premiere is to figure out ways to create
Speaker 1: health markets. So the focus of a company that we
Speaker 1: just launch called provide g X is to bring new
Speaker 1: entrance into the market when you have a monopoly or duopoly.
Speaker 1: So we'll actually invest capital in new companies that we
Speaker 1: think have a history of high quality manufacturing to create
Speaker 1: a healthier market, healthier supply. So what are some of
Speaker 1: the drugs or treatments that are experiencing shortages? Now, yeah,
Speaker 1: it's pretty crazy because there's some just basic stuff that
Speaker 1: our healthcare systems need that will be uh in a
Speaker 1: shortage situation in any point in time. Think of sailing solutions,
Speaker 1: So those are the those are the the therapies that
Speaker 1: are being utilized by I V s. UH. Think of nutritionals,
Speaker 1: just basic nutritionals. If you're in the hospital for a
Speaker 1: longer term stay and you need nutritionals. You know. Those
Speaker 1: are drugs that oftentimes are in short supply. Things like
Speaker 1: morphine have been on the shortage list. Probifle that's the
Speaker 1: drug that allows you to go under anesthetic that has
Speaker 1: been under a shortage. UH. There was a very very
Speaker 1: important drug that focused on um toxic shock. Uh and
Speaker 1: there was a Jamma article written in two thousand and seventeen.
Speaker 1: UM And because we didn't have access to this drug,
Speaker 1: the Jamma article sort of proved out that uh it
Speaker 1: increased mortality because we didn't have that drug by three
Speaker 1: point seven percent during the time that that drug was
Speaker 1: in a shortage situation. UH. And it was a uh
Speaker 1: EF the epene from family, so it really helped to
Speaker 1: sort of treat low blood pressure when your body entered
Speaker 1: into shock. So we think there was about thirteen billion
Speaker 1: dollars of costs associated with that. Alright, So going forward,
Speaker 1: I'm trying to just understand from a big picture standpoint,
Speaker 1: what can be done to put the emphasis on creating
Speaker 1: more and affordable generic drugs at a time when the
Speaker 1: pharmaceutical companies in large part are focused on the cancer
Speaker 1: drug rugs that are sort of hot, and they're and
Speaker 1: they're very they can be priced at very high points,
Speaker 1: but don't necessarily take care of this need. So great questions.
Speaker 1: So what we want to do uh and again through
Speaker 1: um that company I mentioned provide g X, we want
Speaker 1: to actually go out to smaller manufacturers who are actually
Speaker 1: are in the market to produce drugs today UH and
Speaker 1: help them expand either their production or help them get
Speaker 1: additional and s, which is the approval from the s
Speaker 1: the f D eight actually UH to actually manufacture the drugs.
Speaker 1: So that's number one. Number two and this is something
Speaker 1: that keeps me up at night is we have issues
Speaker 1: with the active pharmaceutical ingredient, that's the raw goods that
Speaker 1: go into manufacturing these generic drugs. UM. Little known fact
Speaker 1: of these raw goods for generic drugs are actually done
Speaker 1: in China, manufactured in China. So what keeps me up
Speaker 1: at night is the ability of potentially China to weaponize
Speaker 1: you know this this and balance sort of in the
Speaker 1: supply chain. So think of a p I s for antibiotics,
Speaker 1: think of things around UM cancer drugs, things around UM acid,
Speaker 1: reflectious basic drugs that our population needs. I do worry
Speaker 1: about having such a dependence on that raw material being
Speaker 1: produced in one country. Michael Alcary, thank you so much
Speaker 1: for joining us. We appreciate you coming in. Michael's the
Speaker 1: president of Premier Healthcare coming talking about healthcare shortages which
Speaker 1: are more pronounced and I probably would have guest. Thanks
Speaker 1: for listening to the Bloomberg P and L podcast. You
Speaker 1: can subscribe and listen to interviews at Apple Podcasts or
Speaker 1: whatever podcast platform you prefer. Paul Sweeney, I'm on Twitter
Speaker 1: at pt Sweeney. I'm Lisa abram Woids. I'm on Twitter
Speaker 1: at Lisa Abramoids. One before the podcast, you can always
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