WEBVTT - Bloomberg Surveillance TV: October 24, 2024 0:00:00.120 --> 0:00:06.800 Bloomberg Audio Studios, Podcasts, radio News. 0:00:11.680 --> 0:00:15.480 This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along 0:00:15.480 --> 0:00:18.720 with Lisa Bromwitz and Amrie Hordern. Join us each day 0:00:18.760 --> 0:00:22.280 for insight from the best in markets, economics, and geopolitics 0:00:22.440 --> 0:00:24.880 from our global headquarters in New York City. We are 0:00:24.960 --> 0:00:27.680 live on Bloomberg Television weekday mornings from six to nine 0:00:27.720 --> 0:00:31.319 am Eastern. Subscribe to the podcast on Apple, Spotify or 0:00:31.320 --> 0:00:33.960 anywhere else you listen, and as always on the Bloomberg 0:00:34.040 --> 0:00:37.199 Terminal and the Bloomberg Business app. Here's the latest, the 0:00:37.320 --> 0:00:40.560 G seven finalizing a fifty billion dollar loan for Ukraine 0:00:40.880 --> 0:00:44.360 using the profits generated by frozen Russian Central Bank assets. 0:00:44.520 --> 0:00:47.199 Treasury Secretary Channel Yellen also announcing the US will en 0:00:47.280 --> 0:00:50.839 vel strong new sanctions against Russia and nations supporting its 0:00:50.880 --> 0:00:53.479 war effort as early as next week. Joining us now 0:00:53.479 --> 0:00:55.960 around the table the US Deputy National Security Advisor for 0:00:56.000 --> 0:00:58.920 International Economics, the leaf Sink Believe gradmoning it's born in 0:00:59.000 --> 0:01:01.520 Johnathon Credit where it's due A lot of this work, 0:01:01.840 --> 0:01:03.360 you had a lot to do with it. Walk us 0:01:03.400 --> 0:01:05.640 through the objective of this plan of this loan. 0:01:06.440 --> 0:01:07.600 So remember the context. 0:01:07.800 --> 0:01:10.720 Two days after Russian invaded Ukraine in twenty twenty two, 0:01:10.880 --> 0:01:14.200 the United States, the G seven, we collectively froze Russia's 0:01:14.200 --> 0:01:16.880 central bank assets held in our countries, about three hundred 0:01:16.880 --> 0:01:17.680 billion dollars. 0:01:17.400 --> 0:01:20.000 Worth in total by all accounts. 0:01:20.040 --> 0:01:22.360 This came as a surprise to putin the severity of 0:01:22.360 --> 0:01:26.000 the action, the speed, the unity of the G seven. 0:01:26.040 --> 0:01:28.399 So two years later, two plus years later, this June, 0:01:28.400 --> 0:01:31.440 as you showed on your screen, the G seven committed 0:01:31.520 --> 0:01:34.880 to lend fifty billion dollars of that value of the 0:01:34.959 --> 0:01:38.480 Russian frozen assets to Ukraine, using the future interest flows 0:01:38.520 --> 0:01:41.759 to pay us back. So yesterday President Biden said, We're 0:01:41.760 --> 0:01:43.600 going to make good in our commitment. We're going to 0:01:43.640 --> 0:01:45.800 leend twenty billion dollars to Ukraine. The rest of the 0:01:45.800 --> 0:01:47.800 G seven will leend thirty billion dollars. 0:01:48.120 --> 0:01:48.880 It's a big deal. 0:01:49.800 --> 0:01:54.320 Never before in history has a multilateral coalition frozen the 0:01:54.360 --> 0:01:57.320 assets of an aggressor country and then found a way 0:01:57.320 --> 0:02:00.560 to unfreeze those assets for the benefit of the party, 0:02:01.000 --> 0:02:03.880 all while maintaining the rule of law and our solidarity. 0:02:04.120 --> 0:02:05.280 So that's where we are. Deep. 0:02:05.320 --> 0:02:07.720 Are you concerned about the consequences though in the future 0:02:08.080 --> 0:02:10.680 you have the bricks right now meeting talking about whether 0:02:10.760 --> 0:02:13.400 or not they should move away from doing transactions in 0:02:13.440 --> 0:02:14.680 the dollar because of. 0:02:14.639 --> 0:02:15.240 Things like this. 0:02:15.919 --> 0:02:18.680 Well, the important aspect of this deal, I would say 0:02:18.680 --> 0:02:22.040 two aspects. Actually, One is we followed the rule of 0:02:22.120 --> 0:02:26.360 law and every single jurisdiction we stuck to the letter 0:02:26.400 --> 0:02:29.640 of the law. Second, we maintained our unity, our solidarity. 0:02:30.800 --> 0:02:32.720 You know, there had been some calls to seize the 0:02:32.720 --> 0:02:35.480 principle of these reserves. We have a legal pathway for 0:02:35.560 --> 0:02:37.880 doing so. Europe does not. We're going to keep working 0:02:37.960 --> 0:02:40.360 towards that. But at this stage, what we're doing is 0:02:40.400 --> 0:02:43.679 harnessing the interest flows that will accrue from these assets, 0:02:43.960 --> 0:02:47.280 and we're saying, let's let's transfer the value of those 0:02:47.320 --> 0:02:49.480 interests flows to Ukraine so it can fight. 0:02:49.400 --> 0:02:51.560 For its existence. I was at the G seven, so 0:02:51.639 --> 0:02:52.200 were you with this? 0:02:52.280 --> 0:02:54.079 Really got pushed over the finish line in terms of 0:02:54.080 --> 0:02:56.799 the European saying okay, we agree with you, We're going 0:02:56.840 --> 0:02:59.880 to come on board. How much does the US presidential election. 0:03:00.080 --> 0:03:02.919 How much did the fact that in November potentially there 0:03:03.000 --> 0:03:04.480 is going to be a change at the White House 0:03:04.919 --> 0:03:08.240 impact of the Europeans wanting to get this done today. 0:03:08.320 --> 0:03:11.480 Look, I would say part of the motivation for this 0:03:11.560 --> 0:03:14.000 G seven deal was to prove to putin no matter 0:03:14.040 --> 0:03:15.880 what happens in our election, time is not. 0:03:15.880 --> 0:03:16.560 On this side. 0:03:16.880 --> 0:03:18.680 I can give you three hundred billion reasons why time 0:03:18.760 --> 0:03:21.040 is not on putent side. It was also meant to 0:03:21.080 --> 0:03:25.280 demonstrate that multilateralism it's a force multiplier, and foreign policy 0:03:25.639 --> 0:03:27.200 and that we're not out of options, We're not out 0:03:27.240 --> 0:03:30.000 of creativity. So all of those were I would say, 0:03:30.120 --> 0:03:32.320 underlying motivations for how this deal came together. 0:03:32.639 --> 0:03:35.360 Some people might suggest, though, that America is losing influence 0:03:35.480 --> 0:03:38.520 on the global stage. We haven't managed to persuade China 0:03:39.320 --> 0:03:42.000 to come to our side of thinking on several issues 0:03:42.080 --> 0:03:44.880 in international farm relations right now. Is there any evidence 0:03:44.920 --> 0:03:47.360 that we've retained regained any kind of influence on the 0:03:47.400 --> 0:03:49.960 global stage at all under this administration. 0:03:50.280 --> 0:03:52.960 Well, you mentioned China, John, I mean, I know there's 0:03:52.960 --> 0:03:55.520 been a lot of talk about protectionism at the IMF 0:03:55.560 --> 0:03:56.480 this week and beyond. 0:03:57.160 --> 0:03:58.360 In my sense, my. 0:03:58.400 --> 0:04:01.240 Interpretation of what we're doing doing is that this is 0:04:01.240 --> 0:04:03.280 a very positive sum view of the world, and we 0:04:03.320 --> 0:04:05.760 hope China other countries come towards our way of thinking. 0:04:06.120 --> 0:04:08.000 What we've said is, look, we're going to invest in 0:04:08.040 --> 0:04:10.800 our productive capacity. Number one, we're going to strengthen it 0:04:10.880 --> 0:04:13.240 and scale it up. Number Two, For countries that are 0:04:13.240 --> 0:04:15.560 playing by the same rules, we're going to give access 0:04:15.560 --> 0:04:17.679 to our productive capacity and are purchasing power. 0:04:17.720 --> 0:04:19.320 We hope, we hope it's reciprocal. 0:04:19.600 --> 0:04:21.719 But third, and this is where China comes in, for 0:04:21.800 --> 0:04:23.960 countries that are not playing by the same rules, we 0:04:24.000 --> 0:04:26.560 are going to use restrictive measures like tariffs to level 0:04:26.560 --> 0:04:29.360 the playing field and to prevent hundreds of billions of 0:04:29.400 --> 0:04:32.200 dollars in American tax payer money from getting undercut. That 0:04:32.400 --> 0:04:35.520 is not a defensive approach, that's not a protectionist approach. 0:04:35.960 --> 0:04:37.760 It's a positive sum view of the world. We're trying 0:04:37.800 --> 0:04:40.440 to change the terms of the competition. You know, if 0:04:40.440 --> 0:04:43.880 the terms of the competition are your capacity to innovate, 0:04:44.320 --> 0:04:47.760 your ability to collaborate with a network of alliances and partners, 0:04:48.440 --> 0:04:52.200 your ability to attract ideas and talent and investment, that's 0:04:52.240 --> 0:04:54.279 a vision that every country can buy into, and I 0:04:54.400 --> 0:04:56.839 very much like our chances if that's where the competition goes. 0:04:56.920 --> 0:04:59.640 China included to Amory's point, there are some countries, some 0:04:59.640 --> 0:05:02.760 account some groups of countries starting to think about trying 0:05:02.800 --> 0:05:04.920 to move away from the US dollar. Mohammad al Aium 0:05:04.960 --> 0:05:07.000 wrote in the Financial Times early this week. You might 0:05:07.040 --> 0:05:09.360 have seen the column that you produced said a loss 0:05:09.360 --> 0:05:11.640 of confidence in America's management of the global order may 0:05:11.640 --> 0:05:14.320 have contributed to this run up, the whizzing and the 0:05:14.320 --> 0:05:17.039 gold price. Do you see any evidence of that, a 0:05:17.120 --> 0:05:20.840 breakdown of confidence in America's ability to manage the global order? 0:05:21.000 --> 0:05:22.680 Look, I don't think we're going to see. If there 0:05:22.720 --> 0:05:24.760 was a breakdown, we wouldn't see it in the data. 0:05:24.880 --> 0:05:26.279 By the time it showed up in the data would 0:05:26.279 --> 0:05:30.560 be too late. What matters is whether we continue to 0:05:30.600 --> 0:05:32.680 be who we are, whether we continue to have the 0:05:32.760 --> 0:05:37.400 rule of law, independent and credible institutions, fair and effective regulations, 0:05:37.720 --> 0:05:40.680 trust in our stewardship of the global economy. That's what 0:05:40.720 --> 0:05:42.680 gave US dollar primacy in the first place. If we 0:05:42.720 --> 0:05:46.599 continue to invest in those competitive strengths, will be just fine. 0:05:46.720 --> 0:05:48.560 The leave gold is just one example. Though. 0:05:49.120 --> 0:05:51.440 What do you say to those that say sanctions don't work, 0:05:51.520 --> 0:05:52.599 they just create new. 0:05:52.480 --> 0:05:55.960 Market What I say is what is your alternative? We're 0:05:55.960 --> 0:05:59.800 in an environment of very intense geopolitical competition. Both Russia 0:05:59.800 --> 0:06:02.920 and China have expressed and revealed a desire to disrupt. 0:06:02.560 --> 0:06:03.360 The US led order. 0:06:03.680 --> 0:06:07.320 When there's conflict, we tend to have three options. Do 0:06:07.440 --> 0:06:11.200 nothing and stand aside and watch international rules that underpin 0:06:11.279 --> 0:06:14.000 peace and security get flouted, or go to war. But 0:06:14.960 --> 0:06:16.440 the policy space in between. 0:06:16.160 --> 0:06:19.640 Why do a price cap? Putin makes money every single 0:06:19.760 --> 0:06:22.159 day exporting oil and gas. 0:06:22.200 --> 0:06:23.240 Why not just sanction it. 0:06:23.279 --> 0:06:24.440 That's how he funds this war. 0:06:24.600 --> 0:06:27.640 Well, sanctions work if they're sustainable, and they're only sustainable 0:06:27.680 --> 0:06:29.839 if they hurt our target more than they hurt ourselves 0:06:29.880 --> 0:06:33.640 in the global economy. So take energy for example, coming 0:06:33.680 --> 0:06:36.120 into the war, Russia was the third largest supplier of 0:06:36.120 --> 0:06:38.440 oil and gas to the world when global supplies were 0:06:38.520 --> 0:06:41.240 quite tight. We cut off Russian energy within a month 0:06:41.240 --> 0:06:44.080 of the invasion, sort of other g seven countries. But 0:06:44.120 --> 0:06:47.119 the idea of cutting Russian energy off from the world 0:06:47.120 --> 0:06:49.160 that would have felt good. Believe me, it would have 0:06:49.200 --> 0:06:52.400 felt good, But it would have meant a global shock 0:06:52.680 --> 0:06:55.000 to global energy and food prices. It would have harm 0:06:55.040 --> 0:06:59.000 millions of innocent people at home and abroad. It would 0:06:59.000 --> 0:07:03.120 have flattered Putin's energy export revenues. That's a self defeating strategy. 0:07:03.160 --> 0:07:07.080 So we took a much less sexy, less shokunnaw approach, 0:07:07.480 --> 0:07:10.960 much more nuanced, harder to explain. But the global price 0:07:10.960 --> 0:07:12.920 of oil is down a third since the invasion, his 0:07:13.040 --> 0:07:15.920 revenues are down by a third. The global energy market's 0:07:15.920 --> 0:07:19.440 coming into balance, We're moving away from Russian fossil fuels. 0:07:19.600 --> 0:07:21.320 We're going to have a chance to hit him harder. 0:07:21.400 --> 0:07:24.000 The time is coming, so chance to hit him harder. 0:07:24.040 --> 0:07:28.320 How I'm not going to telegraph that here, but rest assured. 0:07:28.320 --> 0:07:29.840 We have options and it's a. 0:07:29.760 --> 0:07:30.400 Matter of time. 0:07:30.720 --> 0:07:32.640 Let's go back to this idea of Jonathan brought up 0:07:32.640 --> 0:07:35.000 with China and tariffs. China is a big player when 0:07:35.000 --> 0:07:38.000 it comes to what they're doing in Russia. Russia is 0:07:38.000 --> 0:07:40.600 able to get chips, say from refrigerators, and maybe use 0:07:40.640 --> 0:07:44.080 it in their military base. When it comes to tariffs, 0:07:44.080 --> 0:07:45.800 you're talking about the fact that you think they need 0:07:45.840 --> 0:07:47.680 to be used on places like China. What do you 0:07:47.680 --> 0:07:50.720 think separates the democratic position than what the former president 0:07:50.800 --> 0:07:51.920 is saying on the campaign trail. 0:07:52.680 --> 0:07:55.240 So I'm just going to speak hypothetically since I'm not 0:07:55.320 --> 0:08:01.120 on the campaign. Across the board indiscriminate tariffs, they are 0:08:01.520 --> 0:08:03.720 going to have four predictable consequences. 0:08:04.120 --> 0:08:05.480 Number one global retaliation. 0:08:06.520 --> 0:08:09.400 Number two, it's a regressive tax on the most vulnerable 0:08:09.440 --> 0:08:13.000 segments of society. Number three it compresses profit margins for 0:08:13.040 --> 0:08:16.760 any business that imports components. And number four would isolate 0:08:16.920 --> 0:08:19.920 America on the world stage. It would alienate our allies 0:08:20.040 --> 0:08:23.760 and play right into Putin's and Cheese hands. Our approach 0:08:23.760 --> 0:08:28.960 has been there's a role for targeted tariffs, but tariffs 0:08:28.960 --> 0:08:32.520 alte are not a path to prosperity. So we have 0:08:32.559 --> 0:08:34.800 taken an approach which says, number one, we're going to 0:08:34.840 --> 0:08:37.880 invest in our productive capacity, as I mentioned earlier, to 0:08:38.080 --> 0:08:40.120 give access to a productive capacity if you're playing by 0:08:40.160 --> 0:08:42.920 the same rules. But we will use tariffs if they're 0:08:42.960 --> 0:08:47.040 necessary to rebuild our industrial base, especially in strategic sectors. 0:08:47.120 --> 0:08:50.400 We put tariffs on eighteen billion dollars of Chinese products 0:08:50.400 --> 0:08:53.440 over our term. The previous administration put them on hundreds 0:08:53.480 --> 0:08:56.280 of billions of products in an indiscriminate fashion. 0:08:56.360 --> 0:08:57.679 And now we're. 0:08:57.200 --> 0:09:01.040 Hearing about proposals for an order of magnitude greater increase 0:09:01.080 --> 0:09:01.559 in tariffs. 0:09:01.600 --> 0:09:02.400 That's not where we are. 0:09:02.640 --> 0:09:04.520 And then it wouldn't shock me in four years time, 0:09:04.679 --> 0:09:06.600 the Democrats if they fall out a pack, get back 0:09:06.640 --> 0:09:09.000 into power, and keep them. This is what's confused us. 0:09:09.000 --> 0:09:12.040 All there were complaints after complaints about what Donald Trump 0:09:12.040 --> 0:09:14.640 were doing, and then all of a sudden they were kept. 0:09:14.880 --> 0:09:16.600 And not only that, it was a rebrand. We talked 0:09:16.600 --> 0:09:19.360 about the rebrand on this program. I often hear Democrats 0:09:19.360 --> 0:09:22.520 call it attacks, and then we hear really sophisticated things 0:09:22.520 --> 0:09:24.440 about where the Democrats have done themselves, and they say 0:09:24.440 --> 0:09:27.160 things like, well, no, this is about protecting national security. 0:09:27.520 --> 0:09:30.960 These are national security objectives. It's that distinction without a difference. 0:09:31.280 --> 0:09:34.040 No, it's an important distinction because whether it's tariffs or 0:09:34.080 --> 0:09:37.840 export controls or sanctions, we need to have a limiting principle. 0:09:37.920 --> 0:09:40.680 We need to have a strategic anchor. So for tariffs 0:09:40.760 --> 0:09:44.679 or export controls, for example, if we can identify a 0:09:44.720 --> 0:09:49.880 strategic objective, whether supply chain resilience, technological pre eminence, energy security, 0:09:50.960 --> 0:09:53.440 and if we're competing with a trading partner that's playing 0:09:53.480 --> 0:09:55.920 by a very different set of rules, and if that 0:09:56.040 --> 0:09:59.280 competition threatens to undercut the investments we're making, then there 0:09:59.360 --> 0:10:02.120 is a role to level the playing field, and tariffs. 0:10:01.800 --> 0:10:03.440 And export controls can play that role. 0:10:04.000 --> 0:10:06.079 But we have to be really cool, clear with ourselves 0:10:06.280 --> 0:10:09.679 and the public and our counterparts, including in China. Why 0:10:09.920 --> 0:10:12.000 why we're putting on these terms rather than slap them 0:10:12.000 --> 0:10:12.880 on indiscriminately. 0:10:13.080 --> 0:10:13.840 That's the difference. 0:10:13.920 --> 0:10:15.319 Deleep, I could talk to you all day. 0:10:15.320 --> 0:10:16.120 It's good to catch up. 0:10:16.160 --> 0:10:17.640 It's good to see it. Thank you, sir, Thank you 0:10:17.800 --> 0:10:20.280 very much to Leap seeing that the Deputy National Security 0:10:20.280 --> 0:10:33.440 Advisor for International Economics. We begin this out with stocks higher. 0:10:33.520 --> 0:10:36.160 Tesla kicking off Max seven earnings with better than expected 0:10:36.200 --> 0:10:39.040 results Deutsche Bank's Spinky Charter with this to say on 0:10:39.080 --> 0:10:41.559 earning season. It's still early, but the results so far 0:10:41.600 --> 0:10:44.280 are slightly stronger than expected. Go again, especially for the 0:10:44.320 --> 0:10:48.320 financials where investor positioning is our reading in our reading 0:10:48.520 --> 0:10:51.319 was below neutral. Binkie joins us now for more banky. 0:10:51.040 --> 0:10:51.559 Can monitor you. 0:10:51.720 --> 0:10:53.400 Good morning, John, good to see you. We've got a 0:10:53.400 --> 0:10:55.679 big week next week. All the major tach players, with 0:10:55.720 --> 0:10:58.079 the exception of in Nvidio. How high is the bar 0:10:58.240 --> 0:10:59.160 for those tech firms? 0:10:59.800 --> 0:11:02.680 So, I'd say the bar has been fluctuating. It was 0:11:02.960 --> 0:11:05.640 extremely high at the beginning of the year. It came 0:11:05.720 --> 0:11:08.640 down a little bit as positioning came in. Positioning has 0:11:08.720 --> 0:11:11.960 kind of been going sideways to slightly higher, And just 0:11:12.000 --> 0:11:15.360 to be clear, positioning tends to align with earnings growth. 0:11:15.720 --> 0:11:18.280 And if you think about earnings growth for the megacap 0:11:18.320 --> 0:11:21.079 growth in tech companies, I think it's important to keep 0:11:21.120 --> 0:11:24.240 in mind that basically this very very clear trend channel 0:11:24.280 --> 0:11:27.320 over the last thirty years, and so if they deliver 0:11:27.720 --> 0:11:31.240 as they have been the best possible earnings, they hug 0:11:31.320 --> 0:11:35.520 the top of the channel. That's eleven percent growth. That's 0:11:35.679 --> 0:11:38.600 down from forty percent that be printed in the fourth 0:11:38.679 --> 0:11:41.960 quarter of last year and thirty eight percent in the 0:11:42.040 --> 0:11:43.320 first quarter of this year. 0:11:43.440 --> 0:11:47.200 So the slowing, we would argue, is inevitable. 0:11:47.400 --> 0:11:50.560 It's happening, but it should not be confused with bad earning. 0:11:50.679 --> 0:11:54.480 So you are absolutely right that it's all a question 0:11:54.600 --> 0:11:58.120 about the bar and the expectations. And I would say, 0:11:58.600 --> 0:12:01.000 you know, it's going to fluctuate as you go through 0:12:01.080 --> 0:12:03.520 sort of this period. It's not all meant to happen 0:12:03.559 --> 0:12:05.920 on one fine morning. It is going to take a 0:12:05.920 --> 0:12:07.959 while because there is genuine uncertainty. 0:12:08.120 --> 0:12:10.000 We don't often do single names with you, but there 0:12:10.040 --> 0:12:12.040 is one single name which is basically a market, which 0:12:12.080 --> 0:12:14.600 is in video. Tolson Slock man, you know, well now 0:12:14.640 --> 0:12:16.839 at Apollo right this this morning, that it's now bigger 0:12:16.840 --> 0:12:18.480 than the total market cap of five and the G 0:12:18.600 --> 0:12:21.679 seven countries, the foreigner zone eighteen percent of the US 0:12:21.720 --> 0:12:23.400 stock market. And the bottom line for him is the 0:12:23.440 --> 0:12:27.160 global equity markets, including retirement allocations to equities, are basically 0:12:27.280 --> 0:12:30.560 leverage to invidea What do you think will define earning season? 0:12:30.840 --> 0:12:33.080 Does it come down to that one name, one theme? 0:12:33.480 --> 0:12:36.080 Ai, No, I don't think so. 0:12:37.320 --> 0:12:41.000 You know, the size means, they're definitely important, the size 0:12:41.040 --> 0:12:44.240 and the growth rates. But no, I would say, you know, 0:12:44.360 --> 0:12:47.480 the issue of the year has really been whether we 0:12:47.520 --> 0:12:52.079 would broaden out. And I would say that is happening. 0:12:52.280 --> 0:12:55.680 It's you know, for it to happen, you need the 0:12:55.720 --> 0:13:01.640 fundamental underpinning of earnings growth also rotating, which is what 0:13:01.720 --> 0:13:04.559 would drive you know, moves in positioning. You just spoke 0:13:04.559 --> 0:13:08.040 about positioning in earnings growth. So it's all happening, I think. 0:13:09.040 --> 0:13:14.080 Unfortunately it's happening rather slowly and pretty noisily. And the 0:13:14.160 --> 0:13:18.240 noise mostly comes really from energy and materials, and that's 0:13:18.320 --> 0:13:20.640 really oil and commodity prices. And you have to go 0:13:20.679 --> 0:13:25.920 two years back to Russia, Ukraine. You know, but we 0:13:25.960 --> 0:13:30.199 would argue it is happening. So for this quarter, for example, 0:13:30.480 --> 0:13:33.320 you know, we're looking for sort of a modest deceleration 0:13:33.720 --> 0:13:37.640 from twelve percent to nine percent in round numbers. About 0:13:37.640 --> 0:13:40.600 half that slowing is just the year and year decline 0:13:40.640 --> 0:13:43.240 in oil and commodity prices, So it's not really telling 0:13:43.280 --> 0:13:44.560 you anything about where. 0:13:44.320 --> 0:13:47.000 The economy or earnings are going. The other half's coming 0:13:47.000 --> 0:13:47.360 from what. 0:13:47.320 --> 0:13:51.440 We already spoke about, which is the well understood generally 0:13:51.480 --> 0:13:55.000 at least among the analyst community, both bottom up and 0:13:55.120 --> 0:13:58.080 top down, that you know, their earnings growth is basically 0:13:58.120 --> 0:14:01.240 slowing from megga half growth in tech everybody else kind 0:14:01.240 --> 0:14:02.520 of going sideways. 0:14:02.640 --> 0:14:04.160 But you know, but the same token. 0:14:04.320 --> 0:14:06.720 I mean, if you look at Q four right now, 0:14:07.000 --> 0:14:08.760 you know we're looking for sort of year and young 0:14:08.800 --> 0:14:10.360 growth in the mid teens. 0:14:11.440 --> 0:14:14.400 Those take firms responsible for some massive buyback plans as well. 0:14:14.880 --> 0:14:17.240 You often refer to what you call this robust demand 0:14:17.280 --> 0:14:19.600 bank drop for US secuities. Can you walk us through 0:14:19.920 --> 0:14:21.360 where things are aut with regards to that. 0:14:21.600 --> 0:14:25.640 Yeah, So conceptually, basically, you know, I think one very 0:14:25.680 --> 0:14:29.680 simple way to think about equity from demand supply point 0:14:29.720 --> 0:14:33.760 of view is how existing equity money is positioned, so 0:14:33.880 --> 0:14:38.400 that's our positioning measures. There's new money coming into equities, 0:14:38.440 --> 0:14:42.080 that's equity inflows. And if you want, you could put 0:14:42.160 --> 0:14:44.040 on the supply side, because it's not nice to put 0:14:44.040 --> 0:14:49.920 everything on one side is buybacks and so you know, 0:14:50.120 --> 0:14:52.680 if you think through where we are on each of 0:14:52.720 --> 0:14:56.480 the three in terms of positioning, positioning is actually today 0:14:56.920 --> 0:15:00.240 lower than it was at the July sixteenth peak. How 0:15:00.240 --> 0:15:02.880 can that be when the market is a little bit higher. 0:15:03.280 --> 0:15:08.000 Because we've had very robust inflows into equities, and that's 0:15:08.160 --> 0:15:09.440 been going on for. 0:15:09.320 --> 0:15:10.080 Quite a while. 0:15:10.320 --> 0:15:13.360 It's not just equities that are getting robust inflows. Bonds 0:15:13.720 --> 0:15:18.880 have been getting robust inflows too, So positioning has upside. 0:15:18.640 --> 0:15:21.400 Even do the mid July peak. 0:15:21.920 --> 0:15:25.440 We have very robust inflows, and the biggest driver is 0:15:25.480 --> 0:15:29.920 really the buybacks. And buybacks basically move with earnings, so 0:15:30.000 --> 0:15:33.600 we're looking for eleven percent earnings growth next year that 0:15:33.760 --> 0:15:37.280 by itself are used for eleven percent upside in buybacks. 0:15:37.880 --> 0:15:40.520 And then there is the matter of. 0:15:40.520 --> 0:15:44.320 The buyback payout ratio, which tends to fluctuate between forty 0:15:44.360 --> 0:15:46.440 and sixty percent. We are sitting in the middle and 0:15:47.160 --> 0:15:51.720 at around fifty percent. So if the economic backdrop improves 0:15:51.760 --> 0:15:55.440 and corporate confidence continues to improve, then you're going to see. 0:15:55.240 --> 0:15:57.480 That buyback payout ratio also go up. 0:15:57.560 --> 0:16:02.920 So there's so in short, all three cylinders from a 0:16:02.920 --> 0:16:06.280 demand supply point of view look very, very robust. 0:16:06.440 --> 0:16:09.520 So what could spoil the party? Because you talk about catalysts. Two, 0:16:09.560 --> 0:16:13.520 you mentioned our geopolitical risk and the US election? How 0:16:13.520 --> 0:16:15.840 do you take those into account with this pretty rosy 0:16:15.920 --> 0:16:16.440 picture you have? 0:16:17.200 --> 0:16:21.320 So what I would say is, you know, the election, 0:16:21.480 --> 0:16:24.880 for example, I mean the traditional pattern is for the 0:16:24.880 --> 0:16:28.640 equity market to pull back basically starting about a month earlier, 0:16:29.080 --> 0:16:31.240 and it really sort of you know, the way to 0:16:31.280 --> 0:16:36.080 think about that is the premium for volatility in that 0:16:36.200 --> 0:16:38.120 first week basically. 0:16:37.680 --> 0:16:41.640 After the election. As Jonathan already stole my punch. 0:16:41.440 --> 0:16:45.600 Lune, which is it happens to coincide with all the 0:16:45.680 --> 0:16:48.840 early month macro data that comes out at the same time, 0:16:49.040 --> 0:16:52.480 and it is only a few weeks since the last 0:16:52.600 --> 0:16:55.680 payrolls report, which had a huge impact. 0:16:55.760 --> 0:16:58.280 So I would say today there's. 0:16:59.520 --> 0:17:03.160 A whole whole bunch of catalysts having an impact. And 0:17:03.240 --> 0:17:07.800 if you look basically across asset classes, just look at 0:17:07.800 --> 0:17:09.840 the vix. I mean, so you know, a little bit 0:17:09.840 --> 0:17:13.359 below twenties to many people seems very reasonable. But if 0:17:13.400 --> 0:17:17.040 you compare that basically with what actual volatility is doing, 0:17:17.400 --> 0:17:21.919 you've got almost a ten percentage point premium in the VIX. 0:17:22.000 --> 0:17:26.320 That's just enormous by historical standards. And it's not just equities. 0:17:26.600 --> 0:17:28.399 You can do the same for rates. Look at the 0:17:28.440 --> 0:17:34.240 move relative to realize volatility. Look at currency, the c VEX. 0:17:35.400 --> 0:17:37.800 The same is true in currency. So the market is 0:17:37.920 --> 0:17:40.520 really all volved up, is the way I would put 0:17:40.560 --> 0:17:43.480 it on these multiple catalysts or risks. 0:17:43.480 --> 0:17:45.639 Definitely an angsty market when you have people coming on 0:17:45.680 --> 0:17:47.720 talking about this idea of a Trump trade in equities 0:17:47.760 --> 0:17:49.439 in the bond market, why don't we see in the 0:17:49.480 --> 0:17:50.160 tech companies? 0:17:51.320 --> 0:17:56.800 So you know, I would emphasize more the uncertainty basically 0:17:56.880 --> 0:17:59.920 coming from the election and the market really buying protection 0:18:00.080 --> 0:18:02.600 for potential volatility around the election. 0:18:03.400 --> 0:18:04.199 I think it's a. 0:18:04.200 --> 0:18:08.600 Little bit too early to start to factor in or 0:18:08.920 --> 0:18:11.760 you know, the policies and the implications. There is a 0:18:11.880 --> 0:18:15.320 natural tendency for all of us to focus on that. 0:18:15.760 --> 0:18:18.880 But I mean, just take the last tax cut, I mean, 0:18:19.000 --> 0:18:23.359 the tax reform package we have the twenty sixteen election. 0:18:23.600 --> 0:18:27.879 By December, you know, proposals were being circulated, feedback was 0:18:27.920 --> 0:18:30.800 being sought, and when did the tax reform come to pass? 0:18:30.840 --> 0:18:36.160 It came to pass in late twenty seventeen, when I remember, 0:18:36.720 --> 0:18:38.640 you know, me and my team running a piece called 0:18:38.680 --> 0:18:42.800 we had nothing priced in for tax reform. So there's 0:18:42.840 --> 0:18:45.240 a lot of water that flows out of the bridge 0:18:45.280 --> 0:18:47.800 between now and when actual things happened. 0:18:47.840 --> 0:18:49.920 I mean, you know, well, when it comes to when 0:18:49.920 --> 0:18:51.840 it comes to corporate tax rate, there's a huge spread 0:18:51.840 --> 0:18:54.520 though between both these candids fifteen percent twenty eight percent. 0:18:54.600 --> 0:18:57.520 But to your point, that likely won't get finalized till 0:18:57.520 --> 0:18:59.280 the end of twenty twenty five. So does that get 0:18:59.320 --> 0:19:02.160 pushed out for twenty twenty six story for these companies? 0:19:02.320 --> 0:19:06.199 Yeah, it's it's it's it will depend on if and 0:19:06.320 --> 0:19:09.560 when it passes, And that's sort of a complicated route 0:19:09.560 --> 0:19:12.360 to basically, you know, bet on right now. I mean, 0:19:12.480 --> 0:19:15.439 what I would offer in terms of thinking about corporate 0:19:15.440 --> 0:19:18.720 tax reform and earnings is there is no doubt that 0:19:18.800 --> 0:19:22.400 there is an immediate impact, but over time, you know, 0:19:22.520 --> 0:19:24.199 if you look at the S and P. Five hundred 0:19:24.560 --> 0:19:28.200 from the nineteen thirties. Still today, there is a very 0:19:28.480 --> 0:19:29.600 very very. 0:19:29.480 --> 0:19:32.840 Clear trend line. And now you know on. 0:19:32.680 --> 0:19:35.720 This chart you should overlay the corporate tax rate in 0:19:35.760 --> 0:19:38.600 the US. It's done lots of things, and the trend 0:19:38.640 --> 0:19:41.879 hasn't changed. And I'm not saying that equities are the 0:19:41.880 --> 0:19:46.000 present value of really trend earnings, but if they were, 0:19:46.520 --> 0:19:48.119