Speaker 1: Ye, Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane
Speaker 1: jay Ley. We bring you insight from the best in economics, finance, investment,
Speaker 1: and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud,
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Speaker 1: talk about the strategy forward Bunama Haitian with us with
Speaker 1: Alian's global investors strategy in the US. But everybody, mona,
Speaker 1: everybody yesterday was an EU strategists, weren't we ha That's right,
Speaker 1: Tom uh Yeah, you know, the dragging press conference was
Speaker 1: a little bit on the depressing side. You know, he
Speaker 1: talked about weakness in China, he talked about possible weakness
Speaker 1: in the US, but then really brought it back to
Speaker 1: the Euro Area itself, noting German autos in particular, Italy
Speaker 1: weakening overall. So um, you know, I think in a
Speaker 1: week where we are void of you know, news flow,
Speaker 1: that really kind of took center stage. Why is the
Speaker 1: ECB always the last of the party. You should never
Speaker 1: have to cut your forecasts as aggressively as they had
Speaker 1: to yesterday. And the only reason they had to cut
Speaker 1: their forecast that aggressively is because they've been dragged, kicking
Speaker 1: and screaming into delivering the mere cult that we got yesterday.
Speaker 1: Why are they always the last the party? Mona? Yeah,
Speaker 1: you know, that's an interesting question. And we talk about how,
Speaker 1: you know, the US and Asia really have had a
Speaker 1: key source of growth u driving their economy over the
Speaker 1: last ten years, and that was in part technology and innovation.
Speaker 1: In the US, it was the thanks stocks in the
Speaker 1: in China and Asia the bad stocks. We looked to
Speaker 1: Europe and we don't see that same sort of innovation
Speaker 1: productivity coming out of that region. Of course, they also
Speaker 1: mired in political uncertainty and difficulty around being an explot
Speaker 1: oriented economy, so in some ways they just haven't perhaps
Speaker 1: picked up on one of the key drivers of growth
Speaker 1: probably going forward. I mean, I know, Mona, it was
Speaker 1: a quiet December and then a quiet January and quiet February.
Speaker 1: John and I aged you didn't. But now, what after
Speaker 1: drug do you make a strategy adjustment off the market
Speaker 1: reaction to drugs? Bombshell Y. You know, I think our
Speaker 1: strategy even going into this year, had been a bit
Speaker 1: of a Barbell approach um, and we talked about how
Speaker 1: in one hand of that Barbell, we still prefer the
Speaker 1: US as best in the block from a developed market perspective.
Speaker 1: The other hand of that Barbell was really China and
Speaker 1: selective em which were you know, poised to do well
Speaker 1: with not only potential trade deal but the selective stimulus
Speaker 1: measures they're facing, and valuations that had really catered our
Speaker 1: crater last year or so, you know, some attractiveness there
Speaker 1: In the middle of that Barbell and no man's land
Speaker 1: was Europe still and I think, um, you know, not
Speaker 1: only Brexit, but some of the economic uncert until we
Speaker 1: talked about was what was driving that decision. You know,
Speaker 1: at some point Europe may become interesting from a dividend perspective,
Speaker 1: So I think, you know, with the euro stocks at
Speaker 1: a three percent yield and foots the flues, uh, you know,
Speaker 1: we may get some interest from a value or dividend
Speaker 1: oriented investor, but you know, we're not there yet in
Speaker 1: terms of really kind of pounding the table. I don't
Speaker 1: think you're alone moment, that is for sure. I stugged
Speaker 1: to find a single European equity market ball for the
Speaker 1: last few months. We've had a market rally that I
Speaker 1: think and many others would also agree that has been
Speaker 1: built on the faith in policymakers and their ability to
Speaker 1: stabilize the situation. At some point this year we were
Speaker 1: inevitably going to go through a period where that faith
Speaker 1: would be tested. Was the ECB news conference the beginning
Speaker 1: of that. Just the period that we have to go
Speaker 1: through where the faith in the policymaker's ability to stabilize
Speaker 1: the global economy is tested somewhat. And what is your
Speaker 1: advice to investors listening to this that may experience that
Speaker 1: in the coming weeks. Yeah, you know, we went through
Speaker 1: a dramatic fall in December. We fell Pete trough probably
Speaker 1: around on the SMP, and then we went through dramatic reversal.
Speaker 1: So now we're up about from the December flows. It's
Speaker 1: natural after that kind of one way directional upboard movement
Speaker 1: to get a period of consolidation of profit taking. I
Speaker 1: think it's actually healthy. Um. What we have to wait
Speaker 1: for now is the next set of catalysts to emerge
Speaker 1: to drive us to perhaps either our next leg upward
Speaker 1: or maybe some sideways movement. But what we're watching closely is, uh,
Speaker 1: those two economies that we mentioned earlier, the US and China,
Speaker 1: to really pull US out of this. So we'll get
Speaker 1: the jobs number this morning, which may be somewhat telling.
Speaker 1: If the US is you know, we'll be able to
Speaker 1: decouple further. But what we're really looking for is we
Speaker 1: entered the second half of this year, is whether the
Speaker 1: Chinese stimulus will be able to be effective and US
Speaker 1: earnings growth story is effective as well. Nicely framed in
Speaker 1: mystery here in March mortomaazed, thank you, thank you with Alians.
Speaker 1: What a perfect time to speak to Kathy Jones of
Speaker 1: schwab as we look at fixed income and so much
Speaker 1: of this UH, Cathy is draggy adjust It's got nothing
Speaker 1: to do with America. But in the butt in your world,
Speaker 1: is the terminal value of where the yield is heading?
Speaker 1: Doesn't it migrate a little bit lower? Yeah, Tom, I
Speaker 1: would definitely agree. Um, we had been looking at a
Speaker 1: trading range maybe you know, the in the ten year
Speaker 1: treasury around two and a half to three percent this year,
Speaker 1: but I think UH it could break below two and
Speaker 1: a half based on some of the weakness we've seen
Speaker 1: in global UH economic activity, particularly those horrible numbers out
Speaker 1: of China overnight. So um, yeah, we think that it
Speaker 1: it drifts lower from here, and that the FETE has
Speaker 1: done raising rates to seventy five just seems to be
Speaker 1: the line in the sin Now the upper end of
Speaker 1: a really narrow trading range. Are you saying we're going
Speaker 1: to be back into trading rights, Cathy? But it shifts Ilowa. Yeah. Um.
Speaker 1: We had our call had been that we had peaked
Speaker 1: last year at three and a quarter for the cycle,
Speaker 1: and the probably holding about a two and a half
Speaker 1: to three percent range. But now I'm I'm looking at
Speaker 1: maybe two in a quarter to two and three quarters
Speaker 1: has more likely range. Um, A lot's going to depend,
Speaker 1: of course on whether we bounce back um some of
Speaker 1: this weakness, but it is looking more more on the
Speaker 1: downside than the upside. Kith. We talked to equity types
Speaker 1: like Liziane Saunders about the single digit world, and of
Speaker 1: course we've had many years of bowl market migrating to
Speaker 1: high single digit and some would psychologically frame double digit
Speaker 1: in your world, that's not the case. Tell me that
Speaker 1: savers are going to get used to a nominal return
Speaker 1: of three or four percent? Is that true? Oh? Yeah,
Speaker 1: I think so. Um, it's would be very difficult to
Speaker 1: get a lot above that, given the aging of the population,
Speaker 1: the level of growth at we're expecting. It wouldn't make
Speaker 1: a lot of sense to get to expect much. Okay,
Speaker 1: so is dividend growth my new yield, Well that has
Speaker 1: been for quite some time. But I would say now
Speaker 1: there's real competition. I mean, you can get two and
Speaker 1: a half percent in a very short term risk free
Speaker 1: piece of paper, So that is stiff competition for the
Speaker 1: volatility the equities john to be a good property for you.
Speaker 1: The real dividend growth. Oh thanks, I think it's just
Speaker 1: that's just an extra show. It's a show. It's got
Speaker 1: a tone to it. Six basis points. German tenure, Kathy,
Speaker 1: just phenomenal. It's this security that everybody wants to be
Speaker 1: able to show up but just gets the face ripped
Speaker 1: off every tron they try and do it. Kathy, what
Speaker 1: is going on in Germany? Well, I think what we're seeing,
Speaker 1: as DROGGI pointed out, is just the real impact of
Speaker 1: all this trade conflict that we've had. So we have
Speaker 1: the slowdown in growth. It's coming out of both China
Speaker 1: and now out of Europe as a result of all
Speaker 1: these trade business that's going on. And I think that
Speaker 1: that is the issue for the FED. Now you know,
Speaker 1: we can't be isolationist in the sense that we were
Speaker 1: open enough to global trade to feel its impact as well.
Speaker 1: But I think, yeah, Germany is so dependent on on trade,
Speaker 1: and particularly trade with China, that that's really what's affecting
Speaker 1: UM the boone market. So, Cathy, I was watching your
Speaker 1: dollar yesterday break down, then breakdown again, then keep breaking
Speaker 1: down into the end of yesterday's session, and I was
Speaker 1: asking myself a couple of questions. How much of this
Speaker 1: move as a percentage was about the policy that the
Speaker 1: ECB had introduced, and how much of it as a
Speaker 1: percentage was just a total lack of belief that the
Speaker 1: policy will actually work. What he's driving about right now?
Speaker 1: The former of the letter, Yeah, I would say it's
Speaker 1: probably the latter, because although um drawing, you introduced some
Speaker 1: easier policy that should you know, is designed to help
Speaker 1: the banking system, designed to help me A to me,
Speaker 1: I don't think there's a lot of faith that there's
Speaker 1: enough firepower there to really do it. I look, I
Speaker 1: think it where we are after draggy and it's clearly
Speaker 1: a reaffirmation of lower rates as well. Give me a
Speaker 1: schwab prediction on inflation and that what that does to
Speaker 1: my lovely total return. Well, we're actually saying a little
Speaker 1: bit of an optick in inflation this year, but we
Speaker 1: think some of that is driven by energy that not
Speaker 1: only flows through the top line, but we'll flow through
Speaker 1: a little bit to the underlying core rate. But we're
Speaker 1: still saying it pretty tame. I mean, I don't think
Speaker 1: that we're looking for anything above two percent in core inflation.
Speaker 1: What do you recommend for somebody desperate for you, gentlemen
Speaker 1: the yesterday on loans and he's you know, he's spouting
Speaker 1: seven and eight percent coupons, I mean above high yield.
Speaker 1: I mean, what do you recommend for someone who says, Cathy,
Speaker 1: this is all great, but I can't get it done
Speaker 1: at four percent? Yeah, the the only way you can
Speaker 1: get above four percent is to take a certain amount
Speaker 1: of risk, And so we just try to be realistic
Speaker 1: with people and say, sure, you can get seven percent,
Speaker 1: but you're going to have to be in very low
Speaker 1: credit quality towards the end of the business cycle. You know,
Speaker 1: you probably don't want to have your whole portfolio in
Speaker 1: high yield our loans at this stage of the mind.
Speaker 1: And we don't we don't talk enough about this, John,
Speaker 1: right now, are are you comfortable, Cathy saying that we've
Speaker 1: seen the tights in high yield after the rally over
Speaker 1: the last couple of months at about four basis points over?
Speaker 1: Is that it? Yeah? I still think so. I mean,
Speaker 1: I've been really surprised by the magnitude of the rally
Speaker 1: since you know, Christmas Eve, uh in high yield and
Speaker 1: and generally speaking in all the spreads, But I'm pretty
Speaker 1: comfortable that we've probably seen the tights. You see, Okay,
Speaker 1: Cathy's if you say tights, It's okay. Farrell gets like
Speaker 1: this on Fridays because he's preparing for the real yield.
Speaker 1: John wise, guy, I'm not gonna was Jones to explain this,
Speaker 1: Would you explain what the leotard is? So typically in
Speaker 1: any given market, Europe, the United States, and let's talk
Speaker 1: about the United States for that matter, you'll have a benchmark,
Speaker 1: so you'll be four hundred basis points over the benchmark
Speaker 1: of a similar maturity. So basically, when you say that
Speaker 1: we're really tight, you're looking at high yield over treasuries
Speaker 1: at about four hundred basis points um. For the other
Speaker 1: all different four hundred basis points. Can you go to
Speaker 1: percentage points for percentage points, which which is pretty tight, Tom,
Speaker 1: given to how wide things have got through December. Big
Speaker 1: V shaped recovery, Cathy in High Yield, Big V shaped
Speaker 1: recovery inequities. Do you see this being a story that
Speaker 1: goes beyond credit, that we've had the V shaped recovery
Speaker 1: and that we've exhausted the federal reserve fueled rally of
Speaker 1: the last couple of months. Well, I think at leads
Speaker 1: for the time being. UM. I think total return year
Speaker 1: to date and high yield is something like seven seven
Speaker 1: and a a half percent. I mean, it's a whole year
Speaker 1: worth of performance right there. So I think we have
Speaker 1: to back and fill to some extent. I certainly don't
Speaker 1: see the impetus from moving a lot further from here
Speaker 1: unless you really really think that the you know, a
Speaker 1: that the economy is going to turn around and go
Speaker 1: sharply higher, but the Fed's going to sit back and
Speaker 1: allow it to do that. Very good Cathy Jones, thank
Speaker 1: you so much for an important update for US investors
Speaker 1: on all the drama we saw yesterday in your Let
Speaker 1: us begin and let's really focus here on the fabric
Speaker 1: of the American labor economy. We can do that with
Speaker 1: Juliet Cornado. And the reason that Dr Cornados with this
Speaker 1: John is she was loving the nickelback and the choice
Speaker 1: of picking out the one with zz tops Billy Gibbons
Speaker 1: in it. As Juliet, Dr Cornado, are you a large
Speaker 1: nickelback fan? I am not a nickelback fan. I'm sorry
Speaker 1: to disappoint you, Tom, I'm I'm I am astonished that
Speaker 1: it is being debated on the floor of it was.
Speaker 1: I think I'm well astonished it made an appearance on
Speaker 1: this program. Julia equally astonishing. Julia is too young for this.
Speaker 1: But we played Kansas and Sticks earlier in the weeks.
Speaker 1: We finished Strong Memories of that the bar Is Show.
Speaker 1: This week, I'm sure you do. Let us go out
Speaker 1: to the broad midwest of Kansas. Carry on my wayward son.
Speaker 1: Forget about the East coast, the west coast, Julia, what's
Speaker 1: the employment fabric of the great middle west of this nation.
Speaker 1: The employment fabric is the service sector. And we're going
Speaker 1: to be relying on that turvice sector as we moved
Speaker 1: through the year, because I think we're going to see
Speaker 1: a fading in the manufacturing and energy sector hiring that
Speaker 1: has been a powerhouse in the last couple of years.
Speaker 1: That's got to fade. With the global slowdown. We're we're
Speaker 1: starting to see the cracks there, and that's where we
Speaker 1: should feel the pain. The service sector is what's likely
Speaker 1: to carry us through. It was resilient in the last
Speaker 1: global slowdown during twenty sixteen, and it's largely domestically oriented.
Speaker 1: As long as consumers keep the phase, that can be
Speaker 1: a virtuous cycle with consumers spending supporting the service sector
Speaker 1: and the service sector continuing to add jobs. John This
Speaker 1: is so important. If we're in a virtuous cycle, that's
Speaker 1: how you get to where the optimus are. This is
Speaker 1: a big, big issue right now, not just for the
Speaker 1: United States, but for Europe. To even in Europe, the
Speaker 1: service sector is pretty resilient. Got these two economies. Global
Speaker 1: manufacturing Abadankie is largely in a recession at the moment.
Speaker 1: It is not looking good at all, especially in China
Speaker 1: and Europe and hitting the United States. It is two
Speaker 1: economies as well, Julius. So essentially you're saying that the
Speaker 1: service sector can pull up the arrest of the economy
Speaker 1: and won't be brought down by what is happening with
Speaker 1: manufacturing worldwide. Well, I think we will be brought down.
Speaker 1: We will see growth moderate. I think there's no doubt
Speaker 1: about the fact that is likely to be much lower
Speaker 1: than But the service sector dynamics can be resilient to
Speaker 1: that slowdown. Uh. And we've seen that before and and
Speaker 1: that will be you know that that's that's going to
Speaker 1: be our saving grades. It's not going to necessarily accelerate
Speaker 1: to offset the slowing manufacturing, but it will be a
Speaker 1: buffer to that slowdown. Julia, on the global basis and
Speaker 1: the cliche the Chairman Powell is a central banker to
Speaker 1: the world. Maybe Chairman Draggy is central banker to the world.
Speaker 1: I M. Currencies have had a real tough go of
Speaker 1: it the last ten twelve training sessions with even Argentinean
Speaker 1: pays so knocking out to new weakness yesterday. I mean
Speaker 1: the drag effect or the Powell effect. They're global, aren't they? Oh? Absolutely,
Speaker 1: Central banking is a global game now and uh. I
Speaker 1: think the FED certainly is has gotten on board with
Speaker 1: that in the last few years. They're talking and keeping
Speaker 1: their eye very closely on global development. But yes, primarily
Speaker 1: the E c D and the FED really set the
Speaker 1: tone for global market. What is your observation on the
Speaker 1: jobs report? What will you look for? Well, we've seen
Speaker 1: kind of a disconnect between a lot of the high
Speaker 1: frequency job market indicators and other indicators of demands in
Speaker 1: the economy and payrolls. Payrolls have been accelerating in the
Speaker 1: last few months and everything else has been moderating. So
Speaker 1: I expect a number I'm a little bit below consensus.
Speaker 1: I'm looking for one fifty k. It looks like we're
Speaker 1: due for some correction down again. One, you know, a
Speaker 1: healthy number, it's nothing to worry about, but we should
Speaker 1: see some either a combination of downward revisions and slower
Speaker 1: higher and John, this shows a variance. It's out there
Speaker 1: because we've got many others two fifty or two as well.
Speaker 1: There's a there's a real variance, folks going into this
Speaker 1: number in eighteen minutes. I've gotta get you thought some
Speaker 1: white scot to j D of a Whatmently, I think
Speaker 1: the consensus for you now is even with white growth
Speaker 1: getting towards decade highs of three something per cent, that
Speaker 1: that's not going to bleed into headline price pressures. That
Speaker 1: we won't see a big pick up inflation off the
Speaker 1: back of that. Do you agree with that? Julia, Yeah,
Speaker 1: I'm I'm I'm in that camp. We just really haven't
Speaker 1: seen much passed through. It's not to say we're not
Speaker 1: seeing cyclical pressures in inflation. We are seeing, for example,
Speaker 1: goods prices pick up, goods inflation pick up, but there's
Speaker 1: a lot of other structural factors from from housing, from technology, UH,
Speaker 1: from healthcare that are offsetting that in weighing inflation down.
Speaker 1: So it's going to be really hard to see a
Speaker 1: notable acceleration. How do you and Julia Cornado with his
Speaker 1: folks macro policy perspectives as we moved to jobs today,
Speaker 1: Jim Glassman with us in a bit, and then every
Speaker 1: Joseph Cohen as well. Dr Coronado, how do you study
Speaker 1: retail America? Do you like partition bricks and mortar and
Speaker 1: Amazon ors or a different Coronado method. There's been such
Speaker 1: a disruption and retail in the last couple of years,
Speaker 1: an accelerated disruption, and that actually I think it adds
Speaker 1: to the noise in the data. For example, what we
Speaker 1: saw on retail sales UH in December was overstated because
Speaker 1: we just can't do the things like we like to do,
Speaker 1: like seasonally adjusted data, because all the patterns have been disrupted.
Speaker 1: So taking the temperature of the retail sector is a
Speaker 1: lot harder than it used to be. And you need
Speaker 1: to be more patients, and you need to sort of
Speaker 1: smooth through some of the noise and the data because
Speaker 1: it's just all over the map now. And that's true
Speaker 1: both for measures of inflation and measures of sales. Julia,
Speaker 1: if we get another take higher in the participation, right,
Speaker 1: do we have some people on the FOMC that start
Speaker 1: looking back at the policies over the last couple of
Speaker 1: years and say, you know what, maybe we got this wrong.
Speaker 1: You know, it's second guessing is hard to do. Uh.
Speaker 1: You know. I think say they were making the decisions
Speaker 1: coming off the zero lower bound. Uh, you know, with
Speaker 1: a healthy labor market and a falling unemployment rate, it
Speaker 1: didn't make sense to stay at zero. Uh. You know.
Speaker 1: And I think right now the debate is more around Okay,
Speaker 1: now that we are closer to something that looks like
Speaker 1: a neutral interest rate, now we can let this run
Speaker 1: a little bit and see how far we can go
Speaker 1: with it. But I think, you know, second guessing getting
Speaker 1: off the zero lower bound when the economy was doing well.
Speaker 1: You know, I don't think many people are going to
Speaker 1: regret that decision, per se. Julia Karnata, thank you so much.
Speaker 1: Macro policy perspectives of the look at the job economy,
Speaker 1: and we'll continue with discussion this discussion. This is a
Speaker 1: joy and extensive conversation this morning with Abbey Joseph Cohen.
Speaker 1: She's been a wonderful friend of Bloomberg on the economy
Speaker 1: and Bloomberg surveillance, and she joins US futures at negative
Speaker 1: eighteen down futures negative one seventy three. Abby, wonderful to
Speaker 1: have you with us this morning. Is Jim Blastman was
Speaker 1: alluding to within the synthesis of your work as a
Speaker 1: senior investment strategists and advisory director at Goldman Sachs, can
Speaker 1: you say that America stands alone, separate from draggy and
Speaker 1: separate from the challenges of e M and China. Clearly, Tom,
Speaker 1: the United States has many advantages, and one of the
Speaker 1: things I am concerned about is that these disparities that
Speaker 1: we have benefited from in the US are beginning to
Speaker 1: ease up a little bit. So for example, he talked
Speaker 1: about the importance of immigration to the United States. Let's
Speaker 1: keep in mind that while we always focus on the
Speaker 1: quarterly GDP numbers, I think long term economists look at
Speaker 1: potential growth rate of GDP and that has come down
Speaker 1: in the United States. There are two key reasons. One
Speaker 1: is that productivity of our workers has come down. Maybe
Speaker 1: we've not been infesting enough in terms of capex. But
Speaker 1: the other thing that's happened is that labor force growth
Speaker 1: is now slowing UM. And one key component of that
Speaker 1: growth and labor force had been immigration. If we look
Speaker 1: at at some early indicators, they're not looking good. So,
Speaker 1: for example, if we look at approved student visas, this
Speaker 1: is for foreign students coming to the United States, either
Speaker 1: for university studies or graduate level, that has declined double
Speaker 1: digit UM. And in addition, there has been a sharp
Speaker 1: decline in the number of those special visas that we
Speaker 1: grant workers who have special skills and categories. And this
Speaker 1: is something I hope it's not the canary in the
Speaker 1: coal mine, but we need to watch it carefully. I
Speaker 1: want to I want I want to say broader here
Speaker 1: and and then go more micro later, but on a
Speaker 1: broader theme, from what we heard from Mr Draggy yesterday
Speaker 1: and his illusion late in the press conference to protectionism,
Speaker 1: are you working at this point at Goldman Sachs around
Speaker 1: wrapped around a mercantilistic America, and we see the effect
Speaker 1: on the labor economy, we see the effect from Mr
Speaker 1: Dragging indeed a mercantilistic America. We see the effect for
Speaker 1: an ascendant Asia. You've raised so many different interesting points
Speaker 1: in that question. Let me try to respond briefly. I
Speaker 1: can First of all, the United States, in many ways
Speaker 1: does stand alone UM. We have the most productive workers
Speaker 1: on the planet. My concern is that productivity impetus is slowing.
Speaker 1: Number one, number two UM. From a standpoint of our
Speaker 1: exposure to foreign trade, the United States is not as
Speaker 1: exposed many of these other countries Germany, Japan, and so on.
Speaker 1: More than of their GDP is related to foreign trade.
Speaker 1: For the United States it's roughly fifteen percent. So those
Speaker 1: are different factors as well. But nevertheless, over the last decade,
Speaker 1: the single fastest growing sector of the United States has
Speaker 1: been exports, and if our main customers outside the United States,
Speaker 1: which are developed economies, but also economies who have been
Speaker 1: buying our agricultural goods as China has been doing. If
Speaker 1: those economies are slowing or in the case of China
Speaker 1: consciously not buying soybeans from the United States, that's not
Speaker 1: good for our g d P, or for our farmers
Speaker 1: or for our other workers. You're Jeffrey Curry does brilliant
Speaker 1: work on commodities. I know he's been long gold, but
Speaker 1: he's always looking at the more the greater complexities of
Speaker 1: commodities as well. Abby. If China walks away in some
Speaker 1: form from these trade negotiations, what will be the ramification
Speaker 1: on the stock market and what will be the ramification
Speaker 1: on commodity China. Well, the simple answer, Tom is something
Speaker 1: we've already seen in the equity markets. We have seen
Speaker 1: daily volatility related to whether the headline news is good
Speaker 1: or bad with regard to those trade talks. But let's
Speaker 1: talk more basics, and that is the issue properly has
Speaker 1: never really been the size of the trade deficit. In fact,
Speaker 1: we've seen the trade deficit balloon in part because of
Speaker 1: worry about what's going on with regard to tariffs. More
Speaker 1: on that later. If you wish, the real issue with
Speaker 1: regard to our conversations with China really should be where
Speaker 1: Mr Leightheiser is focusing, and that is protection of intellectual property,
Speaker 1: no more forced technology transfers and so on. And it's
Speaker 1: not quite clear to anyone not directly involved in those
Speaker 1: negotiations how that is going. One of the things we'd
Speaker 1: obviously like to see is the Chinese to say, Okay,
Speaker 1: we're gonna come back and we're gonna buy us soybeans,
Speaker 1: We're going to buy us pork production and so on.
Speaker 1: That would be an obvious public signal to me. It
Speaker 1: is the less public signals having to do with this
Speaker 1: transfer of our research and development to China, that to me,
Speaker 1: is the real crux of these trade talks. If you're
Speaker 1: just joining us, Abby Joseph Cohen with us with Golden SAG,
Speaker 1: their advisory director and senior investment strategist. This on a
Speaker 1: job's day, with a stunning number off the corrected three
Speaker 1: hundred thousand plus number of a month ago, coming in
Speaker 1: very light twenty thousand, but as our John Farrell mentioned,
Speaker 1: the bondom market really not moving all that much. A
Speaker 1: ten year yield now in two basis points two separate
Speaker 1: from a discussion with the Abbey Joseph Cohen, there's right
Speaker 1: now something really remarkable in terms of American technology and innovation,
Speaker 1: and that is we're seeing the Dragon, the crew Dragon
Speaker 1: coming back from space where we're actually going to see
Speaker 1: a landing in the Atlantic Ocean. This is some two
Speaker 1: hundred miles off the Florida coast involved as a SpaceX
Speaker 1: recovery ship, and it really hearkens back to another time. Abby.
Speaker 1: That's a good jump off to your life work studying
Speaker 1: technology and innovation in America. Elon Musk, who SpaceX is
Speaker 1: trying to get that done, but give us the Golden
Speaker 1: SAX report card and how America is doing on technology.
Speaker 1: We're doing well, Tom, but we could be doing better. Um.
Speaker 1: We have been the global leader for decades. And one
Speaker 1: of the things that is very interesting to watch is
Speaker 1: that many other countries China included, but there are many
Speaker 1: others who have made a more conscious effort on the
Speaker 1: part of government policy to do the following things. Number one,
Speaker 1: make sure that enough students are educated in STEM. Number
Speaker 1: two to provide funding for the basic research and the
Speaker 1: development which needs to follow. I'll also point out that
Speaker 1: while we all applaud the great success of SpaceX, so
Speaker 1: much of this is based upon NASA developed technology. They're
Speaker 1: using NASA telemetry, NASA communications, NASA launch pads and so on.
Speaker 1: And I think this is great. I think this kind
Speaker 1: of combination of public and private sector in a way
Speaker 1: is the way we've almost always done the space program. Um.
Speaker 1: And and by the way, for people who say, why
Speaker 1: are we spending money on this, well, we're spending money
Speaker 1: in the United States to get this done. In terms
Speaker 1: of what we're actually accomplishing in space. It's extraordinary to see, uh,
Speaker 1: something that harkens back the decades ago. And I really,
Speaker 1: just as an aside, folks, I can't say enough about
Speaker 1: seeing Ryan Gosling in the First Man of Neil Armstrong
Speaker 1: and the challenges SpaceX now coming in with the classic
Speaker 1: the parachutes coming down with the capsule, and we'll see
Speaker 1: on that here in a bit. Abby, let us bring
Speaker 1: it over to the stock market. Everybody wants to know
Speaker 1: the call, um, did you go a triple leverage David
Speaker 1: costan Long on December? Um, Well, I have to say
Speaker 1: we all now know with hindsight that Christmas Eve was
Speaker 1: a gift. Was a gift. It was a gift. Um.
Speaker 1: But it also tells us not to worry terribly much
Speaker 1: about noise. And I'd say the same thing about the
Speaker 1: employment data for example. So what what the markets took
Speaker 1: away in December they gave back in January. It's a
Speaker 1: do over, um. And when we take a look at
Speaker 1: what's going on, we're looking at a US economy that
Speaker 1: we don't think we'll see a recession. But there has
Speaker 1: been a moderation in g d p our potential growth
Speaker 1: rate is down now below two percent. Uh. There will
Speaker 1: be a moderation in profit growth. Obviously, the sugar high
Speaker 1: of those tax cuts UM is now gone, and we're
Speaker 1: going to be seeing mid single digit profit gains. And
Speaker 1: what this basically says to me is that within the
Speaker 1: fixed income markets, you better be very careful. UM. I
Speaker 1: don't think you're going to see another move lower in
Speaker 1: interest rates. UM. I think the opportunities are as many
Speaker 1: people have already said on your show and elsewhere. Uh,
Speaker 1: the opportunities that do exist are in risk markets. But
Speaker 1: the valuation, since they are okay, not wonderful, is the trap.
Speaker 1: And I go back to your wonderful work with the
Speaker 1: cf A Institute. Is the trap. And have you talked
Speaker 1: about a name from your in my past, the wonderful
Speaker 1: Tom Galvin when he was at Donaldson Lovekan Generette sales
Speaker 1: become ever more precious, a precious If we're in a
Speaker 1: single digit bond, single digit ectuery world, people growing revenue
Speaker 1: at double digit levels, that's of an extraordinary value, isn't it.
Speaker 1: It certainly is, Tom, And what we are advising our
Speaker 1: clients really falls into that category. Number One, we're looking
Speaker 1: at companies that are generating good top line growth number one.
Speaker 1: Number two, we're encouraging owners of assets to think not
Speaker 1: so much about passive approaches index oriented approaches, but really
Speaker 1: active management UM. As I mentioned a few moments ago,
Speaker 1: the valuation is k not great overall in a lot
Speaker 1: of the risk markets, but there has been so much
Speaker 1: focus on these passive index oriented approaches. The opportunities are
Speaker 1: probably away from there, not just in equities, but also
Speaker 1: in sixth income, and I would argue as well in commodities. Uh.
Speaker 1: You know, we are blessed to have Jeff Curry and
Speaker 1: his excellent work UM in terms of telling us which
Speaker 1: way commodity markets are likely to go, But there are
Speaker 1: also individual opportunities to do well or by the way,
Speaker 1: to do really poorly. Uh, but we we think two
Speaker 1: thousand nineteen in all markets is a year for active management. Okay,
Speaker 1: I'll go with that, Abbey, But our listeners go, that's
Speaker 1: all great, But only the fancy people like Abby, Joseph
Speaker 1: Cohen and Golden Sas have access to those unique active opportunities.
Speaker 1: Can the public take advantage of active management here? Or
Speaker 1: they squeezed out by the private elite markets. I believe
Speaker 1: that many individual investors Tom, in response to your extraordinarily
Speaker 1: important question, ought to be looking at some of the
Speaker 1: mutual fund complexes, uh, the ones that have had a
Speaker 1: long history of providing funds that are not index oriented. Um.
Speaker 1: I think I shouldn't be listing what those companies are.
Speaker 1: People know what they are. My concern is that over
Speaker 1: the last eight to ten years, so much of the
Speaker 1: new inflow into the equity market by individual investors has
Speaker 1: gone into index oriented products. And I think that's something
Speaker 1: that always feels good because you have lots of company
Speaker 1: that's the problem you at this point. I want to
Speaker 1: be invested in places where somebody is selecting companies, where
Speaker 1: there's not quite so much competition to be buying those securities.
Speaker 1: If you're just joining us, Abby Joseph Cohen was an
Speaker 1: exceptionally generous half hour. Today she is advisory director, Senior
Speaker 1: investment strategist at Olban Sacks. I like what Ian Lincoln
Speaker 1: wrote out at BMO Capital Markets his title of his
Speaker 1: jobs report that is not a typo, and that of
Speaker 1: course of payrolls increasing twenty thousand to zero Comma zero
Speaker 1: zero zero. We did get some bond market move but
Speaker 1: a little bit ten ure yield down to two point
Speaker 1: six zero back to two point six to Futures have
Speaker 1: deteriorated negative fourteen ish now negative twenty on the SMP future.
Speaker 1: So there was a I want to say, a reaction
Speaker 1: uh to this job report, but I would call it
Speaker 1: more measured than maybe what that stunning statistic would UH
Speaker 1: suggest as well. Separately, a real moment for space and
Speaker 1: I can tell you on the radio it's tough to
Speaker 1: convey the beauty of the images of the SpaceX dragon
Speaker 1: that just uh fell down from space with four gorgeous parachutes,
Speaker 1: and Abby, what was amazing about it was it was
Speaker 1: totally different than anything you and I remember from Mercury Gemini,
Speaker 1: A Mercury Gemini and Apollo. It's all new you really
Speaker 1: see that it's all new technology that they're dealing with.
Speaker 1: ABBY in the time that we have left, I want
Speaker 1: to synthesize in here what retirees should do, and then
Speaker 1: I want to move on to education in America. Retirees
Speaker 1: have been trapped. I thought Bill Gross's uh phrases for
Speaker 1: it over the last ten years really captured the repression
Speaker 1: that retirees are in. What do you recommend They're not
Speaker 1: at Goldman Sachs, they're not doing fancy stuff at Goldman.
Speaker 1: What does savers and retirees need to do to prepare
Speaker 1: for the next ten years? Tom By using the word prepare,
Speaker 1: I think that is really the key. One of the
Speaker 1: things that disturbs me a great deal about individual investors
Speaker 1: today is that they're not prepared. Um. We see that
Speaker 1: young and middle aged workers are saving way below with
Speaker 1: need to be. And so while you and I and
Speaker 1: others on your program can talk about specific securities and products,
Speaker 1: the number one concern is how much money is actually
Speaker 1: being set aside for retirement, and it is extremely low.
Speaker 1: It's also extremely low even at companies that are providing
Speaker 1: some sort of payroll match. UM. I don't quite understand it.
Speaker 1: I think this represents some financial illiteracy on the part
Speaker 1: of our nation and and this to me is is
Speaker 1: very problematic. But let me ask answer the specific question
Speaker 1: you asked, which is what about the next ten years UM.
Speaker 1: I believe over the next ten years UM investors are
Speaker 1: well served to be in UM. Let's call them equity
Speaker 1: or equity like assets rather than fixed income. I believe
Speaker 1: that the thirtysom year bullmarket in bonds is over, not
Speaker 1: expecting interest rates to gallop higher, but nor am I
Speaker 1: expecting great returns. So I think that there are some
Speaker 1: UM place is within the fixed income market for some
Speaker 1: individuals to go. They're also a dividend generating equities to
Speaker 1: look at, but not to focus on high yield dividend
Speaker 1: generators because the high yields often indicate that there's an
Speaker 1: underlying fundamental problem, but rather companies that offer dividend growth.
Speaker 1: And let me hasten to add that this should not
Speaker 1: be viewed as specific advice gesticular individual. I'm just providing
Speaker 1: a sort of overview. Abby, You're the only one I
Speaker 1: know that can think with a clear thought on the
Speaker 1: tobacco of own stocks. We can turn to Craft, where
Speaker 1: I grew up with Velvita cheese, and I'm sure it
Speaker 1: was never ever in your household as a child. But
Speaker 1: when you see the right down of goodwill in a
Speaker 1: true ancient blue chip like craft, conservative retirees say, that's
Speaker 1: why I don't want to own stocks the corporations. Is
Speaker 1: there a transparency now or is it all just financial engineering?
Speaker 1: Wonderful question, and the answer is it depends, um and.
Speaker 1: And one of the things we always need to remind
Speaker 1: ourselves of is that good management is essential. Um and.
Speaker 1: Managers that have assets that are valuable but don't use
Speaker 1: them appropriately are not helping anybody. Um So we need
Speaker 1: to focus again on what are the metrics by which
Speaker 1: we measure whether a management is doing a good job,
Speaker 1: the one that we've often looked at, or things like
Speaker 1: return on equity. My concern has been that equity itself
Speaker 1: is shrinking, which means that returns on equity look like
Speaker 1: they're getting better. Number one. Number two. The point that
Speaker 1: you raised is an essential one and it's not new.
Speaker 1: If we go back and we look at the the
Speaker 1: treatise from the Dow Jones Industrial average from the a
Speaker 1: T nineties, what we basically see is that there were
Speaker 1: many so called blue chip companies that did not survive.
Speaker 1: And I think investors need to recognize that every economy
Speaker 1: shifts um and we just don't know for sure what's
Speaker 1: going to happen. Uh. The analogy that I love to
Speaker 1: point to is UH in the late nineteenth century when
Speaker 1: of Americans worked on farms and there was enormous concern
Speaker 1: about what we're going to happen with this gosh darn
Speaker 1: newfangled equipment that was going to come into the farms
Speaker 1: and people were going to use their jobs. Well, they
Speaker 1: did lose their jobs, but we do see it was
Speaker 1: also the beginning of this normo century of of American prosperity.
Speaker 1: So well, my answer simply is as a nation, we
Speaker 1: need to be prepared. We need to make sure that
Speaker 1: our children in particular have the skills to be flexible
Speaker 1: UM and have the skills to think and and that
Speaker 1: I think will protect them. Rather than saying here is
Speaker 1: the specific profession or specific job for what you need
Speaker 1: to prepare, it would be inappropriate, Abbey Joseph Cohen for
Speaker 1: you to comment on other banks or even individual banks,
Speaker 1: but I must have you comment off of draggy and
Speaker 1: the challenges of Europe Europe on their Japanification and particularly
Speaker 1: the inability to clear their financial system, to clear is
Speaker 1: a broad sense, their banking system. What is the catalyst
Speaker 1: that Europe needs. Is it a political catalyst, Is it
Speaker 1: simply a courage and will or is there another path
Speaker 1: that you see for Europe to get its act back together?
Speaker 1: And we must recognize that the United States after the
Speaker 1: financial crisis benefited enormously from the tough love that we
Speaker 1: got from our regulators, the FED, through the stress tests,
Speaker 1: the other regulators basically say when don't hide here. In fact,
Speaker 1: for the first few years, the major failures on the
Speaker 1: stress tests were the American subsidiaries of European banks. So
Speaker 1: we turn now to your question and basically to say,
Speaker 1: it's taken them a long time to get religion and
Speaker 1: they still don't have it. Uh. In some cases with
Speaker 1: regard to this, and I think part of it is
Speaker 1: that the potential growth rate itself in Europe is lower
Speaker 1: than it is in the United States. We were able
Speaker 1: to ultimately move forward here because we have a strong economy,
Speaker 1: vibrant labor force and so on. Uh. Europe has, as
Speaker 1: you've pointed out before, a labor force that in some
Speaker 1: countries is not growing. And it is also um a
Speaker 1: Europe where there is disparity in results um good returns
Speaker 1: uh for workers in terms of wages and companies in Germany. Um.
Speaker 1: But let's take it to the next step. Some of
Speaker 1: the German companies, some of the German banks are still
Speaker 1: facing some difficulty. So UM, I'm going to kick the
Speaker 1: question you you said, does it take a political solution?
Speaker 1: The answer, in my view is yet Abby one uh
Speaker 1: more moment if we could with you in your generous
Speaker 1: time today it is International Women's Day. It's a heritage
Speaker 1: folks that at least goes back to nineteen o nine
Speaker 1: in what the Socialist Party of America did with Women's Day,
Speaker 1: uh in another time and place. And what I find
Speaker 1: so interesting, Abbey, is the idea of women and rigor.
Speaker 1: You had the courage years ago to take what so
Speaker 1: many would suggest as a different path. I lump in
Speaker 1: with your excellent Sally craw Check at Bernstein years ago
Speaker 1: on Wall Street. Give us a window into the first
Speaker 1: day you walked in the door. How difficult was it
Speaker 1: to be a woman? At Goldman Sachs. The question I
Speaker 1: think should be, how difficult has it been to be
Speaker 1: a woman in financial services. And I would back it
Speaker 1: up a little bit and say, for example, that women
Speaker 1: remain dramatically underrepresented on university At universities in economics, UM,
Speaker 1: they basically are, you know, less than a quarter of
Speaker 1: the number of students. How fix that women faculty are
Speaker 1: less than ten percent, And I think that's the issue. Uh,
Speaker 1: there is a real bias that has been proven in
Speaker 1: terms of both economics and finance at the graduate level,
Speaker 1: which means that we are not producing enough women pH
Speaker 1: d s and professors in these categories. So there aren't
Speaker 1: those sort of role models number one, but number two,
Speaker 1: there have been blatant um instances of gender harassment UM
Speaker 1: in in economics. Interestingly UM in terms of our industry.
Speaker 1: The thing that I love to point to our various
Speaker 1: studies that have been done that show, for example, morning
Speaker 1: Star has some results that show equity mutual funds managed
Speaker 1: by women outperform um fixed come mutual funds managed by
Speaker 1: women outperform. And I think it's because women have proven
Speaker 1: that on a risk adjusted basis, they are better long
Speaker 1: term investors. They're less likely to be caught up in
Speaker 1: the statistical noise of day to day action. Or week
Speaker 1: to week action in the markets. Um, women tend to
Speaker 1: be more diligent when it comes to the numbers. And
Speaker 1: I know what I just said may sound um, maybe
Speaker 1: somewhat offensive to some of your listeners. I don't mean
Speaker 1: it to be, um, but but those are with it.
Speaker 1: I got thirty seconds left. Isn't it fun watching the
Speaker 1: Washington Capitals? It's a delight watch watching the Capital. Can
Speaker 1: they do it again? I mean folks to review this. Ms.
Speaker 1: Cohen as a direct personal relationship with Mr Kin and
Speaker 1: it was magical. Last year's Abbe Joseph Cohen partied with
Speaker 1: Mr Ovechkin into May and June and July. Can they
Speaker 1: do it again? Abbey? They have a great team. Um,
Speaker 1: there's some other good teams elsewhere, but you know, I'm
Speaker 1: I'm already invested in Washington Capital's paraphernalia. Um, so I'll
Speaker 1: go with it, Okay, Abbe Joseph Cohen, thank you so
Speaker 1: much New Jersey Devil's Abbe Joseph Cohen's Washington Capitals. Tonight,
Speaker 1: we thank Abbe Joseph Cohen of Goldman, Sex. Thanks for
Speaker 1: listening to the Bloomberg Surveillance Podcast. Subscribe and listen to
Speaker 1: interviews on Apple Podcasts, SoundCloud, or whichever podcast platform you prefer.
Speaker 1: I'm on Twitter at Tom Keane before the podcast. You
Speaker 1: can always catch us worldwide. I'm Bloomberg Radio