Speaker 1: Welcome to the Bloomberg p m L Podcast. I'm pim Fox.
Speaker 1: Along with my co host Lisa Bramowitz. Each day we
Speaker 1: bring you the most important, noteworthy, and useful interviews for
Speaker 1: you and your money, whether you're at the grocery store
Speaker 1: or the trading floor. Find the Bloomberg p m L
Speaker 1: Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot com. Now, however,
Speaker 1: I'd like to go to Canal Kapoor, who is chief
Speaker 1: executive officer of morning Star, which oversees more than two
Speaker 1: billion dollars of assets and is well known for the
Speaker 1: analytics that it provides surrounding asset managers and two investors. Kunal,
Speaker 1: thank you so much for joining us. I feel like
Speaker 1: you're uniquely positioned to have a good perspective on the
Speaker 1: shift in asset management from active to passive. Can you
Speaker 1: give me a sense from morning Stars perspective, how has
Speaker 1: this changed your business? Yeah, well, good morning, first of all,
Speaker 1: and thanks for having me join you. You're right, obviously
Speaker 1: we're seeing some season like shifts in frum says or
Speaker 1: the move from active managers two passive managers. And you
Speaker 1: know my view on this, and I think this represents
Speaker 1: a lot of you two is that while it's been
Speaker 1: cost in that fashion, the real move is from high
Speaker 1: cost offerings to low cost offerings. And much of what
Speaker 1: you're seeing, at least in the active space today in
Speaker 1: in in what i'll call the retail area is UM
Speaker 1: you know, typical of what you saw in the institutional
Speaker 1: space over the past three decades. So at some level
Speaker 1: it was inevitable that he who were going to come down.
Speaker 1: And you know, the asset management business, if you look
Speaker 1: at the historical performance of a lot of the publicly
Speaker 1: traded asset managers, our life has been good. You know,
Speaker 1: you've been looking at over forty percent, which in any
Speaker 1: other industry is almost unthinkable. And I think, you know,
Speaker 1: margins are probably coming down, you know, more to sort
Speaker 1: of the twenty percentage level. Uh, it's kind of more typical.
Speaker 1: So still good businesses by far um as as opposed
Speaker 1: to be in great businesses. But what I will say is,
Speaker 1: you know, for Morning Starts perspective, UM, ultimately we are
Speaker 1: focused on serving investors and helping investors. And you know,
Speaker 1: today's investors asking for different things. They're asking more for
Speaker 1: Portola solutions, they're asking more for multi assets solutions, they're
Speaker 1: asking more for help navigating some of their regulatory challenges
Speaker 1: that they're seeing. And I would just also just add
Speaker 1: that finally, most investors are just in a better place
Speaker 1: than they were ten fifteen years ago, given that there's
Speaker 1: more choice, given that there's little fees, given that the
Speaker 1: quality of advice is going up. So as much as
Speaker 1: things are changing, there's always plenty opportunity to help investors
Speaker 1: and you know, get them to the outcomes. Were hoping
Speaker 1: for one thing that you said what I thought was compelling.
Speaker 1: There's a focus on low cost rather than high cost funds,
Speaker 1: and h some Bloomberg intelligence analyzes have shown that money
Speaker 1: is flowing to low cost fees UH low cost funds
Speaker 1: and out of high cost funds regardless of performance. So UH,
Speaker 1: in a period like that where there is the singular
Speaker 1: focus on low cost of funds, does morning Star find
Speaker 1: that people are less willing to pay to understand better
Speaker 1: the background of the asset manager that they're investing with
Speaker 1: because they're just going to go to an e t
Speaker 1: F for some kind of passive fund. Anyway, I wouldn't
Speaker 1: say that the reality is even in the passive arena,
Speaker 1: the platora of options today are pretty meaningful. UM. I
Speaker 1: think you know, if in fact you're compared the number
Speaker 1: of publicly created stocks to the number of indexes that
Speaker 1: have been created in this country, to tractors and things. UM,
Speaker 1: I think there are more than a million nexes and
Speaker 1: obviously you know, the number of public stocks is um
Speaker 1: in the thousands, and so that just kind of gives
Speaker 1: you a sense of the fact that the choices are
Speaker 1: still overwhelming, and the reality is that most investors still
Speaker 1: want help. Um, they just wanted at a lower cost.
Speaker 1: And you know, my view here is that lower costs
Speaker 1: actually should increase interest that you know, investors maybe who
Speaker 1: had less interest in the past, and we were inclined
Speaker 1: to invest in. So for us, it's meant UM, you know,
Speaker 1: doing even more as it pertains to what we call
Speaker 1: decision outsourcing, which is where people choose to outsource the
Speaker 1: money management, and particularly in the financial advisor space, Morning
Speaker 1: starts doing more and more UM to work and help
Speaker 1: advisors meet that need. You know, one thing you said
Speaker 1: really stands out to me at there are thousands of
Speaker 1: indexes and not as many stocks. This concerns me. Does
Speaker 1: it concern you? Yeah? I think it does I mean
Speaker 1: many ways. You know, some of us the explosion of products,
Speaker 1: leverage products, very narrow niche indexes. It's sort of reminiscent
Speaker 1: of what you saw when you have to tech media
Speaker 1: telecom bubble, where people were just trying to find slivers
Speaker 1: and a lot of what our term is, you know,
Speaker 1: the shenanigans that went on in the mutual fund industry
Speaker 1: in the late ninety nineties and the early part of
Speaker 1: the century and then kind of got fleshed out, I
Speaker 1: think have sort of shown up in the E t
Speaker 1: F world. So there's a lot of good ets, but
Speaker 1: there's a lot of dangerous cts as well, and I
Speaker 1: think investors obviously just need to be cautious. I also
Speaker 1: just kind of point out that m you know, inexpervitors
Speaker 1: continue to maybe on the pure data side, the prices
Speaker 1: indexing is probably so high then it needs to be intact.
Speaker 1: Morning Star has an initiative called the Open indextrog Initiatives
Speaker 1: where we've made are data indexes available at no cost
Speaker 1: and banking practises, um you know, to ask managers because
Speaker 1: we do feel like that that's an unnecessary cost that
Speaker 1: they have to take today. No real quickly do you
Speaker 1: think that the that the shift toward passive is slowing
Speaker 1: and that the pendulum is moving a little more to active.
Speaker 1: The data does not suggest that today. It certainly seems
Speaker 1: like the momentum in passive continues to be very strong.
Speaker 1: Um But what you're seeing that I think is more
Speaker 1: heartening is that active managers are I think, more aggressively
Speaker 1: luring their fees and really thinking through how they can
Speaker 1: more directly have a compelling offering to investors. So, at
Speaker 1: the end of the day, if you're an active fund,
Speaker 1: you do need to earn your keep, and I think
Speaker 1: what you're seeing is that more and more active funds
Speaker 1: are starting to really try to answer that question. I
Speaker 1: remember that, you know, people used to say that funds
Speaker 1: have sold and not thought. I think that that's not
Speaker 1: the case anymore. Thank you so much for joining us.
Speaker 1: Kuna Kapoor is chief executive officer of morning Star, which
Speaker 1: is based in Chicago and oversees two hundred billion dollars.
Speaker 1: I want to bring in Doug Barthwick, Managing director and
Speaker 1: head of ex at Chapeling and Company. Doug, I appreciate
Speaker 1: you coming on. You know, there's been a lot of
Speaker 1: focus on the dollar, which has fallen to the lowest
Speaker 1: against a comparable piers since November eighth, since the election,
Speaker 1: And there is a lot of discussion that this is
Speaker 1: the direct result, that this is basically a proxy of
Speaker 1: the U S is stock falling. I mean, if this
Speaker 1: is basically essentially the same thing and that the dollar
Speaker 1: could be treated that way, do you agree, is that
Speaker 1: is the political turmoil really what's driving the dollar today? No,
Speaker 1: I I dis tree completely, some poor a lot of
Speaker 1: cold water on that argument. Please go on. Ever since
Speaker 1: Trump came into power, he's talked about a week dollar,
Speaker 1: and he's talked about how he's wanted a week dollar
Speaker 1: to renegotiate trading vents. For example, today there is discussion
Speaker 1: coming out of the Department where they talked about linking
Speaker 1: currency manipulation and making a currency clause soon after. So,
Speaker 1: the president has been talking about making the US more
Speaker 1: competitive and one of the ways he wants to do
Speaker 1: that is by having a weaker dollar, and we've just
Speaker 1: seen that against surplus currencies really since he's come into
Speaker 1: into office. And so the move that we've seen today,
Speaker 1: people have talked about the shocking moves and the markets.
Speaker 1: So you know, the year, dollars up forty pits, so
Speaker 1: that's less than half a percent. Certainly, dollar ends come off,
Speaker 1: but I think that's because it's really been very well
Speaker 1: been the last few days, and now we're sort of, uh,
Speaker 1: it's happen a little bit of a more reaction because
Speaker 1: stock and the stocks are off. Even in the stock market,
Speaker 1: you're talking about one point three pullback. But a weaker
Speaker 1: dollar has been in this administration's interest for quite some time.
Speaker 1: He's discussed that number of times via tweets, are certainly
Speaker 1: in speeches, and so it makes sense you see the
Speaker 1: dollars start to weaken, certainly against surplus currencies, although the
Speaker 1: timing is uh, pretty uncanny. I mean, basically, as the
Speaker 1: turmoil has built, the dollar has sold off, and people
Speaker 1: are saying, and it's not just the dollar, right, You've
Speaker 1: seen yields fall and treasury prices increase, and you've seen
Speaker 1: stocks fallen. Basically, this is the deflation of the trumsflation trade. Basically,
Speaker 1: people thinking, well, perhaps President Trump can't get his agenda
Speaker 1: through as as well as possibly we believed a couple
Speaker 1: of months ago. Do you think that that's a valid argument. No,
Speaker 1: I think that's really fitting Trump News into what people
Speaker 1: already think about valuations. When you think of the valuations
Speaker 1: of the stock market, I think every single guest you've
Speaker 1: had on over the past two months has talked about
Speaker 1: how the U S. Stock market is very over bud
Speaker 1: against any metric. When it comes down to the pricing
Speaker 1: in of a June hike by the Fed, I think
Speaker 1: a good number of is we're arguing that that made
Speaker 1: little sense given that the growth trajectory in the U
Speaker 1: S ins have stalled in the first quarter, and also
Speaker 1: given the inflation in taking up as much as possible.
Speaker 1: So you know, we were pricing a chance of June
Speaker 1: hike just a couple of days ago. Certainly it's come
Speaker 1: off since then, but I think that there's been a
Speaker 1: supreme excitement or an exuberance in the fixing on market
Speaker 1: and in the equity market that is now being priced
Speaker 1: back to more of a realistic nature. Uh just want
Speaker 1: to remind listeners that we are awaiting comments from President Trump,
Speaker 1: who will be speaking to the U. S. Coastcard Academy
Speaker 1: at their commencement ceremony in New London, Connecticut, and he
Speaker 1: is currently receiving a salute end We will bring you
Speaker 1: his comments when they come, so, Doug, how far can
Speaker 1: this dollar sell off go? At what point will it
Speaker 1: have exhausted itself? Are we back to a more realistic
Speaker 1: view of the economy and how much it can possibly
Speaker 1: pick up? Well, I think that if we were to
Speaker 1: look at a repricing of the dollar for trade reasons,
Speaker 1: I think you're looking at move in the euro orcent
Speaker 1: move lower in the dollar now that you could see
Speaker 1: then the euro trading around at one thirty level. Remember
Speaker 1: we were at one six back and had a number
Speaker 1: of years ago. And if the Fed was to turn
Speaker 1: around and say, you know what, we've been wanting to
Speaker 1: aggressively raise rates, but now we realize that the economy
Speaker 1: is not growing as fast as as we would expect,
Speaker 1: then I'd expected you'll start to drop in the US
Speaker 1: at the same time as the e c D. It's
Speaker 1: talking about removing the um accommodation, its support from both sides.
Speaker 1: So in other words, you're saying that you could see
Speaker 1: the euro increase by twenty versus the dollar, or if
Speaker 1: you want to look at the flip side of the euro,
Speaker 1: the US dollar could uh decline or depreciate another twenty
Speaker 1: percent versus the euro in that situation, Yeah, I think
Speaker 1: that would make absolute time chap. That's that's pretty fascinating. Basically,
Speaker 1: you're saying that people ratchet back their expectations for growth
Speaker 1: in the US just as Europe continues to gain speed
Speaker 1: and possibly starts to extricate itself from its stimulus program. Certainly,
Speaker 1: but the number of international organizations that have also said
Speaker 1: that the US dollar right now has been training around,
Speaker 1: has been over valued. When you look at the Treasury
Speaker 1: Secretary comments, he's talked about certainly a strong dollars in
Speaker 1: US interest but that's in the long term and the
Speaker 1: short term. He said that it is not necessarily in
Speaker 1: the US interests, and and there's also been discusnment how
Speaker 1: it's not that the US dollars is strong, it's just
Speaker 1: other currencis of being a little bit too weak. And
Speaker 1: so we think that the tide is certainly on the
Speaker 1: move for a weaker dollar, and we think that that's
Speaker 1: what we're seeing right now. So how much can the
Speaker 1: weaker dollar lead to stronger emerging markets because we've been
Speaker 1: talking a lot about developing markets and whether the rally
Speaker 1: in both the currencies as well as the stocks and
Speaker 1: bonds have has gone too far, and I have to wonder,
Speaker 1: you know, if the US is slowing down or certainly
Speaker 1: not as robust as people had expected, then wouldn't that
Speaker 1: eventually be in negative for emerging markets? Well, well, there's
Speaker 1: the flip side there that then a strong dollar is
Speaker 1: negative for emerging markets because the emerging markets issue a
Speaker 1: lot of their debt and dollars. As the dollar gets
Speaker 1: too strong, emerging markets can't afford to pay back their
Speaker 1: debt and so they run into extreme difficulties that you
Speaker 1: saw in the agent crisis. Now on the other side,
Speaker 1: if the dollar starts to weaken, then the emerging markets
Speaker 1: actually start to strengthen versus the dollar, and that's actually
Speaker 1: quite positive for them because obviously the dollar debt becomes
Speaker 1: more manageable for them. And you're already seeing you know,
Speaker 1: you see witness in the US equity market today and
Speaker 1: you see dollar max move lower, the mexing pace was
Speaker 1: rallying today as opposed to weakening. Then that sort of
Speaker 1: tells us is more of a dollar move than anything else. So, Doug,
Speaker 1: do you think that we've seen full capitulation for all
Speaker 1: the dollar bowls that we're heading into this year full
Speaker 1: on expecting the dollar just to rally. You know, there's
Speaker 1: been i'd say over the last three months, you've seen
Speaker 1: people throw in the towel and their parity comments that
Speaker 1: they always expected that you're to go to parity. Uh so,
Speaker 1: certainly the twell has been thrown in there. You're seeing
Speaker 1: now a lot of funds that our momentum followers start
Speaker 1: to go along to euros, supposed to short the euro.
Speaker 1: And I think that if you look at the futures
Speaker 1: now you have guys going long euros and s puch
Speaker 1: a short year. So I think that's certainly the trade
Speaker 1: is now. It was very overcrowded to be short to euro.
Speaker 1: I think it's now starting the markets getting more comfortable
Speaker 1: being long euros and being short to dollar. And I
Speaker 1: think that's going to continue. You know. I gotta say, Doug,
Speaker 1: it's really interesting to me to watch these moves and
Speaker 1: people saying it's all because of the turmoil in Washington,
Speaker 1: and part of it is that we're not getting new data.
Speaker 1: We're just sort of, you know, facing the facts a
Speaker 1: little bit more. I understand what you're saying that basically
Speaker 1: this isn't uh, this isn't the turmoil in Washington bleeding
Speaker 1: into markets, but to some degree, Uh, it's sort of
Speaker 1: forcing people to at least face the data that's coming
Speaker 1: out that might not support the same kind of refleation. No, Look,
Speaker 1: the turmoil in Washington was really affecting the data that
Speaker 1: I don't think you see stock markets just off their
Speaker 1: highs and that that's really where we are right now.
Speaker 1: So I think there's turmoil in Washington and that creates
Speaker 1: a very full news cycle, but I'm not sure that
Speaker 1: that's been bleeding into equity markets or into think or
Speaker 1: eating currency markets quite as much as it's bleeding into
Speaker 1: the news cycle and taking up the newspapers. So which
Speaker 1: cross are you watching the most carefully? I'm looking at, Uh,
Speaker 1: I'm looking at the end that the new Haven right,
Speaker 1: which is up more than one and a half percent today.
Speaker 1: What are you looking at? Yeah? I think Dalian is
Speaker 1: very important one to look at. But really, any any
Speaker 1: currency that has a surf plus versus the US is
Speaker 1: one that I would expect to see more strengthened. And
Speaker 1: so Europe had the surplus for Germany for sure, Japan does,
Speaker 1: Canada does. In Mexico and you're seeing dollar mex continue
Speaker 1: to move lower. You're seeing dollar cat continue to move lower,
Speaker 1: do Euro move higher and Dolly move lower? And I
Speaker 1: think we're continuously moves like that. Thank you so much
Speaker 1: for joining us. Doug Barthwick, Managing Director and head of
Speaker 1: f X at Chack Delane and Company, commenting on the
Speaker 1: decline that we've seen in the dollar. It's been the
Speaker 1: biggest three day move in a couple of months, and
Speaker 1: you are seeing the lowest levels since the November election.
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Speaker 1: It's pretty amazing. Download our Io s app or search
Speaker 1: for the Bloomberg extension on the Chrome Store to try
Speaker 1: it out. Learn more at Bloomberg dot com slash lens. Well,
Speaker 1: there has been a lot of discussion since well, frankly
Speaker 1: over the past week about at what point the allegations
Speaker 1: against President Trump rise to an impeachable defense? With us
Speaker 1: to give us more perspective on what the standard is,
Speaker 1: I want to bring in Andrew Martin, who's legal editor
Speaker 1: for Bloomberg News, who joins us here in our Bloomberg
Speaker 1: eleven three oh studios. Andrew, thank you so much for
Speaker 1: joining us. So let's just first get in there with
Speaker 1: what is an impeachable offense? And at what point does
Speaker 1: anything that President Trump is has alleged has allegedly done
Speaker 1: rises at I mean, frankly, I've had so many competing
Speaker 1: essays by different legal scholars saying it does, it doesn't.
Speaker 1: Where do you where do you weigh in on this? Well? Um,
Speaker 1: there is widespread disagreement. Let's start with whether or not
Speaker 1: there was a crime committed. Um, and I think um,
Speaker 1: the issue there is to prove that there was an
Speaker 1: obstruction of justice charge. They have to prove that he
Speaker 1: had corrupt intent. Let's just let's just be clear obstruction
Speaker 1: of justice by trying to encourage trying to encourage former
Speaker 1: FBI director Jim Comey to not investigate uh, Michael Flynn
Speaker 1: or anything else related to rush correct exactly? You know,
Speaker 1: this this story that emerged yesterday that that Comy kept
Speaker 1: notes of his conversations and in those notes he said
Speaker 1: Trump asked him to stop the investigation of Flynn. UM,
Speaker 1: you know, to prove that that's actually abstruction, an obstruction
Speaker 1: of justice criminal charge, UM, prosecutors would have to show
Speaker 1: that that Trump had an intent to a corrupt intent.
Speaker 1: In other words, he was trying to protect himself. And
Speaker 1: that's a very high bar. UM. You know, you could
Speaker 1: argue some some have argued that his previous uh tweets,
Speaker 1: his firing of Comy, would would would add to that.
Speaker 1: But UM, it's a difficult thing. You basically have to
Speaker 1: get inside Trump's head. And while he's provided some of
Speaker 1: that through his tweets. UM. I think a number of
Speaker 1: legal scholars have said, what what's available now, UM isn't
Speaker 1: enough to rise to that level. Now. Impeachment is a
Speaker 1: different thing altogether. UM, there's a lesser standard for um.
Speaker 1: What it takes to impeach and presidents. Um, it's high
Speaker 1: crimes and misdemeanors. And ultimately what that means is whatever
Speaker 1: Congress decides it means. So UM, you know, UM, it's
Speaker 1: it's it's it's part judicial part political UM, and the
Speaker 1: fact that now there's a Republican Congress suggests, UM, the
Speaker 1: bar would be extremely high unless public opinion changes to
Speaker 1: such degree. Have to change a lot, have to change
Speaker 1: a lot. Now, you know, at the midterm elections, if
Speaker 1: the House of Representatives, uh, if the political makeup change,
Speaker 1: that would you know, you know the likelihood of an
Speaker 1: impeachment charge would would increase as well. But UM again UM,
Speaker 1: you know, high crimes and misdemeanors is vaguely worded. UM.
Speaker 1: So it ultimately, UM is up to Congress to decide
Speaker 1: what exactly that means. You know, the news cycle is
Speaker 1: moving so quickly that we've moved on to the memos
Speaker 1: that for me. FBI Director James Comey wrote before we
Speaker 1: fully hushed out the alleged league that President Trump right,
Speaker 1: it does that basically that there was the allegation that
Speaker 1: President Trump gave information to the Russian Foreign Ministry in
Speaker 1: his meeting with him. Uh that could potentially compromise a
Speaker 1: key person of intelligence that gives intelligence to the U
Speaker 1: S and a key cooperator which also was allegedly UH
Speaker 1: from Israel. It's hard to keep up with all of this. Um,
Speaker 1: could anything in there fall into an impeachable offense or
Speaker 1: something that could be criminal. Even if indeed President Trump
Speaker 1: compromised an intelligence that's certainly not criminal because as I
Speaker 1: understand that the president has the right to declassify information
Speaker 1: as he likes. Now, UM, you know, I think that
Speaker 1: the founders UM didn't sort of anticipate somebody doing it
Speaker 1: just by mistake or just sort of bragging about something. Um.
Speaker 1: Although we again we don't know what the president's intent
Speaker 1: was and divulging this information, but again he has the authority.
Speaker 1: Did he classified whatever he wants? So UM, definitely not
Speaker 1: a crime. But again in terms of impeachment, UM, if
Speaker 1: there was a decision that he endangered American interests, that
Speaker 1: he endangered a key source, UM, I would think that
Speaker 1: could be part of an impeachment. Again, it's up to
Speaker 1: Congress to decide how to how to frame those charges
Speaker 1: if they were to proceed. Is there anything that a
Speaker 1: president could do that would force impeachment on a faster
Speaker 1: timetable away from the political process, Well, UM, yes, UM,
Speaker 1: I think if there are clear evidence of crimes committed,
Speaker 1: as there was in Watergate, for instance, UM, I think
Speaker 1: that would definitely UM speed up any kind of impeachment process.
Speaker 1: You remember, I mean there has been all kinds of
Speaker 1: UM comparisons here to Watergate and and Nixon and the
Speaker 1: smoking Gun memo, which I wrote about yesterday, which is
Speaker 1: by the way, fascinating reading UM in the in the
Speaker 1: current context. You know, the distinction here is UM. By
Speaker 1: the time uh, you know, impeachment proceedings were begun against Nixon,
Speaker 1: you know, there are actual crimes that were covered up
Speaker 1: in the background, and and as of now, you know,
Speaker 1: you could argue that um, Trump has has his behavior
Speaker 1: has been a radic or or that he's made some
Speaker 1: you know, incredible mistakes or whatever. UM. But as far
Speaker 1: as we know, there hasn't a crime, even even in
Speaker 1: the Russian investigation. You know, UM, we have no idea
Speaker 1: if there's crimes committed and um as uh you know, again,
Speaker 1: as you point out early, I've read so much I
Speaker 1: forget where I read this. But even if UM, Michael
Speaker 1: Flynn didn't register as a foreign agent, which is uh
Speaker 1: uh you know, a crime, I mean, it hardly rises
Speaker 1: to the level of impeachment of the president. I think.
Speaker 1: So well, just to sort of give a quick refresh,
Speaker 1: or what was the crime and Watergate, Well, there was
Speaker 1: a bunch of crimes on water but one was you know,
Speaker 1: they broke into burglars sent by presidents paid by the
Speaker 1: president's reelection committee, broke into Democratic National headquarters. Um. And
Speaker 1: then you know, the real crime was the cover up
Speaker 1: that followed. UM. So UM. Yeah, I mean it's just
Speaker 1: as interesting sort of look back, but I think that
Speaker 1: it's important to sort of recognize that there hasn't really
Speaker 1: been a crime here. So any kind of negotiation over
Speaker 1: impeachment of discussions over that really are more political than
Speaker 1: anything else right now. So far, and again, you know,
Speaker 1: for all the fascination with this Russia investigation, and it
Speaker 1: is fascinating, Um, there's so many questions that are unanswered
Speaker 1: about it, um, particularly at you know, at what level
Speaker 1: if any um Trump's um associates, you know, coordinated with Russia.
Speaker 1: We have no idea. UM. And again with the exception
Speaker 1: of the fact that Michael Flynn did not register as
Speaker 1: a foreign agent. UM. You know, he hasn't been charged
Speaker 1: for that. So UM. Right now, there's there's no crimes
Speaker 1: and there may be none beyond that. So UM. Anyway,
Speaker 1: I have a feeling that we're going to be talking
Speaker 1: more about this. And I have a feeling that this
Speaker 1: is not an issue that's going to be going away
Speaker 1: anytime to you know, twenty four hours from now, things
Speaker 1: can be entirely different. We have no ideas. I have
Speaker 1: a feeling that they will be. Andrew Martin, thank you
Speaker 1: so much for joining us. Andrew Martin is legal editor
Speaker 1: for Bloomberg. Talking about the legal standards UH that a
Speaker 1: president's actions would have to rise to to merrit either
Speaker 1: impeachment or conviction of a crime. And right now, as
Speaker 1: we were saying, President Trump's actions are not criminal, UH,
Speaker 1: at least in any way that people are currently aware of. UH.
Speaker 1: And so it makes impeachment that much more political. Right now,
Speaker 1: I am pleased to bring in Serena us a theory
Speaker 1: of Vedantah. He is director of research at the Jerome
Speaker 1: Levi Forecasting Center. UH. And you have come out with
Speaker 1: a recent forecast that I thought was very compelling talking
Speaker 1: about how despite all of the turmoil that we talked
Speaker 1: about incessantly, the outlook for the U. S economy has
Speaker 1: actually gotten much clear. Can you explain, yeah, thank you.
Speaker 1: These You know, if you if you circle back immediately
Speaker 1: after the election, you know, the big thing was one
Speaker 1: of the policy changes that are going to be there.
Speaker 1: You know, there was trade policy, that is tax policy,
Speaker 1: there is infrastructure, you know, everything was up in there,
Speaker 1: and how much was going to happen in two thousand seventeen. Um,
Speaker 1: what's become clearer now is that much of trade policy
Speaker 1: is uh, it's it's it's shelf for now, at least,
Speaker 1: I mean something really disruptive. You can have moderate ones um.
Speaker 1: And there is not going to be any real tax
Speaker 1: policy that's going to be done this year that's going
Speaker 1: to take effect this year. Um, most likely something will
Speaker 1: at the best we'll get some tax reform or a
Speaker 1: tax package later in the year that will start taking
Speaker 1: effect from two thousand eighteen. So, in so far as
Speaker 1: two thousand seventeen outlook is concerned, you know, we have
Speaker 1: some clarity in that regard. There is still a slim
Speaker 1: chance that we might pass something in the middle of
Speaker 1: the year that takes effect with retroactive effect, but very
Speaker 1: very unlikely. So in other words, you're basically edifying this
Speaker 1: idea that the trumpflation trade is over, that the Trump
Speaker 1: pump should probably disappear, And then the question is what
Speaker 1: should markets look like without these inflated expectations. Well, you know,
Speaker 1: there's still the possibility that they will pass tax cuts
Speaker 1: for two eighteen, but I think it's a narrow range um,
Speaker 1: and you thought that it was not that big of
Speaker 1: a tax cut. In other words, the prediction, and I
Speaker 1: believe your your prediction was one that is that's right,
Speaker 1: not some of the much higher, not much higher numbers
Speaker 1: that we were being bandied around. That is absolutely right. So,
Speaker 1: but that will still be a help and maybe the
Speaker 1: economy starts to look a little saggy. You know, a
Speaker 1: hullion dollars will be certainly of some help. So, but
Speaker 1: I thought it was interesting also in the outlook that
Speaker 1: you talk about emerging markets, equities and credit and you
Speaker 1: talk about how that looks overblown. Well, you know, the
Speaker 1: credit part of it certainly looks overblown. But that's what
Speaker 1: is happening. In the fixed income world. What you're seeing
Speaker 1: is because the yields are so low in the developerl
Speaker 1: there is still enormous pressure to searching. When things look
Speaker 1: relatively stable and tranquil, people come out of their foxhols
Speaker 1: and they're looking for yields um. The equity world, on
Speaker 1: the other hand, is slightly different because the returns in
Speaker 1: the US have been pretty good. I don't think there's
Speaker 1: still such a clamor to move to the emerging markets.
Speaker 1: So what you see is a big disconnect between if
Speaker 1: you look at the e M high yield with respect
Speaker 1: to US HIG yield, you know, the spreads have narrow dramatically,
Speaker 1: but ems in relative to SMP have not rallied that dramatically,
Speaker 1: you know, So there's still I've actually been struggling with
Speaker 1: this idea. So and I was reading through your forecast
Speaker 1: and you said that your treasury holdings are currently about
Speaker 1: half of what they were before the election, and you're
Speaker 1: going to maintain them at that level. And otherwards the
Speaker 1: expectation that yields will continue to rise. Uh if the
Speaker 1: if the idea is that inflation is not going to
Speaker 1: pick up meaningfully compared to where it was expected to. Uh,
Speaker 1: you know a couple of months ago, why wouldn't e
Speaker 1: M continue to rally That it's the same kind of
Speaker 1: low rate environment that would drive people back into EM. Absolutely,
Speaker 1: there are there are two things that are that are
Speaker 1: driving the e M. One is well, the trumflation is gone.
Speaker 1: There is still the sense that e M s are
Speaker 1: in the midst of reflation, you know, so there are
Speaker 1: and of course the dollar and the FT, I mean
Speaker 1: the dollar weakness in the FED is also helping. So
Speaker 1: what is a financial aspect of it and and the
Speaker 1: flows coming into em. The other is the economic angle,
Speaker 1: which is that e M s are okay, e M
Speaker 1: s are out of the woods and they're coming back.
Speaker 1: That part of it is going to be disabused, that
Speaker 1: notion that there is a sustained them recovery going on.
Speaker 1: In other words, they're not out of the woods. They're
Speaker 1: not recovering so quickly. Yeah, people are perhaps a little
Speaker 1: too optimistic developing markets, which markets in particularly talking about
Speaker 1: the MS outside of China because China so much of
Speaker 1: it is depends on their own policy. But the MS
Speaker 1: outside of China are just being being driven by the
Speaker 1: events in the rest of the world. In particular, there's
Speaker 1: a global inventory cycle that that that we had from
Speaker 1: late last year and to the big beginning of this
Speaker 1: year that is helping the e M s. So can
Speaker 1: you explain so, So, if you look at last year
Speaker 1: the global inventories coming into two thousands sixteen, there was
Speaker 1: a moderate liquidation um and from the middle of last
Speaker 1: year they started building up, especially the US but also Ena.
Speaker 1: So the building up of inventories by the U, S
Speaker 1: and China was trigger a global inventory up cycle intert
Speaker 1: stuff of everything E. And the more that they build up,
Speaker 1: the less they'll have to import later, that is right,
Speaker 1: that is later. And and because this is not a
Speaker 1: sustained inventory cycle, beven not. We didn't have a severe
Speaker 1: liquidation like like like from a recession. So you know,
Speaker 1: it's more or less done. You can see it already
Speaker 1: in the SM trending down in the US, and and
Speaker 1: the regional freed manufacturings which are you know even more
Speaker 1: timely they're coming down, uh, and freight indicators you know,
Speaker 1: the railroads. So but this will all the idea being
Speaker 1: that this will all kind of feed into emerging markets
Speaker 1: because the developed markets will be importing less as their inventories.
Speaker 1: That is fascinating perspective. Thank you so much for coming
Speaker 1: in screen of us theory of a Dan three yes,
Speaker 1: thank you, yes, as the director of research of the
Speaker 1: Jerome Levi Forecasting Center joining us here in our Bloomberg
Speaker 1: eleven three oh studios talking about how the economic out
Speaker 1: look for the US hasn't changed all that might much
Speaker 1: despite all the drama that we have been hearing about
Speaker 1: in Washington, d C. Thanks for listening to the Bloomberg
Speaker 1: P and L podcast. You can subscribe and listen to
Speaker 1: interviews at Apple Podcasts, SoundCloud, or whatever podcast platform you prefer.
Speaker 1: I'm Pim Fox. I'm on Twitter at pim Fox. I'm
Speaker 1: on Twitter at Lisa Abramo. It's one before the podcast.
Speaker 1: You can always catch us worldwide on Bloomberg Radio