WEBVTT - One Market That Volatility Forgot 0:00:13.520 --> 0:00:16.560 Hello, and welcome to What Goes Up, a Bloomberg Weekly 0:00:16.600 --> 0:00:20.040 Markets podcast. I'm Sarah pont Zach, a market supporter on 0:00:20.079 --> 0:00:22.560 the Cross Asset Team, and i am Mike Reagan, a 0:00:22.640 --> 0:00:25.400 senior editor on the Markets Team. This week on the show, 0:00:25.640 --> 0:00:28.479 the first half of the year is officially over and 0:00:28.520 --> 0:00:30.480 the scores are on the door. It was the best 0:00:30.600 --> 0:00:34.800 first half for U S stocks since n We saw 0:00:34.840 --> 0:00:39.040 a record rally in investment grade credit, strong numbers across commodities, 0:00:39.080 --> 0:00:42.160 to and the list goes on. Now, what to watch 0:00:42.159 --> 0:00:45.560 out for going forwards? Well, one thing we can watch 0:00:45.560 --> 0:00:48.440 out for is our guests, Sarah. Two very good guests 0:00:48.440 --> 0:00:51.200 this week, joining us for the first time on the podcast, 0:00:51.320 --> 0:00:54.360 Mr Pim Fox. Sarah, did you know Pim was a 0:00:54.360 --> 0:00:57.720 a onetime Florida man. I'm just learning this today. However, 0:00:57.760 --> 0:00:59.800 he doesn't seem like he's really a big fan of 0:00:59.840 --> 0:01:02.720 this date, well, at least not in the summertime. The 0:01:02.880 --> 0:01:05.000 humidity and the heat, you know, moves a little too 0:01:05.080 --> 0:01:07.640 high for me. Okay, now now the excuses come out. 0:01:07.720 --> 0:01:10.240 That's right. We'll talk about air conditioning later on in 0:01:10.240 --> 0:01:13.360 the program. Pim has a whole investment thesis centered around 0:01:13.560 --> 0:01:16.679 air conditioning. It's pretty interesting actually. Also joining us from 0:01:16.680 --> 0:01:19.480 the bonds and FX team Katie Greifeld, who I do 0:01:19.520 --> 0:01:22.680 not believe has any Florida connections now. Actually my parents 0:01:22.800 --> 0:01:28.120 relocated to Florida their soccer. Yeah, they made the plunge 0:01:28.160 --> 0:01:31.400 and fulfilled the stereotypes. So you're a part time Florida 0:01:31.400 --> 0:01:36.240 I'm the only non Florida connection here to get in. 0:01:36.280 --> 0:01:40.839 Somehow I feel lost. Anyway, as Sarah said, the first 0:01:40.880 --> 0:01:44.080 half of the year is in the books. What a 0:01:44.120 --> 0:01:48.640 ferocious rally in not only stocks but bonds. Katie, that 0:01:48.760 --> 0:01:52.560 FX markets going nowhere. However, But Pam, I'm curious, did 0:01:52.600 --> 0:01:55.200 anything surprise you in this first half? Well, I can 0:01:55.200 --> 0:01:57.760 give you some of the numbers. I mean, SMP five 0:01:57.800 --> 0:02:02.000 hundred more than so far this year. Right, So the 0:02:02.040 --> 0:02:05.320 first half of the year up. So that's kind of 0:02:05.360 --> 0:02:08.919 bogey for all of the act of money managers. Plus 0:02:08.960 --> 0:02:10.600 you take a look at the NASDA gets up about 0:02:10.639 --> 0:02:15.320 twenty two percent. And as you just mentioned, bonds rally 0:02:15.400 --> 0:02:18.400 for US treasuries I mean, dig this. You know the 0:02:18.560 --> 0:02:22.880 four week bill will yield you two point to two percent. Oh, 0:02:22.960 --> 0:02:24.440 but if you decide to lend your money to the 0:02:24.440 --> 0:02:27.600 government for ten years you will only get one point 0:02:27.680 --> 0:02:33.560 nine five so not exactly a great return, but that 0:02:33.720 --> 0:02:37.120 inverted yield curve certainly causing a lot of consternation, and 0:02:37.160 --> 0:02:39.919 we got to look forward to that July thirty thirty 0:02:40.000 --> 0:02:42.919 one FED meeting to find out are they actually going 0:02:42.960 --> 0:02:46.080 to cut rates? It really is pretty amazing. But Katie, 0:02:46.120 --> 0:02:50.440 one place that we have not really seen any volatility, 0:02:50.639 --> 0:02:53.760 any excitement this year, at least until maybe recently you 0:02:53.760 --> 0:02:56.399 can make the case for is the FX market. How 0:02:56.480 --> 0:02:59.840 difficult has it been to be a reporter who cover 0:03:00.000 --> 0:03:03.359 as currencies this far into the year. You know, it's 0:03:03.360 --> 0:03:06.600 been really frustrating for me as a reporter, and uh, 0:03:06.720 --> 0:03:08.560 I imagine if you're trying to make money there, it's 0:03:08.560 --> 0:03:12.280 even more frustrating. But yeah, you know, you've seen these 0:03:12.400 --> 0:03:15.760 just crazy moves and bond yields all across the world, 0:03:15.919 --> 0:03:19.400 and FX has really been trading sideways. There's just no 0:03:19.520 --> 0:03:23.160 volatility there. And uh, you know, this is something I 0:03:23.200 --> 0:03:25.720 talk about with sources a lot. It's all anyone wants 0:03:25.720 --> 0:03:29.000 to talk about is where is the volatility? And I mean, 0:03:29.040 --> 0:03:32.600 even though you are seeing these big yield moves, which 0:03:32.760 --> 0:03:35.960 you know typically would expect currencies to respond to that's 0:03:35.960 --> 0:03:39.000 been caused by this stubblish shift by global banks around 0:03:39.000 --> 0:03:42.000 the world. So we're all going in the same direction 0:03:42.080 --> 0:03:45.320 in terms of monetary policy, and that just doesn't breed 0:03:45.360 --> 0:03:48.280 effects volatility. You know, even if you want to sell 0:03:48.320 --> 0:03:51.080 the dollar, what do you sell it against everyone's stubblish? Yeah, 0:03:51.080 --> 0:03:53.160 I think to put some numbers on it. Last time 0:03:53.160 --> 0:03:55.840 I looked at a chart of the Dollar Index. Now, 0:03:55.880 --> 0:03:58.480 this thing has been around since nineteen seventy three. I 0:03:58.520 --> 0:04:01.600 believe the range between high and low has only been 0:04:01.600 --> 0:04:03.800 about three and a half percent. Now, if this year 0:04:03.880 --> 0:04:09.920 ended today, which obviously it won't, but unless Sarah, I 0:04:10.000 --> 0:04:12.320 know nothing that you don't, you can confirm it it 0:04:12.320 --> 0:04:14.680 would be. Then it would be the narrowest trading range 0:04:14.760 --> 0:04:18.159 ever since at least nineteen seventy three for the dollar index. 0:04:18.240 --> 0:04:21.640 I mean, is it? That's basically the long insured of 0:04:21.720 --> 0:04:24.479 it is that all central banks are devilish. Uh, there's 0:04:24.520 --> 0:04:27.360 really no edge anywhere in the currency market. Is that? 0:04:27.440 --> 0:04:30.960 Is that the general thinking of Unfortunately, UM and I 0:04:31.000 --> 0:04:32.640 have I'm going to one up you on a stag. 0:04:34.320 --> 0:04:36.320 So if you go back to the first quarter, I 0:04:36.320 --> 0:04:38.839 guess we're in the third quarter now, but Euro dollar, 0:04:39.000 --> 0:04:42.120 which is the most actively traded currency pair, it's like 0:04:43.200 --> 0:04:45.920 of global currency trading, and it's you know, the most 0:04:45.960 --> 0:04:49.960 liquid market. So that was the tightest quarterly training range 0:04:50.200 --> 0:04:53.719 since the inception of the euro. It's it's been really 0:04:53.800 --> 0:04:56.280 grim And I was just talking about this with a 0:04:56.320 --> 0:04:59.719 few people yesterday. I mean, is there any reason for 0:05:00.000 --> 0:05:03.520 open the you know, the coming months and uh, unless 0:05:03.560 --> 0:05:06.479 you think that one of these major global central banks 0:05:06.560 --> 0:05:08.400 is going to diverge, you know, in the group of 0:05:08.440 --> 0:05:12.280 ten space, we're really looking at more sideways trading. So 0:05:13.279 --> 0:05:16.320 buckle up. Pinning down the trajectory of the dollar seems 0:05:16.360 --> 0:05:20.479 like it has been extremely hard to do. However, it 0:05:20.560 --> 0:05:24.440 doesn't just have implications for the currency markets, of course, 0:05:24.480 --> 0:05:28.280 it's very closely interrelated with the movements in the commodity markets. 0:05:28.320 --> 0:05:31.960 Also what it means for U S stocks or really 0:05:31.960 --> 0:05:35.920 global stocks as well as these currency relations come into 0:05:35.960 --> 0:05:38.960 shape going forwards, when you talk to traders, are you 0:05:39.120 --> 0:05:42.159 hearing more that the dollar is set to fall because 0:05:42.160 --> 0:05:45.080 the FED is incrementally turning more devish or is there 0:05:45.120 --> 0:05:47.000 a case to be made against that too, because we're 0:05:47.040 --> 0:05:49.720 set to see other central banks turn more dovish as well. 0:05:50.200 --> 0:05:52.920 It's really hard and that's mostly what I hear when 0:05:52.920 --> 0:05:55.599 I talk to people. You know, even if you really 0:05:55.720 --> 0:05:59.040 think the US economy is going nowhere, it's going to 0:05:59.160 --> 0:06:02.320 slow down. I mean, if you look abroad Europe, Japan, 0:06:02.720 --> 0:06:05.840 there's you know, no reason for celebration there either. So 0:06:06.360 --> 0:06:07.960 you know, if you want to be barish the dollar, 0:06:08.040 --> 0:06:10.520 and this is the beauty of currencies, you have to 0:06:10.760 --> 0:06:14.080 pick something you like better. And from what I'm hearing 0:06:14.120 --> 0:06:16.800 too from people, you know, even if they like to 0:06:16.880 --> 0:06:19.760 make a barished dollar call, it's really hard to have 0:06:19.839 --> 0:06:23.599 conviction in that. So you might see some tactical trades 0:06:23.720 --> 0:06:26.760 here and there, but you know, I'm really not getting 0:06:26.760 --> 0:06:30.360 a high sense of conviction from really anyone I talked to. Yeah, 0:06:30.360 --> 0:06:34.480 and obviously this type of nonvolatility is bad news for 0:06:34.600 --> 0:06:37.320 currency traders, maybe not such bad news for the rest 0:06:37.320 --> 0:06:40.200 of US PIM Right, you had a post talking about 0:06:40.200 --> 0:06:42.120 how the recent weakness in the dollar. Now it is 0:06:42.160 --> 0:06:45.640 still in this this very low range, uh small range 0:06:45.680 --> 0:06:47.479 that it's traded in all year, but the last couple 0:06:47.520 --> 0:06:50.080 of weeks you've seen it sell off. For example, let's 0:06:50.080 --> 0:06:52.680 say against the Canadian looney, Right, I mean, the Canadian 0:06:53.000 --> 0:06:56.400 government released report having to do with their trade surplus 0:06:56.520 --> 0:06:59.120 that was a big surprise. This comes even after we 0:06:59.200 --> 0:07:01.920 see oil decline in price over the last let's say, 0:07:01.960 --> 0:07:04.920 a couple of months into April, and as a result 0:07:05.120 --> 0:07:08.240 of the decline and the value of the dollar, it's 0:07:08.279 --> 0:07:12.720 an interesting connection between loan origination in the United States, 0:07:12.800 --> 0:07:15.760 something I had never really thought of, and a report 0:07:15.840 --> 0:07:19.000 by the Federal Reserves. Some research took a look and said, 0:07:19.040 --> 0:07:22.520 you know, about a two and a half percent decrease 0:07:22.840 --> 0:07:26.840 UH in the US dollar would lead to an increase 0:07:27.520 --> 0:07:32.320 of ten percent in US bank corporate loan origination. And 0:07:33.120 --> 0:07:35.800 the reason the really I mean, you know, okay, you know, 0:07:35.840 --> 0:07:38.000 you try to follow the bread crumbs here, but I mean, 0:07:38.240 --> 0:07:41.440 the reason that was given in the research is that 0:07:41.560 --> 0:07:46.960 typically what happens is when the dollar strengthens, that kills 0:07:47.040 --> 0:07:52.480 emerging markets, and that typically sends everybody in one direction, 0:07:52.720 --> 0:07:57.440 and that causes lending to pull back because it makes 0:07:57.560 --> 0:08:01.360 people risk averse. So you see this sell off and 0:08:01.440 --> 0:08:05.360 eat in emerging markets, you get a risk averse feeling 0:08:05.400 --> 0:08:10.360 on the part of bankers and they contract their lending. Conversely, 0:08:10.600 --> 0:08:14.560 if the dollar continues, its more recent slide against let's 0:08:14.560 --> 0:08:17.960 say the Canadian looney or maybe even the euro. We've 0:08:17.960 --> 0:08:21.440 had comments from the President having to do with currency manipulation, 0:08:21.440 --> 0:08:23.920 whether it comes to the Euro or whether the Chinese. Uh. 0:08:24.120 --> 0:08:27.000 You want to remember that if you get this fall 0:08:27.160 --> 0:08:29.400 in the value of the dollar, you could see a 0:08:29.440 --> 0:08:32.400 big boost in bank lending. And this comes at just 0:08:32.559 --> 0:08:35.400 the same time that the Federal Reserve has also basically 0:08:35.400 --> 0:08:38.679 taken the handcuffs off of us, you know, big financial 0:08:38.720 --> 0:08:41.520 companies to go ahead and do stock buy backs and 0:08:41.640 --> 0:08:46.160 increase their dividends to investors. That's very interesting, I've got 0:08:46.160 --> 0:08:48.880 to say. But you mentioned the relationship between the dollar 0:08:48.920 --> 0:08:50.880 and emerging markets, and I have to say, on my end, 0:08:50.880 --> 0:08:52.880 a lot of the people I've been speaking with lately 0:08:53.160 --> 0:08:56.080 are growing more and more bullish on emerging markets. Also 0:08:56.559 --> 0:08:59.880 see more upside and commodities because of that relationship, and 0:09:00.080 --> 0:09:02.840 do think that the dollar could fall further. And I 0:09:02.920 --> 0:09:06.280 want to bring that over within the commodity space to oil. PIM, 0:09:06.320 --> 0:09:09.720 Can you just walk us through this past week what 0:09:09.960 --> 0:09:12.640 is going on with oil? You have all that come 0:09:12.640 --> 0:09:15.680 out extend production cuts and then we see oil just 0:09:15.880 --> 0:09:18.559 fall off a cliff, right, Uh, Oil the price of 0:09:19.040 --> 0:09:20.880 let me just give you the bigger context, because you 0:09:20.920 --> 0:09:24.920 may not call that oil crude. Oil West Texas into 0:09:25.000 --> 0:09:28.680 media traded on the IMAX is actually up twenty five 0:09:29.360 --> 0:09:34.040 since the beginning of the year, but still down from 0:09:34.040 --> 0:09:37.200 the high, right, and it is down four percent just 0:09:37.480 --> 0:09:40.120 since April. So I think that the there's a there's 0:09:40.160 --> 0:09:45.280 a term called the recency uh bias, right, that the 0:09:45.400 --> 0:09:49.360 things that happen most closely in time to now are 0:09:49.400 --> 0:09:53.559 the things that dominate your thinking. And as you described it, 0:09:53.840 --> 0:09:57.600 you have a situation where there is more oil than 0:09:57.679 --> 0:10:02.200 there is growth and demand. And it is obviously the 0:10:02.240 --> 0:10:04.360 OPEC plus one, you know, with Russia is saying that 0:10:04.360 --> 0:10:07.080 they're going to curtail production. They're trying to maintain some 0:10:07.200 --> 0:10:11.400 level of pricing. But you've got US shale producers, they're 0:10:11.440 --> 0:10:15.480 the swing producers here. And you also have a big 0:10:16.000 --> 0:10:20.800 switch in terms of electricity generation that's being done with 0:10:20.960 --> 0:10:23.880 natural gas, and natural gas prices at least so far 0:10:24.000 --> 0:10:26.160 have gone nowhere. We're in the three dollars per million 0:10:26.160 --> 0:10:29.240 b to you. So you know, oil and energy companies 0:10:29.360 --> 0:10:31.160 they have still been struggling. When you take a look 0:10:31.200 --> 0:10:34.720 at their performance in the SMPA well, and natural gas 0:10:34.800 --> 0:10:37.120 not exactly in short supply in this country, You're correct. 0:10:37.320 --> 0:10:39.640 I mean, you know, they have some cases where because 0:10:39.800 --> 0:10:44.880 of the pipeline bottlenecks that producers of natural gas are 0:10:44.960 --> 0:10:49.600 actually paying to have someone take the natural gas away. 0:10:49.880 --> 0:10:54.520 Negative actually negative pricing for certain types of natural gas. 0:10:55.000 --> 0:10:59.200 Well somewhere, we're negative pricing isn't uncommon? Is the sovereign 0:10:59.240 --> 0:11:02.559 bond market around the globe now a day's This past 0:11:02.600 --> 0:11:05.360 week we did also get some new news regarding the 0:11:05.360 --> 0:11:08.079 European Central Bank, and that is the nomination of Madame 0:11:08.200 --> 0:11:12.120 Christine Legard to potentially head up the ECB after Mario 0:11:12.200 --> 0:11:15.439 drags exit. What implications could this possibly even have for 0:11:15.559 --> 0:11:19.640 Marcus Katie, Yeah, so Christine Legard, it's it's great because 0:11:19.720 --> 0:11:22.240 you know, we know her views, we know her record, 0:11:22.800 --> 0:11:26.960 and uh, talking to people, I really hear that she's 0:11:26.960 --> 0:11:30.040 probably gonna you know, continue on, uh you know the 0:11:30.120 --> 0:11:33.920 drag e trajectory, bring in some more easing and uh 0:11:34.080 --> 0:11:36.840 that should you know, that's good news for bonds, in 0:11:36.920 --> 0:11:40.600 particular Italian bonds, and you've been seeing yields drop there 0:11:41.120 --> 0:11:43.640 and she hasn't even you know, been confirmed yet in 0:11:43.720 --> 0:11:46.840 terms of buns. Though, it's interesting, you know, with buns 0:11:46.880 --> 0:11:54.840 already near record low yields negative right, yeah, very negative negative? 0:11:54.920 --> 0:11:58.880 What what what can they buy that they haven't already bought? 0:11:58.960 --> 0:12:01.840 And if your money sitting at the central bank is 0:12:01.880 --> 0:12:08.000 actually disappearing, what incentive could they possibly offer corporations to 0:12:08.040 --> 0:12:10.400 actually spend the money. And when the news came out 0:12:10.440 --> 0:12:13.280 that Laguard was going to be Draggings replacement, you did 0:12:13.280 --> 0:12:15.640 see that drop in the euro suggesting that people think 0:12:15.679 --> 0:12:18.160 she will even be more dovish. So yeah, I guess 0:12:18.200 --> 0:12:20.920 I I echo him's question, what what what will they buy? Well, 0:12:20.920 --> 0:12:24.160 I'm excited to find out. I think we all are. 0:12:24.240 --> 0:12:26.200 The euro. It's interesting though, and this is something I 0:12:26.280 --> 0:12:29.440 was talking about with people. So yes, uh, the e 0:12:29.520 --> 0:12:31.880 c B has an easing bias, we know that. But 0:12:32.280 --> 0:12:34.199 you know, if push comes to shove and we really 0:12:34.360 --> 0:12:37.040 enter a global easing cycle, the Fed has much more 0:12:37.120 --> 0:12:40.880 ammunition to cut rates to ease policy than the ECB. 0:12:41.040 --> 0:12:44.160 They're kind of tapped out when it comes to monetary policy, 0:12:44.200 --> 0:12:47.600 so that actually, you know, the Euro might struggle to 0:12:47.720 --> 0:12:51.000 weaken too much against the dollar given that, you know, 0:12:51.080 --> 0:12:53.920 just the Fed has so much more room to ease policy, 0:12:54.440 --> 0:12:57.440 which again brings us back to this ranger trading in So, 0:12:58.120 --> 0:13:00.160 with the fed's next meeting coming up at the end 0:13:00.160 --> 0:13:03.640 of July, um you have the stock market just dare 0:13:03.640 --> 0:13:06.720 I say the word melt up, but just flying higher, 0:13:06.720 --> 0:13:10.720 as Pim said, nineteen percent or whatever higher for the 0:13:10.840 --> 0:13:13.360 SMP five And of course we're gonna get it. You know, 0:13:13.480 --> 0:13:16.560 probably what July mid July fifteen, we're gonna start getting 0:13:16.559 --> 0:13:19.840 earnings for the second quarter, and we'll see whether corporate 0:13:19.880 --> 0:13:22.320 earnings are are keeping pace because the pe on the 0:13:22.440 --> 0:13:25.199 SMP five hundred I think right now is like eighteen 0:13:25.360 --> 0:13:28.520 nineteen depending upon how you look at it. That's historically 0:13:28.520 --> 0:13:47.439 pretty high. So, Katie, do people really believe that we're 0:13:47.440 --> 0:13:49.480 going to get this rate cut? Even with the stock 0:13:49.520 --> 0:13:51.360 market shooting to the moon like this? I mean, is 0:13:51.400 --> 0:13:54.160 this sort of ratching those bets down a little bit 0:13:54.160 --> 0:13:56.880 as we watch stocks higher? You know, it's really crazy, 0:13:56.960 --> 0:13:59.400 but it doesn't seem like it. It really still feels 0:13:59.400 --> 0:14:02.560 like July is a lock. You know, of a week 0:14:02.679 --> 0:14:05.480 or two ago, we were saying maybe fifty basis points 0:14:05.480 --> 0:14:08.760 and obviously Bullard poured some cold water on that, but 0:14:09.400 --> 0:14:12.040 I would love to see what it would take to 0:14:12.080 --> 0:14:15.439 get the market to sort of pair those bets, because 0:14:15.720 --> 0:14:17.920 I mean, even with the outcome of the G twenty meeting, 0:14:18.000 --> 0:14:21.760 you really didn't see expectations, Budge. And you know, these 0:14:21.800 --> 0:14:24.760 geopolitical tensions was a large in a large part what 0:14:25.000 --> 0:14:28.520 caused this repricing of the FED. And initially when when 0:14:28.560 --> 0:14:30.960 you said sorry, when you said Jim Jim Bullard of 0:14:31.000 --> 0:14:33.120 the St. Louis FED. And it makes me think about 0:14:33.160 --> 0:14:36.720 the two new members that the President has proposed for 0:14:36.760 --> 0:14:39.960 the Federal Reserve. One of them is coming from the St. 0:14:40.000 --> 0:14:43.200 Louis FED. This is Christopher Waller, right, he's the director 0:14:43.240 --> 0:14:46.280 of research there. And then you've got Judy Shelton, who 0:14:46.360 --> 0:14:49.040 at one time, well I don't know whether she still does, 0:14:49.080 --> 0:14:50.840 but at one time she talked about the return to 0:14:50.880 --> 0:14:53.800 the gold standards. We sounds like some others that we've 0:14:53.840 --> 0:14:56.000 heard nominated to the FED boards. And you know, you 0:14:56.320 --> 0:14:57.760 you take a look at the price that you talked 0:14:57.760 --> 0:14:59.560 earlier about, So, okay, what do you do if you 0:14:59.600 --> 0:15:02.080 sell the dollar? A lot of people have been buying gold. 0:15:02.160 --> 0:15:05.600 You've seen the gold rally up what about ten year 0:15:05.640 --> 0:15:08.640 to date, and most of that has really come in 0:15:08.680 --> 0:15:13.040 the last month. It's it's very clear that when President 0:15:13.080 --> 0:15:16.480 Trump is either tweeting or even going ahead and nominating 0:15:16.520 --> 0:15:19.720 people to the FED board, he wants doves. He wants 0:15:19.720 --> 0:15:22.320 people who are going to go in to the FED 0:15:22.600 --> 0:15:27.080 and really fight for cuts and see easier monetary policy. 0:15:27.080 --> 0:15:29.200 And I will say, if you go back and you 0:15:29.280 --> 0:15:32.400 look through history, it's really not uncommon actually for the 0:15:32.400 --> 0:15:36.360 FED to cut rates with socks near all time highs. 0:15:36.360 --> 0:15:38.480 And Katie, most of the people I've spoken with have 0:15:38.800 --> 0:15:41.840 really echoed a similar tone, saying you kind of get 0:15:41.840 --> 0:15:44.120 the best of both worlds. Actually, since we didn't get 0:15:44.200 --> 0:15:46.800 a deal out of the G twenty this past weekend, 0:15:46.840 --> 0:15:49.880 because there's still uncertainty and that could give the Fed 0:15:49.920 --> 0:15:52.520 a little bit more leverage to cut rates before a 0:15:52.560 --> 0:15:55.960 deal could potentially take shape. But Pim, I also want 0:15:55.960 --> 0:15:58.600 to ask you, I know, a big question coming out 0:15:58.600 --> 0:16:01.440 of the first half has been how is it possible 0:16:01.480 --> 0:16:04.400 that we can continue to see bonds rally alongside the 0:16:04.440 --> 0:16:08.080 stock market? How do you try to reconcile things. I mean, 0:16:08.120 --> 0:16:10.080 I'm sorry to make it sound like it's simple, but 0:16:10.120 --> 0:16:13.200 at least to be it's simple. Well, it's very clear 0:16:13.280 --> 0:16:14.840 it has to do with the fact that you have 0:16:15.040 --> 0:16:17.360 so many committed buyers. I mean, if you're running a 0:16:17.440 --> 0:16:20.120 large pension fund, if you're running a municipal pension fund, 0:16:20.160 --> 0:16:23.240 if you're running uh an insurance company, if you're running 0:16:23.280 --> 0:16:27.680 any kind of endowment, anything that has long term liabilities, 0:16:28.280 --> 0:16:32.160 you're not deciding whether you're going to buy your going 0:16:32.480 --> 0:16:35.840 to buy your It's not like, you know, we look 0:16:35.880 --> 0:16:38.320 at it and we compare one asset class to another. 0:16:38.560 --> 0:16:42.440 They're not comparing any asset classes. They're always in there buying. 0:16:42.480 --> 0:16:45.640 They have to buy. And then to the point earlier 0:16:45.640 --> 0:16:48.600 that Katie was making having to do with negative interest 0:16:48.680 --> 0:16:51.520 rates in other parts of the world, if you are 0:16:51.680 --> 0:16:54.560 a let's say European pension plan and you're looking at 0:16:54.560 --> 0:16:57.400 liabilities ten thirty years down the road, what are you 0:16:57.400 --> 0:17:00.880 gonna do. You're gonna buy negative yielding German ones, or 0:17:01.080 --> 0:17:03.840 maybe you're gonna go and you're gonna take one point 0:17:03.960 --> 0:17:07.960 nine five for US treasury ten uere. So I don't 0:17:08.000 --> 0:17:10.040 I don't think that that's necessarily you know, it's not 0:17:10.119 --> 0:17:13.640 either or. And when you look at the returns, let's say, 0:17:13.640 --> 0:17:16.400 of stocks, you know you can there are a lot 0:17:16.440 --> 0:17:19.960 of stocks that you can buy that will produce dividend 0:17:20.080 --> 0:17:24.560 yields that are double what you could get into treasury. Now, 0:17:24.640 --> 0:17:27.359 obviously you got volatility and risk and all, but on 0:17:27.400 --> 0:17:31.800 a relative basis. If you're managing people's money and they say, well, 0:17:31.920 --> 0:17:34.679 you know, great, I can't live on two percent, You're 0:17:34.680 --> 0:17:37.400 gonna have to go find them something else. There's an 0:17:37.400 --> 0:17:40.959 interesting report out I think it's Mike Mayo, who's now 0:17:41.000 --> 0:17:43.160 at well as far Ago, pointing out that the dividend 0:17:43.240 --> 0:17:48.280 you get on banks three the expected dividend anyway after 0:17:48.320 --> 0:17:53.280 the stress test is rivaling utilities at half the pe. 0:17:53.480 --> 0:17:55.919 I mean, pim is are we're gonna see banks, uh 0:17:56.080 --> 0:17:58.159 finally start out performing the market? Do you think? Yeah? Well, 0:17:58.160 --> 0:17:59.639 I mean I wrote up a piece for the m 0:17:59.720 --> 0:18:03.240 Live blog earlier in the month about that having to 0:18:03.320 --> 0:18:05.840 do with buy backs and dividend increases. Now we talk 0:18:05.920 --> 0:18:09.359 about buy backs that are just limited to financial companies, 0:18:09.400 --> 0:18:13.280 and corporations continue to spend what excess cash they have 0:18:13.640 --> 0:18:16.440 on buying back their shares. Of course it makes their 0:18:16.440 --> 0:18:20.240 EPs look good. Uh that also, you know up ceo 0:18:20.359 --> 0:18:23.400 pay because they're measured on what the stock price does. 0:18:23.760 --> 0:18:27.359 But having said that, it doesn't look like anyone's going 0:18:27.400 --> 0:18:31.080 to start cutting dividends, specifically in the financial sector, just 0:18:31.119 --> 0:18:33.199 when they got the green light from the FED and 0:18:33.240 --> 0:18:35.440 those stress tests to go ahead and do it, and 0:18:35.520 --> 0:18:37.560 we know that this is something they've already said they're 0:18:37.560 --> 0:18:40.560 gonna do. And one more post you had that really 0:18:40.560 --> 0:18:43.720 caught my eye. It was about air conditioning in Europe. Well, 0:18:44.040 --> 0:18:46.600 this goes back, This goes back to Sarah's up impending 0:18:46.640 --> 0:18:49.320 trip to Florida. You know, you're not going to Florida 0:18:49.359 --> 0:18:53.240 unless you have air conditioning. And maybe that's something that 0:18:53.320 --> 0:18:58.440 the Europeans will be paying attention to because while Southern 0:18:58.440 --> 0:19:01.879 Europe has a lot of air conditioning, you know, Spain, 0:19:02.160 --> 0:19:06.400 Italy and so on, France and Germany and the Netherlands, 0:19:06.520 --> 0:19:10.200 northern European countries in the UK, typically they do not 0:19:10.400 --> 0:19:14.679 have residential air conditioning. Five percent of France, five percent 0:19:14.720 --> 0:19:17.159 of French homes and under two percent of German homes. 0:19:17.359 --> 0:19:20.680 And I'm not even thinking about offices and trains and 0:19:21.359 --> 0:19:24.400 various public venues. A lot of them do not have 0:19:24.560 --> 0:19:29.400 cooling capacity above ninety degrees fahrenheit. So if it goes 0:19:29.440 --> 0:19:32.320 above ninety degrees fahrenheit and you're a German high speed train. 0:19:32.680 --> 0:19:37.280 Good luck right, and it hit it went over in 0:19:37.359 --> 0:19:40.360 much of the continent. You had a record in France. 0:19:40.400 --> 0:19:43.240 I think it was a hundred and four degrees in France. 0:19:43.240 --> 0:19:46.600 So what are the ways to invest there? You go? See? Well, okay, 0:19:46.600 --> 0:19:48.280 So what I did was I took a look at 0:19:48.320 --> 0:19:52.400 the refrigerants, the actual gases, the industrial gases that go 0:19:52.640 --> 0:19:55.959 into air conditioning systems, because if you're gonna buy an 0:19:55.960 --> 0:19:58.399 air conditioner, they've got to have something to actually cool 0:19:58.480 --> 0:20:01.679 the air. And they're are a variety of rules and 0:20:01.720 --> 0:20:04.800 regulations having to do with hydro fluoral carbons and so on. 0:20:05.240 --> 0:20:11.000 But there there's air liquid, there is um Linda, the 0:20:11.240 --> 0:20:15.760 Industrial Gas company. All of those might benefit because they 0:20:15.800 --> 0:20:19.840 produced the kinds of industrial gases that are compliant with 0:20:19.960 --> 0:20:25.600 the European Union regulations. Interesting stuff again from him, Love 0:20:25.680 --> 0:20:28.080 having here and get your air conditioning in Europe. I 0:20:28.080 --> 0:20:31.200 want to turn the tables really quickly on Mike, because 0:20:31.640 --> 0:20:36.120 back on January fourth, he issued an outlook for the 0:20:36.160 --> 0:20:39.359 Markets Live blog. So I figured it was only fair 0:20:39.640 --> 0:20:42.120 if I pulled out my highlighter and my red pen 0:20:42.640 --> 0:20:45.920 and I granted him and saw where his outlook actually stands, 0:20:45.960 --> 0:20:48.880 and I have to say he did pretty well. Um, 0:20:49.359 --> 0:20:51.680 very equity focus. But I'll run through That's why we're 0:20:51.680 --> 0:20:54.280 talking about it. Right. If this were wrong, he would 0:20:54.320 --> 0:20:57.159 have absolutely shunned me from talking about it on what 0:20:57.280 --> 0:21:00.160 goes up? But here we are talking about it. We'll 0:21:00.200 --> 0:21:03.200 talk about my post saying was the floor for ten 0:21:03.280 --> 0:21:06.080 year yields? That was very wrong, and that came mid June. 0:21:07.000 --> 0:21:09.320 You have a lot of company. I do not know 0:21:09.520 --> 0:21:12.560 one Wall Street strategist who called the bond mark. Oh no. 0:21:12.760 --> 0:21:15.720 But now we have Golden JP Morgan coming out saying 0:21:15.720 --> 0:21:19.520 we could see one point seven five flow forecasts. It's 0:21:19.520 --> 0:21:22.159 pretty fun. Let's go back to how I was right. Right, 0:21:22.200 --> 0:21:23.879 We'll go back to how you're right. I'll start with 0:21:23.920 --> 0:21:26.199 the ones that we're right. How about that? So the 0:21:26.240 --> 0:21:28.479 first one was the consensus is calling for a stronger 0:21:28.480 --> 0:21:31.639 stock market with double digit percentage gains for the SMP 0:21:31.680 --> 0:21:34.800 five hundred in the coming year. Clearly, we are already there, 0:21:34.880 --> 0:21:36.920 double digit gains in the first half of the year, 0:21:37.160 --> 0:21:40.600 there's no doubt about that. Now this one, it's talking 0:21:40.720 --> 0:21:44.560 about the year end target. So he said the average 0:21:44.720 --> 0:21:48.400 estimate from a survey of a hundred seventy markets live readers, 0:21:48.400 --> 0:21:51.480 so not necessarily my himself, but those who feed into 0:21:51.520 --> 0:21:54.000 the Market's live blog. Is for the SMP to close 0:21:54.040 --> 0:21:56.920 the year at nine, that would have been a twelve 0:21:56.960 --> 0:21:59.760 percent gain. So sure, we got a twelve percent gain, 0:21:59.800 --> 0:22:02.879 but we are already way past that. And if you 0:22:02.920 --> 0:22:05.760 compare that to say the SMP ends around three thousand 0:22:05.880 --> 0:22:09.640 or so, that's seven percent above that level. So we're 0:22:09.640 --> 0:22:12.119 already there. We're already there, We're already past. It's a 0:22:12.119 --> 0:22:14.720 long year. Sorry, we could see, we'll see what happens. 0:22:14.720 --> 0:22:18.199 We could always come back down. But my point was 0:22:18.560 --> 0:22:21.000