1 00:00:09,880 --> 00:00:13,800 Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene Jai Ley. 2 00:00:13,960 --> 00:00:17,560 Speaker 1: We bring you insight from the best in economics, finance, investment, 3 00:00:18,000 --> 00:00:23,480 Speaker 1: and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, 4 00:00:23,640 --> 00:00:27,440 Speaker 1: Bloomberg dot Com, and of course, on the Bloomberg Right Now. 5 00:00:27,480 --> 00:00:30,319 Speaker 1: On politics, Greg Bellier with us thrilled he could be 6 00:00:30,360 --> 00:00:33,320 Speaker 1: with us today, GF. He grew up in Cancut, New Hampshire, 7 00:00:33,680 --> 00:00:35,760 Speaker 1: so we're great. Then Mr Belly can give us a 8 00:00:35,760 --> 00:00:38,960 Speaker 1: little perspective there and look forward and is really important 9 00:00:39,000 --> 00:00:42,320 Speaker 1: research note this morning, Kevin surreally with us as well? 10 00:00:42,720 --> 00:00:46,560 Speaker 1: Uh and let us dive in right now Kevin onto Nevada? 11 00:00:46,960 --> 00:00:50,520 Speaker 1: Who goes to Nevada with up? Is it Clobisher doing 12 00:00:50,600 --> 00:00:53,640 Speaker 1: better last night? Or is it really Bernie Bernie Bernie 13 00:00:53,640 --> 00:00:56,880 Speaker 1: as a land in Las Vegas? Bernie Bernie Burnie Look 14 00:00:56,920 --> 00:00:59,120 Speaker 1: and Clochart now has some new mom Madam. She's had 15 00:00:59,160 --> 00:01:00,760 Speaker 1: it to New York City to a tom to meet 16 00:01:00,760 --> 00:01:03,560 Speaker 1: with her donors. She says, hey, she's got got the 17 00:01:03,640 --> 00:01:06,280 Speaker 1: checkbook out because she's got some momentum after a strong 18 00:01:06,680 --> 00:01:10,399 Speaker 1: third place showing she beat Elizabeth Warren. Remember this is 19 00:01:10,440 --> 00:01:15,240 Speaker 1: a nearby Massachusetts. In New Hampshire, Elizabeth Warren finishing ahead 20 00:01:15,240 --> 00:01:17,759 Speaker 1: of former Vice President Joe Biden, who had a terrible 21 00:01:17,840 --> 00:01:20,440 Speaker 1: night last night. He went right to South Carolina. But 22 00:01:20,520 --> 00:01:23,680 Speaker 1: the big takeaways this is Buona Judge, Buona Judge and 23 00:01:23,720 --> 00:01:25,919 Speaker 1: Bernie Sanders. I mean, think about it for a second. 24 00:01:25,959 --> 00:01:28,800 Speaker 1: No one was even knew who Pete Buddha Judge was 25 00:01:28,920 --> 00:01:30,760 Speaker 1: a couple of years ago, and now the fact that 26 00:01:30,800 --> 00:01:33,840 Speaker 1: he finished in second place behind Bernie Sanders. I think 27 00:01:33,840 --> 00:01:36,360 Speaker 1: we've we've got some data from Iowa and New Hampshire. 28 00:01:36,440 --> 00:01:39,800 Speaker 1: I'm learning every moment by Kevin Cirelli. Let's go into Nevada, 29 00:01:39,840 --> 00:01:42,000 Speaker 1: Manushi or Greg you're gonna love this as well. You 30 00:01:42,000 --> 00:01:44,720 Speaker 1: can put in your research note. Uh, this is office 31 00:01:44,720 --> 00:01:46,959 Speaker 1: se Really, this is the morning moustid out of Vox. 32 00:01:47,040 --> 00:01:50,280 Speaker 1: Let's bring it up right now. It's real simple. This 33 00:01:50,360 --> 00:01:54,520 Speaker 1: is Saturday. The twenty's really working seven days a week. 34 00:01:54,880 --> 00:01:58,440 Speaker 1: The idea that the the early voters will not be 35 00:01:58,560 --> 00:02:01,640 Speaker 1: physically present to Part two some paid in the Nevada Caucus. 36 00:02:01,960 --> 00:02:04,320 Speaker 1: They will be asked in advance to rank up to 37 00:02:04,480 --> 00:02:08,960 Speaker 1: five candidates by their Iowa like order of preference. Each 38 00:02:09,040 --> 00:02:13,520 Speaker 1: precinct location will be given an unopened deck of cards. 39 00:02:13,560 --> 00:02:16,160 Speaker 1: That deck then has to be shuffle at least seven 40 00:02:16,200 --> 00:02:20,280 Speaker 1: times by Kevin Seilli, and then each candidates group will 41 00:02:20,360 --> 00:02:24,400 Speaker 1: draw a card. The high card wins a delegate. Kevin, 42 00:02:24,440 --> 00:02:28,919 Speaker 1: You've gotta be kidding me. Well, you know, look, I 43 00:02:29,360 --> 00:02:31,320 Speaker 1: know my friend Gregg Valley is about to say that 44 00:02:31,360 --> 00:02:34,880 Speaker 1: we're going to have a broker convention, But I I respectfully, 45 00:02:34,960 --> 00:02:37,240 Speaker 1: am going to say that that all of my reporting 46 00:02:37,240 --> 00:02:40,160 Speaker 1: would lead me to indicate otherwise. And here's why. For 47 00:02:40,240 --> 00:02:44,000 Speaker 1: as complex as this process is, this is exactly that 48 00:02:44,160 --> 00:02:46,800 Speaker 1: I know there's differences between the way the Democrats and 49 00:02:46,800 --> 00:02:49,920 Speaker 1: the Republicans see their business, but this is exactly the 50 00:02:49,960 --> 00:02:53,400 Speaker 1: conversation that we're about that we had in For as 51 00:02:53,440 --> 00:02:56,640 Speaker 1: complex as the process is, Bernie Sanders and pet Buda 52 00:02:56,720 --> 00:02:59,280 Speaker 1: Jedge are still getting the most votes. And for all 53 00:02:59,360 --> 00:03:02,920 Speaker 1: of the most America who are not as politically obsessed 54 00:03:03,000 --> 00:03:05,359 Speaker 1: with this process as people like the three of us are, 55 00:03:06,320 --> 00:03:08,760 Speaker 1: a win is a win, and you get to those votes, 56 00:03:08,800 --> 00:03:10,960 Speaker 1: you win, you get momentum, and you go on greg 57 00:03:10,960 --> 00:03:13,919 Speaker 1: push against us. I mean, Warred's gonna drop out, Biden 58 00:03:14,000 --> 00:03:16,200 Speaker 1: is going to drop out, Styre is going to drop out. 59 00:03:16,400 --> 00:03:18,600 Speaker 1: How do you get a brokered convention with only two 60 00:03:18,680 --> 00:03:21,880 Speaker 1: or three candidates left? I'm not sure Biden drops out 61 00:03:21,919 --> 00:03:24,560 Speaker 1: quite yet. He could do okay in the Vada, he 62 00:03:24,600 --> 00:03:27,160 Speaker 1: could win South Carolina, he could win a plurality of 63 00:03:27,200 --> 00:03:30,360 Speaker 1: delegates on Super Tuesday. A little too early to write 64 00:03:30,440 --> 00:03:33,119 Speaker 1: him off, but it's worth noting he has never won 65 00:03:33,240 --> 00:03:38,440 Speaker 1: a primary in three presidential campaigns, so so moving forward, 66 00:03:38,640 --> 00:03:40,600 Speaker 1: I do think that there will be two or three 67 00:03:40,640 --> 00:03:43,800 Speaker 1: serious candidates. Not sure there's going to be a brokered convention, 68 00:03:43,800 --> 00:03:46,720 Speaker 1: but I do think there'll be a disputed convention where 69 00:03:46,720 --> 00:03:49,160 Speaker 1: the first ballot winner is not clear when they get 70 00:03:49,200 --> 00:03:53,360 Speaker 1: to Milwaukee. Greg, I have like twenty five questions here 71 00:03:53,360 --> 00:03:55,280 Speaker 1: in like two minutes. So first, why is Biden so 72 00:03:55,440 --> 00:03:58,920 Speaker 1: much trouble? And how does he get back energy? Doesn't 73 00:03:58,920 --> 00:04:01,560 Speaker 1: have enough energy, doesn't show enough energy. It's it's as 74 00:04:01,560 --> 00:04:04,600 Speaker 1: simple as that, right, But you can't, I mean, how 75 00:04:04,640 --> 00:04:08,520 Speaker 1: do you get that? I mean this is a personality, right, 76 00:04:08,560 --> 00:04:11,119 Speaker 1: I mean he's you know, Bernie Sanders is an energetic 77 00:04:11,160 --> 00:04:14,040 Speaker 1: seventy eight year old. Biden there's not an energetic seventy 78 00:04:14,120 --> 00:04:16,520 Speaker 1: seven year old. And people know this so I I 79 00:04:16,600 --> 00:04:19,400 Speaker 1: do think he's pretty much finished. I think Elizabeth Warren 80 00:04:19,560 --> 00:04:21,800 Speaker 1: is pretty much finished. But you there's one name we 81 00:04:21,839 --> 00:04:24,120 Speaker 1: haven't mentioned. We've got to mention, and that of course 82 00:04:24,200 --> 00:04:27,000 Speaker 1: is Michael Bloomberg. I know you have to do a disclaimer, 83 00:04:27,279 --> 00:04:30,640 Speaker 1: but with his resources, I think Super Tuesday could be 84 00:04:30,720 --> 00:04:34,960 Speaker 1: really pivotal for him. Okay, the disclaimer is that Michael 85 00:04:34,960 --> 00:04:38,440 Speaker 1: Bloomberg is the founder and majority owner of Bloomberg News, 86 00:04:38,440 --> 00:04:42,560 Speaker 1: including of course Bloomberg LP. So, Kevin, what happens next? 87 00:04:42,640 --> 00:04:44,720 Speaker 1: What what's the next step that we're actually looking out for? 88 00:04:44,800 --> 00:04:46,400 Speaker 1: And why is everything swapp in the air. I mean 89 00:04:46,400 --> 00:04:48,760 Speaker 1: we're talking about broke convention. We're talking about you know, 90 00:04:48,800 --> 00:04:52,240 Speaker 1: no clear winner. Is there a democratic problem right now? 91 00:04:54,080 --> 00:04:56,680 Speaker 1: But I mean it's a dysfunctional family, both of the 92 00:04:56,720 --> 00:04:59,119 Speaker 1: political parties. Are we do we go through this every 93 00:04:59,120 --> 00:05:01,280 Speaker 1: four years? Frenz, you know, no offense. I mean here 94 00:05:01,279 --> 00:05:03,600 Speaker 1: in America you know that that we're kind of used 95 00:05:03,600 --> 00:05:05,279 Speaker 1: to that. But here's what I'll say with regards to 96 00:05:05,279 --> 00:05:09,480 Speaker 1: what Greg Valley said about Michael Bloomberg. Joe Biden has 97 00:05:09,520 --> 00:05:12,360 Speaker 1: competed in Iowa and and lost. He competed in New 98 00:05:12,400 --> 00:05:15,400 Speaker 1: Hampshire and lost. Michael Bloomberg hasn't competed yet. And as 99 00:05:15,480 --> 00:05:19,000 Speaker 1: this moves forward to Super Tuesday, you're gonna hear some 100 00:05:19,120 --> 00:05:22,640 Speaker 1: sharpened political attacks. We've already heard them, and based upon 101 00:05:22,720 --> 00:05:25,920 Speaker 1: my reporting, point blank, you're going to be hearing aggressively 102 00:05:26,000 --> 00:05:29,480 Speaker 1: more political attacks against the former New York City mayor. 103 00:05:29,960 --> 00:05:31,720 Speaker 1: And and that's gonna happen over the next three weeks. 104 00:05:31,760 --> 00:05:33,800 Speaker 1: We're gonna have some some new guidance over the next 105 00:05:33,800 --> 00:05:37,760 Speaker 1: three weeks. But again, Buddha Judge competed, he won. Bernie 106 00:05:37,800 --> 00:05:41,000 Speaker 1: Sanders competed, he won, And a win is a win. Kevin, 107 00:05:41,000 --> 00:05:43,520 Speaker 1: thank you so much, big. One final question, with all 108 00:05:43,560 --> 00:05:46,200 Speaker 1: that you've done for us over the years, Concord, New 109 00:05:46,240 --> 00:05:50,960 Speaker 1: Hampshire is in your soul. New Hampshire is so so, 110 00:05:50,960 --> 00:05:54,960 Speaker 1: so different than the rest of the world. Why do 111 00:05:55,040 --> 00:05:59,120 Speaker 1: we put such a focus on your conquered New Hampshire. Well, 112 00:05:59,160 --> 00:06:03,080 Speaker 1: a lot of think sensible voters who really get into 113 00:06:03,120 --> 00:06:05,960 Speaker 1: it and follow it carefully. I have to think the 114 00:06:06,080 --> 00:06:10,279 Speaker 1: final point that a lot of these voters are depressed 115 00:06:10,320 --> 00:06:15,039 Speaker 1: this morning because as one faction or another leaves Milwaukee unhappy, 116 00:06:15,320 --> 00:06:17,560 Speaker 1: it's a good story for Donald Trump. This has been 117 00:06:17,600 --> 00:06:20,600 Speaker 1: wonderful and fan scenes right, we had a million questions 118 00:06:21,240 --> 00:06:24,200 Speaker 1: as well, so Greg Valuer with us and we say 119 00:06:24,240 --> 00:06:26,320 Speaker 1: thank you so much, and Kevin so really thank you 120 00:06:27,080 --> 00:06:33,440 Speaker 1: as well. As we come out of the New Hampshire primaries, 121 00:06:33,600 --> 00:06:36,600 Speaker 1: we send it to Sanders on top. It's on to Nevada. 122 00:06:36,839 --> 00:06:39,039 Speaker 1: Johnny us now Kate more ahead of thematic strategy at 123 00:06:39,040 --> 00:06:42,799 Speaker 1: black Rocks Global Allocation Investment Team. Could mon uchucate, good morning. 124 00:06:42,880 --> 00:06:45,359 Speaker 1: Just a quick note on politics. I don't know if 125 00:06:45,360 --> 00:06:48,680 Speaker 1: it's complacency, comfort or otherwise, but on Wall Street, no 126 00:06:48,960 --> 00:06:52,359 Speaker 1: real worries about Senator Sanders. Either it's too early to 127 00:06:52,400 --> 00:06:55,320 Speaker 1: start caring. They don't believe he can win the general 128 00:06:56,160 --> 00:06:58,000 Speaker 1: or they believe if he does, he can't govern and 129 00:06:58,000 --> 00:07:00,000 Speaker 1: he can't get things done if he's in the White House. 130 00:07:00,120 --> 00:07:02,279 Speaker 1: Which one is say it right now, So I'm voting 131 00:07:02,279 --> 00:07:04,320 Speaker 1: for option three on this one, which is, you know, 132 00:07:04,360 --> 00:07:07,000 Speaker 1: there is some skepticism that Bernie's second actually make it 133 00:07:07,040 --> 00:07:09,720 Speaker 1: through to the White House, But the real conversation amongst 134 00:07:09,760 --> 00:07:12,640 Speaker 1: market participants right now is that even if he does, 135 00:07:13,080 --> 00:07:14,920 Speaker 1: he won't be able to enact a lot of the 136 00:07:14,920 --> 00:07:17,920 Speaker 1: policies that he has laid out so you know, we 137 00:07:17,960 --> 00:07:20,400 Speaker 1: saw this a lot in this administration as well, a 138 00:07:20,440 --> 00:07:22,560 Speaker 1: lot of talk, a lot of headlines in this case, 139 00:07:22,600 --> 00:07:25,280 Speaker 1: a lot of tweets, but you know, much more challenge 140 00:07:25,320 --> 00:07:29,480 Speaker 1: actually enacting radical policies than would otherwise have been feared 141 00:07:29,600 --> 00:07:32,560 Speaker 1: or suggested. Within the fear is And I read CBO 142 00:07:32,760 --> 00:07:35,760 Speaker 1: yesterday the summer on the new trillion dollar deficits modeled 143 00:07:35,840 --> 00:07:38,720 Speaker 1: up to one point three and I know the president's budgets, 144 00:07:38,720 --> 00:07:43,000 Speaker 1: a political document, etcetera. Within your thematic investing, do you 145 00:07:43,120 --> 00:07:46,280 Speaker 1: care about trillion dollar deficits? You know, we have to 146 00:07:46,280 --> 00:07:48,400 Speaker 1: think about our time rising on this one. The deficits 147 00:07:48,440 --> 00:07:51,200 Speaker 1: certainly matters, but over shorter time periods, and by that 148 00:07:51,280 --> 00:07:54,960 Speaker 1: I mean measured in quarters, not necessarily years or decades, 149 00:07:55,320 --> 00:07:57,880 Speaker 1: they're much more interesting themes for us to invest around 150 00:07:58,160 --> 00:08:00,720 Speaker 1: dynamic changes happening across a rye, the of sectors and 151 00:08:00,760 --> 00:08:04,760 Speaker 1: in consumption patterns. Remember late last year people saying that 152 00:08:04,880 --> 00:08:07,040 Speaker 1: at the end of this year there would be turmoil 153 00:08:07,160 --> 00:08:12,640 Speaker 1: volatility heading into elections. Right now, it sounds like everyone 154 00:08:13,040 --> 00:08:17,240 Speaker 1: is shrugging off anything. Nothing matters. The elections don't matter 155 00:08:17,280 --> 00:08:20,400 Speaker 1: because nothing will get done. The deficit doesn't matter. Because 156 00:08:20,400 --> 00:08:23,560 Speaker 1: in the short term, easy money will cure all what matters. 157 00:08:23,680 --> 00:08:26,920 Speaker 1: What's the sort of potential uh is sort of downside 158 00:08:26,960 --> 00:08:30,080 Speaker 1: here that could cause some volatility that people are looking at. Yeah, 159 00:08:30,160 --> 00:08:32,079 Speaker 1: I mean, I think the big thing to watch here 160 00:08:32,240 --> 00:08:34,880 Speaker 1: is going to be whether or not companies are able 161 00:08:34,920 --> 00:08:39,079 Speaker 1: to continue to generate earnings growth throughout a lower growth environment. 162 00:08:39,400 --> 00:08:41,880 Speaker 1: I say that because, well, we do expect that there 163 00:08:41,960 --> 00:08:43,480 Speaker 1: might be a little bit of multiple expansion in the 164 00:08:43,520 --> 00:08:46,240 Speaker 1: equity market given incredibly low bond yields. I think the 165 00:08:46,240 --> 00:08:48,480 Speaker 1: majority of the returns from the equity market this year 166 00:08:48,840 --> 00:08:51,839 Speaker 1: have to come from earnings, and this is going to 167 00:08:51,880 --> 00:08:54,480 Speaker 1: be the big question mark. Now, I'm pretty constructive on this. 168 00:08:54,840 --> 00:08:56,959 Speaker 1: I think in sensus actually is more in line and 169 00:08:57,000 --> 00:08:58,880 Speaker 1: we're not going to see as dramatic of a downward 170 00:08:58,880 --> 00:09:01,360 Speaker 1: revisions two earnings X by stations as we have in 171 00:09:01,400 --> 00:09:05,000 Speaker 1: previous years. And I've been pretty encouraged by the stability 172 00:09:05,080 --> 00:09:08,000 Speaker 1: in fourth quarter earnings even during a fairly rocky period 173 00:09:08,040 --> 00:09:11,480 Speaker 1: around trade and concerns around politics. So I don't want 174 00:09:11,480 --> 00:09:14,600 Speaker 1: to sound Pollyanna, but I do expect that we're going 175 00:09:14,640 --> 00:09:16,400 Speaker 1: to end the year higher from here, John, are you 176 00:09:16,520 --> 00:09:18,679 Speaker 1: laughing and I'm smiling because when we talk about earnings, 177 00:09:18,720 --> 00:09:21,080 Speaker 1: I'm just wondering whose earnings. We're talking about Microsoft as 178 00:09:21,080 --> 00:09:26,120 Speaker 1: an Apple right now almost ten and they matter. They matter, 179 00:09:26,200 --> 00:09:27,800 Speaker 1: I know they matter. They matter a whole lot more 180 00:09:27,800 --> 00:09:29,839 Speaker 1: than they did a number of years ago. So when 181 00:09:29,840 --> 00:09:32,839 Speaker 1: we talk about earnings, whose earnings? One sector, A couple 182 00:09:32,840 --> 00:09:35,240 Speaker 1: of companies, a handful of companies. Yeah, okay, this is 183 00:09:35,240 --> 00:09:37,560 Speaker 1: a completely fair point. What another thing I've been focused 184 00:09:37,559 --> 00:09:39,440 Speaker 1: a lot on is what what companies are giving us 185 00:09:39,440 --> 00:09:42,040 Speaker 1: in terms of guidance, not just for first quarter twenty 186 00:09:42,120 --> 00:09:44,160 Speaker 1: but also for full year. And if you look at 187 00:09:44,160 --> 00:09:47,319 Speaker 1: where guidance has come in the vast majority of the 188 00:09:48,120 --> 00:09:51,120 Speaker 1: more positive guidance in consensus is coming from technology and 189 00:09:51,120 --> 00:09:55,880 Speaker 1: communications and technology enabled companies across a variety of different sectors. 190 00:09:56,240 --> 00:09:58,440 Speaker 1: So you know, you're right to point out some of 191 00:09:58,440 --> 00:10:01,240 Speaker 1: those big behemoths. They are driving a lot of the 192 00:10:01,280 --> 00:10:05,200 Speaker 1: you know, the bottom line growth. That said, I think 193 00:10:05,200 --> 00:10:08,320 Speaker 1: if we have stability and growth, low interest rates, and 194 00:10:08,360 --> 00:10:10,520 Speaker 1: people don't really worry so much as we were just 195 00:10:10,720 --> 00:10:13,599 Speaker 1: mentioning around politics and geopolitics, then there's going to be 196 00:10:13,679 --> 00:10:15,840 Speaker 1: I think a broader swath of consumer companies that that 197 00:10:15,880 --> 00:10:18,840 Speaker 1: hold up. We also like things like consumption demand around 198 00:10:18,880 --> 00:10:21,600 Speaker 1: home builders, for example, have you done? And this goes 199 00:10:21,640 --> 00:10:24,560 Speaker 1: to Bed Laylor being with this very bullish the other 200 00:10:24,640 --> 00:10:27,120 Speaker 1: day and James Bevan and C. C. L a very 201 00:10:27,160 --> 00:10:29,760 Speaker 1: bullish this morning, and you, I think have a very 202 00:10:29,800 --> 00:10:33,959 Speaker 1: constructive tone as well. When you take out the five 203 00:10:34,040 --> 00:10:39,679 Speaker 1: glory stocks, X out the the trillion dollar valuations, what's 204 00:10:39,720 --> 00:10:42,679 Speaker 1: the actual multiple of growthiness out there right now? It's 205 00:10:42,720 --> 00:10:45,880 Speaker 1: not as elevated as we think, is it. Well? Look, 206 00:10:45,920 --> 00:10:48,640 Speaker 1: I think people pay up for the liquidity and the 207 00:10:48,679 --> 00:10:51,280 Speaker 1: bound sheet of some of these bohemoths. We know that's 208 00:10:51,280 --> 00:10:54,760 Speaker 1: the case, but they also frankly deserve the higher multipa. 209 00:10:54,960 --> 00:10:57,400 Speaker 1: The pe on Amazon is seventy six, and if you 210 00:10:57,440 --> 00:11:01,280 Speaker 1: take it out presence, if you x that out in 211 00:11:01,480 --> 00:11:05,839 Speaker 1: eight other stocks like that, you've got a more reasonable valuation, right, 212 00:11:06,000 --> 00:11:08,520 Speaker 1: a more reasonable valuation. But Tom, you gotta remember I 213 00:11:08,600 --> 00:11:11,760 Speaker 1: grew up in emerging markets, and at that time, if you, 214 00:11:12,040 --> 00:11:15,079 Speaker 1: if you were really valuation sensitive, you would never have 215 00:11:15,160 --> 00:11:17,720 Speaker 1: owned something like by Do in its early stages, which 216 00:11:17,720 --> 00:11:20,560 Speaker 1: consistently traded at eight times forward. So you have to 217 00:11:20,559 --> 00:11:23,959 Speaker 1: be evaluation awhere. What brings that up? I didn't own 218 00:11:24,000 --> 00:11:27,439 Speaker 1: by Lisa, loaded the boat on by do Off. Oh yeah, clearly, 219 00:11:27,800 --> 00:11:32,839 Speaker 1: how's that that regret room going? The regret we're all 220 00:11:32,920 --> 00:11:36,719 Speaker 1: cash today with the Amazon on its way to done, Cassie. 221 00:11:37,080 --> 00:11:40,240 Speaker 1: I'm trying to square the picture that you're talking about here, 222 00:11:40,640 --> 00:11:43,800 Speaker 1: Okate with this sort of developing story that we're seeing 223 00:11:43,800 --> 00:11:46,360 Speaker 1: reflected by bonds and by oil prices, and we're just 224 00:11:46,440 --> 00:11:50,160 Speaker 1: seeing OPEC just now slashing forecast for global oil demand, 225 00:11:50,720 --> 00:11:54,040 Speaker 1: blaming the coronavirus, but oil prices were under pressure anyway. 226 00:11:54,200 --> 00:11:56,800 Speaker 1: How do you sort of pair these stories of slowing 227 00:11:56,840 --> 00:12:00,600 Speaker 1: global growth with robust earnings and earning square? At what 228 00:12:00,720 --> 00:12:03,920 Speaker 1: point does this dissonance become too much to handle? And 229 00:12:04,040 --> 00:12:06,960 Speaker 1: one kind of takes the upper weight here. Yeah. So 230 00:12:07,040 --> 00:12:09,280 Speaker 1: there's a lot of focus, i think, at the headline 231 00:12:09,360 --> 00:12:12,040 Speaker 1: level around some of the older drivers of the economy 232 00:12:12,080 --> 00:12:14,199 Speaker 1: or the older signals we would have. We've been talking 233 00:12:14,200 --> 00:12:16,040 Speaker 1: a lot about what is oil telling us, what is 234 00:12:16,080 --> 00:12:18,080 Speaker 1: copper telling us? What are all of the base metals 235 00:12:18,120 --> 00:12:21,080 Speaker 1: telling us? In this environment where people are worried about 236 00:12:21,080 --> 00:12:24,520 Speaker 1: the growth impacts of the coronavirus, they're not asking themselves, Hey, 237 00:12:24,600 --> 00:12:27,800 Speaker 1: how much gaming revenue? Um are the Chinese tech companies 238 00:12:27,840 --> 00:12:30,400 Speaker 1: getting as a result of everyone being quarantined at home. 239 00:12:30,600 --> 00:12:33,200 Speaker 1: They're not asking you know, what kind of media spend 240 00:12:33,240 --> 00:12:35,160 Speaker 1: are we getting as a result of people not being 241 00:12:35,200 --> 00:12:37,280 Speaker 1: able to go out and spend in retail stores. We 242 00:12:37,360 --> 00:12:40,240 Speaker 1: are sometimes asking the wrong questions. You remember how much 243 00:12:40,280 --> 00:12:42,760 Speaker 1: we used to focus on, say, pre crisis and immediately 244 00:12:42,760 --> 00:12:46,440 Speaker 1: following the Baltic dry index? Is that even relevant anymore? 245 00:12:47,040 --> 00:12:49,880 Speaker 1: We fall back into these patterns of looking at these 246 00:12:49,920 --> 00:12:54,760 Speaker 1: indicators or the pricing around certain old economy um metrics 247 00:12:54,800 --> 00:12:57,160 Speaker 1: that I just don't think are are telling us where 248 00:12:57,160 --> 00:13:01,480 Speaker 1: we're going. Larry from Blackrock emails and some still Kate's 249 00:13:01,520 --> 00:13:05,000 Speaker 1: on today. Kate's not on the Talk markets, folks. She 250 00:13:05,280 --> 00:13:08,880 Speaker 1: is the official surveillance Westminster Dog Show critic as well. Indeed, 251 00:13:09,000 --> 00:13:12,320 Speaker 1: the Retriever, as you have Cora, made the finals like 252 00:13:12,360 --> 00:13:15,760 Speaker 1: the seven finalist dogs, but the Fu Foo Poodle took 253 00:13:15,760 --> 00:13:18,560 Speaker 1: the trophy. Again. It's an outrage, isn't it. I don't 254 00:13:18,559 --> 00:13:20,960 Speaker 1: want to insult the Foo Foo poodle owners, but I 255 00:13:21,000 --> 00:13:24,280 Speaker 1: will say that Retriever should have taken the prize. Its gorgeous, 256 00:13:24,440 --> 00:13:27,560 Speaker 1: good looking dog, beautiful confirmation. Why what has happened to 257 00:13:27,559 --> 00:13:30,280 Speaker 1: this hundred and forty four year institution that they can't 258 00:13:30,320 --> 00:13:34,560 Speaker 1: go with Arthur Levitt's labrador Winthrop or vet Bill something normal. 259 00:13:34,920 --> 00:13:38,360 Speaker 1: Wait a minute, vet Bills foofoo. Oops, here's what can 260 00:13:38,520 --> 00:13:41,480 Speaker 1: what happened to a retriever winning the trophy? You know, 261 00:13:41,520 --> 00:13:43,959 Speaker 1: we have a little byes against the popular dogs here. 262 00:13:44,000 --> 00:13:46,680 Speaker 1: We need to be conscious of the ser spaniels. I 263 00:13:46,679 --> 00:13:50,120 Speaker 1: mean things things dogs that are amazing, pets that are 264 00:13:50,240 --> 00:13:53,040 Speaker 1: very well owned, seem to not really resonate well with 265 00:13:53,080 --> 00:13:55,559 Speaker 1: the judges. I think that's a little unfair. I'm getting 266 00:13:55,559 --> 00:13:57,920 Speaker 1: a comment to from Larry from Black Rock. He's writing 267 00:13:58,000 --> 00:14:00,680 Speaker 1: it right now, and he's he's mentioning that he really 268 00:14:00,720 --> 00:14:03,120 Speaker 1: likes the analysis and thinks that this really affects the 269 00:14:03,640 --> 00:14:06,719 Speaker 1: broad investment strategy. It's great. I'm really glad to hear. 270 00:14:06,880 --> 00:14:09,080 Speaker 1: Did you really buy a Gucci leash? I mean Gucci 271 00:14:09,120 --> 00:14:10,680 Speaker 1: put out her rings today and they killed it. Do 272 00:14:10,720 --> 00:14:13,079 Speaker 1: you have a Gucci lease? The core is not that 273 00:14:13,120 --> 00:14:15,240 Speaker 1: foo fit. Okay, what I will tell you she's a 274 00:14:15,280 --> 00:14:17,240 Speaker 1: big fan of up country. For all of you dog 275 00:14:17,280 --> 00:14:21,880 Speaker 1: owners who know, she has many ribbons, ribbons leashes for 276 00:14:21,920 --> 00:14:24,000 Speaker 1: a different season. I can't and where we got the 277 00:14:24,000 --> 00:14:28,560 Speaker 1: hearts we do. Indeed, thank you for your dog ate 278 00:14:28,640 --> 00:14:35,120 Speaker 1: more a black rock. Right now, let's do this. Let's 279 00:14:35,160 --> 00:14:40,160 Speaker 1: get into an important discussion how you find comfort. And 280 00:14:40,240 --> 00:14:42,480 Speaker 1: just like in the old days owning and stock, James 281 00:14:42,520 --> 00:14:46,480 Speaker 1: Bevan runs very serious money for c c L a 282 00:14:46,640 --> 00:14:50,760 Speaker 1: conservative money, boring money, and they're you know, got all 283 00:14:50,800 --> 00:14:52,880 Speaker 1: the fears and the worries that we all have. And 284 00:14:52,960 --> 00:14:57,000 Speaker 1: yet he says, stay invested. State the bull case. Now, James, 285 00:14:57,320 --> 00:15:03,240 Speaker 1: state why quiet money can become comfortable in equities. I 286 00:15:03,400 --> 00:15:07,400 Speaker 1: begin with the premise that the benefit from equity ownership 287 00:15:07,760 --> 00:15:12,320 Speaker 1: is about long term participation in an underlying business, paying 288 00:15:12,360 --> 00:15:15,880 Speaker 1: a sensible price and therefore in effect expecting an earner. 289 00:15:16,080 --> 00:15:19,080 Speaker 1: And I look at the price that you receive in 290 00:15:19,280 --> 00:15:22,600 Speaker 1: terms of the forward rist premium for being in the 291 00:15:22,600 --> 00:15:26,520 Speaker 1: extra market. I think we think that's too high. And 292 00:15:26,720 --> 00:15:30,040 Speaker 1: in the context of the alternative places where one can 293 00:15:30,960 --> 00:15:34,080 Speaker 1: have one's money, the cash market, the bond market, the 294 00:15:34,080 --> 00:15:37,840 Speaker 1: real estate markets, I think the valuations of EU are 295 00:15:37,960 --> 00:15:41,560 Speaker 1: too low. I think valuations should be materially higher though 296 00:15:41,640 --> 00:15:44,680 Speaker 1: for people should sit with equities. Okay, this is really critical, James. 297 00:15:44,720 --> 00:15:46,520 Speaker 1: I'm gonna go off c f A on you here 298 00:15:46,600 --> 00:15:49,000 Speaker 1: right now. In a dividend discount model, there's an exit 299 00:15:49,040 --> 00:15:51,520 Speaker 1: access and you go out five years, seven years to 300 00:15:51,600 --> 00:15:57,360 Speaker 1: a terminal value. Have we extended out our timeline to 301 00:15:57,640 --> 00:16:00,680 Speaker 1: value equities that are we looking out instead of three 302 00:16:00,760 --> 00:16:03,440 Speaker 1: years five years or instead of seven years? Are we 303 00:16:03,560 --> 00:16:08,640 Speaker 1: valium ten years now? Because of this is great disinflation? Tom. 304 00:16:09,000 --> 00:16:11,640 Speaker 1: What I what I think any investor can do is 305 00:16:11,720 --> 00:16:15,680 Speaker 1: they can lift the consensus numbers from IBS or any 306 00:16:15,680 --> 00:16:19,920 Speaker 1: other entity. Bloomberg runs a very good service of consensus 307 00:16:19,960 --> 00:16:23,600 Speaker 1: data collection, and take the five year market numbers and 308 00:16:23,640 --> 00:16:27,960 Speaker 1: then assume that after the first five years companies get 309 00:16:28,000 --> 00:16:32,360 Speaker 1: linear participational in nominal economic growth. So that's that's been 310 00:16:32,640 --> 00:16:36,200 Speaker 1: the terminal growth. If you then toss up all those 311 00:16:36,240 --> 00:16:39,640 Speaker 1: cash flows and say what's the discount rate that takes 312 00:16:39,680 --> 00:16:44,520 Speaker 1: those cash flows back today's price, Well, that number at 313 00:16:44,520 --> 00:16:49,920 Speaker 1: the moment is six spot three in excess of the 314 00:16:50,000 --> 00:16:53,440 Speaker 1: long government bond yield. Now, that to me is a 315 00:16:53,560 --> 00:16:56,640 Speaker 1: huge payment for risk. I think that we can also 316 00:16:56,920 --> 00:17:00,280 Speaker 1: consider what is the fair payment in the content next 317 00:17:00,560 --> 00:17:04,200 Speaker 1: of lead indicators and current credit spreads, and I think 318 00:17:04,240 --> 00:17:07,679 Speaker 1: that's no more than five so I would be expecting 319 00:17:07,720 --> 00:17:11,879 Speaker 1: the discount rate in effect to fall because prices have risen. 320 00:17:12,040 --> 00:17:15,159 Speaker 1: So I am set and expecting that fair value is 321 00:17:15,320 --> 00:17:19,480 Speaker 1: materially above You're getting a clinic their folks on institutional 322 00:17:19,520 --> 00:17:22,760 Speaker 1: equity valuation. Then how can James bevan by the marginal 323 00:17:22,880 --> 00:17:29,840 Speaker 1: share of Amazon with a forward pe of seventies six? Well, 324 00:17:30,200 --> 00:17:35,800 Speaker 1: I I look at the valuation of Amazon, and I 325 00:17:35,960 --> 00:17:39,120 Speaker 1: look through the price endings multiple to the free cash 326 00:17:39,200 --> 00:17:41,840 Speaker 1: lay yield and the long term great for that free 327 00:17:41,840 --> 00:17:45,119 Speaker 1: cash lay yield, and I still see a share price 328 00:17:45,200 --> 00:17:48,159 Speaker 1: that is below what I calculate to be the their 329 00:17:48,240 --> 00:17:53,480 Speaker 1: value for the company. That allows me to believe that 330 00:17:53,560 --> 00:17:58,080 Speaker 1: the citcall very expensive stocks are actually structurally cheap and 331 00:17:58,119 --> 00:18:00,560 Speaker 1: indeed are cheat in the context of what people have 332 00:18:00,640 --> 00:18:03,720 Speaker 1: been prepared to pay in prior peaks of expensiveness. So 333 00:18:03,760 --> 00:18:07,560 Speaker 1: I've looked at prior periods where growth stocks have done well, 334 00:18:07,680 --> 00:18:11,080 Speaker 1: so periods of relatively slow growth, low inflation, and low 335 00:18:11,119 --> 00:18:14,119 Speaker 1: money rates, and I see valuations that are ranged between 336 00:18:14,160 --> 00:18:17,760 Speaker 1: forty five times and seventy two times. On that basis, 337 00:18:17,760 --> 00:18:21,119 Speaker 1: Amazon is demonstrably cheap. The second issue is that if 338 00:18:21,119 --> 00:18:26,960 Speaker 1: you deduct the relatively expensive six stocks that dominate market indices. 339 00:18:27,400 --> 00:18:31,200 Speaker 1: The valuation of the residual SMP five falls from eighteen 340 00:18:31,280 --> 00:18:33,879 Speaker 1: and a half times that many have described as expensive 341 00:18:34,560 --> 00:18:38,320 Speaker 1: to sixty seven times, which I think looks arguably way 342 00:18:38,359 --> 00:18:41,480 Speaker 1: too cheap in the context of the growth and so 343 00:18:41,600 --> 00:18:44,680 Speaker 1: many other world class companies in that market. You John 344 00:18:44,840 --> 00:18:48,560 Speaker 1: have to translate spot is for point for our American banks. 345 00:18:48,760 --> 00:18:51,439 Speaker 1: Thanks Tom, Thank you very much, Chimes, I always forget 346 00:18:51,480 --> 00:18:54,560 Speaker 1: that that it doesn't translate well, sorry, into America. Let's 347 00:18:54,560 --> 00:18:58,040 Speaker 1: move on links to everything you've said. How great is 348 00:18:58,080 --> 00:19:04,200 Speaker 1: the pressure to one US megacaps stocks right now? I 349 00:19:04,240 --> 00:19:07,720 Speaker 1: think that the short term performance the UK megacaps are 350 00:19:09,280 --> 00:19:11,960 Speaker 1: absolutely supported by a following wind. I mean, when one 351 00:19:12,000 --> 00:19:15,480 Speaker 1: looks at the financial results who came out for the 352 00:19:15,520 --> 00:19:21,200 Speaker 1: Big five excluding Netflix, I look at a beat against 353 00:19:21,440 --> 00:19:25,920 Speaker 1: Q four earnings forecasts, that is something in the order 354 00:19:25,920 --> 00:19:30,560 Speaker 1: of fourteen spot three earning surprise with twenty one and 355 00:19:30,600 --> 00:19:33,639 Speaker 1: a half percent in round figures year on your earnings growth. 356 00:19:34,920 --> 00:19:38,640 Speaker 1: That compares with the rest of the index excluding those 357 00:19:38,720 --> 00:19:42,360 Speaker 1: top names, with surprise of three point nine percent and 358 00:19:42,680 --> 00:19:46,119 Speaker 1: earnings growth of zero spot five percent. Now, why would 359 00:19:46,119 --> 00:19:50,640 Speaker 1: one not want to own fabulous growth companies on valuations 360 00:19:50,640 --> 00:19:53,400 Speaker 1: which are arguably reasonable. If you subscribe to the view 361 00:19:53,440 --> 00:19:56,400 Speaker 1: that I do, the bondiles are staying low. Cash rates 362 00:19:56,400 --> 00:19:58,719 Speaker 1: are only like to get lower in the context of 363 00:19:58,720 --> 00:20:01,440 Speaker 1: what Jerome Pile has been saying, and that both gross 364 00:20:01,520 --> 00:20:04,480 Speaker 1: and inflation again to remain very modest japs. There is 365 00:20:04,480 --> 00:20:07,320 Speaker 1: a question about whether the FED model still works, whether 366 00:20:07,440 --> 00:20:10,000 Speaker 1: bonds and stocks can be compared in the same way, 367 00:20:10,000 --> 00:20:12,880 Speaker 1: And this is a question that is increasingly important as 368 00:20:12,920 --> 00:20:16,040 Speaker 1: people use the low bond yields to justify their purchase 369 00:20:16,080 --> 00:20:17,440 Speaker 1: of stocks. I mean, at the end of the day, 370 00:20:17,440 --> 00:20:20,399 Speaker 1: and earnings yield is not the same as the yield 371 00:20:20,440 --> 00:20:22,280 Speaker 1: or the coupon that you get on a bond, and 372 00:20:22,280 --> 00:20:25,359 Speaker 1: there is risk embedded in at the stocks that is 373 00:20:25,359 --> 00:20:30,159 Speaker 1: not there for bonds. Yeah, you're absolutely correct, and I 374 00:20:30,200 --> 00:20:33,679 Speaker 1: do think that there has been a significant shift in 375 00:20:33,720 --> 00:20:37,360 Speaker 1: the way that the market thinks about debt and sustainable 376 00:20:37,440 --> 00:20:41,960 Speaker 1: levels of debt interest costs. And if you subscribe to 377 00:20:42,000 --> 00:20:46,760 Speaker 1: the view as peddled by the central banks that sustainable 378 00:20:46,840 --> 00:20:50,080 Speaker 1: equilibrium bond yields are lower, it doesn't mean you're going 379 00:20:50,160 --> 00:20:52,760 Speaker 1: to make more money because those bond yields are stock 380 00:20:52,840 --> 00:20:55,960 Speaker 1: at those ultra low levels. So the journey of making 381 00:20:56,600 --> 00:20:59,600 Speaker 1: the path to those lower yields, which obviously means higher prices, 382 00:20:59,840 --> 00:21:03,199 Speaker 1: is over. But it does mean that the arithmetic in 383 00:21:03,280 --> 00:21:08,040 Speaker 1: favor of equities is thoroughly supported and well placed. James 384 00:21:08,080 --> 00:21:11,000 Speaker 1: always got to catch up the really really thoughtful, insightful 385 00:21:11,040 --> 00:21:13,440 Speaker 1: stuff on some of the big names in the US 386 00:21:13,480 --> 00:21:16,240 Speaker 1: econmy market after a monster rally through last year that 387 00:21:16,320 --> 00:21:19,639 Speaker 1: continues into this year and climbs a wad of worry. 388 00:21:19,720 --> 00:21:22,240 Speaker 1: James Bevan the c c L a investment management Chief 389 00:21:22,520 --> 00:21:27,240 Speaker 1: investment Officer. And Neil Sharing is a Capital Economics just 390 00:21:27,280 --> 00:21:30,600 Speaker 1: an outstanding group of economic analysis. John, let me bring 391 00:21:30,640 --> 00:21:33,239 Speaker 1: him in here and you can go what wisdom on him. 392 00:21:33,359 --> 00:21:35,840 Speaker 1: And what's so importantly is is Neil before he was 393 00:21:35,880 --> 00:21:40,080 Speaker 1: a Capital Economics was with his Majesty the Treasury, was 394 00:21:40,160 --> 00:21:44,159 Speaker 1: an economic advisor and worked on the Sussex's finances before 395 00:21:44,200 --> 00:21:46,280 Speaker 1: they went to Canada. And you're trying to get some 396 00:21:46,320 --> 00:21:49,280 Speaker 1: people in trouble something like that. Neil Sharing joins us 397 00:21:49,320 --> 00:21:52,000 Speaker 1: here on the Economy journe Neil great to catch up 398 00:21:52,000 --> 00:21:55,320 Speaker 1: with the Capital Economics chief economist. Now let's talk about 399 00:21:55,320 --> 00:21:57,439 Speaker 1: some data out of America didn't get a whole lot 400 00:21:57,480 --> 00:21:59,400 Speaker 1: of coverage in the last twenty four hours, but job 401 00:21:59,480 --> 00:22:03,720 Speaker 1: opening just started to go the wrong way. What do 402 00:22:03,800 --> 00:22:07,280 Speaker 1: you read into that now, Well, it's obviously only one 403 00:22:07,280 --> 00:22:10,840 Speaker 1: month data at at this point, and the payrolls, the 404 00:22:10,920 --> 00:22:13,480 Speaker 1: numbers that we had at the start of this month, Um, 405 00:22:13,560 --> 00:22:16,760 Speaker 1: we're pretty strong in the labor market itself. UM seems 406 00:22:16,760 --> 00:22:19,520 Speaker 1: to be in reasonable shape. And the revisions that we 407 00:22:19,520 --> 00:22:21,440 Speaker 1: were expecting to the back series of that payrolls and 408 00:22:21,480 --> 00:22:24,840 Speaker 1: number that that series little bit better than the rather 409 00:22:24,960 --> 00:22:27,520 Speaker 1: less less than than we had feared. So I wouldn't 410 00:22:27,560 --> 00:22:29,440 Speaker 1: read too much into it at this point. I still 411 00:22:29,520 --> 00:22:32,000 Speaker 1: think that we're in this goldilocks period of low but 412 00:22:32,119 --> 00:22:35,200 Speaker 1: positive growth, no inflation as far as I can see, 413 00:22:35,240 --> 00:22:38,240 Speaker 1: at least in consumer prices, and therefore low interest rates. 414 00:22:38,400 --> 00:22:41,959 Speaker 1: Of course, that continues to bid up asset prices. Uh. 415 00:22:42,160 --> 00:22:43,960 Speaker 1: And if I was worried about the future, I wouldn't 416 00:22:43,960 --> 00:22:45,680 Speaker 1: be worried about the labor market. Now, I'll be worried 417 00:22:45,680 --> 00:22:48,240 Speaker 1: about the long term consequence to continued melt up in 418 00:22:48,240 --> 00:22:50,840 Speaker 1: a surprise, and you know the political tension that we 419 00:22:50,920 --> 00:22:55,000 Speaker 1: see frankly in Germany, in Ireland, in Irish elections we've 420 00:22:55,040 --> 00:22:57,159 Speaker 1: barely touched on and what we saw last night in 421 00:22:57,200 --> 00:23:01,160 Speaker 1: New Hampshire. You know, and it's a gold Lacks period. 422 00:23:01,600 --> 00:23:03,760 Speaker 1: But within all of what Roger Boodle and you have 423 00:23:03,840 --> 00:23:08,400 Speaker 1: kept economics do, how goldilocks is it? I just don't buy. 424 00:23:08,480 --> 00:23:12,280 Speaker 1: It's a Goldilocks period for so many Americans. Well, it's 425 00:23:12,280 --> 00:23:14,600 Speaker 1: a Goldenlocks period. If you're in the market, it's a 426 00:23:14,640 --> 00:23:18,240 Speaker 1: Goldilocks period. If you're a fun manager managing equities of bonds, 427 00:23:18,480 --> 00:23:21,840 Speaker 1: we call that an American neil they have, Yeah, what 428 00:23:21,920 --> 00:23:26,560 Speaker 1: about your find? But underlying this, of course is the 429 00:23:26,600 --> 00:23:30,160 Speaker 1: fact that although the pie has been growing, the share 430 00:23:30,200 --> 00:23:32,720 Speaker 1: of the pie going to labor has been squeezed and 431 00:23:32,760 --> 00:23:35,680 Speaker 1: the share of the pie going to capital has increased. 432 00:23:35,680 --> 00:23:37,800 Speaker 1: And that's why it's a goldlock experience. You're right, it's 433 00:23:37,800 --> 00:23:40,879 Speaker 1: gold loxperience of a surprises. It's less of a goldenlock sperience, 434 00:23:40,960 --> 00:23:43,239 Speaker 1: far from it for for labor, which is why we've 435 00:23:43,280 --> 00:23:46,440 Speaker 1: seen this long squeeze on on on labor sharef income 436 00:23:46,480 --> 00:23:49,159 Speaker 1: in the US. We've seen real real incomes, real wages 437 00:23:49,760 --> 00:23:51,920 Speaker 1: in the UK and other parts of Europe struggling to 438 00:23:51,920 --> 00:23:54,440 Speaker 1: go anywhere. So Neil, At what point does the data 439 00:23:54,480 --> 00:23:57,399 Speaker 1: that we get shake us out of the Goldilocks period? 440 00:23:57,480 --> 00:24:02,000 Speaker 1: Which data set really has the pattern shire to do that? Well, 441 00:24:02,080 --> 00:24:04,000 Speaker 1: if we run with this idea that there's a Goldilocks 442 00:24:04,040 --> 00:24:06,520 Speaker 1: period for a surprise is not labor. There's two things 443 00:24:06,560 --> 00:24:09,760 Speaker 1: I think that go wrong potentially to upset This. One 444 00:24:09,840 --> 00:24:13,080 Speaker 1: is in the short term, a fear in the markets 445 00:24:13,119 --> 00:24:15,800 Speaker 1: that inflation is starting to return or is just around 446 00:24:15,800 --> 00:24:19,119 Speaker 1: the corner, or indeed that central banks themselves may start 447 00:24:19,160 --> 00:24:23,120 Speaker 1: to try and actually actively target higher, higher inflation. Don't 448 00:24:23,119 --> 00:24:25,439 Speaker 1: think We've got policy reviews and by the FED but 449 00:24:25,480 --> 00:24:28,040 Speaker 1: also the ECB this this year. So a fear of 450 00:24:28,040 --> 00:24:30,119 Speaker 1: the return of a return to inflation would be the 451 00:24:30,600 --> 00:24:32,920 Speaker 1: short term thing that would be most likely I think, 452 00:24:32,960 --> 00:24:37,760 Speaker 1: to to spook financial markets. Don't think it's particularly likely myself, 453 00:24:38,080 --> 00:24:40,480 Speaker 1: which leads me to the second thing, which is over 454 00:24:40,560 --> 00:24:43,960 Speaker 1: the longer term you get a continued period of very 455 00:24:44,000 --> 00:24:47,000 Speaker 1: low interest rates. A commonis monetary policy. You've already ten 456 00:24:47,040 --> 00:24:51,400 Speaker 1: years into this very very period of over loose monetary policy. 457 00:24:51,800 --> 00:24:54,240 Speaker 1: At some point we're putting a lot of faith in 458 00:24:54,320 --> 00:24:57,760 Speaker 1: markets to allocate capital efficiently. Um and I think at 459 00:24:57,840 --> 00:25:01,560 Speaker 1: some point something breaks because there's a bubble in Chinese property, 460 00:25:01,760 --> 00:25:04,679 Speaker 1: in US car loans, in leveraged loans, whatever it is. 461 00:25:04,720 --> 00:25:07,720 Speaker 1: You know, we all know the familiar uh points of 462 00:25:07,760 --> 00:25:10,560 Speaker 1: the potential stress. But at some point something breaks and 463 00:25:10,680 --> 00:25:13,399 Speaker 1: we get another as surprise collapse. And we know from 464 00:25:13,440 --> 00:25:16,960 Speaker 1: the last two downturns that it's as surprise force that 465 00:25:16,760 --> 00:25:22,000 Speaker 1: that caused the big, big economic problems. Has no appetite 466 00:25:22,000 --> 00:25:23,960 Speaker 1: to do anything with rates to tackle this issue. Are 467 00:25:23,960 --> 00:25:25,600 Speaker 1: we going to hear a whole lot more about macro 468 00:25:25,720 --> 00:25:29,480 Speaker 1: podential policy in America? I suspect we will, And I 469 00:25:29,520 --> 00:25:32,920 Speaker 1: suspect I mean we we're doomed in this In this sense, 470 00:25:32,960 --> 00:25:36,800 Speaker 1: I think to keep fighting yesterday's battles, macro economic policy 471 00:25:36,840 --> 00:25:41,200 Speaker 1: will be targeted. Predential policy will be targeted in terms 472 00:25:41,280 --> 00:25:43,879 Speaker 1: of preventing another houseing bubble. And I suspect the next 473 00:25:43,920 --> 00:25:45,600 Speaker 1: problems won't be in the house and market. There'd be 474 00:25:45,640 --> 00:25:49,800 Speaker 1: somewhere else. Um, just give us an idea, what was 475 00:25:49,840 --> 00:25:51,480 Speaker 1: the corporate that would be the first place I would 476 00:25:51,480 --> 00:25:54,040 Speaker 1: look at. Corporate credit spreads are incredibly narrow and eye 477 00:25:54,160 --> 00:25:56,600 Speaker 1: close to the lows that we saw, and they run 478 00:25:56,680 --> 00:25:59,480 Speaker 1: up to the eight crisis We've had even the I 479 00:25:59,600 --> 00:26:02,680 Speaker 1: m F signing off about that MRS average loans. Small 480 00:26:02,720 --> 00:26:06,680 Speaker 1: part of the market that could go wrong. Chinese Chinese property. 481 00:26:06,920 --> 00:26:08,800 Speaker 1: That's the place I mean, if you're looking for black 482 00:26:08,840 --> 00:26:13,440 Speaker 1: swan events from the coronavirus, property sales in China of collapse, 483 00:26:13,880 --> 00:26:16,000 Speaker 1: and it's the one part of the economy that's extremely 484 00:26:16,040 --> 00:26:20,520 Speaker 1: over Leveraged developers in particular look vulnerable. That could be 485 00:26:20,560 --> 00:26:22,840 Speaker 1: the next black swan. When you talk about the corporate 486 00:26:22,840 --> 00:26:24,879 Speaker 1: debt market, we did get a warning from the Federal 487 00:26:24,920 --> 00:26:26,760 Speaker 1: Reserve last week. They said that they were going to 488 00:26:26,880 --> 00:26:30,760 Speaker 1: increase their stress test parameters, particularly for leveraged loans as 489 00:26:30,760 --> 00:26:33,160 Speaker 1: well as corporate debt more broadly. So it does seem 490 00:26:33,200 --> 00:26:35,440 Speaker 1: like that is an area of concern. But going back 491 00:26:35,480 --> 00:26:37,760 Speaker 1: to the real economy, I'm wondering what could tip the 492 00:26:37,800 --> 00:26:41,000 Speaker 1: scales with respect to earnings, with respect to the fundamentals 493 00:26:41,000 --> 00:26:43,600 Speaker 1: that actually causes some sort of default cycle that we 494 00:26:43,640 --> 00:26:47,400 Speaker 1: really haven't seen. There's nothing on the horizon at the moment. 495 00:26:47,400 --> 00:26:50,240 Speaker 1: If you look at if you think about previous um 496 00:26:50,440 --> 00:26:54,520 Speaker 1: substantial economic dantas, what's caused them, inflation shops, warranting policy 497 00:26:54,520 --> 00:26:57,960 Speaker 1: tightening by central banks, as we just discussed, the FED 498 00:26:58,040 --> 00:26:59,720 Speaker 1: looks like it's happy to set on the sidelines for 499 00:26:59,800 --> 00:27:04,880 Speaker 1: now big fiscal contractions because as a fiscal a budget crisis, 500 00:27:05,000 --> 00:27:07,680 Speaker 1: that doesn't look particularly likely. They're bond markets that like 501 00:27:07,720 --> 00:27:10,359 Speaker 1: the tolerant of higher levels of deaths and deficits at 502 00:27:10,359 --> 00:27:14,560 Speaker 1: the moment um. Oil price shocks again, that doesn't look 503 00:27:14,560 --> 00:27:17,920 Speaker 1: particularly likely on the horizon, and then asset price collapses 504 00:27:18,119 --> 00:27:20,879 Speaker 1: and at the moment particularly if you look at housing, 505 00:27:20,880 --> 00:27:23,720 Speaker 1: which is a big one, doesn't it doesn't look cheaper, 506 00:27:23,720 --> 00:27:26,960 Speaker 1: it doesn't look very expensive. Thing doesn't like a bubble um. 507 00:27:27,000 --> 00:27:29,680 Speaker 1: So it's difficult when you scan the horizon right now, 508 00:27:29,720 --> 00:27:32,359 Speaker 1: I think to see the obvious signs that something is 509 00:27:32,400 --> 00:27:35,919 Speaker 1: fermenting on the horizon. But I think you run the 510 00:27:35,920 --> 00:27:38,760 Speaker 1: plot forward twelve eighty months, two years, three years, and 511 00:27:38,800 --> 00:27:42,200 Speaker 1: I think those risks factors will start to we'll start 512 00:27:42,200 --> 00:27:43,800 Speaker 1: to return. And Neil, before we let you go, just 513 00:27:43,840 --> 00:27:46,680 Speaker 1: one quick final question, day two for the Federal Reserve chairman. 514 00:27:47,040 --> 00:27:49,520 Speaker 1: Anything left for you to ask the FED chair What 515 00:27:49,560 --> 00:27:52,520 Speaker 1: would you like to hear today? Well, I really want 516 00:27:52,560 --> 00:27:55,800 Speaker 1: to hear is you know we know the fedest target 517 00:27:55,960 --> 00:27:58,639 Speaker 1: has this two per cent inflation target and full employment? 518 00:27:59,640 --> 00:28:02,520 Speaker 1: How real is that? What are they really targeting? Are 519 00:28:02,520 --> 00:28:05,840 Speaker 1: they going to tolerate much higher rates of inflation? Because 520 00:28:05,880 --> 00:28:09,480 Speaker 1: we know that in a world where inflation were interest 521 00:28:09,560 --> 00:28:12,119 Speaker 1: rates rather are at their effective lower bound, a period 522 00:28:12,119 --> 00:28:15,159 Speaker 1: of deflation UM is a much bigger risk. So do 523 00:28:15,280 --> 00:28:17,920 Speaker 1: they trying to tip the balance the other way? Start 524 00:28:18,040 --> 00:28:20,880 Speaker 1: tolerating or even targeting the higher rates of inflation, either 525 00:28:20,960 --> 00:28:25,560 Speaker 1: explicitly or implicitly. UM, And that has a big importantion markets, 526 00:28:25,600 --> 00:28:28,240 Speaker 1: but also other things, other assets. You know, that's brilliant. 527 00:28:28,400 --> 00:28:33,080 Speaker 1: Are we going to have an implicit monetary policy guessing 528 00:28:33,440 --> 00:28:38,600 Speaker 1: future inflation? Yeah, we may well do because of us 529 00:28:38,640 --> 00:28:42,240 Speaker 1: that I don't This policy review won't change the Fed's mandate, 530 00:28:42,920 --> 00:28:46,880 Speaker 1: Nor will the Policy Review need c v DCB change 531 00:28:46,920 --> 00:28:51,080 Speaker 1: its mandate. UM. I don't suspect, but it could be, 532 00:28:51,160 --> 00:28:53,760 Speaker 1: like you say, it's implicit, that the fair actually says, 533 00:28:53,760 --> 00:28:55,480 Speaker 1: you know what, we're gonna allow the economy to run 534 00:28:55,520 --> 00:28:57,640 Speaker 1: a bit hot for a while ago because we actually 535 00:28:57,680 --> 00:29:02,920 Speaker 1: want inflation and inflation xtatians to be higher, because we 536 00:29:02,960 --> 00:29:04,720 Speaker 1: know that if we've got rates at one and a 537 00:29:04,800 --> 00:29:06,880 Speaker 1: half two percent, there's almost realm for us to cut 538 00:29:06,960 --> 00:29:11,600 Speaker 1: them um if the economy, If the economy does no 539 00:29:11,840 --> 00:29:13,240 Speaker 1: great to catch up with the other. This morning, no 540 00:29:13,360 --> 00:29:19,360 Speaker 1: share in the capital economics chief economist driving for the 541 00:29:19,400 --> 00:29:22,840 Speaker 1: discussion on the equity markets? Who do that with Anthony 542 00:29:22,960 --> 00:29:26,880 Speaker 1: Dwyer of Canicord Jenuity. Right now, state the case, Anthony, 543 00:29:27,000 --> 00:29:29,760 Speaker 1: what you would do right now? It's been a great 544 00:29:29,760 --> 00:29:33,560 Speaker 1: bull market you've participated. We've had Ben Ladler with his 545 00:29:33,680 --> 00:29:38,040 Speaker 1: great call up December of two thousand eighteen. He's ratcheted back, 546 00:29:38,120 --> 00:29:42,800 Speaker 1: but he's still bullish. Have you ratcheted back the enthusiasm 547 00:29:42,920 --> 00:29:46,000 Speaker 1: from the index level time? I have actually adopted back 548 00:29:46,040 --> 00:29:48,920 Speaker 1: on January twenty. It's a more neutral view because the 549 00:29:48,920 --> 00:29:52,080 Speaker 1: market had gotten kind of so euphoric and ahead of itself. 550 00:29:52,160 --> 00:29:55,880 Speaker 1: Now some of that optimism, an excessive overball condition has 551 00:29:55,920 --> 00:29:58,000 Speaker 1: been warped off. In other words, you know, when it 552 00:29:58,000 --> 00:30:00,760 Speaker 1: goes up in a straight line, it doesn't do it 553 00:30:00,800 --> 00:30:03,520 Speaker 1: forever and it has to pause. And I think internally, 554 00:30:03,560 --> 00:30:07,719 Speaker 1: although the record the market indicries are making records, I 555 00:30:07,720 --> 00:30:10,479 Speaker 1: think internally it's kind of going through a correction on 556 00:30:10,520 --> 00:30:13,800 Speaker 1: the back of global growth fears with a coronavirus. So 557 00:30:13,880 --> 00:30:16,360 Speaker 1: what am I doing right now? I'm really not doing much. 558 00:30:16,400 --> 00:30:18,840 Speaker 1: I'm not trying to force it until there's better signals 559 00:30:18,880 --> 00:30:21,000 Speaker 1: as to what it actually means to the global growth. 560 00:30:21,560 --> 00:30:24,040 Speaker 1: So Tony, give us a sense of valuation here. Tom 561 00:30:24,080 --> 00:30:26,200 Speaker 1: and I we discuss often about you know, we looked 562 00:30:26,240 --> 00:30:28,560 Speaker 1: at the move of the market equity markets had in 563 00:30:28,680 --> 00:30:33,040 Speaker 1: ten with little to know earnings growth. Where are we 564 00:30:33,040 --> 00:30:36,400 Speaker 1: evaluation and kind of how critical is it this for 565 00:30:36,440 --> 00:30:40,840 Speaker 1: this for the C suite to deliver corporate profits in well, 566 00:30:40,880 --> 00:30:43,160 Speaker 1: I think it's going to be Obviously, it's always critical. 567 00:30:43,200 --> 00:30:46,240 Speaker 1: The market correlates most directly to the direction of earnings, 568 00:30:46,280 --> 00:30:48,600 Speaker 1: so ultimately he's got to be positive. But Paul, this 569 00:30:48,680 --> 00:30:51,560 Speaker 1: is one of the most misquoted things I think that 570 00:30:51,680 --> 00:30:55,520 Speaker 1: exist in finance. When people look at the for example, 571 00:30:55,560 --> 00:30:59,040 Speaker 1: of price to earnings multiple, the historical average you're meeting 572 00:30:59,120 --> 00:31:01,520 Speaker 1: is somewhere around fourteen and a half to fifteen times, 573 00:31:01,560 --> 00:31:04,640 Speaker 1: so twenty times earnings pre nineteen to twenty times earnings. 574 00:31:04,640 --> 00:31:07,160 Speaker 1: People would say, oh my god, it's so overvalued, But 575 00:31:07,240 --> 00:31:10,600 Speaker 1: you really have to break that down based on where 576 00:31:10,640 --> 00:31:13,440 Speaker 1: inflation and interest rates are. So when you have very 577 00:31:13,520 --> 00:31:17,280 Speaker 1: high inflation, you have a very low market multiple. You know, 578 00:31:17,360 --> 00:31:20,040 Speaker 1: eight to nine to ten times. When you have very 579 00:31:20,120 --> 00:31:22,800 Speaker 1: low inflation and interest rates, you have a very high 580 00:31:22,880 --> 00:31:26,240 Speaker 1: average market multiple. So when the core inflation rate is 581 00:31:26,280 --> 00:31:30,560 Speaker 1: where it is today, you know, right around two percent, historically, 582 00:31:30,640 --> 00:31:32,920 Speaker 1: you trade at nineteen times. So I would I would 583 00:31:32,960 --> 00:31:36,000 Speaker 1: say it's fair. Have you figured out ratios? If you 584 00:31:36,080 --> 00:31:37,880 Speaker 1: take out the you know, all the stocks that you 585 00:31:38,000 --> 00:31:41,480 Speaker 1: single handedly pulled up the trillion dollar valuations, if you 586 00:31:41,560 --> 00:31:44,080 Speaker 1: take out the five to six, the eight, whatever it is, 587 00:31:44,120 --> 00:31:48,440 Speaker 1: stocks that are ginormous, what does the market cheapness look like? 588 00:31:48,520 --> 00:31:51,479 Speaker 1: Then I don't do that time because that's data mining, 589 00:31:51,680 --> 00:31:54,000 Speaker 1: because it's sort of like, you know, I got asked 590 00:31:54,000 --> 00:31:57,960 Speaker 1: the question yesterday, you know, is inflation under or overstated? 591 00:31:58,000 --> 00:32:00,080 Speaker 1: And for me, I don't care. It's what I know 592 00:32:00,120 --> 00:32:02,280 Speaker 1: what the FED uses, right, And it's the same thing 593 00:32:02,320 --> 00:32:04,960 Speaker 1: with the pe multiple. Then if I do it today, 594 00:32:05,000 --> 00:32:06,600 Speaker 1: I have to go back over the course of the 595 00:32:06,680 --> 00:32:10,320 Speaker 1: last bazilion years and figure out what stocks drove it then. 596 00:32:10,360 --> 00:32:12,160 Speaker 1: And I just don't think it's fair. I just think 597 00:32:12,920 --> 00:32:16,760 Speaker 1: the valuation of the market is fair. It's not really expensive, 598 00:32:16,800 --> 00:32:19,960 Speaker 1: it's not really cheap based on interest rates and earnings 599 00:32:19,960 --> 00:32:23,640 Speaker 1: are unclear because of the global growth environment with a 600 00:32:23,720 --> 00:32:27,520 Speaker 1: coronavirus outlook that's being made evidence because what time. What's 601 00:32:27,560 --> 00:32:31,200 Speaker 1: interesting are these huge mega cap stocks that everybody's you know, 602 00:32:31,240 --> 00:32:34,880 Speaker 1: watching drive the indices to high levels. They're actually now 603 00:32:34,960 --> 00:32:40,000 Speaker 1: considered defensive stocks. That's that is a huge When I 604 00:32:40,040 --> 00:32:44,200 Speaker 1: say that out loud, it stains and sounds insane, but predictable, 605 00:32:44,320 --> 00:32:49,120 Speaker 1: strong growth with good liquidity is considered defensive now. So 606 00:32:49,480 --> 00:32:52,240 Speaker 1: we're in this environment that this could get really weird 607 00:32:52,680 --> 00:32:56,280 Speaker 1: where the induicries do nothing, but there's an offensive trade 608 00:32:56,360 --> 00:33:00,760 Speaker 1: underneath it, meaning you know, you're buying the banks, the industrials, 609 00:33:00,760 --> 00:33:05,640 Speaker 1: and the non software technologies. Tony, are you concerned that 610 00:33:05,680 --> 00:33:08,120 Speaker 1: there is a narrative out there that you know, what 611 00:33:08,160 --> 00:33:10,800 Speaker 1: we're seeing an equity markets where across financial markets in 612 00:33:10,800 --> 00:33:14,080 Speaker 1: general is really liquidity driven with just so much easy 613 00:33:14,120 --> 00:33:18,440 Speaker 1: money out there in the marketplace. It is, but it's not. 614 00:33:18,520 --> 00:33:21,120 Speaker 1: It's you know, people have this perception and it's portrayed 615 00:33:21,120 --> 00:33:23,120 Speaker 1: in the media like the FED is providing all this 616 00:33:23,200 --> 00:33:26,640 Speaker 1: liquidity that's buying stocks and it's not. What's happening is 617 00:33:26,960 --> 00:33:30,800 Speaker 1: low inflation is equaling lower interest rates. Lower interest rates 618 00:33:30,880 --> 00:33:34,880 Speaker 1: means that banks not banks, means companies and individuals can 619 00:33:34,920 --> 00:33:39,280 Speaker 1: borrow money at extraordinarily low levels. So instead of having 620 00:33:39,320 --> 00:33:41,920 Speaker 1: a you know, I my original mortgage and I know 621 00:33:42,040 --> 00:33:44,280 Speaker 1: time you know, since you know he's a little bit 622 00:33:44,280 --> 00:33:46,880 Speaker 1: older than me, just to touch um, you know, my 623 00:33:47,040 --> 00:33:49,480 Speaker 1: first interest rate was eight percent on my mortgage and 624 00:33:49,520 --> 00:33:51,920 Speaker 1: I had to pay points to get it. Today, if 625 00:33:51,920 --> 00:33:54,440 Speaker 1: you're getting three you know, you do three pc on 626 00:33:54,480 --> 00:33:57,480 Speaker 1: a bad market. So, you know, the low level of 627 00:33:58,240 --> 00:34:01,320 Speaker 1: inflation is really driving the liquidity. I think it's it's 628 00:34:01,320 --> 00:34:04,000 Speaker 1: easy to and it's frankly a little bit lazy to say, oh, 629 00:34:04,040 --> 00:34:07,680 Speaker 1: the Fed's providing this liquidity. It's really low interest rates. Well, 630 00:34:07,680 --> 00:34:09,800 Speaker 1: to go back to the first time I did a mortgage, 631 00:34:09,840 --> 00:34:11,680 Speaker 1: which is you know, you know, I think it was 632 00:34:11,719 --> 00:34:16,520 Speaker 1: st Is something like that. It was the nifty fifty. 633 00:34:16,560 --> 00:34:20,399 Speaker 1: Are the six stocks this time are nifty six? Yeah? 634 00:34:20,400 --> 00:34:22,799 Speaker 1: I think so, Tom, And I think that's really I 635 00:34:22,840 --> 00:34:25,680 Speaker 1: think that's the messages that you've gotten this. You've gotten 636 00:34:25,680 --> 00:34:27,759 Speaker 1: this bump up in the in the S and P 637 00:34:27,920 --> 00:34:30,960 Speaker 1: five hundred and the other major industries on these mega 638 00:34:31,280 --> 00:34:33,920 Speaker 1: cap trillion dollar stocks. The rest of the markets just 639 00:34:34,000 --> 00:34:36,359 Speaker 1: kind of been sitting there right now, you know, from 640 00:34:36,360 --> 00:34:38,719 Speaker 1: when I beat myself up when I you know, I 641 00:34:38,719 --> 00:34:42,080 Speaker 1: feel like I've not given the right advice. Right. So 642 00:34:42,080 --> 00:34:46,120 Speaker 1: when I go newtral you know, I'm thinking, wow, what 643 00:34:46,200 --> 00:34:48,160 Speaker 1: had dummy to markets to an all time high? But 644 00:34:48,200 --> 00:34:50,000 Speaker 1: then when you look at the small cap stocks, to 645 00:34:50,080 --> 00:34:52,920 Speaker 1: semic conductors, the banks, they're below where that would have been. 646 00:34:53,360 --> 00:34:56,040 Speaker 1: So the market has been correcting. So there's this real 647 00:34:56,120 --> 00:34:59,680 Speaker 1: shot that that nifty kind of thought process holds the 648 00:34:59,680 --> 00:35:02,640 Speaker 1: into she's flat while the underlying stocks that can start 649 00:35:02,640 --> 00:35:05,440 Speaker 1: to get a little better. Okay, the theme today, Tony 650 00:35:05,480 --> 00:35:08,600 Speaker 1: away from the equity markets is one did camp get expensive? 651 00:35:08,640 --> 00:35:10,960 Speaker 1: Do you remember when camp was cheap? Like, you know, 652 00:35:11,680 --> 00:35:13,320 Speaker 1: you get through a small check at a camp and 653 00:35:13,360 --> 00:35:16,600 Speaker 1: said here take you know, junior for two weeks or 654 00:35:16,640 --> 00:35:19,840 Speaker 1: three weeks. I mean, buddy, don't you remember My camp 655 00:35:20,000 --> 00:35:22,200 Speaker 1: was my mom and dad saying go out and play 656 00:35:22,239 --> 00:35:28,040 Speaker 1: in the woods, play your camp, watch out for the snakes. 657 00:35:28,080 --> 00:35:30,239 Speaker 1: And then you would go to woods and there were 658 00:35:30,280 --> 00:35:35,000 Speaker 1: no snakes. But Tony Dwyer, thank you so much. Camping 659 00:35:35,000 --> 00:35:37,600 Speaker 1: as a child in the dangers the weeds of New Jersey, 660 00:35:37,680 --> 00:35:41,239 Speaker 1: Anthony Dwyer can courtinuity. Thanks for listening to the Bloomberg 661 00:35:41,239 --> 00:35:47,200 Speaker 1: Surveillance Podcast. Subscribe and listen to interviews on Apple Podcasts, SoundCloud, 662 00:35:47,560 --> 00:35:51,759 Speaker 1: or whichever podcast platform you prefer. I'm on Twitter at 663 00:35:51,840 --> 00:35:56,040 Speaker 1: Tom Keane before the podcast. You can always catch us worldwide. 664 00:35:56,560 --> 00:36:04,120 Speaker 1: I'm Bloomberg Radio s