WEBVTT - Surveillance: Quite Muted Growth In 2019, Marangi Says 0:00:00.080 --> 0:00:12.960 Yeah. Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene 0:00:13.480 --> 0:00:17.560 Jay Lee. We bring you insight from the best in economics, finance, investment, 0:00:18.000 --> 0:00:23.520 and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, 0:00:23.600 --> 0:00:33.760 Bloomberg dot Com, and of course, on the Bloomberg. We 0:00:33.840 --> 0:00:36.479 begin with our top story. According to people familiar with 0:00:36.560 --> 0:00:39.640 the matter, President Donald Trump is considering pushing back the 0:00:39.640 --> 0:00:43.159 deadline for imposition of higher tariffs on Chinese imports by 0:00:43.280 --> 0:00:46.600 full sixty days as the world's two biggest economies try 0:00:46.680 --> 0:00:49.519 to negotiate a solution to their trade dispute. JO want 0:00:49.520 --> 0:00:51.000 to us here in New York and please to say 0:00:51.120 --> 0:00:55.040 is Chris Marangia, Belly Funds CO Chief investment Officer. Good 0:00:55.080 --> 0:00:57.280 morning to Chris, Good morning, glad to be here. Let's 0:00:57.320 --> 0:00:59.880 talk about the prospect of a grand bargain that we 0:01:00.040 --> 0:01:03.760 the Chinese and the United States. Your view unlikely. UM. 0:01:03.800 --> 0:01:07.360 I think we get a a minor bargain, perhaps that 0:01:07.480 --> 0:01:12.440 kicks the can down the road, avoids the tariffs coming 0:01:12.440 --> 0:01:15.560 in in March one. Um, but beyond that, I don't 0:01:15.560 --> 0:01:17.640 I don't think we get nearly the scope that the 0:01:17.640 --> 0:01:20.440 President is looking for. Something we've discussed on this program 0:01:20.480 --> 0:01:22.160 over the last couple of days, is how difficult it 0:01:22.200 --> 0:01:25.400 is to position yourself for the political story in financial markets. 0:01:25.400 --> 0:01:28.000 It seems to me that short term sentiment is somewhat 0:01:28.000 --> 0:01:30.240 geared to whatever comes out of the president's mouth next 0:01:30.280 --> 0:01:33.080 on trade or perhaps even the government's shut down as well. 0:01:33.400 --> 0:01:36.680 How difficult is it to price the politics of Washington, 0:01:36.760 --> 0:01:39.479 d c. And should you even bother trying? Yeah, those 0:01:39.520 --> 0:01:41.920 some politics are always part of the investment mosaic. They've 0:01:41.959 --> 0:01:44.440 been a little bigger part of the investment mosaic over 0:01:44.480 --> 0:01:48.160 the last couple of years, a couple of months in particular. Um, 0:01:48.240 --> 0:01:50.520 but yeah, the market is clearly looking to put the 0:01:50.520 --> 0:01:53.640 trade issue behind it, whether we get a grand bargain 0:01:53.760 --> 0:01:56.240 or not, and move on to the fun, the real 0:01:56.280 --> 0:01:59.960 fundamentals of earnings. Let's get to the earnings. An earnings recess, 0:02:00.440 --> 0:02:02.040 that is the base case for a few people out 0:02:02.080 --> 0:02:03.800 there looking ahead to the earnings in the United States 0:02:03.840 --> 0:02:06.720 of America. What is your base case, Chris? Some sensitive earnings. 0:02:06.720 --> 0:02:09.120 So we're, you know, about halfway through the fourth quarter 0:02:09.160 --> 0:02:11.800 earning season. Earnings in general have been pretty good outlooks. 0:02:11.800 --> 0:02:13.680 I would say, yeah, I would support the case that 0:02:14.200 --> 0:02:18.440 growth is going to be quite muted in so you 0:02:18.520 --> 0:02:20.600 see some I think we'll see some earnings growth, but 0:02:20.680 --> 0:02:23.800 nothing obviously like we did eighteen, which was powered in 0:02:23.840 --> 0:02:25.760 part by, of course, the tax cuts. We've seen some 0:02:25.800 --> 0:02:28.519 great earnings from some really significant companies in the last 0:02:28.520 --> 0:02:31.000 twenty four hours, Cisco being one of them, and together 0:02:31.040 --> 0:02:32.960 with the earnings, they come out with it a boost 0:02:33.200 --> 0:02:36.800 to their buy back program fifteen billion dollars additional boost 0:02:36.840 --> 0:02:39.000 to the buy back program. What do you make of 0:02:39.000 --> 0:02:42.200 the politics of buying backs in the last couple of weeks. Yeah, 0:02:42.200 --> 0:02:44.600 so clearly the Democrats are going to make income inequality 0:02:44.800 --> 0:02:48.360 a campaign issue in the lex selection, and they're trying 0:02:48.360 --> 0:02:50.679 to attack it in a number of different ways, including 0:02:51.000 --> 0:02:54.240 wealth tax, higher marginal rates, and buy backs. I think 0:02:54.280 --> 0:02:57.160 the misconception around buy backs is that the money that 0:02:57.520 --> 0:02:59.560 goes into buy backs just goes into a vault somewhere 0:02:59.600 --> 0:03:01.799 against earned in the street, when the reality is that 0:03:01.880 --> 0:03:05.160 when we sell into when we sell harvest an investment 0:03:05.400 --> 0:03:07.800 and sell into a buyback or sell to another investor, 0:03:08.200 --> 0:03:10.360 the money gets redeployed into high in better uses, and 0:03:10.440 --> 0:03:13.200 that is what leads to productivity growth and growth in 0:03:13.240 --> 0:03:15.959 the economy. Coca Cola just came out and headlined four 0:03:16.520 --> 0:03:19.239 earnings growth. I remember eighteen months ago, two years ago, 0:03:19.280 --> 0:03:22.160 Honeywell came out and said eight percent earnings growth. It 0:03:22.240 --> 0:03:25.120 was a buoyant revenue growth. Does your world change with 0:03:25.240 --> 0:03:28.400 low single digit revenue growth? Yeah, that's the world that 0:03:28.440 --> 0:03:32.720 we live in based on based on population and productivity growth, 0:03:32.720 --> 0:03:36.440 which ultimately drive real growth. UM. So you know, copies 0:03:36.440 --> 0:03:39.320 are trying to boost that by improving margins and we're 0:03:39.320 --> 0:03:42.920 probably sort of at the late innings and that, uh, 0:03:43.000 --> 0:03:46.080 and obviously through buybacks. This question came up this weekend. 0:03:46.280 --> 0:03:50.320 What does that do to companies that can develop double 0:03:50.400 --> 0:03:53.960 digit revenue growth? It makes it makes makes makes more valuable. 0:03:54.080 --> 0:03:56.320 Then how much on a multiple do you take that 0:03:56.520 --> 0:04:00.240 a given twenty multiple? How much do you grows the 0:04:00.320 --> 0:04:03.400 pe multiple because they can do double digit revenue growth? Yeah, 0:04:03.400 --> 0:04:06.000 I mean, clearly the companies that there is a scarcity 0:04:06.000 --> 0:04:08.080 of growth, and that has driven some of the valuations 0:04:08.080 --> 0:04:10.640 that we've seen around the Fang for example, and as 0:04:10.680 --> 0:04:13.280 I mentioned earlier, I think it also drives M and A. 0:04:13.360 --> 0:04:15.480 Companies that have strong balance sheets are going to look 0:04:15.480 --> 0:04:17.960 to buy growth well, let's talk about the Biback story 0:04:17.960 --> 0:04:19.359 a little bit more, because you've touched on it, and 0:04:19.360 --> 0:04:22.120 I think it's really important. Is there any evidence whatsoever 0:04:22.160 --> 0:04:25.359 that suggests that buybacks are done at the expense of 0:04:25.440 --> 0:04:28.279 investing in R and date, any evidence whatsoever not that 0:04:28.320 --> 0:04:30.080 I've seen, And I would say I would go further 0:04:30.120 --> 0:04:33.560 and say that I think that it's more likely that 0:04:33.720 --> 0:04:35.600 money ends up in the vault of a company or 0:04:35.839 --> 0:04:37.960 getting burned in the street, per per se by a 0:04:38.000 --> 0:04:40.520 company if they're not allowed to buy back stock, because 0:04:41.800 --> 0:04:43.800 you know, they're more managements are more prone to to 0:04:43.839 --> 0:04:46.400 waste the money. And ultimately, what the Rubyo proposal is 0:04:46.400 --> 0:04:49.560 as a tax increase, a corporate tax increase, and he 0:04:49.680 --> 0:04:53.200 is implying essentially that the federal government is a better 0:04:53.200 --> 0:04:56.520 capital allocator than the private sector, which is contrary to 0:04:56.520 --> 0:04:59.000 a lot of Republicans country, to the lot of thought 0:04:59.040 --> 0:05:01.240 of the individuals listening to this program. I'm sure as 0:05:01.279 --> 0:05:03.760 well the broader issue. If you've touched on, you you 0:05:03.800 --> 0:05:06.800 agree that the government is better at distributing capital than 0:05:07.000 --> 0:05:10.039 than financial private actors. Valentine's Day, in Love with every 0:05:10.320 --> 0:05:14.640 You're in love with the government, Okay, big government big government, 0:05:15.720 --> 0:05:19.839 big government, Valentine. Okay, well, happy Valentine's Day to you. 0:05:20.080 --> 0:05:25.400 The broader issue, quite clearly is wealth inequality, and when 0:05:25.400 --> 0:05:27.320 that becomes the broader issue, I'm just wondering where the 0:05:27.360 --> 0:05:30.560 capitalism and financial markets get caught up in this and 0:05:30.600 --> 0:05:33.040 how we need to think about this really key issue 0:05:33.400 --> 0:05:36.159 going into Chris. How do you think about it? Yeah, so, 0:05:36.320 --> 0:05:38.760 you know, I think you saw some of that late 0:05:38.839 --> 0:05:41.040 last year in the multiple. Right, the airrings are going 0:05:41.080 --> 0:05:42.039 to be what they're going to be, and then you 0:05:42.080 --> 0:05:43.720 put a you put a multiple on that, and that 0:05:43.800 --> 0:05:48.159 multiple reflects a lot of factors, including expectations about interest 0:05:48.240 --> 0:05:53.239 rates and growth and productivity, and also has some embedded 0:05:53.279 --> 0:05:55.320 expectations about what the political environment is going to be 0:05:55.360 --> 0:05:56.960 and if it's gonna be worse it's gonna be, if 0:05:56.960 --> 0:06:00.200 it's gonna be more hostile to capitalism, then you're we 0:06:00.200 --> 0:06:03.560 should require a higher equity premium, in other words, put 0:06:03.560 --> 0:06:06.200 a lower multiple on those earnings. Really, and that's something 0:06:06.200 --> 0:06:08.600 we should be thinking about doing now as opposed to 0:06:08.640 --> 0:06:11.240 something that may come up and maybe we're relevant next year. 0:06:11.320 --> 0:06:13.680 I think it's it's it's something always worth reflecting upon. 0:06:13.760 --> 0:06:16.040 It's something that we reflect upon. Um, you know, we don't, 0:06:17.440 --> 0:06:19.560 you know, amongst many other factors. But but I think 0:06:19.600 --> 0:06:21.800 the market didn't think about that. And like last year, 0:06:21.839 --> 0:06:23.680 That's what a fund interesting about all this. There's there's 0:06:23.680 --> 0:06:26.880 new uncertainties to think about. There always are whenever you're 0:06:26.880 --> 0:06:29.600 looking at financial markets and financial market history. There is 0:06:29.600 --> 0:06:31.400 always something new to worry about. And it was only 0:06:31.400 --> 0:06:33.400 a couple of months ago that it was almost seen 0:06:33.400 --> 0:06:35.760 as sufficient, we can just get through all of this. 0:06:35.880 --> 0:06:38.600 If we just get some kind of trade truce and 0:06:38.640 --> 0:06:43.000 the fedbacks away, that would be sufficient for risk markets 0:06:43.040 --> 0:06:46.560 to perform. Is that enough anymore? Well, there's yeah, there's 0:06:46.560 --> 0:06:48.720 always another hurdle to jump. Um, you know, if we 0:06:48.760 --> 0:06:50.560 get beyond the trade deal, I'm sure the focus will 0:06:50.640 --> 0:06:55.360 return to to Brexit, Italy, slowing growth in China, et cetera. Yeah, 0:06:55.400 --> 0:06:58.400 but even within what I hear, it was maringue caution 0:06:58.480 --> 0:07:02.080 and is a value shop belly. What I'm hearing is 0:07:02.560 --> 0:07:05.640 be in the markets. Understand it's not going to be 0:07:05.680 --> 0:07:09.000 a bang up year, but you've got to participate because 0:07:09.000 --> 0:07:12.280 the cash is going to keep coming down the income statement. 0:07:12.680 --> 0:07:15.480 Is that right? That's exactly right? I mean, listen over 0:07:15.520 --> 0:07:17.480 a long period of time. If you look at the chart, 0:07:17.480 --> 0:07:19.920 if you look at the evocent data going back, you 0:07:19.960 --> 0:07:24.480 know years. Market generally rises over time, and it's based 0:07:24.480 --> 0:07:28.800 on again population growth, productivity growth, and uh. And you 0:07:28.880 --> 0:07:31.160 stay in the market and and you continue to grow 0:07:31.200 --> 0:07:34.000 your assets. John, is there a publicly traded Premier League 0:07:34.040 --> 0:07:36.000 soccer team? Is there one that you can buy shares 0:07:36.040 --> 0:07:38.920 in where you can actually make money? Manchester United's listed. Okay, 0:07:39.120 --> 0:07:42.160 this gentleman here is a larger shareholder of the Atlanta 0:07:42.240 --> 0:07:46.560 Braves baseball team as well. Explain to our audience and 0:07:46.680 --> 0:07:51.120 dazzlement of Donaldson and Company down in Atlanta. Well, our 0:07:51.160 --> 0:07:54.200 clients are the largest shareholders of the Braves. So the 0:07:54.440 --> 0:07:57.200 Braves are public company. It's actually Tracker stock controlled by 0:07:57.280 --> 0:08:01.080 John Malone. It's Liberty Braves. And the attraction is the 0:08:01.200 --> 0:08:03.120 same attraction that a lot of other wealthy people have 0:08:03.200 --> 0:08:06.360 to sports franchises, which they're they're great stores of value. Um, 0:08:06.360 --> 0:08:09.680 they've got a lot of secular tail winds behind them. Um, 0:08:09.880 --> 0:08:12.760 millennials love do they don't always cash? Do you and 0:08:12.840 --> 0:08:15.080 your shareholders? How do they do not pay a dividend? 0:08:15.120 --> 0:08:19.240 They do not buy backstock today? They are deploying cash 0:08:19.480 --> 0:08:21.360 in I guess what you'd call R and D, which 0:08:21.400 --> 0:08:24.480 is buying new players and which is a second you 0:08:24.560 --> 0:08:27.600 know the cut off, and we're very hopeful for the 0:08:27.600 --> 0:08:29.600 season this year, but you know the value of that team. 0:08:30.000 --> 0:08:33.400 This is cf A institute level two is not the 0:08:33.480 --> 0:08:37.720 phrase I'm very hopeful. Is not all that correlated to 0:08:37.720 --> 0:08:39.640 the performance on But yeah, you look at the most 0:08:39.679 --> 0:08:44.200 valuable franchise in the NBA. It's ten wins this year. 0:08:44.240 --> 0:08:47.240 So there are a lot of other factors. But what 0:08:47.280 --> 0:08:49.760 about Celtics up in Boston. Did they do a public thing? 0:08:49.800 --> 0:08:51.720 Did you guys play with that? We we didn't. That 0:08:51.800 --> 0:08:53.880 was a quasi public. But there is one other public 0:08:54.040 --> 0:08:57.200 sports franchise which Johnson nobat, which is Brusia Dortmund traded 0:08:57.240 --> 0:09:00.160 in Germany. And Stock is not performing. You sit up, Oh, 0:09:00.240 --> 0:09:04.160 this is more interesting than the Atlanta Braves by by 0:09:04.520 --> 0:09:11.000 your tots son Son getting done. Um. But but this 0:09:11.040 --> 0:09:12.959 is important, John Freud. I mean, if I say to 0:09:13.040 --> 0:09:18.000 Chris marangi is Mario Gabelly doing the tomahawk chop. We're 0:09:18.080 --> 0:09:19.640 rooting for the Stock, We're rooting for the Yankees, but 0:09:19.640 --> 0:09:23.640 we're rooting for Shane fond of the Tomahawk chops part 0:09:23.640 --> 0:09:26.720 of the American fab Michael Barr help us out here, please, Yeah, 0:09:26.760 --> 0:09:30.640 that's what are they gonna go? Oh? You know the 0:09:31.040 --> 0:09:33.800 Indian thing we doing. If you have a chance to 0:09:33.800 --> 0:09:36.920 go to SunTrust Park, their new park, do it or 0:09:37.000 --> 0:09:39.760 the BB and T SunTrust Park, whatever it is. Chris 0:09:39.840 --> 0:09:42.959 MARANGI think is so much Liberty Braves the largest holding 0:09:43.000 --> 0:09:56.880 for Gabelly Tom. The latest day around of Germany is 0:09:56.920 --> 0:10:00.600 not looking pretty barely avoiding recession in the final quarter 0:10:00.640 --> 0:10:04.600 of people saying yeah, but it's almost research growth totally 0:10:04.679 --> 0:10:08.400 stagnating and for the continent, for the Eurozone GDP coming 0:10:08.480 --> 0:10:11.720 in at zero point two for the fourth quarter. I 0:10:11.720 --> 0:10:14.480 think the big question for market participants, Tom is is 0:10:14.520 --> 0:10:16.720 that as bad as it gets, do we stabilize here? 0:10:17.320 --> 0:10:19.600 Is this an inflation point? Have we bottomed out for 0:10:19.640 --> 0:10:22.120 European growth? I want to bring in, Carolyn, look from 0:10:22.120 --> 0:10:25.640 Frankfurt Bloomberg Economy and ECB report and let's talk about 0:10:25.640 --> 0:10:28.240 the economy. Then the potential for a policy response, Carolyn, 0:10:28.640 --> 0:10:31.079 Is there a belief that the worst is behind us 0:10:31.200 --> 0:10:35.920 for the German and Eurozone economy? Hi? John, Um, that's 0:10:36.000 --> 0:10:38.640 a very good question. You're very right that GDP is 0:10:38.679 --> 0:10:41.200 the key data point coming out of Europe today. And 0:10:41.679 --> 0:10:43.800 we had a lot of attention, especially on the German 0:10:43.840 --> 0:10:47.880 release UM, where you know, we had the economy stagnating, 0:10:47.920 --> 0:10:50.400 which was worse than a lot of analysts expected. But 0:10:50.600 --> 0:10:53.680 if you look at the market um reading of those 0:10:53.679 --> 0:10:56.600 figures so far, it seemed that it wasn't enough to 0:10:56.960 --> 0:10:59.040 you know, spark another big sell off in the euro. 0:10:59.160 --> 0:11:02.319 So the story behind that is that UM, there are 0:11:02.400 --> 0:11:06.640 still quite strong underlying fundamentals UM, and that's what the 0:11:06.679 --> 0:11:10.160 market is reading into. And the Economy Ministry said as much. 0:11:10.200 --> 0:11:14.280 They said that domestic demand was still supporting growth in 0:11:14.360 --> 0:11:17.040 Germany and any weakness that we're seeing right now, it 0:11:17.120 --> 0:11:20.040 is really due to an industrial recession. Okay, I'll go 0:11:20.080 --> 0:11:22.280 with that, and maybe then has to fold over to trade. 0:11:22.640 --> 0:11:26.400 The Commerce Bank CFO this morning alluded to the reality 0:11:26.520 --> 0:11:30.960 of negative interest rates. Caroline, Look, you are living negative 0:11:31.080 --> 0:11:34.560 interest rates. What do negative interest rates? Due to the 0:11:34.640 --> 0:11:40.319 culture and fabric of Europe and particularly Germany. I mean, 0:11:40.360 --> 0:11:43.760 Germany is uh famous for not being a fan of 0:11:43.960 --> 0:11:47.679 negative interest rates. UM. I think at the moment the 0:11:47.679 --> 0:11:51.520 focus of the ECB is more um to to kind 0:11:51.520 --> 0:11:55.720 of wait and see how the economy responds to their 0:11:55.760 --> 0:12:01.000 having tapped QUI purchases. Um So, ECP officials really haven't 0:12:01.040 --> 0:12:03.959 said very much about interest rates beyond the fact that 0:12:04.000 --> 0:12:06.000 they're going to keep them at their current levels through 0:12:06.000 --> 0:12:09.360 the summer. Um So, I think what they're looking at 0:12:09.480 --> 0:12:11.600 is is data releases like the one that we saw 0:12:11.679 --> 0:12:13.800 this morning and trying to see, you know, is this 0:12:13.880 --> 0:12:18.200 transitory or is there something more protracted going on? And 0:12:18.240 --> 0:12:20.719 a lot of that depends on on trade, on certainties, 0:12:20.720 --> 0:12:23.240 and on Chinese growth. Um So, it's a lot of 0:12:23.240 --> 0:12:26.839 it is beyond Europe's controls. Yeah. But but John Ferre, 0:12:26.920 --> 0:12:29.079 I think this is important. I walked down the street 0:12:29.080 --> 0:12:31.440 in New York and if I see a three month 0:12:31.520 --> 0:12:34.120 c D, you know, it's a minuscule yield, but there 0:12:34.160 --> 0:12:37.000 it is. Caroline, do you walk down the street in 0:12:37.080 --> 0:12:43.040 Frankfort and rates? Did they do they advertise negative rates? 0:12:43.080 --> 0:12:47.040 I'm serious. Uh, they definitely don't. But I did have 0:12:47.200 --> 0:12:50.080 I did have an interesting conversation with a taxi driver 0:12:50.200 --> 0:12:53.199 the other day. He was asking me, when, uh, interest 0:12:53.280 --> 0:12:55.640 rates might be going up? Um, you know, after after 0:12:55.679 --> 0:12:58.760 I told him what I do and uh, I told 0:12:58.840 --> 0:13:01.160 him about how the the narrative at the moment was 0:13:01.200 --> 0:13:04.320 about you know, waiting and seeing and seeing how current 0:13:04.440 --> 0:13:07.600 economic weakness plays out. And he had no idea that 0:13:07.640 --> 0:13:10.960 there was any economic weakness going on. And that's that's amazing. 0:13:11.200 --> 0:13:14.000 You really do have a very strong domestic economy here. 0:13:14.040 --> 0:13:16.760 You know, you have a very strong labor market, you 0:13:16.800 --> 0:13:20.880 have growing real income. So he was like, you know what, 0:13:21.360 --> 0:13:23.480 I have no idea but that that's even going on, 0:13:23.520 --> 0:13:25.960 because that's that's really a separate part of it. You 0:13:25.960 --> 0:13:28.160 guys have touched on something important. We joke about the 0:13:28.160 --> 0:13:30.680 fact that you don't advertise negative interest rates. The problem 0:13:30.760 --> 0:13:32.439 is when you look at the German curve toom it's 0:13:32.440 --> 0:13:35.440 actually really stayed compared to the United States. Well certain, 0:13:35.480 --> 0:13:38.480 but as you know, as a bank, you borrow short, 0:13:38.520 --> 0:13:41.480 you lend long. But the banks can't pass on the 0:13:41.520 --> 0:13:44.480 negative interest rates to the deposit base. They have to 0:13:44.520 --> 0:13:47.880 absorb the costs themselves. And that's why many people consider 0:13:47.920 --> 0:13:49.400 this to be a tax on the bank. And what's 0:13:49.400 --> 0:13:51.800 so important here, folks, for you in America listening to 0:13:51.840 --> 0:13:56.960 this mus look is in Germany living this where economists 0:13:56.960 --> 0:14:02.680 in bow ties paper you're talking about yourself. But it's sterile. 0:14:02.760 --> 0:14:06.880 What I would say, Caroline, is it's sterile analysis versus 0:14:06.920 --> 0:14:13.320 the malaise that Germany's living. Um. Yeah, yeah, I mean, 0:14:13.480 --> 0:14:15.840 but as as as John was already saying, I mean, 0:14:15.880 --> 0:14:19.080 we don't really feel the impact of that, and um, 0:14:19.120 --> 0:14:20.800 you know it's it's it's really the banks that are 0:14:20.800 --> 0:14:24.400 absorbing this. And you know that kind of makes sense 0:14:24.440 --> 0:14:27.480 then in terms of why you often hear this narrative 0:14:27.560 --> 0:14:32.360 coming from the banks who are complaining more about negative interest, 0:14:32.400 --> 0:14:35.160 it's because you have a very bank based economy in Europe, right, 0:14:35.200 --> 0:14:38.880 so for them it hurts for the consumer not so much. 0:14:39.520 --> 0:14:41.160 I want to pick up on a point that you've made, 0:14:41.160 --> 0:14:42.800 and I want to leave it here because I think 0:14:42.800 --> 0:14:47.160 it's critical how you untangle the slowdown in Europe, whether 0:14:47.240 --> 0:14:50.040 it is based on the trade story, the slowdown in China, 0:14:50.480 --> 0:14:52.960 or whether there's something more domestic taking place that the 0:14:53.000 --> 0:14:56.440 Europeans can address. Which one is it, Carolyn, I mean, 0:14:56.560 --> 0:14:58.880 at the moment, it really seems to be more down 0:14:58.920 --> 0:15:03.400 to ex ternal factors. Um. You know, in Germany in particular, 0:15:03.480 --> 0:15:08.000 you're really focused on exports and trade, and you know 0:15:08.040 --> 0:15:11.840 the situation with growth in China. UM. But you're right 0:15:11.880 --> 0:15:14.960 that there is also something to be said about the 0:15:15.000 --> 0:15:20.480 domestic situation. You know, how can the euro Area boost 0:15:20.600 --> 0:15:25.520 its innovation? It's productivity, um. And you know that's something 0:15:25.560 --> 0:15:31.320 where the ECB has been very vocal about hosting fiscal reforms. UM. Right, 0:15:31.800 --> 0:15:34.120 that that kind of thing. So it's it's a bit 0:15:34.160 --> 0:15:36.960 of both. Really, Caroline, thank you so much, Thank you, 0:15:37.080 --> 0:15:39.880 really really really interesting. We look forward to speaking to 0:15:39.920 --> 0:15:43.000 you when interest rates go positive. That's going to be 0:15:43.000 --> 0:15:45.560 like five, ten years, maybe twenty. I don't get. You 0:15:45.960 --> 0:15:49.360 don't get. This week marks the twentieth anniversary of Japan 0:15:49.400 --> 0:15:53.160 taking interest rates to zero, and it makes you think 0:15:53.160 --> 0:15:55.200 about Europe and the position that the ECB is in 0:15:55.240 --> 0:15:58.280 and how long we're going to be down here. I'm 0:15:58.280 --> 0:16:00.080 going to give you credit, Chan, I'm looking to the 0:16:00.160 --> 0:16:03.880 German tenure point one zero and you said, what three 0:16:03.960 --> 0:16:06.920 or four weeks ago? Whoa look at that? And there 0:16:06.960 --> 0:16:19.800 it is and with an effect on America. Much much 0:16:19.840 --> 0:16:22.720 to talk about this morning. There's a little bit of 0:16:22.760 --> 0:16:25.400 Brexity news for those to keep up with the soap opera. 0:16:26.400 --> 0:16:29.200 The Prime Minister, I guess has a vote in Parliament today. 0:16:29.280 --> 0:16:33.280 Johnny blurs. Ohanna Edwards is a saint. She really tries 0:16:33.320 --> 0:16:36.880 to keep up with it. I really get the whole 0:16:36.960 --> 0:16:40.120 team in London is a fantastic job. You try as well, 0:16:40.240 --> 0:16:43.400 Anna and I try, but not like you. A Brexit 0:16:43.520 --> 0:16:47.560 tourist a couple of times a year. Yeah that's that's nice. 0:16:49.240 --> 0:16:54.080 We gotta Washington Terms chief correspondent of Brexit every now 0:16:54.080 --> 0:16:56.480 and again. I've in London. I enjoy it when you 0:16:56.520 --> 0:17:02.240 go over that. I love you, Fridge of Brexit. Yeah, 0:17:02.280 --> 0:17:05.120 well you know, why don't you bring in Mr Freyn. 0:17:05.240 --> 0:17:09.239 I'm going to okay over there. Yeah, we did Equity Murder. Ye, 0:17:10.920 --> 0:17:12.960 are just set up for you in the Real Yield 0:17:13.880 --> 0:17:17.760 tomorrow's show. The Real Yield is undermind. Yeah that one pm? 0:17:18.040 --> 0:17:20.800 Thank Easton. Aren't you off tomorrow? I am so off. 0:17:21.160 --> 0:17:23.280 Does that mean you've got a big date tonight? Yeah, 0:17:23.280 --> 0:17:27.280 with afterthought. It's a Valentine's date date with afterthought. Yeah, 0:17:27.720 --> 0:17:30.440 that's gonna be good fun. You booked a restaurant, yeah, 0:17:30.560 --> 0:17:35.400 McDonald's third ever, maybe first ever McDonald Matt fraud Great 0:17:35.400 --> 0:17:37.640 to have you with us. Colambos Advisor's head of fixed 0:17:37.640 --> 0:17:41.160 income Strategies and coat ce Io there is a hope Matt, 0:17:41.400 --> 0:17:44.640 that we can engineer a soft landing. What's the soft landing? 0:17:44.720 --> 0:17:47.960 And can we engineer one? So I think we absolutely 0:17:48.040 --> 0:17:51.840 can engineer a soft landing. I think that, Uh. My 0:17:51.920 --> 0:17:56.600 definition is where growth moderates, where the FEDS objectives of 0:17:56.680 --> 0:18:01.399 keeping inflation under control keeping an employment high are met, 0:18:01.440 --> 0:18:04.240 and I think we're on that path. The wild cards, though, 0:18:04.240 --> 0:18:06.920 are all of the global soap operas that you were 0:18:06.960 --> 0:18:10.320 talking about and FED policy itself. Are they going to 0:18:10.520 --> 0:18:12.480 overdo it? And so far we don't think they have 0:18:12.720 --> 0:18:15.840 any signs of something evolving that would encourage the federals 0:18:15.920 --> 0:18:19.000 of to come back in put a one in the 0:18:19.040 --> 0:18:21.240 way they've pulled one over the last culture. Well, I 0:18:21.280 --> 0:18:24.280 think people have really misunderstood what the FED did. I 0:18:24.280 --> 0:18:27.520 I think the Fed um was did the right thing. 0:18:27.960 --> 0:18:30.960 In December they raised rates. The market was expecting a 0:18:31.040 --> 0:18:34.600 hike sometimes in December or January. Where they got it 0:18:34.640 --> 0:18:37.439 wrong was the communication afterwards. And I think we're at 0:18:37.480 --> 0:18:40.960 a stage now where if risk assets continue to do well, 0:18:41.000 --> 0:18:46.040 if the economy here domestically get some traction um, I 0:18:46.520 --> 0:18:48.800 think it's quite possible that the FED will be back 0:18:48.920 --> 0:18:51.800 raising rates later in the year if things. If that 0:18:51.840 --> 0:18:53.960 doesn't happen, I think we're going to see a long pause. 0:18:54.040 --> 0:18:56.359 You had such a long history in the business, and 0:18:56.400 --> 0:18:59.520 then you join this magnificent columbuside of you know, out 0:18:59.520 --> 0:19:02.600 of Illinois, way out of Chicago, Naper Villain and all that, 0:19:02.800 --> 0:19:06.159 and you guys own what I'm going to call the 0:19:06.240 --> 0:19:10.280 early derivative train of fixed income here synthetic things and 0:19:10.720 --> 0:19:13.800 goofy things if you will. Within fixed income, you guys 0:19:13.800 --> 0:19:17.360 are decades out in front on all that. John Klumus 0:19:17.400 --> 0:19:18.920 wrote the book. He wrote the book on this, He 0:19:19.000 --> 0:19:21.359 literally invented the book, folks on some of the odd 0:19:21.359 --> 0:19:24.480 things in fixed income. Is it a full faith in 0:19:24.600 --> 0:19:27.639 credit market, which is what we quote all the time, 0:19:28.040 --> 0:19:32.520 or our listeners are they missing a true yield opportunity 0:19:32.880 --> 0:19:36.000 away from government paper? So I think they absolutely are. 0:19:36.040 --> 0:19:37.840 One of the messages that we try to give is 0:19:37.880 --> 0:19:40.639 that it is not just one bond market. It is 0:19:40.680 --> 0:19:43.120 a market ad bonds. And in any given day there 0:19:43.119 --> 0:19:46.120 are sectors that we like and we think have opportunity. 0:19:46.119 --> 0:19:49.200 Their sectors that are overvalued and that we we think 0:19:49.240 --> 0:19:51.040 you want to start with the over valid Where do 0:19:51.119 --> 0:19:54.120 our where does our audience need to run from right now. 0:19:54.200 --> 0:19:57.240 So I think the biggest question marks in my mind 0:19:57.359 --> 0:20:00.880 are the weaker part of the investment grade market. We've 0:20:00.920 --> 0:20:03.840 seen tremendous growth. There a lot of companies issuing debt 0:20:03.880 --> 0:20:07.320 to buy backstock. We think that there's potentially a lot 0:20:07.359 --> 0:20:10.280 of problems there when the market, So you're going to 0:20:10.400 --> 0:20:13.480 quality is the opportunity. Well, so it's really a barbelled 0:20:13.520 --> 0:20:15.920 approach because I think on the other side, the high 0:20:15.960 --> 0:20:19.520 yield market gets tarnished in this whole credit problem. High 0:20:19.560 --> 0:20:22.399 yield has been very well behaved. There's a handful of 0:20:22.440 --> 0:20:25.439 deals that we don't like that maybe the covenants were 0:20:25.480 --> 0:20:27.640 too far, but really the high yield market is also 0:20:27.720 --> 0:20:30.680 still healthy. Let's talk about the dividing line between investment 0:20:30.680 --> 0:20:34.480 grade and high yield, triple bays and double bays. That 0:20:34.680 --> 0:20:37.879 spread is as tight as it has been for the 0:20:37.960 --> 0:20:41.520 last decade. What's the story in the price action and 0:20:41.560 --> 0:20:43.879 that's spread right now? Yeah, So I would tell you 0:20:43.880 --> 0:20:47.119 that it's it's hard to speak in large generalities. And 0:20:47.160 --> 0:20:50.560 here's why. You can find um single b bonds that 0:20:50.600 --> 0:20:53.600 are much tighter than double bees. You can find investment 0:20:53.640 --> 0:20:57.199 grade wider than double bees or or single bees, and 0:20:57.240 --> 0:21:00.560 so it's really name specific and sector specific. What I 0:21:00.600 --> 0:21:05.040 guide you to is that well known names, decent liquidity, 0:21:05.160 --> 0:21:09.359 good business plans there those are still relative in our mind, 0:21:09.560 --> 0:21:11.760 very attractive three to five years. It's some of the 0:21:12.040 --> 0:21:14.040 esoteric stuff where you can get into let's go into 0:21:14.040 --> 0:21:16.520 the triple base and go a bit deeper, maybe sector specific, 0:21:16.560 --> 0:21:19.000 maybe even company specific, if you'll allow us to go there. 0:21:19.359 --> 0:21:21.320 There is a concern that a lot of those companies 0:21:21.400 --> 0:21:24.400 have massive debtloads, that leverages being picking up and they're 0:21:24.400 --> 0:21:26.840 going to drop down into high yield, into junk full 0:21:26.880 --> 0:21:30.000 and angels that's sitting on this market is big concerned 0:21:30.000 --> 0:21:32.320 the triple B universe which has become bigger and bigger 0:21:32.320 --> 0:21:36.919 and bigger. Can the c suite engineer turnaround where they 0:21:36.960 --> 0:21:40.439 can defend their credit rating? Are you hopeful that can happen? 0:21:40.920 --> 0:21:43.159