1 00:00:01,160 --> 00:00:04,200 Speaker 1: Hello, Odd Lots listeners. It's Joe Wisenthal, and I just 2 00:00:04,280 --> 00:00:07,240 Speaker 1: wanted to make a special programming note before you listen 3 00:00:07,320 --> 00:00:12,160 Speaker 1: to today's episode. We recorded this episode on Wednesday, June, 4 00:00:13,240 --> 00:00:17,760 Speaker 1: so several weeks ago, and because this discussion is related 5 00:00:17,800 --> 00:00:22,800 Speaker 1: to specific events coming up, specific forecast of the world economy, 6 00:00:23,200 --> 00:00:25,760 Speaker 1: the world markets, we wanted you to be aware of 7 00:00:25,800 --> 00:00:30,000 Speaker 1: when it was recorded, so that anything that's happened subsequently 8 00:00:30,360 --> 00:00:33,520 Speaker 1: you can put in context in case things have changed 9 00:00:33,560 --> 00:00:36,600 Speaker 1: a little bit. It's still an interesting, timely and relevant 10 00:00:36,840 --> 00:00:39,280 Speaker 1: discussion in the grand scheme of things, but we just 11 00:00:39,320 --> 00:00:41,919 Speaker 1: wanted you to be aware of exactly when we had 12 00:00:41,960 --> 00:00:56,840 Speaker 1: this chat. Hello, and welcome to another episode of the 13 00:00:56,880 --> 00:01:02,280 Speaker 1: Odd Lots podcast. I'm Joe Wisenthal, and I'm Tracy Alloway. Tracy, 14 00:01:02,400 --> 00:01:05,679 Speaker 1: something I've been thinking about lately is that we're in 15 00:01:05,720 --> 00:01:09,720 Speaker 1: a pretty interesting time for financial markets. And I should 16 00:01:10,120 --> 00:01:12,160 Speaker 1: start by noting that today we're actually going to have 17 00:01:12,200 --> 00:01:18,680 Speaker 1: a conversation about markets themselves rather than some esoteric topic 18 00:01:18,920 --> 00:01:22,960 Speaker 1: tangentially related to markets. But it feels like we're I 19 00:01:23,000 --> 00:01:25,760 Speaker 1: don't know if crossroads is the right word, but lots 20 00:01:25,800 --> 00:01:30,120 Speaker 1: of interesting things are just happening right now. Well, I'll 21 00:01:30,120 --> 00:01:32,679 Speaker 1: take the bait. I can think of a few interesting 22 00:01:32,720 --> 00:01:36,600 Speaker 1: things that have happened recently. For a start, as we're 23 00:01:36,640 --> 00:01:39,480 Speaker 1: recording this, we're coming up to the G twenty meeting. 24 00:01:39,600 --> 00:01:43,520 Speaker 1: There's a bunch of expectations around Chi shin Ping meeting 25 00:01:43,600 --> 00:01:46,399 Speaker 1: Donald Trump, whether or not they'll agree some sort of 26 00:01:46,440 --> 00:01:50,320 Speaker 1: trade deal or a trade truces. And we also have 27 00:01:50,400 --> 00:01:55,160 Speaker 1: the tenure US Treasury back below two percent, that was 28 00:01:55,240 --> 00:01:59,760 Speaker 1: after another devish pivot from Jerome Pale at the Fed. 29 00:02:00,240 --> 00:02:04,120 Speaker 1: And we have a whole lot of negative yielding debt. 30 00:02:04,600 --> 00:02:08,200 Speaker 1: We also have earning season coming up. So yeah, there's 31 00:02:08,200 --> 00:02:11,359 Speaker 1: a lot going on. But the one thing you didn't say, 32 00:02:11,400 --> 00:02:13,839 Speaker 1: and what makes it really weird, is that with all 33 00:02:13,840 --> 00:02:17,840 Speaker 1: this tension out there, whether it's trade, the Fed feeling 34 00:02:17,880 --> 00:02:20,760 Speaker 1: that it needs to pivot do a more dovish stands 35 00:02:20,840 --> 00:02:26,360 Speaker 1: to signal possible rate cuts, all this debt falling deeper 36 00:02:26,400 --> 00:02:30,639 Speaker 1: into negative territory in many instances, the stock market is 37 00:02:30,880 --> 00:02:33,480 Speaker 1: more or less right now and all time high. So 38 00:02:33,520 --> 00:02:37,280 Speaker 1: despite all these concerns out there and interesting stresses showing 39 00:02:37,360 --> 00:02:40,040 Speaker 1: up in the market, the one market that's sort of 40 00:02:40,080 --> 00:02:43,720 Speaker 1: the purest proxy for risk sentiment is basically as good 41 00:02:43,720 --> 00:02:45,959 Speaker 1: as it's ever been. Yeah, so we have this big 42 00:02:46,000 --> 00:02:49,560 Speaker 1: divergence between bonds and stocks. But if I could just 43 00:02:49,600 --> 00:02:52,000 Speaker 1: say one thing, it's interesting because we talk a lot 44 00:02:52,080 --> 00:02:56,400 Speaker 1: about the bond market pricing in a potential recession, but 45 00:02:56,560 --> 00:02:59,320 Speaker 1: it of course depends on what bond market you're talking 46 00:02:59,320 --> 00:03:01,840 Speaker 1: about government, mint bonds. Sure, but if you look at 47 00:03:01,880 --> 00:03:05,800 Speaker 1: corporate bonds, other types of credit risk, those are also 48 00:03:05,880 --> 00:03:10,320 Speaker 1: doing amazingly well. So again, the riskier parts of the market, equities, 49 00:03:10,760 --> 00:03:14,440 Speaker 1: credit all doing really well, while other parts are sort 50 00:03:14,480 --> 00:03:18,560 Speaker 1: of screaming that a slowdown is about to hit exactly right. 51 00:03:18,600 --> 00:03:20,600 Speaker 1: And then the one thing that I think also sort 52 00:03:20,639 --> 00:03:23,800 Speaker 1: of makes even the stock market interesting is if you 53 00:03:23,880 --> 00:03:27,560 Speaker 1: look at various survey measures, there's not a ton of 54 00:03:27,600 --> 00:03:32,600 Speaker 1: bullishness out there, you know, various surveys of say, fund managers, 55 00:03:32,880 --> 00:03:35,960 Speaker 1: lots of anxiety, lots of evidence that people are engaging 56 00:03:36,000 --> 00:03:40,400 Speaker 1: in a high level of hedging defensive stocks leading the 57 00:03:40,480 --> 00:03:43,960 Speaker 1: rally higher. So even within the internals, not many signs 58 00:03:43,960 --> 00:03:46,280 Speaker 1: of euphora. It's just kind of a it's kind of 59 00:03:46,280 --> 00:03:48,960 Speaker 1: a weird time. Yeah, it feels like a lot of 60 00:03:48,960 --> 00:03:52,160 Speaker 1: people are in wait and see mode, but I'm not 61 00:03:52,200 --> 00:03:55,320 Speaker 1: sure what we're waiting for at this point. I I 62 00:03:55,760 --> 00:03:58,400 Speaker 1: don't know what we're waiting for either anyway, So I 63 00:03:58,480 --> 00:04:02,520 Speaker 1: mentioned the top we're gonna be talking about actual markets today, 64 00:04:02,560 --> 00:04:05,440 Speaker 1: and I'm very excited about our current guest. He flew 65 00:04:05,480 --> 00:04:08,040 Speaker 1: all the way from Singapore for this podcast. No, it's 66 00:04:08,040 --> 00:04:10,880 Speaker 1: not totally true, but of course he's one of our 67 00:04:10,920 --> 00:04:13,560 Speaker 1: colleagues here at Bloomberg. But and I'm all, I always 68 00:04:13,600 --> 00:04:15,560 Speaker 1: loved talking to him because he's based in Singapore and 69 00:04:15,600 --> 00:04:17,240 Speaker 1: every once in a while he comes to New York 70 00:04:17,800 --> 00:04:21,080 Speaker 1: and he's our he's he's our macro strategist, or he's 71 00:04:21,120 --> 00:04:23,360 Speaker 1: one of our macro strategists here at Bloomberg. He puts 72 00:04:23,360 --> 00:04:26,640 Speaker 1: out views, he's a former trader. He has very strong 73 00:04:26,680 --> 00:04:29,680 Speaker 1: opinions about the market. And what I think makes them 74 00:04:29,680 --> 00:04:33,279 Speaker 1: really notable right now, among other things, is that he's 75 00:04:33,279 --> 00:04:37,960 Speaker 1: been a long time bowl who suddenly flipped bearish, and 76 00:04:38,200 --> 00:04:40,840 Speaker 1: that's not very common, but someone, uh, you know, there 77 00:04:40,839 --> 00:04:42,359 Speaker 1: are a lot of people out there who are bearished, 78 00:04:42,360 --> 00:04:45,480 Speaker 1: but they're always bearish. It's refreshing and different to hear 79 00:04:45,480 --> 00:04:48,200 Speaker 1: from someone who may have flipped or who has flipped. 80 00:04:48,880 --> 00:04:51,680 Speaker 1: You forgot the most important part, which is he's also 81 00:04:51,720 --> 00:04:54,560 Speaker 1: a previous All Thoughts guest. That's true, and I think 82 00:04:54,560 --> 00:04:57,520 Speaker 1: he's probably significantly more bullish on the market, uh the 83 00:04:57,600 --> 00:04:59,520 Speaker 1: last time, which is probably I don't know, maybe a 84 00:04:59,560 --> 00:05:01,400 Speaker 1: year and a half ago or two years ago that 85 00:05:01,440 --> 00:05:04,560 Speaker 1: he appeared on the show. So anyway, without further ado, 86 00:05:04,600 --> 00:05:07,600 Speaker 1: I want to bring in Mark Huddmore. He's a Bloomberg 87 00:05:07,600 --> 00:05:11,599 Speaker 1: macro strategist. He's also the editor of the m Live blog, 88 00:05:11,640 --> 00:05:13,840 Speaker 1: which you you have a terminal you have to check out. 89 00:05:14,320 --> 00:05:17,640 Speaker 1: And as I mentioned, he's a long time ball going 90 00:05:17,640 --> 00:05:20,600 Speaker 1: back to at least twenty eleven. He's been optimistic about 91 00:05:20,640 --> 00:05:22,799 Speaker 1: the market in the economy, and for the first time 92 00:05:22,880 --> 00:05:27,440 Speaker 1: in years, he's warning about significant market sell offs in 93 00:05:27,480 --> 00:05:30,440 Speaker 1: a possible US recession. So Mark, thank you very much 94 00:05:30,480 --> 00:05:32,840 Speaker 1: for joining us. Yeah. Absolutely, Joe, I'm really excited to 95 00:05:32,839 --> 00:05:34,880 Speaker 1: be here. And as you say, all of the previous 96 00:05:34,880 --> 00:05:36,880 Speaker 1: times i've spoken to you on TV or on odd lots, 97 00:05:37,080 --> 00:05:38,880 Speaker 1: it's I've always been bullish. I've always been kind of 98 00:05:38,839 --> 00:05:40,560 Speaker 1: a permable as what I've been kind of laughed up 99 00:05:40,560 --> 00:05:42,960 Speaker 1: on my colleagues here, and I think that's I've had 100 00:05:43,080 --> 00:05:45,359 Speaker 1: periods of tactical barraishness, like oh, this will hurt the 101 00:05:45,360 --> 00:05:47,359 Speaker 1: market for five ten percent. But I've always been very 102 00:05:47,440 --> 00:05:49,000 Speaker 1: much in the camp that, you know what, we're gonna 103 00:05:49,000 --> 00:05:50,680 Speaker 1: go back to record high soon. There was these three 104 00:05:50,720 --> 00:05:54,080 Speaker 1: pillars driving the rally, and that was growth, earnings, in liquidity. 105 00:05:54,120 --> 00:05:55,640 Speaker 1: And I'll kind of come into that later why some 106 00:05:55,640 --> 00:05:57,600 Speaker 1: of those pillars are disappearing, just for the kind of 107 00:05:57,600 --> 00:05:59,479 Speaker 1: the context in the history. I was someone who I 108 00:05:59,520 --> 00:06:01,560 Speaker 1: was working in Leaving Brothers before the last crisis, and 109 00:06:01,880 --> 00:06:03,800 Speaker 1: I did turn bearish, like I think many people the 110 00:06:03,839 --> 00:06:05,880 Speaker 1: forefront of the financial crisis in two as and seven. 111 00:06:05,920 --> 00:06:08,000 Speaker 1: I was, you know, not particularly a stutor smart, but 112 00:06:08,040 --> 00:06:10,000 Speaker 1: along with the people in the financial industry, I became 113 00:06:10,080 --> 00:06:12,400 Speaker 1: negative in kind of sometimes late tess and seven can't remember, 114 00:06:12,520 --> 00:06:14,719 Speaker 1: and I stayed too bearish too long, right. I stayed 115 00:06:14,760 --> 00:06:18,120 Speaker 1: bearish until definitely through Chasen in late two nine, in 116 00:06:18,160 --> 00:06:20,120 Speaker 1: tens and ten, in turns and eleven when the Euro 117 00:06:20,160 --> 00:06:21,640 Speaker 1: crisis kind of flared up and I was like, this 118 00:06:21,680 --> 00:06:23,200 Speaker 1: is it. It's the next kind of sell off again. 119 00:06:23,440 --> 00:06:24,680 Speaker 1: And then I kind of learned from when we got 120 00:06:24,720 --> 00:06:25,920 Speaker 1: through that. I was like, hey, no way to sect 121 00:06:25,920 --> 00:06:27,919 Speaker 1: the game has changed too much. Liquidity is coming. So 122 00:06:27,960 --> 00:06:29,960 Speaker 1: since then I've been basically you always buy the dip, 123 00:06:30,000 --> 00:06:32,040 Speaker 1: and the difference is now I think in the US 124 00:06:32,080 --> 00:06:34,599 Speaker 1: equity market in particular, it's we've now changed to sell 125 00:06:34,600 --> 00:06:36,159 Speaker 1: the rallies and it's I think we're gonna get a 126 00:06:36,160 --> 00:06:39,400 Speaker 1: proper bear market is in a plus decline over the 127 00:06:39,400 --> 00:06:42,960 Speaker 1: next kind of year. Well, you mentioned your three pillars 128 00:06:43,000 --> 00:06:46,680 Speaker 1: of bearishness, then walk us through your thesis. Mark, Yeah, 129 00:06:46,680 --> 00:06:49,880 Speaker 1: absolutely so. I think that two of those pillars are 130 00:06:49,920 --> 00:06:52,800 Speaker 1: about to be taken out completely and the other one 131 00:06:52,800 --> 00:06:54,280 Speaker 1: has lost a little bit of impacts. I don't think 132 00:06:54,279 --> 00:06:56,799 Speaker 1: liquidity is disappearing anytime soon, but I think the amount 133 00:06:56,839 --> 00:06:59,400 Speaker 1: of the love leverage in the system can be harmed 134 00:06:59,400 --> 00:07:03,160 Speaker 1: pretty quickly. So what we've actually seen in economic forecasts 135 00:07:03,200 --> 00:07:05,880 Speaker 1: over the last two months is that they've not been changed, 136 00:07:06,000 --> 00:07:07,680 Speaker 1: or in fact, they are actually raised about a months 137 00:07:07,680 --> 00:07:10,440 Speaker 1: ago for the three largest economies in the world US, China, 138 00:07:10,840 --> 00:07:14,680 Speaker 1: UH and the Eurozone. But overall all economists aren't yet 139 00:07:14,680 --> 00:07:16,520 Speaker 1: factoring in all the tariffs because they want to believe 140 00:07:16,520 --> 00:07:18,400 Speaker 1: they're temporary, because they don't want to suddenly slash all 141 00:07:18,400 --> 00:07:21,000 Speaker 1: their forecasts and then suddenly find that Trump signs a deal, 142 00:07:21,240 --> 00:07:22,960 Speaker 1: and because he's been shown to kind of change tack 143 00:07:23,040 --> 00:07:25,720 Speaker 1: quite quickly in the past, it means that economistsern hold. 144 00:07:25,920 --> 00:07:28,200 Speaker 1: So what happens is you've still got US economists. The 145 00:07:28,200 --> 00:07:29,960 Speaker 1: consensus forecast is still for two and a half percent 146 00:07:30,000 --> 00:07:32,600 Speaker 1: growth in the US, even though all high frequency indicators 147 00:07:32,680 --> 00:07:35,200 Speaker 1: show that's quite clearly just not going to happen. So 148 00:07:35,240 --> 00:07:37,920 Speaker 1: it will take not just a truce in trade world, 149 00:07:37,960 --> 00:07:40,800 Speaker 1: take removal of all tariffs and some extra positivity that 150 00:07:41,080 --> 00:07:43,280 Speaker 1: removal of tariffs and the rate cuts to come through 151 00:07:43,480 --> 00:07:45,040 Speaker 1: for US to get that kind of growth rate. So 152 00:07:45,080 --> 00:07:47,040 Speaker 1: we're seeing global manufacturing p m I has fallen for 153 00:07:47,080 --> 00:07:50,560 Speaker 1: thirteen straight months, is now contraction territory. The preliminary p ms, 154 00:07:50,600 --> 00:07:52,560 Speaker 1: which we get for about fift the readings that we've 155 00:07:52,600 --> 00:07:55,400 Speaker 1: already got this month, that for the next reading next Monday, 156 00:07:55,880 --> 00:07:58,720 Speaker 1: show that will probably fall again again in contraction. And 157 00:07:58,760 --> 00:08:00,840 Speaker 1: that's been that's been a pretty good guide for growth. 158 00:08:01,040 --> 00:08:02,800 Speaker 1: And that's more of the global indicator, but with very 159 00:08:02,840 --> 00:08:04,320 Speaker 1: much in the US we're seeing that as well. You 160 00:08:04,440 --> 00:08:06,960 Speaker 1: talked about you know, stocks are a record highs, but 161 00:08:07,040 --> 00:08:09,160 Speaker 1: stocks haven't always been a good indicator. We look back 162 00:08:09,200 --> 00:08:11,360 Speaker 1: in the last crisis Chess and seven, so the market 163 00:08:11,440 --> 00:08:13,720 Speaker 1: knew there was a real problem in the economy suddenly flaring. 164 00:08:13,840 --> 00:08:15,920 Speaker 1: From about August, we suddenly started seeing that step in 165 00:08:15,960 --> 00:08:17,920 Speaker 1: the curve was was we start the easing cycle. So 166 00:08:18,040 --> 00:08:20,520 Speaker 1: what happens is the Fed actually started their five out 167 00:08:20,560 --> 00:08:23,360 Speaker 1: basis points rate cutting cycle in September two and seven. 168 00:08:23,600 --> 00:08:26,640 Speaker 1: The stock market made its record high in October two seven. 169 00:08:26,800 --> 00:08:29,320 Speaker 1: The recession came in December two seven. I would not 170 00:08:29,440 --> 00:08:31,640 Speaker 1: be surprised if you get a roughly similar timeline. Then 171 00:08:31,840 --> 00:08:33,320 Speaker 1: we had the same thing back in tess and one. 172 00:08:33,360 --> 00:08:35,599 Speaker 1: I can't remember the exact months, but the five and 173 00:08:35,760 --> 00:08:37,920 Speaker 1: fifty basis points rate cycle rate cutting cycle I think 174 00:08:37,920 --> 00:08:41,520 Speaker 1: started in January three. The recessions still came in March one, 175 00:08:41,600 --> 00:08:43,599 Speaker 1: so two months after the rate cutting cycle started. So 176 00:08:43,720 --> 00:08:46,760 Speaker 1: it just to back up your three pillars. One is 177 00:08:46,880 --> 00:08:49,559 Speaker 1: liquidity and that's the one you're not particularly concerned about 178 00:08:49,840 --> 00:08:53,599 Speaker 1: right now. The other one is growth and obviously and 179 00:08:53,640 --> 00:08:56,640 Speaker 1: then what's the middle earnings? Okay, so I think one 180 00:08:56,640 --> 00:08:59,079 Speaker 1: of the problems with earnings is again earning strategists also 181 00:08:59,160 --> 00:09:01,760 Speaker 1: are starting to ash forecast, but not too aggressively, yet 182 00:09:01,760 --> 00:09:04,679 Speaker 1: because they use as their macro inputs what their economists say. 183 00:09:04,679 --> 00:09:06,640 Speaker 1: This works for most banks. Some banks they are actually 184 00:09:06,679 --> 00:09:09,120 Speaker 1: not allowed to have different inputs than their official economists. 185 00:09:09,120 --> 00:09:11,720 Speaker 1: Other ones they are. But overall they're still going, Hey, 186 00:09:11,760 --> 00:09:13,559 Speaker 1: all the experts are saying growth isn't gonna slow, it's 187 00:09:13,559 --> 00:09:15,120 Speaker 1: not going to be impacted by the trade war, even 188 00:09:15,120 --> 00:09:17,200 Speaker 1: though we know it's definitely gonna be impacted, and even 189 00:09:17,280 --> 00:09:20,000 Speaker 1: though all the surprise indexes have been missing anyway, So 190 00:09:20,120 --> 00:09:22,120 Speaker 1: even if during the trade war, the datas of saying 191 00:09:22,200 --> 00:09:24,880 Speaker 1: that the economic growth is going to slow down drastically, 192 00:09:25,080 --> 00:09:27,160 Speaker 1: Now we've had fresh tariffs in May, which will feed 193 00:09:27,200 --> 00:09:29,120 Speaker 1: through the economy, and about August that's when we'll get 194 00:09:29,120 --> 00:09:31,679 Speaker 1: those indicators come down. So growth about to drop like 195 00:09:32,360 --> 00:09:35,600 Speaker 1: massively in from about August September onwards, even without an 196 00:09:35,679 --> 00:09:37,720 Speaker 1: escalation the trade wars. We actually need removal of tariffs 197 00:09:37,760 --> 00:09:39,959 Speaker 1: to change that. Now, once we get past you twenty 198 00:09:40,000 --> 00:09:42,160 Speaker 1: and once economist starts slashing their forecast, that will start 199 00:09:42,200 --> 00:09:44,800 Speaker 1: feeding through the earning strategist, the equity strategist, and they'll 200 00:09:44,840 --> 00:09:47,760 Speaker 1: start slashing equities. We do have a pretty good correlation 201 00:09:47,840 --> 00:09:50,439 Speaker 1: between the direction of kind of earnings and whether we're 202 00:09:50,440 --> 00:09:53,079 Speaker 1: getting earnings growth or earnings recession and equity markets, and 203 00:09:53,160 --> 00:09:55,560 Speaker 1: I think we're about to see quite a drastic kind 204 00:09:55,559 --> 00:09:59,120 Speaker 1: of earning slash, you know, earning deep earning recession, partially 205 00:09:59,120 --> 00:10:01,040 Speaker 1: because we had such a high peak from the tax 206 00:10:01,040 --> 00:10:03,400 Speaker 1: stiminus before. So both earnings and growth are about to 207 00:10:03,400 --> 00:10:06,719 Speaker 1: be completely taken out. But Mark, I guess the response 208 00:10:06,960 --> 00:10:08,719 Speaker 1: to all of that, and you know you've laid out 209 00:10:09,200 --> 00:10:12,640 Speaker 1: a very clear list of worries there. But the response 210 00:10:12,720 --> 00:10:15,079 Speaker 1: that any bull would tell you would be, well, we 211 00:10:15,200 --> 00:10:18,199 Speaker 1: have the Federal Reserve which is now back in easing mode. 212 00:10:18,880 --> 00:10:21,920 Speaker 1: Won't they be able to offset a lot of this? 213 00:10:22,760 --> 00:10:25,679 Speaker 1: My simple answer is no. The Federal Reserve has got 214 00:10:25,720 --> 00:10:28,439 Speaker 1: a very poor track record of preventing recessions. And I said, 215 00:10:28,679 --> 00:10:30,600 Speaker 1: refer to the last two recessions, the only two recessions 216 00:10:30,600 --> 00:10:33,599 Speaker 1: we've had in this century, um, and both times the 217 00:10:33,679 --> 00:10:37,800 Speaker 1: easing cycle started aggressively before the recession came. The recession 218 00:10:37,840 --> 00:10:40,160 Speaker 1: still came. And both those times the Fed five basis 219 00:10:40,200 --> 00:10:42,320 Speaker 1: points to cut SOS seven they did actually cut by 220 00:10:42,320 --> 00:10:44,480 Speaker 1: exactly five in our basis points. And I said, the 221 00:10:44,520 --> 00:10:47,959 Speaker 1: easing cycles started in September Tessman's seven. They'd cut I 222 00:10:48,080 --> 00:10:50,719 Speaker 1: think a hundred and twenty five basis points before the 223 00:10:50,800 --> 00:10:52,800 Speaker 1: recession came, but I'm not sure exactly that, but basically 224 00:10:52,880 --> 00:10:56,040 Speaker 1: they're already cutting aggressively. In Urson In one, we've I 225 00:10:56,080 --> 00:10:58,079 Speaker 1: think it started with a fifty basis point cut and 226 00:10:58,120 --> 00:11:00,000 Speaker 1: we still got the recessions starting a couple of months later. 227 00:11:00,160 --> 00:11:02,959 Speaker 1: It didn't stop it. Ultimately, monetary policy is not the 228 00:11:03,000 --> 00:11:05,720 Speaker 1: best tool for changing the economic cycle, and that's become 229 00:11:05,800 --> 00:11:08,199 Speaker 1: even more constrained given the amount of QUEI we've seen 230 00:11:08,200 --> 00:11:10,600 Speaker 1: in the system. So that's the transmission has been broken. 231 00:11:10,840 --> 00:11:13,800 Speaker 1: So I don't think the FED can stop the economic 232 00:11:13,840 --> 00:11:15,600 Speaker 1: cycle when it's this drastic. I think they can slightly 233 00:11:15,640 --> 00:11:18,280 Speaker 1: massage it. But we've now reached breaking point. Talk to 234 00:11:18,400 --> 00:11:21,959 Speaker 1: us about this divergence that we're seeing in the stock 235 00:11:22,080 --> 00:11:25,040 Speaker 1: market and the bond market, because everyone knows there's all 236 00:11:25,120 --> 00:11:29,559 Speaker 1: this negative yielding dead curve and versions you name it. Meanwhile, 237 00:11:29,760 --> 00:11:33,440 Speaker 1: as you pointed out, stocks are they may be at 238 00:11:33,440 --> 00:11:36,400 Speaker 1: all time highs, but historically they don't often call the turn, 239 00:11:36,600 --> 00:11:39,280 Speaker 1: and uh, they can be slow to the game. Is 240 00:11:39,320 --> 00:11:43,600 Speaker 1: it a matter of bond investors knowing more, because that's 241 00:11:43,679 --> 00:11:46,040 Speaker 1: often the sort of naive like, oh, the smart market 242 00:11:46,160 --> 00:11:48,640 Speaker 1: versus the dumb market. But how do you think about 243 00:11:48,720 --> 00:11:51,520 Speaker 1: that divergence. I think that, first of all, as you 244 00:11:51,600 --> 00:11:53,719 Speaker 1: kind of pointed out, this is not so anomalous in 245 00:11:53,840 --> 00:11:56,920 Speaker 1: history as people think, so quite often normally goes this 246 00:11:57,000 --> 00:11:59,040 Speaker 1: way towards the end of the economic So you pointed out, 247 00:11:59,160 --> 00:12:00,880 Speaker 1: You're that's very fly doing that, you said, I point 248 00:12:00,920 --> 00:12:03,000 Speaker 1: out what you're the one you point out. But normally 249 00:12:03,040 --> 00:12:05,480 Speaker 1: we do see that equities kind of top out just 250 00:12:05,720 --> 00:12:09,480 Speaker 1: kind of just as recession is basically guaranteed, whereas bond 251 00:12:09,520 --> 00:12:11,200 Speaker 1: markets turn much quicker. And I think that a lot 252 00:12:11,240 --> 00:12:13,920 Speaker 1: of people got very panicked about the bond curve flattening 253 00:12:13,960 --> 00:12:15,360 Speaker 1: over the last year or two, and and like since 254 00:12:15,400 --> 00:12:17,760 Speaker 1: turs and sixteen, I've been writing macroview articles in my 255 00:12:17,880 --> 00:12:21,319 Speaker 1: bull guys as like, stop this panic margermongering over the 256 00:12:21,320 --> 00:12:23,960 Speaker 1: flattening yield curve. It's not a good indicator, blah bah blah. 257 00:12:24,000 --> 00:12:26,680 Speaker 1: It's about the steepening after the flattening. We're now getting 258 00:12:26,679 --> 00:12:29,640 Speaker 1: that steepening. We're now getting the bond market is now saying, hey, 259 00:12:29,720 --> 00:12:31,559 Speaker 1: the recession is probably coming in the next kind of 260 00:12:31,600 --> 00:12:34,400 Speaker 1: six months or close enough to recession. So we're we're 261 00:12:34,440 --> 00:12:36,760 Speaker 1: kind of following the historical path of where equities markets 262 00:12:36,840 --> 00:12:39,040 Speaker 1: keep on going to record highs because we get that 263 00:12:39,160 --> 00:12:42,480 Speaker 1: kind of bond market react first, which provides extra liquidity, 264 00:12:43,040 --> 00:12:45,400 Speaker 1: lowers the discount rate for earnings and for stock prices, 265 00:12:45,440 --> 00:12:47,439 Speaker 1: which makes them seem even more attractive as an asset. 266 00:12:47,679 --> 00:12:49,920 Speaker 1: And that is basically what we get in these economic cycles. 267 00:12:50,080 --> 00:12:52,160 Speaker 1: And normally there's a little bit of the same sentiment 268 00:12:52,360 --> 00:12:54,880 Speaker 1: story as well, where we've gone through the economic cycle 269 00:12:54,960 --> 00:12:57,000 Speaker 1: long enough that stock investors have learned, you know what, 270 00:12:57,120 --> 00:12:58,880 Speaker 1: you buy the dip, you ignore the scares. I don't 271 00:12:58,920 --> 00:13:00,480 Speaker 1: want to miss out in the rally. And so when 272 00:13:00,520 --> 00:13:03,120 Speaker 1: they see this bond market signal, they go, great, that's 273 00:13:03,160 --> 00:13:06,480 Speaker 1: extra easing, that's extra liquidity, that's a lower discount rate. 274 00:13:06,760 --> 00:13:08,360 Speaker 1: This means I buy that dip. I do not get 275 00:13:08,400 --> 00:13:09,880 Speaker 1: scared by it. So I think that's what we're seeing there. 276 00:13:11,080 --> 00:13:14,120 Speaker 1: So you mentioned economic cycles, and this is something that 277 00:13:14,200 --> 00:13:17,280 Speaker 1: I've been wondering about in in recent months. We're pinning 278 00:13:17,320 --> 00:13:20,280 Speaker 1: a lot of the economic concerns that we've seen on 279 00:13:20,559 --> 00:13:24,040 Speaker 1: the trade dispute, and you mentioned that economists hadn't really 280 00:13:24,160 --> 00:13:28,120 Speaker 1: yet been ratcheting down their forecasts due to the tariffs, 281 00:13:28,240 --> 00:13:30,839 Speaker 1: because they're sort of waiting to see how it comes out. 282 00:13:31,080 --> 00:13:35,080 Speaker 1: But I'm wondering, is it possible that what we're seeing 283 00:13:35,240 --> 00:13:38,079 Speaker 1: is actually just the end of the economic cycle, a 284 00:13:38,160 --> 00:13:41,480 Speaker 1: sort of natural end, versus anything that's been spurred on 285 00:13:41,640 --> 00:13:44,679 Speaker 1: by the trade war. I think that's a really valid question, 286 00:13:44,760 --> 00:13:47,320 Speaker 1: and probably are not the the best person to answer 287 00:13:47,360 --> 00:13:48,800 Speaker 1: that deeply. I'll give you my impression of it, and 288 00:13:48,800 --> 00:13:50,719 Speaker 1: my impression is, yes, we have We've had already a 289 00:13:50,800 --> 00:13:53,079 Speaker 1: very long economic cycle, and there's been a sign of 290 00:13:53,120 --> 00:13:54,680 Speaker 1: a kind of a change in some of those indicators 291 00:13:54,760 --> 00:13:56,959 Speaker 1: for some times. And like even as I said, in 292 00:13:57,000 --> 00:13:59,440 Speaker 1: the equity market that's reaching record highs, we've now suddenly 293 00:13:59,440 --> 00:14:03,080 Speaker 1: seeing weakness seen transport stocks and small caps, in home builders, 294 00:14:03,120 --> 00:14:05,400 Speaker 1: we're seeing that kind of change. We're also seeing jobs 295 00:14:05,480 --> 00:14:07,120 Speaker 1: that you know, at a low and now we've just 296 00:14:07,160 --> 00:14:09,120 Speaker 1: seen some bad jobs prints and jobs is actually a 297 00:14:09,160 --> 00:14:11,520 Speaker 1: lagging indicator, so people you should't watch it too closely. 298 00:14:11,600 --> 00:14:13,839 Speaker 1: But nfp A and ADP last month both showed that 299 00:14:13,840 --> 00:14:15,640 Speaker 1: there is kind of a turn in the job cycle. 300 00:14:15,679 --> 00:14:17,760 Speaker 1: So I think that already we're reaching the end of 301 00:14:17,800 --> 00:14:19,120 Speaker 1: the economic cycle. And I think that's part of the 302 00:14:19,160 --> 00:14:21,840 Speaker 1: reason why I suddenly become structurally bearished in the last 303 00:14:21,920 --> 00:14:23,760 Speaker 1: month and into this kind of sell the rallies mode. 304 00:14:23,960 --> 00:14:27,000 Speaker 1: And that's because even without the tariffs in May, we're 305 00:14:27,080 --> 00:14:28,760 Speaker 1: looking like we were getting to a kind of a 306 00:14:28,880 --> 00:14:31,320 Speaker 1: difficult place in the economy. I thought, if we got 307 00:14:31,400 --> 00:14:34,320 Speaker 1: some wonderful deal, all went well, So I actually turned 308 00:14:34,400 --> 00:14:36,720 Speaker 1: bearish on April thirty. But when I turned bearish, it 309 00:14:36,880 --> 00:14:39,040 Speaker 1: was my usual just to sell off for a few weeks, 310 00:14:39,240 --> 00:14:40,640 Speaker 1: don't worry, and I was in the mindset, will be 311 00:14:40,720 --> 00:14:42,920 Speaker 1: back at record highs again. It was a tactical bearishness, 312 00:14:43,200 --> 00:14:44,840 Speaker 1: but it was the change in the trade war that said, 313 00:14:45,040 --> 00:14:47,880 Speaker 1: oh wait a second, we've got a really tough economic situation. 314 00:14:48,160 --> 00:14:50,600 Speaker 1: And since that April thirtie date, all the data that 315 00:14:50,680 --> 00:14:52,920 Speaker 1: from before when the trade were flared up again has 316 00:14:52,960 --> 00:14:55,840 Speaker 1: disappointed again. It's coming even worse. So the economic cycle 317 00:14:55,880 --> 00:14:57,600 Speaker 1: was looking really, really drastic, and now we've had a 318 00:14:57,640 --> 00:15:00,000 Speaker 1: tariffs on top. So this is a really really bad story. 319 00:15:00,160 --> 00:15:02,400 Speaker 1: And it's not only without a taris, but there seems 320 00:15:02,400 --> 00:15:04,960 Speaker 1: to have been a complete breakdown in the relationship between 321 00:15:05,040 --> 00:15:06,560 Speaker 1: China and US and May and I think that's really 322 00:15:06,560 --> 00:15:08,800 Speaker 1: the key, key point that I now no longer see 323 00:15:08,840 --> 00:15:11,560 Speaker 1: a solution on the horizon. Expand on that. And I'm 324 00:15:11,680 --> 00:15:15,480 Speaker 1: curious how your perception or how the perception of the 325 00:15:15,560 --> 00:15:18,760 Speaker 1: trade situation is different here when you come to New 326 00:15:18,840 --> 00:15:21,080 Speaker 1: York for a couple of weeks versus when you talk 327 00:15:21,160 --> 00:15:23,640 Speaker 1: to people in your home base of Singapore. Yeah. Sure, 328 00:15:23,640 --> 00:15:25,040 Speaker 1: I mean, I'm going to give a views here, and 329 00:15:25,040 --> 00:15:27,240 Speaker 1: I'd love it if Tracy kind of either contradicts me 330 00:15:27,280 --> 00:15:29,280 Speaker 1: and tells me she sees a different or validates this, 331 00:15:29,360 --> 00:15:31,520 Speaker 1: given that she's in Hong Kong. But I feel that 332 00:15:31,600 --> 00:15:33,920 Speaker 1: the trade war is viewed completely differently on the either 333 00:15:33,960 --> 00:15:36,040 Speaker 1: side of the globe. And I think that in the US, 334 00:15:36,160 --> 00:15:38,560 Speaker 1: everyone's very much believes that the trade war comes down 335 00:15:38,600 --> 00:15:41,120 Speaker 1: to Trump's decision. It's unilanderal decision. He's going to want 336 00:15:41,120 --> 00:15:43,080 Speaker 1: to deal before the election, is how the narrative goes, 337 00:15:43,120 --> 00:15:44,840 Speaker 1: and therefore he'll get a deal at some point. It 338 00:15:44,920 --> 00:15:46,120 Speaker 1: might not be to next year, it might be a 339 00:15:46,160 --> 00:15:48,480 Speaker 1: little bit difficult, it might be noisy, but ultimately Trump 340 00:15:48,520 --> 00:15:49,880 Speaker 1: wants a deal, and there if he'll get a deal, 341 00:15:50,480 --> 00:15:53,800 Speaker 1: I think that that narrative in Asia has completely shifted. 342 00:15:53,840 --> 00:15:55,960 Speaker 1: I think in China, China also wanted a deal, and 343 00:15:55,960 --> 00:15:57,720 Speaker 1: they did want to deal, but there is a real 344 00:15:57,840 --> 00:15:59,880 Speaker 1: change in me and the reason the talks breakdown. We heard, 345 00:16:00,000 --> 00:16:01,480 Speaker 1: I think with the Wall Street Journal that broke that 346 00:16:01,600 --> 00:16:04,520 Speaker 1: story saying the idea that the Politt bureau Baski told 347 00:16:04,560 --> 00:16:06,800 Speaker 1: Chgemping you can sign something to change laws, and that 348 00:16:06,840 --> 00:16:08,560 Speaker 1: does go back to their long history the opium wars. 349 00:16:08,600 --> 00:16:11,360 Speaker 1: They still regret that. So what's happened is that in China, 350 00:16:11,720 --> 00:16:13,400 Speaker 1: the idea of a trade war wasn't mentioned in the 351 00:16:13,440 --> 00:16:16,680 Speaker 1: mainland press before May, and suddenly now it's not only mentioned, 352 00:16:16,720 --> 00:16:18,360 Speaker 1: it's been really hyped up that they, you know, they're 353 00:16:18,360 --> 00:16:20,640 Speaker 1: going to stand up to imperial aggression from the US. 354 00:16:20,840 --> 00:16:22,480 Speaker 1: They're going to go through the Long March again to 355 00:16:22,520 --> 00:16:25,440 Speaker 1: get their kind of independence and prove China's you know, 356 00:16:25,560 --> 00:16:28,280 Speaker 1: authority on the world stage. They're demanding an equal footing. 357 00:16:28,440 --> 00:16:30,320 Speaker 1: So I think the whole narrative has changed that China 358 00:16:30,400 --> 00:16:33,400 Speaker 1: can no longer agree to any deal without US essentially 359 00:16:33,760 --> 00:16:36,200 Speaker 1: making all the initial concessions. So US will have to 360 00:16:36,240 --> 00:16:39,040 Speaker 1: remove all tariffs first before China will get to some 361 00:16:39,120 --> 00:16:40,960 Speaker 1: kind of trade deal. I don't see Trump going that 362 00:16:41,000 --> 00:16:43,160 Speaker 1: way soon. So suddenly I think the narrative has changed 363 00:16:43,200 --> 00:16:45,000 Speaker 1: that I think there's no chance of trade. I think 364 00:16:45,040 --> 00:16:47,560 Speaker 1: optimistically we don't get more tariffs, and I think that's 365 00:16:47,560 --> 00:16:50,200 Speaker 1: an optimistic case. But I just don't see how you 366 00:16:50,240 --> 00:16:52,720 Speaker 1: get a resolution given that China can no longer They've 367 00:16:52,760 --> 00:16:55,120 Speaker 1: talked themselves into the mainland audience that they no longer 368 00:16:55,200 --> 00:16:57,160 Speaker 1: can agree to a deal without being seen to win, 369 00:16:57,600 --> 00:16:59,880 Speaker 1: and Trump count afford to be seen to concede to China, 370 00:17:00,000 --> 00:17:01,520 Speaker 1: and he's built it up so much out of the election. 371 00:17:01,680 --> 00:17:02,800 Speaker 1: So that's what I see it. How do you hear? 372 00:17:02,800 --> 00:17:04,520 Speaker 1: Do you see it? Tracy from Age the age perpective 373 00:17:04,520 --> 00:17:07,560 Speaker 1: as well. Yeah, I would broadly agree with that. So 374 00:17:07,720 --> 00:17:10,400 Speaker 1: I think partially because of the type of people who 375 00:17:10,560 --> 00:17:14,199 Speaker 1: tend to work in markets and finance and investing, uh, 376 00:17:14,720 --> 00:17:18,760 Speaker 1: they have a high tendency, let's say, to ascribe rationality 377 00:17:19,000 --> 00:17:22,720 Speaker 1: onto other actors. And I'm not entirely sure at this 378 00:17:22,840 --> 00:17:25,119 Speaker 1: point in time that the major actors in the trade 379 00:17:25,160 --> 00:17:29,000 Speaker 1: war are actually acting that rationally. And I think you're 380 00:17:29,040 --> 00:17:32,159 Speaker 1: absolutely right that both China and the US at this 381 00:17:32,240 --> 00:17:35,040 Speaker 1: point have boxed themselves in a bit when it comes 382 00:17:35,119 --> 00:17:39,800 Speaker 1: to satisfying domestic public opinion in very different ways. But 383 00:17:40,119 --> 00:17:44,399 Speaker 1: it's particularly acute in China, where you're right, we didn't 384 00:17:44,440 --> 00:17:48,439 Speaker 1: see the polite Burero's sort of ramping up the trade 385 00:17:48,560 --> 00:17:53,160 Speaker 1: tensions talk and talking about imperialist aggression up until very recently, 386 00:17:53,520 --> 00:17:55,479 Speaker 1: and you can imagine it's going to be very, very 387 00:17:55,600 --> 00:17:59,120 Speaker 1: difficult for them to roll that back in any significant way. 388 00:17:59,400 --> 00:18:01,760 Speaker 1: And the same and goes for the Trump administration to 389 00:18:01,920 --> 00:18:04,160 Speaker 1: some extent as well. If you think about, for instance, 390 00:18:04,359 --> 00:18:07,200 Speaker 1: what they've done when it comes to Huawei, how in 391 00:18:07,280 --> 00:18:09,840 Speaker 1: the world are they going to start rolling that back? 392 00:18:10,000 --> 00:18:13,440 Speaker 1: That feels really really difficult to sort of undoe to me, 393 00:18:13,640 --> 00:18:16,119 Speaker 1: So that I think you're absolutely right. I mean, it's 394 00:18:16,160 --> 00:18:18,080 Speaker 1: got bipartisan support in the U. S. Here, So I 395 00:18:18,119 --> 00:18:20,400 Speaker 1: think that's why the Trump count back down. Both sides 396 00:18:20,480 --> 00:18:23,280 Speaker 1: do actually want Trump to kind of get some win 397 00:18:23,320 --> 00:18:25,280 Speaker 1: against China, even if not the exact manner of how 398 00:18:25,320 --> 00:18:28,160 Speaker 1: it's doing it. So I'm pretty negative on the trade deal, 399 00:18:28,160 --> 00:18:29,960 Speaker 1: and I think that's why we're going to start seeing 400 00:18:30,000 --> 00:18:32,399 Speaker 1: Capex slump a lot. We're gonna see Earning slash and 401 00:18:32,480 --> 00:18:33,960 Speaker 1: this goes back to the core point. Why am I 402 00:18:34,000 --> 00:18:36,080 Speaker 1: so worried about the stock market, Well, it was expensive 403 00:18:36,080 --> 00:18:38,800 Speaker 1: already with an economy that was turning, as Tracy kind 404 00:18:38,840 --> 00:18:41,520 Speaker 1: of applied. Maybe it's just even the economic cycles already turning, 405 00:18:41,560 --> 00:18:45,120 Speaker 1: and now we're suddenly adding a complete, completely disastrous scenario 406 00:18:45,480 --> 00:18:48,040 Speaker 1: for both private companies that rely on these these big 407 00:18:48,160 --> 00:18:51,480 Speaker 1: US mountinnationals rely on the consumer base in Asia. I 408 00:18:51,520 --> 00:18:53,720 Speaker 1: think they'll forget that, you know, suddenly Asia is the 409 00:18:53,880 --> 00:18:56,720 Speaker 1: rising rampant middle class consumer and middle class. I think 410 00:18:56,720 --> 00:18:59,119 Speaker 1: people have this idea that there's much especially in the US, 411 00:18:59,160 --> 00:19:00,720 Speaker 1: build this idea that much of Asia is still poor 412 00:19:00,760 --> 00:19:03,320 Speaker 1: and not buying you know, apple goods. That's just not true. 413 00:19:03,640 --> 00:19:05,920 Speaker 1: So I think that this is a really really bad 414 00:19:06,000 --> 00:19:08,480 Speaker 1: situation of both growth and earning slash at a time 415 00:19:08,520 --> 00:19:10,680 Speaker 1: with stocks are expensive and a Ford looking basis. The 416 00:19:10,800 --> 00:19:13,920 Speaker 1: sp trading around sixteen point eight versus the tenure average 417 00:19:13,960 --> 00:19:16,800 Speaker 1: of fifteen. So it's expensive already, but that P four 418 00:19:16,840 --> 00:19:20,200 Speaker 1: looking P will look completely different once that the denominator, 419 00:19:20,240 --> 00:19:38,960 Speaker 1: the earning side of that gets slashed. So, Mark, You've 420 00:19:38,960 --> 00:19:42,080 Speaker 1: been talking a lot about equities being overvalued, but I'm 421 00:19:42,119 --> 00:19:45,720 Speaker 1: wondering how you feel about credit, because when it comes 422 00:19:45,760 --> 00:19:49,760 Speaker 1: to a lot of finance professionals, overheated credit markets has 423 00:19:49,840 --> 00:19:52,399 Speaker 1: really been the sort of bug bear that people have 424 00:19:52,520 --> 00:19:55,280 Speaker 1: been worried about for a long long time. Is it 425 00:19:55,440 --> 00:19:59,080 Speaker 1: as simple as when the economic cycle turns, the credit 426 00:19:59,200 --> 00:20:01,280 Speaker 1: market is going in to be in for a world 427 00:20:01,359 --> 00:20:03,480 Speaker 1: of pain? Is it that simple in the sense that 428 00:20:03,920 --> 00:20:06,480 Speaker 1: what everyone has feared and expected for such a long 429 00:20:06,560 --> 00:20:09,080 Speaker 1: time now is just going to happen. I think it 430 00:20:09,160 --> 00:20:11,359 Speaker 1: is that simple. I'm really glad you brought this up, 431 00:20:11,400 --> 00:20:14,520 Speaker 1: because I think that it's hard to get plus sell 432 00:20:14,560 --> 00:20:16,320 Speaker 1: off in the SMP five hundred without some kind of 433 00:20:16,400 --> 00:20:18,240 Speaker 1: financial pain. And I should be clear that even though 434 00:20:18,240 --> 00:20:20,520 Speaker 1: I've turned structurally barished the first time since the last crisis, 435 00:20:20,640 --> 00:20:22,400 Speaker 1: I don't think we're having a repeat of tersm Nate. 436 00:20:22,480 --> 00:20:24,280 Speaker 1: I don't think the global financial systems at risk. I 437 00:20:24,320 --> 00:20:26,000 Speaker 1: don't think it's quite as scary as that. But I 438 00:20:26,080 --> 00:20:28,240 Speaker 1: do think that we're going to have some severest financial 439 00:20:28,320 --> 00:20:30,240 Speaker 1: market pain, and that will come in credit markets. And 440 00:20:30,280 --> 00:20:32,120 Speaker 1: we've heard a lot of warnings from the big credit names. 441 00:20:32,320 --> 00:20:34,600 Speaker 1: You know, whether I think leverage finance of the area 442 00:20:34,600 --> 00:20:35,920 Speaker 1: that people are most worried about. But I think that 443 00:20:35,960 --> 00:20:37,960 Speaker 1: it's the structural problem For me that most worries the 444 00:20:38,040 --> 00:20:40,639 Speaker 1: lack of liquidity and credit markets. So when the credit 445 00:20:40,720 --> 00:20:43,760 Speaker 1: market turns, there's just no ability because the regulation we've 446 00:20:43,800 --> 00:20:46,520 Speaker 1: put in since the crisis for the banks as middlemen 447 00:20:46,600 --> 00:20:48,679 Speaker 1: to stop step in and kind of control the sell off. 448 00:20:48,920 --> 00:20:51,119 Speaker 1: So I think the credit cycle can turn much more 449 00:20:51,160 --> 00:20:54,480 Speaker 1: painfully and much more rapidly than previous crisis. Is the 450 00:20:54,880 --> 00:20:59,240 Speaker 1: recent stress that we've seen in various funds in London, 451 00:21:00,240 --> 00:21:05,520 Speaker 1: the Natixus funds Woodford. Is there an early indicator of anything? 452 00:21:05,680 --> 00:21:08,200 Speaker 1: Is that a like, I don't know, some sort of 453 00:21:08,920 --> 00:21:11,520 Speaker 1: prestige of trouble when the when the tide goes out, 454 00:21:11,560 --> 00:21:14,000 Speaker 1: you see something naked type of thing. If you're in 455 00:21:14,119 --> 00:21:15,600 Speaker 1: my point of view, it's very easy to see it 456 00:21:15,720 --> 00:21:18,040 Speaker 1: like that way. I'm sure that many people can kind 457 00:21:18,040 --> 00:21:19,760 Speaker 1: of pick these kind of anecdotes if you want. It's 458 00:21:19,880 --> 00:21:21,600 Speaker 1: it's the same with suddenly this year we've seen all 459 00:21:21,640 --> 00:21:24,040 Speaker 1: those kind of massive unicorn I p o s and 460 00:21:24,119 --> 00:21:26,000 Speaker 1: again people would say that's a sign that we're reaching 461 00:21:26,040 --> 00:21:28,879 Speaker 1: near the peak. I think if you're looking for these signals, 462 00:21:28,920 --> 00:21:30,399 Speaker 1: you can definitely see them and I do think some 463 00:21:30,480 --> 00:21:32,280 Speaker 1: of these funds things are worrying. And one of the 464 00:21:32,359 --> 00:21:35,320 Speaker 1: things that it's interesting is that while I've turned structurally barrish, 465 00:21:35,520 --> 00:21:37,840 Speaker 1: I have no particular strong view and we're we're going 466 00:21:37,880 --> 00:21:39,280 Speaker 1: to trade in the next couple of weeks because we 467 00:21:39,359 --> 00:21:42,199 Speaker 1: might convert twenty some platitudes positive platitudes. But I think 468 00:21:42,240 --> 00:21:44,800 Speaker 1: the point is that professional investors have started trading more 469 00:21:44,840 --> 00:21:48,000 Speaker 1: defensively in terms of their stock rotation, and they started 470 00:21:48,040 --> 00:21:50,480 Speaker 1: being a little bit more bearish. But if you looked 471 00:21:50,480 --> 00:21:53,120 Speaker 1: at this week, we saw that the hedge fund leverage 472 00:21:53,320 --> 00:21:55,800 Speaker 1: is actually reaching back to kind of pre crisis highs again. 473 00:21:55,960 --> 00:21:57,560 Speaker 1: So that's the idea that people are actually taking on 474 00:21:57,600 --> 00:21:59,080 Speaker 1: more risk, and I think there's that leverage in the 475 00:21:59,119 --> 00:22:02,159 Speaker 1: system there that will get squeezed very quickly because the 476 00:22:02,240 --> 00:22:04,960 Speaker 1: lack of liquidity in the credit system. So you mentioned 477 00:22:05,040 --> 00:22:07,520 Speaker 1: lack of liquidity in credit, and you know, this is 478 00:22:07,600 --> 00:22:09,879 Speaker 1: something that lots of people have talked about for a 479 00:22:09,960 --> 00:22:12,359 Speaker 1: long time, and I certainly have written my share of 480 00:22:12,480 --> 00:22:15,720 Speaker 1: articles on this and also overheating in that market. And 481 00:22:16,080 --> 00:22:19,040 Speaker 1: one thing that has given me pause at various points 482 00:22:19,080 --> 00:22:21,720 Speaker 1: of time is the notion that when the big sell 483 00:22:21,760 --> 00:22:26,600 Speaker 1: off comes. You sell what you can, essentially, So I 484 00:22:26,720 --> 00:22:29,520 Speaker 1: just wonder, if we do get a big rupture in 485 00:22:29,640 --> 00:22:33,480 Speaker 1: financial markets, is there a chance that, instead of people, 486 00:22:33,600 --> 00:22:36,639 Speaker 1: you know, rushing to sell off corporate credit and leverage loans, 487 00:22:37,600 --> 00:22:40,080 Speaker 1: that because of the very fact that these things are 488 00:22:40,200 --> 00:22:42,200 Speaker 1: extremely a liquid and it's going to be tough to 489 00:22:42,240 --> 00:22:45,800 Speaker 1: find buyers for them, that they actually don't move that much, 490 00:22:45,880 --> 00:22:49,439 Speaker 1: and instead we see people selling off much more liquid 491 00:22:49,520 --> 00:22:53,119 Speaker 1: items like stocks or government bonds. That's a that's a 492 00:22:53,119 --> 00:22:55,119 Speaker 1: great question, and I'm trying to, you know, remember the 493 00:22:55,200 --> 00:22:57,679 Speaker 1: playbook from how I was trading to the last crisis. 494 00:22:57,680 --> 00:22:59,159 Speaker 1: And I have to say that the last time I, 495 00:22:59,359 --> 00:23:01,120 Speaker 1: you know, I was trading GFC, it was my first 496 00:23:01,200 --> 00:23:03,119 Speaker 1: crisis to be in a trading seat, and therefore I 497 00:23:03,240 --> 00:23:04,920 Speaker 1: was learning and making the mistakes back then, and some 498 00:23:05,000 --> 00:23:07,240 Speaker 1: of the mistakes I learned quite painfully, and I remember 499 00:23:07,320 --> 00:23:08,879 Speaker 1: quite vividly. Another ones, you know, I'm not sure if 500 00:23:08,880 --> 00:23:10,399 Speaker 1: I fully learned them, but I'm trying to remember then, 501 00:23:10,560 --> 00:23:12,600 Speaker 1: and I think one of my my big takeaways then 502 00:23:12,720 --> 00:23:15,160 Speaker 1: is that it was very clear from late two thousand 503 00:23:15,160 --> 00:23:18,120 Speaker 1: and seven that there was an incredibly big problem brewing 504 00:23:18,160 --> 00:23:20,600 Speaker 1: in the financial system, and I have emails that I 505 00:23:20,680 --> 00:23:23,119 Speaker 1: wrote on my Gmail account to all my friends back 506 00:23:23,160 --> 00:23:25,080 Speaker 1: in Ireland saying, look, I think you know all the 507 00:23:25,119 --> 00:23:27,080 Speaker 1: banks are going to fall. I did naively think that 508 00:23:27,160 --> 00:23:29,159 Speaker 1: Lehman Brothers was one of the safest, I will confess, 509 00:23:29,680 --> 00:23:31,680 Speaker 1: which is a little bit embarrassing, but that was I 510 00:23:31,760 --> 00:23:34,480 Speaker 1: think a bit of hometown naive. But certainly so. I 511 00:23:34,520 --> 00:23:36,040 Speaker 1: thought Line Brothers be fine, but I thought that most 512 00:23:36,080 --> 00:23:38,200 Speaker 1: of the banks would. We were vulnerable. I was telling 513 00:23:38,280 --> 00:23:40,240 Speaker 1: friends from November twosman seven that I thought there was 514 00:23:40,240 --> 00:23:42,680 Speaker 1: going to be a massive systemic financial crisis and you know, 515 00:23:42,800 --> 00:23:44,280 Speaker 1: cash machines might not work and stuff. I was a 516 00:23:44,320 --> 00:23:46,639 Speaker 1: little bit in a Doumonger phase, but then I was 517 00:23:46,680 --> 00:23:49,960 Speaker 1: an emerging market trader. Emerging market effects reached a record 518 00:23:50,080 --> 00:23:52,320 Speaker 1: high in August two thousand and eight. Now, as I said, 519 00:23:52,440 --> 00:23:54,840 Speaker 1: the stock market actually topped out in October two and seven. 520 00:23:55,280 --> 00:23:57,280 Speaker 1: It was you know, we had bear Stearns in March 521 00:23:57,359 --> 00:24:00,280 Speaker 1: ts and seven. I mean Lehman Brothers stock probably where 522 00:24:00,280 --> 00:24:02,479 Speaker 1: I was working, was plumbing throughout that summer, and yet 523 00:24:02,560 --> 00:24:05,000 Speaker 1: emerging market currencies reached an all time high. Enogs as 524 00:24:05,000 --> 00:24:07,199 Speaker 1: a Nate, and I think that was an important message. 525 00:24:07,320 --> 00:24:10,159 Speaker 1: I'm very indirectly answering your question, Tracy, but to kind 526 00:24:10,160 --> 00:24:12,399 Speaker 1: of affirm that, yes, how these kind of sell us 527 00:24:12,440 --> 00:24:14,479 Speaker 1: go when we do get a negative cycle, they're very 528 00:24:14,520 --> 00:24:17,240 Speaker 1: difficult to trade. Is not necessarily you find that the 529 00:24:17,720 --> 00:24:19,520 Speaker 1: most overpriced thing and you sell it, or you find 530 00:24:19,560 --> 00:24:21,320 Speaker 1: the most vulnerable thing you sell it. You've got to 531 00:24:21,359 --> 00:24:23,800 Speaker 1: really care about the timing of when things go. And 532 00:24:23,920 --> 00:24:26,440 Speaker 1: I think you're right that sometimes actually assets which aren't 533 00:24:26,440 --> 00:24:29,159 Speaker 1: particularly expensive but are more liquid gets sold first, and 534 00:24:29,240 --> 00:24:31,600 Speaker 1: then you suddenly see these massive step moves later on. 535 00:24:31,960 --> 00:24:33,639 Speaker 1: But I guess one of my main takeaways in the 536 00:24:33,680 --> 00:24:36,399 Speaker 1: last crisis is that for those slightly harder assets that 537 00:24:36,400 --> 00:24:37,880 Speaker 1: are a little bit less liquid, they are a little 538 00:24:37,880 --> 00:24:40,520 Speaker 1: bit step moves. You can probably wait till your shure 539 00:24:40,600 --> 00:24:43,840 Speaker 1: the cyclist turning. You know, get in the trade a 540 00:24:44,000 --> 00:24:46,399 Speaker 1: slightly more expensive price, but you know it's going to 541 00:24:46,480 --> 00:24:48,640 Speaker 1: make the jump move at some point, rather than trying 542 00:24:48,680 --> 00:24:50,760 Speaker 1: to be clever, basically, don't try to be clever through 543 00:24:50,800 --> 00:24:53,120 Speaker 1: the liquid interestments. If you're trying to be clever in time, 544 00:24:53,320 --> 00:24:55,080 Speaker 1: perfectly do it through the liquid stuff, where you can 545 00:24:55,160 --> 00:24:57,560 Speaker 1: keep on chopping and change your mind through the liquid stuff. 546 00:24:57,760 --> 00:24:59,879 Speaker 1: Wait till it's certain, Wait till maybe we see how 547 00:24:59,920 --> 00:25:01,960 Speaker 1: the G twenty trades and plays out, and then you 548 00:25:01,960 --> 00:25:05,120 Speaker 1: can kind of go, yeah, it's interesting. I hadn't remember 549 00:25:05,240 --> 00:25:09,960 Speaker 1: that or realized that exactly how well emerging market currencies 550 00:25:10,040 --> 00:25:12,879 Speaker 1: did throughout two eight. But it's interesting because we just 551 00:25:12,960 --> 00:25:15,800 Speaker 1: recorded an episode with the human Suction of the b 552 00:25:15,960 --> 00:25:20,880 Speaker 1: I S talking about the dollar, and we're talking about 553 00:25:20,960 --> 00:25:25,040 Speaker 1: that sort of relentless dollar pessimism that pervaded markets really 554 00:25:25,520 --> 00:25:28,720 Speaker 1: in the years preceding, uh, the Great Financial Crisis, but 555 00:25:28,800 --> 00:25:30,920 Speaker 1: really two thousand six through two thousand and eight, so 556 00:25:31,080 --> 00:25:33,480 Speaker 1: much negativity on the dollar, and that seemed to be 557 00:25:33,520 --> 00:25:36,639 Speaker 1: a major source of concern, a major difference in the 558 00:25:36,720 --> 00:25:38,880 Speaker 1: post crisis era or the dollar has just been phenomenal. 559 00:25:39,000 --> 00:25:41,160 Speaker 1: I think that's gonna be denomic scene again. I guess 560 00:25:41,280 --> 00:25:44,320 Speaker 1: part of that is because what happens is bone markets start. 561 00:25:44,760 --> 00:25:46,840 Speaker 1: Bond markets do react to click in the stock markets 562 00:25:46,840 --> 00:25:48,680 Speaker 1: because they have to react to date to their macro instruments, 563 00:25:48,720 --> 00:25:51,440 Speaker 1: whereas equities traders rely on their micro strategists to provide 564 00:25:51,440 --> 00:25:54,119 Speaker 1: those macro inputs. Um So bond markets basically forced the 565 00:25:54,160 --> 00:25:55,920 Speaker 1: FED Act, and we've seem to seem to see that 566 00:25:55,960 --> 00:25:57,879 Speaker 1: even more than normal this time where the FED is 567 00:25:57,920 --> 00:26:00,840 Speaker 1: being pressed act. So the easing cycles start, that weakens 568 00:26:00,880 --> 00:26:03,440 Speaker 1: one of the dollar supports. The dollar starts weakening, and 569 00:26:03,520 --> 00:26:05,320 Speaker 1: then what you see is that because the dollar's weakening, 570 00:26:05,359 --> 00:26:07,600 Speaker 1: that eases the liquidity situation. E M S. E M 571 00:26:07,680 --> 00:26:10,200 Speaker 1: actually does a little bit okay in that initial circumstance, 572 00:26:10,320 --> 00:26:12,159 Speaker 1: and you want to start seeing commodities do well. I mean, 573 00:26:12,200 --> 00:26:14,040 Speaker 1: pe'll forget where oil went to a hundred and fifty 574 00:26:14,040 --> 00:26:16,280 Speaker 1: dollars a barrel, you know, just going into the crisis. 575 00:26:16,320 --> 00:26:18,320 Speaker 1: And I think that's because we were seeing this kind 576 00:26:18,359 --> 00:26:20,040 Speaker 1: of dollar barish and it's just before the crisis. And 577 00:26:20,080 --> 00:26:22,560 Speaker 1: then obviously once the crisis hit properly, even though as 578 00:26:22,640 --> 00:26:27,040 Speaker 1: US centric dollar absolutely roared and and I I think 579 00:26:27,040 --> 00:26:28,640 Speaker 1: that we're going to see that playbook this time. We're 580 00:26:28,640 --> 00:26:30,439 Speaker 1: gonna see the dollar weakened quite a bit. It's going 581 00:26:30,480 --> 00:26:32,239 Speaker 1: to support assets that you would think would be really 582 00:26:32,320 --> 00:26:35,879 Speaker 1: vulnerable to a global financial crisis, like emerging markets, like commodities, 583 00:26:36,040 --> 00:26:37,800 Speaker 1: but it's going to support them until quite far in, 584 00:26:38,080 --> 00:26:40,000 Speaker 1: until it's clear that this is a much bigger problem. 585 00:26:40,200 --> 00:26:42,080 Speaker 1: When that happens, I don't know. Maybe that's early next year. 586 00:26:42,200 --> 00:26:43,800 Speaker 1: It's hard to know the exact time span. The one 587 00:26:43,800 --> 00:26:45,159 Speaker 1: difference I would say this time is I do not 588 00:26:45,240 --> 00:26:48,160 Speaker 1: think the dollar gets the subsequent massive boost it did. 589 00:26:49,720 --> 00:26:52,879 Speaker 1: You mentioned hedge fund leverage, and I'm always curious. I 590 00:26:53,359 --> 00:26:56,200 Speaker 1: enjoy asking people this question, but where do you see 591 00:26:56,560 --> 00:26:59,119 Speaker 1: the leverage in the system. Now you already mentioned that 592 00:26:59,160 --> 00:27:01,600 Speaker 1: you don't see it on a scale of of sort 593 00:27:01,640 --> 00:27:04,680 Speaker 1: of pre two thousand eight levels, but I'm sure you 594 00:27:04,760 --> 00:27:06,800 Speaker 1: have some idea of where there might be sort of 595 00:27:07,000 --> 00:27:10,720 Speaker 1: hidden pockets of leverage in the system. I'm not best 596 00:27:10,760 --> 00:27:12,040 Speaker 1: place to answer that question. I mean, part of the 597 00:27:12,040 --> 00:27:13,800 Speaker 1: reason I kind of set the hedge fund leverage this 598 00:27:13,840 --> 00:27:15,760 Speaker 1: week is that, you know, I saw the actually article 599 00:27:15,800 --> 00:27:18,119 Speaker 1: on Bloomberg Actually, and I want I will say that 600 00:27:18,200 --> 00:27:20,800 Speaker 1: you know, um, I didn't remember the exact details from it, 601 00:27:20,800 --> 00:27:22,159 Speaker 1: but they were saying that leverages back to the pre 602 00:27:22,240 --> 00:27:24,000 Speaker 1: crisis high. It's kind of jumping up again on the 603 00:27:24,040 --> 00:27:25,960 Speaker 1: hedge fund leverage system. I think what you do see 604 00:27:26,040 --> 00:27:28,160 Speaker 1: is how certain assets trade, and I think that it's 605 00:27:28,200 --> 00:27:30,160 Speaker 1: more in the certain sectors of the credit market where 606 00:27:30,160 --> 00:27:32,080 Speaker 1: we are seeing that in the leverage finance and the 607 00:27:32,160 --> 00:27:35,159 Speaker 1: clos and you're seeing those kind of those permanent buyers. 608 00:27:35,320 --> 00:27:38,080 Speaker 1: I mean those stories again. You know drast earlier about 609 00:27:38,160 --> 00:27:41,280 Speaker 1: whether you see these kind of signals from certain equity stories, 610 00:27:41,280 --> 00:27:43,000 Speaker 1: and I think it's again in credit market, it's very 611 00:27:43,040 --> 00:27:44,919 Speaker 1: easy to see the warning signs if you're looking for them. 612 00:27:45,080 --> 00:27:47,280 Speaker 1: Warning signs I might have ignored even only six months ago. 613 00:27:47,600 --> 00:27:49,600 Speaker 1: But when you find that like there's just you know, 614 00:27:49,880 --> 00:27:52,280 Speaker 1: one Japanese asset manager that is the main buyer of 615 00:27:52,359 --> 00:27:54,320 Speaker 1: some certain type of credit product, you know, and they're 616 00:27:54,359 --> 00:27:56,720 Speaker 1: lapping it up for like massive credit product back in Europe, 617 00:27:56,960 --> 00:27:58,639 Speaker 1: that seems like a warning sign. Now that I'm more 618 00:27:58,680 --> 00:28:00,840 Speaker 1: worried about the market, so I think that we are 619 00:28:00,960 --> 00:28:03,960 Speaker 1: saying that leverage in the credit system. I have a 620 00:28:04,040 --> 00:28:07,920 Speaker 1: sort of meta question about this call of yours and 621 00:28:08,000 --> 00:28:10,680 Speaker 1: your shift to bearishness, because now you're you know, you 622 00:28:10,800 --> 00:28:14,080 Speaker 1: fully identify yourself as a bear and you say, you know, 623 00:28:14,400 --> 00:28:16,560 Speaker 1: in April it was sort of tactical, but now you're 624 00:28:16,600 --> 00:28:19,600 Speaker 1: like full on with the thesis. Do you find that 625 00:28:20,160 --> 00:28:24,520 Speaker 1: um stating that makes it harder to be nimble and 626 00:28:24,760 --> 00:28:27,320 Speaker 1: that if data, you know, like let's say the trade 627 00:28:27,400 --> 00:28:29,800 Speaker 1: Day dispute doesn't get as bad as you expect, and 628 00:28:29,920 --> 00:28:33,119 Speaker 1: maybe the data starts to rebound a little bit that 629 00:28:33,800 --> 00:28:37,440 Speaker 1: having publicly sort of come out as a bear maybe 630 00:28:37,640 --> 00:28:39,440 Speaker 1: you know what if, like, do you feel comfortable in 631 00:28:39,520 --> 00:28:41,880 Speaker 1: October or November saying you know what, I was wrong? 632 00:28:42,360 --> 00:28:45,120 Speaker 1: Or is it harder to do that once you've sort 633 00:28:45,160 --> 00:28:47,840 Speaker 1: of identified as such. It's definitely harder, And I can't 634 00:28:47,880 --> 00:28:49,680 Speaker 1: to know. It's something I'm very conscious of, and I'm like, 635 00:28:50,200 --> 00:28:52,640 Speaker 1: as I said in the last crisis, I was pleased 636 00:28:52,640 --> 00:28:54,400 Speaker 1: that I felt that I was aware of it early, 637 00:28:54,480 --> 00:28:55,960 Speaker 1: and then I stayed bearished for too long and it 638 00:28:56,040 --> 00:28:59,240 Speaker 1: was horrendously unprofitable as a traitor. I think, you know, 639 00:28:59,320 --> 00:29:01,000 Speaker 1: I try to learn my lesson that I will turn 640 00:29:01,160 --> 00:29:03,520 Speaker 1: when I think the facts change. And I guess one 641 00:29:03,560 --> 00:29:05,800 Speaker 1: of the reasons I'm trying to I like it, you know, 642 00:29:05,840 --> 00:29:07,440 Speaker 1: being able to express this view is because I want 643 00:29:07,440 --> 00:29:08,840 Speaker 1: to know what the loopholes are. I'm hoping, you know, 644 00:29:09,160 --> 00:29:11,040 Speaker 1: listeners will kind of message me after this is going 645 00:29:11,080 --> 00:29:12,720 Speaker 1: to go and you're completely missing this element and that's 646 00:29:12,720 --> 00:29:15,040 Speaker 1: the point that kind of change the game. But having 647 00:29:15,160 --> 00:29:17,920 Speaker 1: analyzed that lots and kind of expressed this view very publicly, 648 00:29:17,960 --> 00:29:20,160 Speaker 1: in writings on TV and radio for the last kind 649 00:29:20,200 --> 00:29:22,080 Speaker 1: of month or so, I've not found the big loophole 650 00:29:22,160 --> 00:29:25,880 Speaker 1: apart from if there is a really grand trade deal 651 00:29:25,960 --> 00:29:28,640 Speaker 1: bets and trying to remove all tariffs and they're suddenly 652 00:29:28,680 --> 00:29:31,719 Speaker 1: in some wonderful happy world of trading, then clearly we're 653 00:29:31,760 --> 00:29:33,680 Speaker 1: not at the top now that will provide a sustainable 654 00:29:33,680 --> 00:29:36,080 Speaker 1: boost markets. But I will say that that it needs 655 00:29:36,120 --> 00:29:38,200 Speaker 1: to be removal of the tariff that are already in place, 656 00:29:38,320 --> 00:29:41,000 Speaker 1: not just a truce. Um. I I have. What I've 657 00:29:41,040 --> 00:29:42,720 Speaker 1: been trying to analyze is if we get a truce 658 00:29:42,800 --> 00:29:45,400 Speaker 1: now escalation from here, are we in the barrass scenario? 659 00:29:45,480 --> 00:29:47,840 Speaker 1: And I think yes, but it'll just come through a 660 00:29:47,880 --> 00:29:50,640 Speaker 1: little bit more slowly, a little more less drastically. But yes, 661 00:29:50,680 --> 00:29:52,720 Speaker 1: we are in the barrastionary. So but yeah, I'm going 662 00:29:52,760 --> 00:29:54,480 Speaker 1: to be alert to that. Will we see a change, 663 00:29:54,520 --> 00:29:56,400 Speaker 1: But I think it will take that massive trade deal 664 00:29:56,440 --> 00:29:59,360 Speaker 1: to change my mind. Mark Cutmore always a pleasure to 665 00:29:59,440 --> 00:30:01,520 Speaker 1: talk to. Thank you very much for joining us, and 666 00:30:01,760 --> 00:30:16,160 Speaker 1: uh I wish you were here more often. Thank you. So, Tracy, 667 00:30:16,200 --> 00:30:18,640 Speaker 1: are you convinced are you going to uh put all 668 00:30:18,720 --> 00:30:22,320 Speaker 1: your money in gold and silver and under your mattress. 669 00:30:22,640 --> 00:30:24,840 Speaker 1: I think I told you this before, but I do 670 00:30:25,040 --> 00:30:28,479 Speaker 1: have a sizeable stash of silver coins that have been 671 00:30:28,720 --> 00:30:31,720 Speaker 1: bequeathed to me by my dad. No. Look, on a 672 00:30:31,800 --> 00:30:34,840 Speaker 1: serious note, I don't think I needed a lot of 673 00:30:34,960 --> 00:30:39,080 Speaker 1: convincing that we are late cycle. But again, as someone 674 00:30:39,240 --> 00:30:43,200 Speaker 1: who has written about overheated credit markets and and leverage 675 00:30:43,400 --> 00:30:46,720 Speaker 1: and the possibility of a you know, liquidity driven sell 676 00:30:46,800 --> 00:30:49,960 Speaker 1: off in credit markets for many, many years now, the 677 00:30:50,080 --> 00:30:54,040 Speaker 1: question is always timing. And so yes, we have the 678 00:30:54,080 --> 00:30:57,800 Speaker 1: trade war, but I'm still a little bit uncertain exactly 679 00:30:57,920 --> 00:31:00,320 Speaker 1: what the catalyst is going to be for the end 680 00:31:00,360 --> 00:31:02,520 Speaker 1: of the cycle. And sorry, just one more thing, but 681 00:31:02,640 --> 00:31:05,280 Speaker 1: it seems to me like the FED is also acutely 682 00:31:05,360 --> 00:31:09,000 Speaker 1: aware to some extent of problems in credit and whenever 683 00:31:09,120 --> 00:31:12,120 Speaker 1: we do see cracks in the credit markets start to develop, 684 00:31:12,560 --> 00:31:18,240 Speaker 1: like we did earlier in the year, the FED usually responds, yeah, no, absolutely. 685 00:31:18,520 --> 00:31:22,000 Speaker 1: I mean, I don't know whether I'm completely convinced or not. 686 00:31:22,720 --> 00:31:25,280 Speaker 1: Something does feel a little bit different now, And I've 687 00:31:25,320 --> 00:31:28,240 Speaker 1: been thinking about that for a few weeks really since 688 00:31:28,880 --> 00:31:31,600 Speaker 1: really since the start of May, because people have been 689 00:31:31,640 --> 00:31:34,640 Speaker 1: getting very the the observers of the U S China 690 00:31:34,720 --> 00:31:37,520 Speaker 1: relationship have been very dire, and they're saying this is 691 00:31:37,600 --> 00:31:41,520 Speaker 1: very serious, and you see very sober minded analysts talking 692 00:31:41,600 --> 00:31:44,360 Speaker 1: about a new Cold War is emerging between the U. 693 00:31:44,440 --> 00:31:47,000 Speaker 1: S and China and so forth. And yet even in 694 00:31:47,120 --> 00:31:50,800 Speaker 1: the stocks sell off in May, it never felt disorderly 695 00:31:50,840 --> 00:31:53,760 Speaker 1: at any time. It never felt panic, and it started 696 00:31:53,800 --> 00:31:57,040 Speaker 1: to feel like right then that some sort of gap 697 00:31:57,160 --> 00:32:00,520 Speaker 1: was starting to open up between the sort of calmness 698 00:32:00,600 --> 00:32:03,360 Speaker 1: of the market, and you know, obviously the markets bounced 699 00:32:03,440 --> 00:32:09,320 Speaker 1: back versus the alarmed rhetoric of a lot of observers, 700 00:32:09,360 --> 00:32:12,560 Speaker 1: and ever since then it started to feel a little different. 701 00:32:12,720 --> 00:32:15,400 Speaker 1: And even the fact that the FED is now shifted 702 00:32:15,440 --> 00:32:19,560 Speaker 1: into easing mode with stocks not having sold off very much, 703 00:32:20,080 --> 00:32:23,640 Speaker 1: it feels a little bit different than past periods of 704 00:32:23,840 --> 00:32:27,720 Speaker 1: tension throughout this essentially decade long bull market. Yeah, I 705 00:32:27,800 --> 00:32:30,840 Speaker 1: suppose at a minimum, you would ask, okay, even if 706 00:32:30,880 --> 00:32:35,040 Speaker 1: the FED isn't cutting rates into a recession, if what 707 00:32:35,200 --> 00:32:39,280 Speaker 1: it's trying to do is to extend the expansion, well 708 00:32:39,320 --> 00:32:42,000 Speaker 1: then realistically, how long are they actually going to be 709 00:32:42,080 --> 00:32:44,120 Speaker 1: able to do it? Given that we've had what more 710 00:32:44,200 --> 00:32:46,880 Speaker 1: than a decade now, I think of expansion or exactly 711 00:32:46,920 --> 00:32:49,520 Speaker 1: a decade. Uh, it's sort of like pushing on a 712 00:32:49,640 --> 00:32:52,120 Speaker 1: string at this point. And the other argument, and again 713 00:32:52,200 --> 00:32:54,240 Speaker 1: I'm I'm getting sort of deja vu because this is 714 00:32:54,320 --> 00:32:56,360 Speaker 1: something we used to talk about a couple of years ago. 715 00:32:56,800 --> 00:33:00,400 Speaker 1: But there's this notion of bang for buck. It comes 716 00:33:00,440 --> 00:33:02,800 Speaker 1: to the FED easing. At what point is the market 717 00:33:02,880 --> 00:33:06,480 Speaker 1: no longer impressed by the FED stubbishness or you know, 718 00:33:06,720 --> 00:33:10,440 Speaker 1: easing or policy measures. And it does, especially when you 719 00:33:10,480 --> 00:33:12,320 Speaker 1: look at the bond market. Right the bond market is 720 00:33:12,400 --> 00:33:15,680 Speaker 1: now basically demanding three rates into the rest of the year, 721 00:33:15,760 --> 00:33:18,240 Speaker 1: which seems really really extreme, and it seems hard to 722 00:33:18,320 --> 00:33:20,240 Speaker 1: believe that the FED is going to be able to 723 00:33:20,360 --> 00:33:24,440 Speaker 1: deliver on that. And it just to Mark's point, you know, 724 00:33:24,920 --> 00:33:27,360 Speaker 1: the soft landing is kind of a myth, the idea 725 00:33:27,440 --> 00:33:30,680 Speaker 1: that the FED has really particularly any ability to engineer 726 00:33:30,760 --> 00:33:33,520 Speaker 1: one as evident by what we saw with the raid 727 00:33:33,560 --> 00:33:36,560 Speaker 1: cuts that started in two thousand seven and two thousand one. 728 00:33:36,640 --> 00:33:40,280 Speaker 1: So even a FED that that is well attuned to 729 00:33:40,360 --> 00:33:43,120 Speaker 1: the risks and observing all them, a credit markets and 730 00:33:43,240 --> 00:33:45,480 Speaker 1: so forth, and what the bond market is saying, it 731 00:33:45,600 --> 00:33:48,840 Speaker 1: might just be that you know, they really it just 732 00:33:48,960 --> 00:33:51,760 Speaker 1: doesn't matter basically to your point as well, right, And 733 00:33:52,400 --> 00:33:56,040 Speaker 1: one thing is for sure this time next year, we 734 00:33:56,160 --> 00:33:58,680 Speaker 1: can have Mark Cudmore back on and he will either 735 00:33:58,800 --> 00:34:03,160 Speaker 1: be a mass of hero within Bloomberg or we can 736 00:34:03,320 --> 00:34:05,720 Speaker 1: vilify him and make fun of him for missing out 737 00:34:05,840 --> 00:34:09,560 Speaker 1: on whatever epic Bowl rally there's been. I thought you 738 00:34:09,640 --> 00:34:11,359 Speaker 1: were going to say either he'll be a massive hero 739 00:34:12,080 --> 00:34:15,440 Speaker 1: inside Bloomberg or he won't be inside Bloomberg anymore. That 740 00:34:15,440 --> 00:34:19,879 Speaker 1: would be too harsh. But either way, I loved talking 741 00:34:19,920 --> 00:34:21,960 Speaker 1: to Mark, and I'm looking forward to having him on 742 00:34:22,239 --> 00:34:25,400 Speaker 1: again a year from now. Uh So looking forward to 743 00:34:25,480 --> 00:34:29,960 Speaker 1: that absolutely. This has been another episode of the Ad 744 00:34:30,080 --> 00:34:33,000 Speaker 1: Thoughts Podcast. I'm Tracy Alloway. You can follow me on 745 00:34:33,160 --> 00:34:37,040 Speaker 1: Twitter at Tracy Alloway. I'm Joe Wisntdal. You could follow 746 00:34:37,120 --> 00:34:40,280 Speaker 1: me on Twitter at The Stalwart. Our guest Mark Cudmore 747 00:34:40,360 --> 00:34:42,279 Speaker 1: is not on Twitter, but I really think he should be. 748 00:34:42,400 --> 00:34:44,520 Speaker 1: Maybe people can email him and harass him to get 749 00:34:44,560 --> 00:34:46,439 Speaker 1: on because he would be a great Uh he would 750 00:34:46,440 --> 00:34:49,000 Speaker 1: be great on there, but he's not on Twitter. But 751 00:34:49,160 --> 00:34:52,640 Speaker 1: you should follow our producer Laura Carlson on Twitter at 752 00:34:52,760 --> 00:34:56,879 Speaker 1: Laura M. Carlson. You should follow the Bloomberg Head of Podcasts, 753 00:34:57,040 --> 00:35:01,640 Speaker 1: Francesca Levie at Francesca Today, as well as the new 754 00:35:01,760 --> 00:35:06,400 Speaker 1: home of Bloomberg Podcast on Twitter at the handle at podcast. 755 00:35:06,800 --> 00:35:07,520 Speaker 1: Thanks for listening.