WEBVTT - Why A Longtime Bull Just Flipped Very Bearish On The Stock Market 0:00:01.160 --> 0:00:04.200 Hello, Odd Lots listeners. It's Joe Wisenthal, and I just 0:00:04.280 --> 0:00:07.240 wanted to make a special programming note before you listen 0:00:07.320 --> 0:00:12.160 to today's episode. We recorded this episode on Wednesday, June, 0:00:13.240 --> 0:00:17.760 so several weeks ago, and because this discussion is related 0:00:17.800 --> 0:00:22.800 to specific events coming up, specific forecast of the world economy, 0:00:23.200 --> 0:00:25.760 the world markets, we wanted you to be aware of 0:00:25.800 --> 0:00:30.000 when it was recorded, so that anything that's happened subsequently 0:00:30.360 --> 0:00:33.520 you can put in context in case things have changed 0:00:33.560 --> 0:00:36.600 a little bit. It's still an interesting, timely and relevant 0:00:36.840 --> 0:00:39.280 discussion in the grand scheme of things, but we just 0:00:39.320 --> 0:00:41.919 wanted you to be aware of exactly when we had 0:00:41.960 --> 0:00:56.840 this chat. Hello, and welcome to another episode of the 0:00:56.880 --> 0:01:02.280 Odd Lots podcast. I'm Joe Wisenthal, and I'm Tracy Alloway. Tracy, 0:01:02.400 --> 0:01:05.679 something I've been thinking about lately is that we're in 0:01:05.720 --> 0:01:09.720 a pretty interesting time for financial markets. And I should 0:01:10.120 --> 0:01:12.160 start by noting that today we're actually going to have 0:01:12.200 --> 0:01:18.680 a conversation about markets themselves rather than some esoteric topic 0:01:18.920 --> 0:01:22.960 tangentially related to markets. But it feels like we're I 0:01:23.000 --> 0:01:25.760 don't know if crossroads is the right word, but lots 0:01:25.800 --> 0:01:30.120 of interesting things are just happening right now. Well, I'll 0:01:30.120 --> 0:01:32.679 take the bait. I can think of a few interesting 0:01:32.720 --> 0:01:36.600 things that have happened recently. For a start, as we're 0:01:36.640 --> 0:01:39.480 recording this, we're coming up to the G twenty meeting. 0:01:39.600 --> 0:01:43.520 There's a bunch of expectations around Chi shin Ping meeting 0:01:43.600 --> 0:01:46.399 Donald Trump, whether or not they'll agree some sort of 0:01:46.440 --> 0:01:50.320 trade deal or a trade truces. And we also have 0:01:50.400 --> 0:01:55.160 the tenure US Treasury back below two percent, that was 0:01:55.240 --> 0:01:59.760 after another devish pivot from Jerome Pale at the Fed. 0:02:00.240 --> 0:02:04.120 And we have a whole lot of negative yielding debt. 0:02:04.600 --> 0:02:08.200 We also have earning season coming up. So yeah, there's 0:02:08.200 --> 0:02:11.359 a lot going on. But the one thing you didn't say, 0:02:11.400 --> 0:02:13.839 and what makes it really weird, is that with all 0:02:13.840 --> 0:02:17.840 this tension out there, whether it's trade, the Fed feeling 0:02:17.880 --> 0:02:20.760 that it needs to pivot do a more dovish stands 0:02:20.840 --> 0:02:26.360 to signal possible rate cuts, all this debt falling deeper 0:02:26.400 --> 0:02:30.639 into negative territory in many instances, the stock market is 0:02:30.880 --> 0:02:33.480 more or less right now and all time high. So 0:02:33.520 --> 0:02:37.280 despite all these concerns out there and interesting stresses showing 0:02:37.360 --> 0:02:40.040 up in the market, the one market that's sort of 0:02:40.080 --> 0:02:43.720 the purest proxy for risk sentiment is basically as good 0:02:43.720 --> 0:02:45.959 as it's ever been. Yeah, so we have this big 0:02:46.000 --> 0:02:49.560 divergence between bonds and stocks. But if I could just 0:02:49.600 --> 0:02:52.000 say one thing, it's interesting because we talk a lot 0:02:52.080 --> 0:02:56.400 about the bond market pricing in a potential recession, but 0:02:56.560 --> 0:02:59.320 it of course depends on what bond market you're talking 0:02:59.320 --> 0:03:01.840 about government, mint bonds. Sure, but if you look at 0:03:01.880 --> 0:03:05.800 corporate bonds, other types of credit risk, those are also 0:03:05.880 --> 0:03:10.320 doing amazingly well. So again, the riskier parts of the market, equities, 0:03:10.760 --> 0:03:14.440 credit all doing really well, while other parts are sort 0:03:14.480 --> 0:03:18.560 of screaming that a slowdown is about to hit exactly right. 0:03:18.600 --> 0:03:20.600 And then the one thing that I think also sort 0:03:20.639 --> 0:03:23.800 of makes even the stock market interesting is if you 0:03:23.880 --> 0:03:27.560 look at various survey measures, there's not a ton of 0:03:27.600 --> 0:03:32.600 bullishness out there, you know, various surveys of say, fund managers, 0:03:32.880 --> 0:03:35.960 lots of anxiety, lots of evidence that people are engaging 0:03:36.000 --> 0:03:40.400 in a high level of hedging defensive stocks leading the 0:03:40.480 --> 0:03:43.960 rally higher. So even within the internals, not many signs 0:03:43.960 --> 0:03:46.280 of euphora. It's just kind of a it's kind of 0:03:46.280 --> 0:03:48.960 a weird time. Yeah, it feels like a lot of 0:03:48.960 --> 0:03:52.160 people are in wait and see mode, but I'm not 0:03:52.200 --> 0:03:55.320 sure what we're waiting for at this point. I I 0:03:55.760 --> 0:03:58.400 don't know what we're waiting for either anyway, So I 0:03:58.480 --> 0:04:02.520 mentioned the top we're gonna be talking about actual markets today, 0:04:02.560 --> 0:04:05.440 and I'm very excited about our current guest. He flew 0:04:05.480 --> 0:04:08.040 all the way from Singapore for this podcast. No, it's 0:04:08.040 --> 0:04:10.880 not totally true, but of course he's one of our 0:04:10.920 --> 0:04:13.560 colleagues here at Bloomberg. But and I'm all, I always 0:04:13.600 --> 0:04:15.560 loved talking to him because he's based in Singapore and 0:04:15.600 --> 0:04:17.240 every once in a while he comes to New York 0:04:17.800 --> 0:04:21.080 and he's our he's he's our macro strategist, or he's 0:04:21.120 --> 0:04:23.360 one of our macro strategists here at Bloomberg. He puts 0:04:23.360 --> 0:04:26.640 out views, he's a former trader. He has very strong 0:04:26.680 --> 0:04:29.680 opinions about the market. And what I think makes them 0:04:29.680 --> 0:04:33.279 really notable right now, among other things, is that he's 0:04:33.279 --> 0:04:37.960 been a long time bowl who suddenly flipped bearish, and 0:04:38.200 --> 0:04:40.840 that's not very common, but someone, uh, you know, there 0:04:40.839 --> 0:04:42.359 are a lot of people out there who are bearished, 0:04:42.360 --> 0:04:45.480 but they're always bearish. It's refreshing and different to hear 0:04:45.480 --> 0:04:48.200 from someone who may have flipped or who has flipped. 0:04:48.880 --> 0:04:51.680 You forgot the most important part, which is he's also 0:04:51.720 --> 0:04:54.560 a previous All Thoughts guest. That's true, and I think 0:04:54.560 --> 0:04:57.520 he's probably significantly more bullish on the market, uh the 0:04:57.600 --> 0:04:59.520 last time, which is probably I don't know, maybe a 0:04:59.560 --> 0:05:01.400 year and a half ago or two years ago that 0:05:01.440 --> 0:05:04.560 he appeared on the show. So anyway, without further ado, 0:05:04.600 --> 0:05:07.600 I want to bring in Mark Huddmore. He's a Bloomberg 0:05:07.600 --> 0:05:11.599 macro strategist. He's also the editor of the m Live blog, 0:05:11.640 --> 0:05:13.840 which you you have a terminal you have to check out. 0:05:14.320 --> 0:05:17.640 And as I mentioned, he's a long time ball going 0:05:17.640 --> 0:05:20.600 back to at least twenty eleven. He's been optimistic about 0:05:20.640 --> 0:05:22.799 the market in the economy, and for the first time 0:05:22.880 --> 0:05:27.440 in years, he's warning about significant market sell offs in 0:05:27.480 --> 0:05:30.440 a possible US recession. So Mark, thank you very much 0:05:30.480 --> 0:05:32.840 for joining us. Yeah. Absolutely, Joe, I'm really excited to 0:05:32.839 --> 0:05:34.880 be here. And as you say, all of the previous 0:05:34.880 --> 0:05:36.880 times i've spoken to you on TV or on odd lots, 0:05:37.080 --> 0:05:38.880 it's I've always been bullish. I've always been kind of 0:05:38.839 --> 0:05:40.560 a permable as what I've been kind of laughed up 0:05:40.560 --> 0:05:42.960 on my colleagues here, and I think that's I've had 0:05:43.080 --> 0:05:45.359 periods of tactical barraishness, like oh, this will hurt the 0:05:45.360 --> 0:05:47.359 market for five ten percent. But I've always been very 0:05:47.440 --> 0:05:49.000 much in the camp that, you know what, we're gonna 0:05:49.000 --> 0:05:50.680 go back to record high soon. There was these three 0:05:50.720 --> 0:05:54.080 pillars driving the rally, and that was growth, earnings, in liquidity. 0:05:54.120 --> 0:05:55.640 And I'll kind of come into that later why some 0:05:55.640 --> 0:05:57.600 of those pillars are disappearing, just for the kind of 0:05:57.600 --> 0:05:59.479 the context in the history. I was someone who I 0:05:59.520 --> 0:06:01.560 was working in Leaving Brothers before the last crisis, and 0:06:01.880 --> 0:06:03.800 I did turn bearish, like I think many people the 0:06:03.839 --> 0:06:05.880 forefront of the financial crisis in two as and seven. 0:06:05.920 --> 0:06:08.000 I was, you know, not particularly a stutor smart, but 0:06:08.040 --> 0:06:10.000 along with the people in the financial industry, I became 0:06:10.080 --> 0:06:12.400 negative in kind of sometimes late tess and seven can't remember, 0:06:12.520 --> 0:06:14.719 and I stayed too bearish too long, right. I stayed 0:06:14.760 --> 0:06:18.120 bearish until definitely through Chasen in late two nine, in 0:06:18.160 --> 0:06:20.120 tens and ten, in turns and eleven when the Euro 0:06:20.160 --> 0:06:21.640 crisis kind of flared up and I was like, this 0:06:21.680 --> 0:06:23.200 is it. It's the next kind of sell off again. 0:06:23.440 --> 0:06:24.680 And then I kind of learned from when we got 0:06:24.720 --> 0:06:25.920 through that. I was like, hey, no way to sect 0:06:25.920 --> 0:06:27.919 the game has changed too much. Liquidity is coming. So 0:06:27.960 --> 0:06:29.960 since then I've been basically you always buy the dip, 0:06:30.000 --> 0:06:32.040 and the difference is now I think in the US 0:06:32.080 --> 0:06:34.599 equity market in particular, it's we've now changed to sell 0:06:34.600 --> 0:06:36.159 the rallies and it's I think we're gonna get a 0:06:36.160 --> 0:06:39.400 proper bear market is in a plus decline over the 0:06:39.400 --> 0:06:42.960 next kind of year. Well, you mentioned your three pillars 0:06:43.000 --> 0:06:46.680 of bearishness, then walk us through your thesis. Mark, Yeah, 0:06:46.680 --> 0:06:49.880 absolutely so. I think that two of those pillars are 0:06:49.920 --> 0:06:52.800 about to be taken out completely and the other one 0:06:52.800 --> 0:06:54.280 has lost a little bit of impacts. I don't think 0:06:54.279 --> 0:06:56.799 liquidity is disappearing anytime soon, but I think the amount 0:06:56.839 --> 0:06:59.400 of the love leverage in the system can be harmed 0:06:59.400 --> 0:07:03.160 pretty quickly. So what we've actually seen in economic forecasts 0:07:03.200 --> 0:07:05.880 over the last two months is that they've not been changed, 0:07:06.000 --> 0:07:07.680 or in fact, they are actually raised about a months 0:07:07.680 --> 0:07:10.440 ago for the three largest economies in the world US, China, 0:07:10.840 --> 0:07:14.680 UH and the Eurozone. But overall all economists aren't yet 0:07:14.680 --> 0:07:16.520 factoring in all the tariffs because they want to believe 0:07:16.520 --> 0:07:18.400 they're temporary, because they don't want to suddenly slash all 0:07:18.400 --> 0:07:21.000 their forecasts and then suddenly find that Trump signs a deal, 0:07:21.240 --> 0:07:22.960 and because he's been shown to kind of change tack 0:07:23.040 --> 0:07:25.720 quite quickly in the past, it means that economistsern hold. 0:07:25.920 --> 0:07:28.200 So what happens is you've still got US economists. The 0:07:28.200 --> 0:07:29.960 consensus forecast is still for two and a half percent 0:07:30.000 --> 0:07:32.600 growth in the US, even though all high frequency indicators 0:07:32.680 --> 0:07:35.200 show that's quite clearly just not going to happen. So 0:07:35.240 --> 0:07:37.920 it will take not just a truce in trade world, 0:07:37.960 --> 0:07:40.800 take removal of all tariffs and some extra positivity that 0:07:41.080 --> 0:07:43.280 removal of tariffs and the rate cuts to come through 0:07:43.480 --> 0:07:45.040 for US to get that kind of growth rate. So 0:07:45.080 --> 0:07:47.040 we're seeing global manufacturing p m I has fallen for 0:07:47.080 --> 0:07:50.560 thirteen straight months, is now contraction territory. The preliminary p ms, 0:07:50.600 --> 0:07:52.560 which we get for about fift the readings that we've 0:07:52.600 --> 0:07:55.400 already got this month, that for the next reading next Monday, 0:07:55.880 --> 0:07:58.720 show that will probably fall again again in contraction. And 0:07:58.760 --> 0:08:00.840 that's been that's been a pretty good guide for growth. 0:08:01.040 --> 0:08:02.800 And that's more of the global indicator, but with very 0:08:02.840 --> 0:08:04.320 much in the US we're seeing that as well. You 0:08:04.440 --> 0:08:06.960 talked about you know, stocks are a record highs, but 0:08:07.040 --> 0:08:09.160 stocks haven't always been a good indicator. We look back 0:08:09.200 --> 0:08:11.360 in the last crisis Chess and seven, so the market 0:08:11.440 --> 0:08:13.720 knew there was a real problem in the economy suddenly flaring. 0:08:13.840 --> 0:08:15.920 From about August, we suddenly started seeing that step in 0:08:15.960 --> 0:08:17.920 the curve was was we start the easing cycle. So 0:08:18.040 --> 0:08:20.520 what happens is the Fed actually started their five out 0:08:20.560 --> 0:08:23.360 basis points rate cutting cycle in September two and seven. 0:08:23.600 --> 0:08:26.640 The stock market made its record high in October two seven. 0:08:26.800 --> 0:08:29.320 The recession came in December two seven. I would not 0:08:29.440 --> 0:08:31.640 be surprised if you get a roughly similar timeline. Then 0:08:31.840 --> 0:08:33.320 we had the same thing back in tess and one. 0:08:33.360 --> 0:08:35.599 I can't remember the exact months, but the five and 0:08:35.760 --> 0:08:37.920 fifty basis points rate cycle rate cutting cycle I think 0:08:37.920 --> 0:08:41.520 started in January three. The recessions still came in March one, 0:08:41.600 --> 0:08:43.599 so two months after the rate cutting cycle started. So 0:08:43.720 --> 0:08:46.760 it just to back up your three pillars. One is 0:08:46.880 --> 0:08:49.559 liquidity and that's the one you're not particularly concerned about 0:08:49.840 --> 0:08:53.599 right now. The other one is growth and obviously and 0:08:53.640 --> 0:08:56.640 then what's the middle earnings? Okay, so I think one 0:08:56.640 --> 0:08:59.079 of the problems with earnings is again earning strategists also 0:08:59.160 --> 0:09:01.760 are starting to ash forecast, but not too aggressively, yet 0:09:01.760 --> 0:09:04.679 because they use as their macro inputs what their economists say. 0:09:04.679 --> 0:09:06.640 This works for most banks. Some banks they are actually 0:09:06.679 --> 0:09:09.120 not allowed to have different inputs than their official economists. 0:09:09.120 --> 0:09:11.720 Other ones they are. But overall they're still going, Hey, 0:09:11.760 --> 0:09:13.559 all the experts are saying growth isn't gonna slow, it's 0:09:13.559 --> 0:09:15.120 not going to be impacted by the trade war, even 0:09:15.120 --> 0:09:17.200 though we know it's definitely gonna be impacted, and even 0:09:17.280 --> 0:09:20.000 though all the surprise indexes have been missing anyway, So 0:09:20.120 --> 0:09:22.120 even if during the trade war, the datas of saying 0:09:22.200 --> 0:09:24.880 that the economic growth is going to slow down drastically, 0:09:25.080 --> 0:09:27.160 Now we've had fresh tariffs in May, which will feed 0:09:27.200 --> 0:09:29.120 through the economy, and about August that's when we'll get 0:09:29.120 --> 0:09:31.679 those indicators come down. So growth about to drop like 0:09:32.360 --> 0:09:35.600 massively in from about August September onwards, even without an 0:09:35.679 --> 0:09:37.720 escalation the trade wars. We actually need removal of tariffs 0:09:37.760 --> 0:09:39.959 to change that. Now, once we get past you twenty 0:09:40.000 --> 0:09:42.160 and once economist starts slashing their forecast, that will start 0:09:42.200 --> 0:09:44.800 feeding through the earning strategist, the equity strategist, and they'll 0:09:44.840 --> 0:09:47.760 start slashing equities. We do have a pretty good correlation 0:09:47.840 --> 0:09:50.439 between the direction of kind of earnings and whether we're 0:09:50.440 --> 0:09:53.079 getting earnings growth or earnings recession and equity markets, and 0:09:53.160 --> 0:09:55.560 I think we're about to see quite a drastic kind 0:09:55.559 --> 0:09:59.120 of earning slash, you know, earning deep earning recession, partially 0:09:59.120 --> 0:10:01.040 because we had such a high peak from the tax 0:10:01.040 --> 0:10:03.400 stiminus before. So both earnings and growth are about to 0:10:03.400 --> 0:10:06.719 be completely taken out. But Mark, I guess the response 0:10:06.960 --> 0:10:08.719 to all of that, and you know you've laid out 0:10:09.200 --> 0:10:12.640 a very clear list of worries there. But the response 0:10:12.720 --> 0:10:15.079 that any bull would tell you would be, well, we 0:10:15.200 --> 0:10:18.199 have the Federal Reserve which is now back in easing mode. 0:10:18.880 --> 0:10:21.920 Won't they be able to offset a lot of this? 0:10:22.760 --> 0:10:25.679 My simple answer is no. The Federal Reserve has got 0:10:25.720 --> 0:10:28.439 a very poor track record of preventing recessions. And I said, 0:10:28.679 --> 0:10:30.600 refer to the last two recessions, the only two recessions 0:10:30.600 --> 0:10:33.599 we've had in this century, um, and both times the 0:10:33.679 --> 0:10:37.800 easing cycle started aggressively before the recession came. The recession 0:10:37.840 --> 0:10:40.160 still came. And both those times the Fed five basis 0:10:40.200 --> 0:10:42.320 points to cut SOS seven they did actually cut by 0:10:42.320 --> 0:10:44.480 exactly five in our basis points. And I said, the 0:10:44.520 --> 0:10:47.959 easing cycles started in September Tessman's seven. They'd cut I 0:10:48.080 --> 0:10:50.719 think a hundred and twenty five basis points before the 0:10:50.800 --> 0:10:52.800 recession came, but I'm not sure exactly that, but basically 0:10:52.880 --> 0:10:56.040 they're already cutting aggressively. In Urson In one, we've I 0:10:56.080 --> 0:10:58.079 think it started with a fifty basis point cut and 0:10:58.120 --> 0:11:00.000 we still got the recessions starting a couple of months later. 0:11:00.160 --> 0:11:02.959 It didn't stop it. Ultimately, monetary policy is not the 0:11:03.000 --> 0:11:05.720 best tool for changing the economic cycle, and that's become 0:11:05.800 --> 0:11:08.199 even more constrained given the amount of QUEI we've seen 0:11:08.200 --> 0:11:10.600 in the system. So that's the transmission has been broken. 0:11:10.840 --> 0:11:13.800 So I don't think the FED can stop the economic 0:11:13.840 --> 0:11:15.600 cycle when it's this drastic. I think they can slightly 0:11:15.640 --> 0:11:18.280 massage it. But we've now reached breaking point. Talk to 0:11:18.400 --> 0:11:21.959 us about this divergence that we're seeing in the stock 0:11:22.080 --> 0:11:25.040 market and the bond market, because everyone knows there's all 0:11:25.120 --> 0:11:29.559 this negative yielding dead curve and versions you name it. Meanwhile, 0:11:29.760 --> 0:11:33.440 as you pointed out, stocks are they may be at 0:11:33.440 --> 0:11:36.400 all time highs, but historically they don't often call the turn, 0:11:36.600 --> 0:11:39.280 and uh, they can be slow to the game. Is 0:11:39.320 --> 0:11:43.600 it a matter of bond investors knowing more, because that's 0:11:43.679 --> 0:11:46.040 often the sort of naive like, oh, the smart market 0:11:46.160 --> 0:11:48.640 versus the dumb market. But how do you think about 0:11:48.720 --> 0:11:51.520 that divergence. I think that, first of all, as you 0:11:51.600 --> 0:11:53.719 kind of pointed out, this is not so anomalous in 0:11:53.840 --> 0:11:56.920 history as people think, so quite often normally goes this 0:11:57.000 --> 0:11:59.040 way towards the end of the economic So you pointed out, 0:11:59.160 --> 0:12:00.880 You're that's very fly doing that, you said, I point 0:12:00.920 --> 0:12:03.000 out what you're the one you point out. But normally 0:12:03.040 --> 0:12:05.480 we do see that equities kind of top out just 0:12:05.720 --> 0:12:09.480 kind of just as recession is basically guaranteed, whereas bond 0:12:09.520 --> 0:12:11.200 markets turn much quicker. And I think that a lot 0:12:11.240 --> 0:12:13.920 of people got very panicked about the bond curve flattening 0:12:13.960 --> 0:12:15.360 over the last year or two, and and like since 0:12:15.400 --> 0:12:17.760 turs and sixteen, I've been writing macroview articles in my 0:12:17.880 --> 0:12:21.319 bull guys as like, stop this panic margermongering over the 0:12:21.320 --> 0:12:23.960 flattening yield curve. It's not a good indicator, blah bah blah. 0:12:24.000 --> 0:12:26.680 It's about the steepening after the flattening. We're now getting 0:12:26.679 --> 0:12:29.640 that steepening. We're now getting the bond market is now saying, hey, 0:12:29.720 --> 0:12:31.559 the recession is probably coming in the next kind of 0:12:31.600 --> 0:12:34.400 six months or close enough to recession. So we're we're 0:12:34.440 --> 0:12:36.760 kind of following the historical path of where equities markets 0:12:36.840 --> 0:12:39.040 keep on going to record highs because we get that 0:12:39.160 --> 0:12:42.480 kind of bond market react first, which provides extra liquidity, 0:12:43.040 --> 0:12:45.400 lowers the discount rate for earnings and for stock prices, 0:12:45.440 --> 0:12:47.439 which makes them seem even more attractive as an asset. 0:12:47.679 --> 0:12:49.920 And that is basically what we get in these economic cycles. 0:12:50.080 --> 0:12:52.160 And normally there's a little bit of the same sentiment 0:12:52.360 --> 0:12:54.880 story as well, where we've gone through the economic cycle 0:12:54.960 --> 0:12:57.000 long enough that stock investors have learned, you know what, 0:12:57.120 --> 0:12:58.880 you buy the dip, you ignore the scares. I don't 0:12:58.920 --> 0:13:00.480 want to miss out in the rally. And so when 0:13:00.520 --> 0:13:03.120 they see this bond market signal, they go, great, that's 0:13:03.160 --> 0:13:06.480 extra easing, that's extra liquidity, that's a lower discount rate. 0:13:06.760 --> 0:13:08.360 This means I buy that dip. I do not get 0:13:08.400 --> 0:13:09.880 scared by it. So I think that's what we're seeing there. 0:13:11.080 --> 0:13:14.120 So you mentioned economic cycles, and this is something that 0:13:14.200 --> 0:13:17.280 I've been wondering about in in recent months. We're pinning 0:13:17.320 --> 0:13:20.280 a lot of the economic concerns that we've seen on 0:13:20.559 --> 0:13:24.040 the trade dispute, and you mentioned that economists hadn't really 0:13:24.160 --> 0:13:28.120 yet been ratcheting down their forecasts due to the tariffs, 0:13:28.240 --> 0:13:30.839 because they're sort of waiting to see how it comes out. 0:13:31.080 --> 0:13:35.080 But I'm wondering, is it possible that what we're seeing 0:13:35.240 --> 0:13:38.079 is actually just the end of the economic cycle, a 0:13:38.160 --> 0:13:41.480 sort of natural end, versus anything that's been spurred on 0:13:41.640 --> 0:13:44.679 by the trade war. I think that's a really valid question, 0:13:44.760 --> 0:13:47.320 and probably are not the the best person to answer 0:13:47.360 --> 0:13:48.800 that deeply. I'll give you my impression of it, and 0:13:48.800 --> 0:13:50.719 my impression is, yes, we have We've had already a 0:13:50.800 --> 0:13:53.079 very long economic cycle, and there's been a sign of 0:13:53.120 --> 0:13:54.680 a kind of a change in some of those indicators 0:13:54.760 --> 0:13:56.959 for some times. And like even as I said, in 0:13:57.000 --> 0:13:59.440 the equity market that's reaching record highs, we've now suddenly 0:13:59.440 --> 0:14:03.080 seeing weakness seen transport stocks and small caps, in home builders, 0:14:03.120 --> 0:14:05.400 we're seeing that kind of change. We're also seeing jobs 0:14:05.480 --> 0:14:07.120 that you know, at a low and now we've just 0:14:07.160 --> 0:14:09.120 seen some bad jobs prints and jobs is actually a 0:14:09.160 --> 0:14:11.520 lagging indicator, so people you should't watch it too closely. 0:14:11.600 --> 0:14:13.839 But nfp A and ADP last month both showed that 0:14:13.840 --> 0:14:15.640 there is kind of a turn in the job cycle. 0:14:15.679 --> 0:14:17.760 So I think that already we're reaching the end of 0:14:17.800 --> 0:14:19.120 the economic cycle. And I think that's part of the 0:14:19.160 --> 0:14:21.840 reason why I suddenly become structurally bearished in the last 0:14:21.920 --> 0:14:23.760 month and into this kind of sell the rallies mode. 0:14:23.960 --> 0:14:27.000 And that's because even without the tariffs in May, we're 0:14:27.080 --> 0:14:28.760 looking like we were getting to a kind of a 0:14:28.880 --> 0:14:31.320 difficult place in the economy. I thought, if we got 0:14:31.400 --> 0:14:34.320 some wonderful deal, all went well, So I actually turned 0:14:34.400 --> 0:14:36.720 bearish on April thirty. But when I turned bearish, it 0:14:36.880 --> 0:14:39.040 was my usual just to sell off for a few weeks, 0:14:39.240 --> 0:14:40.640 don't worry, and I was in the mindset, will be 0:14:40.720 --> 0:14:42.920 back at record highs again. It was a tactical bearishness, 0:14:43.200 --> 0:14:44.840 but it was the change in the trade war that said, 0:14:45.040 --> 0:14:47.880 oh wait a second, we've got a really tough economic situation. 0:14:48.160 --> 0:14:50.600 And since that April thirtie date, all the data that 0:14:50.680 --> 0:14:52.920 from before when the trade were flared up again has 0:14:52.960 --> 0:14:55.840 disappointed again. It's coming even worse. So the economic cycle 0:14:55.880 --> 0:14:57.600 was looking really, really drastic, and now we've had a 0:14:57.640 --> 0:15:00.000 tariffs on top. So this is a really really bad story. 0:15:00.160 --> 0:15:02.400 And it's not only without a taris, but there seems 0:15:02.400 --> 0:15:04.960 to have been a complete breakdown in the relationship between 0:15:05.040 --> 0:15:06.560 China and US and May and I think that's really 0:15:06.560 --> 0:15:08.800 the key, key point that I now no longer see 0:15:08.840 --> 0:15:11.560 a solution on the horizon. Expand on that. And I'm 0:15:11.680 --> 0:15:15.480 curious how your perception or how the perception of the 0:15:15.560 --> 0:15:18.760 trade situation is different here when you come to New 0:15:18.840 --> 0:15:21.080 York for a couple of weeks versus when you talk 0:15:21.160 --> 0:15:23.640 to people in your home base of Singapore. Yeah. Sure, 0:15:23.640 --> 0:15:25.040 I mean, I'm going to give a views here, and 0:15:25.040 --> 0:15:27.240 I'd love it if Tracy kind of either contradicts me 0:15:27.280 --> 0:15:29.280 and tells me she sees a different or validates this, 0:15:29.360 --> 0:15:31.520 given that she's in Hong Kong. But I feel that 0:15:31.600 --> 0:15:33.920 the trade war is viewed completely differently on the either 0:15:33.960 --> 0:15:36.040 side of the globe. And I think that in the US, 0:15:36.160 --> 0:15:38.560 everyone's very much believes that the trade war comes down 0:15:38.600 --> 0:15:41.120 to Trump's decision. It's unilanderal decision. He's going to want 0:15:41.120 --> 0:15:43.080 to deal before the election, is how the narrative goes, 0:15:43.120 --> 0:15:44.840 and therefore he'll get a deal at some point. It 0:15:44.920 --> 0:15:46.120 might not be to next year, it might be a 0:15:46.160 --> 0:15:48.480 little bit difficult, it might be noisy, but ultimately Trump 0:15:48.520 --> 0:15:49.880 wants a deal, and there if he'll get a deal, 0:15:50.480 --> 0:15:53.800 I think that that narrative in Asia has completely shifted. 0:15:53.840 --> 0:15:55.960 I think in China, China also wanted a deal, and 0:15:55.960 --> 0:15:57.720 they did want to deal, but there is a real 0:15:57.840 --> 0:15:59.880 change in me and the reason the talks breakdown. We heard, 0:16:00.000 --> 0:16:01.480 I think with the Wall Street Journal that broke that 0:16:01.600 --> 0:16:04.520 story saying the idea that the Politt bureau Baski told 0:16:04.560 --> 0:16:06.800 Chgemping you can sign something to change laws, and that 0:16:06.840 --> 0:16:08.560 does go back to their long history the opium wars. 0:16:08.600 --> 0:16:11.360 They still regret that. So what's happened is that in China, 0:16:11.720 --> 0:16:13.400 the idea of a trade war wasn't mentioned in the 0:16:13.440 --> 0:16:16.680 mainland press before May, and suddenly now it's not only mentioned, 0:16:16.720 --> 0:16:18.360 it's been really hyped up that they, you know, they're 0:16:18.360 --> 0:16:20.640 going to stand up to imperial aggression from the US. 0:16:20.840 --> 0:16:22.480 They're going to go through the Long March again to 0:16:22.520 --> 0:16:25.440 get their kind of independence and prove China's you know, 0:16:25.560 --> 0:16:28.280 authority on the world stage. They're demanding an equal footing. 0:16:28.440 --> 0:16:30.320 So I think the whole narrative has changed that China 0:16:30.400 --> 0:16:33.400 can no longer agree to any deal without US essentially 0:16:33.760 --> 0:16:36.200 making all the initial concessions. So US will have to 0:16:36.240 --> 0:16:39.040 remove all tariffs first before China will get to some 0:16:39.120 --> 0:16:40.960 kind of trade deal. I don't see Trump going that 0:16:41.000 --> 0:16:43.160 way soon. So suddenly I think the narrative has changed 0:16:43.200 --> 0:16:45.000 that I think there's no chance of trade. I think 0:16:45.040 --> 0:16:47.560 optimistically we don't get more tariffs, and I think that's 0:16:47.560 --> 0:16:50.200 an optimistic case. But I just don't see how you 0:16:50.240 --> 0:16:52.720 get a resolution given that China can no longer They've 0:16:52.760 --> 0:16:55.120 talked themselves into the mainland audience that they no longer 0:16:55.200 --> 0:16:57.160 can agree to a deal without being seen to win, 0:16:57.600 --> 0:16:59.880 and Trump count afford to be seen to concede to China, 0:17:00.000 --> 0:17:01.520 and he's built it up so much out of the election. 0:17:01.680 --> 0:17:02.800 So that's what I see it. How do you hear? 0:17:02.800 --> 0:17:04.520 Do you see it? Tracy from Age the age perpective 0:17:04.520 --> 0:17:07.560 as well. Yeah, I would broadly agree with that. So 0:17:07.720 --> 0:17:10.400 I think partially because of the type of people who 0:17:10.560 --> 0:17:14.199 tend to work in markets and finance and investing, uh, 0:17:14.720 --> 0:17:18.760 they have a high tendency, let's say, to ascribe rationality 0:17:19.000 --> 0:17:22.720 onto other actors. And I'm not entirely sure at this 0:17:22.840 --> 0:17:25.119 point in time that the major actors in the trade 0:17:25.160 --> 0:17:29.000 war are actually acting that rationally. And I think you're 0:17:29.040 --> 0:17:32.159 absolutely right that both China and the US at this 0:17:32.240 --> 0:17:35.040 point have boxed themselves in a bit when it comes 0:17:35.119 --> 0:17:39.800 to satisfying domestic public opinion in very different ways. But 0:17:40.119 --> 0:17:44.399 it's particularly acute in China, where you're right, we didn't 0:17:44.440 --> 0:17:48.439 see the polite Burero's sort of ramping up the trade 0:17:48.560 --> 0:17:53.160 tensions talk and talking about imperialist aggression up until very recently, 0:17:53.520 --> 0:17:55.479 and you can imagine it's going to be very, very 0:17:55.600 --> 0:17:59.120 difficult for them to roll that back in any significant way. 0:17:59.400 --> 0:18:01.760 And the same and goes for the Trump administration to 0:18:01.920 --> 0:18:04.160 some extent as well. If you think about, for instance, 0:18:04.359 --> 0:18:07.200 what they've done when it comes to Huawei, how in 0:18:07.280 --> 0:18:09.840 the world are they going to start rolling that back? 0:18:10.000 --> 0:18:13.440 That feels really really difficult to sort of undoe to me, 0:18:13.640 --> 0:18:16.119 So that I think you're absolutely right. I mean, it's 0:18:16.160 --> 0:18:18.080 got bipartisan support in the U. S. Here, So I 0:18:18.119 --> 0:18:20.400 think that's why the Trump count back down. Both sides 0:18:20.480 --> 0:18:23.280 do actually want Trump to kind of get some win 0:18:23.320 --> 0:18:25.280 against China, even if not the exact manner of how 0:18:25.320 --> 0:18:28.160 it's doing it. So I'm pretty negative on the trade deal, 0:18:28.160 --> 0:18:29.960 and I think that's why we're going to start seeing 0:18:30.000 --> 0:18:32.399 Capex slump a lot. We're gonna see Earning slash and 0:18:32.480 --> 0:18:33.960