Speaker 1: Bloomberg Audio Studios, Podcasts, radio news.
Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along
Speaker 2: with Lisa Bromwitz and Amrie Hordern. Join us each day
Speaker 2: for insight from the best in markets, economics, and geopolitics
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Speaker 2: saying there is still risk ahead, writing quote, I'm looking
Speaker 2: to take out the August lows. I really think there
Speaker 2: has been a major disconnect between people believing that we
Speaker 2: had capitulation versus having seen any actual capitulation. Pete joins
Speaker 2: us now for more pink and monitor. Taking out the
Speaker 2: August lows seems absolutely terrible. And then I look at
Speaker 2: the August lows on August fifth, of about fifty one hundred,
Speaker 2: about eight percent south of right now, it doesn't sound
Speaker 2: so bad. What was it about August fifth that you
Speaker 2: wouldn't describe as capitulation?
Speaker 1: You know.
Speaker 3: I think a lot of people looked at the VIC
Speaker 3: hit sixty five at eight thirty in the morning. It
Speaker 3: was a calculation, right, It's no one actually traded Vic's
Speaker 3: futures much above forty. So I think people really took comfort,
Speaker 3: Oh we had this VIC hit sixty five, everything calmed down.
Speaker 3: There was never really panic in the futures market. There
Speaker 3: was never panic during the actual trading hours of the
Speaker 3: US market. So I think people started reloading the boat
Speaker 3: and saying, Oh, we're good. We've had this wash out trade,
Speaker 3: we had the capituation. I don't think we've got that.
Speaker 3: And as we start hearing this, the Nasdaq one hundred
Speaker 3: is already back close to those August lows. I think
Speaker 3: we pushed through this. We've got another maybe ten percent downside.
Speaker 3: I don't think we get back to the March lows,
Speaker 3: but I think there is room for further downside.
Speaker 2: You suggest there was no panic, I would suggest in
Speaker 2: Japan there was panic. The biggest one day moved since
Speaker 2: eighty seven. At one point that morning, Dolly Enna dropped
Speaker 2: down to about one forty one seven set. That was
Speaker 2: a three percent move. We suggesting for the global picture,
Speaker 2: that was the tremor and not the earthquake correct.
Speaker 3: I think really it's the US market that matters, and
Speaker 3: the US we watched what happened in Tokyo overnight. We
Speaker 3: got that little bit of panic in the morning, futures
Speaker 3: are down, but it actually opened fairly stable, started turning
Speaker 3: around by the end of the day. Then next day
Speaker 3: we rallied, went probably further than I think we should have,
Speaker 3: but that was kind of obvious. But that everyone just
Speaker 3: feels like, Oh, we've washed out all the bad longs,
Speaker 3: this is all good. We can really rebuild from there.
Speaker 3: And I don't think we had that sort of a
Speaker 3: wash out trade, and I don't think we can rally
Speaker 3: much further until we get that wash out trade.
Speaker 1: What's the catalyst for that, for that ten percent downside
Speaker 1: and for that wash out of those lungs.
Speaker 3: You know, I think as usual, part of it's just
Speaker 3: going to be positioning. People have got them positions very long.
Speaker 3: People have been reloading in the all sorts of ball
Speaker 3: selling strategies.
Speaker 1: You know.
Speaker 3: The one thing I keep watching is ENVDL, which is
Speaker 3: a two times levered Nvidia ETF. I don't understand why
Speaker 3: we have leverage single stock ETFs to make no sense
Speaker 3: to me, there's a huge drag on performance just the
Speaker 3: way they're set up, and yet that keeps getting inflows,
Speaker 3: and to me, until we see something kind of shake
Speaker 3: the faith of that trading crowd, that's when I think
Speaker 3: we kind of see the bottom and it's not getting
Speaker 3: the inflows now, and we're having a lot more questions
Speaker 3: about AI. I think that's going to be the catalyst,
Speaker 3: Like is the promise got ahead of itself?
Speaker 1: So this is going to be led by big tech?
Speaker 1: From what you're saying that you think that this is
Speaker 1: going to be an ongoing kind of deterioration from the
Speaker 1: beta trade that we saw earlier. I'm just wondering what
Speaker 1: the economic backdrop is for this, because some people might
Speaker 1: say overly bullish, overly complacent. You're saying the Skuy's falling
Speaker 1: and a recession is imminent.
Speaker 4: Is that the case?
Speaker 3: No, I think we're kind of I think the one
Speaker 3: thing we've now done is actually priced out. The soft
Speaker 3: landing is guaranteed, right, so now I think there's at
Speaker 3: least some possibility of a harder landing. So I've been
Speaker 3: looking for a bumpy landing. I think you're going to
Speaker 3: see bits and pieces of data showing you know, positives negatives.
Speaker 3: It's going to be by industry, it's going to be
Speaker 3: you know, regional. This to me is really again just
Speaker 3: about valuations. You know, when I started on Wall Street,
Speaker 3: we first training day, they talked about options. They said,
Speaker 3: you know, if you buy an option, it gives you
Speaker 3: the right to sell high, right to buy low. You
Speaker 3: get to trade the gam and like, what's everyone want
Speaker 3: to do? And like we all raise our hand buy options.
Speaker 3: They're like, no, it depends on the price, right, depending
Speaker 3: on the price you want to sell those options because
Speaker 3: you're getting paid more than that. So I think that's
Speaker 3: where we've hit on a lot of these stocks. We've
Speaker 3: moved beyond what's rational in terms of what they can generate.
Speaker 3: And it's disappointing and sadly we talk about markets and
Speaker 3: these broad markets, but fifty percent of the indices are
Speaker 3: really just a handful of companies. So it really does
Speaker 3: matter what these tend to twenty companies do.
Speaker 5: Where's this concern about the election and politics play into
Speaker 5: your bumpy landing?
Speaker 3: You know, I'm kind of really concerned, confused, what are
Speaker 3: we even going to see tonight? Like at this point.
Speaker 3: I haven't bothered spending any time really trying to figure
Speaker 3: out what either party's policies are going to be, because
Speaker 3: I don't think we've had any sort of definition. Where
Speaker 3: I've been working is what I think is going to
Speaker 3: stay the same, and that is really going to be
Speaker 3: no matter who wins. This friction with China, this tech
Speaker 3: battle is going to continue. We are going to see
Speaker 3: more and more protectionism around AI, the semiconductor business. I
Speaker 3: think it goes back to one thing you were talking
Speaker 3: about earlier. Europe. Europe is not going to be good
Speaker 3: for AI. Europe's not going to be a good investment
Speaker 3: vehicle because it's all about constricting and constraint and rules
Speaker 3: and regulations. So I don't think that's going to be
Speaker 3: a hotbed of this. I think ultimately the US is
Speaker 3: going to do well, but we are going to see
Speaker 3: friction with China on that, and I think whoever wins
Speaker 3: is going to have to rebuild Europe, the US's reputation globally.
Speaker 3: Where do we stand with our enemies and more importantly,
Speaker 3: where do we stand with our allies? Do we have
Speaker 3: ten twenty year thirty year commitments or do we live
Speaker 3: election cycle through election cycle. So I don't think anything
Speaker 3: that is going to come out tonight on that, but
Speaker 3: those are things I'm going to start looking for as
Speaker 3: we near the election.
Speaker 5: A lot of people's base cases is gridlock in Washington.
Speaker 5: But some of the issues that Trump talks about, like terror,
Speaker 5: spent a lot of time in this program talking about
Speaker 5: that he could do unilaterally on day one so have
Speaker 5: a massive impact on what's going on in China. Do
Speaker 5: you think China is basically waiting to find out what
Speaker 5: happens with the election because their economy is suffering before
Speaker 5: they really have set policy moves.
Speaker 3: I think everyone's on hold a little bit. They want
Speaker 3: to see how this plays out. I think everyone has
Speaker 3: a decent understanding of what Trump does or doesn't do.
Speaker 3: He says a lot and then he tends to back down.
Speaker 3: We're not sure what Kama is going to do. I
Speaker 3: think people want to see what's going to be like
Speaker 3: and will she be easier to negotiate with right Will
Speaker 3: people prefer to negotiate with her or will they prefer
Speaker 3: to stick to Trump? So right now, I'm kind of
Speaker 3: discounting everything both sides say, and that is probably I
Speaker 3: think you One thing is we are kind of assuming
Speaker 3: split tickets. If there's something that comes out that one
Speaker 3: side is really going to, you know, win completely, then
Speaker 3: I think that changes the narrative for Wall Street. Then
Speaker 3: we have to pay a lot closer attention to the risks.
Speaker 2: Let's just park the politics just for a moment, just
Speaker 2: to wrap this up. When I walk away from listening
Speaker 2: to this conversation, Lisa correctly identified that you see tech
Speaker 2: and the AI trade, it's the biggest risk a fighting
Speaker 2: hat to demonstrate whether this return on investment is going
Speaker 2: to come from. Was the Apple and Vanu in the
Speaker 2: beginning of that yesterday do you think it was?
Speaker 3: You know, it did not seem to give that excitement.
Speaker 3: But you've seen some of the earnings come out. Oracle
Speaker 3: had great earnings last night. They're up, but yet the
Speaker 3: Nasdaq one hundreds down a little Futures are down a
Speaker 3: little bit this morning. So I think it's taking more
Speaker 3: and more to get that story. The one positive thing
Speaker 3: I'll say that I keep an eye on is Walmart
Speaker 3: did come out and say that AI really helped them
Speaker 3: with their quarter and then they're planning. So I need
Speaker 3: to see more of that to believe in right now,
Speaker 3: you know, what I'm seeing is a lot more people
Speaker 3: I think we've been struggling through using these lams or
Speaker 3: generative AI and I'll keep coming back like, oh, is
Speaker 3: it there yet? And since the cost rose so quickly
Speaker 3: with the cost of chips, the cost of getting data centers, electricity,
Speaker 3: that I think the risk reward or the cost benefits
Speaker 3: not there right now. And I think that's what we'll
Speaker 3: see some slowing down on.
Speaker 2: Peter Cheer looking to take out the August Low's Peter
Speaker 2: Cheer Acountaby Securities paid to tank you. Evan ross Smith
Speaker 2: of Slinkstart Strategies, writing Harris heads into Tuesday's debates, still
Speaker 2: searching for a durable advantage in the states that will
Speaker 2: decide the election, but with important openings she can press.
Speaker 2: Evan joined us now for more. Evan, good morning, sir.
Speaker 3: Good morning.
Speaker 2: Let's talk about the very specific, highly specific pre debate
Speaker 2: polling that you've been conducting. Can you just walk us
Speaker 2: through it to begin, Well.
Speaker 6: The selection is increasingly becoming focused on the handful of
Speaker 6: voters really only about five hundred thousand voters who are
Speaker 6: going to decide the outcome. Right, These are swing voters,
Speaker 6: largely independent in six states right, swing states in the
Speaker 6: Ross Belt and the Sun Belt that we all know about,
Speaker 6: and this debate is largely about them. What do they
Speaker 6: want to hear, what do they need to hear, and
Speaker 6: particularly what does Kamala Harris need to tell them to
Speaker 6: get them over the edge and make this more than
Speaker 6: just a knife sedge election where she's clawed back out
Speaker 6: of the hole that Joe Biden was in and reached
Speaker 6: basically parody with Donald Trump, where this election could go
Speaker 6: either way, as just about any analyst or polster would
Speaker 6: tell you. And really, what these swing voters in these
Speaker 6: swing states want to hear, at least in our polling
Speaker 6: that that we just released this week, is you know,
Speaker 6: they want to hear her continue to gain ground on
Speaker 6: the economy to press her advantage on prices. Right, Donald
Speaker 6: Trump still has a very narrow advantage, a two point
Speaker 6: advantage and overall in these swing states on inflation and jobs,
Speaker 6: but with independence in these swing states, Harris has a
Speaker 6: four point advantage. These are very close to margin of error,
Speaker 6: but it means these critical voters are looking to hear
Speaker 6: on the economy and here on prices specifically, and she
Speaker 6: has to mitigate concerns on immigration, where she still down
Speaker 6: in these swing states to Donald Trump.
Speaker 5: And then when you look at the New York Times
Speaker 5: Santa Paul for the weekend, more than sixty percent of
Speaker 5: likely voters. So the next present represent a major change
Speaker 5: from Biden. Do you see that in this polling group
Speaker 5: that you're going after in the swing states?
Speaker 6: So it's interesting we pulled this with independent voters in
Speaker 6: swing states, who represents change, who represents the right kind
Speaker 6: of change? And voters in these swing states independent voters
Speaker 6: by ten points say that Kamala Harris is a breath
Speaker 6: of fresh air, and she is. It's undeniable. She has
Speaker 6: a breath of fresh air in this race, but by
Speaker 6: only about seven points to voters say that she's the
Speaker 6: right kind of change. She's still more or less more
Speaker 6: or less tied with Donald Trump on being a change candidate.
Speaker 6: And that's because she hasn't yet broken in a meaningful
Speaker 6: way rhetorical or policy wise with the administration. She isn't
Speaker 6: a change candidate beyond the literal change of who the
Speaker 6: candidate is. And now that slight advantage on the right
Speaker 6: kind of change with independent swing state voters is very good,
Speaker 6: but she needs to do more. She can do more.
Speaker 5: Does she need to completely break with Biden in your
Speaker 5: polling to win over those voters.
Speaker 6: I don't know that it's a complete break with Biden.
Speaker 1: She doesn't need to.
Speaker 6: He's the sitting present, he's her sitting president, her running
Speaker 6: mate in twenty twenty. You know, there is some merit
Speaker 6: to the idea that she could draw a greater distance,
Speaker 6: particularly on immigration. There's very little downside to drawing distance.
Speaker 6: But on policy, most of the Biden policy agenda, when
Speaker 6: it's not tied to Joe Biden, is very popular when
Speaker 6: you pull it. So how do you break with the present.
Speaker 6: You can't break with him on policy. You have to
Speaker 6: break with him in more subtle rhetorical ways, and we'll
Speaker 6: see what she does. We'll see how she manages that.
Speaker 6: And you also want to continue to be able to
Speaker 6: take credit for things that the administration does that is
Speaker 6: very popular, like Medicare and negotiation and prescription drug prices,
Speaker 6: which is enormously popular, including in these swing states. With
Speaker 6: these swing.
Speaker 1: Voters, how engaged are some of the independents and perspective voters,
Speaker 1: those five hundred thousand people that are going to determine
Speaker 1: the election I mean, awmuch. Are they watching every iteration
Speaker 1: looking for policy, trying to understand the two candidates.
Speaker 6: Well, that's really what's critical tonight, because those voters are
Speaker 6: looking to learn a lot of people who follow politics closely, journalists, practitioners,
Speaker 6: the kind of people who get up at six in
Speaker 6: the morning to watch the news and get a little
Speaker 6: edge on everyone else, we know a lot about what's
Speaker 6: going to come out of their mouths. These swing voters
Speaker 6: who haven't made up their mind, they're watching to learn.
Speaker 6: They're not necessarily watching for the reparte the zingers. And
Speaker 6: that's why I discount the mics being on or off
Speaker 6: or anything like that. The voters who will determine this
Speaker 6: selection really really care about what these candidates are saying.
Speaker 6: They're looking for substance, they're looking to be educated. They
Speaker 6: have open questions largely about Kamala Harris, very much less
Speaker 6: so about Donald Trump, and they want answers to those questions,
Speaker 6: particularly on the economy, particularly on her immigration policy and
Speaker 6: how she's going to be different than the status quo.
Speaker 6: And an important mission for Harris is also to raise
Speaker 6: the salience of abortion and reproductive rights in this selection.
Speaker 1: That's what I was going to say, how do you
Speaker 1: sort of pair those two ideas? Is social versus the economic?
Speaker 1: Especially to a time where frankly, there isn't that much
Speaker 1: daylight when it comes to certain policies, particularly with China
Speaker 1: versus a US and other international issues between Trump and Harris.
Speaker 6: Well in foreign policy, you know, Harris is very fortunate
Speaker 6: in that the part of the Biden administration agenda and
Speaker 6: policy said that she has tied the least to is
Speaker 6: foreign policy, so she can kind of do it and
Speaker 6: say whatever she wants and feels she needs to do
Speaker 6: and is politically advantageous. It's also true that the vice
Speaker 6: president has had very little to do with American foreign
Speaker 6: policy over the last four years, you know, sort of
Speaker 6: Dick Cheney. It's hard to find a vice president who
Speaker 6: has ivan Can we pick up on who she is too? Independence?
Speaker 2: At least? Is this the person that ran back in
Speaker 2: twenty nineteen, twenty twenty? Is she progressive? In moderates closing
Speaker 2: here in twenty twenty four, how do they see her?
Speaker 6: She's not. I mean when she ran in twenty nine teen,
Speaker 6: it was in a Democratic primary where she didn't even
Speaker 6: make it die ulis she never saw the voters in
Speaker 6: twenty twenty, she's a vice president on a presidential ticket.
Speaker 6: And also it should be noted in a year where
Speaker 6: campaigning was different than any other presidential election in our lifetime, right,
Speaker 6: she wasn't barnstorming. The swing state's media consumption was very
Speaker 6: different during COVID, and so she is very much doing
Speaker 6: her first introduction to voters. We're now several months, a
Speaker 6: couple months into that introduction, so things are starting to
Speaker 6: firm up. But this is you know, we did this
Speaker 6: test on what policies, what campaign promises that Harris has made.
Speaker 6: Do you believe she will try and succeed on try
Speaker 6: and fail and not even try? Right? So these are
Speaker 6: all These are all policies that she is that the
Speaker 6: campaign has promised to pursue. And on some things like
Speaker 6: the child tax credit, voters really believe she will try
Speaker 6: and get it done. On other things like deficit reduction,
Speaker 6: she's underwater by a couple points.
Speaker 2: Right, She's not the only one.
Speaker 6: She's not the only one. She's not the only one.
Speaker 6: I mean, where's the candidate who hasn't promised to some
Speaker 6: form of deficit reduction? But so there are still elements
Speaker 6: of her record and the border, by the way, her
Speaker 6: promises to following up, you know, trying to get the
Speaker 6: bipartisan border deal done. Voters more or less buy that
Speaker 6: from her surging resources to the border, which is a
Speaker 6: popular idea that her campaign has promised to do, you know,
Speaker 6: more border agents. Voters aren't quite sure that she means
Speaker 6: that promise, so there's reassuring to do. It's less about
Speaker 6: new promises. It's more about affirming that the things she
Speaker 6: has promised voters are real and something she will try.
Speaker 2: As something you imagine the former president will be pushing
Speaker 2: on pretty hard. A little bit. Lengster on the Savenik.
Speaker 1: I think they're all just going to be watching the
Speaker 1: fifty eight billion dollar action at one pm.
Speaker 2: Is that right? Yeah, because the very focused exit on
Speaker 2: def sent reduction. It's great again, Evan, Thank you sir.
Speaker 2: It's going to see. Let's do it again soon, Evan
Speaker 2: rod Smith. Then the limits of this bond market rally.
Speaker 2: We've had a big move last week of almost thirty
Speaker 2: basis points lower on a two year yield. The tended
Speaker 2: year dropped by close to twenty basis points had a
Speaker 2: single week. We see a big move lower through the
Speaker 2: summer as well. Are we've reaching the limits of this
Speaker 2: bond market rally?
Speaker 4: I think so. I think we maintain models and we
Speaker 4: think it's overshot on the downside pretty much. If you
Speaker 4: have a FED funds rate of three and a half percent,
Speaker 4: which is which I think is close to the natural
Speaker 4: neutral rate on the nominal side and typically post cutting cycles,
Speaker 4: if you have the youth cur of pricing in another
Speaker 4: fifty basis points on the ten or four percent, anything
Speaker 4: lower than that seems to be like overdone.
Speaker 2: You mentioned three fifty. Do you think we're actually quite
Speaker 2: well priced already for two hundred basis points with.
Speaker 4: The basin I think on the last couple of years,
Speaker 4: the markets pricing any kind of move in the market
Speaker 4: in an extreme way. So we are really well priced
Speaker 4: on that, I think, and what I think is important.
Speaker 4: On the inflation side, a lot of our work is
Speaker 4: suggesting that the next few months, INFATIONI the pace and
Speaker 4: path of inflation is going to get a little more
Speaker 4: difficult in terms of the disinflationary stent trend. So it
Speaker 4: may just stabilize, so you may not see consistent print
Speaker 4: prints down. What's going to happen beginning of next year
Speaker 4: the two thousand and four beginning had a very high
Speaker 4: base effect because of high infationion. So beginning of next
Speaker 4: year in Fatian is actually going to be better and
Speaker 4: trend down more.
Speaker 1: So.
Speaker 4: I think that's the path I'm working with. And from
Speaker 4: that perspective, you know, Treasury seem to have overdone.
Speaker 1: They might have overdone, but that doesn't mean not to
Speaker 1: earn them the same kind of way. You have an
Speaker 1: interesting point about sixty forty that we're going to see
Speaker 1: kind of a reversion back to that kind of balance
Speaker 1: in terms of opposite reaction to stocks. How much can
Speaker 1: you lean into that story, given the fact that you
Speaker 1: have already seen this huge rally, does it still stand?
Speaker 4: It still stands because the most important reason the sixty
Speaker 4: to forty did so terribly in twenty twenty three, when
Speaker 4: this combination was down seventeen percent, was because stocks and
Speaker 4: bonds correlation got positive. And history suggests that whenever inflation
Speaker 4: is above to and azo half percent, stocks and bonds
Speaker 4: this is for the last seventy five years, stocks and
Speaker 4: bonds correlation gets positive, which is taking away the diversification
Speaker 4: benefits of bonds. Now, with infasion coming down below that level,
Speaker 4: that correlation will resert its negative relationship, And I think
Speaker 4: in an overall asset allocation portfolio, that's a more structural,
Speaker 4: long term portfolio that gives you the benefit of having
Speaker 4: that hedge with the duration in case the outcome on
Speaker 4: the economy is worse than the consensus soft landing.
Speaker 1: How hard of a cell is that right now? Given
Speaker 1: how scarred people were over the past few years and
Speaker 1: some of the losses that you saw on bond portfolios,
Speaker 1: and some of the questions people have around the deficit,
Speaker 1: around some of these other sort of structurally higher inflation
Speaker 1: types of regimes that some people are talking about.
Speaker 4: Yeah, you know, I think the question on the sixty
Speaker 4: forty was a bigger question in twenty twenty four because
Speaker 4: twenty twenty three was such a worse worst outcome for
Speaker 4: that combination. I think at this point there is more
Speaker 4: recognition that that may be a good allocation. But what
Speaker 4: people are doing and what act owners are looking to
Speaker 4: do is you know, take you know, think about what
Speaker 4: in that sixty forty, right whether if it's forty in
Speaker 4: US treasuries, Oh, let's look at emerging market debt if
Speaker 4: ed if the dollar is weak and interest rates are
Speaker 4: coming down, then the local bonds and the emerging market
Speaker 4: world will do well. So what within that forty is
Speaker 4: an interesting question? And what within that sixty interst rate differentials,
Speaker 4: growth differentials that have worked in favor of the US
Speaker 4: all along now seem to be peaking in favor of
Speaker 4: the U in favor of the non US world because
Speaker 4: pricing in the US interest rates is much more aggressive
Speaker 4: than many other markets in terms of rate cards. So
Speaker 4: how do we look at the x US universe even
Speaker 4: in the equity space is another important consideration within that
Speaker 4: broader alley.
Speaker 5: So quicker deeper into that idea, what do you like
Speaker 5: within the sixties in the forty?
Speaker 4: Yeah, So, I mean, I'll start with the US. You know,
Speaker 4: clearly we've liked the equal Weighted Index because we think
Speaker 4: concentrations extreme peak multiples, peak earnings, and some of these
Speaker 4: technology stocks within that. Within US, we do like pockets
Speaker 4: of industrials, financials with the eel curve steepening. We we
Speaker 4: really like pockets of Europe because there are idiosyncratic reasons
Speaker 4: but also structured reasons. The world is industrializing. A lot
Speaker 4: of the industrial companies are in Europe trading at very
Speaker 4: cheap multiples. We like pockets of Japan that are leveraged
Speaker 4: to an appreciating yen because we think that the parts
Speaker 4: for the yen is up. We do like several emerging
Speaker 4: markets like India Southeast Asia that are also more consistent.
Speaker 5: You're not mentioning China.
Speaker 4: Yes, I've been a bear on China for a while.
Speaker 4: I think China has three problems. It has the excessive debt,
Speaker 4: it has a demographic headwind, and it has a deglobalization headwind.
Speaker 4: I mean, look at what it's doing, like it wanted
Speaker 4: to raise consumption, but it's ending up following the industrial
Speaker 4: policy again dumping goods in the world because that's the
Speaker 4: only engine for growth in terms of the exports side.
Speaker 4: The domestic economy is laden with unproductive debt which is
Speaker 4: slushing around the system without a cleanup act. So that
Speaker 4: continues to be something that may have some tactical runs,
Speaker 4: but not a structural story. For acid Alkin, can.
Speaker 2: You reconcile that with your more constructive view on Europe?
Speaker 2: If you don't like China, how can we like Europe?
Speaker 2: Isn't that just a play on China?
Speaker 4: So you know Europe? Of course, the consumer story in
Speaker 4: Europe and the brands, you know, the luxury brands that
Speaker 4: has a problem, and some of it is getting priced
Speaker 4: in pretty decently with respect to current valuations. But I
Speaker 4: think in some of the global themes today, which is
Speaker 4: whether it's defense gapics, it's industrial automation gapics, it's resilience gapics,
Speaker 4: substitution capecks, some of the European stories are linked to that,
Speaker 4: and you know, pockets of energy materials. UK has a
Speaker 4: large part of metals and materials kind of companies. So
Speaker 4: I think scattered around it's an active time for active management.
Speaker 4: You really need to kind of pull the thematic leaders
Speaker 4: from these different We've.
Speaker 2: All heard these arguments a million times, of course, and
Speaker 2: the question I always sort of go back to is
Speaker 2: valuation gap or valuation trap? What are they doing right
Speaker 2: now that deserves the premium you think these companies demand.
Speaker 2: How are we going to attract that kind of capital
Speaker 2: back to Europe, back to the UK given how they've
Speaker 2: squandered it for most of the last few decades.
Speaker 4: So in certain pockets of you know, Europe, the earnings
Speaker 4: infection is happening, So it's not a valuation trap when
Speaker 4: they're a catalyst to unlock that value, right, So that's
Speaker 4: what we're focusing on. And I think when you talk
Speaker 4: about valuation, you really have to think about equity valuations
Speaker 4: and currency valuations. So the dollar now is really extended.
Speaker 4: And as I said, the great differentials and the growth
Speaker 4: differentials that have favored the dollar all along in the
Speaker 4: last few years, that's now going to favor the x
Speaker 4: US universe. And work suggests that nearly a third of
Speaker 4: returns on average come from currency. So taking that nuanced
Speaker 4: currency view across international markets is another big part of
Speaker 4: Wait for that.
Speaker 2: Just one step further. If that big dollar long there's
Speaker 2: been accumulating over the last few years, which essentially that's
Speaker 2: what it is. It's a massive dollar long at the
Speaker 2: expense of the rest of the world into dollar denominated assets.
Speaker 2: If that begins to unwind, there's a whole host of
Speaker 2: people out there, deep thinkers who think that maybe you
Speaker 2: engineer moves of like ten percent in the Chinese currency,
Speaker 2: big move site in the Euro as well. Do you
Speaker 2: think about it the same way and what kind of
Speaker 2: destruction would that cause for the US assets that that
Speaker 2: money was originally in.
Speaker 4: Yeah, so dollar is not an emerging market currency, right,
Speaker 4: it's not that, you know, it's not a currency that
Speaker 4: that's so volatile. I think if you plot a long
Speaker 4: term dollar price, it trades between that ten to fifteen
Speaker 4: percent ban So I think there will be countertrend rallies.
Speaker 4: We probably probably you know, at a point on the
Speaker 4: tactical side where the dollar a little more weakness could
Speaker 4: get a counter trend rally on the upside. But I
Speaker 4: think the home bias in the US, with just US assets,
Speaker 4: US domiciled assets, that probably that shift, if that were
Speaker 4: to come, should lead to some assets moving away from
Speaker 4: the dollar, not something that dislocates and calls for a
Speaker 4: demise of the dollar, because it still is the reserve currency,
Speaker 4: it still has the exorbitant drivial. But I do think
Speaker 4: that dollar weaknesses have happened, like in the two thousand
Speaker 4: decade when international markets did better. I think we're getting
Speaker 4: to that point.
Speaker 2: We used to come over here and basically chop everything
Speaker 2: in half. Do to remember that fifty percent off. You
Speaker 2: won't remember that as a brick coming to America. Used
Speaker 2: to come here and just do fifty percent off. It
Speaker 2: was two for one. Great times. It's great times. Obviously
Speaker 2: I live here now.
Speaker 1: It was the other way around.
Speaker 2: Yes, I was speaking to our producer Jamie about that,
Speaker 2: and Jamie was talking about the other way around, how
Speaker 2: expensive eating was in London.
Speaker 1: It was back the dice. It was absolutely absurd. And
Speaker 1: then now that's why the US can't get enough of
Speaker 1: everything European exactly because John Seal.
Speaker 2: Yeah, in a big way. You I live here. I'm
Speaker 2: one of you to tell you can Dowry of Morgan Stanley,
Speaker 2: it's got to see you. Thank you. This is the
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