1
00:00:04,760 --> 00:00:08,080
Speaker 1: Welcome to the Bloomberg P and L Podcast. I'm Pim Fox.

2
00:00:08,119 --> 00:00:11,200
Speaker 1: Along with my co host Lisa Abramowitz. Each day we

3
00:00:11,280 --> 00:00:14,480
Speaker 1: bring you the most important, noteworthy, and useful interviews for

4
00:00:14,520 --> 00:00:16,880
Speaker 1: you and your money, whether at the grocery store or

5
00:00:16,920 --> 00:00:20,680
Speaker 1: the trading floor. Find the Bloomberg P L Podcast on iTunes,

6
00:00:20,840 --> 00:00:29,600
Speaker 1: SoundCloud and at Bloomberg dot com. Let's turn our attention

7
00:00:29,680 --> 00:00:34,040
Speaker 1: now to Donald Trump after his inauguration and the immediate

8
00:00:34,159 --> 00:00:36,800
Speaker 1: challenges that he has taking office. Justin Sink is our

9
00:00:36,880 --> 00:00:40,279
Speaker 1: US government reporter for a Bloomberg justin Thank you very

10
00:00:40,320 --> 00:00:43,320
Speaker 1: much for being with us. Where do we start? Affordable

11
00:00:43,400 --> 00:00:49,480
Speaker 1: Care Act? Immigration? What are the hot topics that the

12
00:00:49,560 --> 00:00:54,520
Speaker 1: President Donald Trump will deal with most immediately? Thanks for

13
00:00:54,560 --> 00:00:56,520
Speaker 1: having me. Yeah, I think it's gonna be a little

14
00:00:56,560 --> 00:01:00,640
Speaker 1: bit of everything. Uh, certainly the topics that you mentioned. Um.

15
00:01:00,680 --> 00:01:03,280
Speaker 1: The President act has talked about how he wants to

16
00:01:03,280 --> 00:01:07,800
Speaker 1: take executive action on border security virtually as soon as

17
00:01:07,840 --> 00:01:11,760
Speaker 1: he enters office. Um. Republicans on the Hill are obviously

18
00:01:11,840 --> 00:01:14,800
Speaker 1: very eager to roll back the Affordable Care Act, but

19
00:01:15,280 --> 00:01:17,600
Speaker 1: you know, there's a lot of foreign policy issues where

20
00:01:17,680 --> 00:01:21,039
Speaker 1: he could wait into. There's ongoing to formatic talks um

21
00:01:21,080 --> 00:01:24,399
Speaker 1: regarding the civil war in Syria. There's his sort of

22
00:01:24,840 --> 00:01:29,200
Speaker 1: antagonism with China. He may label them a currency manipulator,

23
00:01:29,240 --> 00:01:33,080
Speaker 1: and um seek to impose new tariffs. And so I

24
00:01:33,120 --> 00:01:35,760
Speaker 1: think across the board, one thing that we're hearing a

25
00:01:35,760 --> 00:01:37,520
Speaker 1: lot from Trump aids is that they want to make

26
00:01:37,560 --> 00:01:40,600
Speaker 1: a kind of a big splash and big impact very early,

27
00:01:40,680 --> 00:01:44,200
Speaker 1: if not today, um certainly by Monday of this week.

28
00:01:44,360 --> 00:01:47,360
Speaker 1: And the idea here is to show that Donald Trump,

29
00:01:47,400 --> 00:01:50,440
Speaker 1: who is somebody who hasn't been in government before, is

30
00:01:50,520 --> 00:01:54,080
Speaker 1: able to be effective and start fulfilling his campaign promises

31
00:01:54,720 --> 00:01:57,520
Speaker 1: very early in this administration. How quickly can we expect

32
00:01:57,520 --> 00:02:01,280
Speaker 1: to see some Supreme Court nominees filled the empty role

33
00:02:01,360 --> 00:02:05,360
Speaker 1: currently out there? So it's just said that they are

34
00:02:05,840 --> 00:02:08,480
Speaker 1: the Donald Trump has already done some interviews that they'll

35
00:02:08,520 --> 00:02:10,960
Speaker 1: be ongoing, but they expect an announcement as soon as

36
00:02:11,840 --> 00:02:15,239
Speaker 1: the second week of the Trump administration and probably no

37
00:02:15,400 --> 00:02:17,920
Speaker 1: later than the third week. And so trying to fill

38
00:02:18,280 --> 00:02:21,320
Speaker 1: Justice Kalia. See, you know, it's something that's lingered open

39
00:02:21,440 --> 00:02:25,880
Speaker 1: for nearly a year now, but we expect pretty quick

40
00:02:25,919 --> 00:02:29,360
Speaker 1: action and most likely a fairly quick Senate confirmation once

41
00:02:29,400 --> 00:02:32,120
Speaker 1: Ah once a nomination aspect. You know, we've heard a

42
00:02:32,160 --> 00:02:36,080
Speaker 1: lot about the hundreds of positions within the administration that

43
00:02:36,120 --> 00:02:39,840
Speaker 1: are currently vacant in as this transition goes on. Do

44
00:02:39,880 --> 00:02:43,360
Speaker 1: you have a sense of who is managing that whole

45
00:02:43,360 --> 00:02:47,919
Speaker 1: transition and sort of vetting vetting different people for those

46
00:02:48,000 --> 00:02:53,880
Speaker 1: rules as Trump takes on these other responsibilities. So, you know,

47
00:02:54,160 --> 00:02:57,400
Speaker 1: Mike Penn's the vice president elect, has been heading the

48
00:02:57,400 --> 00:03:01,120
Speaker 1: transition effort so far. He's going to hand off that

49
00:03:01,360 --> 00:03:06,959
Speaker 1: responsibility as the Centers Office. But Um, one of the

50
00:03:07,000 --> 00:03:09,040
Speaker 1: kind of interesting points that your question gets to is

51
00:03:09,080 --> 00:03:12,400
Speaker 1: the fact that there are kind of different centers of

52
00:03:12,400 --> 00:03:15,280
Speaker 1: power within um, the Trump White House. So there's the

53
00:03:15,360 --> 00:03:19,919
Speaker 1: sort of traditional establishment Ryn's previous R and C area,

54
00:03:20,040 --> 00:03:26,679
Speaker 1: there's the Steve Bannon UM, you know, right, different U

55
00:03:27,240 --> 00:03:31,280
Speaker 1: different kind of Trump Republican power center. And then there's

56
00:03:31,400 --> 00:03:37,160
Speaker 1: the Trump family itself, so Jared Kushner, UM, Ivanka and

57
00:03:37,160 --> 00:03:40,360
Speaker 1: and these are people who also have weighed in, especially

58
00:03:40,360 --> 00:03:43,680
Speaker 1: on kind of top level picks and so especially as

59
00:03:43,760 --> 00:03:47,200
Speaker 1: the administration is getting filled out at lower levels, there's

60
00:03:47,240 --> 00:03:49,640
Speaker 1: a lot of back and forth between these kind of

61
00:03:49,640 --> 00:03:52,720
Speaker 1: different power centers, with all of them kind of needing

62
00:03:52,720 --> 00:03:56,560
Speaker 1: to sign off on, especially people who have influential policy

63
00:03:56,600 --> 00:04:01,560
Speaker 1: making roles. Well, justin as President Obama and the Trump's

64
00:04:01,600 --> 00:04:04,200
Speaker 1: I get ready to leave the White House. One trip

65
00:04:04,280 --> 00:04:08,760
Speaker 1: that Donald Trump may be taking relatively quickly in his administration,

66
00:04:09,000 --> 00:04:11,760
Speaker 1: at least according to Sean Spicer, who's the incoming White

67
00:04:11,760 --> 00:04:14,320
Speaker 1: House Press secretary, is a visit to c i A

68
00:04:14,400 --> 00:04:19,719
Speaker 1: headquarters in Langley, Virginia. Have you heard anything about that? Yeah,

69
00:04:19,760 --> 00:04:24,039
Speaker 1: so obviously I've heard Shawn's comments. And this is interesting because,

70
00:04:24,680 --> 00:04:27,200
Speaker 1: you know, a big sort of theme of the transition

71
00:04:27,760 --> 00:04:31,800
Speaker 1: has been a conflict between the Trump team and Trump

72
00:04:31,839 --> 00:04:34,120
Speaker 1: himself in the intelligence community. I think there's going to

73
00:04:34,200 --> 00:04:39,080
Speaker 1: be some attempt at since men in there and and

74
00:04:39,200 --> 00:04:42,160
Speaker 1: kind of getting past the big controversy over Russian involvement

75
00:04:42,279 --> 00:04:46,120
Speaker 1: in the hack of John Podesto, who's Holly Clinton's campaign

76
00:04:46,200 --> 00:04:49,800
Speaker 1: chairman and the Democratic National Committee, something that Trump kind

77
00:04:49,800 --> 00:04:52,760
Speaker 1: of publicly doubted for a long time but has now

78
00:04:52,800 --> 00:04:54,760
Speaker 1: come to accept. And so I think it would be

79
00:04:54,760 --> 00:04:58,239
Speaker 1: an attempt to reset that relationship. Um, we also expect

80
00:04:58,240 --> 00:05:01,039
Speaker 1: in terms of sort of early tra novel that one

81
00:05:01,120 --> 00:05:04,080
Speaker 1: of if not as first domestic trip, will be up

82
00:05:04,120 --> 00:05:08,240
Speaker 1: to Philadelphia next week where the Republican lawmakers are having

83
00:05:08,240 --> 00:05:11,160
Speaker 1: their their Winner retreat, and that will be an opportunity

84
00:05:11,200 --> 00:05:13,440
Speaker 1: for Trump to meet with them and kind of set

85
00:05:13,480 --> 00:05:16,600
Speaker 1: forward some of those policy goals that will require legislative

86
00:05:16,600 --> 00:05:19,679
Speaker 1: action that we were talking about earlier. Justin Sank, thanks,

87
00:05:19,920 --> 00:05:22,279
Speaker 1: thank you so much for joining us. Justin Sank, us

88
00:05:22,360 --> 00:05:26,760
Speaker 1: government reporter for Bloomberg talking about what President elect Trump's

89
00:05:26,920 --> 00:05:41,640
Speaker 1: immediate steps will be after he takes office. One thing

90
00:05:41,680 --> 00:05:44,680
Speaker 1: that is not up is the US dollar. I want

91
00:05:44,680 --> 00:05:48,400
Speaker 1: to bring in Doug Barthwick, managing director and head of

92
00:05:48,680 --> 00:05:52,080
Speaker 1: f X at Chapter Lane and Company, to talk about

93
00:05:52,440 --> 00:05:55,120
Speaker 1: what President elect Trump will mean for the dollar. He

94
00:05:55,160 --> 00:05:57,159
Speaker 1: has come out and said that he does not want

95
00:05:57,320 --> 00:05:59,960
Speaker 1: the dollar to be too strong. What will this mean

96
00:06:00,000 --> 00:06:02,839
Speaker 1: in practical terms? Doug, Yeah, thank you very much for

97
00:06:02,880 --> 00:06:05,400
Speaker 1: having me. I think that one of the most important

98
00:06:05,440 --> 00:06:08,760
Speaker 1: statements that the Trump has made so far is that

99
00:06:08,839 --> 00:06:11,240
Speaker 1: he wants to make American more competitive. And I think

100
00:06:11,279 --> 00:06:15,000
Speaker 1: that we all know, based on economics classes, that multinationals

101
00:06:15,040 --> 00:06:18,360
Speaker 1: like to manufacturing countries with a depreciating currency while exporting

102
00:06:18,360 --> 00:06:21,560
Speaker 1: to those goods to one with an appreciating currency. And

103
00:06:21,560 --> 00:06:25,320
Speaker 1: for that reason, you see people manufacturing in China exports

104
00:06:25,320 --> 00:06:27,599
Speaker 1: that then go into the United States. Why why would

105
00:06:27,640 --> 00:06:29,320
Speaker 1: you want that? What you want that because you want

106
00:06:29,320 --> 00:06:32,400
Speaker 1: to have cheaper employees and you want to earn more

107
00:06:32,480 --> 00:06:37,000
Speaker 1: on what you're selling. So how could President Trump effectively

108
00:06:37,040 --> 00:06:39,760
Speaker 1: weaken the dollar? And what do you take such steps? Well,

109
00:06:39,800 --> 00:06:41,479
Speaker 1: one of the one of the most interesting things would

110
00:06:41,520 --> 00:06:43,880
Speaker 1: be the strong dollar policy that's been enforced really since

111
00:06:45,320 --> 00:06:48,640
Speaker 1: ever since Lloyd Benson was there with Mickey Cantor and

112
00:06:48,720 --> 00:06:51,240
Speaker 1: back then we were trying to do trade relationships and

113
00:06:51,320 --> 00:06:53,560
Speaker 1: Dolly and was trading at seventy five. Once we had

114
00:06:53,560 --> 00:06:56,239
Speaker 1: the trade relationships in place, they brought in the strong

115
00:06:56,279 --> 00:06:58,640
Speaker 1: dollar policy, which then saw Dolly and moved from seventy

116
00:06:58,680 --> 00:07:01,720
Speaker 1: five to its current levels. Now, now what's happened since

117
00:07:01,760 --> 00:07:05,680
Speaker 1: then is the U s has essentially become more expensive

118
00:07:05,720 --> 00:07:08,599
Speaker 1: in terms of its labor than maybe Japan, and so

119
00:07:08,640 --> 00:07:10,840
Speaker 1: as the dollar keeps on strengthening, it makes the US

120
00:07:10,960 --> 00:07:14,040
Speaker 1: less and less competitive. Now, the US has exported more,

121
00:07:14,080 --> 00:07:17,520
Speaker 1: but what they're exporting these days is US treasuries. So

122
00:07:17,600 --> 00:07:19,360
Speaker 1: many countries in the world say, you know, we'll buy

123
00:07:19,400 --> 00:07:22,480
Speaker 1: US treasuries because the US currency is a strong dollar. Policy,

124
00:07:22,520 --> 00:07:24,480
Speaker 1: the dollar will go up for treasures will be work more.

125
00:07:24,960 --> 00:07:27,160
Speaker 1: It's not really about the yield and the treasures more

126
00:07:27,200 --> 00:07:29,800
Speaker 1: by the fact that the dollar has been strengthening. Now

127
00:07:29,920 --> 00:07:32,520
Speaker 1: the President elect Trump looks at this and says, you

128
00:07:32,560 --> 00:07:35,400
Speaker 1: know what, when you sell treasuries, you're not really creating jobs.

129
00:07:35,440 --> 00:07:37,160
Speaker 1: But if we wanted to create jobs, we have to

130
00:07:37,200 --> 00:07:39,840
Speaker 1: have manufacturing back in the US. One way to do

131
00:07:39,920 --> 00:07:42,960
Speaker 1: that would be to end the strong dollar policy and

132
00:07:43,040 --> 00:07:45,040
Speaker 1: the chase. There's another way. I mean, you laid out

133
00:07:45,080 --> 00:07:49,240
Speaker 1: this scenario about you know, manufacturing and countries with depreciating

134
00:07:49,280 --> 00:07:52,040
Speaker 1: currencies and then shipping to places like the US with

135
00:07:52,120 --> 00:07:56,760
Speaker 1: appreciating currencies. Of course, there's the talk of this import

136
00:07:56,800 --> 00:08:01,120
Speaker 1: tax and in a way for companies to make products

137
00:08:01,160 --> 00:08:03,200
Speaker 1: here in the US is opposed to making them in

138
00:08:03,280 --> 00:08:07,240
Speaker 1: places like China. How does that prospect change the equation

139
00:08:07,360 --> 00:08:10,640
Speaker 1: for companies when it comes to where they do business. Well,

140
00:08:10,640 --> 00:08:13,239
Speaker 1: I think the companies are being encouraged, either to the

141
00:08:13,440 --> 00:08:17,240
Speaker 1: import tax or or from any sort of dollar policy change,

142
00:08:17,560 --> 00:08:20,800
Speaker 1: to be much more encouraged to manufacture in the US

143
00:08:20,840 --> 00:08:22,760
Speaker 1: to sell to the US. And I think that's certainly

144
00:08:23,000 --> 00:08:26,240
Speaker 1: one of Trump's main agenda parts. Hey, Doug, I wonder

145
00:08:26,280 --> 00:08:28,120
Speaker 1: if you could tell us about the Chinese you want

146
00:08:28,240 --> 00:08:30,560
Speaker 1: and whether there's a possibility that the value of the

147
00:08:30,720 --> 00:08:35,360
Speaker 1: juan will rise against the US dollar. China's economy performing

148
00:08:35,600 --> 00:08:38,560
Speaker 1: pretty well, right, We've got the GDP results, but also

149
00:08:38,640 --> 00:08:43,040
Speaker 1: new orders in December they were up restocking cycle. Would

150
00:08:43,080 --> 00:08:45,959
Speaker 1: this be good for the you want to gain value

151
00:08:46,040 --> 00:08:51,040
Speaker 1: and therefore would help other uh you want related currency pairs. Absolutely.

152
00:08:51,040 --> 00:08:54,040
Speaker 1: The the un is linked to the US dollar through

153
00:08:54,040 --> 00:08:56,200
Speaker 1: the basket that it trades off of, which is really

154
00:08:56,240 --> 00:08:58,560
Speaker 1: a guide, but it trades back and forth with it.

155
00:08:58,600 --> 00:09:01,360
Speaker 1: When you see the dollar strength, you also see then

156
00:09:01,440 --> 00:09:03,920
Speaker 1: dollar China go higher or that you want get weaker.

157
00:09:04,240 --> 00:09:05,960
Speaker 1: If you want that, you want to strength, and you

158
00:09:06,000 --> 00:09:08,120
Speaker 1: have to have the dollar weaken. And that's one of

159
00:09:08,160 --> 00:09:10,360
Speaker 1: the key points in this as well, and that the

160
00:09:10,400 --> 00:09:12,400
Speaker 1: market constantly says, you know, we want to see the

161
00:09:12,480 --> 00:09:14,560
Speaker 1: U want strength, and well, it's only going to strengthen

162
00:09:14,559 --> 00:09:17,600
Speaker 1: if the dollar weakens. There's really two ways it's gonna cat.

163
00:09:17,679 --> 00:09:19,800
Speaker 1: You can actually you can ask China to please strengthen

164
00:09:19,840 --> 00:09:23,079
Speaker 1: their currency, or the US can weaken the dollar. You know,

165
00:09:23,120 --> 00:09:25,440
Speaker 1: I have to wonder people sort of came up with

166
00:09:25,440 --> 00:09:28,320
Speaker 1: this idea that the dollar wood strengthen as yields rose

167
00:09:28,320 --> 00:09:31,439
Speaker 1: in the US. Now we see yields kind of flattening

168
00:09:31,440 --> 00:09:35,760
Speaker 1: out for the year, dipping even while the dollar declines.

169
00:09:35,840 --> 00:09:40,320
Speaker 1: I mean, do you think that this can continue this dynamic? Well,

170
00:09:40,400 --> 00:09:42,520
Speaker 1: I think people are very excited right now about the

171
00:09:42,520 --> 00:09:44,800
Speaker 1: FED raising rates a number of times through the year,

172
00:09:45,040 --> 00:09:47,839
Speaker 1: and if you remember last year around the same time,

173
00:09:47,880 --> 00:09:50,200
Speaker 1: there's also the same excitement, and the Fed ended up

174
00:09:50,240 --> 00:09:53,000
Speaker 1: sort of disappointing the market. I think that it's that

175
00:09:53,200 --> 00:09:55,120
Speaker 1: I could see the FED raising rates, but I think

176
00:09:55,360 --> 00:09:57,440
Speaker 1: I think it's more likely the FED would raise rates

177
00:09:57,480 --> 00:10:00,400
Speaker 1: should the dollars start to weaken, and the FAD would

178
00:10:00,480 --> 00:10:02,960
Speaker 1: essentially be the breaks on any sort of dollar weakness,

179
00:10:03,400 --> 00:10:05,360
Speaker 1: and that's what we're expecting for this year. I think

180
00:10:05,400 --> 00:10:07,599
Speaker 1: that that certainly we can look at the differential and

181
00:10:07,679 --> 00:10:09,360
Speaker 1: yields and say, well, that means that the dollar is

182
00:10:09,360 --> 00:10:11,240
Speaker 1: always going to be very well bid. But it's not

183
00:10:11,280 --> 00:10:13,679
Speaker 1: always the case. When Dolly went down to seventy five,

184
00:10:13,720 --> 00:10:17,240
Speaker 1: it wasn't because Japanese had very high interest rates. Well, Doug,

185
00:10:17,280 --> 00:10:21,320
Speaker 1: just quickly tell me about the dollar versus commodity currencies

186
00:10:21,679 --> 00:10:25,120
Speaker 1: such as the Aussie dollar, well, I think that if

187
00:10:25,160 --> 00:10:26,880
Speaker 1: you do see a dollar weakness, i'd expect to see

188
00:10:26,880 --> 00:10:29,440
Speaker 1: the Ausio dollars start to rally. Remember, dollar weakness will

189
00:10:29,480 --> 00:10:33,680
Speaker 1: spread inflation abroad. And there's one thing that old mold

190
00:10:33,679 --> 00:10:35,719
Speaker 1: banks are worried about right now. It's the deflation that

191
00:10:35,760 --> 00:10:38,880
Speaker 1: they're seeing. They're not seeing any inflation. Dollar weakness will

192
00:10:38,880 --> 00:10:42,600
Speaker 1: see inflation in commodity prices. If that's the case, obviously

193
00:10:42,640 --> 00:10:44,480
Speaker 1: the Audio dollar would strengthen. And also I think you

194
00:10:44,520 --> 00:10:48,439
Speaker 1: see the rand strength and Kiwi strengthen and Canada strengthen.

195
00:10:48,800 --> 00:10:50,560
Speaker 1: I want to thank you very much for joining us.

196
00:10:50,960 --> 00:10:54,199
Speaker 1: Douglas Borthwick is managing director ahead of FX at A

197
00:10:54,360 --> 00:11:09,480
Speaker 1: Chapter Lane and Company. Speaking about currencies, all right, let's

198
00:11:09,480 --> 00:11:11,360
Speaker 1: cut to the chase and figure out how to make

199
00:11:11,400 --> 00:11:15,000
Speaker 1: some money in a rising rate environment and a bond

200
00:11:15,040 --> 00:11:17,600
Speaker 1: market that can't seem to figure out which way it

201
00:11:17,640 --> 00:11:20,440
Speaker 1: wants to go. Matt Freund is the co chief Investment

202
00:11:20,440 --> 00:11:24,840
Speaker 1: Officer and the head of fixed income Strategies at Calamo's Investments,

203
00:11:25,160 --> 00:11:29,319
Speaker 1: and they manage over eighteen billion dollars of customer assets

204
00:11:29,360 --> 00:11:34,240
Speaker 1: based in Naperville, Illinois. Alright, Matt Freund what is what

205
00:11:34,440 --> 00:11:36,600
Speaker 1: is the word? What are you telling your clients to

206
00:11:36,720 --> 00:11:40,040
Speaker 1: do or not do well? The first thing we're telling

207
00:11:40,040 --> 00:11:44,320
Speaker 1: our clients is that despite the headlines, we've actually had

208
00:11:44,320 --> 00:11:48,400
Speaker 1: a fairly good year in fixed income over the last

209
00:11:48,400 --> 00:11:51,320
Speaker 1: twelve months. So one of the things we want to

210
00:11:51,320 --> 00:11:54,520
Speaker 1: remind investors is that it's a market of bonds, not

211
00:11:54,600 --> 00:11:59,800
Speaker 1: just one bond market. So high yield up over last

212
00:12:00,120 --> 00:12:03,079
Speaker 1: over the last twelve months, depending on the index the

213
00:12:03,200 --> 00:12:06,360
Speaker 1: broader markets, the the agg is only up about one

214
00:12:06,400 --> 00:12:09,600
Speaker 1: and a half, but active managers in core and core

215
00:12:09,640 --> 00:12:14,560
Speaker 1: plus funds delivered a four percent return. So um. We

216
00:12:14,640 --> 00:12:16,880
Speaker 1: don't think we're going to see the huge capital gains

217
00:12:16,920 --> 00:12:19,440
Speaker 1: of the past five years or so, but we still

218
00:12:19,480 --> 00:12:23,320
Speaker 1: think bonds play an important role in a portfolio. So

219
00:12:23,400 --> 00:12:26,680
Speaker 1: there's been a lot of talk about inflation rising and

220
00:12:27,000 --> 00:12:30,920
Speaker 1: general growth prospects increasing this year. That would be bad

221
00:12:31,120 --> 00:12:34,800
Speaker 1: for government bonds, particularly treasuries. Do you agree. Do you

222
00:12:34,800 --> 00:12:37,240
Speaker 1: agree that this is the outlook for the year. Well,

223
00:12:37,920 --> 00:12:40,880
Speaker 1: clearly it is some people's outlook for the year. I

224
00:12:40,880 --> 00:12:43,040
Speaker 1: think the market is struggling with how much of the

225
00:12:43,120 --> 00:12:47,679
Speaker 1: growth that we're expecting to see is going to be inflationary.

226
00:12:47,679 --> 00:12:52,280
Speaker 1: And inflation is generally bad for stocks and bonds or

227
00:12:52,600 --> 00:12:56,839
Speaker 1: versus real economic growth, So inflation versus real if we

228
00:12:56,920 --> 00:13:00,200
Speaker 1: see inflation spike, and right now, I think the expectations

229
00:13:00,240 --> 00:13:03,200
Speaker 1: are right around two percent, so it's still manageable. But

230
00:13:03,240 --> 00:13:05,680
Speaker 1: if it gets out of control, I think risk assets

231
00:13:05,800 --> 00:13:09,720
Speaker 1: generally UM will be in trouble. If it's real growth,

232
00:13:09,760 --> 00:13:11,560
Speaker 1: I think you're going to see stocks do well and

233
00:13:11,600 --> 00:13:15,559
Speaker 1: credit continue to outperform, credit spreads come in. I'll tell

234
00:13:15,600 --> 00:13:18,119
Speaker 1: you though, we are not in the camp that inflation

235
00:13:18,840 --> 00:13:20,760
Speaker 1: is going to be a problem. We think the next

236
00:13:20,880 --> 00:13:24,160
Speaker 1: quarter or two we're going to see inflation increases. That's

237
00:13:24,200 --> 00:13:26,160
Speaker 1: pretty much baked in the cake because of what we've

238
00:13:26,160 --> 00:13:30,440
Speaker 1: seen in energy past. The next quarter or two, there's

239
00:13:30,480 --> 00:13:33,720
Speaker 1: a lot of deflationary pressures out there that we think

240
00:13:33,720 --> 00:13:36,640
Speaker 1: are aren't going to go away just because of an

241
00:13:36,640 --> 00:13:39,720
Speaker 1: election here in the United States, such as what what

242
00:13:39,760 --> 00:13:43,120
Speaker 1: are the deflationary pressures that you believe are going to

243
00:13:43,240 --> 00:13:49,000
Speaker 1: dominate because clearly we're seeing rates move higher. Rates are

244
00:13:49,080 --> 00:13:51,800
Speaker 1: right exactly, so we think that the market may have

245
00:13:51,840 --> 00:13:55,559
Speaker 1: gotten ahead of itself. But to think about the markets

246
00:13:55,559 --> 00:13:58,560
Speaker 1: over the next two or three quarters, there are high

247
00:13:58,679 --> 00:14:02,600
Speaker 1: levels of debt um, government debt, not personal debt though.

248
00:14:02,960 --> 00:14:05,920
Speaker 1: Well yeah, but you have to look, you know, debt

249
00:14:06,040 --> 00:14:09,040
Speaker 1: is functionable, and you're absolutely right. The deck chairs have

250
00:14:09,080 --> 00:14:12,400
Speaker 1: been rearranged a little bit. But in general, high debt

251
00:14:12,520 --> 00:14:14,600
Speaker 1: levels and by a lot of measures, were higher than

252
00:14:14,640 --> 00:14:19,320
Speaker 1: we were in o A. Uh, you know our deflationary

253
00:14:19,480 --> 00:14:23,280
Speaker 1: strong dollar. UM, how are they? How is that deflationary?

254
00:14:23,360 --> 00:14:25,680
Speaker 1: I thought that if you have an acceleration of inflation,

255
00:14:25,720 --> 00:14:29,560
Speaker 1: that would be exactly what the debtors would want because

256
00:14:29,560 --> 00:14:34,960
Speaker 1: it would inflate away the value of the debt. No, exactly, No,

257
00:14:35,320 --> 00:14:38,240
Speaker 1: that that's right. Those two those two statements aren't in conflict.

258
00:14:38,360 --> 00:14:41,280
Speaker 1: So when you have a lot of debt um and

259
00:14:41,480 --> 00:14:45,800
Speaker 1: you owe money higher than expected, inflation makes it easier

260
00:14:45,840 --> 00:14:48,920
Speaker 1: to repay. But when you look over periods of time,

261
00:14:49,040 --> 00:14:53,120
Speaker 1: economies that are burdened with high debt levels, generally UM

262
00:14:53,880 --> 00:14:58,040
Speaker 1: have lower inflation rather than higher. The next thing is

263
00:14:58,080 --> 00:15:01,720
Speaker 1: the dollar, strong dollar, we're imp warding deflation. The next

264
00:15:01,720 --> 00:15:05,000
Speaker 1: one or demographics. As society's age, you don't see as

265
00:15:05,080 --> 00:15:09,320
Speaker 1: much inflationary pressure. And then finally history is important. Only

266
00:15:09,360 --> 00:15:11,600
Speaker 1: if you look what we went through in two thousand

267
00:15:11,640 --> 00:15:14,360
Speaker 1: and eight was a balance sheet recession. We got in

268
00:15:14,400 --> 00:15:16,520
Speaker 1: trouble because of too much debt, and when you look

269
00:15:16,560 --> 00:15:20,520
Speaker 1: at past balance sheet recessions, it's just hard to get

270
00:15:21,200 --> 00:15:23,920
Speaker 1: not just real GDP growth going, but it is hard

271
00:15:24,000 --> 00:15:27,440
Speaker 1: to get the velocity of money accelerating. It is hard

272
00:15:27,480 --> 00:15:31,280
Speaker 1: to get inflation um significantly higher. And that was true

273
00:15:31,320 --> 00:15:34,400
Speaker 1: in the twenties. It was true. Actually it's been true

274
00:15:34,400 --> 00:15:37,520
Speaker 1: in Japan for almost twenty years. So, um, you know,

275
00:15:37,880 --> 00:15:41,320
Speaker 1: there are some long term headwinds that we think after

276
00:15:41,360 --> 00:15:44,000
Speaker 1: the next quarter or two, Uh, we're still going to

277
00:15:44,080 --> 00:15:46,920
Speaker 1: find tough to to beat. So you said that you

278
00:15:46,960 --> 00:15:49,680
Speaker 1: think that the inflation expectations are currently baked into the

279
00:15:49,680 --> 00:15:52,720
Speaker 1: first and second quarter that have to do with higher

280
00:15:52,760 --> 00:15:55,640
Speaker 1: oil prices. Do you Does that mean in the second

281
00:15:55,680 --> 00:15:58,800
Speaker 1: half of the year you expect credit spreads to widen

282
00:15:58,880 --> 00:16:01,240
Speaker 1: out in sort of a soul of what we've seen

283
00:16:01,760 --> 00:16:05,040
Speaker 1: for the past couple of months. In other words, rates

284
00:16:05,120 --> 00:16:09,960
Speaker 1: coming back down, credit spreads widening out, and possibly stocks

285
00:16:10,000 --> 00:16:13,720
Speaker 1: taking a dip. Yeah. So when you think about so again,

286
00:16:13,760 --> 00:16:17,040
Speaker 1: it's going to come back to, uh, you know, the

287
00:16:17,080 --> 00:16:22,280
Speaker 1: whole inflation versus real growth debate. Uh. You know, so

288
00:16:22,320 --> 00:16:26,120
Speaker 1: we were more optimistic on the economy UH in in

289
00:16:27,560 --> 00:16:30,320
Speaker 1: UH than we were prior to the election. I think that,

290
00:16:30,600 --> 00:16:34,000
Speaker 1: you know, some of the things the new administration is

291
00:16:34,080 --> 00:16:37,760
Speaker 1: talking about doing though, I know that changes um uh

292
00:16:37,800 --> 00:16:40,520
Speaker 1: pretty quickly are going to benefit the economy. But the

293
00:16:40,560 --> 00:16:44,479
Speaker 1: economy and markets are two different things. So I suspect

294
00:16:44,600 --> 00:16:47,640
Speaker 1: that UM, as the economy does a little better, that's

295
00:16:47,640 --> 00:16:50,600
Speaker 1: going to be supportive of credit spreads. But again, credit

296
00:16:50,640 --> 00:16:53,360
Speaker 1: spreads have already come a long way over the last

297
00:16:53,400 --> 00:16:56,160
Speaker 1: twelve months, so we think they can grind tighter, but

298
00:16:56,240 --> 00:16:59,880
Speaker 1: it's not going to be um dramatic, So we we've

299
00:17:00,000 --> 00:17:03,840
Speaker 1: after gradual improvement spreads grinding tighter. I do think that

300
00:17:03,920 --> 00:17:07,439
Speaker 1: inflation expectations may be getting ahead of themselves, so we

301
00:17:07,520 --> 00:17:11,800
Speaker 1: see some um uh you know, constructive movements there. And

302
00:17:11,840 --> 00:17:14,160
Speaker 1: then you know again when you when you think about

303
00:17:14,240 --> 00:17:17,720
Speaker 1: the level of volatility in the market, that's one of

304
00:17:17,760 --> 00:17:20,359
Speaker 1: the calls we got wrong last year. We thought, with

305
00:17:20,400 --> 00:17:23,880
Speaker 1: all of the rather significant events that were happening that

306
00:17:23,960 --> 00:17:26,800
Speaker 1: really caught the market off sides, we would see more

307
00:17:26,840 --> 00:17:30,320
Speaker 1: of all that didn't happen UM. But we think that's

308
00:17:30,320 --> 00:17:33,280
Speaker 1: a matter of time, so I I expect volatility to

309
00:17:33,280 --> 00:17:36,680
Speaker 1: go up and present some opportunities over the next year.

310
00:17:37,080 --> 00:17:39,800
Speaker 1: So what would be some specific investments that you would

311
00:17:39,800 --> 00:17:42,520
Speaker 1: be ready to pounce on in that moment of volatility,

312
00:17:42,840 --> 00:17:45,399
Speaker 1: So high yield is one of them. So we're still

313
00:17:45,440 --> 00:17:48,160
Speaker 1: and my my team disagrees with me a little bit here,

314
00:17:49,000 --> 00:17:52,800
Speaker 1: but I think that high yield on a risk adjusted

315
00:17:52,840 --> 00:17:56,280
Speaker 1: basis is still fairly attractive. So we have positive but

316
00:17:56,400 --> 00:18:00,000
Speaker 1: more modest expectations on equities over the next twelve miles.

317
00:18:00,119 --> 00:18:05,120
Speaker 1: We we we don't expect um losses, but again, valuations

318
00:18:05,480 --> 00:18:07,399
Speaker 1: have priced a lot of the good news in. So

319
00:18:07,480 --> 00:18:10,920
Speaker 1: in that environment, we're high yield is yielding about five

320
00:18:10,960 --> 00:18:13,560
Speaker 1: and a half six percent depending on what part of

321
00:18:13,560 --> 00:18:16,560
Speaker 1: the market you're looking at on a risk adjusted basis,

322
00:18:16,600 --> 00:18:19,520
Speaker 1: we think that makes sense. But most of the opportunity

323
00:18:19,640 --> 00:18:22,119
Speaker 1: is in the triple C space, and you have to

324
00:18:22,160 --> 00:18:26,040
Speaker 1: be very selective and very careful when you're investing in

325
00:18:26,080 --> 00:18:29,000
Speaker 1: triple C, so make sure you hire a good manager.

326
00:18:29,760 --> 00:18:32,560
Speaker 1: We also think that loans can make sense here. Now

327
00:18:32,600 --> 00:18:35,359
Speaker 1: this is a very consensus trade. I hate being in

328
00:18:35,359 --> 00:18:39,720
Speaker 1: the consensus, but I think that loans are are the

329
00:18:40,000 --> 00:18:43,120
Speaker 1: consensus may have this one right. And then lastly, we're

330
00:18:43,119 --> 00:18:46,440
Speaker 1: not afraid of duration here. I think that adding out

331
00:18:46,560 --> 00:18:48,639
Speaker 1: in the twenty year thirty year part of the curves

332
00:18:48,680 --> 00:18:51,040
Speaker 1: selectively makes a lot of sense. Thank you so much,

333
00:18:51,040 --> 00:18:53,879
Speaker 1: Matt Freund, co, Chief investment Officer and head of Fixing

334
00:18:54,080 --> 00:19:03,840
Speaker 1: Strategies at Calumus Investments in Naperville, Illinois. Thanks for listening

335
00:19:03,880 --> 00:19:06,960
Speaker 1: to the Bloomberg pen L podcast. You can subscribe and

336
00:19:07,080 --> 00:19:12,040
Speaker 1: listen to interviews at iTunes, SoundCloud, or whatever podcast platform

337
00:19:12,200 --> 00:19:14,919
Speaker 1: you prefer. I'm pim Fox. I'm out there on Twitter

338
00:19:15,040 --> 00:19:18,760
Speaker 1: at pim Fox. I'm out there on Twitter at Lisa Abramo.

339
00:19:18,840 --> 00:19:21,479
Speaker 1: It's one before the podcast. You can always catch us

340
00:19:21,560 --> 00:19:23,119
Speaker 1: worldwide on Bloomberg Radio.