WEBVTT - Surveillance: Trade Issue Front & Center, Kostin Says 0:00:00.080 --> 0:00:13.040 Yeah, Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene 0:00:13.480 --> 0:00:17.560 Jay Ley. We bring you insight from the best in economics, finance, investment, 0:00:18.000 --> 0:00:23.520 and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, 0:00:23.600 --> 0:00:28.080 Bloomberg dot Com, and of course, on the Bloomberg yea 0:00:29.320 --> 0:00:31.760 in global markets are raising a loss of as much 0:00:31.760 --> 0:00:33.800 as two percent on the S and P five hundred 0:00:34.000 --> 0:00:37.360 for only the fifth time since this bullmark is started 0:00:37.400 --> 0:00:40.880 back in two thousand and nine. Wangan Steve Widing City 0:00:40.880 --> 0:00:45.120 Private Bank chief investment strategist, Good mornitor Steve, your thoughts 0:00:45.120 --> 0:00:48.080 on the swings through this week? Wow, So, look, I 0:00:48.080 --> 0:00:52.319 think this is the residual effect of the trade war 0:00:52.440 --> 0:00:56.560 heating up the counter measures and the currency markets. Uh, 0:00:56.640 --> 0:00:59.720 the fact that markets who had fixated on a seven 0:00:59.720 --> 0:01:03.760 read being some magical number for the Chinese currency for examples, 0:01:03.760 --> 0:01:06.560 trying to get used to it, and just looking back 0:01:06.600 --> 0:01:10.600 to other market events where we've had turmoil and currency 0:01:10.640 --> 0:01:13.480 markets spill over to other asset classes. So there may 0:01:13.480 --> 0:01:16.240 not be a lot of news at the moment on this, 0:01:16.600 --> 0:01:18.520 and markets have calmed down a bit, but we're still 0:01:18.560 --> 0:01:22.000 sort of in the aftermath of that big surgeon volatility 0:01:22.080 --> 0:01:25.200 and perhaps not as fixated with the Chinese currency fix 0:01:25.720 --> 0:01:28.040 night by night by night, I mean last night, everyone's 0:01:28.040 --> 0:01:30.839 standing by waiting for something. We've got a seven handle 0:01:30.880 --> 0:01:32.640 on the fix for the first time since two thousd 0:01:32.680 --> 0:01:34.640 and night. Maybe that was the headline for about five minutes, 0:01:34.680 --> 0:01:37.800 but ready the story. It's tracking the spot right quite tightly. 0:01:38.440 --> 0:01:40.959 It is stronger than pretty much every single analyst that 0:01:41.000 --> 0:01:42.960 we serve a here at Bloomberg. And I think the 0:01:43.000 --> 0:01:44.800 signal coming from the Chinese at the moment is that 0:01:44.840 --> 0:01:46.840 we want to stable currency. And let's be clear here 0:01:47.080 --> 0:01:49.440 that's very much a selfish motive. That is what the 0:01:49.520 --> 0:01:52.160 Chinese want. Well, that's absolutely right. This is not a 0:01:52.240 --> 0:01:55.200 situation of China sort of seeing we will no longer 0:01:55.240 --> 0:01:59.800 control our currency. We will completely subject this to market forces, 0:02:00.120 --> 0:02:02.800 come what may. Uh, And if the trade war takes 0:02:02.880 --> 0:02:06.919 us to a remarkable outflow of savings from from China, 0:02:07.240 --> 0:02:09.839 that's not where they're going to go on this. That's 0:02:09.880 --> 0:02:11.960 not the immediate outlook. But I do think that you 0:02:11.960 --> 0:02:15.240 do have some depreciation pressures, and China has signaled in 0:02:15.320 --> 0:02:19.320 fact that its currency will adjust as one of the 0:02:19.320 --> 0:02:21.680 ways in which if you want to call a retaliation 0:02:21.760 --> 0:02:24.600 or adjustment, you know, for this particular pressure on on 0:02:24.600 --> 0:02:27.320 on the Tarer front. You know it's Thursday, John, and 0:02:27.440 --> 0:02:29.160 you know I was off on Monday, was my first 0:02:29.200 --> 0:02:31.840 vacation day of the year. And um, you know you 0:02:31.880 --> 0:02:34.000 were here holding the fort down on Monday and you 0:02:34.000 --> 0:02:37.520 got to Jamaica this year. I did. Actually, it's good. 0:02:38.320 --> 0:02:41.760 It's been a company vacations. It's no, it's all gonna ja. 0:02:42.080 --> 0:02:46.400 Queen's Yeah, long Island. Um. After seeing the mets Um lose. 0:02:46.560 --> 0:02:51.280 Now they're all winning. Um. But John, what's so important here? Monday, Tuesday, Wednesday, Thursday. 0:02:51.320 --> 0:02:53.360 The note of the morning for me is Greg Valier, 0:02:53.800 --> 0:02:57.720 a g F who says, look, everybody, including in Steve 0:02:57.760 --> 0:03:01.720 Whiting's world, is waiting to see what the White House 0:03:01.880 --> 0:03:05.760 will do. And Greg's entire note is on is the 0:03:05.919 --> 0:03:10.120 somebody quoted last night brilliantly the Navarro recession, the idea 0:03:10.200 --> 0:03:12.440 of what we're doing on trade, Steve, how does city 0:03:12.440 --> 0:03:17.040 group fold in everybody waiting to see what the president 0:03:17.080 --> 0:03:20.080 does next into the sweat you face of what do 0:03:20.160 --> 0:03:22.920 I do with my equity investment? This this is really important. 0:03:22.960 --> 0:03:26.440 We were trying to say on the television earlier, for example, 0:03:26.800 --> 0:03:29.400 that whatever the political pressure there may be on the FED, 0:03:30.160 --> 0:03:35.160 Chairman Powell has said, we are the takers of trade policy, 0:03:35.560 --> 0:03:38.240 and I doubt that they have any great insight at 0:03:38.240 --> 0:03:41.720 the Federal Reserve. What's next? Will they do something because 0:03:41.720 --> 0:03:45.120 they expect the trade situation to worsen or not? No, 0:03:45.200 --> 0:03:47.560 they won't. They won't do anything. And the reality is 0:03:47.640 --> 0:03:50.240 that we have to build an asset allocation around the 0:03:50.320 --> 0:03:53.440 view that there are larger trade risks that we would 0:03:53.440 --> 0:03:56.240 have had in previous years. That's why again we've taken 0:03:56.280 --> 0:03:59.360 some evasive action and both fixed income in equities markets, 0:03:59.560 --> 0:04:02.040 but we'll also have to fold when that is priced 0:04:02.040 --> 0:04:05.720 into markets into that the opportunities when Johnet's classic Steve 0:04:05.760 --> 0:04:09.480 Whiting the keyword takers, which is out of derivatives and swaps, 0:04:09.880 --> 0:04:12.240 and that nobody has a choice here. The FED is 0:04:12.400 --> 0:04:15.280 a taker of what we see from the White We 0:04:15.320 --> 0:04:17.440 had a bit of pushback earlier this week, though, we 0:04:17.480 --> 0:04:20.120 had that pushback from Bullet of St. Louis when he 0:04:20.160 --> 0:04:21.640 said he did not want to get drawn in for 0:04:21.680 --> 0:04:24.520 the tip fitat in trade. I didn't hear that from 0:04:24.600 --> 0:04:27.880 Evans of Chicago, just yesterday. So there seems to be 0:04:27.880 --> 0:04:29.599 a bit of a difference emerging on the fo m 0:04:29.600 --> 0:04:32.520 C on how we should respond to the recent escalation. 0:04:32.560 --> 0:04:34.680 It's early days. We still have Jackson Hall, we will 0:04:34.680 --> 0:04:36.760 hear from a lot of FED speakers, Steve, But just 0:04:36.839 --> 0:04:39.240 your base case right now as to how the fo 0:04:39.360 --> 0:04:43.080 m C will respond or won't respond to the gyrations 0:04:43.080 --> 0:04:46.440 in this trade dispute. I think Chairman Powell was pretty 0:04:46.440 --> 0:04:49.800 clear on this aspect in the press conference, and that 0:04:49.880 --> 0:04:54.239 might have disappointed markets. They're not going to just simply 0:04:54.360 --> 0:04:59.560 ease unconditionally, preemptively creating all you know, first of all, 0:04:59.600 --> 0:05:01.440 I don't think that the ability for the FED to 0:05:01.520 --> 0:05:05.120 create an economic boom independently of all of this is 0:05:05.120 --> 0:05:08.600 really there. But they're not going to say that we're 0:05:08.640 --> 0:05:12.640 going to just load up with all sorts of ammunition 0:05:12.920 --> 0:05:15.000 power up the economy so that we can absorb a 0:05:15.040 --> 0:05:17.840 larger trade issue. No, it's not that um that they will. 0:05:17.920 --> 0:05:23.880 In essence, though, if they place deflationary macro circumstances external shocks, 0:05:24.000 --> 0:05:26.800 and they consider trade policy and external shock, they will 0:05:26.800 --> 0:05:28.839 react to it. That's what Powell said. What is your 0:05:29.160 --> 0:05:34.320 waiting or change in waiting of US domestic versus global 0:05:34.760 --> 0:05:39.320 equity investment right now. Um, there's been some minor changes. 0:05:39.360 --> 0:05:42.360 For example, for US, have you know, reduced a bit 0:05:42.360 --> 0:05:43.880 of a First of all, we've been a little bit 0:05:43.880 --> 0:05:49.080 cautious because of UH anticipated trade friction and that so 0:05:49.279 --> 0:05:52.320 took us in June UM to expect things to be 0:05:52.400 --> 0:05:55.760 a bit worse. Um, we thought, for example, that we 0:05:55.800 --> 0:05:59.480 would have tariffs in place when these additional tariffs now 0:05:59.839 --> 0:06:03.240 in place when Trump and She met, But now they've 0:06:03.320 --> 0:06:05.960 come in a delayed fashion, So we were a little 0:06:06.040 --> 0:06:08.640 bit early in terms of putting a bit of caution 0:06:08.760 --> 0:06:11.599 in on that. What we did, though, I would say, 0:06:11.839 --> 0:06:14.560 just giving all of that, is that take up small caps, 0:06:14.600 --> 0:06:18.280 slightly reduce our underweight in U S domestic small caps. 0:06:18.560 --> 0:06:20.720 But you know, this is a situation again like we 0:06:20.720 --> 0:06:23.320 were talking about earlier on the television, where there's pervasive 0:06:23.360 --> 0:06:27.000 effects across all financial markets. This is not a view 0:06:27.000 --> 0:06:29.800 of a surgical strike here. If this was about very 0:06:29.880 --> 0:06:34.760 very specific Chinese commercial policies on the trade front, we 0:06:34.880 --> 0:06:37.159 might have seen a different market response around the world. 0:06:37.279 --> 0:06:39.520 But the view that there is ultimately a trade war 0:06:39.600 --> 0:06:42.960 with your up, there's UH issues with all sorts of 0:06:43.040 --> 0:06:49.880 other trade patterns. There are other skummishes, new ones coming 0:06:49.880 --> 0:06:52.719 exactly going to established some parameters to try and work 0:06:52.760 --> 0:06:55.480 through and make some decisions a range of probabilities. I 0:06:55.520 --> 0:06:57.560 would send a consensus for you right now. As the 0:06:57.720 --> 0:07:00.040 wheat grows older, it is a twel risk that on 0:07:00.120 --> 0:07:02.159 it lets the currency go. That is the tail risk. 0:07:02.560 --> 0:07:05.320 The base case is that the trade risk don't diminish 0:07:05.560 --> 0:07:07.839 for a lot of people. That's the consensus view. Is 0:07:07.839 --> 0:07:10.080 that your view as well, statement that the parameters that 0:07:10.120 --> 0:07:13.239 you operate in right now? I think that that's very close. 0:07:13.240 --> 0:07:14.800 That we have to think about the base case. And 0:07:14.840 --> 0:07:19.240 then again within your asset allocation, you must have, you know, 0:07:19.440 --> 0:07:21.920 some room for things to not go as you plan. 0:07:22.240 --> 0:07:25.200 So what are the securities? What are the asset classes 0:07:25.200 --> 0:07:27.600 that you want to allocate capital to that retain the 0:07:27.680 --> 0:07:30.640 risk mitigating characteristics that you need if things don't go 0:07:30.720 --> 0:07:34.760 to plan? So very clearly US investment grade debt or 0:07:34.880 --> 0:07:37.680 US dollar investment grade debt because you can allocate across 0:07:37.720 --> 0:07:40.560 some higher and lower risk assets. Within that, you can 0:07:40.600 --> 0:07:42.960 have some thirty year U S treasuries, but yes, you 0:07:42.960 --> 0:07:46.720 can in fact also have uh some higher quality emerging 0:07:46.800 --> 0:07:50.120 markets long term US dollar bonds, but at a lower weighting. 0:07:50.680 --> 0:07:53.000 Um so. But the other side of this, which is interesting, 0:07:53.080 --> 0:07:55.360 is that we've always said, well, you know, an asset 0:07:55.440 --> 0:07:58.360 like gold or right has the problem that it doesn't 0:07:58.400 --> 0:08:01.360 give you yield, and you be for going the income 0:08:01.960 --> 0:08:04.160 uh for the if you own this asset. And yet 0:08:04.160 --> 0:08:05.960 you take a look at Europe where you have negative 0:08:06.040 --> 0:08:08.200 yield bonds uh, and you have to say, well, wait 0:08:08.240 --> 0:08:11.000 a second, I can actually improve my my relative income 0:08:11.000 --> 0:08:14.640 position with gold. This is really important. The opportunity cost 0:08:14.720 --> 0:08:19.720 of owning gold has diminished massively through is that the 0:08:19.720 --> 0:08:23.000 basic document. Well that's a basic argument. And and look, 0:08:23.240 --> 0:08:26.400 you know this is a more volatile asset class. But 0:08:26.440 --> 0:08:30.760 when you've had things like thirty year European negative yield 0:08:30.840 --> 0:08:32.920 bonds have a sort of a ten percent price jump 0:08:32.960 --> 0:08:35.480 in the month, you know you must have to consider 0:08:35.520 --> 0:08:37.439 that again. You know, gold does not have that move. 0:08:37.480 --> 0:08:40.560 And again that's one currency pair. This is not a 0:08:40.640 --> 0:08:44.679 story necessary for US dollar investors. You know, the environment 0:08:44.760 --> 0:08:47.480 for gold if the US currency were crashing, would be 0:08:47.559 --> 0:08:50.240 much stronger, which is not the expectation. We're gonna let 0:08:50.280 --> 0:09:05.920 you go Before we ask if bitcoins of gold proxy 0:09:08.679 --> 0:09:11.720 people walking the door, John that we think are unexpected. 0:09:12.120 --> 0:09:15.040 It would be good. He's got check here, he's got 0:09:15.080 --> 0:09:18.120 his He's got his Goldman Sex deck House, which is 0:09:18.200 --> 0:09:21.160 deck it's about a hundred and forty brought a hundred 0:09:21.160 --> 0:09:23.880 and forty two pages. Abbey shows up with the back 0:09:23.920 --> 0:09:26.880 of an envelope, you know, and some pen scratch on it. 0:09:27.040 --> 0:09:28.880 I saw his name in the rundown. I didn't actually 0:09:28.880 --> 0:09:30.920 think he'd turned up. But he's here, and I'm pleased 0:09:30.920 --> 0:09:33.040 to say. David custom is with us. Goldman Sacks, chief 0:09:33.040 --> 0:09:36.000 equity strategist. Good morning to David, and gentlemen, Let's talk 0:09:36.040 --> 0:09:38.439 about earnings just quickly, shall we. A lot of people 0:09:38.480 --> 0:09:40.480 said Q one worst is behind us, and then they 0:09:40.480 --> 0:09:42.679 start to look at Q two and said maybe it isn't. 0:09:42.800 --> 0:09:44.800 Then there were the fears of an earnings recession. Just 0:09:44.920 --> 0:09:47.240 where are we frame that for us, David? Where are 0:09:47.320 --> 0:09:50.280 we right now? The earnings realized and the earnings you 0:09:50.320 --> 0:09:53.080 expect are still to come. So we have the earnings 0:09:53.160 --> 0:09:56.000 for the second quarter, which are pretty much finished. Radar 0:09:56.040 --> 0:09:59.240 About of the companies in the market have reported flat 0:10:00.160 --> 0:10:02.439 or the year year on year second quarter last year. 0:10:02.440 --> 0:10:05.199 For the second quarter this year, flat earnings, and that's 0:10:05.200 --> 0:10:08.280 a little bit better than expected expectation going in to 0:10:08.360 --> 0:10:11.920 the quarter results were were probably down one But if 0:10:11.920 --> 0:10:14.600 you really focus on what's going forward, we're looking for 0:10:14.640 --> 0:10:17.520 around three percent earnest growth for this year two thousand 0:10:17.559 --> 0:10:20.320 and UH nineteen compared with two thousand, so about three 0:10:20.320 --> 0:10:23.400 percent earnest growth this year. That will accelerate to around 0:10:23.440 --> 0:10:26.080 six percent next year. You have been a COLN voice 0:10:26.280 --> 0:10:29.320 for decades saying you have to participate in the markets. 0:10:29.400 --> 0:10:32.160 Here's a way to do it with courage. What I 0:10:32.200 --> 0:10:34.599 see on the screen and this is with great respects 0:10:34.640 --> 0:10:37.880 for some of the catharsis Monday is SPX is down 0:10:37.960 --> 0:10:40.840 all of four point one percent from the recent peak. 0:10:41.280 --> 0:10:46.640 Have we forgotten David Cousten how to take losses? No? 0:10:46.920 --> 0:10:49.320 I think we have to think about the concept that 0:10:49.559 --> 0:10:53.520 valuation has been the principal driver of the market for 0:10:53.600 --> 0:10:56.800 this year. So the earnings for the market of pretty 0:10:56.880 --> 0:10:59.719 much coming in as expected and pers up and uh 0:10:59.720 --> 0:11:02.679 and the multiple has gone from fourteen times to eighteen 0:11:02.720 --> 0:11:04.400 times at the peak which you doesk reference, which is 0:11:04.480 --> 0:11:07.880 less than a month ago at three thousand five, and 0:11:07.960 --> 0:11:11.440 now we're down from that from those levels So here's 0:11:11.440 --> 0:11:12.839 how you want to think about it. You want to 0:11:12.880 --> 0:11:16.680 think about it in the sense that bond yields are 0:11:16.840 --> 0:11:20.080 like one flip the reciprocal okay, flip, the reciprocal. The 0:11:20.120 --> 0:11:23.400 earnings yield is six percent six percent right now, and 0:11:23.440 --> 0:11:26.160 so that yield gap, that difference between the earnings yield 0:11:26.200 --> 0:11:28.080 and the bond yield is one of the widest it's 0:11:28.080 --> 0:11:31.160 been in years at northup does it close? What's the 0:11:31.200 --> 0:11:34.480 partial differential? How you close bond yield and equity yield. So, 0:11:34.480 --> 0:11:35.839 if we want to think about it, we're about four 0:11:35.920 --> 0:11:38.400 hundred and twenty five basis points yield gap right now, 0:11:38.640 --> 0:11:41.480 and the long term averages about two thirty. So that 0:11:41.760 --> 0:11:44.079 well above that, we're closer to where we've been in 0:11:44.120 --> 0:11:46.440 the peak of the financial crisis in terms of the 0:11:46.559 --> 0:11:49.160 five hundred basis points kind of a yield gap. So 0:11:49.200 --> 0:11:51.800 that's the number one issue to think about in the 0:11:51.880 --> 0:11:55.600 sense of valuation of various asset classes, and bond yields 0:11:55.640 --> 0:11:59.959 are so low. Clearly the issues on trade our front 0:12:00.160 --> 0:12:03.240 and UH and center for for so many portfolio managers 0:12:03.280 --> 0:12:05.200 inappropriately so, and so the way you want to think 0:12:05.240 --> 0:12:08.800 about this is to own the services companies, companies that 0:12:08.840 --> 0:12:12.760 are services providing as opposed to goods producing. So goods 0:12:12.760 --> 0:12:16.400 producing your subject to tariffs, your subject to retaliatory tariffs. 0:12:16.400 --> 0:12:18.800 You have higher input costs. You've got concerns about that. 0:12:19.120 --> 0:12:21.959 As an investor, you own services based companies, they are 0:12:22.120 --> 0:12:24.920 less sensitive to that. They have more stable gross margins, 0:12:25.000 --> 0:12:27.920 higher higher margins. So we should know type the one 0:12:27.960 --> 0:12:30.400 thing the Federals of A really worried about, and central 0:12:30.400 --> 0:12:33.080 banks seemingly worldwide, including the CBS, that the weakness you 0:12:33.120 --> 0:12:36.800 see in manufacturing the goods providing companies bleeds across the 0:12:36.840 --> 0:12:40.679 services anyway, are you saying that's unlikely to happen all 0:12:40.720 --> 0:12:43.040 the effects of it will be limited. Well, the effects, 0:12:43.080 --> 0:12:46.280 I would argue, we'll be somewhat more limited principally because 0:12:47.480 --> 0:12:50.520 of the U S economy and services and that is 0:12:51.080 --> 0:12:56.040 driving its domestically facing and concern is certainly relevant to 0:12:56.080 --> 0:12:59.960 think about what's happening with h with manufacturing in this country, 0:13:00.120 --> 0:13:02.800 but the services real ways driving the economy. You've made 0:13:02.800 --> 0:13:04.559 a little headlines in the last couple of weeks. You 0:13:04.600 --> 0:13:07.800 came out with a year forecast, and I recall you 0:13:07.880 --> 0:13:12.760 dropped your EPs forecast, but raised your price target, and 0:13:12.800 --> 0:13:15.840 you believe that we could get some multiple expansion through 0:13:17.200 --> 0:13:19.439 makes sense of that for the people who don't believe 0:13:19.480 --> 0:13:22.520 in that story, that we could get some multiple expansion 0:13:23.200 --> 0:13:26.840 from the P five hundred still through next year. So 0:13:26.880 --> 0:13:28.920 we're to think about this is as I said, the 0:13:29.000 --> 0:13:33.000 start of two thousand and nineteen, Margaret multiple was fourteen 0:13:33.040 --> 0:13:36.360 times forward earnings, peaked at around eighteen times a month 0:13:36.360 --> 0:13:39.080 ago around sixteen and a half sixteen point five times 0:13:39.120 --> 0:13:41.920 forward earnings. And the Fed is likely to cut interest 0:13:42.000 --> 0:13:45.000 rates at least twice two more times this year, once 0:13:45.040 --> 0:13:48.040 in September, once in October, so the rates and bonds 0:13:48.040 --> 0:13:51.000 are liking to go lower and uh in my view, 0:13:51.080 --> 0:13:53.040 and then we look into next year, the idea of 0:13:53.120 --> 0:13:56.079 multiple expanding to maybe uh sixteen and a half to 0:13:56.559 --> 0:13:58.959 eighteen times, kind of going back to where we were before. 0:13:59.240 --> 0:14:02.000 Let's get it up then on your call, inequities and 0:14:02.080 --> 0:14:06.560 also Goldman Sex fixed income, Jan Lowe's at JP Morgan headlines, 0:14:06.640 --> 0:14:10.439 yacolm Fells at Pimco headlines, Steve Major HSBC with a 0:14:10.640 --> 0:14:14.040 shocking boon call of a negative point eight one percent, 0:14:14.200 --> 0:14:18.199 what's the Goldman sex adjustment towards zero bound in the 0:14:18.280 --> 0:14:21.480 United States. Do we get to a zero percent tenure? No, 0:14:21.760 --> 0:14:24.880 The expectation is somewhere between around one seventy five at 0:14:24.880 --> 0:14:26.560 the end of this year, one of one of three quarters, 0:14:26.880 --> 0:14:28.760 perhaps a little bit lower if the Fed cuts rates 0:14:29.040 --> 0:14:33.600 two more times and we're expecting but not significantly lower 0:14:33.600 --> 0:14:35.880 than we are currently, what do you do? Expectation is 0:14:35.920 --> 0:14:39.080 we're unlikely to have a recession and basically think about 0:14:39.160 --> 0:14:42.440 unemployment rate below four percent, which is real wage growth 0:14:42.560 --> 0:14:44.800 is happening for the first time in twenty years. Uh, 0:14:44.840 --> 0:14:48.040 and that's not as consistent with a recession. And where 0:14:48.040 --> 0:14:50.880 are the imbalances? I know, David custom your minimum account 0:14:50.920 --> 0:14:53.000 is four hundred million dollars. Talk to one of our 0:14:53.000 --> 0:14:58.280 listeners now with a smaller account. They're sweating, particularly after Monday. 0:14:58.640 --> 0:15:01.560 Do you adjust a re kill four oh one k account? Here? 0:15:01.600 --> 0:15:05.040 In equities? Is this an opportunistic moment? Is it a 0:15:05.080 --> 0:15:07.560 moment to be in the markets with courage or do 0:15:07.600 --> 0:15:11.640 you enjoy being in cash? No? The idea the answer 0:15:11.760 --> 0:15:14.000 would be to still be in the equity market at 0:15:14.000 --> 0:15:17.280 this at this juncture, given that the economy is likely 0:15:17.320 --> 0:15:19.720 to continue to grow, it's growing in part because the 0:15:19.720 --> 0:15:22.160 Fed's mandate is to keep it growing, and it's likely 0:15:22.200 --> 0:15:24.360 to be cutting interest rates a couple more times to 0:15:24.440 --> 0:15:27.520 maintain an expansion, and that's more consistent with art his 0:15:27.600 --> 0:15:29.720 growth than positive ear his growth is which generally leads 0:15:29.720 --> 0:15:32.480 the market higher. John my head spinning. This is too optimistic. 0:15:33.120 --> 0:15:35.880 It's very constructive, very constructive. But he has been through 0:15:35.920 --> 0:15:38.360 the year and the year has been good so far. 0:15:38.880 --> 0:15:40.800 David Couston, I think we gotta let go because understand 0:15:40.840 --> 0:15:43.560 you've got to go into another studio. Is that rather property? 0:15:43.840 --> 0:15:45.400 That's why I didn't think he was going to drop by. 0:15:45.400 --> 0:15:47.600 So I'm very happy Kavis some of his time. David Couston, 0:15:49.480 --> 0:16:04.760 Thank you, gentlemen, like very healthy, looks great right now. 0:16:04.800 --> 0:16:08.720 We are thrilled to bring you, Sonya Meskin, US economist 0:16:09.280 --> 0:16:14.040 Standard Charter. Sonya, you have a huge standard charter advantage 0:16:14.520 --> 0:16:17.480 and that you get to walk in every day and 0:16:17.520 --> 0:16:21.120 talk to Stephen Englander. He is a giant of foreign 0:16:21.200 --> 0:16:26.080 exchange dynamics. How do you dovetail your US economics work 0:16:26.640 --> 0:16:30.360 with the foreign exchange analysis of Mr Englander in the 0:16:30.440 --> 0:16:34.920 last five days? Well, um, it's really very true. It's 0:16:34.920 --> 0:16:37.360 really been very much about the foreign exchange. But you know, 0:16:37.400 --> 0:16:40.920 the US is actually quite an isolated economy, and I 0:16:40.960 --> 0:16:44.360 think that the labor market, for one, shows that very clearly. 0:16:45.040 --> 0:16:50.200 We see UH definitely signs of weakness and ongoing weakening 0:16:50.280 --> 0:16:54.160 both globally in Europe, in Asia, but we don't really 0:16:54.160 --> 0:16:55.840 see it so much in the US except in the 0:16:55.880 --> 0:16:59.640 manufacturing actually related sectors. Um so, I think it's very 0:16:59.640 --> 0:17:02.520 important contact. You know, in the dollar. Of course, UM 0:17:02.680 --> 0:17:04.760 plays a role in the sense reaction function, but it's 0:17:04.760 --> 0:17:09.840 really not even amongst the first three UH key elements. 0:17:09.840 --> 0:17:11.960 I think that they look at suddenly, do you see 0:17:11.960 --> 0:17:14.120 any sign at all that the witness in manufacturing though, 0:17:14.560 --> 0:17:17.159 is starting to come across lay through to the other 0:17:17.200 --> 0:17:18.840 parts of the economy. It's a question that we keep 0:17:18.840 --> 0:17:22.360 asking on this program, and so far a very very 0:17:22.480 --> 0:17:25.760 very limited, limited amount of people turn around and say, yes, 0:17:25.760 --> 0:17:29.480 I'm seeing a signed sonya do you that's true? I 0:17:29.480 --> 0:17:32.119 would agree with that, because even in the latest sist 0:17:32.119 --> 0:17:34.760 the report, manufacturing game jobs more so than in the 0:17:34.800 --> 0:17:37.399 previous month. Um So, I think we see it in 0:17:37.480 --> 0:17:40.159 some of the sentiment indicators, and that's been the consistent 0:17:40.240 --> 0:17:44.280 theme throughout the last nine months. But the sentiment indicator 0:17:44.640 --> 0:17:48.080 data has not been as strongly correlated with what's actually 0:17:48.119 --> 0:17:50.480 going on on the ground, is maybe in some of 0:17:50.520 --> 0:17:54.000 the previous periods. This goes back to a question we 0:17:54.080 --> 0:17:57.000 often ask Sonya, which is whether the fear that something 0:17:57.080 --> 0:17:59.679 is about to get worse can translate into the very 0:18:00.040 --> 0:18:03.480 your idea that it will happen, so it becomes reality 0:18:03.600 --> 0:18:06.199 the prospect of something, So the soft data becomes the 0:18:06.240 --> 0:18:08.080 heart data sort of speaks on here, is that what 0:18:08.119 --> 0:18:12.480 you anticipate? UM. I think the U S economy is 0:18:12.560 --> 0:18:14.680 very resilient, but I do think that there are certain 0:18:14.720 --> 0:18:17.879 cross currents now that we have an experience before. China 0:18:17.920 --> 0:18:20.600 is obviously much bigger part of the global economy than 0:18:20.640 --> 0:18:24.000 it was even a decade ago. UM. Of course, what's 0:18:24.040 --> 0:18:26.399 going on in the foreign exchange markets UM, as you 0:18:26.440 --> 0:18:29.960 can see, is somewhat unprecedented. UM. And I think the 0:18:30.000 --> 0:18:34.000 impact on money markets, for example, is um evident already. UM. 0:18:34.119 --> 0:18:36.960 So there are definitely elements I think within the market 0:18:37.000 --> 0:18:39.679 to pay attention to that are sort of critical, But 0:18:39.800 --> 0:18:43.679 the chances of those spilling over into the real economy UM. 0:18:43.840 --> 0:18:47.160 In short order, I don't think I'm necessarily very high well, 0:18:47.160 --> 0:18:50.639 the rate cuts, I mean the Standard Charter's expertise and UM, 0:18:50.680 --> 0:18:53.280 well the rate cuts we see from E M central 0:18:53.320 --> 0:18:58.080 banks affect US central bank policy. Well, I think it's 0:18:58.080 --> 0:18:59.960 really the other way around. If I really opened the 0:19:00.000 --> 0:19:03.000 door for them to cut UM. And while there's, of course, 0:19:03.040 --> 0:19:05.600 in UM an outstanding argument as to whether if I 0:19:05.720 --> 0:19:07.960 needed to cut it all and you fell two descents 0:19:08.600 --> 0:19:12.680 UM on the committee following that decision, UM, I think 0:19:13.000 --> 0:19:17.200 for the emerging markets, UM, in terms of the economics, UM, 0:19:17.200 --> 0:19:19.520 it's something that is needed. Of course, it also introduces 0:19:19.720 --> 0:19:23.480 uh um, you know uh issues to the capital flight 0:19:23.520 --> 0:19:26.640 account potentially down the road. But so far, I think 0:19:26.680 --> 0:19:30.080 we really opened the door for them. Wonderful son, and 0:19:30.160 --> 0:19:47.000 thank you so much. With Standard Charter in our studios 0:19:47.200 --> 0:19:50.840 right now, is any mass who goes to the coolest 0:19:50.880 --> 0:19:55.280 French major in America Advance or French and frank or Studies. 0:19:55.280 --> 0:19:58.840 It's like this totally cruel program. When when I was 0:19:58.840 --> 0:20:00.680 a kidding, it was like a big deal. What is 0:20:00.720 --> 0:20:05.800 it like doing French and Francophone studies at Vassar College. Well, 0:20:05.840 --> 0:20:08.680 it was just an obvious step in my career path 0:20:08.840 --> 0:20:12.040 towards becoming a business. Did you feel like you walked 0:20:12.080 --> 0:20:14.960 in dumbest French speaker in the class. It was a 0:20:15.000 --> 0:20:18.200 great program. I've got to tell you. I spent uh 0:20:18.640 --> 0:20:21.280 semester in Paris. Yeah, I lived it up. It's I 0:20:21.280 --> 0:20:23.680 don't have enough good things to say about that program. Yeah, 0:20:23.840 --> 0:20:25.879 so it's very cool. I mean, we get all these 0:20:25.920 --> 0:20:28.199 kids in here with the academic backgrounds, you've got a 0:20:28.240 --> 0:20:32.000 home run. Here was Susie Waite and Christopher Cannon on 0:20:32.080 --> 0:20:35.520 the state of asset management. Abby Johnson came out and said, 0:20:35.520 --> 0:20:38.880 we're gonna give away certain funds. You mentioned Will dan 0:20:38.920 --> 0:20:43.240 Off counter Fund, Fidelity counter Fund, and even the sainted 0:20:43.280 --> 0:20:46.520 Will dan Off is having outflows. It's that grim, right, 0:20:47.040 --> 0:20:49.479 that's right. So we took a look at the seventy 0:20:49.520 --> 0:20:53.359 four trillion dollar global asset management industry and some of 0:20:53.400 --> 0:20:58.280 the challenges that are that the biggest asset the biggest 0:20:58.359 --> 0:21:01.639 change right now facing So the biggest challenge is really 0:21:01.800 --> 0:21:05.560 for active managers. There's a bit of a crisis of 0:21:05.600 --> 0:21:09.000 confidence as you see these outflows from actively managed funds, 0:21:09.040 --> 0:21:12.560 even from those that are beating their benchmarks. Um, so 0:21:12.920 --> 0:21:16.199 it's a real watershed. Well, it's I totally agree with. 0:21:16.240 --> 0:21:18.360 The point is that watershed moment we saw in Davos 0:21:18.760 --> 0:21:21.840 this year with active managers, they've gone through this plan 0:21:21.960 --> 0:21:25.359 Plan B, Plan C, Plan D. What's the plan into 0:21:25.400 --> 0:21:30.040 autumn and into two thousand twenty to staunch the flows? Well, 0:21:30.080 --> 0:21:34.080 I think one plan that asset managers are rapidly realizing 0:21:34.440 --> 0:21:36.959 UM that they have to take on is you have 0:21:37.080 --> 0:21:40.280 to figure out what your Raisin detra is seeing French 0:21:40.320 --> 0:21:45.760 major um. So I would I would have pronounced it rich, 0:21:45.920 --> 0:21:49.760 I would have said, Raisin, that's what I would have said, 0:21:50.440 --> 0:21:54.159 that's what my very expensive education kind of timing. So 0:21:54.240 --> 0:21:55.920 you've got to be on one end of the spectrum 0:21:56.000 --> 0:21:59.439 or the other. You've got to, um really either have 0:22:00.000 --> 0:22:04.480 a full comprehensive offering or you've got to be a niche, focus, 0:22:04.520 --> 0:22:07.800 boutique player. And for those in the middle, it's really 0:22:08.359 --> 0:22:12.040