Speaker 1: Welcome to the Bloomberg Surveillance Podcast Time Tom Keene, along
Speaker 1: with Jonathan Ferroll and Lisa Brownwitz jay Leie, we bring
Speaker 1: you insight from the best and economics, finance, investment, and
Speaker 1: international relations. Find Bloomberg Surveillance on Apple podcast, Suncloud, Bloomberg
Speaker 1: dot Com, and of course on the Bloomberg Tournament. John
Speaker 1: Us Now it is Michael Rourke, Chief Market Strategistic Jones Trading. Michael,
Speaker 1: let's start right here where we start. Every single year,
Speaker 1: we start this conversation about this is the year for
Speaker 1: active management, and then we have a double digit gain
Speaker 1: on the SMP five hundred. We've had that over the
Speaker 1: last three years, and here we are year four, Michael,
Speaker 1: we're talking about this is the year for active management.
Speaker 1: Michael Rourke, what do you say when you face that debate,
Speaker 1: that conversation. I think it's interesting because we're for the
Speaker 1: first time in a long time, we're seeing a different economy,
Speaker 1: a different global financial and economic outlook, where you have
Speaker 1: this inflation um scourge that's kind of taking over the globe.
Speaker 1: That's gonna shift monetary policy throughout the world. So when
Speaker 1: you look at the monetary policy of the past thirteen years,
Speaker 1: there's always been this lower for longer outlook or the
Speaker 1: static easy monetary policy that worked really well for index
Speaker 1: investors and passing investors. As far as this year is concerned,
Speaker 1: I think we're going through this major secular shift um
Speaker 1: where rates and inflation are gonna matter, and it's also
Speaker 1: gonna be fueled by things like you know, deglobalization and decarbonization.
Speaker 1: So you're gonna need someone to actually be making decisions
Speaker 1: if you want to navigate what could be a very
Speaker 1: treacherous So give us a sense of your take on
Speaker 1: the diversion that we divergence that we've seen so far
Speaker 1: between value and growth. Michael, is the head fake or
Speaker 1: is this the beginning of a rotation that could persist
Speaker 1: for more than just a couple of months. Well, at least,
Speaker 1: I want to say your daily rundown was superb because
Speaker 1: I'm watching the same things that you are, and I
Speaker 1: do think this value versus growth argue it's important. Um,
Speaker 1: I've been in this value camp for most of one
Speaker 1: so I you know, am I concerned about the head
Speaker 1: fake a little bit? But I think last year's head
Speaker 1: fake really had to do with Jay Powell. You know,
Speaker 1: looking for that further progress in the job market market.
Speaker 1: And we're in a reverse situation this year where all
Speaker 1: of a sudden, Jay Pale has become an inflation hall.
Speaker 1: And again inflation is very aggressive um influence on the
Speaker 1: economy in the sense that it hurts the people who
Speaker 1: can afford the least the most, so it also becomes
Speaker 1: a political football in that case. I think Jay is
Speaker 1: gonna be a little much more diligent this year than
Speaker 1: we've seen him in his past, in the past of
Speaker 1: the Fed, and I think that's gonna be the key
Speaker 1: difference going forward, which I do think plays well for
Speaker 1: the value space. Michael, the moment is a great bull
Speaker 1: market after thirty six months coughing, coming off Christmas Eve
Speaker 1: of two thousand eighteen. What is the character of this
Speaker 1: bull market in the year four? You know what it's
Speaker 1: it's driven by financial conditions. We have record easy financial conditions.
Speaker 1: Don't forget this easy policy that we've had started well
Speaker 1: before the pandemic. Power started cutting rates in the summer
Speaker 1: of nineteen. So you know, there's been a lot of
Speaker 1: liquidity piled at this market, a lot of fiscal stimulus.
Speaker 1: So I think we're watching for as we shift years
Speaker 1: here and looking look to a tighter policy, especially monetary policy,
Speaker 1: whether it's obviously tapering and eventually balance sheet normalization and
Speaker 1: of course tightening. I think that's gonna be the shift.
Speaker 1: But right now, the liquidity is abundant out there, and
Speaker 1: that's why we see so many bubbly aspects of the
Speaker 1: small market. I mean, just to quickly go back to
Speaker 1: the value verse growth argument, Tesla had that move one
Speaker 1: day and add a hundred and forty billion dollars in
Speaker 1: market cap. That's more than City Bank or City Group
Speaker 1: or Goldman Sacks. So again there's a big disparity in
Speaker 1: this market out here. And again that's what this liquidity
Speaker 1: is driving, is that slowly gets taken away. We should
Speaker 1: see big shifts in the market. And Michael, I just
Speaker 1: want to pick up on that story on Test and
Speaker 1: just get a final thought from you on it. I
Speaker 1: think it's important. What does it say to you to
Speaker 1: see that much additional market cap added to that name
Speaker 1: off the back of each and every additional auto they'd
Speaker 1: be estimates by that to me just felt wild. I
Speaker 1: wouldn't call it insane. It happened, the market did it,
Speaker 1: but it felt wild to me, Michael, it was. It
Speaker 1: was definitely wild. What's interesting are we valuing this company
Speaker 1: at you know, a billion dollars per unit sold? I mean,
Speaker 1: it is an insane move, but it's interesting because now
Speaker 1: you had Ford come out yesterday and they said they
Speaker 1: were going to ramp up their production of the e
Speaker 1: v F one fifty and those shares have a nice
Speaker 1: What you're seeing is, you know, obviously competitions coming into
Speaker 1: the space. People see the market reacting like that, traditional automakers.
Speaker 1: Bloomberg obviously has a story this morning about Volkswagen and
Speaker 1: Toyota looking to make a push to take down Tesla.
Speaker 1: You had Sony come out and see yesterday and they're
Speaker 1: gonna introduce their electric car. Uh. This type of euphoria
Speaker 1: and you know, this typer market response definitely invites more competition,
Speaker 1: which is gonna make the environment more challenging. Ford had
Speaker 1: a massive year last year. Can I do that again, Michael?
Speaker 1: Thank you, sir, Michael Royal challenge trading, just going through
Speaker 1: some of the big issues right now. The passive as
Speaker 1: if active debate continues now to an important conversation with
Speaker 1: Christian Millard Listman. He's with Golden Sacks but far more
Speaker 1: importantly acclaimed for very dense detailed reports on the view
Speaker 1: forward and allocation. Christian, thank you so much for joining us.
Speaker 1: One of the hearts of your report is the trajectory
Speaker 1: of the inflation adjusted yield and that the real rate
Speaker 1: in some way will migrate up through a negative statistic
Speaker 1: up near a positive statistic. Is that a linear function?
Speaker 1: Or do we have to worry about acceleration and the
Speaker 1: effect on our portfolios? Is the real you real yield
Speaker 1: moves out of the abyss, it's in. Yeah, listen, I
Speaker 1: think you asked the most important question for two are
Speaker 1: we going to get a significant increase in the real yield?
Speaker 1: And in particular is it going to be gradual or
Speaker 1: is it going to be very quick? And will there
Speaker 1: be step changes? And if you look at the last
Speaker 1: few weeks, it's had this very clear reflationary behavior. The
Speaker 1: market has gotten less worried about omichron, looking at the UK,
Speaker 1: looking at the cases, the hospitalization, at death rates, all
Speaker 1: of that gives gives the market comfort that maybe the
Speaker 1: growth impact is less less bad. So you go back
Speaker 1: to reflation temper it so bomb yields have gone up
Speaker 1: a lot and fast, but most of that increase has
Speaker 1: been in facial expectations, not the real yield. And this
Speaker 1: has been a story which we've seen all of last year,
Speaker 1: but for this year, the big difficulty is that the
Speaker 1: FAT is life and it's going to start hiking. And
Speaker 1: what we found historically is once the FETs starts hiking,
Speaker 1: the real yields and the back end real yields start
Speaker 1: to move higher. So our views, it's a gradual move.
Speaker 1: We're expecting implicit in our forecasts maybe thirty to forty BIPs,
Speaker 1: and that could very well be digested by equities in aggregate,
Speaker 1: but it means law returns and there's always the risk
Speaker 1: that it gets a bit shaky from time to time.
Speaker 1: Every time when we are in this kind of period
Speaker 1: where the FATS starts that tightening cycle, there's a risk
Speaker 1: of a bit more volatility, right. I gotta follow up
Speaker 1: to that, But that answer was so smart, Christian. I'm
Speaker 1: gonna move on to other topics of the moment. I
Speaker 1: want you to speak for all of Goldman sex. I
Speaker 1: don't want to get you in trouble here with Mr
Speaker 1: so Amen, But when are we going to finally and
Speaker 1: the active versus passive management debate. Give us your take
Speaker 1: on the value of active management after what we've seen
Speaker 1: the last twelve months. Yeah, I mean you mentioned it
Speaker 1: at the very early beginning already. I think if returns
Speaker 1: a slow, if you start to see the beta um
Speaker 1: as a driver of your portfolio, return become less important,
Speaker 1: alpha automatically gets more important. And and I think it's
Speaker 1: a typical early cycle versus mid cycle discussion. Early in
Speaker 1: the cycle, things are highly correlated on the way down,
Speaker 1: on the way up, and it's all about getting the
Speaker 1: beta right. Whereas when you are going into a more
Speaker 1: mid cycle backdrop, usually there is a place for active management.
Speaker 1: And we generally think that that we're entering that type
Speaker 1: of period now where even the style rotations which have
Speaker 1: been very violent, and we we saw a bit of
Speaker 1: that again in the last few days, even though style
Speaker 1: rotations become less significant relative to individual stock picking. So
Speaker 1: I definitely think that there is an increasing focus on
Speaker 1: active management. Active management is not just about stockpicking. It's
Speaker 1: about the whole investment process, market timing, it's about timing regions,
Speaker 1: it's about timing styles and individual stocks. But we certainly
Speaker 1: see that there will be much more pressure and much
Speaker 1: more focused on active management as the type of return
Speaker 1: potential comes down a bit Christian. One of the active
Speaker 1: moves so far this year has been into value away
Speaker 1: from growth. And we keep talking about whether this is
Speaker 1: a head fake, something really similar to what we saw
Speaker 1: last year. Is this something that you think will pretend
Speaker 1: a trend or simply something that will get reversed in
Speaker 1: two months? To me, I think the whole coming cycle, um,
Speaker 1: there is a strong case for being a bit better diversified.
Speaker 1: I think in the last cycle, as we know, the
Speaker 1: best thing you could have one is on us large
Speaker 1: kept rold stocks and and you would have been very
Speaker 1: happy with the sharp ratio, very tough to beat. Whereas
Speaker 1: in the coming cycle, we think that the return differentials
Speaker 1: between regions and styles, as I mentioned, they might narrow
Speaker 1: and there's a real risk benefit. I give you an example, um,
Speaker 1: the correlation between value and growth and the two styles
Speaker 1: has actually declined in the last twenty years. UM so
Speaker 1: makes sense because growth has outperformed a law to value
Speaker 1: hasn't done that well. But that type of correlation can
Speaker 1: be a diversification benefit. So it tells you that if
Speaker 1: you want to reduce portfolio risk, there's a really strong
Speaker 1: case to to to just strategically think about incorporating a
Speaker 1: bit more value stocks in your portfolio. But as you
Speaker 1: set yourself, there are these waves, and these waves have
Speaker 1: a bit of that flavor that after one to three
Speaker 1: months you're done with. And I think there's a good
Speaker 1: risk that the kind of current value wave again will
Speaker 1: will kind of excel rate and slow and maybe partially
Speaker 1: reversed depending on the news flow we have on a micron.
Speaker 1: But what's really different with regards to value versus growth
Speaker 1: compared to last year is as I mentioned that the
Speaker 1: fat is very likely to start the tightening process via
Speaker 1: higher rates, and that means that you have maybe a
Speaker 1: bit more longevity towards this rotation. Christian. Before we let
Speaker 1: you go, I want to get your sense. Scott Croner
Speaker 1: of City Group came out two days into the trading
Speaker 1: session and increased his SMP target for your end. Does
Speaker 1: it concern you that everybody is competing to be the
Speaker 1: biggest bill right now? Listen? I think, um, we look
Speaker 1: at the positioning and the sentiment a lot, and um,
Speaker 1: I think people are overweight equities and they're probably at
Speaker 1: the margin more overweight quality equity, not really down in
Speaker 1: quality UM and and and that combination has meant that
Speaker 1: we're not that worried. So I think people at the
Speaker 1: margin at knowledge that equities are kind of especially relative
Speaker 1: to fix income UM, they're having a lot of support
Speaker 1: from flaws from valuations UM and to some extent from fundamentals,
Speaker 1: and I think that's correct. I think we are overweight
Speaker 1: equities as well, and we do actually think that there's
Speaker 1: more scope for demand for equities UM in the coming
Speaker 1: years if you continue to to keep the cycle going.
Speaker 1: What I would be worried about is if increasingly the
Speaker 1: bulishness is focused on very cyclical parts. And we see
Speaker 1: a lot of the indicators with regards to what we're
Speaker 1: just discussing value UM cyclical riskier parts of the market
Speaker 1: leading for a prolonged period of time, and and that
Speaker 1: could then kind of create a certain bullishness for the cycle,
Speaker 1: which eventually could get disappointed and create the risk of
Speaker 1: a larger correction. But we don't have that right now, UM,
Speaker 1: So I think we're not that worried yet about the
Speaker 1: extent of bullishness we have. Christian, thank you always gonna
Speaker 1: have from you, Sir Christian Klisman. There of government sex
Speaker 1: on a year ahead. We drive forward this conversation with
Speaker 1: Bagd and Sadi also at Johns Hopkins University. Dr In Sati,
Speaker 1: thank you so much for joining us. What should the
Speaker 1: CDC do? Should they just say, look, PCR, we tried it,
Speaker 1: it doesn't work and we need to look at far
Speaker 1: more rapid rapid testing. So PCR does work, and that's
Speaker 1: the wrong messaging. But the correct messaging here is look
Speaker 1: right now, we just don't have enough tests, access to tests,
Speaker 1: extremely challenging. Systems are overwhelmed. Rapid tests are expensive but
Speaker 1: also not available to major parts of our society. If
Speaker 1: you are symptomatic given the current pandemic, you should isolate
Speaker 1: for the full ten days because what is also known
Speaker 1: is after five days from your onset of symptoms, most
Speaker 1: people will be uninfectious, but about thirty individuals continue to
Speaker 1: be infectious and there is a risk that they will
Speaker 1: continue to transmit the virus onwards. You're acclaimed doctor Hansatti
Speaker 1: worldwide in dealing with testing and virology in poor nations.
Speaker 1: I don't think that describes America. How did we get
Speaker 1: in the spot where we don't have enough rapid tests?
Speaker 1: You know? I think it was we had a lot
Speaker 1: of tests available within health facilities. I think this is
Speaker 1: a consumer market. UM. Only thirteen rapid tests were ever
Speaker 1: approved by the FDA, right, so number of the number
Speaker 1: of tests is low when it comes from rapid testing.
Speaker 1: There was over four hundred tests approved UM that are
Speaker 1: non rapid tests. But then there's also issues around distribution,
Speaker 1: market share, UM and the pricing of the tests, which
Speaker 1: is really cause delays in making sure that everyone has
Speaker 1: access to a test. Dr Hansati, what's your sense of
Speaker 1: the CDC's guidelines. I mean, John was just reading it's
Speaker 1: as clear as mud that you know, if you have
Speaker 1: a test, great, you can take it. If you don't,
Speaker 1: don't worry about it, Just go about your life. I mean,
Speaker 1: is this more harmful? Is it's going to actually undermine
Speaker 1: trust in a health system that's really struggled to get
Speaker 1: the right message across. I mean, that's been a story
Speaker 1: of this pandemic right to some point. We agree that
Speaker 1: the pandemic has evolved with this guidances also need to evolve,
Speaker 1: as our data or knowledge of vaults, but the messaging
Speaker 1: has been frankly confusing. UM. It leaves employers unsure what
Speaker 1: to do with their workforce. Right, so test symptomatic isolate
Speaker 1: for five days? Okay, that's clear, But then how do
Speaker 1: I get a test to you? Will those test results
Speaker 1: be available on the same day? When do you make
Speaker 1: the decision whether it to isolate for a further five
Speaker 1: days or return back to the workforce. And if you
Speaker 1: do return back to the workforce, how do we ensure
Speaker 1: that that return does not put others at risk? Um
Speaker 1: And so I think that guidance has been challenging to
Speaker 1: interpret but all so challenging to implement, which is frankly
Speaker 1: the reason why people, a lot of companies have gone
Speaker 1: to PCR tests, have gone to something that is the
Speaker 1: most extreme to prevent outbreaks from offices. At what point
Speaker 1: do you see that actually becoming a mood issue. We
Speaker 1: were speaking with Dr Amishdalogy yesterday who said this is
Speaker 1: absolutely the wrong test. Would you agree and do you
Speaker 1: think that it will start being phased out as the
Speaker 1: barometer of infectiousness in the near future. So rapid tests
Speaker 1: are wonderful. True, there are sensitive but extremely specific. So
Speaker 1: if you have a positive rapid test at home, there
Speaker 1: is no reason for you to go and get compromatory testing.
Speaker 1: Use consume that space in the health system that needs
Speaker 1: to be made available to others. Also, PCRs do not
Speaker 1: make sense. Are asymptomatic individuals, symptomatic individuals that need to
Speaker 1: know for certain that they are positive or not. I
Speaker 1: don't have access to a rapid test, although only ones
Speaker 1: that should be getting a PCR at this time. Don't
Speaker 1: wonderful stuff, wonderful word kinds of white We appreciate it.
Speaker 1: Don't about town Sanci that of John's helpkins. Right now,
Speaker 1: we're gonna dovetail in the always interesting Eurasia Group top
Speaker 1: ten risks with what we see immediate and Ian Bremer
Speaker 1: is known for years as he's done the top ten
Speaker 1: risks that he gets rewritten by the moment, we're gonna
Speaker 1: rewrite it right now. Alex Pardeaux joins us right now,
Speaker 1: the expert on Russia at Eurasia Group, Mr Burdeaux. How
Speaker 1: does Putin respond to the upset in kazakh Stone. I
Speaker 1: think he responds carefully at first. Um, everybody's sort of
Speaker 1: watching to see how these protests develop, and I think
Speaker 1: that's true in the Kremlin as well. I think that
Speaker 1: they may have been caught by surprise as much as
Speaker 1: anybody one thing that Putin does not want to see
Speaker 1: his chaos on the streets in Kazakhstan. So they'll be
Speaker 1: looking to see what the Kaza government's responses UH look
Speaker 1: like UH and whether or not they can control the
Speaker 1: situation aation. And I think also they'll take some lessons
Speaker 1: in terms of what this means with popular uprisings that
Speaker 1: are connected in particular to the raising of gas prices,
Speaker 1: which it seems to be the immediate cause of this
Speaker 1: particular situation. When we look at this and study, we
Speaker 1: hearken back to our collective memories, and that is a
Speaker 1: memory of the Soviet Union. Address right now, how much
Speaker 1: there is a tinge of the Soviet Union and your
Speaker 1: analysis of Moscow the present states of Russia and the
Speaker 1: former states of the Soviet Union. M Well, certainly, I
Speaker 1: think for President Putin UH, there are these linkages back
Speaker 1: to the Soviet past that he know he's expressed regret
Speaker 1: about the breakup of the Soviet Union. But I think
Speaker 1: also there really is not a sense that Poton wants
Speaker 1: to go back to those days, um, that this is
Speaker 1: sort of some kind of ambition of his UM. But
Speaker 1: I think in the general area, whether we're talking about Kazakhstan,
Speaker 1: and whether we're talking about Ukraine or the crisis in
Speaker 1: Yellowers as well. Moscow continues to believe that it has
Speaker 1: a very important role to play in this region, that
Speaker 1: it's its sphere of influence, and that leads to some
Speaker 1: of the tensions between Russia and the West that we've
Speaker 1: been seeing just over the last couple of years. So
Speaker 1: Russia is always a problem spot typically when you look
Speaker 1: at some of these geopolitical maps of potential risks, and
Speaker 1: here we have it at number five. It moved up significantly.
Speaker 1: I believe that you said it wasn't even on the
Speaker 1: list last year. So what changed to make it in
Speaker 1: a situation, And certainly the relationship between the US and
Speaker 1: Russia at the brinks edge of precipitating some sort of
Speaker 1: international crisis now versus a twelve months ago when it
Speaker 1: was just Russia. Well, I think in two we're looking at,
Speaker 1: you know, a few issues that could actually lead the crisis. Certainly,
Speaker 1: there's you know, the US Russia relationship has been a
Speaker 1: particularly bad over the last separate years. But it's these
Speaker 1: specific problems, and of course right now the big focuses
Speaker 1: on the situation with Ukraine would put his demands about
Speaker 1: a basically a redrawing of the Eastern European security order
Speaker 1: as well. And that's led to these major tensions just
Speaker 1: over the last couple of months. But beyond that, if
Speaker 1: we look ahead later to the year, there's concerns about
Speaker 1: whether or not Russian actors, whether their state or non
Speaker 1: state actors, will interfere in the US midterm elections. UH.
Speaker 1: That has been a big redline for President Biden. He's
Speaker 1: made that pretty clear, UH. And so the trigger for
Speaker 1: some sort of US response to that UH is fairly low. UM.
Speaker 1: Other issues of concern would be in the cyber realm uh.
Speaker 1: You know, a repeat of the colonial pipeline ransomware attack
Speaker 1: last year or the solar winds case and saw something
Speaker 1: of that nature that would also be a concern. So
Speaker 1: these these problems have been mounting and this year there's
Speaker 1: a real risk that one of them turns into a
Speaker 1: christ Going back to where we began the conversation with
Speaker 1: Kazakhstan and the idea of higher gas prices igniting social unrest,
Speaker 1: how much has the nord stream to issue really caused
Speaker 1: a fissure between Europe and the United States with Europe
Speaker 1: in a much more delicate position, with such a strong
Speaker 1: geopolitical location with respect to gases, gas prices, and Russia. Well,
Speaker 1: certainly the European reactions I think have driven US responses
Speaker 1: to a certain degree. And with the nord Stream to pipeline,
Speaker 1: the Biden administration basically struck a deal with the Germans over,
Speaker 1: you know, to allow that pipeline to go ahead with
Speaker 1: some very heavy conditions. Uh. You know that the instinct
Speaker 1: from Washington has been to impose sanctions to try and
Speaker 1: stop the pipeline. The Biden administration has resisted that, I
Speaker 1: think because they're, you know, in the interest of trying
Speaker 1: to repair the trans atlantic relationship, especially with the German government,
Speaker 1: they want to be very careful about how the US response. Also,
Speaker 1: I think it's a recognition that ultimately the German government
Speaker 1: and their regulatory authority over the pipeline is probably the
Speaker 1: single biggest obstacle to North String to becoming operational. But
Speaker 1: for Russia this is a big deal. Putin certainly wants
Speaker 1: this pipeline to become operational, and he wants to make
Speaker 1: sure that gas from is able to keep its market share. Uh.
Speaker 1: In Europe, uh, and that leads to tensions between Russia
Speaker 1: and the EU as well, where there still is a
Speaker 1: lot of skepticism for many members, included especially Poland, about
Speaker 1: this pipeline and whether it should be operational at all. Alex,
Speaker 1: thank you so much. I've got eight more questions, but
Speaker 1: we don't have the time today. Alex Brudeaux, you raise
Speaker 1: your group on the top ten risks for two thousand
Speaker 1: twenty two. This is the Bloomberg Surveillance Podcast. Thanks for listening.
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