WEBVTT - Surveillance: No Recession in 2020, Emanuel Says 0:00:09.880 --> 0:00:13.800 Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane Jay Lee. 0:00:13.960 --> 0:00:17.560 We bring you insight from the best in economics, finance, investment, 0:00:18.000 --> 0:00:23.480 and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, 0:00:23.600 --> 0:00:27.880 Bloomberg dot Com, and of course on the Bloomberg. There's 0:00:27.920 --> 0:00:31.040 definitely a question here are we going to see more 0:00:31.040 --> 0:00:33.159 inflation next year? Are we going to see a resurgence 0:00:33.200 --> 0:00:35.880 of growth, or are we going to see a dampening 0:00:36.000 --> 0:00:38.200 of some of the high hopes that we have priced 0:00:38.280 --> 0:00:41.519 into stocks. Joining us now, John Riding, chief Economic advisor 0:00:41.600 --> 0:00:44.040 to breen A Capital, joining us here in our Living 0:00:44.080 --> 0:00:46.599 three oh studios with his party head on, ready for 0:00:46.680 --> 0:00:50.280 the new year's celebration. Um, what do you think? Do 0:00:50.320 --> 0:00:52.159 you think that we're going to see an accelerating or 0:00:52.159 --> 0:00:55.320 re accelerating economy next year or or the opposite? You know, 0:00:55.320 --> 0:00:58.080 at least I find it very interesting chim re accelerating 0:00:58.080 --> 0:01:01.120 economy because if you look over the last ten and 0:01:01.160 --> 0:01:04.399 a half years of this expansion, economic growth has averaged 0:01:04.440 --> 0:01:07.160 two point three percent, and it has been the most 0:01:07.240 --> 0:01:11.759 stable period of economic growth on record. And this year 0:01:12.680 --> 0:01:16.240 that we are ending today, we'll see growth in line 0:01:16.360 --> 0:01:19.440 with that ten year trends of growth hasn't gone anywhere. 0:01:20.040 --> 0:01:24.600 What has changed is perceptions of where growth is going 0:01:24.640 --> 0:01:27.120 to go. And we came into twenty nine on this 0:01:27.319 --> 0:01:31.800 tremendous fear of recession and the yield curve was inverted. 0:01:31.920 --> 0:01:35.560 And you know, even thee you go to a gas 0:01:35.560 --> 0:01:40.360 station and maybe people that you the gas standard talking 0:01:40.360 --> 0:01:43.119 about inverted deal care foods. There probably no idea when 0:01:43.880 --> 0:01:46.199 but that's not true that actually go to a gas 0:01:46.200 --> 0:01:50.800 station and hear people talking about absolutely true, absolutely true. 0:01:51.480 --> 0:01:57.400 You had people people talk about cocktail party conversation. You know, 0:01:57.480 --> 0:02:00.840 you just just overhear people talking about it and did 0:02:00.880 --> 0:02:04.040 you new Jersey all the time. And we are now 0:02:04.720 --> 0:02:09.520 entering into where there's no fears of recession. Um, there's 0:02:09.520 --> 0:02:12.640 no fears for the market. We remember the debacle on 0:02:12.720 --> 0:02:17.320 Christmas Eve setting the you know, the end of a 0:02:17.320 --> 0:02:20.160 almost a bear market. It was really a very valid 0:02:20.200 --> 0:02:22.400 correction in stocks. So where are we now as we 0:02:22.520 --> 0:02:27.240 going to go into I mean, our growth numbers are 0:02:27.600 --> 0:02:30.760 around two and a quarter percent. May an acceleration we 0:02:30.840 --> 0:02:32.960 two and a half percent. A bit acceleration is very 0:02:32.960 --> 0:02:35.720 difficult because we don't have the people to employ to 0:02:35.800 --> 0:02:38.000 three and a half percent unemployment. Right, there's a story 0:02:38.000 --> 0:02:41.600 out this morning that about slowing population growth, and just 0:02:41.600 --> 0:02:43.920 had the slowest population growth in the centery in the US, 0:02:44.760 --> 0:02:47.280 and that continues for a while, and we haven't yet 0:02:47.320 --> 0:02:51.040 seen the big pickup in productivity growth. So pencil in 0:02:51.080 --> 0:02:53.880 another year of two and a quarter percent or so 0:02:54.280 --> 0:02:56.560 economic growth, maybe two and a half, two and three 0:02:56.600 --> 0:03:00.160 quarter percent on the on the high end um. The 0:03:00.320 --> 0:03:05.520 risk is to the downside if we don't get profit 0:03:05.560 --> 0:03:08.560 growth going again, and that's a really big issue for 0:03:08.560 --> 0:03:10.519 the US. John, can you put in the context for 0:03:10.560 --> 0:03:14.440 our listeners, what a ten or eleven percent I'm sorry, 0:03:14.440 --> 0:03:19.480 ten or eleven year expansion economy? How unusual is that? Well, 0:03:19.520 --> 0:03:24.559 it's unprecedented, so I guess unprecedented would make it pretty unusual. 0:03:27.280 --> 0:03:29.320 So what so, how do we think about that? Is that? 0:03:29.600 --> 0:03:31.639 Is that good? Is that the new normal? Is that? 0:03:31.760 --> 0:03:35.480 I mean? Are we poised for some significant correction in 0:03:35.520 --> 0:03:38.360 the economy. Well, if you step back and you look 0:03:38.360 --> 0:03:43.320 at all of the recessions and expansions since the uh 0:03:44.280 --> 0:03:48.880 in the post war period, so you have seen in 0:03:48.920 --> 0:03:54.200 the last two or three decades expansions become longer recessions 0:03:54.480 --> 0:03:56.360 were becoming short and then of course we had the 0:03:56.400 --> 0:03:59.120 Great Recession. Though not quite sure what's so great about it, 0:03:59.160 --> 0:04:02.200 but nevertheless we had the Great Recession. But now the 0:04:02.320 --> 0:04:05.400 Great Recession I set the stage for a ten and 0:04:05.440 --> 0:04:11.440 a half year economic expansion, with expansion expected to continue through. So, 0:04:12.320 --> 0:04:14.520 whether it's the new norm or not, it's the environment 0:04:14.600 --> 0:04:17.560 in which we are in. Well, here here's the thing. 0:04:17.720 --> 0:04:19.440 I mean. If you talk about the fact that we're 0:04:19.440 --> 0:04:21.080 probably in for more of the same, we're not in 0:04:21.120 --> 0:04:23.720 for re acceleration. We're not in for a big decline 0:04:23.800 --> 0:04:26.160 or recession. As the people in the gas station we're 0:04:26.160 --> 0:04:28.320 talking about the inverted yield curve six months ago are 0:04:28.320 --> 0:04:31.640 no longer doing so. Evidently I'm wondering, you know, is 0:04:31.680 --> 0:04:36.520 that consistent with valuations where they are in equities? That 0:04:37.320 --> 0:04:40.960 is great question, and my fear is not. Let me explain. 0:04:41.960 --> 0:04:44.080 If you look at the we use very simple model. 0:04:44.120 --> 0:04:47.480 We take level profits and we discounted by the level 0:04:47.480 --> 0:04:51.000 of corporate bond deals and bondials are very low. But 0:04:51.080 --> 0:04:54.880 even on that calculation, the market looks a little bit overvalued. Now, 0:04:54.880 --> 0:04:58.599 what's the major problem for the market. Wage growth has 0:04:58.640 --> 0:05:02.279 been exceeding the sum of profit growth certain the sum 0:05:02.320 --> 0:05:05.960 of price gains plus productivity gains, and so profit margins 0:05:05.960 --> 0:05:08.520 have been squeezed, and they have been squeezed now for 0:05:08.560 --> 0:05:13.640 about five years. We need to get profit growth to 0:05:13.680 --> 0:05:16.919 pick up because we can't simply have a risk on 0:05:17.120 --> 0:05:18.800 rally from here. What we can for a while, but 0:05:18.839 --> 0:05:23.479 it would end badly because in an environment where the 0:05:23.480 --> 0:05:25.840 trade deals have done, the risk is off the table 0:05:25.960 --> 0:05:28.240 and we just run the market higher because we are 0:05:28.240 --> 0:05:31.679 at risk on um and we don't have the profit gains. 0:05:31.720 --> 0:05:35.560 Then then bond heels rights and that actually reduces the 0:05:35.839 --> 0:05:38.560 sort of fair value of the equity market, so that 0:05:39.400 --> 0:05:44.760 everything hangs on price increases and on productivity gains and 0:05:44.880 --> 0:05:47.440 on rekindling capital spending. So that's the key thing I 0:05:47.440 --> 0:05:50.120 would like. Do we start to see signs that we're 0:05:50.120 --> 0:05:52.800 going to see vigorous growth in capital spending because that 0:05:52.839 --> 0:05:55.040 was the most disappointing part of the economy When looking 0:05:55.040 --> 0:05:59.479 for part of the economy that did crater and does 0:05:59.600 --> 0:06:02.640 need to re accelerate its capex. We need to move 0:06:02.720 --> 0:06:05.960 to an economy which is more capital spending to support 0:06:06.040 --> 0:06:10.120 stronger productivity gains, to boost the economy. How much of John, 0:06:10.120 --> 0:06:12.080 do you think the take extent we've had a contraction 0:06:12.200 --> 0:06:15.720 or just a a pairing back of capital investment, How 0:06:15.800 --> 0:06:17.760 much of that is due to just the cycle or 0:06:17.800 --> 0:06:21.200 in any economy versus the uncertainty associated with all the 0:06:21.240 --> 0:06:23.880 trade issues. I think it's the latter. I don't just 0:06:23.960 --> 0:06:28.919 think it's trade. Look December, we had corporate tax reform. 0:06:29.120 --> 0:06:31.000 We had the corporate tax cut. The US was no 0:06:31.080 --> 0:06:35.920 longer uncompetitive from a tax perspective. We had a number 0:06:35.920 --> 0:06:37.960 of tax incentives in place, and we started to have 0:06:37.960 --> 0:06:41.279 a pickup in capital spending. And then in the middle 0:06:41.320 --> 0:06:44.720 of eighteen it just just stopped and we haven't had growth. 0:06:44.839 --> 0:06:49.400 The one area we've had growth in is an intellectual product. 0:06:49.720 --> 0:06:51.760 That has been the strong area of capital spending, but 0:06:51.800 --> 0:06:57.200 in terms of plant equipment buildings, it's been very very weak. 0:06:57.680 --> 0:07:01.279 Um so I you know, we're going to have a 0:07:01.320 --> 0:07:04.719 test trade on certainty is reduced. Are people not going 0:07:04.760 --> 0:07:07.080 to commit or are they going to say twenties an 0:07:07.080 --> 0:07:10.040 election year. Let's wait till after the election, and then 0:07:10.080 --> 0:07:15.000 we have another year of black capital spending. And I'm hopeful, 0:07:15.720 --> 0:07:17.720 but it's a very difficult thing to forecast. That we 0:07:17.760 --> 0:07:19.679 do start to see a pickup, but it's not there 0:07:20.400 --> 0:07:22.760 in the numbers yet. John writing, thank you so much 0:07:22.760 --> 0:07:25.040 for being with us in Happy New Year. Trying writing, 0:07:25.160 --> 0:07:28.160 chief Economic advisor to Breen Capital or do you plan 0:07:28.320 --> 0:07:31.440 on going to Times Square? Um? No, but Breen Capital's 0:07:31.440 --> 0:07:34.280 offices are at three Times Square? So does that mean 0:07:34.280 --> 0:07:37.200 you're going to be avoiding them or heading there? Um? Well, 0:07:38.280 --> 0:07:43.080 I decided not to have the opportunity to watch the 0:07:43.120 --> 0:07:47.120 ball drop, but I think I'm gonna stawn home. My 0:07:47.120 --> 0:07:50.200 mom's over from England. She's ninety and I think she 0:07:50.360 --> 0:07:54.120 deserves me to be there. Well, cheers, cheers to your mom, 0:07:54.320 --> 0:07:56.520 and happy New Year. What do you plan on doing, Paul, uh, 0:07:56.680 --> 0:07:59.240 staying close to home, which is not Time Square? Yeah, 0:07:59.280 --> 0:08:02.240 I know, I know. We've heard lots about the new 0:08:02.320 --> 0:08:18.720 Jersey cross ways right now. One of the more interesting 0:08:18.720 --> 0:08:20.560 stories when we woke up this morning is the story 0:08:20.600 --> 0:08:24.559 about Carlos Gone, the fallen automotive Titan. He's facing trial 0:08:24.680 --> 0:08:28.360 for financial crimes. He fled the Lebanon to escape what 0:08:28.400 --> 0:08:31.440 he called Japan's rigged justice system. To get the latest, 0:08:31.880 --> 0:08:34.959 we welcome Donna cra She is a reporter for Bloomberg 0:08:35.000 --> 0:08:37.720 News based in the Middle East. Donna, thanks so much 0:08:37.800 --> 0:08:40.600 for joining us. What do we know about Mr ghones 0:08:40.679 --> 0:08:45.880 whereabouts right now? Hi? So we know he is in 0:08:45.960 --> 0:08:49.280 the Lebanon. We don't know exactly where he is. Um. 0:08:49.280 --> 0:08:52.199 I went to his house in Beirut earlier in the day, 0:08:52.280 --> 0:08:53.880 like in the early hours of the morning when we 0:08:53.920 --> 0:08:56.920 heard the news, and um, there were no security and 0:08:56.960 --> 0:08:59.360 it wasn't clear if gold was at the house. Um 0:08:59.400 --> 0:09:01.560 some of the window or the windows were opened, some 0:09:01.640 --> 0:09:03.160 of them were closed, so it doesn't seem that he 0:09:03.240 --> 0:09:07.240 was inside or anything. Um, we know that. Also one 0:09:07.280 --> 0:09:10.640 of the Lebanese ministers said that he entered Lebanon legally 0:09:10.760 --> 0:09:13.920 through his French passports and a Lebanese I d um 0:09:14.080 --> 0:09:17.320 and he also said this minister said that he tried 0:09:17.520 --> 0:09:21.720 to convince Japanese officials to send him to Lebanon to 0:09:21.760 --> 0:09:24.680 be tried here, but you know, he wasn't very successful. 0:09:24.840 --> 0:09:26.760 So we know he's in Lebanon, but we don't know 0:09:26.800 --> 0:09:29.240 exactly where he's staying. And just to sort of set 0:09:29.280 --> 0:09:32.640 this up, so Carlos gone Uh said that he Uh 0:09:32.760 --> 0:09:36.200 is fleeing Japan's quote rigged justice system, that he was 0:09:36.240 --> 0:09:41.160 not fleeing justice but rather injustice, and he of course 0:09:41.679 --> 0:09:45.720 has been accused of financial misconduct. Meanwhile, there is a 0:09:45.840 --> 0:09:50.559 question Lebanon, where he did grow up and has citizenship. 0:09:50.880 --> 0:09:53.840 He was formerly the head of Nissan and Renault UH. 0:09:53.880 --> 0:09:56.880 There is a question about extradition and the fact that 0:09:56.920 --> 0:10:00.960 they cannot, that Japan cannot extradite him from Lebanon. What 0:10:01.080 --> 0:10:04.880 have the authorities in Lebanon set up to this point? Um, 0:10:05.000 --> 0:10:07.560 They have been a little bit tight lipped about this, 0:10:07.840 --> 0:10:11.680 but the Lebanese officials, ever since um Going was arrested, 0:10:11.720 --> 0:10:14.080 Lebanese officials have said that they will support him and 0:10:14.120 --> 0:10:17.800 they will extend as much help as UH as needed 0:10:17.920 --> 0:10:20.520 for foregone. As you know, Going is seen as a 0:10:20.600 --> 0:10:25.640 national hero here. Um. When he was first detained, billboards 0:10:25.720 --> 0:10:28.360 in support of him sprung up across the nation with 0:10:28.480 --> 0:10:31.280 his with his pictures everywhere. People see him as one 0:10:31.320 --> 0:10:34.040 of the immigrants that you know, made it big outside 0:10:34.080 --> 0:10:37.160 of Lebanon. So he's he's a national hero. And they've 0:10:37.200 --> 0:10:40.400 repeatedly said that they will support and help him, but 0:10:40.520 --> 0:10:43.680 they weren't very specific about how this support would materialize. 0:10:44.400 --> 0:10:48.240 Donna any sense of what Mr Going might do next? 0:10:49.920 --> 0:10:53.319 I mean we some said that he will hold a 0:10:53.400 --> 0:10:57.840 press conference, but did not specify when that will be. UM. 0:10:57.880 --> 0:11:01.280 Given that UM, his his word about are unknown still 0:11:01.400 --> 0:11:04.320 in Lebanon, it's hard to tell. UM. Some reports that 0:11:04.480 --> 0:11:08.680 said that he met the president upon arrival, but we 0:11:09.080 --> 0:11:12.959 later had some people denying this to us. So he 0:11:13.080 --> 0:11:16.640 hasn't seen anyone. We We talked to a friend of his, 0:11:16.679 --> 0:11:19.240 a longtime friend friend of his, earlier in the morning, 0:11:19.559 --> 0:11:23.199 and he said that he didn't know that Going had arrived, 0:11:23.240 --> 0:11:25.880 but that um, he was happy he was here with 0:11:25.920 --> 0:11:29.160 his family home for a new year. So just to 0:11:29.200 --> 0:11:32.760 sort of give some perspective. In news reports this morning, 0:11:32.760 --> 0:11:35.040 a lot of people were saying, uh, go and will 0:11:35.080 --> 0:11:38.120 probably never return to Japan because he would simply be 0:11:38.200 --> 0:11:41.400 re arrested if he were to do so. Given the 0:11:41.440 --> 0:11:44.120 fact that you actually went to his house in Beirut, 0:11:44.160 --> 0:11:46.360 can you give us a sense of what it's like. 0:11:46.480 --> 0:11:48.360 I mean, basically, is he living in the lap of 0:11:48.480 --> 0:11:54.240 luxury by moving to Beirut and never returning to Japan. Um. 0:11:54.400 --> 0:11:58.920 The house is in one of the capital's most posh areas. 0:11:59.000 --> 0:12:02.720 It's very known. UM it's like a light pink house 0:12:02.800 --> 0:12:06.640 to painting is light pink with light blue windows. It 0:12:06.679 --> 0:12:11.240 looks like an old house that's been recently renovated. Um, 0:12:11.320 --> 0:12:14.199 you know there are some small shops around. Everyone knows 0:12:14.320 --> 0:12:18.000 that's Scarletts Ghn's house. Um, if you just drive through 0:12:18.240 --> 0:12:21.600 the street, there are all these bally posh buildings around. 0:12:21.880 --> 0:12:24.880 So the area is really nice and um, everybody knows 0:12:24.920 --> 0:12:28.720 that that's Ghn's house. Danna, thanks so much, or Donna, 0:12:28.760 --> 0:12:31.079 thanks so much for joining us. We appreciate your your 0:12:31.080 --> 0:12:35.800 reporting from Beirut. Donna Bloomberg News reporting from Beirut about 0:12:35.840 --> 0:12:39.280 this really just amazing story. It's kind of a James 0:12:39.280 --> 0:12:42.800 Bond Jason Bourne type of situation, kind of escaping from 0:12:42.880 --> 0:12:48.239 Japan uh to return to Lebanon. Fairness, he didn't necessarily 0:12:48.280 --> 0:12:52.120 tunnel his way exactly. It's unclear. Yeah, it's unclear how 0:12:52.160 --> 0:12:54.920 he actually made the trip from Japan. I mean obviously 0:12:54.920 --> 0:12:56.920 on a private jet, but how that all came about, 0:12:57.400 --> 0:12:59.599 given that he was out on bail. I'm trying to 0:12:59.600 --> 0:13:03.320 get a too. Is he right? Is it injustice what 0:13:03.440 --> 0:13:05.199 Japan is doing to him? I mean, I don't think 0:13:05.920 --> 0:13:08.360 people think he is completely clean when it comes to 0:13:08.880 --> 0:13:12.680 financial malfeasance, but there's a question about whether the potential 0:13:12.679 --> 0:13:14.760 penalty and the way that the Japan is going about it. 0:13:14.760 --> 0:13:29.320 It has been fair. What a year to look back 0:13:29.400 --> 0:13:33.160 on for Yeah, and we were asking the question how 0:13:33.240 --> 0:13:36.920 long can the rally in both bonds that are considered 0:13:36.960 --> 0:13:40.959 safe and stocks continue And it seems like there is 0:13:41.000 --> 0:13:46.200 a profound inconsistency here. Julian Emmanuel just graced the door. 0:13:45.920 --> 0:13:49.080 The door. Tom Kane would say, VT I g chief 0:13:49.120 --> 0:13:52.199 equity and derivative strategist who has gotten it right with 0:13:52.320 --> 0:13:54.960 the stock rally for years. And you called me out. 0:13:55.040 --> 0:13:57.400 I remember what I was once talking about how cash 0:13:57.760 --> 0:14:00.840 was looking better, and you're like, you're crazy, you were right. 0:14:01.000 --> 0:14:04.800 I was wrong. Um, what do you think for next year? 0:14:04.960 --> 0:14:08.439 Is one of the acid class is going to emerge superior? 0:14:08.920 --> 0:14:11.520 But you still couldn't get Tom Keen to get out 0:14:11.520 --> 0:14:17.600 of his triple leverage, right, No, but occasionally he'll he'll 0:14:17.679 --> 0:14:21.359 jack it up to quadruple leverage if you feel really risky. 0:14:21.400 --> 0:14:24.600 So so when we look at next year, it's not 0:14:24.640 --> 0:14:27.720 a continuation of the same because this year was, you know, 0:14:28.120 --> 0:14:31.280 very dramatic. Obviously it was not looking great in January. 0:14:31.480 --> 0:14:33.960 It was difficult to stick to our guns. Our view 0:14:34.240 --> 0:14:36.440 was that the FED was going to help out. They 0:14:36.480 --> 0:14:39.480 helped out a lot. We also didn't see recession. We 0:14:39.560 --> 0:14:44.160 don't see a recession in the biggest difference coming into 0:14:44.240 --> 0:14:47.080 into this next year is we think the bond market 0:14:47.240 --> 0:14:51.640 really really did turn back in September, probably a very 0:14:51.720 --> 0:14:56.640 significant bottom in global yields, and in fact this is 0:14:56.680 --> 0:15:00.320 the point in the cycle where higher yields are likely 0:15:00.360 --> 0:15:03.920 to feed into more optimism with regard to equities. Certainly 0:15:03.960 --> 0:15:06.640 we saw that in the fourth quarter UM But for us, 0:15:06.960 --> 0:15:10.200 the the challenge, the interesting thing will be after ten 0:15:10.280 --> 0:15:13.480 years of a bull market that has been fought sort 0:15:13.520 --> 0:15:16.080 of tooth and nail. You've seen it in terms of 0:15:16.120 --> 0:15:18.720 the lack of flows into equities for the last five years, 0:15:19.080 --> 0:15:22.720 does the public finally get a little bit more interested 0:15:22.760 --> 0:15:26.480 in stocks and start committing funds. We think the answers yes, 0:15:26.720 --> 0:15:29.840 and we think that drives bond yields higher. So as 0:15:29.880 --> 0:15:32.400 we think about the market the performance in twenty nineteen, 0:15:32.760 --> 0:15:36.280 I would argue, more than most people were anticipating, is 0:15:36.320 --> 0:15:39.360 it primarily the Fed? Is that the primary thing in 0:15:39.440 --> 0:15:44.000 that investor should focus on. Well, Actually, the FED would 0:15:44.040 --> 0:15:47.160 prefer that you don't focus on them at all, and 0:15:47.240 --> 0:15:49.840 they've been successful. Actually, for the past few meetings, they've 0:15:49.880 --> 0:15:54.200 been incredibly boring and and J. Powe would love it 0:15:54.240 --> 0:15:56.800 to be that way for the entire rest of the year, 0:15:57.080 --> 0:15:59.640 which is why we also think that they were very, 0:15:59.720 --> 0:16:03.600 very forthright in getting front of of this turn of 0:16:03.600 --> 0:16:07.400 the year UH liquidity UM in the repo markets, given 0:16:07.440 --> 0:16:09.840 the spike we had in September, we think they've done 0:16:09.840 --> 0:16:12.080 a great job of managing it. We think they'll do 0:16:12.120 --> 0:16:14.880 a great job over the next several weeks. For us, 0:16:15.040 --> 0:16:19.280 it's very much um can confidence, which is turned, can 0:16:19.320 --> 0:16:22.480 the yield curve continue to steep in, which props confidence? 0:16:22.920 --> 0:16:27.040 And is their fear of valuations, which we think, you know, 0:16:27.160 --> 0:16:30.720 really they're expensive slightly but not overly. So you said 0:16:30.760 --> 0:16:33.880 something that piques my interest dramatically, which is the idea 0:16:33.960 --> 0:16:36.320 that treasure yields can rise and that that will be 0:16:36.440 --> 0:16:39.880 looked at is a good thing for stocks. That has 0:16:40.000 --> 0:16:42.720 not been the case for a while, or there is 0:16:42.760 --> 0:16:46.120 a threshold for how high treasure yields can go before 0:16:46.160 --> 0:16:50.200 it's considered a bad thing when it comes to valuing equities. 0:16:50.480 --> 0:16:53.360 What's that tipping point? Well, so if you look at 0:16:53.360 --> 0:16:56.560 the last several years, the tipping point had had been 0:16:57.280 --> 0:17:00.880 ten year yields in the US going over three percent. Obviously, 0:17:00.920 --> 0:17:03.880 we're a very long way away from that. UM. We 0:17:03.960 --> 0:17:07.080 happen to have a higher yield forecast than most. We're 0:17:07.119 --> 0:17:10.800 looking for two point three nine right now, right right, 0:17:10.880 --> 0:17:14.360 which if you think about it, isn't terribly aggressive if 0:17:14.400 --> 0:17:18.439 we're if in in into an election year and you 0:17:18.440 --> 0:17:22.520 think about politicians being incentivized to create upside risk to 0:17:22.640 --> 0:17:25.880 economic performance, which at you know, sort of one eight 0:17:25.960 --> 0:17:29.440 one nine is a rather subdued number UM for US. 0:17:29.640 --> 0:17:33.320 The tipping point in terms of where bonds become problematic 0:17:34.119 --> 0:17:37.199 is quite a ways a way in our view, likely 0:17:37.280 --> 0:17:39.639 north of two and a half percent UM, and that 0:17:39.680 --> 0:17:44.560 would require a material re emergence of inflation, which we think, 0:17:44.840 --> 0:17:47.119 you know, we'll sort of peek its head through, but 0:17:47.280 --> 0:17:51.400 not become problematic. Julian, you mentioned earlier evaluation. I think 0:17:51.440 --> 0:17:55.400 about twenty nineteen again, a percent move up in SMP 0:17:56.119 --> 0:18:00.760 with little to no earnings growth in where are invaluation 0:18:00.920 --> 0:18:03.919 just feels like the market should be at the higher 0:18:04.200 --> 0:18:06.720 higher end and I should be concerned about valuation well 0:18:07.080 --> 0:18:09.640 on metrics such as price to sell. As you are 0:18:09.680 --> 0:18:12.240 at the higher end, we sort of tend to keep 0:18:12.240 --> 0:18:15.560 it simple. Um, it's obviously worked in terms of the 0:18:15.600 --> 0:18:19.960 story on on Pe. You really are only at the 0:18:20.040 --> 0:18:23.680 midpoint slightly above the range of the last thirty years. 0:18:24.000 --> 0:18:27.359 And if if our earnings estimates hundred and seventy five 0:18:27.800 --> 0:18:32.800 for twenty are realized, um, and that growth rate slightly 0:18:32.880 --> 0:18:36.280 under seven percent is very consistent with an economy chugging 0:18:36.320 --> 0:18:41.080 along and margins not necessarily being pressured anymore. Um, thirty 0:18:41.119 --> 0:18:44.359 four fifty are your end target basically gets you around 0:18:44.400 --> 0:18:48.639 nineteen points six times, which is perfectly reasonable. What about tech, 0:18:49.080 --> 0:18:51.119 big tech? And how much longer I can kind of 0:18:51.680 --> 0:18:54.240 drive the gains that we're seeing in the US. It 0:18:54.359 --> 0:18:57.360 certainly has been quite a month for tech, hasn't it. Yes, 0:18:57.440 --> 0:19:01.320 it has I think for certain box uh in in 0:19:01.400 --> 0:19:04.159 the fan group, it's been quite a decade in the 0:19:04.600 --> 0:19:07.000 course of one year along point. Yeah, well, I know, 0:19:07.119 --> 0:19:12.480 I mean, like, is fang really appropriate here? Facebook, Apple, Amazon, Netflix, 0:19:13.119 --> 0:19:17.080 and Google? Shouldn't it be like Microsoft Oracle? Well we 0:19:17.200 --> 0:19:21.400 can you know acronym them all day, fam G and 0:19:21.440 --> 0:19:26.439 so on and so forth. But uh, look, the long 0:19:26.560 --> 0:19:31.520 run drivers of growth in those names is absolutely intact, 0:19:32.160 --> 0:19:35.600 is likely to be intact even if the government uh 0:19:36.240 --> 0:19:40.760 really gets more intense coming into an election year in 0:19:40.880 --> 0:19:45.480 terms of regulatory scrutiny, data privacy issues. The long term 0:19:45.560 --> 0:19:49.119 story is intact. That keeps us neutral um in. In 0:19:49.400 --> 0:19:52.920 the medium term, however, what we would say is that 0:19:53.000 --> 0:19:55.879 if we're right in our view that you have a 0:19:56.040 --> 0:19:59.800 shift out of bonds and into stocks led by more 0:20:00.000 --> 0:20:03.000 public interest, the public will end up being a buyer 0:20:03.040 --> 0:20:07.080 of technology. The public is comfortable with technology, understands it, 0:20:07.200 --> 0:20:09.240 and is likely to be a buyer. Lisa is also 0:20:09.280 --> 0:20:12.399 comfortable with technology. Doubling down, I'm more valuation sensitive. Do 0:20:12.520 --> 0:20:18.560 I dip my toe in? Yes? You are okay? In energy? Um, 0:20:18.760 --> 0:20:21.119 you know some of the sectors that maybe healthcare, that 0:20:21.160 --> 0:20:23.879 have lagged and might suggest kind of we have a 0:20:23.920 --> 0:20:27.359 valuation call here. What we do think it's valid to 0:20:27.400 --> 0:20:30.480 look at at some of those laggards. Um again going 0:20:30.560 --> 0:20:34.840 back to this psychological turning point in confidence in bond 0:20:34.920 --> 0:20:39.560 yields sort of triggering uh. You know this this potential 0:20:39.960 --> 0:20:42.760 move towards more value and and and when you look 0:20:42.800 --> 0:20:46.719 at it again, Look, we're very sympathetic to the idea 0:20:46.800 --> 0:20:49.679 that over the long term UH, the move towards E 0:20:49.840 --> 0:20:53.320 S G investing and move towards a uh you know, 0:20:53.640 --> 0:20:58.320 the green initiative is likely to continue to pressure energy 0:20:58.359 --> 0:21:01.720 share ownership. But again end over the last several years, 0:21:01.920 --> 0:21:04.480 nothing moves in a straight line, and we think it's 0:21:04.520 --> 0:21:07.399 basically time that people are going to look at an 0:21:07.480 --> 0:21:11.840 area where you know, it's you're under five percent of 0:21:11.840 --> 0:21:14.520 the weight in the S and P five all right, 0:21:15.160 --> 0:21:18.359 what could go wrong that would make you inaccurate in 0:21:18.400 --> 0:21:22.320 your forecast that keeps you up at night. To us, 0:21:22.520 --> 0:21:26.800 the lynchpin of of the you know, particularly late cycle 0:21:27.600 --> 0:21:32.520 is confidence. It was very important that not only consumer confidence, 0:21:32.560 --> 0:21:36.320 which is utmost because I think we'd all acknowledge that 0:21:36.400 --> 0:21:39.440 the consumer has been the driving force of the last 0:21:39.520 --> 0:21:41.840 number of years. We do not expect that to change. 0:21:42.040 --> 0:21:44.840 But importantly, after a year and a half of sort 0:21:44.880 --> 0:21:47.359 of you know, being in the trenches on the trade war, 0:21:47.800 --> 0:21:52.359 CEO confidence turned um over this last quarter as well. 0:21:52.600 --> 0:21:56.600 To us, confidence needs to keep continuing to move forward 0:21:56.920 --> 0:22:01.359 if there are geopolitical upsets, if they're our domestic US 0:22:01.440 --> 0:22:05.359 political upsets, and certainly the risk it does exist for 0:22:05.359 --> 0:22:08.960 for both of those um, that's you know, you look 0:22:09.000 --> 0:22:12.359 back at this time last year and the government shut 0:22:12.400 --> 0:22:15.040 down at the same time you're fed was hiking rates 0:22:15.240 --> 0:22:18.560 at the same time the markets were cratering and confidence 0:22:18.600 --> 0:22:21.320 took a hit. We you know, we don't want to 0:22:21.359 --> 0:22:24.280 see that happen again, not a do we. Julian Emmanuel B. 0:22:24.400 --> 0:22:26.840 T i G, Chief Equity and Derivative Strategy, Thanks so 0:22:26.920 --> 0:22:29.720 much for joining us coming here in our Bloomberg Interactive 0:22:29.880 --> 0:22:46.879 Broker studio. Right now, Paul has gone to the corner 0:22:46.920 --> 0:22:51.479 and is practicing his lunges ahead of going skiing, because 0:22:51.600 --> 0:22:53.840 that is what he is interested in, rather than talking 0:22:53.880 --> 0:22:56.560 about the REP market, which I've got to say, is 0:22:56.600 --> 0:22:59.080 it really interesting to me? In heading into your end? 0:22:59.119 --> 0:23:02.760 It was supposed to be potentially volatile, the sort of 0:23:02.840 --> 0:23:05.920 storm that few people were expecting. The storm turned out 0:23:06.080 --> 0:23:08.320 not to be. At least there is a storm in 0:23:08.359 --> 0:23:10.800 the Midwest that's heading toward these but it's not in 0:23:10.840 --> 0:23:13.480 the REPO market. Alex Harris has been covering this all 0:23:13.720 --> 0:23:16.440 year for us super well. She was talking about how 0:23:16.480 --> 0:23:19.720 there are potential nodes of contagion. Yesterday here she is. 0:23:19.760 --> 0:23:23.520 She comes into the office and she says, nothing's happening 0:23:24.160 --> 0:23:26.760 now we know. We gotta looked at each other and said, oh, 0:23:26.840 --> 0:23:30.520 things look relatively calm. You know, the rates sort of normalized. 0:23:30.560 --> 0:23:33.480 It's bouncing around a little bit, but well within the 0:23:33.520 --> 0:23:35.560 target range that you know the FED is laid out 0:23:35.600 --> 0:23:39.200 for short term rates. So I think everyone's feeling like, Okay, 0:23:39.520 --> 0:23:42.040 we're here, we can close the chapter on your end. 0:23:42.320 --> 0:23:45.120 Let's turn the calendar to and a whole new set 0:23:45.160 --> 0:23:48.240 of problems for the market. And mainly it's if you're 0:23:48.240 --> 0:23:51.280 the Federal Reserve, how do you extract yourself from the 0:23:51.320 --> 0:23:53.840 repo market? Because I think at the end of the day, 0:23:54.240 --> 0:23:56.840 they don't want to have this big of a footprint. 0:23:56.960 --> 0:23:58.960