WEBVTT - These Were The Most Important Stories for Traders In 2018 0:00:10.960 --> 0:00:14.800 Hello, and welcome to another episode of the Odd Lots podcast. 0:00:14.920 --> 0:00:20.280 I'm Joe Wisenthald. Tracy Alloway is out this week unfortunately, 0:00:21.000 --> 0:00:25.000 but with me in the studio here for today's episode, 0:00:25.280 --> 0:00:30.000 I have Bloomberg macro strategist Cameron Christ and Bloomberg Cross 0:00:30.040 --> 0:00:32.760 Asset reporter Luke Kawa, and I'm very excited to talk 0:00:32.760 --> 0:00:35.479 to both of them because we are going to do 0:00:35.640 --> 0:00:39.040 our year in review of markets, or basically just talk 0:00:39.120 --> 0:00:42.320 about what the heck happened in markets this year, because 0:00:42.360 --> 0:00:45.080 I think it was one of the most interesting times 0:00:45.240 --> 0:00:49.440 for markets across many asset classes that we've had in 0:00:49.600 --> 0:00:54.279 several years, maybe most interesting since or the financial crisis, 0:00:54.360 --> 0:00:58.880 or maybe at least uh And I think a lot 0:00:58.920 --> 0:01:01.720 of people have questions about what's going on, so hopefully 0:01:01.800 --> 0:01:05.199 we will try to answer them. So Cameron and Luke, 0:01:05.240 --> 0:01:09.280 thank you very much for joining us. So it's always 0:01:09.319 --> 0:01:15.760 tough to disentangle reasons for market moves, and Cameron, I 0:01:15.800 --> 0:01:17.920 think you're one of the most strident and sort of 0:01:17.920 --> 0:01:21.880 pushing back against any attempt to do that at all. Nonetheless, 0:01:22.880 --> 0:01:27.560 this year was characterized by a very sharp turn starting 0:01:27.560 --> 0:01:30.560 in early October, where we saw some major winners just 0:01:30.600 --> 0:01:34.040 completely fall out of bed text docs. US equities which 0:01:34.040 --> 0:01:36.720 had been doing pretty well up until them, just started 0:01:36.760 --> 0:01:42.240 getting relentlessly destroyed. What happened, well, I think you need 0:01:42.280 --> 0:01:45.080 to look actually back to February, because we had a 0:01:45.160 --> 0:01:50.360 very similar phenomenon in February, UH, and the genesis was 0:01:50.400 --> 0:01:53.800 broadly similar, I think in both instances where you had 0:01:54.320 --> 0:01:57.280 a performance of very good equity market performance that was 0:01:57.320 --> 0:02:02.440 punctuated with a sharp rise in market interest rates, say 0:02:02.440 --> 0:02:06.200 the tenure yield, and at the same time, inflammatory rhetoric 0:02:06.840 --> 0:02:11.359 from the US president vsa V trading relationships with China, 0:02:11.440 --> 0:02:14.760 and that is kind of a potent and lethal cocktail 0:02:15.280 --> 0:02:18.160 for risky assets. And you had a market that was 0:02:18.280 --> 0:02:21.720 out over at skis and if you you might not 0:02:21.760 --> 0:02:23.560 be all neither one of you are probably old enough 0:02:23.600 --> 0:02:26.280 to remember the old wild WARLD wide world of sports 0:02:26.400 --> 0:02:30.640 intro where there was a ski jumper. Remember the thrill 0:02:30.680 --> 0:02:33.640 of victory in January and over the summer, and then 0:02:33.680 --> 0:02:37.080 the agony of defeat in sort of February and and 0:02:37.120 --> 0:02:40.880 then October thenceforth. And so what people try to say, Oh, 0:02:40.960 --> 0:02:45.679 is it the Fed? Is it UH trade? Basically you 0:02:45.760 --> 0:02:47.880 can rely it's I think it's a combination of of 0:02:47.919 --> 0:02:49.600 a number of things. I mean, we need to take 0:02:49.600 --> 0:02:53.320 a step back and remember that the FED is in 0:02:53.400 --> 0:02:56.800 the midst of a tightening cycle. Montary policy has gone 0:02:56.840 --> 0:03:01.840 from unquestionably accommodative to arguably neutral. We had a similar 0:03:01.840 --> 0:03:06.920 phenomenon obviously two thousand five. In both of those years 0:03:07.320 --> 0:03:10.400 FED tightening years, the multiple of the SMP five hundred 0:03:10.480 --> 0:03:13.080 fell pretty sharply, and this was just, I think, to 0:03:13.160 --> 0:03:16.080 some extent, the latest iteration of that phenomenon. Luke, come 0:03:16.120 --> 0:03:17.680 in here when we when we write the story of 0:03:17.680 --> 0:03:19.400 this year, the story of this year will be the 0:03:19.720 --> 0:03:22.360 huge blow up of the short fall trade, of the 0:03:22.400 --> 0:03:26.000 trade that essentially you could make your living easily from 0:03:26.360 --> 0:03:32.520 early through January. Early in the year, we had pretty 0:03:32.600 --> 0:03:36.680 much every equity and overbought territory, and you know, things 0:03:36.720 --> 0:03:40.440 were great. We blew past everyone's uh, everyone's und target 0:03:40.520 --> 0:03:42.840 or at least like a quarter of analyst targets within 0:03:42.880 --> 0:03:46.160 the first five sessions, and then it all blew up. 0:03:46.240 --> 0:03:48.360 And then at two other points this year, two other 0:03:48.480 --> 0:03:51.840 large market moves that you can attribute to really the 0:03:52.400 --> 0:03:54.800 perils that can befall you when you sell options when 0:03:54.800 --> 0:03:58.040 you sell volatility. The drastic fall in crude and the 0:03:58.120 --> 0:04:01.520 drastic rise in natural gas that way douta options seller 0:04:01.640 --> 0:04:04.480 dot com that I think. I think this year is 0:04:04.520 --> 0:04:07.640 a year we learned how dangerous options can be. Or 0:04:07.680 --> 0:04:10.400 if you know, people who needed a reminder of that 0:04:10.480 --> 0:04:12.880 lesson over the past couple of years, this is where 0:04:12.920 --> 0:04:15.560 you you really learned it, because there's no there's nothing 0:04:15.600 --> 0:04:19.080 like you know, your February uh. And then recently what 0:04:19.120 --> 0:04:21.920 we've had included natural guests, And I think that speaks 0:04:21.960 --> 0:04:25.080 to a theme that old grumpy people like me like 0:04:25.240 --> 0:04:28.719 to talk about, which is, as financial markets have become 0:04:28.800 --> 0:04:31.479 younger and younger, you've sort of win out out people 0:04:31.520 --> 0:04:35.120 who have seen previous rate hike cycles and know what 0:04:35.279 --> 0:04:37.680 a rate hike cycle looks like, and typically it is 0:04:37.720 --> 0:04:42.160 associated with higher volatility. So it's the kids, it's get 0:04:42.200 --> 0:04:46.119 the get off my lawn and quit selling options kids. 0:04:46.360 --> 0:04:49.160 The Canadian metalinnials have already traded through a bear market though, 0:04:49.240 --> 0:04:52.560 so that narrative, I'd like, how much is this sort 0:04:52.560 --> 0:04:59.360 of death of the short vall trade connected to changing 0:04:59.640 --> 0:05:04.240 FED policy and a less accommodative a tightening cycle. Basically, 0:05:05.080 --> 0:05:08.440 I find it I find it less so just uh, 0:05:08.880 --> 0:05:12.640 given how you know, the trade did kind of blow 0:05:12.720 --> 0:05:16.000 up spectacularly and we went on to then eat price 0:05:16.080 --> 0:05:19.000 in even more, you know, FED tightening through through your 0:05:19.080 --> 0:05:21.840 dollars for calendar nineteen than we had at the time 0:05:21.880 --> 0:05:24.280 of and that the fact that you know, if we 0:05:24.279 --> 0:05:27.039 were thinking this is you know, a rates fall transmission, 0:05:27.200 --> 0:05:30.040 we still haven't gotten rates fall. So I'm I'm wondering 0:05:30.080 --> 0:05:32.760 the extent to which this will be a twenty nineteen 0:05:32.800 --> 0:05:35.920 story in which rates wall really amplifies the equity vaul, 0:05:35.920 --> 0:05:37.800 because I'm not sure that's happened yet this year. I 0:05:37.800 --> 0:05:39.960 think we also have to look at we're so used 0:05:40.000 --> 0:05:43.839 to relying on Montrey policies are sort of signals. Let's 0:05:43.839 --> 0:05:46.400 not forget the importance of fiscal policy. Because we had 0:05:46.400 --> 0:05:49.320 the big tax cut past at the end of last year. 0:05:49.839 --> 0:05:52.800 We're having a blowout in the fiscal deficit of the 0:05:52.880 --> 0:05:56.360 United States this year. What that's me That's meant uh 0:05:56.560 --> 0:05:59.279 much higher issuance both at the long end of the 0:05:59.279 --> 0:06:02.880 curve and short end, and that short end issues tabillar 0:06:02.880 --> 0:06:05.640 is showing to squeeze liquidity to a degree, and at 0:06:05.680 --> 0:06:09.280 the same time, the FED is engaging in what's popularly 0:06:09.320 --> 0:06:13.040 known as quantitative tightening um, which I don't think necessarily 0:06:13.080 --> 0:06:16.280 has a direct impact on say, equity prices, but it 0:06:16.320 --> 0:06:21.360 does make short term liquidity conditions less um ample less 0:06:21.400 --> 0:06:23.800 ample than they have been over the over the last 0:06:23.839 --> 0:06:28.240 few years. So we've kind of had UH. We started 0:06:28.240 --> 0:06:31.120 the year with markets really excited about the earnings potential 0:06:31.600 --> 0:06:34.240 created by the tax cut, and the rest of the 0:06:34.320 --> 0:06:36.800 year to some extent, has been about, if you will, 0:06:36.839 --> 0:06:40.520 the negative externalities of the tax cut in terms of 0:06:40.880 --> 0:06:43.479 the deficit and what that's meant for fixed income markets. 0:06:43.800 --> 0:06:46.800 One of the things you said in your first answer 0:06:47.080 --> 0:06:52.080 is that what characterized recent volatility starting in October, and 0:06:52.120 --> 0:06:55.560 what characterized the volatility spike we saw in February was 0:06:55.600 --> 0:07:00.200 the fact that, unlike in previous UH sell offs in 0:07:00.200 --> 0:07:03.480 the post crisis era, we saw people selling treasuries at 0:07:03.520 --> 0:07:07.000 the same time, so that if you have diversified portfolio, 0:07:07.480 --> 0:07:11.200 some stocks, some treasuries, you were losing on both sides. 0:07:11.200 --> 0:07:15.240 You weren't getting that natural cushion. What changed there? Why 0:07:15.360 --> 0:07:19.240 hasn't this year up until I guess maybe sort of December, 0:07:19.360 --> 0:07:24.760 Why hasn't it been the case that when equity volatility spiked, 0:07:25.000 --> 0:07:27.840 people went to treasuries as a safe haven. Well, I 0:07:27.840 --> 0:07:30.400 think to some extent this issuance dynamic and the and 0:07:30.520 --> 0:07:34.200 the and the deficit um played a part. You know, 0:07:34.280 --> 0:07:38.760 you also have a new FED chair chairman in place 0:07:39.120 --> 0:07:42.720 this year who essentially gotten the seat and came across 0:07:42.720 --> 0:07:46.200 as more hawkish as his last couple of predecessors. Yes, 0:07:46.600 --> 0:07:50.000 the yelling FED did hike rates three times last year 0:07:50.000 --> 0:07:53.360 and initiate the balance sheet rolled down process. But I 0:07:53.400 --> 0:07:57.160 think people had this underlying belief that listen, yeah, we 0:07:57.200 --> 0:07:59.760 know that if the stock market rolls over, you know, 0:08:00.040 --> 0:08:02.840 Janet's got your back. And there hasn't been the sense 0:08:02.880 --> 0:08:06.640 I think that that the Powell Fed has got your 0:08:06.640 --> 0:08:12.160 back until very recently. But Luke, even with the market volatility, 0:08:12.400 --> 0:08:15.400 the US ECO data looks good. And of course ultimately 0:08:15.440 --> 0:08:20.120 the FEDS, the FED has a dual mandate. It's uh 0:08:20.200 --> 0:08:23.040 employment and inflation, it's not the stock market. And on 0:08:23.200 --> 0:08:26.480 its dual mandate, the thing it's sufficially charged to do. 0:08:27.120 --> 0:08:30.240 Things are still looking okay, yeah, right, like we've got well, 0:08:30.280 --> 0:08:33.160 we've been at full employment since you know, you can 0:08:33.240 --> 0:08:35.440 rewind the clocks on. People think we've been there for 0:08:35.440 --> 0:08:37.839 for three years. We still keep managing to print well 0:08:37.840 --> 0:08:41.520 over a hundred k inflation, you know, around two percent 0:08:41.960 --> 0:08:45.040 by by most preferred measures. And I think this is 0:08:45.080 --> 0:08:47.200 something that you know, you and I have talked a 0:08:47.200 --> 0:08:51.320 lot about. This year is also characterized that macro economic vall. 0:08:51.960 --> 0:08:54.160 You know, throw out your kind of your Turkey shocks 0:08:54.600 --> 0:08:57.440 and you're outside U S stocks. Uh. The macro economic 0:08:57.520 --> 0:09:02.520 volatility the U. S economy has not been large that whatsoever. However, 0:09:02.600 --> 0:09:05.120 you know, it seems to speak to more changes in 0:09:05.200 --> 0:09:08.400 market structure for why we're able to get these uh, 0:09:08.480 --> 0:09:11.240 these moves that do make us think that something is 0:09:11.280 --> 0:09:16.920 going I mostly the I would bow to cam here 0:09:16.960 --> 0:09:20.800 and the withdrawal of liquidity UH post crisis regulation that 0:09:20.840 --> 0:09:24.439 are making it essentially market making is is less of 0:09:24.440 --> 0:09:28.160 a thing. Bank balance sheets are not really extended to 0:09:28.160 --> 0:09:31.280 to the same extent, and and the rise of passive money. 0:09:31.320 --> 0:09:34.280 All of this allows you to, I think, have sharper 0:09:34.360 --> 0:09:37.360 market moves. And the thing I wonder is, if you're 0:09:37.400 --> 0:09:41.480 an active manager in this environment, is generating alpha more 0:09:41.520 --> 0:09:44.160 a matter of when you get in than what you buy? 0:09:44.200 --> 0:09:46.560 Just because of how the liquid markets have been and 0:09:46.559 --> 0:09:49.040 how sharp some of the moves we've gotten our camera 0:09:49.080 --> 0:09:52.439 and your thoughts on that. Yeah, I think an underappreciated 0:09:53.000 --> 0:09:56.120 UM factor, and I think it's underappreciated because it's difficult 0:09:56.160 --> 0:10:00.400 to quantify. Is the increased prominence of quantitative stres rategies 0:10:00.440 --> 0:10:03.800 as well, whether it's vault targeting strategies, which isn't quite 0:10:03.840 --> 0:10:07.800 the same as as the vaal selling stuff, um, but 0:10:07.880 --> 0:10:10.240 it's it's kind of the sort of the red headed 0:10:10.280 --> 0:10:15.800 cousin uh if you will, where there's this requirement when 0:10:16.280 --> 0:10:19.520 the stock market declines for for these types of strategies 0:10:19.760 --> 0:10:23.720 to to sell futures essentially to reduce its portfolio risk 0:10:23.920 --> 0:10:27.000 and then the risk parity stuff, which is a a 0:10:27.040 --> 0:10:30.480 common sort of bogeyman in the in the closet. And 0:10:30.559 --> 0:10:33.560 going back to your your previous question about stocks and 0:10:33.640 --> 0:10:36.400 bonds and and sort of following in tandem, they are 0:10:36.640 --> 0:10:40.880 a popular um cause for that because there they tend 0:10:40.920 --> 0:10:43.160 to be their own stocks and they own generally own 0:10:43.160 --> 0:10:46.200 a lot of bonds, and when bonds start to fall, 0:10:46.320 --> 0:10:50.319 then they have to de risk everything and they sell everything. Um. 0:10:50.400 --> 0:10:53.480 Who knows how much of it is down to these guys, 0:10:53.520 --> 0:10:56.400 but they're they're they're certainly they weren't there twenty years 0:10:56.400 --> 0:10:58.959 ago and they are there now, So it is at 0:10:59.000 --> 0:11:02.400 least one change in the market structure. I'm picturing you 0:11:02.520 --> 0:11:05.800 tweeting that and Cliff Asness say your tweet and him 0:11:05.840 --> 0:11:10.000 freaking out about efforts to blame the computers. Well, funny enough, 0:11:10.040 --> 0:11:12.600 you mentioned Cliff as nous I noticed that the a 0:11:12.720 --> 0:11:16.800 q are risk parody is Mutual Fund. They're changing their name. 0:11:17.120 --> 0:11:19.640 They're just branding, you know, They're they're removing the risk 0:11:19.640 --> 0:11:22.280 parody name. So I mean that maybe that's ringing the 0:11:22.280 --> 0:11:25.679 bell for the bottom of this phenomenon. Like, I don't know, 0:11:25.960 --> 0:11:28.080 can we talk about the the year in trading and 0:11:28.120 --> 0:11:31.559 the year in markets without talking about the effect that 0:11:31.880 --> 0:11:34.760 just the trade issue has had, both state side and 0:11:34.840 --> 0:11:38.840 on the broader outlook Like I you can take it. 0:11:38.960 --> 0:11:40.920 You can take your pick whether it really started in 0:11:41.240 --> 0:11:44.800 March with steal or really escalated later in May. But 0:11:44.880 --> 0:11:47.560 it seems as though everyone was calling for to be 0:11:47.600 --> 0:11:50.520 a year of convergence and the rise of the trade 0:11:50.559 --> 0:11:54.520 issue completely blew that up. Yeah, I mean, it's been 0:11:54.800 --> 0:11:58.720 one of the the stories of the year. And what 0:11:58.880 --> 0:12:03.079 markets hate above everything else is uncertainty, right, And that's 0:12:03.080 --> 0:12:06.440 what we've had with this this trade story. What you know, 0:12:06.600 --> 0:12:09.440 will it be resolved? When will it be resolved? Will 0:12:09.480 --> 0:12:13.120 there be will the tariffs that Trump has announced be enacted? 0:12:13.200 --> 0:12:16.680 Will there be new tariffs announced and then enacted? Will 0:12:16.760 --> 0:12:20.719 we have a deal. If so, what will it look like? Oh? 0:12:20.880 --> 0:12:24.160 Who are we going to arrest next? Uh, It's it's 0:12:24.200 --> 0:12:26.000 become very very difficult. I think you look at the 0:12:26.120 --> 0:12:29.160 UK and the Brexit fiasco, which we haven't talked about 0:12:29.240 --> 0:12:33.800 yet as another example of uncertainty, and look at how 0:12:33.920 --> 0:12:39.240 that's impacted British markets, both stock market where the multiple 0:12:39.679 --> 0:12:42.439 of the foot Sea has gone down by this year, 0:12:42.440 --> 0:12:43.760 which is a heck of a lot more than most 0:12:43.800 --> 0:12:47.040 other markets, and then obviously the pound which has been 0:12:47.240 --> 0:12:49.800 well pounded. And an interesting story with trade is that 0:12:50.280 --> 0:12:53.960 as the issue has been raised mainly, you saw whenever 0:12:53.960 --> 0:12:55.559 it was having an effect on markets, it would have 0:12:55.600 --> 0:12:58.120 an effect on a sector basis. Within the US, you know, 0:12:58.320 --> 0:13:00.240 you sell your industrial as you try and high out 0:13:00.240 --> 0:13:03.200 in small caps. But then on the global level it 0:13:03.280 --> 0:13:06.480 was happening more on the index level, AK sell everything, 0:13:06.520 --> 0:13:11.360 but US China especially underperforms. Yet from the beginning, we've had, 0:13:11.440 --> 0:13:14.000 you know, this inkling or this idea that we were 0:13:14.040 --> 0:13:16.600 going to move into tech sometime, that this was going 0:13:16.640 --> 0:13:19.000 to be about tech, that this was eventually going to 0:13:19.000 --> 0:13:22.520 become about i P supply change in SEMIS. And one 0:13:22.559 --> 0:13:25.560 thing we've noticed since the recent trade truths, if you 0:13:25.600 --> 0:13:28.000 want to call it, is that you're starting to see 0:13:28.080 --> 0:13:30.960 more effects of trade play out on the index level 0:13:31.000 --> 0:13:34.360 in the US. So that's one story that has been 0:13:34.400 --> 0:13:36.560 story that is changing as we head into the tail 0:13:36.640 --> 0:13:48.600 end of the year. I'm glad you brought up Brexit 0:13:48.800 --> 0:13:54.000 and the international situation, because even while US stocks we're 0:13:54.040 --> 0:13:58.480 doing fairly well up until early October, the international scene 0:13:58.520 --> 0:14:01.880 was pretty ugly, particularly emerging markets this year. And I 0:14:01.960 --> 0:14:04.600 think it's pretty remarkable because I think even as recently 0:14:04.640 --> 0:14:08.680 as January, we were still talking about global synchronized growth. 0:14:08.840 --> 0:14:10.880 I don't remember when we stopped, but I think it 0:14:10.960 --> 0:14:13.679 was earlier this year, which just seems like I can't 0:14:13.720 --> 0:14:17.240 believe that it was that global synchronized growth was a 0:14:17.240 --> 0:14:20.880 phrase that people It was odd people's tongues because it 0:14:20.920 --> 0:14:23.080 just seems like such ancient history. Yeah, I remember going 0:14:23.120 --> 0:14:26.359 on your because on your television show in late January 0:14:26.920 --> 0:14:31.480 and the the eight shares that the HINT Enterprise Index 0:14:31.600 --> 0:14:33.880 hadn't gone down in almost a month, like it literally 0:14:33.920 --> 0:14:36.840 had gone up every single day. Now, obviously that sort 0:14:36.840 --> 0:14:40.480 of thing can't persist forever, and like all great parties, 0:14:40.880 --> 0:14:43.360 you know, the hangover is usually pretty pretty vicious, which 0:14:43.400 --> 0:14:47.120 it's been this time around. Yeah, it's interesting because I 0:14:47.160 --> 0:14:51.240 think most people would focus on the trade stuff as 0:14:51.320 --> 0:14:55.520 being a reason for this um this under performance of 0:14:55.560 --> 0:14:58.240 emerging markets, and that to some extent that's true, But 0:14:58.280 --> 0:15:00.680 there's a couple of other issues as well. Why is 0:15:00.680 --> 0:15:04.880 the lagged effects of China's own de leveraging process, which 0:15:04.920 --> 0:15:08.720 began last year, which is in the absence of any 0:15:08.840 --> 0:15:11.360 trade tension with the US, was always going to slow 0:15:11.600 --> 0:15:15.400 China's economy this year, and that obviously ripples through the 0:15:15.440 --> 0:15:19.160 rest of the world, particularly emerging world who sell to China. Uh. 0:15:19.240 --> 0:15:23.840 And to the hangover of dollar borrowing, which Luke alluded 0:15:23.880 --> 0:15:26.480 to a little bit. UH, the dollar dollar borrowing over 0:15:26.480 --> 0:15:30.120 the last sort of six seven years by emerging market 0:15:30.120 --> 0:15:36.160 countries with large external vulnerabilities, the Turkeys, the Argentina's, you know, 0:15:36.200 --> 0:15:39.440 the Indonesia's of the world, and as liquidity is withdrawn 0:15:39.480 --> 0:15:42.720 from them. I think that ripples through the system as well. Yeah, 0:15:42.720 --> 0:15:44.440 it was. It was kind of interesting in the early 0:15:44.560 --> 0:15:48.120 stages of trade heating up. Uh. You know, everyone expects 0:15:48.120 --> 0:15:50.400 the textbook tells you that, you know, this should have 0:15:50.440 --> 0:15:54.120 been dollar positive. It wasn't quite in the early stages. 0:15:54.200 --> 0:15:56.400 The figuring out the dollar this year has just been 0:15:56.520 --> 0:15:58.280 you know, kind of a headache. At the beginning of 0:15:58.280 --> 0:16:00.240 the year, we were you know, it was all about 0:16:00.280 --> 0:16:02.520 twin deficits going to drive the dollar in a weaken 0:16:02.560 --> 0:16:04.640 the dollar. And then you know, at a certain point 0:16:04.720 --> 0:16:08.160 we said, you know, real rate differential, growth differential, it's 0:16:08.160 --> 0:16:10.000 all going to be about strength of the the US dollar. 0:16:10.120 --> 0:16:12.400 And and that's something that's that's weight on e m s. 0:16:12.840 --> 0:16:16.480 Also the big under performance of batstocks, your by Do, 0:16:16.720 --> 0:16:20.600 your Ali Baba, and your ten cent like in the US, 0:16:20.760 --> 0:16:23.480 these are for those these are huge Chinese. These are 0:16:23.600 --> 0:16:25.920 huge Chinese internet companies that also have a big weight 0:16:25.960 --> 0:16:28.960 in emerging market equity indexes. And when you think about 0:16:28.960 --> 0:16:30.920 how like early in the year, we were worried about 0:16:30.960 --> 0:16:34.040 the potential for Facebook to really get regulated, to come 0:16:34.080 --> 0:16:36.400 under the crush there that hasn't happened. Congress has been 0:16:36.480 --> 0:16:38.800 kind of a joke on that. If anything happens, it's 0:16:38.800 --> 0:16:41.920 been in Europe. Yet in China they're actually like cracking 0:16:41.920 --> 0:16:45.000 down on ten sensibility to to offer new games. So 0:16:45.360 --> 0:16:48.560 they've been swimming against, you know, a regulatory headwind as 0:16:48.560 --> 0:16:50.680 well as a slowing growth head wind, as well as 0:16:50.760 --> 0:16:54.520 a equity market that's coming under trade pressure headwind. Uh. 0:16:54.720 --> 0:16:59.560 Going back to something you mentioned Cameron about again, I 0:16:59.600 --> 0:17:02.480 think it was when you mentioned bregsit. But something I've 0:17:02.520 --> 0:17:07.120 been thinking about is, Okay, markets hate uncertainty, and there's 0:17:07.119 --> 0:17:10.160 a certainty really everywhere you look, and I think there's 0:17:10.200 --> 0:17:13.960 a real dearth of institutions or individuals that you can 0:17:14.040 --> 0:17:16.240 look to that you could say Okay, I feel like 0:17:16.320 --> 0:17:18.960 really confident that they've got to handle on this. We 0:17:19.000 --> 0:17:22.760 all know, we don't need to talk about our president. 0:17:22.880 --> 0:17:25.840 Did is uh? You know is twitter habit? We have 0:17:25.920 --> 0:17:29.280 a new FED chair who uh strikes me as very 0:17:29.359 --> 0:17:32.280 competent but also inconsistent at times. And I think it's 0:17:32.320 --> 0:17:36.720 hard to um like figure out the Powell doctrine or 0:17:36.720 --> 0:17:39.040 what the Powell Powell world view looks like. There was 0:17:39.080 --> 0:17:41.119 a point earlier this year where I thought, oh, he 0:17:41.200 --> 0:17:43.959 might actually be more devilish than Janet Yellen. Then there 0:17:43.960 --> 0:17:45.720 was a point was like, well, it seems more hawkish 0:17:45.720 --> 0:17:48.000 than Janet Yellen. It's hard to put a finger on him. 0:17:48.160 --> 0:17:51.240 And then you look, of course it bregsit and you 0:17:51.280 --> 0:17:54.320 know you can't have any confidence in any institution there 0:17:54.960 --> 0:17:59.680 talk about that what that does to the markets when 0:17:59.680 --> 0:18:02.879 there's is no institution that someone could say, okay, the 0:18:02.920 --> 0:18:05.120 adult is get a step in the room and said 0:18:05.200 --> 0:18:09.560 a clear, clear policy path forward, we could feel confident 0:18:09.600 --> 0:18:12.119 it will be executed. Well, I'll take a small issue 0:18:12.160 --> 0:18:15.119 with your with your preamble there. I think Powell has 0:18:15.160 --> 0:18:18.440 generally been fairly consistent. You can argue that he may 0:18:18.440 --> 0:18:21.679 be overstepped a little bit in early October with his 0:18:21.760 --> 0:18:26.280 comments about being a long way from neutral. But I 0:18:26.320 --> 0:18:29.240 think if you look at that contact that comment in 0:18:29.280 --> 0:18:31.440 the context of what he was saying at Jackson Hole 0:18:32.680 --> 0:18:35.880 uh the symposium in August, which is that the whole 0:18:35.920 --> 0:18:40.600 concept of neutral interest rates, particularly in real time, is 0:18:40.720 --> 0:18:43.879 kind of specious. Um. You know, it's not sort of 0:18:43.880 --> 0:18:46.159 a line in the sand that you approach it and 0:18:46.160 --> 0:18:48.760 then as soon as you step over, different things happen. 0:18:49.000 --> 0:18:51.600 The best you can say it's kind of arrange, and 0:18:52.560 --> 0:18:56.040 you only know in retrospect what neutral really was, So 0:18:56.040 --> 0:18:57.280 I'm going to give him a little bit of a 0:18:57.320 --> 0:19:00.600 past there. Frankly, I find him quite refreshing because he 0:19:00.640 --> 0:19:04.040 speaks relatively plainly, and I think generally he's been fairly 0:19:04.160 --> 0:19:08.080 upbeat about the state of the economy right throughout throughout 0:19:08.119 --> 0:19:11.280 the throughout the course of the year. So, uh, maybe 0:19:11.280 --> 0:19:14.359 I'm just uh inclined to give a plane to speak 0:19:14.440 --> 0:19:16.560 or a bit of a bit of a But in 0:19:16.640 --> 0:19:19.439 terms of the you know, the effect on the effect 0:19:19.440 --> 0:19:21.960 when you start to question or worry about institutions. I 0:19:22.000 --> 0:19:24.480 think there was a while there in early October where 0:19:24.520 --> 0:19:26.320 there was a popular narrative that you know, the fan's 0:19:26.359 --> 0:19:30.040 gonna hike until something breaks. I think everything from October 0:19:30.119 --> 0:19:32.800 three to now has been trying to put that issue 0:19:32.800 --> 0:19:34.560 to bed and then trying to say, like, hey, if 0:19:34.560 --> 0:19:37.320 the data weekends, we're gonna respond. We're not dead set 0:19:37.400 --> 0:19:39.840 on moving very quickly. They've done a good job of 0:19:39.880 --> 0:19:43.800 retaining uh, that optionality. But to the larger point of 0:19:43.840 --> 0:19:45.639 what does it mean for markets when you start to 0:19:45.840 --> 0:19:48.400 you know, question institutions, Well, you talked about the fitz 0:19:48.400 --> 0:19:50.920 he rerating. We've talked about the SMP five hundred three rating. 0:19:50.960 --> 0:19:53.720 Despite earnings throughout, it seems like you just pay less 0:19:53.760 --> 0:19:56.440 for each to all our earnings because you're not as 0:19:56.680 --> 0:19:58.720 confident in the in the backdrop, that seems to be 0:19:58.800 --> 0:20:02.000 one effect, I mean, ultimately, uncertainty and lack of confidence 0:20:02.000 --> 0:20:07.280 and institutions requires a higher risk Broomium across across assets, 0:20:07.320 --> 0:20:10.720 across currencies, I mean, obviously currencies. It's it's a bit 0:20:10.720 --> 0:20:13.479 difficult because you have to you have to buy something. 0:20:13.680 --> 0:20:15.520 You know, if you buy euro dollar, you're you have 0:20:15.600 --> 0:20:17.280 to buy one and your trade euro doll You have 0:20:17.320 --> 0:20:19.399 to buy one to sell sell the other. I mean, 0:20:19.400 --> 0:20:22.199 maybe you could argue gold, but even gold has been 0:20:22.280 --> 0:20:26.760 pretty I mean, given the apparent manifest risks across markets, 0:20:27.080 --> 0:20:29.720 it's been pretty man this year. That has been one 0:20:29.720 --> 0:20:32.240 of the funny jokes of the year has been, well, 0:20:33.840 --> 0:20:39.919 not not as funny as bitcoin, we should that's been. 0:20:40.080 --> 0:20:41.920 That's been. That's been probably my favorite part of the year. 0:20:41.920 --> 0:20:45.000 It was the demise of the Lambeau crowd. Hey, there's 0:20:45.160 --> 0:20:48.879 there's a popular long long bitcoin toward the bankers trade 0:20:49.359 --> 0:20:52.560 that's currently in early December on a six week losing streak, 0:20:52.800 --> 0:20:55.639 even as banks have gotten absolutely pummeled. That kind of 0:20:55.640 --> 0:20:58.159 speaks to how bad it's been for bitcoin. But I 0:20:58.200 --> 0:21:00.680 think one of the and we'll see how it plays 0:21:00.680 --> 0:21:02.320 out over the next year or two. But I think 0:21:03.080 --> 0:21:06.640 what's been a change this year talking about institutions. It's 0:21:06.680 --> 0:21:09.480 the first time in a long time that you've had 0:21:09.640 --> 0:21:14.680 the President of the United States overtly criticizing the FED 0:21:15.280 --> 0:21:18.399 and FED policy. And I think if you had gone 0:21:18.440 --> 0:21:21.639 back five years ago and you you know, you know, 0:21:21.920 --> 0:21:24.399 change the names to protect the innocent or or whatever, 0:21:24.440 --> 0:21:28.439 you know, whatever the stock disclaimers on those reality TV shows. 0:21:28.760 --> 0:21:30.520 H if you had said, if you had put the 0:21:30.600 --> 0:21:33.920 quotes that we've had from Donald Trump uh this year 0:21:34.080 --> 0:21:37.080 VSA V the Fed and shown them to people and 0:21:37.119 --> 0:21:39.600 said what will just do to markets? I think they 0:21:39.640 --> 0:21:41.680 would have said, Well, you're gonna you're gonna see a 0:21:41.720 --> 0:21:44.760 lot of alatility and you're going to see the stalt 0:21:44.760 --> 0:21:48.200 market lower. UM. And I mean there's a tendency this 0:21:48.320 --> 0:21:50.119 kind of wave Trump off and say wow, it's just 0:21:50.160 --> 0:21:54.360 Trump being Trump. But eventually this stuff kind of matters UM. 0:21:54.400 --> 0:21:57.359 And maybe we were just accustomed last year to nothing 0:21:57.400 --> 0:22:02.680 mattering est unless let's let's yeah, let's not forget last 0:22:02.760 --> 0:22:05.200 year was the anomaly. This year is not the anomaly. 0:22:05.320 --> 0:22:08.679 Last year was the anomaly in terms of the absolute 0:22:08.680 --> 0:22:13.200 absence of volatility or draw down or anything. I mean, 0:22:13.200 --> 0:22:16.800 the sharp ratio of the SMP or a sixty forty 0:22:16.800 --> 0:22:19.840 portfolio was way too high relative to history. And then 0:22:19.880 --> 0:22:22.520 this year we got in October the worst month for 0:22:22.600 --> 0:22:25.880 the sixty forty portfolio since the financial crisis. So that's 0:22:25.920 --> 0:22:28.520 the kind of that was their coming full. Every party 0:22:28.520 --> 0:22:31.080 has a hangover, and as I learned to my Street 0:22:31.080 --> 0:22:34.199 Grin over the weekend, on that note, I think that 0:22:34.359 --> 0:22:38.080