WEBVTT - Surveillance: Clear Slow Down In Labor Market, Page Says 0:00:09.880 --> 0:00:13.840 Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene Jearlie. 0:00:13.960 --> 0:00:17.560 We bring you insight from the best in economics, finance, investment, 0:00:18.000 --> 0:00:23.520 and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, 0:00:23.600 --> 0:00:27.920 Bloomberg dot Com, and of course on the Bloomberg So 0:00:28.000 --> 0:00:29.880 waiting on the data on please to say joining us 0:00:29.880 --> 0:00:31.400 here in New York, we can say good morning to 0:00:31.480 --> 0:00:34.920 David Paige, Acts for investment Managers, senior economists, good money 0:00:34.920 --> 0:00:37.160 to day morning. Let's talk about their data a little 0:00:37.159 --> 0:00:39.559 bit later this morning in America. What are you looking for? So? 0:00:39.640 --> 0:00:41.000 I think what we're seeing, and we've seen it in 0:00:41.000 --> 0:00:43.360 the European numbers, is that we're in a global manufacturing 0:00:43.360 --> 0:00:45.879 slowdown here UM. And that's something that we've seen very 0:00:45.880 --> 0:00:47.920 clearly in the U S data as well. What's not 0:00:47.960 --> 0:00:50.040 obvious is how much that's spilling forward. So in terms 0:00:50.040 --> 0:00:52.080 of the I M today we see another soft picture, 0:00:52.120 --> 0:00:54.960 you know, mixed numbers that coming out of the regional numbers. 0:00:55.000 --> 0:00:59.120 Even yesterday Chicago was pretty soft, Dallas not so much so. UM. 0:00:59.120 --> 0:01:01.200 And from a European spective, I think, you know, very 0:01:01.320 --> 0:01:04.040 very early suggestions that maybe we've seen something of a 0:01:04.200 --> 0:01:06.679 bottom come through here. But I think you know we're 0:01:06.720 --> 0:01:08.600 in the broad scheme of things. The IM is gonna 0:01:08.600 --> 0:01:10.319 remain soft, and it's how much it spills into the 0:01:10.319 --> 0:01:13.080 non manufacturing on on Thursday that's going to be key. 0:01:13.160 --> 0:01:15.199 What do you see beneath the surface of some really 0:01:15.520 --> 0:01:18.760 awful headline numbers that give you some encouragement that the 0:01:18.800 --> 0:01:21.080 story might be bottoming out. What do you see A 0:01:21.120 --> 0:01:24.280 couple of things. I mean that the China numbers this weekend, 0:01:24.760 --> 0:01:26.680 this the last couple of days was not too bad. 0:01:26.760 --> 0:01:29.160 We started to see some pickup come through there. Also 0:01:29.200 --> 0:01:32.520 the European p M eyes, although they've fallen back there 0:01:32.520 --> 0:01:34.639 at odds with some of the some of the more 0:01:34.680 --> 0:01:37.640 country based measures, particularly in France for example. So we 0:01:37.720 --> 0:01:40.920 think that given the China moves there maybe some traction 0:01:40.959 --> 0:01:43.080 coming through from the stimulus that we've seen. The problem, 0:01:43.080 --> 0:01:45.080 of course, is going to be the additional headwinds that 0:01:45.080 --> 0:01:46.959 we see come through in the fourth quarter. We are 0:01:47.000 --> 0:01:49.880 expecting trade to be an issue again, probably as soon 0:01:49.960 --> 0:01:52.560 as the next couple of weeks. David, what's the statistic 0:01:52.680 --> 0:01:55.400 actually has in the US economy is a two percent? 0:01:55.560 --> 0:01:58.200 Is that we're optimistic two point three, or do you 0:01:58.320 --> 0:02:00.480 bring it on down with all these chair lenges to 0:02:00.640 --> 0:02:04.160 something so that this twelve months forward. So for this 0:02:04.240 --> 0:02:06.560 year we've got two point three percent. Next year we've 0:02:06.600 --> 0:02:08.880 got one point six, so we think it slows. And 0:02:08.880 --> 0:02:10.640 we've got Q three g d P come in in 0:02:10.680 --> 0:02:13.600 a two percent annualized so we are seeing its slow down. 0:02:13.680 --> 0:02:15.240 I mean, I look at ACTS I look at your 0:02:15.280 --> 0:02:18.440 colleagues at PIMCO, with much the same responsibilities that ACTSA 0:02:18.520 --> 0:02:23.639 has with longer old money. How do the politicians do 0:02:24.080 --> 0:02:28.560 a sub two percent economy or not comfortably? Um? And 0:02:28.600 --> 0:02:30.200 of course I think that's one of the debates that's 0:02:30.240 --> 0:02:31.760 going on in the White House at the moment. We've 0:02:31.800 --> 0:02:34.160 heard a lot of White House staff suggesting that they've 0:02:34.200 --> 0:02:37.080 been urging the President to take this interim deal from 0:02:37.160 --> 0:02:39.800 China to try and soft pedal a little bit through 0:02:39.880 --> 0:02:43.000 here and concentrate on a solid economy, particularly going into 0:02:43.040 --> 0:02:45.680 next year's election. Now, whether or not the president takes that, 0:02:45.960 --> 0:02:47.960 whether or not he can take that against a backdrop 0:02:48.000 --> 0:02:50.519 of all the domestic pressure here is a big question. John. 0:02:50.560 --> 0:02:53.680 The chart of equities flat even a little rising in 0:02:53.720 --> 0:02:57.680 the quarter for actually versus the Q three story which 0:02:57.760 --> 0:03:02.640 was stunningly low yields. David really really disappointing that after 0:03:02.680 --> 0:03:06.000 this massive effort to get China to level the playing field, 0:03:06.320 --> 0:03:09.960 they accepted an interim deal for short term political and 0:03:10.000 --> 0:03:13.160 economic reasons. Well, it's not clear that they're going to 0:03:13.240 --> 0:03:15.880 have much of a choice. There is no long term 0:03:15.919 --> 0:03:18.520 strategic deal on the table over the next over the 0:03:18.520 --> 0:03:21.760 next three months, potentially probably not over the next twelve 0:03:21.760 --> 0:03:25.519 months either. So what you see is a pragmatic choice 0:03:25.560 --> 0:03:28.120 that the White House has to make. Do they persist 0:03:28.200 --> 0:03:30.440 with tariff hikes on the fifteenth of October and the 0:03:30.440 --> 0:03:34.240 fifteenth of December and potentially going into next year, risking 0:03:34.520 --> 0:03:37.680 the problems of an election or not? Would it be disappointing, 0:03:37.800 --> 0:03:39.800 certainly not from markets? If well, this would be the 0:03:39.840 --> 0:03:41.960 big question I think that has existed over the last 0:03:42.000 --> 0:03:44.560 two years. To what degree with the economy, to what 0:03:44.640 --> 0:03:48.360 extent with the markets constrained this administration's ability to do 0:03:48.360 --> 0:03:49.960 what I think a lot of people agree with, which 0:03:50.000 --> 0:03:52.240 is getting China to open the economy up more and 0:03:52.280 --> 0:03:54.720 getting them to level the playing field. I haven't seen 0:03:54.720 --> 0:03:57.000 it in the markets. Financial conditions are still pretty loose, 0:03:57.080 --> 0:03:59.400 supported of course by the Federal Reserve. We've certainly had 0:03:59.440 --> 0:04:01.760 a lot of other hility in between now and say 0:04:01.800 --> 0:04:05.280 eighteen months ago. In the economy, we've started to see 0:04:05.280 --> 0:04:07.800 some weakness, but not in the labor market in a 0:04:07.840 --> 0:04:10.840 pronounced way that I think is really unsettling this administration 0:04:10.920 --> 0:04:13.880 just yet now that I emphasize the word yet, because 0:04:13.880 --> 0:04:16.000 I wonder when it will start to bleed into the 0:04:16.080 --> 0:04:17.919 labor market. Do you see any sign of that at 0:04:17.960 --> 0:04:20.080 the moment, David, that it's bleeding through? Yes, I mean, 0:04:20.120 --> 0:04:22.640 we're seeing a clear slowdown in the in the labor market. 0:04:22.720 --> 0:04:24.640 Some of that's driven by manufacturing, so you know, we'll 0:04:24.640 --> 0:04:26.680 get payrolls on Friday to confirm the trend. But the 0:04:26.680 --> 0:04:29.080 three months trend in payrolls growth has slow to sub 0:04:29.120 --> 0:04:32.560 one fifty, whereas last year, albeit boosted by this le stimulus, 0:04:32.600 --> 0:04:34.880 it was over two hundreds. We are seeing a softening, 0:04:35.000 --> 0:04:39.560 but that's brilliant. How do you model sub two GDP 0:04:39.720 --> 0:04:43.440 and that a hundred thousand nine farm imperials? Are we 0:04:43.480 --> 0:04:46.600 going to enjoy d run rate? Now? And I think 0:04:46.600 --> 0:04:48.359 the risk is and I think we're close to a 0:04:48.440 --> 0:04:50.800 tipping point here, and that's one of the key concerns 0:04:50.800 --> 0:04:53.080 if we see the economy dip much below one and 0:04:53.120 --> 0:04:55.400 a half percent, then you would expect to see on 0:04:55.839 --> 0:04:58.640 the employment rate slow so that unemployment starts to pick up, 0:04:58.720 --> 0:05:01.320 and that's not sustainable. The FED would have to work 0:05:02.520 --> 0:05:04.720 rate just to jump in. David, what's the equilibrium rate? 0:05:04.760 --> 0:05:06.719 That the amount of payrolls we need to be generating 0:05:06.839 --> 0:05:08.919 every month just to keep things in balance. On a 0:05:09.000 --> 0:05:11.280 trend basis, we would say a hundred and forty. Obviously, 0:05:11.320 --> 0:05:13.680 months to months, the labor supply jumps about a little bit, 0:05:13.720 --> 0:05:16.120 so you can see the unemployment rate not move, But 0:05:16.240 --> 0:05:18.200 on a trend basis overy six months, we would say 0:05:18.200 --> 0:05:20.240 a hundred and forty thousand. We're about there. We think 0:05:20.640 --> 0:05:22.800 you're going to be a fixed income strategist. Now, don't 0:05:22.839 --> 0:05:25.440 let you'll know work know that Ferall doesn't know what 0:05:25.480 --> 0:05:27.160 to do with the real yield on Friday, so you've 0:05:27.160 --> 0:05:30.400 got to get them started. Here. It's a backup in yields. 0:05:30.520 --> 0:05:33.680 What is the significance of the recent backup and yields 0:05:33.960 --> 0:05:37.760 higher yields, lower bill not bond prices thirty year band 0:05:37.760 --> 0:05:41.559 two point one seven? What's its signified? So at the moment, 0:05:41.600 --> 0:05:44.080 we're not thinking that this signals a slow down. We 0:05:44.120 --> 0:05:45.960 think that there has been a pickup comes through the 0:05:46.000 --> 0:05:49.679 shift in the inversion. We think perhaps suggests that markets 0:05:49.680 --> 0:05:51.520 are getting a different read on how the Fed's going 0:05:51.520 --> 0:05:53.920 to operate the plumbing of the system. But I think 0:05:53.960 --> 0:05:57.440 longer term, this continued inversion is a risk to the economy. 0:05:57.880 --> 0:05:59.800 To me, it's fascin thing. And how we're you know, 0:06:00.279 --> 0:06:03.600 Fort David for this at all. We're micro analyzing three 0:06:03.640 --> 0:06:06.680 basis points of four basis points of moves in the 0:06:06.680 --> 0:06:09.120 two tents spread. I actually think the move this morning, though, 0:06:09.160 --> 0:06:11.760 is is actually quite significant. The Bank of Japan came 0:06:11.800 --> 0:06:15.240 out on Monday and essentially slashed its purchase ranges for 0:06:15.279 --> 0:06:17.599 four major maturities. Its signaled that it may even be 0:06:17.680 --> 0:06:20.839 inclined to stop buying anything longer than twenty five years. 0:06:21.160 --> 0:06:23.800 The Bank of Japan wants a steepy yield curve. What 0:06:23.880 --> 0:06:26.640 that's meant this morning is that when the Japanese government 0:06:26.680 --> 0:06:28.960 came out with a ten year issue at the weakest 0:06:28.960 --> 0:06:31.880 demanded around about three years, and what did we get 0:06:32.160 --> 0:06:35.279 Exactly what the b o j wanted steepy yield curves. 0:06:35.400 --> 0:06:37.080 And we didn't just get that in Japan we're getting 0:06:37.080 --> 0:06:39.080 that in the United States as well this morning, and 0:06:39.120 --> 0:06:42.440 another point of encouragement, and it's really really early to 0:06:42.520 --> 0:06:45.840 draw any firm conclusions, but it is a point of encouragement. Nevertheless, 0:06:46.240 --> 0:06:49.560 the idea that we have got high yields, steeper yield curves, 0:06:49.880 --> 0:06:53.039 and an echoy market that finished positive in Japan, I 0:06:53.160 --> 0:06:55.160 just wonder if that's a clue, a little nudge for 0:06:55.200 --> 0:06:57.360 the guards e c B to take a look at 0:06:57.360 --> 0:06:59.640 what the Bank of Japan is doing, because if this continues, 0:07:00.040 --> 0:07:02.400 I think it's really encouraging. What's really important to your David, 0:07:02.440 --> 0:07:04.440 And this goes to economics one on one. I'm gonna 0:07:04.440 --> 0:07:07.320 call it green span one on one is the idea 0:07:07.640 --> 0:07:10.640 that if you get a risk on feel in a 0:07:10.640 --> 0:07:15.280 better stock market, that pulls right into a confidence builder 0:07:15.720 --> 0:07:19.880 for a troubled economy. Absolutely, and the corollary of that 0:07:20.000 --> 0:07:22.320 is that one of the biggest risks going further forward. 0:07:22.440 --> 0:07:24.880 So far, we've had a strong household sector, but household 0:07:24.920 --> 0:07:26.920 sector doesn't remain strong if you see a tiny in 0:07:26.960 --> 0:07:29.400 financial conditions, So then we loop all the way back 0:07:29.440 --> 0:07:32.080 to trade. If we get negative news developments coming through 0:07:32.080 --> 0:07:34.960 in trade, that plays the risk through the household sector, 0:07:35.000 --> 0:07:38.280 and that's the bigger risk, not just looking through being 0:07:38.400 --> 0:07:41.920 potentially considering downtown. In one David pitch, come back when 0:07:41.920 --> 0:07:44.960 you saw brexit, he is with an accident this morning 0:07:55.600 --> 0:07:58.200 Sun for one time, keen getting you started on a Tuesday, 0:07:58.280 --> 0:08:01.200 the first date of the fourth quarter. To frame this, 0:08:01.280 --> 0:08:04.760 and particularly for a US audience, we need to look 0:08:04.840 --> 0:08:08.680 at Europe. Timothy graph with US with State Tree Global Market. 0:08:08.760 --> 0:08:11.760 Tim I want to start with why an American audience 0:08:12.120 --> 0:08:16.040 needs to focus on europe dynamics. That's not intuitive, and 0:08:16.120 --> 0:08:19.040 yet there we are weak euro strong dollar le guard 0:08:19.120 --> 0:08:22.000 coming in. Why do you care about Europe if you're 0:08:22.040 --> 0:08:27.160 someone planted in the United States of America? Sure, Tom, absolutely, 0:08:27.160 --> 0:08:29.840 good morning. UM. I think a lot of what happens 0:08:29.840 --> 0:08:32.480 in Europe matters quite a bit for US investors in particular, 0:08:33.000 --> 0:08:36.439 not least given the anchoring of yields caused by central 0:08:36.440 --> 0:08:38.800 bank policies in Europe, which of course have drive and 0:08:38.880 --> 0:08:42.560 driven yields significantly. Lower treasuries tend to respond to that 0:08:42.640 --> 0:08:44.760 and and get a demand, as does the dollar in 0:08:44.800 --> 0:08:48.439 response to that based off of yield differentials. Europe is 0:08:48.520 --> 0:08:52.079 also I think important as kind of where a lot 0:08:52.080 --> 0:08:54.720 of the negative feedback loops as far as trade tensions 0:08:54.720 --> 0:08:57.600 are concerned, are happening in that it is a very 0:08:57.679 --> 0:09:01.000 open economy. You have other smaller European enemies like Sweden 0:09:01.040 --> 0:09:03.960 that are even more open and that respond to these 0:09:03.960 --> 0:09:07.640 trade tensions and particularly the reduction in trade volumes and 0:09:08.040 --> 0:09:12.160 the hits to industrial production growth in emerging markets. They're 0:09:12.200 --> 0:09:14.400 very sensitive and that has global implications that the most 0:09:14.400 --> 0:09:16.920 investors need to pay ten. John Ferroll, this is incredibly 0:09:16.960 --> 0:09:19.600 important what Mr Graff said about feedback loops. To me, 0:09:19.720 --> 0:09:22.480 that's a huge theme in the Yuran. Wou'd t him. 0:09:22.520 --> 0:09:24.719 Let's explore it further. You've been bullished the dollar now 0:09:24.760 --> 0:09:27.080 for what four years, a lot of people trying to 0:09:27.080 --> 0:09:30.880 work out the pieces that pull together to generate the 0:09:30.960 --> 0:09:34.040 circumstances whereby the dollar actually does roll over, and it 0:09:34.080 --> 0:09:36.880 hasn't been the differential story, Tim, So what will it be? 0:09:38.400 --> 0:09:41.520 I'm at this point what I think that the most 0:09:41.559 --> 0:09:44.880 likely approximate cause is a FED that is even more 0:09:44.960 --> 0:09:48.439 dubblish than what markets anticipate. In the markets already anticipates 0:09:48.520 --> 0:09:50.440 some more rate cuts over the coming twelve months, So 0:09:50.800 --> 0:09:53.320 I think it's going to really require that because, as 0:09:53.400 --> 0:09:57.600 you noted, the fall in relative real direct differentials between 0:09:57.600 --> 0:09:59.920 the US and other currencies so far has not impacted it. 0:10:00.000 --> 0:10:03.160 You have clear dollar funding gaps that are showing up 0:10:03.280 --> 0:10:08.160 on foreign balance sheets. You have funding dislocations in the US, 0:10:08.280 --> 0:10:09.760 or a night market as we've seen the last couple 0:10:09.800 --> 0:10:12.360 of weeks, all of which speak to to me at 0:10:12.400 --> 0:10:16.640 least a structural demand for dollars that even the easier 0:10:16.640 --> 0:10:19.040 FED policy we've seen over recent months is not enough 0:10:19.040 --> 0:10:21.560 to quench. And so I think the response of the 0:10:21.559 --> 0:10:24.600 FED is probably the key variable here. And that's kind 0:10:24.640 --> 0:10:26.480 of why, even though I'm looking for reasons to be 0:10:26.520 --> 0:10:28.640 negative on the dollar, I can't really find them, because 0:10:29.040 --> 0:10:31.160 at least as far as the way the FED is 0:10:31.200 --> 0:10:35.000 currently speaking, I don't see that shift happening at least 0:10:35.040 --> 0:10:37.280 for the next several months. Too many people have struggled 0:10:37.320 --> 0:10:39.560 to get the dollar call right, especially over the last 0:10:39.559 --> 0:10:42.440 couple of years. The consensus view right now is to 0:10:42.480 --> 0:10:46.520 be shut the global cycle to some degree, and certainly 0:10:46.559 --> 0:10:49.000 not to be long the inflation story, tim is the 0:10:49.080 --> 0:10:52.760 some optionality there that you want to take? Yeah, I 0:10:52.800 --> 0:10:55.480 think as much as I don't see, you know, the 0:10:55.520 --> 0:10:58.960 FED needing to respond to a lot of the the 0:10:59.200 --> 0:11:03.080 disinflationary conditions and and continuing to to ease policy a 0:11:03.120 --> 0:11:05.800 lot further. I think break evens, it's just our tips 0:11:05.840 --> 0:11:08.920 in general, look attractive from a risk reward perspective. Basically, 0:11:08.920 --> 0:11:12.160 as you say, no one is contemplating the possibility of inflation, 0:11:12.240 --> 0:11:14.800 and I suspect that's kind of probably going to be 0:11:14.840 --> 0:11:17.720 the reality while we're in this environment of trade tensions. 0:11:17.800 --> 0:11:21.120 But the fall and forward break evens too, not just 0:11:21.160 --> 0:11:24.199 in the US but elsewhere, has been so aggressive towards 0:11:24.280 --> 0:11:27.640 multi year lows that I think risk reward favors having 0:11:27.720 --> 0:11:30.280 at least some inflation protection as part of a portfolio. 0:11:30.360 --> 0:11:32.880 Even if you know you do get continued falls and 0:11:32.960 --> 0:11:36.120 nominal yields and inflation protection, inflation protection will still do 0:11:36.160 --> 0:11:38.720 relatively well, just not as well as nominals it end 0:11:38.760 --> 0:11:44.880 growth inflation protection. That's a good question. Yeah, it probably 0:11:45.000 --> 0:11:47.440 in this day and age, it probably is, and that 0:11:47.960 --> 0:11:49.800 you know, that was the narrative we had a couple 0:11:49.800 --> 0:11:51.800 of years ago when stocks were the new bonds, when 0:11:51.800 --> 0:11:55.240 the SMP DI it end yield rose above nominal yields 0:11:55.280 --> 0:11:57.840 as it has done recently, and so I suspect It 0:11:57.880 --> 0:12:00.720 probably is as good of an inflation brea to protection 0:12:00.720 --> 0:12:03.560 as anything else. Right now, Tim grit to catch up, 0:12:03.600 --> 0:12:07.040 the Timothy graph sty straight ahead of a mere Macris strategists, 0:12:07.040 --> 0:12:20.280 wang In on global markets tongue a lock fun here. 0:12:20.280 --> 0:12:23.559 It's October one, Q four. All the stresses out there, 0:12:23.600 --> 0:12:27.080 the pageantry we're seeing in China just extraordinary, the very 0:12:27.160 --> 0:12:31.000 serious protests in Hong Kong as well, And we need 0:12:31.040 --> 0:12:33.480 to describe. And we have a guest here that can 0:12:33.640 --> 0:12:37.360 absolutely nail this, which is what we always hope for 0:12:38.160 --> 0:12:43.840 at Bloomberg Surveillance. Tottenham's playing the Germans. Man City is 0:12:43.840 --> 0:12:50.520 playing Denomos Zagreb. But did I get that? Was like close? Yeah? Real? 0:12:50.720 --> 0:12:55.400 What's club Bruge, Club Bruge? What is going on? What's 0:12:55.400 --> 0:12:57.560 the Champions League's when with the big clubs in Europe 0:12:57.559 --> 0:13:01.200 playing each other? Is this bigger than pre your football? Yeah? 0:13:01.200 --> 0:13:03.160 To win the Champions League is massive. It is like 0:13:03.200 --> 0:13:06.800 a bigger deal than like Man City last year. Yeah, 0:13:07.040 --> 0:13:09.200 Liverpool win in the Champions League. I think Man City 0:13:09.240 --> 0:13:10.960 would have liked to have done what Liverpool did last 0:13:11.000 --> 0:13:14.160 year and win the Champions League. Is it a locomotive Moscow? 0:13:14.360 --> 0:13:17.840 Or is it so this is this is the group stage. 0:13:18.360 --> 0:13:20.320 So this is the group stage. You have to come 0:13:20.360 --> 0:13:24.640 top two, which group advance in the knockout stages? Lets 0:13:24.800 --> 0:13:30.040 have the longest Investco Investco dim When you and the 0:13:30.080 --> 0:13:34.880 rest of you are watching ten games at one time, Uh, 0:13:35.320 --> 0:13:39.559 they do look at me like I'm an alien um 0:13:40.200 --> 0:13:42.800 when what the the whole father is about? But you know, 0:13:42.840 --> 0:13:44.840 it's the greatest sport in the world. And the Champions 0:13:44.920 --> 0:13:49.520 League is really the the Acropolis, the Olympus soccer. I agree, 0:13:49.559 --> 0:13:51.920 it's just a beautiful thing. First in the tears here, 0:13:52.320 --> 0:13:55.199 you're gonna watch some of it, like Juventus bear Is 0:13:55.240 --> 0:13:57.400 that like a big deal? That's a nice game to watch. 0:13:57.400 --> 0:13:59.079 You should watch. That is so like one game here 0:13:59.080 --> 0:14:01.480 I need to focus on. Oh, come on, Liverpool's playing 0:14:01.520 --> 0:14:04.480 Red Bull tomorrow. I would say that the pick of 0:14:04.559 --> 0:14:09.240 the peak of today and tomorrow is Barcelona Inter tomorrow 0:14:09.480 --> 0:14:13.120 at three pm. Okay, focus, which is an inter Milan 0:14:13.280 --> 0:14:16.280 is a less team. We welcome all of you coast 0:14:16.280 --> 0:14:19.640 to coast across. They're still with us. Let's go to 0:14:19.760 --> 0:14:23.760 let's turn it within your research note to America, which 0:14:23.800 --> 0:14:27.280 is Investco, which was you know, the combination with Oppenheimer's 0:14:27.440 --> 0:14:32.000 all about international investment, but you're saying America first, that's 0:14:32.040 --> 0:14:36.600 still not time to overweight international. Yes, the cyclical forces 0:14:36.640 --> 0:14:39.640 are still suggesting that um U S equities are still 0:14:39.680 --> 0:14:42.040 the better place to be, both from a from a 0:14:42.160 --> 0:14:46.120 policy standpoint, as well as the dynamism within the private sector, 0:14:46.160 --> 0:14:50.440 the resilience in the private sector. Certainly, valuations and long 0:14:50.560 --> 0:14:53.920 term prospects are now beginning. Long term expected returns are 0:14:54.120 --> 0:14:58.240 looking more attractive in foreign markets, including emerging mode. What's 0:14:58.280 --> 0:15:01.680 the catalyst for me to have the code? Exactly? You 0:15:01.720 --> 0:15:03.920 always need the catalyst. Valuations don't make a trade. What 0:15:04.040 --> 0:15:06.720 will the catalysts be? We need to see that the 0:15:06.920 --> 0:15:11.320 turnaround in in emerging market Emerging markets growth, I think, 0:15:11.440 --> 0:15:15.000 is what's going to lead us into this rotation trade. 0:15:15.280 --> 0:15:19.760 But it may well take first that general global recession 0:15:20.520 --> 0:15:24.000 to reset the clock. Remember the G twenty in Argentina 0:15:24.320 --> 0:15:27.560 around about twelve months ago. Remember remember what the market 0:15:27.600 --> 0:15:30.800 was looking for also is looking for a truce with 0:15:30.920 --> 0:15:33.160 China and the United States, and that's actually what we 0:15:33.280 --> 0:15:36.920 got the G twenty in Argentina. It wasn't enough to 0:15:36.920 --> 0:15:39.720 stop an ugly Q four and the consensus for you 0:15:39.800 --> 0:15:42.320 that I keep hearing looking out through the rest of 0:15:42.360 --> 0:15:45.480 this quarter and looking into is that it will be 0:15:45.520 --> 0:15:48.840 defined by the trade story. The trade story holds the 0:15:48.920 --> 0:15:52.480 keys to what will happen the fate of assets cross 0:15:52.520 --> 0:15:55.640 asset and worldwide. And so do you think we're missing 0:15:55.640 --> 0:15:58.080 the broader story because a lot of people thought that 0:15:58.080 --> 0:16:00.560 would define Q four and that's really not what defined 0:16:00.600 --> 0:16:03.480 Q for What defined Q forwards a series of monegy 0:16:03.480 --> 0:16:06.520 policy mistakes. Looking back on things, what do you think 0:16:06.560 --> 0:16:09.920 really determines the outcome of assets governed out twelve months? 0:16:09.920 --> 0:16:11.600 And can we really say it's just one thing, it's 0:16:11.600 --> 0:16:14.360 the outcome of the tride story. I think we're going 0:16:14.360 --> 0:16:18.600 out twelve months, that's still the story really because monetary policy, 0:16:18.840 --> 0:16:22.480 as as we've discussed in the past, cannot really offset that. 0:16:22.600 --> 0:16:25.720 There's we're now pushing on a string. And today's and 0:16:26.000 --> 0:16:27.400 with the bond sell off is a bit of an 0:16:27.400 --> 0:16:31.320 example of that. UM and equity evaluations are otherwise very stretched. 0:16:31.360 --> 0:16:36.080 So to be honest, uh, bond yields are the asset 0:16:36.120 --> 0:16:41.240 class that has reflected most cleanly that trade bearishness and 0:16:41.360 --> 0:16:45.960 bond lower bond yells is what is maintaining high equity 0:16:45.960 --> 0:16:48.840 evaluations globally. Where you see the impact of that trade 0:16:48.880 --> 0:16:52.200 war is really in this outperformance of US equities compared 0:16:52.240 --> 0:16:56.160 to international and emerging market equities. That spread, given the 0:16:56.160 --> 0:16:59.760 global expansion that we've seen otherwise, doesn't make sense. Right. 0:17:00.200 --> 0:17:04.400 Trade is affecting foreign markets much more than US domestic 0:17:04.440 --> 0:17:08.520 markets because of the much larger propensity. But this is 0:17:08.560 --> 0:17:12.840 fascinating because if we get a successful trade agreement, even John, 0:17:12.880 --> 0:17:15.640 as you're complaining earlier, if it's just some quick thing 0:17:15.680 --> 0:17:19.040 to get through to the politics of that's bad for 0:17:19.200 --> 0:17:22.480 US equities because the side relief will shift US to 0:17:22.600 --> 0:17:26.560 abid an international On a relative basis, that should be 0:17:26.640 --> 0:17:29.960 far more positive for international markets than US markets. Does 0:17:30.000 --> 0:17:32.919 it mean that US equities should suffer outright? No, that, 0:17:33.040 --> 0:17:36.000 but on a basis on really important folks. I mean, 0:17:36.040 --> 0:17:38.320 this is one of the great bets of Q four. John, 0:17:38.320 --> 0:17:40.520 you okay over there, Yeah, I'm just following the conversation. 0:17:40.600 --> 0:17:45.439 Do you think Milan really can do it again? How 0:17:45.480 --> 0:17:49.040 would speaking? That wasn't what I was thinking about. If 0:17:49.080 --> 0:17:51.119 you've got some real stats, to the real stats, you're 0:17:51.160 --> 0:17:54.160 making them up. I'm reading, folks, on reading this, I'm 0:17:54.160 --> 0:17:56.680 read on this and like like Pharaoh's over there reading 0:17:56.680 --> 0:18:00.520 it on next the Washington always told thalking about the 0:18:00.520 --> 0:18:03.600 potential about performance abroad and global equities. It started to 0:18:03.600 --> 0:18:07.000 get me thinking about the underperformance of forleign exchange and 0:18:07.160 --> 0:18:09.919 for the U S Dollar against G ten. And I 0:18:09.920 --> 0:18:12.439 think if you really want to construct the story to 0:18:12.560 --> 0:18:17.160 tell that develops into a weaker dollar story, you need 0:18:17.200 --> 0:18:20.000 to be telling me good things about global growth. You 0:18:20.040 --> 0:18:22.840 need to be telling me a better story of global trade. 0:18:23.200 --> 0:18:26.200 Can you tell me a better story in that unlocks 0:18:26.240 --> 0:18:32.320 that dollar weakness? It would have to be in relative terms. 0:18:32.359 --> 0:18:37.200 I think it's bearing a successful trade negotiation that creates 0:18:37.200 --> 0:18:39.680 that catalyst that thom was talking about, that catalyst to 0:18:40.240 --> 0:18:44.399 um accelerate foreign growth. The the only other element, the 0:18:44.440 --> 0:18:48.119 only other narrative that you can build, is a surprising 0:18:48.720 --> 0:18:54.200 deceleration in US growth their own relative terms, UH raises 0:18:54.280 --> 0:18:58.360 the attractiveness of foreign markets given we're how we're currently priced. 0:18:58.560 --> 0:19:03.320 The positioning in fair ever of US asset classes is 0:19:04.440 --> 0:19:08.240 now really a multi year high. Right. Any asset class 0:19:08.240 --> 0:19:11.880 you pick, bonds, credit, equities, U S, s A classes 0:19:11.920 --> 0:19:15.000 have outperformed for there are foreign counter parties now for 0:19:15.119 --> 0:19:19.160 many many years. The potential for that rotation and the 0:19:19.200 --> 0:19:21.840 turnaround in expeditions is very powerful. I want to wrap 0:19:21.840 --> 0:19:23.440 things up on the bond market for our listeners that 0:19:23.520 --> 0:19:25.800 might have just tuned in. We had a tenure bond 0:19:25.840 --> 0:19:29.600 auction in Japan overnight, the weakest demanded around about three years. 0:19:29.600 --> 0:19:32.640 We had some tweaks from the BLJ yesterday which essentially 0:19:32.680 --> 0:19:34.159 meant they really want to wink at the front end 0:19:34.200 --> 0:19:36.000 of the yield curve in Japan. I want to buy 0:19:36.080 --> 0:19:38.240 less of the long end to generate a steeper yeld 0:19:38.240 --> 0:19:41.720 curve that spooks some investors. It's bleeding into global bond markets. 0:19:41.720 --> 0:19:45.000 Steeper curbs, higher yields. Do you think that the e 0:19:45.119 --> 0:19:47.119 c B, and this is really aimed at the e 0:19:47.240 --> 0:19:49.919 c B. We'll be looking at Governor Coroda right now 0:19:49.920 --> 0:19:52.760 in the Bank of Japan and thinking if this works, 0:19:53.160 --> 0:19:56.480 if risk assets, equities credit can do well in a 0:19:56.640 --> 0:19:59.679 rising yield environment because the curve is steeper and at 0:19:59.680 --> 0:20:02.119 the Bank a Japan is being able to adjust the 0:20:02.119 --> 0:20:04.960 modalities of its bond buying program to generate that to 0:20:05.040 --> 0:20:08.200 determine that outcome. Do you think the ECB could follow suit? 0:20:10.040 --> 0:20:13.679 The c B could um I am still skeptical of 0:20:13.800 --> 0:20:18.920 how much steepening of the yield curve we can generate here. Um, 0:20:18.960 --> 0:20:21.720 given the challenges that we have, and given the limited 0:20:21.800 --> 0:20:26.879 prospects on long term nominal growth without a healthy and 0:20:27.000 --> 0:20:31.520 credible rise of inflation let's say just one one and 0:20:31.560 --> 0:20:35.480 a half percent UM, it's very difficult to maintain a 0:20:35.520 --> 0:20:38.800 steeper yield curve from here. Then within that does investors 0:20:38.840 --> 0:20:41.320 suggest scale that people come in, there'll be more M 0:20:41.320 --> 0:20:46.440 and A, etcetera. Q four. I mean, John, it's got 0:20:46.440 --> 0:20:48.560 to happen if you've got nominal GDP that low. I 0:20:48.640 --> 0:20:51.879 mean you get either you do or you begin a 0:20:51.960 --> 0:20:57.240 merging acquisitions discussion before one. Right, Well, yeah, not really 0:20:57.320 --> 0:20:59.840 my turf to to opine on that. I think you 0:21:00.040 --> 0:21:04.800 in trouble. I think the I think the challenges um. 0:21:04.880 --> 0:21:08.359 You know, M and as globally have been really mostly 0:21:08.880 --> 0:21:13.080 a function of it's where, it's where why the borrowing 0:21:13.080 --> 0:21:16.480 has taken place. Like when you look back, we always 0:21:16.520 --> 0:21:19.240 ask ourselves what could be the excesses that bring the 0:21:19.320 --> 0:21:22.240 current cycle to its end. There is none to point 0:21:22.240 --> 0:21:24.680