Speaker 1: Ye, Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane.
Speaker 1: Daily we bring you insight from the best in economics, finance, investment,
Speaker 1: and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud,
Speaker 1: Bloomberg dot Com, and of course, on the Bloomberg Rob
Speaker 1: Caroline is our Bloomberg meteorologist and has provided gentle perspective
Speaker 1: on a slow moving storm. Rob, let's start with that,
Speaker 1: what is the why of why Dorian is moving so slowly?
Speaker 1: While the why behind that, Tom is a high pressure
Speaker 1: which was up over the northeast this weekend was what
Speaker 1: was steering Dorian into the northwestern Bahamas. That system has
Speaker 1: moved off shore. We've actually had a coal front move
Speaker 1: across the northeast, so there's nothing helping to push that
Speaker 1: storm along. What's going to happen is coal front in
Speaker 1: the western Great Lakes. It's a fairly strong one. It
Speaker 1: will drop down kind of start to draw Dorrian north
Speaker 1: northwesterly later today, to the north tomorrow and then kick
Speaker 1: it out to the northeast as we head through Thursday
Speaker 1: and Friday. Is it is it a hurricane still and
Speaker 1: when does that shift with the erosion of the energy
Speaker 1: and the power of the inertial force. When does it
Speaker 1: shift to a tropical storm when it gets into the
Speaker 1: North Atlantic. It is going to remain as a hurricane
Speaker 1: the entire time. Yeah, it's spun down now to a
Speaker 1: hundred and twenty miles an hour sustained, but that's still
Speaker 1: a Category three hurricane, major hurricane. It's lashing on the
Speaker 1: northern side of Grand Bahama Island that has been doing
Speaker 1: so since yesterday morning. The devastation there is going to
Speaker 1: be horrific. The good news is the track should keep
Speaker 1: the strongest wins just east of the Florida coast, the
Speaker 1: Georga True Coast, and the South Carolina coast. I think
Speaker 1: the best chance for a potential landfall and the continent
Speaker 1: of the United States would be around Cape Hatteras early
Speaker 1: in the morning on Friday. So this is something that
Speaker 1: people have been talking about. The Florida and South Carolina
Speaker 1: not totally out of the woods, yex. It would just
Speaker 1: take a little shift to send the eye directly to
Speaker 1: make landfall. What are people looking for? When will we
Speaker 1: have a better sense of of what could potentially get
Speaker 1: hit well? The good news is lisaid the fact that
Speaker 1: the storm isn't moving right now, is what the model suggested.
Speaker 1: What happened, so we're not seeing anything unexpected. What we're
Speaker 1: waiting for now is that movement in the north and
Speaker 1: northwest today and the north later today. That'll start to
Speaker 1: give us some confidence that those stronger winds are gonna
Speaker 1: remain off shore and not impact the Florida coast at all.
Speaker 1: You know, Rob, I got three networks right now here
Speaker 1: in our studios. Folks were all wired up worldwide, all
Speaker 1: the Machendra for Bloomberg Television right now in the Green
Speaker 1: and Parliament. But in America we got three guys were
Speaker 1: in Patagonia standing on the shore getting splashed. And you know,
Speaker 1: we love Rob. You don't do that. Forget about the
Speaker 1: drama and all that. What have we learned about your
Speaker 1: business since Andrew of decades ago? Ah, the potential for
Speaker 1: these very small hurricanes to do horrific damage. Uh, Andrew
Speaker 1: was the same type of storm and same type of season,
Speaker 1: Andrew being the A storm was the end of August.
Speaker 1: We had had a very quiet summer that year, and
Speaker 1: not a whole lot had gun on This being the
Speaker 1: d storm ends up being a hundred and eighty five
Speaker 1: mile hour hurricane with two it only takes one storm
Speaker 1: to do horrific damage. And again, I can't imagine what
Speaker 1: it's going to look like on Grand Bahama Island tomorrow
Speaker 1: morning when they finally get a chance to get some
Speaker 1: TV crews in there, just to push this forward. Rob,
Speaker 1: what does it look like in terms of the rest
Speaker 1: of the hurricane season and the other storms that meteorologists
Speaker 1: have been keeping their eye on, Well, it's gonna get
Speaker 1: much more active than it's been, Lisa. We see conditions
Speaker 1: getting ripe in the Atlantic. In fact, we can see
Speaker 1: that this morning there's the potential system that may develop
Speaker 1: in the western Gulf of Mexico. Um it may end
Speaker 1: up being a tropical storm. And then there's a wave
Speaker 1: off the coast of Africa on thirty one west that
Speaker 1: may become a depression within the next couple of days.
Speaker 1: So it's certainly gonna be much more busy in the
Speaker 1: Atlantic over the next month than it's been the previous
Speaker 1: three months. Rob, your pro thanks so much. He is
Speaker 1: our Bloomberg meteorologist for all of our weather storms, snow
Speaker 1: and the rest of it. This is a joy and
Speaker 1: to start this Tuesday, you know it's like New Year's
Speaker 1: in the business world. Every you know, it's like a
Speaker 1: happy Tuesday kind of time, and it is wonderful. To
Speaker 1: start with Lorie Calvacina of OURBC on the equity markets.
Speaker 1: There's a lot of naval gays in this weekend, Laurie
Speaker 1: about what to do all this other noise, bonds, currencies,
Speaker 1: sterling under one nineteen, et cetera. I guess steadfast and
Speaker 1: an equity call or have you amended things? So I
Speaker 1: would say the only thing that's really changed in our
Speaker 1: view over the past, you know, stay a week week
Speaker 1: and had since we had that awful Friday where the
Speaker 1: trade war escalated again, is you know, I would say,
Speaker 1: in the short term, at least we have more conviction
Speaker 1: that we're going to see a full on ten percent pullback,
Speaker 1: and we've said that the risk of having that pulled
Speaker 1: back morphed into what we call a growth scare. We
Speaker 1: think the risks there have risen. It's not our base case.
Speaker 1: By growth scare, I mean something my took what took
Speaker 1: us to the loads of eleven or twenty sixteen, where
Speaker 1: you saw basically like a fifteen to pull back in
Speaker 1: the market. That's not our base case, but we do
Speaker 1: think the risks has risen significantly, So Laurie, a ten
Speaker 1: percent pull back would that be across the board, and
Speaker 1: just sort of talking about correlations, everything going down at once,
Speaker 1: or they're going to be certain sectors hit harder. So
Speaker 1: you know what we always see on these really bad days,
Speaker 1: and you don't necessarily see it in the weekly data
Speaker 1: or the monthly data, but we do tend to see
Speaker 1: some of the names most heavily owned by hedge funds,
Speaker 1: particularly in the T I M T complex, the software space,
Speaker 1: I T services, things that might not necessarily be associated
Speaker 1: with the trade war directly, but that are simply widely
Speaker 1: held on big proxy for equity exposure among the hedgepunk crowd.
Speaker 1: Those are things to watch out for. I mean, you know,
Speaker 1: we we still like things like utilities, reaps, consumer staples.
Speaker 1: Were not necessarily saying that they will go up in
Speaker 1: a pullback. We think they go down less. Lauria, we're
Speaker 1: jargon free, particularly one of Brammo Wosis in the room.
Speaker 1: What is T I M T tech, Internet media and telecoms.
Speaker 1: So I'm a child of the tech bubble. I came
Speaker 1: into the business back in two thousand and that's how
Speaker 1: we used to talk about it then. And what we
Speaker 1: find is, you know, gigs has moved around the sector
Speaker 1: a little bit over the last year. That's really how
Speaker 1: a lot of hedge funds and a lot of growth
Speaker 1: investors do their tech allocations. They lump media and telecomm
Speaker 1: and yeah, we call that. Those of us of a
Speaker 1: later vintage, at least they called that. Stocks with no
Speaker 1: profits continued, well, some of them do. But it is
Speaker 1: interesting to see what you were talking about, Laurie, that
Speaker 1: the idea that hedge fund ownership is a recipe for volatility.
Speaker 1: And I'm wondering what you're increasingly telling and advising clients
Speaker 1: to look at hedge fund ownership of stocks and then
Speaker 1: saying stay away. It's it's something that we've looked at
Speaker 1: for a long time. Um, we have one product that
Speaker 1: we put out. We put this out in August, and
Speaker 1: you know, we do go through and we look at
Speaker 1: the names that are most heavily owned by hedge funds,
Speaker 1: both in terms of dollar value in terms of market
Speaker 1: cap exposure percent of market cap owned by hedge funs.
Speaker 1: What we've actually found is if you go back and
Speaker 1: you look at last year in the second half of
Speaker 1: When you flipped over into the second half of the year,
Speaker 1: it was like flipping a switch. And the names most
Speaker 1: heavily owned by hedge funds, just the biggest market CALF
Speaker 1: names um underperformed pretty uh steadily until you got to
Speaker 1: basically kind of early December, and then they were kind
Speaker 1: of in line performers. But we saw those stocks start
Speaker 1: to break down before the market did. One thing that
Speaker 1: I'm wondering and that LORI, I know that you've embarished
Speaker 1: for a while. The amount of bearished sentiment in the
Speaker 1: market is getting to be sort of growing. Din at
Speaker 1: what point is that a positive indicator for stocks? So
Speaker 1: you know, it's interesting. We have a scorecard where we
Speaker 1: monitor different drivers for equities and one of those drivers
Speaker 1: is investor sentiment and positioning, and we consider it to
Speaker 1: be mixed, and the mixed is on the negative side.
Speaker 1: We still have positioning, which we think has been quite
Speaker 1: euphoric and in the process of unwinding. If you look
Speaker 1: at CFTC data, it's telling you that it's starting to
Speaker 1: catch up with where sentiment itself already is now. Sentiment
Speaker 1: it has been quite bearished, and on some metrics if
Speaker 1: you look at AII, the American Association of Individual Investors.
Speaker 1: Retail sentiment is quite bearished. That's usually a good bye signal.
Speaker 1: But the positioning, especially on the institutional side, which is
Speaker 1: what you're seeing with that CFTC data, it's been lagging
Speaker 1: a bit behind. It's catching up to where that Parish
Speaker 1: sentiment already is. Thank you. We will continue with thrills
Speaker 1: that she could be with us for a substantial uh
Speaker 1: time here this morning she's at RBC Capital Markets. Dana
Speaker 1: i On is joining us now. Dan On BNP PARIBA
Speaker 1: chief US Economist and ahead of Marcus three six in
Speaker 1: North America at former U S. Department of State Chief Economist,
Speaker 1: and Dan I want to start there with your experience
Speaker 1: in UH the State Department. Considering the fact that so
Speaker 1: many economists have basically written off the likelihood of a deal,
Speaker 1: I'm wondering, as we see the increasing expectations for a
Speaker 1: US recession, how much would those get absolutely annihilated if
Speaker 1: there were some trade deal? In other words, you know,
Speaker 1: could the U. S. Economy grow substantially if we remove
Speaker 1: some of these trade tensions? All Right, it's a pleasure
Speaker 1: to be on and that's an excellent question. Um I
Speaker 1: think actually the weakness that we're seeing in the U.
Speaker 1: S economy and in fact around the world. UM, it's
Speaker 1: not driven solely by trade tensions. This was a cycle
Speaker 1: that in manufacturing that began before the trade tensions really
Speaker 1: accelerated them. So even a removal of the trade tensions
Speaker 1: UH may not be enough to, you know, cause the
Speaker 1: the U S and the global economy to rebound that strongly. UM.
Speaker 1: That But that said, there are I think tentative signs
Speaker 1: that perhaps both sides are recognizing the the economic damage
Speaker 1: that this is inflict upon themselves as well as the
Speaker 1: rest of the world. UH and uh. UM. While it's
Speaker 1: really challenging to predict exactly the twists and turns of
Speaker 1: the trade tensions, UM, I think the prospects for a
Speaker 1: ceasefire UM are still there. Okay, So Dan, I'm just wondering,
Speaker 1: given the fact that there are still some chances for
Speaker 1: a ceasefire, what's the likelihood of the US recession the
Speaker 1: next twelve months? So UM. Obviously much will still depend upon, uh,
Speaker 1: how well the trade talks go in September and beyond. UM.
Speaker 1: But I think it's premature to talk about the R
Speaker 1: word right now. It's Uh. Yes, you know, there are
Speaker 1: some important signals, notably the yield curve, which are pointing
Speaker 1: toward UM, toward a recession. But and clearly a deceleration
Speaker 1: and a slowdown in US growth UM is already happening. UM.
Speaker 1: But the you know, the U. S consumer which comprises
Speaker 1: the economy is still strong. UM. There's only tentative signs
Speaker 1: that sentiment maybe shifting. So I think we need to
Speaker 1: see some more data UM coming before we know for
Speaker 1: sure that the consumer is turning. The doctor on your
Speaker 1: note is remarkably global. As you pull it all back
Speaker 1: to the U. S. Economy, I want you to fold
Speaker 1: in Japan right now. You've got a fabulous chart buried
Speaker 1: in your note of the slowdown uh in their domestic
Speaker 1: machine orders versus what else is going on in Japan?
Speaker 1: Is Jerome Powell the central bank or did Japan? Right now? Yes?
Speaker 1: And unfortunately he's in a position where, with so much
Speaker 1: of the rest of the economy and particularly emerging markets,
Speaker 1: I would say, as well as other developed markets hinged
Speaker 1: upon US monetary policy, he is de facto acting as
Speaker 1: a central bank of the world, even if his mandate
Speaker 1: from Congress is of course just the US focused, and
Speaker 1: of course, uh, they're people in washing d C who
Speaker 1: want him to be even more uh solely focused on
Speaker 1: the US rather than the rest of So does that
Speaker 1: do for September eighteen? Lisa? What is it? The fourth authority? Today?
Speaker 1: Third third? So we're like fifteen days away from a
Speaker 1: FED meeting? What is what is the global nature of
Speaker 1: this mean for the chairman? Is he looks to September eighteen? Yeah? So, um.
Speaker 1: Chair Powell has definitely mentioned external conditions as one of
Speaker 1: the three reasons why he has already started cutting rates. Um.
Speaker 1: He believes that this is part of a risk management strategy, UM,
Speaker 1: where the fundamentals themselves may not quite justify already moving
Speaker 1: into an easy cycle. Um, but there's are reasons, including
Speaker 1: as you said, external external global economic weakness that justifies
Speaker 1: rate cutting. So I think he will use similar justifications, UM,
Speaker 1: because the reasons, the three reasons are all still there, uh,
Speaker 1: weak economic conditions, trade tensions, and a muted inflationary outlaw
Speaker 1: uh to support further cuts. So you were saying that
Speaker 1: it's too early to start talking about the R word,
Speaker 1: And whenever anyone says the R word, it makes it
Speaker 1: sound that much more ominous, But we are seeing that
Speaker 1: yield curve, whether it's two tens, whether it's three month tenure,
Speaker 1: wherever you want to slice and dice it, you're seeing
Speaker 1: the inversion persist. Is this time different? Does this sort
Speaker 1: of mean nothing? Yeah, it's always perilous for economists to
Speaker 1: say this time is different when so many times it's
Speaker 1: not actually the case. But I actually do think that
Speaker 1: this time it's a little different. There are reasons to
Speaker 1: believe that structurally, long term interest rates have been depressed lower.
Speaker 1: I mean, in the end of the day, yield curve
Speaker 1: inversion is basically a prediction that short term rates are
Speaker 1: going to continue to fall um and that has always
Speaker 1: been correlated with the recession UM. But you know, but
Speaker 1: the causal channels are complex, and with rates already at
Speaker 1: a relatively low rate, it doesn't take because much this
Speaker 1: time around for the yield curve to invert. You know,
Speaker 1: part of your charm as you took a finance degree
Speaker 1: with an economic degree as well, what is the causal
Speaker 1: transmission of negative interest rates that wasn't in your studies?
Speaker 1: Was it? No? And it's an ongoing area for for
Speaker 1: research right now. Um, and uh, the latest I think
Speaker 1: in academic thinking is that yes, you know, we can
Speaker 1: move somewhat into negative territory. We've already seen that with
Speaker 1: you know, with Switzerland, with some of the Spinavian countries
Speaker 1: and so on. But there reaches a quick point, a
Speaker 1: point where once you depress interest rates, uh in negative
Speaker 1: territory too far. You know, other mitigating strategies like hearing
Speaker 1: et cetera can only do so much before this actually
Speaker 1: trying to be bad for the economy rather than good
Speaker 1: for the economy. And now, as a point, folks, where
Speaker 1: we go. Academic Marvin good Friend at Carnegie Mellon would
Speaker 1: suggest a braver approach on negative interest rates, which deals
Speaker 1: with the amplitude of a difference equation. I mean, if
Speaker 1: you yield with the amplitude and pushed down negative rates
Speaker 1: as we're seeing in Germany right now. In Switzerland, I mean,
Speaker 1: we had a record load tenure yield two hours ago, folks.
Speaker 1: Dr Ron, If we if we boost the amplitude of
Speaker 1: negative interest rates, doesn't that provide instability by definition when
Speaker 1: you recover. Yeah, we were certainly kind of on the
Speaker 1: other side of the looking glass here. Um, none of
Speaker 1: the standard kind of theories sort of accepts that negative
Speaker 1: interest rates are even possible, and yet here we are
Speaker 1: Uh so, yeah, we are in uncharted territory and that
Speaker 1: is always dangerous for for policymakers. Uh and uh and
Speaker 1: for academics. Uh. Maybe kind of exciting for academics, but uh,
Speaker 1: it's it's uncharted territory here. So uh um, I mean
Speaker 1: bottom line. Uh, you know, we can quibble about exactly
Speaker 1: what is the right kind of negative interest rates that
Speaker 1: should be set, but I think the big picture here
Speaker 1: is that at um, the headwinds faced by the global
Speaker 1: economy are not monetary and and uh and credit related
Speaker 1: in nature, and so there's only so much that you
Speaker 1: can use actually a monetary tool to fix non monetary problems.
Speaker 1: You sound like Bill Dudley. I didn't mean that. Dr Ron,
Speaker 1: thank you so much, greatly appreciate it. With BP joining
Speaker 1: us now, Lindsay pegs act. She is Steple chief economist,
Speaker 1: and Lindsay I want to talk about manufacturing. So we've
Speaker 1: got a bunch of readings out from Europe and from
Speaker 1: Asia and they painted the same picture. Factories are producing
Speaker 1: less and it does not seem to be getting better
Speaker 1: anytime soon. Is this something specific to the industrial sector,
Speaker 1: or does this represent a broader, more sustained slowdown that
Speaker 1: will happen regardless of whether the trade tensions are resolved.
Speaker 1: You're right, we have been saying this very steep downward
Speaker 1: trend in manufacturing global manufacturing. Now. I do think that
Speaker 1: at the heart of this weakness is deteriorating trade relations,
Speaker 1: but we were beginning to see weakness bubble underneath the
Speaker 1: surface independent of these trade negotiations. So I do think
Speaker 1: that it's a dual pathway that's really compounding this negative implication.
Speaker 1: So in other words, that you think that it's not
Speaker 1: just simply the new trade regime. And given that, do
Speaker 1: you think that it signals some sort of global recession
Speaker 1: or a sort of deepening of the downturn, or do
Speaker 1: you think that we're seeing things kind of peek out
Speaker 1: here at the bottom. I don't think we can blame
Speaker 1: just trade in terms of the weaker fundamentals that we're seeing.
Speaker 1: And this is something that the Federal Reserve pointed out
Speaker 1: as well. Think, yes, trade negotiations and these tensions have
Speaker 1: exacerbated this downward trend, but we were beginning to see
Speaker 1: the end of a credit cycle, the beginning of again
Speaker 1: these weakening factors already become evident independent of these trade
Speaker 1: negotiations or deteriorating trade negotiations. That being said, when we
Speaker 1: look at the weakness abroad, when we see struggling growth
Speaker 1: in Europe's key economy Germany, Italy, France, China of course
Speaker 1: slowing to the weakest pace of expansion in decades, and
Speaker 1: of course the US still positive but seeing very clear
Speaker 1: signs of weakness and deteriorating composition of growth. I think
Speaker 1: this does sell maybe not a global recession, but certainly
Speaker 1: a non accelerating economic period. What's global economy? What's the
Speaker 1: trended inflation right now? What are the differentials between service
Speaker 1: sector inflation call it two point eight percent and goods
Speaker 1: inflation barely above zero granted recovering, but what are the
Speaker 1: dynamics of inflation you see? Lindsay, Well, that's one of
Speaker 1: the problems, and that's one of the issues that the
Speaker 1: Federal Reserve has struggled with, the fact that there's really
Speaker 1: two tales of inflation. When we look at goods inflation,
Speaker 1: this is primarily reflecting the fact that this is a
Speaker 1: global economy, and when we see the goods to produce
Speaker 1: at a cheaper level overseas, we import that deflation and
Speaker 1: here in the US, and that's restraining goods prices. But
Speaker 1: of course services are harder to export overseas, and what
Speaker 1: we're seeing is more of an inflationary environment, okay, which
Speaker 1: has been trending well above two percent. But of course
Speaker 1: monetary policy can't be two different types of policy to
Speaker 1: combat those those different lindsay, I cooked a barbecue this weekend,
Speaker 1: cater by shake check and and and in doing it
Speaker 1: you go real Simply is the inflation what our listeners
Speaker 1: feel translated service sector inflation like books Brandy Melville and tuitions,
Speaker 1: or is the inflation a lower statistic? Which is it? Well, remember,
Speaker 1: as consumers, we feel the brunt of that, regardless of
Speaker 1: whether it's goods inflation service inflation. We feel the composition
Speaker 1: of that because we're paying for those goods and services.
Speaker 1: But from a monetary policy standpoint, the set has to
Speaker 1: be very careful and the FETE has to look at
Speaker 1: the differences that we're seeing. And we still are seeing
Speaker 1: very stable services cost while above or should say well
Speaker 1: anchored above two percent versus goods costs, which again can
Speaker 1: reflect some of those international pathways and and flows of
Speaker 1: capital and goods. So the FED doesn't want to overreact
Speaker 1: to one category of declining prices. But I think more broadly,
Speaker 1: when we look at the PC, both the headline and
Speaker 1: the core, they're well below two percent, and the FED
Speaker 1: was appropriate to act. In July, lindsay, I'm glad we
Speaker 1: brought up the consumer. How long can can the consumer
Speaker 1: stay strong with business confidence declining? There to the degree
Speaker 1: that it has been well, it's it's shocking really that
Speaker 1: the consumer has been able to stay this strong for
Speaker 1: this long, not only with confidence speaking, but it was
Speaker 1: really a lack of meaningful wage gains. We have seen
Speaker 1: wage games pick up to be abso to be fair,
Speaker 1: more recently, but we're talking about minimal tenth of a
Speaker 1: percentage point ten years into the recovery. If we were
Speaker 1: honestly talking about such a pronounced improvement in the labor
Speaker 1: market with such a minimal amount of slack, we would
Speaker 1: easily have been talking about four or four and a
Speaker 1: half percent wage games on a sustained basis. So it's
Speaker 1: very surprising to me that the consumer has been this
Speaker 1: resilient without meaningful wage gains. Okay, okay, the wage gains
Speaker 1: aren't there or is it? They're all skewed to the
Speaker 1: upper x per cent? I mean, is there a part
Speaker 1: of America getting a seven, eight, twelve percent wage gain
Speaker 1: and there's another part of America flat on our back? Actually,
Speaker 1: you're exactly right. We're not seeing these wage games expand
Speaker 1: across the entire economy. And in fact, I think the
Speaker 1: biggest divide. But I think the biggest divide is between
Speaker 1: the skills havevers and that those that appropriate skills. And
Speaker 1: so when you're looking at manufacturing wages, mining, how about
Speaker 1: the service sector, You're struggling to keep up with inflation
Speaker 1: in terms of your wage games. But if you're lucky
Speaker 1: enough to have a job and engineering i t. Computer science,
Speaker 1: you could actually be experiencing five six wage games. So
Speaker 1: there's a very clear divide between the specific skills and
Speaker 1: employers want and those that that employees have. Lindsay Piezka,
Speaker 1: Thanks so much, Lindsay pieza step chief economist, joining us
Speaker 1: to talk all things economics. It is the new year.
Speaker 1: It is all I was. I was pulling out Reminiscence
Speaker 1: of Stock Operator, like you read it every September. I
Speaker 1: know Christian Maman he's read it like fourteen. At times
Speaker 1: he's with Invesco and with a wonderful perspective on what
Speaker 1: to do and not to do in the market creation.
Speaker 1: If I take my Bloomberg terminal and I put my
Speaker 1: hand over the equity markets and look at everything else
Speaker 1: in the terminal, there's no way I would suggest this
Speaker 1: resiliency and equities. Let's start with the why of August
Speaker 1: and the why of the summer. Why have equity has
Speaker 1: been so resilient? Well, so, equities have been resilient because
Speaker 1: the overall profitability of US companies, despite what you may
Speaker 1: have heard from people, is actually quite good, and interest
Speaker 1: rates are quite low as well. So that combination of
Speaker 1: good profitability and other alternatives being not so not so hot,
Speaker 1: I think keeps people focused on equities. So is clearly
Speaker 1: the issue for just financial markets in general, risk assets
Speaker 1: in particular has been the uncertainty about trade. How are
Speaker 1: you kind of factoring that into your overall outlook for markets?
Speaker 1: Well so for the US markets anywhere, the trade remains
Speaker 1: the central issue. And just to be clear, if things
Speaker 1: get far worse, I think the markets are going to suffer.
Speaker 1: Having said that, I think in the current context, when
Speaker 1: we are simply talking about tariffs. That is the Trump
Speaker 1: administration implementing certain tariffs on virtually all of Chinese exports.
Speaker 1: We know what the implication of that is. That is
Speaker 1: effective financial consolidation. That is a tax on US consumers,
Speaker 1: And we know what the impact of that is going
Speaker 1: to be. You know, it's not good, but it is
Speaker 1: not going to be catastrophic. Be you know, there's enough
Speaker 1: momentum in the economy from jobs and income growth for
Speaker 1: for people to live through that. If somebody's equity international
Speaker 1: domestic because somebody told him to do that at the margin,
Speaker 1: now are you stable or increasing international ownership or you
Speaker 1: migrating at the margin over the US domestic ownership. So
Speaker 1: US valuations relative to international valuations are substantially worse in
Speaker 1: that US equities are meaningfully more expensive. So I think,
Speaker 1: at at the margin, despite the fact that it may
Speaker 1: take a while for all of this to play out,
Speaker 1: the incremental allocation from my perspective, is really going into
Speaker 1: emerging markets because valuations in the emerging markets are extraordinarily attractive,
Speaker 1: and the trend for inflation and rates and emerging markets
Speaker 1: is lower. So Christian as we think about you know,
Speaker 1: the the trade uncertainty in the marketplace. It kind of
Speaker 1: puts the FED in even a more difficult position here
Speaker 1: to may perhaps think it might have to kind of
Speaker 1: be a bull work a little bit against what some
Speaker 1: of the negative effects of uncertain trade. What do you
Speaker 1: expect the FED to do over let's call the next
Speaker 1: several quarters and and do you think it will be enough?
Speaker 1: Well so, I think Chair Powell actually indicated in his
Speaker 1: jackson Hole speech as to what he's going to going
Speaker 1: to be doing. You know, despite his characterization of a
Speaker 1: mid cycle recalibration, after the July meeting, it becomes it
Speaker 1: has It has become quite clear to me that if
Speaker 1: the markets, or if the economy not the markets, if
Speaker 1: the economy needs it, I think they will be providing
Speaker 1: more supportant I think the economy could certainly use that
Speaker 1: support for it to carry through whatever on. Certainly the
Speaker 1: Trump administration has created so my expectation is they are
Speaker 1: probably going to cutting in September, and they probably cut
Speaker 1: in October, and and perhaps one more time in December. Again,
Speaker 1: there's enough momentum, but I think providing that support and
Speaker 1: environment where there's no inflation is probably the right thing
Speaker 1: to do. What is the catalyst for international improvement relative
Speaker 1: to standard and is it financial earnings based revenue growth
Speaker 1: catalyst or is it all political? I think it is
Speaker 1: at the moment it is all political. It is trade wars,
Speaker 1: it's a Brexit. It's these things that are dominating the conversation.
Speaker 1: I think there's the profitability of international companies, and especially
Speaker 1: in the emerging markets is good enough. It's just that
Speaker 1: in the current context, nobody wants to buy any of
Speaker 1: these because tomorrow they could be some or cheaper. On
Speaker 1: the other hand, if you have a five tenure investment horizon,
Speaker 1: this may be the opportunity that you have been waiting
Speaker 1: for for quite some time. So Christian, one of the
Speaker 1: things that's certainly been supporting economies around the world, but
Speaker 1: certainly the US has been the consumer. We're gonna get
Speaker 1: some more jobs data ended this week. What's your sense
Speaker 1: of the consumers? You know, really overall underlying strength. So
Speaker 1: if you if you look at kind of real time
Speaker 1: data for months of August, and we're talking about August
Speaker 1: jobs data coming in September, that the activity level actually
Speaker 1: has been relatively stable, and you can kind of piece
Speaker 1: all of that together looking at all the other indicators.
Speaker 1: So from from that standpoint, the near term outlook for
Speaker 1: jobs and income growth is quite good. Uh. You know,
Speaker 1: the if the current uncertainty persists, the challenge is really
Speaker 1: going to be more in in uh maybe by November
Speaker 1: December of this year, or more likely in twenty. So
Speaker 1: right now there's enough momentum in the enemy. Jobs growth
Speaker 1: would be good, income growth is going to be good,
Speaker 1: and therefore consumption is going to be supported. Christian on
Speaker 1: the banks, please help us and domestic banks and international
Speaker 1: large camp banks, where's the best opportunity now? Well so,
Speaker 1: you know, but the domestic banks in in general, actually
Speaker 1: banks in general, in my mind, have been the ultimate
Speaker 1: value trap. That is, you know, if they have a
Speaker 1: great deal of profitability, but their current business model in
Speaker 1: the environment today of rates and all the disruption that
Speaker 1: is taking place, is just not conducive enough to meaningful
Speaker 1: growth in that profitability, and that is going to be
Speaker 1: a challenge for the sector for the foreseeable future. Having
Speaker 1: said that, they're really good value and if you want
Speaker 1: to kind of take up take a value approach to things,
Speaker 1: thanks representing especially US banks represented quite good value. But
Speaker 1: they're not going up anytime soon. You're You're there. Dividends
Speaker 1: more than anything. El Christie, thank you so much. Thanks
Speaker 1: for listening to the Bloomberg Surveillance podcast. Subscribe and listen
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Speaker 1: you prefer. I'm on Twitter at Tom Keane before the podcast.
Speaker 1: You can always catch us worldwide. I'm Bloomberg Radio