Speaker 1: This is the Bloomberg Surveillance Podcast.
Speaker 2: I'm Tom Keane, along with Jonathan Farrow and Lisa Abramowitz.
Speaker 2: Join us each day for insight from the best and economics, geopolitics,
Speaker 2: finance and investment. Subscribe to Bloomberg Surveillance on demand on Apple,
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Speaker 2: Cameron Dawson tear eyed over the quality of that data.
Speaker 2: Check Cio of New Edge Wealth joining us right now.
Speaker 2: What's your conviction the next year? I'm talking about you
Speaker 2: need to get conviction.
Speaker 1: Now, do you have a lot of conviction?
Speaker 3: I think that we have to judge as we go
Speaker 3: into the end of the year when we look at
Speaker 3: where we in the year with positioning and sentiment and
Speaker 3: valuations and earnings expectations, because if we get to a
Speaker 3: point where those things are stretched, where people have been
Speaker 3: drawn into the market, everybody chases the market into a
Speaker 3: rallying to the year end, that's when you probably want
Speaker 3: to start asking questions of how sustainable or durable is
Speaker 3: We learned that lesson really powerfully this year in the
Speaker 3: opposite direction. People were underweight, valuations had come in, positioning
Speaker 3: was very light, and that set up for a very
Speaker 3: powerful year this year.
Speaker 4: One really difficult thing for a lot of people is
Speaker 4: to get two things right. Won the call on the
Speaker 4: economy and to what the economy means for financial markets.
Speaker 4: I was looking at Deutsche Bank's call yesterday least when
Speaker 4: I were going back and forth on this, They've got
Speaker 4: recession one hundred and seventy five basis points of cuts.
Speaker 4: Then bink chat is saying fifty one hundred on the SMP.
Speaker 4: Is good news bad news? Or is bad news good news?
Speaker 5: What is it?
Speaker 3: I mean, it's sort of that I want it all
Speaker 3: and I want it now kind of mentality, which is
Speaker 3: that I want a FED that's supportive, and I want
Speaker 3: an economy and earnings that are going to be growing
Speaker 3: very strongly. And I have to think that we need
Speaker 3: to ask the question of if a strong economy and
Speaker 3: strong earnings are consistent with having FED rate cuts and
Speaker 3: a recession, and if we can have both at the
Speaker 3: same time, meaning that if the FED is cutting rates,
Speaker 3: can we really grow earnings at twelve percent next year?
Speaker 3: Do we actually have the potential that we could have
Speaker 3: a third year in a row of earnings being closer
Speaker 3: to flat. If we have a recession.
Speaker 6: Well, this is John Sulfis basically saying people think we're
Speaker 6: late cycle, we're actually mid cycle. That if the Federal
Speaker 6: cuts rates is just sort of a mechanical year over
Speaker 6: year trying to adapt restrictiveness to inflation, and that that
Speaker 6: will pave the way for companies to continue to evolve,
Speaker 6: particularly in the consumer cyclicals.
Speaker 7: Thoughts.
Speaker 3: Yeah, it's interesting. You go back to the times when
Speaker 3: the Fed cut rates and we didn't have a recession
Speaker 3: ninety five, ninety eight, and twenty nineteen. What's interesting is
Speaker 3: that the Fed was actually very fearful of a recession
Speaker 3: in each of those times. They talked about the US
Speaker 3: not being an island. What's interesting is that the market
Speaker 3: wasn't scared of a recession. There was no impact to earnings.
Speaker 3: You had the market hitting all time highs as they
Speaker 3: were cutting rates. So I think we have to take
Speaker 3: the cue from the market if it starts to sniff
Speaker 3: out that data is weakening, that data is starting to
Speaker 3: come in where we need to be cutting earnings stents
Speaker 3: we don't hit all time highs in markets, that's when
Speaker 3: you'd say maybe recession risk is actually higher.
Speaker 6: So what's your conviction is it to basically shift away
Speaker 6: from the conviction of everybody else that equities are going
Speaker 6: to go higher and to take the other side.
Speaker 3: I think it's incredibly important to remain invested even in
Speaker 3: times of uncertainty, and the way that we do that
Speaker 3: is focusing on quality, focusing on companies that can block
Speaker 3: and tackle, which just means that I want to take
Speaker 3: out the risk that the economy is going to roll
Speaker 3: over and I'm going to have big earnings downside. But
Speaker 3: I also don't want to be over levered. I don't
Speaker 3: want to be overextended on risk having to have the
Speaker 3: best case scenario in order for my investments to work.
Speaker 3: So it's still that middle ground. It's worked really well
Speaker 3: this year, it likely works really well next year as well,
Speaker 3: as we think we are still in that late cycle environment.
Speaker 2: What's so interesting to me is the idea of developing
Speaker 2: a conviction with five percent money market fund trillions out there.
Speaker 2: Is part of your optimism of that money shifts given
Speaker 2: disinflation yields?
Speaker 3: Yeah, you know, it's a really good question. If all
Speaker 3: the money market funds is truly investible cap.
Speaker 1: Not all, but even at the margin that supports the bid.
Speaker 3: And we do know that investors compared to the twenty
Speaker 3: twenty two peak are about three percent less allocated to
Speaker 3: equities than they were at the peak and twenty twenty
Speaker 3: two looking at the AAII data, so that would suggest
Speaker 3: that there is still money on the sidelines, that there
Speaker 3: still is positioning to be drawn back in. And the
Speaker 3: good news is that there's cash, there's liquidity. In order
Speaker 3: to do that, we'll have to continue to watch that
Speaker 3: data because once people get fully invested.
Speaker 1: This is critical. I don't mean to interrupt, but you've
Speaker 1: nailed it. Three percent as the delta here from.
Speaker 2: AAI or whatever it is, AARP, whatever. But the answer
Speaker 2: is if that money shifts and makes up the three
Speaker 2: percent difference, what does that do in SMP or Dell points.
Speaker 3: Well, it likely means that we can continue the rally,
Speaker 3: But then it calls into question the durability of the rally.
Speaker 3: Do we test the twenty twenty two high, do we
Speaker 3: break through it with gusto and really have the kind
Speaker 3: of rally that we saw coming out of time like
Speaker 3: twenty eighteen, twenty nineteen, or instead, do we have this
Speaker 3: sideways chop that looks a lot more like what we
Speaker 3: experienced in the seventies or even in the two thousands.
Speaker 4: And it's Chris Harvey is talking about did you just
Speaker 4: request a down forecast?
Speaker 1: I did, just busting this.
Speaker 5: You have a down forecast?
Speaker 3: Absolutely not.
Speaker 5: I'm sorry. That was beautiful. Do you want to explain
Speaker 5: why you don't have a down forecast.
Speaker 3: Because it's a price weighted index?
Speaker 5: Thank you, Cameron Tak Is that enough?
Speaker 2: Jar Denney SPX five thousands, forty one thousand.
Speaker 5: On the show clip that?
Speaker 6: I mean, honestly, you guys just gonnatrol each other all
Speaker 6: morning beautiful.
Speaker 5: And I said, the perfect ending to this exchange was
Speaker 5: very good. You know it was great.
Speaker 1: It was very good. Camera.
Speaker 5: Thank you. It's going to see it. Cameron Dawson, I
Speaker 5: knew ittch Wealth, welcome back anytime.
Speaker 2: I'm going to play this off my book of the
Speaker 2: year years ago, Ken rog I was very courageous, The
Speaker 2: Curse of Cash. He's writing about where we are with
Speaker 2: digital currencies, what the Bank of International Settlements in Geneva thinks,
Speaker 2: what Central Bank says.
Speaker 1: He was at the New York Fed. Thanks.
Speaker 2: Bill Dudley joins us right now writing an important column
Speaker 2: on c B d C central bank digital currencies, Bill Dudley,
Speaker 2: very valuable and thought provoking. This morning, we just saw
Speaker 2: criminal trials, guilty verdicts, maybe appeals involved. But are we
Speaker 2: getting away from the presumed criminality, the punishment, the secrecy
Speaker 2: that Ken Rogoff had the courage to talk about.
Speaker 8: Well, I think that the crypto space is in disarray
Speaker 8: right now, and the real question now is our central
Speaker 8: banks around the world going to introduce central bank digital
Speaker 8: currencies to sort of take up that slack. I think
Speaker 8: that's going to happen, probably going to be more evolutionary
Speaker 8: than revolutionary, because it depends on what payment system that
Speaker 8: you're starting with. I think we're central bank digital currencies
Speaker 8: could play a very very important role. This is highlighted
Speaker 8: a new paper that we put out by the brent
Speaker 8: Witz Committee is really on cross border payments. We had
Speaker 8: a system of central bank digital currencies where the interfaces
Speaker 8: were harmonized, you could probably execute payments on a cross
Speaker 8: border basis at a fraction of the cost. Today, for
Speaker 8: a lot of migrant workers when they're sending their payments abroad,
Speaker 8: it costs over five percent of the value of the
Speaker 8: payment just to execute the trade. It's very slow. So
Speaker 8: we can certainly do a lot better than than we're
Speaker 8: doing right now now in this process. The FIT is
Speaker 8: very far far behind in terms of their work on
Speaker 8: central bank digital currencies, and in the US there's a
Speaker 8: quite a bit of skepticism about the need for central
Speaker 8: bank digital currencies.
Speaker 9: Why is this work continue?
Speaker 1: Well, that's so hard of the matter.
Speaker 2: I'm going to go to Raphael Our owns a high
Speaker 2: ground on this at BIS. He's documented the incredible friction
Speaker 2: of transactions in the real world. We all thought we'd
Speaker 2: be trading bitcoin and you know, John would be down
Speaker 2: at Selene trading bitcoin for a sweater, but the answers
Speaker 2: were not. We could really get down to where this
Speaker 2: is efficacious for central banks. We could really squeeze us
Speaker 2: down to where there's no transactional friction.
Speaker 8: Well, that'll obviously always give a little bit of transactional friction,
Speaker 8: but we can do a lot better than we're doing
Speaker 8: right now. I mean, in central bank digital currencies should
Speaker 8: be a pretty significant improvement over cash. I'll be just
Speaker 8: the safest cash, but in terms of the fault risk,
Speaker 8: because you'll be guaranteed by the sovereign.
Speaker 9: Nation, but you don't have worries about storage.
Speaker 8: You can transact with digital cash across long distances, So
Speaker 8: to me, it's like cash plus it's superior to cache
Speaker 8: and something that we the US should start to innovate on.
Speaker 6: There's a concern bill that as you disintermediate banks, essentially
Speaker 6: those agents that really capitalize from those frictions that exist,
Speaker 6: that some of the functioning of markets that traditionally has
Speaker 6: supported things like treasuries starts to ebb away. How concerned
Speaker 6: are you as you start to adopt new, less friction
Speaker 6: build methods and as capital markets slow in the wake
Speaker 6: of rate hikes, how much does that really disintermediate banks
Speaker 6: that really are still essential for the functioning of the
Speaker 6: treasury market.
Speaker 8: It really depends on central bank digital currency design, and
Speaker 8: I think there you want to have a two tier
Speaker 8: system where the banks continue to own the customer relationships.
Speaker 8: Central banks don't want to have customer relationships with hundreds
Speaker 8: of millions of households, so.
Speaker 9: They should hand that off to the banking system.
Speaker 8: The second thing you want to do is make sure
Speaker 8: that the central bank digital currency doesn't pay interest. If
Speaker 8: it doesn't pay interest, it's basically going to be used
Speaker 8: for payments, not for investment, So that preserves the role
Speaker 8: of the central of commercial banks as intermediaries.
Speaker 9: So I think if you do those two things essentially
Speaker 9: protect that.
Speaker 8: The commercial banking system is providing financial intermediation services, but
Speaker 8: the central bank helps provide a better payments medium.
Speaker 6: The reason why I ask is on a broader sense
Speaker 6: away from digital currencies, is there is increasing concern about
Speaker 6: how much of the risk taking activity and how much, frankly,
Speaker 6: of financial market functioning has moved outside of the highly
Speaker 6: regulated banks into the private sector. Earlier this morning, UBAS
Speaker 6: chair Clem Kelliher came out warning again that there's a
Speaker 6: bubble in private markets and that there's risks building there
Speaker 6: as an increasing amount of lending moved to that area.
Speaker 6: Are you concerned about that? Do you think that there
Speaker 6: is this sort of situation forming on the heels of
Speaker 6: rate hikes, on the heels of the more tightly regulated
Speaker 6: banks that deserves greater scrutiny.
Speaker 9: Absolutely?
Speaker 8: I think this notion that all we need to do
Speaker 8: to fix the problems that we saw in March of
Speaker 8: twenty twenty in the banking system is to appile a
Speaker 8: lot higher capal requirements on the largest banks.
Speaker 9: I think that's misguided.
Speaker 8: Increase the cabal requirements on the biggest banks, You're just
Speaker 8: going to push activity out into the non regulated banking sector,
Speaker 8: and that's going to make the financial system less secure,
Speaker 8: more unstable than the current regime.
Speaker 9: So I think we need to think.
Speaker 8: Really hard about what were the problems in March twenty
Speaker 8: twenty and how to address them.
Speaker 5: Bill, thanks for catching out with us.
Speaker 4: Give us an your view on that built outly the
Speaker 4: former New York Fed President.
Speaker 1: Lie So this is joy.
Speaker 2: Why don't you bring in mister Mayo here because he's
Speaker 2: all AI in bankings.
Speaker 6: Which makes me very happy actually because Thanksgiving dinners several
Speaker 6: of them. All of the discussion was about artificial intelligence.
Speaker 6: Mike Mayo focused on artificial intelligence as well, saying that
Speaker 6: it's not just going to be in big tech, it's
Speaker 6: also going to be in banks that you need to
Speaker 6: have AI talent at the financial institution, saying the marriage
Speaker 6: of banks with tech, including AI, is a long term
Speaker 6: positive that can help the industry trend toward record efficiency.
Speaker 6: Joining us now is the one and only Michael Mayo, Mike,
Speaker 6: thank you so much for being with us. So tell
Speaker 6: us just how much banks could benefit at a time
Speaker 6: where people have written them off as utilities that are
Speaker 6: overspending and are not going to make big returns.
Speaker 10: Well, if you're a bank and don't have an AI strategy,
Speaker 10: then you don't have a strategy because if the bank
Speaker 10: across the street has calculators or spreadsheets or Bloomberg terminals, yes,
Speaker 10: and you don't have those, then how are you going
Speaker 10: to compete? So AI is here to stay. The marriage
Speaker 10: of banks and tech has been a good one. It's
Speaker 10: stalled recently, but I think AI can rekindle that relationship
Speaker 10: by taking the productivity benefits which have been revenues per
Speaker 10: employee have improved by one third over the last decade.
Speaker 10: So banks and tech have been working, but I think
Speaker 10: AI can take that to another level.
Speaker 2: Is it a kind of thing where there'll be a
Speaker 2: few winners you mentioned Golias Mike Mayo in your noe
Speaker 2: is a kind of thing where four or five will
Speaker 2: win and the rest lose? Or can it actually be
Speaker 2: a benefit distributed across the industry?
Speaker 10: Well, I think most jobs at banks will be impacted.
Speaker 10: I mean, think of what I do. I'm an analyst,
Speaker 10: and analysis can be improved by this extra tool called
Speaker 10: a Now I do think there will always be a
Speaker 10: human in the loop for most cases. In other words,
Speaker 10: to prepare for your show today, Lisa and Tom, I
Speaker 10: went to chat GPT and said, what should I say
Speaker 10: in one sentence about this? And they said it's a
Speaker 10: revolution that will enable productivity, savings and better customer service.
Speaker 10: Well that's an improval. Well that's an improved starting point.
Speaker 10: But you know it's partly wrong. First, I'm not sure
Speaker 10: it's a revolution, especially at banks. It tends to be
Speaker 10: more of an evolution, and simply by enabling that potential
Speaker 10: doesn't mean that becomes a reality. And you've seen false
Speaker 10: starts cloud, You've had some buyers remorse. Blockchain didn't come
Speaker 10: out as quickly as expected. You know the dot com
Speaker 10: bubble one point. Oh, Tom, you remember all these Internet
Speaker 10: pollows which didn't survive. So I'm positive on the implications
Speaker 10: of AI, but I also I'm aware of the.
Speaker 1: Cast come back even further. George Ball E. F. Hutton.
Speaker 1: They blew it.
Speaker 2: They couldn't keep up on technology.
Speaker 1: This is Lisa.
Speaker 2: When there were cards with holes in them and a
Speaker 2: thing called Fortran. The answer is I want to know
Speaker 2: who the losers are going to be in this. I mean,
Speaker 2: I know you've got single best buys in all this,
Speaker 2: but what is the scale of the losers that you
Speaker 2: see in.
Speaker 1: Technology and banking three to five years out.
Speaker 10: Well, I do think Goliath is winning, and you have
Speaker 10: this poll by Evident. I know they've had the founders
Speaker 10: on your show. In fact, they have an all day
Speaker 10: conference in New York City tomorrow. So JP Morgan is
Speaker 10: number one front and center right now and their investment
Speaker 10: in technology are paying off. I'm surprised to see City
Speaker 10: Group in the top ten for all their issues with
Speaker 10: their back office, and they have major issues. They're making
Speaker 10: some efforts with AI. On the other hand, those banks
Speaker 10: that have not advanced with digitization and the cloud and
Speaker 10: getting their data together could struggle. And I do wonder
Speaker 10: about some of these mid sized banks. I mean, do
Speaker 10: they have the scale to really leverage these solutions and
Speaker 10: getting talent. Talent is such a big issue and you
Speaker 10: can't just buy talent off shelf. You can get solutions,
Speaker 10: but who's actually going to implement those solutions in each
Speaker 10: business line?
Speaker 6: So when I'm listening to you, I'm thinking how much
Speaker 6: are they're going to pay them. I mean, we're talking
Speaker 6: about open AI paying eight hundred thousand dollars to engineers
Speaker 6: at just at of a base level. I mean, how
Speaker 6: much your bank's going to have to pay some of
Speaker 6: this talent to come to their bank and develop similar
Speaker 6: solutions that can effectively support and reduce certain headcount in
Speaker 6: certain areas well.
Speaker 10: I think what you'll see is you'll see a reduction
Speaker 10: in headcount and some of those savings plowed back into
Speaker 10: paying other employees more money, especially AI engineers. They're in
Speaker 10: serious demand. But if you go to one of the
Speaker 10: largest banks, you have a whole career path. You can
Speaker 10: scale these solutions across tens of millions of customers as
Speaker 10: opposed to going to a smaller bank. I mean, what's
Speaker 10: your pitch. Now? There are some smaller banks in this
Speaker 10: evidence survey that performed quite well because they were already
Speaker 10: ahead on technology. So I think those winning in technology
Speaker 10: can keep winning more and those that are behind are
Speaker 10: going to have to have kind of a existential moment here.
Speaker 6: This can all work if banks have the cash to
Speaker 6: invest right and that sort of you put a pause
Speaker 6: on that at a time when potentially there could be
Speaker 6: a slow down and there could be some kind of
Speaker 6: reduction in revenues tied to slowing capital markets how much
Speaker 6: I understand this is a longer term call, but how
Speaker 6: much do you see a thawing in that kind of
Speaker 6: environment next year versus a tightening and the screws I mean,
Speaker 6: this is sort of one of the big disagreements for
Speaker 6: the backdrop for banks and capital markets activity at a
Speaker 6: time where yields are still high, but we also are
Speaker 6: potentially going to start seeing the effects of that.
Speaker 10: Well, I promise you I will be the first analyst
Speaker 10: to ask that question or earnings calls. If banks are
Speaker 10: spending too much money. Banks have no choice because of
Speaker 10: the headwinds from rates, recession possibility, and regulation. They must
Speaker 10: get more efficient. So if I'm the CEO of any
Speaker 10: bank and you're coming to me with the program for
Speaker 10: AI and want to invest a lot of money, I'd say, great,
Speaker 10: where are you saving the money to fund that?
Speaker 2: Nobody cares. All we want to know from Mike Mayo
Speaker 2: is what to do this year? Twelve months out, twelve
Speaker 2: months ago now flat on its back. We've had a
Speaker 2: magnificent seven moonshot right now. Keith briat Indexes twenty five
Speaker 2: percent above the pandemic low. Is this the year twenty
Speaker 2: twenty four of the banks? Do you load the boat
Speaker 2: here on banking?
Speaker 10: Well, look, the long arc of the benefits of the
Speaker 10: industry de risking has still yet to play out. Banks
Speaker 10: didn't get credit through the pandemic. The excuse was the
Speaker 10: government stimulus. Right now, you had some smaller regional banks
Speaker 10: fail earlier this year, so it's still delayed. So I
Speaker 10: still think over the next two to three years you
Speaker 10: see the benefit of the improved banking industry resiliency play out,
Speaker 10: and then they aren't as risky as perceived and they
Speaker 10: re rate at least back to historical And then the
Speaker 10: bigger question is longer term for the rerate above. Now,
Speaker 10: it's not immediate tom. I think as you get further out,
Speaker 10: you get better inflection points when it comes to banks,
Speaker 10: bread revenues, interest rates, effects, monetizing that capital markets backlog,
Speaker 10: and more clarity on regulation, which is a very big issues.
Speaker 6: Still, just real quick, just to follow up on the AI,
Speaker 6: what is the right AI investment? Is it getting some
Speaker 6: sort of application to write your reports for you. Is
Speaker 6: it being able to collate data from your customers to
Speaker 6: basically prescribe what they're going to do or want. What's
Speaker 6: the correct way.
Speaker 10: There's no one size fits off when it comes to
Speaker 10: AI investments. It's about banks tailoring those AI investments to
Speaker 10: their use cases that they have that's unique to them.
Speaker 10: So I find interesting anything related to compliance, fraud, cyber
Speaker 10: that's where you're seeing some really low hanging fruit early benefits.
Speaker 10: I think when it comes to some additional automation in.
Speaker 11: The back office.
Speaker 10: I love what it can do for technology, the idea
Speaker 10: of Cobyl program change to Python, change to c plus plus,
Speaker 10: the ability to change archaic code. And by the way,
Speaker 10: most or almost all large banks still are advertising for
Speaker 10: Cobyl programmers.
Speaker 1: Tom, why are you killing me?
Speaker 10: By my first programming class at punch cards too.
Speaker 1: So fourteen Yeah, what were that? Ancient? Lisa is like,
Speaker 1: what are they talking about? Single?
Speaker 10: Best buy ten seconds, JP Morgan and City Group. I
Speaker 10: had said, Okay, Barbell.
Speaker 2: Approach, Barbell approached, Mike Mayol, thank you so much, as
Speaker 2: WILLI s Fargo.
Speaker 4: Kati Kaminski, Chief Investments, trying to just to Alpha Simplex
Speaker 4: joins us now Katie the journey the low on a
Speaker 4: tenure yield back in twenty twenty in spring fifty basis
Speaker 4: points the high over the last couple of months through
Speaker 4: five percent. It paid to be short this bond market.
Speaker 4: You have been short, but the turnaround in the last
Speaker 4: couple of months has been brutaled the other way. We've
Speaker 4: come from five percent down to four forty on a
Speaker 4: ten year Katie, you've been short. Are you still short?
Speaker 5: And if you are, why, Yes, still short?
Speaker 7: But that has to do with different signals having different views.
Speaker 7: Take a look at the chart for the year. If
Speaker 7: you look at the year chart, the last month has
Speaker 7: been a miraculous turnaround relative to where we've come. So
Speaker 7: we're still way ahead of where we began the year,
Speaker 7: even prior to what happened in post what happened in
Speaker 7: the regional banking crisis. And so I think the key
Speaker 7: question to ask yourself about bonds right now is where
Speaker 7: are we going next? We have been looking all year
Speaker 7: for a distant version of the curve, and we got
Speaker 7: that in October, and the next point is still really uncertain.
Speaker 7: Are we moving to a steeper curve and if so,
Speaker 7: which way? Or are we just going to move around
Speaker 7: and sort of a range until we figure out what's
Speaker 7: actually happening with the Fed.
Speaker 6: Katie, Why is it not as simple as taking a
Speaker 6: look at the economic data coming out showing that it
Speaker 6: is disappointing much more frequently than it is outperforming, and
Speaker 6: just sort of leaning into that which the rest of
Speaker 6: the market seems to be doing.
Speaker 7: This is a good question, because really what I find
Speaker 7: the most concerning about the last month is there's been
Speaker 7: a massive has gone rally on weaker economic data, and
Speaker 7: that to me is sort of a relief rally from
Speaker 7: where we've come, because we've been through a lot, particularly
Speaker 7: in bonds, and so I think most people are buying
Speaker 7: right now because they're saying, if we see cuts soon,
Speaker 7: then we know that yields are going to come down.
Speaker 7: My concern is that it could take a lot longer
Speaker 7: than people think, pointing out that inflation is still way
Speaker 7: above target, or at least one percent above target, so
Speaker 7: we could take a year or so to get there.
Speaker 7: People are very quick to think that things are over
Speaker 7: when they take time to actually get through the system.
Speaker 1: Katie, we're setting up for the new year.
Speaker 2: I want to go back to the advent of all this,
Speaker 2: and this is trend based studies, and it's Andrew Low
Speaker 2: the giant, and you know, working with Elf Simplex and
Speaker 2: Wells Wilder and Monroe Trout, John Henry and the rest
Speaker 2: and the Germaine question twenty years ago is the same today.
Speaker 2: If you look at trend based studies or the complexity
Speaker 2: of trend based setups, are they elegant right now? Is
Speaker 2: the math good or are you blind?
Speaker 9: Well?
Speaker 7: Turning points are notoriously difficult for trend following. It's because
Speaker 7: we're not really set up to pick the tops and
Speaker 7: bottoms of big moves. And what happens in these turning
Speaker 7: points is we have to figure out using math, where
Speaker 7: is the next step of the trend. And that's where
Speaker 7: right now is an inflection point. And I'm looking forward
Speaker 7: to see if we can actually see that steeper curve.
Speaker 7: And when we've done historical analysis, what you do see
Speaker 7: is flat curves or steepening of curves. Is very difficult
Speaker 7: for trend signals because it's moving.
Speaker 9: Everything's moving, so.
Speaker 2: It's a stochastic environment and you've got to find a
Speaker 2: new trend. What is the key attribute for our listeners
Speaker 2: and viewers to establish the trend?
Speaker 7: Well, I think the key thing that we always think
Speaker 7: about as trend followers. We try to blend different views.
Speaker 7: So right now, the long term view is still cautious.
Speaker 7: The shorter term view is very very optimistic, And if
Speaker 7: you combine those two together, you're really sitting in a
Speaker 7: situation now where we need more data and we need
Speaker 7: more time to understand where the market's going next. And
Speaker 7: that's why I think the market is so focused on
Speaker 7: every data point that comes out, because we're trying to
Speaker 7: sift through which view is correct. Is there a new trend,
Speaker 7: have we moved to a new era, a new phase
Speaker 7: of the of the curve shift, or are we still
Speaker 7: sort of treading water trying to figure that out.
Speaker 6: Time is expensive for shorts, and that's something that we
Speaker 6: have seen play out again and again. How much are
Speaker 6: some of the short positions being washed out adding to
Speaker 6: the rally? The stability that we've seen in bond yields
Speaker 6: over the past week and something that you think maybe
Speaker 6: can't last.
Speaker 7: Yes, of course, but I think there's a lot. There's
Speaker 7: been plenty of shorts this year, especially last year as well.
Speaker 7: When you think about where we've gone, we definitely need
Speaker 7: a balance between shorts and longs in this market. We
Speaker 7: have seen more buying pressure recently, which has been of
Speaker 7: perhaps causing some deceleration or deleveraging in short positions. But
Speaker 7: from the trend space, that's a strategy that's much more
Speaker 7: slow moving than some that you might be discussing. But
Speaker 7: there are definitely potential that some people are unwinding shorts
Speaker 7: as well.
Speaker 4: Hey Kitty, thanks for the update. Still short on this
Speaker 4: bomb market, Keady Commitski of Alpha Simplex.
Speaker 2: We take immense pride and I'm talking for the wonderful
Speaker 2: team we have working twenty four seven of giving you
Speaker 2: people of experience as we look at the horrific war
Speaker 2: in the Eastern Mediterranean. We've been advantaged by Norman Rule
Speaker 2: to say he's a former senior US intelligence official at
Speaker 2: the Center for Strategic and International Studies, barely describes his
Speaker 2: public service.
Speaker 1: To the nation. Mister Roland, I want to cut.
Speaker 2: To the chase here my amateur reading of fiction. Is
Speaker 2: it a ceasefire? Is an intelligence opportunity? Is this ceasefire
Speaker 2: good for the Israelis to develop intelligence in Gaza?
Speaker 11: Good morning, and you are absolutely correct. Keep in mind
Speaker 11: that the Israelis have a variety of means of intelligence.
Speaker 11: They must ingest a preasent. Prisoner interrogations take quite a while.
Speaker 11: Laptops have thousands of pages of data that must be reviewed,
Speaker 11: and you're looking to identify locations of individuals, hiding sites,
Speaker 11: weapons capacities, movement profiles, so that your troops can then
Speaker 11: use this as they plan operations when hostilities resume. So
Speaker 11: this is indeed probably one of the busiest periods for
Speaker 11: Israeli and partner intelligence.
Speaker 2: Does their military effort on a longer cease fire?
Speaker 11: Well, their military right now is supportive of the hostage release.
Speaker 11: They are concerned obviously that they allowed hostages to be
Speaker 11: taken and there because of the failure of October seventh,
Speaker 11: and this period is allowing that innocent Israelis are returning home,
Speaker 11: but that does not undermine their commitment to eradicating Hamas.
Speaker 5: Do we understand Have they articulated an endgame?
Speaker 11: Norman, No, And I think it may be a bit
Speaker 11: unfair to even think about what an endgame may be.
Speaker 11: So let me give you a give you an example.
Speaker 11: We are, in some ways in the easiest period of
Speaker 11: hostage negotiations. Once the negotiations turned to Israeli soldiers or men,
Speaker 11: you're going to see Hamas perhaps demand a lot more
Speaker 11: from the Israelis, the Israelis are unlikely to give, and
Speaker 11: therefore this could extend the hostage negotiations far longer than
Speaker 11: Israel could permit. And also we're looking at a period
Speaker 11: of time when the American presence among the hostages remains significant.
Speaker 11: Only one American has been released, likely because Hamas wishes
Speaker 11: to keep American political pressure on Israel. So it may
Speaker 11: well be that Americans may not be released in the
Speaker 11: initial period.
Speaker 4: There's something that you've said that I'd like you to
Speaker 4: explain to our audience. You said it's important not to
Speaker 4: confuse procedural hangups with strategic differences on hostage releases. Can
Speaker 4: you just go through what that actually means, Norman.
Speaker 11: In the early days of hostage negotiations, you've got issues
Speaker 11: such as how do you bring hostages to a safe location,
Speaker 11: exactly which hostage is going to be released, and what
Speaker 11: that particular group holding the hostages feels about their loss
Speaker 11: of that influence. And then on the Israeli side, you've
Speaker 11: got prisoners who have committed in some cases quite horrific acts,
Speaker 11: and the families of the individuals behind those sentences are
Speaker 11: going to be unhappy about the release. So you're going
Speaker 11: to have a process of working through this. But it
Speaker 11: doesn't mean that each side in this issue isn't interested
Speaker 11: in the release and the ceasefire. In fact, all sides
Speaker 11: involved Hamas, Israel, the United States, Qutar, they all benefit
Speaker 11: from a ceasefire and hostage release.
Speaker 6: Norman, can you just elaborate on the different factions within
Speaker 6: the Hamas group that are holding hostages and why they
Speaker 6: might be reluctant to release certain hostages. How this is
Speaker 6: sort of playing out in a political sphere over in Gaza.
Speaker 11: Well, we not only have different factions among the Palestinians,
Speaker 11: primarily Hamas, palestin Islamis Shihad criminal groups that may have
Speaker 11: taken hostages and seek to sell them to their own
Speaker 11: Palestinian partners, but we also have a communications problem. Imagine
Speaker 11: if you are these various groups and you know the
Speaker 11: Israelis are looking for your communications and looking for your movements,
Speaker 11: how do you exchange the data and conduct those intra
Speaker 11: Palestinian negotiations just to get that process going. It's a
Speaker 11: very complicated situation.
Speaker 6: What do you expect Tony Blinken to do on his
Speaker 6: latest tour of the region.
Speaker 11: We're always going to push for some sort of continued
Speaker 11: pressure on Hamas to release not only hostages, but to
Speaker 11: think about how they would consider a day after event.
Speaker 11: There's been very little actual crystallization of what day after means.
Speaker 11: You may have anything from an international police presence to
Speaker 11: Hamas thinking it can still survive because it will retain
Speaker 11: hostages for a period of time. And these talks are
Speaker 11: ongoing among all the various partners, and perhaps most important
Speaker 11: here are going to be the Saudist because they're leading
Speaker 11: such a large portion of the Islamic the Islamic world
Speaker 11: in Israel. It's really to make sure that he has
Speaker 11: a sense of where the coalition is in terms of
Speaker 11: resumption of hostilities and how Natanya, who is handling the
Speaker 11: various hostage debates within his own government.
Speaker 2: Norman role Aaron David Miller with us yesterday was just brilliant,
Speaker 2: and how this is not nineteen sixty seven, if that
Speaker 2: is true, and if there's not going to be a
Speaker 2: Camp David visit, a Camp David accord.
Speaker 1: Whatever our memory is of normal diplomatic.
Speaker 2: Ties, what do you presume will be the administration's approach
Speaker 2: to finding some kind of accord. Where are we a
Speaker 2: year from now, two years from now?
Speaker 11: Very difficult to think forward. First, you've got to identify
Speaker 11: which partners are going to show up for a camp
Speaker 11: David's style agreement meeting. I mean, think about it. Will
Speaker 11: Benjamin Netanyahu survive in his current political situation? It's stoutful.
Speaker 11: Who is going to be the leader of the Palestinians?
Speaker 11: Abu Mazen Mahammuda Bass, the head of the Palestine Authority
Speaker 11: is eighty eight years old. There will be no hamas
Speaker 11: presidents at the table. So who do you bring to
Speaker 11: the table that those entities don't actually exist at present?
Speaker 4: That's a massive question. Norman has tried to get your
Speaker 4: for you, it always says no one. Roll of the
Speaker 4: Center for Strategic and International Studies.
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