1
00:00:09,840 --> 00:00:13,800
Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene Jay Lee.

2
00:00:13,960 --> 00:00:17,560
Speaker 1: We bring you insight from the best in economics, finance, investment,

3
00:00:18,000 --> 00:00:23,520
Speaker 1: and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud,

4
00:00:23,600 --> 00:00:28,120
Speaker 1: Bloomberg dot Com, and of course on the Bloomberg. Let's

5
00:00:28,120 --> 00:00:30,240
Speaker 1: bring in Yan's Norfolk shows and to day to founder

6
00:00:30,320 --> 00:00:33,879
Speaker 1: and CEO. Fair to say that summer never really got started,

7
00:00:33,960 --> 00:00:35,879
Speaker 1: So I don't think we can say summer ended if

8
00:00:35,880 --> 00:00:38,960
Speaker 1: it never started. Excuse me, and summer never got started?

9
00:00:39,120 --> 00:00:44,199
Speaker 1: He came back from a sabbatical, okay, trust well, yeah,

10
00:00:44,240 --> 00:00:47,159
Speaker 1: but I didn't have the romance of the images of you.

11
00:00:47,960 --> 00:00:49,840
Speaker 1: I thought we were gonna wait at least twenty minutes

12
00:00:49,880 --> 00:00:52,120
Speaker 1: before we started taking dicks at each Jans asked me,

13
00:00:52,200 --> 00:00:55,720
Speaker 1: didn't Did he really claimbed the matter Horns taught to

14
00:00:55,760 --> 00:00:57,720
Speaker 1: me about the morning so far, because it has been,

15
00:00:57,760 --> 00:01:01,279
Speaker 1: fair to say, pretty crazy. So I think I think

16
00:01:01,320 --> 00:01:04,200
Speaker 1: what's going on is that we've had a big drop

17
00:01:04,200 --> 00:01:08,880
Speaker 1: in the equity market on Friday, and the U S

18
00:01:08,920 --> 00:01:12,000
Speaker 1: authorities are keen to generate a bounce today and that's

19
00:01:12,000 --> 00:01:16,200
Speaker 1: why the communication is how should we say, confusing, But

20
00:01:16,480 --> 00:01:19,399
Speaker 1: the attempt to to talk up the equity market. That's

21
00:01:19,400 --> 00:01:21,720
Speaker 1: what's going on. If I can make another comment on

22
00:01:21,760 --> 00:01:24,399
Speaker 1: the dollar, like on Friday, obviously we had a lot

23
00:01:24,440 --> 00:01:26,960
Speaker 1: of things going on. We've we've seen in a number

24
00:01:27,000 --> 00:01:30,400
Speaker 1: of occasions that the dollar tends to now be weakened

25
00:01:30,440 --> 00:01:33,000
Speaker 1: against the end and the euro when you have dramatic

26
00:01:33,080 --> 00:01:35,920
Speaker 1: escalation on the trade fund because the Fed has now

27
00:01:35,959 --> 00:01:39,320
Speaker 1: communicated that they are going to be potentially easing more

28
00:01:39,360 --> 00:01:43,200
Speaker 1: aggressively when these things happen. So that's the kind of

29
00:01:43,240 --> 00:01:46,720
Speaker 1: bounce you're having today, like the dollars coming back after

30
00:01:46,880 --> 00:01:52,200
Speaker 1: after that set back on Friday. And that's what you're

31
00:01:52,200 --> 00:01:54,120
Speaker 1: seeing in the euro cross and in the end cross

32
00:01:54,200 --> 00:01:56,560
Speaker 1: in the general sort of cheat guide for foreign exchange

33
00:01:56,560 --> 00:01:57,880
Speaker 1: over the last couple of years. And you and I

34
00:01:57,880 --> 00:01:59,520
Speaker 1: have gone back and forth on this end a couple

35
00:01:59,560 --> 00:02:03,240
Speaker 1: of times. When global risk appetite is good, the dollar

36
00:02:03,360 --> 00:02:05,880
Speaker 1: is weaker. When it's bad, the dollar is stronger. But

37
00:02:05,880 --> 00:02:08,400
Speaker 1: there's some extra nuance and you've touched on it. The

38
00:02:08,440 --> 00:02:12,800
Speaker 1: way the euro behaves in global risk off. It's not

39
00:02:12,840 --> 00:02:14,440
Speaker 1: the story this morning, but it's been the story over

40
00:02:14,440 --> 00:02:16,560
Speaker 1: the last several months. Just walk out listeners through it.

41
00:02:16,639 --> 00:02:19,240
Speaker 1: Yet why this is slightly different for the Euro just

42
00:02:19,320 --> 00:02:21,919
Speaker 1: in terms of the risk mitigating characteristics of the single

43
00:02:21,960 --> 00:02:26,280
Speaker 1: currency that maybe they didn't have several years back. Well,

44
00:02:26,320 --> 00:02:28,240
Speaker 1: I think you can actually see it, and this is

45
00:02:28,240 --> 00:02:31,239
Speaker 1: something we tracked closely in our data that over the

46
00:02:31,320 --> 00:02:34,519
Speaker 1: last couple of weeks, we've had various types of repatriation,

47
00:02:34,680 --> 00:02:38,520
Speaker 1: Like people normally invest outside their country in good times,

48
00:02:38,560 --> 00:02:40,600
Speaker 1: and then we when we had tension, some of that

49
00:02:40,639 --> 00:02:43,440
Speaker 1: money comes back. We've seen a lot of money, especially

50
00:02:43,480 --> 00:02:46,680
Speaker 1: in equity space, come back to the US that was

51
00:02:46,720 --> 00:02:49,840
Speaker 1: previously invested in the emerging markets, and in Europe you've

52
00:02:49,880 --> 00:02:52,080
Speaker 1: had a little bit of the same. So essentially equity

53
00:02:52,080 --> 00:02:55,280
Speaker 1: investors in Europe are getting more cautious and repatriating. That's

54
00:02:55,320 --> 00:02:58,120
Speaker 1: why we've had both the euro and the dollar actually

55
00:02:58,120 --> 00:02:59,880
Speaker 1: been quite strong at the same time in the month

56
00:03:00,000 --> 00:03:02,679
Speaker 1: of all this. What we've observed in August, what we've

57
00:03:02,680 --> 00:03:05,799
Speaker 1: observed Friday, what we see today, what we're going to

58
00:03:05,880 --> 00:03:08,919
Speaker 1: see this coming Thursday, etcetera. Do you look at it

59
00:03:09,000 --> 00:03:13,080
Speaker 1: is continuous functions of smooth vectors or is there a

60
00:03:13,120 --> 00:03:18,480
Speaker 1: discontinuity in an instability right now at critical levels? Well, so,

61
00:03:18,520 --> 00:03:21,960
Speaker 1: I would say We all know that Pounds spoke on Friday,

62
00:03:22,240 --> 00:03:25,200
Speaker 1: and we all know there was tweets about tariffs, but

63
00:03:25,280 --> 00:03:27,600
Speaker 1: there was actually a third thing that was news reporting

64
00:03:27,680 --> 00:03:31,840
Speaker 1: about like things going on in the background to get

65
00:03:31,840 --> 00:03:34,840
Speaker 1: the dollar to trade weaker. Right, So that almost didn't

66
00:03:34,920 --> 00:03:36,960
Speaker 1: get any airtime on on Friday because there was so

67
00:03:37,000 --> 00:03:39,520
Speaker 1: much else going on. But there is this talk about

68
00:03:39,520 --> 00:03:43,920
Speaker 1: a currency tacks or things that would be done to

69
00:03:44,120 --> 00:03:47,760
Speaker 1: essentially remove power from his position of power, all meant

70
00:03:47,800 --> 00:03:50,200
Speaker 1: to weaken the dollar. So that was part of the

71
00:03:50,240 --> 00:03:53,200
Speaker 1: reason why the dollar was weak against the end and

72
00:03:53,240 --> 00:03:55,960
Speaker 1: the Euro on Friday. And the question is we come

73
00:03:56,000 --> 00:03:58,720
Speaker 1: back and say, okay, is that just something that's being

74
00:03:58,720 --> 00:04:02,920
Speaker 1: discussed or is it really something investors have to take seriously.

75
00:04:03,360 --> 00:04:08,200
Speaker 1: So it is definitely unnerving as a global portfolio manager

76
00:04:08,280 --> 00:04:11,400
Speaker 1: not knowing what the dollar policy is and it creates

77
00:04:11,400 --> 00:04:13,160
Speaker 1: a lot of volatility. So where do you come out

78
00:04:13,200 --> 00:04:15,400
Speaker 1: on that debate? Right now? Yin's because it's an important one.

79
00:04:15,440 --> 00:04:17,160
Speaker 1: What do you tell clients? Do you think that it's

80
00:04:17,200 --> 00:04:21,000
Speaker 1: something that gets followed up with action? So, as as

81
00:04:21,040 --> 00:04:24,039
Speaker 1: I mentioned with toma on on the TV, like a

82
00:04:24,040 --> 00:04:30,440
Speaker 1: couple of minutes ago, we have to think about currents intervention.

83
00:04:30,480 --> 00:04:33,800
Speaker 1: But we also have to acknowledge that if current intervention

84
00:04:34,040 --> 00:04:36,760
Speaker 1: US unilateral current intervention is going to be effective, it's

85
00:04:36,760 --> 00:04:40,040
Speaker 1: going to be a commitment to do unlimited amounts. It's

86
00:04:40,120 --> 00:04:43,360
Speaker 1: not enough to do ten billion. Where does the limited

87
00:04:43,440 --> 00:04:46,880
Speaker 1: come from? With a fiscal deficit, etcetera, etcetera. We we're

88
00:04:47,040 --> 00:04:49,720
Speaker 1: very simple. Do we print? It's very simple, Like the

89
00:04:49,760 --> 00:04:53,520
Speaker 1: only balance sheet that can offer unlimited potential just a

90
00:04:53,520 --> 00:04:56,560
Speaker 1: fat balance sheet. So that's why it's crucial. Right in

91
00:04:56,640 --> 00:04:59,280
Speaker 1: the past, it has always been the case that there

92
00:04:59,320 --> 00:05:02,719
Speaker 1: was a chord in Asian between the Treasury and the Fed.

93
00:05:03,120 --> 00:05:05,680
Speaker 1: There was even a kind of like rule thumb that

94
00:05:05,720 --> 00:05:09,800
Speaker 1: they did half and half. So if the Trump administration

95
00:05:09,880 --> 00:05:13,080
Speaker 1: wants to go ahead with currency intervention, they have to

96
00:05:13,120 --> 00:05:15,600
Speaker 1: get the FED on board with it, otherwise it's going

97
00:05:15,640 --> 00:05:18,159
Speaker 1: to be meaningless. I'm broke, dude, you have a trade

98
00:05:18,160 --> 00:05:20,280
Speaker 1: that can get me to September? I mean, is there

99
00:05:20,279 --> 00:05:23,560
Speaker 1: a trade right now in all this craziness? Well, so,

100
00:05:23,600 --> 00:05:26,480
Speaker 1: I think one thing that's interesting is that because we

101
00:05:26,560 --> 00:05:30,200
Speaker 1: have so much going on in terms of uncertainty about

102
00:05:30,279 --> 00:05:33,600
Speaker 1: US policy, it has been forgotten that the e c

103
00:05:33,760 --> 00:05:38,120
Speaker 1: B is probably going to deliver more quee on September twelve.

104
00:05:38,800 --> 00:05:41,400
Speaker 1: So I think there's some trades around that that could

105
00:05:41,400 --> 00:05:45,360
Speaker 1: be very interesting. If we can push the intervention risk

106
00:05:45,440 --> 00:05:49,320
Speaker 1: and all that crazy stuff in the background. We're probably

107
00:05:49,320 --> 00:05:52,760
Speaker 1: going to see the eurodrift lower as we get that

108
00:05:53,279 --> 00:05:56,800
Speaker 1: que priced, and it would be a huge shock to

109
00:05:56,880 --> 00:05:59,720
Speaker 1: investors if we trade below one ten now. So it's

110
00:05:59,760 --> 00:06:02,159
Speaker 1: not very far from where we are, but that's we

111
00:06:02,160 --> 00:06:07,960
Speaker 1: haven't seen. And thank you so much with you this morning.

112
00:06:23,200 --> 00:06:26,039
Speaker 1: Up until the summer, we had a massive year for

113
00:06:26,160 --> 00:06:28,720
Speaker 1: credit instore. The back half is looking a little bit

114
00:06:28,760 --> 00:06:31,359
Speaker 1: more complex. Please to say that Markie Patol joins US

115
00:06:31,400 --> 00:06:36,200
Speaker 1: now whilst Farco Asset Management Senior portfolio manager Markie walkers

116
00:06:36,200 --> 00:06:38,320
Speaker 1: through it. What's the message from our listeners this morning

117
00:06:38,520 --> 00:06:41,320
Speaker 1: in the world of US credit. Well, I think that

118
00:06:41,400 --> 00:06:45,240
Speaker 1: everything looks okay for risk assets. That is how your

119
00:06:45,320 --> 00:06:49,760
Speaker 1: bonds and invest in great corporate bonds and we clearly

120
00:06:49,880 --> 00:06:53,880
Speaker 1: or in see treasuries in that trading range probably heading lowers.

121
00:06:53,880 --> 00:06:56,839
Speaker 1: So that's a pretty good backdrop if powers committed to

122
00:06:56,920 --> 00:07:00,800
Speaker 1: being passive, data dependent and not aggressively trying to tighten

123
00:07:00,880 --> 00:07:03,719
Speaker 1: credit conditions. Marky now is a good opportunity to reflect

124
00:07:03,760 --> 00:07:06,240
Speaker 1: on the speech from Chairman Poal on Friday. It has

125
00:07:06,279 --> 00:07:09,040
Speaker 1: been overtaken by events. But what was in that speech

126
00:07:09,080 --> 00:07:11,200
Speaker 1: for you that stood out that you think we need

127
00:07:11,240 --> 00:07:14,480
Speaker 1: to pay a little bit more attention to. Well, two things. One,

128
00:07:14,960 --> 00:07:17,960
Speaker 1: the FIT is clearly going to be a follower leader

129
00:07:18,120 --> 00:07:22,560
Speaker 1: in determining credit conditions. And the second thing is they

130
00:07:22,560 --> 00:07:26,760
Speaker 1: clearly are still working on an intellectual framework for where

131
00:07:26,760 --> 00:07:29,200
Speaker 1: should they try to send interest rates? What's the neutral

132
00:07:29,320 --> 00:07:32,880
Speaker 1: rate of interest with the economy growing? So I think

133
00:07:32,920 --> 00:07:35,960
Speaker 1: they don't have a larger framework. So they're just sort of,

134
00:07:36,080 --> 00:07:38,040
Speaker 1: you know, just taking it as it goes and looking

135
00:07:38,040 --> 00:07:42,280
Speaker 1: at each data point. Mark follower, not a leader. This

136
00:07:42,320 --> 00:07:45,520
Speaker 1: is really important. Financial conditions are loose, and are loose

137
00:07:45,560 --> 00:07:49,040
Speaker 1: according to Chairman Pow because of the anticipated path of

138
00:07:49,160 --> 00:07:52,040
Speaker 1: federal reserve policy. MARKI is that as close as we've

139
00:07:52,080 --> 00:07:54,840
Speaker 1: come to an endorsement of market pricing from this chairman

140
00:07:54,920 --> 00:07:58,200
Speaker 1: so far, I would say of any chairman that I

141
00:07:58,200 --> 00:08:02,559
Speaker 1: can recall, yes, and I think that's positive. I'm looking

142
00:08:02,560 --> 00:08:05,760
Speaker 1: at a thirty year investment grade piece. It has a

143
00:08:05,800 --> 00:08:11,920
Speaker 1: four percent coupon price to perfection, yielding two point eight

144
00:08:12,000 --> 00:08:15,040
Speaker 1: zero percent it's a famous American brand. We don't even

145
00:08:15,840 --> 00:08:18,800
Speaker 1: bring up the name of the company. Why should I

146
00:08:18,840 --> 00:08:23,040
Speaker 1: own that versus full faith in credit? Just for the

147
00:08:23,040 --> 00:08:26,680
Speaker 1: extra yield that you get that extra two to two

148
00:08:26,760 --> 00:08:30,280
Speaker 1: and a half percentage points, well, you'll simply compound more

149
00:08:30,440 --> 00:08:33,440
Speaker 1: and you really aren't taking much risk in investment grade corporates,

150
00:08:33,800 --> 00:08:36,640
Speaker 1: even with a huge premium of one one where it's

151
00:08:36,640 --> 00:08:41,560
Speaker 1: going to roll out to a one hundred thirty years out. Yes,

152
00:08:41,760 --> 00:08:44,040
Speaker 1: but you know that's the way the math works on bonds.

153
00:08:44,080 --> 00:08:47,280
Speaker 1: And actually, in my experience, those very high dollar bonds

154
00:08:47,559 --> 00:08:50,000
Speaker 1: tend off for the investor a little bit of value

155
00:08:50,440 --> 00:08:53,840
Speaker 1: because the yield is greater than because no one wants

156
00:08:53,840 --> 00:08:56,280
Speaker 1: to pay the big premium. Folks, that is margat Patel

157
00:08:56,360 --> 00:08:58,079
Speaker 1: one oh one that you just heard there, do not

158
00:08:58,240 --> 00:09:01,640
Speaker 1: be a feared of premium. Are there any bonds out there,

159
00:09:01,679 --> 00:09:07,160
Speaker 1: Margaret discount? They were very, very few, and typically they're

160
00:09:07,200 --> 00:09:13,240
Speaker 1: distressed or they the doll. Let's talk about the young

161
00:09:13,360 --> 00:09:16,720
Speaker 1: character than Daniel Fuss. He's at UH in Boston at

162
00:09:16,760 --> 00:09:19,440
Speaker 1: Looma Sales, and Margie, I look at you and the

163
00:09:19,520 --> 00:09:22,840
Speaker 1: heritage of Fuss and Patel and and all that. There

164
00:09:22,880 --> 00:09:25,120
Speaker 1: was a point where you you bought bonds at a

165
00:09:25,200 --> 00:09:28,840
Speaker 1: discount and you made a credit upgrade as you went along,

166
00:09:28,880 --> 00:09:32,319
Speaker 1: and you actually made some snappy total return. Will we

167
00:09:32,400 --> 00:09:38,640
Speaker 1: ever get back to that? I don't think in our lifetime. Now, wow,

168
00:09:39,040 --> 00:09:41,640
Speaker 1: I mean that you know these are important statement life.

169
00:09:42,120 --> 00:09:44,320
Speaker 1: Well this, John, this goes to the heart of your show,

170
00:09:44,400 --> 00:09:47,679
Speaker 1: the real yield, I mean, Margaie, do let me rephrase,

171
00:09:47,840 --> 00:09:50,880
Speaker 1: do we ever get back to a legitimate, really yield

172
00:09:50,920 --> 00:09:54,719
Speaker 1: where our listeners who are saviors, savers can actually look

173
00:09:54,800 --> 00:09:59,960
Speaker 1: up twelve months and say, hey, I made a little money. Well,

174
00:10:00,040 --> 00:10:01,760
Speaker 1: they can make a little money. And of course, if

175
00:10:01,760 --> 00:10:04,559
Speaker 1: you compare to inflation, if you make eight percent on

176
00:10:04,679 --> 00:10:08,360
Speaker 1: a bond but inflation was seven, you haven't really made

177
00:10:08,400 --> 00:10:11,600
Speaker 1: that much. And today you're making one or two percent

178
00:10:11,640 --> 00:10:14,480
Speaker 1: over inflation, So that's not That reminds me of a

179
00:10:14,520 --> 00:10:17,120
Speaker 1: conversation I had about a year ago with Mike Collins

180
00:10:17,120 --> 00:10:19,800
Speaker 1: of p JIM and I raised the following question. I

181
00:10:19,840 --> 00:10:22,200
Speaker 1: said to Mike, how will we look back at this

182
00:10:22,240 --> 00:10:24,880
Speaker 1: bond market in ten years time? Looking back in ten

183
00:10:25,120 --> 00:10:27,920
Speaker 1: ten years ago and saying all that negative yielding debt

184
00:10:28,000 --> 00:10:31,360
Speaker 1: sixteen trillion dollars worth wasn't this crazy? And I remember

185
00:10:31,440 --> 00:10:33,880
Speaker 1: Mike turning around to me and saying, never mind that.

186
00:10:34,600 --> 00:10:37,160
Speaker 1: What you'll do in ten years looking back ten years

187
00:10:37,200 --> 00:10:39,840
Speaker 1: is look at the treasury market and wish you'd bought

188
00:10:39,880 --> 00:10:43,120
Speaker 1: a thirty year with a three percent coupon because you

189
00:10:43,200 --> 00:10:45,280
Speaker 1: probably won't be able to get it. And guess what

190
00:10:45,720 --> 00:10:49,960
Speaker 1: a hundred basis points south. Here we are at Margie.

191
00:10:50,080 --> 00:10:54,040
Speaker 1: All of the concerns about the deficit, about the debt pile,

192
00:10:54,600 --> 00:10:57,600
Speaker 1: it's just not in the treasury market, Markie, is this it?

193
00:10:58,040 --> 00:11:00,679
Speaker 1: Are we heading to the japanification? Not at the bund

194
00:11:00,760 --> 00:11:03,720
Speaker 1: market will beyond that. But is that the direction of

195
00:11:03,720 --> 00:11:07,520
Speaker 1: travel for the treasury market too? I think it is.

196
00:11:07,760 --> 00:11:11,320
Speaker 1: We've seen Japan go first, in Europe second, we're on

197
00:11:11,360 --> 00:11:14,240
Speaker 1: that same trail. We have a little bit more robust

198
00:11:14,520 --> 00:11:18,480
Speaker 1: economic condition, so we're behind them. But you know that

199
00:11:18,520 --> 00:11:22,199
Speaker 1: burden of death is simply weighing on returns and growth

200
00:11:22,440 --> 00:11:25,040
Speaker 1: and as legislationary force. That's just the way it is.

201
00:11:25,320 --> 00:11:29,319
Speaker 1: Do you have equities within your portfolio, within your blended portfolio,

202
00:11:29,360 --> 00:11:33,000
Speaker 1: Wells Fargo. Do you have equities for dividend growth? Yes?

203
00:11:33,040 --> 00:11:40,240
Speaker 1: I do right now, it's about at fifteen hil bonds.

204
00:11:40,640 --> 00:11:42,600
Speaker 1: That's where the return will be. I mean, that's where

205
00:11:42,600 --> 00:11:45,120
Speaker 1: the return will be. What's an appropriate dividend growth for

206
00:11:45,160 --> 00:11:47,800
Speaker 1: our listeners? I mean everybody's addicted to double digit growth

207
00:11:48,160 --> 00:11:51,240
Speaker 1: or the big fat coupon and say telephones whatever. But

208
00:11:51,440 --> 00:11:54,559
Speaker 1: what's an appropriate dividend growth for Margie patell? Is it

209
00:11:54,640 --> 00:11:59,120
Speaker 1: nominal GDP? Well, the standard poor is a dividend yield

210
00:11:59,200 --> 00:12:01,960
Speaker 1: is a touch under two percent, and so for me

211
00:12:02,480 --> 00:12:04,600
Speaker 1: one and a half percent is good enough if I

212
00:12:04,600 --> 00:12:07,600
Speaker 1: think I can get capital appreciation to be a lot

213
00:12:07,679 --> 00:12:10,439
Speaker 1: more than the total. But do you model and dividend

214
00:12:10,480 --> 00:12:16,520
Speaker 1: growth off a one percent yield? Uh? No, because I

215
00:12:16,559 --> 00:12:19,920
Speaker 1: think it's really more important is what's the earnings growth

216
00:12:20,000 --> 00:12:24,160
Speaker 1: cash flow the whole company that dividend. That's really important

217
00:12:24,200 --> 00:12:26,720
Speaker 1: statement folks on the Monday morning, I mean financial planning

218
00:12:26,720 --> 00:12:29,920
Speaker 1: one oh one. Uh it's simple. Do you look at

219
00:12:29,960 --> 00:12:33,679
Speaker 1: the company as a whole in its financial metrics or

220
00:12:33,720 --> 00:12:37,600
Speaker 1: do you focus in on the dividend growth mantra and

221
00:12:37,640 --> 00:12:40,600
Speaker 1: you just mislay and market. Just as a final question,

222
00:12:40,640 --> 00:12:43,320
Speaker 1: there'll be many listeners looking at the equity market and

223
00:12:43,400 --> 00:12:47,400
Speaker 1: saying those safe bond type proxies in the equity market

224
00:12:48,360 --> 00:12:51,559
Speaker 1: is where the biggest appreciation has been. They look expensive

225
00:12:51,720 --> 00:12:54,160
Speaker 1: right now. We don't want exposure to that area market.

226
00:12:54,200 --> 00:12:57,480
Speaker 1: What's the message for those individuals this morning. I think

227
00:12:57,520 --> 00:13:00,520
Speaker 1: the messages you should dial back income for friends in

228
00:13:00,600 --> 00:13:04,000
Speaker 1: favor of capital appreciation. I think capital appreciation is still

229
00:13:04,559 --> 00:13:09,680
Speaker 1: undervalued by investors of yesteryear. Terrific Monday briefing, Margaret Patel,

230
00:13:09,760 --> 00:13:14,480
Speaker 1: thank you so much, Capital Management greatly greatly appreciate it.

231
00:13:26,720 --> 00:13:29,600
Speaker 1: Josh Allencott joins us down from Janis Sanderson. Dr Alan

232
00:13:29,640 --> 00:13:32,520
Speaker 1: Carr is always a joy to listen to with his

233
00:13:32,559 --> 00:13:35,720
Speaker 1: work at m I T and Chemical Engineering and also

234
00:13:35,880 --> 00:13:39,959
Speaker 1: at Berkeley UH as well. Ash writes a hyper detailed

235
00:13:40,000 --> 00:13:43,360
Speaker 1: note as he is global asset allocation and portfolio manager

236
00:13:43,440 --> 00:13:47,400
Speaker 1: for Janis Ash. I'm a big, big believer in sharp

237
00:13:47,520 --> 00:13:51,280
Speaker 1: ratios because beta, the volatility of the market really isn't

238
00:13:51,320 --> 00:13:54,880
Speaker 1: in there. There's a purity to the sharp ratio. You

239
00:13:55,000 --> 00:14:00,160
Speaker 1: go further and you normalize the sharp ratios. What that

240
00:14:00,440 --> 00:14:05,600
Speaker 1: signal within the market hysteria of the last two weeks. Great?

241
00:14:05,800 --> 00:14:09,000
Speaker 1: Thanks Tom for the other kind words. Um So we

242
00:14:09,040 --> 00:14:12,160
Speaker 1: do normalize or we adjust the sharp ratio. Um and

243
00:14:12,240 --> 00:14:16,240
Speaker 1: we adjust the sharp ratio very quickly for what turns

244
00:14:16,280 --> 00:14:20,760
Speaker 1: out to be the most important driver of portfolio performance,

245
00:14:20,800 --> 00:14:24,440
Speaker 1: which are the large moves um. The average moves UH

246
00:14:24,640 --> 00:14:28,000
Speaker 1: don't impose as big of an impact on how your

247
00:14:28,080 --> 00:14:31,240
Speaker 1: overall portfolio performs in the long run, but it's the

248
00:14:31,280 --> 00:14:34,280
Speaker 1: tails that matter the most. So one of the problems

249
00:14:34,320 --> 00:14:37,280
Speaker 1: with the sharp ratio is the fallacy of averages. Right

250
00:14:37,320 --> 00:14:39,880
Speaker 1: I could, for example, if I didn't know how to swim.

251
00:14:39,920 --> 00:14:41,400
Speaker 1: I'm not a very good swimmer, and I was trying

252
00:14:41,440 --> 00:14:44,600
Speaker 1: to cross a river and Tom, you told me the

253
00:14:44,680 --> 00:14:47,800
Speaker 1: river on average has a depth of three feet. Should

254
00:14:47,800 --> 00:14:50,400
Speaker 1: I feel comfortable crossing that river or not? I'm probably

255
00:14:50,400 --> 00:14:52,960
Speaker 1: not going to be comfortable because what if the cross

256
00:14:53,000 --> 00:14:56,600
Speaker 1: section I'm sitting at right now is not a three

257
00:14:56,640 --> 00:15:00,440
Speaker 1: ft foot depth, but rather it's twenty um. So we

258
00:15:00,480 --> 00:15:03,000
Speaker 1: look at the insurance markets to give us an idea

259
00:15:03,640 --> 00:15:08,160
Speaker 1: of the potential expected large upside um as well as

260
00:15:08,200 --> 00:15:11,840
Speaker 1: the potential large downside um, using a combination of call

261
00:15:12,000 --> 00:15:15,600
Speaker 1: prices and put options and put prices and what these

262
00:15:15,640 --> 00:15:19,120
Speaker 1: option contracts are telling us. Which are insurance contracts they

263
00:15:19,160 --> 00:15:23,040
Speaker 1: tell us today risky assets aren't offering a very attractive

264
00:15:23,080 --> 00:15:28,680
Speaker 1: risk premium UM UH equities globally, from US equities, UH,

265
00:15:28,720 --> 00:15:32,560
Speaker 1: non US developed equities, emerging market equities, they all are

266
00:15:32,640 --> 00:15:38,400
Speaker 1: showcasing not much upside given the downside risk you bear UM.

267
00:15:38,480 --> 00:15:41,000
Speaker 1: And I think that's all an artifact of what's going

268
00:15:41,040 --> 00:15:45,280
Speaker 1: on in the markets today with UH uncertainty obviously on

269
00:15:45,320 --> 00:15:49,240
Speaker 1: the trade front, uncertainty on the political front UM, and

270
00:15:49,280 --> 00:15:53,840
Speaker 1: slowing economic um real economic numbers so actual. Was there

271
00:15:53,840 --> 00:15:57,000
Speaker 1: anything coming out of Jackson whole last week from FED

272
00:15:57,080 --> 00:16:01,200
Speaker 1: Chairman Poal that might suggest that the FED has an

273
00:16:01,200 --> 00:16:04,640
Speaker 1: opportunity here to really help markets now? I actually think

274
00:16:04,680 --> 00:16:07,960
Speaker 1: that the biggest takeaway UM from the FED was and

275
00:16:08,000 --> 00:16:10,480
Speaker 1: I believe this is the first time Powell directly said

276
00:16:10,520 --> 00:16:14,560
Speaker 1: this monetary policy may not be able to do much

277
00:16:15,040 --> 00:16:18,920
Speaker 1: to quell the uncertainty UM to cushion the blows on

278
00:16:18,960 --> 00:16:22,600
Speaker 1: the trade front UM. That that's something which is outside

279
00:16:22,600 --> 00:16:25,600
Speaker 1: of the purview, outside of the toolkit of monetary policy

280
00:16:26,120 --> 00:16:28,920
Speaker 1: UM so, so I think he took a stand in

281
00:16:28,920 --> 00:16:32,880
Speaker 1: a call to action that don't look at monetary policy

282
00:16:33,240 --> 00:16:36,280
Speaker 1: um UM to be able to be the panacea for everything.

283
00:16:36,880 --> 00:16:38,680
Speaker 1: It's just not going to help much when you have

284
00:16:38,720 --> 00:16:43,080
Speaker 1: these structural risks that that are potentially hitting UM global

285
00:16:43,120 --> 00:16:47,120
Speaker 1: trade and the fabric UM that that really has um

286
00:16:47,400 --> 00:16:50,760
Speaker 1: UM led to to this great expansion over the last

287
00:16:51,080 --> 00:16:54,680
Speaker 1: I don't know, two decades, three decades. And so unfortunately

288
00:16:54,680 --> 00:16:56,120
Speaker 1: it sounds like, I mean, there's some of the market

289
00:16:56,120 --> 00:16:58,640
Speaker 1: that are kind of coming to the conclusion that they're

290
00:16:58,680 --> 00:17:02,960
Speaker 1: likely won't be resolution into this trade uncertain until after election.

291
00:17:03,000 --> 00:17:06,280
Speaker 1: If that's in fact the case, then is the best

292
00:17:06,320 --> 00:17:08,880
Speaker 1: move just to stay on the sidelines here. I think

293
00:17:08,920 --> 00:17:10,960
Speaker 1: that's right. UM. There's a lot of noise, and I

294
00:17:11,440 --> 00:17:15,480
Speaker 1: actually think you're correct. UM. I do believe UM, and

295
00:17:15,520 --> 00:17:19,679
Speaker 1: the data supports this. The parallels that people are drawing

296
00:17:19,760 --> 00:17:24,879
Speaker 1: today between the trade issues that exist today and the

297
00:17:25,000 --> 00:17:29,119
Speaker 1: trade issues UM and the trade problems that came about

298
00:17:29,240 --> 00:17:32,119
Speaker 1: during the Great Depression UM and the use of terroiffs

299
00:17:32,119 --> 00:17:37,480
Speaker 1: and a protective stance taking by countries globally UM intensified

300
00:17:37,760 --> 00:17:42,280
Speaker 1: the recession into a Great depression are unfounded. UM. What

301
00:17:42,440 --> 00:17:47,880
Speaker 1: the data shows is it was the gold standard. It

302
00:17:47,960 --> 00:17:52,480
Speaker 1: was the inability of countries to control the value of

303
00:17:52,480 --> 00:17:58,000
Speaker 1: the currency that really accelerated this recession into a great depression. UM.

304
00:17:58,040 --> 00:18:01,000
Speaker 1: And the fact is those countries Ease which were off

305
00:18:01,040 --> 00:18:04,719
Speaker 1: the gold standard or abandoned the gold standard very quickly

306
00:18:05,080 --> 00:18:08,440
Speaker 1: only suffered mild recessions by e Japan. It was only

307
00:18:08,440 --> 00:18:11,439
Speaker 1: those countries that stayed on the gold standard, such as

308
00:18:11,520 --> 00:18:16,200
Speaker 1: the US, such as Germany, will suffered the Great Depression. Yeah,

309
00:18:16,280 --> 00:18:18,280
Speaker 1: Ken Rogost done a ton of work on this, on

310
00:18:18,359 --> 00:18:21,159
Speaker 1: the advantage. Do you guys at Jennis Henderson have a

311
00:18:21,200 --> 00:18:25,240
Speaker 1: confidence in floating right right now to compensate for all

312
00:18:25,240 --> 00:18:27,760
Speaker 1: the uproar were in? Yeah, I think you see that.

313
00:18:27,800 --> 00:18:30,760
Speaker 1: I think that's the power. And that's the characteristic of

314
00:18:30,760 --> 00:18:33,520
Speaker 1: an efficient market. What an efficient market does for you

315
00:18:33,600 --> 00:18:36,600
Speaker 1: and why an efficient market is so powerful. It figures

316
00:18:36,600 --> 00:18:41,000
Speaker 1: out ways to get around artificial barriers, just like gravity

317
00:18:41,040 --> 00:18:43,919
Speaker 1: will figure out a way. And Tom, you try to

318
00:18:44,440 --> 00:18:48,040
Speaker 1: um prevent water from flowing down a hill. Um, Sure,

319
00:18:48,040 --> 00:18:50,600
Speaker 1: you might be successful for a couple of days, but

320
00:18:50,680 --> 00:18:53,639
Speaker 1: gravity will figure out a way to get that water

321
00:18:53,800 --> 00:18:56,000
Speaker 1: to the bottom of the hill. Um. And that's what

322
00:18:56,040 --> 00:18:59,159
Speaker 1: the capital markets. So if there's an artificial embaran imbalanced

323
00:18:59,320 --> 00:19:04,600
Speaker 1: artificial years such as Harris, currencies will adjust. And that's

324
00:19:04,600 --> 00:19:08,359
Speaker 1: what you're talking in China right now. Well, we're going

325
00:19:08,400 --> 00:19:10,320
Speaker 1: to run out of time, Ash, we needn't make a

326
00:19:10,400 --> 00:19:12,399
Speaker 1: note your cong Can you make a note that we

327
00:19:12,440 --> 00:19:16,280
Speaker 1: could drag drag dr Alan Car on again? Soonest with

328
00:19:16,359 --> 00:19:18,440
Speaker 1: Janisonder said, because I got like, I got like forty

329
00:19:18,480 --> 00:19:21,159
Speaker 1: two more questions and only four of them have to

330
00:19:21,200 --> 00:19:23,359
Speaker 1: do with the Greek letters. We get you got your

331
00:19:23,359 --> 00:19:25,960
Speaker 1: shop ratio question, and so they always leave it the

332
00:19:25,960 --> 00:19:28,720
Speaker 1: strongest AshEL and car Where this is, Janiser said, love

333
00:19:28,760 --> 00:19:31,840
Speaker 1: having him on to talk about the dynamics in the market.

334
00:19:46,720 --> 00:19:49,920
Speaker 1: John Hudack speaks I think fourteen languages. He's at Brookings

335
00:19:50,520 --> 00:19:54,480
Speaker 1: where he dissects American policy. John help us with one

336
00:19:54,520 --> 00:19:58,520
Speaker 1: of the themes this weekend, which is the durability or

337
00:19:58,560 --> 00:20:04,000
Speaker 1: the longevity or the entrenchment of various presidential policies we've

338
00:20:04,040 --> 00:20:07,240
Speaker 1: seen in the last three years. Is there a durability

339
00:20:07,280 --> 00:20:11,639
Speaker 1: to Trump foreign policy? I don't think there's a durability

340
00:20:11,720 --> 00:20:15,639
Speaker 1: necessarily to Trump foreign policy, in large part because it

341
00:20:15,680 --> 00:20:19,480
Speaker 1: has been fairly scattered from one moment to the next.

342
00:20:19,680 --> 00:20:23,679
Speaker 1: On a given issue, we're not entirely sure what the

343
00:20:23,720 --> 00:20:27,640
Speaker 1: president believes is best. I think one of the best

344
00:20:27,720 --> 00:20:32,240
Speaker 1: examples of that is the president's position on troops in Afghanistan. Um,

345
00:20:32,320 --> 00:20:35,840
Speaker 1: we have gone from a president who is now saying

346
00:20:35,840 --> 00:20:39,199
Speaker 1: there's no timeline to pull troops out, um, coming all

347
00:20:39,240 --> 00:20:41,280
Speaker 1: the way from a president who was ready to pull

348
00:20:41,359 --> 00:20:44,439
Speaker 1: all the troops out very quickly. And so because of that,

349
00:20:44,520 --> 00:20:47,919
Speaker 1: it's hard to imagine that a set of policies that

350
00:20:47,960 --> 00:20:51,800
Speaker 1: are so volatile could possibly be durable. So, John, as

351
00:20:51,840 --> 00:20:54,080
Speaker 1: we take a look at the waning moments of the

352
00:20:54,119 --> 00:20:56,840
Speaker 1: G seven meeting, it's at you know, when we think

353
00:20:56,880 --> 00:21:00,000
Speaker 1: about the global trade here obviously that was discussed um

354
00:21:00,000 --> 00:21:02,560
Speaker 1: probably at length there at the G seven. Is it

355
00:21:03,000 --> 00:21:06,199
Speaker 1: realistic to believe that any country could enter into a

356
00:21:06,320 --> 00:21:11,000
Speaker 1: substantive trade agreement with the United States given how President

357
00:21:11,000 --> 00:21:13,760
Speaker 1: Trump has been so I guess, you know, back and

358
00:21:13,800 --> 00:21:16,199
Speaker 1: forth on so many key issues. You know, I do

359
00:21:16,320 --> 00:21:19,480
Speaker 1: think it is possible for a country or for um,

360
00:21:19,520 --> 00:21:23,159
Speaker 1: the EU UH to enter into a trade agreement with

361
00:21:23,240 --> 00:21:28,359
Speaker 1: the President. Certainly there are mutual interests that extend among

362
00:21:28,480 --> 00:21:32,520
Speaker 1: countries and the possibility really exists. I think you're right

363
00:21:32,920 --> 00:21:36,879
Speaker 1: Paul that because of the President's vacillation, it's hard to

364
00:21:36,960 --> 00:21:38,760
Speaker 1: nail him down. And of course when it comes to

365
00:21:38,800 --> 00:21:42,199
Speaker 1: a trade agreement, everyone needs to be very firmly on

366
00:21:42,240 --> 00:21:45,399
Speaker 1: the same page. But I do think it's possible, maybe

367
00:21:45,400 --> 00:21:50,119
Speaker 1: not grand trade agreements, but something more narrowed in on

368
00:21:50,240 --> 00:21:52,680
Speaker 1: the fuss of things that you can nail the president

369
00:21:52,720 --> 00:21:56,000
Speaker 1: down on John twice today, At least I haven't watched

370
00:21:56,040 --> 00:22:00,000
Speaker 1: all of the president's actions. He turned a secretary minution

371
00:22:00,040 --> 00:22:04,159
Speaker 1: and and lined up officers for whatever the answer was

372
00:22:04,200 --> 00:22:06,960
Speaker 1: as having to do with China and the dialogue with China.

373
00:22:07,119 --> 00:22:11,280
Speaker 1: How engaged are they in the Trump messaging that we

374
00:22:11,280 --> 00:22:14,600
Speaker 1: saw him particularly observed on Friday. You know, I think

375
00:22:14,600 --> 00:22:18,520
Speaker 1: that the team around the president is critical to however

376
00:22:18,800 --> 00:22:22,919
Speaker 1: the trade talks will proceed with China. The reality is

377
00:22:23,000 --> 00:22:26,240
Speaker 1: that the president often speaks off the cuff. Um. It

378
00:22:26,320 --> 00:22:31,560
Speaker 1: appears that that sort of conversational style approach to presidential

379
00:22:31,640 --> 00:22:36,440
Speaker 1: rhetoric is not always one informed. And while I think

380
00:22:36,520 --> 00:22:40,720
Speaker 1: that some might view the president constantly turning to someone

381
00:22:40,760 --> 00:22:43,919
Speaker 1: like the Treasury Secretary as a signal of weakness, I

382
00:22:43,960 --> 00:22:48,560
Speaker 1: actually think it's the president at least UH substituting uh

383
00:22:49,200 --> 00:22:52,960
Speaker 1: better judgment for his own when it's not fully informed.

384
00:22:53,000 --> 00:22:55,240
Speaker 1: And so I think the more that the president turns

385
00:22:55,280 --> 00:22:57,959
Speaker 1: to his advisors and asks for a more firm answer

386
00:22:58,400 --> 00:23:01,560
Speaker 1: is much better for UH, this country and for the

387
00:23:01,600 --> 00:23:04,720
Speaker 1: world than the president just simply saying whatever comes to

388
00:23:04,760 --> 00:23:07,680
Speaker 1: the top of his mind. So, John, given some of

389
00:23:07,720 --> 00:23:12,240
Speaker 1: the vacillations of this administration, what incentive do you think

390
00:23:12,240 --> 00:23:16,359
Speaker 1: the Chinese have for actually engaging in meaningful discussions and

391
00:23:16,400 --> 00:23:18,920
Speaker 1: trying to get a deal done? Or are they kind

392
00:23:18,920 --> 00:23:22,080
Speaker 1: of on the flip side saying we'll just wait. Well,

393
00:23:22,119 --> 00:23:24,480
Speaker 1: you know, I think this is something that the Chinese

394
00:23:24,480 --> 00:23:28,240
Speaker 1: are still figuring out. Ideally, um, they are going to

395
00:23:29,200 --> 00:23:32,480
Speaker 1: strike a trade deal when it is most opportune for them.

396
00:23:32,520 --> 00:23:35,199
Speaker 1: And I think for President she he has had moments

397
00:23:35,280 --> 00:23:38,240
Speaker 1: during the Trump administration where he has thought, you know,

398
00:23:38,760 --> 00:23:41,760
Speaker 1: this is the administration to strike this deal with, and

399
00:23:41,800 --> 00:23:45,760
Speaker 1: then those moments passed. I think over the next six months,

400
00:23:45,760 --> 00:23:48,800
Speaker 1: probably the Chinese are really going to start to game

401
00:23:48,840 --> 00:23:52,199
Speaker 1: this out and say, is Donald Trump the person we

402
00:23:52,240 --> 00:23:55,240
Speaker 1: need to do this with or is there a democratic

403
00:23:55,359 --> 00:23:59,439
Speaker 1: nominee emerging who might be easier to work with and

404
00:23:59,480 --> 00:24:02,320
Speaker 1: more stay to work What is their lobbying effort in Washington?

405
00:24:02,400 --> 00:24:05,640
Speaker 1: I mean, with Brookings and all your connections. I mean,

406
00:24:06,080 --> 00:24:08,919
Speaker 1: I think the idea that China's in Beijing and they

407
00:24:08,960 --> 00:24:11,200
Speaker 1: get an airplane and they fly over here is pretty naive.

408
00:24:11,720 --> 00:24:16,960
Speaker 1: What's there political thrust in lobbying in Washington, you know,

409
00:24:17,080 --> 00:24:18,879
Speaker 1: I would get I mean, I don't have an inside

410
00:24:18,880 --> 00:24:23,040
Speaker 1: track on that, but from the outside, I would say, obviously,

411
00:24:23,440 --> 00:24:28,400
Speaker 1: the Chinese have tremendous leverage with regard to the interests

412
00:24:28,440 --> 00:24:32,800
Speaker 1: of American companies. Any two economies on this planet the

413
00:24:32,880 --> 00:24:35,159
Speaker 1: size of the U. S. And China are going to

414
00:24:35,240 --> 00:24:38,040
Speaker 1: have a lot of overlapping interests. And I think they're

415
00:24:38,200 --> 00:24:43,120
Speaker 1: using both their leverage in China but also their leverage

416
00:24:43,280 --> 00:24:47,520
Speaker 1: among American companies and consumer references to to move this

417
00:24:47,640 --> 00:24:52,120
Speaker 1: forward again. Bloomberg Surveillance worldwide. Of course, on Bloomberg Radio today,

418
00:24:52,200 --> 00:24:56,120
Speaker 1: we're waiting for the press conference of the President Republic

419
00:24:56,160 --> 00:24:59,080
Speaker 1: of France Mr McCall and the President the United States

420
00:24:59,080 --> 00:25:01,840
Speaker 1: Donald Trumpet. They it's that will be coming up in

421
00:25:01,880 --> 00:25:04,960
Speaker 1: a bit. Paul, this is like um with Roper, with

422
00:25:05,000 --> 00:25:07,760
Speaker 1: Brooks Sutherland. I mean, it's fifty employees in Shanghai. It's

423
00:25:07,800 --> 00:25:10,560
Speaker 1: not Boeing, No, it's not seem as of Germany, but

424
00:25:10,920 --> 00:25:13,640
Speaker 1: all these little companies at up exactly, and so John

425
00:25:13,800 --> 00:25:15,359
Speaker 1: kind of going on that, you know, what do you

426
00:25:15,440 --> 00:25:18,760
Speaker 1: make of the president's call. I think I'm not sure

427
00:25:18,760 --> 00:25:22,840
Speaker 1: how to really describe it, that U S companies should

428
00:25:23,600 --> 00:25:28,439
Speaker 1: leave China. This is very confusing. I mean, this is

429
00:25:28,480 --> 00:25:30,960
Speaker 1: not the type of rhetoric that you would expect out

430
00:25:30,960 --> 00:25:33,879
Speaker 1: of a free market conservative. This is not something you

431
00:25:33,880 --> 00:25:37,040
Speaker 1: would expect out of a Republican president. And I think

432
00:25:37,080 --> 00:25:42,120
Speaker 1: the irony, of course, is that the president's favorite attack

433
00:25:42,280 --> 00:25:45,280
Speaker 1: on Democrats in this country is to call them socialists.

434
00:25:45,720 --> 00:25:49,560
Speaker 1: And it's it's odd to imagine the president trying to,

435
00:25:50,200 --> 00:25:54,240
Speaker 1: you know, sees the means of production abroad for American

436
00:25:54,280 --> 00:25:58,919
Speaker 1: companies to advance his own personal interests. And so I

437
00:25:58,960 --> 00:26:01,520
Speaker 1: think we've only seen the beginning of the blowback that

438
00:26:01,600 --> 00:26:03,560
Speaker 1: the president is going to get from this, and I

439
00:26:03,560 --> 00:26:06,680
Speaker 1: think part of it will be whether this was one

440
00:26:06,720 --> 00:26:09,320
Speaker 1: tweet and then it dies off, or whether the President

441
00:26:09,400 --> 00:26:12,639
Speaker 1: really considers pursuing it um That will tell us the

442
00:26:12,720 --> 00:26:15,560
Speaker 1: extent to which this blowback is going to happen. John Hudeck,

443
00:26:15,640 --> 00:26:18,520
Speaker 1: thank you so much with Brookings today. Just terrific perspective here.

444
00:26:19,240 --> 00:26:23,440
Speaker 1: Thanks for listening to the Bloomberg Surveillance podcast. Subscribe and

445
00:26:23,520 --> 00:26:28,840
Speaker 1: listen to interviews on Apple podcasts, SoundCloud, or whichever podcast

446
00:26:28,880 --> 00:26:33,119
Speaker 1: platform you prefer. I'm on Twitter at Tom Keane Before

447
00:26:33,119 --> 00:26:36,960
Speaker 1: the podcast. You can always catch us worldwide. I'm Bloomberg

448
00:26:37,080 --> 00:26:37,359
Speaker 1: Radio