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Speaker 1: Ye. Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene

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Speaker 1: Jay Leye. We bring you insight from the best in economics, finance, investment,

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Speaker 1: and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud,

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Speaker 1: Bloomberg dot Com, and of course, on the Bloomberg Let's

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Speaker 1: Bring in Steve Show. We Steve Major, HSBC Global head

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Speaker 1: of Fixed Income Research, really happy to say is with

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Speaker 1: us here in New York. Steve, I want to begin

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Speaker 1: with a view from HSBC and quote the following what

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Speaker 1: appears to be an end to FED tightening and a

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Speaker 1: corresponding shift in market expectations towards our low for longer

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Speaker 1: rate view. We have changed the tail risk, the tail

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Speaker 1: risk and our long term yield scenario analysis. As a result,

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Speaker 1: we cut our year end forecast for both twenty nineteen

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Speaker 1: and twenty to two point one percent. Let's be in

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Speaker 1: right there, the journey to two point one percent frame

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Speaker 1: it for a Steve that sounds familiar? Is that something

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Speaker 1: that I wrote? That is something you wrote? Um that

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Speaker 1: it's nine months until a year end and it's a forecast.

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Speaker 1: The favorite conversation I have with people investors, for example,

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Speaker 1: is when someone tells me I'm wrong, and I love

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Speaker 1: it because you know, how can a forecast be wrong.

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Speaker 1: Let's meet on New Year's even discuss whether it was

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Speaker 1: wrong or right. But the thing is is that, of course,

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Speaker 1: like any good forecast, it goes it goes up up

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Speaker 1: in you actually get it wrong first before you get

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Speaker 1: it right. So on day one of the new forecast,

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Speaker 1: the yield goes up. And the way the way I

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Speaker 1: look at it is that you've got some fantastic buying

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Speaker 1: opportunities coming in when when the yields pop a bit higher.

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Speaker 1: And I said on the show earlier that if you've

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Speaker 1: got people that are willing to buy at two fifty

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Speaker 1: two sixty on any kind of backup, let's see if

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Speaker 1: they actually appear. But the point is the Fed's not

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Speaker 1: hiking again. The next move is down. So the question

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Speaker 1: is when, if you think it's going to be soon,

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Speaker 1: then you need to pile into the two year security.

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Speaker 1: The thing is, did you just quote two point three

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Speaker 1: for two year notes? I think if you if you

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Speaker 1: buy a two year note at two point three, you've

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Speaker 1: got to be pretty damn sure they cut soon, not

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Speaker 1: within two years, within within the next nine months. I

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Speaker 1: think that's unlikely. It's unlikely they cut this year. Don't forget.

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Speaker 1: The FED is still tightening by shrinking the balance sheet,

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Speaker 1: so let's keep this simple. They're still tightening through the

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Speaker 1: balance sheet until September October. That leaves a very small

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Speaker 1: window this year for the first cut. So the first

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Speaker 1: easing in whatever format comes QUI four or rate cuts

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Speaker 1: is next year. Probably in the base case for the

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Speaker 1: team at HSBC ECONO, which is two cuts next year. Yeah, yeah,

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Speaker 1: I don't forget. Our guys have taken out what was

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Speaker 1: a hike followed by two cuts to just be two cuts,

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Speaker 1: which means, you know, we're now quite clear on the direction.

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Speaker 1: That uncertainty about the residual hike, I think is one

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Speaker 1: of the explanations for the gap down yields this year.

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Speaker 1: And as I said, the big story is really global.

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Speaker 1: I know it's difficult to see it here in the

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Speaker 1: US because you want to look at US data to

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Speaker 1: get validation for every basis point moving yield. But the

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Speaker 1: truth is it's global. We have lost one percent on

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Speaker 1: global growth in the last year, so in terms of

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Speaker 1: the forecast for global growth one year ago in the US,

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Speaker 1: saying think about the optimism right, so so so the

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Speaker 1: uro Zone is one fifth of the global economy. If

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Speaker 1: the uro Zone has lost two big figures on the

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Speaker 1: growth forecast today compared to a year ago, that's forty

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Speaker 1: basis points on global growth. So you think the excitement

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Speaker 1: of yesterday off the back of one Chinese p M,

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Speaker 1: I read it is misplaced. State. I'm a little bit concerned.

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Speaker 1: A lot of economists are looking at the PREMS is

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Speaker 1: the most important input to their growth forecast. If it

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Speaker 1: was that simple, then you wouldn't need all these people

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Speaker 1: looking at it. That the point. The point is is

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Speaker 1: that the pm is for the last year reflect the

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Speaker 1: the weakening outlook, and one month's blip is just that,

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Speaker 1: isn't it? If that is that the response to the

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Speaker 1: fiscal and monetary loosening, that is that it this close

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Speaker 1: to the age old question, Steve Major. If the persistency

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Speaker 1: of high price and lower yield that's been one of

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Speaker 1: the arch foundations of your you know, your great HSBC call.

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Speaker 1: Do you see any idea that that will change and

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Speaker 1: we could see an abrupt price higher excuse me, price,

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Speaker 1: lower yield higher. Yeah, there are people out there with

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Speaker 1: that view and they were rewarded for twenty four hours,

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Speaker 1: weren't they. But you know that's that everyone has to

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Speaker 1: have their day. And I send you took a little

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Speaker 1: bit of stick yesterday state it's funny as as I say,

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Speaker 1: it's a forecast, so it can't be wrong that The

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Speaker 1: point is is that what would have to happen for

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Speaker 1: me to change my mind is the question that today

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Speaker 1: and you're talking here about a framework shift in the

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Speaker 1: inflation targeting regimes led by the FED. There's a frameworkshift,

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Speaker 1: not some tweak to inflation averaging or an overshoot that's

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Speaker 1: just that's just fiddling with the deck chairs on the

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Speaker 1: on the Titanic. There's nothing that or something more serious

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Speaker 1: like towards price level targeting or have you, or a

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Speaker 1: personality shift inside the FMC, and I guess that might

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Speaker 1: be underway given one of the nominations that came through recently.

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Speaker 1: Those are the kind of things that will give you

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Speaker 1: a bearish steepening of the curve, but absent that it's

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Speaker 1: sort of an outlier that doesn't happen. We've we've had

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Speaker 1: a bullish steepening in the forwards, which means we're setting

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Speaker 1: up a very high hurdle rate that you know, the

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Speaker 1: for the curve to steepen from here, it's got to

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Speaker 1: beat what's implied in the forwards in the thirty five

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Speaker 1: basis points and forwards like it's like having two cuts

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Speaker 1: price and and you know that that that's why it's

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Speaker 1: frustrating that there's no instant ratification in these forecasts. So Steve,

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Speaker 1: you wander out between westm football teams and you actually

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Speaker 1: speak to a by side client that manages long term

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Speaker 1: retirement dollars and they asked the question, I'll ask, what's

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Speaker 1: the Steve major actuarial assumption. Yeah, I walk out of

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Speaker 1: the game on Saturday totally depressed by the way the

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Speaker 1: West Ham Everton. So you've been catching me at the

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Speaker 1: wrong time asking that question if I come out with

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Speaker 1: the football match. But the the this is interesting from

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Speaker 1: an actual aerial point of view that they use discount

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Speaker 1: rates that may be way way too high. So um,

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Speaker 1: from a liability perspective, you need a higher discount rate

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Speaker 1: because it sort of makes everything look prettier. But your

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Speaker 1: message the moment Steam is that we've seen peak yield.

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Speaker 1: You've seen that. Yeah, So I have this conversation many

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Speaker 1: times each week. People are kind of mean reverting. They

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Speaker 1: think it's low, so it has to go up. In

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Speaker 1: the last ten years, that's not been a satisfactory approach.

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Speaker 1: The last ten years are are exceptional in the context

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Speaker 1: of the last thirty. I've been working for thirty three,

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Speaker 1: so I've only seen falling yields. But I've got seven

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Speaker 1: hundred years of history if you ever want to see it,

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Speaker 1: seven hundred years going back to the Dutch bond market.

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Speaker 1: I wish I had a bit more, back to the

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Speaker 1: Venetian bob market, but I've got seven hundred years. John

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Speaker 1: was there for that, Yeah, John was. So the yield

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Speaker 1: has only been going down. So look a lot of people.

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Speaker 1: I heard a clip on before I came on the show.

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Speaker 1: Someone said, I fear that we're at the beginning of

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Speaker 1: a multi decade bond bear market. You could have made

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Speaker 1: that call at any point in the last thirty years.

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Speaker 1: That so strates to me that there's a lot of

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Speaker 1: value at two point five for US tens. Just think

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Speaker 1: about this. The real yield. That's a good name for

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Speaker 1: a show, that is the real yield on the US

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Speaker 1: is fifty basis points. That's a big fat number in

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Speaker 1: the euro Zone, it's minus fifty hundred. The US looks

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Speaker 1: cheap globally. Steve, really good perspective and great to have

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Speaker 1: you in the studio with us here in New York City.

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Speaker 1: A special thanks to Steve Major, HSBC Global head a

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Speaker 1: Fixed Income Reset, John Farrell, New York. I'm Tom Keane

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Speaker 1: and Queen Victoria Street in London, and both John and

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Speaker 1: I are thrilled to have Dark in the door. M

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Speaker 1: Ross Thomas driving forward all of our Brexit coverage. I

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Speaker 1: really can't say enough on Twitter at Brexit and of

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Speaker 1: course at Bloomberg dot com the combined effort of grizzled

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Speaker 1: and I might point out MROs Thomas exhausted reporters give

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Speaker 1: our audience worldwide a vignette of last night. It's ten

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Speaker 1: eight ten pm here, and I was really quite taken

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Speaker 1: by the drama late in the night and then what

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Speaker 1: do you wrap up shop about two am London time. Yeah,

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Speaker 1: it might have been that late. So the draw the

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Speaker 1: real draw. But last night was that, you know, some

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Speaker 1: of us have been getting quite excited that one of

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Speaker 1: these proposals might just get a majority or or a

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Speaker 1: convincing plurality. None of them did. In the frustration in

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Speaker 1: the House comments was palpable Nick Boles, who is a

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Speaker 1: Tory MP who basically has been writing this plan for

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Speaker 1: a soft Brexit. It never looked like it had much hope.

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Speaker 1: But yesterday afternoon, you know, perhaps they were starting to

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Speaker 1: build some support around it. And then when it was defeated,

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Speaker 1: he stood up and said, I have given everything to this,

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Speaker 1: I have failed. And then here was the punch. He said,

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Speaker 1: I failed because my colleagues in the Tory Party have

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Speaker 1: refused to compromise. And with that he resigned from the

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Speaker 1: Conservative Party. Americans have an image of a quote unquote

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Speaker 1: cabinet meeting at turned Downing Street. It usually involves John Lithgow.

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Speaker 1: I think of Anthony Eden in the Sewez crisis in

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Speaker 1: the in the show The Crown on Netflix. And we

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Speaker 1: have our images are stereotypes of what a cabinet meeting is.

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Speaker 1: The Telegraph right now says it's a mammoth cabinet meeting

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Speaker 1: going on. What's visual wise for us? Is it like

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Speaker 1: eight people around a table? What is a cabinet meeting

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Speaker 1: in the United Kingdom? So that the table is famously

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Speaker 1: coffin shaped? From that, what you will um, yes, it

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Speaker 1: is a it is a marathon session because there is

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Speaker 1: a there's a there's a political session as well. That's

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Speaker 1: field speculation that perhaps one of the things that they

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Speaker 1: might be talking about is an election. Um. Theresa May

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Speaker 1: is also going to be talking to them about the

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Speaker 1: possibility of a long extension and that, you know, think

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Speaker 1: about this for a minute. Three years after the UK

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Speaker 1: voted to leave the EU, we might well be voting

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Speaker 1: in EU elections next screaming probably. There's also you know,

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Speaker 1: what has characterized content meetings recently is not only the rows,

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Speaker 1: the arguments, but also the leaking um and in fact

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Speaker 1: something that that's something that Theresa May has been a

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Speaker 1: bit has tried to crack down on. Well. I mean

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Speaker 1: this is important and John Fair I think would be

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Speaker 1: great on this as well. I was thunderstruck with Jeremy

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Speaker 1: Corbyn stood up last night about ten thirty in the night,

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Speaker 1: London time, and he looked across that Fame table at

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Speaker 1: the Green Couches and it completely exhausted Prime Minister May.

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Speaker 1: I can't think of any equivalent of that in US politics.

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Speaker 1: Reagan was very tired in the second term. George SR

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Speaker 1: was tired, LB J worn out from Vietnam, etcetera. But

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Speaker 1: nothing like what I observed last night. Does she have

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Speaker 1: her full facilities now? Is she vibrant and able to

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Speaker 1: think clearly about the path forward? But I think what's

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Speaker 1: been so remarkable about Tresa May is that she is

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Speaker 1: almost um immune to, or appears to be anyway immune

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Speaker 1: to some of the things that might push off other people.

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Speaker 1: She seems to be absolutely incapable of feeling humiliation. You know,

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Speaker 1: newspapers right about humiliating defeats, and of course Theresa May,

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Speaker 1: it seems to just wash off her and she and

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Speaker 1: you plows on um she did. You know a few

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Speaker 1: days ago she was sort of suffering with a very

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Speaker 1: bad cough. She could hardly speak, and the optics of

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Speaker 1: that were just terrible. Now I think actually she seems

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Speaker 1: in much better sort of physical health, and she continues

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Speaker 1: to say that her deal is the best option, and

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Speaker 1: it looks like she's going to continue fighting for that

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Speaker 1: deal until the absolute last moment. Some scathing words from

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Speaker 1: the former Conservative MP and Whittacomb on BBC Newsnight last

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Speaker 1: night that I think for many people this will resonate

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Speaker 1: with you mentioned Anthony Eden, Tom We've got the worst

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Speaker 1: Prime minister since Anthony Eden her words, not mine. We've

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Speaker 1: got the worst leader of the opposition party in the

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Speaker 1: entire history of the Labor Party, and we've got the

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Speaker 1: worst parliament since Oliver Cromwell. Is that the mood of

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Speaker 1: the country right now? I think it probably is, and

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Speaker 1: that might be I mean something to bear in mind

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Speaker 1: as we are possibly heading towards a general election. Certainly,

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Speaker 1: you know, the public is very weary with Brexit, weary

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Speaker 1: with politicians playing games. And the other thing to bear

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Speaker 1: in mind, of course, is that Parliament has become increasingly

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Speaker 1: entrenched in its divisions. There were people last night who

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Speaker 1: a year ago would have happily voted for the soft

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Speaker 1: Brexit option that failed, but they what happens today? What

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Speaker 1: are you on the team looking for in the next

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Speaker 1: twenty four hours. Well, what we're looking for today is

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Speaker 1: what comes out of the cabinet meeting. Basically, what's so

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Speaker 1: simple what histories may told them. Are we going to

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Speaker 1: a general election? Right? Are we going to a long extension?

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Speaker 1: And then you know what is the e You're going

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Speaker 1: to say, We're gonna have an EU summit on April

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Speaker 1: the tenth. It's going to be two days before what's

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Speaker 1: meant to be a cliff edge. And the other thing

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Speaker 1: that we are still chasing is we think that no

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Speaker 1: deal is off the table. To reason may have said

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Speaker 1: you won't do no deal without Parliament's consensed. Steve Barkley,

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Speaker 1: a Brexit here, said last night that no deal was

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Speaker 1: essentially off the table. Is it though We've got to

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Speaker 1: leave during Mrs Times. Congratulations to your team and just

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Speaker 1: terrific Brexit coverage. I am absolutely positive that David Page

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Speaker 1: of Bankster Investment Managers does not want to discuss black Rock. David,

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Speaker 1: good morning to you. Let's talk about the transatlantic situation now,

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Speaker 1: with the U S economy the UK economy. I want

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Speaker 1: to begin with the United States. It's a really, really

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Speaker 1: tough time to get your hands around where this U. S.

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Speaker 1: Economy is going a lot of people standing the year

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Speaker 1: by saying, look, this is what's going to happen. The economy.

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Speaker 1: Growth is going to decent rate, We're going back towards trend.

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Speaker 1: And some people might confuse that with a sinister turn

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Speaker 1: in the U. S. Economy? Are we confusing it with

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Speaker 1: the sinister term? Because the I S M yesterday was

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Speaker 1: some fuel for that argument. Yes, I think we are

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Speaker 1: confusing it, and I think the real difference has come

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Speaker 1: through from the weakness in the global economy and how

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Speaker 1: the Federal Reserve has reacted to them, particularly for examples

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Speaker 1: for the change in financial conditions at the end of

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Speaker 1: the year. But I think we are looking at more

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Speaker 1: of a slowdown. We as a act for investment managers,

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Speaker 1: are looking for more of us slowdown than the market's being,

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Speaker 1: considering it was a relatively benign forecast at the start

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Speaker 1: of the year to see a slow down from two

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Speaker 1: point nine to two point six on the Bloomberg and Census,

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Speaker 1: and we were always looking at it being a little

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Speaker 1: bit softer than that at two point three. But two

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Speaker 1: point three is still solid um. It really isn't that bad.

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Speaker 1: And I think what markets have miss mistaken, I think,

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Speaker 1: is the fact that we've got a very poor, weak

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Speaker 1: global growth backdrop, but one that we think is entering

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Speaker 1: in a deer now. So as we look to the

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Speaker 1: rest of this year, we expect to see acceleration, and

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Speaker 1: that acceleration is gonna be something that keeps the FED

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Speaker 1: on hold. So I think the story this year has

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Speaker 1: been markets pricing for a FED cut and I think

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Speaker 1: the story for the rest of the year is going

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Speaker 1: to be markets pricing that cut back out. Well, this

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Speaker 1: is what I find fascinating about the market right now.

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Speaker 1: We had Steve Major of HSBC on a program about

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Speaker 1: fifty minutes ago. You were sitting there in the green

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Speaker 1: room with him, and here we are having two completely

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Speaker 1: different conversations Steve and the team at HSBC. The team

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Speaker 1: following the economics forecasting two cuts next year from the

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Speaker 1: Federal Reserve. You're talking about pricing those cuts out. This

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Speaker 1: is a really buying aymarket. Yeah, it is um and

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Speaker 1: I think you know what we're talking about is a

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Speaker 1: difference of timing. So for the Steven Major view the

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Speaker 1: falling yields, we totally see the downward pressure in neutral rates.

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Speaker 1: We see the impotence of global central banks come the

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Speaker 1: next downturn. Our argument is that we're just not there yet.

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Speaker 1: And actually what we're going to see, partially because of

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Speaker 1: a re stimulus of the Chinese economy and the spillover

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Speaker 1: effects we expect. That's how on the rest of the

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Speaker 1: world is a period where you see some statis come through,

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Speaker 1: some growth that's really not too bad. We were like

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Speaker 1: it really to spell there, we did see the FED

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Speaker 1: cut rates and then we returned for a couple of

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Speaker 1: years before the down. To be clear here, David, you

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Speaker 1: do think that p m I from China yesterday was

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Speaker 1: a pivotal point for this market because some people are

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Speaker 1: coming out throwing cold water on that one data point. Yes,

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Speaker 1: it's decent, but it's too early. What's your argument. Yeah,

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Speaker 1: we don't think that this data point is necessarily the key.

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Speaker 1: What we suggest is that key turning point was the

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Speaker 1: pickup in total social financing that came through in January.

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Speaker 1: And historically when we've seen that borrowing start to pick up,

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Speaker 1: there's always been a barren of six month lag before

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Speaker 1: you've seen a stabilization. So that's what we expected, stabilization

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Speaker 1: around mid year. The p m I may well be

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Speaker 1: a straw in the wind that is flagging that stabilization,

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Speaker 1: but we will see more evidence of that over the

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Speaker 1: coming months. We're gonna go to the I m F meetings.

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Speaker 1: I don't know X number of weeks. We've got a

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Speaker 1: wonderful mammo from them. They're really doing a whole new

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Speaker 1: effort on They're famous World Economical Look and all the

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Speaker 1: rest of them David Page. Are we anywhere near global recession?

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Speaker 1: I mean, do we go into I mf talking about

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Speaker 1: three percent global girlth No, I don't think we do

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Speaker 1: um and I think you know that there's doubtless, you know,

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Speaker 1: at the NADIA it's very hard to recognize the turning point.

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Speaker 1: There will doubtless be risk scenarios around that. And we

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Speaker 1: also live in a world where there are marked risks

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Speaker 1: that we think are affecting asset prices as well. We've

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Speaker 1: talked to death about Brexit, and there is a real

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Speaker 1: fear of something nasty happening there in two weeks. We

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Speaker 1: happen to think that won't that won't come to pass.

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Speaker 1: We've still got trade negotiations ongoing. We see a relatively

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Speaker 1: benign outcome coming through there, but markets at the moment

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Speaker 1: recognize significant downside risk. I think if you get past

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Speaker 1: those risk events and you start see global growth coming

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Speaker 1: through the second half of this year, is going to

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Speaker 1: look a lot more benign than we currently fear. This

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Speaker 1: is just simple. If it's ye called SUPERCIPLEUS duplus n X,

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Speaker 1: is it just an X. I mean, there's all the

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Speaker 1: marginal improvement you're calling for off improved exports and import

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Speaker 1: dynamics or is it over on the other side of

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Speaker 1: the domestic ledger. It comes across because from a U

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Speaker 1: S perspective that the translation is not necessarily on net trade.

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Speaker 1: It comes through from financial conditions. So you've got dollar

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Speaker 1: strength which is affecting obviously the inflation outlook, and the

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Speaker 1: inflation outlook feeds through into both corporate backdrop and the

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Speaker 1: household spending backdrop. So if we don't start to see

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Speaker 1: as firmer global backdrop, then you'll you'll see firm a

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Speaker 1: domestic activity coming through. And there's there's all sorts of

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Speaker 1: noise in that as well. Weaker government spending in Q

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Speaker 1: one that we expect to pick up in Q two,

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Speaker 1: Q three. So no, it's not just a net trade story.

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Speaker 1: But if you look at somewhere like the Eurozone where

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Speaker 1: net trade is a much bigger component, yes, we do

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Speaker 1: expect to see a pickup in net trade and that

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Speaker 1: will help on whind some of the exacerbated slow down

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Speaker 1: of the second half of last year. What's the uptimal

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Speaker 1: euro price? I mean I walked on the door here

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Speaker 1: a qvous this morning and and it was a one

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Speaker 1: eleven handle. It was near a one twelve but one eleven. Ever,

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Speaker 1: weaker euro is that the trend forward? No, we don't

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Speaker 1: think so. Um. I think you remove Brexit risk, and

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Speaker 1: that's a big shout at the moment, But if you do,

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Speaker 1: then that takes some of the euro dollar weakness out.

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Speaker 1: I think if you move into a place where where

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Speaker 1: global growth and particularly Chinese gross is not weighing on

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Speaker 1: Eurozone economic activity, then we start to see some upside

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Speaker 1: comes through there and some of the dollar safe haven

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Speaker 1: starts to flow. So actually we think we'll see some

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Speaker 1: dollar some euro appreciation, and as we move into next year,

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Speaker 1: we wouldn't be to surprise to see something like one twenty,

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Speaker 1: which would be for us, even if you see the

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Speaker 1: Fed starting to consider the possibility of rate hikes. Again.

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Speaker 1: We'll just to wrap things up. David tom spelling out

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Speaker 1: the equation for GDP. Something you meant and though it

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Speaker 1: was government spending, So let's talk about that, not just trade.

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Speaker 1: That's been a big factor here in the United States.

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Speaker 1: Some people increasingly think incrementally we may see a change

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Speaker 1: in Europe on the government spending side. Are you optimistic

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Speaker 1: about that? Well, we do think it's something that for example,

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Speaker 1: it's going to come through from the German government, so

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Speaker 1: we see a more positive backdrop coming through, is there.

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Speaker 1: We don't think that that's a major driver. I think

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Speaker 1: one of the key issues for Europe is that it

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Speaker 1: doesn't have major drivers. Europe as a whole tends to

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Speaker 1: be a taker of global growth. The CB has tried,

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Speaker 1: but it's always been behind the curve. Fiscal stimulus has

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Speaker 1: been relatively restrained, so we see it as a marginal

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Speaker 1: boost to GDP, but nothing that's a game changer. I'd

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Speaker 1: devid great to catch up with you as always. David Page,

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Speaker 1: acts for Investment Manager Senior economists for the US and

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Speaker 1: for the UK. Realdy pleased to said that joining us

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Speaker 1: on the phone now, Thomas Jim Poleon the loose Hole

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Speaker 1: Groove Chief Investment strategistic constructive view from Jim coming up

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Speaker 1: in Jim quotes, I think the environment for stocks remains good.

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Speaker 1: Why Jim, H Well, you know, I I guess there's

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Speaker 1: a few things I really like. I I think that

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Speaker 1: we have did a great job of revaluing this stock market,

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Speaker 1: and even though we've rallied significantly, we're still selling only

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Speaker 1: about average price earnings multiple since and really only average

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Speaker 1: price earnings multiple all the way back to given that

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Speaker 1: we're in a sweet spot between one and three percent inflation.

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Speaker 1: Uh so there's still I think room on the upside.

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Speaker 1: A twenty multiple has been a common UH multiple that's

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Speaker 1: occurred at the top of bowl markets here in recent

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Speaker 1: UH recoveries. And you know, if you get twenty times

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Speaker 1: earnings at some point here, given how low rates are

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Speaker 1: that you're just talking about how low inflation is, that

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Speaker 1: doesn't seemed reasonable to me that we could reach that.

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Speaker 1: And even if earnings are flat this year, let's say

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Speaker 1: around one six on the SMP five, that could still

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Speaker 1: give you, you know, something like a valuation on the SMP.

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Speaker 1: But if you combine those low valuations with very low

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Speaker 1: interest rates, very low inflation, which makes them look even

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Speaker 1: more attractive than you, and you realize that the entire

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Speaker 1: cavalry has come to the support of economies all over

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Speaker 1: the world as well as stock markets. Both monetary and

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Speaker 1: fiscal stimulus is now being devoted. And I think, lastly,

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Speaker 1: I think sentiment is still highly cautious, and we're still

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Speaker 1: climbing basically a wall of wherry. So let's talk about

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Speaker 1: that final point. Jim because I think it's an important one.

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Speaker 1: The sentiment is still highly cautious. Some people will struggle

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Speaker 1: to reconcile that with an equity market that is about

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Speaker 1: two percentage points from an old time high. Give us

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Speaker 1: a window into that a little bit more, Jim, what

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Speaker 1: gives you the clarity? Well, you know, first the rally.

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00:22:57,600 --> 00:23:00,000
Speaker 1: We often think that the market has gone up primary

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00:23:00,160 --> 00:23:03,359
Speaker 1: because of buying, but often the market goes up because

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00:23:03,400 --> 00:23:06,040
Speaker 1: the lack of sellers. I think in March of two

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00:23:06,080 --> 00:23:08,600
Speaker 1: thousand nine, when the market first took off in the

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00:23:08,680 --> 00:23:11,520
Speaker 1: o A crisis, there was no buyers. It was just

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00:23:11,560 --> 00:23:13,840
Speaker 1: that all the selling was done. And I think that

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00:23:13,960 --> 00:23:16,720
Speaker 1: same thing happened here. A lot of people with the

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00:23:16,760 --> 00:23:21,200
Speaker 1: collapse in December UH sold and got out of the way,

439
00:23:21,240 --> 00:23:24,479
Speaker 1: and once that cleared there was no sellers. The market

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00:23:24,600 --> 00:23:27,560
Speaker 1: rallied again. But I just think today John, that there's

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00:23:27,600 --> 00:23:30,360
Speaker 1: just a lot of things out there to keep people worried.

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00:23:30,880 --> 00:23:33,240
Speaker 1: You know, we got the December swoon, which caught people

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00:23:33,240 --> 00:23:35,679
Speaker 1: off guard and still scares people that, oh boy, that

444
00:23:35,680 --> 00:23:38,680
Speaker 1: could be the start of the bear we got. Recovery

445
00:23:38,720 --> 00:23:41,320
Speaker 1: is soon going to be the longest ever in US history.

446
00:23:41,440 --> 00:23:44,320
Speaker 1: How could it last much longer. We got negative yields

447
00:23:44,320 --> 00:23:47,679
Speaker 1: all over the globe, in a unique experience in the

448
00:23:47,720 --> 00:23:50,920
Speaker 1: post post war era. The Fed just scared everybody by

449
00:23:51,280 --> 00:23:56,359
Speaker 1: guaranteeing no rate hikes this year. Very irregular policy. Economic

450
00:23:56,440 --> 00:23:59,840
Speaker 1: reports are very weak. We got fears that other economist

451
00:24:00,040 --> 00:24:04,080
Speaker 1: pulse in recession. We've got trade wars and Brexit. Uh.

452
00:24:04,200 --> 00:24:06,479
Speaker 1: We wonder if our police officials are out of bullets.

453
00:24:06,560 --> 00:24:09,359
Speaker 1: I'm just saying I still think there's a wallet worry.

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00:24:09,359 --> 00:24:11,879
Speaker 1: We're climbing. I'm not disagree with that. I did a

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00:24:12,000 --> 00:24:13,679
Speaker 1: chart on TV today. I'll put it out for you

456
00:24:13,680 --> 00:24:16,359
Speaker 1: to see on Blueboard Radio, on Twitter. But it's real simple,

457
00:24:16,440 --> 00:24:20,560
Speaker 1: Jim Paulson, we're two below down record highs of the

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00:24:20,560 --> 00:24:22,520
Speaker 1: glory days of the summer. I believe it was of

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00:24:22,680 --> 00:24:28,080
Speaker 1: last year. We had courage to own equities last summer

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00:24:28,200 --> 00:24:32,639
Speaker 1: pre October, pre December. Do we have the same courage now?

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00:24:33,880 --> 00:24:37,320
Speaker 1: I think it's strikingly different now. I agree with you.

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00:24:37,880 --> 00:24:40,840
Speaker 1: We had a lot of optimism, maybe the greatest optimism

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00:24:40,840 --> 00:24:43,960
Speaker 1: of the entire recovery last year, but it's not there

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00:24:44,040 --> 00:24:47,120
Speaker 1: right now. I think, like I say it, That's why

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00:24:47,119 --> 00:24:49,760
Speaker 1: I think it could still return at some point we're

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00:24:49,800 --> 00:24:52,159
Speaker 1: going to decide. I believe that we're not going to

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00:24:52,320 --> 00:24:55,760
Speaker 1: recess anytime real soon, and that could that could bring

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00:24:55,800 --> 00:24:58,520
Speaker 1: buyers back into this pre that are now underweighted, and

469
00:24:58,520 --> 00:25:00,560
Speaker 1: then at some point, to your point, we could get

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00:25:00,600 --> 00:25:04,760
Speaker 1: exuberant again. Okay, but but it was December the mother

471
00:25:04,840 --> 00:25:07,760
Speaker 1: of all cathartic events. I mean, it was so traumatic.

472
00:25:08,160 --> 00:25:11,800
Speaker 1: We don't use traditional John Maggie technical analysis. Was it

473
00:25:11,920 --> 00:25:16,280
Speaker 1: the mother of all catharsis? You know John knew that band.

474
00:25:16,320 --> 00:25:18,399
Speaker 1: They did Deaf Leppard like no one in the minutes

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00:25:18,440 --> 00:25:22,920
Speaker 1: of England. I don't ever remember December like that ever

476
00:25:22,960 --> 00:25:25,520
Speaker 1: in my entire came I agree, I totally agree. Everybody's

477
00:25:25,520 --> 00:25:27,840
Speaker 1: out there doing a history lesson. I'm like, no, it

478
00:25:27,880 --> 00:25:31,720
Speaker 1: was original. It was original, and I and I think

479
00:25:31,760 --> 00:25:34,639
Speaker 1: it shocked all of us and myself included that that

480
00:25:34,760 --> 00:25:39,000
Speaker 1: happened during December. But it looks increasingly like the the

481
00:25:39,000 --> 00:25:43,199
Speaker 1: the oddity. What was what was incorrect and inappropriate was

482
00:25:43,280 --> 00:25:47,400
Speaker 1: more of the December swoon than the January rally, and

483
00:25:47,600 --> 00:25:51,320
Speaker 1: we maybe overdid the selling more than we should have,

484
00:25:51,400 --> 00:25:54,040
Speaker 1: just got kind of out of control. Um, but I'm

485
00:25:54,119 --> 00:25:56,560
Speaker 1: not sure of that. But I think there are some

486
00:25:56,600 --> 00:26:00,920
Speaker 1: fundamental showing up again here suggesting that we have definitely

487
00:26:00,960 --> 00:26:04,680
Speaker 1: slowed down but not headed for recession. And if that's

488
00:26:04,720 --> 00:26:07,359
Speaker 1: the case, there's a lot of underweighted portfolios now, in

489
00:26:07,440 --> 00:26:10,840
Speaker 1: part because of the unique December swoop. So listening to

490
00:26:10,880 --> 00:26:12,320
Speaker 1: what you've got to say, Jim, it seems to me

491
00:26:12,359 --> 00:26:14,520
Speaker 1: that you think the pain trade has stocks still go

492
00:26:14,640 --> 00:26:17,159
Speaker 1: high every we think about what December gave us. It

493
00:26:17,240 --> 00:26:19,480
Speaker 1: was a panic trade. It was a panic over a

494
00:26:19,520 --> 00:26:22,359
Speaker 1: policy mistake. What we have now is an obsession over recession.

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00:26:22,800 --> 00:26:25,400
Speaker 1: Tom King and I pretty much every single morning are

496
00:26:25,440 --> 00:26:29,119
Speaker 1: asking what's your recession view to pretty much every single

497
00:26:29,160 --> 00:26:32,359
Speaker 1: person that comes on this program. And what's amazing to me, Jim,

498
00:26:32,400 --> 00:26:34,480
Speaker 1: as you have some people with great conviction that say

499
00:26:34,600 --> 00:26:37,360
Speaker 1: there isn't gonna be one anytime soon, and and equally

500
00:26:37,440 --> 00:26:40,720
Speaker 1: some people with fantastic conviction that say it's around the corner.

501
00:26:40,760 --> 00:26:42,960
Speaker 1: The Fed's going to need to cut Jim, When do

502
00:26:43,080 --> 00:26:45,160
Speaker 1: these kind of things reconcile? How long does it take

503
00:26:45,200 --> 00:26:46,960
Speaker 1: to shake this out of the market, for things to

504
00:26:46,960 --> 00:26:49,920
Speaker 1: settle down one way or the other. Well, I think

505
00:26:50,000 --> 00:26:52,600
Speaker 1: data ultimately is going to settle. It won't be the FED,

506
00:26:52,840 --> 00:26:55,840
Speaker 1: it'll be actual data, which is the Fed's boss, if

507
00:26:55,880 --> 00:26:58,480
Speaker 1: you will, telling the FAT what they have to do.

508
00:26:58,960 --> 00:27:02,640
Speaker 1: And I think between now and summer, that's my guess

509
00:27:02,920 --> 00:27:05,680
Speaker 1: that we're either going to find out that this economy

510
00:27:05,760 --> 00:27:07,960
Speaker 1: is really falling off a cliff both here and abroad,

511
00:27:08,680 --> 00:27:11,280
Speaker 1: or there's enough green shoots to say this is more

512
00:27:11,400 --> 00:27:15,359
Speaker 1: just a mid cycle slow down. Uh. And given the

513
00:27:15,560 --> 00:27:19,000
Speaker 1: policy response, the aggressive policy response both in fiscal and

514
00:27:19,080 --> 00:27:23,080
Speaker 1: monetary around the globe, it's more likely if it's just

515
00:27:23,119 --> 00:27:25,480
Speaker 1: a slowdown, that it's going to re accelerate again. So

516
00:27:26,160 --> 00:27:29,439
Speaker 1: I think by late summer we're going to decide whether

517
00:27:29,840 --> 00:27:33,119
Speaker 1: we have imminent recession or whether we overacted to that.

518
00:27:35,320 --> 00:27:36,960
Speaker 1: Great to catch up in the gympulse in that A

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00:27:37,000 --> 00:27:40,240
Speaker 1: loose groud chief investment strategist joining us on the fine.

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00:27:40,840 --> 00:27:45,080
Speaker 1: Thanks for listening to the Bloomberg Surveillance podcast. Subscribe and

521
00:27:45,119 --> 00:27:50,440
Speaker 1: listen to interviews on Apple Podcasts, SoundCloud, or whichever podcast

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00:27:50,480 --> 00:27:54,720
Speaker 1: platform you prefer. I'm on Twitter at Tom Keane Before

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00:27:54,760 --> 00:27:58,600
Speaker 1: the podcast, you can always catch us worldwide. I'm Bloomberg

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Speaker 1: Radio a