WEBVTT - Industrial Recession In The U.S. Is Not Over: Booth 0:00:02.640 --> 0:00:05.320 Welcome to the Bloomberg Penel podcast. I'm Paul Sweene. You, 0:00:05.360 --> 0:00:07.680 along with my co host Lisa Brahma wits each day 0:00:07.720 --> 0:00:10.240 we bring you the most noteworthy and useful interviews for 0:00:10.280 --> 0:00:12.520 you and your money. Whether at the grocery store or 0:00:12.560 --> 0:00:15.480 the trading floor, find a Bloomberg Penil podcast on Apple 0:00:15.520 --> 0:00:17.959 podcast or wherever you listen to podcasts, as well as 0:00:17.960 --> 0:00:21.760 at Bloomberg dot com. Today is FED Day. Two o'clock 0:00:21.760 --> 0:00:24.320 will get those statement from the FED and two thirty 0:00:24.360 --> 0:00:27.360 a press conference with Chairman j Pale. So we are 0:00:27.640 --> 0:00:30.080 very fortunate right now to have our next guest to 0:00:30.240 --> 0:00:33.360 help us preview what we might hear. Danielle di Martino Booth. 0:00:33.400 --> 0:00:36.800 She's a CEO and Director of Intelligence at Quill Intelligence, 0:00:36.840 --> 0:00:40.159 former advisor at the Dallas Federal Reserve, and a Bloomberg 0:00:40.159 --> 0:00:42.479 opinion columnist. Danielle, thanks so much for joining us here 0:00:42.520 --> 0:00:45.480 in our Bloomberg and Actor Broker studio. So FED Day today, 0:00:45.520 --> 0:00:48.600 and as Lisa was suggesting, how do you think the 0:00:48.680 --> 0:00:52.280 FED chairman will address maybe one of the newer uncertainties 0:00:52.280 --> 0:00:55.240 in the marketplace, which is the coronavirus. How do you 0:00:55.240 --> 0:00:59.520 think Mr Powell will react? To that. Well, he probably 0:00:59.520 --> 0:01:01.760 won't be a front and say that the insurance premium 0:01:01.760 --> 0:01:04.960 has gone up on global risks um, but he might 0:01:05.000 --> 0:01:07.560 tow the same type of line and say that in 0:01:07.640 --> 0:01:10.399 order to maintain the economic expansion, the FED is going 0:01:10.480 --> 0:01:13.480 to do whatever he needs to do, including any kind 0:01:13.480 --> 0:01:16.840 of global economic disruptions that are brought on kind of 0:01:16.840 --> 0:01:19.200 the same line that he was using with reference to 0:01:19.200 --> 0:01:21.039 the trade war. He's just going to pick it up 0:01:21.080 --> 0:01:23.479 and assign it to the coronavirus. Alright, So let's take 0:01:23.480 --> 0:01:25.600 it out of J. Palell's at mouth and let's talk 0:01:25.640 --> 0:01:30.600 about what the potential economic impact is on the United States. 0:01:30.640 --> 0:01:33.880 We're seeing, for example, Starbucks closing down more than two 0:01:33.920 --> 0:01:37.759 thousand stores in China in response to this, Apple said 0:01:37.760 --> 0:01:39.640 that they could take a material hit. They're looking at 0:01:39.640 --> 0:01:43.040 ways to divert their supply chain away from the Wuhan area. 0:01:43.880 --> 0:01:47.440 Do you think that markets are under pricing the potential 0:01:47.520 --> 0:01:51.120 impact on the US economy from the coronavirus has spread, 0:01:51.160 --> 0:01:55.400 in particular with how much's defecting the China economy. Yeah, 0:01:55.400 --> 0:01:58.120 And I think that you actually hit on the critical 0:01:58.120 --> 0:02:01.520 element here, right, because Chinese, the Chinese economy is quadrupled 0:02:01.520 --> 0:02:04.040 in size in terms of its global footprint. It's now 0:02:04.080 --> 0:02:07.320 sixteen percent of global GDP compared to four percent back 0:02:07.560 --> 0:02:10.880 when Stars broke. And now it is not a link, 0:02:11.000 --> 0:02:13.720 it is the link in the global supply chain. We've 0:02:13.800 --> 0:02:16.320 learned this the hard way throughout the trade war years. 0:02:16.680 --> 0:02:19.560 And I speak with Leland Miller, he's a friend of 0:02:19.560 --> 0:02:21.960 the show's China Beije book. You know. He points out 0:02:22.040 --> 0:02:24.639 that the virus is in every single province, so this 0:02:24.720 --> 0:02:28.880 is not isolated to one province that is the seventh 0:02:29.240 --> 0:02:34.240 largest um because Bloomberg actually ranks all of the supply chains, 0:02:34.240 --> 0:02:36.000 and over the weekend had a great story out. Bloomberg 0:02:36.040 --> 0:02:39.239 had a great story out that said, the UN is 0:02:39.320 --> 0:02:41.440 number seven in the country. But right now you've got 0:02:41.440 --> 0:02:44.240 a lot more than that being affected in the Chinese economy, 0:02:44.480 --> 0:02:49.000 and it will have blowback effects first in Germany and 0:02:49.040 --> 0:02:51.760 then back here in the United States. I mean, given 0:02:51.760 --> 0:02:54.040 what we learned, I'm not sure you know the the 0:02:54.040 --> 0:02:56.720 analogy for Stars. I'm not sure how strong it is 0:02:56.800 --> 0:02:59.400 or tenuels it is. Is there a sense of a 0:02:59.480 --> 0:03:04.000 lag time when we start seeing some of the Chinese 0:03:04.000 --> 0:03:06.360 issues bleeding out into some of the economic data across 0:03:06.400 --> 0:03:09.560 the globe. What are you looking for? So it's really 0:03:09.600 --> 0:03:14.320 difficult to say because I mean, obviously markets are completely 0:03:14.360 --> 0:03:18.440 disregarding this. But I am no scientists, and I cannot 0:03:18.480 --> 0:03:21.280 tell you how bad this is going to get um 0:03:21.320 --> 0:03:23.680 because you're starting to have cases crop up in countries 0:03:23.720 --> 0:03:27.640 where the person has not visited China. So it's for me, 0:03:27.720 --> 0:03:30.799 it's a gigantic unknown. I saw a few charts out 0:03:30.840 --> 0:03:32.600 of the cell side today and it shows kind of 0:03:32.600 --> 0:03:36.800 a huge v V shaped recovery that retail sales in 0:03:36.880 --> 0:03:38.520 China are going to take this big hit and come 0:03:38.600 --> 0:03:42.120 roaring right. I'm not I'm I'm just not buying it 0:03:42.440 --> 0:03:46.640 because like brought in capital for example, they feed casts 0:03:47.120 --> 0:03:49.880 the freight index that's followed so closely. Now. They came 0:03:49.880 --> 0:03:52.080 out with fresh data this morning that showed that they're 0:03:52.120 --> 0:03:54.760 leading indicator of leading indicators, which is Shanghai air freight. 0:03:54.880 --> 0:03:58.920 Air freight contracted you over year again prior to this 0:03:59.120 --> 0:04:04.120 virus outbreak. So it's still less is less is less 0:04:04.160 --> 0:04:08.040 bad is good? But you're kicking the global reflation trade 0:04:08.120 --> 0:04:10.960 before it quite reflated. Well, okay, this is the key 0:04:11.040 --> 0:04:14.360 question here. How much are people using the coronavirus as 0:04:14.400 --> 0:04:17.640 an excuse to sell at a time when they're a 0:04:17.680 --> 0:04:20.240 little bit wary of whether this reflation trade is actually 0:04:20.240 --> 0:04:22.040 taking off. And I wonder if there is sort of 0:04:22.080 --> 0:04:26.080 a a different story being told by bonds and stocks 0:04:26.120 --> 0:04:28.720 given the rally that we're seeing in treasuries, do you 0:04:28.760 --> 0:04:31.600 think that that sort of foretells a weaker economy that's 0:04:31.640 --> 0:04:34.760 being priced in the next Look. Absolutely, it's in a 0:04:34.800 --> 0:04:38.320 matter of three trading days, we've gone from being inverted 0:04:38.760 --> 0:04:41.560 on the three month five year two days later, three months, 0:04:41.560 --> 0:04:45.360 seven year today, three month, ten years, five basis points away. 0:04:45.400 --> 0:04:48.680 I mean, j Pal just spent over four billion dollars 0:04:48.720 --> 0:04:51.640 to uninvert the yield curve, and the bond market is 0:04:51.680 --> 0:04:54.800 telling him, and pending home sales are telling him both. 0:04:55.080 --> 0:04:58.120 And the auto sector in the United States and really 0:04:58.160 --> 0:05:01.200 messy earnings out of Detroit. And by the way, we're 0:05:01.200 --> 0:05:05.200 all ignoring Bowing because they did they had kitchen sink earnings. 0:05:05.800 --> 0:05:08.760 The industrial recession in the United States is not over 0:05:09.240 --> 0:05:12.640 period end, and the yield curve is telling j Pal 0:05:12.960 --> 0:05:14.760 that not only do they want him to move out 0:05:14.760 --> 0:05:17.840 to cupe on purchases and away from treasury bills, which 0:05:17.839 --> 0:05:21.080 is Lele Brainerd's that's her, that's her blueprint, that's the framework, 0:05:21.320 --> 0:05:23.640 go out to twelve months first, out to twenty four 0:05:23.680 --> 0:05:26.160 months later and then put the cap on. But it's 0:05:26.200 --> 0:05:28.559 also telling j Pal that it wants a rate cut, 0:05:28.920 --> 0:05:31.120 and that's where he does not want to go. And 0:05:31.160 --> 0:05:34.080 just to sort of put the bow on Bowing, they 0:05:34.120 --> 0:05:36.440 did put the kitchen sink out there. They were they're 0:05:36.520 --> 0:05:38.480 doing well and uh in trading at least when you 0:05:38.480 --> 0:05:41.040 look at their stock price. And meanwhile they're borrowing tons 0:05:41.040 --> 0:05:44.040 of money with the letter demand for that Bowing loan 0:05:44.120 --> 0:05:46.480 that we've been reporting on for the past few weeks 0:05:46.480 --> 0:05:49.000 growing to fourteen billion dollars. People eager to lend to 0:05:49.080 --> 0:05:52.000 this company, calling Molly Smith, where are you? It's just 0:05:52.080 --> 0:05:55.080 amazing well, and we can get into the duopoly and 0:05:55.120 --> 0:05:57.800 this sort of question of whether the governance was less 0:05:57.800 --> 0:06:00.800 strict as a result of their mark a position, but 0:06:00.839 --> 0:06:04.279 that unfortunately have to be another conversation. Danielle Dmartino Booth 0:06:04.279 --> 0:06:08.240 always chief executive officer and chief strategist for Quill Intelligence, 0:06:08.279 --> 0:06:11.680 former advisor to the Dallas Federal Reserve, and a Bloomberg 0:06:11.680 --> 0:06:24.719 Opinion columnist, certainly leading the charge has been Apple after 0:06:24.720 --> 0:06:27.719 they're better than expected earnings, showing that the iPhone is 0:06:27.920 --> 0:06:32.680 still strong, it's still dominant, producing profits that are to 0:06:32.760 --> 0:06:35.719 be envied around the world. Frankly, uh, and not to 0:06:35.720 --> 0:06:38.359 mention a cash pile of two hundred and seven billion dollars. 0:06:38.440 --> 0:06:41.320 David Garretty joining US now chief market strategist for laid 0:06:41.400 --> 0:06:44.000 Law and Company and a partner at bt Block. David, 0:06:44.040 --> 0:06:46.080 thank you so much for being here. What was like 0:06:46.320 --> 0:06:50.200 the sort of most interesting aspect of Apple's earnings to 0:06:50.279 --> 0:06:53.040 you in terms of the guidance for the March quarter, 0:06:53.080 --> 0:06:56.240 which was showing the revenue range of sixty three to 0:06:56.320 --> 0:07:00.479 sixty seven billion dollars, indicating their own uncertainty with respect 0:07:00.480 --> 0:07:04.320 to the impact in China of essentially the quarantine, which 0:07:04.360 --> 0:07:08.039 it certainly is immobilizing the population there and certainly keeping 0:07:08.040 --> 0:07:11.080 people away from Apple stores, where they've cut back a 0:07:11.120 --> 0:07:14.280 number of ships of shifts and actually um closed a 0:07:14.320 --> 0:07:17.680 number of locations. UM. But I think overall, if we 0:07:17.760 --> 0:07:20.880 have to look at um, Apple is abell Weather for 0:07:20.920 --> 0:07:23.800 the tech sector, to the extent that Apple has pretty 0:07:23.840 --> 0:07:25.800 much sort of seemed so hard to have dodged the 0:07:25.800 --> 0:07:30.920 bullet from the Wuhans Stars, Contagion, Uh certainly some of 0:07:30.920 --> 0:07:38.000 the names we're looking at elsewhere Facebook after the close today, UM, Twitter, Google, Alphabet, Amazon, 0:07:38.680 --> 0:07:41.560 We we think that you know, the Paul from China 0:07:42.200 --> 0:07:44.440 isn't necessarily in the cast itself so wide. We look 0:07:44.480 --> 0:07:47.000 as if we've had fairly decent results in the US, 0:07:47.000 --> 0:07:50.040 certainly with respect to going back to Apple, their iPhone 0:07:50.040 --> 0:07:54.800 eleven a strong introduction, returning to growth in that category. 0:07:55.400 --> 0:07:58.080 We have seen global smartphone shipments and decline in two 0:07:58.080 --> 0:08:00.720 thousand nineteen down I think about three percent. That was 0:08:00.760 --> 0:08:05.160 a first for that market. But looking forward um to 0:08:05.200 --> 0:08:09.040 say one, we're going to have the role out increasingly 0:08:09.200 --> 0:08:13.280 of five G cellular communications networks. Apple will have a 0:08:13.320 --> 0:08:17.000 five G enabled phone coming out later this year. This 0:08:17.200 --> 0:08:20.640 arguably is going to be a significant product transition, not 0:08:20.720 --> 0:08:24.360 just for Apple, but for the tech sector as a whole. 0:08:24.440 --> 0:08:26.840 So the Apple, I guess the services revenue came in 0:08:26.880 --> 0:08:29.440 a little bit weaker than expected. Is that an area 0:08:29.480 --> 0:08:31.120 of concern for you? Given that that a lot of 0:08:31.160 --> 0:08:33.840 investors feel like that's going to be the longer term 0:08:34.000 --> 0:08:38.480 growth driver for this company. Certainly, looking at Apple's success 0:08:38.760 --> 0:08:44.199 in growing the subscriber base for the Apple UM services operations. 0:08:44.400 --> 0:08:48.800 They ended the year at what fordin eighty million subscribers, 0:08:48.800 --> 0:08:51.240 at a third from three sixty million a year ago, 0:08:51.280 --> 0:08:55.400 and their target is six million by the end of Granted, 0:08:55.440 --> 0:09:01.320 you know, thirty three growth in growth in people might say, well, 0:09:01.360 --> 0:09:04.360 things are gonna slow. My argument here more is that 0:09:04.400 --> 0:09:07.160 this is going to be the base of customers off 0:09:07.240 --> 0:09:11.000 which Apple is going to be driving increasingly larger amounts 0:09:11.040 --> 0:09:13.640 of recurring, high margin revenue, which I think is going 0:09:13.679 --> 0:09:15.680 to be important for the valuation which they do. That 0:09:15.800 --> 0:09:19.560 there are two hundred and seven billion dollars of cash. 0:09:19.960 --> 0:09:24.559 Clearly there's always going to be arguments made with regards 0:09:24.600 --> 0:09:27.760 to UM what do they do around you know, continuing 0:09:27.800 --> 0:09:30.440 to buy back their stock, But certainly there's temptation as 0:09:30.480 --> 0:09:33.000 far as acquisitions are concerned, and we think certainly if 0:09:33.040 --> 0:09:37.280 you look at the Disney Plus streaming service that's out there, uh, 0:09:37.280 --> 0:09:40.040 you know, does Apple take this opportunity to come in 0:09:40.679 --> 0:09:44.480 uh and possibly enhance their own abilities by looking I 0:09:44.520 --> 0:09:48.400 know people have talked about Netflix for ages UM. You know, 0:09:48.720 --> 0:09:51.319 there are a number of possibilities and obviously having two 0:09:51.400 --> 0:09:55.240 hundred billion dollars in loose change Um, you know, isn't 0:09:55.240 --> 0:09:58.320 such a bad place to be stocks essentially doubled over 0:09:58.440 --> 0:10:02.599 last twelve months? Are you evaluation concerns yet? How do 0:10:02.600 --> 0:10:05.280 you think about the evaluation of the stock? I mean, 0:10:05.440 --> 0:10:09.000 certainly people who have raised the concerns. You know, is 0:10:09.040 --> 0:10:12.720 a trillion dollar evaluation sort of a ceiling? Uh? You know, 0:10:12.840 --> 0:10:15.680 is it possible for public companies to go above and 0:10:15.720 --> 0:10:18.680 beyond that? Um? I don't necessarily want to try and 0:10:18.720 --> 0:10:22.680 minimize or or the other way around. I'm not trying 0:10:22.720 --> 0:10:25.839 to exaggerate perhaps the importance of five G but and 0:10:25.960 --> 0:10:27.840 the rollout, but I think that this is going to 0:10:27.880 --> 0:10:30.080 be something quite significant in terms of the range of 0:10:30.120 --> 0:10:33.000 services that this might open up. So we're at a 0:10:33.040 --> 0:10:36.320 point in time analytically where we need to look forward 0:10:36.480 --> 0:10:40.439 and and see what are the potential new revenue streams 0:10:40.480 --> 0:10:43.000 that might be gotten as a result of having this 0:10:43.120 --> 0:10:46.640 greater bandwidth and the ability to move larger amounts of 0:10:46.720 --> 0:10:49.520 data faster. All right, let's look ahead, because we're getting 0:10:49.520 --> 0:10:52.960 Facebook reporting earnings after the ballot, Amazon reporting earnings tomorrow 0:10:53.000 --> 0:10:56.679 after the bell, and I'm wondering with Facebook in particular, 0:10:56.760 --> 0:11:01.000 the shares up nearly two percent today, How concerned. Are 0:11:01.080 --> 0:11:04.360 you about the political liability? No, Senator war in his 0:11:04.440 --> 0:11:06.800 job voting Facebook yet again, and they're sort of the 0:11:06.880 --> 0:11:11.680 immediate crosshairs of some potential regulatory oversight. Yeah, I believe 0:11:11.760 --> 0:11:14.640 that we've commented, you know, previously, we've said certainly that 0:11:14.800 --> 0:11:19.439 as regards UM social media companies, Facebook in particular, in 0:11:19.520 --> 0:11:23.640 the regulatory cross hairs. UM. The issue is that most 0:11:23.640 --> 0:11:28.480 likely significant regulation may not necessarily be seen until after 0:11:28.520 --> 0:11:32.679 we get past the presidential election, which, if one wanted 0:11:32.720 --> 0:11:35.480 to be cynical, one would say that given the amount 0:11:35.520 --> 0:11:38.400 of money that's being put into social media around the 0:11:38.440 --> 0:11:42.920 general election, that certainly argues positively in the margin near 0:11:43.080 --> 0:11:48.480 term for Facebook perhaps as a stock. UM. However, you know, 0:11:48.559 --> 0:11:51.400 does that make it merely a trade? And to the 0:11:51.440 --> 0:11:55.800 extent if the prospects become clearer as we go into November, 0:11:55.880 --> 0:11:58.959 you know, would you necessarily want to fade Facebook going 0:11:59.000 --> 0:12:01.520 into the general election? That might be a very short 0:12:01.640 --> 0:12:05.120 term trading call against the longer term perspective that clearly 0:12:05.400 --> 0:12:07.360 is going to be more negative. There were some other 0:12:07.400 --> 0:12:11.040 elements apart from President Um Senator Warren Um. There had 0:12:11.080 --> 0:12:13.640 been hearings held in the House. I think over the 0:12:13.679 --> 0:12:16.920 last two weeks just talking from smaller technology companies of 0:12:16.960 --> 0:12:19.480 what it's been like to go up and compete against 0:12:19.520 --> 0:12:22.760 these larger companies, whether it's a Facebook or an Amazon 0:12:22.960 --> 0:12:26.360 or others, which argues that within the tech sector, the 0:12:26.360 --> 0:12:29.240 prospects of regulation become more significant as we go past 0:12:29.280 --> 0:12:32.760 the general election, So is where the hammer comes down. 0:12:33.120 --> 0:12:36.080 So assuming that it kind of plays out as you think, 0:12:36.160 --> 0:12:38.280 these tech names are still going to be the drivers 0:12:38.440 --> 0:12:41.000 for the overall market like we've seen them in you know, 0:12:41.000 --> 0:12:42.560 in the year's past, and we've been talking about now 0:12:42.679 --> 0:12:45.360 maybe rotate into some maybe more cyclical names or things 0:12:45.400 --> 0:12:48.800 like that. UM. In terms of sort of stepping back 0:12:48.880 --> 0:12:53.000 and looking at things more broadly, UM, you know, the 0:12:53.040 --> 0:12:57.120 things that drive the drive GDP growth, it's population growth 0:12:57.120 --> 0:13:00.640 and productivity growth UM two thousand nineteen, the United States, 0:13:00.679 --> 0:13:04.080 our population growth was zero point. We had forty two 0:13:04.120 --> 0:13:07.959 states where the population actually declined. We look globally Japan, 0:13:08.480 --> 0:13:11.800 uh death rate exceeds birth rate, which is essentially the 0:13:11.880 --> 0:13:15.160 formula for declining population growth. If we're going to have 0:13:15.240 --> 0:13:17.560 GDP growth, this is going to have to rely upon 0:13:17.559 --> 0:13:23.480 productivity growth, which argues for disruptive technology innovation, I would 0:13:23.559 --> 0:13:26.640 argue against that backdrop. You know, this move towards five G. 0:13:27.160 --> 0:13:29.600 You know it has many facets in terms of what 0:13:29.640 --> 0:13:33.960 this might do around productivity growth. So if technology remains 0:13:33.960 --> 0:13:37.760 significant from the standpoint of economic development, I would argue 0:13:37.760 --> 0:13:41.840 it still will maintain significance in terms of investors positioning. 0:13:42.600 --> 0:13:44.920 David Garritty, thank you so much for being with us today. 0:13:44.960 --> 0:13:48.120 I really appreciate. David Garrity, chief market strategist for laid 0:13:48.200 --> 0:14:01.280 Law and Company, also a partner at bt Block Consensus Trade. 0:14:01.320 --> 0:14:05.360 Heading into among them was that the dollar would weaken 0:14:05.600 --> 0:14:09.800 and that emerging market corencies would outperform. So far, that 0:14:09.880 --> 0:14:11.760 has not panned out quite the opposite. In fact, you've 0:14:11.760 --> 0:14:14.040 seen dollar strength and emerging currencies are currently at the 0:14:14.080 --> 0:14:17.760 weakest versus the dollar since December twenty five. This according 0:14:17.800 --> 0:14:20.520 to the ms c I index data on the Bloomberg 0:14:20.640 --> 0:14:22.800 And I'm wondering how long this could persist. At Al 0:14:22.880 --> 0:14:25.960 HUSSAINI joining us here senior interest rates and Currencies analysts 0:14:26.160 --> 0:14:28.760 for Columbia Thread Needle Investments, and I you know, this 0:14:28.960 --> 0:14:33.120 just really is a conundrum with the coronavirus. Is the 0:14:33.200 --> 0:14:36.320 reversal in this consensus trade, something that has legs for 0:14:36.440 --> 0:14:38.920 the rest of the year, or is this a budding 0:14:38.960 --> 0:14:43.400 opportunity heading into the rest it Yeah, thanks, well, well 0:14:43.440 --> 0:14:46.160 I think it's it's early days, let's be fair. But 0:14:46.320 --> 0:14:49.040 to the extent that two things happened into the end 0:14:49.080 --> 0:14:51.840 of last year. First, MFX was one of the worst 0:14:51.880 --> 0:14:56.680 performing asset classes, so look relatively relatively cheap, particularly versus 0:14:56.720 --> 0:15:00.640 other pockets of risk. And Second, the recovery in in 0:15:00.840 --> 0:15:03.640 data that we saw globally, at least the nascent recovery 0:15:03.760 --> 0:15:06.720 and into the end of last year was in Asian 0:15:06.800 --> 0:15:11.360 p m I data uh and and really the cementing 0:15:11.400 --> 0:15:14.600 of the Phase one agreement gave it a lot of impetus. 0:15:14.760 --> 0:15:18.000 So we saw the remanby start to react positively and 0:15:18.040 --> 0:15:21.080 then lead high baying e m f X into the 0:15:21.160 --> 0:15:23.680 beginning of the year. UM, all of that's been beaten 0:15:23.680 --> 0:15:28.040 out now. Obviously, the fundamental risk here is that what's 0:15:28.080 --> 0:15:31.120 happening in China and potentially a slowdown in China spills 0:15:31.160 --> 0:15:34.920 over into broader Asia in the first half of this year. UM. 0:15:34.960 --> 0:15:38.120 And then a broader reassessment of risk, which is you 0:15:38.160 --> 0:15:40.440 know we're seeing happen right now, you know US drisuries 0:15:40.480 --> 0:15:44.560 back at one six UM very early stages. But if 0:15:44.600 --> 0:15:47.360 we do see a broader reassessment of risk E mf X, 0:15:47.400 --> 0:15:52.280 will again UH look as as relatively unattractive. Is there 0:15:52.320 --> 0:15:55.000 are there any pockets of opportunities out there, I'm assuming 0:15:55.040 --> 0:15:57.880 we're going to steer clear of Asia, perhaps, Yeah, I 0:15:57.920 --> 0:16:02.560 think interesting a couple of UH relatively high yielding names. 0:16:03.080 --> 0:16:06.640 They're relatively closed economies where the fundamentals are good, particularly 0:16:06.680 --> 0:16:09.840 from a fiscal and external account perspective. Russia is a 0:16:09.880 --> 0:16:12.200 great example that stands out, and the ruble has been 0:16:12.800 --> 0:16:15.080 um in in in the eye of of of the 0:16:15.120 --> 0:16:19.000 weakness here. UM do stand out as places where there's value. 0:16:19.440 --> 0:16:21.800 Let's take the flip side of that, South Africa, where 0:16:21.840 --> 0:16:24.760 fundamentals are weakening. We're weakening into the end of last year. 0:16:24.840 --> 0:16:28.120 The currency looked rich last year, UH, and now we 0:16:28.160 --> 0:16:30.680 have a high beta em currency that that's going to 0:16:30.760 --> 0:16:34.080 leave the sell off, so that currency looks particularly vulnerable. 0:16:34.440 --> 0:16:38.359 I'm looking right now also at the yield curve flattening 0:16:38.360 --> 0:16:41.600 that we've seen. I mean, it's basically every consensus trade 0:16:41.720 --> 0:16:45.320 is getting hit really hard in January, and I'm trying 0:16:45.360 --> 0:16:47.320 to think you know, given the fact that you guys 0:16:47.360 --> 0:16:50.120 oversee almost four hundreds and seventy billion dollars at least 0:16:50.160 --> 0:16:52.440 that was as of September, Given the fact that you 0:16:52.480 --> 0:16:55.520 deal with hundreds of different institutions and get their read 0:16:55.680 --> 0:16:58.600 on what's going on, do people have a sense that 0:16:58.680 --> 0:17:01.160 this is just a bad January or do they have 0:17:01.160 --> 0:17:05.280 a sense that perhaps their assumptions for the year are 0:17:05.320 --> 0:17:09.760 inaccurate too early, there's not been a real wholesale reassessment 0:17:09.760 --> 0:17:12.359 when it comes to risk in particular, I think especially 0:17:12.400 --> 0:17:14.960 if you look at you know, growth expectations for the US, 0:17:15.040 --> 0:17:18.520 earnings expectations for the yes, they really haven't moved uh 0:17:18.680 --> 0:17:22.600 and in fact, what could it be um early days? 0:17:22.840 --> 0:17:25.239 And again I tend to think, you know, particularly when 0:17:25.280 --> 0:17:28.439 it comes to you know, markets like equities, you know, 0:17:28.520 --> 0:17:30.800 people sell first and then build a narrative around that 0:17:30.880 --> 0:17:36.240 later valuations are on the rich side. Going into the 0:17:36.240 --> 0:17:39.640 beginning of this year, we did not see value, for example, 0:17:39.680 --> 0:17:42.919 in places like high yield UH and and now that 0:17:42.920 --> 0:17:44.959 that there's been a bit of a sell off, some 0:17:45.040 --> 0:17:46.760 of those sectors are starting to look a little bit 0:17:46.800 --> 0:17:49.040 more attractive. But again, in the grand scheme of things, 0:17:49.080 --> 0:17:53.000 that we take a step back, credit spreads are pretty compressed. 0:17:53.520 --> 0:17:56.680 Treasury yields are you know, one, one six. Uh. It's 0:17:56.800 --> 0:18:00.000 very consistent with an economy that's slowing, and it's very 0:18:00.000 --> 0:18:03.240 system with an economy that needs significant amounts of stimulus 0:18:03.280 --> 0:18:06.640 just to stay where it is, not to slow further. Uh. 0:18:06.640 --> 0:18:08.119 And and that's where we are. And that's not an 0:18:08.200 --> 0:18:09.879 environment where you you really want to stick your neck 0:18:09.880 --> 0:18:11.760 out when it comes to risk. So at every time 0:18:11.760 --> 0:18:15.720 we chat with a currency strategist, trader, investor, I always 0:18:15.760 --> 0:18:17.720 have to ask the question, is there a bearer case 0:18:17.920 --> 0:18:20.840 for the dollar? I think so, And I think the 0:18:20.920 --> 0:18:23.359 bear case was starting to form at the beginning of 0:18:23.359 --> 0:18:25.080 the year, and and and it went something like this, 0:18:25.240 --> 0:18:29.560 look to the extent that we've seen a significant bid 0:18:29.560 --> 0:18:31.680 for the dollar, a safe haven bid for the dollar. 0:18:31.920 --> 0:18:35.480 It came from two points. First, US growth was superior 0:18:35.520 --> 0:18:38.720 to that of Europe, and second, US rates were seeking 0:18:38.720 --> 0:18:40.840 afinitely higher. So is it was a positive carry trade 0:18:42.640 --> 0:18:46.159 with the Phase one deal, with US data starting to 0:18:46.640 --> 0:18:49.760 stabilize and European data starting to actually outperform. If you 0:18:49.800 --> 0:18:52.119 look in the surprise in the sease, European data is 0:18:52.080 --> 0:18:55.040 surprised to the upside significantly faster than than U S 0:18:55.119 --> 0:18:58.040 DAD in the last six months. UH. There was a 0:18:58.080 --> 0:19:01.119 case that that those flows would reverse in Europe's favor. 0:19:01.720 --> 0:19:05.280 UH from an asset flow perspective as well, European assets 0:19:05.320 --> 0:19:07.800 relatively cheap to to the U S when it comes 0:19:07.800 --> 0:19:09.720 to when it comes to risk, and so some of 0:19:09.720 --> 0:19:12.600 the flows could have potentially reversed. All of that has 0:19:12.640 --> 0:19:14.920 taken a back seat, in part because it was a 0:19:14.920 --> 0:19:17.280 consensus position at the beginning of the year and it's 0:19:17.320 --> 0:19:21.080 really getting beaten out. You said that because hy yield 0:19:21.119 --> 0:19:23.120 has come off a but you didn't like hy yield 0:19:23.119 --> 0:19:26.680 heading into UH. It has sold off a bit in 0:19:26.760 --> 0:19:29.720 the past few sessions. At what point would it be 0:19:29.880 --> 0:19:35.120 enough for you to see opportunity? UM. You know, obviously 0:19:35.520 --> 0:19:38.560 the interesting thing about HW yield is the sector level 0:19:38.600 --> 0:19:40.920 of corporate level work, right, you have to get into 0:19:40.960 --> 0:19:44.119 the individual bonds at an index level. If you just 0:19:44.160 --> 0:19:47.199 look at you know, like HID the highl td S index, 0:19:47.640 --> 0:19:51.399 it's it's it's very early. Obviously to the extent that 0:19:51.440 --> 0:19:53.680 we were short. We're covering someone that short as it 0:19:53.760 --> 0:19:56.560 sells off, but we're not really going going along at 0:19:56.560 --> 0:20:00.000 the stage. How about pounds Sterling brexits. You know, we're 0:20:00.080 --> 0:20:02.720 getting to the point where it's gonna UK is gonna 0:20:02.760 --> 0:20:05.520 come out of Brexit. Then you'll start the long work 0:20:05.560 --> 0:20:07.760 of actually doing trade deals and things like that. What 0:20:07.840 --> 0:20:09.840 is your thoughts on sterling right here? It's around one 0:20:09.840 --> 0:20:12.919 thirty right now. Pretty pretty vulnerable, you know, in in 0:20:13.040 --> 0:20:16.320 part because we did a really good job of pricing 0:20:16.359 --> 0:20:21.040 in UM the reduction and uncertainty that that that followed 0:20:21.040 --> 0:20:23.560 the election last year. We priced that in pretty aggressively 0:20:23.640 --> 0:20:27.240 last year. UM. And what we have now is is 0:20:27.520 --> 0:20:30.040 a new catalyst in the form of the Bank of England. 0:20:30.400 --> 0:20:33.000 We'll find out tomorrow, but but clearly there's been a 0:20:33.040 --> 0:20:37.200 shift the threshold in terms of the accumulation of data 0:20:37.400 --> 0:20:39.800 weak data in the course of last year has now 0:20:39.880 --> 0:20:44.040 reached the threshold where a cut or potential shallow easing 0:20:44.040 --> 0:20:46.800 cycle is on the table for them. Uh. They're behind 0:20:46.840 --> 0:20:49.560 the curve relative to the ECB and and and the Fed. 0:20:50.240 --> 0:20:54.040 Uh and that could really damage damage Sterling's prospect. One 0:20:54.040 --> 0:20:57.080 thing that you said earlier that this market needs a 0:20:57.119 --> 0:21:00.760 substantial amount of central banks stimulus to keep it going. 0:21:01.200 --> 0:21:02.719 What do you think that means for the FED as 0:21:02.760 --> 0:21:05.760 we await J Powell's testimony today, or not testimony, but 0:21:05.880 --> 0:21:10.000 his press conference at two thirty pm Eastern. Well, look, 0:21:10.000 --> 0:21:12.800 the FED is going to be on hold. They've telegraphed 0:21:12.800 --> 0:21:14.800 that pretty well. It's been priced by the markets. In fact, 0:21:14.880 --> 0:21:16.760 we have easing now in the curve through the end 0:21:16.800 --> 0:21:18.560 of of the year. There's not a lot of heavy 0:21:18.600 --> 0:21:21.359 lifting to do there. I think we're the the challenges 0:21:21.480 --> 0:21:24.560 really communicating at the moment with respect of its balance 0:21:24.600 --> 0:21:27.600 sheet um. One of the narratives in the market is 0:21:27.640 --> 0:21:30.440 because the FED is engaged in rebo and buying tea bills, 0:21:30.480 --> 0:21:36.679 the balance sheet is optically growing and that's stimulating risk UM. 0:21:35.760 --> 0:21:39.399 I personally, I'm not convinced that that's the case, but 0:21:39.640 --> 0:21:42.879 a lot of market participants buy into that view, and 0:21:42.960 --> 0:21:45.880 from the Fed's perspective, it presents a challenge because these 0:21:45.880 --> 0:21:49.919 operations will presumably seize at some point this year and 0:21:49.920 --> 0:21:52.199 then the balance sheet just start to shrink. Explaining that 0:21:52.280 --> 0:21:54.480 is going to be challenging it all who say any 0:21:54.480 --> 0:21:56.160 thanks so much for joining us. It is a senior 0:21:56.200 --> 0:21:59.200