WEBVTT - Surveillance: China's PMIs Showing Resilience, Haque Says 0:00:09.880 --> 0:00:13.800 Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane Jay Lee. 0:00:13.960 --> 0:00:17.560 We bring you insight from the best in economics, finance, investment, 0:00:18.000 --> 0:00:23.480 and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, 0:00:23.600 --> 0:00:27.320 Bloomberg dot Com, and of course on the Bloomberg. We 0:00:27.320 --> 0:00:30.360 were just talking with the Edward Strangling about the optimism 0:00:30.480 --> 0:00:33.080 UH that's being unleashed as a result of the trade 0:00:33.080 --> 0:00:35.280 Pact that we still have yet to learn very much about, 0:00:35.760 --> 0:00:38.560 which brings us really to the commodities market, because arguably 0:00:38.600 --> 0:00:41.960 that's where you're seeing the biggest UH signs of optimism 0:00:42.000 --> 0:00:45.440 heading into next year, where you're seeing the highest level 0:00:45.920 --> 0:00:48.840 certainly in crude and copper, depending on what you look 0:00:48.880 --> 0:00:51.680 at in more than a year. And luckily for us, 0:00:51.680 --> 0:00:53.960 we have someone who's going to join us who actually 0:00:54.040 --> 0:00:57.200 understands the commodities angle and compare it perfectly with the 0:00:57.240 --> 0:01:00.240 macro angle, and that's Kona Hack. She is D and 0:01:00.400 --> 0:01:04.120 F Man, head of research focused on macro as well 0:01:04.200 --> 0:01:07.000 as commodities. Thank you so much for joining us, really 0:01:07.040 --> 0:01:10.680 appreciate it. I'm wondering whether you think that the optimism 0:01:10.840 --> 0:01:14.120 is well placed that we're seeing, certainly in commodity markets 0:01:14.200 --> 0:01:17.080 right now. UM, I think it's justified because what we've 0:01:17.080 --> 0:01:19.360 seen in the last eighteen months is every time there's 0:01:19.360 --> 0:01:22.080 been some kind of talk or resemblance of a talk 0:01:22.840 --> 0:01:25.479 about a trade deal you've had, you've seen markets pick up. 0:01:26.120 --> 0:01:28.920 But we need to apply caution because the minute it 0:01:29.040 --> 0:01:32.319 seemed to be fizzling out, or these negotiations disappear, or 0:01:32.600 --> 0:01:35.840 it actually ends up being um non emvoid, then the 0:01:35.880 --> 0:01:39.800 markets will tumble. So I think, yes, if this were 0:01:39.800 --> 0:01:42.120 to go ahead, and this phase one trade deal seems 0:01:42.160 --> 0:01:44.480 to be the most concrete thing we've had in a while. 0:01:44.520 --> 0:01:48.640 At least we've have verted those December fifteen tariff hikes. Um, 0:01:48.680 --> 0:01:50.920 I think that's already something to which we can be 0:01:51.000 --> 0:01:54.600 optimistic about. But there's still so much to be signed 0:01:54.680 --> 0:01:58.480 upon implemented that could all take time. And I do 0:01:58.640 --> 0:02:00.960 worry that the markets thrown a little bit ahead of 0:02:01.000 --> 0:02:05.400 themselves in crude, metals and even aggs. It's Asian code. 0:02:05.440 --> 0:02:07.400 I wanted to go to crude right away because it 0:02:07.440 --> 0:02:10.160 just seems to me that one of the you know, 0:02:10.240 --> 0:02:14.240 the the commodities that really whips all around in relation 0:02:14.320 --> 0:02:16.960 to trade talk is crude and I'm looking at w 0:02:17.040 --> 0:02:19.639 T I at sixty two, you know, and Brent, they've 0:02:19.639 --> 0:02:22.639 had a rally here kind of off of their bottoms. 0:02:22.680 --> 0:02:24.320 What is your thought is it? Is it really the 0:02:24.360 --> 0:02:27.360 demand side of the equation you think is really driving 0:02:27.560 --> 0:02:31.239 crude prices globally as more more so than supply, say, 0:02:31.880 --> 0:02:33.840 I feel at the moment it's very much demand. I 0:02:33.840 --> 0:02:38.320 mean the global GDP growth we all know is directly 0:02:38.400 --> 0:02:42.480 impacted by trade um and trade wars and trade tensions 0:02:42.480 --> 0:02:46.640 if you like. So anything that can help alleviate that tension, 0:02:47.560 --> 0:02:50.840 at least on the surface, provides some optimism on global 0:02:50.880 --> 0:02:54.360 GDP growth, and then that directly impacts energy demand, which 0:02:54.360 --> 0:02:57.079 in turn pushes up crude oil. So yes, this is 0:02:57.080 --> 0:03:01.760 a demand side lead rally, and it's also sentiment really, 0:03:01.919 --> 0:03:06.000 so if the world's economy recovers on the back of 0:03:06.040 --> 0:03:11.080 a trade deal, I think that would directly benefit UM crude. 0:03:11.720 --> 0:03:13.760 On the other hand, you've also got the potential of 0:03:14.080 --> 0:03:17.320 UM the US buying more Chinese good than vice versa. 0:03:17.880 --> 0:03:20.960 You know, that could mean Chinese buying more US crude 0:03:21.000 --> 0:03:23.080 as well. You know, we're we're one of the big 0:03:23.600 --> 0:03:27.040 um bearish fundamental issues of the last few years in 0:03:27.120 --> 0:03:30.120 crude oil markets globally has been the huge increase in 0:03:30.200 --> 0:03:33.240 US shale oil. If they find a new market in 0:03:33.360 --> 0:03:36.640 China because of a trade deal, that's that's really important, 0:03:36.640 --> 0:03:39.240 and you know it cannot be discounted. But you know, 0:03:39.320 --> 0:03:42.000 to maintain a rally like this, you really need open 0:03:42.120 --> 0:03:45.880 to maintain its cutback and discipline. You need non opegs, 0:03:45.960 --> 0:03:47.920 you know, including the US, to be also be a 0:03:47.960 --> 0:03:50.400 little bit more disciplined. Just to put some numbers to this, 0:03:50.440 --> 0:03:53.000 the Bloomer commodity spot in x is hit the highest 0:03:53.120 --> 0:03:56.960 level since November, is up about this year, which is 0:03:57.000 --> 0:04:00.680 the best annual return since six A lot of the 0:04:00.720 --> 0:04:03.520 outlook here does hinge on China's economy, and I have 0:04:03.600 --> 0:04:06.720 to wonder whether people are conflicting a trade deal. However, 0:04:06.800 --> 0:04:10.000 peripheral with the Chinese economy that is showing signs of 0:04:10.000 --> 0:04:12.400 weakness in certain spots, and thinking of the housing market 0:04:13.080 --> 0:04:16.520 as well as housing related industrial companies, how concerned are 0:04:16.560 --> 0:04:19.200 you about a bigger than expected slow down in those 0:04:19.240 --> 0:04:23.480 areas kind of overshadowing some the optimistic relief that we're 0:04:23.480 --> 0:04:27.320 getting from trade agreements. Yeah, and I mean, I do, 0:04:27.880 --> 0:04:30.040 I mean so much. I think I am kind of 0:04:30.080 --> 0:04:33.479 cautiously optimistic. I feel that the Chinese economy has suffered 0:04:33.480 --> 0:04:36.120 a great deal on the trade tensions U. On the 0:04:36.160 --> 0:04:38.600 other hand, they have done what they can in terms 0:04:38.640 --> 0:04:42.080 of kind of stimulating the economy wherever they could. I 0:04:42.120 --> 0:04:45.160 feel that more of that would have to be maintained 0:04:45.200 --> 0:04:49.680 into um. Yes, you mentioned how the economy that's showing 0:04:49.680 --> 0:04:52.560 signs of bubble has been for a while. The Chinese 0:04:52.600 --> 0:04:56.520 debt burton is very huge, but lately, at least in 0:04:56.600 --> 0:04:59.320 November December, the p m I manufacturing in the because 0:04:59.400 --> 0:05:02.360 have actually on some signs of resilience, and that's crucial 0:05:02.400 --> 0:05:05.919 for industrial commodities, not just energy but also for metals. 0:05:06.000 --> 0:05:09.120 So I think that's a positive sign. It would get 0:05:09.120 --> 0:05:11.800 a big boost if the trade deal were actually implemented, 0:05:12.480 --> 0:05:15.760 but I think it's fair to say that the Chinese 0:05:15.800 --> 0:05:18.760 government would have to continue to apply some stimulus to 0:05:18.839 --> 0:05:22.360 keep that growth momentum ticking. ConA, Heck, thanks so much 0:05:22.480 --> 0:05:24.680 for joining us. We really appreciate your thoughts as if 0:05:24.680 --> 0:05:27.320 we think about the commodity space. Uh. In addition to 0:05:27.320 --> 0:05:29.320 twenty what we've seen in the stock markets, in the 0:05:29.320 --> 0:05:32.279 bond markets, routing in nineteen Cone hack E d and 0:05:32.400 --> 0:05:35.520 f Man, head of Research, joining us on the phone 0:05:35.560 --> 0:05:51.320 from London. Let's set the stage a little bit for 0:05:51.560 --> 0:05:56.560 financial markets for after the extraordinary rise we've had in 0:05:56.600 --> 0:05:59.719 the markets in nineteen We welcome our next guest, Mike Gallagher. 0:05:59.800 --> 0:06:03.480 He's Managing director of Macro and Strategy at Continuum Economics. 0:06:03.920 --> 0:06:06.760 He joins us from London. Uh, Mike, thanks so much 0:06:06.839 --> 0:06:09.520 for joining us. Let's set the stage. Just give us 0:06:09.600 --> 0:06:12.600 your sense of how you think, let's say, the UK 0:06:12.680 --> 0:06:16.719 and European markets from an economic perspective are shaping up 0:06:16.760 --> 0:06:19.920 for and given that Brexit appears to be moving forward 0:06:21.560 --> 0:06:24.279 certainly Paul Um you know, I think, first of all, 0:06:25.279 --> 0:06:29.719 actually removing some of the uncertainty so surrounding Brexit um 0:06:29.880 --> 0:06:32.600 does actually help both Europe as well as the UK. 0:06:33.080 --> 0:06:37.120 It has been sort of a factor that influenced some 0:06:37.279 --> 0:06:40.440 of the the exports coming from Europe into the UK 0:06:40.960 --> 0:06:42.479 and has had a bit of an impact. So that 0:06:42.480 --> 0:06:46.719 will certainly help, but I think equally important in helping 0:06:46.760 --> 0:06:50.520 to revive the Eurozone and the UK economy with two 0:06:50.560 --> 0:06:53.600 of the things. One the decline in bond yields which 0:06:53.640 --> 0:06:56.360 have occurred since the middle of the year, which will 0:06:56.400 --> 0:06:59.600 filter through UM. And then also the US China trade 0:06:59.640 --> 0:07:04.279 deal because Europe's a very important exports or into China 0:07:04.720 --> 0:07:08.960 and the prospect of a Phase one deal will actually 0:07:09.000 --> 0:07:12.800 I think calm some nerves UM. So it's certainly better prospects. 0:07:12.880 --> 0:07:16.040 But you shouldn't get carried away. Shouldn't get carried away. 0:07:16.120 --> 0:07:18.400 Let's talk about the consensus, and then let's talk about 0:07:18.400 --> 0:07:22.080 your take. Consensus that the economy is going to gain 0:07:22.120 --> 0:07:25.960 steam globally next year. There could potentially be fiscal stimulus, 0:07:25.960 --> 0:07:28.200 but yields are still not going to climb that much. 0:07:28.560 --> 0:07:31.240 Risk assets will have another good year, I'll be not 0:07:31.400 --> 0:07:36.360 as good as twenty nineteen. Uh and everything just chugs along, 0:07:36.360 --> 0:07:38.720 with the first half being better and more stable than 0:07:38.760 --> 0:07:41.520 the second half of the year. What's wrong with that 0:07:42.400 --> 0:07:46.440 consensus call right now? I think one of the things 0:07:46.440 --> 0:07:49.960 that's wrong with that consensus call is that people are 0:07:50.040 --> 0:07:54.040 relatively upbeat on the US, whereas we still haven't seen 0:07:54.120 --> 0:07:57.640 the full lagged effects of the flowing and manufacturing and 0:07:57.680 --> 0:08:01.200 business investment feed through into the US jobs growth and 0:08:01.360 --> 0:08:04.520 U S consumption. We're not talking a harder landing in 0:08:04.560 --> 0:08:06.520 the US, but you know, we're talking one and half 0:08:06.560 --> 0:08:09.840 a cent growth consensus of two percent. So I think 0:08:09.840 --> 0:08:11.720 there's gonna be a bit of disappointment as we we 0:08:11.800 --> 0:08:14.920 carry on. In terms of the US. The second thing 0:08:14.960 --> 0:08:17.680 is China. Um. China is not going to get a 0:08:17.720 --> 0:08:21.440 major lift from the trade truths, Um, there's other things 0:08:21.440 --> 0:08:25.760 going on in China. China's sluggishness, by their own standards 0:08:26.120 --> 0:08:28.600 is partly due to their clean up for the shadow 0:08:28.600 --> 0:08:32.920 banking system, which will continue in twenty and consequently, we 0:08:33.000 --> 0:08:36.840 think that growth can slip below six percent UM. So 0:08:37.000 --> 0:08:40.200 while the Eurozone is a little bit brighter, UM, it's 0:08:40.280 --> 0:08:44.040 not making up for what we think is slower growth 0:08:44.080 --> 0:08:48.760 in the US and the Eurozone. Admittedly, things look better elsewhere, 0:08:49.160 --> 0:08:51.640 but in terms of world growth it could be pretty 0:08:51.720 --> 0:08:55.240 much the same in nineteen. It's interesting. I like you. 0:08:55.280 --> 0:08:57.720 I'm looking at your research right here, Mike, and I 0:08:57.760 --> 0:08:59.679 like how the nice graphics make it nice and easy 0:08:59.760 --> 0:09:01.640 for me to understand. So I got a couple of questions. 0:09:02.760 --> 0:09:04.679 You're like, I like the pretty picture, like the pretty 0:09:05.080 --> 0:09:07.480 and the colors and everything like that. The asset allocation 0:09:07.880 --> 0:09:11.320 really interesting for equities. Well, but did you expect to 0:09:11.320 --> 0:09:13.679 come on radio today and have uh and have I 0:09:13.720 --> 0:09:16.880 say to you, we like the pretty pictures. Thank you. 0:09:16.880 --> 0:09:19.960 You don't have to answer worth more than a thousand words. 0:09:20.080 --> 0:09:21.880 All right, So let's take a look at the equities. 0:09:21.920 --> 0:09:25.560 Your global asset allocations seem to be favoring emerging markets 0:09:25.559 --> 0:09:27.920 a little bit more than maybe, let's say the US 0:09:28.120 --> 0:09:30.000 and Japan. So willing to go out on the risk 0:09:30.000 --> 0:09:33.720 curve a little bit, give us your thoughts on global equities. Yeah, 0:09:33.720 --> 0:09:36.520 I think there's three sort of reasons for for that. 0:09:36.640 --> 0:09:39.760 All view on terms of US equities is pretty flat 0:09:39.800 --> 0:09:43.080 for next year. UM. What happened in two thousand nineteen 0:09:43.200 --> 0:09:45.160 was there was very little learnings growth. There was a 0:09:45.160 --> 0:09:48.520 lot of multiple expansion in the US market. And now 0:09:49.120 --> 0:09:51.600 a number of evaluation metrics are pretty rich in the 0:09:51.679 --> 0:09:55.280 US market. So we think we'll probably tread water, particularly 0:09:55.280 --> 0:09:58.319 given the degree of un certainty surrounding the outcome of 0:09:58.320 --> 0:10:02.800 the US presidential election. UM, and we'll see rotation elsewhere 0:10:02.880 --> 0:10:05.840 to to markets that have been left a little bit behind, 0:10:06.280 --> 0:10:08.439 but now don't have a U. S. China trade war 0:10:08.679 --> 0:10:12.559 in UM, and a lot of that's got to push 0:10:12.600 --> 0:10:16.560 towards emerging markets, we think. I think, secondly, UM, you 0:10:16.720 --> 0:10:18.800 do have a little bit of rotation lower in the 0:10:18.840 --> 0:10:22.720 dollar into which is partly because the dollars overvalued and 0:10:22.760 --> 0:10:25.840 has been sort of supported by some of normal flows 0:10:25.880 --> 0:10:31.320 in namely the repatriation of funds by US corporates UM, 0:10:31.360 --> 0:10:33.920 and as we get into twenty that will tend to 0:10:34.000 --> 0:10:37.440 drift lower UM. An e M risk generally performs better 0:10:37.559 --> 0:10:40.960 when the dollars trading lower UM, and then there's still 0:10:41.000 --> 0:10:44.559 some valuation benefit in terms of the M assets UM. 0:10:44.600 --> 0:10:48.040 There they look cheap relative to d M assets developed 0:10:48.040 --> 0:10:54.079 market assets UM, whether it's fixed income or alternatively equities. 0:10:54.400 --> 0:10:56.640 But haven't people been saying this for the past ten years. 0:10:58.080 --> 0:11:01.319 So the trigger this time around is that we actually 0:11:01.360 --> 0:11:04.959 get UM the U S. China trade war shifting to 0:11:05.080 --> 0:11:08.319 a trade truth in because the phase one trade deal 0:11:08.400 --> 0:11:11.040 is not going to be followed by new outbreak, Trump 0:11:11.080 --> 0:11:15.160 will consolidated gains into the election UM, and so we're 0:11:15.320 --> 0:11:17.679 likely to see a breakout of any problems on the 0:11:17.760 --> 0:11:20.800 China trade front UM. And then also that the dollar 0:11:20.880 --> 0:11:24.560 gravitating blower UM. So I think that that that's enough 0:11:24.600 --> 0:11:28.439 to actually trigger and unlock this valuation story. So, Mike, 0:11:28.440 --> 0:11:30.720 I'm also looking at your fixed income allocation appear to 0:11:30.720 --> 0:11:35.360 be underweighting Eurozone in the UK, so suggesting that greater 0:11:35.440 --> 0:11:40.239 clarification on Brexit is not enough to maybe drive performance 0:11:40.720 --> 0:11:45.840 in Western Europe and UK. Well, I think in terms 0:11:45.880 --> 0:11:50.720 of Eurozone bond yields generally, they've got had such a 0:11:50.800 --> 0:11:54.400 good run with the ECB easing and the ECB constitutas 0:11:54.520 --> 0:11:57.160 ng um, it's now brought yields down to a level 0:11:57.440 --> 0:12:02.240 that are extremely low on a five to ten year basis. Um. 0:12:02.320 --> 0:12:05.320 You know, you're looking at negative returns on a five 0:12:05.400 --> 0:12:09.480 year basis in a nominal and real terms for the 0:12:09.600 --> 0:12:12.160 Eurozone bonds. And if you've got that kind of backdrop, 0:12:12.360 --> 0:12:15.520 people are going to start to look at that expensiveness 0:12:16.120 --> 0:12:19.520 because there's no storm clouds hanging over the horizon. We've 0:12:19.840 --> 0:12:24.000 we've fixed Brexit, We've fixed the face one thing. We're 0:12:24.000 --> 0:12:25.840 gonna come back to you next year and say we 0:12:26.000 --> 0:12:30.560 fixed we fixed Brexit. Carry on. Yeah, yeah, I know, 0:12:30.920 --> 0:12:34.520 but no, for at leastfully for the first half of 0:12:34.559 --> 0:12:38.840 the year, there's no immediate crisis point that that exists. 0:12:39.520 --> 0:12:42.320 So um, and that's going to lead people to rotate 0:12:42.360 --> 0:12:44.880 away and out of your zone fixed income and out 0:12:44.880 --> 0:12:47.240 of UK fixed income. It's It's been really surprising me 0:12:47.280 --> 0:12:51.080 to see this bifurcation in fixed income markets, with some 0:12:51.120 --> 0:12:53.360 people saying that they expect a bond rally, certainly in 0:12:53.360 --> 0:12:56.640 the US next year as a consumer fails to deliver 0:12:56.800 --> 0:13:00.000 some of the on the expectations that people have for them. Uh. 0:13:00.040 --> 0:13:03.200 Then you have other people saying that coordinated fiscal stimulus 0:13:03.280 --> 0:13:06.360 will lead to significantly higher yields in the next five 0:13:06.400 --> 0:13:09.280 to ten years in developed markets. Which do you think 0:13:09.360 --> 0:13:15.480 is the more accurate take on global rates markets? I 0:13:15.520 --> 0:13:19.920 think in terms of the twenty outlook, it's the form 0:13:19.960 --> 0:13:23.440 and namely that we'll see a gentle rotation lower and 0:13:23.480 --> 0:13:25.880 it's not only what I've sort of said in terms 0:13:25.920 --> 0:13:31.000 of the I'm more referring to the US government bond 0:13:31.040 --> 0:13:35.600 market lower yields, higher press lower yields. Yeah, so we're 0:13:35.600 --> 0:13:37.640 seeing the ten year yield in the US at one 0:13:37.760 --> 0:13:40.120 fifty five by the end of twenty and that's on 0:13:40.240 --> 0:13:44.600 the soft consumer story. But also additionally, um, you know, 0:13:44.600 --> 0:13:47.959 I think if you if you look at the fiscal picture, 0:13:48.960 --> 0:13:51.640 you're not going to see any fiscal policy change in 0:13:52.360 --> 0:13:55.080 the US or Europe. You will see some further fiscal 0:13:55.120 --> 0:13:57.839 easing in China, you are seeing a modest amount of 0:13:57.880 --> 0:14:00.960 fiscal easing in the UK after the action, but it 0:14:01.000 --> 0:14:04.280 doesn't really add up to the kind of fiscal policy 0:14:04.280 --> 0:14:06.920 expansion you saw in two thousand and nine, two tho 0:14:07.200 --> 0:14:11.120 and ten from the g twenty UM so stories about 0:14:11.559 --> 0:14:15.360 major fiscal expansion I think are a bit premature, really, 0:14:15.360 --> 0:14:20.200 and I think the more likely sort of situation is 0:14:20.760 --> 0:14:24.640 either little or very modest and fiscal expansion UM and 0:14:24.680 --> 0:14:28.200 that's not going to really destabilize coming upon markets. The 0:14:28.320 --> 0:14:31.560 exception to all of this is on deals where we're 0:14:31.560 --> 0:14:34.560 looking for them to actually go to zero UM in 0:14:34.600 --> 0:14:38.920 the tenure areas by the end of a fair is 0:14:38.960 --> 0:14:41.760 a fair sell off. And what that reflects is that 0:14:42.160 --> 0:14:43.680 you know, we're at the moment, we're at minus not 0:14:43.800 --> 0:14:47.920 point one nine tenure yields in Germany today UM, and 0:14:47.960 --> 0:14:51.760 that really reflects that really we need to get back 0:14:51.760 --> 0:14:55.760 towards positive territory and to avoid this or of evaluation. 0:14:56.520 --> 0:14:58.280 Mike Gallagher, thank you so much for being with us. 0:14:58.320 --> 0:15:15.040 Mike Gallagher, Managing director of MAC and Strategy at Continuum Economics. Well, 0:15:15.080 --> 0:15:17.120 I do think that when we talk about the FED, 0:15:17.520 --> 0:15:20.040 there is an interesting divergence going on right now I'm 0:15:20.080 --> 0:15:23.080 fixing com markets. Our Jersey, who is the head of 0:15:23.160 --> 0:15:26.400 US industry strategy for Bloomberg Intelligence joining us. Now. It 0:15:26.440 --> 0:15:29.280 seems like there is a bifurcated market, with some people 0:15:29.280 --> 0:15:32.880 saying we're going to see a significant rally Priamisra among 0:15:32.920 --> 0:15:35.640 them a TV securities in rates at other people saying 0:15:35.640 --> 0:15:38.120 we're going to see a significant sell off as fiscal 0:15:38.200 --> 0:15:42.120 stimulus takes hold. Which camp are you in? So I 0:15:42.480 --> 0:15:44.400 do think that yields you're probably going to sell off 0:15:44.400 --> 0:15:46.840 a little bit, although you know, not a major cell off, 0:15:46.880 --> 0:15:49.640 not a major trend here. So from this level, we 0:15:49.720 --> 0:15:52.960 have to twenty as our base case scenario for the 0:15:53.120 --> 0:15:55.560 end of next year, So we're talking about a twenty 0:15:55.600 --> 0:15:58.640 five basis point sell off, which probably means that at 0:15:58.680 --> 0:16:01.400 some level, um you can wind up with maybe a 0:16:01.800 --> 0:16:03.280 you know, a little bit of an overshoot, so you 0:16:03.280 --> 0:16:05.400 could see maybe two and a half percent, but ultimately 0:16:05.520 --> 0:16:07.920 just you know, more of a range bound market in 0:16:07.960 --> 0:16:11.720 a slightly better environment for the economy than you had 0:16:11.720 --> 0:16:15.560 in uh in the slowdown during alright, so a range 0:16:15.640 --> 0:16:18.080 bound in the tenure One thing I want to get 0:16:18.120 --> 0:16:19.640 your thoughts on. I R I'm not sure if there's 0:16:19.680 --> 0:16:22.920 been any real developments here, it's at that short end 0:16:22.920 --> 0:16:25.840 of the market, the repo market. UM. One of the 0:16:25.880 --> 0:16:27.920 things we've had, that uncertainty that came into the market. 0:16:27.960 --> 0:16:31.400 I guess back in September, where are we or where 0:16:31.480 --> 0:16:33.560 is the FED in terms of thinking about a long 0:16:33.680 --> 0:16:35.960 term solution if one is even needed to kind of 0:16:36.000 --> 0:16:40.320 stabilize that short end of the market. Well so, so, firstly, 0:16:40.520 --> 0:16:42.320 I think that the interventions that they've done, they've done 0:16:42.360 --> 0:16:44.800 over two hundred billion dollars of intervention so far, and 0:16:44.840 --> 0:16:47.240 they're likely to get up towards three hundred, maybe not 0:16:47.400 --> 0:16:49.960 up to the kind of fear levels that we thought 0:16:49.960 --> 0:16:52.359 where they'd have to interview even more than that, primarily 0:16:52.400 --> 0:16:57.160 because dealers haven't taken up all of the all of 0:16:57.160 --> 0:16:59.840 the operations that that they've done so far. In fact, 0:16:59.840 --> 0:17:02.520 the Morning's operation was only there was only eight billion 0:17:02.560 --> 0:17:06.040 dollars of been submitted for their UM for their two 0:17:06.040 --> 0:17:09.240 week operation when there was thirty five billion dollars available. 0:17:09.320 --> 0:17:11.720 So you know, there's a lot of liquidity swishing around 0:17:11.720 --> 0:17:13.920 in the market right now. UM. I do think that 0:17:13.960 --> 0:17:17.359 the FED wants to have some type of standing facility 0:17:17.359 --> 0:17:21.119 and operation as as opposed to doing the traditional open 0:17:21.160 --> 0:17:23.760 market operations they've been doing for the last few months 0:17:23.800 --> 0:17:26.719 and quite frankly that they used to do every day 0:17:26.720 --> 0:17:30.520 prior to the financial crisis. Um. You know, I don't 0:17:30.560 --> 0:17:32.280 know how they're going to do that though, because there's 0:17:32.320 --> 0:17:35.080 a stigma issue where if you have a standing facility 0:17:35.400 --> 0:17:37.520 and someone uses it, then people say, oh, well you 0:17:37.640 --> 0:17:39.960 lack liquidity. Maybe I don't want to trade with you 0:17:40.640 --> 0:17:44.160 because you lack liquidity. Goes back to the financial crisis 0:17:44.160 --> 0:17:47.480 time period. So I think if they can figure out that, um, 0:17:47.560 --> 0:17:50.520 that stigma issue, that they'll they'll do that. That could 0:17:50.520 --> 0:17:53.240 be the interesting thing in the minutes actually that Leasta mentioned, 0:17:53.720 --> 0:17:55.359 So when the Fed minutes come out, one of the 0:17:55.400 --> 0:17:57.040 things that we'll be looking for is not so much 0:17:57.080 --> 0:17:59.399 you know, what they're thinking about monetary policy, because I 0:17:59.400 --> 0:18:01.400 think it's pretty clear they're going to be on hold 0:18:01.440 --> 0:18:04.160 for a bulk of the year unless unless there's a 0:18:04.240 --> 0:18:06.520 very significant change one way or the other the economy. 0:18:06.800 --> 0:18:08.119 But it's how are they going to deal with the 0:18:08.160 --> 0:18:11.440 funding stresses and the issues in the treasury and UH 0:18:11.440 --> 0:18:14.960 and mortgage market funding. UM, that's going to be kind 0:18:14.960 --> 0:18:17.880 of the focus. I think of most rates people. When 0:18:17.880 --> 0:18:20.160 we get these minutes and we talk about mortgage bonds, 0:18:20.200 --> 0:18:23.679 it's actually been one of the most understood under told 0:18:23.720 --> 0:18:28.480 stories of the sort of rotation allowing mbs to roll 0:18:28.560 --> 0:18:32.160 off and then reinvesting the proceeds into treasuries. How much 0:18:32.200 --> 0:18:34.280 do you think that's going to be a support for 0:18:34.320 --> 0:18:37.560 treasury valuations and a support for yields going too high? 0:18:37.800 --> 0:18:39.960 The fact that the Treasury that that the devasures serve 0:18:40.440 --> 0:18:44.000 is such a significant net buyer of treasuries with that 0:18:44.119 --> 0:18:47.040 runoff from mortgage debt, Yeah, there's still going to be 0:18:47.040 --> 0:18:50.720 a significant amount of net supply because deficits are still large, 0:18:50.760 --> 0:18:53.760 so so visa v you know issue, I don't think 0:18:53.760 --> 0:18:56.800 it's going to affect treasury valuations that much. I think, uh, 0:18:57.040 --> 0:19:01.600 it affects mortgage valuations much more because the because the 0:19:02.040 --> 0:19:06.000 Fed was buying a significant portion of net supply of 0:19:06.040 --> 0:19:10.080 mortgage backed securities um through through the TB a market 0:19:10.160 --> 0:19:14.440 kind of what mortgage forwards basically uh, that that they purchased. 0:19:14.760 --> 0:19:17.760 So so the fact that they're not buying nearly as 0:19:17.840 --> 0:19:20.000 much of that now than they were before, I think 0:19:20.000 --> 0:19:22.400 it's really affected those valuations a lot. And in fact, 0:19:22.440 --> 0:19:26.240 you've seen a significant widening of the spread we call 0:19:26.240 --> 0:19:30.399 it the mortgage basis between mortgage backed securities and treasury yields. 0:19:30.440 --> 0:19:32.520 So um, so, I think it's having much more of 0:19:32.520 --> 0:19:35.880 an impact there on on mortgage rates and and UH 0:19:35.880 --> 0:19:37.720 than it is on treasuries. And I think that that 0:19:37.760 --> 0:19:40.639 will be the case going forward. Um, you know, particularly 0:19:40.960 --> 0:19:43.919 since UH since net net we're we're gonna have you know, 0:19:44.040 --> 0:19:47.080 slightly larger deficits this coming year than we did last year, 0:19:47.119 --> 0:19:50.600 but it's not as significant as it was, say, you know, 0:19:50.680 --> 0:19:53.719 back in seventeen when we had a massive UH increase 0:19:53.760 --> 0:19:57.480 in eighteen in UH in the deficit. Jersey, thank you 0:19:57.520 --> 0:19:59.720 so much for being with us our Jersey U s 0:19:59.760 --> 0:20:17.520 Interes trade head strategist for Bloomberg Intelligence. As we head 0:20:17.600 --> 0:20:21.520 into one big question is Paul Sweeney is very familiar with, 0:20:21.720 --> 0:20:24.239 is what is going to be the fate of the 0:20:24.320 --> 0:20:28.439 streaming services that continue to rival one another. Disney Plus 0:20:28.440 --> 0:20:34.040 coming out, Hulu, we have of course Amazon Prime and Netflix, 0:20:34.160 --> 0:20:38.880 which has rallied four thousand percent over the past ten years. 0:20:38.760 --> 0:20:41.800 As people absolutely pile in and just compare that, Lisa, 0:20:41.880 --> 0:20:44.120 that that four thousand percent over the last ten years 0:20:44.160 --> 0:20:50.520 the SMP i'd respectable two fifty Disney four. Just to 0:20:50.560 --> 0:20:53.920 put in context the four thousand percent total return over 0:20:53.920 --> 0:20:56.080 the last ten years for Netflix, there was a time 0:20:56.119 --> 0:21:00.360 when Netflix the market cap exceeded that of Disney, even 0:21:00.359 --> 0:21:03.480 though it had been around that much less guitar around 0:21:03.560 --> 0:21:05.879 nath and joining us now of Bloomberg Intelligence, who covers 0:21:05.880 --> 0:21:09.560 all things in this space. What's your sense heading into 0:21:10.320 --> 0:21:13.439 of the weeding out process that we expect to see 0:21:13.480 --> 0:21:16.080 in the streaming service? Do you expect some real pressure 0:21:16.280 --> 0:21:18.720 to come on Netflix? Is the other media giants try 0:21:18.760 --> 0:21:21.720 to get in the game. Yeah, good morning, Falling Lisa. Yeah, definitely. 0:21:21.720 --> 0:21:24.800 This has been the Netflix decade. As you pointed out, 0:21:24.840 --> 0:21:27.920 you know one company that has been kind of singlehandedly 0:21:28.080 --> 0:21:31.080 responsible for changing the way that we watch TV. And 0:21:31.119 --> 0:21:34.360 obviously it has also been the catalyst for these streaming 0:21:34.359 --> 0:21:38.120 wars that have overloaded dozens of platforms now with live 0:21:38.160 --> 0:21:41.639 and on demand video. But I think, um, Netflix, as 0:21:41.680 --> 0:21:43.520 you point out, Lisa, is going to be a little 0:21:43.560 --> 0:21:45.960 bit of a victim of its own success because we 0:21:46.000 --> 0:21:51.320 are seeing so this explosion of so many new streaming services. 0:21:51.359 --> 0:21:54.600 And while I don't think that they are necessarily going 0:21:54.640 --> 0:21:57.600 to cause the collapse of Netflix. I definitely think that 0:21:58.160 --> 0:22:01.760 competition is heating up tremendous sleep. Uh, there is only 0:22:01.880 --> 0:22:05.280 a certain number, there's only a limited number of UM 0:22:05.400 --> 0:22:08.159 services that I think the market can sustain over the 0:22:08.240 --> 0:22:10.639 long term. So we are going to see a shakeout. 0:22:11.280 --> 0:22:14.080 But if there are a couple of services that emerge 0:22:14.359 --> 0:22:17.359 as true winners, Netflix will definitely be one of them, 0:22:17.359 --> 0:22:20.520 and along with that Disney plus two. So KEITHA. One 0:22:20.520 --> 0:22:23.240 thing we've kind of learned from looking at the financial 0:22:23.240 --> 0:22:27.280 statements of Netflix is this streaming business ain't cheap. It's 0:22:27.280 --> 0:22:31.040 really expensive from a programmed perspective. And you know, Netflix 0:22:31.119 --> 0:22:34.000 isn't even you know, nowhere close to free cashual positive. 0:22:34.240 --> 0:22:36.760 What's your sense of, you know, kind of the overall 0:22:36.840 --> 0:22:39.040 costs for a lot of these new players coming into 0:22:39.040 --> 0:22:42.399 the market. Yes, absolutely, it's a very very costly endeavor. 0:22:43.000 --> 0:22:46.920 As you point out, Paul, they are burning free cash. 0:22:47.000 --> 0:22:50.320