1
00:00:00,080 --> 00:00:13,800
Speaker 1: Ye, Welcome to the Bloomberg Surveillance Podcast. I'm Tom keene Jaily.

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

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

4
00:00:23,600 --> 00:00:27,800
Speaker 1: Bloomberg dot Com, and of course on the Bloomberg. Greg

5
00:00:27,840 --> 00:00:30,120
Speaker 1: Bottle joining us b MP Perry bad thrill that he

6
00:00:30,160 --> 00:00:33,320
Speaker 1: could be with us today and one of the reasons

7
00:00:33,400 --> 00:00:36,559
Speaker 1: is you have a house cautious call in the American economy.

8
00:00:36,760 --> 00:00:39,360
Speaker 1: Let's start with that. Why are you cautious for others

9
00:00:39,400 --> 00:00:42,400
Speaker 1: see above two percent growth? Well, I think what the

10
00:00:42,440 --> 00:00:45,479
Speaker 1: market is looking for generally, is this weakness that we've

11
00:00:45,479 --> 00:00:48,680
Speaker 1: seen in the manufacturing side of the economy start to

12
00:00:48,760 --> 00:00:51,400
Speaker 1: mean river and the rest of the economy, that the

13
00:00:51,440 --> 00:00:54,280
Speaker 1: service side, the consumer that has been much more robust,

14
00:00:54,360 --> 00:00:56,560
Speaker 1: just kind of continue on track. We think what we're

15
00:00:56,600 --> 00:00:59,160
Speaker 1: actually likely to see is this weakness from the manufacturing

16
00:00:59,160 --> 00:01:01,600
Speaker 1: side of the economy start to broaden out a little

17
00:01:01,600 --> 00:01:03,600
Speaker 1: bit to the rest of the economy. We're not looking

18
00:01:03,640 --> 00:01:05,920
Speaker 1: for a recession, but we are looking for more of

19
00:01:05,959 --> 00:01:08,320
Speaker 1: a pronounced slowdown than the market. They don't do this

20
00:01:08,440 --> 00:01:11,040
Speaker 1: till cf A five. You know, in terms of example.

21
00:01:11,040 --> 00:01:15,680
Speaker 1: But let me ask to see a five question caution gloomy.

22
00:01:16,080 --> 00:01:19,720
Speaker 1: It's not mourning in America. Why are starts going up?

23
00:01:20,240 --> 00:01:22,640
Speaker 1: Why are stocks going up? Well, I think what the

24
00:01:22,640 --> 00:01:25,280
Speaker 1: market is doing is looking through the short term weakness

25
00:01:25,400 --> 00:01:28,240
Speaker 1: and it's very much expecting of recovery next year. And

26
00:01:28,280 --> 00:01:30,360
Speaker 1: we had a very difficult year this year for earnings.

27
00:01:30,520 --> 00:01:34,000
Speaker 1: SMP is rallied this year and we've had earnings growth

28
00:01:34,000 --> 00:01:36,240
Speaker 1: of only one percent. If you ex out the effect

29
00:01:36,280 --> 00:01:39,040
Speaker 1: of buybacks, it's actually been negative earnings growth. So why

30
00:01:39,080 --> 00:01:41,000
Speaker 1: is the market able to look through that? Because it's

31
00:01:41,000 --> 00:01:43,880
Speaker 1: expecting a sharp rebound next year, particularly from some of

32
00:01:43,920 --> 00:01:48,600
Speaker 1: those stocks that have underperformed, the energy industrials, materials names.

33
00:01:48,680 --> 00:01:50,840
Speaker 1: You know, the market is looking for very strong earnings

34
00:01:50,840 --> 00:01:52,520
Speaker 1: growth there we ca that's a view that's going to

35
00:01:52,640 --> 00:01:55,360
Speaker 1: get challenged through Q one if we don't see a

36
00:01:55,360 --> 00:01:57,720
Speaker 1: decent rebound in the data, and I think you will

37
00:01:57,760 --> 00:02:00,160
Speaker 1: start to see downgrades comes through to those twenty when

38
00:02:00,160 --> 00:02:03,400
Speaker 1: they earnings expectations, and the market at these lofty levels

39
00:02:03,400 --> 00:02:05,520
Speaker 1: I think could struggle to digest that. So, Greg, I

40
00:02:05,560 --> 00:02:08,760
Speaker 1: want to talk about valuation. We've had rise in the

41
00:02:08,880 --> 00:02:13,200
Speaker 1: SMP yet we've had essentially, as you just mentioned, effectively

42
00:02:13,320 --> 00:02:16,639
Speaker 1: no earnings growth. Where are we in terms of valuation?

43
00:02:17,080 --> 00:02:19,640
Speaker 1: It looks expensive. It looks expensive. I think if you

44
00:02:19,680 --> 00:02:23,359
Speaker 1: look at, for example, growth stocks um one year four

45
00:02:23,360 --> 00:02:27,400
Speaker 1: at p for growth stocks is at highs for the

46
00:02:27,480 --> 00:02:30,240
Speaker 1: last thirty years x the TMT bubble. So there's an

47
00:02:30,320 --> 00:02:33,840
Speaker 1: argument that in this environment of extremely easy monetary policy,

48
00:02:34,080 --> 00:02:36,840
Speaker 1: low rates, that there should be evaluation premium. But the

49
00:02:36,919 --> 00:02:38,680
Speaker 1: question is how much is too much? And to me

50
00:02:38,720 --> 00:02:40,800
Speaker 1: it looks over extended. So you bring up the good point,

51
00:02:40,800 --> 00:02:43,280
Speaker 1: which is, you know, I'm looking at the tenure here

52
00:02:43,280 --> 00:02:47,160
Speaker 1: at one point seven, I've got no choice. I gotta

53
00:02:47,240 --> 00:02:50,840
Speaker 1: go buy stocks. I'm just gonna go buy Jeff Bezos. Right. Well,

54
00:02:50,880 --> 00:02:53,000
Speaker 1: I think that's what's been driving the market this year.

55
00:02:53,200 --> 00:02:55,760
Speaker 1: And I think as long as earnings growth is positive,

56
00:02:55,919 --> 00:02:59,280
Speaker 1: even if it's low, positive, that type of attitude can

57
00:02:59,440 --> 00:03:01,560
Speaker 1: can play. But the issue is if you start to

58
00:03:01,600 --> 00:03:05,160
Speaker 1: see stocks under pressure, if you start to see earnings contract,

59
00:03:05,320 --> 00:03:07,040
Speaker 1: then it becomes much more challenging. It is a much

60
00:03:07,080 --> 00:03:09,680
Speaker 1: more risky asset class. All right, So if I'm thinking

61
00:03:09,680 --> 00:03:13,040
Speaker 1: about equities here, there's you know a lot of I'll

62
00:03:13,040 --> 00:03:15,560
Speaker 1: probably have half the people to walk in this studio

63
00:03:16,280 --> 00:03:19,519
Speaker 1: UM talk about defensive, get defensive, get defensive, but those

64
00:03:19,560 --> 00:03:21,080
Speaker 1: are expensive, and the other half will come in and

65
00:03:21,080 --> 00:03:24,799
Speaker 1: say no, no, no, there's no recession in sight, goes cyclicals.

66
00:03:24,919 --> 00:03:27,680
Speaker 1: Where do you fall? I would rather fall in the

67
00:03:27,720 --> 00:03:29,720
Speaker 1: more defensive camp, but I do think you have to

68
00:03:29,720 --> 00:03:32,320
Speaker 1: be careful about that. Some of the classic defensive sectors,

69
00:03:32,360 --> 00:03:35,520
Speaker 1: such as the healthcare sector UM is potentially subject to

70
00:03:35,560 --> 00:03:37,760
Speaker 1: a huge amount of political risk next year. So I

71
00:03:37,760 --> 00:03:40,600
Speaker 1: think it's very difficult to find good value defensive stocks.

72
00:03:40,600 --> 00:03:42,840
Speaker 1: I think sectors such as the consumer staples I think

73
00:03:42,840 --> 00:03:44,840
Speaker 1: would weather a down term better than some of us.

74
00:03:45,040 --> 00:03:47,920
Speaker 1: You do derivatives as well, Greg Bottle explain to us

75
00:03:47,960 --> 00:03:51,360
Speaker 1: the convexity right now, that's the bet within the market

76
00:03:51,440 --> 00:03:55,480
Speaker 1: and when on wines it goes faster. How big is

77
00:03:55,520 --> 00:03:58,120
Speaker 1: the bet right now? And the marketers are you know,

78
00:03:58,160 --> 00:04:01,160
Speaker 1: the proverbial sidelines crowd, Yeah. I mean one of the

79
00:04:01,160 --> 00:04:03,120
Speaker 1: things we've seen this week is that the VIX has

80
00:04:03,240 --> 00:04:06,640
Speaker 1: broken down through the twilet, so it means that the

81
00:04:06,720 --> 00:04:10,320
Speaker 1: expectations for future volatility are very low, and we've seen

82
00:04:10,640 --> 00:04:12,880
Speaker 1: the short interest in terms of the VIX future. So

83
00:04:12,920 --> 00:04:16,160
Speaker 1: the number of people betting on that basically continuing to remain.

84
00:04:16,160 --> 00:04:19,039
Speaker 1: People are betting that it will be a quiet ball

85
00:04:19,120 --> 00:04:22,400
Speaker 1: market exactly. So there's a there's a larger outstanding short

86
00:04:22,440 --> 00:04:24,719
Speaker 1: position on the VIX than there than there has been

87
00:04:24,760 --> 00:04:28,160
Speaker 1: in recent history. So yeah, there's basically a bet that

88
00:04:28,160 --> 00:04:31,080
Speaker 1: we're going to remain in this very low volatility risk

89
00:04:31,160 --> 00:04:34,840
Speaker 1: on environment and that creates potentially a fierce a reaction

90
00:04:34,880 --> 00:04:36,320
Speaker 1: if you do get a catalyst to break us out

91
00:04:36,360 --> 00:04:38,200
Speaker 1: of that. All right, So it seems to me we

92
00:04:38,240 --> 00:04:41,000
Speaker 1: are just one tweet away from this trade deal, just

93
00:04:41,040 --> 00:04:47,000
Speaker 1: going what would that mean for things? Yeah, I should

94
00:04:47,000 --> 00:04:49,320
Speaker 1: have taken us there, But what could happen in that

95
00:04:49,520 --> 00:04:51,400
Speaker 1: scenario is that it's still a risk of the market

96
00:04:51,440 --> 00:04:53,680
Speaker 1: is a market kind of looking past trade, the markets

97
00:04:53,760 --> 00:04:56,000
Speaker 1: looking past trade, which is exactly why it is a risk.

98
00:04:56,040 --> 00:04:57,880
Speaker 1: I think the market is very much pricing in the

99
00:04:57,920 --> 00:05:00,640
Speaker 1: idea that this phase one deal, this East fire is

100
00:05:00,640 --> 00:05:02,520
Speaker 1: going to get done. I think everyone accepts there are

101
00:05:02,560 --> 00:05:05,000
Speaker 1: challenges further down the road, but in the short term,

102
00:05:05,080 --> 00:05:08,520
Speaker 1: I think everyone speaking to expects these December deadline to

103
00:05:08,520 --> 00:05:11,320
Speaker 1: pass without any further increase in tariffs, and that we

104
00:05:11,440 --> 00:05:13,800
Speaker 1: reach a phase one deal so ready for markets the

105
00:05:13,880 --> 00:05:16,279
Speaker 1: risk that if we don't then that could have a

106
00:05:16,520 --> 00:05:20,039
Speaker 1: kind of a significant impact. What is the segmentation that

107
00:05:20,160 --> 00:05:23,200
Speaker 1: I can take advantage of? Is it MidCap, small cap,

108
00:05:23,279 --> 00:05:27,159
Speaker 1: large cap? Is it US international? Is it you know,

109
00:05:27,240 --> 00:05:29,560
Speaker 1: the twelve stocks that are going up versus value and

110
00:05:29,640 --> 00:05:35,000
Speaker 1: geometric going nowhere? What's the partition that is an opportunity? Well,

111
00:05:35,040 --> 00:05:36,800
Speaker 1: I think it depends on your view. If you buy

112
00:05:36,800 --> 00:05:38,160
Speaker 1: into the idea that we are going to have a

113
00:05:38,200 --> 00:05:41,080
Speaker 1: cyclical recovery, then I think those stocks that have lagged,

114
00:05:41,080 --> 00:05:44,960
Speaker 1: whether it's energy industrials, the smaller midcaps in particular, do

115
00:05:45,080 --> 00:05:48,840
Speaker 1: look potentially interesting. The Russell broke out through the top

116
00:05:48,920 --> 00:05:50,600
Speaker 1: end of its trading range last week, So if you

117
00:05:50,640 --> 00:05:53,160
Speaker 1: buy into that narrative, I think the smaller midcaps could

118
00:05:53,240 --> 00:05:55,240
Speaker 1: rally into the back end of the year. I think

119
00:05:55,240 --> 00:05:57,680
Speaker 1: if you're worried a lot about trade, if you're worried

120
00:05:57,680 --> 00:05:59,840
Speaker 1: about the US elections next year, then I do think

121
00:05:59,839 --> 00:06:02,400
Speaker 1: you have to be more cautious about the nasdack some

122
00:06:02,480 --> 00:06:05,000
Speaker 1: of the fang names. As I mentioned earlier, valuations for

123
00:06:05,040 --> 00:06:07,960
Speaker 1: the growth stocks are extremely elevated, and typically is the

124
00:06:08,040 --> 00:06:11,720
Speaker 1: Nasdaq that has been more volatile around trade headlines, and

125
00:06:11,760 --> 00:06:13,880
Speaker 1: I think could be far more impacted by the politics

126
00:06:13,880 --> 00:06:16,320
Speaker 1: next year. I mentioned that the fang stocks, I mean

127
00:06:16,440 --> 00:06:18,800
Speaker 1: they've been Are you concerned that the breath of the

128
00:06:18,839 --> 00:06:23,320
Speaker 1: market advance this year maybe isn't as healthy as we've

129
00:06:23,360 --> 00:06:26,400
Speaker 1: seen in some other advances. Yeah, I think that's that's

130
00:06:26,400 --> 00:06:29,359
Speaker 1: absolutely true. I think there's been kind of a relatively

131
00:06:29,480 --> 00:06:32,480
Speaker 1: narrow sub section of the market that's been driving growth,

132
00:06:32,480 --> 00:06:35,680
Speaker 1: and that very much reflects this dislocation we've seen between

133
00:06:35,800 --> 00:06:38,039
Speaker 1: the manufacturing side of the economy and the service side

134
00:06:38,080 --> 00:06:40,200
Speaker 1: of the economy. So absolutely it has been a very

135
00:06:40,279 --> 00:06:43,120
Speaker 1: narrow ralliant that raises the risk. Big bottle, thank you

136
00:06:43,200 --> 00:06:45,440
Speaker 1: so much, greatly appreciated. With B ANDP. Perry bar with

137
00:06:45,480 --> 00:06:49,360
Speaker 1: Equities and derivatives there in a cautious GDP view as well.

138
00:07:03,960 --> 00:07:08,800
Speaker 1: Andrew Holland Hurst here, Andrew, the zeitgeist is okay, maybe

139
00:07:08,800 --> 00:07:11,320
Speaker 1: it's a bottom and up. And of course Chairman Powell

140
00:07:11,720 --> 00:07:14,480
Speaker 1: talking about a glass more than a half full? Is

141
00:07:14,520 --> 00:07:17,160
Speaker 1: that what you see? You know, it's looked a lot

142
00:07:17,240 --> 00:07:20,120
Speaker 1: like a glass exactly half full. And we're starting to

143
00:07:20,120 --> 00:07:22,160
Speaker 1: get some of this hard data and that's looking a

144
00:07:22,200 --> 00:07:24,800
Speaker 1: little bit more positive. So we've seen some positive signs

145
00:07:24,800 --> 00:07:27,040
Speaker 1: on the soft data, and I would say data out

146
00:07:27,040 --> 00:07:29,120
Speaker 1: this morning, you're seeing better investment in g d P,

147
00:07:29,360 --> 00:07:33,240
Speaker 1: You're seeing better signs of future investment endurables. And that's

148
00:07:33,280 --> 00:07:35,240
Speaker 1: really where you want to see the strength in an

149
00:07:35,280 --> 00:07:38,120
Speaker 1: area that's been weak for quite some time. With that tone,

150
00:07:38,760 --> 00:07:43,640
Speaker 1: do yields as a general framework stay lower or is

151
00:07:43,720 --> 00:07:47,680
Speaker 1: the huge surprise of Q one two thousand twenty up

152
00:07:47,720 --> 00:07:51,480
Speaker 1: up we go finally in yields that that that would

153
00:07:51,600 --> 00:07:53,160
Speaker 1: be a huge surprise. I think that's what no one

154
00:07:53,280 --> 00:07:56,040
Speaker 1: is expecting. And and and I think you know if

155
00:07:56,040 --> 00:07:59,000
Speaker 1: you're listening to Governor Brainard yesterday for instance, but she

156
00:07:59,120 --> 00:08:03,080
Speaker 1: said she was talking about the potential to move to

157
00:08:03,200 --> 00:08:07,720
Speaker 1: an average inflation targeting regime. UM, so this is still

158
00:08:07,760 --> 00:08:11,400
Speaker 1: a said that even if they see strong activity, you

159
00:08:11,480 --> 00:08:13,760
Speaker 1: need to see something on the inflation front to get

160
00:08:13,800 --> 00:08:15,640
Speaker 1: them thinking about hikes. I think that's where we have

161
00:08:15,720 --> 00:08:17,720
Speaker 1: this scenario where it is looking a little bit better.

162
00:08:18,040 --> 00:08:21,320
Speaker 1: Equities are moving higher, but rates are staying fairly low.

163
00:08:21,880 --> 00:08:24,000
Speaker 1: So Andrew, looking at the data that came out this morning,

164
00:08:24,040 --> 00:08:26,679
Speaker 1: you know, US business equipment demand increases by the most

165
00:08:26,880 --> 00:08:30,760
Speaker 1: since January, you know, and that's kind of car counter

166
00:08:30,800 --> 00:08:33,920
Speaker 1: to the narrative that we've been having, you know, contracting, manufacturing,

167
00:08:33,920 --> 00:08:37,439
Speaker 1: weak business investment. Is this the beginning of a turn

168
00:08:37,520 --> 00:08:39,360
Speaker 1: do you think? Or is this not so much of

169
00:08:39,400 --> 00:08:42,520
Speaker 1: a trend at this point? It's probably too early to

170
00:08:42,559 --> 00:08:44,240
Speaker 1: call it a trend. And and and we're really looking at

171
00:08:44,240 --> 00:08:46,960
Speaker 1: one month of data, Like I was saying, you do

172
00:08:47,040 --> 00:08:50,160
Speaker 1: have some of these leading indicators globally p m I

173
00:08:50,320 --> 00:08:53,440
Speaker 1: s for manufacturing or turning up, and they're still at

174
00:08:53,480 --> 00:08:55,720
Speaker 1: low levels, but they look like they're coming off of

175
00:08:55,760 --> 00:08:58,120
Speaker 1: the bottom. So that's what we're hoping for. That's what

176
00:08:58,200 --> 00:08:59,680
Speaker 1: we think we we're going to see. And the other

177
00:08:59,679 --> 00:09:01,480
Speaker 1: thing that's going on in the US is you had

178
00:09:01,559 --> 00:09:04,040
Speaker 1: this auto worker strike, which was a dragon probably even

179
00:09:04,080 --> 00:09:06,800
Speaker 1: a dragging these numbers that still look pretty positive. That's

180
00:09:06,800 --> 00:09:09,560
Speaker 1: going to bounce back. Um, we know that we had

181
00:09:09,640 --> 00:09:11,920
Speaker 1: aircraft production that was shut down. That's going to bounce

182
00:09:11,920 --> 00:09:14,240
Speaker 1: back ball. So so you have a couple of idiosyncratic factors.

183
00:09:14,240 --> 00:09:17,319
Speaker 1: And there also that coming into the first half of

184
00:09:17,320 --> 00:09:19,360
Speaker 1: these numbers could look a little more positive. So I

185
00:09:19,360 --> 00:09:21,160
Speaker 1: think that's going to happen. Do I see it in

186
00:09:21,200 --> 00:09:23,160
Speaker 1: the data. Yet I'm not sure that we're seeing it

187
00:09:23,200 --> 00:09:26,080
Speaker 1: that clearly. Andrew wonderful to see Sherman green Span, And

188
00:09:26,120 --> 00:09:29,559
Speaker 1: I think with Maria yesterday, and you know, I look

189
00:09:29,559 --> 00:09:33,079
Speaker 1: at Sherman Greenspan and his economic mandate is a good

190
00:09:33,120 --> 00:09:38,199
Speaker 1: stock market builds confidence. Is that still true or is

191
00:09:38,240 --> 00:09:42,480
Speaker 1: the stock market the province of only the elite? Well,

192
00:09:42,760 --> 00:09:47,000
Speaker 1: it is true that the games from the stock market

193
00:09:47,000 --> 00:09:49,400
Speaker 1: are not that broadly shared across the economy. This this

194
00:09:49,520 --> 00:09:53,000
Speaker 1: really is high income, high wealth individuals that have exposure

195
00:09:53,040 --> 00:09:54,839
Speaker 1: to the stock market. But when we look at this

196
00:09:54,920 --> 00:09:57,640
Speaker 1: consumer sentiment measures, and even when you break those consumer

197
00:09:57,679 --> 00:10:02,280
Speaker 1: sentiment measures down across income crew groups, UM, across demographics,

198
00:10:02,280 --> 00:10:06,040
Speaker 1: you still see the pass through from higher equity prices

199
00:10:06,520 --> 00:10:09,600
Speaker 1: UM to what's going on more broadly with consumer sentiments.

200
00:10:09,600 --> 00:10:11,679
Speaker 1: So those two things are they are linked, um. Whether

201
00:10:11,720 --> 00:10:13,760
Speaker 1: fundamentally or not, they they should be. They do seem

202
00:10:13,800 --> 00:10:16,480
Speaker 1: to be quite linked empirically UM. And so as we

203
00:10:16,520 --> 00:10:19,600
Speaker 1: see equities moving higher UM, we think that should be

204
00:10:19,600 --> 00:10:22,360
Speaker 1: positive for consumer sentiments. Surprising then that you know, conference

205
00:10:22,480 --> 00:10:24,760
Speaker 1: or consumer sentiment has actually stayed a little bit lower here.

206
00:10:24,760 --> 00:10:27,400
Speaker 1: So we're watching that to see if that bounces um,

207
00:10:27,440 --> 00:10:29,840
Speaker 1: but but in general that should be a positive backdrop

208
00:10:29,880 --> 00:10:32,760
Speaker 1: for the economy coming into Andrew Holland Hurst, thank you

209
00:10:32,800 --> 00:10:34,840
Speaker 1: so much. Too short to visit. He is a city

210
00:10:34,840 --> 00:10:37,760
Speaker 1: group working with Catherine Man on a view on the

211
00:10:37,760 --> 00:10:53,439
Speaker 1: American economy as well. It is a joy to speak

212
00:10:53,480 --> 00:10:56,120
Speaker 1: to the gentleman from Pennsylvania and Florida. His name is

213
00:10:56,200 --> 00:11:00,160
Speaker 1: Mr Kotak, David Kotak with Cumberland Advisers. David, before where

214
00:11:00,200 --> 00:11:03,520
Speaker 1: we get to your important essay and the poisonous idea

215
00:11:03,559 --> 00:11:08,520
Speaker 1: of negative interest rates, you have provided national leadership on

216
00:11:08,640 --> 00:11:12,720
Speaker 1: the challenges to agriculture in China and a center around

217
00:11:12,720 --> 00:11:19,640
Speaker 1: your pioneering bird flu work years ago. Pork is stratospheric

218
00:11:20,160 --> 00:11:23,640
Speaker 1: in China and as a profound impact. It's not the

219
00:11:23,720 --> 00:11:26,600
Speaker 1: same as bird flu, but there's a little bit of

220
00:11:27,000 --> 00:11:31,960
Speaker 1: related biology, microbiology and virology. Here. Your thoughts on the

221
00:11:32,080 --> 00:11:38,600
Speaker 1: durability of this pork crisis for China. Oh my gosh. Uh,

222
00:11:38,880 --> 00:11:42,680
Speaker 1: Good morning and happy Thanksgiving. And you just made the

223
00:11:42,679 --> 00:11:46,439
Speaker 1: case of why Turkey is so it's important. Um. The

224
00:11:47,120 --> 00:11:50,520
Speaker 1: The issue of flu is that it you takes. We

225
00:11:50,600 --> 00:11:52,840
Speaker 1: know that we saw it from bird flu, we saw

226
00:11:52,880 --> 00:11:57,199
Speaker 1: it from other viruses. In this case, the shock to

227
00:11:57,559 --> 00:12:03,199
Speaker 1: China is huge. Michael Jewelry, who acts those prices UH

228
00:12:03,360 --> 00:12:07,479
Speaker 1: perfectly in China and has developed the whole Price Indicator

229
00:12:08,040 --> 00:12:12,800
Speaker 1: based on what's happening there, describes the shock in the country.

230
00:12:13,240 --> 00:12:18,520
Speaker 1: It's like the most basic food source has an inflation

231
00:12:18,679 --> 00:12:21,400
Speaker 1: spike in a shortage, and of course it happens in

232
00:12:21,400 --> 00:12:25,040
Speaker 1: the middle of all the agricultural components of the trade

233
00:12:25,040 --> 00:12:27,960
Speaker 1: war between the United States and China. So there's a

234
00:12:27,960 --> 00:12:32,000
Speaker 1: big effect here too. So David is just to follow

235
00:12:32,040 --> 00:12:35,240
Speaker 1: up out a little bit. Is China more susceptible to

236
00:12:35,480 --> 00:12:39,600
Speaker 1: these types of viruses, whether it's poultry or beef for pork.

237
00:12:41,320 --> 00:12:46,040
Speaker 1: I don't know whether China is more susceptible. Um, there's

238
00:12:46,120 --> 00:12:50,320
Speaker 1: medical expertise on that far beyond anything I I hold.

239
00:12:50,840 --> 00:12:54,880
Speaker 1: What we do see is we have these originations coming

240
00:12:55,280 --> 00:12:59,200
Speaker 1: from Asia which affects and have potential of the effective

241
00:12:59,280 --> 00:13:02,760
Speaker 1: world wide. And we never know with the virus. The

242
00:13:02,800 --> 00:13:05,480
Speaker 1: only thing you know about a virus is it will change.

243
00:13:05,920 --> 00:13:09,840
Speaker 1: So this is a situation which is huge in China,

244
00:13:09,920 --> 00:13:14,319
Speaker 1: has international effects and the results are yet to be seen,

245
00:13:14,440 --> 00:13:16,960
Speaker 1: which is the case with every one of these. So

246
00:13:17,040 --> 00:13:20,760
Speaker 1: David let's switch gears to your recent research note on

247
00:13:21,480 --> 00:13:27,480
Speaker 1: negative interest rates, obviously a significant issue for Germany, for

248
00:13:27,800 --> 00:13:31,800
Speaker 1: Japan and some other UH countries as well. What is

249
00:13:31,800 --> 00:13:33,800
Speaker 1: your basic thesis about what's going on with some of

250
00:13:33,800 --> 00:13:37,760
Speaker 1: these markets with negative interest rates and their Well, yeah,

251
00:13:37,800 --> 00:13:40,439
Speaker 1: we worked on the paper for a number of months

252
00:13:40,920 --> 00:13:47,000
Speaker 1: to put together and verify that the thinking was supportable,

253
00:13:47,320 --> 00:13:50,560
Speaker 1: and essentially it works like this. If you have positive

254
00:13:50,679 --> 00:13:53,959
Speaker 1: interest rates, the farther out you go you have a

255
00:13:54,559 --> 00:13:58,840
Speaker 1: traditional yield curve, one that we're usually accustomed to in

256
00:13:59,480 --> 00:14:03,560
Speaker 1: most countries and certainly the United States, then the longer

257
00:14:03,640 --> 00:14:07,600
Speaker 1: out you go, the more you're paid, and therefore you

258
00:14:07,679 --> 00:14:11,040
Speaker 1: have an incentive for a longer maturity. If you have

259
00:14:11,240 --> 00:14:17,199
Speaker 1: negative interest rates and the yield curve is increasingly negative

260
00:14:17,400 --> 00:14:21,840
Speaker 1: as maturity goes out, then the longer out you go,

261
00:14:22,360 --> 00:14:26,560
Speaker 1: the more you are penalized. And therefore, in a negative

262
00:14:26,560 --> 00:14:30,520
Speaker 1: interest rate scheme such as we have in Europe, the

263
00:14:30,600 --> 00:14:33,840
Speaker 1: incentive is to be very short term, because the penalty

264
00:14:34,080 --> 00:14:38,760
Speaker 1: is lower. In the positive interest rate scheme such as

265
00:14:38,840 --> 00:14:42,360
Speaker 1: what we have in the United States, then the you're

266
00:14:42,400 --> 00:14:45,920
Speaker 1: incented to go longer, and the effect of that is

267
00:14:45,960 --> 00:14:50,440
Speaker 1: to distort forward rates the notional derivatives of which there

268
00:14:50,480 --> 00:14:59,320
Speaker 1: are probably five trillion worldwide, and ultimately compressed yield worldwide

269
00:14:59,560 --> 00:15:02,520
Speaker 1: to be parallel. And in fact that's what they look

270
00:15:02,640 --> 00:15:06,640
Speaker 1: like today. What did you learn about extricating ourselves from

271
00:15:06,680 --> 00:15:13,840
Speaker 1: a negative rate experiment? Well, Madame Legarde has the most

272
00:15:14,000 --> 00:15:19,000
Speaker 1: difficult task. Now she's a superb politician and she has

273
00:15:19,040 --> 00:15:21,360
Speaker 1: all the credentials, and what she has to do is

274
00:15:21,400 --> 00:15:24,640
Speaker 1: herd the cats into the room and say, look, we're

275
00:15:24,720 --> 00:15:28,600
Speaker 1: killing our banks, were killing our insurance companies. We are

276
00:15:28,720 --> 00:15:32,680
Speaker 1: not getting much growth. There was an ECB economist out

277
00:15:32,720 --> 00:15:36,240
Speaker 1: today saying we still get some SIP stimulus. Well, I'm

278
00:15:36,280 --> 00:15:40,040
Speaker 1: not so sure. John Author's column where he was kind

279
00:15:40,200 --> 00:15:44,200
Speaker 1: enough to quote my work. But in John Author's column

280
00:15:44,560 --> 00:15:51,480
Speaker 1: on Monday, John uh Tom, he articulated case after case

281
00:15:51,560 --> 00:15:56,560
Speaker 1: after case, country after country on the damaging effects of

282
00:15:56,680 --> 00:16:01,840
Speaker 1: negative rates. I thought John was marvelous document. And Mr

283
00:16:01,880 --> 00:16:04,320
Speaker 1: Authors has been on fire folks, and write, I mean,

284
00:16:04,360 --> 00:16:06,880
Speaker 1: he's always good, but these he gets these moments. You know,

285
00:16:07,160 --> 00:16:09,560
Speaker 1: it's like the Boston Bruins. He gets these moments where

286
00:16:09,560 --> 00:16:12,600
Speaker 1: he just puts it on fire. And Mr Authors has

287
00:16:12,600 --> 00:16:14,920
Speaker 1: been lights out. We've tried to effort him. He doesn't

288
00:16:14,960 --> 00:16:17,760
Speaker 1: do early morning. He's such a rock star. I think

289
00:16:17,760 --> 00:16:21,280
Speaker 1: the day starts like a tenage, something like David Kotak,

290
00:16:21,440 --> 00:16:25,120
Speaker 1: have a wonderful Thanksgiving that regards to your family in Florida,

291
00:16:25,240 --> 00:16:27,960
Speaker 1: Mr Kotak. Of course, his leadership for the years really

292
00:16:28,000 --> 00:16:31,200
Speaker 1: a municible bonds the core business and also of course

293
00:16:31,200 --> 00:16:49,360
Speaker 1: in Cumberland Advisors, Paul Sweeney knows. I mean, you know,

294
00:16:49,360 --> 00:16:52,880
Speaker 1: he's got the yard out there, the acreage to the west.

295
00:16:52,920 --> 00:16:57,320
Speaker 1: He's got the John Deere s, a precision cut real mower.

296
00:16:58,640 --> 00:16:59,920
Speaker 1: You know, it's what you do. You can do the

297
00:17:00,040 --> 00:17:02,640
Speaker 1: yard like three swipes R. Yeah, that's what. Yeah, he

298
00:17:02,720 --> 00:17:05,679
Speaker 1: gets the job done. Six world. So let's go industrial

299
00:17:05,720 --> 00:17:09,560
Speaker 1: here and talk about the tentativeness of American industry. Why

300
00:17:09,600 --> 00:17:14,000
Speaker 1: don't you bring in her extinguished guest, Karen uble Heart

301
00:17:14,000 --> 00:17:17,520
Speaker 1: Bloomberg Intelligence. She covers all things industrial. You think about

302
00:17:17,560 --> 00:17:19,959
Speaker 1: the rust belt, you think, Karen uble Heart, She's been

303
00:17:20,000 --> 00:17:22,120
Speaker 1: doing it for a long time. So let's just start.

304
00:17:22,119 --> 00:17:25,040
Speaker 1: And I know we talked to your protege, Christilino earlier

305
00:17:25,040 --> 00:17:28,280
Speaker 1: in the day about the deer numbers I'm wondering and

306
00:17:28,320 --> 00:17:33,160
Speaker 1: the guidance was disappointing. They sighted China across your universe

307
00:17:33,160 --> 00:17:37,160
Speaker 1: of industrial companies, agricultural companies. Is this issue really coming

308
00:17:37,200 --> 00:17:41,600
Speaker 1: home to roost? I e. The trade difficulties with China

309
00:17:41,640 --> 00:17:44,359
Speaker 1: coming home to hit the farm belt. The farm belt

310
00:17:44,400 --> 00:17:46,679
Speaker 1: is one of the areas that has gotten hit the

311
00:17:46,760 --> 00:17:50,640
Speaker 1: most because our big grains are soybeans and corn, and

312
00:17:50,640 --> 00:17:53,360
Speaker 1: and China buys half of our soybeans, so they've been

313
00:17:53,440 --> 00:17:57,920
Speaker 1: really wacked. Um But companies, industrial companies across the board

314
00:17:57,960 --> 00:18:00,679
Speaker 1: have seen the impact. A lot of them have big holdings,

315
00:18:00,680 --> 00:18:04,600
Speaker 1: particularly large companies UM three AM. As you know, eleven

316
00:18:04,640 --> 00:18:06,480
Speaker 1: percent of sales is in China, so they're seeing it

317
00:18:06,480 --> 00:18:09,040
Speaker 1: in China. To the economic growth slow down there is

318
00:18:09,119 --> 00:18:12,000
Speaker 1: hitting them and it's hitting here as well. The uncertainty

319
00:18:12,040 --> 00:18:14,600
Speaker 1: is making customers pull back on on some of the long,

320
00:18:14,680 --> 00:18:17,600
Speaker 1: long lead time projects. So it has spread. An organic

321
00:18:17,640 --> 00:18:20,399
Speaker 1: growth is uh, you know, down in just about everything

322
00:18:20,400 --> 00:18:23,600
Speaker 1: except aerospace. So what are the companies that you cover

323
00:18:23,720 --> 00:18:26,479
Speaker 1: saying again the you know, the big industrial companies, are

324
00:18:26,480 --> 00:18:29,240
Speaker 1: they saying we're just trying to cut costs and ride

325
00:18:29,280 --> 00:18:32,159
Speaker 1: this thing out or is there anything they can particularly

326
00:18:32,200 --> 00:18:34,920
Speaker 1: do here given the uncertainty. I think I think it's

327
00:18:34,960 --> 00:18:37,879
Speaker 1: the former UM. A few of the companies UM have

328
00:18:38,040 --> 00:18:42,200
Speaker 1: been frankly gotten in front of UM the slowdown and

329
00:18:42,240 --> 00:18:45,840
Speaker 1: cut costs pretty dramatically Emerson UM Honeywell, some of the

330
00:18:45,880 --> 00:18:49,399
Speaker 1: others pulled out their quote recession books to UM get ready.

331
00:18:49,800 --> 00:18:52,399
Speaker 1: So margins have actually held up pretty well. The volume

332
00:18:52,440 --> 00:18:54,760
Speaker 1: has not been there UM, but so far they've been

333
00:18:54,800 --> 00:18:56,840
Speaker 1: able to deliver on margins. I know you don't do

334
00:18:56,880 --> 00:19:00,720
Speaker 1: biold sale, but you mentioned Minnesota Mining and Manufacture three UM.

335
00:19:01,359 --> 00:19:04,280
Speaker 1: Boy is the son love two buys fifteen holes and

336
00:19:04,400 --> 00:19:09,480
Speaker 1: for say go away, John Inch, Gordon Haskett, Hold, Jeff

337
00:19:09,520 --> 00:19:15,440
Speaker 1: Sprague at Vertical he was brilliant one Hold, Yes Sprague.

338
00:19:15,920 --> 00:19:19,919
Speaker 1: But but Karen, when does three M Do they just

339
00:19:20,080 --> 00:19:23,280
Speaker 1: slog on or do they have to do a management

340
00:19:23,320 --> 00:19:27,040
Speaker 1: revolution at this iconic American company? Uh? You know they

341
00:19:27,080 --> 00:19:30,880
Speaker 1: have one UM. They have a big potential legal liability

342
00:19:30,960 --> 00:19:33,880
Speaker 1: with the chemical p Fast and that's one of those

343
00:19:33,920 --> 00:19:36,639
Speaker 1: black hole things that is unmeasurable at this point and

344
00:19:36,680 --> 00:19:39,240
Speaker 1: people are concerned about. But in addition to that, the

345
00:19:39,320 --> 00:19:43,920
Speaker 1: new CEO hasn't done a great job of a communicating

346
00:19:44,080 --> 00:19:47,880
Speaker 1: and be the misses um, and and he is. He's

347
00:19:47,880 --> 00:19:49,680
Speaker 1: on the road more now, he is. You see him

348
00:19:49,680 --> 00:19:51,680
Speaker 1: on TV and radio a lot more now because he's

349
00:19:51,680 --> 00:19:54,520
Speaker 1: got to tell the story better. What's the story to

350
00:19:54,800 --> 00:19:59,120
Speaker 1: a venerable industrial forget about three M and venerable industrial

351
00:19:59,160 --> 00:20:01,800
Speaker 1: company that makes a lot of different things. I mean,

352
00:20:01,840 --> 00:20:05,480
Speaker 1: that's that's the game. Is the game over? Uh? You

353
00:20:05,480 --> 00:20:07,760
Speaker 1: know it's funny as as you said, saw in the

354
00:20:07,800 --> 00:20:10,399
Speaker 1: last two years, right all these companies are splitting up

355
00:20:10,440 --> 00:20:14,399
Speaker 1: and they're becoming more focused. Ingersol next year, fordive U

356
00:20:14,480 --> 00:20:18,720
Speaker 1: t X is splitting out of Ringers Ran is a

357
00:20:18,840 --> 00:20:22,680
Speaker 1: hugely venerable name. I remember interviewing their dynamics CEO ten

358
00:20:22,800 --> 00:20:26,720
Speaker 1: years ago. They had twelve divisions and all that. It's

359
00:20:26,760 --> 00:20:29,360
Speaker 1: just gonna it's gone. They're gonna they're gonna be focused

360
00:20:29,400 --> 00:20:32,720
Speaker 1: on um, you know, h VAC and building controls and

361
00:20:32,760 --> 00:20:36,200
Speaker 1: things like that. They're getting rid of all their industrial businesses. Um.

362
00:20:36,280 --> 00:20:38,560
Speaker 1: You know j C I did the same thing, got

363
00:20:38,640 --> 00:20:41,159
Speaker 1: rid of all the auto business, all the battery business.

364
00:20:41,200 --> 00:20:44,480
Speaker 1: They're now just building controls. UM. So you're seeing pressure

365
00:20:44,480 --> 00:20:47,680
Speaker 1: to focus. Emerson is under pressure right now. Activist similar

366
00:20:48,080 --> 00:20:51,560
Speaker 1: But but this is important. Is this the market speaking

367
00:20:51,800 --> 00:20:54,920
Speaker 1: or hedge fund active is speaking and does it lead

368
00:20:54,960 --> 00:20:59,040
Speaker 1: to true shareholder return. I think it's gonna be really

369
00:20:59,080 --> 00:21:01,399
Speaker 1: interesting myself. I feel if when we have our first

370
00:21:01,400 --> 00:21:04,520
Speaker 1: big bed downturn, all these companies that are now focused

371
00:21:04,640 --> 00:21:07,240
Speaker 1: are going to get whacked harder exactly where I wanted

372
00:21:07,280 --> 00:21:09,600
Speaker 1: to go. She said it better than me. As you

373
00:21:09,600 --> 00:21:13,960
Speaker 1: look at you can focus in Bloomberg intelligence to your outlooks.

374
00:21:14,119 --> 00:21:16,560
Speaker 1: You think about some of these big industrial companies is

375
00:21:16,680 --> 00:21:19,800
Speaker 1: when you do, you are you just like there their

376
00:21:19,800 --> 00:21:22,159
Speaker 1: corporate development people saying, tell me what happens in with

377
00:21:22,280 --> 00:21:24,960
Speaker 1: China trade, and I'll tell you what we're gonna do. Well,

378
00:21:25,000 --> 00:21:26,720
Speaker 1: you know, it's had an impact, a broader impact on

379
00:21:26,760 --> 00:21:29,359
Speaker 1: global growth. There are the p m I s for

380
00:21:29,480 --> 00:21:33,399
Speaker 1: all the major regions are all below fifty except for Brazil,

381
00:21:33,680 --> 00:21:36,639
Speaker 1: which doesn't really matter that much. So it is broad um.

382
00:21:36,680 --> 00:21:39,440
Speaker 1: Europe is very very weak, the US is the strongest,

383
00:21:39,480 --> 00:21:41,840
Speaker 1: but it's now got at p m I that that

384
00:21:42,359 --> 00:21:45,760
Speaker 1: is below fifty. This is critical. What we're talking about.

385
00:21:45,840 --> 00:21:49,640
Speaker 1: The the the modern MBA experiment. As a consultant comes

386
00:21:49,640 --> 00:21:54,439
Speaker 1: in and says, break up your multisector conglomerate, and you

387
00:21:54,480 --> 00:21:56,880
Speaker 1: know Maltese. When I first started doing this, Maltese got

388
00:21:56,880 --> 00:22:00,800
Speaker 1: premiums us you know, the ultimate premium to that stability

389
00:22:00,800 --> 00:22:03,880
Speaker 1: because of all the businesses they were in. Now they're saying, yeah,

390
00:22:04,119 --> 00:22:06,680
Speaker 1: now they're saying, you know, a focus, focus, focus. Initially

391
00:22:06,720 --> 00:22:09,160
Speaker 1: under pressure from activists, right and in some cases not.

392
00:22:09,760 --> 00:22:12,080
Speaker 1: But I'm just waiting for the downturn and then they're

393
00:22:12,080 --> 00:22:15,120
Speaker 1: gonna put it together because cycles are gonna hurt. What

394
00:22:15,160 --> 00:22:18,440
Speaker 1: does Mr Corps Dana Her do that the others don't

395
00:22:18,480 --> 00:22:22,639
Speaker 1: because danna Her gets a valuation. Well, at this point,

396
00:22:22,359 --> 00:22:24,720
Speaker 1: the like let's say, New danna Her without ford of

397
00:22:24,880 --> 00:22:28,240
Speaker 1: is very healthcare. So it's got you know, so we're focused.

398
00:22:28,840 --> 00:22:31,200
Speaker 1: Excuse me, it's got a stability there. I mean, they've

399
00:22:31,200 --> 00:22:33,399
Speaker 1: got some other smaller businesses. I think this is a

400
00:22:33,520 --> 00:22:36,439
Speaker 1: huge issue. I mean it's it's just like it's like

401
00:22:36,560 --> 00:22:40,720
Speaker 1: Lemmings over a cliff where there's a strategy vogue. I'm

402
00:22:40,760 --> 00:22:42,880
Speaker 1: not I'm not one to judge the vogue, but I'm

403
00:22:42,960 --> 00:22:45,919
Speaker 1: I'm identifying that there is a vogue. Yeah, like remember

404
00:22:45,960 --> 00:22:48,479
Speaker 1: in the sixties when there was you know, conglomerates are

405
00:22:48,520 --> 00:22:56,080
Speaker 1: in and then in the eighties, conglomerates when we remember

406
00:22:57,640 --> 00:23:01,040
Speaker 1: vote yeah, and I'll the only kid in school that

407
00:23:01,080 --> 00:23:05,320
Speaker 1: could spell it. And and so it's it's it Waxes

408
00:23:05,359 --> 00:23:08,639
Speaker 1: and Waynes and right now it's focus, focus, focus. And

409
00:23:08,840 --> 00:23:11,520
Speaker 1: you know, if you're you know, in a pure industrial

410
00:23:11,560 --> 00:23:13,879
Speaker 1: business and you have no place to hide, you know,

411
00:23:13,960 --> 00:23:17,880
Speaker 1: part of the balance of Honeywell having chemicals and then

412
00:23:17,960 --> 00:23:21,080
Speaker 1: having aerospace and you know, um and then you know,

413
00:23:21,160 --> 00:23:24,240
Speaker 1: having their buildings business. They don't all go the same way.

414
00:23:24,520 --> 00:23:26,520
Speaker 1: His Honeywell still Honeywell. Where are they going to go?

415
00:23:26,760 --> 00:23:29,640
Speaker 1: Like did their clean up? I think? And as as

416
00:23:29,680 --> 00:23:31,760
Speaker 1: long as performance is great, I think they're love this

417
00:23:31,800 --> 00:23:34,200
Speaker 1: industrial stuff, don't you. I used to live this. Yeah.

418
00:23:34,200 --> 00:23:37,200
Speaker 1: I mean you know, you know, they got their pressure.

419
00:23:37,640 --> 00:23:39,800
Speaker 1: They wanted to remember, they wanted them to split aerospace,

420
00:23:40,040 --> 00:23:42,640
Speaker 1: and he immediately responded to them, and he came out

421
00:23:42,640 --> 00:23:45,520
Speaker 1: and got rid of his two more cyclical, low growth business.

422
00:23:45,600 --> 00:23:48,520
Speaker 1: I've never seen you this fired up. It's Thanksgiving. I mean,

423
00:23:48,560 --> 00:23:50,439
Speaker 1: this is it. He's reporting. You got all these big

424
00:23:50,480 --> 00:23:53,960
Speaker 1: industrial companies. Nobody's talking Uber, nobody's talking lift or we work.

425
00:23:54,000 --> 00:23:59,040
Speaker 1: We're talking Dan folks. I hope send us an emails.

426
00:23:59,080 --> 00:24:01,600
Speaker 1: Would you rather listen it about Uber and Left and

427
00:24:02,320 --> 00:24:08,680
Speaker 1: all these unit we work in Emerson. How's Emerson doing.

428
00:24:08,680 --> 00:24:12,080
Speaker 1: They've always lacked, you know, yeah, Emerson. You know they're

429
00:24:12,920 --> 00:24:15,240
Speaker 1: um a lot of late cycle stuff. You know, their

430
00:24:15,280 --> 00:24:18,600
Speaker 1: their process businesses. Come on, they haven't had a fire

431
00:24:18,680 --> 00:24:21,600
Speaker 1: under them in thirty years. They are have pressure now

432
00:24:21,720 --> 00:24:26,040
Speaker 1: de Shaw brought in and want them to very Okay,

433
00:24:26,160 --> 00:24:28,600
Speaker 1: we'll see your Friday, Karen o'bar. Thank you so much,

434
00:24:28,800 --> 00:24:33,200
Speaker 1: Bloomberg Intelligence. Thanks for listening to the Bloomberg Surveillance podcast.

435
00:24:33,560 --> 00:24:38,560
Speaker 1: Subscribe and listen to interviews on Apple Podcasts, SoundCloud, or

436
00:24:38,640 --> 00:24:42,960
Speaker 1: whichever podcast platform you prefer. I'm on Twitter at Tom

437
00:24:43,040 --> 00:24:46,960
Speaker 1: Keene before the podcast. You can always catch us worldwide.

438
00:24:47,400 --> 00:25:00,159
Speaker 1: I'm Bloomberg Radio two.