Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane Jay Ley.
Speaker 1: We bring you insight from the best in economics, finance, investment,
Speaker 1: and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud,
Speaker 1: Bloomberg dot Com, and of course on the Bloomberg. With
Speaker 1: us in London is David folkers Landau of Deutsche Bank,
Speaker 1: not only leading the research team at Deutsche Bank, but
Speaker 1: with his important research over the decades on flows of capital. David,
Speaker 1: you have been clear and straightforward on negative interest rates.
Speaker 1: We just heard Christine Lagarde speak of the lower bound
Speaker 1: that we're at. Give us an update on what negative
Speaker 1: interest rates are doing to continental Europe. Well, firstgot has
Speaker 1: been dealt a bad hand in the sense that she
Speaker 1: stuck with this situation and she inherited, and the question
Speaker 1: is how to get out of it. I believe there
Speaker 1: is a strong consensus at the political level developing that
Speaker 1: negative interest rates are to to quite a large extent,
Speaker 1: responsible for discontent within the broader population for a feeling
Speaker 1: that we're no longer we meaning central banks, and are
Speaker 1: no longer in control of of what's going on of
Speaker 1: monetary policy. Anybody looking saying that I put money in
Speaker 1: my savings account and I lose fifty BIPs, says to himself,
Speaker 1: something is fundamentally wrong here. And when I when I
Speaker 1: talk to my German relatives and my mother said, what
Speaker 1: what are you guys doing? You can't even get this right?
Speaker 1: How can we trust you? So I think this does
Speaker 1: torculate down to that level and then back up to
Speaker 1: the political and creating pressure. So I believe that this
Speaker 1: negative interest rates from here on out not the policy
Speaker 1: tool of choice. The question is how to get out
Speaker 1: of it now. You can't all of a sudden have
Speaker 1: a have a flipper switch and go back to zero.
Speaker 1: But our strong forecast and our sort of what we
Speaker 1: hear from very angles in Vayos segments is that there
Speaker 1: that the searches for a way out rather than thinking
Speaker 1: of it as a positive tool. Same same when you
Speaker 1: look at them. The FEDS review of its monetary policy
Speaker 1: tools and instruments to be going on not for more
Speaker 1: than a year. Again, there is there's a very strong
Speaker 1: dislike for negative interest rates because of the secondary impact
Speaker 1: on the financial sector, on the general feeling in the
Speaker 1: population that something is wrong. So if we have today
Speaker 1: on the Bloomberg an official of MS Miracle's party associating
Speaker 1: the far right in Germany with Nazis. This is loaded language.
Speaker 1: Dr folkers land out. Can you equate this economic experiment,
Speaker 1: even if well intentioned, with the type of GDP and
Speaker 1: economic growth of Europe over to us? You just said
Speaker 1: people have lost their bargain with institutions is personified by
Speaker 1: negative interest rates. If the institution's broken the relationship with
Speaker 1: the people. It's tempting to be attempting to say yes,
Speaker 1: But that wouldn't be quite right. I mean, there are
Speaker 1: many other factors that are involved here. There is a
Speaker 1: general breakdown of the center right in the center left
Speaker 1: dominance of European politics. You see this in Spain with Fox,
Speaker 1: you see this in Italy with the League, and you
Speaker 1: see this in Germany with the a f D. And
Speaker 1: I think I think that there we have a real
Speaker 1: problem in the sense that we have any We have
Speaker 1: economies that are performing reasonably well and nowhere near large
Speaker 1: unemployment numbers, in fact almost full employment. Yet there is
Speaker 1: there's discontent that pushes people away from the center into
Speaker 1: the fringes. And I think this is a This is
Speaker 1: probably the most serious political problem of our generation. There's
Speaker 1: no question that it does in fact policy both macro
Speaker 1: and both monetary and fiscal, and as it should. Indeed,
Speaker 1: this is too important to ignore. So Anglo Marco also
Speaker 1: called her party's decision to align with this far right
Speaker 1: party unforgivable and she quote said it is a bad
Speaker 1: day for democracy. Now she's talking during visit to South Africa.
Speaker 1: Can this be reversed. It's difficult to reverse it by feared,
Speaker 1: but it can be reversed by lots of pressure. Obviously,
Speaker 1: I think to put this in perspective, you have to
Speaker 1: recall this is the first time since the Roma Republic
Speaker 1: that far right, radical far right party helped forming a government.
Speaker 1: They're not in the government, they're just elect the government
Speaker 1: left the state premier. Now that means they're going to
Speaker 1: have not much control over it, but a little bit
Speaker 1: of control. But but it's very symbolic, particularly in Germany,
Speaker 1: and I think it's it's probably underestimated in the international
Speaker 1: process to how important is this for the German psyche.
Speaker 1: So it's definitely an earthquake political event inside Germany, one
Speaker 1: that has to be taken seriously, but will change policies. Right,
Speaker 1: So you look at this wrangling marcle you do you know,
Speaker 1: without going into whether this changes the head of the CDU,
Speaker 1: which it could, does it change how you speak to
Speaker 1: your citizens and economic policies in place. There's no doubt
Speaker 1: that it will. There's no doubt that it will lead
Speaker 1: to a soul searching of why haven't we brought the
Speaker 1: rest of the country with us into the into this
Speaker 1: economic boom that it almost this and why do we
Speaker 1: have this discontent? And this will have an impact on
Speaker 1: fiscal policy within Germany, no question. There will be more
Speaker 1: inclination to spend on infrastructure, and it also may on
Speaker 1: the European side or there it's a little more difficult
Speaker 1: to implement that. But so from that point of view,
Speaker 1: and the same of the negative interest rates, That's why
Speaker 1: I think negative interest rates are thing of the past.
Speaker 1: We try to get out of it. Fiscal policy will
Speaker 1: be expansionary and there this is going to impact policy, yes,
Speaker 1: but but but more than that, um it is what
Speaker 1: it has done. It has legitimized the the role of
Speaker 1: really far right party in German politics and and and
Speaker 1: it's going to have international repercussions in terms of reputation
Speaker 1: and so so I think the quicker we can reverse
Speaker 1: is the better, but you can't just MECCA does not
Speaker 1: have the administrated power to reverse it, not not as
Speaker 1: a KK This is something that has to get done
Speaker 1: by lots of pressureent and and I presume that the
Speaker 1: three parties coordinated this before and they thought about all
Speaker 1: the consequences the FDPA and it city you and that
Speaker 1: it is not going to be so easy to reverse.
Speaker 1: I want to again and bring this up to date.
Speaker 1: Our Patrick Donahue and Arn Adults reporting Chancellor Miracle's party
Speaker 1: lines up with German far right in shock vote and
Speaker 1: it's been extraordinary to see the language. David, what is
Speaker 1: the sched list for institutions? You are one of the
Speaker 1: advantage of the elite of Germany. What is the institutional
Speaker 1: mandate to turn Germany towards a more moderate path? Well,
Speaker 1: I think it's important that that institutions, that the firm
Speaker 1: stick to their primary business and in our case that
Speaker 1: is intermediating between savers and investors. And we're not a
Speaker 1: political actor, but we have strong views about this. There's
Speaker 1: no doubt that uh, this is bad for everybody concerned,
Speaker 1: and we play we prepared. There are there are political
Speaker 1: issues that that where we can actually do something. This
Speaker 1: is less so. But we can do a lot about
Speaker 1: for instance, about sustainability uh and and we have done that.
Speaker 1: But on this issue, all we can do is voices
Speaker 1: to those that are critical, and we are and our
Speaker 1: CEO has done that already. So I think we speak
Speaker 1: out strongly. And if you strom me about this, extraordinary comments.
Speaker 1: David Fulkers, Lando Is with joutsche Bank. Let's springing, Jeff Calry,
Speaker 1: Showy Golvin Sacks, Global head of Commodities Research, Donna Soul Jeff,
Speaker 1: what is the cult? Well, when we look at the
Speaker 1: current coronavirus and pandemic, we'd say the biggest impact is
Speaker 1: coming from the quarantine. You're shutting down fact, shutting down school,
Speaker 1: shutting down transportation to and fro China. Obviously oil sets
Speaker 1: at the center of us because it's both the activity
Speaker 1: inside China as well as the travel um in and
Speaker 1: out of China. UM. The question is how long will
Speaker 1: this go? I think most people are budgeting sometime to
Speaker 1: at least early March. UM. After that, I would tend
Speaker 1: to think you get a rebound, and I think you'll
Speaker 1: get stimulus that's focused on the consumer to boost consumer
Speaker 1: confidence UM. So you get much more of a V
Speaker 1: shaped check type recovery coming out of it. UM. And
Speaker 1: so the question is what does this due to activity
Speaker 1: in the second half of the year versus today. We
Speaker 1: think all the weakness is up in the near term
Speaker 1: with oil, and sometimes it's two x the economic weakness
Speaker 1: because you're shutting down all that those interconnectivities. UM. But
Speaker 1: when you look let's say out four months, five months out,
Speaker 1: we'd expect to rebound right back up to the same
Speaker 1: levels that we were at before in re you know,
Speaker 1: and actually even be on a faster growth path. So
Speaker 1: one of the biggest demons shelks since the financial crisis solcably,
Speaker 1: but with a K caveat that you think this is transitory,
Speaker 1: You think we get a vacape recovery. What are the
Speaker 1: risks around that view? What the risks around that view
Speaker 1: that you can identify that you can say if that
Speaker 1: materialize is if X happens, we've gotten through an inflection point,
Speaker 1: I'm going to change my mind. I think there's two.
Speaker 1: One is that we've disrupted supply chains around the world.
Speaker 1: It becomes much more difficult to restart. We don't know
Speaker 1: that yet, And that we've seen that historically. UM. That
Speaker 1: the second issue is the contagion. Now, the reason why
Speaker 1: it's having such a profound economic impact today is they're
Speaker 1: trying to contain the contagion by doing a largest quarantine
Speaker 1: I've ever seen in my lifetime, UM, which is why
Speaker 1: you're having the sharp drop today. But I would say
Speaker 1: the bigger issue is we don't know the parameters of
Speaker 1: the contagion. A lot of people are saying that this
Speaker 1: is the containment, largely having to do with the slowdown
Speaker 1: in the economy. I was reading about the Spanish flu
Speaker 1: of uh. The death rate was very similar to the coronavirus.
Speaker 1: It was a one to two percent type of fatality rate,
Speaker 1: but it spread so widely that fifty million people died.
Speaker 1: What's your concern that perhaps people are under bawling the
Speaker 1: potential impact of the coronavirus. Saying it's gonna be fine
Speaker 1: even if it's not contained is basically everyone says it
Speaker 1: will be and it escalates to something that Let's go
Speaker 1: back to why they call it the Spanish flu. Spain
Speaker 1: was the only one that had a media that reported
Speaker 1: on it. Um. You know, there it was an issue
Speaker 1: of transparency and they weren't on top of it. This
Speaker 1: is the exact opposite. Um, they are so much on
Speaker 1: top of that. The extent of the quarantine really demonstrates
Speaker 1: that the ability to maintain the contagion is unprecedented. I mean,
Speaker 1: you're paying the economic costs for it today. Um. But
Speaker 1: but the contagion um is more contained than I think
Speaker 1: we've seen any of the other events. So given that,
Speaker 1: are you surprised that we're not seeing more of a
Speaker 1: boom to oil prices today, given the fact that it's
Speaker 1: risk on because what where this oil is going is
Speaker 1: it's going into storage in China, um or it's being
Speaker 1: backed up onto the global market. Commodities are spot assets.
Speaker 1: They have to price today. Financial markets are anticipatory assets.
Speaker 1: They price tomorrow. So oil has to pay the price
Speaker 1: for the day. All the commodities have to pay the
Speaker 1: price today. The financial markets com price the much more
Speaker 1: positive story that we see, let's say in July or August.
Speaker 1: So incomably with saying that, Jeff, so let's talk about
Speaker 1: a stimulus response, shall we? At the moment you think
Speaker 1: we're gonna see some real stimulus in the back half,
Speaker 1: I just wonder what they'll do because At the moment,
Speaker 1: it's very very short term stuff, liquidity to banks, cutting
Speaker 1: rates on that liquidity to banks, all of that good stuff.
Speaker 1: When we start to see the longer term measures, I
Speaker 1: think you've got to know, we we don't even know
Speaker 1: when this end is when they can actually start doing
Speaker 1: it UM. I think at this point right now, their
Speaker 1: ability they're trying to maintain and deal with the virus
Speaker 1: as opposed to focusing on the economic growth. So we're
Speaker 1: we're just watching for some evidence of the restart. We
Speaker 1: have a bunch of different high frequency variables were focused
Speaker 1: on UM, everything from real estate, transactions, power generation. Once
Speaker 1: we see that began to rebound, I think that's when
Speaker 1: people are going to focus on these other issues. So
Speaker 1: what does riad do? I mean, if the oil demand
Speaker 1: craters in China UH and its oil one price Brent crude,
Speaker 1: what how does OPEC and how does Saudi Arabia react
Speaker 1: to what you're predicting? Well, the question is how much
Speaker 1: of this is backed up onto the global market exactly?
Speaker 1: And you know we would estimate by looking at crude
Speaker 1: runs in China it's probably somewhere around a million barrels
Speaker 1: per day as opposed to the full demand hit. So
Speaker 1: when you think about the numbers that the JTC, the
Speaker 1: Joint Technical Committee of the OPEC recommended last night, there
Speaker 1: are somewhere around six thousand barrels a day, which is
Speaker 1: not too far off the mark, and that probably manages
Speaker 1: the external surplus for a few months, for a few months.
Speaker 1: And the great call here of your four point zero
Speaker 1: percent g d P call is it's gonna be a recovery.
Speaker 1: Can you model that recovery now to a few months
Speaker 1: or is it just you just don't know? I don't know.
Speaker 1: I think that's that's why I'm surprised that the equity
Speaker 1: market is so positive, because you do have Constant's fault.
Speaker 1: That's right, yeah, David, you know, but but the equity
Speaker 1: markets what what why would you suggest, as a commodities guy,
Speaker 1: why Coston's world has a bid to it? Because they're
Speaker 1: looking at the stars like recovery here to three months out.
Speaker 1: I mean, that's the end of the discussion. Yeah, because
Speaker 1: I think that the view is, hey, you've got a
Speaker 1: lot of problems you're dealing with, but the quarantine is
Speaker 1: so large, um, that's most likely going to be effective.
Speaker 1: And you put it, it's a very low probability tail
Speaker 1: risk of something bad happen. Explain to our audiences phrase
Speaker 1: forced masjour. We've got the l en g cruise and
Speaker 1: no we don't think so. I mean every other company today,
Speaker 1: frankly outside of China as well in Singapore is getting
Speaker 1: out the Latin book on forced masjour. Is that Latin
Speaker 1: genre French? I can't remember? Are we? Is it forced masjour? March? Yeah,
Speaker 1: it's gonna be not only in commodities and particularly oil.
Speaker 1: We see it quite a bit. You're gonna see it
Speaker 1: across all types of goods and it goes both directions,
Speaker 1: not only stuff going into China, but stuff coming out
Speaker 1: of China, particularly some of the key commodities that they produce,
Speaker 1: like stealing aluminum. Jeff Carry's on the show. You said
Speaker 1: we have to wrap things up by getting the gold coal.
Speaker 1: What's the gold coal? Now? What is it? What's the
Speaker 1: dynamic around that metal that you're thinking about. By the way,
Speaker 1: the one thing I did not anticipate was the ding
Speaker 1: to jewelry demand in China being significant. It's significant at
Speaker 1: the margin gold's trading um you know, sixteen seventy and
Speaker 1: change right now, our fifteen seventy in change right now. UM.
Speaker 1: Our our target is sixteen hundred. UM. We were pretty
Speaker 1: close to it a few weeks ago, but this demand
Speaker 1: hit has taken some of the tinge out of it.
Speaker 1: We're still positive. We view gold much more as a
Speaker 1: strategic allocation trade as opposed to a directional trade. UM.
Speaker 1: You know. So, and if I were highlight the key
Speaker 1: issues geopolitical risk de dollarization, I think is a big one.
Speaker 1: Central bank buying of gold last year was the highest
Speaker 1: since in Nick scen era, representing global supplies. UM. So
Speaker 1: then nout of that we see some models upside in
Speaker 1: your term your clients, the guys that you speak to
Speaker 1: on a daddy basis, are that becoming more sympathetic to
Speaker 1: your view that boosting their radication to gold in their
Speaker 1: portfolio is just that's something you've witnessed of in the
Speaker 1: last twelve months. Um. In Europe they can't get enough
Speaker 1: of it, but remember they have negative bondyles. UM. In
Speaker 1: the U S it's a it's a hard call because
Speaker 1: you know, the Hans are still positive here. UM. So
Speaker 1: it really depends on where you are in the world.
Speaker 1: Can central bank policy affect your world? Um? Absolutely? Um, Yeah,
Speaker 1: you get a rate cuts, one rate cut to rate cuts.
Speaker 1: Whatever he's saying, is that help commodities find a bid um.
Speaker 1: Not as much as stimulus coming out of China, UM,
Speaker 1: but it is. It is a positive development. This has
Speaker 1: been sphere. Jeff Curry, thank you so much. With a
Speaker 1: really important call there in China GDP before the market clears.
Speaker 1: Right now, Henrietta Trust joins us she director of Economic
Speaker 1: researcher course UH with Data Partners. Henrietta, we need to
Speaker 1: talk about the fractured polarization in Washington. But I've gotta
Speaker 1: ask you, uh what you thought of the Romney moment yesterday.
Speaker 1: I mean, how did that fit into the floor the Senate,
Speaker 1: the house that you know, uh well it was. It
Speaker 1: was certainly very unwelcome news for Republican leadership. We had
Speaker 1: been with staff there throughout the day in real time
Speaker 1: just understanding that, UM, they were extremely displeased with Senator
Speaker 1: Romans decision to get so vocal um. The immediate fear
Speaker 1: is for him to see some substantial backlash. And obviously, okay,
Speaker 1: but I don't mean to interrupt, but I think it's
Speaker 1: so important, Like what backlash you can't get on the
Speaker 1: squash court. I mean, what actually happens to the senator
Speaker 1: from Utah. Um, I don't know that the Senator from
Speaker 1: Utah is the one that's most at risk, but any
Speaker 1: of the vested interests who have supported him are now
Speaker 1: going to get nothing of their agenda accomplished, like Chuck Schumer,
Speaker 1: like Chuch Schumer Shore, or any of the trade associations
Speaker 1: who have donated to him or who are looking to
Speaker 1: him to advance any of their legislation. One of the
Speaker 1: issues that I'm not particularly familiar with, but something to
Speaker 1: do with college sports and his legislation and impetus um,
Speaker 1: something came up there just this the manifest options for
Speaker 1: them to sort of squeeze him are the focus. Now.
Speaker 1: I mean, you're grizzled pro on this, So just one
Speaker 1: more question in the politics of it before John gets
Speaker 1: the policy. But is he a Democrat in Utah? Now?
Speaker 1: I mean, I mean, I'm fascinated by what happens in
Speaker 1: his state right now. I mean, it's like what four
Speaker 1: Democrats in Salt Lake. Yeah, exactly. And Um, it was
Speaker 1: interesting to see the Utah Republican Party and the junior
Speaker 1: Senator from Utah, Mike Lee respond They essentially it's a
Speaker 1: senior senator. Um, you know, we don't agree with anything
Speaker 1: that the detractors had to say, really teaming up against him.
Speaker 1: So that internal politics of Mitt Romney in the state
Speaker 1: I think will be interesting to watch. They were certainly
Speaker 1: very unhappy and to the media publication should expect to
Speaker 1: play this up. Of playing this up, but let's be honest,
Speaker 1: it will be a footnote in the history books. Will
Speaker 1: move on to the election very very quickly in November,
Speaker 1: So let's focus on that. If you want to win elections,
Speaker 1: you're probably going to need a few people from the
Speaker 1: other side of the arts crossover and the made for
Speaker 1: Twitter moments that might entertain the base. That we've seen
Speaker 1: from the Democrats over the last week or so, it's
Speaker 1: just turning go off everyone else. And there is a
Speaker 1: conclusion that many people have come to on both sides
Speaker 1: of the art over the last couple of days that
Speaker 1: the president has had a very good week. How does
Speaker 1: he capitalize on that? Henrietta Absolutely, I think probably the
Speaker 1: most important data point was the underwhelming turnout in Iowa earlier.
Speaker 1: That is a story that doesn't get enough attention. But
Speaker 1: if Democrats are going to win they have to depend
Speaker 1: on a massive voter turnout, and that's something that just
Speaker 1: didn't show up in Iowa. So when you think about
Speaker 1: the president's good week potentially you know, as described to
Speaker 1: us by Republican leadership, maybe his best week ever. Um,
Speaker 1: that's probably the number one driving factor. So Democrats have
Speaker 1: to um, fix what's gone on in the last week,
Speaker 1: immediately get to New hamp or figure out if but
Speaker 1: you're just going to get it bounced from this, figure
Speaker 1: out if the establishment's going to firm up behind Biden. Um,
Speaker 1: they have a lot of decisions to make. The conversations
Speaker 1: I heard from investors on the road were regularly intoning
Speaker 1: um that Mike Bloomberg has a chance to really drive
Speaker 1: and pull away here um to to take on the nomination,
Speaker 1: and the party is pretty unprepared for that in my opinion.
Speaker 1: Of course, Mike Bloomberg the found a majorityano of Bloomberg
Speaker 1: outpay the parent company of Bloomberg News and Henriette for
Speaker 1: the market. It comes down to something quite simple. Do
Speaker 1: we get a progressive candidate or a moderate out of
Speaker 1: the Democrats side. What are you looking for in New Hampshire?
Speaker 1: What's the right through from Iowa to New Hampshire next week.
Speaker 1: The most important thing to me is that Bernie Sanders
Speaker 1: is under performing in New Hampshire. Versus two thousand sixteen,
Speaker 1: he got six of the vote there in sixteen, he's
Speaker 1: getting so now I think that's the story. So the
Speaker 1: potential for a more moderate candidate continues to be my
Speaker 1: most likely outcome. Um, I doubt that it would be Klobachar,
Speaker 1: So I think the contest is between Biden and h
Speaker 1: pet Buttag at this point and Bud has some momentum
Speaker 1: but very little minority support. So it's always been my
Speaker 1: view that other candidates must win both Iowa and New Hampshire.
Speaker 1: Biden doesn't need to win either, so his firewall in
Speaker 1: South Carolina and Super Tuesday make me comfortable with that.
Speaker 1: And there's a question of what the narrative will be
Speaker 1: among the Democrats in terms of how to counter the
Speaker 1: strong economy and the trade achievements that President Trump has made.
Speaker 1: I'm wondering what you think of particularly the trade developments,
Speaker 1: as China does say that they will have tariffs and
Speaker 1: some seventy five billion dollars of imports from the US
Speaker 1: later this month, as we do seem to get progress
Speaker 1: across the board. What's the sort of narrative that he
Speaker 1: can use versus the counter narrative. Well, the counter narrative
Speaker 1: is one that we're hearing from Democrats and increasingly from
Speaker 1: Senate Republicans behind the scenes, which is that the tariff
Speaker 1: rate reduction China announced overnight is potentially being driven by
Speaker 1: a increased sense of reality that China's going to miss
Speaker 1: its purchase commitments. That's the most important thing. Democrats would
Speaker 1: obviously sees on that immediately. It's got ratifications for Senate
Speaker 1: races as well as the administration UM. The key states
Speaker 1: of Iowa and North Carolina are both major pork producers.
Speaker 1: They're looking for massive shipment UH commitments from China in
Speaker 1: that space, and they importantly both have Republican senators at
Speaker 1: risk for re election in Johnie Ernst in Iowa and
Speaker 1: Tom Killis in North Carolina. So for Democrats right now,
Speaker 1: what they are seizing on is this very real anxiety
Speaker 1: from farm state Republican senators and congressmen that China's going
Speaker 1: to miss its purchase commitments and that this drop in
Speaker 1: tireff was driven by that. Um the potential for coronavirus
Speaker 1: and the African swine fever or whatever to impact their
Speaker 1: ability to hold true to their purchase commitments, which behind
Speaker 1: the scenes they'll tell you they think President Trump inflated
Speaker 1: beyond which China was able to commit to in the
Speaker 1: first place. Well, Henry, let's talk about these commitments, because
Speaker 1: there is a clause in the Phase one deal that
Speaker 1: in the event of natural disaster or unforeseeable events, you
Speaker 1: can consult, either side can get together and try and
Speaker 1: work something out. As far as you can see, have
Speaker 1: we seen that from China as yet, because I haven't
Speaker 1: seen any official statement from either side that suggests they
Speaker 1: have made that approach, And do you expect it to
Speaker 1: happen in the coming week. No, we haven't seen that approach. Um.
Speaker 1: I think that the administration is starting to telegraph that
Speaker 1: the coronavirus is a pretty severe issue, and so that
Speaker 1: might smooth the way for eventually having those conversations. They're
Speaker 1: at least laying the groundwork to make that an option
Speaker 1: that's available to folks, um if if we eventually get there.
Speaker 1: China has not to my knowledge, done that yet. There
Speaker 1: is obviously some conflicting reporting going on around there. Um,
Speaker 1: But I think that the given that the option is
Speaker 1: escalating tariffs further from here, which is because ordinarily unwise
Speaker 1: going into an election eight months away. UM, my expectation
Speaker 1: is that if they do miss purchase commitments, there will
Speaker 1: be a very real willingness to blame it on coronavirus
Speaker 1: or whatever and engage in further talking. Henry had one
Speaker 1: final question after this history made yesterday and early over
Speaker 1: the last few weeks in Washington, what happens today on
Speaker 1: Capitol Hill? The people just like come in and get
Speaker 1: their coffee and sit in their office as number like,
Speaker 1: what's the to do list on Capitol Hill today? There
Speaker 1: is no to do list? Um, I imagine everybody will
Speaker 1: go retreat to their corners and come back and talk
Speaker 1: about appropriations in a few weeks. There's Henrietta, thank you
Speaker 1: so much. Brilliant. That was just brilliant. Mike Wilson is
Speaker 1: with Morgan Stanley. He has not said go to cash,
Speaker 1: but he has decidedly been cautious on this great bull market.
Speaker 1: He joins us. Now, Mike, I want to go to
Speaker 1: one of your individual stock selections, but far more than that,
Speaker 1: I want to go to one single sentence in your
Speaker 1: recent note which is up up, but beneath the data,
Speaker 1: there's been some real damage to the markets. What do
Speaker 1: you mean by that, Well, what we've been saying for
Speaker 1: quite a while is that, you know, it's definitely a
Speaker 1: bull market. Uh. You know last year, I think bank
Speaker 1: in October, when it became clear that the central banks
Speaker 1: were going to go to the next level and inject
Speaker 1: money into their balance sheet, and they called it kiwi,
Speaker 1: not keywi, whatever it is, the liquidity bull market took
Speaker 1: over again. And so we're on board with that, and
Speaker 1: we raised our price targets last fall, and we've talked
Speaker 1: about price target for the first half of this year,
Speaker 1: but the fundamentals have really not supported them move. It
Speaker 1: doesn't mean it's you know that they were going to
Speaker 1: roll over into recession in factory economists or quite constructive
Speaker 1: on the global backdrop more than the US, but the
Speaker 1: global backdrop looks quite good. We have this virus which
Speaker 1: is threatening that they think it will end up being
Speaker 1: fine and will end up weathering it, like I think
Speaker 1: most people are saying at this point. And so what
Speaker 1: we have is we have a liquidity driven bull market
Speaker 1: and underneath the surface, tom the market has traded very offensively.
Speaker 1: What do I mean by that? Large caps have handily
Speaker 1: beaten small high quality stocks have continued to beat low
Speaker 1: quality stocks. And the one area we've been focused on
Speaker 1: its defensively oriented stocks have really beaten cynical stocks. So
Speaker 1: just to give you to our portfolio, are you know
Speaker 1: model portfolio that we manage is has basically outperformed the
Speaker 1: SMP by sevent basis points over the last you know,
Speaker 1: eighteen months. And it's very defensive. I mean, it's it's
Speaker 1: a very boring of stocks. But that's worked well and
Speaker 1: so I think that continues. But we're getting closer to
Speaker 1: a point where that may start to revert and we
Speaker 1: should we should try to talk about that too. So, Mike,
Speaker 1: you know, when we think about the move up in
Speaker 1: the SMP last year, there's little to no earnings growth
Speaker 1: accompanying that is mostly multiple expansion. Have you seen anything
Speaker 1: in the current earning cycle to give you confidence that
Speaker 1: can be a high single digit, if not a ten
Speaker 1: percent type of earnings here, We're not quite there yet,
Speaker 1: but what we are seeing is is definitely a troughing. Okay,
Speaker 1: So the earnings recession that we called for I think
Speaker 1: is probably completed. Uh, for now, we're stabilizing. We're not
Speaker 1: seeing a big inflection point in earnings growth, but you know,
Speaker 1: the stabilization is enough to get people excited, and that's
Speaker 1: why multiples went up. You know, you combine that with
Speaker 1: extraordinary monetary accommodation, and that's what you had, and that's
Speaker 1: that's what markets typically do. All we've said is that
Speaker 1: you know that that extension that we've seen is our
Speaker 1: surpass the fundamental uptick, and so now the fundamentality to
Speaker 1: catch up and that and that can happen, right And
Speaker 1: so I think the coronavirus is obviously you know risk
Speaker 1: um the markets, I'll tell you right now. You know
Speaker 1: that's a real risk. And the markets basically shrugged off.
Speaker 1: So that tells me the technical picture of the market
Speaker 1: is very strong. Okay, at the index level, it's still
Speaker 1: buying quality. And what that means is that the liquidity
Speaker 1: driven bull market is intact. What is your partition of
Speaker 1: buying US versus buying international If you're saying your global
Speaker 1: economics is a more constructive international We saw that queue
Speaker 1: for pop in international equities. Do you sustain that? Well?
Speaker 1: We have. It hasn't been the case that obviously this
Speaker 1: year in the US markets have retaken the lead because
Speaker 1: the markets have gotten scared. But we do think in
Speaker 1: the intermediate term, so far our longer term portfolios, we
Speaker 1: are positioned for a global growth rebound and we we
Speaker 1: would argue strongly that there is going to be a
Speaker 1: rotation back towards the kind of more cyclically geared areas.
Speaker 1: And once we get through this most recent concern around
Speaker 1: the virus. That doesn't mean, by the way that U
Speaker 1: S docks can't work. It just means that you know
Speaker 1: that the really fatter, the fatter pitches in in those
Speaker 1: markets outside of the US and in the areas that
Speaker 1: have been beaten up the most. And we're in the
Speaker 1: process now of probably making the final low so we
Speaker 1: can have that next wave of a global reflation. So, Mike,
Speaker 1: taking a look at your research, which we love to read,
Speaker 1: I see you added J and J as a name
Speaker 1: that you think the Morgan Stanley clients should be looking at.
Speaker 1: What's the story behind J and J. Yeah, it's really simple.
Speaker 1: I mean, this is a this is a classic you know,
Speaker 1: defensively oriented growth name. I mean, it doesn't grow fast,
Speaker 1: but it grows, you know, top line, and it's been
Speaker 1: punished because of the litigation concerns that are out there,
Speaker 1: and our analysts thinks that those concerns are overpriced. It's
Speaker 1: trades in the sixth percentile on a relative valuation basis.
Speaker 1: There's obviously been concerned around the healthcare industry because of
Speaker 1: the far left, uh, you know wing candidates in the
Speaker 1: Democratic Party that we're in the lead. That looks to
Speaker 1: be fading now to some degree. And so this is
Speaker 1: just an opportunity for evaluation catch up. And you know,
Speaker 1: we think high quality, defensive growth should contain to work.
Speaker 1: And this is a good This is a good this
Speaker 1: is a good place to put money right now. Hey, Mike,
Speaker 1: thanks so much for that. We appreciate your thoughts as always,
Speaker 1: Mike Wilson. He is Morgan Stanley ke, us equity strategist
Speaker 1: and chief investment officer. We have the perfect guests this
Speaker 1: morning to frame the emotion of yes today afternoon, as
Speaker 1: a Senator from Utah spoke to his Congress, to his state,
Speaker 1: indeed to his family. Lannie chen Is at the Hoover
Speaker 1: Institution that barely describes his path. Is the child of
Speaker 1: Taiwanese immigrants to a sterling academics at Harvard University and
Speaker 1: onto being the and everybody says, without any hesitation, the
Speaker 1: advisor to the Governor of Massachusetts, a senator from Utah,
Speaker 1: Lannie Chen, Have you spoken to Senator Romney in the
Speaker 1: recent hours? I have not. No. You know, it was
Speaker 1: obviously very emotional moment for him yesterday. And you know,
Speaker 1: I think we all understand, or those of us who
Speaker 1: know him understand that he made that decision, uh, with
Speaker 1: some gravity and not lightly and so uh, you know,
Speaker 1: the best to let that decision sit with him and
Speaker 1: his family. You've been in the vortex of the separating
Speaker 1: of the Republican Party. How distant are supporters of the
Speaker 1: Senator of Utah their Republican Party, from the new Republican
Speaker 1: Party of President Trump. It's a great question. I think
Speaker 1: this is going to be the question at the heart
Speaker 1: of conservative politics for many years to come, which is
Speaker 1: you know, you have in a lot of ways a
Speaker 1: separation on a number of different key issues over the years. Now,
Speaker 1: I think increasingly that Trump coalition and the Republican Party
Speaker 1: has matched up. And what you've seen in this most
Speaker 1: recent impeachment vote is the degree to which the president
Speaker 1: and his supporters have managed to essentially take over the
Speaker 1: entirety of the Republican Party and the Republican apparatus. And
Speaker 1: so I think, you know, the issue is going to
Speaker 1: be in the years to come, how much of this
Speaker 1: is lasting beyond the president. How much of the president's
Speaker 1: particular policy proposals, for example, that may not have matched
Speaker 1: up very well with with the Republicans in the past,
Speaker 1: how much of that continues to be the the position
Speaker 1: of the party going forward. I don't know that anybody
Speaker 1: knows the answer to that, but but I do think
Speaker 1: that a lot of that won't get resolved until the
Speaker 1: president leaves office, whether it's this coming January or four
Speaker 1: years from that. Lonnie, are you surprised at all that
Speaker 1: perhaps other senators who may be privately voiced concerns about
Speaker 1: President Trump and maybe specifically about the appeachment, did not join, uh,
Speaker 1: Senator Romney, No, I'm not surprised. I think you know,
Speaker 1: everyone was going to arrive at the decision they were
Speaker 1: going to arrive at based on on the on the
Speaker 1: facts they were looking at, and and you know, important
Speaker 1: factors they were considering. Um. But there are you know,
Speaker 1: as as the Senator Romney said yesterday, there will be
Speaker 1: repercussions for him in terms of having to get blowback
Speaker 1: from Republicans around the country for the decision that he made.
Speaker 1: And you know, I I think it was a very
Speaker 1: difficult decision, and so I it doesn't surprise me that
Speaker 1: others didn't walk the same path, even if they may
Speaker 1: have privately felt looked the president's behavior, um was not
Speaker 1: something they agreed with. So what I think is that
Speaker 1: everybody had to reach their own decision. They reached and
Speaker 1: at the end of the day, everyone's got to consider
Speaker 1: the different factors that that that mattered to them, and
Speaker 1: for Senator Rodney, those factors led to the decision that
Speaker 1: he made. Um, Lonnie, do you think it's accurate or
Speaker 1: fair for the Democrats that came claim a little bit
Speaker 1: of a victory here saying, you know, this was not
Speaker 1: a partisan which that in fact, it was bipartisan. We
Speaker 1: had even if it was just one Republican, but it
Speaker 1: was in factory Republican crossing the aisle. I I don't
Speaker 1: see how they can claim victory because, look, the presence
Speaker 1: approval rating is as high as it's ever been, uh,
Speaker 1: and it's not clear that the American people really felt
Speaker 1: that the exercise that they went through was wholly productive.
Speaker 1: I suppose the ultimate verdict will be rendered by the
Speaker 1: voters in November. Uh and and so we'll see. But
Speaker 1: I have a very difficult time saying how they can
Speaker 1: claim victory on anything. Lonnie chan with this folks, with
Speaker 1: the Hoover Institution, of course, his support of economic annalste
Speaker 1: policy for then presidential candidate Mt Romney a number of
Speaker 1: years ago. We're thrilled I could join us. Thanks for
Speaker 1: listening to the Bloomberg Surveillance podcast. Subscribe and listen to
Speaker 1: interviews on Apple Podcasts, SoundCloud, or whichever podcast platform you prefer.
Speaker 1: I'm on Twitter at Tom Keane before the podcast. You
Speaker 1: can always catch us worldwide. I'm Bloomberg Radio.