WEBVTT - EM Optimism Has Been Overblown: Brown Brothers' Thin 0:00:02.640 --> 0:00:05.320 Welcome to the Bloomberg Penl Podcast. I'm Paul Swinge. You, 0:00:05.360 --> 0:00:07.680 along with my co host Lisa Brahma wits each day 0:00:07.720 --> 0:00:10.240 we bring you the most noteworthy and useful interviews for 0:00:10.280 --> 0:00:12.520 you and your money, whether at the grocery store or 0:00:12.560 --> 0:00:15.480 the trading floor. Find a Bloomberg Penl podcast on Apple 0:00:15.520 --> 0:00:17.959 podcast or wherever you listen to podcasts, as well as 0:00:17.960 --> 0:00:21.079 at Bloomberg dot com. Well, it's part of a new 0:00:21.120 --> 0:00:23.760 trade deal. The US is pushing China for a stable 0:00:24.320 --> 0:00:28.520 one um. This actually request comes at odds with years 0:00:28.520 --> 0:00:30.600 of global pressure on China from the Group of Twenty 0:00:30.680 --> 0:00:34.839 Economies in particular to move towards a more free floating currency. 0:00:35.080 --> 0:00:37.640 To get a sense of what's going on, let's bring 0:00:37.840 --> 0:00:41.200 in Dr wind Thin. Dr Thinn is the global head 0:00:41.200 --> 0:00:43.639 of currency strategy of Brown Brothers Harmon in New York. 0:00:43.680 --> 0:00:45.879 He joins us on the phone. So, Dr Thinn, what 0:00:46.040 --> 0:00:49.800 is behind the US move to, you know, in theory, 0:00:49.840 --> 0:00:56.520 push the Chinese to stabilize the one. It's caught me off, 0:00:56.520 --> 0:00:58.520 car because as you know, the US has some pressuring 0:00:59.040 --> 0:01:01.200 China bout his exchange. It positive for years and years 0:01:01.240 --> 0:01:03.520 and years. It's it's getting written up all the time 0:01:03.560 --> 0:01:07.120 in the semi annual Treasury fact supports. Now it's not 0:01:07.160 --> 0:01:10.240 been in designated currency manipulator, but you know it's it 0:01:10.280 --> 0:01:12.960 meets some of the criteria. So then to turn around 0:01:13.200 --> 0:01:14.840 and a most in the same breath asked them to 0:01:15.280 --> 0:01:17.840 basically manipulate the currencies. To me, it just doesn't make 0:01:17.840 --> 0:01:20.480 any sense. Um, you know, they hit the headline yesterday. 0:01:21.200 --> 0:01:24.080 I don't think it's something that really China can really 0:01:24.120 --> 0:01:26.440 commit to. I mean they are you know, opening up 0:01:26.840 --> 0:01:30.800 um uh their economy and markets, the more market forces, 0:01:31.280 --> 0:01:32.800 and to be quite honest, I don't think they want 0:01:32.800 --> 0:01:34.399 to really lose that the career freedom. I mean that 0:01:34.480 --> 0:01:36.520 is if you go into some sort of pig or 0:01:36.600 --> 0:01:39.959 quasi pig uh, you know, you you lose some degrees 0:01:39.959 --> 0:01:42.520 of freedom in terms of running monetary policy. And and 0:01:42.520 --> 0:01:44.959 it's and given how many balls that the Chinese policy 0:01:45.000 --> 0:01:49.640 makes a juggling right now in terms of structure reforms, uh, 0:01:49.720 --> 0:01:51.760 secular slowdown, etcetera, I don't think that's something they want 0:01:51.760 --> 0:01:53.560 to give up. So you know, it's one of those 0:01:53.560 --> 0:01:56.480 things that there's traveling that's being out there. Um you 0:01:56.520 --> 0:01:58.680 know I I I personally if they agreed to it. 0:01:58.680 --> 0:01:59.960 It's not. I don't think it's something that they can 0:02:00.080 --> 0:02:03.720 held to. Yeah, I gotta I gotta admit I was 0:02:04.240 --> 0:02:07.400 struck by the same idea that basically the US has 0:02:07.440 --> 0:02:11.040 been yelling at China all of these years for manipulation 0:02:11.160 --> 0:02:14.120 not only of currency but also of of its companies. 0:02:14.160 --> 0:02:16.360 And so then turn around and say, please manipulate them 0:02:16.360 --> 0:02:19.079 because otherwise your currency is going to weaken too much? 0:02:19.560 --> 0:02:23.679 Is head scratching at best? I'm wondering, do you buy 0:02:23.720 --> 0:02:26.840 that the U n would weaken considerably versus a dollar 0:02:27.200 --> 0:02:31.000 if it were allowed to float freely? Well, I think 0:02:31.040 --> 0:02:33.280 part of that question has to be, uh, frame within 0:02:33.560 --> 0:02:35.600 sort of the view of what what do I? What 0:02:35.639 --> 0:02:37.079 do you? What do I think of em? Because we 0:02:37.120 --> 0:02:39.519 when I say that, is that the correlation between the 0:02:39.560 --> 0:02:41.720 you want exchange rate and for instance, the e M 0:02:41.800 --> 0:02:44.959 s c I e M affects index is up around seventy, 0:02:45.760 --> 0:02:49.200 which is a hugely a huge jump from what used 0:02:49.200 --> 0:02:51.560 to be and what that reflects to me. You know, 0:02:51.560 --> 0:02:53.080 of course it's still a black box, but to me, 0:02:53.240 --> 0:02:57.120 you know, the PBOC fixes still fixes the you want 0:02:57.120 --> 0:02:58.960 to exchange rea and allows to fuctuat in a certain ban, 0:02:59.520 --> 0:03:02.880 but it tells me that this black box fixing mechanism 0:03:03.320 --> 0:03:06.640 is has for better for worse introduced. Uh, you know, 0:03:06.919 --> 0:03:09.440 a more market forces into the exchange rate. That is, 0:03:09.480 --> 0:03:11.960 it's moving along with the rest of EM. So I 0:03:11.960 --> 0:03:13.959 happen to be a little bit more negative on EM 0:03:14.000 --> 0:03:16.280 than many I think out out there. I think there's 0:03:16.280 --> 0:03:18.200 s some issues out quite a few issues out there. 0:03:18.240 --> 0:03:20.920 That's that's that's weighing on EM. SO I'm looking at 0:03:20.919 --> 0:03:24.000 through a lens of uh sort of, I see EM 0:03:24.040 --> 0:03:27.920 weakness in this year, in two thousand nineteen. So my 0:03:28.560 --> 0:03:30.240 view would be that the you want to probably weakend 0:03:30.240 --> 0:03:32.399 as well along with the rest of EM. So Dr 0:03:32.480 --> 0:03:35.560 Thinn So, given that you know the U. S And 0:03:35.640 --> 0:03:38.480 Chinese negotiators are back at it trying to hammer out 0:03:38.480 --> 0:03:41.920 a trade deal, what is your sense of the what 0:03:42.040 --> 0:03:43.920 will come out of those negotiations and how does that 0:03:44.000 --> 0:03:46.800 impact your view of the dollar? Sure, you know, you 0:03:46.880 --> 0:03:48.720 probably know, yeah, and you guys have been caring at 0:03:48.720 --> 0:03:50.600 a lot of the you know, the news and quite 0:03:50.600 --> 0:03:54.360 timely fashion that we're playing sort of headline ping pong 0:03:54.480 --> 0:03:57.280 right now. But for the most part, we're seeing some 0:03:57.320 --> 0:04:00.400 constructive comes from both sides. This is quite fence from 0:04:00.440 --> 0:04:03.119 back in December, when, if you recall, the US put 0:04:03.120 --> 0:04:05.800 it their span on the Chinese didn't even bother putting 0:04:05.840 --> 0:04:08.600 out any response. So they can they show the lines 0:04:08.640 --> 0:04:11.200 communication and better. Their meetings are much more frequent. Remember 0:04:11.200 --> 0:04:13.480 that we just ended a round in Beijing last week. 0:04:13.480 --> 0:04:16.680 They're here in DC this week. So it's definitely picking 0:04:16.720 --> 0:04:18.200 up all that you have to. Because we have the 0:04:18.200 --> 0:04:21.919 March first deadline, I think most participants in the market 0:04:21.920 --> 0:04:24.640 believe there will be some sort of delay. Despite all 0:04:24.640 --> 0:04:27.560 this positive talk about some progress, it seems that the structure, 0:04:28.400 --> 0:04:31.200 the speaking points of structural reform issue in China, and 0:04:31.240 --> 0:04:34.280 I don't have something that can resolve in two weeks. 0:04:34.320 --> 0:04:37.160 So you know, we've heard comments that we could get 0:04:37.160 --> 0:04:39.560 a sixty day extension, and that's probably sort of the 0:04:39.600 --> 0:04:41.600 base case, and I think the market would actually I 0:04:41.680 --> 0:04:43.480 think that it's positive that we're just even though it's 0:04:43.480 --> 0:04:45.400 pretty much like you know, taking the can down the road, 0:04:46.360 --> 0:04:47.599 you know, from the long term, as you I do 0:04:47.640 --> 0:04:49.440 think they'll come up with some sort of face saving 0:04:50.240 --> 0:04:52.800 compromise that both sides can say the claim victory. Now, 0:04:53.520 --> 0:04:57.080 I don't think it's gonna be some huge shift in 0:04:57.080 --> 0:05:00.280 what in in UM trading relations. I saw it would 0:05:00.279 --> 0:05:01.640 be more long lines what we saw with NAFTA to 0:05:01.800 --> 0:05:03.840 oh just just sort of you know, sort of some 0:05:04.080 --> 0:05:05.680 tweaking here and there. But you know, it's not gonna 0:05:05.680 --> 0:05:07.560 be the greatest trade deals. And Slice Bread, which is 0:05:08.120 --> 0:05:12.000 with spun slice Bread was was a fantastic trade deal. 0:05:12.360 --> 0:05:14.560 Dr Thin, I do want to get your sense going 0:05:14.600 --> 0:05:16.200 back to what you said about emerging markets and the 0:05:16.240 --> 0:05:19.320 correlation between the U N and it broad our emerging markets. 0:05:19.360 --> 0:05:21.640 In the past two days, the UN is weekend versus 0:05:21.640 --> 0:05:25.480 the dollar by the UH actually has strengthened versus the 0:05:25.560 --> 0:05:29.480 dollar UH the most since December and about two months. 0:05:29.480 --> 0:05:32.080 And I'm just wondering, I mean, do you think that 0:05:32.080 --> 0:05:34.839 that is idiosyncratic specific to the rumors that we have 0:05:34.920 --> 0:05:37.440 heard that the US is looking for this is part 0:05:37.480 --> 0:05:40.080 of the trade negotiations, a fixed UN and a sort 0:05:40.080 --> 0:05:42.240 of artificial propping it up. Or do you believe that 0:05:42.279 --> 0:05:45.159 this is sort of more optimism generally around emerging markets, 0:05:45.160 --> 0:05:47.720 whether or not it will last. Yeah, I know, I 0:05:47.720 --> 0:05:49.520 think it's the latter. If you look at the more 0:05:49.760 --> 0:05:51.640 MSCI I refer to the MSc I e m f 0:05:51.880 --> 0:05:55.360 X index. Uh, that's been up the last couple of days. Um, 0:05:55.360 --> 0:05:59.200 it's a multi uh week high, so you know, and 0:05:59.240 --> 0:06:01.560 in general it's also very high coal. You know, good 0:06:01.560 --> 0:06:04.680 news on sort of the US trade um front is 0:06:05.080 --> 0:06:08.280 tends to be reflected in an in a stronger EM currencies, 0:06:08.960 --> 0:06:11.320 also a stronger Ausie dollar, and that you know, there's 0:06:11.360 --> 0:06:13.920 a feedback loop between sort of wider e M and 0:06:13.920 --> 0:06:15.960 and and Yuan, I think, but you know, it's all 0:06:15.960 --> 0:06:17.920 sort of you know and in some ways made the 0:06:17.960 --> 0:06:21.040 two sides of the same coin. Um. You know again, 0:06:21.240 --> 0:06:24.919 um yea. As you know, Marcus Simmon, the pendulum swings 0:06:24.920 --> 0:06:26.960 back and forth extremes. I tend to think sort of 0:06:26.960 --> 0:06:29.320 maybe on the extremely positive side right now, I don't 0:06:29.360 --> 0:06:32.240 think I don't think a significant deal is is likely 0:06:32.800 --> 0:06:34.880 by the March first deadline. It's possible, but I don't 0:06:34.880 --> 0:06:37.320 think it's my base case. Um, and so we may 0:06:37.360 --> 0:06:40.000 see that Pengelum swing back a little bit, so dr thin, 0:06:40.839 --> 0:06:43.280 let's go ahead. No, good, I'm sorry, good, No. I 0:06:43.320 --> 0:06:44.679 think the one thing you have to sort of famous 0:06:44.760 --> 0:06:48.960 whole debate about EM is that the fact that the 0:06:49.080 --> 0:06:52.840 global growth outlook is you know, has worse than significantly 0:06:52.960 --> 0:06:55.760 in the last several weeks. You know, the drade out 0:06:55.760 --> 0:06:59.640 of Germany, UK, Japan and you know some except the 0:06:59.680 --> 0:07:02.400 U S and with retail sales shock or uh you know. 0:07:02.600 --> 0:07:04.440 To me, that's the really the most important thing I 0:07:04.480 --> 0:07:06.800 think going forward for EM is is what's the global 0:07:06.800 --> 0:07:08.440 grout growth outlook. And you know at this point there's 0:07:08.480 --> 0:07:11.160 a big, big question mark UM and we need more 0:07:11.160 --> 0:07:13.920 clarity on that so real quickly dr thin the other 0:07:13.960 --> 0:07:16.840 side of the world, halfway around the world. UM Brexit 0:07:17.000 --> 0:07:19.520 continues to be a very messy situation. Yet the Sterling 0:07:19.600 --> 0:07:21.800 kind of hangs in there around one thirty. What's your 0:07:21.840 --> 0:07:24.640 short term view on on sterling? Sure, you know again 0:07:24.880 --> 0:07:26.960 it's been just like just headlines up and down, the 0:07:27.080 --> 0:07:31.160 headline volatility, UM. I think to me, I think I 0:07:31.240 --> 0:07:33.120 can't take there would be welcome as well. There's been 0:07:33.120 --> 0:07:38.280 talk about extending the Article fifty deadline past the end 0:07:38.280 --> 0:07:41.400 of March. There was headlines in the last year so 0:07:41.480 --> 0:07:45.520 that they could somehow h a man the Irish pack stop. 0:07:45.560 --> 0:07:48.440 I still think that's that's something UK wants, but the 0:07:48.440 --> 0:07:50.600 the EU has made it clear that's a nonstarter, that 0:07:50.600 --> 0:07:53.840 that's non negotiable. So again, I think the pendulum sentiment 0:07:53.880 --> 0:07:55.480 has probably gone a little bit too far and son 0:07:55.560 --> 0:07:58.600 of getting a deal, um, it may swing back a 0:07:58.640 --> 0:08:00.559 little bit more towards the realism that you know, we're 0:08:00.560 --> 0:08:04.320 probably the can down the road. Uh, it just seems that, 0:08:04.360 --> 0:08:09.200 you know, the difference seemed too great to Dr Winton. 0:08:09.360 --> 0:08:10.840 Unfortunately we have to leave it there. Thank you so 0:08:10.920 --> 0:08:13.080 much for being with us, Dr Wintin, Global head of 0:08:13.120 --> 0:08:27.600 Currency Strategy for Brown Brothers Harriman in New York. Well, 0:08:27.640 --> 0:08:30.600 despite the winter storm that has descended upon our nation's capital, 0:08:30.640 --> 0:08:33.600 we still expect to get the minutes from the Federal 0:08:33.640 --> 0:08:37.520 Reserve meeting January meeting at two pm Eastern today, So 0:08:37.559 --> 0:08:39.800 it help us break down what we might see in 0:08:40.120 --> 0:08:43.360 those minutes. As Danielle di Martino booth. Danielle is the 0:08:43.440 --> 0:08:48.360 CEO and Director of Intelligence at Quill Intelligence ll c UH. 0:08:48.600 --> 0:08:51.800 She was also a former advisor at the Dallas Federal Reserve, 0:08:51.880 --> 0:08:54.679 and she is a Bloomberg Opinion economist. Danielle, thanks so 0:08:54.760 --> 0:08:58.959 much for joining us here two o'clock. Despite the storm, 0:08:59.000 --> 0:09:01.680 we should get the minute. What are you expecting to see? 0:09:01.800 --> 0:09:04.080 What are you looking for? Well, I'm expecting to see 0:09:04.120 --> 0:09:07.520 an elaboration on the chatter that we know has been 0:09:07.520 --> 0:09:10.760 going on behind closed doors about that balance sheet um. 0:09:10.840 --> 0:09:13.839 In j Pal's press press conference, he said that over 0:09:13.880 --> 0:09:17.400 the next several meetings they would determine what the thresholds 0:09:17.400 --> 0:09:19.760 would be with the benchmarks are such that they were 0:09:19.800 --> 0:09:23.680 to either potentially taper, but that's looking less likely after 0:09:23.800 --> 0:09:27.240 Mesters comments that said that that quantitative tightening would stop 0:09:27.240 --> 0:09:30.680 on a dime. They wouldn't taper the quantitative tightening, But 0:09:30.920 --> 0:09:33.000 I think the minutes today are going to reveal more 0:09:33.040 --> 0:09:36.600 details about what that process is going to be, what 0:09:36.679 --> 0:09:40.120 economic thresholds will be hit such that they would also, 0:09:40.160 --> 0:09:43.360 in addition to stopping the rate hikes, also stopped shrinking 0:09:43.360 --> 0:09:45.440 the balance sheet. So we've talked with a lot of 0:09:45.440 --> 0:09:49.440 investors and analysts who are still expecting one two more 0:09:49.600 --> 0:09:52.840 rate hikes later this year. Do you think that the 0:09:52.840 --> 0:09:55.120 Federal Reserve is going to hike rates again in this 0:09:55.240 --> 0:09:58.640 credit cycle? No, I think that that train has left 0:09:58.640 --> 0:10:00.800 the station at this point. I don't. I don't think that. 0:10:00.920 --> 0:10:02.880 In in a recent speech when he was up on 0:10:02.920 --> 0:10:05.319 stage with Bernakey and Yell and famously, I don't think 0:10:05.320 --> 0:10:07.200 that he would have opened the door to quantitative easing, 0:10:07.400 --> 0:10:10.360 which he reiterated in a subsequent appearance, if he had 0:10:10.520 --> 0:10:13.200 not already taken rate hikes completely off the table. Do 0:10:13.240 --> 0:10:15.200 you think that today's meeting minutes are going to show this? 0:10:15.720 --> 0:10:18.719 I certainly do. I do, and and so that is 0:10:18.760 --> 0:10:22.120 going to be positive for markets, right Well, I think 0:10:22.120 --> 0:10:25.920 that markets have already priced in the positivity in today's minutes, 0:10:26.400 --> 0:10:29.200 So I think that anything shy of the devishness that's 0:10:29.240 --> 0:10:32.680 anticipated will be very unwelcome news. So that the market 0:10:32.720 --> 0:10:36.440 has gotten fairly fairly ahead of itself. So, Danielle, we've 0:10:36.440 --> 0:10:39.280 had the markets experience a tremendous amount of volatility in 0:10:39.320 --> 0:10:42.439 December then kind of coming back reversing itself in January. 0:10:42.559 --> 0:10:44.120 So far this year to date, a lot of it 0:10:44.160 --> 0:10:46.800 was due to the Fed in the in the changing 0:10:46.840 --> 0:10:50.400 positioning and policy and commentary and messaging. Do you think 0:10:50.400 --> 0:10:54.480 the Fed minutes today will shine a light on what happened? Well, 0:10:54.520 --> 0:10:57.760 I think that they will elaborate on the reasons that 0:10:57.880 --> 0:11:00.960 the Fed went on pause. It will go into some 0:11:01.000 --> 0:11:05.440 of the global economic um challenges that we've seen. Obviously, 0:11:05.440 --> 0:11:08.120 We've seen Germany and Italy week and even more. Uh, 0:11:08.240 --> 0:11:11.080 since then China is a train wreck. UM. So I 0:11:11.120 --> 0:11:14.240 think that it will detail some of the reasons globally 0:11:14.280 --> 0:11:17.200 and even here at home with housing UM being weak 0:11:17.520 --> 0:11:20.320 in terms of justifying their position. I think that there 0:11:20.320 --> 0:11:24.120 will be a lot of details. So out today, Golvins, 0:11:24.160 --> 0:11:28.320 Peter Oppenheimer and a Bloomberg television interview said that the 0:11:28.400 --> 0:11:32.320 expectations of recession have been overblown, and you can see 0:11:32.320 --> 0:11:37.320 this by the positive performance of both credit and equities. 0:11:38.160 --> 0:11:41.000 You disagree with that, why, well, I don't think that 0:11:41.040 --> 0:11:44.480 you can actually take back the lagged defects of the 0:11:44.559 --> 0:11:48.079 rate height of the rate tightening that has occurred. Uh. 0:11:48.120 --> 0:11:50.560 The LaGG defects on the economy take nine to twenty 0:11:50.559 --> 0:11:53.080 four months to settle in, so I don't think that 0:11:53.080 --> 0:11:56.800 those can necessarily be reversed. On a more fundamental level. UH. 0:11:56.880 --> 0:11:59.839 We follow at quil Intelligence very closely the breath of 0:12:00.160 --> 0:12:03.080 jobless claims, and as of last week we saw fifty 0:12:03.080 --> 0:12:05.920 three percent of states have rising year over year jobless claims. 0:12:06.200 --> 0:12:09.199 Challenge your grain Christmas layoff data. We've seen six straight 0:12:09.280 --> 0:12:12.480 months of year over year increases, and we know that 0:12:12.640 --> 0:12:14.760 the best year of M and A on record mergers 0:12:14.760 --> 0:12:17.080 and acquisitions on record, which was last year. We know 0:12:17.240 --> 0:12:21.160 that that realizing synergy, so to speak, means that when 0:12:21.200 --> 0:12:23.600 two companies get married, that there's going to be layoffs 0:12:23.640 --> 0:12:26.280 that follow. And indeed that is the fastest growing category 0:12:26.559 --> 0:12:30.040 of reasons behind layoffs. So we we we think that 0:12:30.040 --> 0:12:32.280 this fifty three of states is going to increase. It's 0:12:32.320 --> 0:12:34.680 just two percent just over a year ago, So we 0:12:34.720 --> 0:12:37.080 think that that's going to increase, and that that alone 0:12:37.200 --> 0:12:39.599 states that if you've got rising joblessness, you've got a 0:12:39.720 --> 0:12:42.880 rising probability of a recession. So, Daniel, you're the author 0:12:42.920 --> 0:12:44.480 of a book who's title I just love. I think 0:12:44.480 --> 0:12:47.360 it's great, just titled fed Up and Insiders take on 0:12:47.400 --> 0:12:50.480 why the Federal Reserve is bad for America? Why is 0:12:50.480 --> 0:12:53.120 the Federal Reserve bad for America? In your opinion, Well, 0:12:53.160 --> 0:12:55.640 I'm I'm an old uh. I guess I'm an old 0:12:55.679 --> 0:12:59.920 markets veteran who took securities pricing way back when mark 0:13:00.000 --> 0:13:03.640 It's actually determined prices. And you know, back in in 0:13:03.640 --> 0:13:07.040 the aftermath of of Black Monday, Alan Greenspan started leaking 0:13:07.080 --> 0:13:10.040 information to fix and come trading desks ahead of FED 0:13:10.080 --> 0:13:12.480 moves to inject liquidity into the markets. This is a 0:13:12.480 --> 0:13:15.400 matter of public record. And as the years went by, 0:13:15.559 --> 0:13:17.400 every time there was a bigger hiccup, whether it was 0:13:17.440 --> 0:13:20.800 long term capital management blowing up or San Diego and 0:13:21.240 --> 0:13:24.880 in the municipal bankruptcy, whatever it was, every time there 0:13:25.040 --> 0:13:27.160 was the need for the FED to step in, they 0:13:27.280 --> 0:13:29.920 had to step in in a bigger way. And I 0:13:29.960 --> 0:13:35.360 think intervening in market functionality is inherently not non American. 0:13:35.720 --> 0:13:39.320 Given the fact that real rates right now are not 0:13:39.400 --> 0:13:42.520 much above zero, do you think that the FED is 0:13:42.600 --> 0:13:46.000 out of ammunition to counter the next downturn? I think 0:13:46.000 --> 0:13:48.760 it's going to be very difficult. I'm not sure how 0:13:48.840 --> 0:13:52.240 quickly we will recapture the zero bound, but I think 0:13:52.240 --> 0:13:55.080 Powell's understanding that we will go back to zero is 0:13:55.120 --> 0:13:57.680 what has opened the door to his discussing quantitative easing 0:13:58.120 --> 0:14:00.600 real quick. Here. Where do you think the next credit 0:14:00.640 --> 0:14:02.960 crisis is going to be? You know, it's hard to say, 0:14:02.960 --> 0:14:04.480 but I would have to say that with all the 0:14:04.520 --> 0:14:07.120 negative yielding corporate debt in Europe and the fact that 0:14:07.120 --> 0:14:10.960 the ECB was able to to to intervene in that 0:14:11.000 --> 0:14:13.920 market and to purchase bonds in that market, suggests to 0:14:13.960 --> 0:14:16.680 me that that is the most overvalued credit market in 0:14:16.720 --> 0:14:20.000 the world. Negative yielding debt still eight trillion dollars or 0:14:20.040 --> 0:14:24.240 more out there of such debt, which defies logic to 0:14:24.280 --> 0:14:28.800 pay a borrower to borrow money from you. Danielle D. 0:14:28.920 --> 0:14:31.720 Martino Booth, thank you so much for being here. Danielle D. 0:14:31.800 --> 0:14:35.280 Martino Booth is chief executive of Quill Intelligence l l C. 0:14:35.520 --> 0:14:38.120 Also a former advisor at the Dallas Federal Reserve and 0:14:38.120 --> 0:14:42.040 a Bloomberg opinion columnist, author of Fed Up and Insiders 0:14:42.080 --> 0:14:54.880 take on why the Food Reserve is bad for America. 0:14:55.520 --> 0:14:58.840 Earnings recession is upon us. That is what we keep 0:14:58.840 --> 0:15:02.480 hearing from a lot of analysts across Wall Street. But 0:15:02.520 --> 0:15:04.760 the question is doesn't really matter when it comes to 0:15:04.960 --> 0:15:07.880 how much stocks can rally and is it so bad 0:15:07.960 --> 0:15:10.840 other than they are words sounding just terrible. Joining us 0:15:10.840 --> 0:15:13.520 here in the Bloomberg Interactive Broker Studios is nickole As, 0:15:13.600 --> 0:15:16.640 co founder of Data Trek Research l l SEE. Also 0:15:16.680 --> 0:15:19.240 a Bloomberg opinion columnist, Nick, thank you so much for 0:15:19.320 --> 0:15:22.200 being here. Also a fellow University of Chicago grad. I 0:15:22.240 --> 0:15:24.440 had through that throw that in, So let's talk about this. 0:15:25.080 --> 0:15:28.120 Are we looking at an earnings recession? Here in nine 0:15:28.400 --> 0:15:30.800 and does it matter. The short answer on point one 0:15:30.880 --> 0:15:33.360 is we absolutely are. First quarter earning should be down 0:15:33.360 --> 0:15:36.560 about two two point two percent. Second quarter expectations are 0:15:36.640 --> 0:15:38.960 running one percent, but they were two percent a month ago, 0:15:39.000 --> 0:15:42.400 so we'll certainly see analysts cut those numbers too negative quarters. 0:15:42.400 --> 0:15:44.240 That's an earnings recession. And now we kind of know 0:15:44.240 --> 0:15:45.960 why the market fell apart in the fourth quarter of 0:15:46.040 --> 0:15:48.440 last year. It was discounting this As far as what 0:15:48.520 --> 0:15:53.200 it means for the future, not very much. I mean, analysts, markets, investors, 0:15:53.200 --> 0:15:55.120 they're all looking for a settlement to the trade deal 0:15:55.320 --> 0:15:58.040 to reignitet liibal economic growth and get the second half 0:15:58.080 --> 0:16:00.200 earnings back on track. And that's why we're rallying this year. 0:16:00.480 --> 0:16:02.800 So Nick, I was a former sell side analyst, So 0:16:02.920 --> 0:16:05.440 I'm trying to ask you, how do you use sell 0:16:05.480 --> 0:16:07.440 side research these days and what do you think they're 0:16:07.480 --> 0:16:09.160 getting right and wrong as they think about earnings for 0:16:09.160 --> 0:16:11.360 next year? For example? Yeah, I was also a sell said, 0:16:11.480 --> 0:16:13.680 let's spen spent a decade the old First Boston covering 0:16:13.680 --> 0:16:16.160 the autos in the nineteen nineties. I was there as well, 0:16:16.680 --> 0:16:20.200 And so you know, analysts, industry analysts do one thing 0:16:20.320 --> 0:16:23.040 very well. They analyze the industry and they try to 0:16:23.080 --> 0:16:26.040 factor all those things into their earnings models. But they 0:16:26.040 --> 0:16:28.480 are generally late to cut numbers, as we all know. 0:16:28.960 --> 0:16:31.320 So we should have been seeing number cuts all the 0:16:31.360 --> 0:16:33.160 way through the middle half of the middle and back 0:16:33.160 --> 0:16:35.480 half of last year. We're only getting them now. And 0:16:35.520 --> 0:16:37.400 that kind of tells you that the market was ahead 0:16:37.440 --> 0:16:40.800 of the analysts. And they usually are priced typically leads fundamentals, 0:16:40.800 --> 0:16:45.800 and this is no exception, So don't use them, So 0:16:45.960 --> 0:16:48.480 use them for what they're sorry, I mean, let's take 0:16:48.520 --> 0:16:51.120 this to the logical stuff. Here are they useful? They 0:16:51.160 --> 0:16:53.720 are useful from two perspectives. First, they have a deep 0:16:53.720 --> 0:16:56.400 industry knowledge, and if you want to be a fundamental investor, 0:16:56.520 --> 0:16:59.880 you need that information. And somebody, particularly the analysts that 0:17:00.040 --> 0:17:02.680 have ten twenty years of experience covering a sector, they're 0:17:02.760 --> 0:17:05.159 very useful to understand the sector and the managements and 0:17:05.160 --> 0:17:08.159 everything else. If you want to understand where the market's going, though, 0:17:08.200 --> 0:17:10.040 you've got to be thinking about where the analysts will 0:17:10.040 --> 0:17:12.480 be taking their numbers versus what they're doing with them 0:17:12.520 --> 0:17:15.800 right now. Well that sounds like an ad for Bloomberg Intelligence. Um. 0:17:15.880 --> 0:17:18.440 But Nick, So when you think about the market, how 0:17:18.680 --> 0:17:21.639 how important are some of these geopolitical macro issues, whether 0:17:21.640 --> 0:17:24.000 it's you know, the trade deal with China, you know, 0:17:24.480 --> 0:17:27.119 a Brexit deal. You know, that sounds a lot more 0:17:27.160 --> 0:17:29.280 macro obviously than some of the micro levels you were 0:17:29.280 --> 0:17:33.080 talking about. For the moment, macro really trumps everything else, 0:17:33.119 --> 0:17:35.760 I think in the US equity market because the near 0:17:35.880 --> 0:17:38.200 term fundamentals, both in the US and around the world 0:17:38.240 --> 0:17:40.679 are kind of sluggish. We're seeing a possible recession in 0:17:40.720 --> 0:17:44.280 parts of Europe, China, slowing. US retail sales and other 0:17:44.359 --> 0:17:46.639 data have been kind of sloppy, and so the markets 0:17:46.640 --> 0:17:50.400 are really hinging on whether or not we get a good, descriptive, 0:17:50.640 --> 0:17:53.600 detailed trade deal between the US and China that then 0:17:53.680 --> 0:17:57.080 gives both corporates and investors confidence to invest in the 0:17:57.119 --> 0:18:00.560 back half of the year. Okay, So Christian christnam Money 0:18:00.600 --> 0:18:03.760 of Oppenheimer Funds was on Blueberg Television earlier this morning, 0:18:03.760 --> 0:18:06.119 and he was saying he could see this credit cycle, 0:18:06.240 --> 0:18:10.399 this rally and markets continuing for five more years. Is 0:18:10.440 --> 0:18:16.960 that feasible to you? Anything is possible. Let's not get 0:18:17.000 --> 0:18:21.639 into relatives. Were philosophical. We're ten years into a recovery. 0:18:21.680 --> 0:18:23.640 In practical terms, if you sort of give a pass 0:18:23.680 --> 0:18:25.720 to two thousand and eleven, right, but they don't die 0:18:25.720 --> 0:18:28.000 of old aged YadA, YadA. I mean, is if you 0:18:28.320 --> 0:18:31.720 is it, is it a likely outcome to you? Likely? No, possible? Yes, 0:18:31.760 --> 0:18:36.000 I would give odds odds, you know with some of 0:18:36.080 --> 0:18:37.960 New York term issues like we're getting this year with 0:18:38.000 --> 0:18:40.760 this bump in the road with earnings. Um. But you know, 0:18:41.880 --> 0:18:43.679 cycles tend to form for a reason and tend to 0:18:43.680 --> 0:18:46.120 repeat for a reason. People get too enthusiastics at the top, 0:18:46.359 --> 0:18:48.119 they take on too much credit, and then you have 0:18:48.160 --> 0:18:50.639 an economic downturn and the leverage kills him. But we 0:18:50.720 --> 0:18:53.840 have heard very little enthusiasm. I mean, let's be very honest. 0:18:53.880 --> 0:18:57.280 People have been bearished upon parish doubling down on parishness 0:18:57.480 --> 0:18:59.920 for the past ten years. Yes, but I mean it's 0:19:00.160 --> 0:19:03.000 in in a you know, historically low indest rate environment. 0:19:03.280 --> 0:19:06.199 You know, how crazy was that in hindsight? But how 0:19:06.240 --> 0:19:08.280 about the volatility nick that we've been dealing with just 0:19:08.320 --> 0:19:10.159 over the last couple of three months. How does that 0:19:10.200 --> 0:19:13.160 factor into your analysis? I mean we've been whipsawed December 0:19:13.280 --> 0:19:15.720 versus year to day nineteen. How does that factor in 0:19:16.480 --> 0:19:17.879 we have in whip saw, but I would put it 0:19:17.920 --> 0:19:20.520 into a larger historical context. So, for example, a third 0:19:20.600 --> 0:19:23.840 quarter of the last year SMP had no one percent days, 0:19:24.040 --> 0:19:25.960 meaning it didn't move more than one percent in any 0:19:26.000 --> 0:19:28.840 given day. Same with Q four of seventeen. You have 0:19:28.880 --> 0:19:31.120 to go back to the early nineteen sixties to see 0:19:31.280 --> 0:19:34.320 entire quarters where there was no volatility of that nature 0:19:34.400 --> 0:19:36.840 one percent days. So in the grand scheme of things, 0:19:36.840 --> 0:19:39.680 we're reverting back to a norm, to a mean. On average, 0:19:39.720 --> 0:19:41.640 the SMP will have a one percent day every week 0:19:41.680 --> 0:19:44.719 of the year. That's the average. Back to Nick real 0:19:44.800 --> 0:19:47.120 quick here you were saying that you think that things 0:19:47.160 --> 0:19:48.960 are going to be driven much more by the macro, 0:19:49.119 --> 0:19:54.679 but we have seen sectors go through downturns, housing, energy. 0:19:54.880 --> 0:19:57.360