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Speaker 1: Welcome to the Bloomberg p m L Podcast. I'm pim Fox.

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Speaker 1: Along with my co host Lisa Bramowitz. Each day we

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Speaker 1: bring you the most important, noteworthy, and useful interviews for

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Speaker 1: you and your money, whether you're at the grocery store

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Speaker 1: or the trading floor. Find the Bloomberg p m L

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Speaker 1: Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot Com. Right now,

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Speaker 1: let's turn back to markets. We are broadcasting live from

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Speaker 1: the Bloomberg Interactive Broker's studios, and we have with us.

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Speaker 1: We are very lucky to say Phil Orlando, chief Equity

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Speaker 1: Market Strategistic Federated Investors here in the studio. Um, Phil,

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Speaker 1: so can you give us a sense? Let's start with

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Speaker 1: the yields, the rising US yields and how much that

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Speaker 1: will just sort of de facto put a halt to

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Speaker 1: the rally in stocks. How worried are you? Have we

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Speaker 1: reached the tipping point? Well, I don't think we've reached

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Speaker 1: the tipping point now. Our target for benchmark ten year

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Speaker 1: treasury yields at the end of this year was three

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Speaker 1: and a quarter percent. We're there, so we're not the

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Speaker 1: least bit concerned about that. What does concern us is

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Speaker 1: the rapidity of the move. We've gone from three oh

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Speaker 1: five to three and a quarter in what a week?

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Speaker 1: So I think the markets looking at that and freaking

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Speaker 1: out and saying, Okay, if we went up, you know,

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Speaker 1: twenty bases points in a week, what are we going

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Speaker 1: to do over the course of the next month or

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Speaker 1: the next quarter. We're looking at you know, five percent

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Speaker 1: treasury yields by the end of the year. Okay, fair enough,

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Speaker 1: But what is the tipping point? Is there sort of

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Speaker 1: a number with the ten year treasure yield at which

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Speaker 1: the equity markets just cannot rally anymore? Well, in our view,

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Speaker 1: that number historically has been five percent, and five percent

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Speaker 1: is the point at which you begin to see massive

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Speaker 1: disinter mediation from the risky asset stocks into the risk

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Speaker 1: free asset bonds because the yield is attractive. And then

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Speaker 1: as as yields continue to rise six percent seven percent,

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Speaker 1: pe s actually contract up until five pace historically expand

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Speaker 1: so why is that? Well, as as as economy has

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Speaker 1: come out of recession, as economic growth perks up, as

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Speaker 1: inflation starts to perk up, as the Fed is tightening policy,

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Speaker 1: is yields arising, all of that is good for corporate

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Speaker 1: earnings because it means that the economy is strong. The

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Speaker 1: five percent level historically has been the tipping point because

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Speaker 1: you've got the risky versus you know, risk free inflection

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Speaker 1: point that starts to take money away from from the

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Speaker 1: equity market. Now that there are some who argue, well, okay,

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Speaker 1: this time is different. Five percent won't be the inflection point.

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Speaker 1: Maybe it's four percent, maybe it's three and a half percent.

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Speaker 1: And I'm sensitive to the fact that people think that

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Speaker 1: the lower numbers right this cycle. But let me point

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Speaker 1: out that the foremost dangerous words in the English language,

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Speaker 1: this time it's different. Phil Orlando Jamie Diamond, chief of

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Speaker 1: JP Morgan Chase, says that people should prepare for US

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Speaker 1: yields of five percentage you just described, and he believes

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Speaker 1: that the yield on the benchmark tenure Treasury could reach

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Speaker 1: four percent this year and perhaps even five or higher

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Speaker 1: next year. He says, you better be prepared to deal

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Speaker 1: with these rates. Are clients and customers prepared? Um? Certainly not.

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Speaker 1: Our clients are customers because our forecast is not Jamie's forecast.

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Speaker 1: We thought that treasury yields would get to three and

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Speaker 1: a quarter percent this year they have. We think they'll

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Speaker 1: get to three and a half percent next year. Uh.

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Speaker 1: You know, Jamie thinks probably will get there by Thanksgiving

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Speaker 1: this year. Uh. And then our expectation is that as

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Speaker 1: the bond vigilantes begin to look out into the back

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Speaker 1: half of or the early part of one and see

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Speaker 1: some seeds of slowing economic growth, we actually might see

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Speaker 1: a rally in bonds from three and a half percent,

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Speaker 1: taking yields back down. So if Mr Diamond things that

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Speaker 1: we're looking at a five percent treasury over the next

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Speaker 1: couple of years, he's got to believe that there's much

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Speaker 1: stronger economic growth, much greater inflationary pressures in the pipeline

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Speaker 1: that will emanate over the course of the next couple

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Speaker 1: of years. All Right, So you sound like you are bullish.

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Speaker 1: You are sounding like you don't see treasure yields rising

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Speaker 1: to the point of stimming the rally and equities, So

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Speaker 1: are you out there buying the dips at this point?

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Speaker 1: We will. We're monitoring that there are a couple of

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Speaker 1: things that we look at. There's an interesting confluence of

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Speaker 1: three indicators that are looking interesting. UH stocks oversold, bonds overbought,

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Speaker 1: and UH bonds over sold and and uh, and the

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Speaker 1: vics over bought. Uh. And those things are are are

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Speaker 1: shaping up right now. So I don't know if today

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Speaker 1: is the day or if tomorrow is the day. But

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Speaker 1: as I look out at the market, over the course

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Speaker 1: of the next month or so, there are several positive

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Speaker 1: catalysts that I think will rever this recent weakness. Uh.

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Speaker 1: You've got corporate earnings starting later this week, including Mr

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Speaker 1: Diamond's firm. I'm expecting his company is going to produce

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Speaker 1: some pretty good numbers along with others. We're thinking that

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Speaker 1: corporate earnings are going to plus for the large gaps

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Speaker 1: this quarter. Uh. We've got the flash report from the

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Speaker 1: Commerce Department on third quarter g d P, which will

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Speaker 1: be out. I believe October. We've got three point four

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Speaker 1: percent is our number. It federated. I think the Atlanta Fed,

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Speaker 1: for example, I might have a four handle on their number. Uh.

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Speaker 1: And then we've the midterms are going to be over

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Speaker 1: in a month and and all of this noise and

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Speaker 1: nonsense will be behind us. There will be some certainty. R. Really,

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Speaker 1: we're gonna quote you on on that one. I want

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Speaker 1: to ask him more a more everyday question. Shot. So

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Speaker 1: far this month, the SMP five hundred is down a

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Speaker 1: little bit more than one. What is the number based

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Speaker 1: on your experience where the customer and the client starts calling, well, uh,

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Speaker 1: you know that becomes more of a technical question or

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Speaker 1: anything else. So so typically him the third quarter of

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Speaker 1: a midterm election year, a year like this tends to

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Speaker 1: be a really sloppy quarter. Well, the month of September. Uh,

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Speaker 1: we're up seven percent or something in the month of September.

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Speaker 1: It was the best month we've seen in like five

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Speaker 1: years or something like that, or numbers have been strong. Um.

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Speaker 1: I like to look at more at peaks to troughs,

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Speaker 1: and and this little correction that we're seeing in the

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Speaker 1: large cap market right now is about three or four percent,

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Speaker 1: in the small cap market is about seven or eight percent.

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Speaker 1: These are healthy corrections, and what I'd like to see

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Speaker 1: is some pull back to some longer term support levels

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Speaker 1: in conjunction with continued solid fundamentals. We talked about a

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Speaker 1: couple of things GDP growth, corporate earnings growth that become

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Speaker 1: sort of buy signals for us. So I'm not ready

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Speaker 1: to pull the trigger right this second. But I'm not

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Speaker 1: getting panicked by this at all. I'm more inclined to

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Speaker 1: be buying at the margin than selling, depending upon how

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Speaker 1: events play out over the next few weeks. So which

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Speaker 1: sectors are you looking to potentially buy when you get

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Speaker 1: that valuation that looks attractive? There are two areas that

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Speaker 1: just look extraordinarily interesting to us. UH domestic large cap

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Speaker 1: value has underperformed growth by something like thirty percentage points

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Speaker 1: over the last two years. Financials, industrials, and energy at

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Speaker 1: the top of that list. And then small cap stocks

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Speaker 1: as I said of pulled back seven or eight percent

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Speaker 1: here over the last month or so. For a number

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Speaker 1: of reasons. We think that the small cap rally we've

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Speaker 1: seen earlier this year has legs. UH and UM I

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Speaker 1: think small caps are are are oversold at this point

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Speaker 1: and and will rally, will resume their rally later this year.

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Speaker 1: Where's the money going to come from? It to come

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Speaker 1: out of bonds? Because if Jamie Diamonds right and treasury

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Speaker 1: yields go to five percent, we're sitting at three and

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Speaker 1: a quarter right now. I don't know why you'd want

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Speaker 1: to be long a treasury in this environment. Okay, but

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Speaker 1: if Phil Orlando is correct, you won't have been in bonds.

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Speaker 1: You will have been in stocks. Where's the new money

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Speaker 1: going to come from? Well, I still think we still

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Speaker 1: have a significant underweight in fixed income. We are five

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Speaker 1: percent overweight equities, five percent underweight cash. And if if

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Speaker 1: an investor is really interested at the three and a

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Speaker 1: quarter percent Treasury yield because they need the money, I

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Speaker 1: can show them our strategic value fund that's giving them

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Speaker 1: a five percent dividend yield right now. So so if

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Speaker 1: if money, if income is what they want, you can

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Speaker 1: do that in the stock market. You don't need bonds

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Speaker 1: to do that. And the risk of of of a

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Speaker 1: capital loss. All right, So what's the biggest risk to

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Speaker 1: your outlook right now? What could potentially happen that would

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Speaker 1: make you be wrong? Well, there's you know, I've got

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Speaker 1: a list of nine things to keep me awake at night.

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Speaker 1: I mean, I'm I'm I'm here talking my book and

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Speaker 1: sounding bullish, but that that doesn't mean there's nothing that's

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Speaker 1: going wrong in the world. And at the top of

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Speaker 1: the list is is the Federal Reserve gonna make a

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Speaker 1: policy here in the out years? I mean that concerns

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Speaker 1: me trade and tariffs that seems to be falling into place.

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Speaker 1: China is sort of the last man standing here. But

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Speaker 1: you know, are we're gonna be able to pull off

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Speaker 1: the last trick here and and get the trade and

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Speaker 1: tariff situation in good shape? The blue wave, I think

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Speaker 1: we're gonna end up with the split election. I think

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Speaker 1: the House probably flips, the Senate probably stays in Republican control.

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Speaker 1: But suppose the d's are on the table. Suppose we

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Speaker 1: spend the next two years going through impeachment proceedings, and

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Speaker 1: and that takes the focus away from you know, fiscal

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Speaker 1: policy and strong economic growth and strong corporate earnings growth.

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Speaker 1: So there's any number of things that can go wrong. Um,

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Speaker 1: and so you just, you know, you just have to

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Speaker 1: evaluate what's going on and try to get the best

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Speaker 1: information you can to your clients. So does all of

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Speaker 1: this day the same if oil remains that let's say

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Speaker 1: seventy four seventy five dollars a barrel for West Texas

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Speaker 1: Intermediate or eight plus when it comes to brand. Thank you,

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Speaker 1: I'll give your twenty dollars later. Excellent question. You know,

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Speaker 1: you pick up any newspaper in America and uh, you know,

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Speaker 1: headline writers or crewed gone back to the north of

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Speaker 1: a hundred dollars a barrel, and that just isn't happening.

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Speaker 1: The supply and demand in balance right now. Uh, we're

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Speaker 1: past the peak driving season. Uh, we're fracking to beat

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Speaker 1: the band. The Saudis and the Russians are continuing to pump. Okay.

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Speaker 1: I think they're going to offset the diminution of crude

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Speaker 1: that that we may lose that of Iran if if

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Speaker 1: these nuclear sanctions are reimposed. There is concern in the

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Speaker 1: Gulf right now with Hurricane Michael. Does that take any

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Speaker 1: refining capacity out? I understand all the near term noise,

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Speaker 1: but but our view is that the move up from

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Speaker 1: forty dollars a year and a half ago would sort

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Speaker 1: of settled into sixty five to seventy five barrel range.

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Speaker 1: We're at the top end of that range now, so

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Speaker 1: I'm I'm fine with with crude at seventy five, staying

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Speaker 1: within that sixty to seventy five. I don't think that

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Speaker 1: the newspapers are doing a good job getting everyone all

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Speaker 1: worked up with with hundred dollar plus crude. I don't

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Speaker 1: think crewdes going on a hundred dollars. It's not just

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Speaker 1: the headline writers though there's some pretty big analysts on

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Speaker 1: Wall Street Corp predicting a hundred dollars or more pre

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Speaker 1: barrel of oil, and the i A has come out

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Speaker 1: and said, you know, yeah, please pump morps so that

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Speaker 1: we can get the prices down. So it's not just

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Speaker 1: headline writers. There seems to be an increasing risk of that.

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Speaker 1: I'm just wroking that out there, and and that's fine.

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Speaker 1: Given the fact that the three largest producers in the

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Speaker 1: world at ten to eleven million barrels a day, of

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Speaker 1: the United States, the Russians and the Saudis, I think

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Speaker 1: will continue to pump when push comes to shove. We're

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Speaker 1: at a point in the cycle where the demand starts

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Speaker 1: to diminish. Obviously, we've got to watch the hurricane activity.

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Speaker 1: Obviously we've got to watch what's happening and rand. But

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Speaker 1: I think that this balances itself out and we'll be okay.

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Speaker 1: And I thought you were just going to tell us

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Speaker 1: that Jerry Jones and the Dallas Cowboys he wants to

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Speaker 1: buy more more assets in the in the shail play

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Speaker 1: with his comstock resources. I didn't hear that, so I

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Speaker 1: don't have any I don't have any knowledge about what

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Speaker 1: Mr Jones is doing. Are well done, Thanks very much

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Speaker 1: for sharing your knowledge with us. Phil Orlando is the

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Speaker 1: chief equity market strategist for Federated Investors and Lisa, I

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Speaker 1: think we can just call him a bull right now,

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Speaker 1: fish for now. Thanks for having me on, guys, it

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Speaker 1: is It is a treat to come out of this show.

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Speaker 1: You guys are terrific. Thank you. All right, we'll give

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Speaker 1: you the twenty dollars back, Thanks very much, Phil Orlando

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Speaker 1: of Federated Investors. Our guest is Carl Weinberg. He is

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Speaker 1: the chief economist for High Frequency Economics and you can

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Speaker 1: follow Carl on Twitter at c B Weinberg. Carl, can

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Speaker 1: you speak a little bit about fatigue when it comes

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Speaker 1: to global growth and particularly in the context of the

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Speaker 1: meetings that are scheduled to take place in Bali for

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Speaker 1: the International Monetary Fund? Yeah, Hi, Pam, good morning. So

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Speaker 1: you know, the i m F has been talking this

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Speaker 1: story for some time now. They're byline that their last

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Speaker 1: set of meetings was you know, is this as good

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Speaker 1: as it gets in the world economy? This time around,

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Speaker 1: they translated that into some numbers in their world economic outlook,

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Speaker 1: shaving down their growth rate. They still have a pretty

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Speaker 1: cheeky growth rate of three point seven percent for the

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Speaker 1: world economy, and they're the same for this year as

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Speaker 1: last year. But most importantly of all, the i m

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Speaker 1: F has a lousy record of predicting turning points in

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Speaker 1: the world economy. So this document is kind of provocative

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Speaker 1: and that it gives people something to think about. But

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Speaker 1: the IMF has missed every economic downturn over the last

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Speaker 1: twenty years in its world economic outlook. There should be

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Speaker 1: nothing new for investors in what came out of the

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Speaker 1: i m F today. All right, but Dr Weinberg, do

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Speaker 1: you agree with anything that they put out there, putting

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Speaker 1: aside their track recording. Yeah, I mean, I think that

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Speaker 1: the broad story is that there are risks of the

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Speaker 1: world economy coming from trade. There are I think bigger

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Speaker 1: risks out there that the fund mentions a little bit

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Speaker 1: deeper into the document. Higher US interest rates or a

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Speaker 1: drain on growth potential and disposable income for countries that

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Speaker 1: have a high foreign currency debts denominated in dollars. The

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Speaker 1: stronger dollar is also a drain. Higher oil prices are

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Speaker 1: also a drain. So we have clouds forming off of

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Speaker 1: the world economy, and we're starting to see that in

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Speaker 1: things like the industrial production number for Germany that came

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Speaker 1: out on Monday. We're starting to see it in slowing

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Speaker 1: GDP growth in places like Japan, uh and uh So. Overall,

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Speaker 1: I think the Fund's message is right on, but I

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Speaker 1: think that there's still probably more optimistic, and of history

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Speaker 1: is any guide. They are too optimistic about how this

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Speaker 1: is going evolve over the next year or two. Carl,

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Speaker 1: do you believe that the Chinese will be able to

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Speaker 1: outweight the United States when it comes to trade negotiations. Yeah,

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Speaker 1: I certainly think they will. I certainly think they have to.

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Speaker 1: The prize in all of this is China's industrial development policy,

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Speaker 1: the so called Made in China, and that's a program

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Speaker 1: in China to acquire the technology to produce seventy of

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Speaker 1: the stuff that goes into what they assemble and re export,

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Speaker 1: rather than thet that they currently produce at this time.

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Speaker 1: So that difference of the value of exports is a

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Speaker 1: trillion dollar a year prize that comes to China, and

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Speaker 1: that's what's really at stake. The US Trade Representative mentions

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Speaker 1: this program explicitly in its statements about the US tariffs

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Speaker 1: UM and China is never going to give that up.

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Speaker 1: So I think the Chinese have a big prize, a

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Speaker 1: big pay day at the end of the day for

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Speaker 1: sitting out the tariffs. I believe they will. Dr Carl Weinberg,

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Speaker 1: thank you so much for taking the time with us.

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Speaker 1: Dr Carl Weinberger's chief economist at High Frequency Economics. Talking

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Speaker 1: about the I m f S stellar track record, he

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Speaker 1: actually it doesn't put a whole lot of credis in that,

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Speaker 1: but it's definitely looking at the potential for slowing global growth.

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Speaker 1: Joining us now, Mark Lynde Bloom, portfolio manager for Western

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Speaker 1: Asset Management. Mark, thank you so much for being with us.

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Speaker 1: Can I just ask do you find treasuries attractive here

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Speaker 1: given how quickly yields have risen to seven year highs?

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Speaker 1: Good morning, Thanks for having me on The answer to

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Speaker 1: your question, as we do. We have for most of

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Speaker 1: the year had two reasons that we are favoring US treasuries.

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Speaker 1: First is that we thought the economic growth this year

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Speaker 1: next year would be a bit more moderate, and I

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Speaker 1: have to say we've been wrong on that given the

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Speaker 1: fiscal impulse that we've seen. Nonetheless, our economists here are

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Speaker 1: looking for somewhat slower growth versus what we've seen in

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Speaker 1: the middle part of this year, but most importantly from

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Speaker 1: a bond point of view, that inflation is going to

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Speaker 1: remain around two. The second reason I would say, though,

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Speaker 1: is it as important, and that is as part of

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Speaker 1: a fix income portfolio, we do want to have a

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Speaker 1: risk mitigator and insurance policy, if you will, just in

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Speaker 1: case we did start to see you slowdown or financial

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Speaker 1: conditions did start to pinch economies around the globe. Both

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Speaker 1: of those reasons, we are favoring favoring treasuries here a

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Speaker 1: little bit more even around across the curve than we

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Speaker 1: have in the past where we have focused on the

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Speaker 1: long end mark. Is that also the two reasons why

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Speaker 1: you're choosing now to issue and launch the first fixed

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Speaker 1: income exchange traded fund UH from Western Asset Management, the

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Speaker 1: Western Asset Total Return ets somewhat coincidental there. What we've

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Speaker 1: been here from the field UM and from those who

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Speaker 1: know Western well over the last four decades is they've

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Speaker 1: been looking for an additional vehicle besides the separately managed

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Speaker 1: portfolio or a mutual fund or a commingled vehicle, and

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Speaker 1: specifically an e t F. So from our point of view,

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Speaker 1: it's a it's a great question that it is a

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Speaker 1: different rapper, if you will, but it will be managed

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Speaker 1: pretty much the same as all the other vehicles with

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Speaker 1: all the same Western themes as part of the E

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Speaker 1: t F. All right, are you at all concerned about

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Speaker 1: revealing your secret sauce since you have to actually disclose

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Speaker 1: the holdings in real time basis of the E t

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Speaker 1: F Really not mean. We've been always very open about

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Speaker 1: what we are doing on a daily basis, so to

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Speaker 1: the extent that this is a little different and and

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Speaker 1: a from a formal point of view, it's uh, it

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Speaker 1: does not bother us in the least in terms of

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Speaker 1: letting letting that information out there. So can you give

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Speaker 1: me a sense here of what you would have done

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Speaker 1: or what you did do in the past week given

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Speaker 1: the sell off in in treasuries that we've seen, but

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Speaker 1: also the sell off an investment great debt in particular

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Speaker 1: that really has been quite quite significant. Yes, it has

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Speaker 1: been quite significant to your first part of your question.

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Speaker 1: As I mentioned a little bit earlier, in the last

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Speaker 1: several years, our clients have benefited from our dedication and

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Speaker 1: some would say stubbornness wanting to own the longest part

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Speaker 1: of the U S treasury curve, and that was based

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Speaker 1: upon our view that the said would very slowly increase rates.

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Speaker 1: In fact, they have done that, as we all know.

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Speaker 1: The expectation is they'll continue to do that, and we

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Speaker 1: are moving some of that contribution, if you will, or

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Speaker 1: that duration down into the short and intermediate part of

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Speaker 1: the YOK curve, just thinking it's their better value there

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Speaker 1: or fully reflect expectations on the part of the Fed

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Speaker 1: as we go into two thousand and nineteen, and as

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Speaker 1: we all know, there are now actually real yields. They're

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Speaker 1: they're they're quite attractive and our opinions, so that has

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Speaker 1: been a change. And then one of the things that

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Speaker 1: we've been doing over over the last week or so,

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Speaker 1: as as the as the market has been backing up

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Speaker 1: quite substantially on the non treasury sectors to your to

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Speaker 1: your question, we've been growing increasingly cautious, particularly towards the

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Speaker 1: corporate sectors, and particularly to the below investment grade corporate sectors,

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Speaker 1: where we've been taking our allocation to high yield and

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Speaker 1: bank loans lower investment grade corporates. We've been more neutral,

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Speaker 1: but our investment grade corporate team has been concentrating on

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Speaker 1: those sectors that we feel most good about it in

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Speaker 1: the late late stages of this economic cycle. The one

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Speaker 1: thing I'll add to that is that the one area

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Speaker 1: we do have higher conviction on is emerging markets, while

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Speaker 1: all the others we don't have that same high conviction,

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Speaker 1: or to put differently, we just don't think we're being

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Speaker 1: paid for the risk. When you mentioned emerging markets, do

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Speaker 1: you mean dollar denominated emerging market debt or local currency debt?

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Speaker 1: A little bit of both, quite selective, like we are

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Speaker 1: in every credit sector on those countries or those corporations

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Speaker 1: within those countries that we're choosing. But as you look

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Speaker 1: at our portfolios today, right across the board, were approximately

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Speaker 1: half the dollar the external debt, and we are approximately

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Speaker 1: half in some of the local bonds and local currencies.

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Speaker 1: There is an increasing sort of din out there that

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Speaker 1: the Federal Reserve is on the brink of a policy

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Speaker 1: error as it increases the pace of raising rates. Do

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Speaker 1: you do you agree with that? I mean, do you

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Speaker 1: think that that risk is growing stronger? I think we'd

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Speaker 1: have to acknowledge over the cycles that we've all lived through.

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Speaker 1: When you look at business slowdowns and actual recessions, there

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Speaker 1: are common themes as to why they come about in

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Speaker 1: terms of the FED being on the move, perhaps commodity

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Speaker 1: prices increasing, uh, some misallocation of capital, inventories, etcetera. So

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Speaker 1: we are not about to dismiss what's happening now in

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Speaker 1: terms of the FED being on the move uh and

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Speaker 1: planning to raise interest rates to neutral or beyond as

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Speaker 1: they've been saying recently. The thing that we all just

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Speaker 1: don't know how to weigh is this experiment we've been

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Speaker 1: conducting for now ten years. As we unwind that, and

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Speaker 1: if the speed limited growth around the world and particularly

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Speaker 1: in the United States, is lower, we would believe then

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Speaker 1: that smaller incremental increases in the FED funds rate and

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Speaker 1: market interest rates will start to impact the economy sooner.

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Speaker 1: So we are not about to ignore those signs at all,

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Speaker 1: and are growing a little bit more cautious towards particularly

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Speaker 1: the non treasury sectors. In recent months, we're speaking with

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Speaker 1: Mark Lynd Bloom. He is portfolio manager for Western Asset

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Speaker 1: Management Company. We're speaking about the firm's first fixed income

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Speaker 1: et F. It's called the Western Asset Total Return et F,

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Speaker 1: and as part of the mandate, you've put a cap

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Speaker 1: on the amount of assets that can be put towards

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Speaker 1: junior loans that instruments that are either unsecured and subordinated.

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Speaker 1: Could you speak a little bit about that and particularly

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Speaker 1: about the market for junior loans. Sure, this is consistent

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Speaker 1: with how we view here at Western Asset the core

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Speaker 1: or a core plus bond fund in that the buyers

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Speaker 1: of these these funds, usually which are measured against an

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Speaker 1: aggregate indexes as you know, are are meant to be

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Speaker 1: an anchor to windward sort of vehicle. UH. Core plus

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Speaker 1: does offer some flexibility in terms of the blow investment

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Speaker 1: grade sectors to gain some yield and return advantage. Certainly

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Speaker 1: were advocates of that, but to your to your point

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Speaker 1: about limitations that we want to be very careful that

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Speaker 1: the purpose and the objective of a core plus fund

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Speaker 1: is to provide higher returns versus and aggregate index over time,

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Speaker 1: but without substantially higher volatility. So our intent is through

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Speaker 1: the guidelines, the guard rails, if you will, that we

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Speaker 1: do limit some of those UH, some of those sectors

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Speaker 1: as part of the asset allocation on constraint funds for

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Speaker 1: example that didn't have a benchmark and I had a

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Speaker 1: lot more flexibility. Certainly, would have a greater greater room

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Speaker 1: to add those on your question, your second part of

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Speaker 1: your question, you know, what do you think, as I

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Speaker 1: suggested a little bit earlier, when we look at many

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Speaker 1: of the sectors below investment grade across corporates are even

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Speaker 1: structure most recently and buy instructure, I mean cnbs and

432
00:24:36,920 --> 00:24:40,639
Speaker 1: residential loans. We are not at all pounding the table

433
00:24:40,680 --> 00:24:43,160
Speaker 1: and saying we're about to go into a slowdown our recession.

434
00:24:43,160 --> 00:24:44,600
Speaker 1: There are a lot of folks out there with that

435
00:24:44,720 --> 00:24:48,960
Speaker 1: prediction of two thousand twenty. That isn't our call. But

436
00:24:49,280 --> 00:24:52,760
Speaker 1: the key is the valuations just aren't there to benefit

437
00:24:52,800 --> 00:24:55,719
Speaker 1: our investors currently. Thank you so much for being with us.

438
00:24:55,760 --> 00:24:59,040
Speaker 1: Mark Lynn Bloom, portfolio manager at Western Asset Management Company,

439
00:24:59,520 --> 00:25:02,399
Speaker 1: which over sees four hundred and twenty billion dollars. They

440
00:25:02,440 --> 00:25:04,920
Speaker 1: did just launch a new actively managed e t F,

441
00:25:04,960 --> 00:25:08,000
Speaker 1: the Western Asset Total Return e t F, which uses

442
00:25:08,040 --> 00:25:10,760
Speaker 1: the same strategy in the broader non e t F

443
00:25:10,920 --> 00:25:24,400
Speaker 1: fund UH in real time. Right now, we're looking at

444
00:25:24,960 --> 00:25:28,280
Speaker 1: emerging market currencies that are just a slight bit if

445
00:25:28,280 --> 00:25:29,760
Speaker 1: you look at the m s c I index, but

446
00:25:29,840 --> 00:25:32,679
Speaker 1: certainly they're stable as compared to the plunge that we

447
00:25:32,720 --> 00:25:36,240
Speaker 1: saw earlier. The question is this just a relative bit

448
00:25:36,320 --> 00:25:39,680
Speaker 1: of calm before the storm continues? Joining us now, Dr

449
00:25:39,720 --> 00:25:42,919
Speaker 1: Win Thin, global head of Emerging Markets for the FX

450
00:25:42,960 --> 00:25:45,880
Speaker 1: markets at Brown Brothers Harriman, coming to us from New York.

451
00:25:46,400 --> 00:25:48,679
Speaker 1: Dr Winton, thank you so much for being with us.

452
00:25:48,920 --> 00:25:50,680
Speaker 1: So let's talk about that. I mean, the I m

453
00:25:50,760 --> 00:25:53,560
Speaker 1: F came out with this report downgrading their expectations for

454
00:25:53,680 --> 00:25:58,520
Speaker 1: some major emerging market economies, including China and Brazil. Do

455
00:25:58,600 --> 00:26:00,320
Speaker 1: you think that what we're seeing right now is the

456
00:26:00,359 --> 00:26:03,920
Speaker 1: calm before the storm? Well, I say, personal, thanks for

457
00:26:03,960 --> 00:26:06,080
Speaker 1: having me. It's always a pleasure. Uh. Well, look we

458
00:26:06,160 --> 00:26:09,720
Speaker 1: have we haven't exactly had um much calm this whole year,

459
00:26:10,200 --> 00:26:13,960
Speaker 1: So I would say this is within a greater bear trend.

460
00:26:14,000 --> 00:26:16,399
Speaker 1: I mean, as you mentioned, there's a global backdrop for

461
00:26:16,480 --> 00:26:21,639
Speaker 1: EM remains UM, very difficult global growth forecast lower. Uh.

462
00:26:21,800 --> 00:26:25,439
Speaker 1: I'm your postal worked down trade flow forecast, you know,

463
00:26:25,640 --> 00:26:28,480
Speaker 1: reflecting the trade tensions. Um, we gonna hire U S

464
00:26:28,520 --> 00:26:33,879
Speaker 1: interest rates and moving higher, so the backdrop EM remains negative. Um.

465
00:26:33,920 --> 00:26:35,320
Speaker 1: You know, I think this is sort of a little

466
00:26:35,320 --> 00:26:39,399
Speaker 1: bit of a pause. Um, but I think it's very

467
00:26:39,440 --> 00:26:40,760
Speaker 1: way too early to say, hey, this is a good

468
00:26:40,760 --> 00:26:43,160
Speaker 1: time to buy EM. If you look at the ms

469
00:26:43,200 --> 00:26:46,080
Speaker 1: c I um E Mergant Market Index, we're breaking down

470
00:26:46,160 --> 00:26:50,280
Speaker 1: making new loads off of this move um this yesterday,

471
00:26:50,359 --> 00:26:52,320
Speaker 1: and I think that's you know, so the negative sense

472
00:26:52,359 --> 00:26:55,679
Speaker 1: it remains in place. Do you believe that dollar strength continues?

473
00:26:56,920 --> 00:26:59,560
Speaker 1: I do, yes, Uh no, I think you know, as

474
00:26:59,600 --> 00:27:02,240
Speaker 1: you know, the the U S bond mark was closed yesterday,

475
00:27:02,280 --> 00:27:07,000
Speaker 1: so we've ended last week on a very um uh

476
00:27:07,280 --> 00:27:08,959
Speaker 1: sort of strong in terms of the yields we had.

477
00:27:09,000 --> 00:27:12,800
Speaker 1: We had US tenure yield poking up around I think

478
00:27:12,800 --> 00:27:14,920
Speaker 1: the markets started this week worried that we didn't get

479
00:27:14,960 --> 00:27:18,040
Speaker 1: further push up, but for now we know we haven't

480
00:27:18,040 --> 00:27:20,760
Speaker 1: really pushed that Keith twenty five area, and so I

481
00:27:20,800 --> 00:27:22,600
Speaker 1: think as part of the calm is that we haven't

482
00:27:22,600 --> 00:27:25,400
Speaker 1: seen another leg up in US rates, which of course,

483
00:27:25,440 --> 00:27:28,520
Speaker 1: as we mentioned, is very negative for EM very positive dollars.

484
00:27:28,520 --> 00:27:31,280
Speaker 1: So you know, we've got the p p I tomorrow

485
00:27:31,320 --> 00:27:33,560
Speaker 1: and cp I the day after here in the US.

486
00:27:33,640 --> 00:27:35,520
Speaker 1: I think those were very key given that the focus

487
00:27:35,560 --> 00:27:38,520
Speaker 1: on on yields and rates here in the US, I

488
00:27:38,560 --> 00:27:40,800
Speaker 1: think it's still the primary driver for global markets. Not

489
00:27:40,880 --> 00:27:44,680
Speaker 1: just rates markets. You probably know, the equily markets started

490
00:27:44,720 --> 00:27:46,840
Speaker 1: to really feel that the heat. Um. You know, part

491
00:27:46,840 --> 00:27:49,000
Speaker 1: of that is the fact that a lot of these

492
00:27:49,119 --> 00:27:52,720
Speaker 1: UH stock valuations were made under the assumption of low

493
00:27:52,880 --> 00:27:56,360
Speaker 1: interest rates, and that's that's being readdressed. Now. I want

494
00:27:56,359 --> 00:27:59,320
Speaker 1: to turn the focus a bit to China, because China

495
00:27:59,400 --> 00:28:03,320
Speaker 1: eased Paul to see further this week, and they're trying

496
00:28:03,400 --> 00:28:06,480
Speaker 1: to ignite some growth or at least cushion the slowdown

497
00:28:06,480 --> 00:28:09,440
Speaker 1: and growth that we've seen. And I guess I am

498
00:28:09,440 --> 00:28:12,200
Speaker 1: really struck by the reaction of markets, with the equity

499
00:28:12,280 --> 00:28:16,400
Speaker 1: market in China falling after that announcement, basically saying it's

500
00:28:16,440 --> 00:28:19,040
Speaker 1: not enough, and it seems like you're a little bit desperate,

501
00:28:19,480 --> 00:28:22,600
Speaker 1: the Chinese leader of the PBOC to try to gain

502
00:28:22,640 --> 00:28:26,520
Speaker 1: some control over this. How concerning is that? Well, I

503
00:28:26,560 --> 00:28:29,320
Speaker 1: think China is always sort of a simmering concern. Um.

504
00:28:29,359 --> 00:28:32,399
Speaker 1: You know, many analysts called for some sort of big

505
00:28:32,440 --> 00:28:34,680
Speaker 1: disaster there. You know, they've been calling us the last

506
00:28:34,680 --> 00:28:37,879
Speaker 1: ten years. You know, it's clear that they're slowing, and

507
00:28:37,880 --> 00:28:39,479
Speaker 1: you know we always had a discussion, well, how how

508
00:28:39,480 --> 00:28:41,240
Speaker 1: do you trust the Chinese umbers? Well you can't really,

509
00:28:41,680 --> 00:28:43,760
Speaker 1: But what you can trust is the sort of the

510
00:28:43,800 --> 00:28:46,360
Speaker 1: official actions and the fact that this I think the

511
00:28:46,400 --> 00:28:50,000
Speaker 1: fourth reserve requirement cut this year, the West, some other

512
00:28:50,120 --> 00:28:53,000
Speaker 1: directed lending. It's clear they were concerned about a slowdown.

513
00:28:53,240 --> 00:28:56,840
Speaker 1: Um we are seeing UM, I would assume I think

514
00:28:56,880 --> 00:28:59,840
Speaker 1: it's slower than expect to slow down given the policy reaction.

515
00:29:00,720 --> 00:29:03,280
Speaker 1: Bottom line, though, I do think China kind of muddles through.

516
00:29:04,240 --> 00:29:07,280
Speaker 1: It's uh. I think the trade tension of the U

517
00:29:07,320 --> 00:29:09,600
Speaker 1: S makes things obviously much more difficult. And that's you

518
00:29:09,640 --> 00:29:12,920
Speaker 1: had another ball at the juggling um. And so am

519
00:29:12,960 --> 00:29:14,479
Speaker 1: I a little bit worried about China? Yeah? I am.

520
00:29:14,600 --> 00:29:16,520
Speaker 1: I'm probably a little more worre than usual, but I'm

521
00:29:16,600 --> 00:29:18,880
Speaker 1: not in the sort of we're we're heading for disaster

522
00:29:18,960 --> 00:29:22,080
Speaker 1: camp at this point. Can you tell us your outlook

523
00:29:22,160 --> 00:29:25,080
Speaker 1: for currencies that are tied to commodities such as the

524
00:29:25,120 --> 00:29:30,360
Speaker 1: Canadian looney and the Australian dollar. Sure, Um, well, you

525
00:29:30,400 --> 00:29:32,719
Speaker 1: know Canada, it's two separate sets because if you think

526
00:29:32,720 --> 00:29:36,280
Speaker 1: about the commodities, well, Australia is linked usually to iron

527
00:29:36,280 --> 00:29:39,800
Speaker 1: ore and China. Um. So from as a result, the

528
00:29:39,840 --> 00:29:42,680
Speaker 1: Australian dollars and has not been doing well recently on

529
00:29:42,720 --> 00:29:45,440
Speaker 1: the flip side, Uh, the looney is is more linked

530
00:29:45,480 --> 00:29:50,200
Speaker 1: towards oil, and of course oil is on a tear um.

531
00:29:50,400 --> 00:29:51,640
Speaker 1: You know, at some point, though too much of a

532
00:29:51,680 --> 00:29:54,480
Speaker 1: good thing is uh is too much? You know, at

533
00:29:54,480 --> 00:29:56,920
Speaker 1: some point high oil prices are become negative for the

534
00:29:56,960 --> 00:29:59,200
Speaker 1: world economy. I mean, you're sure it's great for the

535
00:29:59,200 --> 00:30:02,120
Speaker 1: producing countries, but if you're an all consuming country, like

536
00:30:02,200 --> 00:30:06,160
Speaker 1: most most industrializations are, uh, that really starts to take

537
00:30:06,200 --> 00:30:08,960
Speaker 1: a toll, whether it's at the pocketbook, at the at

538
00:30:08,960 --> 00:30:12,400
Speaker 1: the pump, or even at the firm wide level. Uh two,

539
00:30:12,520 --> 00:30:16,000
Speaker 1: high prices are not good. Um. So you know, I'm

540
00:30:16,000 --> 00:30:18,400
Speaker 1: hoping that OPEC realized this and then they sort of

541
00:30:18,880 --> 00:30:21,120
Speaker 1: uh take some stronger actions. Even at this point a

542
00:30:21,160 --> 00:30:23,960
Speaker 1: little bit blase about, but I think that the growing

543
00:30:24,000 --> 00:30:27,200
Speaker 1: concern given all the other headwinds on the global economy.

544
00:30:27,560 --> 00:30:31,280
Speaker 1: When you said that you do expect the ongoing deterioration

545
00:30:31,400 --> 00:30:35,800
Speaker 1: in emerging markets currency valuations to continue versus hard currencies.

546
00:30:35,840 --> 00:30:38,240
Speaker 1: But is there anywhe where you see uh sort of

547
00:30:38,640 --> 00:30:41,360
Speaker 1: potential opportunities or do you think that everything's gonna get

548
00:30:41,360 --> 00:30:43,400
Speaker 1: sort of caught up on the and the FED tightening

549
00:30:43,440 --> 00:30:48,520
Speaker 1: and sort of the the QT that's taking over the world. Well,

550
00:30:48,960 --> 00:30:51,840
Speaker 1: you know, one night one e M, I would say

551
00:30:52,040 --> 00:30:56,040
Speaker 1: I'm very negative going into year end, and probably i'd

552
00:30:56,040 --> 00:30:58,880
Speaker 1: say the first half of next year. But uh, you know,

553
00:30:59,000 --> 00:31:01,000
Speaker 1: I think we're sorting halfway do the sell off, maybe

554
00:31:01,360 --> 00:31:03,200
Speaker 1: maybe a little bit more, but I do think there's

555
00:31:03,200 --> 00:31:05,480
Speaker 1: ways to go still before we sort of get to

556
00:31:05,520 --> 00:31:08,360
Speaker 1: an equilibrium. Now um with a they e M though,

557
00:31:08,440 --> 00:31:10,720
Speaker 1: you know, I should say that there are opportunities. You know,

558
00:31:10,760 --> 00:31:12,640
Speaker 1: for instance, the Mexican pace was actually up this year,

559
00:31:12,680 --> 00:31:15,479
Speaker 1: up three, so there's a real differentiation. You know, you've

560
00:31:15,520 --> 00:31:19,760
Speaker 1: got the five so really worst currencies Argentina, Turkey, South

561
00:31:19,800 --> 00:31:23,280
Speaker 1: Africa and now Brazil and India swap places. Brazil is

562
00:31:23,360 --> 00:31:25,520
Speaker 1: rallied on the election, so it's actually gotten pushed up

563
00:31:25,560 --> 00:31:29,000
Speaker 1: to only sixth worst. Uh and you've got Indian Russia

564
00:31:29,040 --> 00:31:30,840
Speaker 1: from rounding up there the worst five. You know, you've

565
00:31:30,840 --> 00:31:34,040
Speaker 1: got the e M weakness concentrated in a handful, whether

566
00:31:34,040 --> 00:31:37,760
Speaker 1: it's five, six, seven countries with adosyncratic risk, other countries

567
00:31:38,040 --> 00:31:41,160
Speaker 1: currencies and countries holding up better thaybot come and taste

568
00:31:41,160 --> 00:31:44,360
Speaker 1: in Malaysian ring get um Mexico. As I mentioned, earlier,

569
00:31:44,360 --> 00:31:47,000
Speaker 1: So there's definitely a differentiation. I think markets in a

570
00:31:47,080 --> 00:31:49,600
Speaker 1: in a tighter global equity story, marks that are punishing

571
00:31:49,640 --> 00:31:52,240
Speaker 1: the sort of the deader countries, those that have high

572
00:31:52,280 --> 00:31:55,400
Speaker 1: current account or budget deficits, and there there's not I

573
00:31:55,440 --> 00:31:58,080
Speaker 1: would say the rewarding, but there's sort of leaving alone

574
00:31:58,120 --> 00:32:00,160
Speaker 1: the country that the surplus countries, and many of those

575
00:32:00,200 --> 00:32:02,880
Speaker 1: are in Asia. So again let you look look under

576
00:32:02,880 --> 00:32:05,760
Speaker 1: the hood. You can't you can't sell em on mask.

577
00:32:06,360 --> 00:32:08,320
Speaker 1: But in channel I do think the asselete classes is

578
00:32:08,360 --> 00:32:11,240
Speaker 1: going to remain under pressure. Now we always talk about

579
00:32:11,240 --> 00:32:14,880
Speaker 1: countries when they are under pressure. For example Argentina. Any

580
00:32:15,000 --> 00:32:17,800
Speaker 1: update on the Argentine Paso and the efforts of the

581
00:32:17,920 --> 00:32:23,120
Speaker 1: Argentine government to contain inflation and produce a credible budget, well,

582
00:32:23,240 --> 00:32:25,120
Speaker 1: I'll say we're we're I look at that glass of

583
00:32:25,200 --> 00:32:28,240
Speaker 1: half full. Um, they've taken all the right steps. They've

584
00:32:28,240 --> 00:32:33,600
Speaker 1: tighten montars policy several times, numerous times, UM, tighten fiscal policy,

585
00:32:33,760 --> 00:32:35,520
Speaker 1: gone to the IMF. In fact, it just increased the

586
00:32:35,520 --> 00:32:39,840
Speaker 1: IMF program um by request. Uh so they've done all

587
00:32:39,840 --> 00:32:41,960
Speaker 1: the right things. That's finally, UM, I think the pacers

588
00:32:42,000 --> 00:32:45,040
Speaker 1: finally starting to get some traction um. So you know,

589
00:32:45,080 --> 00:32:47,680
Speaker 1: I think clearly, uh, you know, the movement forward might

590
00:32:47,680 --> 00:32:50,520
Speaker 1: have been in a bit of an overshoot, but within

591
00:32:50,680 --> 00:32:54,040
Speaker 1: the e m bearing mark, I don't think Argentina Payco

592
00:32:54,080 --> 00:32:56,440
Speaker 1: can be recovered too much in absolute terms. I'd say

593
00:32:56,480 --> 00:32:57,840
Speaker 1: the same thing in Brazil. You know, we've had a

594
00:32:57,840 --> 00:33:00,960
Speaker 1: great sort of pre election and post election, but we're

595
00:33:00,960 --> 00:33:03,040
Speaker 1: in the ear mark. I don't I don't think there's

596
00:33:03,080 --> 00:33:05,920
Speaker 1: much more room for for absolute gains now in on

597
00:33:05,920 --> 00:33:08,360
Speaker 1: a relater basis. You know, I think those two because

598
00:33:08,400 --> 00:33:11,400
Speaker 1: they've been hammered so badly this year, I could start

599
00:33:11,480 --> 00:33:13,440
Speaker 1: could do a little bit more outperforming with an e

600
00:33:13,600 --> 00:33:18,000
Speaker 1: m UM, But you know, absolute terms, I'm pretty negative.

601
00:33:18,920 --> 00:33:20,760
Speaker 1: I want to thank you very much for joining us

602
00:33:20,760 --> 00:33:24,040
Speaker 1: and giving us your thought a doctor when Finn is

603
00:33:24,080 --> 00:33:26,880
Speaker 1: a global head of Emerging Markets f X at Brown

604
00:33:26,920 --> 00:33:33,080
Speaker 1: Brothers Harriman. Thanks for listening to the Bloomberg P and

605
00:33:33,200 --> 00:33:36,240
Speaker 1: L podcast. You can subscribe and listen to interviews at

606
00:33:36,280 --> 00:33:40,720
Speaker 1: Apple Podcasts, SoundCloud, or whatever podcast platform you prefer. I'm

607
00:33:40,760 --> 00:33:44,200
Speaker 1: pim Fox. I'm on Twitter at pim Fox. I'm on

608
00:33:44,240 --> 00:33:47,520
Speaker 1: Twitter at Lisa Abramo. It's one before the podcast. You

609
00:33:47,520 --> 00:33:50,080
Speaker 1: can always catch us worldwide on Bloomberg Radio.