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Speaker 1: P and L is brought to you by proper Cloth,

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Speaker 1: order your first custom shirt today. Welcome to the Bloomberg

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Speaker 1: P and L Podcast. I'm Pim Fox. Along with my

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Speaker 1: co host Lisa Abramowitz. Each day we bring you the

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Speaker 1: most important, noteworthy, and useful interviews for you and your money,

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Speaker 1: whether at the grocery store or the trading floor. Find

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Speaker 1: the Bloomberg P and L Podcast on iTunes, SoundCloud and

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Speaker 1: at Bloomberg dot com. For almost a quarter of a century,

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Speaker 1: developing economies built up their foreign currency reserves trying to

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Speaker 1: stave off another type of financial crisis, potential dramatic decline

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Speaker 1: in their economic trajectories. But now it seems like that

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Speaker 1: trend is changing. I want to bring in Damian Sass,

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Speaker 1: our fixed income strategist here at a Bloomberg Intelligence. He

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Speaker 1: joins us in our eleven three oh studio. Damien, you

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Speaker 1: wrote this report. I thought it was fascinating. Can you

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Speaker 1: explain why we've seen such a decline in foreign currency

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Speaker 1: reserves in certain economies and just how big some of

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Speaker 1: the declines have been. Yeah, sure, well, thank you Lisa,

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Speaker 1: thank you pim Um. Well, look um, foreign currency reserves

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Speaker 1: are really used for three things, right. They used to

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Speaker 1: maintain a currency peg for fixed and or managed um

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Speaker 1: the currency regimes such as for example, China, which has

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Speaker 1: in fact exhibited the greatest decline in reserves um over

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Speaker 1: the past two and a half years. I mean from

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Speaker 1: I believe really from four trillion to just under three

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Speaker 1: trillion U S dollars now, so that's a pretty big,

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Speaker 1: pretty sharp decline. But they are also used to support

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Speaker 1: external trade. I mean, I think the big statistic that

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Speaker 1: central banks like to look at is your currency reserves.

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Speaker 1: Your foreign currency reserves should be the equivalent of three

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Speaker 1: months of import. But most importantly, they're used as a

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Speaker 1: kind of a precautionary savings buffer during a balance of

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Speaker 1: payments crisis such as you know in the late nineties

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Speaker 1: we saw that in Asia. So those are really the

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Speaker 1: three primary uses. And you know, the way we look

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Speaker 1: at here at b I is declining currency reserves and

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Speaker 1: e M just exposes them to a whole slew of

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Speaker 1: new risk. And I think the emphasis now must kind

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Speaker 1: of shift from long term growth and um current account health.

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Speaker 1: Two more that coverage ratios and short term liquidity metrics

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Speaker 1: such as reserve ratios and short term short term external debt.

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Speaker 1: And that's what we focus on here in this report.

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Speaker 1: Can you tell us the countries that are involved in

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Speaker 1: this and perhaps just give a detail about each one.

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Speaker 1: So from I mean from the from the good side,

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Speaker 1: you have countries such as Peru and the Philippines which

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Speaker 1: are which which track rather well. I mean their reserves

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Speaker 1: are I mean, in the case of Peru nearly three

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Speaker 1: times the i m f S reserve adequacy ratio. Seeing

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Speaker 1: with the Philippines, I think it's and a half times,

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Speaker 1: so they get both gold stars Peru and the Philippines,

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Speaker 1: that's correct, and add demerits um one. Malaysia is probably

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Speaker 1: first among sort of the major e m s. You've

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Speaker 1: also got South Africa, Turkey, and Kazakhstan. I mean, those

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Speaker 1: four really kind of stand out to us as being

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Speaker 1: below the IMPS reserve adequacy ratios, and China is right

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Speaker 1: at the cusp. Yeah, so hold on a second. You

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Speaker 1: also have a statistic in here that one fifth of

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Speaker 1: emerging market economies at least those on record, have foreign

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Speaker 1: currency reserves below the i m F reserve adequacy threshold.

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Speaker 1: Are we heading toward another emerging markets crisis here? So

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Speaker 1: what we're looking at here is the i m F

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Speaker 1: defines the emerging markets and however way they do it.

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Speaker 1: But you know, of what they define as an emerging

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Speaker 1: market are below that threshold. And these are countries, not

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Speaker 1: only the majors. They can be Jamaica, Armenia, Pakistan, Tunisia,

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Speaker 1: the Dominican Republic. I mean, so there are quite a

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Speaker 1: few of them. Many of those countries, however, do issue

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Speaker 1: quite a bit of external US dollar debt, and a

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Speaker 1: lot that that is in some of the broad e

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Speaker 1: M indices, such as the Bloomberg Barkley's e M Hard

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Speaker 1: Currency Aggregate Index. Can we just head back to China

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Speaker 1: for a second. You said that they were kind of

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Speaker 1: on the cusp of really being in a risky zone

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Speaker 1: with respect to their capital adequacy requirements. What does this mean?

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Speaker 1: I mean, does this basically mean that they can't continue

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Speaker 1: to support their currency the way that they have been.

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Speaker 1: Doesn't mean that they're going to have to hold back

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Speaker 1: on pumping billions of dollars into their financial system and

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Speaker 1: what's the what's the consequence? Well, I mean, in China's case, right,

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Speaker 1: they are using their currency to help They're using their

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Speaker 1: currency reserves to help support their peg to the dollar.

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Speaker 1: And um, you know this doesn't in any way, shape

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Speaker 1: or form mean that they're not going to be able

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Speaker 1: to continue to do that. I mean, they still have

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Speaker 1: by far and away the largest reserves globally. Um. You know,

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Speaker 1: the way the I m F calculates reserve adequacy is

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Speaker 1: they take total exports, broad money supply, short term debt,

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Speaker 1: and other liabilities which are really kind of lines with

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Speaker 1: the I m F, etcetera. And they and they create

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Speaker 1: this threshold. And look that threshold. It is sort of

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Speaker 1: a soft threshold that's developed by the I m F

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Speaker 1: to sort of guide expectations. But you know, China's a

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Speaker 1: huge economy. I mean, you know, it's it's it's not

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Speaker 1: going under anytime soon, if you if that's where you're

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Speaker 1: headed here, I'm just simply pointing out the fact that

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Speaker 1: we have to begin looking at some of these emerging

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Speaker 1: market nations through a bit of a different lens. Um.

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Speaker 1: I can't decide whether to ask you whether the actual

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Speaker 1: currency holdings are a big deal, like you know, whether

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Speaker 1: they're holding dollars or euros. But you're telling me this

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Speaker 1: is basically something that is endemic to each individual country,

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Speaker 1: so they have their own issues. That's why this is happening.

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Speaker 1: In that case, I want to know what can we

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Speaker 1: buy in South Africa or in Malaysia or in Turkey

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Speaker 1: or get ready to buy because you know, if smart

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Speaker 1: money goes where no one else wants to go. And

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Speaker 1: I know, I mean the last time we were here,

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Speaker 1: Pin we talked about Turkey maybe being you know, fundamentally

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Speaker 1: undervalued on a number of different metrics. I mean, you know,

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Speaker 1: whatever the political turmoil is or whatever the you know,

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Speaker 1: news headlines are, it is a dynamic, industrialising economy, um

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Speaker 1: that builds you know, automobiles, trucks and has an incredible

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Speaker 1: retail sector. Sure, sure, I mean that's exactly right. I

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Speaker 1: mean Turkey, we know their financial sector issues. I mean

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Speaker 1: it's one of the most one of the largest sectors

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Speaker 1: in emerging markets in terms of its issuance of US

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Speaker 1: dollar debt um And there are a number of banks

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Speaker 1: there that we can highlight for you that have highlighted

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Speaker 1: another you know kind of um, give me, give me

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Speaker 1: one give me one of Turkish Bank. Well, you've got guarantee,

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Speaker 1: you've got a punk, you've got I mean, you've got

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Speaker 1: quite a few there that are you know, beginning to

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Speaker 1: you know, perhaps look a little bit interesting on that metric.

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Speaker 1: But you know, I think what we're really talking about

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Speaker 1: here is this is really supposed to be a sovereign

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Speaker 1: risk sort of metric. So looking at the sovereign risk

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Speaker 1: the actual you know, debt from Turkey itself or from

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Speaker 1: Kazakhstan itself, from Malaysia, I mean, that's kind of what

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Speaker 1: you're looking at now. In the case of Malaysia, you're

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Speaker 1: looking at the cook bonds, which is a whole different

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Speaker 1: animal um which I'm not about to get into right now. Um,

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Speaker 1: in South Africa, they you know, the country does issue

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Speaker 1: a lot of um, you know, sof in debt in

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Speaker 1: U S. Dollar and Euro as well. Um bast you've

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Speaker 1: got s com which are what I like to call

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Speaker 1: quasi sovereign type institutions. We gotta leave it there. Damien

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Speaker 1: sas our great great stuff fixed income Strategiest Bloomberg Intelligence

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Speaker 1: and just go to b I go on the Bloomberg

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Speaker 1: to check out all of Damien's work you gotta you

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Speaker 1: gotta read this to be up to date. This is

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Speaker 1: Bloomberg Another day, another high for US stacks. Can this last?

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Speaker 1: We're gonna take a deep dive into both the technicals

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Speaker 1: with Jeff Weiss, chief technical analyst at clear View Trading Advisors,

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Speaker 1: as well as the fundamentals with Yelena Sliva, senior u

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Speaker 1: S economist here at Bloomberg Intelligence. So, Jeff, I want

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Speaker 1: to start with you, Hi, thank you for so much

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Speaker 1: for joining us. So given that some of the tech

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Speaker 1: indicators that you look at, first of all, what are

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Speaker 1: the most reliable ones and what are they saying about

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Speaker 1: the current run up in stocks? Well as reliable as

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Speaker 1: an indicator is lee, So I'm always looking at the

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Speaker 1: downside of what could go wrong, because in the stock market, right,

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Speaker 1: you could be right nine out of ten times, and

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Speaker 1: on the tenth time if if you don't know what

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Speaker 1: to do, it could obliterate the other nine times you're right.

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Speaker 1: I still think the bulls have it. I still think

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Speaker 1: we're in a in a primary bull trend. Uh. In fact,

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Speaker 1: we actually one of your charts over there that I

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Speaker 1: gave you shows that for three Friday closes in a row,

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Speaker 1: the broad based Dow Jones Total US stock Market Index

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Speaker 1: has closed above a fairly significant trend line dating back

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Speaker 1: quite a ways. In addition, that's been confirmed by the

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Speaker 1: S and P as well as other indicators. So to me,

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Speaker 1: not even going into the new multi year highs and

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Speaker 1: the weekly Advanced to Climb liner, the big board and

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Speaker 1: the new highs and the daily advanced declientline, it is

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Speaker 1: still to me a bull until proven otherwise. And that's

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Speaker 1: not gonna be CAUs of some news. It's going to

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Speaker 1: be because of the action of the market itself. Okay,

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Speaker 1: So then let's take a look at the fundamentals, Elena.

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Speaker 1: Are we seeing economic data to support this bullish outlook

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Speaker 1: that is sort of being shown by the technicals. What

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Speaker 1: we see in the economic data, and we are looking

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Speaker 1: at different indicators, We only see a pickup in survey

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Speaker 1: indicators so far. So if you look at a Bloomberg

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Speaker 1: function e c SU, for example, you will see that

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Speaker 1: the biggest upward surprises are coming from the survey and

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Speaker 1: business cycle indicators. Everything else is pretty much flat. So

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Speaker 1: this week we're gonna see a bunch of different indicators

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Speaker 1: from retail sales to industrial production, and they're all like

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Speaker 1: expected to be oh okay, but not nothing like a

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Speaker 1: big upward surprise is expected. So uh to me, it

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Speaker 1: looks like we we are okay, but it's still a

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Speaker 1: sluggish recovery. It's still uh sluggish growth. Jeff wise, p

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Speaker 1: h excuse me. I wanted to also just mention and

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Speaker 1: congratulate you on your new book. It's called Relationship Investing

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Speaker 1: Stock Market Therapy for your money, and boy does that

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Speaker 1: you know if anything needs therapy now, it's it's everybody's money.

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Speaker 1: And you have been noted as someone that is able

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Speaker 1: to combine both the art and the science of market analysis.

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Speaker 1: And having said that, I want to just have you

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Speaker 1: speak a little bit about one of the things you

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Speaker 1: described that people ought to spend the lion's share of

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Speaker 1: their time on the analytical portion of the investment process

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Speaker 1: and not on trading fees. We keep hearing all about fees.

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Speaker 1: You know, don't spend money on fees. Tell us why

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Speaker 1: this is something that you've learned well? To me? Um,

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Speaker 1: you know I I I always say that's kind of

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Speaker 1: like having a bad dinner but bragging about the mint

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Speaker 1: at the at the end of the meal. Pim uh

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Speaker 1: to me again, you want to obviously get you know,

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Speaker 1: as competent advice as possible, consistent with very reasonable fees.

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Speaker 1: But to me, it's all about where do you buy,

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Speaker 1: where do you sell, getting the primary trend right, riding

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Speaker 1: it for all it's worth, and then having someone or

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Speaker 1: some approach that will give you a discipline to stop

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Speaker 1: a cut from becoming a hemorrhage from becoming a financial amputation.

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Speaker 1: Because I lived through nineteen seventy three nineteen seventy four,

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Speaker 1: and I've seen the horrific toll something like that couldn't inflict,

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Speaker 1: and that's one of the motivating reasons I wrote this

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Speaker 1: book to try and help people avoid some of those mistakes. Well, Jeff,

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Speaker 1: so pare what Elena was talking about with your bullish sentiment.

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Speaker 1: I'm struggling to sort of understand end the sort of

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Speaker 1: feeling that the stocks to just keep on hitting new

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Speaker 1: highs day after day after day, when, as Elena said,

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Speaker 1: we're not really seeing the justification for that in fundamental data. Yes,

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Speaker 1: that could change, but so far we're not seeing it well, Lisa.

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Speaker 1: In technical jargon, if you wait very often, not always,

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Speaker 1: nothing's always, but if you wait for the underlying background

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Speaker 1: or fundamentals to justify why a stock market has moved.

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Speaker 1: I don't know what someone's gonna be paying for that privilege.

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Speaker 1: Is it an SMP fifty, Is it an SMP twenty,

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Speaker 1: I don't know. I can tell you this though. Um,

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Speaker 1: in my opinion, the twenty two thirty to twenty two

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Speaker 1: thirty five area is a daily closing area I'd watch,

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Speaker 1: and that's four percent below where we are now. That

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Speaker 1: to me is the area to watch, all right. So basically, Jeff,

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Speaker 1: you're saying that the economic data is a lagging indicator. Elena,

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Speaker 1: is there any economic data point that you look at

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Speaker 1: you do not think it's a lacking indicator? Well, I

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Speaker 1: think what we should look and that is probably gonna

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Speaker 1: be even more important than economic data, is what cha

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Speaker 1: Yellen is going to tell us tomorrow, And that could

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Speaker 1: be a little bit forward looking. Right, So we think

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Speaker 1: that she will continue to be on a davish side. Uh,

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Speaker 1: She's gonna be herself, no, no hawky ish science from her. Uh.

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Speaker 1: Probably the testimony itself will not contain any clues as

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Speaker 1: about the timing of the next rade hike, but she

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Speaker 1: will probably be asked about it. And uh, I don't

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Speaker 1: think she's gonna rule out March. She's probably gonna say, oh,

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Speaker 1: it's a life meeting. Every meeting is a life meeting.

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Speaker 1: But uh, we don't think that that really means that

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Speaker 1: they will hike in March. Uh. Still at Bloomberg Intelligence Economics,

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Speaker 1: we think that the tightening will be gradual. Only two

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Speaker 1: eight tikes this year June and at the end of

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Speaker 1: the year. So uh, the outlook for the fit is

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Speaker 1: still kind of the same gradual tight ending this year

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Speaker 1: and no no big surprises. Quick one to you, Jeff

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Speaker 1: Wats Imagine that you've got the scenario that you sat

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Speaker 1: out all of this move higher in stocks. Now you're

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Speaker 1: wondering was that a mistake? Should I admit it to

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Speaker 1: myself and get in or do I just you know,

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Speaker 1: keep my counsel. If it were my money and I

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Speaker 1: basically write that book from from me, what would I

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Speaker 1: do if your money, the reader's money, where my money? Yes,

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Speaker 1: I think it's a bull trend um at the mistake Otherwise, Uh, yeah,

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Speaker 1: a mistake or you know, to me, a mistake is

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Speaker 1: not selling a stock on the way down when you

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Speaker 1: should and selling it the market understand to get the

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Speaker 1: extra ten cents on the upside and risking twenty five

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Speaker 1: hours on the downside. But yes, I think we are

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Speaker 1: in a bull trend. I think, you know, miss Yellen

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Speaker 1: is welcome to come over my home, but there will

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Speaker 1: be no talk about, you know, economic statistics. There. We

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Speaker 1: will be looking at we will be looking at stock charts.

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Speaker 1: And again, I was in economics major. It's just that

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Speaker 1: I don't have an ability to look at reams as

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Speaker 1: I note in the Book of Fundamental Data and Economic Analysis,

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Speaker 1: and have any idea what that portends for me in

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Speaker 1: terms of the stock market. So to me, if I

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Speaker 1: want to look at a stock, I look at the stock.

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Speaker 1: To me is the purest form of analysis. And thanks

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Speaker 1: for being with us and sharing it. Thank you, Chief

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Speaker 1: technical Analyst, clear View Trading Advisors. He's the author of

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Speaker 1: the new book Relationship Investing Our Thanks also to Elena Strieteva,

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Speaker 1: senior US economist for Bloomberg Intelligence. This is Bloomberg P

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Speaker 1: and L is brought to you by proper Cloth, a

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Speaker 1: Custom shirts made Smarter. The musical artist Adele opened the

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Speaker 1: fifty nine Annual Grammy Awards by singing the well her

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Speaker 1: rendition of the hit song Hello, and she went home

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Speaker 1: the big winner. And now Kim Fox is going to

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Speaker 1: sing it for us and your dreams, uh perhaps our nightmare. Um,

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Speaker 1: you know adult took home five awards, and also that

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Speaker 1: she had that tribute to George Michael and yes, this

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Speaker 1: is going somewhere. But you know, the other album that

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Speaker 1: was really in competition was from Beyonce, and that was

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Speaker 1: the Lemonade album. But you know there was one winner,

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Speaker 1: no matter who wins, and that was a gentleman named

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Speaker 1: Rob Stringer. And here to tell us who is Rob Stringer.

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Speaker 1: We've got our own Lucas Shaw Bloomberg Entertainment reporter. Lucas,

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Speaker 1: is that enough of us set up? Yeah? It is so.

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Speaker 1: Rob Stringer is the head of Columbia Records, which is

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Speaker 1: I believe the oldest functioning record label in the United States.

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Speaker 1: It's been around since then the late nineteenth century. Of course,

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Speaker 1: had a different name back then. UH. And in over

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Speaker 1: the years, they've worked with David Bowie who won Big

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Speaker 1: Last Night. They've worked with Bruce Springsteen, worked with Bob Dylan,

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Speaker 1: and over the past ten or fifteen years, their biggest

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Speaker 1: two acts you you would say, have been Adele and

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Speaker 1: and Beyonce. They've actually worked with Beyonce since she was

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Speaker 1: in the girl group Destiny's Child and and Rob Stringer.

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Speaker 1: In April will go from being the head of Columbia

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Speaker 1: Records to being the head of all of Sony Music,

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Speaker 1: which is the second BIGS record label in the world.

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Speaker 1: How common is this for one record label to have

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Speaker 1: two of the most celebrated artists at the Grammy Awards.

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Speaker 1: It is common for a record label group like Universal

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Speaker 1: or Sony or Warner UH to really dominate those I forget.

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Speaker 1: I think a couple of years ago, Universal had almost

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Speaker 1: all of the major nominees, and that is the biggest

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Speaker 1: record label group. But to have one label within the

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Speaker 1: group is less common. Usually you have you know, it's

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Speaker 1: split amongst three or four or five in anyone category.

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Speaker 1: So Rob Stringer obviously made some really good selections with

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Speaker 1: the signing of Adele and Beyonce. Does this translate into

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Speaker 1: green into profits, into saving the music industry that's being

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Speaker 1: eaten away by online streaming music services? More than anything,

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Speaker 1: I think it provides stability. So if you are trying

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Speaker 1: to figure out where your next hit is going to

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Speaker 1: come from or where the sales are going to come from, Uh,

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Speaker 1: you can rest easy knowing that you're relying on Beyonce

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Speaker 1: and Adele because every time those acts release an album,

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Speaker 1: it's gonna sell. You know. Adele took the unusual step

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Speaker 1: with with her latest release twenty five, of not making

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Speaker 1: it available on any streaming services the first couple of weeks,

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Speaker 1: and she a loan hold. She went on to set

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Speaker 1: a record. Now, the money for first week sales, now,

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Speaker 1: the money from streaming services is is rising. But but

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Speaker 1: what's different is that you tend to have a longer

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Speaker 1: tail with it. Because people will stream your album over

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Speaker 1: a long period of time, you can kind of keep

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Speaker 1: making money longer after it's release than you might have. Otherwise,

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Speaker 1: you don't get as much to that kind of first

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Speaker 1: week pop. You get a lot of streams, but even

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Speaker 1: if you get, you know, a hundred million streams in

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Speaker 1: a week, you're not going to make a ton of money.

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Speaker 1: So if you have these artists like Adele or Beyonce

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Speaker 1: who can balance that interest on streaming with still being

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Speaker 1: able to move full albums, you're in a pretty good position.

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Speaker 1: Hey hey, Lucas, the record companies missed another digital revolution.

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Speaker 1: I mean they missed the online streaming. I mean that's

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Speaker 1: why we talk about Spotify, Pandora, Amazon, Apple and so on.

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Speaker 1: They missed that. But I understand that the big thing

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Speaker 1: on social media last night for the Grammys was Beyonce,

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Speaker 1: and it was her performance and her costume and so

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Speaker 1: on that lit up the social media world. Does the

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Speaker 1: record record companies figure out how to make money out

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Speaker 1: of that, because Facebook and Snapchat certainly think they do. Uh.

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Speaker 1: The only way that the record companies would make money

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Speaker 1: from that would be more people streaming or buying her album,

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Speaker 1: which will invariably happen because you just get so much

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Speaker 1: attention from it. People are gonna wake up today and

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Speaker 1: they're gonna want to listen to Lemonade. The challenge with

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Speaker 1: that is that Beyonce has limited where her album is

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Speaker 1: even more than Adele. So though Adele is now available

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Speaker 1: on Spotify and Apple Music, in these other places Beyonce

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Speaker 1: you either buy it or you you stream it untitled,

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Speaker 1: which is her husband jay z service. You know. But

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Speaker 1: you raise a good point, which is that they're all

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Speaker 1: these ways, all these touch points for for music and

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Speaker 1: really for for more broadly for entertainment, whether it's on

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Speaker 1: Facebook or Snapchat or Twitter or YouTube, and the music

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Speaker 1: industry has really struggled with how it can kind of

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Speaker 1: effectively monetize that because unlike with a movie, where you

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Speaker 1: can't really replicate the movie the experience of a movie

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Speaker 1: in like a you know, a brief Facebook post, you

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Speaker 1: can hear a song in all of these different avenues.

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Speaker 1: And so they've really tried to extract more money from

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Speaker 1: them and are in the process right now of of

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Speaker 1: negotiating with Facebook to try and figure out how they

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Speaker 1: make money off of Facebook. But it's it's a tough

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Speaker 1: balance because these tech companies feel like as long as

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Speaker 1: they're not just completely ripping a full song, uh, it's

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Speaker 1: it's nice exposure for these artists to monetize their works

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Speaker 1: in other ways, Lucas, how irrelevant are the Grammys at

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Speaker 1: this point to the major labels just because it's not

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Speaker 1: giving them any more money necessarily, not directly, right, Um,

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Speaker 1: you know, it's just an opportunity to to fump your

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Speaker 1: chest and say you're you're the best for a little while.

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Speaker 1: I mean, I think it's not who doesn't want a

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Speaker 1: reason to do that? Right? Yeah? Uh? You know they

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Speaker 1: took the sixteen share right, a sixteen share on in

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Speaker 1: the overnights for Nielsen. So that was like the same

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Speaker 1: as it was last year, Yeah, which was which was

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Speaker 1: bound down. Yeah, right, Like all awards shows, they mattered most,

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Speaker 1: kind of they seem to matter most for that that

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Speaker 1: baby boomer generation and a little bit after it. You know,

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Speaker 1: they're really popular throughout the seventies, eighties, nineties. You have

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Speaker 1: a new old people, that's what you're saying. I know,

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Speaker 1: Lucas well, No, no, because I'm unusual. I actually liked

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Speaker 1: I like the Oscars. I'm not a huge fan of

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Speaker 1: watching some of the others. The Grammies are kind of fun,

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Speaker 1: but you do have a whole generation of young people

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Speaker 1: for whom needs don't really matter, especially because they're not

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Speaker 1: awarding the artists that are most relevant to them. That's

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Speaker 1: one area where the Grammys actually they're a little better

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Speaker 1: because the Grammys do tend to nominate the most popular artist,

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Speaker 1: and especially those who appeal to the younger listeners. I mean,

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Speaker 1: young people love Beyonce, love Chance, the rappers who won

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Speaker 1: a bunch of awards last night, The Oscars, and and

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Speaker 1: to a lesser extent, the Emmys, which award h D

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Speaker 1: the best in TV, tend to see to this to

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Speaker 1: definitely to an older, wealthier viewer. So I have more

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Speaker 1: faith in the Grammys maintaining their credibility. The problem with

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Speaker 1: the Grammys is that they always give the awards to

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Speaker 1: kind of a white pop act. So there was a

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Speaker 1: lot of chatter last night about how for the past

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Speaker 1: five years you've had a white pop star beating what

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Speaker 1: many would say was a more deserving artist in R

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Speaker 1: and B or in rap. Kendrick Lamar has lost. Beyonce's

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Speaker 1: lost a couple of times, and at some point the

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Speaker 1: Record Academy is going to have to come to grips

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Speaker 1: with that. Did you have a party last night while

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Speaker 1: you watched it? I was in the back room at

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Speaker 1: the show. I then attempted to go to one of

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Speaker 1: the labels after parties, and the weight outside was so

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Speaker 1: bad that I went Luca's shop. Bloomberg News, thank you

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00:23:58,520 --> 00:24:13,080
Speaker 1: so much for joining us. Brian Shapata is here with

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00:24:13,200 --> 00:24:16,359
Speaker 1: us in our Bloomberg eleven three oh studio in New York.

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00:24:16,400 --> 00:24:19,480
Speaker 1: He reports on bonds for Bloomberg News and wrote a

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00:24:19,560 --> 00:24:23,600
Speaker 1: story to that published today about just how much selling

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00:24:23,680 --> 00:24:26,919
Speaker 1: there has been by China and Japan in the past

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00:24:27,040 --> 00:24:30,200
Speaker 1: few months. And you know, Brian, first, I just want

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00:24:30,200 --> 00:24:32,560
Speaker 1: to get a sense from you how much of this

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00:24:32,720 --> 00:24:36,960
Speaker 1: selling is being driven by concerns about the new US

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00:24:37,040 --> 00:24:40,920
Speaker 1: president and how much is being driven by concerns at

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00:24:40,960 --> 00:24:44,280
Speaker 1: home where these nations need to drum up money to

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00:24:44,359 --> 00:24:47,160
Speaker 1: support their economies. Yeah, it's a little bit of both,

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00:24:47,160 --> 00:24:49,199
Speaker 1: in the sense that you know, you've got Donald Trump

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00:24:49,280 --> 00:24:52,000
Speaker 1: is the new president, and of course the markets are

443
00:24:52,280 --> 00:24:56,199
Speaker 1: reacting to this through the reflation trade. Yields jumped up

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00:24:56,880 --> 00:24:59,320
Speaker 1: quite a bit right in November after you got elected.

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00:25:00,040 --> 00:25:02,600
Speaker 1: And you know, if you're a Japanese investor, you don't

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00:25:02,600 --> 00:25:04,520
Speaker 1: like to see those losses on your books when you

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00:25:04,600 --> 00:25:09,120
Speaker 1: have the Bank of Japan essentially controlling interest rates, and

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00:25:09,400 --> 00:25:12,400
Speaker 1: you know, you're just getting a flat return there. So uh,

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00:25:12,680 --> 00:25:14,480
Speaker 1: for some of these investors, it seems like it's a

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00:25:14,480 --> 00:25:17,600
Speaker 1: lot easier to just stay home. You know, you have

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00:25:17,840 --> 00:25:21,480
Speaker 1: you know, easy money policy, whereas in the US, uh,

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00:25:21,520 --> 00:25:24,159
Speaker 1: the idea that Trump's fiscal policy is gonna spur growth

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00:25:24,280 --> 00:25:26,600
Speaker 1: is gonna spur you know, the Federal Reserve into action,

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00:25:26,920 --> 00:25:28,760
Speaker 1: and then all of a sudden, you know you've got rising,

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00:25:28,880 --> 00:25:31,560
Speaker 1: rising interest rates. Um hasn't really played out so far

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00:25:31,600 --> 00:25:34,760
Speaker 1: this year. Yields are still mostly flat in the treasury market,

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00:25:34,840 --> 00:25:37,000
Speaker 1: but the prospect that they could, you hire, is definitely

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00:25:37,000 --> 00:25:39,240
Speaker 1: a concern. So who's gonna get burned if this trade

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00:25:39,280 --> 00:25:41,400
Speaker 1: doesn't work out the way you describe in other words,

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00:25:41,400 --> 00:25:43,240
Speaker 1: of it turns out that they're gonna go back in

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00:25:43,320 --> 00:25:46,760
Speaker 1: and buy US treasuries, who's gonna get burned? Um? I

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00:25:46,800 --> 00:25:49,160
Speaker 1: mean I think that if they go back and buy treasuries,

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00:25:49,200 --> 00:25:53,080
Speaker 1: I think everyone is going to be happy because yields

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00:25:53,080 --> 00:25:55,080
Speaker 1: will fall and there'll be a persistent amount of demand.

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00:25:55,119 --> 00:25:59,520
Speaker 1: But it's really the foreign flows or something that people

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00:25:59,560 --> 00:26:03,000
Speaker 1: are really keeping an eye on. Because Japan has one

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00:26:03,040 --> 00:26:07,400
Speaker 1: point one trillion dollars of treasury holdings, China has another trillion.

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00:26:07,800 --> 00:26:10,679
Speaker 1: It's a thirteen point one trillion dollar market and declining.

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00:26:11,280 --> 00:26:15,000
Speaker 1: And China, right, I mean particularly yes, China is going

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00:26:15,040 --> 00:26:19,040
Speaker 1: as there was not too long ago, right it was,

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00:26:19,080 --> 00:26:21,440
Speaker 1: it was very high, um, but it's gone down quite

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00:26:21,480 --> 00:26:24,320
Speaker 1: a bit. Fed's still a large holder, but even they're

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00:26:24,359 --> 00:26:27,359
Speaker 1: talking about, you know, potential non reinvestment of their balance

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00:26:27,400 --> 00:26:30,240
Speaker 1: sheet as well. So, uh, this pairing back of demand

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00:26:30,720 --> 00:26:33,200
Speaker 1: and the treasury market is definitely something that is giving

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00:26:33,600 --> 00:26:37,120
Speaker 1: some investors pause. Right. Well, and you were saying that

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00:26:37,119 --> 00:26:39,600
Speaker 1: that people would be happy if they stopped selling or

478
00:26:39,640 --> 00:26:42,480
Speaker 1: they came back, but dave one one people one group

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00:26:42,560 --> 00:26:45,560
Speaker 1: that would not be happy would be the banks. You

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00:26:45,640 --> 00:26:49,560
Speaker 1: see that that increasingly banks are linked to the hip

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00:26:49,840 --> 00:26:53,320
Speaker 1: with US treasury yields in a way that I mean,

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00:26:53,359 --> 00:26:56,320
Speaker 1: have they ever been misconnected before? Well you have to

483
00:26:56,359 --> 00:26:58,959
Speaker 1: go back and run the analysis to figure it out.

484
00:26:59,040 --> 00:27:01,399
Speaker 1: It's clear though you look at the past several months

485
00:27:01,440 --> 00:27:04,080
Speaker 1: that the day to day kind of moves are definitely

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00:27:04,160 --> 00:27:07,000
Speaker 1: having some effect. And it's understandable. I mean with the

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00:27:07,000 --> 00:27:10,320
Speaker 1: financial companies who really have the concern about their ability

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00:27:10,359 --> 00:27:12,399
Speaker 1: to make money because they after all, it depends on

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00:27:12,680 --> 00:27:15,919
Speaker 1: what they can earn on their loans, their investments, and

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00:27:15,960 --> 00:27:18,159
Speaker 1: what they pay out to their depositors what they call

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00:27:18,240 --> 00:27:20,679
Speaker 1: the net interest margin. And for a lot of these banks,

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00:27:20,680 --> 00:27:22,879
Speaker 1: we've seen it a narrow the last a few years

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00:27:22,920 --> 00:27:25,600
Speaker 1: in this environment of low interest rates. So you know

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00:27:25,640 --> 00:27:28,120
Speaker 1: the idea that you know, maybe bond yields go up

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00:27:28,160 --> 00:27:31,600
Speaker 1: and loan rates go with them. You can understand why

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00:27:31,640 --> 00:27:34,199
Speaker 1: there has been this focus with the financial stocks. And

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00:27:34,240 --> 00:27:37,320
Speaker 1: actually today the financials are the best performers among the

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00:27:37,359 --> 00:27:39,320
Speaker 1: eleven main industry groups in the S and P five,

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00:27:39,840 --> 00:27:43,080
Speaker 1: So it's definitely playing out as we speak. I was

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00:27:43,119 --> 00:27:45,600
Speaker 1: just looking at the shares of Goldman Sachs. They are

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00:27:45,640 --> 00:27:48,600
Speaker 1: the biggest mover in the Doubt runs industrial average, I believe,

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00:27:49,080 --> 00:27:52,119
Speaker 1: up more than one and a half percent. You know,

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00:27:52,200 --> 00:27:54,959
Speaker 1: I have to wonder, Brian, going back to your story,

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00:27:55,600 --> 00:27:59,159
Speaker 1: so we as you mentioned, we have seen yields pretty flat,

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00:27:59,280 --> 00:28:02,400
Speaker 1: if not down this year from where they were from

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00:28:02,400 --> 00:28:06,160
Speaker 1: the peaks in December. Who's coming in and buying them?

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00:28:06,240 --> 00:28:09,360
Speaker 1: Why is there so or where is this support coming from? Well,

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00:28:09,400 --> 00:28:11,800
Speaker 1: I mean at a certain point you have to realize

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00:28:11,840 --> 00:28:17,520
Speaker 1: that the whole idea behind secular stagnation and demographics, um,

510
00:28:17,560 --> 00:28:20,560
Speaker 1: all those things are still here, even though there's a

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00:28:20,600 --> 00:28:23,199
Speaker 1: lot of focus on Donald Trump and potentially being a

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00:28:23,200 --> 00:28:25,840
Speaker 1: game changer. I mean, ultimately, a lot of these structural

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00:28:25,880 --> 00:28:29,399
Speaker 1: elements in the economy are still in play. And you know,

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00:28:29,440 --> 00:28:32,040
Speaker 1: a two point five percent on the tenure treasury. I

515
00:28:32,040 --> 00:28:35,680
Speaker 1: mean that's something that we haven't really seen since. So

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00:28:35,920 --> 00:28:38,880
Speaker 1: you know, a lot of a lot of investors are saying,

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00:28:38,960 --> 00:28:41,200
Speaker 1: you know, it's time to start, you know, putting some

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00:28:41,280 --> 00:28:44,440
Speaker 1: money back to work here, even if they are still

519
00:28:44,480 --> 00:28:49,040
Speaker 1: being quite cautious. Nothing like having people follow a move

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00:28:49,800 --> 00:28:53,080
Speaker 1: into a record territory rights nothing, nothing like that. Thanks

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00:28:53,200 --> 00:28:56,600
Speaker 1: very much, Brian Schappatz, our bond reporter, for a Bloomberg

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00:28:56,760 --> 00:29:00,480
Speaker 1: great story on the Bloomberg about the sail off in treasury.

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00:29:06,120 --> 00:29:08,600
Speaker 1: Thanks for listening to the Bloomberg P and L podcast.

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00:29:08,960 --> 00:29:12,760
Speaker 1: You can subscribe and listen to interviews at iTunes, SoundCloud,

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00:29:12,960 --> 00:29:17,160
Speaker 1: or whatever podcast platform you prefer. I'm pim Fox. I'm

526
00:29:17,160 --> 00:29:20,120
Speaker 1: out there on Twitter at pim Fox. I'm out there

527
00:29:20,120 --> 00:29:23,440
Speaker 1: on Twitter at Lisa Abramo. It's one before the podcast.

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00:29:23,440 --> 00:29:34,560
Speaker 1: You can always catch us worldwide on Bloomberg Radio. P

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00:29:34,720 --> 00:29:36,600
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