Speaker 1: Hello, and welcome to What Goes Up, a Bloomberg Weekly
Speaker 1: Markets podcast. I'm Sarah Ponza, a reporter on the Cross
Speaker 1: Asset team, and I'm Mike Reagan, a senior editor on
Speaker 1: the Markets team. This week on the show, the Federal
Speaker 1: Reserve held their last meeting of the year, keeping policy unchanged,
Speaker 1: and the ECB had their first with Christine Legard at
Speaker 1: the Helm Plus. After one of the best years for
Speaker 1: the bull market in stocks, what is there now to
Speaker 1: look forward to? Well, one thing, sorry, you can look
Speaker 1: forward to is the craziest thing I saw in markets
Speaker 1: this week. Our tradition which we will end the show with,
Speaker 1: of course, and a reminder if you see something crazy
Speaker 1: in markets, uh, see something, say something? Uh specifically, call
Speaker 1: our what goes Up hotline and leave us a voicemail. Sorry,
Speaker 1: what's that number again? That number six or six three
Speaker 1: two for three four nine zero. So, as Mike said,
Speaker 1: if you see something, say something, Yeah, maybe we'll play
Speaker 1: your voicemail on the show. But let's get right to
Speaker 1: today's show. We've got a first time guest on the show.
Speaker 1: His name is Mike Schumacher. He's the head of interest
Speaker 1: rate Strategy at Wells Fargo, Mike, welcome to the show.
Speaker 1: Thanks very much, great to be here. Great, great and
Speaker 1: another guest back literally by popular demand. Um, if your
Speaker 1: listeners out there, I don't know if you realize this,
Speaker 1: you can request guests apparently, So this became a new
Speaker 1: trend in our Twitter feed when we ask for crazy things. Well,
Speaker 1: instead we have just gotten demands for our other guests.
Speaker 1: So yes, yes, and so this one goes out to you,
Speaker 1: Ellie Paname mon Underscore Singe on Twitter, who tweeted at
Speaker 1: us we demand more, give the people what they want. Well,
Speaker 1: we're given it to Ellie Paname. I'm a little susp
Speaker 1: a'cious about this account. Chris. The profile pictures is a
Speaker 1: picture Kevin McHale of the Boston Celtics wearing shorts that
Speaker 1: I cannot describe on a family podcast due to that
Speaker 1: eighties Arab basketball shorts. Chris being a Boston native, I'm
Speaker 1: a little skeptical about this, but we're gonna assume this
Speaker 1: is a real grassroots campug. Nothing to know when I've
Speaker 1: ever met in my life. Okay, did you believe that's sir?
Speaker 1: Not at all? And that voice is Chris Nagy, the
Speaker 1: executive editor of the cross asset team Man Equities here
Speaker 1: at Bloomberg and Mike, they're gonna be tweeting to demand you.
Speaker 1: I'm sure again fantastic. I will not wear funny sorts. So,
Speaker 1: like I wanted to ask you, you know, we got
Speaker 1: some inflation data this week. Um, I know the Fed
Speaker 1: prefers pc but the latest data we got was c
Speaker 1: p I. I gotta say core CPI two point three percent.
Speaker 1: Headline was about two point one percent. At what point
Speaker 1: do we have to start worrying about the Fed when
Speaker 1: it comes to inflation. I mean, this isn't the highest
Speaker 1: it's been at the cycle, but you know, we're we're
Speaker 1: getting back to sort of that target level the FED
Speaker 1: would like to see. Inflation took up frankly from Chairman
Speaker 1: Powell's discussion recently, he'd be thrilled if inflation were two
Speaker 1: two to three on a core basis for an extended period.
Speaker 1: Central bankers know what to do with inflation. They just
Speaker 1: hit it over the head. So the FED could let
Speaker 1: inflation run for a while. That would be dandy. So
Speaker 1: bottom line is, we're not concerned. I don't think the
Speaker 1: FED is either. So inflation was certainly a hot topic.
Speaker 1: It came up in many questions at the press conference
Speaker 1: on Wednesday. One point really stuck out to me from
Speaker 1: FED chair Powell. He was talking about the so called
Speaker 1: Philip's curve unemployment how it relates to inflation. It seemed
Speaker 1: as though he was saying, we can have a tight
Speaker 1: labor market, that's fine, but maybe the labor market isn't
Speaker 1: so tight and we are not seeing extreme wage growth.
Speaker 1: Did that really resonate with you. Did something from that
Speaker 1: conversation stick out to you? Yeah, it's interesting, Sarah. So
Speaker 1: essentially he's making the case of the Phillips curve with
Speaker 1: respect to wages is pretty flat, and wage growth actually
Speaker 1: has been pretty good if you look at the lower
Speaker 1: segment of the po pulation. So let's say the bottom
Speaker 1: of wages paid, they're up almost four and a half
Speaker 1: percent in the last year, which is great, and even
Speaker 1: the top runners are up almost three percent, and yet
Speaker 1: unemployments three and a half. Inflation we just heard as
Speaker 1: ticked up, but it's nothing crazy. So I think Chara
Speaker 1: Polo is right when he says we can probably tolerate
Speaker 1: lower unemployment than we thought in the past without inflation
Speaker 1: going wild. So the curve is flatter, but not totally
Speaker 1: flat like the other big news this week obviously, was
Speaker 1: what appears to be we're getting closer and closer to
Speaker 1: a trade deal now. To be honest, as we record
Speaker 1: this on a Thursday, it looks like the latest report
Speaker 1: suggests that, um, they're very close. Who knows what will
Speaker 1: happen in the half hour that we record this, right,
Speaker 1: have at it, even we deserve it if uh, you know,
Speaker 1: what are what are yields gonna look like? Though? If
Speaker 1: we do reach a piece between US and China in
Speaker 1: trade er, I mean, you know, tenure treasury is now
Speaker 1: approaching that two percent level. Um, where do you expect
Speaker 1: it to stop? If we do get good news on
Speaker 1: the trade front we've been make in the case, if
Speaker 1: there's a fairly modest trade deal, which I would call
Speaker 1: this potential thing, that the tenure treasury goes to to
Speaker 1: ten maybe two fifteen. And the way we get there
Speaker 1: is we looked at we're tend stood back on July
Speaker 1: thirty one, So that was the day of the first fetties.
Speaker 1: The tenure was too oh two. The next day, you
Speaker 1: might recall, President Trump put out his tweet really mandating
Speaker 1: in all us companies find alternatives to Chinese suppliers. So
Speaker 1: we think that something like two oh one too oh
Speaker 1: two is pretty easy to beat. But since that date
Speaker 1: there's been so much easing by central banks. Would say
Speaker 1: anything a lot higher than that's probably out of reach.
Speaker 1: So to ten, maybe two fifteen, if you're aggressive, somewhere
Speaker 1: in that range we think makes sense. Chris, I want
Speaker 1: to bring you in here on that topic. So say
Speaker 1: we do get a trade deal this weekend, all is great.
Speaker 1: All of a sudden, you see yields made me move
Speaker 1: up to ten to fifteen. Is that still a good
Speaker 1: environment for what are he's going forwards? I mean, there's
Speaker 1: still pretty low interest rate, right what's not to like? Really?
Speaker 1: I mean, the one thing you have to think about
Speaker 1: is that you've just had this gigantic here, and one
Speaker 1: interpretation of what happened is that what usually happens stock
Speaker 1: market looks ahead to the future. The market may well
Speaker 1: be saying something good about the macro. Backdrop in the
Speaker 1: question is how much more do you really expect out
Speaker 1: of stocks right now? I mean, you're going to have
Speaker 1: year here expecting tons more on top. It's certainly possible,
Speaker 1: you know, Uh, growth is not twist to fall apart.
Speaker 1: Earning supposed to be strong, but the question is how
Speaker 1: much was that baked in? And something that someone said
Speaker 1: to me this week and I found very interesting on
Speaker 1: the trade subject was that even if we do get
Speaker 1: a trade deal and sure China goes along and buys
Speaker 1: agricultural goods, things seem like they're moving along pretty nicely.
Speaker 1: Maybe phase one turns into phase two, phase three per se.
Speaker 1: The issue is that companies have are already started changing
Speaker 1: their supply chains, and that that's pretty expensive. And if
Speaker 1: they have been changing their supply chains over the past
Speaker 1: year and a half whenever this all started back in March,
Speaker 1: wouldn't it be pretty difficult then for companies to start
Speaker 1: really going back to how it was or not putting
Speaker 1: money into changing the supply chains again, and that profits
Speaker 1: could remain print from that point that could then feed
Speaker 1: into the global economy next year. Is that anything of
Speaker 1: the sort that you're thinking of with your team over
Speaker 1: at Wells Fargo, I'd say a bit. And I certainly
Speaker 1: take the point that yes, there's probably been some switch
Speaker 1: over to whether it's Vietnam, Malaysia, Indonesia, who knows, but
Speaker 1: countries ex China, but probably not anywhere near. So those
Speaker 1: companies who have not made the switch, who said, gee,
Speaker 1: we hope this blows over, they should benefit quite a
Speaker 1: bit if there's some sort of deal. So I guess
Speaker 1: the way frame it from a market standpoint is, would
Speaker 1: there be a decent uptick and confidence almost certainly, would
Speaker 1: there be a pickup and growth probably, So it should
Speaker 1: be a pretty good risk on move. Is that if
Speaker 1: this happens. You know, Mike, we're getting near the end
Speaker 1: of the year. Obviously, goodness a long one has but
Speaker 1: there's one hurdle left to go, and that is the
Speaker 1: sort of funding stress that you often see at the
Speaker 1: end of the year in the repo market. Uh, walk
Speaker 1: us through how you're thinking about that, and really, for
Speaker 1: the listeners who are not too in the weeds, UH
Speaker 1: in this market of me being one of them, for example,
Speaker 1: explain to us why this funding stress happens at the
Speaker 1: end of the year and what role the repo market
Speaker 1: plays in it. Yeah, it's been an incredibly hot topic
Speaker 1: over the last few months. Repost spiked in mid September.
Speaker 1: The fed goot very concerned about it. But to back
Speaker 1: up a little bit, the core of the problem, we
Speaker 1: would say, and probably most people would agree, is that
Speaker 1: bank balance sheets are very constrained, capital requirements are tight,
Speaker 1: they're all sorts of liquidity issues, etcetera, etcetera. So banks
Speaker 1: probably don't have as much flexibility to put cash into
Speaker 1: the repo market as you might think. Now, the way
Speaker 1: that showed up in September is that something called excess
Speaker 1: reserves has gone down a lot, and it's probably a misnomber.
Speaker 1: The reserves aren't really so excess, and at the margin,
Speaker 1: one extra dollar really tipped the market into a frenzy,
Speaker 1: and all of a sudden there was simply not enough
Speaker 1: cash to go around. Now, the FED saw this, every
Speaker 1: one in the market sought and the central bank response
Speaker 1: to a problem is put lots of liquidity into the system. Now,
Speaker 1: this addresses the symptoms, but not the underlying core of
Speaker 1: the problem. The core of the problems you need regulatory relief,
Speaker 1: but that probably takes quite a while. So the Feed
Speaker 1: is pushing a lot of liquidity into the system. Now,
Speaker 1: there was announcement not too long ago that talked about
Speaker 1: doing a bit more of that. So we think the
Speaker 1: FED is very much on the game. If you will,
Speaker 1: there are two schools of thought. We are of the
Speaker 1: mind that the fedle put enough liquidity in the system
Speaker 1: to really mitigate big problems. REPO probably goes up somewhat
Speaker 1: towards the end of the year. It was about five
Speaker 1: percent a year ago. Right now it's around four. For
Speaker 1: the turn of the year. Maybe it gets back to five,
Speaker 1: but we very much doubt it gets to nine or ten,
Speaker 1: which is where it was in September. But talking to
Speaker 1: a lot of clients, they tell me, I get it,
Speaker 1: But you still may have a case where a number
Speaker 1: of big banks really don't want to put the cash out,
Speaker 1: so any amount of liquidity will not be enough. We
Speaker 1: think that's unlikely, but it's possible. So that's really the issue.
Speaker 1: In a nutshell, is the supply of treasuries part of
Speaker 1: the issue, especially on that short end. I mean, here
Speaker 1: we are, we're running a trillion dollar deficit. UH, investors
Speaker 1: are more in the mood for risky assets. It seemed like,
Speaker 1: seems like UH, those primary dealers having a hard time
Speaker 1: funding purchases of treasuries. And here we have politicians talking
Speaker 1: about perhaps a middle class tax cut UH next year.
Speaker 1: So maybe even bigger deficits. I mean isn't that supply
Speaker 1: A treasury is part of the story too. It is
Speaker 1: a big part of the story. So long term, you
Speaker 1: look at the US budget, the episode of around a
Speaker 1: trillion dollars, Treasury has to fund it. That means lots
Speaker 1: of net issuance. Now the primary dealers have to buy.
Speaker 1: That's what it means to be a primary dealer. So
Speaker 1: if you look at primary dealer holdings of treasuries, they
Speaker 1: have roughly doubled in the last year from about a
Speaker 1: hundred and fifty billion to about three billion. Now this
Speaker 1: is just the primary dealer aspect of a bank, it's
Speaker 1: not the entire bank. So at some point you can say, well,
Speaker 1: maybe the primaries have about as much as they want
Speaker 1: they really don't want to have or treasuries on the
Speaker 1: balance sheet. Maybe the FED could come to the rescue.
Speaker 1: This is why Chairman Paul recently got the question, I
Speaker 1: think anyway about potentially expanding the universe of securities the
Speaker 1: FED would buy, maybe buying some of these short coupon
Speaker 1: bonds at dealer's own that sort of thing. So, yes,
Speaker 1: it's very much the case. The big deficit and heavy
Speaker 1: treasury supply impact the REPO situation. So should we just
Speaker 1: expect that FED balance sheet to just keep growing throughout
Speaker 1: and and beyond. I mean, I promised not to call
Speaker 1: quantitative easy. I can't callie, but I mean that balance
Speaker 1: sheet is it's hard to imagine it's shrinking again anytime soon. Right,
Speaker 1: we agree with that, And the FED really has talked
Speaker 1: about making FED funds the primary tool for conducting monetary policy.
Speaker 1: But QUI seems awfully convenient. Do a little quie, buy
Speaker 1: some treasury bills, try to help fix the repo problem,
Speaker 1: maybe expand out the curve possibly if things aren't going
Speaker 1: that well. So I think you're right, you probably will
Speaker 1: see the balance sheet expand. In a theoretical world of
Speaker 1: asking this just because over the last week, i'll call it,
Speaker 1: there was some hubbub over the repo squeeze, talking about
Speaker 1: a potential year end squeeze. Say, theoretically we did see
Speaker 1: that happen. Could we potentially see fall out to other
Speaker 1: areas of the fixed income space as well, or would
Speaker 1: it be more so concentrated you can see fallout. Repo
Speaker 1: is really like the grease that keeps the engine moving spinning.
Speaker 1: So if that really gets clawged and makes it much
Speaker 1: tougher for clients of any type to transact, and very
Speaker 1: difficult for players like hedge funds to get short term funding.
Speaker 1: Not to say it's completely unavailable, but available at really
Speaker 1: stratospheric rates, So there could be a lot of fallout. Chris,
Speaker 1: I feel like the repo market is something equity investors
Speaker 1: uh pretend doesn't exist until they have to uh cram
Speaker 1: cram their studies about what's going on, you know, and
Speaker 1: what you edit and what you read. Uh does this
Speaker 1: repo all this liquidity to the repo market? I think
Speaker 1: the um assumption from a lot of people is that
Speaker 1: this is part of this last of the rallying stocks.
Speaker 1: Is liquidity good for stocks no matter what, even if
Speaker 1: it's in the short end of the Yes, And an
Speaker 1: argument can be made to things that caught, you know,
Speaker 1: strain the system, like a gigantic budget deficit is weirdly
Speaker 1: good for stocks. It's so liquidity provider to the reason.
Speaker 1: I mean, it's a giant tax cut basically at the
Speaker 1: back of that, and that's been arguably a huge factor
Speaker 1: in the background again for the stock market. So these
Speaker 1: things are are are tail winds until they become headwinds.
Speaker 1: You never really know when a giant it's a big
Speaker 1: nebulous issue for the market. I think people are aware
Speaker 1: that the US is getting a little over its skis
Speaker 1: on some of it's borrowing, and to the extent that
Speaker 1: the whole repot thing is emblematic of that. It's a
Speaker 1: factor for the market. I would agree your average equity guy,
Speaker 1: they didn't pretend it doesn't exist, it doesn't doesn't want
Speaker 1: to talk about it beyond his capacity. I will say, though,
Speaker 1: in more and more conversations with different investors that I
Speaker 1: speak with, liquidity is coming up as a reason for
Speaker 1: this year end rally and equity. As I asked them
Speaker 1: what's going on, They talk about the balance sheet, They
Speaker 1: talk about this not being kiwi. But the fact of
Speaker 1: the matter is there's more liquidity in the system. And
Speaker 1: Davis had a pretty good research note on this, and
Speaker 1: they said, look, money flows to where it's treated best,
Speaker 1: and right now it's being treated well. And the equity
Speaker 1: were I mean, if you buy that last year or
Speaker 1: so off was the opposite, it was a reaction to
Speaker 1: power going too far in the other direction that you
Speaker 1: kind of have to you kind of have to buy
Speaker 1: that that argument for this year I mean the FED
Speaker 1: is sitting there, you know, latering liquidity into stockholders hands.
Speaker 1: So like it all gets back to what is the
Speaker 1: biggest risk of all this, of all this, these huge deficits,
Speaker 1: this huge issuance of treasuries, the FED buying, I mean,
Speaker 1: is it does it all get back to inflation? As
Speaker 1: long as inflation stays cool enough that uh, you know,
Speaker 1: these giant deficits, this giant supply doesn't matter if inflation
Speaker 1: is low and therefore borrowing costs are low. It's probably
Speaker 1: not a huge issue with respect of the US budget.
Speaker 1: And it's interesting how many presidential candidates the cycle of
Speaker 1: talked about fiscal restraint. That's right, zero, nobody not and
Speaker 1: pres and a Trump also I put in that camp.
Speaker 1: So no one at the top seems super concerned about it.
Speaker 1: We can come up with risks. It's conceivable maybe there's
Speaker 1: a foreign buyer strike, But I think you have to
Speaker 1: ask yourself what else would they buy? Do you really
Speaker 1: think investors in Japan or China or elsewhere in Asia
Speaker 1: or Latin America are going to buy a lot of
Speaker 1: European government bonds that have negative yield? Probably not. Do
Speaker 1: you really think that investors who actually need a lot
Speaker 1: of liquidity potentially and one high credit quality can go
Speaker 1: too far away from the US. Doesn't seem that likely.
Speaker 1: So the US markets by virtue of being very homogeneous
Speaker 1: for one in liquid and also having excellent credit quality,
Speaker 1: it's a home field advantage. So it's tough to lose that.
Speaker 1: I don't know if you follow the whole uh craze
Speaker 1: of modern monetary theory m M T at all, But um,
Speaker 1: you know the idea that that deficits don't matter. We've
Speaker 1: we've spent our lifetimes worrying about the deficits. Crank up
Speaker 1: that printing press Are they sort of being proven right
Speaker 1: to some degree? Do you think? Um? At least you know,
Speaker 1: for example, if you're the U S and your currency
Speaker 1: is the reserve currency, uh, and you don't have to
Speaker 1: really worry about a major devaluation in the currency if
Speaker 1: you're if you're cranking up the printing presses. Recently, it's
Speaker 1: worked out. I certainly wouldn't accept that long term. But
Speaker 1: in a world where yields are generally quite low globally
Speaker 1: and the US has a reserve currency, the US government
Speaker 1: can run a pretty big deficit, and right now it's
Speaker 1: the biggest by far across G ten. It's more than
Speaker 1: five of the US GDP, and the next biggest one
Speaker 1: is sort of a tie between Japan and France at
Speaker 1: about three. So the US is running a much bigger deficit,
Speaker 1: no doubt. So going back to the interest rate conversation,
Speaker 1: but bringing it over to equity is something that did
Speaker 1: happen this week was that the S and P five
Speaker 1: hundred financial index, very closely tied to movements and interest
Speaker 1: rates lately, finally took out It's two thousand seven high. So, Chris,
Speaker 1: what does this really tell you about how far we've
Speaker 1: come the journey that it's been over the past twelve
Speaker 1: years or so, Right, it's sort of the final chapter
Speaker 1: in that in the financial crisis. From the stock market perspective,
Speaker 1: I think you have to look at it as really
Speaker 1: mainly testament to the power of the bullmarket. The bullmarket
Speaker 1: insanely powerful thing. Pretty Much everything that you could do
Speaker 1: to you could throw up in the face of banker
Speaker 1: to impede bank earnings has been done. All the vulcar stuff,
Speaker 1: risk taking rained in, and interest rate environments the opposite
Speaker 1: of what they want pretty much, And yet those stocks
Speaker 1: still pulled above all that stuff. They rallied an insane
Speaker 1: amount from the bottom they fell the most, and they
Speaker 1: had to rise something like sixfold to get back to
Speaker 1: a record. So I think it's entirely the rising tide
Speaker 1: of the stock market, and nothing specific to bank stocks
Speaker 1: other than the fact that they're part of you know,
Speaker 1: they're part of the US economy and we're taking part
Speaker 1: in their earnings have slowly crept back. Chris, one of
Speaker 1: the stories that caught my eye from your team this
Speaker 1: week was this notion that a lot of the strategist
Speaker 1: on Wall Street are getting bullish towards small caps um Now,
Speaker 1: is that sort of you know, an unwind of the
Speaker 1: defensives versus cyclical trade in some degreem Obviously, you know
Speaker 1: the the SMP is a little bit more defensive than
Speaker 1: the Russell two thousand. Is that all part and parcel
Speaker 1: that you think that that makes sense? That there's a
Speaker 1: bunch of different ways to frame. One would just be
Speaker 1: how much more bullish can they get? As we were
Speaker 1: discussing on large caps or megacaps in the US, I mean,
Speaker 1: you set a gigantic year, you've run out of positive things.
Speaker 1: There's actually this dynamic where they've they actually set there
Speaker 1: to estimates and then the market went crazy underneath them.
Speaker 1: So all of those pretty optimistic estimates when they set
Speaker 1: them now in a percentage basis, look like nothing. This
Speaker 1: is sort of as something we've we've touched on a
Speaker 1: few times. So they've run out of things to be
Speaker 1: excited about. And if there's one thing that strategists are
Speaker 1: going to perennially do, it's try to be excited about something.
Speaker 1: Small Caps are the one thing that's kind of about
Speaker 1: performed this year, and you know, makes sense that that's
Speaker 1: what they're choosing. I do have to say there is
Speaker 1: one quote in that story about small caps that I
Speaker 1: was a little bit particle of just because one person
Speaker 1: came out and said that, well, yeah, small caps might
Speaker 1: take off in the fact that we get a trade
Speaker 1: deal and all of a sudden they're more domestically oriented
Speaker 1: and small caps which should do better. But a year
Speaker 1: and a half ago people were saying the exact opposite,
Speaker 1: that once we got a trade war, then more domestically
Speaker 1: oriented U S docks should do better, and they never did. Yeah,
Speaker 1: looking for a coherent UH, I would be against anyone
Speaker 1: like parsing the things that I say week a week
Speaker 1: on this podcast for consistency half the time. Um, you
Speaker 1: know Ellie Pennam, he would never cast any down on
Speaker 1: my my thesis. Uh. Like. If let's turn to Europe
Speaker 1: a little bit. Christine Legarde made her debut at the
Speaker 1: ECB this week. Uh clearly she didn't make she didn't
Speaker 1: break anything, you know, Uh, no major freak outs in markets.
Speaker 1: Do you see uh much of a change of the
Speaker 1: guard there or is it sort of steady as she
Speaker 1: goes in Europe? It's a change of Luguard. But there
Speaker 1: you go right into that. You did, Thank you. I
Speaker 1: thought she was very smooth. She's a super seasoned politician
Speaker 1: as we know, so as far as being able to
Speaker 1: present and get a message across, she might already be
Speaker 1: the best central banker on day one. That's quite possible,
Speaker 1: just given her personal experience as far as policy goes,
Speaker 1: I would agree she didn't say much, but didn't really
Speaker 1: have to. E c B is starting a review next
Speaker 1: month that'll go on a good chunk of the year,
Speaker 1: just like the Fed is doing a review, so that
Speaker 1: gives some cover. And the e c B has already
Speaker 1: been so easy for so long it's hard to see
Speaker 1: a radical shift getting easier. Maybe a little bit on
Speaker 1: the margin, maybe the deposit rate goes from minus fifty
Speaker 1: to minus sixty, but probably the better avenue is to
Speaker 1: do a bit more q E. So we don't see
Speaker 1: a huge shift on tap right now. But at this
Speaker 1: point we just don't know enough about her views. You know,
Speaker 1: one story we had out after her press conference was
Speaker 1: there was a discussion h the forehand about the negative
Speaker 1: effects of negative yielding debt um So they are listening
Speaker 1: to sort of the complainers out there, the pension funds,
Speaker 1: the banks, the US. I'm curious how you've been in
Speaker 1: this business a while. Would twenty years ago, would you
Speaker 1: have ever guessed a we'd see uh, negative yielding debt,
Speaker 1: and where do you see it going in that whatever
Speaker 1: X number of trillion dollars of negative yielding debt, it's
Speaker 1: bound to come down, I would guess, right, Negative yielding
Speaker 1: debt is not something I would have foreseen or probably
Speaker 1: anyone really years ago, and yet here it is, and
Speaker 1: it's huge. It's whatever the number is today, thirteen fourteen
Speaker 1: trially and some some crazy numbers. So we suspect when
Speaker 1: the history has written about negative policy rates, they'll be
Speaker 1: deemed to be a pretty poor idea. It doesn't seem
Speaker 1: to us they've worked a ton. Again, we prefer the
Speaker 1: Quei avenue if a central bank is going for non
Speaker 1: traditional policy, and KIWI has a really disruptive effect on
Speaker 1: banking systems. So it seems, especially running in Europe, which
Speaker 1: is very banking center, that it's gone super negative. US
Speaker 1: hasn't done that, all right, So before we get to
Speaker 1: the craziest thing, Chris coming back to you again as
Speaker 1: a shameless plug reporter and editor on your team. Low
Speaker 1: Wing has a great story coming out this weekend and
Speaker 1: it's about the best sharp ratio ever. So I was
Speaker 1: hoping you could maybe give us a little bit of
Speaker 1: a preview. Well that, yeah, that's a great start. That's
Speaker 1: just looking at the basically volatility adjusted uh return in
Speaker 1: the SMPP hunter, which means so if you're an asset
Speaker 1: and you bounce around ten percent a day and it's
Speaker 1: an incredibly jarring ride, then it's less of a big
Speaker 1: deal in a way if you if you cover a hundred,
Speaker 1: if you double say, because you know the moves have
Speaker 1: been so big, you could just as easily have fallen
Speaker 1: by half or fallen by this is the sharp ratio
Speaker 1: means that it's just a steady climb. It's measures the
Speaker 1: steadiness and the slope of the climb. And what you
Speaker 1: found is that this year of this decade, the one
Speaker 1: coming right after the financial crisis, the one where everyone
Speaker 1: was like stocks are dead, you can't touch stocks, is
Speaker 1: the best decade on record as far as we can
Speaker 1: calculate a Sharps ratio, going back about eighty years. Uh,
Speaker 1: this is bigger than just a little bit, bigger than
Speaker 1: the tech bubble. The tech bubble was much bigger return,
Speaker 1: but much more volatility on the way up. You look
Speaker 1: at the charts of they're crazy. The moves all look
Speaker 1: like a year moves this year just incremental couple, Yeah,
Speaker 1: a couple of meltdowns. But uh, for the most part
Speaker 1: during the last ten years, pretty much steady climb without
Speaker 1: a hell of a lot of volatility. You know what
Speaker 1: I thought, speaking of sharp ratios, I was curious, if
Speaker 1: you take a triple levered stock fund, what would you
Speaker 1: guess higher sharp or lower sharp than the regular by
Speaker 1: far lower higher, my man, So, Mike and I were
Speaker 1: on the e T F Trillions podcasts this past week
Speaker 1: and Mike stopped talking about leverage GTS. He's all all
Speaker 1: about it. If you bought the triple levered q q
Speaker 1: Q four thousand percent return, okay, because some insane return
Speaker 1: in the decade. In the decade, right, well, that's it.
Speaker 1: Your numerators higher than your denominator kind of. I feel
Speaker 1: like it would have gone to zero a few times.
Speaker 1: You know, if you're bullish stocks, go go big or
Speaker 1: go home. You know, if you never get stopped out,
Speaker 1: that's pretty crazy to kick it off listeners at home.
Speaker 1: I do not really recommend that. It's just just a
Speaker 1: discussion point. We don't recommend anything. I just wanted to
Speaker 1: get the trillions et f listeners riled up about some time.
Speaker 1: Maybe they'd hate listen to the show. All right, So
Speaker 1: I guess the sharp raisio for a levergy TF is
Speaker 1: pretty crazy. But Mike, what's your actual crazy thing this week? Okay?
Speaker 1: Do you guys might have noticed President Trump was a
Speaker 1: little angry recently? They noticed that, Yeah, what do you
Speaker 1: think he's angry about? Chris? Alright, like the kid who
Speaker 1: hits the climate cheese? Like that kid, that's true? Like,
Speaker 1: what do you think he's angry at not thrilled about
Speaker 1: the impeachment thing. Yeah, he's angry about that stuff, but
Speaker 1: he was really angry about toilets. He's mad at how
Speaker 1: often enough to flush at toilet. He came out and
Speaker 1: he said, people are flushing toilets ten fifteen times. I
Speaker 1: don't look, I don't know anyone who flushes needs to
Speaker 1: flush the toilet fifteen times. Granted I do not travel
Speaker 1: in the same social circles as President Trump, but it
Speaker 1: got me. Uh, you know a lot of people making
Speaker 1: jokes about this, but as sort of the equities background,
Speaker 1: it made me think, well, are we gonna have to
Speaker 1: replace our toilets now because of President Trump? And what
Speaker 1: stocks could benefit from that? So I went I did
Speaker 1: some research, some some research on toilets. Uh, sure you
Speaker 1: really enjoyed that research. Good. A good website to start
Speaker 1: if you're curious, flush guide dot com. A lot of
Speaker 1: this comes from them. The hottest toilet in the country
Speaker 1: American standard. It's not American, it's made in Japan by
Speaker 1: a company called Lixel. And actually the second biggest toilet
Speaker 1: maker is a company called Toto. Also Japanese also probably
Speaker 1: make Trump mad. So I was figured, all right, someone's
Speaker 1: got to be buying toilet stocks after this comment, right,
Speaker 1: not really, Lixel down about two percent since Trump said this,
Speaker 1: tote up one percent. So I thought, well, what could it?
Speaker 1: What could it be about? Toto and they sell You're
Speaker 1: not gonna believe this, Sarah. This is the craziest thing
Speaker 1: I've seen in a while. Their Neo rest and X
Speaker 1: two dull flush toilet list price thirteen thousand dollars. You're
Speaker 1: going to be right, but it's the Yeah, look, it's
Speaker 1: a thing of beauty. It looks like Steve Jobs designed
Speaker 1: this thing. And you know what's crazy. I never thought
Speaker 1: that we'd be talking about toilets on this show for
Speaker 1: a couple of minutes at a time. Yeah, I can
Speaker 1: go on who you can, I can tell. But Trump
Speaker 1: would love this one because it has technology known as
Speaker 1: the Tornado flush, two powerful nozzles that create centrifugal cyclonic
Speaker 1: rest in action. Now but here listen, is more effective
Speaker 1: in one flush than most toilets are with multiple flush. Trump,
Speaker 1: if you're listening, I got the solutionary fixed amazing, unbelievable, unbelievable. Chris,
Speaker 1: did you come prepared with anything? Well, I was just
Speaker 1: gonna bring up the crazy Walmart Cocaine Santa and that's it,
Speaker 1: And moving on, switters Matter something that depicts snowman Santa
Speaker 1: sitting in front of snow with the crazy eyes and
Speaker 1: the snow is arranged in little white lines, and I
Speaker 1: don't think it's called cocaine step. But then the caption is, Oh,
Speaker 1: it's going to be a white Christmas. So this thing
Speaker 1: lasted like twenty minutes before they were forced to pull
Speaker 1: it because of popular outcry. Possibly yes, possibly appropriate. The
Speaker 1: ugly sweaters are a big thing around the holidays now,
Speaker 1: I think that's yeah, big big stimuls see economy. Alright, Sarah,
Speaker 1: what do you got? So did everyone here see the
Speaker 1: original video of the Tesla cyber truck when they were
Speaker 1: going to throw the ball at its mass the window.
Speaker 1: Huge mistakes. So there's another video that's now making its
Speaker 1: ways around with the Tesla cyber truck and it's uh.
Speaker 1: Elon Musk himself decided he was going to take out
Speaker 1: one of the prototypes to go eat at Nobu in Malibu, California,
Speaker 1: and there's a video of him on TAMZ. He's leaving
Speaker 1: in the cyber truck and at the very end of
Speaker 1: it he knocks over a sign, makes an illegal turn
Speaker 1: the wrong way. Um So, once again a video of
Speaker 1: the Tesla cyber truck making its way around the internet.
Speaker 1: But at the same time, Tesla stock is trading at
Speaker 1: the highest levels in a year, so maybe all the
Speaker 1: publicity is good. I'm a contrarian on that cyber truck.
Speaker 1: I think it's going to sell. Well. Yeah, it looks
Speaker 1: like something you find on the moon. It looks amazing.
Speaker 1: It really all right, Mike today, warry about our gimmick.
Speaker 1: Here the craziest thing. I was thinking about this, and
Speaker 1: it's very difficult to top the funky Santa, the toilet
Speaker 1: or the truck. But we come, we come prepared. I
Speaker 1: will throw out that. I think our president tweeted something
Speaker 1: like a hundred times this past Sunday. It was some
Speaker 1: crazy no, a hundred times on Sunday. I'll put that out.
Speaker 1: Just think about the interval between tweets. What correction I
Speaker 1: was waking time was tweeting? It's pretty high? Is that
Speaker 1: all original tweets? Does that include retweets? Are you getting
Speaker 1: pretty deep? I don't know that. It's the important information
Speaker 1: that we need to know, sir. You gotta tweet more
Speaker 1: I do. I I can't even match one hundred. I
Speaker 1: could maybe tweet a hundred times in two years. Maybe
Speaker 1: I gotta I got to step it up. Work to do,
Speaker 1: We've all got work to do. Well. One guy who
Speaker 1: tweets a lot is Ellie Panamey, who's I actually know
Speaker 1: who this person is, and he's gotten about two thousand
Speaker 1: more air time than well, he got exactly what he wants.
Speaker 1: So with that said, Chris Nigi Mike Chumucker, thank you
Speaker 1: so much for both coming on the show. Thank you
Speaker 1: What Goes Up. We'll be back next week. Until then,
Speaker 1: you can find us on the Bloomberg Terminal, website and
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Speaker 1: if you took the time to rate interview the show
Speaker 1: on Apple Podcasts so more listeners can find us. And
Speaker 1: you can find us on Twitter, follow me at therapont Seck,
Speaker 1: Mike is at Reaganonymous, Chris Nagi is at Chris nag one,
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Speaker 1: Goes Up is produced by over Foreheads. The head of
Speaker 1: Bloomberg podcast is Francesca Levie. Thanks for listening. See you
Speaker 1: next time.