WEBVTT - Impeachment and Fat Tails 0:00:14.400 --> 0:00:17.680 Hello, and welcome to What Goes Up, a Bloomberg Weekly 0:00:17.760 --> 0:00:21.440 Markets podcast. I'm Sarah Pontzac, a reporter on the Cross 0:00:21.440 --> 0:00:24.239 Asset team, and I'm Mike Reagan, a senior editor on 0:00:24.280 --> 0:00:27.600 the Markets Team. This week on the show, recession fears 0:00:27.600 --> 0:00:31.280 are back in vogue. The worst I s M manufacturing 0:00:31.320 --> 0:00:34.000 reading in a decade was followed by a three year 0:00:34.080 --> 0:00:37.080 low and services. Our guests will discuss the strength of 0:00:37.120 --> 0:00:41.199 the economy and how worried markets should actually be. And 0:00:41.280 --> 0:00:43.960 if you're wondering if we saw any crazy things in 0:00:44.040 --> 0:00:46.400 markets this week, come on. Of course we did, so 0:00:46.440 --> 0:00:49.279 we will close out the episode with the craziest things 0:00:49.320 --> 0:00:51.040 we saw on markets this week. Sarah, I'm gonna give 0:00:51.040 --> 0:00:53.360 you one hint for mine, all right, give us a hint. 0:00:53.440 --> 0:00:56.040 The Hamptons. The Hampton's all right, you know where I'm 0:00:56.080 --> 0:00:58.160 going with that. I don't. This is always how it goes. 0:00:58.200 --> 0:00:59.480 You give us a hint. I have no idea where 0:00:59.480 --> 0:01:00.880 you're going with it. And then we have to wait. 0:01:03.400 --> 0:01:05.520 Now we have to wait. But remember we do have 0:01:05.560 --> 0:01:09.119 our very own Bloomberg Podcast hotline. You have any questions 0:01:09.400 --> 0:01:11.199 for us, you want to call in, tell us about 0:01:11.200 --> 0:01:13.240 the crazy things that you guys have seen in markets. 0:01:13.400 --> 0:01:15.920 Give us a call, leave us a voicemail. It's six 0:01:16.000 --> 0:01:19.800 four six three two four three four nine zero and 0:01:19.880 --> 0:01:22.200 we may even play it on the show. So, Sarah, 0:01:22.480 --> 0:01:24.679 one of the things I do before every show is 0:01:24.760 --> 0:01:27.880 I like to look up the biographies of our guests, 0:01:28.360 --> 0:01:30.759 and I gotta say our first guest, I I haven't 0:01:30.760 --> 0:01:34.880 seen anything quite like this. Um. I always I always 0:01:34.920 --> 0:01:37.520 look for what letters they may have after their name 0:01:37.680 --> 0:01:40.319 and sort of what degrees they have, and boy, I've 0:01:40.319 --> 0:01:44.039 never seen anything like this. She is a CFP, which 0:01:44.120 --> 0:01:47.040 we all know as a Certified Financial Planner. She's also 0:01:47.120 --> 0:01:52.000 a Chartered Alternative Investment Analysts, a Certified Investment Management Analyst, 0:01:52.360 --> 0:01:56.200 and a chartered Financial consultant. She has not one but 0:01:56.280 --> 0:02:01.040 two master's degree and a law degree. Alien underachiever and 0:02:01.120 --> 0:02:03.840 under achiever. I would love to know her budget on 0:02:03.920 --> 0:02:07.640 textbooks on tuition, um, but we're It all leads up 0:02:07.680 --> 0:02:10.600 to this final crowning achievement of her career is appearing 0:02:10.600 --> 0:02:13.960 on the What Goes Up podcast and Christina Hooper, chief 0:02:13.960 --> 0:02:17.080 Global market Strategist at Investco, welcome to the show. Thank 0:02:17.080 --> 0:02:19.040 you for having me, and I assume your business card 0:02:19.120 --> 0:02:21.919 is like you know, letters after name continued on the 0:02:21.960 --> 0:02:24.760 back or something. Well, compliance really tries to limit you 0:02:24.800 --> 0:02:28.120 to the number of letters you have. So luckily they've 0:02:28.200 --> 0:02:32.560 they've they've urtailed any kind of interest in and expanding 0:02:32.560 --> 0:02:36.320 on business cards. Then I looked up our our second 0:02:36.320 --> 0:02:38.320 guests bio and I felt a little bit better. I mean, 0:02:38.320 --> 0:02:42.560 he's he's got a good a good resume too, Cornel Guy, right, 0:02:43.080 --> 0:02:45.840 Cordell Guy. And one of the things he's certified in 0:02:46.040 --> 0:02:48.880 is standard first Aid from the American Red Cross, which 0:02:48.919 --> 0:02:50.680 I did not know we could claim on our resume. 0:02:50.840 --> 0:02:53.359 I got the same thing. I'm putting it on there. 0:02:53.400 --> 0:02:56.960 I don't know if we get to put that was 0:02:57.040 --> 0:03:04.320 that'll be a qualification for everyone who comes on the podcast. Christine, 0:03:04.360 --> 0:03:06.720 I don't know if you're you've got your first age. 0:03:07.000 --> 0:03:09.679 I was a lifeguard, but that lapsed many years ago, 0:03:09.880 --> 0:03:12.600 and so I feel very very safe right now that 0:03:12.639 --> 0:03:14.680 if I were to have any kind of issue, you 0:03:14.720 --> 0:03:17.480 don't know where to do. But Christine, let's start with you. 0:03:17.639 --> 0:03:21.000 You had a really interesting piece out on the Investo 0:03:21.120 --> 0:03:26.320 blog headline News News versus Noise, assessing the market impact 0:03:26.400 --> 0:03:30.120 of three major headlines. Really interesting take. I wanted to 0:03:30.160 --> 0:03:32.600 go through a few of the things. One obviously is 0:03:32.639 --> 0:03:35.280 the big story you cannot avoid in the news, uh, 0:03:35.400 --> 0:03:39.720 the impeachment inquiry into President Donald Trump, And you put 0:03:39.720 --> 0:03:42.400 that in sort of the noise category. It's not really 0:03:42.440 --> 0:03:46.960 something that should necessarily affect the markets, but there's always 0:03:46.960 --> 0:03:48.640 a butt and I think there's always a risk that 0:03:48.720 --> 0:03:52.280 this could begin to affect markets, especially when you start 0:03:52.320 --> 0:03:55.400 to think of, well, uh, does this damage Joe Biden, 0:03:55.440 --> 0:03:58.960 doesn't make Elizabeth Warren more of the front runner? So 0:03:59.080 --> 0:04:02.880 walk us through, you know, when could this story move 0:04:02.960 --> 0:04:05.200 from that noise category into the news that really could 0:04:05.240 --> 0:04:07.520 affect the markets. I think it's going to take a 0:04:07.560 --> 0:04:10.800 long time for it to be eligible to move from 0:04:11.080 --> 0:04:15.040 noise to something that really matters, because at this juncture, 0:04:15.160 --> 0:04:18.039 what we're really doing is going through a fact finding 0:04:18.320 --> 0:04:23.560 um investigation. And I think everyone, you know, almost everyone 0:04:23.600 --> 0:04:27.400 assumes that even if the House were to impeach that 0:04:27.480 --> 0:04:30.120 you wouldn't see a conviction in the Senate. So the 0:04:30.120 --> 0:04:33.200 whole issue becomes mood. But you're right, there can be 0:04:33.320 --> 0:04:37.320 some peripheral damage to other candidates in the process of 0:04:37.360 --> 0:04:40.479 this fact finding investigation, and all the media attention that 0:04:40.520 --> 0:04:44.080 it's getting. Um. The reality is, though, that we have 0:04:44.320 --> 0:04:47.000 no idea who the nominee is going to be for 0:04:47.040 --> 0:04:50.720 the Democratic Party and uh and so um. One can 0:04:50.760 --> 0:04:55.280 assume that the most pro growth candidate on the Democratic 0:04:55.320 --> 0:04:58.400 side is Joe Biden. But I would give a put 0:04:58.400 --> 0:05:01.440 a big asterisk after that because we just haven't heard 0:05:01.560 --> 0:05:04.520 enough from the candidates. The only candidate willing to really 0:05:04.560 --> 0:05:07.359 get out there in terms of in depth policies on 0:05:07.560 --> 0:05:10.920 so many different issues is Elizabeth Warren. So that's causing 0:05:10.960 --> 0:05:14.440 a little concern on the part of of capitalists, members 0:05:14.480 --> 0:05:17.240 of you know, on the part of Wall Street. Um, 0:05:17.279 --> 0:05:20.960 but we haven't yet heard from other candidates, and perhaps 0:05:21.040 --> 0:05:25.159 we could be surprised by some some pro growth policies. Certainly, 0:05:25.200 --> 0:05:27.760 I think one positive for Joe Biden is it he 0:05:27.960 --> 0:05:32.120 suggests that if he were to become president, he would 0:05:32.240 --> 0:05:34.159 end the trade war and we would go back to 0:05:34.440 --> 0:05:37.240 a pre trade war kind of relationship with China, which 0:05:37.240 --> 0:05:40.039 I think would be viewed very positively. Nick Collis of 0:05:40.120 --> 0:05:43.479 Data Track, who is a former podcast guest, sent out 0:05:43.520 --> 0:05:46.760 an email this week pointing out the fact that at 0:05:46.839 --> 0:05:52.360 this time in ahead of the presidential elections, Ben Carson 0:05:52.800 --> 0:05:56.200 and Donald Trump, or even in the polls. I mean, 0:05:56.240 --> 0:05:59.600 when you take that into account, how difficult is it 0:05:59.760 --> 0:06:03.800 to actually even think about any election risks to markets 0:06:03.839 --> 0:06:06.760 because so much could change from here on out. Well, 0:06:06.800 --> 0:06:09.560 that's exactly right, and that's why even if we were 0:06:09.560 --> 0:06:12.400 to see a different president, no matter what their policy 0:06:12.400 --> 0:06:16.920 position is, that would not be that material without looking 0:06:16.920 --> 0:06:19.960 at the composition of Congress. But it's very hard to 0:06:20.000 --> 0:06:25.840 define what we would actually see come January two twenty one. Now, 0:06:25.880 --> 0:06:28.080 the one headline that I think you agree is is 0:06:28.440 --> 0:06:30.480 less noise, more actual news that we have to worry 0:06:30.520 --> 0:06:34.680 about is obviously the trade tensions. In the back and forth. Um. 0:06:34.720 --> 0:06:37.520 A lot of people I've heard have offered the theory 0:06:37.560 --> 0:06:40.839 that while this impeachment risk sort of puts the pressure 0:06:40.880 --> 0:06:44.720 on Donald Trump to agree to the water down deal 0:06:45.279 --> 0:06:48.120 a little bit sooner than he may have otherwise. Um. 0:06:48.200 --> 0:06:51.320 At the same time, he tweeted this week that, oh boy, 0:06:51.360 --> 0:06:54.080 look at what this impeachment is doing to the stock market. 0:06:54.360 --> 0:06:56.680 So he seems to be trying to to push the 0:06:56.760 --> 0:06:59.360 narrative that it's the impeachment that's causing the volatility in 0:06:59.400 --> 0:07:02.920 the markets. Are the two related? I mean, can Can 0:07:02.960 --> 0:07:06.679 the impeachment threat actually get us to a trade deal sooner? 0:07:06.720 --> 0:07:09.080 Do you think? Or is it? Is it just crazy 0:07:09.120 --> 0:07:11.040 to even try to predict what is going to happen 0:07:11.040 --> 0:07:14.480 in this situation. Well, I think what the impeachment threat 0:07:14.520 --> 0:07:18.040 does is it creates fatter tails. UH. It increases the 0:07:18.080 --> 0:07:22.840 likelihood of extreme outcomes, whether it is a greater likelihood 0:07:23.040 --> 0:07:26.080 that the U S takes minor concessions from China and 0:07:26.200 --> 0:07:29.239 calls it a deal or um, we could see something 0:07:29.280 --> 0:07:32.160 moving in the opposite direction where the U S takes 0:07:32.200 --> 0:07:35.920 a very extreme aggressive position with China, something along the 0:07:35.960 --> 0:07:39.520 lines of the news report from Bloomberg last week on 0:07:39.760 --> 0:07:43.840 capital controls and the US mulling that banning or restricting 0:07:44.080 --> 0:07:47.320 of investments in China. So I think that that uh 0:07:47.480 --> 0:07:52.200 impeachment does UM does matter in in that it could 0:07:52.440 --> 0:07:55.440 cause an outsized reaction one way or the other in 0:07:55.600 --> 0:07:58.000 terms of the U s is trade policy. Sorry if 0:07:58.000 --> 0:08:00.480 you're wondering why I'm smiling, it's because I just had 0:08:00.520 --> 0:08:04.240 the headline Donald Trump and fatter tails popping into my head. 0:08:04.680 --> 0:08:06.440 I think we might have to go with that. I 0:08:06.480 --> 0:08:12.119 think we're bringing you back how many years? Uh, Peter 0:08:12.200 --> 0:08:14.400 let's let's bring you in here a little bit because 0:08:14.920 --> 0:08:17.400 a lot of the economic data we've seen this week, 0:08:17.640 --> 0:08:19.720 it kind of looks like the economy needs a little 0:08:19.760 --> 0:08:22.200 first aid. You see what I did there? Yeah? Really 0:08:22.360 --> 0:08:24.720 really making these jokes today, It was really clever. That 0:08:24.800 --> 0:08:27.280 was good, right, thank you. But walk us through all 0:08:27.280 --> 0:08:29.640 the releases we've seen this week. What is sort of 0:08:29.680 --> 0:08:34.760 the bottom line takeaway, uh from the I s M 0:08:35.200 --> 0:08:41.040 UH manufacturing services adp uh. You know, what's your sort 0:08:41.080 --> 0:08:45.240 of end of the week assessment of what the economy 0:08:45.280 --> 0:08:46.760 is doing? Well? Have the three numbers that got a 0:08:46.800 --> 0:08:49.280 lot of attention. First was the S M manufacturing, which 0:08:49.320 --> 0:08:51.840 came in at like a ten year low, and then 0:08:51.960 --> 0:08:55.800 we had the I s M Services, which was three 0:08:55.880 --> 0:08:58.960 year low, but that was still about fifty. So we 0:08:59.080 --> 0:09:04.720 have manufact ccturing basically in a recession, services, which is bigger, 0:09:04.960 --> 0:09:07.560 bigger and more important part of the economy, hanging in 0:09:07.640 --> 0:09:12.880 above fifty. And the question really being which pulls which? 0:09:13.040 --> 0:09:17.559 Right does does manufacturing pulls services down? Or is the 0:09:17.640 --> 0:09:22.079 overall strength of the consumer has reflected in the services 0:09:22.120 --> 0:09:26.640 I s M enough to kind of get businesses feeling 0:09:26.679 --> 0:09:32.160 more optimistic. And I would say What will make the 0:09:32.240 --> 0:09:37.079 difference between those two scenarios is probably politics. And if 0:09:37.400 --> 0:09:40.440 you include trade and politics, which I do, I think 0:09:40.480 --> 0:09:43.640 that what's we're having now with with the U. S. 0:09:43.720 --> 0:09:46.800 China trade tensions are much more about the politics of 0:09:47.040 --> 0:09:49.040 j Ping and Donald Trump than they are about any 0:09:49.200 --> 0:09:55.240 underlying economic issues. So and that's far more unknowable than 0:09:55.600 --> 0:10:00.800 you know, broad economic trends. So yeah, I'm just with Christina. 0:10:00.920 --> 0:10:03.600 What happens with trade is going to be really really 0:10:03.640 --> 0:10:07.240 important for the next few months. Christina. The big question 0:10:07.320 --> 0:10:11.079 all along really has been is Peter mentioned, how long 0:10:11.559 --> 0:10:14.920 can you have services and the consumer hanging there while 0:10:15.000 --> 0:10:19.199 you do see the manufacturing sector languish a bit. This week, 0:10:19.760 --> 0:10:23.079 I've heard many people bring up the word recession once again, 0:10:23.200 --> 0:10:25.120 even after a month in which it really kind of 0:10:25.120 --> 0:10:28.000 fell off the back and wasn't mentioned as much. Do 0:10:28.080 --> 0:10:30.840 you think at this point it's still a bit dramatic 0:10:30.920 --> 0:10:33.640 and it's more about slowing growth or do you think 0:10:33.640 --> 0:10:36.360 recession fears are actually valid at this point in time. 0:10:37.040 --> 0:10:39.880 I think it is a bit traumatic. It was just 0:10:39.960 --> 0:10:43.040 a shocker. Um. You know, markets had gone on quite 0:10:43.080 --> 0:10:47.880 merrily throughout um the end of August and through September. Uh, 0:10:48.080 --> 0:10:51.400 not dissimilar to when I UM put on my first 0:10:51.440 --> 0:10:55.600 pair of pants after the summer, after probably a little 0:10:55.880 --> 0:10:58.680 going a little too easy on my diet and drinking 0:10:58.679 --> 0:11:00.880 a little too much, and and it was this huge 0:11:00.920 --> 0:11:02.960 shock and I, you know, I've got to get on 0:11:03.000 --> 0:11:06.440 a workout program. And so very similarly, we had this 0:11:06.440 --> 0:11:11.120 this I S M manufacturing print that reminded everyone that hey, 0:11:11.120 --> 0:11:14.160 we're actually part of a trade war. And it's not 0:11:14.280 --> 0:11:17.160 just the Eurozone and Japan and China that are being 0:11:17.200 --> 0:11:19.800 hurt by this, but actually it is having an impact 0:11:19.840 --> 0:11:23.800 on the U S. So um at this juncture, I 0:11:23.880 --> 0:11:27.600 expect our base case is that we see a deceleration 0:11:27.640 --> 0:11:29.400 in the U. S. Economy, but that we don't go 0:11:29.440 --> 0:11:32.360 into recession in the next year. However, so much of 0:11:32.400 --> 0:11:35.760 that is dictated by where the trade war goes from here. 0:11:36.160 --> 0:11:40.280 If it accelerates, if it gets worse, we're likely to 0:11:40.320 --> 0:11:43.160 see more damage to the U. S. Economy. Now, I've 0:11:43.200 --> 0:11:47.280 seen analyzes that focus in on the actual impact of tariffs, 0:11:47.280 --> 0:11:49.800 but it's not that. The big issue, of course, is 0:11:49.840 --> 0:11:55.240 the psychological dimension. It's creating economic policy uncertainty, which discourages 0:11:55.320 --> 0:11:57.959 business investment and we've seen companies, I mean really it's 0:11:57.960 --> 0:12:00.080 been reporting the Federal Reserve bage book for over a 0:12:00.200 --> 0:12:04.480 year that companies have pulled back on spending plants. Now 0:12:04.880 --> 0:12:08.200 first to go, of course is capex. But then oftentimes, 0:12:08.280 --> 0:12:11.120 if it lasts long enough, this state of economic policy 0:12:11.160 --> 0:12:14.160 and certainty, we see it impact jobs. And that's where 0:12:14.160 --> 0:12:17.640 it becomes an issue because then it filters over into 0:12:18.080 --> 0:12:21.920 um the consumer side and impacts consumers ability to spend. 0:12:22.000 --> 0:12:23.920 That's why it's so important for us to focus in 0:12:24.240 --> 0:12:27.720 on consumer metrics right now. You know, another big story 0:12:27.760 --> 0:12:29.320 this week was the U S one a bit of 0:12:29.360 --> 0:12:33.520 a victory at the World Trade Organization which allowed them 0:12:33.679 --> 0:12:37.560 to proceed with tariffs on some imports from from Europe. 0:12:38.040 --> 0:12:39.400 The number I saw it was only seven and a 0:12:39.480 --> 0:12:45.640 half billion, but it's headline catching items Scotch, Irish whiskey, 0:12:45.800 --> 0:12:49.080 French wine. I mean, sort of hitting hitting you where 0:12:49.080 --> 0:12:52.280 it counts. Um. You know, seven and a half billion, 0:12:52.280 --> 0:12:53.959 it's kind of a drop in the bucket of the economy. 0:12:54.000 --> 0:12:56.240 But is there a knock on effect here as far 0:12:56.320 --> 0:12:59.720 as uh is? This a ratcheting up of tensions with 0:13:00.000 --> 0:13:04.200 Europe and we have to worry about reaction from Europe. 0:13:04.520 --> 0:13:09.080 I don't think so, just because this is actually sanctioned 0:13:09.640 --> 0:13:14.640 UM tariffs. This is the way the US should be 0:13:14.720 --> 0:13:18.840 pursuing its trade disagreements. It's trade grievances is through the 0:13:19.000 --> 0:13:21.200 w t O, and so I look at this very 0:13:21.200 --> 0:13:24.800 differently than the kind of tariffs that the US decided 0:13:25.160 --> 0:13:29.720 unilaterally to levy against other countries. Put in a different bucket. Certainly, 0:13:29.800 --> 0:13:32.440 it's going to give the Eurozone some pain, but keep 0:13:32.440 --> 0:13:34.960 in mind that there are also gonna there's also going 0:13:35.000 --> 0:13:37.960 to be a decision about Boeing subsidies. So it's not 0:13:38.080 --> 0:13:42.559 a one sided um decision. We just haven't gotten the outcome, 0:13:42.600 --> 0:13:45.800 the full outcome. Peter Christina mentioned that we have seen 0:13:45.920 --> 0:13:49.440 trade way on business confidence. When it comes to those 0:13:49.480 --> 0:13:53.120 consumer metrics, where do we actually stand right now? I 0:13:53.160 --> 0:13:55.960 mean we keep hearing people say that the consumer is 0:13:56.000 --> 0:13:58.720 carrying the economy on its back. What does the picture 0:13:58.760 --> 0:14:01.720 actually look like. Let's start with the obvious, which is 0:14:01.800 --> 0:14:05.240 we have three point seven percent unemployment. It's really historically low. 0:14:05.240 --> 0:14:06.840 We've sort of gotten used to it because it's been 0:14:06.840 --> 0:14:09.720 going on for a while, but this is really just 0:14:09.840 --> 0:14:11.959 almost unheard of. And and the beauty is that it's 0:14:12.040 --> 0:14:16.720 occurring without inflation. Um inflation is actually below the fed's target. 0:14:17.080 --> 0:14:21.320 Usually if that the FED word would have expected by 0:14:21.360 --> 0:14:24.560 now that if inflation, if an unemployment never got this low, 0:14:24.600 --> 0:14:27.800 you would have had an outburst of inflation. So consumers 0:14:27.800 --> 0:14:30.640 are in a great, great position here, and I think 0:14:30.680 --> 0:14:33.520 what's important to keep that in mind is, well, we 0:14:33.560 --> 0:14:35.520 tend to focus on the negative, but there's a huge 0:14:35.600 --> 0:14:41.120 positive here and consumers again are the bulk of the economy. So, uh, 0:14:41.320 --> 0:14:45.440 consumer sentiment is pretty decent. Stock market, you know, we 0:14:45.520 --> 0:14:47.920 keep looking at the every time it comes down, but 0:14:48.160 --> 0:14:52.880 we're not that far away from historic highs on the 0:14:52.920 --> 0:14:56.600 major indusicries. So there's a lot to like. And I'll 0:14:56.640 --> 0:15:00.240 just throw in a um. Bloomberg Economics came out with 0:15:00.240 --> 0:15:04.560 the report today about the outlook for the US economy 0:15:04.560 --> 0:15:09.120 the next twelve months. Only prediction of a risk of 0:15:09.160 --> 0:15:11.920 recession in the next twelve months. That's based on a 0:15:12.000 --> 0:15:16.480 survey on model. That's their model. Yeah, and a lot 0:15:16.520 --> 0:15:18.600 of has to do with the confidence in the consumer 0:15:18.720 --> 0:15:20.320 for a lot of these models. So that's still a 0:15:20.360 --> 0:15:23.800 pretty high number, right, I mean the New York Fed model, 0:15:23.960 --> 0:15:26.960 I mean it's only it only looks one yield curve, 0:15:27.040 --> 0:15:30.360 but it's I don't think it's ever gotten above like 0:15:30.440 --> 0:15:34.280 thirty something without a recession following. I mean, by the 0:15:34.320 --> 0:15:36.800 time it hits a really alarming then you're in trouble. 0:15:36.840 --> 0:15:40.320 I agree. Another widely watched indicator, of course, is the 0:15:40.400 --> 0:15:43.960 yield curve. And when the yield curve between the twos 0:15:43.960 --> 0:15:47.680 and the tents went inverted, everybody panicked, Well, it's not 0:15:47.720 --> 0:15:50.680 inverted anymore. It's actually in positive territory, So you know, 0:15:51.200 --> 0:15:55.400 I I. You can easily write a story, tell a 0:15:55.480 --> 0:15:59.080 story of pending recession, but you can also tell a 0:15:59.120 --> 0:16:01.360 story that maybe things be okay. It depends why your 0:16:01.440 --> 0:16:24.160 editor asked for again, seeing such a divergence into scenarios 0:16:24.160 --> 0:16:26.280 that you could potentially see playing out. What do you 0:16:26.400 --> 0:16:29.320 actually advise clients to do at this point in time, 0:16:29.480 --> 0:16:32.320 especially when so much of it seems to hang on 0:16:32.360 --> 0:16:34.920 the back of what happens with trade, which is so 0:16:34.920 --> 0:16:39.280 so difficult to predict. Well, we need to encourage investors 0:16:39.320 --> 0:16:43.200 to take a long look at their portfolios have a 0:16:43.280 --> 0:16:46.200 long time horizon. So for those that can do that, 0:16:46.200 --> 0:16:49.560 that enables them that perspective to really put on blinders, 0:16:49.880 --> 0:16:53.320 not listen to the noise, because we know that over 0:16:53.400 --> 0:16:58.720 time usually equities turn in a strong performance with more volatility, 0:16:58.760 --> 0:17:01.320 but they turn in a strong So if you can 0:17:01.440 --> 0:17:05.440 wait a long time UM, usually you're rewarded by being 0:17:05.920 --> 0:17:09.320 by having exposure to risk assets. That's particularly so in 0:17:09.320 --> 0:17:12.720 an environment where the feed is accommodative. UM. We are 0:17:12.880 --> 0:17:16.439 late cycle, but it is an abnormal late cycle because 0:17:16.520 --> 0:17:19.639 usually late cycles are characterized by central bank tightening, and 0:17:19.680 --> 0:17:22.400 that is not the case. The central bank is actually 0:17:22.480 --> 0:17:26.719 getting more accommodative UM. Just this week we saw you know, 0:17:26.840 --> 0:17:31.640 expectations go up UM significantly and and I think that 0:17:31.840 --> 0:17:36.639 UM that speaks to a very UM positive environment for 0:17:36.760 --> 0:17:40.120 risk assets. So UM. So to put it simply, expect 0:17:40.119 --> 0:17:44.080 more volatility, be very well diversified UM, and that includes 0:17:44.119 --> 0:17:46.919 not just equities and fixed income but alternatives. And be 0:17:47.000 --> 0:17:50.600 well diversified within those three buckets UM, and and try 0:17:50.640 --> 0:17:53.600 to drown out the noise. That is such creat advice. 0:17:53.680 --> 0:17:56.080 You hear it so often. Uh, if you're a long 0:17:56.160 --> 0:17:58.320 term investor, don't even look at your four O one K, 0:17:59.200 --> 0:18:01.680 just ignore the the noise. The people really listen to 0:18:01.760 --> 0:18:04.480 that though, or do you find clients just can't can't 0:18:04.480 --> 0:18:06.960 help but peek at that those numbers. I think when 0:18:07.200 --> 0:18:11.359 the headlines become alarming enough, clients can't help but worry. 0:18:11.480 --> 0:18:15.120 And that is completely understandable. Look at two thousand eight, 0:18:15.160 --> 0:18:18.440 two thousand nine, UM, there was just so much alarm, 0:18:18.440 --> 0:18:21.480 and I think it took many by surprise that things 0:18:21.520 --> 0:18:24.919 got so bad so quickly. So that creates a hyper 0:18:24.960 --> 0:18:28.600 sensitivity to what's going on now. But the reality has 0:18:28.640 --> 0:18:32.520 had someone UM put on you know, put on blinders 0:18:32.560 --> 0:18:35.399 back then and ridden through it, they probably would not 0:18:35.520 --> 0:18:39.440 have even realized how bad things got before they got better. 0:18:39.640 --> 0:18:41.240 I do want to ask in the same post that 0:18:41.280 --> 0:18:43.920 Mike mentioned at the beginning of the show, I saw 0:18:44.320 --> 0:18:47.080 that you also wrote that investors should take advantage of 0:18:47.080 --> 0:18:51.160 opportunities created by downward volatility in order to acquire oversold 0:18:51.200 --> 0:18:55.399 assets such as Chinese stocks. Now, I feel like that's 0:18:55.600 --> 0:18:59.920 kind of an interesting take Chinese stocks Why? And also 0:19:00.160 --> 0:19:02.240 what other areas do you feel like at this point 0:19:02.480 --> 0:19:06.439 are oversold but have enough positivity going forward that it's 0:19:06.480 --> 0:19:08.280 worth it to hop in And if I can butt into, 0:19:08.480 --> 0:19:11.399 how should a US investor approach the Chinese stock market? 0:19:11.440 --> 0:19:14.040 I mean E. T F S or Ali baba, you know, 0:19:14.960 --> 0:19:18.240 how would you go about it? Well, Uh, first, let 0:19:18.280 --> 0:19:21.560 me say that Chinese stocks look attractive because they've been 0:19:21.560 --> 0:19:24.880 beaten down for a while. Um, when the US China 0:19:24.920 --> 0:19:29.000 trade war started, there was a conventional wisdom that suggested 0:19:29.040 --> 0:19:31.120 that the U S would win and China would lose 0:19:31.160 --> 0:19:34.359 a trade war, and that costs a real sell off 0:19:34.600 --> 0:19:37.520 in Chinese stocks, and they've really been depressed for a while. 0:19:37.600 --> 0:19:41.600 Now valuations are very attractive. I think there's a growing 0:19:41.640 --> 0:19:44.320 recognition that there are no winners in a trade war. 0:19:44.560 --> 0:19:48.160 And then in fact, China maybe in a better position 0:19:48.359 --> 0:19:51.080 given its ability to throw all kinds of stimulus at 0:19:51.080 --> 0:19:54.959 its economy, whether it's fiscal or monetary versus what the 0:19:55.160 --> 0:19:57.840 what the U S has its its disposal, which is 0:19:57.880 --> 0:20:01.560 not as many tools to stimulate it economy. And so 0:20:02.080 --> 0:20:07.320 that to me creates an environment where Chinese stocks um 0:20:07.440 --> 0:20:11.520 our opportunities, especially if one has a long enough time horizon. 0:20:12.080 --> 0:20:15.680 How do you access Chinese stocks? Well, it's very interesting, 0:20:15.720 --> 0:20:19.480 but um, you know a shares could be one way 0:20:19.520 --> 0:20:21.840 to do that in this environment and starting to look 0:20:21.840 --> 0:20:25.919 more attractive beyond just Chinese stocks, I would focus in 0:20:26.000 --> 0:20:30.600 on emerging markets equities in general as well as e 0:20:30.760 --> 0:20:33.440 M debt just because of the yields. UM. We are 0:20:33.520 --> 0:20:36.280 in a world of low yields and it doesn't look 0:20:36.320 --> 0:20:38.320 like it's going to change anytime soon, or though it 0:20:38.400 --> 0:20:40.840 might get lower, and so we're gonna have to sniff 0:20:40.880 --> 0:20:43.840 out whatever opportunities we can in terms of yield. That's 0:20:43.840 --> 0:20:45.639 going to take us to dividend paying stocks, but will 0:20:45.720 --> 0:20:48.520 also take us to e M debt, which relative to 0:20:48.640 --> 0:20:54.560 historical um uh, historical yield looks pretty good right now. 0:20:54.800 --> 0:20:59.360 Any particular countries look at or sovereign corporates for you, well, 0:20:59.600 --> 0:21:02.080 I think you can really run the run the gamut 0:21:02.160 --> 0:21:05.760 and have exposure to both sovereigns and corporates UM. But 0:21:06.040 --> 0:21:09.840 for sovereigns I would focus in on Asia. UM. I 0:21:09.880 --> 0:21:12.639 have a question about that. This sounds a little bit 0:21:12.680 --> 0:21:17.720 like reaching for yield, being dissatisfied with what conventional assets 0:21:17.760 --> 0:21:20.280 give you, and saying, well, I'll go to some more 0:21:20.280 --> 0:21:24.040 obscure corners of investing world, and of course that can 0:21:24.040 --> 0:21:28.280 turn out really badly. What about the alternative of just saying, Okay, 0:21:28.320 --> 0:21:30.359 I'm gonna have to live with the fact that yields 0:21:30.400 --> 0:21:32.880 are kind of low and that will just dust us 0:21:32.920 --> 0:21:38.480 my life. It doesn't sound like a very happy Well, 0:21:38.520 --> 0:21:41.400 you haven't given a great set of options. But if 0:21:41.480 --> 0:21:45.239 you want, if you're willing to take lower yields, then 0:21:45.280 --> 0:21:48.280 you're going to have to save more. UM. Yeah, but 0:21:48.440 --> 0:21:52.200 I would say that going out on the on the 0:21:52.359 --> 0:21:56.159 risk curve, so to speak, UM, moving into higher yielding 0:21:56.200 --> 0:22:00.800 asset classes as long as you're well diversified and UM 0:22:01.160 --> 0:22:06.680 can make sense. Uh. If you if you're adding US municipals, 0:22:06.880 --> 0:22:09.800 high yield municipals as well as he AM debt UM, 0:22:09.880 --> 0:22:15.239 you're getting a well diversified array of yielding debt and 0:22:15.320 --> 0:22:18.280 some correlations don't go to one as long as the 0:22:18.280 --> 0:22:20.440 correlation of one. But I will tell you that one 0:22:20.520 --> 0:22:24.159 big headwind has been removed from emerging market equities and 0:22:24.280 --> 0:22:27.880 that is balance sheet normalization that was creating a huge 0:22:27.880 --> 0:22:32.120 liquidity stuck and that is going away. I'm going all 0:22:32.280 --> 0:22:38.359 hundred year Argentina bonds entire PORF sounds very safe and 0:22:38.960 --> 0:22:43.040 I will tell you that it's not advocated. That was 0:22:43.119 --> 0:22:46.760 just a joke for anyone else, a joke where it 0:22:46.840 --> 0:22:50.000 was completely serious for our listeners in Argentine. Do we 0:22:50.119 --> 0:22:52.600 have some sort of a footnote weekend read right now 0:22:52.680 --> 0:22:55.480 compliance footnote on yeah, right right, read all the footnotes. 0:22:55.480 --> 0:22:57.080 Do not listen to Mike reading, I think is the 0:22:57.080 --> 0:23:02.359 main foot as Peter real quickly, before we get to 0:23:02.400 --> 0:23:03.960 the crazy things, I have to ask you about this 0:23:04.000 --> 0:23:07.080 piece you have in a business week. Everyone has a 0:23:07.160 --> 0:23:10.320 wealth number, what's yours? And the lead is really funny. 0:23:10.320 --> 0:23:12.480 You say the world needs a more precise way to 0:23:12.520 --> 0:23:17.160 describe wealth. Millionaires too broad, covering everyone from random pikers 0:23:17.200 --> 0:23:18.919 with a scant one million in net worth all the 0:23:18.920 --> 0:23:21.960