WEBVTT - Bloomberg Surveillance TV: March 22, 2024 0:00:00.120 --> 0:00:06.800 Bloomberg Audio Studios, Podcasts, radio news. 0:00:11.640 --> 0:00:15.440 This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along 0:00:15.480 --> 0:00:18.680 with Lisa Bromwitz and Amrie Hordern. Join us each day 0:00:18.720 --> 0:00:22.280 for insight from the best in markets, economics, and geopolitics 0:00:22.440 --> 0:00:24.920 from our global headquarters in New York City. We are 0:00:24.920 --> 0:00:27.680 live on Bloomberg Television weekday mornings from six to nine 0:00:27.720 --> 0:00:31.240 am Eastern. Subscribe to the podcast on Apple, Spotify or 0:00:31.320 --> 0:00:33.960 anywhere else you listen, and as always on the Bloomberg 0:00:34.040 --> 0:00:37.200 Terminal and the Bloomberg Business App. Bob Michael the JP 0:00:37.280 --> 0:00:40.440 Morgan asset management rights. In this the soft landing continues 0:00:40.479 --> 0:00:44.040 to unfold everywhere, with the tail risk of reacceleration or 0:00:44.040 --> 0:00:48.800 contraction looking equally balanced. What's the biggest risk FED policy error? 0:00:49.040 --> 0:00:52.320 Either they cut rates too soon or too late. Bob 0:00:52.400 --> 0:00:54.640 joins us now for more, Bob, good morning, good morning. 0:00:54.680 --> 0:00:56.640 Can you pick one for us? What is the biggest 0:00:56.680 --> 0:00:58.320 risk out of those two options. 0:00:58.440 --> 0:01:01.960 That the soft landing continues to unfold for the next 0:01:01.960 --> 0:01:05.679 eighteen months and people are still stuck in cash And 0:01:05.840 --> 0:01:07.920 every meeting I have, and I've said this for the 0:01:08.040 --> 0:01:11.440 last several months, I've been here. That's the first question 0:01:11.520 --> 0:01:13.399 I get. I have too much cash? What do I 0:01:13.480 --> 0:01:16.280 do with it? Where do I go? Everything's gone up 0:01:16.319 --> 0:01:19.200 in price? What am I going to do? And I 0:01:19.280 --> 0:01:22.319 sit there and I wonder, how could everyone have more cash? 0:01:22.400 --> 0:01:25.480 Yet every asset price has gone up? Where the hell 0:01:25.560 --> 0:01:26.720 is it all coming from? 0:01:27.000 --> 0:01:29.640 Truly, the everything rarey. We've seen it in bonds, We've 0:01:29.640 --> 0:01:31.800 seen it in stocks, We've seen it in commodities. You've 0:01:31.800 --> 0:01:33.720 seen it in gold. Come I ask you the question 0:01:33.760 --> 0:01:35.639 you've asked yourself. Where is it coming from? 0:01:36.440 --> 0:01:38.679 I don't know, but I've lived through this before. And 0:01:38.720 --> 0:01:41.920 it was nineteen ninety five. We had our investment quarterly 0:01:42.000 --> 0:01:44.880 yesterday we talked about it. At the end of ninety four, 0:01:45.360 --> 0:01:48.080 it looked as though we were barreling into recession. The 0:01:48.120 --> 0:01:51.720 FED had doubled the FED funds rate, US Steel had defaulted, 0:01:52.000 --> 0:01:55.440 you had the tequila crisis, Orange County defaulted. Everyone was 0:01:55.480 --> 0:01:58.880 one hundred percent certain we were going into recession and 0:01:58.920 --> 0:02:02.640 everyone was risk off, and then we had that immaculate 0:02:02.720 --> 0:02:05.480 soft landing. The FED took the edge off of things. 0:02:05.480 --> 0:02:08.919 They cut rates from something like six percent to five 0:02:08.960 --> 0:02:13.480 and a quarter percent, and the markets did fantastically well, 0:02:13.680 --> 0:02:16.120 and we were talking about well, surely going into that, 0:02:16.400 --> 0:02:19.680 credit spreads must have whined a lot, and Lisa Coleman, 0:02:19.680 --> 0:02:21.320 who runs Credit for Us, looked at me and said, 0:02:21.320 --> 0:02:23.960 you asked me this question every three months. Now, in 0:02:24.120 --> 0:02:27.639 ninety four, they were dead flat. They didn't move a 0:02:27.639 --> 0:02:31.120 single basis point, and we're seeing the same thing. The 0:02:31.200 --> 0:02:34.600 demons are at work. People are worried about a reacceleration 0:02:35.200 --> 0:02:38.440 or we eventually will roll into recession. They're waiting for 0:02:38.480 --> 0:02:42.200 a better buying opportunity. Yet credit spreads are holding in 0:02:42.240 --> 0:02:44.560 and there's just still too much cash out there. 0:02:44.400 --> 0:02:45.600 Which raises this question. 0:02:46.000 --> 0:02:49.119 Have you shifted your stance a little bit on the margins? 0:02:49.160 --> 0:02:50.919 You used to say that the biggest risk was really 0:02:50.960 --> 0:02:51.600 a recession. 0:02:51.919 --> 0:02:52.680 That was your call. 0:02:53.000 --> 0:02:54.959 Is this a new call for you, the idea that 0:02:54.960 --> 0:02:58.240 it's equally balanced now with a reacceleration potentially a real 0:02:58.280 --> 0:02:59.240 inflation problem. 0:02:59.600 --> 0:03:02.760 Thank you for reminding me that a year ago we 0:03:02.760 --> 0:03:07.799 were also certain that we were headed into recession. After all, 0:03:07.960 --> 0:03:13.000 the regional banking system did blow up and it looked 0:03:13.000 --> 0:03:15.160 as though and the FED still went ahead and hiked 0:03:15.200 --> 0:03:18.799 rates one hundred basis points in the first part of 0:03:20.120 --> 0:03:24.080 last year, and for sure it looked like recession, but 0:03:24.639 --> 0:03:28.359 in September we threw that away and went to more 0:03:28.400 --> 0:03:31.679 of the soft landing caps. So we've done reasonably well. 0:03:32.680 --> 0:03:35.240 I sit here and we try to find where is 0:03:35.240 --> 0:03:38.120 the smoking gum, Where are the demons, Where is their 0:03:38.320 --> 0:03:43.000 legitimate proof that actually there's a frailty that will become 0:03:43.080 --> 0:03:46.440 manifest in the downside, And it's too hard to find. 0:03:46.600 --> 0:03:49.880 And actually there are more signs going the other way. 0:03:49.960 --> 0:03:53.560 When we talked to the credit research teams, whether it's 0:03:53.560 --> 0:03:56.720 investment great or high yield, they're telling their companies just 0:03:57.200 --> 0:04:01.120 look better, that IBADA is starting to go up again, 0:04:01.520 --> 0:04:06.320 that actually companies are more confident about their cash flow 0:04:06.560 --> 0:04:10.280 and their earnings. So it actually feels that there's more 0:04:10.280 --> 0:04:12.120 of a stabilization than downside. 0:04:12.200 --> 0:04:13.840 When you talk about where is the money coming from, 0:04:13.880 --> 0:04:15.960 I'm struck by all of my conversations this week and 0:04:16.000 --> 0:04:18.440 over the past couple of weeks about how much fiscal 0:04:18.440 --> 0:04:20.560 money has been pumped into the system and how people 0:04:20.680 --> 0:04:23.960 who received it and companies that received it aren't going 0:04:24.000 --> 0:04:25.279 to go out and spend it in some of the 0:04:25.279 --> 0:04:27.440 line items. They're going to invest in stock market, which 0:04:27.480 --> 0:04:29.080 is part of the reason why, and the bond market, 0:04:29.080 --> 0:04:30.560 which is part of the reason why there's this wall 0:04:30.600 --> 0:04:34.359 of money just flooding in. Is there a concern on 0:04:34.440 --> 0:04:37.880 the government bond side that there's going to be some 0:04:37.960 --> 0:04:40.800 sort of coming home to roost with respect to the 0:04:40.880 --> 0:04:44.360 leverage being transferred from the private sector to the public sector. 0:04:45.520 --> 0:04:46.320 I don't think so. 0:04:46.800 --> 0:04:50.960 And we also looked at the amount of money in 0:04:51.120 --> 0:04:54.920 plans like ARPA that have yet to be distributed. There's 0:04:54.960 --> 0:04:59.000 still forty four percent of the trillion dollars that have 0:04:59.080 --> 0:05:02.480 been set aside that have yet to go out into 0:05:02.560 --> 0:05:07.640 the economy, so that's already a sunk cost, so to speak. 0:05:08.240 --> 0:05:12.839 And you're right, the policy stimulus was literally off the charge. 0:05:12.880 --> 0:05:14.800 You had to go back when you look at the 0:05:14.960 --> 0:05:18.800 combination of fiscal and monetary to World War two to 0:05:18.920 --> 0:05:23.479 have any kind of relative metric. But we had a pandemic. 0:05:23.520 --> 0:05:25.920 It's what we needed. It got us through it, and 0:05:26.200 --> 0:05:28.600 now we're coming out the other side. It will take 0:05:28.720 --> 0:05:31.200 time to work down, but it doesn't seem to be 0:05:31.240 --> 0:05:34.560 a problem. We can't be concerned about the amount of 0:05:34.640 --> 0:05:38.279 treasury supply out there when the entire treasury curve is 0:05:38.320 --> 0:05:41.479 trading over one hundred basis points through the FED funds 0:05:41.520 --> 0:05:44.080 rate except for the very front end the two year, 0:05:44.440 --> 0:05:48.440 so there's still plenty of demand out there. There is 0:05:48.560 --> 0:05:52.279 no alternate reserve currency in the world other than the dollar, 0:05:52.680 --> 0:05:56.599 so there will always be considering a bitcoin. Let's not 0:05:56.760 --> 0:05:59.159 go there this morning. It's too early for me to 0:05:59.200 --> 0:06:04.279 go there, so that there will be support for the dollar, 0:06:04.600 --> 0:06:08.680 and the quickest easiest way for a large official institution 0:06:09.279 --> 0:06:11.960 to maintain dollar reserves is to buy treasuries. 0:06:11.960 --> 0:06:15.400 Were not worried, but to Lisa's point, do think down 0:06:15.440 --> 0:06:18.520 the road you'll ever have this concern of the path 0:06:18.520 --> 0:06:20.080 we're on in terms of the US deficit. 0:06:21.960 --> 0:06:26.000 We are in a world of modern monetary theory where 0:06:26.320 --> 0:06:29.640 when there's a crisis, even you know the pandemic was 0:06:29.680 --> 0:06:33.240 a big one, the regional banking crisis, people want to 0:06:33.279 --> 0:06:36.440 say it wasn't a crisis, but only because the policy 0:06:36.560 --> 0:06:42.000 response was overwhelming. Governments borrow and the central banks helped 0:06:42.040 --> 0:06:47.279 to underwrite that. But it doesn't just disappear into the ether, right. 0:06:47.680 --> 0:06:51.279 The amount of physical stimulus you get actually goes into 0:06:51.320 --> 0:06:55.920 the system somewhere. There is a credit multiplier, a credit 0:06:56.000 --> 0:06:59.920 extension effect to it. And that's helped to boost the economy, 0:07:00.120 --> 0:07:03.599 and we saw that early this year when the Treasury 0:07:03.680 --> 0:07:07.440 dialed back the expectation on the amount of issuance because 0:07:07.760 --> 0:07:11.320 guess what tax receipts were up, which is exactly what 0:07:11.400 --> 0:07:13.560 you want when you apply that amount of stimulus. 0:07:13.560 --> 0:07:15.040 So let's put together some of the things you've told 0:07:15.120 --> 0:07:17.400 us so fast. So the economy is pretty decent. Biggest 0:07:17.480 --> 0:07:19.360 risk is upside risk and maybe the extension of this 0:07:19.440 --> 0:07:22.240 cycle for another eighteen months. You mentioned the version of 0:07:22.280 --> 0:07:24.160 the yield curve as well, So we've got a two 0:07:24.200 --> 0:07:26.320 year at the moment about four to sixty, a ten 0:07:26.400 --> 0:07:28.640 year at four twenty four. Given everything you've told us, 0:07:28.640 --> 0:07:31.400 how are you convincing clients to go further out along 0:07:31.400 --> 0:07:32.960 the curve to pick up less yield? What are you 0:07:33.000 --> 0:07:33.480 telling them? 0:07:33.560 --> 0:07:37.000 Yeah, that's a really good question, because the Fed funds 0:07:37.080 --> 0:07:41.360 rate has to come down to four percent to legitimize 0:07:41.400 --> 0:07:44.080 the treasury curve where it is. And for sure, if 0:07:44.080 --> 0:07:46.280 it comes down to four percent, the front end the 0:07:46.280 --> 0:07:48.679 two year drops from four to sixty down to about 0:07:48.680 --> 0:07:53.160 four percent, but five tens thirties stay about where they are. 0:07:53.400 --> 0:07:57.360 It's not so much that it's looking out into the market, 0:07:57.640 --> 0:08:01.440 looking into the investment grade market, where you could pick 0:08:01.520 --> 0:08:04.680 up another close to a percent, Going into the high 0:08:04.760 --> 0:08:08.440 yield market to securitize credit market. That's where you're starting 0:08:08.480 --> 0:08:10.760 to pick up yields that are in that five and 0:08:10.760 --> 0:08:13.280 a half and higher in high yeld close to eight 0:08:13.320 --> 0:08:16.120 percent range. And those are the kind of yields and 0:08:16.200 --> 0:08:20.240 credit spreads that will come down once the Fed starts 0:08:20.320 --> 0:08:21.480 its rate cutting cycle. 0:08:21.680 --> 0:08:23.640 You mentioned there was so much cash coming in. Where 0:08:23.680 --> 0:08:25.560 is the cash going where you direct and get at 0:08:25.560 --> 0:08:27.440 the moment, what are the biggest things you're advocating for. 0:08:28.840 --> 0:08:34.800 Well, we do like credit just because corporate America looks 0:08:35.000 --> 0:08:39.160 so good, and I myself have gone full circle on 0:08:39.280 --> 0:08:42.720 private credit. It's so big I accept it as a 0:08:42.840 --> 0:08:46.000 legitimate source of non bank lending into the system. 0:08:46.160 --> 0:08:48.360 Okay, this has change. What's changed your mind? 0:08:50.400 --> 0:08:54.040 Well, one, the fact that it's larger in size than 0:08:54.080 --> 0:08:58.640 the public high yield market, So that's pretty significant that 0:08:58.880 --> 0:09:02.800 it is getting out out there. It is lending to borrowers. 0:09:03.000 --> 0:09:07.360 Those borrowers aren't just sitting on it. They're actually hiring people, 0:09:07.559 --> 0:09:12.200 they're using resources, they're creating economic activity. Even if you 0:09:12.440 --> 0:09:17.040 think put some unimational default rate out there twenty percent. 0:09:17.320 --> 0:09:20.320 That still means eighty percent is money good. And while 0:09:20.360 --> 0:09:23.560 there are problems that are ongoing right now, whether you 0:09:23.600 --> 0:09:26.320 want to call it an amend and extent or exchanges 0:09:26.480 --> 0:09:30.840 or restructurings, they're occurring. They're occurring, and they're happening without 0:09:30.880 --> 0:09:34.040 all the fanfare if they happen in the public market. 0:09:34.120 --> 0:09:38.040 So it's a strange form of reinsurance to the public 0:09:38.080 --> 0:09:41.120 credit market. So it's another reason we like the public 0:09:41.120 --> 0:09:43.760 credit markets because they just look so clean right now. 0:09:43.920 --> 0:09:48.280 I love it. It's like, Okay, shoot a ribbons, that's okay, 0:09:48.600 --> 0:09:49.120 good morning. 0:09:49.240 --> 0:09:51.520 My name is Bob and I am accepting private credit. 0:09:51.679 --> 0:09:53.959 I love how everyone is that LASA just sitting there 0:09:54.040 --> 0:09:56.200 coming out with the biggest comeback for anyone who's feet 0:09:56.200 --> 0:09:56.800 as stop fum. 0:09:56.920 --> 0:09:57.560 I think it's great. 0:09:57.679 --> 0:09:59.719 And we finished basking you a simple one bump. When 0:09:59.840 --> 0:10:02.000 is it last time you were this bullish on your 0:10:02.040 --> 0:10:04.439 asset class? When was the last time you mentioned the 0:10:04.480 --> 0:10:06.560 mid nineties? When was the last time you were this bullish? 0:10:07.800 --> 0:10:14.839 Oh gosh, you have to go back to the mid 0:10:14.960 --> 0:10:15.800 two thousands. 0:10:16.280 --> 0:10:19.480 Wow, does that make you're comfortable or uncomfortable? It's slice 0:10:19.520 --> 0:10:20.400 the Static thousand and seven. 0:10:22.360 --> 0:10:28.400 I feel great because I feel post financial crisis, we've 0:10:28.520 --> 0:10:32.520 sort of been in a la la land where there's 0:10:32.720 --> 0:10:37.840 there's been a lot of policy intervention along the way 0:10:38.040 --> 0:10:42.920 because it was needed to recover from what happened during 0:10:42.960 --> 0:10:46.320 the financial crisis. And hey, blame us, the baby boomers. 0:10:46.360 --> 0:10:49.080 We learned about leverage and housing never went down in price, 0:10:49.320 --> 0:10:51.280 and we figured out how to blow it all up, 0:10:51.800 --> 0:10:55.320 and it took over a decade to put Humpty dumpty 0:10:55.440 --> 0:10:59.679 back together again. And we see that's what's happening. We 0:10:59.760 --> 0:11:04.160 see that the ninety one bursts are the largest population cohort. 0:11:04.240 --> 0:11:07.800 They're turning thirty three this year. They're the dominant earner 0:11:07.880 --> 0:11:11.360 spender saver. I think we can toss away the last 0:11:11.480 --> 0:11:14.200 fifteen or so years and look at the period pre 0:11:14.320 --> 0:11:18.000 financial crisis when there will be a demand for capital, 0:11:18.400 --> 0:11:20.760 there will be a cost to it, and there will 0:11:20.800 --> 0:11:24.280 be a productive use to it. So I'm very optimistic. 0:11:24.520 --> 0:11:26.640 This was thoughtful stuff, Bob. It's craze to catch up with. 0:11:27.040 --> 0:11:28.920 Kick off this Friday morning and start to close out 0:11:28.960 --> 0:11:31.440 this week. Bob Michael of JP Morgan, Thank you, sir 0:11:41.400 --> 0:11:44.280 Peter Oppenheimer Goldman Sachs rights in this, we believe that 0:11:44.400 --> 0:11:46.760 there are many companies outside of the US that should 0:11:46.760 --> 0:11:49.760 be considered as part of a global diversified portfolio and 0:11:49.800 --> 0:11:52.199 should not be ignored simply because their base and listing 0:11:52.280 --> 0:11:56.480 location is outside of the United States. Peter Oppenheimer joins, 0:11:56.520 --> 0:11:58.600 is now for more, let's get straight into this, because 0:11:58.640 --> 0:12:01.840 it's a really important theme. If it's winning, even if 0:12:01.840 --> 0:12:03.880 it's dominant, should I be concerned? 0:12:06.320 --> 0:12:07.880 Well, the short answer, John is no. 0:12:08.200 --> 0:12:11.160 I mean, the outperformance that we've seen of the US, 0:12:11.600 --> 0:12:16.559 which has really been particularly dramatic since the financial crisis, 0:12:16.880 --> 0:12:21.160 has been entirely based on solid fundamentals the US economy, 0:12:21.280 --> 0:12:26.280 but most importantly, profits have simply outgrown those of other regions. 0:12:26.960 --> 0:12:30.120 But as a result of that, its valuation has risen 0:12:30.200 --> 0:12:32.480 a lot compared to other parts of the world, and 0:12:32.600 --> 0:12:35.000 now we're finally seeing a bit of a narrowing in 0:12:35.160 --> 0:12:39.079 the relative fundamentals. Actually profits are picking up outside of 0:12:39.160 --> 0:12:42.720 the US where the valuations are lower, and we think 0:12:42.800 --> 0:12:45.000 that the US market can still do pretty well, but 0:12:45.080 --> 0:12:49.640 there's some great opportunities outside and diversification makes a lot 0:12:49.679 --> 0:12:50.079 of sense. 0:12:50.120 --> 0:12:52.280 And that's true at the sector and the stop level two, 0:12:52.440 --> 0:12:52.679 the PEP. 0:12:52.720 --> 0:12:54.840 We can talk about those opportunities in just a moment, 0:12:54.880 --> 0:12:56.800 but can we also discuss what we're fighting. Are we 0:12:56.920 --> 0:12:59.120 fighting passive flows that just couldn't care less? 0:13:00.640 --> 0:13:01.720 Yeah, to a large extent. 0:13:01.840 --> 0:13:04.400 Look, passive investing has worked very well over the last 0:13:04.600 --> 0:13:08.640 decade or more in an environment of ever lower interest rates, 0:13:08.800 --> 0:13:12.760 where bigger companies are becoming increasingly dominant, and the usc 0:13:12.840 --> 0:13:15.439 D market itself has got the highest share. 0:13:15.640 --> 0:13:18.280 Of the world market since the early nineteen seventies. 0:13:18.400 --> 0:13:22.600 So what's been winning has continued to win and win 0:13:23.160 --> 0:13:26.200 over time, and that's been a great environment for passive investment. 0:13:26.880 --> 0:13:30.800 We think that as interest rates stabilize at a slightly 0:13:30.880 --> 0:13:33.960 higher level, sure they'll come down cyclically, but they won't 0:13:34.080 --> 0:13:35.360 come down structurally. 0:13:36.280 --> 0:13:38.160 Returns at the index level. 0:13:38.000 --> 0:13:40.840 Are going to be slightly lower, and that's an environment 0:13:40.880 --> 0:13:44.720 where the opportunity set is more attractive for active managers 0:13:45.200 --> 0:13:49.800 and also for more differentiation and diversification, and that means 0:13:49.840 --> 0:13:53.120 across regions, across sectors and styles as well. 0:13:53.520 --> 0:13:56.600 Peter, when you talk about the case for international, I'm 0:13:56.679 --> 0:13:59.920 curious where you're looking in particular, and whether it's regional 0:14:00.160 --> 0:14:02.040 based or sector based as you are just noting. 0:14:03.280 --> 0:14:04.520 Look, it's a little bit of both. 0:14:04.760 --> 0:14:10.240 I mean, the US has done extraordinarily well, partly because 0:14:11.000 --> 0:14:14.040 it's had a very high exposure to the growth factor, 0:14:14.679 --> 0:14:18.000 principally dominated by technology, which has been the winning sector 0:14:18.080 --> 0:14:19.040 over the last decade. 0:14:19.120 --> 0:14:20.760 We still really like technology. 0:14:21.400 --> 0:14:24.760 We think that the dominant companies have been justified again 0:14:25.080 --> 0:14:31.120 in their dominance because of incredibly strong fundamentals. But we 0:14:31.280 --> 0:14:37.520 think that you've got better relative valuation opportunities outside geographically 0:14:37.600 --> 0:14:42.480 the US. And indeed, last year, rather quietly, the euros 0:14:42.520 --> 0:14:46.680 dot fifty was slightly stronger than the SMP. Many people 0:14:47.560 --> 0:14:51.080 don't acknowledge that year. Today Europe has outperformed not just 0:14:51.160 --> 0:14:52.480 the SMP, but the Nasdaq. 0:14:52.800 --> 0:14:56.320 So is Japan. So it isn't that we don't like 0:14:56.640 --> 0:14:58.440 the US. It's gone up, it's done well. 0:14:58.840 --> 0:15:02.360 But there are graphical opportunities to diversify, and I think 0:15:02.400 --> 0:15:04.680 that means also broadening out from technology. 0:15:05.200 --> 0:15:08.840 We think technology is still going to be crucially important. 0:15:08.480 --> 0:15:12.680 And do well, but as interest rates come down and 0:15:12.760 --> 0:15:16.320 we get this soft landing, the opportunity for broadening out 0:15:16.360 --> 0:15:19.280 into some more cyclical parts of the market is improving, 0:15:19.840 --> 0:15:23.240 but also into non tech companies. We put together a 0:15:23.320 --> 0:15:27.560 list of what we call ETC's X tech compounders. These 0:15:27.560 --> 0:15:30.600 are global companies outside of the tech sector which have 0:15:30.840 --> 0:15:35.600 strong characteristics of reinvestment at a high rate, compounding high returns, 0:15:35.920 --> 0:15:37.800 and they tend to be somewhat cheaper and I think 0:15:38.000 --> 0:15:41.880 also offer good diversification opportunities. 0:15:42.120 --> 0:15:44.720 Overnight, Peter, the City Group team, the equity team over 0:15:44.760 --> 0:15:48.240 there actually upgraded EU stocks with about six percent more 0:15:48.320 --> 0:15:51.440 upside here today in their view, and it's one of 0:15:51.480 --> 0:15:53.480 the highest in the street. This is the reason why 0:15:54.200 --> 0:15:56.320 more certainty on rate cuts. We've been talking a lot 0:15:56.360 --> 0:15:59.760 about that global growth you alluded to that and dollar weakness. 0:16:00.160 --> 0:16:04.000 How much is dollar weakness necessary for this call to work? 0:16:05.800 --> 0:16:08.960 Actually, I'm less convinced on the dollar weakness part of 0:16:09.080 --> 0:16:12.120 that story, although I agree with the other comments that 0:16:12.240 --> 0:16:16.160 you made. The European economy is growing at a much 0:16:16.280 --> 0:16:18.480 weaker pace than the US. You know, we're looking at 0:16:19.160 --> 0:16:23.120 US growth this year around two point eight percent and 0:16:23.200 --> 0:16:26.120 in Europe about point seven. But we shouldn't forget that 0:16:26.280 --> 0:16:30.600 the European companies that dominate the indices are very global 0:16:31.040 --> 0:16:34.560 and therefore they benefit from a recovery in global growth 0:16:34.960 --> 0:16:38.440 and in the global manufacturing cycle which is beginning beginning 0:16:38.480 --> 0:16:43.040 to happen. And I think actually that what we find 0:16:43.160 --> 0:16:47.840 for European stocks is that growth trumps currency. Growth is accelerating. 0:16:47.920 --> 0:16:51.000 European companies tend to do well even if the currency 0:16:51.840 --> 0:16:55.360 is actually stronger. Now it may well be weaker and 0:16:55.480 --> 0:16:58.400 that will add to its relative competitiveness. But we don't 0:16:58.440 --> 0:17:01.240 think the currency is actually crucial part of this. It's 0:17:01.360 --> 0:17:05.399 much more about relative fundamentals. Our earning is improving, and 0:17:05.480 --> 0:17:08.800 there's growth improving, our interest rates coming down, all of 0:17:08.840 --> 0:17:11.639 those things suggest they are. And Europe is only trading 0:17:11.640 --> 0:17:14.919 at around thirteen thirteen and a half times PE compared 0:17:14.960 --> 0:17:19.200 to something like twenty one in the US. The UK 0:17:19.480 --> 0:17:21.480 only trades around ten and a half time, is about 0:17:21.520 --> 0:17:24.440 half the valuation of the US, and so there is 0:17:24.480 --> 0:17:27.280 a valuation opportunity as well, which isn't really dependent I 0:17:27.320 --> 0:17:28.440 think so much on currency. 0:17:28.880 --> 0:17:29.080 Peter. 0:17:29.160 --> 0:17:30.800 When you look at India and China and you say 0:17:30.880 --> 0:17:34.399 India has good growth, China can be a value opportunity. 0:17:34.640 --> 0:17:37.360 A lot of people move to India because they wanted 0:17:37.400 --> 0:17:40.040 to get away from China. Why do you see something 0:17:40.520 --> 0:17:42.080 interesting in both markets? 0:17:43.680 --> 0:17:46.560 Well, I think that India is a bit of a 0:17:46.640 --> 0:17:49.840 different story. It's got high growth rates, both in terms 0:17:49.840 --> 0:17:52.680 of the corporate sector and in terms of the economy. 0:17:53.520 --> 0:17:57.160 It's a relatively expensive market, but it's one that has 0:17:57.640 --> 0:18:01.600 good exposure to long term growth, and it is benefiting 0:18:01.640 --> 0:18:05.920 a little bit from diversification supply chains and indeed diversification 0:18:06.000 --> 0:18:10.760 of an investor focus away from China towards India. China 0:18:10.840 --> 0:18:12.359 is a bit of a different story. It is a 0:18:12.480 --> 0:18:16.919 valuation value play. I mean that the market trades at 0:18:16.920 --> 0:18:21.040 around seven times earnings, much much cheaper. Of course, it 0:18:21.160 --> 0:18:24.640 has a lot more structural headwinds and a higher risk 0:18:24.760 --> 0:18:30.280 premium giving given current developments, and it's much less I 0:18:30.359 --> 0:18:34.679 think of a consensus than India, but for evaluation. 0:18:35.560 --> 0:18:36.720 Led recovery, if we get. 0:18:36.640 --> 0:18:40.639 Any policy stimulus, we think that there's a reasonable upside 0:18:40.680 --> 0:18:42.480 at least tactically in that market as well. 0:18:42.560 --> 0:18:44.399 I've got to finish on Japan pet it's just been 0:18:44.400 --> 0:18:46.800 amazing ni K two twenty five year today up by 0:18:46.840 --> 0:18:49.080 something like twenty two percent. I think we had a 0:18:49.320 --> 0:18:51.720 move over the last year of something close to fifty 0:18:51.760 --> 0:18:53.720 percent PE when I buy the S and P five 0:18:53.840 --> 0:18:56.840 hundred market, cat weighted. I know what I'm buying. I'm 0:18:56.840 --> 0:18:59.320 buying megacat tech in a big way. When I buy 0:18:59.440 --> 0:19:01.040 japan Pee, what am I dying? 0:19:02.600 --> 0:19:02.719 Well? 0:19:02.760 --> 0:19:04.200 I think there's two things to say about this. 0:19:04.440 --> 0:19:07.879 First of all, actually, just like the US, both Europe 0:19:07.920 --> 0:19:10.960 and Japan have seen an increased concentration by stock. So 0:19:11.080 --> 0:19:13.760 the biggest thirty companies in Japan, which are very global, 0:19:14.560 --> 0:19:17.800 are actually the biggest share of the thousand biggest that 0:19:17.920 --> 0:19:20.919 we've seen going back over several decades. So you are 0:19:21.000 --> 0:19:25.360 getting dominant, large cap globally exposed companies doing very well. 0:19:26.400 --> 0:19:29.320 I think that you know, the Japanese market is much 0:19:29.400 --> 0:19:32.000 cheaper than the US. Of course it's gone up a lot, 0:19:32.240 --> 0:19:35.159 but we shouldn't forget it's only just broken through the 0:19:35.280 --> 0:19:40.080 level that peaked at last in nineteen ninety. And the 0:19:40.200 --> 0:19:44.879 fundamentals are finally very different because you're getting expanding nominal 0:19:45.000 --> 0:19:50.760 GDP with finally coming out of the deflationary stagnation that's 0:19:50.840 --> 0:19:54.160 dominated that economy over the last twenty five thirty years, 0:19:54.440 --> 0:20:00.320 but also quite a lot of restructuring store because of 0:20:00.720 --> 0:20:04.760 bottom up focus on improving return on investment from a 0:20:04.840 --> 0:20:08.000 low level. So with rising margins, return on equity going up. 0:20:08.280 --> 0:20:11.159 That justifies a bit more of a high evaluation. But 0:20:11.320 --> 0:20:16.359 the dominant companies there really are global companies in areas 0:20:16.600 --> 0:20:21.280 around technology, high high value added manufacturing that benefit from 0:20:21.320 --> 0:20:24.480 a bit of a pickup and global manufacturing cycle as well, 0:20:24.920 --> 0:20:26.440 and we think they're pretty well positioned. 0:20:26.520 --> 0:20:28.679 John pet always enjoy your thoughts. Thanks for being with us. 0:20:28.720 --> 0:20:41.280 Pinner up and handed the Mohammed. Let's talk about this. 0:20:41.560 --> 0:20:43.960 How interventionist is America becoming. 0:20:44.880 --> 0:20:47.200 He's becoming more interventionist. I don't think there's any question 0:20:47.240 --> 0:20:50.240 about that. But the more interesting question is does it 0:20:50.400 --> 0:20:53.240 need to be more interventionist. There is a view which 0:20:53.280 --> 0:20:55.960 I must say I have some sympathy with that industrial 0:20:56.040 --> 0:20:59.280 policy is going to be really important in pivoting from 0:20:59.440 --> 0:21:02.320 all styles growth models to new style growth models. And 0:21:02.400 --> 0:21:03.920 you're seeing it not just in the US, you seeing 0:21:03.920 --> 0:21:04.840 it elsewhere as well well. 0:21:04.920 --> 0:21:07.040 This is actually one of the reasons why when we're 0:21:07.040 --> 0:21:08.840 talking about don't fight the FED the Federal Reserve, but 0:21:08.880 --> 0:21:10.879 also don't fight the federal government, because this kind of 0:21:10.920 --> 0:21:13.080 industrial policy is going to be crucial if you want 0:21:13.119 --> 0:21:15.200 to shift away from some of these supply chains. I 0:21:15.320 --> 0:21:17.560 remember maybe a year ago when people thought this would 0:21:17.560 --> 0:21:19.600 be inflationary six months ago. People thought this would be 0:21:19.640 --> 0:21:23.119 inflationary three months ago, probably going to increase pricing. Now 0:21:23.200 --> 0:21:23.880 people don't care. 0:21:24.040 --> 0:21:24.240 Why. 0:21:25.960 --> 0:21:29.639 The reason why people don't care is because inflation has 0:21:29.720 --> 0:21:32.400 been coming down, and it has been coming down without 0:21:32.400 --> 0:21:33.440 a sacrifice and growth. 0:21:33.600 --> 0:21:35.880 So it's not a top issue right now. 0:21:36.080 --> 0:21:37.040 But it's inflationary. 0:21:37.600 --> 0:21:38.600 Yeah, truly, it is inflationary. 0:21:38.640 --> 0:21:41.800 Of course, it is all the restructions that's happening in 0:21:41.840 --> 0:21:46.280 the global economy other than AI life sciences are inflationary. 0:21:46.960 --> 0:21:50.760 The rewiring of supply chains for geopolitical reason inflationary. The 0:21:50.920 --> 0:21:54.040 rewiring of supply chains because companies want more resilience and 0:21:54.119 --> 0:21:57.960 not just efficiency inflationary. What's happening in the labor market 0:21:58.080 --> 0:22:02.480