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Speaker 2: She is with Private Wealth, Chief investment strategist Private Wealth
Speaker 2: of Partners Group. Anastasia Mrosa joins us, and she is
Speaker 2: one of the select few that said, climb on board
Speaker 2: this American economic experiment and enjoy a multi year bull market.
Speaker 2: Are we gonna double digit again this year? Are we
Speaker 2: going to pop four years? Is it four years in
Speaker 2: a row?
Speaker 3: I double?
Speaker 4: I think we have a chance aid that for sure.
Speaker 4: I mean earlier in the year I thought we would
Speaker 4: have hit seven thousand and stayed there. We haven't managed
Speaker 4: to do that yet. We pulled back three or three
Speaker 4: or five. But the expectation for the year was around
Speaker 4: seven percent returns. So yes, Tom, we might get to
Speaker 4: that ten percent or more for this year. But you know,
Speaker 4: the broader back drop is supportive right on a number
Speaker 4: of different factors. The consumer side, I think is actually
Speaker 4: strengthening this year as we speak. The other notable development.
Speaker 4: For me, this week is all about CAPEX and CAPEX
Speaker 4: not only the United States and not only from hyperscalers,
Speaker 4: but CAPEX globally. We've got the European manufacturing numbers came
Speaker 4: out this morning and those popped quite significantly, driven by
Speaker 4: German physical stimulus. So you know, back to kind of
Speaker 4: the US economy though CAPEX also is an engine now
Speaker 4: and then housing maybe that'll pick up two.
Speaker 3: Yesterday Paul was way too optimistic.
Speaker 2: Yeah, I mean, I mean, I'm sorry, there's like an
Speaker 2: optimistic tone corner.
Speaker 5: There is a little bit good earnings out there on
Speaker 5: a stage. I'm looking at the WEI function here for
Speaker 5: the world equity indices. The US is doing fine as
Speaker 5: it did less year.
Speaker 3: But the rest of the world's doing better.
Speaker 5: Right, so rest of the world versus US outperform buy
Speaker 5: and large last year, Ye, same this year. How do
Speaker 5: you view kind of where to allocate geographically?
Speaker 6: Right?
Speaker 4: I think the way we see allocations is that you
Speaker 4: don't pick one or the other. You do both. You
Speaker 4: do US, you do Europe, you do Asia. And the
Speaker 4: reason for that, you know, if you think about the
Speaker 4: next five years, let's say it's all about localization, supply chains,
Speaker 4: it's on shoring. It's about you know, making sure you
Speaker 4: cater to the domestic consumer. So it used to be
Speaker 4: that you could allocate to a US multinational and that
Speaker 4: would get to the Europe exposure or China exposure. That's
Speaker 4: no longer the case. So that's why I think you
Speaker 4: have to invest in each specific region. But to bring
Speaker 4: it back to sort of the cyclical momentum, I think
Speaker 4: the reason why Europe is actually seeing an our performance
Speaker 4: versus the US because the US has this rolling AI scare.
Speaker 4: You know, maybe it's software names, maybe it's wealth tech names,
Speaker 4: and so the AI exposure has not been a positive
Speaker 4: to the market. But I think even beyond that, there
Speaker 4: is something positive happening in Europe. It is the German
Speaker 4: fiscal stimulus that I mentioned that is showing up in
Speaker 4: the manufacturing momentum. It is also the fact that Europe
Speaker 4: is striking deals of its own. You know, fifty percent
Speaker 4: of global GDP is covered by some sort of a
Speaker 4: trade deal with EU now, the latest one being with India,
Speaker 4: so that's a big deal. And then you have this
Speaker 4: bifurcation between the Northern Europe versus southern and Southern being
Speaker 4: more services oriented, consumption oriented, so that's holding up well too.
Speaker 4: So we've always liked Europe. We invested about thirty nine
Speaker 4: percent of Summer solutions in Europe. But I think there
Speaker 4: is a cyclical upside to it as well.
Speaker 5: Now in the US market, we've seen a pronounced rotation
Speaker 5: starting I guess in late October November. Is that a
Speaker 5: short term trade or is that something more prominent, do
Speaker 5: you think or because it's we've in the US market's
Speaker 5: always been led by tech, always led by tech. But yeah,
Speaker 5: it seems to be rotation a little bit.
Speaker 4: I mean, it feels a little different to me this time,
Speaker 4: you know. And no, I don't think the hyperscala trade
Speaker 4: has gone. I don't think the semic inductors are not
Speaker 4: going to perform. But I do think there's this realization
Speaker 4: that for the last maybe ten years, it's been software's
Speaker 4: world and all been living in it, and software was
Speaker 4: eating the world and so on, and it's been sort
Speaker 4: of you know, the business model that's acid light, that's
Speaker 4: what's benefited. But as I think about going forward, it
Speaker 4: might be that we're in the acid heavy economy once again.
Speaker 4: It's about physical assets, tangible assets. They can be made
Speaker 4: obsolete by the stroke of AI overnight.
Speaker 3: You're brilliant on this in New Mexico years ago. Let's
Speaker 3: bring it in.
Speaker 2: What happens to your world if the hyperscalers decide to
Speaker 2: grow up and actually issued debt like Google did the
Speaker 2: other day. I look at that, you know, zbody one
Speaker 2: on one up but bu and it's just got to
Speaker 2: be a plus plus plus for confidence.
Speaker 4: Well, that's right. And the reason why they're confident to
Speaker 4: do so is because they have the free cash flow
Speaker 4: to do that. And you know, although to Paul's point,
Speaker 4: the markets were fearful and the spreads were somewhat widening,
Speaker 4: you know, back at the tail end of last year,
Speaker 4: the realization is they have hundreds of billions of free
Speaker 4: cash flow and you know, just cash on the sideline,
Speaker 4: so they can afford to issue that debt. The reason,
Speaker 4: tomm I think there is such a great deal of
Speaker 4: confidence for hyperscalers is because they do see the future
Speaker 4: potential growth in their cloud revenues and whether it's Google,
Speaker 4: whether it's others. You know, you see that hockey stick
Speaker 4: infliction higher in cloud revenues. That's important. They also see
Speaker 4: the revenues of their customers the likes of open AI
Speaker 4: Andthropic and others, and those have been going up substantially
Speaker 4: as well.
Speaker 5: Earnings were I don't know about eighty percent the way
Speaker 5: through the S and P five hundred reporting earnings. They
Speaker 5: look pretty solid to me. Are they enough to support
Speaker 5: this market here going forward?
Speaker 4: They do look solid? Absolutely, And you know, I think
Speaker 4: what's actually really interesting, too, Paul, is that even earnings
Speaker 4: for software companies that we've worried about also look solid.
Speaker 4: Will look through a number of software companies and sixty
Speaker 4: percent or so of them reported and eighty to one hundred,
Speaker 4: depending on the sector of reported positive earning surprise and
Speaker 4: earnings growth of twenty or thirty percent, so that alleviates
Speaker 4: some fee in that particular pocket of the market. And
Speaker 4: then beyond that for the market in general, take a
Speaker 4: look at the profit margin. It's going up, is gone
Speaker 4: up despite tariffs, and we're looking for you record thirteen
Speaker 4: point nine percent profit margin. That's likely driven by an me.
Speaker 3: Make it to Tyler, say we make it the Supreme
Speaker 3: Court thing today? Couldn't they? Yeah? I mean they're definitely
Speaker 3: gonna they give them away of the hockey game.
Speaker 4: So I hope not we don't want that.
Speaker 3: We don't have that Anasta Jamres.
Speaker 2: So we continue where the chief investment strategiest Partners Group
Speaker 2: nailed the bull market to see be direct.
Speaker 3: Is this the Partners Group of Switzerland?
Speaker 4: It is, of course yes.
Speaker 3: All a soup costs forty dollars in a.
Speaker 4: Wrestle, it's quite a lot.
Speaker 3: Does the Swiss want to buy America?
Speaker 2: Because we have a different different people saying they're saying, well,
Speaker 2: you know, people are sort of upset with President Trump,
Speaker 2: da da da da da, but they really want to
Speaker 2: buy America. To the Swiss institutions and continental europe institutions,
Speaker 2: do they want to buy micro Look?
Speaker 4: I think the realization for all institutions globally is that
Speaker 4: you might disagree with the current policies, you might disagree
Speaker 4: with the current tactics, but not to invest in America
Speaker 4: is not an investor's best interest. You know, you think
Speaker 4: about the corporate tax rate and again the fiscal stimulus
Speaker 4: that we have come in into the US. You look
Speaker 4: at the innovation, you look at the margins, you look
Speaker 4: at the productivity gates. It's really difficult not to allocate
Speaker 4: capital here. I will say one question mark for investors
Speaker 4: has been around the direction of the US dollar, and
Speaker 4: if the dollar weakness continues, does that actually eat away
Speaker 4: at your return significantly? You know, we're of the view
Speaker 4: then you know, we're at a point where there should
Speaker 4: be some more stable conditions between the euro dollar, for example.
Speaker 4: So with that as a backdrop, the capital flows definitely
Speaker 4: should continue to the US.
Speaker 5: How about what are we doing in the bond market here?
Speaker 5: I can sit in into your treasure and get three
Speaker 5: and a half percent. Are you suggesting your clients take
Speaker 5: credit risk above and beyond that?
Speaker 4: Yes, I mean for a you know, more risk averse,
Speaker 4: you know, individual perhaps looing at the shorter term of
Speaker 4: the US curve might make sense. But you know, we're
Speaker 4: also investors in private credit, and you know, private credit,
Speaker 4: despite the headlines that are out there, we see fundamentals
Speaker 4: that are still quite solid. I can elaborate on that
Speaker 4: in just a minute. But we also see the yields
Speaker 4: that have come down from twelve percent, but they're hovering,
Speaker 4: let's say around nine or ten percent, which is still
Speaker 4: quite attractive in a world where rates elsewhere are going down. Now,
Speaker 4: back to the solid fundamentals of private credit. First of all,
Speaker 4: default rates are holding steady and they're quite low. They're
Speaker 4: also bifurcated. You know, if you're in the cyclical industry
Speaker 4: like autos, yes you're going to see a higher default rate.
Speaker 7: If you are a.
Speaker 4: Non sponsor backed credit, you might see a higher default rate.
Speaker 4: But if you look at the sponsor backed especially secular
Speaker 4: growth credits, we're looking at a fall rate of one
Speaker 4: one and a half percent, which is quite low and
Speaker 4: quite normal. So and even in software pally, I would
Speaker 4: say for private credit, we're still seeing a default rate
Speaker 4: that's half what it is for the index. So a
Speaker 4: lot of the noise that's out there is noise, and
Speaker 4: I think investors would be well served to take some
Speaker 4: risk in private credit.
Speaker 3: Yeah, you mentioned software.
Speaker 5: We've seen such a rotation out of software stocks as
Speaker 5: part of that AI concern. Rippling through the market is
Speaker 5: a time. I mean a lot of these names, you're like, well,
Speaker 5: I always wanted to buy them, but they were too expensive. Yeah,
Speaker 5: it's now time to I hate the falling knife scenario,
Speaker 5: but it seems like some of these names are pretty attractive.
Speaker 4: I think some of them are, but that's the key word.
Speaker 4: There is some you know, I wouldn't necessarily step in
Speaker 4: and buy the full index or the full ETF because
Speaker 4: some parts of the software universe have sold off rightfully.
Speaker 4: So you know, first of all, if you looked at
Speaker 4: the valuation before the valuation was based on annual recurring
Speaker 4: revenue growth, that would assume to be x. But now
Speaker 4: that ARR growth has come down for a lot of
Speaker 4: those names, and maybe it's not ever going to get
Speaker 4: back to those twenty twenty one levels because of agentic AI.
Speaker 4: So are you going to pay the same multiple or
Speaker 4: is the low multiple attractive if you have lower revenues?
Speaker 7: Maybe not.
Speaker 4: I wouldn't step in there, but some incumbents are worth
Speaker 4: looking at it.
Speaker 2: My essay a couple of years ago, Lawrence McDonald was
Speaker 2: just brilliant on the absolute wall of money that has
Speaker 2: to find a place to go in investment.
Speaker 3: It's still there.
Speaker 2: Isn't after the amoroso bull market of the last five years.
Speaker 2: I mean like it's tech season now, I mean every
Speaker 2: pick the calendar date. You know better than me, Anastasia.
Speaker 2: There's just still this just wall of money that's got
Speaker 2: to find a place to go.
Speaker 3: Right.
Speaker 4: There is there is, and it's really coming from a
Speaker 4: lot of different places. You know, if you think about
Speaker 4: kind of the consumer side of it. This year in particular,
Speaker 4: we're looking for higher refunds. Some of it will twenty
Speaker 4: four percent year of year. Some of them will find
Speaker 4: its way into consumption, but some of it will find
Speaker 4: itself an investing If I think about the institutional capital worldwide,
Speaker 4: you have some some of the sovereign wealth funds that
Speaker 4: are benefiting or example, from continued sales of natural resources,
Speaker 4: and so you have that steady stream of revenue that's
Speaker 4: finding its way into the market. And then you know,
Speaker 4: if you think about corporates, and we talked about margins,
Speaker 4: we talked about the cash accumulations, that too is adding
Speaker 4: to it. So you know, maybe Tom kind of the
Speaker 4: extension to your question, well, is there too much money
Speaker 4: and especially in private markets, you know, chasing some of
Speaker 4: these deals, And yes, there's an increasing amount of capital,
Speaker 4: but I would say there's an increasing amount of opportunity
Speaker 4: as well.
Speaker 2: Alexis and Paul and I we have no life, so
Speaker 2: I've got to ask. One of the most famous restaurants
Speaker 2: in the world, folks is where Partners Group.
Speaker 3: It's like the lunch room for Partners Group in Switzerland.
Speaker 2: Is Zoom Yeah, it's the I'm going to butcher the
Speaker 2: pronunciation guesthouse wrath scaler. Did you go to the seventeenth
Speaker 2: century guest house rest scalar? I think an overpriced Swiss lunch.
Speaker 2: I did not.
Speaker 4: I had a wonderful Swiss dinner at a restaurant the
Speaker 4: name I cannot remember. But no that I will put
Speaker 4: that on my list.
Speaker 2: Hold, they have Swiss prim Rin's enter coat, brom butter, Belpernol.
Speaker 3: No idea for like seventy dollars. Put me down. I
Speaker 3: think that's like Selberry's state.
Speaker 4: AT's sake, it sounds great.
Speaker 3: What is it like working for the Swiss? I mean,
Speaker 3: this is very cool. But you go right to get there?
Speaker 4: Yes, to go to Zurich. Zuog is about a thirty
Speaker 4: four minute drive from there on the east coast of
Speaker 4: the lake. There are a lot of lakes. There are
Speaker 4: a lot of lakes and a lot of mountains. But no,
Speaker 4: it's a partners group. Has been an exceptional place to
Speaker 4: be at and it's we've got a thirty year history,
Speaker 4: actually a thirty year anniversary for us as this.
Speaker 2: Year shops run out of you know, between Boulder and Denver. Right,
Speaker 2: So you go she goes to zug and as the
Speaker 2: barley soup and then she goes out there and his ELK.
Speaker 4: Yeah, that's right. And we do also have a presence
Speaker 4: in New York. But you know there's a lot of
Speaker 4: investment processes that have been in place for a long time,
Speaker 4: and you know that that does come with Swiss discipline.
Speaker 4: I think the thing that strikes me is the the
Speaker 4: global perspective that we're able to bring to our clients
Speaker 4: in the integration that we have within our team.
Speaker 3: So what your research onw is telling me is your
Speaker 3: long Europe.
Speaker 4: Yes, we are thirty forty percent has been an allocation
Speaker 4: to Europe and we're up towards the higher range of
Speaker 4: that right now, Straight company Swiss.
Speaker 2: Oh yeah absolutely, But Paul, I mean I think you know,
Speaker 2: we can do a remote from Scenic zoog Yep from
Speaker 2: the guesthouse Reth Skelet.
Speaker 3: It's like Wicked famous restaurant, and we'll let's.
Speaker 4: Make it happen. We'll make it happen.
Speaker 2: Anastajamarosa Partners Groups in Switzerland and Broomfield, Colorado.
Speaker 3: Thank you so much for joining us.
Speaker 8: Stay with us. More from Bloomberg Surveillance coming up after this.
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Speaker 2: So Alexis mentioned the math, I want to go over it,
Speaker 2: and Lindsay's going to tell me what to do.
Speaker 3: You're Lindsay, Pigs.
Speaker 2: This was Stifel nominal GDP last time around, ending September
Speaker 2: thirty was a China like eight point three percent, Paul.
Speaker 2: If you add in the one percent government shutdown, we
Speaker 2: go from five point one percent published nominal to six
Speaker 2: point one Ish. I'm going to say, there is Well
Speaker 2: joining us, the Queen of Ish in economics, Lindsay Pigs
Speaker 2: joining us. What do you do with these numbers? Lindsay,
Speaker 2: how do you format the view forward? Given the plethora
Speaker 2: of data in the last ten minutes.
Speaker 9: Well, I think when we dig through some of the details,
Speaker 9: we're going to see that it's pretty messy, particularly given
Speaker 9: that the economy was shut down for almost half of
Speaker 9: that three month period. Now, the President says it shaved
Speaker 9: off about two points. The BA says it shaved off
Speaker 9: about one percent. So we know that there was a
Speaker 9: significant damping down effect, regardless of whether it's one or
Speaker 9: two percentage points. So parsing through some of the details,
Speaker 9: I think the more important figure to focus on right
Speaker 9: now to really gauge the underlying momentum of the economy
Speaker 9: is let's strip out inventories, let's strip out trade. Let's
Speaker 9: look at real final sales to domestic purchasers, which rose
Speaker 9: at two point four percent, more in line with what
Speaker 9: we saw in the third quarter at two point nine percent.
Speaker 2: Well, that's like, that's brilliant and I really really buy
Speaker 2: this angle from years ago at Fidelity with Betina Dalton.
Speaker 2: And the bottom line, Paul is that's a pretty good
Speaker 2: number number.
Speaker 5: I think it's a pretty good number. And how about
Speaker 5: the inflation outlook there, lindsay, if you're given that the
Speaker 5: economy is growing at a solid rate, what's the inflation
Speaker 5: story on top of that.
Speaker 9: Well, as you know, I have been long concerned about
Speaker 9: inflation and the Fed's lack of focus on inflation. So
Speaker 9: we see this pick up to two point nine percent,
Speaker 9: and that is in the wrong direction. We don't see
Speaker 9: this ongoing improvement of disinflation that the FED remains very
Speaker 9: optimistic that we're going to achieve eating back to two
Speaker 9: percent as the forecast by twenty twenty eight. Now, any improvement,
Speaker 9: of course, is welcome, but I do expect inflation to
Speaker 9: remain elevated nearer that three percent pace for some time,
Speaker 9: which will keep pressure on the bed to remain on
Speaker 9: the sideline.
Speaker 2: She so under sells it. I mean she was my
Speaker 2: Economist of the year one year or two years, three
Speaker 2: years ago, I can't remember. Lindsay with Jim Bianco was
Speaker 2: out front with Mohamma and Larian. You know what, folks,
Speaker 2: Inflation is going to be resilient.
Speaker 3: She nailed it.
Speaker 5: So, Lindsay, talk to us about kind of how you
Speaker 5: think the Fed is digesting the numbers we had today,
Speaker 5: some of the labor data we had last week, the
Speaker 5: CPI data we had last week.
Speaker 3: How are they putting it all together? Do you think?
Speaker 5: Well?
Speaker 9: I think right now the Fed is looking at this
Speaker 9: moderate trend line in activity as a justification for their
Speaker 9: earlier decision to cut rates. Remember, over the past two years,
Speaker 9: we're now one hundred and seventy five basis points closer
Speaker 9: or arguably at now that neutral level. But the reacceleration
Speaker 9: in payroll in the latest report. The pickup as we
Speaker 9: saw this morning in inflation is going to really solidify
Speaker 9: now their position on the sidelines. As we saw in
Speaker 9: the minutes yesterday, there were some members that we're considering
Speaker 9: that we're willing to consider a rate hike scenario. I
Speaker 9: don't think we're there quite yet. This is a FED
Speaker 9: that has been willing to tolerate above target inflation for years,
Speaker 9: So simply maintaining this three ish percent isn't going to
Speaker 9: move the needle. But they are sending the signal to
Speaker 9: the marketplace that they're focused on inflation and that should
Speaker 9: help rein in market excuse me, inflation expectations.
Speaker 2: We have a PhD in economics. You can say ish
Speaker 2: yep with quality Lindsay, I mean, I mean. The bottom
Speaker 2: line here is it's a K shaped economy. We're going
Speaker 2: to get all sorts of mail. You guys are nuts.
Speaker 2: You have no idea to struggle out here after fourteen
Speaker 2: minutes of analysis.
Speaker 3: How K shaped is our K shaped America?
Speaker 9: Well, I would argue it's not necessarily a K shaped,
Speaker 9: but more of an E shaped recovery.
Speaker 7: It's going to be uneven.
Speaker 9: Certainly, there is this dichotomy across classes, particularly as we
Speaker 9: see household net worth significantly increase for those at the
Speaker 9: upper end of the income spectrum as a result of
Speaker 9: a run up in asset prices via the housing market
Speaker 9: the equity market, a benefit which the middle class and
Speaker 9: the lower end of the income spectrum has not benefited from.
Speaker 9: But we do see other stimulants coming out into the economy,
Speaker 9: the One Big Beautiful Bill Act averting a reset to
Speaker 9: a higher tax rate. This won't necessarily provide a windfall
Speaker 9: to spending, but it will help to maintain the current
Speaker 9: levels of expenditures across those different rungs in the E
Speaker 9: shaped recovery so on. Even yes, but not necessarily a
Speaker 9: K shaped where some are particularly perpetually i should say,
Speaker 9: doing better and others are losing momentum.
Speaker 5: How much of an impact are you expecting, lindsay from
Speaker 5: some of the President's legislation, the One Big Beautiful Bill,
Speaker 5: I mean, are you factoring that into your GDP forecast,
Speaker 5: your consumer spending forecast? How is that impacting things?
Speaker 9: Well, we're looking at the overall impact on the economy
Speaker 9: for twenty twenty six to be upwards of several tenths
Speaker 9: of a percentage point. Now, that doesn't seem like a lot.
Speaker 9: But again, as we're looking at an economy at a
Speaker 9: growth rate at two point two percent last year, any
Speaker 9: additional boost to consumers or businesses it is a welcome
Speaker 9: step in the right direction. But right now, I think
Speaker 9: the biggest factor is going to be how much of
Speaker 9: a dampening effect does that overheing of elephanty prices take
Speaker 9: out of consumer's ability to spend out in the marketplace.
Speaker 2: So help us here with what Alexis said, and she
Speaker 2: took her queue from the President of the United States.
Speaker 2: He's out with the tweets saying it costs two points
Speaker 2: a shutdown Lindsey pigs and just back of the Steifel
Speaker 2: Nicholas envelope, how much do you add on to real
Speaker 2: GDP to get where we are now?
Speaker 9: I think the President may be looking at this overly,
Speaker 9: maybe accounting a bit more for the shutdown then I
Speaker 9: would assign. I would say, maybe in line with the
Speaker 9: ba's forecast of about one percent. But remember whatever we
Speaker 9: lost at the end of the year, we typically regain
Speaker 9: when the government reopens, and so if there was a
Speaker 9: one percent loss, we're likely going to see an even
Speaker 9: stronger one percent boost across the first quarter.
Speaker 4: Now this time it is a little more complicated because we.
Speaker 9: Did see that second round shutdown, although it was much
Speaker 9: shorter and much less disruptive. But I would expect that
Speaker 9: to be reclaimed. Anything that was lost at the end
Speaker 9: of the year to be reclaimed at least within the
Speaker 9: first half of twenty twenty.
Speaker 3: Six, Doctor Peas And thanks so much, Lindsay p because
Speaker 3: it was st.
Speaker 8: Stay with us. More from Bloomberg Surveillance coming up after this.
Speaker 1: You're listening to the Bloomberg Surveillance podcast. Catch us Live
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Speaker 1: on Applecarplay and Android Otto with the Bloomberg Business app
Speaker 1: or what us Live on YouTube to.
Speaker 2: Look at the summary of the market. What do you
Speaker 2: do you look at foreign exchange? Jane Foley joins us
Speaker 2: from rival bank. Jane, it's been way too long. Where
Speaker 2: is the flight to quality now? Do people feared? Do
Speaker 2: they go to the US dollar? Do they go to
Speaker 2: the Swiss franc Do they go to the Lebanese pound?
Speaker 6: You know what, that is a very good question, and
Speaker 6: I think, of course the Swiss frank is up there
Speaker 6: because after all, you know, on a textbook basis, the
Speaker 6: Swiss frank is perhaps the only currency that really ticks
Speaker 6: all of those boxes. But you know, this week, the
Speaker 6: dollar is the best performing G ten currency and netfoth
Speaker 6: it does seem that the dollar is picking up a
Speaker 6: little bit of a safe haven bid. Now that is
Speaker 6: interesting because I think really since last April, the market's
Speaker 6: been debating whether or not the dollar has lost its
Speaker 6: safe haven status or not. And this week's activity will
Speaker 6: come down really on them of those suggesting, yeah, you
Speaker 6: know what, it's still there.
Speaker 3: For those of you on YouTube, it's a shrinking. It's
Speaker 3: like Rick Baranas in the movie. Yeah, you know, they
Speaker 3: shrinked down. Jane Foley shrinking down.
Speaker 2: We're going to continue, too important a conversation to cut
Speaker 2: her off, but Jane Foley with a shrinking video today, Pop.
Speaker 5: Jane, where do you see value out there in the
Speaker 5: currency markets?
Speaker 3: Here?
Speaker 5: If I'm a value investor, I'm looking at currencies, where
Speaker 5: would you send me?
Speaker 6: Well, you know, I think I'd probably send you with
Speaker 6: the same sort of places i'd send you last year.
Speaker 6: And if we look at some of the better performing
Speaker 6: currencies for twenty twenty five, well, we had to Swiss
Speaker 6: frank right up there, we had the Swedish Krona two.
Speaker 6: And you know, this is pretty interesting because it does
Speaker 6: appear that, you know, the market may not really believe
Speaker 6: in the basement. You know, there's no proof of the
Speaker 6: US debasement. After all, you know, foreigners are holding record
Speaker 6: amounts of US treasuries, but they're still a little bit worried,
Speaker 6: you know, about these sorts of things, of fiscal issues,
Speaker 6: and they still want to diversify. And I think the
Speaker 6: market's therefore look at those fundamental criteria, the countries that
Speaker 6: have really good fiscal positions, good levels of debt, and
Speaker 6: you know, the Swedish Kroner, the Swiss Franca up there.
Speaker 6: But this year, you know, something new really has evolved,
Speaker 6: and that is countries G ten countries which are looking
Speaker 6: to potentially fike interest rates. And this is a change
Speaker 6: because right now the market's only really sort of confident
Speaker 6: of the Bank of England and the Fed cutting interest
Speaker 6: rates further this cycle. The Australians are already tightened and
Speaker 6: there's a discussion now will norwaybe the next to Titan
Speaker 6: That we had a bit of a pushback from the
Speaker 6: Rby and Z the other day. But you know, they
Speaker 6: could be the they could be tightening before the end
Speaker 6: of the year, and maybe even the Sweds, maybe even
Speaker 6: the ECB. So for the vast majority of the ECB,
Speaker 6: we're talking about this transition now potentially into a hiking cycle,
Speaker 6: and that of course has created a few more interesting
Speaker 6: ways on the foreign exchange market.
Speaker 2: What's the bet now on week dollar? Paul and I
Speaker 2: keep talking about the week dollar week dollar week dollar.
Speaker 2: It's sort of kind of like not happening. How sizeable
Speaker 2: is the bet of euro one twenty or yen forty nine.
Speaker 6: Well, in terms of you were a dollar, you know,
Speaker 6: one to twenty is still right there in the market consensus, really,
Speaker 6: you know, not too far a quarter or two at least.
Speaker 6: I haven't got one twenty anymore in the forecast table.
Speaker 6: I took that out before the end of last year,
Speaker 6: because if we look at the dollar really and its performance,
Speaker 6: say against the euro, since the start of eight two
Speaker 6: last year's it's the very start of July. Ue dollar's
Speaker 6: sort of gone nowhere. Yeah, it's chopped around a bit.
Speaker 6: Certainly at the start of this year there was a
Speaker 6: lot of volatility, but we're right back at the levels
Speaker 6: we were at the start of the year, and we're
Speaker 6: pretty close to the levels we were at the start
Speaker 6: of July. The dollar has held its ground after that
Speaker 6: huge tumble it suffered at the start of the year.
Speaker 6: But that tumble really does continue to really shadow, really
Speaker 6: influence the way people think about the dollar. They're still
Speaker 6: worried that we could potentially see further structural weakness, But
Speaker 6: I'm just not convinced. There are still lots of pretty
Speaker 6: good fundamentals in the US. You know, you look at
Speaker 6: the growth data, for instance, productivity data that continues to
Speaker 6: act perform, and that I think was the basis of
Speaker 6: that buy America trade that dominated for so many years
Speaker 6: after the global financial crisis, all the way up to
Speaker 6: the start of last year. So I think we're going
Speaker 6: to chop around in ranges. I think the en probably
Speaker 6: can do better, but I think we do need to
Speaker 6: see the Bank of Japan probably accelerating its rate hiking cycle,
Speaker 6: and I think we hear more of that as we
Speaker 6: move into the spring and get beyond the spring.
Speaker 5: Wage talks about thirty seconds left Jane real quickly the yen,
Speaker 5: it's got a lot of people kind of confused where
Speaker 5: the direction is.
Speaker 3: Where do you think the end goes?
Speaker 6: You know, I think Japan is so exciting, so many
Speaker 6: structure reforms, lea, there's so much effort to try and
Speaker 6: get people away from cash into the stock market, into assets.
Speaker 6: Foreigner is on a very small amount of that JGB market.
Speaker 6: I don't think we should be as worried as the
Speaker 6: market was. I do think that, you know, in a
Speaker 6: year or two times, we're going to be looking back
Speaker 6: and think, wow, you know the en we're pretty cheap
Speaker 6: back then.
Speaker 2: Jane, thank you so much for the brief. Jane Foley
Speaker 2: with a wonderful Dutch bank Robobank out of London.
Speaker 8: Stay with us. More from Bloomberg Surveillance coming up after this.
Speaker 1: You're listening to the Bloomberg Surveillance podcast. Catch us Live
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Speaker 2: Joining us now Dinas Fandier, who is with Bloomberg and
Speaker 2: Guni Economics, and she has had the privilege of studying
Speaker 2: with Lawrence Freeman.
Speaker 3: What was it like, Dini?
Speaker 2: You wander in the door at King's College, and it's
Speaker 2: literally like you're talking to the Adam Smith of Worse studies.
Speaker 7: First, thanks for having me. You know, you don't know
Speaker 7: better than to just be excited and appreciate that you're
Speaker 7: studying with some pretty great people, and then really appreciate
Speaker 7: the mentorship that they give you, which is what I
Speaker 7: call this war that we're in.
Speaker 2: It's on the cover of the New York Times. There's
Speaker 2: maps that you look at them and all that, Dana,
Speaker 2: have you ever seen? I mean, this is not like Kuwait,
Speaker 2: It's not like Iraq. There's something different about this Iran affair.
Speaker 2: Of the President discuss.
Speaker 7: So much to say so little time. I mean, you know,
Speaker 7: I think the I think the Iran issue has historically
Speaker 7: been a real unifying issue in the United States, which
Speaker 7: is odd given that the US political leads are pretty
Speaker 7: much split on absolutely everything. Iran tends to unify them.
Speaker 7: Although I think Trump's desire or at least build up
Speaker 7: and steps towards war is beginning to kind of chip
Speaker 7: away at that unified elite. So I think there's that
Speaker 7: element of it, And then I think there's the element
Speaker 7: of the build up. Right, the build up is the
Speaker 7: military build up. The US military build up in the
Speaker 7: region is really consequential, It's really significant. It's unlike anything
Speaker 7: that we've seen in the past before. Is it really
Speaker 7: intended to go to war or is it intended to
Speaker 7: scare the Iranians to the negotiating table. I think there's
Speaker 7: an element of both. But the risk, of course, is
Speaker 7: that the build up is so significant that unless Trump
Speaker 7: gets everything he wants out of an agreement with the Iranians,
Speaker 7: he's going to have to use it to justify that
Speaker 7: build up.
Speaker 5: Dina. I think, as you mentioned, the build up of
Speaker 5: military capabilities in that part of the world's substantial. Do
Speaker 5: we know what the US strategy is? What does the
Speaker 5: US want here from Iranda? That seems to be unclear
Speaker 5: for a lot of folks.
Speaker 7: I mean, that is the million dollar question. What are
Speaker 7: the objectives of what the United States is doing right now?
Speaker 7: It started out, as you know, we had to find
Speaker 7: a way to contain or roll back around nuclear program.
Speaker 7: Then for some people in the United States, it became
Speaker 7: about regime change, then it returned back to the nuclear program.
Speaker 7: It's really really unclear, and the reason for that is
Speaker 7: I think the administration itself is unclear on what its
Speaker 7: objectives are. I think there's an element of opportunism right now, okay,
Speaker 7: but there's an opportunity, Dan.
Speaker 2: How are the generals in the admirals like the pros
Speaker 2: at this like you do? They feel left from where
Speaker 2: you sit? Is this being run off the desk of
Speaker 2: the president in the Oval office or is there actually
Speaker 2: a discussion of normal planning of a conflict or a
Speaker 2: war in the process of war studies.
Speaker 7: I mean, I think it's impossible to go to war
Speaker 7: without at least having a conversation with the generals. And
Speaker 7: in fact, it's been reported that President Trump has been
Speaker 7: briefed on the military options when it comes to Iran,
Speaker 7: and part of that briefing in conversation is actually why
Speaker 7: Trump didn't go to war with Iran in January when
Speaker 7: the protests were happening and when he promised to send help,
Speaker 7: because I think the briefing from the generals really frightened
Speaker 7: him and pushed him to build his capabilities up first.
Speaker 2: That's the smartest thing I've heard, Paul. I mean, I'm sorry,
Speaker 2: but you know, forget about all of our parents riveted
Speaker 2: and molded by Pearl Harbor. November of nineteen seventy nine.
Speaker 2: Sure was a problem, the Exocet missile on the Falklands,
Speaker 2: There was a problem.
Speaker 3: Where's the problem here? Given what we see in those maps.
Speaker 5: I don't know, Soded, what is the role that Israel
Speaker 5: is playing in this situation? Other allies, perhaps other players
Speaker 5: in the Middle East? Is it just the US and
Speaker 5: Iran with this stare off here? What are the others doing?
Speaker 7: I mean, I think the main players are definitely the
Speaker 7: US in Iran, and the main decision maker on this
Speaker 7: front right now really is President Trump. But I think
Speaker 7: Israel is playing a huge role in trying to sway
Speaker 7: Trump and trying to really convince him either to go
Speaker 7: to war or to have a very maximalist position in
Speaker 7: the nuclear negotiations. And bizarrely, compared to a few years
Speaker 7: ago when the first nuclear deal was being negotiated, it's
Speaker 7: the US's Gulf Erab partners that are actually urging restraint,
Speaker 7: that are saying we don't want war because we don't
Speaker 7: know what will happen once the fighting starts.
Speaker 2: Well, Dina, that's right where we wanted to go. I mean,
Speaker 2: you know, did you study the American Civil War? Dana
Speaker 2: at King's College?
Speaker 3: Or very little, very little, Okay. July eighteen sixty one,
Speaker 3: first Battle of bull Run.
Speaker 2: The socialites of Washington went out to watch the battle
Speaker 2: because it was going to be a short little skirmish.
Speaker 2: America after Iraq, America after Afghanistan is jaded about short
Speaker 2: little skirmishes. Do you assume if something happens this weekend, whatever,
Speaker 2: the president decides that this is some form of short
Speaker 2: little skirmish, or do we end up they both run
Speaker 2: like the American Civil War for five six years.
Speaker 7: I think if you had asked me this question six
Speaker 7: months ago, seven months ago, I would have said, I
Speaker 7: think there's a chance we can keep it short because
Speaker 7: the Iranians don't want to escalate further. They don't want
Speaker 7: to fight a war they know they're going to lose.
Speaker 7: I think today the issue is really existential for Iran,
Speaker 7: so they have no incentive to not escalate. Their incentive
Speaker 7: is the opposite, escalate through everything we have at the
Speaker 7: problem and see what we can do, how to get
Speaker 7: the US bogged down further in the region, impact oil
Speaker 7: markets by shooting at oil and energy infrastructure in the region,
Speaker 7: potentially closing the Straits of Marmous and once that happens,
Speaker 7: it's absolutely impossible to keep this short.
Speaker 5: So, Dina, I guess we step back and say, perhaps
Speaker 5: a strategy for the US would be regime change, because
Speaker 5: anything short of that seems inconsequential relative to the assets
Speaker 5: that are being deploid there.
Speaker 7: Well, for sure, that could be an option, but then
Speaker 7: the problem is the assets that are deployed there are
Speaker 7: not enough. It's going to be virtually impossible to change
Speaker 7: the system from overhead. You're going to have to put
Speaker 7: boots on the ground. And I don't think any American
Speaker 7: president wants to put boots on the ground in Iran.
Speaker 3: Yeah, absolutely so.
Speaker 5: I mean, again, what's the next step you're looking for, Dina.
Speaker 7: I'm looking for the beginning of that conflict. I think
Speaker 7: sadly everybody has cornered themselves into that first air strike happening,
Speaker 7: and then we'll be looking at how does Iran escalate?
Speaker 7: Does it go all out immediately or does it do
Speaker 7: it step by step. I think my sense is that
Speaker 7: it will be a pretty rapid escalation, and then it
Speaker 7: becomes really difficult to say what will happen next.
Speaker 2: Data. Thank you so much for your work, Really really
Speaker 2: appreciated this morning. Will be in touch with this all
Speaker 2: week and Joe Matthew and Kayly Lynes leading your covers.
Speaker 2: Look for that at twelve doon dta Esfandier Middle East
Speaker 2: Tuna Economics lead for Bloomberg Econizers.
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