1 00:00:00,080 --> 00:00:12,960 Speaker 1: Ye, Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene 2 00:00:13,480 --> 00:00:17,560 Speaker 1: Jay Ley. We bring you insight from the best in economics, finance, investment, 3 00:00:18,000 --> 00:00:23,520 Speaker 1: and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, 4 00:00:23,600 --> 00:00:27,360 Speaker 1: Bloomberg dot Com, and of course on the Bloomberg Full 5 00:00:27,440 --> 00:00:30,040 Speaker 1: Studio here in New York City. Formerly the Chief economist 6 00:00:30,040 --> 00:00:32,160 Speaker 1: of the O E c D and now the Cities 7 00:00:32,200 --> 00:00:35,199 Speaker 1: Global Chief Economists Catherine Man dropping by. Good morning to 8 00:00:35,320 --> 00:00:39,720 Speaker 1: Catherine too. Can we talk about the faith in en 9 00:00:39,840 --> 00:00:42,040 Speaker 1: rate hikes that seemed to take a big smash in 10 00:00:42,080 --> 00:00:45,880 Speaker 1: the face last week? Does it make much sense? What 11 00:00:46,159 --> 00:00:49,960 Speaker 1: have red hikes? Know? The fact that the Federal Reserve's 12 00:00:50,000 --> 00:00:52,280 Speaker 1: resolve is seriously being tested by this market, and the 13 00:00:52,360 --> 00:00:55,880 Speaker 1: implied rate hikes through safe Fed fund futures has rolled 14 00:00:55,920 --> 00:01:00,080 Speaker 1: over well. I think that there's on the horizon and 15 00:01:00,160 --> 00:01:03,680 Speaker 1: some potential surprises UM that might change the market's view 16 00:01:04,160 --> 00:01:06,199 Speaker 1: on whether or not there's going to be more rate hikes. 17 00:01:06,240 --> 00:01:09,399 Speaker 1: I mean, there's inflation has been extremely quiescent, and I 18 00:01:09,440 --> 00:01:13,240 Speaker 1: think that's really the key ingredient, UH, that's keeping the 19 00:01:13,280 --> 00:01:18,080 Speaker 1: market um complacent about what the trajectory should look like 20 00:01:18,280 --> 00:01:21,840 Speaker 1: for the um policy rate going forward. I think that 21 00:01:21,959 --> 00:01:25,760 Speaker 1: there's a potential for some inflation surprises coming in the 22 00:01:25,880 --> 00:01:28,280 Speaker 1: at the beginning of the year. I want to pick 23 00:01:28,360 --> 00:01:31,119 Speaker 1: up on that word complacency because we've had some communication 24 00:01:31,160 --> 00:01:33,479 Speaker 1: from the Federal Reserve recently that some people have sort 25 00:01:33,480 --> 00:01:36,720 Speaker 1: of latched onto and said, look, this isn't about complacency anymore. 26 00:01:37,080 --> 00:01:39,039 Speaker 1: I can see the Federal Reserve is stepping back a 27 00:01:39,080 --> 00:01:41,640 Speaker 1: little bit from projections for next year. What do you 28 00:01:41,640 --> 00:01:43,840 Speaker 1: make of that? Well, I think that you know, there 29 00:01:43,880 --> 00:01:47,280 Speaker 1: are data driven institution. We've had data come in and 30 00:01:47,440 --> 00:01:51,840 Speaker 1: suggests that the global economy is slowing down somewhat. Uh, 31 00:01:51,880 --> 00:01:53,760 Speaker 1: and yes, that's going to have an impact on the 32 00:01:53,800 --> 00:01:57,400 Speaker 1: US economy. What is in an important ingredient in thinking 33 00:01:57,440 --> 00:01:59,600 Speaker 1: about what the Fed has to do is they have 34 00:01:59,640 --> 00:02:02,040 Speaker 1: to bound onto what the signals are coming from the 35 00:02:02,040 --> 00:02:05,320 Speaker 1: global economy with the signals that are coming from uh, 36 00:02:05,440 --> 00:02:08,440 Speaker 1: sort of the domestic economy, and the domestic economy is 37 00:02:08,520 --> 00:02:11,560 Speaker 1: really very strong and continues to be so. It also 38 00:02:11,639 --> 00:02:14,240 Speaker 1: has to take signals from the financial markets. And again 39 00:02:14,280 --> 00:02:17,200 Speaker 1: there's a distinction between companies that are sort of more 40 00:02:17,280 --> 00:02:21,959 Speaker 1: domestically oriented, they are not financially market engaged. Uh. Those 41 00:02:22,000 --> 00:02:24,760 Speaker 1: companies are feeling very good. They did get a tax 42 00:02:24,800 --> 00:02:28,720 Speaker 1: cut there using it to enhance their capital and labor. Uh. 43 00:02:28,760 --> 00:02:32,679 Speaker 1: And then there are the other companies who are outwardly oriented. 44 00:02:32,840 --> 00:02:35,040 Speaker 1: In other words, they care a lot about the gluble economy, 45 00:02:35,160 --> 00:02:39,480 Speaker 1: and they are very financially market engaged. They they look 46 00:02:39,520 --> 00:02:42,760 Speaker 1: at Wall Street, they worry about Wall Street volatility, and 47 00:02:42,919 --> 00:02:46,639 Speaker 1: it's very important for the Fed to balance those two. Uh. 48 00:02:46,720 --> 00:02:49,919 Speaker 1: One is a tailwind, one's a headwind. Dr Man the news. 49 00:02:49,960 --> 00:02:52,440 Speaker 1: So this morning has been so extraordinary. We really haven't 50 00:02:52,480 --> 00:02:56,680 Speaker 1: gotten to that wheelhouse discussion with you, which is the 51 00:02:56,720 --> 00:03:00,000 Speaker 1: meetings of the G twenty over the weekend. Vice President 52 00:03:00,040 --> 00:03:03,160 Speaker 1: and pens I guess advanced the story into a non 53 00:03:03,240 --> 00:03:06,480 Speaker 1: story and that both sides see miles apart. Is that 54 00:03:06,520 --> 00:03:10,400 Speaker 1: going to be the outcome that we see in Buenos Aires? Well, 55 00:03:10,840 --> 00:03:14,800 Speaker 1: if we think of Apeck as being the the triple 56 00:03:14,919 --> 00:03:19,200 Speaker 1: A ball compared to the big leagues of me, I 57 00:03:19,200 --> 00:03:22,680 Speaker 1: think a lot of our listeners really don't understand what 58 00:03:22,800 --> 00:03:29,440 Speaker 1: is it as Pacific economic cooperation. Thank goodness, ye, I've 59 00:03:29,440 --> 00:03:31,640 Speaker 1: worked with them before, so I don't know which one 60 00:03:31,680 --> 00:03:33,919 Speaker 1: is the big league. Perhaps I should not have said 61 00:03:33,919 --> 00:03:38,200 Speaker 1: one's the big league in one's triple A, indeed. But 62 00:03:38,280 --> 00:03:40,400 Speaker 1: the point is is that if this was the dry run, 63 00:03:40,480 --> 00:03:45,000 Speaker 1: if APEC was the dry run for G twenty, you 64 00:03:45,040 --> 00:03:47,200 Speaker 1: can either you can say, well it was a dry run. 65 00:03:47,280 --> 00:03:49,720 Speaker 1: We're going to be very tough. We're gonna say we 66 00:03:49,800 --> 00:03:54,280 Speaker 1: don't have any grounds for agreement. Uh. And then let's 67 00:03:54,320 --> 00:03:57,000 Speaker 1: see what the market responds. How does the market respond 68 00:03:57,040 --> 00:04:00,560 Speaker 1: to that kind of behavior, and then use that as 69 00:04:00,640 --> 00:04:04,280 Speaker 1: a key for well, maybe we should agree to something 70 00:04:04,400 --> 00:04:07,200 Speaker 1: in the G twenty, or maybe we shouldn't, depending on 71 00:04:07,240 --> 00:04:09,400 Speaker 1: how the market absorbs this. We all wake up to 72 00:04:09,440 --> 00:04:12,440 Speaker 1: the same headlines, Catherine, and sometimes they say tensions rising 73 00:04:12,520 --> 00:04:15,560 Speaker 1: than twenty four as they say tensions rolling go for 74 00:04:15,720 --> 00:04:17,680 Speaker 1: things are getting better. But it just seems to me 75 00:04:17,800 --> 00:04:21,320 Speaker 1: that different parts of the administration say different things about 76 00:04:21,360 --> 00:04:24,800 Speaker 1: the same thing the same topic. So Vice President Mike 77 00:04:24,880 --> 00:04:27,240 Speaker 1: Pence seems to be playing bad cop, and fun enough, 78 00:04:27,320 --> 00:04:30,240 Speaker 1: President Trump seem to be playing good cop on the 79 00:04:30,279 --> 00:04:32,680 Speaker 1: trade issue over the last few weeks or so. How 80 00:04:32,720 --> 00:04:35,279 Speaker 1: do you sort of distill that and communicates clients exactly 81 00:04:35,279 --> 00:04:38,560 Speaker 1: what is going on ahead of the G twenty. Well, 82 00:04:38,600 --> 00:04:42,159 Speaker 1: I think there are multiple voices that are are coming 83 00:04:42,160 --> 00:04:48,320 Speaker 1: out of the administration, and um that is the administration. 84 00:04:48,400 --> 00:04:52,520 Speaker 1: People are also taking their cue from the data as 85 00:04:52,520 --> 00:04:56,440 Speaker 1: they come in and some of the market volatility as 86 00:04:56,480 --> 00:04:59,520 Speaker 1: it comes in, and are tuning what they think they 87 00:04:59,560 --> 00:05:02,680 Speaker 1: should be doing based on that. That's not unreasonable. It's 88 00:05:03,040 --> 00:05:07,600 Speaker 1: a good idea to plumb the opinions of the business community, 89 00:05:07,640 --> 00:05:10,320 Speaker 1: and of the policy community, and and of your own base. 90 00:05:10,720 --> 00:05:13,960 Speaker 1: So all of that's important information for thinking about how 91 00:05:14,000 --> 00:05:17,039 Speaker 1: you should move forward with an agreement or or no 92 00:05:17,160 --> 00:05:19,480 Speaker 1: agreement in twenty in the G twenty, Well, I'm just 93 00:05:19,520 --> 00:05:21,760 Speaker 1: wondering how you frame it for clients as well, because 94 00:05:21,800 --> 00:05:23,920 Speaker 1: there are some people that have this very short time 95 00:05:23,960 --> 00:05:27,240 Speaker 1: horizon who are looking for a truce at the end 96 00:05:27,279 --> 00:05:30,039 Speaker 1: of the month, which generates a real squeeze into year 97 00:05:30,160 --> 00:05:32,560 Speaker 1: end in risk assets. And there are some people that 98 00:05:32,640 --> 00:05:35,200 Speaker 1: take a thirty five thou feet view and say, look, 99 00:05:35,240 --> 00:05:37,400 Speaker 1: this is a generational problem. It's not going to be 100 00:05:37,400 --> 00:05:39,599 Speaker 1: solved at the G twenty at the end of this month. 101 00:05:39,600 --> 00:05:42,160 Speaker 1: It's going to take years, maybe decades to play out. 102 00:05:42,200 --> 00:05:45,000 Speaker 1: Where do you stand on those two things, Catherine, Well, 103 00:05:45,040 --> 00:05:48,640 Speaker 1: I think, there, of course some some some market participants 104 00:05:48,680 --> 00:05:51,560 Speaker 1: that just like the volatility from from who says what, 105 00:05:51,680 --> 00:05:54,160 Speaker 1: when and and and play off of that. So there's 106 00:05:54,440 --> 00:05:57,200 Speaker 1: plenty of plenty of things to do there if you're 107 00:05:57,279 --> 00:06:00,800 Speaker 1: that type of market participant for the longer term ones. Um, 108 00:06:00,839 --> 00:06:04,440 Speaker 1: it does matter if there was to be positive language 109 00:06:04,480 --> 00:06:07,400 Speaker 1: that came out of the G twenty as as I 110 00:06:07,440 --> 00:06:10,440 Speaker 1: was saying earlier. Um, you know, if you can't even 111 00:06:10,480 --> 00:06:14,160 Speaker 1: agree on a sentence that has ten words in it 112 00:06:14,560 --> 00:06:17,840 Speaker 1: to have it as a as a as a communicate, 113 00:06:18,320 --> 00:06:20,960 Speaker 1: you know, that's that's pretty that's a pretty low bar 114 00:06:21,640 --> 00:06:24,240 Speaker 1: because it's not a legal agreement. Whatever you say in 115 00:06:24,240 --> 00:06:27,320 Speaker 1: that in that communicate, it's not a legal agreement. So 116 00:06:27,360 --> 00:06:30,080 Speaker 1: you are in our house this weekend we had we 117 00:06:30,160 --> 00:06:34,000 Speaker 1: had a ten ten word communicating the house this weekend. 118 00:06:34,200 --> 00:06:36,920 Speaker 1: You agreed on we did not agree on it, right, 119 00:06:37,040 --> 00:06:39,040 Speaker 1: But that's every weekend of the Kane house. It is. 120 00:06:39,080 --> 00:06:41,120 Speaker 1: It is as a communicat. I like that. Can I 121 00:06:41,160 --> 00:06:44,600 Speaker 1: steal that word? It's a standard word. It's a standard 122 00:06:44,600 --> 00:06:48,320 Speaker 1: word communicating. Cather Man, thank you so much. We hope 123 00:06:48,360 --> 00:06:52,520 Speaker 1: to speak to in some form around the around. I 124 00:06:52,520 --> 00:06:54,360 Speaker 1: feel like you would be great just for Tom King 125 00:06:54,480 --> 00:06:58,720 Speaker 1: corrections the magic. I mean, why don't we do surveillance 126 00:06:58,760 --> 00:07:01,479 Speaker 1: besides hanging out with Mike a bar and talking about 127 00:07:01,480 --> 00:07:04,760 Speaker 1: the hideous Detroit Lion uniforms in silver gray. I mean, 128 00:07:04,800 --> 00:07:06,720 Speaker 1: that's one of the reasons why we hang out. Well, 129 00:07:06,720 --> 00:07:10,440 Speaker 1: who does I mean but John? The magic of having 130 00:07:10,520 --> 00:07:13,480 Speaker 1: Luigi's in Gallis and Katherine Man in the same room, 131 00:07:13,960 --> 00:07:18,200 Speaker 1: same conversation, the history of that Luigi's up next. They're 132 00:07:18,200 --> 00:07:21,120 Speaker 1: both at the Massachusetts Institute of Technology, and it's just 133 00:07:21,160 --> 00:07:25,000 Speaker 1: the the history of what they live. Were you in 134 00:07:25,160 --> 00:07:29,120 Speaker 1: seminar with Rudiger Dornbush. I know you're saying history as 135 00:07:29,120 --> 00:07:32,680 Speaker 1: if it's like, you know, you seem like she's you, 136 00:07:32,720 --> 00:07:37,080 Speaker 1: all right, She's not Rudy Dornbush. They're after you or 137 00:07:37,720 --> 00:07:41,960 Speaker 1: Ruddy good Dornbush. He was your advice and Rudy dormbuschh 138 00:07:41,960 --> 00:07:45,720 Speaker 1: for my advice. I am channeling Rudy Dornbush every day 139 00:07:45,800 --> 00:07:47,640 Speaker 1: when I go look at the markets and I think 140 00:07:47,760 --> 00:07:51,040 Speaker 1: overshoot that is so. What was it like being with 141 00:07:51,120 --> 00:07:55,640 Speaker 1: Ruddy Dornbush in clase and he was quick? Is what 142 00:07:55,720 --> 00:07:59,560 Speaker 1: I remember? Absolutely fascinating. Katherine Man with us from m 143 00:07:59,600 --> 00:08:03,720 Speaker 1: I T Luigi's and Gardless with US University of Chicago, 144 00:08:03,760 --> 00:08:07,240 Speaker 1: Both School of Business Finance Professor Luigi Coan, morning to you. 145 00:08:07,400 --> 00:08:10,000 Speaker 1: Good morning Luigi de Mayo, speaking in the last twenty 146 00:08:10,000 --> 00:08:13,280 Speaker 1: four hours the Italian deputy Prime minister. I wouldn't say 147 00:08:13,320 --> 00:08:16,200 Speaker 1: he's ready for a reconciliation, but he's certainly open to dialogue. 148 00:08:16,200 --> 00:08:18,280 Speaker 1: And it makes me wonder where these conversations between the 149 00:08:18,320 --> 00:08:21,840 Speaker 1: Commission and the Italian government are going and where the 150 00:08:21,840 --> 00:08:24,480 Speaker 1: Italian government can actually pull back a little bit in 151 00:08:24,600 --> 00:08:28,360 Speaker 1: terms of the budget deficit. Yes, I think he did 152 00:08:29,000 --> 00:08:32,680 Speaker 1: show some sign of willness to reconcile. To be honest, 153 00:08:32,720 --> 00:08:35,200 Speaker 1: I think that the Luigi Maya has always been more 154 00:08:35,520 --> 00:08:40,040 Speaker 1: moderate visa vida European Union. That's just Salvini. So there 155 00:08:40,120 --> 00:08:42,320 Speaker 1: is a little bit of a good cop get bad 156 00:08:42,360 --> 00:08:46,480 Speaker 1: cap playing there, but also some strategic differences. I think 157 00:08:46,520 --> 00:08:49,880 Speaker 1: that Salvini in the past did campaign to exit the 158 00:08:49,880 --> 00:08:54,360 Speaker 1: You are LUIGII. Mayo never did that, and so I 159 00:08:54,400 --> 00:08:58,120 Speaker 1: think that if it comes to the fist that movement, 160 00:08:58,960 --> 00:09:02,719 Speaker 1: they are more willing to reconcile. They're less ideological, I think, 161 00:09:02,760 --> 00:09:07,600 Speaker 1: more flexible. I fear that Salvini wants a confrontation for 162 00:09:07,720 --> 00:09:14,240 Speaker 1: political reasons. He understood that confronting the U buercrets making 163 00:09:14,840 --> 00:09:19,120 Speaker 1: gains vote at at home, and then he plays that 164 00:09:19,320 --> 00:09:21,160 Speaker 1: they aggressive or just to sort of shine a light 165 00:09:21,240 --> 00:09:23,719 Speaker 1: on that a Lega mat her Salveny. Now, while I 166 00:09:23,760 --> 00:09:25,840 Speaker 1: had in the pulse, if you had an election today 167 00:09:25,880 --> 00:09:30,880 Speaker 1: in Italy, who would win? I think that most likely 168 00:09:32,559 --> 00:09:36,079 Speaker 1: the LEGA depends on whether the LEGA get allied with 169 00:09:37,200 --> 00:09:41,800 Speaker 1: its former Allia Belusconi. With that alliance, they would probably 170 00:09:41,800 --> 00:09:44,599 Speaker 1: reach an absolute majority. But it's not obvious. But the 171 00:09:44,640 --> 00:09:47,560 Speaker 1: important point that most people miss is that the Italy 172 00:09:47,640 --> 00:09:50,000 Speaker 1: is not like the UK, where the prime minister called 173 00:09:50,040 --> 00:09:54,360 Speaker 1: new election. It is the president who uh calls new 174 00:09:54,360 --> 00:09:58,160 Speaker 1: election and the president as a Monday to try to 175 00:09:58,240 --> 00:10:02,800 Speaker 1: find if in Parliament that are majority. So if there 176 00:10:03,000 --> 00:10:07,000 Speaker 1: was a confrontation today, I think that the president will 177 00:10:07,040 --> 00:10:11,160 Speaker 1: look for new majorities, and potentially there is an alternative 178 00:10:11,200 --> 00:10:13,280 Speaker 1: majority which is not a majority, with a five Star 179 00:10:13,400 --> 00:10:16,640 Speaker 1: movement and the Democratic Party. So I think that Salvini 180 00:10:16,720 --> 00:10:19,560 Speaker 1: needs to be careful in playing the game too aggressively 181 00:10:19,640 --> 00:10:22,760 Speaker 1: because he might end up being out of power. I 182 00:10:22,760 --> 00:10:26,240 Speaker 1: sound like a conversation in fifth century fifteenth century Italy 183 00:10:26,559 --> 00:10:30,199 Speaker 1: dose singalles if we look at the split between Genoa 184 00:10:30,200 --> 00:10:32,240 Speaker 1: and Italy. If you look at the actual culture here, 185 00:10:32,640 --> 00:10:34,840 Speaker 1: the reality of me. I just looked it up. The 186 00:10:34,920 --> 00:10:39,400 Speaker 1: Italian economy is eighteen or twenty times bigger than the 187 00:10:39,480 --> 00:10:41,880 Speaker 1: economy of Greece. I mean, I think first of all, 188 00:10:42,200 --> 00:10:45,720 Speaker 1: all of us, including me, don't realize that does Germany 189 00:10:45,760 --> 00:10:49,160 Speaker 1: and the rest in Europe? Do they understand how big 190 00:10:49,200 --> 00:10:52,320 Speaker 1: the Italian economy is? Are they treating it like Greece? 191 00:10:53,520 --> 00:10:56,520 Speaker 1: I think that they understand how big the Italian economy is, 192 00:10:56,640 --> 00:11:01,480 Speaker 1: but they don't want to make any fence. And I 193 00:11:01,520 --> 00:11:03,960 Speaker 1: think there is one point in which I'm pretty convinced 194 00:11:04,040 --> 00:11:08,760 Speaker 1: is that if we go to a confrontation, Germans are 195 00:11:08,840 --> 00:11:13,280 Speaker 1: willing to pay any costs not to give up on principle. 196 00:11:13,679 --> 00:11:18,080 Speaker 1: I think that unlike the Italians were very pragmatic, Germans 197 00:11:18,080 --> 00:11:22,520 Speaker 1: are they dogmatic and they're willing to h lose significantly 198 00:11:22,520 --> 00:11:25,400 Speaker 1: on the economic side in order to make a point 199 00:11:25,720 --> 00:11:28,320 Speaker 1: on the principal side. Surveillance correction, John, I was doing 200 00:11:28,360 --> 00:11:30,760 Speaker 1: math with the afterthought last night. In my head's all 201 00:11:31,000 --> 00:11:34,760 Speaker 1: filled with decimals and fractions. Italyast ten times bigger than Greece. 202 00:11:34,880 --> 00:11:37,559 Speaker 1: It's not just the economy. It's the problem, I'm Luigi. 203 00:11:37,600 --> 00:11:40,160 Speaker 1: It's the debt market. I believe it's the third biggest 204 00:11:40,160 --> 00:11:43,440 Speaker 1: sovereign debt market on the planet. I mean, the Italian 205 00:11:43,440 --> 00:11:46,840 Speaker 1: bond market is the real deal in terms society, Luigi, 206 00:11:47,960 --> 00:11:50,160 Speaker 1: there is no doubt that it is a real deal. Um, 207 00:11:50,480 --> 00:11:54,800 Speaker 1: and that's what what is everybody. I think that if 208 00:11:55,320 --> 00:11:59,000 Speaker 1: Italy does not start going at a healthy rate again, 209 00:11:59,760 --> 00:12:04,079 Speaker 1: that that is not sustainable. So I think that we 210 00:12:04,320 --> 00:12:08,920 Speaker 1: fear greatly a recession coming because I fear the data 211 00:12:08,960 --> 00:12:11,440 Speaker 1: session would be the Keece of death. We are the 212 00:12:11,480 --> 00:12:14,400 Speaker 1: point in which we could start to bring down that 213 00:12:14,559 --> 00:12:18,959 Speaker 1: that ratio. But if we go back into our session, 214 00:12:19,240 --> 00:12:22,440 Speaker 1: there's no way this is gonna happen. Not enough time. 215 00:12:22,520 --> 00:12:24,400 Speaker 1: Let just in goals. Thank you so much, look forward 216 00:12:24,400 --> 00:12:27,920 Speaker 1: to speaking and thank you. Thank you for the conversation 217 00:12:27,960 --> 00:12:33,400 Speaker 1: with cat Man my last Massachusetts Institute of Technology moment 218 00:12:33,480 --> 00:12:39,120 Speaker 1: as well. Let's bring in someone who synthesizes for Black 219 00:12:39,240 --> 00:12:42,160 Speaker 1: Rocks so much of their multi assets strategy and particularly 220 00:12:42,200 --> 00:12:45,920 Speaker 1: working off of the fixed income views of Jeffrey Rosenberg 221 00:12:45,920 --> 00:12:49,400 Speaker 1: and others, and that is Isabel Mateos at Lago. Always 222 00:12:49,480 --> 00:12:52,440 Speaker 1: enjoy to have her uh with this Smith Mateos, Sit Lagos, 223 00:12:52,480 --> 00:12:57,439 Speaker 1: Good morning to you. What is the yield pullbacks signal? 224 00:12:57,520 --> 00:12:59,840 Speaker 1: What do we what do we think when we see 225 00:13:00,760 --> 00:13:03,360 Speaker 1: us full faith and credit yields set at a three 226 00:13:03,400 --> 00:13:07,640 Speaker 1: oh seven? Good morning Tom, and thanks for the kind words. 227 00:13:07,960 --> 00:13:11,360 Speaker 1: Pleasure always to uh to answer your questions. So, look, 228 00:13:11,400 --> 00:13:15,000 Speaker 1: there's there's obviously different drivers. It's it's hard to pinpoint 229 00:13:15,040 --> 00:13:18,120 Speaker 1: anyone in particular. But but but I think, as your 230 00:13:18,160 --> 00:13:20,920 Speaker 1: comments just made clear, people are very much trying to 231 00:13:20,960 --> 00:13:25,200 Speaker 1: read the tea leaves in terms of f MC members commentary, 232 00:13:25,640 --> 00:13:27,960 Speaker 1: and certainly there was a bit of a sense that 233 00:13:28,440 --> 00:13:31,360 Speaker 1: maybe they were dialing back on some of the earlier 234 00:13:31,400 --> 00:13:35,160 Speaker 1: more hawkish comments of of term in Powerell. That may 235 00:13:35,160 --> 00:13:38,199 Speaker 1: be a little premature. We'll see, we'll, we'll, we'll, we'll 236 00:13:38,240 --> 00:13:43,720 Speaker 1: see pretty pretty soon about that. But um so, certainly, uh, 237 00:13:44,240 --> 00:13:46,520 Speaker 1: that's going to be a key driver for that longer term, 238 00:13:46,800 --> 00:13:48,680 Speaker 1: for that longer term rate, what does the feed do? 239 00:13:49,080 --> 00:13:51,400 Speaker 1: And really it's the first time in a in a 240 00:13:51,440 --> 00:13:54,800 Speaker 1: while that there's some uncertainty about about what the FED 241 00:13:54,920 --> 00:13:57,280 Speaker 1: is going to do, not you know, not for December obviously, 242 00:13:57,320 --> 00:13:59,720 Speaker 1: but in terms of when is when is the Paul's 243 00:13:59,760 --> 00:14:03,200 Speaker 1: going to come are and and and that's been driving 244 00:14:03,520 --> 00:14:05,920 Speaker 1: some of that volatility in rates. You know, in addition 245 00:14:05,960 --> 00:14:08,040 Speaker 1: to the to the sort of risk on risk of 246 00:14:08,240 --> 00:14:10,960 Speaker 1: environment is about I expect a range of opinions at 247 00:14:10,960 --> 00:14:13,640 Speaker 1: the Federal Reserve. I do also expect that the Vice 248 00:14:13,720 --> 00:14:16,040 Speaker 1: Chairman and the Chairman to be quite closely alligned. So 249 00:14:16,080 --> 00:14:18,640 Speaker 1: it's interesting that within the space of about six weeks 250 00:14:18,960 --> 00:14:21,240 Speaker 1: we've had the Chairman say that we are a long 251 00:14:21,240 --> 00:14:24,120 Speaker 1: way away from neutral and the Vice Chairman suggest we're 252 00:14:24,160 --> 00:14:26,840 Speaker 1: a lot closer than that. Is the truth somewhere in 253 00:14:26,880 --> 00:14:29,840 Speaker 1: between or is the communication changing? What do you make 254 00:14:29,880 --> 00:14:33,560 Speaker 1: of the communication of the last six weeks. Yeah, I mean, 255 00:14:33,600 --> 00:14:38,160 Speaker 1: look at as they as the Fed gets close. I mean, 256 00:14:38,320 --> 00:14:40,640 Speaker 1: the thing that they probably all agree on is they're 257 00:14:40,640 --> 00:14:43,320 Speaker 1: getting closer to neutral, They're closing in on it, and 258 00:14:43,360 --> 00:14:46,480 Speaker 1: that means at some point in the not to distant future, 259 00:14:46,600 --> 00:14:49,480 Speaker 1: policy is no longer going to be accommodating. That's a 260 00:14:49,560 --> 00:14:52,520 Speaker 1: big turning point, and so they have to kind of 261 00:14:52,680 --> 00:14:57,720 Speaker 1: really adjust how they how they communicate about it. Now, 262 00:14:57,840 --> 00:15:00,360 Speaker 1: let's assume, like you know, by our estimate, it's we've 263 00:15:00,400 --> 00:15:03,840 Speaker 1: got the we've got the short term neutral rate at 264 00:15:03,840 --> 00:15:06,680 Speaker 1: around a hundred twenty basis points. So that's kind of 265 00:15:06,720 --> 00:15:10,760 Speaker 1: you know, four rate hikes from uh uh from here? 266 00:15:10,880 --> 00:15:12,720 Speaker 1: Is that a long way or not? How do you 267 00:15:12,760 --> 00:15:15,560 Speaker 1: describe it? You know, maybe they didn't sit down altogether 268 00:15:15,680 --> 00:15:18,080 Speaker 1: and say, Okay, this is exactly the terminology that we're 269 00:15:18,080 --> 00:15:20,440 Speaker 1: going to use to describe where where we are. And 270 00:15:20,800 --> 00:15:23,280 Speaker 1: I think we're seeing the results of that in and 271 00:15:23,280 --> 00:15:27,200 Speaker 1: and and sort of trial and error communication. But I 272 00:15:27,200 --> 00:15:29,440 Speaker 1: think they're going to need to be a bit more 273 00:15:29,480 --> 00:15:32,160 Speaker 1: specific in the in the next meeting and then certainly 274 00:15:32,160 --> 00:15:36,520 Speaker 1: in the next statements. What's the operative plan for next year? 275 00:15:36,840 --> 00:15:39,120 Speaker 1: Are we going to clip a coupon? Or can we 276 00:15:39,200 --> 00:15:45,840 Speaker 1: dream of total return? There's a raging debate, isn't it. Yes. 277 00:15:46,040 --> 00:15:49,560 Speaker 1: I think we're still I mean, obviously, as you said, 278 00:15:49,600 --> 00:15:54,280 Speaker 1: there's uh, there's uh, there's different views. Uh, we're I 279 00:15:54,360 --> 00:15:58,600 Speaker 1: think in the camp of modest total return. Uh. To 280 00:15:58,600 --> 00:16:02,720 Speaker 1: to to put in that way, credit spreads winding out 281 00:16:02,720 --> 00:16:05,040 Speaker 1: through last week is about if you're in the camp 282 00:16:05,080 --> 00:16:11,880 Speaker 1: of modest total return, what does that mean for credit specifically? Well, 283 00:16:12,160 --> 00:16:15,840 Speaker 1: so you know, the last I don't know how do 284 00:16:15,960 --> 00:16:19,560 Speaker 1: they many weeks, but there's been clearly something else driving 285 00:16:20,040 --> 00:16:24,479 Speaker 1: higher interest rates than than just than just FED expectations 286 00:16:24,560 --> 00:16:29,760 Speaker 1: or growth expectations, and that's been uh, growing rice premium frankly, 287 00:16:29,840 --> 00:16:33,000 Speaker 1: across all all risk athetes. We think that has a 288 00:16:33,040 --> 00:16:39,000 Speaker 1: lot to do with geopolitical risks and in particular trade tensions, 289 00:16:39,040 --> 00:16:43,520 Speaker 1: which you know affect people's I mean, create uncertainty around 290 00:16:44,360 --> 00:16:47,040 Speaker 1: macroeconomic outcomes. And we think if we could get some 291 00:16:47,240 --> 00:16:49,960 Speaker 1: relief on the front, and if it's not great or 292 00:16:50,160 --> 00:16:53,080 Speaker 1: terribly long lasting, but that would help, you know, irrespective 293 00:16:53,120 --> 00:16:55,360 Speaker 1: of what the FED is going, okay, but within and 294 00:16:55,640 --> 00:16:58,920 Speaker 1: this is important, folks, because this works with multi multi 295 00:16:59,000 --> 00:17:02,960 Speaker 1: assets strategy, which I think we all do. What is 296 00:17:03,040 --> 00:17:07,600 Speaker 1: the multi assets strategy of black Rock? Away from this 297 00:17:07,680 --> 00:17:11,880 Speaker 1: political story, that political story, what's the actual to do 298 00:17:12,720 --> 00:17:17,119 Speaker 1: across assets? So at this point, you know, we still 299 00:17:17,200 --> 00:17:21,399 Speaker 1: have a clear preference for for equities over bonds, but 300 00:17:21,680 --> 00:17:24,199 Speaker 1: that equity risk, we want to take it in a 301 00:17:24,240 --> 00:17:27,840 Speaker 1: way that is that is resilient to to growth scares 302 00:17:27,960 --> 00:17:31,280 Speaker 1: or to interest rate scares, frankly, and that means focusing 303 00:17:31,359 --> 00:17:36,040 Speaker 1: on focusing on quality, focusing on the less liverard balance sheets. 304 00:17:36,080 --> 00:17:40,920 Speaker 1: The corporates with the strongest cat close. Uh yeah, and 305 00:17:41,600 --> 00:17:46,119 Speaker 1: you know, maybe moving towards a bit of a barble 306 00:17:46,160 --> 00:17:48,880 Speaker 1: strategy if you will, you know, take both equity risk 307 00:17:48,960 --> 00:17:53,480 Speaker 1: and then and then some some some safe bonds, preferably 308 00:17:53,520 --> 00:17:56,359 Speaker 1: at the short end of the curve. Thank you so 309 00:17:56,440 --> 00:18:01,840 Speaker 1: much for the black rock today. Treat them works light today, 310 00:18:02,080 --> 00:18:04,240 Speaker 1: and we really want to dive back into that and 311 00:18:04,280 --> 00:18:07,240 Speaker 1: we can do that best with Brown Brothers Harriman's Win Thinn, 312 00:18:07,359 --> 00:18:11,720 Speaker 1: who joins us uh this morning, head of Currency Strategy 313 00:18:12,160 --> 00:18:15,960 Speaker 1: and Foreign Exchange at Brown Brothers Harriman, Dr Thin, Good 314 00:18:15,960 --> 00:18:18,040 Speaker 1: morning to you. Let me begin with the base call 315 00:18:18,160 --> 00:18:21,359 Speaker 1: for two thousand nineteen, a wide set of opinions at 316 00:18:21,359 --> 00:18:26,439 Speaker 1: Bloomberg Surveillance on dollar weakness, dollar strength, dollar range bound, 317 00:18:26,480 --> 00:18:31,679 Speaker 1: dollar ambiguity. Which is it? Well, first, thanks again for 318 00:18:31,720 --> 00:18:35,239 Speaker 1: having me, Thomas with a pleasure. I'm right now. I'm 319 00:18:35,280 --> 00:18:37,919 Speaker 1: thinking with my strong dollar call. Up until about a 320 00:18:37,920 --> 00:18:41,080 Speaker 1: week ago, I was extremely confident because the market had 321 00:18:41,119 --> 00:18:43,960 Speaker 1: had taken their form C meeting as a hawker signal 322 00:18:44,000 --> 00:18:45,800 Speaker 1: from the Fed. But I went out of the country 323 00:18:45,840 --> 00:18:47,439 Speaker 1: for the last week. I was down in South America. 324 00:18:47,720 --> 00:18:51,359 Speaker 1: I'm shocked um at how quickly the sentiments turned, the 325 00:18:51,400 --> 00:18:54,840 Speaker 1: market is taken back a rate a rate hikes on 326 00:18:54,920 --> 00:18:57,160 Speaker 1: the FED and and we've gotten to a more published 327 00:18:57,200 --> 00:19:00,760 Speaker 1: take again amazing speed over the last week. I do 328 00:19:00,840 --> 00:19:03,600 Speaker 1: think that the the reaction in the FED funds and 329 00:19:03,640 --> 00:19:07,320 Speaker 1: futures market, the the financial market has overdone. Um. I 330 00:19:07,359 --> 00:19:09,919 Speaker 1: think the Fed will continue to hike next year, but 331 00:19:10,160 --> 00:19:12,120 Speaker 1: I think the market right now is in a consolidated 332 00:19:12,160 --> 00:19:13,879 Speaker 1: phase and til we sort of clear up this, this 333 00:19:14,359 --> 00:19:17,199 Speaker 1: really quite muddy waters, now, you know whin thin. I 334 00:19:17,240 --> 00:19:20,639 Speaker 1: look at the cover of your fourth quarter report, the 335 00:19:20,680 --> 00:19:26,119 Speaker 1: Global Overview, and the title is Thorny Issues Threatening Foreign 336 00:19:26,119 --> 00:19:31,760 Speaker 1: Exchange in Q four and it looks terrifying on the cover. 337 00:19:32,160 --> 00:19:35,360 Speaker 1: It's red with thorns. I mean, I don't know where 338 00:19:35,400 --> 00:19:38,639 Speaker 1: you cut the roses, but all I see are stems 339 00:19:38,720 --> 00:19:42,760 Speaker 1: and thorns. What are people going to hurt themselves on 340 00:19:42,800 --> 00:19:45,080 Speaker 1: this year? What do you think they're gonna do that's 341 00:19:45,080 --> 00:19:49,680 Speaker 1: gonna be changed because of the way the market really operates. Yeah, no, 342 00:19:49,720 --> 00:19:51,160 Speaker 1: it's a good question. First of all, I I didn't 343 00:19:51,200 --> 00:19:52,880 Speaker 1: choose the picture, but I think it's it's like something 344 00:19:53,000 --> 00:19:54,919 Speaker 1: right out of American horror story. It is frightening. I 345 00:19:54,960 --> 00:19:57,960 Speaker 1: keep it face down on my desk. Um, look the 346 00:19:57,960 --> 00:20:00,760 Speaker 1: thorny issues that we pointed out. This came out at 347 00:20:00,800 --> 00:20:04,600 Speaker 1: the the end of September. Uh, and it's coming true. Now. 348 00:20:04,640 --> 00:20:08,360 Speaker 1: We've got Brexit which is a total chaos. We've got 349 00:20:08,400 --> 00:20:12,960 Speaker 1: Italy muddying the waters. We've got US trade attentions threatening 350 00:20:13,119 --> 00:20:15,160 Speaker 1: a global trade that those things all I think will 351 00:20:15,200 --> 00:20:18,880 Speaker 1: remain in play well until next year. Um. That's it's 352 00:20:18,920 --> 00:20:21,240 Speaker 1: not going away soon. Um. I think to me that 353 00:20:21,320 --> 00:20:23,200 Speaker 1: the problem is getting in deeper. I think that there's 354 00:20:23,320 --> 00:20:26,200 Speaker 1: the risk of a no deal Brexit have written the 355 00:20:26,240 --> 00:20:29,320 Speaker 1: significantly high levels. I think there's a risk that Italy 356 00:20:29,400 --> 00:20:32,480 Speaker 1: will be sanctioned by the EU for its successive deficits. 357 00:20:33,320 --> 00:20:35,840 Speaker 1: And I think the U S and China will will 358 00:20:36,240 --> 00:20:38,920 Speaker 1: eventually reach an agreement, but not until there's more pain felt. 359 00:20:39,000 --> 00:20:40,800 Speaker 1: And that I think that's that's more a Q one 360 00:20:40,880 --> 00:20:43,159 Speaker 1: Q two story. I mean Q one Q two and 361 00:20:43,240 --> 00:20:45,800 Speaker 1: all that is the degrees of freedom that the FED has, 362 00:20:46,000 --> 00:20:49,399 Speaker 1: particularly versus other central banks. One of your great charms, 363 00:20:49,560 --> 00:20:52,959 Speaker 1: Dr Thinn is a focus on emerging markets. I mean, 364 00:20:53,119 --> 00:20:56,440 Speaker 1: are they all going to be constrained by emerging market 365 00:20:56,560 --> 00:21:00,320 Speaker 1: dynamics or do they act as they will in ammerging 366 00:21:00,400 --> 00:21:04,920 Speaker 1: markets follow on UH. In terms of FED policy making, 367 00:21:05,160 --> 00:21:08,399 Speaker 1: its first and foremost UH done for the state of 368 00:21:08,440 --> 00:21:10,960 Speaker 1: the U. S. Economy. I mean the FED officials fat 369 00:21:10,960 --> 00:21:14,840 Speaker 1: efficials are dumb. They realized their repercussions. UM. But when 370 00:21:14,880 --> 00:21:16,680 Speaker 1: all said and done, you know, buying some sort of 371 00:21:16,760 --> 00:21:21,280 Speaker 1: triggering global financial crisis. The FED is basically saying, look, 372 00:21:21,320 --> 00:21:23,840 Speaker 1: you guys, you guys em benefited from our low rates 373 00:21:24,040 --> 00:21:26,359 Speaker 1: for for years and years. We're taking that back because 374 00:21:26,359 --> 00:21:29,480 Speaker 1: the U. S. Economy is is on track and unfortunately 375 00:21:29,520 --> 00:21:31,000 Speaker 1: guys gonna have to deal with it. And I think 376 00:21:31,040 --> 00:21:33,760 Speaker 1: that's to me, the basic message that that's sent. I 377 00:21:33,800 --> 00:21:35,440 Speaker 1: think I think that's true. I mean, I think, you know, 378 00:21:35,520 --> 00:21:38,320 Speaker 1: the world in general has just gotten too used to 379 00:21:38,480 --> 00:21:41,680 Speaker 1: to abnormally low interest rates. UH. And you know we 380 00:21:41,760 --> 00:21:44,720 Speaker 1: had that issued like there know tomorrow and at some 381 00:21:44,760 --> 00:21:47,000 Speaker 1: point the pipe is gonna, you know, have to be paid. Okay, 382 00:21:47,080 --> 00:21:49,000 Speaker 1: how much is a percent move on dollar? I mean, 383 00:21:49,119 --> 00:21:52,480 Speaker 1: David Bloom at HSBC is is hugely optimistic, like you 384 00:21:53,040 --> 00:21:55,359 Speaker 1: on dollar consensus goes the other way. Give us a 385 00:21:55,440 --> 00:22:02,800 Speaker 1: percent move on dollar that could upset consensus, surprise consensus. Okay, Well, 386 00:22:02,960 --> 00:22:04,960 Speaker 1: I think Tom, I think you you hit the nail 387 00:22:05,000 --> 00:22:08,000 Speaker 1: on the head, though, I think you know, there's more 388 00:22:08,320 --> 00:22:11,360 Speaker 1: um dollar pairs have been emerged in the last couple 389 00:22:11,400 --> 00:22:13,879 Speaker 1: of weeks. Uh. You know, I thought, you know, for 390 00:22:13,920 --> 00:22:16,400 Speaker 1: a while, I thought are about bullsh dollar calls consensus, 391 00:22:16,400 --> 00:22:17,679 Speaker 1: But I think it's it's moved a little bit out 392 00:22:17,720 --> 00:22:21,720 Speaker 1: of consensus um, you know, due to developments with the etcetera. 393 00:22:22,359 --> 00:22:25,159 Speaker 1: So uh, you know, I think that in order to 394 00:22:25,200 --> 00:22:28,800 Speaker 1: get the bears, uh sort of think again, I think 395 00:22:28,800 --> 00:22:31,800 Speaker 1: we need to get another five percent move in the dollar. 396 00:22:32,880 --> 00:22:34,800 Speaker 1: And likewise, you know, I think we have to get 397 00:22:34,800 --> 00:22:36,440 Speaker 1: another five percent moved the other way for me to 398 00:22:36,480 --> 00:22:37,720 Speaker 1: sort of throw in the towel. You know, I think 399 00:22:37,720 --> 00:22:41,520 Speaker 1: we're still within recent I think I would point out 400 00:22:41,640 --> 00:22:44,720 Speaker 1: him five percent is a large move in the world 401 00:22:44,800 --> 00:22:50,680 Speaker 1: of windin Oh, yes, even one is a large win. Thin. 402 00:22:51,160 --> 00:22:53,960 Speaker 1: You talked about paying the piper, should it be paid 403 00:22:54,240 --> 00:22:58,120 Speaker 1: in Chinese? You want or US dollars? Well, the Chinese 404 00:22:58,600 --> 00:23:02,119 Speaker 1: with the value of their current to see. Well, you know, 405 00:23:02,440 --> 00:23:05,560 Speaker 1: I've been the Chinese fessionals been downplaying that, and I 406 00:23:05,640 --> 00:23:07,879 Speaker 1: take them about the word. They're not going to divide that. 407 00:23:07,920 --> 00:23:10,040 Speaker 1: You want the trade US trade issues of one thing, 408 00:23:10,119 --> 00:23:13,000 Speaker 1: but they pledged not to weaponize. And I think about 409 00:23:13,000 --> 00:23:14,920 Speaker 1: the word remember in two last team when they valued 410 00:23:15,520 --> 00:23:17,679 Speaker 1: had all sorts of unintended consequences, one of them being 411 00:23:17,760 --> 00:23:21,480 Speaker 1: massive taple outflows in China distabilizing global financial MARKUS. I 412 00:23:21,480 --> 00:23:23,880 Speaker 1: don't think China wants to go down that road, um, 413 00:23:24,080 --> 00:23:25,960 Speaker 1: But as I said, I think it's a separate issue. 414 00:23:26,359 --> 00:23:29,080 Speaker 1: My view is that the Duan trades with with EM 415 00:23:29,160 --> 00:23:31,280 Speaker 1: that's sort of become more market based. You know, obviously 416 00:23:31,320 --> 00:23:33,480 Speaker 1: still a black box, but for the most part, if 417 00:23:33,520 --> 00:23:37,040 Speaker 1: you look at them currency for promises, do you want 418 00:23:37,040 --> 00:23:39,040 Speaker 1: to start in the middle of the pack within Thank 419 00:23:39,040 --> 00:23:40,920 Speaker 1: you so much. We hope to get your back, particularly 420 00:23:40,960 --> 00:23:43,800 Speaker 1: for careful discussion on EM currencies. He has a head 421 00:23:43,800 --> 00:23:49,600 Speaker 1: of all of currency strategy Brown brothers Ariman. This is 422 00:23:49,680 --> 00:23:52,520 Speaker 1: a joy. His name is Bud Bogot. She's with Raymond 423 00:23:52,600 --> 00:23:55,720 Speaker 1: James and over the years he has pieced together a 424 00:23:55,840 --> 00:23:59,679 Speaker 1: definitive place in what we do with our living rooms 425 00:23:59,800 --> 00:24:03,560 Speaker 1: are offices, are dining rooms. He is the guy who 426 00:24:03,720 --> 00:24:07,359 Speaker 1: knows that pim Fox, you do need a new sofa, 427 00:24:08,200 --> 00:24:12,000 Speaker 1: you you do it? Well, there's that as well, but 428 00:24:12,160 --> 00:24:15,160 Speaker 1: Becot's not only following big box like home Deep in Walmart, 429 00:24:15,640 --> 00:24:19,520 Speaker 1: but legendary on furniture stuff out of pen and uh 430 00:24:19,880 --> 00:24:23,520 Speaker 1: he majored in baking steel and he's got Knolls steelcase. 431 00:24:23,600 --> 00:24:26,600 Speaker 1: Those are just majored in baking at HPS as well 432 00:24:26,680 --> 00:24:30,520 Speaker 1: along the way. But are we furnishing our houses like 433 00:24:30,800 --> 00:24:34,960 Speaker 1: we used to? What's the new calculus for the stuff 434 00:24:35,119 --> 00:24:38,640 Speaker 1: we put in houses? Well, we are. We are furnishing 435 00:24:38,680 --> 00:24:41,360 Speaker 1: our houses like we used to, but we are doing 436 00:24:41,400 --> 00:24:45,119 Speaker 1: it in somewhat different ways by using UH, by knowing 437 00:24:45,320 --> 00:24:47,960 Speaker 1: the uh the products that we want before we go 438 00:24:48,040 --> 00:24:50,600 Speaker 1: into a store. And when I had my business, and 439 00:24:50,840 --> 00:24:53,960 Speaker 1: I had nine furniture stores at one time a long 440 00:24:54,040 --> 00:24:57,240 Speaker 1: time ago, UM, people would shop upwards of four to 441 00:24:57,359 --> 00:25:01,600 Speaker 1: six stores before making a decision. Today, that's not the case. Today, 442 00:25:01,840 --> 00:25:05,119 Speaker 1: go online, you research what you want, and you you 443 00:25:05,240 --> 00:25:08,560 Speaker 1: may shop one most two stores. Is North Carolina is 444 00:25:08,560 --> 00:25:13,000 Speaker 1: still dominant. Well, there's that. That's where you have the 445 00:25:13,200 --> 00:25:16,200 Speaker 1: largest furniture market in the world in North Carolina and 446 00:25:16,320 --> 00:25:19,160 Speaker 1: high Point that's still there. There's still about ten million 447 00:25:19,240 --> 00:25:21,600 Speaker 1: square feet of display space down there, and they have 448 00:25:22,200 --> 00:25:25,840 Speaker 1: markets every April and October. But the products are made 449 00:25:25,920 --> 00:25:29,879 Speaker 1: now globally, you may have moved a lot of the 450 00:25:29,920 --> 00:25:33,720 Speaker 1: wood furniture has moved to Asia, primary starting in China, 451 00:25:33,800 --> 00:25:38,320 Speaker 1: but then migrating to Vietnam and Indonesia and other places 452 00:25:38,400 --> 00:25:41,159 Speaker 1: in Asia. And you still have some products. And of 453 00:25:41,240 --> 00:25:43,800 Speaker 1: course that's the issue that you're gonna have with the tariffs, 454 00:25:43,960 --> 00:25:47,840 Speaker 1: because you're gonna have an issue with some of those 455 00:25:47,920 --> 00:25:50,800 Speaker 1: products now coming back to the States are coming into 456 00:25:50,840 --> 00:25:54,679 Speaker 1: the States and caused costing some additional money. We had 457 00:25:54,800 --> 00:25:59,159 Speaker 1: deflation in this industry from essentially the late nineties to 458 00:25:59,400 --> 00:26:03,480 Speaker 1: the mid teens of this year of two thousands, and 459 00:26:03,560 --> 00:26:06,720 Speaker 1: now you started to see inflation again. Do you see 460 00:26:06,800 --> 00:26:12,119 Speaker 1: more store closings, specifically small companies that are not aligned 461 00:26:12,440 --> 00:26:16,840 Speaker 1: with large retailers like a Walmart. I think, well, Walmart 462 00:26:16,960 --> 00:26:20,880 Speaker 1: is not really big and in furniture except through Sam's. 463 00:26:20,920 --> 00:26:24,520 Speaker 1: They do sell some furniture and mattresses in the Walmart, 464 00:26:24,600 --> 00:26:27,320 Speaker 1: but not really in what I would call the major 465 00:26:27,400 --> 00:26:30,240 Speaker 1: furniture way. Right now, I wasn't thinking just Walmart, but 466 00:26:30,320 --> 00:26:35,720 Speaker 1: I mean among your coverage, uh companies. Yeah, you've had 467 00:26:35,840 --> 00:26:38,560 Speaker 1: most of the store closings you've had, you've already had. Um, 468 00:26:39,200 --> 00:26:43,119 Speaker 1: what's left today are really well run operators. Um and 469 00:26:43,320 --> 00:26:47,840 Speaker 1: they will they typically will survive. So the credit quality 470 00:26:47,960 --> 00:26:51,359 Speaker 1: of what's remaining in the marketplace has improved. You've had 471 00:26:51,440 --> 00:26:56,080 Speaker 1: significant dislocation really in the first decade of the two thousands, 472 00:26:57,240 --> 00:27:00,240 Speaker 1: to Tom's point about whether we furnish our home in 473 00:27:00,320 --> 00:27:04,639 Speaker 1: the same ways that we used to. Is it a 474 00:27:04,800 --> 00:27:09,320 Speaker 1: focus on electronics first? And then you find the place 475 00:27:09,400 --> 00:27:14,159 Speaker 1: to sit um to some degree in somehows it's certainly 476 00:27:14,240 --> 00:27:18,240 Speaker 1: for the man cave. That's uh, that's the point um uh. 477 00:27:18,520 --> 00:27:22,200 Speaker 1: And you've seen different form factors in the electronics. When 478 00:27:22,240 --> 00:27:25,560 Speaker 1: you had the big, big cath roat of it, the 479 00:27:26,119 --> 00:27:30,200 Speaker 1: big deep cathode ray tubes or the big home centers, 480 00:27:30,280 --> 00:27:34,480 Speaker 1: you would have to have fairly deep cases to handle that. 481 00:27:34,640 --> 00:27:38,840 Speaker 1: Today a lot of those video products are actually hung 482 00:27:38,920 --> 00:27:44,120 Speaker 1: on the wall, so changes some of some of the aspects. 483 00:27:44,280 --> 00:27:47,639 Speaker 1: But where they run YouTube videos of face masks and 484 00:27:47,800 --> 00:27:52,919 Speaker 1: girls stuff. I watched like seven minutes of football this weekend. 485 00:27:54,000 --> 00:27:56,399 Speaker 1: Oh yes, there's that discussion as well. But give me 486 00:27:56,480 --> 00:27:58,240 Speaker 1: a single best buy. I mean one of the things, 487 00:27:58,359 --> 00:28:01,800 Speaker 1: what's so famous, what's so wonderful? Bud? Is he actually 488 00:28:01,880 --> 00:28:04,440 Speaker 1: like did it? How how unusual is that to go 489 00:28:04,600 --> 00:28:07,479 Speaker 1: out and try to actually run a business and then 490 00:28:07,560 --> 00:28:11,879 Speaker 1: he writes these hyper detailed cell side reports. What's your 491 00:28:12,200 --> 00:28:14,880 Speaker 1: what's your number? One by? Right now, within the mix 492 00:28:14,960 --> 00:28:17,760 Speaker 1: of all this, I think it would be legged and 493 00:28:18,000 --> 00:28:21,480 Speaker 1: platt Um, which is a supplier to a lot of 494 00:28:21,600 --> 00:28:25,240 Speaker 1: the industry. There's a lot going on in um in 495 00:28:25,359 --> 00:28:30,200 Speaker 1: that industry, right, isn't this beds electric beds? Well, they 496 00:28:30,280 --> 00:28:33,520 Speaker 1: actually have seventeen business units and those business units are 497 00:28:33,600 --> 00:28:36,960 Speaker 1: highly diverse, so you have you have not only beds, 498 00:28:37,040 --> 00:28:40,240 Speaker 1: but you have they're the largest player in automotive seating 499 00:28:40,320 --> 00:28:43,600 Speaker 1: as well, So it's a very diverse company. And I 500 00:28:43,760 --> 00:28:49,520 Speaker 1: think another very well placed equity today is Temper Cilly 501 00:28:49,600 --> 00:28:53,160 Speaker 1: and they are beds um. That's the combination of Temper 502 00:28:53,280 --> 00:28:56,960 Speaker 1: ped Ainsillian Matris. But everywhere I go, Foam is winning. 503 00:28:57,080 --> 00:28:58,960 Speaker 1: They roll up the bed in their throat in a 504 00:28:59,040 --> 00:29:02,400 Speaker 1: box cast or this. You know that I mean is 505 00:29:02,440 --> 00:29:06,320 Speaker 1: the traditional bed business work years? It all new? Well, 506 00:29:06,560 --> 00:29:09,640 Speaker 1: you see that's that that accounts for some piece of 507 00:29:09,720 --> 00:29:12,920 Speaker 1: the business perhaps, and that's where the growth has been marginally, 508 00:29:12,960 --> 00:29:16,800 Speaker 1: although the major growth recently has actually been an import 509 00:29:16,840 --> 00:29:21,320 Speaker 1: of low priced Chinese mattresses, and that's actually under attack 510 00:29:21,720 --> 00:29:24,600 Speaker 1: because the Department of Commerces in the middle in the 511 00:29:24,680 --> 00:29:28,160 Speaker 1: early stages of an anti dumping case UM, which could 512 00:29:28,280 --> 00:29:32,920 Speaker 1: change the nature of that industry really probably sometime in 513 00:29:33,000 --> 00:29:36,520 Speaker 1: the spring to summer next year. Does the consumer have 514 00:29:36,760 --> 00:29:39,480 Speaker 1: enough money to keep spending the way they have in 515 00:29:39,560 --> 00:29:43,719 Speaker 1: the past, and does it all go on the credit card? Now, 516 00:29:43,760 --> 00:29:46,000 Speaker 1: it doesn't all go on the credit card. The consumers 517 00:29:46,040 --> 00:29:50,120 Speaker 1: have been very very well off, and we've had uh 518 00:29:50,320 --> 00:29:53,960 Speaker 1: some pretty good spending in the in the industry mid 519 00:29:54,120 --> 00:29:57,000 Speaker 1: single digits load of mid single digits year over year 520 00:29:57,640 --> 00:30:01,920 Speaker 1: growth UM. And it doesn't all go on the credit card, 521 00:30:02,120 --> 00:30:05,400 Speaker 1: but at the UH, at various places it does. It 522 00:30:05,480 --> 00:30:08,800 Speaker 1: goes on the credit card. And it's obviously in in 523 00:30:09,280 --> 00:30:13,480 Speaker 1: other forms of credit of of a longer variety. But 524 00:30:13,720 --> 00:30:16,959 Speaker 1: how do you respond to a South that made all 525 00:30:17,080 --> 00:30:20,320 Speaker 1: this furniture? You know, the legacy is stickley out in 526 00:30:20,520 --> 00:30:23,760 Speaker 1: all the fancy New York UH and you know, Northeastern 527 00:30:23,880 --> 00:30:26,960 Speaker 1: and over to Wisconsin people. But the South has done 528 00:30:27,000 --> 00:30:29,400 Speaker 1: most of this and a part of the jobs in 529 00:30:29,480 --> 00:30:31,880 Speaker 1: the angst to the trade war is all these jobs 530 00:30:32,000 --> 00:30:36,480 Speaker 1: disappeared proverb liable into China. Can we get jobs back 531 00:30:36,600 --> 00:30:41,040 Speaker 1: in the bug bud bogats world. I don't think they're 532 00:30:41,040 --> 00:30:45,040 Speaker 1: gonna come back in that same variety. Um. We've seen variety. 533 00:30:45,040 --> 00:30:48,960 Speaker 1: We've seen jobs come back to North America in a posty, 534 00:30:49,120 --> 00:30:53,200 Speaker 1: in some cutting and sewing where you actually have the 535 00:30:53,320 --> 00:30:56,000 Speaker 1: fabric imported from China. But you take a look at 536 00:30:56,040 --> 00:30:59,520 Speaker 1: the posty, you need fabric first, and there is very 537 00:30:59,600 --> 00:31:02,560 Speaker 1: little a brick and very little of the fiber is 538 00:31:02,640 --> 00:31:05,920 Speaker 1: still done in this country. So that's a real problem, um, 539 00:31:06,040 --> 00:31:09,680 Speaker 1: and that's unlikely to come back in any form, perhaps 540 00:31:09,800 --> 00:31:13,520 Speaker 1: in you're in my lifetime, but we gotta leave it there. 541 00:31:13,640 --> 00:31:15,880 Speaker 1: Thank you so much for joining us today, but bigots 542 00:31:15,920 --> 00:31:20,120 Speaker 1: with Raymond James. Thanks for listening to the Bloomberg Surveillance podcast. 543 00:31:20,520 --> 00:31:25,400 Speaker 1: Subscribe and listen to interviews on Apple Podcasts, SoundCloud, or 544 00:31:25,600 --> 00:31:29,880 Speaker 1: whichever podcast platform you prefer. I'm on Twitter at Tom 545 00:31:30,040 --> 00:31:33,840 Speaker 1: Keene before the podcast. You can always catch us worldwide. 546 00:31:34,360 --> 00:31:35,400 Speaker 1: I'm Bloomberg Radio.