Speaker 1: Ye, Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene
Speaker 1: Jay Ley. We bring you insight from the best in economics, finance, investment,
Speaker 1: and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud,
Speaker 1: Bloomberg dot Com, and of course on the Bloomberg Full
Speaker 1: Studio here in New York City. Formerly the Chief economist
Speaker 1: of the O E c D and now the Cities
Speaker 1: Global Chief Economists Catherine Man dropping by. Good morning to
Speaker 1: Catherine too. Can we talk about the faith in en
Speaker 1: rate hikes that seemed to take a big smash in
Speaker 1: the face last week? Does it make much sense? What
Speaker 1: have red hikes? Know? The fact that the Federal Reserve's
Speaker 1: resolve is seriously being tested by this market, and the
Speaker 1: implied rate hikes through safe Fed fund futures has rolled
Speaker 1: over well. I think that there's on the horizon and
Speaker 1: some potential surprises UM that might change the market's view
Speaker 1: on whether or not there's going to be more rate hikes.
Speaker 1: I mean, there's inflation has been extremely quiescent, and I
Speaker 1: think that's really the key ingredient, UH, that's keeping the
Speaker 1: market um complacent about what the trajectory should look like
Speaker 1: for the um policy rate going forward. I think that
Speaker 1: there's a potential for some inflation surprises coming in the
Speaker 1: at the beginning of the year. I want to pick
Speaker 1: up on that word complacency because we've had some communication
Speaker 1: from the Federal Reserve recently that some people have sort
Speaker 1: of latched onto and said, look, this isn't about complacency anymore.
Speaker 1: I can see the Federal Reserve is stepping back a
Speaker 1: little bit from projections for next year. What do you
Speaker 1: make of that? Well, I think that you know, there
Speaker 1: are data driven institution. We've had data come in and
Speaker 1: suggests that the global economy is slowing down somewhat. Uh,
Speaker 1: and yes, that's going to have an impact on the
Speaker 1: US economy. What is in an important ingredient in thinking
Speaker 1: about what the Fed has to do is they have
Speaker 1: to bound onto what the signals are coming from the
Speaker 1: global economy with the signals that are coming from uh,
Speaker 1: sort of the domestic economy, and the domestic economy is
Speaker 1: really very strong and continues to be so. It also
Speaker 1: has to take signals from the financial markets. And again
Speaker 1: there's a distinction between companies that are sort of more
Speaker 1: domestically oriented, they are not financially market engaged. Uh. Those
Speaker 1: companies are feeling very good. They did get a tax
Speaker 1: cut there using it to enhance their capital and labor. Uh.
Speaker 1: And then there are the other companies who are outwardly oriented.
Speaker 1: In other words, they care a lot about the gluble economy,
Speaker 1: and they are very financially market engaged. They they look
Speaker 1: at Wall Street, they worry about Wall Street volatility, and
Speaker 1: it's very important for the Fed to balance those two. Uh.
Speaker 1: One is a tailwind, one's a headwind. Dr Man the news.
Speaker 1: So this morning has been so extraordinary. We really haven't
Speaker 1: gotten to that wheelhouse discussion with you, which is the
Speaker 1: meetings of the G twenty over the weekend. Vice President
Speaker 1: and pens I guess advanced the story into a non
Speaker 1: story and that both sides see miles apart. Is that
Speaker 1: going to be the outcome that we see in Buenos Aires? Well,
Speaker 1: if we think of Apeck as being the the triple
Speaker 1: A ball compared to the big leagues of me, I
Speaker 1: think a lot of our listeners really don't understand what
Speaker 1: is it as Pacific economic cooperation. Thank goodness, ye, I've
Speaker 1: worked with them before, so I don't know which one
Speaker 1: is the big league. Perhaps I should not have said
Speaker 1: one's the big league in one's triple A, indeed. But
Speaker 1: the point is is that if this was the dry run,
Speaker 1: if APEC was the dry run for G twenty, you
Speaker 1: can either you can say, well it was a dry run.
Speaker 1: We're going to be very tough. We're gonna say we
Speaker 1: don't have any grounds for agreement. Uh. And then let's
Speaker 1: see what the market responds. How does the market respond
Speaker 1: to that kind of behavior, and then use that as
Speaker 1: a key for well, maybe we should agree to something
Speaker 1: in the G twenty, or maybe we shouldn't, depending on
Speaker 1: how the market absorbs this. We all wake up to
Speaker 1: the same headlines, Catherine, and sometimes they say tensions rising
Speaker 1: than twenty four as they say tensions rolling go for
Speaker 1: things are getting better. But it just seems to me
Speaker 1: that different parts of the administration say different things about
Speaker 1: the same thing the same topic. So Vice President Mike
Speaker 1: Pence seems to be playing bad cop, and fun enough,
Speaker 1: President Trump seem to be playing good cop on the
Speaker 1: trade issue over the last few weeks or so. How
Speaker 1: do you sort of distill that and communicates clients exactly
Speaker 1: what is going on ahead of the G twenty. Well,
Speaker 1: I think there are multiple voices that are are coming
Speaker 1: out of the administration, and um that is the administration.
Speaker 1: People are also taking their cue from the data as
Speaker 1: they come in and some of the market volatility as
Speaker 1: it comes in, and are tuning what they think they
Speaker 1: should be doing based on that. That's not unreasonable. It's
Speaker 1: a good idea to plumb the opinions of the business community,
Speaker 1: and of the policy community, and and of your own base.
Speaker 1: So all of that's important information for thinking about how
Speaker 1: you should move forward with an agreement or or no
Speaker 1: agreement in twenty in the G twenty, Well, I'm just
Speaker 1: wondering how you frame it for clients as well, because
Speaker 1: there are some people that have this very short time
Speaker 1: horizon who are looking for a truce at the end
Speaker 1: of the month, which generates a real squeeze into year
Speaker 1: end in risk assets. And there are some people that
Speaker 1: take a thirty five thou feet view and say, look,
Speaker 1: this is a generational problem. It's not going to be
Speaker 1: solved at the G twenty at the end of this month.
Speaker 1: It's going to take years, maybe decades to play out.
Speaker 1: Where do you stand on those two things, Catherine, Well,
Speaker 1: I think, there, of course some some some market participants
Speaker 1: that just like the volatility from from who says what,
Speaker 1: when and and and play off of that. So there's
Speaker 1: plenty of plenty of things to do there if you're
Speaker 1: that type of market participant for the longer term ones. Um,
Speaker 1: it does matter if there was to be positive language
Speaker 1: that came out of the G twenty as as I
Speaker 1: was saying earlier. Um, you know, if you can't even
Speaker 1: agree on a sentence that has ten words in it
Speaker 1: to have it as a as a as a communicate,
Speaker 1: you know, that's that's pretty that's a pretty low bar
Speaker 1: because it's not a legal agreement. Whatever you say in
Speaker 1: that in that communicate, it's not a legal agreement. So
Speaker 1: you are in our house this weekend we had we
Speaker 1: had a ten ten word communicating the house this weekend.
Speaker 1: You agreed on we did not agree on it, right,
Speaker 1: But that's every weekend of the Kane house. It is.
Speaker 1: It is as a communicat. I like that. Can I
Speaker 1: steal that word? It's a standard word. It's a standard
Speaker 1: word communicating. Cather Man, thank you so much. We hope
Speaker 1: to speak to in some form around the around. I
Speaker 1: feel like you would be great just for Tom King
Speaker 1: corrections the magic. I mean, why don't we do surveillance
Speaker 1: besides hanging out with Mike a bar and talking about
Speaker 1: the hideous Detroit Lion uniforms in silver gray. I mean,
Speaker 1: that's one of the reasons why we hang out. Well,
Speaker 1: who does I mean but John? The magic of having
Speaker 1: Luigi's in Gallis and Katherine Man in the same room,
Speaker 1: same conversation, the history of that Luigi's up next. They're
Speaker 1: both at the Massachusetts Institute of Technology, and it's just
Speaker 1: the the history of what they live. Were you in
Speaker 1: seminar with Rudiger Dornbush. I know you're saying history as
Speaker 1: if it's like, you know, you seem like she's you,
Speaker 1: all right, She's not Rudy Dornbush. They're after you or
Speaker 1: Ruddy good Dornbush. He was your advice and Rudy dormbuschh
Speaker 1: for my advice. I am channeling Rudy Dornbush every day
Speaker 1: when I go look at the markets and I think
Speaker 1: overshoot that is so. What was it like being with
Speaker 1: Ruddy Dornbush in clase and he was quick? Is what
Speaker 1: I remember? Absolutely fascinating. Katherine Man with us from m
Speaker 1: I T Luigi's and Gardless with US University of Chicago,
Speaker 1: Both School of Business Finance Professor Luigi Coan, morning to you.
Speaker 1: Good morning Luigi de Mayo, speaking in the last twenty
Speaker 1: four hours the Italian deputy Prime minister. I wouldn't say
Speaker 1: he's ready for a reconciliation, but he's certainly open to dialogue.
Speaker 1: And it makes me wonder where these conversations between the
Speaker 1: Commission and the Italian government are going and where the
Speaker 1: Italian government can actually pull back a little bit in
Speaker 1: terms of the budget deficit. Yes, I think he did
Speaker 1: show some sign of willness to reconcile. To be honest,
Speaker 1: I think that the Luigi Maya has always been more
Speaker 1: moderate visa vida European Union. That's just Salvini. So there
Speaker 1: is a little bit of a good cop get bad
Speaker 1: cap playing there, but also some strategic differences. I think
Speaker 1: that Salvini in the past did campaign to exit the
Speaker 1: You are LUIGII. Mayo never did that, and so I
Speaker 1: think that if it comes to the fist that movement,
Speaker 1: they are more willing to reconcile. They're less ideological, I think,
Speaker 1: more flexible. I fear that Salvini wants a confrontation for
Speaker 1: political reasons. He understood that confronting the U buercrets making
Speaker 1: gains vote at at home, and then he plays that
Speaker 1: they aggressive or just to sort of shine a light
Speaker 1: on that a Lega mat her Salveny. Now, while I
Speaker 1: had in the pulse, if you had an election today
Speaker 1: in Italy, who would win? I think that most likely
Speaker 1: the LEGA depends on whether the LEGA get allied with
Speaker 1: its former Allia Belusconi. With that alliance, they would probably
Speaker 1: reach an absolute majority. But it's not obvious. But the
Speaker 1: important point that most people miss is that the Italy
Speaker 1: is not like the UK, where the prime minister called
Speaker 1: new election. It is the president who uh calls new
Speaker 1: election and the president as a Monday to try to
Speaker 1: find if in Parliament that are majority. So if there
Speaker 1: was a confrontation today, I think that the president will
Speaker 1: look for new majorities, and potentially there is an alternative
Speaker 1: majority which is not a majority, with a five Star
Speaker 1: movement and the Democratic Party. So I think that Salvini
Speaker 1: needs to be careful in playing the game too aggressively
Speaker 1: because he might end up being out of power. I
Speaker 1: sound like a conversation in fifth century fifteenth century Italy
Speaker 1: dose singalles if we look at the split between Genoa
Speaker 1: and Italy. If you look at the actual culture here,
Speaker 1: the reality of me. I just looked it up. The
Speaker 1: Italian economy is eighteen or twenty times bigger than the
Speaker 1: economy of Greece. I mean, I think first of all,
Speaker 1: all of us, including me, don't realize that does Germany
Speaker 1: and the rest in Europe? Do they understand how big
Speaker 1: the Italian economy is? Are they treating it like Greece?
Speaker 1: I think that they understand how big the Italian economy is,
Speaker 1: but they don't want to make any fence. And I
Speaker 1: think there is one point in which I'm pretty convinced
Speaker 1: is that if we go to a confrontation, Germans are
Speaker 1: willing to pay any costs not to give up on principle.
Speaker 1: I think that unlike the Italians were very pragmatic, Germans
Speaker 1: are they dogmatic and they're willing to h lose significantly
Speaker 1: on the economic side in order to make a point
Speaker 1: on the principal side. Surveillance correction, John, I was doing
Speaker 1: math with the afterthought last night. In my head's all
Speaker 1: filled with decimals and fractions. Italyast ten times bigger than Greece.
Speaker 1: It's not just the economy. It's the problem, I'm Luigi.
Speaker 1: It's the debt market. I believe it's the third biggest
Speaker 1: sovereign debt market on the planet. I mean, the Italian
Speaker 1: bond market is the real deal in terms society, Luigi,
Speaker 1: there is no doubt that it is a real deal. Um,
Speaker 1: and that's what what is everybody. I think that if
Speaker 1: Italy does not start going at a healthy rate again,
Speaker 1: that that is not sustainable. So I think that we
Speaker 1: fear greatly a recession coming because I fear the data
Speaker 1: session would be the Keece of death. We are the
Speaker 1: point in which we could start to bring down that
Speaker 1: that ratio. But if we go back into our session,
Speaker 1: there's no way this is gonna happen. Not enough time.
Speaker 1: Let just in goals. Thank you so much, look forward
Speaker 1: to speaking and thank you. Thank you for the conversation
Speaker 1: with cat Man my last Massachusetts Institute of Technology moment
Speaker 1: as well. Let's bring in someone who synthesizes for Black
Speaker 1: Rocks so much of their multi assets strategy and particularly
Speaker 1: working off of the fixed income views of Jeffrey Rosenberg
Speaker 1: and others, and that is Isabel Mateos at Lago. Always
Speaker 1: enjoy to have her uh with this Smith Mateos, Sit Lagos,
Speaker 1: Good morning to you. What is the yield pullbacks signal?
Speaker 1: What do we what do we think when we see
Speaker 1: us full faith and credit yields set at a three
Speaker 1: oh seven? Good morning Tom, and thanks for the kind words.
Speaker 1: Pleasure always to uh to answer your questions. So, look,
Speaker 1: there's there's obviously different drivers. It's it's hard to pinpoint
Speaker 1: anyone in particular. But but but I think, as your
Speaker 1: comments just made clear, people are very much trying to
Speaker 1: read the tea leaves in terms of f MC members commentary,
Speaker 1: and certainly there was a bit of a sense that
Speaker 1: maybe they were dialing back on some of the earlier
Speaker 1: more hawkish comments of of term in Powerell. That may
Speaker 1: be a little premature. We'll see, we'll, we'll, we'll, we'll
Speaker 1: see pretty pretty soon about that. But um so, certainly, uh,
Speaker 1: that's going to be a key driver for that longer term,
Speaker 1: for that longer term rate, what does the feed do?
Speaker 1: And really it's the first time in a in a
Speaker 1: while that there's some uncertainty about about what the FED
Speaker 1: is going to do, not you know, not for December obviously,
Speaker 1: but in terms of when is when is the Paul's
Speaker 1: going to come are and and and that's been driving
Speaker 1: some of that volatility in rates. You know, in addition
Speaker 1: to the to the sort of risk on risk of
Speaker 1: environment is about I expect a range of opinions at
Speaker 1: the Federal Reserve. I do also expect that the Vice
Speaker 1: Chairman and the Chairman to be quite closely alligned. So
Speaker 1: it's interesting that within the space of about six weeks
Speaker 1: we've had the Chairman say that we are a long
Speaker 1: way away from neutral and the Vice Chairman suggest we're
Speaker 1: a lot closer than that. Is the truth somewhere in
Speaker 1: between or is the communication changing? What do you make
Speaker 1: of the communication of the last six weeks. Yeah, I mean,
Speaker 1: look at as they as the Fed gets close. I mean,
Speaker 1: the thing that they probably all agree on is they're
Speaker 1: getting closer to neutral, They're closing in on it, and
Speaker 1: that means at some point in the not to distant future,
Speaker 1: policy is no longer going to be accommodating. That's a
Speaker 1: big turning point, and so they have to kind of
Speaker 1: really adjust how they how they communicate about it. Now,
Speaker 1: let's assume, like you know, by our estimate, it's we've
Speaker 1: got the we've got the short term neutral rate at
Speaker 1: around a hundred twenty basis points. So that's kind of
Speaker 1: you know, four rate hikes from uh uh from here?
Speaker 1: Is that a long way or not? How do you
Speaker 1: describe it? You know, maybe they didn't sit down altogether
Speaker 1: and say, Okay, this is exactly the terminology that we're
Speaker 1: going to use to describe where where we are. And
Speaker 1: I think we're seeing the results of that in and
Speaker 1: and and sort of trial and error communication. But I
Speaker 1: think they're going to need to be a bit more
Speaker 1: specific in the in the next meeting and then certainly
Speaker 1: in the next statements. What's the operative plan for next year?
Speaker 1: Are we going to clip a coupon? Or can we
Speaker 1: dream of total return? There's a raging debate, isn't it. Yes.
Speaker 1: I think we're still I mean, obviously, as you said,
Speaker 1: there's uh, there's uh, there's different views. Uh, we're I
Speaker 1: think in the camp of modest total return. Uh. To
Speaker 1: to to put in that way, credit spreads winding out
Speaker 1: through last week is about if you're in the camp
Speaker 1: of modest total return, what does that mean for credit specifically? Well,
Speaker 1: so you know, the last I don't know how do
Speaker 1: they many weeks, but there's been clearly something else driving
Speaker 1: higher interest rates than than just than just FED expectations
Speaker 1: or growth expectations, and that's been uh, growing rice premium frankly,
Speaker 1: across all all risk athetes. We think that has a
Speaker 1: lot to do with geopolitical risks and in particular trade tensions,
Speaker 1: which you know affect people's I mean, create uncertainty around
Speaker 1: macroeconomic outcomes. And we think if we could get some
Speaker 1: relief on the front, and if it's not great or
Speaker 1: terribly long lasting, but that would help, you know, irrespective
Speaker 1: of what the FED is going, okay, but within and
Speaker 1: this is important, folks, because this works with multi multi
Speaker 1: assets strategy, which I think we all do. What is
Speaker 1: the multi assets strategy of black Rock? Away from this
Speaker 1: political story, that political story, what's the actual to do
Speaker 1: across assets? So at this point, you know, we still
Speaker 1: have a clear preference for for equities over bonds, but
Speaker 1: that equity risk, we want to take it in a
Speaker 1: way that is that is resilient to to growth scares
Speaker 1: or to interest rate scares, frankly, and that means focusing
Speaker 1: on focusing on quality, focusing on the less liverard balance sheets.
Speaker 1: The corporates with the strongest cat close. Uh yeah, and
Speaker 1: you know, maybe moving towards a bit of a barble
Speaker 1: strategy if you will, you know, take both equity risk
Speaker 1: and then and then some some some safe bonds, preferably
Speaker 1: at the short end of the curve. Thank you so
Speaker 1: much for the black rock today. Treat them works light today,
Speaker 1: and we really want to dive back into that and
Speaker 1: we can do that best with Brown Brothers Harriman's Win Thinn,
Speaker 1: who joins us uh this morning, head of Currency Strategy
Speaker 1: and Foreign Exchange at Brown Brothers Harriman, Dr Thin, Good
Speaker 1: morning to you. Let me begin with the base call
Speaker 1: for two thousand nineteen, a wide set of opinions at
Speaker 1: Bloomberg Surveillance on dollar weakness, dollar strength, dollar range bound,
Speaker 1: dollar ambiguity. Which is it? Well, first, thanks again for
Speaker 1: having me, Thomas with a pleasure. I'm right now. I'm
Speaker 1: thinking with my strong dollar call. Up until about a
Speaker 1: week ago, I was extremely confident because the market had
Speaker 1: had taken their form C meeting as a hawker signal
Speaker 1: from the Fed. But I went out of the country
Speaker 1: for the last week. I was down in South America.
Speaker 1: I'm shocked um at how quickly the sentiments turned, the
Speaker 1: market is taken back a rate a rate hikes on
Speaker 1: the FED and and we've gotten to a more published
Speaker 1: take again amazing speed over the last week. I do
Speaker 1: think that the the reaction in the FED funds and
Speaker 1: futures market, the the financial market has overdone. Um. I
Speaker 1: think the Fed will continue to hike next year, but
Speaker 1: I think the market right now is in a consolidated
Speaker 1: phase and til we sort of clear up this, this
Speaker 1: really quite muddy waters, now, you know whin thin. I
Speaker 1: look at the cover of your fourth quarter report, the
Speaker 1: Global Overview, and the title is Thorny Issues Threatening Foreign
Speaker 1: Exchange in Q four and it looks terrifying on the cover.
Speaker 1: It's red with thorns. I mean, I don't know where
Speaker 1: you cut the roses, but all I see are stems
Speaker 1: and thorns. What are people going to hurt themselves on
Speaker 1: this year? What do you think they're gonna do that's
Speaker 1: gonna be changed because of the way the market really operates. Yeah, no,
Speaker 1: it's a good question. First of all, I I didn't
Speaker 1: choose the picture, but I think it's it's like something
Speaker 1: right out of American horror story. It is frightening. I
Speaker 1: keep it face down on my desk. Um, look the
Speaker 1: thorny issues that we pointed out. This came out at
Speaker 1: the the end of September. Uh, and it's coming true. Now.
Speaker 1: We've got Brexit which is a total chaos. We've got
Speaker 1: Italy muddying the waters. We've got US trade attentions threatening
Speaker 1: a global trade that those things all I think will
Speaker 1: remain in play well until next year. Um. That's it's
Speaker 1: not going away soon. Um. I think to me that
Speaker 1: the problem is getting in deeper. I think that there's
Speaker 1: the risk of a no deal Brexit have written the
Speaker 1: significantly high levels. I think there's a risk that Italy
Speaker 1: will be sanctioned by the EU for its successive deficits.
Speaker 1: And I think the U S and China will will
Speaker 1: eventually reach an agreement, but not until there's more pain felt.
Speaker 1: And that I think that's that's more a Q one
Speaker 1: Q two story. I mean Q one Q two and
Speaker 1: all that is the degrees of freedom that the FED has,
Speaker 1: particularly versus other central banks. One of your great charms,
Speaker 1: Dr Thinn is a focus on emerging markets. I mean,
Speaker 1: are they all going to be constrained by emerging market
Speaker 1: dynamics or do they act as they will in ammerging
Speaker 1: markets follow on UH. In terms of FED policy making,
Speaker 1: its first and foremost UH done for the state of
Speaker 1: the U. S. Economy. I mean the FED officials fat
Speaker 1: efficials are dumb. They realized their repercussions. UM. But when
Speaker 1: all said and done, you know, buying some sort of
Speaker 1: triggering global financial crisis. The FED is basically saying, look,
Speaker 1: you guys, you guys em benefited from our low rates
Speaker 1: for for years and years. We're taking that back because
Speaker 1: the U. S. Economy is is on track and unfortunately
Speaker 1: guys gonna have to deal with it. And I think
Speaker 1: that's to me, the basic message that that's sent. I
Speaker 1: think I think that's true. I mean, I think, you know,
Speaker 1: the world in general has just gotten too used to
Speaker 1: to abnormally low interest rates. UH. And you know we
Speaker 1: had that issued like there know tomorrow and at some
Speaker 1: point the pipe is gonna, you know, have to be paid. Okay,
Speaker 1: how much is a percent move on dollar? I mean,
Speaker 1: David Bloom at HSBC is is hugely optimistic, like you
Speaker 1: on dollar consensus goes the other way. Give us a
Speaker 1: percent move on dollar that could upset consensus, surprise consensus. Okay, Well,
Speaker 1: I think Tom, I think you you hit the nail
Speaker 1: on the head, though, I think you know, there's more
Speaker 1: um dollar pairs have been emerged in the last couple
Speaker 1: of weeks. Uh. You know, I thought, you know, for
Speaker 1: a while, I thought are about bullsh dollar calls consensus,
Speaker 1: But I think it's it's moved a little bit out
Speaker 1: of consensus um, you know, due to developments with the etcetera.
Speaker 1: So uh, you know, I think that in order to
Speaker 1: get the bears, uh sort of think again, I think
Speaker 1: we need to get another five percent move in the dollar.
Speaker 1: And likewise, you know, I think we have to get
Speaker 1: another five percent moved the other way for me to
Speaker 1: sort of throw in the towel. You know, I think
Speaker 1: we're still within recent I think I would point out
Speaker 1: him five percent is a large move in the world
Speaker 1: of windin Oh, yes, even one is a large win. Thin.
Speaker 1: You talked about paying the piper, should it be paid
Speaker 1: in Chinese? You want or US dollars? Well, the Chinese
Speaker 1: with the value of their current to see. Well, you know,
Speaker 1: I've been the Chinese fessionals been downplaying that, and I
Speaker 1: take them about the word. They're not going to divide that.
Speaker 1: You want the trade US trade issues of one thing,
Speaker 1: but they pledged not to weaponize. And I think about
Speaker 1: the word remember in two last team when they valued
Speaker 1: had all sorts of unintended consequences, one of them being
Speaker 1: massive taple outflows in China distabilizing global financial MARKUS. I
Speaker 1: don't think China wants to go down that road, um,
Speaker 1: But as I said, I think it's a separate issue.
Speaker 1: My view is that the Duan trades with with EM
Speaker 1: that's sort of become more market based. You know, obviously
Speaker 1: still a black box, but for the most part, if
Speaker 1: you look at them currency for promises, do you want
Speaker 1: to start in the middle of the pack within Thank
Speaker 1: you so much. We hope to get your back, particularly
Speaker 1: for careful discussion on EM currencies. He has a head
Speaker 1: of all of currency strategy Brown brothers Ariman. This is
Speaker 1: a joy. His name is Bud Bogot. She's with Raymond
Speaker 1: James and over the years he has pieced together a
Speaker 1: definitive place in what we do with our living rooms
Speaker 1: are offices, are dining rooms. He is the guy who
Speaker 1: knows that pim Fox, you do need a new sofa,
Speaker 1: you you do it? Well, there's that as well, but
Speaker 1: Becot's not only following big box like home Deep in Walmart,
Speaker 1: but legendary on furniture stuff out of pen and uh
Speaker 1: he majored in baking steel and he's got Knolls steelcase.
Speaker 1: Those are just majored in baking at HPS as well
Speaker 1: along the way. But are we furnishing our houses like
Speaker 1: we used to? What's the new calculus for the stuff
Speaker 1: we put in houses? Well, we are. We are furnishing
Speaker 1: our houses like we used to, but we are doing
Speaker 1: it in somewhat different ways by using UH, by knowing
Speaker 1: the uh the products that we want before we go
Speaker 1: into a store. And when I had my business, and
Speaker 1: I had nine furniture stores at one time a long
Speaker 1: time ago, UM, people would shop upwards of four to
Speaker 1: six stores before making a decision. Today, that's not the case. Today,
Speaker 1: go online, you research what you want, and you you
Speaker 1: may shop one most two stores. Is North Carolina is
Speaker 1: still dominant. Well, there's that. That's where you have the
Speaker 1: largest furniture market in the world in North Carolina and
Speaker 1: high Point that's still there. There's still about ten million
Speaker 1: square feet of display space down there, and they have
Speaker 1: markets every April and October. But the products are made
Speaker 1: now globally, you may have moved a lot of the
Speaker 1: wood furniture has moved to Asia, primary starting in China,
Speaker 1: but then migrating to Vietnam and Indonesia and other places
Speaker 1: in Asia. And you still have some products. And of
Speaker 1: course that's the issue that you're gonna have with the tariffs,
Speaker 1: because you're gonna have an issue with some of those
Speaker 1: products now coming back to the States are coming into
Speaker 1: the States and caused costing some additional money. We had
Speaker 1: deflation in this industry from essentially the late nineties to
Speaker 1: the mid teens of this year of two thousands, and
Speaker 1: now you started to see inflation again. Do you see
Speaker 1: more store closings, specifically small companies that are not aligned
Speaker 1: with large retailers like a Walmart. I think, well, Walmart
Speaker 1: is not really big and in furniture except through Sam's.
Speaker 1: They do sell some furniture and mattresses in the Walmart,
Speaker 1: but not really in what I would call the major
Speaker 1: furniture way. Right now, I wasn't thinking just Walmart, but
Speaker 1: I mean among your coverage, uh companies. Yeah, you've had
Speaker 1: most of the store closings you've had, you've already had. Um,
Speaker 1: what's left today are really well run operators. Um and
Speaker 1: they will they typically will survive. So the credit quality
Speaker 1: of what's remaining in the marketplace has improved. You've had
Speaker 1: significant dislocation really in the first decade of the two thousands,
Speaker 1: to Tom's point about whether we furnish our home in
Speaker 1: the same ways that we used to. Is it a
Speaker 1: focus on electronics first? And then you find the place
Speaker 1: to sit um to some degree in somehows it's certainly
Speaker 1: for the man cave. That's uh, that's the point um uh.
Speaker 1: And you've seen different form factors in the electronics. When
Speaker 1: you had the big, big cath roat of it, the
Speaker 1: big deep cathode ray tubes or the big home centers,
Speaker 1: you would have to have fairly deep cases to handle that.
Speaker 1: Today a lot of those video products are actually hung
Speaker 1: on the wall, so changes some of some of the aspects.
Speaker 1: But where they run YouTube videos of face masks and
Speaker 1: girls stuff. I watched like seven minutes of football this weekend.
Speaker 1: Oh yes, there's that discussion as well. But give me
Speaker 1: a single best buy. I mean one of the things,
Speaker 1: what's so famous, what's so wonderful? Bud? Is he actually
Speaker 1: like did it? How how unusual is that to go
Speaker 1: out and try to actually run a business and then
Speaker 1: he writes these hyper detailed cell side reports. What's your
Speaker 1: what's your number? One by? Right now, within the mix
Speaker 1: of all this, I think it would be legged and
Speaker 1: platt Um, which is a supplier to a lot of
Speaker 1: the industry. There's a lot going on in um in
Speaker 1: that industry, right, isn't this beds electric beds? Well, they
Speaker 1: actually have seventeen business units and those business units are
Speaker 1: highly diverse, so you have you have not only beds,
Speaker 1: but you have they're the largest player in automotive seating
Speaker 1: as well, So it's a very diverse company. And I
Speaker 1: think another very well placed equity today is Temper Cilly
Speaker 1: and they are beds um. That's the combination of Temper
Speaker 1: ped Ainsillian Matris. But everywhere I go, Foam is winning.
Speaker 1: They roll up the bed in their throat in a
Speaker 1: box cast or this. You know that I mean is
Speaker 1: the traditional bed business work years? It all new? Well,
Speaker 1: you see that's that that accounts for some piece of
Speaker 1: the business perhaps, and that's where the growth has been marginally,
Speaker 1: although the major growth recently has actually been an import
Speaker 1: of low priced Chinese mattresses, and that's actually under attack
Speaker 1: because the Department of Commerces in the middle in the
Speaker 1: early stages of an anti dumping case UM, which could
Speaker 1: change the nature of that industry really probably sometime in
Speaker 1: the spring to summer next year. Does the consumer have
Speaker 1: enough money to keep spending the way they have in
Speaker 1: the past, and does it all go on the credit card? Now,
Speaker 1: it doesn't all go on the credit card. The consumers
Speaker 1: have been very very well off, and we've had uh
Speaker 1: some pretty good spending in the in the industry mid
Speaker 1: single digits load of mid single digits year over year
Speaker 1: growth UM. And it doesn't all go on the credit card,
Speaker 1: but at the UH, at various places it does. It
Speaker 1: goes on the credit card. And it's obviously in in
Speaker 1: other forms of credit of of a longer variety. But
Speaker 1: how do you respond to a South that made all
Speaker 1: this furniture? You know, the legacy is stickley out in
Speaker 1: all the fancy New York UH and you know, Northeastern
Speaker 1: and over to Wisconsin people. But the South has done
Speaker 1: most of this and a part of the jobs in
Speaker 1: the angst to the trade war is all these jobs
Speaker 1: disappeared proverb liable into China. Can we get jobs back
Speaker 1: in the bug bud bogats world. I don't think they're
Speaker 1: gonna come back in that same variety. Um. We've seen variety.
Speaker 1: We've seen jobs come back to North America in a posty,
Speaker 1: in some cutting and sewing where you actually have the
Speaker 1: fabric imported from China. But you take a look at
Speaker 1: the posty, you need fabric first, and there is very
Speaker 1: little a brick and very little of the fiber is
Speaker 1: still done in this country. So that's a real problem, um,
Speaker 1: and that's unlikely to come back in any form, perhaps
Speaker 1: in you're in my lifetime, but we gotta leave it there.
Speaker 1: Thank you so much for joining us today, but bigots
Speaker 1: with Raymond James. Thanks for listening to the Bloomberg Surveillance podcast.
Speaker 1: Subscribe and listen to interviews on Apple Podcasts, SoundCloud, or
Speaker 1: whichever podcast platform you prefer. I'm on Twitter at Tom
Speaker 1: Keene before the podcast. You can always catch us worldwide.
Speaker 1: I'm Bloomberg Radio.