WEBVTT - Gains Resume as US-China Trade Tensions Ease 0:00:02.520 --> 0:00:13.760 Bloomberg Audio Studios, podcasts, radio news. This is the Bloomberg 0:00:13.840 --> 0:00:17.920 Surveillance Podcast. Catch us live weekdays at seven am Eastern 0:00:18.200 --> 0:00:22.000 on Apple CarPlay or Android Auto with the Bloomberg Business App. 0:00:22.360 --> 0:00:25.680 Listen on demand wherever you get your podcasts, or watch 0:00:25.760 --> 0:00:27.040 us live on YouTube. 0:00:27.400 --> 0:00:31.640 Michael Green joins you strategists, simplify asset manager. Mike, let's 0:00:31.640 --> 0:00:35.360 start with you first principles. Why is the vixit twenty 0:00:35.440 --> 0:00:37.000 one in a bull market? 0:00:37.720 --> 0:00:39.959 Well, I mean, the simple answer is that we've been 0:00:40.000 --> 0:00:44.159 realizing relatively high volatility, particularly amongst the megacap names, and 0:00:44.240 --> 0:00:47.560 that is affecting the composition of the index. The other 0:00:47.600 --> 0:00:50.720 thing is the vixit highs or VIC moving higher in 0:00:50.760 --> 0:00:53.519 the face of the equity markets moving higher. Part of 0:00:53.560 --> 0:00:56.320 that is simply a mechanical process, the reflection news strikes 0:00:56.360 --> 0:00:58.960 being brought in, and so the width of the variant 0:00:59.000 --> 0:01:02.720 swap actually in increases that mechanically can push it up. 0:01:02.720 --> 0:01:04.240 About a third of the time when you're making new 0:01:04.240 --> 0:01:06.399 all time highs, you're pushing higher on the vix So. 0:01:06.319 --> 0:01:09.320 Do you assume that it will dampen it down and 0:01:09.400 --> 0:01:12.440 come in under nineteen under seventeen at some point. 0:01:12.840 --> 0:01:17.319 Yeah, that would be my core expectation. Unless exogenous events occur. 0:01:17.480 --> 0:01:20.440 The VIX has spiked significantly, It was very primed for 0:01:20.480 --> 0:01:23.760 that sensitivity. What we call the implied correlation, which is 0:01:23.800 --> 0:01:27.399 the relationship of the index to those individual stocks, had 0:01:27.440 --> 0:01:30.200 pressed it down to very very low levels. Most of 0:01:30.240 --> 0:01:33.360 what we've seen in this pop has actually been that phenomenon. 0:01:33.600 --> 0:01:36.560 The increased concern about some of the stocks is now 0:01:36.560 --> 0:01:37.920 manifesting itself into is. 0:01:37.880 --> 0:01:39.520 This a bigger broader issue? 0:01:39.920 --> 0:01:43.000 That implied correlation rose in the past couple of weeks, 0:01:43.440 --> 0:01:46.720 but we're not realizing those levels of volatility, and the 0:01:47.080 --> 0:01:50.000 pressure is always there to sell all If the implied 0:01:50.320 --> 0:01:52.680 are well above the realized, i'd expect to see that 0:01:52.720 --> 0:01:53.680 pressure coming down. 0:01:54.120 --> 0:01:56.080 What about in the credit space? That's what I was 0:01:56.120 --> 0:01:58.440 reading all of the whole weekend because I was wondering 0:01:58.440 --> 0:01:59.800 whether this is isolated or not. 0:02:00.080 --> 0:02:01.200 You get conflicting answers. 0:02:01.240 --> 0:02:03.600 Some are saying maybe this will be signs of more 0:02:03.640 --> 0:02:05.760 further stress to come, but others are saying it's isolated. 0:02:05.760 --> 0:02:06.720 What is your take on that? 0:02:06.840 --> 0:02:08.560 My take on it is is that this is actually 0:02:08.639 --> 0:02:12.399 indicative of a much broader problem we've been seeing bankruptcies 0:02:12.440 --> 0:02:15.239 themselves have actually been elevated in the corporate space those 0:02:15.280 --> 0:02:19.160 with assets above fifty million dollars. Bankruptcies for assets above 0:02:19.160 --> 0:02:21.960 fifty million dollars have actually been surging in our levels 0:02:22.000 --> 0:02:24.440 that are consistent with a much higher level of credit spreads. 0:02:24.960 --> 0:02:27.440 The biggest story in credit spreads continues to be exactly 0:02:27.440 --> 0:02:29.480 what you guys were referring earlier to from the sock 0:02:29.560 --> 0:02:30.320 Gen observation. 0:02:30.800 --> 0:02:32.000 People are piling money in. 0:02:32.160 --> 0:02:34.760 There's not a lot of issues, particularly in high yield, 0:02:34.880 --> 0:02:37.720 because they resist the higher yields. That means they're chasing 0:02:37.760 --> 0:02:40.440 the secondary of securities and pressuring credit spreads. 0:02:40.440 --> 0:02:43.680 Do you noticed Isabelle that he dresses up for Charles 0:02:43.680 --> 0:02:46.400 Pain over at Fox Business, but he doesn't dress up 0:02:46.440 --> 0:02:46.799 for us. 0:02:47.000 --> 0:02:47.440 He did? 0:02:47.720 --> 0:02:47.920 You know? 0:02:48.120 --> 0:02:48.680 I saw that. 0:02:49.040 --> 0:02:52.280 Slides in seven am in the morning. You were talking 0:02:52.320 --> 0:02:54.120 to the wonderful Charlie Pain and you're going to talk 0:02:54.160 --> 0:02:58.760 to us now about translate the private credit banks that's 0:02:58.800 --> 0:03:03.079 out there. It's it's not a frenzy, but it's fermenting, 0:03:03.400 --> 0:03:07.959 is how i'd put it. Discuss the fermenting of our fears. Well, 0:03:08.000 --> 0:03:08.800 the biggest. 0:03:08.440 --> 0:03:11.360 Thing to remember about private credit and private equity is 0:03:11.400 --> 0:03:13.480 at the end of the day, these are just really 0:03:13.639 --> 0:03:17.160 allocators in another form. Right, you are taking a private 0:03:17.200 --> 0:03:20.639 credit firm, they are receiving an equity investment from their 0:03:20.760 --> 0:03:23.760 end investors. They are then levering that with bank loans. 0:03:24.280 --> 0:03:26.120 This comes through the banking system of what we call 0:03:26.200 --> 0:03:30.520 the non depository financial institution lending, which is absolutely exploded. 0:03:31.160 --> 0:03:34.600 So what you're really seeing is banks lending to non 0:03:34.680 --> 0:03:38.120 banks where then lending to operating companies that are running 0:03:38.120 --> 0:03:38.440 on a lege. 0:03:38.440 --> 0:03:40.880 I got to interrupt. This is really important. What do 0:03:40.920 --> 0:03:44.560 you perceive as a leverage ratio of private credit as 0:03:44.600 --> 0:03:48.800 a lever up versus two thousand and sixty seven relative 0:03:48.840 --> 0:03:51.000 to where the banks were in two thousand and six. 0:03:51.040 --> 0:03:54.120 Two thousand and seven is well below that. 0:03:54.240 --> 0:03:58.280 NDFI also captures hedge fund lending that in some situations, 0:03:58.320 --> 0:04:01.320 particularly in the treasury basis, trade is running quite high. 0:04:01.720 --> 0:04:05.040 So the overall leverage ratio in that sector is probably 0:04:05.080 --> 0:04:07.200 in the ten to filaus. 0:04:07.240 --> 0:04:09.760 It's pretty high. I say, Isabel, save me. 0:04:10.040 --> 0:04:12.280 And so you said that this is a sign of 0:04:12.320 --> 0:04:14.680 broader stress, So then will that mean we should be 0:04:14.720 --> 0:04:16.080 on the lookout for further blowout? 0:04:16.160 --> 0:04:17.080 And how cautious. 0:04:17.120 --> 0:04:19.520 Will that make lenders because that will have ramifications for 0:04:19.600 --> 0:04:20.200 the economy. 0:04:20.360 --> 0:04:23.600 That's really the critical observation is about is the fact 0:04:23.640 --> 0:04:26.560 that when you start to start asking questions, you become 0:04:26.640 --> 0:04:29.080 less willing to extend credit. When you are less willing 0:04:29.120 --> 0:04:32.360 to extend credit, you suddenly discover that people that desperately 0:04:32.400 --> 0:04:34.640 needed that credit no longer have it. 0:04:35.279 --> 0:04:38.440 The stresses begin to emerge. It's Warren Beffett's. 0:04:38.000 --> 0:04:40.680 Expression, you find out who's naked when the tide is 0:04:40.760 --> 0:04:44.680 going out right. It's the same underlying phenomenon where less 0:04:44.680 --> 0:04:47.080 money available means it's easier to miss that payment. 0:04:48.000 --> 0:04:51.480 Tom, can I ask about Vanguard? You wrote a paper 0:04:51.520 --> 0:04:54.760 about Vanguard. It's called setting the record straight retraious questions 0:04:54.760 --> 0:04:57.640 about passive investing, which is you know, an interest out 0:04:57.839 --> 0:05:00.640 for everyone. I mean, yes, a big question always asking 0:05:00.680 --> 0:05:02.640 the team is the S and P actually passive? Because 0:05:02.640 --> 0:05:05.520 when they rebalance there's a committee in charge of it 0:05:05.600 --> 0:05:09.159 which asked this question. Anyway, what do you make of that? 0:05:09.279 --> 0:05:10.920 Why did you write the paper? What do you see 0:05:10.920 --> 0:05:13.200 as Vanguard's central blind spot? 0:05:13.400 --> 0:05:15.760 Well, I think the core issue is is that passive 0:05:15.760 --> 0:05:18.599 investing is, first of all, not passive So the definition 0:05:18.640 --> 0:05:22.520 of passive in the academic literature is somebody who never transacts. 0:05:22.839 --> 0:05:25.320 That means you can't get in. It means you can't get. 0:05:25.200 --> 0:05:28.039 Out, right, So they are not passive strategies, But it 0:05:28.040 --> 0:05:31.400 turns out they are as systematic algorithmic strategies that simply say, 0:05:31.760 --> 0:05:34.320 did you give me cash? If so, then by did 0:05:34.360 --> 0:05:37.400 you ask for cash? If so, then sell. Any systematic 0:05:37.440 --> 0:05:40.560 strategy can get crowded. And what we're experiencing now is 0:05:40.560 --> 0:05:44.000 the impact of crowding into a strategy that most people 0:05:44.040 --> 0:05:46.480 had presumed had nearly unlimited capacity. 0:05:47.279 --> 0:05:49.800 You can see crowding about a lot of things like 0:05:49.880 --> 0:05:51.000 AI or gold. 0:05:51.080 --> 0:05:53.159 Now, well, what. 0:05:53.040 --> 0:05:55.600 You actually are seeing is a little bit even more perverse, 0:05:55.760 --> 0:05:58.400 so things like the rising concentration. This is actually the 0:05:58.440 --> 0:06:01.360 subject of my first academic paper, which I will send 0:06:01.400 --> 0:06:02.279 a copy over to you. 0:06:02.320 --> 0:06:03.479 Yes, as soon as it's ready. 0:06:04.240 --> 0:06:08.560 But what you actually have with passive investing because you 0:06:08.600 --> 0:06:12.239 are allocating on the basis of market capitalization. That means 0:06:12.279 --> 0:06:15.520 when a stock goes up, the next dollar in gets 0:06:15.560 --> 0:06:18.840 a larger allocation. And the perverse thing that we are 0:06:18.880 --> 0:06:22.040 now finding out is that markets are not nearly elastic 0:06:22.160 --> 0:06:24.640 enough to take in the scale of the flows that 0:06:24.680 --> 0:06:27.600 we're sending them from passive vehicles, It has a really 0:06:27.640 --> 0:06:31.680 perverse impact. The largest stocks in many situations are the 0:06:31.760 --> 0:06:35.640 least elastic stocks and are therefore actually being inflated more 0:06:35.680 --> 0:06:38.680 than the rest of the market. That creates a feedback 0:06:38.720 --> 0:06:42.120 loop that really plays through in the types of concentration 0:06:42.200 --> 0:06:44.560 that we're seeing and unfortunately lowers the threshold. 0:06:44.640 --> 0:06:45.560 This is what the paper is about. 0:06:45.560 --> 0:06:48.000 It lowers the threshold at which we discover that passive 0:06:48.080 --> 0:06:50.960 becomes a negative feature in the market. 0:06:51.000 --> 0:06:55.080 Can you quantify a set of PE points where it's 0:06:55.200 --> 0:07:00.680 overvalued because of passive internal dynamics. Walmart's at forty should 0:07:00.720 --> 0:07:04.240 it be at thirty eight or thirty six or fifteen? 0:07:05.080 --> 0:07:07.320 So this is one of the real challenges tom, because 0:07:07.360 --> 0:07:09.720 if you think about what should be happening when companies 0:07:09.720 --> 0:07:13.600 are experiencing extraordinary levels of profitability, we should expect those 0:07:13.680 --> 0:07:16.400 profit margins to mean revert at some point in the future. 0:07:17.080 --> 0:07:19.600 That would actually tell you the valuation should be even 0:07:19.760 --> 0:07:22.880 lower than you would otherwise expect. I know this sounds 0:07:22.880 --> 0:07:26.080 absolutely crazy, but my estimate for Walmart is probably somewhere 0:07:26.080 --> 0:07:26.679 in the teens. 0:07:27.000 --> 0:07:30.000 Oh that's I can't say I agree with that because 0:07:30.000 --> 0:07:31.800 I'm not allowed to have an opinion, But there it is. 0:07:31.800 --> 0:07:34.720 I got to squeeze a sentence to important. We have 0:07:34.800 --> 0:07:38.760 a planum in Beijing. It's off the radar for the 0:07:38.800 --> 0:07:43.640 American people, the American business community. I don't buy it 0:07:43.720 --> 0:07:47.680 for a minute. And you watched China in this development 0:07:47.720 --> 0:07:50.080 of a five year plan forward. What are you watching for? 0:07:50.360 --> 0:07:52.280 Well, the single most important thing that's happening at this 0:07:52.360 --> 0:07:55.520 planet is the relative lack of news about gi going 0:07:55.560 --> 0:07:58.400 into it and the wholesale replacement of many of his 0:07:58.520 --> 0:08:00.560 loyalists that we've seen in the million terry in the 0:08:00.560 --> 0:08:01.720 past couple of weeks. 0:08:01.520 --> 0:08:04.040 There's nine nine and well that's just in the last week. 0:08:04.320 --> 0:08:06.800 I believe about seventeen that have been replaced over the 0:08:06.880 --> 0:08:10.360 past couple of months. It's unclear whether this is driven 0:08:10.400 --> 0:08:12.600 by g or whether this is a loss of power 0:08:12.720 --> 0:08:12.960 for G. 0:08:13.200 --> 0:08:13.360 Right. 0:08:13.400 --> 0:08:16.440 We look at American politics, We're very familiar with the 0:08:16.480 --> 0:08:19.800 travails between the Trump administration and the Democratic Party, et cetera. 0:08:20.360 --> 0:08:23.680 Every other country has those as well, the simple reality 0:08:23.720 --> 0:08:26.280 as they are largely concealed from us, but there very 0:08:26.400 --> 0:08:29.240 much appears to be a significant power struggle underway in 0:08:29.360 --> 0:08:32.960 China right now. What the implications of it, Whether these 0:08:33.000 --> 0:08:35.760 generals are being replaced because they're saying we're not ready 0:08:35.800 --> 0:08:37.839 to go for Taiwan and G is pushing for it 0:08:38.320 --> 0:08:40.679 when he's trying to find somebody who says, yes, I'll 0:08:40.760 --> 0:08:43.960 ah putin with the invasion of Ukraine, or whether this 0:08:44.160 --> 0:08:45.520 is more a verdict. 0:08:45.280 --> 0:08:48.600 On G himself. We just don't know yet. Brilliant synopsis. 0:08:48.640 --> 0:08:51.840 Michael Green, thank us so much. Is simplify asset management 0:08:51.920 --> 0:08:54.000 something we'll be watching through the week. Here are these 0:08:54.040 --> 0:08:59.240 important meetings in China. Stay with us. More from Bloomberg's 0:08:59.240 --> 0:09:01.280 Surveillance coming up after this. 0:09:08.520 --> 0:09:12.080 You're listening to the Bloomberg Surveillance podcast. Catch us live 0:09:12.160 --> 0:09:15.320 weekday afternoons from seven to ten am Eastern Listen on 0:09:15.400 --> 0:09:19.040 Applecarplay and Android Auto with the Bloomberg Business app, or 0:09:19.200 --> 0:09:20.640 watch us live on YouTube. 0:09:20.679 --> 0:09:25.640 We now turn, incredibly importantly, turn to Henrietta Trees joining 0:09:25.720 --> 0:09:29.439 us from Veda Partners here on the shutdown. Henriette, I 0:09:29.480 --> 0:09:32.560 look at the Washington Post this morning and there is 0:09:32.720 --> 0:09:36.360 not a single article on the shutdown. I'm sort of 0:09:36.400 --> 0:09:40.360 shocked by that. Give us an update X number of 0:09:40.480 --> 0:09:44.600 days in to the agony of our federal workers. 0:09:45.080 --> 0:09:47.120 Yeah, that tells me pretty much everything you need to know. 0:09:47.200 --> 0:09:49.400 There's not going to be any resolution this week. I 0:09:49.440 --> 0:09:52.360 wouldn't even expect one next week. The White House is 0:09:52.400 --> 0:09:55.439 not engaged. It's clear to me for my conversations with 0:09:55.559 --> 0:09:57.800 Republicans on the House and set outside, that they're waiting 0:09:57.840 --> 0:10:00.319 for the White House to decide what they want to 0:10:00.360 --> 0:10:02.600 do here, whether there's anything that they want to offer 0:10:02.679 --> 0:10:04.960 to Democrats to make anything shake loose. 0:10:05.240 --> 0:10:06.560 They'll have their eleventh vote. 0:10:06.600 --> 0:10:10.560 It will fail again, and we'll just keep repeating the 0:10:10.600 --> 0:10:13.079 same thing, knocking our heads against the wall for a while. 0:10:13.240 --> 0:10:17.800 What part of our federal government will we observe failing? 0:10:17.880 --> 0:10:21.199 Don't tell me like national parks. Okay, there's twelve people 0:10:21.240 --> 0:10:23.920 out there, I get it. But within the real day 0:10:23.960 --> 0:10:27.480 to day of our listeners and viewers, what will fail 0:10:27.720 --> 0:10:28.880 because of the shutdown? 0:10:29.800 --> 0:10:33.240 Well, I think we already have seen the data releases fail, 0:10:33.320 --> 0:10:35.200 so we're already in the thirds of that. The market's 0:10:35.240 --> 0:10:37.800 already had to adapt to that. But the next big one, 0:10:37.840 --> 0:10:40.600 as everybody always knows, is going through the airport and 0:10:40.640 --> 0:10:44.160 trying to travel. It's very scary to be concerned about 0:10:44.160 --> 0:10:45.720 whether or not you're going to be able to get through, 0:10:45.960 --> 0:10:47.880 whether or not the flights are going to get shut down. 0:10:48.280 --> 0:10:50.719 That's generally the main branch of AACK. 0:10:50.760 --> 0:10:53.760 Okay, but Isabelle at the golf stream. So I had 0:10:53.760 --> 0:10:56.360 to take thank you Delta for a great trip down 0:10:56.400 --> 0:10:59.880 to Houston. And the answer is it was seamless andry. 0:11:00.160 --> 0:11:04.280 There was no problem. Are there really problems with TSA 0:11:04.320 --> 0:11:05.400 and air controllers? 0:11:05.440 --> 0:11:09.400 Now they're starting to register upticks in folks calling in 0:11:09.440 --> 0:11:11.920 sick from work, And the longer it goes, and as 0:11:11.960 --> 0:11:14.040 you miss those pay cycles, you'll start to see more 0:11:14.080 --> 0:11:15.599 of that. And I think that's really the story of 0:11:15.640 --> 0:11:18.400 the shutdown. It's not one being silver bullet. It's a 0:11:18.440 --> 0:11:21.720 compounding of a bunch of little things. No military pay, 0:11:21.800 --> 0:11:25.360 no federal employee pay, that starts to weigh on members 0:11:25.480 --> 0:11:27.960 and districts and starts to get painful. And we're going 0:11:28.000 --> 0:11:29.959 to need to be shut down for probably another two 0:11:30.000 --> 0:11:31.040 weeks before we get there. 0:11:31.600 --> 0:11:34.080 You said that in your note that polling shows that 0:11:34.120 --> 0:11:37.160 Republicans are bearing the blunt of the blame, but most 0:11:37.160 --> 0:11:40.040 of their ads are actually targeted towards the Democrats. And 0:11:40.080 --> 0:11:42.160 I've seen some of them. Where do you see the 0:11:42.200 --> 0:11:45.320 breakdown and messaging is why isn't one party more effective 0:11:45.320 --> 0:11:47.000 than the other when it comes to the blame game? 0:11:47.720 --> 0:11:50.600 Yeah, I asked staff across the aisle both sides about 0:11:50.600 --> 0:11:54.120 this last week on Capitol Hill, and Republicans are a 0:11:54.160 --> 0:11:56.079 little bit split. There's some who think that none of 0:11:56.120 --> 0:11:58.960 this matters. Voters are totally disengaged and therefore it's not 0:11:59.000 --> 0:12:01.320 a big deal. The President can keep tweeting, you know, 0:12:01.360 --> 0:12:03.719 AI images if he wants to and it doesn't move 0:12:03.760 --> 0:12:05.800 the needle. Then there are others who are saying, look, 0:12:05.840 --> 0:12:08.560 when I go back to my district in Alabama or wherever, 0:12:09.280 --> 0:12:12.160 they see that the president controls the White House, Republicans 0:12:12.160 --> 0:12:14.400 control the House. In the Senate, it's difficult to then 0:12:14.440 --> 0:12:16.520 have to layer on yet, but we need sixty votes 0:12:16.600 --> 0:12:18.800 in the Senate, you know. And then on the Democratic side, 0:12:18.840 --> 0:12:22.199 they're just waiting it out. They think that they're winning 0:12:22.200 --> 0:12:22.520 as well. 0:12:22.880 --> 0:12:25.760 And had one final question here to get the week started. 0:12:26.160 --> 0:12:30.600 It's October. How many people what's the level of Henrietta 0:12:30.640 --> 0:12:36.120 Tre's radar on retirement of representatives and senators? Are we 0:12:36.120 --> 0:12:38.599 going to see a wave of people retire. 0:12:38.880 --> 0:12:41.720 We already have seen the announcements come there from all 0:12:41.800 --> 0:12:45.320 over as well, so from farming states. I think that 0:12:45.480 --> 0:12:48.679 the next round of elections, this midterm cycle is going 0:12:48.720 --> 0:12:51.679 to be really telling. Everybody's sort of already in twenty 0:12:51.720 --> 0:12:54.640 twenty eight, even on Capitol Hill, which is really fascinating. 0:12:54.880 --> 0:12:55.080 You know. 0:12:55.120 --> 0:12:58.319 The main story is Jadie Vance will be, you know, 0:12:58.679 --> 0:13:01.200 deemed to be the onner op and the follower to 0:13:01.280 --> 0:13:03.480 President Trump. Who are the Democrats going to pick? 0:13:03.480 --> 0:13:04.240 We're focused on that. 0:13:04.280 --> 0:13:06.880 A lot more in conversation than even the midterms. It's 0:13:06.960 --> 0:13:09.000 kind of interesting to see that we just move ahead 0:13:09.000 --> 0:13:09.240 to that. 0:13:09.600 --> 0:13:12.160 Henrietta, Thank you so much. A Monday Brief with Henrietta 0:13:12.160 --> 0:13:16.640 Tray's Beta partners stay with us. More from Bloomberg Surveillance 0:13:16.679 --> 0:13:25.080 coming up after this. 0:13:25.080 --> 0:13:29.000 This is the Bloomberg Surveillance Podcast. Listen live each weekday 0:13:29.040 --> 0:13:32.079 starting at seven am Eastern on Apple Cocklay and Android 0:13:32.080 --> 0:13:35.120 Auto with the Bloomberg Business app. You can also listen 0:13:35.200 --> 0:13:38.480 live on Amazon Alexa from our flagship New York station, 0:13:39.000 --> 0:13:41.680 Just say Alexa Play Bloomberg eleven thirty. 0:13:41.800 --> 0:13:45.199 Stephen Angler joins us. He's with a standard charter bank 0:13:45.280 --> 0:13:49.520 and it can't be a normal day. When you see 0:13:49.520 --> 0:13:52.559 the headlines coming out of Argentina. Oh, I guess we 0:13:52.679 --> 0:13:56.839 booked Yeller. Darius Dale was just in all ivy football 0:13:57.440 --> 0:14:01.440 at Yale. Were you on the football team? Ill, Stephen Englander? 0:14:03.120 --> 0:14:06.120 I had to turn them down because they would be 0:14:06.360 --> 0:14:07.559 unfair if I joined the team. 0:14:07.640 --> 0:14:09.920 It's great to go from darius Dale to Stephen Englander 0:14:09.960 --> 0:14:14.280 of Yale. At University Argentina, we have the stereo Troy 0:14:14.559 --> 0:14:17.920 uh stereotype Avia Pirona and that maybe we have a 0:14:17.960 --> 0:14:21.600 Germanic history, and then coming out the prosperity of Argentina 0:14:21.680 --> 0:14:27.920 fading away within standard charter. Where is Argentina right now? 0:14:28.040 --> 0:14:31.000 How chaotic is it? Well? 0:14:31.160 --> 0:14:33.960 You know I should preface anything I say by saying 0:14:34.000 --> 0:14:36.400 I'm not an expert, as you know, I do G 0:14:36.520 --> 0:14:37.160 ten mostly. 0:14:38.040 --> 0:14:43.120 Well, it's G eleven. Okay, Well, you know, maybe let 0:14:43.160 --> 0:14:46.480 me rephrase this. When you look at Argentina dealing with 0:14:46.520 --> 0:14:49.760 the Secretary of Treasury and the President of the United States, 0:14:50.320 --> 0:14:53.480 his swap agreement this morning is unusual, right. 0:14:55.160 --> 0:14:57.960 You know, all of these types of agreements are unusual, 0:14:58.320 --> 0:15:02.040 and you know ultimately they get decided, you know, in 0:15:02.440 --> 0:15:05.320 the course of years by whether or not they're consistent 0:15:05.360 --> 0:15:08.320 with the fundamentals, and what they're trying to achieve is, 0:15:08.880 --> 0:15:11.040 you know, sort of makes sense. You know, does the 0:15:11.080 --> 0:15:14.760 exchange rate make sense? Do the policies make sense? And 0:15:15.280 --> 0:15:18.920 you know, aid like that can be a bridge. It's never, 0:15:20.040 --> 0:15:22.360 it's never the entire edifice itself. 0:15:23.480 --> 0:15:25.960 What about let's talk about the quality of the US data. 0:15:26.000 --> 0:15:28.400 You've said that it's now a risk to the market 0:15:28.520 --> 0:15:32.240 and the policy itself. How much is it actually distorting 0:15:32.240 --> 0:15:33.480 the FED decision. 0:15:33.160 --> 0:15:36.440 If it is, well, I think it distorted it pretty much. 0:15:36.520 --> 0:15:39.040 I mean, if you compare the comments that the FED 0:15:39.160 --> 0:15:43.960 was making about the labor market may June July into 0:15:44.000 --> 0:15:47.440 August and what we now know about the labor market 0:15:47.800 --> 0:15:51.280 and the fact that the data are still wrong in 0:15:51.320 --> 0:15:56.640 the sense that they overstate the contribution of new firms consistently. 0:15:57.960 --> 0:16:01.160 You know, I think it probably the more hawkish than 0:16:01.200 --> 0:16:02.000 they ought to have been. 0:16:02.520 --> 0:16:04.680 So the FED aal always sys their data dependent. If 0:16:04.680 --> 0:16:08.040 the data is flawed, it was it that What does 0:16:08.120 --> 0:16:13.440 that say about policy reliability then, especially around employment inflation readings. 0:16:14.800 --> 0:16:16.400 I think there's risk there. 0:16:16.720 --> 0:16:21.800 I think what ultimately the data are probably correct over 0:16:21.840 --> 0:16:25.680 a period of say four quarters two years. But I 0:16:25.720 --> 0:16:29.840 think in terms of making real term, real time policy 0:16:30.160 --> 0:16:35.680 and in terms of market participants, you know, pricing assets, 0:16:35.720 --> 0:16:40.600 the fact that there's so much volatility and error and 0:16:40.640 --> 0:16:43.880 the short term numbers is a big deal. 0:16:44.160 --> 0:16:46.840 Steve Dangler wrote is the standard Charter Bank and extended 0:16:46.880 --> 0:16:50.000 conversation for Global Wall Street. This morning, we said good 0:16:50.000 --> 0:16:53.240 Morning around the world on YouTube, in your office, at home, 0:16:53.400 --> 0:16:55.160 even in your car. Don't look at the screen while 0:16:55.160 --> 0:16:59.440 you're driving. Subscribe to Bloomberg podcasts Good Morning across the 0:16:59.520 --> 0:17:03.080 nation ticularly ninety nine one FM in Washington, ninety two 0:17:03.200 --> 0:17:05.800 nine FM in Boston, and Bloomberg eleventh three to zero. 0:17:06.200 --> 0:17:09.439 Here in a perfect New York this morning, Steven, I 0:17:09.480 --> 0:17:12.879 look at the great call of dollar weakness and flat 0:17:12.920 --> 0:17:16.320 out it just hasn't happened. Then I look at cross rates, 0:17:16.359 --> 0:17:21.480 which you are expert at, Euro Yen, euro swissy and 0:17:21.520 --> 0:17:25.240 the rest. Which cross rate do you look at away 0:17:25.760 --> 0:17:27.840 from a G ten analysis. 0:17:28.359 --> 0:17:32.439 Well, lately we've been looking at things like euro Brazil 0:17:32.640 --> 0:17:37.080 or sterling Brazil as a gauge of you know, Brazil 0:17:37.160 --> 0:17:40.520 being a very risk on type of currency and sort 0:17:40.520 --> 0:17:43.280 of a gauge of how kind of willing the market 0:17:43.359 --> 0:17:45.679 is to take on risk and buy Carrie. 0:17:46.840 --> 0:17:49.800 Europe a kind of a very mixed. 0:17:49.520 --> 0:17:53.320 Bag and getting sort of slightly more negative mixed than 0:17:53.359 --> 0:17:54.200 positive mixed. 0:17:54.480 --> 0:17:58.679 So Zabelle to translate this into the real world, I 0:17:58.880 --> 0:18:04.720 punch up EU BRL euro Brazil on the Bloomberg. I 0:18:04.800 --> 0:18:08.560 take it back twenty years and there's just been a 0:18:08.680 --> 0:18:15.120 massive Brazilian weakness and euro strength until now. And that's, folks, 0:18:15.119 --> 0:18:18.520 just as a window into the Steve Englander world. Are 0:18:18.560 --> 0:18:23.320 you suggesting go long Brazil versus more dominant economies? 0:18:23.800 --> 0:18:26.280 You know, we we have some sympathy to that view. 0:18:26.359 --> 0:18:28.040 I mean we you know, you look at some of 0:18:28.080 --> 0:18:31.000 the risk negative events of the last week. 0:18:31.160 --> 0:18:32.440 They are a couple of weeks. 0:18:32.440 --> 0:18:35.760 They look as if they're likely to fade, and we 0:18:35.840 --> 0:18:37.879 do think that the markets could well go back to 0:18:38.280 --> 0:18:40.800 looking at Carrie and a, you know, as the risk 0:18:40.880 --> 0:18:42.399 environment becomes more favorable. 0:18:43.160 --> 0:18:45.439 I do see that this is a stunning chart. Actually, 0:18:45.520 --> 0:18:48.159 it's almost like, I don't know, how do you draw it? 0:18:49.520 --> 0:18:53.080 A day, I'm gonna liigne the EU RBRL go. 0:18:53.880 --> 0:18:56.920 That's Steven Englander's world across right as well. Tell me 0:18:56.960 --> 0:19:00.280 about Swiss Frank, I mean, for America. We perceive Swiss 0:19:00.280 --> 0:19:02.640 Frank is strong, strong, strong, and they've got their own 0:19:02.720 --> 0:19:06.600 unique issues. I mean, Nestley makes headlines with sixteen thousand 0:19:06.600 --> 0:19:10.760 people out the door. But the flow of money into 0:19:10.760 --> 0:19:16.440 Switzerland with dollars Swiss or EuroSwiss, how does that ultimately 0:19:16.520 --> 0:19:17.080 play out? 0:19:17.680 --> 0:19:19.919 You know, over time, I've changed my view on Swiss 0:19:19.920 --> 0:19:22.639 because you know, I was always focused on overvaluation. 0:19:24.480 --> 0:19:25.760 But you take a look at it. 0:19:25.800 --> 0:19:29.760 They continue to have a trade surplus, so you know, 0:19:29.800 --> 0:19:32.840 they and they tend to be in product segments where 0:19:33.880 --> 0:19:36.800 it's not you know, there's some product differentiation, so the 0:19:37.040 --> 0:19:41.720 you know, there's interlastic sleeve demand there, so prices go up, 0:19:42.000 --> 0:19:45.760 man doesn't collapse. And at the same time, you know, 0:19:45.800 --> 0:19:50.040 they have a surplus in their income account and at 0:19:50.040 --> 0:19:53.400 the same time money wants to come into Switzerland. That's 0:19:53.440 --> 0:19:56.480 a very powerful driver. What's your trade this morning? What 0:19:56.640 --> 0:19:58.840 is the intelligent trade out three months? 0:19:58.840 --> 0:19:59.879 Six months? For steven Ing? 0:20:00.840 --> 0:20:04.480 Well, you know, we we like our euroview your weakness, 0:20:04.560 --> 0:20:07.280 and we think and dollars think, we think it will 0:20:07.280 --> 0:20:09.600 play out over that time horizon, and we think that 0:20:09.640 --> 0:20:15.040 it's you know, we think that the market consensus is 0:20:15.080 --> 0:20:17.119 still very dollar bearish. 0:20:17.280 --> 0:20:20.040 You mentioned dollar strength, So if the US is overstating 0:20:20.200 --> 0:20:24.959 it's labor growth, labor growth and market growth strength, then 0:20:25.080 --> 0:20:26.399 is the US dollar miss price? 0:20:29.640 --> 0:20:32.040 The dollar is mispriced, but not for that reason, I think, 0:20:32.240 --> 0:20:34.719