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Speaker 1: Bloomberg Audio Studios, podcasts, radio news.

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Speaker 2: This is the.

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Speaker 1: Bloomberg Surveillance Podcast. Catch us live weekdays at seven am

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Speaker 1: Eastern on Apple CarPlay or Android Auto with the Bloomberg

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Speaker 1: Business app. Listen on demand wherever you get your podcasts,

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Speaker 1: or watch us live on YouTube.

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Speaker 3: This is a joy in exceptionally well timed. Waylee is

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Speaker 3: prodigious in mathematics out of her China and of course

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Speaker 3: out of University of Cambridge as well. She was a

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Speaker 3: former trader in equity derives at City Group. You've seen

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Speaker 3: her on the show Industry, joining us now from Blackrock

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Speaker 3: chief investment strategist way Lee. Waylee, what a tour de

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Speaker 3: force out on LinkedIn. On the cash path of the

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Speaker 3: risk premium, I can't say enough, folks, how the partition

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Speaker 3: between the short term cash path and the longer duration

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Speaker 3: focus of the media, the fed parlor game is app Wayley.

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Speaker 3: Why should we focus on cash and the cash path?

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Speaker 4: Absolutely? Good morning, thanks for having me.

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Speaker 5: So as we think about the increase of ten year yields,

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Speaker 5: it can be broken down into the increase of cash

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Speaker 5: paths and the increase of time premier ten premier increase

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Speaker 5: doesn't have.

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Speaker 4: To be negative for equities.

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Speaker 5: But the miss understood fact is that markets look at

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Speaker 5: tens increasing and automatically expecting ten expecting aqulities to come

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Speaker 5: under pressure. So what I really care about in terms

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Speaker 5: of translating rate moves into its impact on equity is

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Speaker 5: how much of that increase in ten year yields is

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Speaker 5: driven by cash paths, and so far not a huge amount,

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Speaker 5: some of them, but not a huge amount.

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Speaker 4: More than eighty.

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Speaker 5: Percent of the increase since the September lows in ten

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Speaker 5: year yields has been driven by time premier, which means

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Speaker 5: that equities can still hold up, especially in the face

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Speaker 5: of strong growth.

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Speaker 3: What do we see way lee in terms of flows

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Speaker 3: into money market funds? We go six trillion, seven trillion.

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Speaker 3: Do I need to prepare for ten trillion dollars of

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Speaker 3: money market funds to buttress the cash and the cash path?

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Speaker 5: Well, right now, there is value to seek income in

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Speaker 5: the front end of the curve. You get income, you

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Speaker 5: don't take a huge amount of duration risk. I can

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Speaker 5: absolutely see why flows are going into money market funds now.

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Speaker 5: Having said that, so far this year we got a

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Speaker 5: flavor of how long end repricing can quickly deepen the

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Speaker 5: curve and potentially make duration attractives down the line. We

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Speaker 5: expect youths to push higher still, but at some point

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Speaker 5: and it will get to a level that even we

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Speaker 5: would find it attractive. You know, we think terminal rates

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Speaker 5: set a round about four percent to premiere fair value

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Speaker 5: round about one hundred basis point you added two together,

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Speaker 5: five percent ten year yearths could look attractive. We're not

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Speaker 5: there yet, but which is why we're currently under way

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Speaker 5: to US treasuries.

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Speaker 3: Wait.

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Speaker 6: Thanks so much for joining us this morning. I am

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Speaker 6: such a huge fan, and we're both believers in the

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Speaker 6: higher for longer narrative. With everyone so focused on rising

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Speaker 6: real yields and stable break evens in fives and tens,

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Speaker 6: I have to say I think they lost a little

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Speaker 6: bit of track of the inflationary pressures emanating from the

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Speaker 6: front end. And I'd like to hear your thoughts about

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Speaker 6: this week's sharp turn lower in realields in real yields,

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Speaker 6: not just in the front end, but along the whole curve.

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Speaker 6: Is it durable and where do you see US growth

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Speaker 6: expectations settling here?

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Speaker 5: We expect US growth to be in the mit kind

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Speaker 5: of one point five percent real growth for twenty twenty five,

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Speaker 5: which is slightly lower than consensus, but resilient, certainly, certainly strong,

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Speaker 5: with potential to the upside depending on the fiscal side

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Speaker 5: of things. Not having said that, yes, we have seen

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Speaker 5: wild swings in inflation expectations so.

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Speaker 4: Far this year.

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Speaker 5: You talked about the inflation prend this a week and

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Speaker 5: its impact on break even pricing. But let's extend slightly

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Speaker 5: further back to last Friday.

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Speaker 4: We had NFP headline.

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Speaker 5: Job creation was slightly stronger than expected, wage was well behaving,

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Speaker 5: and yet markets were immediately reading into greater job creation,

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Speaker 5: higher inflationary pressure.

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Speaker 4: So even I, even though.

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Speaker 5: I had the view of five for longer, for a while,

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Speaker 5: I didn't think that that represented additional inflationary pressure. And

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Speaker 5: yet markets are very very quick to swing wildly in

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Speaker 5: between narratives. And I think this is going to be

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Speaker 5: a hallmark of twenty twenty five. Because we don't have

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Speaker 5: a firm anchor, and markets are trying to fit structural forces,

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Speaker 5: structural patterns into a cyclical lens, we're going to have

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Speaker 5: a lot of the macro volatility way.

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Speaker 6: I know you're an advocate of staying underweight duration in

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Speaker 6: the current environment, and I loved, loved your chart on

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Speaker 6: LinkedIn where you compare index US versus duration. But let's

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Speaker 6: be I wonder if you could spand on that a bit,

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Speaker 6: because look, staying underweight duration in US treasuries, well that's cute,

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Speaker 6: not John Tucker cute, but cute. Nevertheless, building short duration

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Speaker 6: exposure and high beta asset classes like credit or mortgages

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Speaker 6: that could prove interestings as well. No, so I'm just

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Speaker 6: asking from your clients what are you seeing. I mean,

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Speaker 6: where's the best risk reward for hawks like me who

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Speaker 6: prefer to remain duration.

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Speaker 4: Light front end of the curve right now with favor.

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Speaker 5: And we also like investment grades, but short duration investment grade.

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Speaker 5: The spread of hyyot is a little bit more interesting

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Speaker 5: than an IG, so we can turn out a little

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Speaker 5: bit in hygyot space, and value can be found in

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Speaker 5: European credits since their US counterpart. So this is where

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Speaker 5: we like for kind of the income within the fixed

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Speaker 5: income space. But we are two out of three overweight

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Speaker 5: in US equities on a scale of minus three two

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Speaker 5: plus three, so that's quite overweight in US equities despite

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Speaker 5: the volatility that we have seen so far this year.

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Speaker 5: You look at the drivers of Ernie's Magnificent seven. The

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Speaker 5: negative in terms of debt. They are negative in terms

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Speaker 5: of net debt, so they're quite resilient in a face

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Speaker 5: of rate volatility. So we continue to see us corporate

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Speaker 5: strength carrying us through.

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Speaker 3: We continue with Wayley of Blackrock, Ian Bremer to be

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Speaker 3: with us in the nine o'clock Our Katie Kaminski, Jim Carren,

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Speaker 3: Carl Weinberg in the eight o'clock are an extraordinary surveillance.

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Speaker 3: This morning. Good morning on your commute across the nation, particular,

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Speaker 3: good morning to ninety nine one FM preparing for an

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Speaker 3: inauguration Monday. I'll give you details on our commitment to that.

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Speaker 3: You'll see that Monday from Joe Matthew and Kaylee Lines.

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Speaker 3: Good morning on YouTube. It is the best way to

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Speaker 3: get us, particularly across the nation and internationally. After your

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Speaker 3: commute in the Blackrock office, consider you too. We continue

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Speaker 3: with way Lee. Wait. One of your great themes, which

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Speaker 3: frankly I endorse, is that we're not going to do

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Speaker 3: a simplistic revert to the mean attitude. There's a feeling,

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Speaker 3: you know, to give John Williams just do that. We

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Speaker 3: go back to two percent, We go back to trend.

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Speaker 3: Everything is pre pandemic. Nice you forcefully push against that

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Speaker 3: and look for a reset higher. How to equities reset

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Speaker 3: off the fixed income new reversion to the mean.

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Speaker 5: Well, one way to look at it is in these

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Speaker 5: rates are resetting back to the high for longer than

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Speaker 5: equities need to reflect that that reality, that new rate reality.

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Speaker 5: One measure, so to your point, Tom around me revert

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Speaker 5: one measure that I get quoted back to me. Constantine

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Speaker 5: is shiner key that it is at the third highest

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Speaker 5: level ever on history, just after global financial crisis, just

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Speaker 5: after the end of nineteen twenties, Roaring twenties. Right now

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Speaker 5: shirape is thirty seven times, and that is indeed quite stretched.

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Speaker 5: But if we were to put a consensus podcasts for

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Speaker 5: earnings as backward realized earnings for the next ten years,

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Speaker 5: then shirape becomes seventeen times instead of thirty seven times.

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Speaker 5: So all of that just to say, in the face

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Speaker 5: of transformative forces driving economies forward, driving earnings forward, especially tech,

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Speaker 5: and as that broadens out to the rest of the economy.

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Speaker 4: As well, the earnings wouldn't look as stretched.

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Speaker 5: So I cannot agree with you more agreeing with me

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Speaker 5: that me reverit is not the playbook.

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Speaker 3: I think it's too simplistic. And folks, this goes back

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Speaker 3: to a paper by John Campbell and Professor Schuller of

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Speaker 3: Yale University. Everyone knows, Ziadore, this is back. You know,

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Speaker 3: I'm pushing forty years now before Whaley was born. And

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Speaker 3: the answer, Waylee is if you look at Campbell's Schiller,

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Speaker 3: they don't really model in a technological shift, a productivity shift.

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Speaker 3: Are we pricing in the present productivity and our present

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Speaker 3: new technology? Is that our great misjudgment.

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Speaker 5: I think there is starting to be priced in, But

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Speaker 5: depending on the ultimate magnitude of productivity boost, there can

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Speaker 5: still be further for the upside, especially because right now

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Speaker 5: in terms of the economic data, yes we see sector

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Speaker 5: specific productivity gain, but we have yet to see economy

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Speaker 5: wide productivity gain being definitively driven by AI.

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Speaker 4: So the upside it's still there.

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Speaker 5: And currently Literature Review has a wide range of productivity

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Speaker 5: boosts somewhere between zero point one percent per ANON to

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Speaker 5: one point five percent per and so that's a wide range.

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Speaker 5: There is certainly more room to surprise to the upset.

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Speaker 5: In our assessment was still in phase one of the

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Speaker 5: AI AI revolution, Phase one being a built out pace

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Speaker 5: than we have. Phase two being the adoption phase where

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Speaker 5: we're expecting use cases to really broaden out across sectors,

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Speaker 5: and phase three being the productive the boost, which will

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Speaker 5: take time. Way.

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Speaker 6: We're three days away from Trump's inauguration and everyone knows

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Speaker 6: that the US channel relationship is front and center. We

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Speaker 6: saw some activity data overnight. We saw them hit their

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Speaker 6: five percent bogie for full year twenty four. Talk to

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Speaker 6: us about sixty percent tariffs on China? How does dollar

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Speaker 6: quan react? And more importantly for me as the emerging

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Speaker 6: market strategist here at Bloomberg Intelligence, what does it mean

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Speaker 6: for the broader Asian dollar block? I mean, can we

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Speaker 6: expect Asian currencies to appreciate over the next quarter?

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Speaker 7: Let's say I.

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Speaker 4: Think all else equal.

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Speaker 5: Greater tariffs leads to weaker currencies, which is why the

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Speaker 5: M has been under pressure so much so far this year.

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Speaker 5: And more broadly, Taraff's concern is why, even though data

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Speaker 5: from China is stabilizing and overnight data particularly was reasonably resilient,

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Speaker 5: markets don't seem to care. Markets don't seem to care,

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Speaker 5: and investors don't seem to care one little known fact.

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Speaker 4: I was looking at it at the end.

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Speaker 5: Of last year, just reviewing year yearly performance in dollar terms,

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Speaker 5: Chinese aarqulities and Chinese government bonds all performed their US

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Speaker 5: equivalent for the year of twenty twenty four, but investors

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Speaker 5: don't care. Plummeting bond US in China shows that, you know,

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Speaker 5: investors are really worried about decades of deflation doom loops.

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Speaker 5: So I think this is really a sentiment and confidence

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Speaker 5: game at this point.

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Speaker 3: I mean, I mean, this is great. We could go

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Speaker 3: for four hours. Are you're going to give her a

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Speaker 3: code write on your morning note?

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Speaker 6: Well me, I mean, look, I'm not going to write

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Speaker 6: my note until this weekend. But way you're going to

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Speaker 6: be front and center.

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Speaker 2: I mean, I have to.

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Speaker 6: I have to keep going here. I mean, for me,

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Speaker 6: how do you not ignore the fact that you know,

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Speaker 6: once the once the PBOC starts allowing the yuan to

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Speaker 6: kind of float up to seven forty seven to fifty,

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Speaker 6: that you're not going to see some spillover. We just

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Speaker 6: saw the Bank of Indonesia cut rates in the FILD,

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Speaker 6: and look what happened to its currency. We're at an

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Speaker 6: all time low relative to the dollar. I mean, can

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Speaker 6: we expect the Korean one, the Indonesian rupee at the

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Speaker 6: Philippine pace? Are they all going to start testing lows

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Speaker 6: versus the dollar? Is this going to be a regular

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Speaker 6: occurrence for the next year plus.

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Speaker 5: Well, what we have seen so far after the election

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Speaker 5: is that dollar has been very, very strong. But I

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Speaker 5: would say though for the entirety of the first Trump term,

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Speaker 5: dollar actually hasn't been that strong. So it rallied into

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Speaker 5: inauguration and starts to kind of go sideways, right, So

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Speaker 5: I wouldn't necessarily extrapolate the dollar strength in definitely from

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Speaker 5: here on.

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Speaker 4: And also as we think about the goals of the.

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Speaker 5: Trump administration around kind of stronger growth, lower inflation, lower deficits,

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Speaker 5: and low immigration, there is a market friendly way of

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Speaker 5: getting there and there is a market less friendly way

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Speaker 5: of getting there. So depending on which way we are

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Speaker 5: gravitating towards, it has significant read across to the dollar

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Speaker 5: for sure, to US acquity sentiment to Treasury.

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Speaker 3: Waley, thank you so much across the nation on YouTube worldwide,

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Speaker 3: Wayley of Blackrock greatly appreciated. This morning.

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Speaker 1: You're listening to the Bloomberg Surveillance podcast. Catch us Live

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Speaker 1: weekday afternoons from seven to ten am Eastern Listen on

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Speaker 1: Applecarplay and Android Otto with the Bloomberg Business.

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Speaker 2: App, or watch us live on YouTube.

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Speaker 3: There will not be at Davos. And if doctor Klaus

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Speaker 3: Schwabs people came to me and said do a panel,

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Speaker 3: this is the year where I would say, I want

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Speaker 3: to do a panel, but I want it to be

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Speaker 3: just one person, and it would be Ian Bremer. Every

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Speaker 3: year he and his team, among others, put out a

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Speaker 3: thing called the Top Risks, and it's not funny. It's

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Speaker 3: a really serious look at where we are going into

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Speaker 3: a giving year, and it's remarkably pressient. Some things he

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Speaker 3: gets wrong, but huge amount of OMG, how'd.

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Speaker 5: You do that?

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Speaker 3: Like Miracle and Germany years ago. But he's really outdone

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Speaker 3: himself this year. Hearkening back to his classic G zero

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Speaker 3: of twenty twelve, Doctor Bremer joins us this morning, Ian,

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Speaker 3: I'm just going to cut right to the chase. The

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Speaker 3: summation of your Top Risk twenty twenty five is a

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Speaker 3: reversion to the nineteen thirties. How close are we to

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Speaker 3: the nineteen thirty five of Hermann Vauch's Wins of War?

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Speaker 8: Well, we're close to the thirties, and we're close to

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Speaker 8: the fifties. So in other words, the trajectory is not sustainable.

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Speaker 8: And the question is whether the crisis that's coming is

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Speaker 8: big enough to make us pay attention, but not so

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Speaker 8: big that we all end up fighting each other, right,

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Speaker 8: I mean, in the early Cold War, we had this

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Speaker 8: unfettered decoupling and arms race between the Americans and the

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Speaker 8: Soviets culminated in the Cuban missile crisis. We almost blew

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Speaker 8: it ourselves up, and then we started recognizing we needed,

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Speaker 8: like actually to have some institutions that would create more

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Speaker 8: stability between the.

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Speaker 7: Two countries, arms control, hotline and the rest.

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Speaker 9: You see shades of that, and you also see shades

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Speaker 9: of the thirties with a United States that's incredibly powerful

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Speaker 9: but is unwinding its own global order, its own institutions.

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Speaker 7: I mean, you look.

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Speaker 9: Things like the United Nations and the WTO, and these

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Speaker 9: are organizations the Americans put in place to coordinate global

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Speaker 9: governance and that now Americans don't believe in. So it's

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Speaker 9: it's not clear, but it's clearly as you say, Tom,

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Speaker 9: this is a definitive moment.

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Speaker 3: Ian what's so important here?

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Speaker 5: And I live this.

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Speaker 3: My grandfather was a textbook Chicago Tribune isolationist of Middle America.

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Speaker 3: And you go back to Lindbergh and the rest of them.

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Speaker 3: What is the character of President Trump's isolationism.

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Speaker 9: I don't think it's isolationist. I think it is strongly unilateralist.

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Speaker 9: And so it's not that the United States is saying

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Speaker 9: we're only going to focus at home. I mean, you know,

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Speaker 9: the Panama Canal and Greenland and Canada. Comments don't feel

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Speaker 9: isolationists to me, but they're deeply transactional and in many ways,

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Speaker 9: Tom what we have is that the Americans are embracing

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Speaker 9: the Chinese worldview that has served China so well over

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Speaker 9: the last thirty five years.

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Speaker 7: It's transactional. It's not about rule of law.

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Speaker 9: They don't care what your political system or economic system

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Speaker 9: is like. They will engage with you bilaterally with the

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Speaker 9: intention of being more powerful than you, and therefore you

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Speaker 9: have to play by their rules.

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Speaker 7: And what the Americans are saying is, actually.

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Speaker 9: China, we can do that, and we can do it

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Speaker 9: a lot better than you can, because we're a lot

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Speaker 9: stronger than you, by the way, And that's really what

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Speaker 9: Trump is saying, and it does come at a time

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Speaker 9: when America's adversaries Russia in deep decline, Iran having lost

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Speaker 9: their empire by proxy, the Chinese and the worst economic

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Speaker 9: condition since the nineties, maybe the seventies are particularly weak.

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Speaker 9: So it's an interesting moment to try this experiment. A

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Speaker 9: lot of things are probably going to break as a consequence.

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Speaker 6: Doctor Bremer. Eurasia Group's Top ten Risks are required reading

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Speaker 6: at the beginning of every year, and this year is

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Speaker 6: no different. US, China, Russia, around Mexico, I mean, you

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Speaker 6: name it, they're all in there.

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Speaker 3: You know.

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Speaker 6: The one country that I didn't see in there, well, Syria.

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Speaker 6: And I'm curious to hear your thoughts on what the

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Speaker 6: fall of the Asad regime means for the Middle East

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Speaker 6: and the rest of the world more broadly. I mean, seriously,

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Speaker 6: what role America and restoring order to a nation where

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Speaker 6: fourteen million refugees were fourth were forced to flee their

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Speaker 6: homes in the last you know, call it fifteen years.

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Speaker 6: I mean, a nation who's geo strategic position is so

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Speaker 6: very important to health in Central Asia.

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Speaker 7: You know, what are your thoughts there?

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Speaker 10: So Syria's there, but it's underneath the number nine risk,

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Speaker 10: which is called ungoverned spaces, and we include Syria and

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Speaker 10: Yemen and Libya and Haiti and Mianmar.

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Speaker 11: Western Sahara Dan by the way, which is a lot

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Speaker 11: more important in terms of numbers of lives than what

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Speaker 11: you just mentioned in Syria, and yet no journalists on

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Speaker 11: the ground, and they're fleeing mostly to neighboring African countries

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Speaker 11: as opposed to Syrians who go to Turkey and go

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Speaker 11: to Europe, so we don't pay as much attention to them.

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Speaker 7: And that's kind of the point, right is that.

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Speaker 9: I mean the danger in Syria, where the Americans had

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Speaker 9: slightly more than two thousand troops on the ground and

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Speaker 9: under Trump are likely to remove them, and a Turkey

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Speaker 9: you mop it up, is that if AHTS is incapable

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Speaker 9: of running a unifying government in Syria, which is a

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Speaker 9: reasonably plausible outcome, then you can easily have a big

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Speaker 9: part of Syria that's ungoverned and would be fodder for

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Speaker 9: a new Isis caliphate. And over time, not twenty twenty five,

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Speaker 9: and this reports for the year. Over time, of course,

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Speaker 9: that's something that will wash up on our shores too.

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Speaker 3: Ian Bremer with us here We're thrilled to have of

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Speaker 3: here to celebrate his top risk. It's a team effort

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Speaker 3: from erase your group each and every year. It'll be

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Speaker 3: with us for a good amount of time. Jim Grasso

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Speaker 3: to join us here in a bit on this important

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Speaker 3: Chinese social media thing which I don't understand, Doctor Bremer.

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Speaker 3: One of the moments it stands in time for me

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Speaker 3: is Ian Bremer and Robert T. Kaplan with me together

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Speaker 3: talking about a zero world within Keplan's Revenge of geography.

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Speaker 3: What is the most conc destructive path for moderates in

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Speaker 3: America to get out four years or dare I say

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Speaker 3: eight years out? What is the initiative that needs to

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Speaker 3: be taken? Do we need to take kaplain realist policy?

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Speaker 7: Well, it's not. It's not about foreign policy so much.

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Speaker 9: Although it is true that a lot of people that

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Speaker 9: decided not to vote, that had voted for Biden last

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Speaker 9: time around, report that Biden's position on Gaza slash Israel

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Speaker 9: was a significant.

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Speaker 7: Thing that turned them away from the polls. And that's a.

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Speaker 9: Place where Elon Musk and his targeting of very specific

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Speaker 9: and important districts that were swinging in the United States

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Speaker 9: could have made a difference. But leaving that one piece aside,

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Speaker 9: and it's not unimportant, of course, I would say most

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Speaker 9: Americans are not going to the polls on the basis

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Speaker 9: of Biden or Trump's worldview. It's more about what they're

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Speaker 9: doing and what they're rejecting at home. And the fact

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Speaker 9: that Trump has become a leader that attracts more working

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Speaker 9: and middle class Americans because they feel like he's more

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Speaker 9: interested in their well being.

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Speaker 7: The fact that he was able to get a significant.

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Speaker 9: Majority of labor union voters in the United States, while

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Speaker 9: Harris was, you know, the candidate for urban, well educated elites,

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Speaker 9: and that's not a sustainable path for the Democrats in

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Speaker 9: my view. So they clearly have to reassess a lot

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Speaker 9: of their platform that did not appeal to the average

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Speaker 9: American that did not feel taken care of. More billionaires

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Speaker 9: put money into Harris's campaign than did Trump's.

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Speaker 7: That again, that tells you something.

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Speaker 6: Doctor Breber, the US chinne of relationships at forefront geopolitical

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Speaker 6: risk in the current Vita regime. Yet, if we do

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Speaker 6: see something like sixty percent tariffs, do you really think

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Speaker 6: that China's going to allow the yuan to debase itself again?

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Speaker 6: And if that does indeed occur, do we feel there's

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Speaker 6: a I don't know, a clearing price and dollar you

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Speaker 6: on where the market can go to that can still

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Speaker 6: allow China to grow at five percent per year.

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Speaker 9: I don't expect China's going to grow at five percent

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Speaker 9: per year over the coming several years.

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Speaker 7: I think They've got deep structural problems that are being made.

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Speaker 9: Worse by the fact that the only part of their

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Speaker 9: economy that is overperforming is their manufacturing export, which feels

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Speaker 9: like dumping. It's a trillion dollar surplus, and it's upsetting lots.

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Speaker 7: Of countries around the world, not just the US.

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Speaker 9: The US is leaning into hitting back, which will occur

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Speaker 9: with tariffs, though it won't be a sixty percent number.

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Speaker 9: I mean, you know the top line election campaign numbers,

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Speaker 9: and never the numbers we see. But even if it's

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Speaker 9: twenty five percent, which I think is more plausible in

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Speaker 9: the early weeks and months, you're not just.

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Speaker 7: Talking about US China.

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Speaker 9: You're also talking about the Americans squeezing other countries. We've

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Speaker 9: already seen this with Mexico, we will see it with India,

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Speaker 9: with Southeast Asian countries. For acting as a pass through

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Speaker 9: of Chinese exports to the United States, so it's very

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Speaker 9: hard to imagine that US China relations are going to

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Speaker 9: maintain a comparatively well managed, you know, sort of incremental

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Speaker 9: decline that we've seen in the last year and a

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Speaker 9: half under the Biden administration.

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Speaker 3: I want you to sit on this question, Iane, because

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Speaker 3: I think it's so important to all of our listeners

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Speaker 3: and the people that you know enjoy so much your

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Speaker 3: international relations. This hearkens back to the fear of the

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Speaker 3: first week of August nineteen forty one, a bunch of

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Speaker 3: boats sitting off eastern Canada, where Roosevelt and Churchill tried

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Speaker 3: to begin to piece together the post World War two world.

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Speaker 3: They were humbled by two major wars. The thing out there,

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Speaker 3: doctor Bremer, is the only way this is going to

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Speaker 3: get solved is a humility of a war discuss That

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Speaker 3: is that what it takes to get away from the

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Speaker 3: madness we're living in right now.

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Speaker 9: I think in the near term we're talking about damage control.

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Speaker 9: We're talking about countries and companies on defense. So you know,

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Speaker 9: a lot of them are hoping that they just don't

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Speaker 9: make headlines. Others are trying to figure out what they

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Speaker 9: need to do proactively to kiss the ring and geo politically,

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Speaker 9: you're going to see a whole bunch of countries acting

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Speaker 9: the way Mark Zuckerberg has in the last week towards

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Speaker 9: the commander in chief and towards his chief, his bomb thrower,

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Speaker 9: and chief Elon Musk by far the most powerful person

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Speaker 9: around the administration, if.

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Speaker 7: I can call it that.

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Speaker 9: Look, I mean the way that you respond to a

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Speaker 9: Gizero world is either you reform and strengthen your existing

437
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Speaker 9: institutions so they are more fit for purpose. You build

438
00:25:00,600 --> 00:25:05,159
Speaker 9: new institutions that better reflect the demands, the opportunities, and

439
00:25:05,520 --> 00:25:07,400
Speaker 9: the concerns of the present.

440
00:25:07,160 --> 00:25:09,880
Speaker 7: Age, or you go to war. And I can give

441
00:25:09,920 --> 00:25:11,919
Speaker 7: you examples of all three. All three are happening.

442
00:25:11,960 --> 00:25:16,359
Speaker 9: We are strengthening NATO right now, we are creating new institutions,

443
00:25:16,760 --> 00:25:19,640
Speaker 9: you know, the Quad, the Chinese are building Belton Road

444
00:25:19,800 --> 00:25:22,000
Speaker 9: and the bricks, and you know there are other examples.

445
00:25:22,680 --> 00:25:26,960
Speaker 7: But the most energy is going into more conflict.

446
00:25:27,200 --> 00:25:29,960
Speaker 9: The most energy is going into more war, and again

447
00:25:30,520 --> 00:25:34,200
Speaker 9: that is not geopolitically sustainable. So I think you know

448
00:25:34,280 --> 00:25:37,480
Speaker 9: your advice to other countries right now, given the power

449
00:25:37,560 --> 00:25:40,400
Speaker 9: and balances and Trump coming in and how consolidated.

450
00:25:40,480 --> 00:25:42,600
Speaker 7: His authority is inside the United States.

451
00:25:42,640 --> 00:25:46,639
Speaker 9: Compared to twenty seventeen, where you know he was riding

452
00:25:46,680 --> 00:25:48,240
Speaker 9: the Republican Party's co tails.

453
00:25:48,280 --> 00:25:51,080
Speaker 7: His administration felt very different. Not this time around. He's

454
00:25:51,119 --> 00:25:51,440
Speaker 7: the guy.

455
00:25:52,760 --> 00:25:56,119
Speaker 9: Is that they have to recognize their playing defense, and

456
00:25:56,480 --> 00:26:00,320
Speaker 9: defense is more effective in depth, it's more effect if

457
00:26:00,359 --> 00:26:03,560
Speaker 9: it's strategic, if you're not just reacting to the latest headline,

458
00:26:03,640 --> 00:26:06,080
Speaker 9: and it's more effective in numbers. In other words, the

459
00:26:06,160 --> 00:26:09,639
Speaker 9: EU is better off than say the Mexicans, because they

460
00:26:09,720 --> 00:26:12,520
Speaker 9: can act collectively and to the extent that other countries

461
00:26:12,520 --> 00:26:15,119
Speaker 9: are capable of doing that and defending the things that

462
00:26:15,280 --> 00:26:18,080
Speaker 9: matter to them, both in their own countries but also

463
00:26:18,400 --> 00:26:20,360
Speaker 9: in terms of international architecture.

464
00:26:20,720 --> 00:26:22,840
Speaker 7: We will all be better off by the way. Trump

465
00:26:22,920 --> 00:26:24,960
Speaker 7: is going to get a lot of wins in the

466
00:26:25,080 --> 00:26:25,560
Speaker 7: next year.

467
00:26:26,520 --> 00:26:32,359
Speaker 9: But unlike Shijin Ping promoting a Chinese worldview, Trump doesn't

468
00:26:32,400 --> 00:26:34,480
Speaker 9: get to do this for twenty years. He gets to

469
00:26:34,560 --> 00:26:37,040
Speaker 9: do it for four, assuming he's in good health, and

470
00:26:37,119 --> 00:26:38,320
Speaker 9: then he doesn't anymore.

471
00:26:38,600 --> 00:26:43,600
Speaker 7: So long term, the United States unwinding its own institutions

472
00:26:43,680 --> 00:26:45,919
Speaker 7: does not strike me as strategically smart.

473
00:26:46,200 --> 00:26:49,240
Speaker 3: Okay, gotta leave it there. Ian Bremmer, congratulations on the

474
00:26:49,359 --> 00:26:53,240
Speaker 3: impact the effect of your top risks for two thousand

475
00:26:53,240 --> 00:26:56,960
Speaker 3: and twenty five. Of course, doctor Bremer with Eurasia Group,

476
00:26:57,000 --> 00:26:59,040
Speaker 3: and I think it'll be a source of great conversation.

477
00:26:59,200 --> 00:27:02,080
Speaker 2: Here is the Bloomberg Surveillance Podcast.

478
00:27:02,480 --> 00:27:05,399
Speaker 1: Listen live each weekday starting at seven am Eastern on

479
00:27:05,520 --> 00:27:06,680
Speaker 1: Apple Cocklay.

480
00:27:06,320 --> 00:27:08,720
Speaker 2: And Android Auto with the Bloomberg Business App.

481
00:27:08,840 --> 00:27:11,800
Speaker 1: You can also listen live on Amazon Alexa from our

482
00:27:11,880 --> 00:27:16,359
Speaker 1: flagship New York station. Just say Alexa, play Bloomberg eleven thirty.

483
00:27:16,560 --> 00:27:20,160
Speaker 3: This is a joy. Katie Kaminski joins us right now,

484
00:27:20,560 --> 00:27:22,680
Speaker 3: thrilled that she could be with us in Boston because

485
00:27:22,680 --> 00:27:25,399
Speaker 3: she is the queen of the trend and of the

486
00:27:25,520 --> 00:27:29,439
Speaker 3: effort to extrapolate. Katie, are trends in place right now

487
00:27:29,520 --> 00:27:32,320
Speaker 3: at Alpha Simplex, Like do you walk in and say

488
00:27:33,000 --> 00:27:35,320
Speaker 3: this is the trend? I got a feeling of where

489
00:27:35,560 --> 00:27:36,400
Speaker 3: I am now.

490
00:27:38,320 --> 00:27:40,040
Speaker 12: They have been until this week.

491
00:27:40,160 --> 00:27:42,719
Speaker 13: I have to be honest, because trend folling has been

492
00:27:42,760 --> 00:27:47,480
Speaker 13: working very well, particularly in currencies and also fixed income.

493
00:27:48,040 --> 00:27:50,760
Speaker 13: But I think this week sort of marked a little

494
00:27:50,760 --> 00:27:54,200
Speaker 13: bit of a shift in sentiment, particularly for fixed income.

495
00:27:54,760 --> 00:27:57,320
Speaker 13: But the trend in the dollar seems to be very

496
00:27:57,440 --> 00:28:00,119
Speaker 13: much in place, and that's something that is surprising and

497
00:28:00,240 --> 00:28:01,680
Speaker 13: exciting sort of to follow.

498
00:28:01,920 --> 00:28:05,040
Speaker 3: What's the inertial force there? I'm sorry, Damien on the

499
00:28:05,160 --> 00:28:05,760
Speaker 3: dollar strength.

500
00:28:05,800 --> 00:28:08,760
Speaker 6: Damien's getting so excited when anyone tells about the scope

501
00:28:08,760 --> 00:28:09,240
Speaker 6: for dollar.

502
00:28:09,040 --> 00:28:12,000
Speaker 3: Strength, Katie, what is the nature of that trend? Is

503
00:28:12,080 --> 00:28:14,440
Speaker 3: it a momentum, is it a bid or is it

504
00:28:14,520 --> 00:28:18,160
Speaker 3: a lack of people pushing the dollar down? Well?

505
00:28:18,280 --> 00:28:19,960
Speaker 13: I think, you know, I tend to think about the

506
00:28:20,040 --> 00:28:21,920
Speaker 13: dollar as having a few key forces.

507
00:28:22,080 --> 00:28:23,640
Speaker 12: One is monetary.

508
00:28:23,240 --> 00:28:27,479
Speaker 13: Policy, another is sentiment, and the third is of course gross.

509
00:28:27,680 --> 00:28:30,600
Speaker 13: And so since we've seen that the dollar has been

510
00:28:30,720 --> 00:28:34,320
Speaker 13: persistently strong, especially going into the election and post election,

511
00:28:34,760 --> 00:28:37,359
Speaker 13: that seems to be a pro us, pro growth story.

512
00:28:38,440 --> 00:28:42,400
Speaker 13: Then this month we saw sell offs in the in equities,

513
00:28:42,440 --> 00:28:46,280
Speaker 13: which tends to be pro dollar as well. And then finally,

514
00:28:46,400 --> 00:28:49,760
Speaker 13: monetary policy had been a little bit more reticent recently,

515
00:28:49,840 --> 00:28:53,000
Speaker 13: which is also pro dollar. But what surprised me is

516
00:28:53,160 --> 00:28:56,720
Speaker 13: this week, given sort of the shift in sentiment on

517
00:28:57,480 --> 00:29:00,640
Speaker 13: the Fed, actually the dollar hasn't really a wig and

518
00:29:00,720 --> 00:29:03,320
Speaker 13: it didn't waiver last month either, So it looks like

519
00:29:03,800 --> 00:29:06,920
Speaker 13: this theme you know, pro us and sort of US

520
00:29:07,000 --> 00:29:09,840
Speaker 13: dominance is probably one of the stronger themes that we're

521
00:29:09,880 --> 00:29:11,360
Speaker 13: seeing that's holding through all the noise.

522
00:29:11,480 --> 00:29:13,920
Speaker 6: Katie, you're in the managed future strategy at Alpha Simplex,

523
00:29:13,960 --> 00:29:16,520
Speaker 6: the globalalts A strategy also. But let's talk about futures

524
00:29:16,520 --> 00:29:18,200
Speaker 6: for a second, because I need to dial it back

525
00:29:18,280 --> 00:29:20,560
Speaker 6: to the early two thousands, to my CTA days. I

526
00:29:20,640 --> 00:29:23,160
Speaker 6: need to think about Campbell, wint In, jwh you know,

527
00:29:23,520 --> 00:29:25,440
Speaker 6: talk to me about what the state of the market

528
00:29:25,520 --> 00:29:27,440
Speaker 6: is now. I mean those guys are long gone. I mean,

529
00:29:27,640 --> 00:29:29,680
Speaker 6: we know the macro guys used to frequent that market.

530
00:29:29,760 --> 00:29:32,960
Speaker 6: You know, the tutors, the soross Like who is trading,

531
00:29:33,000 --> 00:29:33,960
Speaker 6: who's trend following?

532
00:29:34,000 --> 00:29:36,080
Speaker 3: So what today you're saying right now? Who is the

533
00:29:36,200 --> 00:29:37,200
Speaker 3: new Monroe trout?

534
00:29:37,280 --> 00:29:37,840
Speaker 7: Who's the margin?

535
00:29:37,960 --> 00:29:40,960
Speaker 6: Yeah, exactly right, who's taking the marginal risk in futures markets?

536
00:29:40,960 --> 00:29:43,920
Speaker 6: Who's playing mean reversion, trend momentum, all of that stuff.

537
00:29:44,800 --> 00:29:47,440
Speaker 13: Well, I think there's there's just been a changing evolution

538
00:29:47,640 --> 00:29:50,400
Speaker 13: of different CTA players in the space. I mean, if

539
00:29:50,400 --> 00:29:53,880
Speaker 13: you look sort of Man Group, Alvisimplex, if you look

540
00:29:53,880 --> 00:29:57,040
Speaker 13: at the SG trend Index, there's those are some of

541
00:29:57,080 --> 00:29:59,600
Speaker 13: the largest futures traders out there.

542
00:29:59,720 --> 00:30:03,360
Speaker 12: So that has evolved over time. But what's really cool.

543
00:30:03,200 --> 00:30:07,360
Speaker 13: About this space is that the strategies still remain. They

544
00:30:07,480 --> 00:30:09,680
Speaker 13: tend to work over long horizons, and a lot of

545
00:30:09,760 --> 00:30:14,000
Speaker 13: the techniques that worked earlier when there were less futures

546
00:30:14,080 --> 00:30:17,680
Speaker 13: markets are still working today and now there's more futures

547
00:30:17,720 --> 00:30:20,960
Speaker 13: markets to trade. So it's actually quite you know, it's evolved,

548
00:30:21,000 --> 00:30:23,480
Speaker 13: but it's still sort of the same you know, ecosystem.

549
00:30:23,640 --> 00:30:25,360
Speaker 6: And I think, I mean, let's I mean, correct me

550
00:30:25,360 --> 00:30:27,400
Speaker 6: if I'm wrong, But it seems like the market's evolved

551
00:30:27,560 --> 00:30:31,040
Speaker 6: because the strategy used to be very, very volatile, right,

552
00:30:31,240 --> 00:30:33,240
Speaker 6: and now you're in a different place, right, I mean,

553
00:30:33,320 --> 00:30:35,520
Speaker 6: so talk to us about how you engineer you know.

554
00:30:35,840 --> 00:30:37,200
Speaker 2: Risk adjusted performance.

555
00:30:37,280 --> 00:30:39,200
Speaker 6: How do you keep vol low? How do you dial

556
00:30:39,240 --> 00:30:42,680
Speaker 6: down volatility when you're practicing such a volatile strategy.

557
00:30:42,320 --> 00:30:45,680
Speaker 13: Inherently so in our world, what I think is really

558
00:30:45,760 --> 00:30:48,560
Speaker 13: cool about futures is we think about the world as

559
00:30:49,160 --> 00:30:53,040
Speaker 13: allocating risk instead of dollars, And so the way that

560
00:30:53,120 --> 00:30:56,280
Speaker 13: we think about managing risk is really about measuring the

561
00:30:56,400 --> 00:30:59,080
Speaker 13: strength of sort of each of the markets we trade

562
00:30:59,600 --> 00:31:02,680
Speaker 13: and adjusting that for the size of the volatility of

563
00:31:02,720 --> 00:31:03,880
Speaker 13: that particular market.

564
00:31:04,320 --> 00:31:05,160
Speaker 12: So in some sense.

565
00:31:05,200 --> 00:31:08,120
Speaker 13: It's sort of like a long short risk parity strategy

566
00:31:08,600 --> 00:31:11,920
Speaker 13: where you're managing how much exposure you have to different assets. So,

567
00:31:12,000 --> 00:31:15,560
Speaker 13: for example, cocoa is very volatile, but you know, short

568
00:31:15,640 --> 00:31:18,200
Speaker 13: term debt is actually not that volatile. So when you

569
00:31:18,320 --> 00:31:21,400
Speaker 13: combine these things together, you need to measure sort of

570
00:31:21,480 --> 00:31:24,760
Speaker 13: the relative strength of them and then also adjust for

571
00:31:24,880 --> 00:31:28,560
Speaker 13: the sizing that makes all of those positions better behaved nicely.

572
00:31:28,600 --> 00:31:30,600
Speaker 3: So you just jump in your damon, you're all fired up.

573
00:31:30,680 --> 00:31:32,560
Speaker 6: Well, I mean, you know, we're in a very different

574
00:31:32,600 --> 00:31:34,520
Speaker 6: environment also when that rates are high, right, tom. So

575
00:31:34,600 --> 00:31:36,920
Speaker 6: the embedded leverage within futures and forwards, I mean.

576
00:31:36,840 --> 00:31:37,600
Speaker 4: It just changes.

577
00:31:37,960 --> 00:31:40,800
Speaker 3: The free lunch of the last six years is gone.

578
00:31:40,920 --> 00:31:43,360
Speaker 6: So how does that impact the strategy, Katie? How do

579
00:31:43,400 --> 00:31:46,520
Speaker 6: you look at the inherent leverage the funding embedded within

580
00:31:46,600 --> 00:31:47,280
Speaker 6: your strategies.

581
00:31:48,360 --> 00:31:51,360
Speaker 13: Well, this is a great question because most people don't

582
00:31:51,440 --> 00:31:57,160
Speaker 13: understand that futures markets have implicit leverage instead of explicit leverage.

583
00:31:57,200 --> 00:31:58,920
Speaker 12: And what do I mean by that is that when

584
00:31:58,960 --> 00:31:59,480
Speaker 12: you use.

585
00:31:59,400 --> 00:32:03,600
Speaker 13: Futures, you implicitly get leverage in those commodities or those

586
00:32:03,920 --> 00:32:08,280
Speaker 13: future futures on equity indicies without having to borrow cash.

587
00:32:08,360 --> 00:32:12,400
Speaker 13: It's implicit in the future's contract, which means that eighty

588
00:32:12,440 --> 00:32:15,560
Speaker 13: to ninety percent of your capital is actually in collateral

589
00:32:15,920 --> 00:32:19,600
Speaker 13: that earns cash yield. So we basically have a carry

590
00:32:19,800 --> 00:32:22,360
Speaker 13: that we didn't have in a low interest rate environment,

591
00:32:22,800 --> 00:32:25,000
Speaker 13: and that sort of means that you can be more

592
00:32:25,040 --> 00:32:26,200
Speaker 13: effective with your collateral.

593
00:32:26,480 --> 00:32:30,160
Speaker 3: Katie commiscy with this Alpha Simplex and extended conversation this morning.

594
00:32:30,200 --> 00:32:32,240
Speaker 3: Ian Bremer will be with us at the nine o'clock

595
00:32:32,680 --> 00:32:35,840
Speaker 3: our Just Power Peck show today. Thank you for being

596
00:32:35,920 --> 00:32:38,720
Speaker 3: with us in your commute across the nation on Apple

597
00:32:38,760 --> 00:32:42,600
Speaker 3: CarPlay internationally, and of course I must say on YouTube,

598
00:32:42,680 --> 00:32:48,440
Speaker 3: subscribe to Bloomberg Podcast, Katie, are we competing away, diversifying away,

599
00:32:48,600 --> 00:32:53,360
Speaker 3: and hedging away total return? We featured yesterday a number

600
00:32:53,480 --> 00:32:59,320
Speaker 3: of non trend, non CTA hedge funds with single digit returns,

601
00:32:59,760 --> 00:33:03,800
Speaker 3: and you can rationalize that except I got growth portfolios

602
00:33:03,880 --> 00:33:08,240
Speaker 3: up thirty percent and SPX up twenty percent plus at

603
00:33:08,320 --> 00:33:14,200
Speaker 3: Alpha Simplex, how are you rationalizing single digit hedging versus

604
00:33:14,320 --> 00:33:15,480
Speaker 3: a lift in the market.

605
00:33:16,920 --> 00:33:19,920
Speaker 13: Well, I think the challenges and there's twofold one is

606
00:33:20,000 --> 00:33:22,440
Speaker 13: the market has been up quite a bit, so obviously

607
00:33:22,600 --> 00:33:26,680
Speaker 13: directional strategies might work better, but you also have an

608
00:33:26,760 --> 00:33:30,040
Speaker 13: environment where borrowing is more expensive, so sort of leveraging

609
00:33:30,160 --> 00:33:32,920
Speaker 13: up relative value positions can be more challenging.

610
00:33:34,080 --> 00:33:37,040
Speaker 12: And I think this is sort of a slow migration

611
00:33:37,360 --> 00:33:37,960
Speaker 12: that we're seeing.

612
00:33:38,360 --> 00:33:40,160
Speaker 3: What are you seeing in the equity market. I mean,

613
00:33:40,200 --> 00:33:43,200
Speaker 3: I know it's away from the heritage of CTAs in

614
00:33:43,320 --> 00:33:46,360
Speaker 3: foreign exchange and commodities, but do you believe in the

615
00:33:46,440 --> 00:33:47,680
Speaker 3: American bull market?

616
00:33:49,040 --> 00:33:51,760
Speaker 13: Well, what you're seeing is I mean, especially the growth

617
00:33:51,840 --> 00:33:55,360
Speaker 13: numbers and some of the fundamental data is definitely consistent

618
00:33:55,480 --> 00:33:58,040
Speaker 13: with the technical views where you see that the US

619
00:33:58,080 --> 00:34:01,320
Speaker 13: signals have been much stronger. And you mentioned sort of

620
00:34:01,440 --> 00:34:04,760
Speaker 13: single name equities. What we've seen a lot of single

621
00:34:04,840 --> 00:34:08,359
Speaker 13: name equity strategies have worked very well in the last

622
00:34:08,480 --> 00:34:11,960
Speaker 13: year or so because of the dispersion across different asset classes,

623
00:34:12,120 --> 00:34:14,840
Speaker 13: or not different asset classes, but different sectors, and just

624
00:34:15,160 --> 00:34:18,040
Speaker 13: this sort of big mag Seven versus the Russell and

625
00:34:18,680 --> 00:34:22,600
Speaker 13: other sort of idiosyncratic themes across equity markets. So it's

626
00:34:22,640 --> 00:34:25,160
Speaker 13: been a fun place to be as a technical or

627
00:34:25,440 --> 00:34:26,280
Speaker 13: systematic trader.

628
00:34:26,480 --> 00:34:28,719
Speaker 6: Katie, last question for me, I mean, let's delve into

629
00:34:28,760 --> 00:34:30,919
Speaker 6: commodities a bit, you know, and it's a very different

630
00:34:30,960 --> 00:34:32,960
Speaker 6: place now, right. I remember the good old days, right

631
00:34:33,040 --> 00:34:36,040
Speaker 6: when Cargill and Archers, Daniels and basically those big, you know,

632
00:34:36,280 --> 00:34:38,320
Speaker 6: old stodgy beasts, you know, took them a year to

633
00:34:38,360 --> 00:34:39,719
Speaker 6: turn in the sea and we could kind of pick

634
00:34:39,719 --> 00:34:41,800
Speaker 6: them off. But that's not the case anymore now. Is

635
00:34:41,880 --> 00:34:44,560
Speaker 6: that they're very sophisticated trading shops, right, and they are

636
00:34:44,680 --> 00:34:47,200
Speaker 6: really the marginal risk takers today. And commodities talk to

637
00:34:47,280 --> 00:34:49,600
Speaker 6: us a little bit about what's signaling they're giving you

638
00:34:49,680 --> 00:34:51,880
Speaker 6: in this market. How are they behaving, Are they behaving

639
00:34:52,000 --> 00:34:54,080
Speaker 6: rationally or are they trying to get ahead of these taris?

640
00:34:55,400 --> 00:34:57,000
Speaker 13: Well, I think, you know, if you look at how

641
00:34:57,160 --> 00:35:00,800
Speaker 13: commodities have moved, commodities have been really of in an uptick,

642
00:35:00,920 --> 00:35:05,000
Speaker 13: particularly energies more recently. My guess is that you know,

643
00:35:05,280 --> 00:35:08,120
Speaker 13: if you think, if you believe in price discovery, these

644
00:35:08,200 --> 00:35:11,080
Speaker 13: type of players are really sort of analyzing that information

645
00:35:11,320 --> 00:35:14,960
Speaker 13: and bringing it into the market. So commodities, You're right,

646
00:35:15,120 --> 00:35:19,080
Speaker 13: they're still complicated because one futures contract on one commodity

647
00:35:19,160 --> 00:35:21,680
Speaker 13: is a different commodity than the next one. So they're

648
00:35:21,800 --> 00:35:25,279
Speaker 13: more complex and they're more seasonal. But you know, You're right,

649
00:35:25,400 --> 00:35:27,319
Speaker 13: it's been a space where people have really gotten up

650
00:35:27,360 --> 00:35:27,640
Speaker 13: to park.

651
00:35:27,760 --> 00:35:30,040
Speaker 3: Mean, what's really important here is she was in Boston

652
00:35:30,120 --> 00:35:32,239
Speaker 3: at Logan and she went over the Wheatstone Bridge to

653
00:35:32,320 --> 00:35:36,560
Speaker 3: Cambridge and did a double lee an engineering you know,

654
00:35:36,680 --> 00:35:39,560
Speaker 3: at MIT as well, and she's visiting lecture at Sloan.

655
00:35:39,880 --> 00:35:43,200
Speaker 3: When you're talking to the animals at Sloan, Catherine Kaminski,

656
00:35:43,760 --> 00:35:46,440
Speaker 3: how do you tell them to not lose money?

657
00:35:47,760 --> 00:35:49,520
Speaker 12: Oh, don't overtrade?

658
00:35:50,600 --> 00:35:52,439
Speaker 3: Thank you. I knew.

659
00:35:52,600 --> 00:35:54,440
Speaker 7: It's like a lawyer. I knew the answer.

660
00:35:54,880 --> 00:36:00,879
Speaker 3: Lawyers. The question in this addictive financial media, Katieminski, all

661
00:36:01,000 --> 00:36:05,640
Speaker 3: I see is over trading. How do you operationally say

662
00:36:06,440 --> 00:36:09,480
Speaker 3: no when you's this frenzy I gotta do something, I

663
00:36:09,520 --> 00:36:11,520
Speaker 3: gotta do something. How do you pull back?

664
00:36:12,840 --> 00:36:15,400
Speaker 13: Well, this is why I've been so fascinated with systematic

665
00:36:15,480 --> 00:36:19,720
Speaker 13: trading is the goal is you disconnect your emotional response.

666
00:36:19,480 --> 00:36:21,279
Speaker 12: From your actual trading decisions.

667
00:36:21,920 --> 00:36:24,400
Speaker 13: And that's hard to do because in the heat of

668
00:36:24,440 --> 00:36:26,640
Speaker 13: the moment, we all want to react to Tesla, we

669
00:36:26,680 --> 00:36:29,480
Speaker 13: all want to react to something we read. But really

670
00:36:29,560 --> 00:36:33,080
Speaker 13: that diligence of not doing that is really important, Katie.

671
00:36:33,160 --> 00:36:35,040
Speaker 6: Last question, I keep saying, last question, But I have

672
00:36:35,120 --> 00:36:37,000
Speaker 6: so many more. I mean, talk to us really, because

673
00:36:37,000 --> 00:36:38,760
Speaker 6: I'm not in the market the way you are anymore.

674
00:36:38,880 --> 00:36:40,560
Speaker 6: Talk to us about the cost of trading, right, talk

675
00:36:40,600 --> 00:36:42,200
Speaker 6: to us about what you know banks. I mean, I

676
00:36:42,280 --> 00:36:44,360
Speaker 6: remember for years and years and years the cost of broking,

677
00:36:44,440 --> 00:36:46,560
Speaker 6: of holding custody, of set it was all coming down.

678
00:36:46,640 --> 00:36:49,200
Speaker 6: Now it's a very different place. If I dare, I say,

679
00:36:49,239 --> 00:36:51,000
Speaker 6: it might be going in the other direction. Is it

680
00:36:51,120 --> 00:36:53,759
Speaker 6: expensive to trade? Is that why you're not necessarily an

681
00:36:53,760 --> 00:36:56,400
Speaker 6: advocate of high frequency trading? Has it gotten more expensive?

682
00:36:56,560 --> 00:36:59,160
Speaker 6: Is it getting more expensive than an inflationary environment?

683
00:37:00,040 --> 00:37:03,439
Speaker 13: Well, generally, I think cost of trading has been going down.

684
00:37:03,680 --> 00:37:06,440
Speaker 13: I think where the cost of trading is going up

685
00:37:06,560 --> 00:37:10,520
Speaker 13: right now is with explicit leverage. So if you look

686
00:37:10,560 --> 00:37:13,040
Speaker 13: at something that the biggest theme that would be a challenge,

687
00:37:13,120 --> 00:37:16,480
Speaker 13: that's borrowing money is more expensive today, and that would

688
00:37:16,480 --> 00:37:19,040
Speaker 13: probably be the most important cost when you're thinking about

689
00:37:19,080 --> 00:37:23,000
Speaker 13: hedge funds, because in this environment, anytime you need to

690
00:37:23,120 --> 00:37:27,640
Speaker 13: lever or take two sides of a particular position, that's

691
00:37:27,680 --> 00:37:29,560
Speaker 13: going to be more expensive in a world where you

692
00:37:29,680 --> 00:37:33,040
Speaker 13: have much higher borrowing costs. So I think that outweighs

693
00:37:33,080 --> 00:37:34,640
Speaker 13: any of the sort of themes in trading.

694
00:37:34,719 --> 00:37:36,560
Speaker 12: From my perspective, we're mentioning.

695
00:37:36,360 --> 00:37:38,880
Speaker 3: Some of the giants of CTA. I mentioned mister Trout

696
00:37:38,880 --> 00:37:42,520
Speaker 3: of Bermuda, John Henry, who runs a small baseball team

697
00:37:42,600 --> 00:37:44,840
Speaker 3: up in Boston. You know, it was back when it

698
00:37:44,880 --> 00:37:48,799
Speaker 3: was Damien. It was spark stations and in which you're

699
00:37:48,800 --> 00:37:51,920
Speaker 3: too young to remember this, it was Sun Microsystem spark

700
00:37:52,000 --> 00:37:55,600
Speaker 3: stations on fancy people from MIT. This guy Andrew Lowe

701
00:37:55,640 --> 00:37:57,960
Speaker 3: and others were like, we can do this, and all

702
00:37:58,000 --> 00:38:00,680
Speaker 3: of a sudden the Bloomberg showed up and you could

703
00:38:00,719 --> 00:38:04,279
Speaker 3: pop ad X DMI over a cup of coffee. It

704
00:38:04,400 --> 00:38:04,960
Speaker 3: was unreal.

705
00:38:05,200 --> 00:38:07,480
Speaker 6: I remember those pets. I mean, Katie remembers this. I mean,

706
00:38:07,520 --> 00:38:09,360
Speaker 6: if you could get a guy with a little headphone

707
00:38:09,400 --> 00:38:11,319
Speaker 6: in on the pit where you're doing trading euro dollars,

708
00:38:11,360 --> 00:38:13,000
Speaker 6: trying to pin strikes on where the Fed's going to

709
00:38:13,040 --> 00:38:14,759
Speaker 6: go off. These are the good old days, ryeb or

710
00:38:14,840 --> 00:38:15,560
Speaker 6: Short Stirling.

711
00:38:15,640 --> 00:38:19,040
Speaker 7: I mean, come on, Bruno days.

712
00:38:19,160 --> 00:38:24,560
Speaker 3: Or is it still about legit mathematics, technical analysis and

713
00:38:24,680 --> 00:38:27,000
Speaker 3: trend based Is it the same old, same old or

714
00:38:27,000 --> 00:38:28,000
Speaker 3: are we just something new?

715
00:38:29,120 --> 00:38:29,239
Speaker 9: Well?

716
00:38:29,280 --> 00:38:31,680
Speaker 13: I think the truth is trend still works. I mean

717
00:38:31,760 --> 00:38:34,799
Speaker 13: it works over long horizon, and people are people, and so.

718
00:38:34,880 --> 00:38:36,440
Speaker 12: I think the frequency has changed.

719
00:38:36,520 --> 00:38:40,400
Speaker 13: But we have sort of human behavior which causes us

720
00:38:40,440 --> 00:38:44,880
Speaker 13: to overreact and underreact to news and changing environments and

721
00:38:44,960 --> 00:38:48,080
Speaker 13: to be terrified by change. So I think that creates

722
00:38:48,160 --> 00:38:50,640
Speaker 13: natural trends in markets. So I think it's you know,

723
00:38:50,920 --> 00:38:53,840
Speaker 13: same same, We're still the same, different technology.

724
00:38:54,040 --> 00:38:57,520
Speaker 3: Katie Kimiski, thank you so much, greatly appreciate it. This morning,

725
00:38:57,600 --> 00:39:00,720
Speaker 3: got to go to some breaking news here Arthur Kiminsky

726
00:39:00,840 --> 00:39:02,120
Speaker 3: with Alpha Simplex, Brilliant.

727
00:39:07,200 --> 00:39:09,400
Speaker 2: This is the Bloomberg Surveillance Podcast.

728
00:39:09,800 --> 00:39:14,360
Speaker 1: Listen live each weekday starting at seven am Eastern on Applecarplay.

729
00:39:13,640 --> 00:39:16,040
Speaker 2: And Android Auto with the Bloomberg Business app.

730
00:39:16,160 --> 00:39:19,040
Speaker 1: You can also watch us live every weekday on YouTube

731
00:39:19,200 --> 00:39:21,200
Speaker 1: and always on the Bloomberg Terminal.

732
00:39:21,360 --> 00:39:24,479
Speaker 3: Jim Kern right now from Morgan Stanley on the mix

733
00:39:24,800 --> 00:39:28,000
Speaker 3: that we're in Right now, Jim Caeren makes sense the

734
00:39:28,080 --> 00:39:31,000
Speaker 3: first seventeen days of January, no one else can.

735
00:39:32,960 --> 00:39:34,440
Speaker 7: Well, it's a tall order. I'll try so.

736
00:39:34,960 --> 00:39:37,960
Speaker 14: Look, I think one of the big changes that has

737
00:39:38,080 --> 00:39:40,680
Speaker 14: gone through is that we started the year very very

738
00:39:40,760 --> 00:39:43,439
Speaker 14: sure that the FED was going to cut at least

739
00:39:43,480 --> 00:39:47,319
Speaker 14: two times within about several days we said, well maybe

740
00:39:47,360 --> 00:39:50,120
Speaker 14: it's zero, and now we're back to they're probably going

741
00:39:50,160 --> 00:39:52,560
Speaker 14: to cut you know, one to two times. So what's

742
00:39:52,640 --> 00:39:56,160
Speaker 14: really been what's really been happening is is all of

743
00:39:56,280 --> 00:39:58,640
Speaker 14: the action has really been at the back end of

744
00:39:58,719 --> 00:40:01,560
Speaker 14: the curve. So the curve has been steepening, meaning that

745
00:40:01,760 --> 00:40:03,680
Speaker 14: the ten year yield is spread between the ten year

746
00:40:03,760 --> 00:40:06,200
Speaker 14: yield and the two year yield has been expanding. It

747
00:40:06,400 --> 00:40:09,680
Speaker 14: it's been widening. And I don't think this is necessarily

748
00:40:09,719 --> 00:40:12,719
Speaker 14: a bad thing. And I think when we look at

749
00:40:12,800 --> 00:40:16,160
Speaker 14: the markets today and we say, well, bond yields are rising.

750
00:40:17,000 --> 00:40:19,080
Speaker 14: I know they've recently fallen over the past day or so,

751
00:40:19,239 --> 00:40:22,120
Speaker 14: but bon yields had been rising. Is that going to

752
00:40:22,160 --> 00:40:23,920
Speaker 14: break the equity markets? And I think we need to

753
00:40:24,000 --> 00:40:27,759
Speaker 14: ask why yields are rising, and which yields are rising,

754
00:40:28,000 --> 00:40:31,000
Speaker 14: and if it's the back end and it's because people

755
00:40:31,120 --> 00:40:35,319
Speaker 14: expect there to be you know, better growth and higher

756
00:40:35,360 --> 00:40:38,520
Speaker 14: productive growth with low inflation, and the front end rates

757
00:40:38,880 --> 00:40:41,799
Speaker 14: stay relatively pegged to where the Fed funds rate's going

758
00:40:41,880 --> 00:40:44,520
Speaker 14: to be, then I think that's okay. So in other words,

759
00:40:44,920 --> 00:40:47,799
Speaker 14: you could get a spread between the ten year note

760
00:40:48,000 --> 00:40:52,480
Speaker 14: and the two year treasury to be about fifty to

761
00:40:52,600 --> 00:40:55,319
Speaker 14: even seventy five basis points. So if the two year

762
00:40:55,440 --> 00:40:58,879
Speaker 14: treasury is at around four point two four point two

763
00:40:58,960 --> 00:41:02,719
Speaker 14: five percent, it's not unreasonable to think that you could

764
00:41:02,840 --> 00:41:05,680
Speaker 14: have a tenure note that's around four point seventy five

765
00:41:05,800 --> 00:41:06,640
Speaker 14: or even five percent.

766
00:41:06,960 --> 00:41:07,120
Speaker 5: Now.

767
00:41:07,239 --> 00:41:10,239
Speaker 14: Fortunately today those yields are lower, and that's a little

768
00:41:10,239 --> 00:41:12,880
Speaker 14: bit more accommodative, and that's okay. But the market is

769
00:41:12,920 --> 00:41:16,320
Speaker 14: building in this extra term premia because of this uncertainty

770
00:41:16,320 --> 00:41:19,000
Speaker 14: about the new administration, you know, what the announcements may

771
00:41:19,080 --> 00:41:22,400
Speaker 14: be in everything else, and the bond market has been

772
00:41:22,520 --> 00:41:24,839
Speaker 14: driving the equity markets, and that's I think what we've

773
00:41:24,880 --> 00:41:25,279
Speaker 14: been seeing.

774
00:41:25,640 --> 00:41:27,960
Speaker 6: I mean, Tom how Prehesdant of Morgan Stele, the investment

775
00:41:28,040 --> 00:41:30,880
Speaker 6: merit managements have Jim Karen, I mean, with his experience

776
00:41:30,960 --> 00:41:33,800
Speaker 6: in rates FX, emerging market fixed income to run the

777
00:41:33,920 --> 00:41:37,000
Speaker 6: ship at sim I mean, like not another stock, Jock.

778
00:41:37,040 --> 00:41:38,720
Speaker 7: I mean, you know, so, Jim, you're.

779
00:41:38,560 --> 00:41:41,040
Speaker 6: Talking about the shape of the yield curve, not the

780
00:41:41,200 --> 00:41:43,000
Speaker 6: level of interest rates. And I think that is so,

781
00:41:43,120 --> 00:41:45,279
Speaker 6: so so important, And what's the read through to the

782
00:41:45,320 --> 00:41:46,919
Speaker 6: rest of the world from that, Because we are seeing

783
00:41:47,000 --> 00:41:50,040
Speaker 6: term premium build back into other developed markets, other emerging

784
00:41:50,120 --> 00:41:52,040
Speaker 6: markets for that matter, you are seeing curve steep and

785
00:41:52,480 --> 00:41:55,000
Speaker 6: just you know what's the runway for steeper curves here,

786
00:41:55,080 --> 00:41:56,240
Speaker 6: not just in the US, but abroad.

787
00:41:57,600 --> 00:41:59,840
Speaker 14: Yeah, so this does create a little bit of a headwind.

788
00:41:59,880 --> 00:42:01,839
Speaker 7: Like so, for example, if we look at the UK, right,

789
00:42:01,880 --> 00:42:03,240
Speaker 7: So thirty year UK.

790
00:42:04,560 --> 00:42:07,319
Speaker 14: Bond yields got to levels that we haven't seen since

791
00:42:07,400 --> 00:42:08,160
Speaker 14: nineteen ninety eight.

792
00:42:08,520 --> 00:42:09,920
Speaker 7: Right, So that's not necessarily a good thing.

793
00:42:10,000 --> 00:42:12,000
Speaker 14: Now, what we have to recognize is that a lot

794
00:42:12,080 --> 00:42:14,359
Speaker 14: of countries outside of the US have a high level

795
00:42:14,400 --> 00:42:17,560
Speaker 14: of external debt, like say the UK, which means that

796
00:42:17,800 --> 00:42:20,799
Speaker 14: they rely on the US Treasury to be the price center.

797
00:42:20,840 --> 00:42:23,000
Speaker 14: The US treasury market is the largest bond market in

798
00:42:23,040 --> 00:42:26,239
Speaker 14: the world. It effectively sets the price for interest rates,

799
00:42:26,640 --> 00:42:30,680
Speaker 14: and essentially, if you have long term bonds in other countries,

800
00:42:30,840 --> 00:42:33,520
Speaker 14: it's going to follow the US. So that's not necessarily

801
00:42:33,560 --> 00:42:34,920
Speaker 14: a good thing. But the one thing that I want

802
00:42:34,960 --> 00:42:37,600
Speaker 14: to one thing I want to highlight though, is that

803
00:42:37,960 --> 00:42:41,200
Speaker 14: when we think about the policies that Trump is trying

804
00:42:41,239 --> 00:42:44,440
Speaker 14: to put through, he's effectively saying I want to run

805
00:42:44,560 --> 00:42:47,839
Speaker 14: expansionary fiscal policy. Now, when I say that, I mean,

806
00:42:48,040 --> 00:42:51,680
Speaker 14: you know, lower taxes, deregulation, things like that. But at

807
00:42:51,719 --> 00:42:55,240
Speaker 14: the same time, I also want to cut government spending

808
00:42:55,440 --> 00:43:00,040
Speaker 14: and that's what the Doge Department is all about. And

809
00:43:00,280 --> 00:43:02,680
Speaker 14: if you can do that, you can have low inflation

810
00:43:02,920 --> 00:43:05,320
Speaker 14: and expendory policy. That's the trifecta.

811
00:43:05,680 --> 00:43:09,080
Speaker 7: Can it be done? Is really what the question is.

812
00:43:09,120 --> 00:43:10,239
Speaker 7: Could be a positive, We're to have.

813
00:43:10,239 --> 00:43:12,640
Speaker 3: An extended conversation. You're gonna go to break and come back.

814
00:43:12,680 --> 00:43:14,200
Speaker 3: But let me get this into and Karen, I think

815
00:43:14,239 --> 00:43:18,040
Speaker 3: it's too important. This weekend, you're gonna be sitting with

816
00:43:18,160 --> 00:43:21,880
Speaker 3: somebody who's up to their eyeballs in cash. They're scared

817
00:43:22,000 --> 00:43:24,839
Speaker 3: stiff for whatever reason. If I look at red Sex

818
00:43:24,960 --> 00:43:28,840
Speaker 3: Meddal relief, I'm scared stiff, Jim, Karen, what do you

819
00:43:28,920 --> 00:43:32,280
Speaker 3: say to people afraid to participate in the markets.

820
00:43:33,800 --> 00:43:36,200
Speaker 14: So right now, I still think that we are in

821
00:43:36,280 --> 00:43:40,200
Speaker 14: the midst of a longer term protracted bull market in inequities.

822
00:43:41,160 --> 00:43:44,360
Speaker 14: So I would say that the equity marks strickly, the

823
00:43:44,440 --> 00:43:47,920
Speaker 14: broader sectors, the MidCap sectors, you know, more of a

824
00:43:48,000 --> 00:43:51,000
Speaker 14: broadening out, not just the MAG seven, although I still

825
00:43:51,080 --> 00:43:53,440
Speaker 14: like the MAG seven. But I think the broader sectors

826
00:43:53,480 --> 00:43:56,600
Speaker 14: of the equity markets still have more earnings room to

827
00:43:56,760 --> 00:44:01,360
Speaker 14: run higher and effectively have higher quality city growth and

828
00:44:01,920 --> 00:44:05,120
Speaker 14: increases in prices and valuations in that space. So I

829
00:44:05,120 --> 00:44:08,759
Speaker 14: would say, look a well diversified portfolio in the equity market,

830
00:44:08,880 --> 00:44:11,160
Speaker 14: not just the index because the index is going to

831
00:44:11,160 --> 00:44:14,360
Speaker 14: be highly skewed to those large cap tech stocks, but

832
00:44:14,480 --> 00:44:16,279
Speaker 14: something that's very, very broadly based in.

833
00:44:16,480 --> 00:44:17,480
Speaker 7: The mid cap sector.

834
00:44:17,719 --> 00:44:21,120
Speaker 14: I think if you're a long term investor, large cap value,

835
00:44:21,280 --> 00:44:23,480
Speaker 14: for example, could be an area that you want to

836
00:44:23,480 --> 00:44:26,680
Speaker 14: start to think about and look at into the future.

837
00:44:26,760 --> 00:44:29,000
Speaker 14: So I'm not afraid of the second market. I'm saying

838
00:44:29,080 --> 00:44:31,480
Speaker 14: start to invest, let's go, I mean get going. And

839
00:44:31,520 --> 00:44:33,600
Speaker 14: bond mules are higher, by the way, so they also

840
00:44:33,640 --> 00:44:34,480
Speaker 14: offer better return to.

841
00:44:34,719 --> 00:44:36,200
Speaker 6: You know, Jim, this is my question for you, and

842
00:44:36,280 --> 00:44:37,880
Speaker 6: it's really interesting when you look at your phone, you're

843
00:44:37,920 --> 00:44:39,400
Speaker 6: on your way into Morgan Stanley in the morning, on

844
00:44:39,440 --> 00:44:42,600
Speaker 6: your morning commute, and you see an email from Lauren Reader,

845
00:44:42,680 --> 00:44:45,440
Speaker 6: the incomparable Lauren Reader cheap Risk Officer of m SIM.

846
00:44:45,800 --> 00:44:48,360
Speaker 6: Where are the tail risks in this market? Where do

847
00:44:48,480 --> 00:44:51,000
Speaker 6: the black swan swim in this market?

848
00:44:51,120 --> 00:44:51,279
Speaker 3: Jim?

849
00:44:52,800 --> 00:44:54,200
Speaker 7: Yeah, So it's a good point.

850
00:44:54,480 --> 00:44:56,200
Speaker 14: It's been so cold, it's been hard for me to

851
00:44:56,280 --> 00:44:59,560
Speaker 14: think straight. But let me just say that, you know,

852
00:44:59,719 --> 00:45:02,439
Speaker 14: I say that the big risks are it's really about

853
00:45:02,640 --> 00:45:07,080
Speaker 14: about inflation, because if we start to see that inflation

854
00:45:07,239 --> 00:45:11,160
Speaker 14: becomes unanchored, and if FED policy and other central bank

855
00:45:11,239 --> 00:45:15,279
Speaker 14: policy shifts from cutting rates to actually hiking rates, that

856
00:45:16,080 --> 00:45:18,360
Speaker 14: is really not what's anticipated, and that could unravel a

857
00:45:18,800 --> 00:45:20,760
Speaker 14: a lot of things, and it could end pretty badly.

858
00:45:21,320 --> 00:45:25,120
Speaker 14: So there's nothing that I can see other than something

859
00:45:25,400 --> 00:45:28,160
Speaker 14: like that, because, look, the economic data has been relatively strong,

860
00:45:28,239 --> 00:45:31,319
Speaker 14: the jobs data has been relatively strong, the company level

861
00:45:31,440 --> 00:45:34,760
Speaker 14: data has been relatively strong, earnings are good. So everything

862
00:45:35,000 --> 00:45:38,719
Speaker 14: there's nothing obvious that's out there. Clearly, there's always geopolitical

863
00:45:38,800 --> 00:45:41,480
Speaker 14: risks and things like that. But I think the risk

864
00:45:41,560 --> 00:45:45,160
Speaker 14: that we have is that if we get something more

865
00:45:45,280 --> 00:45:47,600
Speaker 14: like an inflation shock. So let's say, if we go

866
00:45:47,760 --> 00:45:50,440
Speaker 14: through the first one hundred days of the Trump administration

867
00:45:50,600 --> 00:45:54,280
Speaker 14: and the markets interpret things very very differently than what's intended,

868
00:45:56,000 --> 00:45:59,200
Speaker 14: you could start to see a lot of volatility come

869
00:45:59,239 --> 00:46:02,000
Speaker 14: into the markets. And this is stuff that's hard to hedge,

870
00:46:02,080 --> 00:46:05,239
Speaker 14: right because you just can't really anticipate it very very well.

871
00:46:05,640 --> 00:46:06,680
Speaker 7: But that's what I'm focused on.

872
00:46:08,280 --> 00:46:09,480
Speaker 6: Sorry about that blue button, Jim.

873
00:46:09,480 --> 00:46:11,640
Speaker 7: You have to see how trust lions blue.

874
00:46:12,200 --> 00:46:15,120
Speaker 3: You see that this is bar I tried to get

875
00:46:15,160 --> 00:46:17,319
Speaker 3: Buffalo bills blue on the button.

876
00:46:17,000 --> 00:46:20,360
Speaker 6: And I got jim My apologies. You're the chief investment

877
00:46:20,400 --> 00:46:23,760
Speaker 6: officer of a cross asset solutions at Morgan Stanley Investment Management.

878
00:46:23,840 --> 00:46:25,800
Speaker 6: But you previously held a lot of different roles. You

879
00:46:25,880 --> 00:46:27,480
Speaker 6: were had a MAC or you had a rates effs,

880
00:46:27,680 --> 00:46:29,920
Speaker 6: you were head of a merging market strategy. Talk to

881
00:46:30,040 --> 00:46:33,560
Speaker 6: me about the bullish narrative for emerging markets in this market.

882
00:46:33,640 --> 00:46:34,839
Speaker 6: I'm struggling with it, Jim.

883
00:46:36,320 --> 00:46:38,560
Speaker 14: Yeah, So I think a lot of things are going

884
00:46:38,600 --> 00:46:41,200
Speaker 14: to start to get realigned from a trade perspective, and

885
00:46:42,000 --> 00:46:43,520
Speaker 14: a lot of this has to do with some of

886
00:46:43,600 --> 00:46:50,080
Speaker 14: the tensions between the US and China. So effectively, when

887
00:46:50,200 --> 00:46:52,600
Speaker 14: we think of the global markets, right, when we think

888
00:46:52,640 --> 00:46:55,200
Speaker 14: of the SP five hundred, what we have to recognize

889
00:46:55,280 --> 00:46:57,320
Speaker 14: is that forty one percent of the earnings from the

890
00:46:57,480 --> 00:47:00,480
Speaker 14: SSP five hundred come from outside of the U and

891
00:47:00,520 --> 00:47:02,520
Speaker 14: that also includes emerging markets too.

892
00:47:03,200 --> 00:47:04,880
Speaker 7: So you know, when we think about.

893
00:47:04,680 --> 00:47:07,759
Speaker 14: Policies in the US where we say America first, you know,

894
00:47:07,840 --> 00:47:09,840
Speaker 14: for example that you know Trump, you know, would normally

895
00:47:09,960 --> 00:47:13,200
Speaker 14: say it doesn't mean America alone. So one of the

896
00:47:13,560 --> 00:47:17,360
Speaker 14: aspects of how we think about the markets going forward

897
00:47:17,600 --> 00:47:20,040
Speaker 14: is that, yes, you know, the dollar has been strengthening.

898
00:47:20,920 --> 00:47:23,520
Speaker 14: I think that the dollar strengthening has gotten to where

899
00:47:23,560 --> 00:47:25,200
Speaker 14: it needs to be at this point. I don't think

900
00:47:25,280 --> 00:47:27,680
Speaker 14: it really needs to get a whole lot stronger. I

901
00:47:27,719 --> 00:47:29,600
Speaker 14: don't think that it necessarily will. I don't think it's

902
00:47:29,600 --> 00:47:31,320
Speaker 14: going to get a lot weaker either. I think this

903
00:47:31,480 --> 00:47:34,520
Speaker 14: is going to be the range that we're in. But effectively,

904
00:47:34,600 --> 00:47:38,200
Speaker 14: from an emerging markets perspective, if we start to see

905
00:47:38,200 --> 00:47:40,279
Speaker 14: a rise in the CAPEC cycle, which we're already seeing,

906
00:47:40,280 --> 00:47:43,080
Speaker 14: we're seeing global pmis are already starting to pick up.

907
00:47:43,440 --> 00:47:46,120
Speaker 14: The PMI for manufacturing has been in a recession for

908
00:47:46,160 --> 00:47:48,279
Speaker 14: all intents and purposes for the past three years. It's

909
00:47:48,320 --> 00:47:51,200
Speaker 14: been sitting below fifty. Now it's starting to move towards

910
00:47:51,239 --> 00:47:54,120
Speaker 14: fifty and start to rise above. That is a positive

911
00:47:54,160 --> 00:47:58,520
Speaker 14: global for manufacturing, especially for emerging markets who supply a

912
00:47:58,560 --> 00:47:59,600
Speaker 14: lot of the raw materials.

913
00:48:00,080 --> 00:48:03,080
Speaker 3: Karen. One final question fold in the work of Seth Carpenter,

914
00:48:03,280 --> 00:48:06,840
Speaker 3: Ellen Zenner and others within economics at Morgan Stanley the

915
00:48:06,960 --> 00:48:11,160
Speaker 3: great missed call of the last two years has been

916
00:48:11,719 --> 00:48:16,400
Speaker 3: better economic growth, maybe some form of sticky inflation, and

917
00:48:16,520 --> 00:48:20,600
Speaker 3: it sums out to a resilient nominal GDP. What does

918
00:48:20,640 --> 00:48:24,040
Speaker 3: a resilient nominal GDP mean for our listeners and viewers

919
00:48:24,440 --> 00:48:26,560
Speaker 3: deep into twenty twenty five.

920
00:48:28,400 --> 00:48:30,480
Speaker 14: So what it means is that you can still have

921
00:48:30,640 --> 00:48:34,080
Speaker 14: earnings growth rates in double digits for equity, so you

922
00:48:34,200 --> 00:48:37,640
Speaker 14: could have ten, eleven, even twelve percent earnings growth rate. Now,

923
00:48:37,719 --> 00:48:40,000
Speaker 14: what it also means is that this could be more

924
00:48:40,040 --> 00:48:44,480
Speaker 14: broadly based. So when we think about let's let's take

925
00:48:44,520 --> 00:48:46,000
Speaker 14: a look at two indices. Let's look at the S

926
00:48:46,040 --> 00:48:48,000
Speaker 14: and P five hundred, which is what everybody looks at,

927
00:48:48,080 --> 00:48:50,240
Speaker 14: and then let's look at the S and P four hundred,

928
00:48:50,280 --> 00:48:52,520
Speaker 14: which is more of a mid cap index, more of

929
00:48:52,520 --> 00:48:55,880
Speaker 14: a heavily MidCap weighted index. The earnings growth rate of

930
00:48:55,920 --> 00:48:58,560
Speaker 14: the S and P five hundred was primarily led by.

931
00:48:58,520 --> 00:49:00,000
Speaker 7: Those magnificent seven stars.

932
00:49:00,719 --> 00:49:02,800
Speaker 14: If you look at the S and P four hundred,

933
00:49:03,239 --> 00:49:05,479
Speaker 14: the earnings over the past few years has been pretty

934
00:49:05,560 --> 00:49:09,160
Speaker 14: much flatlined and pretty steady. So there's a big divergence

935
00:49:09,360 --> 00:49:11,680
Speaker 14: in what's been happening with the large cap growth and

936
00:49:11,800 --> 00:49:15,800
Speaker 14: tech companies versus the MidCap and even large cap value

937
00:49:15,880 --> 00:49:18,480
Speaker 14: companies where their earnings have been relatively flat and steady.

938
00:49:18,880 --> 00:49:21,640
Speaker 14: So if you have a higher nominal GDP and we

939
00:49:21,719 --> 00:49:25,000
Speaker 14: have a broadening of the market, there are the majority

940
00:49:25,160 --> 00:49:28,919
Speaker 14: of the market has to catch up. So therefore there's

941
00:49:28,960 --> 00:49:32,239
Speaker 14: a great opportunity I think going forward. So that's what

942
00:49:32,320 --> 00:49:35,720
Speaker 14: it means to listeners is if you get higher nominal GDP,

943
00:49:35,880 --> 00:49:36,799
Speaker 14: that's sustainable.

944
00:49:36,960 --> 00:49:39,200
Speaker 3: Jim Keren, thanks to the clinic, greatly appreciate it, mister

945
00:49:39,320 --> 00:49:43,200
Speaker 3: Karen always with Morgan Stanley and Nyu Stern.

946
00:49:43,640 --> 00:49:48,480
Speaker 1: This is the Bloomberg Surveillance podcast, available on Apple, Spotify,

947
00:49:48,640 --> 00:49:52,880
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948
00:49:53,040 --> 00:49:56,000
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949
00:49:56,400 --> 00:50:00,560
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950
00:50:00,640 --> 00:50:03,960
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951
00:50:04,200 --> 00:50:05,920
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