WEBVTT - Don’t Call It QE 0:00:12.880 --> 0:00:16.000 Hello, and welcome to What Goes Up, a Bloomberg Weekly 0:00:16.040 --> 0:00:19.680 Markets podcast. I'm Sara Ponzac, a reporter on the Cross 0:00:19.680 --> 0:00:22.720 Asset team, and I'm Mike Reagan, a senior editor on 0:00:22.760 --> 0:00:25.480 the Markets team. This week, on the show, the Feds 0:00:25.520 --> 0:00:29.200 a buyer again, Powell announced plans to expand the bank's 0:00:29.240 --> 0:00:32.320 balance sheet, but don't you dare go confusing the asset 0:00:32.360 --> 0:00:36.680 purchases with quantitative easing. And the US China trade talks 0:00:36.760 --> 0:00:40.160 were once again front and center with a Chinese delegation 0:00:40.240 --> 0:00:43.479 in Washington. D c our guests break it down, and 0:00:43.600 --> 0:00:46.320 if you're here for the craziest things we saw in 0:00:46.400 --> 0:00:48.880 markets this week, don't worry, we will get to them. Sarah, 0:00:48.880 --> 0:00:50.720 I'll give you a hint, as as I usually do 0:00:50.920 --> 0:00:54.600 minds in the collectibles market, and he guesses, I'm I'm 0:00:54.640 --> 0:00:57.120 honestly a bit worried that we may have the same 0:00:57.200 --> 0:01:02.880 craziest thing, the worst things that could happen. There's worst 0:01:02.880 --> 0:01:04.840 things that could happen. And remember that we have our 0:01:04.959 --> 0:01:08.360 very own Bloomberg Podcast hotline. Give us a call, let 0:01:08.440 --> 0:01:10.399 us know about the craziest things that you guys have heard, 0:01:10.480 --> 0:01:12.600 or feel free to ask us any questions. That number 0:01:12.640 --> 0:01:16.959 is six four six three to four three four nine zero, 0:01:17.080 --> 0:01:20.080 and we may even play your message on the show. So, Sarah, 0:01:20.120 --> 0:01:23.479 as you know, I think the podcast works best when 0:01:23.560 --> 0:01:26.040 everybody agrees with me. It just seems like the right thing. 0:01:26.120 --> 0:01:28.560 This has been over the past two epis. Seems like 0:01:28.600 --> 0:01:31.200 it lends more authority to be on the right side 0:01:31.200 --> 0:01:32.920 of history that that sort of thing. But as you 0:01:32.959 --> 0:01:35.200 informed me, I think our two guests here there might 0:01:35.200 --> 0:01:37.680 be a chance we'll get an actual debate on the podcast, 0:01:37.680 --> 0:01:40.600 which which would be exciting so um to me, this 0:01:40.680 --> 0:01:43.000 is could be the best debate since the is a 0:01:43.000 --> 0:01:46.720 hot dog of sandwich debate which has has royal many 0:01:47.040 --> 0:01:48.760 cock ol parties I've been at, and I mean, I'll 0:01:48.760 --> 0:01:52.040 give my opinion. It's clearly not wrong. Wrong you are. 0:01:52.520 --> 0:01:55.200 You've got bread, you've got meat, you've got a sandwich. Anyway, 0:01:55.520 --> 0:01:58.080 enough of that, let's introduce the guests are first guests. 0:01:58.160 --> 0:02:02.960 He's actually our first turn guest among U non Bloomberg people, 0:02:03.400 --> 0:02:07.360 our first two timer. He's the managing director of Global 0:02:07.840 --> 0:02:12.519 macro Strategy at Medley Global Advisors UH. Previously, he was 0:02:12.600 --> 0:02:16.280 chief economist and a portfolio manager at Intellectist Partners, and 0:02:16.320 --> 0:02:19.680 he spent several years at PIMCO out on the West coast, 0:02:19.720 --> 0:02:22.840 back in the Bill Gross days, and we're proud of him. 0:02:22.840 --> 0:02:25.760 Back Ben Emmons, welcome to the show. Thank you very much. Sarah, 0:02:25.800 --> 0:02:28.320 Mike is really great to be back. Thanks Ben also 0:02:28.400 --> 0:02:30.000 joining us. Well, this guy is like a three or 0:02:30.080 --> 0:02:32.200 four timer, but he's a Bloomberg guy, so he doesn't 0:02:32.280 --> 0:02:36.520 doesn't really count. Uh, he's a cross asset reporter. Lukalla, 0:02:36.600 --> 0:02:38.359 welcome to the show. Good to be here. It's uh 0:02:38.720 --> 0:02:41.640 rough to debate someone with the kung fu background of 0:02:41.639 --> 0:02:44.240 of Ben Buttoh hey, well we'll see what happens. Well, 0:02:44.280 --> 0:02:46.720 Lincoln Douglas is up. No violence here, we'll keep it 0:02:47.080 --> 0:02:50.400 very very g rated. A little violence, a little violence, 0:02:50.480 --> 0:02:55.400 podcast the violence. But if I remember correctly, the source 0:02:55.440 --> 0:02:58.760 of this debate stems from the speech that Jerome pal 0:02:58.880 --> 0:03:02.120 gave this week in which he basically announced that the 0:03:02.160 --> 0:03:06.519 FED was going to begin buying treasury bonds again, especially 0:03:06.560 --> 0:03:08.840 on the short end, a lot of treasury notes to 0:03:08.880 --> 0:03:12.720 sort of manage the yield curve, prevent these inversions. In 0:03:12.760 --> 0:03:15.200 the shooter ended part of the yield curve that we've 0:03:15.240 --> 0:03:18.519 seen so immediately. Sorry. I don't know about you, but 0:03:18.639 --> 0:03:23.720 my Twitter feed erupted into this is more quantitative easing, 0:03:24.280 --> 0:03:29.120 and other people say no, it's not quantitative easing. So, uh, luke, 0:03:29.360 --> 0:03:32.280 why don't you start explaining to us why you believe 0:03:32.280 --> 0:03:34.800 this is not quantitative easing. So first, I want to 0:03:34.840 --> 0:03:36.960 push back on your on your premise some of the 0:03:37.120 --> 0:03:38.640 some of the things you said there in terms of 0:03:38.640 --> 0:03:44.080 Powell's justification for returning to purchases of not treasury bonds 0:03:44.120 --> 0:03:46.520 but pretty much all bills, is the plan as as 0:03:46.520 --> 0:03:48.800 far as I can tell, he didn't really mention a 0:03:48.840 --> 0:03:50.880 desire to steep rest deep in the yield curve. That's 0:03:50.880 --> 0:03:52.800 something you can read into it if you want to. 0:03:53.080 --> 0:03:55.520 But he said this is all about maintaining an ample 0:03:55.600 --> 0:03:59.120 reserve system, focusing more on the liability side of bank 0:03:59.160 --> 0:04:01.640 balance sheet, make con sure reserves are ample. And for me, 0:04:01.880 --> 0:04:06.240 what this isn't is quantitative easing, it's quantitative normal ng back. 0:04:06.320 --> 0:04:09.240 It's an expansion of the balance sheet and the buying 0:04:09.280 --> 0:04:11.840 of bills in a way that's designed to ensure the 0:04:11.880 --> 0:04:15.120 adequate transmission of current monetary policy, whether or not the 0:04:15.120 --> 0:04:18.880 Fed lowers or raises rates From here, would still coincide 0:04:19.000 --> 0:04:22.400 with balance sheet expansion. Probably it's not a measure to 0:04:22.640 --> 0:04:26.560 add additional easing push people out the curve. Removed duration, 0:04:26.680 --> 0:04:29.279 so you have to move into risk your assets. And 0:04:29.320 --> 0:04:32.760 I think this kind of distinction is useful and worth 0:04:32.839 --> 0:04:36.000 noting because the intent of monetary policy matters. Back in 0:04:36.040 --> 0:04:38.720 the day, pre ninety four, I believe it was, you'd 0:04:38.720 --> 0:04:41.479 really even didn't get FED statements to know when rates 0:04:41.480 --> 0:04:43.400 are removing up or down. You had to discern it. 0:04:43.560 --> 0:04:45.880 But why by what they were doing in open market 0:04:45.920 --> 0:04:49.279 operations in excess essentially of what you would suspect they'd 0:04:49.279 --> 0:04:51.719 be doing in order to kind of manage the reserves 0:04:51.720 --> 0:04:53.880 in the system. That was the signal. So I think 0:04:53.960 --> 0:04:59.839 signal and intent matter a lot in monetary policy. Look, you, 0:04:59.839 --> 0:05:02.719 you're supposed to debate Bed, not me. All right, all right, 0:05:03.200 --> 0:05:06.240 he's the only one saying wrong things so far. His 0:05:06.400 --> 0:05:08.600 he's coming at you. But I have to say Ben 0:05:08.680 --> 0:05:11.880 was pretty rebellious this week because Jerome Howell must have 0:05:11.920 --> 0:05:14.400 said about five times in his speech did I mentioned 0:05:14.440 --> 0:05:16.960 that this is not quee? And then Ben goes ahead 0:05:17.000 --> 0:05:19.400 and sends around an email to his clients and the 0:05:19.440 --> 0:05:23.120 title of it is call it a quei comeback. So, Ben, 0:05:23.160 --> 0:05:25.159 why don't you give us your take from your point 0:05:25.200 --> 0:05:28.040 of view? Why can you call it a quwie come back? Yes, 0:05:28.120 --> 0:05:30.320 I think that and two two looks point like, look 0:05:30.360 --> 0:05:33.160 as we fair that you are buying treasury bills and 0:05:33.240 --> 0:05:35.839 you injecting reserves back in the system, and fair enough, 0:05:35.920 --> 0:05:39.240 this is what the Fed would do since fourteen. Sorry 0:05:39.400 --> 0:05:43.000 see traditional function of the fellow reserve. But let's think 0:05:43.000 --> 0:05:45.760 about it this way, like, we are in a situation 0:05:45.800 --> 0:05:48.479 where two years ago we started a normalization of the 0:05:48.480 --> 0:05:51.880 bound she's and we contracted the reserves, and we built 0:05:51.880 --> 0:05:55.159 this pretty big gap between currency circulation and reserves in 0:05:55.160 --> 0:05:58.520 the system. And that has become a pressing issue. So 0:05:58.720 --> 0:06:01.119 as Bau goes ahead and try us to fill that gap, 0:06:01.600 --> 0:06:03.800 he's gonna have to buy these tea bills to do that, right, 0:06:03.839 --> 0:06:06.400 He's gonna have to buy from dealers, right, and then 0:06:06.440 --> 0:06:09.040 those dealers have new reserves and banks are new reserves, 0:06:09.040 --> 0:06:12.840 and then there will be another let's say conversion in fact, 0:06:12.880 --> 0:06:15.880 if you're called that way, of something happening with those reserves. 0:06:16.240 --> 0:06:18.360 Why did we ended up with this repot issue in 0:06:18.680 --> 0:06:21.240 September because a lot of banks that hoard of reserves, 0:06:21.320 --> 0:06:23.920 banning a few banks held a lot of reserves. So 0:06:24.000 --> 0:06:26.520 they try to resolve that. But if you didn't think 0:06:26.560 --> 0:06:30.240 about what que actually did. There's two ways to think 0:06:30.279 --> 0:06:32.200 about it, right. One it is a duration of fact, 0:06:32.279 --> 0:06:34.120 just as you buy a long day of securities and 0:06:34.200 --> 0:06:37.440 you you push people out in the respectrum. The other 0:06:37.520 --> 0:06:40.320 part is it that you are providing let's say, a 0:06:40.440 --> 0:06:43.120 real cushion to the system. One reason why we want 0:06:43.160 --> 0:06:46.159 to really happen was to try to really resolve the 0:06:46.160 --> 0:06:50.200 frencial crisis and the liquidity aspects of that and the 0:06:50.200 --> 0:06:53.560 distress that happened. We don't really deal with that right now, 0:06:53.720 --> 0:06:56.320 but we do deal with a quickly issue, so to speak. 0:06:56.360 --> 0:06:59.600 So if you cushion the system with a let's say 0:06:59.680 --> 0:07:03.520 very af acid which is the excess reserve, by driving 0:07:03.600 --> 0:07:05.440 up the price of the risk free asset, which is 0:07:05.440 --> 0:07:08.000 the d bill, then you will get some sort of 0:07:08.040 --> 0:07:10.400 idea that people will will at least respond to it 0:07:10.440 --> 0:07:13.280 and say, Okay, there's a cushioning effect in the system. 0:07:13.360 --> 0:07:15.760 I'm going to do something else, right, I'm gonna take 0:07:15.840 --> 0:07:19.000 perhaps more risk or at least some enticement. And this 0:07:19.120 --> 0:07:21.800 may be the debate right where we don't debate so 0:07:21.920 --> 0:07:25.560 much about buying interior treasury bonds and that's QUE right, 0:07:25.840 --> 0:07:28.880 more about what will this program ultimately resolved into how 0:07:28.920 --> 0:07:32.840 people will behave as this question. The motivations may be different, 0:07:32.880 --> 0:07:36.720 but the the reaction will be similar in markets. I 0:07:36.760 --> 0:07:38.920 want to say, just to like back up Ben's point 0:07:38.960 --> 0:07:41.920 to a certain extent, go against myself. What you saw 0:07:41.920 --> 0:07:45.200 in markets, especially on Tuesday, there was this big twist 0:07:45.240 --> 0:07:47.880 steepening of the curve, and steepening in a trade like 0:07:47.960 --> 0:07:51.080 that is typically associated with what we saw right before 0:07:51.160 --> 0:07:54.280 QUE two and UH and following on from that in 0:07:54.320 --> 0:07:57.280 August of and again when we were talking up the 0:07:57.320 --> 0:08:01.040 possibility of q E three. So essentially what this is 0:08:01.080 --> 0:08:03.600 intended on doing, whether it's a problem with anything with 0:08:03.680 --> 0:08:05.880 the with the reserves of the system, with bank liquidity 0:08:05.920 --> 0:08:09.840 selling and so forth, it's effectively serving as forward guidance, 0:08:09.880 --> 0:08:14.520 which is pushing short rates down and removing more deflationary 0:08:14.560 --> 0:08:18.240 tail risk negative risk asset outcomes. And you saw long 0:08:18.280 --> 0:08:20.800 bond yields go up. So hey, if the market thinks 0:08:20.840 --> 0:08:23.000 it's kuwi and wants to act like it's QUI in 0:08:23.000 --> 0:08:25.240 a way, who am I to say it's not I 0:08:25.240 --> 0:08:27.559 think you just conceded defeat their Luke, I'm not sure 0:08:27.640 --> 0:08:32.400 is that? Can you can you see the threatening motions 0:08:32.400 --> 0:08:36.560 that Ben is making at Ben's practicing kung fu in 0:08:36.679 --> 0:08:39.840 his seat. But I want to ask you then, Luke. 0:08:39.920 --> 0:08:42.080 I mean you can make the quip that markets are 0:08:42.120 --> 0:08:44.520 never wrong. But if you look at the spread between 0:08:44.840 --> 0:08:47.360 three month treasury yields and tenure treasury yields, I mean 0:08:47.360 --> 0:08:51.640 we're now back near the vicinity of being in positive territory. 0:08:51.679 --> 0:08:53.280 I mean, can you make the case then that if 0:08:53.320 --> 0:08:57.720 this isn't que then we're seeing markets act the wrong way, 0:08:58.720 --> 0:09:02.079 uh potential. I think you can make that point. However, 0:09:02.240 --> 0:09:04.600 I think this week and I'm sure we'll get to this. 0:09:04.760 --> 0:09:07.720 It's kind of important to note that this wasn't happening 0:09:07.720 --> 0:09:11.080 in a vacuum, and in fact, even during Powell on Tuesday, 0:09:11.160 --> 0:09:14.000 some of the h was taken out of his remarks 0:09:14.320 --> 0:09:16.720 by the fact that you had trade headlines hitting fast 0:09:16.760 --> 0:09:19.840 and furious and kind of either whip sawing and negating 0:09:19.840 --> 0:09:22.640 the effect or in some cases accelerating it. And what 0:09:22.679 --> 0:09:27.160 we've seen essentially since that point is more positive than negative. 0:09:27.520 --> 0:09:30.400 Trade headlines, and that's a reason why the tenure yield 0:09:30.400 --> 0:09:33.880 has kind of risen as dramatically as it has this week. So, Ben, 0:09:33.920 --> 0:09:37.520 you gave a TV interview to Bloomberg TV earlier this 0:09:37.559 --> 0:09:40.760 week where you talked about this whole issue and um, 0:09:41.240 --> 0:09:43.680 how you see the rest of the year shaping out? 0:09:44.040 --> 0:09:45.680 And we wrote a story on it. The headline was 0:09:45.760 --> 0:09:49.000 shades of two thousand and eighteen route coming for markets 0:09:49.040 --> 0:09:52.200 this quarter. Emmon says, that's that's a scary headline, Ben, 0:09:52.280 --> 0:09:55.040 But I just wanted to sort of go through your rationale. 0:09:55.520 --> 0:09:59.720 You don't think, um, that this will solve the repo, 0:09:59.800 --> 0:10:04.000 which you the funding issue as we get towards year end. Um, 0:10:04.240 --> 0:10:07.400 you say, uh, this will take some time to catch up. 0:10:07.440 --> 0:10:10.000 It may alleviate at some point a bit of the 0:10:10.000 --> 0:10:12.080 funding pressures that we see, but it will not be 0:10:12.280 --> 0:10:14.920 by year end. It will be more by the second 0:10:15.000 --> 0:10:17.360 quarter of next year. So walk us through a little 0:10:17.360 --> 0:10:19.439 bit more how you see the rest of the year 0:10:19.480 --> 0:10:22.120 shaping out. It sounds like you're you're pretty cautious for 0:10:22.720 --> 0:10:25.480 the fourth quarter. Yeah, I am, man, Mike, because um, 0:10:26.240 --> 0:10:28.640 although this is a really good step at these to 0:10:28.760 --> 0:10:31.880 address it more permanently, in the sense, and they still 0:10:31.920 --> 0:10:34.320 have to, by the way, announce the permanent repo facility 0:10:34.400 --> 0:10:36.720 that it's not there yet. It may happen October. We 0:10:36.720 --> 0:10:39.600 don't know yet yet, but it's like in the air um. 0:10:39.679 --> 0:10:42.360 But most of all it will it will take a 0:10:42.440 --> 0:10:45.440 number of months to ramp it really up right, they 0:10:45.480 --> 0:10:47.839 would have to buy at least a hun to on 0:10:47.920 --> 0:10:51.160 a billion or so of de bails to make that difference. 0:10:51.800 --> 0:10:54.920 Then we're dealing with this redistribution issue of reserves that 0:10:55.080 --> 0:10:57.720 is still happening, and then we're dealing with just the 0:10:57.800 --> 0:11:00.280 year end effect in itself. Right, And if you this 0:11:00.360 --> 0:11:02.280 is actually what where I'm coming really from, is that 0:11:02.760 --> 0:11:07.280 since when the Basil three agreement may changes to let's say, 0:11:07.559 --> 0:11:10.160 leverage that banks can have on their bound sheet, particularly 0:11:10.280 --> 0:11:12.920 over year end, there's a lot of there's a lot 0:11:12.960 --> 0:11:16.559 of constraint on that. Now this is actually limited the 0:11:16.720 --> 0:11:19.679 ability of companies and others to fund themselves over year 0:11:19.720 --> 0:11:21.719 and they all go to a really small door, so 0:11:21.840 --> 0:11:25.480 to speak. And we've delvet this repeatedly, so we're dealing 0:11:25.520 --> 0:11:28.040 with it this year too. One way to look at 0:11:28.040 --> 0:11:30.360 it is the technical part of the market is the 0:11:30.400 --> 0:11:33.040 currency market, where you have basis swaps right where you 0:11:33.040 --> 0:11:37.080 can have swap floating rates with one another. That gives 0:11:37.120 --> 0:11:40.079 you sort of a sense of demand for dollars in particular. 0:11:40.600 --> 0:11:43.520 Now we're also coming off of really a tense period 0:11:43.559 --> 0:11:47.040 in August of flight to safety. There's other signs there 0:11:47.040 --> 0:11:49.000 that there's been a fair amount of dollar issuance happening 0:11:49.000 --> 0:11:50.960 in Asia, right, that's I think all of rush for 0:11:51.200 --> 0:11:54.840 having dollars before the end of the year. There's generally, 0:11:54.920 --> 0:11:57.120 I think just a demand for dollars in itself, which 0:11:57.120 --> 0:11:58.640 have nothing to do with the value of dollars, just 0:11:58.679 --> 0:12:02.040 demand for dollars. So we were in a pretty tight situation. 0:12:02.520 --> 0:12:06.280 So this program that they're talking about will make some difference, 0:12:06.320 --> 0:12:10.760 but not immediately. Um. In addition that you if you 0:12:10.800 --> 0:12:14.080 do deal with this constraint in itself, then you're going 0:12:14.120 --> 0:12:16.400 to get the same sort of sort of gaveway, a 0:12:16.400 --> 0:12:19.000 really tight gave way to get through. And if we're 0:12:19.040 --> 0:12:21.280 then dealing with everything that comes ahead of us now, 0:12:21.440 --> 0:12:23.120 the trade talks, we don't know how it ends, right, 0:12:23.160 --> 0:12:26.240 So the tears that come into effect perhaps next week 0:12:26.280 --> 0:12:28.959 and in December, other than certainty we know the drill 0:12:29.000 --> 0:12:31.360 of that, So it does. It does keeps us in 0:12:31.360 --> 0:12:35.200 a really tight environments. And that's the caution that I have, 0:12:35.800 --> 0:12:37.520 you know, and and it will that be the chase 0:12:37.559 --> 0:12:40.040 of Tony eighteen. Yes, that looks like a bit like that, 0:12:40.440 --> 0:12:42.640 um and that depends, of course, to on on all 0:12:42.640 --> 0:12:45.040 the geopolitical developments. But we have a lot of that 0:12:45.160 --> 0:12:47.640 this time, right, not forget what's happening with Turkey Syria, 0:12:47.800 --> 0:12:51.880 which is very politically charged, and that also China is 0:12:51.960 --> 0:12:54.520 involved in that too. There's all of that political aspect 0:12:54.520 --> 0:12:57.559 there to that markets are in a bind here, and 0:12:57.640 --> 0:13:01.000 to piggyback on Bend's point, they're like that that is 0:13:01.040 --> 0:13:05.280 trying to essentially help with the amount of water going 0:13:05.320 --> 0:13:08.280 through the plumbing here and and loosen that up. But 0:13:08.360 --> 0:13:10.480 the size of the pipes is really what's going to 0:13:10.520 --> 0:13:12.839 become an issue at the end of Q four And 0:13:13.280 --> 0:13:15.560 Bank of America had kind of a recent note uh 0:13:15.720 --> 0:13:19.560 talking about just GA regulations and the desire of big 0:13:19.559 --> 0:13:22.960 banks to avoid search charges on their assets, and that means, 0:13:23.000 --> 0:13:26.079 you know, essentially slimming down on your assets, which obviously 0:13:26.120 --> 0:13:29.199 has ripple effects beyond in terms of those who need 0:13:29.280 --> 0:13:33.440 financing or have finance positions currently and it's kind of 0:13:33.640 --> 0:13:36.040 same as it ever was. It is shades of eighteen 0:13:36.160 --> 0:13:38.360 there and that you know, you see some banks that 0:13:38.400 --> 0:13:41.160 are right above a level where if they just got 0:13:41.160 --> 0:13:43.920 below it would be a lower charge for the next year. 0:13:43.960 --> 0:13:46.040 So that means they have the same incentive to kind 0:13:46.080 --> 0:13:48.880 of retreat from a market, the market in the way 0:13:48.920 --> 0:13:51.280 that they did in Q four that had people just 0:13:51.440 --> 0:13:55.000 crying about how bad liquidity was and really seeing a 0:13:55.040 --> 0:13:57.440 lot of the gaps you got during that time, it 0:13:57.480 --> 0:14:00.960 really makes you wonder if they shouldn't do say assets 0:14:01.040 --> 0:14:03.280 over a period rather than it doesn't. It doesn't make 0:14:03.320 --> 0:14:08.280 you wonder that that's not how the Basil agreement works. 0:14:08.320 --> 0:14:11.400 And ultimately the Basil Agreement actually is overlapping agreement that 0:14:11.480 --> 0:14:14.319 all banks do have to comply with, even though the 0:14:14.400 --> 0:14:17.319 domestic regulation may be a bit different. It has been 0:14:17.320 --> 0:14:22.120 an interesting repeating a phenomenon of the last four years 0:14:22.800 --> 0:14:26.960 sixteen eighteen and now right so, and every time that 0:14:27.040 --> 0:14:30.560 the tensions get build up that year and effect becomes 0:14:30.560 --> 0:14:34.360 more severe. So this year too, we have plenty of 0:14:34.360 --> 0:14:36.720 reasons to be really cautious. So I am with look 0:14:36.840 --> 0:14:39.680 that on that way is that we're going to go 0:14:39.760 --> 0:14:41.680 through small door. There's gonna be a lot of parties 0:14:41.720 --> 0:14:43.280 have to all go through the small door, and whether 0:14:43.280 --> 0:14:46.280 the fetes there but this repoperation or not. I don't 0:14:46.280 --> 0:14:48.800 think that the tightness in the markets will necessarily change 0:14:48.840 --> 0:15:06.760 as it was then. When you talk about shades of eighteen, 0:15:06.880 --> 0:15:09.640 especially being at the beginning of the fourth quarter, a 0:15:09.680 --> 0:15:13.080 lot of people will picture the near death experience of 0:15:13.120 --> 0:15:16.040 the ballmarket that we experienced last year. But many would 0:15:16.080 --> 0:15:18.560 point out the fact that interest rates are much lower 0:15:18.640 --> 0:15:21.480 clearly than where they were back then. How does that 0:15:21.800 --> 0:15:25.440 change the picture heading into this quarter and then maybe 0:15:25.440 --> 0:15:29.440 even into as well, because as we all know, the 0:15:29.480 --> 0:15:31.760 fourth quarter was pretty rough, but then we saw a 0:15:31.880 --> 0:15:34.840 very steep rebound. Yeah, And I think that's an interesting 0:15:34.880 --> 0:15:37.080 point because you were talking here about then the macro 0:15:37.480 --> 0:15:41.440 reasons of why there's caution that, yes, we have hunter 0:15:41.520 --> 0:15:45.560 based point basements, more of lower rates, with rate cuts everywhere. 0:15:45.840 --> 0:15:48.280 There's a lot of focus on to try to avoid 0:15:48.400 --> 0:15:51.200 the tradeboard turning into a global recession, so not our 0:15:51.280 --> 0:15:54.680 insurance being put in the system. That's completely opposite from 0:15:54.760 --> 0:15:57.520 last year. Clearly, at that time, we were actually very 0:15:57.520 --> 0:15:59.480 confident that we had a very strong outlook and it 0:15:59.560 --> 0:16:02.880 was more about talking about tightening, and in fact emerging markets, 0:16:02.880 --> 0:16:05.680 in particular central banks there had had the tighten because 0:16:05.800 --> 0:16:08.440 they dealt with pressure on their currencies. So we're really 0:16:08.480 --> 0:16:11.480 opposite situation on that front. But that all said, like, 0:16:11.920 --> 0:16:14.080 I think the complexity of the trade war has has 0:16:14.120 --> 0:16:17.000 compounded since that time, and there's so many layers have 0:16:17.080 --> 0:16:20.040 been added to with that, although not not not all 0:16:20.080 --> 0:16:22.880 of that has been yet really implemented the market clearly 0:16:22.920 --> 0:16:25.640 discounting that's a scenario that makes the economic scenario a 0:16:25.720 --> 0:16:28.520 lot worse than what we had before. They say at 0:16:28.560 --> 0:16:31.680 least six months before, you know, the complexity vally pent up. 0:16:32.040 --> 0:16:34.720 So I think that that the year end situation on 0:16:34.760 --> 0:16:37.560 that sense is not different than last year in terms 0:16:37.600 --> 0:16:41.800 of having tension about where we're really handing with trade brackits, 0:16:42.080 --> 0:16:46.400 golf tensions, etcetera. The uncertainty is just much more elevated, 0:16:46.560 --> 0:16:49.120 and that is not I think it's something that low 0:16:49.240 --> 0:16:52.240 rates have yet the offside where they have not really 0:16:52.320 --> 0:16:54.680 upsettled uncertainty. And if you look kind of at the 0:16:54.680 --> 0:16:58.240 the history of the market from eighteen to the present 0:16:58.600 --> 0:17:02.440 and especially during the risk of episodes a February UH 0:17:02.600 --> 0:17:06.520 of alpocalypse and q FO. To be clear, it's it's 0:17:06.680 --> 0:17:10.879 very evident that these don't appear to be broad macro issues. 0:17:10.920 --> 0:17:14.600 It does appear as though market structure and liquidity concerns 0:17:15.200 --> 0:17:18.000 just become the overriding factors, like we've had over the 0:17:18.000 --> 0:17:20.760 past couple of years. I'd say we're up about twenty 0:17:20.880 --> 0:17:24.919 percent and earnings are up about but the time periods 0:17:24.920 --> 0:17:28.080 in which those have occurred are completely divorced from one another. 0:17:28.119 --> 0:17:31.080 So I think, you know, the kind of stocks follow fundamentals, yeah, 0:17:31.160 --> 0:17:33.919 over the long haul, but we've seen kind of market 0:17:33.960 --> 0:17:38.320 conditions play a bigger role, especially in our risk off episodes, 0:17:39.000 --> 0:17:40.560 you know. But I wanted to go back to something 0:17:40.640 --> 0:17:46.119 you mentioned, Um, the Turkey invading Seria situation. UM. I 0:17:46.160 --> 0:17:50.120 know that Lira was weak, the Turkish lero was weak. Um, 0:17:50.560 --> 0:17:53.840 is there any other risks from that scenario that we 0:17:53.920 --> 0:17:56.280 need to think about. Have you seen any sort of 0:17:56.400 --> 0:18:00.399 contagion in markets elsewhere or is it just add on 0:18:00.480 --> 0:18:04.199 top of the sort of global geopolitical uncertainty that we 0:18:04.240 --> 0:18:06.679 have all over the place. It's an add on and 0:18:06.760 --> 0:18:09.119 it will be local and it will be very fact 0:18:09.200 --> 0:18:11.560 you know, impact on Turkey itself. And obviously the region 0:18:11.600 --> 0:18:13.840 and you know, looking Syria has been a war going 0:18:13.840 --> 0:18:17.080 on for eight years. But I think the political angle 0:18:17.119 --> 0:18:21.359 there was about the curves right who holds so many 0:18:21.400 --> 0:18:26.320 of these ices fighters and the subsequent flood of again 0:18:26.440 --> 0:18:29.480 of refugees out of Syria coming into Europe. Right, So 0:18:29.600 --> 0:18:31.439 you have Europe there in place, and you have the 0:18:31.520 --> 0:18:35.800 US focus on as and obviously the let's say, the 0:18:35.960 --> 0:18:38.840 criticism on on the on the turner from took on 0:18:38.880 --> 0:18:42.160 this on this policy related to Syria. This is another 0:18:42.200 --> 0:18:46.000 political angle here. I think that's new. It won't really 0:18:46.040 --> 0:18:49.120 impact i'd say trade talks or or or another sort 0:18:49.119 --> 0:18:53.480 of event. It's just add on um contagion to other uh, 0:18:53.920 --> 0:18:57.480 locally emerging markets is not there, other than if it 0:18:57.520 --> 0:19:00.200 were the fact that say the Turkish banks again because 0:19:00.320 --> 0:19:03.680 Leira weekends in the banks at no liquidity anymore, etcetera. 0:19:03.760 --> 0:19:05.639 That you know, there's some banks in Europe that have 0:19:05.760 --> 0:19:08.560 lent lots of Turkish banks and they and Turkish banks 0:19:08.600 --> 0:19:10.760 are very religned on dollar funding, so that could be 0:19:10.800 --> 0:19:14.439 dead tension. You know, resurfacing has happened before, you know, 0:19:14.520 --> 0:19:16.560 when Turkish LEARR was on a lot of pressure and 0:19:16.640 --> 0:19:20.080 Trump had at a big skirmage with icon as I 0:19:20.119 --> 0:19:23.439 think twenty seventeen, so maybe something like that. Other than that, 0:19:23.480 --> 0:19:26.000 I don't think it's brons Contagian issue. Well, for first, 0:19:26.080 --> 0:19:28.639 like I think you know, this is probably first and 0:19:28.680 --> 0:19:31.760 foremost in everyone's mind, more a moral issue than anything. 0:19:32.040 --> 0:19:35.239 But when it comes to the potential market impact, I 0:19:35.240 --> 0:19:37.800 think one extra way you could see this is some 0:19:37.840 --> 0:19:41.560 potential read through between this and the possibility of the 0:19:41.600 --> 0:19:45.040 president being impeached or that impeachment then being successful, and 0:19:45.080 --> 0:19:47.640 the Senate to the extent that matters to markets. Because 0:19:47.680 --> 0:19:50.399 if there's one thing that several Republican senators have not 0:19:50.520 --> 0:19:53.399 liked them have been happy to voice their disapproval on 0:19:53.440 --> 0:19:56.800 this week Marco Rubio and Lindsay graham Uh in particular 0:19:56.880 --> 0:19:58.720 come to mind, it's that they very much do not 0:19:59.160 --> 0:20:02.680 agree with this or in policy decisions. So inasmuch as 0:20:02.800 --> 0:20:06.440 the president's constituency right now is is very dependent upon 0:20:06.840 --> 0:20:09.639 his party, and particularly his party in the Senate, in 0:20:09.760 --> 0:20:12.320 order to retain control, this is one way in which 0:20:12.400 --> 0:20:15.560 he perhaps might be undermining his support. Because this has 0:20:15.560 --> 0:20:17.359 been a topic of light and we've discussed it on 0:20:17.400 --> 0:20:20.640 a couple of the past episodes been Let's get your view, 0:20:20.680 --> 0:20:24.040 I mean, thinking about impeachment and the markets, what is 0:20:24.080 --> 0:20:27.439 the relationship if at all, I guess the relationship is 0:20:27.480 --> 0:20:30.119 not about the faults of you know, treasury debt. I 0:20:30.119 --> 0:20:32.440 wouldn't strongly emphasize that. I don't think that has anything 0:20:32.440 --> 0:20:33.920 with one and on it to do, because that's would 0:20:33.960 --> 0:20:36.960 be people's first maybe thinking is said, we're going to 0:20:37.040 --> 0:20:40.320 get a default over getting a very weak dollar. Neither 0:20:40.359 --> 0:20:44.280 has happened so far or will happen. I think, um, 0:20:44.320 --> 0:20:48.080 it will be disruptive, of course, because any political leadership 0:20:48.200 --> 0:20:51.640 change causes again additional uncertainty will be here the case 0:20:51.680 --> 0:20:54.760 two if you really think about it, we have not 0:20:54.920 --> 0:20:58.280 had a political crisis like we've had in Europe for example, 0:20:58.359 --> 0:21:00.760 including what's happening with the Brexit it. So it will 0:21:00.800 --> 0:21:04.680 be a really, I think, will first constitutional political crisis 0:21:05.440 --> 0:21:07.560 that you know. Ultimately, I do think markets will react 0:21:07.640 --> 0:21:11.479