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Speaker 1: Welcome to the Bloomberg PENL Podcast. I'm Paul swing you

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Speaker 1: along with my co host Lisa Brahma wits. Each day

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Speaker 1: we bring you the most noteworthy and useful interviews for

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Speaker 1: you and your money. Whether at the grocery store or

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Speaker 1: the trading floor. Find a Bloomberg Penl podcast on Apple

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Speaker 1: podcast or wherever you listen to podcasts, as well as

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Speaker 1: at Bloomberg dot com. Paul, as we head into one

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Speaker 1: of the consensus calls is an emerging markets currencies and

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Speaker 1: assets generally will rally throughout next year. Right now, you're

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Speaker 1: seeing emerging market currencies at least the index at the

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Speaker 1: highest levels of the year. And we're so lucky to

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Speaker 1: have with us to talk about what people may be

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Speaker 1: getting right and what they might be getting wrong with

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Speaker 1: their forecasts on emerging markets and currencies next year. Is

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Speaker 1: Dr Winton, Global head of Currency Strategy for Brown Brothers.

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Speaker 1: Here are many joints is here in our eleven three

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Speaker 1: oh studios. I'd love to get your take on that.

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Speaker 1: I mean, you've heard also these forecasts. What are people

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Speaker 1: getting right? Well, I think what's right is that Morton

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Speaker 1: General have stepped back from bring you know, um you know,

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Speaker 1: seven months ago we're looking at a hard Brexit, sensifying

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Speaker 1: US China trade war. And over the last seven weeks

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Speaker 1: those those tailors have have eased. I can't say, but

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Speaker 1: then he's certainly that they've disappeared. Uh. For instance, um,

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Speaker 1: Mr Johnson, after his big election victory, he said, Oh,

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Speaker 1: we're gonna still gonna leave December thirty one, no matter what,

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Speaker 1: you know, So heart breakit. It's still floating around out there.

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Speaker 1: I don't know that's the base case, but out there

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Speaker 1: US China trade deal great. We just got news that

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Speaker 1: they're gonna sign something Phase one in in mid January likely. Um,

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Speaker 1: but that's the low hanging food. We had trouble getting

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Speaker 1: the easiest part done and we've got phase two plus

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Speaker 1: coming up. So it's it's gonna be some low level

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Speaker 1: sort of tensions I think persisting throughout. That's not to

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Speaker 1: say Marcus kent rally risk can do risk, acids can

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Speaker 1: do okay, but you just have to be you know,

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Speaker 1: you knows, be cautious. I guess that's my my watch word. Yeah,

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Speaker 1: because I'm Yeah, as Lisa and I have been talking

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Speaker 1: about the current seasons and so on, I'm just I

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Speaker 1: always kind of lead with. I have a very difficult

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Speaker 1: time coming up of the bear case for the U. S. Dollar.

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Speaker 1: I'm looking at the dollar index is off about a

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Speaker 1: third of one percent today, but you know, I'm just

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Speaker 1: not sure what rallies against it. But I guess you know,

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Speaker 1: do you think that the dollar could appreciably depreciate this year? Paul?

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Speaker 1: I mean you really have touched on really the big

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Speaker 1: debate because you know, look in long, going long dollar

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Speaker 1: was really the way to go, at least until Q

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Speaker 1: four UM. And I think I think you and I

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Speaker 1: are in the minority now. I think you know, most

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Speaker 1: most researchers and forecasters are looking for a weaker dollar

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Speaker 1: next year. And I have to agree with you. If

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Speaker 1: you don't like the dollar, where do you go? That's

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Speaker 1: my first question? Okay, we want to short the dollar?

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Speaker 1: Where you go along? Well? UK, you know again Brexit

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Speaker 1: issues are still there. Other economies is still going to

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Speaker 1: remain very weak under because it's continuing uncertainty. Your zone

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Speaker 1: is struggling. We may get another round of stimulus. That

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Speaker 1: remains me seen Japan struggling with the consumption tax hike impact.

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Speaker 1: So it's really hard for me to get excited about

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Speaker 1: a lot of other places, and I think we goes

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Speaker 1: back to so there were the least bad place out there.

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Speaker 1: Although you could say people are going to put more

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Speaker 1: money in to emerging market currency. Is what you've seen.

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Speaker 1: Uh do you buy that? Yes? I do. So we

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Speaker 1: just brought out a quarterly Uh, I guess two weeks ago,

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Speaker 1: and we do have the sort of bifurcated dollar. I

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Speaker 1: look that against the majors that should do better, but

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Speaker 1: against emerging markets, uh, it will do a little bit worse.

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Speaker 1: So it's doesn't always happen a lot of times, you know,

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Speaker 1: really trades and lockstep, but this is one of those

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Speaker 1: times where we think we can get divergence between major

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Speaker 1: currencies and emerging market currency, which nations which crosses are

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Speaker 1: going to kind of drive that in emerging markets emerging markets. Well,

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Speaker 1: that's the thing we've been telling our clientses. And you know,

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Speaker 1: you can't just go widely long m there's a lot

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Speaker 1: of idiosynecratic risk out there. You know. For instance, we're

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Speaker 1: very negative and remain very negative in South African Turkey

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Speaker 1: various reasons, but much more positible in say Brazil and

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Speaker 1: Mexico and sort of agnostic on a lot of things

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Speaker 1: in between. But it's really it's really just a matter

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Speaker 1: of really doing a homework. And I say this all

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Speaker 1: the time. You know, whether we're in a bear market

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Speaker 1: or a bull market, you know, you really got to

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Speaker 1: do your homework. You look under the hood, which countries

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Speaker 1: are doing the right things, which countries are doing the

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Speaker 1: wrong things? Um, And really, really, I think, m when

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Speaker 1: when all of dust settles, the performance story speaks for itself.

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Speaker 1: All right, you mentioned Brazil. That's kind of where I

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Speaker 1: wanted to go. What's your thesis on Brazil? Because I

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Speaker 1: know that obviously when people think about emerging markets, that's

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Speaker 1: one of the first places they think about getting disposure.

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Speaker 1: So Brazil got hammered last during this esay last year.

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Speaker 1: I feel like I was already twenty but it got

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Speaker 1: hammered in um in much of nine. And I think

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Speaker 1: for good reason. But a lot of the UM good

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Speaker 1: things are happening now. Growth is finally starting to pick up. UM.

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Speaker 1: Mr Bolson I was able to push through a majority

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Speaker 1: of his fiscal reforms. But you know, I was actually

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Speaker 1: pretty skeptical that he would be able to do so.

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Speaker 1: But he got the majority of it past um. Central

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Speaker 1: MICUs cut rates aggressively. That's the sort of the I

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Speaker 1: think the warning sign. You know, I think a lot

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Speaker 1: of investors are used to ten percent twelve percent rates

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Speaker 1: in Brazil. You know, just put money in government bonds

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Speaker 1: what have you, and you get a really solid yield.

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Speaker 1: But you know, we're record low four and a half

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Speaker 1: percent for the celic rate. I think that's the bottom.

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Speaker 1: But my only point is that we used to get

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Speaker 1: a lot of cushion, you know, used to get a

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Speaker 1: lot of sort of risk premium for what's going on

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Speaker 1: in Brazil real longer there, so we're sort of price

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Speaker 1: for perfection. Uh. Maybe market getting a little too optimistic.

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Speaker 1: But just again, it's good things. The economy is starting

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Speaker 1: to finally respond to stimulus. Um another round of structural

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Speaker 1: forms I think is in the pipeline for so you know, overall,

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Speaker 1: good story. We just have a few hours left of

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Speaker 1: the last day of the treading of treading of nineteen,

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Speaker 1: so it's time to get philosophical. It falls like I'm

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Speaker 1: going to go back to practicing my golf stroke. Um.

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Speaker 1: I want to talk a little bit about the concept

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Speaker 1: of de dollarization, because we've seen an incredible amount of

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Speaker 1: net buying of gold by central banks around the world

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Speaker 1: as they try to diversify away from the dollar. Do

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Speaker 1: you buy that that could potentially gain steam and create

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Speaker 1: a bit of weakness for the dollar. Well, I've been

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Speaker 1: in the markets for years in the space is basically

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Speaker 1: screaming note And I have to say I'm not exact

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Speaker 1: when I've heard the story multiple multiple times, and you

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Speaker 1: know at first it was gonna happen. I think the

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Speaker 1: big time was when the Euro was introduced. Well, of

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Speaker 1: course the Euro, we got this big economic powerhouse and

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Speaker 1: it's gonna replace a dollar. Um. It's interestally asked that

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Speaker 1: because I'm have just released it's quarterly co for data

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Speaker 1: competition of for in exchange reserves, and the dollar shares

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Speaker 1: actually checked up a little bits around. It's always been

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Speaker 1: so around sixty. And if you look at the at

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Speaker 1: the euro share, it's always sort of been the sum

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Speaker 1: of the parts. You know, if you took nine, nine,

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Speaker 1: you took you know, French, Frank Italian leader, blah blah blah,

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Speaker 1: you add them all up, that's pretty much what the

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Speaker 1: Euro is right now. So it's it's there's still no

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Speaker 1: one out there that to really challenge a dollar. What

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Speaker 1: about the whole concept the other philosophical question facing currencies

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Speaker 1: of a crypto un rite, the idea of some sort

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Speaker 1: of crypto currency that could supersede the dollar. No, that's

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Speaker 1: I mean, I think that's Governor Karney of the BO.

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Speaker 1: You just sort of threw that out there. It was

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Speaker 1: like you know, dropping, uh, throwing hand grenading in the

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Speaker 1: crowd that up. Yeah, it was really fascinating. Um, you know,

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Speaker 1: like the one philosophy I noticed that the person's uh,

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Speaker 1: an observer's interest in cryptocurrencies is in inversity related I'm sorry,

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Speaker 1: is positively related to their inversity related to the age.

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Speaker 1: So the older you get, I think, the more skeptical

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Speaker 1: you are cryptoscurrencies, and the younger you are like, okay,

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Speaker 1: this is the greatest things in slice bread. So you know,

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Speaker 1: I'm the oldest guy in the room, I think. So

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Speaker 1: I'm gonna be the skeptic and say, look, you know

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Speaker 1: there's a lot of you know, the whole blockchain technology

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Speaker 1: is there, right, and it has all sorts of um,

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Speaker 1: you know, secrecy provision things like that. But you know,

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Speaker 1: in terms of an actual you know, reserve conrecnier, it

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Speaker 1: just doesn't meet those those qualities. You know, that's sort

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Speaker 1: of the conditions were being a currency right in the

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Speaker 1: store value you need to measure, you know. It's just

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Speaker 1: you know, when when you tell me if a currency

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Speaker 1: you know can rally you know a day or drop

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Speaker 1: or you know, drop a thousand percent or whatever, it's

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Speaker 1: just you know, it doesn't that's not right. Know the

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Speaker 1: central banks, if you know, I've met a lot of

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Speaker 1: CenTra branks in general, they're very conservative. They you know,

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Speaker 1: they want something solid, and that's why the dollar is

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Speaker 1: still there. You can trust a dollar. You might not

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Speaker 1: agree with everyone doing, but it's got a great track record.

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Speaker 1: Dr Winton, thank you so much for joining us. Dr

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Speaker 1: Winton is global head of Currency Strategy, Brown Brothers Harriman.

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Speaker 1: Looking at the consumer, it's really been the driver for

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Speaker 1: this economy, the consumer confidence. Uh, whether you look at

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Speaker 1: the jobs or housing prices, the consumer has really been, uh,

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Speaker 1: the component of this economy that has really been supporting

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Speaker 1: the US economy as business investment, as manufacturing continue to

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Speaker 1: be under a modest amount of pressure. Let's get the

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Speaker 1: latest indicator of the Consumer Confidence Index. We welcome Lynn Franco,

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Speaker 1: Director of Economic indicators for the conference board. Joining us

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Speaker 1: on the phone from New York City. So, Lynn, give

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Speaker 1: us some color on what your data announced today means

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Speaker 1: for the consumer. I think the consumer is going to

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Speaker 1: continue to prop up the US economy. In early I mean,

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Speaker 1: we had a very slight marginal dip in consumer confidence,

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Speaker 1: mostly in people's expectations, uh, you know, regarding jobs and

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Speaker 1: their income prospects, which may suggest no real pickup in

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Speaker 1: in consumer spending. But we still expect consumers to spend

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Speaker 1: enough at least for us to have a positive growth

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Speaker 1: in Q one. When do we start to care the

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Speaker 1: fact that we did see a slight decline into summer

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Speaker 1: four or five. In the previous months we saw a

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Speaker 1: dip like this, We've really just been moving sideways. I think.

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Speaker 1: Really that's the story for nineteen and probably in early

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Speaker 1: twenty as well. So no cause for alarm. This is

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Speaker 1: sort of typical behavior. It's behavior to that suggests, you know,

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Speaker 1: we're sort of at at a plateau. So, um, you know,

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Speaker 1: our expectations are as the economy is going to continue

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Speaker 1: to expand. It around two percent in the first quarter,

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Speaker 1: second quarter, uh, consumer spending should come in and around

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Speaker 1: two and a half percent in Q one UM, so

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Speaker 1: really no red flags as of yet. One of the

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Speaker 1: key issues supporting the consumer has been the job market again,

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Speaker 1: uneployment down around three and a half percent, the best

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Speaker 1: it's been in you know, fifty or sixty years. UM.

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Speaker 1: What is your survey saying about the labor market. I

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Speaker 1: think what we're seeing here is that consumers expect a

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Speaker 1: little bit of softening in the labor market in UM.

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Speaker 1: Not that that translates into you know, suddenly, you know,

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Speaker 1: layoffs and any other sort of negative behavior, but maybe

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Speaker 1: that it won't grow just as fast as it has

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Speaker 1: in UH nineteen. I was looking at this data today

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Speaker 1: that shows half of the US population spends more than

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Speaker 1: they take in every every month, and I find it

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Speaker 1: compelling because it kind of speaks this two tier economy

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Speaker 1: that we're in. And I'm wondering from a consumer confidence level,

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Speaker 1: do you break it out or do you have a

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Speaker 1: sense of how confidence is different depending on the income level. Absolutely.

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Speaker 1: I mean if you take a look at sort of

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Speaker 1: you know, consumers earning under fifty thousand a year, UH,

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Speaker 1: their confidence level is at one oh seven, not unaveraged,

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Speaker 1: let's say, which is confident but not as confident as

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Speaker 1: their counterparts who are earning fifty and over and are

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Speaker 1: averaging at one, you know, at around one thirty eight.

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Speaker 1: So it continues to be sort of a a split

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Speaker 1: economy here in terms of consumers. And while both the

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Speaker 1: upper end and the lower end remain confident, um, those

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Speaker 1: in the upper end are much more confident. How about housing,

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Speaker 1: that's been a big part of that is a big

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Speaker 1: part of a consumer's net worth in the housing markets

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Speaker 1: generally been pretty strong with low interest rates, which your

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Speaker 1: survey saying about the housing market in US, yes, I

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Speaker 1: mean that remains sort of a bright spot. And we

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Speaker 1: did see a pick up in the percentage of consumers

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Speaker 1: who had the intention to purchase a home over the

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Speaker 1: next six months, and I think we can attribute that

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Speaker 1: to the several cuts that we've seen in you know,

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Speaker 1: in interest rates, so that should bode well for housing.

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Speaker 1: I think we've got some positive news this morning, so

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Speaker 1: that could be a very you know, bright spot in

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Speaker 1: and obviously of concumers are purchasing homes, you're going to

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Speaker 1: need you know, durables to go in there, so that

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Speaker 1: may be a boost spending as well. Lin Franco, thank

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Speaker 1: you so much. For being with us and happy to

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Speaker 1: year two. Lin franco Is, Senior Director of Economic Indicators

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Speaker 1: and Surveys at the conference. Board has been what Lisa

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Speaker 1: abrom Woods has I think correctly coined the everything rally

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Speaker 1: year Everything seems that I like it though, but I'm

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Speaker 1: not taken credit for it. That includes a gold so

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Speaker 1: which is kind of you know, given we're seeing risky

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Speaker 1: assets go to see gold move up off. It's June

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Speaker 1: low also very interesting to get a sense of what's

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Speaker 1: going on in gold, in the metals market and other

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Speaker 1: things financial. We welcome Frank Holmes, CEO and Chief Investment

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Speaker 1: Officer of US Global Investors based in San Antonio, Texas.

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Speaker 1: So Frank, again, I'm just looking at my gold chart

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Speaker 1: here and since early June gold now is rallied about

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Speaker 1: what's behind that a negative real interest rates? Bloomberg has

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Speaker 1: a beautiful function and'll let you take a look at

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Speaker 1: all the government bonds around the world, and you saw

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Speaker 1: the peak took place in August when it was a

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Speaker 1: record number of government bonds were offering negative real interest

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Speaker 1: rates to try to stimulate economic activity. And that's the

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Speaker 1: great in balance that we have, the balancing of economies,

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Speaker 1: fiscal and monetary policies. The fiscal policies are toxic regulation, monetaries,

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Speaker 1: money supply, and real interest rates. And the unprecedented number

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Speaker 1: of bonds that are offering negative real interest rates and

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Speaker 1: try to stimulate economic activity is a catalyst for gold

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Speaker 1: to trade higher. So this is an important point that

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Speaker 1: we've had negative yields for years now, but this year

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Speaker 1: we actually saw inflation tick up beyond where the yields were.

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Speaker 1: In other words, there was a sense that you are

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Speaker 1: losing money by parking it in bonds. Is that the

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Speaker 1: idea here? And that was sort of the shift in

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Speaker 1: versus the other years where they're also were negative interest rates. Well, no,

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Speaker 1: it's it's it is part of it as a good

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Speaker 1: comment you make, but I think it really is. If

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Speaker 1: you take a look at the aggregate number, it hit

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Speaker 1: an all time high in August, and that's when gold

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Speaker 1: hit an all time high. So we're seeing our strong

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Speaker 1: core relationship by I guess quant macro funds that are

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Speaker 1: going a long gold every time that trend starts. Momentum

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Speaker 1: of more and more government sovereign bonds going to negative yields.

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Speaker 1: But the inflation area in the US is real, especially

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Speaker 1: if you look at prices at Target and Walmart. And

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Speaker 1: Target Walmart are critical for covering the upper middle class

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Speaker 1: down to the lower class and all classes of that range.

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Speaker 1: And we're seeing in place and running five to six

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Speaker 1: percent with the tetraphor so you are seeing. It doesn't

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Speaker 1: show up in the CPI numbers, but the real zoomer

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Speaker 1: going out and buying products is experiencing inflation pushing six percent. So, Frank,

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Speaker 1: where do you think gold? I'm looking at gold here

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Speaker 1: announced fifty one dollars. Where's your expectation for gold maybe

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Speaker 1: a year from now. Well, it's easy for gold to

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Speaker 1: go up or down in any rolling twelve month period

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Speaker 1: of the past fifteen years. Uh. It's his DNA of

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Speaker 1: all of TILLTI seventy percent of time. So I think

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Speaker 1: you can see gold track up the eighteen hundred maybe

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Speaker 1: take out the nineteen hundred high that took place in

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Speaker 1: two thousand and eleven. Uh. And the reason why I

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Speaker 1: say that is because this in balance between monetary and

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Speaker 1: fiscal policy position makers is still not resolved. It's off.

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Speaker 1: There's only countries that have really lowered corporate taxes or

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Speaker 1: creating tax free zones for incentives are America and China. Now,

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Speaker 1: fortunately there of global trade and that's an important macro factor.

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Speaker 1: But I think that the rest of the country is,

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Speaker 1: especially Europe and Japan. Uh, there's no conviction to actually

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Speaker 1: streamline the regulations which have been growing at ager for

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Speaker 1: the past decade. All Right, so we covered gold, let's

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Speaker 1: move on to oil. We're seeing oil prices surging this year.

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Speaker 1: Are I guess searches the wrong word. They've risen significantly. Uh,

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Speaker 1: and of late they have been rising. How much more

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Speaker 1: space is there in this rally? In your opinion, I

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Speaker 1: think that oil will run into difficult eighty dollars. The

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Speaker 1: factors are just an incredible game changer. And you saw

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Speaker 1: this morning at a Russia that in fact they're lowering

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Speaker 1: some of the five year gas contracts UH to Europe. Now,

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Speaker 1: this is great for global economic activity, but it's not

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Speaker 1: so great for the energy stocks. So it's interesting. You know,

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Speaker 1: when I think about gold, it's just you know, it's

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Speaker 1: a commodity obviously supplying demand. It seems like demand has

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Speaker 1: been really the determinant of where oil is going to trade.

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Speaker 1: If there's a trade deal out there, easing trade tensions.

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Speaker 1: Oil can rally. If we have a bad tweet about

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Speaker 1: trade between US and China, oils tends to pull back.

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Speaker 1: How are you thinking about oil? Is it really demand

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Speaker 1: driven or supply driven? I think you right now is

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Speaker 1: still supply driven. And I think the the the technological

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Speaker 1: breakthroughs UH in America have, in addition to the ubers

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Speaker 1: of the world, I would change the transportation, would changed

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Speaker 1: the energy dynamics. So I think that it's going to

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Speaker 1: be definitely. Supply is going to be strong coming over

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Speaker 1: the US. They keep lowering the price of them, costing

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Speaker 1: of the costs and finding energy. It's they have a

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Speaker 1: surplus of energy. In fact, earlier this year electricity places

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Speaker 1: in Houston went to zero from the surfplus of electricity

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Speaker 1: and not only from gas but from windmills, et cetera.

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Speaker 1: So I think it's a game changer. Frank Holmes, thank

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Speaker 1: you so much for being with us, and happy New

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Speaker 1: Year to you. Frank Holmes is chief executive officer and

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Speaker 1: chief investment officer for US Global Investors. Thanks for listening

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Speaker 1: to the Bloomberg P and L podcast. You can subscribe

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Speaker 1: and listen to interviews at Apple Podcasts or whatever podcast

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Speaker 1: platform you prefer. Paul Sweeney, I'm on Twitter at pt Sweeney.

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Speaker 1: I'm Lisa bram Woyit's I'm on Twitter at Lisa A.

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Speaker 1: Bram Wits one before the podcast, you can always catch

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Speaker 1: us worldwide. I'm Bloomberg Radio