Speaker 1: Welcome to the Bloomberg PENL Podcast. I'm Paul swing you
Speaker 1: along with my co host Lisa Brahma wits. Each day
Speaker 1: we bring you the most noteworthy and useful interviews for
Speaker 1: you and your money. Whether at the grocery store or
Speaker 1: the trading floor. Find a Bloomberg Penl podcast on Apple
Speaker 1: podcast or wherever you listen to podcasts, as well as
Speaker 1: at Bloomberg dot com. Paul, as we head into one
Speaker 1: of the consensus calls is an emerging markets currencies and
Speaker 1: assets generally will rally throughout next year. Right now, you're
Speaker 1: seeing emerging market currencies at least the index at the
Speaker 1: highest levels of the year. And we're so lucky to
Speaker 1: have with us to talk about what people may be
Speaker 1: getting right and what they might be getting wrong with
Speaker 1: their forecasts on emerging markets and currencies next year. Is
Speaker 1: Dr Winton, Global head of Currency Strategy for Brown Brothers.
Speaker 1: Here are many joints is here in our eleven three
Speaker 1: oh studios. I'd love to get your take on that.
Speaker 1: I mean, you've heard also these forecasts. What are people
Speaker 1: getting right? Well, I think what's right is that Morton
Speaker 1: General have stepped back from bring you know, um you know,
Speaker 1: seven months ago we're looking at a hard Brexit, sensifying
Speaker 1: US China trade war. And over the last seven weeks
Speaker 1: those those tailors have have eased. I can't say, but
Speaker 1: then he's certainly that they've disappeared. Uh. For instance, um,
Speaker 1: Mr Johnson, after his big election victory, he said, Oh,
Speaker 1: we're gonna still gonna leave December thirty one, no matter what,
Speaker 1: you know, So heart breakit. It's still floating around out there.
Speaker 1: I don't know that's the base case, but out there
Speaker 1: US China trade deal great. We just got news that
Speaker 1: they're gonna sign something Phase one in in mid January likely. Um,
Speaker 1: but that's the low hanging food. We had trouble getting
Speaker 1: the easiest part done and we've got phase two plus
Speaker 1: coming up. So it's it's gonna be some low level
Speaker 1: sort of tensions I think persisting throughout. That's not to
Speaker 1: say Marcus kent rally risk can do risk, acids can
Speaker 1: do okay, but you just have to be you know,
Speaker 1: you knows, be cautious. I guess that's my my watch word. Yeah,
Speaker 1: because I'm Yeah, as Lisa and I have been talking
Speaker 1: about the current seasons and so on, I'm just I
Speaker 1: always kind of lead with. I have a very difficult
Speaker 1: time coming up of the bear case for the U. S. Dollar.
Speaker 1: I'm looking at the dollar index is off about a
Speaker 1: third of one percent today, but you know, I'm just
Speaker 1: not sure what rallies against it. But I guess you know,
Speaker 1: do you think that the dollar could appreciably depreciate this year? Paul?
Speaker 1: I mean you really have touched on really the big
Speaker 1: debate because you know, look in long, going long dollar
Speaker 1: was really the way to go, at least until Q
Speaker 1: four UM. And I think I think you and I
Speaker 1: are in the minority now. I think you know, most
Speaker 1: most researchers and forecasters are looking for a weaker dollar
Speaker 1: next year. And I have to agree with you. If
Speaker 1: you don't like the dollar, where do you go? That's
Speaker 1: my first question? Okay, we want to short the dollar?
Speaker 1: Where you go along? Well? UK, you know again Brexit
Speaker 1: issues are still there. Other economies is still going to
Speaker 1: remain very weak under because it's continuing uncertainty. Your zone
Speaker 1: is struggling. We may get another round of stimulus. That
Speaker 1: remains me seen Japan struggling with the consumption tax hike impact.
Speaker 1: So it's really hard for me to get excited about
Speaker 1: a lot of other places, and I think we goes
Speaker 1: back to so there were the least bad place out there.
Speaker 1: Although you could say people are going to put more
Speaker 1: money in to emerging market currency. Is what you've seen.
Speaker 1: Uh do you buy that? Yes? I do. So we
Speaker 1: just brought out a quarterly Uh, I guess two weeks ago,
Speaker 1: and we do have the sort of bifurcated dollar. I
Speaker 1: look that against the majors that should do better, but
Speaker 1: against emerging markets, uh, it will do a little bit worse.
Speaker 1: So it's doesn't always happen a lot of times, you know,
Speaker 1: really trades and lockstep, but this is one of those
Speaker 1: times where we think we can get divergence between major
Speaker 1: currencies and emerging market currency, which nations which crosses are
Speaker 1: going to kind of drive that in emerging markets emerging markets. Well,
Speaker 1: that's the thing we've been telling our clientses. And you know,
Speaker 1: you can't just go widely long m there's a lot
Speaker 1: of idiosynecratic risk out there. You know. For instance, we're
Speaker 1: very negative and remain very negative in South African Turkey
Speaker 1: various reasons, but much more positible in say Brazil and
Speaker 1: Mexico and sort of agnostic on a lot of things
Speaker 1: in between. But it's really it's really just a matter
Speaker 1: of really doing a homework. And I say this all
Speaker 1: the time. You know, whether we're in a bear market
Speaker 1: or a bull market, you know, you really got to
Speaker 1: do your homework. You look under the hood, which countries
Speaker 1: are doing the right things, which countries are doing the
Speaker 1: wrong things? Um, And really, really, I think, m when
Speaker 1: when all of dust settles, the performance story speaks for itself.
Speaker 1: All right, you mentioned Brazil. That's kind of where I
Speaker 1: wanted to go. What's your thesis on Brazil? Because I
Speaker 1: know that obviously when people think about emerging markets, that's
Speaker 1: one of the first places they think about getting disposure.
Speaker 1: So Brazil got hammered last during this esay last year.
Speaker 1: I feel like I was already twenty but it got
Speaker 1: hammered in um in much of nine. And I think
Speaker 1: for good reason. But a lot of the UM good
Speaker 1: things are happening now. Growth is finally starting to pick up. UM.
Speaker 1: Mr Bolson I was able to push through a majority
Speaker 1: of his fiscal reforms. But you know, I was actually
Speaker 1: pretty skeptical that he would be able to do so.
Speaker 1: But he got the majority of it past um. Central
Speaker 1: MICUs cut rates aggressively. That's the sort of the I
Speaker 1: think the warning sign. You know, I think a lot
Speaker 1: of investors are used to ten percent twelve percent rates
Speaker 1: in Brazil. You know, just put money in government bonds
Speaker 1: what have you, and you get a really solid yield.
Speaker 1: But you know, we're record low four and a half
Speaker 1: percent for the celic rate. I think that's the bottom.
Speaker 1: But my only point is that we used to get
Speaker 1: a lot of cushion, you know, used to get a
Speaker 1: lot of sort of risk premium for what's going on
Speaker 1: in Brazil real longer there, so we're sort of price
Speaker 1: for perfection. Uh. Maybe market getting a little too optimistic.
Speaker 1: But just again, it's good things. The economy is starting
Speaker 1: to finally respond to stimulus. Um another round of structural
Speaker 1: forms I think is in the pipeline for so you know, overall,
Speaker 1: good story. We just have a few hours left of
Speaker 1: the last day of the treading of treading of nineteen,
Speaker 1: so it's time to get philosophical. It falls like I'm
Speaker 1: going to go back to practicing my golf stroke. Um.
Speaker 1: I want to talk a little bit about the concept
Speaker 1: of de dollarization, because we've seen an incredible amount of
Speaker 1: net buying of gold by central banks around the world
Speaker 1: as they try to diversify away from the dollar. Do
Speaker 1: you buy that that could potentially gain steam and create
Speaker 1: a bit of weakness for the dollar. Well, I've been
Speaker 1: in the markets for years in the space is basically
Speaker 1: screaming note And I have to say I'm not exact
Speaker 1: when I've heard the story multiple multiple times, and you
Speaker 1: know at first it was gonna happen. I think the
Speaker 1: big time was when the Euro was introduced. Well, of
Speaker 1: course the Euro, we got this big economic powerhouse and
Speaker 1: it's gonna replace a dollar. Um. It's interestally asked that
Speaker 1: because I'm have just released it's quarterly co for data
Speaker 1: competition of for in exchange reserves, and the dollar shares
Speaker 1: actually checked up a little bits around. It's always been
Speaker 1: so around sixty. And if you look at the at
Speaker 1: the euro share, it's always sort of been the sum
Speaker 1: of the parts. You know, if you took nine, nine,
Speaker 1: you took you know, French, Frank Italian leader, blah blah blah,
Speaker 1: you add them all up, that's pretty much what the
Speaker 1: Euro is right now. So it's it's there's still no
Speaker 1: one out there that to really challenge a dollar. What
Speaker 1: about the whole concept the other philosophical question facing currencies
Speaker 1: of a crypto un rite, the idea of some sort
Speaker 1: of crypto currency that could supersede the dollar. No, that's
Speaker 1: I mean, I think that's Governor Karney of the BO.
Speaker 1: You just sort of threw that out there. It was
Speaker 1: like you know, dropping, uh, throwing hand grenading in the
Speaker 1: crowd that up. Yeah, it was really fascinating. Um, you know,
Speaker 1: like the one philosophy I noticed that the person's uh,
Speaker 1: an observer's interest in cryptocurrencies is in inversity related I'm sorry,
Speaker 1: is positively related to their inversity related to the age.
Speaker 1: So the older you get, I think, the more skeptical
Speaker 1: you are cryptoscurrencies, and the younger you are like, okay,
Speaker 1: this is the greatest things in slice bread. So you know,
Speaker 1: I'm the oldest guy in the room, I think. So
Speaker 1: I'm gonna be the skeptic and say, look, you know
Speaker 1: there's a lot of you know, the whole blockchain technology
Speaker 1: is there, right, and it has all sorts of um,
Speaker 1: you know, secrecy provision things like that. But you know,
Speaker 1: in terms of an actual you know, reserve conrecnier, it
Speaker 1: just doesn't meet those those qualities. You know, that's sort
Speaker 1: of the conditions were being a currency right in the
Speaker 1: store value you need to measure, you know. It's just
Speaker 1: you know, when when you tell me if a currency
Speaker 1: you know can rally you know a day or drop
Speaker 1: or you know, drop a thousand percent or whatever, it's
Speaker 1: just you know, it doesn't that's not right. Know the
Speaker 1: central banks, if you know, I've met a lot of
Speaker 1: CenTra branks in general, they're very conservative. They you know,
Speaker 1: they want something solid, and that's why the dollar is
Speaker 1: still there. You can trust a dollar. You might not
Speaker 1: agree with everyone doing, but it's got a great track record.
Speaker 1: Dr Winton, thank you so much for joining us. Dr
Speaker 1: Winton is global head of Currency Strategy, Brown Brothers Harriman.
Speaker 1: Looking at the consumer, it's really been the driver for
Speaker 1: this economy, the consumer confidence. Uh, whether you look at
Speaker 1: the jobs or housing prices, the consumer has really been, uh,
Speaker 1: the component of this economy that has really been supporting
Speaker 1: the US economy as business investment, as manufacturing continue to
Speaker 1: be under a modest amount of pressure. Let's get the
Speaker 1: latest indicator of the Consumer Confidence Index. We welcome Lynn Franco,
Speaker 1: Director of Economic indicators for the conference board. Joining us
Speaker 1: on the phone from New York City. So, Lynn, give
Speaker 1: us some color on what your data announced today means
Speaker 1: for the consumer. I think the consumer is going to
Speaker 1: continue to prop up the US economy. In early I mean,
Speaker 1: we had a very slight marginal dip in consumer confidence,
Speaker 1: mostly in people's expectations, uh, you know, regarding jobs and
Speaker 1: their income prospects, which may suggest no real pickup in
Speaker 1: in consumer spending. But we still expect consumers to spend
Speaker 1: enough at least for us to have a positive growth
Speaker 1: in Q one. When do we start to care the
Speaker 1: fact that we did see a slight decline into summer
Speaker 1: four or five. In the previous months we saw a
Speaker 1: dip like this, We've really just been moving sideways. I think.
Speaker 1: Really that's the story for nineteen and probably in early
Speaker 1: twenty as well. So no cause for alarm. This is
Speaker 1: sort of typical behavior. It's behavior to that suggests, you know,
Speaker 1: we're sort of at at a plateau. So, um, you know,
Speaker 1: our expectations are as the economy is going to continue
Speaker 1: to expand. It around two percent in the first quarter,
Speaker 1: second quarter, uh, consumer spending should come in and around
Speaker 1: two and a half percent in Q one UM, so
Speaker 1: really no red flags as of yet. One of the
Speaker 1: key issues supporting the consumer has been the job market again,
Speaker 1: uneployment down around three and a half percent, the best
Speaker 1: it's been in you know, fifty or sixty years. UM.
Speaker 1: What is your survey saying about the labor market. I
Speaker 1: think what we're seeing here is that consumers expect a
Speaker 1: little bit of softening in the labor market in UM.
Speaker 1: Not that that translates into you know, suddenly, you know,
Speaker 1: layoffs and any other sort of negative behavior, but maybe
Speaker 1: that it won't grow just as fast as it has
Speaker 1: in UH nineteen. I was looking at this data today
Speaker 1: that shows half of the US population spends more than
Speaker 1: they take in every every month, and I find it
Speaker 1: compelling because it kind of speaks this two tier economy
Speaker 1: that we're in. And I'm wondering from a consumer confidence level,
Speaker 1: do you break it out or do you have a
Speaker 1: sense of how confidence is different depending on the income level. Absolutely.
Speaker 1: I mean if you take a look at sort of
Speaker 1: you know, consumers earning under fifty thousand a year, UH,
Speaker 1: their confidence level is at one oh seven, not unaveraged,
Speaker 1: let's say, which is confident but not as confident as
Speaker 1: their counterparts who are earning fifty and over and are
Speaker 1: averaging at one, you know, at around one thirty eight.
Speaker 1: So it continues to be sort of a a split
Speaker 1: economy here in terms of consumers. And while both the
Speaker 1: upper end and the lower end remain confident, um, those
Speaker 1: in the upper end are much more confident. How about housing,
Speaker 1: that's been a big part of that is a big
Speaker 1: part of a consumer's net worth in the housing markets
Speaker 1: generally been pretty strong with low interest rates, which your
Speaker 1: survey saying about the housing market in US, yes, I
Speaker 1: mean that remains sort of a bright spot. And we
Speaker 1: did see a pick up in the percentage of consumers
Speaker 1: who had the intention to purchase a home over the
Speaker 1: next six months, and I think we can attribute that
Speaker 1: to the several cuts that we've seen in you know,
Speaker 1: in interest rates, so that should bode well for housing.
Speaker 1: I think we've got some positive news this morning, so
Speaker 1: that could be a very you know, bright spot in
Speaker 1: and obviously of concumers are purchasing homes, you're going to
Speaker 1: need you know, durables to go in there, so that
Speaker 1: may be a boost spending as well. Lin Franco, thank
Speaker 1: you so much. For being with us and happy to
Speaker 1: year two. Lin franco Is, Senior Director of Economic Indicators
Speaker 1: and Surveys at the conference. Board has been what Lisa
Speaker 1: abrom Woods has I think correctly coined the everything rally
Speaker 1: year Everything seems that I like it though, but I'm
Speaker 1: not taken credit for it. That includes a gold so
Speaker 1: which is kind of you know, given we're seeing risky
Speaker 1: assets go to see gold move up off. It's June
Speaker 1: low also very interesting to get a sense of what's
Speaker 1: going on in gold, in the metals market and other
Speaker 1: things financial. We welcome Frank Holmes, CEO and Chief Investment
Speaker 1: Officer of US Global Investors based in San Antonio, Texas.
Speaker 1: So Frank, again, I'm just looking at my gold chart
Speaker 1: here and since early June gold now is rallied about
Speaker 1: what's behind that a negative real interest rates? Bloomberg has
Speaker 1: a beautiful function and'll let you take a look at
Speaker 1: all the government bonds around the world, and you saw
Speaker 1: the peak took place in August when it was a
Speaker 1: record number of government bonds were offering negative real interest
Speaker 1: rates to try to stimulate economic activity. And that's the
Speaker 1: great in balance that we have, the balancing of economies,
Speaker 1: fiscal and monetary policies. The fiscal policies are toxic regulation, monetaries,
Speaker 1: money supply, and real interest rates. And the unprecedented number
Speaker 1: of bonds that are offering negative real interest rates and
Speaker 1: try to stimulate economic activity is a catalyst for gold
Speaker 1: to trade higher. So this is an important point that
Speaker 1: we've had negative yields for years now, but this year
Speaker 1: we actually saw inflation tick up beyond where the yields were.
Speaker 1: In other words, there was a sense that you are
Speaker 1: losing money by parking it in bonds. Is that the
Speaker 1: idea here? And that was sort of the shift in
Speaker 1: versus the other years where they're also were negative interest rates. Well, no,
Speaker 1: it's it's it is part of it as a good
Speaker 1: comment you make, but I think it really is. If
Speaker 1: you take a look at the aggregate number, it hit
Speaker 1: an all time high in August, and that's when gold
Speaker 1: hit an all time high. So we're seeing our strong
Speaker 1: core relationship by I guess quant macro funds that are
Speaker 1: going a long gold every time that trend starts. Momentum
Speaker 1: of more and more government sovereign bonds going to negative yields.
Speaker 1: But the inflation area in the US is real, especially
Speaker 1: if you look at prices at Target and Walmart. And
Speaker 1: Target Walmart are critical for covering the upper middle class
Speaker 1: down to the lower class and all classes of that range.
Speaker 1: And we're seeing in place and running five to six
Speaker 1: percent with the tetraphor so you are seeing. It doesn't
Speaker 1: show up in the CPI numbers, but the real zoomer
Speaker 1: going out and buying products is experiencing inflation pushing six percent. So, Frank,
Speaker 1: where do you think gold? I'm looking at gold here
Speaker 1: announced fifty one dollars. Where's your expectation for gold maybe
Speaker 1: a year from now. Well, it's easy for gold to
Speaker 1: go up or down in any rolling twelve month period
Speaker 1: of the past fifteen years. Uh. It's his DNA of
Speaker 1: all of TILLTI seventy percent of time. So I think
Speaker 1: you can see gold track up the eighteen hundred maybe
Speaker 1: take out the nineteen hundred high that took place in
Speaker 1: two thousand and eleven. Uh. And the reason why I
Speaker 1: say that is because this in balance between monetary and
Speaker 1: fiscal policy position makers is still not resolved. It's off.
Speaker 1: There's only countries that have really lowered corporate taxes or
Speaker 1: creating tax free zones for incentives are America and China. Now,
Speaker 1: fortunately there of global trade and that's an important macro factor.
Speaker 1: But I think that the rest of the country is,
Speaker 1: especially Europe and Japan. Uh, there's no conviction to actually
Speaker 1: streamline the regulations which have been growing at ager for
Speaker 1: the past decade. All Right, so we covered gold, let's
Speaker 1: move on to oil. We're seeing oil prices surging this year.
Speaker 1: Are I guess searches the wrong word. They've risen significantly. Uh,
Speaker 1: and of late they have been rising. How much more
Speaker 1: space is there in this rally? In your opinion, I
Speaker 1: think that oil will run into difficult eighty dollars. The
Speaker 1: factors are just an incredible game changer. And you saw
Speaker 1: this morning at a Russia that in fact they're lowering
Speaker 1: some of the five year gas contracts UH to Europe. Now,
Speaker 1: this is great for global economic activity, but it's not
Speaker 1: so great for the energy stocks. So it's interesting. You know,
Speaker 1: when I think about gold, it's just you know, it's
Speaker 1: a commodity obviously supplying demand. It seems like demand has
Speaker 1: been really the determinant of where oil is going to trade.
Speaker 1: If there's a trade deal out there, easing trade tensions.
Speaker 1: Oil can rally. If we have a bad tweet about
Speaker 1: trade between US and China, oils tends to pull back.
Speaker 1: How are you thinking about oil? Is it really demand
Speaker 1: driven or supply driven? I think you right now is
Speaker 1: still supply driven. And I think the the the technological
Speaker 1: breakthroughs UH in America have, in addition to the ubers
Speaker 1: of the world, I would change the transportation, would changed
Speaker 1: the energy dynamics. So I think that it's going to
Speaker 1: be definitely. Supply is going to be strong coming over
Speaker 1: the US. They keep lowering the price of them, costing
Speaker 1: of the costs and finding energy. It's they have a
Speaker 1: surplus of energy. In fact, earlier this year electricity places
Speaker 1: in Houston went to zero from the surfplus of electricity
Speaker 1: and not only from gas but from windmills, et cetera.
Speaker 1: So I think it's a game changer. Frank Holmes, thank
Speaker 1: you so much for being with us, and happy New
Speaker 1: Year to you. Frank Holmes is chief executive officer and
Speaker 1: chief investment officer for US Global Investors. Thanks for listening
Speaker 1: to the Bloomberg P and L podcast. You can subscribe
Speaker 1: and listen to interviews at Apple Podcasts or whatever podcast
Speaker 1: platform you prefer. Paul Sweeney, I'm on Twitter at pt Sweeney.
Speaker 1: I'm Lisa bram Woyit's I'm on Twitter at Lisa A.
Speaker 1: Bram Wits one before the podcast, you can always catch
Speaker 1: us worldwide. I'm Bloomberg Radio