1 00:00:13,520 --> 00:00:16,560 Speaker 1: Hello, and welcome to What Goes Up, a Bloomberg Weekly 2 00:00:16,640 --> 00:00:20,520 Speaker 1: Markets podcast. I'm Mike Reagan, a senior editor here at Bloomberg, 3 00:00:20,880 --> 00:00:23,239 Speaker 1: and I'm Jenny Patty is filling in for Sarta Ponzac, 4 00:00:23,280 --> 00:00:26,360 Speaker 1: who is on assignment this week. On the show, US 5 00:00:26,400 --> 00:00:29,480 Speaker 1: stocks just keep on trucking. They climbed to more record 6 00:00:29,520 --> 00:00:31,920 Speaker 1: highs this week, even though there is not a lot 7 00:00:31,920 --> 00:00:34,120 Speaker 1: of clarity on when we'll see a deal to end 8 00:00:34,120 --> 00:00:37,320 Speaker 1: the trade war. That's Dendard, economic data and corporate profits. 9 00:00:37,880 --> 00:00:40,200 Speaker 1: We'll talk to a strategist this week who thinks stocks 10 00:00:40,240 --> 00:00:42,400 Speaker 1: may come back down to earth a bit before the 11 00:00:42,479 --> 00:00:45,280 Speaker 1: year ends. And we'll also talk to a markets reporter 12 00:00:45,320 --> 00:00:48,000 Speaker 1: who has been following the situations in China and Hong 13 00:00:48,040 --> 00:00:51,560 Speaker 1: Kong very closely, and as always, will close out the 14 00:00:51,600 --> 00:00:54,480 Speaker 1: episode with our tradition the craziest thing I saw in 15 00:00:54,640 --> 00:00:57,520 Speaker 1: markets this week? And remember you two can contribute to 16 00:00:57,560 --> 00:01:01,560 Speaker 1: the podcast. Just call our Bloomberg Podcast hotline at six 17 00:01:01,600 --> 00:01:05,679 Speaker 1: four or six three two four three four nine oh, 18 00:01:05,720 --> 00:01:08,520 Speaker 1: and you can ask us a question, suggest a guest 19 00:01:08,560 --> 00:01:11,240 Speaker 1: for the show, or even share your own craziest thing 20 00:01:11,319 --> 00:01:13,440 Speaker 1: you saw in markets in the week. Just leave a 21 00:01:13,520 --> 00:01:16,200 Speaker 1: voicemail and maybe we'll play your call on the show. 22 00:01:17,240 --> 00:01:19,959 Speaker 1: And that strange voice you heard that is Jenny Paris 23 00:01:20,120 --> 00:01:23,440 Speaker 1: our co Ho special co host this week, executive editor 24 00:01:24,000 --> 00:01:27,440 Speaker 1: for Bonds and f X at Bloomberg. I think, one 25 00:01:27,440 --> 00:01:30,200 Speaker 1: of the leading authorities in bonds and f X in 26 00:01:30,240 --> 00:01:32,840 Speaker 1: the company. And I'm not just saying that because it's 27 00:01:32,920 --> 00:01:37,480 Speaker 1: a year end evaluation time. I swear just totally separate issue, right, 28 00:01:40,800 --> 00:01:43,720 Speaker 1: forget I mentioned it at all. And also we welcome 29 00:01:43,720 --> 00:01:46,600 Speaker 1: back to the show Laurie Calvacina, the head of US 30 00:01:46,640 --> 00:01:51,000 Speaker 1: equity strategy at RBC Capital Markets. Laurie, welcome back. Thanks 31 00:01:51,000 --> 00:01:54,000 Speaker 1: for having me and also joining us again another second 32 00:01:54,000 --> 00:01:56,720 Speaker 1: time I think on the showy She he's a markets 33 00:01:56,720 --> 00:02:00,520 Speaker 1: blogger for Bloomberg Markets Live, Easy, expert on all things 34 00:02:00,640 --> 00:02:03,200 Speaker 1: China and global markets. E. It's a pleasure to have 35 00:02:03,240 --> 00:02:05,920 Speaker 1: you back on the show. Thanks for having all. Right, 36 00:02:06,880 --> 00:02:09,360 Speaker 1: lor let's start with you. I you had a note 37 00:02:09,360 --> 00:02:12,480 Speaker 1: out this week that really caught my attention because I 38 00:02:12,480 --> 00:02:17,280 Speaker 1: think the SMP was trading at about and you said 39 00:02:17,560 --> 00:02:21,280 Speaker 1: we're not going to change our year end target of fifty. 40 00:02:21,440 --> 00:02:24,160 Speaker 1: So I'm reading it, I'm thinking, wow, that's about five 41 00:02:24,800 --> 00:02:27,000 Speaker 1: dropped from here, and I have to hand it to 42 00:02:27,040 --> 00:02:29,280 Speaker 1: you a for not changing your your ear end target 43 00:02:29,280 --> 00:02:31,520 Speaker 1: in November. That's kind of that's kind of a shady 44 00:02:31,520 --> 00:02:33,800 Speaker 1: thing to do. But I think you make a good 45 00:02:33,840 --> 00:02:37,400 Speaker 1: case for why we may see the SMP sort of 46 00:02:37,400 --> 00:02:39,200 Speaker 1: come back to earth a little bit by the end 47 00:02:39,200 --> 00:02:42,680 Speaker 1: of the year and hit that target. Of So why 48 00:02:42,680 --> 00:02:45,280 Speaker 1: don't you walk us through your thinking on why you're 49 00:02:45,280 --> 00:02:48,240 Speaker 1: sticking by that target. Sure, so you know, we view 50 00:02:48,280 --> 00:02:50,920 Speaker 1: our our target as a signaling mechanism as much as 51 00:02:50,919 --> 00:02:52,920 Speaker 1: anything else, and at this point in time, we don't 52 00:02:53,000 --> 00:02:54,760 Speaker 1: want to signal to people that we think you should 53 00:02:54,840 --> 00:02:57,600 Speaker 1: chase the market up in the short term. And if 54 00:02:57,639 --> 00:02:59,120 Speaker 1: you go through when you look through a lot of 55 00:02:59,120 --> 00:03:01,440 Speaker 1: our indicators, and people who know me say, you know, Laurie, 56 00:03:01,440 --> 00:03:02,760 Speaker 1: one of the things we like about you as you're 57 00:03:02,800 --> 00:03:05,640 Speaker 1: all about the data. So, especially when we feel like 58 00:03:05,680 --> 00:03:08,160 Speaker 1: emotions coming back into the market, we really rely on 59 00:03:08,240 --> 00:03:10,120 Speaker 1: that data and I see a lot of peaks in 60 00:03:10,160 --> 00:03:12,760 Speaker 1: that data. Um first thing we see when we look 61 00:03:12,760 --> 00:03:16,080 Speaker 1: at our valuation indicator, we are back to levels that 62 00:03:16,160 --> 00:03:19,160 Speaker 1: we saw really mark a ceiling several times over the 63 00:03:19,200 --> 00:03:22,400 Speaker 1: last few years, including when the tax Reform Act was 64 00:03:22,440 --> 00:03:25,720 Speaker 1: passed back in January. Um, it's marked a ceiling a 65 00:03:25,760 --> 00:03:28,320 Speaker 1: couple of other times since then. When we look at 66 00:03:28,360 --> 00:03:31,640 Speaker 1: the CFTC positioning data, we see something similar. Um, we 67 00:03:31,720 --> 00:03:37,520 Speaker 1: are back to July, nineteen, September and January eighteen extremes. 68 00:03:37,520 --> 00:03:39,760 Speaker 1: So we think that you are just plain old fashioned 69 00:03:39,800 --> 00:03:42,760 Speaker 1: overbought in the equity market right now. And to be honest, Mike, 70 00:03:42,800 --> 00:03:44,600 Speaker 1: when I talked to investors and I talked to people 71 00:03:44,600 --> 00:03:47,360 Speaker 1: who are more bullish, I hear the fomo in their voices, 72 00:03:47,840 --> 00:03:50,040 Speaker 1: and I look back at this chart and I think 73 00:03:50,080 --> 00:03:52,440 Speaker 1: back to those peaks and I heard the same thing. Then. 74 00:03:52,640 --> 00:03:56,240 Speaker 1: So even the sort of you know, kind of entry 75 00:03:56,320 --> 00:03:59,320 Speaker 1: of emotion into some of the discussions about the market seem, 76 00:03:59,320 --> 00:04:01,160 Speaker 1: you know, sort of ski really familiar to me at 77 00:04:01,200 --> 00:04:02,560 Speaker 1: this point in time. And there are you know, four 78 00:04:02,560 --> 00:04:04,240 Speaker 1: other reasons we went through, but I would say those 79 00:04:04,240 --> 00:04:06,360 Speaker 1: are the two primary things we've been looking at, you know, 80 00:04:06,440 --> 00:04:10,000 Speaker 1: Like I said, it's it's a rational, logical, believable case. 81 00:04:10,400 --> 00:04:12,000 Speaker 1: The one thing I will ask you, though, is I 82 00:04:12,040 --> 00:04:14,560 Speaker 1: feel like, uh, the end of the year December is 83 00:04:14,640 --> 00:04:17,080 Speaker 1: kind of when the period of the year when rational 84 00:04:17,160 --> 00:04:20,560 Speaker 1: logical cases kind of go to die. You know that 85 00:04:20,640 --> 00:04:23,040 Speaker 1: FOMA really kicks in. You've got window dressing at the 86 00:04:23,120 --> 00:04:25,840 Speaker 1: end of the year. Uh, you've got you know, the 87 00:04:25,880 --> 00:04:29,160 Speaker 1: proverbial Santa claus rally. Is any of that sort of 88 00:04:30,440 --> 00:04:32,680 Speaker 1: a risk to your targets? You think, where is there 89 00:04:32,720 --> 00:04:35,479 Speaker 1: are the fundamentals? Really do they feel like they're gonna 90 00:04:35,480 --> 00:04:37,440 Speaker 1: win out here? So, you know, I do think the 91 00:04:37,440 --> 00:04:39,800 Speaker 1: sort of year in chasing, I do think that matters. 92 00:04:39,839 --> 00:04:41,400 Speaker 1: But I think you already saw a good amount of 93 00:04:41,440 --> 00:04:43,839 Speaker 1: that in October UM. And one of the things we've 94 00:04:43,880 --> 00:04:45,800 Speaker 1: pointed out we have this one chart where we look 95 00:04:45,839 --> 00:04:48,640 Speaker 1: at when mutual funds fiscal year ends are. There are 96 00:04:48,640 --> 00:04:50,560 Speaker 1: a lot in December, but they're almost just as many 97 00:04:50,560 --> 00:04:52,960 Speaker 1: in October. So we think that's largely played out at 98 00:04:52,960 --> 00:04:56,280 Speaker 1: this point. And honestly, I would say most active managers 99 00:04:56,320 --> 00:04:59,320 Speaker 1: we talked to their out performing for the year. UM. 100 00:04:59,360 --> 00:05:01,440 Speaker 1: They haven't had as easy of a go as it lately, 101 00:05:01,480 --> 00:05:03,240 Speaker 1: So I think there's a little bit of rebalancing that's 102 00:05:03,240 --> 00:05:05,640 Speaker 1: going on, But I frankly worry more about profit taking 103 00:05:05,920 --> 00:05:08,479 Speaker 1: for that remaining amount of funds that have the December 104 00:05:08,480 --> 00:05:13,880 Speaker 1: fiscal year ends. So with this year round approaching. For 105 00:05:13,960 --> 00:05:17,760 Speaker 1: these managers, really the priority is uh preservation of their 106 00:05:17,800 --> 00:05:19,800 Speaker 1: profit and their ownings. What do you think would be 107 00:05:19,800 --> 00:05:23,040 Speaker 1: the catalyst between now and then that would change their views, 108 00:05:23,040 --> 00:05:27,320 Speaker 1: that would prompt them to really go back to reevaluating 109 00:05:27,640 --> 00:05:29,719 Speaker 1: their holdings that they have so far. So one of 110 00:05:29,720 --> 00:05:32,720 Speaker 1: the things we've talked about is the fact that expectations 111 00:05:32,720 --> 00:05:34,719 Speaker 1: are still too high and we frankly haven't seen that 112 00:05:34,800 --> 00:05:37,200 Speaker 1: much of an adjustment to them over the last few 113 00:05:37,200 --> 00:05:40,080 Speaker 1: weeks and earnings um you know, we found analysts are 114 00:05:40,160 --> 00:05:41,920 Speaker 1: asking companies what do you think is going to happen 115 00:05:41,920 --> 00:05:43,960 Speaker 1: in twenty twenty, and the companies are coming back and say, now, 116 00:05:44,040 --> 00:05:45,920 Speaker 1: I get back to us in January and February. We 117 00:05:45,960 --> 00:05:47,960 Speaker 1: don't really have a lot of visibility on that, but 118 00:05:48,040 --> 00:05:49,599 Speaker 1: we do think that risk is going to start to 119 00:05:49,600 --> 00:05:51,600 Speaker 1: get priced in at some point because we do talk 120 00:05:51,640 --> 00:05:53,560 Speaker 1: to a lot of investors who say, well, maybe you know, 121 00:05:53,640 --> 00:05:55,880 Speaker 1: nine percent earnings growth next year is not going to happen. 122 00:05:56,320 --> 00:05:58,480 Speaker 1: And as I've talked to people over the past week, 123 00:05:58,920 --> 00:06:02,440 Speaker 1: I'm really sensing a sort of, you know, concern. While 124 00:06:02,480 --> 00:06:04,480 Speaker 1: we know we're not going into a recession, but are 125 00:06:04,480 --> 00:06:06,480 Speaker 1: we really seeing what we need to see to think 126 00:06:06,480 --> 00:06:08,640 Speaker 1: there's a major re acceleration coming, So there are some 127 00:06:08,680 --> 00:06:11,720 Speaker 1: seeds of doubts starting to creep in. I would also say, frankly, 128 00:06:11,800 --> 00:06:13,960 Speaker 1: on the trade war, we think that good news. There 129 00:06:14,000 --> 00:06:15,720 Speaker 1: has been a lot of the part of this move. 130 00:06:15,760 --> 00:06:19,280 Speaker 1: If you look since August, we've seen tremendous outperformance by 131 00:06:19,279 --> 00:06:22,000 Speaker 1: trade war sensitive stocks and we're starting to see some 132 00:06:22,000 --> 00:06:25,280 Speaker 1: stumbles this week where perhaps that phase one deal, which 133 00:06:25,320 --> 00:06:27,279 Speaker 1: was supposed to be the easy, low hanging fruit, is 134 00:06:27,279 --> 00:06:29,400 Speaker 1: proving to be a lot tougher to come by. UM. 135 00:06:29,440 --> 00:06:31,280 Speaker 1: And we think that's been a huge part of this rally. 136 00:06:31,480 --> 00:06:33,840 Speaker 1: I think we're valuations and positioning our the market can't 137 00:06:33,839 --> 00:06:36,080 Speaker 1: handle bad news there. Yeah, I'm curious. You know, you 138 00:06:36,160 --> 00:06:39,520 Speaker 1: talked to a lot of clients and fund managers and whatnot. Um, 139 00:06:40,320 --> 00:06:42,720 Speaker 1: do you get the impression that the consensus is that 140 00:06:42,839 --> 00:06:45,120 Speaker 1: this phase one of the deal is a done deal? 141 00:06:45,200 --> 00:06:47,480 Speaker 1: Is that seem to be you know what everyone's thinking 142 00:06:47,520 --> 00:06:49,120 Speaker 1: right now? Well, well, I'll give you a hard stat 143 00:06:49,160 --> 00:06:50,960 Speaker 1: on that, and it's a little bit stale. But um. 144 00:06:51,000 --> 00:06:53,000 Speaker 1: Back at the end of September, we did an investor 145 00:06:53,080 --> 00:06:55,200 Speaker 1: survey and we actually asked people, do you think a 146 00:06:55,200 --> 00:06:57,000 Speaker 1: trade deal. When do you think a trade deal with 147 00:06:57,080 --> 00:06:59,599 Speaker 1: China will get done? And we found that there wasn't 148 00:06:59,600 --> 00:07:02,080 Speaker 1: a lot of and census on the timing, but two 149 00:07:02,120 --> 00:07:04,960 Speaker 1: thirds of the investors in that poll back in September 150 00:07:05,440 --> 00:07:07,960 Speaker 1: said that they thought something would get done before the election. 151 00:07:07,960 --> 00:07:11,320 Speaker 1: In so, I think there's there's been a view that 152 00:07:11,760 --> 00:07:14,880 Speaker 1: Trump needs to get a win on this front before 153 00:07:14,920 --> 00:07:17,680 Speaker 1: the election. I've been hearing about that since August. That 154 00:07:17,720 --> 00:07:20,800 Speaker 1: hasn't really changed. Um So, I think the expectation there 155 00:07:20,840 --> 00:07:22,880 Speaker 1: is pretty high now. I think people are debating what 156 00:07:22,960 --> 00:07:25,640 Speaker 1: will the content of that deal be, But generally I 157 00:07:25,640 --> 00:07:27,680 Speaker 1: think most people have expected something to get done and 158 00:07:27,680 --> 00:07:30,720 Speaker 1: they've just kind of coalesced around this four Q timing. 159 00:07:31,000 --> 00:07:33,440 Speaker 1: So missing that sort of original deadline was supposed to 160 00:07:33,480 --> 00:07:36,880 Speaker 1: be at the APEC summit that was canceled because of 161 00:07:36,920 --> 00:07:39,600 Speaker 1: the unrest in Chili. I think that was scheduled for 162 00:07:39,640 --> 00:07:42,720 Speaker 1: next week basically the middle of November. Uh. Missing that 163 00:07:42,840 --> 00:07:45,160 Speaker 1: sort of artificial deadline is not really something that's going 164 00:07:45,200 --> 00:07:47,400 Speaker 1: to concern people too much. Respect I think that something 165 00:07:47,440 --> 00:07:49,360 Speaker 1: needs to get done sooner rather than later. But I 166 00:07:49,400 --> 00:07:51,320 Speaker 1: think that particular point in time, I mean, you saw 167 00:07:51,320 --> 00:07:53,400 Speaker 1: a reaction in the market very briefly, and then we 168 00:07:53,480 --> 00:07:56,000 Speaker 1: bounced back. But one thing I would also tell you is, 169 00:07:56,040 --> 00:07:57,840 Speaker 1: you know, we're we're sort of getting these dribs and 170 00:07:57,920 --> 00:08:00,840 Speaker 1: drabs in the market right We're not. It feels like 171 00:08:00,880 --> 00:08:03,320 Speaker 1: we're melting up. But these percentage moves every day are 172 00:08:03,320 --> 00:08:06,480 Speaker 1: actually not that huge. So I do think that's, you know, 173 00:08:06,520 --> 00:08:09,000 Speaker 1: a little bit of skepticism there, maybe weighing on things 174 00:08:09,000 --> 00:08:10,680 Speaker 1: a bit. I feel like that's creeping in just a 175 00:08:10,680 --> 00:08:14,320 Speaker 1: little bit. Right now, you're in the advantage seed if 176 00:08:14,320 --> 00:08:16,480 Speaker 1: you're the only one among us who can actually follow 177 00:08:16,520 --> 00:08:20,800 Speaker 1: the Chinese state media in the original language and social media. 178 00:08:21,120 --> 00:08:24,440 Speaker 1: What is your takeaway of the sentiment uh coming off 179 00:08:24,560 --> 00:08:27,200 Speaker 1: of the Chinese media right now from what you've read, 180 00:08:27,280 --> 00:08:30,000 Speaker 1: is it is the optimism there as well that a 181 00:08:30,040 --> 00:08:33,280 Speaker 1: deal is sort of in the near future, were sometime 182 00:08:33,320 --> 00:08:36,320 Speaker 1: next year, I think I would have characterized as a 183 00:08:36,440 --> 00:08:40,920 Speaker 1: cautious optivism. UM. I think what's interesting is that the 184 00:08:41,040 --> 00:08:45,040 Speaker 1: Chinese as increasingly take a hotline towards the US um 185 00:08:45,080 --> 00:08:47,800 Speaker 1: because they sense there's some like the timing is on 186 00:08:47,880 --> 00:08:50,880 Speaker 1: their side with the election, with the economy is kind 187 00:08:50,880 --> 00:08:54,480 Speaker 1: of slowing down. Trump probably needs something, So what they 188 00:08:54,520 --> 00:08:58,319 Speaker 1: ask for is at the precondiction condition for phase one deal, 189 00:08:58,800 --> 00:09:02,520 Speaker 1: US need not only to call off the potential tariff 190 00:09:02,600 --> 00:09:05,840 Speaker 1: in December, but also to remove some of the existing 191 00:09:05,840 --> 00:09:11,960 Speaker 1: tariffs imposed as precondition for any deal. And Uh, the 192 00:09:12,040 --> 00:09:14,640 Speaker 1: Chinese position has been quite clearly, if you want to deal, 193 00:09:14,760 --> 00:09:17,040 Speaker 1: this is our our demand. You have to meet our 194 00:09:17,120 --> 00:09:20,640 Speaker 1: demand if you want to deal. So it's up to 195 00:09:21,080 --> 00:09:23,760 Speaker 1: pregnant Trump whether he wants a deal or not. How 196 00:09:23,920 --> 00:09:25,760 Speaker 1: is it would that be? We know that he does 197 00:09:25,880 --> 00:09:28,560 Speaker 1: want a deal and he wants something positive going into 198 00:09:28,559 --> 00:09:31,400 Speaker 1: the twenty election, But at the same time, we hear 199 00:09:31,440 --> 00:09:34,200 Speaker 1: a lot of noise this last few days, especially about 200 00:09:34,600 --> 00:09:38,520 Speaker 1: how backing down on tariffs has become one of the 201 00:09:38,600 --> 00:09:42,280 Speaker 1: Chinese demands and that's probably the hardest one to deliver. Yeah, 202 00:09:42,400 --> 00:09:45,120 Speaker 1: my sense is that the US I try to maxim 203 00:09:45,440 --> 00:09:50,000 Speaker 1: maximize the concession from China using the tariff as a 204 00:09:50,080 --> 00:09:54,560 Speaker 1: leverage um. At this moment, it's not clear how much 205 00:09:54,880 --> 00:09:58,520 Speaker 1: ground Chinese China needs to give up, so we are 206 00:09:58,760 --> 00:10:01,480 Speaker 1: kind of hanging balanced. Ye, Jenny, I'm gonna put you 207 00:10:01,559 --> 00:10:04,439 Speaker 1: in the hot seat here as well. Uh, just because 208 00:10:04,480 --> 00:10:06,000 Speaker 1: your co host doesn't mean you get out of have 209 00:10:06,040 --> 00:10:09,000 Speaker 1: an answer questions. You know, you read all of our 210 00:10:09,120 --> 00:10:13,480 Speaker 1: coverage on the bond market, and earlier in this month, 211 00:10:14,320 --> 00:10:16,800 Speaker 1: you know, people were talking about these green shoots in 212 00:10:16,800 --> 00:10:19,320 Speaker 1: the economy. One of the things that was backing that 213 00:10:19,440 --> 00:10:21,920 Speaker 1: up is this sort of sell off in the treasury market. 214 00:10:22,000 --> 00:10:24,280 Speaker 1: We saw the ten year yield sort of creeping back 215 00:10:24,320 --> 00:10:27,440 Speaker 1: towards that two percent level. This week, though there seems 216 00:10:27,480 --> 00:10:30,880 Speaker 1: to be yet another about face. I'm curious, what do 217 00:10:30,920 --> 00:10:34,360 Speaker 1: you think is driving that and is there isn't at 218 00:10:34,360 --> 00:10:37,600 Speaker 1: all possible to kind of predict the next sort of 219 00:10:38,240 --> 00:10:40,319 Speaker 1: trend for yields or is it a lost cause at 220 00:10:40,320 --> 00:10:43,720 Speaker 1: this point the bond the bond market, I would say 221 00:10:44,120 --> 00:10:46,240 Speaker 1: at the moment, we're saying it in a in a 222 00:10:46,360 --> 00:10:49,679 Speaker 1: rat where traders basically are trying to decide where we're 223 00:10:49,679 --> 00:10:52,280 Speaker 1: going to go next. And I think the best characterization 224 00:10:52,400 --> 00:10:56,520 Speaker 1: that I so this week in the note was describing 225 00:10:56,600 --> 00:11:00,600 Speaker 1: it as a line from the ground all of your 226 00:11:00,920 --> 00:11:05,440 Speaker 1: English nursery rhyme where it goes Basically, the rhyme goes 227 00:11:05,480 --> 00:11:08,720 Speaker 1: like bones went up marched up a hill, they took 228 00:11:08,760 --> 00:11:10,800 Speaker 1: a look up from up there, and then they climb 229 00:11:10,880 --> 00:11:13,960 Speaker 1: back down and that's really boring. Where we seeing Bonn 230 00:11:14,080 --> 00:11:17,280 Speaker 1: Hills going at the moment when when they knocked at 231 00:11:17,280 --> 00:11:20,520 Speaker 1: the two percent door, I think traders and the market 232 00:11:20,559 --> 00:11:23,520 Speaker 1: started to wonder what is going to take Bonn Hills 233 00:11:23,600 --> 00:11:26,640 Speaker 1: higher from here? And really what we're saying now is 234 00:11:27,040 --> 00:11:30,400 Speaker 1: a lack of inflation still coming back to how this 235 00:11:30,840 --> 00:11:35,880 Speaker 1: market and it's uh the reflation trade that people even 236 00:11:36,000 --> 00:11:39,320 Speaker 1: dirt starting talk again earlier this week. It has no 237 00:11:39,520 --> 00:11:42,640 Speaker 1: legs if we don't see really prices moving up. We 238 00:11:42,679 --> 00:11:46,640 Speaker 1: had CPI data earlier this week. All of that is 239 00:11:46,720 --> 00:11:50,400 Speaker 1: coming to really add up to there is no impeters 240 00:11:50,640 --> 00:11:54,600 Speaker 1: for the bond rally to to stop at this point. Well, 241 00:11:54,600 --> 00:11:57,679 Speaker 1: when English nursery rhymes are being used to explain the market, 242 00:11:57,679 --> 00:11:58,959 Speaker 1: I thought, I thought we were dumping ahead of the 243 00:11:59,040 --> 00:12:01,440 Speaker 1: craziest thing in markets this week. That's a good contender. 244 00:12:01,520 --> 00:12:04,319 Speaker 1: Reminds me of one Yi sang sang the bond market 245 00:12:04,360 --> 00:12:08,160 Speaker 1: theme song to sim But lord, let's get back to you. I. 246 00:12:08,400 --> 00:12:10,680 Speaker 1: You know, one of the things you've written about recently 247 00:12:10,720 --> 00:12:14,960 Speaker 1: two is this rotation from growth and momentum back into value. 248 00:12:15,640 --> 00:12:18,439 Speaker 1: How much of that is dependent on the signals from 249 00:12:18,440 --> 00:12:21,240 Speaker 1: the bond market I mean, obviously financials banks are some 250 00:12:21,280 --> 00:12:25,000 Speaker 1: of the big stocks in the value index. Will the 251 00:12:25,000 --> 00:12:27,240 Speaker 1: bond markets sort of call the shots to some degree 252 00:12:27,280 --> 00:12:29,720 Speaker 1: to the to that rotation, Well, you know, I will 253 00:12:29,720 --> 00:12:31,480 Speaker 1: say to some extent, I do think this is just 254 00:12:31,559 --> 00:12:33,559 Speaker 1: all one big trade and the bond yields right in 255 00:12:33,600 --> 00:12:35,120 Speaker 1: the middle of it. So we've done a lot of 256 00:12:35,120 --> 00:12:37,520 Speaker 1: work and we've put a lot of charts together. The 257 00:12:37,559 --> 00:12:39,959 Speaker 1: bond yield moves up, um you tend to see I 258 00:12:40,200 --> 00:12:42,360 Speaker 1: S M move up, and we think what's really being 259 00:12:42,400 --> 00:12:44,600 Speaker 1: expressed in the industrials trade at the moment and the 260 00:12:44,600 --> 00:12:46,440 Speaker 1: financials trade as well, is just the idea that the 261 00:12:46,480 --> 00:12:49,400 Speaker 1: industrial economy is bottoming. And if you go back and 262 00:12:49,440 --> 00:12:51,920 Speaker 1: you look to the period we actually saw the bond 263 00:12:51,960 --> 00:12:54,040 Speaker 1: yield stabilize before i SM did, So we think the 264 00:12:54,040 --> 00:12:57,880 Speaker 1: bond yield has being somewhat anticipatory and investors are really 265 00:12:57,920 --> 00:13:00,240 Speaker 1: trying to bank on this re acceleration and in the 266 00:13:00,240 --> 00:13:03,280 Speaker 1: global economy and the domestic economy. Now, I will tell 267 00:13:03,320 --> 00:13:07,239 Speaker 1: you on industrials, we did upgrade it back in September, 268 00:13:07,280 --> 00:13:09,079 Speaker 1: and that's not quite the call we were making. I 269 00:13:09,080 --> 00:13:11,000 Speaker 1: think we caught a nice tail wind here, but The 270 00:13:11,040 --> 00:13:13,320 Speaker 1: way we put it was, look, if we're at a 271 00:13:13,360 --> 00:13:16,480 Speaker 1: turning point and we really are re accelerating, we think 272 00:13:16,480 --> 00:13:19,280 Speaker 1: that industrials are deeply undervalued. We think that they will 273 00:13:19,360 --> 00:13:22,360 Speaker 1: rip on the upside. And we said, if we're, by contrast, 274 00:13:22,440 --> 00:13:24,520 Speaker 1: at a tipping point, we think that's already baked in, 275 00:13:24,760 --> 00:13:27,360 Speaker 1: and if we lose the economy, we lose the consumer. 276 00:13:27,400 --> 00:13:30,040 Speaker 1: The consumer sectors are overvalued. There's more risk there, So 277 00:13:30,160 --> 00:13:32,360 Speaker 1: go ahead and buy the industrials. Anyway, they'll probably hold 278 00:13:32,400 --> 00:13:35,200 Speaker 1: up on the downside. So I can see ways industrials 279 00:13:35,240 --> 00:13:37,120 Speaker 1: could hang on here. But I would say, Mike, in general, 280 00:13:37,160 --> 00:13:38,880 Speaker 1: I think you're right that the bond yield is calling 281 00:13:38,880 --> 00:13:41,240 Speaker 1: the shots here, you know, and I keep hearing about 282 00:13:41,280 --> 00:13:43,839 Speaker 1: these quote unquote green shoots in the economy. I think 283 00:13:43,840 --> 00:13:46,360 Speaker 1: a lot of people are really talking about signals from 284 00:13:46,360 --> 00:13:50,040 Speaker 1: the market itself, either the bond market were the leaders 285 00:13:50,040 --> 00:13:51,960 Speaker 1: in the stock market. Is there any sort of hard 286 00:13:52,040 --> 00:13:54,120 Speaker 1: economic data that you're looking at. I mean, we still 287 00:13:54,160 --> 00:13:57,360 Speaker 1: have a I S M manufacturing UH index. That's that's 288 00:13:57,520 --> 00:14:00,560 Speaker 1: very weak. Uh. Are there a green shoots in the 289 00:14:00,600 --> 00:14:03,000 Speaker 1: hard data? So you know, when we look at things 290 00:14:03,000 --> 00:14:05,240 Speaker 1: like the yield curve, you've gone from a mild inversion 291 00:14:05,240 --> 00:14:08,440 Speaker 1: to slight steepening that's coincided with the shift into value, 292 00:14:08,480 --> 00:14:10,960 Speaker 1: the shift in the small cap that's traditionally how the 293 00:14:10,960 --> 00:14:12,720 Speaker 1: trade works. UM. So I don't know if you would 294 00:14:12,760 --> 00:14:14,680 Speaker 1: call that hard data or not, but it is something 295 00:14:14,720 --> 00:14:17,439 Speaker 1: that is saying that the moves have been justified. UM. 296 00:14:17,520 --> 00:14:19,200 Speaker 1: One thing that we look at in our small cap 297 00:14:19,200 --> 00:14:20,920 Speaker 1: work as well as the year over year trend and 298 00:14:20,960 --> 00:14:23,760 Speaker 1: the cast freight shipment data, and what we're seeing there 299 00:14:23,840 --> 00:14:26,440 Speaker 1: is not not what I would call a green shoot necessarily, 300 00:14:26,800 --> 00:14:29,320 Speaker 1: but you're starting to get less bad on that year 301 00:14:29,360 --> 00:14:31,880 Speaker 1: over year decline, and traditionally small caps do tend to 302 00:14:31,920 --> 00:14:34,040 Speaker 1: get a little bit of a bid when that that 303 00:14:34,240 --> 00:14:36,880 Speaker 1: deceleration stops and you start to get a little bit 304 00:14:36,960 --> 00:14:39,440 Speaker 1: less bad in terms of the decline. So I think 305 00:14:39,440 --> 00:14:42,880 Speaker 1: you're seeing some things that can justify the bottoming argument. 306 00:14:43,480 --> 00:14:46,040 Speaker 1: My view is it's still maybe just a little bit 307 00:14:46,080 --> 00:14:50,560 Speaker 1: too early to declare and all clear to declare this reacceleration. UM. 308 00:14:50,640 --> 00:14:53,120 Speaker 1: We've gone through reporting season. I'm not seeing a lot 309 00:14:53,160 --> 00:15:11,880 Speaker 1: of commentary on those green shoots. We had a couple 310 00:15:11,960 --> 00:15:16,440 Speaker 1: of days of testimony from Chairman Dround Powell, and one 311 00:15:16,480 --> 00:15:19,240 Speaker 1: thing that became clear is that he doesn't see any 312 00:15:19,280 --> 00:15:23,400 Speaker 1: serious risks to the current expansion. Uh. And if anything, 313 00:15:23,440 --> 00:15:28,200 Speaker 1: he also said that there isn't really what is characteristic 314 00:15:28,200 --> 00:15:30,200 Speaker 1: in this expected there is there any sector that is 315 00:15:30,240 --> 00:15:34,560 Speaker 1: really hot, So you can't have a beast if there 316 00:15:34,640 --> 00:15:37,520 Speaker 1: is no boom. As he put it, Uh, it doesn't 317 00:15:37,520 --> 00:15:40,480 Speaker 1: sound like the fat things that we are towards the 318 00:15:40,560 --> 00:15:43,280 Speaker 1: end of the cycle. And even they called their first 319 00:15:43,360 --> 00:15:46,920 Speaker 1: rate cut to mid cycle adjustment. Now, you know, I 320 00:15:46,960 --> 00:15:49,320 Speaker 1: thought I saw that same common as well about the 321 00:15:49,600 --> 00:15:53,360 Speaker 1: hot areas. UM, I'm not I'm not sure. UM I 322 00:15:53,400 --> 00:15:55,920 Speaker 1: would characterize what's going on with software and I T 323 00:15:56,080 --> 00:15:59,640 Speaker 1: services stocks as cool necessarily. Um. You know, that's something 324 00:15:59,680 --> 00:16:01,640 Speaker 1: we've described as sort of a mini bubblet and I 325 00:16:01,640 --> 00:16:04,160 Speaker 1: think there have been, you know, other examples of that 326 00:16:04,240 --> 00:16:06,080 Speaker 1: as well. I think there are so many excesses that 327 00:16:06,120 --> 00:16:08,240 Speaker 1: are around. You know, we we see the same things 328 00:16:08,240 --> 00:16:10,400 Speaker 1: when we look at entertainment stocks, for example, that they've 329 00:16:10,440 --> 00:16:13,400 Speaker 1: been pretty overvalued and overbought. They're not quite as widespread 330 00:16:13,440 --> 00:16:16,240 Speaker 1: as they've been in the past. When I hear about 331 00:16:16,280 --> 00:16:19,800 Speaker 1: the rotation from growth in the value, I always wonder 332 00:16:20,120 --> 00:16:22,920 Speaker 1: is it really valuations. Is it the fact that the 333 00:16:22,960 --> 00:16:26,640 Speaker 1: rest of the market is sort of expensive and the 334 00:16:26,760 --> 00:16:29,800 Speaker 1: valuations that are sucking people in, Or is it uh 335 00:16:30,160 --> 00:16:33,920 Speaker 1: the companies and the industries, those real cyclical industries that 336 00:16:34,000 --> 00:16:37,600 Speaker 1: are in the value cohort for the moment. Is it 337 00:16:37,880 --> 00:16:40,000 Speaker 1: which do you see as sort of the driver of 338 00:16:40,040 --> 00:16:42,520 Speaker 1: that rotation. Well, I think it's it's sort of a 339 00:16:42,560 --> 00:16:45,800 Speaker 1: breakdown in the affinity for secular growth. And if you 340 00:16:45,840 --> 00:16:48,280 Speaker 1: think about you know, some of these software stocks for example, 341 00:16:48,320 --> 00:16:50,520 Speaker 1: or these I T services names, some of these internet 342 00:16:50,600 --> 00:16:52,520 Speaker 1: names that we're doing well in the first half of 343 00:16:52,520 --> 00:16:54,200 Speaker 1: the year, they were viewed as safe havens in the 344 00:16:54,240 --> 00:16:57,680 Speaker 1: trade war, safe havens from an economic slowdown, and so 345 00:16:57,760 --> 00:16:59,960 Speaker 1: there was a real desire to be in those areas 346 00:17:00,040 --> 00:17:02,240 Speaker 1: and that basically just coincides with the growth in the 347 00:17:02,280 --> 00:17:04,679 Speaker 1: momentum trade. When you look on the flip side and 348 00:17:04,720 --> 00:17:06,399 Speaker 1: you look at value, I do think a lot of 349 00:17:06,400 --> 00:17:09,200 Speaker 1: it is this particular sector. So we look at things 350 00:17:09,200 --> 00:17:12,240 Speaker 1: like financials and industrials. They've done very well here recently, 351 00:17:13,080 --> 00:17:16,040 Speaker 1: for better or worse, since those are two sectors that 352 00:17:16,080 --> 00:17:18,640 Speaker 1: outperform when I M is going up and underperform when 353 00:17:18,640 --> 00:17:20,840 Speaker 1: I S M is going down. They are the cyclicals 354 00:17:20,920 --> 00:17:24,240 Speaker 1: of this particular cycle, and so you know, I think 355 00:17:24,240 --> 00:17:27,520 Speaker 1: that the ability of those sectors to lead UM has 356 00:17:27,560 --> 00:17:29,760 Speaker 1: really dictated that move into the value trade. We have 357 00:17:29,800 --> 00:17:33,440 Speaker 1: also seen historically going back over many cycles that financials 358 00:17:33,440 --> 00:17:36,000 Speaker 1: and industrials are two sectors that when they outperform, the 359 00:17:36,040 --> 00:17:38,240 Speaker 1: value trade is working generally. So I think they really 360 00:17:38,240 --> 00:17:41,199 Speaker 1: go hand in hand. Shee. It all comes back to 361 00:17:41,240 --> 00:17:43,520 Speaker 1: the trade. Were at the end of the day, and 362 00:17:43,880 --> 00:17:46,320 Speaker 1: I'm curious because you spent what was it three or 363 00:17:46,359 --> 00:17:49,959 Speaker 1: four months recently actually in Hong Kong. You had an 364 00:17:49,960 --> 00:17:52,919 Speaker 1: assignment over there for Bloomberg. Ironically, you show up in 365 00:17:52,960 --> 00:17:54,800 Speaker 1: Hong Kong and everything goes crazy. I don't know if 366 00:17:54,800 --> 00:17:59,560 Speaker 1: it's if there's a correlation the correlation, but walk us 367 00:17:59,600 --> 00:18:03,320 Speaker 1: through um sort of your experience in Hong Kong, what 368 00:18:03,480 --> 00:18:07,840 Speaker 1: you saw. I'm curious what you think about the unrest 369 00:18:08,000 --> 00:18:10,800 Speaker 1: in Hong Kong and if it could ever sort of 370 00:18:10,840 --> 00:18:14,280 Speaker 1: collide with the trade tensions. Obviously, there's a bill that's 371 00:18:14,320 --> 00:18:16,359 Speaker 1: kind of stalled in the Senate now, the Hong Kong 372 00:18:16,440 --> 00:18:20,720 Speaker 1: Human Rights and Democracy Act, that would uh cause the 373 00:18:20,800 --> 00:18:23,359 Speaker 1: US to sort of monitor the situation in Hong Kong 374 00:18:23,400 --> 00:18:26,920 Speaker 1: going forward, or could these two stories sort of collide 375 00:18:27,040 --> 00:18:28,920 Speaker 1: and kind of gum up the trade talks at all? 376 00:18:29,359 --> 00:18:32,200 Speaker 1: I think my opinion, my personal opinion is that the 377 00:18:32,280 --> 00:18:36,159 Speaker 1: China's attitude has being like separate the trade found the 378 00:18:36,200 --> 00:18:42,200 Speaker 1: diplomat issues, geographic politics issues. They trade these trade talk 379 00:18:42,320 --> 00:18:46,880 Speaker 1: as pure trade relations. So I don't think the Hong 380 00:18:46,960 --> 00:18:50,320 Speaker 1: Kong situation is tied to the trade talk itself. Uh. 381 00:18:50,400 --> 00:18:54,520 Speaker 1: But obviously the whole nationalism could affect the could give 382 00:18:54,600 --> 00:18:58,359 Speaker 1: some voices of the hawks within the Chinese government, But 383 00:18:58,440 --> 00:19:00,760 Speaker 1: I don't think these two things that go handing hand. 384 00:19:01,200 --> 00:19:04,920 Speaker 1: So even though we could have some bills uh we 385 00:19:05,000 --> 00:19:08,160 Speaker 1: gotting to the Hong Kong human rights or even Shin 386 00:19:08,240 --> 00:19:11,600 Speaker 1: Jong situation or even so China see, but we could 387 00:19:11,680 --> 00:19:15,480 Speaker 1: see some positive progress on the trade front. Lord, do 388 00:19:15,480 --> 00:19:17,760 Speaker 1: you do you think about this Hong Kong situation when 389 00:19:17,800 --> 00:19:20,000 Speaker 1: you're when you're thinking about markets. We've thought about it 390 00:19:20,040 --> 00:19:22,040 Speaker 1: a little bit, and you know, we're we're a market 391 00:19:22,040 --> 00:19:25,040 Speaker 1: I'm a market expert, not a political expert. But you know, 392 00:19:25,880 --> 00:19:27,359 Speaker 1: you kind of have to put on both hats to 393 00:19:27,400 --> 00:19:30,119 Speaker 1: some extent today in my seat, and we we've really 394 00:19:30,200 --> 00:19:33,600 Speaker 1: just We've seen so many investors speculate about who has 395 00:19:33,680 --> 00:19:36,679 Speaker 1: the leverage and who has the incentive. And you know, 396 00:19:36,720 --> 00:19:39,720 Speaker 1: the way I look at this is I do think that, uh, 397 00:19:39,840 --> 00:19:41,880 Speaker 1: neither side at this point in time, because of what's 398 00:19:41,920 --> 00:19:44,919 Speaker 1: going on domestically in their own countries, can really afford 399 00:19:44,920 --> 00:19:47,760 Speaker 1: to look weak. And so I see sort of two 400 00:19:47,760 --> 00:19:49,520 Speaker 1: sides that are going to be very determined to go 401 00:19:49,600 --> 00:19:51,359 Speaker 1: in and really get what they want and stand up 402 00:19:51,400 --> 00:19:54,280 Speaker 1: for their countries. And in my mind, that makes, um, 403 00:19:54,320 --> 00:19:57,200 Speaker 1: getting concessions more difficult. So I've probably been a little 404 00:19:57,200 --> 00:19:59,359 Speaker 1: bit more skeptical that we get a Phase one than 405 00:19:59,359 --> 00:20:00,879 Speaker 1: a lot of the invest as I talked to. And 406 00:20:00,920 --> 00:20:04,480 Speaker 1: I've also frankly been skeptical that, um, we're going to 407 00:20:04,560 --> 00:20:07,040 Speaker 1: get anything of real substance that's going to allow businesses 408 00:20:07,080 --> 00:20:10,439 Speaker 1: to have confidence to invest again that necessarily, you know, 409 00:20:10,520 --> 00:20:13,840 Speaker 1: a sort of weak deal wouldn't necessarily be an impediments 410 00:20:13,840 --> 00:20:16,359 Speaker 1: who the market taking off as a result of I imagine, well, 411 00:20:16,359 --> 00:20:19,920 Speaker 1: the problem with a weak deal that doesn't really accomplish anything. 412 00:20:19,960 --> 00:20:22,200 Speaker 1: And remember this is being talked about in different phases 413 00:20:22,760 --> 00:20:27,480 Speaker 1: is companies understand that there are bigger issues at play here, 414 00:20:27,520 --> 00:20:29,920 Speaker 1: and if you get a deal that doesn't really address 415 00:20:29,960 --> 00:20:31,919 Speaker 1: any of those and they aren't really off the table. 416 00:20:32,080 --> 00:20:35,960 Speaker 1: I don't personally understand how that restores business confidence. If 417 00:20:35,960 --> 00:20:39,240 Speaker 1: you look at the conference board measure of CEO confidence, 418 00:20:39,480 --> 00:20:42,400 Speaker 1: it's literally about as bad as it tends to get 419 00:20:42,440 --> 00:20:44,159 Speaker 1: in the middle of her sessions. I mean, it is 420 00:20:44,320 --> 00:20:46,680 Speaker 1: really really down in the dull drums. At this point 421 00:20:46,680 --> 00:20:48,280 Speaker 1: in time, there's been a lot of damage done to 422 00:20:48,320 --> 00:20:51,639 Speaker 1: business confidence, and so, you know, getting a weak deal 423 00:20:51,840 --> 00:20:55,000 Speaker 1: while corporations know that there are still these bigger issues 424 00:20:55,000 --> 00:20:57,560 Speaker 1: that have to be dealt with. I just don't understand 425 00:20:57,560 --> 00:20:59,800 Speaker 1: how that changes the mentality. And I'll be honest with you. 426 00:20:59,840 --> 00:21:02,160 Speaker 1: As we've looked through these corporate transcripts, we are looking 427 00:21:02,200 --> 00:21:04,639 Speaker 1: to see what companies are saying about a Phase one 428 00:21:04,680 --> 00:21:06,840 Speaker 1: trade deal. And I read one company that talked, I 429 00:21:06,840 --> 00:21:09,520 Speaker 1: think about a ray of sunshine, um, and that was 430 00:21:09,560 --> 00:21:11,919 Speaker 1: about it. UM. I am Italy haven't gotten through this 431 00:21:11,920 --> 00:21:14,840 Speaker 1: week's transcript yet. I've only gotten through last Friday. But 432 00:21:15,359 --> 00:21:18,200 Speaker 1: you know, I'm just not seeing a lot of table pounding, 433 00:21:18,240 --> 00:21:20,720 Speaker 1: a lot of excitement over Phase one deal. You know, 434 00:21:20,720 --> 00:21:22,920 Speaker 1: I'm I'm seeing it in the market. I'm not seeing 435 00:21:22,920 --> 00:21:27,960 Speaker 1: it in corporate commentary. Just to go back to China 436 00:21:27,960 --> 00:21:32,560 Speaker 1: and Hong Kong, how much does the situation actually we 437 00:21:32,680 --> 00:21:36,920 Speaker 1: can China's negotiating position, like talking about a week deal. 438 00:21:37,560 --> 00:21:41,480 Speaker 1: Does it put China on the defensive here having to 439 00:21:41,560 --> 00:21:45,280 Speaker 1: deal with such a situation so close to home? Uh? China, 440 00:21:45,359 --> 00:21:48,159 Speaker 1: we know that they have tried too so hard to 441 00:21:48,160 --> 00:21:52,359 Speaker 1: avoid some kind of credit crisis in their own backyard. 442 00:21:52,880 --> 00:21:57,639 Speaker 1: Could this be some kind other implosion that would actually 443 00:21:57,960 --> 00:22:01,120 Speaker 1: uh force them to in a in a way that 444 00:22:01,200 --> 00:22:04,240 Speaker 1: hasn't been antssipated so far. UM. I think the Chinese 445 00:22:04,240 --> 00:22:07,359 Speaker 1: position have been clear that the Hong Kong is Hong 446 00:22:07,440 --> 00:22:11,840 Speaker 1: Kong's government has the capacity and the capability and resources 447 00:22:11,920 --> 00:22:15,000 Speaker 1: to deal with this issue. They respect these one country 448 00:22:15,000 --> 00:22:18,159 Speaker 1: two systems. So at this point, all these issues are 449 00:22:18,240 --> 00:22:22,119 Speaker 1: left with the Hong Kong government. UM, while the China 450 00:22:22,200 --> 00:22:25,760 Speaker 1: is focused um it's domestic issues. It's a relation with 451 00:22:25,800 --> 00:22:28,439 Speaker 1: the with the US. I don't think the Hong Kong 452 00:22:28,880 --> 00:22:32,159 Speaker 1: situation is going to affect or change any of the 453 00:22:32,200 --> 00:22:34,480 Speaker 1: thinking of the Chinese government when it comes to the 454 00:22:34,480 --> 00:22:39,440 Speaker 1: trade or managing its only economy. In terms of how 455 00:22:39,520 --> 00:22:43,000 Speaker 1: China managed economy, one of the tools that they're using 456 00:22:43,480 --> 00:22:45,800 Speaker 1: is of course the U want and the fixing, the 457 00:22:45,880 --> 00:22:49,040 Speaker 1: daily fixing. It's always something that we watched to see 458 00:22:49,080 --> 00:22:51,880 Speaker 1: as the which way at China. The win is blowing 459 00:22:51,960 --> 00:22:54,639 Speaker 1: in China. What do you make of it? These days? 460 00:22:54,640 --> 00:22:58,480 Speaker 1: They have been actually keeping it pretty stable so far. Yeah, 461 00:22:58,560 --> 00:23:01,760 Speaker 1: it's the market. It's kind of nervous. Back in July 462 00:23:01,880 --> 00:23:05,720 Speaker 1: August when the yuan first broke the seven pa dollar level, 463 00:23:05,840 --> 00:23:07,719 Speaker 1: that a lot of people thought it was like a 464 00:23:08,160 --> 00:23:12,560 Speaker 1: psychologically very important level. But since then the market has 465 00:23:13,040 --> 00:23:16,320 Speaker 1: kind of calm down and perhaps supported by the all 466 00:23:16,400 --> 00:23:20,680 Speaker 1: these positive sentiment or the trade situation. The fact is 467 00:23:20,720 --> 00:23:23,960 Speaker 1: that PBOC have been largely hands off since then of 468 00:23:24,000 --> 00:23:26,240 Speaker 1: a couple of amoungst this. If you look at the 469 00:23:26,280 --> 00:23:30,720 Speaker 1: fixing relative to the actual price of the Chinese yuan, 470 00:23:30,760 --> 00:23:34,080 Speaker 1: they are pretty close. So there's no any sign that 471 00:23:34,040 --> 00:23:37,320 Speaker 1: the government or the PBOC is intervening in the market 472 00:23:37,440 --> 00:23:40,399 Speaker 1: to support at this point. Is the our attitude is 473 00:23:40,480 --> 00:23:42,720 Speaker 1: kind of hands free. You let the market to decide 474 00:23:42,760 --> 00:23:46,080 Speaker 1: exchange rate. They are not in a position to push 475 00:23:46,160 --> 00:23:49,520 Speaker 1: one way or the other. Alright, I think before we 476 00:23:49,520 --> 00:23:51,840 Speaker 1: get to the craziest things, Laurie, we already put you 477 00:23:51,880 --> 00:23:54,959 Speaker 1: on the spot on your two thousand nineteen year and forecast. 478 00:23:55,320 --> 00:23:59,040 Speaker 1: I'll be issuing my two thousand nineteen forecast in late December. Well, 479 00:23:59,080 --> 00:24:01,679 Speaker 1: let's stand by for that, but I correct me if 480 00:24:01,680 --> 00:24:04,600 Speaker 1: I'm wrong. I don't think you've put out one for yet. 481 00:24:04,640 --> 00:24:07,360 Speaker 1: Is there any sort of teaser you can give us something? Well, look, 482 00:24:07,400 --> 00:24:09,560 Speaker 1: we haven't put out a price target for twenty yet, 483 00:24:09,600 --> 00:24:12,680 Speaker 1: but we have actually published our twenty earnings forecast, and 484 00:24:12,720 --> 00:24:14,360 Speaker 1: we we put that out a couple of months ago. 485 00:24:14,480 --> 00:24:17,680 Speaker 1: We've been fine tuning it ever since, and we're modeling 486 00:24:17,720 --> 00:24:19,880 Speaker 1: in five and a half percent earnings growth, which would 487 00:24:19,880 --> 00:24:21,720 Speaker 1: be a bit of a recovery from this year, which 488 00:24:21,720 --> 00:24:23,600 Speaker 1: looks like it's going to come in more or less flat. 489 00:24:23,960 --> 00:24:25,399 Speaker 1: And I'll tell you that the sort of nuts and 490 00:24:25,400 --> 00:24:28,040 Speaker 1: bolts of our model have been something investors have been 491 00:24:28,040 --> 00:24:31,320 Speaker 1: really interested in, especially the last few weeks. Um you know, 492 00:24:31,359 --> 00:24:33,480 Speaker 1: I would say one big assumption that we have is 493 00:24:33,520 --> 00:24:35,040 Speaker 1: we've got to think about four and a half percent 494 00:24:35,080 --> 00:24:37,920 Speaker 1: revenue growth, baked in some of that from sluggish GDP growth, 495 00:24:37,960 --> 00:24:40,720 Speaker 1: some of that from inflation. But as I talked to investors, 496 00:24:40,720 --> 00:24:42,919 Speaker 1: they're very focused on what the revenue backdrop will be 497 00:24:43,000 --> 00:24:45,760 Speaker 1: so that that's been of interest. UM. We've baked in 498 00:24:45,800 --> 00:24:47,720 Speaker 1: sixty w t I, which may be a little bit 499 00:24:47,760 --> 00:24:51,320 Speaker 1: too high. UM. The other thing that's interesting is we've 500 00:24:51,320 --> 00:24:54,920 Speaker 1: baked in flat margins and that's something else that investors 501 00:24:54,920 --> 00:24:57,000 Speaker 1: have really, you know, sort of wanted to understand why 502 00:24:57,040 --> 00:25:00,040 Speaker 1: we've baked in commodity cost pressures have come down, and 503 00:25:00,280 --> 00:25:03,399 Speaker 1: we frankly just seeing companies have prioritized keeping their margins 504 00:25:03,400 --> 00:25:05,800 Speaker 1: intact this year. UM. And then the last thing we're 505 00:25:05,840 --> 00:25:08,360 Speaker 1: baking in that that may be a bit controversial. We've 506 00:25:08,400 --> 00:25:10,840 Speaker 1: got buy back activity moderating to about a one percent 507 00:25:10,920 --> 00:25:13,640 Speaker 1: next year account reduction next year, UM, and this year 508 00:25:13,640 --> 00:25:15,200 Speaker 1: it's going to come in more like to two point 509 00:25:15,200 --> 00:25:18,120 Speaker 1: one percent. So you know that we think it's still 510 00:25:18,119 --> 00:25:19,960 Speaker 1: going to be a good year from an earnings perspective, 511 00:25:20,000 --> 00:25:21,480 Speaker 1: but we think the cell side is about, you know, 512 00:25:21,520 --> 00:25:23,880 Speaker 1: twice as high as it should be. Can I ask 513 00:25:23,960 --> 00:25:26,359 Speaker 1: what you baked in for treasury years? Since you said 514 00:25:26,359 --> 00:25:28,760 Speaker 1: that the acting is a signal. Um, you know, we're 515 00:25:28,800 --> 00:25:33,000 Speaker 1: to be honest, we're using the Bloomberg consensus data on that. UM. 516 00:25:33,520 --> 00:25:39,720 Speaker 1: We we we really shameless plug from my host today. Well, 517 00:25:39,760 --> 00:25:41,840 Speaker 1: that's good. I'm glad to see that gets amused. And 518 00:25:41,840 --> 00:25:45,000 Speaker 1: I will say, regardless of where the market closes this year, 519 00:25:45,080 --> 00:25:48,800 Speaker 1: I think when you're looking out a market that's up 520 00:25:50,040 --> 00:25:52,840 Speaker 1: year to date, Uh, getting that close is a pretty 521 00:25:52,840 --> 00:25:55,200 Speaker 1: good accomplishment. So congrats, Oh thanks, And you know, look, 522 00:25:55,240 --> 00:25:58,119 Speaker 1: we we put a twenty nine target in around Thanksgiving 523 00:25:58,200 --> 00:26:01,800 Speaker 1: last year. Um, we did the table on it in January, 524 00:26:02,000 --> 00:26:04,600 Speaker 1: and in April this year we raised and we wanted 525 00:26:04,640 --> 00:26:06,280 Speaker 1: to signal at the time we thought there was more 526 00:26:06,400 --> 00:26:08,360 Speaker 1: room to go. We don't want to send that same 527 00:26:08,400 --> 00:26:10,800 Speaker 1: signal to right right, Yeah, especially after the December we 528 00:26:10,840 --> 00:26:12,760 Speaker 1: had of two thousand and eighteen. It's uh, you know, 529 00:26:13,440 --> 00:26:15,040 Speaker 1: it took some guts, I think, to to call for 530 00:26:15,080 --> 00:26:18,280 Speaker 1: a rally this year. So let's get to those crazy things. 531 00:26:19,000 --> 00:26:20,840 Speaker 1: I think you did not come prepared with a crazy 532 00:26:20,840 --> 00:26:24,400 Speaker 1: thing to you know, I'm rely on you. That's good. 533 00:26:24,400 --> 00:26:26,639 Speaker 1: I've got I've got way more crazy things than that 534 00:26:26,720 --> 00:26:29,080 Speaker 1: we can probably fit in we had. Uh. You know, 535 00:26:29,240 --> 00:26:31,840 Speaker 1: I like to look at what we call the alternative 536 00:26:31,880 --> 00:26:34,679 Speaker 1: asset classes for my crazy things. And I will say 537 00:26:34,840 --> 00:26:37,000 Speaker 1: I mean it when I'm talking about alternative and you'll 538 00:26:37,000 --> 00:26:38,920 Speaker 1: see what I mean, and I think the listeners have 539 00:26:39,040 --> 00:26:42,520 Speaker 1: caught on. So I've gotten some uh some uh entries 540 00:26:42,600 --> 00:26:46,200 Speaker 1: from people in Bloomberg and some readers on Twitter who 541 00:26:46,280 --> 00:26:48,879 Speaker 1: who listened to the show. Uh. First one comes from 542 00:26:49,160 --> 00:26:51,440 Speaker 1: vil Donna, Hi Rick. She's kind of like our chief 543 00:26:51,640 --> 00:26:55,199 Speaker 1: Crazy Things correspondent for the show. She also always provides 544 00:26:55,240 --> 00:26:58,600 Speaker 1: us with good ones. And she found the story Bloomberg 545 00:26:58,640 --> 00:27:03,480 Speaker 1: story about potent Philippe wristwatch that's sold for thirty one 546 00:27:03,560 --> 00:27:08,920 Speaker 1: million dollars at a charity auction by Christie's in Geneva. 547 00:27:09,200 --> 00:27:12,320 Speaker 1: Thirty one million for a restaurant wrist watch. I does 548 00:27:12,359 --> 00:27:14,920 Speaker 1: have dials on both sides for some reason, so I 549 00:27:15,119 --> 00:27:17,119 Speaker 1: don't I don't know why, but I guess that that 550 00:27:17,200 --> 00:27:20,480 Speaker 1: makes it worth thirty one million. Another one from a 551 00:27:20,560 --> 00:27:24,680 Speaker 1: user on Twitter at Paul David waalbrun Um. I think 552 00:27:24,680 --> 00:27:28,600 Speaker 1: he actually out did vill Donna with this auction. H 553 00:27:29,000 --> 00:27:33,680 Speaker 1: A bathtub shaped as a golden hippo sold for four 554 00:27:33,720 --> 00:27:39,119 Speaker 1: point three million at Christie's on Tuesday, returning almost twenty 555 00:27:40,119 --> 00:27:42,119 Speaker 1: percent to its owner, who purchased it more than a 556 00:27:42,160 --> 00:27:45,080 Speaker 1: decade ago. And that's a story by Katsia Kasa Kina 557 00:27:45,200 --> 00:27:48,560 Speaker 1: our art correspondent here a Bloomberg who provides us with 558 00:27:48,600 --> 00:27:50,280 Speaker 1: a lot of crazy market things when it comes to 559 00:27:50,280 --> 00:27:53,560 Speaker 1: the art art market. I think I can outdo them 560 00:27:53,600 --> 00:27:56,359 Speaker 1: both though. And this is another auction. This one was 561 00:27:56,400 --> 00:28:00,520 Speaker 1: held in Italy. It was for a truffle. This is 562 00:28:00,520 --> 00:28:03,280 Speaker 1: the Alba white truffle fair. I guess they hold it 563 00:28:03,359 --> 00:28:08,040 Speaker 1: every year. Uh, two point two pound truffle. I'm gonna 564 00:28:08,040 --> 00:28:11,280 Speaker 1: play prices right though. Uh what would you glory pay 565 00:28:11,320 --> 00:28:15,199 Speaker 1: for a two point two pound white truffle? I have 566 00:28:15,240 --> 00:28:18,439 Speaker 1: no idea. I have no idea. She has not modeled 567 00:28:18,480 --> 00:28:21,960 Speaker 1: that on her forecast for two twenty What would you 568 00:28:21,960 --> 00:28:24,320 Speaker 1: pay for a two point two pound white truffle? I'll 569 00:28:24,320 --> 00:28:25,680 Speaker 1: give you a hand. It's a lot less than the 570 00:28:26,320 --> 00:28:30,840 Speaker 1: wrist watch, but it's still a surprising number, all right, 571 00:28:30,920 --> 00:28:35,399 Speaker 1: Jenny paris On, I guess you win a hundred and 572 00:28:35,400 --> 00:28:39,920 Speaker 1: thirty two thousand dollars for a white truffle at this 573 00:28:40,280 --> 00:28:43,400 Speaker 1: auction in Italy. So I would be worried if I 574 00:28:43,440 --> 00:28:45,320 Speaker 1: went to a restaurant. Then you know how they those 575 00:28:45,360 --> 00:28:47,400 Speaker 1: restaurants that don't show you the prices. You could end 576 00:28:47,440 --> 00:28:50,880 Speaker 1: up ordering a plate a risotto for like three three 577 00:28:50,880 --> 00:28:52,760 Speaker 1: grand if it has this this truffle on it, but 578 00:28:53,320 --> 00:28:56,480 Speaker 1: Lurry it it all serious. This I often hear people 579 00:28:56,640 --> 00:29:00,360 Speaker 1: look at these ridiculous things like this and try to 580 00:29:00,560 --> 00:29:04,480 Speaker 1: interpret it as some sign of euphoria in the economy. 581 00:29:04,640 --> 00:29:07,480 Speaker 1: Were among investors? Is that? Is that a silly thing 582 00:29:07,480 --> 00:29:09,480 Speaker 1: to do? Or is there any information you would take 583 00:29:09,560 --> 00:29:13,000 Speaker 1: from a one million dollar risk watch and a four 584 00:29:13,040 --> 00:29:16,480 Speaker 1: million dollar hipochape tub. Well, look, I think these you 585 00:29:16,480 --> 00:29:18,840 Speaker 1: know that the reason people make that connection, right, is 586 00:29:18,880 --> 00:29:21,520 Speaker 1: just the idea that there's too much money slashing around 587 00:29:21,520 --> 00:29:23,720 Speaker 1: in the system and there's a little bit too much 588 00:29:24,080 --> 00:29:26,840 Speaker 1: excess risk taking. And I think there are a lot 589 00:29:26,840 --> 00:29:28,920 Speaker 1: of different things you could point to this year that 590 00:29:28,920 --> 00:29:31,160 Speaker 1: that suggests that while this is not as bad as 591 00:29:31,160 --> 00:29:33,040 Speaker 1: the tech bubble, while this is not as bad as 592 00:29:33,080 --> 00:29:35,600 Speaker 1: the financial crisis, there's there's a little bit a hint 593 00:29:35,600 --> 00:29:38,040 Speaker 1: of that, hints of that, and a lot of things 594 00:29:38,040 --> 00:29:41,280 Speaker 1: people are seeing these days. I mean, I think that's fair. 595 00:29:41,320 --> 00:29:43,200 Speaker 1: I think that's fair. All right, Jenny Parris, do you 596 00:29:43,200 --> 00:29:46,640 Speaker 1: have a crazy thing for us? I do. I don't 597 00:29:46,640 --> 00:29:49,640 Speaker 1: think I can compete with the white truffle, the expensive 598 00:29:49,720 --> 00:29:53,680 Speaker 1: risk watch. But speaking to Laura's point about too too 599 00:29:53,760 --> 00:29:56,280 Speaker 1: much money in the system and excess risk taken. Would 600 00:29:56,320 --> 00:29:59,200 Speaker 1: talk a lot about negative yields and UH in the 601 00:29:59,240 --> 00:30:03,400 Speaker 1: bond market, and what I saw this week it was 602 00:30:03,440 --> 00:30:08,040 Speaker 1: a story about negative yields in Nigeria, of all places. 603 00:30:09,360 --> 00:30:12,600 Speaker 1: I thought that was crazy. Of course we're talking about 604 00:30:12,600 --> 00:30:16,280 Speaker 1: real yields, but what's happening there is really because the 605 00:30:16,320 --> 00:30:19,479 Speaker 1: authorities have banned the pension fans from buying into some 606 00:30:19,600 --> 00:30:23,680 Speaker 1: of them highest yielding central bank assets. They have turned 607 00:30:23,680 --> 00:30:27,680 Speaker 1: to three month treasury builds and now they're yielding UH 608 00:30:27,920 --> 00:30:30,680 Speaker 1: less than the inflation rate in that market. And an 609 00:30:30,680 --> 00:30:34,120 Speaker 1: auction this week, so the record demand thirty times over. 610 00:30:34,640 --> 00:30:37,280 Speaker 1: So there you have it, negative Nigeria and real yields. 611 00:30:37,280 --> 00:30:39,680 Speaker 1: That's pretty amazing. Although I imagine inflation is pretty high 612 00:30:39,720 --> 00:30:43,520 Speaker 1: Nigeria so but but still negative real yields in Nigeria. Laurry, 613 00:30:43,520 --> 00:30:45,120 Speaker 1: do you have any crazy things for us? So? I 614 00:30:45,200 --> 00:30:47,920 Speaker 1: don't have anything particularly wacky, But I did talk to 615 00:30:47,960 --> 00:30:50,160 Speaker 1: my team this morning and you know, said I'm coming 616 00:30:50,160 --> 00:30:52,280 Speaker 1: on the podcast and and I asked them what they 617 00:30:52,280 --> 00:30:54,959 Speaker 1: thought was the craziest thing this week, And um, one 618 00:30:55,000 --> 00:30:57,400 Speaker 1: of the guys on my team came back and right away, 619 00:30:57,520 --> 00:30:59,280 Speaker 1: and he said, you know, it's the chart that we 620 00:30:59,400 --> 00:31:02,600 Speaker 1: put out showing that we've basically erased the trade war. 621 00:31:03,000 --> 00:31:04,720 Speaker 1: And what I mean by that is, we have these 622 00:31:04,760 --> 00:31:07,160 Speaker 1: baskets and we look at the stocks most exposed to 623 00:31:07,200 --> 00:31:09,440 Speaker 1: the trade war and most immune to the trade war 624 00:31:09,920 --> 00:31:12,320 Speaker 1: based on our transcript review, and we just looked at 625 00:31:12,320 --> 00:31:14,959 Speaker 1: relative valuation and relative performance. And if you look at 626 00:31:15,000 --> 00:31:18,880 Speaker 1: both of those, um, they bottomed over the summer and 627 00:31:18,920 --> 00:31:21,360 Speaker 1: they're right back today at levels where they were in 628 00:31:21,480 --> 00:31:24,680 Speaker 1: one queue of before the trade war with China was 629 00:31:24,720 --> 00:31:27,000 Speaker 1: a glimmer in anybody's eye. That's pretty interesting. And that 630 00:31:27,040 --> 00:31:29,360 Speaker 1: goes to your point that all the potential good news 631 00:31:29,440 --> 00:31:31,960 Speaker 1: is probably baked in from the from the trade war. Yeah, exactly. 632 00:31:32,000 --> 00:31:34,280 Speaker 1: I mean, if nothing else, we're right back where we 633 00:31:34,280 --> 00:31:38,520 Speaker 1: started from. Great stuff. Well. Uh, Laurie Calvacina, yees she, 634 00:31:38,720 --> 00:31:41,080 Speaker 1: Jenny Paris, thank you all so much for coming on 635 00:31:41,120 --> 00:31:42,920 Speaker 1: the show this week, and I hope we see you 636 00:31:43,000 --> 00:31:46,360 Speaker 1: all again, uh sometime soon. Thank you thanks for having me. 637 00:31:54,280 --> 00:31:56,880 Speaker 1: What goes up? We'll be back next week. Until then, 638 00:31:56,920 --> 00:31:59,440 Speaker 1: you can find us on the Bloomberg Terminal, website and 639 00:31:59,520 --> 00:32:02,560 Speaker 1: app where wherever you get your podcasts. We'd love it 640 00:32:02,600 --> 00:32:04,560 Speaker 1: if you took the time to rate and review the 641 00:32:04,600 --> 00:32:07,600 Speaker 1: show on Apple Podcasts so more listeners can find us, 642 00:32:08,400 --> 00:32:10,960 Speaker 1: and you can find us on Twitter. Follow Sarah at 643 00:32:11,040 --> 00:32:16,520 Speaker 1: Sarah Ponzac, Jenny Paris is at Paris Underscore Jenny, I'm 644 00:32:16,560 --> 00:32:22,120 Speaker 1: at Reaganonymous, Our guest Laurie Calvacina is at l Calvacina RBC, 645 00:32:23,000 --> 00:32:27,200 Speaker 1: and Yeesh is at x I y E Bloomberg. You 646 00:32:27,240 --> 00:32:31,600 Speaker 1: can also follow Bloomberg Podcasts at podcasts. What Goes Up 647 00:32:31,680 --> 00:32:35,120 Speaker 1: is produced by Toper Foreheads. The head of Bloomberg Podcasts 648 00:32:35,200 --> 00:32:38,320 Speaker 1: is Francesco Levy. Thanks for listening, See you next time.