WEBVTT - A Downer in December? 0:00:13.520 --> 0:00:16.560 Hello, and welcome to What Goes Up, a Bloomberg Weekly 0:00:16.640 --> 0:00:20.520 Markets podcast. I'm Mike Reagan, a senior editor here at Bloomberg, 0:00:20.880 --> 0:00:23.239 and I'm Jenny Patty is filling in for Sarta Ponzac, 0:00:23.280 --> 0:00:26.360 who is on assignment this week. On the show, US 0:00:26.400 --> 0:00:29.480 stocks just keep on trucking. They climbed to more record 0:00:29.520 --> 0:00:31.920 highs this week, even though there is not a lot 0:00:31.920 --> 0:00:34.120 of clarity on when we'll see a deal to end 0:00:34.120 --> 0:00:37.320 the trade war. That's Dendard, economic data and corporate profits. 0:00:37.880 --> 0:00:40.200 We'll talk to a strategist this week who thinks stocks 0:00:40.240 --> 0:00:42.400 may come back down to earth a bit before the 0:00:42.479 --> 0:00:45.280 year ends. And we'll also talk to a markets reporter 0:00:45.320 --> 0:00:48.000 who has been following the situations in China and Hong 0:00:48.040 --> 0:00:51.560 Kong very closely, and as always, will close out the 0:00:51.600 --> 0:00:54.480 episode with our tradition the craziest thing I saw in 0:00:54.640 --> 0:00:57.520 markets this week? And remember you two can contribute to 0:00:57.560 --> 0:01:01.560 the podcast. Just call our Bloomberg Podcast hotline at six 0:01:01.600 --> 0:01:05.679 four or six three two four three four nine oh, 0:01:05.720 --> 0:01:08.520 and you can ask us a question, suggest a guest 0:01:08.560 --> 0:01:11.240 for the show, or even share your own craziest thing 0:01:11.319 --> 0:01:13.440 you saw in markets in the week. Just leave a 0:01:13.520 --> 0:01:16.200 voicemail and maybe we'll play your call on the show. 0:01:17.240 --> 0:01:19.959 And that strange voice you heard that is Jenny Paris 0:01:20.120 --> 0:01:23.440 our co Ho special co host this week, executive editor 0:01:24.000 --> 0:01:27.440 for Bonds and f X at Bloomberg. I think, one 0:01:27.440 --> 0:01:30.200 of the leading authorities in bonds and f X in 0:01:30.240 --> 0:01:32.840 the company. And I'm not just saying that because it's 0:01:32.920 --> 0:01:37.480 a year end evaluation time. I swear just totally separate issue, right, 0:01:40.800 --> 0:01:43.720 forget I mentioned it at all. And also we welcome 0:01:43.720 --> 0:01:46.600 back to the show Laurie Calvacina, the head of US 0:01:46.640 --> 0:01:51.000 equity strategy at RBC Capital Markets. Laurie, welcome back. Thanks 0:01:51.000 --> 0:01:54.000 for having me and also joining us again another second 0:01:54.000 --> 0:01:56.720 time I think on the showy She he's a markets 0:01:56.720 --> 0:02:00.520 blogger for Bloomberg Markets Live, Easy, expert on all things 0:02:00.640 --> 0:02:03.200 China and global markets. E. It's a pleasure to have 0:02:03.240 --> 0:02:05.920 you back on the show. Thanks for having all. Right, 0:02:06.880 --> 0:02:09.360 lor let's start with you. I you had a note 0:02:09.360 --> 0:02:12.480 out this week that really caught my attention because I 0:02:12.480 --> 0:02:17.280 think the SMP was trading at about and you said 0:02:17.560 --> 0:02:21.280 we're not going to change our year end target of fifty. 0:02:21.440 --> 0:02:24.160 So I'm reading it, I'm thinking, wow, that's about five 0:02:24.800 --> 0:02:27.000 dropped from here, and I have to hand it to 0:02:27.040 --> 0:02:29.280 you a for not changing your your ear end target 0:02:29.280 --> 0:02:31.520 in November. That's kind of that's kind of a shady 0:02:31.520 --> 0:02:33.800 thing to do. But I think you make a good 0:02:33.840 --> 0:02:37.400 case for why we may see the SMP sort of 0:02:37.400 --> 0:02:39.200 come back to earth a little bit by the end 0:02:39.200 --> 0:02:42.680 of the year and hit that target. Of So why 0:02:42.680 --> 0:02:45.280 don't you walk us through your thinking on why you're 0:02:45.280 --> 0:02:48.240 sticking by that target. Sure, so you know, we view 0:02:48.280 --> 0:02:50.920 our our target as a signaling mechanism as much as 0:02:50.919 --> 0:02:52.920 anything else, and at this point in time, we don't 0:02:53.000 --> 0:02:54.760 want to signal to people that we think you should 0:02:54.840 --> 0:02:57.600 chase the market up in the short term. And if 0:02:57.639 --> 0:02:59.120 you go through when you look through a lot of 0:02:59.120 --> 0:03:01.440 our indicators, and people who know me say, you know, Laurie, 0:03:01.440 --> 0:03:02.760 one of the things we like about you as you're 0:03:02.800 --> 0:03:05.640 all about the data. So, especially when we feel like 0:03:05.680 --> 0:03:08.160 emotions coming back into the market, we really rely on 0:03:08.240 --> 0:03:10.120 that data and I see a lot of peaks in 0:03:10.160 --> 0:03:12.760 that data. Um first thing we see when we look 0:03:12.760 --> 0:03:16.080 at our valuation indicator, we are back to levels that 0:03:16.160 --> 0:03:19.160 we saw really mark a ceiling several times over the 0:03:19.200 --> 0:03:22.400 last few years, including when the tax Reform Act was 0:03:22.440 --> 0:03:25.720 passed back in January. Um, it's marked a ceiling a 0:03:25.760 --> 0:03:28.320 couple of other times since then. When we look at 0:03:28.360 --> 0:03:31.640 the CFTC positioning data, we see something similar. Um, we 0:03:31.720 --> 0:03:37.520 are back to July, nineteen, September and January eighteen extremes. 0:03:37.520 --> 0:03:39.760 So we think that you are just plain old fashioned 0:03:39.800 --> 0:03:42.760 overbought in the equity market right now. And to be honest, Mike, 0:03:42.800 --> 0:03:44.600 when I talked to investors and I talked to people 0:03:44.600 --> 0:03:47.360 who are more bullish, I hear the fomo in their voices, 0:03:47.840 --> 0:03:50.040 and I look back at this chart and I think 0:03:50.080 --> 0:03:52.440 back to those peaks and I heard the same thing. Then. 0:03:52.640 --> 0:03:56.240 So even the sort of you know, kind of entry 0:03:56.320 --> 0:03:59.320 of emotion into some of the discussions about the market seem, 0:03:59.320 --> 0:04:01.160 you know, sort of ski really familiar to me at 0:04:01.200 --> 0:04:02.560 this point in time. And there are you know, four 0:04:02.560 --> 0:04:04.240 other reasons we went through, but I would say those 0:04:04.240 --> 0:04:06.360 are the two primary things we've been looking at, you know, 0:04:06.440 --> 0:04:10.000 Like I said, it's it's a rational, logical, believable case. 0:04:10.400 --> 0:04:12.000 The one thing I will ask you, though, is I 0:04:12.040 --> 0:04:14.560 feel like, uh, the end of the year December is 0:04:14.640 --> 0:04:17.080 kind of when the period of the year when rational 0:04:17.160 --> 0:04:20.560 logical cases kind of go to die. You know that 0:04:20.640 --> 0:04:23.040 FOMA really kicks in. You've got window dressing at the 0:04:23.120 --> 0:04:25.840 end of the year. Uh, you've got you know, the 0:04:25.880 --> 0:04:29.160 proverbial Santa claus rally. Is any of that sort of 0:04:30.440 --> 0:04:32.680 a risk to your targets? You think, where is there 0:04:32.720 --> 0:04:35.479 are the fundamentals? Really do they feel like they're gonna 0:04:35.480 --> 0:04:37.440 win out here? So, you know, I do think the 0:04:37.440 --> 0:04:39.800 sort of year in chasing, I do think that matters. 0:04:39.839 --> 0:04:41.400 But I think you already saw a good amount of 0:04:41.440 --> 0:04:43.839 that in October UM. And one of the things we've 0:04:43.880 --> 0:04:45.800 pointed out we have this one chart where we look 0:04:45.839 --> 0:04:48.640 at when mutual funds fiscal year ends are. There are 0:04:48.640 --> 0:04:50.560 a lot in December, but they're almost just as many 0:04:50.560 --> 0:04:52.960 in October. So we think that's largely played out at 0:04:52.960 --> 0:04:56.280 this point. And honestly, I would say most active managers 0:04:56.320 --> 0:04:59.320 we talked to their out performing for the year. UM. 0:04:59.360 --> 0:05:01.440 They haven't had as easy of a go as it lately, 0:05:01.480 --> 0:05:03.240 So I think there's a little bit of rebalancing that's 0:05:03.240 --> 0:05:05.640 going on, But I frankly worry more about profit taking 0:05:05.920 --> 0:05:08.479 for that remaining amount of funds that have the December 0:05:08.480 --> 0:05:13.880 fiscal year ends. So with this year round approaching. For 0:05:13.960 --> 0:05:17.760 these managers, really the priority is uh preservation of their 0:05:17.800 --> 0:05:19.800 profit and their ownings. What do you think would be 0:05:19.800 --> 0:05:23.040 the catalyst between now and then that would change their views, 0:05:23.040 --> 0:05:27.320 that would prompt them to really go back to reevaluating 0:05:27.640 --> 0:05:29.719 their holdings that they have so far. So one of 0:05:29.720 --> 0:05:32.720 the things we've talked about is the fact that expectations 0:05:32.720 --> 0:05:34.719 are still too high and we frankly haven't seen that 0:05:34.800 --> 0:05:37.200 much of an adjustment to them over the last few 0:05:37.200 --> 0:05:40.080 weeks and earnings um you know, we found analysts are 0:05:40.160 --> 0:05:41.920 asking companies what do you think is going to happen 0:05:41.920 --> 0:05:43.960 in twenty twenty, and the companies are coming back and say, now, 0:05:44.040 --> 0:05:45.920 I get back to us in January and February. We 0:05:45.960 --> 0:05:47.960 don't really have a lot of visibility on that, but 0:05:48.040 --> 0:05:49.599 we do think that risk is going to start to 0:05:49.600 --> 0:05:51.600 get priced in at some point because we do talk 0:05:51.640 --> 0:05:53.560 to a lot of investors who say, well, maybe you know, 0:05:53.640 --> 0:05:55.880 nine percent earnings growth next year is not going to happen. 0:05:56.320 --> 0:05:58.480 And as I've talked to people over the past week, 0:05:58.920 --> 0:06:02.440 I'm really sensing a sort of, you know, concern. While 0:06:02.480 --> 0:06:04.480 we know we're not going into a recession, but are 0:06:04.480 --> 0:06:06.480 we really seeing what we need to see to think 0:06:06.480 --> 0:06:08.640 there's a major re acceleration coming, So there are some 0:06:08.680 --> 0:06:11.720 seeds of doubts starting to creep in. I would also say, frankly, 0:06:11.800 --> 0:06:13.960 on the trade war, we think that good news. There 0:06:14.000 --> 0:06:15.720 has been a lot of the part of this move. 0:06:15.760 --> 0:06:19.280 If you look since August, we've seen tremendous outperformance by 0:06:19.279 --> 0:06:22.000 trade war sensitive stocks and we're starting to see some 0:06:22.000 --> 0:06:25.280 stumbles this week where perhaps that phase one deal, which 0:06:25.320 --> 0:06:27.279 was supposed to be the easy, low hanging fruit, is 0:06:27.279 --> 0:06:29.400 proving to be a lot tougher to come by. UM. 0:06:29.440 --> 0:06:31.280 And we think that's been a huge part of this rally. 0:06:31.480 --> 0:06:33.840 I think we're valuations and positioning our the market can't 0:06:33.839 --> 0:06:36.080 handle bad news there. Yeah, I'm curious. You know, you 0:06:36.160 --> 0:06:39.520 talked to a lot of clients and fund managers and whatnot. Um, 0:06:40.320 --> 0:06:42.720 do you get the impression that the consensus is that 0:06:42.839 --> 0:06:45.120 this phase one of the deal is a done deal? 0:06:45.200 --> 0:06:47.480 Is that seem to be you know what everyone's thinking 0:06:47.520 --> 0:06:49.120 right now? Well, well, I'll give you a hard stat 0:06:49.160 --> 0:06:50.960 on that, and it's a little bit stale. But um. 0:06:51.000 --> 0:06:53.000 Back at the end of September, we did an investor 0:06:53.080 --> 0:06:55.200 survey and we actually asked people, do you think a 0:06:55.200 --> 0:06:57.000 trade deal. When do you think a trade deal with 0:06:57.080 --> 0:06:59.599 China will get done? And we found that there wasn't 0:06:59.600 --> 0:07:02.080 a lot of and census on the timing, but two 0:07:02.120 --> 0:07:04.960 thirds of the investors in that poll back in September 0:07:05.440 --> 0:07:07.960 said that they thought something would get done before the election. 0:07:07.960 --> 0:07:11.320 In so, I think there's there's been a view that 0:07:11.760 --> 0:07:14.880 Trump needs to get a win on this front before 0:07:14.920 --> 0:07:17.680 the election. I've been hearing about that since August. That 0:07:17.720 --> 0:07:20.800 hasn't really changed. Um So, I think the expectation there 0:07:20.840 --> 0:07:22.880 is pretty high now. I think people are debating what 0:07:22.960 --> 0:07:25.640 will the content of that deal be, But generally I 0:07:25.640 --> 0:07:27.680 think most people have expected something to get done and 0:07:27.680 --> 0:07:30.720 they've just kind of coalesced around this four Q timing. 0:07:31.000 --> 0:07:33.440 So missing that sort of original deadline was supposed to 0:07:33.480 --> 0:07:36.880 be at the APEC summit that was canceled because of 0:07:36.920 --> 0:07:39.600 the unrest in Chili. I think that was scheduled for 0:07:39.640 --> 0:07:42.720 next week basically the middle of November. Uh. Missing that 0:07:42.840 --> 0:07:45.160 sort of artificial deadline is not really something that's going 0:07:45.200 --> 0:07:47.400 to concern people too much. Respect I think that something 0:07:47.440 --> 0:07:49.360 needs to get done sooner rather than later. But I 0:07:49.400 --> 0:07:51.320 think that particular point in time, I mean, you saw 0:07:51.320 --> 0:07:53.400 a reaction in the market very briefly, and then we 0:07:53.480 --> 0:07:56.000 bounced back. But one thing I would also tell you is, 0:07:56.040 --> 0:07:57.840 you know, we're we're sort of getting these dribs and 0:07:57.920 --> 0:08:00.840 drabs in the market right We're not. It feels like 0:08:00.880 --> 0:08:03.320 we're melting up. But these percentage moves every day are 0:08:03.320 --> 0:08:06.480 actually not that huge. So I do think that's, you know, 0:08:06.520 --> 0:08:09.000 a little bit of skepticism there, maybe weighing on things 0:08:09.000 --> 0:08:10.680 a bit. I feel like that's creeping in just a 0:08:10.680 --> 0:08:14.320 little bit. Right now, you're in the advantage seed if 0:08:14.320 --> 0:08:16.480 you're the only one among us who can actually follow 0:08:16.520 --> 0:08:20.800 the Chinese state media in the original language and social media. 0:08:21.120 --> 0:08:24.440 What is your takeaway of the sentiment uh coming off 0:08:24.560 --> 0:08:27.200 of the Chinese media right now from what you've read, 0:08:27.280 --> 0:08:30.000 is it is the optimism there as well that a 0:08:30.040 --> 0:08:33.280 deal is sort of in the near future, were sometime 0:08:33.320 --> 0:08:36.320 next year, I think I would have characterized as a 0:08:36.440 --> 0:08:40.920 cautious optivism. UM. I think what's interesting is that the 0:08:41.040 --> 0:08:45.040 Chinese as increasingly take a hotline towards the US um 0:08:45.080 --> 0:08:47.800 because they sense there's some like the timing is on 0:08:47.880 --> 0:08:50.880 their side with the election, with the economy is kind 0:08:50.880 --> 0:08:54.480 of slowing down. Trump probably needs something, So what they 0:08:54.520 --> 0:08:58.319 ask for is at the precondiction condition for phase one deal, 0:08:58.800 --> 0:09:02.520 US need not only to call off the potential tariff 0:09:02.600 --> 0:09:05.840 in December, but also to remove some of the existing 0:09:05.840 --> 0:09:11.960 tariffs imposed as precondition for any deal. And Uh, the 0:09:12.040 --> 0:09:14.640 Chinese position has been quite clearly, if you want to deal, 0:09:14.760 --> 0:09:17.040 this is our our demand. You have to meet our 0:09:17.120 --> 0:09:20.640 demand if you want to deal. So it's up to 0:09:21.080 --> 0:09:23.760 pregnant Trump whether he wants a deal or not. How 0:09:23.920 --> 0:09:25.760 is it would that be? We know that he does 0:09:25.880 --> 0:09:28.560 want a deal and he wants something positive going into 0:09:28.559 --> 0:09:31.400 the twenty election, But at the same time, we hear 0:09:31.440 --> 0:09:34.200 a lot of noise this last few days, especially about 0:09:34.600 --> 0:09:38.520 how backing down on tariffs has become one of the 0:09:38.600 --> 0:09:42.280 Chinese demands and that's probably the hardest one to deliver. Yeah, 0:09:42.400 --> 0:09:45.120 my sense is that the US I try to maxim 0:09:45.440 --> 0:09:50.000 maximize the concession from China using the tariff as a 0:09:50.080 --> 0:09:54.560 leverage um. At this moment, it's not clear how much 0:09:54.880 --> 0:09:58.520 ground Chinese China needs to give up, so we are 0:09:58.760 --> 0:10:01.480 kind of hanging balanced. Ye, Jenny, I'm gonna put you 0:10:01.559 --> 0:10:04.439 in the hot seat here as well. Uh, just because 0:10:04.480 --> 0:10:06.000 your co host doesn't mean you get out of have 0:10:06.040 --> 0:10:09.000 an answer questions. You know, you read all of our 0:10:09.120 --> 0:10:13.480 coverage on the bond market, and earlier in this month, 0:10:14.320 --> 0:10:16.800 you know, people were talking about these green shoots in 0:10:16.800 --> 0:10:19.320 the economy. One of the things that was backing that 0:10:19.440 --> 0:10:21.920 up is this sort of sell off in the treasury market. 0:10:22.000 --> 0:10:24.280 We saw the ten year yield sort of creeping back 0:10:24.320 --> 0:10:27.440 towards that two percent level. This week, though there seems 0:10:27.480 --> 0:10:30.880 to be yet another about face. I'm curious, what do 0:10:30.920 --> 0:10:34.360 you think is driving that and is there isn't at 0:10:34.360 --> 0:10:37.600 all possible to kind of predict the next sort of 0:10:38.240 --> 0:10:40.319 trend for yields or is it a lost cause at 0:10:40.320 --> 0:10:43.720 this point the bond the bond market, I would say 0:10:44.120 --> 0:10:46.240 at the moment, we're saying it in a in a 0:10:46.360 --> 0:10:49.679 rat where traders basically are trying to decide where we're 0:10:49.679 --> 0:10:52.280 going to go next. And I think the best characterization 0:10:52.400 --> 0:10:56.520 that I so this week in the note was describing 0:10:56.600 --> 0:11:00.600 it as a line from the ground all of your 0:11:00.920 --> 0:11:05.440 English nursery rhyme where it goes Basically, the rhyme goes 0:11:05.480 --> 0:11:08.720 like bones went up marched up a hill, they took 0:11:08.760 --> 0:11:10.800 a look up from up there, and then they climb 0:11:10.880 --> 0:11:13.960 back down and that's really boring. Where we seeing Bonn 0:11:14.080 --> 0:11:17.280 Hills going at the moment when when they knocked at 0:11:17.280 --> 0:11:20.520 the two percent door, I think traders and the market 0:11:20.559 --> 0:11:23.520 started to wonder what is going to take Bonn Hills 0:11:23.600 --> 0:11:26.640 higher from here? And really what we're saying now is 0:11:27.040 --> 0:11:30.400 a lack of inflation still coming back to how this 0:11:30.840 --> 0:11:35.880 market and it's uh the reflation trade that people even 0:11:36.000 --> 0:11:39.320 dirt starting talk again earlier this week. It has no 0:11:39.520 --> 0:11:42.640 legs if we don't see really prices moving up. We 0:11:42.679 --> 0:11:46.640 had CPI data earlier this week. All of that is 0:11:46.720 --> 0:11:50.400 coming to really add up to there is no impeters 0:11:50.640 --> 0:11:54.600 for the bond rally to to stop at this point. Well, 0:11:54.600 --> 0:11:57.679 when English nursery rhymes are being used to explain the market, 0:11:57.679 --> 0:11:58.959 I thought, I thought we were dumping ahead of the 0:11:59.040 --> 0:12:01.440 craziest thing in markets this week. That's a good contender. 0:12:01.520 --> 0:12:04.319 Reminds me of one Yi sang sang the bond market 0:12:04.360 --> 0:12:08.160 theme song to sim But lord, let's get back to you. I. 0:12:08.400 --> 0:12:10.680 You know, one of the things you've written about recently 0:12:10.720 --> 0:12:14.960 two is this rotation from growth and momentum back into value. 0:12:15.640 --> 0:12:18.439 How much of that is dependent on the signals from 0:12:18.440 --> 0:12:21.240 the bond market I mean, obviously financials banks are some 0:12:21.280 --> 0:12:25.000 of the big stocks in the value index. Will the 0:12:25.000 --> 0:12:27.240 bond markets sort of call the shots to some degree 0:12:27.280 --> 0:12:29.720 to the to that rotation, Well, you know, I will 0:12:29.720 --> 0:12:31.480 say to some extent, I do think this is just 0:12:31.559 --> 0:12:33.559 all one big trade and the bond yields right in 0:12:33.600 --> 0:12:35.120 the middle of it. So we've done a lot of 0:12:35.120 --> 0:12:37.520 work and we've put a lot of charts together. The 0:12:37.559 --> 0:12:39.959 bond yield moves up, um you tend to see I 0:12:40.200 --> 0:12:42.360 S M move up, and we think what's really being 0:12:42.400 --> 0:12:44.600 expressed in the industrials trade at the moment and the 0:12:44.600 --> 0:12:46.440 financials trade as well, is just the idea that the 0:12:46.480 --> 0:12:49.400 industrial economy is bottoming. And if you go back and 0:12:49.440 --> 0:12:51.920 you look to the period we actually saw the bond 0:12:51.960 --> 0:12:54.040 yield stabilize before i SM did, So we think the 0:12:54.040 --> 0:12:57.880 bond yield has being somewhat anticipatory and investors are really 0:12:57.920 --> 0:13:00.240 trying to bank on this re acceleration and in the 0:13:00.240 --> 0:13:03.280 global economy and the domestic economy. Now, I will tell 0:13:03.320 --> 0:13:07.239 you on industrials, we did upgrade it back in September, 0:13:07.280 --> 0:13:09.079 and that's not quite the call we were making. I 0:13:09.080 --> 0:13:11.000 think we caught a nice tail wind here, but The 0:13:11.040 --> 0:13:13.320 way we put it was, look, if we're at a 0:13:13.360 --> 0:13:16.480 turning point and we really are re accelerating, we think 0:13:16.480 --> 0:13:19.280 that industrials are deeply undervalued. We think that they will 0:13:19.360 --> 0:13:22.360 rip on the upside. And we said, if we're, by contrast, 0:13:22.440 --> 0:13:24.520 at a tipping point, we think that's already baked in, 0:13:24.760 --> 0:13:27.360 and if we lose the economy, we lose the consumer. 0:13:27.400 --> 0:13:30.040 The consumer sectors are overvalued. There's more risk there, So 0:13:30.160 --> 0:13:32.360 go ahead and buy the industrials. Anyway, they'll probably hold 0:13:32.400 --> 0:13:35.200 up on the downside. So I can see ways industrials 0:13:35.240 --> 0:13:37.120 could hang on here. But I would say, Mike, in general, 0:13:37.160 --> 0:13:38.880 I think you're right that the bond yield is calling 0:13:38.880 --> 0:13:41.240 the shots here, you know, and I keep hearing about 0:13:41.280 --> 0:13:43.839 these quote unquote green shoots in the economy. I think 0:13:43.840 --> 0:13:46.360 a lot of people are really talking about signals from 0:13:46.360 --> 0:13:50.040 the market itself, either the bond market were the leaders 0:13:50.040 --> 0:13:51.960 in the stock market. Is there any sort of hard 0:13:52.040 --> 0:13:54.120 economic data that you're looking at. I mean, we still 0:13:54.160 --> 0:13:57.360 have a I S M manufacturing UH index. That's that's 0:13:57.520 --> 0:14:00.560 very weak. Uh. Are there a green shoots in the 0:14:00.600 --> 0:14:03.000 hard data? So you know, when we look at things 0:14:03.000 --> 0:14:05.240 like the yield curve, you've gone from a mild inversion 0:14:05.240 --> 0:14:08.440 to slight steepening that's coincided with the shift into value, 0:14:08.480 --> 0:14:10.960 the shift in the small cap that's traditionally how the 0:14:10.960 --> 0:14:12.720 trade works. UM. So I don't know if you would 0:14:12.760 --> 0:14:14.680 call that hard data or not, but it is something 0:14:14.720 --> 0:14:17.439 that is saying that the moves have been justified. UM. 0:14:17.520 --> 0:14:19.200 One thing that we look at in our small cap 0:14:19.200 --> 0:14:20.920 work as well as the year over year trend and 0:14:20.960 --> 0:14:23.760 the cast freight shipment data, and what we're seeing there 0:14:23.840 --> 0:14:26.440 is not not what I would call a green shoot necessarily, 0:14:26.800 --> 0:14:29.320 but you're starting to get less bad on that year 0:14:29.360 --> 0:14:31.880 over year decline, and traditionally small caps do tend to 0:14:31.920 --> 0:14:34.040 get a little bit of a bid when that that 0:14:34.240 --> 0:14:36.880 deceleration stops and you start to get a little bit 0:14:36.960 --> 0:14:39.440 less bad in terms of the decline. So I think 0:14:39.440 --> 0:14:42.880 you're seeing some things that can justify the bottoming argument. 0:14:43.480 --> 0:14:46.040 My view is it's still maybe just a little bit 0:14:46.080 --> 0:14:50.560 too early to declare and all clear to declare this reacceleration. UM. 0:14:50.640 --> 0:14:53.120 We've gone through reporting season. I'm not seeing a lot 0:14:53.160 --> 0:15:11.880 of commentary on those green shoots. We had a couple 0:15:11.960 --> 0:15:16.440 of days of testimony from Chairman Dround Powell, and one 0:15:16.480 --> 0:15:19.240 thing that became clear is that he doesn't see any 0:15:19.280 --> 0:15:23.400 serious risks to the current expansion. Uh. And if anything, 0:15:23.440 --> 0:15:28.200 he also said that there isn't really what is characteristic 0:15:28.200 --> 0:15:30.200 in this expected there is there any sector that is 0:15:30.240 --> 0:15:34.560 really hot, So you can't have a beast if there 0:15:34.640 --> 0:15:37.520 is no boom. As he put it, Uh, it doesn't 0:15:37.520 --> 0:15:40.480 sound like the fat things that we are towards the 0:15:40.560 --> 0:15:43.280 end of the cycle. And even they called their first 0:15:43.360 --> 0:15:46.920 rate cut to mid cycle adjustment. Now, you know, I 0:15:46.960 --> 0:15:49.320 thought I saw that same common as well about the 0:15:49.600 --> 0:15:53.360 hot areas. UM, I'm not I'm not sure. UM I 0:15:53.400 --> 0:15:55.920 would characterize what's going on with software and I T 0:15:56.080 --> 0:15:59.640 services stocks as cool necessarily. Um. You know, that's something 0:15:59.680 --> 0:16:01.640 we've described as sort of a mini bubblet and I 0:16:01.640 --> 0:16:04.160 think there have been, you know, other examples of that 0:16:04.240 --> 0:16:06.080 as well. I think there are so many excesses that 0:16:06.120 --> 0:16:08.240 are around. You know, we we see the same things 0:16:08.240 --> 0:16:10.400 when we look at entertainment stocks, for example, that they've 0:16:10.440 --> 0:16:13.400 been pretty overvalued and overbought. They're not quite as widespread 0:16:13.440 --> 0:16:16.240 as they've been in the past. When I hear about 0:16:16.280 --> 0:16:19.800 the rotation from growth in the value, I always wonder 0:16:20.120 --> 0:16:22.920 is it really valuations. Is it the fact that the 0:16:22.960 --> 0:16:26.640 rest of the market is sort of expensive and the 0:16:26.760 --> 0:16:29.800 valuations that are sucking people in, Or is it uh 0:16:30.160 --> 0:16:33.920 the companies and the industries, those real cyclical industries that 0:16:34.000 --> 0:16:37.600 are in the value cohort for the moment. Is it 0:16:37.880 --> 0:16:40.000 which do you see as sort of the driver of 0:16:40.040 --> 0:16:42.520 that rotation. Well, I think it's it's sort of a 0:16:42.560 --> 0:16:45.800 breakdown in the affinity for secular growth. And if you 0:16:45.840 --> 0:16:48.280 think about you know, some of these software stocks for example, 0:16:48.320 --> 0:16:50.520 or these I T services names, some of these internet 0:16:50.600 --> 0:16:52.520 names that we're doing well in the first half of 0:16:52.520 --> 0:16:54.200 the year, they were viewed as safe havens in the 0:16:54.240 --> 0:16:57.680 trade war, safe havens from an economic slowdown, and so 0:16:57.760 --> 0:16:59.960 there was a real desire to be in those areas 0:17:00.040 --> 0:17:02.240 and that basically just coincides with the growth in the 0:17:02.280 --> 0:17:04.679 momentum trade. When you look on the flip side and 0:17:04.720 --> 0:17:06.399 you look at value, I do think a lot of 0:17:06.400 --> 0:17:09.200 it is this particular sector. So we look at things 0:17:09.200 --> 0:17:12.240 like financials and industrials. They've done very well here recently, 0:17:13.080 --> 0:17:16.040 for better or worse, since those are two sectors that 0:17:16.080 --> 0:17:18.640 outperform when I M is going up and underperform when 0:17:18.640 --> 0:17:20.840 I S M is going down. They are the cyclicals 0:17:20.920 --> 0:17:24.240 of this particular cycle, and so you know, I think 0:17:24.240 --> 0:17:27.520 that the ability of those sectors to lead UM has 0:17:27.560 --> 0:17:29.760 really dictated that move into the value trade. We have 0:17:29.800 --> 0:17:33.440 also seen historically going back over many cycles that financials 0:17:33.440 --> 0:17:36.000 and industrials are two sectors that when they outperform, the 0:17:36.040 --> 0:17:38.240 value trade is working generally. So I think they really 0:17:38.240 --> 0:17:41.199 go hand in hand. Shee. It all comes back to 0:17:41.240 --> 0:17:43.520 the trade. Were at the end of the day, and 0:17:43.880 --> 0:17:46.320 I'm curious because you spent what was it three or 0:17:46.359 --> 0:17:49.959 four months recently actually in Hong Kong. You had an 0:17:49.960 --> 0:17:52.919 assignment over there for Bloomberg. Ironically, you show up in 0:17:52.960 --> 0:17:54.800 Hong Kong and everything goes crazy. I don't know if 0:17:54.800 --> 0:17:59.560 it's if there's a correlation the correlation, but walk us 0:17:59.600 --> 0:18:03.320 through um sort of your experience in Hong Kong, what 0:18:03.480 --> 0:18:07.840 you saw. I'm curious what you think about the unrest 0:18:08.000 --> 0:18:10.800 in Hong Kong and if it could ever sort of 0:18:10.840 --> 0:18:14.280 collide with the trade tensions. Obviously, there's a bill that's 0:18:14.320 --> 0:18:16.359 kind of stalled in the Senate now, the Hong Kong 0:18:16.440 --> 0:18:20.720 Human Rights and Democracy Act, that would uh cause the 0:18:20.800 --> 0:18:23.359 US to sort of monitor the situation in Hong Kong 0:18:23.400 --> 0:18:26.920 going forward, or could these two stories sort of collide 0:18:27.040 --> 0:18:28.920 and kind of gum up the trade talks at all? 0:18:29.359 --> 0:18:32.200 I think my opinion, my personal opinion is that the 0:18:32.280 --> 0:18:36.159 China's attitude has being like separate the trade found the 0:18:36.200 --> 0:18:42.200 diplomat issues, geographic politics issues. They trade these trade talk 0:18:42.320 --> 0:18:46.880 as pure trade relations. So I don't think the Hong 0:18:46.960 --> 0:18:50.320 Kong situation is tied to the trade talk itself. Uh. 0:18:50.400 --> 0:18:54.520 But obviously the whole nationalism could affect the could give 0:18:54.600 --> 0:18:58.359 some voices of the hawks within the Chinese government, But 0:18:58.440 --> 0:19:00.760 I don't think these two things that go handing hand. 0:19:01.200 --> 0:19:04.920 So even though we could have some bills uh we 0:19:05.000 --> 0:19:08.160 gotting to the Hong Kong human rights or even Shin 0:19:08.240 --> 0:19:11.600 Jong situation or even so China see, but we could 0:19:11.680 --> 0:19:15.480 see some positive progress on the trade front. Lord, do 0:19:15.480 --> 0:19:17.760 you do you think about this Hong Kong situation when 0:19:17.800 --> 0:19:20.000 you're when you're thinking about markets. We've thought about it 0:19:20.040 --> 0:19:22.040 a little bit, and you know, we're we're a market 0:19:22.040 --> 0:19:25.040 I'm a market expert, not a political expert. But you know, 0:19:25.880 --> 0:19:27.359 you kind of have to put on both hats to 0:19:27.400 --> 0:19:30.119 some extent today in my seat, and we we've really 0:19:30.200 --> 0:19:33.600 just We've seen so many investors speculate about who has 0:19:33.680 --> 0:19:36.679 the leverage and who has the incentive. And you know, 0:19:36.720 --> 0:19:39.720 the way I look at this is I do think that, uh, 0:19:39.840 --> 0:19:41.880 neither side at this point in time, because of what's 0:19:41.920 --> 0:19:44.919 going on domestically in their own countries, can really afford 0:19:44.920 --> 0:19:47.760 to look weak. And so I see sort of two 0:19:47.760 --> 0:19:49.520 sides that are going to be very determined to go 0:19:49.600 --> 0:19:51.359