Speaker 1: Hello, and welcome to What Goes Up, a Bloomberg Weekly
Speaker 1: Markets podcast. I'm Mike Reagan, a senior editor here at Bloomberg,
Speaker 1: and I'm Jenny Patty is filling in for Sarta Ponzac,
Speaker 1: who is on assignment this week. On the show, US
Speaker 1: stocks just keep on trucking. They climbed to more record
Speaker 1: highs this week, even though there is not a lot
Speaker 1: of clarity on when we'll see a deal to end
Speaker 1: the trade war. That's Dendard, economic data and corporate profits.
Speaker 1: We'll talk to a strategist this week who thinks stocks
Speaker 1: may come back down to earth a bit before the
Speaker 1: year ends. And we'll also talk to a markets reporter
Speaker 1: who has been following the situations in China and Hong
Speaker 1: Kong very closely, and as always, will close out the
Speaker 1: episode with our tradition the craziest thing I saw in
Speaker 1: markets this week? And remember you two can contribute to
Speaker 1: the podcast. Just call our Bloomberg Podcast hotline at six
Speaker 1: four or six three two four three four nine oh,
Speaker 1: and you can ask us a question, suggest a guest
Speaker 1: for the show, or even share your own craziest thing
Speaker 1: you saw in markets in the week. Just leave a
Speaker 1: voicemail and maybe we'll play your call on the show.
Speaker 1: And that strange voice you heard that is Jenny Paris
Speaker 1: our co Ho special co host this week, executive editor
Speaker 1: for Bonds and f X at Bloomberg. I think, one
Speaker 1: of the leading authorities in bonds and f X in
Speaker 1: the company. And I'm not just saying that because it's
Speaker 1: a year end evaluation time. I swear just totally separate issue, right,
Speaker 1: forget I mentioned it at all. And also we welcome
Speaker 1: back to the show Laurie Calvacina, the head of US
Speaker 1: equity strategy at RBC Capital Markets. Laurie, welcome back. Thanks
Speaker 1: for having me and also joining us again another second
Speaker 1: time I think on the showy She he's a markets
Speaker 1: blogger for Bloomberg Markets Live, Easy, expert on all things
Speaker 1: China and global markets. E. It's a pleasure to have
Speaker 1: you back on the show. Thanks for having all. Right,
Speaker 1: lor let's start with you. I you had a note
Speaker 1: out this week that really caught my attention because I
Speaker 1: think the SMP was trading at about and you said
Speaker 1: we're not going to change our year end target of fifty.
Speaker 1: So I'm reading it, I'm thinking, wow, that's about five
Speaker 1: dropped from here, and I have to hand it to
Speaker 1: you a for not changing your your ear end target
Speaker 1: in November. That's kind of that's kind of a shady
Speaker 1: thing to do. But I think you make a good
Speaker 1: case for why we may see the SMP sort of
Speaker 1: come back to earth a little bit by the end
Speaker 1: of the year and hit that target. Of So why
Speaker 1: don't you walk us through your thinking on why you're
Speaker 1: sticking by that target. Sure, so you know, we view
Speaker 1: our our target as a signaling mechanism as much as
Speaker 1: anything else, and at this point in time, we don't
Speaker 1: want to signal to people that we think you should
Speaker 1: chase the market up in the short term. And if
Speaker 1: you go through when you look through a lot of
Speaker 1: our indicators, and people who know me say, you know, Laurie,
Speaker 1: one of the things we like about you as you're
Speaker 1: all about the data. So, especially when we feel like
Speaker 1: emotions coming back into the market, we really rely on
Speaker 1: that data and I see a lot of peaks in
Speaker 1: that data. Um first thing we see when we look
Speaker 1: at our valuation indicator, we are back to levels that
Speaker 1: we saw really mark a ceiling several times over the
Speaker 1: last few years, including when the tax Reform Act was
Speaker 1: passed back in January. Um, it's marked a ceiling a
Speaker 1: couple of other times since then. When we look at
Speaker 1: the CFTC positioning data, we see something similar. Um, we
Speaker 1: are back to July, nineteen, September and January eighteen extremes.
Speaker 1: So we think that you are just plain old fashioned
Speaker 1: overbought in the equity market right now. And to be honest, Mike,
Speaker 1: when I talked to investors and I talked to people
Speaker 1: who are more bullish, I hear the fomo in their voices,
Speaker 1: and I look back at this chart and I think
Speaker 1: back to those peaks and I heard the same thing. Then.
Speaker 1: So even the sort of you know, kind of entry
Speaker 1: of emotion into some of the discussions about the market seem,
Speaker 1: you know, sort of ski really familiar to me at
Speaker 1: this point in time. And there are you know, four
Speaker 1: other reasons we went through, but I would say those
Speaker 1: are the two primary things we've been looking at, you know,
Speaker 1: Like I said, it's it's a rational, logical, believable case.
Speaker 1: The one thing I will ask you, though, is I
Speaker 1: feel like, uh, the end of the year December is
Speaker 1: kind of when the period of the year when rational
Speaker 1: logical cases kind of go to die. You know that
Speaker 1: FOMA really kicks in. You've got window dressing at the
Speaker 1: end of the year. Uh, you've got you know, the
Speaker 1: proverbial Santa claus rally. Is any of that sort of
Speaker 1: a risk to your targets? You think, where is there
Speaker 1: are the fundamentals? Really do they feel like they're gonna
Speaker 1: win out here? So, you know, I do think the
Speaker 1: sort of year in chasing, I do think that matters.
Speaker 1: But I think you already saw a good amount of
Speaker 1: that in October UM. And one of the things we've
Speaker 1: pointed out we have this one chart where we look
Speaker 1: at when mutual funds fiscal year ends are. There are
Speaker 1: a lot in December, but they're almost just as many
Speaker 1: in October. So we think that's largely played out at
Speaker 1: this point. And honestly, I would say most active managers
Speaker 1: we talked to their out performing for the year. UM.
Speaker 1: They haven't had as easy of a go as it lately,
Speaker 1: So I think there's a little bit of rebalancing that's
Speaker 1: going on, But I frankly worry more about profit taking
Speaker 1: for that remaining amount of funds that have the December
Speaker 1: fiscal year ends. So with this year round approaching. For
Speaker 1: these managers, really the priority is uh preservation of their
Speaker 1: profit and their ownings. What do you think would be
Speaker 1: the catalyst between now and then that would change their views,
Speaker 1: that would prompt them to really go back to reevaluating
Speaker 1: their holdings that they have so far. So one of
Speaker 1: the things we've talked about is the fact that expectations
Speaker 1: are still too high and we frankly haven't seen that
Speaker 1: much of an adjustment to them over the last few
Speaker 1: weeks and earnings um you know, we found analysts are
Speaker 1: asking companies what do you think is going to happen
Speaker 1: in twenty twenty, and the companies are coming back and say, now,
Speaker 1: I get back to us in January and February. We
Speaker 1: don't really have a lot of visibility on that, but
Speaker 1: we do think that risk is going to start to
Speaker 1: get priced in at some point because we do talk
Speaker 1: to a lot of investors who say, well, maybe you know,
Speaker 1: nine percent earnings growth next year is not going to happen.
Speaker 1: And as I've talked to people over the past week,
Speaker 1: I'm really sensing a sort of, you know, concern. While
Speaker 1: we know we're not going into a recession, but are
Speaker 1: we really seeing what we need to see to think
Speaker 1: there's a major re acceleration coming, So there are some
Speaker 1: seeds of doubts starting to creep in. I would also say, frankly,
Speaker 1: on the trade war, we think that good news. There
Speaker 1: has been a lot of the part of this move.
Speaker 1: If you look since August, we've seen tremendous outperformance by
Speaker 1: trade war sensitive stocks and we're starting to see some
Speaker 1: stumbles this week where perhaps that phase one deal, which
Speaker 1: was supposed to be the easy, low hanging fruit, is
Speaker 1: proving to be a lot tougher to come by. UM.
Speaker 1: And we think that's been a huge part of this rally.
Speaker 1: I think we're valuations and positioning our the market can't
Speaker 1: handle bad news there. Yeah, I'm curious. You know, you
Speaker 1: talked to a lot of clients and fund managers and whatnot. Um,
Speaker 1: do you get the impression that the consensus is that
Speaker 1: this phase one of the deal is a done deal?
Speaker 1: Is that seem to be you know what everyone's thinking
Speaker 1: right now? Well, well, I'll give you a hard stat
Speaker 1: on that, and it's a little bit stale. But um.
Speaker 1: Back at the end of September, we did an investor
Speaker 1: survey and we actually asked people, do you think a
Speaker 1: trade deal. When do you think a trade deal with
Speaker 1: China will get done? And we found that there wasn't
Speaker 1: a lot of and census on the timing, but two
Speaker 1: thirds of the investors in that poll back in September
Speaker 1: said that they thought something would get done before the election.
Speaker 1: In so, I think there's there's been a view that
Speaker 1: Trump needs to get a win on this front before
Speaker 1: the election. I've been hearing about that since August. That
Speaker 1: hasn't really changed. Um So, I think the expectation there
Speaker 1: is pretty high now. I think people are debating what
Speaker 1: will the content of that deal be, But generally I
Speaker 1: think most people have expected something to get done and
Speaker 1: they've just kind of coalesced around this four Q timing.
Speaker 1: So missing that sort of original deadline was supposed to
Speaker 1: be at the APEC summit that was canceled because of
Speaker 1: the unrest in Chili. I think that was scheduled for
Speaker 1: next week basically the middle of November. Uh. Missing that
Speaker 1: sort of artificial deadline is not really something that's going
Speaker 1: to concern people too much. Respect I think that something
Speaker 1: needs to get done sooner rather than later. But I
Speaker 1: think that particular point in time, I mean, you saw
Speaker 1: a reaction in the market very briefly, and then we
Speaker 1: bounced back. But one thing I would also tell you is,
Speaker 1: you know, we're we're sort of getting these dribs and
Speaker 1: drabs in the market right We're not. It feels like
Speaker 1: we're melting up. But these percentage moves every day are
Speaker 1: actually not that huge. So I do think that's, you know,
Speaker 1: a little bit of skepticism there, maybe weighing on things
Speaker 1: a bit. I feel like that's creeping in just a
Speaker 1: little bit. Right now, you're in the advantage seed if
Speaker 1: you're the only one among us who can actually follow
Speaker 1: the Chinese state media in the original language and social media.
Speaker 1: What is your takeaway of the sentiment uh coming off
Speaker 1: of the Chinese media right now from what you've read,
Speaker 1: is it is the optimism there as well that a
Speaker 1: deal is sort of in the near future, were sometime
Speaker 1: next year, I think I would have characterized as a
Speaker 1: cautious optivism. UM. I think what's interesting is that the
Speaker 1: Chinese as increasingly take a hotline towards the US um
Speaker 1: because they sense there's some like the timing is on
Speaker 1: their side with the election, with the economy is kind
Speaker 1: of slowing down. Trump probably needs something, So what they
Speaker 1: ask for is at the precondiction condition for phase one deal,
Speaker 1: US need not only to call off the potential tariff
Speaker 1: in December, but also to remove some of the existing
Speaker 1: tariffs imposed as precondition for any deal. And Uh, the
Speaker 1: Chinese position has been quite clearly, if you want to deal,
Speaker 1: this is our our demand. You have to meet our
Speaker 1: demand if you want to deal. So it's up to
Speaker 1: pregnant Trump whether he wants a deal or not. How
Speaker 1: is it would that be? We know that he does
Speaker 1: want a deal and he wants something positive going into
Speaker 1: the twenty election, But at the same time, we hear
Speaker 1: a lot of noise this last few days, especially about
Speaker 1: how backing down on tariffs has become one of the
Speaker 1: Chinese demands and that's probably the hardest one to deliver. Yeah,
Speaker 1: my sense is that the US I try to maxim
Speaker 1: maximize the concession from China using the tariff as a
Speaker 1: leverage um. At this moment, it's not clear how much
Speaker 1: ground Chinese China needs to give up, so we are
Speaker 1: kind of hanging balanced. Ye, Jenny, I'm gonna put you
Speaker 1: in the hot seat here as well. Uh, just because
Speaker 1: your co host doesn't mean you get out of have
Speaker 1: an answer questions. You know, you read all of our
Speaker 1: coverage on the bond market, and earlier in this month,
Speaker 1: you know, people were talking about these green shoots in
Speaker 1: the economy. One of the things that was backing that
Speaker 1: up is this sort of sell off in the treasury market.
Speaker 1: We saw the ten year yield sort of creeping back
Speaker 1: towards that two percent level. This week, though there seems
Speaker 1: to be yet another about face. I'm curious, what do
Speaker 1: you think is driving that and is there isn't at
Speaker 1: all possible to kind of predict the next sort of
Speaker 1: trend for yields or is it a lost cause at
Speaker 1: this point the bond the bond market, I would say
Speaker 1: at the moment, we're saying it in a in a
Speaker 1: rat where traders basically are trying to decide where we're
Speaker 1: going to go next. And I think the best characterization
Speaker 1: that I so this week in the note was describing
Speaker 1: it as a line from the ground all of your
Speaker 1: English nursery rhyme where it goes Basically, the rhyme goes
Speaker 1: like bones went up marched up a hill, they took
Speaker 1: a look up from up there, and then they climb
Speaker 1: back down and that's really boring. Where we seeing Bonn
Speaker 1: Hills going at the moment when when they knocked at
Speaker 1: the two percent door, I think traders and the market
Speaker 1: started to wonder what is going to take Bonn Hills
Speaker 1: higher from here? And really what we're saying now is
Speaker 1: a lack of inflation still coming back to how this
Speaker 1: market and it's uh the reflation trade that people even
Speaker 1: dirt starting talk again earlier this week. It has no
Speaker 1: legs if we don't see really prices moving up. We
Speaker 1: had CPI data earlier this week. All of that is
Speaker 1: coming to really add up to there is no impeters
Speaker 1: for the bond rally to to stop at this point. Well,
Speaker 1: when English nursery rhymes are being used to explain the market,
Speaker 1: I thought, I thought we were dumping ahead of the
Speaker 1: craziest thing in markets this week. That's a good contender.
Speaker 1: Reminds me of one Yi sang sang the bond market
Speaker 1: theme song to sim But lord, let's get back to you. I.
Speaker 1: You know, one of the things you've written about recently
Speaker 1: two is this rotation from growth and momentum back into value.
Speaker 1: How much of that is dependent on the signals from
Speaker 1: the bond market I mean, obviously financials banks are some
Speaker 1: of the big stocks in the value index. Will the
Speaker 1: bond markets sort of call the shots to some degree
Speaker 1: to the to that rotation, Well, you know, I will
Speaker 1: say to some extent, I do think this is just
Speaker 1: all one big trade and the bond yields right in
Speaker 1: the middle of it. So we've done a lot of
Speaker 1: work and we've put a lot of charts together. The
Speaker 1: bond yield moves up, um you tend to see I
Speaker 1: S M move up, and we think what's really being
Speaker 1: expressed in the industrials trade at the moment and the
Speaker 1: financials trade as well, is just the idea that the
Speaker 1: industrial economy is bottoming. And if you go back and
Speaker 1: you look to the period we actually saw the bond
Speaker 1: yield stabilize before i SM did, So we think the
Speaker 1: bond yield has being somewhat anticipatory and investors are really
Speaker 1: trying to bank on this re acceleration and in the
Speaker 1: global economy and the domestic economy. Now, I will tell
Speaker 1: you on industrials, we did upgrade it back in September,
Speaker 1: and that's not quite the call we were making. I
Speaker 1: think we caught a nice tail wind here, but The
Speaker 1: way we put it was, look, if we're at a
Speaker 1: turning point and we really are re accelerating, we think
Speaker 1: that industrials are deeply undervalued. We think that they will
Speaker 1: rip on the upside. And we said, if we're, by contrast,
Speaker 1: at a tipping point, we think that's already baked in,
Speaker 1: and if we lose the economy, we lose the consumer.
Speaker 1: The consumer sectors are overvalued. There's more risk there, So
Speaker 1: go ahead and buy the industrials. Anyway, they'll probably hold
Speaker 1: up on the downside. So I can see ways industrials
Speaker 1: could hang on here. But I would say, Mike, in general,
Speaker 1: I think you're right that the bond yield is calling
Speaker 1: the shots here, you know, and I keep hearing about
Speaker 1: these quote unquote green shoots in the economy. I think
Speaker 1: a lot of people are really talking about signals from
Speaker 1: the market itself, either the bond market were the leaders
Speaker 1: in the stock market. Is there any sort of hard
Speaker 1: economic data that you're looking at. I mean, we still
Speaker 1: have a I S M manufacturing UH index. That's that's
Speaker 1: very weak. Uh. Are there a green shoots in the
Speaker 1: hard data? So you know, when we look at things
Speaker 1: like the yield curve, you've gone from a mild inversion
Speaker 1: to slight steepening that's coincided with the shift into value,
Speaker 1: the shift in the small cap that's traditionally how the
Speaker 1: trade works. UM. So I don't know if you would
Speaker 1: call that hard data or not, but it is something
Speaker 1: that is saying that the moves have been justified. UM.
Speaker 1: One thing that we look at in our small cap
Speaker 1: work as well as the year over year trend and
Speaker 1: the cast freight shipment data, and what we're seeing there
Speaker 1: is not not what I would call a green shoot necessarily,
Speaker 1: but you're starting to get less bad on that year
Speaker 1: over year decline, and traditionally small caps do tend to
Speaker 1: get a little bit of a bid when that that
Speaker 1: deceleration stops and you start to get a little bit
Speaker 1: less bad in terms of the decline. So I think
Speaker 1: you're seeing some things that can justify the bottoming argument.
Speaker 1: My view is it's still maybe just a little bit
Speaker 1: too early to declare and all clear to declare this reacceleration. UM.
Speaker 1: We've gone through reporting season. I'm not seeing a lot
Speaker 1: of commentary on those green shoots. We had a couple
Speaker 1: of days of testimony from Chairman Dround Powell, and one
Speaker 1: thing that became clear is that he doesn't see any
Speaker 1: serious risks to the current expansion. Uh. And if anything,
Speaker 1: he also said that there isn't really what is characteristic
Speaker 1: in this expected there is there any sector that is
Speaker 1: really hot, So you can't have a beast if there
Speaker 1: is no boom. As he put it, Uh, it doesn't
Speaker 1: sound like the fat things that we are towards the
Speaker 1: end of the cycle. And even they called their first
Speaker 1: rate cut to mid cycle adjustment. Now, you know, I
Speaker 1: thought I saw that same common as well about the
Speaker 1: hot areas. UM, I'm not I'm not sure. UM I
Speaker 1: would characterize what's going on with software and I T
Speaker 1: services stocks as cool necessarily. Um. You know, that's something
Speaker 1: we've described as sort of a mini bubblet and I
Speaker 1: think there have been, you know, other examples of that
Speaker 1: as well. I think there are so many excesses that
Speaker 1: are around. You know, we we see the same things
Speaker 1: when we look at entertainment stocks, for example, that they've
Speaker 1: been pretty overvalued and overbought. They're not quite as widespread
Speaker 1: as they've been in the past. When I hear about
Speaker 1: the rotation from growth in the value, I always wonder
Speaker 1: is it really valuations. Is it the fact that the
Speaker 1: rest of the market is sort of expensive and the
Speaker 1: valuations that are sucking people in, Or is it uh
Speaker 1: the companies and the industries, those real cyclical industries that
Speaker 1: are in the value cohort for the moment. Is it
Speaker 1: which do you see as sort of the driver of
Speaker 1: that rotation. Well, I think it's it's sort of a
Speaker 1: breakdown in the affinity for secular growth. And if you
Speaker 1: think about you know, some of these software stocks for example,
Speaker 1: or these I T services names, some of these internet
Speaker 1: names that we're doing well in the first half of
Speaker 1: the year, they were viewed as safe havens in the
Speaker 1: trade war, safe havens from an economic slowdown, and so
Speaker 1: there was a real desire to be in those areas
Speaker 1: and that basically just coincides with the growth in the
Speaker 1: momentum trade. When you look on the flip side and
Speaker 1: you look at value, I do think a lot of
Speaker 1: it is this particular sector. So we look at things
Speaker 1: like financials and industrials. They've done very well here recently,
Speaker 1: for better or worse, since those are two sectors that
Speaker 1: outperform when I M is going up and underperform when
Speaker 1: I S M is going down. They are the cyclicals
Speaker 1: of this particular cycle, and so you know, I think
Speaker 1: that the ability of those sectors to lead UM has
Speaker 1: really dictated that move into the value trade. We have
Speaker 1: also seen historically going back over many cycles that financials
Speaker 1: and industrials are two sectors that when they outperform, the
Speaker 1: value trade is working generally. So I think they really
Speaker 1: go hand in hand. Shee. It all comes back to
Speaker 1: the trade. Were at the end of the day, and
Speaker 1: I'm curious because you spent what was it three or
Speaker 1: four months recently actually in Hong Kong. You had an
Speaker 1: assignment over there for Bloomberg. Ironically, you show up in
Speaker 1: Hong Kong and everything goes crazy. I don't know if
Speaker 1: it's if there's a correlation the correlation, but walk us
Speaker 1: through um sort of your experience in Hong Kong, what
Speaker 1: you saw. I'm curious what you think about the unrest
Speaker 1: in Hong Kong and if it could ever sort of
Speaker 1: collide with the trade tensions. Obviously, there's a bill that's
Speaker 1: kind of stalled in the Senate now, the Hong Kong
Speaker 1: Human Rights and Democracy Act, that would uh cause the
Speaker 1: US to sort of monitor the situation in Hong Kong
Speaker 1: going forward, or could these two stories sort of collide
Speaker 1: and kind of gum up the trade talks at all?
Speaker 1: I think my opinion, my personal opinion is that the
Speaker 1: China's attitude has being like separate the trade found the
Speaker 1: diplomat issues, geographic politics issues. They trade these trade talk
Speaker 1: as pure trade relations. So I don't think the Hong
Speaker 1: Kong situation is tied to the trade talk itself. Uh.
Speaker 1: But obviously the whole nationalism could affect the could give
Speaker 1: some voices of the hawks within the Chinese government, But
Speaker 1: I don't think these two things that go handing hand.
Speaker 1: So even though we could have some bills uh we
Speaker 1: gotting to the Hong Kong human rights or even Shin
Speaker 1: Jong situation or even so China see, but we could
Speaker 1: see some positive progress on the trade front. Lord, do
Speaker 1: you do you think about this Hong Kong situation when
Speaker 1: you're when you're thinking about markets. We've thought about it
Speaker 1: a little bit, and you know, we're we're a market
Speaker 1: I'm a market expert, not a political expert. But you know,
Speaker 1: you kind of have to put on both hats to
Speaker 1: some extent today in my seat, and we we've really
Speaker 1: just We've seen so many investors speculate about who has
Speaker 1: the leverage and who has the incentive. And you know,
Speaker 1: the way I look at this is I do think that, uh,
Speaker 1: neither side at this point in time, because of what's
Speaker 1: going on domestically in their own countries, can really afford
Speaker 1: to look weak. And so I see sort of two
Speaker 1: sides that are going to be very determined to go
Speaker 1: in and really get what they want and stand up
Speaker 1: for their countries. And in my mind, that makes, um,
Speaker 1: getting concessions more difficult. So I've probably been a little
Speaker 1: bit more skeptical that we get a Phase one than
Speaker 1: a lot of the invest as I talked to. And
Speaker 1: I've also frankly been skeptical that, um, we're going to
Speaker 1: get anything of real substance that's going to allow businesses
Speaker 1: to have confidence to invest again that necessarily, you know,
Speaker 1: a sort of weak deal wouldn't necessarily be an impediments
Speaker 1: who the market taking off as a result of I imagine, well,
Speaker 1: the problem with a weak deal that doesn't really accomplish anything.
Speaker 1: And remember this is being talked about in different phases
Speaker 1: is companies understand that there are bigger issues at play here,
Speaker 1: and if you get a deal that doesn't really address
Speaker 1: any of those and they aren't really off the table.
Speaker 1: I don't personally understand how that restores business confidence. If
Speaker 1: you look at the conference board measure of CEO confidence,
Speaker 1: it's literally about as bad as it tends to get
Speaker 1: in the middle of her sessions. I mean, it is
Speaker 1: really really down in the dull drums. At this point
Speaker 1: in time, there's been a lot of damage done to
Speaker 1: business confidence, and so, you know, getting a weak deal
Speaker 1: while corporations know that there are still these bigger issues
Speaker 1: that have to be dealt with. I just don't understand
Speaker 1: how that changes the mentality. And I'll be honest with you.
Speaker 1: As we've looked through these corporate transcripts, we are looking
Speaker 1: to see what companies are saying about a Phase one
Speaker 1: trade deal. And I read one company that talked, I
Speaker 1: think about a ray of sunshine, um, and that was
Speaker 1: about it. UM. I am Italy haven't gotten through this
Speaker 1: week's transcript yet. I've only gotten through last Friday. But
Speaker 1: you know, I'm just not seeing a lot of table pounding,
Speaker 1: a lot of excitement over Phase one deal. You know,
Speaker 1: I'm I'm seeing it in the market. I'm not seeing
Speaker 1: it in corporate commentary. Just to go back to China
Speaker 1: and Hong Kong, how much does the situation actually we
Speaker 1: can China's negotiating position, like talking about a week deal.
Speaker 1: Does it put China on the defensive here having to
Speaker 1: deal with such a situation so close to home? Uh? China,
Speaker 1: we know that they have tried too so hard to
Speaker 1: avoid some kind of credit crisis in their own backyard.
Speaker 1: Could this be some kind other implosion that would actually
Speaker 1: uh force them to in a in a way that
Speaker 1: hasn't been antssipated so far. UM. I think the Chinese
Speaker 1: position have been clear that the Hong Kong is Hong
Speaker 1: Kong's government has the capacity and the capability and resources
Speaker 1: to deal with this issue. They respect these one country
Speaker 1: two systems. So at this point, all these issues are
Speaker 1: left with the Hong Kong government. UM, while the China
Speaker 1: is focused um it's domestic issues. It's a relation with
Speaker 1: the with the US. I don't think the Hong Kong
Speaker 1: situation is going to affect or change any of the
Speaker 1: thinking of the Chinese government when it comes to the
Speaker 1: trade or managing its only economy. In terms of how
Speaker 1: China managed economy, one of the tools that they're using
Speaker 1: is of course the U want and the fixing, the
Speaker 1: daily fixing. It's always something that we watched to see
Speaker 1: as the which way at China. The win is blowing
Speaker 1: in China. What do you make of it? These days?
Speaker 1: They have been actually keeping it pretty stable so far. Yeah,
Speaker 1: it's the market. It's kind of nervous. Back in July
Speaker 1: August when the yuan first broke the seven pa dollar level,
Speaker 1: that a lot of people thought it was like a
Speaker 1: psychologically very important level. But since then the market has
Speaker 1: kind of calm down and perhaps supported by the all
Speaker 1: these positive sentiment or the trade situation. The fact is
Speaker 1: that PBOC have been largely hands off since then of
Speaker 1: a couple of amoungst this. If you look at the
Speaker 1: fixing relative to the actual price of the Chinese yuan,
Speaker 1: they are pretty close. So there's no any sign that
Speaker 1: the government or the PBOC is intervening in the market
Speaker 1: to support at this point. Is the our attitude is
Speaker 1: kind of hands free. You let the market to decide
Speaker 1: exchange rate. They are not in a position to push
Speaker 1: one way or the other. Alright, I think before we
Speaker 1: get to the craziest things, Laurie, we already put you
Speaker 1: on the spot on your two thousand nineteen year and forecast.
Speaker 1: I'll be issuing my two thousand nineteen forecast in late December. Well,
Speaker 1: let's stand by for that, but I correct me if
Speaker 1: I'm wrong. I don't think you've put out one for yet.
Speaker 1: Is there any sort of teaser you can give us something? Well, look,
Speaker 1: we haven't put out a price target for twenty yet,
Speaker 1: but we have actually published our twenty earnings forecast, and
Speaker 1: we we put that out a couple of months ago.
Speaker 1: We've been fine tuning it ever since, and we're modeling
Speaker 1: in five and a half percent earnings growth, which would
Speaker 1: be a bit of a recovery from this year, which
Speaker 1: looks like it's going to come in more or less flat.
Speaker 1: And I'll tell you that the sort of nuts and
Speaker 1: bolts of our model have been something investors have been
Speaker 1: really interested in, especially the last few weeks. Um you know,
Speaker 1: I would say one big assumption that we have is
Speaker 1: we've got to think about four and a half percent
Speaker 1: revenue growth, baked in some of that from sluggish GDP growth,
Speaker 1: some of that from inflation. But as I talked to investors,
Speaker 1: they're very focused on what the revenue backdrop will be
Speaker 1: so that that's been of interest. UM. We've baked in
Speaker 1: sixty w t I, which may be a little bit
Speaker 1: too high. UM. The other thing that's interesting is we've
Speaker 1: baked in flat margins and that's something else that investors
Speaker 1: have really, you know, sort of wanted to understand why
Speaker 1: we've baked in commodity cost pressures have come down, and
Speaker 1: we frankly just seeing companies have prioritized keeping their margins
Speaker 1: intact this year. UM. And then the last thing we're
Speaker 1: baking in that that may be a bit controversial. We've
Speaker 1: got buy back activity moderating to about a one percent
Speaker 1: next year account reduction next year, UM, and this year
Speaker 1: it's going to come in more like to two point
Speaker 1: one percent. So you know that we think it's still
Speaker 1: going to be a good year from an earnings perspective,
Speaker 1: but we think the cell side is about, you know,
Speaker 1: twice as high as it should be. Can I ask
Speaker 1: what you baked in for treasury years? Since you said
Speaker 1: that the acting is a signal. Um, you know, we're
Speaker 1: to be honest, we're using the Bloomberg consensus data on that. UM.
Speaker 1: We we we really shameless plug from my host today. Well,
Speaker 1: that's good. I'm glad to see that gets amused. And
Speaker 1: I will say, regardless of where the market closes this year,
Speaker 1: I think when you're looking out a market that's up
Speaker 1: year to date, Uh, getting that close is a pretty
Speaker 1: good accomplishment. So congrats, Oh thanks, And you know, look,
Speaker 1: we we put a twenty nine target in around Thanksgiving
Speaker 1: last year. Um, we did the table on it in January,
Speaker 1: and in April this year we raised and we wanted
Speaker 1: to signal at the time we thought there was more
Speaker 1: room to go. We don't want to send that same
Speaker 1: signal to right right, Yeah, especially after the December we
Speaker 1: had of two thousand and eighteen. It's uh, you know,
Speaker 1: it took some guts, I think, to to call for
Speaker 1: a rally this year. So let's get to those crazy things.
Speaker 1: I think you did not come prepared with a crazy
Speaker 1: thing to you know, I'm rely on you. That's good.
Speaker 1: I've got I've got way more crazy things than that
Speaker 1: we can probably fit in we had. Uh. You know,
Speaker 1: I like to look at what we call the alternative
Speaker 1: asset classes for my crazy things. And I will say
Speaker 1: I mean it when I'm talking about alternative and you'll
Speaker 1: see what I mean, and I think the listeners have
Speaker 1: caught on. So I've gotten some uh some uh entries
Speaker 1: from people in Bloomberg and some readers on Twitter who
Speaker 1: who listened to the show. Uh. First one comes from
Speaker 1: vil Donna, Hi Rick. She's kind of like our chief
Speaker 1: Crazy Things correspondent for the show. She also always provides
Speaker 1: us with good ones. And she found the story Bloomberg
Speaker 1: story about potent Philippe wristwatch that's sold for thirty one
Speaker 1: million dollars at a charity auction by Christie's in Geneva.
Speaker 1: Thirty one million for a restaurant wrist watch. I does
Speaker 1: have dials on both sides for some reason, so I
Speaker 1: don't I don't know why, but I guess that that
Speaker 1: makes it worth thirty one million. Another one from a
Speaker 1: user on Twitter at Paul David waalbrun Um. I think
Speaker 1: he actually out did vill Donna with this auction. H
Speaker 1: A bathtub shaped as a golden hippo sold for four
Speaker 1: point three million at Christie's on Tuesday, returning almost twenty
Speaker 1: percent to its owner, who purchased it more than a
Speaker 1: decade ago. And that's a story by Katsia Kasa Kina
Speaker 1: our art correspondent here a Bloomberg who provides us with
Speaker 1: a lot of crazy market things when it comes to
Speaker 1: the art art market. I think I can outdo them
Speaker 1: both though. And this is another auction. This one was
Speaker 1: held in Italy. It was for a truffle. This is
Speaker 1: the Alba white truffle fair. I guess they hold it
Speaker 1: every year. Uh, two point two pound truffle. I'm gonna
Speaker 1: play prices right though. Uh what would you glory pay
Speaker 1: for a two point two pound white truffle? I have
Speaker 1: no idea. I have no idea. She has not modeled
Speaker 1: that on her forecast for two twenty What would you
Speaker 1: pay for a two point two pound white truffle? I'll
Speaker 1: give you a hand. It's a lot less than the
Speaker 1: wrist watch, but it's still a surprising number, all right,
Speaker 1: Jenny paris On, I guess you win a hundred and
Speaker 1: thirty two thousand dollars for a white truffle at this
Speaker 1: auction in Italy. So I would be worried if I
Speaker 1: went to a restaurant. Then you know how they those
Speaker 1: restaurants that don't show you the prices. You could end
Speaker 1: up ordering a plate a risotto for like three three
Speaker 1: grand if it has this this truffle on it, but
Speaker 1: Lurry it it all serious. This I often hear people
Speaker 1: look at these ridiculous things like this and try to
Speaker 1: interpret it as some sign of euphoria in the economy.
Speaker 1: Were among investors? Is that? Is that a silly thing
Speaker 1: to do? Or is there any information you would take
Speaker 1: from a one million dollar risk watch and a four
Speaker 1: million dollar hipochape tub. Well, look, I think these you
Speaker 1: know that the reason people make that connection, right, is
Speaker 1: just the idea that there's too much money slashing around
Speaker 1: in the system and there's a little bit too much
Speaker 1: excess risk taking. And I think there are a lot
Speaker 1: of different things you could point to this year that
Speaker 1: that suggests that while this is not as bad as
Speaker 1: the tech bubble, while this is not as bad as
Speaker 1: the financial crisis, there's there's a little bit a hint
Speaker 1: of that, hints of that, and a lot of things
Speaker 1: people are seeing these days. I mean, I think that's fair.
Speaker 1: I think that's fair. All right, Jenny Parris, do you
Speaker 1: have a crazy thing for us? I do. I don't
Speaker 1: think I can compete with the white truffle, the expensive
Speaker 1: risk watch. But speaking to Laura's point about too too
Speaker 1: much money in the system and excess risk taken. Would
Speaker 1: talk a lot about negative yields and UH in the
Speaker 1: bond market, and what I saw this week it was
Speaker 1: a story about negative yields in Nigeria, of all places.
Speaker 1: I thought that was crazy. Of course we're talking about
Speaker 1: real yields, but what's happening there is really because the
Speaker 1: authorities have banned the pension fans from buying into some
Speaker 1: of them highest yielding central bank assets. They have turned
Speaker 1: to three month treasury builds and now they're yielding UH
Speaker 1: less than the inflation rate in that market. And an
Speaker 1: auction this week, so the record demand thirty times over.
Speaker 1: So there you have it, negative Nigeria and real yields.
Speaker 1: That's pretty amazing. Although I imagine inflation is pretty high
Speaker 1: Nigeria so but but still negative real yields in Nigeria. Laurry,
Speaker 1: do you have any crazy things for us? So? I
Speaker 1: don't have anything particularly wacky, But I did talk to
Speaker 1: my team this morning and you know, said I'm coming
Speaker 1: on the podcast and and I asked them what they
Speaker 1: thought was the craziest thing this week, And um, one
Speaker 1: of the guys on my team came back and right away,
Speaker 1: and he said, you know, it's the chart that we
Speaker 1: put out showing that we've basically erased the trade war.
Speaker 1: And what I mean by that is, we have these
Speaker 1: baskets and we look at the stocks most exposed to
Speaker 1: the trade war and most immune to the trade war
Speaker 1: based on our transcript review, and we just looked at
Speaker 1: relative valuation and relative performance. And if you look at
Speaker 1: both of those, um, they bottomed over the summer and
Speaker 1: they're right back today at levels where they were in
Speaker 1: one queue of before the trade war with China was
Speaker 1: a glimmer in anybody's eye. That's pretty interesting. And that
Speaker 1: goes to your point that all the potential good news
Speaker 1: is probably baked in from the from the trade war. Yeah, exactly.
Speaker 1: I mean, if nothing else, we're right back where we
Speaker 1: started from. Great stuff. Well. Uh, Laurie Calvacina, yees she,
Speaker 1: Jenny Paris, thank you all so much for coming on
Speaker 1: the show this week, and I hope we see you
Speaker 1: all again, uh sometime soon. Thank you thanks for having me.
Speaker 1: What goes up? We'll be back next week. Until then,
Speaker 1: you can find us on the Bloomberg Terminal, website and
Speaker 1: app where wherever you get your podcasts. We'd love it
Speaker 1: if you took the time to rate and review the
Speaker 1: show on Apple Podcasts so more listeners can find us,
Speaker 1: and you can find us on Twitter. Follow Sarah at
Speaker 1: Sarah Ponzac, Jenny Paris is at Paris Underscore Jenny, I'm
Speaker 1: at Reaganonymous, Our guest Laurie Calvacina is at l Calvacina RBC,
Speaker 1: and Yeesh is at x I y E Bloomberg. You
Speaker 1: can also follow Bloomberg Podcasts at podcasts. What Goes Up
Speaker 1: is produced by Toper Foreheads. The head of Bloomberg Podcasts
Speaker 1: is Francesco Levy. Thanks for listening, See you next time.