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Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along
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Speaker 3: We begin this hour, though with US futures mostly unchanged,
Speaker 3: a little bit softer following a Christmas Eve rally, investors
Speaker 3: hoping the so called Santa Claus rally will continue from
Speaker 3: the final four trading days of the year. I was
Speaker 3: looking at a stat this morning, Peter. Since nineteen fifty,
Speaker 3: the S and P five hundred has generated average and
Speaker 3: medium returns of one point three percent during the Santa
Speaker 3: Claus period, wildly outpacing them market's average seven day gain
Speaker 3: of three tens percent. And this is coming from LPL Financial.
Speaker 3: So actually, if you're willing to be in the markets
Speaker 3: around the holidays, maybe it'll be good for you.
Speaker 4: You know, normally it has been.
Speaker 5: I think this year though, everyone's kind of been looking
Speaker 5: for that opportunity to buy. We had the dip post FOMC.
Speaker 5: I think people bought that dip. I think we've already
Speaker 5: had a lot of the Santa Rally, then we had
Speaker 5: the weird stuff that went on with the budget. I
Speaker 5: think people are going to have to digest what does
Speaker 5: it look like in the new year with President Trump,
Speaker 5: with Musk, how's the economy.
Speaker 4: Going to shake out?
Speaker 5: And I think that's actually going to you know, maybe
Speaker 5: maybe we get the Santa rally, but I think come
Speaker 5: early January, we're going to get a lot of volatility.
Speaker 3: So you think the market has baked in all the
Speaker 3: good stuff when it comes to Trump, I think.
Speaker 4: Lock got baked in again.
Speaker 5: I think you go back to post election, everyone was
Speaker 5: really worried about tariffs. Then all of a sudden consensus became, Oh,
Speaker 5: it's just a negotiating point.
Speaker 4: You know.
Speaker 5: He tends to like volatility, he tends to like chaos.
Speaker 5: So the more the market gets complacent, I think the
Speaker 5: more he likely he is up to up the ante.
Speaker 6: What do you think in terms of sequencing come January.
Speaker 5: You know, I think he's going to go for easy wins.
Speaker 5: So I think as he gets out there, he's going
Speaker 5: to look what can be done. So anything that can
Speaker 5: be done in executive order, look for him to go
Speaker 5: ahead with that, right because he can do that simply.
Speaker 5: Then he's going to look for the opportunities.
Speaker 4: Again.
Speaker 5: I think we're already seeing some progress in terms of immigration.
Speaker 5: He's working with New York City Mayor Adams. So he's
Speaker 5: going to go for those high visibility easy wins. And
Speaker 5: he doesn't start getting those, That's when I think you
Speaker 5: see a more messy and chaotic problem when it.
Speaker 3: Comes to the easy wins though the market is looking for,
Speaker 3: really is a tax bill. When do you start baking
Speaker 3: in the fact that this could actually become real legislation.
Speaker 5: I think you have to wait until you really see
Speaker 5: what people come back acting like. Again, this budget thing
Speaker 5: was kind of weird, right. There's clearly some element, certainly
Speaker 5: even within the Republican Party that does not want to
Speaker 5: grow the deficit. There's concern about the deficit growing. You're
Speaker 5: seeing yields and entire almost every day for the last
Speaker 5: few weeks we have I think it's about twelve trillion
Speaker 5: dollars of debt that we have to refinance next year.
Speaker 5: So one, you need that demand to be there, but
Speaker 5: the higher if we're rolling that over to higher yields,
Speaker 5: that's going to add problems to the budget deficit. So
Speaker 5: I think the deficit is going to take front and center.
Speaker 5: It's going to make it more difficult than most of
Speaker 5: us would like to get some of those policies pushed through.
Speaker 6: You write about bonds, be wary of bonds.
Speaker 3: Nothing from the past days tells us that there won't
Speaker 3: be a lot of spending, just the direction of spending.
Speaker 6: Will be altered.
Speaker 3: You're talking about what happened in terms of the debt
Speaker 3: ceiling debacle, which pretty much when silent once they pass
Speaker 3: through this clean cr Do you think it's going to
Speaker 3: be the bond market that is the ultimate check of
Speaker 3: power in twenty twenty five when it comes to Washington, DC.
Speaker 4: I think it will be right.
Speaker 5: It's become the interest expense is already a big part
Speaker 5: of the deficit. It's growing, it's going to continue to grow,
Speaker 5: and the bond market, I think is very wary. Right,
Speaker 5: how are we going to pay for all these things?
Speaker 5: I think everyone out the corner of the eye is
Speaker 5: still looking at Doge and saying, Okay, maybe something gets
Speaker 5: done there.
Speaker 4: I think that's the.
Speaker 5: Bright shining light that's kept market somewhat in check. Is well,
Speaker 5: if those can really get some efficiencies, maybe we don't
Speaker 5: see the deficit bloom.
Speaker 4: Everything else, though, I think is just telling.
Speaker 5: Us this deficit is going to go higher, and that's problematic.
Speaker 6: Do you see any fiscal hawks left in Washington?
Speaker 7: Apparently?
Speaker 5: Maybe what the twenty seven Republicans who voted against the
Speaker 5: cr They're thirty eight, so yeah, maybe that's it.
Speaker 4: There is no one.
Speaker 5: It's all a matter of where they spend their tax cuts.
Speaker 5: And again, dog seems to be the one thing. Maybe
Speaker 5: that's where they eke out some gains and do something
Speaker 5: about the deficit. I just don't see that happening very
Speaker 5: cleanly or very quickly.
Speaker 3: You also say that there's hope of discipline discipline, but
Speaker 3: quote the swamp seems well in trench. So I see
Speaker 3: consistent upward pressure on bond yields. T row Price is
Speaker 3: talking about maybe five percent. Some people are even saying
Speaker 3: six percent on the ten year yield. Do you think
Speaker 3: we can reach those levels?
Speaker 5: I certainly think five percents in the cards. Six percent
Speaker 5: might be high. We'd have to see some of the
Speaker 5: policies actually get implemented, but yeah, I think five percent's
Speaker 5: pretty realistic. Don't forget. Also, we might see some inflation
Speaker 5: pressures come back again. One people were buying goods ahead
Speaker 5: of the tariffs or potential tariffs. You're seeing that, You're
Speaker 5: seeing the economy still move along reasonably, Well, it's that
Speaker 5: shopping season.
Speaker 4: Plus I do think there's been an artificial.
Speaker 5: Bias to the data pushing things higher than they really
Speaker 5: are in terms of jobs and inflation January February, so
Speaker 5: that could spook the market as well. Six percent seems
Speaker 5: high though, unless we get really aggressive policy.
Speaker 3: What do you make if we get five percent ten
Speaker 3: year yields? What happens to this idea of US exceptionalism Now?
Speaker 5: I think the US economy will struggle at that level.
Speaker 5: You're starting to see small companies default pick up.
Speaker 4: You're also One thing.
Speaker 5: That kind of really caught my eye is they've gone
Speaker 5: back in Q two and said now that we're actually
Speaker 5: job losses rather than job gains in Q two. So
Speaker 5: every time they do the revisions, the economy actually seems
Speaker 5: slightly worse. So I'm not sure where we're managing to.
Speaker 4: I do think the.
Speaker 5: Fed's going to be much more cautious on rate cuts.
Speaker 5: They did their one hundred BIPs. They're sending that message.
Speaker 5: So I think we're susceptible to a yield driven slowdown.
Speaker 6: What does that then mean for the equity market?
Speaker 5: You know, I think we could see some pressure on
Speaker 5: the big high flyers again. So much of this market
Speaker 5: to me, is about the leverageddtfs you have now single
Speaker 5: stock leverage gts. Have no idea why those have been improved.
Speaker 5: They're out there. You're seeing a lot of high around that.
Speaker 5: You've seen a lot of hype around you know, Bitcoin,
Speaker 5: it got to one hundred thousand a couple times. I
Speaker 5: think it crossed ninety nine just yesterday, and now it's
Speaker 5: back to ninety five thousand. So I feel that that's
Speaker 5: that froth that's in the market. That's what the liquidity
Speaker 5: is going to get taken out of, and it'll be
Speaker 5: pretty aggressive and pretty quickly when it happens.
Speaker 3: Do you think there's any chance than in twenty twenty
Speaker 3: five for broadening out or the concentration will remain in
Speaker 3: these mag seven names.
Speaker 5: I think we could see broadening out. We might even
Speaker 5: see maybe globals start doing better. It's really going to
Speaker 5: come down to, I think how many fights does Trump pick,
Speaker 5: who do we pick fights with, are we winning them?
Speaker 4: And what sort of policy do we get.
Speaker 5: So but with higher yields, I think that's going to
Speaker 5: make it more and more difficult for this to really
Speaker 5: broaden out.
Speaker 3: Unfortunately, when you say you think globally we can potentially
Speaker 3: see pickups where exactly right.
Speaker 5: Now, I still wouldn't touch Europe. I think Europe's a disaster.
Speaker 5: You mentioned I think at the start of the top
Speaker 5: of the show how the europe declined free fall.
Speaker 4: So it's hard.
Speaker 5: And what scares me about Europe is Germany's kind of
Speaker 5: been the juggernaut. Europe's kind of Germany's been what's held
Speaker 5: Europe together. They're doing very poorly right now. So I'm
Speaker 5: not yet there, But I do think sentiments become so
Speaker 5: bad over there and so excessive over here that you
Speaker 5: do get that potential for a reversal because.
Speaker 6: It's so low. The entring point is that what you're
Speaker 6: saying an entry point.
Speaker 4: Right and really is a contrary you're looking for.
Speaker 5: Okay, once everyone's given up on something that tends to
Speaker 5: be where it doesn't take much to push that around,
Speaker 5: and everyone is still so very focused mag seven over here.
Speaker 5: Every time we've tried to rally, you know, small caps,
Speaker 5: that's failed, and I keep thinking everyone's looking for that
Speaker 5: small cap rally and maybe the surprise is going to
Speaker 5: be Europe or someone does better. I don't think it
Speaker 5: happens this month or next month, but that could be
Speaker 5: the trade of the year where all of a sudden
Speaker 5: people say, let's give the world a chance.
Speaker 6: The Dacks, though, is up so much double digits on
Speaker 6: this year.
Speaker 3: Jonathan brings up this point all the time, yet the
Speaker 3: German economy.
Speaker 4: Is on its back.
Speaker 7: You know.
Speaker 5: I think one of the things with all these is
Speaker 5: most of these companies are big and global. So that's
Speaker 5: one reason I think you can look at this and say,
Speaker 5: you know, I think the S and P five hundred,
Speaker 5: close to fifty percent of your owns come from overseas.
Speaker 5: So it's the same for some of those big German companies. Right,
Speaker 5: Mercedes is not really a German company per se. Right,
Speaker 5: They're very dependent on global So I think that's you know,
Speaker 5: it's hard when we look at these things and really
Speaker 5: nationalize them when some of the big companies really are
Speaker 5: so global and why would they trade it a much smaller,
Speaker 5: you know, as a market lower pe.
Speaker 4: I think some of it makes sense.
Speaker 5: Some of it's telcode things, banks that don't have that potential,
Speaker 5: but there is that opportunity I think for growth there.
Speaker 6: The one area you haven't mentioned is China.
Speaker 3: China overnight is apparently giving local officials more leeway and
Speaker 3: how they invest government bonds. We do see them coming
Speaker 3: out and trying whatever they can to stimulate the economy.
Speaker 6: Is it enough for you to want to go there?
Speaker 5: Yeah, I actually don't mind China as an investment, and
Speaker 5: we'll be interested when we talked to the guests later today.
Speaker 5: But I do think that this is almost an existential
Speaker 5: sort of moment for GI and the Communist Party, So
Speaker 5: they are going to keep throwing things at this until
Speaker 5: they get.
Speaker 4: The economy turned around.
Speaker 5: And I am a big believer that their whole strategy
Speaker 5: is this made by So they're taking their brands, they're
Speaker 5: trying to sell them globally. They're trying to use bricks
Speaker 5: as another way to get their brands out there. So
Speaker 5: I think Chinese companies actually might do pretty well. And again,
Speaker 5: sentiment's been awful since, you know, there was that brief flurry,
Speaker 5: you know when everyone said, oh, we have to buy
Speaker 5: China late in the fall. It's kind of reversed again.
Speaker 5: I think there is some opportunity there. I think, to
Speaker 5: me though, it's still a trade, it's not an investment.
Speaker 3: You're a traveler, not a settler when it comes to Chenna, definitely.
Speaker 3: Andy Schiller of the Taubman Center for American Politics at
Speaker 3: Brown University joins us now, Wendy, thank you so much
Speaker 3: for joining us, and happy holidays to you.
Speaker 6: Thank you for joining us the day after Christmas.
Speaker 3: We have a long list of grievances coming from President
Speaker 3: elect Trump before he even gets into office, whether or not.
Speaker 6: It's Canada, Mexico, China, Greenland.
Speaker 3: And now the Panama Canal.
Speaker 6: What do you make of all that?
Speaker 1: Yes, good morning, Henry.
Speaker 6: Well.
Speaker 8: President Trump, you know, did successfully renegotiate NAFTA, at least
Speaker 8: in his eyes, in the eyes of a lot of people,
Speaker 8: trying to secure better terms for the United States in
Speaker 8: terms of trade. And this is something presidents can do
Speaker 8: in terms of executive authority. They have a trade representative.
Speaker 8: They do have a lot of leeway in determining what
Speaker 8: our economic relationships are in terms.
Speaker 1: Of trade and also user fees with foreign nations.
Speaker 8: And so there's a long history with the Panama Canal,
Speaker 8: and so I'm not sure how much the president will
Speaker 8: invoke that history. But he's looking for victories, and he's
Speaker 8: looking for victories that he can demonstrate using executive power
Speaker 8: and really pretty much end running Congress. Because he was
Speaker 8: president for four years, he understands, even with a Republican trifecta,
Speaker 8: as he saw last week, you're not always going to
Speaker 8: get your victories quickly or easily through Congress.
Speaker 1: So you're going to look to other venues and other
Speaker 1: uses of presidential power to achieve quick victories. It's to
Speaker 1: look successful.
Speaker 3: China doesn't control the canal at all, but it does
Speaker 3: have two of the main five ports adjacent to the canal.
Speaker 6: Is that really what Trump is getting after?
Speaker 8: Well, I think observers would like to believe that the
Speaker 8: President wants to strengthen the United States position visa each
Speaker 8: China in a lot of different ways. We know that
Speaker 8: China is also investing in a lot of parts of
Speaker 8: South America and also Africa, and using its resources to
Speaker 8: sort of gain leverage in those areas. That's been happening
Speaker 8: for a long time and the United States hasn't really
Speaker 8: confronted it head on. And I think these are going
Speaker 8: to be ways in which the Trump administration looks to
Speaker 8: sort of counter China, beyond even tariffs in the places
Speaker 8: that China is trying to gain a foothold.
Speaker 5: What do you think are the top two or three
Speaker 5: things he could do basically on day one to set
Speaker 5: that agenda and get that tone going.
Speaker 7: Well.
Speaker 1: I can certainly issues some executive orders.
Speaker 8: He can certainly raise tariffs under a sort of national
Speaker 8: security he can do those sorts of things. He can
Speaker 8: certainly try to block some issues of visas or travel like.
Speaker 1: You did with the Muslim ban.
Speaker 8: You know, there's a fair number of things presidents can
Speaker 8: do with executive horizon the first day.
Speaker 1: What he can't do is get his ambassador cleared right away.
Speaker 8: That's up to the Senate, and the Senate seems under
Speaker 8: John Thune, the incoming Repulican leader, to want to exert
Speaker 8: its constitutional privilege and really examine his nominees. Now that
Speaker 8: examination may take a day, a day and a half,
Speaker 8: but they're still going to go through the process. So
Speaker 8: all these ambassadors, all these cabinet levels, they have to
Speaker 8: still go through the Senate and that's going to take
Speaker 8: a little while.
Speaker 1: So how much that frustrates President Trump. We're about to see, Wendy.
Speaker 6: What's the Democrats strategy for next year? Henry?
Speaker 8: That is a question I think the Democrats themselves are
Speaker 8: looking for an answer to. It depends which faction of
Speaker 8: the Democratic Party emerges, you know, sort of as the
Speaker 8: chief spokesperson against the incoming presidential Trump's administration. We saw
Speaker 8: a little bit of playbook from the Democrats on the
Speaker 8: budget bill, you know, referring to President Musk or co
Speaker 8: President Elon Musk. I think the Democrats have real concerns
Speaker 8: about these non elected influences on President Trump.
Speaker 1: You know, President Trump, we've seen four years in office.
Speaker 1: There's a bit of a playbook. Unpredictable, but there's a playbook.
Speaker 8: But new actors with this kind of influence, particularly with communications,
Speaker 8: presents a challenge for the Democrats, and they're trying to
Speaker 8: sort of drive a wedge between those influences, particularly Musk
Speaker 8: and the President. Because of the President, they know what
Speaker 8: they're dealing with with Musk.
Speaker 1: It's much more out of their control.
Speaker 6: Right now.
Speaker 3: We still have a sitting president Joe Biden. Yet when
Speaker 3: it came to the debt, the potential shutdown debt ceiling
Speaker 3: debacle of last week, he pretty much seated the spotlight
Speaker 3: to incoming President Trump. Are you surprised by how much
Speaker 3: power Joe Biden is seeding right now on the global stage.
Speaker 8: Well, I mean, I think Joe Biden and even the
Speaker 8: Democrats do want to set this up as a relationship
Speaker 8: between Republican President Trump and a Republican.
Speaker 1: Controlled House and Senate.
Speaker 8: Because whatever happened in the next couple of months, maybe
Speaker 8: things sail down, inflation goes down, maybe the economy stays solid,
Speaker 8: maybe not.
Speaker 1: They want nothing to do with that.
Speaker 8: They want to start their twenty twenty six campaign now
Speaker 8: against the trifecta. So it's not really a bad thing
Speaker 8: for the Democrats for President Biden to sort of, you know,
Speaker 8: not be involved.
Speaker 1: He's also doing things with executive power, things like clemency
Speaker 1: for example.
Speaker 8: I mean, he's trying to do all he can nilaterally
Speaker 8: and somewhat quietly before the new president takes over. But
Speaker 8: right now the strategy is to say it's the Republicans
Speaker 8: government to run, and it's the Republican's government to succeed
Speaker 8: or fail.
Speaker 5: What do you think the rest of the world's going
Speaker 5: to do in response to some of these things? Right,
Speaker 5: so far we seem to be talking about this in isolation,
Speaker 5: what Trump wants to do.
Speaker 4: What's the world going to do to push back on that?
Speaker 4: Or are they going to do anything?
Speaker 8: Well, yeah, you have to think about economic markets, So
Speaker 8: we also have to think about military security and security
Speaker 8: of Europe. And with Germany's government very shaky, with France's
Speaker 8: governm shaky, and even with Great Britain's government shaky, you
Speaker 8: start to really have concerns about military encouragion.
Speaker 1: You think about Putin, you think about Ukraine.
Speaker 8: You know the instability that could come to Europe with
Speaker 8: economically and even militarily.
Speaker 1: That's a challenge. It's unclear that Trump.
Speaker 8: Administration is prepared for, and we just don't know what
Speaker 8: moves the Trump meministration will make to steady the ship,
Speaker 8: and of course the global economy will depend on studying
Speaker 8: that ship. So those are the kinds of unforeseen external
Speaker 8: shocks that could come earlier in the Trump administration that
Speaker 8: anyone's expecting.
Speaker 3: Trump definitely takes a more bilateral view of the world,
Speaker 3: while the Democrats or Biden administration had taken more of
Speaker 3: a multilateral view of the world. If Trump used the
Speaker 3: world bilaterally, who do you think is going to be
Speaker 3: his best partner in Europe?
Speaker 1: You know, that is a really interesting question.
Speaker 8: I just haven't seen any inclination from the prior Trump
Speaker 8: administration or his rhetoric now that he's looking for a partner.
Speaker 8: I mean, he you know, he sort of wants Poton
Speaker 8: to stay in his corner, maybe resolve Ukraine and look
Speaker 8: good for that. But you know, Trump is Trump, and
Speaker 8: as we see in domestic politics and international politics, he
Speaker 8: is a loner.
Speaker 1: He wants to exert influence where he can and where he.
Speaker 8: Can be successful, but he's not really interested in giving
Speaker 8: anything to other partners. And that's something that's really strikingly
Speaker 8: different from the US foreign policy posture than we've seen
Speaker 8: from a lot.
Speaker 1: Of former presidents.
Speaker 3: So we're less than a month away from his inauguration, Wendy,
Speaker 3: when it comes to this sequencing of things like tax cuts,
Speaker 3: immigration policy, as well as tariffs, how do you expect
Speaker 3: all of this to play out in Washington.
Speaker 8: Well, you know, Emri as you well know because you've
Speaker 8: discussed it reported on before. You know, there's a difference
Speaker 8: between Mike Johnson and John Thune on getting reconciliation going
Speaker 8: and getting an early version of the tax cut you know,
Speaker 8: on the table and under consideration in both the House
Speaker 8: and the Senate, an early victory to extend the tax cuts,
Speaker 8: the Trump tax cuts, that would give the president a
Speaker 8: lot of momentum to focus on other things like border security.
Speaker 8: So border security he can do, and to some extent,
Speaker 8: you know, if he invokes the military in trying to
Speaker 8: do border security, that will create controversy and that could
Speaker 8: upend other kinds of domestic priorities he has, like the
Speaker 8: tax cut bill. One thing that Trump administration doesn't seem
Speaker 8: to quite get yet, which is surprising given they were
Speaker 8: there for four years before, is that these things are interrelated.
Speaker 8: If you ask somebody to make a politically difficult decision
Speaker 8: on one issue, it's going to affect whether they're going
Speaker 8: to help you on another. And that's something these Republican
Speaker 8: leaders will have to manage. But it's unclear how well
Speaker 8: Trump will manage it.
Speaker 3: Wendy Schiler Best of holidays to you. Thank you so
Speaker 3: much for joining us this morning.
Speaker 4: Jay.
Speaker 6: I'm so excited he's going to join us for the
Speaker 6: next sixty minutes.
Speaker 3: So what you're saying there, what it sounds like is
Speaker 3: almost twenty twenty four was the peak when it comes
Speaker 3: to US exceptionalism.
Speaker 6: Is that accurate?
Speaker 7: Well, it could be, right, I mean US has led.
Speaker 7: I mean it's one of the things that's interesting. We
Speaker 7: talked about those big moments right. One of them was
Speaker 7: election night, where we talked about the great economic story
Speaker 7: of the Biden administration did not translate politically, but clearly
Speaker 7: the US is a global growth leader, best performer on inflation.
Speaker 7: And yet now we're looking at a situation where we
Speaker 7: think there's uncertainty in the US with the new administration.
Speaker 7: The rest of the world is responding. We're in what
Speaker 7: we call is that we touched on at the top
Speaker 7: of the long cycle. It's really being driven by competition
Speaker 7: within our tripolar world thesis of regional competition between Asia, Europe,
Speaker 7: and the Americas in the three areas of climate AI.
Speaker 7: In defense, that competition requires a new industrial policy. So
Speaker 7: we're talking about the marriage of fiscal and monetary policy,
Speaker 7: and it has to be done well, right, and so
Speaker 7: you really have to start putting a premium on the
Speaker 7: policy makers and their ability to be in alignment with
Speaker 7: public and private sector. We see that in China, right.
Speaker 7: You were talking earlier about the evs. China led the
Speaker 7: way in the climate space and they now dominate the
Speaker 7: entire space. So now the fight is in AI and
Speaker 7: people are throwing money at this. Every government, every company
Speaker 7: in the world needs to compete in AI, and so
Speaker 7: these investments are too big for anyone company. That's why
Speaker 7: the governments have to get involved. That's all. We have
Speaker 7: fiscal spending, but you have to do it well. And
Speaker 7: if you don't do it well, the markets rebel, as
Speaker 7: we're seeing in Brazil right, nine ten percent fiscal deficit,
Speaker 7: currency collapsing, rates skyrocketing, in equities underperforming, and so there
Speaker 7: really is this competition, and we think we're shifting now
Speaker 7: where the rest of the world has to respond. So
Speaker 7: you have deflation in China, you have stagnation in Europe,
Speaker 7: and so we're seeing policy mixes responding now to those issues.
Speaker 7: And we see President ELEC. Trump as an accelerator of that, right,
Speaker 7: I mean, he's renting caras on everybody. So people China,
Speaker 7: in particular export led economy, they don't start to drive
Speaker 7: domestic consumption. They're more at risk being held hostage by
Speaker 7: the US, and so they are responding. And one of
Speaker 7: the great unknowns we talk about the US and the
Speaker 7: S and P. Guess what, China is outperforming the US FXI,
Speaker 7: the large cap China ETF is up twenty nine percent
Speaker 7: year to date, outperforming the S and P. Nobody knows
Speaker 7: about that, Nobody talks about that. But that's the reality.
Speaker 7: So it's already starting to happen. And so our view
Speaker 7: is that year three in a bull market, which is
Speaker 7: what we're in in the US in globally, tends to
Speaker 7: be a kind of rest here. Single digit type returns
Speaker 7: are the average for three year bull markets. So as
Speaker 7: we see global growth picking up outside the US, we
Speaker 7: think we're going to see earnings do better outside the
Speaker 7: US then in the US. That's new, particularly in emerging markets,
Speaker 7: and therefore we think investors can start to take profits
Speaker 7: in the US, particularly if there's uncertainty with the new
Speaker 7: Trump administration, and allocate to the on US markets which
Speaker 7: are completely under owned at like fifty year lows in
Speaker 7: relative evaluation, starting to pick up earnings growth, starting to
Speaker 7: do the right policy mix. So that's the opportunity take
Speaker 7: some money off the table in the US, move it
Speaker 7: into the non US markets, and we think commodities as well,
Speaker 7: and so there's really that pause. So you're three in
Speaker 7: the US bowl market, single digit earnings growth, that's what
Speaker 7: we're driving with our single digit return expectation, and then
Speaker 7: non US markets can go up fifteen percent, eighteen percent
Speaker 7: earnings growth, economic growth. You know, investors start to allocate there,
Speaker 7: you go.
Speaker 6: Let's look at China a little bit more though. I
Speaker 6: know equity market there you're saying is doing very well.
Speaker 6: But the economy they are still struggling, don't you think.
Speaker 3: I mean you look at you five percent growth, look
Speaker 3: at consumer healthy or non consumer demand, it's not really there.
Speaker 3: I mean, at some point do you think China is
Speaker 3: going to come out with an even bigger bazuka When
Speaker 3: it comes to fiscal demand.
Speaker 7: Well, a lot of it, as we've talked about, is
Speaker 7: what's in the price right. And you know the China stimulus,
Speaker 7: they are taking out the left tail risk. They've told
Speaker 7: you months ago that they're not going to let the
Speaker 7: equity market go down and guess what, they have the
Speaker 7: ability to do that, and so they're doing it. And
Speaker 7: so as an investor, you know, when you look at
Speaker 7: single DIGITPE, which is what you know China trades on,
Speaker 7: when you look at the government saying, you know, we're
Speaker 7: going to we're going to stimulate the economy. When you
Speaker 7: look at the tech stuff, right, so the US is
Speaker 7: trying to freeze China out of the high end tech
Speaker 7: so it could lead in AI. That's the game. The
Speaker 7: way we look at that is that's an opportunity to
Speaker 7: buy China tech, which is now going to dominate the China. Yeah,
Speaker 7: the China e commerce market, which is much bigger than
Speaker 7: the US, growing much faster than the US, and the
Speaker 7: companies that dominate them are trading at like a sixty
Speaker 7: percent discount to the US peer group. And so we're
Speaker 7: long China tech because we think that's really where the opportunities.
Speaker 7: And as we said before, China knows it has to
Speaker 7: act because it's struggling with deflation. Right. The property sector
Speaker 7: has been a big problem. By the way it's bottoming,
Speaker 7: you can start the data starting to finally show properties
Speaker 7: starting to pick up a little bit in China. And
Speaker 7: now we have a situation where they are threatened by
Speaker 7: President Trump with exports. Okay, they're export led economy. They
Speaker 7: need to switch that export focus to domestic demand focus,
Speaker 7: and that's what they are doing. So stimulus, stimulus, stimulus,
Speaker 7: not a huge bazooka. We all, we don't expect that,
Speaker 7: but stimulus, stimulus, stimulus, more stimulus coming in the spring.
Speaker 7: And therefore, you know, growing at five percent, earnings growth
Speaker 7: needs to pick up, So that's important. Earnings growth has
Speaker 7: been disappointing in China, but we think it's going to
Speaker 7: pick up. And as it does, stocks are completely under owned.
Speaker 7: Nobody owns China. I mean I saw something and I
Speaker 7: can't remember which firm because you know so many year
Speaker 7: ahead outfits, and I think there was a list of
Speaker 7: like fifteen major banks and not a single one thought
Speaker 7: China growth was going to be better in twenty twenty
Speaker 7: five than it is in twenty twenty four. I love that,
Speaker 7: you know, when everybody is thinking one thing, we.
Speaker 3: Like to go the other way, right, when everyone's on
Speaker 3: one side of the book real and the other way.
Speaker 6: Yes, Okay, so we talked about China.
Speaker 3: You to this idea that potentially they have domestic consumption
Speaker 3: trying to boost it. At the same time, many say
Speaker 3: that with the walls going up around the United States,
Speaker 3: they dump more on Europe.
Speaker 6: Can you handle that?
Speaker 7: Yeah, Europe is a challenge, right, So in our tripolar world,
Speaker 7: you have China leading because they're the best at marrying
Speaker 7: this industrial policy, fiscal and monetary, public and private. They've
Speaker 7: shown that with the climate space right. US responds with
Speaker 7: the Biden's Chip Act, Infrastructure Act, IRA Act, and now
Speaker 7: we're in the game best growth of the G seven?
Speaker 7: And now where is Europe? So Europe has to respond.
Speaker 7: They know it. You know, there's report after report, the
Speaker 7: draggy report, this, that and the other. They know what
Speaker 7: they have to do. It's a matter of political will,
Speaker 7: and I think you're going to see that political kind
Speaker 7: of logjam break this spring in Germany. Germany is the
Speaker 7: you know, the engine of Europe, and it's been going
Speaker 7: nowhere for years, Okay, in part because Germany has not
Speaker 7: gone down the fiscal stimulus route that pretty much every
Speaker 7: other major economy has. They have the famous debt break right,
Speaker 7: very strict on how much debt they can issue. So
Speaker 7: guess what they now understand They have to kind of
Speaker 7: fudge that a little bit, and they need to stimulate
Speaker 7: to pick get their economy to pick up, because they too,
Speaker 7: like China, a very export dependent and their export dependency
Speaker 7: is on China. So China's weak consumption really hurts Germany.
Speaker 7: All right, So we expect in the upcoming election, right,
Speaker 7: the government has failed. We wrote a piece last week
Speaker 7: in our Musings was called vote of no confidence, right,
Speaker 7: because there's so many no confidence votes in Germany. Had
Speaker 7: one new government we expect in the spring to be
Speaker 7: led by the more conservative side of Europe, of German
Speaker 7: political space, and we think they are going to lead
Speaker 7: the talk about easing on the debt break. So we
Speaker 7: expect fiscal stimulus in Germany next year in Europe more broadly,
Speaker 7: and we think that is going to help attract capital
Speaker 7: to the European.
Speaker 6: Are they're potentially going to be though.
Speaker 3: Well, Donald Trump is being inaugurated January twenty and he's
Speaker 3: a very different view on Europe than the Biden administration.
Speaker 7: Well, I mean, look, I think the tariff thing is overstated.
Speaker 7: Let me just go back to the auto to Europe
Speaker 7: in Germany one second. Really, the auto companies show it, right,
Speaker 7: That is the leading edge of European manufacturing, and they
Speaker 7: are getting their heads handed to them all around the world,
Speaker 7: but especially in China, so they know, they understand they
Speaker 7: have got to act, and they're going to act on
Speaker 7: the tariff side. I think the markets are telling you
Speaker 7: that for the most part, it's already in the price. Right.
Speaker 7: Trump came out twenty five percent on Mexico, on Canada.
Speaker 6: Is it ready negotiating?
Speaker 4: Right?
Speaker 7: But here's the thing, it's not the news. It's the
Speaker 7: reaction to the news that counts. And you look at
Speaker 7: the reaction to these markets. There was no reaction, no,
Speaker 7: no reaction. Pay So higher after a week, China stocks
Speaker 7: higher after a week, Europe, no stocks, no action. So
Speaker 7: I think the tariffs for the most part are in
Speaker 7: the price.
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