Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm term Keene Jay Leie.
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Speaker 1: really interesting note coming from the team over at Morgan
Speaker 1: Stanley in the last week. I want to quote some
Speaker 1: of it for you just to begin this segment. The
Speaker 1: puts have expired. Has been a game of deteriorating fundamentals
Speaker 1: versus a pivoting FED and hope for a resolution to
Speaker 1: the US China trade uncertainties. With the Fed's first rate
Speaker 1: cut in a decade not having the desired effect on markets,
Speaker 1: and a trade deal looking less likely every week, these
Speaker 1: two puts, the FED and trade deal may have expired,
Speaker 1: leaving investors facing the potential reality there is no second
Speaker 1: half rebound coming. Michael Wilson joins US now Morgan Stanley's
Speaker 1: chief US equity strategist. Market's always great to get your inside.
Speaker 1: Just explore that a little bit further for us. Yeah, thanks, guys, Uh,
Speaker 1: I mean I think you said it right. John At
Speaker 1: the at the outset I mean, this has been building
Speaker 1: for a while. This is not new news to the market.
Speaker 1: I've been a little bit perplexed why a lot of
Speaker 1: folks have been, I guess unwilling to kind of acknowledge
Speaker 1: the slowdown. Maybe it's just the eternal optimism around the
Speaker 1: FED and that the Fed can always fix things. So
Speaker 1: the feds dubbish pivot was absolutely a positive development earlier
Speaker 1: this year. Uh. And it's interesting, you know, whenever the
Speaker 1: FED pauses after a long rates hiking cycle, it's always
Speaker 1: positive for markets. And we went back and looked at this,
Speaker 1: it's usually markets go about. However, once the FED starts cutting,
Speaker 1: it's usually negative because I think it usually means that
Speaker 1: things are getting worse, not better. And so I think
Speaker 1: that was just a misunderstanding by folks going into the
Speaker 1: FED meeting that if they were to cut, I mean, sure,
Speaker 1: maybe they could have cut fifty and maybe when it
Speaker 1: looked to react and that the President tweeted that next
Speaker 1: morning that obviously was negative too. But I think I
Speaker 1: think the die was cast once they cut that. You know,
Speaker 1: now we have to deal with the reality of the
Speaker 1: slow down. I want to point out folks, twelve months
Speaker 1: trailing sp negative on Mike Wilson. I want to congratulate
Speaker 1: you on your reticence against the uber bulls. Let's frame
Speaker 1: your reticence and equity markets. Are you in cash or
Speaker 1: are you in a certain kind of equities. We're both.
Speaker 1: We're both, and we actually bought a bunch of the
Speaker 1: low you sound like Ellen, Zanner continued, you know, we're
Speaker 1: h I mean we we've been defensively positioned since last summer.
Speaker 1: We didn't feel the need to, you know, pivot and
Speaker 1: get really aggressive earlier this this year. That hurt us
Speaker 1: in the first quarter, but now it's coming home to
Speaker 1: have been been the right moves. We've been overweight utilities
Speaker 1: and staples for over a year. We've been overweight a
Speaker 1: long duration since April. That's turned out to be even
Speaker 1: better than we hoped. And we've had a bunch of cash,
Speaker 1: so uh, you know, it's helped, and we're not we're
Speaker 1: not totally disinvested. I mean, we have equity positions and
Speaker 1: we have exposures. We just took it over the edge.
Speaker 1: You know. That's it. This John, this is so important
Speaker 1: Alo Gino, Martin Adams, and others. The idea that if
Speaker 1: someone's cautious there in a undred percent cash is just wrong. Well,
Speaker 1: let's pick out two with those trades, long utilities that
Speaker 1: has performed up around about through so far, the long
Speaker 1: end of the treasury curve that has performed really well
Speaker 1: up around about through so far, Mike, with many people
Speaker 1: on those trades, and listen to the program right now,
Speaker 1: they're trying to understand what would unpin the circumstances, underpin
Speaker 1: rather these circumstances where you rotate out of some of
Speaker 1: those traits. What are you looking for, Mike, I mean,
Speaker 1: that's that's the right question. We're getting closer, I mean,
Speaker 1: as you know. I mean, we've been correcting now for
Speaker 1: eighteen months. We'd call it a rolling bear market, a
Speaker 1: cyplical bear market. That's frustrating to the bears because the
Speaker 1: bottom doesn't fall out either because rates are coming down.
Speaker 1: Evaluation is supportive, but the defensive rotation has been clear
Speaker 1: and that's been the way to really protect your portfolios.
Speaker 1: So the thing we got to look for now is
Speaker 1: um we're actually waiting for, like just full acknowledgement of
Speaker 1: a US recession. And I think we're starting to hear
Speaker 1: that now. Finally in the rhetoric. You know, Ellen is
Speaker 1: not calling for a recession epitter, She's definitely looking at me.
Speaker 1: I think we're probably have been the loudest on the
Speaker 1: street of looking for elevator risk of recession in the
Speaker 1: US now probably or so over the next six or
Speaker 1: twelve months. And that's you know, that's a pretty high risk.
Speaker 1: And so the market is obviously priced a lot of this.
Speaker 1: You know, calling a recession as it's happening is not
Speaker 1: very helpful. You have to get in front of it.
Speaker 1: And and we've been defensively positioned for that reason. So
Speaker 1: what we're waiting for now is full acknowledgement by you know,
Speaker 1: basically the mainstream, and when that happens, you'll get a
Speaker 1: final purge of these areas that have been somewhat protected.
Speaker 1: The two areas that have been protected is basically high
Speaker 1: quality defensive stocks and then what we call you know,
Speaker 1: secular gross stories because they tend to hold up the
Speaker 1: best at the end. We know that from past grows
Speaker 1: scares that the secular growth stocks tend to fall at
Speaker 1: the end and the defensive stocks hold up. So we're
Speaker 1: waiting for now, is that is that sort of the
Speaker 1: secular growth stocks to kind of fall away. That's starting
Speaker 1: to happen. In fact, after the FED cut, it's interesting
Speaker 1: the secular growth stocks stocks started underperformed defensive ones again,
Speaker 1: and so that's that's good, and we want to see
Speaker 1: more underperformance there before we rotate out of defenses. And
Speaker 1: the second thing is more important is that the Yoo
Speaker 1: curve has to start to re steep, and from the
Speaker 1: back end in particular, we want to see the long
Speaker 1: bond or tenure start to stabilize and and see the
Speaker 1: Yol curve start to re steep. And so that hasn't
Speaker 1: happened yet. Sentine cloths are still under performing defenses and
Speaker 1: secular growth is under performing defenses. So we think we
Speaker 1: have a little bit of time, but it's going to
Speaker 1: happen quickly. We think it could happen in the next
Speaker 1: thirty to sixty days. Target on the SMP has reached
Speaker 1: probably breached on the downside, and that all kind of
Speaker 1: happened at once, So it's we're getting closer to that moment,
Speaker 1: but we don't think it's time yet to rotate other defenses. So, Mike,
Speaker 1: we're seeing some of this tension in treasuries, as you mentioned,
Speaker 1: you'lds aren't rising at the long end, they're falling there
Speaker 1: down another three basis points. Today many people focused on
Speaker 1: what's happening in high yield. At the moment, high yield
Speaker 1: spreads have really hold in there. But something is starting
Speaker 1: to happen. If you just break down high yield through
Speaker 1: the various credit ratings, say the top credit rates can
Speaker 1: high yield double bees versus the bottom triple c's, that
Speaker 1: spreads start into widen just a little bit. Mike, What
Speaker 1: does that signal to you? Well, it's exactly the same
Speaker 1: thing that's happening in the equity market. You know, one
Speaker 1: thing that we we've talked a lot about and you
Speaker 1: guys know this this year is that we don't think
Speaker 1: the equity and bond markets have been that disconnected, right
Speaker 1: that the equity markets are trading defensively, uh and and
Speaker 1: so are so are the bond markets. So you're seeing
Speaker 1: quality outperform just like in equities. And it's extreme because
Speaker 1: there is there is still Tina, right, I mean they
Speaker 1: basically people are gonna put the money somewhere so people
Speaker 1: feel okay own high quality credit investment grade or the
Speaker 1: highest quality high yield and I'll get rid of the
Speaker 1: lowest quality. Is the exactly thing is happening in equities.
Speaker 1: This has been a wonderful brief Michaelson, thank you both.
Speaker 1: John and I yesterday said we need to speak to
Speaker 1: a select group of people and we continue this off
Speaker 1: of William Dudley's essay for Bloomberg Opinion. Gena Smilek writes
Speaker 1: it up on the cover of The New York Times today,
Speaker 1: quoting Dr Posen Leaderson Institute in his public service for
Speaker 1: the Bank of England years ago. Adam John Farrell just
Speaker 1: mentioned the response of the Central Bank as they look
Speaker 1: at a dual mandate. Will this change the dialogue of
Speaker 1: the speeches ex. Jackson, Hall of Presidents, governors and the
Speaker 1: Vice German. I think this will tom focus everybody to
Speaker 1: more solidarity and discipline around the message and more clearly
Speaker 1: stating that they are only looking at the near term
Speaker 1: of inflation and goal. I have no idea what Bill
Speaker 1: Dudley's goal isn't. Frankly, I don't care. It just feeds
Speaker 1: conspiracy theories and it was totally irresponsible to talk that way.
Speaker 1: The issue of discipline is one that was going to
Speaker 1: happen anyway. You could see what Neil Cashgari said an
Speaker 1: NPR about independence, which was totally in line with what
Speaker 1: everybody else was saying. You know that the FED realizes
Speaker 1: that they have to be careful in this situation. And
Speaker 1: careful doesn't mean respecting Trump's tweets. Careful means showing the
Speaker 1: Congress and the American people that they don't overstep the
Speaker 1: trust that's been given in them, and that's what they're
Speaker 1: gonna do. The other thing is just I think JR.
Speaker 1: Pale said it bluntly as he could in his speech
Speaker 1: at Jackson Hole. You have to treat the trade war,
Speaker 1: however destructive it is, just like you treat bad fiscal policy.
Speaker 1: You cannot predict it publicly, you cannot prepare for it,
Speaker 1: you cannot try to game it. If you're a central baker,
Speaker 1: you just have to react to it and then be
Speaker 1: honest about what the reaction is. And I think that's
Speaker 1: exactly what the FEDS are going to do. I remember
Speaker 1: hearing a great story about the former governor Irvin King,
Speaker 1: and he told policymakers on the FIC NPC that if
Speaker 1: you're going to go out there and say that you
Speaker 1: didn't vote for que that you don't like Hui. The
Speaker 1: one thing I don't want you to do is say
Speaker 1: that QUI does not work. You can say whatever else
Speaker 1: you want to say, but you are not allowed to
Speaker 1: say that QUI doesn't work. And Adam, I just wonder
Speaker 1: if you can touch on your experience over at the
Speaker 1: Bank of England many years ago, your experience for that matter,
Speaker 1: with Mervyn King as well, how you got behind one
Speaker 1: message even when there was disagreement about the policy. Just
Speaker 1: how does that work internally? Adam, Well, I think there
Speaker 1: were two instances that were relevant, Jonathan. I mean, one
Speaker 1: was as you said, and it wasn't that Irvin King
Speaker 1: could say, the governor could say you're not allowed. It
Speaker 1: was of course rightly made the case that this would
Speaker 1: just be destructive of if you were not on board
Speaker 1: with que then you could basically leave. He didn't have
Speaker 1: to say that. But I think that was the right
Speaker 1: message and we all said, you know, this is a
Speaker 1: true crisis and this is something that is legitimate for
Speaker 1: the Central Bank to do, so we're going to all
Speaker 1: stand by it and we're not going to feed destructive chatter.
Speaker 1: But the other instance was some people on the NPC
Speaker 1: came out in May April and May of talking about
Speaker 1: physical policy, talking about the need for austerity. It was
Speaker 1: part of the panic around Greece at that time. Then
Speaker 1: a lot of countries shifted to austerity mistakenly. And I
Speaker 1: was against the Bank talking that way because it was
Speaker 1: right on top of the UK election. And I was
Speaker 1: against the Bank talking that way because they have no
Speaker 1: business lecturing fiscal policy, especially ahead of the election. You
Speaker 1: just have to take it as it comes. And the
Speaker 1: bank had suffered as a result of moves. Adam posted
Speaker 1: with this folks at Peterson Institute where thrilled he could
Speaker 1: be with us today. Adam, none of this is in
Speaker 1: the text books. What were is a textbook? You add, Adam,
Speaker 1: freshman year Economics. You're a wonder child. I know you
Speaker 1: went through college in twenty four months. But what was it.
Speaker 1: What was the first com book you had in school? Uh?
Speaker 1: The first one I remember was dorn Bush and Fisher Macrow. Okay,
Speaker 1: so you got you got Dornbush Fisher Stars, which I've
Speaker 1: read I think cover to cover twice, Stanley Fisher's classic
Speaker 1: book with Dornbush. Great is any of this in Dornbush
Speaker 1: Fisher Stars? No? But it is in the third year course.
Speaker 1: It's actually pretty straightforward, Tom that we know economists know
Speaker 1: one big lesson from development, which is what they call institutions.
Speaker 1: If you roade you of law, if you rode rule
Speaker 1: of law, if you have a government that's capricious and
Speaker 1: deterring investment, if you have a government that tries to
Speaker 1: politicized decisions beyond simplice stating its values, you end up
Speaker 1: with a flight of investment, you end up with a
Speaker 1: flight to safety, you end up with bad results. And
Speaker 1: that's what we're seeing. And that's the one Dudley has
Speaker 1: right that the Trump administration's approach is hurting institutions. But
Speaker 1: it's the same saying about the military, about the here,
Speaker 1: we're gonna run out of there. We got like eight
Speaker 1: things to talk about, Adam Pose, and let's do a
Speaker 1: three hour conversation next time, Dr Posing with the Peterson Institute.
Speaker 1: We welcome a woman who just heard her voice on radio,
Speaker 1: Tara la Chapelle. What is it like hearing your voice
Speaker 1: like in real time on radio like that. You're like,
Speaker 1: oh MG, yeah, it makes me cringe a little. Imagine
Speaker 1: with this voice what it's like. It's really strange. Isn't
Speaker 1: it is. It's very weird. It's like, really, you're over
Speaker 1: there square and I'm like, why am I? Why are
Speaker 1: they doing this? Team? So we just heard from Tera
Speaker 1: Les Chapelle on m O and Altria and you know,
Speaker 1: I got like eight ways to go here, folks. Let
Speaker 1: us start with profitability on an Eva da Bay. They
Speaker 1: still are hugely profitable on no revenue growth. Is that
Speaker 1: all that bad of a thing? Um? No? But I
Speaker 1: think if you start to look down the into the
Speaker 1: future and look at the smoking prevalence trends, I mean
Speaker 1: they're going down in most parts of the world, especially
Speaker 1: in the US. So I think it's coming to a
Speaker 1: point that yes, they're very profitable. Austria throws off a
Speaker 1: ton of cash. But I think now these newer products,
Speaker 1: even though they're not really contributing much to revenue or
Speaker 1: profit yet, that's the future and that's where this business
Speaker 1: is headed. You've got a great chart showing that the
Speaker 1: glide path it's not a log basis, but the glide
Speaker 1: path on US consumption of tobacco, I'll say, is a
Speaker 1: smoking prevalence is you know, like we'd expect, But even
Speaker 1: globally it's getting is it does the globe catch up
Speaker 1: the America? Is that sort of the belief of health
Speaker 1: officials Maybe eventually. I mean some parts of Europe and
Speaker 1: other parts of Africa are still in growth mode, I believe,
Speaker 1: But when you look at the bigger picture, I think
Speaker 1: overall it's going down and it's becoming less about cigarettes,
Speaker 1: which is why Aultrey and Philip Morris they really don't
Speaker 1: even talk about cigarettes that much anymore, even though it
Speaker 1: drives most of their profits. They don't identify with that.
Speaker 1: They don't want that to be part of their image.
Speaker 1: They want to be seen as a growth company, something
Speaker 1: that's you know, into these newer, hotter products like very vaping,
Speaker 1: all this coronouncing their you're not is not a camel
Speaker 1: no filter right right, It's not a combustible cigarette. It's
Speaker 1: a device that heats tobacco so it doesn't burn it.
Speaker 1: There's no real smoke that comes off. It's a different
Speaker 1: way of getting nicotine and it Philip Morris and Altria
Speaker 1: partnered on this. So Philip, no, I haven't now I've
Speaker 1: seen them though, I mean they're they're becoming very popular.
Speaker 1: Smoke come out or you know, can I look like
Speaker 1: Katherine hepburn in one of those movies. Yeah, I mean
Speaker 1: you see something coming out, but it doesn't look like
Speaker 1: a cigarette burning. It's it's just like a plastic device. Basically,
Speaker 1: it's just the working. Because I you know, I feel like,
Speaker 1: you know, I'm out of touch on this, but can
Speaker 1: you tell me there's actually a transference from a palm
Speaker 1: all or you know, the days of Madmen a lark
Speaker 1: over to what we're looking at now with these quote
Speaker 1: unquote devices. Well, Philip Morris had an interesting line in
Speaker 1: their last running statement last month. They said Icast delivers
Speaker 1: nicotine and levels close to combustible cigarettes, suggesting a likelihood
Speaker 1: that I Coast users may be able to completely transition
Speaker 1: away from traditional cigarettes and use this exclusively. And it's
Speaker 1: really gaining traction in Japan and parts of Europe where
Speaker 1: they've launched so far. Next month it will launch in
Speaker 1: the US, starting in stores in Atlanta. How is that
Speaker 1: different from vaping? Help them? So vaping, it's just a
Speaker 1: it's a little bit different. So east cigarettes are a
Speaker 1: form of vaping, and that's what we think of when
Speaker 1: we think of Jewel, which is the time cigarette, and
Speaker 1: it's very controversial. So it's it's made with US chemicals
Speaker 1: and vapor and it still delivers nicotins. You're talking about
Speaker 1: reported serious illness, even death. Yes, there is a death
Speaker 1: just last week that for the first time, medical officials
Speaker 1: are starting equivalent or is it? Is it like worse
Speaker 1: than you know, the tragedy of cancer and cigarettes and
Speaker 1: all that. I mean, no one knows yet. There hasn't
Speaker 1: been enough research. We just don't know. But I think
Speaker 1: the concern is starting to come, and especially since jewel
Speaker 1: is very attractive to teens. They used to have all
Speaker 1: these flavors, so I think the government is trying to
Speaker 1: crack down on that because it's the co stop they
Speaker 1: did close cigarettes. I mean remember close cigarettes. You'd hang
Speaker 1: around and your Tony Lama boots and some girl would
Speaker 1: have a close cigarette and oh yeah, all the clothes.
Speaker 1: I mean, what's the difference between a close cigarette from
Speaker 1: Indonesia or Gentan from France and the flavored jewels, right?
Speaker 1: I mean that's the problem. Right. And then that's why
Speaker 1: you know, it's so hard to talk about this merger,
Speaker 1: because I think what these companies wanted to be about
Speaker 1: is this future, and they're seeing themselves a sort of
Speaker 1: reduced risk products. It's no longer cigarettes, it's these reduced
Speaker 1: risk They're they're safer, but we don't actually know that,
Speaker 1: and it's going to take a lot of time to
Speaker 1: find out the effects of this. Okay, you tarrells Chappelle
Speaker 1: with us, folks, and really an extensive conversation on something
Speaker 1: that really touches all of us, whatever your beliefs on
Speaker 1: the American politics of tobacco use. Is nicotine safe? I
Speaker 1: mean the goals to get from no smoke, no lungs,
Speaker 1: no Chesterfield cancer from years ago? Great? I mean to
Speaker 1: this day I look at a pack of Knson, I
Speaker 1: can't look at them because my grandfather smoked three packs
Speaker 1: a day down to the filter. Great, that's the past.
Speaker 1: But is pure nicotine safe if we get rid of
Speaker 1: the past, I don't know, but we know don't. Is addictive, right,
Speaker 1: And that's what these companies are counting on. They need
Speaker 1: that to be the basis of their future. And then
Speaker 1: on the side of that, they're also looking at marijuana
Speaker 1: of course, but right now the focus is on nicotine
Speaker 1: products that are in a different form than a cigarette.
Speaker 1: And when will we see this? So next month, Icos
Speaker 1: is going to launch in the US, and that's the
Speaker 1: catalyst for this merger of p m I and Altria.
Speaker 1: I think so because Altria would be sharing the profits
Speaker 1: on that so Philip Morris sells that in other parts
Speaker 1: of the world. In the US, Altria would be the
Speaker 1: ones selling it. So I think part of the motivation
Speaker 1: for merging now is Philip Morris won't have to split
Speaker 1: those profits. They'll get all that margin, and also they'll
Speaker 1: get to take advantage of al Trea's cash flow and
Speaker 1: do things like dividends and buy backs. I think that's
Speaker 1: the basis for coming together now. Um, but again it's
Speaker 1: it's all about these new products that they're trying to
Speaker 1: not only have some growth and get new customers so
Speaker 1: to speak, but also change their image into something that
Speaker 1: is a little bit more wholesome seeming, right. And I
Speaker 1: think that's what they're doing, is the proof of growth
Speaker 1: in other cities or nations in Europe and in Japan. Yes,
Speaker 1: but again it's it's just so small at this point,
Speaker 1: but I think that they're what they're trying to say is,
Speaker 1: you know, we're we're doing a really good job of
Speaker 1: converting cigarette smokers to these products. Whether that's a good
Speaker 1: thing or not. You know, that's another debate. But from
Speaker 1: the company's standpoint, they do see this as the future
Speaker 1: and they're plowing a lot of money into it. And
Speaker 1: cigarettes still drive the bulk of their business, but you'll
Speaker 1: notice more and more they're going to be talking about
Speaker 1: these other products. Breathing. Le Chapelle writing with a wonderful
Speaker 1: density for Bloomberg opinion No smoking a cigarette Giants Reunion.
Speaker 1: This is Philip Morrison all three as they look to
Speaker 1: devices to change their future. Pausanian Tom Keene into the
Speaker 1: markets and linking it into your future equity investment. We
Speaker 1: are thrilled to bringing Alicia Levin and she's been very
Speaker 1: good about not so much holding our hands in all
Speaker 1: this August turmoil, but actually cogently thinking about a plan forward.
Speaker 1: I just had a record low by three decimal points
Speaker 1: in German tenure thirty year US Italian under one percent.
Speaker 1: Italian tenure is dividend growth. The new coupon in the
Speaker 1: short answer is yes. So the long end of the
Speaker 1: curve is telling you everywhere is that the market does
Speaker 1: not think that central banks are able to really rescue
Speaker 1: these economies. And so the only way you're going to
Speaker 1: get any return is going into the equity markets of
Speaker 1: the steady dividend growing pain company. So what do you
Speaker 1: do if and when price turns around? Paul? Do you
Speaker 1: know bonds can go lower? And that's what I hear.
Speaker 1: It's a m How do you manage you know, forget
Speaker 1: about fancy talk equity, gamma, beta, delta. How do you
Speaker 1: manage across the kitchen table at home knowing someday price
Speaker 1: will go down in bonds? Well, that's true, when when
Speaker 1: this turn is going to be vicious, right, It's it's
Speaker 1: going to be a vicious term because every trade right
Speaker 1: now is into the long end of the bond market.
Speaker 1: So you've got to be well diversified on the credit side,
Speaker 1: and on the sovereign debt side. You've got to go
Speaker 1: short end as well, and you've got to look at
Speaker 1: high quality investment grade credit as well to round out
Speaker 1: the fix income side. So you can't just be you
Speaker 1: just can't be in the sovereign debt market, all right.
Speaker 1: So we haven't inverted yield curve here in the US
Speaker 1: looking at the twos in ten years, where does that
Speaker 1: bring us in terms of the inflation? I'm in the
Speaker 1: recession discussion. This is actually a great question because it
Speaker 1: goes so deep. So every person who comes on I'm
Speaker 1: sure you're hearing, is saying, well, the actually the inversion
Speaker 1: doesn't matter right now because the long end is being
Speaker 1: controlled by the global bond market, and I'm very sympathetic
Speaker 1: to that. The issue is whether, once the inversion happens,
Speaker 1: whether the FED is forced to action because it has
Speaker 1: a causal effect on the economy. And I think the
Speaker 1: evidence is that it does actually at some point, not today,
Speaker 1: but at some point banks will be less likely to
Speaker 1: lend and so we'll have a further slowing of the economy.
Speaker 1: So I think the FED is forced to cut. So
Speaker 1: the Fed, you know, everybody's looking at the Fed. The
Speaker 1: cut again in part due to trade. We had a
Speaker 1: very news worthy opinion piece yesterday by bed Bill Dudley
Speaker 1: had sparked a lot of conversation. Do you think the
Speaker 1: Fed to what extend? You think the Fed is looking
Speaker 1: at trade when it thinks about its next mover too.
Speaker 1: So I think that trade is intricately linked to what
Speaker 1: the Fed does next. And the basis points for September,
Speaker 1: which is essentially locked into the market right now, and
Speaker 1: the fact that Powell left open the possibility of further
Speaker 1: cuts this year is all due to the uncertainty created
Speaker 1: by trade. But as he said last week, the Fed
Speaker 1: actually it is not clear it can affect this at all.
Speaker 1: All it can affect is sentiment and the cost of
Speaker 1: capital here in the US, and if it helps on
Speaker 1: the margins then it should do. So. I think that
Speaker 1: the Dudley piece yesterday was interesting, but in the end
Speaker 1: it creates more instability and conversation about you know, degrigating
Speaker 1: our our institutions. Frankly, with the way things were, it's
Speaker 1: not was not helpful to the stability of the market.
Speaker 1: And just moments ago I should mention Ferdinando Giuliano outstanding
Speaker 1: in Europe for Bloomberg Opinion, just wrote a very thoughtful
Speaker 1: piece off the Dudley essay that just breaking right now. Paul.
Speaker 1: We we may get Fernando on Bloomberg surveillance this morning.
Speaker 1: Oh we have them next. Very good. That's just what
Speaker 1: a team, you know what I mean, you know, to
Speaker 1: go from a staff for twenty five out to people
Speaker 1: and it's just amazing how that works. Paul. So, I mean,
Speaker 1: so does that suggest here, you know, kind of the
Speaker 1: uncertainty of trade, the uncertainty of the impact of the FED,
Speaker 1: that what do we do in the markets? Are kind
Speaker 1: of a tight range bound market and we just kind
Speaker 1: of wait for new news. I guess yes. So so
Speaker 1: our message right here to investors that we're in a
Speaker 1: we're in a trading range and it may not be tight,
Speaker 1: but we're in a trading range here through September through October.
Speaker 1: We just had news out of the UK today that
Speaker 1: that the Prime Ministers is looking at suspending parliaments so
Speaker 1: we can get breaks it through. These are not coming
Speaker 1: times for the market. You should expect the market to
Speaker 1: go lower. I think there's a couple of interesting entry
Speaker 1: points and people look, you're looking at the twenty hundred level,
Speaker 1: and then if that breaks, probably, but there's clearly a
Speaker 1: lid here. It's hard, it's gonna be harder to move
Speaker 1: higher and easier to move lower. But I think you
Speaker 1: have to be invested. I got one final question Alicia
Speaker 1: Levine with this bn y melon you can hear, of
Speaker 1: course in her voice or academic authority. You know Shingle
Speaker 1: from Brown You wandered by the University of Chicago for
Speaker 1: some parchment in school in pelo Alto as well, and
Speaker 1: you've really done a lot in the invest in business.
Speaker 1: Is Billions accurate the TV show Billions? When you watch Billions,
Speaker 1: are you like, you know Bobby x L Rod gets
Speaker 1: it right? I mean, is it even close to accurate?
Speaker 1: The first season was brilliant. Then what happened? Then they
Speaker 1: lost their mojo? Thank you? They lost their mojo. But
Speaker 1: the first season was brilliant and the lingo of the
Speaker 1: traders was terrific. It's like in the Big Short, the
Speaker 1: way they talk. I go, that's normal, that's normal. The
Speaker 1: interesting thing about the third season, which I thought was lousy,
Speaker 1: is listening to the traders who are Generation X talk
Speaker 1: about not knowing who the other person is on the
Speaker 1: other side of the trade to pick up on phone,
Speaker 1: used to pick up the phone. You had relationships with everybody,
Speaker 1: and they're like, I have no one to call. How
Speaker 1: am I going to get this trade off? I have
Speaker 1: no one to call? That was brilliant. That's in the
Speaker 1: last two days. It would furrow you, me and Harry
Speaker 1: Church what we've all gone through. That was the most important.
Speaker 1: That was I mean, Billions, Paul, is this is streaming?
Speaker 1: I mean, they need more billions to make streaming work right,
Speaker 1: and they need to spend billions and billions and billions
Speaker 1: more to make that streaming work. So, Alicia Levine, thank
Speaker 1: you so much for joining Cheap Travis at B and
Speaker 1: y Melan getting our thoughts on the market here. Ferdinando
Speaker 1: Gilian Giuliano uh joins us now from Europe. I don't
Speaker 1: even know where you are, Ferdinando. Are you in Rome
Speaker 1: with Maria today or you someplace else we want to
Speaker 1: be Oh, that's good, you're in Milan. I'll take Milan,
Speaker 1: you know that would be great. In essays, Dudley's political
Speaker 1: central Bank exists, and as you and John Fairroff said,
Speaker 1: it is the e c B. How political will Madam
Speaker 1: Leguard's e c B B? Well, I think she will
Speaker 1: be political, and I can tell you that man in
Speaker 1: Europe would love her to be very political and very
Speaker 1: effective and finally making sure that the European governments make
Speaker 1: that progress in the construction and completion of the monetary
Speaker 1: Union that Europe has been missing for many years. So
Speaker 1: it's not just I think, an expectation, but it's also
Speaker 1: hoping that the ECB is political and your dance academic
Speaker 1: has essay with a lot of history involved. You go
Speaker 1: back where one of our listeners went this morning, which
Speaker 1: is to define moral hazard. From where you sit in Europe,
Speaker 1: is Chairman Powell and the FED redefining moral hazard as
Speaker 1: they deal with an original president? Well, I think you
Speaker 1: know what, certainly Bill Dudley is is redefining moral hazard.
Speaker 1: The what what power is doing, I think is trying
Speaker 1: to you know, keep the you know, just keep the
Speaker 1: FED as independent as possible while without and I think
Speaker 1: that's very very tough with what, as you say, very
Speaker 1: regional president is doing. I think that the challenge in
Speaker 1: Europe was quite the opposite in a way. Here the
Speaker 1: president is being too intrusive in Europe. Mario Dragon e
Speaker 1: c but didn't really have any political real political leader
Speaker 1: of Europe to speak um, you know, to speak to.
Speaker 1: I mean, obviously there was Chancellor angular America, but she's
Speaker 1: still the Chancellor of Germany. Um. The absence of a
Speaker 1: political leader made dragon is so political and luckily it
Speaker 1: was effective. So Fernando, your countday is so timely because
Speaker 1: I think a lot of people here in the US
Speaker 1: are trying to understand what a what a more politicized
Speaker 1: FED might look like. So what's the history been in
Speaker 1: Europe with the e c B, And perhaps it's political
Speaker 1: bent a little bit and you know, still trying to
Speaker 1: wear that independence. Well. I think there are two sides
Speaker 1: to it. One is with individual governments. I mean, in
Speaker 1: a number of cases, the c B has had to
Speaker 1: step in and either help banks with emergency liquidity or
Speaker 1: help governments by buying their government bonds. And in all
Speaker 1: these cases it's been asking for conditions, for guarantees that
Speaker 1: you know, all these money would not be wasted because
Speaker 1: the government and does something stupid with it or or
Speaker 1: the bank is not solvent. And this happened in Ireland,
Speaker 1: in Italy, in Greece, and this is you know, this
Speaker 1: is a true an exchange between the central bank and
Speaker 1: the and the government. But that means that the central
Speaker 1: bank was being politically in a way. The second issue
Speaker 1: is about the the euro as a whole, which I
Speaker 1: don't think applies so much to the really to the
Speaker 1: US because likely the US is in a much better
Speaker 1: place from this point of view. That has been pushing
Speaker 1: for greater Eurozone integration with some speeches and pressure on politicians,
Speaker 1: and some would say this is political because you know,
Speaker 1: why should the Central Bank promote a political project. But
Speaker 1: at the end of the day, you know, dc behas
Speaker 1: the euros and banks, and I think it's pretty normal
Speaker 1: that it promotes the euro Giuliani with US folks. He
Speaker 1: as an essay just out moments ago in the Bloomberg terminal,
Speaker 1: and we will get that out to you on Twitter
Speaker 1: as we can. William Dudley's political central Bank exists and
Speaker 1: Mr Giuliano makes clear he believes it is Mario drug
Speaker 1: ECB for lander. While we have you on Bloomberg surveillance,
Speaker 1: give us a state of populism in Europe into the
Speaker 1: autumn of two thousand nineteen with the news in Italy
Speaker 1: but also in Eastern Europe. Give us a populism update.
Speaker 1: But I think it's not doing. It's not going great
Speaker 1: for populism this year. I mean clearly in the UK
Speaker 1: we are what I think is the final battle between
Speaker 1: you know, the I would say, the British populist to
Speaker 1: our part of the lead campaign and you know, the
Speaker 1: mainstream establishment. And we see how that ends in the
Speaker 1: coming weeks. But see look at Italy, I mean the
Speaker 1: kind of turbo populist government as I defined it between
Speaker 1: the League and Five Star has failed. You know, the
Speaker 1: government has collapsed and now five Star looks to be,
Speaker 1: you know, set to join a new government. But this
Speaker 1: would be a more mainstream government with the with the
Speaker 1: center left Democrats, and the markets are really liking it.
Speaker 1: Italian bonds, tenure bonds are now below one percent. But
Speaker 1: I think it is the first time ever. Um So,
Speaker 1: you know, look at France, Emmanuel mccron, very mainstreams having
Speaker 1: a very very good few months. In Germany alternative for Deutschland,
Speaker 1: the ultra right party not doing very well. Um So
Speaker 1: I think you know, it's if you are, if you
Speaker 1: don't really like European populism, I think this is a
Speaker 1: pretty good, uh a few months for you. So Fernanda,
Speaker 1: you said you're in Milan and we are jealous for that.
Speaker 1: So just give us a sense of what the thinking
Speaker 1: is with this new government in Italy. Does it it
Speaker 1: does a you know, suggest any stabil greater level of
Speaker 1: stability for Italian government and Tian economy. Well, I think short,
Speaker 1: probably yes, because I remember the League had a faction
Speaker 1: within the party which really wanted Italy out of the
Speaker 1: of the Euro and Mattel Salvini, the league lead League
Speaker 1: leader was you know, in a way promoting, you know,
Speaker 1: was campaigning on or very least flirting with the idea
Speaker 1: of Italy living the Euro. So the fact that he's
Speaker 1: out of government is certainly an element of stability, and
Speaker 1: that's what investors are looking at celebrating. But remember this
Speaker 1: is a coalition of very strange bedfellows. It could it
Speaker 1: could be quite a left wing government. Some some fear
Speaker 1: and it's ald to be seen whether whether this would
Speaker 1: be stable. I mean, I wouldn't really bet on its
Speaker 1: stability long term. He writes a lot Republica in Italy.
Speaker 1: Ferdinando Giuliano writing an important essay off of William Dudley's
Speaker 1: work with Bloomberg Opinion Yesterday. Dudley's Political Central Bank exists.
Speaker 1: It is a tour to force for Wall Street and
Speaker 1: the history and detail of the e CD. Thanks for
Speaker 1: listening to the Bloomberg's Banlast podcast. Subscribe and listen to
Speaker 1: interviews on Apple Podcasts, SoundCloud, or whichever podcast platform you prefer.
Speaker 1: I'm on Twitter at Tom Keane Before the podcast, you
Speaker 1: can always catch us worldwide. I'm Bloomberg Radio