WEBVTT - This is What Traders Will Be Watching In 2019 0:00:10.800 --> 0:00:15.000 Hello, and welcome to another episode of the Odd Lots Podcast. 0:00:15.120 --> 0:00:20.200 I'm Joe Wisenthal and unfortunately my colleague Tracy Elloway is 0:00:20.360 --> 0:00:23.520 uh still out. But you can think of this week 0:00:23.640 --> 0:00:27.080 as sort of a part two to last week's episode. 0:00:27.160 --> 0:00:31.080 So last week we talked about the biggest stories for 0:00:31.320 --> 0:00:35.160 traders in markets in eighteen, and this week we start 0:00:35.240 --> 0:00:38.080 the new year looking ahead to try to figure out 0:00:38.080 --> 0:00:41.760 what the biggest stories in markets will be for nineteen 0:00:41.920 --> 0:00:45.480 and so we've brought back the same guests this time, 0:00:45.520 --> 0:00:48.920 they're going to look ahead with me. Now in the 0:00:48.960 --> 0:00:52.879 studio we have Bloomberg Cross Assets reporter Luke Kawa and 0:00:52.920 --> 0:00:57.640 Bloomberg's macro strategist Cameron Christ. So Luke and Cameron, thank 0:00:57.640 --> 0:01:01.600 you very much for joining us. Looking forward to hearing 0:01:01.600 --> 0:01:04.160 your your crystal balls for the year ahead. Cameron, I 0:01:04.160 --> 0:01:07.720 will start with you, So, going into the new year, 0:01:08.280 --> 0:01:12.399 what are like the big I guess events or things 0:01:12.440 --> 0:01:16.640 you'll be thinking about that you'll want to see develop. Well, 0:01:16.720 --> 0:01:19.760 it strikes me that there's a few important issues here. 0:01:20.000 --> 0:01:24.840 One is what happens with the Federal Reserve UM. Right now, 0:01:24.959 --> 0:01:28.600 markets are pricing basically a fifty fifty shot whether they 0:01:28.640 --> 0:01:32.800 hike at all in and just to be clear for 0:01:32.840 --> 0:01:37.640 those listening at home, we are recording this December eighteen, uh, 0:01:38.400 --> 0:01:45.400 right before December. The question, it's just important for when 0:01:45.440 --> 0:01:48.760 people listen to this to realize when this is truly 0:01:49.000 --> 0:01:51.520 we're truly looking actually looking at not with the benefit 0:01:51.560 --> 0:01:54.760 of perfect information and all. You know, the trades story 0:01:55.120 --> 0:01:57.480 is as much as we like to think it's gonna 0:01:57.560 --> 0:01:59.640 just go away with the turn of the calendar, that's 0:01:59.680 --> 0:02:02.600 not realistic. We need to get some sort of resolution here. 0:02:03.120 --> 0:02:06.320 And I think a third at least domestic issue for 0:02:06.360 --> 0:02:09.359 the United States, which is a new entry, will be 0:02:09.600 --> 0:02:13.560 a more targeted attack on the president and and the 0:02:14.000 --> 0:02:17.720 sort of the the the tapestry that's formed the backdrop 0:02:18.120 --> 0:02:21.440 in terms of political intrigue will become part of the 0:02:21.440 --> 0:02:24.160 foreground rather than the background next year. I suspect, yeah, 0:02:24.160 --> 0:02:27.080 I'm interested in this topic because for the first like 0:02:27.120 --> 0:02:29.560 I would say, year and a half of the Trump presidency, 0:02:30.000 --> 0:02:33.680 I recall one of the constant discussions being there's so 0:02:33.760 --> 0:02:35.720 much chaos at the White House, why does it not 0:02:35.960 --> 0:02:40.760 seem to matter for the markets? Uh? And the responses 0:02:40.800 --> 0:02:43.080 typically like well things are going fine, and earnings are 0:02:43.080 --> 0:02:45.280 going up and all that, so whatever, it just is 0:02:45.280 --> 0:02:48.400 background noise. Do you both get the impression that that's 0:02:48.480 --> 0:02:51.480 changing a little bit and that people really are for 0:02:51.520 --> 0:02:56.119 the first time kind of trading on uh political risk 0:02:56.160 --> 0:02:58.639 at the White House? Well, I think to a certain extent, 0:02:58.760 --> 0:03:01.560 we're using this to rationalize how we feel now. I 0:03:01.600 --> 0:03:03.919 think the market is in a much more vulnerable place, 0:03:04.400 --> 0:03:08.000 so the potential of adding another headwind from the White 0:03:08.080 --> 0:03:10.160 House does mean more than it did in the past. 0:03:10.440 --> 0:03:15.120 But I'll also remember back in August, Yeah, I guess 0:03:15.120 --> 0:03:17.520 it was when we were getting rumors that Gary Cohene 0:03:17.840 --> 0:03:20.480 was leaving the White House because of his uh he 0:03:20.560 --> 0:03:24.000 was upset about the the Charlottesville protests and the president's response. 0:03:24.440 --> 0:03:26.640 That inter day move was one of the bigger retreats 0:03:26.680 --> 0:03:29.239 we saw in the SMP five hundred that year. It's 0:03:29.280 --> 0:03:31.280 just the fact that, you know, it was a nothing 0:03:31.280 --> 0:03:33.239 burger and the market was able to wash that away 0:03:33.520 --> 0:03:36.960 so quickly. But right now, I think that it's just 0:03:37.080 --> 0:03:40.120 something that adds to market vulnerability. But I think it's 0:03:40.160 --> 0:03:42.840 a cause and a headache, but it's not you know, 0:03:43.080 --> 0:03:47.120 every proximate cause of weakness for the markets, Well, there's 0:03:47.120 --> 0:03:49.280 so much going on. It's it's hard to say that 0:03:49.320 --> 0:03:52.360 people are selling stocks because Nancy Pelosi is going to 0:03:52.480 --> 0:03:56.000 be the Speaker of the House. But I think moving forward, 0:03:56.080 --> 0:04:01.080 does it represent a reason to have a risk premium 0:04:01.080 --> 0:04:05.680 in the markets generally? Probably? Probably that's the area of 0:04:05.720 --> 0:04:08.000 the market that you would look at to try to 0:04:08.040 --> 0:04:12.320 isolate political risk, like with trade or trade proxies, FED 0:04:12.520 --> 0:04:14.880 rage sensitive ones, Like could you even begin to try 0:04:14.920 --> 0:04:19.600 constructing some basket of politically sensitive multiples relative to other 0:04:19.720 --> 0:04:22.960 developed markets changing multiples because like, yeah, I I wouldn't 0:04:22.960 --> 0:04:25.320 know how to do it on the non index level 0:04:25.400 --> 0:04:28.320 because you'd think if it was you know, something that 0:04:28.520 --> 0:04:31.000 was affecting the U S sucks in general, that would 0:04:31.040 --> 0:04:32.599 have to it would have to not be a sector 0:04:32.600 --> 0:04:34.720 specific thing and have to be an index level thing 0:04:35.000 --> 0:04:38.560 or that I mean maybe the builders of walls. Yeah, 0:04:38.640 --> 0:04:40.880 I mean, it's kind of a joke that keeps on giving, right, 0:04:41.839 --> 0:04:43.839 But I think on your themes, there's a couple that 0:04:44.040 --> 0:04:46.680 you know worth developing, and they take us into more 0:04:46.680 --> 0:04:50.000 of a markets place, both on on trade and the FED. 0:04:50.360 --> 0:04:51.960 I think in a lot of sense from all the 0:04:52.120 --> 0:04:55.840 twenty nineteen Outlook reports, I read their Wall Street essentially 0:04:55.880 --> 0:05:00.160 averaging down into the outlooks. And two areas where I 0:05:00.160 --> 0:05:03.640 I think try where trade and the FED come into play, 0:05:03.720 --> 0:05:08.000 is I would expect to see any more any negative 0:05:08.000 --> 0:05:13.359 trade headlines manifest more to the downside in US equities 0:05:13.400 --> 0:05:16.919 than they do to emerging market equities. I think emerging 0:05:16.960 --> 0:05:19.520 markets have priced in a ton of pain, and we 0:05:19.560 --> 0:05:22.599 have already seen a turn in this year in the 0:05:22.640 --> 0:05:25.960 e M versus you know SMP five hundred ratio, so 0:05:26.120 --> 0:05:29.560 even on you know, not material improvement in trade. So 0:05:29.760 --> 0:05:31.680 I think there's more of a potential for U S 0:05:31.680 --> 0:05:34.040 stocks to start to price in the downside risk to 0:05:34.080 --> 0:05:37.560 trade at the index level than emerging market stocks. And 0:05:37.640 --> 0:05:40.960 another on the US dollar in the FED. I'm wondering 0:05:41.000 --> 0:05:43.279 if this is finally the time we do truly get 0:05:43.279 --> 0:05:45.800 that U. S dollar top. If twenty nineteen is a 0:05:45.920 --> 0:05:48.440 year of US dollar weakness, and it has to do 0:05:48.560 --> 0:05:51.360 with just you know, your second derivative, the fact that 0:05:51.400 --> 0:05:53.240 the FED isn't going to speed up the pace of 0:05:53.320 --> 0:05:55.880 rate hikes, and the fact that the US is probably 0:05:55.880 --> 0:05:59.760 going to decelerate more than other economies on a like 0:06:00.080 --> 0:06:03.000 or over your basis, Well, I would say this VSA 0:06:03.080 --> 0:06:07.760 V the US market versus emerging markets. If you look 0:06:07.800 --> 0:06:11.400 at this year, actually the multiple has contracted by roughly 0:06:11.440 --> 0:06:15.000 the same amount in the SMP and uh the M 0:06:15.120 --> 0:06:17.479 s c I Emerging Market Index. What has separated the 0:06:17.480 --> 0:06:21.080 performance between the two has been earnings, where the US 0:06:21.240 --> 0:06:25.240 is obviously delivered great earnings growth and uh E M 0:06:25.240 --> 0:06:28.120 earnings have been basically flat on an earnings per share basis. 0:06:28.560 --> 0:06:31.760 So the one of the issues I'm wrestling with is, 0:06:31.920 --> 0:06:36.200 right now, the consensus top down forecast looks for something 0:06:36.240 --> 0:06:40.240 like eight percent earnings growth for the US over the 0:06:40.240 --> 0:06:43.440 next twelve months. That looks way too high, right Everyone 0:06:43.480 --> 0:06:45.760 expects that to come down. Everyone expects that to come down. 0:06:46.200 --> 0:06:50.120 That being said, even if we assume zero earnings growth 0:06:50.640 --> 0:06:54.120 for the US, I think you could argue that the 0:06:54.200 --> 0:06:59.120 multiples contracted enough that the market actually offer right now. 0:06:59.160 --> 0:07:02.520 With your third way to look at the multiple, UM, well, 0:07:02.520 --> 0:07:04.720 I look I like to look at the multiple relative 0:07:04.760 --> 0:07:11.320 to the rolling twelve month forward UM earnings estimate, which 0:07:11.360 --> 0:07:14.000 I have to construct in the spreadsheet because for the 0:07:14.120 --> 0:07:16.920 SMP there's no unfortunately, there's no easy way to do 0:07:16.960 --> 0:07:19.000 it on the terminal. You can get it on the 0:07:19.160 --> 0:07:22.800 M s C I US index a twelve month rolling 0:07:23.560 --> 0:07:27.520 EPs or or price earnings ratio, but that allows for 0:07:27.600 --> 0:07:32.600 sort of constant apples to apples comparisons over over time. 0:07:32.840 --> 0:07:35.600 And I think we're in about fifteen and a bit 0:07:36.040 --> 0:07:40.600 in terms of in terms of the PE relative to 0:07:40.880 --> 0:07:44.200 the spot earnings. So if we assume no earnings growth, 0:07:44.200 --> 0:07:47.640 that would be fifteen relative to twelve month forward earnings, 0:07:47.680 --> 0:07:49.680 which is an earnings yield of about six and a 0:07:49.760 --> 0:07:53.840 half six point seven. Uh. You compare that to inflation. 0:07:54.000 --> 0:07:56.360 As you know, Joe, the real earnings yield is one 0:07:56.360 --> 0:07:59.920 of my favorite metrics. Uh, So we can compare that 0:08:00.000 --> 0:08:03.240 where inflation is likely to go. That could present an 0:08:03.280 --> 0:08:05.400 earning a real earning shield of sort of four or 0:08:05.400 --> 0:08:08.080 four and a half percent by the middle of next year, 0:08:08.240 --> 0:08:12.560 which is a level that's consistent historically with fantastic returns 0:08:13.080 --> 0:08:16.200 for US stocks. To compare it with bond yields. You know, 0:08:16.280 --> 0:08:19.480 the quote unquote FED model not perfect, but that's still 0:08:19.520 --> 0:08:24.200 a pretty tasty, tasty premium. So I do wonder how 0:08:24.320 --> 0:08:29.600 much further multiples can actually contract from here, barring uh, 0:08:29.640 --> 0:08:32.960 an economy a proper economic downturn, and that's really gonna 0:08:32.960 --> 0:08:35.160 be the story for the end of next year is 0:08:35.280 --> 0:08:38.960 does recession become the self fulfilling prophecy? And a part 0:08:38.960 --> 0:08:41.200 of that story that I'm starting to see in markets, 0:08:41.280 --> 0:08:43.640 and I'm wondering if this will be a developing theme 0:08:43.679 --> 0:08:47.000 in twenty nine is the return of rates volatility, like 0:08:47.040 --> 0:08:50.880 we we talked about right before the February volatility explosion, 0:08:50.920 --> 0:08:52.719 and you know, the demise of my friend X I 0:08:52.800 --> 0:08:55.600 V and then again the sell off we got up 0:08:55.720 --> 0:08:58.760 in October after Jerome Powell talked about long way from neutral. 0:08:59.000 --> 0:09:01.840 Those are both rate sensitive and rate related moves, but 0:09:01.920 --> 0:09:06.040 they weren't really accompanied by a lot of implied rate volatility. 0:09:06.120 --> 0:09:09.319 A huge move higher there. And one thing I'm looking about, 0:09:09.320 --> 0:09:12.040 as you know, something to spur rate volatility is a 0:09:12.040 --> 0:09:14.920 lot more uncertainty and confusion about the federal reserves path. 0:09:14.960 --> 0:09:17.199 I think that's a pretty easy catalyst, and I think 0:09:17.200 --> 0:09:19.880 that's something that we've been working through in Q four. 0:09:19.920 --> 0:09:21.880 And one of the places I l racy that coming 0:09:21.960 --> 0:09:24.199 up is looking at the ratio of one year two 0:09:24.280 --> 0:09:27.600 year swaption volatility, So the implied volatility of two year 0:09:27.679 --> 0:09:31.080 rates over the next year versus one year tenure swaption 0:09:31.160 --> 0:09:34.200 volatility implied volatility of tenure rates over the next year, 0:09:34.320 --> 0:09:37.040 and that ratio is very elevated right now, you know, 0:09:37.120 --> 0:09:39.280 and it's moved upwards at a speed not seen since 0:09:39.280 --> 0:09:42.080 the Taper tantrum. Taper tantrum, to me, was like a 0:09:42.160 --> 0:09:45.839 clear indication of the market pricing in an inflection point 0:09:46.000 --> 0:09:48.440 for Federal reserve policy, even though it took a while 0:09:48.480 --> 0:09:51.320 to arrive. I think we're getting the same here and 0:09:51.360 --> 0:09:53.760 where we've you know, we're starting to sniff out what 0:09:53.880 --> 0:09:55.800 does the end of the FED cycle look like, what 0:09:55.840 --> 0:09:58.559 does the turn look like, and that as a catalyst 0:09:58.640 --> 0:10:00.600 for rate volatility at that start, it's at the short 0:10:00.720 --> 0:10:03.120 end and perhaps moved further up of the curve, and 0:10:03.280 --> 0:10:06.480 you know, has an effect on cross asset volatility, on spreads, 0:10:06.480 --> 0:10:09.440 on equities more so. I that's something I'm looking forward 0:10:09.480 --> 0:10:11.440 to to seeing because it has been the dog that 0:10:11.520 --> 0:10:15.400 hasn't really barked. I think I'd probably take the under 0:10:15.640 --> 0:10:18.600 on rate's fall for the simple for two reasons. Um 0:10:18.720 --> 0:10:24.320 One is, we have much more explicit forward guidance than 0:10:24.559 --> 0:10:29.200 we've ever had in the past, and it's almost irrelevant 0:10:29.280 --> 0:10:33.960 whether the Fed actually is right or accurate in their forecast. 0:10:34.400 --> 0:10:38.640 There's a well known behavioral finance UH concept called anchoring, 0:10:38.960 --> 0:10:42.680 and it provides these The dot plot provides an anchor 0:10:42.760 --> 0:10:46.600 for market expectations, and you can observe that in many 0:10:46.640 --> 0:10:50.120 ways that realize volatility throughout this entire cycle has been 0:10:50.240 --> 0:10:53.800 much much, much lower than it has been historically because 0:10:53.800 --> 0:11:06.839 of this anchoring process. One change that's gonna be different 0:11:06.880 --> 0:11:09.719 in twenty nineteen is that every FED decision now will 0:11:09.760 --> 0:11:12.679 be accompanied by a press conference. Previously it's just been 0:11:12.720 --> 0:11:14.920 four year. Used to be none a year. There was 0:11:14.960 --> 0:11:18.320 a belief and it was never officially stated, but there 0:11:18.400 --> 0:11:20.520 was a belief that I guess kind of got confirmed though, 0:11:20.840 --> 0:11:23.800 that only the press conference meetings were live. Well, they 0:11:23.800 --> 0:11:28.679 did claim that all meetings were loved. They never hiked 0:11:28.679 --> 0:11:31.400 on a non press conference meeting. I don't ever believed 0:11:31.400 --> 0:11:36.120 it does. The theoretical liveness of all the meetings introduce 0:11:36.240 --> 0:11:40.360 any sort of volatility into a short range a little bit. 0:11:40.960 --> 0:11:44.360 I think though, that markets will still anchor on the 0:11:44.440 --> 0:11:48.240 quarterly meetings simply because that's when the new round of 0:11:48.320 --> 0:11:51.280 forecasts are unveiling, and we've sort of seen that there 0:11:51.280 --> 0:11:53.640 are still special meetings. Yeah, well we've seen that with 0:11:53.720 --> 0:11:57.719 the ECB right where every meeting is theoretically live, but 0:11:58.120 --> 0:12:00.920 half of them are just mail ins because there's not 0:12:01.040 --> 0:12:05.120 the you know, the backdrop of the new staff forecast 0:12:05.280 --> 0:12:07.440 from the from the e c B. Do you think, 0:12:07.480 --> 0:12:10.600 like you know, they talked about quote unquote normalization, and 0:12:10.679 --> 0:12:12.680 I still don't think I understand what that word means, 0:12:12.720 --> 0:12:14.679 even I've heard it a bunch of times. But do 0:12:14.720 --> 0:12:17.600 you think that we're better off for all of these 0:12:17.640 --> 0:12:20.200 communication innovations or should we just go back to where 0:12:20.240 --> 0:12:22.400 they have a little statement and hike and move on. 0:12:22.800 --> 0:12:25.920 I think they should go back to the way it 0:12:26.040 --> 0:12:30.080 was before. But on the other hand, you you know, 0:12:30.160 --> 0:12:33.040 you talk about how volatility has been suppressed this cycle 0:12:33.200 --> 0:12:36.960 in part because of those communications. Uh, if lower I 0:12:36.960 --> 0:12:38.959 don't know which way the feedback loop runs or the 0:12:39.000 --> 0:12:42.080 mechanism chicken egg here, But if the lower financial market 0:12:42.120 --> 0:12:45.560 volatility and lower macro economic volatility, if those two aren't 0:12:45.559 --> 0:12:48.600 all related, and the FEDS forward guidance is helping to 0:12:48.640 --> 0:12:51.480 promote one and the other, that that seems to me 0:12:51.520 --> 0:12:54.079 to be somewhat of a free lunch. However, I think 0:12:54.120 --> 0:12:55.959 we could get into the Minsky and view of that 0:12:56.000 --> 0:12:59.320 this is breeding some level in the uncertainty and instability. 0:12:59.360 --> 0:13:01.440 But you've just gone yeah, you just refer to your 0:13:01.440 --> 0:13:05.600 friend XIT, your late lamented friend x I V. And 0:13:05.640 --> 0:13:11.080 I think that's a manifestation of artificial sense of certainty 0:13:11.200 --> 0:13:17.520 that's afforded by forward guidance. Uh. It's it's an interesting phenomena. 0:13:17.520 --> 0:13:20.880 If we go back over the last quarter century, forward 0:13:20.960 --> 0:13:24.240 GUIDs by the Fed has gotten more and more explicit, 0:13:24.520 --> 0:13:29.959 starting when they started releasing statements sort of explaining what 0:13:30.000 --> 0:13:33.400 they were doing too. Now when obviously we get the 0:13:33.400 --> 0:13:35.280 dot plot and all this other stuff, and what we've 0:13:35.320 --> 0:13:40.160 observed is that realized volatility of fixed income markets has 0:13:40.200 --> 0:13:45.120 gone down. Broadly speaking, um, the lead time which money 0:13:45.120 --> 0:13:51.080 market curbs invert to until the Fed cuts rates has broadened, 0:13:51.679 --> 0:13:56.199 and to date, each subsequent economic downturn has become more 0:13:56.200 --> 0:13:59.240 and more severe. The two rate cuts in nine in 0:13:59.280 --> 0:14:03.360 the d's after ninety four, which was there was one 0:14:03.720 --> 0:14:07.560 and then cycle. There was no recession that followed. But 0:14:07.720 --> 0:14:11.920 yet as they got more explicit in the tightening cycle, 0:14:12.240 --> 0:14:15.439 that ended with a recession obviously with the dot com bust, 0:14:15.520 --> 0:14:20.080 and then they got even more explicit. Remember uh, measured pace, YadA, YadA, 0:14:20.120 --> 0:14:23.680 YadA uh in the five basis points every meeting exactly. 0:14:23.720 --> 0:14:25.760 And then we followed that with a period of extraordinarily 0:14:25.760 --> 0:14:30.760 low volatility, which bread excessive risk taking, and we ended 0:14:30.800 --> 0:14:33.000 up You can argue that this is why the nature 0:14:33.040 --> 0:14:36.000 of recessions has been more balance sheet oriented and kind 0:14:36.000 --> 0:14:38.360 of providing certain data balance sheets that doesn't exist, and 0:14:38.400 --> 0:14:41.120 then you get, you know, more abrupt tipping points when 0:14:41.120 --> 0:14:44.000 you look forward to nineteen though, and right now, I 0:14:44.040 --> 0:14:47.200 think one thing that people have been really banging the 0:14:47.240 --> 0:14:50.320 table about is they're worried about the credit market. They're 0:14:50.320 --> 0:14:52.680 worried about a very severe downturn and credit. A lot 0:14:52.720 --> 0:14:55.240 of talk about triple b s. Then, on the other hand, 0:14:55.360 --> 0:14:57.840 you have, you know, a lot of corporates taking steps 0:14:58.120 --> 0:15:00.520 to improve their balance sheets. What do you think about 0:15:00.520 --> 0:15:05.200 in terms of a credit versus equity outlook in I 0:15:05.200 --> 0:15:08.080 would say from a relative value perspective, I I would 0:15:08.080 --> 0:15:11.040 prefer at current valuation, I think I would prefer equity 0:15:11.120 --> 0:15:13.520 to credit. It seems to me that we've sort of 0:15:14.200 --> 0:15:16.240 the credit The credit cycle I've view is sort of 0:15:16.280 --> 0:15:18.600 like a cruise ship. You know, you can't just turn it, 0:15:18.640 --> 0:15:20.960 turn it like water skis or a power boat. It's 0:15:20.960 --> 0:15:23.920 a very long and gradual cycle, and it seems to 0:15:23.920 --> 0:15:27.520 me that we have now bottomed in terms of spreads, 0:15:27.560 --> 0:15:32.360 and that fundamentally speaking over for the remainder of the cycle, 0:15:32.440 --> 0:15:36.080 spreads should on aggregate be water. Um. Now, if equity 0:15:36.120 --> 0:15:39.040 market evaluations were elevated, then you would say sell everything. 0:15:39.440 --> 0:15:42.240 But given that we've had this this come down in 0:15:42.360 --> 0:15:45.800 terms of valuation as we as we just discussed, I know, 0:15:46.040 --> 0:15:47.600 I think we're kind of at the point where I 0:15:47.640 --> 0:15:51.000 prefer equity of credit. Let's uh, trade, let's talk a 0:15:51.080 --> 0:15:55.480 little bit more about that, because, uh, the interesting thing 0:15:55.560 --> 0:15:59.600 is soen we obviously got the I guess, the so 0:15:59.720 --> 0:16:02.680 called trade truce that that said a ninety or a 0:16:02.720 --> 0:16:05.600 hundred and twenty day clock depending on when it started 0:16:05.600 --> 0:16:10.200 on getting a deal. Since then, the truce hasn't fallen 0:16:10.240 --> 0:16:13.760 apart some people might have expected it to. Uh, I 0:16:13.800 --> 0:16:15.800 don't know that there's a ton of progress being made 0:16:15.840 --> 0:16:17.600 on it. But it's not like there's been a ton 0:16:17.640 --> 0:16:20.800 of like backtracking or undermining of it. Right, But this 0:16:20.880 --> 0:16:23.240 is this is the trade truce and the trade war, 0:16:23.600 --> 0:16:26.200 excuse me, in the trade policy and a nutshell, you know, 0:16:26.320 --> 0:16:29.640 everyone sings Kubai are around the campfire and toast marshmallows 0:16:29.640 --> 0:16:33.000 and buenos aires. And then two days later we get 0:16:33.000 --> 0:16:36.320 news a that Trump is still a tariff man and 0:16:36.520 --> 0:16:40.160 the Wallway arrest. Now if that's if that's the truce, 0:16:40.280 --> 0:16:41.760 I really don't want to I don't want to know 0:16:41.800 --> 0:16:43.520 what a war looks like. And this is why it's 0:16:43.560 --> 0:16:46.040 so we're gonna find out in t what the war 0:16:46.080 --> 0:16:51.720 looks like. I tend to think not. I've basically taken 0:16:51.720 --> 0:16:54.760 the view that that Trump would push the push the 0:16:54.880 --> 0:16:58.520 envelope on trade until financial markets told him it was 0:16:58.560 --> 0:17:01.640 time to pull back. And it seems to me pretty 0:17:01.640 --> 0:17:08.560 clear that financial markets in the fourth quarter of I 0:17:08.560 --> 0:17:13.320 immediately after he imposed the two billion dollars the tariff 0:17:13.359 --> 0:17:17.000 onion dollars of goods, financial markets are saying, all right, 0:17:17.560 --> 0:17:20.120 that's probably enough for now. And it also seems like 0:17:20.160 --> 0:17:23.040 an issue in which it is positive for the president 0:17:23.080 --> 0:17:27.119 to keep it alive issue without real negative repercussions on 0:17:27.200 --> 0:17:29.919 financial markets or the economy. So if you can go 0:17:30.040 --> 0:17:33.080 and you can have these many winds or these symbolic 0:17:33.160 --> 0:17:36.240 wins over and over and over, well at the same time, 0:17:36.280 --> 0:17:39.560 you don't have the legislative control that you once have. 0:17:39.760 --> 0:17:42.080 It's a winning issue that you can keep for yourself 0:17:42.119 --> 0:17:44.239 and no one else can really touch. As long as 0:17:44.240 --> 0:17:46.240 you don't push it a little too far overboard, it 0:17:46.280 --> 0:17:48.000 does not become a negative for you. Do you think 0:17:48.000 --> 0:17:50.480 other or other four leaders are willing to play that 0:17:50.520 --> 0:17:53.320 game for him, which is basically like you know, don't 0:17:53.400 --> 0:17:56.480 let anything too bad happen and just keep giving it, 0:17:56.680 --> 0:17:59.439 giving Trump marginal wins that don't mean a lot, and 0:17:59.520 --> 0:18:03.000 let the sort of persistent din of risks just sort 0:18:03.000 --> 0:18:06.720 of sit out there completely. You think so completely? I'm 0:18:06.760 --> 0:18:10.119 not sure. I'm not sure. Um. I mean, that's a 0:18:10.240 --> 0:18:13.080 that's a tough question to be honest with you. I 0:18:13.119 --> 0:18:17.800 think if Trump is under political pressure domestically, then surely 0:18:17.880 --> 0:18:20.960 that which he will be next year. I think, um, 0:18:20.960 --> 0:18:23.720 given that the House will have subpoena power and that 0:18:23.920 --> 0:18:27.640 they might actually use on the White House, that surely 0:18:27.880 --> 0:18:32.840 gives foreign governments more of a leverage against Trump than 0:18:32.840 --> 0:18:37.000 they've had here before. Speaking of event risk in twenty nineteen, 0:18:37.440 --> 0:18:40.600 something that hardly anyone is talking about, but which I 0:18:40.720 --> 0:18:44.040 had a recent conversation with David wou over a b 0:18:44.119 --> 0:18:47.280 of aml H the Dead ceiling has to be lifted. 0:18:47.280 --> 0:18:51.200 In the last tight we had a really or Congress 0:18:51.200 --> 0:18:55.600 flipped uh in the mid term was and dead ceiling 0:18:55.600 --> 0:18:58.160 fight was pretty brutal. It went to the end. The politics, 0:18:58.200 --> 0:19:01.160 I guess, are a little bit different because Democrats maybe 0:19:01.160 --> 0:19:05.159 are a little less motivated by that's less of a 0:19:05.200 --> 0:19:07.879 talking point for them, the debt. But nonetheless they have 0:19:08.040 --> 0:19:11.040 leverage and presumably they're gonna watch something. Do either of 0:19:11.080 --> 0:19:13.000 you think this is gonna be a big story or 0:19:13.359 --> 0:19:16.399 is your guest that the Democratic leaders are going to say, like, 0:19:16.560 --> 0:19:18.359 let's just come up with a deal. It'll be a 0:19:18.359 --> 0:19:21.280 big story, but not something that ultimately matters, right, Like 0:19:21.320 --> 0:19:25.359 it'll be something we worry about and huge like that 0:19:25.640 --> 0:19:28.119 that's story dominated that There was also another back to remember, 0:19:28.119 --> 0:19:32.600 the the Euros down crisis. There was a lot of 0:19:32.640 --> 0:19:34.919 stuff going on back then, but that was a huge 0:19:35.080 --> 0:19:38.639 I mean, I remember that summer going out to the 0:19:38.640 --> 0:19:40.920 beach on weekend. Is it just like a lot big 0:19:40.960 --> 0:19:45.680 glued to Twitter watching every utterance from who Eric Canter 0:19:45.800 --> 0:19:49.240 and all them about that? Is that gonna be what 0:19:49.320 --> 0:19:52.080 this year's like? I think like it's something that's lost 0:19:52.119 --> 0:19:54.399 its power to hurt the markets as much as it 0:19:54.480 --> 0:19:57.159 once did because of how big and crazy and how 0:19:57.240 --> 0:20:00.200 much it dominated attention in two thousand eleven, and Base done. 0:20:00.240 --> 0:20:03.320 All these kind of mini government squabbles we've been able 0:20:03.359 --> 0:20:07.879 to get over. Yeah, I'm gonna I'm gonna hedge my 0:20:07.880 --> 0:20:10.280 bets a little bit. I I generally don't care about 0:20:10.320 --> 0:20:12.960 this sort of stuff because I think it's it's noise 0:20:13.080 --> 0:20:16.800 relative rather than signal, because ultimately it gets resolved. But 0:20:16.960 --> 0:20:20.680 it seems to me that has taught us anything. It's 0:20:20.760 --> 0:20:26.520 that these things that end up impacting markets are things 0:20:26.600 --> 0:20:31.000 that in hindsight you can say, well, obviously that had 0:20:31.040 --> 0:20:34.520 an impact, but didn't you You didn't forecast it in 0:20:34.560 --> 0:20:37.840 advance because you thought that, yes, it's an issue, but 0:20:37.880 --> 0:20:40.840 it's not gonna matter because it didn't matter in the past. So, 0:20:41.880 --> 0:20:44.639 I mean, the rules of engagement between the White House 0:20:44.680 --> 0:20:46.879 and Congress and the White House and the Fed, and 0:20:46.920 --> 0:20:49.560 the White House and the market have totally changed. So 0:20:49.640 --> 0:20:52.880 we're all in sort of uncharted territory here. So while 0:20:52.920 --> 0:20:56.240 I don't think that this sort of thing will have 0:20:56.280 --> 0:20:59.439 any sort of meaningful, lasting impact on the market, if 0:20:59.440 --> 0:21:01.160 we're sitting here our next year and it turns out 0:21:01.200 --> 0:21:04.320 that it did. I'm not gonna have been terribly surprised. 0:21:04.400 --> 0:21:06.720 All Right, you gotta wrap it up here. Any sort 0:21:06.760 --> 0:21:09.080 of quick last parting thoughts from the two of you. 0:21:09.720 --> 0:21:12.800 I expect a hard Brexit good one. Well, I like 0:21:12.880 --> 0:21:14.880 that we didn't even get in there. But maybe we'll 0:21:14.880 --> 0:21:17.640 do a Breakxit episode soon. That's that's a really good one. 0:21:17.760 --> 0:21:21.720 I I expect that the rotation to value that we've 0:21:21.720 --> 0:21:25.040 been waiting for forever does not happen. Okay, great stuff. 0:21:25.480 --> 0:21:28.360 Really enjoyed having you both on for both our look 0:21:28.400 --> 0:21:32.439 back and our look ahead. Luke Cowa and Cameron Christ, 0:21:32.480 --> 0:21:37.080 thanks for joining us, and this has been another episode 0:21:37.119 --> 0:21:39.920 of the Odd Lots Podcast. Thanks for listening, and of 0:21:39.960 --> 0:21:43.320 course please stick with us for twenty nine as we 0:21:43.320 --> 0:21:47.080 watched these stories unfold. I'm Joe Wisenthal. You can follow 0:21:47.119 --> 0:21:50.600 me on Twitter at the Stalwarts. Tracy wasn't here this week, 0:21:50.600 --> 0:21:53.640 but you should still follow her on Twitter at Tracy Elloway. 0:21:54.080 --> 0:21:57.359 You should definitely follow our guests. Luke is on Twitter 0:21:57.520 --> 0:22:01.720 at l J Kawa. Cameron is on Twitter at Fifth Rule. 0:22:02.040 --> 0:22:05.560 You should follow our producer on Twitter tofur four Has. 0:22:05.560 --> 0:22:08.600 He's at four has T, as well as our substitute producer. 0:22:08.720 --> 0:22:12.400 This week Liz Smith at Liz the Smith and don't 0:22:12.400 --> 0:22:16.040 forget to follow the Bloomberg Head of podcasts, Francesca Levy 0:22:16.400 --> 0:22:18.919 at Francesca Today. Thanks for listening.