Speaker 1: Runt You by Bank of America Mary Lynch. With virtual reality,
Speaker 1: virtually everything will change. Discover opportunities in a transforming world
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Speaker 1: Pierced Fenner and Smith Incorporated. Ye, Welcome to the Bloomberg
Speaker 1: Surveillance Podcast. I'm Tom Keene with David Gura. Daily we
Speaker 1: bring you insight from the best of economics, finance, investment,
Speaker 1: and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud,
Speaker 1: Bloomberg dot Com, and of course, on the Bloomberg. Joining
Speaker 1: us now from the Bloomberg Investorm in New York, Brian Belski,
Speaker 1: Chief investment strategy of Demo Capital Market's great to see
Speaker 1: here amid the hustle and bustle of the link as
Speaker 1: we call at the pantry, here's the real people do. Right,
Speaker 1: run around outside the camp of the cortemins of our
Speaker 1: radio studio. Right. Let me ask you about how you're
Speaker 1: regarding what's going to happen tomorrow. It's not a risk event,
Speaker 1: I suppose it's it's three big risk events. How much
Speaker 1: how much attention you paining to what's happened with the
Speaker 1: ECB with Capitol Hill and indeed, with the election in
Speaker 1: the UK tomorrow, I probably say that the e CBS
Speaker 1: number one with respect to what happens fundamentally because we've
Speaker 1: had um, you know, kind of growth, um, let's say,
Speaker 1: volatility in terms of Europe. What's happened from not only
Speaker 1: an economic earnings but demographic side of things, and things
Speaker 1: have changed in Europe the last twelve months. So from
Speaker 1: a from an investment standpoint, David, I mean, how are
Speaker 1: we going to position there? And then what does what
Speaker 1: does that mean for emerging markets? Because I remember Europe
Speaker 1: and emerging markets are very tightly correlated. Europe's I'm sorry,
Speaker 1: emerging markets number one client in Europe, So you know,
Speaker 1: I think it's important, especially considering that the US and
Speaker 1: in the UK led the revive goal inequities in the
Speaker 1: fourth quarter at the beginning of this year. Then you're
Speaker 1: played along and now emerging markets have cotten some cotton
Speaker 1: a bid, so to speak, and so a lot of
Speaker 1: people are getting getting excited about emerging markets. What that means.
Speaker 1: So I think the big thing tomorrow is gonna be ECP.
Speaker 1: With respect to the noise out of Washington, noise just
Speaker 1: it's a noise, how libretting will it be to get
Speaker 1: through the UK election when you look at political risk,
Speaker 1: does that does that stand as a marker to you
Speaker 1: that you're gonna get past it? Yeah? I think so.
Speaker 1: You can take a look at it's a it's a
Speaker 1: it's a great question. You see what happened in France
Speaker 1: and how the volatility Actually we did not see the
Speaker 1: big volatility spike post the French election. Prey the French election.
Speaker 1: You know, we had the pre election and then the
Speaker 1: real election. So you know it's a foregone conclusion that
Speaker 1: May is gonna win. But but at the end of
Speaker 1: the day, again, how many seats to do do the
Speaker 1: Conservatives win and retain and things like that. So, and
Speaker 1: what's the direction with respect of Brexon and what does
Speaker 1: that mean for the total eurosone gdp so, and then
Speaker 1: go back to the e c B. I think that's
Speaker 1: gonna be the key thing to morrow. You've you've written
Speaker 1: that over these last six months or so, what we've
Speaker 1: seen in terms of price returns has been dreamed bymentum
Speaker 1: and rhetoric, not by fundamentals in process. How does that
Speaker 1: complicate things for you as in as an investor. It's
Speaker 1: horrible it's horrible. I mean no, I mean it's it's
Speaker 1: literally impossible to be writing about the market every week
Speaker 1: and try to provide this great, grandiose value add that
Speaker 1: everybody thinks they're doing because nothing's really happening. The market
Speaker 1: has been in this tight training range the last couple
Speaker 1: of months, and everybody wants to try to make this
Speaker 1: big call about what's going to happen in the market.
Speaker 1: But at the end of the day, we still think
Speaker 1: it's about buying stocks and being in the right industries
Speaker 1: and sectors. And I think there's a there's a big
Speaker 1: contingent of what people that do what we do and
Speaker 1: investors that just don't get that. Within this is the
Speaker 1: mode of investors. Do they feel like they've missed the market?
Speaker 1: Do they feel like they're in the market? Is there
Speaker 1: an irrational Zuberance team and I were talking about this yesterday.
Speaker 1: I I we're getting the sense that more and more
Speaker 1: investors that we talked to, more and more clients feel
Speaker 1: like they need to be in the market, then want
Speaker 1: to be in the market, especially considering the kind of
Speaker 1: move that we've seen, and there I hate to use
Speaker 1: this word complacency, Tom that I just think that people
Speaker 1: are kind of boring themselves to death in terms of
Speaker 1: owning the same stocks. There's no original thought. And again
Speaker 1: I think the I think there's so many binary opinions
Speaker 1: out there. It's either either or there's nothing in between.
Speaker 1: What we say is on Friday, David, all the gloom
Speaker 1: comes out right. I mean, you're I know you're looking
Speaker 1: at you know, Kale sales in Brooklyn. Brian and I
Speaker 1: are looking at the gloom reports coming out on Friday
Speaker 1: and four pm. World's gonna end and it makes a
Speaker 1: great weekend reading Brian Belsky with us. We are within
Speaker 1: our world headquarters. We're not in our studios were there's
Speaker 1: people in Bloomingdale's often the distance. Good morning to all
Speaker 1: of Bloomingdale's. Of course we're here are special coverage. Are
Speaker 1: Bloomberg invest Conference. Take us through your your portfolio right now?
Speaker 1: What's what's been doing well? Even you've had a lot
Speaker 1: of success with technology. Are you overweight financials as well?
Speaker 1: What's detractive about the financials right now? You know we're
Speaker 1: over eight financials and we're wrong right now. And I'm
Speaker 1: not ashamed to say we're wrong because you know, the
Speaker 1: bond markets and control everything, and and what we've seen
Speaker 1: with short rates, you know, the twos and tens we've
Speaker 1: talked about on on the television program here just recently
Speaker 1: are in the last few minutes. So you know, we're
Speaker 1: positioned for the next to all day, t months minimum
Speaker 1: and over the next three to five years. We think
Speaker 1: financials are are the best place to be because everyone
Speaker 1: is so negative, David, and they're not positioned there and
Speaker 1: they're under their underweight. We think financials in the way
Speaker 1: to be. But I think our best call so far
Speaker 1: this year is is to be overweight healthcare. It's been
Speaker 1: our contrarian call heading into this year, and in our
Speaker 1: theme for healthcare as we buy stocks that keep us alive,
Speaker 1: you know. So we like the biotechs and the drugs
Speaker 1: and some in certain um big h mos um. But
Speaker 1: you know, I think what's gonna end up happening is
Speaker 1: I think the biggest call right now is everybody thinks
Speaker 1: that growth is scarce and growth outperforms, and we're gonna
Speaker 1: buy the fangs. It's say the same old crap and
Speaker 1: for lack of a better way, I mean, let's have
Speaker 1: some original thought, man, I mean, let's go out and
Speaker 1: buy some stocks and and own a portfolio and manage
Speaker 1: a portfolio. So what we've been doing in the real
Speaker 1: live money that we that we run for our Canadian
Speaker 1: investors for the bank up in Canada, is that, you know,
Speaker 1: we run portfolio stocks. All four of our products are
Speaker 1: all performing our mandate, just principally, because Marcot goes down
Speaker 1: a little bit, we buy more of our favorite names,
Speaker 1: Margret goes up a little bit. We've been peeling back.
Speaker 1: So we actually this past month peeled back a little
Speaker 1: bit in some of those fang names, uh, principally because
Speaker 1: they've had big runs and and we don't think that
Speaker 1: type of price momentum can continue over the next three
Speaker 1: to six months eighteen months, yes, three or six months.
Speaker 1: Probably not strikes me that that's so workman like. That's
Speaker 1: so old school to an old soul. I mean, so
Speaker 1: many of people that do what I do are so
Speaker 1: focused on the macro macro macro and quant quant quan,
Speaker 1: and nobody knows how to talk about stocks or themes
Speaker 1: or invest anymore. There's a public one talk about stocks.
Speaker 1: Are they all bundled up in passive funds? I think
Speaker 1: they're all bundled up in passive funds. I think, uh again,
Speaker 1: more E T F questions from taxi cab drivers and
Speaker 1: car drivers and we do stocks. Yeah, I mean, you know,
Speaker 1: I go back to the nineties when cab drivers are
Speaker 1: given a stock picks here in this town. And yeah,
Speaker 1: I think we will get back to that point. But
Speaker 1: I think still we're we're more focused on I mean
Speaker 1: that the public is more focused on the headlines and
Speaker 1: the big picture stuff, and that's what's causing all the
Speaker 1: noise financials. And I just wonder what you see there?
Speaker 1: There is all the negativity that you describe. What do
Speaker 1: you see that others others down't well in the financial
Speaker 1: side of things. We want to be in those companies
Speaker 1: what we call the big box retailers that have the
Speaker 1: complete menu. Right. So, what has been the crown jewel
Speaker 1: of the financial services industry the big box retailers the
Speaker 1: last two to three quarters, it's been it's been the
Speaker 1: capital markets business. Right, So we had big trading volumes
Speaker 1: last year, we had M and A activity COASI. Capital
Speaker 1: markets done right well. So why have they done very well?
Speaker 1: Because two years ago we cut cut, cut, cut cut costs.
Speaker 1: So if you look at the big box retailers now
Speaker 1: where they've been cutting costs wealth management, So where's the
Speaker 1: flow is going to come the next several years gonna
Speaker 1: be into the wealth manager channel. Okay, Brian Bellski with
Speaker 1: this pimo very quickly here. And of course, our coverage
Speaker 1: of Bloomberg invest conference on Bloomberg Radio brought you by
Speaker 1: s CI which means we get celebrities. That is, they
Speaker 1: come in at seven oh five a m. Joining us
Speaker 1: out Scarlett Food in its seven oh five. Do you
Speaker 1: have a question for Mr Belski? Are we talking are retailers?
Speaker 1: Are we talking banks? I just walked in and Tom
Speaker 1: waves me over while meeting my banana. That's a good idea.
Speaker 1: Scarlett used to get up early in the morning. Now
Speaker 1: she's a big shot. She just comes in later. And
Speaker 1: what about the retailers. Dana Telsey Dana Chelsea out with
Speaker 1: a really jepid note on Macy's after their meeting. So
Speaker 1: we just published a piece on consumer discretionary as you
Speaker 1: know that consumer discretionary is the most e collectic sector
Speaker 1: in the US market, right, most eclectic sector in the
Speaker 1: US market. And we mentioned we had no mention of
Speaker 1: retailers in that in that secretory in sector. No, because
Speaker 1: we're really worried from a secular basis longer term, what's
Speaker 1: structurally what's happening in retail? I mean clearly Amazon. If
Speaker 1: you take a look at consumer discretionary sector so far
Speaker 1: this year, Amazon's four hundred basis points, meaning four percentage
Speaker 1: points of the full full UH performance of the second
Speaker 1: If you take a consumers underperforming, we gotta go, Brian Belski,
Speaker 1: thank you so much. If we lose the lun chust
Speaker 1: Jersey where a natural predators Jersey, David gurl, We're gonna
Speaker 1: come back with Brian Belski, David Cura and Tom Keane
Speaker 1: are Bloomberg invest Summit For those of you that just
Speaker 1: got through the CFA exam. We're gonna talk not seemed
Speaker 1: TALEB a little bit and Gaussian and plus on distributions,
Speaker 1: which is a good way to get to Brian Belski
Speaker 1: a bemo. Capital markets talb, of course, is the mathematics
Speaker 1: of rare events. By definition, you don't see the rare
Speaker 1: event coming. What are the set of rare events you're
Speaker 1: worried about in the equity markets? Well, I think so
Speaker 1: many people are laser focused Tom on what's happened in Washington,
Speaker 1: and so that's not a rare event. No, it's not
Speaker 1: a rare Where where are they? Well the other thing too,
Speaker 1: is we just hate this whole notion of black swans.
Speaker 1: I mean, corrections happen when you least expect them. It
Speaker 1: seems to us like everyone is still looking for the correction,
Speaker 1: of looking for the correctional we stopped talking about the correction.
Speaker 1: That's when the correction is gonna happen. It's super incident.
Speaker 1: It's not there. Is it's not there? Do you see?
Speaker 1: I don't see, they don't know. And so it's gonna
Speaker 1: be something that we least expect. I mean, you know,
Speaker 1: it's not gonna be North Korea, it's not going to
Speaker 1: be something out of Europe's not gonna be Washington. It's
Speaker 1: gonna be something else. That's all I know. To attacks
Speaker 1: in Iran today, Maybe maybe no. But seriously, the you
Speaker 1: and I have these recollections, I would respectfully suggest Brian Belski,
Speaker 1: it starts in the bond market, where there's a bonb
Speaker 1: transaction that gets left on a wall street desk. There's
Speaker 1: some form of short could be short five year convertible
Speaker 1: zero coupon bond. Something doesn't work in the savvy bond market,
Speaker 1: and then that comes over to the equity market. Savvy
Speaker 1: bond market has been right for thirty five years now,
Speaker 1: and so it's something probably in the bond market. But
Speaker 1: I have not fear, but just trepidation. Tom, that's going
Speaker 1: to be a liquidity event, right, some sort of a
Speaker 1: liquidity event. Is it private equity not happening? I'm something
Speaker 1: not connecting there so much. So many assets since two
Speaker 1: thousand and eight two thousand nine have moved out of
Speaker 1: the hedge fund world with respect to UM derivatives into
Speaker 1: private equity. Is it's something in private equity that occurs?
Speaker 1: I mean again, I'm just speculating. We're not talking enough
Speaker 1: about that. So it's either something that we've become so
Speaker 1: dependent on, Tom, meaning bonds, bonds, bonds, bonds, or something
Speaker 1: that we're not expecting because of our Bloomberg invest conference.
Speaker 1: I'm going to rip up the script here buying bells.
Speaker 1: The basic idea of the passive active debate. You're getting
Speaker 1: paid to say active. I get that where to pass
Speaker 1: the funds fit in and I'm getting paid to be right, Tom,
Speaker 1: And so ask them about the Viking's where passive funds fitting.
Speaker 1: Where does buying the index fitted well? I think buying
Speaker 1: the index fits in when when creating credibility and feeling
Speaker 1: better about buying buying equities. Again, it's it's a process,
Speaker 1: or as we like to say in Canada, it's a process.
Speaker 1: So we're gonna we're gonna buy index funds first, We're
Speaker 1: gonna feel comfortable buying equities, and then we're gonna move
Speaker 1: into something a little bit more quote unquote sexy that
Speaker 1: we are interested in. I think investors in general are
Speaker 1: still worried about stocks. They still think we're the bad guys.
Speaker 1: They're still worried about corporate America. So if they make
Speaker 1: a little money in an e t F, whether or
Speaker 1: not it's a spider or a diamond or whatever, and
Speaker 1: then they slowly kind of transigate back into part like
Speaker 1: a gateway. It's a gateway. You're going to use the
Speaker 1: second round of that, but it's a gateway. You've got
Speaker 1: you've got these forties stocks in the port place. How
Speaker 1: are you how are you picking them? What are you
Speaker 1: looking at principally to decide what you're gonna invest in this? Well,
Speaker 1: we start and stop with what we think with respect
Speaker 1: to the overall market, what our sectors are, and then
Speaker 1: build it from the bottoms up. So I mean, you know,
Speaker 1: we have the very good fortune of going a lot
Speaker 1: of analysts around the streets, so we look at how
Speaker 1: these stocks fen into sectors and we rush out. We
Speaker 1: we touch base with some of these annis, but we
Speaker 1: also use some of our own models and looking at stocks.
Speaker 1: I have one final question, if I can you are Canadian, Bemo,
Speaker 1: Capital Markets, Bank of Montreal and all that. I mean,
Speaker 1: you've got to look at the fact, once again there's
Speaker 1: no Canadian team in the Stanley Cups. This is a
Speaker 1: national embarrassment. But you gotta find solace that Mike Fisher
Speaker 1: of Peterborough, Ontario is a Nashville Predator and he's Mr
Speaker 1: carry Underwood. That's sort of a good thing, you know what.
Speaker 1: It's a really good thing on several accounts. But last
Speaker 1: year was the embarrassment because no Canadian team made me Yeah, well,
Speaker 1: very good. We'll leave it at that. Brian Bellski, thank
Speaker 1: you for the hockey update with Mr carry Underwood. I'm
Speaker 1: I gotta be honest, Folks like you gotta root for
Speaker 1: the predators. They don't even know. They don't even know.
Speaker 1: In the arena, they're going absolutely mental, like it's football
Speaker 1: or NASCAR, and some of them are like, you gotta go, okay, offside?
Speaker 1: That was offside. It's not like a big deal. Somebody
Speaker 1: just stepped over the blue leg. I mean, it's a
Speaker 1: whole day. It's great. I love it. I love what
Speaker 1: NBC is doing with with my camera. Can don't you
Speaker 1: care about this day? Following it? We're Scarlett, get Scarlett,
Speaker 1: We'll get back, We'll talk, you know, hockey. What are
Speaker 1: we doing? Can we go from the Stanley Cup finals
Speaker 1: to the super Bowl tomorrow? Washington d C Greguar yesterday,
Speaker 1: noting that the sense of weariness settling, and he says,
Speaker 1: we're sick of this. You're sick of this and most
Speaker 1: voters are as well. But a big data Washington this
Speaker 1: note talking about the Vice President Da Milby Washington past today. Yeah,
Speaker 1: I think watching Mr Pence will be good sport. Yeah,
Speaker 1: David Garr The President tries to get out front of
Speaker 1: the festivities tomorrow. Yeah, Tom, you and I stay on
Speaker 1: top of the President's Twitter feed. Here's a tweet of
Speaker 1: relevance to our audience this morning President Trump tweeting I
Speaker 1: will be in nominating Christopher A. Ray w R. A
Speaker 1: y A man of impeccable credentials, to be the new
Speaker 1: director of the FBI, the President deciding on him after
Speaker 1: meeting with him and John Pistol, the former head of
Speaker 1: the the t S. A. Let's take a look at
Speaker 1: some of those impeccable credentials, as the President calls him,
Speaker 1: He's a graduate of Yale and Yale Law School as well,
Speaker 1: and perhaps most important for the job he is being
Speaker 1: nominated for, he was the head of the Criminal Division
Speaker 1: at the Federal Bureau of Investigation. So this gets that
Speaker 1: process underway, something the President was keen to do a
Speaker 1: couple of weeks ago. We then a quick read of
Speaker 1: a lengthy, accomplished biography. I don't see political service. That
Speaker 1: was Senator Lieberman and others of Connecticut. That was one
Speaker 1: of the issues is do we want someone with a
Speaker 1: political heritage, and I believe we see less of that,
Speaker 1: if not none of that with Mr Ray. He's now
Speaker 1: a partner at King and Spalding, the big law firm.
Speaker 1: As I said, head to the criminal Division, and in
Speaker 1: that capacity, according to his official bio, he led investigations, prosecutions,
Speaker 1: and policy development in nearly all areas of federal criminal laws.
Speaker 1: So we will continue to follow this news throughout the morning, UH,
Speaker 1: and we'll watch as the White House formerly tender as
Speaker 1: that nomination, and again our coverage tomorrow David gurd David Weston,
Speaker 1: and Kevin SURRELLI will be tomorrow UH in Washington for
Speaker 1: the ten o'clock ten a m. Comy coverage. Right now,
Speaker 1: after all that, we try to get back to what
Speaker 1: we do each and every day with economics, Finance investment
Speaker 1: with Charles Duma of T. S. Lombard. Charles, you are
Speaker 1: a qualified as anyone in the world for the important
Speaker 1: question of where is our nominal GDP? Where is that
Speaker 1: combination of economic growth in price elevation. Have you brought
Speaker 1: down your nominal GDP belief in the last number of days? Yeah,
Speaker 1: The wage state and you had in the United States
Speaker 1: yesterday morning for um for total compensation were extraordinarily changed
Speaker 1: from the same number months before and months ago. They
Speaker 1: said the first quarter was up three point nine per
Speaker 1: cent in terms of le pay um, and yesterday morning
Speaker 1: they said, actually know the first quarter was only up
Speaker 1: to the event, which is like a luge reduction, and
Speaker 1: so we have to assume here that nominal GDP will
Speaker 1: be a weaker. But we don't think that real GDP
Speaker 1: is going to be any this. We just think that
Speaker 1: information will be less. This is a really important dynamic, folks.
Speaker 1: And again there's four ways to go. He're both up,
Speaker 1: both down, or a mixture either way. Do the central
Speaker 1: banks in any way think nominal GDP even if they
Speaker 1: won't admit it. Um Well, To be quite honest, I'm
Speaker 1: not probably the right person to talk to about how
Speaker 1: central banks think. We try to figure out what they're
Speaker 1: going to have to think ahead of time, and in
Speaker 1: this case, um, you know, we we think that probably
Speaker 1: m Mrs Yellen will want to get the funds rate
Speaker 1: up to something that's roughly matches inflation, which means, you know,
Speaker 1: about two more hikes this year and be ready in
Speaker 1: case there is an inflation we pick up next year,
Speaker 1: which I'm dancy looks more likely than not. Charles, you've
Speaker 1: been advocating for a long time here for a plan
Speaker 1: B when it comes to to Brexit for the UK
Speaker 1: exiting the European Union. I don't know if we're any
Speaker 1: closer to getting that or if we will be after
Speaker 1: the election results tomorrow. But what would you want to
Speaker 1: see in that? What would a Plan B look like?
Speaker 1: What's your ideal Plan B? Well, I mean I don't
Speaker 1: think anything's ideal here, neither Plan A nor Plan B.
Speaker 1: The main point about Plan B is visit it should
Speaker 1: exist because at the moment the British being told by
Speaker 1: the EU people, the EU negotias that actually they have
Speaker 1: no option but to pay last sums of money and
Speaker 1: in order to get free trade. Now it may well
Speaker 1: be that we should pay substantial sums of money to
Speaker 1: get free trade. Um. And it may well be that's
Speaker 1: how it ends up, but the bargaining position is substantially
Speaker 1: weaker until such time as it's clear that we can
Speaker 1: survive and do okay if there isn't is no agreement.
Speaker 1: What's what's this economy look like that the next Prime
Speaker 1: Minister is going to inherit be that and mis maybe that,
Speaker 1: Mr Corbyn? What what's the UK economy look like? What
Speaker 1: are the biggest deficits in that economy as you see them? Well,
Speaker 1: there's the biggest risk by far, it seems to me,
Speaker 1: is that if we don't have a well conducted negotiating
Speaker 1: process about breakshit. Then you're going to see suddenly a
Speaker 1: confidence problem in the financial markets and in the business sector,
Speaker 1: and people starting to say, well, look, this really doesn't
Speaker 1: look like a well managed to exit, and so we're
Speaker 1: going to get out first. At the moment, people are
Speaker 1: assuming the worst in making their business plans, but they
Speaker 1: don't actually have to fix their plans all the end
Speaker 1: of the year. So the government's got about six months
Speaker 1: to particulately first of all, what it's really looking for,
Speaker 1: and obviously that's a negotiating positions visit the the EU,
Speaker 1: but also what happens if the negotiations don't work or breakdown,
Speaker 1: in which case we've got to get by on our own.
Speaker 1: And it's a perfectly feasible thing to do, but there
Speaker 1: needs to be a details and convincing plan. Charles, you
Speaker 1: have a number of books on China. They have been
Speaker 1: remarkably pression about. Everybody, get over the doom and gloom
Speaker 1: and fear. Is China is resilient? Is when you wrote
Speaker 1: those books a few years ago. Well, we were fairly
Speaker 1: negative about China when we wrote those books, and I
Speaker 1: think it's fair to say that some of that negative
Speaker 1: feeling has become the consensus um at this stage, I
Speaker 1: would say that China is going to be fine at
Speaker 1: least until the other side of the big Congress is
Speaker 1: autumn um and in fact, in all probabilities, they are
Speaker 1: going to modify their target growth rates from the six
Speaker 1: and a half percent they have at the moment to
Speaker 1: something much for achievable, like four or five percent, and
Speaker 1: thereby giving themselves a decent chance of curbing the rapid
Speaker 1: increase of depth's been going on until recently. So that's
Speaker 1: that's really a crucial issue, is how they plan to
Speaker 1: the trade off because they can't at the same time
Speaker 1: have fast growth and a relatively high exchange rate and
Speaker 1: curb the depth growth. So they want to curb the
Speaker 1: depth croaks, They've either got to have floating growth or
Speaker 1: a big evaluation, and we know they don't want a
Speaker 1: big devaluation, so chances are they're going to have to
Speaker 1: go for a simply lower growth target. Now that doesn't
Speaker 1: mean that they're in trouble. It just means that they've
Speaker 1: they've got face up to reality. Charles Dumont, thank you
Speaker 1: so much for the briefing. Here is with ts lomboard
Speaker 1: in London Branch. You by Bank of America Mary Lynch
Speaker 1: with virtual reality, virtually everything will change. Discover opportunities in
Speaker 1: a transforming world via a mL dot Com slash VR,
Speaker 1: Mary Lynch, Pierced Fenner and Smith Incorporated. William Gross is
Speaker 1: with us, which is often, and he's been generous at
Speaker 1: Jannis Henderson of of being with us for Jobs Day
Speaker 1: and such. But it is wonderful to have Bill Gross
Speaker 1: in our New York headquarters today. He's here for the
Speaker 1: Bloomberg invest conference and that's brought you by s E I.
Speaker 1: But we thank Bill Gross for being with it. Did
Speaker 1: you come by grayhound bus? You don't like to fly,
Speaker 1: do you? Well? Um, I don't like to fly. My
Speaker 1: white and Nuckleric actually was an early Navy pilot that
Speaker 1: bailed out, so speak and I took the gray hund Bus.
Speaker 1: I didn't go as far as yeah, famous football commentator
Speaker 1: that takes the bush the time. But I okay, I
Speaker 1: creep slowly over. We should say. Bloomberg Surveillance today brought
Speaker 1: you by Janice Henderson and Greyhound Bus. They see each
Speaker 1: other often. Phil. When the last time I saw you
Speaker 1: in New York, I believe it was a long time ago,
Speaker 1: we met at the Waldorf story in the middle of
Speaker 1: an ugly bond bear market. I believe that's where prices
Speaker 1: go down and yields go higher. You and the rest
Speaker 1: of the world wait and wait and wait for a
Speaker 1: bond bear market. When will we see that? Well, um,
Speaker 1: that's the question of the day, in the year, in
Speaker 1: the last several years. Actually, um, well, we'll see it.
Speaker 1: I think when central banks start to ease up in
Speaker 1: terms of their current policies, not only quantity of easing,
Speaker 1: but ec being but bank in Japan. But you know,
Speaker 1: more tightening by the FED and and less reinvestment of treasury.
Speaker 1: So that's the key question. Hots Yes, at Goldman Sachs
Speaker 1: is now linked tightly those two, as does Robert Kaplan
Speaker 1: at the Dallas FED. How do you link yield changes
Speaker 1: by the Federal Open Market Committee with the balance sheet
Speaker 1: adjustments to come? How do you put those two disparate
Speaker 1: flows together. It's very hard to do that. And of
Speaker 1: course for the Fed as well, I know that uh
Speaker 1: FED research since they instigated quantitative easing, suggested that basis
Speaker 1: points on the tenure was the ultimate result. Now, the
Speaker 1: the exit or the potential exit which I've always been um,
Speaker 1: you know, disparaging of the possibility that they really reduced
Speaker 1: their balance sheet. But if they begin to exit later
Speaker 1: in the year, um, they'll do it slowly. And so
Speaker 1: we're talking about five fifteen basis points on the curve
Speaker 1: and the tenure perhaps over the next year or two.
Speaker 1: You know. The important central banks and I consider are
Speaker 1: the again the Bank of Japan and UH, the e
Speaker 1: c B and to the extent that they're pumping in
Speaker 1: a trillion dollars plus a year into the global economy
Speaker 1: and global equidity. It's been critical in terms of tread rerates,
Speaker 1: and I've been critical in terms of stock prices and
Speaker 1: critical in terms of all assets because UH liquidity seeks
Speaker 1: to haven and and prices move higher as it does.
Speaker 1: We have Bloomberg News reporting this morning the ECB is
Speaker 1: going to cut its inflation out and look at the
Speaker 1: meeting this week, we're talking about what I'm wanting. The
Speaker 1: balance sheet is gonna gonna look like. What's your timetable
Speaker 1: for that happening? Do you think? What do you think
Speaker 1: we're gonna get to a more normal role for central banks? Well,
Speaker 1: I hope later in the year for the ECB, and
Speaker 1: it's true that the ECB is primary focus is opposed
Speaker 1: to a duel or try focus on the part of
Speaker 1: the FED is inflation, and inflation is not really picked
Speaker 1: up in the last few months, certainly in Euroland, and
Speaker 1: so you can imagine the drug is simply not concerned
Speaker 1: and wants to air on the side of caution. Um. Yeah,
Speaker 1: perhaps later this year, I know, or I don't know,
Speaker 1: but I think, as you know, I've been quite negative
Speaker 1: in terms of the effects of central bank policies, not
Speaker 1: simply because they've raised asset prices in some cases to
Speaker 1: bull whole territory, but also because it degrades business models
Speaker 1: such as insurance companies and pension funds and the like,
Speaker 1: because they can't earn what disposed earn in terms of
Speaker 1: their liabilities. And we begin to see that with Puerto
Speaker 1: Rico and Illinois and Detroit and ongoing problems with pension funds.
Speaker 1: But it's the same situation where the insurance companies, it's
Speaker 1: sort of masked. As we move on in the future,
Speaker 1: get the sense to three percent growth. The is this
Speaker 1: administration's white whale, and they talk about it so much.
Speaker 1: Maybe they're willing it willing it to happen here when
Speaker 1: you look at the tools at their disposal and what
Speaker 1: they're doing. Aren't they using the right ones? Are they?
Speaker 1: Are they going down the right path to get to
Speaker 1: that level of growth? Do you think? Well? Not yet.
Speaker 1: Among the proposals I suppose in fiscal policy, which is
Speaker 1: something that I've been asking for and others UH for
Speaker 1: several years, even with Obama. UM heard certainly of the works. UM,
Speaker 1: I'm suspicious of tax policy, but trillion dollar UH infrastructure
Speaker 1: policy may help. But I think ultimately the growth is
Speaker 1: a functional, productive and productivit as a function of investment,
Speaker 1: and we simply haven't had that. You know, my thesis
Speaker 1: this month in terms of the investment outlook, I said, Um,
Speaker 1: you know, money is making money with money, but money
Speaker 1: doesn't lead to investment in the real economy. And I
Speaker 1: think that's the problem that Trump and the U. S.
Speaker 1: Economy will face the next several years. And Bill Gross
Speaker 1: with Janis Anderson. He's with us now at our Bloomberg
Speaker 1: invest conference on Bloomberg Radio, of course, brought you by
Speaker 1: s C I. Bill, I just looked up if you
Speaker 1: really booked now two hundred and thirty five dollars greyhound
Speaker 1: l A to New York. You can get it back
Speaker 1: if you delay a little bit with Bloomberg Television. It
Speaker 1: may cost you two hundred and seventy one dollar. When
Speaker 1: you came here, you went out north Platts or Des Moines,
Speaker 1: and then you got up to I eight and you
Speaker 1: take it over east when you when you do this bill,
Speaker 1: you get a sense of the nation. And you've been
Speaker 1: dead right about the nation's financial repression. Don't talk to
Speaker 1: the fancy people in Newport. Don't talk to the fancy
Speaker 1: people like us in New York. Talk to the rest
Speaker 1: of America about financial repri Well, you're right, and and
Speaker 1: Des Moines has been my favorite metaphorical use the location. Well,
Speaker 1: because it's in Iowa, and because it's Midwest, and because
Speaker 1: there's corn there and then and because restaurants to because becames.
Speaker 1: People depend on savings ultimately, not not just in the
Speaker 1: moin but the rest of the country. And why do
Speaker 1: people depend on savings? Well, for education, for retirement, for health.
Speaker 1: And when you can't earn more than fifty basis points
Speaker 1: on your savings in a bank account or with a
Speaker 1: six month c D, then there are problems of plenty
Speaker 1: in terms of the ability of des Moines and other, um,
Speaker 1: you know, middle class Americans to reach their goals. I mean,
Speaker 1: I look at this bill, and what you and I
Speaker 1: have been talking about since that meeting at the water
Speaker 1: for story and certainly since August of oh seven, is
Speaker 1: it's not in fibosi, it's not in the books that
Speaker 1: you when I studied on bond dynamics. How do you
Speaker 1: do Janie Henderson, day after day after day realizing none
Speaker 1: of where we are now has a fury or a foundation. Well,
Speaker 1: you know, it's sort of a it's sort of a
Speaker 1: brail like a type of process where, um, you feel
Speaker 1: your way along in Central Banks are trying to do
Speaker 1: that too. But you're right when you talk about demographics
Speaker 1: and debt and uh leveraging up and when you talk
Speaker 1: about the displacement of workers by robots and robotizations, and
Speaker 1: these are non measurable factors historically, and so you sort
Speaker 1: of have to touch and feel and know that over
Speaker 1: time these factors will work their way into a slower
Speaker 1: economy in the US and even globally. You were talking
Speaker 1: about infrastructure just a moment ago. The President wants to
Speaker 1: get more private investment in infrastructure. What are the challenges
Speaker 1: to doing that? How does he make that successful? Getting
Speaker 1: more public private partnership, getting more private investors to invest
Speaker 1: in American infrastructure. Well, there's a political problem. That's not
Speaker 1: my area of expertise, but you're right, um, Trump's eymphasis
Speaker 1: has been on public private and uh, I think there
Speaker 1: are a lot of willing private partners, a lot of
Speaker 1: private equity firms of geared up to take advantage to
Speaker 1: make money from infrastructure problems. And so you know, if
Speaker 1: you combine that with the congressional action, then I think
Speaker 1: you have something to go with. But the twillion dollars
Speaker 1: is over a long period of time. It takes time
Speaker 1: to put these into effect, and so it may take
Speaker 1: a long very quickly build. Does the drama of Washington
Speaker 1: diminished g d P and damp in the animal sphere
Speaker 1: of the nation? Yeah, I think so, to the extent
Speaker 1: that risk is a factor in terms of forward looking investment. Hope,
Speaker 1: is that really the essence of capitalism into the extent
Speaker 1: that you have turned one on Washington and turmoil on
Speaker 1: a global basis, I think that's a problem. Gross, Thank
Speaker 1: you so much. I've got it from Thank you Grahound
Speaker 1: for email with the two days, seventeen hours, thirty minutes
Speaker 1: is your fastest trip back? Bill Gross is with Janice
Speaker 1: Anderson from our Bloomberg invest conference. This is Bloomberg. David
Speaker 1: gerin to Keener Bloomberg invest Conference and after the c
Speaker 1: f A exam and the level of mathewness of it,
Speaker 1: it's a good time to speak with Jim McCahon of
Speaker 1: the Principal Group. I want to talk a little bit
Speaker 1: of math here, and then if you've got a curve
Speaker 1: on a chart, you go to logs to make the
Speaker 1: curve a straight line, and then all years of my
Speaker 1: radar go up when the log chart becomes curved as well.
Speaker 1: Is this when I hear you yell slope matters, slope matters,
Speaker 1: and then all of a sudden, instead of a straight
Speaker 1: log rhythmic line, you've got a curve line. I've got
Speaker 1: that now in the two tents spread, I've got curve
Speaker 1: flattening and I have accelerating curve flattening. What does that
Speaker 1: mean the Principle Group? What does it mean to equity
Speaker 1: investors when they see an acceleration occur flattening? Curve flattening
Speaker 1: is a sign that you're getting towards the end of
Speaker 1: a good spell for the economy, You're getting to the
Speaker 1: end of a recovery. It means it's a straw in
Speaker 1: the wind that there may be a recession out there.
Speaker 1: I don't think the other indicators point to a recession
Speaker 1: within the next two to three years, but it's one
Speaker 1: of the reasons you have to watch if the vectors
Speaker 1: going to zero to an inverted yield curve. We don't
Speaker 1: need to do it on radio. People drive off the
Speaker 1: Garden State Parkway. But where's the tip point where all
Speaker 1: of a sudden, you say to yourself, I'm at eighty
Speaker 1: five basis points. It's like a countdown, folks. The Rangers
Speaker 1: satellite to the moon five seventy five sixty five. When
Speaker 1: do you start sweating or are you gonna get to
Speaker 1: go to an inversion. I think you start sweating when
Speaker 1: it gets totally flat and yeah, and I think that
Speaker 1: that's when you really have the the the imminent signs
Speaker 1: of recession. Now, the most likely outturn on the Fed
Speaker 1: funds rate right now is maybe two bases point increases
Speaker 1: this year and maybe two more next year. That would
Speaker 1: get you to somewhere about one on the on the
Speaker 1: FED funds, right, I don't see that that means that
Speaker 1: the tenure would be nothing very different from two ten
Speaker 1: to two twenty, which is what it is now. I
Speaker 1: think what you're seeing is late stage growth in the
Speaker 1: economy which gets accommodated and interest rate terms by yield
Speaker 1: curve flattening. So I think this is actually pretty normal
Speaker 1: at this stage of the economy. We need to be
Speaker 1: a bit on recession watch as we go into twenty eighteen.
Speaker 1: I don't think it's imminent. However, we have a two
Speaker 1: day FED meeting next week and it's it's likely, or
Speaker 1: one would hope we'd get some more indication here of
Speaker 1: how the balance sheet unwind is going to go. What
Speaker 1: are you most worried about in the context of that,
Speaker 1: what's the riskiest facet of that to you? Yeah, David,
Speaker 1: I'm not at all worried about the balance sheet unwind.
Speaker 1: You know, the build up of the FED balance sheet
Speaker 1: was you know, two thousand, eight, nine ten, and it
Speaker 1: was done by maximum of ten year bombs. Those are
Speaker 1: going to start rolling off next year, naturally, just naturally.
Speaker 1: I don't think they need to sell much in the market,
Speaker 1: so the unwind doesn't really bother me. I think we're
Speaker 1: at a point where the economy has self sustaining growth,
Speaker 1: though not particularly vibrant, and that's an okay position to
Speaker 1: be in because it's when the economy over heats that
Speaker 1: you bring about capacity constraints and a recession. So I
Speaker 1: feel fairly positive about the next year or so for equities.
Speaker 1: The o e c D was out today with its
Speaker 1: new economic outlook, and it was a fairly rosy picture
Speaker 1: that rose within one might have thought, perhaps, but one
Speaker 1: of the things the o c D flags is the
Speaker 1: need for more global participation. And I wonder in light
Speaker 1: of what we've seen here over the last week two
Speaker 1: weeks with the President strip to Europe, with the US
Speaker 1: with drawing from from the parisupporting, what that portends were
Speaker 1: the kind of participatory global economy we've become accustomed to. Well,
Speaker 1: there's no question that this administration in the US wants
Speaker 1: to see bilateral, not multilateral deals. Let's hope they get
Speaker 1: the bilaterals done because to your point about participation, it
Speaker 1: would still happen in a bilateral world. So I'm not
Speaker 1: yet in any kind of panic about that. On the
Speaker 1: O E C D numbers. The two things I would take.
Speaker 1: I would question Europe. Is Europe as self sustaining a
Speaker 1: recovery as it looks? The positive signs from Germany I
Speaker 1: think are largely a result of last year's weakness in
Speaker 1: the Euro. I think it remains to be seen whether
Speaker 1: the core Eurozone can carry on growing in spite of
Speaker 1: getting to a point where the euro is a bit stronger.
Speaker 1: So that'll be one of my questions. The other is China.
Speaker 1: Will China continue growing at the rate they expect? Is
Speaker 1: there exuberance out there? Is there institutional exuberance? Is there
Speaker 1: retail exuberance? Not really, Tom, I think this is the
Speaker 1: bullmarket nobody loves, and it just it just can't end
Speaker 1: because there's not a blow off there's there isn't And
Speaker 1: you know, if I look at equities, what will end
Speaker 1: the BULLMARKT Well, I think you have to get to
Speaker 1: a point where everybody is in or most people are in.
Speaker 1: And to me, that feels like twenty five times earnings,
Speaker 1: not eighteen if you know to and change is the
Speaker 1: time you're yield eighteen times earnings feels fairly cheap to me.
Speaker 1: I think US equities remain a buy on setbacks, Jim,
Speaker 1: just because you're going to show up. I had an
Speaker 1: extra hat trick of walkers short for you. In Scotland.
Speaker 1: We be rude if we did not ask you how
Speaker 1: snap this snappy election is going to be. We can't
Speaker 1: talk about it tomorrow, so we're doing now. What does
Speaker 1: it mean for Scotland? Please um for Scotland. I think
Speaker 1: it's an interesting question. I'm hoping that the Scots don't
Speaker 1: go for another independence referendum. I think Theresa May, if
Speaker 1: she's reasonably powerful after tomorrow, will probably try to postpone
Speaker 1: and deny that because I think once you've got a
Speaker 1: big change like Brexit going on to have the disentangling
Speaker 1: of Scotland would be very, very disruptive. I'd also point
Speaker 1: out Brexit one in a referendum by about three percent
Speaker 1: remain in the case of Scotland one by over ten
Speaker 1: a ten percent win looks pretty decisive. It seems very
Speaker 1: early to go re examining it. So I I think
Speaker 1: for Scotland this probably plays out as a bit of
Speaker 1: a non event, but a rather ill natured one. How
Speaker 1: heavinly does this interregnum, this two year waiting period for
Speaker 1: action on Brexit way on the UK economy, well, I
Speaker 1: think it's not weighed very much because it's been saved
Speaker 1: by the weakness of Sterling. The weakness of Sterling is
Speaker 1: what's meant that the economic impact has not yet been negative.
Speaker 1: I think there is the likelihood if there is a
Speaker 1: serious impairment of trade relations with the Eurozone, which you
Speaker 1: know looks likely. All the talk is of a hard
Speaker 1: breaxit no deal or a difficult deal. If that's the case,
Speaker 1: then you either need further weakness in Sterling or you
Speaker 1: will see a pretty seriously impaired UK economy two years out.
Speaker 1: I think this is one of the tail risks in
Speaker 1: the world economy right now. Jim mccov thanks so much,
Speaker 1: greatly appreciated principal group today from our Bloomberg Investment. Thank
Speaker 1: you so much. I love how he shows up every
Speaker 1: time as a UK Actually, yeah, that's coincidence. Toney's working
Speaker 1: here with Julia Chatterley, our colleague, on populace and policy
Speaker 1: and positioning the macro view. So we look forward to
Speaker 1: that on Bloomberg Television Bloombergradio. It is a Bloomberg invest
Speaker 1: converence from our world Headquarters on Bloomberg Radio. Thanks for
Speaker 1: listening to the Bloomberg Surveillance podcast. Subscribe and listen to
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