WEBVTT - P&L: 2017's 'Bunny' Market That Hops Around But Doesn't Get Far 0:00:04.760 --> 0:00:08.080 Welcome to the Bloomberg P and L Podcast. I'm Pim Fox. 0:00:08.119 --> 0:00:11.200 Along with my co host Lisa Abramowitz. Each day we 0:00:11.280 --> 0:00:14.480 bring you the most important, noteworthy, and useful interviews for 0:00:14.520 --> 0:00:16.880 you and your money, whether at the grocery store or 0:00:16.920 --> 0:00:20.680 the trading floor. Find the Bloomberg pm L podcast on iTunes, 0:00:20.840 --> 0:00:28.800 SoundCloud and at Bloomberg dot com. It is that time 0:00:28.800 --> 0:00:33.040 of year when we are bombarded with different expectations for 0:00:34.280 --> 0:00:38.720 people are so optimistic and potentially wary about some of 0:00:38.760 --> 0:00:41.920 the risks and pitfalls ahead. We have Jim Paulson, chief 0:00:41.960 --> 0:00:47.920 investment strategist and economist at Wells Capital Management with billion 0:00:47.920 --> 0:00:53.920 dollars under management, here with his expectations for the year ahead. Um, Jim, 0:00:53.960 --> 0:00:56.520 you know, I want to start out with one particular 0:00:56.720 --> 0:01:00.960 expectation of yours, which is that the US dollar surprisingly weekends. 0:01:01.000 --> 0:01:04.880 This is what our our analysts, our effects analyst, Vince 0:01:05.160 --> 0:01:08.640 Cinerella was talking about earlier in the program. So, Jim, 0:01:08.680 --> 0:01:09.880 why do you think that we're going to see a 0:01:09.880 --> 0:01:12.560 weekending in the dollar? Well, I think the primary reason 0:01:12.640 --> 0:01:15.720 Li said that there's such a strong consensus about the 0:01:15.760 --> 0:01:19.080 dollar going straight northward here is because the Fed is 0:01:19.080 --> 0:01:22.760 going to raise interest rates, which I totally concur that 0:01:22.760 --> 0:01:25.840 that's going to happen. And if you look back since nine, 0:01:27.200 --> 0:01:31.320 during the five previous recovery cycles, every time the Fed 0:01:31.880 --> 0:01:35.200 embarked on it on raising interest rates during the recoveries, 0:01:35.360 --> 0:01:39.200 the dollar declined. It didn't go up and came down. 0:01:40.200 --> 0:01:42.160 And I think it's going to happening in this time 0:01:42.240 --> 0:01:45.040 is the Fed commences on a titany cycle. And the reason, 0:01:45.160 --> 0:01:47.880 I think because you have to look at why they're 0:01:47.960 --> 0:01:51.480 raising interest rates. Interest rates are not don't go up 0:01:51.480 --> 0:01:53.640 in isolation. If that was the case and the FED 0:01:53.760 --> 0:01:56.040 just raised rates and nothing else happened, that'd be great 0:01:56.040 --> 0:01:59.560 for the dollar, bring in foreign capital flow. But almost 0:01:59.600 --> 0:02:02.280 always the Fed starts to raise in truth because they're 0:02:02.280 --> 0:02:07.680 concerned about inflation, and rising inflation is a huge negative 0:02:07.840 --> 0:02:10.560 for the U. S. Dollar, destroying the purchasing power globally. 0:02:11.120 --> 0:02:13.560 And usually when the Fed's involved in the titany cycle, 0:02:13.600 --> 0:02:16.920 it means that inflationary expectations are rising, there's concerns about 0:02:16.960 --> 0:02:21.000 being behind the curve, and the dollar is sold. Jim 0:02:21.040 --> 0:02:26.079 Paulson tell us your thoughts about treasuries specifically the tenure, 0:02:26.320 --> 0:02:28.760 and then also when I get your ideas about wage 0:02:28.760 --> 0:02:33.720 inflation and consumer inflation. Maybe some numbers, yeah, uh p M. I. 0:02:34.240 --> 0:02:37.320 You know, I think that we've got a backdrop as 0:02:37.360 --> 0:02:39.800 we had into this year, not only have a pickup 0:02:39.800 --> 0:02:44.320 in US uh growth. You know, the reports just keep 0:02:44.400 --> 0:02:46.960 coming in every day a lot better than expected, and 0:02:47.000 --> 0:02:49.359 we're probably going to do three percent growth this year 0:02:49.360 --> 0:02:51.400 in the United States, but we got to pick up 0:02:51.440 --> 0:02:55.880 around the globe and manufacturing commodity price of recoveries happening everywhere, 0:02:56.320 --> 0:02:58.840 and I think we've got one of the rare synchronized 0:02:58.880 --> 0:03:02.000 bounces in globally, not the activity going on as we 0:03:02.040 --> 0:03:04.760 had this year, and it happens to come at the 0:03:04.800 --> 0:03:07.880 precise moment that the US has finally returned to full 0:03:07.880 --> 0:03:10.840 employment in this recovery for the first time, so we're 0:03:10.840 --> 0:03:14.720 going to see the first acceleration on full full employeed economy. 0:03:15.000 --> 0:03:18.480 I think wages are gonna uh go up quite a 0:03:18.480 --> 0:03:20.600 bit in the next year, maybe three and a half 0:03:20.639 --> 0:03:22.400 to four percent year on year by the end of 0:03:22.400 --> 0:03:26.359 the year. I think headline and co inflation maybe CPI 0:03:26.520 --> 0:03:29.679 moved towards three and I think that's gonna be a 0:03:29.760 --> 0:03:32.800 very uncomfortable situation both for the feder reserve, and for 0:03:32.880 --> 0:03:36.520 bond vigilantes, I wouldn't be surprised if we see the 0:03:36.560 --> 0:03:38.640 tenure yield spike about three and a half to three 0:03:38.640 --> 0:03:41.720 and three quarters at some point during the year. You know. 0:03:41.800 --> 0:03:45.200 There is an article article earlier this week on the 0:03:45.240 --> 0:03:50.040 Bloomberg siting Paul Smeltzing. He's a PhD candidate at Harvard University, 0:03:50.400 --> 0:03:52.920 who said, looking back over eight centuries of data, I 0:03:52.960 --> 0:03:56.800 find that bull market was indeed one of the largest 0:03:56.920 --> 0:04:01.280 ever recorded history suggests this reverse will be driven by 0:04:01.360 --> 0:04:06.800 inflation fundamentals and leave investors worse off than bond massacres. 0:04:06.800 --> 0:04:10.480 And otherwise he's predicting a pretty dire circumstance this year 0:04:10.520 --> 0:04:13.520 for bonds. Do you agree, well, you know I do 0:04:13.560 --> 0:04:17.799 in this stance that you know, um, we pigged free 0:04:17.800 --> 0:04:20.760 market prices throughout the United States history. We packed the dollar, 0:04:21.040 --> 0:04:24.159 you know much early post war period, we packed gold 0:04:24.200 --> 0:04:27.880 at thirty announced the said regularly pigs the funds rate 0:04:28.240 --> 0:04:31.599 in the implementation of monetary policy, but we have never 0:04:32.240 --> 0:04:34.120 I don't think in the history of the United States 0:04:34.880 --> 0:04:38.279 exercise this massive of an artificial pegging of an important 0:04:38.279 --> 0:04:41.080 free market price. We're not just pigging the short term 0:04:41.120 --> 0:04:44.960 interest rate, We're pigging the entire sovereign yield bond curve 0:04:46.160 --> 0:04:48.919 across from cash to thirty years, and we're doing it 0:04:49.000 --> 0:04:50.839 not just in the United States, but we're doing it 0:04:50.920 --> 0:04:54.880 all over the globe. This is the mother of all pigs, 0:04:55.400 --> 0:04:58.279 and we are finally the elephant is going to lift 0:04:58.360 --> 0:05:01.800 off that peck. And in the balance of this recovery, 0:05:01.839 --> 0:05:04.240 we're going to start the process of the great unwind 0:05:04.440 --> 0:05:09.279 of that artificial price setting. And I think because rates 0:05:09.279 --> 0:05:11.880 have been low for so long, because we've developed a 0:05:11.920 --> 0:05:17.599 population and culture worried about deflation, reversing that suddenly is 0:05:17.600 --> 0:05:21.360 going to be shocking for most participants, including bond and 0:05:21.400 --> 0:05:24.560 stock investors. And I do think there's gonna be some 0:05:24.640 --> 0:05:29.119 pain associated with the unwind of this great deal. Pick Jim, 0:05:29.120 --> 0:05:32.040 I want to continue with your animal theme, perhaps even 0:05:32.120 --> 0:05:35.520 animal spirits theme. You say that we are going to 0:05:35.680 --> 0:05:39.080 enter or are in a bunny market. It's not a bullet, 0:05:39.120 --> 0:05:42.400 it's not a bear, it's a bunny market. Well, how 0:05:42.440 --> 0:05:44.960 do you profit from a bunny market? What do you 0:05:45.000 --> 0:05:48.240 invest in and what do you stay away from? Yeah, 0:05:48.279 --> 0:05:51.320 well you don't um. I think that the reason I 0:05:51.320 --> 0:05:54.039 say a bunny marks because I take a bear market 0:05:54.320 --> 0:05:58.000 HM is not like until the next recession, and I 0:05:58.040 --> 0:06:00.839 don't see that happening this year or maybe for the 0:06:00.880 --> 0:06:03.159 next few years. So I don't really think we're in 0:06:03.160 --> 0:06:05.480 a bear a bullmark and a lot of the foundation 0:06:05.520 --> 0:06:08.559 of this bull has already been spent. Uh. We can't 0:06:08.560 --> 0:06:11.159 take p motibles from ten to twenty again, We've already 0:06:11.160 --> 0:06:13.640 done it. We can't lower yields from six to one, 0:06:13.760 --> 0:06:18.599 We've already done it. Uh. We we can't have chronic disinflation. 0:06:18.640 --> 0:06:22.000 We're going to deal with inflation challenging evaluation levels. We're 0:06:22.000 --> 0:06:24.159 going to have to have rising rates now and the 0:06:24.200 --> 0:06:28.080 Feds moving to the sidelines. A lot of the earning 0:06:28.120 --> 0:06:29.920 cycle is not going to be near as good going 0:06:29.960 --> 0:06:33.160 forward now that it's mature. So the bull camp two 0:06:33.360 --> 0:06:34.880 is left. So what are you left If you're not 0:06:34.920 --> 0:06:36.599 in a bull, you're not in a bear. I would 0:06:36.640 --> 0:06:39.720 suggest a bunny. And what what the bunny is? It's 0:06:39.760 --> 0:06:42.080 an animal that hops around a lot but doesn't go 0:06:42.200 --> 0:06:45.400 very far, and I think that's what we're in. I 0:06:45.440 --> 0:06:47.960 still think we're gonna move higher over the next few years, 0:06:48.120 --> 0:06:50.919 but much much less on buy and hold than what 0:06:51.000 --> 0:06:52.839 we've done up till now. The best of the bulls 0:06:52.880 --> 0:06:56.320 behind many things you can do in this I think 0:06:56.320 --> 0:06:59.240 bunnies often happen in the in the second half of recoveries, 0:06:59.279 --> 0:07:02.000 once you're reachable employment. They tend to have more inflationary 0:07:02.000 --> 0:07:06.719 and interest rate overtones about them um, and they also 0:07:06.839 --> 0:07:10.160 tend to be hoppy. So a little market timing, if 0:07:10.160 --> 0:07:13.640 the bunny hops up big, coming back to risk off, 0:07:13.680 --> 0:07:17.160 if the bunny hops down big, going back to risk on. Uh, 0:07:17.320 --> 0:07:20.560 using a little bit of that makes sense. Overall. I 0:07:20.600 --> 0:07:22.480 think one way to deal with this is maybe to 0:07:22.560 --> 0:07:25.880 move away from the United States because I think much 0:07:25.880 --> 0:07:28.000 of the rest of the world is behind us in 0:07:28.040 --> 0:07:31.080 this recovery cycle, and they're not in the bunny market 0:07:31.120 --> 0:07:33.000 yet they might still be more in the bull phase. 0:07:33.280 --> 0:07:35.080 I don't know if people would really want to consider 0:07:35.120 --> 0:07:39.080 the the year of the bunny, do you think? I 0:07:39.080 --> 0:07:41.800 don't know. It's the year of the rooster, but it's 0:07:41.840 --> 0:07:44.800 also maybe the year of the bunny. Who knows? I 0:07:44.880 --> 0:07:48.760 like that. Maybe we'll call him Jim Bunny Paulson. He 0:07:48.880 --> 0:07:52.800 is the chief investment strategist and economist for Wells Capital Management, 0:07:53.120 --> 0:08:09.400 helping to manage more than three and fifty billion dollars. Well, 0:08:09.400 --> 0:08:12.960 corporate debt has been rising at a pretty fast clip. 0:08:13.240 --> 0:08:15.960 Consumers have been holding off and really have not been 0:08:16.320 --> 0:08:20.200 incurring as much debt, at least on a proportionate basis. 0:08:20.520 --> 0:08:23.640 But perhaps this is about to change. I want to 0:08:23.640 --> 0:08:27.360 bring in Ellen Zentner, Chief US Economists and managing director 0:08:27.360 --> 0:08:30.840 at Morgan Stanley. She has been named to Bloomberg Best's 0:08:31.040 --> 0:08:34.000 list of top forecasters for the U S economy with 0:08:34.040 --> 0:08:38.240 more than seventeen years experience as a FED watcher, Ellen, 0:08:38.400 --> 0:08:41.680 thank you so much for being with us. UM. Why 0:08:41.720 --> 0:08:43.839 do you think that US consumers are going to build 0:08:44.320 --> 0:08:48.199 their debtloads more this year? Well, I think one of 0:08:48.240 --> 0:08:51.360 the things that we look at is when you expect 0:08:51.720 --> 0:08:55.319 higher income in the future, it tends to dictate how 0:08:55.360 --> 0:08:58.440 we spend today UM. And the same can be said 0:08:58.480 --> 0:09:01.640 for revolving credit credit cards. If you think a raise 0:09:01.760 --> 0:09:05.440 is coming, or in today's case, a tax cut is coming, UM, 0:09:05.520 --> 0:09:08.200 you might be willing to carry more debt levels, higher 0:09:08.240 --> 0:09:11.559 debt levels today with the comfort of knowing that you're 0:09:11.559 --> 0:09:14.600 probably going to be better able to pay that debt 0:09:14.600 --> 0:09:16.600 in the future. And so what we've seen is that 0:09:16.640 --> 0:09:19.520 when consumer confidence rises, and we've seen a pretty big 0:09:19.640 --> 0:09:24.600 rising confidence since the election, about six months later, revolving 0:09:24.600 --> 0:09:27.319 credit tends to pick up. Uh. And so we think 0:09:27.440 --> 0:09:29.000 that's going to be some of the dynamics that we 0:09:29.040 --> 0:09:31.400 see play out this year as consumer has been more 0:09:31.400 --> 0:09:33.920 in anticipation of the tax cuts. Do you think that's 0:09:33.960 --> 0:09:36.760 going to be a bad thing? No? I I certainly 0:09:36.800 --> 0:09:40.120 don't want to see a return to pre crisis growth 0:09:40.240 --> 0:09:42.800 rates in consumer credit. I mean, first of all, the 0:09:42.840 --> 0:09:46.240 demographic trends don't support that kind of return to that 0:09:46.320 --> 0:09:50.040 incredible pace of of debt accumulation. But also we've regulated 0:09:50.040 --> 0:09:54.160 away the ability of households to accumulate that type of 0:09:54.200 --> 0:09:57.080 debt or that level of debt burden. Uh, sort of 0:09:57.080 --> 0:09:59.520 saving saving us from ourselves, if you will, with all 0:09:59.559 --> 0:10:02.520 the regularation that's gone into place. But we certainly expect 0:10:02.520 --> 0:10:05.160 a healthy pickup. There's a healthy certain amount of debt 0:10:05.520 --> 0:10:10.079 to carry, um and with tax cuts coming better income prospects, 0:10:10.080 --> 0:10:12.640 consumers are heartened by that. The only risk there is 0:10:12.679 --> 0:10:15.560 if tax cuts are not delivered right. But if they are, 0:10:16.280 --> 0:10:18.560 um then we expect that to be reflected in a 0:10:18.600 --> 0:10:20.920 faster pace of spending in the course of faster pace 0:10:21.000 --> 0:10:26.080 of certain types of debt accumulation, like credit cards revolving credit. Well, 0:10:26.120 --> 0:10:28.280 I'm glad you mentioned credit cards because I'm wondering if 0:10:28.280 --> 0:10:31.720 the picture for an equity investor, try to imagine yourself 0:10:31.800 --> 0:10:35.160 walking the aisles of a home depot or a Lows 0:10:35.400 --> 0:10:39.880 store and using your Visa or your American Express or 0:10:39.960 --> 0:10:43.600 another charge card, is that the image that we should 0:10:43.600 --> 0:10:47.880 hold in our minds for successful investing in Well, I 0:10:47.920 --> 0:10:51.400 think that brings up a great point because there are 0:10:51.400 --> 0:10:54.079 a lot of pitfall pitfalls in the retail sector, right 0:10:54.080 --> 0:10:57.559 and not all retail stores are are doing well. Uh. 0:10:57.600 --> 0:10:59.640 And so one thing that our our chief US equity 0:10:59.640 --> 0:11:02.920 strited just Adam Parker likes um is credit card companies 0:11:02.960 --> 0:11:07.600 as a play to capture that stronger consumer without specific 0:11:07.679 --> 0:11:11.480 retail risk um And so I think that that you 0:11:11.520 --> 0:11:14.840 know that that could be a nugget for equity investors 0:11:15.200 --> 0:11:17.120 this year. We've also done a lot of work around 0:11:17.440 --> 0:11:21.400 where typically do consumers spin tax cuts. So rather than 0:11:21.440 --> 0:11:24.160 concentrating on does it benefit the low income consumer more, 0:11:24.280 --> 0:11:27.040 the high income consumer more, let's just concentrate on what 0:11:27.160 --> 0:11:32.760 products um benefit from tax cuts? And ironically, we saw 0:11:32.960 --> 0:11:36.920 auto sales sore yesterday. And one of the biggest categories 0:11:36.920 --> 0:11:39.680 that garnered those dollars when we get tax cuts is 0:11:39.760 --> 0:11:44.559 new autos, not used, but new autos, new cars and trucks, motorcycles, 0:11:44.600 --> 0:11:49.520 other highly discretionary recreational goods. You mentioned home depot, you know, 0:11:49.559 --> 0:11:53.720 furnished furniture and home furnishings um. And so home improvement 0:11:53.760 --> 0:11:58.040 stores could do well uh in this environment. Uh. And travel, 0:11:58.440 --> 0:12:00.640 all right, this is also a stronger all are wrapped 0:12:00.720 --> 0:12:05.199 up in this theme. Uh. And Uh. It has increased 0:12:05.200 --> 0:12:08.120 the buying power of American consumers. And so we've seen 0:12:08.559 --> 0:12:11.880 foreign travel by US residents and just air transportation in 0:12:11.920 --> 0:12:16.480 general UM typically garner a lot of those tax dollars. Uh. 0:12:16.520 --> 0:12:19.080 And so that's we're really encouraged about about the the 0:12:19.280 --> 0:12:21.880 those kinds of dynamics that might play out this year 0:12:22.280 --> 0:12:24.800 with broader tax reform. You know, I love that phim 0:12:24.920 --> 0:12:28.000 goes to where are the opportunities for equities and I'm thinking, wow, 0:12:28.080 --> 0:12:30.280 more debt. Let's think where the delinquency is going to 0:12:30.320 --> 0:12:32.839 pick up, and especially since we've already seen delinquencies pick 0:12:32.920 --> 0:12:36.320 up among auto loans. You know, how what are you 0:12:36.440 --> 0:12:41.520 looking for to determine whether the level of debt is unsustainable? 0:12:41.520 --> 0:12:43.120 And a lot of people have come on this show 0:12:43.120 --> 0:12:46.160 and talked about how you know President elect Trump may 0:12:46.160 --> 0:12:48.360 not deliver on all of his plans that are that 0:12:48.400 --> 0:12:51.040 are going to be supposedly so stimulative. Well, I think 0:12:51.080 --> 0:12:54.600 one thing that we look at is, uh, debt obligations 0:12:55.160 --> 0:12:59.960 as a share of income. So uh, you know, pre crisis, 0:13:00.040 --> 0:13:02.719 so leading up to the financial crisis, dead as a 0:13:02.760 --> 0:13:05.679 share of disposable income peaked at at a hundred and 0:13:05.720 --> 0:13:10.000 thirty five pretty incredible. Um. And since that time, we've 0:13:10.000 --> 0:13:13.800 cut debt so much and with incomes rising, Uh, we 0:13:13.960 --> 0:13:17.200 we've cut that back dramatically. Uh. And so we watch 0:13:17.280 --> 0:13:19.240 that very closely, right, we want to be able to 0:13:19.280 --> 0:13:23.199 see that households are carrying their debt burden. Well, we 0:13:23.280 --> 0:13:26.080 also want to look at the household balance sheet how 0:13:26.160 --> 0:13:28.880 much of it is exposed to a variable rate, because, 0:13:28.880 --> 0:13:32.800 of course, when the Fed starts raising interest rates more quickly, Uh, 0:13:32.880 --> 0:13:37.800 you know, historically that interest expense incurred from the balance 0:13:37.840 --> 0:13:42.160 sheet has crimped income pretty quickly and causes a knee 0:13:42.200 --> 0:13:45.960 knee jerk reaction on the part of consumers, pulling back, Um, 0:13:46.000 --> 0:13:49.040 what we see today is an unprecedented household balance sheet. 0:13:49.040 --> 0:13:51.080 We're only about ten percent of it is subject to 0:13:51.080 --> 0:13:54.880 a variable rate. Think of all those mortgages that have 0:13:54.960 --> 0:13:58.280 been refied through the government programs or through organic refined 0:13:58.320 --> 0:14:00.800 a very low fixed rates. Uh, you know, that's the 0:14:00.800 --> 0:14:03.840 majority of the household balance sheet, and unlike pre crisis, 0:14:03.960 --> 0:14:06.840 it's almost all fixed. I want to thank you very 0:14:06.920 --> 0:14:09.760 much for spending time with us. Ellen Zentner is the 0:14:09.880 --> 0:14:25.400 chief US economist managing director for Morgan Stanley. I want 0:14:25.400 --> 0:14:27.760 to bring in Dave Wilson, Bloomberg Stocks Commas to tell 0:14:27.840 --> 0:14:29.440 us what's going on in the market. And Dave, I 0:14:29.480 --> 0:14:32.160 just look at retail and it is a wreck today, 0:14:33.160 --> 0:14:36.640 yes and no, pim. I mean, it's an interesting sort 0:14:36.680 --> 0:14:40.640 of contrast going on here. And I bring this up 0:14:40.640 --> 0:14:43.640 because sure, if you look at the department store chains, 0:14:43.920 --> 0:14:48.320 they are taking quite the hit. Macy's down, Calls down 0:14:48.480 --> 0:14:52.960 eighteen percent, both those companies coming out late yesterday with 0:14:53.040 --> 0:14:57.440 the holiday sales figures that were worse than analysts were expecting. 0:14:57.680 --> 0:15:00.960 J C. Penny down seven percent as well, Nordstrom down 0:15:01.000 --> 0:15:03.400 eight percent. And and I bring this up. I was 0:15:03.440 --> 0:15:06.080 actually just looking at this for a market's block. We 0:15:06.160 --> 0:15:08.560 do here for the Bloomberg terminal. I'm one of the 0:15:08.600 --> 0:15:12.000 contributors to the blog. The S and P five hundred 0:15:12.040 --> 0:15:16.480 Department Store index is now down four headed for its 0:15:16.480 --> 0:15:21.080 biggest loss ever. It is a component of the broader 0:15:21.240 --> 0:15:23.680 SNP five hundred retailing index, and you want to know 0:15:23.720 --> 0:15:28.360 how that's doing. It's down two tents of percent. So 0:15:28.440 --> 0:15:33.440 basically what's happening is that the retailing index, the broader one, 0:15:33.560 --> 0:15:38.040 has Amazon dot Com, Amazon benefiting at the expense of 0:15:38.080 --> 0:15:42.200 the likes of Macy's and Coals and Pennies and Northstrom 0:15:42.240 --> 0:15:47.400 that stocks up, so it's actually helping to hold up 0:15:47.760 --> 0:15:50.160 the retailing index. And then you can throw in while 0:15:50.160 --> 0:15:53.600 you're at it, Netflix and price Line Group in terms 0:15:53.600 --> 0:15:56.160 of today's performance, and what do those companies have in 0:15:56.200 --> 0:15:59.840 common with Amazon? You're talking about internet based businesses, So 0:16:00.520 --> 0:16:04.000 what's really happening here. It's another marker in terms of 0:16:04.040 --> 0:16:07.680 the broader shift that's going on in retailing. People don't 0:16:07.680 --> 0:16:09.480 want to go to the store. They want to go 0:16:09.560 --> 0:16:12.520 to the website, buy what they want, have it shipped 0:16:12.560 --> 0:16:15.440 to the house or maybe to uh, you know, one 0:16:15.480 --> 0:16:17.880 of the stores. Per pick up. But that's as far 0:16:17.880 --> 0:16:21.360 as it goes, and that's what's happening here, and we're 0:16:21.360 --> 0:16:24.320 seeing that play out in terms of the holiday sales figures, 0:16:24.600 --> 0:16:28.200 and a whole lot of retail stocks are down, no question. Nonetheless, 0:16:28.800 --> 0:16:31.840 it's more of a transitional story than a people don't 0:16:31.880 --> 0:16:33.680 want to shop story. You know. Another part of this 0:16:33.800 --> 0:16:38.160 story is the dollar, and there was this incredible strengthening 0:16:38.360 --> 0:16:41.560 of the US dollar last year to the strongest level 0:16:41.560 --> 0:16:43.240 in more than a decade. A lot of people thought 0:16:43.240 --> 0:16:47.480 that this rally would only gain steam as President elect 0:16:47.480 --> 0:16:50.880 Trump's policies were implemented. I want to bring in someone 0:16:50.920 --> 0:16:55.000 who's going to cast some shade on that, vincinere Ella, 0:16:55.320 --> 0:16:58.720 FX strategist here at Bloomberg. You wrote a piece about 0:16:58.760 --> 0:17:02.480 the five ways the dollar rally may end if Trump's 0:17:02.520 --> 0:17:06.719 policies do not get implemented as expected. So walk us 0:17:06.760 --> 0:17:09.160 through this sort of path of doom. Sure, and good 0:17:09.160 --> 0:17:12.840 morning to everyone. Well, I mean, five is a fun number, 0:17:12.840 --> 0:17:15.160 but there are quite a few ways. Actually. I think 0:17:15.160 --> 0:17:16.479 one of the things that we need to look at 0:17:16.560 --> 0:17:18.840 is it's one thing for the president elect to have 0:17:18.960 --> 0:17:22.040 run the table in the Electrical College, and and one 0:17:22.080 --> 0:17:24.359 the election, it's another to run the table in the Senate, 0:17:24.359 --> 0:17:27.359 in a Congress and enact all the policies, particularly in 0:17:27.440 --> 0:17:29.280 the first one days, that he would like to do 0:17:29.320 --> 0:17:31.720 to stimulate the economy. One of the things that was 0:17:31.760 --> 0:17:35.600 outlined was repatriation of corporate profits overseas. We have something 0:17:35.600 --> 0:17:37.800 of two and a half trillion dollars that is available 0:17:37.840 --> 0:17:40.959 to be brought home. It's meant to spur investment and 0:17:41.080 --> 0:17:43.760 economic growth. But in two thousand and four we try 0:17:43.800 --> 0:17:46.800 this once a tax holiday. Companies brought the money back, 0:17:46.840 --> 0:17:50.960 They paid down dividends, they repurchase shares, they streamline their operations, 0:17:50.960 --> 0:17:54.880 and actually fired people. So it actually hurt the U. S. Treasury, 0:17:54.960 --> 0:17:58.920 not helped. So Evince, I'm just going to ask about 0:17:58.960 --> 0:18:01.359 whether we are at peak dollar, because you know, if 0:18:01.359 --> 0:18:03.399 we get a weaker US dollar, if we change the 0:18:03.640 --> 0:18:06.280 if somehow the strong dollar policy of the U. S. 0:18:06.400 --> 0:18:09.760 Treasury changes or at least goes mute for a while, 0:18:10.280 --> 0:18:12.879 that's going to be very beneficial to US trade and 0:18:12.920 --> 0:18:15.199 it could put the kind of pressure that is necessary 0:18:15.240 --> 0:18:19.240 in order to get these trade negotiations on track. Because 0:18:19.720 --> 0:18:22.399 the one thing that you know, emerging markets have is 0:18:22.480 --> 0:18:24.880 that their currency is a weakening, and that means their 0:18:24.880 --> 0:18:27.960 products are more attractive to US consumers. Well, it is 0:18:28.000 --> 0:18:29.600 good for US trade, but it tends to be good 0:18:29.600 --> 0:18:32.119 for US multinationals, and those profits tend to stay once 0:18:32.160 --> 0:18:34.919 again overseas and then I brought back home necessarily to 0:18:35.000 --> 0:18:37.639 create jobs really here in the States. It actually creates 0:18:37.720 --> 0:18:41.119 jobs overseas. So you know one of the things that 0:18:40.880 --> 0:18:43.280 that's jobs, but not the value of the dollar. I'm saying, 0:18:43.440 --> 0:18:45.320 is the dollar at a peak value right now? I 0:18:45.680 --> 0:18:48.240 would not be one to try to catch the following knife, 0:18:48.280 --> 0:18:49.880 so to speak, and say the dollars at a peak, 0:18:49.880 --> 0:18:53.680 But it certainly has turned the corner um since mid December, 0:18:53.680 --> 0:18:55.879 and it's definitely on a downtrend. And we've seen it 0:18:55.920 --> 0:18:58.480 again and get hit overnight. Um, there are a lot 0:18:58.480 --> 0:19:00.520 of factors working against it, not us the things that 0:19:00.560 --> 0:19:03.480 i've I've outlined, but but certainly that whenever you have 0:19:03.520 --> 0:19:07.199 a currency that's moved in a broad sense very quickly, um, 0:19:07.240 --> 0:19:09.920 it tends to run out of steam and reverse. So, Dave, 0:19:10.400 --> 0:19:13.040 you were talking about Sears and ord strum, some of 0:19:13.080 --> 0:19:17.239 these big retailers, how much in their equation does the 0:19:17.320 --> 0:19:21.240 dollar factor? Well, I mean only to the extent that 0:19:21.640 --> 0:19:24.240 you know, we're talking about what does it cost them 0:19:24.320 --> 0:19:27.800 to say import the products are going to sell. And 0:19:27.840 --> 0:19:29.359 by the way, I would take issue with the idea 0:19:29.400 --> 0:19:32.720 of Sears is a big retailer. It's the incredible shrinking retailer. 0:19:33.040 --> 0:19:37.280 I mean, it's comes in Florida. There are plenty of 0:19:37.280 --> 0:19:40.280 Sears still there, well still, but you know, they just 0:19:40.560 --> 0:19:42.359 came out and said they're gonna get rid of a 0:19:42.440 --> 0:19:45.560 hundred and fifty more stores. They're selling their Craftsman tool 0:19:45.640 --> 0:19:48.400 brand to Stanley Black and Decker for nine million dollars. 0:19:48.440 --> 0:19:50.400 That's why the Scots, all right, But the others, Okay, 0:19:50.440 --> 0:19:52.880 the multinational retailers. Does this matter to them? How much? 0:19:52.960 --> 0:19:56.760 Is it certainly matters in terms of their ability to 0:19:57.600 --> 0:20:00.800 source products, you might say, and it matters, you know 0:20:00.880 --> 0:20:03.760 more broadly. Let's be honest, and I bring this up 0:20:03.800 --> 0:20:07.080 because we got results out of Constellation Brands today. You know, 0:20:07.119 --> 0:20:08.680 this is a company that's in the beer, win and 0:20:08.800 --> 0:20:12.239 spirits business. Corona and Medello, those are the two. So 0:20:12.280 --> 0:20:14.840 we're talking about Mexico and certainly that's not a front 0:20:14.840 --> 0:20:17.080 and center when it comes to currencies at this point. 0:20:17.440 --> 0:20:20.880 And actually their earnings beat analysts average estimates and Bloomberg 0:20:20.920 --> 0:20:23.240 survey for the fiscal third quarter. Here's the thing, though, 0:20:23.520 --> 0:20:29.920 was all about tax advantages from reinvesting foreign earnings. So 0:20:30.119 --> 0:20:32.320 you know, that's sort of really front and center, and 0:20:32.359 --> 0:20:35.680 the stocks down in the wake of their results, even though, 0:20:35.800 --> 0:20:37.879 like I said, they beat estimates and it's one of 0:20:37.920 --> 0:20:39.680 the worst performers on the day and the S and 0:20:39.720 --> 0:20:42.399 P five hundred down five points. Well, so, Vince, what 0:20:42.440 --> 0:20:44.400 are you looking for to sort of be a marker 0:20:44.440 --> 0:20:47.959 for how much more the dollar could potentially fall? Well, 0:20:48.000 --> 0:20:50.200 I mean, one of the things that just a quick 0:20:50.200 --> 0:20:52.119 point on what Dave was saying is that one of 0:20:52.119 --> 0:20:54.560 the one of Trump policies is a consumption or a 0:20:54.600 --> 0:20:58.040 destination text if that isn't acted, and essentially what that 0:20:58.080 --> 0:21:00.440 does is will say where can where goods are consumed 0:21:00.480 --> 0:21:02.439 is where the tax will be applied. So if we 0:21:02.520 --> 0:21:04.679 bring product from Mexico, for instance, there will be a 0:21:04.760 --> 0:21:06.959 tax placed on it. It's the equivalent of a tariff. 0:21:07.240 --> 0:21:11.600 Raises the price of goods, raises inflation essentially will weaken 0:21:12.000 --> 0:21:15.480 weaken international corporate profits, and that will weaken growth. Uh. 0:21:15.520 --> 0:21:20.040 That type of process is a quasi protection of protection 0:21:20.160 --> 0:21:24.560 is amendment and and would certainly weaken the dollar both 0:21:24.600 --> 0:21:26.680 the dollar gets weaker, Does that mean that the Federal 0:21:26.760 --> 0:21:29.560 Reserve gets to normalize US interest rate? Well, one of 0:21:29.600 --> 0:21:31.159 the things about the dollar, it's a sort of a 0:21:31.160 --> 0:21:34.879 back of the envelope calculation, is that a four percent 0:21:34.960 --> 0:21:37.880 grade weighted move in the US dollar, either up or down, 0:21:38.000 --> 0:21:40.640 is equivalent to roughly twenty five basis points for the Fed. 0:21:40.960 --> 0:21:42.960 So if the dollar would drop by four percent, that 0:21:43.080 --> 0:21:47.320 essentially loosens financial conditions, makes the FEDS job easier. Thank 0:21:47.359 --> 0:21:50.520 you very much for joining us. Always a pleasure, Vincent Signarella. 0:21:50.560 --> 0:21:53.600 He is an effect strategist for Bloomberg. He knows everything 0:21:53.600 --> 0:21:56.679 about currencies and he knows everything about stocks. Dave Wilson, 0:21:56.720 --> 0:22:10.240 Bloomberg Stocks calm Is. The description is that the United 0:22:10.280 --> 0:22:13.520 States under President Trump will abdicate its role as a 0:22:13.520 --> 0:22:17.280 global leader and there will be repercussions around the world. 0:22:17.440 --> 0:22:19.840 Here to tell us more, Willis Sparks. He is the 0:22:19.880 --> 0:22:23.840 director of Global Macro for the Eurasia Group. So Willis 0:22:24.040 --> 0:22:29.240 maybe explain that description and what you for it see 0:22:29.359 --> 0:22:32.320 as being some of the consequences. Sure, I mean we're 0:22:32.359 --> 0:22:34.840