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Speaker 1: Runt you by Bank of America Mary Lynch. With virtual reality,

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Speaker 1: virtually everything will change. Discover opportunities in a transforming world

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Speaker 1: be of a mL dot Com, slash VR, Mary Lynch,

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Speaker 1: Pierced Fenner, and Smith Incorporated. Welcome to the Bloomberg Surveillance Podcast.

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Speaker 1: I'm Tom Keene with David Gura. Daily we bring you

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Speaker 1: insight from the best of economics, finance, investment, and international relations.

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Speaker 1: Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, Bloomberg dot Com,

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Speaker 1: and of course on the Bloomberg again this morning that show.

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Speaker 1: I'm too Lenos. He's the head of f ex Strategy

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Speaker 1: of Credit Sweet and joins us here on Bloomberg eleven

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Speaker 1: three oh studios. Let me start by asking you about

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Speaker 1: a revision you've made here just in these last couple

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Speaker 1: of days. I know you you changed your you're a

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Speaker 1: dollar call or your forecasts set for the for three

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Speaker 1: months out and for twelve months. What what propped you

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Speaker 1: to do that? Well, we were you're a bullish before

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Speaker 1: the French election, and then you're a rallied even more

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Speaker 1: than we thought it would um And and really the

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Speaker 1: issue there is that in some senses the political outlook

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Speaker 1: now is better than we'd originally expected. For example, Macron

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Speaker 1: has not only won the French presidency, it looks likely

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Speaker 1: that his party will form win a majority in the

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Speaker 1: parliamentary elections as well. UM and that's something that gives

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Speaker 1: new drive, I would say, to pro European and pro

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Speaker 1: euro forces at a time when the market had spent

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Speaker 1: the past couple of years worrying about the exact opposite. UM.

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Speaker 1: Right now, for example, central banks around the world there

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Speaker 1: holdings of Euro in their reserves are about as low

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Speaker 1: as they've ever been. UM. So there's some big structural

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Speaker 1: changes that could happen in flows that could take the

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Speaker 1: euro still higher, especially if the ECB starts to hint

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Speaker 1: a will hit more clearly at tape Ring as well.

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Speaker 1: So putting all these things together, we felt a further

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Speaker 1: upgrade of the euro was in order. It's going to

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Speaker 1: be less emphasis placed on political risk now going forward.

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Speaker 1: There's there's talk of the elections in Italy there you know,

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Speaker 1: there's type of the primatial elections as you say in France.

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Speaker 1: The snap election of course in the UK is that

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Speaker 1: a lesser focus than these other elections have been. I

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Speaker 1: think the Italian election should and will be a focus

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Speaker 1: once we actually know when it is, and that's the

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Speaker 1: problem for markets. It's difficult to try and price in

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Speaker 1: something you don't even have a date for yet. Um.

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Speaker 1: Now the market's target for that is actually around April

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Speaker 1: eighteen as the most likely time it should happen. That's

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Speaker 1: still some way away, and in the meantime we're likely

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Speaker 1: to have good news potentially from France, maybe good news

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Speaker 1: again from Germany as well, if if Angelo Merkel wins

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Speaker 1: the election there as well. So the negative news for

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Speaker 1: the market seems far away right now in terms of

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Speaker 1: your area politics, and that's what's driving the OHIO helping

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Speaker 1: to take it hard right now. I mentioned that OPEC deal.

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Speaker 1: Are we saying seeing that play out in the effects

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Speaker 1: marketplace as the agreement that those countries came to yesterday, Well,

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Speaker 1: I think the because the market had expected maybe even

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Speaker 1: more than what was delivered. Um. What we've seen as

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Speaker 1: a first reaction to that deal is actually weakness in

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Speaker 1: the commodity currencies UM. But at the end of the day,

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Speaker 1: it's weakness relative to good expectations rather than an outright

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Speaker 1: story that's very negative. UM. And so I believe that

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Speaker 1: the negative impact on those currencies from this specific story

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Speaker 1: will fade relatively soon. And what we need they need

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Speaker 1: to do is watch and see how the deal actually

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Speaker 1: affects market prices in the medium to long term, and

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Speaker 1: in particular, you know, whether we can get a handle

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Speaker 1: on other outside factors like shale and and adapted on

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Speaker 1: production to to match you know the importance or the

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Speaker 1: relevance of those developments. And those are medium to long

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Speaker 1: term factors. But I think in the near term, the

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Speaker 1: commodity conds of probably seen the worst of the news

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Speaker 1: from this event already. Is it tough to make money

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Speaker 1: right now? I mean, you're you're a strategist, you're above

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Speaker 1: it all. But when you look across the credit sue platform,

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Speaker 1: should everybody just not selling may and go away, but

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Speaker 1: just get under their desk and you know, read for

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Speaker 1: and exchange theory books. I think finn exchange UH is

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Speaker 1: always tricky because of a multiple different very variables that

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Speaker 1: can affect the currency rate. But there's still some trades

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Speaker 1: in our view that are relatively straightforward. You mentioned earlier.

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Speaker 1: I mentioned your earlier, and if you look at your

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Speaker 1: lots of different traditional factors are driving it, right now,

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Speaker 1: for example, we're looking at a central bank that has

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Speaker 1: been very dubbish that might become less stubbish, so some

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Speaker 1: degree of interest rate support might begin to materialize with

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Speaker 1: the currency. We're looking at a chain of positive economic

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Speaker 1: developments and also political developments that are feeding off each

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Speaker 1: other right now to create a lot of momentum as well.

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Speaker 1: Is the G seven means? I mean, do we get

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Speaker 1: euro back to one sixteen? Can we go back to

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Speaker 1: where we were? What was, you know, the big advent

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Speaker 1: of the Europe. I think that to get to that

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Speaker 1: those levels is not very difficult, frankly at this point

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Speaker 1: in time, just because, as I mentioned before, there's still

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Speaker 1: many structural short positions in the euro that have been okay,

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Speaker 1: So they clear that convexity, they clear the trade goes

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Speaker 1: the other way. But is it also about just simply

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Speaker 1: money flowing into Europe? It certainly is in the sense

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Speaker 1: that we know that the r Area has a very

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Speaker 1: large current account surplus um, so by definition there has

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Speaker 1: to be a capital account deficit to offset that. The

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Speaker 1: question is at what price does that happen? And frankly,

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Speaker 1: the better than news is from in Europe, the offsetting

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Speaker 1: rate you know moves up and that's that's the way

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Speaker 1: it goes. So, yes, there's always money going into Europe.

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Speaker 1: The question is at what price do we offer, say David,

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Speaker 1: I don't know where we are in this news law.

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Speaker 1: But Mr Cohne Gary Cone is with the President and

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Speaker 1: it's something to say about massaging comments about German trade.

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Speaker 1: I mean, it's this this discussion we're evering with Mr

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Speaker 1: joll And news folks is riting the news this morning.

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Speaker 1: I'm not sure and this was sort of lost in translation.

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Speaker 1: This is the joy of the Bloomberg, folks, is the

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Speaker 1: news flow, the fire hose of of news. We get

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Speaker 1: cars saying that the Germany is very bad on trade.

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Speaker 1: But he doesn't have a problem with Germany. He said

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Speaker 1: his dad is from Germany. Said I don't have a

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Speaker 1: problem with Germany. I have a problem with German trade.

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Speaker 1: Let's talk about trade a little bit here. How prepared

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Speaker 1: is the market for what's happening with trade or how

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Speaker 1: the US is pushing for changes to trade. Robert Lightheiser

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Speaker 1: confirmed now is the US Trade representative. A letter sent

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Speaker 1: from the administration to Congress saying they're intending to make

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Speaker 1: changes to to NAFTA is the market ready for that? Well,

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Speaker 1: the market has actually spent most of this year buying

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Speaker 1: the Mexico paso after having driven it to dramatically low

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Speaker 1: levels based on the specific fears. So for most of

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Speaker 1: this year the market is actually toned down its interest

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Speaker 1: in trade as a source of volatility UH and actor

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Speaker 1: currencies that it's sold. So what I would argue there then,

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Speaker 1: is that at this point in time, if anything, the

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Speaker 1: market has lurched back to the complacence aspect. And why

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Speaker 1: has it done that. I think many have focused on

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Speaker 1: the fact that frankly, there's just so many businessmen around

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Speaker 1: Donald Trump um and that there will somehow point out

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Speaker 1: that it may not necessarily be even in the US

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Speaker 1: zone favor to push some of these agendas. You know

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Speaker 1: that that had come up in the election campaign. So

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Speaker 1: from this point, I believe that if you do actually

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Speaker 1: see a more populist bent towards trade policy, it would

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Speaker 1: actually catch the market by surprise and potentially move currencies

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Speaker 1: like the Mexican pay so lower. Again, at this point,

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Speaker 1: do you buy into that argument, the notion that by

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Speaker 1: having so many billionaires in businessmen around him, that that

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Speaker 1: does make a notional difference when it comes to how

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Speaker 1: he approaches these issues. Well, certainly it creates at least

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Speaker 1: a debate in the discussion about whether they're doing these

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Speaker 1: policies is the right way to go. Um. And while

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Speaker 1: the market wats to see how that arguments or these

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Speaker 1: arguments pan out for concies at the Mexican pay so

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Speaker 1: that offer you yield, it gives you reasons to buy

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Speaker 1: them back. It's not a good idea to be short

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Speaker 1: something that's high yielding when it's indeterminate at what points

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Speaker 1: in the future the bad news you're worried about is

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Speaker 1: going to come through. UM. Having said that, you know,

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Speaker 1: we have to have to be careful because it's not

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Speaker 1: just the US that's seeing populism right now. So for example,

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Speaker 1: Mexico itself as a presidential election next year. UM, there's

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Speaker 1: government tourial elections in June as well for Mexico City,

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Speaker 1: and there's there's populist in Mexico to a strong showing

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Speaker 1: by by those types of candidates, and they pay so

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Speaker 1: for for for Mexico's own reasons. So I would say

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Speaker 1: that it's it's worrisome in the sense that this could

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Speaker 1: spread beyond the US, potentially become more of a proper

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Speaker 1: trade war if we if we're not careful. David Green,

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Speaker 1: Tim Keenan a Friday thrilled you with us, We're gonna

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Speaker 1: frame the Friday for you. It's actually a pretty ugly

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Speaker 1: tape curve flattening mass of point six eight lower yields

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Speaker 1: to basis points on the tenure and the in the

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Speaker 1: equity market sort of behind all this gyration, what a

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Speaker 1: good time to speak with Shop Jollins have credit suitees

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Speaker 1: because unlike most effects people like Sinch maybe over at AMers,

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Speaker 1: Pierre Pont, there's a few others he links in the

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Speaker 1: other markets. If I say to you shop as we

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Speaker 1: were in the break and folks, I'll put this chart

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Speaker 1: out on Twitter. Curve flattening. How does a guy like

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Speaker 1: you treat us two s tends spread curve flattening and

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Speaker 1: fold that into the FX space. Well, I think it's

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Speaker 1: it's very important when you look at the dollar against

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Speaker 1: currencies like the yen and the euro in a sense

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Speaker 1: that that curve flattening is telling you that the market

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Speaker 1: is downgrading is longer term growth expectations for the US.

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Speaker 1: It's may well be doing that because of the UH

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Speaker 1: diminished odds of very rapid tax reform, for example in

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Speaker 1: the US, and the kind of policy changes the market

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Speaker 1: was hope would boost long term growth, they just don't

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Speaker 1: seem to be happening quickly. And what that means is

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Speaker 1: that when you compare the dollar against the currency that

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Speaker 1: the yen, a low yielding currency. As the dollar loses

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Speaker 1: that longer term yield support, the yen will want to

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Speaker 1: go up against the dollar, especially because many believe that

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Speaker 1: the yen is in any case on the value to

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Speaker 1: start with. So we're talking to one or seven and

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Speaker 1: dollar yen, and that that supports that view for ye

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Speaker 1: and strength. David, you've better take off. I'm gonna tear

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Speaker 1: up this charter and we can see it on Twitter

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Speaker 1: that I love you, ask you. But one of your notes,

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Speaker 1: and entitled to Signal Versus Noise, you mentioned the political

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Speaker 1: noise that we How do you figure out what to

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Speaker 1: listen to in this environment when you're when you're listening

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Speaker 1: to what's coming out of Washington, what's what's most relevant?

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Speaker 1: I think the way we do that is really by

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Speaker 1: first determining which signals, let's say, from from the politics,

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Speaker 1: have actually already had a price impact UM and then

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Speaker 1: determining how those are are likely to go, and we

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Speaker 1: try to ignore the rest of the the story that's

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Speaker 1: out there. So, for example, we know that coming into

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Speaker 1: this year, the market believed that there was going to

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Speaker 1: be UH infrastructure spending in the US, that there would

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Speaker 1: be tax reform in the US, that these things would happened.

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Speaker 1: There was so much optimism. There was a lot of

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Speaker 1: exactly uh and and you know, these were all tangible

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Speaker 1: stories that the market had priced in tow the currency stories.

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Speaker 1: So once you see a lack of delivery on those stories,

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Speaker 1: you know that this is going to have a currency impact. Now,

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Speaker 1: of course there's a lot of other stories in the

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Speaker 1: background as well, but we know that they weren't really

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Speaker 1: affecting the markets uh and unless we have a reason

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Speaker 1: to believe they could, we tend to ignore those and

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Speaker 1: focus on the ones that we know we're in the

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Speaker 1: price already and can be priced out. Tom and I

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Speaker 1: complained to be fair withhout working in a in a

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Speaker 1: coal mine here, but the amount of news flow is

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Speaker 1: crazy and exhausting. Are you finding that to be the

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Speaker 1: case in your line of work as well? That sorting

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Speaker 1: through all of this has gotten more complex, or at

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Speaker 1: least there's more of more of it to swort through. Well.

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Speaker 1: I think what's really changed from a currency perspective is

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Speaker 1: the US is now a sorts of currency volatility as

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Speaker 1: well in its own right, due to the political angle.

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Speaker 1: In the past twenty years, mostly we just had to

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Speaker 1: worry about what the FED was doing, and that was

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Speaker 1: about it, and all the political noise was coming from

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Speaker 1: the other side of the of the FFX pair, whether

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Speaker 1: that's Brazil um or the UK with Brexit. You know,

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Speaker 1: generally the volatility was coming from somewhere else. Now, as

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Speaker 1: well as worrying about those issues, we also have to

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Speaker 1: worry about US politics as well. We have to understand

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Speaker 1: the nuances of how the House can pass healthcare reform

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Speaker 1: and whether the Senate is going to like that or not,

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Speaker 1: and what kind of timelines there are. So this has

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Speaker 1: definitely added complexity to the to the problem in terms

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Speaker 1: of absorbing information and trying to make assessments of these issues.

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Speaker 1: One an element of that complexity, I'm sure it is

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Speaker 1: still this policy divergence between central banks here in the

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Speaker 1: US and in Europe. Looking ahead of these next two meetings,

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Speaker 1: what are you looking for in terms of that effect

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Speaker 1: and how it's going to play on the effect space. Well,

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Speaker 1: I think from the u c B, the markets based

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Speaker 1: on expectation for from for minimum is that the e

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Speaker 1: CD removes the language suggesting that the risks are still

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Speaker 1: to the downsite, whether it's to do with the economy

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Speaker 1: prices or even where the level of rates are going

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Speaker 1: to go minimum at a minimum in June, we need

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Speaker 1: to see that removed. Um. If we don't, then I

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Speaker 1: think the Euro will have a bit of a setback. Um.

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Speaker 1: Now for the Euro to rally based on the June

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Speaker 1: needs to be a meeting. What we need is more

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Speaker 1: acknowledgement that things are actually going well and maybe some

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Speaker 1: kind of a plan as to how tapering is is

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Speaker 1: actually going to begin in eighteen. If we get that,

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Speaker 1: and I think the market really expects that more in September,

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Speaker 1: forget that in June, the euro constant rally. Even further

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Speaker 1: from here, I can't afford the Zwigel red and white

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Speaker 1: hot dogs on the barbie for Memorial Day. I need

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Speaker 1: to make some money on a Friday. Where is the

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Speaker 1: best trade right now? Well, as we still like euro

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Speaker 1: sterling higher, we still think that going into the UK

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Speaker 1: election at this point in time with the polls tightens,

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Speaker 1: So euro Sterling is weaker, Sterling's stronger hero exactly, yes,

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Speaker 1: because Sterling does not have any yield supports that that's

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Speaker 1: material basically, yet does pose lots of political risk going

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Speaker 1: into an election where the market saw as a slam

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Speaker 1: dunk just just a week ago that the Conservatives would

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Speaker 1: win easily and that story is not changing. Um that

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Speaker 1: you know, combined with the fact that the ECB meeting

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Speaker 1: in June does pose potentially some upside risk for euro

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Speaker 1: as well. We'll keep the market, I think on this

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Speaker 1: higher Euro against Sterling trend for the next couple of weeks,

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Speaker 1: you'll be pleasing show. I put out that two stents

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Speaker 1: spread climb and moving average gorgiosity at tom Keane at

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Speaker 1: Tom Keenes will be out of David Gura. I'll retweet it.

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Speaker 1: It's maybe Nil Sauce will look at it. Be sure

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Speaker 1: you have cleanex of Dr Sauce looks at that. This

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Speaker 1: morning chav John's with Credit Sweeze of course, working with

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Speaker 1: their vice chairman of research Neil Sauce as well, very

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Speaker 1: very beneficial. Jeffrey Rosenberg was a well timed essay reevaluating reflation.

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Speaker 1: He is with black Rock. We love to speak to

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Speaker 1: him about the synthesis of his work. Jeff, what does

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Speaker 1: a flatter yield curve mean to chair yelling? So you know,

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Speaker 1: we've got to be a bit careful about the typical

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Speaker 1: kinds of interpretations of of flatter yield curves. In an

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Speaker 1: environment where the front end of the yield curve is

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Speaker 1: effectively very close to zero in the zero interest rate environment,

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Speaker 1: the movement in terms of risk on and risk off

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Speaker 1: shows up in in the back end of the yield curve.

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Speaker 1: So it's a little bit different kind of environment. Where

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Speaker 1: a negative environment would be one in which you price

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Speaker 1: out said tightening expectations and you price in easing expectations,

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Speaker 1: and you get a yield curve steepener here when you

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Speaker 1: got the front end basically not moving the back end

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Speaker 1: flattening is pricing in a bit more about Hey, maybe

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Speaker 1: some of this geopolitical risk, maybe this slowdown in the

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Speaker 1: first quarter, maybe the slowdown that we see in inflation,

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Speaker 1: that's going to slow the pace of appreciation, pace of normalization,

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Speaker 1: and that's partly why flattening. So here's the key question

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Speaker 1: on a Friday are you more focused Mr Rosenberg, on

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Speaker 1: the X axis in the wind of all this, or

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Speaker 1: are you more focused on the Y axis in the

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Speaker 1: immediacy of the up and down movement, which is more

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Speaker 1: Germaine right now? Well, you know, there's a there's a

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Speaker 1: lot of noise to the up and down movement, and

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Speaker 1: I think the key here is the FED is telling

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Speaker 1: you they're gonna look through the near term up and

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Speaker 1: down movement. There there, they've moved away from data dependency

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Speaker 1: and telling you that they're focused on the x ax

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Speaker 1: season of formulation. In the up and down movement, there

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Speaker 1: was a time in which they said, we're going to

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Speaker 1: focus on the near term data, and then therefore you

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Speaker 1: should focus on the near term data. Clearly what they're

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Speaker 1: saying you said, I saw it again in the minutes

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Speaker 1: this week. They're focused on their forecasts, and their forecasts

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Speaker 1: are saying we're going to look past the near term

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Speaker 1: data to what we think the underlying trend of economic growth, inflation,

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Speaker 1: labor market dynamics means. And their conclusion is it means

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Speaker 1: that we can get on and keep going on with normalization.

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Speaker 1: So that's what I'm focused on. What color did we

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Speaker 1: get on that from the Fed this week. From the

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Speaker 1: minutes that the board released, did you did you get

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Speaker 1: the clarity that you might have wanted about that their

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Speaker 1: sense of what I'm wanting is going to be like, well,

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Speaker 1: we got a lot of conversation around inflation, and I

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Speaker 1: would say in that side of it, and that may

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Speaker 1: be as well some of the market moves. It was

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Speaker 1: there was a little bit more. Even though I just

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Speaker 1: said that they're focused on their forecast. What happens in

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Speaker 1: the minutes is that you hear from everybody, and so

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Speaker 1: there's a little bit of noise around what will the

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Speaker 1: committee do versus what do the individual participants think? And

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Speaker 1: what we heard in the minutes was there's a distribution

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Speaker 1: and you heard a lot more from the participants relative

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Speaker 1: to what I was expecting in terms of some consternation

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Speaker 1: about inflation. You saw one participant commenting on they need

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Speaker 1: more evidence that inflation will reach the two percent. We

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Speaker 1: have to separate that kind of communication from the official

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Speaker 1: eflm C communication, which truly reflects the core where there

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Speaker 1: really is this forecast dependency and they're looking through. But

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Speaker 1: we got a bit more of that inflation concern. I'll

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Speaker 1: pause there and then will pivot maybe. And then of

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Speaker 1: course the big thing in the minutes was the discussion

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Speaker 1: on the balance sheet. You know, I wonder if if

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Speaker 1: if you're not seeing a breaking down of the underlying

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Speaker 1: reflationary dynamic, what's all of this about? Is about politics

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Speaker 1: more so than that, it's a it's a combination, you know.

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Speaker 1: And in the minutes they talked as well, you know,

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Speaker 1: sort of coded foreign political developments. It was the market

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Speaker 1: was was very concerned about the French elections and that

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Speaker 1: has come and come and gone. But but in the

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Speaker 1: minutes at the time, you know, that was certainly part

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Speaker 1: of the story. Uh. And you have the accumulation of

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Speaker 1: a number of these different events. One of the other

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Speaker 1: critical things, uh, the minutes didn't highlight in this context.

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Speaker 1: It's been written about by Federal Reserve um UH staff research.

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Speaker 1: And it's certainly a market phenomenon, is that bonds are

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Speaker 1: are are very useful in a portfolio context. They're they're

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Speaker 1: very useful as diversifiers and risk reducers. And in an

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Speaker 1: environment where you saw some of this risk go up,

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Speaker 1: you saw an increase in the use of and and

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Speaker 1: again here the old world, it would have been flight

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Speaker 1: to quality as a curve steepener. Here you the flight

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Speaker 1: to quality as you put it on more in the

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Speaker 1: ten year, and you get the flat within the guests

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Speaker 1: ament of this. And Jeffrey, you always frame it so nicely,

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Speaker 1: seriously folks with a quantitative framework that you get out

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Speaker 1: of Carnegie Mellon. But but Jeffrey Rosenberg, what I know

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Speaker 1: is in seven days, eight oh six a m. Wall

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Speaker 1: Street time, we're twenty four minutes from a job's report,

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Speaker 1: are we going to see wage growth? We are going

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Speaker 1: to see wade we let let's put it this way.

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Speaker 1: We are seeing wage growth. We have all the conditions

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Speaker 1: for wage growth. Now, whether we're going to see wage

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Speaker 1: growth in that average hourly earning figure in a week

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Speaker 1: and twenty three minutes from now, uh, that's statistical noise.

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Speaker 1: There's a lot of measurement difficulties in the market on

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Speaker 1: a short term, high frequency basis, struggles with the near

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Speaker 1: term versus the noise versus the signal. But if you

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Speaker 1: look at the signal, which is, you know, going across

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Speaker 1: all the various measures of wage inflation that we have,

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Speaker 1: not just the average hour things which is sort of

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Speaker 1: notably has a design issue which is which is it

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Speaker 1: doesn't account for the myth of the people that we're

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Speaker 1: looking through changes. It's very clear that we are in

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Speaker 1: the phase of acceleration when it comes to wage inflation.

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Speaker 1: And again that's why one of the reasons why the

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Speaker 1: Fed is is saying we need to get on with

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Speaker 1: normalization because we've achieved full employment to get on with

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Speaker 1: normalization quickly because of the inflation side. But we need

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Speaker 1: to get on with it. But then are you willing

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Speaker 1: to say, we get okay wage growth with a lack

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Speaker 1: of inflation, a temped or tamed inflation, and does that

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Speaker 1: lead to the consumer pop that the president needs to

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Speaker 1: get the three percent sustain GDP. Well, okay, so everything, Yes,

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Speaker 1: you have. You have wage you have wage growth, you

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Speaker 1: have good labor market incomes of both the combination of

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Speaker 1: job growth people getting jobs, higher employment rate, higher wage growth.

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Speaker 1: For that, the total of that is is income growth.

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Speaker 1: You have income growth and wage grow of exceeding inflation.

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Speaker 1: So you've got real income growth, you've got confidence, and

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Speaker 1: you've got wealth effect. All of those pieces point towards

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Speaker 1: a recovery and consumption. A lot of conversation about first

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Speaker 1: quarter weakness that's gonna that's gonna recover. However, you mentioned

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Speaker 1: a three percent level. We we haven't seen a three

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Speaker 1: percent level in this economy, and we're unlikely to see

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Speaker 1: a three percent economy unless you have a larger shift

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Speaker 1: in the structural elements to the economy that can come

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Speaker 1: from some bigger fiscal policy changes. But those are as

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Speaker 1: the minutes in the FED describes highly uncertain as to

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Speaker 1: their quantity, quality, and timing, So you can't really it's

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Speaker 1: not my forecast that we're going to be breaking out

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Speaker 1: of this two percent kind of growth, certainly on a

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Speaker 1: quarter at a quarter basis. That's the noise of shifting

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Speaker 1: Q two. GDP is going to be three three percent potentially,

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Speaker 1: But but over the course of the year now we're

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Speaker 1: still in that kind of two percent type of real

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Speaker 1: GDP range different Rozenburg, I want to give you an

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Speaker 1: open question. I know you're writing for next week as well.

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Speaker 1: If Chair Yelling listens to the PhDs at the FED,

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Speaker 1: what does she want to know? That's a loaded question,

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Speaker 1: But what's the mystery for the smart people at the

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Speaker 1: FED right now? Well, the the stuff that the staff

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Speaker 1: provides and and and it's it's fairly transparent to you know,

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Speaker 1: the FED is has a has a model. It's called

432
00:23:31,720 --> 00:23:35,520
Speaker 1: the Furbus model. Uh, it's a it's a model of

433
00:23:35,720 --> 00:23:41,879
Speaker 1: how the macro economy works and how different policy choices

434
00:23:42,200 --> 00:23:46,720
Speaker 1: affect the the outcomes of the FED dual mandate and

435
00:23:46,920 --> 00:23:50,200
Speaker 1: and the and the mystery, uh, if you will, of

436
00:23:50,320 --> 00:23:54,920
Speaker 1: what that is trying to to guide her on is

437
00:23:55,440 --> 00:24:00,080
Speaker 1: what's the best path for said normalization. It's called the

438
00:24:00,320 --> 00:24:04,320
Speaker 1: optimal control path. And one of the constraints that that

439
00:24:04,480 --> 00:24:08,200
Speaker 1: the FED has is that, you know, long we're long

440
00:24:08,359 --> 00:24:12,760
Speaker 1: past the point where, um, there's a lot of slack

441
00:24:12,880 --> 00:24:16,440
Speaker 1: in the economy where the FED can can be very

442
00:24:16,600 --> 00:24:21,639
Speaker 1: very accommodated without the model starting to show some risks

443
00:24:21,800 --> 00:24:25,200
Speaker 1: of overshooting on the inflation side. Now, this is a

444
00:24:25,240 --> 00:24:28,239
Speaker 1: tricky conversation because you know, the data, the near term

445
00:24:28,359 --> 00:24:31,280
Speaker 1: data inflation is going in the opposite direction. So one

446
00:24:31,359 --> 00:24:35,000
Speaker 1: of the communication challenges that that the FED has is

447
00:24:35,119 --> 00:24:40,480
Speaker 1: that the model approach what the state of the economy

448
00:24:41,480 --> 00:24:45,160
Speaker 1: is at is one in which there's there's a scenario

449
00:24:45,400 --> 00:24:49,760
Speaker 1: in which, uh, the inflationary outcomes could start to accelerate

450
00:24:50,119 --> 00:24:54,159
Speaker 1: if the FED doesn't start to really begin normalization. And

451
00:24:54,200 --> 00:24:56,840
Speaker 1: that's where you hear talking about why they need to

452
00:24:56,880 --> 00:24:59,119
Speaker 1: get on with it. Jeffrey, thank you so much. Too

453
00:24:59,200 --> 00:25:02,320
Speaker 1: short this morning. Efrey Rosenberg is with black Rocket. That

454
00:25:02,400 --> 00:25:04,920
Speaker 1: was a great answer about how inflation is going one

455
00:25:04,960 --> 00:25:13,800
Speaker 1: way and the fence going the other. Brunch you by

456
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471
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Speaker 1: more at Bloomberg dot com slash lens John and Avalon.

472
00:26:28,520 --> 00:26:31,840
Speaker 1: John lives David Gura in one of those like twelve

473
00:26:31,960 --> 00:26:35,680
Speaker 1: million dollar homes. It's down the Jersey Shore. It's like,

474
00:26:35,800 --> 00:26:37,680
Speaker 1: you know, there's a west wing, there's a further west

475
00:26:37,760 --> 00:26:41,800
Speaker 1: wings exactly and then woe he ever uses them. In July,

476
00:26:42,440 --> 00:26:45,080
Speaker 1: John emails in with maybe the smartest question of the week,

477
00:26:45,680 --> 00:26:49,480
Speaker 1: what's the difference between two and three percent GDP? Because

478
00:26:49,480 --> 00:26:53,320
Speaker 1: it's one percent, it's not a big deal. It's a

479
00:26:53,480 --> 00:26:57,280
Speaker 1: big deal at what's called at the margin, And the

480
00:26:57,440 --> 00:27:00,320
Speaker 1: pros don't look at one percent, they look at tens

481
00:27:00,560 --> 00:27:05,280
Speaker 1: of a percent, and two point eight percent GDP is

482
00:27:05,560 --> 00:27:09,520
Speaker 1: behaviorally can can behaviorally be very different David than two

483
00:27:09,600 --> 00:27:13,919
Speaker 1: points six GDP. That's why we spend all those times.

484
00:27:14,160 --> 00:27:16,520
Speaker 1: But that's the question of the week. I don't know

485
00:27:16,600 --> 00:27:18,480
Speaker 1: which wing of his house he was, but John and

486
00:27:18,520 --> 00:27:22,560
Speaker 1: New Jersey thank you for email and Julian Emmanuel uh

487
00:27:22,920 --> 00:27:25,639
Speaker 1: with this. I mean, it's a great question. Pros. You know,

488
00:27:25,720 --> 00:27:27,960
Speaker 1: we don't even think about it. We just say, you know,

489
00:27:28,040 --> 00:27:33,760
Speaker 1: two but every tenth of a percent really matters, doesn't Absolutely,

490
00:27:34,200 --> 00:27:37,280
Speaker 1: we have been desensitized over the last seven or eight

491
00:27:37,359 --> 00:27:40,120
Speaker 1: years because all the numbers that we're looking at are

492
00:27:40,480 --> 00:27:45,560
Speaker 1: so low, interest rates near zero GDP, growing below two percent,

493
00:27:46,080 --> 00:27:50,359
Speaker 1: volatility now below ten that the real thought there is

494
00:27:50,640 --> 00:27:54,639
Speaker 1: the difference between two and three percent GDP isn't one percent,

495
00:27:55,000 --> 00:27:59,040
Speaker 1: it's fi Yeah, So it's the right and Stan Fisher

496
00:27:59,520 --> 00:28:01,520
Speaker 1: mentioned this in one of his Economic Club of New

497
00:28:01,600 --> 00:28:04,120
Speaker 1: York speeches. Is what you just heard. There's the math

498
00:28:04,760 --> 00:28:07,200
Speaker 1: of Julian Emmanuel's world. I just want to say, David

499
00:28:07,240 --> 00:28:10,280
Speaker 1: Girl that John and New Jersey is desensitized as well

500
00:28:10,680 --> 00:28:14,280
Speaker 1: because his house only plays John bon Jovi the whole time,

501
00:28:14,600 --> 00:28:20,600
Speaker 1: plays nothing else. He's a true New Jersey guy bon Jovi. Uh, Julie,

502
00:28:20,680 --> 00:28:22,240
Speaker 1: let me get your outlook for for growth here as

503
00:28:22,280 --> 00:28:24,520
Speaker 1: when we're on the subject of what's what's your outlook

504
00:28:24,520 --> 00:28:25,800
Speaker 1: for what we're gonna see? Again, we have the White

505
00:28:25,840 --> 00:28:28,760
Speaker 1: House Trump and their their budget this week, Uh Secretary

506
00:28:28,760 --> 00:28:30,520
Speaker 1: of Treasury steven when she was on Capitol Hill again

507
00:28:30,560 --> 00:28:32,840
Speaker 1: talking about the propects for getting to three percent growth.

508
00:28:33,040 --> 00:28:35,320
Speaker 1: I thought it was interesting hearing from Mick mulvanity, head

509
00:28:35,320 --> 00:28:37,120
Speaker 1: of the Office of Management Budget. He said that Trump

510
00:28:37,160 --> 00:28:40,640
Speaker 1: and omics defined is aspiring to get to three percent growth,

511
00:28:40,960 --> 00:28:43,280
Speaker 1: that narrative continues, Are we going to see anything close

512
00:28:43,320 --> 00:28:45,600
Speaker 1: to that? Do you think? Well, the aspiring is great,

513
00:28:45,640 --> 00:28:48,960
Speaker 1: and the aspiring has been part of why confidence has

514
00:28:49,040 --> 00:28:52,520
Speaker 1: remained so high, and we are seeing a very small

515
00:28:52,640 --> 00:28:57,840
Speaker 1: amount of that confidence bleed into better growth. But where

516
00:28:57,920 --> 00:29:00,160
Speaker 1: of the view that the number is close or to

517
00:29:00,160 --> 00:29:02,760
Speaker 1: the FEDS projects and the FEDS looking at two point

518
00:29:02,840 --> 00:29:07,280
Speaker 1: one for seventeen, ubs things two point two percent slightly

519
00:29:07,400 --> 00:29:12,160
Speaker 1: higher in twenty eighteen, with the potential for fiscal stimulus

520
00:29:12,440 --> 00:29:16,040
Speaker 1: and tax reform to actually hit in eighteen, two point

521
00:29:16,120 --> 00:29:19,440
Speaker 1: five percent the number. But three percent in this type

522
00:29:19,440 --> 00:29:21,840
Speaker 1: of world is a long way off. I think that

523
00:29:21,960 --> 00:29:24,200
Speaker 1: the same way that we talk about growth two percent

524
00:29:24,280 --> 00:29:26,680
Speaker 1: or three percent, we talked about the VIX being lower complacent.

525
00:29:27,000 --> 00:29:29,320
Speaker 1: It is where it is. Let's get existential here. Why

526
00:29:29,440 --> 00:29:31,160
Speaker 1: is it the way it is? Why are we where

527
00:29:31,160 --> 00:29:33,360
Speaker 1: we are? When it comes to to the VIX, Well,

528
00:29:33,880 --> 00:29:36,800
Speaker 1: in a lot of ways, it goes back to the

529
00:29:36,960 --> 00:29:41,240
Speaker 1: confidence that we've seen versus the positioning that we saw

530
00:29:41,280 --> 00:29:44,000
Speaker 1: at the end of last year where people rushed into

531
00:29:44,440 --> 00:29:47,920
Speaker 1: the Trump trade, the reflation trade, and the reality is

532
00:29:48,400 --> 00:29:52,160
Speaker 1: is that the economy hasn't really performed towards that three percent,

533
00:29:52,440 --> 00:29:55,040
Speaker 1: and so therefore what you've seen, rather than people selling

534
00:29:55,120 --> 00:29:57,800
Speaker 1: their stocks, there's still a belief that somewhere out in

535
00:29:57,840 --> 00:30:00,480
Speaker 1: the future we are going to accelerate. But you've seen

536
00:30:00,520 --> 00:30:05,040
Speaker 1: a rotation into growth into technology. Technology is has really

537
00:30:05,120 --> 00:30:10,160
Speaker 1: been exceptionally a performer healthcare, etcetera. And that has caused

538
00:30:10,560 --> 00:30:13,600
Speaker 1: the index ball to go nowhere. I'd take thirty five

539
00:30:13,640 --> 00:30:17,160
Speaker 1: Wall Street type Julian Emmanuel. You know they're being written

540
00:30:17,320 --> 00:30:21,320
Speaker 1: right now for release at five pm today. The world's

541
00:30:21,320 --> 00:30:25,720
Speaker 1: gonna come to an end. That was eighty three. This

542
00:30:25,920 --> 00:30:29,080
Speaker 1: bull market is bologny blah blah blah blah. How do you,

543
00:30:29,160 --> 00:30:32,360
Speaker 1: as a pro respond to the doom and gloom Friday

544
00:30:32,480 --> 00:30:37,640
Speaker 1: set of articles? Now, it's a look, every bull market

545
00:30:37,920 --> 00:30:41,280
Speaker 1: of the last twenty five to thirty years has ended.

546
00:30:41,360 --> 00:30:45,920
Speaker 1: Because the recession happened within twelve months of the top I,

547
00:30:46,400 --> 00:30:50,800
Speaker 1: it's very difficult to see the recipe for a recession

548
00:30:51,000 --> 00:30:54,640
Speaker 1: in either seventeen or eighteen. And you know, while we're

549
00:30:54,680 --> 00:30:57,360
Speaker 1: not you know, raging lee high in the sky, in

550
00:30:57,600 --> 00:31:00,440
Speaker 1: terms of between now and year end, we think there's

551
00:31:00,840 --> 00:31:04,040
Speaker 1: some caution appropriate with a VIX at nine or ten.

552
00:31:04,520 --> 00:31:08,640
Speaker 1: Uh that maybe in store. We do think the bullmarket continues.

553
00:31:09,080 --> 00:31:11,400
Speaker 1: Can you acquire shares this morning? I'm serious? I mean,

554
00:31:11,560 --> 00:31:12,880
Speaker 1: I don't want to make jokes about it. I don't

555
00:31:12,880 --> 00:31:15,600
Speaker 1: mean individual companies, but just as a general statement, you

556
00:31:15,720 --> 00:31:17,600
Speaker 1: walk in the door at ubs, can you buy shares?

557
00:31:18,080 --> 00:31:21,640
Speaker 1: You have to be selective here? Fair, I'll go with that.

558
00:31:21,960 --> 00:31:24,080
Speaker 1: But but the lawyer wants you to say that I

559
00:31:24,200 --> 00:31:26,320
Speaker 1: get that. But the answer is you can get out

560
00:31:26,360 --> 00:31:29,800
Speaker 1: of buy ticket for people don't know this, Michael, Julian

561
00:31:29,840 --> 00:31:32,280
Speaker 1: Emmanuel walks in here with a vest like Ace Greenberg

562
00:31:32,400 --> 00:31:34,920
Speaker 1: years ago, with buy tickets on the left side and

563
00:31:35,040 --> 00:31:37,600
Speaker 1: sell tickets on the right, So you can pull out

564
00:31:37,600 --> 00:31:40,160
Speaker 1: a buy ticket today, right. Well that was because as

565
00:31:40,240 --> 00:31:41,800
Speaker 1: I was on the floor in that time when we

566
00:31:41,840 --> 00:31:44,880
Speaker 1: actually had to use paper once upon a time. But yes,

567
00:31:45,080 --> 00:31:49,520
Speaker 1: really you have to be selective technology we continue to

568
00:31:49,640 --> 00:31:52,719
Speaker 1: like healthcare. Let me bring back Jillian Manuel. Now he's

569
00:31:52,760 --> 00:31:54,960
Speaker 1: the US equity and DIRIVET strategist at UPS, joining us

570
00:31:54,960 --> 00:31:57,840
Speaker 1: here on Bloomberg eleven three. Oh, students, you've written about

571
00:31:58,080 --> 00:32:01,400
Speaker 1: planning the trade and trading the land. What does that mean?

572
00:32:01,520 --> 00:32:05,360
Speaker 1: Help help us understand your approach her to investing equities

573
00:32:05,360 --> 00:32:08,760
Speaker 1: at this point. Well, it's really sort of a holistic approach, right.

574
00:32:09,080 --> 00:32:13,520
Speaker 1: You know, if if you are a patient investor, you

575
00:32:14,080 --> 00:32:18,040
Speaker 1: should have been participating in this most aided of all

576
00:32:18,120 --> 00:32:22,360
Speaker 1: bull markets the entire way. And and the temptation is

577
00:32:23,000 --> 00:32:26,160
Speaker 1: because of the fact that volatility seems to be so

578
00:32:26,360 --> 00:32:30,320
Speaker 1: low that markets are at new highs, despite the fact

579
00:32:30,400 --> 00:32:32,560
Speaker 1: that there are risks out there, and clearly if you

580
00:32:32,640 --> 00:32:34,720
Speaker 1: look at the last year, a lot of them have

581
00:32:34,880 --> 00:32:38,120
Speaker 1: been political in nature. But this is not the time

582
00:32:38,200 --> 00:32:41,880
Speaker 1: to get carried away by emotion and really have an

583
00:32:41,960 --> 00:32:45,720
Speaker 1: idea in mind that what you want to do, consistent

584
00:32:45,800 --> 00:32:48,880
Speaker 1: with the last eight years is position yourself so you're

585
00:32:48,920 --> 00:32:51,640
Speaker 1: a buyer of the dips, uh so not to be

586
00:32:51,760 --> 00:32:54,440
Speaker 1: over extended at new highs. And and that really is

587
00:32:54,520 --> 00:32:57,080
Speaker 1: the essence of planning the trade and trading the plan.

588
00:32:57,200 --> 00:32:59,200
Speaker 1: What did you counsel clients last week when we saw

589
00:32:59,280 --> 00:33:02,120
Speaker 1: the VIC spike a little bit and for for a

590
00:33:02,200 --> 00:33:05,880
Speaker 1: short while, good question, and then it reversed the other

591
00:33:06,000 --> 00:33:09,600
Speaker 1: ideas its spiked to greater fear David, and then shock

592
00:33:09,640 --> 00:33:13,040
Speaker 1: a shock, look at where it ended up Wednesday that

593
00:33:13,240 --> 00:33:15,800
Speaker 1: that was a surprise to us. It just it really

594
00:33:16,320 --> 00:33:19,640
Speaker 1: there is an element of that Greek term called hubris,

595
00:33:20,240 --> 00:33:23,440
Speaker 1: which is why I think again, the markets are where

596
00:33:23,520 --> 00:33:27,080
Speaker 1: they are, and volatility is where it is. But but

597
00:33:27,240 --> 00:33:29,640
Speaker 1: at the end of the day, you have to maintain

598
00:33:29,840 --> 00:33:34,720
Speaker 1: your discipline here selectivity. Your research notes are hyper sophisticated.

599
00:33:34,800 --> 00:33:39,360
Speaker 1: There to a see if a type institutional audience. Our

600
00:33:39,520 --> 00:33:44,360
Speaker 1: listeners this morning, who are in the market, they want

601
00:33:44,400 --> 00:33:47,000
Speaker 1: to be in the market. But what we heard all

602
00:33:47,080 --> 00:33:49,240
Speaker 1: this week from a wide set of guests, it's still

603
00:33:49,320 --> 00:33:53,120
Speaker 1: the most unlovable market. How do you get in if

604
00:33:53,160 --> 00:33:56,200
Speaker 1: you're not in the game. Now, don't tell me it's

605
00:33:56,240 --> 00:34:00,440
Speaker 1: just buy Apple. Now, you don't just buy Apple? Well, um,

606
00:34:01,120 --> 00:34:04,120
Speaker 1: you have to be again, very selective. You can't. You

607
00:34:04,240 --> 00:34:07,160
Speaker 1: can't put all your chips in one basket. We think

608
00:34:07,240 --> 00:34:09,800
Speaker 1: Europe is a very good theme. It's been been a laggered.

609
00:34:09,960 --> 00:34:14,560
Speaker 1: You want to you want to own some international exposure. UH. Domestically,

610
00:34:14,880 --> 00:34:19,040
Speaker 1: we do like technology, we like healthcare, and we like financials.

611
00:34:19,320 --> 00:34:24,840
Speaker 1: Financials have gone from Darling's in January two universally unloved

612
00:34:24,880 --> 00:34:27,759
Speaker 1: at this point. And we think given the fact that

613
00:34:27,920 --> 00:34:31,279
Speaker 1: if you look at ten year yields UH and and

614
00:34:31,360 --> 00:34:35,120
Speaker 1: an economy that does seem to be progressing that maybe

615
00:34:35,160 --> 00:34:37,080
Speaker 1: a little bit, miss guy. I'm doing the math here,

616
00:34:37,160 --> 00:34:39,520
Speaker 1: David right now that you can only do in the

617
00:34:39,520 --> 00:34:44,080
Speaker 1: Bloomberg Professional Service. JP Morgan is in an absolute bear market.

618
00:34:44,160 --> 00:34:48,120
Speaker 1: It's down eight point six seven from the March peak.

619
00:34:48,640 --> 00:34:50,800
Speaker 1: I mean, that's how bad it is, David. You know

620
00:34:51,440 --> 00:34:55,439
Speaker 1: Julian Emmanuel considered pro saying the financial financials have lagged

621
00:34:55,480 --> 00:34:58,719
Speaker 1: a little bit. It's off eight point seven. You mentioned

622
00:34:58,760 --> 00:35:01,760
Speaker 1: European equities, and so people have come through here saying

623
00:35:01,800 --> 00:35:05,160
Speaker 1: that recently that there's opportunity in Europe. If you're being selective,

624
00:35:05,160 --> 00:35:06,800
Speaker 1: if you're looking for opportunity in Europe, what are you

625
00:35:06,880 --> 00:35:11,480
Speaker 1: looking toward right now? It's the more deeper cyclical type

626
00:35:11,520 --> 00:35:18,880
Speaker 1: areas autos um chemicals, Dare I say financials? Um? It is,

627
00:35:19,000 --> 00:35:22,560
Speaker 1: It's it's all predicated on this notion that again, going

628
00:35:22,640 --> 00:35:26,520
Speaker 1: back to what we talked earlier, is that the difference

629
00:35:26,760 --> 00:35:30,440
Speaker 1: between a GDP of one point four percent and one

630
00:35:30,520 --> 00:35:33,640
Speaker 1: point one point seven percent, which is where we think

631
00:35:33,680 --> 00:35:37,360
Speaker 1: we're going in Europe, is massive, and and and the

632
00:35:37,520 --> 00:35:40,520
Speaker 1: leverage inherent in those kinds of companies is where we

633
00:35:40,600 --> 00:35:43,560
Speaker 1: want to be. What about small cap large cap. I

634
00:35:43,600 --> 00:35:46,320
Speaker 1: mean by by demand from your customers. You have to

635
00:35:46,400 --> 00:35:49,120
Speaker 1: live in a large cap world. But what about the

636
00:35:49,239 --> 00:35:52,719
Speaker 1: nuance of small cap mid cap large cap right now? Well,

637
00:35:53,560 --> 00:35:58,960
Speaker 1: small cap has traded expensive relative to large cap for

638
00:35:59,280 --> 00:36:02,839
Speaker 1: most of the last several years. That is correcting. We've

639
00:36:02,920 --> 00:36:07,200
Speaker 1: seen absolutely no progress in the Russell two thousand since December,

640
00:36:07,320 --> 00:36:11,080
Speaker 1: and frankly, we'd prefer to see some progress because the

641
00:36:11,520 --> 00:36:16,399
Speaker 1: concentration of positioning in large cap technology versus the rest

642
00:36:16,440 --> 00:36:20,120
Speaker 1: of the space is definitely a concern, great, very valuable.

643
00:36:20,160 --> 00:36:36,319
Speaker 1: On a Friday, Julian Emmanuel with UBS put out an

644
00:36:36,320 --> 00:36:38,640
Speaker 1: Ashe Lankar now he's global head of asset allocation and

645
00:36:38,760 --> 00:36:41,880
Speaker 1: risk management at Jannis Capitol, writes often for Bloomberg View

646
00:36:41,920 --> 00:36:44,600
Speaker 1: with Nobel Lauriate marn Schuals as well, who's also at

647
00:36:44,640 --> 00:36:47,760
Speaker 1: Jannis Capital now after a distinguished career at Stanford University,

648
00:36:47,760 --> 00:36:49,399
Speaker 1: and Ashe Lanka joins us now on our phone lines.

649
00:36:49,400 --> 00:36:51,000
Speaker 1: I want to talk about the economy and options and

650
00:36:51,080 --> 00:36:53,520
Speaker 1: all of that, but let's start with cross normalization. Help

651
00:36:53,560 --> 00:36:55,120
Speaker 1: me with the term here, asked if you would, what

652
00:36:55,239 --> 00:36:58,160
Speaker 1: does it mean? Good morning, David d Warren, Tom, thanks

653
00:36:58,200 --> 00:37:01,680
Speaker 1: for having me on UM so cross normalization. We we

654
00:37:01,760 --> 00:37:04,480
Speaker 1: talk a lot about normalization and interest rates and monetary

655
00:37:04,520 --> 00:37:08,360
Speaker 1: policy here in the US UM, but another part of

656
00:37:08,440 --> 00:37:13,000
Speaker 1: normalization is getting the relative value UM and relative lending

657
00:37:13,080 --> 00:37:16,799
Speaker 1: rates between countries, between continents that converge to more normal

658
00:37:16,920 --> 00:37:21,359
Speaker 1: levels UM. What has perplexed many since two thousand eight

659
00:37:21,840 --> 00:37:25,640
Speaker 1: UM hedge funds, real money, et cetera. Has been the

660
00:37:25,800 --> 00:37:31,520
Speaker 1: resilient spread between very very low German rates and much

661
00:37:31,640 --> 00:37:35,000
Speaker 1: higher U S rates UM. It's perplexed money why that

662
00:37:35,160 --> 00:37:38,800
Speaker 1: spread not only continues to remain large, but it's larger

663
00:37:39,800 --> 00:37:42,480
Speaker 1: UM and one point or another over the past many

664
00:37:42,560 --> 00:37:46,040
Speaker 1: years UM, many people have bet and put on an

665
00:37:46,080 --> 00:37:50,160
Speaker 1: investment predicting that this spread would converge and so in

666
00:37:50,239 --> 00:37:54,520
Speaker 1: any ways UM, I consider this the modern day widowmaker

667
00:37:54,600 --> 00:37:59,719
Speaker 1: trade UM. But today what we see happening M through

668
00:38:00,160 --> 00:38:04,359
Speaker 1: based on through how the option markets are pricing risk

669
00:38:04,640 --> 00:38:10,560
Speaker 1: in the interstrate markets, we see this spread starting to converge. UM.

670
00:38:10,640 --> 00:38:13,160
Speaker 1: We see a tipping point. And there's many reasons why

671
00:38:13,600 --> 00:38:17,280
Speaker 1: this tipping point is happening right now. The most important

672
00:38:17,280 --> 00:38:22,320
Speaker 1: reason is from a macro economic perspective, the numbers in

673
00:38:22,480 --> 00:38:26,960
Speaker 1: Europe are strengthening. Why the numbers in the US are softening. Um,

674
00:38:28,000 --> 00:38:30,960
Speaker 1: So we think that's spread which stands right about two

675
00:38:31,280 --> 00:38:35,680
Speaker 1: basis points now, Um, you could very quickly see that converge.

676
00:38:36,200 --> 00:38:38,320
Speaker 1: Even when we speak with a chemical engineer out of

677
00:38:38,440 --> 00:38:43,480
Speaker 1: Massachusetts Institute of Technology, we avoid Greek letters on Friday ash.

678
00:38:43,960 --> 00:38:48,439
Speaker 1: So let's try out. Let's try let's let's let's try

679
00:38:48,480 --> 00:38:51,480
Speaker 1: to get through this without killing ourselves on a Friday.

680
00:38:52,040 --> 00:38:55,560
Speaker 1: Your research with Myron Shoals, one of the giants of

681
00:38:55,680 --> 00:38:59,880
Speaker 1: the business, is exceptionally important. And what this is a

682
00:39:00,000 --> 00:39:03,319
Speaker 1: about is when Germany comes out of a negative rate

683
00:39:03,520 --> 00:39:07,719
Speaker 1: environment and whatever we do to normalize, do our our

684
00:39:07,800 --> 00:39:11,200
Speaker 1: our glide pass are our day to day path of

685
00:39:11,320 --> 00:39:16,239
Speaker 1: global Wall Street? Is it done with stability or with

686
00:39:16,520 --> 00:39:20,239
Speaker 1: really ugly movements within the markets? Which is it going

687
00:39:20,280 --> 00:39:24,759
Speaker 1: to be? We think with stabilities, with think moderation. Um.

688
00:39:25,200 --> 00:39:29,160
Speaker 1: We think that the fed UH and the ECB there

689
00:39:29,719 --> 00:39:31,719
Speaker 1: at a point they're actually at a very good point

690
00:39:31,800 --> 00:39:34,400
Speaker 1: where they can start acting a bit strategically. UM. And

691
00:39:34,480 --> 00:39:37,400
Speaker 1: what I mean by that is they realize that they

692
00:39:37,440 --> 00:39:39,839
Speaker 1: have fired all of their bottle bullets and they need

693
00:39:39,880 --> 00:39:44,120
Speaker 1: to reload those bullets, reload those monetary tools. As a

694
00:39:44,239 --> 00:39:46,920
Speaker 1: hedge in case something really bad happens going forward. If

695
00:39:47,480 --> 00:39:49,840
Speaker 1: this is critical, if yields go up, either in the

696
00:39:50,040 --> 00:39:52,880
Speaker 1: US or from the negative space in Germany or the

697
00:39:53,000 --> 00:39:56,279
Speaker 1: twenty years Swiss frank whatever, when the yield goes up,

698
00:39:56,360 --> 00:40:00,200
Speaker 1: I believe the price goes down. Are the losses on

699
00:40:00,360 --> 00:40:04,919
Speaker 1: those transatlantic bond portfolios? Are they a second and third

700
00:40:05,080 --> 00:40:07,759
Speaker 1: order function or are they front and center? For you

701
00:40:07,880 --> 00:40:11,920
Speaker 1: and Myron shoals Uh their second and third odor. In

702
00:40:11,920 --> 00:40:16,440
Speaker 1: our opinion, UM, we don't believe that the market is

703
00:40:16,520 --> 00:40:20,799
Speaker 1: so fragile that it can't handle um interest rates at

704
00:40:20,840 --> 00:40:23,319
Speaker 1: one or overnight lending rates at a hundred basis points,

705
00:40:23,360 --> 00:40:26,680
Speaker 1: for example. UM doesn't We don't really see this being

706
00:40:26,719 --> 00:40:30,920
Speaker 1: a trigger or a catalyst for a sharp correction in markets,

707
00:40:31,200 --> 00:40:33,600
Speaker 1: though in German and in Europe they do have to

708
00:40:33,680 --> 00:40:38,640
Speaker 1: be careful here because Europe is an economy that relies

709
00:40:38,680 --> 00:40:43,680
Speaker 1: on exports. The yuro currency versus the dollar will trade

710
00:40:43,840 --> 00:40:48,040
Speaker 1: on front end rates. So the ECB starts raising, the

711
00:40:48,160 --> 00:40:51,200
Speaker 1: year will start appreciating, and that has a negative effect

712
00:40:51,239 --> 00:40:55,320
Speaker 1: on the economy. But dragging has played this up brilliantly,

713
00:40:55,360 --> 00:40:58,239
Speaker 1: and the ECB has probably this out brilliantly by suggesting

714
00:40:58,920 --> 00:41:04,680
Speaker 1: that their course of action of normalizating, normalizing uh ultra

715
00:41:05,120 --> 00:41:10,320
Speaker 1: accommodative policy stands will first take the form of stopping

716
00:41:10,400 --> 00:41:13,840
Speaker 1: bond purchases, right, so they're going to keep that front

717
00:41:13,960 --> 00:41:17,600
Speaker 1: end low. Hence that will limit any short appreciation in

718
00:41:17,640 --> 00:41:19,520
Speaker 1: the Euro To go to your option work and the

719
00:41:19,600 --> 00:41:24,280
Speaker 1: quantitative finances. A thing folks called gamma, which is basically accelerating.

720
00:41:24,640 --> 00:41:27,560
Speaker 1: If you're on fifty ninth Street which is being repaved

721
00:41:27,719 --> 00:41:30,400
Speaker 1: right now, you know, put your foot on the gas pedal.

722
00:41:30,880 --> 00:41:34,960
Speaker 1: That's acceleration into the next marginal pothole. Tell me about

723
00:41:35,000 --> 00:41:39,760
Speaker 1: the potholes of gamma. What's the mass of short term paper?

724
00:41:40,239 --> 00:41:43,759
Speaker 1: Which Mr Schulz I would respectfully suggest is familiar with.

725
00:41:44,280 --> 00:41:47,440
Speaker 1: What is the size of that short term paper? And

726
00:41:47,560 --> 00:41:51,800
Speaker 1: does gamma crush it when we finally move well, So

727
00:41:52,080 --> 00:41:55,440
Speaker 1: for the gamma, like I thought we were to talk

728
00:41:55,480 --> 00:42:01,160
Speaker 1: about Greeks today's right. So the gamma is that that

729
00:42:01,280 --> 00:42:06,360
Speaker 1: acceleration in the bond markets, many of the holders of

730
00:42:06,440 --> 00:42:10,719
Speaker 1: the paper are buying ho buying hole holders who are

731
00:42:10,920 --> 00:42:14,680
Speaker 1: immunizing liabilities. So think insurance companies, think pension funds, and

732
00:42:14,719 --> 00:42:18,520
Speaker 1: they're bigger they're bigger. They're so big that there are

733
00:42:18,640 --> 00:42:21,359
Speaker 1: the marginal buyer. They are the price enter and they're

734
00:42:21,440 --> 00:42:25,200
Speaker 1: not going to uh, it's interesting to move because their

735
00:42:25,239 --> 00:42:27,680
Speaker 1: assets and liabilities will move in the same direction. So

736
00:42:27,840 --> 00:42:30,879
Speaker 1: that there's someone I'll use another term here there, delta head. Okay,

737
00:42:31,000 --> 00:42:34,040
Speaker 1: delta head, that's it, you're cut off. L anchor for

738
00:42:34,160 --> 00:42:37,400
Speaker 1: Janice writing with Iron shows We're gonna come back, Greek

739
00:42:37,520 --> 00:42:41,360
Speaker 1: letter free. That was great anchor with us with Janice.

740
00:42:41,400 --> 00:42:46,480
Speaker 1: He's written a really smart essay bloom Review say options signal,

741
00:42:46,600 --> 00:42:52,400
Speaker 1: pragmatism may trump America first smart smart essay with Myron Scholes,

742
00:42:52,480 --> 00:42:54,520
Speaker 1: one of the truly iconic names you know at Wall

743
00:42:54,600 --> 00:42:58,080
Speaker 1: Street from Black Shoals, and it's just a really really

744
00:42:58,120 --> 00:43:01,360
Speaker 1: smart essay as I want to open up the dialogue

745
00:43:01,400 --> 00:43:04,279
Speaker 1: here to the work of not seeing Talb and the

746
00:43:04,360 --> 00:43:06,480
Speaker 1: basic idea that we all go to school, and of

747
00:43:06,560 --> 00:43:10,200
Speaker 1: course there's a zillion people now cramming for the CFA exam,

748
00:43:10,280 --> 00:43:13,279
Speaker 1: which I believe is next Saturday, and that it's a

749
00:43:13,360 --> 00:43:16,680
Speaker 1: Gaussian world. Folks. It looks like that bell curve of

750
00:43:16,800 --> 00:43:20,360
Speaker 1: your height of your high school class. And Mr Taleb

751
00:43:20,400 --> 00:43:23,200
Speaker 1: among others, would say no, it's a world of rare

752
00:43:23,280 --> 00:43:27,960
Speaker 1: events black Swans, which is not a normal or Gaussian distribution,

753
00:43:28,600 --> 00:43:31,879
Speaker 1: but the French thing, the Plasan distribution. Think about Little

754
00:43:31,920 --> 00:43:37,880
Speaker 1: Mermaid La La, the Plassan distribution. In the bottom line,

755
00:43:38,280 --> 00:43:41,800
Speaker 1: ash is we talk all day like it's a Gaussian

756
00:43:41,880 --> 00:43:45,839
Speaker 1: world and Talb is correct. Now they're rare events out there,

757
00:43:46,280 --> 00:43:49,280
Speaker 1: they're get in the way. What have you learned about

758
00:43:49,480 --> 00:43:53,720
Speaker 1: rare events in the last few years? So rare events

759
00:43:54,440 --> 00:43:57,560
Speaker 1: are exactly the correct description of the global capital markets.

760
00:43:57,800 --> 00:44:02,360
Speaker 1: And what we've learned is the rare events, the unexpected

761
00:44:03,160 --> 00:44:06,719
Speaker 1: is becoming more expected. It's becoming more frequent um, which

762
00:44:06,840 --> 00:44:11,800
Speaker 1: driving risk premiums. What's driving positioning isn't what we believe

763
00:44:11,960 --> 00:44:15,080
Speaker 1: might happen in a normal world, what we believe will

764
00:44:15,160 --> 00:44:18,719
Speaker 1: happen on average, But what's driving risk aversion is what

765
00:44:19,200 --> 00:44:23,960
Speaker 1: we fear is happening in the extremes. And even though

766
00:44:24,040 --> 00:44:28,759
Speaker 1: that come to light more so now than any period historically,

767
00:44:28,880 --> 00:44:32,560
Speaker 1: with Brexit, with Trump's win, etcetera, etcetera. So these one

768
00:44:32,680 --> 00:44:37,239
Speaker 1: off political events historically and then this is quite that.

769
00:44:37,360 --> 00:44:40,160
Speaker 1: This puzzled me, and I was even puzzled Myron a

770
00:44:40,239 --> 00:44:45,680
Speaker 1: bit Historically, almost all of the risk premium to almost

771
00:44:45,760 --> 00:44:50,319
Speaker 1: every single asset class is explained by the extremes there

772
00:44:50,520 --> 00:44:53,920
Speaker 1: is within Myron shoals work basic math, folks, here it

773
00:44:54,040 --> 00:44:56,239
Speaker 1: is one over the square to two pie. Forget about that.

774
00:44:56,360 --> 00:44:58,960
Speaker 1: There will be no pop quiz on a Friday. But

775
00:44:59,280 --> 00:45:03,800
Speaker 1: the founda action of the modeling of Black Shoals is

776
00:45:04,000 --> 00:45:07,960
Speaker 1: that normal distribution. Would you suggest that within your work

777
00:45:08,040 --> 00:45:12,719
Speaker 1: with Iron Shoals, that Professor Shoals is moving away from

778
00:45:12,760 --> 00:45:16,520
Speaker 1: the certitude of a normal world with a little more

779
00:45:16,600 --> 00:45:21,200
Speaker 1: respect for what we see within rare events. Absolutely, um,

780
00:45:21,320 --> 00:45:26,000
Speaker 1: So black Shoals did assume for mathematical tractability that the

781
00:45:26,040 --> 00:45:30,360
Speaker 1: world is normal. Yes, the underlying tenant of Black Shoals,

782
00:45:30,800 --> 00:45:36,799
Speaker 1: the underlying purpose of options is to allow market participants

783
00:45:36,880 --> 00:45:42,080
Speaker 1: to buy insurance. So by that very fact that option

784
00:45:42,239 --> 00:45:47,279
Speaker 1: contracts serve the role of providing insurance, you implicitly would

785
00:45:47,280 --> 00:45:50,080
Speaker 1: even think explicitly, are making the case it's the rear

786
00:45:50,160 --> 00:45:54,160
Speaker 1: events options are useful for well, said Alan Greenspan said

787
00:45:54,200 --> 00:45:56,400
Speaker 1: the same thing before and after the crisis. Have we

788
00:45:56,520 --> 00:46:00,440
Speaker 1: learned anything since two thousand seven? I think what we

789
00:46:00,560 --> 00:46:05,320
Speaker 1: have learned is that one market prices are smart on

790
00:46:05,400 --> 00:46:08,719
Speaker 1: the market is smart um Market prices provide a lot

791
00:46:08,800 --> 00:46:13,320
Speaker 1: of information to help guide where pockets of stress or building,

792
00:46:13,960 --> 00:46:17,160
Speaker 1: but more important or just as important, where pockets of

793
00:46:17,200 --> 00:46:20,399
Speaker 1: opportunity lie so well, whereas not seeing palab talked about

794
00:46:20,440 --> 00:46:24,680
Speaker 1: the black swan, rare events also rare events to the upside,

795
00:46:25,239 --> 00:46:27,680
Speaker 1: and you can't ignore those as well. Right, so that

796
00:46:27,760 --> 00:46:30,280
Speaker 1: you have to think about tail risk or the extreme

797
00:46:30,440 --> 00:46:34,360
Speaker 1: both in terms of the risk of extreme loss but

798
00:46:34,560 --> 00:46:37,560
Speaker 1: also the risk of extreme gain. And you do not

799
00:46:37,880 --> 00:46:41,080
Speaker 1: want to sit on the sideline if a right tail

800
00:46:41,400 --> 00:46:44,160
Speaker 1: or a big move up is eminent, which a lot

801
00:46:44,239 --> 00:46:46,360
Speaker 1: of us did in two thousand thirteen. Right, If you

802
00:46:46,400 --> 00:46:49,120
Speaker 1: remember back in two thousand thirteen, no one believed in

803
00:46:49,160 --> 00:46:53,440
Speaker 1: the market rally. Everyone was light on risk exposure, and

804
00:46:53,480 --> 00:46:57,160
Speaker 1: then the markets ripped up. So even though you pull

805
00:46:57,239 --> 00:46:59,520
Speaker 1: on Bloomberg, on Bloomberg, you pull up the screen of

806
00:46:59,560 --> 00:47:04,560
Speaker 1: two thousand thirteen, everything looks green, everything looks fantastic. But

807
00:47:04,680 --> 00:47:06,760
Speaker 1: many of us don't have fond memories of two thousand

808
00:47:06,880 --> 00:47:10,640
Speaker 1: thirteen because we suffered the tail risk of failing to

809
00:47:10,760 --> 00:47:14,239
Speaker 1: participate on the outside. They have to think about both.

810
00:47:14,680 --> 00:47:17,000
Speaker 1: Then asked, what's the options market telling you about the

811
00:47:17,120 --> 00:47:20,080
Speaker 1: viability of the the economic plans that at least outline

812
00:47:20,080 --> 00:47:22,640
Speaker 1: in broad strokes by by this president. What what's it?

813
00:47:22,719 --> 00:47:25,640
Speaker 1: What's it telling you about their viability or or what

814
00:47:25,760 --> 00:47:31,360
Speaker 1: participants thing may happen. Excellent question. Um, it's somewhat contrary

815
00:47:31,400 --> 00:47:34,480
Speaker 1: to what a lot of people are talking about right now,

816
00:47:34,640 --> 00:47:39,720
Speaker 1: which is these um that this involvement with Russia, these

817
00:47:39,800 --> 00:47:44,239
Speaker 1: Russia dealings are distracting the Trump administration from their pro

818
00:47:44,440 --> 00:47:47,080
Speaker 1: growth agenda. But the option market is telling us something

819
00:47:47,120 --> 00:47:50,320
Speaker 1: exactly opposite, is telling us the pragmatic thinking of Trump

820
00:47:50,640 --> 00:47:53,920
Speaker 1: and his administration will prevail. And how it telling us

821
00:47:54,040 --> 00:47:57,800
Speaker 1: this and how we're inferring this conclusion is the option

822
00:47:57,880 --> 00:48:02,520
Speaker 1: market is assigning much great or upside to us small

823
00:48:02,640 --> 00:48:07,360
Speaker 1: caps versus US large caps. Um And who's going to

824
00:48:07,480 --> 00:48:11,440
Speaker 1: benefit from tax breaks? Who's going to benefit from infrastructure?

825
00:48:11,520 --> 00:48:16,279
Speaker 1: So is your bet large cap? Our bet is small cap? Okay,

826
00:48:16,280 --> 00:48:18,640
Speaker 1: you're gonna go with the options pricing? Yeah, we're going

827
00:48:18,719 --> 00:48:21,239
Speaker 1: we go with the options prices. So we were being

828
00:48:21,360 --> 00:48:24,760
Speaker 1: a good citizens of technology. We believe in the power

829
00:48:24,840 --> 00:48:27,440
Speaker 1: of crowdsourcing good. I believe in the power of what

830
00:48:27,600 --> 00:48:31,120
Speaker 1: leverage can do to somebody's wallet when ugly, where are

831
00:48:31,160 --> 00:48:33,360
Speaker 1: you admiring shows on the use of leverage right now?

832
00:48:33,520 --> 00:48:36,000
Speaker 1: Is in an over lever system even when you put

833
00:48:36,080 --> 00:48:39,120
Speaker 1: central bank action into it. Um, We don't think the

834
00:48:39,200 --> 00:48:42,560
Speaker 1: market is over levered. Um. If you look at there

835
00:48:42,640 --> 00:48:45,080
Speaker 1: was a great report which came out by Morgan Stanley

836
00:48:45,120 --> 00:48:49,920
Speaker 1: which showed within their high net worth private client business

837
00:48:50,480 --> 00:48:53,640
Speaker 1: private clients. So these are people call it five million

838
00:48:53,640 --> 00:48:58,319
Speaker 1: dollars in above and like myself by that, by by

839
00:48:58,360 --> 00:49:06,000
Speaker 1: a hundreds um, they are holding close to tent cash um.

840
00:49:06,440 --> 00:49:08,480
Speaker 1: And so a lot of people are still holding up

841
00:49:08,520 --> 00:49:10,839
Speaker 1: to a lot of cash. So if you're holding onto

842
00:49:10,840 --> 00:49:13,920
Speaker 1: a lot of cash, it's very, very difficult for the

843
00:49:13,960 --> 00:49:17,000
Speaker 1: market to correct. Okay, Astrona And then we think Michael

844
00:49:17,040 --> 00:49:19,440
Speaker 1: Wilson and Morgan Stanley for his work with us earlier

845
00:49:19,840 --> 00:49:22,239
Speaker 1: this week. This has been phenomenal. Ashroon al Anchor, thank

846
00:49:22,280 --> 00:49:24,640
Speaker 1: you so much with Janice with my Iron Show is

847
00:49:24,640 --> 00:49:28,279
Speaker 1: a terrific bloom review saying David was that too nerdy? Well,

848
00:49:29,680 --> 00:49:32,880
Speaker 1: so I thought it was great. It's interesting, I really

849
00:49:33,320 --> 00:49:36,839
Speaker 1: would say, folks, I can't say enough how the way

850
00:49:36,920 --> 00:49:42,200
Speaker 1: to gently get into this is a not scene teleb classic,

851
00:49:43,080 --> 00:49:47,600
Speaker 1: not black Swan, not anti fragile, which is brilliant, but

852
00:49:47,840 --> 00:49:51,520
Speaker 1: fooled by randomness. It is his first effort. It's the

853
00:49:51,719 --> 00:49:56,960
Speaker 1: least Matthew. It also is incredibly funny. But you want

854
00:49:57,000 --> 00:50:00,839
Speaker 1: to go back and start in with fooled by randomness

855
00:50:01,440 --> 00:50:04,160
Speaker 1: now seemed Toleb. It was a jewel when it came out,

856
00:50:04,600 --> 00:50:07,080
Speaker 1: and it's still a jewel. Uh to this day. That

857
00:50:07,200 --> 00:50:10,239
Speaker 1: was flag as well. Eric Shatzgar called Eric shatz sat

858
00:50:10,239 --> 00:50:12,200
Speaker 1: down with the same at the SALT conference last week.

859
00:50:12,200 --> 00:50:14,560
Speaker 1: It was a rare and a great interview on intelligence.

860
00:50:15,800 --> 00:50:18,040
Speaker 1: Oh that was great. So that's our quantitative finance for

861
00:50:18,120 --> 00:50:25,560
Speaker 1: two thousand seventeen. We're done letters negatived sixty three negative

862
00:50:25,600 --> 00:50:28,920
Speaker 1: twenty uh and the bigs ten point zero two. I

863
00:50:28,920 --> 00:50:31,320
Speaker 1: should go back and do an old quote, JP Morgan

864
00:50:31,400 --> 00:50:34,360
Speaker 1: eighty five and a quarter up, one quarter, city, group up,

865
00:50:34,440 --> 00:50:48,680
Speaker 1: three eights Join us now, great to have with us,

866
00:50:48,719 --> 00:50:50,600
Speaker 1: as Brian Kelly, he's known as the points guy. He

867
00:50:50,680 --> 00:50:52,719
Speaker 1: joins us on our phone lines. Brian, great to speak

868
00:50:52,760 --> 00:50:55,040
Speaker 1: with you. As always. Let's start with the tips about

869
00:50:55,040 --> 00:50:57,080
Speaker 1: how to approach this weekend in particular, got one of

870
00:50:57,120 --> 00:51:01,880
Speaker 1: our producers writing in tweeting saying he's at LaGuardia. There's chaos, delays,

871
00:51:02,000 --> 00:51:04,880
Speaker 1: overbooked flights. How do you fix this? What's the approach

872
00:51:05,000 --> 00:51:09,200
Speaker 1: you take when traveling over a holiday weekend? Yeah, things

873
00:51:09,239 --> 00:51:12,759
Speaker 1: are really messy, especially traveling throughout New York this weekend. Uh,

874
00:51:13,320 --> 00:51:15,640
Speaker 1: you know flights, If your flight gets canceled, I highly

875
00:51:15,680 --> 00:51:17,879
Speaker 1: recommend you know, instead of waiting in a really long

876
00:51:18,000 --> 00:51:20,280
Speaker 1: line at the airport, try to reach out to airlines

877
00:51:20,320 --> 00:51:23,320
Speaker 1: on social media. They have special teams that can actually

878
00:51:23,400 --> 00:51:27,120
Speaker 1: rebook you much quicker than waiting in line. And if

879
00:51:27,160 --> 00:51:29,799
Speaker 1: the phone lines are really really long, here's a trick.

880
00:51:29,880 --> 00:51:33,320
Speaker 1: You can actually call the number. In Mexico. They have

881
00:51:33,440 --> 00:51:37,319
Speaker 1: English speaking agents and they can Usually you'll get right through.

882
00:51:37,480 --> 00:51:39,520
Speaker 1: So instead of waiting an hour or two hours like

883
00:51:39,640 --> 00:51:42,240
Speaker 1: a lot of the airlines have, you can call foreign

884
00:51:42,360 --> 00:51:45,000
Speaker 1: numbers to just kind of jump the line. I love

885
00:51:45,120 --> 00:51:49,600
Speaker 1: that will if I will definitely employ right when when

886
00:51:49,640 --> 00:51:51,560
Speaker 1: when you when you look at all that's available to

887
00:51:51,600 --> 00:51:53,880
Speaker 1: travelers to day, when it comes to frequent flyer programs

888
00:51:53,920 --> 00:51:57,120
Speaker 1: and special premium programs, what makes the biggest difference. I

889
00:51:57,200 --> 00:51:59,680
Speaker 1: had to fly to Boston on Monday. I noticed and

890
00:52:00,239 --> 00:52:02,120
Speaker 1: scowled at those next to me who were moving through quickly,

891
00:52:02,160 --> 00:52:04,359
Speaker 1: who are going through because of Clear or something else

892
00:52:04,400 --> 00:52:06,520
Speaker 1: that was identified on on their tickets. What works and

893
00:52:06,640 --> 00:52:08,839
Speaker 1: what does it? What's worth paying for now to get

894
00:52:08,880 --> 00:52:12,120
Speaker 1: through the airport faster. Well, it's definitely worth paying the

895
00:52:12,200 --> 00:52:14,480
Speaker 1: hundred dollars for Global Entry, which also gets you t

896
00:52:14,680 --> 00:52:16,680
Speaker 1: S a pre check. But as you mentioned, Clear is

897
00:52:16,719 --> 00:52:19,840
Speaker 1: also expanding Clear as a biometric screening process that actually

898
00:52:20,560 --> 00:52:22,799
Speaker 1: allows you to jump to t S a pre check line,

899
00:52:23,400 --> 00:52:25,520
Speaker 1: so you know if you're in an airport that has

900
00:52:25,680 --> 00:52:28,239
Speaker 1: long a lot of airports don't manage the pre check

901
00:52:28,280 --> 00:52:31,200
Speaker 1: line as well. So, uh, the CLEAR program, I think

902
00:52:31,200 --> 00:52:33,799
Speaker 1: it's about a hundred dollars. Some frequent flyer programs even

903
00:52:33,840 --> 00:52:36,239
Speaker 1: give it you for free. And then when coming into

904
00:52:36,280 --> 00:52:38,439
Speaker 1: the US, you know, Global entry is great, But also

905
00:52:38,480 --> 00:52:41,160
Speaker 1: if you don't have Global entries, sign up for Mobile Passport.

906
00:52:41,440 --> 00:52:43,239
Speaker 1: Most people don't realize that you can get it. It's

907
00:52:43,239 --> 00:52:45,520
Speaker 1: an app that actually lets you take your picture and

908
00:52:45,640 --> 00:52:48,759
Speaker 1: go through a kiosk almost as quickly as Global Entry.

909
00:52:48,880 --> 00:52:52,520
Speaker 1: So if you're traveling internationally, you must get Mobile Passport.

910
00:52:52,760 --> 00:52:54,520
Speaker 1: Thank you. That's a great tip. I have not seen

911
00:52:54,600 --> 00:52:57,719
Speaker 1: that I don't have global entry, folks, I can't. I

912
00:52:58,040 --> 00:53:00,680
Speaker 1: think I try to sign up and go your your

913
00:53:00,719 --> 00:53:05,080
Speaker 1: appointments in you know, February of next year, Brian. And

914
00:53:05,160 --> 00:53:07,680
Speaker 1: I've said this before that Mr Kelly certainly changed the

915
00:53:08,239 --> 00:53:11,080
Speaker 1: life of our household and trying to make sense of

916
00:53:11,120 --> 00:53:13,800
Speaker 1: how to get around the world. Brian, there's been a

917
00:53:13,840 --> 00:53:18,240
Speaker 1: real theme on your wonderful website about we're becoming revenue based.

918
00:53:18,400 --> 00:53:20,880
Speaker 1: That the airlines are looking at the insanity of the

919
00:53:20,960 --> 00:53:23,960
Speaker 1: Brian Kelly world and they're saying, if you don't give

920
00:53:24,040 --> 00:53:26,640
Speaker 1: us money, you don't get benefits. Where are we going

921
00:53:26,719 --> 00:53:29,200
Speaker 1: to be in two years or five years? Was it

922
00:53:29,320 --> 00:53:32,680
Speaker 1: just about revenue base? Well, I mean I see loyalty

923
00:53:32,760 --> 00:53:36,040
Speaker 1: shifting away from airlines and into credit cards instead. You know,

924
00:53:36,360 --> 00:53:38,920
Speaker 1: as you said, they're not really frequent flyer programs anymore.

925
00:53:38,920 --> 00:53:42,800
Speaker 1: Their frequent spender programs. So, you know, with Chase and

926
00:53:42,880 --> 00:53:45,640
Speaker 1: now there's a ton of competition in the premium card market.

927
00:53:45,760 --> 00:53:49,000
Speaker 1: US Bank just launched a new credit card that's pretty lucrative.

928
00:53:49,400 --> 00:53:53,279
Speaker 1: UBS is launching, you know, a credit card that's you know,

929
00:53:53,400 --> 00:53:56,520
Speaker 1: marketed towards affluent consumers. So consumers have a ton of

930
00:53:56,640 --> 00:53:59,759
Speaker 1: choices with credit cards, and so it's instead of giving

931
00:53:59,760 --> 00:54:02,080
Speaker 1: your yalty to an airline, it's it's still all about

932
00:54:02,120 --> 00:54:04,360
Speaker 1: the credit cards. And that's the uh, the way I

933
00:54:04,440 --> 00:54:07,880
Speaker 1: see the market moving. I'm looking at your your website now,

934
00:54:07,920 --> 00:54:09,480
Speaker 1: at the points guy dot com. I see that you

935
00:54:09,640 --> 00:54:12,960
Speaker 1: you value points through these different programs. How do you

936
00:54:12,960 --> 00:54:15,040
Speaker 1: go about doing that? How do you assign worth too

937
00:54:15,120 --> 00:54:18,360
Speaker 1: freaking flyer miles? You know, it's really difficult because the

938
00:54:18,440 --> 00:54:20,880
Speaker 1: most some credit card programs are easy. They'll give you

939
00:54:20,960 --> 00:54:23,000
Speaker 1: like one cent per point when you're reading for travel

940
00:54:23,160 --> 00:54:26,000
Speaker 1: or a little bit more. You know, the traditional freaking

941
00:54:26,040 --> 00:54:29,120
Speaker 1: flyer programs are hard because you know, if you're like me,

942
00:54:29,320 --> 00:54:32,680
Speaker 1: you can figure out how to maximize, uh, these chart

943
00:54:32,760 --> 00:54:35,960
Speaker 1: based programs. So you know, in a way, a lot

944
00:54:36,040 --> 00:54:37,880
Speaker 1: of the programs they don't peg the value of your

945
00:54:37,920 --> 00:54:39,960
Speaker 1: award to the cost of the tickets, so you can

946
00:54:40,239 --> 00:54:43,400
Speaker 1: still to this day booked, you know, ten first class

947
00:54:43,400 --> 00:54:46,640
Speaker 1: tickets for you know, fifty tho miles. In certain programs,

948
00:54:46,680 --> 00:54:50,040
Speaker 1: it's getting harder and harder. But uh, when we value

949
00:54:50,040 --> 00:54:51,960
Speaker 1: the miles, we try to assess the value that an

950
00:54:52,000 --> 00:54:55,359
Speaker 1: average consumer could reasonably get right without having to spend

951
00:54:55,640 --> 00:54:57,960
Speaker 1: you know, fifty hours of time researching how to how

952
00:54:58,000 --> 00:55:00,960
Speaker 1: to maximize what determines for these can flyer programs, how

953
00:55:01,000 --> 00:55:02,840
Speaker 1: a deal is is created. I look at the British

954
00:55:02,840 --> 00:55:05,400
Speaker 1: Airways deal right now, twenty four times the points per

955
00:55:05,480 --> 00:55:08,000
Speaker 1: dollars spent. Why is that happening? Now? Why? Why? Why

956
00:55:08,040 --> 00:55:09,360
Speaker 1: do they pick a certain time of you to do

957
00:55:09,440 --> 00:55:12,839
Speaker 1: deals like those? Well, a lot of people don't realize

958
00:55:12,880 --> 00:55:14,439
Speaker 1: that you can earn a ton of frequent flyer miles

959
00:55:14,480 --> 00:55:16,800
Speaker 1: by shopping online. So my biggest tip is, never go

960
00:55:16,960 --> 00:55:20,200
Speaker 1: directly to a retailer's website. Always clicked through either an

961
00:55:20,239 --> 00:55:24,759
Speaker 1: airline mileage shopping portal or cash back And simply put,

962
00:55:25,120 --> 00:55:28,320
Speaker 1: they give frequent flyer mile bonuses to incentivize people to shop.

963
00:55:28,880 --> 00:55:31,200
Speaker 1: Uh you know, it's it's really just an affiliate deal

964
00:55:31,280 --> 00:55:34,000
Speaker 1: where these shopping portals get a cut of any sale

965
00:55:34,040 --> 00:55:36,360
Speaker 1: that you make and they give you a rebase in

966
00:55:36,400 --> 00:55:39,560
Speaker 1: the form of frequent flyer miles. So, uh yeah, right now,

967
00:55:39,640 --> 00:55:41,640
Speaker 1: there's twenty four miles at a at a bunch of

968
00:55:41,680 --> 00:55:44,960
Speaker 1: different retailers through the British Airways shopping portal and uh,

969
00:55:45,120 --> 00:55:48,040
Speaker 1: you know, most recently there was a match dot com. Uh,

970
00:55:48,239 --> 00:55:50,680
Speaker 1: deal where it's thirty miles per dollar, and people were

971
00:55:50,719 --> 00:55:52,759
Speaker 1: signing up for match dot com and then canceling it

972
00:55:52,880 --> 00:55:55,319
Speaker 1: just to get you know, boatload of miles. So there's

973
00:55:55,360 --> 00:55:59,799
Speaker 1: still ways that you can maximize points up and now

974
00:56:00,040 --> 00:56:02,400
Speaker 1: you do with Brian Kelly on every Friday that we

975
00:56:02,560 --> 00:56:08,280
Speaker 1: have him. He makes us sick. The points guy, Ocean

976
00:56:08,440 --> 00:56:13,640
Speaker 1: Cove Pavilion, I can't pronounce it. Turks and Caikos. Let

977
00:56:13,719 --> 00:56:17,440
Speaker 1: me guess you. You flew jet Blue for like twelve

978
00:56:17,600 --> 00:56:20,640
Speaker 1: dollars and stay in a thousand dollar a night hotel

979
00:56:20,760 --> 00:56:23,800
Speaker 1: for twenty eight dollars. Tell us about your trip to

980
00:56:23,920 --> 00:56:26,799
Speaker 1: Turks and Caikos. Well, you know what, Tom, you may

981
00:56:27,000 --> 00:56:30,000
Speaker 1: you know, hold hold your desk. But I actually paid

982
00:56:30,320 --> 00:56:32,080
Speaker 1: for that. I'm on resorts for some of the best

983
00:56:32,120 --> 00:56:34,160
Speaker 1: resorts around the world, So I actually paid for that

984
00:56:34,239 --> 00:56:36,759
Speaker 1: out of pocket. It was two thousand dollars a night. Uh,

985
00:56:37,200 --> 00:56:38,880
Speaker 1: but I booked her Amax and got a ton of

986
00:56:39,040 --> 00:56:41,279
Speaker 1: upgrades and you know, a free bottle of dumb and

987
00:56:41,360 --> 00:56:44,440
Speaker 1: all these other things. You know, it's not always about

988
00:56:44,480 --> 00:56:47,800
Speaker 1: the points, it's about the perks too. Well, this is important,

989
00:56:48,160 --> 00:56:51,520
Speaker 1: This is the new trend. Isn't seriously Brian, you put

990
00:56:51,800 --> 00:56:55,719
Speaker 1: up money and you're treated differently. That's the new theme,

991
00:56:55,800 --> 00:56:59,160
Speaker 1: isn't it. Yes, even in luxury travel, the points aren't

992
00:56:59,160 --> 00:57:01,600
Speaker 1: just for bargains. Even on the on the luxury side,

993
00:57:01,640 --> 00:57:03,360
Speaker 1: you can always get more. And you know, never just

994
00:57:03,440 --> 00:57:06,120
Speaker 1: booked through a hotel's website. Always try to, you know,

995
00:57:06,320 --> 00:57:08,799
Speaker 1: get the best deal, whether it's booking through credit card

996
00:57:09,040 --> 00:57:11,520
Speaker 1: or you know even virtuos so travel agents can give

997
00:57:11,560 --> 00:57:14,840
Speaker 1: great value as well for a luxury stage. So to summarize,

998
00:57:14,880 --> 00:57:16,800
Speaker 1: you do this thing to Turks and kego, she spent

999
00:57:16,920 --> 00:57:19,360
Speaker 1: the money on the hotel, But then what did you

1000
00:57:19,440 --> 00:57:21,600
Speaker 1: do to get the bottle of dumb? Did we? Why

1001
00:57:21,680 --> 00:57:25,640
Speaker 1: you do we have that here? Friday's surveillance. It's definitely

1002
00:57:25,720 --> 00:57:29,720
Speaker 1: on ice. Yeah, they're keeping it cold. It was. It

1003
00:57:29,800 --> 00:57:32,960
Speaker 1: was all through m xstorians so bucks A here for

1004
00:57:33,000 --> 00:57:35,880
Speaker 1: that card. But you know, I have a personalized concierge

1005
00:57:35,920 --> 00:57:38,800
Speaker 1: that gets me crazy values first grade, so you know

1006
00:57:39,160 --> 00:57:42,080
Speaker 1: it can be worth it to pay for services like that. Here.

1007
00:57:43,760 --> 00:57:47,080
Speaker 1: One final question points guy the state of United Airlines.

1008
00:57:48,880 --> 00:57:52,840
Speaker 1: You know, I think, uh, you know, they're they're rolling

1009
00:57:52,880 --> 00:57:56,920
Speaker 1: out their new player's business class. I'm optimistic that United

1010
00:57:56,960 --> 00:57:59,600
Speaker 1: will get better. Uh, but you know, they've they've got

1011
00:57:59,680 --> 00:58:01,680
Speaker 1: a long road to go there. Most of their business

1012
00:58:01,720 --> 00:58:06,400
Speaker 1: class uh uh is still you know, uh eight across

1013
00:58:06,520 --> 00:58:08,440
Speaker 1: and and uh, They've they've got a long way to go.

1014
00:58:08,600 --> 00:58:11,880
Speaker 1: But I'm optimistic for United that they're gonna they're gonna

1015
00:58:11,880 --> 00:58:15,440
Speaker 1: be one day at least competitive. Brian Kelly, may you,

1016
00:58:15,600 --> 00:58:18,160
Speaker 1: may you avoid all the traffic at LaGuardia. Mr Kelly

1017
00:58:18,280 --> 00:58:21,240
Speaker 1: is the points guy, and certainly he's he's one of

1018
00:58:21,320 --> 00:58:25,000
Speaker 1: these young guys folks that truly his single antuly changed

1019
00:58:25,080 --> 00:58:36,880
Speaker 1: the industry. It's just amazing what he's done. Thanks for

1020
00:58:36,960 --> 00:58:41,040
Speaker 1: listening to the Bloomberg Surveillance podcast. Subscribe and listen to

1021
00:58:41,160 --> 00:58:47,200
Speaker 1: interviews on Apple Podcasts, SoundCloud, or whichever podcast platform you prefer.

1022
00:58:47,760 --> 00:58:50,840
Speaker 1: I'm on Twitter at Tom Keene. David Gura is at

1023
00:58:50,960 --> 00:58:55,720
Speaker 1: David Gura. Before the podcast, you can always catch us worldwide.

1024
00:58:56,000 --> 00:59:10,280
Speaker 1: I'm Bloomberg Radio, brought you by Bank of America Mary Lynch.

1025
00:59:10,600 --> 00:59:16,040
Speaker 1: With virtual reality, virtually everything will change. Discover opportunities in

1026
00:59:16,120 --> 00:59:20,720
Speaker 1: a transforming world. Be of a mL dot Com, slash VR,

1027
00:59:21,600 --> 00:59:24,520
Speaker 1: Mary Lynch, Pierced Fenner and Smith Incorporated,