Speaker 1: This is the Bloomberg Surveillance Podcast. I'm Tom Keene, along
Speaker 1: with Jonathan Farrow and Lisa Abramowitz. Join us each day
Speaker 1: for insight from the best an economics, geopolitics, finance and investment.
Speaker 1: Subscribe to Bloomberg Surveillance on demand on Apple, Spotify and
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Speaker 1: the Bloomberg Terminal and the Bloomberg Business app. Who could
Speaker 1: we speak to that could talk about the bench at
Speaker 1: Morgan Stanley and that would be Oh, I don't know,
Speaker 1: Ellen Zendner or you know Jim Caron will be on
Speaker 1: with John Farrow in the next hour. No, that's not
Speaker 1: the bench expert at the benches of Wall Street firms
Speaker 1: is our Bloomberg Someday they'll be CEO Correspondent Shannelli bask
Speaker 1: joins us. Is this a surprise that mister Gorman will
Speaker 1: step aside?
Speaker 2: The timeline is certainly a surprise. We knew that it
Speaker 2: would be coming one day. He's been at the home
Speaker 2: for a very long time now and we know that
Speaker 2: more and Stanley has been prepping the bench for a while.
Speaker 2: Think about how many people have grown up under James
Speaker 2: Gorman have left the firm and the two men under
Speaker 2: him right now, Andy Saperstin at the Wealth business and
Speaker 2: Ted Pick. They're home grown. They have been there for
Speaker 2: a long time. They have been at the most pivotal
Speaker 2: moments of the firm up and down. That is a
Speaker 2: Ted Pick at the institutional Securities division really helped make
Speaker 2: this tough transition from cutting and adding to the fixed
Speaker 2: income business, for example, help competing as the top prime
Speaker 2: broker on Wall Street in the equities business as well.
Speaker 2: And over at the wealth business. Andy Sapristin, former consultant,
Speaker 2: longtime lieutenant to James Gorman. Now the question is and
Speaker 2: waiting for the headlines on this did they at what
Speaker 2: point are they going to announce who is taking over?
Speaker 3: Well, let me just read the exact statement this from
Speaker 3: Gorman at the firm's annual meeting. He said, it is
Speaker 3: the boards and my expectation that it will occur at
Speaker 3: some point in the next twelve months. He's talking about
Speaker 3: his departure as chief executive officer and becoming the chair
Speaker 3: of the board. That is the current expectation in the
Speaker 3: absence of a major change in the external environment. Also,
Speaker 3: a key question was this a decision that he made
Speaker 3: independently for a lifestyle kind of issue. Was this some
Speaker 3: sort of strategic shift by the board made basically without
Speaker 3: necessarily his desiring this departure.
Speaker 2: You know, I think that's an interesting question. It's hard
Speaker 2: to have any evidence of something like that. James Gorman
Speaker 2: has just made this firm into a behemoth. Remember when
Speaker 2: I started covering Morgan Stanley, they were worth much less
Speaker 2: than Goldman's acts. Now they are worth much more. That
Speaker 2: divide has just increased despite many, many doubts. I remember
Speaker 2: years ago there was a call, a conference call, and
Speaker 2: you had analysts asking why he wasn't raising the bar
Speaker 2: more for Morgan Stanley, and you had James Gorman stepping
Speaker 2: back saying be patient, We've got this, and ultimately he
Speaker 2: was right. And so you know, again there's been a
Speaker 2: lot of consistency year, Lisa, when you look at the
Speaker 2: next level of the firm, and again I think this
Speaker 2: is very classic Morgan Stanley fashion. They announced one change,
Speaker 2: they give you some time to absorb it, then they
Speaker 2: announced the next big move.
Speaker 3: So it's interesting to me the point about unless there
Speaker 3: is some sort of shift in the market conditions at
Speaker 3: a time when people have been talking about a financial
Speaker 3: crisis that never transpired, and now people are talking almost
Speaker 3: about stasis or this calm that has really percolated out.
Speaker 3: Is this viewed as sort of a calm period, a
Speaker 3: pond with the duck sailing cross, even if there's paddling underneath,
Speaker 3: where they can actually make shifts like this without any
Speaker 3: major disruption and do it easily.
Speaker 2: Well, how fascinating to talk about this right before people
Speaker 2: are worried about a potential recession. Morgan Stanley has seen
Speaker 2: some of the worst days to two thousand and eight.
Speaker 2: They remember what it felt like. So this is some calm,
Speaker 2: isn't it. That is saying it is calm enough to
Speaker 2: start to transition. And by the way, look how many
Speaker 2: CEOs are changing on Wall Street. This is the time
Speaker 2: for the next generation to step Well.
Speaker 1: Okay, maybe Paul Davis wrote this six months ago, five
Speaker 1: months ago for Bloomberg. Thank you to the Washington Post
Speaker 1: for publishing Paul Davies, and he just I'll never forget
Speaker 1: the headline, Golden Sachs is quote far far behind Morgan Stanley.
Speaker 1: It's all about asset management, right, It's an eat advanced thing.
Speaker 1: I don't know how he trades worked out as well.
Speaker 1: But where does Sa Pristine fit into that? Because my
Speaker 1: basic take here is Ted Picks sort of the older guy.
Speaker 1: He's got the swagger of Morgan Stanley, and Sa Pristine
Speaker 1: is watching paint dry making all the money.
Speaker 2: Glad that right, It's a pretty good characterization of what's
Speaker 2: going on. Listen, in the trading business. These are a
Speaker 2: bunch of loyalists. This goes back to what true killer
Speaker 2: was there. You worry about the traders leading without a
Speaker 2: solid person in charge that they trust that leads the troops.
Speaker 2: But to your point here on Andy, he also has
Speaker 2: tens of thousands of financial advisors across the United States.
Speaker 2: Those are less swashbuckling, let's say, than maybe the traders
Speaker 2: and investment bankers. But it's steady and they bring in
Speaker 2: the big.
Speaker 1: Box besides at any firm who takes.
Speaker 4: Over the board.
Speaker 2: But remember, as we've been talking about, James Gorman is
Speaker 2: on that board.
Speaker 1: Okay, you can find he's on the board. But how
Speaker 1: independent is on Morgan Stanley board versus a guy who
Speaker 1: many people would suggest as a CEO of the decade
Speaker 1: on Global Wall Street.
Speaker 2: I think it's a great question.
Speaker 1: It's more really good one of the day, so go
Speaker 1: with it.
Speaker 2: Morgan Stanley's board is pretty diverse and very committed, and
Speaker 2: remember they it's changed quite a bit in recent years.
Speaker 2: It has talent from the former Securities and Exchange Commission
Speaker 2: from Japan given their deal with the MUFG during the
Speaker 2: financial crisis. So it is quite independent relative to a
Speaker 2: lot of what you're seeing on Wall Street. And that's
Speaker 2: what kind of makes this succession plan successful in the
Speaker 2: eyes of Wall Street. It's consistent, and it is broad,
Speaker 2: and it is diverse in the way it's being sorted through.
Speaker 3: If you're just joining right now, the news of the day,
Speaker 3: Morgan Stanley CEO J Scoreman is playing to step down
Speaker 3: within twelve months. This he made in an announcement at
Speaker 3: the annual meeting. The shares of the immediately popped lower
Speaker 3: about one point seven percent. They've retraced a lot of
Speaker 3: that down here, just six tenths of a percent. As
Speaker 3: people digest the news, it does seem like shnali. This
Speaker 3: has been in the works. This has been something they've
Speaker 3: been planning for and they pulled the trigger a bit earlier.
Speaker 3: Is there a sense of shift within the strategy of
Speaker 3: this company going forward, or do you think it's stay
Speaker 3: the course, keep the homegrown talent and keep unplugging away.
Speaker 2: It's already changed so much to your point, with the
Speaker 2: big acquisitions. They've always had wealth as a huge driver
Speaker 2: asset management, but the asset manager again, five six years ago,
Speaker 2: you couldn't see Morgan Stanley becoming more than a trillion
Speaker 2: dollars in asset management. That has changed, and it changed
Speaker 2: quickly with acquisitions. So they've they've already changed. The question
Speaker 2: is if they choose one man or the other, which
Speaker 2: part of the bank could suffer from any potential electrical
Speaker 2: in or concerns around who's.
Speaker 1: Leader off the BQ screen glob and six zero three
Speaker 1: price to book Morgan Stanley and James Diamond like one
Speaker 1: point five to three and I'm sorry the guy is
Speaker 1: so modest that he's underplayed what he did with managing money.
Speaker 1: I mean that to me is just the massive theme hearon.
Speaker 1: You've said that he will stay as an executive chairman.
Speaker 4: Yeah, he's going to be chair What do they do?
Speaker 4: What do they do?
Speaker 1: What do executive chairman do?
Speaker 2: They sit around and they make sure that nothing goes wrong,
Speaker 2: and they come back if things do go wrong. I mean, listen,
Speaker 2: the initial market reaction tells you a lot. He's a
Speaker 2: iconic at the helm of Morgan Stanley. He's changed the
Speaker 2: firm more than any other bank has changed.
Speaker 4: In the last name, I thank you.
Speaker 1: She is our chief Wall Street correspondent. There's no other
Speaker 1: way to put it appropriate to speak Tom his misery. Now,
Speaker 1: I had a global rates TD securities and we do
Speaker 1: this with the two tens spread sixty basis points her
Speaker 1: great call of curven version a good year and a
Speaker 1: half ago. Priya, good morning. You are focused not on
Speaker 1: ten year, not on two years, but in the belly
Speaker 1: of the curve at five years. Why are you suggesting
Speaker 1: dynamics in the five year would be a more attractive place?
Speaker 4: To be sure?
Speaker 5: So I think it's all about how far you are
Speaker 5: from the first rate cut and where is the FED
Speaker 5: going to cut those rates to.
Speaker 4: You know, I still think we're about six months away
Speaker 4: from the first rate cut.
Speaker 5: In fact, the risks are that they don't even cut
Speaker 5: this year, they start to cut next year. They're so
Speaker 5: hyper focused on inflation they are looking for a slowdown,
Speaker 5: So I think they might be a little late. But
Speaker 5: once they start to cut we think they're going to
Speaker 5: cut a lot more than what's priced in. I mean,
Speaker 5: the market's pricing in the you know what we're calling
Speaker 5: the trough rate, which is the end point of those cuts.
Speaker 5: At three percent, I mean three percent is actually higher
Speaker 5: than the Fed's estimate of neutral rate. So the market
Speaker 5: is not pricing in a recession. Far from it. I
Speaker 5: think the market's pricing in normalization if we actually do
Speaker 5: enter a recession, and in our view, it's going to
Speaker 5: be a recession, you know, because of the bank lending standards,
Speaker 5: because of the lagged impact of rate hikes, as the
Speaker 5: consumer savings buffer runs out, and now we might even
Speaker 5: have fiscal drag. I think the only way to get
Speaker 5: a dead seating deal is to get that fiscal drag. So,
Speaker 5: you know, as the economy slows down, I think the
Speaker 5: Fed's going to cut a lot more. But if the
Speaker 5: cuts are six months out, I think it's a little
Speaker 5: tricky to be in the very front end.
Speaker 4: But if you're too.
Speaker 5: Far out, then you know, there's essentially a lot of
Speaker 5: things that can move long end rates. I think that
Speaker 5: five years sort of the sweet spot. Three or five
Speaker 5: year rates, I think those are actually very attractive because
Speaker 5: they're positioning for the FED whenever they start to cut.
Speaker 5: Just this idea that they're going to cut a lot
Speaker 5: post pause.
Speaker 1: Whenever that is, where is the ten year yield?
Speaker 5: So I would say that the tenure is benefiting a
Speaker 5: little bit from the fact that there's significant inflows into
Speaker 5: bond mutual funds. You know, once the pause happens, I
Speaker 5: think we all look at what's next. I don't really
Speaker 5: buy this skip idea because the economy doesn't move, you know,
Speaker 5: it's not that volatile. I think right now we're seeing
Speaker 5: the slowdown as it starts to build up steam. I
Speaker 5: think it's going to lose momentum really fast. So I
Speaker 5: don't buy this skip and then rehike. I think we'll
Speaker 5: be all focused on when the cuts happen. I mean,
Speaker 5: we're looking at the tenure below three percent by year end,
Speaker 5: at two and a half by next year, so the
Speaker 5: tenure will also have a significant move. I just like
Speaker 5: the five year a little bit more right now because
Speaker 5: it's more sensitive to economic data.
Speaker 3: We've been talking about the resilience and retailers. We've been
Speaker 3: talking about the resilience in deer sales. We've been talking
Speaker 3: about the fact that a lot of these companies have
Speaker 3: been able to pass along price increases, which is one
Speaker 3: reason why perhaps people are rethinking the view that you
Speaker 3: just put out there that it's unlikely for the FED
Speaker 3: to cut rates significantly in the next twelve to twenty
Speaker 3: four months. Michael Hartner over at Bank of America said
Speaker 3: that the biggest pain trade in the next twelve months
Speaker 3: is a FED funds rate rising to six percent instead
Speaker 3: of three percent. How realistic is that in your mind?
Speaker 5: So I can see this, So we're actually looking for
Speaker 5: one more hike, So we're looking for five and a half,
Speaker 5: you know, just listening to FED speak, I think they
Speaker 5: would rather pause and stay on hold for longer than
Speaker 5: actually try and push the last you know, what's fifty
Speaker 5: basis months among friends.
Speaker 4: I mean, they can go from five and a half
Speaker 4: to six.
Speaker 5: Remember they're also doing QT, so I think it's a
Speaker 5: high bar for them to keep going. But I think
Speaker 5: it's also very high bar for them to start to
Speaker 5: cut because remember they're looking for four and a half
Speaker 5: on the unemployment rate by year end. I think if
Speaker 5: we're at four and a half by year end, we're
Speaker 5: in a recession. The economy is slowing, down pretty drastically,
Speaker 5: but the FED might say, yes, this was in our forecast,
Speaker 5: so I think they stay on whole longer.
Speaker 4: But I would agree.
Speaker 5: I think if inflation increases somewhere, I mean the Fed's
Speaker 5: telling us that they want to slow things down, they
Speaker 5: don't see the slow down. I think they're going to
Speaker 5: keep hiking and as a result, they are going to
Speaker 5: overdo it. I think we're already in restrictive territory. It
Speaker 5: just takes a while for different parts of the economy
Speaker 5: to slow down. I mean, we're not getting that big
Speaker 5: shock that can slow down everything at the same time,
Speaker 5: which is why I think it's so tricky to trade
Speaker 5: this market. We move ten twenty basis points on not
Speaker 5: a whole lot of news. I think you just have
Speaker 5: to be nimble and sort of start to step in.
Speaker 5: We stepped in yesterday, we were now a little bit
Speaker 5: long duration. Here we get another sell off here. I
Speaker 5: think the technicals right now, with all the FDIC sales, I.
Speaker 4: Think we should think about that as well.
Speaker 5: It's one hundred billion that the FDIC is selling fixed
Speaker 5: income paper. That's a new supply that's coming in. I
Speaker 5: think that's part of the reason why we've risen in rates,
Speaker 5: but you're supposed to start to think about hedging some
Speaker 5: of those risk assets if the economy slows down. I
Speaker 5: think that's a pretty big pain trade as well.
Speaker 3: If the FED does raise rates one more time, is
Speaker 3: that enough to break the backs of some of these
Speaker 3: regional banks that are drawing on some of the emergency
Speaker 3: landing facilities still to this day, even though the crisis,
Speaker 3: if it was one, has simmered off.
Speaker 5: So you know, the deposit outflows have stabilized, but they're
Speaker 5: still continuing to leave banks, and I think that's going
Speaker 5: to continue to happen. It's very hard for banks to
Speaker 5: compete with deposits when money market funds are giving you,
Speaker 5: you know, five percent five and a quarter, and if
Speaker 5: the FED continues to raise rates, I think that gap
Speaker 5: continues to be wide. So I think the regional banks
Speaker 5: are still in trouble, not so much because of massive
Speaker 5: outflows but their entire business model. If they are funding
Speaker 5: from the FED at five percent, it's very hard to
Speaker 5: fund your assets which you bought at two percent. So
Speaker 5: I think that's going to be a slow drag or
Speaker 5: the rest of this year and beyond pre you're outrageous.
Speaker 1: When you talk not only about inversion, but large inversion,
Speaker 1: you're also very lonely. Can you frame out given the
Speaker 1: cards and I, you know, let's assume optimistically we're going
Speaker 1: to get beyond the debt idiocy. Great. Can you frame
Speaker 1: out a six percent three month T bill, six percent
Speaker 1: libor so for other short term rates? No one's looking
Speaker 1: for that. All my radars up.
Speaker 4: Now that's true.
Speaker 5: I think the big paint trade, really another pin paint
Speaker 5: trade is if inflation remains high. I mean the tips market,
Speaker 5: it's the best indicator of market expectations of inflation. I
Speaker 5: think it's extremely mispriced. It's sup two percent in the
Speaker 5: near term, so I think the market saying some aw, magically,
Speaker 5: inflation's going to come down, which is why the Fed
Speaker 5: will not raise rates.
Speaker 4: What if inflation becomes extremely sticky?
Speaker 5: That was the biggest aspect of our inversion call was
Speaker 5: inflation is very slow moving, extremely lagging, and so if
Speaker 5: inflation actually stays high, there's your case for at six
Speaker 5: percent FED funds.
Speaker 4: But does that move the five year or the tenure.
Speaker 5: In fact, the more the Fed raisers rates, the more
Speaker 5: they'll have to cut because I have to think they
Speaker 5: take rates to you know, restrictive territory. Then they keep
Speaker 5: it there for a while till things slow down. And
Speaker 5: that's going to mean that they're going to have to
Speaker 5: be a lot more accommodative when they start to cut trades.
Speaker 6: What's fifty basis points between friends? That's my takeaway from
Speaker 6: that conversation. With fifty basis points between friends. Prayer measure
Speaker 6: of today, Prayer one for the catchup, you solve the
Speaker 6: dut credit.
Speaker 1: We're in Washington, director at Vada Partners, Henrietta Treys with
Speaker 1: serious Capitol Hill cred. Let's translate the reality of this Friday,
Speaker 1: Henrietta Treys, and that's the idea of recess ready set.
Speaker 1: There's a great crisis. Wait, Senator Schumer is going to say, no,
Speaker 1: we're going to recess. So we're running out of money.
Speaker 1: You and I've been in the cash room at the Treasury.
Speaker 1: We're literally going to run out of gold cash notes.
Speaker 1: And the Senator from New York is saying recess.
Speaker 7: It's incredible.
Speaker 8: You can really watch the Treasury Secretary, you can watch
Speaker 8: the both bracket banks and their predictions, but you can
Speaker 8: actually set your watch to the Congressional calendar to figure
Speaker 8: out when they're going to pass a debt ceiling bill.
Speaker 7: That's what I do, and it works every time.
Speaker 8: Just pay attention to the Congressional recess schedule for sure.
Speaker 1: What does it say right now?
Speaker 8: Right now, it says that we're probably going to see
Speaker 8: bill text on Sunday Monday morning. Maybe Speaker McCarthy will
Speaker 8: file the bipartisan bill that he and President Biden's.
Speaker 7: Team reach over this weekend.
Speaker 8: They will hopefully not vote on a bill in the
Speaker 8: House until Wednesday or Thursday of next week. Anything before that,
Speaker 8: and I'm very anxious about a tarp like moment where
Speaker 8: the bill will fail because the House is moving first here,
Speaker 8: which means the Democrats on the House side, who historically
Speaker 8: provide the bulk of the votes and the critical votes
Speaker 8: for a debt ceiling hike, are not going to have
Speaker 8: local cover from the Democrats in the Senate having voted first.
Speaker 8: So we're going to see the House move first, and
Speaker 8: I hope that there will not be a vote until
Speaker 8: Wednesday or Thursday of next week.
Speaker 7: At that point, Senator Schumer could call the caucuss back.
Speaker 8: He is indicated that he will call them back within
Speaker 8: twenty four hours notice, but eleventh hour in DC really
Speaker 8: does mean the eleventh hour, and they could well not
Speaker 8: come back until Tuesday, May thirtieth, two days before the
Speaker 8: X date, and pass the bill on the Senate next
Speaker 8: Tuesday or Wednesday.
Speaker 7: Well, that's what I'm bracing our investors for. That's what
Speaker 7: I'm expecting Henrietta.
Speaker 3: To that point, what is the risk that there is
Speaker 3: a technical default because there is a mistake that someone
Speaker 3: miss times, is that there is a bill that gets
Speaker 3: rejected or in transigent members of a party.
Speaker 7: I do not think that there is any risk of that.
Speaker 8: To be honest, I am afraid of a tarp like
Speaker 8: vote in the early part of next week. If Speaker
Speaker 8: McCarthy puts a bill on the floor Monday, Tuesday, Wednesday,
Speaker 8: the odds of a failed vote are about forty percent.
Speaker 8: But that's a good week before we actually need the
Speaker 8: bill to pass. I think that's your biggest risk point.
Speaker 8: After that, I understand there's a lot of hay being
Speaker 8: made about, Hey, the buildings is sit for seventy two hours,
Speaker 8: we need ten days to get it through. If you're
Speaker 8: from the Senate, if you're from the House, you've seen
Speaker 8: these bills come into law before they can work all
Speaker 8: night long and get this done, and in fact they will.
Speaker 8: I think the risk of default is two percent. I
Speaker 8: don't blot by the hype. I have not bought the
Speaker 8: hype this entire process. You guys know, I don't think
Speaker 8: there's a risk of default.
Speaker 3: So then while the hype made by Congress members, made
Speaker 3: by the president himself, why all the discussion about how
Speaker 3: this is not anywhere close given the fact what has
Speaker 3: changed over the past two weeks.
Speaker 8: I mean, quite honestly, if you want me to get
Speaker 8: on my soapbox for just a little minute, the last
Speaker 8: time we had a balance budget was under the Clinton administration.
Speaker 8: And instead of using that surplus to pay down the deficit,
Speaker 8: what do we do? In O one we pass tax cuts?
Speaker 8: What do we do in O three we passed more
Speaker 8: tax cuts? Who blow out the deficit? Continue doing that
Speaker 8: into the Obama years? Did it again in the Trunk years?
Speaker 8: Seven point eight trillion dollars worth of deficit hikes. And
Speaker 8: now all of a sudden, we're in the Biden administration
Speaker 8: post COVID, with looming three trillion dollars tax expirations happening
Speaker 8: in twenty twenty six, and we're talking about five hundred
Speaker 8: billion dollars worth of deficit reduction. It is a political
Speaker 8: show that is designed to say, Hey, the Republican Party
Speaker 8: cares a lot about federal spending. They are fiscal hawks,
Speaker 8: they care about the deficit, no new taxes, and Democrats
Speaker 8: have to explain what it is that they support spending
Speaker 8: money on tan if our working family aid, the Energy Department,
Speaker 8: the energy tax credits that were just passed. It's really
Speaker 8: just about scoring political points. That's what it's always been,
Speaker 8: and that's where we are in this charade. And now
Speaker 8: we're at the eleventh hours, so we're going to stop posturing
Speaker 8: and actually got on the bill.
Speaker 1: I would suggest the charade began. I believe it was
Speaker 1: in New Hampshire with George Bush Senior where he got
Speaker 1: run over on the tax verbiage that we've been living
Speaker 1: for years and years. Let's assume that TX verbiage doesn't change.
Speaker 1: So what happens next. Obviously everybody's gonna want a tax cut.
Speaker 1: Everybody wants a free lunch.
Speaker 7: Right, better believe it.
Speaker 8: So in twenty twenty five, right after this next presidential
Speaker 8: election cycle, the entirety of the twenty seventeen tax cuts
Speaker 8: on the individual side expire, the salt deduction comes back in,
Speaker 8: but all of the individual tax rates go back to
Speaker 8: their twenty seventeen levels. So at that point we're probably
Speaker 8: going to blow out the deficit again by temporarily extending
Speaker 8: those packages for another year or two, just like we
Speaker 8: did in twenty ten and again in twenty twelve. If
Speaker 8: there is a red wave in the twenty four election,
Speaker 8: what you can see is a material reconciliation bill that
Speaker 8: is basically a repeat of twenty seventeen. That was a
Speaker 8: five trillion dollars tax bill one point five trillion dollars
Speaker 8: which was definicit financed, So you could very easily see
Speaker 8: that all over again, although this time was more expensive.
Speaker 3: In twenty twenty six, Rinse and repeat.
Speaker 6: Tom White, Henrita tries that invite upon it.
Speaker 1: Joining us Jordan Rochester of number Jordan. We could do
Speaker 1: a one hour conversation here. We don't have time for that.
Speaker 1: I'm going to go at rapid speed. John and Lisa're
Speaker 1: going to jump in as well. What is the significance
Speaker 1: of ren membi our past seven? Once again, we visit
Speaker 1: through seven has been ages since at seven U one
Speaker 1: per dollar? What is a symbolism a seven point zero
Speaker 1: one you want, CNY Well.
Speaker 9: For market psychology it's a big deal. But for us
Speaker 9: we think that actually maybe it's the sort of seven
Speaker 9: twenty five to seven thirty.
Speaker 10: Level is where the PBOC be more uncomfortable.
Speaker 9: We have had a statement, of course today saying that
Speaker 9: they want to reduce speculation in the currency market. We've
Speaker 9: seen that sort of statement before, but that's kind of
Speaker 9: why we've seen cnh rally a little bit today. But
Speaker 9: for us, the momentum in the Chinese economy has changed
Speaker 9: quite significantly from what we hoped it would be, what
Speaker 9: the market hoped it would be just a few weeks ago,
Speaker 9: and that has been really driving the remimber underperformance. But
Speaker 9: it's also the US side of things as well. We've
Speaker 9: had more hawkish statements from some of the regional FED governors.
Speaker 9: John actually flagged a few of them from Logan yesterday
Speaker 9: for example, and Mester, and that's helped the FED pricing
Speaker 9: are just as well. So we have less rate cuts
Speaker 9: price for the FED this year too. Combine that together,
Speaker 9: we're looking for seven point thirty in dollars see in
Speaker 9: H by middle of July. That's quite a quick move
Speaker 9: in this grand scheme of things. We've been kind of
Speaker 9: in a low volatility environment. A lot of people had
Speaker 9: actually got quite bored at putting on sort of C
Speaker 9: and H risk, and we're looking at other proxies for it.
Speaker 9: In the G ten or in EM it wasn't really
Speaker 9: the scenario for us. We think that actually it's going
Speaker 9: to have a big move to come.
Speaker 6: Jord And a lot of people now starting to think
Speaker 6: about maybe going the other way in the FX market,
Speaker 6: leaning into some dollar strength after that big consentsus you
Speaker 6: built up over the last few months off the back
Speaker 6: of what's happened with the data, just subtle shifts that
Speaker 6: you've identified, Johdan, can you identify the best way to
Speaker 6: play that through G ten at the moment?
Speaker 4: Yeah?
Speaker 10: Absolute, John.
Speaker 9: And the one thing this market keeps reminding say is
Speaker 9: you can't lean back. You can't say I've got this
Speaker 9: long term medium view of euro upside, which we do
Speaker 9: and relax. You can't just crack out the popcorn, get
Speaker 9: the natchos and watch the film. You have to be
Speaker 9: active and respond to of vents. And what's happened here
Speaker 9: is the data in Europe has really underwhelmed. I thought
Speaker 9: At first we could ignore it, John, I thought the
Speaker 9: factory orders falling lower, that's something that maybe could be
Speaker 9: corrected in the next month. But what we've actually started
Speaker 9: to see is the more forward looking signals such as
Speaker 9: the ZWS, those sort of centis index. In Europe, they've
Speaker 9: also been turning lower as well. So the momentum's gone.
Speaker 9: We're not short, you're a dollar for us. We think
Speaker 9: the better trade is short cable.
Speaker 10: So why is that?
Speaker 9: It's because, first of all, next week we've got UK
Speaker 9: CPI and we think there's gonna be a big drop
Speaker 9: in that number.
Speaker 10: We could actually go below eight percent.
Speaker 9: We've been above ten percent for roughly around seven months
Speaker 9: or so in the UK. It's been quite painful for
Speaker 9: the consumer. Ten percent double digit inflation. Hopefully next week
Speaker 9: we get that sign that the Bank of England has
Speaker 9: done enough and we get that below eight percent seven
Speaker 9: point nine percent are teams looking for. If we get that, John,
Speaker 9: the pricing for the Bank of England, which is around
Speaker 9: about forty five bases points for the next two meetings
Speaker 9: or so, that might head lower. We think there's just
Speaker 9: one more rate hike to come more towards twenty five
Speaker 9: based points.
Speaker 10: To thirty base points.
Speaker 4: Jordan.
Speaker 3: I love how you describe people getting bored as they
Speaker 3: put on one trade for too long and then just
Speaker 3: switched it over to something else. It sounds like basically
Speaker 3: a junior high school virgin version of a version of
Speaker 3: macro trading. I'm just wondering, from your perspective, whether this
Speaker 3: is basically going to be the most painful top swipe down, John,
Speaker 3: the most painful top that you can possibly imagine, just
Speaker 3: because it is so tough to stick with any one
Speaker 3: trade for a considerable period of time.
Speaker 9: I think it's quite like twenty twenty one, which was
Speaker 9: a really difficult year for US.
Speaker 10: I remember it quite well.
Speaker 9: Twenty twenty we had the vaccines invented, the euro rallied,
Speaker 9: we got to one twenty three dollar weakness. Then we
Speaker 9: got to the beginning of January and Joe Biden's Democrats
Speaker 9: they won those Senate seats in Georgia, and we had
Speaker 9: a three percent swing higher and the dollar.
Speaker 10: It caught us off guard. It caught a lot of
Speaker 10: people off guard.
Speaker 9: The market was pretty much overly positioned for dollar weakness
Speaker 9: at the time. I think that's kind of where we
Speaker 9: got to. Most client meetings of not recently, but about
Speaker 9: two weeks ago it was we agree, we think yurogo high,
Speaker 9: we think the pound goes higher, we think the end
Speaker 9: goes higher. That's now changed quite substantially with these data
Speaker 9: surprises and market moves, and I think it's a lot
Speaker 9: more insertion out there. It's going to be a bit
Speaker 9: more like twenty twenty one, I think, where for nine
Speaker 9: months of that year we had a zigzag in the dollar.
Speaker 10: So the dollar went up.
Speaker 9: For the first three months, and then it went down for
Speaker 9: the next three months, then it went up again in
Speaker 9: three months after that.
Speaker 10: It was only in Q four twenty twenty one when
Speaker 10: we got.
Speaker 9: A pure sense that the gas supplies that Vladimir Putin
Speaker 9: was essentially restricting before he invaded Ukraine really added to
Speaker 9: that dollar strength. And also we had the inflation spike
Speaker 9: in the US at the time as well. So we're
Speaker 9: kind of in that sort of mean reversion place in
Speaker 9: the GS and FX. And that's the tricky part for
Speaker 9: this year so.
Speaker 10: Far, Jordan.
Speaker 6: Is that why you're only willing to make a short
Speaker 6: term tactical call right now with regard to this strong dollar.
Speaker 9: John, To be tactical is important. You have to make
Speaker 9: money here and now. So yes, we always have our
Speaker 9: eye on the next one month horizon, and then after
Speaker 9: that we think about the long term. The long term,
Speaker 9: I think Europe does head hirer again, John, the terms
Speaker 9: of trade are fantastically moving in Euro's favor. It suggests
Speaker 9: euro should be one fifteen to one twenty. So medium
Speaker 9: term I haven't turned massively bearish on the Euro, but
Speaker 9: in the very short term I look at those FED
Speaker 9: cuts that are priced in John, roughly around forty five
Speaker 9: basis points.
Speaker 10: Now, let's say I think.
Speaker 9: That should be more towards twenty five, and then perhaps
Speaker 9: the market might start to fade that.
Speaker 1: You know, my question, John is if you're with Aston
Speaker 1: Villa and you're sitting in the cop at Liverpool, the
Speaker 1: medium term really doesn't matter.
Speaker 6: I'd suggest that if you were an Aston Villa fan
Speaker 6: that you don't sit in the cop end Jordan. You're
Speaker 6: not doing that, are you?
Speaker 10: Maybe not?
Speaker 6: Years you think Villa villatile, I'll be wearing I think
Speaker 6: they'll be kicking them back out.
Speaker 1: This is fun. I mean, Urson Villa wasn't supposed to
Speaker 1: be fun this year and it is like now the
Speaker 1: plans really well, it's fun.
Speaker 6: Jordan, you must be happy.
Speaker 10: It's fantastic.
Speaker 9: I mean we're fighting relegation not long ago, so this
Speaker 9: is just to be in the top end of the
Speaker 9: table and actually look at you know, five, six, seven,
Speaker 9: eight and think maybe we've got a chance of being
Speaker 9: there is fantastic.
Speaker 6: I've got to talk to Tom about championship playoff finals
Speaker 6: in the next week of side Jordan's I wish me lot,
Speaker 6: Jordan Rochester, I Fnamora.
Speaker 1: Forget about the theory. Mostly for some people it's about
Speaker 1: missing a bull market off the October lows. For others
Speaker 1: it's recalibrating, and I'm going to suggest for many others
Speaker 1: it's just the fear and maybe being in cash. David
Speaker 1: Balin advises this morning, chief investment officer for City Global Wealth,
Speaker 1: you had the courage to be in the markets throughout
Speaker 1: all of this process. Reassess the courage right now, how
Speaker 1: do you have the courage to be in the market
Speaker 1: after this run to forty two two.
Speaker 11: Well, it's not a cheap market, Tom, and that's not
Speaker 11: really the point. If you take a look at what's
Speaker 11: happened right over the last year, this is a perfect
Speaker 11: example of why market timing is absolutely terrible. And it's
Speaker 11: a question then of what you own and not when
Speaker 11: you own it, right, So it's what's in the equity portfolio.
Speaker 11: For a long time, last twelve months, we've been defensively
Speaker 11: positioned right into companies that are high quality with dividends
Speaker 11: and all of that, and that's paid off. And now
Speaker 11: you're seeing a rotation, right, And you've talked about this
Speaker 11: on your program into AI and tech, which makes sense
Speaker 11: because you're going through a revolutionary period of time, right,
Speaker 11: getting exposure to these stocks and more importantly, getting exposures
Speaker 11: to the companies who will use these this technology, right,
Speaker 11: is going to be extremely important and that should be
Speaker 11: in one's portfolio. And then there are pockets of value
Speaker 11: that are still out there, right. I mean, take a
Speaker 11: look at what financials look like today. If you really
Speaker 11: ask yourself a year from now whether or not financial
Speaker 11: stocks will be hire, you have to imagine that they're
Speaker 11: well capitalized. They're going to tolerate what's going on in
Speaker 11: the market now and the move away from deposits. But ultimately,
Speaker 11: this is essential to our economy and it should not
Speaker 11: be marked down thirty percent. So there are things to buy,
Speaker 11: and the most important thing is to look forward as
Speaker 11: you go about buying them.
Speaker 6: Well, let's talk about allocated to some of those themes.
Speaker 6: The answer to this question I hear it a lot
Speaker 6: on financial news programs. How much should allocate to one thing?
Speaker 6: How much should allocate to another? Isn't that just highly
Speaker 6: dependent on who you are, how old you are, where
Speaker 6: you are in life.
Speaker 11: Yeah, I mean obviously, when you do you know, wealth
Speaker 11: planning and financial planning, you have to determine, you know
Speaker 11: what your spending patterns are, and you have to actually
Speaker 11: have a plan.
Speaker 8: Right.
Speaker 11: But regardless of that, if you think about how portfolio
Speaker 11: should be constructed in equity, portfolio should be one's best
Speaker 11: ideas right in exposure to different markets at different times,
Speaker 11: and there are some, you know, great and obvious ideas.
Speaker 11: A great example today which we never talk about, right
Speaker 11: because we're so focused on the US and on AI,
Speaker 11: is just the fact that right now you've got foreign
Speaker 11: stocks at their cheapest level, right as cheap as they've
Speaker 11: been back to nineteen thirty five. You've got the dollar
Speaker 11: at its highest level and rising recently right due to
Speaker 11: the rates, and yet no one talks about putting money
Speaker 11: overseas right now, And I think it is a gimme.
Speaker 11: And that's an example of where you know, you do
Speaker 11: acid allocation, but it's not. And so what's going to
Speaker 11: happen I think over the between now and the end
Speaker 11: of you know, several months from now, is people who
Speaker 11: begins focusing on twenty four and they're going to want
Speaker 11: to have higher equity allocations than they do right now.
Speaker 3: Have you been basically building your equity slice or are
Speaker 3: you basically even weight when it comes to places like
Speaker 3: private credit that still offer a tremendous amount of fields.
Speaker 11: Let's talk about that. So we've been slowly moving up
Speaker 11: our equities right in terms of our allocation to them.
Speaker 11: But the point you just made is extraordinary. And again,
Speaker 11: you know, think about it from an investment storted point
Speaker 11: of view. If you can get in the fixed income
Speaker 11: market an equity like rate of return and sustain that
Speaker 11: for the next three to four years, should you do it? Absolutely?
Speaker 11: And private credit is a great example. You know, bank
Speaker 11: loan products, you know, a variety of mortgage related reads
Speaker 11: things like that are yielding between twelve and fourteen percent.
Speaker 11: Due to the illiquidity right now and the credit risk
Speaker 11: that was there in O eight is not there. Now,
Speaker 11: these are the kinds of things that you put into
Speaker 11: portfolios on the fixed income side. The other thing I
Speaker 11: wanted to mention is that, because you've touched upon this
Speaker 11: in a variety of your programs this week, is people
Speaker 11: who are focused on deposit rates or are focused on
Speaker 11: one month yields are going to miss the fact that
Speaker 11: now is the time to move their duration out and
Speaker 11: actually build Brazilian portfolios and fixed income that hold for
Speaker 11: their care portions, hold those rates for longer.
Speaker 3: Given that that's your belief, you think that rates are
Speaker 3: going to come down. Is this period of time a
Speaker 3: golden period? Ironically, even though the chop feels not particularly
Speaker 3: golden in any way, shape or form. But are you
Speaker 3: seeing this period where you have an opportunity for outsized
Speaker 3: re turns that won't come again after this period ends,
Speaker 3: after rates return and normalize. Right?
Speaker 11: That's right, Lisa, I mean you just talked about it
Speaker 11: in private credit. You're going to see the same thing
Speaker 11: in the bond market because we are investing into a
Speaker 11: slowing economy. There's no doubt that the FED action what's
Speaker 11: gone on with banks, you know, in fact, even the
Speaker 11: resolution of the debt agreement that we're talking about this
Speaker 11: coming week. Maybe that's going to be take away stimulus.
Speaker 11: It's going to take liquidity out of the marketplace after
Speaker 11: it happens. So all of that's going to slow the economy.
Speaker 11: So we're now talking about investing for twenty twenty four,
Speaker 11: looking over the horizon of the slowing economy to what
Speaker 11: the market will look like next year. And that's really
Speaker 11: what's going on in the markets right now as far
Speaker 11: as we're concerned.
Speaker 6: Deevid, you mentioned opportunities abroad, and you throw out some
Speaker 6: interesting numbers and I just want to work through them
Speaker 6: with you. Yeah, DAX is at a record high today.
Speaker 6: Eurostocks fifty year today is up close to twenty percent.
Speaker 6: Someone's buying it.
Speaker 11: Oh No, I'm talking about emerging market equity specifically, yeah, right,
Speaker 11: EM specifically, no obvious markets.
Speaker 6: Right, let's go there. What's happening there? Because Chinese data
Speaker 6: start to disappoint and some people are reluctant to chase
Speaker 6: that story. What is it about EM for you that works?
Speaker 1: Well?
Speaker 11: What works is that you have a lot of companies
Speaker 11: right that are operating, whether it's in Brazil or in
Speaker 11: China right where their earning stories are. Actually you know
Speaker 11: picking up markedly. You know, we saw a bunch of
Speaker 11: good even earnings from internet stocks in China and they're
Speaker 11: being completely ignored. Right, so we're overweight in that market
Speaker 11: because you're buying there at an incredibly good valuation. In Brazil,
Speaker 11: same thing you're buying when they you know, they've done
Speaker 11: a great job, really yields there are nine percent. Their
Speaker 11: rates are going to come down. They're a beneficiary of
Speaker 11: the Chinese market, right and they're going to and they're
Speaker 11: going to benefit I think in terms of their stock
Speaker 11: price appreciation. But you have to do this in anticipation.
Speaker 11: When it's not fun to do it, that's when you
Speaker 11: have to do it right. And that's the same thing
Speaker 11: you were talking about with AI, which is you have
Speaker 11: to think about which companies are going to benefit by
Speaker 11: by building an AI department the way they've built their
Speaker 11: IT department. Those companies that decide to use it are
Speaker 11: going to be the beneficiaries of it, and you can
Speaker 11: identify them.
Speaker 6: How do you identify them?
Speaker 4: Right now?
Speaker 11: Well, you think about just think about this. You think
Speaker 11: about let's say a consulting company. I can't name the
Speaker 11: you know, whatever I say, right, how is there how
Speaker 11: is it that they're going to modify the business that
Speaker 11: they're going to provide to clients. They're going to teach AI.
Speaker 11: They're going to help companies build in AI. So in
Speaker 11: the consulting industry, you're going to find that companies that
Speaker 11: actually go out and you know, build models using AI
Speaker 11: in terms of financial services, and you can identify who's
Speaker 11: doing it because they're going to talk about it. My
Speaker 11: joke internally is that AI will tell you who's using AI,
Speaker 11: and and that's what I mean. Literally, you'll be able
Speaker 11: to see which companies are actually using it, and that
Speaker 11: to me is going to be a determinant in how
Speaker 11: do you go out investing.
Speaker 1: Let's go back to Walter Riston, who would say that
Speaker 1: US multinationals have international exposure. There's a small startup in
Speaker 1: Coopertino or something like sixty percent of revenues Apple is
Speaker 1: foreign revenues. Can we go back to the old days,
Speaker 1: or if people can buy US multinationals is a foreign proxy.
Speaker 11: I'm not exactly sure because of the valuation difference. Let's
Speaker 11: flip it around and talk about you know, energy stocks
Speaker 11: in Europe. You know they're saying in a forty percent
Speaker 11: discount to energy stocks in the US, which would you
Speaker 11: rather own. They're both multi Apple, it's a big diffdend.
Speaker 11: That's exactly correct. So my view is you have to
Speaker 11: be conscious of valuation right right now. You know, everyone
Speaker 11: is very focused on the US. When we look at
Speaker 11: twenty twenty four, I think people are going to be
Speaker 11: focused on global investing much more than they are in
Speaker 11: US investing.
Speaker 6: Interesting, David, this was great and waterful. I've said this
Speaker 6: a few times this week already, but great to see
Speaker 6: you in person.
Speaker 11: Yeah, I love the fact that we're all together. Yes, exactly,
Speaker 11: It's fantastic. And Jonathan, you need to invest in the
Speaker 11: company that makes a dessert spoon.
Speaker 6: I agree.
Speaker 10: I think they're going to make that happen. Is that
Speaker 10: at the top or just at the top.
Speaker 11: You're doing good?
Speaker 1: Yeah, that's right.
Speaker 6: You keep doing that.
Speaker 10: Appreciate it.
Speaker 3: I like the small ones.
Speaker 6: They've invanted a city glovel wat Appreciate it.
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