Speaker 1: Bloomberg Audio Studios, podcasts, radio news.
Speaker 2: I'm Stephen Carroll and this is Here's Why, where we
Speaker 2: take one new story and explain it in just a
Speaker 2: few minutes with our experts here at Bloomberg. The ongoing
Speaker 2: changes create the opening for a global euro moment.
Speaker 1: Even if you're a dollar based investor, you should be
Speaker 1: thinking about increasing your allocations to none dollar investments. You know,
Speaker 1: we got up to one fifteen in euro dollar and
Speaker 1: then put all the way back down towards one eleven.
Speaker 2: Like that kind of thing is going to keep happening.
Speaker 2: There is a declining trend of the US exceptionalism, and
Speaker 2: particularly when we talk to global investors, the willingness to
Speaker 2: diversify on a global basis. I think it's getting higher
Speaker 2: these days. If you blink, you're risk missing a market melt.
Speaker 2: A lot has changed in the world in the first
Speaker 2: few months of twenty twenty five. There's been a whirlwind
Speaker 2: of announcements from the Trump White House. Europe is racing
Speaker 2: to rearm Germany's loosening its purse strings. The pace of
Speaker 2: change has set investors on edge. Many are now questioning
Speaker 2: what were considered established market principles, ones that had a
Speaker 2: track record of making money until now. Here's why twenty
Speaker 2: twenty five has seen popular investment strategies blown apart. Our
Speaker 2: Market's Live managing editor, Christine Aquino, joins me now for more, Christine,
Speaker 2: good to talk to you. Can we start with some examples?
Speaker 2: What were the ideas or principles that investors used to
Speaker 2: rely on and I've been thinking differently about since the
Speaker 2: start of this year.
Speaker 1: Yeah, absolutely, Steven. I mean, we have a lot of
Speaker 1: these that are long held principles in markets that have
Speaker 1: really started to be challenged, especially in the beginning of
Speaker 1: this year, right. So one of them is definitely this
Speaker 1: idea that the US dollar and treasuries are full proof
Speaker 1: havens during times of stress. There's also the notion that
Speaker 1: there's no way to go for the Magnificent seven but
Speaker 1: up because you know, even in times of inflationary environments,
Speaker 1: they tend to be more resilient because they have a
Speaker 1: lot of cash flow, they have enough growth in the
Speaker 1: companies that are in that group. And then, of course
Speaker 1: the sixty forty investment strategy. Now that's been questioned even
Speaker 1: prior to the start of this year, but I think
Speaker 1: even more so since the beginning of twenty twenty.
Speaker 2: Five, the sixty to forty portfolio sixty percent invested in stocks,
Speaker 2: forty percent invested in bond. Something that we hear a
Speaker 2: lot about are all of these changes because of Donald Trump.
Speaker 1: He was definitely a big catalyst ever since President Donald
Speaker 1: Trump took office, and it's particularly because of some of
Speaker 1: the known aspects of his policy approach. Right, we knew
Speaker 1: even before he took office that he was going to
Speaker 1: take a look at the US's trade deals with the
Speaker 1: rest of the world and attempt to redraw a lot
Speaker 1: of that policy. And then of course a lot of
Speaker 1: focus on immigration as well. And you know, that combination
Speaker 1: had a lot of people really bracing for a renewal
Speaker 1: of inflation in twenty twenty five.
Speaker 2: So what are the other factors at play then outside
Speaker 2: of the United States.
Speaker 1: Well, Stephen, you know, because the US has enjoyed this
Speaker 1: sense of exceptionalism, I would say over the past decade.
Speaker 1: The result of that is that a lot of valuations
Speaker 1: outside of the US have really become cheaper, you know,
Speaker 1: and now that we're seeing US markets being on a
Speaker 1: little bit more shaky ground, that cheaper valuation outside of
Speaker 1: the country has really become a bigger draw for investors, right,
Speaker 1: because they're cheaper and now they're looking like more of
Speaker 1: a viable alternative to US assets. And outside of markets,
Speaker 1: we've also seen a number of leadership changes in a
Speaker 1: lot of other countries. Twenty twenty four was a big
Speaker 1: gear for global elections, and you know, a lot of
Speaker 1: leadership changes means that for countries, their diplomatic relationships are
Speaker 1: bound to change. At the focal point of that, of course,
Speaker 1: is President Donald Trump and how he's really shifting the
Speaker 1: US's diplomatic relationships with some of its more traditional, closer allies.
Speaker 1: And also it's farther flunk counterparts.
Speaker 2: So money managers have to adapt their strategies all the time, right,
Speaker 2: But how does this moment compared to other periods in
Speaker 2: the past where we've seen big fundamental shifts.
Speaker 1: I think what we're really hearing from money managers is
Speaker 1: the fact that they're having to contend with a higher
Speaker 1: than usual level of volatility, and what that really means
Speaker 1: is that their reaction time has to be faster, it
Speaker 1: has to be more tactical. You know, we're not necessarily
Speaker 1: seeing a lot of money managers making big calls and
Speaker 1: making long term proclamations because it's really difficult in this
Speaker 1: current environment to do that, and so now they have
Speaker 1: to be quick twitched, they have to be really reactive,
Speaker 1: which is quite a different environment, especially if you're a
Speaker 1: money manager who's used to, you know, making big investment
Speaker 1: decisions once a year, maybe changing up your portfolio every
Speaker 1: but not really having to mix it up all that much.
Speaker 1: But yeah, now this is a really different environment. And
Speaker 1: I think the other thing too, that we spoke to
Speaker 1: earlier is the idea that there are a lot of
Speaker 1: these long held quote unquote truths in markets that are
Speaker 1: now really being challenged, and so a lot of money
Speaker 1: managers really just can't rely on those anymore.
Speaker 2: Yeah, even that expression quick twitch makes me nervous when
Speaker 2: I hear it. What about the lasting effect of these changes.
Speaker 2: Can we say, for example, that the era of US
Speaker 2: exceptionalism is over.
Speaker 1: Well, I don't think anyone's quite ready to proclaim that
Speaker 1: just yet, but you do definitely see enough of a
Speaker 1: diversification shift potentially that some of these previously held notions
Speaker 1: in markets become a more water down version of their
Speaker 1: previous selves. Right, even though the US will always have
Speaker 1: the advantage of Tina which is there is no alternative
Speaker 1: because a lot of its markets, both in stocks and
Speaker 1: fixed income, deepest, biggest, broadest markets in the world. But
Speaker 1: we might be seeing enough of a shift in portfolio
Speaker 1: flows that even though that's still true to some extent,
Speaker 1: it probably won't be to the same degree as we
Speaker 1: have seen in years past.
Speaker 2: Now, Christine, you are Queen of Markets at Bloomberg, Are
Speaker 2: there any unusual market trends that you're keeping an eye
Speaker 2: on in the coming months.
Speaker 1: Well, I'm always a macro person at heart, and so
Speaker 1: I'm really really interested in the shift in the dollar's
Speaker 1: role in how investors are viewing it, because we have
Speaker 1: seen it shift from a full proof, trusted haven during
Speaker 1: times of previous episodes of turmoil. I'm talking about the
Speaker 1: global financial crisis and even during the COVID years, and
Speaker 1: now it's really struggled to rally and it almost has
Speaker 1: become the face of the Cell America trade. And that's
Speaker 1: really interesting that investors have been so quick to shift
Speaker 1: their their views and a dollar, and I'm curious to
Speaker 1: see whether it regains back a lot of that status
Speaker 1: that it enjoyed before, or is it now fundamentally changed.
Speaker 1: The other thing that I'm really looking at with interest.
Speaker 1: Is this idea that macro factors taking a backseat to
Speaker 1: politics in terms of driving markets? Is that the new
Speaker 1: world order? Now? You know, are we going to have
Speaker 1: to become in addition to economic armchair experts, are we
Speaker 1: going to have to become policy and politics experts as
Speaker 1: well in this sort of market And you know, just
Speaker 1: a question of for instance, federal reserve policy playing second
Speaker 1: fiddle to whatever the Trump administration's policies are. So something
Speaker 1: that I'd like to keep an eye on. For sure,
Speaker 1: I'm going.
Speaker 2: To be dusting off our politics books to read up
Speaker 2: on some of the precedents of the past. Thanks to
Speaker 2: our Markets Live managing editor Christina Quino. For more explanations
Speaker 2: like this from our team of three thousand journalists and
Speaker 2: analysts around the world, go to Bloomberg dot com slash explainers.
Speaker 2: I'm Stephen Carol. This is Here's why. I'll be back
Speaker 2: next week with more. Thanks for listening.
Speaker 1: Foo