WEBVTT - Surveillance: Cash Over Bonds, Goldman Says 0:00:05.120 --> 0:00:09.200 Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane. Along 0:00:09.240 --> 0:00:13.080 with Jonathan Ferroll and Lisa A. Brawnowitz Jaily, we bring 0:00:13.119 --> 0:00:17.159 you insight from the best and economics, finance, investment, and 0:00:17.280 --> 0:00:23.280 international relations. Find Bloomberg Surveillance on Apple podcast, SoundCloud, Bloomberg 0:00:23.360 --> 0:00:29.800 dot Com, and of course on the Bloomberg terminal. Right 0:00:29.800 --> 0:00:32.239 now on a Friday. As we reset for November the 0:00:32.320 --> 0:00:34.280 end of this year, and as John has mentioned some 0:00:34.360 --> 0:00:37.720 of the window gazing into two thousand twenty two, it's 0:00:37.760 --> 0:00:42.600 time that you reset. Christian Mueller Glissman at Goldman Sachs 0:00:42.760 --> 0:00:46.760 is hugely qualified to talk about the linkage of the 0:00:46.840 --> 0:00:52.240 dynamics of the market into your portfolios, retail and institutional 0:00:53.040 --> 0:01:00.400 around the foundation back to nineteen of the sixty forty portfolio. Christian, 0:01:00.440 --> 0:01:03.000 thank you so much for joining and your work with 0:01:03.000 --> 0:01:05.559 the cf A Institute, of which I'm remember is well 0:01:05.920 --> 0:01:11.440 how dead is the dead sixty portfolio? Yeah, listen, it 0:01:11.880 --> 0:01:14.880 always is a bit aggressive to say that you have 0:01:15.080 --> 0:01:17.399 the debt or death of of kind of one of 0:01:17.400 --> 0:01:20.440 the most basic and and well known investment strategies. I 0:01:20.480 --> 0:01:23.360 think there's always going to be some benefit to be 0:01:23.480 --> 0:01:26.280 balanced now. But I think you have a particularly poor 0:01:26.560 --> 0:01:29.160 kind of starting point for these type of portfolios from 0:01:29.160 --> 0:01:32.600 two perspectives. No. I mean, first of all, everything is expensive. 0:01:32.680 --> 0:01:35.440 We know that, and equities and bonds are expensive at 0:01:35.440 --> 0:01:38.200 the same time. That was actually the same a few 0:01:38.280 --> 0:01:41.839 years ago, and still these portfolios continued performing really well. 0:01:42.080 --> 0:01:45.360 But what's new is how we are starting the cycle. 0:01:45.440 --> 0:01:48.320 And all the cycle is starting with more inflation and 0:01:48.400 --> 0:01:51.800 flatter yearth curves, and and that just means that what 0:01:51.880 --> 0:01:55.680 bonds can offer you in the portfolio is even more limited, 0:01:55.760 --> 0:01:58.720 both in terms of returns and and and with regards 0:01:58.720 --> 0:02:01.280 to to to risk reduction. One of the other determinants 0:02:01.280 --> 0:02:06.200 here is diversification, which over my span I've seen, for example, 0:02:06.280 --> 0:02:09.520 three hundred stocks down to fidelity fifty years. What Sequoia 0:02:09.600 --> 0:02:13.640 did years ago tell us about your view and the 0:02:13.760 --> 0:02:19.359 new diversification. If bonds are so unattractive, do I own Apple, 0:02:19.440 --> 0:02:23.839 Amazon and seven other stocks? Listen. It's exactly a good 0:02:23.840 --> 0:02:25.520 point you make there. I think you need to look 0:02:25.560 --> 0:02:29.600 for older sources of diversification than than just what equities 0:02:29.600 --> 0:02:31.800 and bonds can offer you. I actually think there's going 0:02:31.840 --> 0:02:35.239 to be much more potential for regional diversification. In the 0:02:35.320 --> 0:02:38.840 last twenty thirty years, all the academic evidence is showing 0:02:38.880 --> 0:02:42.960 that there's no benefit of having a global portfolio. If anything, 0:02:43.000 --> 0:02:45.280 the best thing was to have all your money just 0:02:45.400 --> 0:02:48.440 in the US equity market. But now that we introduce 0:02:48.520 --> 0:02:53.600 inflation risk, inflation volatility, policy uncertainty which we haven't had 0:02:53.600 --> 0:02:56.079 in the last twenty thirty years, and possibly much more 0:02:56.120 --> 0:03:00.079 macro volatility de synchronized cycles, what we could get is 0:03:00.360 --> 0:03:05.079 more diversification across the markets, and and also across styles, 0:03:05.120 --> 0:03:08.720 across sectors and and and and be the leadership is 0:03:08.800 --> 0:03:11.359 much much less narrow, So to some extent, you should 0:03:11.360 --> 0:03:13.960 not just be in the winners of the last cycle 0:03:14.240 --> 0:03:17.120 um and run a really concentrated portfolio. You need to 0:03:17.160 --> 0:03:19.720 branch out the bit you need need to diversity find. Obviously, 0:03:20.000 --> 0:03:22.480 the other key area, which we all know um and 0:03:22.680 --> 0:03:25.080 has already done really well, which will be more important 0:03:25.120 --> 0:03:28.560 than the portfolio's real assets, if it's commodities or other 0:03:28.600 --> 0:03:31.600 sources of of of of kind of real cash flaws. 0:03:31.639 --> 0:03:33.800 I think that that will also feature more heavily in 0:03:33.840 --> 0:03:36.880 the coming cycle. Is cash better than developed market bonds? 0:03:36.960 --> 0:03:41.160 Right now? Listen, this is the most interesting discussion, in 0:03:41.200 --> 0:03:43.760 my opinion, which is new. I think we all know 0:03:43.840 --> 0:03:46.440 that activities look better than bonds um in the long 0:03:46.520 --> 0:03:48.760 run on most models which you can come up with. 0:03:49.240 --> 0:03:52.160 But the more interesting discussion is really bonds versus cash. 0:03:52.520 --> 0:03:55.760 People are forgetting, but bonds have for very prolonged periods 0:03:55.760 --> 0:03:59.200 of time lost your money versus cash. Actually, the hit 0:03:59.320 --> 0:04:03.560 ratio of cash outperforming bonds over a ten year rolling 0:04:03.600 --> 0:04:08.120 period is nearly so it's nearly fifty fifty that you 0:04:08.800 --> 0:04:11.360 essentially do better with cash than with bonds. Based on 0:04:11.400 --> 0:04:13.840 the last hundred years, we obviously have been in the 0:04:13.880 --> 0:04:16.240 biggest bond bill market on records, so so we kind 0:04:16.279 --> 0:04:18.520 of feel that's quite unusual. But if you look back 0:04:18.560 --> 0:04:20.760 in history, there were plenty periods and one of the 0:04:20.800 --> 0:04:24.719 most important indicators of how bonds might do versus cash 0:04:24.880 --> 0:04:27.400 is the steepness of the youth curve, and and the 0:04:27.440 --> 0:04:29.800 steepness of the youth curve is half of what we 0:04:29.920 --> 0:04:33.080 normally get after a recession, exactly to some of the 0:04:33.120 --> 0:04:36.480 comments we had earlier. Because there's so little optimism about 0:04:36.480 --> 0:04:40.240 the duration and the longevity of the cycle and how 0:04:40.279 --> 0:04:43.000 much central banks can hike. That means you have less buffer, 0:04:43.040 --> 0:04:45.599 and you have less returned potential for bonds versus cash. 0:04:45.920 --> 0:04:49.039 So I think definitely cash looks better versus bonds in 0:04:49.080 --> 0:04:52.160 the coming cycle than than what we've experienced in recent years. 0:04:52.320 --> 0:04:54.480 But inflation doesn't that sort of a road the idea, 0:04:54.520 --> 0:04:59.039 because your buying power is steadily going away with no coupon. Yeah. 0:04:59.040 --> 0:05:01.000 I mean it's always like you do you want to 0:05:01.040 --> 0:05:03.520 lose money fast or slow? No? I think that that 0:05:03.600 --> 0:05:08.360 the big problem is with cash you're losing money very slowly, 0:05:08.760 --> 0:05:11.840 whereas with bonds you obviously have other drivers. And and 0:05:11.920 --> 0:05:15.360 we all know that real yields have moved to incredibly 0:05:15.400 --> 0:05:18.919 low levels, and there's really weird relationship you currently have 0:05:19.279 --> 0:05:22.880 where inflation expectations go higher and higher and higher, but 0:05:22.960 --> 0:05:25.359 the really yield stay will follow, and we know that 0:05:25.480 --> 0:05:27.640 might change, and then you have some losses in bonds. 0:05:28.040 --> 0:05:30.840 Christian one quick question. You can't have a Moller Glistman 0:05:31.080 --> 0:05:34.520 article without Anibbitson chart. You try out the Roger Ibbitson 0:05:34.920 --> 0:05:38.200 chart like Clark work here. The long term log performance 0:05:38.480 --> 0:05:42.760 of the equity market and the Great Unspoken Fear is 0:05:42.880 --> 0:05:47.680 another nineties seventies, the dismal seventies, the Carter malaise, the 0:05:47.680 --> 0:05:54.040 flatness of equity return. What's the probability of that? Listen. 0:05:54.120 --> 0:05:58.080 I think it's definitely higher post COVID and post the 0:05:58.160 --> 0:06:00.680 crisis than before because we of the you have. Now 0:06:00.760 --> 0:06:04.280 there's a new inflation uncertainty. And inflation is a very 0:06:04.360 --> 0:06:07.200 I always say it's a very autocorelated animal. Once you 0:06:07.320 --> 0:06:10.640 set it loose, I think it does create more uncertainty, 0:06:10.720 --> 0:06:13.760 It has spillover effects and and and I think as 0:06:13.800 --> 0:06:15.880 we sult of that, the probability has gone up. We 0:06:15.920 --> 0:06:19.240 still would argue that like a seventy stack inflation. Don't 0:06:19.240 --> 0:06:22.839 forget there was ten percent annualized inflation over a decade. 0:06:23.240 --> 0:06:26.159 I mean that is quite aggressive. And you also have 0:06:26.200 --> 0:06:29.279 to consider at the time, like the type of macro backdrop, 0:06:29.560 --> 0:06:33.840 both with regards to demand supply disruptions which were related 0:06:33.880 --> 0:06:37.560 to OPEC embargo, Iranian revolution. There were things going on 0:06:37.640 --> 0:06:40.160 which seemed much more extreme than what we're dealing with. 0:06:40.240 --> 0:06:43.599 I think stagflationary momentum is something we need to fear 0:06:43.680 --> 0:06:46.920 next week, not down next week, next year, um um 0:06:46.920 --> 0:06:49.080 where I think we know that growth will come down, 0:06:49.200 --> 0:06:52.000 inflation might remain sticky, and we get a bit of 0:06:52.000 --> 0:06:56.000 monetary policy normalization, and and and and potentially a bit 0:06:56.000 --> 0:06:58.080 of a catch up for monetary policy, and that can 0:06:58.120 --> 0:07:00.840 be a bit harmful for market. It's but I think 0:07:00.880 --> 0:07:04.560 the seventies staculation to US is still a pretty extreme event, 0:07:04.640 --> 0:07:07.599 which which I would still put more into the tail 0:07:07.720 --> 0:07:11.400 risk bucket, not the base case. Christian, that was a clinic. 0:07:11.520 --> 0:07:13.080 It's going to catch up, says send out best to 0:07:13.080 --> 0:07:15.280 patter up in honor as well, Christie Milli Glisman there, 0:07:15.320 --> 0:07:16.840 I've got one sacks. Thank you, buddy. It's going to 0:07:16.840 --> 0:07:24.600 see it. One stock I want to look at in 0:07:24.640 --> 0:07:26.240 the pre market, Tom and now you want a brief 0:07:26.280 --> 0:07:28.960 comment on this to Jan J to split into two 0:07:29.120 --> 0:07:31.440 companies that coming from the company this morning the stock 0:07:31.480 --> 0:07:33.760 positive by about four percent, just short of one seventeen 0:07:33.760 --> 0:07:36.520 Now Tom at one sixty nine sixty two. It is 0:07:36.560 --> 0:07:40.240 not the J and J those older perceived. What's remarkable 0:07:40.280 --> 0:07:42.480 here in this data wonderful in the Bloomberg, I can't 0:07:42.480 --> 0:07:44.480 say enough about the d E S screen to get 0:07:44.520 --> 0:07:47.080 a snapshot of a company that we think we know 0:07:47.200 --> 0:07:52.040 that we don't know John Household, Baby Oil, the powder, 0:07:52.480 --> 0:07:56.080 all the rest of it. It's seventeen of the company. 0:07:56.160 --> 0:07:59.960 It is amazing how they have deconsumered with their pharmaceutic 0:08:00.040 --> 0:08:03.040 called the medical devices growth over the last twenty years. 0:08:03.040 --> 0:08:05.000 And tell me this company is still an absolute based 0:08:05.040 --> 0:08:06.840 what are we looking at four hundred five d pillion 0:08:06.880 --> 0:08:09.720 dollarmarket gonna take eighteen to twenty four months to split 0:08:09.720 --> 0:08:12.080 it out. I know we've got an important conversation here, John, 0:08:12.120 --> 0:08:15.200 but I just can't say enough about how the margins 0:08:15.320 --> 0:08:18.760 fall in that income is hugely profitable. That important conversation 0:08:18.840 --> 0:08:21.160 Tom starts now with Jean Barvan, the head of the 0:08:21.200 --> 0:08:24.200 Investment Institute of Black Rock. John, your words, what ultimately 0:08:24.320 --> 0:08:27.200 matters is not the timing of liftoff on policy rights, 0:08:27.480 --> 0:08:30.040 but the cumulative response. John, can you build on that 0:08:30.160 --> 0:08:34.079 for us? Yeah, I mean we all focus on when 0:08:34.160 --> 0:08:36.480 exactly the lifto is gonna happen. And as you mentioned, 0:08:36.520 --> 0:08:39.679 like some are being brought pretty aggressively into twenty two. 0:08:39.760 --> 0:08:42.440 Now I would push back on you know, three hikes 0:08:42.440 --> 0:08:45.120 in twenty wee do seem like extremely aggressive to us, um, 0:08:45.559 --> 0:08:47.920 but we might see the beginning of the hiking cycle 0:08:47.960 --> 0:08:51.640 in twenty twenty two. But ultimately, what's gonna matter what 0:08:51.800 --> 0:08:54.679 this very unusually discycle is that the cumulative response to 0:08:54.800 --> 0:08:57.640 this kind of inflation that we haven't seen in thirty 0:08:57.760 --> 0:09:00.640 years will be much more muted than history lead. And 0:09:00.760 --> 0:09:03.719 that's gonna be meaning that the real rates in our view, 0:09:03.760 --> 0:09:07.480 are are remained very low for a sustained amount of time. 0:09:07.520 --> 0:09:10.160 And that's a that's a different way true to risk asset. 0:09:10.200 --> 0:09:12.760 I think that's a much more constructive backgroup that's sustained 0:09:12.800 --> 0:09:16.200 and and that's where there's a risk of confusion, we think, 0:09:16.320 --> 0:09:18.439 so hashtag confusion that for us is a is a 0:09:18.480 --> 0:09:23.400 starting point of manic conversation. What does the fiscal impulse 0:09:23.720 --> 0:09:27.760 of this natural disaster, this pandemic? What is it due 0:09:27.800 --> 0:09:32.280 to the geometry that any given central bank faces. It's 0:09:32.320 --> 0:09:37.280 not in the textbooks, is it. It's not in the textbox? Uh. 0:09:37.440 --> 0:09:40.000 And you know we call this whole kind of complex. Well, 0:09:40.480 --> 0:09:43.400 we've talked about a policy revolution over the last few years, 0:09:43.480 --> 0:09:47.760 this complex of both monstrey policy and fiscal policy moving 0:09:47.840 --> 0:09:50.520 very aggressively. But that leaves us at the place now 0:09:50.600 --> 0:09:53.000 where um, you know, we we kind of forget about this, 0:09:53.120 --> 0:09:57.320 but the dead levels are very high not long ago. Um, 0:09:57.640 --> 0:10:00.640 you know, the narrative in the US, was you the 0:10:00.760 --> 0:10:04.120 death servicing costs are solow like the trick or levels 0:10:04.520 --> 0:10:07.000 are low that we can afford to increase the debt 0:10:07.360 --> 0:10:10.439 very significantly, which we've done. The flip side of this, 0:10:10.559 --> 0:10:13.280 which will see soon, is that it won't take much 0:10:13.440 --> 0:10:16.640 in terms of rate increase to change the story completely 0:10:16.679 --> 0:10:18.439 on its head. Um, you know, we can add a 0:10:18.480 --> 0:10:21.319 ten year back at two point five and at that 0:10:21.440 --> 0:10:23.959 point that servicing costs in the US will be back 0:10:24.000 --> 0:10:28.120 to their to their historical level, throwing a completely out 0:10:28.120 --> 0:10:30.560 of the window. Uh, you know the argument that Summers 0:10:30.600 --> 0:10:33.400 and Lasha we're making just a couple of years ago. 0:10:33.480 --> 0:10:36.319 So point being to your point, Tom, it's um, it's 0:10:36.360 --> 0:10:38.360 not textbook, and it's going to be a constraint on 0:10:38.600 --> 0:10:41.360 how quickly rates that can go up. Jean, I find 0:10:41.400 --> 0:10:44.760 this fascinating the idea here the central bankers and praying frankly, 0:10:44.840 --> 0:10:47.720 policymakers in general don't want to see rates go up 0:10:47.760 --> 0:10:50.240 too high because the economy is no longer able to 0:10:50.320 --> 0:10:52.800 withstand it because of what you're just talking about. Does 0:10:52.880 --> 0:10:56.400 that mean that the more volatile asset class is perhaps 0:10:56.559 --> 0:10:58.880 short term yields that a very little room to maneuver, 0:10:59.000 --> 0:11:02.880 but could potentially be offset dramatically by what my people 0:11:02.960 --> 0:11:05.959 might speculate about policy changes, whereas stocks continue to be 0:11:06.040 --> 0:11:09.000 supported no matter what by the negative real yields that 0:11:09.040 --> 0:11:13.200 you see persisting. Yeah, so certainly consistent with what we've 0:11:13.200 --> 0:11:15.920 seen over the last month or two, right, I mean, 0:11:16.520 --> 0:11:19.800 lots of swings around the repricing of North Newton policy, 0:11:20.240 --> 0:11:23.719 and yet the backdrop has been you know, continues to 0:11:23.760 --> 0:11:26.160 be constructive more broadly for his causes. So I think 0:11:26.200 --> 0:11:29.760 that would be consistent with uh, you know, UH, rates 0:11:29.840 --> 0:11:31.559 might be lifting up at different point in time, but 0:11:31.640 --> 0:11:34.160 there's a conviction that overall, uh, this is going to 0:11:34.240 --> 0:11:37.040 be a muted the hiking cycle. And if it were not, 0:11:37.440 --> 0:11:39.360 I think we've seen some example of that, then markets 0:11:39.400 --> 0:11:41.520 are quick to surprive some kind of policy mistakes, of 0:11:41.600 --> 0:11:44.760 quick reversal of policy, which speaks to this environment we're 0:11:44.760 --> 0:11:46.839 talking about. It's gonna be difficult to raise rates or 0:11:47.160 --> 0:11:48.600 I don't know, want to put it is like any 0:11:48.760 --> 0:11:53.000 rate right, Um, we'll have a bigger impact, Jean. I'm 0:11:53.040 --> 0:11:55.440 honored to do this with your work at Princeton. As 0:11:55.480 --> 0:11:58.719 you know, the great Olivier Blanchard of France, of m 0:11:58.760 --> 0:12:02.920 I T and of the International Monetary Fund. Professor Blanchard 0:12:03.040 --> 0:12:05.559 is out with a blistering note this morning in the 0:12:05.640 --> 0:12:11.040 Peterson Institute, saying, forget about team temporary, forget about team gloom. 0:12:11.280 --> 0:12:15.320 John mentions Dr Ollarion. He says, we need to get 0:12:15.600 --> 0:12:19.040 used to the consequences of higher inflation. What are the 0:12:19.160 --> 0:12:27.480 consequences of a sustained higher inflation is Olivier. Blanchard mentions, well, 0:12:27.520 --> 0:12:30.480 I mean it feeds to the entire economy, so you 0:12:30.559 --> 0:12:35.079 know there will be adjustment through you know, obviously prices, 0:12:35.200 --> 0:12:38.640 but that means also we'll see some wage dynamics, that 0:12:39.240 --> 0:12:43.760 nominal wage dynamic that will be different than eventually you know, um, 0:12:44.480 --> 0:12:46.880 workers will want to keep up with this. Inflation is 0:12:46.920 --> 0:12:49.880 going to change the boggaining kind of situation, and I 0:12:49.960 --> 0:12:53.320 think we'll see wages sketching up. We haven't seen, um, 0:12:53.440 --> 0:12:55.000 I think I don't know. I haven't read yet the 0:12:55.040 --> 0:12:57.640 Olivier's piece, but I would suspect, like one of the 0:12:57.720 --> 0:12:59.880 key point is for the last twenty years, where you know, 0:13:00.120 --> 0:13:02.679 inflation was missing in action. And even if we are 0:13:03.040 --> 0:13:06.160 you know, two point five percent, well, going back, you know, 0:13:06.240 --> 0:13:09.920 after some some spikes, it's gonna feel different for that reason. 0:13:10.160 --> 0:13:13.480 And the other big point is, um, how will people 0:13:14.040 --> 0:13:16.160 react in terms of the expectation of inflation? And I 0:13:16.200 --> 0:13:19.920 don't think people we have collectively a good handle. There's 0:13:19.960 --> 0:13:23.240 no good models of in flash expectations UM, and so 0:13:23.400 --> 0:13:25.839 that's a big unknown. I guess that we'll need to 0:13:26.000 --> 0:13:28.720 track and live with now. John, always quite get your 0:13:28.720 --> 0:13:36.720 thoughts as always fantastic, John ban a blank rock right now. 0:13:36.800 --> 0:13:39.960 An important essay by See Michure. She's senior global investment 0:13:40.040 --> 0:13:42.640 strategist of Principal Group and Seema. I want to draw 0:13:42.800 --> 0:13:46.280 right into what we see on emerging markets. You are 0:13:46.440 --> 0:13:49.240 bold into the end of the year, you are bold 0:13:49.360 --> 0:13:51.760 into the beginning of the year and say you may 0:13:51.840 --> 0:13:55.280 not be on board with e M, but the belieguered 0:13:55.320 --> 0:13:58.560 e M has your attention. Tell me about the when 0:13:59.480 --> 0:14:01.439 of die thing in the e M. What do you 0:14:01.559 --> 0:14:07.199 need to see to generate a belief in emerging markets? Hi, John, So, 0:14:07.320 --> 0:14:10.079 I think the key thing is China. Right, we look 0:14:10.120 --> 0:14:12.360 at the fundamentals of emerging markets. We feel that there's 0:14:12.360 --> 0:14:14.959 a lot of promising movement with regards to vaccines to 0:14:15.040 --> 0:14:17.280 kind of a shift away from zero COVID in a 0:14:17.400 --> 0:14:20.680 number of countries um and and also you know, compared 0:14:20.720 --> 0:14:22.720 to a lot of the other parts of emerging markets 0:14:22.800 --> 0:14:26.800 lat term, Eastern Europe, Emerging Asia kind of you know, 0:14:26.920 --> 0:14:30.320 not having as as significant rate hyps. But really the 0:14:30.440 --> 0:14:33.120 catsule is China. You know, we need to see some 0:14:33.240 --> 0:14:36.360 kind of movement there with regards to stimulus, potentially at 0:14:36.400 --> 0:14:38.400 bottoming of growth, maybe a pull back in a bit 0:14:38.440 --> 0:14:40.680 of regulation. And the problem here is is that we 0:14:40.840 --> 0:14:43.720 don't know when that will happen. You know, we think 0:14:43.760 --> 0:14:46.280 there is a pain threshold, but unfortunately are not able. 0:14:46.320 --> 0:14:48.320 I think anyone is able to call that time in. 0:14:48.680 --> 0:14:50.600 So the only thing that we can do here is 0:14:50.720 --> 0:14:53.480 stay ready on the sidelines, waiting to to increase the 0:14:53.520 --> 0:14:56.520 exposure because valuations have become more attractive. But we just 0:14:56.600 --> 0:14:58.760 need China to play ball. Say what's your read at 0:14:58.760 --> 0:15:00.720 the moment on how far down road we are in 0:15:00.800 --> 0:15:03.760 these tightening cycles in places like Brazil, like Mexico. Are 0:15:03.800 --> 0:15:06.920 we closely done yet? I think we're definitely getting there, 0:15:07.040 --> 0:15:09.560 right so, you know, Russia will almost at the end. Brazil, 0:15:09.680 --> 0:15:12.560 I think that we're they're going to move quickly. They're 0:15:12.600 --> 0:15:14.640 going to move a lot, and then we should kind 0:15:14.680 --> 0:15:17.840 of normalize by middle of next year, so I think, 0:15:18.720 --> 0:15:20.040 And the fun thing is is, you know, they're going 0:15:20.080 --> 0:15:21.960 to be finished with their rate hikes, are going to 0:15:22.000 --> 0:15:25.160 have gone to pre pandemic levels before the FED even 0:15:25.240 --> 0:15:28.239 gets going, So we have to take that into consideration. 0:15:28.280 --> 0:15:30.400 So I do think that as we're get into two 0:15:30.840 --> 0:15:34.480 developed markets start really moving faster towards their normalization process, 0:15:34.760 --> 0:15:36.600 that actually emerging markets start to look a little bit 0:15:36.600 --> 0:15:39.840 more attractive at that point. Okay, so they look more attractive. However, 0:15:39.960 --> 0:15:41.960 there is the issue of the dollar. What happens if 0:15:41.960 --> 0:15:44.920 the Federals serve does hike twice or even three times 0:15:45.120 --> 0:15:48.040 in the next eighteen months, how much does that potentially 0:15:48.400 --> 0:15:51.600 crimp the bet that you're making. Yeah, you know, we 0:15:51.760 --> 0:15:55.480 think that for the US actually we're not expecting kind 0:15:55.520 --> 0:15:57.760 of very very early hikes. We think it's going to 0:15:57.840 --> 0:16:00.120 be right all the end of next year, that going 0:16:00.160 --> 0:16:02.480 to look through a lot of that inflation tension um 0:16:02.560 --> 0:16:04.480 and wait there and then from there on actually have 0:16:04.640 --> 0:16:07.080 quite a shallow upper trajectory, we think. You know, we 0:16:07.120 --> 0:16:09.040 look at the debt markets, we look at you know 0:16:09.120 --> 0:16:11.080 the fact that the growth profile is on a slowdown, 0:16:11.160 --> 0:16:13.840 and we don't see very significant moves. So I think 0:16:13.880 --> 0:16:15.800 there is upper movement on the dollar, but I don't 0:16:15.800 --> 0:16:17.280 think it's going to be to a point that it 0:16:17.320 --> 0:16:20.120 starts to strangle the measure markets. And actually, the other 0:16:20.160 --> 0:16:21.480 thing is is that you know, I know a lot 0:16:21.480 --> 0:16:24.280 of investors have been really concerned about how do emerging 0:16:24.320 --> 0:16:27.040 markets deal with fair tapering, and at the same time, 0:16:27.480 --> 0:16:30.160 the investors who are looking at a measure markets and thinking, right, well, 0:16:30.200 --> 0:16:33.360 there's a little a far more credible Montrey policy framework 0:16:33.400 --> 0:16:36.640 and incredible on the fiscal side across a number of countries, 0:16:36.880 --> 0:16:38.760 and I think that actually this is a slightly more 0:16:38.840 --> 0:16:41.000 stable emerging markets and what we've been used to do 0:16:41.040 --> 0:16:43.640 in previous years. So this is a really constructive outlook. 0:16:43.720 --> 0:16:46.080 Why then, are you seeing potential wibles in the US 0:16:46.120 --> 0:16:49.480 equity markets considering that there is this sort of reflation 0:16:49.600 --> 0:16:53.680 trade in a constructive narrative around the rest of the world. Well, 0:16:53.800 --> 0:16:56.200 so even for the United States that we're looking at 0:16:56.320 --> 0:16:59.760 growth slowdown, but we're still expecting growth to be a 0:17:00.000 --> 0:17:02.760 own trend of not above trend. So this isn't a 0:17:02.920 --> 0:17:06.280 very very negative outlook at all. There are going to 0:17:06.320 --> 0:17:08.119 be pressures on profits. We need to keep a very 0:17:08.200 --> 0:17:10.080 very close sign on that. But when we look at 0:17:10.119 --> 0:17:13.040 earnings of the earning season just gone, I think that 0:17:13.320 --> 0:17:15.879 equity markets have generally been really encouraged by signs that 0:17:15.920 --> 0:17:18.480 there is continued strong demand. So you know, we are 0:17:18.520 --> 0:17:22.719 expecting lower returns through two in a number of markets, 0:17:22.760 --> 0:17:25.639 including your including the US. But are we looking at 0:17:25.720 --> 0:17:30.879 negative returns? Absolutely not. What's the correlation here to week dollar? 0:17:31.400 --> 0:17:35.359 Basically e M investors are standing around waiting for a 0:17:35.440 --> 0:17:38.520 week dollar. Is that all this is about? No. I 0:17:38.520 --> 0:17:40.639 think emergine market investors are really watching to see what 0:17:40.680 --> 0:17:43.040 happens with China, and you know, it's it's too big 0:17:43.119 --> 0:17:46.200 to ignore. It has to be something that is working 0:17:46.280 --> 0:17:49.120 for them, um, you know. But having said that, there's 0:17:49.160 --> 0:17:52.040 pockets within emerging markets away from the e M Asia, 0:17:52.520 --> 0:17:54.840 such as in Latin America, where valuations are starting to 0:17:54.880 --> 0:17:57.119 look more attractive. I think it's just being ready for 0:17:57.200 --> 0:18:00.719 that opportunity. Don't get to underwaiting your portfolios. Be neutral 0:18:00.880 --> 0:18:03.600 and be ready to increase explosion when the right time comes. 0:18:03.880 --> 0:18:06.280 When China does start to pull back at a bit 0:18:06.400 --> 0:18:10.120 from from a lot of the veriest regulations, tightly constraints 0:18:10.160 --> 0:18:13.119 that were started to introduce. Sama, thank you as always 0:18:13.240 --> 0:18:16.919 great to catch you up principal level investors on emerging markets. 0:18:17.040 --> 0:18:24.960 Right now, right now, let's go to George gun call Us. 0:18:25.040 --> 0:18:27.560 This is really important, he said of the US macro 0:18:27.680 --> 0:18:30.239 strategy at m u f G, and he writes one 0:18:30.240 --> 0:18:32.359 of the most interesting in George, I love saying this 0:18:32.480 --> 0:18:36.080 to you twisted notes on Wall Street and that it's 0:18:36.359 --> 0:18:41.840 very thoughtful paragraph to paragraph about what the unseen is 0:18:42.040 --> 0:18:45.159 out there. George, I love what you say about the 0:18:45.320 --> 0:18:48.560 lack of depth in the three month market. The gloom 0:18:48.640 --> 0:18:53.080 crew is worried about liquidity, they're worried about savings dynamics, 0:18:53.480 --> 0:18:56.720 and you're focused on the lack of depth and treasuries. 0:18:57.040 --> 0:19:00.399 What do you mean, Well, I mean look, and definitely 0:19:00.520 --> 0:19:02.880 go down as a year that the bomb market could 0:19:02.880 --> 0:19:05.359 not catch the breaks um And we start off, you know, 0:19:05.480 --> 0:19:08.000 as John was pointing out, with the two stens curve steepening, 0:19:08.480 --> 0:19:11.080 you know, really kind of encourage further steepeners. Those trades 0:19:11.119 --> 0:19:13.640 got on the lound. Then during the month of October 0:19:13.880 --> 0:19:17.159 around all the Central Bank kind of interventions which they 0:19:17.200 --> 0:19:19.840 obviously didn't really deliver. Hawkish messages or hikes from the 0:19:19.840 --> 0:19:22.199 b East point of view, really tripped up all these 0:19:22.240 --> 0:19:25.600 short term rates markets. And then now as we head 0:19:25.600 --> 0:19:27.639 into a year end, you know where liquidity is super 0:19:27.720 --> 0:19:31.920 precious and we're seeing some forms of cracks forming. I 0:19:31.960 --> 0:19:33.439 mean it's too early to say, but if you look 0:19:33.480 --> 0:19:35.440 at like, you know, the Government Liquidity Index on the 0:19:35.480 --> 0:19:38.000 Bloomberg terminal, you compare against move. I think there's a 0:19:38.040 --> 0:19:40.040 good article by someone on on the Bloomberg team to 0:19:40.080 --> 0:19:42.040 put it out there, but there is you know, some 0:19:42.160 --> 0:19:44.080 concerns I mean both in the bomb market. I think 0:19:44.119 --> 0:19:46.560 that if this word persists, I think other markets would 0:19:46.600 --> 0:19:48.399 care as well. I mean, the bond market is the 0:19:48.440 --> 0:19:50.600 first to feel these things out. If you look at 0:19:50.640 --> 0:19:52.639 the you know, the ball market has more than one 0:19:52.760 --> 0:19:54.560 one curve going on right now, Well, let's go there. 0:19:54.600 --> 0:19:56.800 I got three ways to go here, folks. And when 0:19:56.880 --> 0:20:00.159 Mr gun Covas mentions there about the bond market, this 0:20:00.240 --> 0:20:03.080 out front, I firmly believe in. I've seen it time 0:20:03.200 --> 0:20:06.280 and time and time again. What does the bond market 0:20:06.320 --> 0:20:10.440 telling the equity market in six months? Well, I mean 0:20:10.840 --> 0:20:13.200 right now, because CP I I think, you know, finally 0:20:13.280 --> 0:20:14.639 is a wake up call because the fact that it 0:20:14.680 --> 0:20:18.280 continues to stay persistently high last this reading is the 0:20:18.480 --> 0:20:21.000 strong the book. The camel's back on the long end 0:20:21.000 --> 0:20:22.800 of the curve, and we saw that in the really 0:20:22.840 --> 0:20:26.160 poor auctions of the thirty year um. But again, even then, 0:20:26.600 --> 0:20:27.879 you know, it's good to kind of get around the 0:20:27.920 --> 0:20:29.960 idea that we're gonna have to positive strong growth next 0:20:30.040 --> 0:20:33.240 year in high inflation. But if inflation persists at this level, 0:20:33.359 --> 0:20:35.240 I think other markets are gonna start to care because 0:20:35.640 --> 0:20:38.000 it could you know, fast forward, you know, fed action 0:20:38.119 --> 0:20:40.280 and like and even if it's just two heights in 0:20:40.320 --> 0:20:44.240 a faster taper, markets broadly are not ready for that. George, 0:20:44.280 --> 0:20:46.959 let's have therapy Friday. Why are bond traders so gloomy? 0:20:49.000 --> 0:20:52.480 Because we're realistic? I think no. I asked this seriously 0:20:52.560 --> 0:20:56.080 because whenever I read notes, and frankly I I gravitate 0:20:56.119 --> 0:20:58.840 to the bond market, as many people would acknowledge. For 0:20:58.920 --> 0:21:03.119 a reason, have been a lot of prognostications about cracks forming. 0:21:03.240 --> 0:21:05.520 You really talked about the idea that as a tapering 0:21:05.600 --> 0:21:09.080 starts to accelerate, it will reveal some of the significant 0:21:09.160 --> 0:21:12.719