WEBVTT - Deflationary Forces Will See 30-Year UST Going To 2%: Shilling 0:00:05.800 --> 0:00:08.720 Welcome to the Bloomberg pim L Podcast. I'm pim Fox. 0:00:08.760 --> 0:00:11.440 Along with my co host Lisa A. Bramowitz. Each day 0:00:11.480 --> 0:00:15.000 we bring you the most important, noteworthy, and useful interviews 0:00:15.040 --> 0:00:17.520 for you and your money, whether you're at the grocery 0:00:17.560 --> 0:00:20.560 store or the trading floor. Find the Bloomberg p m 0:00:20.680 --> 0:00:33.680 L Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot Com. 0:00:33.680 --> 0:00:36.519 Time to turn to the US economy and what we 0:00:36.560 --> 0:00:39.800 can read out of its performance in terms of investments. 0:00:40.159 --> 0:00:42.280 Joining us as Gary Shilling. He is the president of 0:00:42.280 --> 0:00:44.879 a Gary Shilling and Company. He is also a Bloomberg 0:00:45.000 --> 0:00:49.120 View profiting columnists and Gary always a pleasure to speak 0:00:49.159 --> 0:00:51.440 with you. UM, wonder if you could just give us 0:00:51.479 --> 0:00:55.480 your thoughts based on today's payroll report non farm payroll report, 0:00:55.960 --> 0:01:01.000 and are you still positioning yourself as long US treasuries. Yes, 0:01:01.120 --> 0:01:02.920 we are, a matter of fact, we've we've stepped up 0:01:02.920 --> 0:01:05.680 our position in the last several weeks and the portfolios 0:01:05.720 --> 0:01:08.760 we manage. UM. I think we're in a situation here 0:01:08.760 --> 0:01:12.720 where pay rolls are are growing but rather modestly. Nothing 0:01:12.800 --> 0:01:16.280 really uh to get excited about. Nothing that's going to 0:01:16.400 --> 0:01:19.520 change the Fed's view of the world. And of course 0:01:19.520 --> 0:01:21.480 there's a big difference between what the Fed does on 0:01:21.520 --> 0:01:23.800 the short end of the curve and where you get 0:01:23.800 --> 0:01:26.440 out into the ten uere. And even more so as 0:01:26.480 --> 0:01:28.600 you know him, the thirty year that I like, the 0:01:28.720 --> 0:01:30.920 spillower is very limited when you get out there and 0:01:30.920 --> 0:01:34.560 you've you've got a lot of deflationary forces, safe haven effects. 0:01:34.920 --> 0:01:37.560 You look at what's happening just today here with the 0:01:37.640 --> 0:01:41.560 latest turmoil on the on the trade front, and where 0:01:41.560 --> 0:01:44.639 do people go. They go to treasuries, business as usual, 0:01:45.680 --> 0:01:48.920 so Gary, So it sounds like you are currently out 0:01:48.920 --> 0:01:52.160 there buying thirty year treasuries on a day like today. 0:01:52.440 --> 0:01:54.840 I'm just wondering how overweight are you? And where do 0:01:54.840 --> 0:01:56.440 you see the yield ending up? Because right now I'm 0:01:56.440 --> 0:01:59.520 looking at a three percent yield on three year treasuries. 0:01:59.520 --> 0:02:03.520 Where's it go? Well, all on record is as saying 0:02:03.520 --> 0:02:05.560 I think it'll go to it'll go to two percent, 0:02:06.320 --> 0:02:10.480 And really it's really the fact that the skin I 0:02:10.520 --> 0:02:14.240 think we're in a world of a lot of deflationary forces, 0:02:14.280 --> 0:02:18.519 and you know, protuctionism elenly is deflationary excent that dispose 0:02:18.840 --> 0:02:22.239 economic growth. Although we're in a kabuki dance right now 0:02:22.400 --> 0:02:26.079 posturing more than anything else. Uh. But but again the 0:02:26.200 --> 0:02:28.640 safe haven effect. And you know one other thing. The 0:02:28.760 --> 0:02:32.400 Chinese people worry about their dumping treasuries, but they're on 0:02:32.520 --> 0:02:35.240 record is saying that they are not going to change 0:02:35.240 --> 0:02:39.720 their their policy. And obviously if they started to sell treasuries, UH, 0:02:39.880 --> 0:02:42.440 they would tank. And who would be the big losers 0:02:42.440 --> 0:02:44.679 the Chinese because then the rest of their portfolio would 0:02:44.720 --> 0:02:49.320 be vastly reduced. So UM, I think again the safe 0:02:49.360 --> 0:02:52.160 haven effect and deflationary forces. So I think we go 0:02:52.240 --> 0:02:54.160 to two and if we go to two percent, if 0:02:54.200 --> 0:02:56.959 we go to two percent from here, in one year, 0:02:57.000 --> 0:03:00.000 you'll make thirty percent on a thirty year coupon treasure 0:03:00.000 --> 0:03:03.440 three and thirty three on a zero UH coupon treasury 0:03:03.480 --> 0:03:06.160 thirty year. Tell us what your thoughts on the outlook 0:03:06.200 --> 0:03:12.000 for commodity prices and specifically oil, well oil oil. Obviously 0:03:12.080 --> 0:03:15.480 we're facing OLFAC, which is trying desperately to do what 0:03:15.600 --> 0:03:18.919 they what they have had to do traditionally, which is 0:03:18.960 --> 0:03:21.840 to be the swing producer, to cut back to accommodate 0:03:22.040 --> 0:03:24.320 everybody else who wants a bigger share of the market. 0:03:24.360 --> 0:03:27.560 The American frackers in particular, UH, They did that for 0:03:27.639 --> 0:03:31.720 ten years. In November of often they said enough is enough. 0:03:31.760 --> 0:03:34.200 They fled to the market. They went from thirty million 0:03:34.200 --> 0:03:37.640 barrels a data thirty three point eight million almost overnight. 0:03:37.920 --> 0:03:40.640 They wanted to squeeze out the flackers. Uh, frackers play 0:03:40.680 --> 0:03:42.800 a glorify game of chicken, and hoof turned out to 0:03:42.800 --> 0:03:44.960 be the chicken. It's olfac. So they're they're trying to 0:03:45.000 --> 0:03:47.480 cut back. But the point is that the frackers are 0:03:47.560 --> 0:03:50.600 very resilient and they're producing now. We're now looking and 0:03:50.680 --> 0:03:53.160 I think at ten point four million barrels of a 0:03:53.280 --> 0:03:57.400 US production atuff about half half a million barrels from 0:03:57.440 --> 0:04:00.320 a year ago. And uh, yeah, I think there is 0:04:00.440 --> 0:04:02.520 there is a range on this, but I think the 0:04:03.160 --> 0:04:06.240 pressure is is down on oil prices. And the point 0:04:06.320 --> 0:04:08.280 is that the longer OPEC goes and they've got to 0:04:08.360 --> 0:04:10.680 Russia in other countries with him, of course, but the 0:04:10.720 --> 0:04:14.160 longer that goes, the comfort is to maintain discipline because 0:04:14.200 --> 0:04:16.920 they have huge budget deviasits are trying to fill it 0:04:17.000 --> 0:04:19.800 one higher prices in order to get the revenues to 0:04:19.839 --> 0:04:23.760 do that. In Saudi Arabia, Ran, Olivia, you name it. Uh. 0:04:23.920 --> 0:04:27.479 And the point is that at some point somebody's gonna 0:04:27.520 --> 0:04:30.360 say enough is enough. I'm gonna cheat. I'm going to 0:04:30.480 --> 0:04:34.240 sell more because I desperately need the revenues. Gary. It 0:04:34.240 --> 0:04:37.239 sounds like you're pretty barrish. Actually it's to other people. 0:04:37.400 --> 0:04:39.159 What would what would you have to see to sort 0:04:39.160 --> 0:04:42.039 of say to yourself? You know Paris on treasuries. Right, 0:04:42.080 --> 0:04:44.200 you're not farrish on this in the traditional human ascid. 0:04:45.240 --> 0:04:48.040 I have been since nineteen one when I said we're 0:04:48.120 --> 0:04:50.039 entering the bond rally of the lifetime in the yield 0:04:50.040 --> 0:04:52.960 on the third of your bond was was twelve point 0:04:53.040 --> 0:04:55.400 six percent at that point. Yeah, but right now there's 0:04:55.400 --> 0:04:57.320 something else driving in And I wanted to ask you 0:04:57.400 --> 0:04:59.520 what would you have to see to think, huh, maybe 0:04:59.560 --> 0:05:02.040 I'm maybe the U. S. Economy is doing better than 0:05:02.040 --> 0:05:05.479 I think it has. It doesn't just the economy doing 0:05:05.520 --> 0:05:09.640 better than The link with treasure yields is very clearly inflation. 0:05:09.960 --> 0:05:13.120 There's about a sixty percent correlation between long term treasure 0:05:13.200 --> 0:05:16.360 yields and inflation. And it would really take something that 0:05:16.400 --> 0:05:22.400 would dramatically increase inflation. Now, historically that's been wars periods 0:05:22.400 --> 0:05:25.520 when government spending vastly exceeds revenues on top of a 0:05:25.560 --> 0:05:29.640 fully employed economy, and the economy is strained, you get 0:05:29.640 --> 0:05:32.200 in inflation. The last time we had that, of course, 0:05:32.360 --> 0:05:35.960 was with a great society and Vietnam spending back to 0:05:36.000 --> 0:05:39.640 back in the late sixties and early seventies. Uh, could 0:05:39.680 --> 0:05:42.440 that be created again? Sure? I mean if Congress the 0:05:42.440 --> 0:05:46.880 administration really go hog while in terms of infrastructure spending 0:05:46.880 --> 0:05:49.000 and military spending, there's a lot of pressure to do 0:05:49.080 --> 0:05:51.359 so because voters are mad as hell or hasn't been 0:05:51.400 --> 0:05:54.320 any growth in in real incomes for most people in 0:05:54.400 --> 0:05:57.320 over a decade. That could do it, But that's that's 0:05:57.520 --> 0:06:00.000 in a longer in a in a more fundamental stample, 0:06:00.120 --> 0:06:02.920 you've got to see inflation and and otherwise we're in 0:06:02.960 --> 0:06:05.800 an excess supply world. I mean, that's why Trump's got 0:06:05.800 --> 0:06:08.280 the upper hand and the with the Chinese in an 0:06:08.320 --> 0:06:11.520 upper in a in an excess supply world, who's got 0:06:11.560 --> 0:06:14.400 the upper hand? And say not the seller? Gary? You 0:06:14.480 --> 0:06:17.400 mentioned military spending. What do you think about investing in 0:06:17.440 --> 0:06:21.240 aerospace and defense companies? We are in poor fellow as 0:06:21.240 --> 0:06:24.000 we managed we we do have positions in the aerospace 0:06:24.040 --> 0:06:29.800 and defense area. Have you been increasing them? No, No, 0:06:30.040 --> 0:06:32.279 we've helped steady, but we have we have a we 0:06:32.360 --> 0:06:36.000 have an extraordinary amount of cash. I mean having said that, 0:06:36.279 --> 0:06:40.559 you know, we're in psories for aerospace, but we're really 0:06:40.839 --> 0:06:43.320 very heavy on cash because you've you've had some much 0:06:43.440 --> 0:06:46.480 more volatility, and I think there's this long bowlmarket in 0:06:46.600 --> 0:06:51.440 stocks that started in March of of of two thousand nine. Uh, 0:06:51.560 --> 0:06:54.080 you know, very steady and obviously spawned a lot of 0:06:54.480 --> 0:06:57.680 a lot of excess risk taking because interest rates were 0:06:57.680 --> 0:07:01.240 low and people thought they deserved more and they took 0:07:01.240 --> 0:07:04.120 advantage of low volativity, the big play with VIX. But 0:07:04.120 --> 0:07:05.960 of course that really started to come on glue in 0:07:06.040 --> 0:07:10.880 early February when we saw the Vics take off and 0:07:10.880 --> 0:07:14.880 and stocks Plumbert and Shan. But it's a very tricky 0:07:14.920 --> 0:07:18.280 world right now because you haven't seen the usual massive 0:07:18.400 --> 0:07:22.200 run for either treasuries or goal right, which would normally 0:07:22.200 --> 0:07:25.160 be that the haven type of trade. Unfortunately, gonna have 0:07:25.160 --> 0:07:27.440 to leave their Gary Shilling, president of A Gary Shilling 0:07:27.440 --> 0:07:44.640 and Company, also Bloomberg View Profit and columnists, how do 0:07:44.880 --> 0:07:49.280 trade disputes figure into the value of investments in China? 0:07:49.440 --> 0:07:51.640 Here to help us understand this is Brendan A. Hearn. 0:07:51.720 --> 0:07:54.800 He is the chief investment officer of Crane Shares and 0:07:54.880 --> 0:07:59.080 he joins US now. Brendan, maybe you could just describe 0:07:59.240 --> 0:08:02.320 sort of what is happened in the Chinese stock market, 0:08:02.320 --> 0:08:05.960 what has been the reaction to trade tariffs and trade 0:08:05.960 --> 0:08:09.760 potential trade wars between the United States and China. Yeah, 0:08:09.880 --> 0:08:12.680 you know, the Shanghai and Shenzen markets PAM have been 0:08:12.680 --> 0:08:16.480 closed for my my my favorite Chinese holiday tomb sweeping 0:08:16.840 --> 0:08:21.880 both Thursday and today on Friday. Hong Kong was open today, um, 0:08:21.920 --> 0:08:24.040 and I think most investor to be surprised. The the 0:08:24.080 --> 0:08:27.520 Hanks saying actually gained uh just over one per cent 0:08:27.800 --> 0:08:31.640 um and this was obviously included the post market close 0:08:31.880 --> 0:08:36.600 uh comments from President Trump. So so actually the Hong 0:08:36.679 --> 0:08:39.360 Kong market took it in stride. You know, Brandon, you 0:08:39.400 --> 0:08:41.640 could argue that the US market is as well. A 0:08:41.679 --> 0:08:44.439 lot of people who I speak to anyway, uh, they 0:08:44.520 --> 0:08:46.720 just tell us, you know what, this is just a 0:08:46.720 --> 0:08:49.000 war of words. This is chest beating. This is part 0:08:49.040 --> 0:08:51.600 of the art of the deal. We're not paying attention, 0:08:51.760 --> 0:08:55.640 should they? Yeah? I mean, I think ultimately there's there's 0:08:55.720 --> 0:08:59.560 so much at risk for for both countries around further 0:08:59.679 --> 0:09:02.400 s f lation that we certainly hope that this war 0:09:02.640 --> 0:09:06.680 words is simply a part of that negotiating tactic. Uh, certainly, 0:09:06.800 --> 0:09:11.640 there's just so much at stake that to to unravel UM, 0:09:11.760 --> 0:09:13.839 you know, the great progress that's been made or do 0:09:13.880 --> 0:09:16.440 a real, real, real shame and really would have a 0:09:16.440 --> 0:09:20.800 disastrous effect for for arguably both parties. Right then, just 0:09:20.880 --> 0:09:23.360 looking at the shares of Ali Baba Group as a 0:09:23.400 --> 0:09:26.120 proxy down about one and a half percent so far 0:09:26.240 --> 0:09:30.240 this year, is Ali Baba perhaps indicative of what we 0:09:30.280 --> 0:09:32.520 can expect? In other words, would you be watching those 0:09:32.559 --> 0:09:37.200 shares for any reaction based on these trade negotiations? Yeah. 0:09:37.320 --> 0:09:40.520 I think it's interesting that the US list of Chinese 0:09:40.559 --> 0:09:43.520 companies that that we hold within our k web or 0:09:43.600 --> 0:09:47.880 trying to focus Internet Strategy UM are used as trying 0:09:47.920 --> 0:09:51.920 to proxies. But the fight thing is, though UM, only 0:09:52.080 --> 0:09:56.400 four per cent of the revenue generated by the companies 0:09:56.440 --> 0:10:00.360 that we hold within k web are generated out side 0:10:00.400 --> 0:10:04.400 of China. UM. You compare that to the SMP five hundred, 0:10:04.400 --> 0:10:08.960 where over twenty of the US companies held within SMP 0:10:09.120 --> 0:10:12.040 five hundred UH come from outside of the United States. 0:10:12.200 --> 0:10:13.880 So it's so it's interesting if if you're if you're 0:10:13.920 --> 0:10:16.120 selling your Ali Baba because you're worried about a trade war. 0:10:16.360 --> 0:10:19.880 The reality is Ali Baba has virtually no exposure to 0:10:19.960 --> 0:10:24.000 the United States. It's a domestically oriented company. It's hard, 0:10:24.600 --> 0:10:28.920 it's really hard to understand that rationale. You know. One 0:10:28.960 --> 0:10:31.800 thing that I'm trying to understand right now is it 0:10:31.880 --> 0:10:35.480 seems quite clear, uh, that perhaps there could be a 0:10:35.559 --> 0:10:37.959 more level playing field with China and the rest of 0:10:38.040 --> 0:10:41.199 the world. A lot of the world agrees with that, frankly, Uh, 0:10:41.920 --> 0:10:45.160 But what's unclear to me is how much are is 0:10:45.160 --> 0:10:48.400 there concrete talking going on and versus how much is 0:10:48.520 --> 0:10:51.520 this just sort of like a you know, one blow here, 0:10:51.720 --> 0:10:53.959 one blow there, chest pouting here, and kind of like 0:10:54.160 --> 0:10:59.160 a drumbeat something actually happening. Yeah, I definitely. One one 0:10:59.160 --> 0:11:01.559 thing that I think the market, you know, didn't like 0:11:01.800 --> 0:11:05.079 to hear was was, you know, Larry Cudlow, who threw 0:11:05.920 --> 0:11:10.000 through a life life preserver to markets on Wednesday by 0:11:10.120 --> 0:11:11.760 coming out and saying, oh, you know, this is a 0:11:11.800 --> 0:11:14.719 negotiator coming out and saying that there's no talk has 0:11:14.800 --> 0:11:19.800 taken place. Over a trillion in global market capitalization has 0:11:19.880 --> 0:11:25.160 been lost um over the last several weeks globally. UM, 0:11:25.400 --> 0:11:28.079 and and it's it's it's it's a little disconcerting that 0:11:28.200 --> 0:11:31.760 that you know that the talks, these negotiations I haven't started. Um, 0:11:32.160 --> 0:11:36.760 you know, so day came out and uh, I think 0:11:36.800 --> 0:11:39.640 that's accelerated. Uh that you know, this is this says 0:11:39.760 --> 0:11:42.760 serious implications and you know, I think you know, I 0:11:42.920 --> 0:11:47.080 hope cooler heads prevail and discussion does take place. Uh. 0:11:47.200 --> 0:11:50.839 There's great opportunities for both countries to enhance this relationship, 0:11:51.000 --> 0:11:53.000 but you've got to get down and talk. Hopefully that 0:11:53.200 --> 0:11:57.199 that takes place shortly. Brendan, what about smart investors? What 0:11:57.320 --> 0:11:59.960 are they doing? I want to note that you've described 0:12:00.040 --> 0:12:03.080 how the Lippo Group, which is a big real estate 0:12:03.120 --> 0:12:09.800 company based in Indonesia, has been adding to their China stockholdings. Yeah. 0:12:09.880 --> 0:12:12.120 One of the things that we've continued to see that 0:12:12.320 --> 0:12:15.000 that is quite interesting. Over the last several weeks, we've 0:12:15.040 --> 0:12:19.000 seen increased within Southbound connect trading, which has been closed 0:12:19.080 --> 0:12:23.000 due to tomb sweeping, holiday um buying, and then more 0:12:23.080 --> 0:12:25.959 recently we had uh the Lippo Group, who you know, 0:12:26.040 --> 0:12:28.160 anyone who's traveled to Hong Kong, you see the big 0:12:28.200 --> 0:12:32.959 skyscrapers with with the family name. So it is interesting 0:12:33.000 --> 0:12:37.400 that we're seeing buying on weakness from both mainland as 0:12:37.440 --> 0:12:39.760 well as now in this case a very very prestigious 0:12:39.760 --> 0:12:43.240 family in in Hong Kong so Um and and even 0:12:43.400 --> 0:12:45.720 even earlier this week it was interesting we actually saw 0:12:46.280 --> 0:12:50.520 northbound foreign buying on weakness. So so I like to 0:12:50.640 --> 0:12:54.360 hope that institutional investors are keeping up. People are willing 0:12:54.760 --> 0:12:58.520 to to sell based on emotions Um and you know 0:12:58.640 --> 0:13:01.720 professional investors are going to by those shares. Brendan are 0:13:01.840 --> 0:13:04.880 real quick. If you could give a percent chance that 0:13:04.960 --> 0:13:07.960 we are going to escalate into some sort of trade 0:13:08.200 --> 0:13:11.000 or what percent chance would you give it, I think 0:13:11.040 --> 0:13:14.760 on the talk it's it's probably in terms of the 0:13:14.880 --> 0:13:19.320 reality of an actual trade war having a much much 0:13:19.440 --> 0:13:24.040 low low percentage. There's just too much at stake. I 0:13:24.280 --> 0:13:26.360 I would think, you know, I think Li said, you know, 0:13:26.679 --> 0:13:29.720 no one wants to be known as orchestrating the smooth 0:13:29.800 --> 0:13:33.920 hally and that that is what people will be go 0:13:34.120 --> 0:13:38.160 down in history for if if this escalation actually takes place. 0:13:38.559 --> 0:13:42.079 I don't think the reputation people have built successfully in 0:13:42.320 --> 0:13:47.319 business are worth throwing away for for really just you 0:13:47.360 --> 0:13:49.840 know a lot. I mean, there are very much grievances 0:13:50.000 --> 0:13:53.360 that should be addressed by by the China side around 0:13:53.400 --> 0:13:55.800 infectual property. At the same time, they've made great strides 0:13:55.840 --> 0:13:58.920 in opening up. So hopefully those cooler heads prevailed in 0:13:59.040 --> 0:14:01.319 her and thank you so much, Io of Crane Shares. 0:14:15.679 --> 0:14:19.600 So with today's declines, we have turned read for the 0:14:19.680 --> 0:14:23.320 year on the SMP five hundred uh. The Dow Jones 0:14:23.480 --> 0:14:27.480 also read for the year. Who is out there willing 0:14:27.760 --> 0:14:30.480 to buy? Well, perhaps we'll get our answer from Aaron Brown. 0:14:30.760 --> 0:14:33.440 She is head of acid Allocation at UBS Asset Management, 0:14:33.480 --> 0:14:36.840 overseeing about seven hundred and seventy billion dollars. It's based 0:14:36.880 --> 0:14:39.120 in New York. Aaron, thank you so much for being here. 0:14:39.720 --> 0:14:44.080 So we have seen this weakness. Are you buying yes, 0:14:44.160 --> 0:14:47.360 So we have the view that through throughout the duration 0:14:47.440 --> 0:14:49.560 of this year, we expect that equies are going to 0:14:49.680 --> 0:14:52.600 end the year higher. So we're still expecting about mid 0:14:52.800 --> 0:14:57.280 single digits earnings or SMP returns this year and double 0:14:57.320 --> 0:15:00.760 digit earnings growth. So we are buying into pockets weakness. However, 0:15:01.160 --> 0:15:03.640 right now here we've taken a little bit of a 0:15:03.680 --> 0:15:05.880 weight and c mode to see some of the trade 0:15:05.920 --> 0:15:09.800 tariff discussions come to a conclusion before we really start 0:15:09.840 --> 0:15:12.120 in in force and start buying. This is important. In 0:15:12.200 --> 0:15:15.200 other words, even if you don't necessarily believe that there's 0:15:15.240 --> 0:15:18.280 going to be a full blown escalation, it isn't worth 0:15:18.360 --> 0:15:20.760 it to you. It sounds like, if I'm interpreting this 0:15:20.880 --> 0:15:23.400 right and correct me if I'm wrong, to step in here, 0:15:23.520 --> 0:15:27.960 because that possibility is potentially highly damaging and could change 0:15:28.000 --> 0:15:30.280 your view. Yeah, so I think for now you're getting 0:15:30.280 --> 0:15:32.320 paid to weight right. I don't think that there's a 0:15:32.440 --> 0:15:35.560 necessarily a need to be stepping in right here, right 0:15:35.640 --> 0:15:38.680 now and buying stocks. That said, on the margin, we're 0:15:38.760 --> 0:15:41.760 nibbling when we see real pockets of weakness in specific 0:15:41.840 --> 0:15:44.360 sectors or in specific you know, sort of areas of 0:15:44.440 --> 0:15:47.560 the market that we like. We actually think that given 0:15:47.600 --> 0:15:51.320 the declines, valuations look attractive. But you're also having a 0:15:51.400 --> 0:15:54.200 higher risk premium priced into stocks. So the counterbalance of 0:15:54.280 --> 0:15:57.240 that right now means we're standing on the sidelines with 0:15:57.400 --> 0:16:00.240 some dry powder, getting ready to buy more some of 0:16:00.280 --> 0:16:03.040 the changes we have made of late. We are buying 0:16:03.080 --> 0:16:05.080 a little bit of a e M because we think 0:16:05.120 --> 0:16:07.480 that e M has been hit but actually has been 0:16:07.560 --> 0:16:10.160 performing pretty well as actually held in there, and we 0:16:10.200 --> 0:16:12.880 think that the earnings trajectory and the structural underweight within 0:16:12.960 --> 0:16:16.640 emerging markets still supports and overweight to e M, so 0:16:16.800 --> 0:16:19.360 we're buying there, but we're also on the other side 0:16:19.400 --> 0:16:22.240 of that doing some currency trades like buying the en 0:16:22.760 --> 0:16:25.400 um to support and to support sort of our our 0:16:25.520 --> 0:16:28.320 risk off positions, and also being a little bit longer 0:16:28.480 --> 0:16:32.000 US treasury yields, so buying a little bit of equities, 0:16:32.120 --> 0:16:35.200 but also counter balancing that with a little bit more 0:16:35.280 --> 0:16:38.160 defensive positioning in our FX and our rape books. I 0:16:38.200 --> 0:16:40.120 want to just continue on what you talked about having 0:16:40.160 --> 0:16:42.560 to do with currencies and get your thoughts on the dollar. 0:16:42.640 --> 0:16:44.360 Do you think that we're going to see increased dollar 0:16:44.480 --> 0:16:48.280 weakness throughout the duration of this year. Absolutely. Our view 0:16:48.520 --> 0:16:50.880 is that the dollar will weakend versus the euro to 0:16:50.960 --> 0:16:53.400 about one thirty by the end of the year. We 0:16:53.560 --> 0:16:56.400 expect that versus the end we expect a dollar end 0:16:56.440 --> 0:16:59.640 to end the year around a hundred. So throughout the 0:16:59.720 --> 0:17:01.600 duration you know, this year, we are expecting that the 0:17:01.680 --> 0:17:04.680 dollar will continue to weaken. Most of that is based 0:17:04.720 --> 0:17:06.680 on the fact that we think that the FED is 0:17:06.800 --> 0:17:09.719 further ahead in terms of the rate trajectory path than 0:17:09.880 --> 0:17:11.560 either the E C B or the B O J. 0:17:12.200 --> 0:17:14.359 And so we think as we continue throughout the duration 0:17:14.440 --> 0:17:16.520 of the year and we start to see interest rate 0:17:16.520 --> 0:17:20.800 differentials converge, that will drive the dollar weaker versus our 0:17:20.920 --> 0:17:25.479 d d M counterparts. However, versus emerging markets. We think 0:17:25.520 --> 0:17:28.480 that the emerging markets are again structurally underweight, and so 0:17:28.600 --> 0:17:30.920 we think that E M will also outperform the dollar. 0:17:31.320 --> 0:17:34.560 In the near term. We are running fairly neutral in 0:17:34.680 --> 0:17:37.879 terms of our overall dollar exposure, but we do expect 0:17:37.960 --> 0:17:39.960 that as we move into the second half of the year, 0:17:40.240 --> 0:17:43.959 we will start putting on fairly significant dollar underweights. Again, UM, 0:17:44.040 --> 0:17:45.480 I want to I want to just pick up on 0:17:45.560 --> 0:17:47.320 one thing that you said, where you were saying, you know, 0:17:48.080 --> 0:17:50.440 perhaps for we're taking a weight and see approach, but 0:17:50.680 --> 0:17:53.960 nibbling around the edges and sectors that we like. What 0:17:54.160 --> 0:17:57.119 sectors are those? And I'm thinking is that tech? Are 0:17:57.160 --> 0:17:59.440 you out there buying Facebook when face fit goes down? 0:17:59.680 --> 0:18:02.080 So we leg tech as a sector right now. We 0:18:02.240 --> 0:18:05.760 do think that the earnings fundamental picture for tech is 0:18:05.800 --> 0:18:09.240 still very strongly And are you gonna be watching Mark 0:18:09.320 --> 0:18:12.880 Zuckerberg next week? Absolutely. But but but I also think 0:18:13.320 --> 0:18:16.400 you know, what's interesting about this is that you actually 0:18:16.520 --> 0:18:19.960 may see a comparative advantage for the larger tech the 0:18:20.080 --> 0:18:24.080 larger cap tech companies who are able to appropriately size 0:18:24.160 --> 0:18:28.400 their their staff in order to potentially deal with higher regulation. 0:18:28.720 --> 0:18:30.760 So if you think about small cap tech, they may 0:18:30.840 --> 0:18:34.200 not have the resources to appropriately put the governance and 0:18:34.280 --> 0:18:37.040 the compliance structures in place, similar to what we saw 0:18:37.160 --> 0:18:40.639 with the banking sector several years ago UM. And so 0:18:40.960 --> 0:18:44.680 going forward, actually, these big tech companies actually have the 0:18:44.760 --> 0:18:49.760 capabilities to potentially, you know, sort of adapt themselves in 0:18:49.880 --> 0:18:52.400 order to deal with the more compliance or regulatory heavy 0:18:52.480 --> 0:18:55.560 industry to come bigger. If you're if you're adding to 0:18:55.720 --> 0:19:00.840 let's say, emerging market positions, if you are adding whatever 0:19:00.920 --> 0:19:04.280 valuation you feel appropriate to technology holdings, what are you 0:19:04.400 --> 0:19:08.040 selling or what are you diminishing in the asset allocation 0:19:08.200 --> 0:19:12.399 model in order to bring up those portions of the portfolio. Right, So, 0:19:12.760 --> 0:19:16.480 overall we've decreased our equity weight somewhat, and that that's 0:19:16.560 --> 0:19:18.639 really broad sector equity weight. So if you think of 0:19:18.720 --> 0:19:21.160 just sort of our broad market beta to the SMP 0:19:21.320 --> 0:19:25.440 five hundred UM, we don't as an asset management firm 0:19:25.480 --> 0:19:28.960 we and and in the multi asset space we predominantly 0:19:29.040 --> 0:19:31.879 by e T F s or futures or sectors. We 0:19:32.000 --> 0:19:36.159 don't buy individual companies, um, So that's that we're selling 0:19:36.200 --> 0:19:39.159 down some of our SMP weight. We've also started to 0:19:39.240 --> 0:19:42.040 sell down some of our European equity overweight, which we 0:19:42.160 --> 0:19:44.720 had been running overweight for the last six months. That 0:19:44.920 --> 0:19:47.439 hasn't performed as we would have expected if you started 0:19:47.480 --> 0:19:49.720 to see some of the economic data rolling over. So 0:19:49.840 --> 0:19:51.879 we've lightened our risk a little bit there. And then 0:19:51.920 --> 0:19:54.480 one of the most significant changes is we've also started 0:19:54.520 --> 0:19:57.120 to sell down some of our Japanese equity overweight as well. 0:19:59.000 --> 0:20:02.720 It's interesting, especially since you're going into the end. One 0:20:02.760 --> 0:20:05.359 thing that we've heard from a lot of investors is 0:20:05.400 --> 0:20:08.000 that they've been increasing their allocation to treasuries, and you 0:20:08.040 --> 0:20:10.280 said that you were as well, although not necessarily on 0:20:10.359 --> 0:20:13.120 the long end, but on the short end of the curve. Basically, 0:20:13.320 --> 0:20:16.360 now that you're actually getting yield onto your treasuries, it's 0:20:16.359 --> 0:20:18.840 a great time, do you agree, I mean, is that 0:20:18.880 --> 0:20:21.679 sort of a great holding spot. So for for us, 0:20:21.760 --> 0:20:24.600 we actually think the longer end for asset managers as 0:20:24.640 --> 0:20:26.960 a better holding spot. And that's because a you get 0:20:27.040 --> 0:20:29.600 incremental yield, but also when you look at the stock 0:20:29.680 --> 0:20:34.480 bond correlation, it's the ten year yield oft historically has 0:20:34.560 --> 0:20:38.560 offered a very good counterbalance to the equity, you know, 0:20:38.960 --> 0:20:41.080 risk that you're holding in your portfolio. So as a 0:20:41.119 --> 0:20:44.800 diversifier of risk over the long to medium term, the 0:20:44.880 --> 0:20:48.800 tenure bond actually in portfolios works very well to diversify 0:20:48.920 --> 0:20:52.040 out some of the equity risk. And so typically you 0:20:52.200 --> 0:20:57.000 see that as a is a minimizes the overall portfolio 0:20:57.200 --> 0:21:00.720 risk in our asset allocation models pretty significantly. Even though 0:21:00.840 --> 0:21:04.200 you've seen that that stock bond correlation start to move 0:21:04.359 --> 0:21:07.800 less negative, it's still in negative territory and it still 0:21:08.160 --> 0:21:13.320 is I think a very appropriate asset for diversified portfolio holdings. 0:21:13.920 --> 0:21:16.159 Just quickly as an something that's got a lot of 0:21:16.240 --> 0:21:18.040 experience in the world of hedge funds, I'm sure you 0:21:18.160 --> 0:21:22.360 noted the Pershing Square capital and the redemptions. There any 0:21:22.440 --> 0:21:24.320 thoughts on what you can see for hedge funds this 0:21:24.560 --> 0:21:28.680 uh this year, So I think for so what we've 0:21:28.720 --> 0:21:31.600 actually started to see is active management as a factor 0:21:31.880 --> 0:21:34.639 has started to do better. Um, we've been in you know, 0:21:34.720 --> 0:21:37.000 sort of four to five years where active management has 0:21:37.040 --> 0:21:40.320 greatly underperformed passive management. As a result of that, you've 0:21:40.320 --> 0:21:43.960 seen hedge funds and active managers suffer pretty significantly. I 0:21:44.160 --> 0:21:47.280 think what you're starting to see now is that active 0:21:47.320 --> 0:21:49.760 managers with the right business model are now starting to 0:21:49.840 --> 0:21:52.760 do quite well, and you saw them actually outperform in 0:21:52.880 --> 0:21:56.520 the most recent period of volatility. Historically, during periods of 0:21:56.600 --> 0:22:01.240 higher volatility, active management outperforms. So we like active management here. 0:22:01.520 --> 0:22:03.560 Thanks very much for being with us. Aaron Brown is 0:22:03.560 --> 0:22:06.960 the head of asset Allocation for u Bsset Management, helping 0:22:07.000 --> 0:22:09.960 to manage within seven hundred and seventy billion dollars of 0:22:10.040 --> 0:22:29.600 customer assets. Since George Korean became the president chief executive 0:22:29.600 --> 0:22:32.959 officer of net App in mid two thousand and fifteen, 0:22:33.520 --> 0:22:37.359 this data storage company's stock has gained more than a 0:22:37.480 --> 0:22:41.960 hundred and sixteen per cent. George Korean joins us now 0:22:42.119 --> 0:22:45.480 along with our own Non sinof Sven, who is a 0:22:45.880 --> 0:22:49.280 senior semiconductor and hardware analyst for Bloomberg Intelligence. George, I 0:22:49.359 --> 0:22:51.840