WEBVTT - Jenny Johnson Talks Investment Landscape 0:00:02.759 --> 0:00:07.240 Bloomberg Audio Studios, podcasts, radio news. 0:00:08.039 --> 0:00:11.080 We begin this now with stockslower as investors away clarity 0:00:11.200 --> 0:00:13.960 on trade talks. Jenny Johnson, the CEO of Franklin Sempleson, 0:00:14.120 --> 0:00:16.720 one of the world's largest investment managers, joined us now 0:00:16.840 --> 0:00:17.120 for more. 0:00:17.200 --> 0:00:18.960 Jenny's good to see you. It's great to be here. 0:00:18.960 --> 0:00:19.639 Thanks for having me. 0:00:19.760 --> 0:00:21.520 Things have changed a lot since we caught up with 0:00:21.560 --> 0:00:23.880 you in Davos, Switzerland. It's a lot of optimism. You 0:00:23.920 --> 0:00:27.680 remember everyone was charged as exceptionalism. Well, strowth, lots of 0:00:27.760 --> 0:00:30.440 hiring markets are great. Things have changed a lot. Have 0:00:30.480 --> 0:00:31.160 they changed for you? 0:00:31.920 --> 0:00:34.599 Well, you know, I actually we talked about it at 0:00:34.600 --> 0:00:38.680 the time. You know, I think that you have to 0:00:38.800 --> 0:00:41.320 think through kind of where the president is, right, He's 0:00:41.320 --> 0:00:42.120 come in with a plan. 0:00:42.200 --> 0:00:43.600 It's been very clear, right, it's. 0:00:43.479 --> 0:00:47.920 Taxes, immigration, tariffs, government efficiency and deregulation, right and so, 0:00:48.400 --> 0:00:51.040 and he has about a year and a half to 0:00:51.120 --> 0:00:54.560 get those things done before the midterms come in. And so, 0:00:55.600 --> 0:00:59.000 you know, from the tariff standpoint, again, he's a deal maker. 0:00:59.200 --> 0:01:01.640 So when you are trying to make a deal, you 0:01:01.800 --> 0:01:04.160 need to show that you are in the position of strength, right. 0:01:04.200 --> 0:01:06.920 So a lot of this blistering is around. I'm in 0:01:06.920 --> 0:01:08.520 a position of strength and you're going to have to 0:01:08.560 --> 0:01:11.080 bow to my will. I think the challenge has been 0:01:11.319 --> 0:01:13.759 There are some unintended consequences of that. I was talking 0:01:13.800 --> 0:01:17.400 to somebody yesterday about Canadians. They're so they're not upset 0:01:17.440 --> 0:01:20.000 about the terroifts, they're upset about the fifty first state comment, 0:01:20.440 --> 0:01:23.480 and that Airbnbs in Rhode Island are down because the 0:01:23.520 --> 0:01:25.480 Canadians say, I'm not going to come visit the US. 0:01:25.720 --> 0:01:27.520 So those are the undertendant consequences. 0:01:27.680 --> 0:01:28.840 The other piece of this is. 0:01:29.280 --> 0:01:34.840 He needs the tax revenues identified in tariffs to help 0:01:35.000 --> 0:01:37.720 fund his tax cuts, which, by the way, are not 0:01:37.880 --> 0:01:41.000 tax cuts really, they're extensions. And if we don't get 0:01:41.040 --> 0:01:44.560 that extension, there is a massive tax increase that happens, 0:01:44.680 --> 0:01:46.840 which really becomes an issue around the economy. 0:01:46.840 --> 0:01:48.400 Can you describe how you and the same thing the 0:01:48.480 --> 0:01:50.160 endgame looks like? What do you think it looks like? 0:01:50.200 --> 0:01:52.800 Because some people have described the last few weeks as madness. 0:01:53.200 --> 0:01:54.120 Is there a method to it? 0:01:54.360 --> 0:01:54.560 Yeah? 0:01:54.600 --> 0:01:57.160 So I think what we hope to see, you'd like 0:01:57.200 --> 0:01:59.280 to see a couple of deals done right to show 0:01:59.320 --> 0:02:01.280 that he's willing to come to the table and make 0:02:01.320 --> 0:02:01.640 a deal. 0:02:01.720 --> 0:02:02.840 Right, so we can see a deal. 0:02:02.720 --> 0:02:05.800 With Japan or Vietnam or you know somewhere to show no, no, no, 0:02:06.040 --> 0:02:07.160 he's playing his deals. 0:02:07.400 --> 0:02:09.880 You'd like to know who is responsible. 0:02:10.200 --> 0:02:12.840 Remember it was Paul Ryan who ushered the first tax 0:02:12.880 --> 0:02:16.320 cuts through, Like who's responsible for ushering that legislation through 0:02:16.400 --> 0:02:18.920 and champion that that'll be very important because he's got 0:02:18.960 --> 0:02:21.120 to get those done. And the question is how quickly 0:02:21.200 --> 0:02:23.280 can he get it done? To calm the markets, because 0:02:23.320 --> 0:02:25.880 what we've seen is, you know, look at you when 0:02:25.919 --> 0:02:28.600 you suddenly have CEOs who say I can't give guidance 0:02:28.639 --> 0:02:33.160 because there's so much uncertainty. That uncertainty makes them fear, 0:02:33.360 --> 0:02:36.200 and then they stop making investments. If you stop making investments, 0:02:36.200 --> 0:02:39.079 it slows down the economy. Right, So I think what 0:02:39.400 --> 0:02:41.520 we need to see in the next ninety days is 0:02:41.560 --> 0:02:43.799 some clarity in the meantime uncertainty. 0:02:43.840 --> 0:02:45.800 It leads to a lot of conspiracy theories and lots 0:02:45.800 --> 0:02:49.799 of other types of speculation. As someone who oversees one 0:02:49.840 --> 0:02:52.720 and a half trillion dollars of assets, how much of 0:02:52.760 --> 0:02:57.760 a material shift have you seen with customers consumers shifting 0:02:57.880 --> 0:03:00.720 just slightly away from US assets to insulate from some 0:03:00.800 --> 0:03:02.560 of the whip side and the uncertainty. 0:03:02.880 --> 0:03:08.400 You definitely see, you know, non Americans reducing on the 0:03:08.400 --> 0:03:10.600 institutional side some of their exposure to US equities. 0:03:10.639 --> 0:03:12.000 Okay, so we've seen that a bit. 0:03:12.919 --> 0:03:15.280 But on your hand, you know, you sort of you 0:03:15.480 --> 0:03:17.799 if you are in the market now, this is not 0:03:17.919 --> 0:03:19.200 the time to get out of the market, right. 0:03:19.240 --> 0:03:20.480 You need to play this out. 0:03:20.840 --> 0:03:23.360 And if you hadn't made the trade to being in 0:03:23.440 --> 0:03:27.160 more defensive stocks, then there's no point in doing that now, 0:03:27.400 --> 0:03:29.320 right because you've already sort of missed it. 0:03:29.440 --> 0:03:32.000 So you know, the reality is AI. 0:03:32.000 --> 0:03:35.119 I actually played around this weekend with an app called 0:03:35.160 --> 0:03:38.080 replet where you can just use natural language processing to 0:03:38.120 --> 0:03:40.560 have it code and generate an app for you. Like 0:03:40.600 --> 0:03:43.200 the efficiencies are income from AI, we haven't seen those 0:03:43.240 --> 0:03:46.040 kind of productivity gains yet. The productivity gains that we're 0:03:46.040 --> 0:03:49.680 seeing are coming from technologies that came out twenty years ago, 0:03:50.040 --> 0:03:52.960 and so as those things play into companies, I think 0:03:53.000 --> 0:03:54.480 you'll see real opportunity. 0:03:54.720 --> 0:03:56.240 You know, one thing that I hear from you, and 0:03:56.240 --> 0:03:58.280 I heard from Mike Wilson of mart and Stanley earlier 0:03:58.320 --> 0:04:01.080 this morning, was that corporate America has a lot of 0:04:01.080 --> 0:04:03.280 good about it in terms of strength, in terms of resilience, 0:04:03.280 --> 0:04:06.440 in terms of technological progress. It's the question about other 0:04:06.680 --> 0:04:09.320 dollar denominated assets, and I'm talking about treasuries, I'm talking 0:04:09.360 --> 0:04:11.840 about government debt, especially given some of what you were 0:04:11.840 --> 0:04:14.040 talking about with respect to who is driving some of 0:04:14.080 --> 0:04:16.840 these bunch of proposals through Congress. 0:04:17.560 --> 0:04:20.120 That really is the issue. How much have you seen. 0:04:19.960 --> 0:04:24.040 That bid get called into question as institutions, particularly foreign 0:04:24.040 --> 0:04:24.599 ones move away. 0:04:24.640 --> 0:04:26.160 Well, I think there's a question of you know, how 0:04:26.240 --> 0:04:30.560 much are you know, foreign governments pulling away from treasuries? 0:04:30.640 --> 0:04:32.520 And you know, is that is that what we're seeing 0:04:32.520 --> 0:04:34.479 the treasury market? Or are we seeing the unwinding of 0:04:34.480 --> 0:04:36.520 the basis point? They are the basis trade and so 0:04:37.640 --> 0:04:41.839 you know, Look, then the question falls into will is 0:04:41.920 --> 0:04:42.480 the reserve? 0:04:42.640 --> 0:04:45.120 US is the reserve currency? At question? Look, is not 0:04:45.160 --> 0:04:46.000 where else she going to go? 0:04:46.160 --> 0:04:46.280 Right? 0:04:46.279 --> 0:04:48.559 The US is going to be the reserve currency. People 0:04:48.560 --> 0:04:51.120 will say, well, China trade has gone up to two percent. Yeah, 0:04:51.120 --> 0:04:53.320 it's come from four to six percent of trade. Right, 0:04:53.640 --> 0:04:55.800 you know, it'll chip away at it, but we are 0:04:55.839 --> 0:04:57.679 still going to continue to be the reserve currency. 0:04:57.920 --> 0:05:00.240 You mentioned a lot of non US and ves there 0:05:00.279 --> 0:05:02.280 is pulling back from the United States. Morning Star had 0:05:02.320 --> 0:05:04.120 research out this week that said some of that is 0:05:04.160 --> 0:05:08.599 actually patriotic rebalancing from capital from America to Europe. Do 0:05:08.680 --> 0:05:10.800 you think it's that emotional for some of these. 0:05:10.720 --> 0:05:15.000 People, Well, you know, just again talking to folks from 0:05:15.120 --> 0:05:19.359 Canada who are so fundamentally offended by the comment of 0:05:19.600 --> 0:05:20.839 you know, the fifty first state. 0:05:21.600 --> 0:05:25.040 Yeah, it's emotional, right. They kind of get it on. 0:05:25.000 --> 0:05:26.960 The trade and tariffs and we can deal and you 0:05:27.000 --> 0:05:28.080 want help on immigration. 0:05:28.880 --> 0:05:29.640 But a comment like. 0:05:29.600 --> 0:05:31.920 That has obviously you had that kind of nationalists response. 0:05:31.920 --> 0:05:35.080 What are the long term impacts of feelings like that? 0:05:36.080 --> 0:05:38.640 You know, who's at a dinner last night, we're you know, 0:05:38.680 --> 0:05:41.760 debating does that push Europe to China? 0:05:42.320 --> 0:05:43.880 I don't think it, you know, obviously. 0:05:43.960 --> 0:05:46.039 I think what it does is there's the joke of 0:05:46.120 --> 0:05:48.960 you know, it's not Mega, it's Mega make Europe great again, right, 0:05:49.000 --> 0:05:53.520 It forces Europe to do things like more defense independence, 0:05:53.600 --> 0:05:57.600 more energy independence. Look, there's been a lot of brilliant 0:05:57.680 --> 0:06:01.000 talent in Europe. Why are we not seeing these unicorn 0:06:01.080 --> 0:06:03.480 companies from a technological and a lot of people say 0:06:03.480 --> 0:06:06.039 it's the regulation and it's some of the policies that 0:06:06.040 --> 0:06:08.920 they have in Europe. And so if this forces Europe 0:06:09.240 --> 0:06:12.680 to be more resilient on its own, that's actually a 0:06:12.680 --> 0:06:14.880 good thing for Europe. I don't think it necessarily they 0:06:14.880 --> 0:06:18.640 don't suddenly trust China much. We're we're already trading with China. 0:06:18.720 --> 0:06:21.360 But it forces them to say, you know what, we 0:06:21.480 --> 0:06:23.640 have to stand on our own a little bit more. 0:06:23.680 --> 0:06:26.360 It's why we're seeing some investors rebalance towards Europe since 0:06:26.400 --> 0:06:28.000 the start of the year. I wanted to build on 0:06:28.040 --> 0:06:29.880 some of Lisa's questions, and I think this is an 0:06:29.880 --> 0:06:32.719 important line of questioning. At the moment, some investors aren't 0:06:32.760 --> 0:06:35.880 drawing a distinction between risk assets in America and the 0:06:35.920 --> 0:06:38.520 safe haven asset in America. It's trading as one bucket 0:06:38.720 --> 0:06:42.120 dollar denominated assets. And I wonder, from your perspective, when 0:06:42.120 --> 0:06:44.400 that a dynamic starts to take hold of the country, 0:06:44.680 --> 0:06:47.039 whether that's a risk you need to actively manage or 0:06:47.040 --> 0:06:49.000 a dislocation you take advantage of. 0:06:49.320 --> 0:06:50.440 Which one is it at the moment? 0:06:50.520 --> 0:06:53.800 Well, I think anytime that it becomes a risk on, 0:06:54.000 --> 0:06:56.320 risk off in a big block, and yet you know 0:06:56.400 --> 0:06:59.920 the underlying fundamentals are different in kind of an investment 0:07:00.040 --> 0:07:02.400 that's that actually becomes a great investment opportunity. So I 0:07:02.440 --> 0:07:04.640 think you have to look at it and unpack those Do. 0:07:04.600 --> 0:07:06.800 You think that's what this is right now and it's 0:07:06.800 --> 0:07:08.479 the opportunity in stocks or bonds With that. 0:07:08.520 --> 0:07:12.000 In mind, I think you know right now it's it's 0:07:12.040 --> 0:07:15.520 it's almost a market reacting to just a headline statement, right, 0:07:15.600 --> 0:07:17.720 and so it's it's really sort of on and off. 0:07:17.760 --> 0:07:21.440 It's a risk on, risk off. I think that from a. 0:07:21.520 --> 0:07:25.120 You know, the dollar was was someone would say overvalued, 0:07:25.120 --> 0:07:27.560 who knows, right, and it's come down a fair bit. 0:07:27.600 --> 0:07:28.760 I think there are a lot of people that were 0:07:28.800 --> 0:07:31.680 the US uh the debt and the deficit, you know, 0:07:31.760 --> 0:07:34.720 thought that it was overvalued, and so probably in this 0:07:34.760 --> 0:07:36.960 there's a little bit of that coming, you know, some 0:07:37.000 --> 0:07:38.320 of that frothy ness coming off. 0:07:38.440 --> 0:07:40.240 What's your advice to people right now who were part 0:07:40.280 --> 0:07:42.200 of that dollar bit. They've built up that massive dollar 0:07:42.200 --> 0:07:44.800 long over the period of a decade across asset classes, 0:07:44.800 --> 0:07:47.640 in both equities and fixed income, and they're nervous about 0:07:47.640 --> 0:07:50.360 the policy in Washington and looking to reallocate. What do 0:07:50.400 --> 0:07:51.280 you suggesting they do. 0:07:51.400 --> 0:07:53.400 I think it depends on where you're if you if 0:07:53.440 --> 0:07:56.000 you're a dollar based economy, I think that's okay. You 0:07:56.000 --> 0:07:57.440 don't have to worry about that. If you're not a 0:07:57.480 --> 0:08:00.320 dollar based economy, you have to understand how that's going 0:08:00.320 --> 0:08:01.840 to impact your investments. 0:08:01.840 --> 0:08:03.720 Certainly been something that the Europeans about to think about over 0:08:03.720 --> 0:08:05.520 the last few months, that's for sure. Jenny, it's good 0:08:05.520 --> 0:08:07.400 to see you lost to talk about. I can't imagine 0:08:07.440 --> 0:08:09.840 how much has changed the next time we spoke speak 0:08:10.040 --> 0:08:12.960 Jennie Johnson there the Franklin Templeton CEO, on the latest 0:08:12.960 --> 0:08:13.520 in this market.