Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane Jai Ley.
Speaker 1: We bring you insight from the best in economics, finance,
Speaker 1: investment and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud,
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Speaker 1: British and European officials have hailed progress in Brexit negotiations
Speaker 1: with the EU. We found that out in the last
Speaker 1: couple of days. British and European officials have hailed progress
Speaker 1: in these Brexit negotiations, with the UK leader negotiator Dominic
Speaker 1: rob predicting a deal on the divorce will be finalized
Speaker 1: by November twenty one. Now joining us now with Semma
Speaker 1: La Tra a member of Parliament for the UK Labor
Speaker 1: Party and a member of the Select Committee on Exiting
Speaker 1: the europe In Union, still with us, as well as
Speaker 1: David Owen of Jeffreys that Mr Malanger, thank you so
Speaker 1: much for joining us. What is your basic case scenario
Speaker 1: of what happens and Brexit? Well, I don't believe that
Speaker 1: we're going to see a deal by the twenty one November.
Speaker 1: I think in terms of Dominic Rath prediction that was
Speaker 1: already being backtracked. You know, we're in less than a
Speaker 1: hundred fifty days from Brexit and there is still huge uncertainty,
Speaker 1: huge uncertainty about what we're going to have as the
Speaker 1: final deal, huge uncertainty almost more importantly about what's going
Speaker 1: to be in the Political Declaration which is the forerunner
Speaker 1: to the Future Trade Agreement that we will have in
Speaker 1: the future framework with the European Union, And even of
Speaker 1: more significance as well to members of Parliament, what kind
Speaker 1: of parliamentary process we're going to have, what meaningful vote
Speaker 1: there's going to be, and if our evidence of the
Speaker 1: Select Committee yesterday is anything to go by, this is
Speaker 1: more of a meaning less vote than a meaningful vote
Speaker 1: with huge consequences for scrutiny and accountability of the government. Right,
Speaker 1: what exactly what are you telling me that we'll have
Speaker 1: an agreement? And well banks, how to access are we are?
Speaker 1: Are we staying in the Common Market for a no?
Speaker 1: How or what will the deal look like? Well, we
Speaker 1: don't know what the deal would look like. I think
Speaker 1: in terms of transition we will be saying staying within
Speaker 1: much of the framework that we already have, but we
Speaker 1: will be rule takers rather than be seated around the
Speaker 1: table and having a say in what happened. People are
Speaker 1: very concerned about what this could mean if there is
Speaker 1: no deal as well. For the UK, we there is
Speaker 1: no guarantee that's going to be a deal that gets
Speaker 1: through Parliament. That could mean real challenges in terms of
Speaker 1: um difficulties with trade, delays at the border, questions about
Speaker 1: whether even basics like the European Health Insurance Card would
Speaker 1: be available to citizens, legal certainty around contracts. I mean,
Speaker 1: this uncertainty is not what people voted for, and it's
Speaker 1: in credibly concerning that we may have two cliff edges
Speaker 1: as well facing us, one at the end of March
Speaker 1: and then the second one at the end of our
Speaker 1: transition period as well. So the government has a lot
Speaker 1: to do in a very short space of time, both
Speaker 1: to get a deal, to have a deal that's going
Speaker 1: to win the confidence of Parliament, and then to have
Speaker 1: us be ready for leaving on March twenty nine. There
Speaker 1: are huge questions as well about whether we will be
Speaker 1: ready in terms of having passed the legislation that's needed,
Speaker 1: with over eight hundred statutory instruments still set to go through,
Speaker 1: so we We've got a lot of work to do yet.
Speaker 1: So what does that mean for the Labor Party? Will
Speaker 1: they push for a second referendum if it's not the
Speaker 1: right kind of deal? Do you want elections if it's
Speaker 1: not the right kind of deal? Well, there are increasing
Speaker 1: calls for a second referendum, and for the very simple
Speaker 1: reason that what's emerging and what the Prime Minister has
Speaker 1: been has has now is now doing in terms of
Speaker 1: being forced into a very difficult position, is not what
Speaker 1: people thought was going to happen as a result of Brexit.
Speaker 1: We there is no way in which we are heading
Speaker 1: to be a more prosperous nation. In fact, every scenario
Speaker 1: under the government's own Brexit impact assessments suggested that we
Speaker 1: would be worse of to some scenarios would be less
Speaker 1: worse of than others. So two percent less growth over
Speaker 1: fifteen years which were staying within the European Economic Area.
Speaker 1: So the reason why there's called for a second referendum
Speaker 1: is because people are saying, if, if, if what is
Speaker 1: now on offer isn't what people voted for, surely they
Speaker 1: should have a chance to express a point of view
Speaker 1: when it comes to the final deal, and particularly if
Speaker 1: that deal doesn't go through Parliament. The Labor Party has
Speaker 1: said that if there is no deal that's agreed by Parliament,
Speaker 1: and if there is no general election, which would be
Speaker 1: our preference, so that we can have a different negotiating
Speaker 1: team that's really putting the economy first and not party
Speaker 1: interest first, which is what Theresa May has now become
Speaker 1: known for, then should the people have another say? But
Speaker 1: there is all going to be an important question about
Speaker 1: what they have a say about, and there are increasing
Speaker 1: calls as well from some in Parliament to say, look,
Speaker 1: if there is no end state and we are going
Speaker 1: to leave, then it's better to leave with being a
Speaker 1: member potentially in something like the European Economic Area, with
Speaker 1: with some of the the benefits that go with that,
Speaker 1: rather than leave with no deal, which would be catastrophic
Speaker 1: for our country and our economy. It's wonderful to speak
Speaker 1: to you, and I think I can speak for a
Speaker 1: global audience that finds a Labor Party of the United
Speaker 1: Kingdom and absolute mystery. You've provided leadership to the Fabian
Speaker 1: Society for years, and whether it's Bernard Shaw, or it's
Speaker 1: Harold Laski or maybe even at Balls, everybody wants to
Speaker 1: know how labor gets back to what it used to be.
Speaker 1: Could labor go back to the nostalgia of the favors
Speaker 1: Fabian Society or does labor have to find a new way. Well,
Speaker 1: there's one guarantee in politics, which is the past is
Speaker 1: never redeterminant of the future. And what you've got to
Speaker 1: do is always be reinventing yourself to have your values
Speaker 1: in line with where modern situation seeks political solutions. And
Speaker 1: if you take the budget this week as one example
Speaker 1: and how labors responded, what we've seen is, i would
Speaker 1: quote it is less of the same but certainly the
Speaker 1: same coming from the Tory government with a sense of
Speaker 1: a failed economic How do your own target? Okay, Labor Party,
Speaker 1: it's yes, you're absolutely right. But for the Labor Party
Speaker 1: is about having an economic policy that's going to respond
Speaker 1: to the challenges that Mr Corbin provide that this is
Speaker 1: critical because Jeremy Corbin is miles from the Fabian Society.
Speaker 1: How do you get back to the values of another
Speaker 1: time and place. Well, you know, the Fabian Society is
Speaker 1: one of many voices. The Fabian Society was one of
Speaker 1: the founders of the Labor Party, just as the Unions
Speaker 1: were in the Cooperative Party was also very influential at
Speaker 1: that time. And you know, what you have in the
Speaker 1: labor family is a wide range of views, but set
Speaker 1: around common values where we do believe in fairness and
Speaker 1: equality and in all of us paying our part for
Speaker 1: society as a whole. And you know, when we look
Speaker 1: at the budget this week, I'll take that as an
Speaker 1: indicator of where the policy is now going. They saw
Speaker 1: that they had failed in terms of their previous economics,
Speaker 1: economic plans and strategy. They didn't tell you that. They
Speaker 1: pretended that there was going to be some sort of change,
Speaker 1: potentially an end to austerity. But what they haven't got
Speaker 1: is a plan for investment in our country. This was
Speaker 1: a budget that brought off some of their backbenches and
Speaker 1: did enough to get by for the next six months.
Speaker 1: If you make this point, we won seats in the
Speaker 1: general election last year, and when I'm going around the
Speaker 1: country now, I'm seeing people increasingly dissatisfied with the Tories.
Speaker 1: But I need do they not have a plan for
Speaker 1: break so they don't plan for them? Then here's the
Speaker 1: key question. That's that's absolutely correct, But the key question
Speaker 1: is who did they go to if they don't go
Speaker 1: to the Tories. Is an m P of the Labor Party.
Speaker 1: Does a Labor Party need a new, cogent view with
Speaker 1: the nostalgia of your fabian society and under something new?
Speaker 1: I mean, I don't see a cogent labor voice in
Speaker 1: this Brexit debate. I don't know if it's about a
Speaker 1: sort of romanticizing the past, because it was very different
Speaker 1: at that time. I do think it is about saying,
Speaker 1: what are our solutions for the present? You know, we
Speaker 1: founded the National Health Service, we brought in the minimum wage,
Speaker 1: we invested in early years. We saw huge growth across
Speaker 1: our country and more an increase in equality between our
Speaker 1: regions as well. We've seen inequality rise hugely. We've seen
Speaker 1: child poverty rise significantly under the Conservatives. I see it
Speaker 1: in my own constituency. People want to know that they've
Speaker 1: got access to good jobs. They want to know they've
Speaker 1: got investment in education. They want good prospects for their children.
Speaker 1: This is the first generation where children are set to
Speaker 1: do worse than their parents. Now, those are the things
Speaker 1: homeownership or a secure place to live in, decent education,
Speaker 1: and that's where the Labor Party's answers are. What people
Speaker 1: are now responding to very very strongly. Are you frustrated
Speaker 1: that many people are proving many voters still going a
Speaker 1: hundred percent know where the Labor stands on Brexit? Sorry
Speaker 1: I couldn't hear your question fully. Am I frustrated with
Speaker 1: the question? Is? Are you frustrated that the voters don't
Speaker 1: understand where Labor is on Brexit? I do think we've
Speaker 1: got to be clearer about that. You know, we had
Speaker 1: a big debate at party conference which was just last month,
Speaker 1: and in that we move the position of the party
Speaker 1: in favor of a second referendum as well under the
Speaker 1: circumstances where there isn't a deal that's agreed by Parliament
Speaker 1: and also where there isn't a general election. Now I
Speaker 1: have called since the week after the referendum, in fact
Speaker 1: that you know, from from my person all the point
Speaker 1: of view thinking about the economy and what I think
Speaker 1: is right for our country, we should be seeking to
Speaker 1: stay in the Single Market as far as possible. I
Speaker 1: do think that we need need to have greater controls
Speaker 1: over freedom of movement and that's something which the EU
Speaker 1: can deliver if it chooses to it. There is no
Speaker 1: legal reason why it couldn't. It's a political reason and
Speaker 1: I do believe that we need to stay within a
Speaker 1: Customs Union or the Customs Union so that we have
Speaker 1: that security for Northern Ireland as well and an Ireland. Now,
Speaker 1: the reason why Ireland is such an issue is because
Speaker 1: the border in Northern Ireland won't just be a border
Speaker 1: between the Republic and Northern Ireland. It will be a
Speaker 1: border between the European Union and a third country that
Speaker 1: is fundamentally different. And we have to accept a responsibility
Speaker 1: in that and say, well, look, if we don't want
Speaker 1: this to have a negative impact on the economy and
Speaker 1: the free flow of trade and goods and supplies between
Speaker 1: the Northern Ireland and the Republic of Ireland, we have
Speaker 1: to say, what's a solution for the UK as a whole.
Speaker 1: And that's why I do think that the custom Genie
Speaker 1: has got to be a big part of that. We
Speaker 1: must leave it there. A Member of Parliament for the
Speaker 1: Labor spirited discussion on the future of the Labor Party
Speaker 1: as well, thank you so much so. The sleepy days
Speaker 1: of seventeen well, they are long gone. There was the
Speaker 1: Vole Shock of February and then there was that ugly October,
Speaker 1: A warm welcome to November. Is there more to come?
Speaker 1: Steve Whining? Dropping behind the studio, City Global Chief Investment
Speaker 1: officer joins us. Now, good morning to Steve, good morning.
Speaker 1: So it is there more to come? Steve? Well, look
Speaker 1: the way the market dropped so sharply and as rebounding
Speaker 1: so sharply tells us that we're still in a volatile environment.
Speaker 1: And that environment is one where you can still have
Speaker 1: fairly big draw downs and it can be unclear that
Speaker 1: we're in an exact bottom. You don't do that in
Speaker 1: a matter of a couple of days. But I do
Speaker 1: think that the absolute declines that we've seen in US
Speaker 1: shares uh and particularly global shares um really points to
Speaker 1: a larger slowdown than is likely for two thousand nineteen,
Speaker 1: and if we simply know where interest rates are and
Speaker 1: get through a few other issues. Obviously, trade has been
Speaker 1: a major major surprise for markets in two thousand nineteen,
Speaker 1: but I don't think that we can really shock markets
Speaker 1: again with things like tariffs. You know, this expectation is
Speaker 1: high and embedded in the marketplace. So I think that
Speaker 1: we recover from here. I think that that's the story,
Speaker 1: you know, independent of h the volatility continuing in the
Speaker 1: near term. So we had a big vull shelk in February.
Speaker 1: So he essentially sang to the playbook. The post February
Speaker 1: playbook is still intact. If you think about what had
Speaker 1: happened in February, we were in a strong earnings period,
Speaker 1: we were about to rebound UH the March April period.
Speaker 1: The notion of a larger global trade wark was first
Speaker 1: initiated in the marketplace we stop for example, you know,
Speaker 1: the policy uncertainty industries related to trade just absolutely surged
Speaker 1: from nowhere. It shouldn't have been nowhere. Now. I don't
Speaker 1: think that shock can hold us back again. What I
Speaker 1: do think is that we will expect a slower pace
Speaker 1: of earnings gains just you know, three consecutive quarters well
Speaker 1: above that doesn't continue. But I think again, the combination
Speaker 1: of a market that is down, one in which we
Speaker 1: have a good deal of trade warrior priced in around
Speaker 1: the world, and UH a good decent earnings gain still
Speaker 1: ahead of us at a slower pace is enough for
Speaker 1: us to to make a recovery. You've drown a clear
Speaker 1: distinction between peacunnings growth and pecunning absolutely growth because a
Speaker 1: lot of people are sort of confusing the two at
Speaker 1: the moment when they come on programs like this, I
Speaker 1: hear a mix of the two absolutely, and you just
Speaker 1: see it all the time. So that's the thing. If
Speaker 1: you want to say that share prices need to drop
Speaker 1: and level because they embedded too strong a growth rate,
Speaker 1: you can do that. But if we're still going to grow,
Speaker 1: eventually you arrest those declines and prices, you know, And
Speaker 1: that's my point. I think that there's enough inertia for
Speaker 1: us to continue to grow earnings in the coming year,
Speaker 1: both in the U S and the and the rest
Speaker 1: of the world. It was somewhat interesting in the last
Speaker 1: month that actually we find you still some cracks and
Speaker 1: credit in high yield and triple sees whether resiliency has
Speaker 1: been through much of What do you take from that,
Speaker 1: and it's that a sign of fragility. The biggest drag
Speaker 1: on high yield markets, the biggest drags on credit has
Speaker 1: been on the rate front. You know. Again, absolute spread
Speaker 1: levels are low. I do think that you're going to
Speaker 1: see bank credit continuing to be fairly robust. Um. I
Speaker 1: look at credit is more or less a coincident variable.
Speaker 1: I think that's happening from the FED, and what's happening
Speaker 1: in the yield curve is a real leading variable. So
Speaker 1: I think that we're going to see as equities recover some,
Speaker 1: as growth expectations probably stabilize, and the big uncertainty here
Speaker 1: you've got to admit as trade that away from all
Speaker 1: of that, we're going to see credit is not really
Speaker 1: going to be a big inhibitor of of equity markets.
Speaker 1: We're just not going to get any push from credit.
Speaker 1: What have we done with I mean I saw a
Speaker 1: nice matrix from uh Gentleman in Edinburgh yesterday which was
Speaker 1: get out of small caps getting large caps? Do this?
Speaker 1: Do this, do this, do this? What's the do this?
Speaker 1: Do this? Do this for city private bank? Look, since midyear,
Speaker 1: we took down our absolute risk budget some of the
Speaker 1: emerging markets that we might rebound very nicely in a
Speaker 1: very high beta markets for example Eastern Europe, you know
Speaker 1: the ones um These are markets that were underweight, and
Speaker 1: even in a rebound, we're just not going to put
Speaker 1: a lot of money there. We're going to take take
Speaker 1: our risks in Asia to a certain extent and we're
Speaker 1: gonna have a small overweight. And as we mentioned on television.
Speaker 1: You know, we now have an underweight in US small
Speaker 1: caps right for the first time in the cycle. I
Speaker 1: don't think performance is going to be that bad, but
Speaker 1: I think when we look out, you know, we're not
Speaker 1: gonna want to have a massive, massive amount of risk
Speaker 1: in that. But it's still a positive equity environment anticipated
Speaker 1: at least for two thousand. What do earnings grow, because yeah,
Speaker 1: I get the idea that we're phasing out the text cut.
Speaker 1: You can argue if there's a persistent value to its
Speaker 1: good morning, Mr Cudlow, or or if there's a one
Speaker 1: off of vent or a two quarter of it you okay,
Speaker 1: over there, John, I'm doing you were a trick or
Speaker 1: treating too like ton of clocks. I'm hanging in there.
Speaker 1: I was having oysters at Elise at ninety one in Madison,
Speaker 1: and you went by me. You look so good as
Speaker 1: quantitative tightening. Yeah, thank you. It was great. Appreciate that
Speaker 1: you just you know, he looks as good as quantitative tighten.
Speaker 1: He went his quantitative tightening and went to bed with
Speaker 1: lemon and honey and some hot water. My suit is
Speaker 1: quantitatively tightening, as I get found. Yeah, well, no, I
Speaker 1: want his quantitative easy because that's what's happening. But but
Speaker 1: what what is the profit model for it? I mean,
Speaker 1: you're one of the best I know gaming earnings. What's
Speaker 1: the game forward? So if you take a look at
Speaker 1: the level of production and demand in the United States,
Speaker 1: and you say, we can quibble the third quarter, we
Speaker 1: pulled in a lot of imports ahead of tariffs, We
Speaker 1: built some inventories on the external saw Um, we have,
Speaker 1: you know, some modest weakness in some of the cyclical
Speaker 1: areas and housing and autos, but sort of the production level, uh,
Speaker 1: and the cost problems that we have, you know, are
Speaker 1: still not large enough to completely erase the inertia we
Speaker 1: have up in property. This conversation is way too sophisticated
Speaker 1: for this program. What are you doing? No, I'm waiting
Speaker 1: for Steve to end on profits because what he says
Speaker 1: is really important. Profits still Amazon, Just so everyone knows,
Speaker 1: Tom Keane has an alpen prime box. What's in it?
Speaker 1: I don't know? Maybe you do? You know two of
Speaker 1: the kids laptops have broken in the last forty Why
Speaker 1: are you opening your post? What if you got Oh?
Speaker 1: Is it Anthony Anthony from Sparta? Is it it's pink?
Speaker 1: Whatever it is it's John. You it's going to bring
Speaker 1: a tear to your eye. I try to open if
Speaker 1: you bought by this. This is a gift Anthony from Sparta.
Speaker 1: It's a breakfast set for you and me and the studio.
Speaker 1: You've got a child's breakfast set. It is. It's a
Speaker 1: tea set for girls, child's breakfast, so you and I
Speaker 1: can dine and style. I don't think this is the
Speaker 1: studio who gave you this said came Amazon, you know,
Speaker 1: Anthony from Sparta. It's it's it's children breakfast set. Yeah,
Speaker 1: we can put it right here. You like that, John,
Speaker 1: Steve Pink, I can only apologize to my colleague honestly,
Speaker 1: how much did you drink yesterday? I didn't. I didn't.
Speaker 1: You didn't? You didn't? Did you drink? Actually? Can we
Speaker 1: say good morning to Candy on Madison went in huge
Speaker 1: John Farrell fans. I'll write the Dina Yeah yeah, yeah,
Speaker 1: they came in and you know we're having a beverage
Speaker 1: of our choice, Candy Dinas. Good morning to those up
Speaker 1: Madison Avenue, every on Lexington on Lexion. Now this is Candy.
Speaker 1: This is a beverage store. The store, yes you're familiar
Speaker 1: with that. Yes. Yeah. At the Feral Wall on the
Speaker 1: side store on ninety four, I walked in a Quantitative
Speaker 1: Easy and they said good morning. You know they they,
Speaker 1: you know, said thoughts to you. Yeah, I think you
Speaker 1: like pay the rent. I like the Amarona in the
Speaker 1: top left of the store, in the left corner. The amaroni.
Speaker 1: What is the amaroni? I don't know, Amarondi. It's a
Speaker 1: very good red wine. I'll buy you a ball. Steve
Speaker 1: Whine is going why are we having brought toast in
Speaker 1: the studio? What's going on this show? Well, this is
Speaker 1: a lot easier than talking about markets and whether it's
Speaker 1: rates of growth or slower rates of growth. But I
Speaker 1: mean the cacophony of October and John we got a
Speaker 1: salvation day yesterday, right seriously at a couple of That
Speaker 1: was the first two day gain on the SMP for September.
Speaker 1: What what do you do into November into December? Steve
Speaker 1: Whining rights is here in report. So let's just remember
Speaker 1: first that knowing what's going on in the market now
Speaker 1: often tells you very very little about what is a
Speaker 1: good investment, what is a longer term holding? And you're
Speaker 1: listeners really really should decide on whether they're trading this
Speaker 1: or they're investing in this. Now, my point of view
Speaker 1: here is that panic is unnecessary, that the economic outlook
Speaker 1: will again is not going to yield eternal growth, but
Speaker 1: it's good enough to yield us further profit games and
Speaker 1: the constraints that we have on the interest rate front,
Speaker 1: they are not enough to knock us over. They're not
Speaker 1: gonna They're not going to compete with equity. See why
Speaker 1: did you thank you so much? I was just wonderful, John?
Speaker 1: Can I just say it? Granger's causality. Clyde Granger was
Speaker 1: a British giant of mathematics. He ended up and of
Speaker 1: course one of the climbs of the United Kingdom. The
Speaker 1: University of San Diego, Usity of California, San Diego want
Speaker 1: a Nobel Prize for garch with the Robert angle and
Speaker 1: all that. Okay, Does wage growth in a better economy
Speaker 1: cause better productivity? Or does better productivity cause better wage grows?
Speaker 1: The chicken and the egg of economics exactly, And I'm
Speaker 1: sorry there. It is better productivity with a revision up
Speaker 1: for previous productivity. It's interesting head to pay rolls tomorrow.
Speaker 1: Do you want to bring in our guest. No, no,
Speaker 1: you like eating into important times, someone really important? But
Speaker 1: west Ham? Is it? What do we start? Well done?
Speaker 1: I guess start with East London. Please starting with west Ham.
Speaker 1: Steve Major, HSBC Global head of Fixed Income Research, Steve,
Speaker 1: I'm sure that most of our listeners want to talk
Speaker 1: fixed income. Let's start with west Ham. How are we doing.
Speaker 1: There's a lack of productivity there, certainly last night. So
Speaker 1: so this is interesting because productivity must be going up
Speaker 1: in the US economy and in the UK economy by
Speaker 1: the way, because if wages are going at what three
Speaker 1: and a half percent, and the Fed's preferred measures of
Speaker 1: relation they all stuck around two and frankly, the FEDS
Speaker 1: deflator has been falling all year. It's even less than that.
Speaker 1: So if you if you assume too and three and
Speaker 1: a half on wages and someone's working a bit harder,
Speaker 1: if the hours haven't changed, I've got like five we
Speaker 1: could go for two hours and easily none Stop with
Speaker 1: you on this fascinating fixting income. Let us go to
Speaker 1: what we just saw with the Bank of England. You
Speaker 1: are the arch call of lower interest rates. I think
Speaker 1: everybody's sobered at the rate stability we've seen through this
Speaker 1: ugly October. Do you maintain a low rate cart totally
Speaker 1: that The latest that's allocation published yesterday was called a
Speaker 1: bucket of cold water, and so you know, I don't
Speaker 1: know if that works in American English kind of it
Speaker 1: worked less. Say we went I went his quantity ative
Speaker 1: easing for Halloween, John went for quantitative tightening, and he
Speaker 1: threw a bucket of cold water. I mean, was it
Speaker 1: the fifth Guinness so you so you get it. At
Speaker 1: The point is October was a bucket of cold water
Speaker 1: for the SMP and for risky assets around the world.
Speaker 1: The last few months have been a bucket of cold water.
Speaker 1: The point is is that yields in Europe and lower
Speaker 1: than where we started the year, for Germany and France,
Speaker 1: not Italy, by the way, The UK yields are low. Um,
Speaker 1: China yields have been falling all year. Japan's doing nothing
Speaker 1: so um. The US is the outlier, and I'm happy
Speaker 1: to sit here and talk about US treasuries as well.
Speaker 1: But the point is that those yields look too high
Speaker 1: given what's going on in the rest of the world.
Speaker 1: Pretty interesting though, that we get a bucket of cold
Speaker 1: water on U S sequities, and the US thirty ye
Speaker 1: yield actually climbs through October. Steve, Yeah, well this didn't
Speaker 1: happen in February because in February, when we had a
Speaker 1: wobble on the Chinese, Hong Kong and US exchanges, the
Speaker 1: treasury is rallid, so you had a risk of money
Speaker 1: went from equities into bonds. This time it didn't happen.
Speaker 1: And so the whole risk parity framework, if you like,
Speaker 1: seems to be unraveling. And look, this shouldn't be a
Speaker 1: complete surprise. If you have unconventional poll this is you
Speaker 1: should expect unconventional outcome. So I'm worried about investment grade credit,
Speaker 1: for example, I'm worried about equities and worried about emerging markets.
Speaker 1: It doesn't seem so far or certainly in the last
Speaker 1: few weeks that the money is going into treasuries. Doesn't
Speaker 1: mean to say isn't going to let me ask you
Speaker 1: what do you get on your bank account? Here? Not
Speaker 1: a lot, assuming you've got any money in the account.
Speaker 1: For some money, so would you get nothing ten basis
Speaker 1: points if you're lucky, how much can you get for
Speaker 1: one month on treasury bills, you would get a couple
Speaker 1: of you can get three. To go a bit further
Speaker 1: out with within your fixed income game of trying to
Speaker 1: figure out what full faith and credit is going to do,
Speaker 1: with what corporate is going to do, what how yield
Speaker 1: is going to do? You're now dealing with central banks
Speaker 1: with a date calendar which I've never seen, where they're
Speaker 1: gaming policy after the end of summer two thousand. Relate
Speaker 1: two to a grizzled pro like you, Steve Major rights,
Speaker 1: Steve Major wrong? What does that mean to you when
Speaker 1: you see dragging currently doing that well with Druggie. I
Speaker 1: think the market is collectively giggling, laughing at this idea
Speaker 1: that wages are going up and therefore CPI is going
Speaker 1: to rise. I mean the causality you mentioned before, Tom
Speaker 1: could be the other way around. It could be headline
Speaker 1: into core. That tends to be how it works in Europe.
Speaker 1: You get prices higher in the shops and people are
Speaker 1: But anyway, the point is is that he thinks inflation
Speaker 1: is going up, but the market doesn't believe it. I
Speaker 1: just told you yield to going down, and um look,
Speaker 1: think think this through. If the ECB thinks they're going
Speaker 1: to hike next year or the year after. So many
Speaker 1: things have to be aligned. The stars have to be
Speaker 1: aligned in such a way that first of all, Brexit's
Speaker 1: no problem. Secondly, Italy is no problem. Thirdly, the US
Speaker 1: presumably isn't easing at some point in the next couple
Speaker 1: of years. Then there's the data, inflation and reactivity data. Frankly,
Speaker 1: there's a lot of stuff there that's going to be
Speaker 1: lined up. Strikes me as it's not a hype of
Speaker 1: a bit t that the ECB can manage a normal
Speaker 1: tightening cycle. To run a marathon now you were cut
Speaker 1: and chiseled, but of a certain vintage. How do you
Speaker 1: run a marathon now versus how you would have run
Speaker 1: it ten years ago? It's a good question. I ran
Speaker 1: five last year, and I've run about fifty and I
Speaker 1: was running them thirty years ago. I ran New York
Speaker 1: last twenty years ago. So short answer to the question
Speaker 1: is I do a lot less running because I'm fifty
Speaker 1: five next year, so I do a lot less running
Speaker 1: than I used to. I probably do half of the
Speaker 1: mileage to get ready and are there do a lot more,
Speaker 1: a lot more conditioning, a lot more strength and stretching,
Speaker 1: so it's a lot less pounding the streets. How is
Speaker 1: the New York Marathon different from all the other mean
Speaker 1: Boston Terrible Hill and Newton at the end, but but
Speaker 1: there's got to be something unique here. I've done, I've
Speaker 1: done them. Are that that It's it's dead straight from
Speaker 1: Staten Island until you get to the park and you
Speaker 1: turn around more or less, so it's a straight marathon.
Speaker 1: It's got the bridges. I think there's five bridges, and
Speaker 1: there's a lot of concrete. So as opposed to tarmac,
Speaker 1: you have you run that risk. I mean, I'm not
Speaker 1: looking forward to that because I know my legs are
Speaker 1: gonna get a pounding. Elsewhere in the world like Berlin
Speaker 1: or Athens, London is mainly tarmac, but here it's pavement.
Speaker 1: I know Paula Radcliffe complained about it when she went
Speaker 1: for the record, But anyway, I'm looking forward to the Sacos.
Speaker 1: Hope it's not too hot. It's even great you have.
Speaker 1: The heat is an issue. It was of course the
Speaker 1: lovely here today and for Hellowen yesterday. That's a TCS
Speaker 1: New York City Marathon. Tata Consultancy Services behind the force
Speaker 1: behind that as well, and again Steve Major with us
Speaker 1: today of course running the New York Marathon and also
Speaker 1: the marathon. Of when rates will go up, it's the
Speaker 1: great wrong call. You're in a camp with a select few.
Speaker 1: Shout out to Gary Shilling, who has been there, is
Speaker 1: well in still rates are going higher. Yeah, you see that.
Speaker 1: No forecast is actually wrong until you get to the
Speaker 1: forecast horizon. But granted tom yields have been going up
Speaker 1: this year, I forecast they'd be going down. I'm still
Speaker 1: forecasting they're going to go down. And I think that,
Speaker 1: you know, ten eleven years into recoveries, six years into
Speaker 1: reducing the long dot, four years into tightening with a
Speaker 1: fed chair doesn't know where the stars are. Doesn't strike
Speaker 1: me that they're going to accelerate from here. What is
Speaker 1: the prole like you think about the stars? I mean,
Speaker 1: economists can talk theoretical about the stars, Vice Chairman Clara.
Speaker 1: Of course, with prodigious ability in D s g E dynamics,
Speaker 1: stochastic general equilibrium theory, you've got to go out to
Speaker 1: HSBC clients and say here's how you can plan. Yeah,
Speaker 1: it's a big difference, right, So with the stars, nobody knows.
Speaker 1: With any certainty until afterwards we know what the real
Speaker 1: natural rate of interest is. It's not a new thing.
Speaker 1: It's an eighteenth century concept from from Wixall. Actually, that's
Speaker 1: what the real natural rates of interest is. To me,
Speaker 1: one percent real rates in the US is going to
Speaker 1: be sufficient given this amount of debt and given where
Speaker 1: we are in the cycle, and we're sort of getting
Speaker 1: towards one percent one percent real. And I'm looking at
Speaker 1: this in terms of modeling this, I think it's difficult
Speaker 1: to find any model with these unconventional policies. But think
Speaker 1: about prospect theory, think about interesting you think about loss Yeah,
Speaker 1: think about investor behavior when you're in the domain of
Speaker 1: certain losses, which is when you had minus minus two
Speaker 1: real yields ten years ago compared to today, where you've
Speaker 1: got a certain gain in real, real terms, presumably your
Speaker 1: more cautious Steve major critical question, and this is for
Speaker 1: global Wall Street listening worldwide. If you're gonna look at
Speaker 1: a real rate study, where on the X axis do
Speaker 1: you look at that? Are you looking at a two
Speaker 1: year rate, are you looking at a three month library?
Speaker 1: Or do you where where's the most advantageous study point
Speaker 1: a real rate real dynamics. That's a really good question.
Speaker 1: You've got to go to the five year point if
Speaker 1: you want to get if you want to get a
Speaker 1: cycle number. So so we think about where will the
Speaker 1: five year rate being five years time? Currently the five
Speaker 1: year US treasury five five year, five year four exactly.
Speaker 1: So in the US the Treasury is at three thirty
Speaker 1: three forty. That's the five year rate. The FED says
Speaker 1: they're going to three three and a quarter. Some people
Speaker 1: in the FEDS say they're going to go higher first,
Speaker 1: which to me is ludicrous. I mean, the idea that
Speaker 1: you're going to overtighten so you can cut seems to
Speaker 1: be some kind of nonsense. But but if it's so
Speaker 1: obvious you're going to hike four times and cut twice,
Speaker 1: just hike twice. When you and Ben Laser Lasler, your
Speaker 1: equity strategist, when you get together, how do you dovetails
Speaker 1: Steve major fixed income theory with Ben Laidler equity theory. Well,
Speaker 1: I think it works quite well because for him, he'll
Speaker 1: take the longer term rate forecast is his input into
Speaker 1: his dividend yield calculations and his assumptions, which says we
Speaker 1: got to be in equity. If I believe in a
Speaker 1: Steve Major world, I'm going to stay in equities. Right.
Speaker 1: It does if your valuations are fair. Though the thing is, Tom,
Speaker 1: is are the valuations fair? Because you've got to add
Speaker 1: on top of this, not just the interest rate level,
Speaker 1: it's the withdrawal of liquidity that you mentioned quantitative tightening before.
Speaker 1: There's fifty billion dollars per month of reduced balance sheet.
Speaker 1: The rest of the world is shifting the impulse on
Speaker 1: the QUEUEI so it so the rates are one thing
Speaker 1: for the equity market forecast, but what about the liquidity
Speaker 1: that pumped up the process of those stocks. I have
Speaker 1: to ask one more question the chronic nature of negative
Speaker 1: interest rates in Europe? What is the price Well, we're
Speaker 1: seeing actually sort of slow zombification of some parts of
Speaker 1: the industrial base. Um. It strikes me that that maybe
Speaker 1: is very difficult to remove them. That that's the other
Speaker 1: the other thing, I mean, how do they remove negative
Speaker 1: rates very quickly? Um, there's there's a there's a lot
Speaker 1: of thought behind the negative right policy because it is
Speaker 1: linked to the forward guidance and the asset pertions is
Speaker 1: extremely potent. But the circumstances are never going to be
Speaker 1: right to reverse them. But this is this is the thing.
Speaker 1: I mean, how do you know when it's safe to
Speaker 1: actually we move them. You're gonna go off to talk
Speaker 1: to John Farrell and one of his other properties. We
Speaker 1: need to say thank you. And also we're hoping for
Speaker 1: forty two degree weather with no wind, no rain. No,
Speaker 1: that's forty two degrees for the marathon. About a following wind, okay,
Speaker 1: following win as well. Stephen Major with HSBC he is
Speaker 1: in New York of course with HSBC clients coast to
Speaker 1: coast and of course to running the TCS New York
Speaker 1: City Marathon is well, pim Fox and Tunkey, thank you
Speaker 1: for being with us. And if you're a bit confused,
Speaker 1: used or intrigued by the election, always good to speak to.
Speaker 1: Greg Vllier of Horizon Investments. Greg David Wasserman writing for
Speaker 1: the Cook Political Report with a at the margin nudge.
Speaker 1: You looked at six races and he nudged it a
Speaker 1: little bit Democrat? Is that where you are you nudging
Speaker 1: on a Thursday towards the Democrat or Democratic Party? Yeah?
Speaker 1: A little bit. Tom, good morning. I think that you know,
Speaker 1: maybe the Democrats take up seats in the House. That's enough,
Speaker 1: they only need twenty three. But in the in the
Speaker 1: Senate there's been a real momentum shift. I feel pretty
Speaker 1: confident the Republicans not only will hold on to the Senate,
Speaker 1: but they're going to gain a seat or two. Where
Speaker 1: is turnout? I think with all the polls, I still
Speaker 1: can't tell on both sides who's going to actually darken
Speaker 1: the door of the voting booth. Who is it? Well,
Speaker 1: traditionally it's people who are angriest, and I think the
Speaker 1: angriest people are Democrats, Uh, some urban women who don't
Speaker 1: like Trump who want to send a message. But it's
Speaker 1: impossible for poll takers to predict. I mean, they'll tell
Speaker 1: you in private that they may get their demographic mix correct,
Speaker 1: but they can't quite figure out turnout. Greg Value, as
Speaker 1: someone that previously worked at the Schwab and was the
Speaker 1: director of research for the Charles Schwab Research Group, you're
Speaker 1: great at connecting political events to financial outcomes, and you've
Speaker 1: described a red hot economy and rising interest rates. Do
Speaker 1: you see President Donald Trump getting into a real public
Speaker 1: slanging match with Federal Reserve Chairman Jerome Powell? Absolutely, Pam,
Speaker 1: I think that's a real risk for the market, says
Speaker 1: the year unfold. I still think we get a rate
Speaker 1: hike in December, Copple more, maybe three next year, and
Speaker 1: Trump will tweet. I mean, if Trump's angry, now, just
Speaker 1: imagine what you'll be like, seventy five basis points higher.
Speaker 1: All right, so let's imagine that it's seventy five basis
Speaker 1: points higher. Is President Trump already running for election? Absolutely?
Speaker 1: I don't think there's any doubt. He's got his foils.
Speaker 1: I mean, nobody plays against foils better than this guy.
Speaker 1: I mean, he's got a foil in uh Paul Ryan,
Speaker 1: He's got a foil in Jerome Powell at the FED.
Speaker 1: So yes, he is running. And you know, I've been
Speaker 1: saying in all of my talks lately, I think he's
Speaker 1: the favorite to win reelection. What do you believe is
Speaker 1: causing the market volatility that we've experienced in the last month, Well,
Speaker 1: there's a lot of there's a lot of villains here,
Speaker 1: you know, whether it's people getting too euphoric towards the
Speaker 1: end of the summer, whether it's the FED. I think
Speaker 1: Powell was a little indiscreet when he said we're not
Speaker 1: close to neutral yet. I don't think he should have
Speaker 1: said that, But there are so many other factors, and
Speaker 1: I would also at it looks like things could get
Speaker 1: even worse before they get better on trade. Greg. Then
Speaker 1: this is five days to the election. What's the plan
Speaker 1: right now for the big money? I love how yesterday
Speaker 1: everything got quiet. Obviously, all the pros working at the margin.
Speaker 1: What's the VALI a margin for the pros getting through
Speaker 1: the weekend, getting to the Sunday talk shows, including thank
Speaker 1: you facing hn CBS for joining us every Friday. But
Speaker 1: what's what's the vliate to do list for pros right now? Well?
Speaker 1: I think for the pros the outlook is surprisingly sanglord h.
Speaker 1: It's in the market that the House flips to the Democrats.
Speaker 1: It's in the market that the Senate gets a little
Speaker 1: more Republicans. I think the big story and the reason
Speaker 1: why Tom I don't think this election is a huge
Speaker 1: deal for the markets. The big story is that even
Speaker 1: if the Democrats took both houses, Trump's Vito was good.
Speaker 1: So any fear that Trump's economic agenda would get undone
Speaker 1: kill kill the tax cuts, It's not gonna happen because
Speaker 1: veto it. I mean, this is fascinating Pivot's the first
Speaker 1: time I've ever heard anybody talk about Mr Trump with
Speaker 1: a veto pen in hand. I mean, give us a
Speaker 1: clinic on that, Greg, right now. I mean presidents are
Speaker 1: reluctant to veto, etcetera. But this is an original president,
Speaker 1: isn't it? Original? Is an understatement a couple of points.
Speaker 1: Number One time, I do think that Trump will play
Speaker 1: against a more liberal House that may talk about impeachment.
Speaker 1: But I think the big thing for investors to remember
Speaker 1: is that you need sixty seven votes in the Senate
Speaker 1: to override a veto. It's not going to be sixty
Speaker 1: seven votes. I think the Republicans will actually add seats
Speaker 1: in the Senate. So I think the Trump agenda is
Speaker 1: safe for two more years, Greg Valuer, Who in the
Speaker 1: White House do you believe is making economic policy? Donald Trump? That,
Speaker 1: maybe a few others, maybe Larry cud Lolo. I think
Speaker 1: a lot of the policies go against what Larry has
Speaker 1: said for his entire career. Uh, it's it's it's at
Speaker 1: the end of the day, I think you've got to
Speaker 1: say it's Trump and um right now, I think he's
Speaker 1: thinking exactly what you guys said what's going to happen
Speaker 1: in Well, we know that there's going to be a
Speaker 1: G twenty meeting in Buenos Aires. We also know that
Speaker 1: President Donald Trump is going to meet the Chinese President
Speaker 1: j Pink. In fact, Larry Cudlow coming out just now
Speaker 1: and saying that the meeting would be very formal. Do
Speaker 1: you believe anything will be resolved at that meeting? Well,
Speaker 1: that's a key issue for the market, so obviously November thirty,
Speaker 1: December one. So I would think that the personal chemistry
Speaker 1: between z and Trump might get resurrected a little. Maybe
Speaker 1: there's a nice photo of they might even agree to
Speaker 1: resurrect the talks between the two countries. But any hope
Speaker 1: that there would be a dramatic breakthrough in Buenos Areas,
Speaker 1: I think that hope is unrealistic. And now, folks, we
Speaker 1: move forward with Greg Villier. Yes, we can only do
Speaker 1: with a man from New Hampshire. Greg. It's five days
Speaker 1: to the mid terms and your entire note today is
Speaker 1: out exactly two years in one week. How many Democrat
Speaker 1: candidates are there right now? You know, I gotta say, Tom,
Speaker 1: it could be twenty five. It's a huge list. I mean,
Speaker 1: if if if your top three is Biden, Bernie and
Speaker 1: Elizabeth Lawren. I mean, there's a lot of room for
Speaker 1: other candidates, so maybe are a little younger, maybe you
Speaker 1: got some fresh blood, and there is So we'd be
Speaker 1: on until noon if we talked about you know, Ali
Speaker 1: out of Life, Corey Booker, Kirsten gillibrand uh Amy klob Shark, obviously,
Speaker 1: CaMLA Harris. The list goes on and on and on.
Speaker 1: But I do say, and some people don't like me
Speaker 1: and me saying this, I do say that as of now,
Speaker 1: Trump is the favorite. He's easily going to win the
Speaker 1: nomination in that party, and I don't see anyone right
Speaker 1: now is a clear likely opponent who could beat Trump.
Speaker 1: Having said that, do you believe that the Democrats have
Speaker 1: a coherent plan. Well, there's a lot of friction. I mean,
Speaker 1: you've got what I call the Bronx Socialists, and you've
Speaker 1: got the old Guard and people like Joe Biden, and
Speaker 1: the party is divided. I think they need to resolve this.
Speaker 1: I mean, the young Bronx socialist has some very seductive ideas,
Speaker 1: but they can't describe how they would pay for these ideas.
Speaker 1: So that's going to be a big problem. For them
Speaker 1: in describing how you can get this done without consiscuatory taxation. Greg,
Speaker 1: Thank you so much. Greg, with a nice update there
Speaker 1: on what we make gazette next Tuesday. Thanks for listening
Speaker 1: to the Bloomberg Surveillance podcast. Subscribe and listen to interviews
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Speaker 1: I'm on Twitter at Tom Keene before the podcast. You
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