Speaker 1: Hello, and welcome to What Goes Up, A Bloomberg Weekly
Speaker 1: Markets podcast. I'm Sarah Plantze, reporter on the Cross Asset team,
Speaker 1: and I'm Mike Reagan, a senior editor on the Markets team.
Speaker 1: This week on the show, did the reflation trade come
Speaker 1: back just a little bit too quickly? All of a sudden,
Speaker 1: the yield curve is flattening once again, and markets are
Speaker 1: playing defense. Some investors say they also see shades of August.
Speaker 1: It's also that time of year, with less than six
Speaker 1: weeks togo until firms across Wall Street are starting to
Speaker 1: share their thoughts and ideas for the year ahead. And
Speaker 1: of course we'll close out the episode with our tradition
Speaker 1: the Craziest Thing I saw in Markets this week? And Sarah,
Speaker 1: before we get to, I gotta say I'm excited as
Speaker 1: usual on podcast A. I'm excited about about two things.
Speaker 1: One is, we got a pretty good call to the
Speaker 1: podcast hotline, to the What Goes Up Hotline this We'll
Speaker 1: save that for the Craziest Thing. The other thing I'm
Speaker 1: excited about is I don't know if you've noticed, but
Speaker 1: my Delaware Blue Hens basketball team is undefeated six and
Speaker 1: oh the woebegone basketball team of the University of Delaware.
Speaker 1: I must say I hadn't noticed many people. Your Michigan
Speaker 1: team's also undefeated at three and oh though, so we
Speaker 1: are twice as undefeated as you. I'm just gonna throw
Speaker 1: that out there, probably not for long. We'll see how
Speaker 1: we do it. But to honor the occasion, we actually
Speaker 1: have a guest from the great state of Delaware joining
Speaker 1: us here. Unfortunately, he did not go to the University
Speaker 1: of Delaware. He went to our conference rival, James Madison,
Speaker 1: so we won't we won't talk basketball with him about that,
Speaker 1: but we're happy to have him. His name is Luke Tilly.
Speaker 1: He's the chief economist at Wilmington's Trust in Wilmington, Delaware,
Speaker 1: and he's a former officer at the Philadelphia Federal Reserve. Luke,
Speaker 1: welcome to the show. Thank you for having me. Okay,
Speaker 1: also joining us our very own Bonds and f X
Speaker 1: reporter and skilled a question I would say, Katie Greifeld,
Speaker 1: welcome to the show. Thank you. I'm so glad you
Speaker 1: brought that up right. How's the horse stone. His name
Speaker 1: is Batman and he's doing great. It's good. I used
Speaker 1: to think his name is Fatman, but I was mistaken.
Speaker 1: It is Batman is a much better, maybe more polite,
Speaker 1: accepting name than right. Right, I misunderstood my bed anyway, Luke,
Speaker 1: let's start with you. I downloaded Welmington Trust has a
Speaker 1: very interesting capital markets forecast for twenty on the website.
Speaker 1: I uh. I advise everyone to download it's it's a
Speaker 1: pretty good read, and I like it because it gets
Speaker 1: into some of the sort of hot topics of the day,
Speaker 1: not just really financial but politics, populism, that sort of thing.
Speaker 1: I advise everyone print this out and bring it to
Speaker 1: Thanksgiving dinner so when it comes time to talk politics,
Speaker 1: you're you're well armed. But I just I wanted to
Speaker 1: read a line from it that I think is really fascinating.
Speaker 1: I think this explains a lot of what we're seeing
Speaker 1: in the world today, whether it be Hong Kong or Chili.
Speaker 1: We're sort of the the US political endscape and it
Speaker 1: goes the rise, and populism isn't part of an outgrowth
Speaker 1: of the unintended consequences of productivity, which includes more gains
Speaker 1: for owners than workers and the secular disruption of the
Speaker 1: labor force. For example, labor share of income remains low.
Speaker 1: The figure dropped from fifty six point five percent at
Speaker 1: the turn of the twentieth century to fifty point nine
Speaker 1: percent in two thousand and fourteen, and it will continue
Speaker 1: to drive populist sentiment. I find the stuff fascinating because
Speaker 1: I think this is a key theme of sort of
Speaker 1: global geopolitics. And like I said, this unrest we've seen
Speaker 1: in Hong Kong, in CHILEI a lot of Latin America.
Speaker 1: How does one take this and apply it to this
Speaker 1: sort of the investment landscape. Yeah, sure, so it's a
Speaker 1: it's quite a mouthful. I don't know if you would
Speaker 1: try and do it Thanksgiving dinner. But of course we
Speaker 1: were packing quite a bit of information into that paragraph.
Speaker 1: But UH, simply put the rise of populism around the globe.
Speaker 1: If you just read headlines, you might think is coming
Speaker 1: from uh sort of random success of populist leaders or
Speaker 1: particular movements that just happened to get more popular. But really,
Speaker 1: at its at its core, UH is this rise in
Speaker 1: productivity with firms, and firms have turned to robotics and
Speaker 1: artificial intelligence, UM, all kinds of technology that increases their productivity,
Speaker 1: and one of the UH, one of the outcomes of
Speaker 1: that is that less of income, less of GDP is
Speaker 1: actually going to the worker. We had a fairly steady
Speaker 1: share of GDP going to workers if you look at
Speaker 1: US data for about four or five decades until the
Speaker 1: past of fifteen or twenty years when you see this
Speaker 1: uh steady decline in the amount that's going to workers.
Speaker 1: So in our view, on top of some of the
Speaker 1: there admittedly there are some other things. You've got the
Speaker 1: outsourcing of jobs, You've got some of those other things,
Speaker 1: but both in the US and worldwide, you've got less
Speaker 1: and less income going to workers, and that tends to
Speaker 1: produce a pipe the sentiment. The connection makes sense. And
Speaker 1: looking at your research, I grouped it as a three
Speaker 1: piece you have productivity, populism, and then portfolio. But I
Speaker 1: can imagine some people coming to you and saying, what
Speaker 1: do you mean productivity is on the rise? You look
Speaker 1: at some data points and it still shows that productivity
Speaker 1: is really low. Is the problem that there's still the
Speaker 1: conundrum of people just not potentially measuring productivity in the
Speaker 1: right way in this new era of technology and other industries. Yes, exactly.
Speaker 1: So this is something that we dug into quite a
Speaker 1: bit this year, and it's uh it's twofold. Really. One
Speaker 1: is that it's very challenging to measure productivity uh. And
Speaker 1: then the second is that productivity tends to show up
Speaker 1: with a pretty significant lag. So on the first point,
Speaker 1: when the economy is changing very quickly as it is
Speaker 1: now we term this the fourth Industrial Revolution, with the
Speaker 1: development of all of these technologies. When the economy is
Speaker 1: changing very quickly, it's incredibly hard for our government statisticians
Speaker 1: down in d C to keep track of it. Uh.
Speaker 1: In the late nineteen nineties this happened as well. There
Speaker 1: was this same conundrum that we had right now. How
Speaker 1: is it possible that we have all this growth and
Speaker 1: we have low unemployment, yet we don't have inflation going up?
Speaker 1: And the answer at that time was productivity. When you
Speaker 1: went several years later, when they had a better handle
Speaker 1: on what was going on, productivity was revised up about
Speaker 1: one and a half percent for a three or four
Speaker 1: year period. And our view is that that's exactly what's
Speaker 1: going on right now. The government is not very good
Speaker 1: at keeping track of just how productive Amazon is, for example,
Speaker 1: or uber or some of these other companies. They'll get
Speaker 1: a better handle on it later, but right now we
Speaker 1: believe that that productivity is actually stronger than the statistics show,
Speaker 1: and that of course is what's helping keep inflation low
Speaker 1: right now and not not having those price pressures. Let's
Speaker 1: get right into those Thanksgiving political discussions with with your
Speaker 1: drunk uncles. But you have to have the ammunition to
Speaker 1: counter those drunk uncles. I'm probably the drunk uncle in
Speaker 1: my in my scenario, but for everyone else, for you
Speaker 1: nephews and nieces out there. Um, and you start off this, uh,
Speaker 1: this report, this Capital Markets Outlook, you kind of give
Speaker 1: the sort of the risks if there's a Democrat elected
Speaker 1: or a Republican. Very interesting one looking at if there's
Speaker 1: a left leaning government. The wealth tax, this is a
Speaker 1: third rail issue for a lot of people. Uh, woman
Speaker 1: can trust. According to this report, gives it a high
Speaker 1: chance of happening if a Democrat is elected, but a
Speaker 1: low impact on markets. Um, the walks through what the
Speaker 1: thinking is with that, right. So this is a obviously
Speaker 1: a politically sensitive one and we should say that all
Speaker 1: of our research is just really not meant to be
Speaker 1: a judgment over whether these things are good, bad, or
Speaker 1: and different, but just looking at what the impact would
Speaker 1: be on markets, but clearly, clearly the wealth tax is
Speaker 1: something that has the attention of voters on the left
Speaker 1: right now, in supporters of the of the candidates in
Speaker 1: the in the Democratic primaries. So a wealth tax would
Speaker 1: be incredibly challenging if it were implemented in terms of
Speaker 1: the execution of it and keeping track of wealth. We
Speaker 1: actually think it's more likely that will end up getting
Speaker 1: higher taxes in some other form, either the reversal of
Speaker 1: the taxes that were implemented in those tax cuts, or
Speaker 1: perhaps increases in taxes somewhere else. You know that that's
Speaker 1: on the personal side, that's also on the corporate side.
Speaker 1: But clearly there's some support for the wealth tax right now,
Speaker 1: but there's a lot of sort of devil in the
Speaker 1: details on how you would go about implementing that. Right,
Speaker 1: It would be very tough to appraise someone's wealth on
Speaker 1: a hear to your basis if you yeah, and then
Speaker 1: you get the dynamic effects they try to get their
Speaker 1: wealth out. Several several of the proposals want to penalize that.
Speaker 1: It would be incredibly messy, But it's clearly going to
Speaker 1: be a topic of discussion throughout. People digging holes in
Speaker 1: their backyard with filling it with golden and bitcoin. I
Speaker 1: guess that's what you do with bitcoin, Katie, right, is
Speaker 1: that that's what I hear? Yeah? Right. There was a
Speaker 1: really interesting story this week actually about high wealth individuals
Speaker 1: all of a sudden very interested in very normal type storage. Yeah,
Speaker 1: safety deposit box because who knows, who knows what's going
Speaker 1: to happen with rates lately. Um With that said though,
Speaker 1: and bringing it kind of into Katie's world of f
Speaker 1: FX and rates, Luke, I first want to ask you
Speaker 1: because also in the notes that were sent over to us, uh,
Speaker 1: they said that the way you guys see it, tightening
Speaker 1: of monetary policy is a ways off, which I think
Speaker 1: the Fed has made very clear despite global central banks
Speaker 1: taking a breather from incremental monetary easing. I want to
Speaker 1: get your take though, because a few people this week
Speaker 1: have said to me that now what it looks like
Speaker 1: the market is doing with yields moving lower once again
Speaker 1: to vnsives inequities, coming back to the fore, that maybe
Speaker 1: the market is actually pricing in the idea that the
Speaker 1: FED will have to cut again, and we're still stuck
Speaker 1: in this virtuous circle where the market prices in a
Speaker 1: cut and then the FED fields as though they have
Speaker 1: to cut. Do you think it's possible we do get
Speaker 1: back to this that scenario, say within the next year.
Speaker 1: We do think it's possible, but we don't think it's
Speaker 1: the highest chance outcome if will. So a lot of
Speaker 1: what the FED was doing was basically fixing the yield curve.
Speaker 1: If you will, uh listeners out there, you can't see
Speaker 1: me putting the air quotes around the word fixing, but um,
Speaker 1: but that's essentially what they were doing. So Jerome pal
Speaker 1: never used this term, but essentially when the old curve inverts,
Speaker 1: they get pretty nervous about that. Um. And even though
Speaker 1: they don't as as I said, they don't use that
Speaker 1: as well, we need to do that. That was clearly
Speaker 1: part of it. The the old curve back to where
Speaker 1: it is right now, as you said, flattening a little
Speaker 1: bit more this week. But the FED has gotten themselves
Speaker 1: in a spot where as they said, they want to
Speaker 1: wait and see how long it takes and what the
Speaker 1: impacts of their rate cuts are. Clearly it is having
Speaker 1: having an impact so far, but really we don't think
Speaker 1: that they would end up cutting more rates unless the
Speaker 1: economy took a material turned downwards. What could cause that
Speaker 1: to happen that are it's not our view that the
Speaker 1: economy is going to take a material turned downwards unless
Speaker 1: we get more tariffs. If you get more tariffs on
Speaker 1: between US and China, more brinksmanship there, we think that
Speaker 1: that would end up leading them down that way. But
Speaker 1: that's that's not our view right now. On the other
Speaker 1: side of whether they would be raising interest rates, uh,
Speaker 1: they don't have a history of reversing themselves in changing
Speaker 1: directions very quickly. UM. That would be obviously problematic to markets,
Speaker 1: which are maybe looking for for more cuts. And you're
Speaker 1: there's really not enough time over the next six to
Speaker 1: nine months for inflation to do a U turn and
Speaker 1: really move material upwards for them to want to be
Speaker 1: hiking rates, and so then you know, if you can't
Speaker 1: have material inflation within the next six to nine months,
Speaker 1: you get out the twelve months and then you're right
Speaker 1: before the election. They're not going to really want to
Speaker 1: uh cause problems just before that. So we think it's uh,
Speaker 1: we think it's pretty flat from from here unless you
Speaker 1: get that material downturn and that reversal in the year
Speaker 1: field curve is a lot more their open market operations
Speaker 1: to sort of fix the whole repo mess adding liquidity.
Speaker 1: I think the balance sheets expanded by close to three
Speaker 1: billion by now. I mean, um, is that that's just
Speaker 1: going to continue apace as long as that there's funding
Speaker 1: stress in the repo market, do you think? Yeah? So
Speaker 1: this is where it gets really confusing. At Thanksgiving dinner
Speaker 1: if you want to, if you want to talk about
Speaker 1: FED policy and their monetary policy at the short end
Speaker 1: of the curve, and what they're doing with rates, and
Speaker 1: then also what they're doing with buying treasuries to expand
Speaker 1: their balance sheet, it's it can get a little bit convoluted. Um. Clearly,
Speaker 1: their balance sheet, as you suggested, is now expanding, it
Speaker 1: has as it has been since the beginning of September.
Speaker 1: But that's not really on the rate cut side. That's
Speaker 1: providing the liquidity too markets and all those problems that
Speaker 1: happened uh in the repo market. So this is challenging
Speaker 1: for them to talk about. Really they have to keep
Speaker 1: doing that in order to provide liquidity, uh. And I
Speaker 1: think they're doing their best they can to convince people
Speaker 1: that it's not quantity of easing and it's not them
Speaker 1: easing policy, Katie, come in here. You had a story
Speaker 1: that ran on Sunday called the bond Market's fate hangs
Speaker 1: in balance before trade war crunch time, and when you
Speaker 1: talked about the rise up that we've seen in bond
Speaker 1: yield um and what comes next. As Luke mentioned, trade
Speaker 1: is really a large trigger that we have to keep
Speaker 1: an eye on. But what our investors telling you this week,
Speaker 1: because we've seen the ten year fall roughly twenty basis
Speaker 1: points are so or more? I mean, what's driving this
Speaker 1: and is the path for least resistance at this point lower?
Speaker 1: That's a great question. I mean it feels like the
Speaker 1: answer changes every day depending on the trade headlines we're
Speaker 1: getting as to where yields are headed next. And a
Speaker 1: stat I love that's in that article is that if
Speaker 1: you look at tenure treasure yields, they're extremely correlated to
Speaker 1: the Chinese you want right now, which I think just
Speaker 1: goes to show how much of sentiment in the bond
Speaker 1: market relies on trade. So when I talked to investors,
Speaker 1: I talked to strategists in the bond market specifically, it's trade.
Speaker 1: It's all about trade, and we're really entering you know,
Speaker 1: a crucial few weeks before December and that tariff deadline. Meanwhile,
Speaker 1: the other market you cover, Katie EFFCS has really been
Speaker 1: let's what's the word I'm looking for? I guess quite
Speaker 1: quite boring this year, right, Uh, you had you had
Speaker 1: another story out this week about the dollar being in
Speaker 1: the tightest range for a year, the dollar index, the
Speaker 1: the Ice Dollar index being in the tightest range for
Speaker 1: years since nineteen seventy six. Let's pretend I didn't edit
Speaker 1: that and you can just tell me what what the
Speaker 1: takeaway from that street. Yeah, it's really been feast and
Speaker 1: famly because the bond market has been going crazy, but
Speaker 1: nothing has been happening in FX. And you mentioned the
Speaker 1: d X Y and X that's how you can find
Speaker 1: it on the terminal. But yeah, it's stuck in its
Speaker 1: tightest range in about over four decades. Four decades. Yeah,
Speaker 1: I was not close to alive, But um, that really
Speaker 1: has to do with it's especially crazy if you were
Speaker 1: born before and have to think about how it's almost
Speaker 1: five decades go it's still got a four handle. But um, yeah,
Speaker 1: so that index is mostly made up of the euro
Speaker 1: dollar pair, which is this isn't even crazier status on
Speaker 1: track for its narrows yearly range on record, And I
Speaker 1: was talking to sock Jen about that, and Kit Jukes
Speaker 1: told me that's just because the market's almost been too
Speaker 1: accurate in pricing growth differentials in Europe in America or
Speaker 1: price for pretty good new was in America and bad
Speaker 1: economic news out of Europe and Germany in particular. And
Speaker 1: that's really what we're getting right now, Luke, this very
Speaker 1: quiet volatility in the FX market. It's terrible news to
Speaker 1: our FFS traders listeners. I'm sure it's the worst worst
Speaker 1: possible outcome one could ever think of. But I go,
Speaker 1: I have to wonder for the economy as far as
Speaker 1: looking at financial conditions. I mean that it's a tight range,
Speaker 1: it is elevated compared to last year, But I would
Speaker 1: think that uh sort of diminished volatility in the FX
Speaker 1: market is kind of good for financial conditions. Am I
Speaker 1: thinking about that right? Yeah? It hopes with financial conditions,
Speaker 1: especially with an increasingly integrated world where've got so many
Speaker 1: companies that are operating across borders and they basically have
Speaker 1: to deal with these FX rates on a on a daily,
Speaker 1: weekly and monthly basis, and those more um solid or
Speaker 1: less volatile ffex conditions just make it easier to operate,
Speaker 1: and they just definitely encourage more trade. When you have
Speaker 1: all of the uncertainty that Katie mentioned coming from trade
Speaker 1: and all of the all of the uncertainty that's coming
Speaker 1: from that, and even some uncertainty about fiscal policy, to
Speaker 1: have one thing that is a little bit more stable
Speaker 1: is going to be supportive of growth. In our view,
Speaker 1: all year long, I've heard about how a strong dollar
Speaker 1: is a headwind to corporate profits. Uh And finally, just
Speaker 1: a couple of months ago, people thought that, well, maybe
Speaker 1: that was about the change we saw the dollar started
Speaker 1: turning lower before it started picking up once again. But
Speaker 1: in your story, Katie, you talk about how corporates might
Speaker 1: be caught off guarded a different way. Can you walk
Speaker 1: us through that. Yeah. So usually when people think about
Speaker 1: f X effects, they think about, you know, how is
Speaker 1: it eating into earnings? But what reporting this story out
Speaker 1: showed is that corporations have become or might be at
Speaker 1: risk of becoming a bit complacent when it comes to
Speaker 1: just hedging the currency risk. And we spoke to a
Speaker 1: few different firms and they said it's not you know,
Speaker 1: they're huge multinational clients or the pension funds. It's these
Speaker 1: smaller companies, maybe you know, fifty to seventy employees, who
Speaker 1: have pretty bare bones treasury departments or accounting staff that are, uh,
Speaker 1: you know, after several years where nothing has happened in X,
Speaker 1: they're kind of stepping back their hedging activity because it's
Speaker 1: expensive and it hasn't paid off for several years. But obviously,
Speaker 1: you know, with record volatility at record lows um, you know,
Speaker 1: the risk is that it shoots up really quickly. So there,
Speaker 1: I think we have a quote in there that this puts,
Speaker 1: you know, destroy profits at risk, you know, if you're
Speaker 1: a small company hedging less. Look, any thoughts on what
Speaker 1: the dollar is going to do, Yeah, we don't really
Speaker 1: put out projections of that, but I would agree with
Speaker 1: Katie's sentiment that basically traders and FX traders are have
Speaker 1: been predicting the economies right because fundamentally what's going to
Speaker 1: end up driving currency and currency movements is how are
Speaker 1: the economies performing relative to one another and then what
Speaker 1: are central banks doing. So, as Katie said, a lot
Speaker 1: of what is going on right now has been predicted.
Speaker 1: We predicted a or we the industry or whatever was
Speaker 1: priced in, was a slowdown in US growth this year
Speaker 1: right now, not expecting a huge re acceleration in trade
Speaker 1: and tariffs. Uh, some sort of reasonable answer to the
Speaker 1: whole brexit question. Uh, and that the European un the
Speaker 1: e c B s are the European Central Bank has
Speaker 1: got a new leader and she's not gonna make any
Speaker 1: big changes right away. Right. So if all that's priced in,
Speaker 1: you still get those growth trajectories, Uh, then it should
Speaker 1: be fairly stable and we wouldn't expect any big movements
Speaker 1: in the dollar or any other currencies. You could imagine, uh,
Speaker 1: some sort of compilation and some sort of collection of
Speaker 1: of surprises such as trade and tariffs going bad, a
Speaker 1: hard brexit when it's not expected, or you know, any
Speaker 1: of any any of those things getting up ended, and
Speaker 1: then you would expect to see some more volatility. So um.
Speaker 1: So it's it's inherently hard thing to predict. But basically
Speaker 1: we're just putting our judgments around those risks of those
Speaker 1: things happening at all times. Right. I think when you're
Speaker 1: in a low volatility phase, the hardest thing to do
Speaker 1: is try to predict what's going to snap it out
Speaker 1: if everyone wants to do it, but it's it's it's
Speaker 1: almost impossible, right, And and one thing is usually certain
Speaker 1: is that has been this low volatility for this long.
Speaker 1: It's probably not gonna be same the next year. Right,
Speaker 1: Something's gonna happen. I wanted to get back to that
Speaker 1: look of from Wilmington's trust UM and especially talk about
Speaker 1: UM sort of the policies that have potentially bipartisan support.
Speaker 1: And I like the way you guys do this. You
Speaker 1: give these bubbles that say if it has a high
Speaker 1: chance or a low chance, and it's in big print,
Speaker 1: I can read it even without my reading glasses on.
Speaker 1: So I appreciate, appreciate that from US UH, from US
Speaker 1: on the older end here antitrust UH medium chance, medium impact, UH,
Speaker 1: Drug price reform medium chance, medium impact. So we'll skip those.
Speaker 1: China trade obviously another Thanksgiving topic that's bound to come up.
Speaker 1: You guys give it a high chance and a high
Speaker 1: high impact, which obviously I think I agree with, especially
Speaker 1: given that this is a bipartisan issue now. So I wonder,
Speaker 1: you know, so many people are trying to game theory out,
Speaker 1: you know, the Trump and President She negotiations, and who's
Speaker 1: got the upper hand, who's who's got the weaker hand,
Speaker 1: and what it means for when we'll actually see a deal,
Speaker 1: even a phase one deal. But what as you guys
Speaker 1: put out here, is that you know, a tougher stance
Speaker 1: on trying to trade is a bipartisan issue. I mean,
Speaker 1: is it conceivable believable that, um, sort of the A
Speaker 1: lot of the thinking is that, well, China will just
Speaker 1: wait out President Trump. They they think there's a decent
Speaker 1: chance you won't get reelected. They can stall and just
Speaker 1: wait for the next president to negotiate with. Is that
Speaker 1: a Is that a bad way of thinking about it?
Speaker 1: Do you think there's so many, so many different ways
Speaker 1: to think about it? And as you said, trying to
Speaker 1: game theory it out, it has entirely too many nodes. Um.
Speaker 1: But but I think you hit on it, and it's
Speaker 1: that it's such a bipartisan issue. I mean, just this
Speaker 1: week you had the Senate unanimously approved this bill that
Speaker 1: has to do with Hong Kong and retaining their independence.
Speaker 1: Elizabeth Warren and Ted Cruz were both co sponsors, not
Speaker 1: just voters, but co sponsors of this bill. When do
Speaker 1: you get often do you see that in the House voted.
Speaker 1: I think it was four seventeen to one to approve this.
Speaker 1: So if you needed a clearer signal of it being
Speaker 1: um a bipartisan issue, I guess you need four in
Speaker 1: an eighteen to zero. But but it's clearly a bypart
Speaker 1: is an issue, which means that it's not going away.
Speaker 1: I don't know how that the Chinese will try to
Speaker 1: play it out, but where we've gotten ourselves as we've
Speaker 1: implemented these tariffs, We've got deadlines coming up, and it
Speaker 1: be sort of hard to back away from, and hard
Speaker 1: to back away from entirely because there are so many
Speaker 1: human rights issues. Both parties have been upset about China
Speaker 1: in the way that they subsidize their state owned enterprises
Speaker 1: and the way that they steal intellectual property for so
Speaker 1: long that we view this, as said as a high
Speaker 1: chance of something happening, whether it's a series of deals
Speaker 1: or even if somebody else comes in, a new president
Speaker 1: gets elected, then there's clearly going to be some more
Speaker 1: action taken after that. So so bottom line it for us,
Speaker 1: what kind of portfolio would you want to be in
Speaker 1: heading in the what sort of acid allocation would you
Speaker 1: be looking at? All? Right, So just recently after earlier
Speaker 1: this year when the trade talks broke down, we had
Speaker 1: gone to basically neutral against O our benchmarks and equities
Speaker 1: and on the fixed income side. Uh, just last month
Speaker 1: we went back overweight to equities because we've actually gotten
Speaker 1: pretty optimistic. Um, we're not sure what a phase one
Speaker 1: deal is gonna look like, whether that pulls back any
Speaker 1: tariffs or anything like that, but we're fairly confident that
Speaker 1: we're not going to see more tariffs coming on. Basically,
Speaker 1: both economies are in such bad shape right now, especially
Speaker 1: relative to May, that we decided to move back into equities,
Speaker 1: and we think that it's a it's a good time
Speaker 1: to get to be taking on a little bit more
Speaker 1: risk and taking on a little bit more of that beta.
Speaker 1: All right, so now we know what you guys are
Speaker 1: looking for heading into next year. But I think that
Speaker 1: brings us to the craziest thing all of us ever
Speaker 1: saw this week. That's right, let's start with the call
Speaker 1: to the hotline. I found this pretty interesting. So his
Speaker 1: name is John. He's a financial advisor out of the
Speaker 1: Dallas Fort Worth, Texas area, and he told us that
Speaker 1: this is not just the craziest thing. He ever saw
Speaker 1: this week, Mike, but it's actually maybe the craziest thing
Speaker 1: he ever saw over the past decade to fifteen years.
Speaker 1: He's referring to a mutual fund. It's ticker p r
Speaker 1: w c X. It's the t row Price Capital Appreciation Fund,
Speaker 1: and he points out just its performance, how it's been
Speaker 1: doing so well over the past couple of years. Take
Speaker 1: a listen, This thing is absurd. It's outperformed it's category
Speaker 1: over the last five, ten, fifteen years. It's the number
Speaker 1: one performing fund. And it's category. This is an aside
Speaker 1: cation fund, so it's US has anywhere from sixty bonds
Speaker 1: and regardless of that, still over that fifteen years time
Speaker 1: frame is outperforming the SMP while taking significantly less less risk.
Speaker 1: It's pretty good. And I'm gonna assume John is who
Speaker 1: he says he is, not a trow Price salesman on
Speaker 1: the phone there. We don't have a last name, John,
Speaker 1: So that's on you. I believe I did fact check
Speaker 1: him on the numbers of the fund is out performing
Speaker 1: over the last fifteen years and twenty years, but over
Speaker 1: the last five years it's actually lagging the SMP by
Speaker 1: just a tad all right, Well, maybe we'll have to
Speaker 1: try to get the manager of that on here to
Speaker 1: talk about it. H that's pretty good, all right, Katie.
Speaker 1: Do you have a crazy thing you saw on markets
Speaker 1: this week? I'm gonna try my best. I love this
Speaker 1: story because I don't understand it. But it's about the
Speaker 1: grain market and apparently we're seeing this weird trade. It's
Speaker 1: called the over Chicago trade, where corn is being sent
Speaker 1: from the west to the east and usually it just
Speaker 1: goes to the south. And my best understanding of why
Speaker 1: that's happening is because corn farmers in the East have
Speaker 1: been hoarding their corn supplies because there's been just this
Speaker 1: supply day, lou and they're they're hoarding it to wait
Speaker 1: on better prices, which I think would just exacerbate the problem.
Speaker 1: But I don't know. It's a crazy story. It's on
Speaker 1: the terminal. I encourage you to read it because I
Speaker 1: probably did a terrible job. I like it. No, I
Speaker 1: like it. That's a good Thanksgiving themes story as well. Wow,
Speaker 1: I want to pretend that that's what I was thinking
Speaker 1: of the core market. Sarah, how about you? Can you
Speaker 1: can you top the crazy Chicago corn trade of whatever
Speaker 1: that was? Like? I have one that is pretty crazy,
Speaker 1: and there are a couple of stories that came out
Speaker 1: about it this week. So pg n E the power
Speaker 1: company that has been under a lot of pressure after
Speaker 1: they did start some of those horrible, horrible wildfires out
Speaker 1: in California. They're filed for bankruptcy. Shares are down since
Speaker 1: mid Well, what's happening is because they have to compensate
Speaker 1: people out in California who say that their property was damage.
Speaker 1: They're going through all these claims and all of a sudden,
Speaker 1: this one claim popped up with someone claiming that the
Speaker 1: fire destroyed a five hundred pound emerald with two hundred
Speaker 1: and eighty million dollars that they're having in their house.
Speaker 1: So of course p g n E is a little
Speaker 1: bit suspect about this, so they're trying to find out
Speaker 1: more information. But Bloomberg's very own opinion Columnst. Matt Levin
Speaker 1: looked a little bit more into this, and it turns
Speaker 1: out that this emerald has likely been written about before.
Speaker 1: It actually has a name. The name is Blessa I
Speaker 1: believe that's how you pronounce it, and it also was
Speaker 1: maybe cursed. So the way that yeah, clearly yes, um
Speaker 1: so the way Matt Levine finishes his column and he says,
Speaker 1: I'm going to stop the emerald speculation at this point,
Speaker 1: but I just wanted to flag for you the possibility
Speaker 1: that P. G N E might have caused a fire
Speaker 1: that destroyed a cursed emerald. Um so pretty crazy stuff.
Speaker 1: Does that end up being a good good? That's what
Speaker 1: I'm not sure now? That is this is the curse
Speaker 1: over now, I'm not sure. I thought you were going
Speaker 1: to tell me that the emerald's name was fat Man
Speaker 1: bad it is five hundred pounds. But furthermore, emeralds are flammable,
Speaker 1: like that's what That's what I thought. I thought to
Speaker 1: emeralds burn right. Apparently apparently, at least if you can,
Speaker 1: you know, convince your insurance adjusters looke. Have they told
Speaker 1: you about our our gimmick here? I heard a little
Speaker 1: bit about it, so I did my best. But if
Speaker 1: you're asking for the craziest thing in markets, you bring
Speaker 1: in a macro economist, you're gonna get something about about
Speaker 1: the economy. And that's actually I'm just gonna put some
Speaker 1: context around something that we've already discussed, and it's about
Speaker 1: the FED and about the balance sheet. Because you were right,
Speaker 1: might you already mentioned that they had started to add
Speaker 1: to their balance sheet again, and that started. The low
Speaker 1: point was the week of August twenty six, and when
Speaker 1: the FED released their balance sheet data this week, turns
Speaker 1: out they have grown in total their balance sheet by
Speaker 1: two and eighty seven billion over twelve weeks. And just
Speaker 1: to put that in context, over twelve weeks, just that
Speaker 1: three month period, the two hundred and eighty seven billion
Speaker 1: is greater than the annual g d P of a
Speaker 1: hundred and forty five of the hundred and ninety five
Speaker 1: countries on this planet. That's crazy. It's pretty crazy. That's good,
Speaker 1: very good, very good. I appreciate the headline, but it's
Speaker 1: well done, well done. All right, I'll close with mine here.
Speaker 1: This is um a stock a company called art Go
Speaker 1: in Hong Kong. It's a company that produces marble, and
Speaker 1: I think they were trying to expand in the real
Speaker 1: estate and whatever. None of that's important. What's important is
Speaker 1: this stock was up thirty eight hundred percent years a date,
Speaker 1: thirty percent. The stock was up a penny stock mainly
Speaker 1: because M s c I said that they would start
Speaker 1: including it in their indexes. Uh So, obviously people trying
Speaker 1: to front run that that passive money that will will
Speaker 1: chase it. Later that m s C. I said, you
Speaker 1: know what, never mind, we're not going included in our indexes.
Speaker 1: We've gotten some complaints from you know, investors, uh uh quote.
Speaker 1: Their quote is further analysis and feedback from market participants
Speaker 1: on investability. In one the stock dropped percent wiped out
Speaker 1: five points seven billion dollars of market value with the
Speaker 1: one day percent drop. And that's the craziest thing I
Speaker 1: saw on markets. I think all four pretty crazy this week.
Speaker 1: That's off, Yeah, that's off. And before we go, John
Speaker 1: from Dallas Fort Worth, Texas, I do want to let
Speaker 1: you know that Mike and I did hear your idea
Speaker 1: to explore indexed bond e t s even further and
Speaker 1: talk about the potential liquidity. So we'll absolutely talk about it.
Speaker 1: And anyone else who is interested in giving us a call,
Speaker 1: leaving us a tip, or giving us an idea for
Speaker 1: the craziest things you ever heard or saw in markets
Speaker 1: this week, give us a call. That number is six
Speaker 1: four six three to four three four nine zero. But
Speaker 1: with that, Luke Tilly, Katie Griffelt, thanks so much for
Speaker 1: coming on the show. This week. Thank you very much
Speaker 1: for having me. Thank you What Goes Out? Will you
Speaker 1: back next week. Until then, you can find us on
Speaker 1: the Bloomberg Terminal, website and app, or wherever you get
Speaker 1: your podcasts. We'd love it if you took the time
Speaker 1: to rate interview the show on Apple Podcasts so more
Speaker 1: listeners can find us. And you can find us on Twitter.
Speaker 1: Follow me at at Sarah Pontech, Mike is at reg Anonymous,
Speaker 1: and Katie Greifeld is at k Breifeld. You can also
Speaker 1: follow Bloomberg Podcasts at podcasts. What Goes Up is produced
Speaker 1: by Tofur Foreheads. The head of Bloomberg podcast is Francesca Levie.
Speaker 1: Thanks for listening, See you next time.