WEBVTT - Surveillance: Goldman's Currie Says Get Long Commodities 0:00:09.880 --> 0:00:13.880 Welcome to the Bloomberg Surveillance podcast. Name Tom Keene, Jay Leye. 0:00:13.960 --> 0:00:17.560 We bring you insight from the best in economics, finance, investment, 0:00:18.000 --> 0:00:23.520 and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, 0:00:23.600 --> 0:00:27.240 Bloomberg dot Com, and of course on the Bloomberg Got 0:00:27.240 --> 0:00:28.840 to talk about m and a Monday. We aren't going 0:00:28.880 --> 0:00:30.600 to call it that because there are so many deals 0:00:30.640 --> 0:00:32.120 to get our teeth into. Can I just have a 0:00:32.120 --> 0:00:35.239 comment on al vm H and Tiffany Some of this 0:00:35.320 --> 0:00:37.879 is going to be funded by debt and it will 0:00:37.960 --> 0:00:42.120 yield zero to one percent. And the current credit rating 0:00:42.159 --> 0:00:45.800 of LVMH right now in Europe is single A, and 0:00:45.840 --> 0:00:48.639 I think that Tiffany's and the likes of LVMH, you're 0:00:48.680 --> 0:00:51.239 thinking about, what's something something the US companies have thought 0:00:51.240 --> 0:00:53.680 about for the last few years. What is the value 0:00:53.720 --> 0:00:56.760 of running a single A balance sheet when yields are 0:00:56.800 --> 0:00:59.400 still so low? If you run a triple B balance sheet, 0:00:59.440 --> 0:01:02.000 you still an investment grade. The e c B will 0:01:02.000 --> 0:01:03.880 still buy your debt and you can go and buy 0:01:03.960 --> 0:01:06.280 some growth with a yield on your debt of what 0:01:06.480 --> 0:01:09.160 fifty basis points for investment grade debt in Europe? Right now, 0:01:09.200 --> 0:01:12.920 you're basically yeah, I mean you're basically being I'm sorry. 0:01:13.080 --> 0:01:15.000 You know we end with money for nothing, you know, 0:01:15.560 --> 0:01:18.039 dire straits. That's what it is. Yeah, I mean, it's 0:01:18.080 --> 0:01:20.440 just that simple. It'll be interesting I should point out 0:01:20.480 --> 0:01:22.960 and correct me if I'm wrong. It's three of the 0:01:23.080 --> 0:01:27.040 four corners of fifty seven Street and Fifth Avenue. You 0:01:27.040 --> 0:01:29.399 would not better than Chris MORANGI shopped at all four 0:01:29.520 --> 0:01:33.200 stores on the corners. He's with us now, CHRISNS coach 0:01:33.280 --> 0:01:35.480 if investment officer. We're not going to talk about your 0:01:35.520 --> 0:01:38.760 shop and have its Chris, don't worry starts. What are 0:01:38.760 --> 0:01:41.440 you making a deal fly that we've seen this morning? Chris? Yeah, 0:01:41.480 --> 0:01:43.440 well both You know the thing about these two deals 0:01:43.480 --> 0:01:44.960 where the cat was out of the bag a couple 0:01:44.959 --> 0:01:46.400 of weeks ago on on both of them. So this 0:01:46.560 --> 0:01:50.600 is just a confirmation of what we had speculated upon earlier. Um. Yeah, 0:01:50.960 --> 0:01:53.280 it has been a little bit slow late this year 0:01:53.600 --> 0:01:56.880 as there's been some uncertainty obviously globally policy in the US, 0:01:56.920 --> 0:01:59.680 what's happening with China. Um. But you know, I think 0:02:00.000 --> 0:02:01.240 I've said for a while, if you want to get 0:02:01.280 --> 0:02:03.560 a deal done, now's the time. To do it and 0:02:03.680 --> 0:02:06.120 probably have a regulatory window, and and certainly money is 0:02:06.640 --> 0:02:10.519 almost free. Why a regulatory window now to the excess 0:02:10.520 --> 0:02:13.760 that you've got to get approved by US regulatory agencies. 0:02:13.840 --> 0:02:16.440 Perhaps there's a bit of a fog of war as 0:02:16.480 --> 0:02:18.120 we head into the election. You get something done, now, 0:02:18.160 --> 0:02:19.639 you don't know what you're going to be left with 0:02:20.360 --> 0:02:22.799 a year from now, what what kind of administration and 0:02:22.919 --> 0:02:25.400 its position towards mergers. A lot of macro risk over 0:02:25.400 --> 0:02:27.200 the last year or so, A lot of hope that 0:02:27.280 --> 0:02:31.160 that's diminishing now starting to fade. Do you share that hope? Chris? Yeah? 0:02:31.160 --> 0:02:32.960 I think you know, the market tends to look at 0:02:33.000 --> 0:02:35.040 things through two lines. Is one is what's happening with 0:02:35.080 --> 0:02:37.160 the election, and the other is what's happening with China. 0:02:37.560 --> 0:02:39.480 And as you stated earlier, I think you know a 0:02:39.520 --> 0:02:41.399 little bit of good news perhaps on the China front. 0:02:41.560 --> 0:02:44.720 I do think the market is pricing in a high 0:02:44.840 --> 0:02:47.079 and increasing probability that we get a Phase one deal. 0:02:47.560 --> 0:02:50.560 I think it's it's really changed from let's reset the 0:02:50.720 --> 0:02:53.560 relationship with China to let's just stop things from getting worse. 0:02:54.160 --> 0:02:56.520 You know, let's talk about what happened with China. They 0:02:56.520 --> 0:02:57.840 said that they were going to be cracking down an 0:02:57.840 --> 0:03:01.720 intellectual property theft a little bit more. I'm trying to 0:03:01.800 --> 0:03:04.519 understand how real this is because this is supposed to 0:03:04.520 --> 0:03:05.960 be the hard part of the deal. They're coming out 0:03:06.000 --> 0:03:09.200 with something there, there's no sign of enforcement there, and 0:03:09.280 --> 0:03:11.560 we're hearing that soybean purchases dropped to the lowest in 0:03:11.720 --> 0:03:15.679 years by China of of US produce. So what do 0:03:15.760 --> 0:03:18.639 you make of the the actual advancement that we've gotten here. Yeah, 0:03:18.680 --> 0:03:20.920 I think I think you're right to be skeptical. I'm 0:03:20.960 --> 0:03:23.799 certainly skeptical of how this actually plays out. But again 0:03:24.200 --> 0:03:26.079 to the point, let's just stop this from getting worse. 0:03:26.160 --> 0:03:28.799 Let's stabilize the situation that we have and and move 0:03:28.880 --> 0:03:32.000 on from from these headlines. Where's the opportunity right now? 0:03:32.040 --> 0:03:33.280 I don't mean to be said. You know, you guys 0:03:33.320 --> 0:03:36.240 are running a steam value portfolio. We all know the 0:03:36.280 --> 0:03:40.720 gabelly media mechanics. Mario started out in auto parts and 0:03:40.840 --> 0:03:43.960 that kind of securities analysis. When you guys talk where's 0:03:44.000 --> 0:03:46.640 the sector right now, where you go, Wow, this is 0:03:46.760 --> 0:03:50.920 the opportunity? Yeah? So, um, you know one thing we've 0:03:50.960 --> 0:03:55.160 been talking about recently is the uh disrupted disruptors, that is, 0:03:55.280 --> 0:03:58.440 companies that have been Pharaoh but continue that the companies 0:03:58.480 --> 0:04:02.600 that have been disrupted over the last decade by these 0:04:02.800 --> 0:04:06.000 late stage venture companies now often public who you know, 0:04:06.040 --> 0:04:08.680 work with free money and give stuff away um and 0:04:08.920 --> 0:04:11.040 and that's spurred a lot of traditional companies to innovate. 0:04:11.160 --> 0:04:13.920 I think a great example that is Disney Plus for example, 0:04:14.000 --> 0:04:15.960 which I spent a lot of time with this weekend. 0:04:16.360 --> 0:04:19.640 Um and so you know that, and you see this 0:04:19.680 --> 0:04:22.320 throughout media um and you see it in a lot 0:04:22.360 --> 0:04:24.640 of other industries and consumer products in others. So I 0:04:24.720 --> 0:04:26.560 think that's an opportunity and some of these beaten down 0:04:26.640 --> 0:04:29.560 companies uh to make some money, especially is the market 0:04:29.600 --> 0:04:33.360 seems to be pivoting towards value from momentum. Did you 0:04:33.440 --> 0:04:36.760 see the statistic over the weekend that Apple and Microsoft 0:04:36.839 --> 0:04:39.280 together are now twice as large as the entire SMP 0:04:39.400 --> 0:04:42.400 five hundred energy sector, and are larger than the entire 0:04:42.560 --> 0:04:45.080 Russell two thousand index. Yeah, I didn't see that specifically, 0:04:45.160 --> 0:04:47.400 but there are a lot of comparisons like that. Okay, 0:04:48.279 --> 0:04:50.440 I'm struggling to wrap my head around this. How much 0:04:50.480 --> 0:04:53.320 further can they go? And they've been kind of the 0:04:53.360 --> 0:04:55.800 big driver of the whole rally that we've seen over 0:04:55.839 --> 0:05:00.839 the past. Microsoft in particular has been We've about the fang, 0:05:00.920 --> 0:05:03.080 but really Microsoft has been the juggernaut over the last 0:05:03.200 --> 0:05:07.400 ten years. And um, you know, all very well managed 0:05:07.440 --> 0:05:10.640 companies with lots of capital. Um. I think one of 0:05:10.680 --> 0:05:14.280 the questions certainly is what happens in the regulatory framework. Um, 0:05:14.480 --> 0:05:17.839 you've got both bipartisan pushback against all those companies. Let's 0:05:17.839 --> 0:05:19.920 talk about this rotation to value. JP Morgan out in 0:05:19.960 --> 0:05:23.080 the last couple of days and said it's twenty complete. 0:05:23.360 --> 0:05:25.600 The market still in the first phase of the rotation, 0:05:25.800 --> 0:05:31.159 largely technical shortcoming, etcetera. Complete. What do you make of that? Yeah, listen, 0:05:31.480 --> 0:05:34.120 So you've got a few things. Uh. I've got the 0:05:34.160 --> 0:05:37.839 market anticipating bottoming and GDP sometime next year. You've got 0:05:37.920 --> 0:05:41.680 the steepening of the curve, and frankly, the gap invaluation 0:05:41.839 --> 0:05:46.119 between the most expensive and the cheapest companies as wide 0:05:46.160 --> 0:05:48.720 as it's been in twenty years. So you know that 0:05:48.800 --> 0:05:51.200 we've seen a little bit of mean reversion. I think 0:05:51.240 --> 0:05:54.320 that's going to continue. Chris Marange, great cant shop. But 0:05:54.360 --> 0:06:10.880 you give at the funds Chief Investment Officer Lisa Bram, 0:06:11.640 --> 0:06:16.480 John Farrell here as well, and with this Jeffrey Curry, Uh, 0:06:16.720 --> 0:06:19.640 Jeffrey Curry joining us from Golden Sax season our London 0:06:19.720 --> 0:06:24.160 offices this morning. Jeffrey Curry on oil, and it's real simple. 0:06:24.640 --> 0:06:28.240 There needs to be an observation on demand dynamics. What 0:06:28.440 --> 0:06:31.880 do you see right now? Well, when you look at 0:06:32.400 --> 0:06:35.800 overall demand for oil and energy broadly, it's what we 0:06:35.800 --> 0:06:38.200 would say, but nine it's not great, not bad, And 0:06:38.279 --> 0:06:40.280 I think you have to dig into looking at the 0:06:40.320 --> 0:06:44.360 different components. There is a old economy CAPEX component and 0:06:44.400 --> 0:06:47.600 then there's a new economy op X component. Ap X 0:06:47.680 --> 0:06:51.039 means operating the economy, so things like jet fuel, gasoline, 0:06:51.360 --> 0:06:55.400 they're APEX oriented. Well, the capex side would be heavy industry, 0:06:55.520 --> 0:06:57.960 which would be like diesel fuel. So we look at 0:06:58.000 --> 0:07:01.360 the heavy industry side, the cap excite it's relatively weak, 0:07:01.720 --> 0:07:04.920 but the new economy or op X side, it's relatively strong. 0:07:05.120 --> 0:07:08.840 On that, it's a relatively benign outlook for jeff Let's 0:07:08.839 --> 0:07:11.760 talk about the old economy. This is something you've written recently. 0:07:11.880 --> 0:07:15.080 When we argued lower for longer commodity prices five years ago, 0:07:15.480 --> 0:07:19.400 it was based upon the need to rationalize old economy capacity. 0:07:20.120 --> 0:07:25.560 What happened, Well, the Chinese stimulated in sixteen and seventeen, 0:07:25.760 --> 0:07:30.320 US did physical policy in seventeen and eighteen, and OPEC 0:07:30.400 --> 0:07:33.400 cut production over that time period. What did that do? Um? 0:07:33.520 --> 0:07:37.320 It just prolonged the rebalancing process. UM. We also added 0:07:37.360 --> 0:07:40.960 to capacity outside of China, we added to the debt levels. 0:07:41.000 --> 0:07:43.480 And as we got the emissions data two weeks ago, 0:07:43.760 --> 0:07:45.960 we're at the highest level of missions ever when many 0:07:46.040 --> 0:07:48.560 people thought the peak with two thousand fourteen. So the 0:07:48.640 --> 0:07:50.640 net of it is we're in a worst place today 0:07:50.680 --> 0:07:53.160 than we were five years ago. But the positive point 0:07:53.240 --> 0:07:56.560 here is that we're beginning to see capex decline and 0:07:56.640 --> 0:07:59.400 the rebalancing beginning, which is why we're arguing to get 0:07:59.480 --> 0:08:01.680 long com the use Today we'll just just thinking about 0:08:01.680 --> 0:08:03.760 the old economy though, just to take this another step further, 0:08:04.080 --> 0:08:09.480 how does some of these issues manifest themselves elsewhere? You 0:08:09.560 --> 0:08:12.280 mean in terms of in terms of the corporate losses 0:08:12.360 --> 0:08:13.920 that we might see, what it might mean for the 0:08:14.040 --> 0:08:16.520 debt market, what it means for missions, all these kind 0:08:16.560 --> 0:08:17.960 of things. We can sit here and say the old 0:08:18.000 --> 0:08:21.120 economy is a small percentage of overall GDP. But does 0:08:21.160 --> 0:08:24.920 it have bigger implications elsewhere? Well, I think when you 0:08:25.040 --> 0:08:30.080 look at the returns in the old economy space, they've 0:08:30.120 --> 0:08:33.720 been um so weak that you've seen more capital redirected 0:08:33.760 --> 0:08:35.520 at new economy. If you just look at a picture 0:08:35.600 --> 0:08:39.160 of new economy stocks versus old economy stocks, the wedge 0:08:39.200 --> 0:08:41.439 between the two is spectacular. In fact, I like to 0:08:41.480 --> 0:08:43.959 call it a last decade of the old economy because 0:08:44.000 --> 0:08:46.120 all the capitals being fed into the new economy. Now, 0:08:46.160 --> 0:08:49.160 to answer your question specifically, the question is can you 0:08:49.240 --> 0:08:52.000 see systemic risk developed out of the old economy once? 0:08:52.080 --> 0:08:55.920 That I like to point out is of the non 0:08:56.040 --> 0:08:59.120 financial debt globally is held by the old economy. Why 0:08:59.559 --> 0:09:02.400 because have the physical assets he could use as collateral 0:09:02.720 --> 0:09:04.959 to get the leverage to get the debt. So the 0:09:05.040 --> 0:09:07.360 question is could this end up being a systemic risk? 0:09:07.400 --> 0:09:09.959 Our basic answer to that is no, because the d 0:09:10.080 --> 0:09:14.000 leveraging process has already begun. When you speak with David Cousten, 0:09:14.320 --> 0:09:17.240 is there just a golden sex view of an industry 0:09:17.440 --> 0:09:22.080 roll up not only an oil but in commodities in general. Well, 0:09:22.200 --> 0:09:24.240 in terms of you know, he has a picture that's 0:09:24.240 --> 0:09:26.240 similar to the one I just described, which is when 0:09:26.280 --> 0:09:29.120 you look at the new economy, it's doing relatively well 0:09:29.200 --> 0:09:31.600 in that wedge. As I think an outperformance is something 0:09:31.679 --> 0:09:35.679 like UM. I. I think the key point is that 0:09:35.840 --> 0:09:38.520 even when you look at the UM, you know the 0:09:38.840 --> 0:09:43.679 price you know, you know EPs um um number or 0:09:43.840 --> 0:09:46.319 price to book, a price to earnings, UM, you know 0:09:46.400 --> 0:09:48.600 you're at the high level, but you're not at crazy levels. 0:09:48.800 --> 0:09:52.199 And so that component will likely continue to grow next year, 0:09:52.600 --> 0:09:55.600 even though the old economy will likely continue to struggle. 0:09:55.679 --> 0:09:58.520 So David incorporates that. It's part of the view, but 0:09:58.600 --> 0:10:00.520 I think again goes back to that point that the 0:10:00.600 --> 0:10:03.880 new economies two thirds, the old economies one third. Jeff, 0:10:03.920 --> 0:10:06.440 just real quick here, let's get some calls. We're looking 0:10:06.520 --> 0:10:09.480 right now at oil traded on the nimax fifty and 0:10:09.559 --> 0:10:12.480 seventy cents. Where do you see it going next year? UM? 0:10:12.640 --> 0:10:15.400 You know our base cases UM sixty dollars a barrel 0:10:15.480 --> 0:10:17.480 for Brent next year. But I don't want to discount 0:10:17.480 --> 0:10:20.080 the ability for this thing to trade up into seventy 0:10:20.120 --> 0:10:23.520 dollars a barrel. UM. It just won't be sustainable UM. 0:10:23.559 --> 0:10:25.360 And I think we saw that a couple of weeks 0:10:25.400 --> 0:10:28.439 ago when you had the risk on environment um equities, 0:10:28.559 --> 0:10:31.040 rallied commodities did not follow through. And one of the 0:10:31.080 --> 0:10:34.360 reasons why is these producers that are under financial distress 0:10:34.720 --> 0:10:38.439 sold forward on the forward curve, keeping prices under wraps. 0:10:38.480 --> 0:10:40.480 So the front end we'll try to spike up, but 0:10:40.600 --> 0:10:43.520 the back end will likely be sold as producers try 0:10:43.559 --> 0:10:45.280 to lock in those margins and that will keep it 0:10:45.320 --> 0:10:47.520 from going too high. Jeff Curry, thank you so much. 0:10:47.600 --> 0:10:50.280 Jesus Goldman sacks of course ahead of their commodity coverage, 0:10:50.280 --> 0:10:51.640 and we think and we didn't have time there for 0:10:51.760 --> 0:10:55.559 gold where he was most enthusiastic on a number of 0:10:56.080 --> 0:11:12.199 months ago as well. Do you need a briefing? Do 0:11:12.200 --> 0:11:13.880 you get your start out on Monday? You do that 0:11:13.960 --> 0:11:16.079 across our set. You look at the litmus paper of 0:11:16.120 --> 0:11:19.000 the system, which is effect which John Ferrol can only 0:11:19.080 --> 0:11:23.520 mean Mr You from London that Jeff you joined US 0:11:23.559 --> 0:11:27.280 now UBS private banking chief Investment obviouser Jeff is great 0:11:27.280 --> 0:11:29.120 to catch up with you. Let's walk through some things, 0:11:29.160 --> 0:11:32.760 shall we. You were underweight global equities. Something changed in 0:11:32.800 --> 0:11:36.520 the last couple of weeks. What changed? Well, less negative? 0:11:36.600 --> 0:11:38.839 I think you know that's probably the best way to 0:11:38.920 --> 0:11:42.440 put it, you know, data showing some signs of stabilization acknowledging. 0:11:42.520 --> 0:11:44.680 You know, this Phase one deal you know should have happened. 0:11:44.679 --> 0:11:46.640 You know, it might just give markets a bit of 0:11:46.679 --> 0:11:49.120 a tail wind um as well. So I'm starting to 0:11:49.160 --> 0:11:51.679 take off some underweight to notably an emerging markets. But 0:11:52.040 --> 0:11:54.880 let's be clear, does this mean we're positive? No, it doesn't. 0:11:54.920 --> 0:11:57.440 You know, there is still daylight between being not negative 0:11:57.559 --> 0:11:59.719 versus positive, and I think Marcus needs to tell the 0:11:59.760 --> 0:12:01.959 different all right, So let's talk about what's going on 0:12:02.120 --> 0:12:05.000 with trade, because I p the idea that China might 0:12:05.040 --> 0:12:08.959 crack down on intellectual property theft has given a little 0:12:08.960 --> 0:12:12.440 bit of lift to markets. Is this a meaningful development 0:12:12.520 --> 0:12:17.199 from your perspective? Right, So let's unwind um back to 0:12:17.720 --> 0:12:19.640 reminding back to you know, may you know when the 0:12:19.720 --> 0:12:21.599 last deal supposed to be collapsed. You know, this is 0:12:21.640 --> 0:12:24.720 one of the crucial points, right, So it's not about 0:12:24.800 --> 0:12:26.920 what is being done, it's how it's being done. China 0:12:27.040 --> 0:12:30.640 objected to um seemingly being forced by the US actually 0:12:30.679 --> 0:12:33.520 make changes in its law rather than you know, administrative 0:12:33.800 --> 0:12:36.920 methods and which they wanted to push forward. So you 0:12:37.000 --> 0:12:39.120 want to see you know, what the implementation is I 0:12:39.200 --> 0:12:41.079 think on the headlines and don't give enough meat to 0:12:41.559 --> 0:12:44.079 that yet. So I think the two are trying to 0:12:44.160 --> 0:12:45.840 meet half work at this point. I think what China 0:12:45.920 --> 0:12:48.640 needs to sell to the domestic population is that protecting 0:12:48.679 --> 0:12:51.720 I p this helps China's innovation, it helps you know, Chinese, 0:12:51.760 --> 0:12:54.199 and then to the health holders of Chinese Chinese holders 0:12:54.240 --> 0:12:56.040 of patterns as well. I think, you know, that can 0:12:56.080 --> 0:12:58.120 be good for China's development and also you know, make 0:12:58.120 --> 0:13:00.640 a deal more palpable, but again proofers in the All right, 0:13:00.679 --> 0:13:02.559 so let's turn our focus now to Europe, because we 0:13:02.640 --> 0:13:04.880 did say a little bit better than expected data out 0:13:04.920 --> 0:13:07.760 of Germany that seems to be edifying this idea of 0:13:07.840 --> 0:13:11.079 a bottoming out in the decline that we sell the 0:13:11.120 --> 0:13:14.200 sitieration in the European economy. What do you make so far? 0:13:14.320 --> 0:13:16.480 Do you think that this is a tipping point and 0:13:16.520 --> 0:13:18.480 that we're going to see a steady improvement in the 0:13:18.559 --> 0:13:21.360 figures coming out of the Eurozone. So there are two 0:13:21.440 --> 0:13:25.719 things here. One is the relative and one is the absolute. Right. 0:13:25.840 --> 0:13:31.560 So if data is um starting to stabilize on an 0:13:31.559 --> 0:13:34.319 absolute basis, you know, then that's I'm you know, fair 0:13:34.520 --> 0:13:39.080 enough but where is data performing, you know, relative to expectations. 0:13:39.160 --> 0:13:40.880 And again you know this is more of a relative thing. 0:13:41.160 --> 0:13:44.120 So if we look at USS and surprise indusies for example, 0:13:44.200 --> 0:13:47.400 yes data has stabilized, but also that's because you expectations 0:13:47.440 --> 0:13:50.040 have been so weak it actually becomes easier to surprise 0:13:50.080 --> 0:13:52.560 to the upside or harder to surprise but downside. Right, 0:13:53.040 --> 0:13:55.839 So I think you're putting these things together. We maybe 0:13:55.920 --> 0:13:58.400 we've bottomed out on an absolute and relative basis, but 0:13:58.480 --> 0:14:01.439 again we need a demand capitals to actually go up. Jeff, 0:14:01.520 --> 0:14:05.080 You've always been flow based. The flow is cash up 0:14:05.120 --> 0:14:08.400 to our eyeballs. Define where the cash finds a warm 0:14:08.520 --> 0:14:12.959 spot or does it not have to? So I think 0:14:13.000 --> 0:14:16.200 cash will still have to go into yield territory at 0:14:16.240 --> 0:14:18.560 this point in some areas we'd like, for for example, 0:14:18.600 --> 0:14:22.320 emerging market, hard currency, sovereign debt. But also you know, 0:14:22.400 --> 0:14:26.040 private equity alternatives think longer term. So you pick up 0:14:26.120 --> 0:14:29.160 the illiquidity premier. You know that is a good substitute 0:14:29.240 --> 0:14:30.880 right now, but also a lot of how to there 0:14:30.920 --> 0:14:33.120 as well. That's great. I'm so glad you mentioned that 0:14:33.200 --> 0:14:35.200 that was gonna be the name of John's property. The 0:14:35.280 --> 0:14:37.640 real yield. It was going to be called yield territory, 0:14:37.760 --> 0:14:41.120 but the territory territory, Jeff, Can we get to the 0:14:41.200 --> 0:14:43.160 other part of the market that we haven't really discussed 0:14:43.200 --> 0:14:46.680 as far, what the basic assumptions are for foreign exchange 0:14:46.800 --> 0:14:49.120 at the moment many people thinking about buying the rest 0:14:49.200 --> 0:14:51.400 of the world. We've certainly had some performance from Europe 0:14:51.440 --> 0:14:53.920 through the year so far. What is the assumption that 0:14:54.000 --> 0:14:56.160 you have the core assumption on foreign exchange and the 0:14:56.280 --> 0:14:59.560 US dollar? We're not there yet, as in the dollars 0:14:59.600 --> 0:15:01.880 probably topped out, but doesn't mean the start of a 0:15:01.960 --> 0:15:04.960 dollar bear trend, not yet. So we there are selective 0:15:05.000 --> 0:15:07.880 em names we want to pick up some carry from, 0:15:08.320 --> 0:15:10.280 but again we don't want to really fund that out 0:15:10.280 --> 0:15:11.600 of the dollar right now. But the dollar is not 0:15:11.680 --> 0:15:14.280 a real a low yielder anymore, right, It's not really 0:15:14.320 --> 0:15:17.080 a funding currency. So you fund that out of Bossy, 0:15:17.160 --> 0:15:19.680 you know, for example, where there's some recyclical trend are 0:15:19.720 --> 0:15:22.080 the same you want to own some Swiss and perhaps 0:15:22.360 --> 0:15:24.880 if you're still uncertain about the outlook, um, so I 0:15:24.960 --> 0:15:27.120 think the dollar is going to be choppy. I wouldn't 0:15:27.120 --> 0:15:29.560 add to dollar position right now, but again not really 0:15:29.600 --> 0:15:31.320 a bad trend and something. Did you say you want 0:15:31.360 --> 0:15:34.000 to on some Swiss. You want to go long Swiss Frank, 0:15:35.120 --> 0:15:37.560 you want as a defensive and play. We want to 0:15:37.680 --> 0:15:39.600 own the barbell, you know, so to speak. I'm going 0:15:39.640 --> 0:15:41.960 to tear up or That's where I met John Ferrell 0:15:44.000 --> 0:15:47.240 and I wanted to ask about Zurich a long long 0:15:47.360 --> 0:15:50.400 time ago. He's pulling out his nappy and Davig at 0:15:50.480 --> 0:15:53.360 his eyes. It's very moving, which I would love your perspective. 0:15:53.400 --> 0:15:57.800 You know. In nineteen the sort of overarching theme was 0:15:57.840 --> 0:16:00.960 a disinflationary kind of band you it yields all around 0:16:01.000 --> 0:16:03.880 the world plunge. We seem to be shifting out of that, 0:16:04.040 --> 0:16:08.080 heading into what is the driving narrative that's giving you 0:16:08.160 --> 0:16:11.880 some focus? Well, so real yields, you know where they go? 0:16:12.360 --> 0:16:15.720 Um So again the disinflation, if we are going to 0:16:15.800 --> 0:16:18.640 start to price that out, then doesn't mean we're going 0:16:18.680 --> 0:16:21.080 to start a price in inflation. I don't think central 0:16:21.120 --> 0:16:23.080 banks are ready to go for that yet. Remember, if 0:16:23.120 --> 0:16:25.800 monetary policy works, then yield cubs are supposed to steep 0:16:25.840 --> 0:16:28.560 and inflation expectations are expected to go up. If we 0:16:28.600 --> 0:16:30.200 look at a five year five year forwards right now, 0:16:30.280 --> 0:16:32.760 that's not coming through. But if we can keep real 0:16:32.880 --> 0:16:36.240 yield expectations relatively loads a good environment for real assets, 0:16:36.280 --> 0:16:39.840 for commodities, them for precious metals in the even then 0:16:39.960 --> 0:16:41.800 that could help explain some of the flow going into 0:16:41.840 --> 0:16:44.240 private equity to capture some of those real assets as well. 0:16:44.480 --> 0:16:47.320 So where do real yields go? And it's less about 0:16:47.440 --> 0:16:50.880 nominal yields now, it's more about inflation expectations. Can central 0:16:50.920 --> 0:16:56.080 bank succeed and reflating that? The jury still out there. Well, 0:16:56.200 --> 0:16:57.480 so you know, right now you look at long term 0:16:57.520 --> 0:17:00.480 demographics might still think you know, though the do sort 0:17:00.560 --> 0:17:03.200 of have their backs against the wall right now. Japanification, 0:17:03.480 --> 0:17:05.719 it's no longer a question of if. And for example, 0:17:05.760 --> 0:17:08.159 the Europe and more and more people are you know, 0:17:08.320 --> 0:17:10.480 saying well Europe is actually already in the throngs of that. 0:17:10.800 --> 0:17:12.720 So you know, how can I actually make the best 0:17:12.760 --> 0:17:15.919 out of a bad situation? Um So net net fiscal 0:17:16.080 --> 0:17:17.760 is that going to come as well? Because now that 0:17:17.800 --> 0:17:19.879 seems to be the last card to play kerve flatter 0:17:20.119 --> 0:17:22.680 over the last eight days coming into today's session, Jeff, 0:17:22.720 --> 0:17:25.880 what do you make of that? So? Um, I don't 0:17:25.960 --> 0:17:29.480 buy the view that it's recession, you know, coming through UM, 0:17:29.640 --> 0:17:31.920 I think some of it's in a profit profit taking 0:17:32.000 --> 0:17:35.800 on more of the more reflationary trade that have come out. 0:17:36.000 --> 0:17:39.080 Data stabilization, but again not data pickup. You need a 0:17:39.119 --> 0:17:41.199 data pick up demand to get a proper steper curve. 0:17:41.400 --> 0:17:44.160 Jeff you you you mentioned five year, five years haven't 0:17:44.200 --> 0:17:47.439 moved indicating higher inflation. Actually, looked at those charts Friday, 0:17:47.520 --> 0:17:50.879 It's amazing how we have stayed in a disinflation tone. 0:17:51.320 --> 0:17:54.840 If we move out the X axis of low inflation, 0:17:55.400 --> 0:17:57.479 how far out is Jeff you moving? Is it two 0:17:57.560 --> 0:18:00.080 thousand twenty one or can you get out two in 0:18:00.240 --> 0:18:05.280 three and four years of sustained low inflation? Well, look 0:18:05.359 --> 0:18:08.800 at where you're Japan's and inflation expectations you know have 0:18:08.920 --> 0:18:11.680 been right. So alone the numbers, the tank can surveys. 0:18:11.680 --> 0:18:14.520 You know, you barely see a five year inflation expectation 0:18:14.560 --> 0:18:16.920 survey result above two on the part of corporates, which 0:18:16.960 --> 0:18:19.440 means no pricing power. So that really I think that 0:18:19.600 --> 0:18:21.480 the onus is on the U S in particular and 0:18:21.560 --> 0:18:25.000 emerging market to avoid going into that kind of a spiral. 0:18:25.640 --> 0:18:28.760 So I think five years the absolute the absolute max 0:18:28.840 --> 0:18:30.920 if you want to use the tank and the Japanese 0:18:30.960 --> 0:18:32.720 as a reference. But again we go back to the 0:18:32.800 --> 0:18:35.400 demand kick is it going to come from fiscal If 0:18:35.440 --> 0:18:37.160 it is, you know, then these things can actually miss 0:18:37.160 --> 0:18:41.520 seeping quite aggressively. So remember it's always you know, the 0:18:42.119 --> 0:18:44.880 least position trades, reflation trades, they come to you when 0:18:44.880 --> 0:18:46.760 you least expected. Right if we look at you know, 0:18:46.880 --> 0:18:49.960 June two thousand sixteen, right from one two seventy in 0:18:50.000 --> 0:18:53.640 the space of two months. So, Jeff, this down's vaguely 0:18:54.000 --> 0:18:57.520 not terrible, but not particularly raging bull here. Yet we're 0:18:57.560 --> 0:19:00.600 hearing that there's so much cash hanging out there to 0:19:00.640 --> 0:19:02.840 go invest in stocks and such that it's going to 0:19:02.960 --> 0:19:04.840 lead to a good year for risk assets. Do you 0:19:04.920 --> 0:19:07.960 buy that? Um? So I have a lot of sympathy 0:19:08.040 --> 0:19:10.000 with that. You know, if we look at cash ratios 0:19:10.080 --> 0:19:13.639 and part of my private clients, on parts of institutional 0:19:13.680 --> 0:19:16.880 clients that drive pat in private equity. UM, it seems 0:19:16.960 --> 0:19:20.200 like there is no alternative right but to be in equities. 0:19:20.600 --> 0:19:22.439 But I think central banks will be thinking what are 0:19:22.480 --> 0:19:24.840 the long term especially political costs some right, if it 0:19:24.920 --> 0:19:27.359 does mean those with assets and those without assets, that 0:19:27.520 --> 0:19:30.160 just widens some gaps and it causes difficulty to them. 0:19:30.359 --> 0:19:32.760 So I think that will be an ongoing force, but 0:19:32.880 --> 0:19:35.560 maybe something they'll generly try to deter. Jeff, you thank 0:19:35.560 --> 0:19:37.960 you so much. With you. I'm sure we're going to 0:19:38.040 --> 0:19:40.640 talk to him before, I hope. So I think I'm 0:19:40.760 --> 0:19:44.360 going to see him in London, So looking forward to that. Yeah, yeah, 0:19:44.400 --> 0:19:46.240 that'll be good. I mean, we could see him in 0:19:46.280 --> 0:19:48.560 London and it's like going out, but there's an optimistic 0:19:48.640 --> 0:20:03.760 tone there. Right now, we have to digress. John Farrell 0:20:03.800 --> 0:20:06.960 and I are just not qualified to speak of the 0:20:07.040 --> 0:20:09.600 Blue Box at fifty seven Streets, so we defer to 0:20:09.720 --> 0:20:14.480 Lisa Bramo Woods to bring in our guests from more 0:20:14.520 --> 0:20:16.920 about Are you kidding? You know more about the Blue 0:20:16.960 --> 0:20:20.240 Box anyone on this floor in this building. Your expression 0:20:20.359 --> 0:20:23.879 just shows just reeks of genuine, genuine centiment. You know 0:20:24.000 --> 0:20:26.960 more about what floor is what? Anyway, I got more 0:20:27.040 --> 0:20:33.679 experienced bond engagement rings than all of us. All right, 0:20:33.960 --> 0:20:37.040