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Speaker 1: Yeah, Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene

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Speaker 1: Jai Ley. We bring you insight from the best in economics, finance, investment,

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Speaker 1: and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud,

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Speaker 1: Bloomberg dot Com, and of course, on the Bloomberg with

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Speaker 1: your top story as you wake up here in New

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Speaker 1: York City and beyond. Talks about talks China, we'll dispatch

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Speaker 1: Vice Commerce Minister to the United States for low level

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Speaker 1: trade talks in late August, the first official exchanges since

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Speaker 1: earlier negotiations broke down I think about two months ago.

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Speaker 1: Joining me to discuss is Dom Constant, Deutsche Bank Securities

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Speaker 1: Managing Director and global head of rates Research. Good morning, Tom,

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Speaker 1: Good morning, low level talks, talks about talks apparently. How

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Speaker 1: excited should we be this morning? Well? Probably, I mean,

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Speaker 1: probably not that excited. I think there's been a lot

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Speaker 1: of toing and throwing in terms of all these sort

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Speaker 1: of talks, uh and the whole kind of trade tension story.

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Speaker 1: But I think fundamentally the question people should be asking

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Speaker 1: themselves is is this about getting concessions in the current

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Speaker 1: trading regime to make trade freer and fairer type thing,

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Speaker 1: and there's an issue of China the similar issues with

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Speaker 1: Mexico or Canada, etcetera. Or is there something more fundamental

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Speaker 1: here about changing the regime, changing the way in which

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Speaker 1: we think about China as an economic competitor. Perhaps they've

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Speaker 1: become too powerful relative to not just the US, but

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Speaker 1: other large economies such as Europe, and perhaps that that

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Speaker 1: wants that that needs to be changed from the perspective

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Speaker 1: of either this administration or other countries. And I think

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Speaker 1: that's a real issue. Well right now, dom the U

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Speaker 1: s economy looks rock solid. We just had Walmart numbers

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Speaker 1: drop across the screen. U second quarter adjust the EPs

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Speaker 1: one twenty nine, the estimate one two, the best sales

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Speaker 1: in more than a decade from Walmart, and they've boosted

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Speaker 1: their year adjusted APS forecast as well. And this is

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Speaker 1: looking really good in the United States, whilst the rest

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Speaker 1: of the world is looking a little bit more fragile

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Speaker 1: relative to say, twelve months ago. Right but on a

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Speaker 1: sort a couple of decades basis, it's pretty amazing that

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Speaker 1: you know that to most of our trosury market is

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Speaker 1: owned by UM overseas countries, and it's pretty amazing that

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Speaker 1: you've had such a huge reserve reserve accumulation, particularly out

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Speaker 1: of Asia. And I'm not saying, you know, I didn't

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Speaker 1: think there's any right or wrong about this. I just

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Speaker 1: think some of the concern is that the ability for

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Speaker 1: that spending power in the world is something that is

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Speaker 1: making some people think that is that kind of the

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Speaker 1: right sort of balance of economic power going forward. And

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Speaker 1: I think the idea about the trade discussions is the

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Speaker 1: way of saying, look, perhaps we want to rebalances a

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Speaker 1: little bit, and if you can do it in a

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Speaker 1: way that China can continue to grow very strongly, which

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Speaker 1: is very good for them and the US very well,

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Speaker 1: then then you know, in the end it could be

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Speaker 1: a better outcome for everyone on balance. But I think

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Speaker 1: right now that's where the issue is. I don't think

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Speaker 1: it's directly about you know, you're you're trading your soybeans

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Speaker 1: or your cars, and and it's just specifically about that.

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Speaker 1: And I think it's a bigger picture here, and that's

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Speaker 1: why I think markets have to be careful that there

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Speaker 1: isn't you know what you know, what is the nature

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Speaker 1: of the regime shift. The nature of the regime shift

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Speaker 1: is you enter a world where something like the remember,

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Speaker 1: for example, uh, does actually depreciate much more substantially. I've

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Speaker 1: lived through a couple of at least China depreciations and

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Speaker 1: they are quite season mettic seasmic events. UH. And that's

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Speaker 1: kind of I think the question that some people in

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Speaker 1: the markets are asking now is that is does this

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Speaker 1: represent a regime change rather than just a question about

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Speaker 1: sort of making trade a little bit freer and fairer. Well,

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Speaker 1: I can tell you this morning, the mood music in

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Speaker 1: the market a whole lot better. Um, some warmth in

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Speaker 1: the tape, and the Chinese currency a little bit stronger.

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Speaker 1: And Tom King looking at Walmart right now following those

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Speaker 1: numbers up by six and a half percent in the

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Speaker 1: pre market, I want to give them great credit. Their

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Speaker 1: release of their earnings is a lot clearer than it

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Speaker 1: was four or five years ago. E Commerce sales grew

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Speaker 1: the headline. That's from a relatively low base, but that's

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Speaker 1: where a lot of the pros are going to turn

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Speaker 1: to Jonas to see how they're doing versus them. What

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Speaker 1: the stock is flying right now. But elsewhere, Domin I

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Speaker 1: want your view on this. We've got a bear market

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Speaker 1: in European banks. We've got a bear marketing copper and

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Speaker 1: seemingly wrong course for a bear market in emerging market equities.

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Speaker 1: I think it raises a big, big question for investors

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Speaker 1: and beyond the United States, just how immune is the

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Speaker 1: US to all of this, what is happening in global

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Speaker 1: markets right now? Just how immune is the United States

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Speaker 1: to this? What is immune up to up to a point.

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Speaker 1: But at the end of the day, the dollar, unfortunately,

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Speaker 1: if it gets way too strong, we'll tighten financial conditions

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Speaker 1: a lot, and then the immunity might still be there,

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Speaker 1: But the onus is going to be on the Central Bank,

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Speaker 1: the Fed to BA basically not continue to raise rates

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Speaker 1: for example, at least take some kind of time out

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Speaker 1: if the dollar gets too strong. At the end of

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Speaker 1: the day, financial conditions overall become very important for the

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Speaker 1: outlook for the US. We're still a trading country. The

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Speaker 1: dollar gates too strong, frame that out off d X

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Speaker 1: Y or broad trade weighted. I'll let you decide down

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Speaker 1: in a custom but it's not Plaza accord too strong.

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Speaker 1: We're not looking at the silliness of the nineties because

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Speaker 1: there's a lot more fixed Uh, it's a floating world.

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Speaker 1: How much is too strong? Too strong? Well, I think

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Speaker 1: a redux of what we saw two years ago, a

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Speaker 1: nice leg up, um well, too strong would become if

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Speaker 1: you I mean basically at the end of the day,

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Speaker 1: you start looking at the inflation components in the US economy,

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Speaker 1: inflation component has a third of it is in good

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Speaker 1: the good sector. I would argue, if the if the

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Speaker 1: dollar wars go out say ten or on the trade

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Speaker 1: weighted index, you're clearly going to have a lot of

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Speaker 1: disinflation running through that good side. And that's that where

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Speaker 1: it would that would be too strong if you like,

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Speaker 1: in the context of if you can't get inflation from

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Speaker 1: the other parts of the economy, not only you, but

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Speaker 1: your entire team led by focus Landel, how do you

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Speaker 1: frame the likelihood of the FED shocking and not raising

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Speaker 1: rates or adjusting their language versus what seems to be

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Speaker 1: the almost certitude the managed message that we're seeing now,

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Speaker 1: um well, very near to him. I think the Fed

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Speaker 1: is is pretty much locked in raising rates. They're not

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Speaker 1: gonna suddenly change take us out the next year one

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Speaker 1: one you know of another, Well, it's gonna It's gonna

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Speaker 1: ultimately depend on how risk assets in the US are performing.

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Speaker 1: I mean, if you have an extremely strong dollar and

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Speaker 1: the SMP starts to go down to fift cent, and

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Speaker 1: that's going to start changing the attitude towards the feder

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Speaker 1: of the FED, I'm pretty sure, I remember. I don't

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Speaker 1: think the issue for them is, you know, they don't

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Speaker 1: have to raise rates every single quarter. That is our

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Speaker 1: that that is our view right now. Obviously that's what

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Speaker 1: we expect, but it doesn't mean that they couldn't, you know,

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Speaker 1: start missing in meetings in order to be able to

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Speaker 1: raise rates further. But I think the issue for them

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Speaker 1: is the path. Let's be clear about the US dollar

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Speaker 1: and who's complaining about it. The Federal Reserves not really

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Speaker 1: complaining about the strength of the U. S dollar. This

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Speaker 1: administration is complaining about the strength of the US dollar.

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Speaker 1: And many analysts now on Wall Street and beyond starting

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Speaker 1: to speculate as to whether we could get some direct

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Speaker 1: intervention from the Treasury. Do you see that happening dominant

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Speaker 1: and what kind of chances odds do you sort of

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Speaker 1: apply to that happening. I mean, I'd be shocked if

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Speaker 1: they they intervened. I mean they, I mean they they

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Speaker 1: you know, historically obviously it will be you know, unprecedented

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Speaker 1: pretty much in the in the current circumstances for them

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Speaker 1: to have any kind of of intervention like that. Um So,

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Speaker 1: I think things would have to deteriorate a lot further,

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Speaker 1: uh to to see that. So, I mean, and remember

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Speaker 1: the strength of the of the dollars, it's not it's

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Speaker 1: not absurdly strong versus euro. It's not absurdly strong versus

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Speaker 1: the end. I mean that the strength that people are

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Speaker 1: sort of a zing is obviously the emerging market complex

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Speaker 1: and emerging market complex is kind of, if you like,

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Speaker 1: perhaps feeling the brunt of the normalization of interest rates

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Speaker 1: as well in the UF so it's a bit more

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Speaker 1: of that. So I think the things that can happen

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Speaker 1: just help stabilizing the emerging markets that wouldn't involve FX intervention.

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Speaker 1: Don Compston of Deutsche Bank, the securities Managing director and

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Speaker 1: global head of rates research, and pleased to say on

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Speaker 1: global fixed income. We're joined by Greg Parsons, Center Capital,

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Speaker 1: chief executive Officer getting a u M up to three

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Speaker 1: billion dollars and in growth. Great to see you, Greg,

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Speaker 1: Welcome to the program, Read to be here, appreciate the

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Speaker 1: chest where do you want to begin with fixed income

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Speaker 1: at the moment because when everyone else internationally seems to

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Speaker 1: be afraid of what's happening with the macro backdrop, here

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Speaker 1: in the United States, we'll can rock solid. Yeah, Look,

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Speaker 1: I mean I think I think you nail it right.

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Speaker 1: You know the big thing two things we think about, right,

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Speaker 1: we are what we believe to be in a continued

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Speaker 1: rising rate environments. Obviously within fixed income that makes you

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Speaker 1: think about where you want to be on the curve.

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Speaker 1: But you've got a growing set up of continued strength

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Speaker 1: in the US and how and when that decouples? Can

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Speaker 1: that decouple from the kind of the rest of the markets.

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Speaker 1: So let's talk about decoupling, because high yield here in

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Speaker 1: the United States seems to have decoupled from what's happening worldwide,

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Speaker 1: whether you're looking at high yield and am high yield

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Speaker 1: and say Europe, can that continue and can we continue

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Speaker 1: to get this out performance in the junkst of junk

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Speaker 1: and triple cs. Look, you know our perspective is and

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Speaker 1: you know we are bottoms up kind of quantitative shop.

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Speaker 1: Right from a data perspective, the data suggest that you know,

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Speaker 1: there's continued strength across you know us credit right, whether

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Speaker 1: it's asset back, mortgage backed, within you know, targeted portions

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Speaker 1: of the high yield market. And as long as the

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Speaker 1: you know, the data continues to show signs of strength,

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Speaker 1: we believe that you can you can offset you know,

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Speaker 1: the impact of rising rates with some continued strong performance.

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Speaker 1: So the show that duration explains why high yields, say,

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Speaker 1: is outperformed investment riding the knot of stace this year. Yeah,

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Speaker 1: I mean, without a doubt. I mean, look, duration is

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Speaker 1: the eight pound grill in the room within within the

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Speaker 1: entire fixed income market. So finding ways to be short

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Speaker 1: in the curve and or find opportunities where the credit

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Speaker 1: component um can out drive the duration aspect. Greg We're

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Speaker 1: thrilled you're here. I've got two questions and one of

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Speaker 1: them is off topic, but let's start with the one

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Speaker 1: on topic. Abby Johnson at Fidelity has thrown in the

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Speaker 1: towel on fees and fixed income active management. Fixed income

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Speaker 1: has got to respond to that. Basically, folks, she's going

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Speaker 1: to give out bond index funds for next to nothing.

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Speaker 1: What does it say about fixed income in this low

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Speaker 1: rate environment and the ability for the industry to keep going. Look,

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Speaker 1: you know we can you know, as a as a

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Speaker 1: smaller boutique shop. Right, obviously very strong belief in the

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Speaker 1: power of active management. Right, You've got to find, you know,

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Speaker 1: on the active management side, managers have got to find

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Speaker 1: improve the ability to drive drive some element of value

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Speaker 1: through bond selection, sector rotation, subsector rotation. Um. So I'm

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Speaker 1: gonna ask you a question now in the times that

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Speaker 1: we've got, which is maybe the most important question of

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Speaker 1: the day. You are living and breathing. The only one

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Speaker 1: I know who took the path of Robert Mueller. You

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Speaker 1: went to Princeton and you served as a captain in

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Speaker 1: the Marines. It's the people, you know. Garrett Graft's book

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Speaker 1: on Mueller and the FBI is one of my books

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Speaker 1: of this summer. When you see everything and I don't

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Speaker 1: need a political angle here, but when you see everything

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Speaker 1: about Mueller, what is the casting character he has out

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Speaker 1: of out of New Jersey and the Marines that that

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Speaker 1: he will use day to day? How do you respond

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Speaker 1: to the uproar that you see over your compatriot? Look,

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Speaker 1: you know, I think, um, you know, I you know,

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Speaker 1: I can't speak for the man, but you know there

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Speaker 1: was a calling to serve the intrinsic values of the

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Speaker 1: Marine Corps beds and everyone that serves. I think, what

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Speaker 1: does that key value in the heat the crucible that

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Speaker 1: he's in right now, the key value realty. Whereas now

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Speaker 1: it's kind of you know, integrity and a focus on mission. Right,

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Speaker 1: he is a very focus on missions, which dovetails with

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Speaker 1: the FBI perfectly, Oh, without a doubt. I mean, look,

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Speaker 1: there is a very clear, uh, impartial what is what

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Speaker 1: needs to be done? What is the absolute mission? And

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Speaker 1: in his particular case, you know, get to the truth

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Speaker 1: um in an impartial, unbiased way. When they train that

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Speaker 1: in the Marines, how do they train focus on mission

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Speaker 1: from day one accomplishment of mission then welfarey Marines? Right?

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Speaker 1: Those are uh and they do that consciously, right, you know,

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Speaker 1: as I think back to my officer training, you know, screening,

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Speaker 1: et cetera. From day one accomplishment of mission? Is the

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Speaker 1: is the standing guideline by which you're you're measured across

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Speaker 1: every every dimension of everything you do. John, Should we

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Speaker 1: bring it back on topic? Can we get back to fix?

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Speaker 1: Can I focus on mission? Or are we gonna get

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Speaker 1: back on mission? Are we gonna clip coupons or we're

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Speaker 1: gonna get total return going, Greg, Well, you know, I

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Speaker 1: think there's portions of fixing market. Example, you know, semper

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Speaker 1: focuses on primary focus on the real estate force of

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Speaker 1: the asset back market. I think there's ability to due

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Speaker 1: to both. Right, you can find strategies in market and

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Speaker 1: along only you know daily liquid perspective where there's yields

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Speaker 1: in the four and a half to five percent range

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Speaker 1: and you know duration of you know, one to two,

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Speaker 1: right relative to something like the Barkley's egg which is

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Speaker 1: running that's called yield three and a quarter of the

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Speaker 1: duration of six maybe seven. There are opportunities in pockets

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Speaker 1: within the fixed income landscape to drive UM through clipping

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Speaker 1: of coupon and active management. Circling back to your earlier

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Speaker 1: comment driver total return, Greg, I don't know how you

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Speaker 1: did um to get by with us this morning, but

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Speaker 1: you did fantastic in my mind, thank you for coming

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Speaker 1: by to crazy Town. In every building, there is a

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Speaker 1: treasured room. At the White House, someone suggests it's the

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Speaker 1: green room. There are treasured rooms, perhaps the Sistine Chapel

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Speaker 1: at the Vatican at eighty two Devonshire long ago, and

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Speaker 1: far away in Boston, there was a treasured room and

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Speaker 1: it is a chart room, and across all of global

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Speaker 1: Wall Street worldwide, it was legendary. We're going to rip

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Speaker 1: up the script with Urian Timor forget about e M,

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Speaker 1: forget about international economics, and talk about what he invented for.

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Speaker 1: Mr Timer invented, without question, the most famous technical analyst

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Speaker 1: room moment place in the history of Wall Street. Ned

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Speaker 1: Johnson interviewed you where your knee shaking and quaking And

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Speaker 1: it would never happen with Ms Ms Johnson, Abigail, But

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Speaker 1: with Ned Johnson, what was it like to sit there

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Speaker 1: and talk charts? Well, good morning, Tom, thanks for having me.

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Speaker 1: By the way, I did not invent the chart room.

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Speaker 1: That was Mr Johnson's father, who was called Mr Johnson,

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Speaker 1: and he was Mr Johnson, He was Mr Johnson, and

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Speaker 1: that was you know, back then in the day, in

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Speaker 1: the sixties and seventies, that was like the command center

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Speaker 1: because that was pre electronic chart So, UM, the investment

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Speaker 1: professionals that Fidelity would sit in a room and or

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Speaker 1: over charts and figure out, you know, where to go next.

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Speaker 1: But yeah, so when I interviewed at Fidelity twenty three

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Speaker 1: years ago, five UM I interviewed like probably twenty different

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Speaker 1: people but missed. But Ned was the last person. And

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Speaker 1: he had veto because when you go into the chart

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Speaker 1: room as I was doing, he needs to personally approve everyone.

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Speaker 1: So but he was very congenial, very friendly. It was

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Speaker 1: actually not like a high pressure type thing, and we

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Speaker 1: just talked markets the whole time. You did not make

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Speaker 1: Peter Lynch smart, but you certainly made him smarter. What

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Speaker 1: did Mr Lynch take away from technical analysis? Well, Peter

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Speaker 1: had a genius when I mean in many ways. Of

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Speaker 1: course their their legendary, but when he was doing media

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Speaker 1: interviews he would always throw out a lot of statistics

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Speaker 1: and uh and I learned from him because now I

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Speaker 1: do a lot of media that if you if you

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Speaker 1: have enough facts handy, um, you can you can baffle

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Speaker 1: anyone basically basically. So when when Peter retired from the scene,

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Speaker 1: he would still do a lot of media and usually

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Speaker 1: I would work with him a few days in advance

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Speaker 1: and just kind of run all the stats by him

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Speaker 1: and then he would pick up whatever he thought what

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Speaker 1: was useful in his interviews to get theoretical There was

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Speaker 1: point in figure charts, which are very different, uh in

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Speaker 1: the nineteenth century, and then we found bar charts, and

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Speaker 1: then all of us read John Maggie in the forties

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Speaker 1: cover to cover it was the Bible. Does that stuff

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Speaker 1: still work now? Does trend work now in this time

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Speaker 1: of electronic speed? Yes, it does? Um? You know. Um.

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Speaker 1: So I grew up basically bar charting always on a

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Speaker 1: log skill. Of course, if you think the history is

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Speaker 1: well fox uses a log skill. If the history is

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Speaker 1: long enough and you're measuring growth of any kind, and

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Speaker 1: you should use a semilog skill, um. And so in

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Speaker 1: our chart room, basically most of the charts are bar

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Speaker 1: charts on a law scale, and so they still work.

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Speaker 1: I mean, maybe they get noisier if too many people

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Speaker 1: are crowding at above resistance or below support, maybe you

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Speaker 1: get false moves. Um. But ultimately, the you know, market

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Speaker 1: behavior is a substance of human behavior, and so studying

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Speaker 1: historical market behavior and cycles, um, I think is a

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Speaker 1: timeless practice. I've been helpful with the cf A Institute.

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Speaker 1: I think my dues are do now that I think

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Speaker 1: about it, I better pay those But um, I've been

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Speaker 1: on some of their boards in that and I've always

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Speaker 1: told the good people in Charlottesville there should be more

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Speaker 1: technical analysis within the cif A curricula. Do the young Turks,

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Speaker 1: the best and brightest that Ms Johnson is hiring, do

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Speaker 1: they want to use the fabled chart rumors that just

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Speaker 1: like you know, as old news as a Sistine chapel. Well,

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Speaker 1: the chart room in its physical form, obviously um is

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Speaker 1: less used today it was. And folks, let me let

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Speaker 1: me say this, folks, when you went into the old

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Speaker 1: chart room, it was magical. The lights were dimmed and

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Speaker 1: they were right in your face, and it was visceral.

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Speaker 1: It was like a navy thing. Yeah. And in our

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Speaker 1: chart rooms, and we've had several iterations were like museum quality,

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Speaker 1: like Mr Johnson would insist on the right lights and

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Speaker 1: the right pins and you know, and and some of

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Speaker 1: these charts are thirty ft long and their floor to

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Speaker 1: ceiling and one of them basically scans the entire history

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Speaker 1: of the DOW, the ANASTA and the SMP. And you

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Speaker 1: can't really call that up on your screen. You can

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Speaker 1: call up a snippet and be careful. Now this is Bloomberg.

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Speaker 1: Come on, we can do logged down back to the

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Speaker 1: nineteen o five, I think. But but if if you

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Speaker 1: want to go on. If you want to go on

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Speaker 1: a daily chart and we're looking at a market bottom,

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Speaker 1: let's say, for instance, and you want to see what

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Speaker 1: did this look like? You know, Ned would go and

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Speaker 1: he would just draw his finger across the the thirty

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Speaker 1: ft chart and say, you know what this looks like

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Speaker 1: nineteen seventy four. Or I'm just giving an example or

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Speaker 1: topping patterns, and that's something you can look up with

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Speaker 1: an algorithm or or on a screen. The life changed

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Speaker 1: for everybody with a guy at Yale named Ibbotson, and

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Speaker 1: Ibbotson came out with what you've just described, a chart

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Speaker 1: that shows percentage change, where slope matters and such. If

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Speaker 1: I graft and I use this on television, folks, I'll

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Speaker 1: put the chart out later for Bloomberg Radio across Twitter.

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Speaker 1: If I take a Dow Ibbotson chart long term chart,

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Speaker 1: and I take trend, we're not stupid over valued now

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Speaker 1: like March of two thousand, how overvalued are we on

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Speaker 1: the Ibbotson trend? So when so I do the same thing,

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Speaker 1: and I have all the Ebotson data back to it's

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Speaker 1: a great data set. And what I've done is I'm

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Speaker 1: actually spliced some older data which was not the Dow

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Speaker 1: or the SMP, but another index, and you can go

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Speaker 1: all the way back to seventy one. Bob Shiller has

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Speaker 1: that data series as well. I'm Schiller was teaching it

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Speaker 1: Yale at that time. And when you run a linear

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Speaker 1: regression through that kind of log scale or through this

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Speaker 1: to that that line, you can perfectly see all the

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Speaker 1: secular bull and bear markets. It's really a beautiful thing.

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Speaker 1: And um, and when you do a a deviation from

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Speaker 1: trend analysis, you can see that every secular bull market

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Speaker 1: begins at about fifty percentage points below trend, and every

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Speaker 1: secular bull market ends at a hundred dent or so

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Speaker 1: above trend. And in oh nine, at that low, we

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Speaker 1: were fifty percent below and today we are basically at

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Speaker 1: the trend. So from a purely a total return perspective, UM,

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Speaker 1: we are not overvalued. We're actually on trend. Valuation as

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Speaker 1: a price to earnings is of course a different story,

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Speaker 1: and the idehibits and data doesn't doesn't measure that, It

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Speaker 1: just measures returns. When when we look at all this

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Speaker 1: and it's like eight ways to go here, you're in timber,

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Speaker 1: but I'll go to Walmart today, an extraordinary earnings a

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Speaker 1: stock up for a blue ship battleship up? Huge? Is

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Speaker 1: it is? It? Is it as good as it gets

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Speaker 1: an not saying the gloom of go to cash, But

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Speaker 1: you and I have to have respect for a boom

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Speaker 1: economy and what could come after. How do you manage

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Speaker 1: that for investment? Yeah, So what what I learned a

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Speaker 1: long time ago was to start combining the technicals and

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Speaker 1: the fundamentals. Thank you, and I'm in good morning, And

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Speaker 1: and to me that's really the Murphy agrees. I mean,

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Speaker 1: you can look at it at a chart and and say, well,

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Speaker 1: the trend is up in a portfolio I manage will

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Speaker 1: say yeah, well do you know I can see that.

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Speaker 1: But if you can speak the language, the fundamental language

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Speaker 1: and related to maybe earnings or valuation or trends of

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Speaker 1: monetary policy, etcetera, then I think you have the full

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Speaker 1: skill set. And and also add in quantitative you know,

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Speaker 1: if you look at a technical indicator, let's back test it,

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Speaker 1: let's see if it actually works. And a lot of indicators,

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Speaker 1: a lot of a lot of indicators in isolation, they

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Speaker 1: have a batting average of about a coin toss. And

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Speaker 1: so you need to add in contextual elements that that

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Speaker 1: paint the narrative of what's going on, and in your

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Speaker 1: odds go maybe to sixty forty or maybe seventy thirty

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Speaker 1: if you're really lucky. But the current, you know, backdrop

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Speaker 1: is that the economy is booming, inflation starting to run hot,

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Speaker 1: where we're approaching the late cycle when the Red Socks

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Speaker 1: are playing seven eleven baseball exactly. Um So, we're approaching

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Speaker 1: late cycle, but we're not there. Um So. Things are good.

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Speaker 1: And the pressures that the markets are feeling from the

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Speaker 1: FED raising rates now seven times, about to go eight

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Speaker 1: times and maybe ten or eleven times when it's all

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Speaker 1: set and done. The pressures are not being felt in

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Speaker 1: the US market right now because earnings are booming, but

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Speaker 1: they are felt as we have seen all week long

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Speaker 1: in emerging markets where which are around from their highs.

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Speaker 1: This has been wonderful. You're in timor thank you so much.

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Speaker 1: With Fidelity obviously not working on global macro, but far

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Speaker 1: more there a window back to a truly important past

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00:22:52,119 --> 00:23:08,320
Speaker 1: for all of global Wall Street well still with as

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00:23:08,800 --> 00:23:11,119
Speaker 1: lignals of RBC Capital Markets. I was I feel like

433
00:23:11,160 --> 00:23:13,520
Speaker 1: over the last couple of months, the summer months, the

434
00:23:13,560 --> 00:23:16,240
Speaker 1: probabilities of an old deal, of a crashing out of

435
00:23:16,280 --> 00:23:19,080
Speaker 1: a good deal, of a second referendum have all increased.

436
00:23:19,400 --> 00:23:21,720
Speaker 1: So that means that, you know, the uncertainty has increased.

437
00:23:21,720 --> 00:23:24,760
Speaker 1: What does it mean for your your pounder call? So

438
00:23:24,800 --> 00:23:28,040
Speaker 1: it's really difficult having a long term call on Sterling

439
00:23:28,040 --> 00:23:30,159
Speaker 1: at the moment, and it's very difficult for a lot

440
00:23:30,200 --> 00:23:33,520
Speaker 1: of investors positioning for the long term as well. You know,

441
00:23:33,560 --> 00:23:35,399
Speaker 1: we've seen people get much more tactical in the way

442
00:23:35,440 --> 00:23:37,560
Speaker 1: they trade sterling and other's actually say it's untradeable. I

443
00:23:37,600 --> 00:23:39,800
Speaker 1: don't even want to touch it. Um. So when it

444
00:23:39,840 --> 00:23:41,879
Speaker 1: comes to the long term forecast for Sterling, I think

445
00:23:41,880 --> 00:23:43,920
Speaker 1: you've got to be cognizant that there are some very

446
00:23:43,960 --> 00:23:46,880
Speaker 1: different scenarios. It's almost like a binary view. Okay, when

447
00:23:46,920 --> 00:23:50,040
Speaker 1: do you think that we'll get more of an idea

448
00:23:50,240 --> 00:23:52,679
Speaker 1: of what the view will be as in December? Is

449
00:23:52,720 --> 00:23:55,800
Speaker 1: it February or can it actually come September October? You

450
00:23:55,800 --> 00:23:57,800
Speaker 1: know what, even that's a very fluid concept. If you

451
00:23:57,800 --> 00:24:00,280
Speaker 1: look at bookies markets at the moment, is a very

452
00:24:00,320 --> 00:24:04,240
Speaker 1: interesting that the expectation for when Brexit's actually going to happen,

453
00:24:04,240 --> 00:24:07,440
Speaker 1: it's not necessarily much. Um, there's actually a lot of

454
00:24:07,480 --> 00:24:09,480
Speaker 1: people betting that it gets delayed by a few months

455
00:24:09,600 --> 00:24:11,920
Speaker 1: or even by a year, or even some people thinking

456
00:24:11,920 --> 00:24:14,159
Speaker 1: it doesn't happen at all. So there's clearly a lot

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00:24:14,160 --> 00:24:17,200
Speaker 1: of uncertainty both around outcome but also around timing. Well,

458
00:24:17,200 --> 00:24:19,280
Speaker 1: then that is your call on sterling, what is it?

459
00:24:21,200 --> 00:24:23,000
Speaker 1: So I think it's easier to focus on the short

460
00:24:23,080 --> 00:24:26,360
Speaker 1: term really if you want to have any certainty or

461
00:24:26,560 --> 00:24:28,560
Speaker 1: you know, you know, if you're trying to trade it,

462
00:24:28,720 --> 00:24:30,560
Speaker 1: rather than picking out a number out of the air

463
00:24:30,560 --> 00:24:33,440
Speaker 1: for a point forecast. I think at the moment um

464
00:24:33,520 --> 00:24:35,800
Speaker 1: you're a sterling looks fairly interesting. It's been in this

465
00:24:36,000 --> 00:24:38,439
Speaker 1: rising up trend, but it's actually one of our trades

466
00:24:38,480 --> 00:24:40,600
Speaker 1: to watch. You know, we're getting to a stage where

467
00:24:40,600 --> 00:24:42,760
Speaker 1: there's actually quite a lot of short term bad news

468
00:24:42,800 --> 00:24:45,679
Speaker 1: priced in um, a lot of pessimism around the buntle

469
00:24:45,720 --> 00:24:48,719
Speaker 1: outcome for negotiations, and there could be some downside there

470
00:24:48,720 --> 00:24:50,399
Speaker 1: if you see a break of this rising up trend

471
00:24:50,520 --> 00:24:53,920
Speaker 1: that needs a deep market. Are the Ford exchange markets

472
00:24:54,080 --> 00:24:58,800
Speaker 1: behaving with enough depth in August to make these trades

473
00:24:58,920 --> 00:25:02,199
Speaker 1: effective already you just have to stand aside until the

474
00:25:02,280 --> 00:25:07,760
Speaker 1: autumn months. It's really interesting your question actually, because August

475
00:25:07,840 --> 00:25:11,440
Speaker 1: traditionally is thought of as a very low volume month UM.

476
00:25:11,440 --> 00:25:15,080
Speaker 1: And that's certainly true sometimes but not always, particularly when

477
00:25:15,080 --> 00:25:17,320
Speaker 1: you see some big events happening, you can actually see

478
00:25:17,480 --> 00:25:19,679
Speaker 1: a lot more volume going through the market. UM. I

479
00:25:19,720 --> 00:25:22,520
Speaker 1: do think for investors that got ahead of September and

480
00:25:22,520 --> 00:25:26,320
Speaker 1: actually started positioning um with nine months or one year

481
00:25:26,440 --> 00:25:29,040
Speaker 1: volve trades um, they were actually right to do so.

482
00:25:29,080 --> 00:25:31,639
Speaker 1: Because we've already seen vol move up quite significantly a

483
00:25:31,680 --> 00:25:34,520
Speaker 1: month ago. It still fairly cheap. Not the case anymore, UM.

484
00:25:34,720 --> 00:25:36,640
Speaker 1: What I mean if you get your different calls ether,

485
00:25:36,760 --> 00:25:39,040
Speaker 1: so you have an interesting call on euro We just

486
00:25:39,080 --> 00:25:41,879
Speaker 1: went through camp pound and you know the difficulty and

487
00:25:42,160 --> 00:25:45,120
Speaker 1: your yen call is one twelve? How do we get there?

488
00:25:45,480 --> 00:25:51,439
Speaker 1: So yen actually and and really it's a quite a

489
00:25:51,440 --> 00:25:54,080
Speaker 1: long term story, um. You know we mentioned it earlier,

490
00:25:54,119 --> 00:25:56,840
Speaker 1: based around what the FED is going to do and

491
00:25:56,920 --> 00:26:00,159
Speaker 1: how FED rate increases is actually going to I have

492
00:26:00,200 --> 00:26:02,359
Speaker 1: the cost of hedging for Japanese investors. I think the

493
00:26:02,680 --> 00:26:04,960
Speaker 1: Japanese side is interesting as well. You know, we've just

494
00:26:05,000 --> 00:26:07,760
Speaker 1: passed the fifth birthday of abenomics. It's really done nothing

495
00:26:08,440 --> 00:26:11,520
Speaker 1: for the Japanese Yenn, and it's not very likely to

496
00:26:11,600 --> 00:26:15,199
Speaker 1: lead to some fantastic growth scenario for Japan. So the

497
00:26:15,200 --> 00:26:17,560
Speaker 1: Bank of Japan is on hold. It's really what banks

498
00:26:17,560 --> 00:26:19,040
Speaker 1: in the rest of the world are doing that makes

499
00:26:19,080 --> 00:26:21,639
Speaker 1: the difference. But also, if I recall and you correct

500
00:26:21,640 --> 00:26:24,560
Speaker 1: me if I'm wrong, you had a big call on

501
00:26:24,680 --> 00:26:30,160
Speaker 1: big figure moves in yenn Do you stand by that. Yeah? Absolutely.

502
00:26:30,520 --> 00:26:33,240
Speaker 1: You know, if you look at dollar yen over the

503
00:26:33,240 --> 00:26:35,840
Speaker 1: long term, it's much more likely to be driven by

504
00:26:36,560 --> 00:26:40,080
Speaker 1: capital flows of domestic investors then the swings on risk on,

505
00:26:40,200 --> 00:26:43,040
Speaker 1: risk off. You know, we've seen dollar yen actually somewhat

506
00:26:43,040 --> 00:26:46,560
Speaker 1: anesthetized to the short term risk appetite. The correlation is

507
00:26:46,600 --> 00:26:49,400
Speaker 1: still high, but the elasticity is a lot lower than

508
00:26:49,400 --> 00:26:51,359
Speaker 1: it was, So I think you've got to be much

509
00:26:51,400 --> 00:26:54,360
Speaker 1: more focused in the long term on these capital flows

510
00:26:54,480 --> 00:26:57,720
Speaker 1: rather than these swings and resentiment. Absolutely brilliant. Also, Lingos,

511
00:26:57,720 --> 00:27:00,119
Speaker 1: thank you so much with RBC Capital Markets or Walk

512
00:27:00,160 --> 00:27:02,680
Speaker 1: through the Fog and Exchange space, and also of course

513
00:27:02,720 --> 00:27:10,720
Speaker 1: on e M thanks for listening to the Bloomberg Surveillance podcast.

514
00:27:11,080 --> 00:27:16,000
Speaker 1: Subscribe and listen to interviews on Apple Podcasts, SoundCloud, or

515
00:27:16,160 --> 00:27:20,480
Speaker 1: whichever podcast platform you prefer. I'm on Twitter at Tom

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00:27:20,600 --> 00:27:24,399
Speaker 1: Keane before the podcast. You can always catch us worldwide.

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Speaker 1: I'm Bloomberg Radio