WEBVTT - Uncertainty for Equities amid Tariff and Geopolitical Risks 0:00:02.520 --> 0:00:13.760 Bloomberg Audio Studios, podcasts, radio news. This is the Bloomberg 0:00:13.840 --> 0:00:17.920 Surveillance Podcast. Catch us live weekdays at seven am Eastern 0:00:18.200 --> 0:00:22.000 on Apple CarPlay or Android Auto with the Bloomberg Business App. 0:00:22.360 --> 0:00:25.680 Listen on demand wherever you get your podcasts, or watch 0:00:25.760 --> 0:00:27.000 us live on YouTube. 0:00:27.120 --> 0:00:28.800 One of the things you get jaded out in this 0:00:28.960 --> 0:00:32.640 business is beautyless. The beautyless come out, and there's usually 0:00:32.720 --> 0:00:35.760 an angle, and I'll be honest, it usually has to 0:00:35.800 --> 0:00:39.559 do with raising revenue. And what was great about this 0:00:39.640 --> 0:00:42.239 weekend's barons? You know, I'm sitting there, you know, I 0:00:42.280 --> 0:00:45.120 got the Mimosa going the chain mimosa. You know I'm 0:00:45.159 --> 0:00:48.400 opening it up. You know, Ellen Zettner's getting a splash 0:00:48.400 --> 0:00:50.840 from Wrgan Stanley. But they did their one hundred Women 0:00:51.360 --> 0:00:55.560 in Finance. It was actually adult like, they had no remorse. 0:00:55.880 --> 0:00:58.440 It was like as a power list. So I'm looking 0:00:58.480 --> 0:01:02.360 around for strategists and lo and Behald. There's Laurie Calvicina, 0:01:03.160 --> 0:01:07.800 who we welcome now with RBC. How did you stumble 0:01:07.920 --> 0:01:10.680 upon that list? What did they see in your work? 0:01:11.000 --> 0:01:12.760 Did they actually read your reports? 0:01:12.959 --> 0:01:16.319 I hope so, I hope so. Now, to be honest, 0:01:16.360 --> 0:01:18.960 I have no idea who nominated me, But we're grateful 0:01:19.000 --> 0:01:21.240 for the honor. And you know, Tom, it's interesting. I've 0:01:21.240 --> 0:01:23.600 been doing this a long time, and you know, I 0:01:24.360 --> 0:01:26.080 had a birthday yesterday. I'm not going to tell you. 0:01:26.040 --> 0:01:28.600 How old I am, but twenty nine looking solid. 0:01:28.560 --> 0:01:30.959 Twenty nine over and over again. But I'll tell you 0:01:31.120 --> 0:01:32.800 I spent a lot of time early on in my 0:01:32.920 --> 0:01:35.680 career trying to do the job the way people told 0:01:35.680 --> 0:01:38.000 me it needed to be done, and to tell stories 0:01:38.040 --> 0:01:41.000 and have conviction and all these other things. And at 0:01:41.000 --> 0:01:42.960 some point I figured out that was not what worked 0:01:42.959 --> 0:01:44.480 for me, and I'm going to do the job the 0:01:44.480 --> 0:01:46.319 way it makes sense to me and the way I 0:01:46.400 --> 0:01:48.800 know how to do it. And I've been much happier 0:01:48.840 --> 0:01:51.920 since I made that conversion. So maybe whoever nominated for 0:01:52.080 --> 0:01:53.840 me for this list, you know, wasn't looking at the 0:01:53.840 --> 0:01:55.240 young glory, but is looking at the old world. 0:01:55.320 --> 0:01:58.200 And your conviction is to pull back your standard and 0:01:58.360 --> 0:02:02.280 porest call go through the process of that. Why did 0:02:02.320 --> 0:02:03.600 you cut your estimate? 0:02:04.240 --> 0:02:07.280 So you know, we we've been running you know, sort 0:02:07.320 --> 0:02:10.119 of a base case and a bare case since November. 0:02:10.120 --> 0:02:12.239 We thought it was going to be a highly unpredictable year. 0:02:12.680 --> 0:02:15.000 And I'll tell you, honestly, Tom, what happened last week 0:02:15.080 --> 0:02:17.840 was my economics team updated their forecasts along with our 0:02:17.919 --> 0:02:20.520 rate strategist, and they made some big changes to the 0:02:20.560 --> 0:02:23.880 GDP and inflation views. And as I was reading their report, 0:02:23.919 --> 0:02:25.040 I said, you know, I think there's a lot of 0:02:25.040 --> 0:02:26.600 we don't have to agree, by the way, we can 0:02:26.639 --> 0:02:29.120 all do whatever we want to do. But I thought 0:02:29.160 --> 0:02:31.360 that sort of the impact they showed to one q 0:02:31.560 --> 0:02:34.160 GDP and how that reverberated to the year. So they 0:02:34.240 --> 0:02:35.919 kind of had you know, kind of a flatish quarter 0:02:35.960 --> 0:02:38.320 over quarter number in one queue, and then they took 0:02:38.360 --> 0:02:40.640 their annual number from two down to one six. They 0:02:40.680 --> 0:02:44.480 made inflation stickier, They had yields moving down before moving 0:02:44.480 --> 0:02:46.760 back up at the end of the year. And I said, look, 0:02:46.760 --> 0:02:49.160 there's so much uncertainty out there right now. I'm not 0:02:49.200 --> 0:02:52.200 going to wait for this big moment of profound clarity. 0:02:52.760 --> 0:02:54.760 There are some things we can start to bake into 0:02:54.800 --> 0:02:57.120 our models now. So we flowed that through to the earnings, 0:02:57.160 --> 0:03:00.639 to the valuation model, some other number, you know, other models. 0:03:00.639 --> 0:03:02.560 Frankly that we're done on twelve month back test. I 0:03:02.639 --> 0:03:05.200 changed those to nine month forward back tests. And the 0:03:05.280 --> 0:03:07.520 numbers changed a little bit, so we felt like it 0:03:07.560 --> 0:03:08.960 was time to put that out. 0:03:09.040 --> 0:03:14.320 Primarily an earnings driven adjustment, a discount rate adjustment, or 0:03:14.400 --> 0:03:16.120 just I'm going to use the word I've heard on 0:03:16.120 --> 0:03:18.639 all the conference calls and all the it's just uncertainty 0:03:18.720 --> 0:03:19.359 out there. 0:03:19.360 --> 0:03:19.560 You know. 0:03:19.639 --> 0:03:22.320 I think the idea of uncertainty taking a toll on 0:03:22.360 --> 0:03:25.400 the economy is what really showed up in the GDP forecast, 0:03:25.800 --> 0:03:28.560 and the GDP numbers flow through to my earnings model. 0:03:28.639 --> 0:03:30.560 So we pulled that from two seventy one down to 0:03:30.600 --> 0:03:34.200 two sixty four. And also we have a GDP test 0:03:34.200 --> 0:03:36.320 and the targeting process, and we had actually said at 0:03:36.320 --> 0:03:39.240 the beginning of the year, where GDP ends up matters 0:03:39.280 --> 0:03:41.320 a great deal to this market. Two to three percent 0:03:41.360 --> 0:03:44.080 GDP historically a very strong range for the stock market. 0:03:44.160 --> 0:03:47.080 You're up about ten percent on average. But if you 0:03:47.200 --> 0:03:49.320 look at a one to two percent number, and so 0:03:49.360 --> 0:03:51.560 remember Francis and her team went down to one six, 0:03:51.600 --> 0:03:54.000 so they're squarely in the middle of that range. That 0:03:54.160 --> 0:03:57.480 is typically an onerous environment for the stock market. We're 0:03:57.520 --> 0:03:59.640 down more often than up, and your average decline is 0:03:59.640 --> 0:04:02.440 about three So moving from that two to three assumption 0:04:02.800 --> 0:04:05.320 to that one to two assumption was huge in the targeting. 0:04:05.560 --> 0:04:09.119 I would editorialize ball here that the tag team wrestling 0:04:09.200 --> 0:04:13.960 of Lori Calvisina and Francis Donald is die for Francis 0:04:14.040 --> 0:04:18.960 Donald is so damn good at GDP makeup. Frankly, mister 0:04:19.040 --> 0:04:23.000 Kearney could call upon her for Francis Donald's Canada. I mean, 0:04:23.040 --> 0:04:26.840 Francis Donald can't be one UNDERD financed women in America, right, 0:04:27.080 --> 0:04:32.160 she's Canadian list that, but trust me, if she was, 0:04:32.240 --> 0:04:34.200 she would have joined Laurie on the list. 0:04:34.240 --> 0:04:35.679 It's tom a good thing about this list. 0:04:36.000 --> 0:04:38.120 Many many of the people on this list are regulars 0:04:38.279 --> 0:04:39.400 on Bloomberg Surveillance. 0:04:39.440 --> 0:04:40.960 So we're making the right calls there. 0:04:41.000 --> 0:04:43.240 It seems like we try it every t It's like 0:04:43.279 --> 0:04:45.120 a real list. What can I say? Now, I know 0:04:45.200 --> 0:04:46.720 the real bunch of ringers. 0:04:46.360 --> 0:04:49.600 Good stuff, Laurie. So where do we go from here? 0:04:50.160 --> 0:04:52.799 You know, one could argue if the uncertainty is calls 0:04:53.000 --> 0:04:58.599 in part by the rhetoric associated with tariffs and changes 0:04:58.600 --> 0:05:01.039 in immigration policy and so on. So I don't think 0:05:01.040 --> 0:05:03.920 that's going away anytime soon. So does that suggest that 0:05:04.279 --> 0:05:05.640 there's going to be a wait to this market? 0:05:05.720 --> 0:05:06.159 For a while. 0:05:06.320 --> 0:05:08.719 So look, I was talking to someone about this this morning, 0:05:08.760 --> 0:05:11.120 and I got up early this morning. Now, so I've 0:05:11.120 --> 0:05:12.920 had a bunch of conversations. But it feels like we're 0:05:12.920 --> 0:05:14.320 stuck in a moment we need to get out of. 0:05:14.760 --> 0:05:16.000 And I don't know if we're going to be able 0:05:16.040 --> 0:05:17.479 to get stuck out of that moment or not. But 0:05:17.520 --> 0:05:19.680 the longer we are stuck in this moment where it's 0:05:19.680 --> 0:05:23.000 just tariff, tariff, tariff and uncertainty, uncertainty, uncertainty, the bigger 0:05:23.040 --> 0:05:26.159 toll that is going to take. You know, I do 0:05:26.200 --> 0:05:28.440 think as I've looked through a lot of the soft data, 0:05:28.880 --> 0:05:32.599 you know, we're consistently seeing softness on capex expectations and 0:05:32.600 --> 0:05:35.760 employment expectations. And they're not terrible yet, so you could 0:05:35.839 --> 0:05:38.320 shift them back in the other direction, but we are 0:05:38.400 --> 0:05:40.280 seeing evidence that this is having an impact. 0:05:40.440 --> 0:05:43.159 A lengthy conversation of value ed Ford Global, Wall Street, 0:05:43.200 --> 0:05:47.039 Lori Cavacina, Royal Bank of Canada RBC is with us 0:05:47.120 --> 0:05:49.159 right now in studio. We welcome all of you on 0:05:49.200 --> 0:05:53.720 your commutes across North America this morning. Good morning worldwide 0:05:53.720 --> 0:05:57.160 on Apple, car Play, Android, Auto, on YouTube, growing each 0:05:57.200 --> 0:06:01.520 and every day. Subscribe Lisa Mateo demands that you subscribe 0:06:02.000 --> 0:06:06.240 to Bloomberg podcasts out on YouTube, growing each and every day. 0:06:06.440 --> 0:06:11.320 So if I have a more tepid economy, I'm seeing 0:06:11.320 --> 0:06:15.040 a distribution of where SPX is down whatever, but the 0:06:15.120 --> 0:06:19.280 median or average stock including the Lori Kelvasina worlds getting 0:06:19.480 --> 0:06:22.279 hammered as well. So if I say I want to 0:06:22.279 --> 0:06:25.520 buy quality, how does Lori kelvis upweight I want to 0:06:25.640 --> 0:06:29.680 own or buy quality, how does Lori Kelvisina define that. 0:06:30.400 --> 0:06:32.719 I think quality is going to be done on a 0:06:32.720 --> 0:06:36.160 sector bisector basis within industries. You know, if I look 0:06:36.160 --> 0:06:38.520 at the Rustle two thousand right now, it's actually been 0:06:38.560 --> 0:06:40.880 acting a little bit better than I would have anticipated. 0:06:40.920 --> 0:06:42.800 That's something that's calming me down. But if you look 0:06:42.839 --> 0:06:45.239 at it within the factors within the Rustle two thousand, 0:06:45.400 --> 0:06:47.640 it is the higher quality factors that are starting to 0:06:47.680 --> 0:06:49.840 act a little bit better. You look at things like 0:06:50.000 --> 0:06:54.320 positive negative earnings. You can look at analyst rating. I 0:06:54.400 --> 0:06:55.960 tend not to do a lot of work on cash. 0:06:55.800 --> 0:06:58.320 Flow because a capex variability. 0:06:57.800 --> 0:06:59.960 Well, I mean my clients do look at cash flow. 0:07:00.200 --> 0:07:02.440 I think that's that's a big part, especially of SMID 0:07:02.480 --> 0:07:04.760 investing I'll tell you it's a nightmare from a quantitative 0:07:04.839 --> 0:07:06.800 database perspective, so I don't tend to do a lot 0:07:06.839 --> 0:07:07.320 around it. 0:07:07.960 --> 0:07:10.400 So where do we go from here? 0:07:10.440 --> 0:07:14.760 Do we think about just we had a person here, 0:07:14.840 --> 0:07:17.200 just a couple of guests ago, a couple of seconds ago, 0:07:17.240 --> 0:07:19.160 who's now in the hedge fund going to thirty to 0:07:19.200 --> 0:07:21.000 forty percent cash? 0:07:21.320 --> 0:07:22.920 Is that what you're hearing from some of your clients 0:07:22.920 --> 0:07:23.440 these days? 0:07:23.480 --> 0:07:25.920 So I have heard a little bit of that. I 0:07:25.960 --> 0:07:28.520 will tell you the conversation last week. And I was 0:07:28.560 --> 0:07:30.160 a little bit more in sort of the hedge fund 0:07:30.160 --> 0:07:32.240 derivatives world last week, and there was more of a 0:07:32.280 --> 0:07:35.000 sense of looking to buy the dip okay, and you know, 0:07:35.080 --> 0:07:38.280 sort of not entire clarity as ten percent is actually 0:07:38.360 --> 0:07:40.080 the bottom or maybe we have a bit more to go, 0:07:40.440 --> 0:07:42.360 but there was sort of a constructive bias, and I 0:07:42.400 --> 0:07:44.239 think you see that reflected in some of the options 0:07:44.280 --> 0:07:45.200 markets indicators. 0:07:45.240 --> 0:07:45.400 Right. 0:07:45.400 --> 0:07:47.520 The VIX has moved off to certain extremes we saw 0:07:47.560 --> 0:07:49.480 late last year, but things like the s dex and 0:07:49.520 --> 0:07:52.040 the T decks haven't really moved, you know, sort of 0:07:52.040 --> 0:07:55.080 indicating concern, right, but lack of kind of true fear 0:07:55.120 --> 0:07:55.760 at this point. 0:07:55.800 --> 0:07:59.960 What does multiples do? I mean, if a multiple's a ratio? Yeah, 0:08:00.040 --> 0:08:03.680 and I got market cap price whatever in the denominator, 0:08:03.720 --> 0:08:07.880 I got the Calvissina statistic. Do we get multiple compression? 0:08:08.400 --> 0:08:11.040 Where we enjoy a selected bear market? 0:08:11.440 --> 0:08:13.600 You get multiple compression. If you look at like a 0:08:13.680 --> 0:08:15.760 mediaan S and P five hundred PE, you run that 0:08:15.760 --> 0:08:18.880 against the Economic Policy Uncertainty Index, you tend to get 0:08:18.880 --> 0:08:22.200 PE compression when the policy is certain out where do 0:08:22.240 --> 0:08:23.040 you hide? 0:08:23.600 --> 0:08:28.240 So we've been telling like Sweeney's. 0:08:26.680 --> 0:08:29.040 I'll tell you Tom, the sectors are a struggle right now. 0:08:29.080 --> 0:08:33.000 And interestingly, I think every sector except tech and discretionary 0:08:33.080 --> 0:08:35.280 is outperforming in the S and P five hundred this year. 0:08:35.320 --> 0:08:37.160 So that's one bit of the strategy job that you 0:08:37.160 --> 0:08:39.560 know that's been bit easier for folks. But I don't 0:08:39.559 --> 0:08:43.440 love defensives in here. So we're underweight staples, we're neutral healthcare. 0:08:43.559 --> 0:08:45.760 We think there's policy risk on both of those. There's 0:08:45.840 --> 0:08:48.720 cheap and there's knee jerk defensivism. 0:08:48.080 --> 0:08:50.480 You know, kind of going intimism. What do you long. 0:08:50.720 --> 0:08:53.080 I've been telling people to buy financials, and I know 0:08:53.120 --> 0:08:55.480 they're cyclical, and I know they get hammered when sentiment 0:08:55.520 --> 0:08:57.600 gets hammered, and so you know, we're not sitting here 0:08:57.640 --> 0:09:00.600 saying they're not going to underperform a bit more if we, 0:09:00.720 --> 0:09:02.360 you know, have to get to a bottom and sentiment. 0:09:02.400 --> 0:09:04.760 But the U missed consumer sentiment survey is getting so 0:09:04.920 --> 0:09:08.600 bad it is actually close to recession like levels right now. 0:09:09.280 --> 0:09:10.920 And if you if you go back to our financial 0:09:10.960 --> 0:09:13.600 conference a few weeks ago, the banks sounded pretty calm 0:09:13.640 --> 0:09:15.760 and confident. I think they're going to be able to 0:09:15.800 --> 0:09:18.960 manage through this pretty well. You know, I think they 0:09:19.240 --> 0:09:22.600 sort of proved themselves post s VB. So I think 0:09:22.600 --> 0:09:24.480 we're going through a sentiment shock that's going to have 0:09:24.520 --> 0:09:27.319 some reverberations unless we have a really nasty recession. I 0:09:27.360 --> 0:09:29.680 think the banks are okay, and I think honestly they were. 0:09:29.960 --> 0:09:32.680 The sector was a little frothy before this all got started, 0:09:32.679 --> 0:09:34.400 and we've pulled that valuation froth out. 0:09:34.720 --> 0:09:35.120 I know you. 0:09:35.440 --> 0:09:37.800 Did take down your S and P five hundred earnings estimate. 0:09:37.800 --> 0:09:40.400 Do you think there's even more risk to earnings? 0:09:40.520 --> 0:09:42.800 Yeah, and look we took our number down a bit. 0:09:42.840 --> 0:09:44.480 I think we went to two sixty four. And I 0:09:44.480 --> 0:09:46.840 apologies first day new forecast. Sometimes, you know, I get 0:09:46.840 --> 0:09:49.079 the numbers a little jumbled up, but you know, we 0:09:49.320 --> 0:09:51.640 took it down from two seventy one to two sixty four, 0:09:51.679 --> 0:09:54.840 and we got there through updating the econ forecast. GDP 0:09:54.960 --> 0:09:57.680 take a huge bite out of that. The stickier inflation 0:09:57.840 --> 0:10:01.320 adds some back to the revenue line, but frankly, we 0:10:01.400 --> 0:10:04.080 also took our margin assumption down. I've been baking in 0:10:04.120 --> 0:10:06.640 some modest expansion this year. I just took it to flat. 0:10:06.880 --> 0:10:09.400 That's a guess, that's an assumption. But I've gone through 0:10:09.400 --> 0:10:12.360 so many earnings calls where you know, maybe there's one 0:10:12.400 --> 0:10:14.480 company that's you know, baked in a little bit of 0:10:14.520 --> 0:10:17.199 the China terrace, but nothing on Mexico or Canada, and 0:10:17.240 --> 0:10:19.920 even some of the others have a lot of have 0:10:20.000 --> 0:10:21.640 a lot of both and a lot of Mexico, and 0:10:21.640 --> 0:10:23.760 they haven't put any in. So we've got to go 0:10:23.840 --> 0:10:27.720 through the process of getting something in those numbers. Okay, 0:10:28.080 --> 0:10:30.320 I think it shows up in my number three Francis's 0:10:30.400 --> 0:10:33.839 GDP forecasts, but there's a lot of variability around. 0:10:33.880 --> 0:10:36.280 I only agree with that, whether nominal or real GDP. 0:10:36.559 --> 0:10:39.600 But what I find fascinating is a solution to this 0:10:39.800 --> 0:10:43.320 uncertainty for animals like you is you just bring in 0:10:43.360 --> 0:10:46.240 your X axis. I mean, what you knew three year 0:10:46.360 --> 0:10:47.760 forecast four months? 0:10:47.960 --> 0:10:50.000 I actually never have a three year forecast. I mean 0:10:50.040 --> 0:10:54.320 I always tell people get it, I'm not anymore. 0:10:54.360 --> 0:10:56.439 We used to have like a three year forecast. 0:10:56.520 --> 0:11:00.200 Well, look and look, I think that the strategy community 0:11:00.240 --> 0:11:02.240 has undergone a bit of a shift. When I started 0:11:02.240 --> 0:11:03.920 in the business, I think it was reasonable to have 0:11:03.960 --> 0:11:05.800 a twelve year forecast that you didn't have to change 0:11:05.800 --> 0:11:07.679 our twelve month forecast. You didn't have to change all 0:11:07.720 --> 0:11:10.160 that much. Things moved too quickly now and I've sort 0:11:10.160 --> 0:11:13.120 of tried to get the conversation started about, like stop 0:11:13.160 --> 0:11:15.480 writing these shame on you articles in December about the 0:11:15.480 --> 0:11:17.960 strategists who moved their targets around a couple of times 0:11:18.360 --> 0:11:21.000 that worked if you were byron Ween. That doesn't work 0:11:21.040 --> 0:11:22.400 in this day and age anymore. 0:11:22.559 --> 0:11:25.880 It maybe otter byron Ween. He was such a support. 0:11:25.960 --> 0:11:28.160 But Laurie, I mean, are you out the fourth of 0:11:28.240 --> 0:11:29.600 July with a Sweeney view. 0:11:31.080 --> 0:11:34.120 Look, you will revise as we need to revise, and 0:11:34.160 --> 0:11:36.679 as we get you know, new information that comes in, 0:11:37.559 --> 0:11:39.600 and we you know, we're very forthcoming about that. In 0:11:39.640 --> 0:11:41.480 our product. Nothing is set in stone here. 0:11:41.600 --> 0:11:43.840 Right, What are clients, what's the feeling you're getting from 0:11:43.840 --> 0:11:45.840 your clients, and how has it changed over the last 0:11:46.320 --> 0:11:48.840 now four or five six weeks Because we kind of 0:11:48.840 --> 0:11:51.920 came into this administration saying animal spirits gone. 0:11:51.679 --> 0:11:54.920 Wild, American exceptional. 0:11:54.760 --> 0:11:57.240 Exactly right, and it was a real thing back in 0:11:57.280 --> 0:11:59.160 the day. But we are one hundred and eighty degrees 0:11:59.160 --> 0:11:59.640 from that now. 0:11:59.559 --> 0:12:02.160 It seems like, you know, I think any consensus assumption 0:12:02.720 --> 0:12:05.959 there's a Trump put you know, things are going to 0:12:05.960 --> 0:12:09.120 have this big unfreezing of activity. Every consensus assumption has 0:12:09.160 --> 0:12:10.920 been thrown out the window. I think Tom hit on 0:12:11.000 --> 0:12:14.400 something important though about American exceptionalism and our Weekly today 0:12:14.400 --> 0:12:16.040 we had a couple of charts buried in the back 0:12:16.040 --> 0:12:19.360 where we were able to look at European domiciled investors 0:12:19.600 --> 0:12:21.560 and what they're doing. And they're taking money out of 0:12:21.600 --> 0:12:24.000 the US and putting it into Europe. In the US 0:12:24.080 --> 0:12:26.280 it's kind of like more neutralish on the US, but 0:12:26.320 --> 0:12:28.959 the money is flowing into Europe. So I think that, 0:12:29.080 --> 0:12:31.680 you know, regardless of whether we stabilize here in the 0:12:31.800 --> 0:12:34.360 US and the US can rebound, I think the door 0:12:34.400 --> 0:12:35.400 to Europe has been opened. 0:12:35.520 --> 0:12:38.320 Lloyd Kelvicina, thank you so much, greatly appreciate it with 0:12:38.360 --> 0:12:41.480 OURBC and of course her honor of being with Barons 0:12:41.840 --> 0:12:45.600 one hundred women in finance, along with a very good 0:12:45.600 --> 0:12:53.920 group including Ellen Zeenner. 0:12:54.400 --> 0:12:58.000 You're listening to the Bloomberg Surveillance podcast. Catch us Live 0:12:58.040 --> 0:13:02.079 weekday afternoons from seven to ten an listen on Applecarplay 0:13:02.080 --> 0:13:05.320 and Android Auto with the Bloomberg Business app, or watch 0:13:05.440 --> 0:13:06.719 us live on YouTube. 0:13:07.160 --> 0:13:10.240 Mike Green starts as strong here with Simplify asset management, 0:13:10.320 --> 0:13:13.080 more of a bigger broader view with his hedge fund 0:13:13.160 --> 0:13:14.600 experience as well. I want to get to the hedge 0:13:14.600 --> 0:13:16.840 funds in a minute. But you know when you came in, 0:13:17.640 --> 0:13:19.640 you know, you know, you got in through the rain. 0:13:20.480 --> 0:13:23.000 You said, you know, the money's moving back to Europe. 0:13:23.440 --> 0:13:27.439 What does the quote unquote money moving back to Europe 0:13:28.040 --> 0:13:30.479 due to the Dow Jones Industrial Average. 0:13:30.720 --> 0:13:32.880 Well, it really depends on where it was invested. But 0:13:32.960 --> 0:13:34.800 one of the things that we have clearly seen is 0:13:35.040 --> 0:13:38.080 a European and rest of world investment into the United States, 0:13:38.120 --> 0:13:42.000 primarily to access the MAGS seven, but honestly increasingly through 0:13:42.040 --> 0:13:45.560 things like passive total market allocations, has been invested in 0:13:45.559 --> 0:13:48.160 the United States. Now that Europe has to bring that 0:13:48.240 --> 0:13:50.280 money home. We actually are starting to see the first 0:13:50.320 --> 0:13:52.080 signs of you know what we have always talked about, 0:13:52.080 --> 0:13:55.560 its financial repression, which is directed return of assets. You've 0:13:55.559 --> 0:13:58.520 seen pension plans in the UK encouraged to bring more 0:13:58.559 --> 0:14:02.000 assets home. You're seeing headlines of you know, French banks 0:14:02.040 --> 0:14:07.000 buying into strategic wastewater and UH treatment in their in 0:14:07.040 --> 0:14:10.200 their own country. This is causing the dollar to sell 0:14:10.240 --> 0:14:12.800 off as that money comes back and converted to euros, 0:14:13.480 --> 0:14:15.920 and it's also causing US assets to sell off. And 0:14:15.920 --> 0:14:17.880 I think that was an unintended byproduct. 0:14:17.960 --> 0:14:21.520 So there's a directly into the stock market in America. 0:14:22.280 --> 0:14:25.120 So, Mike, I mean, I guess a lot of investors 0:14:25.160 --> 0:14:27.040 are trying to say, all right, this pullback in the market, 0:14:27.880 --> 0:14:33.280 is it a healthy pullback in otherwise market exactly or 0:14:33.320 --> 0:14:36.480 is it something else reflecting a new world where tariffs 0:14:36.520 --> 0:14:39.520 are the name of the game, which calls into question 0:14:39.680 --> 0:14:40.960 growth and inflation and so on. 0:14:41.160 --> 0:14:43.240 Well, I was going to joke that if April showers 0:14:43.240 --> 0:14:45.800 bring mayflowers, what the March showers bring and the answer 0:14:45.800 --> 0:14:50.000 is terrifidils, right, right, So what we are absolutely saying, 0:14:50.000 --> 0:14:53.600 I would say is not healthy, although it is necessary. Right, So, 0:14:53.640 --> 0:14:55.960 when we talk about Europe needing to reinvest in itself, 0:14:55.960 --> 0:14:57.600 when we talk about the rest of the world having 0:14:57.640 --> 0:15:00.000 to take on the border the burden from the United States, 0:15:00.080 --> 0:15:02.520 it's for defense on a global basis or at least 0:15:02.520 --> 0:15:05.680 on a regional basis. They need those funds to reinvest. 0:15:05.680 --> 0:15:07.000 Now, is this healthy? 0:15:07.120 --> 0:15:09.920 Quote unquote doesn't mean it reflects good economic outcomes. No, 0:15:10.040 --> 0:15:13.240 we know that's bad, but it is unfortunately necessary. It's 0:15:13.240 --> 0:15:15.600 probably something we should expect to see more of going 0:15:15.640 --> 0:15:16.720 forward as compared. 0:15:16.400 --> 0:15:19.280 To last Torsten slack Apollo was out with a note 0:15:19.280 --> 0:15:23.040 over the weekend saying, basically, the consumers really really slowing 0:15:23.080 --> 0:15:26.440 down here. He quoted a bunch of statistics, including last 0:15:26.440 --> 0:15:28.920 week the airlines took down their earnings, Cole's, a big 0:15:28.920 --> 0:15:32.680 retailer took down its guidance. How do you feel about 0:15:32.880 --> 0:15:34.840 the consumer here and what it means for this economy. 0:15:35.000 --> 0:15:37.480 Well, I think what we're seeing, unfortunately, is the air 0:15:37.520 --> 0:15:40.000 coming out of the Trump enthusiasm trade. So we saw 0:15:40.040 --> 0:15:42.160 a huge balance in the fourth quarter as it became 0:15:42.200 --> 0:15:44.560 apparent that Biden had withdrawn from the race, that the 0:15:44.600 --> 0:15:47.000 pivot to Kamala Harris had not worked for the Democrats. 0:15:47.720 --> 0:15:51.600 In turn, that led to a surge and consumer confidence. Unfortunately, 0:15:51.680 --> 0:15:54.680 underneath that there was just always tremendous weakness. This bifurcated 0:15:54.680 --> 0:15:56.880 economy had been something we've seen for a long time. 0:15:57.280 --> 0:16:01.720 There's been continual deterioration and consumer credit metrics, and now, 0:16:01.760 --> 0:16:03.960 of course we've got the reporting that's coming back on 0:16:04.160 --> 0:16:06.720 whether it's student loans or we're starting to see the 0:16:06.720 --> 0:16:10.360 disconcerting information coming out of the FAHA on subprime mortgage 0:16:10.360 --> 0:16:13.520 crisis that has been created there. All of this is 0:16:13.520 --> 0:16:16.440 basically just reversing that sentiment bounce and exposing what was 0:16:16.480 --> 0:16:18.000 already happening under the surface. 0:16:18.720 --> 0:16:22.119 So what do we do here? Do we get defensive? 0:16:22.200 --> 0:16:24.280 Do we buy the dip? How are you talking to 0:16:24.280 --> 0:16:25.320 your clients these days? 0:16:25.520 --> 0:16:27.600 Well, the biggest thing I would highlight, you know, one 0:16:27.640 --> 0:16:29.600 we mentioned the idea of the real rate, the ten 0:16:29.680 --> 0:16:31.880 year real rate, that seems very much at odds with 0:16:31.880 --> 0:16:34.920 almost everything else we're seeing. When there's uncertainty around investment, 0:16:35.000 --> 0:16:37.640 you should look for certainty or when you can find 0:16:37.760 --> 0:16:40.840 that opportunity, that two percent reel is a relatively attractive 0:16:40.880 --> 0:16:43.280 yield versus history. So that's one thing I'm encouraging people 0:16:43.280 --> 0:16:45.320 to make sure that they take a look at the 0:16:45.360 --> 0:16:48.000 second component is is to recognize that the markets are 0:16:48.080 --> 0:16:50.160 just like they were going into COVID. We know there's 0:16:50.160 --> 0:16:52.760 something ugly out there, we know there's problems out there, 0:16:52.880 --> 0:16:55.520 but they can't react until the flows from four oh 0:16:55.560 --> 0:16:58.080 one k is, et cetera start to deteriorate, until that 0:16:58.400 --> 0:17:00.440 non discretionary fund starts to change. 0:17:00.520 --> 0:17:04.040 Bloomberg surveillance nationwide in your commute this morning, we welcome 0:17:04.119 --> 0:17:08.760 all of you. Good morning, ninety nine one FM. Nathan Hagers, Washington, 0:17:09.000 --> 0:17:12.280 Good morning to ninety two nine FM and Boston saw 0:17:12.320 --> 0:17:15.920 some Red Sox baseball this weekend digested. I think they 0:17:15.920 --> 0:17:17.840 can be first placed by April fifteenth. 0:17:18.119 --> 0:17:20.240 Nice, don't ask me about all sixteen. 0:17:20.359 --> 0:17:23.199 All there as well, we say good morning, Bloomberg eleventh 0:17:23.280 --> 0:17:25.359 Roe zero in New York. Wherever you are in the 0:17:25.359 --> 0:17:28.000 weather tour in America, be careful out there, and to 0:17:28.040 --> 0:17:31.080 a Michael Borrow, have some good updates for you. Mike 0:17:31.119 --> 0:17:34.679 Green with us is simplify asset management? 0:17:34.760 --> 0:17:37.679 What to simplify simplify As an ETF firm, we were 0:17:37.720 --> 0:17:41.359 launched in September of twenty twenty in response to regulatory change. 0:17:41.359 --> 0:17:45.680 The facilitated the inclusion of alternative strategies and ETFs. 0:17:45.119 --> 0:17:47.200 Hedge funds within an ETF structure. 0:17:47.359 --> 0:17:49.320 Yeah, there was a big change coalition. 0:17:49.520 --> 0:17:51.879 It's going reasonably well. We've got several funds that are 0:17:51.920 --> 0:17:54.800 doing quite well. In particular, managed futures has been an 0:17:54.840 --> 0:17:57.280 area for US that's been really successful. Some of the 0:17:57.520 --> 0:18:01.520 revisions or or more conservative ways of into volatility markets 0:18:01.520 --> 0:18:04.199 have been successful for us. We've grown from about two 0:18:04.280 --> 0:18:05.919 hundred million to now about seven billion. 0:18:06.080 --> 0:18:09.520 How does long short do here? Away from simplify just 0:18:09.560 --> 0:18:13.000 as a general statement to me, it's stochastic on both sides. 0:18:13.040 --> 0:18:16.360 I'm catching a knife on both sides on a daily basis. 0:18:16.880 --> 0:18:18.600 So actually, this is one of the areas I spent 0:18:18.640 --> 0:18:20.480 a lot of time talking about passive I tend to 0:18:20.520 --> 0:18:22.840