Speaker 1: This is the Bloomberg Surveillance Podcast. I'm Tom Keene, along
Speaker 1: with Jonathan Farrow and Lisa Abramowitz. Join us each day
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Speaker 2: This to me is the question how much do we
Speaker 2: see shares absolutely pummeled? If anything is disappointed.
Speaker 1: There's only one person to answer the question, Walgreen's analyst
Speaker 1: Stuart Geiser, US equity trading strategy head. It's any group, Stewart.
Speaker 1: I know you don't talk about individual stocks, but this
Speaker 1: is just a microcosm of the earnings battle over the
Speaker 1: next six weeks.
Speaker 3: Yeah, yeah, I think look at earnings have been obviously
Speaker 3: a very pleasant surprise or a very painful surprise. If
Speaker 3: you've been bearish on a your date basis, you know
Speaker 3: I would agree with you. The bar is pretty high
Speaker 3: going into earnings this quarter, particularly in the tech space,
Speaker 3: so that's going to be I think a very very
Speaker 3: strong test. We have seen investors kind of gravitating towards
Speaker 3: stocks that have strong EPs momentum. This kind of happened
Speaker 3: to head a last earning season as well, so you know,
Speaker 3: when the bar is high, you try to go with
Speaker 3: the stocks I think you feel like you can rely
Speaker 3: on from an earnings perspective, what are.
Speaker 1: Your securities analysts say? It's City Group, They've got this.
Speaker 1: I get all the feed from City Group for some reason.
Speaker 1: And you know, Jane Frazier's she's long on you know, IBM,
Speaker 1: I hear about it first. But the bottom line is
Speaker 1: what do the troops say about this pending season?
Speaker 3: Look, I think it's I think it's going to be
Speaker 3: a mixed bag. And the question is, you know where
Speaker 3: do you put the most focus? You know, to me
Speaker 3: a lot of you know, to continue the Walgridge conversation,
Speaker 3: it's it's the services side of the economy, and it's
Speaker 3: the labor market and consumer spending that that are the
Speaker 3: things I think you need to pay most most close
Speaker 3: attention to going to the second half of the year.
Speaker 2: I'm looking right now. Walgreen shares down seven point four
Speaker 2: percent in pre market trading on the heels of this disappointment.
Speaker 2: It wasn't a severe disappointment, but it was appointment. What
Speaker 2: does that say about the potential sell off if there
Speaker 2: is any crack in any of the big tech names,
Speaker 2: given where valuations are, given where expectations are, and given
Speaker 2: how lofty some of these stock prices really are right now.
Speaker 3: Yeah, it's going to be a minefield, I think, you know,
Speaker 3: for tech earnings. And the tough part too is you
Speaker 3: look at that week between July twenty fourth and July thirty.
Speaker 3: First you get the FMC and that's when you get
Speaker 3: you know, large cap earning. So you know that last
Speaker 3: week in July I think is going to be very
Speaker 3: busy for you all and obviously very busy for us.
Speaker 3: And yeah, to your point, I think that the bar
Speaker 3: is very high here for a lot of those stocks,
Speaker 3: particularly if you look back to last quarter, you know,
Speaker 3: stocklike Microsoft, A stocklike and Video, which were considered consensus longs,
Speaker 3: still managed to rise considerably on earnings, and I think
Speaker 3: they've now face the challenge of backing that.
Speaker 1: Up headline out right now. Delta Airlines thanks the Abramowitz
Speaker 1: fan for profit making travel in July.
Speaker 4: Thank you. Yeah, are you just basically just.
Speaker 1: Continue to Walgreen's tank as we go and delta out
Speaker 1: with a complete reado. Lisa, why don't you visit it?
Speaker 1: Your free cash flow was greater than two billion. They
Speaker 1: popped FCF up to three billion dollars. I believe that's
Speaker 1: a fifty percent lift on free cash.
Speaker 2: Well, this has been the perennial story, right, that people
Speaker 2: keep traveling, that the distortions post pandemic have continued. Given
Speaker 2: some of these post pandemic distortions, And we were talking
Speaker 2: before we went on about how people do keep on
Speaker 2: spending and maybe they were conditioned by remaining cooped up
Speaker 2: and feeling like they have to seize life at the
Speaker 2: horns or whatever kind of psychological rationale you want to
Speaker 2: put on it. But Stuart, how does that color your
Speaker 2: view of whether you're more optimistic or more pessimistic once
Speaker 2: we get the reality of these earnings.
Speaker 1: Look, I think.
Speaker 3: It's earnings and to your point, is consumer spending employment.
Speaker 3: And you know, if we're going to have a recession
Speaker 3: in the second half of the year, it's going to
Speaker 3: have to come from the consumer side of the market, right,
Speaker 3: So that's why there's so much focus on the labor
Speaker 3: market I think going into earnings. Yet there's a high
Speaker 3: bar for tech, mostly because tech has been leadership of
Speaker 3: the market, and I think there's a higher, you know,
Speaker 3: a high bar. A lot of focus on consumer companies
Speaker 3: just to see if the spending is following through. Are
Speaker 3: they continuing to be able to pass through inflation or
Speaker 3: are they starting to have to discount, you know, to
Speaker 3: get to get people in the door. So I think,
Speaker 3: you know, those are the two areas will probably focused
Speaker 3: on the most f earnings coming up is can tech
Speaker 3: hit the bar? And what signal are we getting on
Speaker 3: consumer spend?
Speaker 2: What does it mean that tech is that tech earnings
Speaker 2: is a minefield, that that whole period is a minefield
Speaker 2: at a time when you've been pretty optimistic about where
Speaker 2: the market's heading.
Speaker 3: Yeah, look, the tech the tech trade is obviously not
Speaker 3: as we say, as clean as it was you know
Speaker 3: at the beginning of the year. You know, I think
Speaker 3: the bottom line here is if you look at sales revisions,
Speaker 3: if you look at EBITDA revisions, they've been you know,
Speaker 3: higher for tech and even higher in the AI space.
Speaker 3: So that kind of sets your bar, you know a
Speaker 3: little bit higher for expectations, and you know what we've
Speaker 3: seen the last I would say one to two months
Speaker 3: is is long only investors in particular starting to have
Speaker 3: some fatigue in terms of tech buying. We're starting to
Speaker 3: see some outflows from the space. So you put those
Speaker 3: two things together, you have a high bar and what
Speaker 3: looks like some fatigue on the institutional side, and that
Speaker 3: just to your point, sets it up that you need
Speaker 3: to need to deliver results here to kind of justify
Speaker 3: your performance out of your today basis.
Speaker 1: I want you to talk to market timers right now.
Speaker 1: You have been brilliant bailing the rest at City Group
Speaker 1: about saying you got to be in the game to win.
Speaker 1: Talk about market timing right now, the efficacy of being
Speaker 1: hyper cautious versus the optimism I hear from City Group.
Speaker 3: Yeah, look, I think even our optimism is starting to
Speaker 3: get a little bit tired, you know, to be completely
Speaker 3: honest with you, you know, partly its price action and partly
Speaker 3: it's one of the reasons we were kind of more
Speaker 3: bullish coming into the year was so much stock had
Speaker 3: been sold last year, and we thought that that those
Speaker 3: positions kind of needed to be rebuilt. And just the
Speaker 3: data we're seeing on flows suggests that those positions have
Speaker 3: largely been rebuilt, call it your seventy five percent of
Speaker 3: the way you know, along that path. So from our perspective,
Speaker 3: it does kind of impact risk reward a little bit.
Speaker 3: So look, you know, we are still relatively positive, you know,
Speaker 3: gun to our head, we'd say up up rather than
Speaker 3: down at this point. But the risk reward is definitely.
Speaker 1: The nature of a bull market. I mean, I mean,
Speaker 1: I'm sorry, we're not in the first leg off the
Speaker 1: Matt Bramo was wicked gloomy the third week of October
Speaker 1: last year, and guess what, we all got off the
Speaker 1: mat and went, it's not supposed to be like that now, right, No,
Speaker 1: it's not.
Speaker 3: I mean for a number of reasons. One is, you've
Speaker 3: had a tremendously positive economic data surprise to start the year.
Speaker 3: That's flowed through to earnings expectations as well. I think
Speaker 3: that's that's helped lift the market. Look, you get above
Speaker 3: forty four hundred, you know, and it looks like institutional
Speaker 3: investors at least have started to you know, just sort
Speaker 3: of call pause a little bit in terms of their
Speaker 3: inflows into the market. So that that means one of
Speaker 3: two things. Either, I think you need to take recession
Speaker 3: risk out of the system, which would be your next
Speaker 3: leg higher or you're going to need, you know, retail
Speaker 3: to continue to sponsor this market to the upside.
Speaker 2: Are you one of those people who says if there
Speaker 2: is a sell off in tech, it's a biable dip.
Speaker 2: That's what I keep hearing from everyone.
Speaker 3: Look, I think if there's a cello in tech, I
Speaker 3: think that means markets are down in general. You're not
Speaker 3: going to get tech down with markets off, right, So
Speaker 3: every dip is a Bible tip, I guess. But you know,
Speaker 3: from our perspective, I think if you get a pull
Speaker 3: back here, I agree with you. I think there are
Speaker 3: a lot of people waiting to get into the market,
Speaker 3: you know, a bit lower, which probably mean like right
Speaker 3: now we're in the pain trade. To the upside, you know,
Speaker 3: people didn't want to chase it. I think what you'll
Speaker 3: probably have is people buy a little too quickly on
Speaker 3: the way down and then and then kind of have
Speaker 3: to average themselves in the floor is clearly higher than
Speaker 3: it was to start the year. Again, Yeah, I agree
Speaker 3: with you. I do think you'll see so I don't
Speaker 3: want to call it value picking, but you'll definitely see
Speaker 3: some people who'd be happy to buy the market call
Speaker 3: it five to ten percent lower here, which, as you know,
Speaker 3: lives the downside.
Speaker 1: I don't know if you knew this. This is brilliant Stewart,
Speaker 1: thank you so much. But Bramo's got the east Bay
Speaker 1: forty four from grand Banks on delivery later this summer.
Speaker 1: Gorgeous with a light blue and she's named Bible Dip.
Speaker 1: This is great. It's a picnic boat for Bramo to
Speaker 1: have a picnic. It's like the Hinkley one. But actually
Speaker 1: I think it has more character than the Hinkley picnic boat.
Speaker 2: I think I got lost in me paddle to blow
Speaker 2: up paddle board instead.
Speaker 4: That sort of my speed.
Speaker 1: But here out it was great. I love the site Thrusters,
Speaker 1: but I'm sorry the East Space betteran you know you
Speaker 1: might this.
Speaker 4: Was the last time you were on a boat.
Speaker 1: I mean, come on, it was boat was called the
Speaker 1: USS Drama.
Speaker 2: Yeah exactly, that sounds more like it.
Speaker 1: Yeah, Stuart Kaiser, just bringing in come back, bring Jeff
Speaker 1: you with you from b and ymel every day. Kaiser
Speaker 1: in you it is with our question the Hallmark Research
Speaker 1: analysis of the year. You could hear the silence in
Speaker 1: Washington is the International Monetary Fund, led by the economics
Speaker 1: of gidigopin F looked out to twenty twenty eight and
Speaker 1: saw a growth trajectory that took us back decades to
Speaker 1: nineteen ninety. It was an extraordinary call on tepid economic growth.
Speaker 1: We need an update. We go to Portugal and CenTra
Speaker 1: the meetings of the European Central Bank. Francine Lacroix of
Speaker 1: the Pulse in conversation with doctor Gopineth Francine, good morning,
Speaker 1: Good morning Tom.
Speaker 5: I am delighted to be joined by Gita Goopinoff, of
Speaker 5: course of the IMF, who yesterday also really opened the
Speaker 5: forum here in Syndrome with a very powerful speech linking
Speaker 5: fiscal policy and montary policy and really reminding everyone that
Speaker 5: they had to work in tantem So, Gita, thank you
Speaker 5: so much for joining us. When you look at the
Speaker 5: fight against inflation, there's now a lot of talk about recession.
Speaker 5: You know the fact that core inflation is still high,
Speaker 5: but headline inflation is coming down. What does a policy
Speaker 5: mistake from central banks now look like?
Speaker 6: First of all, it's the pressure to join your friends scene.
Speaker 6: What are you experiencing is that inflation is taking a
Speaker 6: long time to get back to its target. And yes,
Speaker 6: headline is coming down significantly, but core inflation, what it
Speaker 6: has eased, is still persistently high. So in this environment,
Speaker 6: our advice is a central bank will need to stay
Speaker 6: the course.
Speaker 4: In the case of the ECB, that will mean that some.
Speaker 6: More continued tightening and then to stay on hold to
Speaker 6: make sure that you're confident that inflation is coming back
Speaker 6: durably down and that that could come along with more
Speaker 6: weakness in liberal markets that we've seen so far and
Speaker 6: more weakness in the economy in general, but that's what
Speaker 6: is needed to bring inflation down.
Speaker 4: Do you worry about the markets?
Speaker 5: And I know you don't look at the market send
Speaker 5: day out, but there seems to be a bias in
Speaker 5: the markets that are actually inflation is coming down and
Speaker 5: that central banks will be ready to not hike as
Speaker 5: much as maybe they will. So is there a danger
Speaker 5: that the market is mispricing something that will then create
Speaker 5: an event.
Speaker 6: When the markets have been off since the start of
Speaker 6: this year. I mean, if you look at their expectations
Speaker 6: of the policy rate part in some countries, especially the US,
Speaker 6: they were expecting three rate cuts this year for US
Speaker 6: FED policy, and they have adjusted, they've come back now
Speaker 6: to recognizing that no, we are there here for longer
Speaker 6: than was expected. So I think markets have been very optimistic,
Speaker 6: and I suspect there's still somewhat optimistic about the path
Speaker 6: for interest rates.
Speaker 5: What do they most misunderstand is that the fact that
Speaker 5: interest rates have to remain higher for longer, which Christine
Speaker 5: Laguard actually laid out beautifully in her speech, or that
Speaker 5: they have to rise higher than expected.
Speaker 4: I think it's how long they're going to stay at that.
Speaker 6: I think that's the part where there is a disconnect
Speaker 6: between the markets and what central banks are signaling, and
Speaker 6: so far it's the markets that have had to correct
Speaker 6: to the central bank paths as opposed to other way around.
Speaker 6: So I still think that they're off a bit on
Speaker 6: the duration.
Speaker 4: For which they have to keep rates high.
Speaker 5: What's the path forward for growth should we worry about?
Speaker 5: Once we get inflation in control.
Speaker 6: We are seeing growth weakening, We are seeing slowing activity.
Speaker 6: At this point, we need to bring inflation down to
Speaker 6: have sustainable growth, which is why it's super important to
Speaker 6: do this this time around, since it's not just a
Speaker 6: demand phenomenon. Had supply disruptions correct themselves. We've had energy
Speaker 6: prices come down. I think both those factors are helping
Speaker 6: bring inflation down without needing too much of a hit
Speaker 6: to the economy.
Speaker 4: But I think we have to wait and see.
Speaker 6: We're only just seeing the effects of market policy work
Speaker 6: through the system now, and we can see much more slowing.
Speaker 5: But is that why, I mean, why is correntflation so
Speaker 5: stubbornly high. No one can quite figure it out, which
Speaker 5: is why it keeps on surprising us to the upside.
Speaker 6: It's a big part of the conversation we're having at CenTra,
Speaker 6: which is is it the fact that market policy transmission
Speaker 6: is now wicked than it used to be, or is
Speaker 6: it the fact that you haven't raised interest rates by
Speaker 6: an app I think these are questions that are coming up.
Speaker 4: We have a.
Speaker 6: Situation where it has been the case that household balance
Speaker 6: sheets corporate balance sheets have been strong, which has helped
Speaker 6: hold up resilience.
Speaker 4: Labor markets are ties.
Speaker 6: People believe that they will have a job, they can
Speaker 6: keep a job, Wages are going up, and services pending
Speaker 6: tends to be much less intrasensitive than when it comes
Speaker 6: to durable goods, which consumers piled up on already during
Speaker 6: the peak up the pandemic. So I think all these
Speaker 6: factors could be muting the effect of Montre policy transmission.
Speaker 6: But now as those effects decline, we could start seeing
Speaker 6: more of a slowing inactivity.
Speaker 5: I mean, to put it simply, a night mercenario would
Speaker 5: be some kind of spiral. So you have wages going up,
Speaker 5: prices go up, and then you lose control.
Speaker 6: Are we there yet? I don't think so. Don't We're
Speaker 6: not seeing that in like in the US or in
Speaker 6: the Euro Area. We certainly are seeing wage cash up
Speaker 6: and that has happened, That's happened.
Speaker 4: In previous cycles too.
Speaker 6: We should expect to see that, But we're not seeing
Speaker 6: wages pushing up prices. The concern, of course, is that
Speaker 6: if it takes so long to bring inflation down, then
Speaker 6: you might unhinge inflation expectations and then trigger a wage
Speaker 6: price file. This is why President god spends a lot
Speaker 6: of time talking about, you know, the persistence of inflation
Speaker 6: and the reason to stay high for long.
Speaker 5: So is that why interest rates you think have to
Speaker 5: stay higher for longer?
Speaker 4: Is it really?
Speaker 5: I mean, it's to get inflation two percent, but really
Speaker 5: it's to try to break through that spiral. That could
Speaker 5: be impossible actually almost to get out.
Speaker 6: If you look at projections for when inflation gets back
Speaker 6: to targets in the Euro Area, that's the middle of
Speaker 6: twenty twenty five.
Speaker 4: That's two years from now.
Speaker 6: This is a long time and that's why it is
Speaker 6: critical that you can't have any further risks to de
Speaker 6: anchoring of inflation, because it's two years is a long
Speaker 6: time to bring inflation back down to target. To make
Speaker 6: sure it happens, you have to stay the course and
Speaker 6: keep interest ras high and until you see durable signs
Speaker 6: that core inflation is coming down, then of course you
Speaker 6: have to be data dependent.
Speaker 5: I mean, all the world central bankers are here. It
Speaker 5: was quite exciting for me to see j Powell also
Speaker 5: walk in and the sneakers. I don't often see him
Speaker 5: actually in sneakers or face to face. Is a gravitational
Speaker 5: pull of what the FED does. Too heavy to hand
Speaker 5: for the UCB, but also the Bank of England, the
Speaker 5: Bank of Japan.
Speaker 6: What the FED does matters for the whole world, including
Speaker 6: for other major central banks. But I think this is
Speaker 6: a time when central bankers are coming together also to
Speaker 6: understand inflation dynamics better.
Speaker 4: There are still several questions.
Speaker 6: There's a lot of uncertainty on the outlook, and centralize
Speaker 6: a good learning experience for all central bankers.
Speaker 5: How hard is it for a monetary policy to counter
Speaker 5: fiscal policy? And again, because we're seeing inflationarized.
Speaker 4: That means the cost of living goes up.
Speaker 5: So it's understandable that politicians want.
Speaker 4: To be there for their citizens.
Speaker 6: I think it's perfectly good for governments to want to
Speaker 6: be there for their vulnerable citizens and to provide targeted support.
Speaker 6: What is not really good at this point would be
Speaker 6: to have broad based support that generates very large fiscal deficits,
Speaker 6: especially increases in fiscal deficits, and then feeds into inflation.
Speaker 4: That is a problem.
Speaker 6: I mean, all the indicators, the fact that we have
Speaker 6: high inflation now, the fact that debt is high and
Speaker 6: we need to build buffers because they're going to be
Speaker 6: future shocks. All of that point towards fiscal tightening, and
Speaker 6: that's what we're recommending.
Speaker 5: When you look at central the big center bankers around
Speaker 5: the world, and of course you know, dealing with inflation
Speaker 5: and growth, who do you think has the toughest job
Speaker 5: bank of England?
Speaker 6: I think at this point among the major ones. If
Speaker 6: I put the US, the Euro Area on the Bank
Speaker 6: of England, I think in the UK the inflation problem
Speaker 6: looks more difficult than in the other parts because they
Speaker 6: have a self supply shock problem that came from the
Speaker 6: energy prices, and they also have the demand side, which
Speaker 6: is very tight labor markets and if you look at
Speaker 6: wages in fact, in England, this is where you see
Speaker 6: the most amount of wage pressures coming in.
Speaker 4: So how do they get out of it?
Speaker 5: Again, there's also huge reliability on mortgages, so it's not
Speaker 5: as easy as you just keep on hiking because the
Speaker 5: housing market is so sensitive to that.
Speaker 4: Well.
Speaker 6: I think personally the fact that the Bank of England
Speaker 6: raised rates by fifty basis points recently in the most
Speaker 6: recent meeting, I.
Speaker 4: Think that's a welcome step.
Speaker 6: That's a clear signal that they are in the fight
Speaker 6: to bring inflation down. One of the reasons they've been
Speaker 6: somewhat cautious is exactly what can happen to mortgages and
Speaker 6: the housing market. But you know, there's been an increase
Speaker 6: in the duration of fixed rate mortgages in the UK,
Speaker 6: so you have some attenuation of that effect, and household
Speaker 6: balance sheets are much stronger than they were in the.
Speaker 4: Past, so that should also help.
Speaker 5: Tom Keen was also talking about, of course your at
Speaker 5: look and what we saw just a couple of weeks
Speaker 5: ago by the IMF. Are you more optimistic now about
Speaker 5: the world economy in twenty twenty four than new were
Speaker 5: six months ago?
Speaker 6: We had a projection for the world economy to grow
Speaker 6: as around two point eight percent this year, which was
Speaker 6: you know, coming down from three point four percent last
Speaker 6: year and then going up to around three percent. Our
Speaker 6: new numbers will be out in July. We don't have
Speaker 6: it ready at this point. We're getting different data from
Speaker 6: different countries at this point, but I think the overall
Speaker 6: story of an economy that's.
Speaker 4: Slower this year than it was last year will remain.
Speaker 5: So how much of the conversation here is also trying
Speaker 5: to understand and some of these forecasts going forward, and
Speaker 5: how central banks actually can do a better job in
Speaker 5: understanding the impact that monetary policy has on future inflation.
Speaker 6: I think everybody's trying to understand how economic activity is
Speaker 6: being impacted by the rate increases that have happened so far,
Speaker 6: because they've been sizable. The expectation was that we would
Speaker 6: have seen more slowing down already than we've seen so far.
Speaker 6: So the surprise is on the resilience of economic activity. Now,
Speaker 6: of course, we don't want to extrapolate and just assume
Speaker 6: that this resilience is going to continue.
Speaker 4: So it's a difficult.
Speaker 6: Job for central bank because at this point they have
Speaker 6: to wash the data very carefully, but at the same
Speaker 6: time they have to show real commitment to bringing inflation down.
Speaker 5: Gita, thank you so much for joining us. Kikita governor
Speaker 5: there of course of the IMF. I also spotted Tom
Speaker 5: the new central bank governor of the Bank of Japan.
Speaker 5: I have to say, it's like a rock concert for nerds.
Speaker 5: We were quite excited because the first time I think
Speaker 5: he's been traveling for an event since he was made
Speaker 5: governor outside of Japan.
Speaker 1: Yeah, the invite got lost in the mail. Lisa was
Speaker 1: looking forward through our meal today. All I can say,
Speaker 1: Francine is you and doctor Gopineth. I can just see
Speaker 1: you having the Travis Sieriro at Casa Pequida in CenTra Lisa,
Speaker 1: this is very important. It's a sweet eggy almond cream
Speaker 1: dusted with cast or sugar on top.
Speaker 2: I'm sure it'll be enjoyable. Francine, thank you so.
Speaker 1: M joining us now, someone who's been of immense value
Speaker 1: to us over the years. Kitchuk is with a Derivative
Speaker 1: Society General, their chief foreign exchange strategist. Is there a
Speaker 1: clear vision to the jukes memo? Kit? I mean, it's
Speaker 1: the death of summer. You're going to spend all of
Speaker 1: July and August and some shock in Spain on the beach,
Speaker 1: and I just want to know, is there a Juke's
Speaker 1: vision of where we're going or you, like everybody else,
Speaker 1: waiting to see what happens.
Speaker 7: There's a vision, but there's uncertainty about time. I mean,
Speaker 7: this is an extraordinary cycle. But the one thing that
Speaker 7: I was listening to really gobin At, you know, sort
Speaker 7: of getting gobin A was sort of saying, you know,
Speaker 7: we're uncertain about the lags. The lags are long and variable,
Speaker 7: and everybody's impatient for the lag to play out. It'll
Speaker 7: play out in its own time, because the single most
Speaker 7: unique feature of this cycle is that we ended up
Speaker 7: with really easy monetary policy, really easy fiscal policy, and
Speaker 7: really really tight labor markets because of a pandemic, and
Speaker 7: then from there tightening and getting that out is taking
Speaker 7: longer than we thought. Well gosh, But so I sit
Speaker 7: there and thinking, in one of the next twenty six thursdays,
Speaker 7: I'm going to come in one day and I'm going
Speaker 7: to see a weekly jobless claims number that makes my
Speaker 7: mouth sort of hang open, and I think, Wow, here
Speaker 7: we are. I mean, this cycle is going to end.
Speaker 7: This plane is going to land. But we're completely at
Speaker 7: a loss to try to figure out how long those
Speaker 7: lags are. And we're nervous that when it does land,
Speaker 7: will it land as soft as we hope, and so
Speaker 7: on and so forth. But I think that vision's super clear.
Speaker 7: What is terribly difficult is to guess how long it
Speaker 7: takes to.
Speaker 2: Play out one definitive thing that get a Gopinas said,
Speaker 2: or is it she thinks that the UK Your UK
Speaker 2: is in the worst spot of all of the central
Speaker 2: banks in terms of combating inflation. Is this supportive of
Speaker 2: the pound or negative for the pound because it means
Speaker 2: higher rates and slower growth?
Speaker 7: Well, right now markets are more myopically focused on short
Speaker 7: term interest rate differentials than I can remember them in
Speaker 7: the foreign exchange market, So right now the plan's doing well.
Speaker 7: In the long run, though, if you've got a really
Speaker 7: lousy growth inflating trade off, which is what we've got.
Speaker 7: You know, you have to get raids up a lot,
Speaker 7: and then you get a worse economic slowdown, and then
Speaker 7: you'll get more rate cuts. So we are supposed to
Speaker 7: be taking our pans and as strong as we can
Speaker 7: get them, we're supposed to be turning them into something
Speaker 7: useful like Swedish kronas, so that this time next June,
Speaker 7: when the sun's shining in Sweden, I'm on a boat.
Speaker 7: So I'd stuck them with my feet up on a
Speaker 7: glass of beer in my hand, having loads of fun
Speaker 7: at today's exchange, right, because it'll be completely different by then,
Speaker 7: and each week I just kind of sell a few
Speaker 7: more pounds.
Speaker 1: Lisa, you and I got to get our heads examined.
Speaker 1: Do you see how Jukes talks there about vacation like
Speaker 1: Pharaoh does.
Speaker 4: Well, it's like a.
Speaker 1: God given right. It's like the king descended and said,
Speaker 1: Lord Jukes, Lord Pharaoh, take augustars well.
Speaker 2: And I will say, Lord Jukes, Lord Pharaoh, come do
Speaker 2: that in the US. I'm curious from your vanda. You're
Speaker 2: right as we look for no, I am supported wholeheartedly I'm.
Speaker 4: Going you can the Americas boat.
Speaker 1: Yet I need to go to Spain for one day.
Speaker 1: Where do I fly?
Speaker 2: My goodness? No, absolutely, kid, Well, we talk about our
Speaker 2: travel plans. Let's talk about the dollars. Since we're going
Speaker 2: to go there. How strong is the dollar going to be?
Speaker 2: This is all these currencies to plan our one day vacations.
Speaker 2: And this has sort of been one of the surprising
Speaker 2: features is are we entering a reversal period of the
Speaker 2: dollar weakness of the first half of the year, or
Speaker 2: does what we've heard from the ECB, or we've heard
Speaker 2: from the Bank of England, or we've heard just generally
Speaker 2: around the world really challenge that and indicate more weakness ahead.
Speaker 7: I think you're going to get more weakness ahead for
Speaker 7: the dollar over time from here. I mean, it's still
Speaker 7: very strong and it would be it would be amazing
Speaker 7: if you didn't actually weaken at some point. You know,
Speaker 7: we have seen I think Jeff, you've put it very well.
Speaker 7: You know, we've seen buying of dollars from people who
Speaker 7: are trading US exceptionalism in AIS dogs for example, who
Speaker 7: are trading The US economy is not slowing down yet
Speaker 7: as a theme, and the market's pricing in, you know,
Speaker 7: the idea that the FED hasn't peaked yet in terms
Speaker 7: of rates, and it's pushing a little bit more in there.
Speaker 7: And there will be some people who will turn around
Speaker 7: and say that there will never be another US recession
Speaker 7: because the US economy is so wonderful as those people
Speaker 7: get themselves fully priced in, which I don't think is
Speaker 7: terribly far from here. That's as good as the dollar
Speaker 7: can get from here with the rest of the world recovering.
Speaker 7: So you're a bit like me, you know, you have
Speaker 7: a strongarrency today. It's not going to be strong forever
Speaker 7: on that basis.
Speaker 1: To frame out the opportunity on the Pacific Rim, and
Speaker 1: particularly with the shaku and awe of y Wan, I
Speaker 1: mean it is a devaluation of the Chinese you want,
Speaker 1: I'll let you decide where that tip point is. But
Speaker 1: seven all eyes on seven point fifteen. We blow through
Speaker 1: that to a seven twenty three. Right now, my eyes
Speaker 1: are failing. He's seven point two to two. And yu
Speaker 1: Wan frame out the opportunity on the Pacific Rim.
Speaker 7: Well, that the Chinese opportunity is that the Chinese, the
Speaker 7: Chinese have a problem reviving their economy they don't have
Speaker 7: much inflation. I mean, these are not big moves in
Speaker 7: percentage terms compared to what we see in lots of
Speaker 7: other places, so they could go further. There's certainly nothing
Speaker 7: to help it now. I worry that China, if it
Speaker 7: tries for a viov It's economy, it can't easily go
Speaker 7: back to the old kind of boost the real estate
Speaker 7: market yet again, you know that they'll probably have to
Speaker 7: make manufactured goods and sell them to the rest of us,
Speaker 7: and they'll welcome a weak current to help them do that.
Speaker 7: The real so they may get some pain in China,
Speaker 7: the pain will then spread to the other people who
Speaker 7: rely on them. It's you know, I wouldn't want to
Speaker 7: be terribly along the Australian dollar to day if they're
Speaker 7: trying to sell iron ore to a Chinese economy that's struggling,
Speaker 7: you know. So, I think as you can see this year,
Speaker 7: one of the features of this year, the strongest currencies
Speaker 7: have been Central Eastern European ones that fought inflation hard
Speaker 7: and Latin American ones that ford inflation hard. There are
Speaker 7: no strong Asian currencies this year. None of the top
Speaker 7: two currents are I think that's what tells you that
Speaker 7: the market is kind of getting this to some degree.
Speaker 7: I quite like selling the other Asian currencies against the
Speaker 7: yen because the end is going to frustrate me, and
Speaker 7: so it starts going up when they make some voicity changes.
Speaker 7: Mister Wader could could do the world a big favor
Speaker 7: by getting on board ebody else today, but that's not
Speaker 7: going to happen.
Speaker 1: I need to extend this conversation, but we don't have
Speaker 1: the time to do it. I really want to talk
Speaker 1: to Kit Jukes folks on the coming days from Spain.
Speaker 2: The question around the earning surprise and whether this is
Speaker 2: going to be something that becomes a pattern is really
Speaker 2: the main theme. I keep hearing fro people joining us
Speaker 2: now to discuss. Cameron Dawson, I'm so pleased to say,
Speaker 2: Chief investment officer at New Edge Wealth, Cameron, how much
Speaker 2: is that on your radar that earnings may be the
Speaker 2: catalysts the downturn to the caution that so many people
Speaker 2: have been warning about.
Speaker 8: Yeah, I think it is the important factor because even
Speaker 8: though we still see a lot of dire economic forecasts,
Speaker 8: effectively economists have us starting a recession in just a
Speaker 8: few days in the third quarter. You don't see that
Speaker 8: in the earnings forecast. You see a big recovery in
Speaker 8: the back half of the year and then an even
Speaker 8: bigger recovery into twenty twenty four and twenty twenty five,
Speaker 8: driven by resilient economy and big margin expansion. So that
Speaker 8: would be the key source of downside surprise if we
Speaker 8: don't see those earnings materialize. We're watching the margins really
Speaker 8: closely because inflation has been actually very good for margins.
Speaker 8: It's why we think we got to record margins in
Speaker 8: twenty one and early twenty twenty two. So as inflation
Speaker 8: continues to moderate, pricing power moderates that could put downward
Speaker 8: pressure on those margins.
Speaker 2: You've been cautious for quite a while. Are you getting
Speaker 2: more cautious or less cautious?
Speaker 8: So we've been cautious in expressing it by remaining invested
Speaker 8: but staying in quality and saying that we don't want
Speaker 8: to be taking big risks on very cyclical economic sensitive
Speaker 8: parts of the market. At the same time, is not
Speaker 8: wanting to take risks with things that are more speculative
Speaker 8: that really require the boost that you get from central
Speaker 8: banks easing policy to see their stock prices do really well.
Speaker 8: What's interesting is that we have seen those stocks lead
Speaker 8: this year, and that's been one of our biggest surprises
Speaker 8: is that you have seen the Fed continue to remain
Speaker 8: very hawkish, but at the same time you've been seeing
Speaker 8: liquidity sensitive parts of the market lead the charge higher
Speaker 8: because there has been a huge vergence of yields and
Speaker 8: valuations at.
Speaker 1: Knew Edge Wealth. How do you respond to people that say,
Speaker 1: I'm scared stiff, I don't want to participate any equity market.
Speaker 8: Have a long term perspective, and have a plan, because
Speaker 8: at the end of the day, we have two things
Speaker 8: that we need to avoid as financial advisors. We need
Speaker 8: to keep people from selling at the bottom and buying
Speaker 8: at the top.
Speaker 1: She used to drive Peril and he would lecture on
Speaker 1: the giant at Fidelity. He actually went in one day.
Speaker 1: He was so angry. They actually went into Magellan. This
Speaker 1: is folks in the heyday of Fidelity Magellan, and he
Speaker 1: ordered a survey of who bought at the top and
Speaker 1: at the bottom sold at the bottom, and it was stunning.
Speaker 1: The percentages were just stunning. On your observation, and one of.
Speaker 8: The things how we navigate this is by focusing on
Speaker 8: quality through cycles, those companies that go down less than
Speaker 8: they went up in the prior up cycle. And what
Speaker 8: that leads us to do is not necessarily chase big,
Speaker 8: huge rallies like we've seen in certain pockets of the
Speaker 8: market this year and take kind of a tortoise versus
Speaker 8: the hair approach. We'll probably get to the same place
Speaker 8: at the end of the day.
Speaker 2: Thank you, Thank you, Tom, I appreciate it.
Speaker 8: Carry on, We'll probably get to the same place without
Speaker 8: having the big wild swings of volatility as you chase
Speaker 8: to the upside and then see.
Speaker 4: Big reversals to the downside.
Speaker 2: So here's I think the existential question of the year.
Speaker 2: People are saying it's a recession delayed, not necessarily deterred completely.
Speaker 2: You're talking about some of the sectors that did really
Speaker 2: well this year, even in the face of the rate
Speaker 2: hikes that will play out just later. When do you
Speaker 2: say the models are broken and that this is something new,
Speaker 2: something different at a time when this economy, in these
Speaker 2: markets seem much more resilient to rate hikes than ever before.
Speaker 8: That's the key point, and I think that this is
Speaker 8: a function of ten plus years of quantitative easing, that
Speaker 8: kept long interest rates down, It allowed people to term
Speaker 8: out their debt and effectively dulled the power of monetary
Speaker 8: policy going forward, because one of the things that you've
Speaker 8: seen this year is that you're not seeing the impact
Speaker 8: from higher rates of impact consumers or corporation simply because
Speaker 8: they were able to turn out debt and have very
Speaker 8: long maturities. And so now as you see rates rise,
Speaker 8: people kind of shrug simply because there is not that
Speaker 8: same impact.
Speaker 2: Cameron, I'd love your thoughts on this, because this is
Speaker 2: something we were talking about yesterday that markets basically shrug
Speaker 2: this off because it was a number of tail risks
Speaker 2: that you couldn't really price in. Do you have a
Speaker 2: renewed thought on that?
Speaker 8: Our thinking is that unless there's something that keeps Russia
Speaker 8: from continuing to be able to flood markets with heavily
Speaker 8: discounted oil, that markets probably will look in the other
Speaker 8: direction because one of the key things that has been
Speaker 8: bullish for markets is the moderation and oil prices. Part
Speaker 8: of that is a function of Russia selling so much
Speaker 8: oil at discounted prices. So if we start to see
Speaker 8: something that could impact Russia's oil production or their ability
Speaker 8: to be able to continue to sell. That would be
Speaker 8: the key upward impact on inflation, and that's downward impact
Speaker 8: on markets.
Speaker 1: One more question, were you on a sixty forty reallocation
Speaker 1: here it's midyear, I got to reallocate even sixty forty.
Speaker 8: We believe in sixty forty plus alternatives because there are
Speaker 8: still fantastic opportunities outside of traditional asset classes where we
Speaker 8: see dislocations because of all the turmoil of the past
Speaker 8: couple of years, where we are starting to allocate two
Speaker 8: things like venture very selectively in private credit. It's a
Speaker 8: popular place to be, but we are finding great opportunities
Speaker 8: outside of your traditional assets.
Speaker 1: Karen Dawson, thank you so much, greatly appreciated. The right
Speaker 1: person at the right time. That must mean it's a
Speaker 1: conversation with David Rubinstein. And if Sana besch Loss is
Speaker 1: one of my favorite people in the world, she is
Speaker 1: prodigious in knowledge of international hydrocarbons. This is exceptionally well
Speaker 1: timed from Rock Creek. Sanna besh Loss with David Rubstein,
Speaker 1: looked for that tonight at nine pm. An important conversation
Speaker 1: and in hindsight, even more important given the uproar that
Speaker 1: we see in Russia, Belarus in Ukraine. He is with
Speaker 1: the Carlisle Group. David Rubinstein joins us this morning. David,
Speaker 1: I little got goosebump. She is just the perfect person
Speaker 1: to talk to. Tell us what Missus Beslav brings to
Speaker 1: the table.
Speaker 9: For those who don't know, Asana Beschloss is an immigrant
Speaker 9: from Iran. She was educated at Oxford. She was the
Speaker 9: treasurer and Chief Investment Officer of the World Bank and
Speaker 9: subsequently started her own firm called Rock Creek, which is
Speaker 9: now probably the largest woman owned investment firm in the
Speaker 9: United States, certainly the largest woman owned firm by a
Speaker 9: woman who's an immigrant, managing about seventeen billion dollars Afsana
Speaker 9: is involved in a lot of philanthropic activities as well,
Speaker 9: on the board of the Council and Formulations Rockefeller Foundation,
Speaker 9: Chairman of the PBS Board, and so forth PBS Foundation Board,
Speaker 9: and she's really very insightful about where the economy is going.
Speaker 9: But she's investing this seventeen billion dollars on a daily basis.
Speaker 9: She's really actively involved in the markets. And he has
Speaker 9: a very good knowledge as well about the energy world
Speaker 9: because that was what she first studied when she was
Speaker 9: at Oxford.
Speaker 1: I'll say she's really quite good at it in conversation
Speaker 1: after conversation over the years. David Rubinstein. Just in the
Speaker 1: last twenty four hours we've seen Lawrence Fink, I believe,
Speaker 1: over in China with a World Economic Forum, not backtracking
Speaker 1: but finessing the new ESG message. To me, Doctor Beschlof
Speaker 1: is hugely focused on the realities of hydrocarbon. What were
Speaker 1: her thoughts on climate change and on this recalibration of ESG.
Speaker 9: Well, her view is that the energy transition is underway.
Speaker 9: Obviously it's not going to be happening overnight. Well in ESG,
Speaker 9: she's been a big believer in ESG and is very
Speaker 9: focused on it. Clearly this pushback now, but in the end,
Speaker 9: I think it's trying to put your finger in a dyke,
Speaker 9: trying to stop ESG from coming forward. Many people around
Speaker 9: the world are not as worried about the politics of
Speaker 9: ESG as many people in the United States might be,
Speaker 9: and as a result, you're seeing in Europe and other
Speaker 9: parts of the world a real concern about ESG and
Speaker 9: the need to be more sensitive to environmental concerns. And
Speaker 9: Avsana reflects that because she's really a global citizen in
Speaker 9: many ways. She's lived in many different places and invest
Speaker 9: all over the world.
Speaker 1: She's in Washington, as are you. It's a cutthroat job environment.
Speaker 1: What is the distinction of Rock Creek and their shop
Speaker 1: is they try to keep, find and retain outstanding women
Speaker 1: employees and managers.
Speaker 9: The firm has about fifty percent of its investment professionals
Speaker 9: and employees are are women. There aren't that many investment
Speaker 9: firms with that higher percentage of that size. It's a
Speaker 9: very large firm at this point, managing, as I mentioned,
Speaker 9: seventeen billion dollars. So it's been a bit of a struggle,
Speaker 9: I would say, to be an immigrant and to be
Speaker 9: a woman trying to build a firm like that. I've
Speaker 9: known her for a while and briefly she worked at Carlisle,
Speaker 9: I should say, and before she started her own independent firm.
Speaker 9: And I would say that she's known to many people
Speaker 9: around the world for being very smart, very articulate, and
Speaker 9: very conscious about the importance of ESJ. I should also note,
Speaker 9: for those people that recognize the last name, her husband
Speaker 9: is Michael Beschloss, who's a distinguished presidential historian.
Speaker 1: Well he's not only a distinguished presidential historian. But David,
Speaker 1: let's be clear, her husband has kept Twitter saying here
Speaker 1: in all the uproar, he's a national institution with informing
Speaker 1: the public of presidential history out on at Twitter. I look, David,
Speaker 1: at where we are right now, and I want to
Speaker 1: speak to you with your public service to the nation
Speaker 1: and the Carter administration. But almost a nation starving off
Speaker 1: the recent NBC poll for some form of middle ground
Speaker 1: or moderate politics from both parties. Do how does do
Speaker 1: you perceive that the moderate voice maybe what agnew would
Speaker 1: call the silent America? How do they find their voice
Speaker 1: in this crazy presidential campaign to come both Republican and Democrat.
Speaker 9: Well, that's a very fair and very difficult question answer.
Speaker 9: Politicians typically raise their money from the far left and
Speaker 9: the far right. It's very difficult to raise money saying
Speaker 9: I'm going to be right down the middle, I'm going
Speaker 9: to balance the left and the right. I'm going to
Speaker 9: come up with a good compromise that everybody should be
Speaker 9: pleased with. That doesn't raise a lot of money. And
Speaker 9: as we know in politics, money is very important. People
Speaker 9: are spending all their time raising money in Washington, d C.
Speaker 9: So the moderate voice is very difficult to prevail. Hopefully
Speaker 9: we'll have more moderate voices. Last night, for example, I
Speaker 9: interviewed somebody that some may not say it's moderate, but
Speaker 9: at the ninety second Street Why in New York, I
Speaker 9: interviewed Lis Cheney. Now, clearly people on the right side
Speaker 9: of the spectrum would say she's not moderate. People on
Speaker 9: the left side would say, well, she was very conservative.
Speaker 9: Now she's doing good public service kinds of things. But
Speaker 9: whatever you think of Liz Cheney, finding people down the
Speaker 9: middle that people on the left and the right can
Speaker 9: agree on is very, very difficult. And I would say
Speaker 9: it's the biggest challenge that we have in our presidential
Speaker 9: campaign is how do you get your head above water
Speaker 9: and get some attention unless you get something done on
Speaker 9: the far right or the far left, which gets the attention,
Speaker 9: coming down the middle doesn't get much attention.
Speaker 1: Well, Ronald, I'm going to suggest, and I defer to you, David,
Speaker 1: but Ronald Reagan codified this process. There's this, no question.
Speaker 1: Ronald Reagan was the one literally, as an FDR Democrat
Speaker 1: in his childhood, came over the Republicans, grabbed the right,
Speaker 1: and moved to the center. Is that process dead well.
Speaker 9: Ronald Reagan was seen as being on the far right,
Speaker 9: far more on the right than his competitor at the time,
Speaker 9: Gerald Ford. But ultimately the far right became the center,
Speaker 9: and so today Ronald Reagan would not be seen on
Speaker 9: the far right. Donald Trump might be seen on the
Speaker 9: far right, but not Ronald Reagan. But Reagan is somebody
Speaker 9: who had a way to communicate that was great compared
Speaker 9: to other politicians. He was called the great communicator for
Speaker 9: a good reason. And even though I was not his
Speaker 9: political supporter, I like to quote him from time to time.
Speaker 9: And my favorite Ronald Reagan quote is the most dangerous
Speaker 9: words in the English language are I'm from the federal government.
Speaker 9: I'm here to help you.
Speaker 1: Well, I think there's a little bit of that going
Speaker 1: on based on the zeitgeist right now, David, let us
Speaker 1: bring it back to hydrants here, hydrocarbon here, Doctor Beschloss,
Speaker 1: what's her view on a barrel of oil out one
Speaker 1: year or a rock creek three years?
Speaker 9: Well, as a general rule, if you ask the CEO
Speaker 9: of an energy company where oil price is going to
Speaker 9: be in a month or a year, they will laugh
Speaker 9: because nobody can really know at the moment. Given the
Speaker 9: uncertainties in Russia, I suspect oil will drift up for
Speaker 9: a while, and as the Saudis seem to be trying
Speaker 9: to cut down production a bit, I suspect we'll be
Speaker 9: a further drift up. But again, I don't see one
Speaker 9: hundred dollars oil anytime in the near future, but I
Speaker 9: do think you'll probably see it drift up from the
Speaker 9: high sixties to the low seventies and the not too
Speaker 9: distant future.
Speaker 1: David, thank you so much for the generous time today.
Speaker 1: David Rumstein in the Carlis Group. Subscribe to the Bloomberg
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