WEBVTT - Bloomberg Surveillance TV: June 21, 2024 0:00:02.440 --> 0:00:06.800 Bloomberg Audio Studios, Podcasts, radio News. 0:00:11.640 --> 0:00:15.440 This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along 0:00:15.480 --> 0:00:18.720 with Lisa Bromwitz and Amrie Hordern. Join us each day 0:00:18.720 --> 0:00:22.280 for insight from the best in markets, economics, and geopolitics 0:00:22.440 --> 0:00:24.920 from our global headquarters in New York City. We are 0:00:24.920 --> 0:00:27.680 live on Bloomberg Television weekday mornings from six to nine 0:00:27.720 --> 0:00:31.240 am Eastern. Subscribe to the podcast on Apple, Spotify or 0:00:31.320 --> 0:00:33.960 anywhere else you listen, and as always on the Bloomberg 0:00:34.040 --> 0:00:35.880 Terminal and the Bloomberg Business app. 0:00:36.240 --> 0:00:39.839 Sebastian Reidler of marilynch writing this, we remain negative on 0:00:39.880 --> 0:00:43.920 European equities and underway France on expectations of weakening growth. 0:00:43.920 --> 0:00:47.400 The further acceleration in Euro Area growth could easily offset 0:00:47.640 --> 0:00:51.400 the drag from a more fraud political environment, Sebastin joins us. 0:00:51.440 --> 0:00:52.760 Now, Sebastian, which is it? 0:00:52.800 --> 0:00:55.080 And this is actually, frankly a confusion that we've been 0:00:55.120 --> 0:00:58.120 having all week that some people, Sebastian are saying, yeah, 0:00:58.160 --> 0:01:01.360 we could get that weakness if some of this political 0:01:01.440 --> 0:01:04.399 uncertainty continues, or if it does transpire in a way 0:01:04.440 --> 0:01:08.039 that's market unfriendly. But otherwise Europe is the place to go, 0:01:08.240 --> 0:01:10.920 especially next to an expensive look in the US. 0:01:12.080 --> 0:01:14.280 Absolutely, and we see that a lot in our client conversation. 0:01:14.360 --> 0:01:17.680 People highlight the data weakness in the US we've already 0:01:17.680 --> 0:01:20.039 seen and you discussed this earlier, But in Europe the 0:01:20.080 --> 0:01:22.720 macrodata until today was holding up. So people are saying 0:01:22.760 --> 0:01:25.160 this is a safe port in the storm, and we 0:01:25.200 --> 0:01:26.040 simply disagree. 0:01:26.080 --> 0:01:28.039 We think growth mentum will weaken in. 0:01:28.000 --> 0:01:31.000 The US in the your area because in very simple terms, 0:01:31.040 --> 0:01:33.800 monetary tightening works with the lack and the lacks are 0:01:33.800 --> 0:01:36.959 now to hit both economies. So we think growth is 0:01:37.000 --> 0:01:39.360 going to disappoint, is going to weaken, and it's going 0:01:39.400 --> 0:01:41.960 to disappoint the expectations of Europe being a safe haven. 0:01:42.120 --> 0:01:45.800 So when you talk about European equities possibly being at 0:01:45.880 --> 0:01:48.600 risk of further losses, are you saying that the US 0:01:48.680 --> 0:01:51.840 is preferable or are you saying that all regions, particularly 0:01:52.640 --> 0:01:55.920 equity markets that have gotten a boost from recent optimism, 0:01:56.200 --> 0:01:58.960 are subject to potential risk on that kind of weakening 0:01:58.960 --> 0:02:02.000 growth outlook you're suggesting might be understated. 0:02:03.040 --> 0:02:04.320 Yeah, I think that's a very good summary. 0:02:04.360 --> 0:02:06.120 And if you give give me that option, which of 0:02:06.160 --> 0:02:08.720 these two statements, I would make both statements. I think 0:02:08.840 --> 0:02:11.280 all equity markets are at a risk simply because you 0:02:11.400 --> 0:02:13.399 at the point where the unemployment rate in the US 0:02:13.480 --> 0:02:15.400 is very low, is starting to pick up, the savings 0:02:15.480 --> 0:02:17.520 ratio is very low, is starting to pick up. We're 0:02:17.520 --> 0:02:20.239 starting to see the weakness in the consumer. We're seeing 0:02:20.280 --> 0:02:24.360 consumer confidence really declining very sharply in the US, and 0:02:24.400 --> 0:02:26.000 the US so far has held up. 0:02:25.960 --> 0:02:26.920 The global growth story. 0:02:27.000 --> 0:02:28.680 So if global growth weekends on the back of a 0:02:28.680 --> 0:02:32.720 weakenings weeken Europe, that's negative for risk assets across the board. 0:02:32.919 --> 0:02:36.239 But we think European equities are particularly vulnerable because they're 0:02:36.240 --> 0:02:38.840 more cyclical and they have more value names, which would 0:02:39.160 --> 0:02:43.680 underperform if the weakness in economic activity, together with fading inflation, 0:02:43.760 --> 0:02:45.639 also leads to declining bonniards. 0:02:45.800 --> 0:02:48.040 So Sebastian, what can I buy then? 0:02:49.639 --> 0:02:52.600 So there are amazing opportunities in the beaten up defensive 0:02:52.639 --> 0:02:54.720 sectors that you've got in Europe. Take a sector like 0:02:55.000 --> 0:02:57.760 food and beverages, add a twelve year low relative to 0:02:57.800 --> 0:03:00.600 the market, cheapest sector in the market. It's the most 0:03:00.600 --> 0:03:03.799 defensive and it's gotten clobbled by the compression and risk 0:03:03.840 --> 0:03:07.040 premium global risk PREMIU effectively at all time lows. If 0:03:07.120 --> 0:03:10.320 this combination of macro factors we've just discussed leads macro 0:03:10.600 --> 0:03:13.440 risk premier to rise, that is a fantastic catalyst for 0:03:13.480 --> 0:03:16.680 outperformance for the defensive sectors and in particular the beaten 0:03:16.760 --> 0:03:18.120 up food and beverage sector. 0:03:18.600 --> 0:03:23.240 But overall, besides maybe the defensive sector. On European equities, 0:03:23.520 --> 0:03:25.840 you remain negative at the moment for now. So what 0:03:25.960 --> 0:03:28.320 happens after the election potential when we get some more clarity. 0:03:29.760 --> 0:03:32.280 To be honest, you were talking about economic downside as 0:03:32.320 --> 0:03:34.040 a function of the election. I would really think about 0:03:34.040 --> 0:03:37.320 them as separate. So there's political risk and there's economic risk. 0:03:37.400 --> 0:03:40.680 We think that and an investors have to decide always 0:03:40.760 --> 0:03:43.000 which in this kind of priority list, which is the 0:03:43.000 --> 0:03:44.960 thing really to focus on. We think the economic risk 0:03:45.040 --> 0:03:48.080 is by far the most important point. When the labor 0:03:48.120 --> 0:03:52.000 market starts to inflect negatively, that typically heralds bad things 0:03:52.000 --> 0:03:54.920 happening for risk assets, bad things happening for risk premium. 0:03:54.920 --> 0:03:58.240 We think that will be the dominant dynamic overcoming months. 0:03:58.760 --> 0:04:00.800 So if growth we can not because of the election, 0:04:00.840 --> 0:04:03.520 but because of the normal functioning of the macrocycle. That 0:04:03.640 --> 0:04:06.960 means equity is lower cyclicts underperforming defensives, but then a 0:04:06.960 --> 0:04:10.000 lot of scope for bonds to rally. And that's obviously 0:04:10.000 --> 0:04:12.360 my colleague Michael Hartnett has the exact same view, and 0:04:12.480 --> 0:04:16.360 for beaten up defensive sectors to outperform outside. 0:04:15.960 --> 0:04:17.760 Of Europe and the United States, there's a lot of 0:04:17.800 --> 0:04:22.440 also talk about expansion and getting this potential exposure to 0:04:22.520 --> 0:04:24.000 places like Japan. 0:04:24.160 --> 0:04:25.640 Does that still make sense? 0:04:27.240 --> 0:04:29.800 So I'm, of course a European equity strategist, so I 0:04:29.800 --> 0:04:30.760 don't focus. 0:04:30.400 --> 0:04:31.080 Mainly on Japan. 0:04:31.240 --> 0:04:33.520 That said, we run our models in the background, and Japan, 0:04:33.760 --> 0:04:36.120 like Europe, is a value trade. So it has benefited 0:04:36.120 --> 0:04:37.880 from the spike in boniards because it got a lot 0:04:37.920 --> 0:04:41.640 of value sectors, and it has benefited from the weakening 0:04:41.640 --> 0:04:43.360 in the end, now the yen is a very defensive 0:04:43.400 --> 0:04:45.880 currency at would strengthen if you get a weakening of 0:04:45.880 --> 0:04:49.080 global growth. Plus if Boniard's declined, then value sectors and 0:04:49.160 --> 0:04:52.480 value assets underperformers we've just discussed. So therefore Japan had 0:04:52.520 --> 0:04:55.000 a good run, but the macro environment I'm describing is 0:04:55.040 --> 0:04:57.640 not one in which Japanese equities will continue to do well. 0:04:57.760 --> 0:05:00.560 Sebastian the picture that your painting goes to question that 0:05:00.600 --> 0:05:03.600 we've been asking pretty consistently for the past couple of months. 0:05:03.880 --> 0:05:05.120 Weakening but not weak. 0:05:05.279 --> 0:05:07.760 That has been the hope, the white hope for a 0:05:07.760 --> 0:05:10.200 lot of different markets, particularly the US, this whole idea 0:05:10.240 --> 0:05:14.359 of goldilocks. How do we know that threshold between weakening 0:05:14.520 --> 0:05:16.960 and weak when it is a good thing and when 0:05:16.960 --> 0:05:19.279 it is a bad thing. What data are you watching 0:05:19.320 --> 0:05:21.560 to see when we've gotten to that tipping point. 0:05:22.400 --> 0:05:24.599 I completely agree with you, that's the number one question. 0:05:25.000 --> 0:05:26.680 Is a little bit of data we need is good 0:05:26.720 --> 0:05:29.200 because it removes that overheating fear that the market has 0:05:29.240 --> 0:05:32.320 been grappling with. And for now, bad data has been 0:05:32.320 --> 0:05:34.320 good data. Though you could argue this morning in Europe, 0:05:34.360 --> 0:05:36.560 on the back of this very week PMI, that is 0:05:36.560 --> 0:05:39.080 starting to change, and in very simple terms, you will 0:05:39.120 --> 0:05:41.719 start to see bad data being bad data. If you 0:05:41.760 --> 0:05:44.440 get clear cracks in the labor market that means payrolls 0:05:44.720 --> 0:05:47.640 are potentially rising by less than one hundred thousand per 0:05:47.640 --> 0:05:50.200 months or going to zero or going negative, a more 0:05:50.240 --> 0:05:53.760 clear cut increase in the unemployment rate, and also very importantly, 0:05:53.760 --> 0:05:55.840 if you look at the Atlanta Fed GDP track and 0:05:55.920 --> 0:05:58.160 the best current estimate of. 0:05:58.120 --> 0:05:59.960 Where the run rate of growth is in the U. 0:06:00.440 --> 0:06:02.880 If that goes close to zero below as it did 0:06:03.000 --> 0:06:05.560 during the recession fear in twenty twenty two, then there's 0:06:05.600 --> 0:06:07.600 a lot of scope for risk premium rise from their 0:06:07.600 --> 0:06:08.279 current low levels. 0:06:08.320 --> 0:06:10.520 Yeah, that landed GDP track are still something like three 0:06:10.560 --> 0:06:12.839 percent even with the most risks of data, so still 0:06:12.839 --> 0:06:13.440 holding up. 0:06:13.600 --> 0:06:15.720 You talked about the weak pmis in Europe. 0:06:15.760 --> 0:06:17.600 Can I push back on one thing, Sebastian, You can 0:06:17.600 --> 0:06:18.440 tell me why I'm wrong. 0:06:18.760 --> 0:06:20.240 You say investors. 0:06:19.720 --> 0:06:23.000 Need to recognize political risk and economic risk, and the 0:06:23.040 --> 0:06:26.120 two are separate things, would in today's data argue that 0:06:26.160 --> 0:06:28.560 they're becoming the same thing. That if you have businesses 0:06:28.640 --> 0:06:31.599 holding back on their spending plans and decision making, that 0:06:31.680 --> 0:06:34.320 the political risk is turning into an economic one. 0:06:35.200 --> 0:06:37.360 I think it's a very fair point. That clearly is 0:06:37.400 --> 0:06:39.919 an inter section. And if you look at the country breakdown, 0:06:39.960 --> 0:06:42.440 you've got Germany down two points, arguably very little to 0:06:42.440 --> 0:06:45.080 do with the political situation in France, but France down 0:06:45.120 --> 0:06:46.719 four points, and I agree with you there will be 0:06:46.760 --> 0:06:49.520 some spillover, but of course they are well understood. The 0:06:49.560 --> 0:06:52.440 drivers of the macrocycle that have nothing to do with politics. 0:06:52.520 --> 0:06:54.560 That's the inventory cycle that gave a boost to Europe, 0:06:54.560 --> 0:06:56.680 but it's now rolling over. It's the lack of impact 0:06:56.720 --> 0:06:59.400 of monetary tightening. It's the very negative fiscal impulse that 0:06:59.440 --> 0:07:01.800 you have in the UN and they would be sufficient 0:07:02.080 --> 0:07:04.760 to weaken the macro picture even if nothing was going 0:07:04.800 --> 0:07:06.159 on on the political front. 0:07:06.320 --> 0:07:08.640 Sebastian, wonderful to hear from you. Thank you so much 0:07:08.640 --> 0:07:11.040 for being with us. Don't be a stranger. Sebastian Radler 0:07:11.320 --> 0:07:22.880 of Merrill Lynch Treasury is looking to erase this year's 0:07:22.960 --> 0:07:25.960 losses as investors ramp up their rate cut bests. Katie 0:07:26.000 --> 0:07:30.360 Kaminsky of Alpha Simplex, writing this, fixed income short signals 0:07:30.480 --> 0:07:33.400 begin to dissipate as yields moved lower on a better 0:07:33.440 --> 0:07:36.920 than expected CPI print and hopes for a rate cut. 0:07:36.800 --> 0:07:37.600 Katie joins us. 0:07:37.640 --> 0:07:40.640 Now, Katie, someone who is incredibly brave to go short. 0:07:40.960 --> 0:07:43.920 Vond's when everybody else was going long, who talked about 0:07:43.920 --> 0:07:46.120 the potential of ten year yields getting to six percent 0:07:46.200 --> 0:07:49.040 just simply on trend following, you've noticed a shift of 0:07:49.120 --> 0:07:52.040 late and treasuries hinting at more of a long position. 0:07:52.080 --> 0:07:53.880 Can you tell us what that shift is and how 0:07:53.960 --> 0:07:54.840 much conviction you. 0:07:54.720 --> 0:07:55.400 Have around it. 0:07:56.640 --> 0:07:59.720 Well, something is very different this month, Lisa, and what 0:07:59.760 --> 0:08:02.920 we've seen, as you pointed out, weaker economic data. 0:08:03.240 --> 0:08:07.440 Secondly, we're starting to hear some murmurs of demand destruction. 0:08:07.880 --> 0:08:08.600 What does that mean? 0:08:08.640 --> 0:08:11.800 From a technical perspective, it means that we've seen synchronous 0:08:11.880 --> 0:08:14.600 cell us in the cross asset space, So that's in 0:08:14.640 --> 0:08:19.200 the agriculturals, also in the metals, but particularly rallying in 0:08:19.280 --> 0:08:24.320 yields I mean sorry, rallying in bond's and really really 0:08:24.360 --> 0:08:27.680 a big adjustment in the yield space. We've seen risk 0:08:27.720 --> 0:08:30.880 off behavior which we hadn't seen most of this year, 0:08:31.200 --> 0:08:32.599 and so if you think about. 0:08:32.360 --> 0:08:34.880 That, it really feels like the other. 0:08:34.800 --> 0:08:38.880 Asset classes are telling us something about the economic picture 0:08:39.240 --> 0:08:42.080 that we're still not seeing in the equity markets. So 0:08:42.200 --> 0:08:45.960 for us, this means that signals and fixed income have 0:08:46.040 --> 0:08:48.680 really started to dissipate for the first time since the 0:08:48.720 --> 0:08:51.640 beginning of this year. To me, this looks a lot 0:08:51.720 --> 0:08:54.720 like an inflection point and a pivot where we might 0:08:54.760 --> 0:08:57.679 be looking at some sort of sea change for markets 0:08:57.720 --> 0:08:58.800 that we hadn't seen before. 0:08:58.960 --> 0:09:00.840 Katie, this is fascinating at a time where a lot 0:09:00.880 --> 0:09:03.840 of people are wondering that difference between weakening and weak. 0:09:04.040 --> 0:09:06.040 You're saying the signal from a lot of acid class 0:09:06.080 --> 0:09:09.400 and he points to commodities in addition to some of 0:09:09.440 --> 0:09:13.080 the individual corporate moves that pointing to some kind of 0:09:13.280 --> 0:09:16.000 weakening that was unexpected or week. 0:09:15.880 --> 0:09:16.880 Not just weakening. 0:09:17.600 --> 0:09:19.400 What does this do in terms of your conviction to 0:09:19.440 --> 0:09:22.640 say go long bonds pull out of a lot of 0:09:22.679 --> 0:09:25.320 different equities, particularly those that have been the highest flyers. 0:09:26.440 --> 0:09:29.400 Well, I think the big challenges seeing risk off type 0:09:29.440 --> 0:09:32.000 of behavior in the market is an indication that for 0:09:32.040 --> 0:09:34.640 the first time this year, the market is starting to 0:09:34.679 --> 0:09:38.720 get nervous about the potential or higher probability of some 0:09:38.760 --> 0:09:40.040 sort of harder landing. 0:09:40.440 --> 0:09:42.360 And that wasn't in the data before. 0:09:42.480 --> 0:09:45.720 So when we saw weaker data, it usually meant relief. 0:09:45.840 --> 0:09:48.320 It meant that we might have cuts and that we 0:09:48.360 --> 0:09:50.760 could get a soft type landing that we wanted. 0:09:51.120 --> 0:09:52.199 Right now, what you're. 0:09:52.000 --> 0:09:55.559 Seeing is this type of flea to bonds is leading 0:09:55.559 --> 0:09:58.560 to change signals and fixed income and causing people to 0:09:58.600 --> 0:10:01.400 be more likely to be long to kind of hedge 0:10:01.440 --> 0:10:04.880 the potential risk that we might have a correction, particularly 0:10:04.880 --> 0:10:07.040 if you think about the equity markets where there's such 0:10:07.040 --> 0:10:11.280 a biifurcation in the sense that valuations are very high 0:10:11.760 --> 0:10:14.160 even though we're starting to see stabilization of a lot 0:10:14.200 --> 0:10:17.400 of economic data. So that's something that we haven't seen 0:10:17.440 --> 0:10:21.000 stabilized and nobody would like to stabilize, but multiples remain 0:10:21.080 --> 0:10:24.560 high as data starts to get back to normal. 0:10:25.240 --> 0:10:27.680 It's also been interesting to look this flee from bonds 0:10:27.880 --> 0:10:30.760 as you talk about of who's been fleeing to bonds. 0:10:30.800 --> 0:10:33.720 Just looking at the ETF flows, we're on track for TLT, 0:10:33.840 --> 0:10:36.520 that's the black Rock long bond ETF to put on 0:10:36.600 --> 0:10:38.920 its best month in terms of flows so. 0:10:39.000 --> 0:10:39.760 Far this year. 0:10:39.800 --> 0:10:42.679 So you do have households buying bonds, you have hedge 0:10:42.679 --> 0:10:45.160 funds buying bonds. So it's clear with all this discussion 0:10:45.160 --> 0:10:46.520 of who's going to buy all the bonds out there, 0:10:46.559 --> 0:10:48.600 people are, but the type of people who are buying 0:10:48.640 --> 0:10:51.720 it are price sensitive buyers. What does that do to 0:10:51.760 --> 0:10:54.360 the volatility of this bond market when those are the 0:10:54.360 --> 0:10:56.760 types of folks who now are the majority owners of 0:10:56.760 --> 0:10:57.719 this market. 0:10:58.440 --> 0:11:00.800 This is a good point because we have really seen 0:11:00.960 --> 0:11:06.560 bond volatility remain elevated since COVID or particularly once we 0:11:06.600 --> 0:11:09.400 start to see higher rates and you see in a 0:11:09.440 --> 0:11:13.040 slightly higher inflation environment, there's a lot more bifurcation of. 0:11:13.080 --> 0:11:14.080 Buyers and sellers. 0:11:14.480 --> 0:11:17.520 And before it was much more focused on rate cuts, 0:11:17.840 --> 0:11:21.600 but now it seems that people are also embedding some 0:11:21.760 --> 0:11:25.760 sentiment in their flows, meaning that as they get concerned 0:11:25.800 --> 0:11:28.400 about the high evaluations and equities, you start to see 0:11:28.400 --> 0:11:31.560 that risk off pattern where people think about bonds again 0:11:31.600 --> 0:11:34.480 as a safety trait, something to lock in if rates 0:11:34.480 --> 0:11:37.120 go up or if something goes wrong, and we end 0:11:37.200 --> 0:11:40.360 up in a situation where, like Lisa said, week is 0:11:40.400 --> 0:11:43.920 actually weak means weak economic data. 0:11:44.800 --> 0:11:47.280 What does that do to an automated strategy like your own, 0:11:47.360 --> 0:11:50.199 Because you can see a clear trend perhaps of people 0:11:50.240 --> 0:11:53.760 going out buying bonds bonds rally, but it's more volatile, 0:11:53.880 --> 0:11:56.040 it's not as state as the market once was. 0:11:57.280 --> 0:11:58.880 This is this is definitely an issue. 0:11:58.880 --> 0:12:01.240 When you have higher vaults, it means that you have 0:12:01.320 --> 0:12:03.880 less conviction in general and signals, and we've seen that 0:12:03.960 --> 0:12:07.640 in fixed income. Fixed income volatility doubled in twenty twenty 0:12:07.679 --> 0:12:10.880 two and it's still up at elevated levels, which means 0:12:10.920 --> 0:12:13.839 that the overall direction of fixed income has been difficult 0:12:13.880 --> 0:12:16.240 to follow, and you can see that by looking at 0:12:16.240 --> 0:12:18.960 the graph this year, being short was the right call 0:12:19.040 --> 0:12:22.520 until recently, and now it looks like the trajectory of 0:12:22.600 --> 0:12:27.199 bonds is actually lower yields, and that suggests that technical strategies, 0:12:27.200 --> 0:12:30.160 they're just picking up on price behavior and where markets 0:12:30.160 --> 0:12:33.680 are moving at the moment, and markets are definitely moving 0:12:34.040 --> 0:12:39.240 somewhat towards this risk off hedging bets against equity potential weakness. 0:12:39.760 --> 0:12:42.560 Katie, you have some research on potentially how the markets 0:12:42.600 --> 0:12:45.320 could trade with the upcoming election. A third of CFOs 0:12:45.320 --> 0:12:48.480 in a survey yesterday we learned see the elections impacting 0:12:48.600 --> 0:12:51.559 investments Given the fact that we're on the edge of 0:12:51.600 --> 0:12:54.160 waiting for potential cut from the Fed and we still 0:12:54.200 --> 0:12:57.120 don't know the outcome of this election, how do you 0:12:57.160 --> 0:12:57.959 position for this? 0:12:59.160 --> 0:13:03.240 So positioning elections from a technical perspective is actually quite tricky, 0:13:03.600 --> 0:13:07.319 but it's really about following whatever the prevailing price trends are, 0:13:07.760 --> 0:13:11.840 and they usually tend to be pretty strong around volatile environments. 0:13:12.160 --> 0:13:14.640 So I think this fall what's going to be interesting 0:13:14.760 --> 0:13:15.360 is going to be. 0:13:15.320 --> 0:13:18.520 To see how does the market, how do people react 0:13:18.679 --> 0:13:25.079 to how the election unfolds, and what potential trends might emerge. 0:13:25.400 --> 0:13:28.320 And it really feels right now because of the uncertainty 0:13:28.360 --> 0:13:30.760 around this, that there's a wide range of outcomes, which 0:13:30.800 --> 0:13:33.920 means that there could be very interesting trends in the fall. 0:13:34.640 --> 0:13:36.480 Could it be long bonds. Maybe. 0:13:37.320 --> 0:13:39.720 Right now it's starting to hint that that could be 0:13:39.800 --> 0:13:42.840 the case and that there could be much lower yields. 0:13:43.600 --> 0:13:45.600 But of course we've got to wait and see. 0:13:45.400 --> 0:13:49.160 From the data if we actually see that pivot in 0:13:49.200 --> 0:13:51.760 fixed income positioning completely to long and. 0:13:51.760 --> 0:13:53.560 When it comes to the election, as Greg Valley told 0:13:53.640 --> 0:13:56.760 us earlier, potentially this is going to be dragged out 0:13:56.840 --> 0:14:00.720 for weeks and potentially not knowing the actual makeup of 0:14:00.720 --> 0:14:03.200 what Washington is going to look at. Bank of America 0:14:03.400 --> 0:14:06.439 today has a note talking about the zeitgeist, and it's 0:14:06.440 --> 0:14:09.520 if there's a clean sweep, there's this potential concern about 0:14:09.520 --> 0:14:12.480 a Liz Trust moment. But whether we get Trump or Biden, 0:14:12.960 --> 0:14:16.120 how much are you starting to take into account the 0:14:16.200 --> 0:14:18.720 concerns about the US fiscal deficit. 0:14:19.920 --> 0:14:22.400 Well, this is a great question this week because, as 0:14:22.440 --> 0:14:24.680 you know, sort of numbers came out this week in 0:14:24.720 --> 0:14:28.120 the bond market and people have been watching it because 0:14:28.320 --> 0:14:32.640 with deficits up, there's definitely concern about valuation and fixed income, 0:14:32.840 --> 0:14:35.960 so people definitely have their eyes on fixed income markets. 0:14:35.960 --> 0:14:37.200 So I think there's going to be a lot of 0:14:37.200 --> 0:14:40.080 focus on auctions and there's also going to be a 0:14:40.120 --> 0:14:42.840 lot of questions about how does that impact the overall 0:14:42.880 --> 0:14:43.720 valuations of. 0:14:44.040 --> 0:14:45.000 US fixed income. 0:14:45.360 --> 0:14:47.760 So again that goes back to the point things are 0:14:47.880 --> 0:14:50.520 very volatile for fixed income. It is not an easy 0:14:50.560 --> 0:14:53.520 trade like it used to be a simple risk off asset. 0:14:53.920 --> 0:14:57.680 In a world of inflation with high deficits, bonds are 0:14:57.800 --> 0:14:58.520 just not as. 0:14:58.440 --> 0:14:59.600 Easy to call. 0:15:00.040 --> 0:15:03.160 I think that goes to the volatility point, plus correlations 0:15:03.240 --> 0:15:06.200 being positive this year so far with stocks. 0:15:06.120 --> 0:15:08.280 Katie, just to put a bow on it, Earlier this year, 0:15:08.320 --> 0:15:10.480 you had pretty high conviction to be short bonds based 0:15:10.520 --> 0:15:13.760 on the trend following. Now you're seeing a pivot point. 0:15:13.880 --> 0:15:15.480 Where is your conviction level? 0:15:15.800 --> 0:15:18.440 Can you have conviction in the near term to be 0:15:18.560 --> 0:15:19.200 long bonds. 0:15:20.640 --> 0:15:23.280 I think in the near term it's definitely very mixed. 0:15:23.320 --> 0:15:24.680 But you have seen a pivot. 0:15:24.840 --> 0:15:28.920 We have seen more long signals in the European in 0:15:29.000 --> 0:15:32.480 European debt and international debt, so that to me is 0:15:32.520 --> 0:15:34.960 sort of ahead of the curve in the sense you've 0:15:34.960 --> 0:15:38.800 seen the cutting cutting in the ECB, you've seen other 0:15:39.480 --> 0:15:43.760 central bankers cutting, which has definitely pivoted those particular markets 0:15:43.800 --> 0:15:46.800 to long I think the US curve, especially with the 0:15:46.840 --> 0:15:50.520 cautious FED, still remains a short view in the short term, 0:15:50.840 --> 0:15:53.640 but if we continue to see evidence of risk off behavior, 0:15:53.880 --> 0:15:55.720 you're going to see that pivot as well. 0:15:55.960 --> 0:16:07.800 Katie Kaminsky of Alpha Simplex, thank you so much. Right 0:16:07.800 --> 0:16:11.160 now joining our city groups, Veronica Clark and Daneer Peterson 0:16:11.320 --> 0:16:13.720 of the Conference BOARDIC, I want. 0:16:13.520 --> 0:16:14.160 To start with you. 0:16:14.480 --> 0:16:16.560 It seems like the world is shifting your way in 0:16:16.680 --> 0:16:21.240 terms of looking for more economic weakness and not necessarily 0:16:21.280 --> 0:16:24.840 celebrating the resilience in the same kind of way. Do 0:16:24.880 --> 0:16:27.320 you think that maybe there is this tipping point in 0:16:27.360 --> 0:16:30.040 the economy that's becoming more clear or do you think 0:16:30.080 --> 0:16:32.320 that people are just realizing that maybe they got over 0:16:32.360 --> 0:16:34.440 their skis with betting on the soft landing. 0:16:34.600 --> 0:16:34.800 Yeah. 0:16:34.880 --> 0:16:36.880 Yeah, it was only a couple months ago where we were, 0:16:37.000 --> 0:16:39.720 you know, the narrative was reacceleration even but I think 0:16:39.800 --> 0:16:42.680 the data now have more clearly slowed and I don't 0:16:42.680 --> 0:16:45.400 have trouble convincing people that the economy is slowing. I 0:16:45.440 --> 0:16:47.640 get it a couple months ago, but yeah, it does 0:16:47.680 --> 0:16:49.680 feel like us to us that this has been a 0:16:49.800 --> 0:16:53.440 very gradual slowing house cycles usually begin, and we might 0:16:53.480 --> 0:16:55.440 now be at that tipping point where you enter this 0:16:55.640 --> 0:16:58.600 nonlinear weakening, where you really do get layoffs that build 0:16:58.640 --> 0:17:00.920 on each other, and that would be obviously a much 0:17:00.920 --> 0:17:02.160 worse economic backdrop. 0:17:02.560 --> 0:17:05.119 Dana, do you see this tipping point from your vantage 0:17:05.160 --> 0:17:07.080 point as well? Well? 0:17:07.160 --> 0:17:09.480 For a long time we have been predicting a slowing 0:17:09.560 --> 0:17:11.600 in the economy. In fact, we had a recession call 0:17:11.960 --> 0:17:14.639 for a long time. Now we think that the second 0:17:14.640 --> 0:17:16.720 and third quarters are going to be weak growth, probably 0:17:16.800 --> 0:17:21.359 between zero and one percent. Consumers leading that decline. But 0:17:21.480 --> 0:17:24.440 the thing is that consumer spending could even be wiped out, 0:17:24.840 --> 0:17:29.080 but not really have a recession because or even a 0:17:29.119 --> 0:17:32.520 bad recession, because most consumers are working. The labor market 0:17:32.560 --> 0:17:36.520 is doing quite well. Wages are elevated, and businesses, according 0:17:36.560 --> 0:17:39.640 to our CEO Confidence survey, are not looking to let 0:17:39.680 --> 0:17:41.760 go of workers. That is a key factor that's going 0:17:41.800 --> 0:17:44.640 to keep the unemployment rate low even if we do 0:17:44.720 --> 0:17:46.760 see some layoffs on the margins. 0:17:47.080 --> 0:17:49.399 Okay, well, this looks like an area that perhaps danding 0:17:49.400 --> 0:17:51.679 you and Veronica disagree, So let me press you on this. 0:17:51.760 --> 0:17:53.840 Dana says that you could start to see what we 0:17:53.960 --> 0:17:56.960 typically see in a cycle, that some layoffs turn nonlinear 0:17:57.000 --> 0:17:58.320 and it picks up with some speed. 0:17:58.560 --> 0:18:03.360 Why would this time be different, Well. 0:18:03.200 --> 0:18:05.520 This time is different because of labor shortages. And the 0:18:05.560 --> 0:18:09.159 reason why we have labor shortages is because of demographics. 0:18:09.160 --> 0:18:11.359 It's never been the case that we've had ten thousand 0:18:11.400 --> 0:18:14.679 people retiring per day. Those are the baby boomers, and 0:18:14.720 --> 0:18:17.440 so that's why businesses are saying, even though they expect, 0:18:17.680 --> 0:18:19.320 even though for at least a year and a half 0:18:19.320 --> 0:18:22.320 they're expecting a recession to happen, they were not interested 0:18:22.320 --> 0:18:25.359 in letting go of their employees for two reasons. Yes, 0:18:25.440 --> 0:18:28.359 of course labor shortages and people were retiring, but also 0:18:28.400 --> 0:18:31.639 because they had the sting during the pandemic of trying 0:18:31.680 --> 0:18:34.920 to find qualified workers and raising wages to do that. 0:18:35.119 --> 0:18:36.720 So you don't want to repeat that even if you 0:18:36.720 --> 0:18:39.040 think there's going to be a slowdown and this is 0:18:39.040 --> 0:18:41.920 a structural change in the economy that we have not seen. 0:18:42.920 --> 0:18:45.120 Not to do this to you, Veronica, but why could 0:18:45.240 --> 0:18:45.920 data be wrong? 0:18:46.160 --> 0:18:46.360 Yeah? 0:18:46.440 --> 0:18:47.919 No, I mean I don't disagree that. 0:18:47.920 --> 0:18:50.080 You know, we have experienced labor shortages over the last 0:18:50.080 --> 0:18:53.000 couple of years that might be leading to employers holding 0:18:53.000 --> 0:18:54.880 on to workers for longer. You don't want to lay 0:18:54.880 --> 0:18:56.399 people off and have to hire them back at a 0:18:56.480 --> 0:19:00.000 higher rate. But that is I think still a precarious position. 0:19:00.280 --> 0:19:02.359