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Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene Jay Lee.

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

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

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

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Speaker 1: massive shift in sentiment over the last couple of months.

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Speaker 1: Bank of America out with the latest fund manager survey

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Speaker 1: for the month of November, Michael hartn at a Bank

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Speaker 1: of America saying the bulls are back. Global recession concerns

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Speaker 1: vanish and the fear of missing out prompts wave of

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Speaker 1: optimism and jump in exposure to equities and cyclicals. What

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Speaker 1: don't get on that in please to say? Joining us

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Speaker 1: on the phone, Diana Ama JP Morgan asaid Management Senior

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Speaker 1: portfolio Manager, Diana, what do you make of that massive

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Speaker 1: shift in sentiment over the last couple of months? Yeah,

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Speaker 1: I think the bumble guys are probably right in that

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Speaker 1: we have seen a shift in recession feares. So there

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Speaker 1: are a lot of the concerns around global growth that

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Speaker 1: had been wing on sentiment have been priced out as

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Speaker 1: we've seen a bit more stabilization in manufacturing. That said,

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Speaker 1: for us, this is more second derivative has stabilized. First

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Speaker 1: derivative is yet to turn definitively. So whilst you know

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Speaker 1: there is some premium that's getting pressed out for this

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Speaker 1: to be sustainable, we do need to see the data

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Speaker 1: pick up a lot more from here. Don know that

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Speaker 1: fund manager survey, recession concerns vanish inflation expectation surge, corporate

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Speaker 1: profit expectation surge. Is that data? Is there any data

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Speaker 1: behind any of that or is that the price setting

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Speaker 1: the narrative here? So there's a couple of things. When

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Speaker 1: you look at marketing client expectations. VERK events have definitely

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Speaker 1: bounced off the laws, which is always encouraging. Now to

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Speaker 1: what extent is that because of inflation expectations or because

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Speaker 1: deflation as a result of trade concerns is fading out? Um,

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Speaker 1: I think that remains a big question mark. UM My

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Speaker 1: sense is, you know there's a lot of this is trade.

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Speaker 1: If we don't get a deal, if later on today

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Speaker 1: we don't get some indication from the President that there

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Speaker 1: is a willingness to rule back on tarifs, then we

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Speaker 1: go back to where we are, um a couple of

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Speaker 1: months ago, where the outlook for manufacturing isn't great, and um,

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Speaker 1: we're still seeing a bit of weakness coming through on services. Yeah,

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Speaker 1: the one key aspect of the survey was a cash

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Speaker 1: balances felt the lowest since And there's a question embedded

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Speaker 1: in there. Is this a tactical shift with a bearish

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Speaker 1: sentiment shifting to bullish over the next very short term

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Speaker 1: or is this a more constructive view for all of

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Speaker 1: what's your view on that. Well, we've seen sentiment can

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Speaker 1: change very quickly, so I'm hesitant to call it a

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Speaker 1: whole move. Um, just look at what happened end of

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Speaker 1: last year. We came into twenty nineteen, um, extremely barish

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Speaker 1: on everything, on risk assets, on the global global growth outlook,

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Speaker 1: and yet we've had a very good deal for asset prices.

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Speaker 1: So I think sentiments can turn very quickly. I try

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Speaker 1: not to read too much into the service and actually

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Speaker 1: some of them tend to be a bit of a

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Speaker 1: contrarian indicator. So when I see people getting very bullish,

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Speaker 1: well the economic data is not quite there yet, that

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Speaker 1: makes me a little bit nervous. Diana. The maness of

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Speaker 1: this is an absolute off the back end of the equation,

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Speaker 1: which is systemic risk. What are those risks out there

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Speaker 1: right now? What is the unknowable that's in the soup

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Speaker 1: that we can't see? UM, So it would be interesting

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Speaker 1: to see how liquidity evolves into your end um Discember.

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Speaker 1: Liqudity is always challenging for markets, and it's been that

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Speaker 1: this year we've seen more and more tightness around the

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Speaker 1: ton So into quarter ends we've seen increasingly more tightness.

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Speaker 1: I think, you know, the market is now not focused

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Speaker 1: on that, on the understanding that central banks can build

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Speaker 1: us out, but it's how effective is that a central

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Speaker 1: bank liquidity? With our discussion with that Hyman today, I'm

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Speaker 1: sort of into my year end mode Diana SMB five

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Speaker 1: year today, the Dow was underperforming up only sense, what's

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Speaker 1: the pressure out there to catch up? Right now? I

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Speaker 1: mean within portfolios and I mean internationally domestically, everybody's got

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Speaker 1: a game. They've all rationalized single digit performance, maybe a

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Speaker 1: low double digit report performance, and they have to catch up.

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Speaker 1: Will that be a factor into the beginning of the year, UM,

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Speaker 1: perhaps in next yuse. I think sentiment in ecutive market

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Speaker 1: was very depressed coming into the year UM. I think

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Speaker 1: not so for fixed income investors. UM. There was a

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Speaker 1: general consensus on duration, which has worked well this year

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Speaker 1: one across fixed income markets, you look at returns, it's

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Speaker 1: been a pretty decent year. Danny just looking regionally at

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Speaker 1: the moment. Muhammadan Arian put out of a view piece

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Speaker 1: on Bloomberg Opinion in the last couple of days pointing

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Speaker 1: out that since the end of S and P five

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Speaker 1: hundred hundred and nine percent European equities e m P

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Speaker 1: Europe is where optimism misplaced. Optimism has gone to die

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Speaker 1: for much of this decade relative to the performance of

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Speaker 1: the United States. And yet what are people talking about

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Speaker 1: in the last couple of months get an exposure to

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Speaker 1: Europe once again, what are you saying to those people?

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Speaker 1: I think there's a huge fear of missing out. Um

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Speaker 1: where four years it's been the most frustrating trade where

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Speaker 1: every every couple of years you get people calling the

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Speaker 1: big Tan reflection is coming back to Europe and that's

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Speaker 1: consistently been wrong. Um I struggled to see a huge

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Speaker 1: pickup in the European outlook if we don't get a

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Speaker 1: definitive deal, if the outlook on China doesn't improve, because

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Speaker 1: Europe is super exposed to the Chinese manufacturing outlook. So

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Speaker 1: for me, I'm more skeptical on that UM and from

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Speaker 1: a fixed income point of view, I'm not willing to

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Speaker 1: feed the e c B bond buying. So I think,

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Speaker 1: you know you you don't feed what the central banks

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Speaker 1: are doing. Maybe you get a bit of UM asset

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Speaker 1: price incletion coming through because of central bank policy, but

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Speaker 1: from an economic point of view, I think the data

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Speaker 1: is still not there a Dinna, great to catch up

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Speaker 1: with you. Dinna. Remember the JPMorgan Asset Management senior portfolio manager.

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Speaker 1: It's just rare that there can be a house that

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Speaker 1: from the first publication they just go. Capital Economics has

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Speaker 1: done that with Roger Brutle's leadership. It's been extraordinary, how John,

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Speaker 1: they had a voice right from day one, and they

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Speaker 1: had a vailue from day one. And for a man

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Speaker 1: that is quite critical of south Side Research in the

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Speaker 1: way it's presented, Tom, I have to say that Capital

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Speaker 1: Economics do a nice little job getting it all into

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Speaker 1: one page, just squeezing it in. Let's go, here's our message,

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Speaker 1: let's go now. Neil sharing with his Capital Economics Group

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Speaker 1: chief economist. That was the appearance fee. So Neil, thank you.

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Speaker 1: Who's gonna win the election. Okay, you can go. Uh,

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Speaker 1: it's the tour in the UK. It's the Conservatives to

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Speaker 1: lose the deal yesterday with Brexit policy back and at

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Speaker 1: that how ups them. But fundamentally, as we were just

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Speaker 1: discussing offer, this is going to be the fourth term

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Speaker 1: in office go around for the Conservatives. It's really rare

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Speaker 1: for a government that's had four terms in office to

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Speaker 1: increase their votes share, increase their seat share. So they're

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Speaker 1: up against it. But the oppositions fractured. Brexit dominates everything.

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Speaker 1: They've got a clear message, the campaigns not started. Well though,

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Speaker 1: it's enough Brexit. You've already done with Brexit talking. Move

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Speaker 1: on if you're serious. Mid Day I think he's serious.

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Speaker 1: Midday New York time, the President addressing the Economic Club

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Speaker 1: of New York. Who's the audience for that, Neil, can

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Speaker 1: you get your hands around that at the moment, Well,

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Speaker 1: you would think the audience is Wall Street is in

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Speaker 1: New York. Um is clear, the New York Economic Club,

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Speaker 1: So it should be Wall Street. It should be about

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Speaker 1: the economy. But we really don't know the extent to

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Speaker 1: which these are prepared remarks to which he will be

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Speaker 1: riffing it. The market's going to be looking for some

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Speaker 1: signal around trade um and any breakthrough with the on

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Speaker 1: the U S. China trade talks. Europe might come back

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Speaker 1: onto the agenda to the trade talks there and the

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Speaker 1: car tariffs, but really we're in the dark. Think the

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Speaker 1: audience has to be the markets. Though some reports today

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Speaker 1: suggesting that this administration will give it a miss introducing

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Speaker 1: tariffs on European autos perhaps to lay that decision push

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Speaker 1: it back into maybe nil. To what extent did the

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Speaker 1: trade hawks shape the President's policy on China in the

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Speaker 1: months to come? To what extent do they push back

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Speaker 1: on the President's ability to roll back tariffs. I think

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Speaker 1: there's two things that are going to shape his positioning

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Speaker 1: on trade. The first is, as you say, the hawkish

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Speaker 1: element within the White House, and the on the opposing

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Speaker 1: side is the stock market. UM. And for as long

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Speaker 1: as the stock market is jittery about trade, then I

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Speaker 1: think that will have the upper hand UM And I

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Speaker 1: think that the fact that the economy was slowing pressure

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Speaker 1: on the FED to ease over the last six months,

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Speaker 1: that is really what has been the trigger for the

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Speaker 1: easing you like around the trade the trade war? Do

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Speaker 1: you think that the trade skirmish has distracted people from

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Speaker 1: the real development, which is the stagnation, what you called

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Speaker 1: the Great Stagnation or the Japanification of developed markets. I

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Speaker 1: think it has, and I think that even within the

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Speaker 1: narrow confines of the trade war, UM, the focus, the

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Speaker 1: really narrow focus has been on tariffs, and particularly between

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Speaker 1: the US in China. And I think there's actually something

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Speaker 1: far more fundamental going on, which is that the world

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Speaker 1: has hit peak globalization. I think over the next ten

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Speaker 1: years or so we'll see a rollback of globalization the world.

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Speaker 1: I think the trade war itself will shift away from

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Speaker 1: tariffs and towards things like technology industrial policy. UM. This

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Speaker 1: isn't going to go away quickly. But this raises another issue,

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Speaker 1: which is the great hope for a re acceleration of

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Speaker 1: the global economy on some sort of trade deal. Is

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Speaker 1: it misplaced? It depends what you mean by the acceleration.

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Speaker 1: I suspect that Q four be weak, Q one will

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Speaker 1: be weaker still. By the time we get into the

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Speaker 1: second half of next year. Our view is that the

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Speaker 1: global economy will start to find its feet, growth will

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Speaker 1: start to pick up. But this is the context of

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Speaker 1: the global economy growing kind of high too slow threes,

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Speaker 1: whereas we were used ten years ago at least before

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Speaker 1: the financial crisis to growth, global growth being in the

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Speaker 1: force and pushing the five. So I think it were

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Speaker 1: in a new era of structurally much weaker growth in

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Speaker 1: emerging markets in developed markets. So the cycle will play out,

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Speaker 1: but it's just going to be at a much lower level.

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Speaker 1: Did define capital economics fiscal space? I mean it's interesting

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Speaker 1: to me with the coon here a conservatism of rideral

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Speaker 1: Bordle in your shop, is the fiscal space out there

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Speaker 1: will be fiscally spacey? Yeah, I think it is, if

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Speaker 1: that's the technical term. That's also to tell you the

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Speaker 1: t shirt to just roll it out if you If

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Speaker 1: you run with this idea that the world economy is

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Speaker 1: in a period of much weaker growth, low inflation, low

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Speaker 1: interest rates, that should mean that governments can sustain much

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Speaker 1: higher rate debt burdens. That doesn't mean to say that

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Speaker 1: you can just turn on the fiscal spigots and spend

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Speaker 1: money left right in the center. I think has to

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Speaker 1: be well targeted. Um And if you're looking for an

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Speaker 1: example or something that's not well targeted, I think that

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Speaker 1: the stimulus that we had in the US eighteen months.

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Speaker 1: It Go is probably a good example of that. So

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Speaker 1: you needs to be well targeted. Some countries have more

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Speaker 1: space than others. Uh and particularly in southern Europe where

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Speaker 1: the ECB doesn't necessarily stand directly behind the bond market,

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Speaker 1: I think it's less fiscal space. But in the UK

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Speaker 1: and the US even I think there is a Germany

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Speaker 1: in particular these twin surplace countries that there is more

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Speaker 1: physical space. And Neil great to see Neil Shehar in

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Speaker 1: Campel Economics Group Chief Economists, Tommy, you're happy with that

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Speaker 1: the shortest election discussion with it's such a lengthy seven

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Speaker 1: week campaign. Francisco Blast joining us for a two brief time.

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Speaker 1: Here he is with Bank of America, of course, not

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Speaker 1: looking at the equity markets, but looking at commodities in general. Francisco,

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Speaker 1: do you frame for two thousand twenty recover internationally? And

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Speaker 1: if you do, does it include a commodity recovery? UM? Well,

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Speaker 1: Tom I think what what we um what we have

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Speaker 1: to look at in the first half is a restocking cycle,

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Speaker 1: a global inventory restocking cycle, not so much for commodities

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Speaker 1: but really for finished goods UM and this could come

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Speaker 1: on the back of the of the trade deal that

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Speaker 1: has been negotiated between the White House and and and Chinese,

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Speaker 1: the Chinese government. If that happens, we think we'll see

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Speaker 1: a rebound in in commodity prices, probably modest rebound, because

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Speaker 1: the one thing that we think this is not is

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Speaker 1: a big capic cycle. So as you know, when you look,

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Speaker 1: we think a g d P, there's four elements to GDP, right, consumer,

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Speaker 1: net exports, and investment portion, And it is really this

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Speaker 1: investment portion that we're going to see a reekover in,

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Speaker 1: but only as it relates to inventories. Inventories are very

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Speaker 1: low um. The collapse in global trade, coupled with the

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Speaker 1: radically robust consumer and and UH and and effectively continued

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Speaker 1: wage growth and employment, has left us with this very

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Speaker 1: low iventory levels. And that's what we are seeing in

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Speaker 1: the first half of the year a week over a

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Speaker 1: restocking cycle, but not a catholic cycle. The capex cycles

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Speaker 1: would require a much more comprehensive UH trade agreement with

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Speaker 1: China and effectively settling the U S. China relationship at

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Speaker 1: least for a number of years. And I don't think

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Speaker 1: that's gonna happen. So lower capex spending, lower industrial spending

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Speaker 1: we've seen, and this has bled into the view for

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Speaker 1: oil uh sort of range bound here or even pressure

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Speaker 1: to the lower. And what I'm trying to understand is

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Speaker 1: we're seeing shale producers right now cutting production, are saying

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Speaker 1: they're gonna cut production, Larger offshore oil producers, oil drillers

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Speaker 1: likely to also cut production in the next year. How

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Speaker 1: much is that going to change the dynamic for the

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Speaker 1: price of crude. Well, it's it's going to change the

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Speaker 1: dynamics for sure, um, and it's going to probably push

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Speaker 1: the the cost curve a little higher. But remember that, um,

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Speaker 1: Remember that at the end of the day, we have

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Speaker 1: pretty flat, a pretty flat cost curve in the energy

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Speaker 1: space in the world right now thanks to shale. Used

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Speaker 1: to be the case we have very steep curves uh

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Speaker 1: so affecting the vertical supply curves in the oil when

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Speaker 1: we have to go out a drill for oil in

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Speaker 1: the Arctic or develop this big Canadian oil science projects.

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Speaker 1: But today it is very important. Today we have very

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Speaker 1: flat supply curves and even a five dollar moving prices,

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Speaker 1: it is enough to encourage people to drill for more oil,

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Speaker 1: and I think the best ample you see it in

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Speaker 1: the natural gas space where smoke movements in natural gas

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Speaker 1: pluses have continue to lead to more production, and the

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Speaker 1: same thing applies to oil. But it is clear that

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Speaker 1: that exploration and production companies in America are being subject

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Speaker 1: to a massive capital drainage and continued producers. Francisco, there's

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Speaker 1: no question like that. Too short today, Francisco Blanch. We

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Speaker 1: want to get you on again soon, Francisco Blanch. Bank

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Speaker 1: of America, Maryland's just some really good commodity research and

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Speaker 1: on the dynamics of the trade. Ward. As soon as

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Speaker 1: you got in here this morning time, at three or

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Speaker 1: four in the morning, when whatever it is you get

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Speaker 1: in here, I'm sure you downloaded that Disney Plus app

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Speaker 1: your franc Are you exactly frozen all day every day?

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Speaker 1: Keith Rung often covers all the media stuff for Bloomberg Intelligence.

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Speaker 1: He joins us here, So Keith, Disney Plus. It's a huge,

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Speaker 1: a huge deal for the company. Do you think they're

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Speaker 1: going to make it work? Oh? Absolutely, absolutely, Paul. There's

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Speaker 1: been a lot of excitement, There's been a lot of

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Speaker 1: anticipation building up for this service. I mean, this is

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Speaker 1: going to be the lynchpin for Disney's um direct to

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Speaker 1: consumer strategy. Um. So this has been really many many

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Speaker 1: years in the making. Uh, you know you as as

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Speaker 1: you well know. They first acquired the technology with the

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Speaker 1: bomb Tech platform. Then they went on and uh purchased

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Speaker 1: Fox to get that extensive catalog of content. So, uh,

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Speaker 1: they've really planned this mediculously, and I think they're going

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Speaker 1: to hit the ground running. So Keith, I'm looking at

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Speaker 1: the stock. It's actually up this year, and everybody but

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Speaker 1: al from Jersey is happy with the stock. But they're

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Speaker 1: not going to make money on this thing for four

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Speaker 1: or five years. Are you surprised that investors are giving

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Speaker 1: them that much of leeway given that this thing is

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Speaker 1: gonna be a big money loser. Yeah, they are going

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Speaker 1: to end up losing at least two and a half

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Speaker 1: billion in Fisco, probably another two to two and a

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Speaker 1: half billion. One they said that they're not going to

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Speaker 1: make any money on the service at least four But

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Speaker 1: I think just with streaming becoming such a core part

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Speaker 1: of the entire company going forward, I think really the

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Speaker 1: stock is going to trade purely on subscriber numbers. It's

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Speaker 1: really going to be pretty much a replayoff of Netflix.

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Speaker 1: I think to a certain extent, Netflix in its early days, okay,

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Speaker 1: but the difference here is like, you know, not that

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Speaker 1: David Western would put a gun to my head and

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Speaker 1: make me do this, but goes down to net income

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Speaker 1: goes from an eighteen cents margin, the amount of that

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Speaker 1: Weston captured Paul was stunning eighteen percent margin down to

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Speaker 1: fourteen percent margin. Free cash is going to go from

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Speaker 1: ten gazillion down to six gazillion. I mean, is that

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Speaker 1: the trend weaker financials because of streaming. I think it

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Speaker 1: is going to be that way. I mean management has

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Speaker 1: really braced Wall Street and invest for this. You know,

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Speaker 1: they've kind of lead out their strategy. We are going

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Speaker 1: to have to be prepared for some short term financial

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Speaker 1: pain just for the longer term subscriber gain. But I

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Speaker 1: think in the end, so after tweet or four years,

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Speaker 1: once they settled down, I think it will work out.

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Speaker 1: Southby's sold David Weston's pencil sharpener from a few years ago.

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Speaker 1: A couple of years ago, someone who has leaned over

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Speaker 1: the desk and looked at the Excel spreadsheet with a pencil, Dixon, Ticono,

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Speaker 1: Rogans and d Weston joins us with his experience with

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Speaker 1: all this David margin erosion is a productive stock event. Boy, Tom,

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Speaker 1: I gotta say, I think you've got it exactly right.

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Speaker 1: You got exactly because listen, we're talking about they have

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Speaker 1: to invest for a time, Okay, nobody. I haven't heard

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Speaker 1: nobody talking about what the business model is after they've

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Speaker 1: done the investment. What do the margins look like? We

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Speaker 1: know what margins are in theme parks, you know what

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Speaker 1: margin margins are in merchandise. You don't know what the

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Speaker 1: margins look like on stream, what margins look like three

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Speaker 1: years out or six years out. So don you think

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Speaker 1: tell us because we're not. We're looking in Netflix and

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Speaker 1: we're not seeing a lot of free cash flow there. No,

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Speaker 1: there isn't and and there isn't going to be. I mean,

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Speaker 1: they're spending fifteen billion dollars this year. Netflix is just

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Speaker 1: on just on content. They're probably going to spend close

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Speaker 1: closer to twenty billion next year. And so there's this

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Speaker 1: escalating costs of you know, content. But what Disney is

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Speaker 1: really betting on is scale and so not not not

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Speaker 1: I mean, they obviously have Listen, they're doing it beautifully,

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Speaker 1: but Let's be honest. They had no choice. Remember what

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Speaker 1: triggered this thing this when Bob came out that one

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Speaker 1: summer and said, ESPN we're losing subscribers. Remember the stock

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Speaker 1: tanked and he went back to his office. I think

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Speaker 1: I said, we got no choice. We gotta do it,

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Speaker 1: and they're doing it very well. Let me yes, this

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Speaker 1: I mean above Hollywood is the white sign. It says

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Speaker 1: Hollywood above Burbank is one that says cut costs. David,

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Speaker 1: let me start with you. Do you just assume cost

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Speaker 1: cutting is an order on Netflix like margin erosions? Yes,

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Speaker 1: you have to. The question is where you cut the

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Speaker 1: cost because they're gonna be spending a lot in some

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Speaker 1: places and they're going to make it up other places

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Speaker 1: where they're going to cut costs. Um. Yeah, they they

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Speaker 1: are going to cut costs. So what they're seeing is, um,

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Speaker 1: you know obviously with the Fox integration that there's a

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Speaker 1: lot of cost cutting going on there. Um. Even with

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Speaker 1: their theatrical slate there, they're being really really careful about

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Speaker 1: some of the movies that they're putting out. So if

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Speaker 1: you see it's it's all streaming for for fiscal twenty,

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Speaker 1: they're kind of really keeping it light from a theatrical perspective. Um.

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Speaker 1: But Tom, you gotta give him credit. There's not one

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Speaker 1: person in United States of America who doesn't know Disney

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Speaker 1: Plus is premiering today. They are the best marketers of all.

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Speaker 1: They are suburbs from New Jersey. Just emailed and he says,

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Speaker 1: can you talk politics with Western Jesse Plus? The keitha

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Speaker 1: Thank you so much. We look forward to talking to

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Speaker 1: you when they tip three d million subscribers in the

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Speaker 1: United States. Thanks for listening to the Bloomberg Surveillance podcast.

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Speaker 1: Subscribe and listen to interviews on Apple Podcasts, SoundCloud, or

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Speaker 1: whichever podcast platform you prefer. I'm on Twitter at Tom

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Speaker 1: Keen before the podcast. You can always catch us worldwide.

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Speaker 1: I'm Bloomberg Radio.