WEBVTT - BMO's Ablin: Correlation Between Trump and Mexican Peso (Audio)

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<v Speaker 1>tenth of one percent. As MP five hundred index up

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<v Speaker 1>That's a Bloomberg business flash. You're listening to Taking Stock

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<v Speaker 1>with Pim Box and Kathleen Hayes on Bloomberg Radio. We're

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<v Speaker 1>broadcasting alive today at the Bloomberg Market's most influential summit

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<v Speaker 1>at our world headquarters. We want to bring in a

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<v Speaker 1>very special guest now, who is going to get us

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<v Speaker 1>up to date on what's going on with the stock

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<v Speaker 1>market today? Rising actually on report OPEC has reached a

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<v Speaker 1>deal to curb production. We've seen headlines like this before.

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<v Speaker 1>We'll see if this one holds up. And step back

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<v Speaker 1>also and look at some of the big macro forces,

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<v Speaker 1>the elections, the debates, and of course the Federal Reserve.

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<v Speaker 1>Very happy welcome back to this show. Jack Avenin, Chief

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<v Speaker 1>investment Officer for BMO Private Bank. So Jack, let's start

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<v Speaker 1>with the latest on OPEC. It seems to me that

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<v Speaker 1>every time there's some kind of OPEC meeting, there's this

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<v Speaker 1>back and forth about maybe reaching some kind of deal.

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<v Speaker 1>What do you make of the latest news? And I guess,

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<v Speaker 1>even more importantly, how important is this the stock market? Well,

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<v Speaker 1>I do think it's important to stock market. Um, it

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<v Speaker 1>would appear anyway, that oil is really a global growth barometer.

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<v Speaker 1>And UM, historically, or at least over the last couple

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<v Speaker 1>of quarters anyway, UM, there has been a tight correlation

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<v Speaker 1>between the direction of the stock market and the direction

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<v Speaker 1>of oil prices. So I think having UM, perhaps some

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<v Speaker 1>sort of an agreement or at least a report of

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<v Speaker 1>an agreement certainly boosting oil prices, and that's turned stocks

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<v Speaker 1>around today. You know, Jack, I'm sorry, I'm gonna have

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<v Speaker 1>to turn your domestic and I want you to just

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<v Speaker 1>tell me about the US banking industry, because, of course,

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<v Speaker 1>one of the more recent pieces of news is that

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<v Speaker 1>California has suspended its business relationship with Wells Fargo. The

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<v Speaker 1>banks in the United States are particularly pressure because of

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<v Speaker 1>low infest rates and as a result they have major

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<v Speaker 1>incentives to try to make other businesses, but also they

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<v Speaker 1>have to set aside a lot of capital. What's your

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<v Speaker 1>take on how banks will be performing if we do

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<v Speaker 1>get an infest rate increase. Well, I do think, uh,

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<v Speaker 1>and I would tend to agree with you, UM that

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<v Speaker 1>you know, the banks are certainly under a lot of pressure. UM.

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<v Speaker 1>They've they've been the political pinata going into the election season.

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<v Speaker 1>This is a this is one area where both Republicans

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<v Speaker 1>and Democrats can agree. UM. So that that's been in

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<v Speaker 1>the in the headlines. UM, but I do think that

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<v Speaker 1>ultimately the higher short term interest rates will ultimately you

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<v Speaker 1>will be a souve for um. These companies that have

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<v Speaker 1>been under some profit pressure. Well, and of course talk

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<v Speaker 1>about pressure. Yellen was kind of beaten up on Coppit

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<v Speaker 1>Hill to a uh, defending the big banks. They're in

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<v Speaker 1>much better shape than they were, they're better capitalized. Yesterday,

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<v Speaker 1>Chris Whalen from no Bon rating agencies, quite expert on

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<v Speaker 1>the bank said yes, he was a big proponent of

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<v Speaker 1>ringing in the banks during the crisis, but now they're

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<v Speaker 1>overregulated and the more the banks the regulars want to

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<v Speaker 1>raise capital, that's hurting them. Does that do you agree

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<v Speaker 1>with that? And does it mean does it make banks

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<v Speaker 1>less of a good investment the financials? Yeah, I mean

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<v Speaker 1>you have to sort of put a different lens on

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<v Speaker 1>banks nowadays. Uh. I I would argue that they are

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<v Speaker 1>um should be trading at a lower valuation, and they

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<v Speaker 1>certainly are currently, but are also they're safer bets. I mean,

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<v Speaker 1>the fact is now if you're gonna treat them like utilities.

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<v Speaker 1>Then you know, my guess is their stocks are going

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<v Speaker 1>to be perform a lot more predictably. So I think

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<v Speaker 1>there are you know, a double edged sword there. But

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<v Speaker 1>on the other hand, keeping mind, financials is the only

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<v Speaker 1>sector UH this year that's actually negative while the rest

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<v Speaker 1>of the market is higher. So there is a lot

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<v Speaker 1>of making up to do. And I think that higher

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<v Speaker 1>interest rates, in having the election behind us UM could

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<v Speaker 1>be the catalyst to make to allow these these stocks

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<v Speaker 1>to move over the next four quarters. Okay, so we

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<v Speaker 1>got it. We did a little bit of oil, we

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<v Speaker 1>did a little bit of banks, banking stocks the United States.

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<v Speaker 1>I want you to tell me about the Paso in

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<v Speaker 1>Mexico and Donald Trumps refers specifically to your most recent missive,

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<v Speaker 1>your letter that you see, yeah, thanks to him. UM. Yeah.

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<v Speaker 1>You know, we've looked at a bunch of implications of

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<v Speaker 1>UM of Trump and and and Clinton and so forth,

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<v Speaker 1>and probably you know, you could argue biotech for for Clinton,

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<v Speaker 1>but it was really the pace so that has the

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<v Speaker 1>biggest statistical UH correlation to Trump's UM near the vagaries

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<v Speaker 1>of his UH of his fortunes in this in this election.

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<v Speaker 1>And what we found was probably not a surprise. As

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<v Speaker 1>his election chance has improved, the pace so fell and

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<v Speaker 1>vice versa. And so one of the earliest indications that

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<v Speaker 1>I noticed right after the debate UM was that the

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<v Speaker 1>pace rallied in addition to stock futures. But the pay

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<v Speaker 1>so in particular really signified to me, or reaffirmed to me,

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<v Speaker 1>that investors believe that Donald Trump lost the debate, or

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<v Speaker 1>at least didn't get the message that he wanted to

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<v Speaker 1>get across, and Clinton m certainly didn't lose. Of course,

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<v Speaker 1>the this is a bet that if Donald Trump were elected,

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<v Speaker 1>he would block, alter, even dismantled trade deals that have

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<v Speaker 1>benefited Mexico greatly. So I guess that that is the

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<v Speaker 1>logic there. And of course, is there any logic behindness?

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<v Speaker 1>And is this just like a kind of a two

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<v Speaker 1>month wonder once you get the results from the election,

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<v Speaker 1>does this trade go away? I don't think so, Kathleen.

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<v Speaker 1>I think what we've finding is, first of all, going

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<v Speaker 1>into them, the going into that Um Monday Um debate,

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<v Speaker 1>we have to keep in mind the pay so so

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<v Speaker 1>was the weakest in its entire history relative to the

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<v Speaker 1>US dollar, and so this rally that we're seeing a

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<v Speaker 1>relief rally whatever you want to call it is UM

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<v Speaker 1>you know, certainly moving the currency in the right direction.

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<v Speaker 1>But I also think it underscores the notion that, you know,

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<v Speaker 1>whether Trump attained presidency or he disappears, UH, this issue

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<v Speaker 1>wasn't going to go away. I think that UM candidates UM,

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<v Speaker 1>but also constituents are pre skeptical of trade and that

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<v Speaker 1>could put UM, Mexico UH and the Paco under under

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<v Speaker 1>dress even after you know, Trump, if he were to

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<v Speaker 1>lose UM into next year. Well, Jackie, I'm going to

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<v Speaker 1>turn you all the way back to the North America

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<v Speaker 1>and to the and then I want you to go

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<v Speaker 1>and do that pivot for for more oil and natural resources. UM.

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<v Speaker 1>Because you mentioned the value of the pace, so the

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<v Speaker 1>value the Canadian dollar also sliding. Tell me what's going

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<v Speaker 1>on there, and then tie that into natural resources, you know,

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<v Speaker 1>do that whole boat. Yeah, so UM, the you know,

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<v Speaker 1>the Canadian currency slightly different trade, although UM it was

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<v Speaker 1>you know again it was really NAFTA that was called

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<v Speaker 1>in the question UM that candidate Trump should be elected president,

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<v Speaker 1>would hope to UM cancel NAFTA, which of course covers

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<v Speaker 1>Canada as well. So I do think there is some

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<v Speaker 1>of that going on. Um, But but you're right to him.

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<v Speaker 1>Canada is a resource rich country, and oil prices have

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<v Speaker 1>certainly have come down pretty dramatically from their peak a

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<v Speaker 1>couple of years ago. Uh, and let's put pressure on

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<v Speaker 1>the currency. In fact, we believe in you know, at

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<v Speaker 1>seventies seven, it's on the dollar. Um, the Canadian dollar

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<v Speaker 1>is probably eight or nine percent undervalued on what we'll

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<v Speaker 1>call a purchasing power parity or kind of a fair

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<v Speaker 1>value basis. So um, we think that, um, you know,

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<v Speaker 1>these two currencies could be pretty interesting you know, interesting plays. Uh,

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<v Speaker 1>once the you know, the the all the confetti has

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<v Speaker 1>swept up after this election, Okay, until that confetti falls.

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<v Speaker 1>Are you on the sidelines? Are you have you moved

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<v Speaker 1>a lot into cash? Is that the best strategy? When

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<v Speaker 1>we do it still looks like a pretty close race.

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<v Speaker 1>And we know if any of these things, like the

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<v Speaker 1>Paso volatility or an early indication markets, many different asset

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<v Speaker 1>classes around the world could move when we get the

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<v Speaker 1>election results, depending on what they are. Is it best

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<v Speaker 1>just to be defensive right now? Well, it really depends

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<v Speaker 1>on your your time horizon and the strength of your stomach.

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<v Speaker 1>I suppose, Um, we do have a fair sizeable cash position.

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<v Speaker 1>It's been kind of a you know, burning a hole

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<v Speaker 1>in our pocket, but we want to keep some powder

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<v Speaker 1>dry and look for opportunities. On the other hand, I

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<v Speaker 1>think that you know, a lot of the you know,

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<v Speaker 1>the the rhetoric is it will die down, whether it's

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<v Speaker 1>surrounding the banks, uh and Wells, Fargo Well, whether it's

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<v Speaker 1>surrounding concerns about the pay so or even biotechs and whatever.

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<v Speaker 1>You know, keep in mind, even if, um, you know,

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<v Speaker 1>a candidate is elected, it doesn't necessarily be a surprise everyone,

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<v Speaker 1>all of your listeners, but not all candidates actually enact

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<v Speaker 1>items that they talk about during the campaign. So um,

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<v Speaker 1>it's it's entirely possible that sort of the enthusiasm wears

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<v Speaker 1>off once they get into office and low and behold

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<v Speaker 1>these sectors come back. Yeah, very good point, Very interesting.

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<v Speaker 1>Thank you very much. Jack Appman is always the chief

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<v Speaker 1>investment Officer at FEMO Private Bank. We are broadcasting from

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<v Speaker 1>Bloomberg Market's most influential summit from our world headquarters in

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<v Speaker 1>New York. This is taking Stock. I'm pim Fox. My

0:11:06.800 --> 0:11:09.600
<v Speaker 1>co host Kathleen Hayes. This is Bloomberg