1 00:00:09,880 --> 00:00:13,800 Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane jay Ley. 2 00:00:13,960 --> 00:00:16,960 Speaker 1: We bring you insight from the best in economics, finance, 3 00:00:17,040 --> 00:00:23,520 Speaker 1: investment and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, 4 00:00:23,600 --> 00:00:30,160 Speaker 1: Bloomberg dot Com and of course on the Bloomberg. We're 5 00:00:30,200 --> 00:00:33,320 Speaker 1: glad to be joined today by Andrew Adonis. He is 6 00:00:33,360 --> 00:00:35,839 Speaker 1: a former UK Secretary of State for Transport. He's a 7 00:00:35,920 --> 00:00:38,760 Speaker 1: Labor member and the key proponent of a second referend. 8 00:00:38,760 --> 00:00:41,520 Speaker 1: The Lord of Dnast thank you for joining Surveillance live 9 00:00:42,240 --> 00:00:45,000 Speaker 1: on the Green today. Look, it seems that we're almost 10 00:00:45,040 --> 00:00:47,519 Speaker 1: in the midst of a contitutional crisis. What happens if 11 00:00:47,640 --> 00:00:50,199 Speaker 1: MP's vote for a customs union industries I may have 12 00:00:50,200 --> 00:00:53,080 Speaker 1: to choose between her party and the will of Parliament. Well, 13 00:00:53,120 --> 00:00:55,959 Speaker 1: it's pandemonium here in Westminster at the moment. It may 14 00:00:56,000 --> 00:00:58,360 Speaker 1: look calm behind us, but in fact, actually behind that 15 00:00:58,760 --> 00:01:04,880 Speaker 1: they inside those buildings is more politicking and more bitterness 16 00:01:04,920 --> 00:01:08,160 Speaker 1: actually and political conflict that I've seen in my political lifetime. 17 00:01:08,520 --> 00:01:10,760 Speaker 1: And the reason for it is that two different things 18 00:01:10,760 --> 00:01:12,880 Speaker 1: are going on, both of which are causing huge stress 19 00:01:12,920 --> 00:01:16,000 Speaker 1: the British political system. We have a government and Parliament 20 00:01:16,000 --> 00:01:19,160 Speaker 1: which have completely fallen apart, which has never happened in 21 00:01:19,200 --> 00:01:23,160 Speaker 1: modern political history. And secondly, we have a Brexit proposition 22 00:01:23,200 --> 00:01:25,800 Speaker 1: that's imploding. And the problem is that the Brexit proposition 23 00:01:25,800 --> 00:01:28,039 Speaker 1: is still supported by the Prime Minister and still has 24 00:01:28,080 --> 00:01:31,160 Speaker 1: this referendum result of three years ago. Now where things 25 00:01:31,160 --> 00:01:35,400 Speaker 1: are moving towards is a long extension of negotiating period, 26 00:01:35,520 --> 00:01:37,760 Speaker 1: this thing called Article fifty. The process by which we 27 00:01:37,800 --> 00:01:41,400 Speaker 1: negotiate our withdrawal that I reckon will be probably another year, 28 00:01:41,560 --> 00:01:43,440 Speaker 1: and that will put the whole thing on hold while 29 00:01:43,480 --> 00:01:46,039 Speaker 1: we sort it out. So, in fact, if you're sort 30 00:01:46,080 --> 00:01:48,520 Speaker 1: of trying to make sense of all of the pandemonium 31 00:01:48,520 --> 00:01:50,560 Speaker 1: going on, what is in fact happening is Brexit is 32 00:01:50,600 --> 00:01:52,160 Speaker 1: being put on hold. It's been put on hold in 33 00:01:52,200 --> 00:01:54,000 Speaker 1: a very messy way, all right, but putting on hold 34 00:01:54,040 --> 00:01:55,600 Speaker 1: for twelve months, I'm not sure what it changes. And 35 00:01:55,680 --> 00:01:58,240 Speaker 1: in the meantime we have to organize European elections, and 36 00:01:58,240 --> 00:02:00,480 Speaker 1: then we also have to contribute to you maget, how 37 00:02:00,520 --> 00:02:04,240 Speaker 1: palatable will that well, not palatable to Treysa May at all, 38 00:02:04,280 --> 00:02:06,400 Speaker 1: which is the reason why she's struggling. Until the last 39 00:02:06,440 --> 00:02:09,280 Speaker 1: She's three times put her deal to a parliamentary vote. 40 00:02:09,320 --> 00:02:12,600 Speaker 1: Lost three times, she might well try fourth time tomorrow Wednesday, 41 00:02:12,600 --> 00:02:14,799 Speaker 1: So she certainly doesn't find it palatable. But where is 42 00:02:14,800 --> 00:02:18,160 Speaker 1: the parliamentary majority coming out? And we are parliamentary democracies 43 00:02:18,160 --> 00:02:21,519 Speaker 1: are ultimately parliaments will will be. What happens where the 44 00:02:21,520 --> 00:02:25,160 Speaker 1: parliamentary majority is coming out is long extension, which if 45 00:02:25,160 --> 00:02:27,200 Speaker 1: that means that we have to fight the Oropian elections, 46 00:02:27,360 --> 00:02:29,639 Speaker 1: so be it. We will. Of course, as longs were 47 00:02:29,639 --> 00:02:32,480 Speaker 1: in the European Union, contribute to the budget. We don't 48 00:02:32,480 --> 00:02:34,919 Speaker 1: break the law as a country. And in that long 49 00:02:34,960 --> 00:02:38,440 Speaker 1: extension the iss will be resolved. I'm absolutely confident of 50 00:02:38,480 --> 00:02:40,280 Speaker 1: that as a parliamentary And how is it most likely 51 00:02:40,320 --> 00:02:43,000 Speaker 1: to be resolved by by by a second referender? It 52 00:02:43,080 --> 00:02:45,359 Speaker 1: is wonderful day have you here today? And too many counts. 53 00:02:45,440 --> 00:02:47,280 Speaker 1: One of them, Lord of Dona's is your father was 54 00:02:47,320 --> 00:02:49,960 Speaker 1: an immigrant, a waiter, and all the good that has 55 00:02:50,000 --> 00:02:53,840 Speaker 1: occurred within your academic career in your public service. Fine, 56 00:02:54,440 --> 00:02:57,320 Speaker 1: But then the question is where is your labor party. 57 00:02:57,480 --> 00:03:00,840 Speaker 1: You are expert on labor history. You're expert back to 58 00:03:00,960 --> 00:03:07,840 Speaker 1: at least William Gladstone is Jeremy Corbin abdicating his responsibilities 59 00:03:07,919 --> 00:03:10,720 Speaker 1: for Labor. Well, again, there's a difference between the leader 60 00:03:10,800 --> 00:03:13,760 Speaker 1: and the followers, as though it's with choices and may 61 00:03:13,880 --> 00:03:17,760 Speaker 1: the Labor Party as a party is overwhelmingly pro Are 62 00:03:17,800 --> 00:03:21,000 Speaker 1: you going to do this week? We will vote, We 63 00:03:21,000 --> 00:03:23,000 Speaker 1: we will vote. We don't we don't actually need to 64 00:03:23,000 --> 00:03:27,000 Speaker 1: to to move our leader now because he has moved. 65 00:03:27,040 --> 00:03:29,359 Speaker 1: We will vote tonight in the in the votes that 66 00:03:29,360 --> 00:03:31,640 Speaker 1: are taking place in Parliament tonight, we the Labor Party 67 00:03:31,680 --> 00:03:36,240 Speaker 1: will vote for a second and against a no deal Brexit. 68 00:03:36,360 --> 00:03:37,760 Speaker 1: So we've got to the right place. Here's what I've 69 00:03:37,800 --> 00:03:40,640 Speaker 1: learned in twenty four hours. Every cab driver in London 70 00:03:40,720 --> 00:03:43,440 Speaker 1: roots for Arsenal. I figured that out. And the other 71 00:03:43,560 --> 00:03:46,480 Speaker 1: thing I learned is that all are scared stiff of 72 00:03:46,640 --> 00:03:49,680 Speaker 1: your Labor leader. Well are you changed that? I'm an 73 00:03:49,760 --> 00:03:56,440 Speaker 1: Arsenal supporter too, and the great team Arsenal, and they're 74 00:03:56,440 --> 00:03:59,400 Speaker 1: also Jeremy Corby's local team. There Isningxily in North London, 75 00:03:59,640 --> 00:04:01,800 Speaker 1: but so was Jeremy himself. And you need to separate 76 00:04:01,800 --> 00:04:04,119 Speaker 1: out the person of Jeremy Corby and who of course 77 00:04:04,240 --> 00:04:07,920 Speaker 1: is anathema to particularly small traders like cab drivers, because 78 00:04:07,920 --> 00:04:10,080 Speaker 1: he's on the far left. You need to separate that 79 00:04:10,160 --> 00:04:14,160 Speaker 1: out from from Labor's position on Brexit. Now, Jeremy Corbyn 80 00:04:14,200 --> 00:04:16,919 Speaker 1: historically has been anti European because the far left, the 81 00:04:16,960 --> 00:04:20,080 Speaker 1: Marxist left in this country, regarded the European Unit as 82 00:04:20,080 --> 00:04:24,599 Speaker 1: a capitalist conspiracy. But the overwhelming majority of Labor members 83 00:04:24,720 --> 00:04:27,960 Speaker 1: and Labor members of Parliament are prolier and that is 84 00:04:27,960 --> 00:04:30,039 Speaker 1: how we are now dated five days. How are you 85 00:04:30,040 --> 00:04:33,080 Speaker 1: going to take the Labor Party from the Marxist worry 86 00:04:33,160 --> 00:04:36,080 Speaker 1: over the public service if in a general election you 87 00:04:36,200 --> 00:04:37,920 Speaker 1: actually win. But we're not going to have a general 88 00:04:37,920 --> 00:04:40,400 Speaker 1: election because the one thing that both parties will agree 89 00:04:40,400 --> 00:04:42,360 Speaker 1: on in the immediate future is that is that they 90 00:04:42,360 --> 00:04:47,720 Speaker 1: don't want an election given that the political both parties, 91 00:04:48,360 --> 00:04:49,520 Speaker 1: but it's not going to happen. There isn't going to 92 00:04:49,520 --> 00:04:51,280 Speaker 1: be a majority for general election. That that would mean 93 00:04:51,279 --> 00:04:53,719 Speaker 1: Conservative MP has been Turkey's voting for Christmas and they're 94 00:04:53,720 --> 00:04:56,600 Speaker 1: not stupid, which which could happen. It won't happen. We've 95 00:04:56,640 --> 00:04:58,880 Speaker 1: had two motions of confidence so far and the Conservative 96 00:04:58,880 --> 00:05:01,960 Speaker 1: parties held together. We're not as single Conservative MP rebelling 97 00:05:01,960 --> 00:05:03,960 Speaker 1: on either occasion. So that's fantasy. That why why would 98 00:05:04,000 --> 00:05:06,000 Speaker 1: Parliament actually vote for a second referenum. What if we 99 00:05:06,040 --> 00:05:08,600 Speaker 1: get a fifty eight remain. What if you get a 100 00:05:08,640 --> 00:05:10,960 Speaker 1: fifty four or forty six remain? It seems like that 101 00:05:11,000 --> 00:05:13,080 Speaker 1: would be problematic. Do you then have a third vote 102 00:05:13,120 --> 00:05:15,960 Speaker 1: just to square it off? The reason Parliament will vote 103 00:05:15,960 --> 00:05:17,919 Speaker 1: for a referendum is from a combination of people like 104 00:05:18,040 --> 00:05:20,240 Speaker 1: me who believe we should still stay in the European 105 00:05:20,320 --> 00:05:22,280 Speaker 1: Union and that is actually the mature, considered view of 106 00:05:22,279 --> 00:05:24,520 Speaker 1: the British people and we need to test that, and 107 00:05:24,600 --> 00:05:26,400 Speaker 1: a large number of my colleagues, so whom this is 108 00:05:26,400 --> 00:05:29,799 Speaker 1: a lifeboat that we were paralyzed. We cannot make decisions 109 00:05:29,839 --> 00:05:31,640 Speaker 1: Parliament and government aren't at once, so we need a 110 00:05:31,680 --> 00:05:35,320 Speaker 1: referendum to break through the log jam. Now, if there's 111 00:05:35,360 --> 00:05:38,120 Speaker 1: an I actually believe that there's a referendum, rather like 112 00:05:38,240 --> 00:05:40,440 Speaker 1: nineteen seventy five and we had a long period of 113 00:05:40,440 --> 00:05:42,680 Speaker 1: debate leading to a referendum. I think there will be 114 00:05:42,720 --> 00:05:45,159 Speaker 1: a decisive majority of staying in the European Union. But 115 00:05:45,200 --> 00:05:48,120 Speaker 1: it doesn't matter what the majority is. Provided we stay in. 116 00:05:48,520 --> 00:05:50,919 Speaker 1: That is the end of Brexit, because no government is 117 00:05:50,920 --> 00:05:53,640 Speaker 1: then going to proceed with Brexit, and the idea that 118 00:05:53,680 --> 00:05:56,400 Speaker 1: we would have another references. What half the people feel 119 00:05:56,440 --> 00:05:59,120 Speaker 1: cheated they voted, they voted to leave. I do not 120 00:05:59,200 --> 00:06:02,760 Speaker 1: believe that I have. I'm I'm an experienced politician. I'm 121 00:06:02,839 --> 00:06:05,000 Speaker 1: addressing Brexit meetings up and down the country at the moment. 122 00:06:05,080 --> 00:06:07,600 Speaker 1: It's my big thing. It's very important to understand that 123 00:06:07,640 --> 00:06:11,000 Speaker 1: most people have voted for Brexit. We're not voting about Europe. 124 00:06:11,360 --> 00:06:14,760 Speaker 1: They were voting agatest profound discontent at the way this 125 00:06:14,800 --> 00:06:17,640 Speaker 1: country is being governed at the moment. Austerity, the state 126 00:06:17,720 --> 00:06:21,640 Speaker 1: of the public services, real wages down on ten years ago, 127 00:06:22,000 --> 00:06:24,000 Speaker 1: the fact that their own lives have got worse. That's 128 00:06:24,040 --> 00:06:27,240 Speaker 1: the reason why the proportion who actually care passionately about 129 00:06:27,279 --> 00:06:29,520 Speaker 1: Europe is tiny. It's very vocal. You can hear some 130 00:06:29,520 --> 00:06:32,400 Speaker 1: of them behind the same debate in the United States 131 00:06:32,400 --> 00:06:35,039 Speaker 1: about a republican party like the Whigs in eighteen forty 132 00:06:35,080 --> 00:06:38,920 Speaker 1: two Pregladstone, that is narrowed down and become a republican 133 00:06:39,000 --> 00:06:41,760 Speaker 1: party of a few. Do you perceive the Tory Party 134 00:06:41,880 --> 00:06:44,640 Speaker 1: is the same way, where they just become so narrow 135 00:06:44,960 --> 00:06:47,599 Speaker 1: evolving over the last ten and fifteen years, they've become 136 00:06:47,680 --> 00:06:50,760 Speaker 1: very narrow at the moment because they've absolutely obsessed and 137 00:06:50,920 --> 00:06:54,359 Speaker 1: overwhelmed by this European I can't labor Winders sasively. I 138 00:06:54,440 --> 00:06:57,520 Speaker 1: don't understand that well, that we we have his season 139 00:06:57,720 --> 00:07:00,960 Speaker 1: on our own side, which you've identified. At the moment. 140 00:07:01,000 --> 00:07:03,359 Speaker 1: What we have is an uncompetitive political system and that 141 00:07:03,440 --> 00:07:05,760 Speaker 1: is I'm afraid part of the reason why we have Brexit. 142 00:07:06,040 --> 00:07:08,240 Speaker 1: But our democracy is a great democracy. And what I 143 00:07:08,240 --> 00:07:10,440 Speaker 1: think what happened if we stopped Brexit is that both 144 00:07:10,440 --> 00:07:13,880 Speaker 1: parties will move dramatically towards the center. The Conservative Party, 145 00:07:13,920 --> 00:07:16,720 Speaker 1: which is not historically an ideological party. They are not 146 00:07:16,800 --> 00:07:19,679 Speaker 1: if they lose a referendum now on the Brexit issue, 147 00:07:19,720 --> 00:07:21,960 Speaker 1: they are not as a party. Any obsess about you 148 00:07:22,120 --> 00:07:25,400 Speaker 1: for this has been wonderful, Lord, and thank you so much, greatly, 149 00:07:25,480 --> 00:07:42,040 Speaker 1: greatly appreciative getting up to speed on the f X 150 00:07:42,080 --> 00:07:45,240 Speaker 1: market now helping us do that. David Bloom, HSBC Global 151 00:07:45,280 --> 00:07:47,320 Speaker 1: head of the FA Strategy. He joins us on the 152 00:07:47,320 --> 00:07:49,640 Speaker 1: phone from London. David, always great to catch up with you. 153 00:07:49,640 --> 00:07:53,480 Speaker 1: Your research dropped across my desk this morning. The currency outlooked. 154 00:07:53,520 --> 00:07:57,200 Speaker 1: The great pivot continues. Let's talk about that. Misreading the 155 00:07:57,280 --> 00:07:59,440 Speaker 1: central bank pivot how many people have got that wrong? 156 00:07:59,480 --> 00:08:03,720 Speaker 1: In Q one, David Well, I mean, the consensus basically 157 00:08:03,880 --> 00:08:06,600 Speaker 1: argued that the FED would pivot and the pet FED 158 00:08:06,600 --> 00:08:09,760 Speaker 1: would turn to neutral, and that fiscal stimulus would come 159 00:08:09,760 --> 00:08:11,960 Speaker 1: to an end and the dollar would drop. They were 160 00:08:11,960 --> 00:08:15,280 Speaker 1: nearly right. What they didn't recognize is everyone else than 161 00:08:15,320 --> 00:08:16,880 Speaker 1: when the U s gets a cold, the rest of 162 00:08:16,880 --> 00:08:19,600 Speaker 1: the world gets pneumonia. It's always been that. So we 163 00:08:19,680 --> 00:08:23,440 Speaker 1: had the easy be pivoting. We had CAD, we had Assi, 164 00:08:23,600 --> 00:08:26,360 Speaker 1: we had New Zealand now talking about rate cuts. So yeah, 165 00:08:26,360 --> 00:08:29,480 Speaker 1: the Fed said turn but the differences or other things 166 00:08:29,520 --> 00:08:31,640 Speaker 1: being equal, there would have been weak for the bad 167 00:08:31,680 --> 00:08:33,760 Speaker 1: for the dollar, but all other things are not equal 168 00:08:33,840 --> 00:08:36,959 Speaker 1: everyone else as well. Many people have really struggled to 169 00:08:37,000 --> 00:08:41,079 Speaker 1: get an appropriate framework to really frame this effects market. David, 170 00:08:41,080 --> 00:08:43,000 Speaker 1: have them do that for the next couple of quarters. 171 00:08:43,040 --> 00:08:46,600 Speaker 1: What's the best way to look at things? Well, I 172 00:08:46,640 --> 00:08:50,040 Speaker 1: think the question is is the market cyclical, structural, or political? 173 00:08:50,160 --> 00:08:52,760 Speaker 1: And I'm afraid to say the market has become very 174 00:08:52,840 --> 00:08:56,880 Speaker 1: very political, both cyclical and political. Is the central bank pivoting? 175 00:08:56,920 --> 00:08:58,920 Speaker 1: And what's going on with the politics. We look at 176 00:08:58,920 --> 00:09:02,280 Speaker 1: the four currencies run today, they're all emerging market political 177 00:09:02,320 --> 00:09:05,160 Speaker 1: currencies to risk one day. So that's South Africa ralling 178 00:09:05,440 --> 00:09:08,880 Speaker 1: because of past by the rating agencies. Turkey we've just 179 00:09:08,920 --> 00:09:13,600 Speaker 1: had election, Mexico we're talking about all different things going 180 00:09:13,600 --> 00:09:16,120 Speaker 1: on there, and Sterling. So these are four currencies, are 181 00:09:16,160 --> 00:09:19,880 Speaker 1: all all these four emerging market tarp political currencies all railing. 182 00:09:20,240 --> 00:09:22,520 Speaker 1: It's a risk one day and that's that's what That's 183 00:09:22,520 --> 00:09:24,719 Speaker 1: what's going on at the moment. The story of Q one, 184 00:09:24,720 --> 00:09:28,160 Speaker 1: as you know, David, is that the US dollar is 185 00:09:28,160 --> 00:09:30,840 Speaker 1: basically the high yielding currency in G ten. The carry 186 00:09:30,840 --> 00:09:33,760 Speaker 1: trades on pick up the US dollar. Is that something 187 00:09:33,800 --> 00:09:35,880 Speaker 1: the sticks? Was that a temporary phenomenon or a story 188 00:09:35,880 --> 00:09:39,959 Speaker 1: for well, it was a story fall of last year 189 00:09:39,960 --> 00:09:41,880 Speaker 1: and it hasn't stopped. I don't see why the story 190 00:09:41,960 --> 00:09:46,199 Speaker 1: is changing the world's reserve currency. The world's gibill superpower 191 00:09:46,520 --> 00:09:48,880 Speaker 1: is offering me the highest yields in the world. It's 192 00:09:48,920 --> 00:09:52,000 Speaker 1: something beautiful. You don't often see this. I get paid 193 00:09:52,080 --> 00:09:54,959 Speaker 1: to own dollars. It's fantastic. I don't have to buy 194 00:09:54,960 --> 00:09:57,760 Speaker 1: a ten year bond with twenty one coupon payments, with 195 00:09:57,800 --> 00:10:00,440 Speaker 1: all the duration risk. I buy a one year treisuret 196 00:10:00,840 --> 00:10:04,080 Speaker 1: you know, guaranteed by the U S textplayer game two 197 00:10:04,120 --> 00:10:07,240 Speaker 1: and a half percent. Isn't that beautiful? Asleep like a 198 00:10:07,360 --> 00:10:11,240 Speaker 1: baby every night? I'm sure you do, regardless, David, Looking 199 00:10:11,280 --> 00:10:14,640 Speaker 1: at twenty nineteen, it seems to me that when the 200 00:10:14,640 --> 00:10:17,560 Speaker 1: global economy is doing well, when global risk appetite it's good, 201 00:10:17,880 --> 00:10:20,800 Speaker 1: the dollar is weaker and vice versa. So here we 202 00:10:20,800 --> 00:10:24,640 Speaker 1: are in twenty nineteen. If global risk appetite improves, if 203 00:10:24,720 --> 00:10:26,720 Speaker 1: the Chinese data is an indicator of the way this 204 00:10:26,800 --> 00:10:29,400 Speaker 1: year is going to progress and materialize over the next 205 00:10:29,480 --> 00:10:32,400 Speaker 1: nine months, doesn't that smell like a weaker dollar story? 206 00:10:32,440 --> 00:10:36,200 Speaker 1: Why is that a stronger dollar story? Because it just 207 00:10:36,320 --> 00:10:39,880 Speaker 1: ain't necessarily so. I mean, I mean fifty point eight 208 00:10:39,920 --> 00:10:43,680 Speaker 1: on China and everyone's getting excited. It's creaking into positive 209 00:10:43,679 --> 00:10:46,640 Speaker 1: industrial territory. Which we've got to mention is the down 210 00:10:46,720 --> 00:10:50,840 Speaker 1: revision to the German one forty four point one. Come on, 211 00:10:51,640 --> 00:10:55,800 Speaker 1: you know, so if there's a full blown recission recovery everyone, 212 00:10:56,160 --> 00:10:59,040 Speaker 1: I completely agree with you, But where is that from? 213 00:10:59,120 --> 00:11:01,920 Speaker 1: Look at every cent of banks are pivoting towards the visioners. 214 00:11:02,160 --> 00:11:05,240 Speaker 1: You were talking about the fiscal push in China, which 215 00:11:05,280 --> 00:11:08,480 Speaker 1: is kind of working. So things are stabilizing. But the 216 00:11:08,559 --> 00:11:11,480 Speaker 1: kind of world that's puddling along and stabilizing while I'm 217 00:11:11,480 --> 00:11:13,920 Speaker 1: earning two and a half percent on one your money 218 00:11:13,920 --> 00:11:16,520 Speaker 1: in the US, that's plays into the dollar. If you're 219 00:11:16,520 --> 00:11:18,960 Speaker 1: telling me there's a global recovery and central banks are 220 00:11:19,040 --> 00:11:23,200 Speaker 1: raising rates and it's it's you know, everything's going gang 221 00:11:23,200 --> 00:11:25,400 Speaker 1: ho around the world, Well, then obviously the dollar won't 222 00:11:25,400 --> 00:11:28,120 Speaker 1: do well. But that ain't happening. Let's talk about what's 223 00:11:28,120 --> 00:11:30,360 Speaker 1: happening this morning. I'll put up the consensus for you 224 00:11:30,400 --> 00:11:32,320 Speaker 1: and you can decide whether you before in front of 225 00:11:32,360 --> 00:11:33,960 Speaker 1: it or behind it, and what you think about it. 226 00:11:34,280 --> 00:11:36,000 Speaker 1: The consensus for you right now is that the Chinese 227 00:11:36,040 --> 00:11:39,000 Speaker 1: stat has improved, and that's your leading indicator. That's been 228 00:11:39,000 --> 00:11:41,400 Speaker 1: the source of the epicenter of global weakness. If we 229 00:11:41,440 --> 00:11:44,559 Speaker 1: addressed that, everything else will come afterwards. Are you challenging 230 00:11:44,559 --> 00:11:47,800 Speaker 1: that view, David? Yeah, But I mean are we talking 231 00:11:47,800 --> 00:11:50,800 Speaker 1: about two things here. So that is, as I said, 232 00:11:50,800 --> 00:11:52,959 Speaker 1: the cyclical, and you agree with that. But then we've 233 00:11:53,000 --> 00:11:55,560 Speaker 1: got the political as well, which is the trade deal. 234 00:11:55,679 --> 00:11:58,760 Speaker 1: So it's both the cyclical and political. Now, the question 235 00:11:58,920 --> 00:12:01,640 Speaker 1: is wild growth you that's strong that it will propel 236 00:12:01,760 --> 00:12:04,800 Speaker 1: everyone upwards, or will China kind of stabilize and grow 237 00:12:04,920 --> 00:12:07,520 Speaker 1: quite nicely, which I think it will. But that means 238 00:12:07,520 --> 00:12:09,840 Speaker 1: you need to be picky in emerging markets. You've got 239 00:12:09,840 --> 00:12:12,679 Speaker 1: to choose largely. You can't just go in and buy 240 00:12:12,760 --> 00:12:15,640 Speaker 1: anything you like. That's the point I'm making. So, David, 241 00:12:15,679 --> 00:12:18,040 Speaker 1: final question for you, if dollar strength is the story 242 00:12:18,080 --> 00:12:20,880 Speaker 1: for you through nineteen, Where am I playing that in 243 00:12:20,920 --> 00:12:23,480 Speaker 1: G ten right now? Because it's so difficult to get 244 00:12:23,559 --> 00:12:28,920 Speaker 1: much lower on europe dollars seemingly even with weak European data. Yes, 245 00:12:28,960 --> 00:12:30,440 Speaker 1: but when you get paid to a half per cent 246 00:12:30,480 --> 00:12:32,319 Speaker 1: and one your money, you don't care if the currency 247 00:12:32,360 --> 00:12:34,640 Speaker 1: stays the same you've made to and half percent for shure, 248 00:12:35,080 --> 00:12:38,200 Speaker 1: So you don't need volatility, don't need big movements. You 249 00:12:38,240 --> 00:12:41,120 Speaker 1: can get paid to own dollars. That's my point. And 250 00:12:41,480 --> 00:12:43,400 Speaker 1: you know, if you look at the G ten across 251 00:12:43,440 --> 00:12:48,240 Speaker 1: the space, the CAD you know, and as kiwed, none 252 00:12:48,280 --> 00:12:50,240 Speaker 1: of them are looking great at the moment. And as 253 00:12:50,240 --> 00:12:52,839 Speaker 1: I said, you you get paid to own dollars and 254 00:12:52,920 --> 00:12:56,320 Speaker 1: there's very little volatility, and it's beautiful, Hey, David, it 255 00:12:56,400 --> 00:12:58,240 Speaker 1: is beautiful. Let's great. A cat shut with you this 256 00:12:58,360 --> 00:13:01,920 Speaker 1: Monday morning. David Blue, mhsp CE Global head of FA Strategy. 257 00:13:01,960 --> 00:13:18,240 Speaker 1: He joined us from London. How do you start Q 258 00:13:18,480 --> 00:13:22,160 Speaker 1: two at eight am Wall Street Time, John, You've got 259 00:13:22,200 --> 00:13:25,920 Speaker 1: to speak to somebody that really understands the coupon and 260 00:13:25,960 --> 00:13:28,400 Speaker 1: we could do that now he does. And also you 261 00:13:28,400 --> 00:13:29,800 Speaker 1: have to take a little bit of a risk, a 262 00:13:29,920 --> 00:13:31,880 Speaker 1: risk that you might lose half the audience, but you 263 00:13:31,960 --> 00:13:34,120 Speaker 1: make the other half of the audience really really happy 264 00:13:34,559 --> 00:13:35,920 Speaker 1: because we're going to speak to a man that has 265 00:13:35,960 --> 00:13:40,240 Speaker 1: actually sat in the cophent at Anfield. It's Bob Michael 266 00:13:40,400 --> 00:13:43,079 Speaker 1: JP Morgan Asset Management, Global ce IO and head of 267 00:13:43,080 --> 00:13:45,880 Speaker 1: Global fixed Income. Bob. As always, this is how we 268 00:13:45,920 --> 00:13:48,280 Speaker 1: compensate you for coming on a program with us. We 269 00:13:48,400 --> 00:13:51,720 Speaker 1: talk a little bit about your beloved Liverpool massive win yesterday. 270 00:13:52,920 --> 00:13:56,000 Speaker 1: I'm John. I don't know what's more difficult watching the 271 00:13:56,080 --> 00:13:59,240 Speaker 1: Fed pivot and oscillate all over the place, are waiting 272 00:13:59,280 --> 00:14:02,920 Speaker 1: for Liverpool to score in the ninety minute. What an 273 00:14:02,960 --> 00:14:05,600 Speaker 1: awesome game, what a finish two, and then a big 274 00:14:05,640 --> 00:14:07,600 Speaker 1: gang for City in the week against card Iff. I 275 00:14:07,640 --> 00:14:10,360 Speaker 1: think so it could be going back to second place again, Bob. 276 00:14:11,000 --> 00:14:13,760 Speaker 1: My only regret is I didn't hear Tom referred to 277 00:14:13,840 --> 00:14:17,800 Speaker 1: his beloved you know, well the cop is okay. I 278 00:14:17,840 --> 00:14:20,680 Speaker 1: mean I really enjoyed it and all that, and afterward 279 00:14:20,720 --> 00:14:23,120 Speaker 1: I went to church and said thank you, But but 280 00:14:23,320 --> 00:14:25,320 Speaker 1: can we just pause for a moment and said, good 281 00:14:25,320 --> 00:14:28,360 Speaker 1: morning Boston one or six one FM in the last place, 282 00:14:28,440 --> 00:14:32,800 Speaker 1: Boston Red Sox. I mean, season over, John, it could 283 00:14:32,840 --> 00:14:37,920 Speaker 1: be ready, they're gonna get relegated. I'll come on, I 284 00:14:39,320 --> 00:14:42,280 Speaker 1: wouldn't that better? Liverpool? Who's south s o? U? Is 285 00:14:42,320 --> 00:14:48,720 Speaker 1: that Southampton? You plan? Southampton? Next bump? Yeah, we're we 286 00:14:48,760 --> 00:14:51,240 Speaker 1: should be on a roll. We're looking good. We're a 287 00:14:51,280 --> 00:14:54,960 Speaker 1: team of destiny. This is the third nineties plus minute 288 00:14:55,000 --> 00:14:59,120 Speaker 1: win this year. Let's get to the markets, Tom, Enough 289 00:14:59,160 --> 00:15:03,120 Speaker 1: of the liverpools up, John jumping on the markets here, 290 00:15:03,120 --> 00:15:05,560 Speaker 1: you're the really I'll go, hey, Bob, big first quarter, 291 00:15:05,840 --> 00:15:08,560 Speaker 1: big question whether they can continue the squeeze the juice 292 00:15:08,560 --> 00:15:11,440 Speaker 1: from risk assets? You think you can walk us through 293 00:15:11,480 --> 00:15:15,800 Speaker 1: it without question? And and it starts with the Fed 294 00:15:16,240 --> 00:15:20,000 Speaker 1: and the other central banks. They've taken all the pressure 295 00:15:20,400 --> 00:15:24,640 Speaker 1: off of the markets instead of sitting here talking about 296 00:15:24,680 --> 00:15:27,520 Speaker 1: a rate increase and more balance sheet runoff. A couple 297 00:15:27,520 --> 00:15:30,320 Speaker 1: of weeks ago, and will they go in June they're done. 298 00:15:30,600 --> 00:15:33,520 Speaker 1: I think they're actually done for the next two years. 299 00:15:33,960 --> 00:15:37,360 Speaker 1: And if I'm wrong, it's yes, and I can take 300 00:15:37,400 --> 00:15:41,120 Speaker 1: you through that. It's because they would cut rates, not 301 00:15:41,360 --> 00:15:46,240 Speaker 1: raise them, so that that rate raising normalization regime is 302 00:15:46,320 --> 00:15:49,160 Speaker 1: off the table. The other thing that's been very positive 303 00:15:49,200 --> 00:15:53,040 Speaker 1: for the market is the stimulus that China has been 304 00:15:53,160 --> 00:15:57,240 Speaker 1: injecting into the system is now coming through and you're 305 00:15:57,240 --> 00:16:00,160 Speaker 1: seeing it in p M I s and you're being 306 00:16:00,240 --> 00:16:04,320 Speaker 1: it across the region. So central banks on hold with 307 00:16:04,640 --> 00:16:09,280 Speaker 1: I think still very accommodative rates and Chinese stimulus are 308 00:16:09,400 --> 00:16:12,520 Speaker 1: enough to take the markets higher. And if you think 309 00:16:12,600 --> 00:16:16,440 Speaker 1: about any sort of compromise between the US and China 310 00:16:16,520 --> 00:16:18,560 Speaker 1: on trade, then you could go a lot higher. So 311 00:16:18,840 --> 00:16:20,960 Speaker 1: which pocket is a global fixed income would you be 312 00:16:21,000 --> 00:16:23,200 Speaker 1: looking to get exposure to. I'm trying to understand if 313 00:16:23,200 --> 00:16:25,800 Speaker 1: this Chinese story materializes in the way that the consensus 314 00:16:25,840 --> 00:16:28,560 Speaker 1: view expects it to, where does it unlock value when 315 00:16:28,560 --> 00:16:32,160 Speaker 1: we've already seen a big run up at the start, Well, 316 00:16:32,160 --> 00:16:34,120 Speaker 1: in a lot of places, I think you have to 317 00:16:34,120 --> 00:16:39,479 Speaker 1: start in the emerging markets, particularly in emerging market currencies. 318 00:16:39,960 --> 00:16:43,800 Speaker 1: They had a reasonably good fourth quarters and have stalled 319 00:16:44,640 --> 00:16:47,840 Speaker 1: as everyone has circled back to the dollar. So I 320 00:16:47,880 --> 00:16:50,480 Speaker 1: think there's plenty more upside there. I think there's a 321 00:16:50,480 --> 00:16:53,160 Speaker 1: lot of room for real yields to come down in 322 00:16:53,280 --> 00:16:56,040 Speaker 1: local emerging market debt, and then you have to look 323 00:16:56,080 --> 00:16:59,400 Speaker 1: at a corporate bonds, both investment grade and high yield. 324 00:16:59,800 --> 00:17:03,400 Speaker 1: In the US and Europe. They also recovered a bit 325 00:17:03,520 --> 00:17:05,600 Speaker 1: in the first quarter from the big sell off in 326 00:17:05,640 --> 00:17:08,760 Speaker 1: the fourth quarter, but they haven't gotten anywhere close to 327 00:17:08,800 --> 00:17:11,720 Speaker 1: the types they were at through two thousand and eighteen, 328 00:17:11,960 --> 00:17:16,320 Speaker 1: so I think there's still more upside there. The joy 329 00:17:16,480 --> 00:17:21,400 Speaker 1: here is yield versus dividend growth. You're a bond guy, 330 00:17:21,520 --> 00:17:25,960 Speaker 1: understand it. But holistically across JP Morgan, is dividend growth 331 00:17:26,280 --> 00:17:32,560 Speaker 1: a constructive alternative to low yield? It is, and I 332 00:17:32,600 --> 00:17:36,680 Speaker 1: think you've gone through a period where companies were leveraging 333 00:17:36,760 --> 00:17:40,600 Speaker 1: up their balance sheet and looking to grow dividends more aggressively. 334 00:17:41,080 --> 00:17:44,440 Speaker 1: That will moderate, so I think that will create more 335 00:17:44,480 --> 00:17:47,600 Speaker 1: of a balance between equities and bonds going forward. I 336 00:17:47,640 --> 00:17:49,680 Speaker 1: gotta get you cold on the treasury market. Bob Goldman, 337 00:17:49,720 --> 00:17:53,000 Speaker 1: Sachs Morgan Stanley cutting their forecast HS and BC out 338 00:17:53,080 --> 00:17:56,000 Speaker 1: last week looking for lower yields two point one percent 339 00:17:56,280 --> 00:17:58,439 Speaker 1: on the US tenure year end. Where are you on 340 00:17:58,480 --> 00:18:02,640 Speaker 1: that big debate right now, Bob? I think that's about right. 341 00:18:02,760 --> 00:18:05,600 Speaker 1: I would love for yields to go a bit higher 342 00:18:05,640 --> 00:18:08,680 Speaker 1: in here. There's no doubt that there's been a big 343 00:18:08,760 --> 00:18:11,840 Speaker 1: rally over the last ten days. We should drift a 344 00:18:11,840 --> 00:18:15,119 Speaker 1: bit higher. Uh, it's all going to be technically driven. 345 00:18:15,560 --> 00:18:19,160 Speaker 1: And when we feel that that selling start to roll over, 346 00:18:19,320 --> 00:18:21,960 Speaker 1: I'm back in all the way and I think you're 347 00:18:21,960 --> 00:18:24,040 Speaker 1: just going down to two two and a quarter and 348 00:18:24,160 --> 00:18:27,440 Speaker 1: sit there for a long time on a question for you, Bob, 349 00:18:27,440 --> 00:18:29,479 Speaker 1: and it's an important one. There's some people out there 350 00:18:29,480 --> 00:18:31,280 Speaker 1: to say the treasury market is telling you one thing 351 00:18:31,600 --> 00:18:34,399 Speaker 1: and risk assets are telling him another. It's hard to 352 00:18:34,480 --> 00:18:38,919 Speaker 1: reconcile the two things. Can that uncomfortable tension carry on 353 00:18:39,040 --> 00:18:41,960 Speaker 1: for a whole lot longer than people think? I've heard that. 354 00:18:42,160 --> 00:18:46,160 Speaker 1: I disagree with that entirely. I think you want central 355 00:18:46,160 --> 00:18:50,680 Speaker 1: banks with very accommodative policy. They take the pressure off 356 00:18:50,680 --> 00:18:54,480 Speaker 1: of everything. It keeps interest rate stable, and it keeps 357 00:18:54,600 --> 00:18:58,240 Speaker 1: credit spreads moving in and equities moving higher. So I 358 00:18:58,560 --> 00:19:02,560 Speaker 1: think until the start to see inflation, that wearies them. 359 00:19:02,760 --> 00:19:05,800 Speaker 1: They're not going to tighten monetary policy. That's good for 360 00:19:05,840 --> 00:19:08,639 Speaker 1: all asset classes. Hey, Bob, great to catch up with you. 361 00:19:08,760 --> 00:19:11,560 Speaker 1: Really small stuff as always, Bob Michael the JP Morgan 362 00:19:11,640 --> 00:19:14,520 Speaker 1: sid Management, Global c IO and head a global fixed 363 00:19:14,560 --> 00:19:17,040 Speaker 1: income one of the individuals Tom I have to say 364 00:19:17,080 --> 00:19:20,080 Speaker 1: that was fully behind the Randy and risk assets through 365 00:19:20,160 --> 00:19:35,560 Speaker 1: K one. Let's go to Sarah House right now helping 366 00:19:35,640 --> 00:19:40,199 Speaker 1: us uh Sarah House on the American economy. Sarah, what 367 00:19:40,600 --> 00:19:44,639 Speaker 1: is your call on the U S economy? Old news 368 00:19:44,720 --> 00:19:50,480 Speaker 1: fourth quarter, present news first quarter and into two thousand nineteen. Well, 369 00:19:50,520 --> 00:19:53,119 Speaker 1: I think, like in many recent years, we're off to 370 00:19:53,160 --> 00:19:56,840 Speaker 1: a pretty dismal start for for Q one, and I think, um, 371 00:19:57,200 --> 00:19:59,240 Speaker 1: the recent numbers we've had out of the consumer are 372 00:19:59,280 --> 00:20:01,720 Speaker 1: are a big re and why. But as we look 373 00:20:01,720 --> 00:20:03,959 Speaker 1: out further into the year, I think that it's going 374 00:20:04,000 --> 00:20:05,840 Speaker 1: to get a lot better from here. So I think 375 00:20:05,840 --> 00:20:09,360 Speaker 1: we're still suffering from some of that residual seasonality, particularly 376 00:20:09,400 --> 00:20:11,880 Speaker 1: in the consumer sector, but there's a lot of reasons 377 00:20:11,359 --> 00:20:14,080 Speaker 1: for growth to be bouncing back in the next couple 378 00:20:14,080 --> 00:20:17,240 Speaker 1: of months. You've got a wonderful note end of the line, 379 00:20:17,760 --> 00:20:20,200 Speaker 1: and you say no things are going to get better 380 00:20:20,920 --> 00:20:23,639 Speaker 1: and get p M eyes and the inflations damped in 381 00:20:23,720 --> 00:20:29,400 Speaker 1: Europe and such. What is the catalyst to get better? Well, 382 00:20:29,440 --> 00:20:31,399 Speaker 1: I think there's a couple of things we need to 383 00:20:31,440 --> 00:20:33,760 Speaker 1: get through. So one is one is trade, and so 384 00:20:33,880 --> 00:20:36,320 Speaker 1: our our baseline assumption does assume that we will get 385 00:20:36,359 --> 00:20:38,399 Speaker 1: some sort of deal. We've seen some of the fears. 386 00:20:38,400 --> 00:20:40,280 Speaker 1: So that's the heart of the matter, as Trump is 387 00:20:40,280 --> 00:20:42,920 Speaker 1: the issue and you're going to get a constructive solution 388 00:20:43,000 --> 00:20:45,320 Speaker 1: for the president. I think that's part of it. But 389 00:20:45,359 --> 00:20:47,679 Speaker 1: also I think a big chunk of it is the 390 00:20:47,720 --> 00:20:50,879 Speaker 1: consumer and that the fundamentals there remain pretty good. I 391 00:20:50,920 --> 00:20:53,960 Speaker 1: think we've seen some weakness over the past couple of months. 392 00:20:54,000 --> 00:20:55,520 Speaker 1: I think part of that might have to do with 393 00:20:56,000 --> 00:20:58,520 Speaker 1: with some seasonal effects. I think part of it's maybe 394 00:20:58,560 --> 00:21:01,000 Speaker 1: just some exaggeration kind of come down from the high 395 00:21:01,160 --> 00:21:04,960 Speaker 1: of the tax um tax related boost to uh TO 396 00:21:05,119 --> 00:21:07,720 Speaker 1: spending that we saw mid year, and so I think 397 00:21:07,720 --> 00:21:10,120 Speaker 1: this is in many ways a reversion to trend that's 398 00:21:10,160 --> 00:21:13,159 Speaker 1: just been been a bit overstated in terms of the 399 00:21:13,400 --> 00:21:15,359 Speaker 1: weakness and kind of coming down in a in a 400 00:21:15,560 --> 00:21:18,320 Speaker 1: rather ungraceful manner. So so that's what many people predicted 401 00:21:18,359 --> 00:21:21,080 Speaker 1: coming against twenty nine that we would return to trend growth, 402 00:21:21,480 --> 00:21:24,040 Speaker 1: and some people would confuse that for a sinister turn 403 00:21:24,080 --> 00:21:26,240 Speaker 1: in the US economy. Is that what you think is happening. 404 00:21:27,119 --> 00:21:29,359 Speaker 1: I think that's that's what's happening, given that you know, 405 00:21:29,400 --> 00:21:32,879 Speaker 1: it's it's rarely a graceful transition, and so we're certainly 406 00:21:32,960 --> 00:21:35,520 Speaker 1: seeing that now with some of the consumer numbers. And 407 00:21:35,560 --> 00:21:37,480 Speaker 1: then I think it's been amplified by the fact that 408 00:21:37,480 --> 00:21:39,919 Speaker 1: we have seen some genuine weakness coming out of the 409 00:21:39,920 --> 00:21:44,199 Speaker 1: manufacturing side of the economy and the industrial picture, and 410 00:21:44,240 --> 00:21:46,960 Speaker 1: so I think people are are combining those factors and 411 00:21:46,960 --> 00:21:50,119 Speaker 1: maybe getting a little bit more worried about the overall picture, 412 00:21:50,480 --> 00:21:52,680 Speaker 1: given that we've had sort of this rough transition in 413 00:21:52,920 --> 00:21:55,520 Speaker 1: the consumer side um at the same time that there 414 00:21:55,560 --> 00:21:58,600 Speaker 1: has been some some weakness on on that manufacturing kind 415 00:21:58,600 --> 00:22:01,200 Speaker 1: of external facing parts of of the economy. If that's 416 00:22:01,200 --> 00:22:03,000 Speaker 1: your base case, Sarah, how does that shape you view 417 00:22:03,080 --> 00:22:04,720 Speaker 1: for the federal Reserve this year, At a time when 418 00:22:04,720 --> 00:22:07,280 Speaker 1: many people are starting to position the right cuts from 419 00:22:07,320 --> 00:22:10,199 Speaker 1: the fetter, you push him back against them. Yes, so 420 00:22:10,280 --> 00:22:12,680 Speaker 1: I think a rate cut, you know, we don't think 421 00:22:12,680 --> 00:22:15,640 Speaker 1: that that's going to happen this year. Um our base case, 422 00:22:15,680 --> 00:22:17,720 Speaker 1: we actually still have a rate hike in sometime in 423 00:22:18,000 --> 00:22:19,879 Speaker 1: the second half. I think given some of the recent 424 00:22:19,880 --> 00:22:23,199 Speaker 1: FED rhetoric, that's getting a little bit tougher, given that 425 00:22:23,600 --> 00:22:25,879 Speaker 1: we have seen a bit of a of a change 426 00:22:25,920 --> 00:22:28,480 Speaker 1: in in what I think is the Fed's reaction function. 427 00:22:28,920 --> 00:22:31,040 Speaker 1: But when we look at the you know, the two 428 00:22:31,040 --> 00:22:33,480 Speaker 1: main factors. You know, labor markets still doing is still 429 00:22:33,480 --> 00:22:36,679 Speaker 1: doing very well. UM inflation while it's not you know, 430 00:22:36,760 --> 00:22:39,679 Speaker 1: bursting through two percent, it's it's hanging in there. And 431 00:22:39,760 --> 00:22:42,720 Speaker 1: so UM. Now that financial conditions have calmed down a bit, um, 432 00:22:42,800 --> 00:22:45,280 Speaker 1: we think that there's still still potential for a further 433 00:22:45,359 --> 00:22:47,960 Speaker 1: rate increase this year. Sarah, thank you so much. Sarah 434 00:22:48,000 --> 00:23:06,040 Speaker 1: House with Wells Fargo here on economic data. We welcome 435 00:23:06,040 --> 00:23:09,160 Speaker 1: all of you worldwide to the conversation on the day 436 00:23:10,680 --> 00:23:13,760 Speaker 1: on the bond market. If you nailed the FED call, 437 00:23:13,920 --> 00:23:18,200 Speaker 1: there's no question Morgan Stanley absolutely nailed the FED call. 438 00:23:18,320 --> 00:23:21,600 Speaker 1: Ellen Zeerner team doing that, and Matthew Hornback has to 439 00:23:21,600 --> 00:23:25,359 Speaker 1: pick up the pieces as fixed incomes strategists, global interest 440 00:23:25,440 --> 00:23:29,480 Speaker 1: rate strategists, I should say, for uh, Morgan Stanley, what 441 00:23:29,800 --> 00:23:34,080 Speaker 1: scares me matt to death in your definitive research note 442 00:23:34,280 --> 00:23:37,320 Speaker 1: is any time I see the phrase win win, all 443 00:23:37,400 --> 00:23:40,720 Speaker 1: my radar goes up. It is win win for the FED, 444 00:23:41,320 --> 00:23:44,600 Speaker 1: it's win win for price up, yield down, and my 445 00:23:44,760 --> 00:23:49,440 Speaker 1: radars up. How afraid should I be right now? Well, Tom, thanks, 446 00:23:49,680 --> 00:23:53,800 Speaker 1: I would say you should be somewhat concerned. I mean, 447 00:23:53,840 --> 00:23:56,760 Speaker 1: the the radars should be should be fine tuned here. 448 00:23:56,840 --> 00:24:00,280 Speaker 1: I think, you know, the the yield curve didn't hurt. 449 00:24:00,760 --> 00:24:02,920 Speaker 1: You know, there's there's various parts of the old curve 450 00:24:03,000 --> 00:24:06,240 Speaker 1: you could look at. But of course the spread between 451 00:24:06,280 --> 00:24:08,560 Speaker 1: the three month T bill yield in the ten year 452 00:24:08,560 --> 00:24:12,760 Speaker 1: treasury note yield did invert about a week ago or so. 453 00:24:13,000 --> 00:24:15,760 Speaker 1: And you know, the history would suggest that at some 454 00:24:15,880 --> 00:24:20,440 Speaker 1: point in the couple of years following um the economy 455 00:24:20,600 --> 00:24:23,359 Speaker 1: goes into recession. Now, you know, I don't think that 456 00:24:23,400 --> 00:24:26,120 Speaker 1: the yield curve can be blamed for all the world's 457 00:24:26,800 --> 00:24:29,439 Speaker 1: UH problems, but it's certainly something that we should pay 458 00:24:29,480 --> 00:24:32,919 Speaker 1: attention to. You construct esoteric straits, I mean, that's what 459 00:24:33,080 --> 00:24:37,080 Speaker 1: any major house doesn't. Certainly, the sophistication of the mathematics 460 00:24:37,080 --> 00:24:40,280 Speaker 1: of James Gorman allows Morgan Stanley to do that forget 461 00:24:40,359 --> 00:24:44,360 Speaker 1: about it. I'm a listener and it's just a single coupon. 462 00:24:45,000 --> 00:24:48,520 Speaker 1: Where do I capture coupon? Or am I forced to 463 00:24:48,560 --> 00:24:51,480 Speaker 1: go to dividend growth? Right now? Well? Look, I think 464 00:24:51,600 --> 00:24:53,800 Speaker 1: when you're looking at the yield curve, one of the 465 00:24:53,880 --> 00:24:57,120 Speaker 1: questions that people often ask is why would I buy 466 00:24:57,160 --> 00:25:00,399 Speaker 1: a thirty year bond at let's say a three percent 467 00:25:00,520 --> 00:25:03,920 Speaker 1: yield when I could buy a money market fund at 468 00:25:03,920 --> 00:25:07,399 Speaker 1: a three percent yield? Right? And so people ask this question, 469 00:25:07,400 --> 00:25:09,879 Speaker 1: and I think the answer is, well, if the FED 470 00:25:09,920 --> 00:25:13,200 Speaker 1: at some point in the future ends up easing policy, 471 00:25:13,359 --> 00:25:17,160 Speaker 1: cutting interest rates, Uh, then unfortunately your money market fund 472 00:25:17,320 --> 00:25:19,000 Speaker 1: is is going to go down and yield and so 473 00:25:19,080 --> 00:25:22,639 Speaker 1: you without price up, exactly without price up. And so 474 00:25:22,680 --> 00:25:26,000 Speaker 1: that's why somebody might choose a thirty year bond to 475 00:25:26,080 --> 00:25:28,919 Speaker 1: lock in that three percent yield for the next thirty years. Okay, Now, 476 00:25:29,840 --> 00:25:33,080 Speaker 1: well brilliantly explained. And if there's a maturity or the 477 00:25:33,119 --> 00:25:36,439 Speaker 1: fancy word duration, what are you doing at your fixed 478 00:25:36,480 --> 00:25:40,879 Speaker 1: income team in terms of the pulse of duration or maturity? 479 00:25:41,080 --> 00:25:44,119 Speaker 1: Are you bringing it in? Are you stable? Are you 480 00:25:44,359 --> 00:25:48,359 Speaker 1: lengthening out maturity? Yeah? So at the beginning of this year, 481 00:25:48,480 --> 00:25:52,440 Speaker 1: we had been recommending that investors extent duration to try 482 00:25:52,480 --> 00:25:56,000 Speaker 1: to capture some of the price appreciation we were expecting 483 00:25:56,040 --> 00:25:59,240 Speaker 1: this year, and that move has happened. By and large, 484 00:25:59,320 --> 00:26:02,840 Speaker 1: it got down into our ten year target of two 485 00:26:02,840 --> 00:26:06,480 Speaker 1: point three five that's where we had our our year 486 00:26:06,520 --> 00:26:09,760 Speaker 1: ahead forecast, and we got down there very quickly. So 487 00:26:09,880 --> 00:26:14,119 Speaker 1: we're not recommending investors extent duration at this particular point 488 00:26:14,200 --> 00:26:17,840 Speaker 1: in time. But at the same time, we also lowered 489 00:26:18,119 --> 00:26:21,000 Speaker 1: that a year ahead forecast to two and a quarter percent. 490 00:26:21,080 --> 00:26:24,000 Speaker 1: So at some point, maybe in the middle of this year, 491 00:26:24,119 --> 00:26:26,760 Speaker 1: maybe towards the end of this year, we're going to 492 00:26:27,040 --> 00:26:30,199 Speaker 1: very likely recommend investors get long duration again. At this 493 00:26:30,280 --> 00:26:33,399 Speaker 1: point though, we're more we're more neutral on the bond market, 494 00:26:34,359 --> 00:26:36,480 Speaker 1: or you're more neutral on the bond market. But I 495 00:26:36,600 --> 00:26:38,679 Speaker 1: I guess you know, and of course all our analysis 496 00:26:38,680 --> 00:26:41,280 Speaker 1: and media, I'm as bad if this as anybody is 497 00:26:41,560 --> 00:26:43,720 Speaker 1: looking at full faith and credit. What do you do 498 00:26:43,760 --> 00:26:46,800 Speaker 1: in the corporate world? What what do you do? Just 499 00:26:46,880 --> 00:26:48,640 Speaker 1: somebody says, you know, like the old as I want 500 00:26:48,640 --> 00:26:51,440 Speaker 1: to buy quality corporates, is that is there a real 501 00:26:51,520 --> 00:26:54,359 Speaker 1: risk to that? Here? Well, the first thing I'd say 502 00:26:54,640 --> 00:26:57,960 Speaker 1: is if you're going to allocate money into corporate debt, 503 00:26:58,040 --> 00:27:01,720 Speaker 1: we would certainly suggest going up in quality, so investment 504 00:27:01,760 --> 00:27:05,800 Speaker 1: grade over high yield for certain um. It's challenging because 505 00:27:05,840 --> 00:27:09,560 Speaker 1: spreads on corporate debt are quite tight. In our Our 506 00:27:09,600 --> 00:27:14,359 Speaker 1: credit strategist Adam Richmond has been recommending recently that investors 507 00:27:14,400 --> 00:27:17,840 Speaker 1: try to peel back from their credit allocation, just given 508 00:27:17,880 --> 00:27:21,000 Speaker 1: how tight spreads are and given how late cycle we 509 00:27:21,080 --> 00:27:24,280 Speaker 1: think the economy is. Yeah, but where this this? And 510 00:27:24,359 --> 00:27:26,800 Speaker 1: I mentioned Bill Gross earlier, Folks in this great phrase 511 00:27:27,160 --> 00:27:30,159 Speaker 1: financial repression, man horback, you're in the trenches living this. 512 00:27:30,760 --> 00:27:34,760 Speaker 1: Do you just assume a financial repression of low nominal 513 00:27:34,840 --> 00:27:39,760 Speaker 1: yields and critically low real yields as well. I think, ultimately, Tom, 514 00:27:39,920 --> 00:27:43,480 Speaker 1: it comes down to aggregate demand versus aggregate supply. This 515 00:27:43,560 --> 00:27:46,280 Speaker 1: is macro economics one oh one. Back to college, and 516 00:27:46,320 --> 00:27:48,879 Speaker 1: I'd say, you know the the economy, and you can 517 00:27:48,880 --> 00:27:51,479 Speaker 1: just look at the inflation rate as evidence of this. 518 00:27:51,640 --> 00:27:55,280 Speaker 1: The economy has a certain level of aggregate demand that 519 00:27:55,480 --> 00:27:58,800 Speaker 1: is okay, right, we do have a positive inflation rate, 520 00:27:59,359 --> 00:28:04,399 Speaker 1: but it's not sufficient to boost inflation above the FEDS 521 00:28:04,400 --> 00:28:07,119 Speaker 1: two percent goal. We can barely even get to the 522 00:28:07,119 --> 00:28:10,680 Speaker 1: FEDS two percent goal. That's that's a problem. One more question, 523 00:28:10,720 --> 00:28:15,440 Speaker 1: Matt hornback Lincoln, your bond work with Ellen Zettner's economic work. 524 00:28:15,760 --> 00:28:18,240 Speaker 1: Is it even possible you two are on the same page. 525 00:28:19,280 --> 00:28:21,000 Speaker 1: Of course, of course it is. I think you know 526 00:28:21,119 --> 00:28:24,399 Speaker 1: the what what I ultimately am trying to do in 527 00:28:24,440 --> 00:28:29,360 Speaker 1: my interest rate forecasting is understand the risks around Ellen's 528 00:28:29,359 --> 00:28:32,800 Speaker 1: Ellen's call for the economy because markets, you know, markets 529 00:28:32,800 --> 00:28:35,440 Speaker 1: can can price in not only the base case, markets 530 00:28:35,480 --> 00:28:38,080 Speaker 1: can price in the wrist scenarios. So yeah, I'd say 531 00:28:38,360 --> 00:28:41,120 Speaker 1: the wrist scenario to our base case is that the 532 00:28:41,160 --> 00:28:44,600 Speaker 1: economy tails off a little bit faster than UH and 533 00:28:44,720 --> 00:28:48,239 Speaker 1: we're expecting. Ellen, by the way, is below consensus from 534 00:28:48,280 --> 00:28:50,400 Speaker 1: the U S economy this year, so certainly there are 535 00:28:50,440 --> 00:28:52,720 Speaker 1: downside risks. She's been a way out in front of that. 536 00:28:53,440 --> 00:28:57,000 Speaker 1: Thank you so much with Stanley on the challenges in 537 00:28:57,160 --> 00:29:02,800 Speaker 1: fixed income market. Thanks for listening to the Bloomberg Surveillance podcast. 538 00:29:03,200 --> 00:29:08,200 Speaker 1: Subscribe and listen to interviews on Apple Podcasts, SoundCloud, or 539 00:29:08,280 --> 00:29:12,600 Speaker 1: whichever podcast platform you prefer. I'm on Twitter at Tom 540 00:29:12,680 --> 00:29:16,560 Speaker 1: Keene before the podcast, you can always catch us worldwide. 541 00:29:17,000 --> 00:29:18,120 Speaker 1: I'm Bloomberg Radio