Speaker 1: This is Bloomberg Business Week. I'm Carol Masser and I'm
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Speaker 1: only on Bloomberg Radio. So right, so let me make
Speaker 1: so far seems great, but maybe it's a different sort
Speaker 1: of year to come. That's at least the consensus that
Speaker 1: seems to be reached by a whole bunch of people
Speaker 1: on Wall Street. Let's break it down with Luke Kawa.
Speaker 1: He is cross set reporter for Bloomberg. Here with this
Speaker 1: in New York to talk about the most read story
Speaker 1: on the Bloomberg. Not surprisingly, it's comprehensive, Taylor. You can
Speaker 1: sort of lose yourself in this story if you if
Speaker 1: you want to, searching by key themes, asset classes, institutions,
Speaker 1: all of it. Luke great to have you with Taylor
Speaker 1: and myself, so give us the overview here. Uh, a
Speaker 1: lot of consensus. It feels like, Yeah, first of all,
Speaker 1: I'll have to give it up to Sam Potter, my
Speaker 1: colleague in London, who's actually the the gentleman who compiled this.
Speaker 1: Hopefully he's in bed by now. Uh, you know, hard
Speaker 1: worker up early. So uh, just to kind of set
Speaker 1: the stage here, it's it's amazing how similar a lot
Speaker 1: of the themes are. One thing, and this is what
Speaker 1: John Farroll this morning let off his show with cautious
Speaker 1: optimism is essentially the the order of the day. But
Speaker 1: the idea that you can't or it will be very
Speaker 1: difficult to repeat the kind of eye popping performance across
Speaker 1: major asset classes in twenty nineteen, whether to the same
Speaker 1: magnitude or the same breath. That's what Wall Street is
Speaker 1: casting a lot of doubt on. But the general outlook
Speaker 1: here is for stocks to go up in the US,
Speaker 1: probably more in the rest of the world. For credit,
Speaker 1: you know, you're more clipping coupons than getting the kind
Speaker 1: of huge spread rally combined with the big duration kicker
Speaker 1: you've got in some parts of the bond universe. Last year,
Speaker 1: another year, another year of calling for a softer dollar.
Speaker 1: So that's also in the cards. And the ten uere
Speaker 1: treasury yield after you know, a wild year in which
Speaker 1: it rallied quite magnificently. Uh the tenure bond, it's expected
Speaker 1: to be rather range bound, maybe edge up to to
Speaker 1: about two percent. But the treasury market and pick the
Speaker 1: tenure yield should not be making nearly as many headlines
Speaker 1: this year as it was last year. If Wall streets right, Luke,
Speaker 1: fascinating report, and I love how you have tied in equities, bonds, currencies, commodities,
Speaker 1: all the works. One thing that you ended on that
Speaker 1: caught my attention was calls for the tenure And I
Speaker 1: scrolled down through the report and we get to another
Speaker 1: thing that's talking about negative rates. And you know the
Speaker 1: story negative yielding debt shrunk relates not only eleven trilling dollars,
Speaker 1: it used to be seventeen trillion dollars. What are the
Speaker 1: expectations for negative rates, negative yielding debt as we've come
Speaker 1: off those highs a bit well, part of the kind
Speaker 1: of convergence trade that was in effect for you know,
Speaker 1: a bit or not too much, but enough of twenty nineteen,
Speaker 1: at least in the bond market kind of involved just
Speaker 1: what we were talking about from its peak of nearly
Speaker 1: what was its seventeen trillion or fifteen trillion somewhere in
Speaker 1: that neighborhood, that number getting a lot smaller as we
Speaker 1: approached your end, and with the ten year treasury expect
Speaker 1: to say, relatively sticky. Uh. The way convergence is expected
Speaker 1: happen is to drag more and more out of that debt,
Speaker 1: but maybe not too much, but more and more out
Speaker 1: of negative territory. And there's another story this morning out
Speaker 1: from one of my colleagues in London's talking about the
Speaker 1: amount of government that that's going to need to be
Speaker 1: rolled over this year. Not a crazy amount, but uh,
Speaker 1: you know, just the idea that the data this morning
Speaker 1: don't necessarily support it, especially in Europe, but just the
Speaker 1: idea that as the global economy does bottom out, convergence
Speaker 1: will mean more and more economies and more and more
Speaker 1: sovereign debt getting to a place where holding to maturity
Speaker 1: will actually yield do something positible and so Luke, when
Speaker 1: you look across all of this and think about the
Speaker 1: R word recession, it was something that if you go
Speaker 1: back a few months September, the drumbeat was getting a
Speaker 1: little bit louder. What's the consensus if there is any,
Speaker 1: about the potential for recession in so, yeah, if you
Speaker 1: had done this survey in August, you know, if we
Speaker 1: had the some kind of weird calendar, I bet you
Speaker 1: would have got a lot of different responses on that
Speaker 1: front right now, And you can see this all across
Speaker 1: you know, different bits of markets, whether they're looking at equities,
Speaker 1: whether you're looking at you know, the uh, the potential
Speaker 1: for options that pay out if there's deflation. We've really
Speaker 1: priced out the tail risk of recession and that's warranted.
Speaker 1: And uh, that's thoroughly, thoroughly expounded upon in this report.
Speaker 1: In everyone's base case, it's essentially growth will be better
Speaker 1: than it was in twenty nineteen, but not as good
Speaker 1: as it was in ten or eighteen. So just this
Speaker 1: idea that growth is slow. Growth will be in or
Speaker 1: around two percent, So not a recession, but not something
Speaker 1: to essentially way flags about. And then Luke tie in
Speaker 1: fiscal policy with monetary policy. What takes more center stage? Well,
Speaker 1: I uh, in general, as you see these these outlooks,
Speaker 1: both US election risk, which I think ties more into
Speaker 1: the fiscal policies EIDE or at least the fiscal outlook
Speaker 1: thing that's always if you if you go through these,
Speaker 1: it's at least a cursory mention in everyone's report. This
Speaker 1: is a year in which monetary policy is expected to,
Speaker 1: especially in developed markets, really go to the wayside. It's
Speaker 1: not supposed to be interesting to any respect. And in fact,
Speaker 1: if you look at the European Central Bank, it will
Speaker 1: be most noteworthy for what monetary policy makers are able
Speaker 1: to kind of convince their cajole fiscal policy makers into
Speaker 1: doing in the year head. However, there isn't necessarily a
Speaker 1: ton of optimism that that baton pass is really going
Speaker 1: to go off well so in terms of the stimulus
Speaker 1: or the impulse we're getting from easier monetary or fiscal policy,
Speaker 1: it's more the lagged defect. You know, said that monetary
Speaker 1: policy works with these long and variable lags. It's more
Speaker 1: that that's expected to continue to be helping out as
Speaker 1: we go through. All right, Luke, how we're gonna leave
Speaker 1: it there. Thank you so much. Cross Asset Reporter, part
Speaker 1: of a massive team that put together this most read
Speaker 1: story on the Bloomberg Today, and I do encourage you
Speaker 1: to go check it out because you can, as I said,
Speaker 1: sort of search by themes asset class institution and get
Speaker 1: a really holistic sense of how Wall Street is feeling
Speaker 1: about all the major issues as we head into what
Speaker 1: is bound to be a very interesting year. You're listening
Speaker 1: to Bloomberg Business Week with Carol Messer and Jason Kelly
Speaker 1: on Bloomberg Radio. The passing of David Stern, longtime commissioner
Speaker 1: of the NBA, has led to an unbelievable outpouring of grief,
Speaker 1: but all so some remembrances of really a truly remarkable
Speaker 1: life and an impact that you have had on the
Speaker 1: world of sports. Ebenovi Williams, Sports Business Reporter podcast host, Extraordinary,
Speaker 1: so many more things here at Bluemberg joins me in
Speaker 1: our Blueberg Interactive Broker Studio. I mean, what an amazing
Speaker 1: guy in a lot of ways. Yeah. We had David
Speaker 1: on the podcast a little bit less than a year
Speaker 1: ago actually, and he came on and I think we
Speaker 1: didn't have to say a single word, right, He just
Speaker 1: kind of rattled off stories Tim poo bouton when he
Speaker 1: landed and found you know, monks up there that we're
Speaker 1: watching League Pass. They were watching Kobe Bryant on their computers,
Speaker 1: which was one of the first times he realized that, hey,
Speaker 1: we have an international audience and we could be doing
Speaker 1: more to grow basketball overseas. I mean, he had an
Speaker 1: impact across the globe on the sports world for and
Speaker 1: I have to say one of the things that I
Speaker 1: had candidly forgotten about I did not realize he was
Speaker 1: the commissioner for thirty years. I mean, and and when
Speaker 1: you think about where the NBA was is in the
Speaker 1: mid eighties and where it is today, I cannot think
Speaker 1: of another business outside of like Apple that has, you know,
Speaker 1: sort of grown and influenced in the way that that leak.
Speaker 1: It's a great point. I mean when he took over
Speaker 1: in four I believe the NBA had just recently stopped
Speaker 1: having its finals on tape delay, right, so it wasn't
Speaker 1: even a TV product at all. There were twenty four teams.
Speaker 1: It was viewed largely as a circus. He kind of
Speaker 1: whipped the whole thing into shape, right, And one of
Speaker 1: his biggest initiatives when he was younger um fixing the
Speaker 1: the image of the game and the players right. I
Speaker 1: mean at a time, a lot of that's racial, but
Speaker 1: the NBA, it's players. It was not a commercial entity
Speaker 1: in any capacity, right, and he you know, at times
Speaker 1: drew hard lines that certainly the dress code that he
Speaker 1: that he put together is probably the most you know,
Speaker 1: visible part of this. But you know, he brought in
Speaker 1: a stricter drug testing. He imposed very harsh penalties for
Speaker 1: a player that noelt during the national anthem, or players
Speaker 1: that went into the stands to fight, or remember when
Speaker 1: the Charles spry Will choked his coach. He was a disciplinarian.
Speaker 1: But all of that served too, I think changed the
Speaker 1: way that America and especially corporate America interacted with the NBA.
Speaker 1: And that's the reason why this is a nine billion
Speaker 1: dollar enterprise now. And even I mean some of the
Speaker 1: statistics are stunning when you look at NBA revenue, bringing
Speaker 1: it from a hundred and eighteen million dollars to five
Speaker 1: and a half billion dollars inteen the year he retired.
Speaker 1: What did he to for the franchise, not only in
Speaker 1: terms of revenue, but geographic expansion and really making this
Speaker 1: a global sport. Yeah, so expansion across the US obviously,
Speaker 1: you know, happened, you know, pretty quickly under his under
Speaker 1: his tenure. But but globally, I think is the bigger
Speaker 1: thing there, right. You know, back in the eighties he
Speaker 1: cut the first NBA deal with CCTV. They were shipping
Speaker 1: VHS tapes overseas so that highlight packages could be cut
Speaker 1: and shown to the Chinese audience. You know, flash forward
Speaker 1: thirty years. The NBA has a billion dollar business in China, right,
Speaker 1: which was in the news this year for another reason.
Speaker 1: But the reason why the NBA is the is the
Speaker 1: most popular foreign league in China, possibly the most popular
Speaker 1: sport outside of soccer around the globe. A lot of
Speaker 1: that has to do with the fact that long before
Speaker 1: the NFL was saying, man, we have to have a
Speaker 1: presence overseas, the NBA was already doing the legwork to
Speaker 1: make it happen. Help us understand, And you alluded to
Speaker 1: this earlier, evan sort of the player empowerment piece of this,
Speaker 1: because what you have seen, and you and I have
Speaker 1: talked about this a lot over the last couple of years,
Speaker 1: this notion that NBA players have transcended in a way
Speaker 1: that certainly other major sport athletes aren't anymore. Or never were.
Speaker 1: Did he play a role in that for sure? And
Speaker 1: and it was kind of a confluence of multiple things, right,
Speaker 1: he had the benefit of very early in his commissioner
Speaker 1: had to have a guy in Michael Jordan's end of
Speaker 1: the league, right, who totally changed the way that athletes
Speaker 1: merge as as businessmen when they're not playing ing. But yes,
Speaker 1: you know, part of his you know, shaping up the
Speaker 1: image of the league was also helping push a lot
Speaker 1: of these players outward right to to corporate America. Uh.
Speaker 1: And then flash forward to that now and you're right.
Speaker 1: You know, if you look across the four major leagues,
Speaker 1: there's no question that NBA players are more famous on
Speaker 1: average then then their counterparts in other leagues. Part of
Speaker 1: that has to do with the fact that they don't
Speaker 1: wear helmets and they you know, they walked down the
Speaker 1: street and you go, oh, I know that that's Chris Bosh,
Speaker 1: that's Lebron James um. But yeah, a large part of
Speaker 1: that has to do with the fact that that from
Speaker 1: the top down, uh, it was it was a priority
Speaker 1: for the NBA, and that's smart business, right. I think
Speaker 1: he realized very early on that that another way to
Speaker 1: grow the popularity of basketball was to do it on
Speaker 1: the backs of the players and not necessarily just the
Speaker 1: brand of the New York Knicks or the brand of
Speaker 1: the Washington Wizards. It was interesting to note too, and
Speaker 1: a lot of these tributes, many of which were on Twitter.
Speaker 1: You know, you look at what Magic Johnson said, you
Speaker 1: look at what Lebron James said, you looked at what
Speaker 1: Michael Jordan's said. They were very personal tributes in a
Speaker 1: lot of ways, and sort of pointing out how David
Speaker 1: Stern was a part of these sort of seminal moments,
Speaker 1: not just in their careers but in their lives. You
Speaker 1: think about what Stern did for Magic Johnson when he
Speaker 1: came out and said he was HIV positive, Like really
Speaker 1: a guy who was just in the center of so much.
Speaker 1: Evanovi Williams, thank you so much. Sports business reporter for Bloomberg,
Speaker 1: also co host of the Bloomberg Business of Sports podcast
Speaker 1: with Michael Barr and Scott Sashnik. Check that out wherever
Speaker 1: you get your podcasts, and you know, when you're not
Speaker 1: listening to Bloomberg Business Week, it's a pretty good one,
Speaker 1: all right. So as we get you set for it's underway.
Speaker 1: The first trading day. Here we go, folks. Let's understand,
Speaker 1: and we started this conversation earlier in the hour with
Speaker 1: our own Luke Kawa. We're going to continue it with
Speaker 1: Brett Ewing, his chief market strategist for First Franklin Financial Services,
Speaker 1: joining us on the phone from Tallahassee at Florida. Great
Speaker 1: to have you back with us. Thank you, Jays. All right,
Speaker 1: So t this up. T this year up for us
Speaker 1: because twenty nineteen, unexpectedly in some ways, was, to use
Speaker 1: the technical term, a heck of a year. Everybody felt
Speaker 1: great about it. Uh, no huge surprises other than a
Speaker 1: couple blips, at least from an equity perspective. How does
Speaker 1: look in comparison from your vantage point? I'm optimistic on
Speaker 1: and I feel that it should be again a pretty
Speaker 1: good year for equities. UM. My theme for is basically
Speaker 1: as surprises. Surprises are going to be across the board
Speaker 1: again on on, and they will be on the upside
Speaker 1: when we take a look at earnings, which Jason and
Speaker 1: I have been talking about in the last hour, eagerly
Speaker 1: awaiting earnings numbers to start trickling out in the next
Speaker 1: few weeks or so. What sectors do you really, because
Speaker 1: we sort of focus back on fundamentals. Yeah. Um, with
Speaker 1: with sectors for uh, you know, we like the energy
Speaker 1: materials technology, um on the healthcare medical devices specifically, and
Speaker 1: I also like industrials and so would you think about
Speaker 1: those areas? What are the big risk means? The political
Speaker 1: risk seems to be something that plays through just about
Speaker 1: everybody's uh both both best in worst cases. How do
Speaker 1: you figure it in? Yeah? So the things that I'm
Speaker 1: looking at are the two primary concerns I have right here.
Speaker 1: Our trade war escalation? Is that going to diminish? And
Speaker 1: I'm going to take the stance that I believe that
Speaker 1: the escalation is on a path to uh dissipate. And
Speaker 1: I also believe the Federal Reserve and central bankers around
Speaker 1: the globe or on the right path and stepping to
Speaker 1: the side, and uh they're being accommodative as needed. And
Speaker 1: so do you buy the idea Brett that like central
Speaker 1: banks become sort of the non story of and if
Speaker 1: that's the case, and Taylor brought this up earlier in
Speaker 1: the show as well, do we focus more on sort
Speaker 1: of the fiscal rather than the monetary side. Well, I
Speaker 1: would like to think that central bankers could stay out
Speaker 1: of the limelight. Um. It's it's that's that doesn't often
Speaker 1: happen um, And I think that there could be a chance.
Speaker 1: It's with good intentions that they want to stay on
Speaker 1: the sideline, but there there could be some some real
Speaker 1: wage growth here in and wage inflation could maybe push
Speaker 1: up some of the numbers going into the second half
Speaker 1: of the year that I think the FED will be
Speaker 1: taking a look at. Brett. I really like some of
Speaker 1: your calls that we've been talking about. You like industrials,
Speaker 1: You're really looking at materials of having a good start
Speaker 1: to commodities start to show some life. I was joking
Speaker 1: with Jason, I just did a crash course in commodities
Speaker 1: as I was inchoring a commodity show earlier today. And
Speaker 1: talk to me about what commodities you really like, because
Speaker 1: I hear calls for gold set to go to sixteen
Speaker 1: hundred nuns and yet copper really showing signs of rebounding
Speaker 1: to those two one being a safe haven, one being
Speaker 1: a really um uh sort of way to measure economic
Speaker 1: growth normally wouldn't coincide together. What do you like about
Speaker 1: the commodities, Well, I like the fact that they are
Speaker 1: a good indicator, And what they're telling me is that
Speaker 1: there's life in the global economy that's not really being
Speaker 1: priced in, and those commodities are historically a pretty good
Speaker 1: leading indicator that more positive days are coming for the
Speaker 1: global economy. And when you wrap that up with what
Speaker 1: I said about the central bankers and also about some
Speaker 1: of the trade positive movement in the trade wars going on,
Speaker 1: then I feel that that the commodity market is actually
Speaker 1: pointing that out, that it's giving us a sense of
Speaker 1: solitude that that is gonna play out. Well, what's your
Speaker 1: biggest worry? What what do you worry most about? And
Speaker 1: as you talk to your clients, what are they most
Speaker 1: worried about? As we get into you know, I would
Speaker 1: love to see productivity start going back up. It's been
Speaker 1: uh tapering off here recently, and you need productivity with
Speaker 1: the labor market this tight to keep inflation from rearing
Speaker 1: its head unexpectedly. And so what I would like to
Speaker 1: see is productivity pick back up. I worry about inflation
Speaker 1: coming into the picture. I know that people have said
Speaker 1: there would be inflation for the last ten years and
Speaker 1: it just never shows up. But where we are in
Speaker 1: this labor market. If you look at the the wage
Speaker 1: growth that we finally receive starting in I think that
Speaker 1: accelerates in with this tight labor market, and um, I
Speaker 1: really think that that could surprise people in the second
Speaker 1: half of the year. So there's my concern. Yeah, I
Speaker 1: want to go international for a bed. You're really liking
Speaker 1: e M debt? Here do I go dollar denominated or
Speaker 1: local currency? Well, I think, uh, you know, a lot
Speaker 1: of your viewers out there potentially could play that through
Speaker 1: uh E M debt, mutual fund or et F probably
Speaker 1: dollar denominated, but you know, we're liking that in the space.
Speaker 1: If you compare that to maybe corporate credit and how
Speaker 1: crowded those spreads are versus something in the emerging markets,
Speaker 1: I think there's better value there and a little bit
Speaker 1: more upside, and I think that's what's important for twenty twenty.
Speaker 1: All right, Brett, you Wing, Thank you so much, Chief
Speaker 1: Market Strategies for First Franklin Financial Services. Johnny is on
Speaker 1: the phone from Tallahassee, Florida. Alright, a showdown is certainly
Speaker 1: what it is turning out to be so far. We'll
Speaker 1: see where it goes next. Let's get into it with
Speaker 1: Eric Watson, and he is Congressional reporter for Bloomberg. Joining
Speaker 1: us from our ninety nine one studio in the nation's capital. Eric,
Speaker 1: Happy New Year, New year to you. So what is
Speaker 1: the state of play here? Because I feel like some
Speaker 1: of us went away for the holidays knowing that there
Speaker 1: was a bit of a stalemate, but it seems to
Speaker 1: only be getting amped up in a way. Give us
Speaker 1: the latest. Well, you know, Congress left town one December
Speaker 1: and there really haven't been any talks since that time
Speaker 1: on sort of figuring out how the Senate will proceed
Speaker 1: with this impeachment tile of President Trump. Nancy Pelosi is
Speaker 1: sort of at the last minute decided to withhold sending
Speaker 1: the Act documents and withhold naming the managers as the
Speaker 1: House prosecutors that will appear in the well of the
Speaker 1: Senate to present the case until she gets more assurances.
Speaker 1: This isn't what she said would be a sham procedure.
Speaker 1: This is sort of a way of Democrats of spotlighting,
Speaker 1: which McConnell, who has said that he's not going to
Speaker 1: be impartial and that he's going to coordinate with the
Speaker 1: White House. But as far as I was able to
Speaker 1: report out that This is a risky strategy for Pelosi.
Speaker 1: She can do this for perhaps a week or two,
Speaker 1: highlight that the Senate is moving along on a track
Speaker 1: not to have any witnesses or fresh documents, but at
Speaker 1: that after that point that his dimission returns and five
Speaker 1: of the Democratic senators are in fact running for president,
Speaker 1: and during any impeachment trial that drags into February, they
Speaker 1: will be stuck their silent jurors and be unable to campaign,
Speaker 1: so that it really can't last that much longer, at
Speaker 1: least in the minds of most people I talked to. Yeah,
Speaker 1: and very very good point about Nancy Pelosi, because we
Speaker 1: all felt like she sort of was even pressured to
Speaker 1: begin this impeachment stuff to begin with. She had even stated,
Speaker 1: I believe earlier that she you know, probably wasn't a
Speaker 1: good strategy for the Democrats, and then, you know, under pressure,
Speaker 1: she went ahead with it. What is the outlook for
Speaker 1: her then, in terms of you can't drag this out
Speaker 1: more than a few weeks, Well, you know, House Democrats
Speaker 1: came to the conclusion that included any of the moderates
Speaker 1: in the swing districts, that they had to basically impeach
Speaker 1: President Trump, but they felt there was enough evidence and
Speaker 1: that there's no way they could not do it. Politically though,
Speaker 1: I think Pelosi has her sort of finger on the
Speaker 1: pulse and and and it has proof right in many ways,
Speaker 1: Presidents Trump's approval rating has knock gone down, his core
Speaker 1: base of support has remained with him, and we don't
Speaker 1: really see senators who would be needed to defect in
Speaker 1: order to convict him really moving to do that. We
Speaker 1: saw some like criticism from Susan Collins, a vulnerable moderate
Speaker 1: main senator who's up for reelection, criticizing McConnell for saying
Speaker 1: he wouldn't be impartial, but she didn't really buck his strategy,
Speaker 1: which is to basically start the trial with presentations and
Speaker 1: maybe talk about witnesses later. And so where does Chuck
Speaker 1: Schumer fit in to to all of this because obviously
Speaker 1: a very well known name, certainly to our crowd here
Speaker 1: Bloomberg listeners, especially in New York City, but also beyond
Speaker 1: well known for his ties to Wall Street. Uh, what
Speaker 1: how much power does he have here? Because the dynamic
Speaker 1: in in the Senate is a little bit different, right, Well,
Speaker 1: you know, Mitch McConnell was able is able to control
Speaker 1: the floor most days, and in fact, famously with the
Speaker 1: Mayor Garland Supreme Cortina under Obama, he was able to
Speaker 1: just block that. He doesn't have the same amount of
Speaker 1: power when it comes to an impeachment trial. There needs
Speaker 1: to be fifty one votes. The Vice President is not
Speaker 1: involved in this. The Chief justin is already sitting in
Speaker 1: the chair and can't vote maybe to agree on a process,
Speaker 1: so uh, you know, that is really what determines this.
Speaker 1: And if if he loses you know, four of his members,
Speaker 1: and that is possible with Murkowski, Collins, Romney, maybe McSally
Speaker 1: from of Arizona and others saying we need to have witnesses,
Speaker 1: then that can be voted on and witnesses will proceed.
Speaker 1: And Schumer has laid out a very specific plan he
Speaker 1: wants to see, you know, the Director of the Office
Speaker 1: Managed Budgement, John Bolton, the UH, the National Security Visor
Speaker 1: who has now gone from the White House, and others
Speaker 1: who had direct knowledge this withholding of Ukraine eight. He's
Speaker 1: laid it out. He also had a subsequent letter to
Speaker 1: McConnell with a long list of documents he wants to see,
Speaker 1: and he continues to beat the drum. He's the lead
Speaker 1: negotiator here. Pelosi has made this sort of move to
Speaker 1: withhold the articles, but he is the one who will
Speaker 1: be in the room talking with McConnell and all this. Well,
Speaker 1: and I think you brought up a very good point
Speaker 1: that if this goes on any much longer, you have
Speaker 1: a lot of the Democratic nominees who were out on
Speaker 1: the campaign trail that are now going to be tied up.
Speaker 1: And some of these hearings is as it all unfold,
Speaker 1: who are you hearing from your reporting is at the
Speaker 1: most risk from you know, potentially being locked up in
Speaker 1: d C. Not being out on that campaign trail. Well,
Speaker 1: you gotta look at Elizabeth Warren and Bernie Sanders, who
Speaker 1: are really fighting to gain first place. They have a
Speaker 1: lot uh to lose by not being able to challenge
Speaker 1: and get front runner Joe Biden, you know, off of
Speaker 1: his position, which is right now the front runner in
Speaker 1: terms of polling numbers. And we'll see how it all
Speaker 1: shakes out when the Iowa votes in early February. But
Speaker 1: you know, certainly if they're trapped in in the in Washington,
Speaker 1: d C. Into February, that could be a problem. But
Speaker 1: you know, the piece that I put on the Bloomber
Speaker 1: terminal also talks about the risks of this delay for Republicans.
Speaker 1: There are some vulnerable Republicans clean Corey Gardner of Colorado,
Speaker 1: uh and Martha Msally of Arizona and others who don't
Speaker 1: really want to talk about impeachment. They do not want
Speaker 1: to nationalize race. Uh. They're big negative is really just
Speaker 1: Trump's negative approval rating. Uh. They want to talk about
Speaker 1: their own accomplishments, about the economy, of course, which is
Speaker 1: very strong in the Republican strong suit here. But dragging
Speaker 1: impeachment out doesn't really help them either. All Right, We're
Speaker 1: gonna leave it. They're great stuff, really good context, and UH,
Speaker 1: I feel much more up to date on this having
Speaker 1: talked to you. Eric Wasason is congressional reporter for Bloomberg.
Speaker 1: He joined us from our N one studio in Washington,
Speaker 1: d C. Journal. Yeah, but you let me drive. Oh no, no, no, no, honey, please,
Speaker 1: I'll do the ride revels. I want to drive, Just drive, baby,
Speaker 1: good questions trying. This is the drive to the Globe Commune. Thanks,
Speaker 1: we'll dry us on Bloomberg Radio. It's time for the
Speaker 1: Drive to the Clothes on this first day of trading
Speaker 1: of the new year. Let's bring in Cathy Boyle, president
Speaker 1: and founder of Chapin Hill Advisers, joining us on the
Speaker 1: phone from lovely Bedford, New York. Cathy, great to have
Speaker 1: you back with us, Happy New York. Good to be
Speaker 1: here and to you. So last year pretty good year,
Speaker 1: I think it's safe to say for the equity markets.
Speaker 1: Everybody felt pretty good about there for one case, as
Speaker 1: they were reviewing them over the holidays. What does look
Speaker 1: like to you? Just to start? So, last year was
Speaker 1: driven by an expanse in in PE price over earnings ratio,
Speaker 1: So we started the year out with earnings estimates UM
Speaker 1: getting downgraded along the way, but the PE expanded from
Speaker 1: thirteen to eighteen, and so I don't think this year
Speaker 1: is going to be the same unless we have a
Speaker 1: real acceleration of earnings and that seems to be the problem.
Speaker 1: UM recently just wate a report with fifteen companies reported
Speaker 1: in November and their wide swath of different industries. Ten
Speaker 1: of those companies were then downgraded for Q one with analysts,
Speaker 1: so that's not a good sign right now. Earnings estimates
Speaker 1: are rated to be a nine percent increase if they
Speaker 1: fall short of that, the pe could collapse. So I
Speaker 1: think you know risk is high at this point. Well, Cathy,
Speaker 1: I like that you talked about the divergence that we're
Speaker 1: seeing because when you mentioned earnings, I'm taking a look
Speaker 1: at our estimates for the fourth quarter of nine, which
Speaker 1: those figures we should be getting in several weeks or so.
Speaker 1: The index on earnings per share a year of a
Speaker 1: year growth is expected to decline by one point four percent.
Speaker 1: But there's a lot of differentiation. As we know tech
Speaker 1: looking to actually kind of grow the bottom line by
Speaker 1: about three or sell. What are you seeing in terms
Speaker 1: of sectors? Is it more of the same, those sort
Speaker 1: of cyclical high growth sectors. Well, you know values out
Speaker 1: growth has been in and value has historically outperformed growth. Um,
Speaker 1: it's been a real decline. What people are not looking
Speaker 1: at is that you know today everybody's focused on stocks. Yeah,
Speaker 1: so here we go wick it up wave. People are saying, oh,
Speaker 1: we can extend this another ten years. Um, I don't
Speaker 1: buy that at all. So I think that the things
Speaker 1: that have led the most, there's a very concentrated market.
Speaker 1: You've got a lot of hedge funds under performing, some
Speaker 1: odd hedge funds closed this year and they're giving up
Speaker 1: the ghost, and it's a very crowded market. Apple, the
Speaker 1: fang names, those are the ones that are very crowded.
Speaker 1: So I think technology it cannot sustain where it is,
Speaker 1: which has driven nastact for turn, which is the highest
Speaker 1: return for UM. So I think that people have to
Speaker 1: be cautious. You have to be cautious in so many areas.
Speaker 1: Gold is a good place to go, and gold is
Speaker 1: something that you connect as a hedge. We've got global
Speaker 1: debt expanding, We've got debt DT at outrageous levels. We've
Speaker 1: got the highest enterprise to ebit a price to sales.
Speaker 1: We haven't seen these levels since two thousand actually in
Speaker 1: those two metrics. Alright. Speaking of Apple, Cathy, I just
Speaker 1: want to bring our listeners a quick headline. Taylor and
Speaker 1: I both saw it at the same time as across
Speaker 1: red on the Bloomberg Apple crossing three hundred dollars for
Speaker 1: the first time, as stock extends its record high. It's
Speaker 1: actually it's flirting. It's like right at three hundred dollars
Speaker 1: now down just below h three hundred, So we'll see
Speaker 1: where it closes their Taylor, but it feels like a
Speaker 1: big deal to say the least. So, Cathy, what worries
Speaker 1: you the most about this market right now? So it
Speaker 1: worries me the most that people are apathetic, you know
Speaker 1: that um people are not realizing that this debt liquidity
Speaker 1: sugar high can't continue forever. They're really not looking at
Speaker 1: the risk in the market, and they don't understand that
Speaker 1: there's risk in the bond market and stock market bond
Speaker 1: markers up eight percent last year. Just a small move
Speaker 1: in interest rate station can make a huge difference in
Speaker 1: a portfolio, like a quarter point rise and a ten
Speaker 1: your treasury can translate into a couple of percentage points
Speaker 1: loss in your portfolio, And so they're really people are
Speaker 1: not recognized that the lack of correlation is not there.
Speaker 1: So a traditional sixty forty bond portfolio did go great
Speaker 1: last year, equity did even better, but it really wasn't
Speaker 1: much below that I think it was for sixty forty
Speaker 1: versus twenty something for the SMP. So you're not really
Speaker 1: giving up a lot to have that mix. But what
Speaker 1: people are not looking at is the downside risk and
Speaker 1: this we can't continue and inflate the debt that we
Speaker 1: have the balance sheet of the FED has gone up dramatically.
Speaker 1: Peigners have slowed down, the actually liquidated net billion dollars,
Speaker 1: a fewer purchases of treasuries, and that supports the debt.
Speaker 1: We can't continue to print money and buy it back ourselves.
Speaker 1: So this helicopter sort of money um could stop and
Speaker 1: rates start to rise. You've got a housing market that
Speaker 1: will quickly be affected mortgage rates go up, and a
Speaker 1: huge subprime bubble with auto lenders. Huge amount of auto
Speaker 1: lenders have um subprime debts, So these people are not
Speaker 1: good credit risks and they any rise and rates can
Speaker 1: cause more default. And these are packaged and bought in
Speaker 1: portfolios on Wall Street. So I think there's a lot
Speaker 1: of risk, but a lot of relates to interest rate
Speaker 1: risk in my opinion. Yeah, Kathy talked to me more
Speaker 1: about those auto loans because I was sitting here with
Speaker 1: Jason trying to figure out. I remember two thousand six,
Speaker 1: two thousand seven, no one really saw the housing crisis.
Speaker 1: A few people were looking at certain cracks, and Jason
Speaker 1: and I were talking about where is the next crack?
Speaker 1: Is it student loan debt, is it corporate debt? Fallen angels.
Speaker 1: Is it the auto loan market? Are you releasing the
Speaker 1: of loans is a potential next crack so to speak? Absolutely,
Speaker 1: I mean, I think it shows that the lack of
Speaker 1: credit worthiness within our economy. So where supposedly at full employment, um,
Speaker 1: yet the bulk of those jobs have been in lower
Speaker 1: paid you know, UM industries like retail and housekeeping and hotels.
Speaker 1: It's oter hospitality. So I don't think the average American
Speaker 1: of Americans do not own any stocks. Of Americans have
Speaker 1: inflated their networks over the last number of years. So
Speaker 1: the bifurcation between the up and down is a higher level.
Speaker 1: Lower level is concerning. So it's mortgages are also continuing
Speaker 1: to uh creep back into that lower documentation alternative documentation. Um.
Speaker 1: But the subprime market on auto is interesting because cars
Speaker 1: have gotten so expensive and you finance an sud at
Speaker 1: seventy eight dollars their financing over a longer, longer period
Speaker 1: of time, and the depreciation rate of a car when
Speaker 1: you drive off the lot, you know, it just falls down,
Speaker 1: so the cars are not worth what the debt is worth.
Speaker 1: And the same thing with leasing, you know, so it's
Speaker 1: basically a pondy game they're playing. Now, how big is
Speaker 1: the auto market relative to the overall market. I don't
Speaker 1: know that, but Liberty Nation reports and they said basically
Speaker 1: half of the loan's originate in the first half of
Speaker 1: or subcrime, very large percentage, sixty one billion, you know worth,
Speaker 1: so I think. And then what they do is they
Speaker 1: securitize these they package them up and ship them out,
Speaker 1: and regular people buy them as alternatives to bonds within
Speaker 1: their portfolio or they go into bond funds. So that's
Speaker 1: another place where there's hidden risk in your portfolio. People
Speaker 1: don't always know what their duration is on their bond portfolio,
Speaker 1: and they think of bonds is safe? Right? All right? Uh,
Speaker 1: nice words of nice words of caution. We're gonna leave
Speaker 1: it there. Kathy Boyle, really appreciate it. Always good to
Speaker 1: catch up with you, President, founder of champing Hill Advisors.
Speaker 1: Johnny's on the phone from Bedford, New York. Thanks for
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