WEBVTT - Surveillance: Infrastructure Investment Needed, Swonk Says 0:00:09.840 --> 0:00:13.800 Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane jay Ley. 0:00:13.960 --> 0:00:17.560 We bring you insight from the best in economics, finance, investment, 0:00:18.000 --> 0:00:23.520 and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, 0:00:23.600 --> 0:00:28.080 Bloomberg dot Com, and of course on the Bloomberg Placed 0:00:28.120 --> 0:00:29.840 the site that here in New York City, Stephen want 0:00:29.840 --> 0:00:32.680 to joins a city Private bank Global chief investment strategist. 0:00:32.680 --> 0:00:35.400 Good morning to stand look at the investors thinking agreement 0:00:35.400 --> 0:00:38.400 will still materialize or global growth bottoming? Isn't that dependent 0:00:38.440 --> 0:00:41.160 on a tray truce? Which one is it? So look, 0:00:41.200 --> 0:00:43.120 I think, um, there is a little bit of leap 0:00:43.159 --> 0:00:46.840 of faith here that at least ahead of the US 0:00:46.920 --> 0:00:49.400 election at the end of next year, that we will 0:00:49.440 --> 0:00:56.000 certainly not um create a greater shock on the trade front, 0:00:56.480 --> 0:00:58.880 that there is a good deal of hope still there, 0:00:58.920 --> 0:01:01.760 but not utter arity that we will pull down the 0:01:01.800 --> 0:01:05.760 terrorists which we impose on ourselves for example. But you know, 0:01:05.840 --> 0:01:08.560 the I think the larger economic story is is that 0:01:08.640 --> 0:01:12.480 we had a true, um severe You'll see it in 0:01:12.520 --> 0:01:15.600 the data in a couple of months inventory correction, that 0:01:15.680 --> 0:01:19.760 we have been producing uh fewer goods for export that 0:01:19.840 --> 0:01:22.840 are actually being demanded uh, and that if we were 0:01:22.880 --> 0:01:26.640 to stall here and simply hold these tariffs, we would rebound, 0:01:26.880 --> 0:01:30.240 we would grow through this. So I think it's still 0:01:30.280 --> 0:01:32.120 important for the direction of markets. You know, if you 0:01:32.120 --> 0:01:35.240 look at yesterday's market action. Today, I think the fact 0:01:35.280 --> 0:01:37.080 that again, like you said, if we can't even agree 0:01:37.120 --> 0:01:40.319 on uh, you know, the level of soybean exports, uh, 0:01:40.400 --> 0:01:43.520 that this is not a done deal, and that's going 0:01:43.560 --> 0:01:45.560 to impact market sentiment more than almost any of the 0:01:45.560 --> 0:01:47.760 other news. Well, what's the message to invest us to 0:01:47.800 --> 0:01:50.480 our listeners this morning? When stokes are still narrow time highs, 0:01:50.480 --> 0:01:54.240 the wit is weak, the trite soulks have quite clearly 0:01:54.320 --> 0:01:56.480 hit a series of road bumps, and yet we are 0:01:56.520 --> 0:01:58.960 still narrow time high. Markets are telling us where the 0:01:59.000 --> 0:02:02.600 economy is going. And I think it's important again that 0:02:02.840 --> 0:02:04.600 the way that we have set this up, that with 0:02:04.720 --> 0:02:08.440 the an absence of a severe pullback and inflation rise 0:02:08.480 --> 0:02:13.160 in inflation, if we don't have um over levered consumers 0:02:13.160 --> 0:02:17.079 that just have no capacity to grow, uh, and if 0:02:17.120 --> 0:02:20.720 we've just been cutting factory output, the economy can rebound. 0:02:20.800 --> 0:02:22.600 We're going to have a new all time high and 0:02:22.680 --> 0:02:26.280 profits next year. Okay, tell me if I'm wrong next year. Uh, 0:02:26.320 --> 0:02:30.600 and the will share prices going up to all time highs. Well, 0:02:30.760 --> 0:02:32.799 you know, like a lot of things. Uh, this is 0:02:32.840 --> 0:02:35.760 where things go in terms of in terms of nominal returns. 0:02:35.840 --> 0:02:38.000 Let's get out the crystals and pyramids right now and 0:02:38.160 --> 0:02:40.600 zone right in with Stephen White against City Group. You're 0:02:40.720 --> 0:02:43.520 in Timor, Thank you Alec Tansy for bringing me that 0:02:43.800 --> 0:02:47.160 important note. You're You're gonna Timor rather up at Fidelity 0:02:47.200 --> 0:02:50.040 with a hugely bullish note this morning on the end 0:02:50.080 --> 0:02:52.880 of the drawdown. As you just said on inventories. We 0:02:52.919 --> 0:02:56.160 had Steve Chivaron in here yesterday with freder Rated. He's 0:02:56.240 --> 0:02:59.840 single pointing up. Whatever your number. I don't need a number, Stephen. 0:03:00.000 --> 0:03:05.520 I'm looking at that technology stock Walmart up year to 0:03:05.720 --> 0:03:08.399 date well and up three four to make it four, 0:03:08.480 --> 0:03:12.040 make it five dollars right now? Off of this earnings report. 0:03:12.560 --> 0:03:15.200 How do you have a bull market, this bull market 0:03:15.200 --> 0:03:19.280 this long in this cycle, Well, you know, simply not 0:03:19.480 --> 0:03:23.440 having a massive collapse and earnings, a big rise in unemployment, 0:03:23.680 --> 0:03:26.720 any of those things that don't seem to be necessary 0:03:26.880 --> 0:03:28.520 when we have a low inflation. At least this goes 0:03:28.560 --> 0:03:30.440 back to Tony Dwyer one oh one, which is if 0:03:30.440 --> 0:03:33.040 you don't have a recession, it is tough to get negative. Well, 0:03:33.160 --> 0:03:35.200 you could also say this is just a massive a 0:03:35.200 --> 0:03:37.760 bout of fear of missing out with the SMP up, 0:03:39.120 --> 0:03:41.000 which is a great that's not a great reason to 0:03:41.000 --> 0:03:44.120 be investing right now. Okay, what was a team? All right, 0:03:44.120 --> 0:03:46.400 you out of the triple leverage cash but yet no, no, 0:03:46.920 --> 0:03:50.520 there you go. Okay, So two thousand eighteen was the 0:03:50.560 --> 0:03:54.080 biggest valuation drop that we've had. Now again, you had 0:03:54.120 --> 0:03:59.240 a down market last year with sharply up earnings. This 0:03:59.320 --> 0:04:03.040 year we have sharply upmarket with flat earnings, and you know, 0:04:03.120 --> 0:04:04.960 in the end we made some progress here. But our 0:04:05.000 --> 0:04:07.760 two year return is not really dramatic. I think again 0:04:07.920 --> 0:04:11.240 the big returns, uh, the when I when I'm optimistic 0:04:11.240 --> 0:04:13.680 on the economy in two thousand twenty, that's reflected in 0:04:13.680 --> 0:04:16.280 the stock market this year. So next year it's going 0:04:16.320 --> 0:04:18.760 to be a more moderate return environment. It's gonna be 0:04:18.800 --> 0:04:21.479 a somewhat more volatile environment for lots of reasons that 0:04:21.520 --> 0:04:24.120 you can guess. But people who are zooming, for example, 0:04:24.160 --> 0:04:27.119 to the end of I don't know for certain who's 0:04:27.160 --> 0:04:29.479 going to be president. I don't know for certain how 0:04:29.640 --> 0:04:32.440 Brexit is going to be resolved. They're going to ignore 0:04:32.480 --> 0:04:35.479 the economy's performance at their peril. Let's put some capital 0:04:35.560 --> 0:04:37.600 to work. Then what do you do state? So, look, 0:04:37.680 --> 0:04:41.280 I think we have gone and tilted from being UM 0:04:41.560 --> 0:04:45.760 overweight global bonds as of August to now underweight UM. 0:04:45.760 --> 0:04:47.600 I don't think it's an extreme position. I don't think 0:04:47.600 --> 0:04:50.159 you're gonna lose a lot of money in bonds in 0:04:50.160 --> 0:04:55.160 the in the next year. But we've tilted from defensive equities, 0:04:55.320 --> 0:04:57.360 you know too again to realign to get a little 0:04:57.360 --> 0:05:01.440 bit more cyclical explosure. UM. That's work so well recently 0:05:01.560 --> 0:05:03.040 that you know, when I think about the full year 0:05:03.080 --> 0:05:06.599 twenty UM, I have some doubts that cyclicals are just 0:05:06.600 --> 0:05:09.120 going to race through the full year twenty UM. So 0:05:09.160 --> 0:05:12.119 if you want to think about again investing and really 0:05:12.160 --> 0:05:15.440 holding a position for the full year twenty I want, 0:05:15.839 --> 0:05:20.000 you know, stocks that provide current income and grow current income. 0:05:20.080 --> 0:05:22.840 Now that sort of these you know, show me with 0:05:22.920 --> 0:05:26.440 current performance, uh, that these types of equities are you know, 0:05:26.560 --> 0:05:29.680 a good UM allocation for a world in which global 0:05:29.720 --> 0:05:32.520 bond yields, including emerging markets on high yield you know, 0:05:32.520 --> 0:05:34.919 are down near one and a half percent back to neutral? 0:05:34.960 --> 0:05:36.560 Would it be fat to sell get back to neutral? 0:05:36.640 --> 0:05:40.080 Just incentive white things? This is uh yeah, and uh, 0:05:40.120 --> 0:05:43.320 you know, I think that we are reasonably more optimistic 0:05:43.720 --> 0:05:47.240 on where we will be going uh in trade sensitive 0:05:47.360 --> 0:05:50.400 cyclical equities, you know, over at least the near term 0:05:50.720 --> 0:05:53.320 um our longer term massive allocation aimed at twelve to 0:05:53.400 --> 0:05:56.760 eighteen months, you know, again is not expecting any kind 0:05:56.760 --> 0:05:59.480 of you know, repeat of twenty nineteen returns. What happens 0:05:59.480 --> 0:06:02.120 if no trade deal? Um I think that you'll take 0:06:02.160 --> 0:06:06.000 a setback in markets. You'll see the dollar strengthened. Uh, 0:06:06.040 --> 0:06:09.200 you'll see equities weekend a bit on this, But I 0:06:09.240 --> 0:06:12.760 don't think it ends this card expansion and that eventually 0:06:12.800 --> 0:06:15.760 you make up for that when we continue to grow 0:06:15.760 --> 0:06:18.080 through it. Stephen Wayne, thank you so much. Thanks with 0:06:18.160 --> 0:06:34.560 the group this morning. Here's what you need to know 0:06:34.720 --> 0:06:38.239 Fred Burgston when he invented the Peterson Institute and along 0:06:38.279 --> 0:06:42.479 with Adam Posen's excellent leadership, like secuity, the secret is 0:06:42.520 --> 0:06:45.560 on the Delta Shuttle, the American Airline shuttle. Is they 0:06:45.560 --> 0:06:50.120 read Mary Lovely. Her reports are exceptionally acute at the 0:06:50.120 --> 0:06:53.360 Peterson Institute about the trade war and John uh very 0:06:53.400 --> 0:06:56.920 Lovely of Syracuse and the Peterson Institute really has a 0:06:56.960 --> 0:07:02.240 wonderful bar chart of the profound effects across computer and 0:07:02.240 --> 0:07:07.680 electronic products, electric equipment, apparel and accessories, machinery, accept electrical 0:07:07.839 --> 0:07:10.600 There's a detail here that's profound. And I'm pleased to 0:07:10.600 --> 0:07:13.600 say that Mary Lovely joins us now Peterson Institute nonresident 0:07:13.720 --> 0:07:15.480 Senior Fellow. Mary. Great to have you with us on 0:07:15.520 --> 0:07:17.960 the program. For a long time now we've been told 0:07:17.960 --> 0:07:20.520 to phase one trade deal is close. We had a 0:07:20.520 --> 0:07:22.440 good friend of this program on yesterday, Terry Haynes of 0:07:22.480 --> 0:07:27.520 Pangaea Policy talking about enforcement enforcement, enforcement. Is that where 0:07:27.560 --> 0:07:32.200 the hangup is at the moment? Well, good morning, Yeah, 0:07:32.240 --> 0:07:34.480 I'm sure the enforcement is part of it, but also 0:07:34.640 --> 0:07:38.080 is the schedule for the purchases of agricultural products and 0:07:38.120 --> 0:07:41.640 what what the timetable will be. So I think we're 0:07:41.680 --> 0:07:45.280 really hitting the rocky parts here getting sort of these 0:07:45.320 --> 0:07:49.000 top line promises on the paper, and a lot of 0:07:49.080 --> 0:07:52.480 us are are very nervously watching how this develops. Mary, 0:07:52.480 --> 0:07:54.760 Trade deals take a long time to get on paper. 0:07:54.960 --> 0:07:57.320 Is that what we're seeing develop here or we're seeing 0:07:57.400 --> 0:08:00.280 something that you think you can conclude. Maybe this doesn't 0:08:00.320 --> 0:08:04.560 get done. Well, we're worried about it. Um. I think 0:08:04.880 --> 0:08:08.360 as many people do that there's enormous economic and political 0:08:08.440 --> 0:08:12.160 good sense to getting a trade truth here, uh and 0:08:12.200 --> 0:08:14.960 get some of these purchases back on, you know, back 0:08:15.080 --> 0:08:19.400 rolling in the marketplace. So um. You know, it is 0:08:19.440 --> 0:08:22.119 difficult to make these kinds of deals, and it really 0:08:22.160 --> 0:08:24.360 depends on how much they're trying to get done in 0:08:24.400 --> 0:08:29.440 this Phaze one. When we're talking about enforcement, we could 0:08:29.520 --> 0:08:32.080 be looking at some of the more difficult issues. I 0:08:32.120 --> 0:08:34.200 think it's going to be very difficult to get done 0:08:34.200 --> 0:08:38.320 in a short pressed time period. Is enforcement an issue 0:08:38.720 --> 0:08:45.320 with soybeans or other Phase one items? Surprisingly yes, because 0:08:45.320 --> 0:08:49.920 of the amounts of purchases that have been promised by 0:08:49.960 --> 0:08:55.280 the president. Uh in an uncertain marketplace, Uh, there are 0:08:55.320 --> 0:08:57.720 going to the US is going to be concerned about 0:08:57.760 --> 0:09:01.120 how many will be purchased. Okay, this is great. How 0:09:01.120 --> 0:09:06.080 how one way is enforcement? Do the Chinese one enforcements 0:09:06.080 --> 0:09:12.480 so they can count soybeans in Fargo? The Chinese don't 0:09:12.480 --> 0:09:14.600 want to buy well to be kind of cute a 0:09:14.600 --> 0:09:16.840 pig and of hope they don't want to know this 0:09:16.920 --> 0:09:23.079 is surveillance, the kind of cute works, Professor Lovely. They 0:09:23.120 --> 0:09:25.959 don't want to be buying things, they don't need prices 0:09:26.000 --> 0:09:28.960 that are too high. Uh So, and they also know 0:09:29.080 --> 0:09:32.120 this is their key leverage over the Americans, so they 0:09:32.160 --> 0:09:36.720 are going to try to uh not make very specific 0:09:36.760 --> 0:09:40.920 deals on paper. But the Americans want quarter you know, 0:09:41.400 --> 0:09:44.600 monthly quarterly targets that will have to be met by 0:09:44.640 --> 0:09:47.240 the Chinese for them to be in compliant. All this 0:09:47.400 --> 0:09:51.079 tells us that some tarofts will remain, and certainly the 0:09:51.160 --> 0:09:53.800 threat of tariffs being snapped on or increased in any 0:09:53.840 --> 0:09:56.439 time will remain. So they'll still be a lot of 0:09:56.520 --> 0:09:59.400 uncertainty for businesses trying to figure out where they're supposed 0:09:59.400 --> 0:10:03.640 to invest in this new environment. Yeah, overnight Chinese economic data, 0:10:03.679 --> 0:10:07.800 industrial put rising, less than expected, retail sales, fixed accent 0:10:07.840 --> 0:10:11.800 investment all disappointing. Who has the bigger incentive China? Are 0:10:11.880 --> 0:10:17.000 the US to make a trade deal sooner? Hi, Lisa Um, 0:10:17.080 --> 0:10:20.880 I think they both have incentives, but you know, the 0:10:20.960 --> 0:10:24.160 Chinese system is different than ours. The really full I 0:10:24.200 --> 0:10:28.600 think Unpresident Trump's political calculations regarding this trade war. Clearly 0:10:28.640 --> 0:10:30.720 there are many people who are happy to see the 0:10:30.800 --> 0:10:34.600 United States standing up to China UH and giving them hell, 0:10:34.720 --> 0:10:36.920 as they say. On the other hand, there are a 0:10:37.000 --> 0:10:39.640 lot of people that are beginning to be very badly 0:10:39.720 --> 0:10:42.760 hurt by this UH, and I think that's got to 0:10:42.760 --> 0:10:45.600 be a concern to the President and his team. So 0:10:45.800 --> 0:10:49.520 I would say that the US has a lot here. China, 0:10:49.600 --> 0:10:53.160 clearly though, would like an end to this. Unfortunately, we're 0:10:53.200 --> 0:10:55.280 not going to see an end to conflict. We know 0:10:55.480 --> 0:10:59.720 that there's a lot of issues coming in the technology 0:10:59.760 --> 0:11:02.719 space between the two countries. The so called pushed a 0:11:02.760 --> 0:11:05.120 d couple, so we're not going to see an And 0:11:05.200 --> 0:11:08.280 no matter what happened, who's in charge of saving face 0:11:08.400 --> 0:11:09.839 right now? I mean, if we've got to get through 0:11:09.880 --> 0:11:13.200 the next literally days, weeks, months, and you're you know, 0:11:13.280 --> 0:11:16.520 marry your expert at this, who's in need of saving 0:11:16.760 --> 0:11:23.520 face the most? Wow? I'm not sure that I'm an 0:11:23.520 --> 0:11:27.440 expert in that part of it because it's really political 0:11:27.760 --> 0:11:31.640 and um, you know, I think that President Trump has 0:11:31.679 --> 0:11:34.600 been able to sort of spin this the way he 0:11:34.640 --> 0:11:36.960 wants at least to some part of the American population, 0:11:37.080 --> 0:11:39.959 and he will have the ability to say that if 0:11:39.960 --> 0:11:42.280 a deal isn't reached you know, he hung in there, 0:11:42.320 --> 0:11:44.360 he hung tough. He didn't go for a you know, 0:11:44.440 --> 0:11:48.439 a cheap shot deal. Um. I think the Chinese have 0:11:48.600 --> 0:11:51.280 much bigger issues that they're dealing with. Many of them 0:11:51.280 --> 0:11:54.760 are their own creation, Hong Kong, shin Jung. They have 0:11:54.920 --> 0:11:56.800 to slow it out in their own economy due to 0:11:56.840 --> 0:12:02.480 their reigning in of credit. So I would say that, um, 0:12:02.520 --> 0:12:04.520 it really is going to fall down to who thinks 0:12:04.520 --> 0:12:08.640 they have the more political gains to make by having 0:12:08.640 --> 0:12:11.840 a deal here. I personally think it would be very 0:12:11.880 --> 0:12:14.920 wise for the President to make a deal. I think 0:12:14.960 --> 0:12:18.000 we're seeing that these tariffs now have broad coverage, the 0:12:18.080 --> 0:12:20.880 rates are higher, They're starting to hit a whole bunch 0:12:20.880 --> 0:12:24.160 of American products that are really going to hurt consumers. 0:12:24.200 --> 0:12:27.920 This is a consumer led economy, so I'm hoping that 0:12:27.960 --> 0:12:31.000 the us UH negotiating team is able to find a 0:12:31.040 --> 0:12:33.560 way forward. Mary, you mentioned Hong Kong and some of 0:12:33.559 --> 0:12:35.520 the domestic issues in China at the moment. Help us 0:12:35.559 --> 0:12:38.080 understand that just a little bit better, how something like 0:12:38.160 --> 0:12:41.120 Hong Kong can spill over to these broader macro issues, 0:12:41.120 --> 0:12:42.600 and why there might be a problem for some of 0:12:42.600 --> 0:12:44.600 our listeners in the markets at the moment. How are 0:12:44.600 --> 0:12:49.080 you framing that, Mary Well, I am particularly framing in 0:12:49.120 --> 0:12:52.880 terms of people's perceptions of China and domestic support for 0:12:53.320 --> 0:12:56.560 a trade deal with China, and also moving forward this 0:12:56.640 --> 0:13:00.600 idea of technology uh decoupling. I think that if we 0:13:00.679 --> 0:13:03.840 see China take a very strong hand in China, if 0:13:03.880 --> 0:13:06.200 we see a lot of bloodshed, even if things just 0:13:06.720 --> 0:13:09.080 been out of trolling ways they don't want, it's going 0:13:09.160 --> 0:13:13.080 to to have vague replications here in the Congress and 0:13:13.200 --> 0:13:16.120 among the American people. Very lovely, thank you so much 0:13:16.120 --> 0:13:18.800 for the Peterson in studio. We greatly appreciate your perspective. 0:13:18.840 --> 0:13:36.320 With Bloomberg surveillance, A house can have a house call 0:13:37.240 --> 0:13:39.679 and it can be pretty cautious call. They really colors 0:13:39.800 --> 0:13:43.880 every conversation in every tone worldwide when they have a 0:13:43.960 --> 0:13:46.880 more cautious call. John Farrell, can we state that PIMCO 0:13:46.960 --> 0:13:49.240 has a cautious call? I think we can, particularly on 0:13:49.240 --> 0:13:51.080 the corporate credit side, I think we can say that, 0:13:51.120 --> 0:13:53.000 and we can probably say that on US growth relative 0:13:53.080 --> 0:13:55.920 to expectations going into as well, if you go on 0:13:55.960 --> 0:13:58.600 that most recent cyclical outlook. I'm happy that I don't 0:13:58.640 --> 0:14:00.560 have to speak for them that Nicol lam is with 0:14:00.679 --> 0:14:03.400 us pimco's sovereign credit analyst. So let's do that. Nicola. 0:14:03.480 --> 0:14:07.720 Let's talk about and your expectations relative to what you 0:14:07.760 --> 0:14:11.920 see as the consensus for you. Yeah, so um, I 0:14:11.920 --> 0:14:14.160 would say that, Yeah, we have been on the more 0:14:14.200 --> 0:14:17.400 cautious side. We do expect some kind of reacceleration in 0:14:17.440 --> 0:14:20.480 growth next year on the back of two things. I mean, first, 0:14:20.480 --> 0:14:25.080 trade tansions stabilizing and secondly monetary policy getting some traction. 0:14:25.720 --> 0:14:26.960 But on the whole, we think it's going to be 0:14:27.000 --> 0:14:31.320 a pretty slow reacceleration, partly because the trade tangions will 0:14:31.400 --> 0:14:36.240 keep simmering, and partly because yeah, I mean, the monetary 0:14:36.480 --> 0:14:39.000 policy is hitting its limits when it comes to a sicacy. 0:14:39.080 --> 0:14:41.400 We've already had a lot of stimulus before. Let's talk 0:14:41.440 --> 0:14:43.480 about what that means for markets. This is something you 0:14:43.520 --> 0:14:46.440 wrote around about a month ago. Monetary stimulus is likely 0:14:46.480 --> 0:14:51.560 to prove insufficient and largely ineffective in raising depressed inflation expectations, 0:14:51.560 --> 0:14:54.280 and for that reason, the longer end is expected to 0:14:54.280 --> 0:14:57.080 remain supported. That's Germany. The long end right now, a 0:14:57.160 --> 0:15:00.280 ten year negative thirty two basis points. Nicola, we duck 0:15:00.600 --> 0:15:04.680 at these levels stand, I would say that, yeah, I 0:15:05.160 --> 0:15:09.120 see duration globally and especially in Europe, it's pretty anchored here. 0:15:09.440 --> 0:15:11.920 Even though the levels look extremely low, I just see 0:15:11.920 --> 0:15:15.240 it as very difficult for the ECB to actually be 0:15:15.320 --> 0:15:19.400 able to raise inflation without the help from the fiscal authorities, 0:15:19.840 --> 0:15:22.800 and dragging has clearly before leaving, been calling for them 0:15:22.880 --> 0:15:25.280 very clearly. But we're not seeing enough of a shift 0:15:25.320 --> 0:15:28.680 in the German political space to to see that changing. 0:15:28.760 --> 0:15:30.600 So so yeah, I would say the long end is 0:15:30.640 --> 0:15:33.560 pretty pretty anchored. So the extent of the sell off 0:15:33.720 --> 0:15:38.920 in bonds is done. Um. I mean, it's obviously hard 0:15:38.960 --> 0:15:42.240 to have to call a very near term move in duration, 0:15:42.440 --> 0:15:45.480 but but generally speaking, we think we've seen a decent 0:15:45.520 --> 0:15:48.040 move here, and we are you know, we're pretty neutral 0:15:48.120 --> 0:15:50.400 at these levels. We don't have a very strong conviction 0:15:50.880 --> 0:15:53.920 on the duration vita these levels. Someone said, the levels 0:15:53.880 --> 0:15:56.800 we're seeing on bond yields indicate much slower growth than 0:15:56.840 --> 0:16:01.200 equity valuations would imply. Do you think that equities are 0:16:01.240 --> 0:16:03.760 wrong here? And I've gotten ahead of themselves with pricing 0:16:03.800 --> 0:16:07.360 and the re acceleration that you're expecting. Well, you see, 0:16:07.360 --> 0:16:10.440 I see the things as linked in that you know, 0:16:10.480 --> 0:16:13.840 equity prices have done well partly because central banks have 0:16:13.960 --> 0:16:17.280 been extremely accommodative. So so the very kind of like 0:16:18.400 --> 0:16:21.480 the rally and duration and in interest rates, frisk free 0:16:21.520 --> 0:16:25.040 interest rates has been pushing up equity prices. You know, 0:16:25.080 --> 0:16:27.000 if you if you look at our outlook, I would 0:16:27.000 --> 0:16:30.280 say that risk valuations in terms of equities, in terms 0:16:30.280 --> 0:16:34.520 of credit spreads and so on, do look fairly elevated. 0:16:34.800 --> 0:16:37.280 UM So, so yeah, we're pretty cautious when it comes 0:16:37.320 --> 0:16:39.640 to risk assets at this point. So you're gonna grab 0:16:39.680 --> 0:16:43.280 a coupon this year, how do you defend against price 0:16:43.360 --> 0:16:49.080 decline while you grab a coupon? So, I mean the 0:16:49.120 --> 0:16:52.520 way we the way we try to make alpha, the 0:16:52.560 --> 0:16:54.520 way we make out for it is to be very selective. 0:16:54.600 --> 0:16:57.440 So it doesn't mean not that we don't take any 0:16:57.520 --> 0:17:01.120 risk at all, but we go very focused on sectors 0:17:01.120 --> 0:17:05.040 and areas that we like. So, for example, financials we 0:17:05.080 --> 0:17:08.119 think offer good opportunities in the UK, but not only 0:17:08.600 --> 0:17:12.960 We think that securitized assets like mortgage securities in the US, 0:17:13.040 --> 0:17:16.760 where where households have been delivering a lot, offer good value. 0:17:17.119 --> 0:17:20.200 We think real estate assets more generally offer offer decent 0:17:20.280 --> 0:17:23.760 value UM. And on duration. You know, we we have 0:17:23.800 --> 0:17:27.440 some duration in our portfolios, especially U S duration, which 0:17:27.440 --> 0:17:29.520 we see as a good hedge for for having some 0:17:29.560 --> 0:17:33.639 credit risk um and also it still has positive yield. Nicole, 0:17:33.760 --> 0:17:35.720 Thank you so much. Nicole, and my with Pimcole greatly 0:17:35.760 --> 0:17:51.400 appreciate it. With a cautious view, Diane Swunk with us 0:17:51.840 --> 0:17:54.720 with Grant Thornton, Diane, do we have room for fiscal 0:17:55.040 --> 0:17:57.840 place in America? Rates are abnormally low on a real 0:17:57.840 --> 0:18:01.720 phenomenal basis. Are we under a pleat delusion about our 0:18:01.720 --> 0:18:06.080 fiscal flexibility? We're not under a complete delusion at the moment. 0:18:06.520 --> 0:18:09.080 Deficit doesn't matter until it does, and then it matters 0:18:09.160 --> 0:18:11.200 very rapidly. And I think that's why you saw J. 0:18:11.400 --> 0:18:15.560 Powell sort of caution on policymakers yesterday and step into 0:18:15.600 --> 0:18:18.000 the space that many of his predecessors have. J. Paul 0:18:18.040 --> 0:18:20.240 is an old deficit hawk and say, hey, you know, 0:18:20.320 --> 0:18:23.400 we need to worry about fiscal sustainability because next time 0:18:23.440 --> 0:18:26.200 we hit a downturn, we will need fiscal studious We 0:18:26.240 --> 0:18:28.360 have limited tools here, and I think it is very 0:18:28.359 --> 0:18:30.920 important about thinking about at least I'll be disappointed if 0:18:30.920 --> 0:18:32.920 this is not front and center at the Budget Committee. 0:18:32.920 --> 0:18:34.600 I know there's a lot of politics today, but sure 0:18:34.640 --> 0:18:37.600 Paul's got to step out his misswant ventions. He is 0:18:37.640 --> 0:18:40.880 a deficit hawk, but not all fiscal stimulus is the same. Dan, 0:18:41.080 --> 0:18:43.679 what could we see they would actually be fruitful at 0:18:43.720 --> 0:18:46.600 this stage in the economic cycle. You know, that's a 0:18:46.640 --> 0:18:49.359 really great question. I mean, clearly that keep focusing on 0:18:49.480 --> 0:18:52.000 task cut. This throught about a story that we've kind 0:18:52.000 --> 0:18:53.960 of played over and over again and that really worked 0:18:53.960 --> 0:18:55.960 at this latest stage in the stycle. What we really 0:18:56.000 --> 0:18:59.680 really need is, of course, infrastructure investment. Aren't the investment 0:19:00.040 --> 0:19:03.240 investment that will have productivity growth with it down the 0:19:03.320 --> 0:19:06.520 road and will change the equation across the board for 0:19:06.560 --> 0:19:10.000 the American economy, not just for individuals that get those 0:19:10.040 --> 0:19:13.120 temporary tax because that's what's really important at this stage 0:19:13.119 --> 0:19:14.960 of the game, is to think about the long term 0:19:14.960 --> 0:19:18.359 potential at the economy to grow and long term investments 0:19:18.359 --> 0:19:22.560 at these low industrates, investments in our infrastructure do actually 0:19:22.760 --> 0:19:25.840 makes sense. So the playoffs, you're issuing cheat bonds and 0:19:25.880 --> 0:19:29.520 getting some productivity down the road. So p p i 0:19:29.840 --> 0:19:35.359 UH inflation coming in below expectations. If you strip out food, energy, 0:19:35.920 --> 0:19:39.119 h and trade weighted items. I'm trying to figure out 0:19:39.440 --> 0:19:42.280 what we're seeing here and how concerning this sort of 0:19:42.320 --> 0:19:46.480 decelerating inflation is. Well, you know, it's interesting because there's 0:19:46.520 --> 0:19:49.480 the what came up yesterday in share and powers questioning 0:19:49.520 --> 0:19:52.680 was also the gap and inflation between low income households 0:19:52.720 --> 0:19:54.679 and high income houseless And this is something that's not 0:19:54.720 --> 0:19:58.639 gotten enough attention. Is the head munity in the data. 0:19:58.880 --> 0:20:00.400 You know, we look at the economic I ever get 0:20:00.359 --> 0:20:02.000 them and say, oh, we'll worried about this inflation or 0:20:02.080 --> 0:20:04.960 worried about to low inflation. There's legitimate reasons to worry 0:20:04.960 --> 0:20:08.440 about that. That said, lower income houses in many households 0:20:08.480 --> 0:20:10.280 are saying, we don't see the low inflation. What are 0:20:10.280 --> 0:20:12.560 you talking about because the things they're paying for not 0:20:12.640 --> 0:20:14.560 only do they not have the market power of higher 0:20:14.600 --> 0:20:17.680 income households, they also have a sixth basket of goods 0:20:17.760 --> 0:20:20.480 costs that costs more that they're sort of don't have 0:20:20.520 --> 0:20:22.919 as much wiggle room. And this is really hard for 0:20:22.960 --> 0:20:24.520 the FED because at that point in time, do you 0:20:24.520 --> 0:20:26.840 say you want to run the economy hotter and get 0:20:26.880 --> 0:20:29.840 more inflation, hopefully from wage games. So what if you 0:20:29.880 --> 0:20:32.159 don't get those wage games. Then you're left out and 0:20:32.240 --> 0:20:35.399 getting hotter inflation, especially for lower income housholds, and not 0:20:35.520 --> 0:20:38.159 getting it spread across the economy. Even like Diane the 0:20:38.240 --> 0:20:40.840 lengthest communication from the Federal Reserve echoed once again from 0:20:40.920 --> 0:20:43.200 Cham and Pal yesterday, likely to do the same thing 0:20:43.240 --> 0:20:46.800 today on growth. What they would need to see to 0:20:46.920 --> 0:20:51.400 introduce another right reduction of material reassessment in the outlook. 0:20:51.680 --> 0:20:56.560 What constitutes a material reassessment in the outlook a major 0:20:56.640 --> 0:20:58.560 escalation in trade with China. I mean, part of the 0:20:58.600 --> 0:21:00.800 reason they stepped to the sidelines it felt like they're 0:21:00.800 --> 0:21:02.919 done for a while, is that they're hoping for this 0:21:03.040 --> 0:21:05.840 phase one deal with China, which now again looks in jeopardy, 0:21:06.160 --> 0:21:09.520 and not a further escalation tariffs in December fifteenth. If 0:21:09.560 --> 0:21:11.439 we can get over those hurdles to settle, feel more 0:21:11.480 --> 0:21:14.399 comfortable and staying on the sidelines longer and holding their 0:21:14.400 --> 0:21:17.280 powder dry. I myself, of course, I'm worried about the 0:21:17.280 --> 0:21:19.320 trade war and wish they would have helped that one 0:21:19.440 --> 0:21:22.120 rate cut a little a little bit back and then 0:21:22.160 --> 0:21:24.600 waited for when the big bang for the dollar was greater. 0:21:24.880 --> 0:21:27.399 But it is something that is really front and center 0:21:27.560 --> 0:21:29.920 is the trade war. We're trying to China having more 0:21:29.960 --> 0:21:34.320 weakness in their economy again reporting in Alaskay, Diana swank 0:21:34.400 --> 0:21:36.400 too short. We'll do it again, Diana swank with gran 0:21:36.440 --> 0:21:39.520 Thornton of course, always giving us help here on FED Day, 0:21:40.080 --> 0:21:42.480 with perspective, and of course out of Chicago where the 0:21:42.560 --> 0:21:59.240 real Midwest feel as well. I can't focus, Paul, because 0:21:59.280 --> 0:22:02.520 I'm looking at the Ninjas Super a kitchen blender system 0:22:02.960 --> 0:22:08.119 with food processor b L seven eighty from Walmart. That 0:22:08.200 --> 0:22:10.960 must mean it's time to talk to Sarah Hall sec Sarah. 0:22:11.200 --> 0:22:13.679 If I want to buy a Ninja Super kitchen blender 0:22:13.760 --> 0:22:17.600 system with food processor Comma b L seven eighty, why 0:22:17.640 --> 0:22:19.440 am I going to buy it from Walmart and not 0:22:19.640 --> 0:22:22.960 from Amazon? So Walmart has been making a lot of 0:22:23.000 --> 0:22:26.480 progress in the e commerce division sales or in the 0:22:26.600 --> 0:22:30.520 latest quarter um and they are really you know Amazon. 0:22:30.640 --> 0:22:32.480