1
00:00:00,080 --> 00:00:02,200
Speaker 1: Let's get to our guest, David co Talk c IO

2
00:00:02,320 --> 00:00:05,880
Speaker 1: and chairman of Cumberland Advisers. David, thank you very much

3
00:00:05,880 --> 00:00:08,959
Speaker 1: for taking out the time on a Sunday. Well, yeah,

4
00:00:09,000 --> 00:00:13,000
Speaker 1: it's a whole new week. You can get aggressively short here.

5
00:00:13,119 --> 00:00:15,760
Speaker 1: You can try to ride this out to a certain degree,

6
00:00:16,320 --> 00:00:19,480
Speaker 1: or you can try to be more opportunistic. What suits

7
00:00:19,560 --> 00:00:23,720
Speaker 1: Mr ko talk at the moment. Well, Brian Reach, thank

8
00:00:23,760 --> 00:00:28,840
Speaker 1: you for having me on your show. Right after the

9
00:00:28,920 --> 00:00:34,000
Speaker 1: jackson Hole pressures on, I'm thinking we should all get

10
00:00:34,040 --> 00:00:36,839
Speaker 1: on that moon rocket because we're gonna need to get

11
00:00:36,880 --> 00:00:44,559
Speaker 1: away from the trouble ahead. Markets responding as expected. Um,

12
00:00:44,600 --> 00:00:49,320
Speaker 1: you just reported the picture in the futures market, and

13
00:00:50,280 --> 00:00:54,400
Speaker 1: I think two things take away from Jackson Hole are important.

14
00:00:54,680 --> 00:00:59,200
Speaker 1: Power was clear, short, bitter, not sweet, and right to

15
00:00:59,280 --> 00:01:04,919
Speaker 1: the point. Any doubts about federal reserve policy now should

16
00:01:04,920 --> 00:01:08,720
Speaker 1: be set aside. But the Saturday sessions which you just

17
00:01:08,920 --> 00:01:16,200
Speaker 1: reported the results about, say, the world is in tightening mode,

18
00:01:16,280 --> 00:01:21,560
Speaker 1: with the exception of Japan, and so the hard currencies

19
00:01:21,600 --> 00:01:28,000
Speaker 1: around the world, the euro, Swiss frank. If we look

20
00:01:28,040 --> 00:01:33,160
Speaker 1: around the world, we have eighty countries now tightening policy

21
00:01:33,319 --> 00:01:37,160
Speaker 1: in one way, or another. Japan is the only exception.

22
00:01:37,880 --> 00:01:44,040
Speaker 1: And what that says is global slow down, global headwinds,

23
00:01:44,160 --> 00:01:47,480
Speaker 1: and that's what markets have to face, whether they like

24
00:01:47,600 --> 00:01:51,560
Speaker 1: it or not. Okay, definitely, but that was the case

25
00:01:51,640 --> 00:01:54,680
Speaker 1: before Jackson Hall. But I mean, how did he materially

26
00:01:54,880 --> 00:01:59,800
Speaker 1: change the narrative in your view, David, He reaffirmed to

27
00:02:00,200 --> 00:02:06,200
Speaker 1: percent targeting. He drew a line in the sand about it.

28
00:02:06,760 --> 00:02:12,120
Speaker 1: So we set aside this notion that maybe the FED

29
00:02:12,200 --> 00:02:17,160
Speaker 1: will accept three or four percent inflation. That's out. The

30
00:02:17,240 --> 00:02:19,799
Speaker 1: second thing he said is we may have to do

31
00:02:19,919 --> 00:02:23,800
Speaker 1: this longer than market agents think. We may be in

32
00:02:23,919 --> 00:02:27,960
Speaker 1: this business of tightening for a while. And then we

33
00:02:28,040 --> 00:02:33,920
Speaker 1: had the Luridum mister interview following in which she said, look,

34
00:02:33,960 --> 00:02:36,680
Speaker 1: we may be at four percent on a policy rate

35
00:02:37,120 --> 00:02:41,120
Speaker 1: for a long time or for a sustained period, words

36
00:02:41,240 --> 00:02:44,800
Speaker 1: to that effect. I heard all that, and I took

37
00:02:44,919 --> 00:02:51,359
Speaker 1: my policy target treasury yield curve above four percent on

38
00:02:51,720 --> 00:02:57,200
Speaker 1: all maturities. Yeah, that's interesting because the bond market didn't

39
00:02:57,280 --> 00:02:59,680
Speaker 1: really share your view. It didn't really change too much

40
00:02:59,680 --> 00:03:04,000
Speaker 1: at the end, right, Well, the bond markets reaction was

41
00:03:04,040 --> 00:03:06,840
Speaker 1: an interesting one. When the stock market sold off, there

42
00:03:06,880 --> 00:03:10,880
Speaker 1: was a flight to quality. But you just reported a

43
00:03:11,000 --> 00:03:15,239
Speaker 1: key data point in my opinion, you reported the dollar

44
00:03:15,400 --> 00:03:19,720
Speaker 1: yen rate at one thirty seven and the end and

45
00:03:19,960 --> 00:03:25,160
Speaker 1: corona currency and yield curve control now become the only

46
00:03:25,280 --> 00:03:31,000
Speaker 1: funding currency for the world that says to me, dollar yen,

47
00:03:31,800 --> 00:03:35,480
Speaker 1: you we could be one fifty before this is all over.

48
00:03:36,240 --> 00:03:42,200
Speaker 1: Until Japan changes policy, we've got a big So. So, David,

49
00:03:42,240 --> 00:03:45,400
Speaker 1: we heard from Elizabeth Warren there the Senator, and I'm

50
00:03:45,440 --> 00:03:48,000
Speaker 1: wondering whether or not do you think that there's a

51
00:03:48,040 --> 00:03:51,120
Speaker 1: political element here that is going to start building on

52
00:03:51,160 --> 00:03:55,160
Speaker 1: the FED and on the Biden administration. Well, I certainly

53
00:03:56,440 --> 00:04:02,400
Speaker 1: expect that Elizabeth Warren being at one end of the spectrum.

54
00:04:02,520 --> 00:04:05,560
Speaker 1: But the next two months, where you have the run

55
00:04:05,640 --> 00:04:10,680
Speaker 1: up to the mid term elections, it's not clear. Now.

56
00:04:10,920 --> 00:04:14,920
Speaker 1: There was an expectation, maybe a month or two ago,

57
00:04:15,400 --> 00:04:19,080
Speaker 1: that Republicans would suite boats Chambers. I'm not so sure

58
00:04:19,120 --> 00:04:22,320
Speaker 1: about that now. In fact, one could argue the Senate

59
00:04:22,520 --> 00:04:26,479
Speaker 1: may stay, uh, not only stay, but pick up a

60
00:04:26,560 --> 00:04:29,760
Speaker 1: Senate seat. I'm not so sure about the House, so

61
00:04:30,040 --> 00:04:34,680
Speaker 1: that that has an impact. And for sure, anything in

62
00:04:34,720 --> 00:04:39,840
Speaker 1: the financial world and the Federal Reserve become convenient targets

63
00:04:39,920 --> 00:04:44,120
Speaker 1: for politicians every single cycle. No reason to think this

64
00:04:44,160 --> 00:04:47,800
Speaker 1: will be any different, David. The thing is that that

65
00:04:49,200 --> 00:04:52,799
Speaker 1: markets don't seem to mind gridlock. In fact, the evidence

66
00:04:52,839 --> 00:04:56,159
Speaker 1: to suggest that they actually quite like it. I think

67
00:04:56,160 --> 00:04:59,400
Speaker 1: you're right, reach. I mean, if the if the Democrats

68
00:04:59,440 --> 00:05:01,719
Speaker 1: get the senter it pick up a seat or two

69
00:05:02,440 --> 00:05:08,320
Speaker 1: and the House becomes Republican, and that's possible. The Trump

70
00:05:08,680 --> 00:05:13,039
Speaker 1: damage from all the disclosures doesn't seem to reach to

71
00:05:13,160 --> 00:05:18,520
Speaker 1: the congressional races in the Republican oriented districts um, so

72
00:05:18,560 --> 00:05:21,400
Speaker 1: we may have good luck. Maybe that's a good thing.

73
00:05:21,480 --> 00:05:24,520
Speaker 1: They can't do as much damage when they don't have

74
00:05:24,680 --> 00:05:29,679
Speaker 1: a super majority of either party. Now, in terms of

75
00:05:29,680 --> 00:05:32,920
Speaker 1: of the hawkishness from the Fed, we knew it was there,

76
00:05:33,000 --> 00:05:36,560
Speaker 1: but we got confirmation from the chair himself, And and

77
00:05:36,600 --> 00:05:39,720
Speaker 1: the main transmission mechanism for us out here in Asia

78
00:05:40,040 --> 00:05:42,440
Speaker 1: may well be the strong dollar. The dollar gained half

79
00:05:42,440 --> 00:05:45,000
Speaker 1: a percent or so, and I'm wondering, you know, on

80
00:05:45,000 --> 00:05:47,920
Speaker 1: the Bloomberg Dollar Spot index were bumping up against the

81
00:05:47,960 --> 00:05:50,320
Speaker 1: highest levels that we've seen in many, many years. We

82
00:05:50,400 --> 00:05:53,640
Speaker 1: picked up here in made a go at it just

83
00:05:53,960 --> 00:05:56,400
Speaker 1: a couple of months back and we're back at close

84
00:05:56,480 --> 00:05:59,560
Speaker 1: to on the Bloomberg dollar spot. Do you think that

85
00:05:59,600 --> 00:06:02,039
Speaker 1: this is the time that you know, it's almost impossible

86
00:06:02,080 --> 00:06:05,919
Speaker 1: to bet against the dollar At the moment, I don't

87
00:06:05,960 --> 00:06:09,839
Speaker 1: bet against the dollar. I I see the dollar as

88
00:06:10,000 --> 00:06:13,320
Speaker 1: the You can be anti dollar and say it's the

89
00:06:13,400 --> 00:06:17,200
Speaker 1: least worst, or you can be pro dollar and say

90
00:06:17,240 --> 00:06:21,120
Speaker 1: it's the best. The outcome is the same. When we

91
00:06:21,200 --> 00:06:25,520
Speaker 1: look about the world and the structure of reserves, the

92
00:06:25,600 --> 00:06:31,440
Speaker 1: dollar emerges as the choice. Um, there's an interesting disconnect

93
00:06:31,560 --> 00:06:38,400
Speaker 1: now because reserve currencies used to function to counterbalance trade,

94
00:06:38,920 --> 00:06:45,880
Speaker 1: and that worked well in an expanding globalization integration, lower

95
00:06:46,000 --> 00:06:50,159
Speaker 1: protectionism world. But the world is going the other way

96
00:06:50,200 --> 00:06:58,360
Speaker 1: now and therefore the nature of the structure reserve currencies changes. Um,

97
00:06:58,480 --> 00:07:06,080
Speaker 1: the most reliable policy currency emerges and becomes the desirable

98
00:07:06,279 --> 00:07:11,080
Speaker 1: place to hold value. And so that's very favorable for

99
00:07:11,160 --> 00:07:15,559
Speaker 1: the dollar. Well, it's not been very favorable to the euro,

100
00:07:15,640 --> 00:07:18,240
Speaker 1: has it. I mean, with sub parity and people suggesting

101
00:07:18,240 --> 00:07:20,640
Speaker 1: there's more pain in store and that they could well

102
00:07:20,640 --> 00:07:24,040
Speaker 1: be right, David, given what's been happening in terms of

103
00:07:24,840 --> 00:07:27,840
Speaker 1: what it's like to happen in the winter and energy

104
00:07:27,880 --> 00:07:31,320
Speaker 1: crisis which is looming larger and larger, and David, I

105
00:07:31,320 --> 00:07:33,920
Speaker 1: mean the thing is the euro Area will get it bad,

106
00:07:34,040 --> 00:07:36,040
Speaker 1: some of the UK. In fact that we've got to

107
00:07:36,200 --> 00:07:39,280
Speaker 1: households being warned that their gas bills and power bills

108
00:07:39,280 --> 00:07:41,520
Speaker 1: are going to increase by eighty percent of the start

109
00:07:41,600 --> 00:07:45,560
Speaker 1: of October. I mean, this is really really very worrying.

110
00:07:46,520 --> 00:07:51,119
Speaker 1: I agree, Rich, I think we're in for a rough

111
00:07:51,200 --> 00:07:57,440
Speaker 1: period of time. And Mr Putin's models and how he's

112
00:07:57,480 --> 00:08:03,120
Speaker 1: supplying his policy around the world is raising energy prices

113
00:08:03,160 --> 00:08:07,520
Speaker 1: and making things more difficult, starving people. The Putent famine

114
00:08:07,600 --> 00:08:11,440
Speaker 1: is spreading. You just talked about food earlier in the

115
00:08:12,040 --> 00:08:17,280
Speaker 1: in on Bloomberg, and that's the world that we confronts.

116
00:08:17,320 --> 00:08:20,560
Speaker 1: Not a pretty picture at all. We hold the cash

117
00:08:20,640 --> 00:08:24,760
Speaker 1: reserve in our US equity E t F portfolio, it's

118
00:08:24,800 --> 00:08:27,960
Speaker 1: about thirty seven thirty eight percent cash. I haven't been

119
00:08:28,040 --> 00:08:32,320
Speaker 1: that high in a very long time. And our sector

120
00:08:32,480 --> 00:08:37,120
Speaker 1: choices are really limited now aerospace defense. Look at what

121
00:08:37,240 --> 00:08:44,760
Speaker 1: you've been reporting about the world healthcare, climate, renewable sensitive areas,

122
00:08:45,280 --> 00:08:49,679
Speaker 1: no banks, no intersensitives. David, thank you so much of that.

123
00:08:49,840 --> 00:08:53,960
Speaker 1: David Kotok there from Cumberland, advisers, this is Bloomberg,