Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene Jay Leye.
Speaker 1: We bring you insight from the best in economics, finance, investment,
Speaker 1: and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud,
Speaker 1: Bloomberg dot Com, and of course, on the Bloomberg. Joining
Speaker 1: us now, Tom Marlick, Bloomberg Economics Chief economist. He joined
Speaker 1: us on the latest. Tom from your position, from your perspective,
Speaker 1: looking at how things concluded on Friday, are you surprised
Speaker 1: this Monday morning that the Chinese still want further talks? Certainly,
Speaker 1: the indications coming out of China over the weekend haven't
Speaker 1: added to optimism, Jonathan, As you mentioned, I think it's
Speaker 1: important that the Chinese official media is not using the
Speaker 1: term deal in any of their reporting on what happened.
Speaker 1: That obviously indicates there's some distance still to travel. Um.
Speaker 1: At the same time, relative to where we were a
Speaker 1: month ago, UM, I think we're in a slightly better position,
Speaker 1: and I remain cautiously optimistic that this very very limited
Speaker 1: mini deal could still get done. Tom, do you think
Speaker 1: that China wants materially more concessions or do you think
Speaker 1: that this is just a matter of trying to let
Speaker 1: people know they're trying the best that they can. So
Speaker 1: I think they would certainly want those December fifteen tariffs
Speaker 1: off the table. Um. As you remember, that's the tariffs
Speaker 1: which would hit the consumer electronics sector. That's your iPads,
Speaker 1: your iPhones, your laptops, um and UM. Frankly, I think
Speaker 1: that's actually a really pretty realistic ask by China. Um.
Speaker 1: It would be it would be very painful for the
Speaker 1: US to put those tariffs on just before Christmas, to
Speaker 1: hit so many iconic products, so the iconic brands, just
Speaker 1: ahead of the Christmas shopping season. I think probably the
Speaker 1: US doesn't want to impose those tariffs either, So if
Speaker 1: that's what China wants, I don't see that as a
Speaker 1: significant barrier to making progress on this mini deal. I
Speaker 1: have to agree with you, Tom, I think it's highly
Speaker 1: unrealistic to expect the Chinese president to go down to
Speaker 1: Chile and sign a deal with December terrifis hanging over
Speaker 1: him a month later. Beyond phase one, it's phase two
Speaker 1: where I start to worry, and that's where the hard
Speaker 1: work really starts for me. Over the harder issues. This
Speaker 1: is the easy stuff to come to an agreement on
Speaker 1: We've seen it multiple times over the last eighteen months.
Speaker 1: Phase two. We're told Tom, those talks are going to
Speaker 1: begin almost immediately. How difficult is it going to be
Speaker 1: to come to any agreement? And with that in mind,
Speaker 1: to what degree is to a large risk that this
Speaker 1: just blows up all over again. So I completely agree
Speaker 1: with you, Jonathan, that Phase two where all the difficult
Speaker 1: negotiations take place. That's where the U S and China
Speaker 1: have to talk about market access, intellectual property protection, China's
Speaker 1: program of industrial subsidies, what to do about U S
Speaker 1: sanctions on firms like Huawei and the Chinese surveillance firms
Speaker 1: which the US is accused of being involved in human
Speaker 1: rights violations. So all kinds of really thorny difficult issues there.
Speaker 1: At the same time, I don't think that the US
Speaker 1: and China actually have to solve those issues to put
Speaker 1: a bit of a flaw under global confidence and global growth.
Speaker 1: I think the optimistic case right now is we get
Speaker 1: the mini deal done more agricultural imports, we hold off
Speaker 1: on the tariffs coming in October and December, and we
Speaker 1: agree to have constructive talks on those big difficult questions
Speaker 1: will we solve those big difficult questions or not? In
Speaker 1: a sense, it doesn't really matter. All that matters is
Speaker 1: that the markets have a sense that tariffs aren't going
Speaker 1: to go up and the talks are going to continue.
Speaker 1: Tom Allo, great to catch up with you, as always,
Speaker 1: Tom Olick there joining uh leading guy can almost coverage
Speaker 1: here at Bloombeck. Let's bring it Andrew Holland hold, shall
Speaker 1: we city chief US economist, teacher and just now good
Speaker 1: morning to Andrew. Good morning, let's talk about the deal
Speaker 1: that wasn't a deal in the prospect for a deal
Speaker 1: ahead of a November signing ceremony you'll view this morning. Yes,
Speaker 1: I think I have to agree with a lot of
Speaker 1: what Tom was saying. It's not really surprising to see
Speaker 1: that China and the US are going to be speaking
Speaker 1: more about these issues, and that December teriff hike in
Speaker 1: particular is really the important one. That's where all the
Speaker 1: direct consumer goods are going to come in. And you
Speaker 1: would expect that part of even this phase one of
Speaker 1: the deal would be some agreement or at least some
Speaker 1: understanding about what's going to happen in December. So I
Speaker 1: can't be too surprised James Affy at Aberdeen Standard had
Speaker 1: this to say, we are in the last knockings of
Speaker 1: this cycle. Trade is an irritant, not the disease. Would
Speaker 1: you agree. I think that that's a very insightful comment
Speaker 1: in the sense that a lot of the slowing that
Speaker 1: we're seeing in the global economy, I don't think you
Speaker 1: can tie directly to trade. So it's true that trade
Speaker 1: is a negative and the uncertainty around trade is a negative,
Speaker 1: and that's weighing on the outlook. But if you look
Speaker 1: at the slowdown in Chinese manufacturing, for instance, that began
Speaker 1: well before we had the escalation of trade tensions. On
Speaker 1: the flip side, if there is some sort of trade
Speaker 1: deal as per what has been discussed, how much will
Speaker 1: I give a boost to the U. S. Economy. I
Speaker 1: think the direct boost is actually limited. We're more looking
Speaker 1: at this in the context of an outlook that's fairly
Speaker 1: solid for the U. S economy, even with this trade uncertainty,
Speaker 1: with then a big downside risk that we get a
Speaker 1: big pullback and investment from corporates. We haven't really seen
Speaker 1: that pullback yet, and we would hope that even in
Speaker 1: the kind of scenario where we kind of plot along
Speaker 1: and you don't get a final deal on these issues,
Speaker 1: maybe investment can at least be kind of flat, if
Speaker 1: not increasing. If you do get a deal, that's upside
Speaker 1: risk for investment. But again, since we haven't seen a
Speaker 1: big pullback that's directly related to trade, you're not going
Speaker 1: to get a big boost just because you make a deal.
Speaker 1: And I'm really interesting and you just to get the
Speaker 1: view of an economist on this trade deal if you
Speaker 1: want to call it that, and what it would mean
Speaker 1: for the economy. It is incredibly nuanced. But when you
Speaker 1: look at the market, market pricing was pretty decisive when
Speaker 1: it came to what the Fed shouldn't, shouldn't do or
Speaker 1: will it won't do at the end of this month.
Speaker 1: Why do you think this is shaping FED expectations to
Speaker 1: the degree that it is when you don't have any
Speaker 1: real convection on what it does mean for the broader economy.
Speaker 1: I think it's not surprising to see markets reacting with
Speaker 1: a lot of sensitivity to these issues. UM. On the
Speaker 1: other hand, in terms of what the Fed is actually
Speaker 1: going to do, UM, I think that the FED is
Speaker 1: taking a longer view here, and even if we have
Speaker 1: some phase one. If we have some agricultural purchases, what
Speaker 1: the FED is going to be looking for is have
Speaker 1: you resolved some of these fundamental uncertainties. Um. So, in
Speaker 1: terms of what the market is looking for, the market
Speaker 1: I think is looking for do we get at least
Speaker 1: some kind of true, some kind of the ton so
Speaker 1: that we can kind of take these off of center
Speaker 1: stage for the time being, and that would be positive
Speaker 1: for risk assets. Maybe you price a little bit less
Speaker 1: for the FED. But fundamentally I think the FED is
Speaker 1: going to be largely unchanged despite these development went through
Speaker 1: a couple of weeks away from that FET decision. Then
Speaker 1: you think no change at the end of this month,
Speaker 1: we we think they cut. Now at the end of
Speaker 1: this month, we changed that view um after we saw
Speaker 1: those negative readings in the I s M surveys. Is
Speaker 1: really a pretty pretty negative UM reading that we had
Speaker 1: for I s M manufacturing down at forty seven point eight,
Speaker 1: and we thought that would be enough to just push
Speaker 1: the committee to cut in October UM and then probably
Speaker 1: not cutting further. And so then you have to ask
Speaker 1: this this trade issue change that in any way? Does
Speaker 1: the positive developments around trade change that? And again I
Speaker 1: think the FED is going to be watching the data here.
Speaker 1: Data have been a little bit more negative. That's why
Speaker 1: they'll be cutting in October. And I don't think that
Speaker 1: the trade developments change that. Andrew holding hollis quite to
Speaker 1: catch up with you as AY Cities chief US colomist,
Speaker 1: jointing US here in New York City alongside in this
Speaker 1: morning Bloomberg's Lisa Branmit's and Lisa. We've been talking about
Speaker 1: it through the morning. A lot of happy talk through
Speaker 1: much of last week. This morning, just a little bit
Speaker 1: more skepticism around two key stories, not just trade but
Speaker 1: Brexit too. Again, I am surprised at the incredible optimism
Speaker 1: and today the pessimism, even though it's clear it's not
Speaker 1: going to be so easy to get a China deal
Speaker 1: and it's not going to be so easy to get
Speaker 1: a Brexit deal. I think you are seeing some muted
Speaker 1: responses on both sides at this point, people looking at
Speaker 1: the talk and saying, honestly, the longer this drags out,
Speaker 1: the more the effects are going to happen, regardless of
Speaker 1: what agreements people come to move to. Price Action two
Speaker 1: equity futures are lower this morning, but not by a
Speaker 1: whole lot were down by six points on the SMP
Speaker 1: five down some two sense of one percent in foreign exchangely,
Speaker 1: so it's really really interesting what's going to happen here.
Speaker 1: Very little detail around what this effects packed actually is.
Speaker 1: Is it just words? Does it actually mean? And I
Speaker 1: think is there any kind of enforcement mechanism? Does it
Speaker 1: have any material meaning for foreign exchange markets? A lot
Speaker 1: of people think that a little bit on the edges,
Speaker 1: it puts the pressure and keeping a lid on where
Speaker 1: the U N goes, But there is no enforcement mechanism.
Speaker 1: From what people are saying, this is similar to what
Speaker 1: there was back in February. There was a similar type
Speaker 1: of agreement. It's more something for the U S treasure
Speaker 1: to hang its hat on and for China to kind
Speaker 1: of point to as a win for the US, saying, look,
Speaker 1: we're throwing you a bone and not trying to compete
Speaker 1: with our currency. We've got a perfect guest to weigh
Speaker 1: in on all of that. Jeremy Stretch joins a c
Speaker 1: i PC Head of Detail Effect Strategy. Jeremy would love
Speaker 1: your take on that situation. Some kind of currency agreement
Speaker 1: between the Chinese and the United States. Very little clarity,
Speaker 1: any detail around what that currency packed actually is. What
Speaker 1: does it mean to you Jeremy Good and Jonathan Well.
Speaker 1: I think in a sense, as ever, it is all
Speaker 1: about the details, or the lack of thereof. So in
Speaker 1: a sense, it's an opportunity for both sciences to suggest
Speaker 1: that they're not going to be sanctioning or tolerating a
Speaker 1: significant degree of deviation. But I don't think it signals
Speaker 1: in itself any obvious sort of step change in terms
Speaker 1: of the underlying dynamics. And I think we'll we've seen
Speaker 1: over the course of the last few months is that
Speaker 1: as we've seen the gradually imposition of tariffs, than accordingly
Speaker 1: we've been seeing the CNH depreciate and weaken as the
Speaker 1: Chinese economy is also moderated. So if there is a
Speaker 1: degree of a degree of agreement going forward, and we
Speaker 1: don't see an escalation in tensions, then that might provide
Speaker 1: some stability and ultimately a degree of a reversal in
Speaker 1: the CNH. But I think it is very much a
Speaker 1: case of watching and waiting to see how the political
Speaker 1: factors play out over the course of the next few days, weeks,
Speaker 1: and months. Although even without this sort of f x agreement.
Speaker 1: Isn't there a pressure on China and the PBOC to
Speaker 1: try to reign in how much and how frankly quick
Speaker 1: we the u N it is depreciating just in terms
Speaker 1: of capital outflows and just investments in the in the country. Well,
Speaker 1: I think when we've seen previous episodes of weakness in
Speaker 1: the currency, we have seen a particular concern about the
Speaker 1: degree of capital flight. But the evidence this time doesn't
Speaker 1: look quite as pervasive in terms of the degree of
Speaker 1: capital capital outflows. So I think that does suggest that
Speaker 1: the authorities can be and will be a little more relaxed.
Speaker 1: And in a sense that I say, I think there
Speaker 1: has been a degree of rationality in terms of the
Speaker 1: way that Dollar City in H has traded, because of
Speaker 1: course the dollar has been generally broadly strong across the
Speaker 1: across the board, and so accordingly, uh Dollar City in
Speaker 1: H moving up has been uh, you know, a sort
Speaker 1: of a realistic and rational market market reaction. If we
Speaker 1: can see some stability on the data front, then I
Speaker 1: think we will see a sort of topping out in
Speaker 1: dollar ce in H and we won't see any particular
Speaker 1: concern about capital leakage and capital flight. Further, down the
Speaker 1: track generally, just in terms of the policy outlook from
Speaker 1: here on out October, it's horriffs are now off the table.
Speaker 1: December terifikes are still on the table, though, I think
Speaker 1: most people concluding it's unrealistic to expect these two leaders
Speaker 1: to meet in Chula next month and sign a deal
Speaker 1: with the December tariff hikes hanging over us. Do you
Speaker 1: just see it as inevitable that those December teriffis are
Speaker 1: taken off the table as well? Well, you can never
Speaker 1: see anything as inevitable in this particular process, because of
Speaker 1: course we've been doing and throwing over the course of
Speaker 1: the last four or five months, in particular as the
Speaker 1: as the news flowers are oscillated. But I think it
Speaker 1: is realistic to assume that if there is going to
Speaker 1: be any progress, then it's more likely than not that
Speaker 1: the additional round of tariffs will also be postponed or
Speaker 1: pushed into the middle distance. But I think in reality,
Speaker 1: probably what we are going to have to get used
Speaker 1: to is that whatever the final destination is of these
Speaker 1: trade discussions, we are likely to have a greater degree
Speaker 1: of trade frictional tariff barrier than we would have had
Speaker 1: prior to the start of the process, and so it
Speaker 1: will inevitably end up with a restriction on trade. But
Speaker 1: I don't think we're going to see the sort of
Speaker 1: the extension of the tariffs thresholds because of course that
Speaker 1: would have some particular concerns for the consumer sector in
Speaker 1: the U s is it would be rather more difficult
Speaker 1: to argue that the Chinese producer is paying the tariffs
Speaker 1: once they are extended towards consumer orientated goods. Jeremy, you're
Speaker 1: in London, so we'd be amiss if we didn't hit
Speaker 1: on Brexit. And I'm sure you are so excited to
Speaker 1: talk yet again about Brexit, but I really do want
Speaker 1: to get a sense of just how volatile the pound
Speaker 1: has been and how much it's trading like an emerging currency.
Speaker 1: I mean, at this point, how can how much conviction
Speaker 1: do you have in your recommendations when it comes to Sterling. Um, well,
Speaker 1: if if it had been television, they would have been
Speaker 1: in sing me sort of having a rice smile as
Speaker 1: you talked about the policy list in Sterling. Because of course,
Speaker 1: when we when we look at the performance and reaction
Speaker 1: that we saw in the last two sessions of last week,
Speaker 1: which was the best two sessions that we've seen in
Speaker 1: ten years, and then you know we've almost we're getting
Speaker 1: towards reversing half of that move from Friday just underlines
Speaker 1: the degree of volatility and as you say, if you
Speaker 1: didn't know what currency pay you were looking at, you
Speaker 1: could have been persuaded to suggest it could have been
Speaker 1: some want of a more emerging nature. But it does
Speaker 1: underline the the sort of the high frequency political risk
Speaker 1: that we're really dealing with now, and of course as
Speaker 1: the negotiations go down to the wire for the for
Speaker 1: the Brexit process, I think it is going to be
Speaker 1: a period where we are going to be very very
Speaker 1: susceptible still to these headline risks. Um I think the market,
Speaker 1: which had been largely assuming that the extension was almost inevitable,
Speaker 1: got excited about the prospect of an earlier deal late
Speaker 1: last week. But I think now we're having a dose
Speaker 1: of reality kicking in and on one suspect that it
Speaker 1: will be very much a sort of an oscillating market
Speaker 1: until we get beyond the weekend, when of course we
Speaker 1: have further first parliamentary sitting here in the UK. In
Speaker 1: one thing, we struggle with a lot jare. I mean,
Speaker 1: I'm sure you've struggled with it too. Market participants have
Speaker 1: to be political analysts constantly. We have to read the
Speaker 1: political tea leaves of the political tea leaves in the
Speaker 1: United Kingdom right now, Just what are you focused on
Speaker 1: this week ahead of that EU summit. We're absolutely right
Speaker 1: other needs to be a political analyst. It's it's far
Speaker 1: more so in Sterling terms than you would be necessarily
Speaker 1: a macro analyst, because of course the macro pitch has
Speaker 1: been totally blindsided. Um. I think in a sense for
Speaker 1: the course of the next two days we'll be watching
Speaker 1: I'm waiting to see the news flow or the leaks
Speaker 1: coming out of Brussels visa VI, the negotiations with the EU.
Speaker 1: But I think also one shouldn't lose scited the fact
Speaker 1: that if there were to be a deal agreed, it
Speaker 1: has to be ratified by the UK Parliament, and in
Speaker 1: that regard, I think the key constituents will be the
Speaker 1: Democratic Union, this party, the small Northern Irish party that
Speaker 1: had been and have been supporting the Conservatives in their
Speaker 1: minority government over the course of the last few months,
Speaker 1: and also the tone and appetite for supporting the government
Speaker 1: from the European Research Group the Conservative Euroskeptics. Those are
Speaker 1: two groups are absolutely pivotal to any success in a
Speaker 1: Brexit vote, should a deal be brought back to Parliament
Speaker 1: before the end of the week. Jemmy Stretch always great
Speaker 1: a cat show. Whether you see I p C header
Speaker 1: detain ethicslogy, joining us out of London on the latest
Speaker 1: on the trade deal, the potential for an effexx pack,
Speaker 1: what it looks like and what on earth is going
Speaker 1: on with Brexit. Earning season is almost upon us and
Speaker 1: that means we need to catch up with Betsy Grace
Speaker 1: Sick Morgan, Stanley's head of Banks and Diverse Fied Finance Research.
Speaker 1: Good morning to Betsy. Hey, thanks so much. Good morning.
Speaker 1: Let's talk about these bank numbers you're looking for. Top
Speaker 1: of mind, according to you guys, rate sensitivity. How important
Speaker 1: is that for some of these companies critical look, I
Speaker 1: mean rates is about half of the revenue stream. So
Speaker 1: you have to think about not only where you are
Speaker 1: in three Q, but what the outlook is into How
Speaker 1: do you generate any kind of outlook at the moment, Betsy,
Speaker 1: given how rates of whip sword through the last couple
Speaker 1: of quarters. Yeah, it's fair question. Look, you know, we
Speaker 1: do keep our models live, so as the four words
Speaker 1: are moving up and down, we are flexing our amits
Speaker 1: for that. And and sometimes I get some questions, especially
Speaker 1: from UH investors, some smaller investors, saying, hey, you know,
Speaker 1: you're moving your numbers around a lot, and I'm like, hey,
Speaker 1: it's a reflection of what's going on in the bond market,
Speaker 1: so I gotta keep them live, you know, John, I
Speaker 1: love how excited Betsy is. And she came in. She's
Speaker 1: fired up. She said, she loves best too. I feel
Speaker 1: like we have to just take a moment to appreciate that.
Speaker 1: She was saying, this is what she lives for, is
Speaker 1: the earning season when you actually get a read on
Speaker 1: the banks. What are you expecting when it comes to
Speaker 1: loans and sort of how much that's expanding given the
Speaker 1: low rates. Look, it's so interesting because we have a
Speaker 1: very unusual economic situation right now today where loans are
Speaker 1: actually growing pretty strongly. I mean, you know, we all
Speaker 1: see the h A data five between somewhere between four
Speaker 1: and seven percent, depending on the week. If you're a
Speaker 1: big bank, small bank. What kind of asked the class
Speaker 1: you are. And one of the surprises this quarter relative
Speaker 1: to our models. Two things. One commercial is actually a
Speaker 1: little bit better than we've been looking for. And consumer,
Speaker 1: especially in auto, is a lot better, you mean in
Speaker 1: terms of the loan performance, in terms of loan growth,
Speaker 1: in terms of loan growth. Um. One thing that I'm
Speaker 1: wondering is how much pressure there is from the Blackstones
Speaker 1: of the world and the Carlisles of the world that
Speaker 1: are raising record amounts of money in cash. How much
Speaker 1: are they taking business away from the banks? You know,
Speaker 1: there's obviously some it's it's you know, we have this
Speaker 1: debate internally, as it's structural, as it's like local you know,
Speaker 1: it's a little bit of both, right, Um. And what
Speaker 1: we've seen is that there is about one percentage point
Speaker 1: or so of commercial loan growth. Uh. That looks like
Speaker 1: it's gone to the shadow in each of the past
Speaker 1: you know, over the past ten years, Right, in each
Speaker 1: of the past ten years, ten percentage points over that time. Yeah. Yeah,
Speaker 1: But see, let's move on to mortgages. I hear everybody
Speaker 1: talking about mortgage business, hardly anybody talking about expenses. You want,
Speaker 1: how critical is that to look at both sides of
Speaker 1: this store. Absolutely. You know, when we look at what
Speaker 1: drives alpha and bank stocks, it's operating leverage. So you
Speaker 1: can't just look at revs. You can't just look at expenses.
Speaker 1: You gotta look at both. And you know, we know
Speaker 1: that revenues on the mortgage side are going to be
Speaker 1: a little bit better than expected because of the refi
Speaker 1: activity that's been so strong. But you know, a big
Speaker 1: piece of that is paid out to brokers, so you
Speaker 1: have to add that into your EPs. Which bank do
Speaker 1: you which bank do you think is gonna outperform the
Speaker 1: most in terms of the estimates are in terms of
Speaker 1: the stock price estimates? Okay, um, where we are above
Speaker 1: the street. The most is for names like Discover. Why
Speaker 1: is that? That's mainly because of consumer credit and frankly,
Speaker 1: Discover actually put on Friday their master trust out after
Speaker 1: the close and net charge offs came in, you know,
Speaker 1: a little bit better than seasonality. So that's the main reason.
Speaker 1: But I know you've got to run. It's been great
Speaker 1: to catch up with you. Good luck for the rest
Speaker 1: of the week. All right, thank you. They're gonna be
Speaker 1: exception me busy. Betsy Grisi, Morgan Stanley, head of Banks
Speaker 1: and diversified finance research. My question is whether anyone trades
Speaker 1: on the trade headlines anymore, considering the fact that the
Speaker 1: action is fleeting and rather unreliable. David Sowerby would love
Speaker 1: to weigh in on that. I hope he is Anchor
Speaker 1: Advisors as managing director and portfolio manager joining us on
Speaker 1: the phone. So, David, what is your sense? I mean,
Speaker 1: how how much have you actually traded ever on some
Speaker 1: of the headlines we've gotten on trade? One word never?
Speaker 1: All right, then good good luck predicting politics, particularly politics
Speaker 1: in the last year and a half of this again
Speaker 1: off again trade issue, not just with China, but global
Speaker 1: economies in particular. And I think one number really drives
Speaker 1: at home. I can I can trace the trade issue
Speaker 1: back to about mid March or two thousand eighteen, and
Speaker 1: if I take it all the way to the present
Speaker 1: and I look at the Median company, the Median company
Speaker 1: in the SMP which encompanies encompasses large cap, MidCap small
Speaker 1: cap stocks, that Median company is flat. We've had Median
Speaker 1: zero returns and large mid and small stocks since March
Speaker 1: two thousand eighteen. The Camp weighted indexes are a little better.
Speaker 1: But when you look at the breath of the market
Speaker 1: since March and two thousand eighteen, it's been zero, when
Speaker 1: at the same time, the tenure U S. Treasury is
Speaker 1: compounded at better than eight and a half percent. Yeah, so, David,
Speaker 1: that maybe reflects the fact that Corporate America, you know,
Speaker 1: is just not sure what the future holds in the
Speaker 1: near term, given the uncertainty surrounding trade. Um So, as
Speaker 1: we head into this earning season beginning in earnest tomorrow,
Speaker 1: you expect to hear more from Corporate America about, Hey,
Speaker 1: we're just kind of playing it close to the vest.
Speaker 1: We're keeping our spending a little bit tempered. We're maybe
Speaker 1: not opening a new plant or ramping up r and
Speaker 1: d do you expect to hear some of that out
Speaker 1: of Corporate American on the margin compared to the second quarter, Paul, Yes,
Speaker 1: I do. And in the second quarter of this year,
Speaker 1: after all the companies had reported their earnings, and you
Speaker 1: listen to the conference calling through artificial intelligence, you're able
Speaker 1: to see how many were discussing trade and tariffs compared
Speaker 1: to the first quarter two thousand nineteen or even two
Speaker 1: thousand eighteen, and had gone up measurably. Last year that
Speaker 1: the focal point was tax cuts deregulation being positive to
Speaker 1: earnings in the economy. This year, it's the uncertainty of trade.
Speaker 1: And I think by a time we're done with third
Speaker 1: quarter reports that on the margin it's going to be
Speaker 1: higher CFO. CEOs don't like uncertainty. We know that for certain,
Speaker 1: and I think that's going to be telling point as
Speaker 1: we think about this earning season because it's so important
Speaker 1: because it sets the table for two thousand twenty. CEOs
Speaker 1: don't like uncertainty. That's one thing that's certain. Love it,
Speaker 1: love it alright. So neither neither do portfolio managers for
Speaker 1: that matter, No, and and and frankly, neither do radio
Speaker 1: hosts who have to talk about the same story on
Speaker 1: a different side every single day, flipping and flopping. And
Speaker 1: so there's a question of when you start paying attention
Speaker 1: and earnings definitely is something that you need to pay
Speaker 1: attention to. What earnings are you paying especially close attention
Speaker 1: to during this round? It's twofold, it's it's certainly it's
Speaker 1: going to be the cyclical companies and energy uh uh,
Speaker 1: the cyclical part of tex semiconductors. But but I would
Speaker 1: add in I'm going to spend a lot of time
Speaker 1: on all companies, but in particularly the consumer, because the
Speaker 1: consumer has been just the heavy lifter in in the
Speaker 1: in the last couple of quarters. So if you get
Speaker 1: a sense that the consumer is starting to get a
Speaker 1: little weathered over the tariffs and trade even starting to
Speaker 1: impact them versus last year's glow of the tax cuts,
Speaker 1: which I would contend we're very positive for the U. S. Consumer,
Speaker 1: then I start to worry. And one of the best
Speaker 1: things that two thousand twenty expectations have going for it
Speaker 1: is that it'll it'll have easier comparisons to this calendar
Speaker 1: year that we're in. And besides easier comparisons, it's harder
Speaker 1: to make a case for for what Wall Streets expecting today,
Speaker 1: and that's ten percent earnings growth in two thousand twenty,
Speaker 1: I think it's five or less. Frankly, yeah, David, that's
Speaker 1: kind of where I wanted to go about, you know,
Speaker 1: right now, as you suggested, the market's pretty optimistic as
Speaker 1: it relates to earnings, but that's tough to really support
Speaker 1: if you're in that camp that says, you know, what
Speaker 1: the economic environment where now it's a one and a
Speaker 1: half to two GDP growth kind of scenario, and that's
Speaker 1: really tough on that scenario to make a case for
Speaker 1: ten percent earnings growth. What is your view? I think this,
Speaker 1: as I said, closer to five percent or less next year.
Speaker 1: And when you talk about one and a half to
Speaker 1: two percent growth rates for the economy and then you
Speaker 1: connect the dot to corporate profits, we were getting there
Speaker 1: in two thousand eighteen. We were getting to three potential
Speaker 1: real growth for the economy, which nobody anticipated a couple
Speaker 1: of years ago. We were seeing double digit growth and
Speaker 1: corporate profits. A lot of that was the byproduct of
Speaker 1: the tax cuts and more sensibility. I would contend on regulation,
Speaker 1: and we've probably deluded half to two thirds of that
Speaker 1: with the indirect text from the tariffs, and that slowed
Speaker 1: down to speed limit to two percent real growth in
Speaker 1: the economy maybe less, and now corporate profits in the
Speaker 1: five to seven percent range. I want to shoot gears
Speaker 1: just a little bit. I know the ball markets are
Speaker 1: closed today for the Club's Day holiday, but I'm wondering
Speaker 1: what you make of the pretty large sell off that
Speaker 1: we saw last week. It's still it's still the teriff
Speaker 1: issue global growth. If I had to watch one business
Speaker 1: number every month. I'm I'm a devout student of the
Speaker 1: purchasing manager's index that has decelerated, particularly for exports new
Speaker 1: orders as well. I think the market has has becomes
Speaker 1: quite skin show over that last week we saw that
Speaker 1: sentiment for bearers. Sentiment on the weekly numbers got to
Speaker 1: that's meaningfully above the long term average. From a contrarian perspective,
Speaker 1: I get more excited when that bearer sentiment starts to
Speaker 1: push on bears than I think market weakness has been
Speaker 1: washed out. It's a good time to be a buyer,
Speaker 1: but we're not quite there yet. David Sowerby, thank you
Speaker 1: so much for being with us anchoring Anchor Advisors, managing
Speaker 1: director and portfolio manager talking all things trade and thanks
Speaker 1: possibly see value there. Thanks. We're listening to the Bloomberg
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Speaker 1: Tom Keane Before the podcast. You can always catch us worldwide.
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