WEBVTT - Surveillance: Bond Guys Tend To Have It Right, Bailin Says 0:00:00.080 --> 0:00:12.960 Ye. Welcome to the Bloomberg Surveillance Podcast. I'm term Keene 0:00:13.480 --> 0:00:17.560 jay Leye. 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 --> 0:00:32.839 Bloomberg dot Com, and of course, on the Bloomberg. So 0:00:32.960 --> 0:00:36.080 the trade story once again front and center, the clock ticking, 0:00:36.120 --> 0:00:39.519 but President Donald Trump said he won't meet Chinese President 0:00:39.600 --> 0:00:44.440 Jejing thing before a March first deadline to avert high 0:00:44.520 --> 0:00:48.519 US tariffs on Chinese goods, injecting some pessimism into the market. 0:00:48.520 --> 0:00:51.360 Global equities well on course for the first weekly drop 0:00:51.680 --> 0:00:54.560 for this year. David Balin dropping by City Private Bank 0:00:54.680 --> 0:00:57.280 chief investment officer here in New York. Good money to David, 0:00:57.360 --> 0:01:00.040 Good morning to you. Your confidence not shaken, But the 0:01:00.080 --> 0:01:02.280 last twenty four hours why not not? Really? I think 0:01:02.280 --> 0:01:07.679 that the expectations that people had are are are probably muted. 0:01:08.160 --> 0:01:09.679 I think that the best thing that could happen in 0:01:09.720 --> 0:01:12.839 March is that the there's an agreement to continue to talk, 0:01:12.920 --> 0:01:15.200 maybe an agreement on a couple of major points in 0:01:15.240 --> 0:01:17.480 an agreement to continue to talk. The fact that Trump 0:01:17.520 --> 0:01:20.479 is not traveling is actually a head fake takes weeks 0:01:20.480 --> 0:01:22.920 to prepare for a president to travel abroad, and the 0:01:22.920 --> 0:01:24.840 whole idea that was going to travel before March first 0:01:24.880 --> 0:01:28.280 seems like a kind of a misnomer to me. Sounds clichey, 0:01:28.319 --> 0:01:30.200 but it feels like an excuse to sell, not a reason, 0:01:30.560 --> 0:01:32.280 and perhaps tells me a little bit more about the 0:01:32.360 --> 0:01:36.080 low levels of conviction people have about this reabout in January, David, well, 0:01:36.200 --> 0:01:38.880 you know, if I look at the headlines in last December, 0:01:38.920 --> 0:01:41.280 it was the worst December in thirty years. Right in 0:01:41.360 --> 0:01:44.080 January the best January and thirty years. I think we're 0:01:44.120 --> 0:01:46.479 in a situation where people got well ahead of their 0:01:46.520 --> 0:01:51.040 negativity in in in December, and they're probably very optimistic 0:01:51.040 --> 0:01:52.680 in catching back up in January. We're going to a 0:01:52.680 --> 0:01:56.360 more more normal, normal market environment. We're gonna see more volatility, 0:01:56.400 --> 0:01:58.120 and we're going to see markets tend to trend up 0:01:58.120 --> 0:02:00.320 for the remainder of the year. Frankly, though, amongst people 0:02:00.320 --> 0:02:03.960 would say it's right to price out recession risk after 0:02:04.120 --> 0:02:08.239 overly pricing it in through December, the argument now, I think, 0:02:08.320 --> 0:02:10.560 is whether we should have any kind of multiple expansion 0:02:10.680 --> 0:02:13.760 on a year where earnings are being revised lower they're 0:02:13.760 --> 0:02:17.880 not being revised higher, and uncertainty is increasing worldwide, and 0:02:17.880 --> 0:02:20.160 there's a real question markets to whether that feeds back 0:02:20.200 --> 0:02:23.200 in the United States into what degree. Right, Let's let's 0:02:23.200 --> 0:02:25.760 assume that you're right and that there is no multiple expansion. 0:02:25.800 --> 0:02:28.560 We actually think that the US market in general, it's 0:02:28.560 --> 0:02:31.280 going to be up in terms of earning seven. We've 0:02:31.280 --> 0:02:33.280 taken a look at our growth statistics. Let's you know, 0:02:33.320 --> 0:02:35.000 we think the US is a two and a half 0:02:35.000 --> 0:02:37.560 percent grower, Emerging markets four and a half percent grower. 0:02:37.840 --> 0:02:40.600 China is stimulating their economy at six percent grower, So 0:02:40.639 --> 0:02:43.160 we don't see the recession that everyone is sort of 0:02:43.200 --> 0:02:45.640 talking about as in two thousand nineteen, and maybe not 0:02:45.720 --> 0:02:49.760 even in early two thousand and twenty. That's the blue 0:02:49.840 --> 0:02:52.200 button right there. What's that means? That's the first time 0:02:52.240 --> 0:02:54.720 I've been in the studios I see the blue button 0:02:54.800 --> 0:02:56.919 is a Tottenham blue. As they take on lest is 0:02:56.960 --> 0:02:59.600 it Lester or Luster? It's Lester. I was stopped by 0:02:59.680 --> 0:03:04.920 John from your Castle, who said, talk up Lester Castle. 0:03:05.080 --> 0:03:08.720 I have no I think is Dodger blue. That's Dodger blue. 0:03:08.760 --> 0:03:10.720 It does look Dodger blue. Friends, and Lue needs a 0:03:10.760 --> 0:03:14.000 baseball cap. Maybe we'll do that is sound confused, now, 0:03:14.320 --> 0:03:19.720 so am I? You talk about granular fundamentals. Okay, granular fundamentals, David, 0:03:20.600 --> 0:03:23.919 Do they come from the revenue line surprises the gloom crew, 0:03:24.200 --> 0:03:27.560 The operating income line surprises the bloom crew. How do 0:03:27.600 --> 0:03:30.360 you get multiple expansion? I'm not suggesting that we're going 0:03:30.400 --> 0:03:32.960 to see a significant amount of multiple expansion. You're dealing 0:03:33.360 --> 0:03:36.080 in what I think is pessimism, which is when will 0:03:36.120 --> 0:03:39.040 the recession occur? And yet the data doesn't suggest that 0:03:39.560 --> 0:03:42.320 there should. Clare agrees with you, right and so so 0:03:42.360 --> 0:03:44.640 the so the question then is what should stocks do 0:03:44.680 --> 0:03:47.400 if multiples don't expand? And the answer is they should 0:03:47.440 --> 0:03:50.480 go up somewhere between eight and ten percent from where 0:03:50.520 --> 0:03:52.120 they were let's say at the beginning of the year. 0:03:52.160 --> 0:03:54.520 For sure, given where we started. But when you look 0:03:54.560 --> 0:03:57.120 at global equities, travel outside of the United States, Tom, 0:03:57.360 --> 0:03:59.360 and you're gonna see in the emerging markets, you know, 0:03:59.640 --> 0:04:01.880 a much or robust environment right now for the much 0:04:01.920 --> 0:04:04.840 more constructive given that rates in the United States have peaked, 0:04:05.360 --> 0:04:07.200 this is a time when you can actually see you know, 0:04:07.280 --> 0:04:10.280 growth in those markets come through. And John also lingoes 0:04:10.320 --> 0:04:13.320 earlier this morning with the RBC was adamant about this 0:04:13.560 --> 0:04:17.279 are the title shifts of em where you're gonna see 0:04:17.279 --> 0:04:21.560 real currency dynamics that will support a more stable a 0:04:21.600 --> 0:04:24.880 global economy. Let's fold the bond market into all of this. 0:04:24.960 --> 0:04:26.640 And there's two ways of looking at the bond market 0:04:26.760 --> 0:04:28.719 right now. The bullish way of looking at things for 0:04:28.720 --> 0:04:31.039 equities to say, well, yield to low with that supportive 0:04:31.040 --> 0:04:33.400 of equities. The negative way of looking at all of 0:04:33.440 --> 0:04:35.960 this is saying, one on Earth, the Bundy yields doing 0:04:36.000 --> 0:04:38.160 back at ten basis points on a German ten year 0:04:38.440 --> 0:04:40.320 the curves negative all the way out, and then year 0:04:40.520 --> 0:04:43.880 nine years the tenure treasury yield is now to sixty four. 0:04:44.440 --> 0:04:48.719 That doesn't spell out a nice, good, beautiful global growth story. 0:04:48.800 --> 0:04:51.400 How do you look at it right? It actually, Uh, 0:04:52.080 --> 0:04:54.279 I've learned over the last ten years, certainly a city 0:04:54.279 --> 0:04:57.000 that the bond guys tend to have it right more often. 0:04:58.080 --> 0:04:59.720 And I want to just acknowledge that to all of 0:04:59.760 --> 0:05:02.120 the people out there listening. This is a big statement. 0:05:02.720 --> 0:05:08.680 They're very happy this morning because they're faster now. But 0:05:08.680 --> 0:05:12.000 but this is the thing. It's uh, it's hard to imagine, 0:05:12.000 --> 0:05:13.479 but if you if you look back at what the 0:05:13.480 --> 0:05:15.560 Fed has done. They've had nine rate increases, but they've 0:05:15.560 --> 0:05:18.120 done it over a very long period of time. Yelling 0:05:18.160 --> 0:05:20.960 and Powell looking very similar in terms of their approach. There. 0:05:21.360 --> 0:05:24.159 Inflation not a big deal. Unemployment you know at four percent, 0:05:24.520 --> 0:05:27.360 these are these are positive things in terms of sustaining 0:05:27.640 --> 0:05:30.880 an economy that's growing slowly. What you just said is 0:05:31.120 --> 0:05:36.200 vitally important for all equity people always listen to the 0:05:36.240 --> 0:05:40.120 bond guys, So I'll pick on Steve Major HSBC, who 0:05:40.120 --> 0:05:42.920 looks like a genius this morning with a thirty year bond. 0:05:43.440 --> 0:05:47.279 John two point nine eight seven three on a thirty 0:05:47.360 --> 0:05:51.279 year bond. What do those yields signal in the bond 0:05:51.360 --> 0:05:55.719 space for the equity space, Well, what they're signaling is 0:05:56.080 --> 0:06:00.520 a very long term outlook of benign inflation in greater 0:06:00.800 --> 0:06:05.080 vailue on equity cash flows, righty, cash flows on dividends, 0:06:05.160 --> 0:06:07.679 on buy backs. If you think about where your total 0:06:07.720 --> 0:06:09.440 return is going to be greatest over the course of 0:06:09.480 --> 0:06:11.840 the next decade, you can't help but think that this 0:06:11.880 --> 0:06:14.240 is going to be bullish frequities. I think he's auditioning 0:06:14.279 --> 0:06:15.920 for the real yield job. I mean, I think you 0:06:15.920 --> 0:06:18.800 can come on that guy on the Real Yield, which 0:06:18.800 --> 0:06:24.640 you can see on Fridays. It would be a short 0:06:24.800 --> 0:06:28.760 will give you ninety seconds. Seriously, the real Yield today, 0:06:28.760 --> 0:06:31.680 he's like a real show because these are real bud yeles. Yeah, 0:06:31.720 --> 0:06:33.600 and not just in the sovereign space, but the credit 0:06:33.680 --> 0:06:36.360 space as well. We've just had the biggest net increased, 0:06:36.360 --> 0:06:41.359 biggest inflows into high yield bond funds since huge amount 0:06:41.400 --> 0:06:43.880 of money feeling against It's not just equities running away 0:06:43.880 --> 0:06:45.680 on their own. I mean, we've had a big move, 0:06:45.960 --> 0:06:48.600 a corresponding move in the credit spaces. While David right, 0:06:48.640 --> 0:06:51.440 and I mean we are advising our clients now opportunistic 0:06:51.520 --> 0:06:55.039 their core portfolios. We've moved them already into like EM 0:06:55.080 --> 0:06:57.560 dead in some of the high yield spaces, but opportunistically 0:06:57.600 --> 0:06:59.480 we think that EM dead in local currency is going 0:06:59.520 --> 0:07:03.520 to turn out be a terrific opportunity because again benign 0:07:03.520 --> 0:07:06.240 outlook for the dollar, and ultimately you're going to see uh, 0:07:06.360 --> 0:07:08.600 you know, emerging market currencies rally. So it's a good 0:07:08.600 --> 0:07:10.640 combination for bond invests. Assuming the FED is out of 0:07:10.680 --> 0:07:12.720 the game, is that the central assumption here that the 0:07:12.720 --> 0:07:17.560 Federals has done that well, not necessarily done, but very 0:07:17.640 --> 0:07:20.480 nearly done. Like another rate rise. One more type of 0:07:20.520 --> 0:07:23.040 thing could happen, depending on whether there's an optimistic burst 0:07:23.040 --> 0:07:26.600 in the US, but largely done. That's right, Devin Bannon writes, 0:07:26.600 --> 0:07:28.840 to catch you out with the City Private Bank chief 0:07:28.880 --> 0:07:45.880 investment officer here in New York City right now, Gregg 0:07:45.920 --> 0:07:49.440 failure joining us. He is with the Horizon Investments. And 0:07:49.480 --> 0:07:52.080 of course let's go to the political score. Woodrow Wilson 0:07:52.200 --> 0:07:56.120 forty or four thirty five electoral votes. Mr Roosevelt from 0:07:56.120 --> 0:08:00.840 New York eighty eight electoral votes, William Howard Taff eight 0:08:00.960 --> 0:08:06.080 electoral votes, and Eugene Debs Socialist, zero electoral votes. And 0:08:06.120 --> 0:08:09.240 this is of course the election of n when yug 0:08:09.320 --> 0:08:14.240 Villier began his work UH in political economics. Greg, it's 0:08:14.280 --> 0:08:17.280 all the rage. I'm talking about it. Mike Allen, are 0:08:17.400 --> 0:08:19.920 over to Axios leading with the Greg ipp in the 0:08:19.920 --> 0:08:24.280 Wall Street Journal. It's a new socialism described for our audience, 0:08:24.600 --> 0:08:31.200 the new socialism of the Democratic Socialists of the Democratic Party. Well, 0:08:31.200 --> 0:08:35.600 it's very big government. On the proposal unveiled yesterday by 0:08:35.679 --> 0:08:39.760 the left, UH talks about an enormous role for government. 0:08:39.840 --> 0:08:43.000 How you pay for this stuff as a mystery to me, 0:08:43.440 --> 0:08:47.120 even with confiscatory taxation, I don't see how they can 0:08:47.400 --> 0:08:49.560 pay for all this stuff. So to me, it gives 0:08:49.559 --> 0:08:53.960 the Republicans a potential foil. Reagan had to win. He 0:08:54.000 --> 0:08:56.920 went right and then, like clockwork, and you know it 0:08:57.040 --> 0:08:59.560 better than me, he moved back to the middle. In 0:08:59.600 --> 0:09:04.240 this polarized time, if it's Trump and somebody leftish, do 0:09:04.360 --> 0:09:06.360 they move back to the middle as they moved to 0:09:06.400 --> 0:09:09.559 November of two thousand and twenty. It's a great opportunity 0:09:09.559 --> 0:09:12.600 for Trump. I think getting two hundred and seventy votes 0:09:12.640 --> 0:09:15.320 is a little more difficult this time. But if he 0:09:15.360 --> 0:09:18.360 shows some willingness to compromise and we get a litmus 0:09:18.400 --> 0:09:21.800 test in the next week on the wall, if he says, well, 0:09:21.920 --> 0:09:24.160 I'll take whatever deal I can get. I'm not going 0:09:24.240 --> 0:09:26.600 to declare an emergency. I'm not going to shut down 0:09:26.600 --> 0:09:29.000 the government. That would be a sign that he may 0:09:29.040 --> 0:09:32.040 be turning a little more pragmatic. What does it mean 0:09:32.080 --> 0:09:35.720 for the pragmatic Vice President Biden? I mean, in terms 0:09:35.720 --> 0:09:39.040 of the decision tree of all this, we can assume 0:09:39.160 --> 0:09:43.040 that the gentleman is now Biden for Hick and Looper, 0:09:43.080 --> 0:09:46.680 the former governor of Colorado. Maybe from Michael Bloomberg. There 0:09:46.720 --> 0:09:50.560 clearly is an avenue where I think a moderate Democrat 0:09:50.720 --> 0:09:53.400 could have a chance. Now we note that Mr Bloomberg 0:09:53.480 --> 0:09:56.360 is an audien acquaintance with Bloomberg Radio and Bloomberg Television 0:09:56.360 --> 0:09:59.560 and as the principal owner. If that's true, Greg Valier, 0:10:00.360 --> 0:10:03.760 If if if we have a middle ground of Democratic party, 0:10:03.840 --> 0:10:06.880 can there be a middle ground of Republican Party to 0:10:07.040 --> 0:10:11.760 take on Mr Trump? No? I don't see that. When 0:10:12.160 --> 0:10:15.120 when you look at the pulse time you see the 0:10:15.200 --> 0:10:20.640 Republican base is overwhelmingly supportive of Trump coming like Mitt Rodney, 0:10:20.880 --> 0:10:25.160 Jeff Flake, uh, Bob Corker, they'd have no chance. Okay, 0:10:25.559 --> 0:10:27.439 this goes back to my you know, I'm talking about 0:10:27.480 --> 0:10:31.080 nineteen twelve Eugene debs a socialists. Have the Republicans Now 0:10:31.080 --> 0:10:34.319 with the last election, are they getting whiggish? Are they 0:10:34.360 --> 0:10:36.800 beginning to look like this is before your time? Greg Bellier? 0:10:37.240 --> 0:10:40.520 But are they look in eighteen eighty five where they 0:10:40.559 --> 0:10:45.280 disappear into the minority? Ether Well, they have their divisions, 0:10:45.280 --> 0:10:48.320 just because the Democrats have a division. On the Republican side, 0:10:48.760 --> 0:10:52.160 there's the Chamber of Commerce, pro business, pro free trade 0:10:52.480 --> 0:10:56.160 Republicans there in retreat, and then you've got the much 0:10:56.520 --> 0:11:03.240 stronger social conservatives populist that trumpet. So the Republicans have 0:11:03.360 --> 0:11:06.120 a division too, But I would argue the division that's 0:11:06.160 --> 0:11:08.680 going to be the most apparent is going to be 0:11:08.720 --> 0:11:11.200 among the Democrats. And then John Farroll, you mentioned this 0:11:11.320 --> 0:11:13.440 the other day brilliantly. I can't remember on Mike Off 0:11:13.520 --> 0:11:17.040 Mike about in England, there's a whole socialist debate, you know, 0:11:17.120 --> 0:11:20.840 going back with the memories of the nineteen seventies in 0:11:20.880 --> 0:11:22.400 the minds of a lot of people that do not 0:11:22.480 --> 0:11:25.280 want to go back there. Greg you do an excellent 0:11:25.360 --> 0:11:27.640 job of falling in the world of Washington, d C. 0:11:27.760 --> 0:11:30.200 Into the world of Wall Street. Does some extreme left 0:11:30.200 --> 0:11:34.120 wing proposals coming from some Democrats. As we've talked about, 0:11:34.480 --> 0:11:36.880 when does Wall Street start to listen, and when I 0:11:36.880 --> 0:11:40.520 mean listen, start to move, start to act, start to care. 0:11:40.840 --> 0:11:43.120 Is it a twelve month story? How far away we 0:11:43.320 --> 0:11:46.680 from that moment? It's it's not imminent. And I tell 0:11:46.720 --> 0:11:49.160 you guys, but I think is the key is what 0:11:49.240 --> 0:11:54.120 happens in the Senate. If the Senate stays Republican and 0:11:54.120 --> 0:11:57.520 and there's a chance it will that's the that's the firewall. 0:11:58.240 --> 0:12:01.160 All of this very activists led dislation would die in 0:12:01.200 --> 0:12:04.640 the Senate. So I think Wall Street would correctly think 0:12:04.720 --> 0:12:08.440 even if a Democrat became president, the chances of getting 0:12:08.440 --> 0:12:12.320 really sweeping stuff enacted really hinges on a Senate that 0:12:12.440 --> 0:12:15.320 may stay Republican. Is you right for Friday and into 0:12:15.320 --> 0:12:18.200 the weekend? Greg? Set us up for Monday Tuesday next week? 0:12:18.400 --> 0:12:23.079 What are you looking at? I'm trying to think. I 0:12:23.360 --> 0:12:26.680 think it's probably going to be two stories. One the 0:12:26.720 --> 0:12:30.280 titilating one about the National Enquirer. That's legs and there 0:12:30.280 --> 0:12:34.439 may be a lot more looming there. And secondly the wall. 0:12:34.600 --> 0:12:38.360 I think that there's going to be a deal proposed 0:12:38.400 --> 0:12:41.280 to the president. Who proposes that in the Republican side. 0:12:41.320 --> 0:12:44.080 We spoke to the congressman from Chattanooga and he said 0:12:44.120 --> 0:12:46.720 it was basically going to come out of thin air blowney. 0:12:47.040 --> 0:12:49.280 Who comes up with that deal to give it to 0:12:49.320 --> 0:12:52.760 the president? Oh, I think they have one already, and 0:12:52.760 --> 0:12:56.199 I think they have a messenger. The messenger is Lindsey Graham. 0:12:56.320 --> 0:12:58.280 I think he'll tell the President, look, this is the 0:12:58.280 --> 0:13:00.199 best you can get. We'll get you to three of 0:13:00.280 --> 0:13:04.280 four billion for border security, and since the president's other 0:13:04.320 --> 0:13:08.280 options are so unpalatable, he just might take it to 0:13:08.360 --> 0:13:11.200 wrap things up. We've tried if we can. Greg, I 0:13:11.280 --> 0:13:13.680 thought the discussion yesterday with a whether this deal would 0:13:13.760 --> 0:13:15.920 or wouldn't get done by the end of the month 0:13:16.160 --> 0:13:18.440 was ridiculous. But it was ridiculous because it was based 0:13:18.480 --> 0:13:20.560 on a bunch of reporters shouting at the president whether 0:13:20.600 --> 0:13:23.200 a meeting with him or Jing Ping would happen by 0:13:23.200 --> 0:13:24.960 the end of the month. He shook his head, he said, no, 0:13:25.760 --> 0:13:29.640 we're trading headlines here, Greg and big time without much context. 0:13:29.760 --> 0:13:32.360 What do you make of that? Well, that's a good point, 0:13:32.440 --> 0:13:35.520 and I think that we're not close to a deal 0:13:35.640 --> 0:13:38.920 by March first or March second, I guess is the deadline. 0:13:39.120 --> 0:13:41.880 I think there'll be an extension. What I think happens 0:13:41.960 --> 0:13:45.040 is in the spring or maybe early summer, there's a crescendo, 0:13:45.400 --> 0:13:48.440 a meeting between Trump and z in which they reach 0:13:48.559 --> 0:13:51.400 an agreement in principle. But an agreement in principle is 0:13:51.440 --> 0:13:55.440 not imminent. Greg, thank you so much, greatly appreciate it. 0:13:55.679 --> 0:13:59.920 Really looking forward to the comments from Mr Value into 0:13:59.920 --> 0:14:16.320 the political season as well. David Stubbs, where us, who 0:14:16.360 --> 0:14:19.280 was a senior vice president of surging at JP Morgan 0:14:19.720 --> 0:14:24.920 Asset Management, as terrific economics in folds it into market analysis. David, 0:14:24.960 --> 0:14:29.720 what are you writing Friday from Monday morning? Tom, I'm 0:14:29.800 --> 0:14:32.200 writing about the hope that we'll see some kind of 0:14:32.240 --> 0:14:36.200 turnaround soon in China and European data, because if we don't, 0:14:36.200 --> 0:14:39.320 we're looking increasingly, um, you know, in a very difficult 0:14:39.360 --> 0:14:43.480 situation for both earnings, for macro economics and um, you know, 0:14:43.520 --> 0:14:46.520 a continuation of the theme of the last twelve months 0:14:46.520 --> 0:14:50.120 where the US was leading, uh, you know, the global economy, 0:14:50.160 --> 0:14:52.760 earnings and equity markets. Um. We expect the US are 0:14:52.760 --> 0:14:54.920 slow late New year, but that's no good for the 0:14:54.920 --> 0:14:56.120 rest of the world if the rest of the world 0:14:56.200 --> 0:14:58.760 is already in great difficulty. Well, David, you know this 0:14:58.840 --> 0:15:01.040 weekend our listeners are gonna be at the kitchen table. 0:15:01.120 --> 0:15:04.120 John Farrell and his family is going to be watching Luster, 0:15:04.320 --> 0:15:07.280 tottson and all that, and they're gonna be talking about 0:15:07.320 --> 0:15:11.920 their investment allocation. When the facts change, David Stubbs change, 0:15:12.200 --> 0:15:16.040 what's the new allocation? Given the January February shift, we've 0:15:16.040 --> 0:15:20.880 seen what's on We're still absolutely advising clients to use 0:15:20.920 --> 0:15:26.400 strengthen markets, to gradually retool their portfolios to be slightly 0:15:26.400 --> 0:15:29.600 more defensive, because we see twenty as a time when 0:15:29.640 --> 0:15:33.000 the US economy is going to be slowing significantly. Um. 0:15:33.040 --> 0:15:35.280 We don't yet have the faith that international markets are 0:15:35.280 --> 0:15:37.400 going going to to you know, to pick up. So 0:15:37.480 --> 0:15:39.440 it really depends obviously on the goal of the money 0:15:39.600 --> 0:15:41.760 the time Horise and I saw that. Yeah, I had 0:15:41.760 --> 0:15:45.000 the intro about the pension funds and there you know, 0:15:45.160 --> 0:15:49.080 and the sovereign wealth companies, insurance companies. We advise a 0:15:49.080 --> 0:15:51.480 lot of those and they are obviously been as as 0:15:51.520 --> 0:15:54.880 John said, extending equity allocations over the last few for years. 0:15:54.920 --> 0:15:58.800 But we see now after you know, a very long cycle, um, 0:15:59.080 --> 0:16:03.280 too many portfolio years with very short duration allocations, with 0:16:03.760 --> 0:16:05.880 too much cyclical exposure in the equities, and so we 0:16:05.920 --> 0:16:08.560 have a range of things we're recommending. Firstly, you know, 0:16:09.000 --> 0:16:11.920 right size the kind of safe havens of the portfolio 0:16:12.480 --> 0:16:14.360 lengths and that duration if you if you're if it's 0:16:14.440 --> 0:16:17.480 quite short, we do like gold tactically as well. Over 0:16:17.520 --> 0:16:20.360 the next year or so, don't just go to cash, 0:16:20.400 --> 0:16:22.840 because if this situation is going to get worse. Other 0:16:22.880 --> 0:16:24.640 things are going to perform better than than cash and 0:16:24.720 --> 0:16:26.800 last year, just on the equity side, we still like 0:16:26.840 --> 0:16:30.040 a large chunks of technology and healthcare as secular growth themes. 0:16:30.040 --> 0:16:32.960 We don't want clients backing away from all growth assets. 0:16:32.960 --> 0:16:34.640 We do want them to folks on the secular themes 0:16:34.640 --> 0:16:37.680 who other than the secular local drivers. So remove some cigulicality, 0:16:37.840 --> 0:16:40.880 add to the secular themes. That's the equity story for you, David, 0:16:40.920 --> 0:16:42.680 I want to pick up on the bond story. Let's 0:16:42.720 --> 0:16:44.440 do a little bit of a bonds clinic for those 0:16:44.800 --> 0:16:47.480 listeners who are outside of the bond market world. The 0:16:47.560 --> 0:16:51.480 concept of duration and being long duration. David, just walk 0:16:51.560 --> 0:16:54.040 us through the concept and why it's important to add 0:16:54.080 --> 0:16:57.640 some duration right now. It's it's it's actually important to 0:16:57.680 --> 0:16:59.880 understand again the total return of your bond fund. It's 0:16:59.880 --> 0:17:02.040 not just about clipping that coupon. It's about a movement 0:17:02.080 --> 0:17:05.239 in the price. And if yields go down, price goes up, 0:17:05.280 --> 0:17:08.040 and the relationship between the two is a sensitivity the 0:17:08.119 --> 0:17:11.399 change industrates. That's duration. It tends to be bigger, longer 0:17:11.480 --> 0:17:13.720 duration in the further go out the curve, the longer 0:17:13.720 --> 0:17:16.400 than maturity. So if you have say only say two 0:17:16.440 --> 0:17:19.560 or three year bonds um is as yields full potentially 0:17:19.600 --> 0:17:22.240 as markets fear risk off, you get some movement in 0:17:22.280 --> 0:17:24.760 the price minology, but not a huge huge movement. If 0:17:24.760 --> 0:17:27.240 you're owning ten year, let alone twenty thirty year bonds, 0:17:27.280 --> 0:17:29.639 you get a very very significant move up as well. 0:17:29.640 --> 0:17:31.960 And that's indeed what we've seen. Your long bonds have 0:17:32.040 --> 0:17:36.160 performed very well since they October and you know in November. 0:17:36.480 --> 0:17:39.560 And also you want to inside uh you know the 0:17:40.200 --> 0:17:41.879 you know you're fixed income. I see a lot of 0:17:41.880 --> 0:17:44.679 people pointing at corporate credit and saying, well, there's my duration. 0:17:44.720 --> 0:17:47.320 That's what's gonna gonna protect me on the way down. 0:17:47.840 --> 0:17:50.440 That's right. As long as as long as the bonds 0:17:50.480 --> 0:17:52.320 of the corporate bonds are high enough quality. We want 0:17:52.320 --> 0:17:54.840 people to getting out of the triple b's where I 0:17:54.880 --> 0:17:56.400 know you've talked a lot on your show, The Real 0:17:56.480 --> 0:17:59.840 Yield about the big growth of triple B market. We 0:18:00.040 --> 0:18:01.960 put you want to go up into this single as 0:18:02.000 --> 0:18:04.159 double as um and be tached going to high into 0:18:04.200 --> 0:18:06.280 high yield. Who want to not be holding that paper 0:18:06.280 --> 0:18:08.240 when there's any rewrating stories. We think that's going to 0:18:08.280 --> 0:18:10.280 be a big story in the corporate credit market. As 0:18:10.320 --> 0:18:13.080 we go into who wrote David Stubbs a check to 0:18:13.080 --> 0:18:16.960 to plug real yield one pm Eastern Time, it's it's 0:18:17.000 --> 0:18:19.920 I guess beautiful. I'm in restaurants bars. I was a 0:18:19.960 --> 0:18:24.040 trembling madness about three weeks ago in New York. Minsters 0:18:24.200 --> 0:18:26.440 they have the TV on. They don't have a TV. 0:18:26.920 --> 0:18:28.960 They don't do that. It's like eleven year or whatever. 0:18:29.359 --> 0:18:32.400 But everywhere I go that the ned across from Queen 0:18:32.480 --> 0:18:35.159 Victoria's Street, Ah, they talk about is the roof. It's 0:18:35.320 --> 0:18:39.240 very nice of David. Let's reverse engineering just a little bit. Conversely, 0:18:39.280 --> 0:18:41.480 if yields go up at the long end, you can 0:18:41.600 --> 0:18:44.439 really have to absorb some damage. Why is that not 0:18:44.480 --> 0:18:47.000 going to happen? Why is the why is the possibility 0:18:47.040 --> 0:18:51.080 of that happening limited in your mind? You know, we 0:18:51.200 --> 0:18:53.399 don't get don't get us wrong. We think that you 0:18:53.440 --> 0:18:56.160 know that yields could you know, move higher up towards 0:18:56.600 --> 0:18:58.480 three per cent. As we go to the next couple 0:18:58.480 --> 0:19:00.800 of quarters, if US growth hangs in there, you get 0:19:00.800 --> 0:19:05.000 a resolution of some of these political overhand issues Italy trade, Brexit, 0:19:05.200 --> 0:19:08.120 government shut shut down, sentiment, can push yields up there. 0:19:08.200 --> 0:19:11.080 I think the change inside JP Morgan in the last 0:19:11.359 --> 0:19:13.400 six or twelve months is just to lower the kind 0:19:13.440 --> 0:19:17.399 of yield levels where we would be more enthusiastic buyers. 0:19:17.400 --> 0:19:19.159 We used to say three percent and up. I think 0:19:19.200 --> 0:19:21.640 if we get you know, uh, your your two point 0:19:21.840 --> 0:19:23.360 eight or or up, and then we start to get 0:19:23.359 --> 0:19:25.760 more and more aggressive. Now. I think that markets are 0:19:25.760 --> 0:19:28.600 telling you that the neutral rate is lower than you 0:19:28.680 --> 0:19:31.280 thought it was. The FED, I think, is listening to markets, 0:19:31.640 --> 0:19:33.199 and you have around the world, as you were just 0:19:33.200 --> 0:19:35.520 talking about the dramatic move lower in some of the 0:19:35.520 --> 0:19:38.360 Eurozone bond yields. You know, two point eight two point 0:19:38.440 --> 0:19:41.080 nine in the US tenure looks good valued to us. 0:19:41.119 --> 0:19:44.120 So yes, we there's possibility there could be some mark 0:19:44.160 --> 0:19:45.639 to market losses if you go out and buy a 0:19:45.640 --> 0:19:48.840 long government bond now. But the starting point of portfolio matters. 0:19:48.840 --> 0:19:50.119 If you have none of this stuff right now, you 0:19:50.119 --> 0:19:52.159 need to start accumulating where we are. If you have 0:19:52.240 --> 0:19:54.280 quite a lot relative to your risk profile, maybe you're 0:19:54.280 --> 0:19:56.520 not an aggressive by today, but you give another ten 0:19:56.560 --> 0:19:58.840 fifteen basis points on that yield, I think we should 0:19:58.840 --> 0:20:02.160 start buying again. Another hour David stuff, JP Morgan, don't 0:20:02.200 --> 0:20:06.800 be a stranger thing, greatly greatly, greatly appreciated. Yeah, he's 0:20:06.840 --> 0:20:09.639 he's just he's just wonderful again out of London School 0:20:09.640 --> 0:20:12.720 of Economics, and he's got a very cool doctorate from 0:20:12.720 --> 0:20:15.800 the New School in New York, which is a wonderful 0:20:15.840 --> 0:20:19.640 twisted program. Good morn into the memory of Mr Heilbronner 0:20:19.720 --> 0:20:24.119 among others in Peter Bernstein and the Academic Energy School 0:20:24.160 --> 0:20:41.400 from JP MULGANESM management. We always have our good friend 0:20:41.400 --> 0:20:44.280 Margaret Brennan joined us Margaret as he hosts of CBSS 0:20:44.320 --> 0:20:46.200 Face the Nation, and she always gives us her sense 0:20:46.240 --> 0:20:48.879 of what is going on in Washington and market. We 0:20:48.920 --> 0:20:50.760 have so many topics that I'm sure you're looking at, 0:20:50.760 --> 0:20:53.959 the on again off again trade talks, the possible second 0:20:54.000 --> 0:20:57.200 government shutdown. But where I want to lead off, Margaret, 0:20:57.359 --> 0:20:59.080 is where I left off with Tom just recently. Is 0:20:59.119 --> 0:21:01.159 that is my dupe Devils are going to pay a 0:21:01.240 --> 0:21:05.680 visit to your University of Virginia Cavaliers tomorrow for big 0:21:05.720 --> 0:21:08.199 basketball game. My question to you, Margaret is will you 0:21:08.320 --> 0:21:12.919 be watching um Well, Saturday is usually prep time for me, 0:21:13.040 --> 0:21:15.440 but I will hopefully watch a little bit of the game. 0:21:15.520 --> 0:21:19.000 My husband's also a wah who, and my five almost 0:21:19.040 --> 0:21:22.160 five months old son already has Virginia gay or waiting 0:21:22.280 --> 0:21:26.800 for him. Where all right, Well, I'm gonna shift gears 0:21:26.800 --> 0:21:28.760 a little bit away from the game because you interview 0:21:28.800 --> 0:21:31.560 President Trump last weekend and I thought that it was 0:21:31.600 --> 0:21:35.199 a great interview. Congratulations. I want to ask what was 0:21:35.240 --> 0:21:39.800