Latest / Bloomberg Intelligence / You’ll Always Have Humans That Want To Con Other Humans: Quadir

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You’ll Always Have Humans That Want To Con Other Humans: Quadir · Bloomberg Intelligence

• 0:05
  Speaker 1: Welcome to the Bloomberg p m L Podcast. I'm pim Fox.
• 0:08
  Speaker 1: Along with my co host Lisa Bramowitz. Each day we
• 0:11
  Speaker 1: bring you the most important, noteworthy, and useful interviews for
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  Speaker 1: you and your money, whether you're at the grocery store
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  Speaker 1: or the trading floor. Find the Bloomberg p m L
• 0:20
  Speaker 1: Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot Com. A
• 0:31
  Speaker 1: lot of people have said that the past few years
• 0:33
  Speaker 1: have been a bad time to be a short seller.
• 0:37
  Speaker 1: But here's one who has managed to make money despite
• 0:40
  Speaker 1: the fact that fundamentals haven't always seemed to matter in
• 0:44
  Speaker 1: a central bank fueled bull run. Here joining us is
• 0:48
  Speaker 1: my pleasure to introduce Fammi Kadeer, founder and chief investment
• 0:51
  Speaker 1: officer of soft Cat Capital Management in New York. Fun me,
• 0:56
  Speaker 1: this uh, the fund that you run is a short
• 0:59
  Speaker 1: only fund. This is not paired with offsetting trades. So
• 1:03
  Speaker 1: where are the opportunities right now at a time when
• 1:05
  Speaker 1: central banks are still backing corporate America and corporations globally. Well,
• 1:11
  Speaker 1: I became a short seller in a QUEUEI driven market,
• 1:15
  Speaker 1: so I I and I've only made money doing so.
• 1:18
  Speaker 1: And the way you do it is it's it's the
• 1:21
  Speaker 1: fundamentals matter. But the surest way to understand when to
• 1:25
  Speaker 1: short company is you need to get the timing right.
• 1:28
  Speaker 1: And typically if a company whose fundamentals underlying fundamentals are
• 1:33
  Speaker 1: poor and the growth of the company is driven by
• 1:38
  Speaker 1: a potentially fraudulent scheme, you have to first understand the
• 1:41
  Speaker 1: fraudulent scheme because at some point they the company can't
• 1:44
  Speaker 1: perpetuate that scheme any longer. So what we've done is
• 1:48
  Speaker 1: try to pinpoint that timing because then, um, no matter
• 1:52
  Speaker 1: what happens, the fundamentals will will collapse. Because these are
• 1:57
  Speaker 1: you know, dirty businesses, businesses that perhaps don't really have
• 2:02
  Speaker 1: a purpose. Um. So when when the fraudulent scheme is
• 2:05
  Speaker 1: sort of at its at its end, um, that's where
• 2:08
  Speaker 1: we come in. You've been described as ruthless, cold blooded,
• 2:14
  Speaker 1: and dog it. This is Marco Hotas speaking. He's the
• 2:19
  Speaker 1: fellow who once were in the hedge fund. Well, i'm
• 2:23
  Speaker 1: you know, in the short seller market. That may be
• 2:25
  Speaker 1: the words of praise. He was a former hedge fund
• 2:28
  Speaker 1: manager of Copper River Management. He's now a private investor.
• 2:32
  Speaker 1: And the fund is your company's name, soft Cat, because
• 2:36
  Speaker 1: it's the ancient Egyptian goddess of accounting, math and knowledge. Right,
• 2:41
  Speaker 1: So if you can put together some of those concepts,
• 2:45
  Speaker 1: could you walk us through the technical aspects of being
• 2:49
  Speaker 1: a short seller. What are the challenges of trying to
• 2:53
  Speaker 1: borrow stock? Let's say, I mean, I just use example
• 2:57
  Speaker 1: of Tesla because I keep walking around and here people say, oh, well,
• 3:00
  Speaker 1: you know there are a lot of very strident voices,
• 3:01
  Speaker 1: both bulls and bears on Tesla, and then the next
• 3:04
  Speaker 1: line usually is, yeah, but it's so expensive to borrow that.
• 3:08
  Speaker 1: As you just described, getting your timing right is everything.
• 3:12
  Speaker 1: Tell us what the challenges are. Well, the challenges related
• 3:16
  Speaker 1: to timing means that I need to stay intellectually, honest
• 3:19
  Speaker 1: and objective. I can have conviction that any company, let's
• 3:23
  Speaker 1: use your example, that Tesla is a fraud, that the
• 3:26
  Speaker 1: red flags that are raised by their accounting financials as
• 3:30
  Speaker 1: well as their corporate governance are potentially fraudulent and give
• 3:33
  Speaker 1: me cause to short it. But just because I have
• 3:36
  Speaker 1: reason to believe it's a fraud doesn't mean I'll make
• 3:38
  Speaker 1: money shorting it. Um. So this isn't very technical. Um,
• 3:42
  Speaker 1: it's it's a very basic and this is coming from
• 3:44
  Speaker 1: the mouth of a mathematician. I don't short companies that
• 3:46
  Speaker 1: make people happy. I don't short products that are selling.
• 3:50
  Speaker 1: Um So, no matter how fraudulent I might believe Tesla is,
• 3:53
  Speaker 1: I don't believe there's a shot fire way to make
• 3:56
  Speaker 1: money shorting Tesla. Um We're a high conviction, an ultra
• 4:00
  Speaker 1: concentrated fund. So I need to take on positions that
• 4:03
  Speaker 1: are potentially of my assets. Um So, I need to
• 4:07
  Speaker 1: find names that are liquid enough, that are under the
• 4:09
  Speaker 1: radar enough. And that means I can't just go flip
• 4:12
  Speaker 1: through the newspaper and say, oh, people seem to be
• 4:14
  Speaker 1: shorting Tesla. I need to go out in the world
• 4:16
  Speaker 1: and find my own ideas. So yeah, I was just
• 4:18
  Speaker 1: gonna ask, how do you do that? How do you
• 4:20
  Speaker 1: find fraud? Well, it's a lot of reading and a
• 4:24
  Speaker 1: lot of traveling. Um So you have to be patient.
• 4:27
  Speaker 1: So over the past year I was. I launched my
• 4:30
  Speaker 1: fund back in January. Um So, between um when I
• 4:34
  Speaker 1: left my my old fund in April and January, I
• 4:37
  Speaker 1: spent that time just building up my little black book
• 4:41
  Speaker 1: of potential frauds and then digging as deep as I
• 4:44
  Speaker 1: could to find evidence potentially proving that fraud, and then
• 4:48
  Speaker 1: I'll also getting confidence around the timing of the opportunity.
• 4:53
  Speaker 1: Um So, an easy way to find potential short term
• 4:56
  Speaker 1: opportunities on the short side is to look at high
• 4:59
  Speaker 1: profile implosions. Um So. Last year there was Home Capital
• 5:03
  Speaker 1: Group um and the exposure of massive mortgage origination fraud.
• 5:06
  Speaker 1: Um so, that created an opportunity in Canada. But I
• 5:09
  Speaker 1: launched a fund in January. Um so, what happened in
• 5:12
  Speaker 1: December the implosion of Steinhoff, so that um you know,
• 5:15
  Speaker 1: since December, we spent time really trying to understand the
• 5:19
  Speaker 1: South African market um the culture there and understand is
• 5:23
  Speaker 1: there anyone doing what Steinhoff did? But worse that was
• 5:26
  Speaker 1: what I was going to ask, is there anywhere in
• 5:28
  Speaker 1: the world that you see a greater prevalence of fraud
• 5:32
  Speaker 1: where it also could be undermined by a market that
• 5:35
  Speaker 1: is somewhat free. You will always have humans who like
• 5:38
  Speaker 1: to conn other humans. So unfortunately, there isn't really a
• 5:40
  Speaker 1: geographic bias um so. The bias is only really related
• 5:44
  Speaker 1: to when I can make the money. So then following
• 5:47
  Speaker 1: these high profile implosions, it's it's it's an easier way
• 5:51
  Speaker 1: to make money because you're lifting the veil on the
• 5:54
  Speaker 1: investors who are now jittery because they were trusting this
• 5:57
  Speaker 1: company for so long, and wow, they were lying to
• 6:00
  Speaker 1: us this whole time. It um make sure that regulators
• 6:03
  Speaker 1: are no longer asleep at the wheel. UM. It also
• 6:06
  Speaker 1: means that auditors have to take a finer tooth comb
• 6:09
  Speaker 1: through financials of their clients because they're under a magnifying glass.
• 6:13
  Speaker 1: So all this, this sort of confluence of factors after
• 6:16
  Speaker 1: a high profile implosion provides a potential opportunity for us
• 6:20
  Speaker 1: to make money shorting frauds in a market that typically
• 6:23
  Speaker 1: is unrelenting. Now, you were previously an equity analyst that
• 6:27
  Speaker 1: Crenn Savage correct, What if you could tell us what
• 6:30
  Speaker 1: was it like trying to get Krens Savage to really
• 6:34
  Speaker 1: support the Valiant pharmaceuticals idea and to really stick with
• 6:39
  Speaker 1: that short position. I was in a very fortunate position
• 6:42
  Speaker 1: when I joined that fund, and that I had pretty
• 6:46
  Speaker 1: good autonomy as far as putting on short positions. And
• 6:49
  Speaker 1: he was himself cynical on Valiant for many years UM,
• 6:52
  Speaker 1: and I only saw the opportunity to make money shorting
• 6:56
  Speaker 1: Valiant after they had acquired salex UM. That was mar April,
• 7:01
  Speaker 1: because when you tap out the balance sheet and your
• 7:03
  Speaker 1: business model is buying growth, UM, and you now lose
• 7:07
  Speaker 1: access to capital, then it's kind of all over. The
• 7:09
  Speaker 1: unraveling of a roll up is never pretty. So UM,
• 7:12
  Speaker 1: that was a great time to get in. But you know,
• 7:14
  Speaker 1: I came from a corporate intelligence background, so I already
• 7:17
  Speaker 1: knew what value was up to UM, but it was
• 7:19
  Speaker 1: it was after that sale deal that we felt we
• 7:22
  Speaker 1: could make money. Do you have any really big companies
• 7:24
  Speaker 1: that you're targeting? Is a potential fraud at this point, UM,
• 7:27
  Speaker 1: I do. One of them is one of the biggest
• 7:31
  Speaker 1: by market cap companies in the world in the tech sector,
• 7:34
  Speaker 1: less than one percent short interests. But I can't tell
• 7:37
  Speaker 1: you what it is. You'd have to become an investor.
• 7:40
  Speaker 1: Uh fabulous. Well there you go, and congratulations and best
• 7:45
  Speaker 1: wishes on on your firm, Soft Capital Management. For me
• 7:49
  Speaker 1: a cader, the founder and the chief investment officer, giving
• 7:52
  Speaker 1: us a little look into the world of short seller.
• 7:55
  Speaker 1: If I told you I'd have to kill you, well,
• 7:59
  Speaker 1: let's thank thank you, all right, you can see me
• 8:01
  Speaker 1: move a little bit further away, all right. Last month,
• 8:19
  Speaker 1: when we got the January payrolls report, the markets freaked out. Well,
• 8:25
  Speaker 1: we are setting the stage for another payrolls of report,
• 8:28
  Speaker 1: the first after that rather interesting report. We're getting it tomorrow,
• 8:33
  Speaker 1: and here to talk about what we can expect is
• 8:36
  Speaker 1: Pria Misra ahead of Global interest rate strategy at t
• 8:39
  Speaker 1: D Securities really opprescient. She has been consistently on the
• 8:45
  Speaker 1: bond market. So what are you expecting for tomorrow. We're
• 8:47
  Speaker 1: gonna get another surprise like we did last month, so
• 8:51
  Speaker 1: thanks for having me on. We're actually looking for a
• 8:54
  Speaker 1: weeker than expected number, particularly on the wage front, because
• 8:57
  Speaker 1: I know the market really reacted like this is the
• 8:59
  Speaker 1: start of a big spurt in work in wage inflation,
• 9:02
  Speaker 1: which is going to make the FED hike much faster.
• 9:05
  Speaker 1: But if you look at last time's report, there was
• 9:08
  Speaker 1: some weird components of that report. Hours fell significantly, so
• 9:11
  Speaker 1: our thought was and the number of people who couldn't
• 9:13
  Speaker 1: make it to work because of the weather increased significantly.
• 9:16
  Speaker 1: So our thesis was, you had these significant storms in January,
• 9:20
  Speaker 1: maybe people couldn't show up to work, so the hours
• 9:22
  Speaker 1: component fell. And if you think about the way average
• 9:24
  Speaker 1: early learnings is computed, it's the wage built by hours,
• 9:27
  Speaker 1: so that skewed the number a lot higher. So now
• 9:30
  Speaker 1: that we're looking for a big miss, but we are
• 9:32
  Speaker 1: looking for a strong point one on month over month
• 9:35
  Speaker 1: average early learnings, which takes a year over year eight,
• 9:37
  Speaker 1: which is I think what the market focuses on two
• 9:39
  Speaker 1: or to seven. Now, remember it was running two six
• 9:42
  Speaker 1: to seven much of last year, so that does not
• 9:45
  Speaker 1: spook the market, should not spook the FED. But I
• 9:48
  Speaker 1: think if you do get a number, you know, from
• 9:49
  Speaker 1: to nine heading higher, I think that certainly has the
• 9:52
  Speaker 1: propensity to uh, you know, get the market extremely concerned
• 9:56
  Speaker 1: around pace of hikes. But we think it's too early
• 9:58
  Speaker 1: to get to be sure that inflation. Wage inflation is
• 10:02
  Speaker 1: absolutely in a higher trend. And just to be clear,
• 10:04
  Speaker 1: that is you're expecting two point increased year over year
• 10:08
  Speaker 1: an average hourly wages versus you know, potential upside surprice
• 10:12
  Speaker 1: to nine or higher. Do you think that the bonds,
• 10:16
  Speaker 1: particularly treasure bonds, are they overpriced? And I wonder if
• 10:19
  Speaker 1: you could tie in your thoughts about the dollar, do
• 10:21
  Speaker 1: you think it's going to strengthen or will continue this weekening? Sure?
• 10:24
  Speaker 1: So on interest rates, we think the front end is
• 10:26
  Speaker 1: actually very fairly priced. We're pricing in about three hikes
• 10:29
  Speaker 1: this year, which is very similar to the FEDS median forecast.
• 10:33
  Speaker 1: We don't think that the dot plot is going to
• 10:35
  Speaker 1: suggest a faster piece of hikes this year. If you
• 10:37
  Speaker 1: look at what how many hikes you looking for? Three,
• 10:39
  Speaker 1: we're looking for three three this year. The markets pricing
• 10:42
  Speaker 1: in an end point of the hiking cycle at about
• 10:44
  Speaker 1: two point six percent. It's a little bit lower than
• 10:46
  Speaker 1: the FATS forecast of to seven five, but really, what's
• 10:49
  Speaker 1: fifteen basis points among friends? So I think the front
• 10:52
  Speaker 1: end is very well priced. Where I do think the
• 10:54
  Speaker 1: market may be a little overpriced is term premium or
• 10:57
  Speaker 1: longer end bond, where I don't think we're pricing in
• 10:59
  Speaker 1: enough of that supply. You know that's going to hit
• 11:02
  Speaker 1: the market over the course of this year and beyond.
• 11:04
  Speaker 1: And I think particularly if the CB is done at
• 11:07
  Speaker 1: some point this year, the FED is absolutely done with buying.
• 11:10
  Speaker 1: At some point investors will demand more rate. So I
• 11:13
  Speaker 1: think the long end has room to rise, but the
• 11:15
  Speaker 1: front end seems pretty well done. On the dollar, we're
• 11:18
  Speaker 1: generally negative, partly because global growth seems to be picking up.
• 11:22
  Speaker 1: I think the story over the last few years, which
• 11:24
  Speaker 1: was the US was strengthening while the rest of the
• 11:27
  Speaker 1: world was not. I think that's played out. And so
• 11:30
  Speaker 1: if global growth is researching, and certainly we're seeing the
• 11:32
  Speaker 1: strongest space of coordinated global growth, I think that the
• 11:36
  Speaker 1: dollar is somewhat going to struggle. I also think trade
• 11:39
  Speaker 1: protection is m it's in the air for this entire year,
• 11:42
  Speaker 1: and that's going to be a headwind for the dollar.
• 11:44
  Speaker 1: So I think the dollar certainly has room to decline
• 11:47
  Speaker 1: for So does that mean that you see inflation, that
• 11:49
  Speaker 1: the fear of inflation has been overplayed? I think so yes.
• 11:53
  Speaker 1: I mean the dollars should put some upper pressure on inflation,
• 11:56
  Speaker 1: but if you look at the past through from the
• 11:57
  Speaker 1: dollar to even import price, there's barely been an he
• 12:01
  Speaker 1: passed through into cp I. There's been no pass through.
• 12:04
  Speaker 1: So for some reason, the dollars not having an impact
• 12:06
  Speaker 1: on inflation. But generally when I look at wage inflation
• 12:10
  Speaker 1: or CPI, I think this fear that the FED is
• 12:12
  Speaker 1: behind the curve that's definitely overplayed. We're not seeing signs
• 12:16
  Speaker 1: of the FED being behind the curve on inflation. Even
• 12:18
  Speaker 1: the tips market doesn't seem to be suggesting any such fear.
• 12:21
  Speaker 1: So you said that you think that they're on the
• 12:24
  Speaker 1: longer end with say ten year and thirty year treasury yields,
• 12:28
  Speaker 1: UH Treasury is they're they're overpriced. I'm looking at yields
• 12:31
  Speaker 1: right now in a ten year two point eight six
• 12:33
  Speaker 1: percent on a thirty year three point one percent. Where
• 12:36
  Speaker 1: do you see them going by your end? So our
• 12:38
  Speaker 1: forecast is actually three percent, and that you know almost
• 12:41
  Speaker 1: seems like there is not a lot of room for
• 12:44
  Speaker 1: long end rates to rise. So we we're looking for
• 12:46
  Speaker 1: the ten to be a ten year rates to end
• 12:48
  Speaker 1: the year at three percent. But I have to say
• 12:50
  Speaker 1: I'm looking for a much more volatile path because what
• 12:53
  Speaker 1: can certainly happen is around auction points. You could have
• 12:56
  Speaker 1: a bigger sell off, but I think that is a
• 12:58
  Speaker 1: headwind for equities or risk assets, and I think that
• 13:01
  Speaker 1: will actually bring tense back down. But we're not looking
• 13:05
  Speaker 1: for a sustained rise and rates because of the impact
• 13:07
  Speaker 1: it will have on risk ASTs well. And to that point,
• 13:09
  Speaker 1: how important our next week's auctions. I believe that it
• 13:12
  Speaker 1: will be UH the first five I think that the U. S.
• 13:16
  Speaker 1: Treasury Department is gonna be selling five tens and thirty
• 13:18
  Speaker 1: years right three stents and bonds, Yes, it is a
• 13:21
  Speaker 1: lot of supply. I think. I'm looking at these auctions,
• 13:24
  Speaker 1: I guess with a little more interest just given that
• 13:26
  Speaker 1: the last set of these auctions, I think so a
• 13:29
  Speaker 1: little less demand from the end investor community. We saw
• 13:32
  Speaker 1: a bigger primary dealer takedown, and that, in my mind
• 13:35
  Speaker 1: is not good for interest rates or TWOM premium because
• 13:38
  Speaker 1: dealers ultimately will buy bonds at a discount if you may,
• 13:43
  Speaker 1: or at higher yields, and then we'll ultimately have to
• 13:45
  Speaker 1: redistribute it. So was last month's auctions of one off
• 13:49
  Speaker 1: or are we going to see more auction related volatility
• 13:52
  Speaker 1: going forward? As we realized that the treasury deficit, which
• 13:56
  Speaker 1: you know or if you think of never issuance of
• 13:58
  Speaker 1: treasuries last year was about six fifty billion, we're expecting
• 14:01
  Speaker 1: about a trillion, and it was already a high number,
• 14:04
  Speaker 1: and then we've got the budget deal which added another
• 14:06
  Speaker 1: four billion to the deficit. So there's a lot of supply.
• 14:09
  Speaker 1: I think that end invested demand for treasuries is going
• 14:12
  Speaker 1: to be absolutely critical for how these auctions go and
• 14:15
  Speaker 1: for the overall level of interest rates. Thank you very
• 14:18
  Speaker 1: much for being with us. Mistra is the head of
• 14:21
  Speaker 1: Global Interest rates, a strategy for t D securities. Talking
• 14:24
  Speaker 1: about global interest rates right now, I want to bring
• 14:40
  Speaker 1: an Irene Finel Hanigman, Adjunct Professor of International Affairs at
• 14:44
  Speaker 1: Columbia University in New York. Irene, thank you so much
• 14:48
  Speaker 1: for being with us. I wanted to start by asking
• 14:51
  Speaker 1: what historical precedents should we go to to sort of
• 14:55
  Speaker 1: frame the trade scuffles and the tariffs that we hear
• 14:59
  Speaker 1: about today. Um, first of all, thank you for having
• 15:03
  Speaker 1: me on again. I think one of the important issues
• 15:07
  Speaker 1: is that throughout history, tarrats have been seen as being
• 15:11
  Speaker 1: very positive, very short term when geared thought of getting
• 15:16
  Speaker 1: a boost to specific industrial sectors, but they very quickly
• 15:19
  Speaker 1: deteriorate into potential even trade wars, going all the way
• 15:22
  Speaker 1: back to the origin of some of these issues between
• 15:25
  Speaker 1: the French and the Dutch in the sixteen sixties, certainly
• 15:28
  Speaker 1: through the nineteenth century in the US, and then if
• 15:31
  Speaker 1: we look at much closer precedents in nineteen eighty four,
• 15:35
  Speaker 1: the Reagan steel tariffs to protect the car industry in
• 15:37
  Speaker 1: Harley Davidson. By nineteen eighty seven were dropped as actually
• 15:41
  Speaker 1: having proven useless and of relatively little help. But this
• 15:45
  Speaker 1: was against Japan in a totally different, clearly bilateral world
• 15:50
  Speaker 1: was a totally different geo political and it's an economic
• 15:54
  Speaker 1: structure uh by nine. Under the GAT negotiations, the holy
• 16:00
  Speaker 1: it was the US versus a new European Union represented
• 16:03
  Speaker 1: at that time largely by President to Hall of France,
• 16:06
  Speaker 1: an agricultural, intellectual property, financial services. The whole purpose was
• 16:11
  Speaker 1: in a new regionalism and a world where Asia was
• 16:13
  Speaker 1: coming into its own to begin to eliminate tariff and
• 16:16
  Speaker 1: non tariff barriers. I was with the Clinton administration at
• 16:19
  Speaker 1: that time and involved in some of the meetings on
• 16:22
  Speaker 1: these issues. So the whole purpose after the fall of
• 16:25
  Speaker 1: the USSR was to look at a multilateral world. Today,
• 16:29
  Speaker 1: with globalization and technology, tariffs become even more irrelevant and
• 16:34
  Speaker 1: almost immediately adversarial. As your former speaker said, the EU
• 16:39
  Speaker 1: is already setting out retaliation measures. The other thing I
• 16:42
  Speaker 1: find almost amusing about four, which for this time has
• 16:46
  Speaker 1: absolutely no literary or cultural references, but rather refers very
• 16:51
  Speaker 1: specifically to a period and which President Trump seems to
• 16:55
  Speaker 1: almost have a regressive nostalgia for looking at a world
• 16:59
  Speaker 1: which is really no longer in place, but traditionally tariffs
• 17:03
  Speaker 1: often have immediate impact. They seem often to be a
• 17:07
  Speaker 1: political boost to specific sectors in an economy, but they
• 17:12
  Speaker 1: have never been proven to have any type of long
• 17:15
  Speaker 1: term advantages. I mean, then maybe you could describe from
• 17:19
  Speaker 1: the the other perspective, which is, let's say, are trading partners,
• 17:24
  Speaker 1: they are not going to wait to see what the
• 17:27
  Speaker 1: United States does. They are going to move ahead with
• 17:29
  Speaker 1: whatever their particular agendas are. What do you believe they're
• 17:32
  Speaker 1: going to do well? I think certainly the European Union
• 17:37
  Speaker 1: has already made it clear that there are a number
• 17:39
  Speaker 1: of products from to certain agricultural products. These are relatively minor,
• 17:46
  Speaker 1: but in principle it's already making it clear that they're
• 17:49
  Speaker 1: actually setting up, if necessary, to take the U S
• 17:52
  Speaker 1: to the w t O. UH. So, evidently this is
• 17:56
  Speaker 1: the worst case scenario which every country starts to fall
• 18:00
  Speaker 1: back on protecting its own interests versus the fact that
• 18:04
  Speaker 1: we desperately now need more global cooperation on so many
• 18:08
  Speaker 1: of the issues. And if you begin to see your
• 18:11
  Speaker 1: allies as adversarial trade partners, uh, what does that mean
• 18:15
  Speaker 1: for all the other aspects geopolitical, political, military, strategic aspects
• 18:20
  Speaker 1: where you need them as allots The thing also I
• 18:23
  Speaker 1: find right now very odd is we are completely unsure
• 18:27
  Speaker 1: will Canada and Mexico be exempted, will certain members of
• 18:30
  Speaker 1: NATO be exempted? So will we have a sort of
• 18:33
  Speaker 1: mini version of these tariffs with more exemptions. This is
• 18:38
  Speaker 1: all extremely confusing, and I think just adds to this
• 18:41
  Speaker 1: general lack of confidence and lack of clarity. And in
• 18:46
  Speaker 1: many ways we've been seeing this in part since Brexit
• 18:48
  Speaker 1: and certainly since UH November two thousand sixteen, since the
• 18:52
  Speaker 1: Trump elections. You know, I mean a lot of times
• 18:54
  Speaker 1: and people think of tariffs and protectionism, uh, they refer
• 18:59
  Speaker 1: to the pop list movement. I mean, if you think about,
• 19:02
  Speaker 1: for example, what just happened in Italy, where a number
• 19:06
  Speaker 1: of candidates who have anti UH shared currency types of views,
• 19:11
  Speaker 1: anti Euro views were elected. I'm just wondering, what does
• 19:16
  Speaker 1: populism mean in tw eighteen, given that it seems to
• 19:20
  Speaker 1: infer something slightly different than it used to. Yeah, well,
• 19:24
  Speaker 1: I think we have to be very careful to make
• 19:26
  Speaker 1: a very clear distinction between populism and nationalism. And I
• 19:30
  Speaker 1: think populism almost does go back to the sense of
• 19:34
  Speaker 1: representing the disenfranchised members of your society, but very much
• 19:40
  Speaker 1: within your own group, uh those that basically feel that
• 19:44
  Speaker 1: they're no longer being respected, being involved, that are not
• 19:48
  Speaker 1: part of the elite. Uh So this is really sort
• 19:52
  Speaker 1: of the Italian version of populism. Now, I think the
• 19:55
  Speaker 1: situation in Italy is a little bit unique because when
• 20:00
  Speaker 1: Italy goes very heavily anti immigrant, which unfortunately are the
• 20:04
  Speaker 1: xenophobic part of the xenophobic platform of the Five Star
• 20:07
  Speaker 1: Party in the south, they have been severely impacted by
• 20:11
  Speaker 1: the migrant crisis at a time when they were still
• 20:14
  Speaker 1: basically in recession. So this is where we have populism,
• 20:19
  Speaker 1: which is not always necessarily a negative and has to
• 20:23
  Speaker 1: often be taken into account why are these voices of discontent. Nationalism,
• 20:29
  Speaker 1: on the other hand, is very dangerous because nationalism, as
• 20:32
  Speaker 1: is the case now certainly acrourse uh forma Soviet Union
• 20:35
  Speaker 1: Eastern and Central your specifically in Poland, is very much
• 20:38
  Speaker 1: part of a mythologized past, looking at ethnic purity, looking
• 20:43
  Speaker 1: at walls, looking at the dictates of a strong by
• 20:46
  Speaker 1: the church state ruler, and very sadly nationalism, no matter
• 20:50
  Speaker 1: how you put it, becomes a gateway to fascism. We
• 20:53
  Speaker 1: see the certainly in Poland, which as you know, Article seven,
• 20:57
  Speaker 1: which is basically sanctions possible sanctions may already be invoked
• 21:01
  Speaker 1: against Poland for violating freedom of the judiciary, for historical
• 21:05
  Speaker 1: religionism and basically historical denial, which has just been codified
• 21:09
  Speaker 1: into law. Hungary close behind, and a sort of what
• 21:13
  Speaker 1: I call a prettier and younger neo fascist PM Prime
• 21:17
  Speaker 1: Minister in Austria. Then we got we gotta leave it there.
• 21:20
  Speaker 1: Professor Irene Finolhanagmen, Adjunct Professor International Affairs at Columbia University.
• 21:40
  Speaker 1: I want to bring in Laura ram Are, the chief
• 21:42
  Speaker 1: US economist for FS Investments, helping to manage approximately twenty
• 21:47
  Speaker 1: billion dollars based in Philadelphia. Laura, thanks very much. I
• 21:51
  Speaker 1: just want to start off by understanding where we are
• 21:54
  Speaker 1: in the business cycle. We got the initial jobs claims report,
• 21:59
  Speaker 1: and um, it seems that the labor pool is pretty tight,
• 22:03
  Speaker 1: and this is just one of the elements that you
• 22:07
  Speaker 1: say indicates that we are at a mature phase of
• 22:11
  Speaker 1: the cycle. Tell us about the other indicators and what
• 22:15
  Speaker 1: this means for investors. That's right. You know, we focus
• 22:19
  Speaker 1: so much on forecasts of GDP quarter to quarter, but
• 22:22
  Speaker 1: to me, that's really missing the point when I look
• 22:26
  Speaker 1: at the overall arc of the business cycle. In addition
• 22:29
  Speaker 1: to that tight labor market, you're seeing expensive asset prices.
• 22:32
  Speaker 1: You're starting to see the consumer looking over leverage again,
• 22:36
  Speaker 1: not so much in mortgages, but in consumer debt. Uh
• 22:40
  Speaker 1: close to levels that we saw on the savings rate
• 22:42
  Speaker 1: low low enough, close to levels that we saw towards
• 22:46
  Speaker 1: the end of the last expansion. So the one critical
• 22:49
  Speaker 1: piece that we're missing is inflation. Um Normally, in the
• 22:53
  Speaker 1: late stages of a business cycle, we see inflation starting
• 22:56
  Speaker 1: to rise, and that has been something that markets are
• 22:59
  Speaker 1: now really on edge about. I think we all remember
• 23:01
  Speaker 1: what happened last one when the employment numbers came up. Boy,
• 23:05
  Speaker 1: that's really put a focus I think for everybody on
• 23:07
  Speaker 1: tomorrow morning numbers. Laura, you know, you talk about consumer
• 23:10
  Speaker 1: debt reaching levels similar to where it was ahead of
• 23:14
  Speaker 1: the last crisis. A lot of people dismiss this, and
• 23:18
  Speaker 1: if you look at it on a per capita basis
• 23:21
  Speaker 1: or on a debt to household wealth basis, it doesn't
• 23:25
  Speaker 1: look that bad. Do you think it is more concerning
• 23:28
  Speaker 1: than people are letting on? You know, I do. And
• 23:32
  Speaker 1: there are two reasons for that. One, our economy is
• 23:34
  Speaker 1: still so reliant on the consumer. So we really, given
• 23:39
  Speaker 1: our heavy, heavy reliance on the consumer, we need the
• 23:42
  Speaker 1: consumer to really continue to add momentum if we want
• 23:46
  Speaker 1: to keep this really you know what is actually a
• 23:49
  Speaker 1: very robust pace of growth going forward. And the second
• 23:52
  Speaker 1: reason is that we're just not seeing the labor gate,
• 23:55
  Speaker 1: the wage gains, um a lot of the I think
• 23:58
  Speaker 1: increase in spending that we've seen as driven by wealth gains,
• 24:01
  Speaker 1: and that's levely, don't get me wrong. But should we
• 24:04
  Speaker 1: see any correction in stock markets, I think all of
• 24:06
  Speaker 1: a sudden, the consumer starts to feel the pinch and
• 24:09
  Speaker 1: could pull back pretty quickly. Um. That kind of uncertainty
• 24:14
  Speaker 1: gives me pause, and I think, um, you know, we
• 24:18
  Speaker 1: all need to be mindful of the fact that high
• 24:20
  Speaker 1: levels of leverage naturally lead to higher levels of volatility,
• 24:24
  Speaker 1: both in the economic reaction and on the part of
• 24:27
  Speaker 1: fantial markets. Laura, I don't know whether you've had the
• 24:29
  Speaker 1: chance to look into the new Amazon store and see
• 24:32
  Speaker 1: attle where there are no cashiers, You just pick up
• 24:35
  Speaker 1: your items, you go and it is instantly debited to
• 24:38
  Speaker 1: your account, where whichever prime account you might have at Amazon,
• 24:43
  Speaker 1: it's automated. Do we have the same kind of automation
• 24:46
  Speaker 1: that exists when it comes to the investment world, and
• 24:49
  Speaker 1: people really don't know what is behind their activity because
• 24:53
  Speaker 1: if you pick up something and you don't know how
• 24:55
  Speaker 1: much it costs, you don't know until you go home
• 24:57
  Speaker 1: that it really might have broken the bank. You know,
• 25:00
  Speaker 1: I think, I think that's a great analogy. I think,
• 25:03
  Speaker 1: you know, it's it's incredible how there are so many
• 25:06
  Speaker 1: unknowns right now that really put us in unchartered waters, um.
• 25:11
  Speaker 1: And the big one is this passive versus active investment.
• 25:15
  Speaker 1: There are so many robo advisors, algorithmic trading programs, um,
• 25:20
  Speaker 1: you know, ets based investments, and I think it just
• 25:23
  Speaker 1: reinforces this complacency. These products were developed to give us
• 25:27
  Speaker 1: by versification, but if everybody is in the same trade
• 25:31
  Speaker 1: to diversify, it actually has the opposite effect. And that's
• 25:33
  Speaker 1: what we've seen so UM. You know, when we had
• 25:36
  Speaker 1: I think the really big spike in volatility about a
• 25:39
  Speaker 1: month ago, that giant gap down. You know, the optics
• 25:43
  Speaker 1: on these moves are number one, really shocking, just given
• 25:47
  Speaker 1: the high levels of the index values in and of themselves,
• 25:51
  Speaker 1: and second of all, because we just don't know where
• 25:54
  Speaker 1: a lot of these moves and trades are coming from.
• 25:57
  Speaker 1: But I really want one of those stores to open
• 25:59
  Speaker 1: near my house because I think that makes it Mike
• 26:01
  Speaker 1: shopping stun a lot easier. Laura. You know, there are
• 26:05
  Speaker 1: a lot of risks, and we're outlining some of them
• 26:08
  Speaker 1: right now. We heard from JP Morgan's Dan Pinto earlier
• 26:11
  Speaker 1: today and he was saying that he could foresee a
• 26:14
  Speaker 1: scenario where in the next two to three years at
• 26:17
  Speaker 1: US stocks sell off. By can you envision a scenario
• 26:22
  Speaker 1: in which that would happen? I mean, does that seem
• 26:24
  Speaker 1: likely to you? Well? And I think you know, you
• 26:27
  Speaker 1: know who knows. I don't have a crystal ball and
• 26:30
  Speaker 1: to you know, any kind of fell off or timing
• 26:33
  Speaker 1: or anything. If I did, I would be speaking to
• 26:34
  Speaker 1: you from my yacht in the south of France. But
• 26:38
  Speaker 1: I think, UM that when we look ahead, we know
• 26:42
  Speaker 1: from history that UM that the economy tops out, that
• 26:46
  Speaker 1: stocks tend to peak much earlier than the economic cycle does.
• 26:51
  Speaker 1: So UM we often see UM by the time sort
• 26:55
  Speaker 1: of a you know, the economic expansion wind down. UM,
• 26:58
  Speaker 1: by the time that your cycle turns into and ends
• 27:03
  Speaker 1: in some kind of break or recession that the markets
• 27:06
  Speaker 1: have usually signaled that foreign advance and have made the
• 27:10
  Speaker 1: corrective move far in advance. So I think you know
• 27:12
  Speaker 1: that's where you need to almost remember that markets are
• 27:17
  Speaker 1: so forward looking. Um and I think we've seen a
• 27:20
  Speaker 1: lot of the positive news on the economy already priced in.
• 27:23
  Speaker 1: I just don't know where you get more positive surprises
• 27:26
  Speaker 1: on the economy from here. Laura Raym, thank you so
• 27:29
  Speaker 1: much for joining us, and Happy International Women's Day. Laura Raym,
• 27:33
  Speaker 1: chief US economist at FS Investments, which overseas about twenty
• 27:37
  Speaker 1: and a half billion dollars based in Philadelphia. Thanks for
• 27:44
  Speaker 1: listening to the Bloomberg p m L podcast. You can
• 27:46
  Speaker 1: subscribe and listen to interviews at Apple Podcasts, SoundCloud, or
• 27:50
  Speaker 1: whatever podcast platform you prefer. I'm pim Fox. I'm on
• 27:54
  Speaker 1: Twitter at pim Fox. I'm on Twitter at Lisa Abramo.
• 27:58
  Speaker 1: It's one before the podcast. You can always catch us
• 28:00
  Speaker 1: worldwide on Bloomberg Radio.