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Look at Value Compared to growth says Bent Hunt · Bloomberg Intelligence

• 0:05
  Speaker 1: Welcome to the Bloomberg p m L Podcast. I'm pim
• 0:08
  Speaker 1: Fox along with my co host Lisa Bramowitz. Each day
• 0:11
  Speaker 1: we bring you the most important, noteworthy, and useful interviews
• 0:15
  Speaker 1: for you and your money, whether you're at the grocery
• 0:17
  Speaker 1: store or the trading floor. Find the Bloomberg p m
• 0:20
  Speaker 1: L Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot com.
• 0:33
  Speaker 1: We have a big meeting coming up or at least
• 0:35
  Speaker 1: announcement tomorrow. Today the Fed begins it's two day monthly
• 0:39
  Speaker 1: meeting or I guess not monthly ten times a year UM.
• 0:43
  Speaker 1: I want to bring in Ira Jersey. He's chief US
• 0:45
  Speaker 1: interest rate strategist for Bloomberg in chaligence, and before we
• 0:48
  Speaker 1: look ahead to what we're expecting from the Federal Reserve tomorrow,
• 0:52
  Speaker 1: I want to talk about this inflation data that we
• 0:54
  Speaker 1: got out this morning. UH inflation accelerating to its highest
• 0:57
  Speaker 1: in six years, and yet not a wholesale cheer necessarily
• 1:03
  Speaker 1: from markets. Why Yeah, high A couple of things, Lisa.
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  Speaker 1: I think one is that the UH UM the market
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  Speaker 1: was expecting the numbers that we received. And I think
• 1:13
  Speaker 1: one of the reasons why you have UM, certainly interest
• 1:16
  Speaker 1: rates near where they are you know, tenure yield right
• 1:18
  Speaker 1: close to three percent, yet again after the big risk
• 1:21
  Speaker 1: off we had two weeks ago. Is because we are
• 1:24
  Speaker 1: expecting inflation to kind of hover with co inflation at
• 1:27
  Speaker 1: just over two percent. So um, you know, you have
• 1:31
  Speaker 1: that plus a risk premium on top of that, and
• 1:33
  Speaker 1: that gets you too close to three percent and that's
• 1:35
  Speaker 1: where um, we're we're likely to hover for for a
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  Speaker 1: little while. Um. It does have big implications for the
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  Speaker 1: economy though, because when one of the things that that
• 1:43
  Speaker 1: we calculate based on this inflation data is what are
• 1:46
  Speaker 1: real wages? So what are wages minus inflation? And those
• 1:49
  Speaker 1: have been coming down from from a from a high
• 1:53
  Speaker 1: last month. So um, so that's something we have to
• 1:55
  Speaker 1: keep track of. Is is you know, will spending be
• 1:57
  Speaker 1: able to be kept up if inflation can and used
• 2:00
  Speaker 1: to rise? So how will the FED view this? Yeah,
• 2:03
  Speaker 1: so I think the FED is going to say, Okay,
• 2:05
  Speaker 1: this is evidence that what we're doing is the right
• 2:07
  Speaker 1: policy path because we've been hiking you know, irregularly, but
• 2:12
  Speaker 1: certainly consistently, and as such, we you know, we were
• 2:16
  Speaker 1: trying to get inflation under control. We don't want inflation
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  Speaker 1: to be significantly above where it is today. UM. But
• 2:23
  Speaker 1: you know, it says that their gradual path hasn't really
• 2:26
  Speaker 1: disrupted the economy, but it also hasn't yet brought inflation
• 2:30
  Speaker 1: and inflation expectations down very much. So until it does that,
• 2:33
  Speaker 1: I think that they're going to continue to be reasonably hawkish.
• 2:37
  Speaker 1: So right now I'm looking at the expectations that are
• 2:40
  Speaker 1: being priced into the futures market for a FED rate
• 2:43
  Speaker 1: hike tomorrow. It is pretty much chance of a rate
• 2:47
  Speaker 1: hike tomorrow. UM. I think the more interesting thing that
• 2:51
  Speaker 1: we can hear from the Fed is guidance for the
• 2:55
  Speaker 1: rest of the year for next year, and there's been
• 2:57
  Speaker 1: some speculation that the Fed might hint that it would
• 3:01
  Speaker 1: be willing to slow or cretail it's balance sheet normalization
• 3:07
  Speaker 1: if the economy didn't accelerate more. Have you heard about that?
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  Speaker 1: What do you make of that? Yeah? So, so certainly
• 3:13
  Speaker 1: one or two UM, what one or two economists have
• 3:16
  Speaker 1: suggested that maybe the UM the FED might consider slowing
• 3:20
  Speaker 1: the pace of adjustment. I think part of the reason
• 3:22
  Speaker 1: for that is that you've seen the FED funds market
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  Speaker 1: start to creep up toward the interest that the FED
• 3:28
  Speaker 1: pays on access reserves and because of that, they're thinking, oh, well,
• 3:32
  Speaker 1: that means that money markets are very tight, and because
• 3:34
  Speaker 1: money markets are tight, we should maybe not reduce the
• 3:37
  Speaker 1: balance sheet as much. I'm not convinced that it's really
• 3:40
  Speaker 1: it's port folio runoff that's doing this. There's a lot
• 3:43
  Speaker 1: of other factors that are involved in the pricing of
• 3:45
  Speaker 1: Fed funds and and other short end um short end
• 3:49
  Speaker 1: rate So, for example, right now, there's a lot of
• 3:51
  Speaker 1: treasury bills in the market because of the fiscal stimulus.
• 3:54
  Speaker 1: The Treasury departments issued a lot of them, so that's
• 3:57
  Speaker 1: caused almost every single front end interest rate to move
• 4:00
  Speaker 1: a bit higher than it had been prior to this year.
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  Speaker 1: So it's not that the Fed can really do much
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  Speaker 1: about it except maybe lower um and not hike interests
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  Speaker 1: that paid on reserves by as much as they do
• 4:13
  Speaker 1: their UH, their range of where they want to keep
• 4:15
  Speaker 1: the Fed funds right. You know, I'm glad that you
• 4:17
  Speaker 1: mentioned bills. We've been talking a lot about the treasury
• 4:21
  Speaker 1: auctions this week. They're nearly two hundred billion dollars of
• 4:25
  Speaker 1: debt auctions. Most of them are bills. UH. The ten
• 4:28
  Speaker 1: year auction of a coupon debt yesterday went really well.
• 4:32
  Speaker 1: Today we have more bill sales. How are the bill
• 4:35
  Speaker 1: sales going? And who is buying? Yeah? So the so
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  Speaker 1: the bill sales have really been, uh been up and down,
• 4:42
  Speaker 1: and in particular, what's been really good is actually six
• 4:44
  Speaker 1: months bills, which which a little bit surprises me because
• 4:47
  Speaker 1: when we don't know if the Federal Reserve is going
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  Speaker 1: to hike perhaps two times over the next couple of
• 4:52
  Speaker 1: months or one time over the next couple of months,
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  Speaker 1: you know, why lock in for six months when you
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  Speaker 1: can just do a four week bill or three months
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  Speaker 1: bill and be able to capture and additional FED hike
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  Speaker 1: if if the Fed happens the hike in both June
• 5:04
  Speaker 1: and September. Um so so demands good. Who's buying it's
• 5:08
  Speaker 1: it's mostly it's mostly end users. So when you look
• 5:11
  Speaker 1: at at who's purchasing those longer term securities, it's UM,
• 5:15
  Speaker 1: it's UH investment funds and the like. The front end
• 5:18
  Speaker 1: bills of four week bills tend to go to dealers,
• 5:21
  Speaker 1: and then the dealers then UM then sell them on
• 5:23
  Speaker 1: to other other investors such as money market funds and
• 5:26
  Speaker 1: and UH and just cash equivalent investors. Um I do
• 5:30
  Speaker 1: want to just bring you some headlines just crossing. The
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  Speaker 1: Senate panel voted twenty four and five against rich Clorida
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  Speaker 1: for his nomination is FED vice chair? Excuse me. The
• 5:41
  Speaker 1: Senate panel also voted eighteen four seven against for Bowman
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  Speaker 1: for his FED nomination. And do you think that any
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  Speaker 1: of these sort of changes to the composition of the
• 5:50
  Speaker 1: Federals or of will affect sort of the direction of policy?
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  Speaker 1: I don't think so. I think Richard Clarenda, in particular
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  Speaker 1: is is a pretty mainstream, um mainstream economists. I think
• 6:01
  Speaker 1: that he'll look at the economy where it's going, and
• 6:04
  Speaker 1: how policy might might impact both markets and importantly the economy,
• 6:09
  Speaker 1: and as such he'll you know, he's not going to
• 6:12
  Speaker 1: really rock the boat as much as some other people
• 6:15
  Speaker 1: that we may be thought, um that that President Trump
• 6:17
  Speaker 1: might might actually pick um. You know, he's not a
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  Speaker 1: particularly hawkish or dovist person. Um. You know, when you
• 6:24
  Speaker 1: know you've spoken to him, I've spoken to him. He's
• 6:26
  Speaker 1: really a reasonable, a reasonable person when it comes in
• 6:29
  Speaker 1: and a real monetary policy expert. So I think when
• 6:32
  Speaker 1: when it comes to things like changes in the Balancie composition,
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  Speaker 1: he'll be one person that they'll definitely lean on for
• 6:38
  Speaker 1: his opinion as to you know, what size the balance
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  Speaker 1: should be or the pace of reduction there I Jersey,
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  Speaker 1: thank you so much for being with us our Jersey
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  Speaker 1: chief US interest rate strategist for Bloomberg Intelligence. Great insight
• 6:50
  Speaker 1: ahead of the announcement to borrow from the Federal Reserve
• 6:53
  Speaker 1: as well as all of the Treasury auctions the first
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  Speaker 1: two days of this week. This is a confusing US economy.
• 7:12
  Speaker 1: While it is very strong now, certainly a growing number
• 7:16
  Speaker 1: of traders are saying, perhaps this is as good as
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  Speaker 1: it gets, and how do you maneuver given the fact
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  Speaker 1: that the hangover from the really incredible expansion that we've
• 7:26
  Speaker 1: seen could be potentially dramatic. Joining us now, Ben Hunt,
• 7:29
  Speaker 1: He has chief investment strategist at Salient, which manages about
• 7:33
  Speaker 1: thirteen billion dollars and is focused on real assets. Ben
• 7:37
  Speaker 1: Hunt is also the author of Epsilon Theory dot com
• 7:42
  Speaker 1: um and it has a hundred thousand professional investors as
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  Speaker 1: regular readers. Ben, thank you so much for joining me. Um.
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  Speaker 1: I want to start with how you're viewing the economy
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  Speaker 1: right now, because on one hand, you're seeing US inflation
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  Speaker 1: at six years six year highs. You're seeing wages that
• 7:59
  Speaker 1: are not being up to the degree that people would
• 8:02
  Speaker 1: like to see, a federal reserve that's hiking. Where where
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  Speaker 1: are you thinking as far as the sort of risk
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  Speaker 1: appetite that you're willing to make. Well, it's great to
• 8:10
  Speaker 1: be on again, Lisa, Thank thanks for having me. And
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  Speaker 1: I think you put your finger on what is the
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  Speaker 1: real I'll use a ten dollar word dichotomy. You know,
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  Speaker 1: it's this, it's this real uh fracture that we're seeing
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  Speaker 1: between the real economy and what i'll call the market economy.
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  Speaker 1: You know, what's happening in the in the in the
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  Speaker 1: stock market. And look, you know, for the last nine years,
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  Speaker 1: we've had a stock market that is really rocked uh
• 8:36
  Speaker 1: and A and a real economy, particularly here in the US,
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  Speaker 1: it's been mich right. And and what what I think
• 8:43
  Speaker 1: you're seeing today is that that's really been turned on
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  Speaker 1: his head, right, that you've got a real economy that
• 8:50
  Speaker 1: is starting to to really pick up here. And we
• 8:53
  Speaker 1: can talk about signs off of that and what's driving that.
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  Speaker 1: But at the same time, you're you're seeing the markets
• 8:59
  Speaker 1: you here kind of looking mech right, and and what
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  Speaker 1: I'm trying to say, is that's not an accident. Right.
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  Speaker 1: We've had this split in this this this dichotomy between
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  Speaker 1: the real world, the real economy and markets for about
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  Speaker 1: nine years now, and now it's truly flipping on his head. Well,
• 9:16
  Speaker 1: you know, I want to just push back a little
• 9:17
  Speaker 1: bit because I think that when you talk about the
• 9:20
  Speaker 1: real economy, what are you looking at? Because you know,
• 9:23
  Speaker 1: there are signs that you know, there still is a
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  Speaker 1: large swath of people that have been left behind in
• 9:28
  Speaker 1: the recovery because there has been so much focus on
• 9:31
  Speaker 1: the stock market and you know, assets that only the
• 9:34
  Speaker 1: wealthiest people are really heavily invested in. And so I'm
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  Speaker 1: just wondering, you know, what's where are you getting the
• 9:41
  Speaker 1: sense it's going to accelerate? Yeah? Yeah, No, what I
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  Speaker 1: mean by the real economy, I'm really focusing on small
• 9:47
  Speaker 1: and medium businesses here in the United States. You know,
• 9:50
  Speaker 1: we got some some some new data out today. You know,
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  Speaker 1: the I'll call it the confidence, the intention to grow,
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  Speaker 1: the intention to spend, the intention to higher from small businesses,
• 10:02
  Speaker 1: which still are the economic backbone of this country, of
• 10:07
  Speaker 1: our real economy. You know, that confidence at least for
• 10:11
  Speaker 1: intention to grow, it's never been higher since they've been
• 10:14
  Speaker 1: taking this survey, and they've been taking it for a
• 10:16
  Speaker 1: long time. Now. Look, I totally agree with you that
• 10:19
  Speaker 1: there are so many people that have been left behind
• 10:22
  Speaker 1: in what i'll call the inflation we have had over
• 10:25
  Speaker 1: the last nine years, which is an inflation in asset prices.
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  Speaker 1: So we're seeing wealth inequality return to levels we haven't
• 10:35
  Speaker 1: seen since the nineteen thirties, and that has enormous consequences,
• 10:39
  Speaker 1: particularly in politics. But what I'm talking about with the
• 10:42
  Speaker 1: real economy, I'm talking about small the medium businesses year
• 10:45
  Speaker 1: in the United States and their perception, their intention has
• 10:51
  Speaker 1: never been more growth oriented. Uh, new hiring, new expansion,
• 10:57
  Speaker 1: all of that. That's what I'm talking about with the
• 10:59
  Speaker 1: real economy. How are you capitalizing on that? How are
• 11:01
  Speaker 1: you investing around that? Well, look, it's it's it. It
• 11:05
  Speaker 1: really means, you know, thinking about how to invest your
• 11:09
  Speaker 1: money away from the public markets that have been the
• 11:14
  Speaker 1: beneficiary of what I'll call is the monetary stimulus, you know,
• 11:18
  Speaker 1: central banks buying everything inside for the last nine years.
• 11:22
  Speaker 1: And now how do you think about, well, what if
• 11:25
  Speaker 1: that gets turned on his head with the SAD now
• 11:28
  Speaker 1: shrinking its balance sheet, with the tide going out on
• 11:31
  Speaker 1: the monetary stimulus. But at the same same time, you've
• 11:35
  Speaker 1: got fiscal stimulus in the form of tax cuts. You've
• 11:38
  Speaker 1: got and I know this sounds weird, but as the
• 11:41
  Speaker 1: Fed normalizes interest rates from this very low base, I
• 11:44
  Speaker 1: think that's actually stimulative again to these small and medium businesses.
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  Speaker 1: And third, I don't think you can overestimate I really don't.
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  Speaker 1: What I'll call is the Donald Trump narrative that you know,
• 11:57
  Speaker 1: whatever the reality is, there is a reception that there's
• 12:01
  Speaker 1: enormous change of foot particularly informs of deregulation, all of
• 12:05
  Speaker 1: those things benefiting the mindset, let's call it the expectations
• 12:11
  Speaker 1: of small to medium businesses. So what do you do
• 12:13
  Speaker 1: for that for investing? Well, look, you can certainly look
• 12:16
  Speaker 1: at private markets as opposed to public markets, but you
• 12:20
  Speaker 1: can also look at value of compared to growth. And
• 12:24
  Speaker 1: you can look at you know, the Russell two thousand,
• 12:26
  Speaker 1: which tends to doesn't tend it's comprised of those smaller
• 12:31
  Speaker 1: cap stocks which tend to match or mimic those smaller
• 12:36
  Speaker 1: to medium businesses in the real economy. But one thing
• 12:39
  Speaker 1: that I'm struck by is that the Russell two thousand
• 12:41
  Speaker 1: is actually outperformed dramatically this year. I mean, it's almost
• 12:46
  Speaker 1: what I'm talking about. Yeah, I mean, I'm just wondering
• 12:47
  Speaker 1: how much is left. Look, I think there's a lot left, frankly,
• 12:54
  Speaker 1: right because I I think there's been such a tent
• 12:57
  Speaker 1: up I'll call it demand, but it's it's there's there's
• 13:01
  Speaker 1: such a tent up energy in the small and medium
• 13:04
  Speaker 1: businesses in this country that I think this can go
• 13:08
  Speaker 1: on for quite a long time. Now. Look, ultimately, mistakes
• 13:12
  Speaker 1: will be made, right, the said will hike rates too
• 13:16
  Speaker 1: you know, an an interest rate hike too far. Ultimately
• 13:19
  Speaker 1: we will get really inflation starting to kick in, which
• 13:23
  Speaker 1: hits the margins not just of you know, big companies,
• 13:27
  Speaker 1: but also small and medium companies. That that that's all
• 13:29
  Speaker 1: going to happen. But right now we're at this phase
• 13:33
  Speaker 1: where these small and medium businesses are really picking their
• 13:36
  Speaker 1: heads up and are intending to spend expand and that
• 13:40
  Speaker 1: can do well for stocks to represent that. Then, what
• 13:43
  Speaker 1: do you think is the biggest thing that investors are
• 13:46
  Speaker 1: getting wrong right now? You know, the biggest thing they're
• 13:51
  Speaker 1: getting wrong had in my view, is that we are
• 13:54
  Speaker 1: still trapped in this perception that we live in a
• 13:58
  Speaker 1: deflationary world forever and ever. I'm in just as far
• 14:02
  Speaker 1: as the eye can see. And you know, frankly, this
• 14:05
  Speaker 1: has been the right bet for forty years, right that
• 14:08
  Speaker 1: that we have been in this deflationary rates are always
• 14:11
  Speaker 1: going down type of world. What I'm trying to suggest
• 14:15
  Speaker 1: is is that when these big picture items like are
• 14:19
  Speaker 1: we in an inflationary world or deflationary world? When these
• 14:22
  Speaker 1: ideas change is at moments just like this, because it's
• 14:26
  Speaker 1: driven by change in politics, is driven by a change
• 14:30
  Speaker 1: in the mindset, the expectations, particularly of small to medium businesses.
• 14:35
  Speaker 1: So I think there's a you know, I'll use another
• 14:38
  Speaker 1: ten dollar phrase, a non trivial chance that where at
• 14:41
  Speaker 1: the cusp of a big shift here in the investment environment,
• 14:47
  Speaker 1: our business environment, and that's moving from a world where
• 14:50
  Speaker 1: it's deflation all the time to where we really have
• 14:53
  Speaker 1: to start flexing those How do you invest in an
• 14:56
  Speaker 1: inflationary market all over again? And Hunt, thank you so
• 15:00
  Speaker 1: much for joining me, really really interesting. Ben Hunt, chief
• 15:03
  Speaker 1: investment strategist at Salient. Salient Managers about thirteen billion dollars.
• 15:08
  Speaker 1: It's focused on real assets. Been also is the author
• 15:11
  Speaker 1: of a blog epsilon theory. Dot com markets have been
• 15:31
  Speaker 1: struggling to figure out the real world impact from the
• 15:35
  Speaker 1: increasing trade tensions between the US and other major economies.
• 15:40
  Speaker 1: One place so where perhaps we'll be able to see
• 15:43
  Speaker 1: that is with tourism. And the question is has tourism
• 15:47
  Speaker 1: to the United States declined? Joining US now Chris Thompson, President,
• 15:51
  Speaker 1: chief executive officer of Brand USA. It is a federal
• 15:55
  Speaker 1: agency that focuses on trying to attract international dull travelers
• 16:01
  Speaker 1: to the U as Chris, thank you so much for
• 16:03
  Speaker 1: being with me, so good morning, my pleasure. So I'd
• 16:06
  Speaker 1: love to get your sense of exactly this, whether or
• 16:10
  Speaker 1: not fewer tourists are coming to the US as a
• 16:13
  Speaker 1: response of to the growing tension that has frankly erupted
• 16:18
  Speaker 1: during President Trump and some of these longstanding allies. You know,
• 16:22
  Speaker 1: we have seen some softness in international visitation to the
• 16:25
  Speaker 1: United States. That was after record visitation for six or
• 16:30
  Speaker 1: eight years, But the majority of that actually happened prior
• 16:33
  Speaker 1: to the elect of the majority of the reasons for
• 16:36
  Speaker 1: that happened prior to the election and have really been
• 16:38
  Speaker 1: influencing since then, the main thing being the strength of
• 16:41
  Speaker 1: the dollar. You know, you look at market flag Canada,
• 16:44
  Speaker 1: Mexico and others. You know, when the dollars strong and
• 16:48
  Speaker 1: obviously makes it a little more challenging for folks looking
• 16:51
  Speaker 1: to travel to the United States. So that has been
• 16:55
  Speaker 1: the case for uh an extended period of time at
• 16:58
  Speaker 1: at levels that have been higher than normal. So I
• 17:02
  Speaker 1: think that's contributed significantly some of our uh you know,
• 17:07
  Speaker 1: some of the things that affect people's intent to travel
• 17:10
  Speaker 1: and their willingness to travel or what's affecting them back home.
• 17:13
  Speaker 1: So a lot of economic, political, social tensions back home
• 17:17
  Speaker 1: also influence intent to travel. So I'm not sure you
• 17:20
  Speaker 1: can really pay it on, uh, the things that are
• 17:23
  Speaker 1: happening at the moment um. You know, the beautiful thing
• 17:26
  Speaker 1: about travel is it really has the ability to transcend politics.
• 17:30
  Speaker 1: It's you know about destinations, experiences and US as Americans.
• 17:34
  Speaker 1: And you know, we know once people travel to the
• 17:36
  Speaker 1: United States and they can immerse themselves and our destinations
• 17:39
  Speaker 1: and and they get to feel from US as Americans, uh,
• 17:43
  Speaker 1: as far as as being some of the most welcoming
• 17:45
  Speaker 1: people in the world, that that has ability to kind
• 17:48
  Speaker 1: of rise above all that. Did you notice an uptick
• 17:50
  Speaker 1: in visitors international visitors to the US earlier this year
• 17:54
  Speaker 1: when the dollar weakened. Yeah, you know, there was some
• 17:58
  Speaker 1: some moderation in the dollar, so it was hard to tell.
• 18:02
  Speaker 1: The numbers that we get are lagging numbers from the
• 18:05
  Speaker 1: Department of Commerce, so I'm not sure we'll really know
• 18:07
  Speaker 1: the true impact on what our final numbers as a
• 18:10
  Speaker 1: result of that. But we did see some some increases
• 18:14
  Speaker 1: in numbers going into seen which was encouraging. And a
• 18:17
  Speaker 1: lot of that, as you pointed out, had to do
• 18:20
  Speaker 1: with the fact that the dollar was weakening a bit.
• 18:22
  Speaker 1: But I think now it's maybe heading back in the
• 18:24
  Speaker 1: other direction, and and so it just depends on where
• 18:28
  Speaker 1: that all ends. Can you give us some perspective on
• 18:30
  Speaker 1: how important tourism is to the U. S economy? So
• 18:35
  Speaker 1: most people don't realize that travel is actually an export.
• 18:37
  Speaker 1: The product is the experienced people have, the memories they
• 18:41
  Speaker 1: take home. As an export, it's a service export. So
• 18:45
  Speaker 1: of everything the United States exports that's a service is
• 18:48
  Speaker 1: tried to tie to people coming here, having the experiences
• 18:52
  Speaker 1: and leaving their money. Eleven percent of everything the largest
• 18:55
  Speaker 1: economy in the world exports is tied to people traveling
• 18:57
  Speaker 1: to the United States enjoying them els and leaving their
• 19:01
  Speaker 1: money behind. You know, you look at balance of trade.
• 19:04
  Speaker 1: Trade is obviously a big topic right now. In the
• 19:07
  Speaker 1: last time we had annual numbers, we had seventy six
• 19:10
  Speaker 1: million people spend two billion dollars and that was an
• 19:15
  Speaker 1: eighty four billion dollar positive contribution to the balance of trade.
• 19:18
  Speaker 1: So when you look at it as an economic engine,
• 19:21
  Speaker 1: it's certainly a huge contributor. And then on the soft
• 19:24
  Speaker 1: diplomacy side, we know that, as I said earlier, once
• 19:26
  Speaker 1: people have a chance to come and experience the United States,
• 19:29
  Speaker 1: they always walk away with a more positive opinion of it,
• 19:33
  Speaker 1: whatever their opinion was coming in Chris. Last year, there
• 19:36
  Speaker 1: were a number of stories that came out saying that
• 19:39
  Speaker 1: President Trump's budget eliminated funding for Brand USA and would
• 19:44
  Speaker 1: effectively kill the organization. Have you heard more about that?
• 19:49
  Speaker 1: What was your response? You know, anytime a president comes
• 19:52
  Speaker 1: in the way for them to make a statement of
• 19:55
  Speaker 1: priorities through budget. Uh And so obviously there were a
• 19:58
  Speaker 1: lot of priorities. There's never enough money in Washington to
• 20:01
  Speaker 1: do everything that everybody wants to do. Uh. So the
• 20:03
  Speaker 1: good news is that the people that actually appropriate or
• 20:06
  Speaker 1: Congress Congress we have a tremendous bipartisan, strong majority relationship.
• 20:12
  Speaker 1: As far as support in Congress, UH, when Congress actually
• 20:15
  Speaker 1: got to the business of appropriations are funding state impact
• 20:19
  Speaker 1: as as budgets were moved forward. So UH, though we
• 20:23
  Speaker 1: would have liked it, liked it to have been a
• 20:25
  Speaker 1: different situation. As far as the President's budget, we understand
• 20:28
  Speaker 1: that it is a statement of priorities and it's a
• 20:31
  Speaker 1: way to navigate a situation where there's really never enough funding.
• 20:34
  Speaker 1: Just a real quick what is how exactly do you
• 20:37
  Speaker 1: market the US to international investors? So our job is
• 20:42
  Speaker 1: to reach out to all the markets around the world.
• 20:45
  Speaker 1: We're we're headquartered here at Washington, d C. We're actually
• 20:48
  Speaker 1: a private company that had that's in partnership with the
• 20:51
  Speaker 1: federal government. We have fifteen offices around the world. We
• 20:53
  Speaker 1: take UH messages direct to consumers, and in this year,
• 21:00
  Speaker 1: our theme is music. Before there were destination marketing organizations
• 21:04
  Speaker 1: like Brand USA, the way people found out about US
• 21:06
  Speaker 1: was through movies and music. And we just released a
• 21:10
  Speaker 1: Imax film called America's Musical Journey, which documents the heritage
• 21:15
  Speaker 1: of American music and the cities that it was founded
• 21:18
  Speaker 1: in and tells a story about how UH that is
• 21:23
  Speaker 1: is a great way to talk about the United States,
• 21:25
  Speaker 1: America and what there is to see and do through music.
• 21:27
  Speaker 1: So our job is to be storytellers, to inspire travel
• 21:31
  Speaker 1: uh from our friends and visitors from around the world,
• 21:33
  Speaker 1: and in the end to really remind them why they
• 21:36
  Speaker 1: want to come to the United States, why it is
• 21:38
  Speaker 1: the most aspirational destination in the world. Chris Thompson, thank
• 21:41
  Speaker 1: you so much for being with me, President and Chief
• 21:42
  Speaker 1: executive Officer of Brand USA, coming to us from Washington,
• 21:47
  Speaker 1: d C. One notable thing about this week, which some
• 22:06
  Speaker 1: have dubbed the most important week of the year, is
• 22:09
  Speaker 1: that markets just don't care. They have not cared about
• 22:14
  Speaker 1: the Trump Kim Jung summit. UH. They haven't necessarily cared
• 22:18
  Speaker 1: about the inflammatory rhetoric out of the G seven meetings.
• 22:21
  Speaker 1: Here we had inflation data that came out pretty much
• 22:24
  Speaker 1: in line with expectations. No one cared. The Fed's going
• 22:27
  Speaker 1: to raise rates tomorrow, and then the ECB meets. Evan
• 22:30
  Speaker 1: Brown joins us now to see what'll make him care
• 22:33
  Speaker 1: and change potentially his views on the market. Right now,
• 22:37
  Speaker 1: Evan Brown is Director of Asset Allocation as part of
• 22:40
  Speaker 1: the Investment Solutions team for UBS Asset Management and he
• 22:44
  Speaker 1: joins us here in our eleven three oh studios. So, Evan,
• 22:48
  Speaker 1: what will make people care sort of change their strategies
• 22:52
  Speaker 1: that that's coming out potentially this week? Yes, So I think,
• 22:56
  Speaker 1: I mean, if anything is gonna gonna make us care,
• 22:58
  Speaker 1: it's it should be the tomb important central banks, arguably
• 23:02
  Speaker 1: at least in the development in developed markets to fend
• 23:04
  Speaker 1: the e CB this week. So um, I think for
• 23:07
  Speaker 1: the FED, we are going to get hike. We're finally
• 23:11
  Speaker 1: going to get to a priced in at its priced in.
• 23:15
  Speaker 1: But of course right after that you'll get the summary
• 23:17
  Speaker 1: of economic projections. Everyone will be wanting to looking at
• 23:20
  Speaker 1: at the forecast. What the people still care about the dots?
• 23:24
  Speaker 1: People still care about the dots? Uh, And people will say, oh,
• 23:28
  Speaker 1: the FED is moving to four hikes or or in
• 23:31
  Speaker 1: two thousand eighteen, maybe they're moving their their forecast for
• 23:34
  Speaker 1: two thousand nineteen as well, and share Powell is going
• 23:38
  Speaker 1: to do everything he can to de emphasize those dots.
• 23:40
  Speaker 1: That's something that he wants to do is is move
• 23:43
  Speaker 1: the FED away from forward guidance and more towards data dependence,
• 23:47
  Speaker 1: which I think is is healthy. It gets us focused
• 23:50
  Speaker 1: on the economy and and look, I think one of
• 23:52
  Speaker 1: the reasons why the markets haven't been so focused on
• 23:55
  Speaker 1: some of the other geopolitical risk right now is that
• 23:58
  Speaker 1: the economic news is is is pretty good. So let's
• 24:02
  Speaker 1: focus on that. The FED will want to focus on
• 24:04
  Speaker 1: that and uh, and and that really is what should
• 24:08
  Speaker 1: be guiding markets broadly. You know, there has been some
• 24:12
  Speaker 1: speculation as people try to spice up this week's meetings
• 24:15
  Speaker 1: that perhaps the FED and signal that they're willing to
• 24:17
  Speaker 1: curtail their balance sheet normalization. Uh, if they got a
• 24:21
  Speaker 1: little bit concerned about lack of acceleration economic data. Is
• 24:25
  Speaker 1: that pie in the sky or do you think that
• 24:27
  Speaker 1: that's a real discussion. I don't think that's a real discussion.
• 24:30
  Speaker 1: That set is all right, that the FED is on autopie.
• 24:32
  Speaker 1: I know that the Reserve Bank of India governor was
• 24:35
  Speaker 1: was calling on FED to to slow down its pace
• 24:37
  Speaker 1: of normalization, but there is a very very high bar
• 24:42
  Speaker 1: for doing that. The FED is on autopilot with the
• 24:45
  Speaker 1: balance sheet. They'll use rates as there as their main
• 24:48
  Speaker 1: policy lever. All right, So how are you positioning right now?
• 24:52
  Speaker 1: And when was the last time you changed your positioning. Yeah. So, um,
• 24:56
  Speaker 1: so look, we're we're broughty broadly constructive on on risk appetite,
• 24:59
  Speaker 1: on on risk asset. So we we uh, you know,
• 25:03
  Speaker 1: like global equities. I think, you know, more recently we
• 25:06
  Speaker 1: pivoted a little bit more towards the US and away
• 25:08
  Speaker 1: from Europe and Japan. Uh. Clearly we had the Italian
• 25:13
  Speaker 1: risks rise over the over the last few weeks, and
• 25:16
  Speaker 1: and those are non neglig non negligible. I know that
• 25:19
  Speaker 1: they've kind of disappeared a little bit from the headlines.
• 25:21
  Speaker 1: But um, you know, I think in September, you're gonna
• 25:24
  Speaker 1: get this Italian the budget from from the new Italian government,
• 25:29
  Speaker 1: and if that is in any way in line with
• 25:32
  Speaker 1: what the new government has promised in terms of fiscal
• 25:36
  Speaker 1: stimulus rising by five to seven percent of GDP, that's
• 25:39
  Speaker 1: gonna put them on a real collision course with with
• 25:42
  Speaker 1: the EU. So I know we all say that, look,
• 25:45
  Speaker 1: Italy ultimately will stay in the EU. Um, there will
• 25:48
  Speaker 1: be market pressure growing in September as this collision course, uh,
• 25:54
  Speaker 1: you know, it starts to starts to build. Here, You're
• 25:57
  Speaker 1: not alone in favoring the US over Japan and Europe.
• 26:01
  Speaker 1: In fact, Bank of American Mary Lynch put out a
• 26:03
  Speaker 1: fund manager survey today that showed that sixty four of
• 26:06
  Speaker 1: people who responded to the survey I think the US
• 26:09
  Speaker 1: has the most favorable outlook for profits. That is a
• 26:11
  Speaker 1: seventeen year high. So does that Does that give you
• 26:17
  Speaker 1: a little bit of banks the fact that this has
• 26:18
  Speaker 1: become a consensus trade at a time, especially with the
• 26:23
  Speaker 1: UH fanmag FAM, the big tech stocks in the US
• 26:28
  Speaker 1: being at such high high levels right now. Yeah, No,
• 26:30
  Speaker 1: I mean we always, we always want to be focused
• 26:32
  Speaker 1: on what's consensus, and uh that obviously raises questions. You
• 26:35
  Speaker 1: don't you don't want to be positioned the same way
• 26:37
  Speaker 1: that that everyone else is, and you have to be
• 26:39
  Speaker 1: hyper focused on the risks or catalyst that could lead
• 26:43
  Speaker 1: to an unwind of that UM. At the same time,
• 26:45
  Speaker 1: you cannot ignore what is an extraordinarily strong economy, what
• 26:50
  Speaker 1: are extraordinarily strong earnings. Uh So, yeah, it's hard and ultimately,
• 26:55
  Speaker 1: if we do get a downturn in the end, uh,
• 26:58
  Speaker 1: it's going to be those those foreign markets that that
• 27:00
  Speaker 1: get hit hardest. Europe and Japan. Emerging markets a higher
• 27:05
  Speaker 1: beta than the US. The US is a relative safe haven.
• 27:07
  Speaker 1: Do you think that some of the distress that we've
• 27:09
  Speaker 1: seen in emerging markets is just the beginning. I don't.
• 27:13
  Speaker 1: I think I think we're we're coming to the end.
• 27:15
  Speaker 1: You will have uh, specific countries, specific spots kind of
• 27:20
  Speaker 1: blow up at any given moment um, But broadly in
• 27:24
  Speaker 1: emerging markets, I think what you're seeing is, uh, some
• 27:28
  Speaker 1: of these central bankers in these economies, they increasingly realize
• 27:32
  Speaker 1: that they need to shore up their system. So you're
• 27:34
  Speaker 1: seeing Brazil central bank intervening and foreign exchange markets, you're
• 27:38
  Speaker 1: seeing Turkey, you're seeing India. These central banks are are hiking.
• 27:42
  Speaker 1: They get it. They realize that as the fetest tightening
• 27:45
  Speaker 1: that they need to protect themselves. At the same time,
• 27:48
  Speaker 1: one way in which you know this e M quote
• 27:50
  Speaker 1: unquote crisis or or or sell off is different from
• 27:54
  Speaker 1: previous ones is that you know, China is doing pretty
• 27:56
  Speaker 1: pretty well. China's growth is is quite strong. Uh So
• 28:01
  Speaker 1: that keeps us from getting too bearish on e M. Here,
• 28:04
  Speaker 1: so when was the last time that you changed your
• 28:05
  Speaker 1: recommendations for acid allocation. We've tilted a little bit here
• 28:10
  Speaker 1: and there, But in terms of having a broadly constructive
• 28:13
  Speaker 1: outlook on risk and on equities and and a short
• 28:17
  Speaker 1: duration view globally. Um, it's been a while well, I mean,
• 28:22
  Speaker 1: and and as far as the little tankers is, it's
• 28:23
  Speaker 1: sort of more cash here, feed LUs duration here. Is
• 28:27
  Speaker 1: it that type of idea? Yeah, I think so. I mean,
• 28:29
  Speaker 1: one one thing that I think is becoming increasingly important
• 28:33
  Speaker 1: for US and and uh global acid allocators is that
• 28:36
  Speaker 1: as the FED is hiking rates, the short end of
• 28:40
  Speaker 1: the yeol curve or cash is increasingly in attractive option. So, um,
• 28:46
  Speaker 1: you know, we think about ways in which you want
• 28:48
  Speaker 1: to move to the shorter end of the yeol curve.
• 28:50
  Speaker 1: You know, there's a there's a decent argument. Why do
• 28:52
  Speaker 1: you want to be earning, say two ninety on the
• 28:55
  Speaker 1: tenure and be taking all that volatility, inflation restoration risk
• 28:59
  Speaker 1: when you can park your funds in the two year
• 29:02
  Speaker 1: yield that at about to fifty, is it is it
• 29:05
  Speaker 1: worth it to be out there? So I think if
• 29:07
  Speaker 1: there's if there's any shift, which I think will continue
• 29:09
  Speaker 1: to see, it's it's just moving shorter duration across you
• 29:13
  Speaker 1: know most of our US investments. Is anyone leveraging up
• 29:16
  Speaker 1: to your treasure yields right now? Not that I know,
• 29:20
  Speaker 1: because I'm really I was having a conversation with the
• 29:21
  Speaker 1: Trigger yesterday and and we were asking this question. You
• 29:24
  Speaker 1: at a certain point, if you're getting you know, four
• 29:26
  Speaker 1: and a half percent on junk bonds, you're getting you know,
• 29:29
  Speaker 1: the triple C a version of the of the spectrum
• 29:32
  Speaker 1: outperforming dramatically, why not just left her up to your No,
• 29:38
  Speaker 1: I think there's there's something to be said for that.
• 29:40
  Speaker 1: The risk there is that if you do get inflation
• 29:43
  Speaker 1: accelerating in the FED hiking a lot more aggressively than
• 29:46
  Speaker 1: is currently priced, then that leads you vulnerable. You have
• 29:49
  Speaker 1: a problem. Evan Brown, thank you so much for being here.
• 29:52
  Speaker 1: Really great. Evan Brown, director of Asset Allocation, is part
• 29:55
  Speaker 1: of the investment solutions team of EUBS Asset Management. Thanks
• 30:03
  Speaker 1: for listening to the Bloomberg P and L podcast. You
• 30:06
  Speaker 1: can subscribe and listen to interviews at Apple Podcasts, SoundCloud,
• 30:10
  Speaker 1: or whatever podcast platform you prefer. I'm pim Fox. I'm
• 30:13
  Speaker 1: on Twitter at pim Fox. I'm on Twitter at Lisa Abramo.
• 30:17
  Speaker 1: It's one before the podcast. You can always catch us
• 30:20
  Speaker 1: worldwide on Bloomberg Radio.