Latest / Bloomberg Intelligence / Nicholas Colas: If You're Crying, You Should Be Buying (Audio)

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Nicholas Colas: If You're Crying, You Should Be Buying (Audio) · Bloomberg Intelligence

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  Speaker 1: Global business news twenty four hours a day. If Bloomberg
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  Speaker 1: dot com the radio plus mobile laps and on your radio.
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  Speaker 1: This is a Bloomberg Business flag from Bloomberg World Headquarters.
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  Speaker 1: I'm Charlie Pellet. The DAL, the SMP nestak all declining
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  Speaker 1: with the SMP five hundred index now slumping seventy points
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  Speaker 1: to two thousand forty two and dropped there of three
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  Speaker 1: point three percent. Stocks are tumbling the most since January,
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  Speaker 1: joining US sell off in global risk assets on speculation
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  Speaker 1: that the UK decision to leave the EU will hamper
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  Speaker 1: worldwide growth. Down Industrials down five hundred sixty five points
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  Speaker 1: now a dropped there of three point one percent. They
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  Speaker 1: have been down as many as six hundred thirty points.
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  Speaker 1: Nestack down a hundred and ninety three points to dropped
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  Speaker 1: there of three point nine percent, the tenure yield one
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  Speaker 1: point five seven percent, Gold surging sixty dollars, the ounce
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  Speaker 1: the thirteen twenty three an advanced there of four point
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  Speaker 1: eight percent and crewed down four point seven sixty seven barrel.
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  Speaker 1: I'm Charlie Pellett. That's a bloom Bread business flash. Thank
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  Speaker 1: you very much. Charlie Pellett. It is time now for
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  Speaker 1: the e t F report. Let's go to Bloomberg's Catherine Cowdery.
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  Speaker 1: The gold rushes on after the UK voted to withdraw
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  Speaker 1: from the European Union. Gold has rallied the most since
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  Speaker 1: the height of the two thousand and eight global financial crisis,
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  Speaker 1: up as much as eight point one percent today. This
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  Speaker 1: is reflected in the e t F industry. GLD, the
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  Speaker 1: spider gold chairs has been rallying and it's traded more
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  Speaker 1: than three billion dollars worth of shares today, about four
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  Speaker 1: times it's daily average. Bloomberg Intelligence analyst Eric Valtuna says
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  Speaker 1: it's been a good year for g l D. G
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  Speaker 1: l D is now up to about eleven billion influence.
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  Speaker 1: That's double any other e t F on the year.
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  Speaker 1: It's just the gold kind of year it has been
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  Speaker 1: from day one, and I suit with the volume today
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  Speaker 1: and the performance, I think we see another two billion
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  Speaker 1: into gold in the next week. Given the trading volume today,
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  Speaker 1: so we're talking about thirteen billion flows. That's about a
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  Speaker 1: thirty percent increase in the size of g l D.
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  Speaker 1: In addition to g l D, other e t s
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  Speaker 1: have been gaining, including the iPath SP short term futures
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  Speaker 1: e t N or v x X. It's been up
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  Speaker 1: more than and the I shares twenty plus. Here Treasury
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  Speaker 1: bond e t F taker t l T is also
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  Speaker 1: gaining up as much as three point three. That's your
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  Speaker 1: Bloomberg ETF report. I'm Katherine Cowdery. This is taking Stock
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  Speaker 1: with Kathleen Hayes and Pin Fox on Bloomberg Radio. Less
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  Speaker 1: than twenty four hours have passed since this historic vote,
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  Speaker 1: since the tally came in a vote to leave the
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  Speaker 1: European Union. Despite many polls that showed how close this
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  Speaker 1: vote was, seems like many investors around the world, and
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  Speaker 1: a lot of bookies for that matter, was still betting
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  Speaker 1: that the UK would vote to stay. Now everyone continues
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  Speaker 1: to sort this out. The the earthquake has happened. What
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  Speaker 1: is the aftermath? Nicholas is here, chief market strategist at
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  Speaker 1: converge X. It's a global oak rich company, bakes right
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  Speaker 1: here in New York and he's been looking at Brexit,
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  Speaker 1: it flows at et S and a whole lot more
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  Speaker 1: for us. Nick, welcome and thank you for coming into
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  Speaker 1: studio with us. Thank you so your immediate reaction to this.
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  Speaker 1: Like everybody else, it's a very big wow. It was
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  Speaker 1: now what was expected. And as the votes came in
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  Speaker 1: last night, I think we're all glued to the TV
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  Speaker 1: until one or two in the morning and our little
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  Speaker 1: groggy this morning, and so it's still hard to believe
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  Speaker 1: it's happened, but it has. Alright, well it's happened, so
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  Speaker 1: now what. So now you know you have to revert
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  Speaker 1: to some basic rules in order to trade this market
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  Speaker 1: and make some money. Rule number one of a blow up,
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  Speaker 1: as you never buy the first day of a blow up.
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  Speaker 1: There's a three day rule in trading, and it's there
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  Speaker 1: for a reason. You don't buy the first day and
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  Speaker 1: you don't buy new lows, and you're seeing some of
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  Speaker 1: both in the current markets. So at this point, and
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  Speaker 1: this is totally logically what we're expecting through the Tuesday
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  Speaker 1: council meeting with the EU, you have to wait and
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  Speaker 1: see what the second, third, fourth, and fifth, fifth feet
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  Speaker 1: are to fall before you can factor things. And that's
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  Speaker 1: why you're not seeing a lot of incremental volume today
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  Speaker 1: on top of this big surprise and the Russell rebalance
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  Speaker 1: that we still have to go through the clothes with.
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  Speaker 1: So traders are understanding that and they're waiting to see
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  Speaker 1: what happens next. I'm so glad how you say that,
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  Speaker 1: because that's what strikes me. There's a meteor reaction. And
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  Speaker 1: then seems to me, you say, and I've asked. I
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  Speaker 1: asked Kit Jukes this morning for societation and roll or
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  Speaker 1: actually this afternoon, would you buy sterling here? He said, well,
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  Speaker 1: not yet. It's not crazy to ask that question. And
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  Speaker 1: we just just discussed it with another guest. But um,
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  Speaker 1: as you sorted out, are you what what about flows?
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  Speaker 1: Right now? You said, so far volume is low. Do
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  Speaker 1: we wait to see over the weekend in Monday? Who
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  Speaker 1: you know sticks their toe into the water first? In
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  Speaker 1: which direction they stick it? Absolutely, Because if you look
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  Speaker 1: at say et F flows a year to date, the
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  Speaker 1: two major trends. The first obviously is gold. Between g
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  Speaker 1: l D and i AU. They own more gold in
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  Speaker 1: their vaults than all but seven countries around the world.
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  Speaker 1: That's amazing, over a thousand metric tons. And it's because
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  Speaker 1: of the fifteen billion dollars of inflows year to date.
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  Speaker 1: So that's that's the easy one to call out. The
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  Speaker 1: harder one is, and I think it will be that
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  Speaker 1: investors go back into US defuities before either developed economy Europe,
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  Speaker 1: Asia or emerging economies, and you've seen that in the
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  Speaker 1: flows as well. Over the last month, U S E
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  Speaker 1: t F s US Equity E t F saw seventeen
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  Speaker 1: billion dollars of inflows, even even as equities from around
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  Speaker 1: the world we're still seeing outflows. That trend I think continues.
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  Speaker 1: So look for the SMP to bottom first and then
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  Speaker 1: other markets, even though obviously the volatility is in other
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  Speaker 1: markets to begin with. Alright, So Nicholas, let's say that
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  Speaker 1: we don't get any clarity and we keep using that
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  Speaker 1: word uncertainty from now until we're certain, which will be never.
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  Speaker 1: Is there an asset class that will benefit in addition
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  Speaker 1: to gold from this uncertainty. Well, again, the easy one
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  Speaker 1: to call out is fixed income bonds, especially if you
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  Speaker 1: look at expectations for interest rate moves by the Fed.
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  Speaker 1: They've collapsed today and for the first time, I think,
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  Speaker 1: at least in the last couple of years, you're seeing
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  Speaker 1: handicapping on a rate cut. They're small so far, five
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  Speaker 1: to seven percent according to FED fronts futures, but you
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  Speaker 1: are seeing some speculation to Fed us to cut. So
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  Speaker 1: fixed income is the logical next up, the next up
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  Speaker 1: after that again US equities, particularly large cap US equities,
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  Speaker 1: because look at the spread between SMP yields two point
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  Speaker 1: one and a ten year now struggling to hold one
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  Speaker 1: and a half percent, which is going to do better
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  Speaker 1: over the next ten years, I think is still going
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  Speaker 1: to be the SMP. So it's in that order. It's okay,
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  Speaker 1: goal is the easy one, then fixed incomes pretty easy,
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  Speaker 1: and then US stocks bottom after that, and then the
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  Speaker 1: rest of the world begins to catch up. This is
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  Speaker 1: I'm glad. Well, it's interesting, cause that's what I've been
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  Speaker 1: asking myself all morning, all day, you know, because it's
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  Speaker 1: one of two things are rices three things could happen,
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  Speaker 1: but still everybody could have like, oh my gosh, the
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  Speaker 1: world is ending. And if you talk to people who
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  Speaker 1: are who are British or like our our guests, who's
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  Speaker 1: part of the EU Parliament, who's Irish, there there's not
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  Speaker 1: They're not just looking at things financially. There's sort of
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  Speaker 1: an emotional shock, right, But when you get past that,
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  Speaker 1: when you have a big drop in something, you say,
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  Speaker 1: you know, maybe it's overdone, Maybe people got out of positions,
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  Speaker 1: maybe they went into it. So badly right that they
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  Speaker 1: had to do some selling. Now you're back to even maybe,
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  Speaker 1: And then you say to me, sing seems still seems
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  Speaker 1: to me it's logical to say, what's a buy here? Yeah,
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  Speaker 1: if you look at say, well, look at what our
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  Speaker 1: customers were doing on our desk all week. They were
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  Speaker 1: positioning for a remain vote, and there was a lot
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  Speaker 1: of buying going into Friday's vote. Obviously Thursday's vote, and
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  Speaker 1: obviously that didn't work out. So a bit of today's
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  Speaker 1: action is just the unwind of those bets that didn't
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  Speaker 1: work out. Uh. And then in order of what's a
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  Speaker 1: look at and say, again, the US, by virtue of
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  Speaker 1: our still continued reasonable growth, reasonable profit margins, good cash
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  Speaker 1: flow from US corporations have the best shot of bottoming first,
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  Speaker 1: all right, they have the best shot of bottoming. First,
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  Speaker 1: Let's just step back and say, if your portfolio was
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  Speaker 1: not arranged to deal with this potential vote to leave,
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  Speaker 1: what should you do. The first thing you've got to
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  Speaker 1: do is think about why that wasn't the case. So
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  Speaker 1: was it that you didn't known enough hedges in the
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  Speaker 1: form of gold or fixed income? Were you too heavily inequities?
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  Speaker 1: That's a warning sign you're taking too much equity risk
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  Speaker 1: and rebalance that portfolio back to something like the classic
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  Speaker 1: sixty forty, which is my default value always for a
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  Speaker 1: portfolio composition. Or were you too exposed to emerging markets
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  Speaker 1: for example, in which case you've got a tailback that risk.
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  Speaker 1: Emerging markets versus developed versus US US is going to
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  Speaker 1: be the best game in town now. If you want
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  Speaker 1: to pull that back in and start looking at more US,
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  Speaker 1: I'd say that's a pretty smart move. Russell rebalancing huge,
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  Speaker 1: So it's in a nutshell it it's huge. You've got
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  Speaker 1: a couple of minutes though what happens now it's every June.
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  Speaker 1: It's a big deal. Some say it could almost have
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  Speaker 1: not quite a Brexit impact on the stock market, but
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  Speaker 1: it's definitely a big dynamic. Yeah, the Brexit vote, in
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  Speaker 1: the Brexit outcome came in a very bad day because
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  Speaker 1: once a year the Russell in the sea's rebalance, and
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  Speaker 1: most importantly the one thousand and two thousand there's roughly
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  Speaker 1: by eight hundred and fifty billion dollars of money actively
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  Speaker 1: managed to those into sees and today you're gonna see
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  Speaker 1: a rebalance of roughly forty seven billion dollars comprising just
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  Speaker 1: shy a four hundred of those three thousand names, and
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  Speaker 1: they all have to print the trade at the close.
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  Speaker 1: That's how the index trackers work. And so we've got
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  Speaker 1: a few minutes left. We'll see how it went. But
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  Speaker 1: I wouldn't be surprised to see those trades go off with,
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  Speaker 1: you know, in a very volatile market at levels that
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  Speaker 1: you wouldn't have expected any other time. Just a little
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  Speaker 1: bit more from your trading insight. Because you mentioned the
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  Speaker 1: three day rule. What are some of the other mistakes
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  Speaker 1: that people typically make in volatile markets. They make decisions
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  Speaker 1: when they shouldn't make decisions. They second guests at professional managers.
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  Speaker 1: What kind of thing? Yes, the number one, and this
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  Speaker 1: has been very true of every pullback since the financial crisis.
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  Speaker 1: People get out at the bottom, they let their fear
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  Speaker 1: overcome their rationality and they tell their manager to sell,
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  Speaker 1: or they sell their self directed accounts at the bottoms.
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  Speaker 1: You know, there's a saying on trading desks instead of yelling,
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  Speaker 1: you should be selling instead of crying, should be buying.
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  Speaker 1: That's a great thing. I love that. So are you
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  Speaker 1: watching next week? I mean, it is the FED just
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  Speaker 1: like Okay, we've watched them to death. Now we know
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  Speaker 1: with this gent they did the right thing. They didn't
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  Speaker 1: raise the key rate a lot of reasons other or
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  Speaker 1: not to do, say sent global central banks, the news
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  Speaker 1: of UK. What's are what are the headlines to watch for?
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  Speaker 1: You know the headlines will be how much interaction there
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  Speaker 1: is between capital markets, volatility and policy makers. We have
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  Speaker 1: the usual soothing words out of the Fed and other
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  Speaker 1: folks this morning saying we stand ready to provide liquidity.
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  Speaker 1: But if you get a second and third day of
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  Speaker 1: a drop off, are there any policy explicit policy actions.
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  Speaker 1: That's the thing I'm looking for first and foremost. Thank
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  Speaker 1: you very much for coming in and spending time with us.
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  Speaker 1: Thank you Nicholas. He is the chief market strategist for
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  Speaker 1: converge x and he can converge x can be followed
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  Speaker 1: on Twitter at converge x. Much appreciated. You're listening to
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  Speaker 1: Taking Stock. I'm pim Fox my co host Kathleen Hayes.
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  Speaker 1: We're gonna take you through to the close. Stocks now
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  Speaker 1: near the lows of the day, trading SMP five at
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  Speaker 1: two thousand forty one on a drop of three and
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  Speaker 1: a quarter percent, Dashdack down nearly and US treasuries they're rallying.
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  Speaker 1: This is taking Stoff on Bloomberg Radio