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Bitcoin Sell-Off Reflects Volatility--Not A Bursting Bubble · 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 Abramowitz. Each day we
• 0:11
  Speaker 1: bring you the most important, noteworthy, and useful interviews for
• 0:15
  Speaker 1: you and your money, whether you're at the grocery store
• 0:17
  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. Bitcoin
• 0:28
  Speaker 1: has declined seventy five percent since its peak. Danny Masters
• 0:33
  Speaker 1: joining us down chair of coin Shares Group, which oversees
• 0:36
  Speaker 1: more than a billion dollars in crypto assets from London. Danny,
• 0:39
  Speaker 1: thank you so much for being with us. Are we
• 0:41
  Speaker 1: watching the bitcoin bubble burst right now? And is this
• 0:44
  Speaker 1: just a fad that has ended? Hi? Lisa, great to
• 0:48
  Speaker 1: be with you again. UM. It's certainly been a challenging
• 0:52
  Speaker 1: week in the bitcoin space and market that's had an
• 0:56
  Speaker 1: enormous excursion over the last few years from very low
• 0:59
  Speaker 1: numb as to very high numbers. UM certainly has been
• 1:02
  Speaker 1: taking um some heat in the in the last a
• 1:06
  Speaker 1: few sessions, and ironically, when sort of global markets started
• 1:11
  Speaker 1: to become more volatile a month or so ago, Bitcoin
• 1:14
  Speaker 1: remained stable for a period of time and then seems
• 1:19
  Speaker 1: to have succumbed to UM, not just it's unique internal
• 1:22
  Speaker 1: but also you know, a more global macro sense of pressure. UM.
• 1:28
  Speaker 1: The bears in bitcoins have definitely scored a win in
• 1:32
  Speaker 1: this phase. UM. There is a lot of seems to
• 1:36
  Speaker 1: be a lot of celebration amongst the sort of new
• 1:37
  Speaker 1: real Roubini's and dan Crumbs of the world that finally
• 1:40
  Speaker 1: their price predictions seemed to be coming right after a
• 1:43
  Speaker 1: number of years. UM. But when you really put it
• 1:46
  Speaker 1: in perspective, I mean this this last couple of weeks alone,
• 1:48
  Speaker 1: and we've seen oil go from seventy five to fifty
• 1:52
  Speaker 1: three dollars, and we've seen bitcoin go from sixty seven,
• 1:55
  Speaker 1: sixty eight to forty forty dollars. You know, there are
• 2:00
  Speaker 1: some big moves out there in other commodities to UM.
• 2:03
  Speaker 1: For some reason, the moods seems to be a little
• 2:06
  Speaker 1: bit more negative in bitcoin as you sort of correctly
• 2:09
  Speaker 1: stay say, you know, with some sort of bubble bursting
• 2:12
  Speaker 1: phenomena rather than the sort of inherent volatility we have
• 2:14
  Speaker 1: in the market. As a bitcoin practitioner, and like many
• 2:17
  Speaker 1: others who've been around for a while, one tries not
• 2:19
  Speaker 1: to get too excited when it goes up or too
• 2:22
  Speaker 1: disappointed when it goes down. So you know, I'm calling
• 2:25
  Speaker 1: this just a very bolatle period, not a bursting Danny,
• 2:28
  Speaker 1: can you just give people a little background on coin
• 2:31
  Speaker 1: shares because there are a couple of different pieces to
• 2:34
  Speaker 1: the coin shares story and on. For example, you own
• 2:38
  Speaker 1: x BT. This is the exchange traded product in Europe
• 2:44
  Speaker 1: that tracks the value of bitcoin. That's correct. Yeah, We're
• 2:48
  Speaker 1: an asset management company in the cryptocurrency space. Um. So
• 2:53
  Speaker 1: we provide active products like XPT, provider private strategies like
• 2:57
  Speaker 1: coin sches from one and even third parties, ruages like
• 3:01
  Speaker 1: a fund of funds that we that we market for
• 3:03
  Speaker 1: other people. We provide research, we provide execution custody, and
• 3:09
  Speaker 1: you know, we hold ourselves out to be an emerging
• 3:12
  Speaker 1: black rock type of organization where customers can come for
• 3:16
  Speaker 1: portfolio structuring, performance measurement, execution, custody and so on. All right, So, Danny,
• 3:22
  Speaker 1: given that sort of bird's eye view on the market
• 3:26
  Speaker 1: and the interest from institutions and others for bitcoin and cryptocurrencies,
• 3:30
  Speaker 1: are you seeing a material decline in interest as the
• 3:33
  Speaker 1: price goes down? Um? I think that the tip of
• 3:39
  Speaker 1: the iceberg. When it comes to crypto assets. You know,
• 3:41
  Speaker 1: our prices and these prices gonner by far the largest
• 3:46
  Speaker 1: amount of attention. UM. Last time, you know, we all
• 3:49
  Speaker 1: sat together in New York, we talked about the emergence
• 3:51
  Speaker 1: of the security token regime. You know that continues to
• 3:55
  Speaker 1: build a pace and you know, more security tokens are
• 3:58
  Speaker 1: coming to market. Those security to is the beginning to
• 4:01
  Speaker 1: gather their sort of smart contracting ability and will see
• 4:05
  Speaker 1: the end of this year or the first quarter of
• 4:07
  Speaker 1: next year, UM, some new use cases for crypto and
• 4:11
  Speaker 1: using these security tokens broadly for private assets and hard assets.
• 4:16
  Speaker 1: So you know, the the infrastructure development that's going on
• 4:20
  Speaker 1: in crypto assets goes on regardless, and I think you know,
• 4:23
  Speaker 1: prices tend to be up and down. When I look
• 4:26
  Speaker 1: at the names of companies coming into the crypto space.
• 4:30
  Speaker 1: You're familiar with Fidelities Investment we talked last time, or
• 4:32
  Speaker 1: activity with the mura UM, the ice market coming on
• 4:35
  Speaker 1: stream now towards the end of the year early next
• 4:37
  Speaker 1: year with their Bitcoin futures contract IBM and now in
• 4:40
  Speaker 1: the mix as well. UM. You know, you're seeing a
• 4:43
  Speaker 1: number of large companies coming to the market that weren't
• 4:46
  Speaker 1: there before. You know, is this price decline, you know,
• 4:49
  Speaker 1: switching off those plans not that I can see. Do
• 4:53
  Speaker 1: you have a view towards pegging digital tokens to the
• 4:58
  Speaker 1: value of the U s starle are because some cryptocurrency
• 5:02
  Speaker 1: trading platforms like coin base, they've joined this consortium that
• 5:08
  Speaker 1: is designed to peg the digital tokens to the to
• 5:12
  Speaker 1: the green back. It's an interesting development. Um. Certainly there
• 5:18
  Speaker 1: is demand for that digital dollar. We've seen Packsos developed,
• 5:24
  Speaker 1: Gemini developed, and there are some other earlier adopters with
• 5:28
  Speaker 1: perhaps lower brand names, lesser brand names in the space.
• 5:31
  Speaker 1: The primary use for these so called stable coins is
• 5:35
  Speaker 1: to switch from volatile crypto assets into stable dollars while
• 5:40
  Speaker 1: remaining within this electronic environment, digital environment, So that's quite appealing.
• 5:47
  Speaker 1: What has come before is the tether coin, which is
• 5:49
  Speaker 1: sort of unregulated outside the banking system m dollar that
• 5:54
  Speaker 1: has been widely adopted, probably the tune of two or
• 5:57
  Speaker 1: three billion dollars as a placeholder for digital assets in
• 6:00
  Speaker 1: a way to exchange value amongst them between different venues
• 6:04
  Speaker 1: electronically without going through the banking system. But ted has
• 6:07
  Speaker 1: been plagued by lack of transparency and some of the
• 6:11
  Speaker 1: some of the participants not being of the highest caliber.
• 6:14
  Speaker 1: So the new coins that have come in a much
• 6:16
  Speaker 1: higher caliber. They're fully in light of New York Department
• 6:19
  Speaker 1: of Financial Services UM. The exchanges on which they're trading
• 6:22
  Speaker 1: are typically now sort of fairly widely regulated and based
• 6:28
  Speaker 1: in the United States, and therefore they're more legitimate that
• 6:31
  Speaker 1: The trouble with the new dollar coins is they're open
• 6:35
  Speaker 1: to interdiction by any regulator that i'd believe chooses to
• 6:39
  Speaker 1: do so. So you've got you've got more more certainty,
• 6:42
  Speaker 1: but more interdiction. Thanks very much for being with us.
• 6:45
  Speaker 1: Very illuminating. Danny Masters, chairman of coin Shares Group. It's
• 6:49
  Speaker 1: got over a billion dollars worth of crypto assets under management,
• 6:54
  Speaker 1: joining us from London. Bitcoin up about four percent today.
• 6:59
  Speaker 1: This is Bloomberg. We have been talking a lot this
• 7:04
  Speaker 1: week about the weakness that we've seen in the credit markets.
• 7:07
  Speaker 1: High old bonds just suffered their worst months since late
• 7:09
  Speaker 1: two thousand and fifteen, yield climbing to the highest similar
• 7:13
  Speaker 1: for investment grade credit. But is this a buying opportunity?
• 7:17
  Speaker 1: And joining us down to discuss. Ken Monahan, a Moody
• 7:19
  Speaker 1: pioneer co director of High Yield, joining us here in
• 7:22
  Speaker 1: our eleven three old studios can wonderful to see you.
• 7:25
  Speaker 1: So are you out there buying or do you think
• 7:27
  Speaker 1: that this is the beginning of a more protracted sell off? Um?
• 7:30
  Speaker 1: I'd say at this stage, Lisa, we're nibbling at the
• 7:32
  Speaker 1: edges rather than buying in a big way. UM. It's
• 7:35
  Speaker 1: clear that the high yeld marketplace has widened out significantly
• 7:39
  Speaker 1: in terms of spreads and in terms of returns. We've
• 7:41
  Speaker 1: been flirting with zero percent all year long, so we're
• 7:45
  Speaker 1: now a little underwater. Go back thirty days ago, we
• 7:47
  Speaker 1: were a little above water. Uh, who knows where all
• 7:50
  Speaker 1: in the year. But it's not going to be a
• 7:52
  Speaker 1: big year in terms of returns, that's for sure. We are,
• 7:54
  Speaker 1: I think, though, having uh said that, setting ourselves up
• 7:57
  Speaker 1: for a potential for an attractive two thousand and nineteen.
• 8:01
  Speaker 1: Do you buy for capital gains or do you buy
• 8:04
  Speaker 1: for the coupon? You know you gotta buy for total return.
• 8:07
  Speaker 1: If you buy for coupon alone, I think you're setting
• 8:10
  Speaker 1: yourself up for for trouble. I always tell my analysts
• 8:13
  Speaker 1: that the worst way to achieve a seven percent return
• 8:15
  Speaker 1: is to buy a seven percent coupon bond, you gotta
• 8:18
  Speaker 1: buy either something that's going to move up in credit quality,
• 8:20
  Speaker 1: or you can even buy something that's gonna move down
• 8:22
  Speaker 1: in credit quality or down in price, but where you're
• 8:24
  Speaker 1: gonna be very your self assured of what your coupon
• 8:27
  Speaker 1: income is. So, having said that, when you take a look,
• 8:30
  Speaker 1: just as an example at the e t F that
• 8:32
  Speaker 1: many people track, to look at high yield performance h
• 8:36
  Speaker 1: y G, the I shares eyebox. It's down, as you said,
• 8:40
  Speaker 1: three tents of a percent so far this year. So
• 8:43
  Speaker 1: is that the incentive to buy it because it's down
• 8:47
  Speaker 1: or do you wait until credit quality gets really bad
• 8:51
  Speaker 1: and then go looking. Well, they're clearly your investors that
• 8:54
  Speaker 1: want to buy at the bottom in a hig yield marketplace.
• 8:56
  Speaker 1: So they bought in two thousand and nine, they brought
• 8:59
  Speaker 1: in two thousands three coming out of a recession. Having
• 9:01
  Speaker 1: said that, I don't think that's what you need to
• 9:03
  Speaker 1: do to be successful in high yield. Interestingly, if you
• 9:06
  Speaker 1: look at the risk adjusted return, and so you plot
• 9:09
  Speaker 1: risk on one side and return on the other, and
• 9:11
  Speaker 1: you use volatility as a proxy for risk, and you
• 9:14
  Speaker 1: look at the high yield market returns over three, five, ten, fifteen,
• 9:19
  Speaker 1: twenty twenty five years, you consistently see the same thing
• 9:23
  Speaker 1: that the high yeld marketplace achieves an above average risk
• 9:27
  Speaker 1: adjusted return, meaning it's above the plot line that you
• 9:30
  Speaker 1: would run through all the other asset classes. And I
• 9:32
  Speaker 1: think that's really what makes it attractive. It does generate
• 9:35
  Speaker 1: an attractive returning over a long period of time, and
• 9:38
  Speaker 1: I think if you think of the high yielded investing
• 9:41
  Speaker 1: kind of on a three to five year horizon rather
• 9:43
  Speaker 1: than a one to two that's the better way of
• 9:45
  Speaker 1: of approaching it. Okay, So can you said that you're
• 9:47
  Speaker 1: nibbling at the edges. What are you nibbling on? Well,
• 9:50
  Speaker 1: we're selectively looking at some things, for example, in Europe
• 9:52
  Speaker 1: because Europe has badly beaten up as the United States
• 9:55
  Speaker 1: has been, Europe's even been worse. Uh, And we're beginning
• 9:58
  Speaker 1: to look at some things in a margin market as well,
• 10:00
  Speaker 1: because some emerging market corporate debt has been hit hard.
• 10:03
  Speaker 1: Also countries. Oh, well, you know, there's some attractive things
• 10:06
  Speaker 1: going on in some of the Latin American countries where
• 10:09
  Speaker 1: that clearly under some pressure. Argentina would be a very
• 10:12
  Speaker 1: good example. Of that, but we think that there's some
• 10:14
  Speaker 1: companies that are there that have longer term possibilities of success.
• 10:19
  Speaker 1: I just want to go back to the comparison because
• 10:21
  Speaker 1: I want to try to understand this. For example, I
• 10:24
  Speaker 1: looked at the performance of h y G just to
• 10:26
  Speaker 1: use that um from all of year to day today.
• 10:34
  Speaker 1: Up right, Okay, if I look at the SMP five
• 10:38
  Speaker 1: D we're up right. So I'm trying to understand the contradiction. Well,
• 10:44
  Speaker 1: I think one thing you need to keep in mind
• 10:46
  Speaker 1: is that if you look at the high yield market
• 10:49
  Speaker 1: place and you look at the e t f s
• 10:51
  Speaker 1: in particular, they have not had a great return over
• 10:55
  Speaker 1: a long period of time. They have underperformed the broader
• 10:59
  Speaker 1: in a season the high yield market you want more
• 11:01
  Speaker 1: active man, I think you do need active management. And
• 11:04
  Speaker 1: not only have the e t f s underperformed the
• 11:07
  Speaker 1: major indicase, they've actually underperformed the media and high yield
• 11:11
  Speaker 1: manager as well. If you're looking at what their performance
• 11:13
  Speaker 1: has been, you said that we're setting up for a
• 11:15
  Speaker 1: strong what kind of returns are you expecting? Well, you know,
• 11:18
  Speaker 1: a strong nineteen Let's recognize you know we're we're talking
• 11:21
  Speaker 1: about that in the context of what will still be
• 11:24
  Speaker 1: a marketplace where we're gonna have headwinds from the FED.
• 11:27
  Speaker 1: So I think the expectations for a December right rise
• 11:31
  Speaker 1: from the FED is pretty much locked in, and I
• 11:33
  Speaker 1: think the markets are already adjusted for that. I still
• 11:35
  Speaker 1: think there will be several whether it's three or four
• 11:37
  Speaker 1: in two thousand and nineteen, we'll have to see. I
• 11:40
  Speaker 1: think that the comments that are coming out today that
• 11:42
  Speaker 1: the FED may be slowing down in the spring or
• 11:44
  Speaker 1: pulling back maybe a little too optimistic. But I think
• 11:48
  Speaker 1: if we look at high yield, it can certainly have
• 11:50
  Speaker 1: a mid single digit return, and if and if we
• 11:54
  Speaker 1: have headwinds from the FED, that means investment grade is
• 11:57
  Speaker 1: probably gonna lose money. Thanks very much trip being with
• 12:00
  Speaker 1: us pleasure. Ken Monahan, director of a global high yield
• 12:04
  Speaker 1: for a MUNDI pioneer helping to manage more than ninety
• 12:08
  Speaker 1: billion dollars, based in Durham, North Carolina, but joining us
• 12:11
  Speaker 1: here on our Bloomberg Interactor Broker Studios. Thanks very much
• 12:14
  Speaker 1: for being here. I will just say him that today
• 12:16
  Speaker 1: it does look like other people seem to agree with Ken,
• 12:18
  Speaker 1: because if you look at credit to fault swaps that
• 12:21
  Speaker 1: there is clearly a bid here. In other words, the
• 12:23
  Speaker 1: perceived risk in high yield credit is declining today in
• 12:28
  Speaker 1: tandem with the games that we're seeing in stock market.
• 12:31
  Speaker 1: So it does seem to be a little bit of
• 12:32
  Speaker 1: a reprieve from the super risk off feeling that we
• 12:35
  Speaker 1: had yesterday. It'll be interesting to see whether that continues though.
• 12:38
  Speaker 1: Right Indeed, Apple's largest iPhone assembly partner, Fox con plans
• 12:47
  Speaker 1: to reduce expenses by nearly three billion dollars in as
• 12:51
  Speaker 1: it faces quote a very difficult and competitive year. Here
• 12:57
  Speaker 1: to tell us more about apple It's supply chain and
• 13:01
  Speaker 1: the future is none other than John Butler, our senior
• 13:04
  Speaker 1: Telecom services and Equipment analyst for Bloomberg Intelligence. John Butler,
• 13:10
  Speaker 1: what's happening to the new iPhone supply chain? Morning, Pim. Well,
• 13:15
  Speaker 1: I think what's happening is these suppliers are adjusting to
• 13:20
  Speaker 1: the new reality for Apple, which is they are going
• 13:24
  Speaker 1: to keep driving hopefully revenue gains and revenue growth through
• 13:29
  Speaker 1: price not volume. In fact, it was interesting because I
• 13:34
  Speaker 1: d C, which gives us great data on the whole market,
• 13:38
  Speaker 1: came out with Q three numbers and globally the smartphone
• 13:42
  Speaker 1: market shipments, We're down almost six percent year on year,
• 13:47
  Speaker 1: So that's sort of the new reality for the supply
• 13:50
  Speaker 1: chain for not just Apple suppliers. I know Samsung, for example,
• 13:54
  Speaker 1: has been struggling for unit growth as well. So I
• 13:57
  Speaker 1: think that's what we're seeing. John. If this is something
• 14:00
  Speaker 1: that everyone has known that Apple plans to generate the
• 14:03
  Speaker 1: increase in growth in revenues from higher prices, why have
• 14:07
  Speaker 1: Apple shares responded so badly to the ongoing bits of
• 14:11
  Speaker 1: information that its suppliers are kind of struggling right now. Well,
• 14:16
  Speaker 1: it sort of begs the question, you know, did Apple
• 14:20
  Speaker 1: expect stronger sales of the new phones, particularly the ten are,
• 14:24
  Speaker 1: which released in late October. It's a low it's a
• 14:28
  Speaker 1: great phone. It is a low cost version of the
• 14:31
  Speaker 1: iPhone ten. It has an LCD screen, so if you
• 14:36
  Speaker 1: can live with that, you're getting all the other features
• 14:38
  Speaker 1: of the ten and I think that Apple and everyone
• 14:41
  Speaker 1: had high hopes for that. The early reports are it's
• 14:45
  Speaker 1: not selling. Well, they're just anecdotal reports. It's it's tough
• 14:49
  Speaker 1: to really tell whether that's true or not. I personally
• 14:52
  Speaker 1: think the game begins on Black Friday, UM because the
• 14:57
  Speaker 1: holiday selling season is so big for smart phones. But
• 15:01
  Speaker 1: you know it's tough to say. I mean the supply chain,
• 15:04
  Speaker 1: our semiconductor manufacturers, they tend to be very cyclical, right.
• 15:10
  Speaker 1: They expand capacity until suddenly the market turns down and
• 15:15
  Speaker 1: then there's over capacity, pressure on pricing and they need
• 15:19
  Speaker 1: to cut back on personnel and facility. So I think
• 15:23
  Speaker 1: we're seeing that right now. But I'll say this Lasia,
• 15:26
  Speaker 1: Apple does come up against very tough comps beginning next
• 15:30
  Speaker 1: year too, So they're going to hit what I'll call
• 15:34
  Speaker 1: a transitional period with iPhone growth, or at least that's
• 15:37
  Speaker 1: my expectation. John Butler, I'm sure you've read the reports
• 15:41
  Speaker 1: about Apple working on electronic medical records for US veterans.
• 15:48
  Speaker 1: What does that tell you about Apple's future strategy. So
• 15:52
  Speaker 1: that speaks to the strategy of growing services to a
• 15:56
  Speaker 1: point where it can pick up any slack and iPhone
• 15:59
  Speaker 1: sales and services has been a great area for them.
• 16:03
  Speaker 1: Everyone knows about Apple Care and and Apple Music. Those
• 16:08
  Speaker 1: are well known consumer services. But they're also doing a
• 16:11
  Speaker 1: very good job in healthcare. They're pushing on fitness very hard. Uh,
• 16:16
  Speaker 1: They're doing a lot in medical records. I'll believe it
• 16:19
  Speaker 1: when I see it pim By the way, medical records
• 16:23
  Speaker 1: are one of those areas. You know that privacy is
• 16:26
  Speaker 1: such a big issue. It's been very difficult for the
• 16:29
  Speaker 1: world to get to a common platform and frankly for
• 16:33
  Speaker 1: you and I to access their own medical records. So
• 16:36
  Speaker 1: hopefully Apple can push through that all the regulatory mess
• 16:41
  Speaker 1: to get there. But that's the endgame, and I think
• 16:44
  Speaker 1: it'll be a big market when they get there. John,
• 16:46
  Speaker 1: just real quick here, do you think that the sell
• 16:48
  Speaker 1: off and Apple shares over the past few weeks has
• 16:50
  Speaker 1: been overblown? I think people are looking ahead and seeing
• 16:57
  Speaker 1: a slower growth environment. What the right number is is
• 17:01
  Speaker 1: tough to say, but I think that's what you're seeing
• 17:04
  Speaker 1: is a response a growing realization that iPhone really is
• 17:09
  Speaker 1: coming up against tough comps, and we don't have any
• 17:13
  Speaker 1: new hardware innovations yet. I think five G phones and
• 17:17
  Speaker 1: flexible smartphone screens are going to drive that next cycle,
• 17:21
  Speaker 1: but it's not coming next quarter. John Butler, thank you
• 17:25
  Speaker 1: so much for being with us. Happy Thanksgiving, Have a
• 17:27
  Speaker 1: wonderful Turkey day. John Butler has senior Telecom services and
• 17:30
  Speaker 1: Equipment analysts for Bloomberg Intelligence. Apple shares rebounding a little
• 17:34
  Speaker 1: bit today, after a bunch of brutal days, the NAZZAC
• 17:38
  Speaker 1: down quite a bit, Apple shares up at this point
• 17:41
  Speaker 1: about nine tenths of one. It's been a rough couple
• 17:48
  Speaker 1: of months for equity treagers and frankly for anyone who
• 17:51
  Speaker 1: deals in risk. And the big question is why does
• 17:54
  Speaker 1: this have to do with expectations for slowing growth and
• 17:57
  Speaker 1: a possible recession in the near term. John us sound
• 18:00
  Speaker 1: to discuss Marvin Lowe, global macro strategist at State Street
• 18:03
  Speaker 1: in Boston. Marvin, thank you so much for being with us.
• 18:07
  Speaker 1: So what's your view? I mean, do you think that
• 18:09
  Speaker 1: all of a sudden traders are suddenly waking up to
• 18:11
  Speaker 1: the realization that there could potentially be a downturn in
• 18:14
  Speaker 1: the near future. Yeah, yeah, I think that's definitely. Um
• 18:17
  Speaker 1: certainly made its way into the narrative, and data kind
• 18:20
  Speaker 1: of supports people being a bit more concerned. You know.
• 18:23
  Speaker 1: Certainly the rebound in some of the global economic data
• 18:27
  Speaker 1: that we expected after the summer hasn't really come our way.
• 18:30
  Speaker 1: And then most recently there has been a slowing of
• 18:33
  Speaker 1: um U S data, which, while expected, is still you know,
• 18:36
  Speaker 1: something that people might not have anticipated given how strong
• 18:40
  Speaker 1: data had been um going into the fall. Marvin, it's
• 18:45
  Speaker 1: the federal reserves still going to raise interest rates in
• 18:48
  Speaker 1: December and then four times in Yeah, December's December is
• 18:53
  Speaker 1: the easy part of the equation. Yeah, I think that
• 18:55
  Speaker 1: they will. I think that there's a very high threshold
• 18:58
  Speaker 1: for them to change their mind done that, and I
• 19:00
  Speaker 1: really don't see that happening going forward. I do think
• 19:03
  Speaker 1: that they're committed for at least one or two more.
• 19:06
  Speaker 1: I know there's been a little bit of back and
• 19:08
  Speaker 1: forth in terms of how committed they are in nineteen,
• 19:11
  Speaker 1: but the data is still there for them to continue
• 19:13
  Speaker 1: along the path, you know, whether we get to the
• 19:16
  Speaker 1: four or five that they're talking about, you know, late
• 19:18
  Speaker 1: nineteen early, I think that's really where the question starts
• 19:22
  Speaker 1: to emerge. So, Marvin, what do you think that that
• 19:24
  Speaker 1: would have to see to slow down? You know what,
• 19:26
  Speaker 1: I think that we would need to really see data
• 19:29
  Speaker 1: kind of come in. I think that we would need
• 19:31
  Speaker 1: to see the jobs market really start start to um
• 19:36
  Speaker 1: peek if you will, um uh, you know, decreases in
• 19:38
  Speaker 1: the unemployment rate would have to uh would have to
• 19:41
  Speaker 1: slow up. Um. But you know, short of that, they
• 19:43
  Speaker 1: are they are looking at an economy which is still
• 19:46
  Speaker 1: at or you know, slightly above trend going into next year. Marvin.
• 19:50
  Speaker 1: Earlier today we had a discussion about high yield debt.
• 19:54
  Speaker 1: We were speaking to Ken Monahan of a Mundy pioneer.
• 19:58
  Speaker 1: He was bullish on high yield. Do you see any
• 20:01
  Speaker 1: problems with investing in high yield debt given that we
• 20:06
  Speaker 1: may be turning in the interest right cycle. Yeah, I'm
• 20:10
  Speaker 1: not anywhere near as optimistic unhigh yield in particular. I
• 20:13
  Speaker 1: think that, you know, certainly we are talking about a recession.
• 20:17
  Speaker 1: I think the way you see as a classes behave
• 20:20
  Speaker 1: they're starting to show concern about when that recession is
• 20:22
  Speaker 1: going to occur. I think that there are, you know,
• 20:25
  Speaker 1: certain aspects of high yield that are very different now
• 20:28
  Speaker 1: than they were before the crisis. Also that give me
• 20:30
  Speaker 1: a concern, some of it coming from the investment grade
• 20:32
  Speaker 1: space in terms of how large the triple be part
• 20:34
  Speaker 1: of the market is, but also how a liquid and
• 20:36
  Speaker 1: how um we've kind of changed, uh, the way high
• 20:40
  Speaker 1: yield is traded. It kind of will make for volatility
• 20:43
  Speaker 1: and will make for a challenge once we do get
• 20:45
  Speaker 1: to that turn. So in this period of time, what
• 20:47
  Speaker 1: do you think is the riskiest asked as a class
• 20:50
  Speaker 1: UM you know what I'm gonna say, I'm gonna say that,
• 20:52
  Speaker 1: you know, some of the corporate UM credit parts of
• 20:55
  Speaker 1: the market do do frighten me a bit? You know,
• 20:58
  Speaker 1: they have not certainly sold off as much as a
• 21:01
  Speaker 1: lot of the other asset classes, so there is a
• 21:03
  Speaker 1: bit of catching up to do. Are you talking about
• 21:05
  Speaker 1: high yields or investment grade? You know, probably more probably
• 21:08
  Speaker 1: more high yield at the moment, but you know, certainly
• 21:10
  Speaker 1: investment grade, and you know, blindly just buying the index
• 21:13
  Speaker 1: is UM is wrought with a lot of triple bs
• 21:15
  Speaker 1: these days, so you know, really understanding those market dynamics
• 21:18
  Speaker 1: are very important. How do you understand the market dynamics
• 21:22
  Speaker 1: of what is going on in the European Union, specifically
• 21:25
  Speaker 1: in Italy and will that affect interest rates in the
• 21:28
  Speaker 1: United States? You know what, at the moment, I think
• 21:31
  Speaker 1: that UM it would have a minimal effect that at
• 21:34
  Speaker 1: this point. You know, certainly longer term, there are a
• 21:37
  Speaker 1: lot of questions as to how the EU is going
• 21:39
  Speaker 1: to deal with Italy. You know, certainly all of the
• 21:41
  Speaker 1: problems with regard to the amount of debt remains, but
• 21:44
  Speaker 1: in terms of it producing volatilely and a catalyst for
• 21:50
  Speaker 1: increased volatility. I think I think the markets and investors
• 21:52
  Speaker 1: are correctly looking beyond maybe the certain headlines that we're
• 21:56
  Speaker 1: seeing over the last couple of weeks. Alright, So, given
• 21:59
  Speaker 1: the fact that works probably going to see increased volatility,
• 22:02
  Speaker 1: and you think that there is still a lot of
• 22:03
  Speaker 1: risk in the lowest rated credit, what do you expect?
• 22:07
  Speaker 1: What do you expect we're actually going to get a downturn.
• 22:10
  Speaker 1: I mean, right now, very few people are saying it's
• 22:12
  Speaker 1: going to be the next six or twelve months. Yeah,
• 22:15
  Speaker 1: you know, um, certainly, certainly the next six months looks
• 22:18
  Speaker 1: like it's going to be okay, you know, and you know,
• 22:20
  Speaker 1: put that in the perspective of certainly where we were.
• 22:23
  Speaker 1: You know, if we're talking about two two and a
• 22:24
  Speaker 1: half percent growth versus the three and a half four percent,
• 22:27
  Speaker 1: it's not going to feel that great, but it still
• 22:29
  Speaker 1: is a trend or above trend um. I do think
• 22:31
  Speaker 1: that from the perspective of liquidity um coming out of
• 22:34
  Speaker 1: the market, whether it's the ECB's position and or the
• 22:37
  Speaker 1: FEDS continuing hiking and and and reducing their balance sheet,
• 22:41
  Speaker 1: we're going to see kind of that market volatility from
• 22:44
  Speaker 1: UM an economic perspective, however, you know it is it
• 22:47
  Speaker 1: is a two way going into type of type of
• 22:50
  Speaker 1: discussion for me, Marvin, what do you make of companies
• 22:54
  Speaker 1: that have either pulled or postponed their initial public offerings
• 22:59
  Speaker 1: because of market volatility and I'm thinking about and the
• 23:04
  Speaker 1: possibility of an uber I p O. Do you think
• 23:07
  Speaker 1: those things are off the table now? You know what
• 23:10
  Speaker 1: UM no I I don't think so. You know, particularly
• 23:12
  Speaker 1: when you talk about companies that have as large as
• 23:16
  Speaker 1: a cachet um as you describe, Remember there is always evaluation.
• 23:21
  Speaker 1: It's not as if these business models are worth zero.
• 23:23
  Speaker 1: We're trying to sell it from a hundred. You know.
• 23:25
  Speaker 1: Certainly we've gone through that UM you know, in the
• 23:28
  Speaker 1: in the early two thousands. By the time companies come
• 23:31
  Speaker 1: to market, they generally have a much more developed business
• 23:36
  Speaker 1: model that people understand, and we've kind of seen that
• 23:38
  Speaker 1: with Spotify, you know, certainly Uber. Everybody everybody knows Uber.
• 23:41
  Speaker 1: So there's a value to that. Whether or not the
• 23:43
  Speaker 1: valuations are what UM the sellers want, now that's a
• 23:46
  Speaker 1: different story. So we've seen a number of big analysts
• 23:50
  Speaker 1: say it is a time to start adding to cash allocations.
• 23:54
  Speaker 1: Do you agree, And how much higher should cash be
• 23:57
  Speaker 1: uh than over the past few years in your opinion, Yeah,
• 24:00
  Speaker 1: I I think that, um, you know, whether it's a
• 24:02
  Speaker 1: function of kind of UM anticipating the volatility and or
• 24:06
  Speaker 1: keeping some powder dry. Cash does feel like UM, it's
• 24:10
  Speaker 1: it's a decent place to get into. UM. You know,
• 24:13
  Speaker 1: I don't necessarily have an asset allocation. Uh. It's certainly
• 24:17
  Speaker 1: it is a larger percentage than it was over the
• 24:19
  Speaker 1: last few years when things were you know, much easier
• 24:22
  Speaker 1: to see from a from a risk taking perspective, Marvin,
• 24:25
  Speaker 1: the sense that there is a dollar shortage outside of
• 24:28
  Speaker 1: the United States, Yeah, I do, UM, and you know,
• 24:31
  Speaker 1: kind of as we get into the year end, I
• 24:33
  Speaker 1: think that um, that's going to play for the traders
• 24:36
  Speaker 1: in terms of how they want to position it. Um.
• 24:39
  Speaker 1: The dollar remains UM, you know, in demand. UM. We
• 24:42
  Speaker 1: kind of see it coming from the emerging markets as
• 24:45
  Speaker 1: well as other areas where you know, for the most parts,
• 24:47
  Speaker 1: for the most part, our markets are are the most stable.
• 24:50
  Speaker 1: So yeah, that that that that continues, you know, ironically, UM,
• 24:53
  Speaker 1: whether or not we get um much appreciation in the
• 24:56
  Speaker 1: dollar given everything else that's going on is a pretty
• 24:59
  Speaker 1: active debate the market right now. Thank you very much
• 25:02
  Speaker 1: for spending time with us today. Marvin Lowe is global
• 25:05
  Speaker 1: macro strategist for State Street, joining us from our Boston
• 25:10
  Speaker 1: studios talking about interest rates, the European Union, Italy contagion,
• 25:16
  Speaker 1: as well as HI yield debt. What do you think
• 25:18
  Speaker 1: the main topic of discussion is going to be this
• 25:20
  Speaker 1: year at Thanksgiving tables across the country. Uh, don't eat
• 25:24
  Speaker 1: the romane lettuce. Indeed, last year was bitcoin, right, so
• 25:27
  Speaker 1: this year, you know, bitcoin is ten years old. This year, well,
• 25:31
  Speaker 1: how's it doing? Not so hot? No, but I'll be
• 25:34
  Speaker 1: interesting to see whether there are discussions about markets. You know,
• 25:38
  Speaker 1: I know certainly my own family has been asking me
• 25:40
  Speaker 1: what does this mean? What does this mean? Yeah, well
• 25:42
  Speaker 1: hopefully you won't open your statements for the month. Yes,
• 25:46
  Speaker 1: we leave it to leave it to left the pumpkin pie. Yes,
• 25:50
  Speaker 1: leave it to lead and November. Thanks for listening to
• 25:54
  Speaker 1: the Bloomberg P and L podcast. You can subscribe and
• 25:57
  Speaker 1: listen to interviews at Apple Podcasts, sound Cloud, or whatever
• 26:00
  Speaker 1: podcast platform you prefer. I'm pim Fox. I'm on Twitter
• 26:04
  Speaker 1: at pim fox I'm on Twitter at Lisa Abramo. It's
• 26:08
  Speaker 1: one before the podcast. You can always catch us worldwide
• 26:11
  Speaker 1: on Bloomberg Radio