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UBS Warns Worst May Not Be Over · Bloomberg Intelligence

• 0:05
  Speaker 1: Welcome to the Bloomberg p m L Podcast. I'm Pim Fox.
• 0:08
  Speaker 1: Along with my co host Lisa Bramowitz. Each day we
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  Speaker 1: bring you the most important, noteworthy, and useful interviews for
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  Speaker 1: Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot com. Another
• 0:32
  Speaker 1: share that is making a pretty big move today, UBS
• 0:36
  Speaker 1: shares a plunging at one point at least the a
• 0:38
  Speaker 1: d r s uh at one point, the most since
• 0:40
  Speaker 1: twenty sixteen. A huge reversal, Paul, from just a few
• 0:44
  Speaker 1: months ago when they reported pretty pretty sanguine earnings and
• 0:48
  Speaker 1: are just an outlook that was seemed pretty good all
• 0:51
  Speaker 1: of a sudden not so great. Yeah, And I think
• 0:53
  Speaker 1: one of the surprising areas is the wealth management business.
• 0:56
  Speaker 1: That's a business set for most of these big banks
• 0:57
  Speaker 1: are supposed to be a steady eddie, predictable busins this
• 1:00
  Speaker 1: long term positive trends, but they actually have some real
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  Speaker 1: weakness there. Let's dig into that. Patrick Winter's Lumberck News
• 1:05
  Speaker 1: Swiss finance reporter joining us Now, Patrick, what happened here? Either? Yeah?
• 1:10
  Speaker 1: What's interesting? Where? You guys are mentioning steady, Eddie. That's
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  Speaker 1: kind of the market perception of what this business is
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  Speaker 1: supposed to be. But it's also a very market dependent business.
• 1:20
  Speaker 1: And you know, if if equities are down, if other
• 1:23
  Speaker 1: types of assets are down, that actually translates into losses
• 1:26
  Speaker 1: for the company because it means they have less assets.
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  Speaker 1: If they have less assets, then they get less revenues
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  Speaker 1: from managing those assets. And that's basically the story here today. Um.
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  Speaker 1: It is kind of why UBS has had a bit
• 1:36
  Speaker 1: of a shocking quarter and alarmed some people. Um. You know,
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  Speaker 1: also given the read through for some of the other
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  Speaker 1: banks coming up reporting in the next week. So, Patrick,
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  Speaker 1: how do you in any sense of how UBS is
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  Speaker 1: performing relative to its peers and that wealth management business.
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  Speaker 1: We saw that Society General also had some some weak
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  Speaker 1: results as well. But is there any reason to believe
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  Speaker 1: that this is a UBS specific issue? Interesting you mentioned
• 1:59
  Speaker 1: that to a chief executive officers, Sir Duo Mutti was
• 2:04
  Speaker 1: saying that in the US at least UBS is doing
• 2:07
  Speaker 1: better than its competitors. Um. You know, it's especially flow
• 2:10
  Speaker 1: wise in terms of new money that it's winning from customers. Um.
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  Speaker 1: You know, they claim that the best. But it's also
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  Speaker 1: difficult to measure if that's true or not because the
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  Speaker 1: other US banks don't break out how much new money
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  Speaker 1: they get from customers um. And that's for the European banks.
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  Speaker 1: I guess we'll have to wait and see what they report. UM.
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  Speaker 1: You know, obviously it's a bit of an alarming sign
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  Speaker 1: if a bank like UBS comes out and says that
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  Speaker 1: it's had you know, that it's lost money. It's lost
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  Speaker 1: money in a in a quarter when it normally gains
• 2:36
  Speaker 1: quite a lot. Well, so let's give some numbers to this, right.
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  Speaker 1: They said that clients pulled thirteen billion dollars in assets
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  Speaker 1: during the really ugly three months that ended eighteen. Do
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  Speaker 1: we have a sense of whether that's stabilized. Do we
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  Speaker 1: have a sense of of which clients were really withdrawing money?
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  Speaker 1: In terms of which clients, definitely you can say it
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  Speaker 1: was the ultra client, that's the big, big billionaires, And
• 3:02
  Speaker 1: that's a warding sign because normally you think that the
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  Speaker 1: billionaire is the best place in this type of market environment.
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  Speaker 1: They had some surprising outfits in Switzerland, uh and and
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  Speaker 1: also in the US UM. So that's kind of geographically
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  Speaker 1: where it's all coming from UM and I think you know,
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  Speaker 1: in terms of how they're doing versus competitors. Yeah, it's
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  Speaker 1: it's it's a it's difficult really to talk about that
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  Speaker 1: at this point. What one thing that I'm struggling to
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  Speaker 1: understand is this a re allocation to another firm? Is
• 3:28
  Speaker 1: this a re allocation to alternative strategies by ultra wealthy individuals,
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  Speaker 1: or is this a wholesale take your money and stuff
• 3:36
  Speaker 1: and in a maddress. I think it's I think it's
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  Speaker 1: probably the latter. It's takes Really you don't you don't
• 3:40
  Speaker 1: trust equities if I mean, if you're believing what what
• 3:43
  Speaker 1: UBS is saying today, it's they're not moving it to competitors.
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  Speaker 1: They're taking the money, they're stuffing in a mattress because
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  Speaker 1: they don't believe they're investing in some type of other
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  Speaker 1: asset in the financial marketplace is going to be safe
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  Speaker 1: for them at this point in time. So, Patrick, one
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  Speaker 1: of the things we heard from the U S and
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  Speaker 1: vest A banks last week was kind of a similar story,
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  Speaker 1: and that the very rough fourth quarter, particularly that December,
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  Speaker 1: but generally a fairly optimistic outlook. Did you be as
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  Speaker 1: share that optimistic outook for Uh, the outlook was kind
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  Speaker 1: of nuanced. What they said was if things continue like
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  Speaker 1: they did in the fourth quarter, you know, then we
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  Speaker 1: could be in some trouble. But they did not specify
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  Speaker 1: if that would be the case or not, so they
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  Speaker 1: kind of left it open to interpretation. So going forward,
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  Speaker 1: is this any sense of what's to come for asset managers, because,
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  Speaker 1: as Paul was mentioning wisely, this has been sort of
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  Speaker 1: the the calm harbor, the safe harbor for a lot
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  Speaker 1: of banks is the wealth management division. Is this sort
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  Speaker 1: of sounding an alarm saying, rethink that? I think so?
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  Speaker 1: I think it is. You just really have to watch
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  Speaker 1: the markets. You know, if if equity markets keep going down,
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  Speaker 1: then you're going to see more of the same. If
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  Speaker 1: they rally and go up, then people in the next
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  Speaker 1: quarter might be saying, how Ubs this the role model
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  Speaker 1: wants the again, You'll just have to wait and see. Patrick,
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  Speaker 1: just real quickly. Uh, they start a banker for UBS,
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  Speaker 1: Andrea or Cell recently left. How damaging is that to
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  Speaker 1: that franchise If you have a big name like this
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  Speaker 1: guy leaving it for sure is not going to help
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  Speaker 1: the investment bank. And they've got They've got two guys
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  Speaker 1: who have replaced him. They basically split his job between
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  Speaker 1: two co heads. But I don't think I think it's
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  Speaker 1: fair to say this either of them really have the
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  Speaker 1: same name recognition as he does. It's difficult to measure
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  Speaker 1: the impact of one guy. But definitely, looking at this
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  Speaker 1: from the outside, it's a lot for them. Yeah, maybe
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  Speaker 1: they don't have the name recognition. They also don't have
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  Speaker 1: the paycheck that it comes with. Just how much UBS
• 5:42
  Speaker 1: would have to compensate him for leaving his former employer, actually,
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  Speaker 1: how much he would have to be competated to leave UBS?
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  Speaker 1: Thank you so much, Patrick Winters of Bloomberg News. Well,
• 6:08
  Speaker 1: at least so. The on again, off again trade talks
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  Speaker 1: between the U S and China appear to be back
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  Speaker 1: on again. To bring us up to date on what's
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  Speaker 1: actually going on between the two countries is Michael Herston.
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  Speaker 1: Michael is a director covering Asia for the Eurasian Group.
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  Speaker 1: He's on the phone with us from New York City. Michael,
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  Speaker 1: thank you for joining us. I guess let's start right
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  Speaker 1: off the bat um. How likely is it that we
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  Speaker 1: will in fact get a trade agreement this year? And
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  Speaker 1: how limited or abroad. Do you think that agreement could
• 6:34
  Speaker 1: be well, I think that there is a reasonable chance
• 6:40
  Speaker 1: of getting some kind of trade agreement within h within
• 6:45
  Speaker 1: I would put it at better than at this point.
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  Speaker 1: But I think the last question you raised is a
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  Speaker 1: really important one, which is what kind of deal is it?
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  Speaker 1: And in my view, it's going to be a quite
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  Speaker 1: limited deal. What I mean there is that many of
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  Speaker 1: the lead tough issues between the two sides are not
• 7:03
  Speaker 1: close to being resolved. And I don't think that President
• 7:07
  Speaker 1: Trump can really very easily declare victory by saying these
• 7:12
  Speaker 1: issues are settled, because he'll face blowback from Congress, from Democrats,
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  Speaker 1: including those running for president, and from trade hawks within
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  Speaker 1: his administration and close to his face. So I think
• 7:23
  Speaker 1: what happens is we get a limited deal. Many of
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  Speaker 1: the tough issues continue to be negotiated, and that means
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  Speaker 1: that there will there will be a lot of unresolved
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  Speaker 1: issues hanging over the relationship, which means the US will
• 7:35
  Speaker 1: be very slow to remove tariffs, and any agreement is
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  Speaker 1: at risk of breaking down if the two sides can't
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  Speaker 1: get past an impass on some of these very tough issues.
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  Speaker 1: So you think that it's very likely that We're going
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  Speaker 1: to get a deal done, but the deal will be
• 7:48
  Speaker 1: mostly useless, very limited, and possibly revoked pretty quickly. Is
• 7:52
  Speaker 1: that right, That's right, it will be well, it will
• 7:59
  Speaker 1: be the The use will be that it will lower
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  Speaker 1: the probability of the worst case outcome in terms of
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  Speaker 1: what the markets and trading community is looking at, which
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  Speaker 1: is further escalation of the of the trade dispute. And
• 8:13
  Speaker 1: you know, really that would come in the form of
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  Speaker 1: the US moving ahead with the threat to lift the
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  Speaker 1: tariff rate on most of the goods that the US
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  Speaker 1: is imported from China that are under tariff from That
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  Speaker 1: would be a big move. I think at this point
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  Speaker 1: it's becoming less and less likely that that happens, certainly
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  Speaker 1: in the near term. So this removes that worst case probability,
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  Speaker 1: or at least it lowers it. But what it doesn't
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  Speaker 1: do is resolve the underlying issues, and it probably doesn't
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  Speaker 1: lead to a path where the US removes existing tariffs
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  Speaker 1: in a very quick manner, if at all. So, Michael,
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  Speaker 1: you mentioned that you know this is likely to be
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  Speaker 1: a limited deal. Um, you know, some of the thorniest
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  Speaker 1: issues between China and the US have historically been around
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  Speaker 1: technology around intellectual property UM. Is there any scenario where
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  Speaker 1: you think those issues get addressed with these negotiations or
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  Speaker 1: is it just too difficult at this point, I think
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  Speaker 1: it's really hard for me to see a breakthrough happening
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  Speaker 1: in those areas. And it's because this this set of
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  Speaker 1: issues related to technology, it spans trade and national security
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  Speaker 1: for both governments. When you look at um issues like
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  Speaker 1: the rollout of five G, next generation wireless, or AI
• 9:28
  Speaker 1: or quantum computing, all of these are seen by both
• 9:31
  Speaker 1: governments as being important not only for economic competitiveness, but
• 9:35
  Speaker 1: also for military and national security advantages as well. And
• 9:40
  Speaker 1: the US China geopolitical rivalry is heating up, so it's
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  Speaker 1: it's very hard for me to see Beijing making concessions
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  Speaker 1: in the areas of tech and innovation policy that meet
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  Speaker 1: the high bar of the US. Indeed, and actually the
• 9:54
  Speaker 1: Wall Street Journal today was reporting that several US agencies
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  Speaker 1: have owned that China has absolutely doubled down on their
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  Speaker 1: wishes and efforts to try to exert a tech dominance
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  Speaker 1: over the world. That said, Jijn Ping, President of China,
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  Speaker 1: really sounded a different note at the Party Congress in
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  Speaker 1: his address when he talked about quote serious dangers to
• 10:17
  Speaker 1: the party. What was your take on that, having spent
• 10:20
  Speaker 1: a lot of time in Beijing as a representative for
• 10:23
  Speaker 1: the U. S. Treasury Department. Well, it was a very
• 10:27
  Speaker 1: interesting speech. It happened over the weekend where Jen Pain
• 10:30
  Speaker 1: called together senior party leaders in the central government and
• 10:33
  Speaker 1: the provinces for what's known as a seminar. And as
• 10:37
  Speaker 1: you said, the theme was avoiding major risks for China.
• 10:41
  Speaker 1: And I think really it's a reflection of JN Paying
• 10:45
  Speaker 1: realizing that China faces risks on a number of fronts
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  Speaker 1: domestic economy, the external environment, the trade war, um, growing
• 10:54
  Speaker 1: geopolitical frictions with the U S UM. Really it's it's
• 10:58
  Speaker 1: a very difficult time for the leader ship right now.
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  Speaker 1: But I think really important point here is that what
• 11:03
  Speaker 1: she was saying was that it's not that the the
• 11:07
  Speaker 1: direction of Chinese policy is a mistake. Many of these
• 11:11
  Speaker 1: risks are the inevitable result of the course that China's plotting,
• 11:15
  Speaker 1: which is looking to become a great power and facing
• 11:18
  Speaker 1: blowback from the US, or on the domestic economy, restructuring
• 11:22
  Speaker 1: the economy, which is going to be painful. So it
• 11:26
  Speaker 1: was a message to the leadership that China needs to
• 11:30
  Speaker 1: say vigilant in the risks that it's facing, but not
• 11:34
  Speaker 1: that she is preparing to change course, and I certainly
• 11:37
  Speaker 1: don't think he is. That's interesting. Thank you very much, Michael.
• 11:41
  Speaker 1: It's a very complicated issue. Um. That was Michael Herson,
• 11:45
  Speaker 1: director covering Asia for the Eurasia Group, on the film
• 11:48
  Speaker 1: with us from New York City. I think Michael's take
• 11:50
  Speaker 1: is likely to get some type of trade agreement in tween,
• 11:55
  Speaker 1: but it's likely to be a limited agreement, so some
• 11:57
  Speaker 1: of the authorities issues unlikely to be addressed. At least
• 12:02
  Speaker 1: this year, the volatility and the energy markets reared its
• 12:22
  Speaker 1: head once again. Today. We've got West Texas Intermediate crew
• 12:25
  Speaker 1: down about a dollar fifty seven to fifty two dollars
• 12:28
  Speaker 1: and twenty three cents per barrel. That's down almost three.
• 12:31
  Speaker 1: To bring us up to date on what's going on
• 12:32
  Speaker 1: in the energy markets and maybe one impact China maybe
• 12:35
  Speaker 1: having on global energy markets, we bring in Stewart Clickman.
• 12:38
  Speaker 1: Stewart is the head of Energy research at c f
• 12:41
  Speaker 1: r A. He's on the phone with us from New Jersey. Stewart,
• 12:44
  Speaker 1: welcome to the show. I wondered if you could give
• 12:47
  Speaker 1: us a sense just right off the top of kind
• 12:48
  Speaker 1: of what is your call on kind of the global
• 12:51
  Speaker 1: supply and demand situation out there for oil and what
• 12:54
  Speaker 1: impact China maybe having on that. Yeah, good morning, Paul.
• 12:57
  Speaker 1: So I think I think the first UM piece of UM,
• 13:02
  Speaker 1: I guess supply demand fundamentals. That's that's the most important,
• 13:05
  Speaker 1: is the demand situation, and you lose China. China represents
• 13:09
  Speaker 1: about a third of expected incremental global demand growth in
• 13:13
  Speaker 1: so if people start getting worried that that the demand
• 13:16
  Speaker 1: picture is going to fall apart in China, that has
• 13:18
  Speaker 1: a huge impact on demand overall. And I think what's
• 13:21
  Speaker 1: happening is that the producers, you know, the OPEC plus
• 13:25
  Speaker 1: consortium is trying to UM, trying to trying to keep
• 13:29
  Speaker 1: pace with falling demand by trying to cut their production
• 13:32
  Speaker 1: as well. UM and and so that's that's that's the
• 13:35
  Speaker 1: give and take between supply demand. Right now, it seems
• 13:37
  Speaker 1: to be UM. You know, WIL prices are up a
• 13:41
  Speaker 1: little bit relatively the beginning of the year, but they're
• 13:43
  Speaker 1: not up a whole lot. So I'm looking right now
• 13:46
  Speaker 1: it it crewed traded on the night Max. It's currently
• 13:49
  Speaker 1: down a bit and thirteen cents barrel. Where do you
• 13:53
  Speaker 1: see us sending the year here? Given all of these
• 13:55
  Speaker 1: cross winds, I mean, how can you even make that
• 13:58
  Speaker 1: kind of prediction? It's really tough, um Lesa. I would
• 14:02
  Speaker 1: say that, you know, we're looking for w T I
• 14:05
  Speaker 1: to be somewhere in the high stiftees on average for
• 14:09
  Speaker 1: so on the one hand, that's up from where we
• 14:11
  Speaker 1: are today, so that sounds like a win. On the
• 14:13
  Speaker 1: other hand, last year a crude average sixty five a barrel.
• 14:17
  Speaker 1: So really, when you put it in context, we're not
• 14:20
  Speaker 1: looking for any any great improvement in price for producers.
• 14:24
  Speaker 1: And I think when it comes to the E N
• 14:26
  Speaker 1: P S, I think you have to pivot towards the
• 14:28
  Speaker 1: more defensive names, the names that are doing a better
• 14:30
  Speaker 1: job generating cash flow in that kind of environment. So
• 14:34
  Speaker 1: as we think about supply here, Russia has always been
• 14:37
  Speaker 1: the wild card, very difficult to predict. They talk about
• 14:40
  Speaker 1: cutting production, yet they don't. Um So, what's your sense
• 14:44
  Speaker 1: about the supply side of the equation specifically VSAV Russia. Yeah,
• 14:49
  Speaker 1: Russia is you know, I think it was Winston Churchill
• 14:53
  Speaker 1: said there are a riddle trapped inside an enigma, or
• 14:56
  Speaker 1: maybe my FIRSTA, UM, they you know they are, They're
• 14:59
  Speaker 1: gonna do what they want to do. UM. They have
• 15:01
  Speaker 1: agreed to cuts of UM around four hundred thousand barrels
• 15:05
  Speaker 1: a day UM they plus the others in the non
• 15:07
  Speaker 1: OPEC piece of OPEC plus. But the December numbers, according
• 15:11
  Speaker 1: to the i A, show that Russia actually increased production. UM.
• 15:15
  Speaker 1: So you know, they have six months to kind of
• 15:18
  Speaker 1: get their act together and get on the same page
• 15:19
  Speaker 1: with OPEC. But the early indications are that there are
• 15:23
  Speaker 1: some call it artistic differences between what Saudi wants and
• 15:26
  Speaker 1: what Russia wants. Well, how much influence does OPEC have
• 15:29
  Speaker 1: on Russia. It doesn't seem like it has much. I
• 15:33
  Speaker 1: don't think they really do. UM. I think, you know,
• 15:35
  Speaker 1: in UM, when oil prices fell through the floor and
• 15:39
  Speaker 1: landed around twenty six dollars a barrel, everyone was on
• 15:42
  Speaker 1: the same page because twenty six dollars about worked from nobody. UM.
• 15:45
  Speaker 1: I think that Russia's cost structure is perhaps UM a
• 15:48
  Speaker 1: little better UM than than Saudi's is. Keep in mind
• 15:52
  Speaker 1: that Saudi has all sorts of social programs that I
• 15:55
  Speaker 1: need to pay for, and I think that Saudi's desired
• 15:58
  Speaker 1: number is probably higher than USh is at this point.
• 16:01
  Speaker 1: So I've been seeing data at point after data point
• 16:04
  Speaker 1: showing that US production has risen to new records and
• 16:08
  Speaker 1: makes new highs every month, and I'm just wondering, how
• 16:11
  Speaker 1: much further do we have to go? How much more
• 16:13
  Speaker 1: can the US ramp up its production here. It's been
• 16:16
  Speaker 1: a real surprise to the market. I would have said
• 16:19
  Speaker 1: three months ago that I thought we were close to
• 16:21
  Speaker 1: topping out, and yet they continued surprise. To the upside,
• 16:24
  Speaker 1: there are some indications that, um, there's not a lot
• 16:27
  Speaker 1: of room left for further efficiency improvements. Um. You know,
• 16:31
  Speaker 1: some of the producers I started talking about what they
• 16:33
  Speaker 1: call parent parent child interference, where wells that you've already
• 16:37
  Speaker 1: drilled are are getting in the way of wells he
• 16:39
  Speaker 1: would like to drill. So, you know, the technology side
• 16:43
  Speaker 1: of the battle between technology and geology, technology is still winning,
• 16:47
  Speaker 1: but but there is a limit. And at the moment,
• 16:51
  Speaker 1: the expectations are that non opect growth led by the
• 16:54
  Speaker 1: US is going to deliver more production in twent nine.
• 16:59
  Speaker 1: I think it's going to be I think that delta
• 17:01
  Speaker 1: is going to be less than it was though, So
• 17:03
  Speaker 1: just real cookie Stewart and what's the preview of the
• 17:05
  Speaker 1: earnings coming at fourth quarter earnings for some of these
• 17:07
  Speaker 1: energy companies are is there particular areas that you're gonna
• 17:09
  Speaker 1: stay away from? Um, you know, I think the services
• 17:13
  Speaker 1: space looks a little beleaguered at this point. Um. You know,
• 17:16
  Speaker 1: they've they've they've suffered for the last couple of years. Um,
• 17:20
  Speaker 1: in a in a weird way, it's it's they've kind
• 17:23
  Speaker 1: of sowed the seeds of their own demise. They've gotten
• 17:25
  Speaker 1: so good at helping producers get more oil out of
• 17:28
  Speaker 1: the ground that um, that it doesn't take quite as
• 17:32
  Speaker 1: many assets to deliver a lot of production growth for
• 17:34
  Speaker 1: the customers. So the customers are winning that battle, Haliburton
• 17:37
  Speaker 1: reported today, and my colleague Page Marcus published a note
• 17:41
  Speaker 1: on them, you know, maintaining a whole recommendation with them. Um,
• 17:44
  Speaker 1: you know, in part because you know, the services you know,
• 17:48
  Speaker 1: services pricing business doesn't look all that all that rosy
• 17:52
  Speaker 1: right now. Unfortunately, we're going to have to leave there.
• 17:54
  Speaker 1: Thank you so much though, for being with us. Stuart Glickman,
• 17:56
  Speaker 1: head of Energy Research at CFR A research from New Jersey. Well,
• 18:15
  Speaker 1: we did get from the International Monetary Fund a bleak
• 18:18
  Speaker 1: assessment of global growth. They forecast the weakest growth around
• 18:22
  Speaker 1: the world in three years, and they are not blaming
• 18:26
  Speaker 1: China frankly for their downgraded assessment of the world, but
• 18:29
  Speaker 1: rather Europe in particular Germany. Let's talk about how that
• 18:33
  Speaker 1: is shaping up some of the views of investors. Jack
• 18:36
  Speaker 1: Ablin joining us now founding partner in chief investment officer
• 18:39
  Speaker 1: at Crescent Wealth Advisers. Jack, thank you so much for
• 18:42
  Speaker 1: joining us from Palm Beach, Florida. I'm just wondering, do
• 18:45
  Speaker 1: you care what the i m F says about global growth?
• 18:48
  Speaker 1: Are they accurate and sort of relevant to you? You know,
• 18:52
  Speaker 1: I do care about changes in their growth forecasts, and
• 18:56
  Speaker 1: they do highlight things that are a concern of there.
• 18:59
  Speaker 1: I remember, i am FF is really there for the
• 19:01
  Speaker 1: emerging markets, and so I did to pay more attention
• 19:06
  Speaker 1: to what they say in that regard rather than the
• 19:09
  Speaker 1: developed world. So you're not that concerned about Europe right now?
• 19:12
  Speaker 1: Not that concerned? No, I mean, I'm and concerned about Europe,
• 19:16
  Speaker 1: but I'm not more concerned about Europe now that the
• 19:18
  Speaker 1: I m F has put it on their radar screen.
• 19:21
  Speaker 1: So Jack, how concerned are you or how do you
• 19:23
  Speaker 1: view emerging markets. You know, in that volatility we experienced
• 19:26
  Speaker 1: in the fourth quarter of ther emerging markets got hit
• 19:28
  Speaker 1: extremely hard. Bouncing back a little bit here in the
• 19:31
  Speaker 1: new year. How are you positioned in emerging markets and
• 19:34
  Speaker 1: what is your recommendation to your clients? Sure, um, well,
• 19:38
  Speaker 1: we are underweight emerging markets, even though I would argue
• 19:42
  Speaker 1: from on a historical basis they're pretty cheap. In fact,
• 19:45
  Speaker 1: they're probably the cheapest major asset class in the world
• 19:50
  Speaker 1: right now. Um. But there are a lot of things
• 19:53
  Speaker 1: that need to be sorted out, not the least of which,
• 19:56
  Speaker 1: of course, is just near term economic trajectory, but more broadly,
• 20:01
  Speaker 1: you know, I want to really better understand this uh
• 20:05
  Speaker 1: tipfort trade issue with China. You know, I think investors
• 20:09
  Speaker 1: originally thought this was a tactic. Uh it is now
• 20:12
  Speaker 1: since morphed into a strategy. Um. And the question really
• 20:17
  Speaker 1: is is this ultimately a policy, a policy that reverses
• 20:23
  Speaker 1: thirty five years of outsourcing globalization and and and and
• 20:29
  Speaker 1: finding the best um, you know, producers for the best goods,
• 20:33
  Speaker 1: and you know, a shift to more inward focused where
• 20:38
  Speaker 1: perhaps this wall kind of personifies that that worldview. Well, Jack,
• 20:42
  Speaker 1: you mentioned China, we had a guest on earlier who
• 20:45
  Speaker 1: suggested that a deal trade deal between the US and
• 20:48
  Speaker 1: China is possible is likely maybe odds, but that it
• 20:52
  Speaker 1: will be a very limited deal, not have a lot
• 20:54
  Speaker 1: of teeth into it. Assuming that's the backdrop, How important
• 20:58
  Speaker 1: is getting a deal, any deal with China to the
• 21:01
  Speaker 1: overall equity markets. I think that it's important that, um,
• 21:06
  Speaker 1: there is a dialogue, that there is some back and
• 21:09
  Speaker 1: forth here, that this isn't just uh, you know, uh
• 21:13
  Speaker 1: digging heels into the sand, so to speak. Um. And
• 21:17
  Speaker 1: so I would like to make sure that there is
• 21:20
  Speaker 1: some trade decent going on with China. UM. But you're right,
• 21:24
  Speaker 1: I mean there's still larger issues looming relative to more
• 21:29
  Speaker 1: than just necessarily these these tariffs. In fact, um, there
• 21:33
  Speaker 1: are many analysts now believe that these tariffs will will
• 21:38
  Speaker 1: be here to stay permanently um or at least on
• 21:41
  Speaker 1: many items. And I think businesses are going to have
• 21:44
  Speaker 1: to adjust to that. And and that's where I have
• 21:47
  Speaker 1: some concern. I want to talk a little bit about
• 21:49
  Speaker 1: UBS and what they're reported with respect of thirteen billion
• 21:52
  Speaker 1: dollars of client withdrawals, and we were just talking about
• 21:55
  Speaker 1: how this really came from the high net worth the
• 21:58
  Speaker 1: ultra high net worth individuals who basically we're trying to
• 22:01
  Speaker 1: stuff cash into a mattress. Do you adhere to the
• 22:04
  Speaker 1: same strategy of stuff in cash into yeah. Do you
• 22:09
  Speaker 1: think that that's a that's a prudent thing to do
• 22:10
  Speaker 1: to take money out of equities, cash out in the
• 22:13
  Speaker 1: in the good days and and sort of just put
• 22:14
  Speaker 1: money aside. Yeah. I mean, I will say, we normally
• 22:19
  Speaker 1: don't carry much of a cash balance, and we do
• 22:22
  Speaker 1: have a cash balance now. Um. You know, I'm not
• 22:27
  Speaker 1: why I think that there are still, like I said,
• 22:29
  Speaker 1: there are still things that need to be sorted out. Well,
• 22:32
  Speaker 1: valuations among US large caps. You know, you you can
• 22:36
  Speaker 1: convince yourself that they're fair value. I mean, it all
• 22:39
  Speaker 1: depends on what what metrics you want to use. I mean,
• 22:42
  Speaker 1: anyone who's bullish today on US equities is looking at
• 22:46
  Speaker 1: forward pe um. Those of us who look longer term,
• 22:50
  Speaker 1: whether it's um, you know, a Schiller metric or price
• 22:54
  Speaker 1: to book, price to sales, something that looks back today
• 22:58
  Speaker 1: relative to the last thirty year is still argues that
• 23:01
  Speaker 1: we're still above the seventy five percentile of our you know,
• 23:05
  Speaker 1: historical valuation range. So it's not as cheap as perhaps
• 23:09
  Speaker 1: it appears. But I think more importantly, UM, you know,
• 23:12
  Speaker 1: I watch credit conditions, and while we had this nice
• 23:15
  Speaker 1: little bounce, I think because investor attitude has just got
• 23:20
  Speaker 1: too negative too quickly UM last year. UM, but lenders
• 23:25
  Speaker 1: are still tightening their purse strinks. And I think the
• 23:29
  Speaker 1: the environment UH for liquidity and credit is not as
• 23:33
  Speaker 1: easy as it was this time last year. And I
• 23:36
  Speaker 1: think that creates a you know, a little more difficult
• 23:39
  Speaker 1: environment to to take on risk. Well, given your more
• 23:43
  Speaker 1: I guess cautious outlook, certainly near near term, where are
• 23:46
  Speaker 1: you putting money to work these days? Sure? So? UM,
• 23:50
  Speaker 1: you know, within the the the context of the world UM,
• 23:56
  Speaker 1: US you know you could argue as fair price to
• 23:58
  Speaker 1: overprice depending on a metric use international developed UH, you know, Europe,
• 24:03
  Speaker 1: Japan leat UH, your Japan UK certainly cheap or at
• 24:08
  Speaker 1: least relatively cheap to the US and probably UH slightly
• 24:12
  Speaker 1: below fair value relative to long term UH and emerging
• 24:15
  Speaker 1: markets cheap. So we are underweight equity risk exposure. But
• 24:21
  Speaker 1: within that we're tilted more towards the international space than
• 24:25
  Speaker 1: UM here in the US. What was the most recent
• 24:28
  Speaker 1: changed to your allocation. I think that, um, it was
• 24:33
  Speaker 1: really this notion that um, you know, we got into
• 24:38
  Speaker 1: this environment where interest rates were held too low for
• 24:42
  Speaker 1: too long. Um. You know, if you look back, for example,
• 24:46
  Speaker 1: the tailor rule would have argued that the Feds should
• 24:49
  Speaker 1: have started tightening back in two thousand and thirteen. And
• 24:53
  Speaker 1: of course the Taper tantrum kind of scared uh central
• 24:56
  Speaker 1: bankers into perhaps sitting tight uh um. And when you
• 25:01
  Speaker 1: get an environment where rates are too cheap for too long,
• 25:05
  Speaker 1: it's very similar to what happened in under Greenspan when
• 25:10
  Speaker 1: he was fearful about Y two K. He was reading
• 25:13
  Speaker 1: Edyar Denny's work about how the lights weren't going to
• 25:15
  Speaker 1: turn on, and so he didn't have much of a
• 25:17
  Speaker 1: technology background, and so he decided to keep liquidity among
• 25:21
  Speaker 1: the banks very high and interest rates artificially low. We
• 25:25
  Speaker 1: saw what happened. We got large cap tech leading the
• 25:29
  Speaker 1: way higher, very similar to what we had now. So possibly,
• 25:34
  Speaker 1: um as rates start to rise domestically, yeah, we could
• 25:38
  Speaker 1: see a shift out of large cap both and into
• 25:41
  Speaker 1: small cap. Jack Adlin, thank you so much for enjoining us.
• 25:43
  Speaker 1: Jack Adlin, chief investment officer and founding partner, of Crescent
• 25:46
  Speaker 1: Wealth Advisors from Palm Beach, Florida. Thanks for listening to
• 25:53
  Speaker 1: the Bloomberg P and L podcast. You can subscribe and
• 25:56
  Speaker 1: listen to interviews at Apple Podcasts, SoundCloud, or whatever podcast
• 26:00
  Speaker 1: platform you prefer. I'm Pim Fox. I'm on Twitter at
• 26:04
  Speaker 1: pim Fox. I'm on Twitter at Lisa Abramo. It's one
• 26:07
  Speaker 1: before the podcast. You can always catch us worldwide on
• 26:10
  Speaker 1: Bloomberg Radio