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Trade War Takes Center Stage at G7 · Bloomberg Intelligence

• 0:02
  Speaker 1: Welcome to the Bloomberg PENL podcast. I'm Paul Sweene. You,
• 0:05
  Speaker 1: along with my co host Lisa Brahma wits each day
• 0:07
  Speaker 1: we bring you the most noteworthy and useful interviews for
• 0:10
  Speaker 1: you and your money. Whether at the grocery store or
• 0:12
  Speaker 1: the trading floor. Find a Bloomberg Penl podcast on Apple
• 0:15
  Speaker 1: podcast or wherever you listen to podcasts, as well as
• 0:17
  Speaker 1: at Bloomberg dot com. Let's welcome our good friend Nathan Sheets.
• 0:25
  Speaker 1: Nathan is chief Economists and head of macro economic Research
• 0:29
  Speaker 1: for p g i M Fixed Income based in Newark,
• 0:32
  Speaker 1: New Jersey, but joining us live here in our Bloomberg
• 0:34
  Speaker 1: and or Active Brooker studio. So, Nathan, I mean, there's
• 0:36
  Speaker 1: so many topics to talk about here. Um, just last week,
• 0:39
  Speaker 1: you know, we had the Fed, we had trade, we
• 0:41
  Speaker 1: had tariffs and so on and so forth. Let's start
• 0:44
  Speaker 1: with trade because that seems to be, uh, the number
• 0:47
  Speaker 1: one issue driving financial markets here just given what we've
• 0:51
  Speaker 1: seen over the last several days, several weeks. How do
• 0:54
  Speaker 1: you think this could play out? And what how are
• 0:56
  Speaker 1: you kind of you know, thinking about your portfolio and
• 0:59
  Speaker 1: global trade uncertainty. So it's a pleasure to be here,
• 1:04
  Speaker 1: and as you say, uncertainty is certainly the word of
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  Speaker 1: the day and probably the word of the week. I
• 1:12
  Speaker 1: would uh say that the president's remarks this morning that
• 1:17
  Speaker 1: he's received a call from the Chinese and they want
• 1:19
  Speaker 1: to negotiate, actually it should be interpreted as saying President
• 1:24
  Speaker 1: Trump wants to negotiate. Um. My feeling has long been
• 1:28
  Speaker 1: that he's not inclined to want to push the markets
• 1:31
  Speaker 1: or the economy uh to to the precipice or to
• 1:35
  Speaker 1: the breaking point. And so I would expect that the
• 1:38
  Speaker 1: administration will be uh finding ways to come to the table.
• 1:43
  Speaker 1: And then the key question is how did the Chinese
• 1:45
  Speaker 1: respond to that? All right, So we could get out
• 1:48
  Speaker 1: a book to analyze both characters and what's going on
• 1:51
  Speaker 1: in their mind space, but that might prove fruitless. I
• 1:53
  Speaker 1: think one of the key questions here is moving forward,
• 1:56
  Speaker 1: how much damage is already happening with respect to businesses
• 2:00
  Speaker 1: and their plans. Do you have a sense of that? Well,
• 2:03
  Speaker 1: right now we have a two speed to tier US economy.
• 2:09
  Speaker 1: The consumer sector in the labor market are quite solid,
• 2:15
  Speaker 1: but the business sector is is really feeling a meaningful
• 2:21
  Speaker 1: imprint of the uncertainty that you described. Which I think
• 2:25
  Speaker 1: is largely about this trade wall. I guess that there's
• 2:27
  Speaker 1: a question, there's sort of an understanding or a feeling
• 2:29
  Speaker 1: that Trump President Trump will back down or come to
• 2:33
  Speaker 1: some kind of deal in order to save the markets
• 2:35
  Speaker 1: and save the economics. It doesn't want to go into
• 2:38
  Speaker 1: with a stock market that's crashing. At the same time,
• 2:41
  Speaker 1: it's hard to know how much can be rolled back.
• 2:44
  Speaker 1: At what point do we hit the point of no
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  Speaker 1: return and businesses have already changed their plans so much
• 2:50
  Speaker 1: that even some sort of trade truce could not bring
• 2:53
  Speaker 1: necessarily markets back. And uh, I think that Uh, I
• 2:58
  Speaker 1: think that's an open question. My feeling is that we're
• 3:01
  Speaker 1: not there yet. But if we get to a point
• 3:03
  Speaker 1: where we have say, thirty percent tariffs on everything that
• 3:09
  Speaker 1: the United States is importing uh from China, and sanctions
• 3:14
  Speaker 1: on whalwei, and the list goes on, we may very
• 3:17
  Speaker 1: quickly get to that point where the impact on US
• 3:21
  Speaker 1: business on investment and investment plans is essentially irreversible, which
• 3:28
  Speaker 1: means that recessionary forces at that point will be will
• 3:32
  Speaker 1: be quite powerful. I don't think we're there yet, but
• 3:35
  Speaker 1: it's it's a possibility. So on the flip side. To
• 3:37
  Speaker 1: what extent are the tariffs impacting the Chinese economy do
• 3:41
  Speaker 1: you think? I think the uh, the impact on the
• 3:45
  Speaker 1: Chinese economy is quite substantial. My rule of thumb is
• 3:50
  Speaker 1: that if if the tariffs are taking say three or
• 3:53
  Speaker 1: four tenths of a percent off the level of US GDP,
• 3:58
  Speaker 1: that it's at least twice that much for the Chinese economy.
• 4:03
  Speaker 1: So the Chinese are certainly absorbing a meaningful economic shock,
• 4:07
  Speaker 1: and I think you're seeing that in their numbers. But
• 4:10
  Speaker 1: the key here is that China also has a higher
• 4:13
  Speaker 1: pain threshold. So that's kind of the challenge the US.
• 4:17
  Speaker 1: We're feeling less pain, but we have a lower pain threshold.
• 4:21
  Speaker 1: China more pain and a higher pain threshold. How how
• 4:24
  Speaker 1: do these incentives that result from that? How do they
• 4:27
  Speaker 1: play through well? And I guess that that's the question.
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  Speaker 1: You know, China seems to be playing a more hardball
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  Speaker 1: this morning than President Trump, indicating that there have not
• 4:34
  Speaker 1: been material talk. So at what point will they be
• 4:37
  Speaker 1: forced to the table, regardless of the fact that they've
• 4:40
  Speaker 1: got a higher pain threshold. So I think that China,
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  Speaker 1: I don't know the mechanism to force them to the table.
• 4:48
  Speaker 1: I do think that as they feel economic effects and
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  Speaker 1: as the Trump administration UH puts gifts in the negotiation
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  Speaker 1: on the table. I mean one of the challenges before
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  Speaker 1: I was at the U S Treasury and I would
• 5:03
  Speaker 1: negotiate with the Chinese, one of the challenges was the
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  Speaker 1: U S didn't have gifts for the Chinese. We were
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  Speaker 1: asking them to do things, but we didn't have a
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  Speaker 1: lot to give back. Now the US has has Wahwei,
• 5:15
  Speaker 1: we have currency manipulation, and we have tariffs, and so
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  Speaker 1: I think it does open up a negotiation. We're both claimed.
• 5:23
  Speaker 1: Both sides could claim a UH a scope for victory
• 5:29
  Speaker 1: or that they got something from it. So you mentioned Hahwei.
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  Speaker 1: That is a part of the negotiations that sometimes gets forgotten,
• 5:35
  Speaker 1: but that could in fact be a material stumbling block.
• 5:38
  Speaker 1: How how did does that play into it? So I
• 5:42
  Speaker 1: think Hahwei is critical. I think that if the Chinese
• 5:46
  Speaker 1: leaders were, you know, to disclose what they feel are
• 5:51
  Speaker 1: the key issues, Whahwei would be at the very top
• 5:54
  Speaker 1: of the list. So I think that progress from the
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  Speaker 1: Chinese standpoint, progress on hahweis is central. Then the question is, UH,
• 6:03
  Speaker 1: to what extent does the US actually see wahway as
• 6:06
  Speaker 1: a national security concern. And even if the administration is
• 6:10
  Speaker 1: inclined to want to be software a wahaway, will Capitol
• 6:15
  Speaker 1: Hill allow it? So I think always somehow has to
• 6:19
  Speaker 1: be included, but there are lots of question marks there.
• 6:22
  Speaker 1: We're speaking with Nathan Sheets. He's chief economist and head
• 6:24
  Speaker 1: of macroeconomic research at PGM Fixed Income. Just by way
• 6:28
  Speaker 1: of background, you also were under the Secretary of the
• 6:31
  Speaker 1: US for the U. S. Treasury focusing on international affairs.
• 6:34
  Speaker 1: You're representing the U S. Governments. You come with with
• 6:36
  Speaker 1: quite a bit of authority on these issues. From an
• 6:40
  Speaker 1: investment side, How would you advise or how are you advising?
• 6:44
  Speaker 1: UH had a position around this uncertainty at a time
• 6:48
  Speaker 1: when growth is still okay. Yeah, so we are. We
• 6:53
  Speaker 1: are at a in a place where there is enormous
• 6:56
  Speaker 1: demand for safe assets, and I think con significant that
• 7:01
  Speaker 1: in that world we see the end appreciate, we see
• 7:04
  Speaker 1: the tenure treasury yield UH decline. UH investors are are
• 7:11
  Speaker 1: are seeking those places where they can have some confidence
• 7:15
  Speaker 1: that they'll actually they'll actually be repaid and we'll be
• 7:18
  Speaker 1: able to weather a storm. And frankly, that's my feeling.
• 7:21
  Speaker 1: This is uh, this is a challenging environment for risk
• 7:26
  Speaker 1: on kinds of assets. We are awaiting the press conference
• 7:30
  Speaker 1: with President Macron of France and President Trump of the
• 7:34
  Speaker 1: United States that is coming up in moments. We will
• 7:36
  Speaker 1: carry that live. Uh, Nathan, was there anything that came
• 7:39
  Speaker 1: out of Jackson Hole last week that surprised you or
• 7:45
  Speaker 1: kind of made you rethink maybe a little bit of
• 7:46
  Speaker 1: your outlook? So H J. Powell's remarks were I thought,
• 7:54
  Speaker 1: just a restatement with emphasis of what he had said
• 7:58
  Speaker 1: at the July press conference. The Feds in the midst
• 8:01
  Speaker 1: of a mid cycle adjustment, which likely means one or
• 8:05
  Speaker 1: two more rate cuts, but they're watching closely. Uh. The
• 8:10
  Speaker 1: The additional thought that emerged from what Powell implied and
• 8:15
  Speaker 1: then what some of the other speakers that Jackson Hole
• 8:18
  Speaker 1: uh spoke about is there was a symphasis that central
• 8:22
  Speaker 1: banks can't entirely fix the trade war. And I think
• 8:26
  Speaker 1: that's a recognition that there's the risk of a vicious
• 8:30
  Speaker 1: moral hazard feedback loop where central bank see a week
• 8:34
  Speaker 1: economy cut rates and that gives the president more scope
• 8:40
  Speaker 1: to pursue the trade war. And I think that that
• 8:43
  Speaker 1: was more in the background of Jackson Hole than it
• 8:46
  Speaker 1: had been in previous FED communications. You were saying earlier
• 8:50
  Speaker 1: that you do think that haven plays are a good
• 8:53
  Speaker 1: place to go right now or people are going to
• 8:55
  Speaker 1: get their money back and they have that confidence. I
• 8:58
  Speaker 1: guess there's a hup side to that. Those are getting
• 9:01
  Speaker 1: very crowded, and there is a potential that if there
• 9:05
  Speaker 1: is some sort of trade truce that could completely upend
• 9:08
  Speaker 1: the way that people are positioned. What sort of the
• 9:11
  Speaker 1: chance of that near opinion? So, I would say, over
• 9:17
  Speaker 1: over say a six month horizon, I think that both sides,
• 9:22
  Speaker 1: both as I've described, both the US and Chinese have
• 9:26
  Speaker 1: incentives to find something that they can call on agreement
• 9:30
  Speaker 1: and de escalate where things are in the nearer term,
• 9:34
  Speaker 1: I don't see how we get to a d D escalation.
• 9:39
  Speaker 1: It's gonna be, It's gonna be a ways and uh,
• 9:43
  Speaker 1: you know, hopefully over time we'll see it. But I
• 9:45
  Speaker 1: wouldn't put a high probability that over the next few
• 9:48
  Speaker 1: weeks somehow this all magically goes away. I wish I
• 9:50
  Speaker 1: could be more optimistic. And to what extent do you
• 9:53
  Speaker 1: think that? I mean, well, that way on corporate America,
• 9:56
  Speaker 1: you know what we're gonna see see it in the
• 9:57
  Speaker 1: earnings coming up. And we we've seen, we've we've heard
• 10:00
  Speaker 1: certainly in the past couple of quarters of earnings that
• 10:03
  Speaker 1: you know, CEOs across a variety of industries have highlighted
• 10:06
  Speaker 1: the uncertainty of the trade negotiations kind of either weighing
• 10:10
  Speaker 1: on their business, weighing on their customers businesses, affecting maybe
• 10:14
  Speaker 1: capital spending in R and D. When do you expect
• 10:16
  Speaker 1: to see, you know, a big impact on corporate America.
• 10:20
  Speaker 1: So we are seeing a a lackluster global economy, and
• 10:27
  Speaker 1: I think that these even as the US economy is
• 10:30
  Speaker 1: doing all right, the rest of the world is feeling
• 10:34
  Speaker 1: adverse effects. As we describe the Chinese economy has slowed.
• 10:38
  Speaker 1: I think they're stimulating, but UH, the underlying economy there
• 10:43
  Speaker 1: is soft. The European economy is slaw, particularly in the
• 10:47
  Speaker 1: manufacturing sector, and UH and global growth is meaningfully below trend.
• 10:54
  Speaker 1: And I think given all of that, that's going to
• 10:56
  Speaker 1: leave a signature in UH, the earning of Corporate American.
• 11:01
  Speaker 1: A large share of those earnings do come from their
• 11:03
  Speaker 1: their their operations abroad. Just lastly, here to wrap things up,
• 11:08
  Speaker 1: you talk about haven bets, you talk about how it
• 11:10
  Speaker 1: wouldn't be a really prudent thing to go into risk assets,
• 11:13
  Speaker 1: and yet we do have a tepid rally underway today
• 11:16
  Speaker 1: on some of these tweets. How long can markets continue
• 11:19
  Speaker 1: to melt up? Good question? Good question. Uh, you know,
• 11:25
  Speaker 1: I think what's supporting the equities is the fact that
• 11:30
  Speaker 1: corporate earnings so far been okay, coupled with lower long
• 11:34
  Speaker 1: term interest rates, and so discount factors are are are
• 11:40
  Speaker 1: are affected accordingly. And you put that together, I mean,
• 11:43
  Speaker 1: where else are you going to go other than the
• 11:45
  Speaker 1: US equities? So there is a narrative that things are
• 11:48
  Speaker 1: hanging in there. Okay. In the US bonds look maybe
• 11:51
  Speaker 1: a little less attractive for the reasons we've described, and uh,
• 11:54
  Speaker 1: you know, equities are done well, and maybe things maybe
• 11:57
  Speaker 1: we're all too pessimistic. Nathan needs thank you so much
• 12:00
  Speaker 1: for being with. Nathan Sheets is chief economist and head
• 12:03
  Speaker 1: of macroeconomic research at p JIM Fixed Income, which overseas
• 12:06
  Speaker 1: more than eight hundred billion dollars here so, uh, formerly
• 12:10
  Speaker 1: worked on international trade negotiations for the US Treasure Department.
• 12:13
  Speaker 1: So he comes to this with a good deal of
• 12:16
  Speaker 1: experience and insight. Thank you. What is an investor to
• 12:36
  Speaker 1: do as we get a deepening uncertainty around trade negotiations,
• 12:41
  Speaker 1: around global growth, around a lot of things, leaving a
• 12:44
  Speaker 1: lot of investors sitting on their hands and wondering what
• 12:48
  Speaker 1: direction to take next. Not sitting on his hands, Phil
• 12:50
  Speaker 1: Orlando joining us here at our blueborgod Active broker Studios.
• 12:53
  Speaker 1: Phil is chief equity and market strategist and head of
• 12:57
  Speaker 1: client protfolio management and Federated Investors, which overseas more than
• 13:00
  Speaker 1: a four hundred and eighty billion dollars. Fill. Let's just
• 13:03
  Speaker 1: start with what we just heard from President Trump, because
• 13:06
  Speaker 1: that has been sort of the prevailing force in dictating
• 13:10
  Speaker 1: some of the volatility right now. How much would you
• 13:13
  Speaker 1: be trading off of any kind of development on trade
• 13:16
  Speaker 1: on any given day? Uh, The answer is not much.
• 13:20
  Speaker 1: UM that that clearly the market is under some pressure
• 13:26
  Speaker 1: given the escalation of trade and tariff war between the
• 13:31
  Speaker 1: U S and China. UH. If you listen to this
• 13:34
  Speaker 1: press conference, there's a lot of pushback from the reporters
• 13:38
  Speaker 1: who were there, questioning the veracity as to whether or
• 13:42
  Speaker 1: not the Chinese had actually reached out to the US
• 13:45
  Speaker 1: over the last twenty four hours to restart UH talks
• 13:49
  Speaker 1: ET cetera. And um, I'm not sure if the president
• 13:54
  Speaker 1: was able to say any of their desire for some
• 13:58
  Speaker 1: corroborative information and to suggest that the talks are back
• 14:02
  Speaker 1: on track. I happen to think that the China issue
• 14:07
  Speaker 1: UH is probably one of the three most important issues
• 14:10
  Speaker 1: that investors are focused on right now. And I think
• 14:12
  Speaker 1: all three of these issues are probably interrelated, UH, the
• 14:16
  Speaker 1: China trade war, what's the Federal Reserve doing in terms
• 14:19
  Speaker 1: of monetary policy, and the inversion of the yield curve.
• 14:23
  Speaker 1: And I think that, you know, depending upon what you
• 14:25
  Speaker 1: want to talk about today, all of those issues UH
• 14:29
  Speaker 1: are significantly inter related in my mind. So it's interesting.
• 14:34
  Speaker 1: I think we used to see the least as we
• 14:36
  Speaker 1: sit here and look at our screens every day and
• 14:37
  Speaker 1: we say and we and we see the markets reacting
• 14:39
  Speaker 1: to the tweets as it relates to trade. So clearly
• 14:42
  Speaker 1: trade is a big, big issue for investors. To what
• 14:46
  Speaker 1: extent would this be, you know, a a real drag
• 14:49
  Speaker 1: on the market in general, If in fact these negotiations
• 14:53
  Speaker 1: drag on too maybe pass the election, for example, well
• 14:57
  Speaker 1: it would be a significant drag. And and our Bay
• 15:00
  Speaker 1: case has been that there were significant fiscal policy reasons
• 15:05
  Speaker 1: for why Trump had initiated this trade war, if you will.
• 15:09
  Speaker 1: We've talked about this before, but you look at the math, uh.
• 15:14
  Speaker 1: We the United States running roughly a six hundred billion
• 15:17
  Speaker 1: dollar balance of trade deficit in a twenty one trillion
• 15:20
  Speaker 1: dollar economy. That that's costing US about three percentage points
• 15:25
  Speaker 1: of GDP growth. When you look at the composition of
• 15:28
  Speaker 1: that deficit, roughly two thirds of it, let's call it
• 15:31
  Speaker 1: four billion dollars is related to China. China's running a
• 15:35
  Speaker 1: four billion dollar surplus against the United States. The United States, Trump,
• 15:39
  Speaker 1: I think was trying to achieve two things here. Try
• 15:42
  Speaker 1: to balance out narrow, have the size of that deficit,
• 15:47
  Speaker 1: cut it from four to two billion, and in the
• 15:49
  Speaker 1: process boost GDP growth by one percentage point potentially. The
• 15:54
  Speaker 1: other thing is the structural issues that have been ongoing
• 15:58
  Speaker 1: now for the better of twenty five years, and by
• 16:01
  Speaker 1: that I mean the theft of intellectual property, the currency manipulation. Uh.
• 16:07
  Speaker 1: These are ongoing developments that that that President Clinton didn't address,
• 16:12
  Speaker 1: President Bush didn't address, President Obama didn't address. Yet US
• 16:16
  Speaker 1: companies have been sort of pounding on the White House's
• 16:18
  Speaker 1: door for a long time suggesting that that we our
• 16:23
  Speaker 1: administration should attempt to do something about it. So so
• 16:26
  Speaker 1: I think you've got sort of a two front war,
• 16:28
  Speaker 1: the structural issues and and an effort to try to
• 16:31
  Speaker 1: narrow the deficit and and potentially boost GDP growth in
• 16:35
  Speaker 1: the process. Phil was the last time it materally changed
• 16:38
  Speaker 1: your recommendation for allocation? Uh we UH started the year,
• 16:43
  Speaker 1: remember the declining stocks in the fourth quarter uh SMP
• 16:49
  Speaker 1: was down about the level. In our view that that
• 16:52
  Speaker 1: that was a complete head fake, that there was nothing
• 16:57
  Speaker 1: structurally wrong with the economy. We thought that toxic sentiment
• 17:01
  Speaker 1: was what had driven the market down. So we actually
• 17:03
  Speaker 1: took our allocation up to an eight percent equity overweight.
• 17:08
  Speaker 1: We felt that stocks from that Christmas Eve bottom, we're
• 17:11
  Speaker 1: gonna rebound about thirty two percent over the course of
• 17:14
  Speaker 1: this year. Our target was thirty Where we stand now
• 17:19
  Speaker 1: at the end of July, we we took our allocation
• 17:21
  Speaker 1: down from an eight percent overweight to about a three
• 17:25
  Speaker 1: percent overweight in terms of our model and in July
• 17:29
  Speaker 1: and in our global allocation fund we're actually managing money.
• 17:33
  Speaker 1: We took that allocation down a neutral. Our view was
• 17:36
  Speaker 1: that at the end of July. Looking out over the August,
• 17:39
  Speaker 1: September and October timeframe, there were a number of things
• 17:42
  Speaker 1: that concerned us on the immediate horizon, central bank policy,
• 17:47
  Speaker 1: UH and and China. We're we're first and foremost on
• 17:51
  Speaker 1: that list. But as we look out further into that
• 17:53
  Speaker 1: period Halloween, there there are three global developments that are
• 17:57
  Speaker 1: coming together on Halloween that a lot of people aren't
• 18:00
  Speaker 1: really focused upon. We've moved the bregsit deadline. Remember from
• 18:03
  Speaker 1: March thirty one to Halloween. UM Draggy is going to
• 18:07
  Speaker 1: transition his role as the head of the e c
• 18:11
  Speaker 1: B to leguard on Halloween. UH. And then the Chinese
• 18:14
  Speaker 1: of the Chinese, the Japanese are going to have to
• 18:17
  Speaker 1: make a decision on whether or not to increase their
• 18:20
  Speaker 1: value added tacks from eight percent to ten percent on Halloween.
• 18:24
  Speaker 1: Why is that important Because the last two times the
• 18:26
  Speaker 1: Japanese increased their value added attacks UH, that decision, that
• 18:30
  Speaker 1: fiscal policy decision, pushed the Japanese economy in a recession.
• 18:34
  Speaker 1: So you've got these three issues at the back end
• 18:36
  Speaker 1: of October. You've got these other issues central bank policy
• 18:39
  Speaker 1: and China trade at the front part of this period.
• 18:42
  Speaker 1: So given the fact that stocks had rallied, we felt
• 18:47
  Speaker 1: that it was prudent to take some chips off the table.
• 18:49
  Speaker 1: Are there sectors here, given where, given your neutral position,
• 18:53
  Speaker 1: given where we are in the cycle, that still look
• 18:56
  Speaker 1: attractive to you? On the margin, some people have talked
• 18:59
  Speaker 1: about defensive style, but they're not cheap by any stretch.
• 19:02
  Speaker 1: So is there any place for people to look so so, yes,
• 19:07
  Speaker 1: they're not cheap, but but being defensive is exactly where
• 19:10
  Speaker 1: you want to be um having constable demand kind of
• 19:15
  Speaker 1: companies with with the the outsize dividend payments. Remember the
• 19:19
  Speaker 1: the SNP dividend yield right now is around two percent.
• 19:23
  Speaker 1: Treasury yields are you know, one and a half percent,
• 19:26
  Speaker 1: and and the yields that we can get in in
• 19:29
  Speaker 1: these defensive kind of companies are are north of four percent.
• 19:32
  Speaker 1: For for example, I'll just give a plug for a
• 19:34
  Speaker 1: strategic value fund. That's exactly the sort of things that
• 19:37
  Speaker 1: they do. Uh separate and apart from defense, I think
• 19:42
  Speaker 1: that that small cap still makes a lot of sense here.
• 19:44
  Speaker 1: For a number of reasons, small caps underperformed large cap
• 19:47
  Speaker 1: by more than a thousand basis points over to last year.
• 19:50
  Speaker 1: Yet most of the concerns that we're seeing are overseas
• 19:54
  Speaker 1: economic concerns. A small cap company is going to do
• 19:57
  Speaker 1: eight percent of their business here. The U S economy
• 19:59
  Speaker 1: is fill in pretty good shape. You've got the dollars
• 20:02
  Speaker 1: pretty strong right now. A strong dollar tends to be
• 20:06
  Speaker 1: very supportive of small cap companies. So for a lot
• 20:08
  Speaker 1: of reasons. Oh and then you know M and A activity.
• 20:11
  Speaker 1: Companies are are out there actively looking for companies. Greater
• 20:16
  Speaker 1: merger and acquisition activity tends to benefit small cap company.
• 20:20
  Speaker 1: So we still like small cap here as well, domestic
• 20:23
  Speaker 1: small cap. Just real quick, since you didn't mention the
• 20:25
  Speaker 1: yield curve, I'm looking right now at a two tents
• 20:27
  Speaker 1: spread of negative zero point six percent UH, inverting the
• 20:31
  Speaker 1: most since two thousand seven. Do you think that this
• 20:34
  Speaker 1: indicates recession in the near term? So I would prefer
• 20:37
  Speaker 1: to look at the spread between the funds rate and
• 20:40
  Speaker 1: the benchmark tenure treasury yield. We think that's a better predictor,
• 20:43
  Speaker 1: a more accurate predictor of recession. So you're looking at
• 20:47
  Speaker 1: a tune a quarter up a band of the funds
• 20:49
  Speaker 1: rate with let's call it one and a half percent
• 20:51
  Speaker 1: in the tents. So you've got a seventy five bases
• 20:54
  Speaker 1: point in version there that that's absolutely a signal that
• 20:58
  Speaker 1: we're respecting. But based upon our analysis of that cycle,
• 21:02
  Speaker 1: we do not see an increased risk of recession before
• 21:07
  Speaker 1: we get into the early part of no recession in
• 21:11
  Speaker 1: eighteen nineteen or twenty. We are concerned about the first
• 21:14
  Speaker 1: half of twenty one. Phil Orlando, thank you so much
• 21:17
  Speaker 1: for joining us. Phil Nando, chief equity market strategist and
• 21:20
  Speaker 1: have of client portfolio management at Federated Investors Investors joinings
• 21:24
  Speaker 1: here on our Bloomberg Interactive Broker Studio. Thanks for listening
• 21:27
  Speaker 1: to the Bloomberg P and L podcast. You can subscribe
• 21:29
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• 21:32
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• 21:36
  Speaker 1: I'm Lisa Abram Woyd's I'm on Twitter at Lisa Abram
• 21:38
  Speaker 1: woits one. Before the podcast, you can always catch us
• 21:41
  Speaker 1: worldwide on Bloomberg Radio.