Latest / Bloomberg Intelligence / "Goldilocks" Era Will End For The U.S. Next Year: Bill Rhodes

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"Goldilocks" Era Will End For The U.S. Next Year: Bill Rhodes · Bloomberg Intelligence

• 0:05
  Speaker 1: Welcome to the Bloomberg P and L Podcast. I'm Pim Fox.
• 0:08
  Speaker 1: Along with my co host Lisa Abramowitz. Each day we
• 0:11
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  Speaker 1: or the trading floor. Find the Bloomberg P M L
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  Speaker 1: Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot com. US
• 0:27
  Speaker 1: President Donald Trump and Chinese leader Paying Day will meet
• 0:31
  Speaker 1: on Saturday in Argentina on the sidelines of a G
• 0:36
  Speaker 1: twenty summit taking place in Buenos rs. Joining us now
• 0:41
  Speaker 1: to tell us more about that meeting and other world
• 0:45
  Speaker 1: events is Bill Rhodes is commonly known as the Banker
• 0:49
  Speaker 1: to the World. He is the author of the book
• 0:51
  Speaker 1: Banker to the World, Leadership Lessons from the front Lines
• 0:55
  Speaker 1: of a Global Finance and the book I Understand is
• 0:59
  Speaker 1: currently in a second English edition. It has been published
• 1:03
  Speaker 1: in Mandarin, Korean, Japanese, Portuguese, Do This for a Reason,
• 1:08
  Speaker 1: and most recently two editions in Spanish. Tell us what
• 1:13
  Speaker 1: you believe will happen at the G twenty meeting in
• 1:17
  Speaker 1: Buenos Aires. Well, I think, Pim, there are great expectations
• 1:21
  Speaker 1: that President Hi Jim Ping of China and our President
• 1:26
  Speaker 1: Trump will be able to cut a deal on trade.
• 1:30
  Speaker 1: As you know, at this point in time, we have
• 1:33
  Speaker 1: tariffs on ten percent on two hundred going to come
• 1:37
  Speaker 1: into effect in January UH billion dollars worth of Chinese
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  Speaker 1: exports to the United States, and UH President Trump is
• 1:48
  Speaker 1: threatening to increase that amount to from ten percent on
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  Speaker 1: that two billion, but also saying that if he doesn't
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  Speaker 1: get some indication of positive movement on the part of
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  Speaker 1: China next year, he could put a similar tariff on
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  Speaker 1: the remaining two sixty seven billion UH vis a vis
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  Speaker 1: the trade balance between the two countries. UH. There's great
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  Speaker 1: hype over this, not clear what will come out. I
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  Speaker 1: think the good point is they're gonna be talking face
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  Speaker 1: to face. The real work will be done by the
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  Speaker 1: people under them. But there's something else going on at
• 2:23
  Speaker 1: that G twenty the people have sort of forgotten. You
• 2:26
  Speaker 1: will have the three largest producers of oil in the
• 2:29
  Speaker 1: world sitting down. They're together. In other words, the United
• 2:33
  Speaker 1: States was with President Trump putin of Russia and also
• 2:39
  Speaker 1: UH the head of Saudi Arabia, UH, either the king
• 2:44
  Speaker 1: or someone the king will send. And as you know,
• 2:47
  Speaker 1: one of the chief disturbers or let's say, in the
• 2:51
  Speaker 1: marketplace today the chief sources of volatility is oil, and
• 2:56
  Speaker 1: so one side light could be that there could be
• 2:59
  Speaker 1: some discussion on oil. Also because there's a meeting on
• 3:03
  Speaker 1: the fifth of December OPEC, and the feeling is Saudi
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  Speaker 1: always is a mover there and will Saudi go along
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  Speaker 1: with President Trump who wants to keep prices low or
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  Speaker 1: for their own income, will they move on it? So
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  Speaker 1: this is sort of a side light which could come
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  Speaker 1: out of there, as well as the discussion between Trump
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  Speaker 1: and she jumping. Yeah, because a lot of people expect
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  Speaker 1: a supply cut at that OPEQUE meeting, It'll be interesting
• 3:30
  Speaker 1: to see whether Saudi Arabia's view is tipped in their
• 3:33
  Speaker 1: connections with President Trump. I do want a home And
• 3:35
  Speaker 1: though on trade and the discussion between Ji jimping and Trump,
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  Speaker 1: just because this really has been a huge main driver
• 3:41
  Speaker 1: of recent market volatility, I'm wondering do you view the
• 3:45
  Speaker 1: threat as additional tariffs that President Trump just came out
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  Speaker 1: with as a negotiating tactic, or does this indicate that
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  Speaker 1: President Trump is serious about trying to completely rejigg or
• 3:55
  Speaker 1: supply chains. Most people think it's a threat On the
• 3:59
  Speaker 1: other hand, I never underestimate what he might do having
• 4:04
  Speaker 1: known him since I think the real issue here is
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  Speaker 1: I've said on your show before and on Bloomberg Television,
• 4:13
  Speaker 1: is I think not so much trade but intellectual property
• 4:16
  Speaker 1: because if you go take the long view, which is
• 4:20
  Speaker 1: so called Chinese view, but we have to take the
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  Speaker 1: long view. Two, we've always been dominant in this area
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  Speaker 1: Silicon Valley, et cetera. And Uh, I think one of
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  Speaker 1: the issues that really has to be threshed out here,
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  Speaker 1: apart from the trade situation, is what's going to happen
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  Speaker 1: on intellectual property. To me, that's the most difficult thing
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  Speaker 1: to work on. Bill Rhodes, do you see a possibility
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  Speaker 1: that at the last moment, Ping of China will not
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  Speaker 1: go to the G twenty meeting and send someone else? No,
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  Speaker 1: he he actually glories in these meetings. You will note
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  Speaker 1: that he never misses any regional meeting, whether it be
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  Speaker 1: in Asia or any uh, you know, any brick meeting
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  Speaker 1: or whatever it is. Uh. So there's no doubt that
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  Speaker 1: he will go, barring some illness or something. The real
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  Speaker 1: question is, uh, is anything going to come out of it? Uh?
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  Speaker 1: And he has said very little recently except to talk
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  Speaker 1: about the need to have balanced and free trade in
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  Speaker 1: the world and all of this. But President Trump has
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  Speaker 1: been very vocal almost daily on Twitter and and and
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  Speaker 1: he views himself as as a great deal maker. So
• 5:31
  Speaker 1: we'll have to see whether there's just an airing of
• 5:34
  Speaker 1: views or something comes out of it. I think it's
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  Speaker 1: about fifty fifty whether something specific will come out of it,
• 5:41
  Speaker 1: or we'll just go on to another phase. Bill Rhodes,
• 5:44
  Speaker 1: I'm hoping he can understand and translate for us how
• 5:47
  Speaker 1: andres Manuel Lopez Orador or am Low, the new president
• 5:51
  Speaker 1: of Mexico who is taking the home in the next
• 5:54
  Speaker 1: few days, how he is going to treat markets because
• 5:58
  Speaker 1: so far the sig knowlls have been very bad, and
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  Speaker 1: we've seen stocks plunge in Mexico, the pesos testing uh
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  Speaker 1: the year lows, and you're seeing bond yields searched to
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  Speaker 1: the highest in at least seven years. Well, I think
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  Speaker 1: one of the reasons for that, Liza is that, uh,
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  Speaker 1: he was insistent that the that the government go through
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  Speaker 1: with some sort of a referendum on the new airport,
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  Speaker 1: which was already thirty five complete billion dollar airport. Yeah.
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  Speaker 1: Actually more than that. I think the final run was
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  Speaker 1: supposed to be between thirty five and thirty eight billion dollars.
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  Speaker 1: And of course very a very few number of people
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  Speaker 1: showed up for this referendum or plebicite and was turned down,
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  Speaker 1: and he says that based on that, he's not going
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  Speaker 1: to go ahead with it, and that shook up the
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  Speaker 1: Mexican markets because a lot of that paper, the bonds
• 6:49
  Speaker 1: that we used to finance it, are held by Mexicans.
• 6:52
  Speaker 1: Of course, a lot of held by Americans do, but
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  Speaker 1: a lot by by the Mexican business community. UH So
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  Speaker 1: there was a lot of con tarned there as to
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  Speaker 1: what will happen. I was with one of the lead
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  Speaker 1: Mexican business people the other day will go unnamed, and
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  Speaker 1: he's more optimistic because he's got as his chief advisor
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  Speaker 1: of Puncho Romo, who is one of the leading business
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  Speaker 1: people of northern Mexico, as his advisor, will be his
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  Speaker 1: chief of staff. And the last time I was with
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  Speaker 1: UH with Almo, which a little over a year ago,
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  Speaker 1: I co hosted a small dinner for him here. Council
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  Speaker 1: in America's UH He and UH Puncha Romo were very
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  Speaker 1: positive on some of the things they wanted to do.
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  Speaker 1: One of the concerns is what he's also going to
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  Speaker 1: do in the oil business. UH. Is he going to
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  Speaker 1: cut out the contracts going forward? Is he going to
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  Speaker 1: seek to modify them? There's concerned there also. And of course,
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  Speaker 1: the immediate crisis he faces on his border, of course,
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  Speaker 1: is the migrant uh immigration problem with the caravans coming
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  Speaker 1: up from Central America, and it's a very difficult situation
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  Speaker 1: for him because his predecessors haven't done a very good
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  Speaker 1: job with it, and our President Trump is talking about
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  Speaker 1: closing the border completely. I think what Trump is looking
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  Speaker 1: for is something like Merkel negotiated with Turkey, which is
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  Speaker 1: you keep them over there on your side of the border.
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  Speaker 1: Uh and UH we will from time to time let
• 8:25
  Speaker 1: some of them go through the normal procedures to come
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  Speaker 1: in and UH. There's been a lot of talk that
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  Speaker 1: Almo uh and his government will put forth a program
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  Speaker 1: to resettle some of these migrants, but it's not clear
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  Speaker 1: and he doesn't take office until December one, but that's
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  Speaker 1: the first order of importance. And then the other thing
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  Speaker 1: that's being watched is before the end of the month
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  Speaker 1: in December, he he must go to Congress and present
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  Speaker 1: a budget and people are not sure what that budget
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  Speaker 1: is gonna say. So because of all these things have
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  Speaker 1: been very uh, you know, very many doubts in the market.
• 9:00
  Speaker 1: You've seen the stress on the Mexican peso. You've seen
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  Speaker 1: the stress in the stock market in Mexico. So everything
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  Speaker 1: is sort of on hold until uh, the week after
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  Speaker 1: December one. On how he handles all these programs. Bill Rhodes,
• 9:16
  Speaker 1: just to continue on this oil theme and PEMMICS, which
• 9:20
  Speaker 1: is the nationalized the national oil company in Mexico, price
• 9:25
  Speaker 1: of oil, and you started the segment earlier talking about
• 9:29
  Speaker 1: oil prices from the beginning of October to the current
• 9:34
  Speaker 1: let's say fifty barrel on Thenmax oil has declined in
• 9:38
  Speaker 1: value in dollars more than thirty three per cent. What
• 9:43
  Speaker 1: does that do to the economics of Mexico. Well, certainly,
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  Speaker 1: uh a low Mexico doesn't produce as much as it
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  Speaker 1: used to. It is not particularly positive obviously, And it's
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  Speaker 1: interesting to note that the President of Mexico will be
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  Speaker 1: this meeting in low He will be attle office on
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  Speaker 1: December one, and also the president of Nigeria, which is
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  Speaker 1: a major producer. They're all members of the Group of
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  Speaker 1: thirty excuse me of the group of twenty and so
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  Speaker 1: I think that what you're going to have here is
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  Speaker 1: some discussions on the sidelines of this conference about it.
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  Speaker 1: I think what has happened is the US has every
• 10:22
  Speaker 1: day has been reaching higher production levels with the shale
• 10:25
  Speaker 1: oil boom that we see. But if the price of
• 10:28
  Speaker 1: oil drops substantially below fifty dollars, a lot of those
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  Speaker 1: operations are not viable. Uh. But the Saudis are peak
• 10:40
  Speaker 1: production at this point. Uh. Many think trying to a
• 10:45
  Speaker 1: suage and gain the favor of President Trump, but they
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  Speaker 1: can't continue to do that because they don't have the income.
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  Speaker 1: And the Russians are at peak production too. So if
• 10:53
  Speaker 1: you're advising a company right now in the United States,
• 10:57
  Speaker 1: with respect to their relationship in Mexico, which you advised
• 11:00
  Speaker 1: that they would go and make an acquisition because things
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  Speaker 1: are so cheap right now, or would you recommend that
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  Speaker 1: they stay away you're talking about a new oil business
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  Speaker 1: in the oil business were beyond just in general, just
• 11:11
  Speaker 1: taking a look at the background backdrop here politically as
• 11:14
  Speaker 1: well as economically well as you know, because I've said
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  Speaker 1: it on the show several times. I think here in
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  Speaker 1: the United States we're in a goldilocks period. I think
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  Speaker 1: for a year from now we will not be I
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  Speaker 1: think next year is problematic because the FED I think
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  Speaker 1: will definitely raise in December, and I think we're going
• 11:33
  Speaker 1: to see a couple more increases next year, and then
• 11:37
  Speaker 1: we'll have to see what the economy does. But China
• 11:40
  Speaker 1: is slowing down big time, there's no doubt about it.
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  Speaker 1: I think they're going to really have a fight to
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  Speaker 1: keep six percent growth. It could dip next year below that.
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  Speaker 1: And Europe is slowing down also with the doubts on Brexit,
• 11:54
  Speaker 1: the problems in Italy, even Germany, automobile production slowing. So
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  Speaker 1: what you is the United States is a star in
• 12:02
  Speaker 1: the sense of economic growth for the moment, but we're
• 12:05
  Speaker 1: in an intertwined world. And this is why this whole
• 12:08
  Speaker 1: situation about trade, the trade wars, particularly with China, but
• 12:13
  Speaker 1: also what's going on between the United States and Europe
• 12:16
  Speaker 1: on automobiles. I think all of this is very very important,
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  Speaker 1: and so I think we're in for even more volatility
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  Speaker 1: uh in both the markets, in the sense of the
• 12:26
  Speaker 1: stock markets, the bond markets, but also in the commodities markets.
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  Speaker 1: Over the next twelve months, Bill, just quickly, because you've
• 12:34
  Speaker 1: written in the past and proved impression when it comes
• 12:38
  Speaker 1: to stock prices. You're not a stock picker. I understand that,
• 12:41
  Speaker 1: But that same period beginning of October to the current
• 12:45
  Speaker 1: level of stock prices down more than nine per cent,
• 12:49
  Speaker 1: you kind of telegraph that in a lot of your writing.
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  Speaker 1: What do you see next? Well, I think what the
• 12:56
  Speaker 1: people on the floor of the Stock Exchange of hoping
• 12:58
  Speaker 1: the trade is. We're gonna get to fame Santa Claus rally.
• 13:01
  Speaker 1: But that's going to be very much tied in with
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  Speaker 1: what we've been discussing on the G twenty Because if
• 13:06
  Speaker 1: we don't see some progress between China and the United States,
• 13:09
  Speaker 1: and you want to take the radical view the President
• 13:13
  Speaker 1: Trump will go ahead and increase the tariffs on China
• 13:18
  Speaker 1: and uh, we don't have any resolution on oil, then
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  Speaker 1: I think we could be in a difficult situation. Thank
• 13:24
  Speaker 1: you very much, Bill Rhodes. As always bankers to the world,
• 13:27
  Speaker 1: Bill Rhodes, President and chief executive of William Rhodes Global Advisors.
• 13:36
  Speaker 1: US Ambassador to the United Nations Nikki Haley said in
• 13:40
  Speaker 1: the Security Council meeting earlier that Russia's shooting and seizing
• 13:46
  Speaker 1: of Ukrainian vessels is quote outrageous violation of sovereign Ukrainian
• 13:52
  Speaker 1: territory and marks yet another reckless Russian escalation. Here to
• 13:58
  Speaker 1: tell us more about what is going on in geopolitics,
• 14:01
  Speaker 1: including Russia and the United States, is retired Admiral James Stavridis.
• 14:06
  Speaker 1: He is a calmist for Bloomberg Opinion. He is, of
• 14:09
  Speaker 1: course a retired US Navy admiral, former military commander of NATO,
• 14:14
  Speaker 1: and dean emeritus of the Fletcher School of Law and
• 14:18
  Speaker 1: Diplomacy at Tufts University. Admiral Stavridas, thank you for being
• 14:24
  Speaker 1: with us, give us your thoughts, your reaction to the
• 14:28
  Speaker 1: Russian shooting and seizure of those Ukrainian vessels that were
• 14:34
  Speaker 1: transitting to the Sea of Azof from the Black Sea. Well,
• 14:38
  Speaker 1: first of all, having spent my life at sea, even
• 14:42
  Speaker 1: I had to take a moment to recall where the
• 14:45
  Speaker 1: Sea of Azov is. It's tucked away in a little
• 14:48
  Speaker 1: corner of the Black Sea. It's very shallow, it's smaller
• 14:52
  Speaker 1: than the US Great Lakes. But it has now become
• 14:55
  Speaker 1: a flashpoint. And you know, m I would say whoever
• 14:59
  Speaker 1: heard the Gulf Tonkin before Vietnam. So a, there is
• 15:04
  Speaker 1: a potential for this to grow into something much bigger.
• 15:07
  Speaker 1: Be Nikki Haley as usual is completely right. This is
• 15:11
  Speaker 1: an outrageous seizure of sovereign warships on the high seas.
• 15:16
  Speaker 1: That's a big deal in international law. And see, the
• 15:20
  Speaker 1: question is how far is Putin willing to go. He's
• 15:24
  Speaker 1: a risk taker. He's clearly probing here, and I am
• 15:29
  Speaker 1: very concerned that this could escalate into something very dangerous,
• 15:33
  Speaker 1: not only for Russian Ukraine, but for NATO in the west.
• 15:36
  Speaker 1: So can you just extrapolate, extrapolate out what would happen
• 15:40
  Speaker 1: in an escalation like that? I can, Lisa, what I
• 15:44
  Speaker 1: would see happening if there is not an immediate strong
• 15:49
  Speaker 1: pushback in response to this event. Uh Putin will continue
• 15:53
  Speaker 1: to probe, and his real objective here is not simply
• 15:56
  Speaker 1: to control the Strait of Kersh which is what connects
• 15:59
  Speaker 1: the Black Sea and the Sea of Azov, but he
• 16:02
  Speaker 1: also wants a land bridge from Russia through to Crimea,
• 16:08
  Speaker 1: and that requires him to consolidate real control over southeast Ukraine,
• 16:13
  Speaker 1: notably the city of Mario Pool. So I could see
• 16:16
  Speaker 1: a kind of Christmas surprise where we're all very distracted.
• 16:20
  Speaker 1: There hasn't been a lot of pushback, and Putin decides
• 16:23
  Speaker 1: now is the time to really consolidate a strip of
• 16:25
  Speaker 1: land between Crimea, which he's already seized, and the mainland
• 16:28
  Speaker 1: of Russia. And you say that there hasn't been a
• 16:30
  Speaker 1: lot of pushback, you're talking about President Trump and his response. Correct,
• 16:35
  Speaker 1: I am, and uh. Otherwise, we have seen a great
• 16:38
  Speaker 1: deal of pushback from European nations, from NATO as an alliance.
• 16:43
  Speaker 1: We saw the Secretary General. We saw fortunately our u
• 16:46
  Speaker 1: S Ambassador to the United Nations, NICKI Haley. I think
• 16:49
  Speaker 1: we're gonna miss her in a few months, Uh, pushing
• 16:52
  Speaker 1: back hard. We haven't seen the White House step up
• 16:55
  Speaker 1: and go at this. And the big thing, as you've
• 16:57
  Speaker 1: been talking about, is the G twenty down in Argentina.
• 17:01
  Speaker 1: President Trump will be their face to face with President Putin.
• 17:04
  Speaker 1: I hope he raises this both privately and publicly. Admiral
• 17:09
  Speaker 1: ste Frida's Russia has already built a bridge connecting Crimea
• 17:15
  Speaker 1: to the Russian mainland. It's a twelve mile bridge, I believe,
• 17:19
  Speaker 1: and it is so low that it prevents Panamax vessels
• 17:25
  Speaker 1: from actually docking in the Ukraine city of Mario Pole.
• 17:32
  Speaker 1: So is this just another extension of what we see
• 17:35
  Speaker 1: more things like that? Unfortunately, I think we will, given
• 17:39
  Speaker 1: the state in general of Russian infrastructure and their construction abilities.
• 17:43
  Speaker 1: I think no less than six bridges have collapsed in
• 17:47
  Speaker 1: Russia in the last twelve months. Perhaps the Ukrainian shouldn't
• 17:50
  Speaker 1: overly worry about that. But in all seriousness, yes, Tim,
• 17:54
  Speaker 1: this is part of what is sometimes called hybrid warfare.
• 17:58
  Speaker 1: This is what Russia uses without actively going to war
• 18:01
  Speaker 1: with the nation. But it's this combination of using the
• 18:04
  Speaker 1: social networks, using propaganda, troops that are not marked in
• 18:08
  Speaker 1: their uniforms, special forces, seizing points, supporting the rebels in
• 18:14
  Speaker 1: southeastern Ukraine, building bridges that block ships. All of that
• 18:20
  Speaker 1: is part of what I would call hybrid warfare. Putin
• 18:22
  Speaker 1: plays that very well, and it's a dangerous game. Admiral.
• 18:26
  Speaker 1: I want to shift gears a little bit to the
• 18:28
  Speaker 1: southern border. Here in the northern hemisphere. The US has
• 18:32
  Speaker 1: had an increasingly tense relationship with Mexico over immigration. President
• 18:36
  Speaker 1: Trump threatening to close all ports of entry from Mexico.
• 18:40
  Speaker 1: Incidented states as a result of illegal immigration. Can I
• 18:44
  Speaker 1: just get your sense of how feasible that would be
• 18:47
  Speaker 1: and what's been going on down there in the southern border. Well,
• 18:51
  Speaker 1: first of all, we could, certainly, we the United States
• 18:54
  Speaker 1: could certainly build a quote big beautiful wall, and Lisa,
• 18:58
  Speaker 1: it could stretch for eighteen hundred miles, it could be
• 19:01
  Speaker 1: thirty five ft high. Um. It would cost billions and
• 19:05
  Speaker 1: billions of dollars. But here's a news flash, and I
• 19:08
  Speaker 1: know this is true because I'm an admiral. Right to
• 19:10
  Speaker 1: the left of the wall is an ocean. People are
• 19:13
  Speaker 1: going to find ways to get here. So do we
• 19:16
  Speaker 1: need to control our border? Absolutely? What we need is
• 19:19
  Speaker 1: a smart wall, if you will, That is a big
• 19:22
  Speaker 1: physical structure in some places, is unmanned vehicles patrolling in
• 19:27
  Speaker 1: other places. We need to plus up the border patrol
• 19:30
  Speaker 1: and give them the resources to do their job on
• 19:33
  Speaker 1: the border. We ought to get our troops off the border.
• 19:35
  Speaker 1: That's not their job. That could lead to dangerous confrontation.
• 19:40
  Speaker 1: And so we need to control the southern border, certainly,
• 19:43
  Speaker 1: but we need to do it in a more constructive fashion,
• 19:47
  Speaker 1: and above all, to conclude, we need to do it
• 19:49
  Speaker 1: in cooperation with Mexico not in an antagonistic relationship. Threats
• 19:55
  Speaker 1: of simply closing the border are untenable and would hurt
• 19:58
  Speaker 1: both nations. Adams Stevita's in your most recent books see Power,
• 20:03
  Speaker 1: The History and Geopolitics of the World's Oceans. You underscore
• 20:08
  Speaker 1: what you just described. But is Mexico and the migrants,
• 20:13
  Speaker 1: or the asylum seekers or the people on the border,
• 20:16
  Speaker 1: is that really a security threat to the United States.
• 20:19
  Speaker 1: It is not, in the sense that they are not
• 20:22
  Speaker 1: invading the United States. There is a diminimous, a tiny
• 20:27
  Speaker 1: percentage of truly bad actors. Most of these people are
• 20:31
  Speaker 1: economic refugees. They have a legitimate case, both economically and
• 20:36
  Speaker 1: because of violence in Central America, to plead their case
• 20:39
  Speaker 1: for asylum. We can either grant it or not, but
• 20:42
  Speaker 1: we are to respect that process. I do like the
• 20:45
  Speaker 1: idea of working with Mexico to do this on Mexican soil, culturally, linguistically, geographically,
• 20:53
  Speaker 1: that makes sense. I hope we can cut that deal.
• 20:56
  Speaker 1: But as I said before, Pim, what we need is
• 20:59
  Speaker 1: a coopera relationship with Mexico to deal jointly with this challenge.
• 21:04
  Speaker 1: Admiral just ten seconds. I'm curious do you think that
• 21:07
  Speaker 1: we have a greater degree of geopolitical risk today than
• 21:10
  Speaker 1: a year ago or a lower one. It is higher
• 21:14
  Speaker 1: because of the things we've discussed, but principally because of
• 21:18
  Speaker 1: ongoing confrontation between the United States and China economically and
• 21:22
  Speaker 1: the South China Sea. We are steaming into dangerous waters.
• 21:27
  Speaker 1: As we would say in the Navy, it's going to
• 21:28
  Speaker 1: require international cooperation to solve these problems. Admiral, we so
• 21:32
  Speaker 1: appreciate your time. Thank you so much for being with US.
• 21:35
  Speaker 1: Admiral James Stavridi's columnist for Bloomberg Opinion, retired US Navy
• 21:39
  Speaker 1: admiral and former military commando of NATO. Always wonderful to
• 21:43
  Speaker 1: get his thoughts. This is Bloomberg Markets with Pim Fox
• 21:48
  Speaker 1: and Lisa Abramowitz on Bloomberg Radio. We are broadcasting live
• 21:52
  Speaker 1: from the Bloomberg Interactive Broker's studios. A lot of people
• 21:55
  Speaker 1: are sitting around and thinking what we hold well. If
• 21:59
  Speaker 1: you listen to Emily Rowland, perhaps you might be getting
• 22:03
  Speaker 1: a little concerned. Perhaps Emily Rowland, head of Capital markets
• 22:06
  Speaker 1: research for John Hancock Investments based in Boston, bejoining us
• 22:09
  Speaker 1: here in our eleven three studios. I was reading the
• 22:11
  Speaker 1: outlook for that you put together. You said you see
• 22:15
  Speaker 1: a market peak after the yield curve inverts, and advised
• 22:19
  Speaker 1: against taking on too much risk and perhaps even advised
• 22:23
  Speaker 1: shedding some Please explain, well, I can see you read
• 22:26
  Speaker 1: all the way to the end of the outlook there.
• 22:28
  Speaker 1: The first part of it actually states that we are
• 22:31
  Speaker 1: still positive on risk assets. We do still think that
• 22:35
  Speaker 1: there's room left to go in this cycle. The yield
• 22:38
  Speaker 1: curve hasn't inverted yet. The leading economic indicators are still
• 22:42
  Speaker 1: coming in in positive territory. But to us, the time
• 22:46
  Speaker 1: to repair the roof is when the sun is shining
• 22:49
  Speaker 1: right looking ahead into You know, we're going into a
• 22:53
  Speaker 1: very very different macro regime here right. The Fed is
• 22:58
  Speaker 1: continuing down this path of rate normalization, quantitative tightening is
• 23:02
  Speaker 1: going to increase meaningfully. We shed four hundred billion dollars
• 23:05
  Speaker 1: from the balance sheet this year. That goes to six
• 23:07
  Speaker 1: hundred billion next year. That's a very different environment for
• 23:11
  Speaker 1: investors who are used to plentiful liquidity, used to low rates.
• 23:15
  Speaker 1: The Fed buying up fixed income, and we think that
• 23:17
  Speaker 1: that should lead us to a point where potentially we
• 23:19
  Speaker 1: do see a yield curban version and then potentially a
• 23:22
  Speaker 1: market peak down the road. Not there yet, but again
• 23:25
  Speaker 1: preparing to become more defensive. Is the world over leveraged?
• 23:30
  Speaker 1: That's a great question, and I think that's certainly a
• 23:33
  Speaker 1: concern as we head into into and it's a it's
• 23:37
  Speaker 1: a risk that we're watching, um, you know, and I
• 23:39
  Speaker 1: think as credit conditions tighten, as liquidity as withdrawn from
• 23:43
  Speaker 1: the system, you know, you could see that put real
• 23:46
  Speaker 1: pressure on markets globally. Do you think that emerging markets
• 23:49
  Speaker 1: to haven right now? That's an interesting question too. And
• 23:52
  Speaker 1: we've seen you know, a bid for emerging markets over
• 23:55
  Speaker 1: the last few weeks here. We were down more than
• 23:58
  Speaker 1: twenty at one point this year through October, and we're
• 24:02
  Speaker 1: starting to sort of carve out a bit of a
• 24:04
  Speaker 1: bottom here, you know, I think investors are pricing in
• 24:07
  Speaker 1: a somewhat you know, better resolution to trade and terroriffs.
• 24:11
  Speaker 1: We'll have to see what happens after the G twenty
• 24:13
  Speaker 1: meeting this weekend, you know, But for us, we're not
• 24:16
  Speaker 1: ready to go to really go in uh to emerging
• 24:19
  Speaker 1: markets yet until we see some of the fundamentals start
• 24:22
  Speaker 1: to turn around. So we look at things like earnings
• 24:25
  Speaker 1: estimates where you're really continuing to move sideways and emerging
• 24:28
  Speaker 1: market equities, we're gonna need to see that really come
• 24:31
  Speaker 1: back in order to go more positive there. So we're
• 24:33
  Speaker 1: neutral on them right now. What are you finding when
• 24:36
  Speaker 1: you look at investment behavior, because they've certainly voted with
• 24:40
  Speaker 1: their money when it comes to technology stocks, is it
• 24:44
  Speaker 1: likely that investors will put their money into cash? Well,
• 24:48
  Speaker 1: you know, we've really seen that happen, and looking back
• 24:50
  Speaker 1: on it's been the year of cash and the year
• 24:54
  Speaker 1: of ultrashore bonds. Who would have thought that would have
• 24:57
  Speaker 1: happened in right, And as we look at investors really
• 25:01
  Speaker 1: piling into cash and ultra sharp short bond funds, we
• 25:05
  Speaker 1: think that that actually might reverse a bit as we
• 25:08
  Speaker 1: head into twenty nineteen. If you look at the way
• 25:11
  Speaker 1: that investment grade corporates have performed this year, if you
• 25:14
  Speaker 1: look at the way the bar cap AGG has performed
• 25:17
  Speaker 1: this year, it's actually been almost like investment grade corporates
• 25:22
  Speaker 1: have really been beaten down. The eggs down one and
• 25:24
  Speaker 1: a half two percent when you look back at thirteen.
• 25:27
  Speaker 1: When you look back at two thousand eight, when fixed
• 25:29
  Speaker 1: income was really under pressure broadly, the following years were
• 25:33
  Speaker 1: actually quite good for fixed income. So it sounds like
• 25:38
  Speaker 1: rotation into investment grade is something that you foresee in
• 25:41
  Speaker 1: the future because it's gotten pretty beaten up. What are
• 25:44
  Speaker 1: you looking for? What sort of the trigger that will
• 25:47
  Speaker 1: make you reassess and start shutting risk more meaningfully. Yeah,
• 25:50
  Speaker 1: so I think what we'll be looking for first, of course,
• 25:52
  Speaker 1: is a yield curb and version. We're right around twenty
• 25:56
  Speaker 1: two tons. You're looking at two tens. Looking at two tens. Um,
• 26:00
  Speaker 1: we'll be looking for, you know, economic indicators to really
• 26:03
  Speaker 1: start to roll over meaningfully. They're still coming in positive
• 26:06
  Speaker 1: things like consumer confidence, things like jobless claims, you know,
• 26:10
  Speaker 1: very low levels here. That data is all still very good.
• 26:13
  Speaker 1: But of course markets are you know, forward looking, right,
• 26:17
  Speaker 1: so you know we're looking for for a you know,
• 26:20
  Speaker 1: a catalyst. Um, we need those things to play out. Um.
• 26:23
  Speaker 1: We also need to see what happens with earnings. Right
• 26:26
  Speaker 1: looking on the equity side, you know earnings of course,
• 26:29
  Speaker 1: peak earnings are behind us, but that doesn't mean that
• 26:32
  Speaker 1: earnings growth broadly is behind us. If we start to
• 26:35
  Speaker 1: see earnings estimates and earnings revisions start to roll over,
• 26:39
  Speaker 1: that's going to be another indication for us that it's
• 26:41
  Speaker 1: time to get more defensive. Again, we're not there yet.
• 26:44
  Speaker 1: Just give you about thirty seconds. Do you foresee a
• 26:47
  Speaker 1: time when credit rating agencies are going to have to
• 26:50
  Speaker 1: issue revisions to their analysis of investment grade companies? Yeah,
• 26:57
  Speaker 1: I mean there's certainly a lot of talk about investment
• 27:00
  Speaker 1: aid corporates and the risks and the triple be market. Um,
• 27:03
  Speaker 1: you know, we will keep an eye on that. But
• 27:06
  Speaker 1: at this point, again, investment grade corporates have been treated
• 27:08
  Speaker 1: like it's a or even two thousand eight type environment,
• 27:13
  Speaker 1: and we think that there could be an opportunity for
• 27:15
  Speaker 1: them to you know, come back catch a bit a bit.
• 27:18
  Speaker 1: You know, our managers are continuing to allocate uh portions
• 27:22
  Speaker 1: of their portfolio there, and we're comfortable owning some investment
• 27:25
  Speaker 1: grade corporates heading into the next year. Thanks very much
• 27:28
  Speaker 1: for being with us, very enlightening. Emily Rowland is the
• 27:31
  Speaker 1: head of Capital markets research for John Hancock Investments, based
• 27:36
  Speaker 1: in Boston, but joining us here in our Bloomberg Interactive
• 27:39
  Speaker 1: broker's studios. Thanks for listening to the Bloomberg P and
• 27:43
  Speaker 1: L podcast. You can subscribe and listen to interviews at
• 27:46
  Speaker 1: Apple Podcasts, SoundCloud, or whatever podcast platform you prefer I'm
• 27:51
  Speaker 1: pim Fox. I'm on Twitter at pim Fox. I'm on
• 27:54
  Speaker 1: Twitter at Lisa Abramo. It's one before the podcast. You
• 27:57
  Speaker 1: can always catch us worldwide on bloom A Radio m