Latest / Bloomberg Intelligence / BMO's Ablin: Correlation Between Trump and Mexican Peso (Audio)

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BMO's Ablin: Correlation Between Trump and Mexican Peso (Audio) · Bloomberg Intelligence

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  Speaker 1: broadcasting alive today at the Bloomberg Market's most influential summit
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  Speaker 1: at our world headquarters. We want to bring in a
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  Speaker 1: very special guest now, who is going to get us
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  Speaker 1: up to date on what's going on with the stock
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  Speaker 1: market today? Rising actually on report OPEC has reached a
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  Speaker 1: deal to curb production. We've seen headlines like this before.
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  Speaker 1: We'll see if this one holds up. And step back
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  Speaker 1: also and look at some of the big macro forces,
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  Speaker 1: the elections, the debates, and of course the Federal Reserve.
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  Speaker 1: Very happy welcome back to this show. Jack Avenin, Chief
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  Speaker 1: investment Officer for BMO Private Bank. So Jack, let's start
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  Speaker 1: with the latest on OPEC. It seems to me that
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  Speaker 1: every time there's some kind of OPEC meeting, there's this
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  Speaker 1: back and forth about maybe reaching some kind of deal.
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  Speaker 1: What do you make of the latest news? And I guess,
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  Speaker 1: even more importantly, how important is this the stock market? Well,
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  Speaker 1: I do think it's important to stock market. Um, it
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  Speaker 1: would appear anyway, that oil is really a global growth barometer.
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  Speaker 1: And UM, historically, or at least over the last couple
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  Speaker 1: of quarters anyway, UM, there has been a tight correlation
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  Speaker 1: between the direction of the stock market and the direction
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  Speaker 1: of oil prices. So I think having UM, perhaps some
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  Speaker 1: sort of an agreement or at least a report of
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  Speaker 1: an agreement certainly boosting oil prices, and that's turned stocks
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  Speaker 1: around today. You know, Jack, I'm sorry, I'm gonna have
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  Speaker 1: to turn your domestic and I want you to just
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  Speaker 1: tell me about the US banking industry, because, of course,
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  Speaker 1: one of the more recent pieces of news is that
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  Speaker 1: California has suspended its business relationship with Wells Fargo. The
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  Speaker 1: banks in the United States are particularly pressure because of
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  Speaker 1: low infest rates and as a result they have major
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  Speaker 1: incentives to try to make other businesses, but also they
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  Speaker 1: have to set aside a lot of capital. What's your
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  Speaker 1: take on how banks will be performing if we do
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  Speaker 1: get an infest rate increase. Well, I do think, uh,
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  Speaker 1: and I would tend to agree with you, UM that
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  Speaker 1: you know, the banks are certainly under a lot of pressure. UM.
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  Speaker 1: They've they've been the political pinata going into the election season.
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  Speaker 1: This is a this is one area where both Republicans
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  Speaker 1: and Democrats can agree. UM. So that that's been in
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  Speaker 1: the in the headlines. UM, but I do think that
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  Speaker 1: ultimately the higher short term interest rates will ultimately you
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  Speaker 1: will be a souve for um. These companies that have
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  Speaker 1: been under some profit pressure. Well, and of course talk
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  Speaker 1: about pressure. Yellen was kind of beaten up on Coppit
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  Speaker 1: Hill to a uh, defending the big banks. They're in
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  Speaker 1: much better shape than they were, they're better capitalized. Yesterday,
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  Speaker 1: Chris Whalen from no Bon rating agencies, quite expert on
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  Speaker 1: the bank said yes, he was a big proponent of
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  Speaker 1: ringing in the banks during the crisis, but now they're
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  Speaker 1: overregulated and the more the banks the regulars want to
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  Speaker 1: raise capital, that's hurting them. Does that do you agree
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  Speaker 1: with that? And does it mean does it make banks
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  Speaker 1: less of a good investment the financials? Yeah, I mean
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  Speaker 1: you have to sort of put a different lens on
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  Speaker 1: banks nowadays. Uh. I I would argue that they are
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  Speaker 1: um should be trading at a lower valuation, and they
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  Speaker 1: certainly are currently, but are also they're safer bets. I mean,
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  Speaker 1: the fact is now if you're gonna treat them like utilities.
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  Speaker 1: Then you know, my guess is their stocks are going
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  Speaker 1: to be perform a lot more predictably. So I think
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  Speaker 1: there are you know, a double edged sword there. But
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  Speaker 1: on the other hand, keeping mind, financials is the only
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  Speaker 1: sector UH this year that's actually negative while the rest
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  Speaker 1: of the market is higher. So there is a lot
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  Speaker 1: of making up to do. And I think that higher
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  Speaker 1: interest rates, in having the election behind us UM could
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  Speaker 1: be the catalyst to make to allow these these stocks
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  Speaker 1: to move over the next four quarters. Okay, so we
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  Speaker 1: got it. We did a little bit of oil, we
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  Speaker 1: did a little bit of banks, banking stocks the United States.
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  Speaker 1: I want you to tell me about the Paso in
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  Speaker 1: Mexico and Donald Trumps refers specifically to your most recent missive,
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  Speaker 1: your letter that you see, yeah, thanks to him. UM. Yeah.
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  Speaker 1: You know, we've looked at a bunch of implications of
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  Speaker 1: UM of Trump and and and Clinton and so forth,
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  Speaker 1: and probably you know, you could argue biotech for for Clinton,
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  Speaker 1: but it was really the pace so that has the
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  Speaker 1: biggest statistical UH correlation to Trump's UM near the vagaries
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  Speaker 1: of his UH of his fortunes in this in this election.
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  Speaker 1: And what we found was probably not a surprise. As
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  Speaker 1: his election chance has improved, the pace so fell and
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  Speaker 1: vice versa. And so one of the earliest indications that
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  Speaker 1: I noticed right after the debate UM was that the
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  Speaker 1: pace rallied in addition to stock futures. But the pay
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  Speaker 1: so in particular really signified to me, or reaffirmed to me,
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  Speaker 1: that investors believe that Donald Trump lost the debate, or
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  Speaker 1: at least didn't get the message that he wanted to
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  Speaker 1: get across, and Clinton m certainly didn't lose. Of course,
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  Speaker 1: the this is a bet that if Donald Trump were elected,
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  Speaker 1: he would block, alter, even dismantled trade deals that have
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  Speaker 1: benefited Mexico greatly. So I guess that that is the
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  Speaker 1: logic there. And of course, is there any logic behindness?
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  Speaker 1: And is this just like a kind of a two
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  Speaker 1: month wonder once you get the results from the election,
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  Speaker 1: does this trade go away? I don't think so, Kathleen.
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  Speaker 1: I think what we've finding is, first of all, going
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  Speaker 1: into them, the going into that Um Monday Um debate,
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  Speaker 1: we have to keep in mind the pay so so
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  Speaker 1: was the weakest in its entire history relative to the
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  Speaker 1: US dollar, and so this rally that we're seeing a
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  Speaker 1: relief rally whatever you want to call it is UM
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  Speaker 1: you know, certainly moving the currency in the right direction.
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  Speaker 1: But I also think it underscores the notion that, you know,
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  Speaker 1: whether Trump attained presidency or he disappears, UH, this issue
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  Speaker 1: wasn't going to go away. I think that UM candidates UM,
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  Speaker 1: but also constituents are pre skeptical of trade and that
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  Speaker 1: could put UM, Mexico UH and the Paco under under
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  Speaker 1: dress even after you know, Trump, if he were to
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  Speaker 1: lose UM into next year. Well, Jackie, I'm going to
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  Speaker 1: turn you all the way back to the North America
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  Speaker 1: and to the and then I want you to go
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  Speaker 1: and do that pivot for for more oil and natural resources. UM.
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  Speaker 1: Because you mentioned the value of the pace, so the
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  Speaker 1: value the Canadian dollar also sliding. Tell me what's going
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  Speaker 1: on there, and then tie that into natural resources, you know,
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  Speaker 1: do that whole boat. Yeah, so UM, the you know,
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  Speaker 1: the Canadian currency slightly different trade, although UM it was
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  Speaker 1: you know again it was really NAFTA that was called
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  Speaker 1: in the question UM that candidate Trump should be elected president,
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  Speaker 1: would hope to UM cancel NAFTA, which of course covers
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  Speaker 1: Canada as well. So I do think there is some
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  Speaker 1: of that going on. Um, But but you're right to him.
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  Speaker 1: Canada is a resource rich country, and oil prices have
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  Speaker 1: certainly have come down pretty dramatically from their peak a
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  Speaker 1: couple of years ago. Uh, and let's put pressure on
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  Speaker 1: the currency. In fact, we believe in you know, at
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  Speaker 1: seventies seven, it's on the dollar. Um, the Canadian dollar
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  Speaker 1: is probably eight or nine percent undervalued on what we'll
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  Speaker 1: call a purchasing power parity or kind of a fair
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  Speaker 1: value basis. So um, we think that, um, you know,
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  Speaker 1: these two currencies could be pretty interesting you know, interesting plays. Uh,
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  Speaker 1: once the you know, the the all the confetti has
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  Speaker 1: swept up after this election, Okay, until that confetti falls.
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  Speaker 1: Are you on the sidelines? Are you have you moved
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  Speaker 1: a lot into cash? Is that the best strategy? When
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  Speaker 1: we do it still looks like a pretty close race.
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  Speaker 1: And we know if any of these things, like the
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  Speaker 1: Paso volatility or an early indication markets, many different asset
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  Speaker 1: classes around the world could move when we get the
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  Speaker 1: election results, depending on what they are. Is it best
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  Speaker 1: just to be defensive right now? Well, it really depends
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  Speaker 1: on your your time horizon and the strength of your stomach.
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  Speaker 1: I suppose, Um, we do have a fair sizeable cash position.
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  Speaker 1: It's been kind of a you know, burning a hole
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  Speaker 1: in our pocket, but we want to keep some powder
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  Speaker 1: dry and look for opportunities. On the other hand, I
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  Speaker 1: think that you know, a lot of the you know,
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  Speaker 1: the the rhetoric is it will die down, whether it's
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  Speaker 1: surrounding the banks, uh and Wells, Fargo Well, whether it's
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  Speaker 1: surrounding concerns about the pay so or even biotechs and whatever.
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  Speaker 1: You know, keep in mind, even if, um, you know,
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  Speaker 1: a candidate is elected, it doesn't necessarily be a surprise everyone,
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  Speaker 1: all of your listeners, but not all candidates actually enact
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  Speaker 1: items that they talk about during the campaign. So um,
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  Speaker 1: it's it's entirely possible that sort of the enthusiasm wears
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  Speaker 1: off once they get into office and low and behold
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  Speaker 1: these sectors come back. Yeah, very good point, Very interesting.
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  Speaker 1: Thank you very much. Jack Appman is always the chief
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  Speaker 1: investment Officer at FEMO Private Bank. We are broadcasting from
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  Speaker 1: Bloomberg Market's most influential summit from our world headquarters in
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  Speaker 1: New York. This is taking Stock. I'm pim Fox. My
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  Speaker 1: co host Kathleen Hayes. This is Bloomberg