Latest / Bloomberg Intelligence / Industrial Recession In The U.S. Is Not Over: Booth

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Industrial Recession In The U.S. Is Not Over: Booth · Bloomberg Intelligence

• 0:02
  Speaker 1: Welcome to the Bloomberg Penel 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 Penil 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. Today is FED Day. Two o'clock
• 0:21
  Speaker 1: will get those statement from the FED and two thirty
• 0:24
  Speaker 1: a press conference with Chairman j Pale. So we are
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  Speaker 1: very fortunate right now to have our next guest to
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  Speaker 1: help us preview what we might hear. Danielle di Martino Booth.
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  Speaker 1: She's a CEO and Director of Intelligence at Quill Intelligence,
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  Speaker 1: former advisor at the Dallas Federal Reserve, and a Bloomberg
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  Speaker 1: opinion columnist. Danielle, thanks so much for joining us here
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  Speaker 1: in our Bloomberg and Actor Broker studio. So FED Day today,
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  Speaker 1: and as Lisa was suggesting, how do you think the
• 0:48
  Speaker 1: FED chairman will address maybe one of the newer uncertainties
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  Speaker 1: in the marketplace, which is the coronavirus. How do you
• 0:55
  Speaker 1: think Mr Powell will react? To that. Well, he probably
• 0:59
  Speaker 1: won't be a front and say that the insurance premium
• 1:01
  Speaker 1: has gone up on global risks um, but he might
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  Speaker 1: tow the same type of line and say that in
• 1:07
  Speaker 1: order to maintain the economic expansion, the FED is going
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  Speaker 1: to do whatever he needs to do, including any kind
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  Speaker 1: of global economic disruptions that are brought on kind of
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  Speaker 1: the same line that he was using with reference to
• 1:19
  Speaker 1: the trade war. He's just going to pick it up
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  Speaker 1: and assign it to the coronavirus. Alright, So let's take
• 1:23
  Speaker 1: it out of J. Palell's at mouth and let's talk
• 1:25
  Speaker 1: about what the potential economic impact is on the United States.
• 1:30
  Speaker 1: We're seeing, for example, Starbucks closing down more than two
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  Speaker 1: thousand stores in China in response to this, Apple said
• 1:37
  Speaker 1: that they could take a material hit. They're looking at
• 1:39
  Speaker 1: ways to divert their supply chain away from the Wuhan area.
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  Speaker 1: Do you think that markets are under pricing the potential
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  Speaker 1: impact on the US economy from the coronavirus has spread,
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  Speaker 1: in particular with how much's defecting the China economy. Yeah,
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  Speaker 1: And I think that you actually hit on the critical
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  Speaker 1: element here, right, because Chinese, the Chinese economy is quadrupled
• 2:01
  Speaker 1: in size in terms of its global footprint. It's now
• 2:04
  Speaker 1: sixteen percent of global GDP compared to four percent back
• 2:07
  Speaker 1: when Stars broke. And now it is not a link,
• 2:11
  Speaker 1: it is the link in the global supply chain. We've
• 2:13
  Speaker 1: learned this the hard way throughout the trade war years.
• 2:16
  Speaker 1: And I speak with Leland Miller, he's a friend of
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  Speaker 1: the show's China Beije book. You know. He points out
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  Speaker 1: that the virus is in every single province, so this
• 2:24
  Speaker 1: is not isolated to one province that is the seventh
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  Speaker 1: largest um because Bloomberg actually ranks all of the supply chains,
• 2:34
  Speaker 1: and over the weekend had a great story out. Bloomberg
• 2:36
  Speaker 1: had a great story out that said, the UN is
• 2:39
  Speaker 1: number seven in the country. But right now you've got
• 2:41
  Speaker 1: a lot more than that being affected in the Chinese economy,
• 2:44
  Speaker 1: and it will have blowback effects first in Germany and
• 2:49
  Speaker 1: then back here in the United States. I mean, given
• 2:51
  Speaker 1: what we learned, I'm not sure you know the the
• 2:54
  Speaker 1: analogy for Stars. I'm not sure how strong it is
• 2:56
  Speaker 1: or tenuels it is. Is there a sense of a
• 2:59
  Speaker 1: lag time when we start seeing some of the Chinese
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  Speaker 1: issues bleeding out into some of the economic data across
• 3:06
  Speaker 1: the globe. What are you looking for? So it's really
• 3:09
  Speaker 1: difficult to say because I mean, obviously markets are completely
• 3:14
  Speaker 1: disregarding this. But I am no scientists, and I cannot
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  Speaker 1: tell you how bad this is going to get um
• 3:21
  Speaker 1: because you're starting to have cases crop up in countries
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  Speaker 1: where the person has not visited China. So it's for me,
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  Speaker 1: it's a gigantic unknown. I saw a few charts out
• 3:30
  Speaker 1: of the cell side today and it shows kind of
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  Speaker 1: a huge v V shaped recovery that retail sales in
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  Speaker 1: China are going to take this big hit and come
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  Speaker 1: roaring right. I'm not I'm I'm just not buying it
• 3:42
  Speaker 1: because like brought in capital for example, they feed casts
• 3:47
  Speaker 1: the freight index that's followed so closely. Now. They came
• 3:49
  Speaker 1: out with fresh data this morning that showed that they're
• 3:52
  Speaker 1: leading indicator of leading indicators, which is Shanghai air freight.
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  Speaker 1: Air freight contracted you over year again prior to this
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  Speaker 1: virus outbreak. So it's still less is less is less
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  Speaker 1: bad is good? But you're kicking the global reflation trade
• 4:08
  Speaker 1: before it quite reflated. Well, okay, this is the key
• 4:11
  Speaker 1: question here. How much are people using the coronavirus as
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  Speaker 1: an excuse to sell at a time when they're a
• 4:17
  Speaker 1: little bit wary of whether this reflation trade is actually
• 4:20
  Speaker 1: taking off. And I wonder if there is sort of
• 4:22
  Speaker 1: a a different story being told by bonds and stocks
• 4:26
  Speaker 1: given the rally that we're seeing in treasuries, do you
• 4:28
  Speaker 1: think that that sort of foretells a weaker economy that's
• 4:31
  Speaker 1: being priced in the next Look. Absolutely, it's in a
• 4:34
  Speaker 1: matter of three trading days, we've gone from being inverted
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  Speaker 1: on the three month five year two days later, three months,
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  Speaker 1: seven year today, three month, ten years, five basis points away.
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  Speaker 1: I mean, j Pal just spent over four billion dollars
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  Speaker 1: to uninvert the yield curve, and the bond market is
• 4:51
  Speaker 1: telling him, and pending home sales are telling him both.
• 4:55
  Speaker 1: And the auto sector in the United States and really
• 4:58
  Speaker 1: messy earnings out of Detroit. And by the way, we're
• 5:01
  Speaker 1: all ignoring Bowing because they did they had kitchen sink earnings.
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  Speaker 1: The industrial recession in the United States is not over
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  Speaker 1: period end, and the yield curve is telling j Pal
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  Speaker 1: that not only do they want him to move out
• 5:14
  Speaker 1: to cupe on purchases and away from treasury bills, which
• 5:17
  Speaker 1: is Lele Brainerd's that's her, that's her blueprint, that's the framework,
• 5:21
  Speaker 1: go out to twelve months first, out to twenty four
• 5:23
  Speaker 1: months later and then put the cap on. But it's
• 5:26
  Speaker 1: also telling j Pal that it wants a rate cut,
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  Speaker 1: and that's where he does not want to go. And
• 5:31
  Speaker 1: just to sort of put the bow on Bowing, they
• 5:34
  Speaker 1: did put the kitchen sink out there. They were they're
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  Speaker 1: doing well and uh in trading at least when you
• 5:38
  Speaker 1: look at their stock price. And meanwhile they're borrowing tons
• 5:41
  Speaker 1: of money with the letter demand for that Bowing loan
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  Speaker 1: that we've been reporting on for the past few weeks
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  Speaker 1: growing to fourteen billion dollars. People eager to lend to
• 5:49
  Speaker 1: this company, calling Molly Smith, where are you? It's just
• 5:52
  Speaker 1: amazing well, and we can get into the duopoly and
• 5:55
  Speaker 1: this sort of question of whether the governance was less
• 5:57
  Speaker 1: strict as a result of their mark a position, but
• 6:00
  Speaker 1: that unfortunately have to be another conversation. Danielle Dmartino Booth
• 6:04
  Speaker 1: always chief executive officer and chief strategist for Quill Intelligence,
• 6:08
  Speaker 1: former advisor to the Dallas Federal Reserve, and a Bloomberg
• 6:11
  Speaker 1: Opinion columnist, certainly leading the charge has been Apple after
• 6:24
  Speaker 1: they're better than expected earnings, showing that the iPhone is
• 6:27
  Speaker 1: still strong, it's still dominant, producing profits that are to
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  Speaker 1: be envied around the world. Frankly, uh, and not to
• 6:35
  Speaker 1: mention a cash pile of two hundred and seven billion dollars.
• 6:38
  Speaker 1: David Garretty joining US now chief market strategist for laid
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  Speaker 1: Law and Company and a partner at bt Block. David,
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  Speaker 1: thank you so much for being here. What was like
• 6:46
  Speaker 1: the sort of most interesting aspect of Apple's earnings to
• 6:50
  Speaker 1: you in terms of the guidance for the March quarter,
• 6:53
  Speaker 1: which was showing the revenue range of sixty three to
• 6:56
  Speaker 1: sixty seven billion dollars, indicating their own uncertainty with respect
• 7:00
  Speaker 1: to the impact in China of essentially the quarantine, which
• 7:04
  Speaker 1: it certainly is immobilizing the population there and certainly keeping
• 7:08
  Speaker 1: people away from Apple stores, where they've cut back a
• 7:11
  Speaker 1: number of ships of shifts and actually um closed a
• 7:14
  Speaker 1: number of locations. UM. But I think overall, if we
• 7:17
  Speaker 1: have to look at um, Apple is abell Weather for
• 7:20
  Speaker 1: the tech sector, to the extent that Apple has pretty
• 7:23
  Speaker 1: much sort of seemed so hard to have dodged the
• 7:25
  Speaker 1: bullet from the Wuhans Stars, Contagion, Uh certainly some of
• 7:30
  Speaker 1: the names we're looking at elsewhere Facebook after the close today, UM, Twitter, Google, Alphabet, Amazon,
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  Speaker 1: We we think that you know, the Paul from China
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  Speaker 1: isn't necessarily in the cast itself so wide. We look
• 7:44
  Speaker 1: as if we've had fairly decent results in the US,
• 7:47
  Speaker 1: certainly with respect to going back to Apple, their iPhone
• 7:50
  Speaker 1: eleven a strong introduction, returning to growth in that category.
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  Speaker 1: We have seen global smartphone shipments and decline in two
• 7:58
  Speaker 1: thousand nineteen down I think about three percent. That was
• 8:00
  Speaker 1: a first for that market. But looking forward um to
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  Speaker 1: say one, we're going to have the role out increasingly
• 8:09
  Speaker 1: of five G cellular communications networks. Apple will have a
• 8:13
  Speaker 1: five G enabled phone coming out later this year. This
• 8:17
  Speaker 1: arguably is going to be a significant product transition, not
• 8:20
  Speaker 1: just for Apple, but for the tech sector as a whole.
• 8:24
  Speaker 1: So the Apple, I guess the services revenue came in
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  Speaker 1: a little bit weaker than expected. Is that an area
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  Speaker 1: of concern for you? Given that that a lot of
• 8:31
  Speaker 1: investors feel like that's going to be the longer term
• 8:34
  Speaker 1: growth driver for this company. Certainly, looking at Apple's success
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  Speaker 1: in growing the subscriber base for the Apple UM services operations.
• 8:44
  Speaker 1: They ended the year at what fordin eighty million subscribers,
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  Speaker 1: at a third from three sixty million a year ago,
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  Speaker 1: and their target is six million by the end of Granted,
• 8:55
  Speaker 1: you know, thirty three growth in growth in people might say, well,
• 9:01
  Speaker 1: things are gonna slow. My argument here more is that
• 9:04
  Speaker 1: this is going to be the base of customers off
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  Speaker 1: which Apple is going to be driving increasingly larger amounts
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  Speaker 1: of recurring, high margin revenue, which I think is going
• 9:13
  Speaker 1: to be important for the valuation which they do. That
• 9:15
  Speaker 1: there are two hundred and seven billion dollars of cash.
• 9:19
  Speaker 1: Clearly there's always going to be arguments made with regards
• 9:24
  Speaker 1: to UM what do they do around you know, continuing
• 9:27
  Speaker 1: to buy back their stock, But certainly there's temptation as
• 9:30
  Speaker 1: far as acquisitions are concerned, and we think certainly if
• 9:33
  Speaker 1: you look at the Disney Plus streaming service that's out there, uh,
• 9:37
  Speaker 1: you know, does Apple take this opportunity to come in
• 9:40
  Speaker 1: uh and possibly enhance their own abilities by looking I
• 9:44
  Speaker 1: know people have talked about Netflix for ages UM. You know,
• 9:48
  Speaker 1: there are a number of possibilities and obviously having two
• 9:51
  Speaker 1: hundred billion dollars in loose change Um, you know, isn't
• 9:55
  Speaker 1: such a bad place to be stocks essentially doubled over
• 9:58
  Speaker 1: last twelve months? Are you evaluation concerns yet? How do
• 10:02
  Speaker 1: you think about the evaluation of the stock? I mean,
• 10:05
  Speaker 1: certainly people who have raised the concerns. You know, is
• 10:09
  Speaker 1: a trillion dollar evaluation sort of a ceiling? Uh? You know,
• 10:12
  Speaker 1: is it possible for public companies to go above and
• 10:15
  Speaker 1: beyond that? Um? I don't necessarily want to try and
• 10:18
  Speaker 1: minimize or or the other way around. I'm not trying
• 10:22
  Speaker 1: to exaggerate perhaps the importance of five G but and
• 10:25
  Speaker 1: the rollout, but I think that this is going to
• 10:27
  Speaker 1: be something quite significant in terms of the range of
• 10:30
  Speaker 1: services that this might open up. So we're at a
• 10:33
  Speaker 1: point in time analytically where we need to look forward
• 10:36
  Speaker 1: and and see what are the potential new revenue streams
• 10:40
  Speaker 1: that might be gotten as a result of having this
• 10:43
  Speaker 1: greater bandwidth and the ability to move larger amounts of
• 10:46
  Speaker 1: data faster. All right, let's look ahead, because we're getting
• 10:49
  Speaker 1: Facebook reporting earnings after the ballot, Amazon reporting earnings tomorrow
• 10:53
  Speaker 1: after the bell, and I'm wondering with Facebook in particular,
• 10:56
  Speaker 1: the shares up nearly two percent today, How concerned. Are
• 11:01
  Speaker 1: you about the political liability? No, Senator war in his
• 11:04
  Speaker 1: job voting Facebook yet again, and they're sort of the
• 11:06
  Speaker 1: immediate crosshairs of some potential regulatory oversight. Yeah, I believe
• 11:11
  Speaker 1: that we've commented, you know, previously, we've said certainly that
• 11:14
  Speaker 1: as regards UM social media companies, Facebook in particular, in
• 11:19
  Speaker 1: the regulatory cross hairs. UM. The issue is that most
• 11:23
  Speaker 1: likely significant regulation may not necessarily be seen until after
• 11:28
  Speaker 1: we get past the presidential election, which, if one wanted
• 11:32
  Speaker 1: to be cynical, one would say that given the amount
• 11:35
  Speaker 1: of money that's being put into social media around the
• 11:38
  Speaker 1: general election, that certainly argues positively in the margin near
• 11:43
  Speaker 1: term for Facebook perhaps as a stock. UM. However, you know,
• 11:48
  Speaker 1: does that make it merely a trade? And to the
• 11:51
  Speaker 1: extent if the prospects become clearer as we go into November,
• 11:55
  Speaker 1: you know, would you necessarily want to fade Facebook going
• 11:59
  Speaker 1: into the general election? That might be a very short
• 12:01
  Speaker 1: term trading call against the longer term perspective that clearly
• 12:05
  Speaker 1: is going to be more negative. There were some other
• 12:07
  Speaker 1: elements apart from President Um Senator Warren Um. There had
• 12:11
  Speaker 1: been hearings held in the House. I think over the
• 12:13
  Speaker 1: last two weeks just talking from smaller technology companies of
• 12:16
  Speaker 1: what it's been like to go up and compete against
• 12:19
  Speaker 1: these larger companies, whether it's a Facebook or an Amazon
• 12:22
  Speaker 1: or others, which argues that within the tech sector, the
• 12:26
  Speaker 1: prospects of regulation become more significant as we go past
• 12:29
  Speaker 1: the general election, So is where the hammer comes down.
• 12:33
  Speaker 1: So assuming that it kind of plays out as you think,
• 12:36
  Speaker 1: these tech names are still going to be the drivers
• 12:38
  Speaker 1: for the overall market like we've seen them in you know,
• 12:41
  Speaker 1: in the year's past, and we've been talking about now
• 12:42
  Speaker 1: maybe rotate into some maybe more cyclical names or things
• 12:45
  Speaker 1: like that. UM. In terms of sort of stepping back
• 12:48
  Speaker 1: and looking at things more broadly, UM, you know, the
• 12:53
  Speaker 1: things that drive the drive GDP growth, it's population growth
• 12:57
  Speaker 1: and productivity growth UM two thousand nineteen, the United States,
• 13:00
  Speaker 1: our population growth was zero point. We had forty two
• 13:04
  Speaker 1: states where the population actually declined. We look globally Japan,
• 13:08
  Speaker 1: uh death rate exceeds birth rate, which is essentially the
• 13:11
  Speaker 1: formula for declining population growth. If we're going to have
• 13:15
  Speaker 1: GDP growth, this is going to have to rely upon
• 13:17
  Speaker 1: productivity growth, which argues for disruptive technology innovation, I would
• 13:23
  Speaker 1: argue against that backdrop. You know, this move towards five G.
• 13:27
  Speaker 1: You know it has many facets in terms of what
• 13:29
  Speaker 1: this might do around productivity growth. So if technology remains
• 13:33
  Speaker 1: significant from the standpoint of economic development, I would argue
• 13:37
  Speaker 1: it still will maintain significance in terms of investors positioning.
• 13:42
  Speaker 1: David Garritty, thank you so much for being with us today.
• 13:44
  Speaker 1: I really appreciate. David Garrity, chief market strategist for laid
• 13:48
  Speaker 1: Law and Company, also a partner at bt Block Consensus Trade.
• 14:01
  Speaker 1: Heading into among them was that the dollar would weaken
• 14:05
  Speaker 1: and that emerging market corencies would outperform. So far, that
• 14:09
  Speaker 1: has not panned out quite the opposite. In fact, you've
• 14:11
  Speaker 1: seen dollar strength and emerging currencies are currently at the
• 14:14
  Speaker 1: weakest versus the dollar since December twenty five. This according
• 14:17
  Speaker 1: to the ms c I index data on the Bloomberg
• 14:20
  Speaker 1: And I'm wondering how long this could persist. At Al
• 14:22
  Speaker 1: HUSSAINI joining us here senior interest rates and Currencies analysts
• 14:26
  Speaker 1: for Columbia Thread Needle Investments, and I you know, this
• 14:28
  Speaker 1: just really is a conundrum with the coronavirus. Is the
• 14:33
  Speaker 1: reversal in this consensus trade, something that has legs for
• 14:36
  Speaker 1: the rest of the year, or is this a budding
• 14:38
  Speaker 1: opportunity heading into the rest it Yeah, thanks, well, well
• 14:43
  Speaker 1: I think it's it's early days, let's be fair. But
• 14:46
  Speaker 1: to the extent that two things happened into the end
• 14:49
  Speaker 1: of last year. First, MFX was one of the worst
• 14:51
  Speaker 1: performing asset classes, so look relatively relatively cheap, particularly versus
• 14:56
  Speaker 1: other pockets of risk. And Second, the recovery in in
• 15:00
  Speaker 1: data that we saw globally, at least the nascent recovery
• 15:03
  Speaker 1: and into the end of last year was in Asian
• 15:06
  Speaker 1: p m I data uh and and really the cementing
• 15:11
  Speaker 1: of the Phase one agreement gave it a lot of impetus.
• 15:14
  Speaker 1: So we saw the remanby start to react positively and
• 15:18
  Speaker 1: then lead high baying e m f X into the
• 15:21
  Speaker 1: beginning of the year. UM, all of that's been beaten
• 15:23
  Speaker 1: out now. Obviously, the fundamental risk here is that what's
• 15:28
  Speaker 1: happening in China and potentially a slowdown in China spills
• 15:31
  Speaker 1: over into broader Asia in the first half of this year. UM.
• 15:34
  Speaker 1: And then a broader reassessment of risk, which is you
• 15:38
  Speaker 1: know we're seeing happen right now, you know US drisuries
• 15:40
  Speaker 1: back at one six UM very early stages. But if
• 15:44
  Speaker 1: we do see a broader reassessment of risk E mf X,
• 15:47
  Speaker 1: will again UH look as as relatively unattractive. Is there
• 15:52
  Speaker 1: are there any pockets of opportunities out there, I'm assuming
• 15:55
  Speaker 1: we're going to steer clear of Asia, perhaps, Yeah, I
• 15:57
  Speaker 1: think interesting a couple of UH relatively high yielding names.
• 16:03
  Speaker 1: They're relatively closed economies where the fundamentals are good, particularly
• 16:06
  Speaker 1: from a fiscal and external account perspective. Russia is a
• 16:09
  Speaker 1: great example that stands out, and the ruble has been
• 16:12
  Speaker 1: um in in in the eye of of of the
• 16:15
  Speaker 1: weakness here. UM do stand out as places where there's value.
• 16:19
  Speaker 1: Let's take the flip side of that, South Africa, where
• 16:21
  Speaker 1: fundamentals are weakening. We're weakening into the end of last year.
• 16:24
  Speaker 1: The currency looked rich last year, UH, and now we
• 16:28
  Speaker 1: have a high beta em currency that that's going to
• 16:30
  Speaker 1: leave the sell off, so that currency looks particularly vulnerable.
• 16:34
  Speaker 1: I'm looking right now also at the yield curve flattening
• 16:38
  Speaker 1: that we've seen. I mean, it's basically every consensus trade
• 16:41
  Speaker 1: is getting hit really hard in January, and I'm trying
• 16:45
  Speaker 1: to think you know, given the fact that you guys
• 16:47
  Speaker 1: oversee almost four hundreds and seventy billion dollars at least
• 16:50
  Speaker 1: that was as of September, Given the fact that you
• 16:52
  Speaker 1: deal with hundreds of different institutions and get their read
• 16:55
  Speaker 1: on what's going on, do people have a sense that
• 16:58
  Speaker 1: this is just a bad January or do they have
• 17:01
  Speaker 1: a sense that perhaps their assumptions for the year are
• 17:05
  Speaker 1: inaccurate too early, there's not been a real wholesale reassessment
• 17:09
  Speaker 1: when it comes to risk in particular, I think especially
• 17:12
  Speaker 1: if you look at you know, growth expectations for the US,
• 17:15
  Speaker 1: earnings expectations for the yes, they really haven't moved uh
• 17:18
  Speaker 1: and in fact, what could it be um early days?
• 17:22
  Speaker 1: And again I tend to think, you know, particularly when
• 17:25
  Speaker 1: it comes to you know, markets like equities, you know,
• 17:28
  Speaker 1: people sell first and then build a narrative around that
• 17:30
  Speaker 1: later valuations are on the rich side. Going into the
• 17:36
  Speaker 1: beginning of this year, we did not see value, for example,
• 17:39
  Speaker 1: in places like high yield UH and and now that
• 17:42
  Speaker 1: that there's been a bit of a sell off, some
• 17:45
  Speaker 1: of those sectors are starting to look a little bit
• 17:46
  Speaker 1: more attractive. But again, in the grand scheme of things,
• 17:49
  Speaker 1: that we take a step back, credit spreads are pretty compressed.
• 17:53
  Speaker 1: Treasury yields are you know, one, one six. Uh. It's
• 17:56
  Speaker 1: very consistent with an economy that's slowing, and it's very
• 18:00
  Speaker 1: system with an economy that needs significant amounts of stimulus
• 18:03
  Speaker 1: just to stay where it is, not to slow further. Uh.
• 18:06
  Speaker 1: And and that's where we are. And that's not an
• 18:08
  Speaker 1: environment where you you really want to stick your neck
• 18:09
  Speaker 1: out when it comes to risk. So at every time
• 18:11
  Speaker 1: we chat with a currency strategist, trader, investor, I always
• 18:15
  Speaker 1: have to ask the question, is there a bearer case
• 18:17
  Speaker 1: for the dollar? I think so, And I think the
• 18:20
  Speaker 1: bear case was starting to form at the beginning of
• 18:23
  Speaker 1: the year, and and and it went something like this,
• 18:25
  Speaker 1: look to the extent that we've seen a significant bid
• 18:29
  Speaker 1: for the dollar, a safe haven bid for the dollar.
• 18:31
  Speaker 1: It came from two points. First, US growth was superior
• 18:35
  Speaker 1: to that of Europe, and second, US rates were seeking
• 18:38
  Speaker 1: afinitely higher. So is it was a positive carry trade
• 18:42
  Speaker 1: with the Phase one deal, with US data starting to
• 18:46
  Speaker 1: stabilize and European data starting to actually outperform. If you
• 18:49
  Speaker 1: look in the surprise in the sease, European data is
• 18:52
  Speaker 1: surprised to the upside significantly faster than than U S
• 18:55
  Speaker 1: DAD in the last six months. UH. There was a
• 18:58
  Speaker 1: case that that those flows would reverse in Europe's favor.
• 19:01
  Speaker 1: UH from an asset flow perspective as well, European assets
• 19:05
  Speaker 1: relatively cheap to to the U S when it comes
• 19:07
  Speaker 1: to when it comes to risk, and so some of
• 19:09
  Speaker 1: the flows could have potentially reversed. All of that has
• 19:12
  Speaker 1: taken a back seat, in part because it was a
• 19:14
  Speaker 1: consensus position at the beginning of the year and it's
• 19:17
  Speaker 1: really getting beaten out. You said that because hy yield
• 19:21
  Speaker 1: has come off a but you didn't like hy yield
• 19:23
  Speaker 1: heading into UH. It has sold off a bit in
• 19:26
  Speaker 1: the past few sessions. At what point would it be
• 19:29
  Speaker 1: enough for you to see opportunity? UM. You know, obviously
• 19:35
  Speaker 1: the interesting thing about HW yield is the sector level
• 19:38
  Speaker 1: of corporate level work, right, you have to get into
• 19:40
  Speaker 1: the individual bonds at an index level. If you just
• 19:44
  Speaker 1: look at you know, like HID the highl td S index,
• 19:47
  Speaker 1: it's it's it's very early. Obviously to the extent that
• 19:51
  Speaker 1: we were short. We're covering someone that short as it
• 19:53
  Speaker 1: sells off, but we're not really going going along at
• 19:56
  Speaker 1: the stage. How about pounds Sterling brexits. You know, we're
• 20:00
  Speaker 1: getting to the point where it's gonna UK is gonna
• 20:02
  Speaker 1: come out of Brexit. Then you'll start the long work
• 20:05
  Speaker 1: of actually doing trade deals and things like that. What
• 20:07
  Speaker 1: is your thoughts on sterling right here? It's around one
• 20:09
  Speaker 1: thirty right now. Pretty pretty vulnerable, you know, in in
• 20:13
  Speaker 1: part because we did a really good job of pricing
• 20:16
  Speaker 1: in UM the reduction and uncertainty that that that followed
• 20:21
  Speaker 1: the election last year. We priced that in pretty aggressively
• 20:23
  Speaker 1: last year. UM. And what we have now is is
• 20:27
  Speaker 1: a new catalyst in the form of the Bank of England.
• 20:30
  Speaker 1: We'll find out tomorrow, but but clearly there's been a
• 20:33
  Speaker 1: shift the threshold in terms of the accumulation of data
• 20:37
  Speaker 1: weak data in the course of last year has now
• 20:39
  Speaker 1: reached the threshold where a cut or potential shallow easing
• 20:44
  Speaker 1: cycle is on the table for them. Uh. They're behind
• 20:46
  Speaker 1: the curve relative to the ECB and and and the Fed.
• 20:50
  Speaker 1: Uh and that could really damage damage Sterling's prospect. One
• 20:54
  Speaker 1: thing that you said earlier that this market needs a
• 20:57
  Speaker 1: substantial amount of central banks stimulus to keep it going.
• 21:01
  Speaker 1: What do you think that means for the FED as
• 21:02
  Speaker 1: we await J Powell's testimony today, or not testimony, but
• 21:05
  Speaker 1: his press conference at two thirty pm Eastern. Well, look,
• 21:10
  Speaker 1: the FED is going to be on hold. They've telegraphed
• 21:12
  Speaker 1: that pretty well. It's been priced by the markets. In fact,
• 21:14
  Speaker 1: we have easing now in the curve through the end
• 21:16
  Speaker 1: of of the year. There's not a lot of heavy
• 21:18
  Speaker 1: lifting to do there. I think we're the the challenges
• 21:21
  Speaker 1: really communicating at the moment with respect of its balance
• 21:24
  Speaker 1: sheet um. One of the narratives in the market is
• 21:27
  Speaker 1: because the FED is engaged in rebo and buying tea bills,
• 21:30
  Speaker 1: the balance sheet is optically growing and that's stimulating risk UM.
• 21:35
  Speaker 1: I personally, I'm not convinced that that's the case, but
• 21:39
  Speaker 1: a lot of market participants buy into that view, and
• 21:42
  Speaker 1: from the Fed's perspective, it presents a challenge because these
• 21:45
  Speaker 1: operations will presumably seize at some point this year and
• 21:49
  Speaker 1: then the balance sheet just start to shrink. Explaining that
• 21:52
  Speaker 1: is going to be challenging it all who say any
• 21:54
  Speaker 1: thanks so much for joining us. It is a senior
• 21:56
  Speaker 1: interest rate and currency analysts for Columbia thread Needle Investments
• 21:59
  Speaker 1: joining us here in our broken active Broker's Studio. The
• 22:12
  Speaker 1: spread of the coronavirus has dominated world markets, although less
• 22:16
  Speaker 1: so in the United States. A key question facing markets,
• 22:20
  Speaker 1: especially considering that the consensus heading into was that the
• 22:24
  Speaker 1: world economy would outperform the US economy this year in
• 22:28
  Speaker 1: terms of growth. Does the spread of the coronavirus potentially
• 22:32
  Speaker 1: threatened that and potentially indicate that world growth is going
• 22:37
  Speaker 1: too slow substantially while the US remains more immune joining
• 22:41
  Speaker 1: US now I'm so pleased to say. Stephanie Flanders, senior
• 22:43
  Speaker 1: executive editor for Bloomberg Economics and former advisor to US
• 22:47
  Speaker 1: Treasury Secretary Larry Summers. Stephanie, do you think that the
• 22:51
  Speaker 1: concept of world growth outperforming the US is threatened based
• 22:57
  Speaker 1: on what we're seeing by the spread of the coronavirus.
• 22:59
  Speaker 1: I think it pends. I mean, we're obviously looking at
• 23:03
  Speaker 1: cut in potentially the Q one or Q two growth
• 23:06
  Speaker 1: forecast for China and some of the other parts of
• 23:09
  Speaker 1: particularly Asia, where you're seeing the most impact in terms
• 23:12
  Speaker 1: of people not going to work, shops being closed, etcetera, etcetera.
• 23:16
  Speaker 1: I think the basic story we had at the beginning
• 23:19
  Speaker 1: of the year, which was around the world kind of
• 23:23
  Speaker 1: getting better a bit more than the US, the US
• 23:25
  Speaker 1: seeing slower growth this year and the rest of the
• 23:27
  Speaker 1: world actually coming out a bit out of the slow
• 23:30
  Speaker 1: spot it had last year. I think that basic story
• 23:33
  Speaker 1: is still there. But obviously one reason why the markets
• 23:35
  Speaker 1: are nervous is that we don't yet know quite how
• 23:38
  Speaker 1: big a deal this is going to be. And that's
• 23:39
  Speaker 1: obviously gonna we'll keep debating that over the next few months, Stephanite.
• 23:43
  Speaker 1: We've seen or some reporting and some signs some data
• 23:46
  Speaker 1: suggesting that Europe has seen some stabilization in their economics. Outlook,
• 23:52
  Speaker 1: are you seeing that as well in the day to
• 23:53
  Speaker 1: you look at yeah, and if you look at that,
• 23:54
  Speaker 1: we even saw with some German data in the last
• 23:56
  Speaker 1: week or so, and we're going to at the end
• 23:58
  Speaker 1: of the week we'll get even a better sense because
• 23:59
  Speaker 1: we've got some GDP numbers coming from quite a lot
• 24:01
  Speaker 1: of the key Eurozone economies. But I would say that's
• 24:04
  Speaker 1: right that we were sort of we were taken aback
• 24:06
  Speaker 1: by the speed of the downturn in Germany, particularly last year.
• 24:10
  Speaker 1: But now we're seeing activity come back a bit, You're
• 24:13
  Speaker 1: seeing wages pick up. It's still, you know, the yardstick
• 24:16
  Speaker 1: is always pretty low when it comes to the Eurozone.
• 24:19
  Speaker 1: You know, you got to interviewed the German finance minister
• 24:21
  Speaker 1: and he was happy on a day where there was
• 24:23
  Speaker 1: zero percent GDP growth because it was potentially negative. So
• 24:26
  Speaker 1: I think it's not the kind of growth that the
• 24:28
  Speaker 1: people in the US would be happy with, but it's
• 24:30
  Speaker 1: certainly looking better. The momentum is they're compared to last year.
• 24:33
  Speaker 1: The FED meets and has been meeting in Washington. The
• 24:35
  Speaker 1: press conference later today at two pm, two thirty pm,
• 24:39
  Speaker 1: two pm is the statement release? Well, street time, what
• 24:43
  Speaker 1: are you expecting them to say with respect to exogenous risks,
• 24:48
  Speaker 1: among them the coronavirus. Well, it's interesting. I mean that
• 24:50
  Speaker 1: is a sort of boilerplate statement in part of their
• 24:53
  Speaker 1: statement where they talk about external developments. And I suspect
• 24:57
  Speaker 1: that the assumption is that the virus will not be
• 24:59
  Speaker 1: men shouldn't specifically, but it's obviously is potentially included in that.
• 25:03
  Speaker 1: And I bet the first question, or one of the
• 25:06
  Speaker 1: first questions to J. Pow will be how are you
• 25:09
  Speaker 1: thinking about the virus? And so we'll hear a bit
• 25:11
  Speaker 1: more about their thinking. But it has not it has
• 25:13
  Speaker 1: not come to the point where you would say this
• 25:15
  Speaker 1: is something they're going to respond explicit to explicitly too,
• 25:19
  Speaker 1: in the way that maybe they would have responded to
• 25:21
  Speaker 1: worries about China in the past. So, Stephanie, this Federal
• 25:24
  Speaker 1: Reserve has described it stuff as data dependent. Do you
• 25:27
  Speaker 1: think the data supports them kind of sitting on the
• 25:30
  Speaker 1: sidelines for the next couple of quarters. I mean, if
• 25:33
  Speaker 1: you look at the futures market, that not really looking
• 25:35
  Speaker 1: for a rate cut or maybe sometime later in the year. Yeah,
• 25:37
  Speaker 1: And I think he's indicated that he thinks that's a
• 25:40
  Speaker 1: bit premature to be a suit to be counting on
• 25:42
  Speaker 1: that rate cut over the course of this year. But
• 25:44
  Speaker 1: there's certainly there's no expectation of a rate cut in
• 25:47
  Speaker 1: the first half. And I suspect we will hear that
• 25:50
  Speaker 1: phrase again. You know, the good place. We are in
• 25:52
  Speaker 1: a good place. The US economy is in a good place.
• 25:55
  Speaker 1: There's not been a big shift in the data relative
• 25:58
  Speaker 1: to the Fed's expectations since the last meeting, and in fact,
• 26:01
  Speaker 1: a lot of the action, as far as there is
• 26:03
  Speaker 1: any action coming out of this meeting, is going to
• 26:06
  Speaker 1: be more about that what's the FED doing to increase
• 26:09
  Speaker 1: reserves and how far is it going to go on
• 26:11
  Speaker 1: increasing the balance sheet. You've now seen that significant run up,
• 26:14
  Speaker 1: in effect a big injection of liquidity to respond to
• 26:17
  Speaker 1: that problem in the repo market that we saw a
• 26:19
  Speaker 1: few months ago. Some debate about whether that's quantity of
• 26:22
  Speaker 1: easing not quantity of using, lots of sort of philosophical
• 26:25
  Speaker 1: arguments about that in the markets. But I suspect if
• 26:27
  Speaker 1: there's any fire out of this press conference, it will
• 26:30
  Speaker 1: be in j Pal's response to questions on that the
• 26:33
  Speaker 1: future path of the balance sheet, how much more can
• 26:36
  Speaker 1: the market expect to get on that? I want to
• 26:38
  Speaker 1: focus on this gap between the Fed saying that there
• 26:41
  Speaker 1: on hold for the remainder of markets that are calling
• 26:45
  Speaker 1: their bluff, and saying we are expecting at least one
• 26:48
  Speaker 1: rate cut this year because that's what's being priced into
• 26:50
  Speaker 1: the market. Over the past decade, the market has been
• 26:53
  Speaker 1: right or perhaps has job boned the Fed into action
• 26:57
  Speaker 1: on numerous occasions, as an example of what happens when
• 27:01
  Speaker 1: they don't when when they don't get what they want,
• 27:03
  Speaker 1: do you expect that that's that's basically what's going to
• 27:05
  Speaker 1: happen this time? And I think there's a number of
• 27:07
  Speaker 1: ways you can read those that the forward pricing, because
• 27:09
  Speaker 1: you could argue that a lot of people that that
• 27:12
  Speaker 1: that that sort of average expectation actually encompasses two things.
• 27:16
  Speaker 1: It encompasses, you know, a reasonably high chance of no
• 27:20
  Speaker 1: movement from the FED plus a chance that if they
• 27:22
  Speaker 1: do move, they're going to move quite a lot. You know,
• 27:24
  Speaker 1: they have made clear because we don't have very much AMMO.
• 27:27
  Speaker 1: If we see a problem, we're going to respond might
• 27:29
  Speaker 1: be more than we would have done in the past,
• 27:31
  Speaker 1: maybe sooner than we would have done in the past.
• 27:33
  Speaker 1: If you think that that if something goes wrong this year,
• 27:36
  Speaker 1: that they would actually respond with a half point, not
• 27:38
  Speaker 1: a quarter point, or even more than that in response
• 27:42
  Speaker 1: to a slowdown, then if you average out the sort
• 27:44
  Speaker 1: of you know, say a thirty percent possibility of that
• 27:47
  Speaker 1: with then you can get if you look at that market.
• 27:50
  Speaker 1: I mean, obviously the numbers are rough, but I think
• 27:53
  Speaker 1: that is there's still if you ask a lot of
• 27:55
  Speaker 1: people in the markets, I'm not sure what you're seeing
• 27:58
  Speaker 1: in the pricing is that that is what they expect.
• 28:00
  Speaker 1: It's the average of two different scenarios. Stephanie Flanders, thanks
• 28:04
  Speaker 1: so much for joining us. We appreciate you joining us here.
• 28:06
  Speaker 1: Stephanie Flanders, Senior Executive Editor for Economics ahead of Bloomberg Economics,
• 28:10
  Speaker 1: based in London, but joining us here in our Bloomberg
• 28:12
  Speaker 1: Interactive Broker Studio went ennivers Seas in town. Look forward
• 28:15
  Speaker 1: to having her. Thanks for listening to the Bloomberg p
• 28:17
  Speaker 1: L podcast. You can subscribe and listen to interviews at
• 28:20
  Speaker 1: Apple Podcasts or whatever podcast platform you prefer. I'm Paul Sweeney.
• 28:24
  Speaker 1: I'm on Twitter at pt Sweeney. I'm Lisa Abramloyd's I'm
• 28:26
  Speaker 1: on Twitter at Lisa Abram woyds One. Before the podcast,
• 28:29
  Speaker 1: you can always catch us worldwide. I'm Bloomberg Radio