Latest / Bloomberg Intelligence / Emerging Market FX Reserves Are Declining, Sassower Says

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Emerging Market FX Reserves Are Declining, Sassower Says · Bloomberg Intelligence

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  Speaker 1: P and L Podcast. I'm Pim Fox. Along with my
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  Speaker 1: co host Lisa Abramowitz. Each day we bring you the
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  Speaker 1: the Bloomberg P and L Podcast on iTunes, SoundCloud and
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  Speaker 1: at Bloomberg dot com. For almost a quarter of a century,
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  Speaker 1: developing economies built up their foreign currency reserves trying to
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  Speaker 1: stave off another type of financial crisis, potential dramatic decline
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  Speaker 1: in their economic trajectories. But now it seems like that
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  Speaker 1: trend is changing. I want to bring in Damian Sass,
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  Speaker 1: our fixed income strategist here at a Bloomberg Intelligence. He
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  Speaker 1: joins us in our eleven three oh studio. Damien, you
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  Speaker 1: wrote this report. I thought it was fascinating. Can you
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  Speaker 1: explain why we've seen such a decline in foreign currency
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  Speaker 1: reserves in certain economies and just how big some of
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  Speaker 1: the declines have been. Yeah, sure, well, thank you Lisa,
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  Speaker 1: thank you pim Um. Well, look um, foreign currency reserves
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  Speaker 1: are really used for three things, right. They used to
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  Speaker 1: maintain a currency peg for fixed and or managed um
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  Speaker 1: the currency regimes such as for example, China, which has
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  Speaker 1: in fact exhibited the greatest decline in reserves um over
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  Speaker 1: the past two and a half years. I mean from
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  Speaker 1: I believe really from four trillion to just under three
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  Speaker 1: trillion U S dollars now, so that's a pretty big,
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  Speaker 1: pretty sharp decline. But they are also used to support
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  Speaker 1: external trade. I mean, I think the big statistic that
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  Speaker 1: central banks like to look at is your currency reserves.
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  Speaker 1: Your foreign currency reserves should be the equivalent of three
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  Speaker 1: months of import. But most importantly, they're used as a
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  Speaker 1: kind of a precautionary savings buffer during a balance of
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  Speaker 1: payments crisis such as you know in the late nineties
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  Speaker 1: we saw that in Asia. So those are really the
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  Speaker 1: three primary uses. And you know, the way we look
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  Speaker 1: at here at b I is declining currency reserves and
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  Speaker 1: e M just exposes them to a whole slew of
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  Speaker 1: new risk. And I think the emphasis now must kind
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  Speaker 1: of shift from long term growth and um current account health.
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  Speaker 1: Two more that coverage ratios and short term liquidity metrics
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  Speaker 1: such as reserve ratios and short term short term external debt.
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  Speaker 1: And that's what we focus on here in this report.
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  Speaker 1: Can you tell us the countries that are involved in
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  Speaker 1: this and perhaps just give a detail about each one.
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  Speaker 1: So from I mean from the from the good side,
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  Speaker 1: you have countries such as Peru and the Philippines which
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  Speaker 1: are which which track rather well. I mean their reserves
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  Speaker 1: are I mean, in the case of Peru nearly three
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  Speaker 1: times the i m f S reserve adequacy ratio. Seeing
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  Speaker 1: with the Philippines, I think it's and a half times,
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  Speaker 1: so they get both gold stars Peru and the Philippines,
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  Speaker 1: that's correct, and add demerits um one. Malaysia is probably
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  Speaker 1: first among sort of the major e m s. You've
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  Speaker 1: also got South Africa, Turkey, and Kazakhstan. I mean, those
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  Speaker 1: four really kind of stand out to us as being
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  Speaker 1: below the IMPS reserve adequacy ratios, and China is right
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  Speaker 1: at the cusp. Yeah, so hold on a second. You
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  Speaker 1: also have a statistic in here that one fifth of
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  Speaker 1: emerging market economies at least those on record, have foreign
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  Speaker 1: currency reserves below the i m F reserve adequacy threshold.
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  Speaker 1: Are we heading toward another emerging markets crisis here? So
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  Speaker 1: what we're looking at here is the i m F
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  Speaker 1: defines the emerging markets and however way they do it.
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  Speaker 1: But you know, of what they define as an emerging
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  Speaker 1: market are below that threshold. And these are countries, not
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  Speaker 1: only the majors. They can be Jamaica, Armenia, Pakistan, Tunisia,
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  Speaker 1: the Dominican Republic. I mean, so there are quite a
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  Speaker 1: few of them. Many of those countries, however, do issue
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  Speaker 1: quite a bit of external US dollar debt, and a
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  Speaker 1: lot that that is in some of the broad e
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  Speaker 1: M indices, such as the Bloomberg Barkley's e M Hard
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  Speaker 1: Currency Aggregate Index. Can we just head back to China
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  Speaker 1: for a second. You said that they were kind of
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  Speaker 1: on the cusp of really being in a risky zone
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  Speaker 1: with respect to their capital adequacy requirements. What does this mean?
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  Speaker 1: I mean, does this basically mean that they can't continue
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  Speaker 1: to support their currency the way that they have been.
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  Speaker 1: Doesn't mean that they're going to have to hold back
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  Speaker 1: on pumping billions of dollars into their financial system and
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  Speaker 1: what's the what's the consequence? Well, I mean, in China's case, right,
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  Speaker 1: they are using their currency to help They're using their
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  Speaker 1: currency reserves to help support their peg to the dollar.
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  Speaker 1: And um, you know this doesn't in any way, shape
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  Speaker 1: or form mean that they're not going to be able
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  Speaker 1: to continue to do that. I mean, they still have
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  Speaker 1: by far and away the largest reserves globally. Um. You know,
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  Speaker 1: the way the I m F calculates reserve adequacy is
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  Speaker 1: they take total exports, broad money supply, short term debt,
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  Speaker 1: and other liabilities which are really kind of lines with
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  Speaker 1: the I m F, etcetera. And they and they create
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  Speaker 1: this threshold. And look that threshold. It is sort of
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  Speaker 1: a soft threshold that's developed by the I m F
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  Speaker 1: to sort of guide expectations. But you know, China's a
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  Speaker 1: huge economy. I mean, you know, it's it's it's not
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  Speaker 1: going under anytime soon, if you if that's where you're
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  Speaker 1: headed here, I'm just simply pointing out the fact that
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  Speaker 1: we have to begin looking at some of these emerging
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  Speaker 1: market nations through a bit of a different lens. Um.
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  Speaker 1: I can't decide whether to ask you whether the actual
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  Speaker 1: currency holdings are a big deal, like you know, whether
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  Speaker 1: they're holding dollars or euros. But you're telling me this
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  Speaker 1: is basically something that is endemic to each individual country,
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  Speaker 1: so they have their own issues. That's why this is happening.
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  Speaker 1: In that case, I want to know what can we
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  Speaker 1: buy in South Africa or in Malaysia or in Turkey
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  Speaker 1: or get ready to buy because you know, if smart
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  Speaker 1: money goes where no one else wants to go. And
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  Speaker 1: I know, I mean the last time we were here,
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  Speaker 1: Pin we talked about Turkey maybe being you know, fundamentally
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  Speaker 1: undervalued on a number of different metrics. I mean, you know,
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  Speaker 1: whatever the political turmoil is or whatever the you know,
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  Speaker 1: news headlines are, it is a dynamic, industrialising economy, um
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  Speaker 1: that builds you know, automobiles, trucks and has an incredible
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  Speaker 1: retail sector. Sure, sure, I mean that's exactly right. I
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  Speaker 1: mean Turkey, we know their financial sector issues. I mean
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  Speaker 1: it's one of the most one of the largest sectors
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  Speaker 1: in emerging markets in terms of its issuance of US
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  Speaker 1: dollar debt um And there are a number of banks
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  Speaker 1: there that we can highlight for you that have highlighted
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  Speaker 1: another you know kind of um, give me, give me
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  Speaker 1: one give me one of Turkish Bank. Well, you've got guarantee,
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  Speaker 1: you've got a punk, you've got I mean, you've got
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  Speaker 1: quite a few there that are you know, beginning to
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  Speaker 1: you know, perhaps look a little bit interesting on that metric.
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  Speaker 1: But you know, I think what we're really talking about
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  Speaker 1: here is this is really supposed to be a sovereign
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  Speaker 1: risk sort of metric. So looking at the sovereign risk
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  Speaker 1: the actual you know, debt from Turkey itself or from
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  Speaker 1: Kazakhstan itself, from Malaysia, I mean, that's kind of what
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  Speaker 1: you're looking at now. In the case of Malaysia, you're
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  Speaker 1: looking at the cook bonds, which is a whole different
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  Speaker 1: animal um which I'm not about to get into right now. Um,
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  Speaker 1: in South Africa, they you know, the country does issue
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  Speaker 1: a lot of um, you know, sof in debt in
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  Speaker 1: U S. Dollar and Euro as well. Um bast you've
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  Speaker 1: got s com which are what I like to call
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  Speaker 1: quasi sovereign type institutions. We gotta leave it there. Damien
• 7:10
  Speaker 1: sas our great great stuff fixed income Strategiest Bloomberg Intelligence
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  Speaker 1: and just go to b I go on the Bloomberg
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  Speaker 1: to check out all of Damien's work you gotta you
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  Speaker 1: gotta read this to be up to date. This is
• 7:22
  Speaker 1: Bloomberg Another day, another high for US stacks. Can this last?
• 7:40
  Speaker 1: We're gonna take a deep dive into both the technicals
• 7:43
  Speaker 1: with Jeff Weiss, chief technical analyst at clear View Trading Advisors,
• 7:47
  Speaker 1: as well as the fundamentals with Yelena Sliva, senior u
• 7:51
  Speaker 1: S economist here at Bloomberg Intelligence. So, Jeff, I want
• 7:54
  Speaker 1: to start with you, Hi, thank you for so much
• 7:57
  Speaker 1: for joining us. So given that some of the tech
• 8:00
  Speaker 1: indicators that you look at, first of all, what are
• 8:02
  Speaker 1: the most reliable ones and what are they saying about
• 8:05
  Speaker 1: the current run up in stocks? Well as reliable as
• 8:09
  Speaker 1: an indicator is lee, So I'm always looking at the
• 8:12
  Speaker 1: downside of what could go wrong, because in the stock market, right,
• 8:15
  Speaker 1: you could be right nine out of ten times, and
• 8:17
  Speaker 1: on the tenth time if if you don't know what
• 8:19
  Speaker 1: to do, it could obliterate the other nine times you're right.
• 8:22
  Speaker 1: I still think the bulls have it. I still think
• 8:24
  Speaker 1: we're in a in a primary bull trend. Uh. In fact,
• 8:28
  Speaker 1: we actually one of your charts over there that I
• 8:30
  Speaker 1: gave you shows that for three Friday closes in a row,
• 8:35
  Speaker 1: the broad based Dow Jones Total US stock Market Index
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  Speaker 1: has closed above a fairly significant trend line dating back
• 8:45
  Speaker 1: quite a ways. In addition, that's been confirmed by the
• 8:48
  Speaker 1: S and P as well as other indicators. So to me,
• 8:54
  Speaker 1: not even going into the new multi year highs and
• 8:57
  Speaker 1: the weekly Advanced to Climb liner, the big board and
• 9:00
  Speaker 1: the new highs and the daily advanced declientline, it is
• 9:03
  Speaker 1: still to me a bull until proven otherwise. And that's
• 9:07
  Speaker 1: not gonna be CAUs of some news. It's going to
• 9:09
  Speaker 1: be because of the action of the market itself. Okay,
• 9:13
  Speaker 1: So then let's take a look at the fundamentals, Elena.
• 9:16
  Speaker 1: Are we seeing economic data to support this bullish outlook
• 9:21
  Speaker 1: that is sort of being shown by the technicals. What
• 9:25
  Speaker 1: we see in the economic data, and we are looking
• 9:28
  Speaker 1: at different indicators, We only see a pickup in survey
• 9:32
  Speaker 1: indicators so far. So if you look at a Bloomberg
• 9:36
  Speaker 1: function e c SU, for example, you will see that
• 9:41
  Speaker 1: the biggest upward surprises are coming from the survey and
• 9:44
  Speaker 1: business cycle indicators. Everything else is pretty much flat. So
• 9:49
  Speaker 1: this week we're gonna see a bunch of different indicators
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  Speaker 1: from retail sales to industrial production, and they're all like
• 9:58
  Speaker 1: expected to be oh okay, but not nothing like a
• 10:03
  Speaker 1: big upward surprise is expected. So uh to me, it
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  Speaker 1: looks like we we are okay, but it's still a
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  Speaker 1: sluggish recovery. It's still uh sluggish growth. Jeff wise, p
• 10:16
  Speaker 1: h excuse me. I wanted to also just mention and
• 10:20
  Speaker 1: congratulate you on your new book. It's called Relationship Investing
• 10:24
  Speaker 1: Stock Market Therapy for your money, and boy does that
• 10:28
  Speaker 1: you know if anything needs therapy now, it's it's everybody's money.
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  Speaker 1: And you have been noted as someone that is able
• 10:34
  Speaker 1: to combine both the art and the science of market analysis.
• 10:39
  Speaker 1: And having said that, I want to just have you
• 10:41
  Speaker 1: speak a little bit about one of the things you
• 10:44
  Speaker 1: described that people ought to spend the lion's share of
• 10:47
  Speaker 1: their time on the analytical portion of the investment process
• 10:51
  Speaker 1: and not on trading fees. We keep hearing all about fees.
• 10:56
  Speaker 1: You know, don't spend money on fees. Tell us why
• 11:00
  Speaker 1: this is something that you've learned well? To me? Um,
• 11:04
  Speaker 1: you know I I I always say that's kind of
• 11:06
  Speaker 1: like having a bad dinner but bragging about the mint
• 11:09
  Speaker 1: at the at the end of the meal. Pim uh
• 11:12
  Speaker 1: to me again, you want to obviously get you know,
• 11:16
  Speaker 1: as competent advice as possible, consistent with very reasonable fees.
• 11:20
  Speaker 1: But to me, it's all about where do you buy,
• 11:24
  Speaker 1: where do you sell, getting the primary trend right, riding
• 11:28
  Speaker 1: it for all it's worth, and then having someone or
• 11:32
  Speaker 1: some approach that will give you a discipline to stop
• 11:36
  Speaker 1: a cut from becoming a hemorrhage from becoming a financial amputation.
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  Speaker 1: Because I lived through nineteen seventy three nineteen seventy four,
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  Speaker 1: and I've seen the horrific toll something like that couldn't inflict,
• 11:46
  Speaker 1: and that's one of the motivating reasons I wrote this
• 11:49
  Speaker 1: book to try and help people avoid some of those mistakes. Well, Jeff,
• 11:54
  Speaker 1: so pare what Elena was talking about with your bullish sentiment.
• 11:58
  Speaker 1: I'm struggling to sort of understand end the sort of
• 12:00
  Speaker 1: feeling that the stocks to just keep on hitting new
• 12:03
  Speaker 1: highs day after day after day, when, as Elena said,
• 12:06
  Speaker 1: we're not really seeing the justification for that in fundamental data. Yes,
• 12:11
  Speaker 1: that could change, but so far we're not seeing it well, Lisa.
• 12:14
  Speaker 1: In technical jargon, if you wait very often, not always,
• 12:20
  Speaker 1: nothing's always, but if you wait for the underlying background
• 12:24
  Speaker 1: or fundamentals to justify why a stock market has moved.
• 12:29
  Speaker 1: I don't know what someone's gonna be paying for that privilege.
• 12:34
  Speaker 1: Is it an SMP fifty, Is it an SMP twenty,
• 12:38
  Speaker 1: I don't know. I can tell you this though. Um,
• 12:41
  Speaker 1: in my opinion, the twenty two thirty to twenty two
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  Speaker 1: thirty five area is a daily closing area I'd watch,
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  Speaker 1: and that's four percent below where we are now. That
• 12:51
  Speaker 1: to me is the area to watch, all right. So basically, Jeff,
• 12:53
  Speaker 1: you're saying that the economic data is a lagging indicator. Elena,
• 12:57
  Speaker 1: is there any economic data point that you look at
• 13:00
  Speaker 1: you do not think it's a lacking indicator? Well, I
• 13:04
  Speaker 1: think what we should look and that is probably gonna
• 13:07
  Speaker 1: be even more important than economic data, is what cha
• 13:11
  Speaker 1: Yellen is going to tell us tomorrow, And that could
• 13:15
  Speaker 1: be a little bit forward looking. Right, So we think
• 13:18
  Speaker 1: that she will continue to be on a davish side. Uh,
• 13:22
  Speaker 1: She's gonna be herself, no, no hawky ish science from her. Uh.
• 13:28
  Speaker 1: Probably the testimony itself will not contain any clues as
• 13:33
  Speaker 1: about the timing of the next rade hike, but she
• 13:36
  Speaker 1: will probably be asked about it. And uh, I don't
• 13:40
  Speaker 1: think she's gonna rule out March. She's probably gonna say, oh,
• 13:43
  Speaker 1: it's a life meeting. Every meeting is a life meeting.
• 13:46
  Speaker 1: But uh, we don't think that that really means that
• 13:51
  Speaker 1: they will hike in March. Uh. Still at Bloomberg Intelligence Economics,
• 13:55
  Speaker 1: we think that the tightening will be gradual. Only two
• 14:00
  Speaker 1: eight tikes this year June and at the end of
• 14:02
  Speaker 1: the year. So uh, the outlook for the fit is
• 14:06
  Speaker 1: still kind of the same gradual tight ending this year
• 14:09
  Speaker 1: and no no big surprises. Quick one to you, Jeff
• 14:13
  Speaker 1: Wats Imagine that you've got the scenario that you sat
• 14:15
  Speaker 1: out all of this move higher in stocks. Now you're
• 14:18
  Speaker 1: wondering was that a mistake? Should I admit it to
• 14:21
  Speaker 1: myself and get in or do I just you know,
• 14:25
  Speaker 1: keep my counsel. If it were my money and I
• 14:28
  Speaker 1: basically write that book from from me, what would I
• 14:32
  Speaker 1: do if your money, the reader's money, where my money? Yes,
• 14:36
  Speaker 1: I think it's a bull trend um at the mistake Otherwise, Uh, yeah,
• 14:41
  Speaker 1: a mistake or you know, to me, a mistake is
• 14:43
  Speaker 1: not selling a stock on the way down when you
• 14:45
  Speaker 1: should and selling it the market understand to get the
• 14:47
  Speaker 1: extra ten cents on the upside and risking twenty five
• 14:50
  Speaker 1: hours on the downside. But yes, I think we are
• 14:53
  Speaker 1: in a bull trend. I think, you know, miss Yellen
• 14:56
  Speaker 1: is welcome to come over my home, but there will
• 14:58
  Speaker 1: be no talk about, you know, economic statistics. There. We
• 15:01
  Speaker 1: will be looking at we will be looking at stock charts.
• 15:04
  Speaker 1: And again, I was in economics major. It's just that
• 15:06
  Speaker 1: I don't have an ability to look at reams as
• 15:09
  Speaker 1: I note in the Book of Fundamental Data and Economic Analysis,
• 15:13
  Speaker 1: and have any idea what that portends for me in
• 15:15
  Speaker 1: terms of the stock market. So to me, if I
• 15:17
  Speaker 1: want to look at a stock, I look at the stock.
• 15:22
  Speaker 1: To me is the purest form of analysis. And thanks
• 15:24
  Speaker 1: for being with us and sharing it. Thank you, Chief
• 15:27
  Speaker 1: technical Analyst, clear View Trading Advisors. He's the author of
• 15:31
  Speaker 1: the new book Relationship Investing Our Thanks also to Elena Strieteva,
• 15:35
  Speaker 1: senior US economist for Bloomberg Intelligence. This is Bloomberg P
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  Speaker 1: record label group. But to have one label within the
• 18:22
  Speaker 1: group is less common. Usually you have you know, it's
• 18:25
  Speaker 1: split amongst three or four or five in anyone category.
• 18:29
  Speaker 1: So Rob Stringer obviously made some really good selections with
• 18:33
  Speaker 1: the signing of Adele and Beyonce. Does this translate into
• 18:37
  Speaker 1: green into profits, into saving the music industry that's being
• 18:41
  Speaker 1: eaten away by online streaming music services? More than anything,
• 18:46
  Speaker 1: I think it provides stability. So if you are trying
• 18:49
  Speaker 1: to figure out where your next hit is going to
• 18:51
  Speaker 1: come from or where the sales are going to come from, Uh,
• 18:54
  Speaker 1: you can rest easy knowing that you're relying on Beyonce
• 18:57
  Speaker 1: and Adele because every time those acts release an album,
• 19:01
  Speaker 1: it's gonna sell. You know. Adele took the unusual step
• 19:04
  Speaker 1: with with her latest release twenty five, of not making
• 19:07
  Speaker 1: it available on any streaming services the first couple of weeks,
• 19:11
  Speaker 1: and she a loan hold. She went on to set
• 19:12
  Speaker 1: a record. Now, the money for first week sales, now,
• 19:15
  Speaker 1: the money from streaming services is is rising. But but
• 19:20
  Speaker 1: what's different is that you tend to have a longer
• 19:23
  Speaker 1: tail with it. Because people will stream your album over
• 19:25
  Speaker 1: a long period of time, you can kind of keep
• 19:27
  Speaker 1: making money longer after it's release than you might have. Otherwise,
• 19:31
  Speaker 1: you don't get as much to that kind of first
• 19:33
  Speaker 1: week pop. You get a lot of streams, but even
• 19:35
  Speaker 1: if you get, you know, a hundred million streams in
• 19:37
  Speaker 1: a week, you're not going to make a ton of money.
• 19:39
  Speaker 1: So if you have these artists like Adele or Beyonce
• 19:42
  Speaker 1: who can balance that interest on streaming with still being
• 19:45
  Speaker 1: able to move full albums, you're in a pretty good position.
• 19:49
  Speaker 1: Hey hey, Lucas, the record companies missed another digital revolution.
• 19:55
  Speaker 1: I mean they missed the online streaming. I mean that's
• 19:58
  Speaker 1: why we talk about Spotify, Pandora, Amazon, Apple and so on.
• 20:03
  Speaker 1: They missed that. But I understand that the big thing
• 20:06
  Speaker 1: on social media last night for the Grammys was Beyonce,
• 20:13
  Speaker 1: and it was her performance and her costume and so
• 20:17
  Speaker 1: on that lit up the social media world. Does the
• 20:20
  Speaker 1: record record companies figure out how to make money out
• 20:23
  Speaker 1: of that, because Facebook and Snapchat certainly think they do. Uh.
• 20:28
  Speaker 1: The only way that the record companies would make money
• 20:31
  Speaker 1: from that would be more people streaming or buying her album,
• 20:36
  Speaker 1: which will invariably happen because you just get so much
• 20:39
  Speaker 1: attention from it. People are gonna wake up today and
• 20:41
  Speaker 1: they're gonna want to listen to Lemonade. The challenge with
• 20:43
  Speaker 1: that is that Beyonce has limited where her album is
• 20:46
  Speaker 1: even more than Adele. So though Adele is now available
• 20:49
  Speaker 1: on Spotify and Apple Music, in these other places Beyonce
• 20:52
  Speaker 1: you either buy it or you you stream it untitled,
• 20:54
  Speaker 1: which is her husband jay z service. You know. But
• 20:57
  Speaker 1: you raise a good point, which is that they're all
• 21:00
  Speaker 1: these ways, all these touch points for for music and
• 21:03
  Speaker 1: really for for more broadly for entertainment, whether it's on
• 21:07
  Speaker 1: Facebook or Snapchat or Twitter or YouTube, and the music
• 21:09
  Speaker 1: industry has really struggled with how it can kind of
• 21:13
  Speaker 1: effectively monetize that because unlike with a movie, where you
• 21:17
  Speaker 1: can't really replicate the movie the experience of a movie
• 21:20
  Speaker 1: in like a you know, a brief Facebook post, you
• 21:22
  Speaker 1: can hear a song in all of these different avenues.
• 21:25
  Speaker 1: And so they've really tried to extract more money from
• 21:28
  Speaker 1: them and are in the process right now of of
• 21:31
  Speaker 1: negotiating with Facebook to try and figure out how they
• 21:33
  Speaker 1: make money off of Facebook. But it's it's a tough
• 21:36
  Speaker 1: balance because these tech companies feel like as long as
• 21:39
  Speaker 1: they're not just completely ripping a full song, uh, it's
• 21:42
  Speaker 1: it's nice exposure for these artists to monetize their works
• 21:46
  Speaker 1: in other ways, Lucas, how irrelevant are the Grammys at
• 21:49
  Speaker 1: this point to the major labels just because it's not
• 21:52
  Speaker 1: giving them any more money necessarily, not directly, right, Um,
• 21:56
  Speaker 1: you know, it's just an opportunity to to fump your
• 22:00
  Speaker 1: chest and say you're you're the best for a little while.
• 22:03
  Speaker 1: I mean, I think it's not who doesn't want a
• 22:04
  Speaker 1: reason to do that? Right? Yeah? Uh? You know they
• 22:08
  Speaker 1: took the sixteen share right, a sixteen share on in
• 22:12
  Speaker 1: the overnights for Nielsen. So that was like the same
• 22:14
  Speaker 1: as it was last year, Yeah, which was which was
• 22:17
  Speaker 1: bound down. Yeah, right, Like all awards shows, they mattered most,
• 22:25
  Speaker 1: kind of they seem to matter most for that that
• 22:28
  Speaker 1: baby boomer generation and a little bit after it. You know,
• 22:30
  Speaker 1: they're really popular throughout the seventies, eighties, nineties. You have
• 22:34
  Speaker 1: a new old people, that's what you're saying. I know,
• 22:37
  Speaker 1: Lucas well, No, no, because I'm unusual. I actually liked
• 22:41
  Speaker 1: I like the Oscars. I'm not a huge fan of
• 22:43
  Speaker 1: watching some of the others. The Grammies are kind of fun,
• 22:45
  Speaker 1: but you do have a whole generation of young people
• 22:47
  Speaker 1: for whom needs don't really matter, especially because they're not
• 22:50
  Speaker 1: awarding the artists that are most relevant to them. That's
• 22:52
  Speaker 1: one area where the Grammys actually they're a little better
• 22:55
  Speaker 1: because the Grammys do tend to nominate the most popular artist,
• 22:58
  Speaker 1: and especially those who appeal to the younger listeners. I mean,
• 23:01
  Speaker 1: young people love Beyonce, love Chance, the rappers who won
• 23:05
  Speaker 1: a bunch of awards last night, The Oscars, and and
• 23:09
  Speaker 1: to a lesser extent, the Emmys, which award h D
• 23:11
  Speaker 1: the best in TV, tend to see to this to
• 23:15
  Speaker 1: definitely to an older, wealthier viewer. So I have more
• 23:19
  Speaker 1: faith in the Grammys maintaining their credibility. The problem with
• 23:22
  Speaker 1: the Grammys is that they always give the awards to
• 23:23
  Speaker 1: kind of a white pop act. So there was a
• 23:26
  Speaker 1: lot of chatter last night about how for the past
• 23:28
  Speaker 1: five years you've had a white pop star beating what
• 23:33
  Speaker 1: many would say was a more deserving artist in R
• 23:36
  Speaker 1: and B or in rap. Kendrick Lamar has lost. Beyonce's
• 23:38
  Speaker 1: lost a couple of times, and at some point the
• 23:40
  Speaker 1: Record Academy is going to have to come to grips
• 23:43
  Speaker 1: with that. Did you have a party last night while
• 23:46
  Speaker 1: you watched it? I was in the back room at
• 23:50
  Speaker 1: the show. I then attempted to go to one of
• 23:52
  Speaker 1: the labels after parties, and the weight outside was so
• 23:56
  Speaker 1: bad that I went Luca's shop. Bloomberg News, thank you
• 23:58
  Speaker 1: so much for joining us. Brian Shapata is here with
• 24:13
  Speaker 1: us in our Bloomberg eleven three oh studio in New York.
• 24:16
  Speaker 1: He reports on bonds for Bloomberg News and wrote a
• 24:19
  Speaker 1: story to that published today about just how much selling
• 24:23
  Speaker 1: there has been by China and Japan in the past
• 24:27
  Speaker 1: few months. And you know, Brian, first, I just want
• 24:30
  Speaker 1: to get a sense from you how much of this
• 24:32
  Speaker 1: selling is being driven by concerns about the new US
• 24:37
  Speaker 1: president and how much is being driven by concerns at
• 24:40
  Speaker 1: home where these nations need to drum up money to
• 24:44
  Speaker 1: support their economies. Yeah, it's a little bit of both,
• 24:47
  Speaker 1: in the sense that you know, you've got Donald Trump
• 24:49
  Speaker 1: is the new president, and of course the markets are
• 24:52
  Speaker 1: reacting to this through the reflation trade. Yields jumped up
• 24:56
  Speaker 1: quite a bit right in November after you got elected.
• 25:00
  Speaker 1: And you know, if you're a Japanese investor, you don't
• 25:02
  Speaker 1: like to see those losses on your books when you
• 25:04
  Speaker 1: have the Bank of Japan essentially controlling interest rates, and
• 25:09
  Speaker 1: you know, you're just getting a flat return there. So uh,
• 25:12
  Speaker 1: for some of these investors, it seems like it's a
• 25:14
  Speaker 1: lot easier to just stay home. You know, you have
• 25:17
  Speaker 1: you know, easy money policy, whereas in the US, uh,
• 25:21
  Speaker 1: the idea that Trump's fiscal policy is gonna spur growth
• 25:24
  Speaker 1: is gonna spur you know, the Federal Reserve into action,
• 25:26
  Speaker 1: and then all of a sudden, you know you've got rising,
• 25:28
  Speaker 1: rising interest rates. Um hasn't really played out so far
• 25:31
  Speaker 1: this year. Yields are still mostly flat in the treasury market,
• 25:34
  Speaker 1: but the prospect that they could, you hire, is definitely
• 25:37
  Speaker 1: a concern. So who's gonna get burned if this trade
• 25:39
  Speaker 1: doesn't work out the way you describe in other words,
• 25:41
  Speaker 1: of it turns out that they're gonna go back in
• 25:43
  Speaker 1: and buy US treasuries, who's gonna get burned? Um? I
• 25:46
  Speaker 1: mean I think that if they go back and buy treasuries,
• 25:49
  Speaker 1: I think everyone is going to be happy because yields
• 25:53
  Speaker 1: will fall and there'll be a persistent amount of demand.
• 25:55
  Speaker 1: But it's really the foreign flows or something that people
• 25:59
  Speaker 1: are really keeping an eye on. Because Japan has one
• 26:03
  Speaker 1: point one trillion dollars of treasury holdings, China has another trillion.
• 26:07
  Speaker 1: It's a thirteen point one trillion dollar market and declining.
• 26:11
  Speaker 1: And China, right, I mean particularly yes, China is going
• 26:15
  Speaker 1: as there was not too long ago, right it was,
• 26:19
  Speaker 1: it was very high, um, but it's gone down quite
• 26:21
  Speaker 1: a bit. Fed's still a large holder, but even they're
• 26:24
  Speaker 1: talking about, you know, potential non reinvestment of their balance
• 26:27
  Speaker 1: sheet as well. So, uh, this pairing back of demand
• 26:30
  Speaker 1: and the treasury market is definitely something that is giving
• 26:33
  Speaker 1: some investors pause. Right. Well, and you were saying that
• 26:37
  Speaker 1: that people would be happy if they stopped selling or
• 26:39
  Speaker 1: they came back, but dave one one people one group
• 26:42
  Speaker 1: that would not be happy would be the banks. You
• 26:45
  Speaker 1: see that that increasingly banks are linked to the hip
• 26:49
  Speaker 1: with US treasury yields in a way that I mean,
• 26:53
  Speaker 1: have they ever been misconnected before? Well you have to
• 26:56
  Speaker 1: go back and run the analysis to figure it out.
• 26:59
  Speaker 1: It's clear though you look at the past several months
• 27:01
  Speaker 1: that the day to day kind of moves are definitely
• 27:04
  Speaker 1: having some effect. And it's understandable. I mean with the
• 27:07
  Speaker 1: financial companies who really have the concern about their ability
• 27:10
  Speaker 1: to make money because they after all, it depends on
• 27:12
  Speaker 1: what they can earn on their loans, their investments, and
• 27:15
  Speaker 1: what they pay out to their depositors what they call
• 27:18
  Speaker 1: the net interest margin. And for a lot of these banks,
• 27:20
  Speaker 1: we've seen it a narrow the last a few years
• 27:22
  Speaker 1: in this environment of low interest rates. So you know
• 27:25
  Speaker 1: the idea that you know, maybe bond yields go up
• 27:28
  Speaker 1: and loan rates go with them. You can understand why
• 27:31
  Speaker 1: there has been this focus with the financial stocks. And
• 27:34
  Speaker 1: actually today the financials are the best performers among the
• 27:37
  Speaker 1: eleven main industry groups in the S and P five,
• 27:39
  Speaker 1: So it's definitely playing out as we speak. I was
• 27:43
  Speaker 1: just looking at the shares of Goldman Sachs. They are
• 27:45
  Speaker 1: the biggest mover in the Doubt runs industrial average, I believe,
• 27:49
  Speaker 1: up more than one and a half percent. You know,
• 27:52
  Speaker 1: I have to wonder, Brian, going back to your story,
• 27:55
  Speaker 1: so we as you mentioned, we have seen yields pretty flat,
• 27:59
  Speaker 1: if not down this year from where they were from
• 28:02
  Speaker 1: the peaks in December. Who's coming in and buying them?
• 28:06
  Speaker 1: Why is there so or where is this support coming from? Well,
• 28:09
  Speaker 1: I mean at a certain point you have to realize
• 28:11
  Speaker 1: that the whole idea behind secular stagnation and demographics, um,
• 28:17
  Speaker 1: all those things are still here, even though there's a
• 28:20
  Speaker 1: lot of focus on Donald Trump and potentially being a
• 28:23
  Speaker 1: game changer. I mean, ultimately, a lot of these structural
• 28:25
  Speaker 1: elements in the economy are still in play. And you know,
• 28:29
  Speaker 1: a two point five percent on the tenure treasury. I
• 28:32
  Speaker 1: mean that's something that we haven't really seen since. So
• 28:35
  Speaker 1: you know, a lot of a lot of investors are saying,
• 28:38
  Speaker 1: you know, it's time to start, you know, putting some
• 28:41
  Speaker 1: money back to work here, even if they are still
• 28:44
  Speaker 1: being quite cautious. Nothing like having people follow a move
• 28:49
  Speaker 1: into a record territory rights nothing, nothing like that. Thanks
• 28:53
  Speaker 1: very much, Brian Schappatz, our bond reporter, for a Bloomberg
• 28:56
  Speaker 1: great story on the Bloomberg about the sail off in treasury.
• 29:06
  Speaker 1: Thanks for listening to the Bloomberg P and L podcast.
• 29:08
  Speaker 1: You can subscribe and listen to interviews at iTunes, SoundCloud,
• 29:12
  Speaker 1: or whatever podcast platform you prefer. I'm pim Fox. I'm
• 29:17
  Speaker 1: out there on Twitter at pim Fox. I'm out there
• 29:20
  Speaker 1: on Twitter at Lisa Abramo. It's one before the podcast.
• 29:23
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• 29:34
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