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Stocks Slip on Trade Concerns · Bloomberg Intelligence

• 0:02
  Speaker 1: Welcome to the Bloomberg Penl Podcast. I'm Paul swing you
• 0:05
  Speaker 1: along with my co host Lisa Brahma Waits. Each day
• 0:07
  Speaker 1: we bring you the most noteworthy and useful interviews for
• 0:10
  Speaker 1: you and your money. Whether at the grocery store or
• 0:12
  Speaker 1: the trading floor. Find a Bloomberg Penl podcast on Apple
• 0:15
  Speaker 1: podcast or wherever you listen to podcasts, as well as
• 0:17
  Speaker 1: at Bloomberg dot com. One of the biggest consensus trades
• 0:21
  Speaker 1: heading into next year is betting on reflation of steepening
• 0:25
  Speaker 1: in the yield curve. This concept of perhaps better than
• 0:28
  Speaker 1: expected earnings coming out of companies that have pretty weak
• 0:31
  Speaker 1: comps to to beat. Basically joining us now is Ben
• 0:35
  Speaker 1: Emmon's Medley Global Advisors Global macro Strategy, and Ben, I'm
• 0:38
  Speaker 1: looking right now at what might be the initial phases.
• 0:42
  Speaker 1: I don't want to see the death of their inflation trade,
• 0:44
  Speaker 1: but the death of the inflation trade. You're seeing the
• 0:47
  Speaker 1: yield curve continue to flatten, and you're seeing a measure
• 0:50
  Speaker 1: of forward inflation five year five year up break even
• 0:53
  Speaker 1: rates dropped near their lowest levels since two sixteen. What
• 0:57
  Speaker 1: do you make of that? I can only say thanks
• 0:59
  Speaker 1: for much for having us Um, well, there's obviously uncertainty
• 1:03
  Speaker 1: has creeped in since the speech from Trump in New
• 1:05
  Speaker 1: York last week when he started to voice his word
• 1:09
  Speaker 1: about substantial rising tears as the deal doesn't happen. So
• 1:12
  Speaker 1: I think the bond market listened to that closely and
• 1:15
  Speaker 1: saw like, okay, you know, there's always a risk that
• 1:18
  Speaker 1: there will be no deal or will be delayed, and
• 1:20
  Speaker 1: then people are looking at these December fifteen tears as
• 1:23
  Speaker 1: the first one of the substantial rise. I think this
• 1:26
  Speaker 1: is what's in the market's mind right now, that that
• 1:29
  Speaker 1: risk isn't totally abated yet, right. You know, the real
• 1:32
  Speaker 1: reflationary trades you spoke about that happened in sort of
• 1:36
  Speaker 1: mid October was only idea that the tears would be
• 1:39
  Speaker 1: de escalated. So that's now been taken a little bit back.
• 1:42
  Speaker 1: At least the market seems to be cautious that that
• 1:46
  Speaker 1: that that the escalation may not happen so quickly. So
• 1:48
  Speaker 1: therefore I think this is why the YUK flattened. In
• 1:52
  Speaker 1: addition to that, what we have had in the meantime
• 1:55
  Speaker 1: is really soft inflation data, right, whether you look at
• 1:58
  Speaker 1: PPI data for example aland Germany today or import price
• 2:01
  Speaker 1: in next last week in the US all shows very
• 2:03
  Speaker 1: global disciplationary pressure from the trade wars. I think that
• 2:07
  Speaker 1: too presses down on the UK whoy I get this flattening. So, Ben,
• 2:12
  Speaker 1: if we do get a Phase one type of deal
• 2:14
  Speaker 1: on schedule as we head into would you want to
• 2:17
  Speaker 1: be you know, more exposure to the US or maybe
• 2:20
  Speaker 1: have a little bit more of a global exposure. How
• 2:22
  Speaker 1: do you view that? Yeah, I'm definitely on that idea, Paul,
• 2:26
  Speaker 1: because you know, if you look at the performance, then yes,
• 2:30
  Speaker 1: the US has outperformed this mostly this entire time in
• 2:34
  Speaker 1: the trade war. And the areas that have been effected
• 2:37
  Speaker 1: most by the trade war are an, Asia, Pacific in Europe,
• 2:40
  Speaker 1: and so there is of course a valuation difference there
• 2:43
  Speaker 1: that that you would presume that if the Phase one
• 2:45
  Speaker 1: deal happens and as some confidence coming back that trade
• 2:49
  Speaker 1: in particularly global trade, which seems to be pretty depressed
• 2:52
  Speaker 1: at this point. Take for example, the export import data
• 2:55
  Speaker 1: from Japan overnight is a good good indicator of death
• 2:58
  Speaker 1: and that could see be some some rebound there and
• 3:00
  Speaker 1: I think then countries that are very sensitive to the
• 3:03
  Speaker 1: global trade are going to benefit from that. I think
• 3:05
  Speaker 1: days where the value is as opposed to the U
• 3:08
  Speaker 1: stock market, which could to perform, but maybe not as
• 3:12
  Speaker 1: much as relative to those you know, undervalued markets. If
• 3:15
  Speaker 1: if you, if you will, right like so, I think
• 3:17
  Speaker 1: that is probably your trade next year, of course, condition
• 3:20
  Speaker 1: upon that this Space one deal successfully gets completed. One
• 3:23
  Speaker 1: thing I'm struggling to understand. Yesterday, at around I don't know,
• 3:27
  Speaker 1: six fifteen pm Eastern time, Wall Street time, there was
• 3:31
  Speaker 1: the headline about the Hong Kong Bill that was passed
• 3:33
  Speaker 1: by the Senate, and this is basically UH saying that
• 3:36
  Speaker 1: the U s stands in alliance with the Hong Kong
• 3:39
  Speaker 1: protesters in asserting freedom and pushing back against Beijing. Beijing
• 3:44
  Speaker 1: has come out vehemently against this. There was concern that
• 3:47
  Speaker 1: this would impede or torpedo any potential for a Phase
• 3:51
  Speaker 1: one trade deal. Come now, Uh, you know, several hours later,
• 3:55
  Speaker 1: people are not even thinking about it or talking about it.
• 3:57
  Speaker 1: It's and largely dismissed as no ways and being sort
• 4:01
  Speaker 1: of symbolic more than anything else, not leading to any
• 4:04
  Speaker 1: serious disruption. What's the right narrative here? Well, I think
• 4:08
  Speaker 1: that is the right narrative at leastaid that that yes,
• 4:11
  Speaker 1: it's an important signal by the Senate of course, to
• 4:14
  Speaker 1: take a stance on pro democracy in Hong Kong. And
• 4:18
  Speaker 1: that's that is I think well known out there and
• 4:21
  Speaker 1: I think markets understand it. But the link between that
• 4:24
  Speaker 1: bill and the progress in the trade talks that may
• 4:27
  Speaker 1: be not so strong, and and probably the reason really
• 4:30
  Speaker 1: is that the retaliation that China talks about may not
• 4:34
  Speaker 1: just necessarily happen so quickly. I think one of the
• 4:38
  Speaker 1: the news items that can out this morning is actually
• 4:40
  Speaker 1: making the comparison to other measures that the US has
• 4:43
  Speaker 1: threatened with or or even done, like the UAHWE case,
• 4:47
  Speaker 1: that that China has not retaliated on those situations either.
• 4:51
  Speaker 1: So I think this is probably what creeping into the
• 4:54
  Speaker 1: market's mind of that this is an important bill and
• 4:57
  Speaker 1: it matters, but it may not matter as much for
• 4:59
  Speaker 1: the trade deal from here. With more matters is of course,
• 5:02
  Speaker 1: ultimately the agreement on what is the there rollback going
• 5:06
  Speaker 1: to be about and what is the agricultural agricultural purchase
• 5:10
  Speaker 1: is going to be about to make this deal actually happen.
• 5:13
  Speaker 1: In other words, will the deal phase one be really
• 5:16
  Speaker 1: the sixty that Trump talks about, or will be less
• 5:18
  Speaker 1: than six? I think that's ultimately with a market will
• 5:21
  Speaker 1: trade on if it is a lot less than six,
• 5:24
  Speaker 1: I think then you get more uncertainty about the future
• 5:27
  Speaker 1: of the trade deal that you know phase two. So Ben,
• 5:30
  Speaker 1: if we do again I'm operating assumption that mean we
• 5:32
  Speaker 1: do get a Phase one deal on schedule. Is that
• 5:34
  Speaker 1: my signal to maybe to dip my toe into emerging markets? Yeah,
• 5:39
  Speaker 1: I mean that is I think the general consense out
• 5:41
  Speaker 1: there that again, where is the value at the moment
• 5:45
  Speaker 1: if you compare the US to other markets? Right? And
• 5:48
  Speaker 1: that and that is indeed Asia specific or Europe and
• 5:50
  Speaker 1: some parts of emerging markets. That's that's I think the
• 5:53
  Speaker 1: catalysts that people feel confident that if Phase one is completed,
• 5:57
  Speaker 1: it's in writing we really have a base for we
• 6:00
  Speaker 1: can work off the more structural issues over long term.
• 6:03
  Speaker 1: And what most of all that matters is that people
• 6:06
  Speaker 1: probably discount that there will be a level of de
• 6:08
  Speaker 1: escalation from the tears have been put in place over
• 6:11
  Speaker 1: course in time next year into into that would have
• 6:15
  Speaker 1: an economic impact, and that I think is why investors
• 6:19
  Speaker 1: are pre positioning themselves on that Phase one complete. There's
• 6:23
  Speaker 1: opportunity in these undervalued marketss Ben Emon's thank you so
• 6:28
  Speaker 1: much for joining us. Bend is uh metally Global Advisors,
• 6:31
  Speaker 1: global macro strategist, giving us some thoughts on kind of
• 6:34
  Speaker 1: how this could play out. Trade still very much front
• 6:36
  Speaker 1: and center for investors in the question is I have
• 6:38
  Speaker 1: probably is you know, it seems like the consensus is
• 6:40
  Speaker 1: a phase one deal is coming. Is there downside if
• 6:43
  Speaker 1: it doesn't come? You know, and what is that downside?
• 6:46
  Speaker 1: And trying to uh, you know, kind of put a
• 6:48
  Speaker 1: handle on that. But there's certainly some arguments for taking
• 6:51
  Speaker 1: on a little bit more risk should we get that
• 6:53
  Speaker 1: phase one deal. What a year nineteen has been for
• 7:11
  Speaker 1: equity markets, double digit increases across the SMP, the doll
• 7:14
  Speaker 1: and NASDAK. Where do we go in? Phil Orlando, chief
• 7:18
  Speaker 1: equity market strategist and had of client portfolio management at
• 7:22
  Speaker 1: Federate Investors, I'm sure has some answers. Phil, thanks so
• 7:25
  Speaker 1: much for joining us. You know, one of the discussions
• 7:27
  Speaker 1: we have, you know, almost daily here is this is
• 7:30
  Speaker 1: kind of the bull market that nobody really loves or trust.
• 7:35
  Speaker 1: What is your sense of the market here given where
• 7:37
  Speaker 1: we are at, you know, close to twenty thousand on
• 7:39
  Speaker 1: the Dow. No one loves or trusted. This is the
• 7:42
  Speaker 1: most hated bull market in the history of civilization. There
• 7:46
  Speaker 1: you go, remember that that a year ago and after
• 7:51
  Speaker 1: that waterfall decline that we saw that that ended in
• 7:56
  Speaker 1: Christmas Eve because the market was pricing in with absolute
• 8:00
  Speaker 1: certainty the fact that recession had you just started, it
• 8:03
  Speaker 1: was about to start. Stocks were trading at fourteen times earnings.
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  Speaker 1: We had a very different view that that we did
• 8:09
  Speaker 1: not believe that there was any near term risk of
• 8:12
  Speaker 1: recession in twenty eighteen or twenty nineteen or twenty we
• 8:16
  Speaker 1: still believe that multiples at fourteen times forward earnings in
• 8:20
  Speaker 1: our view, we're way too pessimistic because you had very
• 8:24
  Speaker 1: benign levels of both interest rates and inflation. Core inflation
• 8:28
  Speaker 1: the PC sitting at one point seven percent right now.
• 8:32
  Speaker 1: So the multiple at eighteen times earnings, where it was
• 8:35
  Speaker 1: a year ago October was exactly where it should have been.
• 8:40
  Speaker 1: In our view this year is that we would spend
• 8:42
  Speaker 1: the year sort of grindering our way back to that level.
• 8:44
  Speaker 1: So we're probably in around I don't know, seventeen seventeen
• 8:47
  Speaker 1: a half times earnings right now. We're not quite there yet,
• 8:51
  Speaker 1: but we have hit our thirty one hundred full year forecast, um,
• 8:55
  Speaker 1: you know, six weeks before the end of the year. Indeed,
• 8:58
  Speaker 1: so what drives things are here? Um, the consolidation that
• 9:04
  Speaker 1: we saw on corporate earnings this year was was absolutely
• 9:10
  Speaker 1: understandable because we were up twenty in calendar eighteen. That
• 9:15
  Speaker 1: that's not sustainable. So we're gonna get back onto a
• 9:18
  Speaker 1: growth trajectory for earnings next year. LI So we think
• 9:22
  Speaker 1: maybe something in the eight percent neighborhood, give or take,
• 9:25
  Speaker 1: we're gonna get a little bit more multiple expansion because
• 9:28
  Speaker 1: inflation and interest rates are still relatively benign. So if
• 9:32
  Speaker 1: we do a hundred and eighty dollars and earnings next year,
• 9:34
  Speaker 1: which is our forecast, and and we get a multiple
• 9:38
  Speaker 1: that's in that eighteen eighteen and a half times earnings neighborhood,
• 9:41
  Speaker 1: we get to our thirty five hundred forecast on the
• 9:44
  Speaker 1: SMP five hundred. Now we're sitting at thirty one hundred.
• 9:47
  Speaker 1: Now that's not a huge move, but like you said
• 9:50
  Speaker 1: at the very beginning, Paul, where we're up you know,
• 9:53
  Speaker 1: thirty two percent or something like that in the last year,
• 9:57
  Speaker 1: and and uh, if we can do another ten or
• 9:59
  Speaker 1: fifteen percent next year, that ain't bad. That ain't bad. Indeed,
• 10:04
  Speaker 1: I'm trying to figure out that what the leader is
• 10:06
  Speaker 1: going to be here because it's really been tech driving
• 10:08
  Speaker 1: a lot of the games that we've seen in Can
• 10:10
  Speaker 1: You to Be Tech? So they understand what's going on
• 10:14
  Speaker 1: as a result of of the reduction in tax rates,
• 10:17
  Speaker 1: the repatriation of two point seven trillion dollars back into
• 10:21
  Speaker 1: the United States and we've we've only brought a trillion
• 10:24
  Speaker 1: dollars of it back so far, and the automatic expensing
• 10:27
  Speaker 1: of cap X. We are going through, in my opinion,
• 10:31
  Speaker 1: one of the most significant technology upgrade cycles we've seen
• 10:35
  Speaker 1: since the White two K build up back in the
• 10:37
  Speaker 1: late nineties. That that trend ought to continue through at
• 10:41
  Speaker 1: least the end of next year. So you look at
• 10:43
  Speaker 1: you say, well, texts had a pretty good year the
• 10:45
  Speaker 1: last year or two. They should have had a good year,
• 10:48
  Speaker 1: and we should have another good year as companies continue
• 10:51
  Speaker 1: to you know, upgrade their software and whatever else they're
• 10:54
  Speaker 1: doing in order to fix up their their technology platforms.
• 10:57
  Speaker 1: So so you've been absolutely on it on this equity call,
• 11:00
  Speaker 1: this bullish call here. Where could you be wrong in
• 11:03
  Speaker 1: your here? Well, I think there's a very significant uh
• 11:10
  Speaker 1: swing factor here and that's the results of the presidential
• 11:12
  Speaker 1: election in in t I mean, our base case is
• 11:17
  Speaker 1: that we get good election results that allow the market friendly,
• 11:23
  Speaker 1: economic friendly, investor friendly fiscal policies that we've seen the
• 11:27
  Speaker 1: last couple of years to continue. But that could be wrong.
• 11:31
  Speaker 1: We we could have a very radically different set of
• 11:34
  Speaker 1: fiscal policies, uh waking up to in calendar twenty one.
• 11:39
  Speaker 1: And and the market is a forward looking discounting mechanism
• 11:42
  Speaker 1: is going to price that in early based upon polling
• 11:45
  Speaker 1: or based upon the the actual election results in November
• 11:49
  Speaker 1: of next year. If if it looks as if there's
• 11:52
  Speaker 1: gonna be a radically different change in fiscal policy approach
• 11:56
  Speaker 1: and therefore economic growth, corporate earnings growth, and everything else.
• 12:00
  Speaker 1: Phil Orlando, thank you so much for that. Phil Orlando
• 12:03
  Speaker 1: is cheap equity market strategist at Federated Investors. Always wonderful insights.
• 12:08
  Speaker 1: Interesting to think that tech will continue to drive the
• 12:11
  Speaker 1: market towards that goal for the SMP five hundred and ten.
• 12:18
  Speaker 1: That ain't bad. He's been right, He's been right. Let's
• 12:36
  Speaker 1: shift gears a little bit to healthcare and what some
• 12:40
  Speaker 1: people are calling a drug shortage, which is incredibly ironic
• 12:44
  Speaker 1: considering the focus on the costs of certain drugs catering
• 12:49
  Speaker 1: to specific niche diseases. Michael al kare joining us here
• 12:53
  Speaker 1: in our Interactive Broker Studios, President of Premier Inc. Healthcare
• 12:57
  Speaker 1: Management Company, and I'm wondering from your person, Factive, what
• 13:00
  Speaker 1: is this shortage all about? Yeah, thank you for having
• 13:02
  Speaker 1: me first. First of all, the drug shortages pertain to
• 13:06
  Speaker 1: a certain part of the pharmacy market. So it's it's
• 13:11
  Speaker 1: related to generic drugs. So as you are well aware,
• 13:15
  Speaker 1: in the sort of the evolution of a drug, a
• 13:17
  Speaker 1: drug comes out typically it's a branded and then um,
• 13:20
  Speaker 1: after a number of years, that drug goes to a
• 13:23
  Speaker 1: generic status. What happens then is obviously the price goes down.
• 13:28
  Speaker 1: And I'll just use an analogy. It starts at a
• 13:30
  Speaker 1: hundred bucks, it sometimes ends up at two bucks. Along
• 13:33
  Speaker 1: the way, you have various producers of that product that
• 13:37
  Speaker 1: have to exit the market because they can't make margins.
• 13:39
  Speaker 1: So some may have high cost and at fifty bucks
• 13:41
  Speaker 1: to share they exit. Some have to exit at twenty
• 13:44
  Speaker 1: and then you know, when the market sort of settles out,
• 13:46
  Speaker 1: you may only have one or two suppliers. When you
• 13:49
  Speaker 1: have either a monopoly or a duopoly. That's when obviously
• 13:53
  Speaker 1: drug prices actually go back up. Uh. And then our
• 13:56
  Speaker 1: job at Premiere is to figure out ways to create
• 13:59
  Speaker 1: health markets. So the focus of a company that we
• 14:02
  Speaker 1: just launch called provide g X is to bring new
• 14:05
  Speaker 1: entrance into the market when you have a monopoly or duopoly.
• 14:08
  Speaker 1: So we'll actually invest capital in new companies that we
• 14:13
  Speaker 1: think have a history of high quality manufacturing to create
• 14:17
  Speaker 1: a healthier market, healthier supply. So what are some of
• 14:20
  Speaker 1: the drugs or treatments that are experiencing shortages? Now, yeah,
• 14:26
  Speaker 1: it's pretty crazy because there's some just basic stuff that
• 14:31
  Speaker 1: our healthcare systems need that will be uh in a
• 14:33
  Speaker 1: shortage situation in any point in time. Think of sailing solutions,
• 14:37
  Speaker 1: So those are the those are the the therapies that
• 14:40
  Speaker 1: are being utilized by I V s. UH. Think of nutritionals,
• 14:44
  Speaker 1: just basic nutritionals. If you're in the hospital for a
• 14:46
  Speaker 1: longer term stay and you need nutritionals. You know. Those
• 14:49
  Speaker 1: are drugs that oftentimes are in short supply. Things like
• 14:53
  Speaker 1: morphine have been on the shortage list. Probifle that's the
• 14:56
  Speaker 1: drug that allows you to go under anesthetic that has
• 14:59
  Speaker 1: been under a shortage. UH. There was a very very
• 15:03
  Speaker 1: important drug that focused on um toxic shock. Uh and
• 15:09
  Speaker 1: there was a Jamma article written in two thousand and seventeen.
• 15:12
  Speaker 1: UM And because we didn't have access to this drug,
• 15:15
  Speaker 1: the Jamma article sort of proved out that uh it
• 15:18
  Speaker 1: increased mortality because we didn't have that drug by three
• 15:21
  Speaker 1: point seven percent during the time that that drug was
• 15:24
  Speaker 1: in a shortage situation. UH. And it was a uh
• 15:30
  Speaker 1: EF the epene from family, so it really helped to
• 15:35
  Speaker 1: sort of treat low blood pressure when your body entered
• 15:37
  Speaker 1: into shock. So we think there was about thirteen billion
• 15:39
  Speaker 1: dollars of costs associated with that. Alright, So going forward,
• 15:43
  Speaker 1: I'm trying to just understand from a big picture standpoint,
• 15:46
  Speaker 1: what can be done to put the emphasis on creating
• 15:50
  Speaker 1: more and affordable generic drugs at a time when the
• 15:55
  Speaker 1: pharmaceutical companies in large part are focused on the cancer
• 15:59
  Speaker 1: drug rugs that are sort of hot, and they're and
• 16:02
  Speaker 1: they're very they can be priced at very high points,
• 16:06
  Speaker 1: but don't necessarily take care of this need. So great questions.
• 16:10
  Speaker 1: So what we want to do uh and again through
• 16:13
  Speaker 1: um that company I mentioned provide g X, we want
• 16:16
  Speaker 1: to actually go out to smaller manufacturers who are actually
• 16:19
  Speaker 1: are in the market to produce drugs today UH and
• 16:23
  Speaker 1: help them expand either their production or help them get
• 16:26
  Speaker 1: additional and s, which is the approval from the s
• 16:29
  Speaker 1: the f D eight actually UH to actually manufacture the drugs.
• 16:33
  Speaker 1: So that's number one. Number two and this is something
• 16:36
  Speaker 1: that keeps me up at night is we have issues
• 16:39
  Speaker 1: with the active pharmaceutical ingredient, that's the raw goods that
• 16:43
  Speaker 1: go into manufacturing these generic drugs. UM. Little known fact
• 16:48
  Speaker 1: of these raw goods for generic drugs are actually done
• 16:51
  Speaker 1: in China, manufactured in China. So what keeps me up
• 16:56
  Speaker 1: at night is the ability of potentially China to weaponize
• 17:00
  Speaker 1: you know this this and balance sort of in the
• 17:03
  Speaker 1: supply chain. So think of a p I s for antibiotics,
• 17:07
  Speaker 1: think of things around UM cancer drugs, things around UM acid,
• 17:13
  Speaker 1: reflectious basic drugs that our population needs. I do worry
• 17:18
  Speaker 1: about having such a dependence on that raw material being
• 17:20
  Speaker 1: produced in one country. Michael Alcary, thank you so much
• 17:23
  Speaker 1: for joining us. We appreciate you coming in. Michael's the
• 17:26
  Speaker 1: president of Premier Healthcare coming talking about healthcare shortages which
• 17:30
  Speaker 1: are more pronounced and I probably would have guest. Thanks
• 17:32
  Speaker 1: for listening to the Bloomberg P and L podcast. You
• 17:34
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• 17:37
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• 17:40
  Speaker 1: at pt Sweeney. I'm Lisa abram Woids. I'm on Twitter
• 17:43
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• 17:46
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