Forces Transforming the Markets

financial institutions and hedge funds on Wall Street. His team reminds us that in the past he's correctly predicted the stock market rise under the Trump administration, as well as a recent rise in inflation. Julian Brigden is co founder and president of Macro Intelligence, two partners here to talk about some of the structural factors that are transforming the markets. He is here in studio, so nice to have you here with us. Welcome, thanks for having me. When you

think about structural factors, what exactly are you talking about? So, I think when we look at things this year, we're pretty certain there's a recession comming. There's no question into our mind. The question is just how deep a recession does it really matter to the value of the equity market, not necessarily within the sectors. Yes, I think to be honest, what sets the value of us equities is liquidity. It's

really the FED. I hate to say, it's a sort of Wymy Republic esque kind of world where you where's Matt Miller. He's listening as you always does. Love Matt, that was for you. But anyway, print enough money and assets rise in price, right, I think it does don't matter what goes on in the economy and how much

money we print for where you allocate that money. So when we look at structural factors, I think potentially so is that the assumption and the FED that will be cutting rates later on this year, And well, I think they will. I think. Look, I'm very much in the camp that we're in the higher for longer at least that's what they want to be able to do. Right, There's really only sort of two ways that you address

inflation of this sort of magnitude. You do what was referred to as deliberate disinflation, which was Volka, you kind of kill the economy dead. Or you do what they refer to as opportunistic disinflation, which was kind of Greenspan in the mid nineties, and you hold rates are much longer than people expect, and you kind of hope that

the economy doesn't die. If it does, sorry, but you kind of choke it out slowly, but that could take years, right, I mean conceptually, I think the problem that they've got and why I suspect they'll end up cutting, is that this credit crunch is going to be much deeper potentially than they think. I already are working. Watch those banks. Watch yeah, watch those banks. And I think one thing I was just listening to the previous conversation. I think

it's very interesting. So the assumption is that the FED goes twenty five in May, but right they will have the Senior Loan Officers survey going into the meeting, and if they do not cut, to me, that's a big tell to me. That tells them there's something very bad in that survey. And there's some preliminary stuff we've had the Dallas fedor if they do not, if they do, sorry,

if they do not hike, my apologies. So if they do not hike, I think that would be a tell that that survey is going to be showing material timing. But they're getting a lot of evidence. I feel like over the past couple of days at least that there's some sophename. We had the jobs report, we had the Dallas fed exactly as you said, is there becoming a little bit more of a case for a pause the next I think that they're done to all intensive purposes.

It's sort of academic whether they're going under twenty five or not. Only I mean, I think, I think really when we wrote a three part series, yeah, exactly, sure, Yeah, who cares because the damage has been done. Yeah. I do agree with you that what we hear from banks will tell us exactly what's going on and whether or not they are just shutting things down or there's no interest right in loans and activity, right. And I think it's it's not the big boys, it's not JP Morgan,

It's going to be the smaller names. There was a story running around today on one of the other outlets. They're interviewed the CEO of a medium sized bank. He said, I kind of went into this year thinking I should cut my lending fifty percent. Right, I think I need to cut it another fifty percent. Wow, that's big. It's look this is but we already you have to add on this. We were facing an inventory overhang, right because

we all massively over ordered. Companies have been doing a great job at masking over falling volumes by raising prices. Procter and Gamble was a classic glass quarter where their volumes were down, but their profits were up because they'd raise prices sufficiently. And that's great for companies, but the

real economy runs on volume. Where do we see though the start of this recession then, because just on the other side here we do have jobs numbers staying pretty good, you know GDP pretty good, Like how do we get there? So we've well, when you look talk at the jobs market, I think the important thing to think about from from employment is if you look at the unemployment rate, it looks like a mountain range right in Colorado half the time. So you get these very sharp peaks, which is so nice.

Yeah yeah, So you get these very sharp peaks, peaks, drops, and then the bottom you get these kind of little valleys. But the point is a momentum game. So once you start to lose positive momentum and you start to flatten out, you can kind of start the stop watch and say, the next ticket is up, and most of our momentum indicators are beginning to show rising unemployment. I think there's

one that I watch in the claims data. And with the exception nineteen eighty nine, if you take it back into the as far back as the sixties, and in eighty nine, the FED had already started easing, which clearly they're not doing now. Whenever it ticked above the level that I indicated, we were either in the recession that quarter, which would be now, or one quarter away. So I think it's kind of to your point. Whether they go another twenty five or they don't go another twenty five,

who cares. We're basically at that point. I think that we're to slowdown is upon us and it will start to manifest. I'm going to say it feels it in a funny, weird, odd way. Julian. So, what is that the market indicator that you watch most closely? You're talking about this indicator within the labor market. It's one of them, right, I mean another one, a great one is if you

look at is new orders. Right, So if you look at ism manufacturing new orders, Historically, unless the FED comes in and punts the cycles of these we eases, once you drop below forty seven point two, you're either in the recession or pretty close to decision. There's a number of things that I think are just out there indicating it's kind of here. But could we see a manufacturing recession but not a services recession manufacturing? Could we see a recession and the job market stop? So you could?

I mean it's so you'd be kind of looking at something like two thousand and two thousand and one. We're relatively mild recession where you've got a capex recession, a credit cycle, a small rise, and unemployment. The big thing that I think that's missing from there is I think a we're going to get a tighter credit crunch than

we got back then. And secondly, it does feel like there's going to be another Starting in two thousand, you've got a big uptick in the housing market, and the housing market is actually very important as a driver of the broad economy. And this time we've already done our building right. We went in from two thousand I think to two thousand and four weeks. I never get the housing market because we went from tons of building oversupply to let's blow up houses to reduce supply, and then

all of a sudden, we've got a shortage again. So sorry, I don't understand it, but I get it. No, So we've since the loads of COVID, we've increased new home construction for over forty percent, right because we had to accommodate the Great migration. So there's oversupply. Now there's going it's starting to come. If you look at homes under construction versus actually what's selling, there's going to be a lot that's going to hit the market. Commercial real yes

a big issue as well. I think a look, are we going to see more svbs with a sort of heart attack and these banks drop? I don't think so. I think we're just going to see ongoing decay in the system where these smaller banks are going to have to recognize losses. We've linked now losses to the equity price, and then if the equity price starts to runder, the big depositors start to take their cash out again like they did with SUBB and so I can see this

sort of ongoing problem for this sector. Jilian, we just have about twenty five thirty seconds, and you do need to be quick. You do work with financial institutions, big ones, hedge funds. What's the question that they must ask you. So the big question I think at the moment is the dollar is that what they ask you about. Yes, this is this is going to be the big question. Right. The dollar has dictated everything we've done for the last decade.

We've had a rising dollar, sucks money into the US equity market, leads to massive outperformance of the US versus the rest of the world world. And if the dollars starts to falter, which is overdue, it's already done a bunch since Smiden. You know, then you're saying a lot more it could. I'm watching it very, very close because that starts to turn. Then your whole investment horizon and

direction changes. Super treat next time you're in town, come back, we'll do I really appreciate Julian Brigden, co founder, president Macro Intelligence, two partners right here in studio. This is Bloomberg. You're listening to the Bloomberg Business Week podcast. Catch us live weekday afternoons from three to six Eastern Listen on Bloomberg dot com, the Ihard Radio app, and the Bloomberg Business App, or watch us live on YouTube. Do you want to get to a very important story dueling abortion

pill rulings. You've probably read about it, heard about it happening in both Texas and Washington State, definitely causing confusion for the federal government, for doctors, for patients, for everybody who follows this story. For really many Americans, a Texas ruling overturned FDA approval for the abortion pill mephisto. Don't say it Rightstone, mifiobristone. Yes, you said it right. I knew that was going to get caught on that mifipristone,

which could block the pill nationwide. So this could be very significant. Metime, You've got a ruling in Washington State which sought to protect access to that drug. Yeah, and this afternoons and breaking news, the Biden administration seeking an emergency hold on that Texas ruling, calling it unprecedented. A lot of moving parts, a lot of news here, so we want to walk through all of it step by step. So here to discuss, We've got Bloomberg News Equality reporter

Kelsey Butler. She joins us by phone in New York City, and we also have here in studio Bloomberg legal analyst and host of Bloomberg Law, June Grasso again in our Bloomberg Interactive Brokers studio. So Kelsey. For those who are not familiar with this pill. Just give us the background, what is it, what's it used for, what's the usage? Like, absolutely, miffopristown as part of a two drug regiment that is

pretty much standard medication abortion care in the US. It has been available for two decades and as of twenty twenty, more than half of all terminations in the US are done via pills, and it's generally prescribed along with mesa postal. As I said, it's part of that two drug combo, and together the two pills have an over ninety five percent efficacy rate in safely ending pregnancies with no further

intervention needed. And as I mentioned, now at this point, more than half of all terminations in the US are done via pills. So whatever the outcome of these cases is, it's going to have huge ramifications across the US. Kelsey, are the pills us specifically for abortions with a certain term limit at this point or is it certain weeks in the pregnancy? Yeah, so these are used in the

first trimester in order to terminy pregnancies. Of course, curtical abortion is still an option for you know, those who are later in pregnancy and easier on women. I would assume the pills than a surgery. Certainly, it's much easier

to access it. In the course of the pandemic, it has become available via telemedicine and mail, and so in certain states, of course, the states where you know full abortion bands aren't in effect, peasons are able to get it in a much more radically accessible manner than having to go to a clinic and have a procedure. June, come on in here, because there's a lot of moving parts on the legal side of this Texas Washington potential

Scotus question. Give us the lowdown. So you have two conflicting decisions, basically conflicting decisions, although the Washington judges decision only effects according to his order the states that actually brought the case before him, So that's twelve states that brought the case before him, excuse me, seventeen states that brought the case for him. So that but the judge

in Texas has a nationwide injunction. So today the Biden administration besides appealing to the Fifth Circuit, which is the most conservative circuit in the country, and that's where Texas's order will go. So besides appealing, they asked the Washington judge to clarify what his ruling would mean if the Texas judge is ruling stays in effect, because no one really knows. You have two conflicting opinions, which one has precedence, and so likely we think you'll end up at the

Supreme Court. What was the Texas case, the Texas Federal judge? What was it based on? So? And by the way, this is the first time that we know of that a court has overruled the FDA's approval of a drug. That's what makes it so unique, right, And he based it on several basically, he said, And he's a judge with no medical or scientific background. He basically said, you're wrong, FDA, and I'm right. And he said things like, for example,

he said that they were wrong in their process. He said that the FDA so In other words, the FDA considers pregnancy a medical condition that can sometimes be serious and life threatening. The judge called it a natural process essential to perpetuating human life. And he said the FDA failed to consider the intense psychological trauma and post traumatic stress women often experienced from chemical abortion. This is all

from the plaintiffs, the anti abortion groups papers. He even adopted their language he called the fetuses unborn children or unborn humans, and he referred to abortion also as an effort to create eugenics. It's a very strange and broad opinion. This wasn't a judge who wanted to just rule in this case. This is a judge who wanted to make waves. And he's also a very conservative Christian judge who's you know, his advanced rulings against the Biding administration and LGBTQ matters

and in other matters. So we expected this and really quickly if the Texas ruling were to stay, and it would ban access to this pilled nationwide, correct, nationwide? Yeah, So Kelsey bringing you back in here. If miff A press Stone is banned, there's a second part of the abortion pill series, misoprostial that you mentioned. Some doctors say that dose could be doubled and served the same purpose. Is that drug going to potentially be an alternative that

is viable and can be protected legally. We've got about forty five seconds here. Or as been talking to clinics for weeks and they have been preparing as we have just been discussing. This decision was telegraphed and they know that MISA prostial is also MISA prostil only regiments are safe and effective and is an alternative should this decision

from Texas stand. And I just want to say June sharing with me earlier in the day, over three hundred biotech and pharma industry executives, including Fiser's CEO, signing an open letter calling for the reversal of that district of that decision by the judge in Texas. Right, what's the likelihood, what's the strength of this case in terms of legal terms, and just kind about thirty seconds. I don't think it's

I don't think it's a very strong case. It's not based it's based on his own analysis of pregnancy, and it's it's really not that the FDA didn't follow some process that that too, but it all that also relates to his analysis of pregnancy and what the FDA says. And so I think that if you know, if the Supreme Court is going to follow what it's said before and what it's said in the Jobs decision, then this would be over rule. But we never know what the

Supreme Court is going to find. Yes, likely, very likely. Wow, you're living in interesting times. Um that of course, is June Grosso. She's Bloomberg News Legal and alas host of Bloomberg Law Tonight at ten PML. Wall On Radio. Kelsey Butler, quality reporter at Bloomberg News, thank you both. This is Bloomberg. You're listening to the Bloomberg Business Week podcast. Catch us live weekday afternoons from three to six Eastern on Bloomberg Radio,

the Bloomberg Business app, and YouTube. You can also listen live on Amazon Alexa from our flagship New York station, jose Say Alexa playing Bloomberg eleven thirty. A lot of things on our mind on this Monday, and that includes French President Emanuel and McCallon urging Europe to develop more strategic autonomy as a way to avoid the risk of turning EU countries into vassals that's his word, in the event of a global crisis such as a US China confrontation.

And this is on the heels at President mccrone's visit last week to China. So with a guidance on what this means, we are so delighted to have back with us. Andy Brown, former editorial director at Bloomberg New Economy. Andy spent three decades in Asia as both China editor and columnist for The Wall Street Journal. Today, he leads the China Hub. He is a partner at Brunswick Group, a critical issues advisory from Andy back with us via Zoo in New York City. Andy, thank you, thank you. Good

to have you here with Maddie and myself. What's your read on President mccrone's visit and then the comments post his visit to China. Well, first of all, it's great to be with you, Carol and Maddie. The comments, as you say, really are quite extraordinary and have been interpreted as inflammatory in fact by China hooks in the US.

I mean, you've got to remember the context. I mean here he is the French President Emmanuel Macron in China, saying that Europe should distance itself from the United States at a time when the United States is involved in intense strategic competition with China, competition over Taiwan, over the South China Sea. They're at loggerheads over high technology, over human rights, over the situation in Ukraine. And Macron comes out and he says, no, we need strategic autonomy. We're

not going to be followers. And the most explosive of His comments was, and we're not going to be dragged by the United States into a conflict over Taiwan. And you know, this is this is a this is this too to politicians like Marco Rubio really is outrageous. So he's saying, Okay, here we are the United States defending Europe, sending aid, sending arms, military equipment to Ukraine, and you're saying, you know you're not going to get in, You're not going to support us in Taiwan. Why now for this

move from Macron? You know, he's he's always sought what he calls strategic autonomy somewhere between the United States and China. This time he talked about creating a European third superpower. But you know, business and economics plays very much into this scenario. Macron arrives in China with fifty odd business executives in tow representing industries from fashion to to to nuclear,

and they're all doing great deals. So he's making clear the difference between the United States and Europe on this and in fact, that sense is quite broadly shared in Europe that you know, Europe doesn't want to go in for economic decoupling. Ursola Van Delay and the European President of the European Commission was quite clear on this point. She said, we want de risking from China. We don't want decoupling. But certainly Macron sees commercial opportunity in China's reopening.

And by the way, President Jimping of China, this is all music to his igness. Relations with the United States are on ice and here's Europe coming along with trade offers of trade and technology. It's exactly what he needs at this point. Well, and is it similar Andy, I know we've talked about this a lot over the years. Is it the same for US businesses? We just talked about Tesla building a large new battery factory in Shanghai.

So further digging in deeper when it comes to China specifically, I mean US big companies, they're still going to be in China doing business or no? Yeah, Well, in some ways, Elon Musk is quite exceptional. It's the rare US CEO that's going out there now and announcing big business deals with China. In fact, we just had a big conference in Beijing called the China Development Forum run by the Chinese government, the Chinese State Council. Far fewer US corporate

executives than usual were there. They were rather reluctant to turn out. They definitely didn't want to do any media and they certainly didn't want to make any announcements of investments in China, which might expose them to criticism by this newly created House Committee on China, which plans to haul US CEOs and other prominent figures connections to China in front of the Committee for televised hearings. They're very

nervous about that. So, yeah, this is advantage Europe versus the United States, certainly when it comes to corporate engagement. It's it's so interesting because I also have to wonder whether when it comes to she Jane Payne, are these CEOs concerned about the lack of predictability there. We just

got through years of COVID zero in China. To what extent are people willing and ready to move on from that and say, well, this is an opportunity now, so let's fly over there with fifty CEOs into Yeah, well, the the Joe Biden is highly unlikely to replicate that that kind of mission. In fact, the US is working in the opposite direction. It wants economic containment of China, not economic engagement with China is certainly in the area of high tech. That's what the Inflation Reduction Act is

all about. That's what chips and science. It's all about billions of dollars to build supply chains in the United States, to bring jobs back from China, and to make the United States less reliant on China. So it's all working really in quite the opposite direction. But US businesses in China are worried about two things. First of all, geopolitics and particularly the situation in the Taiwan Strait and the

possibility of a Chinese invasion. But they're also worried about domestic economic policy and whether the Chinese administration really has eased up on its extraordinary assaults on the private sector that we saw beginning in the middle of two thousand and twenty one with the attack on the big tech digital platforms Ali Baba, you know, and d D and the other and the other tech giants. Well, it just is always interesting and I feel like so many different

things coming at us from so many different angles. Andy, thank you. I know, another busy day, so so appreciated. Andy Brown, partner at the Brunswick Group, joining us via zoom in New York City. I'm a journal yeah, but you let me drive. Oh no, no, no no, no, who's home, honey? Please, I'll do the riding gravels. Let's I want to drive. It's a good question. Drive. This is the drive to the clothes commu thing well, Briar Shadawn on Bloomberg Radio.

All right, everybody just got under just under excuse me, eighteen minutes left in today's trading session, the first trading session of the week. In a week that we'll get big bank earnings later in the week, we get read on inflation on Wednesday. There is a lot going on, but we've got some light volume, as you have been hearing here on Bloomberg. In the meantime, let's get to it. Let's get to our drive to the closed guest Rick Pat Karen he is with us. He's chief global strategist

at Pick Karen Family Office. He joins as we zoom in Pennsylvania. Good to have you back with Maddie and myself. Let's talk about the environment. There's a lot going on, first of all, in if you had to describe today's market environment and just a couple of words, how would you do it. I think, you know, it's it's just climbed the surprising wall of worry over the past quarter.

We're sitting here, you know, still looking through quarter numbers and seeing how that positions for next quarter, and just a you know, just a little bit shocked of the bifurcated nature where you see in Nvidia and Gold working at the same time. Shouldn't be happening, but it is. And we're also seeing that bifurcation when we look at the treasury trade versus the equities trade. Do you think those are two completely different stories or do you see

similarities there? You know, I think no. I just think there's a couple of different camps out there. There's the camp that we've frankly been in, which is the Fed's going to have its foot on the brake at some point we get economic slowing off of that in our

first inflation fight since the seventies. So let's pull out a seventies playbook and use shorter duration assets and a diverse portfolio of caution versus an increasing crowd of people that say, look, the Fed's done, are getting close to being done, and it's really going to be back to two and twenty one and let's buy you know, in the Nasdaq one hundred and some of these Bellweather tech stocks that work so well for the past couple of years.

They both can't go on forever. One's going to crack. Interesting. So, you think the bond market, in terms of what it has been indicating and seems to be forecasting a recession that's maybe deeper than we were all thinking about initially, or six months ago or three months ago or one month ago. You think the bond market's overdoing It's not going to be as bad. No, I'm not sure that we've traditionally been on the side that it should be a year where we still need to be cautious around

risk because you know, it's a don't fit. You know, the classic, the classic tack for this environment is don't fight the Fed. This idea that the Fed's really sort of got old data, stale data and some of their inflation computations, and they're going to get much easier towards the back half of the year, grow liquidity at the market, and have a risk rally that's, to me, is a more difficult position to understand. So you viewed tech specifically as not a risk, right, you think that that's a

good pick. Well, I think that it's certainly been working lately, and these are the franchises in our economy that are that are going to survive long term. But it doesn't seem to me that the highest PE stocks are the ones you want to be buying when interest rates are up and you have an eight percent eight percent prime rate, And that's sort of the that's the fight that's going on right now between you know, buy an Nvidia high pe long duration asset and and buy these shorter duration

protective assets. Wait, so help me out here. So technologies, we just talked with our Ian King and our Grana on a Semiconductor News today mixed news at that and then also the Apple News. You know, every tech name obviously not the same day. You know, there's a different ways to play technology, So you would you would invest and if so where specifically in technology? Well, I think that, you know, obviously the tech trade is working right now. Our base case is that's probably a bit of a

head fake. We still think the FED is going to be tight. So we're really advocating a more diverse portfolio with some lower p lower duration stocks and maybe some em and non US stocks rather than just pounding right into what worked in twenty and twenty one. Now, the first quarter wasn't friendly to that idea, as you know,

the NAZAC one hundred was up like eighteen percent. But we think by the back half of the year, the pressure of the FED is going to continue to put on the market, will actually make that trade a little bit weaker relatively, all right. So if I look at emerging markets, the MSCI Emerging Market Index, it's up about three percent this year. And if I look real quickly at the mx WO, if I look specifically the MSCI

World Index, it's up about seven percent. So we're an emerging markets are you thinking, well, I think that you know we we we hire managers, are managers seeing opportunities. India has been a strong strong player. You've seen some action in Brazil and Asia X China. So the Chinese sort of rebound as they reinvest in their economy hasn't

really got had the legs yet that it would. But we also think that based on many of the dynamics that out there, you're going to have a little bit of a weaker dollar, much like you did in the fall, and that should benefit not only the em but broad non US as a as a class. I wonder what you think too about the dollar story one year from now. Do you think that it's going to be up down? And to what extent is that tied to what we

see from the Fed this year? Well, it's it's hard for me to see that the dollar isn't at least somewhat overvalued at this point. It's head. You know, it usually runs on about ten year cycles of strength and weakness. We're on about year fourteen right now. You're seeing a lot of sort of non dollar conversations amongst important geopolitical players like the Chinese, the Indians, the Saudi Arabians, which lead me to believe that the dollars next move should

be weaker and not stronger. So even though the dollars lost, if I look at the index Spot Dollar Index, it's down almost ten percent from its levels back in kind of mid October. You think we can go further on this further time downside. I certainly do. I think there's a number of factors at play that fundamentally, I mean, I'm not in the camp that you know, the dollars over and some other currency is going to become a

world's dominant currency or any anything like that. When I think the last ten fifteen years have put us in a position where valuations are a little pressed and you could see some reversion to the mean and see that dollar fall a significant percentage over the next couple of years. Hey, Rick,

just got about thirty forty seconds left here. You know, you do work with family offices or you are a family office, So I just wonder, in terms of clients and institutions, are they nervous in this environment ready to commit new money? What are you seeing generally? You know, I think that clients are less nervous by a long shop than they were in the two thousand and eight environment.

And I'm not sure if we've actually put enough fear into these markets, as they're still trading it like eighteen times forward earnings. So I'm not seeing near the capitulation that I've seen in past down market cycles. Our clients are and I'm blessed to have a group of clients that are long term investors. They think about things strategically in the long term, which really is to there economic benefit, right. But I haven't seen the fear that I've seen in

other cycles. Yeah, the vics certainly showing a lot of complacency, were easily below twenty nineteen in change, even though we've been seeing a move up to some extent over the last week or so. Rick, thank you so much, appreciate it. Rick Pitcarn. He is Chief Global Strategist over at Pitcarn Family Office, joining us via zoom in Pennsylvania. This is Bloomberg. This is the Bloomberg Business Week podcast, available on Apple, Spotify,

and anywhere else you get your podcast. Listen live week the afternoons from three to six Easturning on Bloomberg dot com, the iHeartRadio app, tune In, and the Bloomberg Business App. You can also watch us live every weekday on YouTube and always on the Bloomberg germital of them