Wall St. Expectations for 2020, Remembering David Stern

on iTunes, SoundCloud, or Bloomberg dot com. You can also listen to our radio show weekdays at two pm Eastern only on Bloomberg Radio. So right, so let me make so far seems great, but maybe it's a different sort of year to come. That's at least the consensus that seems to be reached by a whole bunch of people on Wall Street. Let's break it down with Luke Kawa. He is cross set reporter for Bloomberg. Here with this in New York to talk about the most read story

on the Bloomberg. Not surprisingly, it's comprehensive, Taylor. You can sort of lose yourself in this story if you if you want to, searching by key themes, asset classes, institutions, all of it. Luke great to have you with Taylor and myself, so give us the overview here. Uh, a lot of consensus. It feels like, Yeah, first of all, I'll have to give it up to Sam Potter, my colleague in London, who's actually the the gentleman who compiled this. Hopefully he's in bed by now. Uh, you know, hard

worker up early. So uh, just to kind of set the stage here, it's it's amazing how similar a lot of the themes are. One thing, and this is what John Farroll this morning let off his show with cautious optimism is essentially the the order of the day. But the idea that you can't or it will be very difficult to repeat the kind of eye popping performance across major asset classes in twenty nineteen, whether to the same magnitude or the same breath. That's what Wall Street is

casting a lot of doubt on. But the general outlook here is for stocks to go up in the US, probably more in the rest of the world. For credit, you know, you're more clipping coupons than getting the kind of huge spread rally combined with the big duration kicker you've got in some parts of the bond universe. Last year, another year, another year of calling for a softer dollar. So that's also in the cards. And the ten uere treasury yield after you know, a wild year in which

it rallied quite magnificently. Uh the tenure bond, it's expected to be rather range bound, maybe edge up to to about two percent. But the treasury market and pick the tenure yield should not be making nearly as many headlines this year as it was last year. If Wall streets right, Luke, fascinating report, and I love how you have tied in equities, bonds, currencies, commodities,

all the works. One thing that you ended on that caught my attention was calls for the tenure And I scrolled down through the report and we get to another thing that's talking about negative rates. And you know the story negative yielding debt shrunk relates not only eleven trilling dollars,

it used to be seventeen trillion dollars. What are the expectations for negative rates, negative yielding debt as we've come off those highs a bit well, part of the kind of convergence trade that was in effect for you know, a bit or not too much, but enough of twenty nineteen, at least in the bond market kind of involved just what we were talking about from its peak of nearly what was its seventeen trillion or fifteen trillion somewhere in

that neighborhood, that number getting a lot smaller as we approached your end, and with the ten year treasury expect to say, relatively sticky. Uh. The way convergence is expected happen is to drag more and more out of that debt, but maybe not too much, but more and more out of negative territory. And there's another story this morning out from one of my colleagues in London's talking about the amount of government that that's going to need to be

rolled over this year. Not a crazy amount, but uh, you know, just the idea that the data this morning don't necessarily support it, especially in Europe, but just the idea that as the global economy does bottom out, convergence will mean more and more economies and more and more sovereign debt getting to a place where holding to maturity will actually yield do something positible and so Luke, when you look across all of this and think about the R word recession, it was something that if you go

back a few months September, the drumbeat was getting a little bit louder. What's the consensus if there is any, about the potential for recession in so, yeah, if you had done this survey in August, you know, if we had the some kind of weird calendar, I bet you would have got a lot of different responses on that front right now, And you can see this all across you know, different bits of markets, whether they're looking at equities, whether you're looking at you know, the uh, the potential

for options that pay out if there's deflation. We've really priced out the tail risk of recession and that's warranted. And uh, that's thoroughly, thoroughly expounded upon in this report. In everyone's base case, it's essentially growth will be better than it was in twenty nineteen, but not as good as it was in ten or eighteen. So just this idea that growth is slow. Growth will be in or around two percent, So not a recession, but not something

to essentially way flags about. And then Luke tie in fiscal policy with monetary policy. What takes more center stage? Well, I uh, in general, as you see these these outlooks, both US election risk, which I think ties more into the fiscal policies EIDE or at least the fiscal outlook thing that's always if you if you go through these, it's at least a cursory mention in everyone's report. This is a year in which monetary policy is expected to,

especially in developed markets, really go to the wayside. It's not supposed to be interesting to any respect. And in fact, if you look at the European Central Bank, it will be most noteworthy for what monetary policy makers are able to kind of convince their cajole fiscal policy makers into

doing in the year head. However, there isn't necessarily a ton of optimism that that baton pass is really going to go off well so in terms of the stimulus or the impulse we're getting from easier monetary or fiscal policy, it's more the lagged defect. You know, said that monetary policy works with these long and variable lags. It's more that that's expected to continue to be helping out as we go through. All right, Luke, how we're gonna leave

it there. Thank you so much. Cross Asset Reporter, part of a massive team that put together this most read story on the Bloomberg Today, and I do encourage you to go check it out because you can, as I said, sort of search by themes asset class institution and get a really holistic sense of how Wall Street is feeling about all the major issues as we head into what is bound to be a very interesting year. You're listening to Bloomberg Business Week with Carol Messer and Jason Kelly

on Bloomberg Radio. The passing of David Stern, longtime commissioner of the NBA, has led to an unbelievable outpouring of grief, but all so some remembrances of really a truly remarkable life and an impact that you have had on the world of sports. Ebenovi Williams, Sports Business Reporter podcast host, Extraordinary, so many more things here at Bluemberg joins me in our Blueberg Interactive Broker Studio. I mean, what an amazing

guy in a lot of ways. Yeah. We had David on the podcast a little bit less than a year ago actually, and he came on and I think we didn't have to say a single word, right, He just kind of rattled off stories Tim poo bouton when he landed and found you know, monks up there that we're watching League Pass. They were watching Kobe Bryant on their computers, which was one of the first times he realized that, hey, we have an international audience and we could be doing

more to grow basketball overseas. I mean, he had an impact across the globe on the sports world for and I have to say one of the things that I had candidly forgotten about I did not realize he was the commissioner for thirty years. I mean, and and when you think about where the NBA was is in the mid eighties and where it is today, I cannot think of another business outside of like Apple that has, you know, sort of grown and influenced in the way that that leak.

It's a great point. I mean when he took over in four I believe the NBA had just recently stopped having its finals on tape delay, right, so it wasn't even a TV product at all. There were twenty four teams. It was viewed largely as a circus. He kind of whipped the whole thing into shape, right, And one of his biggest initiatives when he was younger um fixing the the image of the game and the players right. I mean at a time, a lot of that's racial, but

the NBA, it's players. It was not a commercial entity in any capacity, right, and he you know, at times drew hard lines that certainly the dress code that he that he put together is probably the most you know, visible part of this. But you know, he brought in a stricter drug testing. He imposed very harsh penalties for a player that noelt during the national anthem, or players that went into the stands to fight, or remember when the Charles spry Will choked his coach. He was a disciplinarian.

But all of that served too, I think changed the way that America and especially corporate America interacted with the NBA. And that's the reason why this is a nine billion dollar enterprise now. And even I mean some of the statistics are stunning when you look at NBA revenue, bringing it from a hundred and eighteen million dollars to five and a half billion dollars inteen the year he retired.

What did he to for the franchise, not only in terms of revenue, but geographic expansion and really making this a global sport. Yeah, so expansion across the US obviously, you know, happened, you know, pretty quickly under his under his tenure. But but globally, I think is the bigger thing there, right. You know, back in the eighties he cut the first NBA deal with CCTV. They were shipping VHS tapes overseas so that highlight packages could be cut

and shown to the Chinese audience. You know, flash forward thirty years. The NBA has a billion dollar business in China, right, which was in the news this year for another reason. But the reason why the NBA is the is the most popular foreign league in China, possibly the most popular sport outside of soccer around the globe. A lot of that has to do with the fact that long before the NFL was saying, man, we have to have a presence overseas, the NBA was already doing the legwork to

make it happen. Help us understand, And you alluded to this earlier, evan sort of the player empowerment piece of this, because what you have seen, and you and I have talked about this a lot over the last couple of years, this notion that NBA players have transcended in a way that certainly other major sport athletes aren't anymore. Or never were.

Did he play a role in that for sure? And and it was kind of a confluence of multiple things, right, he had the benefit of very early in his commissioner had to have a guy in Michael Jordan's end of the league, right, who totally changed the way that athletes merge as as businessmen when they're not playing ing. But yes, you know, part of his you know, shaping up the image of the league was also helping push a lot

of these players outward right to to corporate America. Uh. And then flash forward to that now and you're right. You know, if you look across the four major leagues, there's no question that NBA players are more famous on average then then their counterparts in other leagues. Part of that has to do with the fact that they don't wear helmets and they you know, they walked down the street and you go, oh, I know that that's Chris Bosh,

that's Lebron James um. But yeah, a large part of that has to do with the fact that that from the top down, uh, it was it was a priority for the NBA, and that's smart business, right. I think he realized very early on that that another way to grow the popularity of basketball was to do it on the backs of the players and not necessarily just the brand of the New York Knicks or the brand of

the Washington Wizards. It was interesting to note too, and a lot of these tributes, many of which were on Twitter. You know, you look at what Magic Johnson said, you look at what Lebron James said, you looked at what Michael Jordan's said. They were very personal tributes in a lot of ways, and sort of pointing out how David Stern was a part of these sort of seminal moments,

not just in their careers but in their lives. You think about what Stern did for Magic Johnson when he came out and said he was HIV positive, Like really a guy who was just in the center of so much. Evanovi Williams, thank you so much. Sports business reporter for Bloomberg, also co host of the Bloomberg Business of Sports podcast

with Michael Barr and Scott Sashnik. Check that out wherever you get your podcasts, and you know, when you're not listening to Bloomberg Business Week, it's a pretty good one, all right. So as we get you set for it's underway. The first trading day. Here we go, folks. Let's understand, and we started this conversation earlier in the hour with our own Luke Kawa. We're going to continue it with Brett Ewing, his chief market strategist for First Franklin Financial Services,

joining us on the phone from Tallahassee at Florida. Great to have you back with us. Thank you, Jays. All right, So t this up. T this year up for us because twenty nineteen, unexpectedly in some ways, was, to use the technical term, a heck of a year. Everybody felt great about it. Uh, no huge surprises other than a couple blips, at least from an equity perspective. How does look in comparison from your vantage point? I'm optimistic on and I feel that it should be again a pretty

good year for equities. UM. My theme for is basically as surprises. Surprises are going to be across the board again on on, and they will be on the upside when we take a look at earnings, which Jason and I have been talking about in the last hour, eagerly awaiting earnings numbers to start trickling out in the next few weeks or so. What sectors do you really, because

we sort of focus back on fundamentals. Yeah. Um, with with sectors for uh, you know, we like the energy materials technology, um on the healthcare medical devices specifically, and I also like industrials and so would you think about those areas? What are the big risk means? The political risk seems to be something that plays through just about everybody's uh both both best in worst cases. How do

you figure it in? Yeah? So the things that I'm looking at are the two primary concerns I have right here. Our trade war escalation? Is that going to diminish? And I'm going to take the stance that I believe that the escalation is on a path to uh dissipate. And I also believe the Federal Reserve and central bankers around the globe or on the right path and stepping to

the side, and uh they're being accommodative as needed. And so do you buy the idea Brett that like central banks become sort of the non story of and if that's the case, and Taylor brought this up earlier in the show as well, do we focus more on sort of the fiscal rather than the monetary side. Well, I would like to think that central bankers could stay out of the limelight. Um. It's it's that's that doesn't often happen um, And I think that there could be a chance.

It's with good intentions that they want to stay on the sideline, but there there could be some some real wage growth here in and wage inflation could maybe push up some of the numbers going into the second half of the year that I think the FED will be taking a look at. Brett. I really like some of your calls that we've been talking about. You like industrials, You're really looking at materials of having a good start

to commodities start to show some life. I was joking with Jason, I just did a crash course in commodities as I was inchoring a commodity show earlier today. And talk to me about what commodities you really like, because I hear calls for gold set to go to sixteen hundred nuns and yet copper really showing signs of rebounding to those two one being a safe haven, one being a really um uh sort of way to measure economic

growth normally wouldn't coincide together. What do you like about the commodities, Well, I like the fact that they are a good indicator, And what they're telling me is that there's life in the global economy that's not really being priced in, and those commodities are historically a pretty good leading indicator that more positive days are coming for the

global economy. And when you wrap that up with what I said about the central bankers and also about some of the trade positive movement in the trade wars going on, then I feel that that the commodity market is actually pointing that out, that it's giving us a sense of solitude that that is gonna play out. Well, what's your biggest worry? What what do you worry most about? And as you talk to your clients, what are they most worried about? As we get into you know, I would

love to see productivity start going back up. It's been uh tapering off here recently, and you need productivity with the labor market this tight to keep inflation from rearing its head unexpectedly. And so what I would like to see is productivity pick back up. I worry about inflation coming into the picture. I know that people have said there would be inflation for the last ten years and it just never shows up. But where we are in

this labor market. If you look at the the wage growth that we finally receive starting in I think that accelerates in with this tight labor market, and um, I really think that that could surprise people in the second half of the year. So there's my concern. Yeah, I want to go international for a bed. You're really liking e M debt? Here do I go dollar denominated or

local currency? Well, I think, uh, you know, a lot of your viewers out there potentially could play that through uh E M debt, mutual fund or et F probably dollar denominated, but you know, we're liking that in the space. If you compare that to maybe corporate credit and how crowded those spreads are versus something in the emerging markets, I think there's better value there and a little bit more upside, and I think that's what's important for twenty twenty.

All right, Brett, you Wing, Thank you so much, Chief Market Strategies for First Franklin Financial Services. Johnny is on the phone from Tallahassee, Florida. Alright, a showdown is certainly what it is turning out to be so far. We'll see where it goes next. Let's get into it with Eric Watson, and he is Congressional reporter for Bloomberg. Joining us from our ninety nine one studio in the nation's capital. Eric, Happy New Year, New year to you. So what is

the state of play here? Because I feel like some of us went away for the holidays knowing that there was a bit of a stalemate, but it seems to only be getting amped up in a way. Give us the latest. Well, you know, Congress left town one December and there really haven't been any talks since that time on sort of figuring out how the Senate will proceed

with this impeachment tile of President Trump. Nancy Pelosi is sort of at the last minute decided to withhold sending the Act documents and withhold naming the managers as the House prosecutors that will appear in the well of the Senate to present the case until she gets more assurances. This isn't what she said would be a sham procedure.

This is sort of a way of Democrats of spotlighting, which McConnell, who has said that he's not going to be impartial and that he's going to coordinate with the White House. But as far as I was able to report out that This is a risky strategy for Pelosi.

She can do this for perhaps a week or two, highlight that the Senate is moving along on a track not to have any witnesses or fresh documents, but at that after that point that his dimission returns and five of the Democratic senators are in fact running for president, and during any impeachment trial that drags into February, they will be stuck their silent jurors and be unable to campaign, so that it really can't last that much longer, at

least in the minds of most people I talked to. Yeah, and very very good point about Nancy Pelosi, because we all felt like she sort of was even pressured to begin this impeachment stuff to begin with. She had even stated, I believe earlier that she you know, probably wasn't a good strategy for the Democrats, and then, you know, under pressure,

she went ahead with it. What is the outlook for her then, in terms of you can't drag this out more than a few weeks, Well, you know, House Democrats came to the conclusion that included any of the moderates in the swing districts, that they had to basically impeach President Trump, but they felt there was enough evidence and

that there's no way they could not do it. Politically though, I think Pelosi has her sort of finger on the pulse and and and it has proof right in many ways, Presidents Trump's approval rating has knock gone down, his core base of support has remained with him, and we don't really see senators who would be needed to defect in

order to convict him really moving to do that. We saw some like criticism from Susan Collins, a vulnerable moderate main senator who's up for reelection, criticizing McConnell for saying he wouldn't be impartial, but she didn't really buck his strategy, which is to basically start the trial with presentations and

maybe talk about witnesses later. And so where does Chuck Schumer fit in to to all of this because obviously a very well known name, certainly to our crowd here Bloomberg listeners, especially in New York City, but also beyond well known for his ties to Wall Street. Uh, what

how much power does he have here? Because the dynamic in in the Senate is a little bit different, right, Well, you know, Mitch McConnell was able is able to control the floor most days, and in fact, famously with the Mayor Garland Supreme Cortina under Obama, he was able to just block that. He doesn't have the same amount of power when it comes to an impeachment trial. There needs to be fifty one votes. The Vice President is not

involved in this. The Chief justin is already sitting in the chair and can't vote maybe to agree on a process, so uh, you know, that is really what determines this. And if if he loses you know, four of his members, and that is possible with Murkowski, Collins, Romney, maybe McSally from of Arizona and others saying we need to have witnesses, then that can be voted on and witnesses will proceed.

And Schumer has laid out a very specific plan he wants to see, you know, the Director of the Office Managed Budgement, John Bolton, the UH, the National Security Visor who has now gone from the White House, and others who had direct knowledge this withholding of Ukraine eight. He's laid it out. He also had a subsequent letter to McConnell with a long list of documents he wants to see, and he continues to beat the drum. He's the lead

negotiator here. Pelosi has made this sort of move to withhold the articles, but he is the one who will be in the room talking with McConnell and all this. Well, and I think you brought up a very good point that if this goes on any much longer, you have a lot of the Democratic nominees who were out on the campaign trail that are now going to be tied up.

And some of these hearings is as it all unfold, who are you hearing from your reporting is at the most risk from you know, potentially being locked up in d C. Not being out on that campaign trail. Well, you gotta look at Elizabeth Warren and Bernie Sanders, who are really fighting to gain first place. They have a lot uh to lose by not being able to challenge and get front runner Joe Biden, you know, off of his position, which is right now the front runner in

terms of polling numbers. And we'll see how it all shakes out when the Iowa votes in early February. But you know, certainly if they're trapped in in the in Washington, d C. Into February, that could be a problem. But you know, the piece that I put on the Bloomber terminal also talks about the risks of this delay for Republicans. There are some vulnerable Republicans clean Corey Gardner of Colorado, uh and Martha Msally of Arizona and others who don't

really want to talk about impeachment. They do not want to nationalize race. Uh. They're big negative is really just Trump's negative approval rating. Uh. They want to talk about their own accomplishments, about the economy, of course, which is very strong in the Republican strong suit here. But dragging impeachment out doesn't really help them either. All Right, We're gonna leave it. They're great stuff, really good context, and UH, I feel much more up to date on this having

talked to you. Eric Wasason is congressional reporter for Bloomberg. He joined us from our N one studio in Washington, d C. Journal. Yeah, but you let me drive. Oh no, no, no, no, honey, please, I'll do the ride revels. I want to drive, Just drive, baby, good questions trying. This is the drive to the Globe Commune. Thanks, we'll dry us on Bloomberg Radio. It's time for the Drive to the Clothes on this first day of trading

of the new year. Let's bring in Cathy Boyle, president and founder of Chapin Hill Advisers, joining us on the phone from lovely Bedford, New York. Cathy, great to have you back with us, Happy New York. Good to be here and to you. So last year pretty good year, I think it's safe to say for the equity markets. Everybody felt pretty good about there for one case, as they were reviewing them over the holidays. What does look

like to you? Just to start? So, last year was driven by an expanse in in PE price over earnings ratio, So we started the year out with earnings estimates UM getting downgraded along the way, but the PE expanded from thirteen to eighteen, and so I don't think this year is going to be the same unless we have a real acceleration of earnings and that seems to be the problem. UM recently just wate a report with fifteen companies reported

in November and their wide swath of different industries. Ten of those companies were then downgraded for Q one with analysts, so that's not a good sign right now. Earnings estimates are rated to be a nine percent increase if they fall short of that, the pe could collapse. So I

think you know risk is high at this point. Well, Cathy, I like that you talked about the divergence that we're seeing because when you mentioned earnings, I'm taking a look at our estimates for the fourth quarter of nine, which those figures we should be getting in several weeks or so. The index on earnings per share a year of a year growth is expected to decline by one point four percent. But there's a lot of differentiation. As we know tech looking to actually kind of grow the bottom line by

about three or sell. What are you seeing in terms of sectors? Is it more of the same, those sort of cyclical high growth sectors. Well, you know values out growth has been in and value has historically outperformed growth. Um, it's been a real decline. What people are not looking at is that you know today everybody's focused on stocks. Yeah, so here we go wick it up wave. People are saying, oh, we can extend this another ten years. Um, I don't

buy that at all. So I think that the things that have led the most, there's a very concentrated market. You've got a lot of hedge funds under performing, some odd hedge funds closed this year and they're giving up the ghost, and it's a very crowded market. Apple, the fang names, those are the ones that are very crowded. So I think technology it cannot sustain where it is, which has driven nastact for turn, which is the highest return for UM. So I think that people have to

be cautious. You have to be cautious in so many areas. Gold is a good place to go, and gold is something that you connect as a hedge. We've got global debt expanding, We've got debt DT at outrageous levels. We've got the highest enterprise to ebit a price to sales. We haven't seen these levels since two thousand actually in those two metrics. Alright. Speaking of Apple, Cathy, I just

want to bring our listeners a quick headline. Taylor and I both saw it at the same time as across red on the Bloomberg Apple crossing three hundred dollars for the first time, as stock extends its record high. It's actually it's flirting. It's like right at three hundred dollars now down just below h three hundred, So we'll see where it closes their Taylor, but it feels like a big deal to say the least. So, Cathy, what worries

you the most about this market right now? So it worries me the most that people are apathetic, you know that um people are not realizing that this debt liquidity sugar high can't continue forever. They're really not looking at the risk in the market, and they don't understand that there's risk in the bond market and stock market bond

markers up eight percent last year. Just a small move in interest rate station can make a huge difference in a portfolio, like a quarter point rise and a ten your treasury can translate into a couple of percentage points loss in your portfolio, And so they're really people are not recognized that the lack of correlation is not there. So a traditional sixty forty bond portfolio did go great last year, equity did even better, but it really wasn't much below that I think it was for sixty forty

versus twenty something for the SMP. So you're not really giving up a lot to have that mix. But what people are not looking at is the downside risk and this we can't continue and inflate the debt that we have the balance sheet of the FED has gone up dramatically. Peigners have slowed down, the actually liquidated net billion dollars, a fewer purchases of treasuries, and that supports the debt. We can't continue to print money and buy it back ourselves.

So this helicopter sort of money um could stop and rates start to rise. You've got a housing market that will quickly be affected mortgage rates go up, and a huge subprime bubble with auto lenders. Huge amount of auto lenders have um subprime debts, So these people are not good credit risks and they any rise and rates can cause more default. And these are packaged and bought in portfolios on Wall Street. So I think there's a lot of risk, but a lot of relates to interest rate

risk in my opinion. Yeah, Kathy talked to me more about those auto loans because I was sitting here with Jason trying to figure out. I remember two thousand six, two thousand seven, no one really saw the housing crisis. A few people were looking at certain cracks, and Jason and I were talking about where is the next crack? Is it student loan debt, is it corporate debt? Fallen angels. Is it the auto loan market? Are you releasing the

of loans is a potential next crack so to speak? Absolutely, I mean, I think it shows that the lack of credit worthiness within our economy. So where supposedly at full employment, um, yet the bulk of those jobs have been in lower paid you know, UM industries like retail and housekeeping and hotels. It's oter hospitality. So I don't think the average American of Americans do not own any stocks. Of Americans have

inflated their networks over the last number of years. So the bifurcation between the up and down is a higher level. Lower level is concerning. So it's mortgages are also continuing

to uh creep back into that lower documentation alternative documentation. Um. But the subprime market on auto is interesting because cars have gotten so expensive and you finance an sud at seventy eight dollars their financing over a longer, longer period of time, and the depreciation rate of a car when you drive off the lot, you know, it just falls down, so the cars are not worth what the debt is worth. And the same thing with leasing, you know, so it's

basically a pondy game they're playing. Now, how big is the auto market relative to the overall market. I don't know that, but Liberty Nation reports and they said basically half of the loan's originate in the first half of or subcrime, very large percentage, sixty one billion, you know worth, so I think. And then what they do is they securitize these they package them up and ship them out, and regular people buy them as alternatives to bonds within

their portfolio or they go into bond funds. So that's another place where there's hidden risk in your portfolio. People don't always know what their duration is on their bond portfolio, and they think of bonds is safe? Right? All right? Uh, nice words of nice words of caution. We're gonna leave it there. Kathy Boyle, really appreciate it. Always good to catch up with you, President, founder of champing Hill Advisors. Johnny's on the phone from Bedford, New York. Thanks for

listening to Bloomberg Business Week. You can subscribe to the podcast on iTunes, SoundCloud, or Bloomberg dot com. You can also listen to our radio show every weekday at two pm Eastern only on Bloomberg Radio. H