2020 Outlook for Currencies, and Commodities (Podcast)

assets generally will rally throughout next year. Right now, you're seeing emerging market currencies at least the index at the highest levels of the year. And we're so lucky to have with us to talk about what people may be getting right and what they might be getting wrong with their forecasts on emerging markets and currencies next year. Is Dr Winton, Global head of Currency Strategy for Brown Brothers. Here are many joints is here in our eleven three

oh studios. I'd love to get your take on that. I mean, you've heard also these forecasts. What are people getting right? Well, I think what's right is that Morton General have stepped back from bring you know, um you know, seven months ago we're looking at a hard Brexit, sensifying US China trade war. And over the last seven weeks those those tailors have have eased. I can't say, but

then he's certainly that they've disappeared. Uh. For instance, um, Mr Johnson, after his big election victory, he said, Oh, we're gonna still gonna leave December thirty one, no matter what, you know, So heart breakit. It's still floating around out there. I don't know that's the base case, but out there US China trade deal great. We just got news that they're gonna sign something Phase one in in mid January likely. Um,

but that's the low hanging food. We had trouble getting the easiest part done and we've got phase two plus coming up. So it's it's gonna be some low level sort of tensions I think persisting throughout. That's not to say Marcus kent rally risk can do risk, acids can do okay, but you just have to be you know, you knows, be cautious. I guess that's my my watch word. Yeah, because I'm Yeah, as Lisa and I have been talking about the current seasons and so on, I'm just I

always kind of lead with. I have a very difficult time coming up of the bear case for the U. S. Dollar. I'm looking at the dollar index is off about a third of one percent today, but you know, I'm just not sure what rallies against it. But I guess you know, do you think that the dollar could appreciably depreciate this year? Paul? I mean you really have touched on really the big debate because you know, look in long, going long dollar was really the way to go, at least until Q

four UM. And I think I think you and I are in the minority now. I think you know, most most researchers and forecasters are looking for a weaker dollar next year. And I have to agree with you. If you don't like the dollar, where do you go? That's my first question? Okay, we want to short the dollar? Where you go along? Well? UK, you know again Brexit issues are still there. Other economies is still going to remain very weak under because it's continuing uncertainty. Your zone

is struggling. We may get another round of stimulus. That remains me seen Japan struggling with the consumption tax hike impact. So it's really hard for me to get excited about a lot of other places, and I think we goes back to so there were the least bad place out there. Although you could say people are going to put more money in to emerging market currency. Is what you've seen. Uh do you buy that? Yes? I do. So we just brought out a quarterly Uh, I guess two weeks ago,

and we do have the sort of bifurcated dollar. I look that against the majors that should do better, but against emerging markets, uh, it will do a little bit worse. So it's doesn't always happen a lot of times, you know, really trades and lockstep, but this is one of those times where we think we can get divergence between major currencies and emerging market currency, which nations which crosses are going to kind of drive that in emerging markets emerging markets. Well,

that's the thing we've been telling our clientses. And you know, you can't just go widely long m there's a lot of idiosynecratic risk out there. You know. For instance, we're very negative and remain very negative in South African Turkey various reasons, but much more positible in say Brazil and Mexico and sort of agnostic on a lot of things in between. But it's really it's really just a matter of really doing a homework. And I say this all

the time. You know, whether we're in a bear market or a bull market, you know, you really got to do your homework. You look under the hood, which countries are doing the right things, which countries are doing the wrong things? Um, And really, really, I think, m when when all of dust settles, the performance story speaks for itself. All right, you mentioned Brazil. That's kind of where I

wanted to go. What's your thesis on Brazil? Because I know that obviously when people think about emerging markets, that's one of the first places they think about getting disposure. So Brazil got hammered last during this esay last year. I feel like I was already twenty but it got hammered in um in much of nine. And I think for good reason. But a lot of the UM good things are happening now. Growth is finally starting to pick up. UM. Mr Bolson I was able to push through a majority

of his fiscal reforms. But you know, I was actually pretty skeptical that he would be able to do so. But he got the majority of it past um. Central MICUs cut rates aggressively. That's the sort of the I think the warning sign. You know, I think a lot of investors are used to ten percent twelve percent rates in Brazil. You know, just put money in government bonds what have you, and you get a really solid yield. But you know, we're record low four and a half

percent for the celic rate. I think that's the bottom. But my only point is that we used to get a lot of cushion, you know, used to get a lot of sort of risk premium for what's going on in Brazil real longer there, so we're sort of price for perfection. Uh. Maybe market getting a little too optimistic. But just again, it's good things. The economy is starting to finally respond to stimulus. Um another round of structural forms I think is in the pipeline for so you know, overall,

good story. We just have a few hours left of the last day of the treading of treading of nineteen, so it's time to get philosophical. It falls like I'm going to go back to practicing my golf stroke. Um. I want to talk a little bit about the concept of de dollarization, because we've seen an incredible amount of net buying of gold by central banks around the world as they try to diversify away from the dollar. Do you buy that that could potentially gain steam and create

a bit of weakness for the dollar. Well, I've been in the markets for years in the space is basically screaming note And I have to say I'm not exact when I've heard the story multiple multiple times, and you know at first it was gonna happen. I think the big time was when the Euro was introduced. Well, of course the Euro, we got this big economic powerhouse and

it's gonna replace a dollar. Um. It's interestally asked that because I'm have just released it's quarterly co for data competition of for in exchange reserves, and the dollar shares actually checked up a little bits around. It's always been so around sixty. And if you look at the at the euro share, it's always sort of been the sum of the parts. You know, if you took nine, nine, you took you know, French, Frank Italian leader, blah blah blah, you add them all up, that's pretty much what the

Euro is right now. So it's it's there's still no one out there that to really challenge a dollar. What about the whole concept the other philosophical question facing currencies of a crypto un rite, the idea of some sort of crypto currency that could supersede the dollar. No, that's I mean, I think that's Governor Karney of the BO. You just sort of threw that out there. It was like you know, dropping, uh, throwing hand grenading in the

crowd that up. Yeah, it was really fascinating. Um, you know, like the one philosophy I noticed that the person's uh, an observer's interest in cryptocurrencies is in inversity related I'm sorry, is positively related to their inversity related to the age. So the older you get, I think, the more skeptical you are cryptoscurrencies, and the younger you are like, okay, this is the greatest things in slice bread. So you know,

I'm the oldest guy in the room, I think. So I'm gonna be the skeptic and say, look, you know there's a lot of you know, the whole blockchain technology is there, right, and it has all sorts of um, you know, secrecy provision things like that. But you know, in terms of an actual you know, reserve conrecnier, it just doesn't meet those those qualities. You know, that's sort of the conditions were being a currency right in the

store value you need to measure, you know. It's just you know, when when you tell me if a currency you know can rally you know a day or drop or you know, drop a thousand percent or whatever, it's just you know, it doesn't that's not right. Know the central banks, if you know, I've met a lot of CenTra branks in general, they're very conservative. They you know, they want something solid, and that's why the dollar is

still there. You can trust a dollar. You might not agree with everyone doing, but it's got a great track record. Dr Winton, thank you so much for joining us. Dr Winton is global head of Currency Strategy, Brown Brothers Harriman. Looking at the consumer, it's really been the driver for

this economy, the consumer confidence. Uh, whether you look at the jobs or housing prices, the consumer has really been, uh, the component of this economy that has really been supporting the US economy as business investment, as manufacturing continue to be under a modest amount of pressure. Let's get the latest indicator of the Consumer Confidence Index. We welcome Lynn Franco, Director of Economic indicators for the conference board. Joining us

on the phone from New York City. So, Lynn, give us some color on what your data announced today means for the consumer. I think the consumer is going to continue to prop up the US economy. In early I mean, we had a very slight marginal dip in consumer confidence, mostly in people's expectations, uh, you know, regarding jobs and their income prospects, which may suggest no real pickup in in consumer spending. But we still expect consumers to spend enough at least for us to have a positive growth

in Q one. When do we start to care the fact that we did see a slight decline into summer four or five. In the previous months we saw a dip like this, We've really just been moving sideways. I think. Really that's the story for nineteen and probably in early twenty as well. So no cause for alarm. This is sort of typical behavior. It's behavior to that suggests, you know, we're sort of at at a plateau. So, um, you know, our expectations are as the economy is going to continue

to expand. It around two percent in the first quarter, second quarter, uh, consumer spending should come in and around two and a half percent in Q one UM, so really no red flags as of yet. One of the key issues supporting the consumer has been the job market again, uneployment down around three and a half percent, the best it's been in you know, fifty or sixty years. UM.

What is your survey saying about the labor market. I think what we're seeing here is that consumers expect a little bit of softening in the labor market in UM. Not that that translates into you know, suddenly, you know, layoffs and any other sort of negative behavior, but maybe that it won't grow just as fast as it has

in UH nineteen. I was looking at this data today that shows half of the US population spends more than they take in every every month, and I find it compelling because it kind of speaks this two tier economy that we're in. And I'm wondering from a consumer confidence level, do you break it out or do you have a sense of how confidence is different depending on the income level. Absolutely.

I mean if you take a look at sort of you know, consumers earning under fifty thousand a year, UH, their confidence level is at one oh seven, not unaveraged, let's say, which is confident but not as confident as their counterparts who are earning fifty and over and are averaging at one, you know, at around one thirty eight. So it continues to be sort of a a split economy here in terms of consumers. And while both the upper end and the lower end remain confident, um, those

in the upper end are much more confident. How about housing, that's been a big part of that is a big part of a consumer's net worth in the housing markets generally been pretty strong with low interest rates, which your survey saying about the housing market in US, yes, I

mean that remains sort of a bright spot. And we did see a pick up in the percentage of consumers who had the intention to purchase a home over the next six months, and I think we can attribute that to the several cuts that we've seen in you know, in interest rates, so that should bode well for housing.

I think we've got some positive news this morning, so that could be a very you know, bright spot in and obviously of concumers are purchasing homes, you're going to need you know, durables to go in there, so that may be a boost spending as well. Lin Franco, thank you so much. For being with us and happy to year two. Lin franco Is, Senior Director of Economic Indicators

and Surveys at the conference. Board has been what Lisa abrom Woods has I think correctly coined the everything rally year Everything seems that I like it though, but I'm not taken credit for it. That includes a gold so which is kind of you know, given we're seeing risky assets go to see gold move up off. It's June low also very interesting to get a sense of what's going on in gold, in the metals market and other

things financial. We welcome Frank Holmes, CEO and Chief Investment Officer of US Global Investors based in San Antonio, Texas. So Frank, again, I'm just looking at my gold chart here and since early June gold now is rallied about

what's behind that a negative real interest rates? Bloomberg has a beautiful function and'll let you take a look at all the government bonds around the world, and you saw the peak took place in August when it was a record number of government bonds were offering negative real interest rates to try to stimulate economic activity. And that's the great in balance that we have, the balancing of economies, fiscal and monetary policies. The fiscal policies are toxic regulation, monetaries,

money supply, and real interest rates. And the unprecedented number of bonds that are offering negative real interest rates and try to stimulate economic activity is a catalyst for gold to trade higher. So this is an important point that we've had negative yields for years now, but this year we actually saw inflation tick up beyond where the yields were. In other words, there was a sense that you are losing money by parking it in bonds. Is that the idea here? And that was sort of the shift in

versus the other years where they're also were negative interest rates. Well, no, it's it's it is part of it as a good comment you make, but I think it really is. If you take a look at the aggregate number, it hit an all time high in August, and that's when gold hit an all time high. So we're seeing our strong core relationship by I guess quant macro funds that are going a long gold every time that trend starts. Momentum of more and more government sovereign bonds going to negative yields.

But the inflation area in the US is real, especially if you look at prices at Target and Walmart. And Target Walmart are critical for covering the upper middle class down to the lower class and all classes of that range. And we're seeing in place and running five to six percent with the tetraphor so you are seeing. It doesn't show up in the CPI numbers, but the real zoomer going out and buying products is experiencing inflation pushing six percent. So, Frank,

where do you think gold? I'm looking at gold here announced fifty one dollars. Where's your expectation for gold maybe a year from now. Well, it's easy for gold to go up or down in any rolling twelve month period of the past fifteen years. Uh. It's his DNA of all of TILLTI seventy percent of time. So I think you can see gold track up the eighteen hundred maybe take out the nineteen hundred high that took place in

two thousand and eleven. Uh. And the reason why I say that is because this in balance between monetary and fiscal policy position makers is still not resolved. It's off. There's only countries that have really lowered corporate taxes or creating tax free zones for incentives are America and China. Now, fortunately there of global trade and that's an important macro factor. But I think that the rest of the country is,

especially Europe and Japan. Uh, there's no conviction to actually streamline the regulations which have been growing at ager for the past decade. All Right, so we covered gold, let's move on to oil. We're seeing oil prices surging this year. Are I guess searches the wrong word. They've risen significantly. Uh, and of late they have been rising. How much more space is there in this rally? In your opinion, I think that oil will run into difficult eighty dollars. The

factors are just an incredible game changer. And you saw this morning at a Russia that in fact they're lowering some of the five year gas contracts UH to Europe. Now, this is great for global economic activity, but it's not so great for the energy stocks. So it's interesting. You know, when I think about gold, it's just you know, it's a commodity obviously supplying demand. It seems like demand has been really the determinant of where oil is going to trade.

If there's a trade deal out there, easing trade tensions. Oil can rally. If we have a bad tweet about trade between US and China, oils tends to pull back. How are you thinking about oil? Is it really demand driven or supply driven? I think you right now is still supply driven. And I think the the the technological breakthroughs UH in America have, in addition to the ubers of the world, I would change the transportation, would changed the energy dynamics. So I think that it's going to

be definitely. Supply is going to be strong coming over the US. They keep lowering the price of them, costing of the costs and finding energy. It's they have a surplus of energy. In fact, earlier this year electricity places in Houston went to zero from the surfplus of electricity and not only from gas but from windmills, et cetera. So I think it's a game changer. Frank Holmes, thank you so much for being with us, and happy New Year to you. Frank Holmes is chief executive officer and

chief investment officer for US Global Investors. Thanks for listening to the Bloomberg P and L podcast. You can subscribe and listen to interviews at Apple Podcasts or whatever podcast platform you prefer. Paul Sweeney, I'm on Twitter at pt Sweeney. I'm Lisa bram Woyit's I'm on Twitter at Lisa A. Bram Wits one before the podcast, you can always catch us worldwide. I'm Bloomberg Radio