Bond Selloff Leading the Rotation on Equity Front

is underneath the surface. There has been a rotation out of those momentum names tech for example, and into value led by banks. Interestingly enough, we are getting a little bit of yield curve skeepening, but not not a whole lot to justify the move that we have seen. We are so lucky to have with us on Wheti Bajugana. She is senior portfolio manager and a head of multi asset Strategy at Columbia thread Needle Investments, which oversees almost

five hundred billion dollars on wheat. Thank you so much for being with us. I want to just start with what's getting you excited right now? I mean this sort of trade out of momentum and into value. Do you think of this is something that has legs very short term Li Sa I have been watching this rotation as well, and on the equity front, it's value versus growth. But if you look at the bond market, it's really quite

correlated to what's happening to rate. And we have seen a few days now of sustained sell off in UM bonds, which is leading this rotation UM in the stocks also, and really the drivers for both markets is the same. It is some sense um in the markets of reduced risk, the escalation of some of the issues that had dominated UM folks mindset in August. So and we we've seen,

as you mentioned, some rotation driven by rates. What is your kind of economic backdrop in your base case, We've seen the consumer really kind of supporting in this economy in the face of kind of what some weakening manufacturing data. Right So that's why I'm a little uh skeptical of the rotation that we are seeing right now. It's definitely

worth watching. But what would get me really excited to answer Lisa's question, would be if we begin to see some improvement on the economic front, and that Paul still remains to be seen In fact, if you look at the data that's been released in September so far, we're beginning to see cracks on the consumer side of the economy. Also, we saw a leg down in the consumer sentiment in the Michigan survey for August, and if we look at the payroll report, we're seeing slow down in hiring also.

So I would be super excited if we see improvement in economic data. That would give me confidence that the movie you're seeing in Rapes is sustainable, and that would make more sense to me than one that's probably based more on um, you know, a sense of the escalation, even though none of the underlying issues in my mind have been resolved. Okay, So, given the fact that you don't necessarily see a sea change underpinning the move that we have seen, are you selling, for example, bank stocks

into the rally and are you buying bonds? We are maintaining very much the mindset we had in August, which is that we are slightly underweight equities and for us Lisa at an aggregate level, that would be selling equities on rallies and buying bonds. So that's what that's that's

what you've been doing. For example, yes, that's right. So and we just you know, we talked about, you know, what are the key drivers for this market, and you know, we can't escape the fact that global trade tensions discussions between the US and China more likely than not, are you know, kind of influencing day to day moves in the market. How are you discounting kind of in Europe base case outlook kind of what is a very uncertain trade environment between US and China. UM, it happened very

difficult to get that call, right, Paul Um. So we are staying out of it. We don't see any improvement other than really just the mood music on on the trade front. That it's no real substantial movement on the trade front. There's a lot of back and forth. We don't believe we would see a substantial deal anytime soon, and so we are staying on the way risk affettes in our portfolios. It would be helpful if um we

see the breaksit issues get resolved. But you know, even there, the only positive that I've seen is that there is some lowering of the risk of UM no deal hard brexit. But by and large, the thing that's giving us most confidence really is the fact that the FED is thing accommodative threads, not of its not complete pivot on their strategy since the beginning of the year, and is um maintaining a policy stance which is supportive of risk that prevents us from getting up two nervous about the market

because there is a backstop. So, given the fact that the FED is likely to remain accommodative and perhaps provide even more accommodation in the very near near term, I'm wondering how you feel about credit right now. You talked about buying bonds. Does that extend to risk your bonds at a time when companies such as for example today Kraft Heins is looking to push out their maturities so

longer dated debt and lock in these lower borrowing costs. Yes, I think completely so doing a really good UM, you know the job taking advantage of the yield environment. I think we still don't really like the risk are segments of the credit market such as high yield was staying in the investment grade and securitized space and reyn old treasury bonds, mainly because we can see more accommodation this

year and even more next year. But that would really just mean that the economic conditions continue to deteriorate and the trade issues continue to escalate, So that is not really a very encouraging environment for longer term health of the economy. UM in that scenario, you know, spread easing even more aggressively or getting even more accommodative. That is likely because the other two issues have not been resolved, and that's not a great environment for the risk are

segments of the board market. So I was that's kind of where I was going to go. Unwitty emerging markets. There's been some debate whether you know, the the that the lower rate environment we had been experiencing was conducive to emerging markets, but the performance just hasn't been there. What is your view on emerging markets? Very similar views as in high yield pole. I would also be uh cautious on emerging markets. You know, they are actually bearing

the brunt of this trade trade escalation. Uh there is this location in their export and what's happening UM with the global trade flowdown, So there is no reason to uh take a lot of risk in that space. Also at this point in the cycle, we're speaking with Anuti Bahuganas, senior portfolio manager and head of multi asset strategy at Columbia thread Needle Investments, which overseas four hundred and sixty eight billion dollars based in Boston, Massachusetts. Uh and today

is quite a day on Wall Street. We're remembering nine eleven and the interspersed throughout the day, we are having moments of silence that are incredibly appointed for everybody who experien arians what happened eighteen years ago. Hard to believe

it was eighteen years ago and we did. I want to shift gears a little bit away from just sort of allocations to the ECB because everyone is on high alert for what the what the e c B is willing to do in terms of accelerating their stimulus, whether they're going to cut the deposit rate further, whether they're going to add some to their quantity of easy or purchase even stocks. What are you expecting out of the e c B. Um, not as much as I think

the market is expecting. I think, you know, they will do some rate cards and maybe a little bit more queue. And I've seen lea a very different estimates of the range of QUEUEE deposit cuts of twenty basis points is quite likely. I think if they do a little more quee uh, that would be supportive of risk assets in Europe. But if you look at risk assets in Europe, and I mean away from bomb looking at European equities, they've been performing quite well, in fact, their neck to neck

with the U S stock markets. So I think risk efforts are pricing in more accommodation from ECB, and that would be sort of druggs foreign gifts to UM monetary policy in that space. But what happens actually this raise is a good question, what happens if the ECB disappoints. I mean, how big of a sell off could we be looking at? Well, it's I wouldn't be able to give a sense of the sell off, but I really

really doubt that they would disappoint enormously. I think they would still go through about thirty billion or so per month in QUEI, and I think that we would see deposit cut rate cuts, which is, you know, perhaps given the noise of some opposition by some of the shadow policymakers UM and a fair amount of debate within e CD on whether they should be doing this or not is not fully priced in. So and we you know, we seem to be having a global race to lower

rate to the bottom. How effective do you think continued rate cuts are to address what could be slowing economies? So so there are they are small bandids, small and they can help if broader economic health remains um you know,

well maintained. In other words, we are seeing this the deceleration of growth even in the US from where we were at three percent to now to do too in a quarter or so and you know, back to sort of trend growth around the best performing economies of the world are seeing below trend growth or trend trend growth, but we are not in recession and that sort of the support all this accommodation is providing. While at the same time we are seeing change, see change in how

global trade is conducted. So there is to your point, limits to how much help they can give, they can support. They can be there with lower rates. Lower rates are not really holding back businesses. It's the uncertainty around the bigger question of trade that's holding back businesses. And who gonna thank you so much for joining us on what he is Senior portfolio manager and head of multi asset strategy for Columbia Threadneedle Investments, based in Boston, Massachusetts right now.

It's interesting to just to remember that over the trailing twelve months, Uh, the SMP five hasn't really moved that much. We've had a tremendous amount of oility at that time, but essentially unchanged of the trailing twelve months. What But yeah, we are better a one and a half percent from the all time high. So the question is kind of where do we go from here and can we expect more volatility going forward? There's no one better to discuss

some of those market issues. And Ken Fisher Ken as a founder, executive chairman and co c IO of Fisher Investments with one and seven billion dollars under management based on Whatside, California, but joining us here in our Bloomberg Interactive Broker studio. Thanks so much for being here. So there's a lot of folks, I think, trying to figure out what the next step is for the equity markets. For example, we've had trade issues, we've got an easing FED,

we were ten plus years into an economic cycle. What are you advising your clients? Well, I certainly don't think we have an easy FED. I don't believe that for a heartbeat. I mean, the FED is um idiotic at best, uh and and always has been. I learned that for Milton Friedman when I was very young. He always said they always would be, and I'm gonna stick with that.

But the fact is that right now it's fairly obvious if you think about it on a Bloomberg terminal, that the non US world for the first time is leading

the American market. And if we think of what's going on overseas, what you were saying, which is true when we think of the American market, becomes more visibly directional if we think overseas, so whether it's Sweden, whether it's um, Germany, whether it's Britain, I mean Britain with all our bricks stuff, the UK markets doing better than the US market is right. Hold on, let's let's translate this basically. Basically, it's leading US in terms of the ECB, the Bank of England,

the Swedish all The direction is easy. The direction of the market is positive and upward overseas more so than here. Here it looks like you're in that trading channel there it looks like it's broken out, because it's not that the economy is so much better there. Oh, I think it's because just simply there's this fairly st andrew economy being better. G Who in the heck needs a better economy?

We have a near Goldilocks economy as it is. If you could grow the global economy at two percent with no inflation, that's kind of what in the nineties we thought Goldilocks should look like. The fact of the matter is they've been having enough problems over there that at every place you've got the almost equivalent of having recognized a recession. It's not a recession, but it's that quasi growth recession, which is almost as positive for stocks after

that as an actual recession. The history of big slowdowns grinding through what what are what are recessions and bearer markets supposed to do. They're supposed to overcome and fix the excesses of the prior boom. That's what's supposed to happen. Right now, We've got a comparable period where we're doing the same thing over there. How about here in the U. S are you in the camp that it feels like a recession is av for the US? I would be

stunned if we have a social care uh in that timeframe. Okay, The fact of the matter is that there's really other than the fact that things are going along pretty darn well. For example, folks point to uh manufacturing p m s, but if you think about its services are three times larger, and service p m I is are just fine, thank you. When if we're up to me and I would have fed, I would dump all those stupid bonds that they bought

that they never should have bought in the first place. Well, okay, well let's let's let's talk about what you're actually doing or what you're actually advising your clients to do. And it sounds like you're bullish on Europe right now, given the fact that they're they're cheaper than the U S. No, I didn't say cheaper, that they that they're basically they

have more bearishness sort of built into them. Uh so, therefore there's more potential upside the US maybe less so in terms of where we are in that cycle is right here, right now, And we're also with a stage in the American political cycle were normally the market slows down for a little bit in America. Okay, so then how much are you advising clients to overweight Europe over the US. You know, I'm not that extreme. So you know, I kind of have a overweight view. I don't want

to be extreme. I don't have a you know, hit bigger, go home better in me, because too often you go home and you're wrong too often. I mean, I live in a world where it's a world of probabilities, not certainties, and I got to be able to live through mistakes, which I know I'm going to make a lot of. If I could, if I could be right seventy percent of history, which I can't, i'd be become a living legend. And so I got to be prepared to be wrong

at least thirty percent of the time and lived through it. Okay, so close to a living legend, one could argue, certainly, giving your performance and the assets under management. But so the question, one of the questions is simply, we've had it just this week. It seems, at least on Bloomberg Radio a discussion and on Bloomberg News about maybe a little bit of rotation going on underneath the surface kind

of what is your sent is that? Just to me, it seems like boy people are making a big deal about what might just be some anomalous trading over a couple of days. But that's something more and that might be true. But pretty often after you've had a trading range like this, where the prior leadership has stalled, you get a bounce back effect that's not extraordinary. And that bounce back effect in this case would be value over growth, smaller over big. That's been what's been going on in

that rotation. My guess is, however, usually if we assume the bull market continues, usually the girl that brought you to the dance stays with you, and that probably is what happens, which is the leadership then eventually reverts back. I mean, normally, as you move towards the end of a bull market, you get what is referred to as narrowing breadth. Fewer and fewer big stocks lead the market higher and higher, typically of the same categories that led earlier.

So I'd expect over the course of the rest of the year for that process to eventually revert. One thing I've been in wondering how often do you trade? How often do you trade? How often as little as I can? So when when I was young, there was a great columnist for Forbes magazine named Lucian Hooper. He was the third longest running columnists in Forbes History. Uh, and he had a lot of great he was in New England

or he had a lot of great lines. And one of them is, you know, you make more money sitting on your hands and you do dancing on your feet. And there's a lot of truth to that. You you make your bets and unless you come to the realization that you were wrong in the first place, which should have some fundamental arguments to it, you let the volatility dance through you. So when was the last time that you traded? Oh? Well, we trade little bits all the time because we got a lot of money. But but yeah,

big trades. You know, we haven't done anything other than trimming little things for months. Is it less than usual? Yeah, because the market is not that volatile. People think the markets volatile, but the markets volatility this year is actually subnormal. If you actually look at the markets, volatility this year is not high. How about I P S. Do you guys look at No. When I wrote a book thirty two years ago where I had a chapter that I P O S. I mean, it's probably overpriced, and I

still believe that's true. The fact of the matter is I P O S or priced for the issuer. They're not priced for the consumer. And the fact is if if they want the history of I p o s is a short term pop. And you know, if you're gonna try to create a short term pop, usually that's going to go against you. Look at what happened with Uber, Look what happen would lift. Uh. The good part about I p o s right now is that we have not gotten to that part where we're floating garbage on

top of the water like it's gold. Uh, the garbage in there. You know, we're not having manufactured i p o s for the purpose of going public in volume like you know we do when we have exuberance. The lack of that as a sign of a lack of exuberance, which is healthy. Ken Fisher, thank you so much for

being with us. Thanks for having me. Ken Fisher is founder, our executive chairman, and co chief investment officer of Fisher Investments, which overseas a hundred and seven million dollars from Woodside, California. But he joins us here in our Bloomberg Interactive broker's studios. Well, we woke up to a surprise deal in financial services

this morning. Hong Kong Exchange has made an unexpected thirty six point six billion dollar bid for the London Stock Exchange, a move there that would upend the UK Borses combination just announced recently with definitive. So to get the latest on what this means in the world of global exchanges, we welcome Sarah Siad. Sarah's a Bloomberg News reporter, UM to get her sense. Sarah, thanks so much for joining us. Just give us kind of the background and what happened here.

This was really an unexpected announcement, wasn't. Yeah. I mean we're saying, UM, the words that are being used is the unexpected, the shark, the surprise. I mean definitely had London scrambling around. UM this morning. Certainly the deal's team woke up to to some big news this morning. I mean, as you mentioned, it is a bit of a shock. UM announcement. It wasn't one that any of us or

our competitors broke. It was. It was an announcement that came directly from from the Hong Kong Exchange UM itself. I think, UM, the timing is quite interesting. It comes on the off the back of the the announcement about of the LSE refinitive deal. I think what's indicative of the timing of the announcement is UM. Had the refinitive LSE deal gone through, it would have made the LSE

pretty much unaffordable for many other interested parties UM. But whilst the deal is still UM not completely through, buying else by itself makes it a more affordable play than with together with refinitive. What's the what's the larger here for the Hong Kong exchanges? Well, I think you know Hong Kong. These are two of the world's most significant UM exchanges, and it really depends on what I mean. It's clear what Hong Kong wants to do. They want

to create an exchange powerhouse. The question is what does Elsie want to do. I mean the deal with refinitive meant would have meant that UM the London Exchange was not only reliant on on the exchange but diversifying into more data driven a more data driven business. They need to now ask themselves, do we want to continue on that path and and this strategy that we had in play to diversify into more data or do we want to grow and become a exchange powerhouse by by by

being acquired by the Hong Kong Exchange. We should note that refinitive is the old Thompson Reuter's business, the icon terminal neck competed directly with Bloomberg LP. Uh, sir, give us the sense of what the political overtones maybe here, because this is, you know, the London Stock Exchanges a in a national treasure if you will, for the UK and Hong Kong coming in and maybe even by extension, China coming in and buying such an iconic UK asset.

How do you think that's going to play up? It's definitely and it would be an understatement to say that it is a politically sensitive um UM scenario. For sure. Hong Kong Exchange is interestingly UM pitting itself as a global exchange, trying to move away from being a pure Hong Kong or Chinese UM entity. And I think that is to UM an extem placate London and the government UH here for any concerns there may be about UM there being a Chinese bidder for UM. I guess this

gem of in London. You know, the UK Government's Andrea Ledson said this morning um On on bloom Vegta TV, just as the announcement was breaking that it's something that they would look into and most likely scrutinized. So it's certainly not without any political issues or involvement. I think that there could also be a US angle with with with Cyphius um Um coming into place. So yeah, from a political perspective, there's certainly it would not It's not

a straightforward deal. It would not be a straightforward deal. It just is a rabid up. But with the three six point five billion dollar offer, how does it sort of sit with analysts? They think it's expensive? Do they think it's cheap? Um? I mean a lot of the analysts report that we have read today have suggested that it's a deal that they don't think we'll go through for a number of reasons, politically, um being one of them.

But you know they have also said, um, you know that the UK is an attractive market for some foreign investors at the moment, particularly with the drop in in Sterling. But the Hong Kong exchanges um. Charles leaves that made an interesting metaphor earlier today, describing the potential tie up between Hong Kong and London as a corporate Romeo and Juliet But I think we all know how that story ended. Yeah, not not exactly auspicious. No, it's a bizarre it was

a bizarre connection to make. So yeah, let's see narrator. They both died. Sarah's said, thank you so much for being with us, Sarah said. Bloomberk News reporter are joining us to talk about the Hong Kong Exchanges surprise, a proposal to combine with the London Stark Exchange. Generalist saying it's unlikely, uh to see it come to fruition, but nonetheless definitely shocking markets this morning and sort of making them imagine the possibility. Is interesting to know what the

business cases for a lot of these exchanges. It has increasingly become a data one, UH in terms of feeds and UH and and an other market intelligence. We've been focusing on financial technology this week. We were earlier in Boston at the Boston's Fintech Week, which was really interesting as people sort of try to reimagine, uh, the way that the financial industry will look in the years to come.

Joining us now in that theme as Michael Tannenbaum. He is chief financial Officer of Brex based in San Francisco. Michael thank you so much for being with us. Why don't you just start by telling us what Brex is. Sure, Brex is a credit card for early stage businesses like tech startups, life sciences companies, and e commerce businesses. So, Michael, what are kind of what is your product your card designed to do? Is there is there a problem or a need in the marketplace for some of these startup

companies that your card in your service tries to address. Yeah, I think it's really around both products, underwriting, and text, so all three of those. On the product side, I think we're offering innovative rewards and technology and expense management

that is targeted to these businesses. On the underwriting side, unlike most credit cards, we underrate based on bank account rather than personal FICO or credit scores um and the combination of that delivers a really high quality product experience for these customers, often who are fast growing but have limited credit or operation history. So talk a little bit about the creation of BRAX. I know that you have

the support of some pretty significant play ayres in Silicon Valley. Yeah. So, the it's backed by Peter Thiel and Mac Lection, the two co founders of PayPal. We also had a bunch of investments from Silicon Valley and tech investors including y Combinator, d st Um, Kliner, Perkins, so a lot of big names that really saw the opportunity for credit cards to deliver more um to these these fast growing segments of

the economy. So, Michael, I'm just looking at the brex website here, and it talks about higher limits um, you know, ten to twenty times higher than any competing card for a corporate card. So how do you get there? How do you get comfortable? What's your process your underwriting process to get there. Yeah, it's interesting because when you think about counterparty risk as a lender, which ultimately we are in that respect, you want to look at the business

rather than the person. So if you think about traditional credit card businesses in the small small business space, they're underwriting the founder or some executive as a person and using that personal credit score to make that decision breakfast saying no, We're going to look at the business and underwrite the cash that is in the business bank account. And because we're doing that, we can actually offer much higher limits than competitive cards which are just underwriting people.

So the business is our counterparty and that's why we can offer higher limits. This is such an interesting conversation to be having at a time when a lot of cash burning unicorns are trying to I, P O and and and come to market to raise more money. And I have to wonder, if you're looking at the actual cash of a company, how do you factor in potential growth?

I mean, how do you sort of extrapolate out to see what this company may look like if you do extend them alone and they're able to do something legitimate with it totally? I think, Well, one of the nice things about what we do is we have thirty day statement periods, So from our perspective, if you think about the way you know financial markets work, it's a very

short term product. We're repricing it to some extent each thirty days because each thirty days opens a new statement cycle and I think broader when you think about the industry. What we do is we look at it two ways. One is on a cash basis, do you have money in your bank account? We have real time access to that bank account, so we always know if the company can make their payment within thirty days. And then we also look at for those companies that are further along

and do have revenue. We look at forecasts and sales, particularly in the e commerce space, as a way to determine ability to pay. So, Michael, it give us a sense of kind of how you're doing in the marketplace, why don't you kind of enter this marketplace, and how's Brex doing relative to competitors in terms of market share? Got it? So? We have started. We started in early two thousand seventeen. We launched publicly in mid two th eighteen.

We've had really tremendous growth. We've been one of the fastest growing companies in Silicon Valley. If you look at the market today, as you've already indicated, there's a bit of a bifurcation between consumer and consumer facing businesses and

those in the B two B space. We're serving businesses, and I think that the soft the financial software and underwriting that we've built in that space has been really, really attractive, especially as we've added newer markets outside of our core startup market to include the life sciences and the e commerce sector. Who do you partner with for the capital? Got it? So? Our card is a MasterCard product, So anywhere master cards accepted um you can use Brex

on the capital side. We actually have a warehouse line UM with far Plays where UM we use funds there um to help expand our balance sheet and in terms and so I think that's one of the ways that we can continue to grow but also do so in a low cost way that does that require as much equity. So what are some of the unique needs from a corporate credit perspective for some of these startup companies that you're targeting. Sure, I think it's one being able to

get a card instantly and online. It's actually still a paper based process. When you think about UH applying for a credit cards, you're usually even if you're applying online, you're typically receiving something in the mail that lets you know whether you're approved. That's one. Two is the ability to scale with your businesses with your business Brex because we underwrite based on a bank account with which we have real time access our credit limits dynamically as just

as the business grows. And I think the last is on rewards, which is always a popular topic among UH you know credit cards, and the reality is Brex has built a rewards program that has not only rewards UM and accelerators on categories that the people in this industry spend on but it also has a lot of high quality sign up offers on UM the goods and services that these businesses use, one example being Amazon Web Services. Brex offers five thousand dollars of credits on a WUS

for all of its cardholders. Michael Tannebaum, thank you so much for joining us. Michael's the chief financial officer of Brex Incorporated, based in San Francisco, with kind of a new take on the corporate credit card, targeting UM, the start up community and some of the unique needs that some of these early stage companies have from a credit perspective. 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 bramoy It's I'm on Twitter at Lisa A. Bram woyds one. Before the podcast, you can always catch us worldwide on Bloomberg Radio.