GeoQuant Model Predicts Trump Wins In Bernie Matchup

point eight nine percent on the thirty year treasury. You see the dollar having its worst sell off versus its peers of gold shooting higher. A big question of what's driving this. Is it just the fear that the coronavirus is spread, is bleeding into the services and industries in the United States previously thought to be a little more immune,

or is this something large or joining us now? Is Mark Rosenberg, founder and chief executive officer of Geoquad, which is based in San Francisco and looks at the geopolitical will risk generally in the global picture. He's also an adject professor at Columbia University Mark, can you give us a landscape here. We talk a lot about the coronavirus and what the potential bleed through could be on industries, but an economists say, well, there's going to be a

v shaped recovery. But on the political front, is there something that's going to be equally potentially difficult for markets to digest on the political sphere? Sure, I think. I think with with a health risk like the coronavirus, UM, you want to look at the implications for social instability and the country is affected and in turn the stability of the government. Those generally have more latent effect on markets.

But I think when it comes to a large economy like China, UM, if there were indications that this that this virus was disrupting kind of social stability in the country, or if there was news as there has been of late, that it may be weakening the government, UM, then I think you can get some concern around the potential of the government to respond to a shock like like like

a how um, like a disease outbreak like like the coronavirus. So, Mark, we obviously are getting into the heat of the election cycle here. We kind of know where President Trump stands on a number of issues that are important to markets and investors. How are you, we talk to clients, how are you framing up the Democratic side of the field.

For us, it's really about the strength of the Democratic Party and kind of more generically the opposition to the incumbent versus UM, you know, the Trump administration or the current incumbent. And you know, according to our models that's probably the primary driver of Trump's likely reelection right now.

Is in fact the weakness, the relative weakness of the Democratic Party as an opposition party has demonstrated, I think by some of the dysfunction in the primary process, by the UM still unclear field, the the growing likelihood that a more kind of divisive extreme candidate like Bernie Sanders will be the nominee. Those are the factors driving you know, what we call kind of UM intitutional institutional support risk uh for the administration. That risk is down as the

Democratic Party looks weaker and weaker. So let's talk a little bit about the Democratic Party. It seems like after this week's debate. It was the first of Michael Bloomberg, who was founder a majority owner of Bloomberg LP, and this radio station was a participant that Bernie Sanders appeared to consolidate a lot of his support. People thought that he emerged a winner. They also thought, though, that President

Trump consolidated his win. Given the fact that there was a lot of cross uh, circular firing squad type of activity, how significantly do you think the Democrats were set back? I'm not sure the debate itself was any kind of critical juncture and setting back the Democrats. UM. I think it was more a symptom of you know, what we saw in the previous debates and then and then the primaries and CAUCUSUS so far, which is um, you know,

a field that's that's heavily divided, um. And and a group candidates that um all you know, ostensibly agree on the goal of defeating Donald Trump and uniting to do so. UM, but are now just inherently engaged in the process, the primary process, UM, where they're they're in some ways making that less likely because they are fighting against each other as opposed to the common you know, quote unquote enemy.

So Mark Bernie Sanders is leading in the polls right now, can he be President Trump in in according to our models? And again, um, you know, these are kind of generic

incumbent survival models, No UM. In that Bernie Sanders UM, it will be a candidate that would have trouble uniting the Democratic Party UM, and as such would weaken the strengths of the opposition VISAVI the incumbent, and so the incumbent will be more likely to win UM, and so UM in our the scenarios we're running with our models, the sanders Um candidacy makes a Trump real sin more likely.

What about Pete Boudage? What about Michael Bloomberg whose performance was panned pretty significantly by almotions of the coverage following the debate. Again, generically, a more moderate candidate, candidate more capable of winning, of winning, of winning swing voters, of winning suburban white voters and key swing states that are in many cases the the key to the election. UM is likely to be Trump right and more like and

certainly makes Trump's reelection less likely. So in our models, it's a relatively simple trade off between UM a a candidate that is more likely to win you know what political scientists called the median voter UM, and which in the case of of key states, is really a swing voter or one less likely to win those voters, and in our model, Sanders is less likely, whereas a more

moderate candidate is more likely. So, Mark, is there any indication that if Bernie Sanders gets the nomination, that he or the Democratic Party could move him more to the center to maybe appeal to some of those swing voters. Do you kind of put any of those odds in your model? We don't model that directly. That does make kind of common political sense and is generally the way UH Party candidates run in the general election. They generally pivot um more to the center, UM, in order to

capture a larger swat at the electorate. Sanders has made a career um of not doing that, and so just anecdotally, UM, it suggests that that kind of dynamic is maybe less likely this time around. UM. But but to be sure, you know, in a in a more with a more generic candidate, that's exactly what you would expect to happen. And given again that all Democratic candidates are at least vocally saying their priority is beating Trump, that would be the right strategy. It's just not clear that that is

what will actually happen. Mark, just real quickly here, I'm wondering ston history how soon does the Democratic field have to shrink or consolidate support behind one or two candidates in order to have a better chance going forward of defeating President Trump. So there isn't really a clear historical pattern. UM. I think, UM, you know, the primary calendar in terms of opposition beating incumbents. UM. You know, the primary calendar

is relatively set in the United States. Um. And so there isn't really a kind of date by which the Democrats need to um, you know, coalesced or form a coalition by which they make um, their success in the election more likely. I think the general rule in this case is the sooner the better. Mark Rosenberg, thanks so much for joining us. We appreciate your thoughts. Mark Rosenberg, founder and CEO of geo Quant, also an adjunct professor

at Columbia University. He is based in San Francisco. Some interesting commentary about the election and kind of what their models are showing, and uh appears to be, you know, from Mark's comments, you know, pretty predisposed or you know, towards President Trump getting re elected, unless you know, maybe the field somehow coalesces around candidate and maybe can put up a stronger fight. Yeah, and then they'll be the question of whether any candidate on the Democratic side could

get something done without the both sides of Congress. Meanwhile, I should just mentioned that right now FED funds futures are pricing in a full half a percentage point rate cut through the end of twenties, so really shifting their

rate cut expectations forward. This morning, everyone was watching thirty year treasury yields, which were covering on the precipice of an all time new record, and it reached it after the p m I data that came out this morning from market US business activity shrank this month for the first time since twenty with the services section of the

index seeing a particularly big drop off. The question here is what is the message being sent by bonds which are reaching new all time loads and how in canherent in cohere? Arn is it with equities reaching or hovering near all time high joining us now Ben Emmon's Managing director, Global Strategy at Medley Global Advisors, joining us here in our interactive broker studios. So let's start there. What is the message being sent by thirty year yields at all

time lows? So the one hand, Lisa, it's a technical message, right there is a aparent positioning going on with hedge funds going short and the as you managers going long, and it's probably very much driven by different views about whether the economy and be heading as well as hedging against the downside risk of this virus outbreak. On the other hand, it's it's to that fundamental picture. I think the inflation picture is gonna see a significant moderation this year.

If if the collapse in China's as we speak happening, you know, in terms of production data, then inflation data and China will will will go down quite a bit and that will really transcend down globally. I think this is not a reason why bond deals are lower in the United States? Do you what do you how do you think the FED is going to respond to It appears to be a growing problem. It doesn't appear like

we've seen the peak of the coronavirus risk. So all these central banks we feed are monitoring, as they say, and you know, we know that they don't have the precise tools to combine any of this, but they do know as we know now is that companies are responding quite dramatically to this outbreak, you know, shutting off production,

shutting down air traffic. So there will be something of a message there to tell to two companies about you know, well, this is really something that that's going to drag down global growth just because it's a virus outbreak that we've had in several cases before and by far not as as severe as a normal influenza. At the same time, central banks will likely stand by with liquidity, as we saw from the BBC and the fedsil ongoing that other central banks would there too, And I think that liquidity

operation is pretty effective. If you think about the shock that which just went through, it could have been much more severe if if we did not have liquidity injections by the BBC and you know, ongoing by the So will the should be in the BUJ follow with something like that not not unlikely if we're getting more downdraft

in data. I want to go back to something you were talking about, this sort of technical factor with hedge funds going short, treasuries and insurance companies pensions going long, particularly on the long end, and I'm wondering if this is a short squeeze that we're observing which is really responsible for the rally that we're seeing in treasuries. Then is it potentially not that negative or even positive for equities because it keeps borrowing costs so low that it

continues to support the relative valuation case for equities. Yeah, I think you're right about that, because if you if bonds work well as as in total return, I say hedgechickens the downstafe fish within loan loan as your manager

would do a sort of that view. In addition that you say low borrowing costs which affect positively for corporations and housing and consumer spending, then yes, this is this and that's typically, by the way, the case when you have flight to safety, believe or not, there's actually emilist to the economy. Very often happened that way. We saw it in August that way too, and subpoquent data recovers low interests of falling long term interest rates tend to

do that. So I think this is another phase of like short screes, fight the safety leads to ultimately simmers in the economy, and that could be positive for stocks. Some of the consensus trades that we heard coming into was maybe this is the time where international markets will outperform the US does this growing concern about the global economy featuring China called that trade into into play, maybe into question. I'm actually on the side pole of that.

That actually makes it even more compelling them before. And here's why. So if if you think about the data it's coming out now, say that be my data in Japan overnight or the expert orders of Taiwan and and sup forth. Pretty big drops in that data, right, and and that's what you would expect if you have a production shutdown in China. It's pretty extraordinary to to go through that at the moment. But the more that data drops, the more encouraging the v shas recall of recovery would become.

So I'm more on that camp, which makes actually the relative value difference between US and four markets even more compelling. And yes, the the the valuation of Asian markets is at a discount relative to US markets, and if the US markets are benefits so much from a flight to safety with stock values or bumping my value up and the dollar up, it becomes a case at some point that anticipating the V shape, that four assets look more attractive. So I remain on that trade. It's just a little

bit knocked out of bounds for the first quarter. It will come back in the second half. I think when it's bad news bad news again. Well that's another good point at least of course, because the scare that we have a little bit of markets today is about this word pandemic, right, is becoming a pandemic in Asia and then it spills to the rest of the globe. But they also have to put it in perspective. Our previous viruses have have worked, they tend to do spread around,

and it really comes down to that. I think about the infrastructure countries how to deal with an outbreak of the virus. You know, the most worrying would be in the in the in the say South Africa or African nations, right, who do not have any infrastructures to the w h O warrent for But for the developed markets that's a different story. And because marcus react now, because a virus outbreak links to you know, production shut down, delay of any kind of activity because people have to stay home,

there's still a lot of workaround. I think to that too, all companies are preparing to say, you know this flight chain shift, will shift, will happen anyway, I'm going to prepare differently to continue my production because you know you have to here to stockholder. So by and large, I think pandemic is a fear factor in markets, but ultimately I think it's it's still going to be a recovery from here, not not a recession. Okay, Ben em it's thanks so much for joining us. We appreciate chatting with

you as we do periodically. Ben Emmon's managing director Global Macro Strategy for Medlely Global Partners. Joining us here in our Bloomberg Interactive Broker Studio. Really interesting to hear how the interclining yields could end up being a positive for stocks, even though people usually look at the flight to safety is being a negative message for equities, sort of the modern conundrum of markets. Yep, absolutely so. We had the SMP down here twenty five off the lows, uh, the

down down two three points. That's twenty oh nineteen on the down. Jones Industrials. This is Bloomberg time to check in with Bloomberg Opinion. We're joined by opinion calumnist Tara la Chapelle. She covers all things industrial for Bloomberg Opinion and for those Warren Buffet watchers Tomorrow's on a very important day. That's when Berkshire Hathaway releases its annual letter. We get a sense of kind of how Warren is viewing the world. Helps preview that we have our good

friend Tara. So Tara again, Warren Buffet watchers. Tomorrow is a big day. What's the expectation here because they've been kind of quiet on the acquisition front. I think what people are really hoping for is that Warren Buffett is going to talk a little bit more about what he's going to do with all that cash. Berkshire Hathaway's cash was a hundred and twenty eight billion dollars in the latest quarter that they reported, So we'll find out tomorrow

when his letter comes out. We'll have the fourth quarter earnings report with it, and we'll see if that cash moved at all. Uh. He didn't make any significant acquisitions during the period, as we know, and last week we got their thirteen F filing filing and saw that they didn't really um make any tremendous purchases in the stock market either. He bought a steak in Kroger, a small steak in Biogen, but nothing really big. And we don't think that they've done a lot of Berkshire buy backs, Yeah,

even though he's talked about doing that. So hopefully he can, you know, get people excited about what's going to happen, and maybe he'll be able to find his big elephant this year, the big acquisition he's been trying to do. He turns ninety in August, so one would think that, you know, time is of the essence and he'd want to do something. Yeah, although throwing some cold water on that, Berkshire vice chair saying in an interview with Bloomberg, we're

gradually getting more pessimistic about using our money. It's been a long time since we bought anything. This is Charlie Munger, and I have to say again Warren Buffett problems the idea that you just have so much money you don't know what to do with it. But it, you know, is really good question, Tara, which is why don't they buy back more shares or just give massive dividends to

their investors. Yeah, I mean we're not sure. We know Buffett and Monger are really opposed to the idea of a dividend, and he's kind of started to mention that more often. The last couple of years. It used to be kind of unheard of that they would even do something like that, So the fact that he's brought it up, I just don't think they're at the point of being

willing to pay a big, one time special dividend. I think maybe that's something his successor would want to be able to have the opportunity to do, should they need it. Um But I think Buffett his goal is still finding a deal, and Manger always tends to be sort of the more pessimistic one of the two. Buffett in his letter every year, you know, he always gives that pep talk about America and how great America's prospects are, and you know, kids born today are better off than he was,

and so on and so forth. And I don't think that will change in this letter, but I think you will see that growing frustration with the markets that he just hasn't been able to find anything to put this money to work on. It's interesting, Terry, you mentioned succession, where what's the status of that? I mean, they just kick this can down the road and down the road. We have any greater clarity. I know there's some new

hires pre senior positions, but what's the latest. I think, if anything, it's gotten more uncertain because so a couple of years ago they did promote Greg Able to run to be vice chairman of everything that didn't have to do with their insurance business, and a Jet Jane, who came from the insurance side, they put him in charge of their huge insurance operations, and so that kind of set the two up to be the next in line to become Successor's a little bit older, and it seems

like Greg is kind of the favorite for the job. Greg also got to speak at last year's annual meeting for the first time publicly, which was kind of unusual

and I think really symbolic. But then, uh, Todd Combs, who came from the investing side of the business, was promoted to run Geico, and I think that got a lot of people thinking that is Todd another person that he's looking at, or maybe there will be sort of a split role when his successors take over, someone doing capital allocation another person running the operational side of the business. We just don't know, so hopeful He addresses that though

knowing Buffett, he probably won't say very much. Although in just to put this into perspective of how much pressure they're under. Uh, they've missed a bunch of deals, and their shares row at a slower pace, rose at a slower pace than SP five hundred. It was their worst

under performance since two thousand and nine. There's a question is there strategy one that fit with another time in history of the stock markets that is no longer and that they are really coming to that realization at a time when they aren't sure how to deploy their cash. It's true, I mean, the true Buffet stands they don't really worry much about the stock price and the fact

that it's lagging, which is kind of funny. It's a very unusual trait that Berkshire has still But I think, you know, after going to last year's meeting and seeing that the investor based really reflected what we see at Berkshire itself, where it's excuse older. These are people that have a lot of respect for Buffet, But I don't know how they get that younger generation interested in a stock that's lagging so much. So I think this is going to become a bigger question when his successor is

in charge. You know, does the strategy worked as being a big conglomerate with all this cash that's very difficult to put to work. Is is that the best way to run this or do they need to change strategy? And I don't think that will ever happen under Buffett, but I think those questions start to arise when you think about when he's not there any longer, So you're working tomorrow anti terror, right and early. I just honestly,

why do they do it on Saturday? I think you know, he he has said, who knows if this is the case, but he has said that, you know, he doesn't want the stock overreacting to things when they released during closer to market times, and especially now that the way they have to report their stockholdings and how that changes their earnings. But I think he just likes journalists working on Saturday

and the spot life because nobody else is going to compete. Yes, Aryla Chappelle of Bloomberg Opinion, thank you so much as always for your insights here. Really amazing. A hundred and twenty eight billion dollars of Stay owned two and fifty million shares of Apple. Yeah, they've actually more than doubled the shareholding since two thousand and sixteen, when they started getting in they owned seventy nine billion dollars of the shares. But Warren Buffett said this is not a tech story

for him. It's one of share by backs and dividends as well as the consumer story, which is really interesting. That's what he understands more than the tech side. We've got some economic data this morning that showed US business activity shrank in February for the first time since as a coronavirus hit supply chains and made firms hesitant to place orders. To get a sense of what's going on,

we welcome our good friend Tom or Like. He's a chief economist for Bloomberg Economics, spent lived and worked many years in Beijing, has a real feel for what's going on in China. He joins us from our Bloomberg One studio in Washington, d C. Tom, thanks so much for joining us. So the data that came out of the market p M I today really brought home for many in the market that this coronavirus is gonna be an economic event. It appears where do you see the biggest

risk from what's going on in China right now? Um, So, I'm a bit surprised to see this hitting the US services sector so early. Um, certainly this is going to be a big blow for China in the first quarter. Certainly there's going to be supply chain snarl ups which are gonna mean the impact ripples around Asia and around the world. The US, though, seems a long way away. Certainly, the U S Services sector is not very integrated into

what's going on in China. In some ways, the trade war was about President Trump trying to get more access for the U S services sector to the Chinese economy. So the fact that we're seeing the US numbers coming off so much and so quickly, I think rings and alarm bell um that the global ripples from this virus could be bigger and it would appear more quickly than anyone anticipated. Tom Is there also an implication that perhaps there was more weakness underneath that was building regardless of

the coronavirus. Yeah, I mean that is also something to think about, Lisa. I think people were coming into with a certain amount of optimism. We had some easing from the FED, we had easing from the People's Bank of China. The ECB did what they could to spur European growth. Of course, the trade truth meant there was some optimism about what was going to happen to exports over the course of the year. UM. The coronavirus has completely changed the narrative. UM. At a minimum, it means any kind

of recovery is going to be delayed until the second quarter. UM. It could mean that we're in for another year of very bumpy growth and elevated risks of a downturn. So, Tom, based on you know, the work you've done, the contacts you have in China, what's your best guess as to how much of the economy is really being impacted? How much are people back to work and how many how much you know, what percentage are staying are still at home?

What percentage of the the economy is really back versus offline? I guess I mean that that is the fourteen trillion dollar question call UM, and we've been trying to answer it through a variety of different means. We've been looking at high frequency data on passenger travel. We've been looking at f X trading volume, which is a proxy for what's going on with imports and exports. We've been reading

the corporate announcements speaking to our contacts across China. UM our best estimate is that around of China is back to work, um, and that sustained over the course of a month would mean that China's GDP in the first quarter doesn't grow at all and potentially contracts on a sequential basis. This is this is important, especially what you were saying earlier about how in the entire world there seems to be a faster bleed through of the effect

of the coronavirus and efforts to contain it. I'm wondering whether you think that this caused into question of v shape recovery that so many economists are talking about. So when we think about China, one of the reasons why I'm not succumbing to extreme pessimism right now is because China's government is really effective at closing things down. We see that right now hundreds of millions of people effectively under lockdown under quarantine. But China's government is going to

be really effective at opening things up again as well. Um. We've just had some announcements from the Politburo, the top level of China's leadership, and they indicate with the balance of concern in China, well, certainly they're still very concerned about the outbreak and public health and minimizing the risk there. But they're also increasingly concerned about growth and getting people

back to work. And I think one possibility in the next week or two um, if the government thinks that the public health risks can be contained, is that we see an accelerated move to get China's workers back into the factories, back into the offices, at which point the V shaped recovery, which a lot of people are kind of implicitly penciling in, will start to look like more

of a real possibility. Hey, Tom, are you, I know, in your work, if you look at kind of what corporations say and do, are you surprised this pest earning season we haven't had more companies call out the coronavirus as a risk to either their supply chain or their demand. I mean, I know Apple did in a pretty high profile way, but I'm surprised, like even Dear Today didn't

really mention that much at coronavirus being at risk. Right, So, so on this pool, I want to give a brief shout out to our colleagues in Bloomberg Intelligence who are just comprehensively on top of the industrial story and the company story and and certainly suggest that people go and take a look at what they're saying to get all the details on the industry level UM impact. What we've done is try and track corporate announcement UM to give us a kind of a view on the supply chain

risks UM. And one of the things which struck us reading through around a hundred and eighty corporate transcripts is that the degree of concern that we're hearing from the multinational boardroom doesn't really match up with the bleak reality

on the ground in China. Yes, there are certainly more boardrooms, more corporations now talking about the risks and giving some detail and some color on how they see it impacting their company, but there's an awful lot saying yeah, we're going to wait and see, or yeah we see some risks, but we've got some inventory, so we're going to manage

through UM. And to ask that doesn't seem to be sufficiently taking a kain of the way in which China has really closed down now for several weeks, Tom more like, thank you so much for being with us, UH and for a dose of reality of why you're not totally jumping on the pessimism bandwagon just yet, but still have

some concerns about what's going on. Yeah, I think his you know, his estimate coming out of Bloomberg Economics about maybe forty of the economy is still kind of offline is and that's a that's a big number, and it just kind of calls into question the duration is Thomas suggesting if it goes on for the you know, you know longer, could have a material impact on Q on GDP. Yeah,

Tom or like chief economist for Bloomberg Economics. There's also the question of the spread throughout Asia, Japan and South Korea in particular in the forefront, with Japan seeing its cases double overnight. South Korea also seeing an increased Japan in particular, the population is older, there is a culture in osht a sick day, uh so people coming in and there are a number of cases that have been popping up in different parts that the government men can't

really track. A lot of pressure on that government given the fact already that there seemed to be a slowdown in the works, and this seems to be affecting the end which has very much been in the focus and weakening. Although today kind of stable 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 Abram woids I'm on Twitter at Lisa Abram Woyds one. Before the podcast, you can always catch us worldwide. I'm Bloomberg Radio