Global outlook, Iran Oil Tanker Attack, Market Volatility

and figure out what the world will bring. Joining us now, Bart van Arc, executive vice president and chief economist for the Conference Board, Bart, thank you so much for joining us. I just but you did put together a outlook for the world economy, and you have some perhaps better than expected news. Mainly we'll avoid a recession. Is that right? That's right? I think I'm perhaps we picked a right day for this, given you know, pretty positive news on

the trade disputes as well as on Brexit. Right, so so this might be the days maybe we can actually avoid the global recession. But you know, again, things may

change next week. Let's hope it won't. But more seriously, we we do think that there is reason to believe that there is a very plausible scenario that we're really hitting the low point in the global economy right now, and that really has to do with the very rapid decline that we've been seeing in adust production around the world, and that's probably going to continue even into quarter four, but we think it will eventually bottom out, particularly because

China is taking out a lot of excessive overcapacity, but also begins to stimulate the economy a little bit, not to drop off further. But then, you know, perhaps even more important, the consumers and the labor markets pretty much around the world are still so strong that we believe that I will really pull the economy along in two thousand twenty. So part, you're exactly right. The consumer has been the strong part of this economy relative to manufacturing

and business investment. But we have seen some signs that employment growth is slowing. Um is that a concern of yours now? Of course it is, And and you know again, I mean the gap between consumer confidence and business confidence is usually large at the moment. So you know, why

is the consumer hanging in there well? Because this job market has been so strong that have been seeing their wages increasing and the incomes improving, and frankly that's true around the world, um, and we see that reflected in consumer confidence. We we just released earlier this week our Global Consumer Confidence Index at the Conference Board, and you know there there we actually are showing the pretty much around the world, we still see very high levels of

of consumer confidence. Now, employment is a very important leading economic indicator underlying this, and we do see some leveling off here, but again, unemployment rates are very low in the US and Europe, in Japan, in many emerging markets,

demand for labor is still very strong. So so we can really see at the moment this is still very much in positive territory and you would expect, i think nothing else at this point that the rapid girl of that we've been seen in employment over the past couple of quarters is beginning to slow down a little bit. So now we're not we don't have a major concern about the numbers we're seen right now. Another interesting production that you have here is that the decline and industrial

production will ease and eventually bottom out. How far away are we from that. Yeah, it's very important that we have the diagnosis around this clear. We think that a lot of this decline industrial production started already early in two thousand eighteen in China, and China, as I referred to earlier, had the huge amount of overcapacity, and China essentially stopped continuing to support it, particularly in the state

or the enterprises. And you know in the first pace that we didn't feel that in two thousand and eighteen because it happens sort of upstream and supply chains. But then later on in the year, you know, multinationals started to feel this, and certainly into two thousand and nineteen, the countries that are most exposed, like you know, Japan and Germany, really started to feel the pain. As this worked itself with the global supply chain, a lot of

excessive overcapacity has been taken out. China doesn't doesn't want to make a transition towards a more higher value added manufacturing sector, you know, go back to the to the trade disputes and discrestions that we're currently having. They're beginning

to see some results of that. So so you know, even the latest numbers for China are giving us a little bit more comfort that this may begin to to do bottom out a little on top of that, you know, provided that the trade disputes indeed go a little bit to the background and the fact that technology and innovation are creating some more productivity growth. That's all good signs for for industrial production. That's why we believe it will begin to bottom out over the next couple of months.

So part if the U s economy does manage to avoid recession in your forecasting is there how do you view the concern that maybe this economy is just going to be uh lower for longer, slower growth for longer one and a half to two percent for the foreseeable futures. That's something you think is is possible likely. Yeah, that's a great point, Paul, because you know, we should be careful not to mix up the fact that we'll see

some recovering in two thousand twenty. We have the fact that in the longer term we are looking at the slowing economy and most of the mature economy is including the United States, so that this sort of long term growth rate underlying the economy in the US is probably around two percent, and that's quite a bit weaker than what we had in the previous decades. A lot of that has to do with gradually lowing, gradually slowing supply of labor. There's just more people retiring and fewer people

entering the labor force. We're not really making that up rapidly enough by things like immigration or speeding up participation in some segments of the population. So so that slowing labor supply is a major driver of that. Now you can make up for that by productivity growth, but that has been dismal for a long time. Now we see we see some good signs as I just mentioned earlier, that productivity is beginning to pick up a little bit.

Some of that may just have been cyclical related to the strong growth in two thousands, seventeen and eighteen, but it might be that indeed, you know, technology digital transformation is beginning to results in companies, and that would help us to keep growth in the United States still at you know ABUF to pent in the longer term, and that would probably be good enough to support and sustain

growth going forward. Part Van Ark, thank you so much for joining us bart as executive vice president and chief economists for the conference board. Oil is up today once again, Brent crude up about one point three five cents per barrel at some response to some news that I Rand said that missile struck one of its tankers in the Red Sea, which is would be the latest in a series of attacks on oil infrastructure in the region that have royal energy markets of late. To get a sense

of what is going on, we welcome Will Kennedy. Will, as a managing editor covering all things energy and commodities for Bloomberg, joins us from London. So, well, what's the latest on this tanker attack in the Red Sea. So, an Irvanian tanker with about one million bottels of crude oil was sailing north through the Red Sea um it was attacked in the earlier this morning. The National Avanian Tanker Company, which owns the ship, says two missiles hit it.

They're not saying exactly where they came from, although they one said one stage said they probably came from Saudi Abia, although later they decided to walk that back. As we understand it, the tanker shared a little bit of crude oil into the Red Sea, but that situation is now under control and the tanker has turned around and is

sailing back towards the Persian Gulf. The fact that these attacks keep happening is a bit concerning and sort of points to the escalating tensions between Iran and Saudi Arabia. Are you at all surprised that oil prices aren't up more?

I mean, this takes us back, I think to the attack we saw miss a month ago on the Abcate crude processing plant in so the Arabia, at the very heart of the Saudi oil industry, five million dollars a day, and when that got hit by some missile strikes, possibly sponsored by Iran, we saw oil react as you'd expect, it rose in one day. But what's been really interesting about the event is that we've grown up all those

gains and more. I there is no that that attack has produced no risk premium in the market, and I think what it really speaks to is the over riding inncern of the oil market is that there's just too much oil around and that situation is only going to get worse next year, where most analysts see a mismatch

between supply and demand. The International Energy Agency says early next year they expect global inventories to build more than a million dollars a day, and I think the market is much more focused on that and the same concerns of everyone else about the trade war and the slowing

US economy than they are on geopolitics so well. One of the things I think these series of attacks in the Middle East oil infrastructure have shown those of us who don't follow the supply side in the Middle East oil supply that closely is just maybe how vulnerable the supply chain is. What is the thinking within energy circles about can anything be done to make it more secure? It's very difficult. I mean, tankers are not armed, there's

no real way to protect them. They have to sail close to coastlines at times, so you know, they are easily targeted. But this is not the first time that we've seen this. In the Avan of Ark War in the nineties there was a so called tanker war where tankers would repeatedly attacked as they sailed through the Persian Gulf. Of course, you know we've seen tankers attacked more recently or for Yemen by al qada um in in you know, ten years ago or so. So it has something that

becomes a problem every now and again. Um and though there's very little you can do. The only thing you can do is to try and make sure that no one's no one wants to attack them from the shore to to to the you know, de escalate the issue behind the attacks. Here's here's one thing that I'm struggling to understand today. Not only do we have this attack on supply, but also there is better than expected trade development.

So why isn't that giving people a little bit more hope when it comes to demand for oil and they're sending prices even higher. Well, that's true, and you might have expected to see a better day. But we also had a report this morning from the International Energy Agency that again locked a little bit off its demand forecast for next year. And you know, just to go back to this idea that at the moment, the supply demand

bances next year don't look good. And that's going to put a lot of focus as we go towards the end of the year on OPEX politic to reaction. Will Saudi Arabia have to cut more production? Isn't OPAQ in a position to do that or not? And you know, until we get some really firm uh policy clarity from OPEC plus that they're going to do what it takes to bring the market into what they call balance. I support prices up above six seals about I think the

the oil market may struggle to really get a lot higher. Well, Kennedy, thank you so much for being with us. Will Kennedy, Bloomberg News Managing editor for Energy and Commodities. Talking about that attack on the Iranian oil tanker, it just is uh an interesting idea that even as we have those tensions rising, people don't really care that much. Not only are we getting positive discussion out of Washington, but Boris Johnson and the European Union evidently are working well together.

They have entered the tunnel, the cone of secrecy as they try to hash out a Brexit deal, and evidently things are going pretty well. That lack of d tell is sending the pound to its biggest two day rally on a percentage basis since December two thousand and eight. This has been a just incredibly slow process, but a little bit of light at the end of the tunnel perhaps here as we get down to that, you know, October thirty one date, which is really the hard, hard data.

I think. Meanwhile, we are seeing the more happy the talk yets, the less there is a bid for gold. We have gold today down sharply at one point two percent lower, joining us now Frank Holmes, chief executive officer and chief investment officer of US Global Investors. Gold had been in the sweet spot, a lot of investors saying it was headed straight to sixteen hundred dollars. Currently is at one thousand, four hundred and seventy five dollars and

some change. I'm wondering what it will take to prop the prices back up, given the fact that we are not done with the uncertainties and yet people still seeing a time to sell. Well, there's two big drivers for the demand for gold, and I've characterized as the fear trade and the love trade. And what's interesting is the love trade is of all demand for gold and really is highly correlated the use of Bloomberg functions to the GDP per capita of Chindia affectually known as China and India,

which is the world's population. So what they're rising g D people income to consumption of gold cold jewelry has been in stellar. The fear training is what's really been driving gold this year, and that's negative real interest rates and uh, I'm precedent around the globe slowed down with p m s. It'll take a while before you get get those to turn and be sustainable. So I think that we're living in an era where governments still have not got with the program that we need fiscal stimulus

by extremelining all the regulations. Uh, it's all now by negative real interest rates and printing money. So this makes gold a very attractive asset class. And there's actually peak golds coming from minds. There's been no major discoveries and so I think that's gold is in a very served unique secular trend. Again. So Frankie, we're in the month of October that's historically been a very volatile month for the equity markets. Is that an argument to maybe increase

allocations to gold here, No, I don't think so. I think that you have to take the thought process of the largest head spot in the world, Bridge Water, Brade, Dalios, Pilosity having said six to ten percent and gold, and you rebalance it and it has the volti of the stock markets only one sort of component to it. I think it's really important is real is what's called real interest rates and uh, and I think that the world is going to continue to try to stimulate with negative

real interest rates and this is bullets for gold. Now, go ahead, of spectacular run. It was up three standard deviations. We like to look at it over sixty trade days. Is now back to almost at par now with this correction today, we're just back to where it's a very healthy way to take a look of entering into gold. So you like gold, where do you think it goes

by the end of say the next six months? Um. You know, the DNA of altally of gold is now over a ten day or in period, the SMP is three percent, and that means severy percent of the time it's non event for goal to go up, but down two percent was the SMPS three percent? So I think that you know, asked by year end, I think that the goal could easily be seventeen hundred dollars. I think that, and it could also correct the hundred dollars from here.

That's sort of the normal trading range. It's going to be much more important is what Europe is doing in Japan is doing on this negative real interest rate scenario. And I don't see anything of fiscal policy changes and regulations to say we're going to have a complete sea change and what we how we're going to try to grow our economy. I want to shaft gears a little bit.

I know that not only do you focus on precious metals, but you also focus on the airline industry with your e t F that trades as jets on the New York Stock Exchange and Delta shares have been doing pretty poorly after they said that they're seeing rising costs and slowing revenue growth. Do you think that the outlook has

materially deteriorated for the airline industry. No, I don't. You know so much of this sentiment just recently, just prior to this conversation we're having, we talked about the Pound having one of the biggest rallies so much as sentiment driven right now, and so they say costs of risings or sentiment and meeting sells off. But there's it's very difficult to build an airport. The baris to entry are

extremely high. And uh. And when you take a look at global travel and tourism, one of the things I just noted when I was in New York Stock Exchanged yesterday tours or Chinese tourists. I was in Salzburg last week and the same thing there. So I think that you're seeing a global tourism is growing much faster out of the middle class of China and India in particular China. UH, it was always led by America, and now there's three

entities that are dominating it. And there's just difficult to get the building of these new airports and and UH, I think is a very boyish scenario. And the incillary fees ten years ago with three big in dollars a year with a charge for a bag or change your ticket, I can go out the whole list of them. They're now pushing. They're going to push through a hundred day in next year, so the cost of fuel is not as significant because they're making so much money from these

incillary fees. And Delta, yes, they talked about their Amics Matter Express contract. Well that and that was almost fourth big in the revue last year, and I think could be seven big in dollars over the next year. So we look at American airlines what they're making for their credit card um so I think that the airline's industry is buying the tips. Do I buy et f R. I just go out and buy a basket of these airlines stocks, global stocks. You go out and buy his ets,

not the football team. You buy jets because it diversified your risk. And we also have airports in there. Did you know, like, um, the airport for Bangkok is public. Uh. Some of the airports in Mexico or public h istern bowls,

public Beijing is public. So you get these airports as a mixture, but they have to have a quant model of very high returns to investor capital and make to the jets etf So I I mean very very bullish, and I think that Bowling will in the next next year with the worst behind this quarter and uh, and I think that will then turn around also help Southwest Airlines and American Airlines uh increase their uh, their their their routes. Right. Frank Colins, thanks so much for joining us.

We appreciate your thoughts on both the gold sector as well as the global airlines business. Frank Colmins is the CEO and she investment officer for us A Global Investors. They're based in San Antonio, Texas well. It is certainly a risk on day today A great way to end the week for equity bulls. All took was a little bit of positive news on the geopolitical front to help us get a sense of kind of how to think

about this market going forward. We welcome and Witty Bahuguna and widy as a senior portfolio manager and head of multi asset strategy for Columbia Threadneedle Investments, joining us on the phone from Boston. And Witty, thanks so much for joining us. What do you make of today's action in the market. Um, it's certainly optimist, Sick Paul. Sounds like progress on several funds on the trade front on the Brexit, but I will say that I haven't seen details yet

of either. It's really just optimistic sounds a missing sounds good enough for a lot of people out there, evidently to try to cash in. I mean, given the fact that we've got zero details or at least to give you any tangible sense that this is actually going to go through, would you be selling this rally? We are actually underweight in our portfolios, so yes, it's definitely not something that I would trade client money on rumors alone.

At this point, we need to see what is actually agreed upon, whether it's temporary or another one of those ten or so head fakes we have seen in the last one year. Lisa, so on when when when you think about your positioning again, you mentioned your underweight global equities. Is it give us a sense of kind of how you weight that or what drives that? Is it evaluation? Is it slowing global economic growth? Or is it you know, kind of like the global macro uncertainty, trade and so

and so forth. So it's several of those factors. Evaluation is one component. Fundamentals is really the driving component of how we think about the world. And on that front, we have seen nothing but downgrades to global growth outlook this entire year. Whether you look at what the bond market has done, whether you look at how equity markets have performed outside of the US, we have seen nothing but downgrades to growth for the entire year. Now, it's

better priced in in some markets than others. But what I would what would what would really matter to us is how does the growth outlook change going forward? And trade and b exit our component of that. Um We will wait to see the details of all those, but it won't be just a day's sentiment change. For example, I was looking at at some of your calls. You also are saying that it's a good time to maintain treasury allocations just because of some of the bearishness in

the economic outlook going forward. I guess what would it take for you to reverse that call? Right? So that is important on the multi asset portfolios, since we take risks in equities commodities to have some hedges, and treasuries have been excellent hedge this entire yearly, sir, The thing that would matter to me on the treasury front is beginning of what you're seeing now a little bit in the bond market. I would like to see the front

end of the curve stabilize a little. So the front end of the curve's been signaling this entire year downgrades to growth expectations. And if that stabilizes, and I don't expect a whole lot of movement up in the front end, maybe a little bit, that would be a sign that maybe markets beginning to price out the recession here. The back end is very much driven by premium. PA's driven by so many factors other than just the US economy.

But it will be very good to see this, you know, one day of this inversion that we have seen in the curve become a little more permanent. So and with one of the stories at least and I've been following this morning, is this news from the Federal Reserve that will begin buying about sixty billion dollars of treasury bills

per month. How do you view that move? Is this a stealth quee on your from your perspective, or is it in fact kind of what they're suggesting, which is, you know, something to just kind of stabilize the short end of the curve. So I I agree with such description of this. I think it's very much a plumbing mechanism to stabilize the funding on the short end. I definitely don't view it as stealth QUEUEI um remember, Paul, this was a very standard operation for the Fed before

the crisis. It's simply helping and aiding movement of efforts in the ranking system, very much a function of the fit, which is the lender of the last resort. One other call that you have is underweight emerging market stocks in particular, and I'm wondering what it would take for you to reverse that call, given the fact that you do have central bank easing around the world, which typically is positive

for emerging market assets. Right, So that was very much driven by this manufacturing slowdown, or I would even go as far as to call it a manufacturing procession. We have seen in the last nine months or so, we are beginning to see some signs of improvement there, Lisa. We've seen in the month of September the UH manufacturing p m I s for emerging market stabilize plus very central bank easing, as you pointed out, Um, that would

be a driver for us. Continuous movement in that direction would be a driver for us to change our view on emerging markets. How about Western Europe? We you know, I'm just looking at Germany with his negative rates and slowing economy in Western Europe uncertainly continues with Brexit. Is it just too risky for you to or for anyone to really maybe increase an allocation to Europe. Well, we

are actually over it Europe and have been for a while. Um. Europe has that central bank support that Lisa spoke about, and there is UM. Europe is the one market where for the past few years a lot of pessimism have been priced in, so our valuation component had come in handy to look at your connectuity markets, and we are over it Europe. Just going forward, do you have a sense of how far away from the bottom we are in this manufacturing downturn. Um, it's early days. Yes, I

am um, you know, mildly optimistic, Lisa. It looks like things are stabilizing, you know, very watch a function of the sentiment driven down draft that we saw the last two months. I would say so last two months has been particularly volatile as uh. There have been movement driven

very much more by sentiments other than data. So data had been weakening all year around, but last two months have been constant bombardment of markets whipping around in one direction or the other by the trade news worsening, the brekfit news worsening than maybe going back and getting better a little bit. We would love to see some stabilization

on that front. And wet by Hugana. Thank you so much for being with a senior portfolio manager and head of multi asset strategy at Columbia Threat Needle Investments, joining us from Boston, Massachusetts. 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 sweet. I'm Lisa abram Woods. I'm on Twitter at Lisa Abramo WOOS one

before the podcast. You can always catch us worldwide on Bloomberg Radio