Markets, Trade Negotiations, & Uber

Bloomberg dot com. There was a minute there when a reflation trade was taking hold and people were expecting a steepening of the yield curve an increase in future inflation expectations. What happened because we are seeing right now the ninth straight day of yield curve flattening. Drewmatics, chief market strategist for MetLife Investment Management, joining us right now, Um from Whippany, New Jersey. Drew, thank you so much for being here.

I want to start with the flattening yield curve and get your sense of how important it is to keep track of nine straight days, the longest stretch since November two thousand, fifteen of yield curve flattening in the US. Well, I don't think it's a coincidence. When you know the good days or days and the curve steepening, and you can see that US markets, and you can see people's optimism begin to rise and people begin to think, hey,

we're heading towards a more normal environment. Um. And then you have the days of flattening, where you know, you can have updates in the market despite that, UM, but people become a little more concerned about what the future might hold UM. And of course you can you can argue the causations working one way or the other. But I think broadly speaking, what we want to see is a steepening Yol curve. I think what the FED wants

to see is a steepening Yol curve. What they want is a curve that's steep enough that if they want to, they could actually hike rates again. Not that that's on their mindset for something near term, but longer term, they'd like to see things normalized enough where they could push rates higher. Again. Do you think the we even have any green shoots of that as it relates to the

underlying economy. Uh? Well, I think if you're the FED and you've been blaming kind of uncertainty on on kind of why you were cutting to begin with, uh, you know, we have seen some movement on trade, We're seeing some movement in your or UM. Lots of areas of uncertainty are becoming UM, we're beginning to see pathways towards less uncertainty, so a conclusion being reached UM or moving towards that conclusion.

The problem we have now is that there's so many different things, and there's so many potential outcomes from trade and from politics and from the European story, that because there's so such complexity there, you can't figure out how to price everything, and so people then default to I'm going to be risk on or I'm going to be risk off, because they really can't put a value on all the things that are going on right now. That said, you've seen a steady decline or at least remaining stable

of five year five year of break even rate. It's, in other word, as another gauge of future inflation. You're not seeing a concept of reflation taking hold in broader derivative and bond markets. And I'm just wondering whether that signals that they've fed really ought to cut rates again. Well, I you know, I don't think so. I think you know, first of all, you know, the headline of or current inflation that the FED follows, it's actually very close to

their target. So even when they were cutting rates and saying inflation is not high enough, they were actually very close to their target. I think any other federal reserve that hadn't been through the financial crisis would have been saying we're close enough and we're happy with that. UM. So there's this fixation on pushing inflation, you know, significantly higher or higher to the target and above, as opposed

to just being nearer the target UH. And I think that could end up backfiring on the Fed UH simply because you know, really, if you're going to focus on that last twenty basis points are so of kind of inflation that you want to achieve, you might lose sight of the fact that, you know, the rest of the economy seems to be doing well, and if there is an inflation surprise, it's going to put you well above

a target that you're happy with. UM. So you know, maybe a grind higher is better when you're approaching your target than a than our sharp move higher. So Drew, given the strong performance we've had across many asset classes here in and even comparing it from the lows of the fourth quarter of last year. As you look at the where do you see the most opportunity? Uh? You know the problem is with evaluations where they are you know that there aren't a great number. You know, there

there isn't a lot of opportunities. So I would I kind of take it and and and put it in this way. UM. You know, if you're going to be investing in the current environment, you want to be aware of the risk that you're taking, and you want to know how those risks could evolve. UH. And I think you know, often times, you know, people think they're taking one kind of risk and and they find out that,

in fact, they were taking a different kind of risk. Um. And and so I think you know, as we're looking ahead, you know, our view is that you know, the next year looks good. The year after though one, UH is are likely timing for a recession. UM. So you know, when we're thinking about things, were thinking about, you know, when's the NEXTRA session coming, and how do you prepare for that? Um? And you know, I think a lot of people and there are a lot of forecasts out

there now where people have very high probabilities of recession. UH. You know, banks are saying that there's a high probility of recession, but then you look at their forecasts and there's and there's no recession within their forecast. Um, And I think that's something people have to be on the watch out for. So just quickly here, Drew, recession, how

do you trade that? Now? Well, you begin to make sure that you're comfortable with all the exposure you have, um, and that you know you're you you know, in the near term at least you know there's still some opportunities, but you don't necessarily want to you know, um, you might want to date those opportunities instead of marrying them. So, Drew,

interesting one call. I mean, it's interesting right here. Did that suggests to you that maybe the FED doesn't have as much MS they think that they do, Uh, you know, yes. So you know, I think if we're thinking about where the FED is going to head from this point, they're not going to be hiking rates next That's not our view. Our view is that the next move will be lower. But at the same point, we don't think they're gonna be moving at all next year. Truemattus, thanks so much

for joining us. We appreciate your commentary. Drew as the chief market strategist for MetLife Investment Manages, joining us on the phone. China is agreeing to take a harder stance on intellectual property theft as part of the ongoing trade war. Is hard to know exactly how to frame this though, given that there are not that many more details. But luckily we have Henrietta Trees joining us now to help us do that, director of Economic Policy Research at Beta

Partners joining us from New Orleans. Um, Henrietta, what don't you make of the IP theft news that was coming out overnight? How seriously should markets be taking this? I

think it's at first glance good news. What we've seen from President she in the past is when they are making concessions or doing things that the Americans have been asking of Beijing, they tend to announce it separately or um in advance of any kind of deal being reached that they can present as though they've just independently decided to make this movie. We saw that on the Financial

Markets Access opening up. Um. They've done this I P theft type of extractions several times in the last few years. So on the one hand, it bodes well for Hey, maybe there's something that could be announced in the coming days in terms of the Phase one deal, and they're trying to get out in front of that and appear more autonomous than doing it of their own volition. But

at the same time, there's not very many details. Um One of the things that concerns me is that this is happening apps in a Phase one deal being announced or even uh deadline or set meeting for Vice Premier Lucha and USTR Life Heiser to even meet um let alone, Presidents Trump and President she meeting to ink a deal. So a lot of this is happening outside of any comprehensive details on Phase one, and of course enforcement remains

the number one issue for me. So Henrietta, can you just give us a reset kind of where we are or really where the Chinese are in terms of they're thinking about how incentive are they to get a Phase

one deal. I think right now the goal is to avert List four B tariffs, which is about a hundred and sixty billion dollars of consumer facing goods set for the summer fifteenth, And what I'd encourage investors to do is sort of separate out the ability of the United States and China to come to an agreement that staves off at the summer fifteenth escalation from necessarily reaching a Phase one deal. Um in my view, we are already delayed.

We've already moved the goldmost. We're entering into week seven of the Phase one trade deal being announced, which was set to be a three to five week you know,

wrapping up final negotiations period. So we've already delayed since stance rely, and based on what we've seen from the administration of the last two years, they're pretty comfortable pushing out deadlines um, so December fifteenth moving to let's say January, February, March fifteenth, or even being suspended altogether, as was the case with the escalation on Lists one, two, and three rising in their tariff rights from I think it is

distinctly possible and doesn't necessarily have to be a Phase one deal. The problem is the longer this takes to work, the more other components are happening in the ether, like the Hong Kong protests or the impeachment proceedings in the United States. The lack of a U s m c A vote time continues to pick by and Phase one deals are not being reached into vacuum. So I'm hopeful that we won't see the tariffs, but that doesn't mean

we have to see a phase one deal. So Phase one was supposedly soybeans AGG purchases the easy stuff that has run into roadblocks. We're hearing with questions about enforcement and just how much as far as a number figure goes. China's agreeing to buy intellectual property theft was suppos to be phased two, according to my understanding, because I thought

that this was one of the harrier things. So can you try to square the idea that we're running into issues with soybean purchases, which was supposed to be the easy stuff, and we seemed to be getting something an IP theft, which was the tough stuff. That's such a good way to phrase it, if I'm not mistaken. The September of the most recent orders were three month lows on soybeans as China's getting just out today, right, So really interesting development. And you I think that's a great

point that you make. Um when it comes to AGG purchases, I think we should maybe think about the diversification that we've seen from China, So the most prominent I think would be in terms of protein sources. Having them signed that poultry deal a week or two back. That was a really tremendous development that I think constitutes systemic reform, Like the administration has been trying to seek out in as you suggest, I P theft or any kind of

major significant uptaking agriculture purchases. So we're seeing it on some areas but not on others. Are importing pork to at least some extent, and then the the poultry component could be a billion dollar industry once they get those

trade lines reopen. The soy piece is an unfortunate decline, but if you are dealing with what less pork in China, they need less soy to feed them, So I guess it does track the I p ST component, though, just like with everything else is you really need technical details and we have none of those. So Persident Trump alluded to I P theft in some way, shape or form being included in a Phase one deal, and if this is the extent of it, then it's not nearly enough

to constitute systemic reform. And I think, and just to sort of sound like a broken record, it comes down to enforcement. If China is agreeing to make changes and they're hoping that the United States will back up, back off on further tariffs or take off whole baskets the tariffs, which is what I think a lot of investors are

hoping for and the Chinese absolutely want. UM. This is a way to incentivize the United States to get more comfortable with easing the enforcement components and taking tarifs off before they reach any kind of final agreement you know, on phase two or phase three or what have you. UM And unfortunately, just don't see US t R Lifehiser

agreeing to take off tremendous amounts of tariffs. One of the things that I try to advise our clients about all the time is to say, look, before tariffs come off on entire product lines and huge you know list for a baskets are lifted entirely, recognize that the usc R has a comprehensive one, two and six month enforcement strategy that he has already laid out for us that I think will more likely results in the initial step being to reduce tariff rates, not to reduce the overall

basket of goods that are our tariffs. So for instance, the list for a tariffs, which are a hundred and twelve billion dollars worth of goods. Instead of taking all that add and twelve billion dollars off, you drop the rate from fift to ten percent and then maybe six months later reassess and and that's how lifehiser will allow for enforcement of ever trying to commit to on I p or ADD purchases for that matter. So Henrietta just

about thirty seconds. What happened to the feeling maybe six months ago that the Chinese We're just gonna wait and take their bets with whoever's in the White House. Then my understanding is that the US Hawks in China really got spooked by the Administration's decision to dramatically escalate cariffs

in mid August. The White House has been walking that back ever since, as we've seen um, but that was the big game changer in that the administration and specifically President Trump acted way outside the bounds of what US Hawks and China expected, and they might be better off reaching a Phase one deal now and hitting the pause button, which I think is really what a Phase one deal is, just an opportunity to hit pause through the elections. So

hopefully we get to that. Henrietta Trades, thank you so much for joining us. Some really smart commentary there on the ongoing U S. China trade negotiations. Henrietta is the director of Economic Policy Research for Veta Partners. During us on the phone from New Orleans with some you know, some really interesting commentary as it relates to the tariffs, and that's one we got to really focus on the Crofts.

I thought what she said was really telling the idea that China's that we can expect China to announce concessions that they make ahead of any deal that gets reached, so that it seems like it's coming from their own volition. Well, another risk on day today in the markets, some optimism about China trade and what a year it's been in the smp fient year to date. A lot of folks are starting to look forward to seem about how they

should position our portfolio. We can get some good color from our next guest, Clark Kendall, President CEO of Kendall Capital, joining us on the phone. Clark, thanks much for joining us. You know a lot of folks dealt with the pain and experience the pain of the fourth quarter last year, but then we're more than rewarded by the upside here in SMP up about year to date. What are your thoughts for the remainder of the year and heading Yeah,

so far this has been a great year. Um, we are the investment managers for the middle class millionaire in the in the Washington, d C. Area. I think, you know, we've got to try to get away from just predicting the market but looking for opportunities within the market. Okay, so where do you see opportunities? Well, as I always say, it's sometimes it's easiest to know where not to invest. I think the ten year Treasury at one point nine

is not attractive to me. The I p o s basically, the I p o s have come to market this year have come to market because they're starving for cash on the opposite side of the coin. And on top of that, the nifty fifty, the top fifty stocks of the SMP, are at huge value shoes, So I think the other four fifty stocks create great opportunities in today's market. Are there certain sectors, Clark that you think maybe have been left behind? Some people were suggesting maybe some international stocks.

Maybe even maybe I'm going to the risk curve for emerging markets. What are your thoughts on where there might be some value. I think there's some great value. I like to look at things of price to cash flow. I think the fact that Schwab's buying t D and merrit Trade is a great example of a company looking in that foreign and fifty looking for cash flow. The fact that Walgreens is looking to go private, Why are they looking to go private because the cash flow is

so strong. So I think there's some great companies out there in that four hundred and fifty where the cash flow is quite strong. So going into a lot of people are expecting a bit of a resurgeons in economic prospects, at least in the first half of the year, and then for that to sour in the second half. That seems to be the consensus. What are you advising your

clients do heading into next year? Well, I think kind of predicting how fast the GDP will grow, where interest rates will go the short term, that's very hard to predict. Jeremy Pal basically pointed out we're in a good spot. We have low inflation, we have low interest rates, we have low GDP, we have all low unemployment, and I think we take advantage of that. We look at things like Norwegian Cruise Lines a great example of a company having strong cash flow with low unemployment people. It's a

relatively cheap, cheap vacation. Things like United Rental. I mean, we're the economy is still growing and you know they have a great profit margin, great cash flows. So I think there's continues to be great opportunities in our economy. So Clark one of the areas that has really been the driver both on the downside. Do you think about the fourth quarter last year than the upside? Uh? This year has been technology and particularly some of the Fang stocks.

Is that a group that is attractive to you or do you think it's just just too rich? I think I think we need to be very cautious with the Fang stocks and all the stocks in the nifty fifty. Well remember at the turn of the century. Um everyone at the turn of the century head Cisco and Dell qual Calm in their portfolios. Qual Calm has you know, revenue and earnings are up seventeen times at the stock prices two thirds the value was nineteen years ago. So I think we need to be cautious and That's why

I'm saying go back to the fundamentals. Price to cash fell everyone's index thing. But I think there's great opportunities for the portfolio managers that pay attention to valuations. Clark Kendall, thank you so much for being with us. Clark Kendall, President and Chief executive Officer of Kendall Capital, joining us from Maryland. Well, it looks like Uber has run into another roadblock in London, losing their license over rider safety concerns.

The stock is off about one point three percent today, off about from its I p O. We should say they have appealed that, so it's not a completely final thing yet. Absolutely, let's get the latest. Nate Langston, European technology editor for Bloomberg News, joining us from our London radio studios. So Nate, give us the latest on what's

going on with Uber and the city of London. Yeah, well, a couple of It's just it's probably worth stepping back, just very briefly, because a couple of years ago, when Uber's previous full license M was refused a renewal, it immediately had to appeal and was allowed to continue operating for several months while that appeal took place, and to just over two years on from that, the same thing

has happened again. It was applying for a new license and it was refused, and now Uber is appealing that license and is able to carry on operating at least while the appeals process goes through, so cars aren't being pulled off the road. Drivers can will accept new rides. Um, But obviously it's a huge blow in in one of the biggest markets that Uber has outside of the US.

How do we view this? Is this a political issue with some of the other cab drivers in the city of London winning a political battle here versus a legitimate complaint that regulators have against Uber. There is a legitimate reason for complaint here. They did TfL who's our our transit authority? Here did find evidence of many journeys fourteen thousand journeys at least being being made by drivers who either didn't have a license or even had had their

license revoked in the past. And I think that that speaks for itself as to the political angle. Um, if you ask any black cab driver here in London whether they like Uber, you'll get a pretty unanimous response that they do not. And Siddik Khan, who's the Mayor of London, is on the Labor party side of the political spectrum here and he's come out in support for what TfL has done as well. And there's a very big union support on the labor side for for the black cab industry.

So it's it is easy to think that there's a there's an element of political motivation here, but fundamentally, the decision is for the regulator, which is a political and that's the that's the body that's made this decision and had the final say. So, Nate, give us a sense of how the good people of London view their black taxi cab fleet. I mean, when I'm in London, I

just think it's a joy to use. It's a great, great service, it's a great experience and I can trust it with what we have had to deal with here in New York. Um, So, is there a public support for the black cabs or people just saying, hey, we want the cheapest ride, the easiest ride, the most convenient ride. I mean for anyone coming in from out of town.

I imagine there's a there's a lot of fun in getting a black cab, and certainly you know, they're good vehicles and and they're very convenient, but for for most people who who live here, it's basically it comes down to cost and who's going to be fastest. And because Uber is so pervasive across the capital. You know, there's forty five thousand drivers just in London alone, it's it's easy to just to become very, very fond of Uber.

And personally, I I use Uber many many more times than I do a black cap for for personal and for work. So the I don't think the cab industry has any reason to be any more worried than it was before. But I also don't think they're they're going to lose any business to people coming in from overseas who who just liked the novelty maybe of taking a black cap. How crucial is London to Uber's europe strategy at this point, Well, it's one of the biggest markets.

Um it's I think it's one of the fifth most of the fifth most lucrative city for Uber in total. Um So it's very very important. But it's but it's not the only one. You know, Uber is active in many cities across the continent, and I think that losing London will send a very challenging message to other cities. But I think it's going to necessarily be a black hole for the whole European arm of the company. So now, what's the next um step? Four? I guess Uber here

they're appealing it, do they have a hearing? And what's kind of the timing here? Well, if the timing follows a similar step to what we saw in twenties seventeen when this when this happened last time, they Uber filed the appeal that year in September and hearing took place in June the following year. So there's a several month window for that appeal to even hit the first the first magistrates court. So I would, I would certainly, we haven't any information to suggest that that that would be

any different this time. If Uber were to lose that appeal um in in several months time, potentially it could still take this all the way up to the Supreme Court here, and that's a process that's you know, it could be measured in years rather than months. And throughout this process, Uber has the legal right to continue operating, so I sir, and we don't see any reason for for drivers to be to be overly concerned in the near term, and certainly not before next year. Nate Lanston,

thank you so much for being with us. Nate Lanson UH covers all things technology related. Bloomberg European Bureau. Thanks for listening to the Bloomberg pen 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 A. Bram Woyds. I'm on Twitter at Lisa bramwo wits one before the podcast, you can always catch us worldwide. I'm Bloomberg Radio.