P&L: Bloomberg's Sink on Trump's Immediate Challenges

challenges that he has taking office. Justin Sink is our US government reporter for a Bloomberg justin Thank you very much for being with us. Where do we start? Affordable Care Act? Immigration? What are the hot topics that the President Donald Trump will deal with most immediately? Thanks for having me. Yeah, I think it's gonna be a little

bit of everything. Uh, certainly the topics that you mentioned. Um. The President act has talked about how he wants to take executive action on border security virtually as soon as he enters office. Um. Republicans on the Hill are obviously very eager to roll back the Affordable Care Act, but you know, there's a lot of foreign policy issues where he could wait into. There's ongoing to formatic talks um regarding the civil war in Syria. There's his sort of

antagonism with China. He may label them a currency manipulator, and um seek to impose new tariffs. And so I think across the board, one thing that we're hearing a lot from Trump aids is that they want to make a kind of a big splash and big impact very early, if not today, um certainly by Monday of this week. And the idea here is to show that Donald Trump, who is somebody who hasn't been in government before, is able to be effective and start fulfilling his campaign promises

very early in this administration. How quickly can we expect to see some Supreme Court nominees filled the empty role currently out there? So it's just said that they are the Donald Trump has already done some interviews that they'll be ongoing, but they expect an announcement as soon as the second week of the Trump administration and probably no later than the third week. And so trying to fill

Justice Kalia. See, you know, it's something that's lingered open for nearly a year now, but we expect pretty quick action and most likely a fairly quick Senate confirmation once Ah once a nomination aspect. You know, we've heard a lot about the hundreds of positions within the administration that are currently vacant in as this transition goes on. Do you have a sense of who is managing that whole transition and sort of vetting vetting different people for those

rules as Trump takes on these other responsibilities. So, you know, Mike Penn's the vice president elect, has been heading the transition effort so far. He's going to hand off that responsibility as the Centers Office. But Um, one of the kind of interesting points that your question gets to is the fact that there are kind of different centers of

power within um, the Trump White House. So there's the sort of traditional establishment Ryn's previous R and C area, there's the Steve Bannon UM, you know, right, different U

different kind of Trump Republican power center. And then there's the Trump family itself, so Jared Kushner, UM, Ivanka and and these are people who also have weighed in, especially on kind of top level picks and so especially as the administration is getting filled out at lower levels, there's a lot of back and forth between these kind of different power centers, with all of them kind of needing to sign off on, especially people who have influential policy

making roles. Well, justin as President Obama and the Trump's I get ready to leave the White House. One trip that Donald Trump may be taking relatively quickly in his administration, at least according to Sean Spicer, who's the incoming White House Press secretary, is a visit to c i A headquarters in Langley, Virginia. Have you heard anything about that? Yeah,

so obviously I've heard Shawn's comments. And this is interesting because, you know, a big sort of theme of the transition has been a conflict between the Trump team and Trump

himself in the intelligence community. I think there's going to be some attempt at since men in there and and kind of getting past the big controversy over Russian involvement in the hack of John Podesto, who's Holly Clinton's campaign chairman and the Democratic National Committee, something that Trump kind of publicly doubted for a long time but has now come to accept. And so I think it would be

an attempt to reset that relationship. Um, we also expect in terms of sort of early tra novel that one of if not as first domestic trip, will be up to Philadelphia next week where the Republican lawmakers are having their their Winner retreat, and that will be an opportunity for Trump to meet with them and kind of set forward some of those policy goals that will require legislative action that we were talking about earlier. Justin Sank, thanks,

thank you so much for joining us. Justin Sank, us government reporter for Bloomberg talking about what President elect Trump's immediate steps will be after he takes office. One thing that is not up is the US dollar. I want to bring in Doug Barthwick, managing director and head of f X at Chapter Lane and Company, to talk about what President elect Trump will mean for the dollar. He has come out and said that he does not want the dollar to be too strong. What will this mean

in practical terms? Doug, Yeah, thank you very much for having me. I think that one of the most important statements that the Trump has made so far is that he wants to make American more competitive. And I think that we all know, based on economics classes, that multinationals like to manufacturing countries with a depreciating currency while exporting to those goods to one with an appreciating currency. And for that reason, you see people manufacturing in China exports

that then go into the United States. Why why would you want that? What you want that because you want to have cheaper employees and you want to earn more on what you're selling. So how could President Trump effectively

weaken the dollar? And what do you take such steps? Well, one of the one of the most interesting things would be the strong dollar policy that's been enforced really since ever since Lloyd Benson was there with Mickey Cantor and back then we were trying to do trade relationships and Dolly and was trading at seventy five. Once we had the trade relationships in place, they brought in the strong dollar policy, which then saw Dolly and moved from seventy

five to its current levels. Now, now what's happened since then is the U s has essentially become more expensive in terms of its labor than maybe Japan, and so as the dollar keeps on strengthening, it makes the US less and less competitive. Now, the US has exported more, but what they're exporting these days is US treasuries. So many countries in the world say, you know, we'll buy

US treasuries because the US currency is a strong dollar. Policy, the dollar will go up for treasures will be work more. It's not really about the yield and the treasures more by the fact that the dollar has been strengthening. Now the President elect Trump looks at this and says, you know what, when you sell treasuries, you're not really creating jobs. But if we wanted to create jobs, we have to have manufacturing back in the US. One way to do that would be to end the strong dollar policy and

the chase. There's another way. I mean, you laid out this scenario about you know, manufacturing and countries with depreciating currencies and then shipping to places like the US with appreciating currencies. Of course, there's the talk of this import tax and in a way for companies to make products here in the US is opposed to making them in places like China. How does that prospect change the equation

for companies when it comes to where they do business. Well, I think the companies are being encouraged, either to the import tax or or from any sort of dollar policy change, to be much more encouraged to manufacture in the US to sell to the US. And I think that's certainly one of Trump's main agenda parts. Hey, Doug, I wonder if you could tell us about the Chinese you want and whether there's a possibility that the value of the

juan will rise against the US dollar. China's economy performing pretty well, right, We've got the GDP results, but also new orders in December they were up restocking cycle. Would this be good for the you want to gain value and therefore would help other uh you want related currency pairs. Absolutely. The the un is linked to the US dollar through the basket that it trades off of, which is really a guide, but it trades back and forth with it.

When you see the dollar strength, you also see then dollar China go higher or that you want get weaker. If you want that, you want to strength, and you have to have the dollar weaken. And that's one of the key points in this as well, and that the market constantly says, you know, we want to see the U want strength, and well, it's only going to strengthen if the dollar weakens. There's really two ways it's gonna cat. You can actually you can ask China to please strengthen

their currency, or the US can weaken the dollar. You know, I have to wonder people sort of came up with this idea that the dollar wood strengthen as yields rose in the US. Now we see yields kind of flattening out for the year, dipping even while the dollar declines.

I mean, do you think that this can continue this dynamic? Well, I think people are very excited right now about the FED raising rates a number of times through the year, and if you remember last year around the same time, there's also the same excitement, and the Fed ended up

sort of disappointing the market. I think that it's that I could see the FED raising rates, but I think I think it's more likely the FED would raise rates should the dollars start to weaken, and the FAD would essentially be the breaks on any sort of dollar weakness, and that's what we're expecting for this year. I think that that certainly we can look at the differential and yields and say, well, that means that the dollar is always going to be very well bid. But it's not

always the case. When Dolly went down to seventy five, it wasn't because Japanese had very high interest rates. Well, Doug, just quickly tell me about the dollar versus commodity currencies such as the Aussie dollar, well, I think that if you do see a dollar weakness, i'd expect to see the Ausio dollars start to rally. Remember, dollar weakness will spread inflation abroad. And there's one thing that old mold banks are worried about right now. It's the deflation that

they're seeing. They're not seeing any inflation. Dollar weakness will see inflation in commodity prices. If that's the case, obviously the Audio dollar would strengthen. And also I think you see the rand strength and Kiwi strengthen and Canada strengthen. I want to thank you very much for joining us. Douglas Borthwick is managing director ahead of FX at A

Chapter Lane and Company. Speaking about currencies, all right, let's cut to the chase and figure out how to make some money in a rising rate environment and a bond market that can't seem to figure out which way it wants to go. Matt Freund is the co chief Investment Officer and the head of fixed income Strategies at Calamo's Investments, and they manage over eighteen billion dollars of customer assets based in Naperville, Illinois. Alright, Matt Freund what is what

is the word? What are you telling your clients to do or not do well? The first thing we're telling our clients is that despite the headlines, we've actually had a fairly good year in fixed income over the last twelve months. So one of the things we want to remind investors is that it's a market of bonds, not

just one bond market. So high yield up over last over the last twelve months, depending on the index the broader markets, the the agg is only up about one and a half, but active managers in core and core plus funds delivered a four percent return. So um. We don't think we're going to see the huge capital gains of the past five years or so, but we still think bonds play an important role in a portfolio. So there's been a lot of talk about inflation rising and

general growth prospects increasing this year. That would be bad for government bonds, particularly treasuries. Do you agree. Do you agree that this is the outlook for the year. Well, clearly it is some people's outlook for the year. I think the market is struggling with how much of the growth that we're expecting to see is going to be inflationary.

And inflation is generally bad for stocks and bonds or versus real economic growth, So inflation versus real if we see inflation spike, and right now, I think the expectations are right around two percent, so it's still manageable. But if it gets out of control, I think risk assets generally UM will be in trouble. If it's real growth, I think you're going to see stocks do well and credit continue to outperform, credit spreads come in. I'll tell you though, we are not in the camp that inflation

is going to be a problem. We think the next quarter or two we're going to see inflation increases. That's pretty much baked in the cake because of what we've seen in energy past. The next quarter or two, there's a lot of deflationary pressures out there that we think are aren't going to go away just because of an election here in the United States, such as what what are the deflationary pressures that you believe are going to

dominate because clearly we're seeing rates move higher. Rates are right exactly, so we think that the market may have gotten ahead of itself. But to think about the markets over the next two or three quarters, there are high levels of debt um, government debt, not personal debt though. Well yeah, but you have to look, you know, debt is functionable, and you're absolutely right. The deck chairs have

been rearranged a little bit. But in general, high debt levels and by a lot of measures, were higher than we were in o A. Uh, you know our deflationary strong dollar. UM, how are they? How is that deflationary? I thought that if you have an acceleration of inflation, that would be exactly what the debtors would want because it would inflate away the value of the debt. No, exactly, No, that that's right. Those two those two statements aren't in conflict.

So when you have a lot of debt um and you owe money higher than expected, inflation makes it easier to repay. But when you look over periods of time, economies that are burdened with high debt levels, generally UM have lower inflation rather than higher. The next thing is the dollar, strong dollar, we're imp warding deflation. The next one or demographics. As society's age, you don't see as

much inflationary pressure. And then finally history is important. Only if you look what we went through in two thousand and eight was a balance sheet recession. We got in trouble because of too much debt, and when you look at past balance sheet recessions, it's just hard to get not just real GDP growth going, but it is hard to get the velocity of money accelerating. It is hard to get inflation um significantly higher. And that was true in the twenties. It was true. Actually it's been true

in Japan for almost twenty years. So, um, you know, there are some long term headwinds that we think after the next quarter or two, Uh, we're still going to find tough to to beat. So you said that you think that the inflation expectations are currently baked into the first and second quarter that have to do with higher oil prices. Do you Does that mean in the second half of the year you expect credit spreads to widen out in sort of a soul of what we've seen

for the past couple of months. In other words, rates coming back down, credit spreads widening out, and possibly stocks taking a dip. Yeah. So when you think about so again, it's going to come back to, uh, you know, the whole inflation versus real growth debate. Uh. You know, so we were more optimistic on the economy UH in in UH than we were prior to the election. I think that, you know, some of the things the new administration is talking about doing though, I know that changes um uh

pretty quickly are going to benefit the economy. But the economy and markets are two different things. So I suspect that UM, as the economy does a little better, that's going to be supportive of credit spreads. But again, credit spreads have already come a long way over the last twelve months, so we think they can grind tighter, but it's not going to be um dramatic, So we we've

after gradual improvement spreads grinding tighter. I do think that inflation expectations may be getting ahead of themselves, so we see some um uh you know, constructive movements there. And then you know again when you when you think about the level of volatility in the market, that's one of the calls we got wrong last year. We thought, with all of the rather significant events that were happening that really caught the market off sides, we would see more

of all that didn't happen UM. But we think that's a matter of time, so I I expect volatility to go up and present some opportunities over the next year. So what would be some specific investments that you would be ready to pounce on in that moment of volatility, So high yield is one of them. So we're still and my my team disagrees with me a little bit here, but I think that high yield on a risk adjusted

basis is still fairly attractive. So we have positive but more modest expectations on equities over the next twelve miles. We we we don't expect um losses, but again, valuations have priced a lot of the good news in. So in that environment, we're high yield is yielding about five and a half six percent depending on what part of the market you're looking at on a risk adjusted basis,

we think that makes sense. But most of the opportunity is in the triple C space, and you have to be very selective and very careful when you're investing in triple C, so make sure you hire a good manager. We also think that loans can make sense here. Now this is a very consensus trade. I hate being in the consensus, but I think that loans are are the consensus may have this one right. And then lastly, we're

not afraid of duration here. I think that adding out in the twenty year thirty year part of the curves selectively makes a lot of sense. Thank you so much, Matt Freund, co, Chief investment Officer and head of Fixing Strategies at Calumus Investments in Naperville, Illinois. Thanks for listening to the Bloomberg pen L podcast. You can subscribe and listen to interviews at iTunes, SoundCloud, or whatever podcast platform you prefer. I'm pim Fox. I'm out there on Twitter

at pim Fox. I'm out there on Twitter at Lisa Abramo. It's one before the podcast. You can always catch us worldwide on Bloomberg Radio.