Paulsen on Outlook for Financial Markets (Audio)

based in Minneapolis. Jim, welcome back to the show. Good afternoon, Kathleen. Well, you know that it's almost state fair time here in Minnesota, and people like to you know, of our wonderful deep fried snickers on a stick and more. Right, and so you just sit back and get a dose of sugar and think about what's going on in the market. If you if you just look at the stock market broadly, it seems like a lot of people are still bullish and uh they feel that there's room for the s

and p F five hundred to move higher. Are you on board with that or do you have a little bit of a contrarian view in there? Well, I am pretty much on board. I think um, I think stocks

as a whole might continue to go up. UM. I do like the international market's quite a bit increasingly better than the United States market because I think that the primary catalyst underneath this rally, Kathleen, is fundamentally based um and that is I think that we might be kind of en route here to the first sort of global economic bounds where not necessarily we all grows real fast or anything, but maybe we all bounced northward at the same time for one of the rare times in this

recovery where that's occurred. And the reason that that is likely, I think is because for the first time in this recovery, we have synchronized global economic policies. Everyone everybody is pushing northward on the economic cycle, from from China to Europe, to Japan to Canada, Australia to the United States. It's it's just across the globe and and rather than being in conflict, all policies are aligned. And I think that

might result in the first bounce and growth. And I think that's going to be good for stocks globally, but probably better for stocks away from the United States, given that the United States is going to face some full employment pressures. But James Paulson, having central banks around the world, been working to make this happen for almost a decade.

I disagree with that. That's where I do have a little contrarian view, I guess PIM and that you know, if you think about the US has persistently pushed upward on the global cycle since this recovery began, no doubt about them. But most of the time that we've been doing that, we've been in conflict with other major parts of the globe. So you gotta remember, Europe spent a good deal of time practicing fiscal austerity in this recovery, and it worked, it created another recession in the euro Zone.

Japan spent the better part of the first several years of this recovery hesitant to do about anything, just didn't really know what to do and sat frozen. It wasn't till last couple of years they finally decided to start to expand their balance sheet. China until about uh the start at two thousand and fifteen, was trying to moderate its recovery, trying to slow itself down so it wouldn't overheat. So it's really only been last eighteen months, maybe a

little longer, that you finally have everyone pushing upwards. And I would also argue that a lot of the resource based economies like Cannon in Australia, they were feeling pretty buffered from the global malaise with oil prices and client prices doing so well until the summer of two thousand fourteen, so they also weren't very aggressive and pushing up. But

now everybody is. And I think what's happened to your point, PIM, is with everyone's given up any hope that policy is gonna work, and I think for the first time it might have its best shot of working the first time in mind, have its best shot of working, because go ahead, in terms of the policies, um, we're not pushing up in the United States while your pushing down with fiscal austerity or with China is trying to moderate for example,

we are in concert with our policies. Uh, not just any one policy, but you know, money supply, central balance sheets, rate structures um for the first time or in concert at all aimed at pushing upward on the cycle. But why should having them all in concert necessarily change your view? I mean, if the United States has been trying to do this for at least five years, if not more, and what you're getting is under two percent growth in

GDP plus you're barely seeing any increase in wages. How do you measure that as being a move higher in the United States? Well, I've written elsewhere Pim, and I think you raise a good point. I'm not suggesting we're going to have uh, you know, a blowoff growth in the word, I'm just talking over that maybe even three. Yeah, I not for even And I've written extensively about why, because the developed world has a lot of structural issues

that prevents that. Primarily among them is aging demographics, which I think is holding back global growth uh dramatically it has been for a while. That's not gonna go away anytime soon. But could we bounce from the slightly above two wish growth up towards high two's to three. I think we could, And it isn't so much that growth

would be spectacular anywhere. But if we bounced from UH two and a quarter to two and three quarters, at the same time that Europe went from one and a half to two, same time that Japan went from zero to one, at the same time that China bottomed themselves out and showed a little pick up, at the same time the resource based economies arrested their declines. I think for the first time something would feel very different, and that is, all markets around the globe would be rising simultaneously.

If there's one primary reason that we haven't had a capital spending outbreak, I would argue it's because of the there's been the lack of a synchronized global bounce in activity, not not so much the speed of it, but just the lack thereof Okay, so, Jim, you're a positive. Really this that gives you some set, some wind of the sales of the U S stock market, possibly global equities.

Let's turn to the bond market, because it has confounded for what four or five years now, all forecasts that yields had to move higher, right, Uh, is this year that they finally have to and will move higher? And if so, well, I think so. But but I'm as burned as the next guy in predicting higher rates. UM. I think a couple of things I noticed in that we I don't think the first synchronized policy stimulus is

good for the bond market ultimately if it works. UM. In that if it does lift boats across the globe simultaneously, I think the rate structure is you know, woefully too low, and we'll have to readjust upwards. So I anticipate that. Uh. I also think there's no one really left to anticipate. I mean, there's no one left expecting it anymore. We've all given up. Even if we kind of think that, we don't really bet on it because we've been wrong

for so so long. The other thing is I noticed, is you know, underneath this idea of global stagnation and nothing's ever gonna work. If you look around the globe, core cost have already been rising, uh noticeably different in the last eighteen months or so. Core inflation is up, certainly in the United States as our wages by the

biggest amounts of the recovery for the most part. But if you look around the globe, core inflation is also up in the Eurozone, it's up in Japan, it's up in China, it's up in the United Kingdom from where it was um at its lows in this recovery. So against the backdrop of a collapse in commodity prices in the last two years that has caught captured everyone's attention. The headlines, consumer and price inflation numbers have been down.

Core inflation SAAN has already started to rise and so now that we're reviving commodity prices, some of the attention will return to these core costs and wages, and core inflation already picking up. It wouldn't take much more. I don't think to capture attention. If wage inflation at two six or to go up to two seven, five or two eight, if core inflation at two three were to go to to six, not very big moves if that were to happen. I think it would gain a lot

of intention from bond investors. Jim Paulson, what area of the stock market outside the United States would you recommend that people pay attention to? Well, I I really like both developed emerging markets. I guess emerging markets more than developed even but uh, you know, I think these markets PIM have been uh you know, under performing for several years, and by and large everyone's given up on them. So

everyone is very much overweighted the United States. And as a result of that, if they start out for in which they have. By the way, urging markets are beating the US market year to date by a pretty good margin. Developed markets are trailing just barely now year to date. Uh, they start out form, you're gonna see a lot of portfolios had to wait more towards international markets because they're also woefully underweighted. Because they want to perform, They've gotten

to be much better relative values. They have companies that are in a much early part of earlier part of their earnings cycle compared to US companies because of their recoveries aren't its mature as ours. They're going to continue to have hospitable policy support, where our federal reserve is gonna is already starting to turn away overall, and I think the dollar is already rolling over and is likely to weekend in the next few years as opposed to strengthen.

And I think that favors you know. I think a diversified emerging market bet across UH multiple regions makes the most sense. And then i'd also, I guess my of the developed markets, I'd probably look at. Eurozone is one of my favorites. Jim Paulson, thank you so very much. Give as some food for thought. As summer comes to a close. Maybe you'll be at a state fair and you'll be able to get one of those deep fried

snickers and think about your investment strategy. I love that tease bullish on US docks and European Equities says central banks are in sync and that could put wind in the equity market sales. This is Bloomberg