Surveillance: A Strong Dollar Kills The EM Story, Maher Says

Black Radio. What are you doing? They put in this pillar? Thank you for all the comments and our beautiful news studio, the Interactive Broker's Studio. We had a huge comments yesterday, John and some photos are Chris Rosh down at Carolina wrote us up in Talking Busines News and you see the mirror. The noticed that continues. None of the articles writing about the new studio mentioned your mirror behind your mic position which at the moment you're staring at you

this vein at home. Do you compete for mirror time with Mrs Keane? No, no, no, afterthoughts the mirror? Okay, I put a mortgage PM and what am I meant to do with this for the next two hours, I don't talk to Dara about the dollars? Can I do that? Now? You're going to engage, You're going to focus on the market just quickly. Yeah, you're in great. Let's get to the note. The consensus is consistent on the dollar consistently wrong,

it seems, having missed the rally in April. The medium forecast is for the dollar to week and by seven percent in the coming year, according to Bloomberg Data. While this is a medium term view, we believe it is fostering an attitude of denial. That's the research from HSBC. Who is that? Who did write that? Come on, Dara, what's the takeaway at the moment? Why is that your

takeaway right now? Well, because I do think they're just constantly the markets looked at the dollar rally that we've had since the end of April and they said, well, that doesn't make sense. I think it does, but they said it doesn't make sense, so therefore I want to sell into it. And it's it's created this positioning, tactical position where we're always looking for an opportunity to sell

the dollar. When I go and see clients. They don't say, hey, that's how much for do you think this dollar rally can go? It's always is now the time to sell? Is now the time to sell? And I think that's the problem, is credit this bias in the background. I suspect because a strong dollar kills the whole E M story, which they're all desperate to work. And I think that's the problem because it hasn't been working for some EM

of late. Well, there's some signs at the moment that the long U s versus e M crowd that started to emerge over the last couple of months, they're riching to pivot and there's some signs right now that they're pivoting. Are you saying they're gonna get burned? Well, I think they're at risk, and particularly if if it's if they're relying on the dollar weakness has been a key leg

of that equation. I mean, great if you get reduced EM risk for whatever reason, political developments, growth, trade wars, whatever, But if they're relying on dollar weakness when the Fed is going to tighten and continue to tighten along the dots, I just don't see where you get there. The rate story is a bit of a pain trade right now.

I was looking at tens the US versus Germany on a ten year maturity, fresh whites, fresh multi decade whites, and everyone's looking for that convergence to push up euro dollar, for rates to move in the euro's favorite you saying that's not going to happen. It doesn't feel like but you know what's weird. Even just yesterday we had a

push up in US yells. You you know, Tom's talking about it, You've talked about it, and the dollar didn't move with it, and it's created a twitchiness I think in the market that are we for a rerun of

twenty seventeen? You know, are we for a rerun where rates seem to say the dollars going hird but the dollar is not going Asker is just critical And the idea here, the yield, folks of the United States and John, when you take Germany is compared to the yield of Germany is as wide as it's bend since basically time began, since records began. Whatever majority it's two d and fifty nine bases dreams instability, right, I mean the Green Book of the I m F. It screams instability. Right, Well,

certainly screams divergence. I mean, honestly, you could you could say that that's as much as we're seeing. But what it what it points to me is, you know, the FED is delivering and the ECB is snow playing, snow plowing red expectations further and further into the future, as there are many other central banks. So it's a peculiar divergence. But and I think when the market always sat would close and it just hasn't happened such on something important.

In seventeen, great differentials weren't the dominant story driving euro dollar. Why is twenty eighteen different? Why does it stay different? I think, well, one of the reasons it was different in twenty seventeen was, if you remember, inflation in the US was undershooting, but the FED were still able to tighten because the dollar was weaker. You know, there was an offset there in terms of what it did to monetary conditions. At the moment, it feels different because you

obviously don't have inflation undershooting. The US economy is is growing pretty strongly, and whereas in the Eurozone core inflation. So I think that's the key difference. And also I think in terms of how the markets position in the market thought the dollars should be stronger and great differentials, and it wasn't, so they got killed. And now I think you shouldn't be where's your big figure call right now? I mean dollar And you say, yen is not going

to move that much versus the dollar. But if I really want to make a big figure opportunity, which e M is the one that's most vulnerable as compared to dollar strength. Honestly, Tom is gonna be the usual suspects. It's Argentina, It's Brazil. Argentina at a forty and it hasn't given it back. It's going to move out to even week we got it at fifty five zero big figures. Yeah, I mean bear in mind, look that's what moved, but a lot of that inflation. That's important for John Ferrell

because it's usually leverage seven to one. I thought we were both in an all cash portfolio. The leverage cash portfolio. That's what I'm in, the double leverage in the leverage. Could see a bit of risk appetite around the around the tableaun sounds and risk appetite irimple effects surveillance Darrek just looking at the situation in the United States, there was a fear through seventeen that high yields would be accompanied by a week of dollar. That's the dynamic we

see right now. And I think the narrative that's going to quickly emerge, and I've already hearing it, is that to finance the fiscal deficit in the United States, to attract the foreign capital, you can have one or the other or both. And essentially it's high yields and a weaker dollar, and the weaker dollar is going to what what is going to be what it takes to attract the foreign capital. Does that narrative start to emerge again?

It could, it could, but it's the structural story that So this is the thing that that's the structural line on a on a fiscal deficit. The cyclical line on a fiscal deficit is, hey, it's given us tremendous growth. It's inflationary, it's supporting affair that wants to tighten through neutral it will force the rates market to say, actually, they're going to deliver. So look there is so there is an offset, and you have to decide which one

is going to be dominant. I mean, to my opinion, and the evidence of the last few months has been the cyclical side of that equation is the dominant one, the structure one really in the background. Well with within this and again you know the strong dollar call. Can you fold it into equity markets, HSBC. We talked about Steve Major, we talked about Derrenyer, but bring it over to equity markets and what it means. Well for me, what it means is I'm going to see a lot

more equity clients. You know, they used to be the time where I go out marketing and I just see a bond guy or just see an FX guy. Now the equity fund managers want to speak to me because they recognize that this is a swing fact, that this could be a chief determinant. I don't want to call the equity make the equity call, but that's definitely a point of interest dying to get along, emerging market equities dying,

and a lot of most people. The prerequisite, the prerequisite for that to succeed, as UBS pointed out, is a weaker dollar coll dere HSBC. Thank you so much for being with us today right now, uh speaking to us on policy, Terry Haines, and as we do Terry All policy in Washington bounces off the mood of the president, which is on oil. It's too I do we have

a US energy policy inside the Beltway. I think the energy policy would be expressed by the President and Republicans as drill, baby, drill, and by the Democrats and don't do any of that stuff. So we don't really. I mean, I remember talking years ago to various secretaries of energy. We I mean, I think it's a mystery of a lot of people. We really don't have a view on energy as a nation. It's just sort of left up to private enterprise to figure it out. Right. Well, it is, yeah,

but in part because the circumstances have changed greatly. I mean, people of of our vintage think of you know, energy is scarce and all the rest and noworder the point where the United States is a net exporter of oil and the like. So it's a very different situation than it was when that first got to got to be the vogue. John, you go back ten twenty years here, and it was just raging about energy, and a lot of people would say the reason we succeeded because we

didn't have a Washington base. I remember I remember you saying on Bloomberg Surveillance TV many many years ago, Saudi America. Do you remember when we had the big shell boom Saudi America and we started referring to the country as that.

And I just wanted to tell whether, I do whether whether the United States is actually entitled to do its best to influence the cartel which is opaque at a time where actually the United States is a major oil producer from one of the biggest on the planet entitled sure, you know, the you know, the the bump up of the sovereign nations and trading blocks is always open for for influence. So yeah, absolutely, why not? It just seems that the president is also intent on trading foreign policy

for help on the eco side. We saw that with China in North Korea. Is that what we're seeing now with Saudi Arabia and the Middle East? Yeah? I think a little bit. But and again I think that's always been true to the uh. You know, geopolitics always plays a role in the in the domestic policies of the United States, and that's no less true today. What are you looking at? I want to ask an open question here.

You're a grizzled veteran of the Washington scene. You've um, You've got a brass plaque on a chair at the hay Adams right lunch, you know, in the lunch room there my door, they Hay Adams. But no, well they do a good sale. The ice tea is everyone in the room, John, you're going to Hey Adams. Are sixty hitters in the room. Oh man, Hey Adams? Is we could go an hour on the joint house of Hay and Adams. John hay are iconic Secretary State Panama Canal

and all that tore it down and they build a hotel. Okay, and that's where guys like Terry Haynes go. No, No, I've never been there, you know, don't. Redd O, keeper of the m X is listening to this. But at the Hay Adams, what are they talking about right now into the election? What's the theme? Open question? Terry Haynes. The Well, the theme is that the the result is very very uncertain. You know, you've got it, I would say,

both ways, Oh yeah, absolutely. I mean you've got a very evenly divided country and and you know this this

plays out. You can see this playing out a lot of ways in public from individual races to the kavan on matter all kinds of things where uh, you know, a very evenly divided country and a very evenly divided Congress, and uh, and these parties are pushing forward and backward against each other very strongly, and with a you know, with a very open question about who's going to prevail from speaking to many investors on a regular basis and getting in touch with what our audience really cares about.

I think the number one thing that many people listening right now worried about who have money in this market is the prospect for policy rollback. What is the prospect of policy rollback? And talk to me about that through the prism of the midterms coming up. Yeah, of course, the the short answer is that policy rollback is very very unlikely in any of the three scenarios. And today I have as my six base case a very small Democratic majority in the House of ten seats are less

a slightly increased Republican Senate. In that circumstance, I think how markets will will react initially is a concern about whether or not there will be policy rollback, and they will they will understand very quickly that that is not possible. In a first of all, in a divided government, but secondly, where the Democrats themselves are going to be riven between progressives and centrists, to the centrist will probably be responsible for giving them the small majority. Uh. And a lot

of those people are much more business friendly. Uh. They are many of them pledged not to vote for Nancy Pelosi's speaker, that sort of thing. So I think that there there will be an understanding very early on that divided government will not roll back anything. It won't It won't allow for another uh well you know, tax bill or anything like that. But there won't be a rollback, and it will stay away from impeachment and all the

other you know, the stirma daying of cable news. You're suggesting that the new Democrats will lessen or dampen the progressive Democrats need to get things done if the House takes over. I am interesting. What kind of Democrats are these new Democrats? Are these Scoop Jacks and Hubert Humphrey Democrats? Are they a new breed? I would suggest they're a new breed. It's it's it's the nostalgia we have for maybe a middle ground Republican and Democrat from another time.

But it's not the same as it It's not the same, but there there are there are similarities. Uh, a lot of people on the coast. And again nothing against the coasts, but go ahead, I can see the ocean. I mean, not not nothing. It's a coast. But the coasts think that somebody like Ocasio Cortez here in Queens is a big story. Whatever else that is. That is not a Democratic pickup. That is somebody who that That is somebody

who is replacing another Democrat. The people who are going to be responsible for the pickups are people like who we saw in the March special election in western Pennsylvania Shape Country, Connor Lamb. These are people who are trying to actually represent the views of their districts. And somebody like Lamb is you know, not Pelosi Second Amendment pro all that. I want to bring this right over to England.

Can there be labor pickups in conservative I mean, I think Terry's observation in America is really a can labor take a seat from conservatives? The interesting thing about the United Kingdom right now is not a traditional left right split anymoxact. It's very much about nationalism and populism. Versus globalism, and that traditionally does not go through left wing right wing lines. I mean that's changed, that's changed massively in the political landscape in the UK has changed because of that.

But I think Terry, what you pick up on is really important. Many of our listeners are worried about a massive radical shift to the left. Um are you saying the socialists that are out there right now promising everyone of free pony, unfunded, They're not gonna make it. They're not going to change the Democrat Party. I am saying that. I think I think the Sanders moment has passed. I think there are is certainly passion for those those points of view in pockets of the country, in the in

the northeast and in the coast. But what's going to bring Democrats majorities in in a continuation as a viable party are going to be the Centrists who don't share those views. Fascinating stuff, Tom, I think this is really really important. And I also think it goes to Terry's point that on the coast, and I will speak for London, this happened in the United Kingdom. When you're in London and you were reporting on a story like Brexit, whatever

it might be. You were surrounded by a certain group of people and you have literally no idea what is happening in the rest of the country. And when we were going through the Brexit vote, I remember going literally a couple of hours outside the capital back home to the Midlands just to sit in the pub with my

friends to get their thoughts on Brexit. And guess what, they had a very very different view on the future of the country to my friends down when the cosmopolitan home of the elites in the capital of the country, it's a very very different scene. And here in New York you do get this idea that somehow the socialist and the Democrat wing are going to come out and revolutionize the party, um terry. You just need to travel out to the rest of America, don't you to get

an idea of what's really going on? Oh? I think so, yeah, absolutely, Uh yeah. A lot of politics today to me looks like the old joke about university faculty politics. The uh the fight is so vicious because the issues are so small. Uh So, there's an aspect of that, but it is by no means true that what what the coasts care about is is what anybody else cares about here, Terry, thank you so much whatever I s I greatly appreciate

this morning. Joining us now is Snolly Bassika Bloomberg to tell us all about Canna Fitzgerald and how they have really change their their entire business and all. It's always a pleasure tell us about this story about Howard Lutnick and how he turned Cantor Fitzgerald into this big little guy, big little guy. Absolutely, it's been a real interesting journey

to watch. I was sitting there last New Year's Day when on show Jaine, the former CITYO of Deutsche Bank, joined and we were sitting there thinking, what's the plan, what's going on? And since then they've hired some of um, the you know, really really prominent traders on Wall Street, sometimes paying more than ten million dollars a piece to bring them over from Credit SUITEZ or JP Morgan, and we saw them rebuilding trading desks and we found out

through series of filings that he's a billionaire. Um, so it's the first time Howard Lutnik is a billionaire. UM. You know, people suspected, but nobody knew. And now um, we know that his stake in Candor Fitzgerald has grown to more than about sixty and so you know, he owns most of the thing, and now he's also spending hundreds of millions of his own dollar lers to push

it into new businesses, including prime brokerage. And they're financing hedge funds, especially smaller hedge funds at the largest banks are not really taking on Why why is he making that push into those particular areas and maybe you could just describe what has been their main focus absolutely so, um, you know, prime brokerage is an area on Wall Street that um, you know, the larger it takes a lot of risk, right, you do have to lend these hedge

funds a significant amount of money. And you know, talent really has been moving around on Wall Street quite a bit. So it's a good time for him to you know, take a lot of people who are disgruntled at JPMorgan or disgruntled that Credit Suites, or discruntled that Bank of America, UM who where they don't want you know, they're they're

really discerning about how they're spending their balance sheets. What's interesting here is we spent a lot of time about the future of Deutsche Bank or future of big European platforms. Here's a smaller firm everyone I think, including Hardwood degree. It's very entrepreneurial, almost quartered a quarter definitely year to year. Where do they fit in in New York? Not a regional decidedly. Where do they slot in with the names we know better? Well, for one thing, they're actually located

across the street from Bloomberg's offices. They fit in and they actually are right there. But they also, you know, you were talking about the big guys, they don't want to be one of the big guys. What they want to be the biggest little guy. They wanna you know. The one thing that he kept saying was he wants to be on a certain side, one side of the Grand Canyon, not the other. His biggest rival is Jefferies. Ironically, he's stolen dozens of bankers from Jeffreys in the last

year year and a half. UM. Most recently he's um, you know, took over twenty four power and energy bankers to build out an entirely new power and energy team. They're UM working a lot on convertible bond offerings as well, so esoteric things that you know, you need specialized talent for. He also wants to get into real estate, or I guess he already is in real estate, but he wants to get into real estate in a bigger way. Yes, people forget that b GC is part of the cantor Um.

You know, Howard Lutnox Empire. There's b GC and Newmark and those contribute significantly to his um wealth and and you know to what he's really building. And all the pieces kind of fit together in a not so obvious way. But um, you know he he does have these huge real estate platforms where he wants to own the entire structure of the financing of real estate. A little bit on the history of Canador Fitzgerald, and we always have to mention not eleven when we think of it. It

is everywhere in Canador Fitzgerald. Um, Howard's office and it's you know, studded throughout this entire story. But you walk in and their steel plates from the building. Um, there are pictures of people He's lost. And yeah, the Candorfitsgerald charity day, you know Tom was there. You you go and you know there's a ton of celebrities and and they're raising money and but you know, I'm not there like a celebrity. They just want me to teach the new guys how to log on, you know, that's all.

It's like a It's like al. What's great about a PIM is there's a lot of these other charity days, you know, they're they're all wonderful. What's amazing what Lutnick has done is its sustained. You know, you knew it would be good for one or two years. It's actually gotten better over the years. Steve Bsming and others have really made the true celebrities have really made a commitment to this, which is great. But what's the nature of

the billion? Is a billion a nature of a cycle of the market or is there a sustainability to Mr Lutnick's newfound wealth? Well that's the question. I mean, he's well over a billion, so I think it'll be sustained. But you know that's you know, and and so um the question is and you know he has some headwinds on his side, for example, and getting into the hedge one universe at a time when volatility is coming back could be a good bet. Okay, how's to read of

the day For New York Wall Street? I would suggest for Global Wall Street as well, Mr. Lutnick and Kentor fitzger Old. It is penned, it is quilled, as they say in print, Tom at Kevin Sinelli, bask As well Bloomer, you'll see that. I'll get it out on social here at some point Pim Fox and Tom Kane without question or interview of the day on the equity markets, Douglas cass Sea Breeze Partners, Doug we could talk for an hour right now of the dynamics of fixed income versus equities.

Another hour on long Twitter, another hour on what shorts could do. All that cut to the chase yields her up. Alan Ruskin at Deutsche Bank says three point one three percent is a tip point where three point zero eight percent on the tenure yield. How much are rising yields competition for the certitude of dividends and dividend growth. I think our mutual friend Jason Trenter coined the term tina that is a no alternative, and I say move over team to look at sit A c I t A

cash as the alternative. To me, it's really amazing how stocks are ignoring what you just described. You know, a real rapid rate rise which is now becoming even more conspicuous. You know my two, my two idols investment idols, Warren Buffet and Leon Cooperman. I've been talking for years about stocks being cheap relative to bond market yields, but that's

not true anymore. And if you look at the differential between the three month Treasury bill rate two point two versus the SMP yield at one point seven, so we're at the largest spread, largest wide in a decade. So buying overvalued stocks because bonds are even moreover valued, has the feeling of choosing a less painful poison. How about just being patient and not taking the poison at all? Doug cast what of the notion, I'm sorry, what about the notion of letting your winners run? You know, that's

approach that many take. I look at intrinsic value versus share price value, and when those two things widen, when stocks are cheap relative to intrinsic value or private market value, I buy when there's a premium, as I believe is the case now between share prices and the intrinsic value. I short. So that leads me to being in a short position. And if you're invested in an index, fund SMP five over nine year to date. Do you take your winnings, go home and wait for a better day.

I would. I think the the ingredients for a market UM drop are now in place. Obviously you look at til ray it's uh. It's indicative of over zealousness and over abolitionists on the part of the retail investor. This is the cannabis specultive activity we saw in early two thousand. UM investor complacency is on the rise. I don't know a soul pim save the perma bears who are looking

for anything like a large markdown in the market. Again, we have rising interest rates, we have a whole possible No, Doug, I don't. I don't mean interrupt, other than to say I agree with you that the complacency is out there. When do you institute shorts into a rising market? Well, my approach, as you know, has always been to average into positions both long and short. I don't believe I have a concession on finding the absolute right entry price

level for both my longs and shorts. I've been in the business for too many decades to realize that Mr market UM, you know, UM beats the heck out of all of us, So I average in and it's sort of like the funnel. As prices go higher, I have larger positions on the short side. And conversely, if prices go lower in a bear market, UM, I have larger lungs as a prices decline. I do think now that you know, the first level thinking is how great the

economy is and how great corporate profits are. And I guess I would say I'm at the polar opposite of may West, who once said too much of a good thing can be wonderful because there are second order impacts on interest rates and inflation which affect the market and the prime. If you if you study Graham and Dot, you know that the core foundation evaluation is a dividend discount model, and that includes an expectation of future cash

cash flow coupled with an appropriate indust rate. And that interest rate, that discount factor or risky rate of return is rising and now rising rapidly. Pim May West will be that's in the eight o'clock hour tomorrow, Okay, along with Doug cast. Is it expensive to hedge away along portfolio right now? No, It's very cheap with the vics low, right, So that would mean if you don't want to sell, you can actually buy yourself some protection. You can buy protecting,

buy out of the money options for nothing. You find that a lot of your investors are asking you to do so. No, no, no, they know my predilection and towards taking outside of the box positions, and um, you know I have one right now. The market to the market, as you know, tell Us has has exceeded my expectation of a trading range. I did think that the January high would be the high for the year, and we're basically at that, but I did not expect the last

sep points. Yeah, give us an update on Twitter here, we've had a Doug cast move fifteen to thirty year genius forty you're a bigger genius, and then a pullback. What does Doug Kass do on pullback? About the stock at fifteen seventy five cents, sold it in the high thirties, and I've been buying back it back recently between I would say twenty nine and thirty and a half. I think there's extraordinary value in Twitter, the scarcity value in

two Um. It's amazing to me that Tilray has a market cap today which exceeds Twitter's market cap by two billion dollars. Twitter right now is seventy three up more than so far this year. Well done. I mean, I look, Doug it Twitter and and and folks were biased here. Of course, Bloomberg with our relationship with TikTok and I'm thrilled to do downs Bloomberg surveillance streaming three hours every

morning across Twitter, which we're excited about. But Doug, is that international play or is there something you know within the perennial discussion of who will take them out? I think they'll be taken out by Google. Um, probably in the next six or twelve months. I would say that I would assign a probability to that Google has the money, seventy billion of cash and has the market cap clearly. Okay, Now, Doug, we've got to go to where I don't want to

go here. Now, you got that one to call me old fashioned, no, So I figured i'd be a little more Dougie fresh today. Number two to talk about the Yankees, and I don't remind you that they are not statistically out of the race. Thank you. Well, I've reminded myself that five times this morning. Doug ESPN brilliantly notes that the Red Sox have given up finding the bat on ball in September as well. Is Mr Judge, what's critical for the New York Yankees in a one game Wild

Corps Wild Card Playoffs? Every day? It's critical? Well, Mr Savareeno and all that. But but I mean, I'm looking at the Yankee team with some momentum here in September. I'm not quite sure season ends a week from Sunday. Come on, I'm a Red Sox fan. I can't believe. It's like Flatters Society. I can't believe they won a couple of times of the season, the New York Yankees. I thought they go undefeated. What do you think? What do you think about? What? What do you think happens?

Let's say what Yankees get into the Wild Card? They play the Athletics, and then who the winner of that plays the Red Sox. Yeah, I can only hope it's a coin. It's a coin to us any game as it's a coin to it. Doug Cast, thank you so much and the best of luck with long Twitter and christ Mr Cash, Mr cass looking with caution, thanks for listening to the Bloomberg surveillance podcast. Subscribe and listen to interviews on Apple Podcasts, SoundCloud, or whichever podcast platform you prefer.

I'm on Twitter at Tom Keene before the podcast. You can always catch us worldwide. I'm Bloomberg Radio