Surveillance: EM Could Outperform DM, Greg Boutle Says

now can monitor Greig pretty muted price action. I've got to say, with the exception of Chinese equities, which we'll talk about in just a moment, but what's your explanation this morning as to why futures are up but just

a half of one percent? Yeah. I think the slightly lackluster move from US equities this morning, up just under half a percent, is a reflection on how far we've already traveled since the December lows against the backdrop that's already seen some deterioration in terms of equity fundamentals and some of the hard macro data. The move in China is stomach six pc on a CSI three D. It's pretty difficult in the morning like this morning to wake up and untangle what is trade and what it's been

driven by other factors and specifically China specific factors. Can you unwrap that a little bit for us? Gregg? Yeah, I think really it's kind of this confluence of factors. So we see a weaker dollar, a more dovish fed the market starting price in a resolution in terms of the trade tensions, and then a more kind of credit friendly, growth friendly environment coming in China, the stimulus at the

start of this year working its way through UM. I think those things have all come together to make something of a perfect storm for China. And EM equity is relative to develop market equities. So E M over d M is that of this morning story or a longer term story? What's your base case, Greg? We think it's a slightly longer term story than that. Is something that

we've been talking about for a while. Is the right trade to play a resolution of the trade or as I said, there's a kind of confluence of fact is not just trade supporting the idea that em could outperform developed markets. That's something that I think could run a little longer. Although clearly that price action from China this morning is very aggressive. How much is underpinned by dividend increase,

use of cash back to shareholders. I mean it's folded into Washington talk and Democratic socialists that's say by backs are evil. I get all that, but just from a cf A standpoint, if it's a vector that's up not like it was in January hindsight, how much of that is underpinned by use of cash? Yeah. I think cash and balance sheet is something that is going to really

support some parts of the US equity market. I think that the buy back story, whether it's returns through dividends or buy backs, the rooster return in some ways doesn't matter. I think if you've got a very robust balance sheet, net cash on the balance sheet, then that's something that's kind of going to give you a more defensive profile if we see a growth slow down and returning some of that cash is going to support your Earningspress, I

know you're not great. We're going to talk about individual companies, but are reported from Omaha. Katherine Saglinsky just mentioned the pile of cash. Mr Buffet has there's a lot of other piles of cash out there. What's the I mean a lot of people I mentioned Mario Gabelly John tweeting out a newmant bureau. I mean a guy like a bell, He's like, why are you sitting in the cash? Do something? Is that urgency there? I don't know if the urgency

is there. And some of the volatility that we've seen in equity markets over the last three to six months is maybe going to inject a little bit more of a noting caution rather than when we have a kind of more benign environment. But I think certainly, if we do see the growth environment slowing but not slowing too rapidly, UM corporates may look to try and offset some of that kind of organic slowdown by putting some of that

cash to work. Well, there's one company that is selling, and it's General Electric, and the story drops across the Bloomberg that General Electric has agreed to sell it's buy a farmer business to Dana her for a total consideration including twenty one billion dollars in cash, as well as Danna has assumption of certain pension liabilities. That just dropped across the Bloomberg. General Electric up more than six percent.

But is there almost an inside transit actually, I mean Mr copp Is, I mean I'm going to be honest and totally not surprised by this. So here's the headline that comes with it, expects to use proceeds to cut leverage and strength and balance sheet. Now this is a very g specific story, but let me get to the broadest story that I think you can speak to. Greg.

It's the belief that beyond ge there's a lot of companies not in a similar position, but telling the same kind of story that this is the year that we're going to cut back on debt right size the balance sheet. It's the year of the debt diet. In the words of some guests that I've spoken to, do you believe

it is? I think there's gonna be differentiation between those who do have leverage on the balance sheet see um, you know the end of the cycle inside, see growth slowing, and want to take measures to repair their balance sheet. But there are other corporates out there who have big piles of cash, who have anything we'll be looking to

put that cash to work. So one of the things we've been talking about is looking at the differentiation between those who can do things like sustained buy backs, maybe even accelerate returns to shareholders and those who are going to have to cut back. How many companies are in that position, because the thing I worry about sitting here

is central banks shifting towards an easing bias. But I just wonder how much corporates have already leveraged over the last couple of years, what difference it will make to adjust the supply and price of credit, and whether that will be enough to stimulate demand. Yeah. I mean, we have had this more dovish tone from the FED, but we've been in an environment really for the past ten years where there's been an awful lot of support coming

from central banks. So I think clearly this has been one of the drivers that's taken the SMP back up from on Christmas eve UM. So I think the ability for there to be more liquidity driven rally, for a more dovish FED to incrementally drive upside from here is much more challenging. I think perhaps one of the biggest

risks for nineteen is policy impotence. It's just the very idea that these central banks try and do more, but the effective of it, effectiveness of it is enough, And I just wonder whether the one right now we're experiencing that to some degree in China. Great because the Chinese are doing a lot. It's supporting markets. I haven't seen it materially support the economy just yet. Yes, I think

that's a very important point. You can get some knee jerk reaction in terms of equities outperforming when you get stimulus, but really for that to drive for sustained rally, what you need to see is the stimulus find its way into the hard data. If you see the macro data improving, that's likely to drive the market higher. Greg, thank you so much. Thank you. We speak to the vice president of odd for Bloomberg Intelligence, Carol Board darkens the door. I'm going to cut to the chase, away from all

the mambo jumbo. How can this be an arms length transaction? Mr Copple bleeds Danner her Blue. He's working for g I know the Boards signed off on it and all that. You've gotta be kidding me. Uh you know, about a year ago Danner wanted to buy it and uh Ge rebuffed them. Uh he got I mean, let's be fair, he got twenty one billion dollars and he needs cat. It's actually a little lesson. I thought I had billion um. The peer group, which is dan her Thermo Fisher um

in the life science business or eighteen nineteen right now. So, um, the deal you know was good for Danna her as well as good for G. G has to balance, I mean G has to balance. I need money and I need it fast. And the positive in this is that they've been getting two billion, three billion from selling tod J and J come in here or you know, name six other companies you know better than me. I'm not

sure if there was a bid. I know that Danner was interesting, you know, was just gonna be questioned in the next week. I I think people are so happy that they're getting that much money, and that will so all my radars up. I mean no, I might see your I see your point because it's it's they got that. They got it below peer multiples. Uh, it's a growth business. Margins are are very good. Um, and but is in a box. They have to balance. I need the money.

What did dinner or two? Did it go down ten answers? No, no, no, because if they paid fifteen times for it. Now, what's interesting, Karen, is not just a move in the stop, but the moving the debt as well. It's up three cents on the dollar. Erupt to fifty on the G perpetual. It's a triple B credit and they're using the money to right size the balance sheet. How important is that? That's

extremely important because there was fear of a downgrade. Uh, they need to get the debt down as quickly as possible. There wasn't a lot of large chunks left that they could sell um and you know, oil service is the only one they have left that's a reasonable, reasonable size chunk. So this does solve the you know, big chunk of the debt problem. It doesn't solve it completely, and I think will ease the fears about another downgrade. Yeah, so we tried it ninety two cents on the dollar, and

there's been this big fit about another down Right. Do you think this is sufficient or do they need to do more? Do they need to raise more capital? You know, you know they've got to continue to raise capital. But I think the emergency, I would say the emergency might be over in the in the near town. So you sound by a farmer, You keep healthcare, The healthcare IPI is not going to happen. What's next? What's the next

unit that you'll lay the focused on. I think healthcare will happen, but it won't happen right away, and he needs the cash flow. UM, this doesn't you know, I don't think it aborts the UM option to sell healthcare, but he needs a cash flow. So right now he can stop the bleeding with this sale, get the cash from healthcare to do other things, and eventually I think you'll get Are there other suitors that could step in here in the next forty hours and say, wait a minute,

that I think that's a possibility. Okay, I mean we're so far from the ge of schenected in New York. You've mentioned before Karen Aviation and might right, that's the crown jewel. Now, yes, that's you know, you know, they get rid of Healthier, they get rid of oil service, it's it's it's power, it's renewables, and it's a crown jewel. Yeah, it's gonna say. I mean, basically, it's an airline engine company.

It's running a power business. Because they can't figure out how to get rid of it that they're going to have to just shrink power as much as they can. That's not an option to sell. Now, I don't you don't do bi hold sell what's the stock etch with the stock up a zillion percent, were up over twelve. We're just below twelve twelve. I mean, I don't need a target from me. I know that's impolite, but I mean, does this say everything have legs to forty or is

it plus or minus five points? It's got a lot more work to do, uh to run to anywhere where near that. I mean, they've still got a big promise. I just have a glass. I don't want a price forecast. But you know, the stock was what six or seven? It's it's done, you know, up to America. It's what Deutsche Bank is to Europe. And the question that comes up with Deutsche Bank again and again and again is whether you can cut your way to growth. And it's a question that's asked about g E as well. Radically

different company, of course, but the same situation. Can you cut your way to growth? I think they're trying to cut their way to stability and um and when once they can stabilize power and there's some signs in order that that's happening, they can stop the bleeding there they've got a growth engine. Well I'm not playing on words, but it's it's it's aviation and frankly healthcare is nine operating margins and will be more like fifteen sixty without this.

Are they benefited by the death of the airbus? Uh three? I mean the day move a lot more engines on smaller planes. No, g E and Pratt and Whitney are the big engine guys. So yeah, so um, you know that plane goes, but there's others that there's a million with a lot going to hear and thank you so much wandering on the energy, and you know, I would say,

next forty eight hours, we'll see. We went through the surveillance data bank and try to find one of our guests that actually listen to all the speeches, and Julia Cornado joins usspect policy perspectives. What do these speeches mean, Julie? To a grizzled PhD pro like you, do you actually listen to these speeches? Did you just look at the

Bloomberg headlines? You just ignore them? Well, actually a number of the speakers were speaking at an event in New York, so I was able to attend to that event and see the full glory of the said speakers in person. So um, it was as you that was why we got such a day. Lose the annual conference, the Booth conference, since you got in New York exactly, Yeah, Rob and Roger enjoining a tomorrow on Bloomberg Surveillance ex Chicago. Next RBI in India with an important new book as well.

Give us a FED update. It's you know, we're marching to March and then there's a March meeting. You know, I know there's a press conference and all that, but is it a dead meeting? Is FED speak goes effectively? The March meeting is dead in policy terms because the FED has hit the pouse button. So we know that they're pretty much on hold for the first half of the year as they sort of gather the data and

take the temperature on the economy. Most of the speakers that we heard from are looking forward to this evaluation of their policy tool kit and whether they should tweak their inflation targeting approach, and that's the hot topic of the day. I look Julia at the dot plot, which I haven't looked at phone since Michael McKee stopped the press conference last time around, and not only is the market call distant from the FED call, but the market cause of vector going to lower rates out for years.

To me, the slope of the market call has radically changed. Am I right on that? Um? Yes, you are right, and I think that what we will see at the March meeting is another flattening of the dot plot, and with the FED moving closer to the market, rather than the market moving closer to the Fed, but the Fed. This is where there's a key difference between the market and the dot plot, and that is that the dot

plot is the FED official communication. The Feed is never going to say we're projecting failure, we're predicting a recession. The market can make dot call um and effectively some people in the market believe. And in fact, the National Association of Business Economist survey just showed that the modal expectation is for a recession in h So that's what the market is, at least many in the market are thinking.

And that's why we have a bit of a rate cut price in whether it's twenty one, they're always pushing out this. There is always a recession called somewhere in the mixed. Julia, what you mentioned earlier, I think it's really interesting the prospect of a higher inflation target. Muhammad al Arian running for bloom Back Opinion Today, and he wrote the following, will the fect be able to meet a higher inflation target if it already struggles to make

its current want on a consistent basis? What difference does it make? Julia Well, I think that is probably the single biggest shortcoming of evaluating that approach, is they don't even know whether it's feasible, uh to hit a higher inflation target or to even average at a slightly higher run rate of inflation over a longer horizon. We we haven't been hitting the inflation target. Is that because inflation expectations have slipped lower and that's something that they can

correct with their communication. Or are there inflationary processes, you know, deeper, more structural processes that hold back inflation and would sort of you know, put the sends credibility at risk if they if they've raised the target at a time when inflation is structurally low. So that's one of the big questions that they're going to be grappling with as they do this evaluation. What do you make of this evaluation

playing out as publicly as it currently is. Well, I think the idea in them doing that is to emphasize that they understand they are a public institution, even though they do have independence. If they don't acknowledge and respond to public demands, they will lose that independence. They understand that more now than ever before. And so I think that the idea of having these town halls and these public conferences is to make sure that the public fully

buys into any changes that are made. And it's a good thing. I mean, I think they're going to hear a variety of perspectives like the one you just mentioned that they might not get as loudly as if they do it behind closed door until with a specro policy perspective. This is a joy. We have waited and waited and waited to get the two hundred and seventy two page book of the year in business. This is an economics. It's not investment or finance. It's like the behavior of business.

We are thrilled to bring in a gene case. Uh and her book be fearless. It has not only come out in a splash, but it's really come out to some immense acclaim as well. Just go out to Amazon and look at the acclaim and Uh, it speaks for its self. We said that gene Case, you can't come on until Lady Gaga talks about you at the Academy Awards. Of course, that's what happened last night. Are you wearing Alexander McQueen today, Jane, I'm trying. I'm trying to channel Gaga. No,

there was Gaga and your husband Steve Case. Of course, with modest internet, acclaim goes it's not about how many times you are knocked down. It's about how many times you get up and keep going. This is Gaga last night wearing McQueen at the end of the show, Gene Case. Forget about the advantages of Gene Case and Steve Case. Give us one example of how you were knocked down years ago. Sure well, I tell the story in my

new book, Be Fearless. You know I was um We We had a large initiative at the Case Foundation where I run to bring clean water to sub Saharan Africa in ten countries. And when I launched it, I had President Clinton to my right and First Lady Laura Bush to my left. But as we started to execute the project on the ground in Africa, things weren't going so well. And it's a bit of a longer story, but after

trying to course correct and make things right. We had to acknowledge the failure, and I did so very publicly by writing a blog the painful acknowledgement of coming up short. This is a very public failure I had, and I like to tell that story because you know, entrepreneurs can be a little more comfortable with failure. But in the world more broadly, people are stopped in their tracks and

they think it's over. And part of the reason I wrote the book Be Fairly is, you know, to really tell the stories of well known and less well known success stories, better lines and failure along the way. What's so important here? And we have a surveillance dumpster wory throw in all the business books that don't have the interior visceral energy. Be Fearless has you talk about being normal and about avoiding normal. Let's start with that sweat

condition right now. How do our listeners, how do our listeners kids get away from normal? Sure? Well, of course that's all a play on the words of the town I was born in, which was normal, Illinois, as the youngest afoe being raised by a single mom, and no I had vignettes, but this is mostly a storytelling book about others. And the real message of it is that it's ordinary people who do extraordinary things. But to get too extraordinary, we have to get uncomfortable, get outside of normal.

You know. I like to say nothing great comes from the comfort zone. And we did some research about six years ago really to study the core qualities of successful entrepreneurs and innovators. How many times do they feel? How many times do they fail before they found success? Oh? In some cases multiple times, you know. I like to talk about Oprah who was told she just wasn't right for TV, and yet look at the media empire she

has created. Steve Jobs fired from the very company he founded, which then enabled him to go back later and totally transformed that company. So time and time again. You know, that chapter is called fail and the Footsteps of Giants. So it really is an important message that we have to get a little uncomfortable, we have to be bold and take some risks, but that it's really available to

anyone to break well. So what we'll do. Gene cases ringing my colleague Paul Sweeney, who saw Duke go down in flames a week and a half ago and find resurrection here over the week. Paul Gee, one of the principles in your book. I found interesting was the concept of making the big bet. And that's something that I don't think is really is intuitive for you know, most people, the more conservative. Why it's important to think about making

a big bet. And you have an example of somebody who's who's done it and done it well, sure, well, you know what I say is make a big bet and make history. It turns out what our research showed was across geographies and across sectors where transformational change happened is where people really start out with a big bet, not really dry for incremental change, but keep an eye on the price. Now, of course, how you're going to

get there is one step at a time. Um. But you know, a big bet, I would say is a great company warby Parker. You know Fast Companies referred to them as the They've won the most Innovative Company award from Fast Company. You know, those are just a couple of guys. One of them needed a pair of eyeglasses, you know, several years back and found out they were just they were in college. Was too expensive, too much of a hassle, And they said, hey, how about we

try to think about selling some glasses online? Which, of course at that time you can imagine what they were met with. No one's ever going to order a pair of glasses online. Well, fast forward the tape today and not only are they being recognized as you know, the most innovative company, but more importantly, their model is so cool because you can order them online, you can get

them brought to your home. They're affordable, but they have this one for one model, so when you buy a pair of glasses from them, another person in the developing world gets pair of glasses that couldn't afford us. So they've given away four million pairs of eyeglasses while they become one of the hottest brands. That's thinking big obviously, UM Junior Chairman of the Board of the National Geographic UM. How does be fearless applied to the world of science

and exploration? Yeah? Well, first of all, I know we talked about Gaga last night at the Here We Go. Yeah, free solo one. I was National Geographic Films were very very proud. How did that happen? How did that happen? How did that movie? Let's make a movie about a guy in a cliff and he may die? But then how did your chairman of the National Geographic How did that Oscar happen? So I think it happened through an extraordinary story and an extraordinary talent around it to bring

that story to life. But it's emblematic of the fearlessness that has been in the National Geographic Society since its founding a hundred and thirty one years ago. Time and time again, the organization is willing to take risks be out there on the front lines of the unknown, and free Solo is a great example of that. Geane How about the I think another concept that kind of goes along those lines is reached beyond your bubble. You know, I think you know a lot of us can probably

say you we were pretty comfortable in our bubble. Why should we reach outside of our bubble? Yeah, well, you know, I think we'd all love to stay in our comfort zone or a bubble if we could. But the fact of the matter is what success looks like is when people reach outside of their bubbles. And today in the world of finance, for instance, you know, we're not so aware of our some growing trends in the nation, and that is where some of the newest startup activity of

new companies is coming from. Is from women and people of color, and yet the data is stark. Last year, just two percent of enture capital went to firms with a female founder, less than one percent of firms with an African American founder. But more stunning than that, seventy five percent of inenture capital went to just three places California, Massachusetts, in New York. So a state like Florida, the third largest in the nation, got two percent of injure capital.

So we've really got to start focusing on making sure there isn't this consolidation of capital to a few places, but really make an extra effort to get out there, reach beyond our bubble and find the new classes of entrepreneurs who are driving the future. The chairman of National Geographic is Paul Sweeney. Sweed said all of us grew up with yards of National geographics saved by parents and grandparents.

Tell me the National Geographic magazine, it's Susan Goldber and you it will never go away, right, I really hope not. You know, we love our National Geographic Magazine. We treasure it as much as those who have been reading it for years and years. We do have a digital form of the magazine on iPad, on the iPad, which is super cool because we can put video assets and you know, linked in there that can take you even further. But we love the magazine as well, and our channels and

our digital footprint. You know, just last week we passed a hundred million Instagram followers, the first brand in the world to do that. Very cool. That's that's a huge number of folks, way different than any Facebook calculation. Gene Case, thank you so much. The book is Be Fearless, folks. I really can't say enough about it. This book came out, it made a modest splash gene Case and all that, but it is gathered momentum in steam through two thousand

eighteen and into two thousand nineteen. Five principles for a life of breakthroughs in purpose, and as Paul Sweeney said, it's just about courage. It's just about what you need to do to try to move things for for you and your family as well. Be Fearless, gene Case. 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 Keane. Before the podcast,

you can always catch us worldwide. I'm Bloomberg Radio.