Surveillance: Forward-Looking Data Is Up, Achuthan Says

Good morning. Trying to work out what's going on here in global markets, trade risk diminishing, but a tip to say, three months ago global growth bottom and gout. To what degree is the latter exclusive from the former. I'm trying to get my head around that. Many other people out as well. Now. I think what we're seeing, at least in the fixed income markets, it's it's a little bit closer to sort of what you'd consider more of a normal market in the sense that I've seen a pretty

material adjustment across the yield curve. Yield curve was was was was was inverted earlier this year, we've seen that steeping out as ten ure yields and longer dated yields have moved up, while the feed is cut rates and a positively sloped upward sloping yield curve is a very good indicator, UH, certainly for future economic growth. It takes

this sting, if you will, out of things like tail risks. UH. There's still some concerns obviously about trade, but trade seems to be moving in the right direction, and the data is getting a little bit better. The date is really better. For those brave enough to go into long duration, long ago and far away, they're up solid double digits, if not more. What do you do now, or into yurine planning?

If you've got that big double digit gain in a ten, twenty or even longer bet, whether it's munis or others, what do you do? I think you move away away from what we would call it sort of a duration bet, so long long maturity bonds, and then you focus more on bonds or our companies that are more cyclically exposed. That if you're if you're willing to bet that there's an economic soft landing, which we think is underway, then parts of the bond market like high yield should do okay.

These are companies with a little bit more leverage, but with higher yielding UH securities, higher yielding opportunities, A blended portfolio is gonna have a yield of roughly about five point six five five point seven five with not a lot of duration. There's been a shift in sentiment over the past couple of weeks from inflation will never pick up again to we're seeing the beginnings of reflation and inflation is underpriced in the market. Do you agree with

that sentiment shift? I think as we kind of move, I think people are looking forward to the beginning of next year and the data is getting a little bit better. The economic data is better, and there is a little bit of an upward lift on the inflationary front. But in addition to that, the technicalities of how inflation is calculated is likely to deliver a lift early next year as the linked effects of last year start to roll

off the numbers. This is all very technical, not wildly exciting, but it will show optically that the headline inflation numbers are gonna start to rise as we get into the beginning of next year, and you're starting to see that getting priced in now in some of the securities. What do I do if I'm a saver, I got a pot of money. It's not a lot of money, but I got a pot of money, and I just don't want to be in equities. So you buy dominion, you know, you buys a couple of utilities from the old days,

Florida power and light, and then you buy coupon. What do you buy right now? So you know, I think what you I think? You have to calibrate your return expectations of fixed income. That's well's far ago talk John for lower yields, lower yields, and how much expecting more than a full like a three percent full yield is optimistic. Uh, And it's challenging if you're a saver anywhere in the world. Anywhere in the world, it is very difficult to generate

significant coupon income. So if you're you know, a mom and pop saver out there, an investment grade relatively low risk portfolio is in this sort of three percent kind of range. If you want to take a little bit more risk and you go into high yield you know, now we're talking five and three quarters percent type of yields. Beyond that, you're now going into the depths of emerging markets. You're going overseas, you're going into corners of the market.

We're gonna pick up a significant amount of risks. So I think a three percent kind of yield, maybe a little bit higher depending on how you blend your portfolio. It's about the best you can hope for. And I think you have to be realistic about your fixed income portfolio. It's an anchor. It it's an anchor to your overall portfolio. But it's but but the but the yield on it

is gonna be gonna be relatively low. Is the best that you can hope for in the world of fixed income that's gonna be tough gun at into for many if you out there on now. It's just a final question on the regional boss. You mentioned emerging markets. Many people thinking about that high bite a trade to the trade story. I want to buy the foreign assets Europe. Even though fixed income has araut it really hard on the last couple of years, I'm thinking more about emerging markets.

What's your advice to those people? So on the emerging markets front, I think you have to tread cautiously, especially as it relates to fixed income. You've mentioned a few earlier, and I think you're gonna talk about it later in the show. You know, there's a variety of meaningful geopolitical issues around the world, which maybe makes emerging markets look optically cheap, but they're cheap for a reason. You have a lot of political unrest in different parts of the market.

The thing we would look for is um you know, if the dollars is getting stronger, that sometimes kind of can weigh a little bit on on EM. We'd sort of take an up and quality type of trade for for e M that's gonna have a yield sort of roughly equivalent to high yields, so you can use it as a diversification, but not a real sort of material yield pickups. So we would use em as a more selective, selective type of of of allocation for fixed income portfolio.

Juge BORI, thank you big week I had for you. We appreciate your time this morning. George Boy Then West Founca Securities had a fixed income research right now in Hong Kong, providing great leadership to Bloomberg Television and to Bloomberg Newsy Von Man joins us as well. Von this weekend was different. Quickly here describe why this weekend was so different for the chief executive Carry Lamb. Well, Tom, this the protest right now have reached another level here

after the death of a student last week. This man was a twenty two year old student, the university student who fell off a car park near during a demonstration where police used tear gas disperse a crowd, and that is what sparked the violence over the weekend and what has really transpired here this evening riot police right now are still in the streets territory wide trying to stop these protesters, but we haven't seen any kind of site at this point. And and more violence here this morning.

Those two incidents of of a man that was set on fire by a protester after there were some verbal clashes, and of course that police officer that shot a protester at point blanks this morning. Yvonne on the ground there is this is the mood different have you Can you actually feel the shift? Yeah, I mean we have felt

the shift. And there was a while the last couple of weeks where things were stimmering down a little bit, and now we've reached another type of fever pitch, I would say, because the death of the student is what really sparked more people on the streets over the weekend. We had already ninety arrest on Saturday and Sunday. Dozens injured already. Today, school was canceled for some universities and some secondary schools, and a hundred and seventy flights were canceled.

So we're kind of back into this more violent type of wave that we've seen, uh, and the crowds have really it hasn't just been one area now, it's it's the Central Business business district where we saw traffic was disrupted. Police refined tear gas near Central Landmark, one of the close to the business district here where many people are going to work. They had to hide and take covers in the luxury malls here as they were pure gas and washing washing their eyes with water. And that was

something that we hadn't seen in some time. And so you feel it and you certainly feel it, especially with the closures around the retail malls, the banks, and of course the vandalism that we've seen all across the city. How explosive was President Ji Jim Ping's explanation that he would like to see a patriot ruling Hong Kong regardless of people. Better get used to Ceo lamb, right. I mean that was another China just digging their heels saying that they're not going to give in to any of

these demands. But the police, Hong Kong Police spoke mean today during a press conference did say that they that he believes that there is no chance at this point of the p l a W will be deployed in the city. So they're still sticking by police, Hong Kong Police at the moment and defending their actions, especially with this morning with that shooting. But it is once again carry Lamb talking today saying that these actions from the writers that she called them go far beyond just demands

right now. Now they're treating citizens, as she says, as enemies. So you know, she's still calling for a doctor the violence, but we haven't seen any of that yet. Even man, thank you so much. On the Monday evening of Hong Kong with us here in the studio in place to say, is Sarah Manic moving global equity seat I oh, good morning to Sarah. Morning. Within the equity market at all time high, there is this rotation that many people are focused on two cyclicals from defensives to value from growth.

Your thoughts on what is underpinning that move and where it's heading in the months to come so a couple of things on value which we think can lead for the next couple of quarters. So, first of all, this rally and value the encyclicals that we've seen has been about the strongest that's happened since late two thousand and sixteen, which is when the election occurred. And also it's been less fits and starts and more sustainable, so we do

think it has legs. Basically, what we've seen is the economy is less bad than we thought, Earnings came in better than expected. We're seeing some progress on tariffs, but definitely that's in kind of fits and starts itself. All that should lead to value continuing to be the leader in the market for a quarter or two, but after that earnings growth load of mid single digits next year, we probably will go back to this quality growth kind

of environment less bad. Sounds like the conditions to generate a squeeze, not a sustainable rally, not a sustainable rotation. Is that essentially what you're communicates into clients. Yeah, I'm seeing more of a reversion to the mean. Value has been undervalued for a while, and we think it will

go back to the mean. But then after that, not traded a premium because what you need in place or value to really work is strong earnings growth and a stronger economy, which we're not going to see that going forward. Earlier this morning, Tom came made a really good point that five stocks account for of the S and P five hundred. Those stocks are tech. What will drive tech further up at this point? I think that's going to

be challenging the old world of where investors. You know, what we saw this narrow market for most of this cycle of the past decade was investors were willing to pay pretty high premiums for these high structural growth companies. We think it's going to be more of a garp environment growth a reasonable price. People won't pay these premiums for these tech comes. So does that mean that another sector will get leadership here or that we'll just sort of uh, not see very much by way of gains here.

We think that other sectors will get leadership like quality growth with more defensive characteristics that are less dependent on the economy. But people are going to be careful about how much they pay for that growth. So you can see pockets of healthcare where pipelines are strong payments, companies with a good tail win on global payments areas such as that. The the acclaim of nouvene over decades is you knew what you owned. That was the whole nouvene racket.

Way back. Instead of buying a mutual fun you bought a fixed portfolio of bonds and it was a great and beautiful thing, particularly when priced down yield up. Now you're in the equity area of it. But I'm fascinated how Nouvine is structured to protect people when we finally normalize, there's a belief out there somewhere in the future will get somewhat higher rates. Somewhere in the future, we may

actually get a correction. Heaven forbid a bear market. How does Nuvine protect against that like you did a zillion years ago. Well, we think of Nuvine today. It's a lot different than it used to be. It's a trillion dollar asset manager, multi asset class firm, offerings across publics and private so we can provide any kind of solution for investors. The equity business is a three billion assets center management business, deep specialist movement doing it for sixty

five years. And domestic equities, so you very deep history and investing that we think that you're part of t I a Kreft. I mean you were there before, but now you're part of TI a Creft, right, that's right. T I acquired Nuvine. Yeah, they acquired Okay, what's your ex real assumption? I mean, you know, we're just the four of us. Nobody's listening. But what you know, what's your actual assumption you're working with right now with all

the heritage of Nwvine's bond view. I mean, you know, I'm on the equity side, so no, but I still got to have an actual assumption. What is it? I mean I don't personally have one. I don't think that's my area of expertise. And what we're thinking about right now with the equity business, what we're thinking about is how do we position our client portfolios around the world

so that we can offer them diversification. Make sure that you know, we're able to UM diversify, not have large factor bets, so that we can own quality companies UM you know, around the world, and make sure they are a client portfolios are diversified within equities. So let's talk about that regional diversification. At the moment, many people are thinking about going GEP brought from outside the United States into places like Europe, into emerging markets, what your advice

for them at the moment. So with this value rebound that we've seeing, we actually think it's positive for Europe, which has been a huge la rate over the past decade, so your tends to be more cyclical. We actually think that Germany may be starting to stabilize this brexit may make some progress, So Europe in general, we're a little bit more positive on emerging markets. We like those a lot, particularly Brazil, which is a little bit out of the

trade cross hairs. Nice reform story in place, and China if tariffs can continue to make progress, we think that China should continue to rebound. From here, let's start with Europe. If I go in at the index level and end up owning a load of financials, do I want them? Donnot want them? We kind of generally like financials from here. We think that they can continue to do well as

a ten year creeps up. European financials we think could look reasonably attractive if Europe does start to stabilize the European financials, European industrials could be a nice sector that it's nice sectors to own going forward. I'm trying to understand how you price geopolitical risk, and I'm thinking of Hong Kong uh the Hang Sang Index losing almost three percent on the heels of the violence that we saw overnight in the region. How do you view that in

terms of specific momentary risk versus larger systemic issues. I mean, geo political risk has been an issue around the world for a long time, ranging from Brexit to the protests in Hong Kong. Typically, what we've seen is it remains somewhat localized and has not become a global problem like it has in the past. So for us, it's been making sure that you avoid that local area while these very hard to predict events are taking place. So not buying the dip, not buying the dip Right now, I

want to give you a massive shout out. Maybe it's because you're in Chicago with Morning Star leaning over your shoulder, but the way on your website you display your funds track record as an act of God, I just wish everybody did this, where you just say look, this is year to date. That's what people want to know. And it's great that the new ven e s G Large cap value fund. You know it's three beeps under SPX, but it's not bad at all this year. We'll take it.

How do you respond to so many people in funds through well intentioned reasons, that are enjoying single digit returns this year? They're looking at the cross heres of the year end and they're going, wait a minute, what am I doing? Yeah? I mean I think you know the job of the active managers to lead by performance. So you know two goals here. One is you want to make sure that you can beat your benchmark and also that you can't perform relative to your peers that you

can justify the fees that you're charging. So I mean, I think you know, if you have funds that are struggling, you need to be looking closely at them and figuring out, you know, what we need to do better, because if you're going to be an active manager with the infiltration of passive, you need to make sure that you cannot beat your benchmark and deserve the fee that you're you're charging. Sarah, thank you, it's great to say this morning. We're gonna

have to get you back. I know you've got to run out of the studio for another employment some michalled bloom Black TV. I think Sarah Manic has to go to She's gonna run out of one studio to another because she has to leave a little bit early. Sarah, thank you. John. Let's get right to it with our guests, because this is like a road show. You got your rubber Chicken, and you're all set up here right now for your road show for the Saudi Arabian Oil Company.

Doing it with the Ritz with Steven Short. Who's gonna stand up and tell them what oil is gonna be from the Short Report with the most insanely hyper detailed view of American hydrocarbon Stephen Short, and we're through. Design's been way too long, Stephen, good morning. Can you tell a ram Co that they need to settle on fifty dollar oil or sixty dollar oil? Which way is that

gonna cut? I think at this point, Tom, with what we're seeing in the market, with regard to economic growth demand to k going out into the future, that lower for longer would certainly be the mantra. I think even at that sixty dollar range, I think that is clearly excuse me, a a realistic range. But for all intents and purposes. It is well below what a ramco is planning on and what it's trying to sell its investors on.

So I think that there's a good degree of hopium that um that Saudi Aramco is hoping the market is smoking on on this idea that will see higher prices. Is that the New York giants here this weekend hope? Yeah, you're going to rub that in a little bit. Lincoln one point five trillion dollar valuation potentially would yield a five dividend yield based on an initial seventy five billion

dollar dividend. Stephen doesn't get it done versus the all majors in Europe in the United States five uh five percent. I think I'm highly skeptical on a percentage and on the assumptions going into that that percentage, we're we're dealing with the market that's undergoing a tectonic shift with regard to the future prospects of growth. We'll see. What's so important here is you are the king of calculating the flows the first second derivative of all these barrels. Do

we have any clue what Saudi Aramco has? Do we have any understanding of the underlying assets or their Shorky and derivatives. Yes, no, not that we can we can tell UH ascortaining with any sort of significant confidence. It's almost similar akin to the economic numbers that we get out of China. You just have to kind of go along and trust the process and hope the oil is there. We certainly have have a mechanism UH in the market of a balancing act and looking at the spread markets.

But but certainly I think there is a degree of skepticism. But that said, Tom, I think this is a demand size sized market rather than supply side. We just had the Iranians just announced the fifty billion barrel discovery of new oil. And when we consider that this market demand decay or demand peaking within the next twenty years. Really, you know, the question is how long can demand last rather that how much supply is still in the ground? Yeah,

demand peaking in the next twenty years. One of the potential details in the six hundred page Hairsale prospectus that was released on Saturday, giving more insight into Aramco's financials, which is unusual. It was reversal in course for them having denied that in the past as being a possibility also though, revealing a sharp drop in profit related to the attacks on its facilities in September. How big of

a concern was that for you? Uh? Well, certainly, I think that it is with with with any of that region. When you have a one one source that is your primary source of income, whether it is for Iraq or in Saudi Arabia and so forth, when you see that kind of vulnerability in the supply chain. Uh. In the process spects of the the younger generation of people around

the world and their view on fossil fuels, it's not positive. Uh. And so my my biggest concern going forward and spend my biggest concern because I always thought it was kind of odd and worrisome that people were looking at the demise of oil as as a as a weapon, as a as a price weapon, and they were looking at

as some kind of with some kind of glee. And my concern and this will I am confident, well it is bearing out and will only escalate in the years to come, is when these economies that have been late to the game to diversify in Saudi Arabia with the serampical I I p O. Let's face it, there are ten years too late with this, I p O. And they are not going to get the valuations and the

long term benefits UH to diversify. So I think it's going to lead to an extreme level of of geopolitical unrust unlike we've we've ever seen in any of our lifetimes. Steven a wife and the politics. Just for a moment, I just want to focus on how the stock will behave, how will perform the traits of the company relative to its peers in the oil market. There was a great article over the weekend and Barons about the royalty agreement

with the Kingdom. The royalty agreement with the Kingdom is highly progressive, and I just wondered to what degree that will make it more or less sensitive to the oil price just in terms of the equity performance. Yeah, I think that that And and I don't want to you know, I mean, I I appreciate you want to stay away from the geopolitics, but but certainly we're with that special arrangement between between the House and its relationship with with with the state company, and now you want to open

this up to outside investors. UH. It clearly is going to be a sticking point and and quite Frankly, I don't have any sort of crystal ball and and this is why I'm staying away, uh from from this issue at this point, that there are just too many known unknowns uh I and I. This is getting a lot of height because it is a monumental decision given given

the c grissy of of the Saudi government. But when we look at Western oil companies, western oil companies, the likes of BP and Shell, they don't even call themselves oil companies anymore. That they are natural gas, their power, their energy companies. And I think Saudi is using this

as a potential way to rebrand themselves as well. But when you throw in, uh that that special relationship with with the House and and and and what what they're going to get, I think there's going to be a lot of well or you know, known unknowns as to the impact of their of MBS desire to diversify the

kingdom away from its mainstay of oil output. Yeah, I think it's I think it's really markable that you're saying if they're ten years too late with this, I p O. I do want to just go back to the point made in that perspective that global oil demand may peak within the next twenty years. They were citing a forecast from industry consultant I h S Market. I'm wondering, Uh, when do you think that we will see peak oil demand? I think it's Lisa. I think it's gonna be sooner

rather than later. I think long term forecasting was invented to make astrology look respectable. So what I I believe my eyeballs and and my eyeballs are telling me every time that I see a Tesla or a Prius or BMW now doubling the amount of evs it's going to make two going to deliver it to the market, and the decisions by Volvo and so forth. Uh, that is oil demand that is lost. It is never coming back. I myself, I'm an oil guy. I own an electric

hybrid SUV my children. I don't envision ever owning a gasoline only car. So with regard to demand, Okay, it happens sooner rather than later. Stuff. We're gonna use five as a potential jumping off point when we peak. I think it happens well before that. Steven Shark, thank you so much, really appreciate it. We protect the copyright of all our guests and particularly Mr Shark, this is a joy to have on right now, A lot for a

thun who was with the Economic Cycle Research Institute. This is a venerable approach to thinking about our economy back into the thirties. And a gentleman by the name of Jeffrey Moore, which centers around E c R I economic cycles and that and also the structural changes of the American economy. I want to start with an open, open conversation as you join us from London today, you and

I are at Clarridgees. We're having our usual afternoon tay and we're having a tay and someone from the United Kings turns to you and says, why is the US so dominant in technology? What is technology done to your cycle research that many, including Jeffrey Moore, didn't have to worry about. Well, it's uh, you know, these are disruptors, the various innovations, uh, and so it's certainly changing the

contours of the cycle, the amplitudes of the cycle. Um here and there, but um as long as we and and by the way, when we do cycle research, we're not talking about the last decade or the last couple of decades. We're talking about the last couple of centuries during which there's been a lot of technological change, you know, um, you know these mentions of both all of these things. And so what you find is that as you have large new innovations, disruptive innovations, UM, they can change the

contours of the cycle. They can um eventually lead to hopefully some productivity growth, some boost and productivity growth. UM. But as long as you are in a free market oriented economy, you also are going to be contending with the business cycle itself. And that we've seen that time and time again. We've tried to find the the circumstances under which, um, the free market cycle is not expressed, and it's fairly limited, I mean, certainly nothing that we're

dealing with at the moment. So I know your research called out that the current global industrial slowdown that we're experiencing right now actually began before the trade war began in early Is that also just suggest that maybe it can start turning before we get any kind of movement on the trade deal. Yeah, absolutely it does. UM. So I think when when turning points happen, uh, and and

they usually catch people off guard. UM. The natural instinct is to look around and and and look for what's salient and maybe connect the dots and say, you know, this made that happen. And and certainly the trade war, the real onset of the hard trade war developments, uh seemed to coincide with the global industrial slowdown that we've been experiencing. But actually, as you say that, the industrial

slowdown began quite a bit earlier. And now everybody is, you know, hanging on bated breath, what's the next development in the in the trade war to you know, tomorrow the President is going to be speaking in New York. Is he going to give anything away in terms of what the next development is. Everybody's waiting to hear that.

But meantime, the cycle itself is moving along, and our work is showing that the forward looking data the leading indicators of global industrial growth, not actual global industrial growth, but the leading indicators have have um started to move up. And so we are more oriented, we're once more ready to see an upturn in global industrial with or without the trade war end keep him for another three blocks,

crisis over. I mean, if if the industrial cycle globally is going to see a stabilization, maybe beginnings of a turn up. We have to have China driving there, don't we What's going on in China? Yeah, it's interesting. What's what here? So the US, by the way, the manufacturing cycle is still decelerating. Um. Europe, I think is where everything is actually started in terms of the global industrial upturn. They seem in many ways even just becoming less bad

to have kind of kicked this off. And you're right, UM, in China, UM are leading indicators of global and excuse me, of Chinese industrial production growth UM have begun to improve. I know that the p m I is the official p m I or the Jason p m I are giving conflicting signals at the moment. Uh, but our leading indicator of Chinese industrial growth is moving to the upside. They are participating. I think other kind of ex Asia, extra Japan economies are already starting to participate as well.

Last and very quickly here and I want to come back and continuing this. Buried in your report is a trench in four or five paragraphs where you are adamant manufacturing is not flat on its back. What's the vector on US manufacturing right now? Uh? Well, we we are, we are at the end of the line. I'm afraid in terms of the global manufacturing cycles, we went in to the downturn later than the rest of the world, and we do not have any clear signs of an

upturn there yet. And and in US manufacturing, and we are seeing some bottoming in our in our would hopefully we don't know that it's bottoming, but perhaps bottoming in the US manufacturing indicators. The problem, the fly in the ointment in the United's dates is the employment cycle, the job cycle that is still cycling down. And I think it's still happening in manufacturing. It gets a little difficult to read with the GM strike um, but it's it's there,

and that's worrisome. This has been wonderful lot from Thank you so much to tell about this with the Economic Cycle Research Institute UH from London today. 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