Surveillance: Goldman's Currie Says Get Long Commodities

to get our teeth into. Can I just have a comment on al vm H and Tiffany Some of this is going to be funded by debt and it will yield zero to one percent. And the current credit rating of LVMH right now in Europe is single A, and I think that Tiffany's and the likes of LVMH, you're thinking about, what's something something the US companies have thought about for the last few years. What is the value of running a single A balance sheet when yields are

still so low? If you run a triple B balance sheet, you still an investment grade. The e c B will still buy your debt and you can go and buy some growth with a yield on your debt of what fifty basis points for investment grade debt in Europe? Right now, you're basically yeah, I mean you're basically being I'm sorry. You know we end with money for nothing, you know, dire straits. That's what it is. Yeah, I mean, it's just that simple. It'll be interesting I should point out

and correct me if I'm wrong. It's three of the four corners of fifty seven Street and Fifth Avenue. You would not better than Chris MORANGI shopped at all four stores on the corners. He's with us now, CHRISNS coach if investment officer. We're not going to talk about your shop and have its Chris, don't worry starts. What are you making a deal fly that we've seen this morning? Chris? Yeah, well both You know the thing about these two deals where the cat was out of the bag a couple

of weeks ago on on both of them. So this is just a confirmation of what we had speculated upon earlier. Um. Yeah, it has been a little bit slow late this year as there's been some uncertainty obviously globally policy in the US, what's happening with China. Um. But you know, I think I've said for a while, if you want to get a deal done, now's the time. To do it and probably have a regulatory window, and and certainly money is

almost free. Why a regulatory window now to the excess that you've got to get approved by US regulatory agencies. Perhaps there's a bit of a fog of war as we head into the election. You get something done, now, you don't know what you're going to be left with a year from now, what what kind of administration and its position towards mergers. A lot of macro risk over the last year or so, A lot of hope that that's diminishing now starting to fade. Do you share that hope? Chris? Yeah?

I think you know, the market tends to look at things through two lines. Is one is what's happening with the election, and the other is what's happening with China. And as you stated earlier, I think you know a little bit of good news perhaps on the China front. I do think the market is pricing in a high and increasing probability that we get a Phase one deal. I think it's it's really changed from let's reset the relationship with China to let's just stop things from getting worse.

You know, let's talk about what happened with China. They said that they were going to be cracking down an intellectual property theft a little bit more. I'm trying to understand how real this is because this is supposed to be the hard part of the deal. They're coming out with something there, there's no sign of enforcement there, and we're hearing that soybean purchases dropped to the lowest in years by China of of US produce. So what do

you make of the the actual advancement that we've gotten here. Yeah, I think I think you're right to be skeptical. I'm certainly skeptical of how this actually plays out. But again to the point, let's just stop this from getting worse. Let's stabilize the situation that we have and and move on from from these headlines. Where's the opportunity right now? I don't mean to be said. You know, you guys are running a steam value portfolio. We all know the

gabelly media mechanics. Mario started out in auto parts and that kind of securities analysis. When you guys talk where's the sector right now, where you go, Wow, this is

the opportunity? Yeah? So, um, you know one thing we've been talking about recently is the uh disrupted disruptors, that is, companies that have been Pharaoh but continue that the companies that have been disrupted over the last decade by these late stage venture companies now often public who you know, work with free money and give stuff away um and and that's spurred a lot of traditional companies to innovate.

I think a great example that is Disney Plus for example, which I spent a lot of time with this weekend. Um and so you know that, and you see this throughout media um and you see it in a lot of other industries and consumer products in others. So I think that's an opportunity and some of these beaten down companies uh to make some money, especially is the market

seems to be pivoting towards value from momentum. Did you see the statistic over the weekend that Apple and Microsoft together are now twice as large as the entire SMP five hundred energy sector, and are larger than the entire Russell two thousand index. Yeah, I didn't see that specifically, but there are a lot of comparisons like that. Okay, I'm struggling to wrap my head around this. How much further can they go? And they've been kind of the big driver of the whole rally that we've seen over

the past. Microsoft in particular has been We've about the fang, but really Microsoft has been the juggernaut over the last ten years. And um, you know, all very well managed companies with lots of capital. Um. I think one of the questions certainly is what happens in the regulatory framework. Um, you've got both bipartisan pushback against all those companies. Let's talk about this rotation to value. JP Morgan out in the last couple of days and said it's twenty complete.

The market still in the first phase of the rotation, largely technical shortcoming, etcetera. Complete. What do you make of that? Yeah, listen, So you've got a few things. Uh. I've got the market anticipating bottoming and GDP sometime next year. You've got the steepening of the curve, and frankly, the gap invaluation between the most expensive and the cheapest companies as wide as it's been in twenty years. So you know that we've seen a little bit of mean reversion. I think

that's going to continue. Chris Marange, great cant shop. But you give at the funds Chief Investment Officer Lisa Bram, John Farrell here as well, and with this Jeffrey Curry, Uh, Jeffrey Curry joining us from Golden Sax season our London offices this morning. Jeffrey Curry on oil, and it's real simple. There needs to be an observation on demand dynamics. What

do you see right now? Well, when you look at overall demand for oil and energy broadly, it's what we would say, but nine it's not great, not bad, And I think you have to dig into looking at the different components. There is a old economy CAPEX component and then there's a new economy op X component. Ap X means operating the economy, so things like jet fuel, gasoline, they're APEX oriented. Well, the capex side would be heavy industry,

which would be like diesel fuel. So we look at the heavy industry side, the cap excite it's relatively weak, but the new economy or op X side, it's relatively strong. On that, it's a relatively benign outlook for jeff Let's talk about the old economy. This is something you've written recently. When we argued lower for longer commodity prices five years ago, it was based upon the need to rationalize old economy capacity.

What happened, Well, the Chinese stimulated in sixteen and seventeen, US did physical policy in seventeen and eighteen, and OPEC cut production over that time period. What did that do? Um? It just prolonged the rebalancing process. UM. We also added to capacity outside of China, we added to the debt levels. And as we got the emissions data two weeks ago, we're at the highest level of missions ever when many

people thought the peak with two thousand fourteen. So the net of it is we're in a worst place today than we were five years ago. But the positive point here is that we're beginning to see capex decline and the rebalancing beginning, which is why we're arguing to get long com the use Today we'll just just thinking about the old economy though, just to take this another step further,

how does some of these issues manifest themselves elsewhere? You mean in terms of in terms of the corporate losses that we might see, what it might mean for the debt market, what it means for missions, all these kind of things. We can sit here and say the old economy is a small percentage of overall GDP. But does it have bigger implications elsewhere? Well, I think when you look at the returns in the old economy space, they've been um so weak that you've seen more capital redirected

at new economy. If you just look at a picture of new economy stocks versus old economy stocks, the wedge between the two is spectacular. In fact, I like to call it a last decade of the old economy because all the capitals being fed into the new economy. Now, to answer your question specifically, the question is can you see systemic risk developed out of the old economy once? That I like to point out is of the non

financial debt globally is held by the old economy. Why because have the physical assets he could use as collateral to get the leverage to get the debt. So the question is could this end up being a systemic risk? Our basic answer to that is no, because the d leveraging process has already begun. When you speak with David Cousten, is there just a golden sex view of an industry

roll up not only an oil but in commodities in general. Well, in terms of you know, he has a picture that's similar to the one I just described, which is when you look at the new economy, it's doing relatively well in that wedge. As I think an outperformance is something

like UM. I. I think the key point is that even when you look at the UM, you know the price you know, you know EPs um um number or price to book, a price to earnings, UM, you know you're at the high level, but you're not at crazy levels. And so that component will likely continue to grow next year, even though the old economy will likely continue to struggle. So David incorporates that. It's part of the view, but I think again goes back to that point that the

new economies two thirds, the old economies one third. Jeff, just real quick here, let's get some calls. We're looking right now at oil traded on the nimax fifty and seventy cents. Where do you see it going next year? UM? You know our base cases UM sixty dollars a barrel for Brent next year. But I don't want to discount the ability for this thing to trade up into seventy dollars a barrel. UM. It just won't be sustainable UM.

And I think we saw that a couple of weeks ago when you had the risk on environment um equities, rallied commodities did not follow through. And one of the reasons why is these producers that are under financial distress sold forward on the forward curve, keeping prices under wraps. So the front end we'll try to spike up, but the back end will likely be sold as producers try to lock in those margins and that will keep it from going too high. Jeff Curry, thank you so much.

Jesus Goldman sacks of course ahead of their commodity coverage, and we think and we didn't have time there for gold where he was most enthusiastic on a number of months ago as well. Do you need a briefing? Do you get your start out on Monday? You do that across our set. You look at the litmus paper of the system, which is effect which John Ferrol can only mean Mr You from London that Jeff you joined US now UBS private banking chief Investment obviouser Jeff is great

to catch up with you. Let's walk through some things, shall we. You were underweight global equities. Something changed in the last couple of weeks. What changed? Well, less negative? I think you know that's probably the best way to put it, you know, data showing some signs of stabilization acknowledging. You know, this Phase one deal you know should have happened. You know, it might just give markets a bit of a tail wind um as well. So I'm starting to

take off some underweight to notably an emerging markets. But let's be clear, does this mean we're positive? No, it doesn't. You know, there is still daylight between being not negative versus positive, and I think Marcus needs to tell the different all right, So let's talk about what's going on with trade, because I p the idea that China might crack down on intellectual property theft has given a little bit of lift to markets. Is this a meaningful development

from your perspective? Right, So let's unwind um back to reminding back to you know, may you know when the last deal supposed to be collapsed. You know, this is one of the crucial points, right, So it's not about what is being done, it's how it's being done. China objected to um seemingly being forced by the US actually make changes in its law rather than you know, administrative

methods and which they wanted to push forward. So you want to see you know, what the implementation is I think on the headlines and don't give enough meat to that yet. So I think the two are trying to meet half work at this point. I think what China needs to sell to the domestic population is that protecting I p this helps China's innovation, it helps you know, Chinese, and then to the health holders of Chinese Chinese holders

of patterns as well. I think, you know, that can be good for China's development and also you know, make a deal more palpable, but again proofers in the All right, so let's turn our focus now to Europe, because we did say a little bit better than expected data out of Germany that seems to be edifying this idea of a bottoming out in the decline that we sell the sitieration in the European economy. What do you make so far?

Do you think that this is a tipping point and that we're going to see a steady improvement in the figures coming out of the Eurozone. So there are two things here. One is the relative and one is the absolute. Right. So if data is um starting to stabilize on an absolute basis, you know, then that's I'm you know, fair enough but where is data performing, you know, relative to expectations. And again you know this is more of a relative thing.

So if we look at USS and surprise indusies for example, yes data has stabilized, but also that's because you expectations have been so weak it actually becomes easier to surprise to the upside or harder to surprise but downside. Right, So I think you're putting these things together. We maybe we've bottomed out on an absolute and relative basis, but again we need a demand capitals to actually go up. Jeff, You've always been flow based. The flow is cash up

to our eyeballs. Define where the cash finds a warm spot or does it not have to? So I think cash will still have to go into yield territory at this point in some areas we'd like, for for example, emerging market, hard currency, sovereign debt. But also you know, private equity alternatives think longer term. So you pick up the illiquidity premier. You know that is a good substitute right now, but also a lot of how to there as well. That's great. I'm so glad you mentioned that

that was gonna be the name of John's property. The real yield. It was going to be called yield territory, but the territory territory, Jeff, Can we get to the other part of the market that we haven't really discussed as far, what the basic assumptions are for foreign exchange at the moment many people thinking about buying the rest of the world. We've certainly had some performance from Europe

through the year so far. What is the assumption that you have the core assumption on foreign exchange and the US dollar? We're not there yet, as in the dollars probably topped out, but doesn't mean the start of a dollar bear trend, not yet. So we there are selective em names we want to pick up some carry from, but again we don't want to really fund that out of the dollar right now. But the dollar is not a real a low yielder anymore, right, It's not really

a funding currency. So you fund that out of Bossy, you know, for example, where there's some recyclical trend are the same you want to own some Swiss and perhaps if you're still uncertain about the outlook, um, so I think the dollar is going to be choppy. I wouldn't add to dollar position right now, but again not really a bad trend and something. Did you say you want to on some Swiss. You want to go long Swiss Frank, you want as a defensive and play. We want to

own the barbell, you know, so to speak. I'm going to tear up or That's where I met John Ferrell and I wanted to ask about Zurich a long long time ago. He's pulling out his nappy and Davig at his eyes. It's very moving, which I would love your perspective. You know. In nineteen the sort of overarching theme was a disinflationary kind of band you it yields all around the world plunge. We seem to be shifting out of that, heading into what is the driving narrative that's giving you

some focus? Well, so real yields, you know where they go? Um So again the disinflation, if we are going to start to price that out, then doesn't mean we're going to start a price in inflation. I don't think central banks are ready to go for that yet. Remember, if monetary policy works, then yield cubs are supposed to steep and inflation expectations are expected to go up. If we look at a five year five year forwards right now,

that's not coming through. But if we can keep real yield expectations relatively loads a good environment for real assets, for commodities, them for precious metals in the even then that could help explain some of the flow going into private equity to capture some of those real assets as well. So where do real yields go? And it's less about nominal yields now, it's more about inflation expectations. Can central

bank succeed and reflating that? The jury still out there. Well, so you know, right now you look at long term demographics might still think you know, though the do sort of have their backs against the wall right now. Japanification, it's no longer a question of if. And for example, the Europe and more and more people are you know, saying well Europe is actually already in the throngs of that. So you know, how can I actually make the best out of a bad situation? Um So net net fiscal

is that going to come as well? Because now that seems to be the last card to play kerve flatter over the last eight days coming into today's session, Jeff, what do you make of that? So? Um, I don't buy the view that it's recession, you know, coming through UM, I think some of it's in a profit profit taking on more of the more reflationary trade that have come out. Data stabilization, but again not data pickup. You need a data pick up demand to get a proper steper curve.

Jeff you you you mentioned five year, five years haven't moved indicating higher inflation. Actually, looked at those charts Friday, It's amazing how we have stayed in a disinflation tone. If we move out the X axis of low inflation, how far out is Jeff you moving? Is it two thousand twenty one or can you get out two in three and four years of sustained low inflation? Well, look at where you're Japan's and inflation expectations you know have

been right. So alone the numbers, the tank can surveys. You know, you barely see a five year inflation expectation survey result above two on the part of corporates, which means no pricing power. So that really I think that the onus is on the U S in particular and emerging market to avoid going into that kind of a spiral. So I think five years the absolute the absolute max if you want to use the tank and the Japanese

as a reference. But again we go back to the demand kick is it going to come from fiscal If it is, you know, then these things can actually miss seeping quite aggressively. So remember it's always you know, the least position trades, reflation trades, they come to you when you least expected. Right if we look at you know, June two thousand sixteen, right from one two seventy in the space of two months. So, Jeff, this down's vaguely

not terrible, but not particularly raging bull here. Yet we're hearing that there's so much cash hanging out there to go invest in stocks and such that it's going to lead to a good year for risk assets. Do you buy that? Um? So I have a lot of sympathy with that. You know, if we look at cash ratios and part of my private clients, on parts of institutional clients that drive pat in private equity. UM, it seems like there is no alternative right but to be in equities.

But I think central banks will be thinking what are the long term especially political costs some right, if it does mean those with assets and those without assets, that just widens some gaps and it causes difficulty to them. So I think that will be an ongoing force, but maybe something they'll generly try to deter. Jeff, you thank you so much. With you. I'm sure we're going to talk to him before, I hope. So I think I'm going to see him in London, So looking forward to that. Yeah, yeah,

that'll be good. I mean, we could see him in London and it's like going out, but there's an optimistic tone there. Right now, we have to digress. John Farrell and I are just not qualified to speak of the Blue Box at fifty seven Streets, so we defer to Lisa Bramo Woods to bring in our guests from more about Are you kidding? You know more about the Blue Box anyone on this floor in this building. Your expression just shows just reeks of genuine, genuine centiment. You know

more about what floor is what? Anyway, I got more experienced bond engagement rings than all of us. All right, So Debra a kin enjoining us now to talk about not how many engagement rings Tom Keen his body. She is senior analysts covering luxury goods and beauty uh for Bloomberg Intelligence coming to us from London Debora. It seems like the bet here is that that Tiffany will offer a sort of lower entry point or at least a

range for LVMH. Can you give us a sense from your perspective of how this will go down, what will be the net benefit going forward for both of these companies combined. Sure. So, if we look at Tiffany, it's been struggling with its designer jewelry over the last couple of years, and the last quarter that it reported was minus three percent like for like, UM not doing so well at the bottom end where competition is building as one of the things strong dollar and not so much

tourism flow. So that's all been detrimental to Tiffany. But if we look at the other end to UM and we think about l v UMGE, they own the Bulgary brand, much higher end starting point entry point UM and they will be able to benefit from the low end with Tiffany to offer the younger consumer, which they talked to very well through its brands like Louis Vuitton and others um into into the brand better we think that Tiffany

has done. And then also at the high end we've heard our no on the calls this morning, so in they will very much be able to manipulate up at the higher end, will manipulate I know what, manipulate me and my hands on my wallet, Deborra. The heart of the matter here is the Chinese. The Chinese are gonna buy fifty seventh Street or Band Street, or for that matter of Heathrow or the Chinese are going to buy in China. Do you see any indication the Tiffany Bluebacks

can work domestically in China? Yes, so Tiffany. If I pull up market share that one of the reasons. On the other side, the flip side, would be that lvium H has tempercent market share in Asia, whereas Tiffany already has sixteen percent. And what alvium H has been very strong in doing is persuading outside of Hong Kong consumers to purchase with its store capability across the whole of China and several tiers of cities. And this is one

of the things. It's balance sheet allows it to be able to market and manage and manipulate the mark more successfully. What does manipulate mean? Sorry, well, using that word, I think I mean it knows where the buyers are it's able to open more stores, um to do more merchandise in to transfer some of the designers in its portfolio

across to their brand Debora. Thank you so much. Aching with us with Bloomberg Intelligence, probably gonna announce three topics should Ali bask with us, our chief financial corresponding, Let's do Schwab a Merrit trade. First, what's the regulation pushback going to be? Do our reporters have any idea of

which agencies are gonna say? Wait a minute, Well, there are actually semantic trust concerns here because besides the broke awards here, what people don't realize about Schwab and TD a merrit trade is that it would actually create one of the top custodians, which means it would hold onto money from registered investment advisors. So that's actually the business that they're going to become number one and number three emerging.

And it's a big arm to trust concerned. So what is the what are the company saying about this antitrusting? Because I saw a number that might be half of the assets of these r i A sounds like a number that the regulators are really gonna have a problem with, right, Well, it depends on what they do with that business, right, I mean right now. The promise here is to diversify the business. You can't just run a business where all your fees are going to zero and trading. This custodian

business is a big one. It's a good one. Um. Also, remember they get more than half of their and revenue from interest income. And so what this business looks like in a year from now, I think is a big question. Marks still just because the time Steve Aaron's with a spectacular article. I put it out folks on Twitter this weekend. It's the first real look. And I say this constructively and with respect of Mr Saving of Deutsche Bank. How

is that article rece seeved by planet Deutsche Bank. I think even some of his own employees were interested to read about him. Remember this guy is flying all over the world. Well he's a German for sure, and so the u S employees since he started have been very very jittery. Right, And remember this paints a very strong picture of somebody who was very scrappy rose to the top. And it's not an investment banker in the true and tried sense. So what is the thinking at Deutsche Bank.

I'm just in the stocks down ten percent this year. There's a real question whether this institution can be a global investment bank or is it simply going to be, you know, a strong domestic German player. That's the struggle our reporter Steve Arons had pointed out here. Remember, he's on this very ambitious for structuring plan that nobody knows will work yet, and so definitely there are people. Most of his deputies have now been pushed out. There's a

heat on the chairman now itself. So the heat is still on for the next year or so to come. So it's by no means in the year for Christian seven. So the senses that you know, it seems like when you look at the plan for Deutsche Bank, let's retrench and just focus on where we're really really good and we have a competitive advantage. I guess the question that I think a lot of investors have is where are you really really competitive and where can you really drive growth?

Given how competitive the global banking businesses with the US players, by the way, and even though they have a lot of German leaders here, that doesn't mean the bank is not global. And so when they're whittling down, they're focusing on certain businesses fixed in come trading, for example, but that is still global and they still have a big U S operation, and they still have a big operation

in Asia as well. Should with us our chief financial correspondhold on, I haven't seen in ages and I and I haven't brought this up yet on here, and I want to bring it up. Louis Bacon. I put it in category with Henry Paulson and that these are guys who have taken philanthropy and actually really done something with with conservation. I'd also link him winning with Tom Secunder, one of the founders of Bloomberg LP. Mr Secunda, with

the forest. Mr Paulson, with eagles and particularly the complete restoration of the Philippine eagle, which is this ginormous bird of thing Paul's I think it couldn't get in the studio. And then there's Louis Bacon, who was a hedge fun guy and that you and I haven't talked about this. Who's Louis Bacon And why is he getting out of the hedge fund game. Well, he's one of many billionaires to do so. But yes, he is a billionaire and

he made his money in the hedge fund industry. Remember, that's an industry that's been facing a lot of pressure all wrong. For him, He's he's a really smart guy. We all know that. What you know, how did he get to the place a lot of others less experience to get too? Well? He grew up in the heyday of hedge funds, right and days over. The hey day is well over. But I've got to say, with that said,

there is a new class rising here. Jack Woodruff, which is a Citadelle alumni, raised about two billion dollars for a new fund. And you know, even though you have the old guard Louis Bacon stepping down, and I don't think it means that the age is completely over. I watch successions, not success I'm watching billions, so I get smarter on this. Are the new guys using the same techniques as the old guys? Some of them are, which

is the interesting part. These are not all quants sitting behind computers and watching um, you know, certain trades and crowding into them. This is some sandalone stock pickers that make money through merger ARB and make money through betting on individual technology or in the case of what rough consumering.

Excuse me, that's called buying Amazon. That's and I'll be clear with my biaser I think the long short hedge fund business basically peaked, has been any declined since two thousand six at the latest, at the latest, and you look at the returns and they just haven't there. So for Mr Bacon, macro strategist kind of looking at everything, and that strategy has been tough. That strategy, it's the worst performing one this year. And then also Macro is among the worst right now. And you see a lot

of names get hurt Ray Dalio's main fund. How's Ray Dale you are doing? I mean, Mr, this is interest rate parody, right, It's a different game. So betting the wrong way on interust rates was his problem here. And remember let me put it in personal wick. Mr Dalio, good morning. I hope you're listening. I got your wonderful new like he's got a kid's picture book out. It's

actually beautiful, a really beautiful book. House Dale, you and Bridgewater doing the last year they had about a fourteen percent returns in their main fund, but this year has been doing a lot worse. And you have some investors complaining. For example, there's a small pension in um Northern California. Cathy Burton are are Bloomberg reporter has written about it. They pulled all their money because they didn't like the five year return and so uh, you know, over a

longer time prize. And remember this is not like the hey day Louis Baking you were talking about. In the heyday he was producing annualized returns about thirty percent thirty So you're not seeing that kind of blowout performance anymore among these guys. Final question, have you read Zuckerman's new book on Mr s haven't? How is it? I'm asking you, I'm dying too. It's in my in my status. It looks exquisite. Greg's uproom with this last week talking about mrs.

Was that enough hedge fun talk Paul to keep us? You know? I think so for a Monday of Thanksgiving. Think Louis Bacon stepping down from the businesses is big because he's one of the as you mentioned, the pillars of the traditional and hedge fun business. And he's returns, by his own admission, you know, over the last seven eight years again not just not where he wanted to be,

and like others, like the other Paulson, John Paulson. They have They have persistently provided philanthropy to what interests them. In the case of Mr Bacon has clearly been American conservation. All sorts of other things as well should ally go away. That was wonderful. We'll see you tomorrow. Shanelli Bassa, chief financial course bond It. 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