Surveillance: Negative Rates Are Crushing, Eisman Says

I'm sorry it's now the Monday after Labor Day. When Steve Eisman and I were kids, this is before young Pharaoll's time, it was sort of that Wednesday Thursday after Labor Day. And now Steve, it's like, now is the kickoff for the year? Tell us just your basic position, not trade by trade, but are you net long, net short net cash? What's the tone you have going into this fall? Slightly net long, but only slightly right now?

And your conviction is and we talked about this earlier, wrapped around not a forecast of global recession, but all the clouds that are out there from a summer of discontent. You suggest that that folds into the autumn and into next year. I mean, look, it's it's a very weird market in the sense that everybody talks about that they're worried, and yet the markets within a two to three percent all times, so I don't know how worried they really are.

I'm in the triple leverage all cash. It's worked like a um. But you know, like I said earlier on the television show, we are with in my mind, without question, in a global industrial slowdown slash recession. On the other hand, that consumer is employed and healthy. So the question really is is what's happening in the industrial side, which is only by TENTA fifteen percent of the economy. Is that

a canary in the coal mine? Or we're gonna eventually pull out of it and the recovery will extend longer. And I don't know the answer to that question, but it doesn't seem to be priced into the market. Let's get your base case, Steve, and try and work that out. So last week didn't really change anything for anyone. With the manufacturing p M I, the I s M sub fifty, the non manufacturing north of fifty, it's the same story.

Manufacturing looks soft and non manufacturing looks okay. And the question is outstanding, as you point out, does it bleed from one into another, from weakness into the resilience we see in the service sector. Just to sign a probability to that if you can, Steve, you've got to have a base case in mind. Surely, what are you thinking about that? Look, I'm just looking for singles. I mean, one of the more interesting indicators is going to be

the earning season that will start in October. Um. You know, the industrial company has reported week numbers in the second quarter, but not terrible. My anticipation is that it will be significantly worse this quarter and then we'll see how the market reacts. Just in terms of the companies you're looking at where you expect to see some pain. What are you focused on at the moment, Steve? I mean what

am I focused on? You know what you'll see. What you're seeing is the short cycle industrial companies have already experienced fairly significant pain. Is that bleeding into the longer cycle companies, and so that the problems in the industrial sector are deepening. Well, we won't know that till October when the company's report. So we can talk about the European banks and other stories out there, but I want your thoughts on the stocks to keep performing, keep doing

and they go go go until they not. Do you frame an Amazon or an Apple if you want to tell us if you're lowing short, that's great, you're long both of them. But but when you participate in those there's a belief by the the the Apple files that will go on forever. But there's a lot of other people out there saying I'm watching for something to break or change. How do you watch for something to break or change in something that's beloved by by the media

and by Wall Street, by the by investors. Look, that's a very, very difficult question to answer. I mean, the way I think about it is companies look great until they don't. And all companies are more cyclical than you think in a recession. So remember the dot com bubble, and what broke the dot com bubble was not valuation. What broke the dot com bubble was the recession and the fact that some of the dot many of the

dot com companies, that revenue growth slowed. So as a group, you know, I think it's more important to focus on is there a recession coming than than not. So you identify some secular growth themes that you think and maybe going to come under a little bit more pressure than some people think they will. Everything always comes under pression or recession. That's proven time and time again. Um. You know, in the meantime, the trends of a disruption will continue

whether we have a recession or not. But even the disruptors will will experience some softness into recession. Shots at the moment, Stave, lot of lots of shorts whereabounts. Well, I'm sure a lot of European banks. Um, I'm still short Zillo, which I've spoken on this show many, many times, many times, and I'm sure it's some industrial companies. That's for the European banks. For US as a sector. Ahead

of the e CP on Thursday. Some people think we might get tearing on Thursday to offset some of the paying for the banks. Does that change anything for you, Steve? I mean, if there's tearing, I'm sure there'll be a rally in the European banks. It's meaningless, it's utterly meaningless. It's negative rates is just crushing and and I think it's a massive policy mistake. Are the low nominal rates

in the United States as crushing? I mean on a relative basis, they're not nearly as crushing, and the US banks are much better, much better capitalized in the European banks. But as I said earlier on the on the TV show, there's a there's a bank conference taking place today and tomorrow, and every pretty much every bank is going to report on over the weekend. Comerica basically told you that the early outings estments it's too high because because it interest rates.

And I think you're gonna say pretty much every single bank get up and say more or less the same thing. What do you do with Uber Lift in the coming week company? If they can get but would you like to have involvement in Uber and Lift is? I haven't looked at either one at any depth. What about Twitter? I mean, there's other people out there looking at Twitter, and of course it's had a lovely bounce. I haven't.

I don't. I don't have much of wired you in those kinds of stocks in Facebook, I'm in Google, I'm in Amazon, and yeah, but Amazon is not Lift equivalent. Come on, I'm talking about things that have never made a dime. You know, They're like the Detroit Lions, they ever got it done. Generally like to shy. I generally like to shy away from such things. Okay, are you going to buy the jets of the Giants and fix New York's football problems? I don't have enough money to

do that, not even close. Maybe the Amazon Apple trade will well work out, Steve Eisman, thank you, or Berman update there on Apple Amazon, the EU bank you banking think John is fastening? Do you really think, John, that there will be this tier discussion in some form of real queie? I mean there's going to be a real tearing discussion. I think that many people hope the President

drug you can push it through. The problem is, though, it's a double edged sword in some regard, isn't it, Because if you deliver the tearing tom ultimately, what does it do? It just opens up capacity for even lower interest rates going forward from here. So it's negative rates with some tearing. Okay, there's a little bit of pain, a whole lot more pain still to come, because if you introduced tearing, you can go a whole lot longer with right. Strongly agree with that, and I think Mr

Eysmen alluded to that as well. John, Fire and Time keen trying to help global Wall Street and all of you listening as well. On the synthesis of markets economics in the litmus paper known as the four Exchange System.

Dr Englander is out of McGill where he tried to make the Montreal Canadians a few years ago and then took a PhD at Yale University where he defined the analysis of currency pairs and particularly cross esset pairs, all the intertwined linkages beneath the major currency pairs and acclaimed career at City Group and now even more advantageous to be a standard charter where he's had a foreign exchange Stephen Anglander with standard charter with a real not emerging

market but almost non US view. Steve Angler thrilled to have you on with that. Let's get your dollar call. Is everybody wrong about week dollar? I think the dollar is not attractive, but it's very hard to sell. I think September what we're seeing is that um asset market piece has exploded all over and you know there's a little bit of dollars selling, particularly against the merging markets and high gilders. But there's also a sense that September

is calmed. In the approach to the UM Chinese celebration of the seventies anniversary of the Communist Party, takeover. So there's worries that the UM you know, October might be more August than September. Well, within that is it in your analysis across raids, the micro analysis of the FX market, What is it telling you on a Monday morning in September when is it? Is it an idiosyncratic mush or is there an Englanders theme to what you're seeing? It's

standard charter. Look. I think that the you know what you saw basically from May through August was an accumulation of risk oppositions. Basically from the time Trump sent his tweets at the beginning of May um you know, right right through the end of August, all the news was really bad. And I think, you know, right now you're seeing the the unwind of this news. You know, we we were along South Africa that did very well. Uh, you know, a couple of other high yielders have done

well in the last couple of days. The you know the question, you know, the question is everyone seems to think that they'll be able to get out and everybody knows the October first kind of UM calendar event that once the Chinese UM you know, celebration is over, they will not have to be as calming and asset markets as they seem to want to be now, but it's not stopping asset markets from moving. I'd say that there's still is nervousness there. Things aren't you know, risk on

isn't bursting out. I mean, Euros trading kind of soggy, and a bunch of other currencies are not going as far as you would expect them to. But the market seems relatively comfortable right now. Stave. What you're saying implies that the remmbers in the driving scene right now, it's not essentially what you're saying. Well, I look, I think that and breaks it. But I think that's through. You know, if he looks through um uh, you a maze. Through August, it was mostly trade war c n Y reaction and

counter reaction. And my guess is that will be you know, vuying to see which one is more important come October. Um as you know one deadline, you know, one day passes and the other one approaches. Steve, Steve, can I conclude from your remarks in the last couple of minutes that you think the stand down in Hong Kong, the talks that were about to say between the United States and China, the relative stability over the last week in

the Chinese currency. All of those things are just to stabilize things ahead of a political event in China and then after we get into October's game on again. Um. Yeah, look, I'd say that you know, we we know the incentives for things to be stable now, and it probably works for the US as well to stabilize equity markets and and you know, basically keep them close to all time highs. Um. They'll probably feel each other out in October to see

how much room there's to negotiate. There's no guarantee that things will fall apart, but they think that the incentives to stabilize accent markets are much stronger in September than they will be in two four. If you're just joining us, Steven Angler with us, he's head of Global Canaries in the coal Mine and Standard Charter. We're thrilled that he could be with us this morning. Dr Anglander, where are the canaries in the Clone coal mine? I mean, it's

the ultimate doom and gloom cliche. Steve Anglinder has never been a doom and gloom guy. Are the coal mines out there under the commit canaries? Lit up. Look, you know, I think that the U S Economic data, Um. You know, to say that they're mixed is a cliche, but they're they're mixed with you know, some numbers more of a concentration, and numbers looking soft doesn't guarantee that things are right. But but what do you see and come out? What

do you see in Singapore? What do you see? I spoke to the Chilean finance Minister this morning, Dr Lorraine. What do you see in Chile? What do you see in Singapore? What do you see in Kenya? Look, you know, certainly what we're seeing in Asia and the Chinese trade numbers that came out over the weekend tells you what you're seeing because the things are soft. Um. You know, things aren't great anywhere. You know Africa actually, you know,

it looks better than than many regions. Um. If you're a commodity exporter and the biggest commodity produced a consumer in the world is kind of sluggish, then you're going to be sluggish. Um. But I'd say that the you know, the the green shoots are just aren't there yet, certainly not in Asia. Um. And even though some of the countries around China should be benefiting from diversion of supply change, the the the overall sort of angst and worry is

dominating that. So even there's things, aren't that. This is why we love Steve Angler green shoots. When was the last time, I mean, I think the Queen is using green shoots with the Prime Minister John the last time someone asked for tride on Kenya? You want to try it on the Kenyan shilling and wanders the world. He's the world can give you a trade on the as well. You're trying to book a vacation. No, I'm not trying to book a vacation. Just think where with Steve Angry,

he's like a giant in cross rates. Stave Thursday a c B base case for you. You're looking for the full package? What is it? You know? We don't think so. We we think that they're going to do ten basis points and hold off on quantitative easing UM, you know, which would be a disappointment to the market. What I'd say is that the UM market is, you know, just looking at where employed volatility is, it's quite low going into this event. Whereas they think that the outcomes are

pretty binary. They're either going to go in with both hands because this is dragging his last chance or you know, his desire for a big stimulus package will be rebuffed. Um. You know we're we're kind of leaning towards a more hawkish view. We should be good for the euro it won't be great for bond markets, not just in Europe

but globally. Stave pretty much everyone I spoke to at the back end of last week coming into this trading week ahead of the a c base said to me that if we don't get tearing with the right cut from the c B this sturstay, the market is not going to respond. Well. Is that your take to Staves? I think, look, I think the market expect hearing. They expect a rate cut. They got fifteen basis points priced in more or less, so it means that ten isn't enough.

And I think that they want you know that there's a strong expectation that they might reannounce QUE. So the market is you know, they spent a month telling you how great the package was going to be. UM, so if they back off, now that's a major disappointment. Steve Englander, can can you showing breakdown on the South African Ran I mean it's been long run strong. Can you showing short? South African ran We're now really on the resistance of

that chart. Can we break rather the support of that chart? Can we break below it too? Ever stronger? Can you showing uh? I'll tell you my You know, I have as much chance of being Goldie for the Montreal Canadians as they do for being able to tell you off the cuff. I'll can you hidlings are is going? But I would say that there's a number of stories in Africa that we're looking at. Can you give us one of those? Please? Seriously? Can you give us one of those? Ethiopia?

I mean strong growth economy served in a world backing away from structure reform. They seem to be kind of heading there. They're search standing out and so you're long Ethiopia seriously, Well, we we'd like the Ethiopian economy and typically that spills over into asset models over time. It's not it's not a day trade. Okay, Well, I'm glad to know it's not a day j Farrell was getting out the ticket right now. Stephen Englander, thank you so much.

With standard charter and folks, I'm going to put out the Rand shilling chart. You'll see it first on Bloomberg Parity for no, No, it's a one way trade. Strong. Can you shilling versus something African South? I don't know the Ethiopia. What I think it's maybe the p A right. We love do you know? We make jokes about it, but they we We love having on guests with a prodigious abilities, especially background at Frontier Marcus as well. Yeah, she did more of that, to be honest with you.

Carl Weinberg with us right now with futures advancing, John Ferrell driving futures higher up seven, up nine, futures now up ten. We're not I'm not yet on a DOWD watch, but we're getting lathered up. Carl Weinberg with us with high frequency economics, and Carl, I've got a diverge in a too short visit to your expertise in South America, which has earned over decades of debt workout, is an Argentinean debt workout this time the same as it's always been.

Do come you know you you flatter me. I'm not really tracking Latin America that accurately right now, so I have to take a pass on the Argentine question. Really Okay, well, there it is, But is it idiosyncratic? Is it removed? And when you look at all the other things that are out there in the e M, are they still idiosyncratic or they're tightening up into the autumn um Again, Tom, I'm not tracking the Argentine situation. I'm going to take

a pass. It's not our area of expertise at high frequency. You killing me, Carl. I've known it for a million years, and it's just did I say something wrong? Was it? Was it that barbecue in August? John Safe? I know you're focused on the United States, and the main question for many people is the weakness that is emerging and manufacturing versus the resiliency that we see in the bulk of the economy, and the fair is that one bleeds into the other. Count Just frame that for us and

what you're tunn of your clients at the moment. Yeah, Well, we do have some expertise at that high frequent at high treason. You know, I'm quite a bit and there we're watching the divergence between the I S Index and the market index very carefully. The I S M, of course, is the much longer established index and that's showing us a reading that not only rose in the last report to fifty five point six, but it also is consistent with about a three percent trend and annualized GDP growth.

And that suggests the story that we've been pushing for a long time and that we think the FED is alluding to, which is that the U. S economy is going to be okay. Maybe not quite that okay. The index gives us reason to give some pause in that thinking. But it's going to be okay despite the headwinds coming from trade. Is it okay? I mean, this is really important for us. The recessions negative GDP growth is an okay economy, summer's secular stagnation, or can to be something

better than that? All blended in? Well, I think it's going to be all blended in. That's a good way to think about it. There is a slow down in growth coming from demographics, There is a slowdown in growth coming from technology. There are a number of reasons to think that growth moving forward is not going to be as brilliant as it has been in the past in

the United States and elsewhere in the world. But nonetheless, there is still going to be growth on our forecast, we think the economy is going to continue to expand, albeit at a modest pace. Sped easing is going to help that in the short term, and the longer term, productivity growth is going to keep us moving. In some immigration is going to keep us moving despite the demographics and these headwinds from trade and tariffs, you know, they're

not forever. There are one time hit on the economy, and we don't think those drags are going to get any worse. Where those headwinds are going to get any worse in the in the near future, is that the case if tariffs go up again in October, is that the case of tariffs on new products come in in December, Well, that's already in the market, John, You know, I don't think that's going to be a surprise to anybody, and

I think it's already in everybody's economic plans. What we hear from people who are uh, you know, out in the field is that this uncertainty for trade has created a blip in investment, okay, and it's made it difficult or impossible to invest. Some point those investments are going to get made, and that at another point we're going to reach the point where this drag, the reduction and

investment is going to stop. We want to not confuse our second and our third derivatives here, So we think that the hit is there and it's real, but as long as it doesn't get any worse, it won't continue to drag on GDP growth. When you say it's already in the market, what do you mean by that specifically, Well, I think everybody knows, you know, what the President's position is. Everybody is pretty sure that we're going to see this increase in tariffs coming. Uh, And I think that that's

the bet in the market. You know, to be wrong would be the case in which the tariffs are not imposed for some reason. That would be a positive shock. So I think the worst, the worst outcomes are already discounted in the markets. But for companies, of course, even though no it's coming, they still, you know, are very leary about making investment plans until they see what's actually going to happen. So investment is depressed, but it's not

going to continue to decline. Carl, we didn't have time to get to your wonderful martial and cross on the Japanese sales tax. Will say that for Wednesday, Dr Weimberg with high frequency economics and everything. But Argentina there she is in London. Juris Raphael joins us right now, always writing on Brexit with a wonderful sanity, and she drops by to bring us forward to a probed Monday as well. Trades. First of all, I've got to ask you what is

absolutely galvanized all in America. I'm sorry. It's not cricket, it's not Brexit. It's the British Airways strike. The British people, are they in support of the company, Are they in support of American and Delta Airlines? Are they actually in support of the pilots at British air all the planes out for forty eight hours. I think the British people will have very little patients for British Airways right now,

will probably be more on the side of the pilot. However, you know, school holidays are over, many people are have returned to work, so uh, you know, and of course Brexit has dominated, uh the news cycle, so we'll see. But I would suspect there'd be more sympathy with the pilots on this one. Is it a unionized United Kingdom still? I mean we're all coming out of Clement Atlie and you know the labor is there a more union tone in England that helps the pilots, do you know? I

mean union actual union membership is quite low. I would get it wrong if I tried to statistic off the top of my head. But we are a long way from what it was before Thatcher came in broth the backs of the back of the unions. But you know there is a movement toward reviving um labor unions by the Labor Party itself, which is still very reliant on the union. So I think we're seeing, uh, you know, we're seeing some of that enter back in to politics and and I would bet it will feature in the

next election in some way as well. Truce Raphael of course on Brexit. Truce what I do where I'm supposed to be read in As I look at Bloomberg News, the Brexit team, I look at your good work for Bloomberg Opinion. I look at the Telegraph at times, the Guardian UK even some of the other papers as well. I'm lost. Does Boris Johnson is this great calculation that the people of the United Kingdom are behind him? Is

that what this calculations about Yeah. I mean that, first of all, I should say that we're all lost, even those of us who are following it twenty four seven. But I think that's broadly right, that he is calculating that the people will stick with what they see as a strong man, somebody who's abiding by the principle and the result of the referendum, against what he's portraying as the establishment, which is Parliament and of course the European Union.

That's his bet. That's how he's trying to uh you fight the ground of the next election on the basis of uh boris who's trying to deliver the referendum versus Parliament versus the EU. However, there are signs that it's backfiring, and I think this period in which Parliament is prorogued is going to be key because we see boys saying that he wants to deal um. He tried to use this period for one rounding it up. The vote was

fifty two of forty eight percent Leave beating remain. If the margin, does the Prime Minister want to do fifty three or fifty four percent leave or is he hoping for something bigger than that? When all this works out towards a general election. Well, he does not want to replay that referendum, and I think the polls um suggests that that would be another closely fought referendum if it

was Leave versus Remain. He's hoping to stitch together a new coalition for the Concervative Party which includes all of those lead voters who were for the Labor Party before. Uh. That's why he's also promising this huge raft of spending on public services, which is not a very you know, conservative thing to do, not something we normally see from the Conservative Party. So he's hoping that will be his

new majority. Truce Raphael with his Bloomberg opinion. One day, Therese, this is a number of months ago John Farrow and I. Folks. You know, usually John and I are like, we're not on speaking terms. This is one of those windows were reaction in speaking terms. And so John goes, let's go to breakfast, and I want to go to the McDonald's over in Third Avenue, and of course, Therese he picks

some hoity toity place on Park Avenue. We walk in and there's Nigel Farage sitting at the bar, you know, having a morning bloody Mary or whatever Mr Farage was doing. I mean, I mean, does Boris Johnson need Nigel Ferrage and the arch Leavers or can he do this with disaffected labor people alone? Now he wants Farage's voters, but he doesn't want uh White Farage and wild like he's a We talk to him. He's a nice guy. You know,

he knew what you know. Why does he not want Nigel, Well, he doesn't want he Ultimately he wants he wants the Conservative Party to be the Conservative Party. He doesn't want it to be a coalition of Conservative Party and Brexit Party. He'd like to bring Ferrage. I suspect for Age is

entourage Farrage's party back inside the Conservative Party somehow. I don't think he wants a situation where Frage is capable of cannibalizing the Conservative Party vote and which Johnson is forced to do a deal with the Brexit Party to cobble together a coalition in Parliament. He wants parts of the Labor Party vote, especially in the North of England, the Labor Leave voters. He wants those Brexit Party voters, but he wants them all to be inside the tent

of the Conservative Party. But it's very hard Tom right now to say what does the Conservative Party stand for. It's very different from the Party of Margaret Thatcher. What do you look for seriously in the next I mean, it is a constitutional crisis in a nation without a written kind institution. Do you look for a nod from Buckingham Palace? I mean, what does an arch watcher like

you look for just in the next twenty four hours. Well, I I'm actually in the next twenty four hours, I don't think we're going to see, you know, a massive shift over the next four weeks. I would look to see whether he is willing to do a deal that goes back to the EU's original plan of a Northern Ireland or of sort of all Ireland UM agreement, so that Northern Ireland stays with Ireland and the EU. This

is what the EU originally wanted. Remember Theresa May said no, it must include all of the UK, and that's how we ended up with the Irish backstop. I think if we see Boris Johnson heading more toward the direction of the original EU plan, then we're back into deal territory. But he will lose his hard line Brexitter to lose Nigel Farrage and his followers, and then he'll need the labor MPs from the voting constituencies. That's what I'd be

looking at over the next few weeks. Over the next twenty four hours, I think we've seen things go a little bit quiet. For the next you're you're stuck at terminal five, you're going nowhere. I recommend the fort Nhum and Mason bar there on the first floor where you can sit and that's not like a bar, folks with alcohol. You can sit there and have forty seven cheeses from

Scotland or whatever it is. I'd recommend it from terminal five and he throw Terse Rafael writing up on British Air and also this small political matter in London called Brexit as well for Bloomberg Opinion really really must read as well. 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.

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