Surveillance: Tech Disruption Wasn't All Bad, Kirkpatrick Says

I have talked before. Sorry, go on, go on. Sorry, he's not still behind me right now, Dunkings Shadow literally lazy, I can, I can have now checked the internal system. He's walked out of the building. Sorry, I'm sorry. Confusing a return to trent growth with a journey to somewhere a whole lot more worrying. We've talked about this so many times through much of now some people confusing full employment with a cyclical peak in labor market conditions. You've

written about that, just explore it further for us. Yeah, So, you know, I think one of the one of the interesting things is I think people get caught up in sort of headlines and and I don't mean news headlines, I mean sort of you know, headline economic stuff. Uh. And one of the things I think people get lost in is particularly if you're looking at employment to population ratios or if you're looking at on labor force participation rates.

And I think if you look at the headlines on these things, um, you know, they're they have not really done all that much, and I think it leads people to sort of, you know, draw this conclusion that, um, you know, we're we're still not even remotely close to full employment. But what we've been saying to people is okay, but you can't look at these those specific headlines. You need to look at the cyclical part rate. You need

to look at the cyclical employment to population ratio. And when you do that, um and and sorry just to

digress cyclically. What I mean is, you know, sort of the prime working age cohort, so the fifty four year olds, and when you do that, and when you do that, what you see is that those measures have all improved dramatically, dramatically, which from from our perspective, again, if you look at you know, whether it's the part rate or the employment population ratio, we're above where we were in even certainly

in the previous cycle. Um, and so it's really easy to make the case that you're you know, if you're not at full employment, you're really really close. I guess when I see the headlines of of economic stuff, as you put in, my big question is should I be bullish or bearish today? Right? I mean, is that basically what's the what's sort of the much so given the fact that we are seeing better employment than expected? Is

that a bull argument or a bar argue? You know, it's funny and and and Jonathan and I have certainly had this conversation before. Um, it seems all of a sudden now today, like literally over the last week or two, that good is good again, which is which is sort of perverse, because good was bad, bad was good. We had all these like weird sort of iterations, right, which

is utterly ridiculous in every way. But now, all of a sudden today good is good and um so, But but again, I stress, this is over the last week or two, and I'm defining that in terms of sort of the many clients that I speak to on a pretty regular basis. And and the thing I find utterly amusing about that is nothing has changed, literally, nothing has changed over the last week or two. You know, all of a sudden, everyone is like feeling a little bit

better about the backdrop. So I don't know whether it is, you know, maybe people are, you know, sort of coming to grips with the reality that maybe something is going to get done on trade, although I would hasten to add that anytime anyone gave me like the bearer case for things, it never started it off with trade. But but again, maybe maybe that's fair. Um, you know, maybe

maybe it's the equity markets up year to day. I don't know what it is, but all of a sudden, people are feel a little bit better about the backdrop in I think that's I think that's all well and good. But I think I'm just waiting for the next shoe to drop now, because I'm telling you, the vast majority of people that I spoke to prior to the last week or two have been overwhelmingly negative. Um, but now all of a sudden, people are feeling a little bit

better about the stuff. I mean, which I find silly because I'm not sure that they're basing on anything. Sound So Tom, could that next? Sorry, I don't want to make sure that point is not left out there, and ether. I've never thought that people should be negative, um, but they were so sorry. So would that next shoe to drop be the consumer? The consumers arguably the only thing holding up this economy, and maybe because of the adam

near full employment. Yeah, sure, I mean, I think there's no question that the consumer is sort of, you know, pulling a lot of weight, right, They're punching way above of their weight. But I think if you want to make the argument for the demise of the consumer, you you gotta really you. I don't even know where to where you'd go to find that. Um. I mean again, let me be clear, I don't look through the world with rose cover glasses, UM. But I think labor backdrops

incredibly tight wage pressures continue to build. UM. The level of saving in the United States, whether it's sort of just um consumer or total private saving, is incredibly elevated, meaning that there's even some some cushion should should the consumer sort of suffer through some about of of hesitation.

So I would say that it's really difficult to make the case that the consumers about to roll over when all evidence to the contrary, Right, the consumers and phenomenal shape the division of the FED has turned into unity. It saves for the last couple of weeks, which Mike of that I just you know, and Tom and I were talking about this on TV a little while ago. I mean the fact that Evans, you know, wasn't one of the folks looking for a cut after the not

after the most recently in the meeting prior. I mean he he said he wasn't one of the folks looking for a cut. I mean, I think for me that that, I mean, we sort of had always thought that they would have a hard time getting more cuts anyway, but that really drove home for us. It's like, you know, the hurdle for additional cuts right now is so significant, um, when you have all these extreme doves basically on the same page at this point. So I think it would

take real deterioration from here. By the way, let's not forget next year is an election year. And while well, while anyone who's done this for any lengthy period of time, those that the FED has engaged in policy action during election years, it usually takes a heck of a lot

for them to engage. So, um, I think FED on hold is for for the for the coming year, is absolutely the right call, which is the market seems to be buying into So you're saying that you don't want to be seen as having too too much of a rose colored view of the world. But also you've never been negative and this new line no, no, no no, that you have never been negative. Yeah, you've been thankating, but I'm saying you've been generally positive recently, absolutely, which has

been really easy. Okay, so you've generally been positive. You also don't want to be too rosy. This nuance, I think is getting lost in this market and difficult for people to read because it has been so monolithic in its story. Either the FED was backing it or trade was going to torpedo it. What's the sort of trade around this in terms of you know, does that mean

markets go up or down? Yeah? Yeah, So what I would say is, I think, you know, one of the things that we had built into our view was that guilds would actually start to rise, uls will start to rise only after we got a trade deal done. Now, in fairness, we always thought a trade deal was going to get done, but we've been thinking of it more in terms of like, you know, sort of a first half of event, like sort of you know, some sometime early in the first half of the year you get

a trade deal done. So it's having a little bit sooner than we thought. And so if you look at our forecast, we had built in a rise and yields in the second half of next year. Um, if you they do sign this deal. Um, I think it's really easy to make the case that yields continue to rise from here. So I think it's it's not a good backdrop from a from a yield perspective in the unit, from a bond perspective in the United States, because yields

will rise. I think on the on the back of this deal, I think the equity market and I think our strategists are equity strategistm or listen in line with this view as well. You know the equity market is going to perform well again in the coming year too, right. It's again if the fundamental pieces remaining place for that to happen. It's really easy to make that case. Temple Selly always great scay thoughts. Thanks to see your buddy

temple Selly obvious Capital Markets chief US Economists. We're fortunate to have David Kirkpatrick in our Bloomberg Interactive broker fortunate here there you go. David's a tech on me a CEO and founders. So David, I know you you look at all things tech, You've got it just a great view of what's happening in Silicon Valley is what's going on here with you know you look at Uber, you look at if do you look at we work pulling

that deal, the Smile direct deal. There seems to be a disconnect between private market valuations coming out of Silicon Valley and soft Bank and public markets. What do you what do you make of that? This year? Well, SoftBank I think had a extreme impact on the market, the private market's opinion about what a company could be worth because but they believe massio Son believes he can be a kingmaker. He can identify which CEOs can take a

company and make it into the next Facebook. I think to some extent, the existence of Facebook in particular confused a lot of people thinking that that could happen in any industry. And that's sort of the logic behind investing all that money in Uber or or we Work which SoftBank did? I think we do now have something of a bubble, which I think soft Bank is the single biggest contributor to So in that sense, it's a problem.

It's a problem. So the the issue we need, we need look at what massa Son is saying here is full steam ahead, and where our vision is still very much intact. We're gonna raise another hundred billion dollar fund. We're gonna keep doing this. At what point, does you know, Silicon Valley, maybe some of the more Sandhill Road folks to venture capital folks in Silicon Valley push back a little bit and say, listen, we have a voice at this table. We think the valuations you're putting on some

of these companies is just too much. That's a good question, I think in a lot of the companies. You know, one of the things that's happened with soft Bank is since they have been the lead investor on so many subsequent rounds in specific companies, they keep raising the market cap of companies that they so they're showing a paper gain in their earlier investments, and a lot of other

Silicon Valley venture capitals are coming along with that. It's hard for them to complain because if soft Bank is willing to put in money into you know, we work at forty seven billion and you're another VC to put money in at five billion, you like that, right until it's worth eight billion. Now, in many of these cases that that deflation hasn't yet occurred. So I think in general you're not see a massive reaction against SoftBank. People

just hope it continues to succeed. Well, here's my question. If you are saying that there is something of a bubble here, how does it burst? Well, I think it's burst in Uber and we were cases already and that has got a lot of people nervous. Do you think

that we've seen the extent of the pain there. Well, here's one thing that I really think is going to be closely followed, and that is what happens to the money that that soft bank has thrown after bad in the case of we Work, because they're putting even more money in to save the company, right, they could have

sort of walked away. I think that's if if we Work somehow stabilizes and finds a path to profitability, which I can't see happening in any near term, but if it were to happen, basically that stanches sort of a whole flood of negative stuff that could otherwise happen. Um also if uber could somehow figure out a way to be profitable. Some people say their food delivery might be the he it's a big part of their business, believe it or not. But I don't see a big fundamental

shift happening in terms of the psychologys. Every time we used to discuss these companies, we talk about how they've disrupted the industry. To remember that disrupted was like the buzz word of several years ago. Every conversation disruption, disruption. They have destroyed industries, and I just wonder what happens to these industries once these companies show they can't make a profit. I don't fully buy that way of looking

at push back then place. I mean I think that you know, well, I was saying this on TV before you know. Masayoshi san has done something very positive in the conviction he's had about the technology, the ability of digital technology to transform global economies, and I believe that is happening. And I think he has been ultimately the one of the biggest cheerleaders for that and put his

money where his mouth was. And I think that's not bad. Um. I think many of these industries needed a in the pants um, and I don't think that you've seen I don't worry as much as you seem to worry about the value destruction that's happened, say in the taxi industry, which was an industry largely controlled by the mafia in many cities. Right, so hey, you know it took a tough guy like like Travis Kolanic to come in and

shake it up. That wasn't all bad. Devid Kirkpatrick will continue the conversation another time to Economy CEO and founder. Time is up. It's not that I don't want to argue. What promise you might do? Please to say that phone again and joining us now, Jeff, you ubs Weath Management, head of the UK Investment Office, joining us out of London. Good monitor, Jeff. We remain underweight equities, that's the line

from you guys. Still why Jeff world? You know right now, We just think there needs to be a distinction between pricing out downside of pricing in the upside. I think these two are separate things, and uh, we may have them. You started to confuse the two a bit, you know at this point, and I think it's important to make her that extinction. Look at ware learnings, growth sending you just look at what economic growth is heading. I think it's a bit too early to pop the champagne bottle

corks and for now. So Jeff, we got some European economic data today, a little bit better on the margin. What do you take of that? Well, I think it's important to to look at what's better. So on the services side, it's all you're looking a bit better. But can we say the same for me manufacturing UM and UM and taking a step back, what actually is you know,

driving Europe? You know what other drivers of Europe? If you look at German factory orders, you now today UM down your five point four percent year on their shore. The month of meter number was better. But I still think, you know, there's quite a few challenges up ahead and UM that will only strengthen the conversation where the fiscal is going to happen. Jeff, how much pushback do you get from your clients? UM? Not not as much as

one would think. I think, you know, I think for the last two or three years, UM, with the exception of maybe you know, December, you know, last year, it has been a case of owning this rally reluctantly. I think the whole markets reluctant ball than right now US equities into being a big overweighting, for example, because there's simply a lack of alternatives. And I don't think that's

some change you know, too much. However, I would I would say that this talk of late cycle probably you know, has compared to even a year or two ago and has really come off. So we're just taking a day at a time. I don't think there's too much you know, pushback. M there is a bit of an opportunity cost of not being more aggressively in the market, and it's something that will be cognizant of. Jeff, let's talk about the trade negotiations. The so called negotiation gaps have closed. I

just wonder what's left. Is that a cause for concern or hope it's for a course of confirm per se, because I just still think there's a disconnect between what the market's expecting and what realistically on the two sides, and it can actually put forward, you know, for the best part of the summer in your China has been stressed. It's important to separate the structural issues. On the second track of you know, I p of techno things like

that you know from the tariff side of things. You know, tariff side was always going to be the easier one in a polical window dressing un versus the long term structural issues which will be a multi even a multi decade in a process. So I don't think those gaps are that wide at all our markets, and you're looking for more at this point, and on balance, I would say yes, So I think you know that's where the risk coope is some disappointment that we have to bear

in mind. A shorter term relief that's always welcome and it's something that we can look forward to. A lot of people have been talking about how trade it has the trade tensions have already impeded certain businesses. Are there certain businesses that you stopped investing in because of the effect of the ongoing trade skirmishes. I really think you're seeing this across the board, and you know that's why it's important to keep relatively conservative in a growth forecast

for the next year. On the one hand, you know, for companies directly involved in trade on the online um, you know these products will be hurt by terrorists. You know clearly they need to hold back on investment. But then that will faller down through the supply chain. Right. So, um, if there's a general now slowed down in growth, take Eurozone for example, that's being impacted and sot down the supply chain, it will impact services or will impact manufacturing

as well. So the inputs into the company's being invested. So I think that that's holding back investment in general right now, it's holding back Ktex and it's something that again governments may have to step in terms of fiscal There's just a view that things have got better, that the probability of escalation risk between the United States and China has diminished, and Brexit risks have receded as well. Jeff the Prime Minister, is speaking outside Number ten Downing Street.

At the moment the campaigning has already started. The government, he says, has an oven ready Brexit deal. What's the guidebook for the next five weeks in the UK and the issues around Brexit for markets? Well, I think rule number one is don't believe a thing that the Poles are saying. Right, We've all been there before on both sides of the Atlantic, so I think that's important to take into account. And also, you know, manifesto promises you know that whether you know that can be realized there's

a separate issue. But I do think we can see some convergence in terms of everyone's going to be pledging to actually just spend a bit more so you know, that may make life a bit easier, you know, for um, those word a bit about growth. Um, But I would say to follow things that they go along, and just in the bear in mind the steal right now, you know that's be with it's it's a it's a withdrawal agreement.

You know, we're still some ways to go before establishing the long term relationship between the European Union and the UK. And of course you know when we get to the twelfth the evening, they throw out some surprises and we'll just go from there. So, Jeff, it's interesting. I think it's one could argue, as you just mentioned, don't believe the polls. Uh, and so I'm going to come down to the election. That sounds to me like I'm just sitting on the sidelines here. I mean, you just it's

way too close to call here. Lots of different things could actually occur here. Is that kind of what you're hearing from some of your clients? Totally. And if you look at how we're positioning for this signatic effex. For example, the move sterling we've seen is the pricing out of no deal risk right for similar trade now you want to price out the risk of a total breakdown or

further escalation. But to go beyond say one thirty two and cable, you know, to make a dash through one thirty five or two one forty, you know, that's going to be a more medium term issue. We have to establish you know, a you know what happens after the election and being a what that long term relationship is going to be as well. So for now it's a holding pattern. You've taken off your underway to remove some of your shorts, but that's again different from going long.

So if there is some sort of Brexit agreement in the near term, are you going to flood into London real estate? Well, um, now there have been plenty of them questions on that, you know from our international clients. You know that's a traditional um source of investment, you know, waiting for John to send in his bids as well.

But at the same time, I do think you know that will depend you know, on the overall in your regulatory framework of tax frameworking along with you know what the government policies and you know are as well, because if you look at the market here, it really goes well beyond Brexit. Clearly the uncertainly has more help you know that than many moving parts to that side of things, and inquiries certainly picking up this year compared to the

last two years. Just for the record, I'm not sure I'm meeting the minimum requirements to open a UBS account well, but but but I think I do. Anyway, what do you think that you buy London real estate, John, or do you think it would be countryside? Are you trying to get me in trouble totally on this show. Look, I think there's going to be a lot of appetite for London real estate given that it's been held back so much Jeff. But you've got to get over several obstacles. One,

it's not just the divorce agreement. The next is the agreement. Beyond that, what does the future relationship look like? And I just wanted Jeff to that degree. The wall of capital that some people think exists that is waiting to go into the UK. Does it wait for the election to end, or does it wait for the next stage

of discussions with the European Union to close. I don't think it will need to wait for the next European discussion because if you look at some of the international interest, very sort of that over the last decade or two, you know, has been for the UK's relationship, you know, for the EU. I think, you know, that's just an asset allocation diversification. They see this as an attractive market.

So I think that side of things, unless you're an entrepreneur that wants to invest in the business and let's say, you know, there's a commercial element to it, perhaps the negotiations will matter for private individuals. I think that's secondary. Just before we let you go, Jeff, let's get a conviction call from you. What's the big call from you guys at the moment? So still, I would say we will push back against the notion of adding aggressively to risk.

We prefer to be somewhat underway. Clip the coupon and you clip the dividend and then just focus on the growth outlook and see, you know, where the next catalystmer comes from. But saying underway for now, hey, Jeff, always great to catch how with you if you changed the call, no doubt, give us a call and we'll catch you up. Jeff you Ubs Wealth Management, head of the UK Investment Office joining us out of London. On trade talks, Brexit and where to put your money or where not to

put it? Well, the on again, off again momentum behind the trade deal between the US and China seems to be on again. A momentum again seems to be building a little bit. Maybe even get a phase one type of deals signed next month that would be good for financial markets, including emerging markets to get the latest. We welcome Esther Law. Esther is in emerging markets fixed and can putfolio manager for a Mundi asset management located in London. Esther,

thanks so much for joining us. So give us your sense of kind of how you think this trade negotiation is going and and what might be in a in a trade one, a phase one type of deal, and kind of what you think that would mean for merging markets. Yeah, good morning, Um, I think they do like a mini

deal is somehow already priced team. But nonetheless, when we have a confirmed mini deal or phase mondeal comes through, there should be some relief in emerging market access, especially on near methas, which has been lagging the move in the hactornity bonds in particular. You know, I gotta say, we get these headlines every day, President Trump coming out neither indicating it's it's a go or it's not today it's a go. On the Chinese side, we have gotten

a little bit of conflicting messages. Did overnight there was a report saying that they were worried that they were giving in too much to Washington and not getting enough in return. How concerned are you about that type of line out of the PBOC and out of out of Premier, out of I think I've seen so many back and forth. Like you said, Um, the market is much more massaged

and used to this uncertainty. UM. I am a bit worried more because of the price actually getting ahead of itself, thinking that there will be more than just like let's you opposing the teiant Um. But I really don't expect a very smooth and straight road on this trade war. UM. I do think that there will be constant back and forth and volatility which just become part of our lives.

So esther as it relates to emerging markets. I mean, maybe I'm just too risk adverse, but it's awful difficult for the media envisioned investors taking any type of bullish stance on inver emerging markets generally, given this trade uncertainty UM, which may or may not be resolved in the next couple of months, I think, yes, the trade uncertainty has you know, will not be a positive fine and it

will continue to weigh on more growth forecast going forward. However, we I think we are in the world that is offset by the very loose monetary policy globally and that

has really make them fixed income in particular looking very attractive. UM. Ultimately, I think the EM debt returns has a lot to do with the influence and should we have the negative real persistence in the you know, in the coming months, that would still be relatively supportive for EM fixed income, whereas for EM effects and e M the M equities that will be a bit more uncree uncertainty. Esther, what's

your highest conviction that right now? I think, UM, we have to go through our usual list UM to to select a good fundamentals and ideally which without as less noise as possible. UM. I quite like Russia because I believe the fundamentals are very strong, and they've gone through a lot of adjustments in terms of adjusting to sanctions, so in a way they are already quite closed in many manners um and the execution of the fiscal rule has been very very resilient and that's helping the fiscal

matrix becoming very very sound. So of Latin America, I know there's so much political uncertainty down there, it makes it very difficult for investors to look at that area with conviction. How are you approaching kind of Latin America broadly defined or there any areas that you find of interest.

I think at the moment, with the reason new strokes, Brazil is coming out as a more positive on the margin um, the ethics is still going to be a big bonnatw um, but I think the passing of the pension reforms have removed a big uncertainty out of the way, and that should start to see external investors going back

more into the income market. So you said the central banks sort of giving a bit of a tail wind to emerging markets, although today it does seem like the mood is that central banks are moving towards a holding pattern rather than an easing pattern. Is that enough just a holding pattern here across the board to continue to supp or emerging markets. I think the holding patterns in a way actually positive for the currency. To to stop the new spread being narrower, we only need to hold

plot of readatively positive breatuum externally. I think um, that is still occase for you in death Esther Law. Thank you so much for joining us. Esther is Emerging markets fixing comfort Polio manager for a Munday Asset Managers Management joining us from London. 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

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