Weak Dollar is Great for EM, Santos Says

sax On the Barons. Uh. Gabriella Santos is the vice president for JP Morgan and our global market strategist for JP Morgan Asset Management. Gabriella, thank you very much for

being here. Good morning. You know, as I was mentioning to Tom, looked like there was a crush people who really wanted to be in that room, And I'm wondering if you felt that there may be obviously you were not there, if there was a change in sentiment because of the remarks that were televised and broadcast by the President on that Friday, and whether that has had any effect in your mind about investor psychology. So if we think about how investors are feeling right now. They're feeling

quite good about the global economy. They're feeling like we're finally on solid footing, but they're also wondering what could disrupt that balance. And so what I think UH investors were looking for in that speech was any sort of UH sign or inkling really around trade policy, which is seen as perhaps one of those risks that could disrupt this really good environment we're seeing for the global economy. And in that sense, I do think it was is

well received. Uh. It was seen as a pragmatic UH speech by someone who doesn't want to disrupt that balance for the U. S and global economy. But I do still think that there are some trade anxieties lingering in the back of investors minds. Well, certainly we've got the last meeting, I think today in Montreal of the last

meeting for this round of NAFTA renegotiation talks. Having said that we don't know what's going to happen, UH, let's say things stay the same status quo Latin America specifically, I want to get your thoughts investing in Latin America. I smile when you say that, because it's it's really the first time, I would say, in six seven years where Latin America is actually a positive story, right, so

we do see growth turning around. Latin America is likely to grow at potential this year for the first time in those six seven We've got rising commodity prices. That's got to be good for countries that mind copper for Exa flore Brazil getting past their petrobrass scandal. Yes, so rising or just stable commodity prices are definitely a support

for the region. But even more than that, I think it's about a lot of countries having really hit rock bottom when it comes to economic growth, and Brazil really comes to the forefront. Uh So it's about a cyclical improvement and also the perspective of a structural improvement with several changes in administrations towards a more business family stand Gabriela. We spoke with a finance maner of Indonesia today, a lengthy conversation with Mr Maliani Um. Indonesia's maybe a textbook

of the complexity we don't see as equity investors. It's not just about buying a telephone company anymore. Is that how do you go about acquiring shares to make capital

gain in these complex stories, these complex nations. So, I mean, if you think about all of the different puzzle pieces that make up this term that we use of emerging markets, it's really very very complex, right, And and so the way that we approach emerging markets is we have to have people on the ground, right, people who truly understand the dynamics in these economies, the dynamics and the political sphere, and frankly just the dynamics at the company level. Right.

So the way that we think about emerging markets is really the most important thing when we look at the long run is earnings, right, and that's the same for emerging markets as well. So we have to have a good feel for how earnings growth is looking in a variety of companies countries. Just wants to know what to buy or what to sell. Like should you be going into the E t F E E M, for example, what t H B I shares I shares CI emerging markets CTF. So I would say that overall it's a

positive environment for emerging markets as a whole. Right, So if passive is your only approach, that that's fine. But if you are able to take the active approach. UM, the there's definitely value to be had. And if you look at the correlations between countries and emerging markets, they're actually pretty low. So you are getting a bang for your book for actually picking countries, picking stocks, and really having that on the ground field. Give us a country.

So as we were mentioning Latin America, I feel quite optimistic about um and it's not just because I'm Brazilian, but I do think that there's a lot to be said about Brazil this year with growth finally really picking up and as a result, earnings growth picking up as well. Where's week dollar play into that? If there's some monution gets his way, even if it's eventually adjusted as it was. Does does week dollar play into uh? Does week dollar

push against gains in those Latin American countries? No? Week dollar is is really great actually for emerging markets. UM. So if we think about just two main ways, right, So a week or dollar relieve some pressure on inflation in a lot of these countries. That allows their central banks to keep rates pretty low, So that's helpful. That's a change from with the strong dollar. And then lastly, if you have a weaker dollar, it's also about the

signal it sends. It sends the signal that growth is better elsewhere, that investors have a good risk appetite for countries outside of the US. So all those factors actually help emerging markets. A week dollar is a good thing. Okay,

So the weak dollar is a good thing. And if you don't necessarily feel constrained to become a passive investor, is there any industry group or any specific area that you would recommend, Because I know that there are elections coming up all over Latin America this year, So emerging markets has beneath the surface, uh shifted shapes over the past couple of years. It started rebounding in was purely a commodity story, so materials, energy, and that was it.

We've moved on from that. Last year it was all a story about technology and so Asia is the biggest gainer there. I think this year it's a difference story. Um, it's really two stories. It's about the improvement in domestic demand. So when we talk about Brazil turning around, the consumer coming back, So that would argue for things like consumer names,

consumer discretionary as well as financials. And I think the other second bigger story is also about big export powerhouses benefiting from the improvement in industrial production and capex and developed markets, and that would argue for things like industrials in Asia. Well it seems as so Boeing not to mention Asia for your second, but Boeing is certainly believing in part of this because of the ongoing negotiations to acquire a part or all of em Air, the aircraft

manufacturer in Brasila, Brazil. So that's still I would say there's national trophy, right, so there are some political considerations there the pres and this this is worse than talking about blockchain with or bitcoin. I didn't say a thing about bitcoin, did not going there. Gabriela Santos, Thank god, we're out of time with JP. Morgan Asset Management. Thank you so much. Whether it's down Dana Telsey, that tells

the advisory group. Dana, thank you for joining us. I'm Bloomberg Radio, Bloomberg Television earlier where we dived into luxury. Let's dive right now to the death of retail. Retail is terrible. All the charts are ugly, except in junieh of last year, they all started to vault higher in share price. Macy's up. Maybe it's a big thing up a little bit, but some of these stocks have really moved. Let's go back. Why did retails start to do better summer of last year? The group and Tom thank you

very much for having me exactly right. The group bottomed in August and in mid November it improved with the initial reads that this that the holiday see in the fourth quarter outlook was off to a solid start, and that was followed by tax reform becoming a reality. And then from their keep it from mid August to mid November, our stocks are up six eight percent versus the market, up just under five and then from mid November until now the stocks are up almost sev versus the market

up ten percent. And frankly, valuations on current consensual consensus are certainly reasonable and earnings in our group are going to benefit from lower tax rates, so you're still going to have some momentum. With the easy comparisons, I mean within this is the y up and is it at the top line revenue in that crazy mix of unit and price, or is it down the income statement where they're finally going to maybe generate some cash. Which is it at the top or the middle of the income statement.

It's both. I've got the top because there's a stronger response to the fashion cycle. I got I have in the middle. It's better position store fleets, it's improved the commerce capability these I've got a macro. I have hir income consumers and lower income consumers, each having more disposable dollars. And I don't have the election hangover like you had last year, Dana pim Fox. Here are you on Instagram Buy any chance? Not right now? Okay? But you are

a member, right okay? So you're one of eight hundred million users. Of those users are actually connected to a business by choice. And where I'm going with this is that Facebook, of course, the parent company of Instagram, now has agreements to take data from in store UH positions of customers. In other words, they can geo locate you in a store. They then take the data from the store and combine that with your online activity. Is that something that you're seeing as being productive not only for

obviously Facebook, but for the stores themselves. You see more focus on knowing more about your customer, whether it's from social media, whether it's from CRM systems, whether it's from enhanced loyalty programs. Instead of the customer just going to the store, the store is coming to the customer. But you need to marry this activity of buying with the activity of doing. And what we're seeing is we're seeing

experiential retail come to the forefront. Well, the reason I mentioned this all is beriential retail PIM is where your will experience. It just means spend more. But think about it. You have gyms like Yoga Works, you have beauty salons like dry Bar. You have movies which are now wine dine and reclined theaters like I Pick. So I have a new way that customers are trafficking and center JANEA has helped us wine dine and he doesn't even need the movie. He just wants to do all three. He

doesn't you need it all and it happens. Okay. But having said that, what I was going with this Instagram an online connection is about a third of the content that people who use Instagram save you know the new save post feature are from business accounts, right, so that means they're using it as a wish list of products that they may eventually purchase. And as a result, you now know that as a merchant and you can help

them make that purchase in some way exactly. Well, what are the things you're seeing is where are companies investing their advertising dollars. You've seen a shift going on, and the shift for social media and Instagram is what we're seeing happen. Dana. One final question, who's battling best against the onslaught known as Gucci? Who's like like fighting Gucci the best? I mean, you have to think there's a couple of companies out there. Have LVMH, who has so

many brands and so many creative directors. You have PVH with Calvin Klein and with Tommy Hilfiger. And let's see what caring does given the fact that Gucci, I mean, as you said, the momentum is continuing. I think something conservative for you, Dana, like the Margaret Leather pump. You can't make this up, folks, The Queen Margaret Leather pump at Bergdorf one thousand, one fifty dollars. Every home should have, well at least the black ones, but maybe even pin

the pink and the black ones as well. Dana, Telsey, thank you so much, greatly appreciate it. With Telsey Advisory Group as well. Just the final chapter of his book, call It twenty Pages, is probably a good place for the President to start a strategy for competing in a globalized world. After the Pierceborgan interview Edward Alden. His book Failure to Adjust is absolutely phenomenal. It is a dense pro read on how Americans got left behind and the

global economy. Ted Alden, good morning, Um, is you write about the startling comments the President made to Mr Morgan about Europe. I've had a lot of problems with the European Union and may morph into something very big. Um, He's gone after people that we usually think of, Why

go after Europe? Well, I presume the reason he's going after Europe is the same reason he's going after Mexico and after South Korea and after China, which is the large trade surplus that Europe, mostly Germany runs with the United States. But it is an odd choice. I mean, if you look at where the real challenges on trade lie, China looms by far the largest. We could sure use the Europeans help on that one. We could use the Europeans help, which speaks of maybe multilateral is too strong. Uh,

some would say hope in prayer. I don't mean to give it, but I mean, really the body language that Davos was, Okay, we're bilateral, but we're gonna make the rules. Is that what he wants with Europe as well? We're bilateral, but we make the rules on bree cheese. I don't know. It's it's a little puzzling. I mean, you know, the chance to make the rules on breeches and it wasn't gonna happen even there. But that was the t tip talks, and those have been suspended either the Europeans nor this

administration or particularly eager to move forward to. But I would think that there are some at least some lowest common denominator possibilities for cooperation and and and that would be on China. I mean, European companies are having the same problems in China that American companies are having. Um, that's a much bigger fish to fry, it seems to me than than worrying about Germany's trades are plus with the United States, most of which is, you know, kind

of fairly come by that. Germans are a great manufacturing nation. They make really good products. That's kind of the way the world's supposed to work on question. Do we have a quote unquote excuse me, it's a plague, folks, massive trade deficit? Do we have a massive trade deficit with Germany? Well, it's I mean it's large, it's you know, in the sort of sixty seventy billion dollar range. But if you know, if you compare it to the definite of China, which

over three fifty billion dollars. No, I don't think massive is the right word. I think significant. Perhaps I'm running based on the title of your book, Failure to Adjust how Americans got left behind in the global economy. What would be a specific example of something that we would see in another country that we don't see here that you find that we're left behind? Oh, a whole bunch

of things. I mean, you look at at the existence of apprenticeship programs and and work education experience far more prevalent in Europe. You look at their system for supporting unemployed workers and getting them back into the job market. The average European country spends five or six times what we do. Okay, but hang on, hang on right there, okay, So hang on right there with unemployment, So why do you have chronically high unemployment in a place like Spain.

Oh well, look, I mean Spain is not, you know, particularly the best model here, and there are lots of reasons for high unemployment. Um, what I'm saying is that if you lose your job in Germany or Denmark, or Sweden or most of them. Wait wait wait wait wait wait wait. You can't cherry pick this, can you. I mean, I'm just saying, Look, if you look at the europe you're telling you're saying that the United States has got

left behind for unemployment benefits. We do have unemployment insurance, and you have a completely different mindset when it comes to the labor market here because of the effect of unions. Right, Unions sit on the boards of most companies in Germany. Oh look, I have I would agree that there are reasons for the difference. I'm just saying that if you're trying to get maximum benefits out of your workforce, retrain

them for the jobs that are available. You've got six million jobs open in the United States right now, and manufacturers crying bloody murder because they don't have folks with the skills to fill those jobs. And we are doing little or nothing as a country to try to meet that demand, so you feel that the it's a government's responsibility to do that. No, not necessarily. I mean, if you look at the Swedish model, it's all run by

the companies with some cooperation from the union. Excuse me, I got a bit of tom I think I think everybody's got the plague. I mean, it's it is. It's a bad season, absolutely, it is a bad bad season. Within you know all that we're going What are you even listened for from the state of the Union. I assume it's going to be the same discussion as Davos, which is, you know, this is the way America is

doing it. We're angry, We're an aggrieved America. So these are the rules, and if you want to participate, great, But is that a trade policy? Well, it's not a trade policy in the sense that you've got to make some choices. Obviously you can pick fights, and there's some fights worth picking, but I think the president has got to decide which those are. Are we more worried about NAFTA, or be more worried about Korea, or may be more worried about China? Are we more worried about Germany? What's

the order of priority? And how is the United States going to go after these we we we may know more very soon when the announcements are made with respect to China trade policy, which are which are coming soon. But I'm hoping to get some clear sense of the hierarchy of priorities for this administration on trade. Well, the

most recent news perhaps is the Bombardier deal. Right. Bombardier can now start shipping those C series jets to Delta air Lines because of that ruling of the U. S Trade Panel that was on Friday, Right, And so that means that Boeing isn't going to get what it wants. Is this an indication of the kind of things you're talking about? Well, I mean you can't necessarily conflate this

with the Trump administration's policy. That decision was made by the International Trade Commission, which is an independent body, long history of independence. They looked into the case and simply said, you know, Boeing's claim for having been injured doesn't hold up, and I think a lot of the analysts looking at it thought that was the correct decision. Um Interestingly, though,

those planes are now coming from Alabama. I mean, bombard you entered into a joint venture with Airbus to produce them inside the United States, in part because they were having their own problems, but in part to get around what they feared would be tariffs. So so it doesn't that end up being a good thing for the United States. Absolutely, I mean one of the really interesting things about Trump's policy is that in the short run, it can pay

some benefits. I mean you look at h at the announcement by Chrysler to bring its light truck production back from Mexico. That was a hedge a against the NAFTA going away, which would have meant that those vehicles face to tariff. You look at the announcements by Apple, you look at the expansion announcements by Toyota. I mean, companies are trying to say to the President, yeah, we're going to bed big on America, and and the tax reform helps, right, corporate tax looks a heck of a lot better than

So there's no question it can pay some benefits. Question is do other countries respond in ways that harm us export interests? We have seen that, yet we have we have economists at all explained to us the trade dynamics against savings equal investment and all that. Let's have you do. It is a more international relations specialist. When we say deficits are bad or surpluses are bad, that's confusing to our listeners. What do we want? Do we want a

little deficit, do we want a surplus? What? What is the goal? I mean? I think the goal should be global economic growth, and we obviously want a big piece of that. And that's where the focus on the depth. That doesn't necessarily make a lot of sense because generally speaking, when the U. S economy grows more strongly, the trade deficit goes up. Um that said, you know, there are things you don't want to do. You don't want to be running a big budget deficit, which US government has

been doing for a long time. You don't want a currency that's too strong that knocks you out of global markets. And I have some sympathy with the Trump administration on that one. So so I don't think the trade deficit alone is a good metric. But attracting investment, attracting jobs, boosting exports, those are all good things that we want to pay attention to as a country. Tell all the

concept formulations failure to adjustice is wonderful booking. Are you gallows with Federated, which runs a huge amount of coupon money. His focus, he's on municipal bonds. He's had of something called the duration committee. R J. Gallo, with your experience in in fixed income, what does the duration committee do at a shop like Federated? Good morning Tom and him

and thanks for having me um. Our main role on the Duration Committee is to make tactical calls on the direction of underlying US market yields, focusing on treasuries obviously the you know, sort of the basis for US fixed income. Our goal there is to generate alpha, generate access return by shading our duration shorter along depending upon what we expect from a macroeconomic context and a market outcome. Uh.

You know, it's a it's a tough job. Calling rates is never an easy thing to do, especially with massive central bank balance sheets. But that's our goal. Okay, what's the level of sweat at the esteemed Federated group this morning? And I say that in the sense of all of our listeners understand yield up, price down. We're it is Federated hide in two thousand. Well, uh, it's interesting you say that we we we meet on an ad hoc basis and at least monthly to to adjust our duration call.

We have been tactically short uh for for quite some time, but to varying degrees. That worked rather well last year for all bonds the eight years, and in of course last year was a relentless flattner. This year we're seeing all yields heading higher, which is more typical. I looked at the data going back forty five years, and only four times in forty five years has the yield on the ten year gone in a different direction than the market weighted average yield on the entire bar Cap Treasury index.

Last year was one of those years. Phenomenal to say that again, that's so important to say it again, Tim, jump in here. Only four times in forty five years of history of the bar Cap Treasury Index has the yield on the index gone in a different mathematical direction than the yield in the ten year, and last year was one of those years. In other words, it was extraordinary, and we anticipate this year will be a little bit more normal in that sense that all yields will be

heading higher. We're not positioning for a massive spike or a massive bear market, or a rerun of the taper tantrum. But we think that the U S economy, the global economy, even the inflation picture are such that yields should be heading upwards and and a cautious duration short is warranted in terms of what are you how you gonna make money? And fixed income well, when when high quality treasury yields are rising, you know clearly that's some price loss, that's

a headwind to total return. But active management and the other fixed income sectors UH presents opportunities. Nevertheless, and we're still overweight for example, corporate high yield UH. There's a lot of caution about evaluation there. We've peeled back a little bit, but we remain overweight relative to our neutral

positioning there. We're looking for opportunities in other spaces. We think munties, for example UM are a portion of the US fixed income marketplace where you can get relatively attractive total returns versus treasuries. Well, that's why I wanted to go with you is the municipal bond market and are to well. Recently Embarons talking about pension fund liabilities for public pension funds, having said that what area of the muni market would you be interested in? We're talking revenue

bonds or anything specific. We tend to be and have been for for a while now, and I would say we arguably were little early. In some cases, we tend to be overweight revenue sectors that have a greater leverage

or exposure, if you will, to the economic cycle. So that would include areas like toll road revenue bonds airport revenue bonds, both of which have done relatively well in an absolute return standpoint and a relative return standpoint, because the underlying economy has been winded the back of the performance of those types of issuers. Um, we also tend to be a little underweight local geos. Uh. There we were a little early, I admit. Um. The pension challenge

is well known. It is, however not universal. Pension challenges are far greater in states like New Jersey and Anois than they are in Florida, for example, and so there are plenty of opportunities to be selective about which geos you own, and we have tended to do that. The market does create opportunities where assets are mispriced or poorly

priced relative to the risk they present. So, for example, Illinois, in the first part of last year, everybody hated Illinois, and the spreads were huge, you know, two fifty basis points over triple A munis. We felt ultimately they were going to resolve their multi year budget impass, and we were adding at that time that was a huge opportunity for out performance with which actually worked. Of course, pensions aren't fixed in Illinois because they finally got a budget.

So that's a multi chapter story that still has many chapters to go. But our active management is focusing on revenue bonds and taking risk when we feel like prices are compensating us for taking that risk in spots even where geo's may be struggling with pension challenges. Thank you so much, r J. Gillow. We need to get you back for a longer discussion. We're sorry with a new slow today, but we sent a raid to this is an important discussion on those challenges. 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