Ain’t Nothin’ But a G-20 Thang

what market reaction could actually look like. And Sarah, I'm excited. I know our producer to Fur gets annoyed when I say I'm excited because I'm basically excited every every single every single week. But it's podcast day, so I'm excited for that. But also because our favorite segment, the Craziest Thing I Ever saw in Markets this week, has become more interactive. We've gotten some crazy market things via Twitter and from some people in how so at the end

of the show will go through them all. But I'm excited about that. Also excited about our two guests here joining us UH this week, Mark Hackett, chief of investment research at Nationwide Funds Group, Mark Does Peyton Manning come around your office, so picture one and around you know, Yeah, it's it's it's a pretty Uh. He was at the Total Company meeting last year, so he comes once in a while. But I'm sure it's a pretty big jack. He really does come around. He ever goes. That's a

first rate has to come with Brad Peasley. Alright, I promised no more singing, but fortunately we have an accomplished vocalist joining us as well, Ye She of Bloomberg Markets Live, who made his singing debut last time on the podcast, singing the theme song of the Bond Market. I don't know you do you have a song for us this week? Now? This week? Um, but I'm hoping to publish an album. You know, he's just derived an album, and Sarah, it's bittersweet because he's going to be leaving us soon for

a temporary assignment in Hong Kong. So this last time I'll get to talk him for a while, so you better make it good. Yeah, happy to have you. Always count on you. But Mark, why don't we start with what is actually expected this week? Of course, this podcast comes out on Friday's. The G twenty meeting is extending

through the weekend. So anyone feel free to make fun of Mike and I if we are very off, but we want to get your take what you're actually expecting going into this meeting as it relates to trade between the U S And China. Well, it's funny because if you look at the news, the news seems to be suggesting that the expectations are pretty modest. You know, there's the meeting is gonna go okay as an outcome of that,

we're going to be leading towards further discussion. I think the expectations that we get any meaningful outcome from from this weekend's meeting is pretty low. But the market seems to be embedding some pretty reasonable, reasonably optimistic expectations. You know, when when there's good news, the market goes up a little bit, When there's nervousness, the market goes down a little bit more So, I think there's a little bit of an asymmetri bet with the market on the outcome

of this meeting. So there's there's perhaps more more risk of the downside than there is to the upside. That's a great point, you know, I keep asking people how would you define success at this meeting? Is it just a photo op and a handshake, that sort of thing, no angry tweets for for them for eight hours of the weekend. I mean, is that is that a fair

assessment of the best we can hope for? Yeah, I mean, the the total breakdown of of discussions and the you know, the further threats of tariffs as an outcome of this would be a disaster frankly, but I think most people are thinking at this point it's gonna be no massive, you know, revelations, but also you know, no disaster as well. I mean you hear Minutan's discussion earlier this week of we're there, Well, we were there, you know, just a

couple of months ago. So I think those numbers are probably a little bit of a of a guestimate at this point. So yeah, I think we're probably a little bit less towards the finish line than than most people probably think. And well, we got the headlines form anution. It seemed like there was a little bit of confusion in markets because immediately we saw a pop. However, once people realized that he had already said this back in May, then we saw it start to come off a bit.

I want to come to you because I've heard a lot of people say that, sure, we're probably not going to get a deal this week, but it's very possible that we get an extension of the next trench of tariffs. Now, you wrote a poets this week and it was about Chinese state media being less optimistic than market. What is the tone actually like over there? So um the notion comments he used the past tense when he said like a ninetent of deal was down instead of is down.

So he was talking about before the May breakdown. The two sides got very much close. Then the US accused the China backsliding on the previously agreed terms. Now the state media in China seems to be less optimimistic than the official comments from the U s side. Basically China seems to digging um say broadcast of the three rail lines? If, if you will, um, what makes to make a deal? What takes to make a deal for all the tariff existing to have have been has to be taken off.

And secondly, the text of any agreement has to show respect and show dignity for both sides, and the demand for the Chinese purchase of US goods has to be realistic, not asking too much. So the Chinese attitude seems to be if there's a deal, they're happy to take it. If not, they're happy to fight it all the way down.

You know, Mark, you're the head of research at Nationwide Funds, and I'm picturing you, you know, scrambling a couple of weeks ago to get something put something together on Mexican tariffs, say, and then ripping it up the next day. I mean, how do you approach this sort of very mercurial, fluid situation, uh? In some ways do you just step back and let it play out? Or or are you trying to chase every twist and turn of this drama. Well, Sarah and I have talked about this a couple of times, and

we're in a different paradigm under Trump. I mean, the the algorithmic traders or the headline driven traders have been confused, you know, since even before he was elected. So at this point, I think the incremental tweets that we're getting are perhaps having a little bit less of an impact

on the market than they used to. We try and look through any of the noise, obviously have to have some sort of an opinion on what you thing is gonna happen with trade, considering it other than the FED, is is the the big sign post for what's going to happen in the markets for the rest of the year. But at the same time, we can't be trading based on you know, a comment by Minuchin or a tweet

by Trump or even Chinese state media headlines. We've had so many you know, gives and takes over the last twelve months almost at this point in this this world, it would be foolish to try and trade based on it. I want to get your take. I was at a dinner this past week put together by Markets Live, and they had a lot of readers of the blog, and I found it very interesting when we asked how many people actually expect did an increase in terrorists and an

escalation going forwards? The majority of people rose their hands and said that they did. And yes, many said that we'd probably get a resolution before the election. But say we do get tariffs on billion dollars more worth of goods, what does that mean for the economy and what does

that also mean for your investment outlook. It's been a bit difficult to to really see how it's come through the system, you know, We've already had a fair amount of them already through and we haven't seen much inflation at all. So at this point it seems like the supply chain is absorbing most of it. Can they forever? We don't know. But all the math that people through out there, which is you know that the consumer is going to have this much of a quote unquote tax

because of the terrorists, we really haven't seen him. We're still sitting at sub two percent inflation, so it's difficult to make the argument that that we've had a massive you know, pain borne by the U. S consumer from the tariffs. So I would really be guessing if I said, if they're enacted, the consumer is gonna bear this much of it at this point, because so far we really

haven't seen much at all. And that reminds me. There's an interesting market call out on Thursday from one of the retail analysts at Goldman, Alexandra Wallvice UM, and she basically don't she denigraded UH north Stream to sell UH maybe a little late on that that stocks down about it's November also ross stores. But what she said is she spoke directly about the trade tension and saying for for most of the universe of stock she covers, and I would add that I think this is true of

the entire market. The forecast from the companies imply quote and inflecting earnings growth in the second half of the year a common thing where you know, you dial down the forecast at the beginning of the year, and then you ratchet them up for late in the year and and hoping, you know, uh, things catch up in the

second half. But she's saying this uncertain trade backdrop could weigh on companies that don't have pricing power to your point, maybe not pass on to the consumer, but really squeezed the margin of companies, uh, that are in a hyper competitive field like that. I mean, looking out at the earnings expectations for the second quarter, are estimates make it look like a little bit of a drop, which traditionally would probably be flat to maybe a little bit of growth.

It's considering the way companies beat earnings. But you look further out to the third quarter, fourth quarter, it's a very optimistic scenario with with a big rebounding growth. I mean, it's not a big risk in your opinion, that we're gonna be ratching down those expectations. For later in the year. Yeah, there were good The good news has been we've seen a leveling off of those that those you know, estimate

revisions in the last couple of months. I mean, the third quarter is the one we're starting to see tickdown. So the second quarter was already kind of in this world. Fourth quarter is a big jump back, but we're also seeing you know, double digits for next year. All of those seemed to had been pretty optimistic assumptions, you know, I think that we're sitting here with the marketing general pricing in very high expectations that we get a deal

with China and we get three FED rate cuts. The likelihood that both of those things happen together seems pretty optimistic. You know. If you get rate cuts, maybe we don't have this much as much urgency to get a FED trying to deal done. If we get a trying to deal done, the urgency for the FED to cut becomes

a little bit less. So the perfect storm, I guess, you know, perhaps what Trump's trying to orchestrate is we get some cuts earlier, you know, in the process, we get a China trade deal through later in the year. That leads to a pretty strong acceleration in both earnings and economic growth the beginning part of next year, leading into the election. You know, that's kind of the but there's a lot of things that have to work in unison for that that to happen. I think you're probably

right where we'll start. We'll see continued modest estimate revisions downward, particularly for that fourth quarter number. That seems a little bit optimistic at this point. So if I'm an investor in nationwide funds, I'm listening and I'm thinking, well, Mark, what am I supposed to do here? Am I? Should I move into bonds? Should I move into money markets? Even? I mean where where should we be? Sort of skewing

our allocations too? Well? We think over the medium in the long term, we're still pretty good shape for the for equity markets, I mean, the economies. We don't we don't see a recession in the near term, and we see earnings being okay. There's perhaps downward you know, in the near term, but we think we'll see some volatility certainly between now and the at the end of the summer. There's a lot of positive expectations embedded in the current number.

The technical look seems awfully fishy with you know, we're having a very hard time getting through the current level. So there's there's there's perhaps some caution in the near term. But I mean, we've seen massive inflows into bonds throughout the entire cycle. More so even during this year, we've seen outflows from equities in the large part. It's crazy.

You couldn't paint a more negative sentiment picture. I feel like towards equities and here we are near record highs, and we're you know, we're we're at record highs, and that the AII Bull Bears survey shows more bears than bulls.

We have the that Merylynch Bank American Merylynch survey of fund managers last week that shows that cash levels jumped by the most in two thousand eleven in any month, and the allocations of equities versus bonds for institutions, you know, which you would think would be less emotional, is at the lowest level since the financial crisis. So literally, the only incremental buyer of equities out there right now is

company buybacks, and that we don't see ending anytime. So we also got the Conference Board data earlier this week, which I thought was really interesting because consumer confidence dropped to the lowest in September, and we also saw the fastest rate of change from bulls to bears, one of the fastest ones during this entire bull market. And yeah, I want to come to you because it's very interesting that the setup we have seen. We have seen a

risk rally in stocks. You have stocks still near record highs, but you also see a bond rally. We still see it ten year near two per set. At the same time we're seeing gold get a bid as well. Is it possible for all these different asset classes, which the narrative can be taken to seem very different, are all

correct at the same time. Actually, Mark mentioned earlier that the market is essentially a betting that the Fed is going to take action quickly and decisively, and that like three or four custs is probably enough to gather us through all these soft patch and start a rebound probably

next year. This is the only way you can reconcile all these conflicting signals, because if you look at the boundary of curve, three year and the ten years inverted, which is a classic recession scenario, but two years of ten years is actually positive because people are expecting the short term ray cuts is going to lead to some sort of recovery down the road. So that's one way you can actually um see two to reconcile these different signals.

But everything has to be in the right place. So the focus on the Yelk curve among investors in the press has been really interesting over the last couple of months. You know, we hear about the inversion consistently, but it's it has been a very good predictor of recessions in the past, but this one seems a little bit differ and that it's much more technical than fundamental. We're not it's not the traditional, you know way we got to be inverted. As you said, the two and tent isn't

even inverted. But the fact that there's just an insatiable demand for bond yield of investors both domestically and internationally flooding into long treasuries that's pushed rates down to a somewhat artificial level. Uh. That isn't an outcome of the views of the economy. It's really more supply and demand driven, which could give a false signal about the future and recessionary possibilities. Even with this massive supply of treasuries coming online.

That demand is overwhelming, I guess. And it's interesting that the Treasury continues to issue in the kind of six months a two year range even though the Yolker is flat inverted. You think they'd be extending duration at this point. So maybe they know something we don't know about. What's what they outlook for rates are over the next two to five years? Are you getting back to the China situation? And Mark waydd on this too, if you if you

have any thoughts, uh, you know. President Trump this week gave a very long interview with Fox Business Boy. He got a lot of words and on that that one one thing that I'm not sure everyone picked up on that I found interesting is he said, well, maybe the tart the next batch of tariffs on Chinese gids will be ten percent rather than that. Seems to me like subtle de escalation of the tensions. I mean, do you think do you agree with that? Do you think China

could have picked up on that? Um? I do think there's a sort of a subbody change here because the next round, next round of tariffs, all the goods affect essentially consumer goods, closing smartphones, toys. Well, the previous round of tariffs affecting the goods only intermedia goods, so the consumer will be directly impact by the next batch of

the tariffs more so than the previous one. That's why I think one of the reason you want to take more like an a step by step approach instead of all the maximum, all the tariffs all the way at once or at once. So I do think that, um, this shows some sort of like cautiousness from the U.

S side. Mark. We heard from some other politicians this week, to other than President Trump, and that is all the Democratic presidential candidates with the debates, and as we start getting closer and closer to presidential election, it feels like it's all starting. How do you actually think about the presidential election and anything that any of these candidates may say or may have said already in debates when thinking

about how to position going forwards. This is very similar to the thought process on the tweeting, which is you have to pay attention to what's said, but you can't necessarily react to it. I mean, reacting to on emotion and investing is almost always a bad idea, right. Reacting

on political emotion is even worse than that. Frankly, I mean, we saw a massive decline in consumer confidence among Democrats between August and December of two thousands and sixteen, so a massive rise in consumer confidence for Republicans at the same time frame. Neither us right, you know, So we've become you know, all the studies show that we were becoming increasingly partisan in the way that we view the world.

That's probably gonna lead to some volatility. You know, we're going to see your healthcare names, for example, trading violently based on the expectation that they think Elizabeth Warren would would would win the presidency for example. I think two thousand and sixteen should have taught us a lesson that betting ahead of time is probably not that great an idea, and over waiting the impact of the president has also

been a pretty bad way to invest historically. So would you say it's hard to invest based on what you think is going to happen, even if you truly do believe that maybe a Democratic candidate is going to win the president action and that's going to completely shake up the health care industry, or say one candidate is running saying that they may take down defense spending for aerospace

and defense. I mean, can you truly ignore these statements if it is something that's possible that will eventually affect how companies are operating going forwards, The overwhelming likelihood is we end up with display Congress anyway. If that happens, the likelihood of transformational change on any of those things are pretty limited, So I would take the under in

terms of impact from presidential politics. We obviously saw Obamacare through that was you know, pretty disruptive at least for you know, some of the names is very good for some of the other health care names. The health care area in the defense area would be would be areas to obviously pay the most attention to. But again we're way too early to make any definitive conclusions about what's

going to happen in November two. Thowyah. I think it was interesting in the debate they asked, well, who on the stage wants to see medicare for all? And only two hands? When might think what was it? It was, uh, Elizabeth Warren and Blasio. So that kind of signals that she has a very ambitious platform. I mean, when we could s break up the fangs, break up the banks,

get rid of private student loan debt, student loan debt. Yeah. So, I mean, I guess you have to sort of handicap the fact that she's not gonna get all that if she gets any of it, if she wins. Right, I think. I think we have a very long history Republican and Democrat of you know, prob well, perhaps running on a certain campaign and then enacting because you know, the reality is you're not going to get everything you want done,

particularly if you have a Republican Senate. So, like I said, I would, I would, I would weigh on this side of not overreacting at least between now and let's say next fall. I like Mark. He's nice and calm. He should talk to my wife. All right, Well, I think it's time for the our every part of the week. Mark. I don't know if they warned you about this. Uh, this little gimmick of ours. The craziest thing I ever saw in markets this week? Ye she I want to

start with you. You see anything crazy this week? How about bitcoin? That's crazy? O? What great Tracy Alloy, she's our exactive editor. She found a small way to predict the crypto currency moves. She found out that the bigcoin has highly coorated with avocado prices in Mexico. Both has more than double the since April. Um. I know she meant this as a joke. Definitely a real correlation, but for anything like as volatile as bitcoin, it's good indicator

as anyone. That's right, the fable of spurious correlations on this, Sara, how about you you got anything the top Bitcoin avocado correlations. That's a tough one. You read my mind. I was actually going to take the avocado side of it. I mean, avocado prices are this week, and I've got to say, for those of us who are are large consumers of guacamole and avocado toast or whatever you might say, it's

really worrisome. What is it with you millennials market? It's like they passed a law that they all have to eat avocado toast for breakfast. What is going on? There's um, there's an avocado restaurant now that I think there's actually a couple of them, and all these cells avocado products. I've never ordered from it, I will say, but d s right got to infuse it with all Right, bark,

you're in the hot seat. Have you seen anything crazy? Well, I guess, I guess if you're talking about politics, you might as well talk about the other third rail, which is crypto. You know, it's a good way to get clicks and and hate from them. But you know, the the ethereum. You know, trust e t F that came out on Friday, traded a seven hundred bucks on Monday, Uh, the n E V and that is twenty seven bucks.

You're paying four times thirty times at the peak. You're right now it's down to I think a hundred thirty bucks, so you're in the forest, you know, times range at this point. Uh. You know that that shows how sometimes emotion can really damage investor returns. There's really no justification for that gap. I'm not saying anything about whether or not etheroryum is going up or down from here. It

doesn't really matter. The point is is you're you cannot pay a d thirty bucks for dollars with about Yeah. I was that people just afraid to have their money in one of these exchanges that gets happened. I think part of it is your cousin made a lot of money and trading on this, so you're gonna you're gonna you don't necessarily know what you're buying. That's that's probably the most dangerous where invest Some people were saying also,

which is worth diving into. Now, the volume is pretty low in this stuff, so this unlikely, but institutions that are limited in their ability to own crypto maybe using this as to proxy seem I would hope that's not the case, and like I said, the trading training volume probably suggests that's not. But that would be pretty disappointing if institutions we're playing that game. These are these are

all pretty good crazy things. I gotta say, I got, I'll give you mine, and then we'll go to the ones we got at a twitter um, Sarah, I don't know if you realize this. I used to play lot of basketball before I became old and out of shape. So in my closet there are several pairs of sweaty old air. Jordan's just just sitting there collecting us, trying

to wait to see where you're going with this. What if I were to tell you that those sweaty old sneakers are actually a tradeable commodity, that that people are literally trading on something known as the stock X sneaker exchange, and this is based on it. The New York Times, i gotta say, has really been the paper of record for crazy market stories, and this is the second or third one I've found it there. Yeah, this guy who sold his old sneakers started this exchange. It's called stock ax.

They trade sneakers and there's a bunch of other ones. Uh. Collectively, they've raised more than two hundred million in venture capital. Uh. And Nike's not exactly thrilled with this. I'm kind of joking about my sweaty knockoff. Well, now these are real, but it's just you. You buy him at retail for say a hundred bucks, you stick up in your closet for a couple of years, and he's some for three

hundred bucks. Nike's getting a little ticked off. They're starting to print not for resale, and some shop owners are making people put them on and wear them out of the store so that they're they're not in Christine condition. So I don't know, that's my craziest thing. Well there there is a site called posh Mark and I actually just recently started using it. And so you do you sell your old clothing, you sell your old shoes. I got my first sale this week. It was really exciting.

So you're way ahead of me. I didn't know there was actually a shoe stock exchange. But how much would you from my air? Jordan's there like two thousand and two vintage? Give you ten bucks? Not bad to look out of buy. I mean, they don't fit me, but I'll take them on all right, I'll sorry walk us through. Did we get We got some crazy market stories from Twitter? Let's uh, I'm excited about the interactivity of this podcast. Now what did we hear on Twitter? We did so

as we may expect. We heard a lot about bitcoin, but I will run through a couple. So one is from Keion. He's at s l h z d H and said, I feel like there isn't much that's actually truly crazy anymore. That yeah, we can find ourself. But he said that being said, the sudden surges in both bitcoin and gold have got a lot of people by surprise. In my opinion, it's a telling and potentially ominous sign for what's to come with equities. So we'll see if

that has any fortune telling power. Um. We also heard from at Rocking Finance, who said, probably not as crazy as what you would like, but at the Allergan that was a really big deal, sixty three billion dollars with equity value this week. And Bitcoin of course are easy examples. And if you do look at Allergan, it was up this week roughly, So that's some crazy stuff are We also got some contributions from people within Bloomberg. I'll go

through a few of them. Joe Wisenhall, the host of What You miss Uh, I don't know where he even saw this. He said, how about that jump in the check two year rates? And he's right that the two year check yield jumped eleven basis points on I think it was Wen's day. He missed the best part of the tweet. Here's something crazy about it, though. That two year check yield is UH one point four six that's about thirty basis points below the two year treasury yield.

So mark to your point about you know this unquenchable appetite for bonds, which brings us to another crazy thing. Sebastian Boyd of the Markets Live team pointed out a perpetual I n G bond. It's a floating rate bond, current coupon zero percent. It's floated all the way down to zero percent. I mean it's trading at seventy dollars seventy percent apart, so there is some potential return there, but a zero percent coupon And Sarah, I'm gonna nominate this is the best craziest thing of the week, uh

that I've seen. Christina Queeno on the Markets Live team in London points out a hundred year Austrian bond sold and the five point three billion euros of orders for a one point to five billion euro offers, so four times five times almost oversubscribed yield have one less than one point two percent mark. I don't know. I hate to say it, but I think only insurance companies would

uh by like that fair well. I mean, if you're if you're a German, and that's why our rates of two percent, right, if you're a German insurance company, what do you do? You got to buy something? Just what of global sovereign debt right now? Thirteen and a half trillion dollars is trading negative? I mean, personally I'd buy a bunch of Ed Jordan's for few years. And that was our last one for today. But thank you everyone

who did contribute their ideas. Please continue to going forwards because every week we will pick a few that we really like and we'll make sure that we read them on the show. But of course Mark Hacketty she thanks for participating on the show and also thanks for joining today. Thank you what those up? Will be back next week. Until then, you can find us on the Bloomberg Terminal,

website and app, or wherever you get your podcasts. We'd love it if you took the time to rate interview the show on Apple Podcasts so more listeners can find us. And you can also find us on Twitter. Follow me at at Sarah Pontack, Mike is at Reunonymous, Our guest, Mark Hackett or Nationwide Funds is at n W Financial, and yes she is at she Ye Bloomberg. You can also follow Bloomberg podcast at podcasts. What Goes Up is produced by tober Foreheads. The head of Bloomberg Podcasts is

Francesco Levie. Thanks for listening. See you next time.