TOM, Paul Karen discussed on Bloomberg Surveillance

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The dollar the yen one ten point five nine Tom and Paul Karen thanks so much greatly greatly appreciate it the market open here we got a nice pop above futures dial four hundred seventy point twenty thousand one hundred twenty six of six comes in a solid two points twenty two point six three this is joy this is the derivatives angle we've been taking the dynamics of the market that we've been seeing over the last number of days and now we advance the discussion Damien says over called up teams surveillance is that just shut up and speak to him we do reserve them guard read as active EM I believe that's emerging markets out of the Carnegie Mellon complex in Pittsburgh Pennsylvania Dan sikap it's joins us right now with that vanguard there's a point the current email and where the mortals like they take quantum mechanics and they don't move on from there in others foolish enough stakes stochastic calculus too and then advance derivative models how does all that brainpower help you when you go down thousand Dow points well I think the the danger of too much brain power in the markets is that to be get investor you have to be basically exactly one step ahead of the market if you too many steps ahead you never make any money because you get stopped out before the trade works so you got to be careful this got to be careful is you have to re hedge along the way this is a huge idea that if you establish a belief you had yet and you you sort of get your wrists in order and then you have to redo it and redo it do you have a mood now that we're all getting too cute in our derivatives strategies with the great bull market and we we just got a little too smart for ourselves yeah I think there it is are there is a tool and I think a lot of times we tend to blame tools for problems but yeah it's the it's what you do with those tools as the problem the tools themselves allow me a precision Ristic king and rightly so you have to understand the risks of any instrument use whether it's a division of our bond or equity but you know we are users of derivatives because it allows us to isolate what we see are the most attractive risks in the market and not take risks that we don't find it attractive it was a clear penalty Lewis with the sixty just BC of London this morning and he was looking at flows and say look for ex number of years we really haven't seen the enthusiasm and equities even though prices drive higher he is humility in the derivatives space right now do you see people making dumb moves or is everybody still humble off of the ball to you have a few years ago so I'm I'm a bongo I suppose a little more bearish I'm a little biased there what I would say is that the markets are flush with cash and that's something that's not going to change in the near future even the virus is going to change the virus is not going to use the cash amounts so it it's it's inching dance so you know I'm looking at the M. S. CI emerging market index were down about five percent this year where if I wanted to allocate some money take a little bit of risk here say Hey the markets pulled back maybe a little bit of value I want maybe get a little bit more aggressive think about emerging markets what would you suggest I go so what we seen until we've seen up to this point is that you've had a number of problem areas pop up you know in in the bond market we've seen trouble in Lebanon Argentina Ecuador in a little bit tricky more recently but because the markets are flush with cash as investors eggs in those markets they're simply recycling and the risks to other opportunities in asset class so you have the winners get richer while the losers at this point have to re price our view this year going into this year was that it was not going to be a market about picking winners it was gonna be in the market where you can serve with losers and you know while we focus on fixed income yeah I would be surprised if that was any different from equity markets as well I think this is where you look at the economies where the imbalances have been built up over a long expansion and if you are underweight those key names you don't have to be as defensive in your overall portfolio and that saves you a lot of money there seem to be in Q. four and talking in the equity space finally international equities soared to do better is your sense that this virus in the supply shock that we've seen in all the GDP and economic data you shifted your EDM world permanently or is it a one off over time frame were you gonna see a solution to it and we'll get back on the EM recovery I mean I'd be careful about putting the entire emerging markets under one umbrella certainly a lot of the markets have benefited from the growth in China that's been the case to the rest of Asia some of the commodity exporters in Latin America have benefited and Eastern Europe and central Europe have benefited through the connection through the German up production costs of production engine but that said you still have a lot of economies in the end that are very close the condom is like Brazil Argentina you have a condom is that are more linked to the U. S. such as economies you know Mexico is a good example not of Central America and you have other economies that are have benefiting from secular changes in Eastern Europe has really been outperforming Germany as production shifts from Germany to hungry to answer be to Romania and that has been keeping them afloat so I don't think emerging markets necessarily that much more at risk from this particular threat to global growth then anything developed world part of this is the what we don't know what they're what doctor Larry don't call the unknown on loans I think a Sanford Grossman and Joe Stiglitz years ago talking about the mysteries that are out there what's the what's the misinformation or lack of information that you have now the concerned you what's the thing you don't know it's on the radar some might my concern okay my concerns are really much more about the markets and how they behave when you have real risks to growth but you still have this abundant liquidity the risk there is that you don't get a lot of warning when something goes wrong you know the market can be bullet proof up to a point but once you start cracking the armor of liquidity you could have much larger move to the downside so that for me is the biggest unknown it's not about the economy I think the economy is actually much more transparent a we think it is we just tend to look at everything through the prism of the market and the market distorts what we see because the market so flush with cash this is Paul this is a fundamental thing we heard this from UBS yeah really pound the table on the wall of money up one seventy now up ninety six is sort of the opposite yesterday we had some gloom yesterday in the tape got better in the nine thirty hour and today we flip we go optimism we've pulled back yeah certainly for those who are optimistic the overnight price action was not particular constructive because Asian made an attempt to rally U. S. treasury yields sold off equity futures went up and that rally simply didn't hold one when they came in what's your correlation right now full faith and credit bond yields to the equity markets are they in step they acting separate well I think the the the question is is strong you know bonds tend to you know rally in risk off at this point and they tend to sell off in response but the both benefit from this wall of cash the wall of cash actually keeps bond yields lower than that would have been otherwise and the wall of cash he's keeping equities higher than the whatever that was so Dan when Damon comes in and sits in that seat statement says our does emerging markets for Bloomberg intelligence to get me to buy like Lebanese sovereign debt and all this craziness I'm not ruling that go a little EM on you but talking about something closer to home Mexico Brazil have to think about Latin America here you know Brazil has been a great story in terms of reform but unfortunately that reform is not yet translated into growth so that's something that we are becoming increasingly concerned with even though we still remain constructive you know Mexico is a story where a lot of political risk has been priced in and some of the worst case scenario did not materialize but we still see risk down the road we see risks to the potential rating all of the state owned oil company that may not be able to stay in the best rate territory that will result in some selling so we like Mexico softens the credits as part of our offering quality view in the market right now but it's also price support you had at their currency risk when you go to some of these markets this year when we take a local market exposure of phones we have the option whether we want to take or not take the currency exposure we have felt in the last couple months the best value was actually in the rate markets are not in the currency markets so we have been hedging out most of our currency exposure when we do get involved in local bonds for denture coverage thanks so much for joining us we really appreciate your thoughts vanguard senior portfolio manager and head of active emerging markets they do have active money vanguard Tom to do a good designs of those huge huge success story Malvern Pennsylvania thank you so much up one seventy of the down there we come down to a ninety six orchard in there right now he does come in a little bit off of maybe the real estate which was on survey is all here's a headline you know you talk about it's been a quiet virus warning without that many headlines this is the headline off the Bloomberg Paul Italy hotel in lockdown after woman tests positive to virus yep I think I have no idea what that means no but I just think we're gonna see more and more of those and the question is are they could be confined to Italy organ starts singing in other countries and I think that's kind of where the you know the the market right now how quickly will this spread globally that's kind of question the day it seems like with the news in New York City as Michael Barr John Paul thank you very much president trump told a news conference in India today as he gets ready to wrap up his two day trip there the.

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