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BVTV: Trump鈥檚 first 100 days. How鈥檚 that reflation trade looking? - YouTube
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good morning bong people and welcome to
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another edition of bbtv another week
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dominated by politics and just this
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weekend we have the first round of the
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French elections as you know by now it's
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going to be a runoff between macron and
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the pen and markets really like that
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this is the outcome they wanted a
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centrist against the extreme right as a
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result the euros rallying around one
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percent this morning US Treasuries are
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selling off in Asia by up to six basis
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points and stocks are going to open
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higher today it's a risk on day thanks
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to that european election result now
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we're going to focus today on donald
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trump that i'm joined by eric lonegan
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from our multi asset team my general
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manager morning Eric when it come to you
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in a second yeah but first have been a
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talk about Trump's first 100 days and
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this article and sunday times over the
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weekend suggested that his staffers are
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kind of running around struggling to
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find anything to proclaim as a result
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given that a lot of what he's tried to
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get done has not been possible so far so
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thinking about Trump's first 100 days I
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think the first thing we've learnt
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already from bond markets and elsewhere
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is that he can't always get what he
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wants so although we've had a clean
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sweep of House Senate Congress whatever
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the Supreme Court also belongs to Donald
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Trump he's been pushed back from the
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judiciary and also his health care bill
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failed so it's not going to be a one-way
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street for Trump getting what he wants
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done secondly although it's in a huge
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bounce in economic data I think it's
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important to note that that data has no
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mainly been confident surveys and hard
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data is definitely lagging behind
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somewhat thirdly I think it's a lot of
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skepticism i was in washington DC last
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week a lot of skepticism that tax reform
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will get done in 2017 or that fiscal
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spending will even get done at all so if
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you're banking on a huge bouncing gdp
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from either of those two things this
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year you may be disappointed and you may
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be disappointed even in 2018 to foreign
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policy has been really what Trump has
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managed to achieve so far but we thought
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he might be quite isolationist
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he was empty NATO but we have seen some
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interventions in China would seeing
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military interventions in Syria and in
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Afghanistan so it looks like it's been
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more active they're given he can't get
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his domestic agenda done at the moment
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and finally a lot of talk about the Fed
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Janet Yellen wasn't Trump's favorite
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person in the run-up to the election but
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he seemed to be warming to at the moment
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and there's a lot of speculation that
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she might even get nominated and accept
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the nomination to be the next Fed chair
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and carry on in 2018 so with that
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backdrop I'm going to turn to Eric who's
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a macro fund manager on the multi asset
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side Eric what's your impression of
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Donald Trump so far well I think the for
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the first thing I would would point out
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is the extent to which American
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political institutions are operating as
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they were designed and so the Americans
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hasn't been designed with checks and
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balances designed to prevent any
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concentration of power and either one of
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the branches either the executive branch
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which is Trump the judiciary or the
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legislature and that's very clear that
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his power is checked I think the other
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thing that's very clear is that the
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Republican Party it's it's a it's an
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open question as to whether the
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republican party can really govern
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enough well given that we've got this
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kind of dichotomy between what bond
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markets saying they're kind of pricing
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in average inflation two percent
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inflation for the next five years on
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average so no animal spirits in bham
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market your equity market valuations
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particularly in the u.s. not very high
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you know you've got this ability to
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allocate between a clear asset classes
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one's needs to be saying something
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different from the other yeah there's a
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couple of points I would make their I
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mean certainly if you look at the the
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the rally that you've had from the highs
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in yields in the bond market you have
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also seen a rotation similar to that
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within the equity market so you've seen
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some of the more cyclical say the
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financial areas typically
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underperforming against that backdrop so
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I think when I look at both bonds and
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equities I think there's broadly pretty
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consistent reaction to what's been at
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what's been going on with respect to
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equity valuations think a lot of those
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issues are very us centric I mean if you
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look at most global equity markets
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haven't done very much in two years so
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I think one has to the S&P is trading on
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a high RP multiple that it has on
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average although it spends very little
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time in the average the average tends to
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be something that it goes through an
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either of one of two directions but if
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you look at other global equity markets
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look much more reasonably priced in the
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context of history right so as a
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multi-asset investor thinking about
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where where you allocate right now what
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looks attractive well we would have a
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strong preference for equities over
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bonds but based on a very simple
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observation what you're expected real
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returns are so he can't say that on BB
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hahahaha sorry about that but you know
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it's just the simple arithmetic of that
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you know global equity is a price to
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deliver you something like a six or
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seven percent real return depending on
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what earnings do into the medium term
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you're lucky you can get positive real
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return out of the government bond market
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so you know is a longer your time
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horizon if you're willing to look
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through the volatility that starts to
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compound in a very very material way
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great thank you very much Eric have a
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great week everyone thanks very much
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