Uncertainty against signs of geopolitical tensions. There is still a lot of concern geopolitically and involving the global macro backdrop. As soon as we get across this brexit valley and trade war valley, things will settle down effectively. Manufacturing is weak globally. Trade uncertainty, brexit uncertainty. But you are starting to see pmi and the orders inflect a bit. Inflectionat this point where you are starting to get better geopolitical news. The mood can improve quickly, and that means Economic Stabilization in 2020. Ultimately, a little bit news iseopolitical going to cause this inflection. Caroline the key question, what will it take to solve the macro debate . Joining me around the table is bob miller a black rock, Krishna Memani of news is going to cause this inflection. Invesco, and in monday, james at the of aberdeen asset. Bob, inflection point, are we there . Bob may be. There appears to be a decline in the headwinds associated with brexit, and with the u. S. China trade escalation that has created headwinds over the past year. The question investors need to ask themselves is what does resolution lead to . Invesco, andis it stabilizatior level of growth, or is it we accelerate . Our bad is it is more like stabilization. When you think about the distribution of outcomes over the next year, it still strikes me that it is pretty low on that we will meaningfully we accelerate Global Growth over the next year or two, that the good case outcome is stabilization, and there is still a risk of further deceleration, depending on other factors beyond these two specific headwinds we have are for two. Krishna, you think stabilization is the watchword here. What about some of the other risks, geopolitical risks that do not seem to be systemic, middle east, turkey . We talk about geopolitical risk, but the markets are not concerned about geopolitical risks, per se. What they are worried about our geopolitical risks that have significant implications for Global Growth. We dont care as much about middle east or hong kong are other places. We care about brexit and the trade deal. The implications of that are for more significant for the economy. At the end of the day, it comes down to Global Growth. Global growth is stabilizing. We may not think it accelerates but given the low levels where we are, there is a different chance 2020 ends up being meaningfully better than how 2019 shaped up. Caroline james, give us some pushback. You are little more pessimistic on where fundamentals show we are going. Looks ratherass empty, rather than halfempty to me. To me, the trade war stuff has been an irritant as opposed to the underlying cause. Brexit has had an idiosyncratic impact on this is investment in the u k, but the Bigger Picture story is, the economy is running on a road in the u. S. , running out of capacity, labor force. That means you cannot keep the same pace of consumption. The big story has been china and the domestic policy choices they have made, and continue to make. China has been a huge demand of certain sectors and goods from germany. A lot of that has been a function of chinese policy choices with respect to infrastructure. They have essentially stopped and we have seen the german economy. These things tend to feed off of each other. Confidence, sentiment are the means by which, unemployment, are the means by which the cycle feeds off itself in a positive but also negative fashion. I dont see any major reason why some improvement in some of these minor irritants is going to turn around the bigger oil tanker of the Global Economy. The point james is making is an important one. If there is going to be a meaningful is sustained inflection in the Global Economy, it will happen from summing the china does. The developed market is tapped out. The u. S. Market will stabilize but the Growth Outlook will not get to 3 anytime soon. However, we also have to recognize that even in the context of china slowing down, we are still talking about 6 growth. Maybe 20 ends of being slower than that but not a catastrophic outcome. Context, with support from Monetary Policymakers, the likelihood of stabilization is good. Financial asset prices in that stabilization context can do well. If you are talking about the economy, maybe things dont work out as well as everyone expects. Asset prices, things may work out better than what people expect. Caroline looking at demand for certain areas of the market, i want to look at what this etf is showing us. Money racing into it. Inecord amount of buying terms of the etf. Clearly, demand for duration. What is the Government Bond market telling us, are they worried about recession . Are they saying, we need yield, and it is in the u. S. . Bob the fed pivot it earlier this year, and now the market expects the fed to continue to be reasonably dovish going forward. Two, the treasury market, relative to other large scale developed market, sovereign bonds represents the most attractive relative yield. In the u. S. Is up 8. 5 come along treasuries are up 22 . It will be hard for that asset class to replicate that same rate of return over the next 10 months that they have produced over the year to date period. But it still behaves as a really good portfolio hedge. The correlation to risk assets remains solidly negative. I dont think that will change anytime soon. The factors that would change an abrupt to move higher in inflation which seems unlikely, abrupt change in Monetary Policy which seems very unlikely. Year or so, i think its difficult to see the correlation changing. Therefore, the expected return is not what it was 10 months ago, but they still a good portfolio hedge. Caroline james, do you agree works looking at bonds and equities . Is the head still working from your perspective . James i agree with bob, the risk to bonds, there would be some large jump in inflation. Difficult to see where that is coming from. I dont believe inflation is dead forever. Conversation that occasionally pops up now is a sign that in the nottoodistant future we will see inflation come out of nowhere. Europe . even in james that is a different question. Still potentially. For all the wrong reasons, i dont think its a function of type labor markets. Reached the limits of how much we can offshore production of low value manufacturing goods, and therefore we get in inflation reimpose from that, supply shock runs out, that could be inflationary. The bond markets are telling you that economies cannot generate Growth Without being on the monetary support machine. We are not seeing flat curves, inflation premiums in the markets, and thats telling you in the mechanics of Central Banks cutting rates and buying bonds is great or bonds, but they dont believe it will create inflation. Krishna as usual, james is making an important point, especially because i agree. The fact is, the markets, the Global Economy is certainly dependent on Monetary Policy. One of the key things bob mentioned was the fact that the fed pivoted. What the bond markets are telling you is there is no way out. This is the way things will be for the foreseeable future. It is not as much for returns as it is for a hedge or safety, in case things dont work out in the equity markets. Bob can i offer a quick comment on this topic . I agree on a sentiment. What investors should be thinking about is we have not yet seen the limit of innovation from developed markets Central Banks. Monetary policy is not dead in my opinion. Think about the innovations we since the crisis. Negative rate interest, qe. I think we are going to move over the next several years toward greater fiscal monetary cooperation. I think in some of the since th. Large developed market economies, we will see monetization of one form or another. Ultimately, i think we will witness helicopter money being used in a number of these economies, going direct to the economic actors in the economy, as opposed to by passing it through some form of fiscal monitor operation. Placea if there is a where that is needed today, its probably europe. If there is a place where probably will not happen, bob large difficult to executer the political issues. Caroline bob miller, Krishna Memani, james eight the sticking with us. Coming up, we are turning our attention to leverage loan investors. Why Money Managers are plunging into the risk least risky junk debt they can find. This is bloomberg real yield. Im Caroline Hyde in for jonathan ferro. This is bloomberg real yield. Auctiono go to the block, and we begin in asia, where japans Corporate Market debt hit a record low yield offering a big fat zero. Toyota motors will offer two tranches of ¥20 billion in three and five bonds each on october 25. Highyield issuance slow this week. Charter communications we want to take you to the international Monetary Policy. How are you doing, what is your secret sauce . How are you achieving the kinds of returns and the numbers you put up this week . Welcome, everybody, thrilled to be here. I dont pay that much attention to quarterly earnings. For most companies, that where you earn money this quarter, decisions you made over the last 5, 10, 15 years, technology built, things you inherited. Building, branches, people, clients, services, unit by unit, business by business, try to create competitive advantage, if you can. James. I pay a little attention to it. Maybe i have to more. Ago, we went about derisking the business model, building businesses that had a much more predictable float. They were not terrible but they were not terrific. Long volatility, a few landmines to be dodged. Having some very stable revenues gives us comfort. Bad times know in things will be fine. In good times, everybody is making money. This was not a bad quarter but an ok quarter. The firm performed well. That is the ambition. Not to have the negative surprises we had coming into the financial crisis and the periods after. The imf running down their forecast, other economists have had a fairly dour view of the world economy. 40 ceos yesterday, and they were somewhat more upbeat than the economists. How do you see the world . I dont know what the congress were saying in total. The world was growing around 3. 7 . The imf last year we would have the fastest year ever. That is still 3 trillion of Global Growth. Most of us would not look at that as dour. Ceos in the united states, the consumer is strong. There is confidence, they are spending. Wages are going up, household spending. The business side is weaker globally. Business confidence has come way down. Businesses Pay Attention to geopolitics. There is the china trade, all of that causing consternation. And starting to change decisions. People are slowing down in certain investments they are making, figure out what they want to do with supply lines. Will that cause the u. S. To go into recession . Probably not. That 70 has almost never let us down when they have money to spend. Just that onwn, the way down. Maybe just slows down and levels off. Carry the consumer economy, what are you hearing from your clients . Consumer Balance Sheets artan strong shape, absent student lending, which is a particularly odious thing that has happened in the last 30 years, the amount of debt these kids have. Consumer Balance Sheets are strong, can they carry it . Until sentiment and the motion carries it. The risk has been all of the headline risk, the endless geopolitical discussions. The actual reality of the damage geopolitically relative to the last six decades is pretty modest. We have had real big wars in the last 100 years, real geopolitical turmoil. We are not in that phase right now. Phase. In trade dispute like jamie, we are both optimists. It is easy to live that way. What i think we are also realists. We have seen a lot of things over a long period of. It is not that bad right now. Bleeding intoisk consumer psyche, cutting back on spending, combined with the corporate cutbacks, that is when you take into recession. By the way, recession itself is sort of a cleansing. It is not the beall endall. The question is how deep and how long . The u. S. Is running huge fiscal deficits. Not what you would expect given where we are and expansion. No one seems to care about deficits anymore. Is that a mistake . I would tell you it is not going to cause a crisis immediately in the next three years. The u. S. Can afford deficits 80 of gdp. The mistake would be if we dont realize down the road it is not sustainable. 80 , it would go to 100, and it is a hockey stick, almost entirely based on medical entitlements. The sooner you deal with it, the better. It will deal with itself at one point. Our 80 jet to gdp compares to japan, which is about 250 . Who you owe the money to, what you spend it on is important, but it is not todays crisis. We have the time. Whether we have the political will. Cities goeen bankrupt. We know its happening. It is just a bad idea to watch that train coming down the track and then in a few years it will run you over. I think we should react to it. We see yield curves around the world would make it problematic for some banks and certain regions. Central banks are under assault in certain locations. Do you worry about Interest Rates too low for too long, do you are about the independence of Central Banks . What europe is experiencing with negative rates is obviously really bad. Not just for the Financial Sector but probably for the economy. Do i worry about too low . The feds job is to manage the excesses and to prop up the weaknesses in any economic cycle. That theyo rulebook sit back with, that jay powell has, that says, at this point that this moment. I would personally be more cautious bringing rates down because you are using up one of the tools you have. I have been in that position for the last three years, i have been wrong apparently according to the market, because the market is pricing in further cuts. At this point, i would price in one markup for the rest of the year, and then i would sit back and watch and wait. Is a phenomenal institution, rich in talent, dedicated professionals. The board has operated very independently for a long printer of time. This is not the first time there has been political pressure on the fed. To be fair to the administration, this is not the first time the executive branch has tried to influence Monetary Policy. I am highly confident the fed governors will retain their independence. You the sameng question with an added twist. 16 trillion worth of negative yielding debt. What does that tell us . I agree with james. N they did it early on basically you thought your may, part, the monetary union. We dont know. I think theyll be running books about this. The benefit of negative rates, if there was one, has huge negatives or savers, lower income people, capital markets. Belowd not buy debt at zero. I would do anything other than that. One of the great economists talking about rates going from 3 to 2 , that is the same as going from zero to your one. Im not sure that the rules are the same. In aerodynamics, there is this phenomenon that wind patterns over an airplane go a certain direction. But over a certain speed, the reverse. I think you may have that here. Getting out of this may be an issue. There are a lot of reasons. It was not because of a savings glut or secular stagnation. It was because of bad policies, changes in regulation, infrastructure, work skills, things which are hurting Global Growth which have nothing to do with monetary or fiscal policy. I think we should be more broader based analyzing the problem. We will be able to deal with it. I hope it does not come here. He u. S. Is growing at 2 in a normal environment, that means the short rate should be 3 , a 10year should be 4. 5, and it is not. 16 trillion in negative rates. That means they took it out of the market, replaced it with cash. The world butover had an effect of reducing rates, which had other effects. It will be a great lesson for future generations to learn what to do and what not to do. Coming back to the deficit thing to pick up you can get away with large deficits, as jamie and said, only for so long, and amplify that when you stop having population growth and technology improvements. One of the beautiful things about this country im a lucky immigrant is we have had tremendous immigration. If that actually gets clamped have a smaller percentage of the population going to the work horse to support all of the entitlements coming out of the back end, you have an income problem and expenditure problem. A government if you play with both of those levers and get it wrong, then you have got a whole different ball of wax. Lucky, its anen incredibly vibrant grown economy, and has been for a long time, but there are reasons for that vibrancy, and part of it is immigration and population growth. Look at the big picture. I would love for the economist to take this up. Been vibrant, but if you look at the average recovery over 10 years after a downturn, it should have been 40 . It was 40 after 1972, 1982, the 90s, 1997, 2000. Why not 40 . What is the effect of not being 40 . Today we would have 4 trillion more a year of income. That deficit would be far different. 2. 5 would be in the pockets of citizens. We talk about income. Income is not growing rapidly enough. Also when you talk about the supply of capital, obviously, growing at 4 trillion more of year, there would be more capital requests. When companies are not growing, less capital, less payables, all of these things. All of these things relate to each other. I agree, the reason which held us back is our lack of infrastructure, work skills, excessive bureaucracy around Small Business formation, our Health Care System which is among the best in the world, 18. 5 of gdp compared to 9 for our competitors. There are all these reasons why we are experiencing it today. We should do a better job studying in answering. 8 million unfilled jobs in the u. S. Are you having a hard time recruiting talent . We are not. The better question is, we serve people all the time. Now you are getting complaints by people who cannot find it. At all different levels. Not just starter jobs. We were sitting here three years ago, and we were saying incomes are not going up, we need more wages. Tend to complain when things get tight, that is why wages go up. The problem with 8 million is who they are and what they are trained in. Say work skills, our Education System used to do a great job turning out kids who were job ready, or went to vocational school. We dont do a good job of that anymore. We dont have a talent issue, but that is because we are in major cities and industry, wellpaying industry. It is the mismatch that is the problem. Remember where we were. When bernanke put out the targets for what he would do with rates, the target was 2 inflation, trending to 6. 5 unemployment. 3. 7 . Extraordinary. Supplies surprise that there is now starting to be wage pressure. Im hearing from other clients that they are having pressure filling jobs. Again, i come back to immigration is a big part of this. You have to keep the pipes moving. If the costs are going up in terms of labor, are the able to pass those on to consumers, are they able to absorb that margin compression . Earnings have been solid. Companies, what is going on in the Retail Sector with what amazon has done to transform that sort her, there have been certain parts of the industry that have been affected. The corporate earnings remain solid in this country. Lets turn to regulation. There is a perception globally that somehow this administration has deregulated the Financial Services industry. Are you being deregulated, do you see it . No. Regulators take a victory lap. The lack ofid fix capital liquidity, resolution ability in some areas. Lehman brothers is an example. It would not happen today. They would not have failed. If it did, it would have had 120 billion of t lack. Legalic, nobody had the authority to take it over, but now they do. E pability to manage it. The money will keep on moving around the world. Lehmann to that, there were other rules and regulations put in place. All industry is asking for coordination, lack of duplication, all of these things that cost money. A lot of more good conversations. The tone is better. Regulations that people talk about, dramatically reducing regulations these are tiny adjustments that make virtually no difference. Out all the backing rules and regulations put in place. Any time you have so many things take place, a rational person looks at calibration and coordination, and with an eye to maximizing growth. The fact that we have not done anything in mortgages does not hurt me, but it hurts lower income people. A lot of these things inhibit the markets. Europe needs a stronger capital market. It was some of the regulation that inhibited the development of