Daniel Lacalle's Spot-On Predications of the Return of QE in 2019
ROGER HIRST: Welcome back to Real Vision. DANIEL LACALLE: Thank you. ROGER HIRST: And we're going to be playing Connect Four for this episode of "Skin in the Game." Have you ever played Connect Four before? DANIEL LACALLE: I have with my kids. ROGER HIRST: Good. That's where I've been playing it. And I'm not particularly good. So it sounds like we're probably on a level footing. It's Britain versus Spain, Britain versus Europe. DANIEL LACALLE: I wonder how that's going to end up. ROGER HIRST: Probably not very well for Britain. But let's quick off. We'll get these out. Which color would you like to be? DANIEL LACALLE: Which colors do we have here? ROGER HIRST: There's gold, and there's silver. DANIEL LACALLE: Oh, I'm going to go for gold. That's a good one. ROGER HIRST: Play for gold. And theoretically, if you start, you should win. So I'll let you start. Would you like to kick it off? DANIEL LACALLE: There you go. ROGER HIRST: Excellent. Normally, you're supposed to go in the middle. DANIEL LACALLE: OK. If we think of next year, I think that the key factors that we need to think about are what is going to be the outlook on three levels, monetary, macro, and earnings. In general, considering where expectations are right now, we are still in a downgrade mode both on the macro factors, so we are still seeing, for example, industrial production, ISMs slowly descending from the high levels at which they were-- look, global debt is also an important factor. The second one, monetary factors are very important. Because if you look at the way in which most investors are positioned right now, the vast majority are expecting that the improvement for next year is going to come from central banks not doing what they have said that they will do, which, in general, is a pretty dangerous position to be in. However, even if they did, and I believe that they will definitely slow down the pace of normalization, we need to understand that the pace of normalization continued to be an extraordinarily bullish environment in terms of monetary policy. It was extremely dovish. Interest rates remained depressed. Liquidity was still very high. Money supply growth, even with the Federal Reserve reducing its balance sheet, has been growing above real GDP. Therefore, the risk that I see from the investor standpoint is that central bank policy has become part of the liquidity. So we have seen in Japan, we have seen in Europe, that despite ongoing easing, it does not transfer into multiple expansion and financial asset growth or valuations growing. It only helps yields remain low. It only helps valuations remain where they are. It basically works sort of as a cushion but not as a sort of inflating bubble-type of scenario. So that's a monetary policy. And then on earnings-- and then on earnings, when you look at markets today, many people say, look, markets have become very cheap very quickly. We have almost two points of PE that have been taken out of the market. Therefore, you can bet on good growth next year in order to cement the view that markets are going to rise. Now, the problem that I see is earnings estimates. The problem that I see continues to be in earnings estimates because I continue to believe that earnings estimates have not come down enough for next year. For example, you still see in financials expectations of double-digit EPS growth. That is very, very, very unlikely, same in industrials, same in consumers, same in energy, which has been one of the, let's say, most hyped sectors. So I would be cautious from that perspective as well. What we need to understand is that in an environment in which central banks continue to be accommodative, but macro data is not supportive, earnings data is not supportive, is that cycles become very, very short. So we need to be a lot more active. We need to think of equities, bonds, et cetera. Instead of an ongoing trend up, we need to think of them as, well, we are in a process of disinflation. So we will see abrupt changes in what is most likely to be a correction phase. And that's what we need to take, in my opinion, as the sort of general idea for next year. I think that the Chinese slowdown, the eurozone slowdown, very important, both of them happening with ongoing expansion of monetary policy, with very aggressive policies from governments, with deficit spending continuing to drive the government's policies. Therefore, we cannot say that the situation that we're seeing this year is due to trade wars or due to the normalization of the Federal Reserve. It's sort of a subterfuge that we use to avoid the reality. And the reality is debt saturation. ROGER HIRST: Is this a world where asset prices are kind of leading? Economies are OK, and it's not the economy it's going to see asset prices fall. But do we need to worry about asset prices? And therefore, will central banks react to more declines in asset price if they happen next year with more liquidity? DANIEL LACALLE: Central banks care a lot about asset prices. The Central Bank of Japan would not be buying equities if they didn't care about asset prices. Buying equities has absolutely nothing to do with inflation or with unemployment or with GDP growth. It's because they care about asset prices, and they do. So I think that the difference in the United States is that the Federal Reserve finds itself in a position in which they care only about asset prices, they don't build enough tools into a change of cycle. And therefore, they might end up creating a larger problem than the solution that they know they will not achieve because they also should understand that reverting the past is not going to make people go massively bullish. And it's not going to make your asset prices rise even further. And more importantly, if they revert the policy, they will give a message to markets that they know something that we don't know, and that that something is truly bad. So on that side, they should pay more-- I think that being data dependent, as Jerome Powell has mentioned so many times, is something that they definitely should continue to be. And so that is on the Federal Reserve side. On this under the situation with the Central Bank of Japan and the ECB, it's completely different. Both of them are trapped. Both of them are trapped because on one side, the ECB knows completely that there is no real demand for sovereign bonds at these yields, not even close. We would need to think of double the levels of sovereign bond yields that we're seeing right now for investors to think of purchasing eurozone bonds, sovereign bonds, if the central bank was not purchasing. Therefore, I think that is a big challenge because on one side, the eurozone countries have saved themselves about 1 trillion euros in interest expenses. Not bad, but they've spent it all. And very few countries in the eurozone are ready for an increase of not doubling, an increase of 10%, 20% of their borrowing costs. So I think that that is one problem. Therefore, it is extremely likely that the ECB will find imaginative ways of maintaining the policy, so TO, TROs, different liquidity injections, repurchases of maturities. They will continue to do that, pretty much like Japan. Pretty much like Japan, so therefore an almost perennial easing policy. The problem is that it becomes part of the liquidity. And the problem is that right now in the eurozone, in Japan, and also in China, those massive injections of liquidity are only helping contain a bit the risk. But they're not helping expand multiples, get people to take more risk, companies to invest more. Companies are not going to invest more because interest rates remain low, when overcapacity, debt saturation, and general business conditions globally are weakening. ROGER HIRST: Sounds like the outlook for next year is that growth starts to contract. Italy doesn't look particularly robust. And the banks are carrying quite a lot of that debt. So what's your view on, let's say, within regions? What's your view on Europe, on Italy, on the European banks? Because the SX7E, we all watch it, but it never seems to take off. In fact, it just go sideways or down. DANIEL LACALLE: European banks have done an admirable job at improving their balance sheet and their capital ratios in a very negative environment, very low interest rates, no inflation, you name it. So you cannot strengthen the balance sheet and at the same time see multiple expansion or improvement in the inequities when there is no real underlying earnings growth. And obviously, profitability is very, very poor. So return on tangible equity is atrocious, all the challenges that we know of European banks. So European banks have on one side, almost $900 billion of non-performing loans. That is a massive burden on them, no matter how the economy moves. Second, they have at the same time more than 100 billion of CoCos, of these debt hybrids that helped strengthen their core capital ratios, but they're almost a weapon of mass destruction because they become a domino effect, a domino negative effect on the equity when the domino start it starts to move to the risk side, no? So the contagion effect remains. But it is true also that they are much stronger than what they were six, seven years ago. And I think that the outlook for the eurozone banks is very challenging because the European Central Bank will continue to keep very, very low rates and will continue to have a policy that continues to drive some bifurcation of the economy. So on one side, it's almost like running to stand still strategy. You have you have governments and the European Central Bank pushing for higher credit growth. And that credit growth is riskier, with lower returns. So in general, what I think is that the eurozone is unable to disguise through monetary policy its structural problems. And its structural problems are aging of the population, overcapacity, lack of productivity growth, and at the same time, an extraordinary high level, especially compared to the US, the UK, Japan, of unemployment. Those factors are all added to a very high level of government spending. The eurozone has, sort of, I would say, convinced itself that the entire problem was the alledged austerity. There's no austerity. It's 40% public spending to GDP. So the solution that they are looking at is further and higher government spending. And government spending is not going to drive, let's say, productivity growth, improvement in the economy, and the changes that the eurozone desperately needs. So it's very likely that the eurozone continues to do what Japan did in the late '80s. And this is what they are doing right now. And therefore, the outcome is likely to be very similar. ROGER HIRST: It sounds like what they're going to be doing is easing themselves through a slowdown in growth. The banks are in a slightly better position. But it sounds like you probably don't want to touch them next year. And therefore, do you think that we're going to continue to see divergence between the European Central Bank and the US, which were the key drivers, particularly at the beginning of 2018? Do you see divergence in 2019? DANIEL LACALLE: Yes, because the US economy, with all of its challenges, is much more robust than the European economy, and because the US economy does not need massive injections of liquidity in order to maintain cheap deficit spending. The US economy has a very strong deficit spending policy from the government. However, it does not require the Federal Reserve to buy those bonds. We have bond yields at 2.98%, with the highest deficit in a few years, no? And in the case of the eurozone, it is not the case. In the case of the eurozone, it definitely needs the support of the European Central Bank because, again, there's no secondary demand. We have to think about this. Throughout the years of QE in the United States, the Federal Reserve was never 100% of the demand for sovereign bonds in the market. So it always kept an eye on the secondary market. Even though it was influencing aggressively the yields of sovereign bonds, it is also true that there was always a secondary market moving around. That is not the case in the eurozone. In the eurozone, the European Central Bank is 100% of the demand for sovereign bonds for the majority of the net financing needs of the eurozone countries. As such, there is absolutely no way of understanding where will investors want to buy Portuguese, Spanish, Italian bonds. And you were mentioning Italy. The situation with Italy is something that we have seen before. We tend to forget because the markets tend to be amnesiac, no? But this has happened before. This happened with Berlusconi. You remember all the criticism about the lack of budget control and lack of adherence to the demands of France and Germany, all these things. We have seen them before. Now, the problem is what will be the solution? The solution will likely be a negotiated one, in which Italy will be allowed to, yet again, go into higher deficits in exchange for tweaking a little bit the budget. But that is not the problem. The problem is that the economic situation of Italy, of Spain, of Portugal, of France is not going to be solved by increasing government spending. It is actually the problem because there's a crowding out effect happening over the time in the private sector. It deters from credit growth. It deters from investment, because with higher government spending comes afterwards higher taxation, more intervention, more administrative burdens, all those things. And that is the problem. The problem is that governments are not a source of, let's say, allowing growth to strengthen. They're almost eating away out of the private sector and growth drivers by perpetuating the imbalances. There's been austerity in the private sector. That is true in Europe. But there hasn't been austerity in the public sector. And most of the improvement and deficit spending of the eurozone countries has come from much lower bond yields. And that has been purely monetary policy driven. Therefore, we need to be, I think, quite cautious. Because if we're seeing the data of Germany, industrial production very weak, consumer confidence, business confidence at the exports, all those factors, from the economy that is strongest in terms of fiscal and trade imbalances, imagine the domino effect into the southern European countries, et cetera. And that is not going to be stopped by saying, oh, instead of purchasing 15 billion bonds per month, we're going to purchase 30. ROGER HIRST: And do you think there's going to be enough global growth to actually prevent a crisis appearing next year? Because I think if there is a global, a proper global slowdown and recession, it's going to be very difficult for Europe. But do you think next year, 2019, will have sufficient growth to prevent a real crisis, and therefore, Europe will be able to fudge its way through again? DANIEL LACALLE: Hm. I think that the signals of recession are very, very vague yet. That doesn't mean that it might not accelerate, because the incremental weakness of data is quite alarming, I have to say, if you look at what was a sort of a moderate slowdown from January to August has accelerated quite a lot in the last months. So my concern is that the way in which governments and central banks are positioned right now, there are no tools to address a much deeper slowdown. If there is a true global slowdown led by China and emerging markets, the eurozone is not able to navigate its way out of it. It will be the same way that it was very levered to the mirage recovery of emerging markets and the economy. It is also very levered to the downside. ROGER HIRST: Domestic Europe looks like it will struggle at the banks because of the issues you've raised. People have always looked to the kind of export side of Europe. And if we look at things like the DAX, which has got this relationship with total social financing, the financing out of China, Q1 is always quite an important time for China in terms of its financing. Do you think China's going to come to the rescue with sufficient liquidity or any liquidity? Or do you think China is caught in a liquidity trap as well? DANIEL LACALLE: China's already caught in a liquidity trap. China has been posting weakening numbers quarter on quarter for more than two years. I think that-- so China made a mistake, in my opinion, the government, I would say, yes, 18 months ago, 2 years ago, when the policy of addressing the increasing debt and the so-called change of model from an industrially intensive to a consumer-driven model was stopped. I think that that was a big mistake. And I think that that was a big mistake because by trying to maintain a level of growth that was clearly unnecessary and absolutely overoptimistic, on the other side it has increased dramatically its imbalances. And I think that China does not have the tools to, let's say, change the course of what it already started two years ago because they are already in a massive expansion mode. They are already in a massive stimulus mode. I mean, this is an economy that is allegedly growing at 6.5%, that has allegedly 3% inflation, and where the government is injecting around $100 billion into the banks almost every quarter, and that is devaluing the currency, and that is implementing massive stimulus policies all over the country. That doesn't compute one with the other, does it? You Don't have an economy that is growing at 6.5% healthily with low inflation and at the same time devalue your currency stealthily, obviously, and impose a massive stimulus. So I think that that is-- we're missing something there. And I think that as we move into 2019, it is very difficult that the solution for the eurozone, for Germany, for the exporting countries comes from China because China is already in stimulus mode. It's not like, oh, my gosh, they're sort of hawkish. No, the interest rates are very low. They're reducing capital requirements. They're reducing the levels of risk that banks need to monitor in order to drive credit growth. It's a stimulus plan in everything probably except in name or in announcement. So I would be extremely cautious about that. I think that the eurozone's, let's say, bullish view was that exports had driven the recovery, and the recovery would cement itself and strengthen through internal demand. That second part is not happening. ROGER HIRST: Next year, do you think-- and we're obviously filming this in sort of early, midDecember. So assuming between now and the end of the year nothing's happened, do you think 2019 is the year that Renminbi actually is allowed to go through? And do you think that's going to be a major element of next year's risk environment? DANIEL LACALLE: Mm-hm. The Chinese government is not aware, or doesn't seem to want to be aware of the fact that the undervaluation is hurting its economy much more than what it intends to sort of address or solve much more. So yes, the trade surplus with the United States is growing. But the level of internal demand, the level of non-performing loans, the level of risk, all of those elements that were driven actually by a strengthening of the purchasing power of the Chinese citizens, all of that is worsening and very, very rapidly. And the temptation of governments to solve their imbalances via devaluation is not a novelty. It's not something that we have just invented. It's something that they will always try to do. So if I had to say what is the risk of the yuan going through 7% versus going back to 6.2%, 6%, 6.5%, I would say that it's a clearly skewed to further devaluation down the line. Oh, my gosh. Look at you. You've played this before. ROGER HIRST: Well I'm sort of hoping and relying on you're hopefully lack-- DANIEL LACALLE: Oh, yes, especially if I start using the ones that are-- ROGER HIRST: Feel free to. Feel free to on that front. DANIEL LACALLE: Mm-hmm. ROGER HIRST: So I've got to now block you. Block and tackle. Next year looks like-- 2019-- probably tricky environment for broad-based equities. So let's move on to broad-based bonds, which is mainly US bonds. The last year was the big debates. Will yields break high, break out the 30-year trend channel and hit 4%? Or will we see a slowdown and therefore yields drop? Where would you be on, let's say, broad-based bonds, forgetting Europe, just the broad US 10-year, the US 30. DANIEL LACALLE: Yeah. The investment world and the financial world is a game of relatives. So imagine that this is a situation you have. All of the governments in the world, defending their financing needs. And all of the corporates in the world, when you listen to third quarter results conference calls when [INAUDIBLE] second quarter results, they're all the time talking about credit. They're not talking about-- they're talking about our balance sheet is stronger. Our cash flow generation is stronger, blah, blah, blah, blah, blah. So everybody is saying to us, bonds are fine. I don't care about the rest. And more importantly, next year, almost 185 countries are going to be deficit spending. That deficit spending is going to be financed. Now, if you look at consensus estimates of those deficits, they're actually quite modest deficits because everybody's assuming that deficits will be lower in 2019 than in 2018. Very unlikely because global growth is slower and because the net financing needs of those governments will actually increase because tax revenues will not be as robust as expected. Therefore, you have wider net financing needs from governments that will finance their deficits. And at the same time, liquidity injections have become part of what we all expect, not that they will be lower. Central banks will continue to ease, to be in easing mode. But the amount of liquidity will be much lower than the net financing needs. As such, what you have is liquidity is not going up dramatically. But net financing needs go up. Therefore, something gives. And as such, the so- called run from bonds to equities never happens. But more importantly, I think that what bonds are telling us right now is that this mirage of the reflation trade that we've been hearing over and over and over again doesn't exist, that this monster money creation that we have seen in the last years, what it does is perpetuate imbalances, perpetuate overcapacity, incentivize higher debt and with that, disinflationary pressures. The situation in China, China slows down, devalues the currency in order to sort of try to solve its imbalances through devaluation, and exports, disinflation to the rest of the world. The United States slows down from the growth of 2018. Deficit spending continues. It detracts liquidity from the rest of the world. What do you buy? German bunds and US 10-years because the risk is not reflation but disinflation. Meanwhile, the rest of emerging markets-- sorry, the main emerging markets are going to hold onto their reserves of foreign exchange as much as they can, as they should and as they have very well done. What does that mean? They will not defend their currencies. So that is disinflationary as well. So I think that the risk of disinflation is something that is what, in my opinion, bond yields are telling us right now. ROGER HIRST: Core bonds are probably a buy in 2019. The other area which has probably been everybody's favorite trade for the last decade has been long, various forms of credit. And if you look at the investment grade in the US total return on things like the LQD, I think it's going to be, by the end of 2018, down 4%, 5% in total returns. And you've talked about this three times the amount of triple B in Europe that there is high yield is 2.4 times than the US, that there is high yield. So there's this, sort of, little time bomb there. What's your view for 2019 on the core credit markets? DANIEL LACALLE: Yeah. The biggest risk in credit markets is in the extremes. The biggest risk in credit markets is in sovereign bonds and in high yield, no? Now, central banks are going to defend sovereign bonds. Don't even doubt about it. They're not going to defend high yield. More importantly, they cannot. So spreads continue to widen and continue to widen. They creep up. They creep up. They creep up. And they creep up as solvency and liquidity ratios weaken. Therefore, the so-called high yields that I call high yield with no yield-- because obviously a 35- year low yields, that is you're basically getting bonds at 4% of companies that are virtually bankrupt, or 5% in some cases. So that is where, let's say, the symptom is likely to tell you to be more abrupt because central banks will be paying all of their attention to sovereign bond yields and keeping them as low as they can, not that they can do a lot, as we have seen in the eurozone, about the spreads rising, but at least not rising as much as they fear. And therefore, it is in the high-yield side. So the ones that strengthen in that environment-- and if you remember the eurozone crisis in 2011, that actually happened as well. The investment grade, the boring companies, these companies in Europe that have better solvency and liquidity ratios than sovereigns, those actually do extremely well. Those actually perform very, very well, while, let's say, that the highest risk side is where you start to see the cracks because it's almost like, going back to the games that I played with my children, it's almost like that game that my children had when they were small, in which you push something and something just goes-- ROGER HIRST: Like whack-a-mole. DANIEL LACALLE: Exactly. Exactly. And something just goes like this, and this is what is likely to happen is that credit spreads in high yield continue to go up, also as banks need to withdraw liquidity and credit growth and refinancing of zombie debt over and over again. ROGER HIRST: It's a chess mentality I see you've got here. I like the speed style. This was actually turning into quite a good, tense game. Oh, I see what you're doing there. But just to change tack slightly, sort of the apex predator as it is, or was, or could be, the dollar. DANIEL LACALLE: Yeah. ROGER HIRST: Get the dollar right, and you probably get your portfolio right in 2019. It sounds like with a divergence, you'd probably be on the side of a stronger dollar in 2019. DANIEL LACALLE: Mm-hm. ROGER HIRST: Do you think we can overtake the previous peak and make a new high on the dollar index? DANIEL LACALLE: Let's start from what has driven the dollar this year, no? The dollar index is in the same trend that it's been for five years, done nothing. If you look at a five-year basis, it's done absolutely nothing, just a little bit, goes a little bit higher, goes a little bit lower. But it's in the same channel. So I'm not worried about the dollar. I don't think that it's strength of the dollar. I think it's weakening of the rest of the currencies and more importantly, stealth devaluation of the yuan. So we need to think all the time, stop thinking about Jerome Powell. Stop thinking about the Fed. Think about Xi Jinping. Think about what is happening in China and whether they need further devaluations of the yuan to sort of address some of their challenges, and/or they think that they do. That is the key. The other part is obviously commodities. Commodities are already telling us that it's going to be very difficult for emerging market currencies to defend their-- for the central banks to defend their currencies because dollar revenues are not coming in. So you have more an environment not of relative strength of the dollar, because of weakening of other currencies. And next year and the year after, 2019 and 2020, is when that massive wall of maturities of emerging market debt in US dollars starts to kick in. And so those governments are going to pay their debts. They're going to pay those bonds in US dollars. Are they going to pay those bonds in US dollars by defending their currency? No, they need to keep their FX reserves. Therefore, my view is that we might see some ups and downs. But the trend of the dollar index, so the dollar relative to its main trading currencies, is likely to creep up higher, in my opinion. ROGER HIRST: And within the emerging markets, would you stay short or maybe not stay short, but would you look to be adding shorts on those countries that were sick dogs through 2018? So this is sort of the famous five, as it were, places like the Turkeys of the world, where you saw that currency weakness. Do you think that those would be still the first choices. Would you think there is going to be others that come in, other contenders that come in to be a good shorts between for 2019 on the currency front and maybe also on the equity front if we see that? DANIEL LACALLE: Yeah. I was recently in Argentina. And I remember that a friend of mine was saying, well, what's the news? This has been ongoing for 70 years. So for some reason, the market has seen what happened in 2018 as an anomaly. But the Turkish lira, the Argentine peso, many of these currencies have been weakening for many, many years. That's why I was mentioning before the five-year dollar index trend, no? The Indian rupee might strengthen because commodities are falling. But in general, the trend for most of these currencies is-- this is the way we need to think about this. Are the governments going to stop financing government spending, excess government spending with printing money? No. Cool. Then you have to be extremely cautious every bump. And you will see, obviously, I mean, we will see ups and downs. But every bump is going to drive the next leg down. The next leg down, by the way, that did not start in 2018. That started before. ROGER HIRST: So what you going to put in your portfolio? Are you going to be long cash? Or is there anything that you actually think you want to be long? DANIEL LACALLE: I would not be-- I would not look at--. We mentioned before that cycles are becoming shorter and more abrupt. So we need to take advantage of those short cycles by being a lot more active. Will we see next year 20% up moves in equities at some point? Absolutely, we will. Absolutely, we will. The excess movements down will lead to excess movement up. The trick is to think that that is a change of trend that. So in my opinion, the long-term trend that we're building is a disinflationary multiple compressing, environment for equities and in an environment in which central banks and governments will continue to defend their sovereign bonds. That is sort of the way that I look at it. And the more that they do that, the more that the disinflationary pressures build because you perpetuate overcapacity. You perpetuate debt, and the thing just keeps zombie-fying itself. However, what does that mean? Bumps, big bumps from time to time. So we're likely to see, in the same way that we saw last year-- this year, sorry, in 2018 and in 2017, some big moves up on the everything is discounted. This is going to be the beginning-of-the-year broker message all over the world is going to be everything is discounted. Our clients are very bearish. And things are not that bad. And it will be true, and it will be true. But it will not last a lot. So what I would do used to be a lot more active. I think that we need to pay-- we need to forget about indices. We need to forget about, sort of, big ETF-driven ideas and think more about companies. There are the companies that with weakening commodities and weakening currencies are going to make a killing. So that is the way that I think about it, be a lot more active. The last 10 years have been driving investors towards passive. And you sort of let yourself be driven by central banks. That is gone. Even if they continue, don't fall into that trap. Then take the opportunity of those big bumps. And what I would say is that that will help shape a view in which if you are not extremely exposed to anything that is reflationary, the big changes will not affect you dramatically. You might, when there's a big move up, not make a lot of money, but you're not going to lose a lot afterwards. I don't think that I should stress enough how aggressive the disinflationary pressures are and how little tools governments have. Those that are betting on helicopter money, on new QE, all those things, fail to see that those things are happening as we speak. As we speak, the Central Bank of England, the Central Bank of Switzerland, Central Bank of Japan, Central Bank of Europe, all of them are on easing mode. Interest rates are extremely low. And we still have negative real interest rates. So I would say be very tactical, very data driven, and very much about individual companies' and individual countries' solvency and liquidity ratios and fundamentals in order to invest. ROGER HIRST: Probably an unfair question given what you just said about trading the year, but 2019, what absolute dog of an asset that you'd sell and one that you'd actually like to own for the year? DANIEL LACALLE: I think that next year US equities will do better than what most of consensus are expecting. I would be in the-- everybody's telling me that consumer goods are very expensive. I like consumer goods. I like defense. I like defense stocks. I like investment grade bonds. I think that investment grade bonds, large, boring multinationals are showing a much better risk reward. Something that I would not like to own next year, the Nikkei. I would be-- it scares me like there's no tomorrow because everybody that's bullish on Japan is bullish based on the mirage of growth. Obviously that never happens. I think that we can establish that that is quite a big challenge. And it's the economy and the market that is most exposed to a slowdown in the Asian theme. ROGER HIRST: And just one final bonus question. Does that mean that the yen is one of the few currencies that strengthens versus the dollar? DANIEL LACALLE: I think so. ROGER HIRST: So towards 100? DANIEL LACALLE: I don't know. But if the picture-- if the global picture that I'm painting is correct, the yen strengthens because it's a currency that benefits from a tremendous amount of savings from its citizens and its companies from outside. So therefore, on a relative basis, despite the challenges of the Japanese economy, which will continue to be the same ones as they have been in the last 20 years, and despite the challenges of the global economy, the yen tends to become a safe haven. ROGER HIRST: This one's a good game, very good game. DANIEL LACALLE: No? Oh, you have, yes. There you go. Congratulations. Well done. ROGER HIRST: Thank you. Daniel. Thank you. As ever, thank you very much for your worldview, your global views, and for playing the game that I can't believe I lost, but anyway. DANIEL LACALLE: No, no, no. ROGER HIRST: It was due. It was due definitely. It is a lot more difficult than one thinks, absolutely. The camera's on, the pressure. That's the reason, isn't it? DANIEL LACALLE: It is the inability to get a simple-- ROGER HIRST: We'll do-- next time. DANIEL LACALLE: Absolutely. ROGER HIRST: Good to have you on once more. Thank you very much indeed. DANIEL LACALLE: We need to play a lot more. ROGER HIRST: Get you kids, get yourself-- DANIEL LACALLE: I've got to get my kids. My kids are the good ones. We should have brought them. ROGER HIRST: I'll tell them--. DANIEL LACALLE: And they probably know more about the dollar than I do. So--. ROGER HIRST: Thank you very much. DANIEL LACALLE: Thank you so much. Absolutely.