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Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along
Speaker 2: with Lisa Bromwitz and Amrie Hordern. Join us each day
Speaker 2: for insight from the best in markets, economics, and geopolitics
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Speaker 2: be looking at a tree of central bank decisions on deck.
Speaker 2: The Fed and BOJ on Wednesday, the Bank of England
Speaker 2: JEW on Thursday. Steve England are of standard charted saying
Speaker 2: the Bank of Japan may be teeing up for a
Speaker 2: rate hike in September, saying the market will be happy
Speaker 2: enough if they give a wink and a nod. Steve
Speaker 2: joins us now for more. Steve, is that what we're
Speaker 2: looking for this week? Winks and nods to September for
Speaker 2: both the BOJ and the Federal Reserve go in opposite directions, exactly.
Speaker 3: One doing the left eye, the other doing the right eye.
Speaker 3: You know, I think the FED is going to leave
Speaker 3: the door open and sound encouraging, but they certainly don't
Speaker 3: want to sound committal. You know, they're going to wait
Speaker 3: and make sure that the data kind of are reasonably consistent.
Speaker 3: But you know, it does sound as if they would
Speaker 3: like to cut in September and justify the market's views, so,
Speaker 3: you know, with a lot of trepidation. I you know,
Speaker 3: this looks like a layup in terms of meeting market
Speaker 3: expectations and not jarring the market too much, So I
Speaker 3: wouldn't expect too much.
Speaker 4: Fireworks out of it.
Speaker 3: Boj you know, more interesting, We don't think they're going
Speaker 3: to cut, but sorry, we don't think they're going to hike.
Speaker 3: But the market only has like twelve basis points priced
Speaker 3: in for September.
Speaker 4: So if they give enough of an indication yeah that.
Speaker 3: We just don't want to talk about tapering and do
Speaker 3: a rate hike at the same meeting, we think the
Speaker 3: market will be comfortable with it as long as they
Speaker 3: don't low ball the papering.
Speaker 2: So Steve, let's take Dolly yen just short of one
Speaker 2: fifty four, a wink and knots on both sides of
Speaker 2: that currency pair sufficient to keep this trend in TAC,
Speaker 2: maintain this journey back towards one fifty and maybe below, you.
Speaker 3: Know, to really get it moving, you know, they would
Speaker 3: have to hike We don't expect that, but that's the
Speaker 3: risk I think to keep it where it is. And
Speaker 3: given that they've upped the importance of the exchange rate
Speaker 3: and you know, I think the kind of wink and
Speaker 3: nod that you know you alluded to, I think that
Speaker 3: that's going to be enough, you know, maybe to keep
Speaker 3: the end sort of slightly stronger, you know, not enormously stronger.
Speaker 3: I think for that we would need them to show that,
Speaker 3: you know, they are moving, and that they're moving, like,
Speaker 3: you know, more aggressively than it is now priced in,
Speaker 3: just to.
Speaker 1: Sort of underscore that, Steve, are you saying that they
Speaker 1: are not going to hike rates and that will sort
Speaker 1: of feel hey for the currency market, or they're not
Speaker 1: going to hike rates and that's going to be devastating
Speaker 1: for the end and it's going to go back to
Speaker 1: where it was versus the dollars say two weeks ago.
Speaker 3: Look to devastate the end, they would have to put
Speaker 3: September in question, and I don't think that's going to
Speaker 3: happen to to sort of you know, but given that
Speaker 3: the you know, if you look at the market pricing, yes,
Speaker 3: they have like five or six basis points priced in
Speaker 3: for this week, but they only have twelve in total
Speaker 3: for September. So I think if they if the market
Speaker 3: walks away saying, yeah, they didn't like we didn't really
Speaker 3: expect them to, but they're good for September, I think
Speaker 3: that's going to be fine for the end. You know,
Speaker 3: like a bunt single, it's not going to be a
Speaker 3: you know, a triple or a home run.
Speaker 5: How much it does a balance team matter.
Speaker 1: Pantheon Macro talking about how that could placate the market
Speaker 1: if they just stop buying as many bonds, do you agree, Well.
Speaker 3: I think they have to, given that they sort of
Speaker 3: justified doing nothing last time by promising that they're going
Speaker 3: to lay out their path, and they do have to
Speaker 3: sort of announce a significant cut if they you know,
Speaker 3: the other down or risk for yen weakening is if
Speaker 3: is if the you know, the pace of balancing reduction
Speaker 3: is so slow that the market says it's not meaningful.
Speaker 3: But again, we think that they will give enough of
Speaker 3: a you know, indication of the pace on the balance
Speaker 3: sheet front loaded enough that should be all right.
Speaker 4: For the end. I think that it's going to be
Speaker 4: consistent with market expectations.
Speaker 2: Steve. That's bond buying in Japan. It could have some
Speaker 2: implications for the kind of buying that takes place here
Speaker 2: in the United States as the supply starts to ramp up.
Speaker 4: Steve.
Speaker 2: You've seen all the articles or the studies on the
Speaker 2: so called activist Treasury issuance. Steve, what's your understanding of
Speaker 2: what ATI actually is and how much weight do you
Speaker 2: put on it.
Speaker 3: I think ATI is a modern version of, you know,
Speaker 3: what was done sixty years ago in terms of operation
Speaker 3: twists that you kind of reduced issue and set the
Speaker 3: long end, takes the pressure off the long end of
Speaker 3: the bond market. You issue at the short end, and
Speaker 3: that's you know, kind of you end up with a
Speaker 3: flatter yield curve. And you can kind of see that
Speaker 3: that's what they've been doing the last couple of years,
Speaker 3: except that they haven't been doing it the last couple
Speaker 3: of months. So it's one thing to say that they're
Speaker 3: trying to take the pressure off the long end.
Speaker 4: But given that they haven't been doing.
Speaker 3: That kind of issuing this year, it's not an explanation
Speaker 3: for why, you know, ten year bond yields are four
Speaker 3: fifteen now, down from four to seventy at the end
Speaker 3: of at the end of April.
Speaker 4: Also, I think that they overstate the.
Speaker 3: Impact or some you know, commentary overstates the impact in
Speaker 3: the sense of talking about it being equal to one
Speaker 3: hundred basis points of cuts. You know, I think that
Speaker 3: that's not quite there because what we've seen VAI that's
Speaker 3: being grown even if you assume twenty five basis points
Speaker 3: at the long end, is what if the long yield
Speaker 3: goes down by twenty five basis points and FED funds
Speaker 3: is held flat, it's not that's cut FED funds by
Speaker 3: one hundred that's going to take the long end by
Speaker 3: twenty five and that's going to have a big impact.
Speaker 3: I mean, intuitively, we've had the long end swing twenty
Speaker 3: five basis points four or five times this year, and
Speaker 3: we haven't seen any trauma in the market.
Speaker 4: You know, people like us have trauma. You know, people
Speaker 4: you know and asset markets worry about it.
Speaker 3: But it's not as if economic activity seems to be
Speaker 3: visibly affected by that kind of move at the long
Speaker 3: end as long as the Fed isn't actually moving and
Speaker 3: now the market's waiting for the Fed to move.
Speaker 5: Well, see, let's put this on his head.
Speaker 1: What if the Treasury comes out this week and says
Speaker 1: that they're much more heavily waiting the issue is going forward.
Speaker 5: To the long end.
Speaker 1: How big would the reaction be in terms of yields
Speaker 1: rising on the tenure on the thirty year.
Speaker 3: Well, you know, I think the market kind of expects,
Speaker 3: you know, to continue in the direction that they've been going.
Speaker 4: Lately.
Speaker 3: They I mean, if they do issue at the long end,
Speaker 3: you know, a locked I think it could matter, but
Speaker 3: I actually think it's more second order. I mean, it matters,
Speaker 3: but it's not you know, and it's going to matter
Speaker 3: in terms of you know, do yield stay where I
Speaker 3: just saw them like four fifteen, four seventeen, Probably not,
Speaker 3: but it's not going to take them to four seventy.
Speaker 3: It's going you know, ten basis points, twenty basis points maximum. Again,
Speaker 3: it matters, but it's it's a second order in terms
Speaker 3: of the economy.
Speaker 2: That's what about four sixty eight this morning? State it's
Speaker 2: going to catch up State England and standard chartage. So
Speaker 2: here's the latest coming into this way, Donald Trump and
Speaker 2: Kamala Harris hitting the campaign trail, Harris heading to Georgia
Speaker 2: tomorrow and Trump returning to Butler, Pennsylvania on Wednesday. The
Speaker 2: latest Wall Street Journal poll showing Harrison Trump neck and neck.
Speaker 2: Jeanette larstatigue it's a bed company joined us now for more, Janet.
Speaker 2: If the Democratic ticket was a stark, we'd call this
Speaker 2: a post Biden relief rally, and we'd all be asking
Speaker 2: questions about the earnings releases in the quarters to come,
Speaker 2: and I'd be sitting here saying, what makes it durable?
Speaker 2: Tell me the fundamentals that supports this going forward from here?
Speaker 2: Can you point to what those fundamentals would be for
Speaker 2: Kamala Harris?
Speaker 6: Well, I think the biggest thing that we've seen in
Speaker 6: this race is you know that there was this absolutely
Speaker 6: lack of momentum or enthusiasm from most Americans about the
Speaker 6: two candidates they have, and so Biden getting out of
Speaker 6: the race, we were really starting to see his numbers
Speaker 6: go down since the debate. He was really starting to
Speaker 6: go impact down ballot races across the country and that's
Speaker 6: really where we're starting to see the change. With Kamala
Speaker 6: Harris at the top of the ticket, you're seeing the
Speaker 6: pulling revert.
Speaker 5: Back to where it was pre debates.
Speaker 6: You have state it's like Pennsylvania, Wisconsin, and Michigan all
Speaker 6: within the.
Speaker 5: Margin of error.
Speaker 6: You have an enthusiasm, a gap closing, which you saw
Speaker 6: that in a poll over the weekend, and you're starting
Speaker 6: to really see people just engage all of the calls
Speaker 6: that happened over the past few days of people really
Speaker 6: getting engaged back into the campaign and the Democratic side.
Speaker 6: That's what's really changed. Obviously, it's just been one week,
Speaker 6: so we still have a lot more to see what
Speaker 6: actually happens. How does this messaging start to play out.
Speaker 6: If we do have a new debate in September between
Speaker 6: Trump and Harris, does that change the dynamic just because
Speaker 6: then you'll now actually see the policy differences between the
Speaker 6: two candidates, and that'll be important to see. But the
Speaker 6: momentum factor has really what's kind of changed the race.
Speaker 2: Here, Jeannette. With Biden at the top of the ticket,
Speaker 2: we were talking almost exclusively as one path, one path
Speaker 2: towards victory potentially, and that path was narrowing and it
Speaker 2: was a russ bout and you just alluded to it.
Speaker 2: Politico reporting over the weekend that maybe, and I think
Speaker 2: you might agree with this, we've reopened the conversation about
Speaker 2: some bout states. Would you agree with that?
Speaker 6: I would you know, we did see there was an
Speaker 6: Emerson poll that came out last week that showed Harris
Speaker 6: really closing the gap, particularly in Georgia.
Speaker 5: So that's important.
Speaker 6: So I think that's one of the states that she's
Speaker 6: really going to be looking to. We haven't seen a
Speaker 6: lot of polling coming out of North Carolina yet, but
Speaker 6: I know that that's another state that she would like
Speaker 6: to target.
Speaker 5: The Democrats.
Speaker 6: I've been targeting that for quite some time a couple
Speaker 6: of cycles, trying to see if they could flip that
Speaker 6: state from red to blue. So she does actually open
Speaker 6: up the map, she has more options if she were
Speaker 6: to win or sorry, if she were to lose one
Speaker 6: of the Blue Wall states, she could potentially win one
Speaker 6: of the Sun Belt states and that could actually still
Speaker 6: help her get over the finish line.
Speaker 1: Jenett, how important will be her running mate to determine
Speaker 1: how much she can really gain in the Sunbelts, especially
Speaker 1: given that we now have a shortlist of about three
Speaker 1: Arizona Senator Mark Kelly, Pennsylvania Governor Josh Shapiro, and Minnesota
Speaker 1: Governor Tim Waltz, Right, So, I.
Speaker 6: Mean, I think one of the things that's interesting is
Speaker 6: that general vice presidential canon does not do a lot
Speaker 6: for the presidential ticket. They can only usually but they
Speaker 6: can also subtract, but they don't usually add very much.
Speaker 6: In the past, it's been easier for a vice presidential
Speaker 6: candidate to actually win their state. That's been less true
Speaker 6: and more recent cycles. But I think Harris has some
Speaker 6: options here. She's has been looking at more of the
Speaker 6: moderate candidates along the lines of.
Speaker 5: Mark Kelly or Josh Shapiro.
Speaker 6: Tim Walls would be a little bit more progressive than
Speaker 6: the other two, so that would be a potential change
Speaker 6: if she's going to now have more of a progressive
Speaker 6: ticket than a progressive moderate ticket. But Arizona is one
Speaker 6: of the states where she's not doing particularly well based
Speaker 6: on current polling, so Mark Kelly can certainly help her
Speaker 6: with that.
Speaker 5: He also provides this.
Speaker 6: National security, this defense component that she may be lacking,
Speaker 6: which can be very helpful to her. Jos Shapiro, I
Speaker 6: think can help her deliver Pennsylvania, so she's worried at
Speaker 6: all about getting that. That is a key attribute of him,
Speaker 6: and he can also help her in the other blue
Speaker 6: Wall states like Michigan and Wisconsin. But I think that
Speaker 6: they're also thinking that Tim Walls is going to be
Speaker 6: a really good bulldog on this stage. That is something
Speaker 6: that you generally do look for and a vice president.
Speaker 6: And also he is from a state that Trump is
Speaker 6: targeting in Minnesota, and so that can help make sure
Speaker 6: that that state is shorn up, but then also help
Speaker 6: in other Midwestern states.
Speaker 1: Jenna Libby Cantrell of PIMCO came on here and said
Speaker 1: we should all just have cocktails, go away for August,
Speaker 1: to come back in September and take a look at
Speaker 1: the polls, so then we can actually discuss who is
Speaker 1: in the front seat to really be the front leader
Speaker 1: heading into the election. Michael Visus of Mark and Stanley
Speaker 1: over the weekend, the business cycle is likely to matter
Speaker 1: mortar markets in the election cycle the next few months.
Speaker 1: Jeanette from a policy perspective, why is it so important
Speaker 1: to really watch the policies at a time where you
Speaker 1: said this election is still a referendum on the speed
Speaker 1: of deglobalization.
Speaker 6: Yeah, so, I mean, I think this is really important
Speaker 6: that for one thing, that this race, now that we
Speaker 6: have Harris at the top of the ticket, it's moved
Speaker 6: from less of a referendum on Biden and his acuity
Speaker 6: to its choice about policy and so over the you know,
Speaker 6: we have less than one hundred days to go, and
Speaker 6: Harris still kind of needs to figure out some of
Speaker 6: her policy positions. Is she going to continue the policies
Speaker 6: that she had as twenty nineteen twenty twenty candidate? Is
Speaker 6: she going to potentially moderate some of those positions? And
Speaker 6: this is going to be a race to the finish line.
Speaker 6: This is much less like what you would normally see
Speaker 6: in a US election, where we have nine months of campaigning.
Speaker 6: So I do think that the next couple of weeks
Speaker 6: will be quite important. What happens at the DNC, what
Speaker 6: happens at that convention, What kind of policy proposals are
Speaker 6: you seeing, are you seeing momentum That is going to
Speaker 6: be a key component of this. But there is still
Speaker 6: vast differences between the two candidates on trade, on taxes,
Speaker 6: on regulation policy, and that's going to be really important
Speaker 6: for this election.
Speaker 5: That's what investors are really focused on.
Speaker 6: What does Trump versus Harris mean for trade, what do
Speaker 6: they mean for tax policy, and what do they mean
Speaker 6: for regulation? And I think that's where we really have
Speaker 6: to be kind of focused over the next couple of months,
Speaker 6: and you do start to see the elections start to
Speaker 6: price in. You know, we do have a metric that
Speaker 6: shows that the market can actually predict some about eighty
Speaker 6: percent of the time whether or not the incumbent party
Speaker 6: is going to win or the party out of power
Speaker 6: is going to win.
Speaker 5: And that starts around August fifth.
Speaker 2: We should do this every time, just one hundred days,
Speaker 2: just a sprint to the finish, Jeanette low as you
Speaker 2: take us, Janette, thanks you. Big week of central bank
Speaker 2: decisions coming right up with the Fed very much in focus.
Speaker 2: The FMC widely expected to keep rates on hold this Wednesday,
Speaker 2: but set the States for a September rate cup. Joining
Speaker 2: us now to discuss is James Camp of Eagle Asset
Speaker 2: Management alongside Zach Griff. It's a credit site, Jent. It's
Speaker 2: great to catch up with you both. Zach. I want
Speaker 2: to come to you first, give us a read on
Speaker 2: what you expecting this Wednesday and how it might set
Speaker 2: us up for what could happen in September.
Speaker 5: Yeah, John, we.
Speaker 7: Are looking for the Fed to make adjustments to its
Speaker 7: policy statement to indicate more of a concern in terms
Speaker 7: of the labor market, or at least dial back their
Speaker 7: assessment of strength in the labor market and continue to
Speaker 7: emphasize progress on the inflation front. We expect Sherman Pole
Speaker 7: to indicate a willingness to cut in September. We don't
Speaker 7: think he'll be very explicit and saying that they will cut,
Speaker 7: but keep options open, keep that data dependent, Mantra. We
Speaker 7: think that data supports a cut in September.
Speaker 2: James, Of course, we're all much more interested in the
Speaker 2: one hundred basis points after that. If the risk one
Speaker 2: hundred basis points after that, what is the destination you
Speaker 2: think this Fed is heading towards? And what kind of
Speaker 2: economic regime do you think we're in? The guides that.
Speaker 4: Well, good morning, good to be with you.
Speaker 8: We're in a reflation regime, right, but the anchoring that
Speaker 8: we had in the post financial crisis period up to
Speaker 8: COVID is gone, and we have a new economy, and
Speaker 8: that new economy has more stubborn inflation and we've written
Speaker 8: about on shore, We've written about pricing power, We've written
Speaker 8: about a tighter labor market. I think the FED does
Speaker 8: cut in September. This is the clearest data that they're
Speaker 8: going to have to give them that opportunity. But the
Speaker 8: base effects and some of the inflation in NURSO is
Speaker 8: going to come back in the fourth quarter.
Speaker 4: So I don't consider this a FED pivot.
Speaker 8: I consider this effect sort of getting back to sort
Speaker 8: of more normal.
Speaker 4: On the funds rate.
Speaker 8: But I wouldn't extrapolate this September meeting, which is likely
Speaker 8: to be at maybe even fifty by points, into a
Speaker 8: protracted policy adjustment over the next couple of quarters. This
Speaker 8: is a late twenty twenty five kind of phenomenon where we'll.
Speaker 4: See what the terminal rate will actually be, but that
Speaker 4: number is not immited.
Speaker 1: Well, ont a second, James, did you just say that
Speaker 1: there's a real possibility that the FED will cut by
Speaker 1: fifty basis points in September.
Speaker 4: Yeah.
Speaker 8: I do think that's the case, Lisa, because I think
Speaker 8: that this is going to be the clearest data that
Speaker 8: they'll have to give them the inflation cover and I
Speaker 8: think they've wanted to move the last couple of hikes
Speaker 8: off the table.
Speaker 4: So I think this is the window.
Speaker 8: This is kind of a little bit of spinballing with
Speaker 8: the inflation data, but we know if we look at
Speaker 8: the data series, it's not going to get easier to
Speaker 8: make the inflation case in the back half of twenty
Speaker 8: twenty four.
Speaker 1: Okay, So this is basically they have an opening. So
Speaker 1: let's go let's go full.
Speaker 5: I mean, Zach, what do you make of that?
Speaker 1: Do you think that that's a feasible possibility that the
Speaker 1: Fed's going to cut by a half a percentage point?
Speaker 7: That's not our base case, Lisa, and I think that
Speaker 7: would perhaps spook the market a little bit and terms
Speaker 7: of that big of an adjustment when just a couple
Speaker 7: weeks ago, policy makers were saying they need to see
Speaker 7: a lot more data in terms of being confident we're
Speaker 7: sustainably moving back to two percent. So I'd almost think
Speaker 7: of that as having the same impact as cutting this week,
Speaker 7: showing the market perhaps there's more to be concerned about.
Speaker 4: So that's not our base case.
Speaker 7: We do think the FED is going to be easing
Speaker 7: at a steady clip once they go in September, really
Speaker 7: trying to bring that policy rate back towards something that
Speaker 7: looks at least.
Speaker 5: A little bit more like neutral.
Speaker 7: We think we're coming from a pretty restrictive rate now,
Speaker 7: which is not what the economy needs. We're seeing signs
Speaker 7: of slowing, especially in the consumer. We expect that to
Speaker 7: be a bigger market driver in the second half of
Speaker 7: this year and into twenty twenty five.
Speaker 2: Is that just to be super clear, are you making
Speaker 2: a growth call here, non inflation coal.
Speaker 7: Well, that was a call on growth coming down. We
Speaker 7: think moving back toward below potential is what you're going
Speaker 7: to see over the next twelve months. We've had extremely
Speaker 7: strong growth and still had inflation come down quite a bit.
Speaker 7: So we think with inflation where it is, the Feds
Speaker 7: starting to ease, we're already seeing signs that the economy
Speaker 7: is cooling. We think that continues and starts to have
Speaker 7: a bigger impact from a fundamental perspective on where credit
Speaker 7: spreads go from here, which is why we're in a
Speaker 7: bit more of a defensive camp than we have been
Speaker 7: for much of the past two years.
Speaker 2: You've set us up with the market conversation. Let's go there.
Speaker 2: Let's say on it, Zach. If you're looking for wider spreads. Potentially,
Speaker 2: where's the ten year what kind of level of credit
Speaker 2: spreads are you looking for into the growth slow down
Speaker 2: your expect and is going to trigger quite an easy
Speaker 2: from this feder reserve.
Speaker 7: So we're looking for the ten year to go back
Speaker 7: to three and a quarter at the end of the
Speaker 7: first half of twenty twenty five, John, So that's a
Speaker 7: pretty big move lower from where we are today, and
Speaker 7: we have investment grade credit spreads going to one hundred
Speaker 7: and twenty basis points, high yield to four hundred basis points,
Speaker 7: So not a terribly huge move in terms of spread widening.
Speaker 7: As we think the technicals, the cash on the sideline
Speaker 7: and plenty of cash that we think wants to be
Speaker 7: put to work in other asset classes provides an offset
Speaker 7: to more of this fundamental concern we're expecting to be
Speaker 7: driven by a more notable economic slowdown than what's currently
Speaker 7: priced into consensus expectations at this point.
Speaker 1: This is great because both of you kind of highlight
Speaker 1: the two sides of the debate right now, and then
Speaker 1: I think is a wonderful thing to have. James, it
Speaker 1: seems like you're more constructive. You think that the FED
Speaker 1: is going to cut for the right reasons. They have
Speaker 1: an opening to do so to prolong the economic cycles Act.
Speaker 1: You seem a little bit less constructive, James. What makes
Speaker 1: you think that this is going to be a good
Speaker 1: kind of rate cut in the sense that it's just
Speaker 1: simply to adjust policy mid cycle to allow growth to continue.
Speaker 8: I think there's two There's two financial conditions we have
Speaker 8: to look at. For you, for large cap big companies,
Speaker 8: financial conditions are extremely loose. For down market consumer, this
Speaker 8: is the bottom eighty percent of our income strata. Credit
Speaker 8: card debt is high, credit card payments are high, and
Speaker 8: the federal reserve policy has directly impacted those downmarket consumers.
Speaker 4: The credit conditions in the capital markets are still loose.
Speaker 8: You know, equities at all time lies, the vislow credit
Speaker 8: spreads is you're the guests just mentioned very tight.
Speaker 4: We have a very bifurcated economy, and I think the
Speaker 4: centers are has to be.
Speaker 8: Mindful of the fact that housing affordabilities in forty year
Speaker 8: lows that the downmarket consumer is under significance train and
Speaker 8: we saw that with some consumer discretionary earnings this morning.
Speaker 4: So I think this is more.
Speaker 8: An opportunity to window to kind of get right or
Speaker 8: closer to where the policy should be. But I will
Speaker 8: tell you that the inflation data is not going to
Speaker 8: be constructive in the back half, and they're not going
Speaker 8: to have this sort of wide open field to begin
Speaker 8: a real significant easing cycle for the next couple of quarters.
Speaker 1: Well, James, so do you agree with Zach that that
Speaker 1: means probably a wider credit spreads than you could end
Speaker 1: up seeing. Maybe a little bit And I'm just extrapolating here,
Speaker 1: putting words in Zach's mouth, he can correct me. But
Speaker 1: basically potentially a reversal of the small caps and a
Speaker 1: sort of reversal of just sort of this belief in
Speaker 1: a cyclical trend.
Speaker 5: Do you think that we're going to see that kind
Speaker 5: of response.
Speaker 1: Or do you think that people are going to welcome
Speaker 1: some sort of adjustment by the FED as allowing that
Speaker 1: to sort of right size itself to allowing the cycle
Speaker 1: to continue.
Speaker 8: Yeah, I think it's the latter, And I don't think
Speaker 8: corporate spreads are bound much much wider from here. There's
Speaker 8: a lot of demand. We know that at peak FED,
Speaker 8: which we certainly can both agree, I think we're in
Speaker 8: teak FED. That corporate credit that municipal credit that bonds
Speaker 8: outperform every time. Go back to nineteen eighty nine, you
Speaker 8: have five FED tightening cycles, and at peak FED you
Speaker 8: have great returns to fixed income and you have great
Speaker 8: returns to dividend dibbit growers.
Speaker 4: And as you mentioned, that rotation that.
Speaker 8: Began July eleventh with the more benign inflation data into
Speaker 8: small cap out of megatech that is also boo the
Speaker 8: dividend trades.
Speaker 4: So what we have now is a.
Speaker 8: Very generous income market for investors, and we also have
Speaker 8: a market that will be underproductive for cash.
Speaker 4: Cash hields today will not.
Speaker 8: Be cash returns over the next twelve months, and clients
Speaker 8: and investors that have money to invest, the income space
Speaker 8: looks extremely generous, both on the dividend and on.
Speaker 4: The dead side.
Speaker 2: Zach, I want to give you the final words. You
Speaker 2: can use your own words.
Speaker 7: Your response, well, I think the huge differentiator here is
Speaker 7: are you a total return or access return focused investor.
Speaker 7: We think the next twelve months look very solid from
Speaker 7: a total return perspective. If you're focused on that access
Speaker 7: return and that credit spread component, it's a little more difficult,
Speaker 7: and so overall we do think it is a positive
Speaker 7: environment for fixed income, but starting to see that spread widening.
Speaker 7: If you're a credit an access return focused investor, you
Speaker 7: need to keep an eye out for that.
Speaker 2: Gents, this was great. Zacharrith is a credit sized James
Speaker 2: Camp of Vego Asset Management, thank you very much, looking
Speaker 2: ahead to a massive week with the Federal Reserve and
Speaker 2: all that day to come and right up.
Speaker 1: You know, we didn't even get to the quarterly refunding announcement.
Speaker 1: And you know who is going to talk about that,
Speaker 1: Zach Griffith. So we'll have to have him back sometime
Speaker 1: because he was saying espectionally yeah, really significant. He said
Speaker 1: that actually could be you know market, Look, okay, is.
Speaker 2: Zach still there? Can I find out? Is he still there?
Speaker 2: If we let him go, they're going to find out
Speaker 2: for you. All right, we can do this in real time,
Speaker 2: chase the home all right, all right?
Speaker 6: We good?
Speaker 2: Letting go?
Speaker 4: Yes?
Speaker 2: You say right now is yeah, I've got it back
Speaker 2: in you want to forgive it?
Speaker 5: Yez?
Speaker 1: Just quickly before we let you go and we brought
Speaker 1: you back on just for this. How important is the
Speaker 1: quarterly your funding announcement?
Speaker 7: We think it's important, but we're not expecting any major
Speaker 7: changes this week.
Speaker 4: I'd be focused on.
Speaker 7: What happens this afternoon with the quarterly borrowing estimates. I
Speaker 7: think that's more likely to surprise the market than what
Speaker 7: we hear on Wednesday morning. But that's going to be huge.
Speaker 7: There's a lot of focus on it now. It's something
Speaker 7: I've focused on for many years. I'm surprised to see
Speaker 7: how much it's in the market overall, no change. We're
Speaker 7: not expecting that to outweigh the shift in monetary policy
Speaker 7: and the economic landscape which pulls yields lower.
Speaker 2: Well, that was anti climac Thanks for jumping back, Sack,
Speaker 2: appreciate it. Thank you, zach Ri. It's there a credit size.
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