Speaker 1: Bloomberg Audio Studios, Podcasts, radio news.
Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along
Speaker 2: with Lisa Bromwitz and a Marie Hordern. Join us each
Speaker 2: day for insight from the best in markets, economics, and
Speaker 2: geopolitics from our global headquarters in New York City. We
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Speaker 2: Bloomberg Terminal and the Bloomberg Business App. Brian Levitt of
Speaker 2: Invesco writing, tariffs are likely to lead to a more
Speaker 2: volatile investment environment rather than result in a bear market
Speaker 2: for equities. I would not expect a broad decline in
Speaker 2: risk assets or a recession in the economy. Brian joined
Speaker 2: us now for more bran, good morning, good to see you,
Speaker 2: Nice to see it too. Where does that more optimistic
Speaker 2: view come from? What underpins that?
Speaker 3: So?
Speaker 4: What underpins it is ultimately a belief that we will
Speaker 4: start to see or move towards greater clarity. But that
Speaker 4: gets called into question the longer that this persists. So
Speaker 4: my view in writing it was Ultimately the administration will
Speaker 4: provide greater clarity around this look. Tariff's result in less
Speaker 4: optimal outcomes.
Speaker 5: But as long as we know the rules of the game,
Speaker 5: businesses will get through it.
Speaker 4: And of the belief that you know, the Federal Reserve,
Speaker 4: given the recent inversion in the Y'll curve, will start
Speaker 4: to sound the more dubbish signal. But the longer it
Speaker 4: takes for us to get there were a greater risk
Speaker 4: of these things happening.
Speaker 2: When things like this do happen, they happen often. We
Speaker 2: have these growth scartes. You're waiting for that cathartic moment,
Speaker 2: Peter Sheev Academy said, this is the first day that
Speaker 2: feels like a real washout has been occurring. Mister Krinsky
Speaker 2: over at BTIG, Jonathan saying, if you were hoping for
Speaker 2: an entry point, this is your chance. Have we had
Speaker 2: that cathartic moment yet?
Speaker 4: I'm not sure we've had the full cathartic moment. I mean,
Speaker 4: I went back yesterday though, and I looked at yesterday.
Speaker 4: It was the ninety third worst day of the Nasdaq
Speaker 4: in thirty years. So let's put it into some perspective.
Speaker 4: I went back, I'm not the best at Excel. I'm
Speaker 4: almost fifty years old, but I brought up my Excel
Speaker 4: spreadsheet and I looked at the other ninety two worst
Speaker 4: days and said, well, what if I added money on
Speaker 4: each of those days? What if I withdrew money on
Speaker 4: each of those days? And obviously you were better off
Speaker 4: adding money on each of those bad days.
Speaker 5: Right, So I think.
Speaker 4: Most investors don't think that way, So you don't necessarily
Speaker 4: need the cathartic moment. I don't think we're there yet.
Speaker 4: I think there's more to go in terms of a
Speaker 4: bottoming process. But even if you're investing in you're halfway
Speaker 4: through a correction.
Speaker 5: Historically that's been quite good for investors. More to go.
Speaker 3: What needs to happen for that cathartic moment and then, frankly,
Speaker 3: for a steady climb upward. What kind of information do
Speaker 3: people need to say.
Speaker 5: We need clarity?
Speaker 4: I think Jonathan said the exact right word, which is
Speaker 4: we need policy clarity. And I go back to twenty
Speaker 4: eighteen thinking about what was going on then when we
Speaker 4: were dealing with the US China trade war. So what
Speaker 4: ultimately led to a bottoming in the market The United
Speaker 4: States and China got together and said, okay, truth that
Speaker 4: doesn't fully eliminate uncertainty. But ninety day truths, Federal Reserve
Speaker 4: came forward and said, all right, we're done raising rates.
Speaker 4: We may even be lowering rates in twenty nineteen. And
Speaker 4: that type of policy clarity is how you start to
Speaker 4: move forward. So long as we're in this environment where
Speaker 4: consumers don't know the rules, businesses don't know the rules,
Speaker 4: you're going to be challenged for a while.
Speaker 3: Right now, the bulls on the street are basically coming
Speaker 3: out and telling us, doesn't really matter if we have
Speaker 3: ongoing policy uncertainty on the fiscal side. As long as
Speaker 3: the Fed comes out and rescues markets, as long as
Speaker 3: they cut rates by enough, then you end up with
Speaker 3: a rally and a supported market.
Speaker 4: Do you agree, Well, it can't hurt, But I think
Speaker 4: you're going to need it beyond just the Federal Reserve
Speaker 4: this time. You can't be making the cuts that you're
Speaker 4: making on the fiscal side and creating the uncertainty you
Speaker 4: have on the trade side and think that the Fed
Speaker 4: oor Reserve alone just bringing rates to neutral can solve this.
Speaker 4: I mean, the reality is most Americans have fixed rate
Speaker 4: mortgages anywhay. Most Americans didn't recognize the move up and rights.
Speaker 4: They're not necessarily going to feel it on the move
Speaker 4: down either. So you're going to need more than that.
Speaker 4: You're going to need trade and fiscal policy. Get to
Speaker 4: a place where we understand where it's going when.
Speaker 5: It comes to trade, though.
Speaker 1: That uncertainty is why Donald Trump thinks he can have
Speaker 1: this negotiating power. How long do you think the market
Speaker 1: could sustain this uncertain period, because it could.
Speaker 5: Be months, Well, it could be months. I mean, I
Speaker 5: don't know.
Speaker 4: So the word sustain, I mean we can fall further
Speaker 4: from here, right, I mean we were used to five
Speaker 4: to ten percent corrections. They happen every year. Greater than
Speaker 4: ten are less frequent, but they're almost always the result
Speaker 4: of policy uncertainty, and so the market could continue to
Speaker 4: feel pressure from it until you finally understand what the
Speaker 4: rules were going to be.
Speaker 1: Do you sense there's a pain threshold within this Trump
Speaker 1: two point zero?
Speaker 4: We certainly hope so, right, you know, I mean the
Speaker 4: idea of that Trump put is being called into question
Speaker 4: right now. But ultimately I don't think this an administration
Speaker 4: that wants to see the markets moving the way.
Speaker 5: They are now.
Speaker 4: They may have an ideology around trade that they want
Speaker 4: to pursue and they're not going to move away from it.
Speaker 5: But let's let's.
Speaker 6: Get with it.
Speaker 4: Let's let's figure out what the rates are, what the
Speaker 4: tariffrates are going to be, and let's move on.
Speaker 2: Twenty eighteen. They tolerate sed much more than this, didn't they.
Speaker 5: Ye twenty eighteen we were down twenty percent.
Speaker 2: Is that what you're looking for now?
Speaker 5: It seems like you're moving towards that. I mean right now.
Speaker 4: The SMP's down eight and a half percent. I mean
Speaker 4: we were down eight percent when the Bank of Japan
Speaker 4: raised interest rates once last year. So this seems a
Speaker 4: little bit more challenged of an environment than that. Again,
Speaker 4: I come back to the fact, though, if you're an
Speaker 4: investor and you invest halfway through a downturn, you should
Speaker 4: be okay. So let's not try and get too cute
Speaker 4: with this. But it doesn't feel like the bottom is
Speaker 4: in you.
Speaker 2: Consumer discretionary is down twenty percent from the recent highs
Speaker 2: led by Tesla, of course, but the airlines have stud
Speaker 2: its participate down to this morning, down by something like
Speaker 2: eleven percent. What do you do with consumer exposed names.
Speaker 2: When you hear Advasti in the town to CEO say
Speaker 2: things like mid February consumer business purchases activity just tried
Speaker 2: to stall. He says, it's going to be transitory. Do
Speaker 2: you think it's going to be transitory.
Speaker 4: I do think it'll be transitory because this was an
Speaker 4: economy that came in with fundamental strength the consumer, where
Speaker 4: household net worth is at all time highs, where the
Speaker 4: unemployment rate was near all time low. So it's a
Speaker 4: consumer that's coming into this in good shape. It's a
Speaker 4: consumer that's not over levered. It's an economy that's not
Speaker 4: over levered. We were in a good backdrop. The consumer
Speaker 4: right now is tightening their belt a little bit because
Speaker 4: they don't know. You know, if they work for the
Speaker 4: federal government, you're not sure what your employment picture is
Speaker 4: going to look like. If you're in the market, you're
Speaker 4: not entirely sure your household net worth is going so
Speaker 4: you tighten your belt a little bit. But it doesn't
Speaker 4: feel like a recessionary environment.
Speaker 5: Now.
Speaker 4: Could you get there with a prolonged period of uncertainty, sure,
Speaker 4: But when you look at the usual indicators on a
Speaker 4: path to a recession, big leverage, big excess, corporate bond
Speaker 4: spreads blowing out.
Speaker 5: None of that.
Speaker 4: Exists today, and until corporate spreads really start blowing out,
Speaker 4: I'm not ready to think of this as a much
Speaker 4: more meaningful downturn, severe recession. It's just not what the
Speaker 4: picture is telling us right now.
Speaker 3: Initially a lot of Wall Street firms agreed with you,
Speaker 3: but the downgrades have started to pour in. We've seen
Speaker 3: it from HSBC, We've seen it from Golden Sax and
Speaker 3: JP Morgan, City Group coming out downgrading the US equities
Speaker 3: to neutral and upgrading Chinese equities.
Speaker 5: At what point would you agree.
Speaker 3: With them and say that, actually, at the very least,
Speaker 3: to quote City Group, US exceptionalism atas is at least
Speaker 3: on pause.
Speaker 4: Well, we're upgrading European equities as well. I mean, we've
Speaker 4: increased our exposure to European equities earlier this year. And
Speaker 4: why it's not complicated leading indicators in Europe we're climbing.
Speaker 4: The economic indices were surprising to the upside. The European
Speaker 4: Central Bank was easing. It was a better mix versus
Speaker 4: sentiment in the United States declining in a period where
Speaker 4: valuations were more heightened. So you're getting these cyclical bounces.
Speaker 4: I always say these markets, everyone's waiting for things to
Speaker 4: be good in Europe.
Speaker 5: No markets move on better or worse. By the time
Speaker 5: you wait for.
Speaker 4: Good, it's already happened. The bigger question on Europe now
Speaker 4: is not just the cyclical bounce.
Speaker 5: Is this something more structural?
Speaker 4: And with the investment that you're seeing, the borrowing that
Speaker 4: you're likely to see out of Germany, is this more structural?
Speaker 5: They have a chance.
Speaker 4: Now, can we get twenty seven countries to agree on it.
Speaker 4: We'll find out, but there is certainly a chance. And yeah,
Speaker 4: I mean sometimes it's real simple. If you're easing policy,
Speaker 4: it's a better backdrop. If you're pursuing tighter policies, it's.
Speaker 5: A worse backdrop.
Speaker 4: And it behooves investors to think about those parts of
Speaker 4: the world that are being more stimulative right now.
Speaker 2: ASSISI making the point that the better news will come
Speaker 2: from elsewhere over the next several months. It won't come
Speaker 2: from here.
Speaker 3: What's interesting is that City Group thinks that that better
Speaker 3: news is going to come from China, whereas HSBC thinks
Speaker 3: that better news is going to come from Europe. Is
Speaker 3: sort of like pick your poison where in the world
Speaker 3: you think that it could potentially have better information on that.
Speaker 2: Cool that Dan grated US Equities HSBC joining us a
Speaker 2: little bit later this hour, so look out for that.
Speaker 2: Small business confidence came in about twelve minutes ago, and
Speaker 2: small business confidence came in lower, four month low. There
Speaker 2: is a nugget in here though that got my attention
Speaker 2: and I think it got les us too. The share
Speaker 2: of owners you said it would be a good time
Speaker 2: to expand declined by the most since April twenty twenty
Speaker 2: and engage capital spending plans matched and almost five year low.
Speaker 2: That is not what we want to see coming into
Speaker 2: twenty twenty five. Bran, thank you, it's going to see
Speaker 2: you as always, Sir Brian Leavitte of Investment the Bank
Speaker 2: of America Institute releasing its latest Consumer Checkpoints survey. The
Speaker 2: team right in the following the consumer is still restraining
Speaker 2: underlying forward momentum that we at a more measured pace
Speaker 2: and place to say. They're giving us some time. This
Speaker 2: morning is Holly O'Neil, the president of Retail Banking at
Speaker 2: Bank of America. Holly, welcome back to the program. A
Speaker 2: warm welcome to Bloomberg surveillance. We've heard from a few
Speaker 2: companies in the last twenty four hours, from Delta air Lines,
Speaker 2: from American Airlines that maybe the consumer was a bit
Speaker 2: softer in February. We're just wondering, Holly, whether you see
Speaker 2: anything of the same at all in your business.
Speaker 6: So I think you had it right when you said
Speaker 6: continued forward momentum, but at a more measured pace. And
Speaker 6: in February, we saw little softness mid month in certain
Speaker 6: regions in Texas on the East Coast, we really thank
Speaker 6: driven by weather, and in most of those locations it
Speaker 6: recovered by the end of the month. So when you
Speaker 6: look at the February spending data that we have, it
Speaker 6: was up month over month when you seasonally adjust it.
Speaker 6: So even though there was some mid month disruptions with weather,
Speaker 6: we saw most locations recover from that.
Speaker 3: Ollie on what though, recover in terms of spending on
Speaker 3: consumer discretionary on groceries. I mean, we've been talking all
Speaker 3: morning about the airlines coming out and saying that they
Speaker 3: really haven't yet seen that recovery in some of the
Speaker 3: domestic travel spend. Is that really being focused in say
Speaker 3: buying food for families? Sure?
Speaker 6: So overall, spend recovered, So our total debit and credit
Speaker 6: card spend was up month over month seasonally adjusted, so
Speaker 6: that includes everything. When you dig in underneath. On the
Speaker 6: grocery front, grocery spending was up, and we actually within
Speaker 6: those numbers, you saw value grocery spending up, premium grocery
Speaker 6: spending down a little bit, so overall groceries up, but
Speaker 6: you saw the consumer adjusting where they were spending their money.
Speaker 3: So this voter goes to this question of is this
Speaker 3: a headfake? Are people getting a little too carried away
Speaker 3: with the narrative that sentiment is toora so rapidly that
Speaker 3: spending is falling off a cliff, and that's going to
Speaker 3: stein me any kind of American exceptionalism.
Speaker 2: Would you push back against.
Speaker 3: That and say, actually, what we see is just the
Speaker 3: same of what we saw before, which is a moderating trend.
Speaker 3: People looking for value, but otherwise a consumer that's still
Speaker 3: pretty healthy.
Speaker 6: That's right, a moderating trend, and you really do have
Speaker 6: to separate what sentiment says versus what consumers are actually doing.
Speaker 6: And so that spend data, the grossery trends that we
Speaker 6: talked about, the overall spent that is what consumers are
Speaker 6: actually doing, and we do at times see a difference
Speaker 6: in sentiment and their actual behavior, and I think that's
Speaker 6: very important. So again, continued forward momentum, but at a
Speaker 6: more measured pace for the consumer. We did not see
Speaker 6: spend fall off a cliff. As you said.
Speaker 3: We've also talked about the fact that delinquencies on credit
Speaker 3: cards have been creeping higher. We have seen some signs
Speaker 3: of distress in auto loans. I'm just wondering where fact
Speaker 3: mats fiction right, where stories have gotten carried away from
Speaker 3: your each other, from themselves, versus any kind of true
Speaker 3: warning signs that you're seeing in any of the trends
Speaker 3: that you monitor.
Speaker 6: So from a credit perspective, we're seeing a very normalized
Speaker 6: environment at Bank of America, and in fact, we're seeing delinquencies,
Speaker 6: you know, somewhat stabilized and are expecting them to come
Speaker 6: down as the year goes forward. So we're not seeing
Speaker 6: any unusual patterns there and I would call it a
Speaker 6: very normalized credit environment from what we're seeing with our clients.
Speaker 1: You mentioned the potential tariff impact in your report. What
Speaker 1: sectors is that is that are you seeing that bleed
Speaker 1: into this potential increase in prices when it and then
Speaker 1: potentially what it might be harder for consumers.
Speaker 6: So we'll look at the consumer as a whole, right,
Speaker 6: and we'll look at high income consumers. We'll look at
Speaker 6: low income income consumers and watch what their patterns are.
Speaker 6: But as we talked about with the groceries, consumers do
Speaker 6: self regulate with shifting price and I would expect nothing
Speaker 6: different no matter what tariff environment comes through. So we'll
Speaker 6: watch the consumers really closely as to how they adjust
Speaker 6: their spending patterns if prices were to increase.
Speaker 1: Do you see any policies out of Washington hitting consumers
Speaker 1: right now? Besides trade?
Speaker 6: We are not, I mean again, across the board, we're
Speaker 6: seeing very normalized, good momentum with the consumer overall, so
Speaker 6: we're not seeing anything underneath from Washington come through.
Speaker 2: Now, Hollie. Just to finish on what's been happening with
Speaker 2: interest rates. Interest rates have stayed much higher for longer
Speaker 2: the Federal reserve, but rates of the long end something
Speaker 2: that this administration has celebrates that have started to move lower,
Speaker 2: which is important for mortgages. What are you seeing in
Speaker 2: terms of credit access and our consumers trying to step
Speaker 2: up or they hold him back.
Speaker 6: I would say consumers continue to borrow. Consumers continue to
Speaker 6: borrow at a normalized rate, and we see that in
Speaker 6: our credit card data. Bridge borrowing from our credit card
Speaker 6: borrowers is slightly above where it was pre pandemic, so
Speaker 6: they still have access to credit. I think from a
Speaker 6: mortgage perspective, we haven't quite seen the demand really fled
Speaker 6: back into the market. We're still seeing purchase volume, but
Speaker 6: again because of the rate environment, that refive volume is
Speaker 6: certainly at the lower end. But that's something that we
Speaker 6: would expect to come back as the rates change.
Speaker 2: Holly appreciate it. This was an important update on a
Speaker 2: day where a lot of people are concerned about the
Speaker 2: consumer Holly O'Neil there of Bank of America. So there's
Speaker 2: the lasst this morning. US Treasury is rallying yesterday as
Speaker 2: the S and P five hundred nearest correction territory. Kelsey
Speaker 2: Barrow of JP Morgan, writing, amid the uncertainty, one detail
Speaker 2: is clear, an allocation to high quality fixed income is
Speaker 2: once again serving as a diversifying ballast in investor por
Speaker 2: fo oleos Cansey joined us Now for more. Calsey, good morning,
Speaker 2: Good to see you.
Speaker 5: Good morning.
Speaker 2: Let's pick up on what Steve Scheferin said there at
Speaker 2: the end, maybe some austerity in America, and I stress maybe,
Speaker 2: and you put that up against perhaps a real expansion
Speaker 2: of the fiscal deficit over in places like Germany. What
Speaker 2: does that mean for treasuries in an international bond market.
Speaker 7: Yeah, so I think that you've hit on a really
Speaker 7: key point. We've been very focused on the US what's
Speaker 7: happening in the White House, but there are seismic shifts
Speaker 7: happening outside of the US right now, and the shift
Speaker 7: in Europe towards defense spending and towards infrastructure spending is
Speaker 7: really an important shift that we're seeing. And while we're
Speaker 7: talking about in the US that bonds are serving as
Speaker 7: a diversifying safe haven. So while stocks are going down,
Speaker 7: bond prices you have US treasuries, agency, mortgages, investment, good
Speaker 7: credit all up in price yesterday.
Speaker 5: In Germany you have.
Speaker 7: Essentially the opposite, which is bonds have been hit massively,
Speaker 7: body yields are up, but stocks are up in Europe too.
Speaker 7: One of the biggest trades that's been in place for
Speaker 7: at least a year has been the investment of foreign
Speaker 7: investors in US equities on an unhedged basis.
Speaker 4: Right.
Speaker 7: They wanted the US equities and they wanted it unheedged
Speaker 7: because nothing's ever going to happen to the dollar, right.
Speaker 7: That I think is the biggest trade that is in
Speaker 7: the process of being re evaluated right now.
Speaker 2: You think we're unwinding that big dollar long we've built
Speaker 2: up over the last several years. That is what it appears.
Speaker 7: It's not going to be a straight line, right. But
Speaker 7: I do think that what has been underestimated is not
Speaker 7: what the US is doing, because that's been out there.
Speaker 7: Trump's been talking about tariffs, Trump's been talking about layoffs.
Speaker 7: What's been underestimated is the response from the rest of
Speaker 7: the world. We knew they would respond, the magnitude of
Speaker 7: the response has been the surprise.
Speaker 3: There's a real question embedded in this observation about the
Speaker 3: shift in the balance of dollars and the dollar long,
Speaker 3: which is, if money is moving away from the United States,
Speaker 3: do long term treasuries offer the same kind of ballast
Speaker 3: or will there not be the same degree of demand
Speaker 3: for them because some of that money is diverted elsewhere,
Speaker 3: say to Germany.
Speaker 7: So I think that we can differentiate a bit between
Speaker 7: the equity markets and the dollar trade and the bond trade.
Speaker 7: Typically you think about them together, but what we've seen
Speaker 7: over the past few weeks is you can have periods
Speaker 7: where the treasury market is getting a bid, long term
Speaker 7: years are falling, and the dollar is softening modestly. It
Speaker 7: sounds like a bit of a paradox, but I do
Speaker 7: think it's something that can continue to occur. One thing
Speaker 7: that will be on investors' minds as we move forward
Speaker 7: is the deficit trajectory. Right in the two places in Europe,
Speaker 7: we're seeing for the first time. Germany is considering a deficit,
Speaker 7: considering more deficits as an advantage to them. At the
Speaker 7: same time, the US is considering the fact that deficits
Speaker 7: are not our friend anymore and we need to be
Speaker 7: managing them much more closely. As long as those two
Speaker 7: that sentiment continues, I think that you can continue to
Speaker 7: see the support in long end treasuries, and on the
Speaker 7: other hand, I would expect Europe Germany to continue to underperform.
Speaker 3: I would love you to have a debate with Asha
Speaker 3: Ka Batya of Newburger Berman, who is on the show yesterday.
Speaker 3: At some point I would love to witness you guys
Speaker 3: have a discussion about this. He was saying, he actually
Speaker 3: is getting a little bit more bearish on long term treasuries.
Speaker 3: What he sees is this concern that even as people
Speaker 3: price in federalers or rate cuts, that stickiness and inflation
Speaker 3: and that real kind of floor under how far the
Speaker 3: Fed can go, and ongoing deficit concerns that they're not
Speaker 3: going to get fixed by simply cutting on the edges.
Speaker 3: It will take something more sustainable is going to really
Speaker 3: create a problem longer term for the United States and
Speaker 3: for the Federal Reserve. Why do you disagree with that
Speaker 3: that the term premium is just going to be structurally
Speaker 3: higher in the United States.
Speaker 7: Well, I think the term premium already is structurally higher. Right,
Speaker 7: So if you're a longer term investor, if you are
Speaker 7: looking at the market over a five to ten year horizon,
Speaker 7: you're already observing that term premium in the US is
Speaker 7: substantially higher. Yields are substantially higher than they were before.
Speaker 7: So I think that that story is already essentially in
Speaker 7: the price and what we're looking at now is that
Speaker 7: there's quite a bit of demand at these yield levels,
Speaker 7: particularly when you have a FED that is maintaining an
Speaker 7: easing bias. Yes, inflation has been a bit stickier than before.
Speaker 7: But it's our view that ultimately what is going to
Speaker 7: get the FED moving more aggressively in terms of rate
Speaker 7: cuts is if we start to see the weakness translate
Speaker 7: into weaker labor market data.
Speaker 2: Hiyold spreads wady yesterday by almost twenty basis points back
Speaker 2: through three hundred. Is that a buy yet? What are
Speaker 2: you looking for?
Speaker 7: So it is interesting this goes back to this kind
Speaker 7: of question of is it the spread move that people
Speaker 7: care about or the price move. So spread buyers are saying, great, Okay,
Speaker 7: we've had a bit of a backup. Maybe this is
Speaker 7: an opportunity to get in on a price basis. Most
Speaker 7: of the high high quality part of the high old
Speaker 7: index has those bonds have not really moved down in
Speaker 7: price very much because the yield movement has offset the
Speaker 7: spread widening.
Speaker 8: So I think you could view that in two ways.
Speaker 7: One, maybe there's a little bit more pain to come,
Speaker 7: but also I would say it's really credit towards the
Speaker 7: strong fundamental starting point for investment grade and high old
Speaker 7: bonds in this market. And I don't think we we
Speaker 7: shouldn't lose sight of that. Coming into this year, growth
Speaker 7: was very strong. Defaults continue to remain very low.
Speaker 5: Margins for companies.
Speaker 7: Were at the higher end of their ranges.
Speaker 5: So companies are.
Speaker 7: Probably as best place as they possibly can be for
Speaker 7: the difficult times ahead.
Speaker 2: Counsel appreciate it. Councy power that of JP Morgan Asset Management,
Speaker 2: Linday ros Sans Joint is now not getting into that. Lindsay,
Speaker 2: welcome to the program. We don't want to get into that.
Speaker 8: Not aggressive on the airlines, not big thank you.
Speaker 2: Something you said to us last time. I think that
Speaker 2: the dis is your friend. What's the dates of telling
Speaker 2: you now?
Speaker 8: The data is telling you right now that you are
Speaker 8: paid to pause. And what we mean by that is
Speaker 8: it may make sense to take a page from the
Speaker 8: Fed's book. There's nothing we have to do in markets
Speaker 8: right now to reposition necessarily, so for us, we're just
Speaker 8: waiting to see how the data unfolds. We need to
Speaker 8: learn more. Jolts is not going to give us much
Speaker 8: information unfortunately today because it's really January. But we need
Speaker 8: to see that. Back to your prior guests, has the
Speaker 8: consumer changed their path? We think not but all of
Speaker 8: this data is really going to help us.
Speaker 3: This sounds so calm.
Speaker 2: I mean, I love this.
Speaker 3: You know, if people are talking about slaying of the
Speaker 3: sacred cow and a parade of horrible and you're saying,
Speaker 3: we can just say, come and take a look at
Speaker 3: what's going on and we don't have to change anything,
Speaker 3: what are you waiting for? I mean there's a lot
Speaker 3: of pretty heated rhetoric out there.
Speaker 4: Yeah.
Speaker 8: I think what we're waiting for is prices that make sense.
Speaker 8: And so we've been saying that fixed income makes sense
Speaker 8: in a portfolio. If you look, you're to date. I
Speaker 8: think if there's a lot of concern right now about
Speaker 8: what's happened with stocks off a percent from the peak,
Speaker 8: down maybe four percent overall, this isn't a massive move.
Speaker 8: But contrast that, which we think is really important, with
Speaker 8: what fixed income's done for you. It's earned you in
Speaker 8: the front end of the curve two percent, in the
Speaker 8: middle of the curve, four percent back end. Even more so,
Speaker 8: I think we're calm because we're bond people, but we're
Speaker 8: calm because we have a good setup in our portfolio construction. Overall,
Speaker 8: with bonds as a ballast.
Speaker 3: There's a question about how long term bonds can really
Speaker 3: remain a ballast if people start to get concerned about
Speaker 3: higher overall inflation from a deglobalized world, the idea that
Speaker 3: supply chains will have more built in and efficiency. How
Speaker 3: do you cope with those kinds of discussions. Do you
Speaker 3: just assume that there isn't going to be price appreciation,
Speaker 3: that yields are going to sort of stay around here,
Speaker 3: and that that's fine because it's relatively good to be
Speaker 3: paid to wait.
Speaker 8: Well, what will be a problem, certainly would be if
Speaker 8: tariffs are on the maximalist size of the side of things,
Speaker 8: and what we've seen recently is tariffs on, tariffs off
Speaker 8: tariffs being placed out there at a higher level than
Speaker 8: brought on at lower levels. I think until we see
Speaker 8: a full blown, really aggressive tariff regime, I think you
Speaker 8: can feel confident in bonds. They have good coupons, We're
Speaker 8: starting at a good spot there. They will be support,
Speaker 8: we think as we wait to find out more. But again,
Speaker 8: we don't have to daytrade our portfolios, and I think
Speaker 8: that's the important thing. There's been a lot of just
Speaker 8: prenetic behavior in the markets right now. We were talking
Speaker 8: before we got on that it's hard to think about
Speaker 8: even taking a day off from the markets. You can't
Speaker 8: take a vacation I think right now under this administration.
Speaker 8: But as we learn more, I think we're going to
Speaker 8: be emboldened that rates are going.
Speaker 5: To help you.
Speaker 1: When you're looking at potentially that maximus approach to trade,
Speaker 1: it sounds like you're basically waiting for April second.
Speaker 5: Is that accurate.
Speaker 8: Yeah, we're waiting for April second, just like we waited
Speaker 8: for March and we waited for February. I mean, I
Speaker 8: think there's a lot of markers that we keep waiting for.
Speaker 8: At some point, I think there will be an end
Speaker 8: to kicking the can a month a month, a month,
Speaker 8: and we'll have what is the final here, And that's
Speaker 8: what really people are waiting for. And I think that
Speaker 8: uncertainty doesn't do the market well. And so hopefully April
Speaker 8: second is maybe the beginning of the end of we
Speaker 8: know what the permanent state will be.
Speaker 1: We're seeing some economic advisors outside the administration but close
Speaker 1: to the president, like Steve Moore saying you gotta push
Speaker 1: out the tax cuts. You can't wait for the end
Speaker 1: of the year.
Speaker 5: Do you think that's an.
Speaker 1: Accurate assumption that they need to be able to balance
Speaker 1: some of this uncertainty and bad rhetoric around tariffs with
Speaker 1: some of the good policy changes they're trying to get through.
Speaker 8: Yeah, I think you're bringing up a great point. If
Speaker 8: you think about what happened post election. We had this
Speaker 8: big euphoria bubble, and I think a lot of people
Speaker 8: have said that the errors out of this bubble or
Speaker 8: the balloon has burst, so to speak, because all the
Speaker 8: good stuff was thought about, deregulation, tax cuts, well, we
Speaker 8: haven't had those yet because the sequencing takes time. Instead,
Speaker 8: we've seen the more negative things, potentially like tariffs, and
Speaker 8: so it's really hard when everybody was banking on really
Speaker 8: positive things to happen, the negative ones happen first, and
Speaker 8: we're still waiting for the positive things later on. They
Speaker 8: are coming, I think they're coming much more slowly. Certainly,
Speaker 8: if we sed them up, I think people would feel
Speaker 8: a lot better.
Speaker 2: Policy clarity abroad. And I wonder how you and the
Speaker 2: team are thinking about the search. We've seen in European
Speaker 2: bond yields over the past week or so, specifically in
Speaker 2: Germany the forty basis point move last week. These are
Speaker 2: regime shifts in policy, particularly in Germany that we haven't
Speaker 2: seen in decades. How are things changing? View and the team?
Speaker 2: How do you think about the global bankdrop for fixed
Speaker 2: income now?
Speaker 8: Yeah, So what we've said really since twenty twenty four
Speaker 8: is that there are great opportunities of divergence and that
Speaker 8: we should be able to take advantage of them in
Speaker 8: our macro strategies. What's happened in Germany is, to your point,
Speaker 8: something totally new, large significant. We actually don't think that
Speaker 8: the backup in yields is over yet, so we wouldn't
Speaker 8: hop in yet. Still prefer the US, but I think
Speaker 8: it's really important to think what that means for a
Speaker 8: backdrop for credit. So from a credit perspective, Europe has
Speaker 8: actually outperformed the US. So when we're thinking about how
Speaker 8: to position our portfolios, we're still leaning into US because
Speaker 8: we feel like there's more opportunity there. But should that
Speaker 8: be dislodged, it'll be a good opportunity to shift the
Speaker 8: portfolio and add back in European credit.
Speaker 5: Once we get more clarity.
Speaker 8: On in fact, if the defense spending will be passed,
Speaker 8: what will really happen.
Speaker 3: What's more compelling to you the pushing away from the
Speaker 3: US effect of a potential deterioration in the data or
Speaker 3: a potential positive shift not only with respect to the
Speaker 3: spending getting passed, but a sense that maybe it could
Speaker 3: ignite some kind of growth and infrastructure spending on the
Speaker 3: heels of it.
Speaker 8: In Europe. Yeah, so this is the big change, and
Speaker 8: I think you're seeing that with the yields in Europe.
Speaker 8: This is big spending and I think now you're starting
Speaker 8: to see that all the views that there could in
Speaker 8: fact be a recession in Europe or things are looking
Speaker 8: really really weak. That's changed a lot because spending is
Speaker 8: a huge part of GDP government spending, so that does
Speaker 8: change the tone out there. But what's important is it
Speaker 8: is a global environment, and I think what we've seen
Speaker 8: with stocks with bonds so far and the big volatility
Speaker 8: and performance is that you want to do active management
Speaker 8: to take advantage of all of these differences and all
Speaker 8: these movements because they're happening quickly.
Speaker 2: It's going to say, as always, appreciate the update. Thank
Speaker 2: you Linday Roseen and Goldman Sachs. This is the Bloomberg
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