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Speaker 3: With more on the currency trade and declines in the
Speaker 3: US dollar. Bloomberg News FX and Rates reporter Carter Johnson
Speaker 3: is here in the Bloomberg Business Week Studio. The declines
Speaker 3: that we continue to see in the US dollars, the
Speaker 3: flows behind it, what's the story that's telling you?
Speaker 1: Sure?
Speaker 4: Absolutely, Thanks Jim, Thanks Carol. And I think what's really
Speaker 4: interesting is we can look at this on a pretty
Speaker 4: long timeline. So I'm starting to hear comparisons late last week, today,
Speaker 4: yesterday to this feels like early twenty twenty five and
Speaker 4: Liberation Day all over. And that's just because yes, we're
Speaker 4: seeing some action at stocks and treasury and treasuries, but
Speaker 4: really this is a real sort of dollar focused impulse
Speaker 4: to sell, and of course on a shorter timeline as well,
Speaker 4: we can think about that in the context of what
Speaker 4: we saw last week, which was some pretty concerted movement
Speaker 4: in dollar yen specifically, and that was, as we reported,
Speaker 4: likely because some folks here in the US, the New
Speaker 4: York Fed, acting at the best of the Treasury, were
Speaker 4: reported to us to be checking rates and sort of
Speaker 4: calling into some banks and seeing where exchange rates were trading,
Speaker 4: so on a couple different levels, sort of in the
Speaker 4: near term and in the big picture, as you mentioned, Carol,
Speaker 4: questions about the US physical position policy and certainty those
Speaker 4: are all combining right now.
Speaker 1: Carter reading in this morning, you know, Bloomberg reporting app
Speaker 1: the positioning is heavily one sided. They said since Thursday,
Speaker 1: roughly two thirds of options trades in the year and
Speaker 1: the Australian dollar have been bets on further greenback weakness.
Speaker 1: So is this largely about dollar decline and not about
Speaker 1: bets on other currency strength backed by fundamentals.
Speaker 4: It's a great question. I think the answer honestly is both.
Speaker 4: And a lot of that impulse, as we just talked about,
Speaker 4: is because of a declining dollar in questions about US policy,
Speaker 4: but we are seeing relatively solid growth expectations in the
Speaker 4: rest of the world, whether that's Europe, maybe that's in Asia,
Speaker 4: and that really underpins the impulse to sell dollars as well.
Speaker 4: If the rest of the world, if growth in the
Speaker 4: rest of the world was creatoring at the moment, we
Speaker 4: wouldn't be seeing this sort of action we're seeing in
Speaker 4: terms of dollar sales. So it's absolutely the other side
Speaker 4: of the coin as well.
Speaker 3: We've got stock investors watching and listening to this program.
Speaker 3: What is the relationship between weakness in the dollar and
Speaker 3: what happens in the equity market. I mean, you made
Speaker 3: the comparison minutes ago. It to kind of feels like
Speaker 3: April twenty twenty five, and we all remember what happened
Speaker 3: to the equity markets during that time.
Speaker 4: Absolutely, and I think that's the big question is will
Speaker 4: we see that again. Where typically you'd expect to see
Speaker 4: the dollar weaker as stocks strengthen, they have a negative correlation,
Speaker 4: particularly the dollar as a traditionally have an asset, we
Speaker 4: didn't see that late last year. The stock's, the dollar, treasuries,
Speaker 4: they were all falling together. So I think that's the
Speaker 4: big question right now is will we see that again.
Speaker 4: I don't think we are yet, but in sort of
Speaker 4: a different picture as well. A week er dollars should
Speaker 4: theoretically support domestic manufacturers, it should support exporters here in
Speaker 4: the US. That's typically what we'd see on a lag
Speaker 4: but we also know that that's something that Trump administration
Speaker 4: has been vocal about as well. A week er dollar theoretically,
Speaker 4: again doesn't work instantaneously, but theoretically supports domestic manufacturing and
Speaker 4: exporters who are looking to sell to the rest of
Speaker 4: the world.
Speaker 1: Hey, one other thing I want to ask you, though,
Speaker 1: but is it about global investors and we've talked about
Speaker 1: flows into European equities. Is it another sign perhaps that
Speaker 1: global investors are less interested in dollar denominated investments.
Speaker 4: It is possible, although I think it's too early for
Speaker 4: us to say at this point. As we knew last year,
Speaker 4: we don't have that data yet necessarily, and again, if
Speaker 4: we look at just the relative performance of US stocks,
Speaker 4: they're they're doing all right, they're certainly holding up. I
Speaker 4: think what it could definitely be indicative of, and this
Speaker 4: is something we've covered a bit here at Boomberg in
Speaker 4: the past, is hedging behavior. And what that means is
Speaker 4: you're a global investor here in the invested here in
Speaker 4: the US. You might still want your exposure to US
Speaker 4: stocks in US tech, but you're gonna hedge that dollar
Speaker 4: component of that much more than maybe you used to mention.
Speaker 3: J Powell tomorrow the press conference. What are you watching
Speaker 3: for from from your purchase somebody who watches FX.
Speaker 4: Absolutely, I think, just as we are in the rates
Speaker 4: in the treasuries world as well.
Speaker 5: Any sort of.
Speaker 4: Forward guidance that we can get from from Chair Powell
Speaker 4: that'll be a tall order given the spotlight he's under
Speaker 4: at the moment, But any sort of future guidance about
Speaker 4: the outlook for rates this year, that'll be particular impactful
Speaker 4: for the dollars as well as rates.
Speaker 1: Right if for any indications that there's higher rates coming
Speaker 1: we're talking about that could put some a floor under
Speaker 1: the dollar correct, that could definitely help.
Speaker 4: Yeah, and you know it's funny, Yeah, No, for sure,
Speaker 4: JP Morgan when they came out with their big currency
Speaker 4: forecast late last year, they're barish on the dollar. But
Speaker 4: the big risk to their barish dollar view is the
Speaker 4: Fed has to turn around and hike again. We might
Speaker 4: not see that, but that's that's the risk.
Speaker 1: Although there is it feels like a growing conversation about
Speaker 1: inflationary concerns, which would certainly lead the Fed possibly certainly
Speaker 1: to keep rates as is or possibly hike them out
Speaker 1: to see Cord, thank you so much laying out the
Speaker 1: currency trade for us as we continue to watch the
Speaker 1: US dollar. He's Bloomberg News FX and Rates Reporder Carter Johnson.
Speaker 5: Stay with us.
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Speaker 1: The group of airlines stocks as a whole off about
Speaker 1: two percent today. Here to talk about that. We're also
Speaker 1: going to talk about Boeing, which also reported today, is
Speaker 1: Sheila Kayalu. She is managing director in equity research at Jeffrey.
Speaker 1: She joins us here, it's studio, nice to have you here.
Speaker 1: Happy New Year. You know January is over, but elm us,
Speaker 1: let's just start with the airlines and then we want
Speaker 1: to move into defense because you cover that really closely
Speaker 1: as well. It does feel like they're all finding their
Speaker 1: way back after the storm. We're trying to see if
Speaker 1: there's another storm. In terms of the impact, is it's
Speaker 1: still a case of they're still trying to assess. How
Speaker 1: do you, as someone who covers some of these names,
Speaker 1: kind of factor that in.
Speaker 6: Yeah.
Speaker 7: In terms of airlines, we're looking for revenue growth. We've
Speaker 7: seen the same trend across American that we saw at
Speaker 7: United and Delta. Corporate was up twelve percent. Corporate momentum continues.
Speaker 7: I'm taking a very long flight this weekend and then
Speaker 7: main cabin weakness, but it's getting a little bit better,
Speaker 7: and it's all about cost control. That's why I think
Speaker 7: you United one up the most on earnings is they
Speaker 7: really beat out on costs when American Airlines margins came
Speaker 7: in one hundred BIPs below our estimate. So I think
Speaker 7: the most polarizing stock is going to be Southwest. I'm
Speaker 7: really excited for their report on Thursday because they have
Speaker 7: some lofty targets.
Speaker 8: The stock's at forty dollars today.
Speaker 7: Some people think it's going to thirty, some people think
Speaker 7: it's going to eighty. It's all about they're adding extra
Speaker 7: lug room seats and it is the strategy going to work.
Speaker 3: But that's a huge shift for Southwest. I mean, they're
Speaker 3: essentially moving away from their DNA, what they're known for
Speaker 3: and the culture that they're known for, and that's alienated
Speaker 3: some people already.
Speaker 8: Yeah, it depends.
Speaker 7: So the average Southwest fair is about one hundred and
Speaker 7: nine dollars. So if you add an option for extra
Speaker 7: lug room or refundable or seating, if you add fifty
Speaker 7: dollars to that cost of that airfare, so one hundred
Speaker 7: and fifty nine, it's a fifty percent increase.
Speaker 8: Almost does the passenger back away?
Speaker 7: I'm not sure, but then again, it's only one hundred
Speaker 7: and fifty nine dollars, So how do we think about
Speaker 7: that and what adoption do we assume we're at about
Speaker 7: five percent adoption in twenty six. They have a bunch
Speaker 7: of other benefits as well, baggage fees and cost optimization.
Speaker 7: So that's driving their EPs to three dollars, essentially ebit
Speaker 7: tripling off of a very low twenty five base. So
Speaker 7: we'll see how much of that they get. You know,
Speaker 7: some people think they could godd to four dollars or
Speaker 7: even five dollars as more of that extra lug room
Speaker 7: adoption comes in but it's their first go at it,
Speaker 7: and we'll see how it takes off.
Speaker 1: You have a forty five dollars price target, so you're
Speaker 1: not at the eighty and you're not at the thirty.
Speaker 1: So maybe a little bit higher from where we are.
Speaker 7: You know, I would prefer United where they've If you
Speaker 7: think about United, they're going to be accounting for forty
Speaker 7: four percent of the why of the new premium seats
Speaker 7: through twenty twenty eight, so they're going to be accounting
Speaker 7: for more than any other airline in the US Americans
Speaker 7: after that in Southwest because of their extra lug room.
Speaker 7: I prefer to bet on that corporate customer paying one
Speaker 7: thousand plus one hundred dollars to achieve that additional corporate
Speaker 7: fare and that higher margin where United is adding its
Speaker 7: seats than Southwest adding on the You know, I think
Speaker 7: both are given the multiples that.
Speaker 8: They're currently trading at. United is more appealing to me.
Speaker 3: Let's talk some defense and then we'll talk some Boeing too.
Speaker 3: I want to look at shares of RTX. They're higher
Speaker 3: right now by about three point four percent. Profit topp
Speaker 3: to Wall Street estimates assign the momentum that the company
Speaker 3: awaits a potentially huge jump in US military spending.
Speaker 5: That's kind of where I want to start.
Speaker 3: What we've heard from President Trump in the last few weeks,
Speaker 3: not just with the idea of a one point five
Speaker 3: trillion dollar defense package, but also calling on some of
Speaker 3: these companies to do a better job, pay their executives less,
Speaker 3: and also build stuff for the US government more quickly.
Speaker 5: What are these CEOs to do.
Speaker 7: There's a lot going on in defense, and that's what
Speaker 7: I was saying. It's an exciting sector to cover because
Speaker 7: this is the first time that the five Primes might
Speaker 7: no longer exist as five primes by the end of
Speaker 7: the Trump administration, which is our view. We think that
Speaker 7: there's going to be similar to what LHX announced days ago,
Speaker 7: there's going to be more deconsolidation happening among the primes.
Speaker 7: Their budget is going up by five hundred billion from
Speaker 7: a trillion dollars. We don't know the time period of
Speaker 7: that spending. We don't know how much will be added
Speaker 7: to actual equipment and R and D versus military operations,
Speaker 7: but they're seeing an increase, whether it's to fun defense
Speaker 7: techniques like firefly voyage or the recent IPOs we've seen
Speaker 7: in the space or the traditional primes or suppliers like
Speaker 7: aero environment crados are up one hundred percent on the
Speaker 7: year already and we're twenty seven days in. So it's
Speaker 7: really interesting to see what happens in defense. But there's
Speaker 7: a lot of shakeups that are I think are going
Speaker 7: to play out. So it's about seeing who has the
Speaker 7: best position positioned portfolio and who to play from here.
Speaker 1: I was surprised, like I know, when you walked in
Speaker 1: we started talking, and I mean aerospace defense. Just the
Speaker 1: S and P broad Index up about nine percent year
Speaker 1: to date, up about forty six percent last year. Is
Speaker 1: it just because defense spending all around the globe is
Speaker 1: just happening and everybody's amping it up.
Speaker 8: It's yeah, it's as simple as that.
Speaker 7: Unders growth internationally twenty percent plus NATO budgets, Japan, Korea.
Speaker 7: We're seeing countries like Serbia put in orders that never
Speaker 7: used to, put in billion dollar orders for equipment to
Speaker 7: companies like Elbett in Israel. Coupled with the defense budget
Speaker 7: going from a trillion to one point five trillion makes
Speaker 7: defense very interesting and the administration has been very supportive
Speaker 7: of defense tech. Emergent technology companies, companies that had stagnant
Speaker 7: revenues for the last decade are seeing thirty forty percent growth.
Speaker 1: But you know, as to mention, you know, when the
Speaker 1: president talks about an industry, it can be good or bad.
Speaker 1: So is it good that they're on his radar?
Speaker 5: But when he's the world five million.
Speaker 1: Dollars we're talking about he.
Speaker 8: Did back off of that.
Speaker 7: He didn't quantify in the executive order the pay and I.
Speaker 5: But he mentioned it, and he mentioned it.
Speaker 1: Really, Yes, that's a headline that caught our attention.
Speaker 5: And five million dollars.
Speaker 3: It sounds like a lot of money, but not for
Speaker 3: a CEO who's paid over twenty million dollars.
Speaker 7: Right the executive executive pay, the average executive pay I
Speaker 7: would assume in any sectors over twenty million. So the
Speaker 7: caliber of folks you would get into the defense would
Speaker 7: be the opposite of what the administration is trying to achieve.
Speaker 1: So what do you hear from defense companies about getting
Speaker 1: some attention like that from the president? Do they do
Speaker 1: They kind of brush it off a little bit, like
Speaker 1: we're talking with them.
Speaker 7: Like I think one interesting trend we've seen from the reports,
Speaker 7: whether it was Northrop or raitheon today is the lack
Speaker 7: of buybacks, because that's what the administration asked for, a
Speaker 7: focus on additional cap X. Raith Yon mentioned that Northrop
Speaker 7: mentioned dot Boeing mentioned that, so across the board, everyone's like, sure,
Speaker 7: we're investing. We're going to get you supplies on time.
Speaker 7: That's our job and it helps funnel the growth.
Speaker 1: The Norther CEO saying northp rebalancing the need for performance
Speaker 1: with affordability and speed to market to meet the US
Speaker 1: defense departments focus on speedy development.
Speaker 7: Yes, and I think Kathy Ward and the CEO of
Speaker 7: Northup said this was the best spending environment she's ever
Speaker 7: seen in her career. So most of these executives are
Speaker 7: very bullish.
Speaker 3: Do the off starts in defense tech pose a threat
Speaker 3: to the incumbents? And I'm thinking of you know, an
Speaker 3: Anderill that is not yet And I say not yet
Speaker 3: because obviously this company, well IPO at some point soon.
Speaker 3: Do they compete with these incumbents.
Speaker 7: Yes, clearly they're competing and they're collaborating. They're working together
Speaker 7: both internationally and domestically. The primes are trying to work
Speaker 7: with you know, Northropez a partnership with Kratos on CCA.
Speaker 7: It's the autonomous vehicle essentially, so we're seeing a lot
Speaker 7: more collaboration, but they're also trying to take share.
Speaker 8: But the budget is growing.
Speaker 7: Overall, and that's the bottom line, although we're not really
Speaker 7: seeing it. In twenty six Northrops Guidance's five percent growth,
Speaker 7: they talk about an acceleration from there. In twenty seven
Speaker 7: twenty eight, same thing with Raytheon it was modest growth
Speaker 7: in defense.
Speaker 8: It didn't really pop.
Speaker 7: Yes, it grew in the second half versus the first half,
Speaker 7: and we'll see how those trends continue.
Speaker 1: I feel like with all of the geopolitical tensions and
Speaker 1: the wars that we've seen around the world, that everybody
Speaker 1: comes back to the US military might and the defense
Speaker 1: companies here in the United States. What is the global picture?
Speaker 1: Where's the competition? Is there not much global competition shila
Speaker 1: when it comes to the US defense companies, So.
Speaker 7: I think it's focused on maybe a few things first
Speaker 7: as missiles and munitions readiness. We need to have that
Speaker 7: available and that's why we're seeing companies like Lockheed increase
Speaker 7: Pack three production from six hundred missiles a year, which
Speaker 7: package it's a missile Packtory is the name of the missile.
Speaker 7: Going from six hundred units a year to two thousand,
Speaker 7: that is significant to say at least that's eight billion
Speaker 7: of additional revenues to Lockheed over seven years. If they
Speaker 7: could ramp to those levels. The backlogs twenty.
Speaker 8: Years for a missile like that. We're seeing that across
Speaker 8: the board.
Speaker 7: LHX ten days ago or two weeks ago now announced
Speaker 7: that they are seeing a government investment within their solid
Speaker 7: rocket motor business that powers missiles. They're going to open
Speaker 7: up sixty factories next year. LHX currently has two one
Speaker 7: hundred and fifty factories, so that's a magnitude of investment
Speaker 7: we're seeing from the government. So focus on missiles, ammunitions,
Speaker 7: and second, I think it goes back to old school warfare.
Speaker 7: Everybody thinks helicopters are we and F thirty five is
Speaker 7: a bad program. But we think about Venezuela, if we
Speaker 7: think about Iran, what's the.
Speaker 8: Kind of equipment we're using.
Speaker 7: So you know, it's not necessarily rebuilding an entire fleet
Speaker 7: for the Navy, but it's doing things that we could
Speaker 7: use pretty quickly.
Speaker 3: Just in last ninety seconds, I want to hit Boeing
Speaker 3: with you, shares are down today by about one point
Speaker 3: eight percent. The company did report this morning a second
Speaker 3: straight quarter of generating cash fifty seven percent, bumping sales
Speaker 3: during the final three months of the year. Shares down though,
Speaker 3: Is it because of accounting charges for the CAC forty
Speaker 3: six tanker program?
Speaker 5: Is that it?
Speaker 8: No, everybody just assumes that's going to happen every quarter.
Speaker 5: So we're all going shares down after So the.
Speaker 7: Share shares opened down, the call at ten thirty, got
Speaker 7: it up to write. It reversed about four points and
Speaker 7: then they're down again. We're a believer in Boeing. They're
Speaker 7: underwriting their free cash flow was a loss of two
Speaker 7: billion in twenty five. They're talking about positive two billion
Speaker 7: at the midpoint in twenty six, normalized for one time items.
Speaker 7: They're saying their free cash flow is high single just
Speaker 7: so say eight billion. They're reaffirming their ten billion target,
Speaker 7: and then they're saying they could go above that, so
Speaker 7: you know, ten fifteen. It's giving long only as a
Speaker 7: reason not to dismiss the stock. If this company could
Speaker 7: actually earn ten billion of free cash low, then it's
Speaker 7: quite compelling at its current valuation. So we're seeing a
Speaker 7: lot of fluctuations. Are they talking back twenty seven to
Speaker 7: twenty eight? No, I think that you're going to see
Speaker 7: two billion in twenty six and an improvement in twenty
Speaker 7: seven and twenty eight.
Speaker 1: So Boeing, let me just say, you've got a two
Speaker 1: ninety price target, it's at two forty four. You feel
Speaker 1: good about that?
Speaker 8: Yeah?
Speaker 7: You want to know is it? We are supportive of Boeing.
Speaker 7: We think there's a few positive catalysts. I think President
Speaker 7: Trump might be headed to China in April. We'll see
Speaker 7: if Boeing heads there. We haven't seen a China order
Speaker 7: since I can't even recall. Maybe it was twenty nineteen,
Speaker 7: maybe earlier. So I think Boeing works from here. You know,
Speaker 7: depressed prices for Max's maybe fifty percent below what they
Speaker 7: historically sell at today.
Speaker 1: This was fun. Come back soon, all right. Sheila Kayalu,
Speaker 1: she's managing director of equity research at Jeffrey's, joining us
Speaker 1: here in studio.
Speaker 2: This is the Bloomberg Business Week Daily Podcast. Listen live
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Speaker 1: We do head back to the White House and Bloomberg
Speaker 1: New Senior reporter Jen DLOWI, Jen, good to have you
Speaker 1: here with us. We know President Trump on his way.
Speaker 1: I don't think he's landed yet, but we know there
Speaker 1: is a crowd in Iowa waiting for him. He did
Speaker 1: say en route to Iowa talking to reporters, he's meeting
Speaker 1: in terms of Tom Homan, the borders are, he said,
Speaker 1: he's meeting with the governor in Minnesota. He's meeting with
Speaker 1: the mayor. I think later and I hear that's all
Speaker 1: going very well. What are we hearing? Is it all
Speaker 1: going so well?
Speaker 9: You know early report out. You know, we don't have
Speaker 9: a great deal of intelligence out of those early meetings,
Speaker 9: but what we can what we are seeing, of course,
Speaker 9: is this effort by the President. It appears to dial
Speaker 9: down the temperature to do really two things, to express
Speaker 9: support for Homeland Security Secretary Nome and at the same time,
Speaker 9: who's obviously been criticized for her handling of these incidents
Speaker 9: and her characterization of them, and then at the same
Speaker 9: time also try to find a way forward with local leaders.
Speaker 4: You know.
Speaker 9: The President repeated that comment to us several times before
Speaker 9: he headed out to Iowa, you know, saying that he
Speaker 9: believes the conversations with the governor of Minnesota are going
Speaker 9: very nicely. And of course he was previewing that later
Speaker 9: conversation today with Mayor Jacob Fray.
Speaker 3: You know, I was surprised to hear, just based on
Speaker 3: the reporting that we've seen in the last twenty four
Speaker 3: hours that Tom Homan was headed to Minneapolis. Some of
Speaker 3: the reporting from other outlets indicated that Christy Nome had
Speaker 3: been sidelined in some way. She was at a meeting
Speaker 3: at the White House yesterday, reportedly went a couple of
Speaker 3: hours according to other outlets. How are you reading into
Speaker 3: that reporting? Has she been sidelined? The President earlier expressing
Speaker 3: his support for her, saying she will not she will
Speaker 3: stay on at the agency. How are you reading into that?
Speaker 9: You know, it's important to appreciate that departures aren't always
Speaker 9: telegraphed well in advance, but for now President is very clearly,
Speaker 9: you know, insisting that she has a support That meeting
Speaker 9: first reported by The New York Times last night and
Speaker 9: stretching over two hours, included her top aid Corey Lewandowski,
Speaker 9: you know, the first campaign manager from Trump's twenty sixteen
Speaker 9: presidential bid.
Speaker 7: And also.
Speaker 9: It's notable that they came out of that meeting with
Speaker 9: the President's messaging today about not backing down from her,
Speaker 9: and in fact, when asked about GNOME's performance, he immediately
Speaker 9: pivoted to talk about, you know, how she's done a
Speaker 9: great job on the traditional deportation, you know, focused comments
Speaker 9: from the president there, notably today on the way to
Speaker 9: Iowa on the plane on Air Force one, Trump is
Speaker 9: joined by his senior advisor, Stephen Miller, who had also
Speaker 9: drawn a lot of criticism, just like Nome, for his
Speaker 9: initial characterizations of the shooting over the weekend. Stephen Miller
Speaker 9: had intimated on social media that the man shot on
Speaker 9: Saturday was an assassin and domestic terrorist, even though video
Speaker 9: evidence suggests he had been disarmed and hadn't brandished a weapon.
Speaker 1: Hey, you know, Jen, in terms of I was going
Speaker 1: to ask you about who's the architect of all of this?
Speaker 1: And I think there's been a lot of reporting, but
Speaker 1: does it really matter because the buck really stops with
Speaker 1: the president.
Speaker 9: To be fair, you know, the president, this president in
Speaker 9: particular takes ownership of his policies and it has been
Speaker 9: quite happy to tout his deportation agenda. You know, it's
Speaker 9: something he campaigned on so vigorously and and in office
Speaker 9: has really claimed as a source of pride that he's
Speaker 9: accomplishing his goal of deporting illegal immigrants.
Speaker 1: What is and not the only president to do it, right,
Speaker 1: We can go back to the Obama administration to be fair,
Speaker 1: because I think it's important to kind of point that out.
Speaker 9: But you know, Stephen Miller is seen internally is of
Speaker 9: course a big, big factor in this push, obviously someone
Speaker 9: who's been critical of of the you know, amount of
Speaker 9: immigration and illegal immigration into the US. But but to
Speaker 9: your point, you know, Trump has taken ownership of this.
Speaker 9: This is as much his issue as it is that
Speaker 9: of a key ally and aid and and it's one
Speaker 9: where he's We've heard him talk very openly about being
Speaker 9: frustrated with the messaging on this last week. He lamented that,
Speaker 9: you know, the focus hadn't been on the you know,
Speaker 9: the rapist and murderers, as he characterized them, that were
Speaker 9: being deported. He even you know, took to the White
Speaker 9: House briefing room last week to show pictures of some
Speaker 9: of the deport so that, you know, kind of speaks
Speaker 9: to his frustration that the messaging has shifted away from
Speaker 9: where he wants it to be. And of course you
Speaker 9: know that he's lost some control over the narrative here.
Speaker 9: Polls show that even among folks who care, who support
Speaker 9: his broader immigration crackdown, there's support is waning for the
Speaker 9: overall effort in the wake of these two deaths.
Speaker 3: So then where does where do deportations go from here?
Speaker 3: If Minneapolis Minneapolis Marrior Jacob Frye and the Governor Tim
Speaker 3: Walls of Minnesota are successful in de escalating this, does
Speaker 3: that provide some sort of roadmap to other governors to
Speaker 3: then go ahead and say, Hey, your federal agents are
Speaker 3: not welcome here. You are going to have to find
Speaker 3: a different way to accomplish what you want to when
Speaker 3: it comes to deportations.
Speaker 9: You know, it'll be interesting to see how this gets resolved.
Speaker 9: I think that will be key to the extent to
Speaker 9: which it is a roadmap for other states. You know,
Speaker 9: clearly the govern and mayor have been very forceful in
Speaker 9: their eagerness to see these folks leave their area. At
Speaker 9: the same time, you know, Waltz has in the last
Speaker 9: day indicated he wants to turn down the temperature. We're
Speaker 9: gonna want to watch what happens with Tom Homan that
Speaker 9: the borders are that Trump dispatched to Minnesota. You know,
Speaker 9: he has focused much more on traditional deportation efforts rather
Speaker 9: than kind of this broader dragnet or you know, these
Speaker 9: broader operations that Christy Noman has favored. And so you know,
Speaker 9: if we see that kind of refocusing back on more
Speaker 9: conventional deportation efforts, that could be a de escalation and
Speaker 9: a roadmap for other states and cities concerned about immigration
Speaker 9: enforcement in their backyards.
Speaker 1: All right, super appreciate it, Jen, Thank you so much.
Speaker 1: Bloomberg New senior reporter Jenda Lowie joining us there.
Speaker 5: Stay with us.
Speaker 3: More from Bloomberg Business Week Daily coming up after this.
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Speaker 1: Karen Perry is with US, head of us I shares
Speaker 1: fixed income strategy over at Black Rock and she joins
Speaker 1: us from San Francisco. Karen, how are you?
Speaker 6: I'm doing great, Carrol, Tim, how are you guys doing?
Speaker 1: Doing okay? On twenty twenty six, definitely off and running.
Speaker 1: It's fed Eve right, we'll get that decision tomorrow. Tell
Speaker 1: us a little bit about when it comes to fixed income.
Speaker 1: I always like to start with you guys. You're massive
Speaker 1: in terms of asset manager and the asset management business.
Speaker 1: Where are you seeing flows in and out when it
Speaker 1: comes to the fixed income world?
Speaker 6: Already this year's already been off to a pretty strong start,
Speaker 6: so I think last year investors who took on any
Speaker 6: sort of duration risk were rewarded. We saw the EAG
Speaker 6: up seven percent last year, and this year, I'd say
Speaker 6: some of those trends are continuing. We're seeing people being
Speaker 6: more selective about where they did their income, so positive
Speaker 6: flows into flexible income funds like bi inc. We're also
Speaker 6: seeing people still wanting to invest internationally, so with the
Speaker 6: dollar being off this year, we're continuing to see more
Speaker 6: interest and flows coming back to international fixed income. So
Speaker 6: I think emerging market bonds with emb or even European
Speaker 6: high yield people are looking at and then of course,
Speaker 6: I think one of the biggest trends you can't ignore
Speaker 6: is just the rise of actively managed bondingtfs. They were
Speaker 6: actually responsible for about forty percent of the flows last
Speaker 6: year and we saw over one hundred and thirty seven launches.
Speaker 6: So people can now access a lot of their favorite
Speaker 6: bond managers to the ETF.
Speaker 3: Yeah, I just want to read some headlines that are
Speaker 3: I mentioned. President Trump is set to make a speech
Speaker 3: in Clive, Iowa. He's right now taking questions at a
Speaker 3: small business in Urbandale, Iowa. The President Carol is saying
Speaker 3: that China and Japan always wanted to devalue currency. He said,
Speaker 3: the dollar is doing great. If you're watching us on
Speaker 3: YouTube or Bloomberg Originals, you can see the President live
Speaker 3: right there answering some questions from reporters.
Speaker 1: Yeah, and I don't know exactly what he means by
Speaker 1: the dollar doing great.
Speaker 5: Maybe he was asked about weakness.
Speaker 1: Yeah, I guess so. I mean we're down. I'm looking
Speaker 1: at the Dollar index down another nine tenths of a
Speaker 1: percentage point. But we've seen certainly a pullback when it
Speaker 1: comes to the US currency. You take a look at
Speaker 1: the major industry developed in the developed world, if you will,
Speaker 1: and really the dollar at the bottom of the pack,
Speaker 1: so we definitely have seen some pressure. How does that, Karen,
Speaker 1: if at all, play into the fixed income world?
Speaker 6: I think for a lot of US investors, most bonds
Speaker 6: are denominated dollars, so it doesn't impact us very directly.
Speaker 6: But we've seen a big trend where people are looking
Speaker 6: at going global, grabbing those international bonds. One of our
Speaker 6: atfs I go, which is just international bonds and those
Speaker 6: foreign currencies. So I think the euro in is actually
Speaker 6: off to a really strong start this year, up almost
Speaker 6: two percent. So we've seen more people saying, you know what,
Speaker 6: maybe I want to take advantage of some of a
Speaker 6: dollar dropping and then one of the easiest way to
Speaker 6: do that is with international based fixed income ETFs, and
Speaker 6: so I think that's going to continue. More interests here.
Speaker 3: Well, how do you look at this idea of Europe
Speaker 3: moving away from US treasuries. Our Bloomberg Economics team with
Speaker 3: a note that says, no, Europe is not about to
Speaker 3: sell three point five trillion dollars in treasuries a sell
Speaker 3: America's strategy, our team rights is not in Europe's interest.
Speaker 3: The financial repercussions would be severe given the regions heavy
Speaker 3: reliance on US dollar funding. Do you do you agree
Speaker 3: with that?
Speaker 6: I think we see a few countries who made some
Speaker 6: noise last week about potentially selling off dollar assets. I
Speaker 6: think it's going to continue to be a major source
Speaker 6: of liquidity, a major source of stability for a lot
Speaker 6: of countries. We've seen more volatility, i'd say in the
Speaker 6: long end because of its investors anticipating that. So I'd
Speaker 6: say one of the easiest strategies to just move away
Speaker 6: from super long duration bonds, long duration treasuries in particular.
Speaker 6: So we've seen a lot of people reallocating back to
Speaker 6: that belly of the curve three to seven years and
Speaker 6: avoiding some of the long end, which I think is
Speaker 6: going to get hit most if there's negative international sentiment, Karen.
Speaker 1: Any signs that you are seeing global investors think that
Speaker 1: the US is increasingly uninvestable.
Speaker 6: We haven't seen that trend yet. I think, if anything,
Speaker 6: our interest rates are still higher than other countries, and
Speaker 6: we've even seen interest from international investor into maybe Muni's
Speaker 6: as a way to get access to high quality bonds
Speaker 6: that aren't treasuries. Investment grade credit is also of a
Speaker 6: lot of interest to investors, so you know you're moving
Speaker 6: away from if the government is going to get more levered.
Speaker 6: Companies actually have very strong balance sheets and have lower
Speaker 6: levels of leverage. So we've seen if anything, people are
Speaker 6: looking towards US corporate bonds is one of the ways
Speaker 6: to add diversification.
Speaker 3: What are the trends that you're already seeing in the
Speaker 3: first few weeks of this year. You mentioned what we
Speaker 3: saw last year, but where are you seeing flows just
Speaker 3: in the last three weeks.
Speaker 6: Yeah, we've seen IG credit, so we have seen over
Speaker 6: nine hundred million come into USIG, which is just the
Speaker 6: whole corporate credit curve. A lot of interest picking up
Speaker 6: on long duration municipal bond. Those are actually on a
Speaker 6: tax equivalent basis, yielding over six and a half percent,
Speaker 6: so you can get some of the same yields you
Speaker 6: find in high yield but in unis so people are
Speaker 6: looking at adding duration there and we've just seen more
Speaker 6: people adding to very short ultra short exposures, putting that
Speaker 6: cash to work, trying to squeeze a little bit more
Speaker 6: out of the front end. And then finally, bomb ladders
Speaker 6: are really popular. For example, our ibonds et apps We've
Speaker 6: seen over a billion dollars come into those this year.
Speaker 6: Our most popular one is our twenty twenty nine IBDU
Speaker 6: yielding over four percent with only a three year duration.
Speaker 6: So we're seeing people just stepping out of the front
Speaker 6: end go into more that intermediate exposure.
Speaker 1: Is there anything that you are kind of watching out
Speaker 1: from that FED decision tomorrow, Karen? Obviously it's the decision
Speaker 1: and what you hear from the FED and the statement,
Speaker 1: but it really is the press conference too with j
Speaker 1: Powell to give a lot more context and color around
Speaker 1: all of that. He's very careful. It's often we've seen
Speaker 1: in the last few meetings he tends to say very
Speaker 1: similar things. But I'm just curious in the last thirty
Speaker 1: seconds that we've got with you, what you will be
Speaker 1: watching out for and you think is important to fixed
Speaker 1: and coome investors.
Speaker 6: So of course we're watching the main decision. We think
Speaker 6: the FED will continue to be on hold. I think
Speaker 6: they're going to be data dependent. We've seen FED speak
Speaker 6: this week, filter and through that they're still waiting for
Speaker 6: the previous cuts to come through the economy. I think
Speaker 6: I'm really going to be watching the number of dissenters
Speaker 6: or we're going to get a nine to three or
Speaker 6: some kind of even more divided decision.
Speaker 1: Yeah, always interesting, right as they play it out and
Speaker 1: they vote basically and see where they it kind of lands,
Speaker 1: because we certainly have seen a lot more dissension as
Speaker 1: of late. Karen, Thank you so much. Karen Verry Perry,
Speaker 1: she's head of us I Shares Fixed Income strategy over
Speaker 1: at Blackrock.
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