00:00:02 Speaker 1: Bloomberg audio studios, podcasts, radio news. This is the Bloomberg surveillance podcast. Catch us live weekdays at 7 a.m. Eastern on Apple car play or Android auto with the Bloomberg business app. Listen on demand wherever you get your podcasts or watch us live on YouTube. 00:00:27 Speaker 2: Global wall street focus is on Jackson hole, Wyoming fed chairman Warsh. Um, Kind of disappointed, I would say, the global markets were with some of his comments to date in terms of disclosure or lack thereof. Maybe a little bit of an opportunity to reset here or maybe not. Richard Clarity joins us. He knows what's going on. He is the global economic advisor at PIMCO, former Federal Reserve vice chair joining us here. 00:00:51 Speaker 3: Richard, thanks so much for joining us here. 00:00:53 Speaker 2: If you were advising Fed Chair Warsh as it relates to today's speech, what would you tell him? 00:00:59 Speaker 3: Well, thank you for having me on. 00:01:01 Speaker 4: Obviously, the chairman's first speech at Jackson Hole in that capacity. At the press conference recently, he said he might talk about some big picture questions. You know, we have five task forces. We have four big picture questions. But I would advise him also to at least spend some time giving the audience and giving markets the sense of the Kevin Warsh framework for thinking about how we're going to get inflation down to You know, he says inflation is a choice, and I agree with him. 00:01:33 Speaker 5: Right now it is and has. 00:01:34 Speaker 4: Been above 2% for five years. And so at least some insight into his framework for getting to price stability, I think, would be valuable. 00:01:44 Speaker 6: Rich, I'm so glad you mentioned that line, inflation is a choice. What did Chairman Warsh mean when he said that? And how do you interpret it? What do you think that means when someone says inflation is a choice? How has the government interpreted made the choice of having inflation? 00:02:00 Speaker 5: Well, Scarlett, it actually is. 00:02:01 Speaker 4: A version of something Milton Friedman said a half century ago or more, which is, quote, inflation is everywhere and always a monetary phenomenon. And so, you know, Kevin, I think Chairman Morse was channeling that idea that ultimately over some period of time, the rate of inflation in a country is determined by its monetary policy. The key element of that statement, though, is over some period of And I think the chairman is right that five years is a long time to be above the target. On the other hand, a lot's happened in the last five or six years. 00:02:36 Speaker 2: You know, Anna Wong from Bloomberg Economics is out with a great note today saying what she would like to hear and what she believes the market would like to hear. OK, you don't want to provide guidance. 00:02:47 Speaker 3: Fine. 00:02:48 Speaker 2: But give us a sense of kind of how the market should react to certain data. Richard Clarida, Global Economic Advisor at PIMCO and former Fed Vice Chair. Richard, one of the things Anna Wong from Bloomberg Economics is out with a wonderful note today, and one of her points is, and it's shared by the marketplace, I think, is, okay, you don't want to provide us guidance. You don't want to spoon feed us guidance, but give us a sense of your reaction, how you react to certain data points, how you're going to maybe view markets data and your ability to get inflation down. So those reaction functions, is that something he should delve into? 00:03:23 Speaker 4: Well, right now, I think here's the issue for the Fed. Many of his colleagues on the committee are telling us about their reaction functions. You know, Lori Logan, Beth Hammack, Neil Kashkari, to name just three of the folks who have dissented. And so even though the committee speaking as a committee right now is not offering a lot of guidance, I think the view is that since we're hearing from Hammock and Logan and Kashkari, it would be useful at least to some extent to get the chairman's perspective. So I think that's where we are right now. 00:03:56 Speaker 6: The backdrop for Kevin Warsh's speech is an interesting one, right? Because you have this decline in treasury prices, yields have been elevated, and of course that prompted Treasury Secretary Scott Besson to intervene. A lot of people are talking about a revival of the debasement trade, this idea that people want to get out of U.S. dollar denominated assets. If Chair Warsh doesn't deliver what a lot of investors are looking for, do you see a sharp revival of that debasement trade? 00:04:28 Speaker 5: Scarlett, I really don't. 00:04:30 Speaker 4: Obviously, things can change. But right now, we're seeing really a global sell-off in yields. So there are global factors at play, not just the Fed. In fact, if anything, really, since Liberation Day now 15, 16 months ago, the dollar has been flat or even in the last several months after hostilities in the Middle East going up. So I'm certainly not in the debasement trade. 00:04:54 Speaker 2: That was Richard Clarity, Global Economic Advisor at Pimcom, former Fed Vice Chair, giving us his thoughts here. 00:05:03 Speaker 7: Stay with us. More from Bloomberg Surveillance coming up after this. 00:05:15 Speaker 1: You're listening to the Bloomberg Surveillance Podcast. Catch us live weekday afternoons from 7 to 10 a.m. 00:05:21 Speaker 5: Eastern. 00:05:21 Speaker 8: Listen on Apple CarPlay and Android Auto with the Bloomberg Business app or watch. 00:05:26 Speaker 1: Us live on YouTube. 00:05:27 Speaker 2: Our next guest, undergraduate degree electrical engineering at MIT. That's bad enough. And then you double down and get a Ph.D. in operations research at MIT. I mean, what do you do with that? You go trade stocks, bonds, commodities, and that's what Katie Kaminski does, Chief Research Strategist at Alpha Simplex. Katie, what looks good to you guys these days? I know you guys like to follow trends, try to identify trends in stocks, bonds, commodities. 00:05:54 Speaker 3: What's screening well for you guys these days? 00:05:57 Speaker 9: Well, I'm actually going to talk about something unrelated, which is- Sugar and wheat and agricultural commodities. 00:06:04 Speaker 5: I know we're talking. 00:06:05 Speaker 9: About Jackson Hole, but those are actually things that we consume. And the biggest trends this month outside of the normal asset classes have actually been sugar and wheat. So that could be something to think about if you're thinking about CPI and. 00:06:20 Speaker 5: You're thinking about inflation. 00:06:22 Speaker 9: This has to do with supply concerns and the fact that there's some disruptions and concerns for disruption continued around the Black Sea and also issues in Brazil. So I think talking about something uncorrelated but still correlated in the sense that we worry about inflation, we see agricultural commodities up a lot this month. 00:06:43 Speaker 10: So if you want to take a bet on sugar on wheat, how do you do that? How do you express that? Is it through ETFs? Is it through certain countries, certain companies? 00:06:53 Speaker 5: So usually I would suggest futures contracts. 00:06:56 Speaker 9: So anything that takes a direct exposure to the price of sugar or wheat. And you can actually trade those on places like the CME. And that's where you can actually track those type of commodities. You can also look at ETFs that actively change positions or trade in things like trend following that will be following those trends in futures markets. 00:07:20 Speaker 2: And of course, the Bloomberg has you completely covered here on the commodity space. GLCO gives you all the commodity space and energy, metals, agriculture. And if you're interested in ags like Katie and her team are, you click on the agriculture and boom, it gives you just about everything. The grains, the sauce, the livestock. I'm big on the lean hogs, pork belly myself. But what's moving? So it's kind of just supply and demand. How liquid are these markets, Katie, for you guys that want to really take some big bets here? 00:07:52 Speaker 5: So actually, the. 00:07:53 Speaker 9: Agricultural futures markets are quite liquid, and they allow you to sort of trade dynamically in a wide range of different commodities. So it can also be things like silver. Silver is up also a lot this month. Silver, palladium, platinum, U.S. wheat, Kansas wheat. You can also find prices and futures positions on those type of contracts. So it's kind of an interesting way to have a very– different and non-equity focused investment. 00:08:24 Speaker 6: And I like what you said earlier about how it's uncorrelated to the other asset classes, which have really started to move in lockstep with one another. 00:08:31 Speaker 10: What does the. 00:08:32 Speaker 6: Dollars movement mean for these commodities? Because they're so priced in dollars. And with so much concern around the national debt here in the US, the rising bond yields, I wonder if the debasement trade has, or the advent of the debasement trade has any impact on these kinds of commodities? 00:08:52 Speaker 5: Oh, it has a huge impact. 00:08:53 Speaker 9: And actually, we saw, if you remember in June, the dollar was strengthening quite a bit. That has a very negative impact on commodity prices because as the dollar strengthens, you see that the price relative of these commodities goes up and makes it you know, more disadvantageous for people to buy them. So it's also very important for the price of oil as well. 00:09:15 Speaker 5: So if you. 00:09:16 Speaker 9: Imagine how affordable oil is, it's also linked to our currency because oil is priced in dollars as well as many of these agricultural commodities. So in June, we saw the dollar strong. That caused a sell-off in many commodities. As the dollar weakens, it actually makes those commodities more attractive. So you might even see more demand. 00:09:38 Speaker 2: What I learned very early in my career is I have no idea how to trade oil. That thing is all over the place. I think it's going to go up. 00:09:45 Speaker 3: It goes down. 00:09:46 Speaker 5: But now you have ETFs. 00:09:47 Speaker 10: That's what you can do. 00:09:48 Speaker 3: I guess. I don't know. 00:09:49 Speaker 2: But I mean, so in terms of just global energy here, Katie, do you just try to ignore what's happening in the Strait of Hormuz? 00:09:58 Speaker 3: Or does geopolitics just. 00:10:00 Speaker 2: kind of keep you guys on the sidelines here? 00:10:03 Speaker 9: So the way that we think about oil is not sort of you don't go all in in oil and take 100% position. 00:10:09 Speaker 5: You take a small position and you manage. 00:10:12 Speaker 9: The size of that position as a function of the volatility. So you can imagine that you need a small position in oil to get a reasonable return because oil has moved so much and it has very high volatility. 00:10:24 Speaker 5: And so what you'll see is as oil expands and sort of. 00:10:28 Speaker 9: The trend develops, your positions will change. And then you want to adjust as volatility expands and reduce your position to manage the risk of oil. So it is a tricky business. It's not something if you just hold it as oil. 00:10:41 Speaker 5: The price is quite volatile. Katie, how are you thinking about gold? 00:10:46 Speaker 6: Gold had a moment, a big moment at the start of the year when it started to trade like a meme stock, spiking above 5,500, obviously has come down since then. But we've seen this rally since mid-July that has at least for now peaked, but very much feels like with that debasement trade back in the headlines again, gold benefits. 00:11:07 Speaker 5: Yeah, I agree. 00:11:08 Speaker 9: We've seen a shift in gold. Gold was the big thing we talked about a year or so ago. Then it has been on sort of a downward trend. And then things have changed this summer. You're starting to see more positive flow, positive returns in gold over the last few months. And I would say that it looks like it has a possibility to break out into a new trend. From my perspective, you had an extreme trend in gold. Last year, it had to kind of reconsolidate And the fundamental themes which support gold were kind of exhausted. 00:11:41 Speaker 5: And now we're starting to see that coming back. 00:11:43 Speaker 9: So I think it could be a potential buying opportunity for gold still if that continues. 00:11:49 Speaker 2: So just we'll finish up here, Katie, on equities here. We keep hitting, I don't know, all-time highs almost daily, John Tucker keeps reporting. And if I look at outside the U.S., I've got really strong performance in Europe and lots of Asian markets as well. That seems to be globally pretty constructive for equities. 00:12:08 Speaker 6: Yes. 00:12:08 Speaker 9: I mean, and it's always challenging because, you know, there's nothing standing in the way right now. 00:12:13 Speaker 5: There's no. 00:12:15 Speaker 9: And the equity markets have also discounted geopolitical risk. 00:12:19 Speaker 5: So I think that's something that's interesting. 00:12:22 Speaker 9: But, you know, there's nothing in the data that suggests that we shouldn't be doing well in equity markets, giving earnings and growth. But, you know, it always makes you nervous to hit new highs because... you start wondering, you know, it's so difficult to tell when a trend is over and when you've hit the top. So I think that's what keeps people a little on their toes. And it definitely keeps us on our toes in the equity markets. 00:12:46 Speaker 2: Katie, thanks so much. Always appreciate chatting with you. Katie Kaminski, Chief Research Strategist at Alpha Simplex. 00:12:53 Speaker 7: Stay with us. More from Bloomberg Surveillance coming up after this. 00:13:04 Speaker 1: You're listening to the Bloomberg Surveillance Podcast. Catch us live weekday afternoons from 7 to 10 a.m. Eastern. 00:13:11 Speaker 8: Listen on Apple CarPlay and Android Auto with the Bloomberg Business app or watch us live on YouTube. 00:13:17 Speaker 2: Let's head across the pond to Freya Bhima. She's a chief economist out of macro research at TS Lombard. Freya, thanks so much for joining us here. Hey, when you talk to your institutional investor clients, what do they want to hear from the U.S. 00:13:30 Speaker 3: Federal Reserve? I don't know, maybe today out in Jackson Hole. 00:13:37 Speaker 11: We don't need a huge amount of forward guidance or anything. It would just be nice to know what's the reaction function. I think that there's a difference between those two things. What's the reaction function? And then in this particular circumstance, given the announcements and the rhetoric coming out of the Treasury and Secretary Besson. 00:13:58 Speaker 5: It would be good to have. 00:14:00 Speaker 11: A clear signal that the Fed... frankly, is going to do its job. And I think that will help the long end of the curve. One of our big calls has been that if Walsh does not sound sufficiently hawkish, then the long end of the curve is going to ask for compensation. And there have been now moments when it appears that the Treasury is not going to be happy with that market signal, despite the fact that that's exactly what Walsh has asked for, to hear the signals from the market he's asked for. And when we see that kind of signaling it's not so much the numbers are exactly what they're doing at this moment in time but that kind of of signaling is just sort of not helpful we see that increase in yields and decline in the dollar that we we don't really we don't really like um and and we would like to hear from the you know i would like to hear from the federal institutional investors would like to hear from the fed is it gonna is it gonna perform according to to its mandate. 00:15:06 Speaker 6: For Warsh, sounding hawkish may not be the problem. I mean, he sounded pretty hawkish ever since he took the reins as Fed chair. 00:15:12 Speaker 10: It's the lack of clarity on how the. 00:15:15 Speaker 6: Fed would move forward if inflation does not come down. That seems to be what investors really want some kind of insight into. And his reluctance to share that, is that something that investors will just need to get used to, even with the Treasury market perhaps not sending clear signals because of intervention from Besson? 00:15:36 Speaker 11: Right. So we need to know what the reaction function is. It's exactly as you say, we need to know what the reaction function is. I think what I'm worried about is, you know, if Besant is trying to send a signal to bond markets and then we don't get this clarity from the Fed, you know, not necessarily today, but over a period of time and particularly as the labor market reaccelerates on the back of this kind of broadening out of profits and It may be that there's a soft patch in the short term, but eventually this is an economy that is going to see a reacceleration in the labor market that will provide clear evidence that rates are in fact not restrictive. And we need to know that there is a Fed there with a reaction function that is the same as the one that we're all used to. And that will sort of tighten if those things happen. And if we don't hear that kind of a signal, particularly if the labor market starts to reaccelerate, then I think there is going to be a battle at the long end of the curve. And that's just not something that's really good for anyone. 00:16:42 Speaker 2: Well, I think maybe, you know, Fed Chairman Warsh, she's kind of saying, hey, you know, the market's full of adults. 00:16:49 Speaker 3: You guys can figure it all out. We don't have to hold you by the hand. 00:16:52 Speaker 2: And maybe that's kind of what we're seeing here, because we've got the 10-year rate at almost. 00:16:56 Speaker 3: 470, the 30-year at 520. The market's kind of telling the Fed, we got this. Is that enough? 00:17:04 Speaker 11: Yeah, as long as the rest of the administration is prepared to hear the signal. Personally, I think that the 10-year has not yet fully priced this new macroeconomic regime. In terms of the signals that are coming out from the Treasury, I would be much more interested in sort of pro-cyclicality of fiscal policy than I am in any kind of liquidity, so-called liquidity interventions at the long end of the curve, which in my mind, can only really cause temporary effects. I'm much more interested in procyclicality of fiscal policy, the extent to which it might be contributing to inflation being above target, and the greater likelihood of these negative supply shocks, such as the Strait of Hormuz, such as um, tariff shocks, uh, which destroy the, the, the hedging or reduce the hedging capacity of bonds for equities, turn that, that correlation positive and, and therefore term premium should be higher. So 4.7 on a trend basis for me is, is, is not yet high enough. 00:18:06 Speaker 10: Interesting. 00:18:07 Speaker 6: Well, this feels like the high water event for this week. We had Nvidia earnings, um, which kind of pointed to inflation given what Nvidia said about, um, the supply chain issues that it faces, the log jams. 00:18:19 Speaker 10: And then you have Kevin Warsh's speech. 00:18:21 Speaker 6: Next week, at least in the U.S., it's the final week before a three-day weekend, and it feels very much like there's going to be an absence of participants in the market. I mean, we get some big data points, but who's going to be around to respond to it? What are you looking for next week that could really move things along and give us some more direction on the state of the economy? Is it just all going to be about the jobs report? 00:18:42 Speaker 11: The jobs report is always important, but there's so much noise in these data. I think there was a lot of upside noise, probably both in inflation and jobs data early in the year. There may be some kind of strange seasonal pattern that's kind of coming into that. Then there's been a bunch of probably downside noise to correct that. But the trend for us is upwards. And the point about NVIDIA and these earnings. 00:19:10 Speaker 5: We are seeing. 00:19:11 Speaker 11: That the effects of AI are much more coming through on the demand side and the inflationary side so far than on the diffusion side, which is not to say that they won't come through on the supply side and the diffusion side. But right now, it is much more an inflationary effect, both through the direct demand and through the spillovers that that is creating, in my mind, positive spillovers to the rest of the economy and broadening out of earnings. which is a forward signal for a re-acceleration in the labour market. But then the question is, you know, what else is the administration doing with regards to the supply of labor and the ability of the rest of the economy to keep up with that demand pressure, particularly if the equity market is performing well and that creates positive wealth effects at the same time, which, again, is a more sort of diffuse form of demand creation. So we've got a lot of demand creation happening. And not so much ability of this labor market to respond to that supply. I think what we're going to see is a pickup in unit labor cost growth and probably also a pickup in the markup from unit labor cost growth to CPI and core services inflation in the U.S. going back to a sort of a pre-globalization, pre-deleveraging scenario. um type of a relationship there um and that's very much sort of all to come so i'm focused on the earnings i'm less focused on sort of one data point of of um of kind of inflation or or the jobs market um and i think that is the the the trajectory for a lot of the the fomc members as well. 00:20:42 Speaker 2: For you thank you so much for joining us we really appreciate getting a few minutes of your time free beamish she's the chief economist and head. 00:20:48 Speaker 3: Of macro research research at t.s lombard based in london. 00:20:54 Speaker 7: Stay with us. More from Bloomberg Surveillance coming up after this. 00:21:05 Speaker 1: You're listening to the Bloomberg Surveillance Podcast. Catch us live weekday afternoons from 7 to 10 a.m. Eastern. 00:21:11 Speaker 8: Listen on Apple CarPlay and Android Auto with the Bloomberg Business app or watch. 00:21:16 Speaker 1: Us live on YouTube. 00:21:18 Speaker 2: Let's talk about the M & A business here. Mitch Berlin joins us here, EY America's vice chair for EY Parthenon. Mitch, talk to us about the M & A environment so far, year to date in 2026, and kind of what's your outlook here? 00:21:29 Speaker 12: Yeah, it's been an interesting first six months. We started the year a little slow, but if you look six months in, there's about $ 2 trillion almost of deal value in the U.S. 00:21:39 Speaker 3: Alone, which is unprecedented. 00:21:40 Speaker 12: But you really got to split that between corporate and PE to really understand the full picture here, because PE is off to a slow start. Clearly, it's very highly dependent on the Fed borrowing rate, and that can go either direction at this point. So there's a lot of wait and see on that, although we are seeing PE activity pick up in the second quarter of the year. But corporate is doing really well. We're seeing a 22% increase in volume in the first six months, 54% increase in value. So more deals are happening and much bigger deals are happening. The CEOs of these organizations are tired of waiting for the perfect moment. I don't think that's coming anytime soon. So they're balancing the inability to predict what's going to happen in the world in the future with the need to transform the organization. And they're leaning heavily into M & A to do that. 00:22:32 Speaker 6: I find it fascinating that we're in this moment of great uncertainty, but corporate executives are moving ahead anyway. They're plowing ahead regardless because they know that they want to get bigger and create scale. 00:22:43 Speaker 10: And you kind of mentioned that. 00:22:44 Speaker 6: Why is scale so important right now in 2026 when there is this much uncertainty and you kind of want to be able to be flexible? 00:22:53 Speaker 12: I think scale is one and I think AI is the other, which is creating a whole different dynamic in the M & A market. So you're seeing from a scale perspective, you are seeing a lot of pruning of non-core businesses and investing in the core to get the benefits from scale. And you're seeing a lot of activist shareholders still looking for organizations to get rid of that conglomerate discount, focus on their core billeted scale and really be in one identifiable market versus multiple markets and sectors where you're getting conglomerate discount. The other big thing that's happening is AI is creating an M & A environment and ecosystem that we haven't seen before in the past, because it's such an arms race around AI. So you're seeing a lot of activity focused on AI. When you think of it, it's not just the technology, it's the hardware, it's the infrastructure around it, it's the energy that powers it. So it cuts across many, many sectors. And it really is driving a lot of the M & A activity now. 00:23:51 Speaker 3: Mitch, you mentioned private equity, PE. 00:23:53 Speaker 2: Now that I think of, when I say PE, I always think of that guy on social media now that's all over the place. 00:23:58 Speaker 3: If you haven't seen him, he's very funny. 00:23:59 Speaker 4: Which guy? 00:24:00 Speaker 3: PE guy. Just go Google PE guy. 00:24:02 Speaker 8: Oh, PE guy. Love it. 00:24:02 Speaker 3: Yeah. 00:24:04 Speaker 12: Brand. 00:24:05 Speaker 3: Yeah. What's going on there, Mitch? I mean, it's easy to raise money. 00:24:10 Speaker 2: It's easy to invest money, but I don't see a lot of monetizations or exits here. 00:24:14 Speaker 3: Talk to us about private equity as a driver here of M & A. 00:24:18 Speaker 12: You are right. There's still about $ 2 trillion in dry powder that's waiting to be invested. The issue there is the valuation gaps between the buyer and the seller. To justify the deals with the cost of capital being so high, The seller has to sell a lower rate, but the seller isn't willing to do that. And so you're still seeing a gap around big PE deals between the bid and the ask there. I do see a lot of activity in middle market. Middle market PE never took their foot off the gas, and that's been consistent through COVID up until now. So when you're looking at middle market, there's still a lot of PE activity there. It's the larger deals that require leverage that that are not happening as fast as we would have expected it to. And again, that's all tied to the Fed borrowing rate because a lot of the PE deals are leveraged and they can't justify a higher cost of capital unless they get a lower valuation and those dots aren't connecting. 00:25:15 Speaker 6: You said it's tied to the Fed barring rates. So presumably they want to see the Federal Reserve cut rates. But if the Federal Reserve doesn't cut rates, but we get movement in bond yields that even for short term provide a good opportunity, do you expect to see exits pick up or they really need to wait for something like the central bank to take action? 00:25:36 Speaker 12: I think you continue to see alternative sources of funding, private capital, secondary offerings, things like that. So deals will still happen. It's just not going to happen at the pace and volume that we're used to in a more favorable environment where the cost of capital was a lot more affordable. 00:25:53 Speaker 2: Mitch, thanks so much. Appreciate it chatting with you. Mitch Berlin, he's EY America's vice chair. 00:25:58 Speaker 1: This is the Bloomberg Surveillance Podcast, available on Apple, Spotify, and anywhere else you get your podcasts. Listen live each weekday, 7 to 10 a.m. Eastern, on Bloomberg.com, the iHeartRadio app, TuneIn, and the Bloomberg Business app. You can also watch us live every weekday on YouTube and always on the Bloomberg Terminal. 00:26:24 Speaker 6: Thank you.