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Speaker 1: Bloomberg Audio Studios, podcasts, radio news. This is the Bloomberg

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Speaker 1: Surveillance Podcast. Catch us live weekdays at seven am Eastern

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Speaker 1: on Apple CarPlay or Android Auto with the Bloomberg Business App.

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Speaker 1: Listen on demand wherever you get your podcasts, or watch

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Speaker 1: us live on YouTube.

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Speaker 2: In the studio.

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Speaker 3: Not commuting from New Jersey, Sarah I joins us right now.

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Speaker 3: Chief market strategist Alpine Sex and Woods. You have been

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Speaker 3: brilliant about Look, there's a malstream of news, but you

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Speaker 3: got to participate. How do you feel going into the

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Speaker 3: weekend with the courage of your convictions?

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Speaker 2: I guess succeeding well.

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Speaker 4: I think that the market has been volatile over the

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Speaker 4: last six weeks, and this fast move higher also seems

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Speaker 4: to put the risk reward scenario into a little bit

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Speaker 4: more of a risk position. Because you've had such a

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Speaker 4: big move on the equity side, you do have to

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Speaker 4: keep participating. I think this is someplace to look really

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Speaker 4: carefully at valuations since we've had such a big lib

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Speaker 4: so fast.

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Speaker 5: So what do you make of it? I mean a

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Speaker 5: month or so ago people were jumping off, going to

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Speaker 5: jump off a bridge or something. Now we've almost retraced

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Speaker 5: it all. I mean, is it just just the perception

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Speaker 5: of tariffs and what it might do to the economy.

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Speaker 4: It's a great psychological experiment because you had this great,

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Speaker 4: terrible thing that was going to happen, which was we're

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Speaker 4: going to stop trading all together, and we're going to

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Speaker 4: have these big fights, and all of a sudden, we're

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Speaker 4: going to have a global trade war to oh, maybe

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Speaker 4: we're just going to get a level of tariffs that

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Speaker 4: are higher than we originally anticipated the very first time.

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Speaker 4: But since you had that big panic in the middle,

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Speaker 4: all of a sudden, that starts to sound reasonable, and

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Speaker 4: I think markets are just looking for some clarity here

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Speaker 4: and they're going, well, it's not that bad. We still

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Speaker 4: have all these other stories that are good. Had the

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Speaker 4: AI and earning story not played out, I think it

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Speaker 4: would have been a lot tougher right now to see

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Speaker 4: those valuations come back.

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Speaker 5: All right, So how do things screen for you these days?

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Speaker 5: Where do you see opportunities? Where do you kind of

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Speaker 5: go from here?

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Speaker 4: So if you're looking at some of the places that

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Speaker 4: we're looking at right now, you look at things like financials,

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Speaker 4: which haven't really participated quite as much. It hasn't been

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Speaker 4: bad for them, but there's still potentially some deregulation going

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Speaker 4: on that utilities look sort of interesting here. Some of

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Speaker 4: the stuff that's gotten hit by a lot of the

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Speaker 4: news are very difficult. So healthcare becomes a lot more

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Speaker 4: challenging when all of a sudden you're having a fight

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Speaker 4: about pricing.

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Speaker 2: So what about XOI? I mean I haven't looked at

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Speaker 2: this in ages.

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Speaker 3: I mean in the old days at nysc Arco oil

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Speaker 3: index XOI. I'm waiting for somebody to walk in here

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Speaker 3: and say energy bottom, you know, is it an ultimate

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Speaker 3: value here? How do you treat energy in a time

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Speaker 3: of evs?

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Speaker 4: I think the tough thing is it's a time horizing

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Speaker 4: question because we do like energy, and we love some

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Speaker 4: of the energy infrastructure plays, and I've talked about some

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Speaker 4: of the pipelines, some of the LG stocks. But I

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Speaker 4: think from an oil stock perspective, this tension between a

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Speaker 4: recession and slow down and or a deal with Iran

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Speaker 4: and other things are driving the oil price in a

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Speaker 4: way that makes those stocks. Some of them have great dividends.

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Speaker 4: You look at a company, it's got a great dividend,

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Speaker 4: but it's a long term story. Right now, it's hard

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Speaker 4: to see those stocks appreciating with the volatility and the

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Speaker 4: oil price and what's going on globally.

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Speaker 3: Oh, we got economic data on a Friday.

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Speaker 2: Get one more question? Allowed the economic days Friday on.

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Speaker 5: A Friday going into it? So, I mean, how do

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Speaker 5: you think about just fixed income here broadly defined here?

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Speaker 5: Where do you see opportunities in fixed income?

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Speaker 4: Fixed income is a bit of a question because you

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Speaker 4: have to think at some point we are going to

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Speaker 4: get lower rates. The market keeps switching. When that's going

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Speaker 4: to happen, it is a good thing to have in

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Speaker 4: the portfolio. It was crazy volatile in a way that

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Speaker 4: you don't usually see it six weeks ago. I'm not

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Speaker 4: sure you get a repeat of that because there were

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Speaker 4: a lot of bigger questions that were happening then that

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Speaker 4: seem to have, if not been settled, at least tabled

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Speaker 4: for now, which is everyone's going to sell their treasurees

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Speaker 4: that isn't a US holder and it's going to be

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Speaker 4: a disaster for the treasury market. I think that's come

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Speaker 4: off a little bit, and I think you want to

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Speaker 4: stick to where you want to stick to the short

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Speaker 4: end of the curve, which is sort of what everybody's

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Speaker 4: been doing, even though you know rates are going to

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Speaker 4: come down because the duration is tough, Sarah.

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Speaker 3: Hunt, is a vix beneficial to you? Do you look

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Speaker 3: at it like a thermometer of the equity system?

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Speaker 4: I would say that in the extremes, it is when

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Speaker 4: you get those low readings that go on and on

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Speaker 4: and on forever. It's when you see those big spikes

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Speaker 4: that you start to pay more attention to how that

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Speaker 4: affects other things. But right now it's more on the

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Speaker 4: margin than it is on a day to day. It's directional,

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Speaker 4: and then on a day to day situation.

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Speaker 5: I'm just to speak for myself. I'm surprised that the

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Speaker 5: equity markets have come back as much as they have

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Speaker 5: simply because, okay, the tariffs aren't the worst case scenario,

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Speaker 5: but they're still significantly higher than where they were.

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Speaker 2: Well, let's lay that out. That's important.

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Speaker 3: It was three ish percent blended, and Ernie Tedesky and

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Speaker 3: the great team at Yell Budget Lab they're modeling out

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Speaker 3: even with adjustments, thirteen ish fourteen is percent.

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Speaker 5: Yeah, so that's a triple maybe a four pole exactly.

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Speaker 5: And if i'm you know, that's got to hit the

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Speaker 5: p and l across the board, or consumers are just

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Speaker 5: gonna get screwed with pricing.

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Speaker 4: I think there's going to be a combination of things.

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Speaker 4: There's going to be some substitution, there's going to be

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Speaker 4: some price increases. I think it's going to be difficult

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Speaker 4: for margins. Margins go to earnings. If earnings are coming down,

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Speaker 4: that multiple that just went right back up to where

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Speaker 4: we start at the beginning of the year starts to

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Speaker 4: look a little pricey. And that's where again you have

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Speaker 4: some adjustments that need to be made because people looking

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Speaker 4: out forward, but the near term earnings hit is going

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Speaker 4: is going to happen.

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Speaker 3: YouTube great, this guy, this guy, this could be a

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Speaker 3: fan member.

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Speaker 2: Sure, bitcoin Boomer. I think there's my brother out in

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Speaker 2: the Dakotas. Bitcoin Boomer, thank you for this.

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Speaker 3: University of Michigan survey is so far off from reality.

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Speaker 3: I bet the questions are loaded to create the conclusions

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Speaker 3: they desire.

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Speaker 2: It's an Ohio state f in. Yeah, really, the Ohio

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Speaker 2: state economics Sarah Hunt.

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Speaker 3: The soft data and behavioral phone calling stuff, is that

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Speaker 3: a value to you?

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Speaker 4: It's a value when it has some prediction. Right now,

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Speaker 4: the soft data and the hard data are not converging

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Speaker 4: because the hard data is still looking at stuff where

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Speaker 4: we may be pulling stuff in. The soft data may

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Speaker 4: be too negative because it's also sticking with some of

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Speaker 4: the psychological issues that we're going on in the month

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Speaker 4: of April. So I think it's difficult until they start

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Speaker 4: to get a little bit closer together. Just talking about

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Speaker 4: those inflation expectations, I mean, that's much higher than we're

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Speaker 4: even seeing today. So the expectation that that's going to

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Speaker 4: change so much. Is that expectation going to change again?

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Speaker 4: So I don't know right now that it is as

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Speaker 4: predictive as you'd like it to be.

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Speaker 3: Any guest who uses the word of expectation more than

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Speaker 3: a half trick three times, we show the door.

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Speaker 2: Sarah, Thank you, Thank you so much.

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Speaker 3: Sarah Hu with his chief market strategist and Alpine section.

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Speaker 2: Was we adore having her in.

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Speaker 1: You're listening to the Bloomberg Surveillance Podcast. Catch us live

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Speaker 1: weekday afternoons from seven to ten am. E's durn Listen

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Speaker 1: on Applecarplay and Android Otto with the Bloomberg Business app,

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Speaker 1: or watch us live on YouTube.

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Speaker 2: I think we got to go coupon now. Yeah, Meghan

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Speaker 2: Robinson gets to starting.

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Speaker 5: Yeah, Meghan Robinson joins us. She's ahead of US credit

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Speaker 5: strategy BNP Piabashi j wants sent our Bloomberg Interactive Broker

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Speaker 5: Studio on a Friday, So double like golden stars for that, Megan,

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Speaker 5: there's spent so much uncertainty in the marketplace here. We've

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Speaker 5: heard that from corporate executives on the earnings call, a

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Speaker 5: lot of uncertainty. How does that impact your view of

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Speaker 5: the credit markets here? How much risk are you guys

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Speaker 5: taking these days?

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Speaker 6: So we're actually we've shifted a bit cautious. So I

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Speaker 6: think we've we've certainly gotten a lot of good news

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Speaker 6: on tariffs with some of the uncertainty removed with China

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Speaker 6: and the ninety day pause, but ultimately we think you're

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Speaker 6: still at a much higher tariff level than you were

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Speaker 6: to start the year, so US to the rest of

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Speaker 6: the world, we think is an average of twelve percent

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Speaker 6: tariff that's almost five times higher than when Trump Trump

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Speaker 6: took office, and the market's now pricing in a lot

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Speaker 6: of optimism and we're back to close to the tight

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Speaker 6: levels we saw here to date in February. So I

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Speaker 6: think from here, gradually we do think that spreads will

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Speaker 6: we'll start to move wire is some of the data

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Speaker 6: that we get shows some of that terriffy fact.

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Speaker 3: What I when they note Megan is the way you

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Speaker 3: learn to take losses and equity is to ignore the

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Speaker 3: bond market.

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Speaker 2: Right now, I really want to pay attention to the Megan.

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Speaker 3: Robson world, and what I see is real concern about

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Speaker 3: price lower out the curve, the tenure, the thirty year,

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Speaker 3: that Japan forty year has some legitimate convexity right now.

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Speaker 3: Are we into a new regime in late twenty twenty

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Speaker 3: five of higher yields ten years and out?

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Speaker 6: Well? I think the yield story is absolutely back in credit,

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Speaker 6: so that the argument to buy credit with the recent

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Speaker 6: sell off has I think only strengthened. So investors there

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Speaker 6: is concern that spreads could potentially move wider belong of Ia,

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Speaker 6: of long end of IG because of some of this

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Speaker 6: concern about fiscal deficits and that the treasury could go

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Speaker 6: even higher than it happens.

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Speaker 2: Right Am I going to like b and be peribout?

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Speaker 2: I mean they speak very directly. It's in French and

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Speaker 2: I can't understand it. But that's a different story.

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Speaker 3: On Monday, do I want to load the boat in

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Speaker 3: a thirty year US bond or do I wait?

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Speaker 6: I think you should. I think you should wait. So

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Speaker 6: from here we actually think that the treasure yields should

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Speaker 6: should head lower. As treasury yields move lower over the

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Speaker 6: course of the year, investors are going to want a

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Speaker 6: little bit more spread compensation on the long end. So

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Speaker 6: in terms of the curve, we like being a little

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Speaker 6: more defensive in investment grade. So three to five year

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Speaker 6: investment grade we think looks good. I think that the

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Speaker 6: long end could actually be an underweight opportunity if we

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Speaker 6: do see the rally and treasury yields that we're expecting.

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Speaker 3: I can't emphasize Paul the polarity here between Megan Robson

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Speaker 3: as an adult in the frenzy out in the zeitgeist

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Speaker 3: right now over the ten twenty thirty years, pieces of

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Speaker 3: everybody's own MG Japan forty or price way down. But

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Speaker 3: the pros aren't looking that they're in much time.

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Speaker 5: How about new new issuance?

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Speaker 1: Do you guys?

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Speaker 2: Are you guys? Is it a phone?

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Speaker 5: If I'm a salesperson on Morgan Stander Goldmans, am I

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Speaker 5: calling you guys to buy new issuance.

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Speaker 6: So we just revised our new issuance a bit lower

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Speaker 6: for investment grade, so we have a forecast of one

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Speaker 6: point five eight trillion. And if you reverse and back

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Speaker 6: up to around the election, there was tons of enthusiasm

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Speaker 6: around m and a rise in capital expenditures, positive sentiment,

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Speaker 6: and we really haven't seen that yet. So corporate issuance

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Speaker 6: is actually tracking lower year to date in twenty twenty

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Speaker 6: five versus twenty twenty four. And then to Tom's point,

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Speaker 6: higher treasury yields has deterred some issuance in the IG market.

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Speaker 5: Are there certain sectors you guys favor at this point?

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Speaker 6: Yeah, So in IG we like tech, so I think

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Speaker 6: tech evaluations have had been hurt by some of the

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Speaker 6: AI stuff, and also exposure to China. We think that

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Speaker 6: that's an attractive sect. Or places like utilities where you're

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Speaker 6: still sort of insulated from tariffs. And then in the

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Speaker 6: highield market, we like mortgage servicers. We think you're not

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Speaker 6: vulnerable to the level of rates there you have recurring

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Speaker 6: revenue streams, so that's a favorite sector as well.

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Speaker 5: See a big deal in the cable space cable b

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Speaker 5: issuers and talking to the pros here so TMT.

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Speaker 6: I think it depends in ig We are comfortable with

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Speaker 6: the risk in that sector and high yield less. So

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Speaker 6: just given the maturity wall and some of the secular

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Speaker 6: challenges that were mature.

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Speaker 2: The maturity wall was such a good band.

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Speaker 5: I love it.

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Speaker 3: Oh my god, they did def Leppard Lick No. One.

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Speaker 2: Megan Rapson, thank you so much for BMP Perry By.

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Speaker 2: Thanks this morning.

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Speaker 1: This is the Bloomberg Surveillance Podcast. Listen live each weekday

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Speaker 1: starting at seven am Eastern on Apple Cockplay and Android

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Speaker 1: Auto with the Bloomberg Business App. You can also listen

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Speaker 1: live on Amazon Alexa from our flagship New York station,

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Speaker 1: Just say Alexa Play Bloomberg eleven thirty joining us for way, way.

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Speaker 2: Too short of visit.

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Speaker 3: William Lee is chief economist at the Milken Institute.

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Speaker 2: He's been incredibly busy. Bill.

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Speaker 3: I'm going to pull an audible on you with all

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Speaker 3: your IMF work over the years. In the Pacific RIM,

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Speaker 3: people are focused on China, people are focused on Canada,

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Speaker 3: people are focused on Mexico. I'm focused on over one

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Speaker 3: million unit exports of toyotas from Japan. We had a

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Speaker 3: negative real GDP today. We got a forty year bond yield.

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Speaker 3: In Japan, it's to the moon. There's a huge tension

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Speaker 3: there politically as well. Explain the importance and power of

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Speaker 3: Japan and these trade negotiations with mister Trump.

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Speaker 7: Well, you saw what the UK did for the creating

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Speaker 7: a template as far as how partnerships work with the

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Speaker 7: United States, right, that's an example where you had a

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Speaker 7: lot of miss investment in the United States by the

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Speaker 7: UK and this reciprocal understanding that there's the bowling by

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Speaker 7: his rules engines and then they buy back the bowling plane.

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Speaker 7: There's no tariffs on that kind of partnership relationship. Japan

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Speaker 7: is one of these also the great partners in the

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Speaker 7: United States. Japan has one of the largest net investment

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Speaker 7: positions in the United States. And I think the template

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Speaker 7: that we're going to see coming out of the trading

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Speaker 7: agreement is again an example of what good partnerships are.

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Speaker 7: And now China, right, is a good example of what

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Speaker 7: President Trump calls competition with the US. He choose not

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Speaker 7: to produce here, he choose not to invest here, you

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Speaker 7: have a tariff wall. And I think that's going to

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Speaker 7: be the template that we see going on to the

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Speaker 7: rest of the deals that we will be making with.

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Speaker 2: All of your experience.

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Speaker 3: Is the ten percent a firm wall of tariffs or

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Speaker 3: could the tariffs dip below on a blended basis migrate

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Speaker 3: back towards at three percent level?

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Speaker 7: You know, I think one of the best things that

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Speaker 7: happened to markets was when Secretary Vest talked at the

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Speaker 7: Milking conference last week and reminded everyone tariffs are just

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Speaker 7: one part of a policy package of smaller government, lower

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Speaker 7: taxes or regulation. That's the important those are the important ingredients.

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Speaker 7: The tariffs are really a small piece that tells our

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Speaker 7: investment partners, look, you come here to the United States,

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Speaker 7: will give you a terror hole to protect your investments

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Speaker 7: from unfair competition. So I think the ten percent number

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Speaker 7: is there to stay, to remind everybody the value of

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Speaker 7: the access into the US marketplace and to get rid

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Speaker 7: of any kind of unfair competition. So I think the

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Speaker 7: tarrefoles will stay with us. I think it'll be at

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Speaker 7: that ten percent level. But again, it's a small piece

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Speaker 7: of the policy package that really is exciting markets and

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Speaker 7: got and reminded markets that that's where the emphasis is

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Speaker 7: on the on the policy front bill.

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Speaker 5: What do you make of the weakness in the US dollar. Here,

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Speaker 5: We've seen other risk ass assets like stocks rebound and

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Speaker 5: retrace much of the losses, but not so much the dollar.

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Speaker 5: What do you make of it here?

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Speaker 7: I'm so glad you asked that question, Paul. Again. That

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Speaker 7: was a major part of the discussion among every major investor

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Speaker 7: at the Milk conference. And they're always saying, what's happening

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Speaker 7: to the role of the dollar and its valuation? And

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Speaker 7: I think that's the key difference. The valuation of the

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Speaker 7: dollar has come down off of its peak back in

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Speaker 7: February when when everyone was so enthusiastic about the Trump election.

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Speaker 7: Let's remember that the value of the dollar is well

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Speaker 7: above where it was five years ago, an average for

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Speaker 7: the last five years. But the role of the dollar

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Speaker 7: has really not changed at all. The role of the

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Speaker 7: dollar as a reserve currency, the role of the dollar

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Speaker 7: is the vehicle currency. That is not changed that No

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Speaker 7: one has even talked about finding substitutes. But the valuation

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Speaker 7: moves around and it's come off of the Tom highs,

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Speaker 7: and that's normalization, is right.

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Speaker 5: It built a lot of folks. When I think about tariffs,

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Speaker 5: they say they are a tax on the consumer. They

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Speaker 5: say they are inflationary, do you agree?

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Speaker 7: You know, Paul, every economist is trained to say tariffs

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Speaker 7: are the creation of the devil. It's the worst thing

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Speaker 7: you can do to an economy, and I think in

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Speaker 7: most cases it is, and it's been used badly by

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Speaker 7: most emergent market countries to try to protect failing industries.

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Speaker 7: I remind you that when a doctor diagnoses you with atrifibulation,

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Speaker 7: he gives you cuminin and or war friend, which is

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Speaker 7: rat poison. And I think that there's a role for

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Speaker 7: rat poison as a package of therapies. There's a role

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Speaker 7: for tariffs as a package of economic policies, because in

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Speaker 7: this case, the role of tariff is not to protect industries,

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Speaker 7: but rather to incentivize serious discussion about bringing capital into

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Speaker 7: the United States, and that I think was the real

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Speaker 7: role for the tariffs. That again, President Trump is reminded

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Speaker 7: everybody that we really need to reshape the global economic

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Speaker 7: trading system and we can't live with a WTO system

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Speaker 7: that was created after World War Two.

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Speaker 3: Billy, you and I read Ricardo cover to cover. He

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Speaker 3: didn't deal with a service sector like we have now.

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Speaker 3: To tariff outcomes, are they the same in a service

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Speaker 3: sector is a goods producing sector.

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Speaker 2: I don't buy it.

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Speaker 7: It's pretty hard to teariff services, isn't it, especially when

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Speaker 7: when you it's a license for American banks to sell

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Speaker 7: financial products and try. Yeah, and so so, I think

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Speaker 7: the whole notion that twerfs has been done away with,

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Speaker 7: especially with the different rounds of tarraf productions we've had

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Speaker 7: over many decades. But the real serious barriers to trade

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Speaker 7: that Ricardo didn't deal with, our non tariff barriers and

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Speaker 7: the legal requirements and health requirements and quality standards that

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Speaker 7: are demanded of US exports into various countries. Those are

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Speaker 7: the obstacles that are part of the negotiation practice that

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Speaker 7: President Trump wanted to incentivize by putting up this huge

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Speaker 7: tire pary and say, look, you guys, let's get serious

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Speaker 7: pout getting rid of the real series blocks to trade.

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Speaker 3: Wait too short of this, Billy, thank you so much,

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Speaker 3: greatly appreciate it. With Milkin here off of the Milkin

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Speaker 3: Institute celebration of another weeks ago, Shirley Basic, thank you

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Speaker 3: so much for Milkin cover.

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Speaker 2: It is it's chief for.

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Speaker 3: Kindness, the Milkin Institute.

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Speaker 1: This is the Bloomberg surveillance podcast. Listen live each weekday

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Speaker 1: starting at seven am Eastern on Applecarplay and Auto with

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Speaker 1: the Bloomberg Business app. You can also watch us live

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Speaker 1: every weekday on YouTube and always on the Bloomberg Terminal.

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Speaker 3: Usually we talk big Oil, Bran West Texas Intermediate, but

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Speaker 3: with the President in the Middle East, I think we

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Speaker 3: have to be advantaged by her true expertise as a

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Speaker 3: senior fellow at the Atlantic Council. The calling card is

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Speaker 3: her book Saudi Inc. Which is what we have observed

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Speaker 3: for the last four or five six days.

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Speaker 2: Ellen Waald joins us.

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Speaker 3: Now, Ellen, how does the fragility of the royal family

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Speaker 3: before nineteen thirty eight play with the present royal family

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Speaker 3: of Saudi Arabia? They were nothing and then there was

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Speaker 3: a discovery of oil in nineteen thirty eight, the invention

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Speaker 3: of a Ramco.

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Speaker 2: And off we go.

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Speaker 3: How does that history play into the way the Saudi

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Speaker 3: royal family thinks?

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Speaker 8: Yeah, I think that's that's a great, a great point,

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Speaker 8: because one of the things that's important to remember is

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Speaker 8: that they really had no money, very little sources of

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Speaker 8: income back then, and so the hold on power was

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Speaker 8: really just based on their ability to militarily control the tribes,

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Speaker 8: and so once oil started flowing, it really became a

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Speaker 8: way for them to exert their influence over the peninsula

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Speaker 8: basically through paying for things for people. They suddenly had

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Speaker 8: the cash to be able to, you know, extend this

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Speaker 8: large test and that was the symbol of their rule

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Speaker 8: over the people. And so I do think that that

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Speaker 8: is something that really has remained culturally throughout time, that

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Speaker 8: there is this idea that the royal family is there

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Speaker 8: to provide, and so if at any point they are

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Speaker 8: unable to provide, that could jeopardize the legitimacy of them

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Speaker 8: as the ruling the.

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Speaker 3: Persian golf, for the Arabian golf, whatever we're gonna name

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Speaker 3: it next week, Ellen Wild There's each royal family has

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Speaker 3: a story, whether they're flying from Doha down to Abu Dhabi.

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Speaker 3: Do they all have in their head the same break

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Speaker 3: even oil price or other distinctive break even oil prices

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Speaker 3: for each nation each royal family?

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Speaker 1: Yeah?

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Speaker 8: Absolutely. I mean every every every oil industry in the

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Speaker 8: Middle East is run differently, and I think that's a

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Speaker 8: common misperception. People think it's just this monolithic, you know,

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Speaker 8: national oil companies, but it's actually very different. A Rampo

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Speaker 8: has a totally different break even price from say the

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Speaker 8: Kuwait Oil Company or a rock or you know the

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Speaker 8: UAE or you know even bah Rain for example. So

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Speaker 8: a Rampos is basically the lowest in the world. Their

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Speaker 8: break even is, you know, depending on what they're producing,

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Speaker 8: can be between two dollars and ten dollars. I usually

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Speaker 8: like to say around six. It's kind of an average.

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Speaker 8: That's the lowest in the entire world. So no matter

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Speaker 8: how low oil prices go, a Ramco is still going

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Speaker 8: to come out on top. Now that's different from the

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Speaker 8: price that the Saudi government would like oil to be

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Speaker 8: at to balance their budget, which I think is really

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Speaker 8: a totally useless figure. People like to bring this out,

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Speaker 8: the IMF likes to talk about it, but that really

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Speaker 8: doesn't influence the Saudi government all that much because the

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Speaker 8: Saudi government isn't selling oil. A Ramco sells oil. The

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Speaker 8: Saudi government gets revenue from that oil and those oil sales,

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Speaker 8: but they're not actually selling it. That's not the way

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Speaker 8: it works in Iran. That's not the way it works

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Speaker 8: in Kuwait, where those oil companies are much more intertwined

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Speaker 8: with the government, and so the government is actually collecting

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Speaker 8: that revenue directly, and so their price point, their break

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Speaker 8: even points are higher, and they needed a higher price

441
00:21:55,400 --> 00:21:56,640
Speaker 8: for their budget as well.

442
00:21:57,160 --> 00:22:00,399
Speaker 5: Ellen, you mentioned Iran, and as we you know, followed

443
00:22:00,400 --> 00:22:03,199
Speaker 5: President Trumpter's trip through the Middle East here that Iran

444
00:22:03,320 --> 00:22:06,159
Speaker 5: was always always in the background there. Could you just

445
00:22:06,240 --> 00:22:09,920
Speaker 5: refresh our memory? How is Iran's what is Iran's role

446
00:22:10,080 --> 00:22:12,680
Speaker 5: in the global energy market today?

447
00:22:13,160 --> 00:22:16,040
Speaker 8: Yeah, this is this is interesting. So you know, Iran

448
00:22:16,160 --> 00:22:20,639
Speaker 8: has a lot of oil resources. You know, they have

449
00:22:20,920 --> 00:22:22,720
Speaker 8: a lot of oil and a lot of natural bass

450
00:22:22,760 --> 00:22:26,560
Speaker 8: in the ground, but production wise, they really don't.

451
00:22:26,359 --> 00:22:27,480
Speaker 4: Produce all that much.

452
00:22:27,720 --> 00:22:30,560
Speaker 8: I would say around now, they're producing about three point

453
00:22:30,600 --> 00:22:33,639
Speaker 8: three million barrels of oil per day. Was actually on

454
00:22:33,720 --> 00:22:37,320
Speaker 8: the higher side of late in twenty twenty they were

455
00:22:37,320 --> 00:22:41,520
Speaker 8: down below three really I think the height at the

456
00:22:41,560 --> 00:22:44,280
Speaker 8: height in the past decade, they were producing about four

457
00:22:44,640 --> 00:22:47,440
Speaker 8: million barrels a day. So that's not all that big.

458
00:22:47,480 --> 00:22:49,320
Speaker 8: You know, if we were compared to Saudi Arabia, to

459
00:22:49,320 --> 00:22:53,040
Speaker 8: the United States, United States producing thirteen million barrels of

460
00:22:53,040 --> 00:22:56,240
Speaker 8: oil today. So while they have a lot of resources,

461
00:22:56,560 --> 00:22:59,160
Speaker 8: they're not producing that much oil. Right now.

462
00:22:59,280 --> 00:23:05,040
Speaker 2: When we get a book, when I love when.

463
00:23:04,960 --> 00:23:06,320
Speaker 8: I finally get a good night's sleep.

464
00:23:06,920 --> 00:23:10,240
Speaker 2: Ellen Wald, I love bussing your jobs. Thank you so much.

465
00:23:10,440 --> 00:23:13,159
Speaker 2: Ellen Wall's senior fellow the Atlantic Council.

466
00:23:13,440 --> 00:23:17,360
Speaker 1: This is the Bloomberg Surveillance Podcast. Listen live each weekday

467
00:23:17,400 --> 00:23:20,399
Speaker 1: starting at seven am Eastern on Apple Corplay and Android

468
00:23:20,440 --> 00:23:23,480
Speaker 1: Auto with the Bloomberg Business App. You can also listen

469
00:23:23,560 --> 00:23:26,800
Speaker 1: live on Amazon Alexa from our flagship New York station.

470
00:23:27,359 --> 00:23:29,920
Speaker 1: Just say Alexa Play Bloomberg eleven thirty.

471
00:23:29,960 --> 00:23:31,120
Speaker 2: I'm going to crack the book.

472
00:23:30,920 --> 00:23:34,320
Speaker 3: On Frank Fobosi this weekend, one thousand, nine hundred and

473
00:23:34,359 --> 00:23:35,080
Speaker 3: four pages.

474
00:23:35,359 --> 00:23:37,040
Speaker 2: Kelsey Barrow's reading cover to cover.

475
00:23:37,200 --> 00:23:39,680
Speaker 3: Bob Michael said, you're not working for me unless you

476
00:23:39,760 --> 00:23:42,720
Speaker 3: read Forbozi cover to cover. Kelsey joins us right now.

477
00:23:42,720 --> 00:23:46,840
Speaker 3: Executive director JP Morgan on clipping coupons. Okay, I just

478
00:23:46,880 --> 00:23:50,000
Speaker 3: did the fancy chart in the Bloomberg. You know Thomson

479
00:23:50,040 --> 00:23:51,200
Speaker 3: couldn't have stopped me yesterday.

480
00:23:51,240 --> 00:23:51,640
Speaker 2: Says time.

481
00:23:51,680 --> 00:23:54,919
Speaker 3: You're not talking fancy math enough, So let's go the

482
00:23:54,960 --> 00:23:58,280
Speaker 3: two ten spread, the differencing yield between the ten year

483
00:23:58,359 --> 00:24:00,800
Speaker 3: and the two year. I took it back to Paul Voker,

484
00:24:01,040 --> 00:24:05,920
Speaker 3: getting way way back. It's a very elegant standard deviation study.

485
00:24:06,320 --> 00:24:10,520
Speaker 3: I don't think people realize that forty five basis points

486
00:24:10,560 --> 00:24:14,080
Speaker 3: point four or five percentage points difference between the ten

487
00:24:14,160 --> 00:24:19,760
Speaker 3: year and two year we're nowhere near normal steep center

488
00:24:19,880 --> 00:24:23,520
Speaker 3: tendency is one hundred and five basis points. Is that

489
00:24:23,720 --> 00:24:26,200
Speaker 3: our future that we're going to get back to that

490
00:24:26,320 --> 00:24:27,440
Speaker 3: kind of steep curve.

491
00:24:27,960 --> 00:24:30,520
Speaker 9: Well, we do think that the curve should be structurally

492
00:24:30,600 --> 00:24:33,320
Speaker 9: steeper over time. It's a function of the fact that

493
00:24:33,359 --> 00:24:37,000
Speaker 9: we're moving further away from an environment where the zero

494
00:24:37,040 --> 00:24:40,719
Speaker 9: lower bound is a problem, and further away from an

495
00:24:40,800 --> 00:24:42,800
Speaker 9: environment where the FED is giving a lot of fun.

496
00:24:43,600 --> 00:24:46,200
Speaker 2: Back to normal, yeah, I mean we're for your time.

497
00:24:46,040 --> 00:24:49,000
Speaker 9: We're slowly going back to normal. But I would say

498
00:24:49,080 --> 00:24:52,040
Speaker 9: in the in the immediate horizon, what's going to drive

499
00:24:52,119 --> 00:24:54,720
Speaker 9: the curve steeper is ultimately going.

500
00:24:54,560 --> 00:24:56,120
Speaker 4: To be expectations for the FED.

501
00:24:56,200 --> 00:24:58,440
Speaker 9: So if you think about over time, where does the

502
00:24:58,520 --> 00:25:01,159
Speaker 9: volatility in the yield curve come from, it comes from

503
00:25:01,240 --> 00:25:03,800
Speaker 9: the front end. It comes from the FED either raising

504
00:25:03,880 --> 00:25:07,639
Speaker 9: rates or lowering rates. When we get a really steep curve,

505
00:25:07,640 --> 00:25:11,040
Speaker 9: it's going to be a function of significant rate cuts

506
00:25:11,080 --> 00:25:11,560
Speaker 9: From here.

507
00:25:12,359 --> 00:25:15,240
Speaker 5: Is that what JP Morgan s management is thinking about

508
00:25:15,720 --> 00:25:16,800
Speaker 5: rate cuts going forward.

509
00:25:17,320 --> 00:25:20,159
Speaker 9: So right now, we don't expect rate cuts in the

510
00:25:20,200 --> 00:25:22,679
Speaker 9: immediate term. We expect that the FED is going to

511
00:25:22,920 --> 00:25:27,560
Speaker 9: remain on hold for now at least. And then in

512
00:25:27,640 --> 00:25:30,439
Speaker 9: terms of what the FED is looking at, you know,

513
00:25:30,520 --> 00:25:33,240
Speaker 9: we do see a lot of uncertainty in the economy

514
00:25:33,320 --> 00:25:36,119
Speaker 9: right now, but it's really just not showing up in

515
00:25:36,200 --> 00:25:38,480
Speaker 9: the hard data. I mean, the only place that I

516
00:25:38,480 --> 00:25:41,680
Speaker 9: can really see it flowing through this uncertainty, which is

517
00:25:41,720 --> 00:25:44,920
Speaker 9: primarily a function of the tariff regime, is in net

518
00:25:44,960 --> 00:25:48,280
Speaker 9: exports within GDP. But if you look at the jobs data,

519
00:25:48,359 --> 00:25:50,479
Speaker 9: if you look at the inflation data, it's actually amazing

520
00:25:50,520 --> 00:25:54,960
Speaker 9: how well entrenched the disinflation was heading into this trade war,

521
00:25:55,000 --> 00:25:57,840
Speaker 9: given the inflation data we've gotten over the last few days.

522
00:25:58,320 --> 00:26:00,359
Speaker 5: So, do you guys at JP Morgan, sid Man, some

523
00:26:00,400 --> 00:26:03,479
Speaker 5: of the smarter folks out there, is sitting to your

524
00:26:03,520 --> 00:26:06,080
Speaker 5: treasury at four percent more or less? Or do you

525
00:26:06,119 --> 00:26:07,119
Speaker 5: take credit risk here?

526
00:26:07,400 --> 00:26:09,000
Speaker 9: I think you want a little bit of credit risk,

527
00:26:09,000 --> 00:26:11,320
Speaker 9: but I think you want to stay on the higher

528
00:26:11,440 --> 00:26:15,560
Speaker 9: quality side. But I will say we have been diving

529
00:26:15,640 --> 00:26:18,560
Speaker 9: really deep in terms of doing the credit work on

530
00:26:18,640 --> 00:26:22,800
Speaker 9: an individual name basis and making sure that our companies

531
00:26:22,840 --> 00:26:26,359
Speaker 9: are prepared for a more challenging environment. So what we

532
00:26:26,440 --> 00:26:29,280
Speaker 9: actually did is we ran all of our companies through

533
00:26:29,280 --> 00:26:32,880
Speaker 9: a stress test of ten percent tariffs and twenty percent tariffs.

534
00:26:32,800 --> 00:26:34,720
Speaker 4: Have you learn and we actually.

535
00:26:34,520 --> 00:26:37,639
Speaker 9: Learned that companies are in a very strong position. Even

536
00:26:37,680 --> 00:26:41,200
Speaker 9: in that twenty percent stress test of tariffs, we still

537
00:26:41,240 --> 00:26:44,760
Speaker 9: couldn't get investment grade earnings on a median company basis

538
00:26:44,920 --> 00:26:45,879
Speaker 9: to get below z ear.

539
00:26:45,800 --> 00:26:47,200
Speaker 2: Get do their unit sales go down?

540
00:26:47,240 --> 00:26:49,679
Speaker 3: I mean, if you're doing this, micro Feroli, could you

541
00:26:49,680 --> 00:26:53,160
Speaker 3: see Kelsey Barrow Micael Feroli PiZZ at seven pm?

542
00:26:53,280 --> 00:26:54,879
Speaker 2: I can see it. Okay.

543
00:26:55,240 --> 00:26:57,560
Speaker 3: Are you assuming then that the burden of the trade

544
00:26:57,560 --> 00:27:00,800
Speaker 3: war is on the consumer and not on American corporates.

545
00:27:01,200 --> 00:27:04,359
Speaker 9: It's going to be a combination of both, so you

546
00:27:04,440 --> 00:27:08,040
Speaker 9: are going to see I mean, it's that is really

547
00:27:08,080 --> 00:27:10,960
Speaker 9: the reality is that for some companies the burden is

548
00:27:11,000 --> 00:27:13,720
Speaker 9: going to go straight to the consumer, and then for

549
00:27:13,840 --> 00:27:16,199
Speaker 9: some companies the burden is going to go more to

550
00:27:16,240 --> 00:27:18,520
Speaker 9: them in terms of margin compression. But it's a sector

551
00:27:18,560 --> 00:27:19,520
Speaker 9: bisector analysis.

552
00:27:19,640 --> 00:27:22,320
Speaker 3: Jamie Diamond and parishes today or our friends saying I'm

553
00:27:22,320 --> 00:27:24,239
Speaker 3: sure he's bringing you back something nice that we are

554
00:27:24,320 --> 00:27:28,240
Speaker 3: mess But Kelsey, the basic idea here is JP Morgan

555
00:27:28,320 --> 00:27:31,760
Speaker 3: is global. JP Morgan's looking what foreign investors are doing.

556
00:27:32,320 --> 00:27:35,760
Speaker 3: It's price up yeld down. Is that because foreigners are

557
00:27:35,760 --> 00:27:37,720
Speaker 3: still buying our full faith and credit paper.

558
00:27:38,320 --> 00:27:42,280
Speaker 9: So yes, in general, while the narrative has been and

559
00:27:42,320 --> 00:27:45,000
Speaker 9: the fear has been, particularly on the long end, that

560
00:27:45,040 --> 00:27:48,080
Speaker 9: there's been this loss of sponsorship, and we do think

561
00:27:48,119 --> 00:27:51,760
Speaker 9: that over time we have been seeing a trend from

562
00:27:51,840 --> 00:27:54,960
Speaker 9: foreigners away from the US market, away from the US dollar,

563
00:27:55,080 --> 00:27:58,560
Speaker 9: towards more diversified portfolios. But if you look at the

564
00:27:58,600 --> 00:28:02,840
Speaker 9: Treasury allotment data more recently, foreign demand has been a

565
00:28:03,000 --> 00:28:06,040
Speaker 9: fairly stable and if I look at our own active

566
00:28:06,040 --> 00:28:10,080
Speaker 9: ETF complex, we've been seeing that demand has been fairly

567
00:28:10,160 --> 00:28:13,120
Speaker 9: healthy for fixed income throughout the year. But I think

568
00:28:13,200 --> 00:28:16,640
Speaker 9: what has changed is the narrative around why fixed income

569
00:28:17,000 --> 00:28:19,240
Speaker 9: fits into your portfolio. So if you were to ask

570
00:28:19,280 --> 00:28:22,800
Speaker 9: a week ago, you know, why do you why do

571
00:28:22,840 --> 00:28:25,440
Speaker 9: you want fixed income in your portfolio? People said, well,

572
00:28:25,560 --> 00:28:28,560
Speaker 9: the risk reward around rate cuts. You know, we can

573
00:28:28,600 --> 00:28:31,080
Speaker 9: hold it and it's a very good hedge in case

574
00:28:31,119 --> 00:28:34,040
Speaker 9: we do hit that hard landing. Now that there has

575
00:28:34,080 --> 00:28:36,680
Speaker 9: been this pause, this ninety day pause between the US

576
00:28:36,720 --> 00:28:40,200
Speaker 9: and China. People are bringing down that recession risk probability.

577
00:28:40,560 --> 00:28:43,400
Speaker 9: People are saying, okay, so maybe the tail risk of

578
00:28:43,480 --> 00:28:46,880
Speaker 9: hard landing has been priced out, but yields are still

579
00:28:46,920 --> 00:28:49,640
Speaker 9: really high. I'm looking to have that fixed income in

580
00:28:49,680 --> 00:28:52,959
Speaker 9: my portfolio still, but it's more for clipping coupon and

581
00:28:52,960 --> 00:28:53,880
Speaker 9: that stable income.

582
00:28:54,320 --> 00:28:58,040
Speaker 5: So are there certain sectors that you guys like if

583
00:28:58,080 --> 00:29:01,080
Speaker 5: you think about taking some credit risk here? Are you

584
00:29:01,360 --> 00:29:03,680
Speaker 5: a sector kind of focus or kind of looking at

585
00:29:03,680 --> 00:29:06,440
Speaker 5: different factors? How do you guys think about I'm kidding.

586
00:29:06,640 --> 00:29:08,880
Speaker 9: All across the board, but what we've been focused on

587
00:29:09,040 --> 00:29:13,320
Speaker 9: is as you've seen a repricing in spreads, where has

588
00:29:13,480 --> 00:29:16,840
Speaker 9: things been lagging and those are the places you know

589
00:29:16,880 --> 00:29:20,400
Speaker 9: where we're most focused. So we've seen in this retracement

590
00:29:20,480 --> 00:29:24,240
Speaker 9: and spreads tighter. We've seen some lagging in triple b's,

591
00:29:24,960 --> 00:29:28,560
Speaker 9: in autos and energies some of these credits. We've seen

592
00:29:28,600 --> 00:29:33,120
Speaker 9: some opportunity to pick up yield in areas where the

593
00:29:33,160 --> 00:29:37,080
Speaker 9: repricing has been slightly less efficient. And there's also opportunities,

594
00:29:37,120 --> 00:29:39,440
Speaker 9: I would say in securitize credit, which is an area

595
00:29:39,560 --> 00:29:43,520
Speaker 9: we focus a lot on again where the repricing tends

596
00:29:43,520 --> 00:29:46,000
Speaker 9: to be slower and less efficient, and those are the

597
00:29:46,040 --> 00:29:47,640
Speaker 9: areas where we're focused on adding.

598
00:29:47,800 --> 00:29:51,320
Speaker 5: So when securitize, it is that mortgage back securities, asset

599
00:29:51,320 --> 00:29:53,560
Speaker 5: backed securities, all the above, all of.

600
00:29:53,560 --> 00:29:55,400
Speaker 9: The above, but in terms of where you're going to

601
00:29:55,440 --> 00:29:57,760
Speaker 9: find the credit risk component that would be and you

602
00:29:57,840 --> 00:30:00,520
Speaker 9: know your asset backed securities things that are backed on

603
00:30:01,040 --> 00:30:05,600
Speaker 9: auto loans. For an example, Yankees are Mets, Mets Mets.

604
00:30:05,720 --> 00:30:07,480
Speaker 3: Yeah, all right, it's exciting.

605
00:30:07,600 --> 00:30:09,840
Speaker 4: It's been great. Yeah, we went to a game last Sunday,

606
00:30:09,920 --> 00:30:10,440
Speaker 4: Mother's Day.

607
00:30:10,480 --> 00:30:12,640
Speaker 9: It was beautiful. Huh.

608
00:30:12,800 --> 00:30:15,240
Speaker 3: I can't want some mess because of nineteen eighty six.

609
00:30:15,320 --> 00:30:19,840
Speaker 3: But they're going into the Yankee Stadium tonight, right, Yeah,

610
00:30:20,280 --> 00:30:22,040
Speaker 3: so it's going to be a right drink right.

611
00:30:22,480 --> 00:30:23,240
Speaker 2: Across the nation.

612
00:30:23,360 --> 00:30:25,880
Speaker 3: I mean, I'm like the worst person to talk about

613
00:30:25,920 --> 00:30:27,320
Speaker 3: this because I literally.

614
00:30:27,400 --> 00:30:29,479
Speaker 2: I get upset in this room that we're in.

615
00:30:29,560 --> 00:30:32,600
Speaker 3: Right here was where I met Lenny Dykstra.

616
00:30:32,880 --> 00:30:34,200
Speaker 2: Wow, and he and I.

617
00:30:34,080 --> 00:30:37,360
Speaker 3: Taught there his home run in Game three, nineteen eighty six.

618
00:30:37,600 --> 00:30:42,800
Speaker 3: It's never come down. It's over marbleheads somewhere, and this

619
00:30:42,840 --> 00:30:43,680
Speaker 3: is really exciting.

620
00:30:43,680 --> 00:30:46,800
Speaker 9: Are you going no I'm not going, but we'll be watching,

621
00:30:46,920 --> 00:30:48,720
Speaker 9: certainly in my household my husband.

622
00:30:48,720 --> 00:30:49,520
Speaker 4: It will be on tonight.

623
00:30:49,600 --> 00:30:51,680
Speaker 3: If I call mister Diamond and you can free up

624
00:30:51,720 --> 00:30:52,560
Speaker 3: the seats, can you go?

625
00:30:53,560 --> 00:30:56,640
Speaker 5: Well, we confirmed that Kelsey entertain they are going to

626
00:30:56,680 --> 00:30:59,040
Speaker 5: the new building on the Park Avenue. They've got desks,

627
00:30:59,640 --> 00:31:03,280
Speaker 5: so that's big because you know, Bob Michael, he wasn't sure.

628
00:31:03,520 --> 00:31:06,560
Speaker 2: Did you pick the maroon carpet that's gonna be?

629
00:31:06,720 --> 00:31:08,280
Speaker 9: I'm sure whatever it is, it will be grea.

630
00:31:08,520 --> 00:31:09,600
Speaker 2: Have you been in the building yet?

631
00:31:09,920 --> 00:31:12,560
Speaker 9: No, I have not, but I sit in the building

632
00:31:12,560 --> 00:31:15,719
Speaker 9: across from men. I see them working every single day. Yeah,

633
00:31:15,760 --> 00:31:18,080
Speaker 9: every single day, and they're making so much progress.

634
00:31:17,760 --> 00:31:20,000
Speaker 2: For those those you nationwide.

635
00:31:20,080 --> 00:31:23,200
Speaker 3: I was walking down Madison Avenue and I don't care

636
00:31:23,240 --> 00:31:25,800
Speaker 3: what any I don't care about all the architectural credits.

637
00:31:25,840 --> 00:31:28,120
Speaker 2: I hope the New York Times treats it well. It

638
00:31:28,360 --> 00:31:30,000
Speaker 2: sits beautiful.

639
00:31:30,880 --> 00:31:36,200
Speaker 3: Was it in mid twentieth century? It pays homage to our.

640
00:31:36,120 --> 00:31:39,000
Speaker 5: Parents coming into New York City. You know, Park Avenue

641
00:31:39,040 --> 00:31:41,480
Speaker 5: around was forty eighth Street, forty seventh Sweet, it's just

642
00:31:41,680 --> 00:31:44,840
Speaker 5: spectacular new It's just Morgan Headquarters coming up.

643
00:31:45,000 --> 00:31:49,080
Speaker 2: It's not like stupid, ugly or it just sits beautifully.

644
00:31:49,400 --> 00:31:51,680
Speaker 2: Kelsey Bugel, architect for JP Morgan.

645
00:31:51,800 --> 00:31:52,120
Speaker 5: Thank you.

646
00:31:52,320 --> 00:31:57,120
Speaker 1: This is the Bloomberg Surveillance Podcast, available on Apple, Spotify,

647
00:31:57,240 --> 00:32:01,520
Speaker 1: and anywhere else you get your podcasts. Listen live each weekday,

648
00:32:01,680 --> 00:32:05,120
Speaker 1: seven to ten am Eastern on Bloomberg dot com, the

649
00:32:05,200 --> 00:32:09,240
Speaker 1: iHeartRadio app, tune In, and the Bloomberg Business app. You

650
00:32:09,280 --> 00:32:12,640
Speaker 1: can also watch us live every weekday on YouTube and

651
00:32:12,840 --> 00:32:14,560
Speaker 1: always on the Bloomberg terminal