Speaker 1: Bloomberg Audio Studios, podcasts, radio news. This is the Bloomberg
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Speaker 2: In the studio.
Speaker 3: Not commuting from New Jersey, Sarah I joins us right now.
Speaker 3: Chief market strategist Alpine Sex and Woods. You have been
Speaker 3: brilliant about Look, there's a malstream of news, but you
Speaker 3: got to participate. How do you feel going into the
Speaker 3: weekend with the courage of your convictions?
Speaker 2: I guess succeeding well.
Speaker 4: I think that the market has been volatile over the
Speaker 4: last six weeks, and this fast move higher also seems
Speaker 4: to put the risk reward scenario into a little bit
Speaker 4: more of a risk position. Because you've had such a
Speaker 4: big move on the equity side, you do have to
Speaker 4: keep participating. I think this is someplace to look really
Speaker 4: carefully at valuations since we've had such a big lib
Speaker 4: so fast.
Speaker 5: So what do you make of it? I mean a
Speaker 5: month or so ago people were jumping off, going to
Speaker 5: jump off a bridge or something. Now we've almost retraced
Speaker 5: it all. I mean, is it just just the perception
Speaker 5: of tariffs and what it might do to the economy.
Speaker 4: It's a great psychological experiment because you had this great,
Speaker 4: terrible thing that was going to happen, which was we're
Speaker 4: going to stop trading all together, and we're going to
Speaker 4: have these big fights, and all of a sudden, we're
Speaker 4: going to have a global trade war to oh, maybe
Speaker 4: we're just going to get a level of tariffs that
Speaker 4: are higher than we originally anticipated the very first time.
Speaker 4: But since you had that big panic in the middle,
Speaker 4: all of a sudden, that starts to sound reasonable, and
Speaker 4: I think markets are just looking for some clarity here
Speaker 4: and they're going, well, it's not that bad. We still
Speaker 4: have all these other stories that are good. Had the
Speaker 4: AI and earning story not played out, I think it
Speaker 4: would have been a lot tougher right now to see
Speaker 4: those valuations come back.
Speaker 5: All right, So how do things screen for you these days?
Speaker 5: Where do you see opportunities? Where do you kind of
Speaker 5: go from here?
Speaker 4: So if you're looking at some of the places that
Speaker 4: we're looking at right now, you look at things like financials,
Speaker 4: which haven't really participated quite as much. It hasn't been
Speaker 4: bad for them, but there's still potentially some deregulation going
Speaker 4: on that utilities look sort of interesting here. Some of
Speaker 4: the stuff that's gotten hit by a lot of the
Speaker 4: news are very difficult. So healthcare becomes a lot more
Speaker 4: challenging when all of a sudden you're having a fight
Speaker 4: about pricing.
Speaker 2: So what about XOI? I mean I haven't looked at
Speaker 2: this in ages.
Speaker 3: I mean in the old days at nysc Arco oil
Speaker 3: index XOI. I'm waiting for somebody to walk in here
Speaker 3: and say energy bottom, you know, is it an ultimate
Speaker 3: value here? How do you treat energy in a time
Speaker 3: of evs?
Speaker 4: I think the tough thing is it's a time horizing
Speaker 4: question because we do like energy, and we love some
Speaker 4: of the energy infrastructure plays, and I've talked about some
Speaker 4: of the pipelines, some of the LG stocks. But I
Speaker 4: think from an oil stock perspective, this tension between a
Speaker 4: recession and slow down and or a deal with Iran
Speaker 4: and other things are driving the oil price in a
Speaker 4: way that makes those stocks. Some of them have great dividends.
Speaker 4: You look at a company, it's got a great dividend,
Speaker 4: but it's a long term story. Right now, it's hard
Speaker 4: to see those stocks appreciating with the volatility and the
Speaker 4: oil price and what's going on globally.
Speaker 3: Oh, we got economic data on a Friday.
Speaker 2: Get one more question? Allowed the economic days Friday on.
Speaker 5: A Friday going into it? So, I mean, how do
Speaker 5: you think about just fixed income here broadly defined here?
Speaker 5: Where do you see opportunities in fixed income?
Speaker 4: Fixed income is a bit of a question because you
Speaker 4: have to think at some point we are going to
Speaker 4: get lower rates. The market keeps switching. When that's going
Speaker 4: to happen, it is a good thing to have in
Speaker 4: the portfolio. It was crazy volatile in a way that
Speaker 4: you don't usually see it six weeks ago. I'm not
Speaker 4: sure you get a repeat of that because there were
Speaker 4: a lot of bigger questions that were happening then that
Speaker 4: seem to have, if not been settled, at least tabled
Speaker 4: for now, which is everyone's going to sell their treasurees
Speaker 4: that isn't a US holder and it's going to be
Speaker 4: a disaster for the treasury market. I think that's come
Speaker 4: off a little bit, and I think you want to
Speaker 4: stick to where you want to stick to the short
Speaker 4: end of the curve, which is sort of what everybody's
Speaker 4: been doing, even though you know rates are going to
Speaker 4: come down because the duration is tough, Sarah.
Speaker 3: Hunt, is a vix beneficial to you? Do you look
Speaker 3: at it like a thermometer of the equity system?
Speaker 4: I would say that in the extremes, it is when
Speaker 4: you get those low readings that go on and on
Speaker 4: and on forever. It's when you see those big spikes
Speaker 4: that you start to pay more attention to how that
Speaker 4: affects other things. But right now it's more on the
Speaker 4: margin than it is on a day to day. It's directional,
Speaker 4: and then on a day to day situation.
Speaker 5: I'm just to speak for myself. I'm surprised that the
Speaker 5: equity markets have come back as much as they have
Speaker 5: simply because, okay, the tariffs aren't the worst case scenario,
Speaker 5: but they're still significantly higher than where they were.
Speaker 2: Well, let's lay that out. That's important.
Speaker 3: It was three ish percent blended, and Ernie Tedesky and
Speaker 3: the great team at Yell Budget Lab they're modeling out
Speaker 3: even with adjustments, thirteen ish fourteen is percent.
Speaker 5: Yeah, so that's a triple maybe a four pole exactly.
Speaker 5: And if i'm you know, that's got to hit the
Speaker 5: p and l across the board, or consumers are just
Speaker 5: gonna get screwed with pricing.
Speaker 4: I think there's going to be a combination of things.
Speaker 4: There's going to be some substitution, there's going to be
Speaker 4: some price increases. I think it's going to be difficult
Speaker 4: for margins. Margins go to earnings. If earnings are coming down,
Speaker 4: that multiple that just went right back up to where
Speaker 4: we start at the beginning of the year starts to
Speaker 4: look a little pricey. And that's where again you have
Speaker 4: some adjustments that need to be made because people looking
Speaker 4: out forward, but the near term earnings hit is going
Speaker 4: is going to happen.
Speaker 3: YouTube great, this guy, this guy, this could be a
Speaker 3: fan member.
Speaker 2: Sure, bitcoin Boomer. I think there's my brother out in
Speaker 2: the Dakotas. Bitcoin Boomer, thank you for this.
Speaker 3: University of Michigan survey is so far off from reality.
Speaker 3: I bet the questions are loaded to create the conclusions
Speaker 3: they desire.
Speaker 2: It's an Ohio state f in. Yeah, really, the Ohio
Speaker 2: state economics Sarah Hunt.
Speaker 3: The soft data and behavioral phone calling stuff, is that
Speaker 3: a value to you?
Speaker 4: It's a value when it has some prediction. Right now,
Speaker 4: the soft data and the hard data are not converging
Speaker 4: because the hard data is still looking at stuff where
Speaker 4: we may be pulling stuff in. The soft data may
Speaker 4: be too negative because it's also sticking with some of
Speaker 4: the psychological issues that we're going on in the month
Speaker 4: of April. So I think it's difficult until they start
Speaker 4: to get a little bit closer together. Just talking about
Speaker 4: those inflation expectations, I mean, that's much higher than we're
Speaker 4: even seeing today. So the expectation that that's going to
Speaker 4: change so much. Is that expectation going to change again?
Speaker 4: So I don't know right now that it is as
Speaker 4: predictive as you'd like it to be.
Speaker 3: Any guest who uses the word of expectation more than
Speaker 3: a half trick three times, we show the door.
Speaker 2: Sarah, Thank you, Thank you so much.
Speaker 3: Sarah Hu with his chief market strategist and Alpine section.
Speaker 2: Was we adore having her in.
Speaker 1: You're listening to the Bloomberg Surveillance Podcast. Catch us live
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Speaker 2: I think we got to go coupon now. Yeah, Meghan
Speaker 2: Robinson gets to starting.
Speaker 5: Yeah, Meghan Robinson joins us. She's ahead of US credit
Speaker 5: strategy BNP Piabashi j wants sent our Bloomberg Interactive Broker
Speaker 5: Studio on a Friday, So double like golden stars for that, Megan,
Speaker 5: there's spent so much uncertainty in the marketplace here. We've
Speaker 5: heard that from corporate executives on the earnings call, a
Speaker 5: lot of uncertainty. How does that impact your view of
Speaker 5: the credit markets here? How much risk are you guys
Speaker 5: taking these days?
Speaker 6: So we're actually we've shifted a bit cautious. So I
Speaker 6: think we've we've certainly gotten a lot of good news
Speaker 6: on tariffs with some of the uncertainty removed with China
Speaker 6: and the ninety day pause, but ultimately we think you're
Speaker 6: still at a much higher tariff level than you were
Speaker 6: to start the year, so US to the rest of
Speaker 6: the world, we think is an average of twelve percent
Speaker 6: tariff that's almost five times higher than when Trump Trump
Speaker 6: took office, and the market's now pricing in a lot
Speaker 6: of optimism and we're back to close to the tight
Speaker 6: levels we saw here to date in February. So I
Speaker 6: think from here, gradually we do think that spreads will
Speaker 6: we'll start to move wire is some of the data
Speaker 6: that we get shows some of that terriffy fact.
Speaker 3: What I when they note Megan is the way you
Speaker 3: learn to take losses and equity is to ignore the
Speaker 3: bond market.
Speaker 2: Right now, I really want to pay attention to the Megan.
Speaker 3: Robson world, and what I see is real concern about
Speaker 3: price lower out the curve, the tenure, the thirty year,
Speaker 3: that Japan forty year has some legitimate convexity right now.
Speaker 3: Are we into a new regime in late twenty twenty
Speaker 3: five of higher yields ten years and out?
Speaker 6: Well? I think the yield story is absolutely back in credit,
Speaker 6: so that the argument to buy credit with the recent
Speaker 6: sell off has I think only strengthened. So investors there
Speaker 6: is concern that spreads could potentially move wider belong of Ia,
Speaker 6: of long end of IG because of some of this
Speaker 6: concern about fiscal deficits and that the treasury could go
Speaker 6: even higher than it happens.
Speaker 2: Right Am I going to like b and be peribout?
Speaker 2: I mean they speak very directly. It's in French and
Speaker 2: I can't understand it. But that's a different story.
Speaker 3: On Monday, do I want to load the boat in
Speaker 3: a thirty year US bond or do I wait?
Speaker 6: I think you should. I think you should wait. So
Speaker 6: from here we actually think that the treasure yields should
Speaker 6: should head lower. As treasury yields move lower over the
Speaker 6: course of the year, investors are going to want a
Speaker 6: little bit more spread compensation on the long end. So
Speaker 6: in terms of the curve, we like being a little
Speaker 6: more defensive in investment grade. So three to five year
Speaker 6: investment grade we think looks good. I think that the
Speaker 6: long end could actually be an underweight opportunity if we
Speaker 6: do see the rally and treasury yields that we're expecting.
Speaker 3: I can't emphasize Paul the polarity here between Megan Robson
Speaker 3: as an adult in the frenzy out in the zeitgeist
Speaker 3: right now over the ten twenty thirty years, pieces of
Speaker 3: everybody's own MG Japan forty or price way down. But
Speaker 3: the pros aren't looking that they're in much time.
Speaker 5: How about new new issuance?
Speaker 1: Do you guys?
Speaker 2: Are you guys? Is it a phone?
Speaker 5: If I'm a salesperson on Morgan Stander Goldmans, am I
Speaker 5: calling you guys to buy new issuance.
Speaker 6: So we just revised our new issuance a bit lower
Speaker 6: for investment grade, so we have a forecast of one
Speaker 6: point five eight trillion. And if you reverse and back
Speaker 6: up to around the election, there was tons of enthusiasm
Speaker 6: around m and a rise in capital expenditures, positive sentiment,
Speaker 6: and we really haven't seen that yet. So corporate issuance
Speaker 6: is actually tracking lower year to date in twenty twenty
Speaker 6: five versus twenty twenty four. And then to Tom's point,
Speaker 6: higher treasury yields has deterred some issuance in the IG market.
Speaker 5: Are there certain sectors you guys favor at this point?
Speaker 6: Yeah, So in IG we like tech, so I think
Speaker 6: tech evaluations have had been hurt by some of the
Speaker 6: AI stuff, and also exposure to China. We think that
Speaker 6: that's an attractive sect. Or places like utilities where you're
Speaker 6: still sort of insulated from tariffs. And then in the
Speaker 6: highield market, we like mortgage servicers. We think you're not
Speaker 6: vulnerable to the level of rates there you have recurring
Speaker 6: revenue streams, so that's a favorite sector as well.
Speaker 5: See a big deal in the cable space cable b
Speaker 5: issuers and talking to the pros here so TMT.
Speaker 6: I think it depends in ig We are comfortable with
Speaker 6: the risk in that sector and high yield less. So
Speaker 6: just given the maturity wall and some of the secular
Speaker 6: challenges that were mature.
Speaker 2: The maturity wall was such a good band.
Speaker 5: I love it.
Speaker 3: Oh my god, they did def Leppard Lick No. One.
Speaker 2: Megan Rapson, thank you so much for BMP Perry By.
Speaker 2: Thanks this morning.
Speaker 1: This is the Bloomberg Surveillance Podcast. Listen live each weekday
Speaker 1: starting at seven am Eastern on Apple Cockplay and Android
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Speaker 1: Just say Alexa Play Bloomberg eleven thirty joining us for way, way.
Speaker 2: Too short of visit.
Speaker 3: William Lee is chief economist at the Milken Institute.
Speaker 2: He's been incredibly busy. Bill.
Speaker 3: I'm going to pull an audible on you with all
Speaker 3: your IMF work over the years. In the Pacific RIM,
Speaker 3: people are focused on China, people are focused on Canada,
Speaker 3: people are focused on Mexico. I'm focused on over one
Speaker 3: million unit exports of toyotas from Japan. We had a
Speaker 3: negative real GDP today. We got a forty year bond yield.
Speaker 3: In Japan, it's to the moon. There's a huge tension
Speaker 3: there politically as well. Explain the importance and power of
Speaker 3: Japan and these trade negotiations with mister Trump.
Speaker 7: Well, you saw what the UK did for the creating
Speaker 7: a template as far as how partnerships work with the
Speaker 7: United States, right, that's an example where you had a
Speaker 7: lot of miss investment in the United States by the
Speaker 7: UK and this reciprocal understanding that there's the bowling by
Speaker 7: his rules engines and then they buy back the bowling plane.
Speaker 7: There's no tariffs on that kind of partnership relationship. Japan
Speaker 7: is one of these also the great partners in the
Speaker 7: United States. Japan has one of the largest net investment
Speaker 7: positions in the United States. And I think the template
Speaker 7: that we're going to see coming out of the trading
Speaker 7: agreement is again an example of what good partnerships are.
Speaker 7: And now China, right, is a good example of what
Speaker 7: President Trump calls competition with the US. He choose not
Speaker 7: to produce here, he choose not to invest here, you
Speaker 7: have a tariff wall. And I think that's going to
Speaker 7: be the template that we see going on to the
Speaker 7: rest of the deals that we will be making with.
Speaker 2: All of your experience.
Speaker 3: Is the ten percent a firm wall of tariffs or
Speaker 3: could the tariffs dip below on a blended basis migrate
Speaker 3: back towards at three percent level?
Speaker 7: You know, I think one of the best things that
Speaker 7: happened to markets was when Secretary Vest talked at the
Speaker 7: Milking conference last week and reminded everyone tariffs are just
Speaker 7: one part of a policy package of smaller government, lower
Speaker 7: taxes or regulation. That's the important those are the important ingredients.
Speaker 7: The tariffs are really a small piece that tells our
Speaker 7: investment partners, look, you come here to the United States,
Speaker 7: will give you a terror hole to protect your investments
Speaker 7: from unfair competition. So I think the ten percent number
Speaker 7: is there to stay, to remind everybody the value of
Speaker 7: the access into the US marketplace and to get rid
Speaker 7: of any kind of unfair competition. So I think the
Speaker 7: tarrefoles will stay with us. I think it'll be at
Speaker 7: that ten percent level. But again, it's a small piece
Speaker 7: of the policy package that really is exciting markets and
Speaker 7: got and reminded markets that that's where the emphasis is
Speaker 7: on the on the policy front bill.
Speaker 5: What do you make of the weakness in the US dollar. Here,
Speaker 5: We've seen other risk ass assets like stocks rebound and
Speaker 5: retrace much of the losses, but not so much the dollar.
Speaker 5: What do you make of it here?
Speaker 7: I'm so glad you asked that question, Paul. Again. That
Speaker 7: was a major part of the discussion among every major investor
Speaker 7: at the Milk conference. And they're always saying, what's happening
Speaker 7: to the role of the dollar and its valuation? And
Speaker 7: I think that's the key difference. The valuation of the
Speaker 7: dollar has come down off of its peak back in
Speaker 7: February when when everyone was so enthusiastic about the Trump election.
Speaker 7: Let's remember that the value of the dollar is well
Speaker 7: above where it was five years ago, an average for
Speaker 7: the last five years. But the role of the dollar
Speaker 7: has really not changed at all. The role of the
Speaker 7: dollar as a reserve currency, the role of the dollar
Speaker 7: is the vehicle currency. That is not changed that No
Speaker 7: one has even talked about finding substitutes. But the valuation
Speaker 7: moves around and it's come off of the Tom highs,
Speaker 7: and that's normalization, is right.
Speaker 5: It built a lot of folks. When I think about tariffs,
Speaker 5: they say they are a tax on the consumer. They
Speaker 5: say they are inflationary, do you agree?
Speaker 7: You know, Paul, every economist is trained to say tariffs
Speaker 7: are the creation of the devil. It's the worst thing
Speaker 7: you can do to an economy, and I think in
Speaker 7: most cases it is, and it's been used badly by
Speaker 7: most emergent market countries to try to protect failing industries.
Speaker 7: I remind you that when a doctor diagnoses you with atrifibulation,
Speaker 7: he gives you cuminin and or war friend, which is
Speaker 7: rat poison. And I think that there's a role for
Speaker 7: rat poison as a package of therapies. There's a role
Speaker 7: for tariffs as a package of economic policies, because in
Speaker 7: this case, the role of tariff is not to protect industries,
Speaker 7: but rather to incentivize serious discussion about bringing capital into
Speaker 7: the United States, and that I think was the real
Speaker 7: role for the tariffs. That again, President Trump is reminded
Speaker 7: everybody that we really need to reshape the global economic
Speaker 7: trading system and we can't live with a WTO system
Speaker 7: that was created after World War Two.
Speaker 3: Billy, you and I read Ricardo cover to cover. He
Speaker 3: didn't deal with a service sector like we have now.
Speaker 3: To tariff outcomes, are they the same in a service
Speaker 3: sector is a goods producing sector.
Speaker 2: I don't buy it.
Speaker 7: It's pretty hard to teariff services, isn't it, especially when
Speaker 7: when you it's a license for American banks to sell
Speaker 7: financial products and try. Yeah, and so so, I think
Speaker 7: the whole notion that twerfs has been done away with,
Speaker 7: especially with the different rounds of tarraf productions we've had
Speaker 7: over many decades. But the real serious barriers to trade
Speaker 7: that Ricardo didn't deal with, our non tariff barriers and
Speaker 7: the legal requirements and health requirements and quality standards that
Speaker 7: are demanded of US exports into various countries. Those are
Speaker 7: the obstacles that are part of the negotiation practice that
Speaker 7: President Trump wanted to incentivize by putting up this huge
Speaker 7: tire pary and say, look, you guys, let's get serious
Speaker 7: pout getting rid of the real series blocks to trade.
Speaker 3: Wait too short of this, Billy, thank you so much,
Speaker 3: greatly appreciate it. With Milkin here off of the Milkin
Speaker 3: Institute celebration of another weeks ago, Shirley Basic, thank you
Speaker 3: so much for Milkin cover.
Speaker 2: It is it's chief for.
Speaker 3: Kindness, the Milkin Institute.
Speaker 1: This is the Bloomberg surveillance podcast. Listen live each weekday
Speaker 1: starting at seven am Eastern on Applecarplay and Auto with
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Speaker 3: Usually we talk big Oil, Bran West Texas Intermediate, but
Speaker 3: with the President in the Middle East, I think we
Speaker 3: have to be advantaged by her true expertise as a
Speaker 3: senior fellow at the Atlantic Council. The calling card is
Speaker 3: her book Saudi Inc. Which is what we have observed
Speaker 3: for the last four or five six days.
Speaker 2: Ellen Waald joins us.
Speaker 3: Now, Ellen, how does the fragility of the royal family
Speaker 3: before nineteen thirty eight play with the present royal family
Speaker 3: of Saudi Arabia? They were nothing and then there was
Speaker 3: a discovery of oil in nineteen thirty eight, the invention
Speaker 3: of a Ramco.
Speaker 2: And off we go.
Speaker 3: How does that history play into the way the Saudi
Speaker 3: royal family thinks?
Speaker 8: Yeah, I think that's that's a great, a great point,
Speaker 8: because one of the things that's important to remember is
Speaker 8: that they really had no money, very little sources of
Speaker 8: income back then, and so the hold on power was
Speaker 8: really just based on their ability to militarily control the tribes,
Speaker 8: and so once oil started flowing, it really became a
Speaker 8: way for them to exert their influence over the peninsula
Speaker 8: basically through paying for things for people. They suddenly had
Speaker 8: the cash to be able to, you know, extend this
Speaker 8: large test and that was the symbol of their rule
Speaker 8: over the people. And so I do think that that
Speaker 8: is something that really has remained culturally throughout time, that
Speaker 8: there is this idea that the royal family is there
Speaker 8: to provide, and so if at any point they are
Speaker 8: unable to provide, that could jeopardize the legitimacy of them
Speaker 8: as the ruling the.
Speaker 3: Persian golf, for the Arabian golf, whatever we're gonna name
Speaker 3: it next week, Ellen Wild There's each royal family has
Speaker 3: a story, whether they're flying from Doha down to Abu Dhabi.
Speaker 3: Do they all have in their head the same break
Speaker 3: even oil price or other distinctive break even oil prices
Speaker 3: for each nation each royal family?
Speaker 1: Yeah?
Speaker 8: Absolutely. I mean every every every oil industry in the
Speaker 8: Middle East is run differently, and I think that's a
Speaker 8: common misperception. People think it's just this monolithic, you know,
Speaker 8: national oil companies, but it's actually very different. A Rampo
Speaker 8: has a totally different break even price from say the
Speaker 8: Kuwait Oil Company or a rock or you know the
Speaker 8: UAE or you know even bah Rain for example. So
Speaker 8: a Rampos is basically the lowest in the world. Their
Speaker 8: break even is, you know, depending on what they're producing,
Speaker 8: can be between two dollars and ten dollars. I usually
Speaker 8: like to say around six. It's kind of an average.
Speaker 8: That's the lowest in the entire world. So no matter
Speaker 8: how low oil prices go, a Ramco is still going
Speaker 8: to come out on top. Now that's different from the
Speaker 8: price that the Saudi government would like oil to be
Speaker 8: at to balance their budget, which I think is really
Speaker 8: a totally useless figure. People like to bring this out,
Speaker 8: the IMF likes to talk about it, but that really
Speaker 8: doesn't influence the Saudi government all that much because the
Speaker 8: Saudi government isn't selling oil. A Ramco sells oil. The
Speaker 8: Saudi government gets revenue from that oil and those oil sales,
Speaker 8: but they're not actually selling it. That's not the way
Speaker 8: it works in Iran. That's not the way it works
Speaker 8: in Kuwait, where those oil companies are much more intertwined
Speaker 8: with the government, and so the government is actually collecting
Speaker 8: that revenue directly, and so their price point, their break
Speaker 8: even points are higher, and they needed a higher price
Speaker 8: for their budget as well.
Speaker 5: Ellen, you mentioned Iran, and as we you know, followed
Speaker 5: President Trumpter's trip through the Middle East here that Iran
Speaker 5: was always always in the background there. Could you just
Speaker 5: refresh our memory? How is Iran's what is Iran's role
Speaker 5: in the global energy market today?
Speaker 8: Yeah, this is this is interesting. So you know, Iran
Speaker 8: has a lot of oil resources. You know, they have
Speaker 8: a lot of oil and a lot of natural bass
Speaker 8: in the ground, but production wise, they really don't.
Speaker 4: Produce all that much.
Speaker 8: I would say around now, they're producing about three point
Speaker 8: three million barrels of oil per day. Was actually on
Speaker 8: the higher side of late in twenty twenty they were
Speaker 8: down below three really I think the height at the
Speaker 8: height in the past decade, they were producing about four
Speaker 8: million barrels a day. So that's not all that big.
Speaker 8: You know, if we were compared to Saudi Arabia, to
Speaker 8: the United States, United States producing thirteen million barrels of
Speaker 8: oil today. So while they have a lot of resources,
Speaker 8: they're not producing that much oil. Right now.
Speaker 2: When we get a book, when I love when.
Speaker 8: I finally get a good night's sleep.
Speaker 2: Ellen Wald, I love bussing your jobs. Thank you so much.
Speaker 2: Ellen Wall's senior fellow the Atlantic Council.
Speaker 1: This is the Bloomberg Surveillance Podcast. Listen live each weekday
Speaker 1: starting at seven am Eastern on Apple Corplay and Android
Speaker 1: Auto with the Bloomberg Business App. You can also listen
Speaker 1: live on Amazon Alexa from our flagship New York station.
Speaker 1: Just say Alexa Play Bloomberg eleven thirty.
Speaker 2: I'm going to crack the book.
Speaker 3: On Frank Fobosi this weekend, one thousand, nine hundred and
Speaker 3: four pages.
Speaker 2: Kelsey Barrow's reading cover to cover.
Speaker 3: Bob Michael said, you're not working for me unless you
Speaker 3: read Forbozi cover to cover. Kelsey joins us right now.
Speaker 3: Executive director JP Morgan on clipping coupons. Okay, I just
Speaker 3: did the fancy chart in the Bloomberg. You know Thomson
Speaker 3: couldn't have stopped me yesterday.
Speaker 2: Says time.
Speaker 3: You're not talking fancy math enough, So let's go the
Speaker 3: two ten spread, the differencing yield between the ten year
Speaker 3: and the two year. I took it back to Paul Voker,
Speaker 3: getting way way back. It's a very elegant standard deviation study.
Speaker 3: I don't think people realize that forty five basis points
Speaker 3: point four or five percentage points difference between the ten
Speaker 3: year and two year we're nowhere near normal steep center
Speaker 3: tendency is one hundred and five basis points. Is that
Speaker 3: our future that we're going to get back to that
Speaker 3: kind of steep curve.
Speaker 9: Well, we do think that the curve should be structurally
Speaker 9: steeper over time. It's a function of the fact that
Speaker 9: we're moving further away from an environment where the zero
Speaker 9: lower bound is a problem, and further away from an
Speaker 9: environment where the FED is giving a lot of fun.
Speaker 2: Back to normal, yeah, I mean we're for your time.
Speaker 9: We're slowly going back to normal. But I would say
Speaker 9: in the in the immediate horizon, what's going to drive
Speaker 9: the curve steeper is ultimately going.
Speaker 4: To be expectations for the FED.
Speaker 9: So if you think about over time, where does the
Speaker 9: volatility in the yield curve come from, it comes from
Speaker 9: the front end. It comes from the FED either raising
Speaker 9: rates or lowering rates. When we get a really steep curve,
Speaker 9: it's going to be a function of significant rate cuts
Speaker 9: From here.
Speaker 5: Is that what JP Morgan s management is thinking about
Speaker 5: rate cuts going forward.
Speaker 9: So right now, we don't expect rate cuts in the
Speaker 9: immediate term. We expect that the FED is going to
Speaker 9: remain on hold for now at least. And then in
Speaker 9: terms of what the FED is looking at, you know,
Speaker 9: we do see a lot of uncertainty in the economy
Speaker 9: right now, but it's really just not showing up in
Speaker 9: the hard data. I mean, the only place that I
Speaker 9: can really see it flowing through this uncertainty, which is
Speaker 9: primarily a function of the tariff regime, is in net
Speaker 9: exports within GDP. But if you look at the jobs data,
Speaker 9: if you look at the inflation data, it's actually amazing
Speaker 9: how well entrenched the disinflation was heading into this trade war,
Speaker 9: given the inflation data we've gotten over the last few days.
Speaker 5: So, do you guys at JP Morgan, sid Man, some
Speaker 5: of the smarter folks out there, is sitting to your
Speaker 5: treasury at four percent more or less? Or do you
Speaker 5: take credit risk here?
Speaker 9: I think you want a little bit of credit risk,
Speaker 9: but I think you want to stay on the higher
Speaker 9: quality side. But I will say we have been diving
Speaker 9: really deep in terms of doing the credit work on
Speaker 9: an individual name basis and making sure that our companies
Speaker 9: are prepared for a more challenging environment. So what we
Speaker 9: actually did is we ran all of our companies through
Speaker 9: a stress test of ten percent tariffs and twenty percent tariffs.
Speaker 4: Have you learn and we actually.
Speaker 9: Learned that companies are in a very strong position. Even
Speaker 9: in that twenty percent stress test of tariffs, we still
Speaker 9: couldn't get investment grade earnings on a median company basis
Speaker 9: to get below z ear.
Speaker 2: Get do their unit sales go down?
Speaker 3: I mean, if you're doing this, micro Feroli, could you
Speaker 3: see Kelsey Barrow Micael Feroli PiZZ at seven pm?
Speaker 2: I can see it. Okay.
Speaker 3: Are you assuming then that the burden of the trade
Speaker 3: war is on the consumer and not on American corporates.
Speaker 9: It's going to be a combination of both, so you
Speaker 9: are going to see I mean, it's that is really
Speaker 9: the reality is that for some companies the burden is
Speaker 9: going to go straight to the consumer, and then for
Speaker 9: some companies the burden is going to go more to
Speaker 9: them in terms of margin compression. But it's a sector
Speaker 9: bisector analysis.
Speaker 3: Jamie Diamond and parishes today or our friends saying I'm
Speaker 3: sure he's bringing you back something nice that we are
Speaker 3: mess But Kelsey, the basic idea here is JP Morgan
Speaker 3: is global. JP Morgan's looking what foreign investors are doing.
Speaker 3: It's price up yeld down. Is that because foreigners are
Speaker 3: still buying our full faith and credit paper.
Speaker 9: So yes, in general, while the narrative has been and
Speaker 9: the fear has been, particularly on the long end, that
Speaker 9: there's been this loss of sponsorship, and we do think
Speaker 9: that over time we have been seeing a trend from
Speaker 9: foreigners away from the US market, away from the US dollar,
Speaker 9: towards more diversified portfolios. But if you look at the
Speaker 9: Treasury allotment data more recently, foreign demand has been a
Speaker 9: fairly stable and if I look at our own active
Speaker 9: ETF complex, we've been seeing that demand has been fairly
Speaker 9: healthy for fixed income throughout the year. But I think
Speaker 9: what has changed is the narrative around why fixed income
Speaker 9: fits into your portfolio. So if you were to ask
Speaker 9: a week ago, you know, why do you why do
Speaker 9: you want fixed income in your portfolio? People said, well,
Speaker 9: the risk reward around rate cuts. You know, we can
Speaker 9: hold it and it's a very good hedge in case
Speaker 9: we do hit that hard landing. Now that there has
Speaker 9: been this pause, this ninety day pause between the US
Speaker 9: and China. People are bringing down that recession risk probability.
Speaker 9: People are saying, okay, so maybe the tail risk of
Speaker 9: hard landing has been priced out, but yields are still
Speaker 9: really high. I'm looking to have that fixed income in
Speaker 9: my portfolio still, but it's more for clipping coupon and
Speaker 9: that stable income.
Speaker 5: So are there certain sectors that you guys like if
Speaker 5: you think about taking some credit risk here? Are you
Speaker 5: a sector kind of focus or kind of looking at
Speaker 5: different factors? How do you guys think about I'm kidding.
Speaker 9: All across the board, but what we've been focused on
Speaker 9: is as you've seen a repricing in spreads, where has
Speaker 9: things been lagging and those are the places you know
Speaker 9: where we're most focused. So we've seen in this retracement
Speaker 9: and spreads tighter. We've seen some lagging in triple b's,
Speaker 9: in autos and energies some of these credits. We've seen
Speaker 9: some opportunity to pick up yield in areas where the
Speaker 9: repricing has been slightly less efficient. And there's also opportunities,
Speaker 9: I would say in securitize credit, which is an area
Speaker 9: we focus a lot on again where the repricing tends
Speaker 9: to be slower and less efficient, and those are the
Speaker 9: areas where we're focused on adding.
Speaker 5: So when securitize, it is that mortgage back securities, asset
Speaker 5: backed securities, all the above, all of.
Speaker 9: The above, but in terms of where you're going to
Speaker 9: find the credit risk component that would be and you
Speaker 9: know your asset backed securities things that are backed on
Speaker 9: auto loans. For an example, Yankees are Mets, Mets Mets.
Speaker 3: Yeah, all right, it's exciting.
Speaker 4: It's been great. Yeah, we went to a game last Sunday,
Speaker 4: Mother's Day.
Speaker 9: It was beautiful. Huh.
Speaker 3: I can't want some mess because of nineteen eighty six.
Speaker 3: But they're going into the Yankee Stadium tonight, right, Yeah,
Speaker 3: so it's going to be a right drink right.
Speaker 2: Across the nation.
Speaker 3: I mean, I'm like the worst person to talk about
Speaker 3: this because I literally.
Speaker 2: I get upset in this room that we're in.
Speaker 3: Right here was where I met Lenny Dykstra.
Speaker 2: Wow, and he and I.
Speaker 3: Taught there his home run in Game three, nineteen eighty six.
Speaker 3: It's never come down. It's over marbleheads somewhere, and this
Speaker 3: is really exciting.
Speaker 9: Are you going no I'm not going, but we'll be watching,
Speaker 9: certainly in my household my husband.
Speaker 4: It will be on tonight.
Speaker 3: If I call mister Diamond and you can free up
Speaker 3: the seats, can you go?
Speaker 5: Well, we confirmed that Kelsey entertain they are going to
Speaker 5: the new building on the Park Avenue. They've got desks,
Speaker 5: so that's big because you know, Bob Michael, he wasn't sure.
Speaker 2: Did you pick the maroon carpet that's gonna be?
Speaker 9: I'm sure whatever it is, it will be grea.
Speaker 2: Have you been in the building yet?
Speaker 9: No, I have not, but I sit in the building
Speaker 9: across from men. I see them working every single day. Yeah,
Speaker 9: every single day, and they're making so much progress.
Speaker 2: For those those you nationwide.
Speaker 3: I was walking down Madison Avenue and I don't care
Speaker 3: what any I don't care about all the architectural credits.
Speaker 2: I hope the New York Times treats it well. It
Speaker 2: sits beautiful.
Speaker 3: Was it in mid twentieth century? It pays homage to our.
Speaker 5: Parents coming into New York City. You know, Park Avenue
Speaker 5: around was forty eighth Street, forty seventh Sweet, it's just
Speaker 5: spectacular new It's just Morgan Headquarters coming up.
Speaker 2: It's not like stupid, ugly or it just sits beautifully.
Speaker 2: Kelsey Bugel, architect for JP Morgan.
Speaker 5: Thank you.
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