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Speaker 1: Bloomberg Audio Studios, Podcasts, radio News.

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Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along

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Speaker 2: with Lisa Bromwitz and Amrie Hordern. Join us each day

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Speaker 2: for insight from the best in markets, economics, and geopolitics

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Speaker 2: from our global headquarters in New York City. We are

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Speaker 2: live on Bloomberg Television weekday mornings from six to nine

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Speaker 2: am Eastern. Subscribe to the podcast on Apple, Spotify or

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Speaker 2: anywhere else you listen, and as always on the Bloomberg

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Speaker 2: Terminal and the Bloomberg Business App. Let's turn to this story.

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Speaker 2: New York Fed President John Williams telling the Wall Street

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Speaker 2: Journal the Central Bank is getting closer to cunning rates,

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Speaker 2: but won't be ready to pull the trigger at this

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Speaker 2: month's meeting. More Fed speak coming later from Barkin and Waller.

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Speaker 2: Sarah Wolf of Morgan Stanley expecting three rate cuts this year,

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Speaker 2: standing in September, writing this the deceleration in consumer spending

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Speaker 2: is largely concentrated in goods, whilst services consumption is slowing

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Speaker 2: but remains the top priority among households. Sarah joined us

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Speaker 2: now for more. Sarah, great to be with you. Let's

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Speaker 2: build on the number we got yesterday retail sales comingga

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Speaker 2: in better than expected. There was a shaky period when

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Speaker 2: we started to worry about maybe the consumer losing the

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Speaker 2: tail winds of the last I don't know, several years

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Speaker 2: or so. Then retail sales happened, jobless claims happened. I

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Speaker 2: think it's a little bit more confidence. Do you think

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Speaker 2: we can park that concern sarah around the consumer?

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Speaker 3: I do think there is a genuine slowing that we're

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Speaker 3: seeing in consumer spending. But now we could say that

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Speaker 3: the first quarter, where real PCE stepped down to one

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Speaker 3: and a half percent, which is about half the pace

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Speaker 3: who was running last year, was likely overstated by higher

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Speaker 3: prices in some seasonal factor distortions. The second quarter, we're

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Speaker 3: getting a much cleaner read on consumer spending, which is

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Speaker 3: chugging along around two percent.

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Speaker 4: That's still a slowdown from last.

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Speaker 3: Year, and it's in particular coming in a pullback in

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Speaker 3: goods consumption. But I don't think we need to worry

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Speaker 3: that consumer spending is falling off a clip. I'd be

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Speaker 3: a little bit more worried at the one and a

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Speaker 3: half percent that we got last quarter had to be

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Speaker 3: extrapolated forward throughout this year.

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Speaker 2: Should the Fed be cutting If we've got interest rates

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Speaker 2: at about five and a half and we've got CPI

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Speaker 2: running close to three and GDP tracking at two is

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Speaker 2: that a decent world to be in.

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Speaker 3: I think the top priority right now is inflation. Inflation's

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Speaker 3: coming down better than the FMC expected. We have it

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Speaker 3: coming in a two point six percent by the end

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Speaker 3: of this year. Their projection so two point eight percent,

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Speaker 3: and so we do think that inflation is what's going

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Speaker 3: to get the Fed to start cutting. But this slow

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Speaker 3: down in economic activity, to slow down in the labor market,

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Speaker 3: we think is what keeps the Fed cutting, and we

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Speaker 3: get three cuts this year.

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Speaker 4: As you mentioned.

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Speaker 3: Previously, one of the things to note is that even

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Speaker 3: though GDP is running at two percent, we've done a

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Speaker 3: lot of work on the fact that stronger immigration is

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Speaker 3: driving higher population growth. So near term potential GDP is

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Speaker 3: likely above two percent, and so we are seeing a

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Speaker 3: depressed economic activity. It's just hard to pint relative to

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Speaker 3: pre COVID when we had a smaller economy.

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Speaker 5: So you're getting into one of the complicated things of

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Speaker 5: twenty twenty five. What happens if there's a serious clamp

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Speaker 5: down on immigration Two huge risks.

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Speaker 4: To our twenty twenty twenty five outlook.

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Speaker 3: Right now, we're dealing with a positive supply shock which

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Speaker 3: has helped eat increase labor supply, bring down inflation, help

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Speaker 3: ease some of the wage pressures.

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Speaker 4: If we were to see a negative.

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Speaker 3: Supply shock, either we clamp down the border, there's deportations

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Speaker 3: that would be a negative shock to labor. We do

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Speaker 3: see that as negative for growth and likely later positive

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Speaker 3: for inflation. And so in that outcome, we actually see

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Speaker 3: that the FED might have to be easier on policy

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Speaker 3: in order to react to the negative growth effect, which

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Speaker 3: will be the first order effect that we see.

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Speaker 5: So there's been this interesting thing happening in the labor

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Speaker 5: market underneath the surface, and that's the kind of jobs

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Speaker 5: that are happening. We've talked a lot about some of

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Speaker 5: the job losses and whether that will move in a

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Speaker 5: nonlinear way, But the balance of jobs has shifted to

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Speaker 5: high production type growth, high productivity, high pay, things like

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Speaker 5: the sciences industry, where the losses have really come from

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Speaker 5: the lower productivity workforce, things like hospitality.

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Speaker 6: What sort of shift is that?

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Speaker 5: Is that structural? And what is does it mean for

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Speaker 5: American growth and productivity to come.

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Speaker 3: The reality is is that we saw the mode strengths

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Speaker 3: in these lower income sectors like leisure and hospitality, health care, etc.

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Speaker 3: Over the last few years because we were backfilling. But

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Speaker 3: now that the back filling is done, we're seeing a

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Speaker 3: shift into these other industries that are a bit more

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Speaker 3: high productivity.

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Speaker 4: As you mentioned, I think that there's going to.

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Speaker 3: Be a huge question on how AI influences the productivity

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Speaker 3: of these industries. What we have highlighted is that it's

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Speaker 3: very likely that AI is going to slowly find its

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Speaker 3: way into a broad set of industries and help augment

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Speaker 3: the workforce and bring productivity back to these lower productivity

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Speaker 3: sectors like the hospitality industry for example. But you know,

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Speaker 3: we're very optimistic. We think that there is going to

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Speaker 3: be more of a productivity boom. It's slowly going to

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Speaker 3: roll out in the economy, and it's going to help

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Speaker 3: augment the workforce instead of you know, the rollout of

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Speaker 3: AI replaced workers.

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Speaker 4: We don't think that that's going to be the base.

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Speaker 2: Case, Sarah. These are big, long term things. Can we

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Speaker 2: talk about the end of this month to give me

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Speaker 2: for having a really short time arison, Do you think

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Speaker 2: that July FED make could be a live meeting. Do

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Speaker 2: you think there might be some officials putting pushing from

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Speaker 2: that camp as early as July.

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Speaker 4: I do think the bar is very high for July

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Speaker 4: to be alive meeting.

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Speaker 3: We you know, we don't get much more data between

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Speaker 3: now and the July meeting, no more payroll prints, no

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Speaker 3: more CPI inflation, and so there's no new real data

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Speaker 3: that's coming in besides jobless claims, which we saw, you know,

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Speaker 3: retraced a little bit. So if we did see perhaps

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Speaker 3: a really large acceleration the next couple of weeks, it

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Speaker 3: could make it live.

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Speaker 4: I think much more likely is that.

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Speaker 3: We're going to see some notable changes in the July

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Speaker 3: FMSC statement that pushed the Fed more clearly to set

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Speaker 3: up for a September cut. And what do I mean

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Speaker 3: by that? Right now? You know, the statement is very

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Speaker 3: attentive to inflation risks. The last week when we heard

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Speaker 3: from Shairpal, he said inflation is not the only risk

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Speaker 3: that they're watching. Maximum employment is equal to price stability.

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Speaker 3: We expect that the FMC statement is going to have

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Speaker 3: a lot more on that maximum employment side of the

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Speaker 3: mandate because of the softening that we're seeing in the

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Speaker 3: labor market, and that's going to tell markets that it's

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Speaker 3: not just inflation that's driving cuts now, it's a broader

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Speaker 3: economy that the FED is watching.

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Speaker 4: And at this point.

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Speaker 3: Sharpale doesn't want to cause undue weakening in the labor

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Speaker 3: market in the economy center.

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Speaker 2: Well, Amogen Stanley gone into July and beyond looking for

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Speaker 2: that first right kind September.

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Speaker 7: Donald Trump has called him prime time. It's the governor

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Speaker 7: from Virginia, Glen Youngkin. Thank you for joining me here at.

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Speaker 6: The Milwaukee Good morning.

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Speaker 8: You know, I have to say that the Republican National Convention,

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Speaker 8: as we move into day three, has been a real statement.

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Speaker 8: It's been a statement about coming together in excitement. And

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Speaker 8: when President Trump came into the arena on Monday Nights

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Speaker 8: and it's the first time that everyone had really seen

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Speaker 8: him since the assassination.

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Speaker 6: Attempt, the place erupted and it was emotional.

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Speaker 8: And I think it does represent not only confidence in

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Speaker 8: the America that he built last time, but the one

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Speaker 8: he can build again.

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Speaker 6: So would you go work for.

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Speaker 7: Him because he says he'd love to have you.

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Speaker 4: On the team.

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Speaker 8: Well, it's an incredibly humbling sentiment. Let's be serious right now.

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Speaker 8: The job is to win, and Virginia's in play, which

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Speaker 8: is amazing to say. Joe Biden won Virginia by ten

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Speaker 8: points last time, and then we came back in one

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Speaker 8: by two the next year, and all the polls have

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Speaker 8: Virginia locked up tight. So I'm going to go to

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Speaker 8: work to one be a great governor in Virginia and

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Speaker 8: then second of all, make sure that we do everything

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Speaker 8: we can for Donald Trump to win.

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Speaker 7: So is there a sense if you flip Virginia and

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Speaker 7: it goes red, you would join this administration? If you

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Speaker 7: were asked to serve your country under President Donald Trump,

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Speaker 7: would you join?

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Speaker 6: There are so many ifs there. Let's just start with

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Speaker 6: the work at hand.

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Speaker 8: And I'm a pretty basic businessman who's become a governor

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Speaker 8: which has set objectives.

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Speaker 6: And let's go meet them.

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Speaker 8: And we set the objectives in Virginia to turn around

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Speaker 8: Virginia's job growth and economy.

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Speaker 6: And we've used all of the tools that we know work.

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Speaker 8: We have had five billion dollars of tax relief, we've

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Speaker 8: streamlined regulations in a big way, We've built a great workforce,

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Speaker 8: and we've invested in our infrastructure, and you know, we

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Speaker 8: were just ranked the top place for business and that's

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Speaker 8: because we really are the top place for business. So

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Speaker 8: my job's really straightforward, set objectives. Let's go meet them.

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Speaker 8: One of our objectives is to make sure that our

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Speaker 8: congressional candidates win in Virginia, that we extend our majority

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Speaker 8: in Washington, and to help Donald Trump win Virginia.

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Speaker 4: You mentioned your business at Community.

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Speaker 7: You are part of the business world, the head of Carlisle.

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Speaker 7: What I was hearing is that a lot of individuals

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Speaker 7: on Wall Street well calling the former president asking him

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Speaker 7: to pick someone like you and setting him with JD. Vance,

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Speaker 7: someone that sometimes unnerves Wall Street. He's a protectionist individual,

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Speaker 7: he's a populist. He's calling for tariffs. One of your

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Speaker 7: biggest importers coming from China, how do you think Virginia

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Speaker 7: would handle, say, sixty percent tariffs on China and a

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Speaker 7: ten percent tariff ring around the United States.

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Speaker 6: Let's first back up.

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Speaker 8: I think one of the things that President Trump has

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Speaker 8: been clear about and we know in the business community,

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Speaker 8: is that free trade really doesn't exist because we've given

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Speaker 8: unfettered access to the US market and so many other

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Speaker 8: countries actually don't provide reciprocal access to their markets.

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Speaker 6: And let's be clear, US.

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Speaker 8: Companies do not have access on an unfettered basis to

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Speaker 8: the Chinese market, and yet they expect to have unfettered

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Speaker 8: access to the US market. And so we've got to

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Speaker 8: stand up strong for the United States. On top of that,

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Speaker 8: China is not just a rival. They're trying to dominate

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Speaker 8: the world, and they're trying to do it at the

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Speaker 8: expense of the United States. They use economic imperialism to

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Speaker 8: do it, They saber rattle, and on top of that,

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Speaker 8: they use every ounce to infiltrate every bit of the

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Speaker 8: US economy to understand how they can influence it. What

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Speaker 8: that has translated to is a real recognition that we

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Speaker 8: need to not only protect ourselves against China, but we

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Speaker 8: need to fight back. And so the tariffs that President

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Speaker 8: Trump imposed on China when he struck the first Chinese Deal,

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Speaker 8: we're critical in order to rebalance an unbalanced situation with

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Speaker 8: China and companies that are doing business in China.

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Speaker 6: Take Ford for example. I mean, here's Ford, who has

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Speaker 6: a big market share.

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Speaker 8: In China, and then they want to build an electric

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Speaker 8: vehicle battery plan in the United States, and I can

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Speaker 8: guarantee you that the Chinese government put immense pressure on

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Speaker 8: them to use cattle technology in the United States, and

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Speaker 8: now we're seeing that cattle technology is being banned by

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Speaker 8: the US military because they're worried about the influence from

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Speaker 8: the Chinese Communist Party. I mean, this is the way

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Speaker 8: China does business, and we've got to make sure that

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Speaker 8: we are.

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Speaker 6: We're fighting back.

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Speaker 7: Most economists those say TERFs are inflationary. So do you

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Speaker 7: think that's the right solution to this problem? You don't

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Speaker 7: think is currently free trade on the marketplace?

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Speaker 8: Yeah, I do have to begin with I have lots

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Speaker 8: of economist friends and work with them for a long time,

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Speaker 8: and the economists.

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Speaker 7: Astonomists are one hundred dollars per every household.

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Speaker 4: They ran all the numbers.

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Speaker 8: Well, I know, people ran lots of numbers at the

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Speaker 8: beginning of the year and said there's going to be

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Speaker 8: five rate cuts this year in the United States.

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Speaker 6: Come on, let's be real.

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Speaker 8: At the end of the day, I believe that President

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Speaker 8: Trump will use tariffs in order to make sure that

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Speaker 8: trade is reciprocal and fair, fair for the United States,

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Speaker 8: fair for US businesses, and fair for the US worker.

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Speaker 8: And that's really important.

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Speaker 6: He also thinks the dollars too strong. Do you think

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Speaker 6: we have a currency problem?

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Speaker 8: Well, I think the first issue we have with our

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Speaker 8: currency reflects the lack of strength, the weakness that the

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Speaker 8: Biden Harris administration has projected economically around the world. And

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Speaker 8: a weak America invites a strong China. And China has

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Speaker 8: moved right in around the world economically, and all of

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Speaker 8: a sudden you hear once again all of these threats

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Speaker 8: that the dollar will not will not play the role

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Speaker 8: that it has internationally going forward that it has historically.

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Speaker 8: That's a real challenge to the US and it's a

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Speaker 8: real challenge to our economic future.

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Speaker 6: So I think that.

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Speaker 8: Part of the reason why the electorate in Virginia around

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Speaker 8: the country are excited about President Trump coming back into

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Speaker 8: office is strength, economic strength, national security strength, border strength.

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Speaker 6: They're tired of a week America. They want a strong America.

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Speaker 7: But how do you think he actually fixes that dollar problem?

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Speaker 8: Well, first of all, having an economy that actually works,

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Speaker 8: but that.

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Speaker 4: Might mean a stronger US dollar.

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Speaker 7: Like a lot of people are looking at what these

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Speaker 7: potential policies could be, especially protection and trade policies, and

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Speaker 7: they would say that looks like it's going to be

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Speaker 7: a strong dollar.

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Speaker 6: Well, the need to get treasury.

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Speaker 7: Need to you know, maybe buy other foreign currency.

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Speaker 6: Well, let's go back to core basics.

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Speaker 8: A strong US economy that does not have runaway inflation,

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Speaker 8: which is what the Biden Harris administration unleashed on America.

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Speaker 6: Unprecedented inflation. We have seen it for decades.

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Speaker 8: That drives a dollar up because interest rates have to follow.

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Speaker 8: And Jay paused done a really good job combating inflation.

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Speaker 6: Let's be real. The beginning of the year there was huge.

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Speaker 8: Pressure for five rate cuts, and of course inflation was

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Speaker 8: nowhere near contains. And he's done a really good job

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Speaker 8: maintaining discipline. We've got to get inflation down that make

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Speaker 8: sure that it is, and then rates will come down

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Speaker 8: and rates will drive the currency. And that's a strong,

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Speaker 8: high growth, low inflation economy that is not allowing inflation

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Speaker 8: to drive too strong a dollar.

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Speaker 7: Well, you said earlier than market was expecting five. Now

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Speaker 7: the market inspects one or two, one of them likely

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Speaker 7: before the US election. Do you think Jay Powell, if

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Speaker 7: he is to cut rates for US election, is being political?

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Speaker 6: No, I don't. I think Jay is doing his job.

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Speaker 8: And as we have seen that the Biden economy really falter.

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Speaker 8: Jay's going to react and he's going to do what

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Speaker 8: he needs to do. And so no, Jay's not political

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Speaker 8: at all. Jay's doing a great job.

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Speaker 7: JD Vance is the VP pick. I want to give

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Speaker 7: you a quote of what he put on his campaign website,

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Speaker 7: black and White before he ran for the Senate. We're

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Speaker 7: going to raise taxes on companies that ship jobs overseas

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Speaker 7: and use their money to fund anti American radical movements.

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Speaker 7: Does corporate America have a place in this Republican Party.

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Speaker 6: Well, first of.

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Speaker 8: All, let me begin with with JD's nomination. I think

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Speaker 8: he's going to be a great running mate for the president,

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Speaker 8: and I think he's going to do a great job

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Speaker 8: as vice president. And let's be clear, it is Donald

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Speaker 8: Trump's agenda, and Donald Trump is going to set the

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Speaker 8: agenda on the future of our economy and how we

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Speaker 8: are going to build a rip roaring economy again just

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Speaker 8: like the one we had in his previous administration.

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Speaker 6: And yes, the business community clearly is excited about this.

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Speaker 8: Listen, the stock market ran away over the last few

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Speaker 8: days as it's become more clear that Trump is leading

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Speaker 8: and has a better than likely chance of being elected

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Speaker 8: as president. I also think it reflects the catastrophe that

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Speaker 8: Joe Biden has been over the last couple of weeks

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Speaker 8: coming out of the debate for the Democratic Party. I mean,

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Speaker 8: there's chaos on their side and wall streets and the

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Speaker 8: markets and business seem to really support this because the

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Speaker 8: market's running away. That's really exciting, I think for the

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Speaker 8: opportunity to build a strong economy, a strong America, and

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Speaker 8: to put us back where we belong, which is leading

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Speaker 8: as opposed to real defending weakness all the time.

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Speaker 7: Besides Elon Musk, this week, though No Fortune one hundred

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Speaker 7: CEO has come out and publicly linked themselves to back

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Speaker 7: former president in donations.

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Speaker 6: Do you think that's a problem.

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Speaker 8: Well, let's just start with Elon Musk, and you can't

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Speaker 8: just dismiss Elon Musk. I mean, this week he made

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Speaker 8: an enormous statement one hundred.

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Speaker 1: There's ninety nine others one one hundred and eighty million

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Speaker 1: dollars in order to support grassroots ground game efforts to

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Speaker 1: elect Donald Trump in seven battleground states.

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Speaker 8: I mean, this is a giant statement, and I think

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Speaker 8: we'll see over the course of the next three and

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Speaker 8: a half months as it becomes very clear that the

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Speaker 8: momentum that we're seeing today can be maintained. That's the

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Speaker 8: business community does want a strong economy, they want a

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Speaker 8: strong leader in Washington. They want America to be strong overseas.

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Speaker 8: They want a secure border. We need to we need

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Speaker 8: to combat China, not not play ca China. And this

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Speaker 8: is what Donald Trump's going to represent. And this is

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Speaker 8: why I think American business will be very pleased to

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Speaker 8: have him back as president.

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Speaker 7: He spoke to Trump before you gave your speech at

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Speaker 7: the R and C at the Convention Center.

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Speaker 4: What did he say to you?

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Speaker 8: Well, I called him on Sunday after the assassination attempt.

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Speaker 6: And let's just be clear here.

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Speaker 8: He was millimeters away from a very different Sunday than

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Speaker 8: what we had. And I do thank God for his

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Speaker 8: presence there because evil was unleashed in Pennsylvania.

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Speaker 6: And he said that he was changing.

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Speaker 8: His speech and he said he was encouraging everyone else

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Speaker 8: to do the exact same thing, to really reflect on unity,

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Speaker 8: unity in the Republican Party and unity across America. And

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Speaker 8: this is the opportunity we have, which is to bring

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Speaker 8: people together around a common vision, a common vision that

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Speaker 8: unleashes the land of opportunity once again, as opposed to

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Speaker 8: one where the most Americans have been so concerned economically.

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Speaker 8: Can they write the tuition check? Can they retire? As

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Speaker 8: runaway inflation has really eroded so much.

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Speaker 6: Of their hard work.

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Speaker 7: Inflation has come down, but certainly top of mind for

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Speaker 7: a lot of American voters.

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Speaker 6: We've got to be real.

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Speaker 8: Inflation has come down from highs that were unprecedented, and

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Speaker 8: it is the cumulative effect of inflation that has made

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Speaker 8: prices so high. Grocery prices up thirty percent, gas up

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Speaker 8: forty percent. For the average American family, this is really

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Speaker 8: really tough.

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Speaker 6: Listen.

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Speaker 8: Prices aren't going down, They're just going up less less quickly.

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Speaker 7: That's correct, Glenn Younkin, thank you so much for your time.

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Speaker 2: I'm going to get to the Fed speed. New York

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Speaker 2: Fed President John Williams telling the Wall Street Journal the

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Speaker 2: Central Bank is getting closer to a rate cut, but

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Speaker 2: won't be ready to do so at its next meeting

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Speaker 2: at about two weeks time. This after Governor Adreana Kogler

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Speaker 2: says it would be appropriate to cut later this year

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Speaker 2: if the data continues to cooperate. Joining us now is

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Speaker 2: Tony rodriguezv Nuvin alongside Brian Weinstein of Morgan Stanley. Gentlemen,

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Speaker 2: great to have you with us around the table this morning, Tony,

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Speaker 2: want to start with you. Is the data cooperating? Are

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Speaker 2: they ready to go?

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Speaker 9: The data is certainly moving in the right direction and cooperator.

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Speaker 9: I think it's not very yet for a July cut,

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Speaker 9: but I do think that for September setting up pretty well.

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Speaker 9: When we think about July, you still have unemployment that's

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Speaker 9: at a level that's very comfortable for the Fed, arguably

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Speaker 9: still at full employment. While it's risen, it's came off

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Speaker 9: a very low level, and the inflation data is still

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Speaker 9: above their target. Moving in the right direction. But again

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Speaker 9: a little bit too early to say, hey, July we

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Speaker 9: need to move. But it's all setting up very nicely

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Speaker 9: so far, and so we don't get a brand new

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Speaker 9: set of data that suddenly surprises the market, which we've

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Speaker 9: seen over the last six months. But right now we

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Speaker 9: think it's setting up for a September cut and then

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Speaker 9: just a very gradual kind of quarterly pace over the

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Speaker 9: course of the next three to four quarters.

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Speaker 2: In our mind think about where we'll be in September.

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Speaker 2: I think we need to spend some time dividing that. Okay,

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Speaker 2: we sit here now talking about September right cuts, and

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Speaker 2: how the inflation growth makes it a little bit better

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Speaker 2: that they can reduce interest rates. By the time we

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Speaker 2: get September, we'll be talking about the election even more

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Speaker 2: than we're talking about the election right now. We have

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Speaker 2: my shoemaker of Welsfonko on the program with a slip

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Speaker 2: a bit earlier, and Mike was talking about a window

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Speaker 2: here for this trait to work, maybe a month or two,

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Speaker 2: and then all you'll be thinking about is the political

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Speaker 2: considerations of the next administration and the prospect of lucifiscal policy,

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Speaker 2: maybe even an inflationary trade policy and higher interest rates

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Speaker 2: at the long end of the curve. Is that where

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Speaker 2: you're at?

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Speaker 6: Yeah, I like that. I like that story.

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Speaker 10: I think we're priced for a rate cuts, right we know,

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Speaker 10: we know they're going to happen. It's hard to recommend

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Speaker 10: to your notes here. I don't think the Fed's going

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Speaker 10: to ease more than the market price is in so

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Speaker 10: they won't listen. We have a FED funds rate that

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Speaker 10: was there for a nine percent inflation. Now inflation is

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Speaker 10: going below three, so we're going to ease. I don't

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Speaker 10: know why they're not doing it now. Different story. So

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Speaker 10: they're going to ease, right, So they're going to ease

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Speaker 10: and people are going to extend duration, and that trade's

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Speaker 10: not going to work, right. I think it's already happened.

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Speaker 10: That's why the Yelk cover was a very one hundred

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Speaker 10: and twenty basis points at the max. We know we

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Speaker 10: don't have the growth in inflation. You know that we

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Speaker 10: don't need an eight nine percent tenure. That wasn't going

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Speaker 10: to happen. But I don't think we're going to have

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Speaker 10: a three and a half percent ten year note either.

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Speaker 10: So I think you have a window here where the

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Speaker 10: easing trade works. People rush into duration. Maybe we're ton

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Speaker 10: with it, but might never spend three ninety. If I

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Speaker 10: came to be underweight duration at three ninety on tens,

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Speaker 10: I would be very happy. I'm not sure we get there,

443
00:20:04,240 --> 00:20:05,119
Speaker 10: but it's the wrong price.

444
00:20:05,240 --> 00:20:05,359
Speaker 6: Well.

445
00:20:05,400 --> 00:20:07,119
Speaker 5: Also, I mean this push and pull has also been

446
00:20:07,160 --> 00:20:09,520
Speaker 5: all about steepeners, and that's down to a lot of

447
00:20:09,520 --> 00:20:12,200
Speaker 5: the politics. And of course steepeners work until they don't,

448
00:20:12,200 --> 00:20:15,360
Speaker 5: and people who just entered that trade have gotten smacked

449
00:20:15,359 --> 00:20:17,240
Speaker 5: across the face in the past couple of the days.

450
00:20:17,240 --> 00:20:19,280
Speaker 5: I mean, is that really you want to be gung

451
00:20:19,320 --> 00:20:21,360
Speaker 5: ho about it? Perhaps perhaps it's been your call since

452
00:20:21,359 --> 00:20:23,680
Speaker 5: the start. There's a lot of people it has. Can

453
00:20:23,720 --> 00:20:24,600
Speaker 5: you really put it on.

454
00:20:24,880 --> 00:20:26,879
Speaker 10: The only thing I really like is not owning the

455
00:20:26,920 --> 00:20:29,639
Speaker 10: long bond right to me, tens bonds to twenty basis

456
00:20:29,640 --> 00:20:31,399
Speaker 10: points to round any chart you want. Historically, you can

457
00:20:31,440 --> 00:20:33,359
Speaker 10: go back to Billklinn when there are no more treasuries.

458
00:20:33,520 --> 00:20:34,560
Speaker 6: Right, Fine, we were inverted.

459
00:20:34,600 --> 00:20:36,719
Speaker 10: That's not where we are, right, it's the opposite. So

460
00:20:36,960 --> 00:20:39,120
Speaker 10: to me, that trade's not negative carry, it doesn't hurt.

461
00:20:39,200 --> 00:20:41,000
Speaker 10: You don't need to extenduration out to the thirty year

462
00:20:41,040 --> 00:20:42,840
Speaker 10: part of the yell curve if we're going to have

463
00:20:42,840 --> 00:20:45,160
Speaker 10: a weaker dollar, if we're going to have higher deficits.

464
00:20:45,359 --> 00:20:47,040
Speaker 10: To me, it's the long end of the yell curve

465
00:20:47,119 --> 00:20:49,160
Speaker 10: the rest of it. Again, two notes at four fifty,

466
00:20:49,200 --> 00:20:51,040
Speaker 10: why not own cash at by fifty in roll and

467
00:20:51,160 --> 00:20:53,600
Speaker 10: roll and not roll up the curve? So yeah, I

468
00:20:53,600 --> 00:20:56,200
Speaker 10: think steepeners are going to be problematic until we get

469
00:20:56,200 --> 00:20:59,480
Speaker 10: some really nasty growth and inflation numbers. That's not where

470
00:20:59,480 --> 00:21:02,080
Speaker 10: we are. We're just normalizing. So I think steepeners here

471
00:21:02,080 --> 00:21:04,800
Speaker 10: are going to knock people around. Negative carry very difficult,

472
00:21:04,920 --> 00:21:06,240
Speaker 10: so you'll want to marry that trade.

473
00:21:06,320 --> 00:21:08,960
Speaker 5: Hey, can I bring you in specifically on the long end,

474
00:21:09,000 --> 00:21:11,359
Speaker 5: because again there has been this argument made that it's

475
00:21:11,440 --> 00:21:13,840
Speaker 5: a Trump trade, that it's the deficit expanding, it's the

476
00:21:13,880 --> 00:21:17,000
Speaker 5: extension of tax cuts. How much difference does it really

477
00:21:17,040 --> 00:21:18,840
Speaker 5: make who's in the White House next year.

478
00:21:19,200 --> 00:21:21,119
Speaker 9: Yeah, we think that the fiscal situation is going to

479
00:21:21,160 --> 00:21:23,000
Speaker 9: be very similar no matter who's in the White House.

480
00:21:23,000 --> 00:21:26,040
Speaker 9: So the two larger term premium result of fiscal depthits

481
00:21:26,080 --> 00:21:27,200
Speaker 9: that look like they're going to be here for a

482
00:21:27,240 --> 00:21:29,760
Speaker 9: while because we don't think there's any party that's really

483
00:21:29,800 --> 00:21:33,280
Speaker 9: fiscally responsible anymore. So in that case, I do think

484
00:21:33,280 --> 00:21:35,920
Speaker 9: that you've seen the majority by far of the move

485
00:21:36,000 --> 00:21:37,800
Speaker 9: in the long end. We don't think we're going to

486
00:21:37,840 --> 00:21:39,680
Speaker 9: see a huge backup from here because we do think

487
00:21:39,680 --> 00:21:42,080
Speaker 9: the economy will slow, We do think inflation will continue

488
00:21:42,080 --> 00:21:45,320
Speaker 9: to come down. So the curve steepening has largely been

489
00:21:45,359 --> 00:21:47,600
Speaker 9: priced in for the first move of it. Now you

490
00:21:47,680 --> 00:21:49,560
Speaker 9: really need to wait for the FED to actually get

491
00:21:49,600 --> 00:21:52,160
Speaker 9: into the game, which again we don't think it will

492
00:21:52,160 --> 00:21:54,679
Speaker 9: start to September and it'll be a slow process. So

493
00:21:55,080 --> 00:21:57,199
Speaker 9: the long end's going to be we think, held up

494
00:21:57,240 --> 00:22:00,399
Speaker 9: here around these levels for quite some time. And one

495
00:22:00,400 --> 00:22:02,840
Speaker 9: of the big reasons is the fiscal deficits in the

496
00:22:02,840 --> 00:22:04,080
Speaker 9: fact that no one's going to address it.

497
00:22:04,280 --> 00:22:05,879
Speaker 2: So there's a difference in degree at the long end.

498
00:22:05,880 --> 00:22:08,160
Speaker 2: But ultimately you're not looking for a big rally here

499
00:22:08,320 --> 00:22:09,720
Speaker 2: at all at the long end. Where I think there

500
00:22:09,800 --> 00:22:11,400
Speaker 2: might be some difference is the front end. What I've

501
00:22:11,440 --> 00:22:12,960
Speaker 2: just heard from Brian there about the front end of

502
00:22:13,000 --> 00:22:15,520
Speaker 2: the curve. I hear from a lot of people we

503
00:22:15,560 --> 00:22:17,359
Speaker 2: all do. They come on the show, they go on

504
00:22:17,400 --> 00:22:19,360
Speaker 2: business TV, and they say, don't be in the front end.

505
00:22:19,359 --> 00:22:22,480
Speaker 2: Reinvestment risk rate cuts are coming. Lock in these yields

506
00:22:22,480 --> 00:22:23,920
Speaker 2: at the longer end of the curve. Make it happen,

507
00:22:24,000 --> 00:22:27,280
Speaker 2: Make it work right now, Brian, what are they saying

508
00:22:27,280 --> 00:22:29,200
Speaker 2: that you're disagreeing with? What do you think they're getting

509
00:22:29,200 --> 00:22:32,520
Speaker 2: wrong here? Ultimately? And why can't our audience actually take

510
00:22:32,600 --> 00:22:34,560
Speaker 2: some comfort by sitting here and saying, you know what,

511
00:22:34,640 --> 00:22:36,320
Speaker 2: I don't need to give these guys fees to do

512
00:22:36,359 --> 00:22:39,080
Speaker 2: anything exotic. I could just keep taking five point fifty.

513
00:22:39,320 --> 00:22:41,640
Speaker 10: Well, I think eventually there are things you want to own,

514
00:22:41,680 --> 00:22:43,520
Speaker 10: and that's how yields done well. Loans have done well,

515
00:22:43,560 --> 00:22:46,239
Speaker 10: so you know, cash is one instrument. But I think

516
00:22:46,240 --> 00:22:48,080
Speaker 10: what they're getting wrong is that we're not going back

517
00:22:48,080 --> 00:22:50,600
Speaker 10: to the old regime of one percent growth and no inflation,

518
00:22:51,359 --> 00:22:54,080
Speaker 10: not to mention the fiscal situation, right, so there's more

519
00:22:54,119 --> 00:22:57,000
Speaker 10: going on. So I think if it fed's calibrating, or

520
00:22:57,040 --> 00:22:58,399
Speaker 10: they're going to go from five to fifty to four

521
00:22:58,440 --> 00:23:01,480
Speaker 10: to seventy five, the next move could be up again, right.

522
00:23:01,520 --> 00:23:03,640
Speaker 10: It's not a path from four to seventy five down

523
00:23:03,680 --> 00:23:05,760
Speaker 10: to down to two and a half, which I think

524
00:23:05,960 --> 00:23:07,960
Speaker 10: if you look, if the curve is usually one hundred

525
00:23:08,000 --> 00:23:09,920
Speaker 10: and fifty bases plants from twoes to tens, if the

526
00:23:09,960 --> 00:23:11,640
Speaker 10: two your note is going to end up close to four,

527
00:23:12,440 --> 00:23:14,399
Speaker 10: ten year old ends up close to five and a half,

528
00:23:14,560 --> 00:23:16,439
Speaker 10: So I think that's what they're getting wrong. We're not

529
00:23:16,480 --> 00:23:19,440
Speaker 10: going back to the old days of one, two, three

530
00:23:19,440 --> 00:23:20,280
Speaker 10: percent tenure notes.

531
00:23:20,320 --> 00:23:20,480
Speaker 6: Well.

532
00:23:20,480 --> 00:23:22,080
Speaker 5: Part of that story though about getting out of the

533
00:23:22,080 --> 00:23:23,760
Speaker 5: fun end getting out of cash, had been that it's

534
00:23:23,800 --> 00:23:25,560
Speaker 5: going to power a bunch of other things, that it's

535
00:23:25,600 --> 00:23:27,280
Speaker 5: going to be this huge power that can mean that

536
00:23:27,400 --> 00:23:29,679
Speaker 5: risk can keep going are you saying that that's not

537
00:23:29,760 --> 00:23:30,120
Speaker 5: the case.

538
00:23:30,200 --> 00:23:30,639
Speaker 6: No, it's not.

539
00:23:30,960 --> 00:23:32,639
Speaker 10: The cash on the sideline thing, I think is always

540
00:23:32,640 --> 00:23:34,520
Speaker 10: a bit of a myth. People are making active decisions.

541
00:23:34,560 --> 00:23:36,639
Speaker 10: That's where they have their money. If everyone sells their

542
00:23:36,640 --> 00:23:38,280
Speaker 10: treasury builds, someone else has to buy them, right, they

543
00:23:38,280 --> 00:23:41,320
Speaker 10: don't go away. So there's a given take here. Notice

544
00:23:41,320 --> 00:23:43,399
Speaker 10: not I think get powers credit. I think as you

545
00:23:43,480 --> 00:23:46,840
Speaker 10: leave cash, you're not buying five your treasuries, you're buying credit.

546
00:23:46,840 --> 00:23:49,280
Speaker 10: You're buying high yield. Look at the dispersion in high yield.

547
00:23:49,280 --> 00:23:51,080
Speaker 10: What are people buying safe high yield?

548
00:23:51,200 --> 00:23:51,320
Speaker 6: Right?

549
00:23:51,320 --> 00:23:53,240
Speaker 10: Where are people buying the seven equities that have powered

550
00:23:53,280 --> 00:23:54,840
Speaker 10: us to get here? That might be more of an

551
00:23:54,880 --> 00:23:57,640
Speaker 10: index problem. So I think that can expand. Right, people

552
00:23:57,720 --> 00:23:59,840
Speaker 10: can go and find other things to buy that have

553
00:24:00,080 --> 00:24:02,280
Speaker 10: better return, especially after tax, than five and a half

554
00:24:02,320 --> 00:24:05,200
Speaker 10: percent in cash. So yes, people will buy other things

555
00:24:05,240 --> 00:24:08,440
Speaker 10: and cash should fall. I'm just saying, don't blindly move

556
00:24:08,440 --> 00:24:10,199
Speaker 10: out the Yueld curve and think that that's where your

557
00:24:10,200 --> 00:24:10,760
Speaker 10: cash should go.

558
00:24:11,160 --> 00:24:13,800
Speaker 5: People have been buying, they've been putting their money into funds,

559
00:24:13,800 --> 00:24:16,080
Speaker 5: into fixed income funds in a big way. But Tony,

560
00:24:16,119 --> 00:24:18,760
Speaker 5: the way that they've been doing it is by active funds.

561
00:24:18,800 --> 00:24:21,399
Speaker 5: By far, that's what's been attracting the money. Should I

562
00:24:21,400 --> 00:24:23,520
Speaker 5: interpret that and think there's a bit of beta risk

563
00:24:23,600 --> 00:24:26,840
Speaker 5: if I just buy a credit fund that's tracking an index.

564
00:24:27,320 --> 00:24:29,480
Speaker 9: Yeah, we think that. When you look at performance of

565
00:24:29,560 --> 00:24:32,320
Speaker 9: managers from equity market versus six income and fixing them,

566
00:24:32,359 --> 00:24:36,119
Speaker 9: you clearly see our performance versus benchmarks by active fixing

567
00:24:36,119 --> 00:24:38,560
Speaker 9: income management. So we do think you're leaving money on

568
00:24:38,600 --> 00:24:41,600
Speaker 9: the table if you go into the index weighted. You know,

569
00:24:42,280 --> 00:24:44,840
Speaker 9: funds that are out there, we think the opportunity, for example,

570
00:24:44,880 --> 00:24:47,600
Speaker 9: they're very heavily weighted towards the treasury market. We think

571
00:24:47,600 --> 00:24:51,959
Speaker 9: the treasuries are overvalued relative to non treasury spread assets

572
00:24:52,000 --> 00:24:54,400
Speaker 9: out there. So when you talk about the cash story,

573
00:24:54,640 --> 00:24:57,040
Speaker 9: you know, you can build portfolios that have anywhere from

574
00:24:57,040 --> 00:24:59,199
Speaker 9: a two to five year duration that are going to

575
00:24:59,240 --> 00:25:02,560
Speaker 9: earn six percent. They're going to outperform cash, and they're

576
00:25:02,560 --> 00:25:04,920
Speaker 9: gonna earn that for the next two, three, four years,

577
00:25:05,160 --> 00:25:08,399
Speaker 9: whereas cash will earn you above five percent today. But

578
00:25:08,720 --> 00:25:11,359
Speaker 9: fast forward six months, fast forward a year, you're gonna

579
00:25:11,359 --> 00:25:13,720
Speaker 9: have a four handle on that, possibly a three handle

580
00:25:13,760 --> 00:25:15,520
Speaker 9: by the time we get to twenty twenty six. So

581
00:25:15,920 --> 00:25:17,800
Speaker 9: I think that's the reason that you should be moving

582
00:25:17,800 --> 00:25:20,200
Speaker 9: out a bit on the y curve, bit away from

583
00:25:20,200 --> 00:25:22,600
Speaker 9: the treasury market to other more attractive assets.

584
00:25:22,440 --> 00:25:24,720
Speaker 2: It just quickly on credit. What are you expecting on

585
00:25:24,720 --> 00:25:25,440
Speaker 2: credit spreads?

586
00:25:25,920 --> 00:25:27,720
Speaker 9: Yeah, so we think credit spreads are probably going to

587
00:25:27,800 --> 00:25:29,760
Speaker 9: widen a bit from here over the next couple of months.

588
00:25:29,760 --> 00:25:31,720
Speaker 9: You have volatility coming in from the election, you have

589
00:25:31,760 --> 00:25:34,560
Speaker 9: the economy slowing down. We've been in a golden age

590
00:25:34,560 --> 00:25:38,000
Speaker 9: of credit in terms of defaults for example, So credit's weakening,

591
00:25:38,200 --> 00:25:40,639
Speaker 9: but we don't see a kind of recession like environment

592
00:25:40,720 --> 00:25:43,960
Speaker 9: for credit defaults. We think will rise but stay below

593
00:25:44,040 --> 00:25:46,560
Speaker 9: long term averages. So that means you should see some

594
00:25:46,640 --> 00:25:49,320
Speaker 9: widening in credit spreads because we may be a little

595
00:25:49,320 --> 00:25:51,680
Speaker 9: bit overpriced here, but not such that they're going to

596
00:25:51,880 --> 00:25:54,680
Speaker 9: really destroy a portfolio like you might see in a

597
00:25:54,720 --> 00:25:55,800
Speaker 9: recessionary environment.

598
00:25:55,840 --> 00:25:57,520
Speaker 5: Because this is going to say credit default swaps, I

599
00:25:57,520 --> 00:25:59,679
Speaker 5: think they're at their narrowest since twenty twenty one at

600
00:25:59,680 --> 00:26:01,439
Speaker 5: this moment, and there's a lot of people who look

601
00:26:01,480 --> 00:26:03,639
Speaker 5: at that, Brian say, I'm not getting compensated for the

602
00:26:03,720 --> 00:26:04,960
Speaker 5: risks that should be priced into this.

603
00:26:05,680 --> 00:26:07,720
Speaker 10: I'm a little out of consensus here, I think credit

604
00:26:07,760 --> 00:26:09,840
Speaker 10: story is going to get interesting. I think in the

605
00:26:10,600 --> 00:26:13,640
Speaker 10: absence of the fiscal story, which that's saying, well, treasury

606
00:26:13,640 --> 00:26:16,000
Speaker 10: market's not it's not a great quality credit. And so

607
00:26:16,040 --> 00:26:17,320
Speaker 10: I think what people are going to do is they're

608
00:26:17,320 --> 00:26:18,880
Speaker 10: going to search for credits they think are as good

609
00:26:18,920 --> 00:26:20,920
Speaker 10: or better than the US government. I think the short

610
00:26:20,920 --> 00:26:22,879
Speaker 10: answer is there really aren't any right the government prints

611
00:26:22,880 --> 00:26:25,199
Speaker 10: the currency, and that's really important. But can you make

612
00:26:25,200 --> 00:26:27,879
Speaker 10: the argument that apple should trade through the government? People will,

613
00:26:28,160 --> 00:26:30,000
Speaker 10: And so I think the high quality credit spreads are

614
00:26:30,000 --> 00:26:32,119
Speaker 10: going to continue to see new tights unless we have

615
00:26:32,160 --> 00:26:34,119
Speaker 10: a hard landing, because people are going to look for

616
00:26:34,200 --> 00:26:36,480
Speaker 10: things that are not treasuries, that are not cash, and

617
00:26:36,520 --> 00:26:38,160
Speaker 10: there aren't that many of them. And that's why single

618
00:26:38,200 --> 00:26:39,960
Speaker 10: bees are trading like they are in high yield, and

619
00:26:40,000 --> 00:26:41,720
Speaker 10: that's why the credit market is where it is in

620
00:26:41,960 --> 00:26:44,159
Speaker 10: credit default swaps. And I don't think we've seen the

621
00:26:44,160 --> 00:26:47,360
Speaker 10: tights yet, despite the fact that we're pretty close to historical.

622
00:26:47,040 --> 00:26:48,280
Speaker 2: Okay, I just want to get into that a little

623
00:26:48,320 --> 00:26:51,480
Speaker 2: bit more. What is driving that bid into certain corporate

624
00:26:51,560 --> 00:26:53,960
Speaker 2: served and credits that can trade through, say treasuries.

625
00:26:55,160 --> 00:26:57,159
Speaker 10: It's not my personal favorite argument I just I do

626
00:26:57,200 --> 00:26:58,040
Speaker 10: think it's going to happen.

627
00:26:58,080 --> 00:27:00,720
Speaker 6: Please put it out this Yeah, I think it is.

628
00:27:00,800 --> 00:27:03,920
Speaker 10: Again, you can make what's going to cause US garverment

629
00:27:04,000 --> 00:27:06,040
Speaker 10: is not going to default, but we can get downgraded again.

630
00:27:06,280 --> 00:27:08,479
Speaker 10: We can be worse fiscally, right, And if you look

631
00:27:08,480 --> 00:27:10,320
Speaker 10: at the credit markets, especially in the higher grade, there

632
00:27:10,320 --> 00:27:12,960
Speaker 10: aren't that many single A names, right, there really aren't.

633
00:27:13,000 --> 00:27:14,920
Speaker 10: And so you get into TRIPLEV plus names, and a

634
00:27:14,960 --> 00:27:17,720
Speaker 10: lot of those names have great cash low right, they're

635
00:27:17,760 --> 00:27:21,160
Speaker 10: being physically responsible. They're not going to continually increase their deficit.

636
00:27:21,240 --> 00:27:23,000
Speaker 10: They're not going to have political issues, they're not all

637
00:27:23,000 --> 00:27:24,359
Speaker 10: the issues that we're about to go through. We're not

638
00:27:24,400 --> 00:27:26,719
Speaker 10: going to happen in those names. And so I do

639
00:27:26,800 --> 00:27:29,160
Speaker 10: think you're going to see some of these high quality

640
00:27:29,240 --> 00:27:31,440
Speaker 10: names trade at levels that don't make a lot of sense.

641
00:27:31,480 --> 00:27:34,399
Speaker 10: From it, Am I being compensated for its standpoint? Because

642
00:27:34,480 --> 00:27:36,760
Speaker 10: you don't people don't want to buy the US.

643
00:27:36,640 --> 00:27:38,680
Speaker 2: Government amazing tounny. I want to give you a funal

644
00:27:38,680 --> 00:27:39,800
Speaker 2: word on that. What'd you think of that?

645
00:27:40,560 --> 00:27:43,000
Speaker 9: Well, I think it's kind of like talking about negative rates. Right,

646
00:27:43,119 --> 00:27:46,000
Speaker 9: it can happen, it's pretty unlikely. I don't think we'll

647
00:27:46,000 --> 00:27:48,880
Speaker 9: be buying too many corporates through treasuries ourselves and being

648
00:27:48,880 --> 00:27:52,280
Speaker 9: private war saying won't be either. But it's certainly theoretically possible,

649
00:27:52,400 --> 00:27:54,159
Speaker 9: just like negative rates were. But I don't think it

650
00:27:54,200 --> 00:27:55,719
Speaker 9: sounded like I don't think it would last long if

651
00:27:55,720 --> 00:27:56,200
Speaker 9: it did happen.

652
00:27:56,280 --> 00:27:57,480
Speaker 2: I think we need to get you back and have

653
00:27:57,520 --> 00:27:59,680
Speaker 2: this conversation at some point. If it does happen, Tounny

654
00:27:59,760 --> 00:28:02,200
Speaker 2: is going to see you. Tony Rodriguez of Nuvine alongside

655
00:28:02,200 --> 00:28:06,359
Speaker 2: Brian Weinstein and Morgan Stanley. This is the Bloomberg Surveillance Podcast,

656
00:28:06,480 --> 00:28:10,399
Speaker 2: bringing you the best in markets, economics, and geopolitics. You

657
00:28:10,440 --> 00:28:13,199
Speaker 2: can watch the show live on Bloomberg TV weekday mornings

658
00:28:13,200 --> 00:28:16,159
Speaker 2: from six am to nine am Eastern. Subscribe to the

659
00:28:16,160 --> 00:28:19,679
Speaker 2: podcast on Apple, Spotify, or anywhere else you listen, and

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00:28:19,720 --> 00:28:22,600
Speaker 2: as always, on the Bloomberg Terminal and the Bloomberg Business

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Speaker 2: app