1 00:00:00,080 --> 00:00:06,760 Speaker 1: Bloomberg Audio Studios, Podcasts, radio News. 2 00:00:11,600 --> 00:00:15,440 Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along 3 00:00:15,440 --> 00:00:18,680 Speaker 2: with Lisa Bromwitz and Amrie Hordern. Join us each day 4 00:00:18,720 --> 00:00:22,239 Speaker 2: for insight from the best in markets, economics, and geopolitics 5 00:00:22,400 --> 00:00:24,880 Speaker 2: from our global headquarters in New York City. We are 6 00:00:24,920 --> 00:00:27,680 Speaker 2: live on Bloomberg Television weekday mornings from six to nine 7 00:00:27,680 --> 00:00:31,280 Speaker 2: am Eastern. Subscribe to the podcast on Apple, Spotify or 8 00:00:31,280 --> 00:00:33,919 Speaker 2: anywhere else you listen, and as always on the Bloomberg 9 00:00:34,000 --> 00:00:37,240 Speaker 2: Terminal and the Bloomberg Business app. Might Wilson and morgod 10 00:00:37,240 --> 00:00:39,760 Speaker 2: stand be taking a very constructive view on things, writing 11 00:00:39,800 --> 00:00:42,320 Speaker 2: the rate of changes turn for the better on most fronts. 12 00:00:42,600 --> 00:00:45,640 Speaker 2: This keeps us positive on US equities on a twelvemonth basis. 13 00:00:45,680 --> 00:00:49,600 Speaker 2: We expect pullbags to be shallow and unsatisfying to those 14 00:00:49,680 --> 00:00:52,239 Speaker 2: looking for a fatter pitch. Mike joins us now from 15 00:00:52,240 --> 00:00:54,280 Speaker 2: what Mike, Good morning, Good morning Jane. I love the 16 00:00:54,320 --> 00:00:56,520 Speaker 2: reson No, don't fight it. So let's talk about don't 17 00:00:56,560 --> 00:00:58,920 Speaker 2: fight what? What elements of the market move shouldn't we fight? 18 00:00:59,160 --> 00:01:00,520 Speaker 3: Well, it's kind of what we're doing talking about. 19 00:01:00,560 --> 00:01:03,400 Speaker 4: I mean, the headlines remained very noisy and uncertain, and 20 00:01:03,440 --> 00:01:05,039 Speaker 4: I think, you know, this has been the case for 21 00:01:05,080 --> 00:01:05,640 Speaker 4: the whole year. 22 00:01:05,880 --> 00:01:07,759 Speaker 3: Our view, as you know, has been a bit different. 23 00:01:07,840 --> 00:01:10,160 Speaker 4: We came in thinking the first half would be tougher 24 00:01:10,680 --> 00:01:12,280 Speaker 4: and the way to change and a lot of things 25 00:01:12,280 --> 00:01:14,080 Speaker 4: like Earnie's re visions and some of the headline would 26 00:01:14,120 --> 00:01:14,640 Speaker 4: be negative. 27 00:01:14,959 --> 00:01:16,480 Speaker 3: And in fact that what we think happens. 28 00:01:16,520 --> 00:01:20,000 Speaker 4: That all got priced in the week after Liberation Day, right, 29 00:01:20,040 --> 00:01:22,399 Speaker 4: it was violent, it was a de leveraging and so 30 00:01:22,480 --> 00:01:24,720 Speaker 4: now as we look at the data itself, it's all 31 00:01:25,120 --> 00:01:28,560 Speaker 4: inflected higher. And so you know, don't ignore everything, but 32 00:01:28,640 --> 00:01:30,880 Speaker 4: ignoring the headlines is probably a good strategy and just 33 00:01:30,920 --> 00:01:33,840 Speaker 4: focus on the data has turned up for the most part. 34 00:01:33,920 --> 00:01:35,560 Speaker 4: And I think, you know, I don't know where the 35 00:01:35,600 --> 00:01:38,119 Speaker 4: trade negotiations are going. Nobody does, but I think it's 36 00:01:38,200 --> 00:01:40,199 Speaker 4: very unlikely we're going to go back to where we were, 37 00:01:40,520 --> 00:01:42,280 Speaker 4: you know, a month and a half ago, like we 38 00:01:42,440 --> 00:01:46,440 Speaker 4: bottomed in terms of the pain of that initial you know, 39 00:01:46,440 --> 00:01:49,640 Speaker 4: announcement and how bad those tariffs were. So unless it 40 00:01:49,720 --> 00:01:52,960 Speaker 4: really re escalates in a negative fashion, I don't think 41 00:01:53,000 --> 00:01:54,840 Speaker 4: the trade issue is even going to be enough to 42 00:01:54,920 --> 00:01:56,160 Speaker 4: kind of take the momentum out of. 43 00:01:56,080 --> 00:01:56,840 Speaker 3: This market right now. 44 00:01:56,920 --> 00:01:58,520 Speaker 2: You know what the bad view sounds like. They would 45 00:01:58,520 --> 00:02:00,440 Speaker 2: say that maybe some of the data, some of the 46 00:02:00,480 --> 00:02:02,880 Speaker 2: innings we've seen have been flatted by pull forward and 47 00:02:02,880 --> 00:02:04,440 Speaker 2: we'll get the bill for that lakes to this summer. 48 00:02:04,480 --> 00:02:06,080 Speaker 2: Do you think we priced for that kind of slowed down, 49 00:02:06,080 --> 00:02:08,120 Speaker 2: that weakness we could see in a summer months. 50 00:02:08,280 --> 00:02:09,320 Speaker 3: That's probably right. 51 00:02:09,400 --> 00:02:10,560 Speaker 4: And when we had that view too, there was a 52 00:02:10,600 --> 00:02:12,240 Speaker 4: pull forward in Q one Q one of being better 53 00:02:12,280 --> 00:02:15,000 Speaker 4: than they feared because you know, the numbers came down 54 00:02:15,040 --> 00:02:17,639 Speaker 4: a bunch. I think the second quarter, though, is expected 55 00:02:17,680 --> 00:02:19,679 Speaker 4: now to be weaker, so that's going to be the key. 56 00:02:19,800 --> 00:02:21,560 Speaker 4: I think the biggest risk for the market's going to 57 00:02:21,560 --> 00:02:23,679 Speaker 4: probably be either rates as we've talked about in the past, 58 00:02:23,720 --> 00:02:25,280 Speaker 4: you know, north of four and a half percent, or 59 00:02:25,639 --> 00:02:27,720 Speaker 4: we do go in an earning season it's not as 60 00:02:27,720 --> 00:02:29,760 Speaker 4: good as you know, people were hoping for, and we 61 00:02:29,840 --> 00:02:32,280 Speaker 4: have maybe a five to seven percent correction, but that's 62 00:02:32,400 --> 00:02:35,240 Speaker 4: not what people kind of want. People want a ten 63 00:02:35,360 --> 00:02:37,800 Speaker 4: you know, another ten to fifteen percent draw down to 64 00:02:37,880 --> 00:02:40,760 Speaker 4: get better, to get more exposure, and I just don't 65 00:02:40,760 --> 00:02:42,560 Speaker 4: think you're going to get that. I mean, I've seen 66 00:02:42,600 --> 00:02:45,200 Speaker 4: this a million times you want it, but you're just 67 00:02:45,200 --> 00:02:46,680 Speaker 4: going to have to have a shorter trigger finger. 68 00:02:47,080 --> 00:02:50,120 Speaker 5: Well, you had seen retail largely buying the dip, that's 69 00:02:50,160 --> 00:02:53,560 Speaker 5: who participated when you got those ruptures in April. If 70 00:02:53,560 --> 00:02:55,440 Speaker 5: we're not going to get dips like that anymore, what 71 00:02:55,600 --> 00:02:59,280 Speaker 5: is the willingness of institutions to continue to put money 72 00:02:59,280 --> 00:03:01,160 Speaker 5: to work right now? Especially they didn't even buy the 73 00:03:01,160 --> 00:03:02,160 Speaker 5: past dips we saw. 74 00:03:02,440 --> 00:03:05,200 Speaker 4: Yeah, I think institutions have re risk, but there's still 75 00:03:05,200 --> 00:03:07,480 Speaker 4: more to go. The one the area I think that 76 00:03:07,600 --> 00:03:10,400 Speaker 4: you have to watch is the is the systematic strategies, 77 00:03:10,440 --> 00:03:13,680 Speaker 4: the CTAs that price momentum money. We saw almost five 78 00:03:13,760 --> 00:03:16,720 Speaker 4: hundred billion dollars of de leveraging in that period of 79 00:03:16,720 --> 00:03:20,360 Speaker 4: early March through mid April, and they've re risked maybe 80 00:03:20,560 --> 00:03:23,440 Speaker 4: thirty forty percent of that. So that's another bid that's 81 00:03:23,440 --> 00:03:26,720 Speaker 4: sort of it's not fundamentally driven, it's just price momentum. 82 00:03:26,760 --> 00:03:28,600 Speaker 3: So that's that's going to be kind of underlying bid. 83 00:03:28,600 --> 00:03:30,839 Speaker 4: And then I think, you know, most institutions have re risk, 84 00:03:31,160 --> 00:03:33,640 Speaker 4: but one thing I haven't talked about yet is it's 85 00:03:33,800 --> 00:03:36,400 Speaker 4: people are still making the quality bet and we agree 86 00:03:36,440 --> 00:03:39,080 Speaker 4: with that, meaning this isn't the beginning of a news cycle. 87 00:03:39,520 --> 00:03:41,400 Speaker 3: It's once again an extension of. 88 00:03:41,320 --> 00:03:43,800 Speaker 4: The existing cycle, and the Fed's probably going to be 89 00:03:43,800 --> 00:03:46,000 Speaker 4: cutting at some point later this year early next year, 90 00:03:46,240 --> 00:03:50,560 Speaker 4: and that really behooves the large cap quality equities. 91 00:03:50,840 --> 00:03:54,760 Speaker 5: Does it behoove companies specifically who can also weigh out 92 00:03:54,800 --> 00:03:56,800 Speaker 5: some of the tariff uncertainty because this has been a 93 00:03:56,800 --> 00:03:59,240 Speaker 5: big part of the narrative, right no one's making decisions 94 00:03:59,280 --> 00:04:02,720 Speaker 5: cap exsually stalled unless your tech is there an element 95 00:04:02,760 --> 00:04:05,720 Speaker 5: where even though we don't have tears resolved, that you 96 00:04:05,760 --> 00:04:07,920 Speaker 5: get companies who just get on with it and start 97 00:04:07,920 --> 00:04:08,880 Speaker 5: to put capital to work. 98 00:04:08,920 --> 00:04:10,920 Speaker 4: Yeah, they got to run a business. And that's another 99 00:04:10,920 --> 00:04:13,200 Speaker 4: reason why large cab quality businesses can do this. They 100 00:04:13,200 --> 00:04:16,120 Speaker 4: can mitigate some of these risks, whether it's terrifs, whether 101 00:04:16,160 --> 00:04:18,559 Speaker 4: it's you know, maybe the government cutting back on certain 102 00:04:18,560 --> 00:04:20,440 Speaker 4: types of spending. And one of the things that is 103 00:04:20,440 --> 00:04:22,240 Speaker 4: getting through this tax build that I think is still 104 00:04:22,320 --> 00:04:26,200 Speaker 4: underappreciate is the tax incentives for cap X and R 105 00:04:26,240 --> 00:04:28,279 Speaker 4: and D spending. We think that could add three to 106 00:04:28,360 --> 00:04:31,680 Speaker 4: five percent to earnings growth or cash earnings for these 107 00:04:31,760 --> 00:04:32,919 Speaker 4: large multinationals. 108 00:04:33,160 --> 00:04:35,400 Speaker 3: That's a big tail. In addition to the weaker dollars. 109 00:04:35,400 --> 00:04:37,280 Speaker 4: So there's just a lot of tailwinds I see from 110 00:04:37,279 --> 00:04:40,240 Speaker 4: an earning standpoint, And this is almost a perfect. 111 00:04:39,960 --> 00:04:41,960 Speaker 3: Environment to climb the wall of worry because. 112 00:04:41,760 --> 00:04:46,000 Speaker 4: The economic data, the political geopolitical data is messy, it's noisy, 113 00:04:46,040 --> 00:04:49,039 Speaker 4: it's scary sometimes. But as long as the revision factors 114 00:04:49,040 --> 00:04:51,680 Speaker 4: for earnings are heading north, it's just hard for stacks 115 00:04:51,720 --> 00:04:52,159 Speaker 4: to go down. 116 00:04:52,320 --> 00:04:54,240 Speaker 2: When you say campex, I just think of a handful 117 00:04:54,240 --> 00:04:56,760 Speaker 2: of tech companies. Do you think it goes beyond just 118 00:04:56,760 --> 00:04:57,520 Speaker 2: tech leadership? 119 00:04:57,600 --> 00:04:58,200 Speaker 3: Oh? Absolutely. 120 00:04:58,240 --> 00:04:59,840 Speaker 4: I think this is about capital goods. I think this 121 00:05:00,120 --> 00:05:03,200 Speaker 4: is not just about AI capbacks. Also, one thing to 122 00:05:03,240 --> 00:05:06,239 Speaker 4: just keep in mind, the IT capbacks that's been good 123 00:05:06,400 --> 00:05:10,880 Speaker 4: the last several years has really been concentrated just in AI. Okay, 124 00:05:10,760 --> 00:05:14,360 Speaker 4: the traditional kind of upgrades you see in the enterprise 125 00:05:14,520 --> 00:05:17,120 Speaker 4: and in the household have not been happening because there 126 00:05:17,160 --> 00:05:19,560 Speaker 4: was a giant pull forward, remember in twenty twenty and 127 00:05:19,560 --> 00:05:20,400 Speaker 4: twenty twenty one for. 128 00:05:20,480 --> 00:05:21,119 Speaker 3: Work from home. 129 00:05:21,360 --> 00:05:23,359 Speaker 4: So if you actually look at the IT capback cycle 130 00:05:23,360 --> 00:05:25,360 Speaker 4: from twenty two to twenty four, it was kind of 131 00:05:25,360 --> 00:05:27,920 Speaker 4: a software session. And that's another part of our thesis. 132 00:05:27,960 --> 00:05:31,200 Speaker 4: We've been going through these rolling recessions. And look, to me, 133 00:05:31,279 --> 00:05:34,200 Speaker 4: the big catalyst to keep in mind for broadening out 134 00:05:34,360 --> 00:05:36,320 Speaker 4: is going to be when the FED starts to signal 135 00:05:36,400 --> 00:05:38,800 Speaker 4: they're more dubbish. I don't know when that's going to be, 136 00:05:38,960 --> 00:05:40,920 Speaker 4: but my guess is sometime in the third coorter they're 137 00:05:40,920 --> 00:05:43,000 Speaker 4: going to start to signal that, and that's where you're 138 00:05:43,000 --> 00:05:44,440 Speaker 4: going to get a more broadening out to the lower 139 00:05:44,520 --> 00:05:45,080 Speaker 4: quality parts of. 140 00:05:45,360 --> 00:05:48,000 Speaker 2: Just the Why matter, do we need it because inflation 141 00:05:48,080 --> 00:05:49,960 Speaker 2: has comeing in or is it going to be because the 142 00:05:50,040 --> 00:05:51,200 Speaker 2: labor market is cracking? 143 00:05:51,440 --> 00:05:54,000 Speaker 4: Well, I mean, look at last fall it was both right. 144 00:05:54,120 --> 00:05:56,840 Speaker 4: The labor market was cracking last summer. As soon as 145 00:05:56,880 --> 00:05:59,320 Speaker 4: they signaled they were ready to step in, the market. 146 00:05:59,040 --> 00:05:59,719 Speaker 3: Went up anyway. 147 00:05:59,800 --> 00:06:02,120 Speaker 4: So that's why I mean, I actually think of recession. 148 00:06:02,160 --> 00:06:05,640 Speaker 4: If we finally get the broad recession labor cycle, I 149 00:06:05,640 --> 00:06:07,680 Speaker 4: don't think the equity markets are going anywhere near the 150 00:06:07,680 --> 00:06:10,120 Speaker 4: April lows because the FED will be able to act quickly, 151 00:06:10,360 --> 00:06:13,400 Speaker 4: and we're like Pavlovian, right, And if retail is buying 152 00:06:13,680 --> 00:06:16,280 Speaker 4: when the FED wasn't even cutting, if they are cutting, 153 00:06:16,440 --> 00:06:17,680 Speaker 4: there's going to be a big bid there. 154 00:06:17,720 --> 00:06:19,760 Speaker 3: So look, there's always risks in the market. 155 00:06:19,760 --> 00:06:21,960 Speaker 4: There's always something to be worried about, there's always things 156 00:06:22,000 --> 00:06:23,680 Speaker 4: to be bearishan, and there's things to be bullish on. 157 00:06:23,760 --> 00:06:24,440 Speaker 3: And that's our job. 158 00:06:24,480 --> 00:06:26,400 Speaker 4: And I think, you know, this year we've navigated that 159 00:06:26,440 --> 00:06:28,400 Speaker 4: pretty well, being in the right places. And I think 160 00:06:28,400 --> 00:06:30,160 Speaker 4: we're going to continue to have to shift what we 161 00:06:30,200 --> 00:06:31,960 Speaker 4: want to own, not so much how much you want 162 00:06:31,960 --> 00:06:32,200 Speaker 4: to own. 163 00:06:32,320 --> 00:06:34,680 Speaker 2: You've acknowledged the one thing that could be a handwind 164 00:06:34,680 --> 00:06:37,120 Speaker 2: for equities. It's interest rates. He wrote about it over 165 00:06:37,160 --> 00:06:40,040 Speaker 2: the weekend. What is it about four fifty that's challenging 166 00:06:40,120 --> 00:06:42,600 Speaker 2: to this equity market? Because based on the running we've 167 00:06:42,600 --> 00:06:44,120 Speaker 2: seen over the past few weeks, we don't see much 168 00:06:44,120 --> 00:06:44,799 Speaker 2: of a challenge. 169 00:06:44,920 --> 00:06:46,559 Speaker 3: Well, it's stabilized at four fifty. 170 00:06:46,680 --> 00:06:49,560 Speaker 4: So we've identified this level like almost two years ago, 171 00:06:49,680 --> 00:06:52,760 Speaker 4: and it's been like a charm. I mean, as soon 172 00:06:52,760 --> 00:06:54,640 Speaker 4: as you cross four to fifty in the fside, the 173 00:06:54,680 --> 00:06:58,520 Speaker 4: correlation between stocks and rates goes negative and vice versa. Now, 174 00:06:58,560 --> 00:07:00,360 Speaker 4: I do think that we kind of want to four 175 00:07:00,480 --> 00:07:03,640 Speaker 4: seventy in the April period and then they calm down again. 176 00:07:03,720 --> 00:07:06,120 Speaker 4: I think the market is getting comfortable that they have 177 00:07:06,360 --> 00:07:08,920 Speaker 4: enough tools, because you know, the Treasury Secretary has talked 178 00:07:08,920 --> 00:07:11,880 Speaker 4: about that to keep it four fifty or below if 179 00:07:11,880 --> 00:07:13,640 Speaker 4: they need to, And I think we talked about this 180 00:07:13,720 --> 00:07:16,120 Speaker 4: last time I was here. Four seventy five is like 181 00:07:16,120 --> 00:07:18,960 Speaker 4: the worst place because that's where markets get really nervous. 182 00:07:19,200 --> 00:07:22,600 Speaker 4: Five percent I actually get bullish because then I know 183 00:07:23,040 --> 00:07:25,040 Speaker 4: that they're going to come and intervene with either liquidity 184 00:07:25,080 --> 00:07:27,320 Speaker 4: injections or they're going to use these other tools that 185 00:07:27,360 --> 00:07:29,800 Speaker 4: the treasure secretary has talked about. So we're, you know, 186 00:07:30,080 --> 00:07:33,080 Speaker 4: we're we're optimistic that that could be managed. And in 187 00:07:33,080 --> 00:07:35,160 Speaker 4: other words, that risk could be a risk for five 188 00:07:35,240 --> 00:07:37,840 Speaker 4: or seven percent, but ultimately that risk will get managed. 189 00:07:37,840 --> 00:07:39,600 Speaker 2: To do you get CLIENTSOSKC and you now about the 190 00:07:39,600 --> 00:07:42,080 Speaker 2: dead oceans, asking the equity strying to just about the 191 00:07:42,080 --> 00:07:43,600 Speaker 2: dead otions that take place in the week. 192 00:07:43,760 --> 00:07:45,560 Speaker 4: Well, I really ask the equity folks, But I mean 193 00:07:45,600 --> 00:07:47,120 Speaker 4: people do ask about it. 194 00:07:47,000 --> 00:07:47,360 Speaker 3: For sure. 195 00:07:47,400 --> 00:07:50,760 Speaker 4: I mean, and once again we have seen many auctions, 196 00:07:50,920 --> 00:07:53,680 Speaker 4: soft auctions for the last two or three years, seen 197 00:07:53,680 --> 00:07:54,800 Speaker 4: this occur and then. 198 00:07:54,720 --> 00:07:56,000 Speaker 3: They get control of it. Again. 199 00:07:56,480 --> 00:07:58,160 Speaker 4: I don't want to dismiss the risk from the back 200 00:07:58,240 --> 00:08:01,680 Speaker 4: end of the market that is still to me. The risk, 201 00:08:01,760 --> 00:08:04,880 Speaker 4: I mean, is the risk not only for markets. It's 202 00:08:04,920 --> 00:08:07,880 Speaker 4: the risk for the US, like we have too much 203 00:08:07,960 --> 00:08:10,840 Speaker 4: debt and this is a focus. And if we don't, 204 00:08:11,280 --> 00:08:13,400 Speaker 4: I mean ultimately, if we don't you know, cut the 205 00:08:13,400 --> 00:08:15,640 Speaker 4: budget over time like and maybe the market is now 206 00:08:15,720 --> 00:08:17,960 Speaker 4: giving them a lead like okay, we'll give you twelve months, 207 00:08:18,320 --> 00:08:21,080 Speaker 4: you know, but if we don't get serious about you know, 208 00:08:21,280 --> 00:08:24,240 Speaker 4: budget reconciliation and actually reducing the size of the budget 209 00:08:24,240 --> 00:08:26,400 Speaker 4: over time, this is an issue that's going to stay 210 00:08:26,400 --> 00:08:26,760 Speaker 4: with us. 211 00:08:27,080 --> 00:08:29,640 Speaker 2: Mike Wilson of Morgan Stanley three words out of the weekend, 212 00:08:29,800 --> 00:08:32,240 Speaker 2: don't fight it. Don't fight this market, Mike, Thank you, sir. 213 00:08:32,320 --> 00:08:44,720 Speaker 2: They appreciate it. Joining us now to continue the conversation. 214 00:08:45,080 --> 00:08:48,559 Speaker 2: Hendra to Trace of Veda pantas Hen, Welcome to the program. 215 00:08:48,600 --> 00:08:51,680 Speaker 2: So this was frame quite simply yesterday going into the room, 216 00:08:51,880 --> 00:08:53,920 Speaker 2: we would tell the US would push to drop some 217 00:08:54,000 --> 00:08:56,240 Speaker 2: restrictions on their site in order to ease the limits 218 00:08:56,280 --> 00:08:59,240 Speaker 2: on rare earth shipments from the Chinese side. Now, I 219 00:08:59,240 --> 00:09:02,520 Speaker 2: guess we've got two. Now, either that's proving more difficult 220 00:09:02,559 --> 00:09:05,760 Speaker 2: to do as we go intoday two or they're shooting 221 00:09:05,760 --> 00:09:08,520 Speaker 2: for something much bigger than just that. Is there reason 222 00:09:08,559 --> 00:09:10,360 Speaker 2: to believe it's one and maybe not the other. 223 00:09:11,440 --> 00:09:14,360 Speaker 1: Well, I'd like to offer a third alternative and connect 224 00:09:14,360 --> 00:09:16,679 Speaker 1: a few dots here. I don't think we're talking about 225 00:09:16,679 --> 00:09:18,079 Speaker 1: tariffs anymore, and. 226 00:09:18,040 --> 00:09:19,719 Speaker 6: I think that's something that this street is. 227 00:09:19,960 --> 00:09:23,560 Speaker 1: Coming to understand right now, and China has already grasped, 228 00:09:24,040 --> 00:09:27,280 Speaker 1: which is that when we got a CBO score suggesting 229 00:09:27,280 --> 00:09:29,800 Speaker 1: that these tariffs that are in place today are generating 230 00:09:29,800 --> 00:09:32,560 Speaker 1: two point eight trillion dollars in revenue, and the White 231 00:09:32,600 --> 00:09:37,000 Speaker 1: House starts immediately putting out memos incorporating that threshold into 232 00:09:37,080 --> 00:09:40,600 Speaker 1: their public presentations on the state of the tax bill 233 00:09:40,640 --> 00:09:42,240 Speaker 1: and the reconciliation package. 234 00:09:42,360 --> 00:09:44,760 Speaker 6: We're not negotiating for tariffs to come down. 235 00:09:45,080 --> 00:09:47,440 Speaker 1: The tariffs that are in place today are very likely 236 00:09:47,440 --> 00:09:50,560 Speaker 1: to continue across all nations, not just China, but Japan, 237 00:09:50,640 --> 00:09:53,800 Speaker 1: South Korea, the EU, and they're going to also see 238 00:09:53,840 --> 00:09:59,480 Speaker 1: sectoral tariffs on pharmaceuticals, semiconductors, trucking, aircraft in the months ahead. 239 00:10:00,120 --> 00:10:03,720 Speaker 1: Being negotiated are the extraneous issues that, of course, since 240 00:10:03,720 --> 00:10:06,880 Speaker 1: the Geneva meeting, both sides have ratcheted up, whether that's 241 00:10:06,920 --> 00:10:10,240 Speaker 1: on limiting student access to the United States for Chinese 242 00:10:10,280 --> 00:10:15,040 Speaker 1: students or the Huawei chips or AI or rare earth magnets. 243 00:10:15,160 --> 00:10:17,920 Speaker 1: They're expanding the scope of this war and no longer 244 00:10:17,960 --> 00:10:19,600 Speaker 1: negotiating just the tariff rates. 245 00:10:19,640 --> 00:10:21,440 Speaker 6: I think that they're looking for an excuse. 246 00:10:21,120 --> 00:10:23,920 Speaker 1: To get past Liberation Day, which in this case is 247 00:10:24,200 --> 00:10:27,080 Speaker 1: in August, and come up with any reason to keep 248 00:10:27,120 --> 00:10:30,040 Speaker 1: tarifrates where they are while they fight on different fronts. 249 00:10:30,400 --> 00:10:34,000 Speaker 5: Henrietta, can they use tariffs as a crutch then? Can 250 00:10:34,040 --> 00:10:36,440 Speaker 5: they use the terriffs in the negotiation or are you 251 00:10:36,520 --> 00:10:39,440 Speaker 5: suggesting that they are just completely to one side. They 252 00:10:39,480 --> 00:10:41,720 Speaker 5: will remain and that's not going to be touched for 253 00:10:41,760 --> 00:10:42,760 Speaker 5: the foreseeable future. 254 00:10:43,880 --> 00:10:46,319 Speaker 1: I think they can go up. I don't think that 255 00:10:46,360 --> 00:10:49,079 Speaker 1: they're going to come much further down. Thirty percent, as 256 00:10:49,080 --> 00:10:51,080 Speaker 1: we all recall, is obviously way lower. 257 00:10:50,840 --> 00:10:52,240 Speaker 6: Than the President initially wanted. 258 00:10:52,280 --> 00:10:54,440 Speaker 1: He gave best at the go ahead to drop rates 259 00:10:54,440 --> 00:10:57,480 Speaker 1: down to eighty. We know that anything above fifty percent 260 00:10:57,600 --> 00:11:01,360 Speaker 1: is effectively a embargo on trade, and thirty percent, you know, 261 00:11:01,400 --> 00:11:02,240 Speaker 1: cargo is just. 262 00:11:02,240 --> 00:11:04,960 Speaker 6: Now starting to get back to where it was in before. 263 00:11:04,679 --> 00:11:07,760 Speaker 1: April second, or before Trump took office. I don't think 264 00:11:07,800 --> 00:11:09,880 Speaker 1: they're going to go much lower than thirty percent. Again, 265 00:11:09,920 --> 00:11:11,920 Speaker 1: that revenue score of two point eight straight is just 266 00:11:11,960 --> 00:11:15,800 Speaker 1: too attractive. So the threat is permanently there of tariff's rising, 267 00:11:15,840 --> 00:11:18,280 Speaker 1: and I believe they will on a sector basis. And 268 00:11:18,440 --> 00:11:21,120 Speaker 1: I was speaking with another former USTR recently and he 269 00:11:21,200 --> 00:11:23,560 Speaker 1: suggested that one or two nations could be made an 270 00:11:23,600 --> 00:11:25,600 Speaker 1: example of Nicaragua. 271 00:11:25,000 --> 00:11:25,600 Speaker 6: For example. 272 00:11:26,400 --> 00:11:28,280 Speaker 1: But for the most part, these tariffs are here, they're 273 00:11:28,320 --> 00:11:29,600 Speaker 1: here to stay, and we're going to have to fight 274 00:11:29,640 --> 00:11:30,280 Speaker 1: on other fronts. 275 00:11:30,400 --> 00:11:34,080 Speaker 5: What does that say about negotiations with other countries? Henrietta, 276 00:11:34,120 --> 00:11:37,520 Speaker 5: When the ninety day pause comes due in July, is 277 00:11:37,520 --> 00:11:40,640 Speaker 5: it your expectation that we also get a resumption of 278 00:11:40,720 --> 00:11:43,240 Speaker 5: higher levels of tariff, something like we saw in Liberation Day. 279 00:11:44,160 --> 00:11:46,080 Speaker 6: I don't think so. For most nations. 280 00:11:46,280 --> 00:11:48,800 Speaker 1: I think that the administration is looking for an excuse 281 00:11:48,840 --> 00:11:51,880 Speaker 1: to extend the July ninth date out into the future. 282 00:11:51,920 --> 00:11:53,079 Speaker 6: I don't have a good sense of. 283 00:11:53,000 --> 00:11:55,520 Speaker 1: How long they want to extend it out into thirty 284 00:11:55,559 --> 00:11:56,720 Speaker 1: sixty ninety days. 285 00:11:56,840 --> 00:11:58,240 Speaker 6: But one thing that I. 286 00:11:58,320 --> 00:12:02,640 Speaker 1: Really can't square is that the Liberation Day of two 287 00:12:02,679 --> 00:12:05,760 Speaker 1: point zero July ninth is well before. 288 00:12:05,440 --> 00:12:07,280 Speaker 6: When I anticipate the tax bill passing. 289 00:12:07,320 --> 00:12:11,640 Speaker 1: So you have this awkward dance between Republican lawmakers trying 290 00:12:11,679 --> 00:12:14,920 Speaker 1: to pass this bill on the Hill, and the July fourth, 291 00:12:14,960 --> 00:12:17,080 Speaker 1: you know, fourth of July rally that the President is 292 00:12:17,080 --> 00:12:20,679 Speaker 1: helping to have, and then the July ninth expiration date. 293 00:12:20,760 --> 00:12:23,040 Speaker 1: So I think the dates are a little bit fuzzy 294 00:12:23,600 --> 00:12:26,400 Speaker 1: and they don't really quite have a streamlined narrative. The 295 00:12:26,440 --> 00:12:29,719 Speaker 1: tariffs and the tax bill haven't quite blended perfectly, and 296 00:12:29,760 --> 00:12:31,520 Speaker 1: I wonder whether that might come into the conversation. 297 00:12:31,720 --> 00:12:33,240 Speaker 2: There's one more piece of a parzzle at the moment, 298 00:12:33,280 --> 00:12:35,720 Speaker 2: as you know, the White House increasingly distracted by what's 299 00:12:35,720 --> 00:12:38,680 Speaker 2: happening on the West coast in Los Angeles, Henrietta, do 300 00:12:38,720 --> 00:12:40,719 Speaker 2: you take the point, maybe make the argument that they're 301 00:12:40,760 --> 00:12:44,040 Speaker 2: much more comfortable with that story developing in Los Angeles, 302 00:12:44,080 --> 00:12:45,839 Speaker 2: and maybe that takes some heat off the passage of 303 00:12:45,880 --> 00:12:47,640 Speaker 2: the bill, the tax bill in Washington. 304 00:12:48,240 --> 00:12:49,880 Speaker 6: Oh yeah, they got to love it. And the timing 305 00:12:49,960 --> 00:12:50,480 Speaker 6: is perfect. 306 00:12:50,760 --> 00:12:54,360 Speaker 1: Tomorrow or Thursday, the Judiciary Committee is putting out their 307 00:12:54,400 --> 00:12:57,320 Speaker 1: one hundred and seventy five billion dollar package that is 308 00:12:57,360 --> 00:12:58,160 Speaker 1: going to spend. 309 00:12:58,000 --> 00:12:58,880 Speaker 6: Money on immigration. 310 00:12:59,200 --> 00:13:01,120 Speaker 1: And one of the things that has been lost in 311 00:13:01,160 --> 00:13:02,559 Speaker 1: the last week of Elon Musk and. 312 00:13:02,480 --> 00:13:05,960 Speaker 6: Donald Trump feuding over Twitter is that the whole package. 313 00:13:05,960 --> 00:13:08,120 Speaker 1: The reason we're doing one big, beautiful bill and set 314 00:13:08,160 --> 00:13:10,680 Speaker 1: it too is because there's a tremendous amount of dessert 315 00:13:10,720 --> 00:13:13,040 Speaker 1: in this bill. There's three hundred and fifty billion dollars 316 00:13:13,080 --> 00:13:16,160 Speaker 1: in funding for the military and immigration, and that's. 317 00:13:16,040 --> 00:13:17,959 Speaker 6: What's going to carry this bill over the finish line. 318 00:13:17,960 --> 00:13:20,880 Speaker 6: I've only seen one Senator come out against those spending levels, 319 00:13:20,920 --> 00:13:21,760 Speaker 6: and that's Rand Paul. 320 00:13:22,160 --> 00:13:24,480 Speaker 1: And even he wants some level of spending, it's seventy 321 00:13:24,480 --> 00:13:26,319 Speaker 1: five billion. He just doesn't think we need the full 322 00:13:26,360 --> 00:13:27,680 Speaker 1: one hundred and seventy five billion. 323 00:13:27,800 --> 00:13:29,040 Speaker 6: So I one hundred. 324 00:13:28,760 --> 00:13:32,679 Speaker 1: Percent expect for this immigration conversation, the raids in LA 325 00:13:32,840 --> 00:13:35,600 Speaker 1: sending in the National Guard advances. My odds that the 326 00:13:35,600 --> 00:13:38,200 Speaker 1: OBBB gets signed into law. 327 00:13:38,480 --> 00:13:40,440 Speaker 2: When all is set and down, how different will that 328 00:13:40,520 --> 00:13:42,480 Speaker 2: bill look to what was passed in the House. 329 00:13:43,320 --> 00:13:45,360 Speaker 6: It's going to be substantially more deficit increasing. 330 00:13:45,400 --> 00:13:48,320 Speaker 1: I'd say at least four hundred billion dollars more in deficits. 331 00:13:49,400 --> 00:13:51,160 Speaker 6: The saltcap is not going to be as generous. 332 00:13:51,200 --> 00:13:54,400 Speaker 1: The IRA tax credits cannot be cut back as much 333 00:13:54,440 --> 00:13:56,960 Speaker 1: as they have been. This is just a tremendous job 334 00:13:57,200 --> 00:14:01,559 Speaker 1: growth in Key states that need it include Alaska, North Carolina, 335 00:14:01,600 --> 00:14:03,880 Speaker 1: where there's that risk for publican members, it's. 336 00:14:03,720 --> 00:14:04,640 Speaker 6: Going to change quite a bit. 337 00:14:04,960 --> 00:14:07,079 Speaker 2: I'm going to trace if I depart, I to thank you. 338 00:14:17,360 --> 00:14:19,320 Speaker 2: So here's the like this this morning. One hundred and 339 00:14:19,440 --> 00:14:22,120 Speaker 2: nineteen billion dollars in treasury notes up for auction this 340 00:14:22,200 --> 00:14:25,000 Speaker 2: week as try to look to gage appetite for US debt. 341 00:14:25,240 --> 00:14:29,040 Speaker 2: Tony Rodriquez a Neuveine writing long duration is attractive as 342 00:14:29,040 --> 00:14:32,520 Speaker 2: a hedge for equities and broader risk assets. Tiny joint 343 00:14:32,560 --> 00:14:34,000 Speaker 2: us Now for more, Tonyk Mornic. 344 00:14:33,760 --> 00:14:34,480 Speaker 7: Come morning, Jackthon. 345 00:14:34,520 --> 00:14:37,560 Speaker 2: Could you think that more comfortable correlation does return that? 346 00:14:37,600 --> 00:14:38,560 Speaker 8: Are you seeing signs of that? 347 00:14:38,840 --> 00:14:39,840 Speaker 7: We are seeing signs of that. 348 00:14:39,880 --> 00:14:41,840 Speaker 9: You've seen that in some of the little hiccups we've 349 00:14:41,840 --> 00:14:44,280 Speaker 9: had in the equity market, and we think about why 350 00:14:44,320 --> 00:14:47,000 Speaker 9: that's taking place, is that we finally have a yield 351 00:14:47,240 --> 00:14:51,520 Speaker 9: level that's reasonably attractive, and you also have markets that 352 00:14:51,600 --> 00:14:54,320 Speaker 9: we would argue are fully valued. Whether you look at 353 00:14:54,360 --> 00:14:56,920 Speaker 9: the equity market where you look at risk assets, it's 354 00:14:56,920 --> 00:15:00,680 Speaker 9: hard to argue anything's super cheap. So now when you're 355 00:15:00,680 --> 00:15:04,600 Speaker 9: looking at the economy slowing down, rates being high, an 356 00:15:04,600 --> 00:15:07,720 Speaker 9: investor is looking for income and a hedge. We think 357 00:15:07,760 --> 00:15:10,560 Speaker 9: you'll see that rally and treasuries because we think that 358 00:15:10,600 --> 00:15:14,360 Speaker 9: will really reduce any inflationary pressure that comes into the 359 00:15:14,400 --> 00:15:19,440 Speaker 9: economy through wage pressures, and therefore rates can fall in 360 00:15:19,520 --> 00:15:22,280 Speaker 9: a really negative outcome, which is not our base case, 361 00:15:22,600 --> 00:15:24,720 Speaker 9: but in that tail risk, we think it will serve 362 00:15:24,720 --> 00:15:25,280 Speaker 9: as a good head. 363 00:15:25,440 --> 00:15:27,840 Speaker 2: That's the risk version test for the treasury. Let's talk 364 00:15:27,840 --> 00:15:29,920 Speaker 2: about the supply test for the treasury market this week. 365 00:15:30,400 --> 00:15:32,800 Speaker 2: Four fifty close to that on tens, close to five 366 00:15:32,800 --> 00:15:36,360 Speaker 2: percent on thirty sufficient levels to bring in that demand 367 00:15:36,360 --> 00:15:38,080 Speaker 2: when we get those auctions this week. 368 00:15:37,960 --> 00:15:39,760 Speaker 9: Yeah, we don't think they're cheap enough to bring in 369 00:15:39,920 --> 00:15:42,280 Speaker 9: access demands, so you're not going to get the strongest 370 00:15:42,320 --> 00:15:45,040 Speaker 9: auction statistics you've ever seen. Who we think we're at 371 00:15:45,040 --> 00:15:48,040 Speaker 9: fair value, so we're not expecting to see a failed 372 00:15:48,080 --> 00:15:52,360 Speaker 9: auction this time. But we haven't really seen that right 373 00:15:52,400 --> 00:15:55,280 Speaker 9: so bit the coverations has been okay, the tails have 374 00:15:55,360 --> 00:15:59,240 Speaker 9: been average. We're expecting a similar story, but everybody's on 375 00:15:59,280 --> 00:16:03,200 Speaker 9: alert for that first auction that actually, you know, shows 376 00:16:03,240 --> 00:16:05,080 Speaker 9: a really negative soft outcome. 377 00:16:05,280 --> 00:16:07,600 Speaker 5: It seems like we've been on alert for a while, Tony, 378 00:16:07,760 --> 00:16:09,960 Speaker 5: and it has yet to happen. Where it has happened 379 00:16:10,280 --> 00:16:12,320 Speaker 5: is abroad. You saw weak auctions from Japan and that 380 00:16:12,440 --> 00:16:14,920 Speaker 5: was enough to move around the US treasury market. How 381 00:16:14,960 --> 00:16:18,200 Speaker 5: fragile and how exposed are we still to international results 382 00:16:18,200 --> 00:16:20,920 Speaker 5: from auctions and just more generally higher bond yields across 383 00:16:20,960 --> 00:16:21,400 Speaker 5: the ocean. 384 00:16:21,640 --> 00:16:24,840 Speaker 9: Yeah, they're very correlated markets. We've seen term premium rise 385 00:16:24,960 --> 00:16:29,000 Speaker 9: across multiple global markets, right, we've seen yields rising, so 386 00:16:29,240 --> 00:16:31,720 Speaker 9: very integrated. So we are sensitive to that. But the 387 00:16:31,760 --> 00:16:35,800 Speaker 9: good news is that you've seen policymakers also respond to that. 388 00:16:36,080 --> 00:16:39,160 Speaker 9: So the bankers Japan responded to that, so they're quantitative tiding. 389 00:16:39,200 --> 00:16:40,400 Speaker 7: They might slow that down. 390 00:16:40,840 --> 00:16:44,600 Speaker 9: We saw the US Treasury Secretary say that they may 391 00:16:44,640 --> 00:16:50,520 Speaker 9: consider adjusting some of their supply you expectations over the 392 00:16:50,520 --> 00:16:54,920 Speaker 9: coming months. So policymakers are responding to the potential for 393 00:16:55,320 --> 00:16:59,119 Speaker 9: soft demand and longer duration assets and that's supportive. 394 00:16:59,400 --> 00:17:01,880 Speaker 5: Is that not a problem though, that policymakers have to 395 00:17:01,920 --> 00:17:04,199 Speaker 5: respond Tony. This is usually the thing you see in 396 00:17:04,240 --> 00:17:08,119 Speaker 5: emerging markets that there's not enough demand for longer term debts, 397 00:17:08,160 --> 00:17:10,600 Speaker 5: so you get changes, or you get inability to actually 398 00:17:10,640 --> 00:17:14,280 Speaker 5: issue longer term debt is the very actions within the 399 00:17:14,280 --> 00:17:16,000 Speaker 5: then selves. The fact that they have to do it 400 00:17:16,200 --> 00:17:16,879 Speaker 5: a problem. 401 00:17:17,200 --> 00:17:18,920 Speaker 9: Yeah, we don't think it's a problem, but we do 402 00:17:18,960 --> 00:17:23,080 Speaker 9: think it's reflective of the fact that the fiscal pressures 403 00:17:23,080 --> 00:17:26,439 Speaker 9: that we are seeing globally that dominated really by the 404 00:17:26,560 --> 00:17:29,760 Speaker 9: US right now in terms of six to seven percent deficits, 405 00:17:30,160 --> 00:17:32,040 Speaker 9: those are going to be something that has to be 406 00:17:32,080 --> 00:17:32,640 Speaker 9: reckoned with. 407 00:17:32,960 --> 00:17:33,399 Speaker 7: It's just that. 408 00:17:33,600 --> 00:17:38,400 Speaker 9: Unlike in emerging market countries where that debt balloon pops 409 00:17:38,560 --> 00:17:41,240 Speaker 9: and you get an immediate crisis, the debt balloon in 410 00:17:41,280 --> 00:17:43,159 Speaker 9: a country like the US is more like Japan in 411 00:17:43,200 --> 00:17:46,080 Speaker 9: the nineties, where the air comes out slowly. So the 412 00:17:46,200 --> 00:17:48,280 Speaker 9: US is not going to, in our minds, have some 413 00:17:48,320 --> 00:17:51,679 Speaker 9: sort of immediate sharp crisis, but it will have this 414 00:17:51,800 --> 00:17:55,800 Speaker 9: kind of slower weakening that takes place from elevated rates 415 00:17:56,040 --> 00:17:58,600 Speaker 9: that are a weight on growth, that take away some 416 00:17:58,720 --> 00:18:02,520 Speaker 9: of the supply and ability for companies to finances attractively, 417 00:18:02,800 --> 00:18:06,119 Speaker 9: and so that just places a dampener on growth broadly. 418 00:18:06,359 --> 00:18:09,960 Speaker 9: So it's a slower kind of pain than necessarily a 419 00:18:10,040 --> 00:18:10,920 Speaker 9: sharp disruption. 420 00:18:11,200 --> 00:18:13,520 Speaker 2: You said risk and says with fully value, does that 421 00:18:13,640 --> 00:18:15,280 Speaker 2: include credit and high yield? 422 00:18:15,800 --> 00:18:18,480 Speaker 9: Yeah, we think it's fully valued. In terms of reflecting 423 00:18:18,520 --> 00:18:21,280 Speaker 9: what are strong fundamentals. So we're not expecting a lot 424 00:18:21,280 --> 00:18:24,800 Speaker 9: of price performance from tightening spreads, right, We think the 425 00:18:24,960 --> 00:18:27,840 Speaker 9: carry the yield is pretty attractive. You can kind of 426 00:18:27,880 --> 00:18:31,360 Speaker 9: earn that seven and a half percent type of return, 427 00:18:31,720 --> 00:18:34,720 Speaker 9: which is comparable to equities with a lot less risk, 428 00:18:34,960 --> 00:18:37,119 Speaker 9: and it's reflective of solid balance. 429 00:18:37,240 --> 00:18:39,160 Speaker 7: It's good cash flow. Right. 430 00:18:39,280 --> 00:18:41,400 Speaker 9: Defaults that are going to rise, but not very much. 431 00:18:41,760 --> 00:18:45,280 Speaker 9: Where we're a little hesitant because spreads are only fair 432 00:18:45,800 --> 00:18:46,040 Speaker 9: is to. 433 00:18:46,000 --> 00:18:47,440 Speaker 7: Go down to the deepest end of the pool. 434 00:18:47,680 --> 00:18:50,600 Speaker 9: So triple C credit risk might do great if the 435 00:18:50,640 --> 00:18:54,400 Speaker 9: economy really performs well, but that risk reward is not 436 00:18:54,440 --> 00:18:57,720 Speaker 9: as attractive as sitting and double bee credit higher single 437 00:18:57,760 --> 00:19:02,440 Speaker 9: bee credit, where again fair compensates you for good fundamentals 438 00:19:02,440 --> 00:19:03,960 Speaker 9: and strong technical conditions. 439 00:19:04,000 --> 00:19:06,000 Speaker 5: You could fool yourself into thinking, though, that there's no 440 00:19:06,200 --> 00:19:08,760 Speaker 5: concern with the junkiest of credit, just given the issuance 441 00:19:08,800 --> 00:19:11,600 Speaker 5: we've seen, I think for May was the strongest amount 442 00:19:11,600 --> 00:19:16,240 Speaker 5: of junk bond issuance since October. There's demand there and 443 00:19:16,280 --> 00:19:19,080 Speaker 5: there's also taking advantage of a lull. But is it 444 00:19:19,240 --> 00:19:22,080 Speaker 5: a false sense of calm? Are we tricking ourselves into 445 00:19:22,119 --> 00:19:24,440 Speaker 5: believing that it is calmness, especially for the more risky 446 00:19:24,560 --> 00:19:27,560 Speaker 5: edges of the market, especially headed into July where tariff 447 00:19:27,600 --> 00:19:28,639 Speaker 5: deadlines come due. 448 00:19:29,040 --> 00:19:30,359 Speaker 7: Yeah, we bring up a good point. 449 00:19:30,480 --> 00:19:32,879 Speaker 9: So a lot of companies typically they fail because of 450 00:19:32,960 --> 00:19:35,959 Speaker 9: lack of liquidity and necessarily business fundamentals. It can't they 451 00:19:35,960 --> 00:19:39,639 Speaker 9: can't work through, So that liquidity is very important. The 452 00:19:39,720 --> 00:19:42,960 Speaker 9: hial market had been kind of having below normal supply, 453 00:19:43,480 --> 00:19:45,840 Speaker 9: and now that's kind of accelerated a bit, but it 454 00:19:45,920 --> 00:19:48,600 Speaker 9: hasn't gone to an excess level. In our minds, it's 455 00:19:48,640 --> 00:19:52,480 Speaker 9: just gotten back to a normal supply demand relationship. We 456 00:19:52,520 --> 00:19:55,280 Speaker 9: think that's healthy. We think that liquidity is going to 457 00:19:55,320 --> 00:19:58,160 Speaker 9: remain in place. So that's part of why we think 458 00:19:58,280 --> 00:20:01,240 Speaker 9: the default story. While we'll see an increase, it's not 459 00:20:01,320 --> 00:20:04,040 Speaker 9: going to be a sharp rise unless you get a 460 00:20:04,080 --> 00:20:08,080 Speaker 9: really negative kind of exogenous shock which could come from tariffs, 461 00:20:08,119 --> 00:20:12,679 Speaker 9: could come from geopolitical absent that the underlying fundamentals for 462 00:20:12,800 --> 00:20:17,159 Speaker 9: cash flow and the liquidity conditions are pretty supportive of 463 00:20:17,320 --> 00:20:19,640 Speaker 9: kind of remaining at these fair value levels. 464 00:20:19,640 --> 00:20:21,399 Speaker 2: I've known you for a long time. Just listening to 465 00:20:21,440 --> 00:20:24,520 Speaker 2: you hear it feels as if April never happened and 466 00:20:24,560 --> 00:20:26,200 Speaker 2: looking at where markets are price at the moment, it 467 00:20:26,240 --> 00:20:29,760 Speaker 2: looks like April never happened. Does anything changed for you fundamentally? 468 00:20:30,200 --> 00:20:33,960 Speaker 9: Yeah, well yes, what has happened is that the kind 469 00:20:34,000 --> 00:20:37,680 Speaker 9: of fragility that exists is greater today. So we thought 470 00:20:37,720 --> 00:20:40,000 Speaker 9: we'd be growing at two percent coming into this year 471 00:20:40,200 --> 00:20:43,960 Speaker 9: without the April news, then you can kind of absorb 472 00:20:44,040 --> 00:20:47,920 Speaker 9: a punch, whether it was oil prices, geopolitical. Now we're 473 00:20:47,960 --> 00:20:52,040 Speaker 9: thinking one percent growth, so that at one percent, any shock, 474 00:20:52,280 --> 00:20:56,080 Speaker 9: a disruption to a auction for example, that can now 475 00:20:56,160 --> 00:20:59,760 Speaker 9: push you into recession. So that tail risk has increased 476 00:20:59,760 --> 00:21:03,119 Speaker 9: for us, So recession risk twenty percent coming into the 477 00:21:03,200 --> 00:21:07,000 Speaker 9: year thirty five percent now still not base case, but 478 00:21:07,200 --> 00:21:10,560 Speaker 9: enough to say what gets tipped over into default in 479 00:21:10,600 --> 00:21:14,159 Speaker 9: that environment. It's those triple C weeker credits. So if 480 00:21:14,200 --> 00:21:17,600 Speaker 9: they survive, we avoid recession, they're going to do fine. 481 00:21:17,760 --> 00:21:19,480 Speaker 7: But if we have that little. 482 00:21:19,400 --> 00:21:21,879 Speaker 9: Hiccup, that's where you want to be a little bit better, 483 00:21:22,000 --> 00:21:25,200 Speaker 9: higher in quality, a little higher in liquidity, to give 484 00:21:25,200 --> 00:21:28,040 Speaker 9: your room to be able to adjust to those weaker conditions. 485 00:21:27,880 --> 00:21:29,960 Speaker 2: It's got it, Tony, a free siat It as always 486 00:21:30,000 --> 00:21:42,600 Speaker 2: Tony Rodriguez, there a new vein on fixed income. Let's 487 00:21:42,600 --> 00:21:44,560 Speaker 2: how to get the Deutsche Bank is with this around of 488 00:21:44,560 --> 00:21:47,200 Speaker 2: table macamonic, it's going to see you, sir. Let's talk 489 00:21:47,200 --> 00:21:49,199 Speaker 2: about whether it's too early to see that kind of 490 00:21:49,200 --> 00:21:51,679 Speaker 2: inflation we impanc from the terrace tomorrow or not? 491 00:21:52,000 --> 00:21:52,800 Speaker 8: Is it so? 492 00:21:52,960 --> 00:21:54,879 Speaker 10: I think from a broad based perspective, it likely is. 493 00:21:54,920 --> 00:21:56,680 Speaker 10: I think if you look back to the to the 494 00:21:56,680 --> 00:21:58,600 Speaker 10: previous CPI, you began to see it's showing up in 495 00:21:58,640 --> 00:22:01,159 Speaker 10: some of the data points, but that's been offset by 496 00:22:01,160 --> 00:22:02,560 Speaker 10: some of the discretionary services item. 497 00:22:02,560 --> 00:22:04,440 Speaker 8: Whereas we've seen weakness such as airfares. 498 00:22:04,880 --> 00:22:07,119 Speaker 10: You saw it in the PPI data last month, and 499 00:22:07,160 --> 00:22:08,760 Speaker 10: it typically takes a few months for that really to 500 00:22:08,760 --> 00:22:11,040 Speaker 10: begin to show up into the CPI, And so our 501 00:22:11,080 --> 00:22:13,760 Speaker 10: baseline expectation is you get a little bit more evidence 502 00:22:13,800 --> 00:22:16,600 Speaker 10: of it in tomorrow's print, but really it takes the June, 503 00:22:16,680 --> 00:22:18,760 Speaker 10: July and then August day to get to get stronger 504 00:22:18,800 --> 00:22:19,879 Speaker 10: evidence of TAFT pass through. 505 00:22:20,040 --> 00:22:21,960 Speaker 2: What would you need to see to say, you know what? 506 00:22:22,160 --> 00:22:24,520 Speaker 2: I think this would be sustained, This could be sticky. 507 00:22:24,880 --> 00:22:26,000 Speaker 2: It's not a one off shock. 508 00:22:26,760 --> 00:22:28,960 Speaker 8: So I think it's going to be hard in this environment. 509 00:22:29,119 --> 00:22:30,960 Speaker 10: I think typically what you know if you go back 510 00:22:30,960 --> 00:22:34,200 Speaker 10: to what we saw the post code environment. Initially, there 511 00:22:34,320 --> 00:22:36,560 Speaker 10: was this view that it might be transitory or temporary, 512 00:22:36,920 --> 00:22:39,639 Speaker 10: and that view was dominated by the fact that it 513 00:22:39,720 --> 00:22:42,640 Speaker 10: was narrow on a few items used cars, other core 514 00:22:42,680 --> 00:22:43,200 Speaker 10: goods at that. 515 00:22:43,119 --> 00:22:43,720 Speaker 8: Point in time. 516 00:22:44,119 --> 00:22:46,080 Speaker 10: I think to think about it being stickier, you want 517 00:22:46,119 --> 00:22:48,760 Speaker 10: to see it broadening out across the basket. So probably 518 00:22:48,760 --> 00:22:50,520 Speaker 10: not just in core goods items that you can readily 519 00:22:50,560 --> 00:22:54,040 Speaker 10: identify for tarff effects, but other items. So, for example, 520 00:22:54,040 --> 00:22:57,639 Speaker 10: as you get vehicle tariffs, you're likely to see car 521 00:22:58,200 --> 00:23:01,399 Speaker 10: repair pick up with some lag. Carncent insurance inflation is 522 00:23:01,400 --> 00:23:03,080 Speaker 10: going to pick up alongside of that. I think those 523 00:23:03,080 --> 00:23:04,880 Speaker 10: are the effects that you'd want to see to get 524 00:23:04,920 --> 00:23:06,960 Speaker 10: some sense that it's a little bit stickier than anticipated. 525 00:23:07,280 --> 00:23:09,960 Speaker 5: There was an expectation that in this ninety day pause 526 00:23:10,000 --> 00:23:11,639 Speaker 5: with China that you'd see a lot of shipments come in, 527 00:23:11,680 --> 00:23:13,800 Speaker 5: that people would front run in and make the data messy, etc. 528 00:23:14,119 --> 00:23:16,399 Speaker 5: We haven't really seen that. There hasn't been a lot 529 00:23:16,440 --> 00:23:19,280 Speaker 5: of action in the ports. Is this still an economy 530 00:23:19,280 --> 00:23:21,520 Speaker 5: and suspended animation and when does that change? 531 00:23:21,560 --> 00:23:21,800 Speaker 1: If so? 532 00:23:22,200 --> 00:23:23,359 Speaker 10: I think for a lot of ways it is now 533 00:23:23,480 --> 00:23:26,520 Speaker 10: now a lot of this halting or stalling out is 534 00:23:26,640 --> 00:23:29,400 Speaker 10: just give back for surgeon imports that we had head 535 00:23:29,440 --> 00:23:31,920 Speaker 10: in Q one, and so particularly in the trade data, 536 00:23:31,920 --> 00:23:35,320 Speaker 10: you've had this massive volatility where net exports where very 537 00:23:35,359 --> 00:23:36,920 Speaker 10: weak in Q one, are going to be very strong 538 00:23:36,920 --> 00:23:39,840 Speaker 10: in Q two, lifting the GDP data. But I think 539 00:23:40,040 --> 00:23:42,040 Speaker 10: the market kind of understands that. I think, but we're 540 00:23:42,119 --> 00:23:44,760 Speaker 10: now in an environment of where's the pass through to 541 00:23:44,840 --> 00:23:47,280 Speaker 10: the other components of especially what the Fed cares about 542 00:23:47,680 --> 00:23:49,840 Speaker 10: the labor market. Are we seeing layffs take place and 543 00:23:49,920 --> 00:23:50,920 Speaker 10: hiring dip so far? 544 00:23:50,960 --> 00:23:51,679 Speaker 8: I think the answer is not. 545 00:23:51,760 --> 00:23:51,920 Speaker 3: Yes. 546 00:23:52,000 --> 00:23:55,439 Speaker 10: Last week's jobs report was mixed, but resilient enough I 547 00:23:55,440 --> 00:23:58,800 Speaker 10: think for the market. And then second secondarily when we 548 00:23:58,840 --> 00:24:00,280 Speaker 10: begin to see it in the inflation data again, I 549 00:24:00,280 --> 00:24:02,640 Speaker 10: think we've seen in the PPI data so far, still 550 00:24:02,680 --> 00:24:05,080 Speaker 10: waiting to see it for the CPI. We're not surprised 551 00:24:05,080 --> 00:24:07,239 Speaker 10: that you haven't seen it yet. Our baseline expectation, if 552 00:24:07,240 --> 00:24:09,040 Speaker 10: you go back to twenty teen twenty nineteen, is that 553 00:24:09,080 --> 00:24:10,720 Speaker 10: it was always going to take until the June, July, 554 00:24:10,760 --> 00:24:11,960 Speaker 10: and August data to see the effect. 555 00:24:11,960 --> 00:24:13,600 Speaker 5: I just want to flag some of the language you 556 00:24:13,680 --> 00:24:15,800 Speaker 5: used when you asked, has there been weakness in the 557 00:24:15,880 --> 00:24:18,399 Speaker 5: labor market? You said not, yes, you didn't say no. 558 00:24:18,880 --> 00:24:20,720 Speaker 5: Are there pockets of weakness that you're looking at that 559 00:24:20,760 --> 00:24:23,520 Speaker 5: you're concerned might bubble up into something more concerning? 560 00:24:23,920 --> 00:24:25,840 Speaker 10: I think you still have this labor market which has 561 00:24:25,880 --> 00:24:29,159 Speaker 10: been identified by a low hiring and firing environments. You know, 562 00:24:29,160 --> 00:24:31,320 Speaker 10: if you look at the JOLTS data last week, the 563 00:24:31,400 --> 00:24:34,840 Speaker 10: hiring rate remains low, but layoffs remain extraordinarily low as well. 564 00:24:35,440 --> 00:24:38,040 Speaker 10: That's always been a fragile equilibrium. Now nothing has broken. 565 00:24:38,080 --> 00:24:41,600 Speaker 10: That equilibrium has persist persisted, But there was worries, at 566 00:24:41,640 --> 00:24:44,359 Speaker 10: least initially that the Tarft shock, the uncertainty that's come 567 00:24:44,400 --> 00:24:47,040 Speaker 10: along with it, if financial conditions were tightening, that could 568 00:24:47,119 --> 00:24:48,639 Speaker 10: lead to the layoffs that could kind of break that 569 00:24:48,680 --> 00:24:52,560 Speaker 10: fraguile equilibrium with the labor market weakening more materially. We 570 00:24:52,600 --> 00:24:54,680 Speaker 10: didn't see that last week, but I think that's still 571 00:24:54,680 --> 00:24:56,000 Speaker 10: a risk as you look ahead. 572 00:24:56,240 --> 00:24:59,200 Speaker 2: You mentioned something in a recent note about interest rates 573 00:24:59,200 --> 00:25:02,359 Speaker 2: maybe stabilized around four to four point five percent. Can 574 00:25:02,400 --> 00:25:03,680 Speaker 2: we sell on that story? Just remind us sure. I 575 00:25:03,720 --> 00:25:05,520 Speaker 2: thought it was a fascinating note. Do you think we've 576 00:25:05,520 --> 00:25:08,640 Speaker 2: adapted fully adapted to an interest rate with something close 577 00:25:08,680 --> 00:25:10,840 Speaker 2: to four percent, And what does that tell you about 578 00:25:10,840 --> 00:25:13,000 Speaker 2: how much this Fed might cut if we see some 579 00:25:13,000 --> 00:25:13,920 Speaker 2: weakness down the road. 580 00:25:14,240 --> 00:25:16,639 Speaker 10: Yeah, so I think the main chart of that piece 581 00:25:16,800 --> 00:25:18,560 Speaker 10: was showing if you look at where the FED funds 582 00:25:18,600 --> 00:25:20,240 Speaker 10: rate has been, we've been at four point three percent 583 00:25:20,280 --> 00:25:23,760 Speaker 10: since December. If you look at headline PC inflation at least, 584 00:25:23,800 --> 00:25:26,359 Speaker 10: it's at two point one percent, basically within spinning distance 585 00:25:26,359 --> 00:25:28,720 Speaker 10: of the Fed's target. And you look at the unemployment rate, 586 00:25:28,720 --> 00:25:31,240 Speaker 10: we've been stuck at four point two percent for several months. 587 00:25:31,240 --> 00:25:32,840 Speaker 8: At this point, that four point. 588 00:25:32,680 --> 00:25:34,760 Speaker 10: Two percent is exactly aligned with what the FED thinks 589 00:25:34,840 --> 00:25:36,359 Speaker 10: the long run unemployment rate is. 590 00:25:36,800 --> 00:25:38,480 Speaker 8: And so if you look at that chart, it looks like. 591 00:25:38,440 --> 00:25:40,320 Speaker 10: You've settled into what you know, economists would call a 592 00:25:40,320 --> 00:25:42,560 Speaker 10: steady state for the economy. It actually looks like you've 593 00:25:42,560 --> 00:25:45,360 Speaker 10: simulated the economy through a model where you're at kind 594 00:25:45,400 --> 00:25:48,600 Speaker 10: of equilibrium and everything is working its way out. Now, 595 00:25:48,600 --> 00:25:50,639 Speaker 10: we've been in the high ur star camp for a while. 596 00:25:50,720 --> 00:25:53,200 Speaker 10: We've we pegged at the nominal nurturate between three and 597 00:25:53,240 --> 00:25:55,679 Speaker 10: a half and three and three quarters, So we've always 598 00:25:55,680 --> 00:25:58,840 Speaker 10: expected this cutting cycle to be shallower, But we're just 599 00:25:59,440 --> 00:26:02,280 Speaker 10: proposing the possibility that there's not much evidence that we're 600 00:26:02,320 --> 00:26:03,720 Speaker 10: very far away from neutral at the moment. 601 00:26:03,920 --> 00:26:05,960 Speaker 2: This conversation was kicked to the sidelines because of the 602 00:26:06,000 --> 00:26:08,000 Speaker 2: Tower of story over the last few months. I get 603 00:26:08,000 --> 00:26:10,960 Speaker 2: all that, but it's the FED moving towards you. Do 604 00:26:11,040 --> 00:26:13,320 Speaker 2: you see the FED moving closer towards you in the 605 00:26:13,359 --> 00:26:14,080 Speaker 2: come in meetings? 606 00:26:14,280 --> 00:26:16,520 Speaker 10: I think so, and we'll get maybe some evidence of 607 00:26:16,520 --> 00:26:18,600 Speaker 10: that next week. We'll get the dot plot next week, 608 00:26:18,640 --> 00:26:21,320 Speaker 10: where I think there's broader expectations that the FED will 609 00:26:21,359 --> 00:26:24,040 Speaker 10: signal on more hawkish stance. We'll be looking at the 610 00:26:24,040 --> 00:26:26,159 Speaker 10: long run dot. Does that continue to migrate higher? My 611 00:26:26,200 --> 00:26:28,400 Speaker 10: guess is that it does so. They've been at three 612 00:26:28,400 --> 00:26:31,040 Speaker 10: percent for the long run nominal neutral that probably continues 613 00:26:31,080 --> 00:26:33,800 Speaker 10: to move higher. I think the balance of estimates that 614 00:26:33,840 --> 00:26:35,200 Speaker 10: we look at are kind of closer to three. 615 00:26:35,119 --> 00:26:35,720 Speaker 8: And a half percent. 616 00:26:36,080 --> 00:26:38,080 Speaker 10: But I think to really fully embrace the idea that 617 00:26:38,080 --> 00:26:40,600 Speaker 10: neutral is materially higher, you have to get beyond the 618 00:26:40,640 --> 00:26:43,879 Speaker 10: tariff concerns that the uncertainty shock that we've had and 619 00:26:43,920 --> 00:26:44,640 Speaker 10: have a labor. 620 00:26:44,440 --> 00:26:46,720 Speaker 8: Market that still looks resilient three to four months at. 621 00:26:46,680 --> 00:26:49,200 Speaker 2: Essentially took us the next Wednesday. Let's sit on next Wednesday. 622 00:26:49,280 --> 00:26:51,560 Speaker 2: How useful is the rest of the SCP from the 623 00:26:51,560 --> 00:26:52,200 Speaker 2: Federal Reserve. 624 00:26:52,840 --> 00:26:55,120 Speaker 10: I think it's an environment where you know, the Chair 625 00:26:55,160 --> 00:26:57,359 Speaker 10: Pale likes to, I think, downplay the signal from the 626 00:26:57,400 --> 00:27:00,399 Speaker 10: SCP when it's kind of convenient. This will be environment 627 00:27:00,400 --> 00:27:02,840 Speaker 10: where it's probably very convenient. I think the market will 628 00:27:03,000 --> 00:27:05,440 Speaker 10: you know, if they only show one cut next week, 629 00:27:05,480 --> 00:27:08,400 Speaker 10: which I think is broadly anticipated, the market will move 630 00:27:08,400 --> 00:27:12,240 Speaker 10: to what a next year's forecast show. Does inflation rise 631 00:27:12,400 --> 00:27:14,720 Speaker 10: a little bit? Are they showing some stickiness there? Are 632 00:27:14,720 --> 00:27:18,560 Speaker 10: they showing less cuts through next year? I think that 633 00:27:18,560 --> 00:27:20,800 Speaker 10: that could signal kind of a more hawker stance. But 634 00:27:20,800 --> 00:27:23,119 Speaker 10: I would also anticipate that chairpal kind of tries to 635 00:27:23,160 --> 00:27:24,720 Speaker 10: walk that back in the press conference. 636 00:27:24,760 --> 00:27:25,479 Speaker 8: I think they don't know. 637 00:27:25,720 --> 00:27:27,719 Speaker 10: You don't have huge confidence about what policy is going 638 00:27:27,760 --> 00:27:30,720 Speaker 10: to do this year because they're still terre related to uncertainty, 639 00:27:30,760 --> 00:27:34,879 Speaker 10: fiscal policy uncertainty. A view towards next year about policy 640 00:27:34,920 --> 00:27:35,280 Speaker 10: is going to. 641 00:27:35,200 --> 00:27:37,000 Speaker 2: Be it's not going to be there very much at 642 00:27:37,000 --> 00:27:39,679 Speaker 2: twenty twenty six. Does that complicate signal? I think the 643 00:27:39,800 --> 00:27:40,159 Speaker 2: top of the. 644 00:27:40,200 --> 00:27:42,800 Speaker 10: Federals f I think for now there are kind of 645 00:27:42,800 --> 00:27:45,520 Speaker 10: more focused on the near term, and so there's sending 646 00:27:45,560 --> 00:27:48,000 Speaker 10: a strong signal that they're in a wait and see mode, 647 00:27:48,000 --> 00:27:51,320 Speaker 10: that they're well positioned to respond to risks. And I 648 00:27:51,320 --> 00:27:53,760 Speaker 10: think that signal will continue, you know, certainly over the 649 00:27:53,760 --> 00:27:56,520 Speaker 10: summer months, as perhaps you get some evidence of who 650 00:27:57,080 --> 00:27:57,920 Speaker 10: President Trump may. 651 00:27:57,840 --> 00:27:58,639 Speaker 8: Appoint to the board. 652 00:27:58,720 --> 00:28:01,159 Speaker 10: I would expect that in replaceman of Governor Coogler in 653 00:28:01,200 --> 00:28:04,160 Speaker 10: January that that could be the next potential FED chair. 654 00:28:04,440 --> 00:28:06,399 Speaker 8: Certainly the market focus will will shift to that. 655 00:28:06,480 --> 00:28:09,800 Speaker 2: Malaseli if Bank Matt appreciate the time. This is the 656 00:28:09,840 --> 00:28:14,040 Speaker 2: Bloomberg Surveillance podcast, bringing you the best in markets, economics, 657 00:28:14,080 --> 00:28:16,560 Speaker 2: a gior politics. You can watch the show live on 658 00:28:16,560 --> 00:28:20,240 Speaker 2: Bloomberg TV weekday mornings from six am to nine am Eastern. 659 00:28:20,520 --> 00:28:23,880 Speaker 2: Subscribe to the podcast on Apple, Spotify, or anywhere else 660 00:28:23,920 --> 00:28:26,560 Speaker 2: you listen, and as always on the Bloomberg Terminal and 661 00:28:26,640 --> 00:28:27,840 Speaker 2: the Bloomberg Business opp