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Speaker 1: Welcome to the Bloomberg Penel Podcast. I'm Paul Sweene. You,

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Speaker 1: along with my co host Lisa Brahma Waits, each day

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Speaker 1: we bring you the most noteworthy and useful interviews for

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Speaker 1: you and your money. Whether at the grocery store or

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Speaker 1: the trading floor. Find a Bloomberg penl podcast on Apple

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Speaker 1: podcast or wherever you listen to podcasts, as well as

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Speaker 1: at Bloomberg dot com. Seeking with bond markets and also

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Speaker 1: just markets in general. I'm very pleased to say John

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Speaker 1: Authors joining us right now, joining us from our Bloomberg

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Speaker 1: Interactive Broker Studios. John Author, Senior editor for Bloomberg Markets. John,

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Speaker 1: I want to talk about at least start with a

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Speaker 1: Bank of America Maryland February Fund Manager survey that came

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Speaker 1: out this morning that showed, for the first time ever

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Speaker 1: in the history of this survey, UH investors thought that

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Speaker 1: long emerging markets is the most crowded trade. Yes, what

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Speaker 1: do you think that? I find it somewhat surprising. I

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Speaker 1: think it's probably got something to do with the country

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Speaker 1: of the blind. The one night Man is king um

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Speaker 1: on the basis of valuation, plainly, lots of people I

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Speaker 1: have to admit myself included. I've been making a point

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Speaker 1: for a long time that yes, emerging markets do indeed

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Speaker 1: look cheap UM. And the thing that bothers me about

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Speaker 1: this and why I suspect the people are talking to

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Speaker 1: be of a m l as as by saying it's

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Speaker 1: not popular but crowded, is that so much of it

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Speaker 1: realies on on the dollar. If you have a week dollar,

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Speaker 1: then this is a really good trade. I did just

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Speaker 1: check the numbers. The JP Morgan Emerging Markets Effects Index

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Speaker 1: is the most sort of popular agglomeration of being diseases,

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Speaker 1: up about five from a crushing horrific low set last fall.

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Speaker 1: It's still about one above its nady air or nadier

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Speaker 1: depending on which side of the Atlantic you are. That

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Speaker 1: it was that it sets early in twenty sixteen in

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Speaker 1: that very serious growth scared that we had at the

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Speaker 1: beginning of surrounding China. Uh. Plainly, there's a long way

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Speaker 1: to recover, but there is still quite a lot of

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Speaker 1: faith put in UM in the fits to be as

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Speaker 1: dubbish as it said it was recently, and in the U.

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Speaker 1: S economy to continue to push the help push the

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Speaker 1: dollar up. So, John, what else do you think this trade?

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Speaker 1: This emerging markets trade getting crowded. Does that reflect you

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Speaker 1: think investors, I guess sentiment that some trade deal with

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Speaker 1: China will be achieved, tensions will come down, and that

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Speaker 1: will help EM across the board. I mean, it's certainly

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Speaker 1: the case that UM people are working on the assumption

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Speaker 1: that the single most likely scenario is that some kind

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Speaker 1: of a deal is reached because it's in the interests

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Speaker 1: of both sides to do so. I think you do, however,

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Speaker 1: have to call into question whether I'm not saying that

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Speaker 1: the president done to his team are cynics, but they

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Speaker 1: have to ask themselves. This goes back to the West Wing,

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Speaker 1: which I've been binge watching while I wasn't terribly well

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Speaker 1: over Christmas. The the the whether he wants an issue

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Speaker 1: or a victory. If he wants an issue, maybe he

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Speaker 1: pushes ahead and lets uh and and we actually get

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Speaker 1: a ratcheting up of the trade confrontation with China. I

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Speaker 1: don't think. I certainly think there is. And this is

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Speaker 1: one of the points that that that you know that

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Speaker 1: that the Trump supporters make often and I think it's

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Speaker 1: probably correct, is that if you want to get China

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Speaker 1: at a point of weakness, this is the best time

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Speaker 1: to try to raise this point in quite a long time.

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Speaker 1: You know, it's interesting to me. You talked about the dollar, right,

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Speaker 1: and then we brought up the trade issue and a

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Speaker 1: deal with China, which is more important. The thing that

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Speaker 1: matters most um by far, I think is the underlying

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Speaker 1: health of China. Uh and everything else is a symptom

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Speaker 1: of ratchets off it. I like that you say that, because,

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Speaker 1: in other words, you're not You're not going to just

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Speaker 1: say trade and some kind of trading room, because that's

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Speaker 1: kind of facile when it comes to Chin to slow

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Speaker 1: down in the economy, which goes deeper and had it

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Speaker 1: was sort of they're regardless. Not so long since the

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Speaker 1: outgoing head of the People's Bank of China said, are

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Speaker 1: we going to have a Minsky? We've got to be careful.

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Speaker 1: We don't have a Minsky moment in China for the

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Speaker 1: head of a central bank to use language like that.

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Speaker 1: For readers, the most of the readers old newspaper man

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Speaker 1: for listeners out there, For listeners out there, I'm still

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Speaker 1: getting better for listeners out there, a Minsky moment. The

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Speaker 1: last time we had a Minsky moment was when Lehman

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Speaker 1: brothers went down. A Minsky moment is a catastrophic loss

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Speaker 1: of confidence in debt. Uh central bank governors never ever

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Speaker 1: ever speculate in public about whether there's going to be

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Speaker 1: a Minsky moment to except the head of the second

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Speaker 1: most important central bank in the planet did do so

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Speaker 1: not so long ago. Uh So that's still, it seems

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Speaker 1: to me, is the greatest concern. There's a very there's

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Speaker 1: a cartoon that has done. It's done the rounds of

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Speaker 1: social media many times from HEDGEI where you've seen this,

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Speaker 1: say this, this guy on a on a on a

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Speaker 1: the boat from Jaws pointing at this rather pathetic little

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Speaker 1: shark going with tariffs written on it, shouting shark. Meanwhile,

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Speaker 1: this giants octopus is surrounding the boat with its tentacles

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Speaker 1: and pulling it down, and the octopus is marked Chinese economy.

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Speaker 1: And that I think I've seen that brought up by bulls,

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Speaker 1: by bears, by people who pathologically hate China, by people

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Speaker 1: of perma bullish on China. That is ultimately where it is.

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Speaker 1: I think trade barring real stupidity and nobody given what's

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Speaker 1: going on back at home, we can't rule that out

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Speaker 1: by in real stupidity. I don't think trade is as

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Speaker 1: big a deal as whether China can somehow or other

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Speaker 1: deal with this huge amount of credit it's got outstanding.

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Speaker 1: You mentioned home. I'm assumming that's not New Jersey or

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Speaker 1: Long Island. Give us twenty seconds on what you think

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Speaker 1: the latest is on Brexit. The latest I think the

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Speaker 1: most significant thing that Theresa May said today was that

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Speaker 1: she thinks it's not going to take them the three

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Speaker 1: weeks that had it had been thought it would take

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Speaker 1: to clear any deal that's voted by Parliament. She says

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Speaker 1: that it's possible to put it through on a fast track,

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Speaker 1: which basically means that she thinks she can wait literally

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Speaker 1: until one week before Britain is due to leave and

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Speaker 1: put it to a vote. So we have the same

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Speaker 1: tractic as before, which has always been to run out

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Speaker 1: the clock, taken ever to ever greater extremes as we

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Speaker 1: get to the end of the clock. So it's a mass. Basically, Yes,

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Speaker 1: it's high it's high risk poker and who will blink first,

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Speaker 1: But it's a high risk poker game that's going to

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Speaker 1: take you know, months, years. Well, thank you so much

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Speaker 1: for being with us, John author A senior editor for

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Speaker 1: Bloomberg Market Well, Netflix has certainly validated the pay streaming

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Speaker 1: video model, and now we've got a bunch of other

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Speaker 1: media companies, including Disney, following suit. One of the real

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Speaker 1: questions is is there an opportunity for a free streaming

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Speaker 1: service and how can that be competitive in the marketplace.

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Speaker 1: So to help us kind of answer that question, um

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Speaker 1: joining us as Tara la Chapelle, Deals and media columnists

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Speaker 1: for Bloomberg Opinion. She joins us in New York here

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Speaker 1: in our Bloomberg Interactive Broker studio and Sarah How'sick columnist

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Speaker 1: at Bloomberg Opinion. She joins us in Washington, d C. Terrence, Sarah, welcome,

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Speaker 1: uh ter, give us a sense of we we know

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Speaker 1: how successful the Netflix of the world is. You pay

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Speaker 1: your ten twelve bucks a month and you get all

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Speaker 1: this great content. Talk to us about the free streaming market.

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Speaker 1: What are what are some of the opportunities there. So

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Speaker 1: what we're seeing is sort of a bifurcation of this

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Speaker 1: streaming market, and it's sort of nascent days where Disney

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Speaker 1: and A T and T and the companies that think

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Speaker 1: they have a lot of brand power and pricing power

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Speaker 1: are basically trying to replicate Netflix with subscription video services

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Speaker 1: of all different kinds. And then you have on the

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Speaker 1: other side of the market the Roku channel to be

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Speaker 1: Pluto TV, some names that may not be as well known,

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Speaker 1: but they're generating a lot of subscribers, people that are

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Speaker 1: looking to save money their free streaming services, which in

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Speaker 1: media we know free just means AD supported. So you're

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Speaker 1: the product and they're basically, you know, seeing that consumers,

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Speaker 1: certain number of consumers are willing to tolerate ads and

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Speaker 1: have a sort of I guess you would say mediocre

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Speaker 1: service relative to like a Netflix or an HBO and

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Speaker 1: be able to watch TV and not have to pay

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Speaker 1: for cable and just pay their internet fees. So Sarah,

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Speaker 1: come on in here to get a sense of some

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Speaker 1: examples of how companies have gained market share substantially by

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Speaker 1: a with this free approach while remaining solvent. Yeah. So

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Speaker 1: I think that the e commerce world provides a really

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Speaker 1: instructive example. Um, and this is a place where a

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Speaker 1: lot of retailers have made the bet to that between

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Speaker 1: when consumers are choosing between free shipping and fast shipping,

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Speaker 1: that they're going to want to get it for free

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Speaker 1: that they're going to want to save money. UM, and

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Speaker 1: Amazon I think is the shining example of how this

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Speaker 1: has paid off. That was a core promise of the

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Speaker 1: Prime membership and how they brought people into that ecosystem

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Speaker 1: to begin with was that people didn't want to have

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Speaker 1: to pay for shipping on each transaction. And it's really

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Speaker 1: interesting because an e commerce we've seen all this innovation

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Speaker 1: around speed. We see same day delivery now even two

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Speaker 1: hour and one hour delivery available in certain markets, but

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Speaker 1: shoppers just remain wedded to free shipping. So in a

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Speaker 1: survey that was conducted this holiday season by Deloitte can,

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Speaker 1: sumers were asked which of the following two promises is

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Speaker 1: more important to you in online shopping, free shipping or

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Speaker 1: fast shipping. Of them chose free, So UM. I think

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Speaker 1: it's a powerful example to the streaming world in that

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Speaker 1: we've seen in e commerce consumers are willing to sacrifice

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Speaker 1: speed in order to not pay money. And I think

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Speaker 1: with TV we will see a cohort of consumers that's

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Speaker 1: willing to sacrifice quality programming to not pay money. Yeah.

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Speaker 1: I love how you guys kind of woven the whole

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Speaker 1: concept of how people like free stuff free shipping and

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Speaker 1: how important it's becoming into the content business because you know,

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Speaker 1: it's a little bit counterintuitive just given how successful Netflix

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Speaker 1: has been and even Hulu is having some success when

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Speaker 1: their streaming in Amazon Prime, um tera. What kind of

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Speaker 1: programming if I go to this type of service, Like

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Speaker 1: let's take a look at Viacom. They just paid three

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Speaker 1: forty million dollars for Pluto TV. If I were to

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Speaker 1: go onto Pluto TV or something like that, what kind

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Speaker 1: of content am I going to find? Yeah, I mean

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Speaker 1: there's some channels you would recognize. I mean, I think

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Speaker 1: Bloomberg TV is on there. Um. But yeah, I mean

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Speaker 1: you're not going to get everything. And I think that's

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Speaker 1: the point. You know, some networks, like smaller network owners

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Speaker 1: like Viacom and Discovery which now owns scripts. You know

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Speaker 1: that we're kind of feeling a little a little bit

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Speaker 1: left out of these higher costs uh O T T

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Speaker 1: streaming products. We're looking to these free streaming options because

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Speaker 1: you know, there's their shows do generate a lot of

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Speaker 1: viewers um which are important to advertisers. And to the

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Speaker 1: extent that you could have a free product supported entirely

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Speaker 1: by advertising. You know that serves a certain segment of

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Speaker 1: the market. I mean, the especially lower income consumers, which

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Speaker 1: I would hazard to guess is maybe even a growing

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Speaker 1: segment of the market, so to the extent that you're

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Speaker 1: trying to reach those people in a world where this

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Speaker 1: Balkanization of the TV industry is making these services expensive,

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Speaker 1: you know, and everyone's having to think about, well, if

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Speaker 1: I want HBO, I'm going to need a T and

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Speaker 1: T S product, But I want Netflix, but I also

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Speaker 1: want this other thing, and well, Tara, just to that point,

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Speaker 1: I have to wonder, do we see people going to

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Speaker 1: these free online streaming services in lieu of the cable giants,

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Speaker 1: the cored types of services, or in lieu of Netflix.

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Speaker 1: In other words, who's losing the business to these to

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Speaker 1: these sort of free online services. It's hard to know

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Speaker 1: right now, but I imagine that what we're seeing are

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Speaker 1: younger people or people looking to save money going to

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Speaker 1: these free services, which means they likely have an Internet connection,

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Speaker 1: maybe they still have cable, or maybe they have Netflix.

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Speaker 1: But I did a survey recently, and you know, it

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Speaker 1: was only a hundred or so people, but it seems

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Speaker 1: like people really value Netflix. They don't value it enough

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Speaker 1: to be willing to cut the cord and only have Netflix.

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Speaker 1: They do want other things. So maybe a Netflix and

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Speaker 1: a free live TV streaming service is a is a

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Speaker 1: good little combination for some people. Um. And at the

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Speaker 1: same time, they're also said that they're willing to pay

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Speaker 1: more than they already do for Netflix. The average response

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Speaker 1: I got when I asked about that was nineteen dollars

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Speaker 1: a month. There's a lot of value in Netflix. And

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Speaker 1: when I think about people trying to navigate this very jumbled,

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Speaker 1: confusing marketplace and trying to save money, you know, Netflix

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Speaker 1: is very simple and easy and that's sort of the

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Speaker 1: beauty of it, and it's not very expensive. And then

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Speaker 1: maybe you know, a free service is the way that

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Speaker 1: you get your fixed with some reality TV shows. So, Sarah,

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Speaker 1: what have you guys in your reporting got any sense

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Speaker 1: of the advertiser support for this product? Did the advertisers

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Speaker 1: view this as a viable place to put their dollars? Uh?

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Speaker 1: You know, I'm not sure Tera might be a better

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Speaker 1: equipped answer a question about where the advertisers are putting

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Speaker 1: their dollars, but I do think that, Um, it's interesting

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Speaker 1: the ripple effect of people's preferences for free control up

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Speaker 1: in ways you don't even expect, and I think that

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Speaker 1: will be important for the TV guys to keep in

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Speaker 1: mind too. So I think in e commerce, what we've

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Speaker 1: seen is this preference for free shipping has really driven

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Speaker 1: folks to click and collect services where you buy something

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Speaker 1: online and pick up in store. That's the most prominent

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Speaker 1: reason that people choose that, and then that ends up

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Speaker 1: providing this other opportunity for the retailer for what is

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Speaker 1: known as attachment spending, meaning typically when people come in

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Speaker 1: to pick up their online or they ended up buying

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Speaker 1: twenty to four dollars worth of stuff that they didn't

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Speaker 1: even realize they needed. Um. And so I think these

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Speaker 1: these free programs had the opportunity to become something else

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Speaker 1: for these streaming services in the same way that they

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Speaker 1: did for e commerce. Tara just real quickly. I'm wondering,

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Speaker 1: what about from the advertiser's perspective, are they willing to

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Speaker 1: pay up on for some of these free services, given

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Speaker 1: the fact that they funnel so much spending towards uh,

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Speaker 1: the amazons and the things. I mean, we've got to

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Speaker 1: see what kind of viewership these services get. I mean,

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Speaker 1: it's still very early days. But I know via common

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Speaker 1: standpoint with this Pluto deal was that you know, they

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Speaker 1: have a telefay in Latin America, and you know, maybe

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Speaker 1: they could marry some of their Spanish language programming with Pluto,

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Speaker 1: which has a younger audience, which has a big Hispanic audience,

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Speaker 1: and not a lot of advertisers are successfully targeting that

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Speaker 1: right now in a very narrow way. So maybe this

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Speaker 1: is an opportunity from an advertiser standpoint with this service.

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Speaker 1: So I think there's like unique ways that they're looking

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Speaker 1: at it and trying to meet those consumers that aren't

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Speaker 1: the ones that are going to just pay for every

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Speaker 1: service out there and have you know, already have every

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Speaker 1: device and they've got an Xbox and they've got Apple TV.

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Speaker 1: You know, there are a lot of people that don't,

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Speaker 1: and so I think that's where maybe these mortgage products

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Speaker 1: are going for really really interesting column Thank you so

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Speaker 1: much for being with us, both of you, Tera La

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Speaker 1: Chapelle Deals and media columnists Sarah HOW'SAC columnists covering the

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Speaker 1: retail sector for Bloomberg Opinion. Both of you, thank you

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Speaker 1: for being with us. Well, we are two days away

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Speaker 1: from Valentine's Day. The pressure is building to get that

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Speaker 1: right gift, and flowers always make the right gift for

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Speaker 1: Valentine's Day. And who better to help us break down

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Speaker 1: the business of the flowers than Chris McCann. And Chris

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Speaker 1: is president and CEO of one flowers dot com. Uh.

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Speaker 1: He companies based on Long Island City, but he joins

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Speaker 1: us here in our Bloomberg eleven three studios. So, Chris,

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Speaker 1: we are two days away from Valentine's Day, people always

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Speaker 1: fall back on that classic gift of flowers. How big

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Speaker 1: is Valentine's Day? That time period of Valentine's Day to

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Speaker 1: your business? Every year? It's such an important day for

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Speaker 1: us because it's so important to our customers, and it's

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Speaker 1: a nice spike for us. It's about ten percent of

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Speaker 1: out consumer floral segments annual business, but it's really only

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Speaker 1: less than five percent about total companies business because today

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Speaker 1: half of our businesses come from our gourmet food brands

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Speaker 1: like Harry and David and Cheryl's Cookies and simply Chocolate.

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Speaker 1: We really built the celebratory echo system. All right, Paul,

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Speaker 1: are you buying flowers for your wife? I think I

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Speaker 1: might be buying flowers for my wife. What kind of

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Speaker 1: flowers are gonna be buying. Um, I'm not really sure.

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Speaker 1: Maybe you know, Chris can give what's the most popular

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Speaker 1: flower rangement right now and not committing. He's also very

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Speaker 1: very traditional guy, so I'll recommend roses. I'll put a

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Speaker 1: little spin. Trending this year is hot pink roses, So

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Speaker 1: that's really wild. I'm wondering you mentioned about food. You know,

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Speaker 1: is food becoming a more popular option chocolate, for example,

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Speaker 1: over flowers, or is you know, as that mixed continue

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Speaker 1: you just sort of more steadily skewed toward the food offerings. Well,

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Speaker 1: I don't think it's instead of flowers. What we find

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Speaker 1: with food offerings, especially from our brands like Harry and David,

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Speaker 1: are simply chocolate that they're big around the Christmas season

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Speaker 1: and the complimentary to other gifts throughout the year. Okay,

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Speaker 1: hold on a second. How much has the average spending

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Speaker 1: on Valentine's Day changed over time? I mean, are people

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Speaker 1: just going crazy and hog wild here? I hope? So

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Speaker 1: I know we have a sense of, you know, what

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Speaker 1: the direction is of the overall spending. Well and expects

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Speaker 1: it to be up about four or five percent this year,

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Speaker 1: about a hundred and sixties six dollars on average Valentine celebration.

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Speaker 1: I hope most of that includes flowers and chocolates, but

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Speaker 1: it's so it's expected to be up again this year,

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Speaker 1: which is very nice. And what sixty hundred and sixty

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Speaker 1: six you're looking at me? Okay, interesting, Chris? So what

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Speaker 1: are you seeing? You know, you've been in this business

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Speaker 1: thirty years? Thirty five years? How is consumer? How's the

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Speaker 1: consumer change? And how's the consumer perceives gift giving not

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Speaker 1: just Valentine's Day? How the trends changed across the board. Well,

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Speaker 1: what we're just seeing is that the consumers are really

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Speaker 1: looking for ways to express, connect and celebrate. And then

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Speaker 1: this technological world that we live in, this interconnected world,

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Speaker 1: we're looking to see how do we bring the human

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Speaker 1: back into the process more. And that's what we do

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Speaker 1: as a company, really to help you express yourself, that

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Speaker 1: we deliver smiles on your behalf. Now you're using technologies

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Speaker 1: more and more to do that in all different forms,

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Speaker 1: whether it be AI capabilities, whether it be voice computing capabilities, chatbots.

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Speaker 1: So that continues to change and that's our job. Make

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Speaker 1: it frictionless for you to express yourself, all right, So

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Speaker 1: one eight hundred flowers dot com is sort of an

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Speaker 1: example of how the world has changed in and of itself.

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Speaker 1: One eight hundred of flowers is the telephone number. But

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Speaker 1: since telephones have got out of style, dot com is there.

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Speaker 1: What is the proportion of online sales versus calls and

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Speaker 1: how has that shifted? So the one hundred flowers brand

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Speaker 1: and some of our younger customers may not know what

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Speaker 1: that means. Uh, really the numbers, the eight hundred is

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Speaker 1: often a toll free number you do not know. But

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Speaker 1: aboutent of that brand's business comes online, and when I

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Speaker 1: say online, more and more of that coming from mobile devices.

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Speaker 1: More than half of our traffic this holiday is from

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Speaker 1: mobile devices. So talk to us about the supply of flowers.

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Speaker 1: Where do you get your flowers? How what's going on

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Speaker 1: with the cost of flowers? So I think about the

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Speaker 1: business of one flowers, Your raw material costs, your cost

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Speaker 1: to get sold are flowers? What's going on there? So

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Speaker 1: it's very interesting in flowers as the raw material costs

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Speaker 1: really haven't gone up because of technology improvements on the

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Speaker 1: supply chain over the last ten years, cost have remained stable,

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Speaker 1: if not down a little bit, and we import product.

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Speaker 1: A lot of the flowers come from South America, Columbia

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Speaker 1: and Ecuador, so of logistics get better and better. But

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Speaker 1: we're also seeing an increase in domestic production over the

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Speaker 1: last ten years and more and more flowers being grown

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Speaker 1: domestically here in the US. I'm going to be such

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Speaker 1: a debby downer. I'm gonna be made fun of this.

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Speaker 1: For years. How has global warming affected that? Oh? No,

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Speaker 1: we we haven't seen an effect on global warming on

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Speaker 1: our flour production even where you source them. Most of

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Speaker 1: the time it's sourced around the equator, which is hot

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Speaker 1: to begin with. Uh So, I think we've been fine

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Speaker 1: on that side of it. All, Right, what's what's how

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Speaker 1: big are you guys versus? Just size out the market

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Speaker 1: for me. I don't know if it's US or global,

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Speaker 1: and how big are you guys in that market? So

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Speaker 1: we're about overall about one point two billion of the

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Speaker 1: estimates that we'll do in revenue this year. We're growing

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Speaker 1: nicely with the leader in the floral category, where the

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Speaker 1: leader in the gourmet food category, and now we're starting

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Speaker 1: to expand into all the product categories as well, listening

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Speaker 1: to our customers as to what products they will use

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Speaker 1: to express, connect and celebrate. Thank you so much for

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Speaker 1: being with us. Chris McCann Happy Valentine's Day, Happy Valentine's

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Speaker 1: Chris McGann as CEO of what eight hundred flowers dot com.

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Speaker 1: So it looks like we have a border deal potentially,

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Speaker 1: which suggests that the US government will potentially remain open.

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Speaker 1: To get a sense of how the credit markets are

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Speaker 1: pricing in these developments, let's chat with our good friend

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Speaker 1: Ira Jersey iras a chief US interest rate strategist from

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Speaker 1: Bloomberg Intelligence. He comes to us from the phone from

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Speaker 1: bi's headquarters in Princeton, New Jersey, or I assume it's

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Speaker 1: snowing down there, Ira, does the bond market to what

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Speaker 1: extent does the bond market care about what's going on

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Speaker 1: with the border deal and the shutdowns and all of

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Speaker 1: the uncertainty. Yeah, hey, Paul, I'm actually in Washington, d C.

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Speaker 1: This week to you know, get a sense of what

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Speaker 1: life is here on the ground in politics, and it

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Speaker 1: does look like that, you know, thanks, that some deal

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Speaker 1: is going to be uh is going to be done? Uh?

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Speaker 1: You know that, I think for for fixed income markets

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Speaker 1: and for even risk asset markets in general, UM markets

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Speaker 1: don't like uncertainty. And when you have a resolution to

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Speaker 1: something like this, and that's gonna be good for risk assets.

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Speaker 1: You see equities up today, you see bond yields up today,

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Speaker 1: so so bonds doing doing poorly. So that's that's the

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Speaker 1: reaction that you'd expect from an optimistic set of circumstances

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Speaker 1: like like a deal. Um, I think what one thing

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Speaker 1: that I'll be looking for is does this deal also

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Speaker 1: include an extension of the debt ceiling? Because the debt

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Speaker 1: ceiling as we know, winds up expiring on on March one,

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Speaker 1: and then they the government will be able to use

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Speaker 1: extraordinary measures probably to get into the late summer, maybe

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Speaker 1: September October. It depends on a lot of variables. But um,

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Speaker 1: but if that's done, then then you know, quite frankly,

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Speaker 1: it's not something it's not a model that I like

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Speaker 1: to to have to do all the time and worry

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Speaker 1: about whether or not we're going to see the fault

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Speaker 1: on the US debt, because that is something that is

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Speaker 1: completely man made and not not a UM, it's a

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Speaker 1: political problem, it's not that's not a real economic problem.

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Speaker 1: I love that we can say in all seriousness, I

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Speaker 1: don't like modeling for us to fall to every two

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Speaker 1: weeks because it's just you know, especially since it's totally avoidable,

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Speaker 1: and this is sort of a serious discussion that is ongoing.

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Speaker 1: I want to pick up on what you're talking about,

431
00:23:01,600 --> 00:23:05,000
Speaker 1: which is the debt ceiling negotiations that are imminent. Uh,

432
00:23:05,040 --> 00:23:08,920
Speaker 1: the latest on the government shutdown is that President Trump

433
00:23:08,960 --> 00:23:11,560
Speaker 1: still hasn't decided whether or not he'll support the bipartisan

434
00:23:11,560 --> 00:23:14,200
Speaker 1: congressional agreement, so we don't even know whether we actually

435
00:23:14,240 --> 00:23:17,600
Speaker 1: have staved off a government shutdown. Is the sign that

436
00:23:17,720 --> 00:23:20,320
Speaker 1: bonds are not selling off more, in other words, that

437
00:23:20,400 --> 00:23:22,800
Speaker 1: yields are not rising more and that stocks are not

438
00:23:22,880 --> 00:23:26,040
Speaker 1: ralling more. Is that a sign that investors are still

439
00:23:26,160 --> 00:23:28,840
Speaker 1: very concerned about the debt ceiling negotiations and that there

440
00:23:28,920 --> 00:23:31,560
Speaker 1: is a real risk being priced into the market that

441
00:23:31,680 --> 00:23:34,960
Speaker 1: there could be some sort of more serious gridlock that

442
00:23:35,040 --> 00:23:38,000
Speaker 1: leads to another government shutdown. Well, I think I think

443
00:23:38,040 --> 00:23:40,720
Speaker 1: part of it is certainly is certainly the goings on

444
00:23:40,800 --> 00:23:43,719
Speaker 1: here in Washington. I think the the bigger question for

445
00:23:43,800 --> 00:23:46,000
Speaker 1: the bond market right now is how well this is

446
00:23:46,000 --> 00:23:50,199
Speaker 1: going to impact confidence and ultimately the ultimately the outcome

447
00:23:50,200 --> 00:23:51,760
Speaker 1: of the economy. You know, we we got some really

448
00:23:51,760 --> 00:23:54,720
Speaker 1: good data just twenty minutes ago with the Jolts data

449
00:23:54,760 --> 00:23:57,960
Speaker 1: showing that there's a lot of job openings, that there's

450
00:23:58,000 --> 00:23:59,720
Speaker 1: you know, it seems like at least on the job front,

451
00:23:59,720 --> 00:24:02,359
Speaker 1: things are good, but uh, there is I think a

452
00:24:02,359 --> 00:24:05,679
Speaker 1: lot of questions to how how confident both businesses and

453
00:24:05,800 --> 00:24:08,640
Speaker 1: consumers are going to be with an environment that's as

454
00:24:08,680 --> 00:24:13,040
Speaker 1: politically contentious as we have today. Um, and this isn't

455
00:24:13,080 --> 00:24:16,040
Speaker 1: the only the only thing that's that's worrying people, right,

456
00:24:16,080 --> 00:24:18,600
Speaker 1: So even if we get a budget deal and we

457
00:24:18,800 --> 00:24:20,480
Speaker 1: you know, avoid to shut down, even if we get

458
00:24:20,480 --> 00:24:22,879
Speaker 1: the debt limit uh done, then we still have a

459
00:24:22,880 --> 00:24:25,119
Speaker 1: lot of trade tensions that that people are going to

460
00:24:25,160 --> 00:24:27,760
Speaker 1: worry about. You are seeing some of that actually in

461
00:24:27,880 --> 00:24:31,399
Speaker 1: some of the data where you have seen some um

462
00:24:31,640 --> 00:24:36,000
Speaker 1: uh some real world data that's uh, that's showing that

463
00:24:36,000 --> 00:24:39,520
Speaker 1: that's having an impact on global trade and and that's

464
00:24:39,520 --> 00:24:41,159
Speaker 1: that's something I think that at least in the corporate

465
00:24:41,160 --> 00:24:43,000
Speaker 1: boardroom that you're going to have a lot of angst

466
00:24:43,000 --> 00:24:45,719
Speaker 1: about in the future if if it's not resolved, so

467
00:24:46,359 --> 00:24:48,600
Speaker 1: you're you're done in Washington, d c Uh, I'm sure

468
00:24:48,600 --> 00:24:50,240
Speaker 1: you're gonna wander up to the FED at some point.

469
00:24:50,280 --> 00:24:53,119
Speaker 1: But is I guess the consensus in the marketplace as

470
00:24:53,160 --> 00:24:55,160
Speaker 1: people you know, try to price in everything that's going

471
00:24:55,160 --> 00:24:58,639
Speaker 1: on in the market, economic, financial, geopolitical, is that the

472
00:24:58,680 --> 00:25:01,600
Speaker 1: FED has you know, maybe one or two rate increases

473
00:25:01,600 --> 00:25:03,600
Speaker 1: for the remainder of the year combined with a steady

474
00:25:03,680 --> 00:25:05,479
Speaker 1: roll off of the balance sheet. Is there anything that

475
00:25:05,520 --> 00:25:09,040
Speaker 1: you've seen, data wise or just discussions with clients that

476
00:25:09,080 --> 00:25:11,760
Speaker 1: would lead you to believe that that's there's material risk

477
00:25:11,840 --> 00:25:15,800
Speaker 1: to that kind of scenario. Yeah, So it's so they're

478
00:25:15,840 --> 00:25:18,080
Speaker 1: going to be very data dependent, and I actually think

479
00:25:18,119 --> 00:25:22,359
Speaker 1: that the um UH that that basically the level for

480
00:25:22,400 --> 00:25:24,399
Speaker 1: them to have to hike is they want to see

481
00:25:24,520 --> 00:25:29,119
Speaker 1: additional um UH, an additional inflation impulse. So our wage

482
00:25:29,119 --> 00:25:30,800
Speaker 1: growth that we're seeing at three and a half percent

483
00:25:30,880 --> 00:25:33,560
Speaker 1: a year, is that going to translate into higher inflation

484
00:25:33,600 --> 00:25:36,480
Speaker 1: going forward? Um you know, it tends to. It tends

485
00:25:36,520 --> 00:25:39,160
Speaker 1: to lead services inflation by a little by a little bit.

486
00:25:39,440 --> 00:25:42,720
Speaker 1: So if you see an inflationary impulse, we think that

487
00:25:42,720 --> 00:25:46,720
Speaker 1: that's something that's going to be needed for um UH

488
00:25:46,880 --> 00:25:48,840
Speaker 1: for the FED to to hike again later this year.

489
00:25:48,920 --> 00:25:51,200
Speaker 1: I don't think they're gonna hike before the third quarter. UM.

490
00:25:51,240 --> 00:25:53,359
Speaker 1: I think that they want to be data dependent. They

491
00:25:53,359 --> 00:25:56,200
Speaker 1: want to make sure that the economy is on stable

492
00:25:56,200 --> 00:25:58,359
Speaker 1: footing before they take any additional action. On the On

493
00:25:58,400 --> 00:26:00,640
Speaker 1: the other side, if something gets to rail and say

494
00:26:00,640 --> 00:26:03,320
Speaker 1: equity markets fall another ten percent from here or something

495
00:26:03,359 --> 00:26:06,000
Speaker 1: like that, UM, that would be something where they would,

496
00:26:06,080 --> 00:26:08,680
Speaker 1: you know, maybe be in more risk management mode, maybe

497
00:26:08,680 --> 00:26:11,240
Speaker 1: stop the FED to runoff, and then maybe even start

498
00:26:11,280 --> 00:26:14,080
Speaker 1: to talk about cutting interest rates. All right, I read

499
00:26:14,160 --> 00:26:16,600
Speaker 1: thirty seconds here. I'm looking at ten ten year treasury

500
00:26:16,640 --> 00:26:19,640
Speaker 1: yields now at two point six eight percent. Where would

501
00:26:19,680 --> 00:26:22,160
Speaker 1: they be if we did not have the trade negotiation

502
00:26:22,240 --> 00:26:25,639
Speaker 1: tensions or the prospect of a government shutdown? Yeah, we

503
00:26:25,680 --> 00:26:28,040
Speaker 1: have fair value closer to three percent, and we actually

504
00:26:28,040 --> 00:26:30,600
Speaker 1: think that that over time will probably get back up there.

505
00:26:31,160 --> 00:26:33,639
Speaker 1: Again that that's our forecast for for year end is

506
00:26:33,840 --> 00:26:36,440
Speaker 1: three plus or minus a few basis wents. In other words,

507
00:26:36,440 --> 00:26:39,320
Speaker 1: there's a discount of three tenths of one percentage point

508
00:26:39,800 --> 00:26:42,240
Speaker 1: UH that is being baked in due to the uncertainty

509
00:26:42,240 --> 00:26:45,240
Speaker 1: around some of these governments. It seems that way right now. Yeah,

510
00:26:45,600 --> 00:26:47,480
Speaker 1: really interesting. I Red Jersey, thank you so much for

511
00:26:47,520 --> 00:26:50,359
Speaker 1: being with us. Our Jersey chief US interest rate strategist

512
00:26:50,359 --> 00:26:53,280
Speaker 1: at Bloomberg Intelligence, joining us from Washington, d C. Where

513
00:26:53,280 --> 00:26:55,440
Speaker 1: he's going to try to understand everything that's going on there,

514
00:26:55,440 --> 00:26:57,280
Speaker 1: and he'll report back and we'll all make sense of it,

515
00:26:57,320 --> 00:27:00,480
Speaker 1: and then it will be complete. Thanks for listening to

516
00:27:00,480 --> 00:27:03,160
Speaker 1: the Bloomberg pen L podcast. You can subscribe and listen

517
00:27:03,200 --> 00:27:06,480
Speaker 1: to interviews at Apple Podcasts or whatever podcast platform you prefer.

518
00:27:06,760 --> 00:27:09,400
Speaker 1: I'm Paul Sweeney. I'm on Twitter at pt Sweeney. I'm

519
00:27:09,440 --> 00:27:12,360
Speaker 1: Lisa abram Woits. I'm on Twitter at Lisa Bramwoits. One

520
00:27:12,560 --> 00:27:15,159
Speaker 1: before the podcast, you can always catch us worldwide. I'm

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00:27:15,200 --> 00:27:16,040
Speaker 1: Bloomberg Radio