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

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

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

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

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

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

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

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

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Speaker 2: Terminal and the Bloomberg Business App. We begin with our

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Speaker 2: top story, the S and P five hundred Snapping and

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Speaker 2: eight day winnistry. As traders await payrolls, revisions and fed minutes,

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Speaker 2: seem as Shaff Prince Balassa management seeing stocks grinding higher,

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Speaker 2: writing this this backdrop is still constructive for risk and

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Speaker 2: a six trillion dollar mountain of cash is ready to

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Speaker 2: fuel risk assets. Seeman joins us now for more, so, Seama,

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Speaker 2: let's go to the punchline. A six trillion dollar mountain cash?

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Speaker 2: What is that match in a cash and why do

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Speaker 2: you think it's going to be unlocked anytime soon?

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Speaker 3: Hey? John, Well, look I think there's a couple of

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Speaker 3: reasons we've seen for the last couple of years, and

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Speaker 3: investor has become cautious. We know the reasons why there's

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Speaker 3: been COVID, there's a regional banking crosis. But also potentially

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Speaker 3: the most important is that people have been able to

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Speaker 3: actually make some kind of really interest on those savings.

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Speaker 3: We are on the verge of FED cuts likely to

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Speaker 3: move in a slightly faster pac certainly than what people

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Speaker 3: are anticipating just a few months ago. So sitting in

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Speaker 3: cash is no longer going to be attractive. And I

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Speaker 3: do think investors, of course, you need to take into

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Speaker 3: account the entire backdrop. What are we expecting for risk assets?

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Speaker 3: But we do still think there's opportunities and there's a

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Speaker 3: lot of reinvestment risk Satman.

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Speaker 2: This is the important question. What is the backdrop? Because

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Speaker 2: you can have a situation where people pile into cash

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Speaker 2: even more even as rates come down, because they're looking

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Speaker 2: to de risk away from risk assets. What makes you

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Speaker 2: think they're going to go in the other direction as

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Speaker 2: rate cuts start to come in. What is it about

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Speaker 2: the growth backdrop that tells you things are going to

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Speaker 2: remain pretty strong? Yeah, and I.

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Speaker 3: Would say that. I think in the last couple of

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Speaker 3: weeks there, of course, there's been a lot of revisions

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Speaker 3: and I think it's FED, so there's increasing uncertainty at

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Speaker 3: the moment. We're still in that soft landing camp like

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Speaker 3: everyone else. We've spent the last two weeks pouring over

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Speaker 3: all the data, the Magro data, the consumer the labor

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Speaker 3: balance sheets, et cetera, and we're not really seeing any

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Speaker 3: clear signs of weakness. We know that there's an economic

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Speaker 3: slowdown that should be of no surprise to anyone. It's

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Speaker 3: been underway, I think since the beginning of Q two

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Speaker 3: of this year, but a slowdown doesn't necessarily need to

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Speaker 3: transition to recession. We think that the FED has got

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Speaker 3: a lot of room to cut rates. So actually, for us,

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Speaker 3: the risk of recession is fairly low, and against that backdrop,

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Speaker 3: equities can still perform fairly well. We're not looking at

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Speaker 3: bumper games like you saw in twenty twenty three or

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Speaker 3: sethy in Q one of this year, but that's still

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Speaker 3: some positive gains to be made.

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Speaker 1: Sima. I love that you go here because Trason McMillian

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Speaker 1: yesterday was saying of Wes Fargo that she sees the

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Speaker 1: six trillion dollars in money market assets heading into equities,

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Speaker 1: maybe a bit more than longer term bonds, Bob Michael

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Speaker 1: of JP Morgan Asset Management saying it will flood into

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Speaker 1: all sorts of core bond funds, leading ten year treasure

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Speaker 1: yields at three percent are potentially lower. Do you agree

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Speaker 1: with that type of assessment.

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Speaker 3: So, I think there's a lot of opportunities across the

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Speaker 3: equity set. You know, you just look outside the US

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Speaker 3: as well, and I think there's a lot of opportunities

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Speaker 3: on the bond side. You know, I don't know if

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Speaker 3: we're going to see ten years quite that low. I

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Speaker 3: think there's so many other factors that play at the moment,

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Speaker 3: particularly in an election year, that at least for the

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Speaker 3: time being, that downder pressure is probably somewhat limited. But

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Speaker 3: certainly I do think there's a lot to go into

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Speaker 3: those core bond funds. There are question marks around high yield,

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Speaker 3: around an economic slowdown, which is why there's still so

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Speaker 3: much interest in that investment grade market. So actually, we

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Speaker 3: think there's an opportunity set across not just equities and

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Speaker 3: not just fixed income, but even across real assets. And

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Speaker 3: I so that's the reason why. You know, yes, the

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Speaker 3: economic backdrop is a little bit more uncertain than it

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Speaker 3: was two or three weeks ago, but it's still really

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Speaker 3: important that investors do start to think they look one

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Speaker 3: fed cut start cash is no longer attractive, and actually

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Speaker 3: staying in cash is probably going to be your biggest risk.

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Speaker 1: Going back to where we started, John talking about a

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Speaker 1: good kind of ray cut and a bad kind of

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Speaker 1: ray cut in terms of what the backdrop is in

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Speaker 1: terms of a good economy or a bad economy. Today

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Speaker 1: we do get those payrolls revisions, the initial payrolls revisions

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Speaker 1: in the year ended in March. Expectation is fuzzy, it's

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Speaker 1: all over the place. But if we see a revision

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Speaker 1: of say a million fewer jobs as reported initially in

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Speaker 1: that period of time, does that change review.

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Speaker 3: It doesn't change the view, but of course it's going

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Speaker 3: to add to the impression that the third is behind

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Speaker 3: the cut, and the third is going to have to

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Speaker 3: accelerate its movement somewhat more. It's really tough, though, you know,

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Speaker 3: you were just saying that there's a lot of difficulty,

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Speaker 3: a lot of risk in focusing on one just one

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Speaker 3: data point. We know that payrolls are all over the place.

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Speaker 3: Even if you think back just at April of this year,

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Speaker 3: where you had a revision down to I think it

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Speaker 3: was a one sixteen mark, and then the next month

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Speaker 3: it was back to above two hundred. So it's really

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Speaker 3: that you look across a broad set of data across

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Speaker 3: the consumer space, also really focusing on what is the

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Speaker 3: balancie strength of households and companies, and I think that's

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Speaker 3: probably going to be very important for building up that's

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Speaker 3: the overall picture of the underlying strength of the economy. Bertainly,

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Speaker 3: I think it will impact FED pricing.

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Speaker 2: Same, let's turn to gold. Some big moves so far

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Speaker 2: this year, gold up by something like twenty percent around

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Speaker 2: about that. The move this morning we down about a

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Speaker 2: quarter of one percent, pulling back from all time highs.

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Speaker 2: CBS came out with a note recently and they're looking

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Speaker 2: form a move to twenty seven hundred by the middle

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Speaker 2: of twenty twenty five, the middle of next year, and

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Speaker 2: they give a long list of reasons for this move,

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Speaker 2: the FED shift, central bank buying, portfolio hedges. What do

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Speaker 2: you think the strongest tail winds behind this move actually are?

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Speaker 3: So look, I think the goal the goal movement has

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Speaker 3: been it's probably been one of the more interesting areas

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Speaker 3: we've had. We've actually maintained a long term exposure to

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Speaker 3: that gold in expectation. Then, as you said, the number

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Speaker 3: of the factors all the play You've got the FED carts,

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Speaker 3: You've got the Central Bank buying, You've got a lot

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Speaker 3: of bit the risk, the risky environment at the moment

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Speaker 3: as well playing in for us at the moment. I

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Speaker 3: think the concerns around the slowdown, they're probably not going

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Speaker 3: to go away. They're not going to be cleared up

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Speaker 3: in the near term. So I think that upward movement

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Speaker 3: for gold is probably here to stay a little bit longer.

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Speaker 2: What do you think is should substitute in a portfolio

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Speaker 2: at the moment? Are you thinking about that? Where it

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Speaker 2: fits in? What are you telling people the gold? Yeah?

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Speaker 3: Yeah, I mean I look, I think I think having

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Speaker 3: that exposure to real asss is really important. Something around

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Speaker 3: the inflation mitigation. To me, that is where gold also

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Speaker 3: fits in. So I think it takes a lot of

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Speaker 3: different boxes somewhere along, you know, having some kind of

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Speaker 3: downward protection but also focusing on what happens if inflation

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Speaker 3: does turn out to be sticky. I know we talk

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Speaker 3: a lot about recession risk, but to ask, one of

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Speaker 3: the key concerns that we're thinking about over the next

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Speaker 3: two years or so is what if actually inflation does

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Speaker 3: start to take off again once you've got a number

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Speaker 3: of FED cards, and then that that becomes more of

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Speaker 3: a wire. So I think having that real asset exposure, commodities,

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Speaker 3: anything which is a bit of inflation mitigation, still deserves

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Speaker 3: to be a core part of any portfolio.

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Speaker 1: Just to put a line under that seam. Are you

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Speaker 1: saying on the margins real asses should replace long duration bonds?

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Speaker 3: I don't think that they should replace. I think that

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Speaker 3: there is an area which they are taking a box

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Speaker 3: for long duration bonds are important if you know you

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Speaker 3: want to have that downward or su I should say

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Speaker 3: that protection against downward economic risk. Gold is a slightly

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Speaker 3: different element. But I do think that across equities, across

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Speaker 3: the fixed income and the alternative space, that does need

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Speaker 3: to be exposure across all three because you are ticking

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Speaker 3: all your boxes in terms of the risk environment in

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Speaker 3: front of us.

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Speaker 2: Interesting same as shaff of principle as a management stinger,

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Speaker 2: thank yous and slack of apollo shaking off the weakness

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Speaker 2: and focusing on the strength. Daily and weekly data shows

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Speaker 2: that retail sales are strong, jobless claims are falling, restaurant

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Speaker 2: bookings are strong, and their travel is strong. The bottom

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Speaker 2: line is that there are no signs of a recession

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Speaker 2: in the incoming data. Torson joins us now for more so.

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Speaker 2: I think, good morning to here.

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Speaker 4: Sir, Monday morning.

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Speaker 2: Let's start with these revisions that come in a few

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Speaker 2: hours time, and I'll share the estimates that come from Goldman.

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Speaker 2: And the range is this wide. Okay, it's anywhere from

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Speaker 2: something like three hundred thousand, six hundred thousand or a million,

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Speaker 2: anywhere from fifty to eighty five thousand per month. What

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Speaker 2: do you make of these numbers?

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Speaker 1: JP?

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Speaker 2: Morgan three hundred and some think Goldman six hundred to

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Speaker 2: a million revised a little bit later this morning.

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Speaker 4: I think this is important for the economist, and this

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Speaker 4: is important also for the fad, but it really is

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Speaker 4: not important for markets. This is looking back in history

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Speaker 4: and trying to figure out how much did employment grow,

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Speaker 4: and if employment grew a little bit less, then yes,

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Speaker 4: of course overall that does send a little bit different

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Speaker 4: signal about where we are in the business cycle. But

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Speaker 4: broadly speaking, I don't think this will get much weight

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Speaker 4: in financial markets.

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Speaker 2: What do you think is normal? What's the normal run

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Speaker 2: right now for jobs growth? Is it the one fourteen

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Speaker 2: of the previous month?

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Speaker 4: Well, so, there was a very important paper by Tara

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Speaker 4: Watson and Wendy Eelberg from brook Or the Institute that

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Speaker 4: produced some estimates that says that we will probably have

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Speaker 4: employment growth for the new term at around two hundred thousand,

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Speaker 4: a little bit low. So if that's the case, because

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Speaker 4: of immigration playing such a big role, we should also

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Speaker 4: see a boost to non fun pay rules, but that's

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Speaker 4: probably going to overtime fate, so we'll probably get down

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Speaker 4: to the long run estimate, which we would to be

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Speaker 4: around one hundred thousand.

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Speaker 2: That's the question why we took last month so seriously.

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Speaker 2: If you don't think we should take the revisions, that

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Speaker 2: seriously well.

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Speaker 4: But that's also why jobless claims for the last few

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Speaker 4: weeks have been signaling that everything is just fine. If

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Speaker 4: you also look at a broad range of other indicators,

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Speaker 4: as we just ran through both with travel, with the

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Speaker 4: restaurant bookings hotel bookings. Also look broadly speaking at how

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Speaker 4: many companies going to default as Wiki data also for that.

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Speaker 4: We also have a general picture that the economy is

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Speaker 4: just not slowing down. This whole narrative as you just

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Speaker 4: spoke about, we'll target Walmart, TJ Max, this whole narrative

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Speaker 4: that we are slowing down is just not evident in

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Speaker 4: the data. So that's why I think that we should

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Speaker 4: in markets think about the outdoor for the FED.

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Speaker 1: With that background, you've said in the past, over the

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Speaker 1: past few months that you didn't think that any rate

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Speaker 1: cuts were necessary. This comes at a time, at least

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Speaker 1: not this year. This comes at a time we've got

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Speaker 1: one hundred basis points of ray cuts being baked into

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Speaker 1: the market. You're saying that it's likely most likely that

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Speaker 1: the FED is going to go next month. What do

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Speaker 1: you think the consequence will be of a FED that

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Speaker 1: starts cutting next month at a time when you still

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Speaker 1: sounds like don't think it's necessary.

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Speaker 4: Well, that's why, as Neil Dadna was just saying, there

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Speaker 4: is this whole concept that we are way way too restrictive.

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Speaker 4: But that is only if you have our star or

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Speaker 4: whether the FIT is going at a much lower level,

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Speaker 4: maybe say two and a half or two point eight,

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Speaker 4: as the long run Dot says, then it's true that

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Speaker 4: we are restrictive, then you need to see the FED

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Speaker 4: cutting rates quickly. But what if our star what where

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Speaker 4: we're going is more close to four four and a half,

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Speaker 4: then we're not in a hurry. So the main test

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Speaker 4: of the answer to your question is what is the

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Speaker 4: incoming data telling us the FED last height rates in

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Speaker 4: July of twenty twenty three, and still now twelve thirteen

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Speaker 4: months later, we're still waiting for the data to slow down,

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Speaker 4: and it's not having in any meaningful way. So if

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Speaker 4: Godeau didn't arrive, here were the last that really eighteen

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Speaker 4: twenty four months, why should Godo arrive in August of

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Speaker 4: twenty twenty four.

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Speaker 1: Some people say Goodo is leaving his sort of remnants

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Speaker 1: in different places and giving us a sense that maybe

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Speaker 1: he's more present than we previously thought, and more pointing

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Speaker 1: to potentially some of the retail sales or some of

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Speaker 1: the negative readings into the non firm payrolls that we

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Speaker 1: got a couple of weeks ago. At what point do

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Speaker 1: you say we still do not need rate cuts, that

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Speaker 1: you have conviction based on all the strength you were

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Speaker 1: just talking about that Goodou is not around, Goodou is

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Speaker 1: not coming, and actually this is a very different environmental

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Speaker 1: environment for the economy.

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Speaker 4: Well, I think we see that reflected in speeches by

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Speaker 4: different Airform C members. Some Airfirm C members, including Niga Boeman,

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Speaker 4: have been saying, well, hold on, I need more evidence

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Speaker 4: that we should cut interest rates. Others are more convinced.

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Speaker 4: So getting the committee together for JPAL and making sure

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Speaker 4: that the committee is moving gradually in the direction of

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Speaker 4: interest rates moving Loah, that does take some time. So

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Speaker 4: I think they have agreed now that they will cut

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Speaker 4: interest rates twenty five basis points in September. But after that,

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Speaker 4: I think everything is open because the data it's not

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Speaker 4: slowing down. And again the retailers reporting earnings directly, the

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Speaker 4: Walmart CEO said, we're not seeing broad based slow down

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Speaker 4: for the consumer. We need to take that seriously when

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Speaker 4: that's seventy percent of GDP. So yes, I do understand

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Speaker 4: that in markets, we quote unquote want the economies to

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Speaker 4: slow down, and we're so hooked on the narrative from

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Speaker 4: the FIT that interest rates need to normalize. But we

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Speaker 4: have plenty of time for normalizing interest rates. So that's

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Speaker 4: why let's get that rate cut here on the September

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Speaker 4: the eighteenth, and that's what JAPO will see here at

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Speaker 4: Jackson Hall. But after that, I still think that they

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Speaker 4: are open to well, let's wait and see exactly how

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Speaker 4: the data plays out.

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Speaker 2: It's also it just seems to me and to most people,

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Speaker 2: the focus has shifted to the other side of the

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Speaker 2: jill mandate. There's a focus now on the labor market.

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Speaker 2: And even if you're confident constructive about the future for

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Speaker 2: risk mitigation, risk management purposes, you want to achieve interest

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Speaker 2: rates a little bit from here. Maybe you go twenty

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Speaker 2: five and you go twenty five again. But it's the

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Speaker 2: other side of the mandate that has been completely neglected

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Speaker 2: over the last two months. I would say inflation. You

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Speaker 2: mentioned Governor Bowmen. Governor Bowman talked about upside risk to inflation,

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Speaker 2: reiterating her concerns, went through a long list of things,

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Speaker 2: increasing geopolitical tensions, additional fiscal stimulus, and increased demand for

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Speaker 2: housing due to integration. Do you think we should be

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Speaker 2: a little bit more focused on the thing We've been

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Speaker 2: ignorant for the last couple of months.

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Speaker 4: So let's be of course clear that inflation did peak

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Speaker 4: at nine point one. Now we're two point nine, so

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Speaker 4: we are a lot closer to their two percent target.

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Speaker 4: But last time we look, two point nine is not two.

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Speaker 4: So that's why I think she's highlighting, and several other

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Speaker 4: INFORMC members are bringing up the same points and saying, well,

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Speaker 4: let's wait a little bit and just make one hundred

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Speaker 4: percent sure that we're still moving down towards two percent,

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Speaker 4: because the risk is, of course, that if inflation does

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Speaker 4: start to move either sideways or on the worst case,

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Speaker 4: move higher, then they will need to go back and

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Speaker 4: revise their strong just like they did in the beginning

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Speaker 4: of the year they said we have three cuts. Now

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Speaker 4: it was just one cut. So now the market is

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Speaker 4: really getting ahead of its other imboso. During the Viks

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Speaker 4: episode and the carry trade on wine from Japan, the

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Speaker 4: market was prising up moday that the FED were cut

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Speaker 4: six times. So that's why the roller coaster ride here.

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Speaker 4: In terms of what the market is pricing, it's important

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Speaker 4: to anchor your expectations around what's the incoming data actually showing.

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Speaker 1: So we talked to you a couple of months ago.

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Speaker 1: You were saying that you could see the strength of

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Speaker 1: the market certainly continuing through the end of the year

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Speaker 1: on the heels of data that continue to be more

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Speaker 1: resilient and stronger than people expect, but that next year

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Speaker 1: it could be a problem that you could see that

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Speaker 1: fall off a cliff. Have you changed your view as

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Speaker 1: you see a greater likelihood of a FED rate cut

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Speaker 1: and the potential for maybe some of the pressure to

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Speaker 1: be eased before.

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Speaker 4: Next year, because I do think that the main reason

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Speaker 4: why the economy is holding up so well at the

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Speaker 4: moment is that there's a significant tailwind from broadly speaking,

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Speaker 4: a higher stock market, tieder credit spreads and easy financial

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Speaker 4: conditions across the board, supporting the economy in a very

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Speaker 4: broad way. And because of that, that does mean that

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Speaker 4: now we have had some correction in the Magnificent seven,

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Speaker 4: now that stock markets are beginning to show some signs

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Speaker 4: of wabbling a little bit more rallied of course here

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Speaker 4: after the carricter right online. But if there is any

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Speaker 4: reversal in the strong till wind from the stock market,

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Speaker 4: then it would begin to have simplifications in particular for

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Speaker 4: middle income and high income consumers, both those who own

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Speaker 4: bas in p. Five hundred and own their home, but

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Speaker 4: also those who own credit private credit included where the

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Speaker 4: cash flows have been basically the best levels in decades.

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Speaker 4: Anyone who owns FicT income are seeing cash flows on

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Speaker 4: the consumer side that are very, very strong, and that

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Speaker 4: continues to be a very important till wind to the

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Speaker 4: economic outlook.

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Speaker 2: Tostin, it's been far too long. Let's do this again soon.

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Speaker 2: It's going to see a Torson slock there of apolloed

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Speaker 2: here's the view from Ender's person over at New Vein.

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Speaker 2: He writes the following, We expect the FED to cut

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Speaker 2: by twenty five basis points at each meeting through mid

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Speaker 2: twenty five. Larger cuts, including a fifty basis point move

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Speaker 2: in September, are possible if incoming labor market data continues

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Speaker 2: to deteriorate at the same pace as the July jobs report.

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Speaker 2: And this joint is now for more. And it's good

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Speaker 2: morning to you.

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Speaker 5: Good morning.

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Speaker 2: We talked a lot about the job's revisions. We get

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Speaker 2: a little bit later this morning. Talston Slot came on

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Speaker 2: the program from Apollo and basically cause poor threes in

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Speaker 2: cold water all over the conversation, at least from I've

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Speaker 2: been having all morning. I said, it won't matter to market.

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Speaker 2: Do you think this is going to matter to markets

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Speaker 2: at ten am.

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Speaker 5: I'm actually more in tours this camp that I don't

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Speaker 5: think it's going to matter a whole lot is that

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Speaker 5: I think it's it's a backward looking number. Of course,

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Speaker 5: it's a year today through March, so it's slightly outdated

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Speaker 5: at this point. I think it's a number of economists

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Speaker 5: will definitely digest and kind of take a harder look at.

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Speaker 5: But from a market perspective, I think we're really more

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Speaker 5: focused on what's happening here going forward, and obviously the

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Speaker 5: most recent data was more interesting, and we're more focused

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Speaker 5: on what's coming here going forward. So I would say

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Speaker 5: historically this has not been a number has been all

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Speaker 5: our market driven. I don't anticipate it to be today.

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Speaker 2: Don't you think what we've been in films where we're going?

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Speaker 2: And the reason I asked that question. If Goldman's right

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Speaker 2: and we get revision low of anywhere between fifty to

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Speaker 2: eighty five thousand jobs per month, wouldn't we have traded

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Speaker 2: on that data a little bit differently over the last

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Speaker 2: twelve months.

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Speaker 1: Yeah?

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Speaker 5: I mean I think today this year, given the job marks,

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Speaker 5: this very much front and center in terms of focus

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Speaker 5: and I think the markets shifted from an inflation focus

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Speaker 5: to more of a job market is focused right now,

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Speaker 5: So I do think this year, at this time around,

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Speaker 5: it's more of a more interesting data point. But at

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Speaker 5: the same time, I think the numbers, if you look

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Speaker 5: from like three hundred thousand and two million, that the

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Speaker 5: estimates are very very wide, So economists can't even kind

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Speaker 5: of agree on what the numbers should be here. So yeah,

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Speaker 5: it's a data point. I think we have to digest it.

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Speaker 5: But you know, quite frankly, I think the mark is

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Speaker 5: going to be looking more forward and to certainly the

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Speaker 5: NFP number coming in September.

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Speaker 1: Part of the problem is that we've talked about the

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Speaker 1: importance of data dependency, and then person after person comes

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Speaker 1: on and says, but does the data actually matter? And

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Speaker 1: we're left scratching our heads with our wibside next and

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Speaker 1: looking at all the data between Macy's and TJ max

403
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Speaker 1: and TJ max and wondering what matters to anyone. You're

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Speaker 1: talking about the idea of ten year yields being in

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Speaker 1: fair value around four percent, Bob michael is talking about

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Speaker 1: three percent, and you both don't see the economy falling

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Speaker 1: off a Cliff, So why are you not in the

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Speaker 1: three percent camp?

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Speaker 5: Right? Well, I think Bob is referring to three percent

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Speaker 5: some time out right, like I think you mentioned twelve

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Speaker 5: to eighteen months out. I think that that's much more realistic.

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Speaker 5: Right now. We're talking fair value around four percent as

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Speaker 5: we're sitting here today. From our perspective, we think the

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Speaker 5: tenure has run a little bit too quickly here. It

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Speaker 5: is sort of a slower kind of top month. I

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Speaker 5: think there's some investors out there probably using that as

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Speaker 5: a cheap option versus equity sort of say so if

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Speaker 5: we have a hearted landing, they can use that part

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Speaker 5: of the market to kind of hedge their bet a bit.

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Speaker 5: So we are expecting the tenure to start moving lower

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Speaker 5: in twenty twenty five. We're not expecting as low as that,

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Speaker 5: but you know, three and a quarter is possible by

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Speaker 5: year in twenty twenty five. But that's a long timeout,

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Speaker 5: and the volatility has been quite severe, so to say,

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Speaker 5: to day, as we're sitting here, it feels like we've

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Speaker 5: gone a little bit too far too quickly. So that's

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Speaker 5: that four percent that we think is more closely to

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Speaker 5: fair value.

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Speaker 1: That said, if you truly believe that the FED was

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Speaker 1: entering into a rate cutting cycle. And if you truly

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Speaker 1: believe that the newtral rate wasn't that different than it

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Speaker 1: has been historically, that really we just saw distortions from

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Speaker 1: the pandemic. Why wouldn't je hoover up as much ten

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Speaker 1: year bonds you possibly could right now ahead of twenty

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Speaker 1: twenty five? Wait, why be cute about it?

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Speaker 5: Well, I mean, I think the trend is lower for sure,

437
00:19:28,560 --> 00:19:31,600
Speaker 5: So that that is, you know, the backdrop that we've

438
00:19:31,640 --> 00:19:34,440
Speaker 5: been saying for some time their rates should start moving lower.

439
00:19:34,480 --> 00:19:35,800
Speaker 5: I think the two year is going to be a

440
00:19:35,800 --> 00:19:38,000
Speaker 5: lot more quicker to move, and we're expecting the two

441
00:19:38,080 --> 00:19:41,080
Speaker 5: year to start moving lower, and you know we're expecting

442
00:19:41,119 --> 00:19:44,720
Speaker 5: a flat yield curve by year end. We're actually seeing

443
00:19:44,760 --> 00:19:47,520
Speaker 5: also an upward sloping yield curve going into next year,

444
00:19:47,560 --> 00:19:50,000
Speaker 5: so you know, probably more comfort around the two year

445
00:19:50,080 --> 00:19:52,119
Speaker 5: moving lower, and that's going to be more correlated to

446
00:19:52,160 --> 00:19:55,120
Speaker 5: FED cuts as we move into next year the ten

447
00:19:55,160 --> 00:19:57,480
Speaker 5: year again, yeah, I think the backdrop will be lower

448
00:19:57,600 --> 00:20:01,640
Speaker 5: for next year. But moving pieces here is we've seen

449
00:20:01,640 --> 00:20:05,200
Speaker 5: a lot of volatility. We have actually found more opportunity

450
00:20:05,200 --> 00:20:07,760
Speaker 5: in the spread markets in general, and I felt more

451
00:20:07,800 --> 00:20:10,840
Speaker 5: comfortable putting bets on that side, less so on the

452
00:20:10,840 --> 00:20:12,120
Speaker 5: treasure market at this went around.

453
00:20:12,119 --> 00:20:14,199
Speaker 2: You want credit spreads right now because they're certainly tightened

454
00:20:14,200 --> 00:20:16,119
Speaker 2: to come in over the last week. What are you

455
00:20:16,160 --> 00:20:16,680
Speaker 2: waiting for?

456
00:20:17,160 --> 00:20:20,280
Speaker 5: Yeah, credit spreads we think are you know, probably fair

457
00:20:20,359 --> 00:20:23,080
Speaker 5: value to a bit rich now. We have been waiting

458
00:20:23,200 --> 00:20:26,440
Speaker 5: for spreads to start widening out as the economy starts slowing.

459
00:20:27,480 --> 00:20:30,120
Speaker 5: It had a very quick move you know, two weeks

460
00:20:30,160 --> 00:20:32,959
Speaker 5: ago or so on Uttle Bass points exactly, so very

461
00:20:33,040 --> 00:20:36,000
Speaker 5: quick movement, came back very quickly at this point where

462
00:20:36,280 --> 00:20:38,359
Speaker 5: you know, we're expecting that to start widening out a

463
00:20:38,400 --> 00:20:40,840
Speaker 5: little bit, so high yelled around three twenty. We could

464
00:20:40,840 --> 00:20:43,000
Speaker 5: see that going out to maybe three point fifty again,

465
00:20:43,640 --> 00:20:46,440
Speaker 5: as you know, economies starts slowing down, and we're more

466
00:20:46,440 --> 00:20:47,200
Speaker 5: focused on that.

467
00:20:47,280 --> 00:20:49,240
Speaker 2: So you walk us through your process just a little bit,

468
00:20:49,320 --> 00:20:51,000
Speaker 2: because I hear this a lot in stocks. We both

469
00:20:51,000 --> 00:20:52,840
Speaker 2: hear this when it comes to stock markets. People come

470
00:20:52,880 --> 00:20:54,280
Speaker 2: on the program and say they want to buy the dip.

471
00:20:54,359 --> 00:20:57,160
Speaker 2: Then the dip happens and they keep running away because

472
00:20:57,200 --> 00:20:59,360
Speaker 2: things get scary. You start to wander where the next

473
00:20:59,400 --> 00:21:01,320
Speaker 2: five percent is coming from. And you start to worry

474
00:21:01,320 --> 00:21:03,480
Speaker 2: that it's lower. The same thing happens with credit spread.

475
00:21:03,520 --> 00:21:05,640
Speaker 2: You get a hundred basis points of widening, people start

476
00:21:05,640 --> 00:21:08,240
Speaker 2: to freak out. There's another hundred basis point around the corner.

477
00:21:08,240 --> 00:21:10,320
Speaker 2: How do you know when to buy? What's the process

478
00:21:10,320 --> 00:21:11,000
Speaker 2: for you and the team?

479
00:21:11,119 --> 00:21:13,680
Speaker 5: Yeah? No, I mean we debate that all the time.

480
00:21:13,720 --> 00:21:17,040
Speaker 5: And I will say the credit widening we saw a

481
00:21:17,080 --> 00:21:20,119
Speaker 5: couple of weeks ago was really quite tricky, given that

482
00:21:20,200 --> 00:21:22,600
Speaker 5: you have the job stayed on Friday, you had the

483
00:21:23,240 --> 00:21:26,479
Speaker 5: carrier trade unwined, and some of the geopolitical uncertainties going

484
00:21:26,560 --> 00:21:29,240
Speaker 5: on all at the same time. So dissecting exactly what

485
00:21:29,400 --> 00:21:32,960
Speaker 5: was driving what and how much was technical versus fundamental

486
00:21:33,119 --> 00:21:35,479
Speaker 5: was quite tricky from that perspective. I think if it

487
00:21:35,520 --> 00:21:37,679
Speaker 5: was job s date are driven only, we would have

488
00:21:37,720 --> 00:21:40,440
Speaker 5: had more comfort stepping in and saying, listen, this looks

489
00:21:40,560 --> 00:21:44,000
Speaker 5: cheap and this is an interesting opportunity we did step

490
00:21:44,040 --> 00:21:46,680
Speaker 5: in for, you know, basically buying credit and bonds that

491
00:21:46,720 --> 00:21:51,200
Speaker 5: we particularly like take advantage of that way. But you know, generally,

492
00:21:51,440 --> 00:21:54,040
Speaker 5: I think it's it's an assessment that gets you know,

493
00:21:54,119 --> 00:21:57,320
Speaker 5: quite convoluted. You have to basically take it in totality.

494
00:21:58,400 --> 00:22:01,120
Speaker 5: So from that perspective, at times we've seen in the past,

495
00:22:01,160 --> 00:22:03,320
Speaker 5: if you have a big, big move like we did

496
00:22:03,520 --> 00:22:06,239
Speaker 5: two weeks ago, it can be more coming behind it,

497
00:22:06,320 --> 00:22:08,679
Speaker 5: and that is the tricky part at this point. So

498
00:22:09,040 --> 00:22:11,440
Speaker 5: we're trying to be dollar cost average, so to say

499
00:22:11,480 --> 00:22:13,560
Speaker 5: a bit here with the assumption that we're going to

500
00:22:13,560 --> 00:22:16,280
Speaker 5: see spreads moving a bit higher in the rest of

501
00:22:16,280 --> 00:22:16,600
Speaker 5: the year.

502
00:22:16,840 --> 00:22:19,119
Speaker 1: Just real quick. The six point two trillion dollars in

503
00:22:19,160 --> 00:22:21,800
Speaker 1: money markets, which asset do you think will benefit the

504
00:22:21,840 --> 00:22:24,000
Speaker 1: most if people start to move it out?

505
00:22:24,240 --> 00:22:26,160
Speaker 5: Clearly I'm a bit biased here, but I do think

506
00:22:26,480 --> 00:22:28,880
Speaker 5: fixed income is going to be the natural next step here,

507
00:22:29,320 --> 00:22:33,600
Speaker 5: taxable fixed income and Muni's overall, I do think it's

508
00:22:33,600 --> 00:22:36,600
Speaker 5: a pretty big step step for someone who is concerned

509
00:22:36,640 --> 00:22:40,560
Speaker 5: about what their views are and economy and the markets

510
00:22:40,560 --> 00:22:42,399
Speaker 5: to jump all the way into equity, so all the

511
00:22:42,400 --> 00:22:45,479
Speaker 5: way into real estate or even private credit. So it

512
00:22:45,560 --> 00:22:48,199
Speaker 5: does feel like the natural next step would be muni's

513
00:22:48,240 --> 00:22:51,240
Speaker 5: and fixed income, and we're starting to see and hear

514
00:22:51,359 --> 00:22:54,040
Speaker 5: that more and more, and quite frankly, I think a

515
00:22:54,160 --> 00:22:57,119
Speaker 5: FED cut would probably be a nice psychological kind of

516
00:22:57,160 --> 00:23:01,480
Speaker 5: step towards that, where it's reinforcing tosts. It's time to

517
00:23:01,560 --> 00:23:03,800
Speaker 5: make a shift here and that's where we're anticipating.

518
00:23:03,840 --> 00:23:05,840
Speaker 2: At least you're honest about where the bus comes from

519
00:23:05,880 --> 00:23:07,480
Speaker 2: and us thank you, sir, good to see it and

520
00:23:07,520 --> 00:23:11,760
Speaker 2: as person there of Neuven. This is the Bloomberg Surveillance Podcast,

521
00:23:11,880 --> 00:23:15,800
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522
00:23:15,800 --> 00:23:18,600
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523
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524
00:23:21,560 --> 00:23:25,080
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525
00:23:25,119 --> 00:23:27,920
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526
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