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Speaker 2: Themandalignum with us here right now, peat a credit research
Speaker 2: black Rock. We're thrilled that she's with us. We do
Speaker 2: an audible at right now, long ago and far away,
Speaker 2: like think eighteen forty two, there was the Augustinian College
Speaker 2: of Villanova. Wander forward to the class of seventy seven
Speaker 2: and the math guy got out of it and ended
Speaker 2: up the other day becoming Pope Leo. I believe the
Speaker 2: fourteenth Amandolinum. Are you going to move? I mean, I
Speaker 2: know that mister Fink would let he would let you go.
Speaker 2: Do we look for you to do a Bloomberg Surveillance
Speaker 2: interview from the Administration of the Patrimony of the Apostolic
Speaker 2: See anytime soon.
Speaker 3: I would welcome it.
Speaker 4: I'm a massive supporter of the school. Was hoping for
Speaker 4: some divine intervention last night, but it didn't didn't work
Speaker 4: out that way.
Speaker 3: But I love Villanova.
Speaker 2: What I have to ask what was I mean, I
Speaker 2: was watching with missus Keane like everyone at else. What
Speaker 2: was it like when he stepped out on that belt.
Speaker 4: I mean, I've been a massive supporter of the school,
Speaker 4: but it was just so wonderful to see I was
Speaker 4: actually quite surprised. I think others of the school said
Speaker 4: the same thing, even those who were in the loop.
Speaker 3: But it's it's super exciting for all of us.
Speaker 2: Very good. Well, we look forward to speaking to you
Speaker 2: from the administration of the Patrimony of the Apostolics, the Pope.
Speaker 2: What's his favorite chief steak?
Speaker 3: I mean, that's got to be one of the most
Speaker 3: support thing.
Speaker 2: What's what's the most important advice to the Administration of
Speaker 2: the Patrimony of the Apostolic see and their bond portfolio?
Speaker 2: Will it be price up eeled out?
Speaker 3: Good morning? I should say thank you for having me.
Speaker 4: I think one of the most important things I would
Speaker 4: emphasize is maybe the concept of two sided risks has
Speaker 4: really come into focus.
Speaker 3: I would say more over the past few weeks.
Speaker 4: It actually started before the US China trade paused tensions
Speaker 4: of a couple of weeks ago. But I think when
Speaker 4: we're talking to investors there's also a focus on what
Speaker 4: could go right, and I think the fact pattern over
Speaker 4: the past few days was case in point Friday, we
Speaker 4: left it was a bit of a risk on tone.
Speaker 4: We came in yesterday, quite a risk on tone. Corporates
Speaker 4: investors alike don't want to be caught off sides, and
Speaker 4: so I think there's just a recognition of the two
Speaker 4: sided risks. We are actually comfortable selectively moving down in
Speaker 4: credit quality. That's a view that we've had for a while,
Speaker 4: and I think that is actually we're an investor that
Speaker 4: is taking a bit of a longer term perspective. Compounding
Speaker 4: these spreads and yields. I think it's a pretty attractive opportunity.
Speaker 5: So I'm looking at just at the end go function
Speaker 5: of Bloombergate next browser, just kind of look ato where
Speaker 5: things are going in fixed income here. Corporate high yield
Speaker 5: has been like the best performer two point four to
Speaker 5: six percent total return year to date.
Speaker 4: Yeah.
Speaker 5: I mean again, it seems like the market's willing to
Speaker 5: take credit risks.
Speaker 4: Yes, and I think it's notable on a few fronts
Speaker 4: high yield out performing IG in an environment like this
Speaker 4: where there are some residual concerns about growth downside risks,
Speaker 4: and also an expectation that we are slowing from an
Speaker 4: above trend pace.
Speaker 3: I think that's really twofold Paul. One is you're still.
Speaker 4: Able to capture a pretty attractive incremental spread in high yield.
Speaker 4: You don't have as much duration exposure, so when treasure
Speaker 4: yields sell off, you're less impacted in the high old space.
Speaker 4: And then two, importantly, fundamentals between a lot of these
Speaker 4: pockets of the market have converged.
Speaker 3: Actually, if you look at leverage for.
Speaker 4: Double b's, which is the high end of high yield,
Speaker 4: and leverage for triple b's, the low end of investment grade, they're.
Speaker 3: Actually the same. You can see that on the Bloomberg terminal, So.
Speaker 4: That you're not giving up a ton of credit quality
Speaker 4: to move down. They're not giving up a ton in
Speaker 4: fundamental quality to move down in credit quality.
Speaker 6: And we like that.
Speaker 2: See how she pitched the Bloomberg terminal. Let's have her back.
Speaker 5: She knows who listens here. So what's the thought here
Speaker 5: about this Federal Reserve? Again on earlier doesn't think there's
Speaker 5: gonna be a rake cut this year.
Speaker 4: It seems like the Fed officials are priming the market
Speaker 4: to expect really nothing until September at the earliest.
Speaker 3: That the commentary from the.
Speaker 4: Past, I would say several days suggests that I think
Speaker 4: that makes sense if you remove some of the downside
Speaker 4: risks to growth. So we take kind of that left
Speaker 4: tail recessionary case off the table, which we believe we've done,
Speaker 4: and really we weren't expecting a recession anyway, and you
Speaker 4: have above target inflation.
Speaker 3: The urgency and.
Speaker 4: The impetus for the Fed to act preemptively, we think
Speaker 4: is pretty low.
Speaker 2: Fold In we just had Jordan Rochester. I'm brilliant at
Speaker 2: Missoul fold in what the Japanese angst and the indications
Speaker 2: of Pacific rim week dollar angst, what it means for
Speaker 2: full faith and credit investors in the United States. Are
Speaker 2: they linked or are they separate?
Speaker 3: Well, they are linked in some ways.
Speaker 4: That foreign investors own around twenty plus twenty five percent
Speaker 4: of the US.
Speaker 3: Corporate bond market. Does walk away from that, no, I
Speaker 3: think they are.
Speaker 4: Conversations suggest that actually it's just the marginal dollar that
Speaker 4: has a better chance of being deployed at home in
Speaker 4: some of these markets where we're expecting either in Europe,
Speaker 4: for example, fiscal to result in increased sovereign issue ines
Speaker 4: higher yields that maybe weren't available in some of these
Speaker 4: regions for the past several years.
Speaker 3: They're now on offer.
Speaker 4: And so I think corporates, for the incremental dollar are saying, Okay,
Speaker 4: should I be a bit more geographically diversified. That's what
Speaker 4: we're sensing in our conversations, not a wholesale reallocation, but
Speaker 4: for the marginal dollars, should I deploy that at home?
Speaker 5: So again the credit quality outlook here, I mean, if
Speaker 5: we're not heading for a recession, do we have to
Speaker 5: worry about credit quality in general?
Speaker 2: Though?
Speaker 5: Because it seems like, you know, the teriff rights are
Speaker 5: materially higher than they were at the start the year.
Speaker 5: It's got to impact growth from a lot of companies.
Speaker 3: It's a great point. I think we are.
Speaker 4: We are watching pockets of the various asset classes that
Speaker 4: we track that we're under pressure even when growth was
Speaker 4: above trend. So for example, parts of commercial real estate,
Speaker 4: parts of corporate credit, both on the liquid and private
Speaker 4: credit side, parts of the consumer right subprime. These were
Speaker 4: areas that were already under pressure when growth was above trend.
Speaker 4: Now that we're expecting a more challenging growth inflation mix.
Speaker 4: There's really nothing on the horizon that expects us to
Speaker 4: see those companies kind of reverse their fortunes and kind
Speaker 4: of really improve those fundamentals. So that's where we are focused.
Speaker 4: It's more dispersion, not widespread market disruption, So those tales
Speaker 4: of the market are really where we're focused. It really
Speaker 4: underscores the importance of granularity.
Speaker 2: This is a way from your remit, but the ETF
Speaker 2: you know, and of course led by black Rock. Obviously,
Speaker 2: the flows into ETFs I think have surprised me and
Speaker 2: Paul both inequities advance. Are you surprised that money needs
Speaker 2: to find a warm place here given all the political.
Speaker 3: Diversion, I would say yes.
Speaker 4: The flows even in if you look at just regular
Speaker 4: mutual fund flows, even in high yield, over the past
Speaker 4: few weeks, they've rebounded pretty nicely. Keep in mind, though
Speaker 4: those fun flows only capture a portion of the market.
Speaker 4: They're not capturing the entire investor base that's in corporate credit.
Speaker 4: And actually you can see it in the spread reactions
Speaker 4: that there is these white These moments of widening have
Speaker 4: been short lived because that money is coming in.
Speaker 2: Did you watch Jalen Brunson at Villanova of course like Arena.
Speaker 3: No, no, we were.
Speaker 4: We were not there at the same time, but I
Speaker 4: watched him when he was at Villanova when I was out.
Speaker 4: Was he yeah, the whole Yeah, I mean the whole
Speaker 4: team is just like, I think, a masterclass in execution
Speaker 4: when they were at Villanova and Jay Wright was wonderful obviously,
Speaker 4: and that's the thing, and they were all together.
Speaker 5: Coach, I'm gonna call my relatively young coach, middle aged
Speaker 5: coach this whole nil thing the transfer portal, he said,
Speaker 5: I'm at it.
Speaker 2: The one year, two years Brunson played three or four years.
Speaker 5: I see, yeah, So, I mean that's Jay Writ's one
Speaker 5: of a handful of great, great coaches.
Speaker 2: I'm not I lift up Shack today just because I
Speaker 2: thought he was hilarious just today doing the bicep curl
Speaker 2: with a guy. You know, he picked up a guy
Speaker 2: and was doing a bicep curl. And again Shack played
Speaker 2: three four years. Yep, I know they ruined the game.
Speaker 6: Huh.
Speaker 2: It's it's okay. They ruin the game, Miss Wyman.
Speaker 4: I enjoyed it even I enjoyed watching them, even though
Speaker 4: they come wasn't what we wanted.
Speaker 2: Whose Whose tickets do you get for tomorrow night?
Speaker 3: Nobody's tickets. I just.
Speaker 5: Salesperson.
Speaker 2: I've got to take golden tickets somewhere.
Speaker 3: Takes Maybe after today, maybe I'll have something.
Speaker 7: I don't know.
Speaker 2: She's available in New York Wall Street for tomorrow, Amanda
Speaker 2: Light And thank you, Thank you, particularly thank you for
Speaker 2: those comments on the Augustitian College of the Villanova. Greatly
Speaker 2: appreciate that.
Speaker 1: You're listening to the Bloomberg Surveillance podcast. Catch us live
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Speaker 2: He's really something. He's at Missouli with Dom Constant and
Speaker 2: Steve Hudo, Jordan Rochester Holtz Court in London, and all
Speaker 2: I can say is there's sort of these distant articles
Speaker 2: of people from the West writing about Japan and they
Speaker 2: cite the numbers and there's real anks. It's priced down,
Speaker 2: yield up and then out on LinkedIn, where he's brilliant.
Speaker 2: And also of course all of his research from a zoo.
Speaker 2: There's this absolute authority from Jordan Rochester of what it
Speaker 2: means when long term Japanese paper goes lower price, higher yield,
Speaker 2: including the forty year piece Jordan. Let's start with a
Speaker 2: why why is it priced down yield up for Japanese
Speaker 2: long term debt?
Speaker 8: Well, it's a mixture of things, Tom good Morning. The
Speaker 8: main thing is because the Bank Japan is in a
Speaker 8: hiking cycle. So typically at the very start of a
Speaker 8: rate hiking cycle, when you're leaving the.
Speaker 6: Zero lower bounds is what Japan's been doing.
Speaker 8: The long end does sell off as markets price in
Speaker 8: a higher risk of higher rates for longer and that's
Speaker 8: what happened with the ECB's example, when they escaped Qi
Speaker 8: in twenty seventeen. When they did that, you saw a
Speaker 8: big steepening in the curve in Europe, and that's been
Speaker 8: what's happening in Japan. The other part of it as well,
Speaker 8: is because of the life insurance and pension funds demand
Speaker 8: for the long end being softer. That's because their liabilities
Speaker 8: are getting smaller as interstrates a rising this kind of
Speaker 8: the mathematics of a pension fund. And the third reason
Speaker 8: is much more higher foreign participation in Japan's long end,
Speaker 8: which isn't great to see because it does invite more
Speaker 8: qualtity and speculation than previously, which was more of a
Speaker 8: domestically owned market. We've actually seen a lot of hedge
Speaker 8: funds and foreign real money move into that space.
Speaker 2: I look sure Damian SSR has been a huge value
Speaker 2: add weak Taiwan dollar, Singapore dollar even rolling over in others.
Speaker 2: Measure the contagion of the Japanese challenge and what it
Speaker 2: means for other Pacific room countries, and of course what
Speaker 2: it means for the United States.
Speaker 8: Sometimes when we talk about the US or Europe, we
Speaker 8: talk about the bubble. We don't think about what's happening
Speaker 8: outside that will feed through, and Japan is a clear
Speaker 8: one for that. The yen has been the carry trade
Speaker 8: funder of the past two decades, and that applies to
Speaker 8: the front end and also the long end. Borrowing in
Speaker 8: Japan at low rates and investing that in the US
Speaker 8: at higher rates of return. Well, now domestic rates are
Speaker 8: rising in Japan. You have to have either a higher
Speaker 8: rate of return through investment in the US. So therefore
Speaker 8: it means US fixed income will underperform and rates will
Speaker 8: go higher in the US, or you need essentially to
Speaker 8: move that money back to Japan, and you're having a
Speaker 8: mixture of both, and that's leading to the yen strength.
Speaker 8: We're looking for one thirty eight in dollar end by
Speaker 8: the year end, down towards one thirty six or lower
Speaker 8: when we get to March, and that's because of the
Speaker 8: Boj's hiking cycle mainly, but it's also because of this
Speaker 8: de dollarization.
Speaker 6: Story as well as playing in the background.
Speaker 8: I don't want to overemphasize that the dollarization story, it's
Speaker 8: not sell America. But what we are talking about is
Speaker 8: the rest of the world outperforming the US and the
Speaker 8: second half this year.
Speaker 5: So again you mentioned the dollar and the Bloomberg Dollar
Speaker 5: indexes down, you know, almost eight percent from its recent high.
Speaker 5: Here cannot seem to find a bid. While US equities
Speaker 5: have rebounded most of the sell off they saw earlier
Speaker 5: this year. What's your six to twelve month view of
Speaker 5: the US dollar.
Speaker 8: In the short term, I'll actually be a buyer of
Speaker 8: the dollar because I think that the trade has got
Speaker 8: a little bit ahead of itself. We're looking for one
Speaker 8: twenty euro dollars, so there's still more room to go,
Speaker 8: but we've already rallied quite significantly, and in cable we're
Speaker 8: already out one thirty six to for year end, for example.
Speaker 8: But long term it's I think what we're going to
Speaker 8: see is a reaction to the tariffs in Q three
Speaker 8: and Q four from Japan, from Europe and the rest
Speaker 8: of the world, including China, fiscal STEAMNUS will come down
Speaker 8: the pipeline reform in an effort to boost growth. Because
Speaker 8: the US tariffs will hit the rest of the world growth,
Speaker 8: those countries will have to respond in their own way,
Speaker 8: and that will lead to expectations of growth picking up
Speaker 8: for next year. So it's kind of a down and
Speaker 8: up for the growth outlook, I think for the rest
Speaker 8: of the world, and that's why we have the dollar
Speaker 8: un performing because typically when the rest of the world
Speaker 8: does fiscal reforms and picks up, the dollar weekends in
Speaker 8: that environment. But short term, I think everybody short the dollar.
Speaker 8: I think every guest on here will probably tell you
Speaker 8: that there's very few out there pushing.
Speaker 6: For long dollar.
Speaker 8: And we are starting to see the normal correlations of
Speaker 8: foreign exchange to interest rates picking back up, and at
Speaker 8: the moment they say the dollar's fair value, and I
Speaker 8: just worry that everyone's got the same trade on.
Speaker 5: Rest of world what's the best rest of world trade
Speaker 5: right here visa VI the dollar.
Speaker 8: Do you think, well, the euro is the one which
Speaker 8: stands out because of Germany.
Speaker 6: I mean, just look at their defense sector.
Speaker 8: Ryan Metal and a few other names just extremely outperforming
Speaker 8: of our names within their sector. And that's because the
Speaker 8: German fiscal taps have been turned on, the debt break
Speaker 8: has been reformed. So that's where I'd be looking for Sterling.
Speaker 8: I'm less interested in and the Yen. Of course, we're
Speaker 8: bigger players of rates and we think that the yen
Speaker 8: will strengthen.
Speaker 2: Ester with us in London with Missoul can't say enough
Speaker 2: about their research improvement over the last four or five
Speaker 2: six years. Stephen Rushudo guide in the ship, dom constant
Speaker 2: writing brilliant research in Jordan Rochester with them as well.
Speaker 2: Jordan's a film in here, fold in here, excuse me, Jordan.
Speaker 2: There's this basketball team called the New York Knicks, and
Speaker 2: I can't think this morning. It's sort of like the
Speaker 2: Tots before the europe will win Jordan, but we're praying Jordan.
Speaker 2: Fold in here, the Rashudo GDP call and Dominic's brilliant work.
Speaker 2: And now you get to know fed rate increases this year.
Speaker 8: At least a good trade as well, because what we
Speaker 8: think is there's going to be no Fed cuts this year.
Speaker 8: Steve's got one and a half percent GDP forecast but
Speaker 8: a three and a half percent inflation, So your nominal's
Speaker 8: at five and the Fed's going to be looking at
Speaker 8: three and a half inflation. That's not an environment where
Speaker 8: you're cutting rates. You need to have really big weakness
Speaker 8: in the labor mind to do so. However, what Constant
Speaker 8: would point out, and what I point out too, is
Speaker 8: that this market is very much inclined to say that
Speaker 8: there's a very high bar to get to get this
Speaker 8: market to think hikes are the next move by the Fed,
Speaker 8: the market will continue to think that cuts the next move,
Speaker 8: but we are of the view it won't happen this year.
Speaker 8: So what that means for trades is we like front
Speaker 8: end flatteners. So price out the rate cuts for this year,
Speaker 8: pricing more cuts for next year, because that's how this
Speaker 8: market is biased.
Speaker 6: So we have a steep we can have.
Speaker 8: A flattening of the curve. More cuts, price for twenty
Speaker 8: twenty six, less for twenty five.
Speaker 2: Global Wall Street brands that what you just heard whether
Speaker 2: you agree or disagree. The heart of the matter is
Speaker 2: Missoul gets to a pop in five percent nominal gdp Jordan.
Speaker 2: It's a completely different nominal GDP than a normal nominal gdp.
Speaker 2: How does the litmus paper your world? How does the
Speaker 2: litmus paper of the system FX deal with this weird
Speaker 2: wacko five percent nominal GDP.
Speaker 8: It's not too whacko, Tom, But what it does mean
Speaker 8: is that the equity earning space, for example, will be
Speaker 8: in a healthy spot even though the real GDP is
Speaker 8: low because real GDP has been roughly around two to
Speaker 8: three in the US for some time, their earnings potential
Speaker 8: will be inflation adjusted with the tariffs and so forth.
Speaker 8: We've still got five percent nomenal GDP growth. This is
Speaker 8: an environment where it's not us outperformance on a real
Speaker 8: GDP perspective, but you will see the equity market hold up.
Speaker 8: So we're not looking for a big risk off in
Speaker 8: the equity market as a result of that, and that
Speaker 8: means the dollar can weaken. That's the sort of story
Speaker 8: that we have that helps us get that one twenty
Speaker 8: by year end.
Speaker 2: I mean, it's a narrative, you know, I mean, I mean,
Speaker 2: you know, I don't know if he's going to be
Speaker 2: right or wrong, but I would suggest Paul, very few
Speaker 2: people are guessing now stocks higher within the sixteen hundred
Speaker 2: Pennsylvania Avenue news flow.
Speaker 5: Yeah, exactly, it's a lot of noise out there. Jordan.
Speaker 5: We saw Germany's several months ago really step up their
Speaker 5: commitment to spending more on their infrastructure on their defense.
Speaker 5: Can the rest of Europe do that as well? Or
Speaker 5: is that just a flash in the pan.
Speaker 6: I wish they could, but the answers no.
Speaker 8: I mean, look at France, they really struggled to pass
Speaker 8: a budget just last year, they had to hold an
Speaker 8: election over it and everything, so they're fisically constrained running
Speaker 8: up against the buffers. Italy has been much more well behaved,
Speaker 8: but it also would be running up against the buffers
Speaker 8: of the rules, even though the rules have been suspended.
Speaker 8: There's only so much the market will will take before
Speaker 8: punishing them as well in their bond market. And then
Speaker 8: the same for the UK, where the Chancellor is really
Speaker 8: struggling to tinker around with spending and tax pledges that
Speaker 8: she's made without breaking her own fiscal rules, and we
Speaker 8: actually could see a bit more spending on the government
Speaker 8: side in the UK, but higher taxes at the next
Speaker 8: October budget. So it really boils down to can the
Speaker 8: EU get around this by doing joint tissue, and I
Speaker 8: think that's what we might see. There's a big summit
Speaker 8: coming up in June. We've got a few dates in
Speaker 8: June at the G seven middle of June, fifteenth to
Speaker 8: the seventeenth, there's a NATO summit, and there's an EU
Speaker 8: Defense summit towards the end of June. If we get
Speaker 8: one of those leading to joint issuance becoming a story
Speaker 8: that could help the Europeans out of this because that
Speaker 8: would be triple A rated. It wouldn't have any of
Speaker 8: the problems of France and Italy involved.
Speaker 2: Out six months even to the end of the year.
Speaker 2: What is the Jordan in Rochester big figure currency pair
Speaker 2: where Lisa Matteo may profit.
Speaker 8: I think essentially your holidays to Europe will get a
Speaker 8: bit more expensive.
Speaker 6: Tom. The one twenty call we've made on euro is
Speaker 6: the key one.
Speaker 8: The one thirty eight on Dolly n Sterling is where
Speaker 8: it all but less benign with actually our target now.
Speaker 8: So I think there's if I was biased to sell something,
Speaker 8: it would be starling.
Speaker 2: Because as euro came at one sixteen, you're going to
Speaker 2: one twenty, a little bit above the historic set. Fine,
Speaker 2: at what level euro do we begin to say the
Speaker 2: export angst for Europe? Is it at one twenty or
Speaker 2: is it a higher unimaginable number.
Speaker 8: No, As we get to that level, that's going to
Speaker 8: be where people start to talk about that we've already
Speaker 8: got export We've already got export angs with the tariffs.
Speaker 8: At the moment, the data looks fine because everybody's front running.
Speaker 8: If you're in Chicago, if you're in Philadelphia, you're importing
Speaker 8: as many cars as you can before those tariffs came
Speaker 8: in at the higher levels. When we get to July,
Speaker 8: that's when the reciprocal tariffs kick in, and that's when
Speaker 8: we might see the data starts to slow down. So
Speaker 8: I am worried over the summer that a lot of
Speaker 8: this good news in the data leads to a more
Speaker 8: doubsh GCB over the summer. But then in Q four
Speaker 8: we'll see the issuance in Germany really pick up and
Speaker 8: we'll talk about that higher level for Europe.
Speaker 2: What a clinic, John Ranch, to thank you so much, greatly,
Speaker 2: greatly appreciated with miszoom folding in the research there from
Speaker 2: mister Rashudo and Doctor Constant as well.
Speaker 1: This is the Bloomberg Surveillance Podcast. Listen live each weekday
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Speaker 2: Jennifer Jennsen, It's thrilled to have you with us. You've
Speaker 2: got Stockton, Detroit, in Puerto Rico, cred Are you going
Speaker 2: to be adding to those names? Harvard, Penn, Brown and
Speaker 2: the rest? Is it really that bad for the rich
Speaker 2: and mine at the private schools?
Speaker 7: It is not, I'm happy to inform you.
Speaker 3: Luckily, it's radio.
Speaker 2: You got to talk more than that. It's early in
Speaker 2: the morning, you gotta talk more than that.
Speaker 7: So no, the good news is no. And here's why
Speaker 7: we think that the market for the private higher education
Speaker 7: universe is bifurcated. You have your really strong institutions Harvard, Yale, Stanford,
Speaker 7: those guys, and then you have these small liberal arts
Speaker 7: private schools that are maybe not in your city centers.
Speaker 7: So we see a very bifurcated market. You have your
Speaker 7: really really healthy balance sheet schools, and then you have
Speaker 7: the small all are liberal arts schools that are really
Speaker 7: challenged by the demographics that are out there. Fewer kids
Speaker 7: are graduating from high school every year, fewer kids going
Speaker 7: to college. How do you recruit them. The policies that
Speaker 7: are coming out of DC, whether you're talking about federal aid,
Speaker 7: whether you're talking about tax exemption, these are all targeted
Speaker 7: at the high end, a really healthy part of the market.
Speaker 7: So is this going to hurt the Harvards of the world. Sure,
Speaker 7: it's going to be less money to them. They're going
Speaker 7: to have less research programs going on. They might see
Speaker 7: some different student mix if international students are truly eliminated
Speaker 7: from their classes. But at the end of the day,
Speaker 7: they've got strong balance sheets, incredible reputations. We're not going
Speaker 7: to see even significant downgrades of these institutions, let alone
Speaker 7: worrying about anything like a DeVault.
Speaker 5: Jennifer, I think for your municipal bond market, the issue
Speaker 5: front and center is the basis for your market, is
Speaker 5: the tax deductibility of municipal bond interest payments. Is that
Speaker 5: at risk here with some of the legislation. Sure.
Speaker 7: So the thing that we have to keep in mind
Speaker 7: is that the question over tax exemption comes up every administration.
Speaker 7: Every time there's a new administration, this topic comes up. Now, Admittedly,
Speaker 7: the conversation is far more robust this time around because
Speaker 7: it's being you or being talked about is being used
Speaker 7: as a way to help pay for the tax TCJA
Speaker 7: tax exceptions. Now, the good news is that there's been
Speaker 7: a huge lobbying effort amongst everybody in the municipal bond
Speaker 7: industry reminding Congress that municipal bonds are the key tool
Speaker 7: that we use to build infrastructure in this country. That's
Speaker 7: how we do it here. The federal government does not
Speaker 7: pay for infrastructure, so municipal bonds are a key component
Speaker 7: of that. Now, who pays the debt service on municipal
Speaker 7: bonds taxpayers. So if you take the tax exemption away,
Speaker 7: it's going to raise borrowing costs for all municipalities and
Speaker 7: increase what taxpayers have to pay to support that debt service.
Speaker 2: If someone in a double triple tex extra state, look
Speaker 2: outside outside of state municipal bunds right now.
Speaker 7: So you definitely can do that, and we I mean,
Speaker 7: we run national funds, so anybody invested in a national fund,
Speaker 7: but of course have exposure throughout the country.
Speaker 2: New York and California. You got to go fourporal tech free.
Speaker 7: Right, Yeah, and you're going to do that because just
Speaker 7: the taxes are so high here that for you to
Speaker 7: have a tax yeah hamp for California, so I could
Speaker 7: feel that too. So to have that in your portfolio
Speaker 7: is definitely going to make sense. But there are definitely
Speaker 7: other states out there where you just don't have the
Speaker 7: ability to have as much municipal debt as you're lucky
Speaker 7: to be able to get in New York, Massachusetts, New Jersey, California.
Speaker 2: Were musciple supply.
Speaker 3: I know, we're so lucky with the high taxes.
Speaker 5: Tons of municipal bonds came into the market in twenty
Speaker 5: two or four. I think it's like a record year
Speaker 5: when rates are hired. That's what I learned, miss bond
Speaker 5: market issue is issue when they need the money, not
Speaker 5: when rates are low.
Speaker 7: Exactly. It goes back to supply.
Speaker 3: Look like this year yeah, so believe.
Speaker 7: It or not, we actually think supply is going to
Speaker 7: top last year's numbers. We're seeing that so far. This year,
Speaker 7: and this is the time of the year where we
Speaker 7: usually start to see supply numbers slow down a little bit.
Speaker 7: You know, the summer comes on. Typically people stop issuing, dead,
Speaker 7: people are on vacation, that whole thing. That is not
Speaker 7: the case. We're still seeing ten plus billion dollar weeks
Speaker 7: of issuance. We're seeing bonds get done well as well,
Speaker 7: I mean oversubscribed, and the market's taking them well.
Speaker 2: You so we're thrilled to have you here. What's the
Speaker 2: number one mistake people make when investing in UNI bonds.
Speaker 7: Not investing in meuning bonds. I think people think that
Speaker 7: municipal bonds are for old retired people, and that's absolutely
Speaker 7: not and that's absolutely not the case. And there's other
Speaker 7: things than the tax exemption that municipal bonds can bring
Speaker 7: your portfolio well, strong fundamentals.
Speaker 3: And historically low default rates.
Speaker 7: So one of the big comparisons we like to use
Speaker 7: right now when we talk about why muni's now is
Speaker 7: hering it to corporate bonds. We have a lot of
Speaker 7: people still in cash who probably should get out of
Speaker 7: that cash and get it invested. You come into the
Speaker 7: MUNI market on a taxable equivalent equivalent yield. You can
Speaker 7: still make hundreds of basis points over a corporate bond
Speaker 7: with a significantly safer fundamental picture and with historically lower
Speaker 7: default rates, so you can without having to take too
Speaker 7: much risk. You can add, well, yes, I'm there, Jennifer.
Speaker 2: Thank you so much, Jennifer Johnson, whether she is with
Speaker 2: Franklin Templeton.
Speaker 1: This is the Bloomberg Surveillance Podcast. Listen live each weekday
Speaker 1: starting at seven am Eastern on Apple, Cocklay and Android
Speaker 1: Auto with the Bloomberg Business up. You can also watch
Speaker 1: us live every weekday on YouTube and always on the
Speaker 1: Bloomberg terminal.
Speaker 2: And she's been up to three am working on this.
Speaker 2: She's in a full tilt newspaper season. Here Lisa Mantao
Speaker 2: with a wide view of twenty newspapers. So what do
Speaker 2: you got this morning?
Speaker 9: Okay, this one's in the wall st Journal. So Jeopardy
Speaker 9: is starting this new dream job for men. It's called
Speaker 9: a stay at home son. Okay, it's the champion there.
Speaker 9: It's Brendon Leao. He's twenty seven, has a master's degree
Speaker 9: right political science. He was studying for the ELSATS, got
Speaker 9: the call for the show. He went on. He won
Speaker 9: nearly sixty thousand dollars in three contests. He's unemployed. He
Speaker 9: lives in moms and Dad's house. You know, he's twenty seven,
Speaker 9: but he doesn't live in the basement playing video games.
Speaker 7: No, he's still looking for a job.
Speaker 9: But what it did is that, you know, they introduce
Speaker 9: him as that, you know, here's this stay at home son,
Speaker 9: and it sparked this talk on social media that people
Speaker 9: are saying, hey, I want to be one of those
Speaker 9: I want to do that. So it went from this
Speaker 9: like negative turn right to a positive turn because of
Speaker 9: the labor market right.
Speaker 2: Here, yeash debate and what I've learned, it's ginormous in Europe.
Speaker 5: It's way huge in Italy.
Speaker 9: Yeah, so they stay at home longer, Yeah, forever, sahole.
Speaker 9: It's like it's a cultural know in Latino community. Like me,
Speaker 9: I like my kids to like stay home as long
Speaker 9: as you can and say you know that, yes, I do.
Speaker 5: I know.
Speaker 2: Clock in the living room, folks, we've got a countdown
Speaker 2: clock right now. You've got to guitars ready to move
Speaker 2: in there me seven days out or one hundred and
Speaker 2: twelve days out, I don't know whatever, but it is.
Speaker 7: So he's warking this new trend.
Speaker 9: Okay, okay, so those who can't find a job to
Speaker 9: those who have won some good news for New York
Speaker 9: City possibly have Today, former New York Company Andrew Cuomo
Speaker 9: running for mayor. He's going to announce a plan to
Speaker 9: raise the city's minimum wage to twenty dollars an hour
Speaker 9: by twenty twenty seven, and that would put it among
Speaker 9: the highest in the nation. He's also suggesting, because you're saying,
Speaker 9: what about the businesses, to create this tax credit for
Speaker 9: small businesses to help them adjust to the higher wage.
Speaker 9: But he's appearing at a rally today, He's going to
Speaker 9: be there with several unions that were backing in.
Speaker 2: It was like, well, I think you're better tune on this.
Speaker 2: I am because of all the work out in New
Speaker 2: Jersey of the big box people. Is the is the
Speaker 2: wage setter for minimum wage? Amazon?
Speaker 5: I think so, And I think it's I don't think
Speaker 5: it's the government. I kind of jokingly always say it's not.
Speaker 5: I don't care what the government says in minimum wages
Speaker 5: is whatever Amazon's paying in the work and most of America,
Speaker 5: that just feels to me like you got to compete
Speaker 5: against that.
Speaker 2: It's like seventeen is right, Yeah, I think so.
Speaker 5: I mean here in the state, Governor Kathy Hochel in
Speaker 5: New York raised the minimum wages is sixteen dollars and
Speaker 5: fifty cents an hour in New York City, so.
Speaker 9: I think DC has the highest minium wage, like seventeen fifty.
Speaker 5: Okay, So it's getting and again I think it's that's
Speaker 5: the Nember we've heard from Amazon.
Speaker 2: Two or three years ago. So okay, okay, today is
Speaker 2: a day.
Speaker 9: It's when New Yorkers they gather in the streets around sunset,
Speaker 9: they take out their phones and there and their cameras
Speaker 9: and they take a picture of the best sunset ever.
Speaker 3: It's Manhattan headge.
Speaker 9: Okay, but the first night, yes, it is tonight. But
Speaker 9: the problem is, look at the outside. I know the
Speaker 9: clouds are coming in and it's going to be cloudy.
Speaker 9: It's supposed to be a full effect at eight thirteen pm.
Speaker 9: So if you see people huddled outside of the Mill Street,
Speaker 9: you know what it is. But if you can't see
Speaker 9: it today, there's another chance tomorrow. But tomorrow is going
Speaker 9: to be cloudy too.
Speaker 5: It's the wettest spring everything. Yes, but if you stand
Speaker 5: on and for people don't live in New York City.
Speaker 5: You stand in any cross street. Correct, We're here at
Speaker 5: fifty eighth Street. Just walk out on fifty eighth street.
Speaker 5: Don't get run over. Look West, you can in theory
Speaker 5: have this phenomenal sunset. Now.
Speaker 2: I'll tell you.
Speaker 5: We got a great sun rise this morning driving in
Speaker 5: oh Okay. It was actually a little bit clear on
Speaker 5: the eastern horizon, so it was a great sunrise over
Speaker 5: the Atlantic Ocean.
Speaker 9: But the sunset, I don't know if the sunset's good.
Speaker 9: If you can't do it again, there's another chance you
Speaker 9: have July eleventh and July twelfth, it's going to happen again.
Speaker 9: And that's kind of the summertime, less chance of a
Speaker 9: chance for Yeah, that's to be out there.
Speaker 3: But it's a huge thing in New York City.
Speaker 2: Very good, Lisa, I thank you. I did not really yep. Okay,
Speaker 2: thank you, Lisa Totao there with the newspapers.
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