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Speaker 2: Good amount of time. Bob Michael will join us. You
Speaker 2: know him from the Fed decides driving all of JP
Speaker 2: morgan fixed income. Huge advice he has to give to
Speaker 2: mister Diamond and the senior management. I'd go back to
Speaker 2: Maynard Keynes at Bretton Woods, but why not. Let's go
Speaker 2: back to the guy that really said it, Paul Samuelson,
Speaker 2: his iconic textbook of nineteen forty eight. When the facts change,
Speaker 2: I change. What do you do, sir? For Bob Michael
Speaker 2: and JP Morgan Have the facts changed?
Speaker 3: Well, first, Tom, thank you for reminding Jess forget about
Speaker 3: this equity stuff. Bonds are at the top of the
Speaker 3: Capitol staff.
Speaker 2: This is really important, folks. Bob and I are going
Speaker 2: to talk about this. The way you learn that bonds
Speaker 2: matter when you're a mouthy equity guy like me is
Speaker 2: you lose money and realize you wouldn't have lost it
Speaker 2: if you paid attention to bonds continue.
Speaker 3: We welcome everyone who wants to conserve capital.
Speaker 2: Where are we right now? The facts change, mister Michael.
Speaker 3: I'm going to up you one on Maynard Keynes and
Speaker 3: go with rogue off Ryan Hart. I wonder what they're thinking.
Speaker 3: After spending years writing a series of papers on financial
Speaker 3: repression and warning governments about the problems with excessive borrowing
Speaker 3: and debt to GDP climbing, it has all changed. What
Speaker 3: we knew as core Europe and fiscal austerity is gone.
Speaker 3: They've looked at the US and China. They want to
Speaker 3: join the party and they're coming in and doing it. So, yes,
Speaker 3: everything has changed.
Speaker 2: Two days after this, I had the honor of David
Speaker 2: Folkertzlande of Deutsche Bank, who you and I know is
Speaker 2: work with Peter Garber in AWE, and he was heated
Speaker 2: that Europe would shift to fiscal liquidity. So I guess
Speaker 2: that's happening now. Within all the research capabilities of your
Speaker 2: mind platform and your economics platform, is your confidence Europe
Speaker 2: can make the shift with or without NATO.
Speaker 3: We would argue they have to. If you look back
Speaker 3: over the last couple decades, Europe has underinvested in itself,
Speaker 3: and that's a result of decades of fiscal austerity. And
Speaker 3: they realize, certainly in Germany, that they have to catch up.
Speaker 3: They have to invest in their military, they have to
Speaker 3: invest in fiber optic, they have to invest in roads, bridges,
Speaker 3: all that kind of stuff, and they're going to and
Speaker 3: they have the fiscal capacity to do it.
Speaker 4: So when we're looking at the ten year treasury peaking
Speaker 4: at around actually four point eight in the middle of January,
Speaker 4: to where it is now around four to two, what
Speaker 4: do you think the bond market is telling us in
Speaker 4: the US and the economy.
Speaker 3: The bond market is telling us, we are your safe harbor.
Speaker 3: We are the anchor in the storm. We have yield now,
Speaker 3: so when there's volatility in policy, when there's volatility and
Speaker 3: risk assets, come in and join us. We will protect you.
Speaker 4: So what is the best way when you're talking to
Speaker 4: your clients to position at this point.
Speaker 3: I'm having meetings with clients every single day. I had
Speaker 3: a meeting yesterday with the University Endowment thinking about these issues,
Speaker 3: and we met with them five years ago. Five years ago,
Speaker 3: the aggregate bond market was yielding two two and a
Speaker 3: quarter percent today it's hielding four and a half percent.
Speaker 3: They didn't invest in, they're coming and now they're making
Speaker 3: smart decisions. Investors want to get into a bond market
Speaker 3: with yield you're starting at four and a half percent,
Speaker 3: can construct a portfolio of over five percent. That's very
Speaker 3: different than zero and negative interest rate policy.
Speaker 2: I look at the yield space and the answer is
Speaker 2: we've got a Bob Michael vector. You have called for
Speaker 2: price up, yield down. Maybe this is not the reasons
Speaker 2: that you looked for, but can you get this price up,
Speaker 2: yield down with tangible economic growth to sustain the machine?
Speaker 2: Dovetail this with Michael Feroli's work. Are we heading towards
Speaker 2: some form of Nber recession where we don't get the
Speaker 2: growth or are you're more optimistic that we can get
Speaker 2: the Michael yield plus some potential GDP growth.
Speaker 3: I think the Fed has done a really good job
Speaker 3: of taking us into a soft landing. I think they're
Speaker 3: going to pull it off. I think we're going to
Speaker 3: get yields to stabilize here, maybe the front end come
Speaker 3: down a little bit. The FET still feels uncomfortable that
Speaker 3: they're too far away from their neutral rate. I think
Speaker 3: there are a couple more cuts coming. I'd like yields
Speaker 3: to just stabilize. And here I don't actually want the
Speaker 3: ten year to tray too far below the mid forest.
Speaker 3: I wish it would just stay there. I wish the
Speaker 3: two year would stay about four percent and give investors
Speaker 3: the opportunity to get into this bond market.
Speaker 2: You and I know, you know with the Pope so Ill,
Speaker 2: there's the Vatican and we hope for his healthy recovery.
Speaker 2: Bob Michael for you and me, the Vaticans on Madison Avenue,
Speaker 2: who at the JP Morgan Library, and you go in
Speaker 2: that red velure room where he locked the door and said,
Speaker 2: we have to save the country. We didn't have a
Speaker 2: FED in the Gilded Age. Doug Erwin's in the Ft,
Speaker 2: I believe it is today with a brilliant interview of
Speaker 2: Dartmouth saying, look, it is the nineteenth century. Abby Joseph
Speaker 2: Cohen said yesterday it is the nineteenth century. How does
Speaker 2: this FED help the nation? Given tariffs?
Speaker 3: The FED has to balance all of these things. And
Speaker 3: I think a month ago everyone and the market looked
Speaker 3: at tariffs as an impulse to hire inflation. Today they're
Speaker 3: looking at it as a drag on growth the material one.
Speaker 3: I tend to look at tarifs as economy killers. So yeah,
Speaker 3: you get a price shock hire, but that's going to
Speaker 3: dial down aggregate final demand. And that's what I think
Speaker 3: the FED will be focusing on. They're going to be
Speaker 3: laser focused on the labor market. They're going to see
Speaker 3: if businesses and households retrench.
Speaker 2: I agree with you in the labor market, kerl Weinberg
Speaker 2: on yesterday high Frequency Economics solficer Leman is at a
Speaker 2: four point eight percent unemployment rate in the vicinity of
Speaker 2: labor day. We welcome all of you on your commute
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Speaker 2: each and every day.
Speaker 4: Jess Well, Bob, this is as you know last week,
Speaker 4: we're going to hear FED speakers before they go into
Speaker 4: that blackout period before the decision in the middle of
Speaker 4: this month, and of course we will hear from Fedshaer
Speaker 4: Jerome Pale on Friday when he gives a keynote speech
Speaker 4: at the Chicago Boost twenty twenty five US Monetary Forum.
Speaker 4: So what do you think markets want to hear from
Speaker 4: Fed officials before this week wraps up? Versus in reality,
Speaker 4: what we will end up hearing from them.
Speaker 3: I think what we want to hear is how they're
Speaker 3: weighing taris and are they still looking for an opportunity
Speaker 3: to bring rates down to what they believe is a
Speaker 3: neutral rate. We'll also get the infamous dot plot, so
Speaker 3: we'll have some idea of how much higher the long
Speaker 3: term neutral FED funds rate will have crept up. I
Speaker 3: think it goes up about a quarter of a percent.
Speaker 3: I'd expect jpwell to be very very balanced and basically
Speaker 3: try to take a pass.
Speaker 2: It's almost medical. First, do no harm. Tell me about
Speaker 2: the dynamics of the market. I noticed like three months,
Speaker 2: seven year when inverted the other day. Nothing I ever
Speaker 2: look at. But how does when you go? Bob has
Speaker 2: three bloombergs with twelve screens. Finally, the glow in the
Speaker 2: new JP Morgan building, it shines off Citadel across the street.
Speaker 2: It's amazing how that were They're on their binoculars across
Speaker 2: what's Bob Michael doing today. They're looking at them on
Speaker 2: your Bloomberg. How do you perceive the vanilla two tens spread,
Speaker 2: the ten year or the two year real yield? What
Speaker 2: does Bob Michael look at to ascertain this market?
Speaker 3: What I'm looking at is is yield settling in at
Speaker 3: levels higher than I believed a year ago they would
Speaker 3: settle in at. And I like it. I like the
Speaker 3: fact that we may have a German yell curve from
Speaker 3: two percent to three percent, we may have a US
Speaker 3: yell curve from four percent to four and a half
Speaker 3: percent two tens. I like credit spreads holding where they
Speaker 3: are because they're pricing in a soft landing. Those are
Speaker 3: the things I look for, and I think it's a
Speaker 3: great environment. By the way, we didn't talk about Japan
Speaker 3: ten year Japan one and a half amazing.
Speaker 2: Jordan Rochester at Missoulu. You should have hired him. Jordan
Speaker 2: Rochester says, this is a sea change for Japan.
Speaker 3: I can't can't remember the last time we were one
Speaker 3: and a half percent.
Speaker 2: Martin years, the late Martin Feldstein who was exquisite on this,
Speaker 2: Robbie Feldman at Morgan Stanley, that's a different bank, Bob
Speaker 2: uh They you know they said this would never happen,
Speaker 2: and here we are. Here, we are happening. You're laughing
Speaker 2: at me, Bob, Bob.
Speaker 3: I think I think we were one before glass, but
Speaker 3: I'm not sure.
Speaker 2: It was a d burgercepthing that we won't go there,
Speaker 2: folks and said, when mister Diamond comes in, we'll harass
Speaker 2: him about it. Bob. I look at this market and
Speaker 2: your advising clients right now. Is it a total return market?
Speaker 2: The great Dan fuss at Lumas sales. Is it that
Speaker 2: kind of market where you can make total return or
Speaker 2: you're clipping coupons in the basement.
Speaker 3: I think you're going to get some total return with
Speaker 3: yield settling a bit lower with the FED coming in
Speaker 3: and cutting rates a couple more times this year. But
Speaker 3: I think it's mostly a Carrie market. I think it's
Speaker 3: mostly an opportunity for active managers to do what we
Speaker 3: used to do pre financial crisis. When sectors get a
Speaker 3: little bit ahead of themselves, you dial them down and
Speaker 3: go into sectors that live. I think this is also
Speaker 3: a bond market for more diversified portfolios to look overseas.
Speaker 3: Now it's safe to go into nine dollars assets.
Speaker 2: Just this is so charming. There was what we call
Speaker 2: the blue Book, which was a standard and Poores thick
Speaker 2: blue book and the value line you trip over on
Speaker 2: the floor and Bob and I would be going, oh
Speaker 2: the Boise cascade. It looks so good today. It's like
Speaker 2: you know, remember it's like a real bond market.
Speaker 5: Yeah.
Speaker 3: Then we didn't know how to price it. There was
Speaker 3: no babk. We had to punch it into our Monro
Speaker 3: bond calculators.
Speaker 2: Yeah. Bill grow still has his own this Good morning Bill.
Speaker 2: Out on the left coast, you had a Monro trader
Speaker 2: and he and Charlie Gogelact were kick field goals. They
Speaker 2: tried to make three points on a twenty year piece
Speaker 2: and a guy named Secunda in Bloomberg showed up and
Speaker 2: they said, no, you're not in overnight. Just the museum's
Speaker 2: right behind us here, folks. Overnight, the Bob Michael act
Speaker 2: went away because people can do to convex the duration.
Speaker 2: Boom boom, Oh God, I can't charge your field goal.
Speaker 2: Get another question.
Speaker 4: Of course, I have to bring up our star everyone's
Speaker 4: favorite topic when people want to debate about the neutral rate.
Speaker 4: Because you were bringing up the dop blots. Obviously we
Speaker 4: get those quarterly. We last saw it in December, so
Speaker 4: when we get those in a couple of weeks from
Speaker 4: the Fed. The longer term rate that they had updated
Speaker 4: was at three used to be closer in recent years
Speaker 4: to two and a half percent. Where do you expect
Speaker 4: when people are debating where the neutral rate is actually is?
Speaker 3: Remember they started doing this in twenty twelve because they
Speaker 3: had gone to QE. They had brought rates down this zero.
Speaker 3: They didn't think we in the bond market were smart
Speaker 3: enough to know what neutral was anymore, so they were
Speaker 3: going to help us out. That first long term neutral
Speaker 3: dot was four and a quarter percent, so that was textbook.
Speaker 3: That's two percent inflation targeting, plus the long term real
Speaker 3: yield on the FED funds rate was two and a
Speaker 3: quarter percent. Four and a quarter that's where we are today.
Speaker 3: I think it's closer to four than three twenty seconds.
Speaker 2: Is it stagflation or is it legit damp and but
Speaker 2: good nominal GDP?
Speaker 3: I think it's good nominal GDP. I think we're getting
Speaker 3: the bad stuff now as far away from the midterms
Speaker 3: as possible. The good stuff will come at the back
Speaker 3: end of this year. Extension of the tax cutting Jobs
Speaker 3: Acts some deregulation closer to the midterms, if you will.
Speaker 2: I'll editorialize, folks, for those of you in a panic
Speaker 2: after what we saw it in historic Tuesday. I agree
Speaker 2: with mister Michael, Bob Michael, thank you so much, with JP.
Speaker 6: Morgan and the spirits a nation here and on what
Speaker 6: we see in a constructive nominal GDP, given all the
Speaker 6: policy out there.
Speaker 1: Listening to the Bloomberg Surveillance Podcast. Catch us live weekday
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Speaker 2: Joly Now My Grammarian Terence Hayes joins us with Beengaea policy. Terry,
Speaker 2: thank you for the love note yesterday. Mark, the wonderful
Speaker 2: Mark Crumpton keeps a list of the names I mispronounce,
Speaker 2: starting with Jess Manton, and it's a long list. Terry,
Speaker 2: thank you for adding to it yesterday. So eighty five
Speaker 2: percent of potassium chloride that Republicans in the Midwest need
Speaker 2: comes from Canada. You got fenestra in the fourth Congressional
Speaker 2: District of Iowa. When does the Republican from Southwest Iowa,
Speaker 2: dial one eight hundred Trump and say stop it. When
Speaker 2: does that happen?
Speaker 7: Terry the case of Brandy Finstra, I don't think that
Speaker 7: happens at all, frankly. But the issue here is kind
Speaker 7: of how to manage the tariff relationship and what what
Speaker 7: the United States gets out of it?
Speaker 8: Uh.
Speaker 7: Scott Besson has a great uh, a great phrase for this,
Speaker 7: and the you know the essence of it is that, uh,
Speaker 7: it's path dependent. It's path dependent on upon what the
Speaker 7: other side does in tariff negotiations. So uh, I doubt
Speaker 7: mister Fienstra is going to be in a situation where
Speaker 7: he needs more potash from other So you're.
Speaker 2: Optimistic where you able to work out of this or
Speaker 2: do we get into the game theory of reciprocity tip
Speaker 2: for tap Well.
Speaker 7: I think the answer is both. Frankly, you're going to
Speaker 7: have individual tariff negotiations with Canada and Mexico ongoing based
Speaker 7: on geopolitical matters. You're going to get the UH, You're
Speaker 7: going to get the reciprocity overlay on top of it.
Speaker 7: I think what markets aren't fully digesting is that the
Speaker 7: endgame of this is not more and more tariffs. The
Speaker 7: endgame of this for the for the Trump people is
Speaker 7: less and less tariffs. And I don't say that in
Speaker 7: any sort of matter or manner, but the goal is
Speaker 7: to actually reduce trade barriers.
Speaker 2: So let me bring in jes Met here, Jess to
Speaker 2: Terry Haines. Don't say I'll.
Speaker 3: Avoid of that.
Speaker 4: Terry is something I'm thinking about heading into next week
Speaker 4: because those implied volatility is picking up steam for the
Speaker 4: equity market here. So, as you know, we still have
Speaker 4: that deadline for a government shutdown coming on March fourteenth,
Speaker 4: but then also on March twelfth, even ahead of that,
Speaker 4: there's still is supposed to be those tariffs on all
Speaker 4: aluminum products, And so what do you think that really
Speaker 4: means is we're getting closer to those deadlines as well
Speaker 4: as other ones that are supposed to happen in the
Speaker 4: beginning of April.
Speaker 7: I think there's still going to be some tariffs on aluminum.
Speaker 7: They're going to want to show Trump's going to want
Speaker 7: to show bona fides on that, and I think there's
Speaker 7: a rising potential for a government shutdown. You see Democrats
Speaker 7: last night grasp you get anything they can to show
Speaker 7: resistance to show differences and the shutdowns, because what they're
Speaker 7: about at root is more spending. What Trump's about it
Speaker 7: root is less spending. You know, and you know there
Speaker 7: are three parties in the negotiation Congressional Democrats, Republicans, and Trump.
Speaker 7: Two of those three benefit politically from a shutdown, frankly,
Speaker 7: Democrats and Trump. So you know, there might be one
Speaker 7: short term that never matters for markets particularly, but stylistically
Speaker 7: it's a bad look.
Speaker 2: How do you respond, Terry Haynes to where is John Thune? Well,
Speaker 2: people say, Okay, the House is fracticed, everybody's running for
Speaker 2: office starting Friday. Great, the Senate is more measured. Where
Speaker 2: is the senator from the Dakotas John Thune?
Speaker 7: I think has done a very good job of keeping
Speaker 7: everybody together number one in his party. Number two, he's
Speaker 7: doing a very good job of quietly establishing the Senate
Speaker 7: as an effective counter to Trump. You have to look
Speaker 7: no farther than defense spending to get that. At a
Speaker 7: time where markets think that defense spending is going down
Speaker 7: because of some cost savings that Pete Hegsas wants to do,
Speaker 7: the reality is that there's kind of a dream team
Speaker 7: of senators that are going to pump up defense spending
Speaker 7: in no small part to react to China's announcement that
Speaker 7: it's going to increase by seven plus percent.
Speaker 2: I mean, I look Terry at Ruster. Scharmer's book arguably
Speaker 2: could be my book of the year. I'm not there yet,
Speaker 2: folks on capitalism, and basically he says, whatever the process,
Speaker 2: spending will go up. After the speech last night, after
Speaker 2: what we've witnessed deep into the Trump second term, do
Speaker 2: you see any frugality out there. I don't observe it.
Speaker 7: No, there's no frugality out there. And the reason why
Speaker 7: is because they judge. I mean, to them, this is
Speaker 7: not economic policy only. This is not an economic crisis
Speaker 7: or problem only. What this is all about is marshaling
Speaker 7: and improving the US economy as much as possible, turbocharging
Speaker 7: it to meet geopolitical goals. Everything's arts from debt service.
Speaker 7: We now pay more in debt service than anything else.
Speaker 7: That is an intolerable situation if you're interested in United
Speaker 7: States hegemony, as Trump is, and what they're going to
Speaker 7: want to do is turbo charge the economy, frankly to
Speaker 7: meet those geopolitical needs. That's one reason why you heard
Speaker 7: so much about manufacturing for defense. Last night shift building, steelmaking,
Speaker 7: all that.
Speaker 2: Oh, that's the politics of the moment, Terry Haynes with us,
Speaker 2: and we're going to continue in a moment. A bit
Speaker 2: ago seven oh two am a headline the United States
Speaker 2: cuts off intelligence sharing with Ukraine. That from the Financial Times,
Speaker 2: and now a headline coming out a Ukrainian official says
Speaker 2: the nations still getting US intelligence. We'll see what the
Speaker 2: next headline says jes Terry.
Speaker 4: Of course, there's so much focus on those pro growth
Speaker 4: expectations potentially from tax cuts and deregulation. What is exactly
Speaker 4: the timeline of when investors as well as Americans could
Speaker 4: potentially see some of that happen through Krongers.
Speaker 7: Well, this is the problem. Just is that in a nutshell,
Speaker 7: is that Trump this time out is front loading the
Speaker 7: bad news for markets, the tariff's news, with the expectation
Speaker 7: that things are going to improve throughout the year in
Speaker 7: markets as they understand that the tax cuts, deregulation, energy dominance,
Speaker 7: and so on. Is very likely that happens, the tax
Speaker 7: cut bill happens in the fourth quarter of calendar twenty
Speaker 7: twenty five. I'd give it eighty percent today. Eight years ago,
Speaker 7: I was almost alone in the markets and telling people
Speaker 7: that the task cut bill was going to happen and
Speaker 7: it was going to be a big one. But the
Speaker 7: same dynamic exists today. It's going to take them that
Speaker 7: long to get to the finish line for a variety
Speaker 7: of procedural reasons.
Speaker 2: Hey, Terry, I got to get this in from Greg
Speaker 2: Juro and Bloomberg government, and you're expert at this. What
Speaker 2: are Republicans saying to mister Trump, President Trump, who are
Speaker 2: in in close districts. Do they have a say in
Speaker 2: the discussion or are they so marginalized nobody cares.
Speaker 7: Well, they have a huge say in the discussion. And
Speaker 7: you know, I point immediately to the New York and
Speaker 7: New Jersey members to whom Trump has owed a House
Speaker 7: majority on the salt negotiations. Right, So, eight years ago,
Speaker 7: salt didn't matter at all. Salt went away. This time out,
Speaker 7: Trump's listening very closely and positive to those who want
Speaker 7: the salt deduction to come back. They will fundamentally, they'll
Speaker 7: play the smartest politics they can and try to make
Speaker 7: sure they do everything to maintain their majorities. Part of
Speaker 7: that is getting the tax bill done in fourth quarter
Speaker 7: of twenty five, so that they can run on it
Speaker 7: right right, benefits in twenty six thirty seconds.
Speaker 2: Is there an El Domato out there to save the
Speaker 2: middle ground? Gop.
Speaker 7: Yeah, there's a bunch of them, actually, you know, and
Speaker 7: I'd put Thune in there among others. But yeah, there's
Speaker 7: there's a bunch of them. And you know, there are
Speaker 7: lots of good pragmatists French Hills one. So yeah, I
Speaker 7: think there's a bunch out there.
Speaker 5: Terry.
Speaker 2: I email me every time I love emails from Terry.
Speaker 2: Email me Terry, every time I mispronounced something. It'd be great,
Speaker 2: Terry as pangea. Thank you so much. There in the
Speaker 2: state of play.
Speaker 1: This is the Bloomberg Surveillance Podcast. Listen live each weekday
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Speaker 2: Someone who's absolutely nailed this, Bullmark at Brian Belski joins
Speaker 2: from FEMO. Right now, have you adjusted your call? Wow?
Speaker 8: No, I mean, as I stand here next to a
Speaker 8: Red Sox.
Speaker 2: Excuse me, Can we notice Lisa how canned Intersted? He
Speaker 2: is everybody else, you know, it's all about the deep sleep.
Speaker 8: Midnight Tom and I get that hotel room down to
Speaker 8: about sixty degree.
Speaker 2: Where are we right now? Have you made an adjustment?
Speaker 8: No, we haven't. In fact, we're sticking behind our sixty
Speaker 8: seven hundred target. And remember we put our peace out
Speaker 8: for the year ahead November eighteenth. Typically, historically during an
Speaker 8: election year, we do it right away after the election,
Speaker 8: as soon as possible. And a lot of quite frankly,
Speaker 8: strategies that have been late to the game in terms
Speaker 8: of entering this bull market have much higher targets than
Speaker 8: us because they published them after And that's okay, welcome
Speaker 8: to the party. I'll just pull the great Ricky Bobby
Speaker 8: and say, if it ain't first year, last we've been.
Speaker 8: We've been bullish and resolutely bullish since two thousand and nine.
Speaker 8: It's in a record, it's published and all of that.
Speaker 8: But I think what's happening is that this is a
Speaker 8: return to normalcy. Many people don't understand that, but we've
Speaker 8: had several shots across the bow. I think that momentum
Speaker 8: investing is changing into fundamental investment thing I heard Jess
Speaker 8: is a fran I just can't help myself. I just
Speaker 8: had to do that talk about correlations. Correlations short term. Yeah,
Speaker 8: I are certainly doing that, and that's why the hedge
Speaker 8: funds are getting crushed. And that's fantastic news as far
Speaker 8: as I'm concerned, because they're the ones that are causing
Speaker 8: a lot of the noise and they don't invest, they
Speaker 8: trade and they follow everybody else. So if you're an investor,
Speaker 8: you want to be more fundamental, more stock picking, and
Speaker 8: the correlations are actually very low, which means you actually
Speaker 8: want to be a stockpicker.
Speaker 4: Right, So those correlations have actually been hovering around their
Speaker 4: lowest level on record if you look at the c
Speaker 4: Bow indicator over the three month timeframe. So they've spiked
Speaker 4: up close to where the highest they've been in early September,
Speaker 4: so coming off of the heels of the yen carry
Speaker 4: trade unwinding and also the worst week of the year
Speaker 4: in twenty twenty four. So in relations still low compared
Speaker 4: to history, but spiking a bit higher now when things
Speaker 4: were a little bit more volatile at certain points last year.
Speaker 4: So that's sixty seven hundred price target. That's actually implying
Speaker 4: to sixteen percent rise for the end of the year
Speaker 4: based on yesterday's close. So what do you think would
Speaker 4: need to change in the economy in the view for
Speaker 4: corporate earnings for you to adjust your target in any way.
Speaker 8: Well, first off, there's been this rhetoric that earnings have changed.
Speaker 2: They haven't changed.
Speaker 8: In fact, earnings have actually continued to improve over the
Speaker 8: last two or three months.
Speaker 4: And actually twenty twenty six, you still have fourteen percent
Speaker 4: earnings growth for the S and P five.
Speaker 8: Yes, we do, and I think actually just that could
Speaker 8: be too low. And I think why that's too low
Speaker 8: as you have an increasing amount of companies in the
Speaker 8: technology space, discretionary space, communication services space that are taking
Speaker 8: the mantle in terms of leadership away from the meg
Speaker 8: seven in terms of earnings growth, that's number one. Number two.
Speaker 8: I do believe that earnings and financials are consistently and
Speaker 8: way understated, and I think we can get a lot
Speaker 8: of kiss there In terms of the upside.
Speaker 4: What's the risk to your target?
Speaker 2: Risking of the.
Speaker 8: Target quite frankly, is more on the inflationary side. In
Speaker 8: our view, it's been a little bit stickier. I think
Speaker 8: that could be the biggest issue. And I think too
Speaker 8: Tommy and I have been talking about this for years.
Speaker 8: I mean, the whole focus on fed Fun's futures and
Speaker 8: all this kind of stuff. I mean, let's just stop
Speaker 8: focusing on that. Let's just look more at what's happening
Speaker 8: in the underlying parts of the stock market.
Speaker 2: Yeah, I'm looking here. I mean, I mean, all right,
Speaker 2: help me here. Who got buried by the Minnesota Vikings.
Speaker 2: Here we go, Sam Darnold. They just said, see you.
Speaker 2: I mean, they just didn't give him.
Speaker 8: Listen, if you if you look at his eyes right, okay,
Speaker 8: looking to look into his eyes, brother, the last lid.
Speaker 2: If I ever do this, Lisa, if I ever do
Speaker 2: this to you today, h violation.
Speaker 9: This week to see to see the swaks and and
Speaker 9: anyway look into his eyes versus the lions and then
Speaker 9: look into his eyes during the playoff game, he was
Speaker 9: not there.
Speaker 2: Man, was you mentioned? Ricky? Bobby? Are your kids as well? Managed?
Speaker 2: Just Texas Ranger?
Speaker 8: You know, listen, we always Last night, I think my
Speaker 8: daughter had some delicious taco bell. But she also informed
Speaker 8: me this morning in Saint Bonifaceia's, Minnesota, they got five
Speaker 8: inches of snow. They had ten inches of snow in Lakeville, Minnesota.
Speaker 2: Okay, in Duluth they got snow as well. I noticed
Speaker 2: Duluth exports to Canada. There's second word of just exports
Speaker 2: to Algeria. It's iron ore. It's like real people, some
Speaker 2: type of those people. How I mean, you're giving me
Speaker 2: optimism about America and I'm looking at Duluth, Minnesota crushed
Speaker 2: on tariffs. How can you have the two?
Speaker 8: Well, the other thing about Duluth, Minnesota, you know that Duluth,
Speaker 8: Minnesota has the largest Polish cemetery in the world outside
Speaker 8: of Poland. Did you know that? I did not know,
Speaker 8: So you know what, Listen, I think that there's there's
Speaker 8: different things going on in terms of Duluth in Minnesota,
Speaker 8: particular because you have the North in the south which
Speaker 8: are dominated by mining up north and farming in the south,
Speaker 8: which obviously heard the President's address with respect to the farmers.
Speaker 8: But in terms of the North, it's been kind of
Speaker 8: a more of a mixed picture, and there is still
Speaker 8: a lot of obviously back and forth trade between let's
Speaker 8: call it Duluth and Under Bay, Ontario, if you know
Speaker 8: your your geography. But I do think that Minnesota, given
Speaker 8: given the massive amounts of stage GDP that is tied
Speaker 8: to Ontario in particular, this is actually more emotional with
Speaker 8: respect to to Minnesota. But obviously you've heard with respect
Speaker 8: to some of the news, who knows how long these
Speaker 8: tariffs are gonna be?
Speaker 2: You know, that's the key thing. You're Here's the way I.
Speaker 8: Want you to think about this, Tom, This will be
Speaker 8: in your your knowledge. I don't know much about fixed income,
Speaker 8: but in terms of bonds, it's all about duration and convexity, right,
Speaker 8: So let's talk about the duration of terriffs.
Speaker 2: How long they could be gone today.
Speaker 8: I mean, that's the risk.
Speaker 2: Gotta mccundav Yell was just do and said the same
Speaker 2: thing we had from PGM. They're leading quant analyst. He
Speaker 2: said the same thing MIT physics, and I'm sure Ian
Speaker 2: Lingol would say the same thing. Folks the Exexus right now,
Speaker 2: the media doesn't look at the timeline, and Professor Belski
Speaker 2: is correct. It's all about the length and you get
Speaker 2: to optimism like Belski when you believe the timeline is shorter.
Speaker 2: The leader of Mexico, Shane Bauma, is out now. If
Speaker 2: tariffs continue, Comma Mexico will reach out to Canada.
Speaker 4: Well, we've been talking so much about the Midwest, Middle America.
Speaker 2: Do you want to get something in your right idea?
Speaker 2: Do you see Talladega Max? Of course, Okay, you can continue.
Speaker 2: Are you going to say with all respect, no, not
Speaker 2: at all.
Speaker 4: I was going to pick your braid on Obviously, when
Speaker 4: it comes to the page book, I mean, it's never
Speaker 4: really market moving here, but I feel like it's going
Speaker 4: to be more closely watched.
Speaker 5: Now.
Speaker 4: Obviously it's gonna be a little bit more backward looking.
Speaker 4: But when it comes to the different districts and particularly
Speaker 4: in the Midwest or other regions, what kind of sticks
Speaker 4: out to you and what kind of indicators within those
Speaker 4: types of reports do you keep a close eye on.
Speaker 8: You know, we're we're seeing the most economic and population
Speaker 8: growth is clearly those areas that are more state front,
Speaker 8: some more tax friendly, so the Southeast or even Texas
Speaker 8: and Tennessee and some of those areas. So if we're
Speaker 8: going to see weakness in those areas, I think that
Speaker 8: would be a telling on that number one. Number two again,
Speaker 8: macro data I've always had an issue with historically. You know,
Speaker 8: you mentioned m I T PhD. I'm from Saint Claus
Speaker 8: State University. I mean, there's not much difference between that
Speaker 8: quite frankly, but you know, it is what happened yesterday.
Speaker 8: And I think we have to remind ourselves that stock
Speaker 8: stocks lead earnings, which lead the economy. And oh, by
Speaker 8: the way, stocks are leading indicators, and they've kind of
Speaker 8: told us what's happening. And so are we seeing a
Speaker 8: slow down? You ask me earlier what the risk is
Speaker 8: if we slow down too much? Right, and we're throwing
Speaker 8: these tariffs which again duration in convexity, and we still
Speaker 8: have this mixed inflation picture that kind of puts in
Speaker 8: a more of a muddle type market scenario.
Speaker 2: Parse serious question, parse stagflation versus a lesser but still
Speaker 2: buoyant nominal GDP that keeps American business going.
Speaker 8: Yeah, I think the stake inflation argument has become increasingly
Speaker 8: let's call it consensus. I think what's what's happening. Let's
Speaker 8: go back to the normal seat side of things. When
Speaker 8: Tom was at Rascher Pearson, I was at a place
Speaker 8: called Dame Bosworth. We had these periods in the mid
Speaker 8: nineties where we had kind of single digit, low single
Speaker 8: digit GDP five percent, four to ten year treasuries, remember
Speaker 8: that Tommy and ten percent Ernie scrowth. I think that's
Speaker 8: kind of where.
Speaker 2: We're going shot.
Speaker 8: And I think we just don't know what normal is
Speaker 8: because we think that normal is zero percent interest rates
Speaker 8: and all these wild moves in the market.
Speaker 2: In the modern day. You don't know what, folks. But
Speaker 2: Minnesota was a massive and this was off of IDs
Speaker 2: and all a huge financial component and a good morning
Speaker 2: to all up in the northwest of Piper, Jeffrey and
Speaker 2: Dame Bosworth from years ago. It was really something. And
Speaker 2: the Canadians came in and said, these are the smartest
Speaker 2: guys in the block, let's buy them. And that's how
Speaker 2: you get RBC and BEMO Bank of Montreal into it.
Speaker 2: With Brian Belski with his optimism on inequity, marcut's a
Speaker 2: little red on the screen. We've given it back off
Speaker 2: ADP into the jobs report on Friday just meant to
Speaker 2: Brian Belski.
Speaker 4: So the past two years, of course, the boom in
Speaker 4: the markets, adding eighteen trillion dollars to the market cap
Speaker 4: for the S and P five hundred up close to
Speaker 4: fifty percent for the past two years. So the third
Speaker 4: year in the bull market typically you do see those
Speaker 4: games slow down throughout history, but of course you have
Speaker 4: such a strong road. Does this make sense where we're
Speaker 4: at in the calendar, and especially when you think about
Speaker 4: the presidential cycle typically weaker at this point in the
Speaker 4: first quarter post.
Speaker 8: Election hundred percent. You typically in especially February and March
Speaker 8: have weaker seasonality because the platforms are coming out and
Speaker 8: people are reacting to what's happening and actually typically seeing
Speaker 8: things be put to work. Now, clearly in the last
Speaker 8: forty two or forty three days, we haven't seen this
Speaker 8: kind of flurry of activity that President Trump's been doing.
Speaker 8: That at the end of the day, do you kind
Speaker 8: of take two steps back, just and think about what's
Speaker 8: happened in the last couple of years. Twenty twenty four, sorry,
Speaker 8: twenty twenty three was really an overreaction to tech being
Speaker 8: massively oversold. Remember the first two or three weeks you
Speaker 8: were crazy writing about these massive reversion to be in
Speaker 8: tech technology names, and then twenty twenty four was, oh,
Speaker 8: my gosh ai is actually real and we are not
Speaker 8: invested there. So then now you started to see this notion.
Speaker 8: I really believe the broadening out trade is happening I
Speaker 8: really believe it. I really believe it. And you've seen
Speaker 8: how value is massively outperformed. Some of that is the
Speaker 8: defensive trade into healthcare. We don't think that's we think
Speaker 8: that's less fundamental and more about momentum into defense. But
Speaker 8: we think ultimately value true value stocks, small MidCap. I
Speaker 8: think ten years from now, town, we're going to be
Speaker 8: looking back, how come we didn't buy more small MidCap.
Speaker 2: I look at this in the heart of the matter, Brian,
Speaker 2: and we've all lived. This is a really down market.
Speaker 2: It's negative thirty five percent. Yeah, a bear market. Dow
Speaker 2: Jones Industrial average is negative eighteen percent, and a normal
Speaker 2: healthy correction is ten percent. In the Ute of America,
Speaker 2: they've never experienced it. They were done six percent, blended,
Speaker 2: and it's like people are in a panic, like I
Speaker 2: don't get it.
Speaker 8: Well exactly when you think about year to date, we're
Speaker 8: basically flat and we're acting like we're down twenty to
Speaker 8: twenty five percent. And I think that comes to the
Speaker 8: reactive nature investors, which was exacerbated during COVID. I actually
Speaker 8: think all this stuff started. I think all this stuff
Speaker 8: started during the financial crisis, and then obviously that was
Speaker 8: much more near and dear to New York and our
Speaker 8: hearts in terms of the financial world, in terms of
Speaker 8: our jobs and everything. But that really.
Speaker 2: Right, Well, Sharma has this this book likely by book
Speaker 2: of the year, and basically we've become addicted to Let's
Speaker 2: fix It. So everyone's happy. Yeah, that's the heart of
Speaker 2: the matter.
Speaker 8: It is, it really is okay.
Speaker 2: In one final big questionaire, the vikings have blown up
Speaker 2: because Sam, siya, do the Lions look good this year?
Speaker 2: I mean, you know, I mean I think you know
Speaker 2: the lines, the lines that they didn't prove.
Speaker 8: I was rooting for them. I really wanted to see
Speaker 8: the lines and the Bills in the Super Bowls. And
Speaker 8: but you know that now that the Bears have their
Speaker 8: offensive coordinator, that was a huge loss and the Bears
Speaker 8: have a real coach now. Whether or not they have
Speaker 8: the right quarterback there, who knows. But I think the
Speaker 8: NFC north Man is going to be really really competitive again.
Speaker 2: I mean, Caleb to the rescue, right.
Speaker 8: Well, we'll see JJ to the rescue with the biking.
Speaker 2: Let's go. Brian Belski, thank you so much. Capital Markets.
Speaker 1: This is the Bloomberg Surveillance Podcast. Listen live each weekday
Speaker 1: starting at seven am Eastern on Applecarplay and Android Auto
Speaker 1: with the Bloomberg Business app. You can also watch us
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Speaker 1: terminal Right.
Speaker 2: Now, Regina Mayor James Global Ahead of Clients and Markets
Speaker 2: at KPMG, truly expert on the emotion of Texas oil production,
Speaker 2: for that matter, global oil production as well. Regina had
Speaker 2: the the phrase I believe from the President is drill
Speaker 2: baby drill. Does Texas does the Permian? Do they want
Speaker 2: to drill baby drill?
Speaker 5: I think absolutely, It's been a sentiment that has dominated
Speaker 5: the industry for a decade. I think drill baby drill
Speaker 5: emanated from the Permian. I think we have to look
Speaker 5: at what does it really take though to drill baby drill,
Speaker 5: and how quickly you can get the production running. What
Speaker 5: are the economic incentives? I will say, with WTI and
Speaker 5: Brent below seventy where WTI was eighty dollars in mid January,
Speaker 5: that doesn't give you a great economic incentive to drill more.
Speaker 5: And then you have to think about it takes time
Speaker 5: to find, develop, produce the wells. It's not like you
Speaker 5: can turn a tap on or off. But it's a
Speaker 5: positive environment for the industry, absolutely, and the administration is
Speaker 5: taking steps that the industry welcomes.
Speaker 4: So, as you know, oilfield service providers in big energy
Speaker 4: companies used to comprise so much more of percentage of
Speaker 4: the top companies and big equity indexes like the S
Speaker 4: and P five hundred, but that changed a lot post
Speaker 4: housing crisis, and even during Trump's last term, you still
Speaker 4: didn't see energy companies in aggregate performing that well, even
Speaker 4: had Excellon eventually kicked out of the Dow Jones Industrial average,
Speaker 4: but has recovered from since and then. So what makes
Speaker 4: this a little bit different? Even with oil prices treading
Speaker 4: around lows.
Speaker 5: In terms of the stock crisis, I don't know that
Speaker 5: we'll see huge surges in those valuations. And I do
Speaker 5: think certain parts of the sector that you mentioned. While
Speaker 5: field services they're just not gonna become the darlings that
Speaker 5: maybe they were in the past. I think, you know,
Speaker 5: they're competitive now, they've figured out ways to manage effectively
Speaker 5: in a very cost constrained environment. They're coming back into
Speaker 5: being able to be profitable and seeing growth in their backlogs.
Speaker 5: But I don't know that it's a basket of investments
Speaker 5: that will necessarily outperform in in amazingly different ways. I
Speaker 5: do think it's a strong sector to continue to bet
Speaker 5: in that. I don't know if it's going to be
Speaker 5: anything like the Super seven or some of the tech
Speaker 5: stocks that we're seeing.
Speaker 4: When it comes to the outlook for oil and fuel prices,
Speaker 4: especially when you're thinking about the tariffs on trading partners
Speaker 4: like Canada in general, who do you think has more
Speaker 4: of the upper hand here, is it America or Canada.
Speaker 5: Well, I think it depends on what you mean by
Speaker 5: a quote unquote upper hand. But the US imports four
Speaker 5: million barrels per day of crude from Canada. Seventy percent
Speaker 5: of that is processed in the Midwest, and that our
Speaker 5: refineries are really geared in certain parts of the country
Speaker 5: to process only that type of crude, heavy sour, and
Speaker 5: that you can't swap it out. So definitely we'll see
Speaker 5: retail gas prices increase. We're already seeing wholesale gas prices
Speaker 5: increase in the US Northeast and will likely see retail
Speaker 5: gasoline prices increase in the Midwest as these tariffs continue.
Speaker 5: I think the rest of the country will continue to
Speaker 5: benefit from relatively lower gasoline prices, but for sure, I
Speaker 5: think we'll see upward pressure now. Keep in mind gas
Speaker 5: prices are even lower than they were a year ago,
Speaker 5: so we're working with a pretty low base to come
Speaker 5: up from.
Speaker 2: Regina. Thank you so much. Too short a visit. Let's
Speaker 2: do it longer next time, Regina Mayor with us with
Speaker 2: KPMG on oil.
Speaker 1: This is the Bloomberg Surveillance Podcast, available on Apple, Spotify,
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