WEBVTT - Bloomberg Surveillance TV: April 2, 2024 0:00:00.120 --> 0:00:06.800 Bloomberg Audio Studios, Podcasts, radio News. 0:00:11.640 --> 0:00:15.440 This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along 0:00:15.480 --> 0:00:18.680 with Lisa Bromwitz and Amrie Hordern. Join us each day 0:00:18.720 --> 0:00:22.280 for insight from the best in markets, economics, and geopolitics 0:00:22.440 --> 0:00:24.920 from our global headquarters in New York City. We are 0:00:24.920 --> 0:00:27.680 live on Bloomberg Television weekday mornings from six to nine 0:00:27.720 --> 0:00:31.280 am Eastern. Subscribe to the podcast on Apple, Spotify or 0:00:31.320 --> 0:00:33.960 anywhere else you listen, and as always on the Bloomberg 0:00:34.040 --> 0:00:38.040 Terminal and the Bloomberg Business app. Thel Orlando Federated writing this, 0:00:38.159 --> 0:00:41.159 we're not buyers of the SPX whole hog here, however, 0:00:41.200 --> 0:00:43.600 we still expect the rully in stocks will broaden out 0:00:43.760 --> 0:00:47.239 from mag seventh Centric to include domestic large camp value, 0:00:47.360 --> 0:00:50.360 small cap growth and international film. Pleased to say it's 0:00:50.360 --> 0:00:52.440 with us now for more, Phil, Let's go straight to it. 0:00:52.520 --> 0:00:54.880 The data of yesterday. How much weight would you put 0:00:54.920 --> 0:00:56.520 on that manufacturing reed? 0:00:57.920 --> 0:01:00.240 John? Good morning, Thank you again very much for me 0:01:00.320 --> 0:01:04.360 back on. I think yesterday's data was very significant that 0:01:04.400 --> 0:01:07.480 the ism, as you guys pointed out, was back above 0:01:07.600 --> 0:01:12.680 the fifty level, the contraction line of demarcation if you will, 0:01:12.680 --> 0:01:15.759 for the first time in sixteen months. And as Lisa 0:01:15.800 --> 0:01:18.880 pointed out, the number that was stunning was the prices 0:01:18.920 --> 0:01:22.240 paid component. So you've got a situation where the economy 0:01:22.360 --> 0:01:28.119 is strengthening, yet inflation is sticky, perhaps even accelerating. Now 0:01:28.240 --> 0:01:31.120 pair that with the LI data we saw last week. 0:01:31.520 --> 0:01:35.560 Leading economic indicators went back positive for the first time 0:01:35.600 --> 0:01:37.959 in twenty two months. And you sit down and talk 0:01:38.000 --> 0:01:41.440 to our bond people and they look at these inverted 0:01:41.440 --> 0:01:44.000 deal curves that we've been watching for the last two years, 0:01:44.680 --> 0:01:47.600 funds to tends, twoes to tens, three months to tens. 0:01:47.720 --> 0:01:50.520 They're flattening out. Our bond guys think that those may 0:01:50.600 --> 0:01:55.200 become positively sloped again. So the risk of recession or 0:01:56.240 --> 0:01:59.640 lower risk of a modest soft landing is starting to 0:01:59.680 --> 0:02:04.120 shift to a stronger period of economic growth. But the 0:02:04.240 --> 0:02:07.280 inflation question, I think is the more important one. Look 0:02:07.840 --> 0:02:11.640 at last week's PCEE print core two point eight percent 0:02:11.680 --> 0:02:14.040 for the month of February. Now what really caught our 0:02:14.080 --> 0:02:17.600 attention was the changes in the SVP. At the Fed's 0:02:17.639 --> 0:02:22.280 last meeting, they're going to increase their core PC forecast 0:02:22.360 --> 0:02:26.000 to two point six percent for next year and kept 0:02:26.000 --> 0:02:29.200 their two percent target in place for calendar twenty six. 0:02:29.800 --> 0:02:32.359 So the FED is telling us that inflation is still 0:02:32.400 --> 0:02:34.640 a problem. It's going to be a problem as the 0:02:34.680 --> 0:02:37.840 economy comes back, And what all of that means is 0:02:37.840 --> 0:02:40.800 that it's going to be less rate cuts relative to 0:02:40.840 --> 0:02:43.160 what the market was expecting just a couple of months ago. 0:02:43.280 --> 0:02:45.360 So, Phil, given everything you've said, every item on that 0:02:45.400 --> 0:02:47.239 list in the last couple of minutes, is that good 0:02:47.280 --> 0:02:49.359 or bad for stocks? Let's make it really simple, good 0:02:49.440 --> 0:02:50.720 or bad for stocks? 0:02:51.360 --> 0:02:54.960 So SMP five hundred up ten percent here in the 0:02:55.000 --> 0:02:57.400 first three months of the year, up twenty eight percent 0:02:57.480 --> 0:03:00.880 since October. In our view, stocks are ahead of themselves, 0:03:01.240 --> 0:03:05.200 but we expect sort of a rolling correction, if you will. 0:03:05.480 --> 0:03:07.960 The MAG seven in the last fifteen months is up 0:03:08.040 --> 0:03:11.600 ninety nine percent. The Forgotten four ninety three is up 0:03:11.639 --> 0:03:15.080 twenty two percent. Our view has been that this rally 0:03:15.160 --> 0:03:17.440 was broaden out, that we would see some profit taking 0:03:17.480 --> 0:03:23.600 in the MAG seven and the domestic large cap value stocks, 0:03:23.639 --> 0:03:26.480 the small cap GIRLD stocks, the international stocks which were 0:03:26.560 --> 0:03:29.200 largely left for dead over the course of the last 0:03:29.240 --> 0:03:31.480 year or so, they would find some love and we'd 0:03:31.480 --> 0:03:34.240 start to see some improvement in the share prices of 0:03:34.240 --> 0:03:35.040 those categories. 0:03:35.200 --> 0:03:37.360 But phil how much do higher rates really challenge the 0:03:37.400 --> 0:03:40.560 idea of broadening out, particularly to small caps, considering that 0:03:40.600 --> 0:03:44.360 these companies usually are more leveraged and are more vulnerable 0:03:44.440 --> 0:03:45.160 to higher rates. 0:03:46.120 --> 0:03:49.640 Fair point, But remember that the US economy is doing 0:03:49.680 --> 0:03:55.400 relatively better than a lot of our trading partners Japan, Germany, UK, 0:03:55.600 --> 0:03:59.960 all in recession. The reality is that small cap companies 0:04:00.040 --> 0:04:02.040 here in the United States do eighty percent of their 0:04:02.080 --> 0:04:06.160 business right here at home, and from an economic standpoint, 0:04:07.400 --> 0:04:11.360 we're doing better here in terms of underlying fundamentals. The 0:04:11.520 --> 0:04:16.040 sectors within the small cap market, Biotechnology, for example, is 0:04:16.040 --> 0:04:21.920 our favorite, is really well positioned. Biotech stocks have very 0:04:21.920 --> 0:04:27.520 strong pipelines, the valuations have probably never been cheaper, and 0:04:27.560 --> 0:04:32.240 with interest rates down at the margin, the prospect of 0:04:32.520 --> 0:04:36.120 M and A activity is enhanced today versus where they 0:04:36.160 --> 0:04:38.760 were a year or so ago. We do like small 0:04:38.800 --> 0:04:39.240 cap here. 0:04:39.480 --> 0:04:40.159 What about oil? 0:04:40.360 --> 0:04:42.120 How much is oil? The new mag seven at this 0:04:42.160 --> 0:04:44.560 point where people are talking about the fact that suddenly 0:04:44.960 --> 0:04:47.120 there is the reality check of supply and demand, to 0:04:47.160 --> 0:04:48.960 the fact that this economy isn't rolling over the way 0:04:49.000 --> 0:04:49.840 so many people thought. 0:04:50.880 --> 0:04:54.839 Music to our ears Lisa, that we were very lonely 0:04:54.880 --> 0:04:58.080 at the beginning of the year talking about oil WTI 0:04:58.279 --> 0:05:01.279 in the mid sixties, thinking that we could see eighty 0:05:01.320 --> 0:05:03.520 to ninety dollars a barrel by the end of the year. 0:05:03.680 --> 0:05:06.400 We're now sitting in the mid eighties three months into 0:05:06.440 --> 0:05:08.320 the year, so this has happened a lot quicker than 0:05:08.320 --> 0:05:12.359 we thought. But the combination of increased geopolitical risks in 0:05:12.520 --> 0:05:15.880 combination with the fact that we don't have a lot 0:05:15.920 --> 0:05:18.880 of levers here. In the past we might have utilized 0:05:18.920 --> 0:05:22.839 the Strategic Petroleum Reserve to perhaps adjust the price of oil. 0:05:23.160 --> 0:05:25.960 We took the SPR down three hundred and fifty million 0:05:25.960 --> 0:05:28.240 barrels a couple of years ago and didn't replace it. 0:05:28.760 --> 0:05:31.120 So at this point we are sort of at the 0:05:31.200 --> 0:05:35.440 mercy of the vicissitudes of what's going on globally. Crude 0:05:35.440 --> 0:05:39.080 oil last September was at ninety five dollars a barrel. 0:05:39.279 --> 0:05:42.560 What we could see the crude oil market retest that 0:05:43.120 --> 0:05:45.839 gasoline prices at three point fifty or so a gallon 0:05:45.880 --> 0:05:48.919 now could be at four dollars over the course of 0:05:48.960 --> 0:05:52.160 the next couple of quarters. So this move and energy 0:05:52.279 --> 0:05:54.520 for us is real and energy has been one of 0:05:54.600 --> 0:05:57.800 our favorite categories on the domestic large cap value side. 0:05:57.880 --> 0:06:00.200 Well, Phil, with Brent already trading within your reign range 0:06:00.240 --> 0:06:02.000 of eighty nine dollars a barrow, what do you see 0:06:02.000 --> 0:06:02.800 for your end. 0:06:04.760 --> 0:06:08.839 Higher We think that the TI could could trade up 0:06:08.839 --> 0:06:14.080 another ten dollars, and Brent, you know, maintaining that spread, 0:06:14.120 --> 0:06:16.120 could probably approach one hundred dollars a barrow. 0:06:16.800 --> 0:06:18.599 So when we were talking to Nowt in November and 0:06:18.640 --> 0:06:21.280 you were talking about double digit rallies on a sm 0:06:21.279 --> 0:06:23.440 P five hundred, did you ever expect things to go 0:06:23.480 --> 0:06:26.280 as far as they have in the Stone market. 0:06:26.080 --> 0:06:29.880 Not as quickly as as it has that We've got 0:06:30.279 --> 0:06:32.960 a six thousand target on the S and P fully 0:06:33.000 --> 0:06:38.120 discounting calendar twenty twenty five earnings, the market seems to 0:06:38.160 --> 0:06:41.000 be focusing on that number. We didn't think that we 0:06:41.040 --> 0:06:43.559 would get up, you know, the fifty two to fifty 0:06:43.640 --> 0:06:46.000 three hundred level in the first quarter of this year. 0:06:46.040 --> 0:06:48.880 So the rally, this twenty eight percent rally we've seen 0:06:48.920 --> 0:06:51.880 over the last five months, has been much faster than 0:06:51.920 --> 0:06:53.840 we had expected last fall. 0:06:53.839 --> 0:06:56.039 So much faster. Great to catch up, Phil, Thank you, 0:06:56.080 --> 0:07:09.080 sir Filowlando, Thanks for that federates at times. Troygeski of 0:07:09.160 --> 0:07:11.960 FS Investments saying the performance of the US economy is 0:07:11.960 --> 0:07:15.160 an opportunity for a spring cleaning of portfolios, writing this 0:07:15.560 --> 0:07:17.360 cash has been a great place to hang out for 0:07:17.440 --> 0:07:20.040 quite some time and still offers a positive real rate 0:07:20.080 --> 0:07:23.440 of return. But gradually deploying those massive cash hoards into 0:07:23.480 --> 0:07:27.840 a select group of alternative strategies can substantially increase return 0:07:27.880 --> 0:07:32.120 potential without having to take on uncomfortable levels of risk. 0:07:32.240 --> 0:07:34.640 Try and police to say, is with us now for more? 0:07:34.840 --> 0:07:35.040 Try? 0:07:35.040 --> 0:07:36.680 I want to reflect on the data we've had so 0:07:36.800 --> 0:07:39.720 far this week, going into a week full of economic 0:07:39.800 --> 0:07:43.200 data really concluding with payrolls on Friday morning, would you 0:07:43.280 --> 0:07:46.400 see that data that strength as a good thing or 0:07:46.440 --> 0:07:48.320 a bad thing for risk assets? 0:07:49.360 --> 0:07:53.080 Well, for risk assets it still continues to be a 0:07:53.120 --> 0:07:56.240 good thing over the medium term, in that stronger economic 0:07:56.280 --> 0:07:59.080 growth leads to more revenue, leads to lower default rates 0:07:59.120 --> 0:08:02.200 and credit. We're getting to that inflection point though, where 0:08:02.280 --> 0:08:05.360 you had a violent enough curve move yesterday that equity 0:08:05.360 --> 0:08:08.000 markets finally paid attention. Right if you think a Q one, 0:08:08.480 --> 0:08:11.040 you know you had another quarter where fixed income was down, 0:08:11.480 --> 0:08:13.920 you know, like a broken record, like we joke around about, 0:08:14.160 --> 0:08:16.280 but equity is able to power ahead because not only 0:08:16.280 --> 0:08:18.760 did you have very strong earnings, but obviously the economic 0:08:18.800 --> 0:08:22.320 growth surprises relative to robust and Powell started to job 0:08:22.360 --> 0:08:24.400 own about someone's say, premature cuts. 0:08:24.440 --> 0:08:25.760 So you know, we're at a. 0:08:25.800 --> 0:08:29.360 More dangerous level in terms of valuations, but generally that 0:08:29.440 --> 0:08:32.240 rebounded manufacturing should be looked at it as a positive 0:08:32.280 --> 0:08:33.640 outcome and a positive driver. 0:08:33.880 --> 0:08:36.000 Atroy you said the equity markets started to wake up. 0:08:36.000 --> 0:08:37.480 I mean, I've got a question that we were down 0:08:37.520 --> 0:08:40.120 point two percent yesterday on the SMP with down point 0:08:40.160 --> 0:08:42.640 two percent this morning. I think the equity market is 0:08:42.640 --> 0:08:43.679 still snoozing, isn't it. 0:08:44.480 --> 0:08:49.719 Yeah, well, compared to previous higher rate driven dislocations, I 0:08:49.760 --> 0:08:51.559 mean the most recent one, of course, was August to 0:08:51.640 --> 0:08:55.080 October last year, where you got a material curve move in. 0:08:55.360 --> 0:08:57.440 You know, point two percent. Point two percent is kind 0:08:57.440 --> 0:08:59.400 of a rounding error, but you know, at twenty one 0:08:59.440 --> 0:09:01.560 times for earnings, you just have to ask yourself, how 0:09:01.640 --> 0:09:04.960 much more upside do you have when so much the 0:09:05.000 --> 0:09:07.120 good news is priced in and to the points you've 0:09:07.120 --> 0:09:10.560 been making already, there's a material risk of substantially higher 0:09:10.640 --> 0:09:12.280 rates at the back end of the curve, we still 0:09:12.320 --> 0:09:16.280 are fairly inverted. The curve has obviously been gradually pricing 0:09:16.280 --> 0:09:20.040 out cuts this year. But bottom line is, to Lisa's point, 0:09:20.080 --> 0:09:23.360 in this scenario where there are no cuts, you have 0:09:23.440 --> 0:09:25.400 to think the back end of the curve is going higher, 0:09:25.440 --> 0:09:28.000 and we could retest the five percent level at some 0:09:28.080 --> 0:09:31.920 point given the substantial supply that's coming on and obviously 0:09:31.920 --> 0:09:34.160 a technical picture that's not terribly supportive. 0:09:34.360 --> 0:09:38.439 That's five percent this year, we have thought and. 0:09:38.400 --> 0:09:41.600 We still think that's definitely possible. I mean, look the way, 0:09:42.360 --> 0:09:44.560 when you think of the FOD reaction function for the FED, right, 0:09:44.600 --> 0:09:46.760 we've always said that this cutting cycle is going to 0:09:46.760 --> 0:09:49.360 be the mirror image of the fifteen to eighteen or sorry, 0:09:49.440 --> 0:09:51.079 this hiking cycle is going to be in the mirror 0:09:51.080 --> 0:09:54.120 image of the fifteen to eighteen cutting cycle, very slow 0:09:54.160 --> 0:09:57.120 and steady, and there's a reasonable probability that the FED 0:09:57.200 --> 0:09:59.720 first starts to cut, you know, the back end sells 0:09:59.760 --> 0:10:03.360 off as inflation expectations get anchored higher. In the event 0:10:03.400 --> 0:10:05.320 that they don't cut at all and they continue to 0:10:05.360 --> 0:10:08.559 pursue QT, which they still are as you know, there's 0:10:08.600 --> 0:10:10.840 certainly a risk that we make higher, highest as cycle, 0:10:10.880 --> 0:10:13.240 and that's one of the risks that markets have priced out, 0:10:13.320 --> 0:10:15.640 we think far too fast, particularly late last year and 0:10:15.679 --> 0:10:19.760 early this year. So yeah, it's not that fixed incomes 0:10:19.920 --> 0:10:23.280 is tragic like it was in twenty twenty, early twenty one, 0:10:24.160 --> 0:10:26.520 or late twenty one as well. It's just that the 0:10:26.600 --> 0:10:29.679 risk reward still isn't fantastic like many people have been 0:10:29.760 --> 0:10:30.600 articulating it is. 0:10:30.720 --> 0:10:33.079 I love the idea of fixed income as tragic, Troy. 0:10:33.160 --> 0:10:36.160 There is this question though, about what assets get hit hardest. 0:10:36.520 --> 0:10:38.280 If a ten year yield does climb back up to 0:10:38.320 --> 0:10:41.080 five percenta starts to retest some of these levels. Is 0:10:41.080 --> 0:10:43.560 it just public equity markets or is it also some 0:10:43.600 --> 0:10:45.800 of the private markets that have seen incredible amounts of 0:10:45.840 --> 0:10:48.560 cash flow in that are kind of peg to floating 0:10:48.600 --> 0:10:50.840 rate types of instruments. 0:10:51.559 --> 0:10:54.679 Yeah, so I think when you start with private credit 0:10:54.760 --> 0:10:57.160 is one example, which has been an area of tremendous 0:10:57.160 --> 0:11:01.480 growth and really very attractive positive returns, not only in 0:11:01.480 --> 0:11:04.200 twenty one and twenty three, but also in twenty twenty two, 0:11:05.040 --> 0:11:07.320 where the index is up roughly six to seven percent 0:11:07.360 --> 0:11:10.840 in a very tough year. You know, so when you're 0:11:10.880 --> 0:11:14.720 always rooting for higher front end rates for longer with 0:11:14.920 --> 0:11:19.560 the lowest probability of those that tighter FED policy creating. 0:11:19.160 --> 0:11:20.400 The economy right. 0:11:20.440 --> 0:11:22.000 And that's why when we first came up with the 0:11:22.040 --> 0:11:24.760 scenario last year we called the dare To Dream scenario, 0:11:24.840 --> 0:11:27.640 because you know, from a probability standpoint, it was almost 0:11:27.679 --> 0:11:29.360 too good to be true. But of course that is 0:11:29.400 --> 0:11:31.400 now the base case, where the FED is typed a lot, 0:11:31.800 --> 0:11:34.720 They're keeping rates higher for longer and the economy continues 0:11:34.760 --> 0:11:37.840 to be incredibly robust. However, to your point, if you 0:11:37.880 --> 0:11:41.079 get a high enough back end in financial conditions tighten enough, 0:11:41.520 --> 0:11:44.400 that could lead to slightly higher defaults over time, so 0:11:44.440 --> 0:11:46.560 you give back some of that excess income in the 0:11:46.600 --> 0:11:50.080 form of defaults. But so far we're seeing it is 0:11:50.280 --> 0:11:53.760 very low default rates, the ability for companies to restructure 0:11:53.960 --> 0:11:58.719 with strong handed growth private equity and public equity partners, 0:11:59.559 --> 0:12:03.560 and that means less income being returned through defaults, which 0:12:03.600 --> 0:12:05.880 is really as good of a scenario as you can 0:12:05.920 --> 0:12:07.840 hope for in private credit markets. 0:12:07.920 --> 0:12:09.800 I get the sense, and it's not just from you, Troy, 0:12:09.840 --> 0:12:11.880 but a lot of investment managers who come on say, 0:12:11.960 --> 0:12:13.920 you know, cash, you're running out of time. You got 0:12:13.920 --> 0:12:16.360 to deploy it, whether it's alternatives, whether it's into other 0:12:16.400 --> 0:12:19.520 parts of the equity market, the you know forgotten four 0:12:19.559 --> 0:12:22.600 hundred and ninety three. As we heard earlier, is there 0:12:22.760 --> 0:12:26.120 really a sort of pressure for time for cash? And no, 0:12:26.160 --> 0:12:27.920 I'm not just talking my own book, but there is 0:12:27.960 --> 0:12:30.600 this question of if the Fed's going to hold rates 0:12:30.679 --> 0:12:32.560 higher for longer, and it doesn't seem like this is 0:12:32.559 --> 0:12:35.920 that restrictive. Why couldn't you clip five percent on a 0:12:36.320 --> 0:12:38.440 money market fund for the foreseeable future? 0:12:39.360 --> 0:12:42.480 Oh yeah, Look, we've argued for the last two years, 0:12:42.520 --> 0:12:45.160 right that what you want to focus on is northwest 0:12:45.240 --> 0:12:48.360 quadron strategy strategies that have higher returns with lower risk, 0:12:48.400 --> 0:12:53.160 and cash actually is one of those alternatives to traditional 0:12:53.240 --> 0:12:56.880 fixed income and all also equities. However, when you look 0:12:56.920 --> 0:12:59.559 at where you are today, you know, really five and 0:12:59.679 --> 0:13:02.240 quarters five and a half's the peak, right. The probability 0:13:02.280 --> 0:13:04.800 of the FED hiking from here has always been non existent. 0:13:04.800 --> 0:13:07.120 It still is non existent. So you only have one 0:13:07.120 --> 0:13:10.400 way to go, and that's lower. Now, as we've discussed, 0:13:10.480 --> 0:13:13.720 it's going to be very slow, very plotting cutting cycles, 0:13:13.720 --> 0:13:16.240 so you'll still have incomes. But the question is, when 0:13:16.240 --> 0:13:19.239 you think of you know whether you're looking at actuarial 0:13:19.320 --> 0:13:23.439 studies or what folks need to retire comfortably. Typically you're 0:13:23.440 --> 0:13:26.320 in that high single digit to low teen drains, and 0:13:26.360 --> 0:13:29.000 the question now is should you at least gradually think 0:13:29.000 --> 0:13:31.400 about deploying you know that extra two and a half 0:13:31.440 --> 0:13:34.240 trillion in money markets at extra four trillion commercial bank 0:13:34.320 --> 0:13:38.360 deposits into strategies where you're not taking uncomfortable levels of risk. 0:13:38.440 --> 0:13:40.560 You're not going to walk into a potential ten or 0:13:40.559 --> 0:13:43.800 fifteen percent draw down, or if you're in inequities, or 0:13:43.840 --> 0:13:46.760 you're reaching for duration right now, as many have done 0:13:46.840 --> 0:13:49.199 the past two years, much to their chagrin, and you 0:13:49.320 --> 0:13:52.120 take a five to seven percent duration related draw down 0:13:52.440 --> 0:13:55.800 where you have certainly your conceding liquidity, you're going to 0:13:55.880 --> 0:13:59.240 have marginally more risk, but you're boosting your return potential 0:13:59.240 --> 0:14:01.840 to high smolel digits the low teens. And you know, 0:14:01.920 --> 0:14:04.600 one of the unique things about private credit now, which 0:14:04.640 --> 0:14:08.000 is really fascinating, is that you actually have potentially higher 0:14:08.040 --> 0:14:10.839 returns in the debt part of the capital structure than 0:14:10.840 --> 0:14:13.160 the equity part of the capital structure, right because that 0:14:13.360 --> 0:14:16.720 extra debt service payments that go to the lenders comes 0:14:16.720 --> 0:14:19.240 at the expense of free cash flow for a lot 0:14:19.240 --> 0:14:22.160 of big cap LBO firms, so the equity for the 0:14:22.280 --> 0:14:24.640 terms there will be lower to the benefit of the 0:14:24.680 --> 0:14:27.600 debt holder. So it's an unusual period of market industry, 0:14:27.680 --> 0:14:28.000 for sure. 0:14:28.080 --> 0:14:30.880 I love how Lisa tolking around book is standing cash 0:14:31.160 --> 0:14:33.800 if a lot of people as single names, right, you know, 0:14:34.200 --> 0:14:35.680 But for Bramo is standing cash. 0:14:35.720 --> 0:14:38.840 I'm just look, I'm not, you know, swing my head 0:14:38.840 --> 0:14:39.120 too much. 0:14:39.160 --> 0:14:40.000 I actually carry on. 0:14:40.400 --> 0:14:41.280 We don't have to continue. 0:14:41.320 --> 0:14:43.320 I want to squeaze this in. Actually it's a random question, 0:14:43.360 --> 0:14:45.800 so forgive me for this. The Ft had a strange 0:14:45.800 --> 0:14:48.080 front page yesterday and I'd love your thoughts on it. 0:14:48.080 --> 0:14:50.440 It was about the record supply, the bond issuance we 0:14:50.480 --> 0:14:52.600 had in the corporate debt market, and this really odd 0:14:52.640 --> 0:14:55.600 link about the election in the back end of this year. 0:14:55.600 --> 0:14:57.920 And I have to say, I haven't even thought of that. 0:14:58.280 --> 0:15:01.520 We linking the boom and supply in the first quarter 0:15:01.560 --> 0:15:04.640 of twenty four to the prospect of the market closing 0:15:04.720 --> 0:15:06.960 up in four q this year. 0:15:08.680 --> 0:15:11.640 You know, I think that's a bridge too far. I 0:15:11.680 --> 0:15:14.840 think what's really happened here again, you know, in our 0:15:14.880 --> 0:15:17.600 investment committee meeting we discussed that a lot of the 0:15:17.640 --> 0:15:20.760 explanatory variables for what's going on in terms of market 0:15:20.760 --> 0:15:24.600 price action as well as in terms of risk appetite 0:15:24.680 --> 0:15:27.280 gets back to those huge cash boards that the FED 0:15:27.360 --> 0:15:30.680 created during the pandemic and still lurk with us today. 0:15:30.760 --> 0:15:33.880 So what we've seen across the board, whether it's middle 0:15:33.920 --> 0:15:36.680 market corporate lending, whether it's senior serit of commercial real 0:15:36.760 --> 0:15:39.920 estate lending, whether it's HYO bonds or IG and even 0:15:39.960 --> 0:15:46.120 agency pastors which really have horrific technicals, is a gradual, steady, 0:15:46.320 --> 0:15:50.680 relentless tightening. And obviously issuers are taking advantage of that, 0:15:50.800 --> 0:15:52.640 and you're looking at the past two years and they're 0:15:52.680 --> 0:15:55.080 thinking the next six to nine months forward. This is 0:15:55.240 --> 0:15:57.640 probably one of the better points to issue new debt 0:15:57.960 --> 0:16:01.640 and lock in new financing. Just as critically, if you 0:16:01.720 --> 0:16:04.160 have a roll day coming, whether it's floating rate, dead 0:16:04.240 --> 0:16:06.760 or fixed, you know this is the window you're getting. 0:16:07.320 --> 0:16:09.680 And if you have turbulences at the back half of 0:16:09.720 --> 0:16:12.760 the year, you're probably getting better pricing now than you 0:16:12.800 --> 0:16:15.479 know perhaps in Q four. But I think that's a stretch. 0:16:15.400 --> 0:16:18.240 Very diplomatic even calling a stretch. Troy, Thank you, Troy, 0:16:18.400 --> 0:16:31.080 ESCI of FS Investments. Joining us now to discuss is 0:16:31.080 --> 0:16:34.520 Stephen Cook of the Council on Foreign Relations. Stephen waterfore 0:16:34.560 --> 0:16:36.840 to get your insight, your valuable insight on this program 0:16:36.880 --> 0:16:39.200 this morning, Could you talk us to us about possible 0:16:39.240 --> 0:16:41.640 consequences from that striking Damascus. 0:16:42.920 --> 0:16:46.160 Yeah, this is a significant escalation and the risk of 0:16:46.320 --> 0:16:51.000 the Iranians responding in any number of ways is very 0:16:51.080 --> 0:16:57.040 very high. The Iranians have attacked American forces and American 0:16:57.080 --> 0:17:00.560 forces are in Iraq and Iran, which are obviouss we've 0:17:00.560 --> 0:17:03.240 seen that happen over the course of the conflict that 0:17:03.240 --> 0:17:06.440 began on October seventh. There is also the very real 0:17:06.520 --> 0:17:11.240 possibility that whatever restraints the Iranians have placed on Lebanon's 0:17:11.280 --> 0:17:16.080 his Belah may start to loosen. There's already a very 0:17:16.080 --> 0:17:20.919 significant conflict between Israel and His Belah. The two have 0:17:21.000 --> 0:17:24.840 been trading fire since October seventh, and strikes against each 0:17:24.880 --> 0:17:28.600 other's countries have been getting bolder and deeper in recent 0:17:28.640 --> 0:17:33.399 weeks and months. So this is a very big step 0:17:33.520 --> 0:17:37.200 for the Israelis, who quite rightly point out that the 0:17:37.320 --> 0:17:41.200 multi front conflict that they are fighting is a consequence 0:17:41.359 --> 0:17:45.359 of the Iranian sponsorship of the Axis of Resistance in 0:17:45.440 --> 0:17:49.480 the North obviously in Gaza, as well as the Huti's 0:17:49.880 --> 0:17:54.639 unrelenting fire on Israel from Yemen. So the Israelis clearly 0:17:54.680 --> 0:17:56.840 want to go after what they consider to be the 0:17:56.880 --> 0:17:57.600 head of the snake. 0:17:58.160 --> 0:18:01.600 Ironian forign Minister amid Lyon in the early hours this 0:18:01.600 --> 0:18:06.480 morning said that he summoned the Switzerland envoy to give 0:18:06.520 --> 0:18:09.040 a message to United States. Potentially this is also going 0:18:09.040 --> 0:18:11.760 on with maybe back channels in Oman. What kind of 0:18:11.880 --> 0:18:14.880 back channel do you see potentially between Washington and Tehran 0:18:15.200 --> 0:18:16.720 to try to take the temperature down. 0:18:17.720 --> 0:18:21.520 There is and has long been a robust communication between 0:18:21.520 --> 0:18:25.520 Tehran and Washington through the Swiss embassy. The United States 0:18:26.000 --> 0:18:28.720 communicated to the Iranians at the outset of the conflict, 0:18:28.920 --> 0:18:31.679 communicated to the Iranians after the incident in Tower twenty 0:18:31.720 --> 0:18:35.240 two when three American soldiers were killed, that the Iranians 0:18:35.520 --> 0:18:38.360 needed to back off otherwise there would be very significant 0:18:38.359 --> 0:18:41.880 consequences for them. I imagine the Iranians are using that 0:18:41.920 --> 0:18:47.080 in reverse, communicating to the United States that unless Washington 0:18:47.119 --> 0:18:50.879 brings the Israelis to heal, the Iranians have the capability 0:18:51.040 --> 0:18:53.439 of raising a storm of violence in the region. 0:18:53.840 --> 0:18:57.320 How close are the Americans to bringing the Israelis to 0:18:57.400 --> 0:19:00.680 heal given the fact that they had this call yesterday, 0:19:00.720 --> 0:19:03.520 a strategic call, and then potentially we are going to 0:19:03.520 --> 0:19:05.560 see Israeli officials in Washington next week. 0:19:06.720 --> 0:19:09.399 I think that the American influence on the Israelis at 0:19:09.400 --> 0:19:13.000 this point is rather limited. The Israelis frame their conflict 0:19:13.040 --> 0:19:14.879 with Hamas and in fact there are a conflict on 0:19:14.960 --> 0:19:19.320 multiple fronts, as an existential threat under those circumstances. Although 0:19:19.359 --> 0:19:24.800 the United States is obviously an important strategic partner of 0:19:24.840 --> 0:19:29.520 the Israelis, advice given is not always advice taken. We 0:19:29.600 --> 0:19:33.439 have seen this throughout the conflict. President Biden believed that 0:19:33.480 --> 0:19:36.240 his bear hug of the Israeli government would give him 0:19:36.280 --> 0:19:39.320 the leverage with the Israelis to shape their military operations 0:19:39.359 --> 0:19:43.920 in the Gaza Strip. That has not happened. So the 0:19:44.000 --> 0:19:48.240 conversations between Washington and Jerusalem yesterday virtually in next week's 0:19:48.280 --> 0:19:53.920 meetings are about Israeli planned military operations in Rufa. Prime 0:19:53.920 --> 0:19:56.320 Minister Nataniello said those plans have been approved and the 0:19:56.359 --> 0:20:01.840 idea of is ready to execute them. It's unclear whether 0:20:01.960 --> 0:20:04.760 these talks will bear fruit for the United States and 0:20:04.880 --> 0:20:08.680 shaping the way the Israelis undertake this operation. 0:20:08.800 --> 0:20:10.439 Steven, there are a lot of moving pieces here, and 0:20:10.480 --> 0:20:12.560 you honed in on the northern border of Israel, the 0:20:12.640 --> 0:20:16.160 border with Lebanon, the Hesblah conflict that has been ongoing 0:20:16.200 --> 0:20:17.840 for a long time, the tit for tat and not 0:20:18.000 --> 0:20:21.400 being the true source of an escalation that could draw 0:20:21.520 --> 0:20:24.360 in a larger swath of the region and potentially disrupt 0:20:24.440 --> 0:20:27.280 things like oil markets. I'm wondering how close you think 0:20:27.280 --> 0:20:29.480 we are to that. If you could quantify how much 0:20:29.520 --> 0:20:32.880 closer we are now after these assassinations than we were 0:20:32.920 --> 0:20:35.320 before them, it would be really important, because this is 0:20:35.320 --> 0:20:37.560 really what a lot of strategists are honing in them 0:20:37.600 --> 0:20:38.080 this morning. 0:20:39.000 --> 0:20:40.840 Well, it's hard to put numbers on it, especially for 0:20:41.000 --> 0:20:44.280 historically minded political scientists like myself, but I would say 0:20:44.320 --> 0:20:49.040 that it is a strong likelihood that we will see 0:20:49.480 --> 0:20:53.000 a significant conflict between Israel and Hesbelah in the north. 0:20:53.600 --> 0:20:57.359 The constraints on both parties have been loosening in recent 0:20:57.440 --> 0:21:00.919 weeks and months. The strike in ask Us yesterday that 0:21:01.000 --> 0:21:05.440