Speaker 1: Welcome to the Bloomberg Penl Podcast. I'm Paul swing you
Speaker 1: along with my co host Lisa Brahma Waits. Each day
Speaker 1: we bring you the most noteworthy and useful interviews for
Speaker 1: you and your money, Whether at the grocery store or
Speaker 1: the trading floor. Find a Bloomberg Penl podcast on Apple
Speaker 1: podcast or wherever you listen to podcasts, as well as
Speaker 1: at Bloomberg dot com. The key question, though, in my mind,
Speaker 1: as the spire reaches new highs of record highs, how
Speaker 1: much can a twenty five bases point rate cut actually
Speaker 1: continue to support risk assets? Joining us here Peter Sheer,
Speaker 1: head of macro strategy at Academy Securities. Uh, he's here
Speaker 1: in our interactive broker studios. Peter, what is the answer
Speaker 1: to that? I mean, does this seem like it makes
Speaker 1: sense to you that stocks are rallying on this expected
Speaker 1: rate cut? Weirdly, it actually does. I'll give you my
Speaker 1: real cynical answer in a second. I think the first
Speaker 1: thing is what we've seen is a shift in the
Speaker 1: FEDS reaction function. I think the reality is they are
Speaker 1: going to do very little, too slow the economy. So
Speaker 1: if we see any pause of science, they're not going
Speaker 1: to react quickly any negatives. They're going to react very
Speaker 1: very quickly to help out. So I think that's what's
Speaker 1: being priced in. And if you want the cynical answer,
Speaker 1: the FED is really out there to boast their asset prices.
Speaker 1: That belief is sinking in. That's what they're gonna do.
Speaker 1: You trade it that way, you think that that's what's
Speaker 1: going on. There's a growing view that power who did
Speaker 1: want to kill the power put or the FED put.
Speaker 1: I think it's much easier to say you want to
Speaker 1: kill it than being the person responsible for it. And
Speaker 1: now he's gone the other way. They're there to support
Speaker 1: asset prices. So right now, you think that the best
Speaker 1: gauge of what the Federal Reserve will too is just
Speaker 1: to look at risk assets. If they're selling off, they're
Speaker 1: going to cut rates. If they're rallying, they might be
Speaker 1: a little bit more patient. Yeah, I think that's it.
Speaker 1: So I think we've got one more good squeeze here.
Speaker 1: I think we see vick Strop maybe down to eleven,
Speaker 1: stocks continue to go higher yields. I think the front
Speaker 1: end is gonna be anchored. I think we're actually gonna
Speaker 1: see a realization Hey, if the Fed wants inflation, long
Speaker 1: endnield should be higher. So I think you're gonna see
Speaker 1: tens and thirties back up a little bit, all right,
Speaker 1: So how long can this go on before people care
Speaker 1: about the real economy again? I think you need to
Speaker 1: see the squeeze finish, whether it's two weeks to a month.
Speaker 1: I want to see some of the sentiment surveys kind
Speaker 1: of get to extremes positive where every last bear gets
Speaker 1: pushed in. Okay, so this is this is a tactical
Speaker 1: bet on your part. Yes, I think that's what this is. Right,
Speaker 1: everyone's kind of having taken this message. Trade wars seem
Speaker 1: off the table for now. It's the summer. It's slow,
Speaker 1: y be short, this squeeze goes, and then we're set
Speaker 1: up for a fall. Okay, So then we're set up
Speaker 1: for a fall. So let's move beyond just the next
Speaker 1: two weeks to a month and talk about what happens
Speaker 1: later in the year as we start to get more
Speaker 1: economic data and wage pressure, whatever happens on the trade front,
Speaker 1: how much do risk us it's potentially follow in your view,
Speaker 1: what's the what's the fallout? Or is this just gonna
Speaker 1: be a bumpy road for a while. I think it's
Speaker 1: gonna be a bumpy road. To me. The real pause
Speaker 1: is going to be if trade wars start leading to
Speaker 1: the conclusion that we're actually gonna win, We're gonna fight
Speaker 1: for five G and the U s is actually gonna
Speaker 1: dominate five G rather than letting whahweh do it. Then
Speaker 1: I think risk assets can go off to the races.
Speaker 1: If it looks like we're gonna lose, we're gonna cave in,
Speaker 1: we're gonna let away dominate. I think we're gonna have
Speaker 1: problems there. And that's to me the swings. I think
Speaker 1: Europe actually might surprise us to the upsides. Right now,
Speaker 1: I'm short term technically bullish. I think there's probably more
Speaker 1: upside than downside. And where I look at the economy heading, okay,
Speaker 1: so you think there's more upside than downside when it
Speaker 1: comes to US equities. What about high yield? You know,
Speaker 1: I think high yield's kind of played out. It's going
Speaker 1: to be a carry game at most um. Whether we
Speaker 1: will start seeing a few companies at trouble or not.
Speaker 1: Maybe I think that was more likely at the start
Speaker 1: of the year when all in yields were slightly higher.
Speaker 1: That's all in. Lower yields just helps all these companies
Speaker 1: risk assets are well and alive, you know, M and
Speaker 1: A activities there, so companies can sell off. I think
Speaker 1: it's going to be kind of a mean for high
Speaker 1: yield all right. And then the other question is, I mean,
Speaker 1: I think it's just going to be a bumpy road
Speaker 1: for a while. Does that mean that the prospect of
Speaker 1: a recession is pushed out substantially more uh than many
Speaker 1: are currently factoring in. Yes, I think it's pushed out. One.
Speaker 1: We now have this new reaction function from the Fed,
Speaker 1: so they're going to be overly aggressive trying to fend
Speaker 1: off a recession. And then I think people get a
Speaker 1: little bit too concerned. Remember Q four, Oh it's bad.
Speaker 1: Q one is gonna be a disaster, Q onet or not. Fine.
Speaker 1: I think Q two is gonna be weak, But part
Speaker 1: of the weakness is going to be all the trade
Speaker 1: war related fights, the tariffs. Some of that's going to
Speaker 1: go away in Q three and Q four. So I
Speaker 1: don't think we're going to see this kind of straight
Speaker 1: line down. And to me, Europe's the wild card. What's
Speaker 1: Laguar gonna do is you able to implement stimulus there
Speaker 1: then all of a sudden, you know again there's might
Speaker 1: be positive surprises from Europe which we haven't seen in years.
Speaker 1: One thing I'm struggling to understand is the efficacy of
Speaker 1: quantitative easing and of lowering rates at a time when
Speaker 1: borrowing costs are so low. I just I'm trying. I mean,
Speaker 1: there have been a number of academic studies that have
Speaker 1: come out showing that each additional round of quantitative easing
Speaker 1: and lowering rates from an already pretty low base doesn't
Speaker 1: really do all that much when it comes to juicing
Speaker 1: up the economy. So at what point do people care
Speaker 1: about that? Again? At some point I completely agree with
Speaker 1: you too, though I'm not sure that these policies are right.
Speaker 1: I hate the idea of negative yields. I think negative
Speaker 1: yields are disaster for banks. I think at some point
Speaker 1: twenty years from now, people are going to revise how
Speaker 1: they look at economics and say inflation actually targets to
Speaker 1: the Fed funds rather than vice versas. So all these
Speaker 1: cuts actually deep are deflationary over time. I think we're
Speaker 1: doing a lot of wrong things, but I've long since
Speaker 1: stopped trying to fight what I think is wrong and
Speaker 1: just accept what I think the FED and there are
Speaker 1: going to do and try and trade around that. So
Speaker 1: do you think that it's a good idea to go
Speaker 1: long US equities right now and also go a long,
Speaker 1: longer dated U S bonds. No, I actually don't like
Speaker 1: that trade here. I think that's been one of the
Speaker 1: trades I'm starting to do some more work on. And
Speaker 1: you know, what I've been looking at is what are
Speaker 1: the safe trades? What are the safe assets. So a
Speaker 1: lot of people are in these sixty forty type funds
Speaker 1: where you own equities and you own bonds. I really
Speaker 1: don't like that here. I think yields are low, stocks
Speaker 1: at all time high. I think we want to pay back.
Speaker 1: I've also been looking at some of these men Vall
Speaker 1: and low Ball equity targeted funds. They've had massive amounts
Speaker 1: of inflows. It feels to me like people are kind
Speaker 1: of reaching and saying, oh, I can invest in stocks,
Speaker 1: but they're safe stocks. I'm like, yeah, stocks aren't all safe,
Speaker 1: and when we have problems, they're all going to be hit.
Speaker 1: So that's kind of reluctant to I'd rather own equities here.
Speaker 1: Than bonds. I'd like to be short long dated bonds
Speaker 1: here short them. So you think that the olds are
Speaker 1: going to rise, I think in the tens and thirties
Speaker 1: are gonna go higher significantly or just a bit. Tend
Speaker 1: to thirty basis points, so you know, meaningful from here? Yeah,
Speaker 1: I think we should be to to thirty five on
Speaker 1: the tenure treasury. Okay, just going forward, I'm trying to
Speaker 1: understand the picture in the key election year. What are
Speaker 1: you expecting in terms of what assets are expected to
Speaker 1: do the best at a time. If the Federal Reserve
Speaker 1: is supporting the markets with the reaction function as you
Speaker 1: describe it, uh, and if certainly the government is looking
Speaker 1: to bolster markets given the fact that President Trump would
Speaker 1: like to get reelected, what are you looking for? So,
Speaker 1: you know, we've talked about this before and it's kind
Speaker 1: of maybe a weird view what I say. You know,
Speaker 1: look at the TV show Survivor. Let's pretend Trump has
Speaker 1: an immunity doll. That immunity doll is a trade deal
Speaker 1: with China. Why use it now? Right? Use that close
Speaker 1: to the election. So I think we're gonna see a
Speaker 1: lot of hype about a trade deal Q one, Q
Speaker 1: two next year, and that's going to really bolster energy stocks,
Speaker 1: and I think tech interesting. So we're going to be
Speaker 1: listening in on J. Powell, the Federal Reserve Chair, speak
Speaker 1: in front of the House Committee, beginning of a two
Speaker 1: day testimony in front of Congress. UH, and we are
Speaker 1: going to hear from him. What are you expecting to
Speaker 1: hear from him today? I think a lot of what
Speaker 1: he wrote, he's going to focus on inflation, right. Everything
Speaker 1: else really doesn't justify why he wants to be so dovey.
Speaker 1: So I think this lack of inflation is gonna be
Speaker 1: something we hear over and over. Thanks for listening to
Speaker 1: the Bloomberg P and L podcast. You can subscribe and
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Speaker 1: you prefer. Paul Sweeney, I'm on Twitter at pt Sweeney.
Speaker 1: I'm Lisa Abram Woyds. I'm on Twitter at Lisa A.
Speaker 1: Bram Woyds. One. Before the podcast, you can always catch
Speaker 1: us worldwide on Bloomberg Radio