WEBVTT - Bloomberg Wall Street Week - October 13th, 2023 0:00:00.240 --> 0:00:02.440 This is Bloomberg Wall Street Week. 0:00:02.480 --> 0:00:04.400 I mean may not have an overall recession. We're having 0:00:04.400 --> 0:00:06.960 a rolling recession. To KNYE, roll looks pretty strongly when 0:00:07.000 --> 0:00:07.680 it comes to jobs. 0:00:07.720 --> 0:00:09.840 The financial stories that shape our world. 0:00:09.960 --> 0:00:13.640 Three major regional bank failures sent shockwaves through the banking system. 0:00:13.680 --> 0:00:15.440 We're all trying to figure out what to make of 0:00:15.600 --> 0:00:17.320 generative AI through. 0:00:17.160 --> 0:00:19.320 The eyes of the most influential voices. 0:00:19.440 --> 0:00:22.400 Welcome down, Doctor Paul Krugman, Ryan moynihan, a Bank of America, 0:00:22.560 --> 0:00:25.279 deebro Lair of the Paulson Institute, well then Hubbard of 0:00:25.280 --> 0:00:26.280 the Columbia Business School. 0:00:26.280 --> 0:00:30.160 Bloomberg Wall Street Week with David Weston from Bloomberg Radio. 0:00:30.440 --> 0:00:35.360 Inflation numbers, big mergers, IPOs, but they were all overshadowed 0:00:35.400 --> 0:00:38.120 by war in the Middle East. This is Bloomberg Wall 0:00:38.120 --> 0:00:42.320 Street Week. I'm David Weston. This week. Richard Hawes of 0:00:42.360 --> 0:00:47.320 Centerview Partners on Israel's war against Hamas in Gaza. Special 0:00:47.400 --> 0:00:50.879 contributor Larry Summers on the controversy over Harvard's position on 0:00:50.960 --> 0:00:51.360 the war. 0:00:52.120 --> 0:00:57.600 The statement by thirty student groups blaming all violent sewn 0:00:57.920 --> 0:01:02.480 Israel was a absurdity. 0:01:02.680 --> 0:01:06.080 And Greg Fleming of Rockefeller Capital Management on how investors 0:01:06.120 --> 0:01:08.400 respond to geopolitical turmoil. 0:01:09.120 --> 0:01:39.000 Investors David have a hard time measuring geopolitical risk. 0:01:27.800 --> 0:01:30.399 Global Wall Street began the week trying to absorb the 0:01:30.560 --> 0:01:34.000 awful news coming out of Israel and Amma's terrorist attack 0:01:34.319 --> 0:01:39.240 on civilians and military. As word came of death and destruction. 0:01:39.480 --> 0:01:40.400 It's simply. 0:01:41.720 --> 0:01:46.720 Depravity in the worst measurable way. And the initial Israeli 0:01:46.760 --> 0:01:50.680 responds with more on the way out of an understanding 0:01:51.120 --> 0:01:52.880 that there are civilians. 0:01:52.280 --> 0:01:54.800 Here whom are not our enemy and. 0:01:54.840 --> 0:01:56.600 We do not want to target them. 0:01:56.840 --> 0:01:59.720 We are asking them to evacuate so that we would 0:01:59.760 --> 0:02:01.520 be able to continue to. 0:02:01.560 --> 0:02:06.200 Strike military targets belonging to hamas in the Gazza stere. 0:02:06.600 --> 0:02:09.320 Even as we kept one eye on Israel, the world 0:02:09.320 --> 0:02:12.280 of finance and business went on with a major merger 0:02:12.320 --> 0:02:15.680 in the oil industry between Exxon and Pioneer. You have 0:02:15.760 --> 0:02:18.160 to become a diversified company with. 0:02:18.320 --> 0:02:21.560 Slots right into our existing unconventional business. 0:02:22.200 --> 0:02:26.520 Another initial public offering came to market, this one from Birkenstock. 0:02:27.440 --> 0:02:30.440 The first trade was at forty one bucks. This deal 0:02:30.440 --> 0:02:33.200 got priced at forty six, so you're talking about an 0:02:33.200 --> 0:02:37.720 elebor percent decline for the open. The critical CPI numbers 0:02:37.760 --> 0:02:40.799 came in on Thursday, the last read before the FEDS 0:02:40.880 --> 0:02:41.840 meeting next month. 0:02:42.400 --> 0:02:45.240 The numbers come in a little bit hotter than anticipated, 0:02:45.240 --> 0:02:48.960 with CPI up four tenths. The forecast was for a 0:02:49.160 --> 0:02:51.959 three tenths increase, but that's down from six tenths to 0:02:52.000 --> 0:02:55.200 the months before. The core comes in up three tenths, 0:02:55.240 --> 0:02:56.080 which is bang on. 0:02:58.720 --> 0:03:01.240 In the end, the markets reacted to all the turmoil 0:03:01.320 --> 0:03:04.359 this week with surprising calm. But before we go through 0:03:04.360 --> 0:03:06.720 the markets, we begin with the big story of the week, 0:03:06.919 --> 0:03:09.239 and for that we welcome Richard Hawes, now of Center 0:03:09.280 --> 0:03:11.959 Few Partners and so recently ambassador has served as President 0:03:12.000 --> 0:03:15.160 and Council of Foreign Relations for almost twenty years. So Richard, 0:03:15.160 --> 0:03:16.919 thank you so much for being here. You have a 0:03:16.960 --> 0:03:19.440 new newsletter out called Home and Away on substack. You 0:03:19.480 --> 0:03:22.399 write today about this subject, and one of the things 0:03:22.400 --> 0:03:26.120 you warn about is if Israel in fact goes into Gaza, 0:03:26.360 --> 0:03:29.320 it could create more problems than it solves. Explain. 0:03:29.800 --> 0:03:31.800 But don't get me wrong, David, I believe Israel should 0:03:31.800 --> 0:03:34.200 get involved in Gaza. It should go after those who 0:03:35.000 --> 0:03:38.840 undertook these heinous barbaric acts. It's important to say that 0:03:39.000 --> 0:03:42.800 terrorists cannot act with impunity. Israel also needs to restore 0:03:42.880 --> 0:03:47.480 the terrens, rebuild its defenses, which obviously failed. But to 0:03:47.520 --> 0:03:49.840 go in really big, I do worry would cause at 0:03:49.920 --> 0:03:52.280 least as many, if not more, problems than it would solve. 0:03:52.320 --> 0:03:55.200 You'd create a lot of sympathy for the Palestinians and 0:03:55.240 --> 0:03:58.400 for Hamas because there would inevitably be all sorts of 0:03:58.680 --> 0:04:02.880 civilian casualties. Israel itself would take many more casualties it's military, 0:04:02.960 --> 0:04:05.480 some of them would be abducted. I worry this could 0:04:05.480 --> 0:04:08.960 become the grounds for war, widening that in Lebanon and 0:04:09.040 --> 0:04:12.800 other places. Iran, using his bulla there, would take this 0:04:12.800 --> 0:04:15.720 as something of an opportunity. I think the United States, 0:04:15.720 --> 0:04:18.800 which has been rightfully so supportive of Israel up to now, 0:04:19.120 --> 0:04:22.160 would be pressured to rethink its position, maybe call for 0:04:22.520 --> 0:04:25.320 a ceasefire. So Israel really needs to think about what 0:04:25.440 --> 0:04:28.520 it does. The good news Israel does have options, and 0:04:28.560 --> 0:04:30.160 I would say what it ought to do is really 0:04:30.160 --> 0:04:32.640 two things. It ought to go in but very discreetly, 0:04:32.880 --> 0:04:36.800 where it has intelligence, go after those Hamas fighters could 0:04:36.839 --> 0:04:39.279 be very targeted on them, could be from the air 0:04:39.360 --> 0:04:42.360 could be from the ground with smaller units. Secondly, rebuild 0:04:42.360 --> 0:04:46.240 your defenses they failed. Rebuild the walls, put troops there, 0:04:46.320 --> 0:04:50.200 increase your readiness. Don't underestimate Hamas ever Again, but in 0:04:50.200 --> 0:04:54.000 Western Israel, be prepared potentially for next time, if only 0:04:54.000 --> 0:04:55.760 because you don't want there to be a next time. 0:04:56.200 --> 0:04:59.520 Talk about the specific objective of any sort of invasion 0:04:59.560 --> 0:05:04.080 of guys. It's understandable the Prime Minister Nya, who must 0:05:04.120 --> 0:05:06.840 act as you say, what was done by Hamas is 0:05:06.920 --> 0:05:10.560 beyond inexcusable, just inconceivable what happened. At the same time, 0:05:10.760 --> 0:05:12.960 the Prime Minister is said he wants to eliminate Hamas? 0:05:13.080 --> 0:05:14.920 Is that a realistic objective in Gaza? 0:05:15.240 --> 0:05:17.599 Short answers know it's to be very hard to find 0:05:17.640 --> 0:05:19.400 himas It's not like it's an army in an open 0:05:19.440 --> 0:05:21.479 battlefield with tanks and planes and the rest. 0:05:21.600 --> 0:05:22.800 Doesn't It doesn't work that way. 0:05:23.120 --> 0:05:26.640 Also, Hamas is much a movement or network, it's even 0:05:26.680 --> 0:05:28.880 an idea, David. So it's not just that you're going 0:05:28.880 --> 0:05:32.160 to create all sorts of resistance. Remember Donald Rumsfeld's quote 0:05:32.680 --> 0:05:34.800 when we were using drones to kill terrorists, How do 0:05:34.839 --> 0:05:37.080 we know we're not creating more future terrorists than the 0:05:37.080 --> 0:05:40.320 ones we're getting. I think that would come into play. 0:05:40.480 --> 0:05:44.480 So Hamas or some organization like it, some movement like it, 0:05:44.520 --> 0:05:47.320 will survive, might even be stronger afterwards. And as the 0:05:47.400 --> 0:05:50.680 Israelis learned in many places in lebanonor and Gaza, historically 0:05:51.000 --> 0:05:53.280 easier to get in than it is to get out. 0:05:53.520 --> 0:05:55.200 And when you get out, how do you know you 0:05:55.240 --> 0:05:58.599 could put something better than endoors in its place. So again, 0:05:58.760 --> 0:06:01.640 Israel needs to act, but it needs to act smart. 0:06:01.720 --> 0:06:03.880 It needs to act in a really careful way. 0:06:04.440 --> 0:06:06.359 You know Gaza, You've been to Gaza City, you know 0:06:06.400 --> 0:06:08.800 how difficult that terrain is. As it were, it's so 0:06:08.880 --> 0:06:11.360 densely popular that it'd so many buildings. One of the 0:06:11.400 --> 0:06:14.040 objectives here is to rescue the hostages, of which we 0:06:14.080 --> 0:06:15.599 don't know how many there are, but upwards of one 0:06:15.640 --> 0:06:18.880 hundred at least hostages. Is that realistic? Is it conceivable 0:06:18.880 --> 0:06:20.880 that they could go in and actually rescue the hostages? 0:06:21.160 --> 0:06:21.640 Really hard? 0:06:21.640 --> 0:06:25.039 To rescue hostages, you need totally good intelligence, then you 0:06:25.120 --> 0:06:28.880 need total surprise. That's loading assumption on assumption. I think 0:06:28.920 --> 0:06:31.159 the more likely way the hostages get out is there's 0:06:31.160 --> 0:06:35.560 a swap You've got hundreds of Hamas operatives in Israeli prisons, 0:06:35.680 --> 0:06:39.159 thousands of Palestinians from the West Bank who have the 0:06:39.200 --> 0:06:41.640 Israelis and charged with crimes. So I think if there's 0:06:41.680 --> 0:06:44.400 an exchange here, that would be the way we work. Indeed, David, 0:06:44.680 --> 0:06:46.160 one of the reasons I would argue, one of the 0:06:46.200 --> 0:06:49.960 two reasons Hamas took so many hostages was one to 0:06:50.000 --> 0:06:53.400 deter Israeli attacks, but secondly to set up this kind 0:06:53.400 --> 0:06:54.119 of a swamp. 0:06:54.560 --> 0:06:57.760 Richard, you mentioned the possibility of expanding this conflict beyond 0:06:58.440 --> 0:07:01.479 Israel and Gaza. And obviously this is first and foremost 0:07:01.520 --> 0:07:05.000 to a humanitarian issue, a tragedy and inconceivable tragedy. It 0:07:05.040 --> 0:07:09.520 also has potential economic ramifications, particularly if there's expansion. What 0:07:09.680 --> 0:07:13.640 about you mentioned Lebanon, You mentioned particularly Iran, because a 0:07:13.680 --> 0:07:15.640 lot of people on Wall Street are very concerned if 0:07:15.640 --> 0:07:18.200 this goes, for example, to involve Iran, then it could 0:07:18.200 --> 0:07:20.160 really have substantial economic effects. 0:07:20.240 --> 0:07:21.760 But they ought to be worried about that, and that's 0:07:21.760 --> 0:07:24.240 why again it's so important it's not widened. I think 0:07:24.240 --> 0:07:26.440 the United States or to let Iran know that it 0:07:26.440 --> 0:07:29.440 will be held accountable for anything that Habola does. As 0:07:29.440 --> 0:07:31.960 well as not an independent entity. I think we may 0:07:31.960 --> 0:07:34.200 be able to get the Chinese involved. China's the principal 0:07:34.240 --> 0:07:37.040 importer of Iranian oil. If the Chinese don't want to 0:07:37.040 --> 0:07:40.440 see that oil flow interrupted by American arms, they may 0:07:40.480 --> 0:07:43.600 want to lean on Iran terrain in Hbola. There's things 0:07:43.600 --> 0:07:46.320 we can and should do here because this could grow, 0:07:46.560 --> 0:07:47.120 could grow. 0:07:47.000 --> 0:07:47.760 In other ways too day. 0:07:47.800 --> 0:07:51.160 But you can imagine Arab regimes around the region threatened 0:07:51.160 --> 0:07:55.480 potentially by public unrest if things get bad enough in Gaza, 0:07:55.600 --> 0:07:58.360 so in the Middle East. One of the rules of history, 0:07:58.360 --> 0:08:00.720 as bad as things get, they can all always get worse. 0:08:01.080 --> 0:08:02.840 That ought to be one of our goals here. By 0:08:02.880 --> 0:08:05.360 our I mean the United States and Israel to manage this. 0:08:05.680 --> 0:08:08.960 Richard, you are a career diplomat, and from what I've 0:08:09.000 --> 0:08:12.440 read of history, typically these things are resolved ultimately through 0:08:12.440 --> 0:08:15.120 some sort of agreement, not throughout and out warren destruction 0:08:15.200 --> 0:08:18.360 of the other side. It's too early to really move forward, 0:08:18.400 --> 0:08:20.440 I'm sure on diplomacy, but it may not be too 0:08:20.440 --> 0:08:22.280 early to think about what that might look like down 0:08:22.280 --> 0:08:23.720 the road and position ourselves. 0:08:23.840 --> 0:08:25.720 I think I have to think about tranches or phases 0:08:25.720 --> 0:08:27.440 we talked about one which is a prisoner for a 0:08:27.520 --> 0:08:30.800 hostage swap. I can imagine some kind of a ceasefire 0:08:30.880 --> 0:08:33.559 or modus vivendi agreement. The big question, though, is how 0:08:33.559 --> 0:08:37.839 do you make some progress on the Palestinian issue. Wildly optimistic, ambitious, 0:08:37.880 --> 0:08:39.760 I get it, but I think what we've learned, David 0:08:40.120 --> 0:08:43.400 is normalization between Israel and Arab governments can only go 0:08:43.520 --> 0:08:46.600 so far. It can't survive if you will absent or 0:08:46.600 --> 0:08:49.560 apart from the Palestinians totally. There's got to be a 0:08:49.559 --> 0:08:52.800 Palomestinian dimension to this. It won't be with hamas they 0:08:52.840 --> 0:08:56.160 have ruled themselves out for time immemorial. But Israel needs 0:08:56.160 --> 0:09:00.480 a Palestinian partner. Israel needs a Palestinian state, not as 0:09:00.520 --> 0:09:03.560 a favorite to the Palestinians, as a favor to itself. 0:09:03.840 --> 0:09:09.199 If Israel is going to remain a democratic, Jewish, secure, 0:09:09.440 --> 0:09:12.760 prosperous state, it needs a Palestinian state that's willing to 0:09:12.800 --> 0:09:15.680 coexist with it peacefully. That has to be the long 0:09:15.800 --> 0:09:19.400 term goal of Israeli and American foreign policy and diplomacy. 0:09:19.960 --> 0:09:21.160 I know how difficult it is. 0:09:21.200 --> 0:09:23.280 I spent decades working on it, but I think what 0:09:23.320 --> 0:09:25.199 we've learned the hard way of the last few days. 0:09:25.559 --> 0:09:28.360 In a vacuum where there is no hope, then if 0:09:28.400 --> 0:09:30.800 the only game in town is terrorists, terrorists will do 0:09:30.840 --> 0:09:33.280 with terrorists do, and we can't allow that to be 0:09:33.360 --> 0:09:34.360 the only game in town. 0:09:34.440 --> 0:09:36.600 There are those who specula that we can't know. Certainly, 0:09:36.679 --> 0:09:38.640 I can't know what was really in Hamas's mind, but 0:09:38.679 --> 0:09:40.600 there are those who speculating part of the triggering banked. 0:09:40.640 --> 0:09:44.520 Here were reports about a possible arrangement with Saudi Arabia, Israel, 0:09:44.559 --> 0:09:46.559 and the United States, even at this late date in 0:09:46.640 --> 0:09:48.920 understanding Saudi Arabia right now said they're going to suspend 0:09:48.920 --> 0:09:51.880 that talks about really reconciling with Israel. Is there a 0:09:51.880 --> 0:09:54.920 potential constructive rule for Saudi Arabia in this sort of 0:09:54.920 --> 0:09:57.000 solution you described so, I think you're right. 0:09:57.040 --> 0:10:00.960 I think Hamas at Iran's Behess probably wanted to normalization. 0:10:01.240 --> 0:10:04.479 Hamas also wanted to do its version of station identification. 0:10:04.880 --> 0:10:07.920 They like to portray themselves. It's the only Palestinian entity 0:10:08.000 --> 0:10:10.840 willing and able to take on Israel. Look Saudi Arabia, 0:10:10.840 --> 0:10:14.040 the Crown prins MBS wants to normalize with Israel. He 0:10:14.120 --> 0:10:16.680 can't in this setting right now. It's too volatile, the 0:10:16.720 --> 0:10:20.920 Palestinian angles too uncertain, but it's important, but they still. 0:10:20.720 --> 0:10:21.240 Want to do it. 0:10:21.400 --> 0:10:24.760 Saudi Arabia wants the security pack with the United States. 0:10:24.800 --> 0:10:27.560 They want a nuclear program that the United States supports. 0:10:27.720 --> 0:10:30.320 So yes, I think we already get Saudi Arabia involved, 0:10:30.320 --> 0:10:32.000 and that could be one of the ways again to 0:10:32.040 --> 0:10:35.679 work with Israel, which wants normalization with Saudi Arabia. That's 0:10:35.720 --> 0:10:38.120 one of the reasons Israel might need to think more 0:10:38.160 --> 0:10:41.360 creatively about what they hold out as a possibility to 0:10:41.520 --> 0:10:44.400 Palestinians who are willing to live with it in peace. 0:10:44.840 --> 0:10:46.920 Richard, thank you so very much for spending time with us. 0:10:47.040 --> 0:10:52.200 That is Richard has now Centerview Partners. Coming up, we 0:10:52.280 --> 0:10:54.839 go through the market reaction to a very busy week 0:10:55.080 --> 0:10:58.600 with Mona Mahajen of Edward Jones. That's next on Walfree 0:10:58.640 --> 0:10:59.679 Week on Bloomberg. 0:11:01.280 --> 0:11:05.520 This is Bloomberg Well Street Week with David Weston from 0:11:05.640 --> 0:11:10.720 Bloomberg Radio. 0:11:12.640 --> 0:11:14.640 This is Wall Street Week. I'm David Weston. There was 0:11:14.720 --> 0:11:17.320 plenty for the markets that digests this week, including but 0:11:17.440 --> 0:11:19.920 going beyond, events in the Middle East. In the end, 0:11:19.960 --> 0:11:22.000 the S and P five hundred was up almost a 0:11:22.080 --> 0:11:24.840 half a percent end at forty three twenty eight, while 0:11:24.840 --> 0:11:27.920 the Anasdak lost almost two tens of percent. While the 0:11:27.960 --> 0:11:30.320 real ups and downs really were once again over in 0:11:30.400 --> 0:11:33.160 the bond market, with the yield on the tenure starting 0:11:33.200 --> 0:11:35.400 the week up over four point eight to zero and 0:11:35.440 --> 0:11:38.200 giving up over eighteen basis points in a shortened trading 0:11:38.200 --> 0:11:40.559 week to end up at four point six y two. 0:11:41.040 --> 0:11:43.760 Take us through what we saw. Welcome back now, Monhama Hodgen. 0:11:43.840 --> 0:11:46.839 She is Edward Jones, Senior Investment Strategeres Mada. Great to 0:11:46.880 --> 0:11:49.280 have you back with us. Let's start with that bond activity. 0:11:49.400 --> 0:11:51.240 It has been pretty busy in the bond market in 0:11:51.240 --> 0:11:52.839 the last couple of weeks. Last week was how the 0:11:52.880 --> 0:11:55.400 yields go way up this week they came in. What 0:11:55.559 --> 0:11:56.800 was the cause of it as far as you could say, 0:11:56.840 --> 0:11:58.440 how much of that was safe haven because of the 0:11:58.480 --> 0:11:59.480 geopolitical turmoil? 0:11:59.720 --> 0:12:02.280 Yeah, thanks David. What a harrowing week in the headlines, 0:12:02.320 --> 0:12:04.640 But to your point, markets held in there. There was 0:12:04.679 --> 0:12:06.480 a lot of resilience coming out of the broader s 0:12:06.520 --> 0:12:09.280 and P five hundred in particular, and we do think 0:12:09.400 --> 0:12:11.800 part of that was driven by this flight to safety 0:12:11.840 --> 0:12:15.520 or safe haven response. So typically when a geopolitical crisis hits, 0:12:15.920 --> 0:12:20.280 you see investors flock towards areas like the dollar, like gold, 0:12:20.400 --> 0:12:22.880 and like treasury bonds. So all three of those played 0:12:22.920 --> 0:12:26.320 out this week, but most notable for markets was the 0:12:26.320 --> 0:12:29.480 flight to treasury bonds, which pushed yields notably lower. So, 0:12:29.800 --> 0:12:32.199 as you just showed in that chart, yields had been 0:12:32.280 --> 0:12:37.120 climbing almost two highs of this cycle just as of 0:12:37.200 --> 0:12:39.600 last week, and this week they reversed that course. So 0:12:39.640 --> 0:12:43.440 that brought some much needed relief for broader equity markets. 0:12:43.440 --> 0:12:46.160 And it's interesting, even though equity markets did end up higher, 0:12:46.600 --> 0:12:48.959 where did people and where did investors hang out? Well, 0:12:48.960 --> 0:12:52.520 we really saw outperformance come from the defensive parts of market, 0:12:52.559 --> 0:12:56.720 areas like consumer staples, like utilities, some of those interest 0:12:56.800 --> 0:12:58.920 rate sensitive parts of market like real estate. So it 0:12:58.960 --> 0:13:02.680 wasn't necessarily a tech driven or AI rally that we've 0:13:02.720 --> 0:13:06.640 seen really in recent weeks as well. So more broadly, 0:13:06.679 --> 0:13:10.040 we'd say this move in treasury yields was partly a 0:13:10.040 --> 0:13:13.600 flight to safety response, partly maybe last week was a 0:13:13.720 --> 0:13:16.800 top in the near term for yields. We certainly heard 0:13:16.800 --> 0:13:19.760 a couple of Fed officials this week talk about maybe 0:13:19.880 --> 0:13:22.440 a pause in the rate hiking cycle. We do think 0:13:22.480 --> 0:13:25.160 there may be some volatility ahead, especially as there's uncertainty 0:13:25.200 --> 0:13:27.920 around these auctions that are coming up. But more broadly, 0:13:27.960 --> 0:13:30.440 we think the trend over time could be stability and 0:13:30.480 --> 0:13:31.680 hopefully a move lower. 0:13:31.760 --> 0:13:33.920 So let's talk about that moment specifically. You talked about 0:13:34.000 --> 0:13:36.040 highs of the cycle on a top what leads you 0:13:36.120 --> 0:13:37.880 to believe that maybe that's what we've seen. We also 0:13:37.920 --> 0:13:40.199 got some CPI numbers that were a little bit high 0:13:40.240 --> 0:13:42.440 this week, a little hot. We had University of Michigan 0:13:42.480 --> 0:13:45.720 sentiment coming in with increased expectations of inflation. So what 0:13:45.760 --> 0:13:47.720 makes you think that maybe we've seen the high of 0:13:47.720 --> 0:13:49.920 the cycle on the tenure, Yeah. 0:13:49.720 --> 0:13:52.200 It was interesting. The inflation prints were certainly mixed. We 0:13:52.280 --> 0:13:54.440 had again a little bit of a tick higher and 0:13:54.480 --> 0:13:57.679 headline inflation and the gradual move lower and core inflation. 0:13:58.000 --> 0:14:01.480 But even despite the mixed inflation numbers, which normally would 0:14:01.559 --> 0:14:04.600 have spooked markets and driven treasure yields higher, we saw 0:14:04.640 --> 0:14:08.440 a pretty muted response. So treasure yields were steady today. 0:14:08.480 --> 0:14:11.280 We actually saw another move lower, and in our view, 0:14:11.320 --> 0:14:13.720 you know, while we do think there's volatility always around 0:14:13.760 --> 0:14:16.200 the bond market. We do think the FED and really 0:14:16.240 --> 0:14:19.120 global central banks may be looking towards a pause. The 0:14:19.160 --> 0:14:22.880 FED has already talked about rate cuts in twenty twenty four. Now, 0:14:22.920 --> 0:14:25.720 what are some of the counters to this. Well, certainly 0:14:26.280 --> 0:14:29.000 the US has incurred a lot of deficits over time, 0:14:29.120 --> 0:14:31.720 and those deficits will have to be funded, and we've 0:14:31.720 --> 0:14:33.600 seen that. You know, this week we had a thirty 0:14:33.680 --> 0:14:36.480 year yield auction. There wasn't as much demand as we 0:14:36.520 --> 0:14:40.400 had hoped. That did temporarily drive yields higher and we 0:14:40.400 --> 0:14:42.080 saw sell off in the market. So we may get 0:14:42.120 --> 0:14:44.840 bouts of volatility like that, but we think generally the 0:14:44.880 --> 0:14:47.920 direction of travel, especially as a FED, you know, it's 0:14:48.040 --> 0:14:50.640 very much doing the quantitative tightening. Now it's not a 0:14:50.680 --> 0:14:53.280 big buyer in the bond space, but over time that 0:14:53.320 --> 0:14:56.080 program may stabilize as well. So we do think over 0:14:56.120 --> 0:14:58.520 time we'll see central banks kind of coordinate in a 0:14:58.560 --> 0:15:01.720 pause and pivot lower, which will put some downward pressure 0:15:01.760 --> 0:15:03.040 on the bond deal space. 0:15:03.240 --> 0:15:05.000 That just was only asked, what is the volatility in 0:15:05.000 --> 0:15:07.160 the bond market, and particularly on the long end in 0:15:07.240 --> 0:15:09.960 the thirty year that we've seen. As you say, there 0:15:09.960 --> 0:15:11.760 aren't as many buyers because the FED is out of 0:15:11.800 --> 0:15:13.600 the game and there are questions about what's going with 0:15:13.680 --> 0:15:15.440 China and Japan as well. At the same time, the 0:15:15.480 --> 0:15:19.160 supply is really really large. Are you concerned at all 0:15:19.240 --> 0:15:21.600 about increased volatility in the bond market or do you 0:15:21.600 --> 0:15:23.120 think it's going to settle back down if why? 0:15:24.040 --> 0:15:26.840 Yeah. You know, what we'd say broadly is the environment 0:15:26.880 --> 0:15:30.640 we really had that propelled a lot of these growth 0:15:30.680 --> 0:15:33.960 stocks and risk appetite over the last ten years. And 0:15:33.960 --> 0:15:36.520 you know, post financial crisis was an environment where the 0:15:36.560 --> 0:15:39.120 FED was closer to the zero bound and treasurreye olds 0:15:39.120 --> 0:15:41.040 were in the one and a half to two percent range. 0:15:41.080 --> 0:15:43.800 When we think about the next ten years, it could 0:15:43.880 --> 0:15:46.600 look very different. So to your point, we don't expect 0:15:46.600 --> 0:15:48.600 the FED to go back to the zero bound, and 0:15:48.640 --> 0:15:52.320 we do think treasuries may remain elevated versus history, so 0:15:52.440 --> 0:15:55.080 maybe somewhere in the three to four percent range. So 0:15:55.120 --> 0:15:57.120 in that environment, you really do have to think about 0:15:57.120 --> 0:15:59.680 acid allocation maybe a bit differently. You know, growth and 0:15:59.720 --> 0:16:02.600 value you or maybe a combination of both makes more sense. 0:16:02.840 --> 0:16:06.960 And certainly bonds have a better or more substantial role 0:16:07.000 --> 0:16:10.000 in your portfolio. You can now get yields, you can 0:16:10.000 --> 0:16:13.280 now get some potential for appreciation. If over time we 0:16:13.360 --> 0:16:16.760 do get treasure fields moving lower, that does support investment 0:16:16.760 --> 0:16:19.280 grade and longer duration bonds as well. So what we'd 0:16:19.280 --> 0:16:22.280 say overall is, while we may not stay at these 0:16:22.360 --> 0:16:25.760 elevated levels, we certainly don't expect to return to where 0:16:25.760 --> 0:16:27.240 we saw in the last decade. As well. 0:16:27.280 --> 0:16:29.080 You're also going to yield out of cash or cash 0:16:29.080 --> 0:16:31.600 equivalents like CDs and things like that. Are your clients 0:16:31.600 --> 0:16:34.080 going into CDs because it can be pretty attractive right now, 0:16:34.320 --> 0:16:37.720 and goodness knows, it's pretty flexible, not much risk there. 0:16:38.360 --> 0:16:40.960 Yeah, it's certainly interesting, especially when we get these headlines 0:16:40.960 --> 0:16:44.880 and volatility, politics, geopolitics. There is this natural response, should 0:16:44.920 --> 0:16:47.240 I just hide out in the CDs? They're offering five 0:16:47.240 --> 0:16:48.000 percent plus? 0:16:48.200 --> 0:16:48.320 You know? 0:16:48.360 --> 0:16:51.480 Our response is always, look, they are attractive for now. 0:16:51.560 --> 0:16:54.640 They have some interesting yields, really what we haven't seen 0:16:54.840 --> 0:16:57.920 in any time in recent history. So we understand the appeal. 0:16:58.120 --> 0:17:01.120 But for long term investors there's a few risks, one 0:17:01.400 --> 0:17:04.160 reinvestment risks, So over time those yields may not be there, 0:17:04.240 --> 0:17:06.320 they may start moving lower, so when you have to 0:17:06.320 --> 0:17:09.040 reinvest those CDs, it may be a lower rate. Two, 0:17:09.080 --> 0:17:11.320 there's an opportunity cost, and we've already seen the S 0:17:11.320 --> 0:17:13.880 and P five hundred up about twelve percent this year, 0:17:13.920 --> 0:17:16.840 even with the volatility, and so you know already it's 0:17:16.880 --> 0:17:20.359 exceeded that five percent or so cash like yields. And 0:17:20.400 --> 0:17:23.760 then thirdly, you know we've seen historically over time cash 0:17:23.880 --> 0:17:27.240 relative to really any other asset class has underperformed. So 0:17:27.280 --> 0:17:31.480 for long term investors, we would certainly recommend complementing slowly 0:17:31.800 --> 0:17:35.280 some of that CD cash like money with longer duration 0:17:35.320 --> 0:17:37.760 parts of the market, with strategic acid allocations, you know, 0:17:37.800 --> 0:17:40.920 that are aligned to your goals longer term. So that's 0:17:40.920 --> 0:17:43.480 what gets you to meet or exceed your financial quicker. 0:17:43.240 --> 0:17:44.960 Resu And do you need to go into bonds and 0:17:45.280 --> 0:17:46.520 for fear that maybe the fids are going. 0:17:46.480 --> 0:17:49.760 To start cutting rates, You know, we do think that 0:17:49.840 --> 0:17:53.640 there is an attractive opportunity and really it's compelling versus 0:17:53.680 --> 0:17:57.159 anytime in recent history for that longer duration part of 0:17:57.160 --> 0:18:00.760 the market in the investment grade space, and usually historically 0:18:00.880 --> 0:18:03.800 that period between a FED pause and that first cut 0:18:03.840 --> 0:18:07.160 is your opportunity. Markets start pricing it in very quickly 0:18:07.680 --> 0:18:10.159 as the sped starts signaling rate cuts ahead. So we 0:18:10.200 --> 0:18:13.080 think the months ahead could provide that window of opportunity 0:18:13.080 --> 0:18:17.840 for bond investors really like we haven't seen in recent years. 0:18:17.840 --> 0:18:20.280 And so we do think there's a compelling opportunity for 0:18:20.320 --> 0:18:21.280 bond investors in the mind. 0:18:21.320 --> 0:18:23.720 Why did we actually get to that pause? Thank you 0:18:23.720 --> 0:18:28.520 so much to Monamahadjen of Edward Jones. Coming up, we 0:18:28.600 --> 0:18:30.560 turn to the world of real estate in a time 0:18:30.600 --> 0:18:34.360 of higher rates with Kathy Marcus co CEO of Pgium 0:18:34.520 --> 0:18:35.080 real Estate. 0:18:35.920 --> 0:18:39.200 I think sellers are having a very tough time coming 0:18:39.240 --> 0:18:40.920 to term with the new prices. 0:18:41.280 --> 0:18:43.639 That's next on Wall Street Week on Bloomberg. 0:18:44.880 --> 0:18:49.080 This is Bloomberg Wall Street Week with David Weston from 0:18:49.200 --> 0:18:50.480 Bloomberg Radio. 0:18:57.200 --> 0:19:01.040 Repricing the world. That's what sharply higher rates mean for 0:19:01.240 --> 0:19:02.879 just about every asset. 0:19:02.520 --> 0:19:05.080 Class starting in the mid sixties who had an inverse 0:19:05.359 --> 0:19:09.080 correlation between bond yields and stock prices. Then you went 0:19:09.200 --> 0:19:11.280 for about a twenty twenty five year period where for 0:19:11.400 --> 0:19:13.960 most of the time you had a positive correlation. We're 0:19:14.000 --> 0:19:15.919 back in negative correlation territory. 0:19:16.200 --> 0:19:17.639 We're seeing it in stocks. 0:19:17.880 --> 0:19:20.080 By observation over I don't know forty years or so 0:19:20.119 --> 0:19:22.880 of watching equity markets is that they are keenly attuned 0:19:22.880 --> 0:19:26.000 to interest rates as a more direct transmission mechanism to 0:19:26.000 --> 0:19:30.320 equity prices, simply because interest rates are our discount, our 0:19:30.359 --> 0:19:32.520 discount rate on future cash flows. 0:19:32.720 --> 0:19:34.520