Speaker 1: Bloomberg Audio Studios, podcasts, radio news. You're listening to the
Speaker 1: Bloomberg Intelligence Podcast. Catch us live weekdays at ten am
Speaker 1: Eastern on Apple car Playing and Broud Auto with the
Speaker 1: Bloomberg Business App. Listen on demand wherever you get your podcasts,
Speaker 1: or watch us live on YouTube.
Speaker 2: Alex Steal for the next hour on Paul Sweeney Live
Speaker 2: here on Bloomberg Interactive Broker Studio and streaming live.
Speaker 3: On YouTube as well, so you can do that as well.
Speaker 2: John Tucker, I'm looking at the inflation data. I mean,
Speaker 2: people tell me, the smart people that core PCE is
Speaker 2: a core or is one of the big big issues
Speaker 2: of things that the FED looks at. You know, month
Speaker 2: on month, zero point three percent, right in line with expectations,
Speaker 2: in line with last month.
Speaker 4: But two point eight percent, I mean that's above. It
Speaker 4: seems to me that it has stalled there.
Speaker 3: Yes, that is a great point, but it will above.
Speaker 4: But I think, true to.
Speaker 2: Me, just in my experience, two point eight percent is fine.
Speaker 2: I mean wages are higher than that, so I mean
Speaker 2: I have more money in my pocket.
Speaker 3: Relative to what I'm spending.
Speaker 2: Just if you look at the real wages four and
Speaker 2: a half five percent a nominal wage growth.
Speaker 3: You know, I don't know.
Speaker 2: It's interesting here, but I know the FED wants to
Speaker 2: go lower, doesn't it once it get down closer to
Speaker 2: that two percent level?
Speaker 4: What did the experts say.
Speaker 2: Well, I don't know, I mean they experts say, like,
Speaker 2: I think they kind of said what you.
Speaker 3: Said, which is, we kind of stalled here.
Speaker 2: We've made a lot of the economy has made a
Speaker 2: lot of progress in terms of bringing inflation down from
Speaker 2: that really high level coming out of the pandemic. But
Speaker 2: maybe this last fifty or a hundred basis points.
Speaker 3: Is going to be a little a little bit more tougher.
Speaker 2: So let's check in with somebody who actually, somehow has
Speaker 2: built a career out of doing this, and that is
Speaker 2: Ira Jersey, chief US interest rate strategist for Bloomberg Intelligence.
Speaker 2: He liked the government bond market that he focuses on,
Speaker 2: pays a lot of attention to a lot of this
Speaker 2: macroeconomic data.
Speaker 3: Hey, I don't know.
Speaker 2: I look at the inflation data today. I mean it's
Speaker 2: in line with expectations. It feels like maybe we've stalled
Speaker 2: a little bit in terms of pushing this down a little.
Speaker 3: Bit lower, but still all in all, not bad. How
Speaker 3: do you think the markets will look at this?
Speaker 5: So I agree to John's point. You know, it seems
Speaker 5: like we've stalled here on core inflation, and a big
Speaker 5: reason for that stalling in core inflation is some of
Speaker 5: the consumption that's going on. So services continues to be
Speaker 5: the main driver of that core PCE number being as
Speaker 5: high as it is because excluding gasoline and fuel prices
Speaker 5: which have come down, which is a reason you see
Speaker 5: headline year on year deflator down at two point three percent,
Speaker 5: the services continues to grow like gangbusters. So people are
Speaker 5: still spending money. You look at that personal spending data
Speaker 5: and you can see that. You know, people have money
Speaker 5: in their pockets and they're willing to spend it. So
Speaker 5: I think overall this is a steady state from where
Speaker 5: we were.
Speaker 6: Now.
Speaker 5: Does this mean that it gives a green light for
Speaker 5: the Fed to cut interest rates in December? They could
Speaker 5: if they wanted to, But you could also couch this
Speaker 5: in Hey, things still aren't bad enough for them to
Speaker 5: have to cut aggressively, so maybe they could skip this
Speaker 5: one and then reassess and then go again in January.
Speaker 5: But you know, next week's payrolls numbers will be the
Speaker 5: deciding factor of that more likely.
Speaker 4: Does this beg the question where where's everybody getting this
Speaker 4: money from? Or are they just charging other credit cards?
Speaker 5: Well, well, well, the simple answer to that, John is
Speaker 5: it's coming from wages. So when you look at the
Speaker 5: personal income numbers that that came out today, you have
Speaker 5: a zero point six increase month on month in personal
Speaker 5: income and if you know analyze annualize that you're talking
Speaker 5: about well well over five percent increase in wages in
Speaker 5: personal income year on year. Now, some of that comes
Speaker 5: from government transfers and the like, but a lot of
Speaker 5: that that that increase in government transfers really usually happens
Speaker 5: early in the year when you get costs of living,
Speaker 5: adjustments to social security and the like. So so it's
Speaker 5: really coming people are spending their extra income that they're receiving.
Speaker 5: So I don't see how that stops unless the labor
Speaker 5: market really turns around.
Speaker 2: Meaning here, So what else do you think the FED
Speaker 2: is looking at here? Because it feels like inflation by
Speaker 2: and large most parts of the economy kind of under control.
Speaker 2: Is it primarily labor here that they're looking at now?
Speaker 5: Ira, Yeah, they shifted that basically four or five months
Speaker 5: ago toward you know, looking at the job market, and
Speaker 5: it looked like for a very brief period of time
Speaker 5: earlier this year, in the middle of the year, that
Speaker 5: the job market was starting to slow very meaningfully. It's
Speaker 5: a reason why in a way, the Fed maybe panicked
Speaker 5: a little bit in September and cut by fifty basis points.
Speaker 5: You saw some anecdotal data out of the Beige Book
Speaker 5: and out of some of the other surveys that employment
Speaker 5: was softening, but you haven't seen that in the hard data.
Speaker 5: And what you've seen the treasury market do is follow
Speaker 5: the hard data, the actual data that's coming out, as
Speaker 5: opposed to the survey data, which maybe was influenced by
Speaker 5: the election, influenced by just sentiment of things and the
Speaker 5: political aspects that were going on where everyone was so
Speaker 5: divided and unsure about the future. But that didn't stop
Speaker 5: them from actually spending money or actually hiring people or
Speaker 5: giving raises. And you see that in today's data, where
Speaker 5: you know, personal personal spending was up zero point four percent.
Speaker 5: That's fine, right, but it's really that income numbers that
Speaker 5: come up, which also means ironically, Paul, that you have
Speaker 5: to remember that means the savings rate went up, and
Speaker 5: I haven't looked dug into the data significantly, but the
Speaker 5: savings rate now is four point four percent, up from
Speaker 5: four point one percent the month before. So you know,
Speaker 5: that increase in the savings rate means that there's more
Speaker 5: people putting money into money market mutual funds and into
Speaker 5: other investments. So that's something else that can prop up
Speaker 5: some risk asset markets maybe as as we move forward,
Speaker 5: and people are not only spending, but they're also saving.
Speaker 4: So the way it works, you've got to track workers.
Speaker 4: You're going to pay them more to attract them to
Speaker 4: keep them. If you're going to pay them more, then
Speaker 4: you have to raise your prices and pass that along
Speaker 4: to the customers who are actually the workers that you
Speaker 4: just hired, that you just paid.
Speaker 5: So well, yes, John, that's true. But at the same time,
Speaker 5: what you are seeing is that inflation is going up
Speaker 5: just a little bit more than consumer spending, right, So
Speaker 5: so what that probably means is that margins are basically
Speaker 5: being maintained, not necessarily increasing. And in services, and keep
Speaker 5: in mind, we don't have the same kind of you know,
Speaker 5: micro level detail in services because a lot of services
Speaker 5: are smaller businesses. They're franchises and the like, so you
Speaker 5: don't have the kind of you know, information like we
Speaker 5: always here at Bloomberg and a lot of financial market analysts, right,
Speaker 5: we see the public data that comes in from public
Speaker 5: companies and they give us a whole slew of information.
Speaker 5: But that's but there's most services companies are not those
Speaker 5: large corporations. They're smaller businesses or maybe franchises of some
Speaker 5: of the larger corporations that you don't necessarily know exactly
Speaker 5: what their margins are, exactly what they're charging at the
Speaker 5: ground level. And that's one reason why the PC data
Speaker 5: is so important because it does do a better job
Speaker 5: than say the retail sales figures in determining what service
Speaker 5: is spending and services prices are doing.
Speaker 2: Lisa Bromwitz told me this morning that there's a government
Speaker 2: treasury auction do what.
Speaker 4: I don't care about the seven years, right, it is.
Speaker 2: About that I refer for the folks out there and
Speaker 2: tell us why it's important.
Speaker 5: Yeah, Well, it's important because the government has to fund
Speaker 5: the massive deficit. So one of the reasons why personal
Speaker 5: spending is where it is as high as it is
Speaker 5: is because the government transfers money to the household sector,
Speaker 5: and where it gets that money from is from savers,
Speaker 5: So it is a bit of a circular thing going
Speaker 5: on here where where Right now, twenty eight percent of
Speaker 5: consumption is coming from government transfers, so basically social security recipients, Medicare, Medicaid,
Speaker 5: you know, and other you know programs that the government
Speaker 5: runs and gives transfers to the household and business sector.
Speaker 5: That's contributing about a quarter of our personal consumption right now,
Speaker 5: which means that that it has to be maintained in
Speaker 5: order for the economy to to continue to be as
Speaker 5: robust as it has been. And the government bond auctions
Speaker 5: just show how much demand there is for new bonds
Speaker 5: being issued. And forty four billion dollars of seven year
Speaker 5: supply right before a holiday weekend, when you know, maybe
Speaker 5: a lot of senior traders are off, you know, can
Speaker 5: create some fireworks and maybe move the market a little
Speaker 5: bit if demand isn't particularly high. That being said, the
Speaker 5: last couple of auctions this week have actually gone okay,
Speaker 5: So I don't suspect that the seven year is going
Speaker 5: to be particularly bad. But if you do see a
Speaker 5: big slip in the amount of demand at this auction
Speaker 5: and you wind up with pushing yields a bit higher.
Speaker 5: You know, that means we have to even pay more
Speaker 5: attention when we get the auctions next month to see
Speaker 5: if that is just a one off flip on a
Speaker 5: holiday week or if it's something that is more concerning
Speaker 5: in terms of demand for new bonds.
Speaker 4: Is there a loud and clear message coming from the bond.
Speaker 5: Market, Well, if there is one, it's that the economies
Speaker 5: better than a lot of people thought it was just
Speaker 5: six months ago. And and the market right now is
Speaker 5: signaling that it doesn't expect a very rapid pace of
Speaker 5: cuts or cutsow below four percent for example on the
Speaker 5: on the Fed funds rate right now. So it's you know,
Speaker 5: the market is expecting more cuts, but it's only expecting
Speaker 5: you know, maybe another fifty to one hundred basis points
Speaker 5: at the most in terms of interest rate declines because
Speaker 5: the economy has been so strong, and that is confirmed
Speaker 5: by this data, which is the first data that we
Speaker 5: get for the fourth quarter, of course, and and the
Speaker 5: fact that it is so strong I think bodes well
Speaker 5: for things like GDP. You're going to see GDP now
Speaker 5: forecasts get get updated after this data and they're all
Speaker 5: going to show that the fourth quarter is pretty good.
Speaker 5: Atlanta FED, Cleveland FED. There's a couple of different people,
Speaker 5: you know, Bloomer Bloomberg Economics has their own now cast
Speaker 5: as well, so so you know, take a look at
Speaker 5: those and see and you're going to see that the
Speaker 5: market right now is suggesting that we're that the economy
Speaker 5: is reasonably strong, and the STATA just confirms that we
Speaker 5: just had.
Speaker 4: An election, And I don't think that's the message I
Speaker 4: took away from the election results.
Speaker 5: Yeah, that's I you know, obviously there was a lot
Speaker 5: that probably went into the election, but you know, clearly
Speaker 5: there were people who, you know, maybe blame the Biden
Speaker 5: administration for the inflation that we had, right and that
Speaker 5: is backward looking, not forward looking. But the economy is
Speaker 5: not doing badly regardless of who's in the White House.
Speaker 5: And I suspect that that could certainly change right going
Speaker 5: into twenty twenty five, but at least where we sit
Speaker 5: right now, you know, over the next two three quarters,
Speaker 5: I don't think that we're going to wind up seeing
Speaker 5: the recession that a lot of people, including myself, thought
Speaker 5: we were going to see by this time. But by
Speaker 5: this time when we were looking back eighteen months ago.
Speaker 3: I had great stuff. Thanks so much for joining us,
Speaker 3: our Jersey folks.
Speaker 2: He's the chief US interst rate strategist for Bloomberg Intelligence.
Speaker 2: Safely asconced then another Princeton, New Jersey officers nobody. It's
Speaker 2: a great office, by the way, and they redid it.
Speaker 2: It's an awesome place for those folks to work down
Speaker 2: a lot of good folks down there in Princeton.
Speaker 1: You're listening to the Bloomberg Intelligence Podcast. Catch us live
Speaker 1: weekdays at ten am Eastern on applecard Play and Android
Speaker 1: Auto with the Bloomberg Business App. You can also listen
Speaker 1: live on Amazon Alexa from our flagship New York station
Speaker 1: Just say Alexa playing Bloomberg eleven thirty.
Speaker 2: John Tucker sitting in for Alex Steel and I'm Paul
Speaker 2: Swhen you were live here in our Bloomberg Interactive Broker studio,
Speaker 2: we're streaming live on YouTube, so you have to go
Speaker 2: over to YouTube dot com search Bloomberg Podcast and that's
Speaker 2: where you will find us. I don't know, John, We're
Speaker 2: getting some pretty solid economic data. I've the earnings that
Speaker 2: were just kind of finishing up were pretty solid. Expectations
Speaker 2: are still pretty positive for earnings. I got a FED
Speaker 2: that I think is cutting rates. I think that's all
Speaker 2: pretty constructive for markets. Here, let's check in with somebody
Speaker 2: who does this stuff for a living, Sylvia Jablonski, chief
Speaker 2: executive Officer and chief investment Officer, Defiance TFS. You know, Sylvia,
Speaker 2: I'd love to just get your thoughts just broadly defined,
Speaker 2: to start off here about where you think we are
Speaker 2: with some just kind of the market outlook as we
Speaker 2: think about twenty twenty five. Where are you guys in
Speaker 2: terms of thinking about where this could go.
Speaker 7: Well, good morning, and I'm happy early Thanksgiving to you both. Well,
Speaker 7: I think that the markets are probably poised for a
Speaker 7: small rally into year end. We'll probably you know, go
Speaker 7: back to these highs that we've tested this year and
Speaker 7: see that happen in the next month or so.
Speaker 8: You had a great setup there, right.
Speaker 7: The FED has cut already and is potentially on a
Speaker 7: path to continue cutting or at least holding and not raising. So,
Speaker 7: you know, financial conditions should be a little bit better
Speaker 7: for corporations. We have a president that's coming in that's
Speaker 7: pro deregulation, you know, market friendly, tax cuts, things like that,
Speaker 7: So that tends to, you know, do well for markets
Speaker 7: as well. So you know, my view on this is
Speaker 7: that for the next call it eighteen months or so,
Speaker 7: I think we're in a pretty smooth soft you know, spot,
Speaker 7: barring any kind of made or changes to fiscal monetary
Speaker 7: policy to see the SMP and the broader based indices
Speaker 7: trend upward.
Speaker 4: How much money's on the sidelines at this point, Sylvia, Yeah,
Speaker 4: a lot, I think, you know, to the tune of
Speaker 4: seven trillion or more.
Speaker 7: And I think that that's because you know, a lot
Speaker 7: of this kind of risk off mentality came about in
Speaker 7: twenty twenty two and didn't come back into the markets,
Speaker 7: particularly when you know five percent is the type of
Speaker 7: interest rate you're getting on your cash, and so I
Speaker 7: think that's changed now. You know, the SMP is going
Speaker 7: to be probably up twenty five percent or so this year,
Speaker 7: all of a sudden, it really makes sense to put
Speaker 7: some of that dry powder to work in the markets.
Speaker 7: And I think, you know, we're going to start seeing
Speaker 7: that come back in in the next couple of years.
Speaker 7: And I think you know that with high digit, high
Speaker 7: single digit corporate earnings outlook, cash coming off of the sidelines,
Speaker 7: that bodes well for at least a pretty decent average
Speaker 7: rate of return type of SMP five hundred.
Speaker 2: Sylvie, just with your ATF platform, I always love to
Speaker 2: just ask folks like you that are seeing the flows
Speaker 2: out there, where are the flows going in your ETF platform.
Speaker 7: Well, the most the most popular ETF that we have
Speaker 7: and potentially that you know Planet Earth has right now
Speaker 7: because I see everybody writing about it and talking about it,
Speaker 7: is the leverage micro Strategy ETF. So we have a
Speaker 7: two beta micro strategy ETF ticker symbols mst X, and
Speaker 7: you know, it's it's seen almost a couple of billions
Speaker 7: of flows just since its inception, which is basically September
Speaker 7: late August, and so that's just been a wildly popular trade.
Speaker 8: And then the election results and this idea.
Speaker 7: Around you know again deregulation and crypto adoptance really really
Speaker 7: helped that ETF.
Speaker 8: It's been widely popular there. Second place though is quantum.
Speaker 7: And there are all these little stocks out there that
Speaker 7: people don't talk too much about, but you know, I
Speaker 7: on qqba q qb ts like some of these small
Speaker 7: quantum computing companies. We have them in our Quantum ETF
Speaker 7: and so you know, a lot of flows have flowed
Speaker 7: into there is this AI evolution continues to grow.
Speaker 4: That's the little companies. I was fortunate enough to see
Speaker 4: the up and sleepy hollow, the IBM research center, the
Speaker 4: I think it's the Watson Reaches.
Speaker 8: Yeah, they've got a huge quantum center. Yeah.
Speaker 4: Yeah, and they've got this this thing is it looks
Speaker 4: really cool. Most of it is just cooling coils. It's
Speaker 4: like a big air conditioner, a big freezer for what
Speaker 4: is essentially a chip like this big and they have
Speaker 4: to keep it just above absolute zero, which is really
Speaker 4: really cool. I think of quantum computing those sylvia as
Speaker 4: sort of like you know, fusion energy. It's going to
Speaker 4: be another five ten years and then we get there,
Speaker 4: it's going to be another five ten years, et cetera.
Speaker 2: Center.
Speaker 7: Yeah, I think, you know, the broad topic and idea
Speaker 7: for us is more around the idea of supercomputing, you know,
Speaker 7: machine learning, AI plus quantum competing. But we're kind of
Speaker 7: referring to the companies that are responsible for those coolers
Speaker 7: that you saw right, and they're they're kind of feeding
Speaker 7: the hyperscalers and their AI and machine learning R and
Speaker 7: D and you know they provide these cooling systems or else,
Speaker 7: you know, basic quantum computers for them to kind of
Speaker 7: run their data on. And so it does exist already
Speaker 7: to some degree, right, Like you have banks running supercomputing
Speaker 7: to detect risk. It's used in cryptography already. You know,
Speaker 7: drug research has some level of machine learning and supercomputing.
Speaker 7: But it's the idea that these quantum computers will come
Speaker 7: in and allow this to be done more efficiently and
Speaker 7: more quickly to make it, you know, kind of more commercial.
Speaker 8: Is what's going to play out, I think in the
Speaker 8: next few years.
Speaker 4: And if you have an algorithm, you can actually send
Speaker 4: it to IBM and they will run it for you.
Speaker 9: Is that right?
Speaker 4: Clean up all the mistakes that invariably happen to.
Speaker 3: Interesting So may you talk to us a little bit
Speaker 3: about x MAG, x M A G.
Speaker 8: Yeah.
Speaker 7: So if you know, if you're of the mindset that
Speaker 7: the that the MAG seven are kind of at their
Speaker 7: highs and have you know, high valuations, and you're looking
Speaker 7: to put that seven trillion to work in the market,
Speaker 7: but you know you're kind of worried about those names
Speaker 7: not being the leaders.
Speaker 8: We launch x MAG.
Speaker 7: So that's the S and P five hundred minus the
Speaker 7: top seven tech companies, right, And so the thought there is,
Speaker 7: you know, number one, diversify small caps. You know, domestic
Speaker 7: policy things like this might be whove the rest of
Speaker 7: the market sub Max seven. Again, you have winners in
Speaker 7: there in the other four hundred and ninety seven. You know,
Speaker 7: names like whether it's Costco or Broadcom or Fishtraw, Constellation Energy,
Speaker 7: like all of these stocks that are doing quite well
Speaker 7: this year and aren't talked about. You know, we kind
Speaker 7: of let them fly because it's a market cap waiting.
Speaker 7: But that's the diversification trade. And the second argument there is,
Speaker 7: you know, we love the Max seven. We just know
Speaker 7: you already have them. If you own SMP, you know
Speaker 7: a third of that is the MAC seven. So you've
Speaker 7: got it somewhere.
Speaker 4: You're mentioning tax cuts, et cetera, and so forth, the regulation,
Speaker 4: all that stuff. How much of that is actually baked
Speaker 4: into company forecasts right now?
Speaker 8: I think, you know, probably not much. I don't know.
Speaker 7: I think the market was anticipating this winner, but then
Speaker 7: there was enough of uncertainty where you kind of saw
Speaker 7: things like the dollar and gold and commodities and a
Speaker 7: ten year pop around a lot before the election, so
Speaker 7: I don't think any of it was fully priced in.
Speaker 7: I think that post election pop kind of gave us
Speaker 7: some of that. But longer term, I think this will
Speaker 7: play out as companies actually save this money and expand
Speaker 7: balance sheets and you know, kind of have better taxes,
Speaker 7: more capex hopefully and some growth.
Speaker 2: All Right, Sylvia, thank you so much for joining us.
Speaker 2: Always appreciate getting few mina at your time. Sylvia Jablonski,
Speaker 2: Chief executive Officer and chief investment Officer at Defiance EF.
Speaker 1: You're listening to the Bloomberg Intelligence Podcast. Catch us live
Speaker 1: weekdays at ten am Eastern on Apple car Playing and
Speaker 1: broud Otto with the Bloomberg Business app. Listen on demand
Speaker 1: wherever you get your podcasts, or watch us live on YouTube.
Speaker 2: Do you have plitical front Some good news coming out
Speaker 2: of the Middle East? Lebanon ceasefire starts after Israel and
Speaker 2: Hesbloh reach a deal.
Speaker 3: That's the good news.
Speaker 2: Let's break it down a little bit and see what
Speaker 2: it means for that part of the world. Ned Lazareth,
Speaker 2: Associate Professor of International Affairs at George Washington University down
Speaker 2: here in Washington, d C. Joins us via that zoom thing.
Speaker 2: Ned talk to us about this agreement. What does this
Speaker 2: agreement say, what does it do? How is important for
Speaker 2: that part of the world.
Speaker 9: It's extremely important and has the potential to be a
Speaker 9: turning point in what has become the most active front
Speaker 9: of the war. It sets out a sixty day period
Speaker 9: during which Israel and Hezbela are supposed to cease fire,
Speaker 9: and so that means ceasing the bombardments of many areas
Speaker 9: in Lebanon, ceasing idea of troops that have gone up
Speaker 9: to the Litany River in Lebanese territory, ceasing the advance
Speaker 9: of idea of troops, and ceasing as Belaw has continued
Speaker 9: missile fire on Israel, firing dozens, often hundreds of missiles
Speaker 9: every day despite all of the blows that has absorbed
Speaker 9: from Israel in the last few months. So the fire
Speaker 9: is supposed to cease over a sixty day period. The
Speaker 9: Israeli military is to withdraw from Lebanese territory back to
Speaker 9: the international border, and the Lebanese army is supposed to
Speaker 9: deploy in southern Lebanon. So that is in tune with
Speaker 9: a former a previous UN resolution seventeen oh one. UN
Speaker 9: Security Council resolution that ended the two thousand and six
Speaker 9: war between Israel and has Belah. But the Lebanese army
Speaker 9: never did deploy and instead has been built an enormous
Speaker 9: militarized area right up to the Israeli border, including tunnels,
Speaker 9: including massive amounts of munitions, all set for the order
Speaker 9: to invade northern Israel. What the Israeli military has sought
Speaker 9: to do is to destroy hesbelaws, very elaborate set up
Speaker 9: for an invasion. And what is meant to happen now
Speaker 9: in these sixty days is that Hesbla is meant to
Speaker 9: not return to southern Lebanon and not to re arm.
Speaker 9: The test will be if this is actually what happens,
Speaker 9: because the you know, the chaotic reality, you know, may
Speaker 9: put the best of intentions. Of course, right away after
Speaker 9: announcing the ceasefire, there were you know, celebrations of relieved
Speaker 9: people in Lebanon and protests from many of the displaced
Speaker 9: residents of northern Israel who don't trust that the agreement
Speaker 9: will in fact be enforced.
Speaker 4: This is Hesblah and Lebanon. What about to the south,
Speaker 4: with God, what's happening on that front? Does this cover
Speaker 4: anything like that or could it be used as a
Speaker 4: template for something with respect to Hamas well.
Speaker 9: President Biden certainly expressed that hope in his announcement of
Speaker 9: the ceasefire, and the the Israeli families whose family members
Speaker 9: are being held hostage by Hamas have repeatedly expressed both
Speaker 9: that hope and also some anger, saying that you know,
Speaker 9: similar terms could could result in a deal with Hamas
Speaker 9: that would free their loved ones from captivity. And so
Speaker 9: there was anger at the government that it has prioritized
Speaker 9: the Northern Front and not the release of the hostages
Speaker 9: while sort of accepting terms with Hasballah that the Israeli
Speaker 9: government rejects with Hamas. So we will we will see
Speaker 9: if there is renewed momentum. Hamas has also issued a
Speaker 9: statement that it is you know that that it is
Speaker 9: ready ready for a deal. So that is that may
Speaker 9: perhaps just be meant to put pressure on the on
Speaker 9: the Israeli government right, because the far right elements in
Speaker 9: the Israeli government on which Bignami Natail's coalition depends, do
Speaker 9: not really want any kind of hostage deal. They want
Speaker 9: to reoccupy the Gaza strip permanently.
Speaker 2: Professor, what was the role of Iran in this ceasefire agreement,
Speaker 2: and what do you think the role will be going
Speaker 2: forward as a which to a gaza.
Speaker 9: So the ceasefire agreement is binding on Israel and Hasbella
Speaker 9: has Belah is the armed actor that needs to cease fire,
Speaker 9: but it's not signed by Hesbella, and it's not it's
Speaker 9: an agreement between Israel and the State of Lebanon. It
Speaker 9: is simply understood, uh, that hes Belah must follow this
Speaker 9: agreement and a sense to it. And it's a similar
Speaker 9: thing with Iran. So hes Bella is a proxy of Iran.
Speaker 9: It is armed, funded, trained, supported by Iran.
Speaker 7: Uh.
Speaker 9: And so without Iranian consent, this agreement wouldn't be happening. Uh.
Speaker 9: And uh, you know, I think the UH it's very
Speaker 9: clear that Israel's military campaign against Hezbollah in the last
Speaker 9: three months has been devastatingly effective. UH and uh and
Speaker 9: has forced uh, you know, the organization to accept terms
Speaker 9: that it probably would not have wanted to. Nonetheless, has
Speaker 9: Belah is apparently, uh, you know, putting out messages in
Speaker 9: the media celebrating its great victory today. But in reality,
Speaker 9: it's very it's very clear what has happened.
Speaker 5: Uh.
Speaker 9: None the less, Hesbilla remains a potent organization and again
Speaker 9: has continued to fire hundreds of missiles into Israel every
Speaker 9: day during the past few months.
Speaker 4: How many caveats or provisions does this agreement have? Those
Speaker 4: aren't the usual words you'll toss around a diplomacy with
Speaker 4: agreements such as this. But is there a chance that
Speaker 4: Israel's militaries is going to strike at the slightest provocation
Speaker 4: and send things spiraling back to square one?
Speaker 9: There there are, I mean, the key caveat is in
Speaker 9: a side letter between the US government and the Israeli government,
Speaker 9: and that caveat says that if Hasbolah attempts to re
Speaker 9: arm attempts to re infiltrate personnel into the southern Lebanon
Speaker 9: area on the Israeli border, that Israel retains the right
Speaker 9: to strike to use military force to prevent the re
Speaker 9: emergence of that threat. President Biden explained that by saying
Speaker 9: Israel has the right to defend itself as any country does,
Speaker 9: and that Lebanon has the right to its sovereignty. So
Speaker 9: that's a side letter between the US and Israel. Because
Speaker 9: the Lebanese government would not sign off on an agreement
Speaker 9: that included an inherent violation of its sovereignty.
Speaker 3: All right, Ned, thank you very much, really appreciated.
Speaker 2: Ned. Lazarus's associate professor of International Affairs, George Washington University
Speaker 2: down there in Washington, d C. Getting the latest analysis
Speaker 2: of this ceasefire between Israel and Hesbola, which is a
Speaker 2: good news for that.
Speaker 3: Part of the world. And we'll see how much more
Speaker 3: we can get.
Speaker 5: This is Bloomberg.
Speaker 1: You're listening to the Bloomberg Intelligence Podcast. Catch us live
Speaker 1: weekdays at ten am Eastern on applecar Play and Android
Speaker 1: Otto with the Bloomberg Business. You can also listen live
Speaker 1: on Amazon Alexa from our flagship New York station Just
Speaker 1: Say Alexa playing Bloomberg eleven thirty.
Speaker 3: Brian Wellen joins us here in our studio.
Speaker 10: He's in New York.
Speaker 3: How about that?
Speaker 2: Brian Wellen, Chief Investment Officer and Generalists Portfolio Manager at TCW.
Speaker 3: Hey, Brian, when you and your team got up.
Speaker 2: The day after the election, you centered around your big
Speaker 2: conference room.
Speaker 3: Did you all look at each other saying, do we
Speaker 3: have to change anything? Here's what just changed, if anything overnight?
Speaker 3: How did you guys?
Speaker 4: We did?
Speaker 11: In fact, we kind of scratched our head a little
Speaker 11: bit because we felt like the market's reaction was just
Speaker 11: kind of a knee jerk reaction.
Speaker 5: You know.
Speaker 11: It felt like it was the holidays coming up. It
Speaker 11: felt like the market hit the easy button. They just
Speaker 11: wanted to take everything kind of on the surface, which
Speaker 11: was like, Okay, we're gonna have tariffs, you know, twenty
Speaker 11: percent on the rest of the world, sixty percent on China,
Speaker 11: We're going to deport tens of millions of people, and
Speaker 11: inflation's going to jump up.
Speaker 1: You know.
Speaker 11: We sat back and we said, you know what, like, actually,
Speaker 11: you know, inflation was running at about two point two
Speaker 11: percent when Trump came into office the first time, and
Speaker 11: through his presidency up until you know, the pandemic.
Speaker 4: It actually went down point one.
Speaker 11: And that included tough immigration policies that included tariffs, and
Speaker 11: then on the growth side, the market all of a
Speaker 11: sudden said, oh, oh my gosh, we're gonna we're gonna
Speaker 11: cut corporate taxes. We're gonna, you know, maybe do this
Speaker 11: adjustment to the salt man. I know that's near and
Speaker 11: dear to your heart, huge for me, right, and all
Speaker 11: of a sudden, we're gonna have higher treasure issues and
Speaker 11: higher budget deficits and treasure yields have to go higher.
Speaker 11: You know, we sat back and said, wait a minute,
Speaker 11: Like the first time Trump came into office, it was
Speaker 11: one hundred percent debt.
Speaker 3: To GDP with three percent budget deficits.
Speaker 11: You know, right now he's coming with one hundred and
Speaker 11: twenty percent debt to GDP the budget deficits over six percent. Yeah,
Speaker 11: you've had a Republican suitep. However, the margin in the
Speaker 11: House is not that great. There's certainly budget hawks out there,
Speaker 11: and so you know, at the end of the day,
Speaker 11: we just didn't feel like, you know, the narrative or
Speaker 11: the landscape had changed that much, and that whatever was
Speaker 11: going to get done, was it going to get done
Speaker 11: and probably a deluded manner from the administration, and what
Speaker 11: was going to be effective was probably going to be
Speaker 11: something later next year, if not twenty twenty six. And
Speaker 11: so from our perspective, we felt like it was an overreaction,
Speaker 11: particularly an interest rates, and rather we'd rather kind of
Speaker 11: get back and focus on maybe the economic trends that
Speaker 11: were in place before the election day.
Speaker 6: It's interesting because I always put the question usually the
Speaker 6: stocks guys on my TV show Bloomberg Open Interest weekdays
Speaker 6: nine to eleven AM Boom.
Speaker 3: I always listen, so I always put the question would
Speaker 3: you rather be in stocks or bonds?
Speaker 6: Going into Trump two point zero? Because he's gonna, he says, deregulate,
Speaker 6: he's gonna cut taxes, he's going to you know, raise tariffs,
Speaker 6: and it would seem that stocks are the answer. But
Speaker 6: right now the S and P is yielding like less
Speaker 6: than four percent, right and the ten uere is I
Speaker 6: don't know, four to twenty six right now.
Speaker 11: So what do you think I think that Well, the
Speaker 11: knee direk reaction was, you know, bonds went down in
Speaker 11: price and stocks went up. And now I think cooler
Speaker 11: heads are prevailing, and they're kind of looking at what
Speaker 11: I said earlier, which is saying, you know what, like
Speaker 11: maybe the story right now should be like what was
Speaker 11: the economic and trend in.
Speaker 3: Place going into November?
Speaker 11: And you know we can talk about that and look
Speaker 11: at the end of the day, you know, Trump is Trump.
Speaker 11: You're gonna get a lot of volatility. And you know,
Speaker 11: let's not forget who he's a commercial real estate guy.
Speaker 11: You know Donald Trump wants lower interest rates, right, you
Speaker 11: know that that's good from his perspective, and I think
Speaker 11: the administrations.
Speaker 3: Them, but can you get them.
Speaker 6: I mean, you look at dots go on the terminal.
Speaker 9: Dude.
Speaker 6: If you look at dots go right now, and then
Speaker 6: you punch in FED funds futures, the market is pricing
Speaker 6: a terminal rate of like four percent, and the Fed
Speaker 6: is penciled in a rate of less than three.
Speaker 4: Right.
Speaker 3: You know, he's probably going to get him.
Speaker 11: Unfortunately for the administration, he ain't not get him in
Speaker 11: the way he wants, you know, which may mean that
Speaker 11: some of the softening trends we've seen in the economy
Speaker 11: and the labor market that were in place before the election,
Speaker 11: you know, from our opinion, they're more likely going to
Speaker 11: be what you want to look to in terms of direction,
Speaker 11: which means once we come to the new year, we
Speaker 11: could be in an environment where the economy is slowing.
Speaker 11: The Fed may have to lower rates further than the
Speaker 11: markets expecting, but that's probably going to be coinciding and
Speaker 11: due to a slowing economy, which is not necessarily the
Speaker 11: best thing for the administration.
Speaker 2: So where we're giving that kind of backdrop, do you
Speaker 2: guys see that value in the fixed in market these
Speaker 2: days days.
Speaker 11: We love the you know, the for the bond nerds,
Speaker 11: it's the front end of the yield curf. You know, basically,
Speaker 11: if you think about, let's put the yield curve into
Speaker 11: two pieces, we'll call it the front end, which.
Speaker 3: Is like the two year treasury and the five year treasury,
Speaker 3: and then you.
Speaker 1: Got the long end.
Speaker 11: That's kind of like, let's call it the thirty year
Speaker 11: treasury out there, you know, we think the thirty year TCW.
Speaker 11: We're kind of looking at the at the math and
Speaker 11: the fundamental kind of bottoms of work and say, you know,
Speaker 11: there's a lot of questions on the long end, like
Speaker 11: maybe we do have a lot of treasury erasments, Like
Speaker 11: there's a lot of factors maybe overseas, you know, essentral
Speaker 11: banks may sell it, Like a lot of factors can
Speaker 11: influence that. Where we would rather kind of tie our
Speaker 11: client's money is to is to the Federal Reserve. What
Speaker 11: they're gonna do with with the Fed funds rate, and
Speaker 11: that will highly influence what happens with the two year
Speaker 11: and the five year. And right now those yields are
Speaker 11: about four point two percent plus or minus. So first
Speaker 11: of all, you're getting paid a good yield or coupon
Speaker 11: to kind of sit there, kind of like a cash
Speaker 11: like investment. And then if we're right and the Fed
Speaker 11: actually has to lower rates not to what the market expects,
Speaker 11: which is about four percent, maybe three percent or even lower,
Speaker 11: you're gonna get a really good price return and that
Speaker 11: prices are going to jump up when yields go from
Speaker 11: about four point two today to something closer to three
Speaker 11: or even below that.
Speaker 2: But the best performing sector is just a year to
Speaker 2: date have been US high yield and US leverage loans.
Speaker 3: That does that surprise you? Are you an I go
Speaker 3: I N go? Yes?
Speaker 11: Does it surprise when you look at you know, equities
Speaker 11: at twenty two plus? You know, price to earnings when
Speaker 11: you look at the Vicks at fourteen, does it surprise me? No,
Speaker 11: because it's kind of in line with other things going
Speaker 11: on in the marketplace. But that's extremely expensive, Like you
Speaker 11: are not getting compensated to take risk. In the high
Speaker 11: yield bond market right now, you get about two point
Speaker 11: six percent of extra yield. It's over it's great height,
Speaker 11: just historical levels or north of four percent. So basically
Speaker 11: what the market's telling you, at least in the high
Speaker 11: yield market is that it's going to be a no
Speaker 11: landing things are there's not going to be volatility. Everything
Speaker 11: is going to be smooth sailing for a year plus
Speaker 11: on out, you know, when we're willing to kind of
Speaker 11: position against that.
Speaker 3: Yeah, I was.
Speaker 6: I think there is a Bloomberg story just a couple
Speaker 6: of days ago about building up short positions in that
Speaker 6: in that debt. By the way, we are always pimping
Speaker 6: Bloomberg functions. That's why Yes, I and go you know
Speaker 6: them all right, But how about worp YEA, Yeah, we're
Speaker 6: for sure. I absolutely love warp N go E C
Speaker 6: t R goes.
Speaker 3: I'm not thinking out today.
Speaker 6: I wonder how focused you are in on the US
Speaker 6: or do you also cast your gaze abroad? Because someone
Speaker 6: sent me the Feta breeze spread today, which I thought
Speaker 6: was interesting. So French tenure yields are about to be
Speaker 6: higher than Greek ten year yields, and I mean those
Speaker 6: of us old enough to remember the European debt crisis.
Speaker 6: That's insane, right, Athens was burning.
Speaker 11: It is all over the bat in fact, yeah, what
Speaker 11: Greece is actually paying down debt? Yeah, France is having
Speaker 11: you know, they're gonna their government is probably gonna dissolve,
Speaker 11: I think.
Speaker 3: Actually, yeah, we do stuff all over the globe.
Speaker 11: Like actually, just this morning, we were buying French debt
Speaker 11: at eighty six basis points over boons, you know, which which.
Speaker 3: Is quite a bit, and then other areas of value.
Speaker 11: You know, we love the pound, you know, we think
Speaker 11: you know, that currency looks attractive versus the Euro. New
Speaker 11: Zealand talk about cutting interest rates. You know, Zealand just
Speaker 11: cut interstrates fifty basis points overnight. There's still at least
Speaker 11: two hundred basis points away from neutral. So given the
Speaker 11: just it was a except for Japan, there was this
Speaker 11: kind of developed central bank hiking throughout twenty one through
Speaker 11: twenty three, and now we're on the other side of that.
Speaker 11: We're on the back nine, and interstrates globally except Japan,
Speaker 11: are coming back down and they're creating some interesting opportunity.
Speaker 11: A lot of cross currents out there to do things
Speaker 11: not just in the US, but from a rate and
Speaker 11: a currency perspective all over the globe.
Speaker 3: Yeah, that's the exciting part of the story.
Speaker 6: And do you see any significant divergence there. I mean,
Speaker 6: at the beginning of the year we all thought everyone
Speaker 6: was going to be on a cutting cycle together. And
Speaker 6: now I mean, is it still the case or do
Speaker 6: you expect some banks to be cutting more than others,
Speaker 6: others to be holding.
Speaker 11: Back, some cut more than others the ECB and I said,
Speaker 11: New Zealand will probably cut more. So then Australia is
Speaker 11: going to hang back a little bit. You know, inflation
Speaker 11: in Australia has not come down. Actually, growth looks decent there,
Speaker 11: and then you look at places like Japan, like Japan's
Speaker 11: behind the curve. I mean, you know what an incredible
Speaker 11: turnaround story there. So they're gonna have to hike rates
Speaker 11: a lot more aggressively, we think than the market expects.
Speaker 11: And you know when you talk interest rates, you can't
Speaker 11: you have to talk about currency.
Speaker 9: Yeah.
Speaker 11: Absolutely, So when we look at that, it's like, you know,
Speaker 11: the end looks like an incredibly attractive The dollar's been.
Speaker 3: On a run.
Speaker 4: It's so weak.
Speaker 3: I mean, you can buy more than one hundred and
Speaker 3: fifty en for a dollar.
Speaker 11: But you know, I think both from an economic perspective,
Speaker 11: from an interst rate perspective, and a growth perspective, you've
Speaker 11: got three nice tail winds behind the end right now
Speaker 11: and it's gone against you for the last month, but
Speaker 11: you know, it's kind of value investors, but we think
Speaker 11: is like, that's just a buying opportunity. You're getting in
Speaker 11: at a better price right now to purchase that currency.
Speaker 3: How about emerging markets? Do you guys traffic in that
Speaker 3: alt all over?
Speaker 11: And yeah, I talk about you know, the election and
Speaker 11: tying it back to the emerging markets, like great opportunities
Speaker 11: cross currents, like with regards to tariffs and immigration and
Speaker 11: the currency volatility, it's created opportunities, kind of bottoms up,
Speaker 11: kind of issue selection opportunities, and kind of where we've
Speaker 11: been favoring is is economies that are more in the
Speaker 11: emerging markets and more idiosyncratic, so kind of less exposed
Speaker 11: to generic like tariff increases on high exporting economies right
Speaker 11: on the other side, where the economies tend to be
Speaker 11: more isolated and they've had very favorable fundamentals behind them.
Speaker 6: Damn, I want to come back as a macro trader, dude,
Speaker 6: that's where all the action.
Speaker 9: I know.
Speaker 10: Yes, why are we stocks guys?
Speaker 3: You could be you could be the next Treasury secretary.
Speaker 3: Yes you can macro.
Speaker 6: You know, I probably have a better shot at that
Speaker 6: in this administration than I ever have in my life.
Speaker 3: Exactly, just the odd unique calls.
Speaker 2: Brian Well and thanks so much for joining us. Brian
Speaker 2: Well And he's a chief investment officer and a general's
Speaker 2: portfolio manager at TCW based out there in Los Angeles,
Speaker 2: but in our New York studium in New York City. Exactly,
Speaker 2: we just get rain on the parade tomorrow.
Speaker 3: Still capital in the world.
Speaker 1: Right, you're listening to the Bloomberg Intelligence Podcast. Catch us
Speaker 1: live weekdays at ten am Eastern on applecar Play and
Speaker 1: androyd outto with Bloomberg Business. You can also listen live
Speaker 1: on Amazon Alexa from our flagship New York station Just
Speaker 1: Say Alexa playing Bloomberg eleven thirty.
Speaker 2: One of the most widely read stories on the Bloomberg
Speaker 2: terminal has to do with some of the bigger names
Speaker 2: out there in global wall streets. That's not a surprise.
Speaker 2: Black Rock Vanguard accused of antitrust violations by Texas. What's
Speaker 2: going on down with our friends in Texas? Peter Jeffrey
Speaker 2: joins as Bloomberg News Legal editor. Peter, what's going on
Speaker 2: with some of these huge, huge asset managers and are
Speaker 2: good friends at the State of Texas. What's going on?
Speaker 10: The asset managers have belonged to groups that are seeking
Speaker 10: to mitigate climate change by reducing, for example, coal output.
Speaker 10: Some of them have drifted away from these groups. But
Speaker 10: Texas sued this morning in federal court claiming that the
Speaker 10: asset managers are effectively colluding to depress the output of
Speaker 10: coal and therefore raising energy prices on consumers in the
Speaker 10: states that suit, including Texas, West Virginia, Montana, Alabama, and
Speaker 10: so forth. Republican led states.
Speaker 4: How much of this is just kind of looney? Ken Paxton,
Speaker 4: Republican Texas Politics.
Speaker 10: Ken Paxton does sue a lot, But it's an interesting suit.
Speaker 10: It's one hundred pages long, and I think you know,
Speaker 10: just looking at over they're going to have to show
Speaker 10: that it was the actions of Black Rock and State
Speaker 10: Street and Vanguard themselves. They're pushing these portfolio companies to
Speaker 10: cut down on their coal output. The states are going
Speaker 10: to have to show that that is what led to
Speaker 10: the reduction of the coal output, it seems to me,
Speaker 10: and therefore raised prices on consumers. So to your question, yes,
Speaker 10: Ken Paxton does sue a lot. Yes, he's got to
Speaker 10: show all that as well as the other states.
Speaker 4: Attorney the Attorney General, who himself went through an impeachment
Speaker 4: and prevailed.
Speaker 10: But I will say that it's carefully been looking at it.
Speaker 10: This just this more. It's a carefully written, fairly well
Speaker 10: structured suit presentationally. Now, whether it can prove the allegations
Speaker 10: is an open question.
Speaker 3: I always find that funny.
Speaker 2: I'm learning from Alex Steel, who's, you know, our expert
Speaker 2: hero on energy. You know, you think of Texas, you
Speaker 2: think oil and gas, but they're also the biggest wind
Speaker 2: farm people, the biggest solar places are down there in Texas.
Speaker 3: I mean, so they are cranking out a ton of alternatives.
Speaker 10: And in fact it's those alternative sources that are partly
Speaker 10: playing a role by competing with coal one of the
Speaker 10: forces that may be making it maybe depressing coal output
Speaker 10: as well. So again to show this connection that it's
Speaker 10: Larry Fink who is driving down the coal output and
Speaker 10: up the prices is the challenge for the states that
Speaker 10: are suing. It's quite an interesting suit.
Speaker 4: We also know from having rid the grid that Texas
Speaker 4: has its own grid that's not hooked up to the
Speaker 4: rest of us, right, but fiercely independent streak that yes, yeah, exactly.
Speaker 10: And coal output in Texas I think is down to
Speaker 10: ten percent of its energy output from eighteen percent just
Speaker 10: four or five years ago, if I've got those figures right.
Speaker 10: So there's no question that the coal output is diminishing.
Speaker 10: But what's causing that will be one of the crucial
Speaker 10: links to show in succeeding.
Speaker 3: And what are these asset manage Have they said anything
Speaker 3: in response to these so far?
Speaker 10: No, they haven't yet given us their position. We're waiting.
Speaker 10: We're hoping to get that position. Put it in an
Speaker 10: update in our story. But I'll tell you what they're
Speaker 10: asking the court to do. They're asking the court. It's
Speaker 10: kind of interesting. One of the possible asks, if necessary,
Speaker 10: is asking the court to force these giant money managers,
Speaker 10: the top three US money managers, to divest themselves of
Speaker 10: these coal holdings. We'll see if it happens, but that
Speaker 10: is one of the things the suit seeks.
Speaker 4: Do they still shake in their boots when this happens
Speaker 4: or are they sort of like the asset managers kind
Speaker 4: of fighting back.
Speaker 10: Well, that's a good question. I mean, there's been so
Speaker 10: much litigation around ESG and some money withdrawn because of ESG.
Speaker 10: But I think at this point, you know, they'll look
Speaker 10: the suit, they'll read the suit carefully, they'll be prepared.
Speaker 10: I don't know if they're shaking in their boots.
Speaker 2: Yeah, it's uh, I'm from Van Garter State's really you know,
Speaker 2: I'll go against.
Speaker 10: One of the federal statutes that the suit invokes is
Speaker 10: the Clayton Anti Trust Act from nineteen fourteen, and what
Speaker 10: that says is that if you any action that you take,
Speaker 10: for example, in shareholder proposals, voting on shareholder proposals, has
Speaker 10: the effect of limiting competition is illegal.
Speaker 3: All right, Peter, thank you so much for joining us.
Speaker 2: Peter Jeffrey, he's a legal editor for a Bloomberg News
Speaker 2: joining us here in a Bloomberg ARCTORP.
Speaker 3: Porker studio.
Speaker 1: This is the Bloomberg Intelligence Podcast, available on apples, Spotify,
Speaker 1: and anywhere else you will get your podcasts. Listen live
Speaker 1: each weekday ten am to noon Eastern on Bloomberg dot com,
Speaker 1: the iHeart Radio app, tune In, and the Bloomberg Business app.
Speaker 1: You can also watch us a long I have every
Speaker 1: weekday on YouTube and always on the Bloomberg Jominal
Speaker 5: M