1 00:00:00,120 --> 00:00:02,920 Speaker 1: Brought you by Bank of America, Mary Lynch. Investing in 2 00:00:03,000 --> 00:00:07,840 Speaker 1: local communities, economies and a sustainable future. That's the power 3 00:00:08,080 --> 00:00:12,360 Speaker 1: of global connections, Mary Lynch, Pierce Fenner and Smith Incorporated 4 00:00:12,760 --> 00:00:27,400 Speaker 1: member s I p C. Welcome to the Bloomberg Surveillance Podcast. 5 00:00:27,840 --> 00:00:31,520 Speaker 1: I'm Tom Keene with David Gura. Daily we bring you 6 00:00:31,560 --> 00:00:36,600 Speaker 1: insight from the best in economics, finance, investment, and international relations. 7 00:00:37,000 --> 00:00:41,600 Speaker 1: Find Bloomberg Surveillance on iTunes, SoundCloud, Bloomberg dot Com, and 8 00:00:41,680 --> 00:00:48,720 Speaker 1: of course, on the Bloomberg. On the show this morning, 9 00:00:48,800 --> 00:00:51,760 Speaker 1: Jim Coach and Wells Fargo Funds and Tony Kristenzi, portfolio 10 00:00:51,800 --> 00:00:54,120 Speaker 1: manager at Pimco who joins us now in our Bloomberg 11 00:00:54,360 --> 00:00:56,760 Speaker 1: eleven three oh studios. Let's pick up the pieces from 12 00:00:56,800 --> 00:00:59,480 Speaker 1: what happened on Friday? How is what happened in Washington 13 00:00:59,520 --> 00:01:03,520 Speaker 1: Friday after and play at the fixed we risk premia 14 00:01:03,840 --> 00:01:07,119 Speaker 1: is being extracted out of bonds. It's a little too 15 00:01:07,200 --> 00:01:09,039 Speaker 1: much for this early in the morning to say, but 16 00:01:09,120 --> 00:01:11,679 Speaker 1: what we mean is that bond yields had been moving 17 00:01:11,760 --> 00:01:14,039 Speaker 1: up call it from a one eighty just before the 18 00:01:14,040 --> 00:01:17,600 Speaker 1: election for the US tenure to about two point six 19 00:01:17,640 --> 00:01:20,240 Speaker 1: percent or so some of that increase, of course, reflected 20 00:01:20,280 --> 00:01:22,640 Speaker 1: the fact that the Federal Reserve has raised interest rates 21 00:01:22,640 --> 00:01:25,920 Speaker 1: twice since the election, in December and then of course 22 00:01:25,959 --> 00:01:28,479 Speaker 1: in March. But some of it also reflected the idea 23 00:01:28,560 --> 00:01:31,360 Speaker 1: that perhaps there was some risk of the U s 24 00:01:31,400 --> 00:01:35,720 Speaker 1: economy getting stronger than anticipated, stronger than the two point 25 00:01:35,760 --> 00:01:38,680 Speaker 1: two percent or so paced we've seen of recent years. 26 00:01:38,720 --> 00:01:41,760 Speaker 1: That risk is a little lower in the bond market 27 00:01:41,840 --> 00:01:45,720 Speaker 1: size now it never really was high, though. The bond 28 00:01:45,800 --> 00:01:47,760 Speaker 1: market for some time has been pricing for the Federal 29 00:01:47,760 --> 00:01:50,480 Speaker 1: Reserve to keep its policy rate really low, call it 30 00:01:50,520 --> 00:01:54,440 Speaker 1: two percent or so by the year, well below historical 31 00:01:54,480 --> 00:01:58,160 Speaker 1: norms of closer to five or so, and certainly lower 32 00:01:58,200 --> 00:02:02,240 Speaker 1: than previous peaks. And so the bottomarket had already been thinking, well, 33 00:02:02,280 --> 00:02:05,360 Speaker 1: there could be a Trump bump, but maybe it won't last. 34 00:02:05,400 --> 00:02:07,960 Speaker 1: And so it's back to that idea, and it's just 35 00:02:08,040 --> 00:02:10,680 Speaker 1: reinforced and it's keeping yields low. But don't look for 36 00:02:10,760 --> 00:02:13,799 Speaker 1: yields to move a lot lower. The Federals are more 37 00:02:13,840 --> 00:02:15,880 Speaker 1: than likely we keep raising raised. Final final point is 38 00:02:15,880 --> 00:02:19,079 Speaker 1: because the economy in and of itself is faring pretty well, 39 00:02:19,240 --> 00:02:21,959 Speaker 1: especially the global economy. Do you see this the healthcare 40 00:02:22,000 --> 00:02:24,239 Speaker 1: vote as a lit miss on on Trump and omics. 41 00:02:24,320 --> 00:02:26,280 Speaker 1: Run with the administration's proposing here, what does it Does 42 00:02:26,320 --> 00:02:28,840 Speaker 1: it tell you about what's to come? Not necessarily. We 43 00:02:28,880 --> 00:02:32,320 Speaker 1: know from the past that Donald Trump learns from lessons 44 00:02:32,360 --> 00:02:35,200 Speaker 1: and usually tends to tends to bounce back. And healthcare 45 00:02:35,440 --> 00:02:39,880 Speaker 1: is a lot different than the tax story in the 46 00:02:39,919 --> 00:02:42,480 Speaker 1: in this sense, think of Medicare. It was a program 47 00:02:42,520 --> 00:02:45,720 Speaker 1: created in nineteen sixty six. It's never been shrunk. It's 48 00:02:45,760 --> 00:02:49,240 Speaker 1: only been increased in size repeatedly. Not that that's a 49 00:02:49,240 --> 00:02:52,440 Speaker 1: bad thing, but it's very difficult to take a benefit 50 00:02:52,520 --> 00:02:57,160 Speaker 1: away from American citizens rather than give them something. So 51 00:02:57,280 --> 00:03:01,920 Speaker 1: healthcare reform was part truly about taking something away. The 52 00:03:01,960 --> 00:03:06,880 Speaker 1: potentially cuts in Medicaid, for example, Uh, tax cuts is 53 00:03:06,919 --> 00:03:10,799 Speaker 1: like Christmas to Americans. Are well, and you could say 54 00:03:11,440 --> 00:03:14,880 Speaker 1: the giving a gift, Washington is giving a gift saying here, 55 00:03:15,560 --> 00:03:18,720 Speaker 1: don't pay a few small amount of taxes. So it 56 00:03:18,760 --> 00:03:21,480 Speaker 1: should be easier. So so, in terms of lessons learned 57 00:03:21,880 --> 00:03:27,359 Speaker 1: from healthcare healthcare reform, healthcare historically has been difficult. It's 58 00:03:28,000 --> 00:03:30,880 Speaker 1: pulling back taking back a benefit is difficult, and that's 59 00:03:30,919 --> 00:03:34,320 Speaker 1: been the case in Europe especially um, but I'm giving 60 00:03:34,400 --> 00:03:36,920 Speaker 1: something to people that's going to be a lot easier, 61 00:03:36,920 --> 00:03:39,040 Speaker 1: but not to say it will be easy. When you 62 00:03:39,080 --> 00:03:42,200 Speaker 1: look at the fixed income space right now, how big 63 00:03:42,240 --> 00:03:45,160 Speaker 1: a role is politics playing versus central banking worth the 64 00:03:45,200 --> 00:03:49,600 Speaker 1: Fed reserve politics. In fact, we'd say are is playing 65 00:03:49,600 --> 00:03:53,520 Speaker 1: a very low role in in the bondmarket in one sense, 66 00:03:53,560 --> 00:03:56,720 Speaker 1: but a very big role in another. Very low role 67 00:03:56,800 --> 00:04:00,000 Speaker 1: in the sense that Washington has been dysfunctional for a while. 68 00:04:00,080 --> 00:04:02,200 Speaker 1: The numbers of laws passed by Congress in the last 69 00:04:02,280 --> 00:04:05,839 Speaker 1: four years is the least in about two hundred years. UH. 70 00:04:05,920 --> 00:04:08,960 Speaker 1: That in action has been hurting the U s economy, 71 00:04:09,040 --> 00:04:12,920 Speaker 1: so that keeps bawn yields down. But you could say 72 00:04:12,960 --> 00:04:15,360 Speaker 1: that it's very important to the bomb mark in the 73 00:04:15,400 --> 00:04:19,520 Speaker 1: sense that it's in action. It's inactivity is what's suppressing 74 00:04:19,800 --> 00:04:22,600 Speaker 1: productivity United States, which is a key driver of growth. 75 00:04:22,800 --> 00:04:25,920 Speaker 1: For listeners to understand, the US economy has grown out 76 00:04:25,920 --> 00:04:29,080 Speaker 1: about a three percent pace historically. That's usually because there's 77 00:04:29,120 --> 00:04:31,560 Speaker 1: one percent increase in the numbers of human beings to 78 00:04:31,800 --> 00:04:34,720 Speaker 1: make goods and services and a too percent increase in 79 00:04:34,760 --> 00:04:38,719 Speaker 1: how productive they were in making those goods and services. UH. 80 00:04:38,720 --> 00:04:41,840 Speaker 1: These days, the productivity numbers as far south of one percent. 81 00:04:41,960 --> 00:04:45,080 Speaker 1: And this is and it reflects the lack of government action. 82 00:04:46,040 --> 00:04:49,000 Speaker 1: I want to come right back with this this morning, 83 00:04:49,000 --> 00:04:50,560 Speaker 1: bringing up here on a chat. I'll put this out 84 00:04:50,600 --> 00:04:53,279 Speaker 1: on Twitter for your gazing, probably use it on Facebook 85 00:04:53,360 --> 00:04:57,240 Speaker 1: Live today as well. And that is the inflation adjusted 86 00:04:57,320 --> 00:05:02,640 Speaker 1: five year yield with this, Tony Cosenzi, Oh, Pimco Real 87 00:05:02,720 --> 00:05:06,280 Speaker 1: yards aren't there? The financial repression continues. Do you have 88 00:05:06,320 --> 00:05:11,760 Speaker 1: any framework that removes us from a financial repression? Yes? Um. 89 00:05:11,880 --> 00:05:19,240 Speaker 1: Janet Yellen believes there isn't the idea that over time 90 00:05:20,080 --> 00:05:24,080 Speaker 1: the real rate, the neutral rate will move higher. Uh. 91 00:05:24,640 --> 00:05:28,400 Speaker 1: There are aspects of the financial crisis that's still linger. 92 00:05:28,480 --> 00:05:32,320 Speaker 1: For example, credit growth. It was once, of course, before 93 00:05:32,360 --> 00:05:35,400 Speaker 1: the crisis, very strong. The credit impulse isn't as strong 94 00:05:35,440 --> 00:05:38,000 Speaker 1: as it used to be. It's believed that over time 95 00:05:38,040 --> 00:05:40,400 Speaker 1: banks will loosen up the first strings, especially now in 96 00:05:40,400 --> 00:05:43,159 Speaker 1: an era where the regulatory impulse will be a little 97 00:05:43,160 --> 00:05:47,360 Speaker 1: bit lower or less stringent. So if banks open up 98 00:05:47,600 --> 00:05:52,520 Speaker 1: there her strings this and lending picks up globally. Uh, 99 00:05:52,560 --> 00:05:55,120 Speaker 1: then of course that that affords the likelihood of a 100 00:05:55,160 --> 00:05:59,760 Speaker 1: faster increasing inh nominal GDP, which coincides with higher real 101 00:06:00,000 --> 00:06:02,880 Speaker 1: interest rates, but there are elements there that make it 102 00:06:02,920 --> 00:06:06,159 Speaker 1: difficult for the real rate to rise. The real neutral rate, 103 00:06:06,320 --> 00:06:08,159 Speaker 1: the neutral rate for the FEDS policy rate, of course, 104 00:06:08,160 --> 00:06:10,599 Speaker 1: is where the FEDS neither pressing on the gas or 105 00:06:10,640 --> 00:06:13,040 Speaker 1: the break where it's happy with. Where the unempoint rate 106 00:06:13,080 --> 00:06:16,320 Speaker 1: is today at four point seven percent inflation close to 107 00:06:16,400 --> 00:06:20,839 Speaker 1: two percent. Historically that that rate has been about four 108 00:06:20,880 --> 00:06:24,440 Speaker 1: and a quarter percent, the nominal level, an inflation running 109 00:06:24,440 --> 00:06:28,279 Speaker 1: around two, so called about two reel. These days, of course, 110 00:06:28,480 --> 00:06:31,279 Speaker 1: it seems that we've got a much different scenario, and 111 00:06:31,320 --> 00:06:33,920 Speaker 1: that reflects in part the credit impulse, and many believe 112 00:06:33,960 --> 00:06:38,200 Speaker 1: that the new neutral rate is not four percent but two. 113 00:06:38,839 --> 00:06:41,240 Speaker 1: We'd say it's probably in the twos or so. And 114 00:06:41,279 --> 00:06:44,120 Speaker 1: what what keeps it down in part is not only 115 00:06:44,120 --> 00:06:47,800 Speaker 1: the credit impulse, but the demographic influence. Eighty million Americans 116 00:06:47,880 --> 00:06:50,920 Speaker 1: aged fifty five and older mean that the labor force 117 00:06:51,000 --> 00:06:52,839 Speaker 1: won't be growing as fast as it used It won't 118 00:06:52,880 --> 00:06:55,640 Speaker 1: be as many human beings to produce goods and services 119 00:06:55,680 --> 00:06:58,640 Speaker 1: the numbers of increase that they used to be in 120 00:06:58,760 --> 00:07:04,120 Speaker 1: the baby boom heyday, that sort of thing, and also productivity, 121 00:07:04,200 --> 00:07:08,560 Speaker 1: the lack of investment by companies and government is impairing 122 00:07:08,560 --> 00:07:10,920 Speaker 1: the ability to produce more goods and service. So picture this, 123 00:07:11,360 --> 00:07:13,440 Speaker 1: A company five years ago could have had a hundred 124 00:07:13,480 --> 00:07:16,640 Speaker 1: employees and fifty computers. Today, because of a decline in 125 00:07:16,680 --> 00:07:19,360 Speaker 1: what they call capital intensity, the amount of capital and 126 00:07:19,400 --> 00:07:22,040 Speaker 1: place per unit of labor, that company has a hundred 127 00:07:22,040 --> 00:07:25,800 Speaker 1: people forty eight computers, fewer things in place per unit 128 00:07:25,800 --> 00:07:30,240 Speaker 1: of labor to produce goods and services. That constrains growth, 129 00:07:30,480 --> 00:07:34,440 Speaker 1: and Tom keeps the real interest rate down because then 130 00:07:34,560 --> 00:07:37,720 Speaker 1: growth simply isn't as strong. And so what would change 131 00:07:37,720 --> 00:07:39,760 Speaker 1: it is a change in productivity. So what the equity 132 00:07:39,800 --> 00:07:42,200 Speaker 1: markets leap of faith is partly about the idea that 133 00:07:42,240 --> 00:07:45,720 Speaker 1: government will take action that encourages companies to invest more 134 00:07:45,920 --> 00:07:48,760 Speaker 1: now by itself organically. Since the global economy looks like 135 00:07:48,760 --> 00:07:51,320 Speaker 1: it will grow nominally about five and a percent this year, 136 00:07:51,880 --> 00:07:54,560 Speaker 1: which will lead to probably double digit gaining corporate profits, 137 00:07:54,640 --> 00:08:01,640 Speaker 1: there'll be some gaining capital spending the United States globally. 138 00:08:01,800 --> 00:08:04,520 Speaker 1: No in the United States is more likely to be 139 00:08:04,840 --> 00:08:10,440 Speaker 1: be lucky to see four because politically acceptable, it's around 140 00:08:10,480 --> 00:08:14,480 Speaker 1: four around Look at the charts, you'll see it's been 141 00:08:14,600 --> 00:08:19,760 Speaker 1: under four there's under four or around four. Animal spirit 142 00:08:20,080 --> 00:08:24,200 Speaker 1: in the United States means financial repression forever. It means 143 00:08:24,240 --> 00:08:28,400 Speaker 1: it for a long time. Because and Janet Yell said 144 00:08:28,400 --> 00:08:31,400 Speaker 1: August and Jackson Hall. She said, if productivity would increase, 145 00:08:32,480 --> 00:08:35,280 Speaker 1: that it would quote raise the average level of interest 146 00:08:35,360 --> 00:08:39,320 Speaker 1: rates fun quote. She knows that if productivity increases at 147 00:08:39,360 --> 00:08:41,560 Speaker 1: a faster pace, it would be more income for companies, 148 00:08:41,600 --> 00:08:44,360 Speaker 1: more income for people, more spending on goods and services, 149 00:08:44,360 --> 00:08:47,840 Speaker 1: the higher nominal GDP level, and higher interest rates. But 150 00:08:48,040 --> 00:08:51,800 Speaker 1: yet we still are not finding evidence of this change. 151 00:08:51,800 --> 00:08:54,240 Speaker 1: But there should be from the global product, from the 152 00:08:54,240 --> 00:08:58,600 Speaker 1: global corporate profit gain, and hopefully from from corporate tax 153 00:08:58,640 --> 00:09:02,280 Speaker 1: reform and cuts in individual tax rates. Hopefully that's what 154 00:09:02,320 --> 00:09:04,400 Speaker 1: the stock mark is going to be clinging to at 155 00:09:04,400 --> 00:09:06,880 Speaker 1: this point. You propose a mantra for the fedure to 156 00:09:06,880 --> 00:09:12,920 Speaker 1: protect the path. Protect the path extraordinarily important. It looked 157 00:09:12,920 --> 00:09:16,880 Speaker 1: like to the bond market beginning in the at the election, 158 00:09:16,960 --> 00:09:20,400 Speaker 1: that the prospects for faster economic growth were good. So 159 00:09:20,440 --> 00:09:24,680 Speaker 1: the bondmarket vigilantes, those who worry about inflation, came out. 160 00:09:25,040 --> 00:09:27,000 Speaker 1: In other words, they sold bonds to say, give me 161 00:09:27,040 --> 00:09:29,520 Speaker 1: a higher interest rate because I think we think there'll 162 00:09:29,520 --> 00:09:32,400 Speaker 1: be higher inflation. So the tenure yield in the US 163 00:09:32,440 --> 00:09:35,640 Speaker 1: went from one to two sixty quickly. So the Fed 164 00:09:35,800 --> 00:09:39,040 Speaker 1: job to protect the path was to be tough, to 165 00:09:39,160 --> 00:09:42,720 Speaker 1: be vigilant, to show resolve, and Janet Yellen December fourteenth, 166 00:09:42,760 --> 00:09:44,960 Speaker 1: in a press conference she did. She said, Hey, we 167 00:09:45,040 --> 00:09:47,000 Speaker 1: might raise rates more, and we're gonna do it today. 168 00:09:47,040 --> 00:09:49,760 Speaker 1: We're gonna do it again. And ever since she toughened up, 169 00:09:49,880 --> 00:09:53,440 Speaker 1: there's been two rate hikes since then. Yields peak. In fact, 170 00:09:53,440 --> 00:09:57,440 Speaker 1: they peaked December fifteen, only two weeks ago. Revisited that 171 00:09:57,520 --> 00:10:00,360 Speaker 1: level for an instant, but that too s he was 172 00:10:00,360 --> 00:10:01,880 Speaker 1: the peak because if it got tough, So the Fence 173 00:10:01,880 --> 00:10:05,440 Speaker 1: actually raise rates twice and yields haven't gone up any higher. 174 00:10:05,760 --> 00:10:07,960 Speaker 1: Is protected the view on how high the rate the 175 00:10:07,960 --> 00:10:10,520 Speaker 1: fence policy will eventually go. And there's a lot about 176 00:10:10,520 --> 00:10:14,240 Speaker 1: disclud in the Atlanta Index on the number of hidden 177 00:10:14,320 --> 00:10:16,560 Speaker 1: rate cuts we've seen. Tony Cosenzi, thank you so much. 178 00:10:16,880 --> 00:10:32,400 Speaker 1: With Pimco. Greg Bellier, whose pressions was on display Friday 179 00:10:32,440 --> 00:10:34,640 Speaker 1: morning when he wrote that the American Health Care Act 180 00:10:34,679 --> 00:10:36,559 Speaker 1: was gonna die in one of two ways, either on 181 00:10:36,600 --> 00:10:38,800 Speaker 1: the House floor or the Senate where we saw it 182 00:10:38,880 --> 00:10:41,520 Speaker 1: die before getting to the House floor on Friday afternoon, 183 00:10:41,520 --> 00:10:43,480 Speaker 1: he joins us. Now, and Greg, let me just ask 184 00:10:43,520 --> 00:10:45,320 Speaker 1: you as we move ahead to taxi for him here, 185 00:10:45,360 --> 00:10:47,120 Speaker 1: we'll talk about that in some detail with you here. 186 00:10:47,240 --> 00:10:49,520 Speaker 1: What the lessons learned are about what happened with the 187 00:10:49,559 --> 00:10:52,440 Speaker 1: American Healthcare Act, particularly when it comes to how this 188 00:10:52,480 --> 00:10:55,600 Speaker 1: White House interacts with the Congress, well a lot, David, 189 00:10:55,640 --> 00:10:58,520 Speaker 1: good morning. I think that, uh, there's a need to 190 00:10:58,960 --> 00:11:01,480 Speaker 1: uh lobby better. There's a need to bring in the 191 00:11:01,480 --> 00:11:04,960 Speaker 1: Freedom Caucus, the moderates. Uh. I think the White House 192 00:11:04,960 --> 00:11:09,400 Speaker 1: feels they've got so oversold by Paul Ryan. Lots and 193 00:11:09,440 --> 00:11:12,320 Speaker 1: lots of lessons, lots and lots of reverberations that have 194 00:11:12,480 --> 00:11:16,680 Speaker 1: led to tremendous infighting over the last forty eight hours. 195 00:11:18,520 --> 00:11:20,719 Speaker 1: I you know, I'm looking here at your your your 196 00:11:20,760 --> 00:11:23,040 Speaker 1: Friday note. You say the difference between deal making New 197 00:11:23,120 --> 00:11:26,440 Speaker 1: York City and dealmaking in Washington have never been more apparent. 198 00:11:26,880 --> 00:11:29,040 Speaker 1: What did Donald Trump? What did President Trump get wrong 199 00:11:29,080 --> 00:11:33,760 Speaker 1: about this process? Well, you can't set arbitrary deadlines. You 200 00:11:33,840 --> 00:11:36,959 Speaker 1: can't make threats in this town. Threats don't usually work. 201 00:11:37,600 --> 00:11:40,000 Speaker 1: You have to get into the nitty gritty, and maybe 202 00:11:40,040 --> 00:11:44,920 Speaker 1: most importantly, healthcare is an albatross. Every administration that owns 203 00:11:45,000 --> 00:11:48,880 Speaker 1: the issue of healthcare regrets it. Do you say that 204 00:11:48,920 --> 00:11:50,520 Speaker 1: the next issue this is in your your your note 205 00:11:50,520 --> 00:11:53,000 Speaker 1: this morning. The next issue is not tax reform. Explain 206 00:11:53,040 --> 00:11:55,520 Speaker 1: what you mean by that. Tom mentioned a few moments 207 00:11:55,559 --> 00:11:58,600 Speaker 1: ago the specter of a government shutdown in April. How 208 00:11:58,679 --> 00:12:00,880 Speaker 1: much oxygen is that going to take? Yeah, I mean 209 00:12:00,880 --> 00:12:03,920 Speaker 1: there's always glib talk this weekend day of like, oh now, 210 00:12:04,040 --> 00:12:07,080 Speaker 1: let's do tax reform. Well it's not quite that simple. 211 00:12:07,160 --> 00:12:10,600 Speaker 1: You've got a bruising partisan fight over the budget over 212 00:12:10,640 --> 00:12:13,680 Speaker 1: the next few months, really before we get a death 213 00:12:13,720 --> 00:12:17,480 Speaker 1: ceiling extended in the summer. But maybe more importantly, there's 214 00:12:17,480 --> 00:12:20,400 Speaker 1: no agreement on tax reform. If we thought health reform 215 00:12:20,800 --> 00:12:25,040 Speaker 1: was complicated it once again, it's the Republicans who don't agree. 216 00:12:25,080 --> 00:12:27,800 Speaker 1: Should should tax reform be revenue neutral? Should we have 217 00:12:27,800 --> 00:12:32,040 Speaker 1: a border tax? There's no agreement among Republicans. Gregg, help 218 00:12:32,120 --> 00:12:35,040 Speaker 1: us with the zeitgeist this morning, your note a bit, 219 00:12:35,679 --> 00:12:40,559 Speaker 1: but other notes really emphasizing that the inside baseball debate 220 00:12:41,160 --> 00:12:46,000 Speaker 1: is a in a potential government shutdown, is that even 221 00:12:46,040 --> 00:12:49,319 Speaker 1: feasible that we're gonna redux what was it two thousand eleven. 222 00:12:50,000 --> 00:12:52,280 Speaker 1: I don't see it. I don't think Schumer wants to 223 00:12:52,320 --> 00:12:54,600 Speaker 1: have anything to do with it. I think the White 224 00:12:54,640 --> 00:12:58,000 Speaker 1: House will browbeat its opponents and will avoid a shut 225 00:12:58,040 --> 00:13:01,120 Speaker 1: down in the UH. I think there's going to be 226 00:13:01,160 --> 00:13:04,080 Speaker 1: a huge fight over the Trump cuts, and many of 227 00:13:04,080 --> 00:13:08,040 Speaker 1: the spending cuts will not occur. He'll get defense spending increases. 228 00:13:08,280 --> 00:13:11,080 Speaker 1: The big fight is the death feeling this summer. Help 229 00:13:11,120 --> 00:13:14,560 Speaker 1: me with the CBO score which changed the DEBTA healthcare. 230 00:13:15,000 --> 00:13:18,360 Speaker 1: If we do a tax reform and if we have 231 00:13:18,480 --> 00:13:22,160 Speaker 1: this border tax, that no healthcare, etcetera, etcetera. Do they 232 00:13:22,240 --> 00:13:26,040 Speaker 1: score again sometime this summer. Well, Tom, we're going to 233 00:13:26,120 --> 00:13:28,920 Speaker 1: look at dynamic scoring, and it's going to be very 234 00:13:28,960 --> 00:13:32,920 Speaker 1: generous for proponents of tax reform. You're absolutely right. We 235 00:13:33,080 --> 00:13:36,040 Speaker 1: lose the revenue from health reform, and we also would 236 00:13:36,120 --> 00:13:38,720 Speaker 1: lose the revenue if we don't do a border tax. 237 00:13:39,160 --> 00:13:41,680 Speaker 1: So there's gonna be some smoke and mirrors I think 238 00:13:41,679 --> 00:13:44,520 Speaker 1: in the final score. I looked at the tweets this 239 00:13:44,559 --> 00:13:47,120 Speaker 1: weekend calling out the Freedom calk It's Club for Growth 240 00:13:47,640 --> 00:13:51,480 Speaker 1: and Heritage, the President doing that in a tweet yesterday morning. 241 00:13:51,840 --> 00:13:53,760 Speaker 1: What are the consequences of that going to be? It's 242 00:13:53,800 --> 00:13:56,160 Speaker 1: fair to say a lot of this administration's policy proposals 243 00:13:56,160 --> 00:13:59,400 Speaker 1: that began or grew up in in the Heritage Foundation, 244 00:14:00,080 --> 00:14:01,840 Speaker 1: well they did, but I think Trump now has to 245 00:14:01,840 --> 00:14:04,640 Speaker 1: move away from them. I think he used them as radioactive, 246 00:14:05,120 --> 00:14:07,320 Speaker 1: and I think he's got to at least hint that 247 00:14:07,360 --> 00:14:09,839 Speaker 1: he could work with Democrats. The problem there is that 248 00:14:10,200 --> 00:14:12,439 Speaker 1: why would the Democrats want to throw him a life 249 00:14:12,440 --> 00:14:15,600 Speaker 1: preserver right now? And even if they did talk, I 250 00:14:15,600 --> 00:14:19,080 Speaker 1: don't think there's enough agreement between the two parties. So 251 00:14:19,120 --> 00:14:20,880 Speaker 1: what Trump has got to do is get his own 252 00:14:20,880 --> 00:14:24,080 Speaker 1: Republicans more on board. That's still going to be a 253 00:14:24,120 --> 00:14:29,120 Speaker 1: tough fight. With regard to Janine pierro Gate, what happens 254 00:14:29,160 --> 00:14:31,200 Speaker 1: to to how Speaker Paul Ryan when the House has 255 00:14:31,200 --> 00:14:33,360 Speaker 1: gaveled in? How much longer does he have as House Speaker? 256 00:14:33,400 --> 00:14:35,720 Speaker 1: Do you think is is his speakership in jeopardy? I 257 00:14:35,760 --> 00:14:38,560 Speaker 1: don't think so. I think that you know, his knowledge 258 00:14:38,600 --> 00:14:42,480 Speaker 1: of the details is encyclopedic. Maybe strategically he leaves a 259 00:14:42,520 --> 00:14:45,640 Speaker 1: little bit to be desired, But the main thing, guys, 260 00:14:45,720 --> 00:14:49,080 Speaker 1: is that there's no logical successor. I agree, I agree 261 00:14:49,120 --> 00:14:51,840 Speaker 1: with that strongly. But Greg, come on, help here. I 262 00:14:51,920 --> 00:14:54,080 Speaker 1: put out a tweet and you know I'm playing amateur 263 00:14:54,120 --> 00:14:57,640 Speaker 1: Greg Villier to me, I have yet they have a 264 00:14:57,720 --> 00:15:03,440 Speaker 1: single straight answer. What the rushes? What? Who? Who do 265 00:15:03,560 --> 00:15:08,200 Speaker 1: you blame for the childish action of trying to rush 266 00:15:08,240 --> 00:15:10,520 Speaker 1: this thing through? We gotta get it through before opening 267 00:15:10,600 --> 00:15:13,080 Speaker 1: day of baseball. Yeah, I mean, they all drank their 268 00:15:13,360 --> 00:15:15,520 Speaker 1: own kool aid, didn't they? And they all thought this 269 00:15:15,560 --> 00:15:18,400 Speaker 1: could be done quickly, would be a great accomplishment, This 270 00:15:18,440 --> 00:15:21,720 Speaker 1: would be the easy one. The the naivete and the 271 00:15:21,840 --> 00:15:26,160 Speaker 1: hubris of thinking healthcare would be the easy one is yeah. Well, 272 00:15:26,360 --> 00:15:28,200 Speaker 1: I mean I put out a photo this weekend, folks, 273 00:15:28,200 --> 00:15:30,080 Speaker 1: I had to go to back something ancient to keep 274 00:15:30,120 --> 00:15:35,200 Speaker 1: Greg Bell you happy. Of Tip O'Neill, a president from California. 275 00:15:35,200 --> 00:15:38,320 Speaker 1: I believe he was governor at one time and actually realized, 276 00:15:38,400 --> 00:15:42,680 Speaker 1: like Schwarzenegger, there's like process at work involved and sitting 277 00:15:42,760 --> 00:15:45,760 Speaker 1: quietly next to them if they're messy table of beers 278 00:15:46,360 --> 00:15:49,920 Speaker 1: was a god. The guy named Bob Michael. What can 279 00:15:50,080 --> 00:15:53,600 Speaker 1: Mr what can Speaker Ryan learn from Mr Michael of 280 00:15:53,680 --> 00:15:57,480 Speaker 1: the Upper Midwest, Well, he's got a lower expectations. First 281 00:15:57,480 --> 00:16:00,000 Speaker 1: of all, I think that's really important. You know, Trump 282 00:16:00,040 --> 00:16:02,200 Speaker 1: point around the country for a year and a half 283 00:16:02,560 --> 00:16:06,480 Speaker 1: saying daily that the politicians in Washington are stupid, they 284 00:16:06,480 --> 00:16:08,560 Speaker 1: didn't know how to negotiate, and that Trump was the 285 00:16:08,560 --> 00:16:11,440 Speaker 1: only one who could negotiate. I mean, Trump has set 286 00:16:11,520 --> 00:16:14,640 Speaker 1: himself up for this fall, sort of like Karros. He 287 00:16:14,720 --> 00:16:17,320 Speaker 1: flew too close to the sun and now he's crashing 288 00:16:17,360 --> 00:16:21,200 Speaker 1: back back to Earth. This is a stunning defeat for him. 289 00:16:21,480 --> 00:16:24,520 Speaker 1: And I'll make a strong statement that for the markets today, 290 00:16:24,560 --> 00:16:28,440 Speaker 1: the issue is not entirely tax reform being delayed by many, 291 00:16:28,520 --> 00:16:31,520 Speaker 1: many months. The issue really maybe for the market is 292 00:16:31,560 --> 00:16:34,800 Speaker 1: this guy in over his head well, not only that, 293 00:16:34,960 --> 00:16:38,920 Speaker 1: David Gurral, but also what will economic grocer fee? I mean, 294 00:16:38,960 --> 00:16:40,760 Speaker 1: I think there's a real mystery to that as well. 295 00:16:41,120 --> 00:16:43,160 Speaker 1: But these are great angle guys I think hasn't been 296 00:16:43,200 --> 00:16:47,200 Speaker 1: emphasized perhaps enough, with this kind of economic uncertainty, this 297 00:16:47,320 --> 00:16:50,280 Speaker 1: kind of fiscal uncertainty. I don't think Janny Yellen is 298 00:16:50,320 --> 00:16:52,720 Speaker 1: going to be in any rush to raise rates anytime soon. 299 00:16:53,080 --> 00:16:56,080 Speaker 1: So rates actually may stay flat to slightly lower because 300 00:16:56,080 --> 00:16:58,720 Speaker 1: of this uncertainty. Gregg, what are you telling your clients 301 00:16:58,800 --> 00:17:01,320 Speaker 1: right now who saw happened Friday, worry about what's going 302 00:17:01,320 --> 00:17:03,200 Speaker 1: to happen with taxi form, and probably at this point 303 00:17:03,200 --> 00:17:06,520 Speaker 1: of writing off the prospects for infrastructure spending. I still 304 00:17:06,520 --> 00:17:08,560 Speaker 1: think we get both, but it's going to come much 305 00:17:08,640 --> 00:17:12,480 Speaker 1: much later rather than sooner. We do get significant tax reform, 306 00:17:12,640 --> 00:17:17,000 Speaker 1: probably early eighteen. We do get infrastructure, maybe late eighteen. 307 00:17:17,480 --> 00:17:20,159 Speaker 1: Way too early to write the obituary for some of 308 00:17:20,200 --> 00:17:24,040 Speaker 1: these big items. Mrs ruben Over in the Washington Post 309 00:17:24,119 --> 00:17:26,080 Speaker 1: I thought, had a great thing in the middle of 310 00:17:26,119 --> 00:17:29,320 Speaker 1: all this last week about the motivations of people. What 311 00:17:29,440 --> 00:17:33,640 Speaker 1: are the motivations of the Democratic Party now the supposedly 312 00:17:33,640 --> 00:17:38,359 Speaker 1: the minority Republicans need Democratic votes to move things forward, 313 00:17:38,680 --> 00:17:41,959 Speaker 1: explained to me. The incentive for the Democrats to do 314 00:17:42,119 --> 00:17:47,040 Speaker 1: anything after the discourse from the President of the United States. Yeah, 315 00:17:47,080 --> 00:17:49,840 Speaker 1: there isn't. And frankly, I think Schumer is in a trap. 316 00:17:50,200 --> 00:17:54,160 Speaker 1: The left wing is really furious and they want red meat, 317 00:17:54,600 --> 00:17:58,480 Speaker 1: and they want a filibuster Gore Such. I think that 318 00:17:59,000 --> 00:18:02,240 Speaker 1: such is very well qualified. I think the Democrats looked 319 00:18:02,280 --> 00:18:05,760 Speaker 1: to obstructionists on some of these issues. But Schumer has 320 00:18:05,800 --> 00:18:09,600 Speaker 1: got to satisfy this very angry bass. Were you surprised 321 00:18:09,600 --> 00:18:12,160 Speaker 1: to see Nancy Pelosi at all at the podium there after, 322 00:18:12,320 --> 00:18:15,119 Speaker 1: House Speaker Paul Ryan delivered his remarks on on Friday afternoon. 323 00:18:15,119 --> 00:18:17,000 Speaker 1: Would you would you suggest that wasn't the right course 324 00:18:17,000 --> 00:18:19,720 Speaker 1: of action? Yeah, and you know she had a photo 325 00:18:19,800 --> 00:18:22,880 Speaker 1: op where she was jumping, jumping for joy. But that's 326 00:18:22,880 --> 00:18:24,879 Speaker 1: not what the country wants to see. I think the 327 00:18:24,920 --> 00:18:29,120 Speaker 1: Democrats run the risk of looking too stridently partisans. They 328 00:18:29,160 --> 00:18:31,520 Speaker 1: could maybe score some points right now by looking a 329 00:18:31,520 --> 00:18:34,480 Speaker 1: little more conciliatory. Greg, thank you so much for the brief, 330 00:18:34,520 --> 00:18:37,200 Speaker 1: And of course they're on ure Yellen is well, David, 331 00:18:37,200 --> 00:18:39,359 Speaker 1: what an interesting soup. I guess this is the Gura 332 00:18:39,480 --> 00:18:43,480 Speaker 1: Keene Employment Act of thousands, keeping us talking abo next 333 00:18:43,480 --> 00:18:46,399 Speaker 1: a couple of years. Yeah, I'll tell you, folks, it was. 334 00:18:46,480 --> 00:18:49,280 Speaker 1: It was amazing. I did get a lot of Greg 335 00:18:49,320 --> 00:19:00,959 Speaker 1: Billy brought you by Bank of America Mary Lynch, dedicated 336 00:19:01,320 --> 00:19:04,720 Speaker 1: to bringing our clients insights and solutions to meet the 337 00:19:04,800 --> 00:19:09,240 Speaker 1: challenges of a transforming world. That's the power of global connections. 338 00:19:09,600 --> 00:19:14,560 Speaker 1: Mary Lynch, Pierce Federan Smith Incorporated, Member s I p C. 339 00:19:18,280 --> 00:19:20,200 Speaker 1: Let me give you a fact toy here I'm working 340 00:19:20,200 --> 00:19:22,080 Speaker 1: with the Bloomberg right now. I think I may put 341 00:19:22,080 --> 00:19:28,200 Speaker 1: this chart out on Twitter. It's just so radio bonds 342 00:19:28,680 --> 00:19:33,320 Speaker 1: negative four point six percent since August, late summer, even 343 00:19:33,359 --> 00:19:37,720 Speaker 1: in the early August late July one bond portfolio down 344 00:19:37,760 --> 00:19:42,160 Speaker 1: four point six Here to UH measure our losses. Jim 345 00:19:42,240 --> 00:19:47,680 Speaker 1: Coaching of Wells Fargo, Jim, good morning. What is your 346 00:19:47,800 --> 00:19:51,840 Speaker 1: counsel to the beleaguer right now? My my mood is 347 00:19:52,480 --> 00:19:56,679 Speaker 1: everybody like me bow ties quote yield where your customers 348 00:19:56,800 --> 00:19:59,879 Speaker 1: just look at price on the monthly statement and if 349 00:20:00,080 --> 00:20:05,000 Speaker 1: it's yields up, price down. Are we yet to a panic? 350 00:20:05,119 --> 00:20:09,159 Speaker 1: Where are we in the bond market continuum? Well, we 351 00:20:09,320 --> 00:20:11,480 Speaker 1: had a bit of a panic last year. You just 352 00:20:11,600 --> 00:20:15,080 Speaker 1: cited some of the negative returns that began, oh in 353 00:20:15,480 --> 00:20:18,240 Speaker 1: early July and until the end of the year. Now, 354 00:20:19,119 --> 00:20:21,919 Speaker 1: so far in two thousand seventeen, eels have moved more 355 00:20:22,000 --> 00:20:26,200 Speaker 1: or less sideways. Our council has been the same all along, 356 00:20:26,320 --> 00:20:30,160 Speaker 1: and that is um investors think in terms of total return, 357 00:20:30,359 --> 00:20:35,119 Speaker 1: not just price movements, and use those segments of the 358 00:20:35,200 --> 00:20:37,800 Speaker 1: bond market. Focus on those segments of the bond market 359 00:20:37,880 --> 00:20:41,600 Speaker 1: that offer a reasonable amount of interest income and compound 360 00:20:41,680 --> 00:20:45,560 Speaker 1: that interest income over time. Uh, you will have positive returns, 361 00:20:45,600 --> 00:20:50,560 Speaker 1: but avoid the longest durations, avoid the longest maturities, because 362 00:20:50,640 --> 00:20:55,680 Speaker 1: the durations out there are so long. Uh. Back in July, 363 00:20:55,880 --> 00:20:58,720 Speaker 1: the duration on the thirty year treasury was almost twenty 364 00:20:58,800 --> 00:21:01,520 Speaker 1: two years. Um. We used to we used to think 365 00:21:01,560 --> 00:21:05,159 Speaker 1: that the duration back in the good old days, earlier 366 00:21:05,240 --> 00:21:08,040 Speaker 1: in my career, during most of my career, we used 367 00:21:08,040 --> 00:21:10,879 Speaker 1: to think the duration was roughly fifteen years. And and 368 00:21:11,200 --> 00:21:15,520 Speaker 1: and now those durations are twenty still. Uh and and 369 00:21:16,119 --> 00:21:18,680 Speaker 1: that's too much market risk at a period in which 370 00:21:18,840 --> 00:21:22,400 Speaker 1: short term rates are expected to be rising over time. Um. 371 00:21:22,720 --> 00:21:26,320 Speaker 1: The previous speaker put it very nicely, shared, Yellen has 372 00:21:26,400 --> 00:21:29,160 Speaker 1: told us what they plan to do. Uh. They've they've 373 00:21:29,200 --> 00:21:34,080 Speaker 1: implemented this plan, and respect that. Well, David, I just 374 00:21:34,160 --> 00:21:36,480 Speaker 1: brought up the famous blue chip stock. And this is 375 00:21:36,560 --> 00:21:39,720 Speaker 1: a bond out twelve years, pays a multi two point 376 00:21:39,800 --> 00:21:44,560 Speaker 1: to and it's down almost eight percent in price from 377 00:21:44,600 --> 00:21:50,040 Speaker 1: the summer peak. The apex of bond pricing go ahead. Yeah, 378 00:21:50,080 --> 00:21:53,639 Speaker 1: if you if you look at the intermediate maturities, uh, 379 00:21:53,800 --> 00:21:56,679 Speaker 1: particularly in the corporate market and in the high yield market, 380 00:21:57,119 --> 00:22:00,399 Speaker 1: those total returns are far better. Yes, now the yield 381 00:22:00,480 --> 00:22:03,119 Speaker 1: is biased somewhat. Yeah, no, no, but but is you 382 00:22:03,280 --> 00:22:05,600 Speaker 1: Come on, Jim, it's yield pig more more a morning. 383 00:22:06,080 --> 00:22:07,920 Speaker 1: So I'm buying the twelve year piece because I'm a 384 00:22:08,000 --> 00:22:13,040 Speaker 1: yield pig. Well, uh, I would, I would feel further 385 00:22:13,240 --> 00:22:17,159 Speaker 1: down in the curve because you look at the level Well, 386 00:22:17,200 --> 00:22:19,479 Speaker 1: if you look at the level of yields today, uh, 387 00:22:19,600 --> 00:22:22,840 Speaker 1: in that five year, seven year, eight year period area 388 00:22:22,920 --> 00:22:25,080 Speaker 1: of the yield curves, those yields are higher now than 389 00:22:25,160 --> 00:22:27,200 Speaker 1: they were at the end of the tapering tantrum in 390 00:22:27,240 --> 00:22:30,680 Speaker 1: two thousand thirteen. But that is not true ten years 391 00:22:30,720 --> 00:22:34,000 Speaker 1: and longer, because yield curves are so much flatter now. Yeah. 392 00:22:34,040 --> 00:22:35,719 Speaker 1: And on that note, I mean you point this out 393 00:22:35,760 --> 00:22:37,120 Speaker 1: in one of your most recent notes. You say there's 394 00:22:37,160 --> 00:22:39,320 Speaker 1: this argument that the flattening your yield curve will protect 395 00:22:39,359 --> 00:22:42,080 Speaker 1: the long maturity, and you say that's very flawed. Explain 396 00:22:42,200 --> 00:22:45,000 Speaker 1: that I think it is flawed. It depends very much 397 00:22:45,040 --> 00:22:48,120 Speaker 1: on on where you're starting this process of raising short 398 00:22:48,240 --> 00:22:51,119 Speaker 1: term rates. Everybody likes to focus on old four to 399 00:22:51,359 --> 00:22:55,720 Speaker 1: six rightfully, So, um, where the yield curves flattened so 400 00:22:55,840 --> 00:22:59,080 Speaker 1: much the bonds did okay, but you started that process 401 00:22:59,160 --> 00:23:02,240 Speaker 1: back then with a nerve that was TuS to thirties 402 00:23:02,280 --> 00:23:05,879 Speaker 1: three basis points. Today we're at one seventy. Uh we 403 00:23:05,960 --> 00:23:09,480 Speaker 1: have a much flatter curve. And it's no surprise than 404 00:23:09,560 --> 00:23:14,120 Speaker 1: to me anyway, that since the yield started a rise, 405 00:23:14,440 --> 00:23:16,480 Speaker 1: you know, starting in July of last year, we've had 406 00:23:16,560 --> 00:23:19,879 Speaker 1: sharply negative returns from the longest end of the market 407 00:23:20,119 --> 00:23:22,639 Speaker 1: because you curves have moved up in almost parallel fashion 408 00:23:22,720 --> 00:23:25,080 Speaker 1: for a while. Last year they steepened. So I don't 409 00:23:25,119 --> 00:23:28,040 Speaker 1: think we have enough steepness to the curve to warrant 410 00:23:28,119 --> 00:23:31,120 Speaker 1: that argument that the long end will be quote cushioned 411 00:23:31,600 --> 00:23:35,000 Speaker 1: by steep curves, you know, and the curves will flatten 412 00:23:35,119 --> 00:23:38,800 Speaker 1: enough so that even if short term rates rise from here, 413 00:23:39,119 --> 00:23:42,399 Speaker 1: bond yields may not. I can't. I can't agree with that. 414 00:23:44,080 --> 00:23:45,879 Speaker 1: We were talking with the Great Value a moment ago 415 00:23:45,920 --> 00:23:47,959 Speaker 1: about the project for tax reform and indeed a prospect 416 00:23:48,000 --> 00:23:51,160 Speaker 1: for a big infrastructure spending package. He retained some optimism 417 00:23:51,240 --> 00:23:53,480 Speaker 1: that that's going to happen. If indeed it does, what 418 00:23:53,560 --> 00:23:56,080 Speaker 1: does that mean for the bond market? Well, I think 419 00:23:56,720 --> 00:23:59,920 Speaker 1: I would focus, Well, it's gonna mean more federal borrow 420 00:24:00,240 --> 00:24:03,000 Speaker 1: bottom line, if we have infrastructure spending, if we have 421 00:24:03,480 --> 00:24:06,720 Speaker 1: a reduction in revenues going to the federal government, um, 422 00:24:06,800 --> 00:24:11,240 Speaker 1: they're gonna borrow more. And Um. You talked earlier about 423 00:24:11,480 --> 00:24:15,200 Speaker 1: the weakness and credit growth, which is certainly true in 424 00:24:15,280 --> 00:24:18,480 Speaker 1: this cycle. Well, this would add to the strength. This 425 00:24:18,880 --> 00:24:22,480 Speaker 1: would strengthen credit growth to some degree, and other things 426 00:24:22,560 --> 00:24:25,600 Speaker 1: being equally would suggest that the price of credit would 427 00:24:25,800 --> 00:24:29,120 Speaker 1: rise somewhat. That is interest rates. Are you like brave 428 00:24:29,240 --> 00:24:31,920 Speaker 1: enough and gotta flack jack it on? So you can 429 00:24:31,960 --> 00:24:35,600 Speaker 1: say dividend growth is the substitute for the gyrations that 430 00:24:35,680 --> 00:24:39,720 Speaker 1: we're going to see in the bondom market. Well, yes, 431 00:24:39,880 --> 00:24:42,639 Speaker 1: dividend growth is extremely valuable in my mind. It it 432 00:24:43,040 --> 00:24:45,879 Speaker 1: corresponds to what I'm saying about how to invest in 433 00:24:45,960 --> 00:24:49,200 Speaker 1: bonds these days, capture income where we can find it, 434 00:24:49,320 --> 00:24:53,080 Speaker 1: and compound that income and dividend growth is extremely important 435 00:24:53,119 --> 00:24:56,320 Speaker 1: in that regard. And I think, uh, in many ways, 436 00:24:57,480 --> 00:25:00,639 Speaker 1: you know that asset class, even though you know I 437 00:25:00,960 --> 00:25:04,160 Speaker 1: specialize in that other in the superior asset class, um 438 00:25:05,119 --> 00:25:08,040 Speaker 1: has has a lot to be set for it, particularly 439 00:25:08,480 --> 00:25:13,240 Speaker 1: versus things like treasuries that don't provide very much interest income. 440 00:25:14,760 --> 00:25:16,840 Speaker 1: How big is this is this divide between what the 441 00:25:16,960 --> 00:25:19,120 Speaker 1: Fed is projecting and what the market expects the Fed 442 00:25:19,240 --> 00:25:21,200 Speaker 1: to do, And how problematic is that? As you see 443 00:25:21,240 --> 00:25:24,399 Speaker 1: in it seems to change a lot, uh, you know, 444 00:25:24,520 --> 00:25:27,840 Speaker 1: depending on other things. Right now. One would think, but 445 00:25:28,359 --> 00:25:30,480 Speaker 1: since we've rallied the bonds a little bit, that the 446 00:25:30,840 --> 00:25:34,920 Speaker 1: bond market doesn't believe what the officially at the Federal 447 00:25:34,960 --> 00:25:37,440 Speaker 1: Reserve telling us with regard to the you know, the 448 00:25:37,600 --> 00:25:41,879 Speaker 1: pattern path of short term interest rates. However, if we 449 00:25:42,000 --> 00:25:44,520 Speaker 1: were to see a new set of economic data, let's say, 450 00:25:44,560 --> 00:25:46,520 Speaker 1: as we go into the through the month of the 451 00:25:46,560 --> 00:25:49,920 Speaker 1: early weeks of the month of April, UM, the bond 452 00:25:49,960 --> 00:25:52,639 Speaker 1: market might get religion once again and all of a 453 00:25:52,680 --> 00:25:55,240 Speaker 1: sudden begin to worry about another increase in the federal 454 00:25:55,280 --> 00:25:58,280 Speaker 1: funds rate. So I think that's the that's the mode 455 00:25:58,359 --> 00:26:03,679 Speaker 1: we're in UM right now. Uh. We had some disappointment 456 00:26:03,760 --> 00:26:07,600 Speaker 1: in Washington with regard to the President's ability to get 457 00:26:07,640 --> 00:26:10,960 Speaker 1: it to get a build a major legislation passed. So 458 00:26:11,200 --> 00:26:13,680 Speaker 1: there's this thought that, well, maybe we won't see a 459 00:26:13,720 --> 00:26:17,760 Speaker 1: lot of uh fiscal stimulus. I I would be very 460 00:26:17,840 --> 00:26:21,240 Speaker 1: careful before I made that assumption. A lot of this 461 00:26:21,680 --> 00:26:25,159 Speaker 1: brings back, Jim, you and I are young enough to 462 00:26:25,240 --> 00:26:28,920 Speaker 1: remember this. How we already inside the yield book like 463 00:26:29,119 --> 00:26:33,159 Speaker 1: religion and Martin Leewoods. I mean, we're back at a 464 00:26:33,240 --> 00:26:36,680 Speaker 1: point where you're saying, grab the yield and compounded and 465 00:26:37,359 --> 00:26:40,280 Speaker 1: most people they do, they doze off asleep. But how 466 00:26:40,359 --> 00:26:43,159 Speaker 1: boring that is? Well, and that's where we are. That 467 00:26:43,320 --> 00:26:45,520 Speaker 1: was the message of that book, Interest on interest. But 468 00:26:46,280 --> 00:26:50,320 Speaker 1: but more importantly for investors, Yes, grab the interest compounded, 469 00:26:50,520 --> 00:26:53,280 Speaker 1: don't take a lot of duration risk or market risk. 470 00:26:53,840 --> 00:26:56,280 Speaker 1: And at some point in you know, in the in 471 00:26:56,359 --> 00:26:59,040 Speaker 1: the future, perhaps it will make sense to extend out 472 00:26:59,080 --> 00:27:01,439 Speaker 1: upon the yieldker But I think it's a little bit 473 00:27:01,480 --> 00:27:04,280 Speaker 1: too early to do that now. But that is exactly 474 00:27:05,000 --> 00:27:11,399 Speaker 1: uh the pattern of over time, your cumulative returns add up. 475 00:27:12,200 --> 00:27:15,960 Speaker 1: Uh and and uh, your your total returns are positive. 476 00:27:16,960 --> 00:27:21,480 Speaker 1: That's in a relatively low yield world environment. That's all 477 00:27:21,560 --> 00:27:23,639 Speaker 1: we have going for us in the fixed income markets. 478 00:27:23,840 --> 00:27:26,600 Speaker 1: Can I, Jim, let's continue Jim coaching with us with 479 00:27:26,720 --> 00:27:30,040 Speaker 1: Wills Fargo. Jim, I get that we used to clip 480 00:27:30,160 --> 00:27:34,280 Speaker 1: coupons and not care about price. I would suggest that's 481 00:27:34,400 --> 00:27:38,520 Speaker 1: over right now. How do I get total return or 482 00:27:38,600 --> 00:27:42,160 Speaker 1: is it just grab the coupon. Well, I think grab 483 00:27:42,359 --> 00:27:46,760 Speaker 1: the coupon. Um, you're right. Uh, there have been times when, 484 00:27:47,200 --> 00:27:51,320 Speaker 1: in fact, for years, when the trend in prices was up, 485 00:27:51,440 --> 00:27:54,879 Speaker 1: not down. But if the trend in bond prices is 486 00:27:54,960 --> 00:28:00,159 Speaker 1: a moderate downward trend in prices, that is h M, 487 00:28:00,280 --> 00:28:04,800 Speaker 1: the best defense against moderate declines in prices is in 488 00:28:04,960 --> 00:28:08,720 Speaker 1: fact collecting enough interest income to overcome that the negative 489 00:28:08,760 --> 00:28:12,720 Speaker 1: influence of the price moves. And um uh there are 490 00:28:13,200 --> 00:28:16,360 Speaker 1: other strategies. You mean, one can one can employ you can, 491 00:28:16,760 --> 00:28:19,040 Speaker 1: you can try rolling down yeld curves and so on, 492 00:28:19,200 --> 00:28:23,959 Speaker 1: but that's really done in a professionally managed accounts UM. 493 00:28:24,640 --> 00:28:27,440 Speaker 1: The intermediate part of the corporate market, the intermediate part 494 00:28:27,480 --> 00:28:31,600 Speaker 1: of of the single A triple B kinds of credits 495 00:28:31,640 --> 00:28:35,320 Speaker 1: and corporate single A triple B credits in UM in 496 00:28:35,480 --> 00:28:41,080 Speaker 1: municipals UH offer better income than treasuries, and they offer 497 00:28:41,160 --> 00:28:43,840 Speaker 1: better income than the high grade UH segments of the 498 00:28:43,960 --> 00:28:46,400 Speaker 1: muni market or the high grade segments of the corporate 499 00:28:46,440 --> 00:28:49,280 Speaker 1: market for them matter. And then the HYO market still 500 00:28:49,680 --> 00:28:52,200 Speaker 1: in my mind, offers fair value. That is what we 501 00:28:52,320 --> 00:28:54,320 Speaker 1: used to call the junk bond market and the corporate 502 00:28:54,360 --> 00:28:58,600 Speaker 1: side still offers fair value because um uh, it's our 503 00:28:58,680 --> 00:29:01,680 Speaker 1: view that that market, you in that segment of the 504 00:29:02,480 --> 00:29:05,800 Speaker 1: of the bond market move essentially sideways. They don't change 505 00:29:05,800 --> 00:29:08,360 Speaker 1: a whole lot as we go through the year two 506 00:29:08,400 --> 00:29:12,080 Speaker 1: thousand seventeen. There's a chart in your most recent note 507 00:29:12,080 --> 00:29:15,400 Speaker 1: here you're looking at mortgage debt creeps up, up, up, up, 508 00:29:15,400 --> 00:29:17,600 Speaker 1: and then over the last ten years pretty much flatlines. 509 00:29:18,280 --> 00:29:20,640 Speaker 1: Explain the significance of that and what that tells you 510 00:29:20,680 --> 00:29:24,360 Speaker 1: about where we're heading. Well, um you talked earlier in 511 00:29:24,440 --> 00:29:30,360 Speaker 1: the program about the absence of strong borrowing in this cycle, 512 00:29:30,840 --> 00:29:34,840 Speaker 1: and the market segment that has been the weakest in 513 00:29:35,040 --> 00:29:40,840 Speaker 1: terms of private sector borrowing money has been mortgages. Like 514 00:29:41,000 --> 00:29:45,160 Speaker 1: you said that that you know, during the entire period 515 00:29:45,240 --> 00:29:48,160 Speaker 1: that chart, oh, the last twenty five years, mortgage debt 516 00:29:48,200 --> 00:29:52,320 Speaker 1: has been rising and in um oh, the two thousand, 517 00:29:52,760 --> 00:29:55,440 Speaker 1: the first decade of the two thousands here it was 518 00:29:55,560 --> 00:29:58,440 Speaker 1: rising very sharply until two thousand seven, two th eight. 519 00:29:58,880 --> 00:30:03,200 Speaker 1: Then since then, first it declined, actual decline and more 520 00:30:03,280 --> 00:30:06,080 Speaker 1: in the amount of mortgage debt outstanding, which is unprecedented. 521 00:30:07,200 --> 00:30:10,600 Speaker 1: It's beginning to rise a little bit, but but still UM. 522 00:30:10,880 --> 00:30:13,320 Speaker 1: Since two thousand seven, there's been no net increase in 523 00:30:13,360 --> 00:30:15,600 Speaker 1: the amount of mortgage debt outstanding in the United States, 524 00:30:15,640 --> 00:30:19,080 Speaker 1: and that this goes a long way to explain why, UH, 525 00:30:19,360 --> 00:30:22,240 Speaker 1: total borrowing by the private sector the US economy has 526 00:30:22,280 --> 00:30:26,120 Speaker 1: been weak. Now it's beginning to strengthen a bit. UM. 527 00:30:26,480 --> 00:30:29,440 Speaker 1: And if you superimpose a lot of federal borrowing, and 528 00:30:29,480 --> 00:30:32,800 Speaker 1: that's a big question mark right now, that that would 529 00:30:32,840 --> 00:30:36,280 Speaker 1: tend to increase the you know, pushing the price of 530 00:30:36,320 --> 00:30:38,320 Speaker 1: credit higher somewhat is you have in the funnal minute 531 00:30:38,360 --> 00:30:40,920 Speaker 1: we've got with you. What are you hearing from clients 532 00:30:41,000 --> 00:30:43,640 Speaker 1: when you're traveling, when you're in front of client groups 533 00:30:44,040 --> 00:30:47,480 Speaker 1: four Wells Fargo? Are they buying equities? Are they talking 534 00:30:47,520 --> 00:30:50,240 Speaker 1: about they didn't get snapchat on the I p O? 535 00:30:50,440 --> 00:30:52,480 Speaker 1: What what are they talking about? There? There is not 536 00:30:52,640 --> 00:30:55,720 Speaker 1: a lot of that kind of talk. I have to say. UM. 537 00:30:56,120 --> 00:31:01,800 Speaker 1: The sense we get UH from talking to financial advisors 538 00:31:01,960 --> 00:31:04,640 Speaker 1: is that their clients are still cautious with regard to 539 00:31:04,800 --> 00:31:08,719 Speaker 1: stocks because they got hurt so badly in O eight 540 00:31:08,760 --> 00:31:12,360 Speaker 1: oh nine. UM, there is not that rush into the 541 00:31:12,520 --> 00:31:16,479 Speaker 1: latest hot stock. Apparently so from the point of view 542 00:31:16,520 --> 00:31:19,280 Speaker 1: of a contrarian. With regard to the equity market, this 543 00:31:19,480 --> 00:31:23,240 Speaker 1: is probably still good news on the bond side. Obviously 544 00:31:23,320 --> 00:31:26,480 Speaker 1: they're looking for ill They would love to see CD 545 00:31:26,760 --> 00:31:30,160 Speaker 1: rates at five again. Well, we're not going to see 546 00:31:30,240 --> 00:31:33,200 Speaker 1: that for quite some time. I'm afraid we have to 547 00:31:33,240 --> 00:31:35,520 Speaker 1: work harder to get that income. Yeah, yeah, I remember 548 00:31:35,600 --> 00:31:40,160 Speaker 1: CD rates at Jim, Thank you so much. We're not 549 00:31:40,280 --> 00:31:42,880 Speaker 1: going back today, darn I thought we were a Jim coach. 550 00:31:43,000 --> 00:31:59,440 Speaker 1: Thank you so much. With a wells Fargo. Michael Cohen 551 00:31:59,720 --> 00:32:03,280 Speaker 1: is Barclays and joins US now and the commodity space 552 00:32:04,360 --> 00:32:08,040 Speaker 1: is it's called you've got a constructive view on oil, 553 00:32:08,560 --> 00:32:13,000 Speaker 1: unlike many others. What will support the bid of oil? 554 00:32:13,840 --> 00:32:17,200 Speaker 1: So I think what's happened over the last maybe month, 555 00:32:17,320 --> 00:32:19,880 Speaker 1: month and a half or so is that typically as 556 00:32:19,920 --> 00:32:23,320 Speaker 1: we come into this time of year, investors tend to 557 00:32:23,760 --> 00:32:27,000 Speaker 1: kind of run out of patients. Um. And I think 558 00:32:27,080 --> 00:32:29,480 Speaker 1: that what we saw over the course of you know, 559 00:32:29,600 --> 00:32:31,400 Speaker 1: the last quarter of the year, was a lot of 560 00:32:31,520 --> 00:32:36,760 Speaker 1: hope that OPEC, for example, would support the price of it. 561 00:32:36,920 --> 00:32:40,520 Speaker 1: So the trade is reversed. We're down twelve point nine 562 00:32:41,440 --> 00:32:44,320 Speaker 1: from the peak middle February, right, And I think that 563 00:32:44,480 --> 00:32:47,040 Speaker 1: there tends to be a bit of an anchoring bias, 564 00:32:47,160 --> 00:32:51,400 Speaker 1: not just in an anchoring bias essentially means that you know, 565 00:32:51,520 --> 00:32:54,880 Speaker 1: we tend to believe that today's price will hold for 566 00:32:55,480 --> 00:32:58,200 Speaker 1: a given amount of time, and that you know, everything 567 00:32:58,320 --> 00:33:02,160 Speaker 1: needs to be thought about from today's price forward, So 568 00:33:02,800 --> 00:33:07,600 Speaker 1: you know, it's essentially anchoring your your expectation around you know, 569 00:33:07,760 --> 00:33:10,560 Speaker 1: one or two standard deviations from where we are right now. 570 00:33:11,040 --> 00:33:14,600 Speaker 1: And I think that that's a poor way of a forecasting, 571 00:33:14,680 --> 00:33:16,959 Speaker 1: in a poor way of looking at how markets how 572 00:33:17,000 --> 00:33:18,920 Speaker 1: do you respond? Let's start, how do you respond to 573 00:33:18,960 --> 00:33:20,760 Speaker 1: the doom and gloom crowd. How do you respond to 574 00:33:20,880 --> 00:33:25,360 Speaker 1: people saying we're gonna break a fifty three West Texas Intermediate. 575 00:33:25,440 --> 00:33:28,320 Speaker 1: It's happening. We're not through key support, to be fair, 576 00:33:28,960 --> 00:33:31,120 Speaker 1: but but how do you respond to the gloom crew 577 00:33:31,200 --> 00:33:34,840 Speaker 1: saying we're gonna enjoy the lower forties or more self right? 578 00:33:34,920 --> 00:33:36,840 Speaker 1: So I think one has to to look at what 579 00:33:37,120 --> 00:33:39,840 Speaker 1: is driving the market right now and actually what drove 580 00:33:39,920 --> 00:33:42,640 Speaker 1: it temporarily in our view down in the first place. 581 00:33:42,760 --> 00:33:45,320 Speaker 1: So you know, when you look at what happened over 582 00:33:45,360 --> 00:33:47,480 Speaker 1: the last three to four weeks, we had a major 583 00:33:47,560 --> 00:33:51,120 Speaker 1: industry conference Siero week call it all follow the Minister 584 00:33:51,320 --> 00:33:54,320 Speaker 1: of Energy from Saudi Arabia came saw all the producers 585 00:33:54,360 --> 00:33:57,400 Speaker 1: and wanted to ensure that people uh in the market 586 00:33:57,480 --> 00:34:02,400 Speaker 1: didn't believe, you know all, that OPEC would continue its cuts. 587 00:34:02,920 --> 00:34:04,840 Speaker 1: So he said a couple of things to the market 588 00:34:04,880 --> 00:34:08,000 Speaker 1: and gave some people some doubt about whether these cuts 589 00:34:08,040 --> 00:34:11,400 Speaker 1: would continue. But essentially, what these cuts have done is 590 00:34:11,480 --> 00:34:15,080 Speaker 1: that they've taken out a significant chunk of production from OPEC, 591 00:34:15,160 --> 00:34:18,920 Speaker 1: which is roughly thirty to forty of oil supply today. 592 00:34:19,520 --> 00:34:23,960 Speaker 1: And I think that's an important transition from today versus 593 00:34:24,000 --> 00:34:26,560 Speaker 1: where we were a year ago, where OPEK was basically 594 00:34:26,640 --> 00:34:30,840 Speaker 1: pulling out all the stops, pushing on output and essentially 595 00:34:30,960 --> 00:34:34,799 Speaker 1: keeping oil prices low in order to drive out other 596 00:34:35,040 --> 00:34:38,799 Speaker 1: more expensive sources of production. So over the last two years, 597 00:34:38,840 --> 00:34:42,840 Speaker 1: we've seen two consecutive years of very substantial cuts and 598 00:34:42,960 --> 00:34:47,680 Speaker 1: capital expenditures. The impact of those cuts in capital expenditures 599 00:34:47,800 --> 00:34:50,160 Speaker 1: has not yet had time to fully play out at 600 00:34:50,200 --> 00:34:52,839 Speaker 1: this point. So we were just in the Middle East. 601 00:34:52,880 --> 00:34:56,919 Speaker 1: We talked to many different oil field services producers, many 602 00:34:57,000 --> 00:35:00,160 Speaker 1: different national oil companies, and they are of of you 603 00:35:00,400 --> 00:35:03,600 Speaker 1: continually that you know, those cuts and capex have not 604 00:35:03,760 --> 00:35:06,279 Speaker 1: yet had a chance to actually be borne out in 605 00:35:06,400 --> 00:35:10,239 Speaker 1: overall output. So as we look forward into the next year, 606 00:35:10,239 --> 00:35:13,200 Speaker 1: I think it's important to understand that the situation in 607 00:35:13,400 --> 00:35:15,880 Speaker 1: China has also been supported. We've seen p m I 608 00:35:16,040 --> 00:35:19,919 Speaker 1: s continue to remain at a high level. Um There's 609 00:35:19,960 --> 00:35:23,640 Speaker 1: obviously a lot of debate about the strength of the 610 00:35:23,800 --> 00:35:27,759 Speaker 1: Chinese economy, but I think there's also an important thing 611 00:35:27,840 --> 00:35:30,680 Speaker 1: to understand as well, which is that we're now in 612 00:35:30,760 --> 00:35:33,960 Speaker 1: an environment where we've got one point for million barrels 613 00:35:34,000 --> 00:35:38,800 Speaker 1: a day of oil demand growth. OPEC supply cuts is 614 00:35:38,880 --> 00:35:41,960 Speaker 1: based are basically flat, and non OPEC supply is you know, 615 00:35:42,120 --> 00:35:44,600 Speaker 1: up maybe six seven thousand barrels a day. What's the 616 00:35:45,320 --> 00:35:48,200 Speaker 1: your sense of the the OPEC agreements continuity. In other words, 617 00:35:48,200 --> 00:35:49,680 Speaker 1: you mentioned there were some doubts race that that's SARAI 618 00:35:49,800 --> 00:35:53,960 Speaker 1: conference in Houston. What's the conversation like within OPEC and 619 00:35:54,000 --> 00:35:56,200 Speaker 1: need without outside of OPEC as well about whether or 620 00:35:56,239 --> 00:35:58,960 Speaker 1: not that agreement will continue. So OPEC had what is 621 00:35:59,040 --> 00:36:02,320 Speaker 1: called a during committee meeting over the course of this 622 00:36:02,560 --> 00:36:07,000 Speaker 1: last weekend and the result of that was again, you know, 623 00:36:07,120 --> 00:36:09,360 Speaker 1: we're not really sure whether we're going to continue the 624 00:36:09,440 --> 00:36:11,520 Speaker 1: cuts at this point. They didn't. They don't really have 625 00:36:11,640 --> 00:36:14,640 Speaker 1: authority to do that. Remember, what you have to understand 626 00:36:14,719 --> 00:36:18,120 Speaker 1: is that this is a political agreement at its route, 627 00:36:18,480 --> 00:36:20,719 Speaker 1: and I think that's a very important thing to understand 628 00:36:20,840 --> 00:36:24,239 Speaker 1: is that this opaque agreement was initiated and is being 629 00:36:24,440 --> 00:36:27,759 Speaker 1: enforced at a sovereign level. This is not an oil 630 00:36:27,880 --> 00:36:31,200 Speaker 1: minister level or or help me over the weekend with 631 00:36:31,320 --> 00:36:36,080 Speaker 1: a photo shoots boats off Singapore, etcetera, etcetera. Are we award? 632 00:36:36,160 --> 00:36:38,279 Speaker 1: Are we up to our eyeballs in oil right now? 633 00:36:38,760 --> 00:36:41,479 Speaker 1: So actually what we've seen is floating storages come down 634 00:36:41,560 --> 00:36:46,520 Speaker 1: a little bit, so there's always boats outside. But it 635 00:36:46,600 --> 00:36:50,240 Speaker 1: is a general statement. If forty you're talking oils, Michael 636 00:36:50,280 --> 00:36:54,839 Speaker 1: Cohen is driving oil south, are we up to our 637 00:36:54,920 --> 00:36:58,640 Speaker 1: eyeballs in oil? No? I think what we have to understand, 638 00:36:59,120 --> 00:37:01,560 Speaker 1: you know, and ignoled edge, is that over the last month, 639 00:37:01,840 --> 00:37:05,239 Speaker 1: the time spreads or the the extent of the contango 640 00:37:05,560 --> 00:37:09,440 Speaker 1: in the market, so the the incentive to store oil 641 00:37:09,760 --> 00:37:13,880 Speaker 1: has essentially increased over the last month. And that's represented 642 00:37:14,200 --> 00:37:17,200 Speaker 1: representative of the fact that we are in the midst 643 00:37:17,280 --> 00:37:20,120 Speaker 1: of a seasonal downturn in oil demand. This is a 644 00:37:20,280 --> 00:37:24,760 Speaker 1: natural right. As we move into the next two months, 645 00:37:25,040 --> 00:37:27,520 Speaker 1: we think that the ingredients will be in place for 646 00:37:27,600 --> 00:37:30,080 Speaker 1: a more constructive picture. And again this is where the 647 00:37:30,160 --> 00:37:34,120 Speaker 1: anchoring bias comes in. And I think that the reason 648 00:37:34,200 --> 00:37:37,560 Speaker 1: that we expect that is that first costs are not 649 00:37:38,400 --> 00:37:43,640 Speaker 1: held in stone. So shale producers are benefiting from low rigrades, 650 00:37:43,960 --> 00:37:47,560 Speaker 1: from low low costs of oil field services that they've 651 00:37:47,560 --> 00:37:50,640 Speaker 1: been able to benefit from for the last year. They're 652 00:37:50,920 --> 00:37:54,960 Speaker 1: enjoying those low break evens for now, and they're increasing 653 00:37:55,000 --> 00:37:58,040 Speaker 1: their drilling because they can do it because prices are 654 00:37:58,120 --> 00:38:01,040 Speaker 1: very low. And as we move into the next six 655 00:38:01,160 --> 00:38:05,160 Speaker 1: month timeframe, we think that that trend will reverse at 656 00:38:05,200 --> 00:38:07,720 Speaker 1: the very same time that we head into summer peak triving. 657 00:38:08,080 --> 00:38:11,200 Speaker 1: We gotta come back. But Michael, I'll tell you technically, 658 00:38:11,320 --> 00:38:14,040 Speaker 1: I'm looking at West Texas Intermedia, and I don't want 659 00:38:14,080 --> 00:38:16,719 Speaker 1: to go into all the technical mumbo jumbo folks, but 660 00:38:16,920 --> 00:38:19,520 Speaker 1: I can honestly say I've never seen what's called a 661 00:38:19,640 --> 00:38:24,400 Speaker 1: six kiss chart, which is this thing is screaming self 662 00:38:25,160 --> 00:38:29,520 Speaker 1: in an extremely well behaved manner. I could almost teach 663 00:38:29,600 --> 00:38:32,719 Speaker 1: the chart, and of course it is so well behaved. 664 00:38:33,120 --> 00:38:37,120 Speaker 1: On Trent to your defense. We're not through key support yet, 665 00:38:37,200 --> 00:38:39,160 Speaker 1: and there's an argument about where that is. But the 666 00:38:39,239 --> 00:38:42,640 Speaker 1: fact is, I I love the tension, David girl, that 667 00:38:42,719 --> 00:38:46,560 Speaker 1: we've got in oil here. As we stagger through March 668 00:38:46,640 --> 00:38:52,000 Speaker 1: and April, when's Vienna? When's the next old mark that 669 00:38:52,080 --> 00:38:57,560 Speaker 1: on your day? Well, not only just but April. We're 670 00:38:57,560 --> 00:39:00,279 Speaker 1: going to have another monitoring committee in April. We we 671 00:39:00,360 --> 00:39:07,279 Speaker 1: have a monitoring we monitoring our brackets. We're back with 672 00:39:07,400 --> 00:39:10,359 Speaker 1: Michael uh Cohen of Barclays. Help me with the rest 673 00:39:10,400 --> 00:39:12,680 Speaker 1: of the commodities. You do were oil oil, which is 674 00:39:12,960 --> 00:39:16,120 Speaker 1: unfair to you. Is there like a super is a 675 00:39:16,239 --> 00:39:20,200 Speaker 1: super psycho worked out? Is there a themed commodities that 676 00:39:20,280 --> 00:39:22,880 Speaker 1: our listeners could grab onto. I think one thing that 677 00:39:22,960 --> 00:39:26,600 Speaker 1: we noted over the course of the first quarter is that, um, 678 00:39:27,080 --> 00:39:31,360 Speaker 1: you know, most commodity prices moved lower for what was 679 00:39:31,480 --> 00:39:36,040 Speaker 1: broadly a macro driven you know development that you know, 680 00:39:36,640 --> 00:39:40,319 Speaker 1: concerns about the macro economy UH tended to move base 681 00:39:40,440 --> 00:39:45,600 Speaker 1: metals lower. There were concerns about um, you know, the 682 00:39:45,680 --> 00:39:49,320 Speaker 1: Trump policies working out and being implemented quickly enough that 683 00:39:49,440 --> 00:39:53,880 Speaker 1: tended to lead to some weakness outside of just oil. UH. 684 00:39:54,000 --> 00:39:57,359 Speaker 1: The other thing is that in natural gas, for example, uh, 685 00:39:57,560 --> 00:40:01,680 Speaker 1: you saw weather driving natural gas prices well below what 686 00:40:01,960 --> 00:40:06,000 Speaker 1: was a prior you know, average um. And so there 687 00:40:06,040 --> 00:40:11,040 Speaker 1: were reasons unique to each commodity that led to a recovery, 688 00:40:11,320 --> 00:40:14,879 Speaker 1: and oil is actually the exception. So in a sense, 689 00:40:15,000 --> 00:40:19,320 Speaker 1: we saw copper rebound because of strikes in the minds, 690 00:40:19,440 --> 00:40:22,560 Speaker 1: we saw a gold rebound. We saw natural gas rebound 691 00:40:22,640 --> 00:40:26,440 Speaker 1: slightly because again because of weather um. But in oil, 692 00:40:26,600 --> 00:40:30,080 Speaker 1: what was interesting is that even though here was a 693 00:40:30,440 --> 00:40:34,480 Speaker 1: was a a commodity where we actually see significant supply 694 00:40:34,640 --> 00:40:38,919 Speaker 1: restraint by OPEC, oil prices have not rebounded, which could 695 00:40:39,040 --> 00:40:42,200 Speaker 1: mean either that oil prices are poised to rebound very 696 00:40:42,239 --> 00:40:46,319 Speaker 1: strongly or that even despite that, there's a structural downtrend 697 00:40:46,719 --> 00:40:49,080 Speaker 1: that could lead to lower oil prices and the remainder 698 00:40:49,120 --> 00:40:51,719 Speaker 1: of the year. You mentioned that the Chinese economy and 699 00:40:51,960 --> 00:40:54,799 Speaker 1: moving to iron ore the metals. What's the effect been 700 00:40:54,880 --> 00:40:58,520 Speaker 1: thus far of China at its last meeting scaling back 701 00:40:58,520 --> 00:41:02,919 Speaker 1: industrial over capacity. Now, taking that somewhat seriously, it seems well, 702 00:41:03,160 --> 00:41:07,120 Speaker 1: I think it did definitely lead to the decline in 703 00:41:07,239 --> 00:41:10,919 Speaker 1: some of those major industrial medals, But since then those 704 00:41:11,040 --> 00:41:14,520 Speaker 1: constraints have started to move away, and we've seen the 705 00:41:15,000 --> 00:41:18,680 Speaker 1: iron ore price start to rebound UM. You know, I think, 706 00:41:18,880 --> 00:41:22,960 Speaker 1: from from our standpoint, are our Chinese economists continue to 707 00:41:23,080 --> 00:41:25,840 Speaker 1: have a very optimistic view on the Chin, on the 708 00:41:25,960 --> 00:41:30,799 Speaker 1: Chinese economy UM, and have recently you know, upgraded their 709 00:41:31,000 --> 00:41:35,000 Speaker 1: their GDP forecast UM, you know, based on what they 710 00:41:35,080 --> 00:41:38,600 Speaker 1: see as a very active property market UM, and you know, 711 00:41:38,719 --> 00:41:42,360 Speaker 1: the expectation that there won't be a very you know, 712 00:41:42,760 --> 00:41:45,839 Speaker 1: a big hard landing scenario for example. I think from 713 00:41:45,960 --> 00:41:50,000 Speaker 1: our standpoint, they're they're clearly risks to that UM. Obviously, 714 00:41:50,160 --> 00:41:53,880 Speaker 1: if if the Chinese economy starts to sputter, there's you know, 715 00:41:54,000 --> 00:41:56,960 Speaker 1: from an oil perspective and an energy perspective, there's a 716 00:41:57,080 --> 00:42:00,560 Speaker 1: lot of important ramifications not just within China but in 717 00:42:00,680 --> 00:42:03,839 Speaker 1: the surrounding region that could lead to a downturn from 718 00:42:03,960 --> 00:42:06,560 Speaker 1: that industrial growth. And I think it's important to understand 719 00:42:07,080 --> 00:42:10,680 Speaker 1: that that industrial component of oil demand and energy demand 720 00:42:10,719 --> 00:42:14,240 Speaker 1: has been a very large share of the rebounding growth 721 00:42:14,320 --> 00:42:16,759 Speaker 1: that we've seen from oil demand over the last year, 722 00:42:17,120 --> 00:42:20,520 Speaker 1: and if that falls away, then it, you know, significantly 723 00:42:20,680 --> 00:42:23,480 Speaker 1: takes out the strength of oil demand going And I 724 00:42:23,520 --> 00:42:26,440 Speaker 1: haven't looked ages David at the Bloomberg Commodity Index, which 725 00:42:26,480 --> 00:42:28,840 Speaker 1: is got its own mapthewiness to it. It's actually pretty 726 00:42:28,920 --> 00:42:32,399 Speaker 1: rigorous and really quite good. I mean, you can't call 727 00:42:32,520 --> 00:42:36,359 Speaker 1: bull market and commodities here, can you? No? I mean, 728 00:42:36,400 --> 00:42:38,839 Speaker 1: I think what what you can look at is that, um, 729 00:42:39,239 --> 00:42:41,919 Speaker 1: you know, the broader trends that led to the bull 730 00:42:41,960 --> 00:42:45,759 Speaker 1: market over the course of two thousand nine through two 731 00:42:45,840 --> 00:42:49,799 Speaker 1: thousand and twelve fourteen was in large part driven as 732 00:42:49,880 --> 00:42:53,840 Speaker 1: well by supply constraint in places like Libya. It was 733 00:42:54,000 --> 00:42:57,400 Speaker 1: driven by you know, desire for an inflation headge at 734 00:42:57,440 --> 00:43:00,040 Speaker 1: that at that point in time. Are those ingredient and 735 00:43:00,160 --> 00:43:03,239 Speaker 1: still in place? I don't think so. So we see 736 00:43:03,280 --> 00:43:06,840 Speaker 1: a much more moderate, a much more moderate outlook for 737 00:43:06,960 --> 00:43:10,480 Speaker 1: commodities going forward, taking into account the fact that the 738 00:43:11,080 --> 00:43:15,040 Speaker 1: strong growth from China and other emerging Asian countries is 739 00:43:15,120 --> 00:43:17,480 Speaker 1: not going to be at the same trend as what 740 00:43:17,600 --> 00:43:20,480 Speaker 1: we saw in the last eight to two you know, 741 00:43:20,560 --> 00:43:22,800 Speaker 1: five to seven years, about thirty seconds left here. What 742 00:43:22,920 --> 00:43:24,799 Speaker 1: role is Washington going to play in the commodity space 743 00:43:24,880 --> 00:43:27,320 Speaker 1: here going forward? So I think it's a huge it 744 00:43:27,400 --> 00:43:29,600 Speaker 1: plays a huge role. I mean, obviously, what we've seen 745 00:43:30,239 --> 00:43:32,080 Speaker 1: over the course of the last three to four months 746 00:43:32,160 --> 00:43:35,160 Speaker 1: is a lot of very high expectation that we would 747 00:43:35,160 --> 00:43:40,640 Speaker 1: get this broad infrastructure development policy. So I think that's 748 00:43:40,840 --> 00:43:44,760 Speaker 1: that's one uncertainty. The second is the implementation of tax 749 00:43:44,800 --> 00:43:48,719 Speaker 1: reform and the impact that that would have on importers 750 00:43:48,800 --> 00:43:53,120 Speaker 1: and exporters within the commodity space. The third major thing 751 00:43:53,239 --> 00:43:57,080 Speaker 1: is the concern over a protectionist type trade, you know, 752 00:43:57,200 --> 00:44:01,480 Speaker 1: protectionist trade outcome that could conceivably lead to reduction in 753 00:44:02,320 --> 00:44:05,240 Speaker 1: chain microcne. Thank you so much with Barkley's on oil 754 00:44:05,280 --> 00:44:06,759 Speaker 1: and the call here for a little bit of a 755 00:44:06,840 --> 00:44:16,880 Speaker 1: bid and strength oil. Thanks for listening to the Bloomberg 756 00:44:16,920 --> 00:44:22,400 Speaker 1: Surveillance podcast. Subscribe and listen to interviews on iTunes, SoundCloud, 757 00:44:22,840 --> 00:44:27,040 Speaker 1: or whichever podcast platform you prefer. I'm out on Twitter 758 00:44:27,200 --> 00:44:30,960 Speaker 1: at Tom Keene. David Gura is at David Gura. Before 759 00:44:31,000 --> 00:44:35,360 Speaker 1: the podcast, you can always catch us worldwide. I'm Bloomberg Radio, 760 00:44:47,840 --> 00:44:51,320 Speaker 1: brought you by Bank of America, Mary Lynch. Dedicated to 761 00:44:51,440 --> 00:44:55,320 Speaker 1: bringing our clients insights and solutions to meet the challenges 762 00:44:55,480 --> 00:45:00,560 Speaker 1: of a transforming world. That's the power of global connections. Maryland, Pierce, 763 00:45:00,680 --> 00:45:04,520 Speaker 1: Fenner and Smith Incorporated Member s I p C.