WEBVTT - Bloomberg Surveillance TV: September 26, 2024

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<v Speaker 1>Bloomberg Audio Studios, Podcasts, radio News.

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<v Speaker 2>This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along

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<v Speaker 2>with Lisa Bromwitz and Amrie Hordern. Join us each day

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<v Speaker 2>for insight from the best in markets, economics, and geopolitics

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<v Speaker 2>from our global headquarters in New York City. We are

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<v Speaker 2>live on Bloomberg Television weekday mornings from six to nine

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<v Speaker 2>am Eastern. Subscribe to the podcast on Apple, Spotify or

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<v Speaker 2>anywhere else you listen, and as always on the Bloomberg

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<v Speaker 2>Terminal and the Bloomberg Business app. We begin this hour

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<v Speaker 2>with the promise of fiscal stimulus out of China, equities

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<v Speaker 2>running worldwide ahead of jobless claims in the US, and

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<v Speaker 2>comments from Chairman pell Evan Brown of UBS saying recession

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<v Speaker 2>risk needs to be further priced out. Investors poured money

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<v Speaker 2>into defensive trades over the last couple of months, but

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<v Speaker 2>resilient US economic data and a proactive FED have meaningfully

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<v Speaker 2>reduced the left tail. We look for treasury yields to

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<v Speaker 2>continue bouncing from here and cyclical sectors to help perform defensives.

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<v Speaker 2>Evans with us and more. Evan, good morning, Good morning.

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<v Speaker 2>Before we get to the market. Coch let's start with

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<v Speaker 2>the Cole on the economy. How'm encouraged on you by

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<v Speaker 2>what you saw from the Fed last week and what

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<v Speaker 2>you're saying from China this week.

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<v Speaker 3>Very encouraged. I mean, look, when you have a meaningful

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<v Speaker 3>change in messaging from to the most important economic actors

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<v Speaker 3>in the world, which would be J Powell and I

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<v Speaker 3>guess President she and the broader Paul Bureau, it pays

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<v Speaker 3>to listen. And what we saw from Powell was a

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<v Speaker 3>message of labor markets fine, we're going to keep it there.

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<v Speaker 3>We are going to keep it there, and so I

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<v Speaker 3>think the bar is very low for them to keep

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<v Speaker 3>doing fifties. You know, ultimately inflation has come down quite

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<v Speaker 3>a bit and that enables them to act more aggressively.

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<v Speaker 2>This is something Deutsche Bank said as well. You suggested

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<v Speaker 2>the next hundred basis points one hundred and fifty basis

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<v Speaker 2>points of acing is actually an easy decision.

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<v Speaker 3>I don't know if it's an easy decision. I just

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<v Speaker 3>think that the the next well, yeah, look, I think

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<v Speaker 3>the next one hundred and one hundred and twenty five

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<v Speaker 3>we're going to get. The more aggressive that they are

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<v Speaker 3>right now, the less I think they have to do later. Ultimately,

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<v Speaker 3>you're as you're saying, we're bringing down recession risks because

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<v Speaker 3>they're acting sooner or more aggressively at this point.

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<v Speaker 4>At a certain point, you have to wonder how much

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<v Speaker 4>does this leave inflation as a bigger concern, even if

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<v Speaker 4>recession is less of a concern. We were talking about that.

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<v Speaker 4>With longer term yields picking up just a touch, you

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<v Speaker 4>have to imagine, are we truly seeing just a return

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<v Speaker 4>to the past normal or is this going to be

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<v Speaker 4>a new inflationary environment where officials aren't willing to allow

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<v Speaker 4>the economy to collapse enough to create that disinflation.

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<v Speaker 3>Yeah, I think we're a long way from inflation becoming

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<v Speaker 3>a meaningful concern again. I think, you know, we were

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<v Speaker 3>just talking about oil and what's happening there, and oil

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<v Speaker 3>is that's a major disinflationary force, not just on a

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<v Speaker 3>headline level, but ripples through into core inflation. The labor

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<v Speaker 3>market is still cooling. You would need to see like

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<v Speaker 3>a re tightening of the labor market, I think to

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<v Speaker 3>get like domestically generated inflation getting going again. So I

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<v Speaker 3>kind of think this is the best of all worlds

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<v Speaker 3>where they're supporting growth maybe inflation becomes more of an

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<v Speaker 3>issue if we get Trump tariffs and the like down

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<v Speaker 3>the road. But I think that's kind of tomorrow's story

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<v Speaker 3>as opposed to today.

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<v Speaker 4>The story that you're painting makes me think the US

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<v Speaker 4>is less exceptional, and frankly everything else that's a little

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<v Speaker 4>more exceptional, especially on the valuations that they're currently trading at.

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<v Speaker 4>Is that how you're looking at it.

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<v Speaker 3>I think the US is still exceptional in one clear way,

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<v Speaker 3>which is that we have a great productivity story here.

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<v Speaker 3>We have seen productivity pick up in the US. Yes,

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<v Speaker 3>employment has been coming down, but GDP growth has been

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<v Speaker 3>really really strong, and that's allowed US also to get

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<v Speaker 3>unit labor costs inflation lower. You're not seeing that in Europe.

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<v Speaker 3>You're still seeing ongoing supply chain issues, corporate margin issues

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<v Speaker 3>and the like. You're not seeing that in the UK.

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<v Speaker 3>And so the US is still quite exceptional on that front.

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<v Speaker 3>When we talked about the equity markets, though, of course

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<v Speaker 3>a lot of that good news, more of it is

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<v Speaker 3>priced in the US and the rest of the world,

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<v Speaker 3>as is almost always the case.

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<v Speaker 5>You also like China, especially versus Europe. But how much

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<v Speaker 5>is the European story dependent on what happens next in China,

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<v Speaker 5>and if what's happening with fiscal and monetary stimulus actually works.

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<v Speaker 3>Yeah, I think, look what happens in China, there's going

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<v Speaker 3>to be some positively through into Europe, especially with some

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<v Speaker 3>of the big luxury names. If you can shore up

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<v Speaker 3>consumer confidence in China, then that helps on that front.

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<v Speaker 3>I still think Europe faces a number of domestic challenges.

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<v Speaker 3>You know, you still have stubborn wages, you still have

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<v Speaker 3>a German manufacturing sector that is in pretty bad shape.

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<v Speaker 3>And we had from Mario Draghi last week, maybe the

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<v Speaker 3>week before him, talking about how do we get Europe

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<v Speaker 3>more competitive? And it's almost a sad read because you

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<v Speaker 3>see such great work, such interesting work of things that

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<v Speaker 3>can and should be done, but so little confidence that

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<v Speaker 3>the institutional framework is going to allow politically these reforms

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<v Speaker 3>to happen.

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<v Speaker 2>Let me jump in as an investor looking at Europe.

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<v Speaker 2>How do he react when the German finance ministry sounds

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<v Speaker 2>almost unsets with my stock coming gown? Yeah, I mean

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<v Speaker 2>that's what it's not telling you about the situation in Europe,

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<v Speaker 2>because that's ultimately what's happened in the last two weeks.

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<v Speaker 3>Look I think that's that's, you know, the underlying Yeah,

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<v Speaker 3>there's an underlying institutional issues that are going to hold

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<v Speaker 3>Europe back. Now, I don't think I'm saying anything that's

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<v Speaker 3>not already reflected in European equities. They're very cheap, and

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<v Speaker 3>then they can receive some bounce from this China improvement

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<v Speaker 3>and maybe the ECB gets a little more aggressive and

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<v Speaker 3>so that that helps. But structurally, it's hard to make

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<v Speaker 3>this long term investment case for Europe relative to the.

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<v Speaker 2>US VMH Right now, you mentioned luxury, a VMHIF in

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<v Speaker 2>Europe one of the six percent of the my mom.

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<v Speaker 2>So we're seeing that running and luxuries you might expect

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<v Speaker 2>on the menu a number of asset classes. Let's pick three,

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<v Speaker 2>so equities, commodities, for in exchange. Out of those three,

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<v Speaker 2>to price out recession, what does that mean to price

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<v Speaker 2>in what now and where? Yeah?

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<v Speaker 3>So I think what we'll see more most in most

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<v Speaker 3>clear is what's happening in the excuse me, in equities

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<v Speaker 3>regionally and intra sector. And you know, like I said,

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<v Speaker 3>a lot of people pour money into defensive sectors here

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<v Speaker 3>in the US. I think we've got to price a

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<v Speaker 3>lot of that out. I think recession risk that left

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<v Speaker 3>tail has been sectial utilities.

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<v Speaker 2>What does it leave you, given that that run up

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<v Speaker 2>is actually just off the back of AI as well

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<v Speaker 2>as the defensive nature of the particular three pistolsis well,

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<v Speaker 2>what do you do with utilities?

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<v Speaker 6>Utilities is the is.

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<v Speaker 3>The trickiest one because of that AI. I mean, in itself,

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<v Speaker 3>utilities look extremely overbought. We've seen tons of ETF flows

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<v Speaker 3>into utilities. Is all telling us, especially given the macro

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<v Speaker 3>dynamics in our view that yields can bounce from here,

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<v Speaker 3>that utilities should be vulnerable. But then you get these

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<v Speaker 3>these big AI power demand announcements and and that's uh,

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<v Speaker 3>that's so. I think among the defensives, utilities look a

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<v Speaker 3>little bit better. I think in you know, staples, real estate,

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<v Speaker 3>and healthcare probably underperform utilities. At least you have that

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<v Speaker 3>AI story there on utilities.

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<v Speaker 4>Just listening to you, it seems like overweight small caps,

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<v Speaker 4>equal weight, overweight Chinese equities maybe preferly European securities, underweight

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<v Speaker 4>bonds and have a high holiday. Is that basically your view? Yeah?

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<v Speaker 3>I think so. I mean it's kind of like refle

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<v Speaker 3>It's it's like a reflation with without the refle without

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<v Speaker 3>the inflation. It's kind of how I'm thinking about it,

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<v Speaker 3>and that like this pricing out of recession, right, but

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<v Speaker 3>now you have oil coming down for supply reasons, and

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<v Speaker 3>hopefully that you know, the Middle East doesn't doesn't escalate

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<v Speaker 3>much further from here. But if oil's coming down for

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<v Speaker 3>supply reasons, you know, that's another very stimulative thing for

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<v Speaker 3>the private sector and consumers. So I think we have

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<v Speaker 3>this this kind of uh, you know, stimulus from China,

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<v Speaker 3>stimulus from the Fed, simulus just more globally, and we're

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<v Speaker 3>setting up for just this better economic picture than people

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<v Speaker 3>thought going into your end and next year.

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<v Speaker 2>Always enjoy your work. Just fantastic catchup. It's been too

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<v Speaker 2>long as well. Come back soon, Evan Brown, if you best.

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<v Speaker 2>That's not with equities Equiti jump across the board still

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<v Speaker 2>that most sticks. I could examp on the S and

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<v Speaker 2>p up by eight ten. So on the nassnak up

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<v Speaker 2>by one point five. Let's flip up the board. Switch

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<v Speaker 2>on the board, turn the page. You get to the

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<v Speaker 2>bond market story. The two year yield was lower, the

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<v Speaker 2>ten yere yield was lower. Now the two years just

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<v Speaker 2>a little bit higher. So that's the change off the

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<v Speaker 2>bank of this in the last ninety seconds. Push that

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<v Speaker 2>through foreign exchange dollar a little bit stronger. You're a

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<v Speaker 2>dollar banking off session highs one eleven forty eight. Just

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<v Speaker 2>remember payrolls a week tomorrow. The estimates one forty I

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<v Speaker 2>think the survey week was last week. So this is

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<v Speaker 2>what we're looking at for next month payrolls. Is it

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<v Speaker 2>really going to slow down anytime soon? Given what we've

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<v Speaker 2>seen coming out of the jobless claims numbers over the

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<v Speaker 2>last month or so.

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<v Speaker 4>If jobless claims are the best high frequency indicator, the

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<v Speaker 4>answer would be no. At the same time, people have

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<v Speaker 4>pointed to the fact that you're not seeing jobs getting created.

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<v Speaker 4>It's not just maybe people getting fired, but that people

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<v Speaker 4>aren't actually getting the opportunities, and you are seeing that

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<v Speaker 4>some of the sentiment surveys. However, there is a discrepancy

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<v Speaker 4>between the bearishness and the fears versus what we're seeing

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<v Speaker 4>in the claims numbers, and I think that that's what

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<v Speaker 4>you're feeling in terms of the lift in yields on

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<v Speaker 4>the margins in the bond market today.

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<v Speaker 2>Jay Bryson and wels Fago with this now to discuss Jay.

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<v Speaker 2>I just love your thoughts on jobless claims at two eighteen.

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<v Speaker 2>It just screams, there's nothing to see here. Everything it's okay,

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<v Speaker 2>it's everything okay. Well, you know, so.

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<v Speaker 6>You talk about payrolls coming out right, and so payrolls

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<v Speaker 6>is a net number, it's you know, it's two gross

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<v Speaker 6>numbers or what we're getting today. An initial job was

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<v Speaker 6>claims is people who are losing jobs. What Lisa was

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<v Speaker 6>just talking about is creating jobs. And so when you

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<v Speaker 6>look at the economy, we're not creating a lot of jobs.

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<v Speaker 6>We're not losing a lot of jobs either, and so

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<v Speaker 6>when you get that net number out next week, you know,

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<v Speaker 6>we're one thirty five. So there has been a slow

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<v Speaker 6>down in job creation, and what that means is you're

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<v Speaker 6>just not going to have as much income growth going

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<v Speaker 6>forward as well.

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<v Speaker 2>Is it inevitable that lay offs the next I.

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<v Speaker 6>Don't think it's necessarily inevitable because if you look at

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<v Speaker 6>the financial health of most businesses today, that's actually pretty good.

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<v Speaker 6>You know, their balance sheets are pretty strong, the debt

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<v Speaker 6>service ratios for most companies are very very strong as well,

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<v Speaker 6>and so they don't necessarily need to lay people off

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<v Speaker 6>at this point. But you know, if monetary policy remains

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<v Speaker 6>restrictive here, that's going to continue to put headwinds on growth,

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<v Speaker 6>and that eventually puts actually could lead to those jobless

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<v Speaker 6>claims going up.

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<v Speaker 4>Do you get the sense that this market is too

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<v Speaker 4>complacent about the sort of soft landing nirvana as we've

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<v Speaker 4>named it, or is this mora an economy that's at

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<v Speaker 4>risk of a reacceleration that people maybe are a little

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<v Speaker 4>bit overly complacent about the inflation side of the equation.

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<v Speaker 6>So you know, if you say, what's more likely going

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<v Speaker 6>forward slow down, more of a slowdown from here, or

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<v Speaker 6>more of a reacceleration, I'm going to take the more

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<v Speaker 6>of a slowdown sort of story right now. Just again,

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<v Speaker 6>because monetary policyy remains restrictive right here. I just don't

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<v Speaker 6>see a really huge reacceleration right here. And so you know,

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<v Speaker 6>when I think about the risk of recession in the

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<v Speaker 6>next twelve months or so, you know, the underlying run

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<v Speaker 6>rate is like fifteen percent. You know, if you said

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<v Speaker 6>to me, what do you think the rescue recession the

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<v Speaker 6>next twelve months is one in three thirty five percent.

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<v Speaker 6>It's not our base case, but we're not out of

0:11:55.320 --> 0:11:57.880
<v Speaker 6>the woods, right. I mean, you are seeing signs of

0:11:57.880 --> 0:12:00.680
<v Speaker 6>stress in the household sector, seeing delinquencies on credit cards

0:12:00.760 --> 0:12:03.640
<v Speaker 6>going up, you seeing delinquencies on auto loans going up,

0:12:04.080 --> 0:12:08.040
<v Speaker 6>and people's you know, the excess money they had after

0:12:08.240 --> 0:12:11.120
<v Speaker 6>you know, the stimulus programs are all gone at this point,

0:12:11.200 --> 0:12:14.959
<v Speaker 6>and so you could get you could get a move

0:12:15.040 --> 0:12:17.520
<v Speaker 6>to the downside here, although I'm not really expecting that.

0:12:17.679 --> 0:12:20.199
<v Speaker 4>If that's the case, why shouldn't FED go by fifty

0:12:20.200 --> 0:12:21.439
<v Speaker 4>basis points in November.

0:12:21.880 --> 0:12:24.480
<v Speaker 6>I think there's a very good, very good case for that,

0:12:24.720 --> 0:12:26.320
<v Speaker 6>But I think it's going to be I think you

0:12:26.360 --> 0:12:29.160
<v Speaker 6>were saying earlier, it's all you know, we're just very

0:12:29.280 --> 0:12:33.320
<v Speaker 6>very data dependent at this point, and you know it's

0:12:33.480 --> 0:12:36.240
<v Speaker 6>they're trying to balance the risk out there, and you know,

0:12:36.280 --> 0:12:38.200
<v Speaker 6>could you get a reacceleration. Sure, I don't think it's

0:12:38.200 --> 0:12:41.240
<v Speaker 6>the most likely case, but you know there's that's still

0:12:41.280 --> 0:12:43.080
<v Speaker 6>that possibility there. And I don't think they want to

0:12:43.120 --> 0:12:46.360
<v Speaker 6>go fifty to have to have to reaverse that a

0:12:46.360 --> 0:12:47.200
<v Speaker 6>few months from now.

0:12:47.360 --> 0:12:50.440
<v Speaker 5>Well reaverse that because of policy out of Washington in

0:12:50.440 --> 0:12:51.200
<v Speaker 5>twenty twenty five.

0:12:51.600 --> 0:12:53.400
<v Speaker 6>So I don't think you're going to get a huge

0:12:53.480 --> 0:12:57.000
<v Speaker 6>policy shift out of Washington in twenty twenty five. You know,

0:12:57.440 --> 0:12:59.480
<v Speaker 6>I think the biggest thing that Congress has to deal

0:12:59.520 --> 0:13:04.040
<v Speaker 6>with next year is the extension of the t j

0:13:04.240 --> 0:13:07.000
<v Speaker 6>A at the end of the year. We are we

0:13:07.160 --> 0:13:10.040
<v Speaker 6>expecting that right off the bat. Probably not right, that

0:13:10.080 --> 0:13:12.800
<v Speaker 6>doesn't expire until the end of the year, knowing Congress

0:13:12.920 --> 0:13:14.400
<v Speaker 6>is going to take them a long time to do that.

0:13:14.520 --> 0:13:16.480
<v Speaker 5>But I guess what about reacceleration of inflation if it

0:13:16.559 --> 0:13:17.720
<v Speaker 5>came to things like tariffs.

0:13:18.320 --> 0:13:20.439
<v Speaker 6>If it comes to things like tariff that you could

0:13:20.480 --> 0:13:23.240
<v Speaker 6>potentially see that. Now, does that mean the Fed starts

0:13:23.280 --> 0:13:24.920
<v Speaker 6>to raise rates? I think the Fed and that you know,

0:13:24.920 --> 0:13:27.520
<v Speaker 6>if you were to get a reacceleration inflation, I think

0:13:27.559 --> 0:13:30.440
<v Speaker 6>the Fed goes on hold everyone's pricing in two hundred

0:13:30.480 --> 0:13:33.360
<v Speaker 6>basis points of ray cuts. That probably goes away. But

0:13:33.520 --> 0:13:36.000
<v Speaker 6>I think the Fed initially would would say wait on

0:13:36.120 --> 0:13:37.600
<v Speaker 6>hold and see how much it feeds through.

0:13:47.400 --> 0:13:49.360
<v Speaker 2>Let's get to counsel matter of jp MOLK and asset

0:13:49.400 --> 0:13:52.000
<v Speaker 2>management of County Common. It's you, good morning. How vulnerable

0:13:52.040 --> 0:13:54.720
<v Speaker 2>are we to a self print on piros two fridays

0:13:54.720 --> 0:13:55.120
<v Speaker 2>of why.

0:13:55.520 --> 0:13:57.520
<v Speaker 5>Well, there's there's two things to consider.

0:13:57.640 --> 0:14:00.120
<v Speaker 1>One is how vulnerable are we and then you know

0:14:00.240 --> 0:14:03.480
<v Speaker 1>what is most likely to occur. So the initial job

0:14:03.520 --> 0:14:07.679
<v Speaker 1>as claims today suggests that the expansion should continue. The

0:14:07.760 --> 0:14:10.160
<v Speaker 1>labor market is healthy. Now, if you were to ask

0:14:10.240 --> 0:14:12.600
<v Speaker 1>me where the balance of risks is, I would say

0:14:12.679 --> 0:14:15.360
<v Speaker 1>the balance of risks is to the downside. It is

0:14:15.800 --> 0:14:19.880
<v Speaker 1>to the risk that payrolls growth slows more and the

0:14:20.040 --> 0:14:23.280
<v Speaker 1>unemployment rate rises. You know, I know there's this debate.

0:14:24.480 --> 0:14:27.480
<v Speaker 1>If the FED sees payrolls growth below one hundred thousand,

0:14:27.520 --> 0:14:30.120
<v Speaker 1>then that's the green light to do another fifty. I

0:14:30.200 --> 0:14:32.760
<v Speaker 1>think we forget that we already had a payroll's print

0:14:32.840 --> 0:14:36.680
<v Speaker 1>below one hundred thousand two months ago, so payroll's growth

0:14:36.880 --> 0:14:40.560
<v Speaker 1>already is slowing. Now, this is the most new information

0:14:40.640 --> 0:14:42.520
<v Speaker 1>that I feel like I've learned in the past few

0:14:42.600 --> 0:14:46.160
<v Speaker 1>days in terms of FED communication, is that actually, while

0:14:46.600 --> 0:14:49.560
<v Speaker 1>the market is focused on the debate about twenty five

0:14:49.680 --> 0:14:53.760
<v Speaker 1>versus fifty being primarily about the labor market, some participants

0:14:53.800 --> 0:14:57.280
<v Speaker 1>are actually opening up the door to additional fifty basis

0:14:57.320 --> 0:15:01.520
<v Speaker 1>point rate cuts just on inflation alone. And that's why

0:15:01.600 --> 0:15:04.400
<v Speaker 1>I think, you know, you're not going to necessarily see

0:15:05.120 --> 0:15:08.920
<v Speaker 1>materially higher yields just because you know the labor market

0:15:08.960 --> 0:15:12.520
<v Speaker 1>stays around here, there are other reasons yield should remain

0:15:12.600 --> 0:15:15.600
<v Speaker 1>low and should be by a slower because of the

0:15:15.680 --> 0:15:17.040
<v Speaker 1>inflation backdrop alone.

0:15:17.600 --> 0:15:19.600
<v Speaker 2>Just to back up, was that Kevina Walla that might

0:15:19.680 --> 0:15:20.520
<v Speaker 2>just not think in that way.

0:15:21.160 --> 0:15:24.000
<v Speaker 1>It was, although to be fair, you know, we've been

0:15:24.040 --> 0:15:26.240
<v Speaker 1>thinking about it this way for a while, which is

0:15:26.400 --> 0:15:31.320
<v Speaker 1>that the Fed has justification to cut probably one hundred

0:15:31.360 --> 0:15:33.760
<v Speaker 1>to one hundred and fifty basis points just on the

0:15:33.840 --> 0:15:37.440
<v Speaker 1>improvement in inflation alone. And then you couple that with

0:15:37.560 --> 0:15:42.120
<v Speaker 1>what we're seeing in terms of inflation expectations, inflation break evens,

0:15:42.480 --> 0:15:46.720
<v Speaker 1>the commodity complex, the global growth backdrop, and I think

0:15:46.800 --> 0:15:50.400
<v Speaker 1>they can feel fairly confident that there is space for

0:15:50.520 --> 0:15:54.080
<v Speaker 1>them to ease. And that's kind of agnostic to does

0:15:54.160 --> 0:15:57.400
<v Speaker 1>the labor market stabilize around here or does it continue

0:15:57.440 --> 0:15:58.040
<v Speaker 1>to move lower.

0:15:58.360 --> 0:16:01.120
<v Speaker 4>One of the most controversial aspects of your whole case

0:16:01.480 --> 0:16:03.720
<v Speaker 4>is that you see this as a reason to buy

0:16:03.760 --> 0:16:06.920
<v Speaker 4>bonds across the entire yield spectrum. When people come on

0:16:07.000 --> 0:16:09.400
<v Speaker 4>the show, they have increasingly said, I'm comfortable with it

0:16:09.720 --> 0:16:11.760
<v Speaker 4>up until about five years, and then after that forget it,

0:16:11.880 --> 0:16:13.360
<v Speaker 4>because I have no idea what's going to happen, and

0:16:13.400 --> 0:16:16.040
<v Speaker 4>potentially we could get even inflation coming back or being

0:16:16.080 --> 0:16:19.240
<v Speaker 4>stickier because of a proactive FED. How do you push

0:16:19.320 --> 0:16:20.960
<v Speaker 4>back against that, because I'm sure you hear that.

0:16:21.000 --> 0:16:22.160
<v Speaker 6>A lot well.

0:16:22.400 --> 0:16:25.720
<v Speaker 1>I mean, when you think about what we are recommending

0:16:25.760 --> 0:16:28.760
<v Speaker 1>that clients do here, what we've found when we look

0:16:28.800 --> 0:16:31.560
<v Speaker 1>at the client base is that despite the fact that

0:16:31.640 --> 0:16:34.080
<v Speaker 1>the FED has finally come in after fourteen months of

0:16:34.160 --> 0:16:37.320
<v Speaker 1>being on hold and cut rates fifty basis points, there

0:16:37.360 --> 0:16:40.760
<v Speaker 1>are still many clients that are under allocated to fixed

0:16:40.800 --> 0:16:44.280
<v Speaker 1>income and over allocated to cash, and so there is

0:16:44.400 --> 0:16:47.040
<v Speaker 1>still a lot of room to move out in terms

0:16:47.080 --> 0:16:50.200
<v Speaker 1>of duration. Now, in terms of how I think the

0:16:50.320 --> 0:16:52.800
<v Speaker 1>term structure of the yield curve is going to evolve,

0:16:53.360 --> 0:16:56.600
<v Speaker 1>I do think that the curve is biased steeper, so

0:16:56.800 --> 0:16:59.520
<v Speaker 1>you are going to see front end yields move lower

0:17:00.320 --> 0:17:03.320
<v Speaker 1>than long end yields as the FED continues to deliver

0:17:03.480 --> 0:17:06.320
<v Speaker 1>those rate cuts. But I do think that when you're

0:17:06.400 --> 0:17:10.959
<v Speaker 1>thinking about building a portfolio that has diversification, you can

0:17:11.040 --> 0:17:13.639
<v Speaker 1>think about a core or core plus fund with a

0:17:13.720 --> 0:17:16.000
<v Speaker 1>five or six year duration, which is what you're going

0:17:16.080 --> 0:17:18.440
<v Speaker 1>to get when you buy one of those full bond funds.

0:17:18.480 --> 0:17:21.879
<v Speaker 1>That invests across the whole maturity spectrum, and that's going

0:17:21.920 --> 0:17:24.080
<v Speaker 1>to give you both the income and also the benefit

0:17:24.119 --> 0:17:29.480
<v Speaker 1>of capital appreciation. If the claims data is not the

0:17:29.600 --> 0:17:32.560
<v Speaker 1>real signal, and in fact the terminal rate for the

0:17:32.600 --> 0:17:35.480
<v Speaker 1>FED is not three but lower, in this.

0:17:35.600 --> 0:17:38.640
<v Speaker 4>Picture, there's a real question about if you're more bought

0:17:38.720 --> 0:17:42.760
<v Speaker 4>biased to the potential for downside risk, why should you

0:17:42.840 --> 0:17:44.040
<v Speaker 4>go into risk your assets.

0:17:45.160 --> 0:17:48.160
<v Speaker 1>So I think there's a couple reasons. First of all,

0:17:49.040 --> 0:17:52.639
<v Speaker 1>all of this in terms of the timing and transmission

0:17:52.680 --> 0:17:57.640
<v Speaker 1>of monetary policy is very uncertain. The lags are very unclear.

0:17:57.880 --> 0:18:00.440
<v Speaker 1>So we do feel like we're getting closer to reaching

0:18:00.440 --> 0:18:03.840
<v Speaker 1>an inflection point, but it's not clear which way the

0:18:03.880 --> 0:18:06.720
<v Speaker 1>economy is going to break. So on one hand, the

0:18:06.800 --> 0:18:10.679
<v Speaker 1>FED cuts fifty basis points, and in twelve months, if

0:18:10.720 --> 0:18:13.200
<v Speaker 1>they succeed in extending the cycle, we could be looking

0:18:13.240 --> 0:18:17.200
<v Speaker 1>at reacceleration. In that case, you know, spread should remain

0:18:17.320 --> 0:18:18.000
<v Speaker 1>very tight. Here.

0:18:18.480 --> 0:18:19.680
<v Speaker 2>On the other hand, if.

0:18:19.600 --> 0:18:22.720
<v Speaker 1>This is like every other time in history, then the

0:18:22.800 --> 0:18:27.640
<v Speaker 1>fifty basis point cut is actually not a proactive move

0:18:27.720 --> 0:18:29.879
<v Speaker 1>that extend the cycle, but a signal that they're already

0:18:29.920 --> 0:18:30.360
<v Speaker 1>too late.

0:18:30.840 --> 0:18:32.280
<v Speaker 5>And to balance those things.

0:18:32.359 --> 0:18:33.320
<v Speaker 2>I think you need both a.

0:18:33.359 --> 0:18:37.600
<v Speaker 1>Combination of duration and high quality, but also some carry

0:18:37.640 --> 0:18:42.439
<v Speaker 1>in your portfolio because the outcomes both tail risks are

0:18:42.520 --> 0:18:43.199
<v Speaker 1>possible at this.

0:18:43.280 --> 0:18:45.040
<v Speaker 2>Moment, Cassie, we've got to leave it that so it's

0:18:45.040 --> 0:18:46.879
<v Speaker 2>going to catch up. Thank you, Cassie Power there of

0:18:46.960 --> 0:18:49.960
<v Speaker 2>j P Bulk and Asset Management. This is the Bloomberg

0:18:50.040 --> 0:18:54.680
<v Speaker 2>Seventans podcast, bringing you the best in markets, economics, a giopolitics.

0:18:55.000 --> 0:18:57.439
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0:18:57.480 --> 0:19:00.680
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0:19:00.760 --> 0:19:03.920
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0:19:04.240 --> 0:19:06.840
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0:19:06.880 --> 0:19:07.440
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0:19:11.400 --> 0:19:11.920
<v Speaker 3>Mm hmm