1 00:00:09,840 --> 00:00:13,800 Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene Jay Lee. 2 00:00:13,960 --> 00:00:17,560 Speaker 1: We bring you insight from the best in economics, finance, investment, 3 00:00:18,000 --> 00:00:23,520 Speaker 1: and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, 4 00:00:23,600 --> 00:00:28,120 Speaker 1: Bloomberg dot Com, and of course, on the Bloomberg here 5 00:00:28,120 --> 00:00:30,640 Speaker 1: in New York, alongside Tom Keene and myself Tom paus 6 00:00:30,680 --> 00:00:34,559 Speaker 1: Sally obviously Capital Markets chief US Economist. Good morning, Tom, 7 00:00:34,720 --> 00:00:37,040 Speaker 1: Good to be with you. I actually think the chairman 8 00:00:37,120 --> 00:00:40,080 Speaker 1: had a really decent performance in that news conference yesterday. 9 00:00:40,120 --> 00:00:42,199 Speaker 1: You'll few pleased he didn't, and I love how you 10 00:00:42,280 --> 00:00:45,200 Speaker 1: say it in sort of a surprising way. I was surprised. 11 00:00:45,240 --> 00:00:47,480 Speaker 1: I think we all were. But I think that also 12 00:00:47,600 --> 00:00:51,440 Speaker 1: drives home that he has done a mediocre job in 13 00:00:51,560 --> 00:00:55,960 Speaker 1: his previous press conferences. Um, and that's maybe being being kind. Now, 14 00:00:56,080 --> 00:00:58,360 Speaker 1: I think he's sort of I think he nailed nailed 15 00:00:58,360 --> 00:01:01,640 Speaker 1: the messaging. I think he sort of cognizant that, um, 16 00:01:02,000 --> 00:01:04,240 Speaker 1: even if they do get one more cut in before 17 00:01:04,280 --> 00:01:06,640 Speaker 1: the end of the year, um, that that's probably it. 18 00:01:07,200 --> 00:01:09,120 Speaker 1: And so I think he actually in that context, then 19 00:01:09,200 --> 00:01:11,520 Speaker 1: he actually has to start to pivot back toward Hey, 20 00:01:11,600 --> 00:01:13,200 Speaker 1: by the way, and we think things are actually pretty 21 00:01:13,200 --> 00:01:15,080 Speaker 1: decent in the United States, and I think that's pretty 22 00:01:15,120 --> 00:01:16,720 Speaker 1: much what he did, so I would say he actually 23 00:01:16,760 --> 00:01:18,640 Speaker 1: nailed it. The reason I was surprised is that it 24 00:01:18,720 --> 00:01:20,560 Speaker 1: is so difficult to find a central view of a 25 00:01:20,680 --> 00:01:23,440 Speaker 1: really fractured, divided committee and then go into the news 26 00:01:23,480 --> 00:01:25,400 Speaker 1: conference and try and communicate that. I actually think it 27 00:01:25,440 --> 00:01:27,640 Speaker 1: did a solid job of that. I think that if 28 00:01:27,680 --> 00:01:30,280 Speaker 1: we'd just heard from Chairman Pal yesterday, the market probably 29 00:01:30,280 --> 00:01:32,800 Speaker 1: would have taken it much more dovishly because we've all 30 00:01:32,880 --> 00:01:36,440 Speaker 1: got very preoccupied with the dispersion in the dot plot. 31 00:01:36,800 --> 00:01:39,280 Speaker 1: RBC has got a really interesting take on ned. I'll 32 00:01:39,319 --> 00:01:40,960 Speaker 1: just go through the consensus view and then you can 33 00:01:41,000 --> 00:01:43,160 Speaker 1: push back a little bit. There is a view that 34 00:01:43,240 --> 00:01:45,240 Speaker 1: the next meeting is going to be really difficult to 35 00:01:45,319 --> 00:01:47,040 Speaker 1: get through a break cup because if you look at 36 00:01:47,040 --> 00:01:50,360 Speaker 1: the dot plot, the FED looks really divided. You've got 37 00:01:50,440 --> 00:01:53,320 Speaker 1: a different take about the next meeting specifically, just walk 38 00:01:53,400 --> 00:01:55,240 Speaker 1: us through that. Yeah, so so one, thank you for 39 00:01:55,320 --> 00:01:58,080 Speaker 1: the plug and and too. Yeah, so I think I 40 00:01:58,120 --> 00:01:59,680 Speaker 1: think this is this is what I mean. I think 41 00:01:59,720 --> 00:02:02,080 Speaker 1: the plot is confusing in a lot of regards. Um, 42 00:02:02,360 --> 00:02:05,080 Speaker 1: but here's here's one of them. Um, what you're seeing 43 00:02:05,160 --> 00:02:07,920 Speaker 1: is what all seventeen people think, but not all seventeen 44 00:02:07,960 --> 00:02:10,079 Speaker 1: people vote, right, So I think it's critical to know 45 00:02:10,200 --> 00:02:12,760 Speaker 1: where the voters are. And actually what we would say is, 46 00:02:12,760 --> 00:02:15,120 Speaker 1: if you look at the composition of voters today, UM, 47 00:02:15,240 --> 00:02:17,679 Speaker 1: you know, sort of for this year. Uh, it's really 48 00:02:17,720 --> 00:02:19,840 Speaker 1: skewed toward towards the doves. So when you look at 49 00:02:19,880 --> 00:02:21,800 Speaker 1: the dot plot, UM, you see that there are seven 50 00:02:22,200 --> 00:02:25,000 Speaker 1: members that are looking for another cut before the end 51 00:02:25,040 --> 00:02:27,200 Speaker 1: of the year. So when you go through then who 52 00:02:27,240 --> 00:02:30,919 Speaker 1: the voters are, it's really easy to assign, um a 53 00:02:31,120 --> 00:02:34,760 Speaker 1: dove to each one of those seven voters looking for cut, 54 00:02:34,880 --> 00:02:36,840 Speaker 1: so for the by the end of the year. So 55 00:02:36,880 --> 00:02:39,400 Speaker 1: we would actually say at this juncture, UM is probably 56 00:02:39,440 --> 00:02:41,840 Speaker 1: another sort of seven to two vote for for a 57 00:02:41,919 --> 00:02:44,079 Speaker 1: cut before the end of the year. And I would 58 00:02:44,120 --> 00:02:46,160 Speaker 1: think that the market, the equity market would take obviously 59 00:02:46,200 --> 00:02:48,320 Speaker 1: some some comfort in that since they seem to think 60 00:02:48,360 --> 00:02:50,639 Speaker 1: that cuts are going to help the backdrop. I have 61 00:02:50,840 --> 00:02:54,480 Speaker 1: serious questions about that, but I thought it was fascinating 62 00:02:54,639 --> 00:02:57,160 Speaker 1: and the broader attention that I felt, and this was 63 00:02:57,200 --> 00:03:00,919 Speaker 1: between Jeff Rosenberg and black Rock and Scott Minored of Guggenheim. 64 00:03:01,400 --> 00:03:04,400 Speaker 1: Is we got QUEI going quwe one, quewie infinity over 65 00:03:04,480 --> 00:03:07,680 Speaker 1: in Europe, etcetera. The balance sheets come out and then 66 00:03:07,720 --> 00:03:09,760 Speaker 1: the balance she's supposed to come in. But now we're 67 00:03:09,800 --> 00:03:12,480 Speaker 1: hearing no, the balance sheet is not going to come in. 68 00:03:13,000 --> 00:03:17,639 Speaker 1: Explain the ramifications to our listeners if the FED balance 69 00:03:17,680 --> 00:03:20,359 Speaker 1: sheet doesn't come in as we expected the number of 70 00:03:20,480 --> 00:03:23,440 Speaker 1: years ago. So so I started to repeat exactly what 71 00:03:23,520 --> 00:03:25,320 Speaker 1: I said to you on TV a little while ago. 72 00:03:25,480 --> 00:03:29,079 Speaker 1: Look I wasn't awake then, so I'll say it again. Um, 73 00:03:29,639 --> 00:03:33,799 Speaker 1: the this is not a it's not a guess, right like, 74 00:03:34,240 --> 00:03:39,840 Speaker 1: the Fed is is absolutely going to start purchasing assets again, 75 00:03:40,040 --> 00:03:42,760 Speaker 1: and it's not going to be QUEI it's and it's 76 00:03:42,800 --> 00:03:44,760 Speaker 1: not not even gonna really be QUEI light. It's something 77 00:03:44,840 --> 00:03:47,600 Speaker 1: very different than that. So what what's basically happening is 78 00:03:47,640 --> 00:03:50,920 Speaker 1: the FED needs to hold reserves UM at at some 79 00:03:51,240 --> 00:03:53,240 Speaker 1: some level right now that are what about one point 80 00:03:53,520 --> 00:03:57,560 Speaker 1: four or five? So the question is at can it 81 00:03:57,640 --> 00:04:00,240 Speaker 1: go much lower? And the reality is they probably can't 82 00:04:00,240 --> 00:04:02,240 Speaker 1: because once they start, once reserves start to go much 83 00:04:02,280 --> 00:04:04,520 Speaker 1: lower UM, you will actually start to see a lot 84 00:04:04,520 --> 00:04:07,440 Speaker 1: of volatility. And so what's in front of markets. So 85 00:04:07,520 --> 00:04:10,200 Speaker 1: it's very interesting what happened over the last couple of days. Um, 86 00:04:10,600 --> 00:04:12,400 Speaker 1: we think that while we don't think that this was 87 00:04:13,000 --> 00:04:16,160 Speaker 1: an issue where reserves have shrunk so much um that 88 00:04:16,360 --> 00:04:18,280 Speaker 1: it created this issue, we think it was something else, 89 00:04:18,600 --> 00:04:22,320 Speaker 1: not not a non systemic event. Um. We think it's 90 00:04:22,320 --> 00:04:24,840 Speaker 1: spooked the hell out of the FED. And that's why 91 00:04:25,279 --> 00:04:27,880 Speaker 1: Powell yesterday basically said, hey, by the way, we are 92 00:04:27,920 --> 00:04:29,800 Speaker 1: now in Earn is going to have a conversation about 93 00:04:30,120 --> 00:04:32,599 Speaker 1: making sure that we hold the level of reserves roughly 94 00:04:32,640 --> 00:04:34,360 Speaker 1: where it is. And and sorry, just the one last 95 00:04:34,400 --> 00:04:37,360 Speaker 1: quick thing. The reason why all this is happening is 96 00:04:37,400 --> 00:04:40,839 Speaker 1: because of the relentless rising currency growth. Right. So currency 97 00:04:40,920 --> 00:04:44,159 Speaker 1: growth in the context of assets that have been slowing 98 00:04:44,440 --> 00:04:47,240 Speaker 1: means that you actually destroyed reserves. Um. So you need 99 00:04:47,320 --> 00:04:50,080 Speaker 1: to hold reserves at a certain at a roughly this level. 100 00:04:50,120 --> 00:04:51,440 Speaker 1: And that's exactly what the PET is going to do. 101 00:04:51,720 --> 00:04:53,480 Speaker 1: But by the way, it's a really critical idea. I mean, 102 00:04:53,480 --> 00:04:57,440 Speaker 1: I think this whole idea is being completely underappreciated. And John, 103 00:04:57,520 --> 00:05:00,120 Speaker 1: this is important. In the backdrop of Micael clarity, we 104 00:05:00,200 --> 00:05:02,440 Speaker 1: see capital markets has been doing this for a few years. 105 00:05:03,080 --> 00:05:06,000 Speaker 1: Nothing new about this before the financial crisis. This is 106 00:05:06,040 --> 00:05:08,920 Speaker 1: what used to happen quite regularly, and we're forgetting what 107 00:05:08,960 --> 00:05:11,720 Speaker 1: this used to look like. We're defining federal reserve actions 108 00:05:11,800 --> 00:05:15,039 Speaker 1: just by the post crisis period almost exclusively. But if 109 00:05:15,040 --> 00:05:18,120 Speaker 1: it's an expanding balance sheet, it must be I think 110 00:05:18,160 --> 00:05:19,960 Speaker 1: that's I think that's exactly right. I mean, you know, 111 00:05:20,240 --> 00:05:21,960 Speaker 1: you know, in in in the old days, you know, 112 00:05:22,000 --> 00:05:24,159 Speaker 1: we used to call these coupon passes or bill passes, 113 00:05:24,200 --> 00:05:26,320 Speaker 1: I mean, and that's effectively what what they're going to 114 00:05:26,360 --> 00:05:28,440 Speaker 1: be at this point. So yeah, I do. I think 115 00:05:28,480 --> 00:05:30,400 Speaker 1: that we all need to reorientate our our thinking in 116 00:05:30,440 --> 00:05:33,240 Speaker 1: this regard because the again the reality is UM in 117 00:05:33,320 --> 00:05:37,279 Speaker 1: an environment where there is significant amount for reserves because 118 00:05:37,839 --> 00:05:39,720 Speaker 1: again there's not enough time to go through all the 119 00:05:39,800 --> 00:05:42,800 Speaker 1: mechanics of this. But you know, from a regulatory perspective, 120 00:05:42,839 --> 00:05:45,800 Speaker 1: regulation has become punitive on banks, and so banks need 121 00:05:45,839 --> 00:05:47,840 Speaker 1: to hold um some sort of you know, sort of 122 00:05:47,960 --> 00:05:50,200 Speaker 1: high quality asset. And the high quality asset that banks 123 00:05:50,240 --> 00:05:53,240 Speaker 1: are deciding to hold in the name of regulation are 124 00:05:53,320 --> 00:05:57,839 Speaker 1: reserves UM. And so the reserve demand today is materially 125 00:05:57,960 --> 00:06:00,920 Speaker 1: more than it has ever been at any other time history. Yesterday, 126 00:06:01,000 --> 00:06:03,640 Speaker 1: got slightly technical at times. The focus, of course, was 127 00:06:03,720 --> 00:06:07,520 Speaker 1: on the dispersion amongst Federal Reserve policymakers. The chairman, I 128 00:06:07,560 --> 00:06:09,240 Speaker 1: think we all agreed, did a decent job of trying 129 00:06:09,279 --> 00:06:10,800 Speaker 1: to bring some of this together. I would say it 130 00:06:10,880 --> 00:06:13,400 Speaker 1: was like herding cats, and he did. Okay. What we 131 00:06:13,440 --> 00:06:15,680 Speaker 1: didn't really talk about in the news conference yesterday was 132 00:06:15,720 --> 00:06:18,040 Speaker 1: the assessment of where the labor market is, where the 133 00:06:18,120 --> 00:06:20,560 Speaker 1: general economy is. I think there was a complaints yesterday 134 00:06:20,560 --> 00:06:22,840 Speaker 1: and perctually complained the journalist. The only time the labor 135 00:06:22,880 --> 00:06:26,239 Speaker 1: market was really discussed was around morale on the effluence 136 00:06:28,120 --> 00:06:31,600 Speaker 1: camp or so. Can you imagine John Farrell in the 137 00:06:31,680 --> 00:06:37,080 Speaker 1: press conference? Actually, I would love that. Can you get 138 00:06:37,120 --> 00:06:40,920 Speaker 1: in there now? He's very properly. Governor Khney wasn't too 139 00:06:41,040 --> 00:06:46,640 Speaker 1: happy about I would love that. Yeah. Look, I think 140 00:06:46,760 --> 00:06:50,200 Speaker 1: I think that you know, sort of the the beaming 141 00:06:50,400 --> 00:06:53,360 Speaker 1: bright light that is the sort of the consumer that 142 00:06:53,520 --> 00:06:55,520 Speaker 1: is the labor market. Yeah. I don't think there was 143 00:06:55,520 --> 00:06:57,200 Speaker 1: a lot of attention given to it. But but maybe 144 00:06:57,240 --> 00:06:59,760 Speaker 1: that's why because I think at this point, like I sincerely, 145 00:07:00,400 --> 00:07:02,560 Speaker 1: it is a foregone conclusion that we all appreciate. It's 146 00:07:02,680 --> 00:07:04,480 Speaker 1: it's really rock solid in every way. I want to 147 00:07:04,520 --> 00:07:06,560 Speaker 1: wrap things up with the bomb market just quickly. There's 148 00:07:06,560 --> 00:07:08,799 Speaker 1: a take from a lot of people and fixed income 149 00:07:08,839 --> 00:07:10,840 Speaker 1: that this federal reserve is not going quick enough, not 150 00:07:10,920 --> 00:07:13,440 Speaker 1: going hard enough, and the evidence of that is just 151 00:07:13,520 --> 00:07:15,880 Speaker 1: looking at the yield curve. The cut right, the curve 152 00:07:15,920 --> 00:07:19,760 Speaker 1: doesn't stapen flattens. What's your take on that? Til you know? 153 00:07:19,920 --> 00:07:21,840 Speaker 1: We we and we've been We've been pretty clear on this, 154 00:07:22,200 --> 00:07:25,160 Speaker 1: uh in much of our written research over it feels 155 00:07:25,200 --> 00:07:27,320 Speaker 1: like many months now at this point that the reality 156 00:07:27,400 --> 00:07:29,920 Speaker 1: behind the curve and why tenure yields in particular are 157 00:07:30,000 --> 00:07:32,360 Speaker 1: so ridiculously low, is because we have negative rates around 158 00:07:32,400 --> 00:07:33,920 Speaker 1: the world. UM. So if you want to pick up 159 00:07:33,920 --> 00:07:35,840 Speaker 1: some yield, you're you're coming here. I mean, you know, 160 00:07:35,960 --> 00:07:37,960 Speaker 1: this is such a well worn story at this point. 161 00:07:37,960 --> 00:07:40,120 Speaker 1: I sincerely hope that everyone sort of is very appreciative 162 00:07:40,120 --> 00:07:43,080 Speaker 1: of this. I'll make another comment that that maybe is 163 00:07:43,440 --> 00:07:46,880 Speaker 1: completely underappreciated, UM, and that is if you look at 164 00:07:47,160 --> 00:07:50,360 Speaker 1: um tenure yields relative to nominal growth, there's a very 165 00:07:50,400 --> 00:07:53,120 Speaker 1: symbiotic relationship there, right, Like UM, one is a reflection 166 00:07:53,160 --> 00:07:55,400 Speaker 1: of the other. Uh, that's not happening, right, now where 167 00:07:55,480 --> 00:07:58,280 Speaker 1: nominal yields are basically sort of excuse me, a nominal 168 00:07:58,320 --> 00:08:01,280 Speaker 1: growth is relatively elevated. It in tenure yields are obviously 169 00:08:02,360 --> 00:08:04,480 Speaker 1: going to cut. Yeah, So what I think is that, well, 170 00:08:04,520 --> 00:08:06,720 Speaker 1: I don't I don't think that they necessarily do converge. 171 00:08:06,800 --> 00:08:09,120 Speaker 1: I think that they probably remained pretty wide because of 172 00:08:09,160 --> 00:08:12,000 Speaker 1: what's happening from a global perspective. Um that again, that's 173 00:08:12,000 --> 00:08:14,480 Speaker 1: a really important idea. So tenure yields are not even 174 00:08:14,560 --> 00:08:17,880 Speaker 1: a reflection of growth, which is what they are supposed 175 00:08:17,880 --> 00:08:19,360 Speaker 1: to be in the United States, and that's not happening 176 00:08:19,440 --> 00:08:20,800 Speaker 1: right now. So I think as a result, you can 177 00:08:20,840 --> 00:08:23,080 Speaker 1: be dismissed about the curve. Tom Griits catch up with you. 178 00:08:24,600 --> 00:08:42,160 Speaker 1: We appreciate it. Humble Sully of Obbous Capital Markets twenty 179 00:08:42,240 --> 00:08:45,000 Speaker 1: two years ago. It was red cover to cover two 180 00:08:45,080 --> 00:08:49,880 Speaker 1: hundred and seventy four pages. Securities Lending, repurchase Agreements Frank 181 00:08:49,960 --> 00:08:53,080 Speaker 1: Fabosi one of the books that I a Jersey read 182 00:08:53,160 --> 00:08:56,959 Speaker 1: so he could be smarter than us on the repo market. 183 00:08:57,040 --> 00:08:59,640 Speaker 1: The repo market, John just doesn't do justice to the 184 00:09:00,000 --> 00:09:04,960 Speaker 1: Warton's and sophistication of the overnight trust market. It's fantastic 185 00:09:05,040 --> 00:09:08,160 Speaker 1: to have our jersey with US Intelligence chief US Interest 186 00:09:08,280 --> 00:09:11,400 Speaker 1: rate strategist quite clearly. Are there's been some difficulties of 187 00:09:11,520 --> 00:09:13,800 Speaker 1: the last week. Are you confident that FED now has 188 00:09:13,840 --> 00:09:16,679 Speaker 1: control of them? Yeah? I do. I think they were 189 00:09:16,679 --> 00:09:20,439 Speaker 1: gonna abate anyway starting after today, Um, just because a 190 00:09:20,559 --> 00:09:23,240 Speaker 1: lot of the a lot of the pressures that kind 191 00:09:23,280 --> 00:09:27,439 Speaker 1: of cause the intergestion within the treasury and mortgage funding 192 00:09:27,520 --> 00:09:31,079 Speaker 1: market would would just naturally go away. Um. But but 193 00:09:31,200 --> 00:09:33,040 Speaker 1: you know, the FED came in with a couple of operations, 194 00:09:33,080 --> 00:09:35,240 Speaker 1: are going to do another operation today, and I think 195 00:09:35,280 --> 00:09:38,920 Speaker 1: that they're providing just enough liquidity in order to in 196 00:09:39,080 --> 00:09:40,520 Speaker 1: order to get things back to I don't want to 197 00:09:40,559 --> 00:09:43,240 Speaker 1: call it normal, because there's still going to be somewhat 198 00:09:43,280 --> 00:09:46,120 Speaker 1: elevated pressures this morning, but it's going to be you know, 199 00:09:46,280 --> 00:09:50,200 Speaker 1: significantly uh significantly better than it was on Monday and Tuesday. Okay, 200 00:09:50,559 --> 00:09:54,000 Speaker 1: you testifying the Congress. I'm the ugly congressman, and I'm 201 00:09:54,120 --> 00:09:58,520 Speaker 1: dumb as would. They're spending our money seventy five billion 202 00:09:58,640 --> 00:10:02,199 Speaker 1: dollars and they could be from any from wherever. All 203 00:10:02,320 --> 00:10:06,400 Speaker 1: fifty states, all fifty states are saying seventy five billion 204 00:10:06,520 --> 00:10:10,360 Speaker 1: times three. They're spending our money reply to that. Uh. 205 00:10:10,559 --> 00:10:14,679 Speaker 1: In nineteen thirteen, the Congress gave the Federal Reserve the 206 00:10:14,840 --> 00:10:17,800 Speaker 1: right to control the money supply, and that's exactly what 207 00:10:17,960 --> 00:10:20,600 Speaker 1: we're doing. So and that is what what the Federals 208 00:10:20,640 --> 00:10:24,079 Speaker 1: are we expanding the money supply or contracting it. Well, 209 00:10:24,240 --> 00:10:28,720 Speaker 1: so so ironically that's my question. So it contracted significantly 210 00:10:28,760 --> 00:10:30,599 Speaker 1: on Monday and Tuesday, and that's the reason why we 211 00:10:30,679 --> 00:10:33,000 Speaker 1: have this issue. So contracted by about two hundred billion 212 00:10:33,000 --> 00:10:35,959 Speaker 1: dollars on Monday and Tuesday. And you know, the Federal 213 00:10:36,000 --> 00:10:38,200 Speaker 1: Reserve is just adding back a little bit of that money, 214 00:10:38,280 --> 00:10:42,319 Speaker 1: so just enough, quite frankly, to calm things down. I 215 00:10:42,480 --> 00:10:45,960 Speaker 1: caun't wait for the emails after this second, Will Builton 216 00:10:46,120 --> 00:10:48,880 Speaker 1: Freedman approved of this? I mean, take go back to 217 00:10:48,960 --> 00:10:52,160 Speaker 1: monitors to one on one m o m. One. Good morning, 218 00:10:52,240 --> 00:10:55,920 Speaker 1: Lawrence Cudlow. I knows listening in Washington. Well, the world's 219 00:10:55,960 --> 00:10:57,920 Speaker 1: a little bit different now than when Freedman did most 220 00:10:57,960 --> 00:11:00,520 Speaker 1: of his good work, you know. So one of the 221 00:11:00,559 --> 00:11:03,920 Speaker 1: big things, obviously is that we have an environment where 222 00:11:04,360 --> 00:11:07,640 Speaker 1: bank balance sheets are constrained now like they weren't until 223 00:11:07,880 --> 00:11:11,600 Speaker 1: after the implementation of some of the Basil capital rules, 224 00:11:11,920 --> 00:11:14,280 Speaker 1: and those have just gotten stricter and strictly con stricter. 225 00:11:14,360 --> 00:11:17,240 Speaker 1: And because of that, you can't the banks can't print 226 00:11:17,320 --> 00:11:19,160 Speaker 1: money the way that they used to before. And that's 227 00:11:19,200 --> 00:11:22,400 Speaker 1: basically what they used to do. When you would, you know, 228 00:11:22,480 --> 00:11:25,160 Speaker 1: you get a loan, and that's how fractional banking works. 229 00:11:25,200 --> 00:11:27,800 Speaker 1: You get a loan from a bank and uh that 230 00:11:28,000 --> 00:11:30,840 Speaker 1: that isn't deposited somewhere else, and other people make other 231 00:11:30,960 --> 00:11:33,839 Speaker 1: loans based on that money and so so so. But 232 00:11:33,960 --> 00:11:36,439 Speaker 1: that money multiplier is not the same as it was 233 00:11:36,880 --> 00:11:40,800 Speaker 1: prior to the implementation of the most recent Basil capital rules. 234 00:11:41,160 --> 00:11:44,160 Speaker 1: And and what that's done is made for these periods 235 00:11:44,200 --> 00:11:48,160 Speaker 1: of very tight money supply and uh and and challenges 236 00:11:48,200 --> 00:11:50,400 Speaker 1: in the funding markets. And that's the simplest way I 237 00:11:50,440 --> 00:11:53,280 Speaker 1: can really explain brilliantly. I flunked the exam, you passed 238 00:11:53,320 --> 00:11:56,679 Speaker 1: a congratulations, John Farrell. That's true in Europe too, I 239 00:11:56,720 --> 00:12:00,320 Speaker 1: mean they're under Basil as well. Right, Yeah, let's talk 240 00:12:00,320 --> 00:12:02,200 Speaker 1: about the ball market just quickly to wrap things up, 241 00:12:02,240 --> 00:12:05,880 Speaker 1: highra there are several transmission mechanisms for monetary policy, and 242 00:12:05,960 --> 00:12:08,560 Speaker 1: one is just the communication channel. And when you start 243 00:12:08,640 --> 00:12:11,559 Speaker 1: to get a certain level of dissent and division. I 244 00:12:11,679 --> 00:12:15,079 Speaker 1: just wanted to what degree the communication channel is getting 245 00:12:15,160 --> 00:12:18,160 Speaker 1: backed up by that now, Ira, And that might be 246 00:12:18,440 --> 00:12:20,920 Speaker 1: at least one part of the reason why we're seeing 247 00:12:20,960 --> 00:12:23,680 Speaker 1: a flatty yield curve and not a steeper one after 248 00:12:23,800 --> 00:12:26,439 Speaker 1: what was really a devilish performance from the Chairman and 249 00:12:26,559 --> 00:12:29,880 Speaker 1: another right cut. Well, I think that it wasn't quite 250 00:12:29,920 --> 00:12:32,160 Speaker 1: as devilish as some people in the market had expected, 251 00:12:32,200 --> 00:12:34,200 Speaker 1: and that's one reason why you saw the front end 252 00:12:34,240 --> 00:12:36,480 Speaker 1: of the yield curve sell off yesterday and we we 253 00:12:36,600 --> 00:12:38,920 Speaker 1: basically praised out another half of a cut over the 254 00:12:39,000 --> 00:12:41,959 Speaker 1: next over the next nine months. So you know that 255 00:12:42,080 --> 00:12:44,240 Speaker 1: the market is saying, okay, now we know that there 256 00:12:44,280 --> 00:12:47,040 Speaker 1: are some hawks on the committee. We had two dissenters 257 00:12:47,360 --> 00:12:49,280 Speaker 1: who didn't want to cut, we had one dissenter who 258 00:12:49,280 --> 00:12:52,400 Speaker 1: wanted to cut more um so you know, there's this 259 00:12:52,559 --> 00:12:55,559 Speaker 1: big dispersion that we're not used to in terms of 260 00:12:55,640 --> 00:12:58,599 Speaker 1: communication policy. So um so. So I think that is 261 00:12:58,640 --> 00:13:00,880 Speaker 1: going to continue to confuse the markets a little bit, 262 00:13:01,080 --> 00:13:04,120 Speaker 1: but it might also bring back some optionality, uh, for 263 00:13:04,240 --> 00:13:06,520 Speaker 1: the Fed to have more of an announcement effective when, 264 00:13:06,640 --> 00:13:08,720 Speaker 1: when and if they do cut again. We've been making 265 00:13:08,800 --> 00:13:11,960 Speaker 1: jokes about it, but you and Bloomberg Intelligence Fixed Income 266 00:13:12,000 --> 00:13:14,000 Speaker 1: have just killed it over the last couple of days, 267 00:13:14,120 --> 00:13:18,640 Speaker 1: making smarter. Thinks well, Mr Jersey, there on the repurchase 268 00:13:18,840 --> 00:13:21,719 Speaker 1: agreement market also known as the reef. I've learned a 269 00:13:21,760 --> 00:13:40,480 Speaker 1: lot the last couple of days. Lawrence Boon knows how 270 00:13:40,559 --> 00:13:42,760 Speaker 1: sensitive I am. She's a chief economist at O E 271 00:13:42,840 --> 00:13:46,560 Speaker 1: c D after sterling career on Global Wall Street. Take 272 00:13:46,600 --> 00:13:48,640 Speaker 1: you a huge shoes to fill with Katherine Mann and 273 00:13:48,720 --> 00:13:52,880 Speaker 1: Lawrence Boon joins US today, and Lawrence Boone simply shakes 274 00:13:53,160 --> 00:13:58,640 Speaker 1: the global economic system with some really tough economic forecasts 275 00:13:59,200 --> 00:14:02,600 Speaker 1: for various nations. Let's start with a grand picture, Lawrence, 276 00:14:02,720 --> 00:14:05,959 Speaker 1: three percent was my metric for global recession? Are we 277 00:14:06,120 --> 00:14:10,240 Speaker 1: going to end up in global recession? What what we're saying, 278 00:14:10,600 --> 00:14:13,839 Speaker 1: um is that where the global growth is slowing down, 279 00:14:14,280 --> 00:14:17,800 Speaker 1: and it's slowing down to two point nine in twenty 280 00:14:17,960 --> 00:14:22,440 Speaker 1: nineteen and three in twenty which is the lowest growth 281 00:14:22,600 --> 00:14:26,800 Speaker 1: rate since the financial crisis. UM. And we're worried that 282 00:14:27,000 --> 00:14:30,960 Speaker 1: this situation is because and trenched is you know in 283 00:14:31,040 --> 00:14:34,600 Speaker 1: America there's a squeeze to a terminal value, a new 284 00:14:34,680 --> 00:14:37,920 Speaker 1: lower rate Michael Feroli among others that JP Morgan has 285 00:14:37,960 --> 00:14:40,040 Speaker 1: been very good on this. Do you have in your 286 00:14:40,120 --> 00:14:44,600 Speaker 1: head what the global terminal value is off of that 287 00:14:44,760 --> 00:14:48,880 Speaker 1: traditional three percent benchmark? Is the terminal value two point 288 00:14:49,000 --> 00:14:53,640 Speaker 1: nine or could it be self of that? Actually, if 289 00:14:53,960 --> 00:14:58,360 Speaker 1: if governments do not act, if we could, if we 290 00:14:58,440 --> 00:15:02,560 Speaker 1: continue to realize totally on monetary policy, it's going to 291 00:15:02,640 --> 00:15:07,520 Speaker 1: be difficult to put a break on this sliding of growth, 292 00:15:08,480 --> 00:15:11,240 Speaker 1: which is why what we're saying, you know, is used 293 00:15:11,280 --> 00:15:15,480 Speaker 1: the other move gear, move into fiscal gear and start 294 00:15:15,640 --> 00:15:19,800 Speaker 1: reverting this slowdown that we're seeing in growth. Lawrence, let's 295 00:15:19,800 --> 00:15:22,920 Speaker 1: talk about whether slowdown is coming from predominantly where do 296 00:15:22,960 --> 00:15:25,640 Speaker 1: you say that in Europe and China? Where's it coming specifically, 297 00:15:25,640 --> 00:15:28,840 Speaker 1: where's the biggest head win, the biggest drag right now? Well, 298 00:15:28,880 --> 00:15:31,960 Speaker 1: it's pretty much broad based. And we have revised down 299 00:15:32,160 --> 00:15:35,560 Speaker 1: both the advanced economies and the emerging market economies in 300 00:15:35,640 --> 00:15:39,320 Speaker 1: the G twenty because what's happening, the primary cause of 301 00:15:39,480 --> 00:15:43,280 Speaker 1: this slowdown and this acceleration of throw down is the 302 00:15:43,560 --> 00:15:48,000 Speaker 1: rising uncertainty linked to the trade conflict. You know, it's 303 00:15:48,040 --> 00:15:53,320 Speaker 1: been US China. It's expanding in terms of products being targeted. 304 00:15:53,920 --> 00:15:57,760 Speaker 1: It may be moving to US EU. It's also happening 305 00:15:57,840 --> 00:16:02,040 Speaker 1: between Japan and Korea, so trade restriction are mounting and 306 00:16:02,320 --> 00:16:07,600 Speaker 1: with it uncertainty and the logical natural consequence is that 307 00:16:07,920 --> 00:16:12,720 Speaker 1: production and investments are going down. So that is the analysis. 308 00:16:12,840 --> 00:16:15,520 Speaker 1: Let's get to the policy prescription. You talked about governments 309 00:16:15,560 --> 00:16:17,520 Speaker 1: doing more. There's a belief on this side of the 310 00:16:17,560 --> 00:16:20,520 Speaker 1: Atlantic increasingly so that the Germans are about to do 311 00:16:20,640 --> 00:16:23,640 Speaker 1: fiscal stimulus. What's your read on things in Europe at 312 00:16:23,640 --> 00:16:26,000 Speaker 1: the moment, Lawrence, So we're finally drifting away to have 313 00:16:26,080 --> 00:16:28,840 Speaker 1: a more optimal kind of policy mix where monetary policy 314 00:16:28,880 --> 00:16:31,560 Speaker 1: is they're supportive, and yet the governments are doing their 315 00:16:31,600 --> 00:16:34,600 Speaker 1: bit as well. So that's exactly what we would like 316 00:16:34,800 --> 00:16:38,920 Speaker 1: to see. Monetary policy supportive, continuing to be supportive like 317 00:16:39,080 --> 00:16:42,240 Speaker 1: it is, and government actually moving. You know, we have 318 00:16:42,320 --> 00:16:45,120 Speaker 1: a glimpse of hope because we've seen two days ago 319 00:16:45,800 --> 00:16:49,640 Speaker 1: that in the Netherlands, the government, when publishing the draft 320 00:16:49,720 --> 00:16:54,160 Speaker 1: twenty twenty budget, was actually announcing a one percent of 321 00:16:54,360 --> 00:17:00,120 Speaker 1: GDP fiscal support quiet way targeted towards investment, and in 322 00:17:00,200 --> 00:17:04,080 Speaker 1: addition that it will publish some detail on a massive 323 00:17:04,240 --> 00:17:07,440 Speaker 1: investment fond So maybe we're getting there. Well, maybe we're 324 00:17:07,440 --> 00:17:09,920 Speaker 1: getting there. And I understand there's political niceties there and 325 00:17:10,000 --> 00:17:12,159 Speaker 1: you don't want to criticize any of your members of 326 00:17:12,240 --> 00:17:14,920 Speaker 1: the O E c D, but we really need some 327 00:17:15,200 --> 00:17:21,040 Speaker 1: fiscal courage. Is the institutional structure there for fiscal courage 328 00:17:21,600 --> 00:17:25,480 Speaker 1: or is it based basically based on is that's terrible English? 329 00:17:25,480 --> 00:17:27,359 Speaker 1: I'm sorry I should do this in French, but that 330 00:17:27,400 --> 00:17:31,200 Speaker 1: would be worse. Is it? Is it based on we 331 00:17:31,359 --> 00:17:35,879 Speaker 1: gotta have a crisis before we get fiscal stimulus. So 332 00:17:36,160 --> 00:17:38,879 Speaker 1: I hope that's not the case, and we actually have 333 00:17:39,200 --> 00:17:46,320 Speaker 1: the institutional framework that would allow you area fiscal stands 334 00:17:46,480 --> 00:17:49,040 Speaker 1: to be a lot more importive than what we are 335 00:17:49,119 --> 00:17:52,400 Speaker 1: seeing now. But I think it's also at the national 336 00:17:52,640 --> 00:17:56,000 Speaker 1: level that we need to see something move on. You know. 337 00:17:56,200 --> 00:17:59,480 Speaker 1: You we have the external demands shock that trade, but 338 00:17:59,680 --> 00:18:02,680 Speaker 1: we also have in some countries and that includes the 339 00:18:02,720 --> 00:18:07,359 Speaker 1: Netherlands and Germany an investment backlog in a number of 340 00:18:07,520 --> 00:18:12,440 Speaker 1: network infrastructure, and those countries with a net have quite 341 00:18:12,520 --> 00:18:16,040 Speaker 1: looked it and and large fiscal space, so they should 342 00:18:16,119 --> 00:18:19,800 Speaker 1: be moving ahead. I think it's for government to decide 343 00:18:19,840 --> 00:18:23,000 Speaker 1: to do so, as they are reluctant to at least 344 00:18:23,040 --> 00:18:25,800 Speaker 1: so far. And in recent history, Lawrence, the central bank 345 00:18:25,840 --> 00:18:28,359 Speaker 1: has been left doing even more. We've got to the 346 00:18:28,400 --> 00:18:30,600 Speaker 1: point in the minds of many that perhaps we've reached 347 00:18:30,600 --> 00:18:33,440 Speaker 1: the so called reversal rate, where manatory policy has started 348 00:18:33,440 --> 00:18:35,680 Speaker 1: to become cat productive. What is the o E c 349 00:18:35,800 --> 00:18:39,040 Speaker 1: d's assessment of that right now? Lawrence. So, what we've 350 00:18:39,119 --> 00:18:42,119 Speaker 1: been saying and what I will keep on saying, actually is, 351 00:18:42,320 --> 00:18:45,000 Speaker 1: you know, central banks are some kind of hero. They've 352 00:18:45,119 --> 00:18:47,520 Speaker 1: lifted this out of what could have been a terrible 353 00:18:47,600 --> 00:18:52,840 Speaker 1: depression and deflation. But they've been doing the job largely alone. 354 00:18:53,040 --> 00:18:57,360 Speaker 1: So now they've set financial condition on a quiet, predictable 355 00:18:57,480 --> 00:19:01,200 Speaker 1: path with very low rate, and it's really up to 356 00:19:01,400 --> 00:19:05,920 Speaker 1: fiscal authority to make a move. Really, the Lawrence born 357 00:19:05,960 --> 00:19:08,119 Speaker 1: in the Pacific RIM and again in folksy reach of 358 00:19:08,160 --> 00:19:09,720 Speaker 1: the o E c D is far more than the 359 00:19:09,800 --> 00:19:13,720 Speaker 1: traditional perspective of Europe and America and the Pacific RIM. 360 00:19:14,520 --> 00:19:18,920 Speaker 1: Explain the economic flows between a five point x percent 361 00:19:19,560 --> 00:19:24,280 Speaker 1: growing China and the adjacent nations. What does this matter 362 00:19:24,440 --> 00:19:29,439 Speaker 1: for Singapore or heavily peopled Indonesia. Of course, getting all 363 00:19:29,520 --> 00:19:33,600 Speaker 1: the visibility right now Vietnam. What sub six percent China 364 00:19:33,720 --> 00:19:37,600 Speaker 1: mean to those countries. So that's a super interesting question. 365 00:19:37,720 --> 00:19:42,080 Speaker 1: And I think they that to two ways and two angles. 366 00:19:42,119 --> 00:19:46,080 Speaker 1: I'd like to advice. The first one is, and I'm 367 00:19:46,119 --> 00:19:49,119 Speaker 1: sure you had that in your mind, actually is the 368 00:19:49,280 --> 00:19:53,600 Speaker 1: trade conflict? Is that diverting trade um and there it's 369 00:19:53,760 --> 00:19:56,639 Speaker 1: it's the fact that we are seeing exports sort of 370 00:19:56,800 --> 00:20:00,800 Speaker 1: really surging in Vietnam, so there is some a diversion. 371 00:20:01,600 --> 00:20:04,480 Speaker 1: But and and the value chain is quite well integrated 372 00:20:04,560 --> 00:20:09,520 Speaker 1: in Asia, but from so for some sophisticated products, it 373 00:20:09,600 --> 00:20:12,520 Speaker 1: will take longer to reallocate some of the value chain. 374 00:20:13,000 --> 00:20:16,040 Speaker 1: So that that's one thing. The other, which perhaps is 375 00:20:16,400 --> 00:20:21,520 Speaker 1: even more important, is effectively that China is slowing down 376 00:20:22,119 --> 00:20:27,600 Speaker 1: and it's rebalancing its economy away from export capital goods 377 00:20:28,240 --> 00:20:32,480 Speaker 1: driven type of construction towards something that to an economic 378 00:20:32,480 --> 00:20:36,679 Speaker 1: and consumer yaunted and that means, you know, less demand 379 00:20:36,760 --> 00:20:40,760 Speaker 1: for commodities and capital goods, which may affect some countries 380 00:20:40,960 --> 00:20:43,200 Speaker 1: in Asia. We could go on for hours. This is 381 00:20:43,240 --> 00:20:46,119 Speaker 1: an important report from the o C. Real caution to 382 00:20:46,240 --> 00:20:49,080 Speaker 1: it or also in their chief economist in Paris, Thank you, 383 00:20:49,200 --> 00:21:06,400 Speaker 1: thank you. Why don't you bring in the esteem Greg 384 00:21:06,560 --> 00:21:10,199 Speaker 1: Peters like eighteen ways to go here always Fred Peters, 385 00:21:10,880 --> 00:21:13,119 Speaker 1: we can go, we can go with him nominal or 386 00:21:13,160 --> 00:21:14,720 Speaker 1: we can go everybody. Why don't you just tell me 387 00:21:14,840 --> 00:21:17,080 Speaker 1: what I should ask as my first question, I would 388 00:21:17,119 --> 00:21:20,240 Speaker 1: ask about ten tenure yield with a migration of vector 389 00:21:20,359 --> 00:21:26,800 Speaker 1: out below zero percent based on a vector out of 390 00:21:26,960 --> 00:21:33,879 Speaker 1: what did you get all that? Correg? Uh? Well, you know, 391 00:21:33,960 --> 00:21:39,240 Speaker 1: I always kind of catch half of what time is asking. Seriously, 392 00:21:39,320 --> 00:21:43,399 Speaker 1: you're Greg, Greg your charm as you're actually in the market. 393 00:21:43,440 --> 00:21:47,480 Speaker 1: I mean there's economists economizing where you're actually, like with 394 00:21:47,600 --> 00:21:51,000 Speaker 1: p Jim worried about price and yield? Can we get 395 00:21:51,200 --> 00:21:54,720 Speaker 1: price up enough on the ten year yield to bring 396 00:21:54,800 --> 00:21:57,560 Speaker 1: the ten year yield down under one percent? And dare 397 00:21:57,600 --> 00:22:00,000 Speaker 1: I say down to a negative yield? Jerome policy? Yeah? 398 00:22:00,040 --> 00:22:03,919 Speaker 1: Do they know? Yeah? I would. I think a negative 399 00:22:03,960 --> 00:22:06,359 Speaker 1: yeal is somewhat heroic. I you know, we have lots 400 00:22:06,440 --> 00:22:09,200 Speaker 1: of room to run before we get there. But I 401 00:22:09,359 --> 00:22:13,840 Speaker 1: think the path is lower um and and not much adjusting. 402 00:22:13,880 --> 00:22:16,119 Speaker 1: It's lower over the next day or week, but I 403 00:22:16,280 --> 00:22:20,920 Speaker 1: think the path over the next uh several years is 404 00:22:20,960 --> 00:22:24,960 Speaker 1: definitely lower. And just to oversimplify, do do you see 405 00:22:25,080 --> 00:22:29,959 Speaker 1: central bank changing and increasing rates and taking away accommodation 406 00:22:30,000 --> 00:22:32,119 Speaker 1: any time soon. And I think the answer to that 407 00:22:32,520 --> 00:22:36,320 Speaker 1: is no. And if the dancer is no absent any 408 00:22:36,400 --> 00:22:42,119 Speaker 1: inflation or stellar growth, I just see rates continuing to plummet. So, Greg, 409 00:22:42,240 --> 00:22:44,600 Speaker 1: We've talked about this on this program a few times, 410 00:22:44,640 --> 00:22:46,040 Speaker 1: and I've talked about it with you a few times 411 00:22:46,119 --> 00:22:47,520 Speaker 1: as well, and I'd love to bring it up again. 412 00:22:47,960 --> 00:22:50,200 Speaker 1: Something's changed. When the central bank used to wease, he 413 00:22:50,320 --> 00:22:52,320 Speaker 1: used to leave to a stepening of the yield curve, 414 00:22:52,720 --> 00:22:57,320 Speaker 1: he used to recalibrate revitalized growth expectations and inflation expectations 415 00:22:57,440 --> 00:23:00,560 Speaker 1: further out, that doesn't seem to be happening this on around, Greg, 416 00:23:00,680 --> 00:23:02,440 Speaker 1: the curve seems to be flattening. Just walk us through 417 00:23:02,480 --> 00:23:07,680 Speaker 1: why you think that dynamic has shifted ten years later. Yeah, So, 418 00:23:07,840 --> 00:23:11,040 Speaker 1: I think it's really around the fact that the efficacy 419 00:23:11,119 --> 00:23:15,080 Speaker 1: of central bank policy is viewed to be quite dimnimous 420 00:23:15,440 --> 00:23:19,520 Speaker 1: um and uh. And honestly, I don't think the market 421 00:23:19,560 --> 00:23:25,240 Speaker 1: believes that lower rates, more queuey leads to greater growth 422 00:23:26,119 --> 00:23:29,359 Speaker 1: or actually leads to higher inflation. And so without that, 423 00:23:29,560 --> 00:23:33,399 Speaker 1: there's no rationale for the curve to steepen out. And 424 00:23:33,520 --> 00:23:37,119 Speaker 1: so in the olden days i e. Previous cycles, you 425 00:23:37,240 --> 00:23:40,840 Speaker 1: had a situation where um, you know, central banks are 426 00:23:40,920 --> 00:23:46,760 Speaker 1: to ease and and that created inflation expectations moving higher. Uh, 427 00:23:47,000 --> 00:23:49,520 Speaker 1: and you're not getting that this time. And so I 428 00:23:49,600 --> 00:23:53,679 Speaker 1: think the market feedback is, you know, while it wants 429 00:23:54,160 --> 00:23:58,040 Speaker 1: more combination from a central bank perspective, the markets also 430 00:23:58,160 --> 00:24:01,639 Speaker 1: telling you that it really is very little to the 431 00:24:01,960 --> 00:24:05,359 Speaker 1: objective of getting inflation and growth higher. If you're just 432 00:24:05,440 --> 00:24:07,800 Speaker 1: joining us Greg Peters, with us, with PGIM, and the 433 00:24:07,920 --> 00:24:13,200 Speaker 1: hallmark of Peter's work is really really sophisticated research notes, 434 00:24:13,280 --> 00:24:18,480 Speaker 1: including the model efficient frontier light reading John. As we 435 00:24:18,600 --> 00:24:22,240 Speaker 1: move forward, you have a phenomenal scattered out chart, Greg Peters, 436 00:24:22,560 --> 00:24:25,520 Speaker 1: and the y axis is what everybody wants with their yield, 437 00:24:25,920 --> 00:24:29,879 Speaker 1: and that is excess return. Where's the sweet spot right 438 00:24:29,960 --> 00:24:35,160 Speaker 1: now to garner excess return given these historic times. Yeah, 439 00:24:35,280 --> 00:24:38,040 Speaker 1: So I think what we're ultimately trying to achieve in 440 00:24:38,080 --> 00:24:40,840 Speaker 1: our portfolios, the PGM and the total return bond fond 441 00:24:41,280 --> 00:24:46,639 Speaker 1: is really you know, getting uh, getting properly rewarded for 442 00:24:46,680 --> 00:24:48,920 Speaker 1: the risk ultimately right, and so on fixed income, we 443 00:24:49,000 --> 00:24:52,400 Speaker 1: think of the world excess returns i e. Hedged out 444 00:24:52,480 --> 00:24:55,280 Speaker 1: duration UM and so the way we see it is 445 00:24:55,520 --> 00:24:57,880 Speaker 1: we see a tremendous amount of value in the structured 446 00:24:57,920 --> 00:25:01,080 Speaker 1: product space. We think that's uh the mainly misprice and 447 00:25:01,160 --> 00:25:06,080 Speaker 1: misvalued um UM. And so that's where we're um, you know, 448 00:25:06,160 --> 00:25:10,560 Speaker 1: focusing a lot of our investments currently UH. And then 449 00:25:10,640 --> 00:25:15,320 Speaker 1: we still see value out the curve, in in high 450 00:25:15,359 --> 00:25:19,359 Speaker 1: yield bonds and UH in in particular places. So the 451 00:25:19,440 --> 00:25:22,359 Speaker 1: way to think about it ultimately though, is in a 452 00:25:22,920 --> 00:25:26,040 Speaker 1: portfolio construct. And so when you put them together, that's 453 00:25:26,040 --> 00:25:28,239 Speaker 1: where the whole market is getting pushed up and out 454 00:25:28,280 --> 00:25:32,240 Speaker 1: the official frontier goes uh. And so we really like 455 00:25:32,800 --> 00:25:36,680 Speaker 1: the quote unquote Barbell of having high quality triple A 456 00:25:36,800 --> 00:25:42,119 Speaker 1: structured products and risk in high yield emergency. What's a 457 00:25:42,240 --> 00:25:47,359 Speaker 1: structured product? What's a structured product? Well, it's an acronym 458 00:25:47,840 --> 00:25:54,119 Speaker 1: uh so. It's like clo so collateralized uh so. But 459 00:25:54,320 --> 00:25:57,800 Speaker 1: it's basically it's it's structured form. So you take a 460 00:25:57,880 --> 00:26:00,840 Speaker 1: pool of assets and you create a cap structure off 461 00:26:00,880 --> 00:26:04,720 Speaker 1: of it, and you change the risk dynamics depending on 462 00:26:05,520 --> 00:26:09,199 Speaker 1: what your tolerances are. UH. And so if an investor 463 00:26:09,359 --> 00:26:11,440 Speaker 1: wants a lot more risk that can go deeper down 464 00:26:11,520 --> 00:26:14,040 Speaker 1: the capital structure, and if you want a lot less risk, 465 00:26:14,119 --> 00:26:17,720 Speaker 1: you can go up. And so it ultimately Tom has 466 00:26:17,800 --> 00:26:21,120 Speaker 1: to a sum to zero. You can't create value out 467 00:26:21,160 --> 00:26:24,080 Speaker 1: of nothing, although Wall Street tries to tell you that sometimes. 468 00:26:24,560 --> 00:26:27,720 Speaker 1: So the nuro sum game, and so we think because 469 00:26:27,800 --> 00:26:31,119 Speaker 1: his reach for yield is so dramatic UM at the 470 00:26:31,200 --> 00:26:36,240 Speaker 1: bottom of the capital structure, Uh, that's dramatically overpriced, and 471 00:26:36,359 --> 00:26:39,800 Speaker 1: therefore it creates a lot of value on top that 472 00:26:39,920 --> 00:26:42,800 Speaker 1: was on the edge of that was beautiful. Let's make 473 00:26:42,880 --> 00:26:46,000 Speaker 1: them even more simple. If you wanted to get exposure 474 00:26:46,040 --> 00:26:48,200 Speaker 1: to a sudden part of the economy and you did 475 00:26:48,280 --> 00:26:51,840 Speaker 1: that through a stream of income and income stream, a 476 00:26:51,920 --> 00:26:54,040 Speaker 1: pool of assets, whatever it might be. Greg what is 477 00:26:54,119 --> 00:26:56,080 Speaker 1: it in the economy right now? What are the sectors 478 00:26:56,119 --> 00:27:00,760 Speaker 1: in the economy that you're looking to get your exposure to. Yes, 479 00:27:00,960 --> 00:27:03,560 Speaker 1: so the consumer, it still is holding on. I know 480 00:27:04,240 --> 00:27:07,960 Speaker 1: I ws talking about the strength of consumer, but but 481 00:27:08,119 --> 00:27:11,560 Speaker 1: we see a lot more stress um in UM in 482 00:27:11,640 --> 00:27:15,200 Speaker 1: the industrial segments UM and so you're seeing it play 483 00:27:15,240 --> 00:27:18,880 Speaker 1: out through trade and other channels. And so we're really 484 00:27:18,960 --> 00:27:22,720 Speaker 1: focused on the consumer side. And the consumer looks pretty 485 00:27:22,760 --> 00:27:27,080 Speaker 1: good they're not nearly as levered as they have been historically. Um. 486 00:27:27,320 --> 00:27:31,399 Speaker 1: And then related to that, the banking sector continues to 487 00:27:31,520 --> 00:27:35,600 Speaker 1: look quite good. Uh. And so you could say it's 488 00:27:35,840 --> 00:27:41,400 Speaker 1: regulation over regulation, different risk management, but either way, banks 489 00:27:41,560 --> 00:27:45,800 Speaker 1: are dramatically different today than they were pre crisis. And 490 00:27:45,920 --> 00:27:48,879 Speaker 1: so those are the two areas of main focus, honestly, Greg. 491 00:27:49,000 --> 00:27:51,320 Speaker 1: A final word on high yield. High yield is approaching 492 00:27:51,359 --> 00:27:53,000 Speaker 1: the tights of the year. If you look at the 493 00:27:53,040 --> 00:27:56,560 Speaker 1: Bloomberg Barclay's US Corporate high Yield Index, where is it 494 00:27:56,680 --> 00:27:58,719 Speaker 1: within high yield? Just tap into that and open out 495 00:27:58,800 --> 00:28:00,680 Speaker 1: force just a little bit more if you want to 496 00:28:00,680 --> 00:28:03,119 Speaker 1: exploite you to corporate credit in America within high yield? 497 00:28:03,720 --> 00:28:06,600 Speaker 1: Where are you getting that right now? Yeah? So the 498 00:28:06,680 --> 00:28:09,720 Speaker 1: high field market had really interesting performance this year, and 499 00:28:09,760 --> 00:28:12,600 Speaker 1: so there's been this massive beta graph, but it hasn't 500 00:28:12,640 --> 00:28:16,120 Speaker 1: manifested itself in returns in high yield. And so, for example, 501 00:28:16,320 --> 00:28:19,919 Speaker 1: the higher quality double bees have really outperformed the triple 502 00:28:19,960 --> 00:28:23,399 Speaker 1: ceas as an example. Uh. And so currently as a 503 00:28:23,440 --> 00:28:27,520 Speaker 1: result of that, you can move selectively down to the 504 00:28:27,640 --> 00:28:29,639 Speaker 1: triple C part of the market and get three and 505 00:28:29,680 --> 00:28:32,760 Speaker 1: a half times the amount of spread uh, and so 506 00:28:32,960 --> 00:28:38,040 Speaker 1: we really think there's opportunities down there. It's selective, but 507 00:28:38,240 --> 00:28:42,080 Speaker 1: we needed to prefer high old bonds over levered loans. 508 00:28:42,440 --> 00:28:45,840 Speaker 1: Is we dog? Is we dog? Triple C? You know? 509 00:28:45,960 --> 00:28:48,840 Speaker 1: Eight point eight percent coupon on the six year we 510 00:28:49,080 --> 00:28:53,840 Speaker 1: company piece? Is that triple C? I'm not sure? Actually, okay, 511 00:28:53,880 --> 00:28:56,160 Speaker 1: that's fair, that's fair. I didn't want to catch you unawares, 512 00:28:56,240 --> 00:28:58,720 Speaker 1: but we were watching it yesterday. Greg Peters has always 513 00:28:58,720 --> 00:29:00,960 Speaker 1: thank you so much. With Jim again, we protect the 514 00:29:01,000 --> 00:29:19,840 Speaker 1: copyright of our guests. This is a joy always for 515 00:29:19,920 --> 00:29:23,880 Speaker 1: Bloomberg Surveillance and has become an autumnal tradition. As the 516 00:29:24,040 --> 00:29:27,680 Speaker 1: chill sets across New York in the Autumnal one O 517 00:29:27,800 --> 00:29:31,920 Speaker 1: six one FM area, we talk about Harvard football. Of course, 518 00:29:32,240 --> 00:29:35,680 Speaker 1: Harvard football always on Bloomberg one or six one FM 519 00:29:35,760 --> 00:29:39,760 Speaker 1: in Boston and with our pregame analysis the coverage against 520 00:29:39,800 --> 00:29:43,120 Speaker 1: three PM on Saturday. What a joy to speak to 521 00:29:43,200 --> 00:29:46,600 Speaker 1: coach Tim Murphy of Harvard Football, who will be surrounded 522 00:29:46,680 --> 00:29:50,880 Speaker 1: this week road trip Paul by the Department of Athletics, 523 00:29:50,960 --> 00:29:53,920 Speaker 1: the Friends of Harvard Football, the Harvard Alumni Association, the 524 00:29:54,000 --> 00:29:57,760 Speaker 1: Harvard Club of Southern California, the Harvard Club of San 525 00:29:57,800 --> 00:30:02,960 Speaker 1: Diego and Harvard Varse City Club is the Crimson Ghost 526 00:30:03,080 --> 00:30:06,880 Speaker 1: to San Diego. How do you keep the lads, Coach 527 00:30:07,040 --> 00:30:12,440 Speaker 1: Burfy focused is they go out to see San Diego. Well, 528 00:30:12,520 --> 00:30:15,080 Speaker 1: we just finished an early morning practice the fellas and 529 00:30:15,120 --> 00:30:17,200 Speaker 1: the last thing I said as fellas, we're not going 530 00:30:17,240 --> 00:30:20,440 Speaker 1: on a vacation. This is a business trip. Take care 531 00:30:20,480 --> 00:30:23,360 Speaker 1: of a business trip, and they are focused. We are focused. 532 00:30:23,400 --> 00:30:25,200 Speaker 1: We're ready to go. And I can I tell you, 533 00:30:25,280 --> 00:30:27,520 Speaker 1: I can remember the hockey road trips. There's just something 534 00:30:27,680 --> 00:30:31,520 Speaker 1: the road trips more instructional than the sport. So you 535 00:30:31,640 --> 00:30:34,080 Speaker 1: get on air Harvard and you fly out there and 536 00:30:34,120 --> 00:30:37,240 Speaker 1: it's a huge moment for Harvard, I guess twice in 537 00:30:37,320 --> 00:30:40,680 Speaker 1: the last decades to go to San Diego and get 538 00:30:40,720 --> 00:30:45,160 Speaker 1: it done in that heat and in that difference in foreigness. 539 00:30:45,240 --> 00:30:48,680 Speaker 1: For these kids, how do they stay focused on the field. 540 00:30:48,840 --> 00:30:53,120 Speaker 1: What's the trick? I think the trick is that, you know, 541 00:30:53,240 --> 00:30:56,080 Speaker 1: we take great pride. We talked about being road warriors 542 00:30:56,120 --> 00:30:57,880 Speaker 1: and team that can go on the road, you know, 543 00:30:58,280 --> 00:31:02,760 Speaker 1: face adversity and be successful. And one record we're really 544 00:31:02,840 --> 00:31:05,920 Speaker 1: proud of is I'm not sure exactly what the number is. 545 00:31:06,120 --> 00:31:08,840 Speaker 1: But we hold the all time IVY League record for 546 00:31:08,920 --> 00:31:12,200 Speaker 1: winning road consecutive road games. And it takes a little 547 00:31:12,240 --> 00:31:14,840 Speaker 1: extra focus, you know, it takes a lot of detail, 548 00:31:15,200 --> 00:31:18,440 Speaker 1: and it takes a lot of really mature kids. So coach, 549 00:31:18,520 --> 00:31:21,080 Speaker 1: tell us about the Harvard team this year, what can 550 00:31:21,360 --> 00:31:23,720 Speaker 1: your fans see on the field expect to see on 551 00:31:23,760 --> 00:31:28,120 Speaker 1: the field. Well, I always prefaced that question early when 552 00:31:28,200 --> 00:31:30,560 Speaker 1: you haven't played a game by saying that, you know, 553 00:31:30,640 --> 00:31:32,680 Speaker 1: we're a bit, we're a bit of a blank canvas. 554 00:31:32,800 --> 00:31:35,280 Speaker 1: And I say that in the context of, you know, 555 00:31:35,440 --> 00:31:38,880 Speaker 1: unlike the Patriots, we graduate and graduated our Tom Brady's 556 00:31:38,920 --> 00:31:41,120 Speaker 1: every year, and so you're breaking a lot of new 557 00:31:41,160 --> 00:31:45,640 Speaker 1: guys in we graduated a school record thirty seniors last year. 558 00:31:46,920 --> 00:31:49,080 Speaker 1: There's a there's a lot of there's a lot of 559 00:31:49,160 --> 00:31:52,080 Speaker 1: positions that are wide open. There's a lot of you know, 560 00:31:52,240 --> 00:31:55,280 Speaker 1: there's a lot of stuff we still have to get 561 00:31:55,640 --> 00:31:58,120 Speaker 1: get accomplished in practice and now in a game. But 562 00:31:58,680 --> 00:32:00,760 Speaker 1: the bottom line is that you know what happens every 563 00:32:00,840 --> 00:32:03,680 Speaker 1: year and you have to make that transition. Electra big 564 00:32:03,720 --> 00:32:06,320 Speaker 1: one this year. But we're excited about our team. We've 565 00:32:06,360 --> 00:32:08,240 Speaker 1: got a lot of good young players. We are a 566 00:32:08,360 --> 00:32:12,000 Speaker 1: relatively young football team. We'll be facing a team that 567 00:32:12,080 --> 00:32:16,360 Speaker 1: obviously is a little bit more well documented. They've already 568 00:32:16,400 --> 00:32:19,520 Speaker 1: played two games, and uh so I think we know 569 00:32:19,600 --> 00:32:22,360 Speaker 1: what we're getting into, but we're I'm bullish on'm this 570 00:32:22,440 --> 00:32:25,160 Speaker 1: football team. You've got a lot of good young players. Um, 571 00:32:25,400 --> 00:32:28,160 Speaker 1: the attitude has been phenomenal and we're ready to play 572 00:32:28,600 --> 00:32:31,680 Speaker 1: a coach. When you kicked the ball off, San Diego 573 00:32:31,760 --> 00:32:34,600 Speaker 1: will have a weapon to receive the ball. His name 574 00:32:34,680 --> 00:32:37,920 Speaker 1: is Mr Armistead and he is better than good. How 575 00:32:38,000 --> 00:32:42,480 Speaker 1: do you defend against San Diego star Mr Armistead that 576 00:32:42,560 --> 00:32:46,520 Speaker 1: will bring the ball upfield? Well there, you know, it's 577 00:32:46,560 --> 00:32:49,120 Speaker 1: a two man game. You've got the leven starters on 578 00:32:49,240 --> 00:32:52,520 Speaker 1: offensive defense. And you know, we always talk about everybody's 579 00:32:52,520 --> 00:32:54,760 Speaker 1: got to do their job. You can't have a week length. 580 00:32:55,320 --> 00:32:57,640 Speaker 1: But he's an outstanding athlete. They've got a lot of 581 00:32:58,400 --> 00:33:02,000 Speaker 1: big play capability. They a figure quarterback who has done 582 00:33:02,000 --> 00:33:05,600 Speaker 1: a tremendous job. Um, you know, they've got a tremendous speed, 583 00:33:05,680 --> 00:33:08,760 Speaker 1: they've got weapons. You know, they've been a wide receiver obviously, 584 00:33:08,880 --> 00:33:12,320 Speaker 1: who is uh you know, a preseason All American. This 585 00:33:12,520 --> 00:33:14,880 Speaker 1: is a very good football team. It's a very good program. 586 00:33:14,960 --> 00:33:16,960 Speaker 1: And to put it into context for you guys, they've 587 00:33:17,040 --> 00:33:20,320 Speaker 1: won twenty four consecutive league games. They've been to the 588 00:33:20,440 --> 00:33:24,800 Speaker 1: FCS Division One playoffs five consecutive years. Even though they've 589 00:33:24,880 --> 00:33:28,320 Speaker 1: never beaten US. This is a really tough, physical and 590 00:33:28,400 --> 00:33:30,640 Speaker 1: well coached team. Well, I'll try to get you back 591 00:33:30,640 --> 00:33:34,240 Speaker 1: from San Diego to the climbs of Brown and Harvard 592 00:33:34,480 --> 00:33:37,320 Speaker 1: next week as well. Tim Murphy beginning our coverage to 593 00:33:37,360 --> 00:33:39,840 Speaker 1: Harvard football. We're so proud to do this huge interest 594 00:33:40,440 --> 00:33:43,160 Speaker 1: we find national one for the idea of Ivy League football. 595 00:33:43,680 --> 00:33:47,640 Speaker 1: Uh and a little bit different than the huge programs 596 00:33:47,680 --> 00:33:50,600 Speaker 1: that are out there. Tim Murphy, of course, Harvard football coach. 597 00:33:50,640 --> 00:33:54,360 Speaker 1: You can catch San Diego Harvard this weekend, the Crimson 598 00:33:54,480 --> 00:33:57,120 Speaker 1: at San Diego and Bloomberg one or six one FM 599 00:33:57,160 --> 00:34:02,800 Speaker 1: in Boston with pregame coverage starting Saturday. It's reporting five 600 00:34:03,520 --> 00:34:10,960 Speaker 1: is welcome. Thanks for listening to the Bloomberg Surveillance podcast. 601 00:34:11,360 --> 00:34:16,239 Speaker 1: Subscribe and listen to interviews on Apple Podcasts, SoundCloud, or 602 00:34:16,440 --> 00:34:20,719 Speaker 1: whichever podcast platform you prefer. I'm on Twitter at Tom 603 00:34:20,880 --> 00:34:24,680 Speaker 1: Keene before the podcast. You can always catch us worldwide 604 00:34:25,200 --> 00:34:26,239 Speaker 1: I'm Bloomberg Radio