WEBVTT - Previewing Jackson Hole 0:00:02.520 --> 0:00:13.760 Bloomberg Audio Studios, Podcasts, radio news. This is the Bloomberg 0:00:13.840 --> 0:00:17.920 Surveillance Podcast. Catch us live weekdays at seven am Eastern 0:00:18.200 --> 0:00:21.240 on Apple car Play or Android Auto with the Bloomberg 0:00:21.320 --> 0:00:24.880 Business App. Listen on demand wherever you get your podcasts, 0:00:25.280 --> 0:00:27.040 or watch us live on YouTube. 0:00:27.320 --> 0:00:31.000 Twenty five at North Cachet Street, Jackson, Wyoming is home 0:00:31.000 --> 0:00:34.159 to the million Dollar Cowboy Bar. And I'm here and 0:00:34.200 --> 0:00:36.360 it's quite the hop and spot. Like that's where the 0:00:36.360 --> 0:00:39.640 economists go to say, you know, marginal revenue equals marginal 0:00:39.640 --> 0:00:41.559 cost and all that kind of stuff and have those debates. 0:00:41.680 --> 0:00:45.120 I actually met Lil Wayne at the million Dollar Cowboy Bar. 0:00:45.840 --> 0:00:48.120 Yeah, about ten years ago. 0:00:48.800 --> 0:00:51.159 Yeah, he was in Jackson Hole doing a concert for 0:00:51.200 --> 0:00:52.520 the snowboarders. 0:00:52.680 --> 0:00:55.120 Very cool. See Lisa, you hang with Matt Miller and 0:00:55.360 --> 0:00:57.840 the stuff. You'll look. Did you get a picture? I did. 0:00:57.920 --> 0:00:58.520 I did a new. 0:00:58.440 --> 0:01:00.760 Picture of me, Lil Wayne and my dad doing the 0:01:00.800 --> 0:01:03.480 ski shot exactly. 0:01:03.880 --> 0:01:07.560 All right, Let's go to from Lil Wayne to Tom Keene. 0:01:07.680 --> 0:01:10.640 Host of Bloomberg Survellance on radio and YouTube. Tom talk 0:01:10.680 --> 0:01:13.400 to us about Jackson Hole. Here, give us the vibe 0:01:13.400 --> 0:01:14.720 of Jackson Hole this week. 0:01:15.520 --> 0:01:18.000 The Vibe is really different. When I walked in yesterday, 0:01:18.080 --> 0:01:21.240 Paul Sweeney and doing this for some eighteen years, I 0:01:21.360 --> 0:01:25.240 was really thunderstruck, how quiet, how subdued everything is. I 0:01:25.240 --> 0:01:28.720 think there's a huge number of distractions into the speech 0:01:28.760 --> 0:01:32.120 this morning at ten am Wall Street time, and all 0:01:32.160 --> 0:01:35.360 devolved down to a line by line read of this 0:01:35.520 --> 0:01:39.479 final speech of your own, Powell. I would assume it'll 0:01:39.480 --> 0:01:42.040 be a little more active today, a lot more international 0:01:42.080 --> 0:01:45.840 media coming in as well as the Bloomberg world turning 0:01:45.920 --> 0:01:49.640 to the attention of Powell's speech. All in all, what 0:01:49.720 --> 0:01:53.240 I would say is it's an international community here. But yes, 0:01:53.320 --> 0:01:55.320 it is about what the FED will do up to 0:01:55.360 --> 0:01:56.360 the September meeting. 0:01:56.680 --> 0:01:58.800 You know, Tom the Wall Street Journal says the Fed's 0:01:58.840 --> 0:02:02.920 going to make change to its framework. They had decided 0:02:03.240 --> 0:02:05.880 in twenty nineteen, twenty twenty to let inflation run hot, 0:02:05.920 --> 0:02:09.520 and they sure as hell did that. But I guess 0:02:09.680 --> 0:02:12.000 to me, it seems like the important change is no 0:02:12.040 --> 0:02:14.480 more averaging, right, because if they really want to average 0:02:14.480 --> 0:02:17.680 two percent, they would have to keep inflation low, and 0:02:17.720 --> 0:02:19.679 lord knows they want to keep it high so we 0:02:19.720 --> 0:02:21.200 can work off this debt. 0:02:21.800 --> 0:02:23.880 Well, I'm not going to go with that, Matt, But 0:02:23.919 --> 0:02:25.679 I am going to say that Nick's article in the 0:02:25.720 --> 0:02:28.520 Wall Street Journal was really prescient. At the back end 0:02:28.520 --> 0:02:34.120 of the article Nick featured Jonathan Farrow's interview was Secretary Bessant. 0:02:34.440 --> 0:02:38.240 And the backstory here is when the Treasury Secretary makes 0:02:38.280 --> 0:02:43.440 what most people would consider outrageous calls for a dramatically 0:02:43.520 --> 0:02:48.120 lower interest rate, how does that upset the American equilibrium 0:02:48.400 --> 0:02:51.880 and the global equilibrium. I think some of the nuances 0:02:51.880 --> 0:02:55.240 here will be to stabilize the dialogue and try to 0:02:55.240 --> 0:02:59.280 get this central bank back on track, to look at inflation, 0:02:59.639 --> 0:03:02.120 to look jobs, and get to the next meeting. 0:03:02.280 --> 0:03:03.480 I'm going to say, you know, I was listening to 0:03:03.480 --> 0:03:07.200 that interview on Survey Vance with John Keene and Scott 0:03:07.240 --> 0:03:10.040 Bessen and when he said rates should be one hundred 0:03:10.080 --> 0:03:12.359 and fifty two hundred and seventy files would support that, Well, 0:03:12.360 --> 0:03:14.120 he's at any model would support it, and I know 0:03:14.160 --> 0:03:16.520 every economist is shot back with no model. But I 0:03:16.680 --> 0:03:20.400 just typed WIRP on my Bloomberg terminal and noticed what 0:03:20.440 --> 0:03:25.720 he was saying was exactly, literally to the basis point, 0:03:25.960 --> 0:03:30.120 what the market was predicting anyway, So it wasn't that crazy. 0:03:30.400 --> 0:03:33.720 Now we've come back from that a little bit. Are 0:03:33.720 --> 0:03:36.920 the odds now is the risk I should say, Tom, 0:03:36.960 --> 0:03:39.560 that there's no cut in September, rather than the risk 0:03:39.600 --> 0:03:41.200 of a fifty basis point cut that we may have 0:03:41.200 --> 0:03:42.000 seen two weeks ago. 0:03:42.960 --> 0:03:45.480 You make a really good point for people that are 0:03:45.480 --> 0:03:49.560 not sophisticates of this. The story changes literally now. Data 0:03:49.600 --> 0:03:52.920 point by data point. There's been an unbalanced set of 0:03:52.920 --> 0:03:56.960 inflation data, but the fact is there are selective inflation 0:03:57.160 --> 0:04:01.040 data that's shown new prices up. I love Paul Krugman's 0:04:01.120 --> 0:04:04.240 new sub stack where he talks about the surge and 0:04:04.320 --> 0:04:08.600 electricity prices, including Sweeney's bill out in a Jersey, which 0:04:08.640 --> 0:04:10.960 is out. I think it's four or five figures. But 0:04:11.320 --> 0:04:15.600 inflation is back is part of the debate here, along 0:04:15.680 --> 0:04:18.719 with a tepid I should say the weak claims number 0:04:18.920 --> 0:04:20.120 that we saw yesterday. 0:04:20.960 --> 0:04:24.640 So, Tom, is the expectation here that FED Chairman j 0:04:24.760 --> 0:04:27.680 Pala Is he gonna try to frame his legacy in 0:04:27.720 --> 0:04:28.520 the speech in any way? 0:04:28.560 --> 0:04:28.720 Tom? 0:04:28.800 --> 0:04:30.240 Or do you think it's going to be focusing on 0:04:31.480 --> 0:04:32.320 the task at hand? 0:04:33.160 --> 0:04:36.000 The answer is nobody knows. I've heard so many It's 0:04:36.040 --> 0:04:38.120 like looking at red Sox Yankees, where I note the 0:04:38.120 --> 0:04:40.880 Red Sox took the game last night. There's a bunch 0:04:40.920 --> 0:04:44.240 of pundits. Okay, everybody's got an angle of what this 0:04:44.320 --> 0:04:47.320 speech is. Nobody has a clue. I do think he 0:04:47.360 --> 0:04:51.360 will touch on the legacy. But rather than guess what 0:04:51.400 --> 0:04:54.200 the speech is, I think more productive is to tune 0:04:54.240 --> 0:04:57.120 in at ten am, Bram and I'll be giving you 0:04:57.200 --> 0:04:59.960 coverage on that. And literally we're gonna go lining by 0:05:00.279 --> 0:05:01.599 line through the speech. 0:05:03.640 --> 0:05:06.400 I've gone line through line through your bio, Tom Keane. 0:05:06.440 --> 0:05:09.440 We got your bio for this interview in our notes, 0:05:09.480 --> 0:05:14.839 and I note that you survived an interview at Davos, 0:05:15.160 --> 0:05:18.240 a joint interview of Ken Rogoff and Joseph Stieglitz. 0:05:18.440 --> 0:05:19.560 Yeah, if those. 0:05:19.279 --> 0:05:23.279 Guys were at Jackson Hole, and honestly they probably they 0:05:23.320 --> 0:05:26.920 probably are, which view would you take? 0:05:28.400 --> 0:05:31.840 This is absolutely a brilliant question. That was really quite 0:05:31.880 --> 0:05:36.560 an historic interview. They had a massive, massive argument in 0:05:36.600 --> 0:05:40.720 economics twenty years ago. They're on different sides of the fence. 0:05:40.839 --> 0:05:44.360 Joe Stiglitz is going to say half of America's flat 0:05:44.400 --> 0:05:48.320 on their back and they need some easing of pain 0:05:49.000 --> 0:05:52.159 by redkuts Ken Rogoff in my book of the summer, 0:05:52.440 --> 0:05:55.400 our dollar year problem. Whether you disagree or agree with 0:05:55.400 --> 0:05:59.279 Professor Rogoff, he is looking at rates nudging up. There's 0:05:59.320 --> 0:06:01.799 a backstory here, and Paul, I know you've been watching 0:06:01.839 --> 0:06:06.680 this carefully. Twenty year and thirty year Japanese bonds are 0:06:06.720 --> 0:06:11.000 breaking out to new higher yields. Literally as we speak. 0:06:11.360 --> 0:06:14.520 The international community here is focused on this. 0:06:15.440 --> 0:06:16.360 Tom nine E. M. 0:06:16.680 --> 0:06:20.719 Wall Street Time you, Lisa Bromwich, Michael McKee will have 0:06:20.800 --> 0:06:23.599 a program from jacksonvill tell us about kind of where 0:06:23.600 --> 0:06:24.279 you're gonna be covering. 0:06:25.640 --> 0:06:27.479 Well, we're going to be covering with some wonderful guests 0:06:27.520 --> 0:06:29.400 with our question. The interview of the day for me 0:06:29.440 --> 0:06:32.920 here at Jackson Hall is James Buller, the former president 0:06:33.160 --> 0:06:36.360 of the Saint Louis fed now at Purdue at University. 0:06:36.440 --> 0:06:39.720 He is on the trump list to become a chairman. 0:06:39.880 --> 0:06:43.080 Jim Buller likes low rates, always has. His dot was 0:06:43.160 --> 0:06:46.039 always down at the bottom of the dot plot. We've 0:06:46.040 --> 0:06:48.000 got a number of other good because Kate Moore will 0:06:48.040 --> 0:06:51.000 be with City Group as well. But Matt, the really 0:06:51.040 --> 0:06:54.880 important thing quickly is after the show, I'm getting on 0:06:54.920 --> 0:06:58.240 my Harley Road Glide and I'm going right up Wyoming 0:06:58.320 --> 0:07:00.480 one ninety one to Jellystone. 0:07:00.680 --> 0:07:03.440 That is a dream. That would be a dream come 0:07:03.480 --> 0:07:04.960 true for me. What a place to be. 0:07:05.200 --> 0:07:08.919 I love the Teton Village to ski, but in the 0:07:08.920 --> 0:07:11.440 summer I think I'd have even more fun in Wyoming. 0:07:11.520 --> 0:07:13.920 So the question is Tom, are we going to get 0:07:13.920 --> 0:07:15.960 a sighting of Lisa A. Bramwit's on a horse? 0:07:16.040 --> 0:07:16.720 Is that possible? 0:07:17.920 --> 0:07:20.360 I don't know. We may do a horse shoot here 0:07:20.440 --> 0:07:22.760 later with Joe and Tracycy. I don't know if Bramo's 0:07:22.960 --> 0:07:27.720 involve There is a rumor Tracy Alloway survived the Wyoming 0:07:27.840 --> 0:07:31.520 horseback ride across the Teetons are all They're not getting 0:07:31.520 --> 0:07:32.200 me on a horse. 0:07:32.520 --> 0:07:35.960 Hey, Tom, Well, what are you hearing about this? This 0:07:36.040 --> 0:07:40.280 pressure on Lisa Cook and this administration has used mortgage 0:07:40.320 --> 0:07:45.960 fraud well in its business, in Donald Trump's business, but 0:07:46.120 --> 0:07:49.880 also to try and attack political opponents. 0:07:50.840 --> 0:07:53.679 Oh, I think it's out there. It's percolating. Every news 0:07:53.800 --> 0:07:58.120 organization has picked it up. Our John Elmarte really advanced 0:07:58.160 --> 0:08:01.280 the story yesterday. What I would emphasize, as there's not 0:08:01.360 --> 0:08:06.120 been enough discussion about doctor Cook's credentials. She's out of 0:08:06.160 --> 0:08:10.560 Michigan State. She studied directly under Berry Keen Green at Berkeley. 0:08:10.680 --> 0:08:14.440 She's a world class economist, and you know, we'll have 0:08:14.520 --> 0:08:16.720 to see how the back and forth goes within this. 0:08:16.840 --> 0:08:19.920 There's a lot of allegations in very few charges. 0:08:20.600 --> 0:08:22.640 Tom, thanks so much, appreciate it, getting a few mentions 0:08:22.680 --> 0:08:23.400 of your time out there. 0:08:23.400 --> 0:08:24.760 Ian Jackson Hall Tom Keen. 0:08:24.760 --> 0:08:26.600 He's the host of Bloomberg Sevan, so we all know him, 0:08:26.760 --> 0:08:29.880 love him, Bloomberg Radio and on TV and YouTube and 0:08:29.880 --> 0:08:30.680 all that kind of stuff. 0:08:32.280 --> 0:08:32.959 Stay with us. 0:08:33.200 --> 0:08:36.439 More from Bloomberg Surveillance coming up after this. 0:08:43.679 --> 0:08:47.280 You're listening to the Bloomberg Surveillance podcast. Catch us live 0:08:47.360 --> 0:08:50.480 weekday afternoons from seven to ten am Eastern. Listen on 0:08:50.600 --> 0:08:54.240 Applecarplay and Android Auto with the Bloomberg Business app, or 0:08:54.400 --> 0:08:55.920 watch us live on YouTube. 0:08:56.400 --> 0:08:59.920 Christina Hooper, chief market strategist at Man Group, Christina at 0:08:59.920 --> 0:09:02.760 the thanks so much for joining us here today. You've 0:09:02.760 --> 0:09:05.400 been doing this a long time, Christina. You've seen lots 0:09:05.400 --> 0:09:08.920 of discussions around the FED for through many cycles. What 0:09:08.960 --> 0:09:10.440 do you expect to hear What do you think you 0:09:10.520 --> 0:09:12.600 might hear from FED Chairman J Powell today? 0:09:14.120 --> 0:09:17.080 So, Paul, I think we may very well hear that 0:09:17.200 --> 0:09:20.400 there's at least some kind of change in focus on 0:09:20.440 --> 0:09:23.040 the part of the FED, some kind of tweaking to 0:09:23.240 --> 0:09:26.080 the framework. But I think at the end of the day, 0:09:26.200 --> 0:09:29.240 what we're likely to get is very little in terms 0:09:29.240 --> 0:09:35.520 of substantive direction for September, and that is by design. 0:09:36.000 --> 0:09:39.520 I think Chair Powell does not want to reveal his cards, 0:09:40.000 --> 0:09:42.680 but I do believe the pressure is building, and I 0:09:42.760 --> 0:09:45.960 do think we'll actually see a ray cut of twenty 0:09:46.000 --> 0:09:48.439 five basis points. I know that sounds like it flies 0:09:48.480 --> 0:09:50.880 in the face of that altered framework and more of 0:09:50.880 --> 0:09:53.880 an emphasis on inflation, But as we've heard from a 0:09:53.960 --> 0:09:58.000 number of FED officials in recent weeks, the labor market 0:09:58.120 --> 0:10:04.160 can deteriorate quickly, and once it starts, it can fall sharply, 0:10:04.720 --> 0:10:07.160 and so I think there really is a lot of 0:10:07.200 --> 0:10:10.360 concern about that, regardless of what we hear from Chair Powell. 0:10:10.720 --> 0:10:13.400 Another point I would make is that Chair Powell has 0:10:13.440 --> 0:10:17.559 to be thinking about history and how history views his 0:10:17.720 --> 0:10:20.960 time as the FED Chair, and so I think he'll 0:10:20.960 --> 0:10:23.320 be focused on or at least try to make the 0:10:23.360 --> 0:10:27.520 case for the importance of FED independence. That's not what 0:10:27.840 --> 0:10:29.959 investors want to hear or really care about. 0:10:29.960 --> 0:10:30.800 I think right now. 0:10:30.960 --> 0:10:33.280 But I think he's going to focus or at least 0:10:33.320 --> 0:10:34.520 try to give a nod to that. 0:10:35.040 --> 0:10:38.760 So a couple of the different I think subjects there 0:10:38.760 --> 0:10:41.040 to talk about FED independence. Let's put aside for a 0:10:41.080 --> 0:10:44.080 second and talk about what the FED is going to 0:10:44.120 --> 0:10:48.720 do in September. Why in a rising inflation environment, we 0:10:48.760 --> 0:10:51.880 saw three point one percent on the core CPI, three 0:10:51.880 --> 0:10:54.960 point seven percent on the core PPI, it's going the 0:10:55.040 --> 0:10:58.439 wrong way, more than sixty percent away from their goal. 0:10:59.480 --> 0:11:01.520 Why in that situation, especially with. 0:11:01.559 --> 0:11:04.040 Unemployment at four point two percent and earning's growth at 0:11:04.040 --> 0:11:07.520 ten percent, would the FED cut rates? 0:11:09.320 --> 0:11:13.840 Because I think the FED will make the determination that 0:11:14.000 --> 0:11:16.760 this is likely to be something of a one off 0:11:16.920 --> 0:11:22.359 price shock, that tariffs can be at least somewhat dismissed 0:11:22.840 --> 0:11:29.040 because it's not going to create continued sustained inflation. Now, 0:11:29.559 --> 0:11:33.080 that could very well be wrong, but I think that 0:11:33.080 --> 0:11:35.920 that is the Fed's perspective at this point. Certainly that's 0:11:35.960 --> 0:11:38.240 what we've heard from Chair Powell and a few other 0:11:38.360 --> 0:11:41.760 members of the FMC in recent months, as they've talked 0:11:41.760 --> 0:11:46.880 about and you know, hypothesized about the impact of tariff 0:11:47.200 --> 0:11:51.000 driven inflation. Now, having said that, I think what we 0:11:51.080 --> 0:11:53.520 could get as a FED that after a few months says, 0:11:53.640 --> 0:11:55.800 you know, we think we may be wrong about that. 0:11:55.920 --> 0:11:59.200 We think inflation is going to be sustained and we're 0:11:59.240 --> 0:12:03.000 going to have to make some alterations. This really underscores 0:12:03.040 --> 0:12:04.840 the difficulty of having a dual mandate. 0:12:05.800 --> 0:12:09.320 So Christina, following up on Matt's comments about inflation, torched 0:12:09.360 --> 0:12:11.439 and Slock from Apollos out with a note this morning 0:12:11.440 --> 0:12:14.440 and just saying, hey, you know what, inflation's moving higher, folks. 0:12:14.240 --> 0:12:17.480 It's goods inflation, it's services inflation started to move a 0:12:17.480 --> 0:12:18.160 little bit higher. 0:12:18.880 --> 0:12:19.160 Again. 0:12:19.200 --> 0:12:22.920 That creates a challenge for the FED here. So Christina, 0:12:22.960 --> 0:12:26.319 given that backdrop here, have you guys kind of changed 0:12:26.360 --> 0:12:29.040 the way you're viewing just markets in general, whether it's 0:12:29.080 --> 0:12:33.040 asset allocation US versus rest of the world, as your 0:12:33.120 --> 0:12:34.800 view changed over the last several months. 0:12:35.600 --> 0:12:39.240 It hasn't. I mean, I've expected higher inflation, and I 0:12:39.280 --> 0:12:41.760 think it's not just going to be goods inflation. I 0:12:41.760 --> 0:12:45.440 think it's also going to be services inflation caused by 0:12:46.480 --> 0:12:50.400 policy changes, like, for example, the new approach to immigration. 0:12:51.120 --> 0:12:53.800 I think that's going to create a shrinking labor pool 0:12:53.880 --> 0:12:58.959 in certain industries. That's going to exert upward pressure on costs. 0:12:59.280 --> 0:13:03.880 So so I don't think, certainly for me, nothing has 0:13:04.000 --> 0:13:05.960 changed in terms of my outlook. I think it is 0:13:06.000 --> 0:13:09.240 coming to fruition, but I think it will take longer 0:13:09.280 --> 0:13:11.480 for the FED to get there, and I think it's 0:13:12.200 --> 0:13:16.160 going to be a scenario where the FED is looking 0:13:16.320 --> 0:13:19.960 at inflation today and is very focused on tariffs and 0:13:20.040 --> 0:13:22.680 can certainly try to make the argument that this is 0:13:22.720 --> 0:13:23.880 a one time price shock. 0:13:24.520 --> 0:13:27.640 Christine, let's talk about how much it matters what the 0:13:27.679 --> 0:13:30.280 FED does at the very front end of the curve, 0:13:31.240 --> 0:13:34.360 the ten year to the thirty year. You've said in 0:13:34.400 --> 0:13:37.600 your note something I've been waiting for so long to 0:13:37.679 --> 0:13:41.960 hear from a professional, which is that we need not 0:13:42.800 --> 0:13:46.040 believe in the fairy tale that the FED cuts equal 0:13:46.400 --> 0:13:49.880 lower long term yields. And this is something that the President, 0:13:50.920 --> 0:13:53.920 the treasure Secretary of the administration has been pushing. They want 0:13:53.920 --> 0:13:56.559 the FED to cut so that ten year yields come down. 0:13:57.520 --> 0:13:59.559 That makes it easier to pay off the massive amount 0:13:59.559 --> 0:14:02.360 of debt there trying to rack up. Here, you're saying 0:14:02.360 --> 0:14:04.880 it doesn't always work that way, and you've got historic examples. 0:14:06.040 --> 0:14:06.280 Yeah. 0:14:06.320 --> 0:14:09.040 Absolutely, there have been a number of cases really in 0:14:09.080 --> 0:14:12.680 the last twenty five years where we have not seen 0:14:13.240 --> 0:14:16.079 the ten year the rates on the long end behave 0:14:16.679 --> 0:14:19.360 as would be expected when rates are cut. There have 0:14:19.360 --> 0:14:24.240 been times where expectations about growth have caused yields to 0:14:24.280 --> 0:14:28.480 go up. There have been times when expectations about inflation 0:14:28.920 --> 0:14:31.320 going higher have caused yields to go up. And of 0:14:31.320 --> 0:14:34.760 course there have been times where concerns about an out 0:14:34.800 --> 0:14:38.520 of control or growing fiscal deficit have caused yields on 0:14:38.560 --> 0:14:41.200 the long end to go up. So it could very 0:14:41.240 --> 0:14:44.280 well happen. I think we're seeing it happen, and it 0:14:44.320 --> 0:14:47.800 could be a longer period phenomenon this time around. Keep 0:14:47.840 --> 0:14:50.640 in mind we've never really seen bond vigilantes come out 0:14:50.680 --> 0:14:54.560 in full force for an extended period of time. We 0:14:54.680 --> 0:14:56.240 might be getting to that point soon. 0:14:57.200 --> 0:14:58.760 Christina, thank you so much. We appreciate that. 0:14:58.840 --> 0:15:01.840 Christina Hooper, chief market strategists at The Man Group. 0:15:03.680 --> 0:15:07.880 Stay with us. More from Bloomberg Surveillance coming up after this. 0:15:15.120 --> 0:15:18.680 You're listening to the Bloomberg Surveillance podcast. Catch us live 0:15:18.760 --> 0:15:21.920 weekday afternoons from seven to ten am Eastern Listen on 0:15:22.000 --> 0:15:25.680 Applecarplay and Android Auto with the Bloomberg Business app or 0:15:25.800 --> 0:15:27.320 watch us live on YouTube. 0:15:27.640 --> 0:15:29.480 All right, let's talk about the bond market. All I 0:15:29.520 --> 0:15:31.400 know about bonds is when interest rates go up, bond 0:15:31.400 --> 0:15:32.920 prices go down to mean, what else do you need 0:15:32.920 --> 0:15:33.160 to know? 0:15:33.640 --> 0:15:34.120 Karen Mann? 0:15:34.160 --> 0:15:35.600 But some people make a career out of this fix 0:15:35.640 --> 0:15:38.280 income stuff. I'm shocked when I meet these people. Karen 0:15:38.320 --> 0:15:40.480 Mann is one of them, investment director Fixed and come 0:15:40.520 --> 0:15:43.720 at Federator Hermes. Karen, thanks so much for joining us here. 0:15:44.240 --> 0:15:47.120 What do you think you're going to hear? What should 0:15:47.200 --> 0:15:49.520 you hear? What should we all expect to hear from 0:15:49.520 --> 0:15:51.840 the FED chairman here out in Jackson Hole today? 0:15:53.160 --> 0:15:55.960 Well, good morning, and thank you for having me, despite 0:15:56.000 --> 0:15:58.520 me being a person that made my career out of fixing, 0:16:00.040 --> 0:16:04.560 so similar to your first guest, I think that we 0:16:04.640 --> 0:16:09.360 may initially be disappointed. I don't think that share Powell 0:16:09.400 --> 0:16:12.200 is going to give us clear direction as to what 0:16:12.560 --> 0:16:15.800 the FED is going to do in mid September. And 0:16:15.840 --> 0:16:18.720 I had to go back and remind myself that somewhat 0:16:18.720 --> 0:16:23.000 out of character he did last August at Jackson Hole. 0:16:23.040 --> 0:16:24.560 But I don't expect that this year. 0:16:24.600 --> 0:16:27.240 And I think that the Wall Street Journal article that 0:16:27.320 --> 0:16:31.040 came out late last night really gave us an indication 0:16:31.360 --> 0:16:34.800 that this is going to be about the FED going forward, 0:16:35.160 --> 0:16:38.720 that five year review, that revision of the framework, that 0:16:38.880 --> 0:16:44.920 adjusting the average out of how the view inflation in overall, 0:16:45.040 --> 0:16:48.760 perhaps a little bit more of an academic approach. I 0:16:48.840 --> 0:16:52.800 also think that the schedule or agenda for the remainder 0:16:52.840 --> 0:16:56.720 of the meeting is rather interesting and gives us perhaps 0:16:56.800 --> 0:17:00.480 a tell or a signal as to which of the 0:17:00.520 --> 0:17:05.560 feds dual mandate elements will be the priority. Because the 0:17:05.560 --> 0:17:09.159 rest of today is about labor. It's about technology and labor, 0:17:09.400 --> 0:17:12.840 It's about shifts in labor supply, and I think the 0:17:12.960 --> 0:17:18.720 acknowledgment there is labor has been exceptionally difficult to forecast, 0:17:19.080 --> 0:17:23.919 always is, but particularly coming out of this post pandemic environment, 0:17:24.440 --> 0:17:26.720 extraordinarily difficult, and they're going to put. 0:17:26.600 --> 0:17:28.800 Some time to that topic. 0:17:29.480 --> 0:17:33.879 At what point, Karen, does labor start to become a problem. 0:17:33.960 --> 0:17:36.159 I mean, four point two percent unemployment, at least in 0:17:36.200 --> 0:17:37.440 my lifetime. 0:17:37.760 --> 0:17:39.920 Is extraordinarily low. 0:17:40.080 --> 0:17:43.920 In fact, I think I've never seen unemployment really this low. 0:17:45.720 --> 0:17:51.040 Agreed, we have a robust economic environment led by labor. 0:17:51.640 --> 0:17:54.840 The old adages, if you have a job, you'll spend right, 0:17:55.000 --> 0:17:58.120 and you don't stop spending until you see a job 0:17:58.240 --> 0:18:02.520 lost closer to your circle of friends or family, and 0:18:02.560 --> 0:18:04.960 then you might close the wallet. But the wallets have 0:18:05.080 --> 0:18:09.240 by and large been open. So I think if we 0:18:09.359 --> 0:18:14.680 saw that unemployment rate really start to tick up approach 0:18:14.720 --> 0:18:17.120 four point five percent, that's the number that the FED 0:18:17.200 --> 0:18:20.840 has told us. But we're all very much in the 0:18:20.840 --> 0:18:25.000 weeds seeking out the nuances, attempting to find the clues 0:18:25.160 --> 0:18:29.359 as to you know, what will break this strong and 0:18:29.400 --> 0:18:32.439 resilient economy. And I think it's going to take a 0:18:32.480 --> 0:18:36.640 crisis of confidence. And what prompts that. Who knows. However, 0:18:36.800 --> 0:18:41.640 we've known that companies have been on hold. They aren't firing, 0:18:41.920 --> 0:18:46.720 but they aren't hiring either. But what shifts that and 0:18:46.760 --> 0:18:50.000 what is really the change going for We're difficult to see. 0:18:50.600 --> 0:18:53.399 Hey, Karen, So in the fixed income space here, I mean, 0:18:53.440 --> 0:18:56.000 I could sit in my two year treasury get three 0:18:56.040 --> 0:18:59.360 point eight percent. That is a solid living right there. 0:18:59.640 --> 0:19:01.440 I need to take credit risk above and beyond that. 0:19:03.359 --> 0:19:07.560 We're not advocates for taking credit risk right now. Spreads 0:19:07.760 --> 0:19:10.919 that's the way we measure risk. The difference in the 0:19:11.240 --> 0:19:15.960 yield on a spread instrument relative to its underlying treasury rate. 0:19:16.280 --> 0:19:19.840 That's how we measure things. Those are razor thin rate. 0:19:19.920 --> 0:19:23.160 Now in high yield, give you a ballpark number. We're 0:19:23.240 --> 0:19:26.919 about three hundred basis points on the average. If I 0:19:27.080 --> 0:19:30.120 go down to median, which is more important, that average 0:19:30.119 --> 0:19:33.080 includes those companies that no one thinks are going to 0:19:33.119 --> 0:19:35.240 pay on their bonds. They're priced a something like thirty 0:19:35.280 --> 0:19:36.639 cents on the daughter dollar. 0:19:37.720 --> 0:19:40.680 You know that median is one eighty. That's far too low. 0:19:41.119 --> 0:19:45.600 The spread between the lowest investment grade bucket and the 0:19:45.720 --> 0:19:49.199 highest high yield bucket is something in the magnitude of 0:19:49.200 --> 0:19:54.040 forty to fifty basis points. That's not adequate compensation. Now 0:19:54.080 --> 0:19:57.119 in investment grade bonds, that's an area where I like 0:19:57.200 --> 0:20:00.919 the credit quality. I like the fundamentals. They're much akin 0:20:01.040 --> 0:20:03.840 to the S and P five hundred names. We've been 0:20:03.960 --> 0:20:08.520 through a solid earning season, but here too, spreads are 0:20:08.560 --> 0:20:12.720 striking near record lows. We are inside of levels that 0:20:12.760 --> 0:20:16.040 we haven't seen over the past twenty five years. Can 0:20:16.080 --> 0:20:17.280 we grind along here? 0:20:17.359 --> 0:20:17.639 Sure? 0:20:18.040 --> 0:20:20.600 But I think that we are in a realm where 0:20:20.640 --> 0:20:24.879 folks are buying yield, and if something should happen that 0:20:24.960 --> 0:20:29.360 disturbs the equilibrium that we're living through right now, spreads 0:20:29.480 --> 0:20:31.600 could shoot wider pretty dramatically. 0:20:31.880 --> 0:20:32.080 Yeah. 0:20:32.119 --> 0:20:35.720 I mean, when people talk about the weakening US economy, 0:20:35.760 --> 0:20:40.000 the one thing that they point to bankruptcy filings among 0:20:40.040 --> 0:20:43.359 private companies arising to the highest level since March of 0:20:43.440 --> 0:20:47.240 twenty twenty, or since really the pandemic, I guess, and 0:20:47.320 --> 0:20:53.240 that started then. Also, personal bankruptcy filings are rising. So why, then, Karen, 0:20:53.280 --> 0:20:55.320 do you think spreads are so tight? Is it just 0:20:55.400 --> 0:20:57.600 that the kind of companies that can issue bonds, even 0:20:57.680 --> 0:21:00.640 high yield bonds, aren't yet filing for bankruptcy? Is that 0:21:00.760 --> 0:21:02.960 yet the most important word there? 0:21:05.119 --> 0:21:09.080 Likely yet, But I think that we've also seen favorable 0:21:09.119 --> 0:21:12.240 technicals as we would call them, where supply has been 0:21:12.359 --> 0:21:16.119 somewhat lower, particularly in the high yield market. And again 0:21:16.480 --> 0:21:19.840 at Federated Hermes, we are value oriented investors, so we're 0:21:19.920 --> 0:21:23.159 looking at that spread and attempting to ensure that the 0:21:23.240 --> 0:21:28.439 characteristics of the underlying entity match with that valuation. It 0:21:28.520 --> 0:21:30.840 seems that many in the market are looking at the 0:21:30.880 --> 0:21:35.879 overall yields, which are extraordinarily attractive, particularly to most of 0:21:35.960 --> 0:21:38.439 us that have lived through that zero interest rate REALM 0:21:38.960 --> 0:21:43.280 zero rates lasted for a very long time, and folks 0:21:43.320 --> 0:21:46.800 became accustomed to not earning much coupon income from their 0:21:46.840 --> 0:21:50.159 fixed income investments. Now that you can clip the coupon, 0:21:51.160 --> 0:21:54.920 it's just proven to be pretty attractive, and folks are 0:21:54.920 --> 0:21:56.560 just waving in those yields at times. 0:21:57.000 --> 0:21:58.720 Karen, thanks so much for joining us. Really appreciate it. 0:21:58.760 --> 0:22:02.160 Karen Mena investment director fixing gum for Federator at herme's. 0:22:03.440 --> 0:22:15.040 Stay with us. More from Bloomberg Surveillance coming up after this. 0:22:15.040 --> 0:22:18.960 This is the Bloomberg Surveillance Podcast. Listen live each weekday 0:22:19.000 --> 0:22:22.320