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Speaker 2: You want to talk next about the Treasury and some
Speaker 2: security breaches that have happened that are concerning America's debt
Speaker 2: levels poised balloon beyond already record levels as we know
Speaker 2: in the year ahead, leading to a decreasing number of
Speaker 2: primary dealers in the US treasury market. The decline of
Speaker 2: primary dealers and the rise of electronic trading have then
Speaker 2: led to concerns about the potential for just such breakdowns
Speaker 2: in the treasury market. Joining us now to discuss is
Speaker 2: Bloomberg's Michael McKenzie. Michael, several concerning headlines over the last
Speaker 2: few days. How can we be sure that the Treasury,
Speaker 2: if it's not now becomes impenetrable. It needs to be right.
Speaker 3: Absolutely, And I think the US, whether it's exchanges, any
Speaker 3: kind of marketplace, they spend a lot of time, a
Speaker 3: lot of effort making sure they can be protected from hacking.
Speaker 3: I know, covering equities more than ten fifteen years ago,
Speaker 3: all major exchanges were well on top of this. It
Speaker 3: was the only area they actually exchanges actually talked to
Speaker 3: each other, actually agreed to work together. Normally they're in
Speaker 3: a cup throw a business are trying to grab IPOs.
Speaker 4: So I'm sure the Treasury is on it.
Speaker 3: And you know, again, it's just something that I think
Speaker 3: every company has to do this, all right?
Speaker 5: Are they also on it? Michael? I want to get
Speaker 5: to the story that you did with that Liz Kapa,
Speaker 5: McCormick and Alex Harris about the pipeline the primary dealers,
Speaker 5: and I feel like this gets into the wonkiness of
Speaker 5: following the markets right.
Speaker 4: Explain.
Speaker 2: Explain.
Speaker 5: First of all, the role of primary dealers.
Speaker 3: Primary dealer system was created in nineteen sixty by the
Speaker 3: New York Fed. The New York Fed selects the primary
Speaker 3: dealers and their job is to interact with the New
Speaker 3: York Fed market's desk. So when the New York Fed
Speaker 3: does REPO and all kinds of you know, money market
Speaker 3: type operations on a daily basis, they're interacting with the
Speaker 3: primary dealers. Primary dealers then turn around and say Okay,
Speaker 3: if you want to buy and sell treasuries, where where
Speaker 3: the registered market maker who does that for you? So
Speaker 3: you have a lot of big asset managers, hedge funds,
Speaker 3: or types of people who want to come in here
Speaker 3: and buy and sell treasures. They normally go through the
Speaker 3: primary deal and market for the bulk of what they
Speaker 3: do and what.
Speaker 5: Your story gets into that there's not as many as
Speaker 5: they're used to. So what are the concerns here? We've
Speaker 5: only got about a couple of minutes or so, But
Speaker 5: I want to get to the point because it's an
Speaker 5: important story. It's the kind of story that Bloomberg does
Speaker 5: so well, that you do so well, and explaining why
Speaker 5: we should care.
Speaker 3: Yeah, no, we should care because the real problem here is, Yes,
Speaker 3: the number of proper dealers is shrunk, but a lot
Speaker 3: of that's due to solidation or we've had family mergers
Speaker 3: since the heyday of the nineteen eighties. What's really the
Speaker 3: problem here is that the amount of US treasure dead
Speaker 3: outstanding has just rocketed. It's gone up something like I
Speaker 3: think fifteen billion in the last ten years, and so
Speaker 3: at the moment the treasury mark is about twenty nine trillion.
Speaker 3: They think it could get to fifty trillion within the
Speaker 3: next ten years if the presence pacers spending continues. So
Speaker 3: this really is a wake up call to people in Washington.
Speaker 3: You've got to get serious about spending. You've got to
Speaker 3: find new sources of revenues at ie taxes to kind
Speaker 3: of settle the system down. Because the system is showing
Speaker 3: signs of stress. Dealers can't really be as active as
Speaker 3: they used to be. That's partly because of the post
Speaker 3: financial crisis regulation. So in the story we talk we
Speaker 3: sort of quote Jamie diamond saying, look, you know, we
Speaker 3: have a trillion dollars of cash we could put to use,
Speaker 3: but we can't because regulators say we can't do that.
Speaker 3: So there's a real kind of tension here. And the
Speaker 3: genesis for this story was that, you know, myself and
Speaker 3: Liz and Alex, we've been to a couple of conferences
Speaker 3: this year and this is the number one issue is
Speaker 3: that the debt keeps going up. The primary dealer is
Speaker 3: instructed to work on the behalf the treasury to sell
Speaker 3: debts smoothly and make sure there are no sort of
Speaker 3: blow ups in auctions, but they're coming under a lot
Speaker 3: more pressure and if the debt continues to rise, this
Speaker 3: is a problem. And finally, if we look at the
Speaker 3: ten year treasure yield, when the Fed began cutting rates
Speaker 3: in mid September, that was yielding around three sixty. Today
Speaker 3: it's closing out this year around four sixty. So it's
Speaker 3: reason a percentage point pretty much. Now, if you go
Speaker 3: into the wonkiness of the bomb market, about three quarters
Speaker 3: of that rise in the tenure yield is due to
Speaker 3: a higher term premium. And that term premium is what
Speaker 3: investors are demanding in terms of extra yield take down
Speaker 3: US debt, and that's really a worrying sign, all.
Speaker 5: Right, all right, So just another thing to think about
Speaker 5: for twenty twenty five, where I feel like a lot
Speaker 5: of things are going to come at us. Michael, it's
Speaker 5: an incredible deep dive by you guys, and I highly
Speaker 5: recommend everybody check it out on Bloomberg Dot comment on
Speaker 5: the Bloomberg Happy New Year, Happy year, Yeah, be woll
Speaker 5: Blomrig's Michael mackenzie, who keeps a watch on the rates
Speaker 5: market and certainly the treasury trade. Hey, we're going to
Speaker 5: stay with the treasury. Vonnie, you kicked it off the
Speaker 5: story that really caught our attention yesterday the US Department
Speaker 5: Treasury Department hacked by a Chinese state sponsored actor through
Speaker 5: a third party software service provider. It's how the world works,
Speaker 5: and yet you expect it to be safe and secure.
Speaker 5: Treasury describing the situation as a major cybersecurity incident. For
Speaker 5: more on this and some thoughts, we are joined by
Speaker 5: Wendy Thomas, the CEO of Secure Works, a cybersecurity firms. Wendy,
Speaker 5: your thoughts when you saw and heard this story?
Speaker 6: Well, there's a few recurring themes that we've certainly talked
Speaker 6: about before. A vulnerability and a third party technology that
Speaker 6: enabled these hackers to steal an authentication key bypass security
Speaker 6: measures and access Treasury workstations and documents. And the theme
Speaker 6: of while no one's claimed credit for this attack, a
Speaker 6: high profile Chinese state sponsored cyberactivity. So I think these
Speaker 6: are recurring themes. But certainly this is a major incident
Speaker 6: as we cap off this year.
Speaker 2: How do we know it's a Chinese date sponsored actor?
Speaker 2: And if we do know that, if we have the
Speaker 2: tools to tell what kind of a hack it is,
Speaker 2: why can't we protect against that kind of hack here?
Speaker 6: It is a good question. So the Treasury has confirmed
Speaker 6: that they've identified a number of indicators that do point
Speaker 6: to a China state sponsored APT or advance persistent threat actor.
Speaker 6: The ways that you protect against this, whether you're a
Speaker 6: government or a business, remain the same.
Speaker 7: Right.
Speaker 6: You have to be able to prevent everything that you can.
Speaker 6: But because we are so incredibly interconnected via software, via
Speaker 6: supply chain vendors that are key part of doing business
Speaker 6: each day, we have to prevent as much as we can,
Speaker 6: but frankly be ready to detect and respond quickly. If
Speaker 6: you look at the date at which Beyond Trust first
Speaker 6: detected some anomalous activity, it was December second, and we're
Speaker 6: sitting here on December thirty. First. The patches were issued
Speaker 6: sort of mid month and December added to sisa's non
Speaker 6: exploited Vulnerabilities catalog mid December. It does take speed in
Speaker 6: order to one identify that something is hitting and two
Speaker 6: be able to protect. And that's a holistic approach of prevent, detect,
Speaker 6: and respond.
Speaker 2: Is there an argument that the public should have known sooner?
Speaker 2: I mean, when does the public get to know about
Speaker 2: such things?
Speaker 6: Well, there's been an increasing work, especially by the US
Speaker 6: government over the last couple of years for organizations to
Speaker 6: report quickly, particularly if they are publicly treated companies in
Speaker 6: this case obviously a key government institution impacting our economy.
Speaker 6: But there is a bit of fog of war when
Speaker 6: you have a cyber attack and you detect something that's
Speaker 6: certainly anomalists, but you're not sure if it's malicious, and
Speaker 6: that's where companies like secare works come in to help
Speaker 6: quickly attribute anomalous activity to certain thread actors and to
Speaker 6: non exploited vulnerabilities in order to protect the actual breach
Speaker 6: of information or documents or encryption through ransomware.
Speaker 5: Wendy, is this just a case of this is the
Speaker 5: environment we live in, and China's going to hack into
Speaker 5: our systems. We're going to hack into Chinese systems. And
Speaker 5: it's a digital world, it's a cloud based world. This
Speaker 5: is just the way it is. Despite cybersecurity companies like
Speaker 5: yourself and solutions out there. This is just the new
Speaker 5: reality or continued new reality.
Speaker 6: I think the reality is that the attacks will continue.
Speaker 6: Right as twenty twenty five looms, we look to have
Speaker 6: continued heightened geopolitical tension, which could contribute to additional escalating
Speaker 6: cyber activity, particularly with China, and whether that's increasing tariff
Speaker 6: policies that may come into play the TikTok January nineteenth
Speaker 6: deadline that's coming around the sale of the company.
Speaker 5: Does something like this make you think that TikTok you
Speaker 5: understand the US concerns?
Speaker 6: Oh?
Speaker 4: Absolutely.
Speaker 6: I think anybody using TikTok should do so with caution,
Speaker 6: whether they're an individual. I mean, the volume and variety
Speaker 6: of citizen data that TikTok is harvesting in order to
Speaker 6: feed its algorithm has concerns for all of us. And
Speaker 6: that's why I think you've seen it first banned in
Speaker 6: government institutions where you can no longer mix kind of
Speaker 6: personal use of TikTok with a government used.
Speaker 2: Device that is so terrifying. I mean, is it much
Speaker 2: worse than some of the American corporations and what they're harvesting.
Speaker 6: Well, it's a little bit different where we do have
Speaker 6: disclosures around the data that is being harvested and used
Speaker 6: for those algorithms and the opportunity to opt out. This
Speaker 6: is a foreign power looking to harvest individual data, and
Speaker 6: we don't really know what type of positioning for political
Speaker 6: or economic advantage that might be used for.
Speaker 2: Wendy, thank you so much for joining. That was very explanatory,
Speaker 2: very helpful.
Speaker 5: Thank you.
Speaker 2: That's Wendy Thomas, CEO of Secure Works.
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Speaker 8: So let's get to Alan Hibberd now pressneachls an alternative
Speaker 8: money specialist at goldsilver dot com.
Speaker 2: Alan, I mizzlstart. Where does gold, gold and water? It's
Speaker 2: key risks in twenty twenty five.
Speaker 4: Yeah, thanks for having me.
Speaker 9: So, I'm definitely expecting gold to have a great year
Speaker 9: in twenty twenty five, just like it did in twenty
Speaker 9: twenty four. I would not be surprised at all if
Speaker 9: it clears that three thousand dollars anounce threshold, and it
Speaker 9: could be the last year to buy gold under three
Speaker 9: thousand dollars an ounce. So in terms of the risk,
Speaker 9: what would prevent it from doing that? There's really two
Speaker 9: things that I see. One is actually bitcoin. If capital
Speaker 9: is attracted to bitcoin instead of gold, gold might not
Speaker 9: creep that high. And the other risk factor which really
Speaker 9: isn't a risk factor. It's actually peace. It's world peace.
Speaker 9: If all the wars and conflicts in the world settled
Speaker 9: down and our leaders are actually able to negotiate peace,
Speaker 9: capital might not flow into gold like it has been
Speaker 9: throughout the last couple of years. So those are the
Speaker 9: two risks that I see. It's really gold is bitcoin
Speaker 9: and peace.
Speaker 3: All right.
Speaker 5: So then for the run up that we've seen in
Speaker 5: twenty twenty four, Alan, is it because of the geopolitical
Speaker 5: concerns mostly which we know gold has typically historically been
Speaker 5: a safe haven. But is that the reason why we've
Speaker 5: seen such the run up In your.
Speaker 9: View, I think that's sort of the main underlying factor,
Speaker 9: because it's that geopolitical uncertainty that causes so many other things.
Speaker 9: So we saw it China buying a ton of gold.
Speaker 9: Not only is China the number one producer of gold
Speaker 9: in the world, it's also the number one importer of
Speaker 9: gold in the world, and that's very unusual. And investors
Speaker 9: around the world are also buying gold because of inflation,
Speaker 9: and the inflation is caused by all these countries who
Speaker 9: are fighting wars running their printing presses. So if it
Speaker 9: weren't for the wars, they wouldn't be running the printing
Speaker 9: presses so heavily. Investors wouldn't be worried about inflation, and
Speaker 9: they wouldn't be running to gold. So I think it
Speaker 9: really starts with all the geopolitical uncertainty. If we call
Speaker 9: get along, we wouldn't have to buy gold. We could
Speaker 9: just live our lives.
Speaker 2: Well, Alan, you heard Mike macgloane there.
Speaker 8: We were speaking a little bit about crypto and he
Speaker 8: maintains that this idea of a strategic reserve is a
Speaker 8: faustian bargain with the crypto people and the incoming president
Speaker 8: and the administration.
Speaker 2: Is that true in your view?
Speaker 9: Well, I think bitcoin is best thought of as superior money.
Speaker 9: And anytime that two different moneies come up against each other,
Speaker 9: the same thing happens every single time throughout history. Capital
Speaker 9: flows from the weak money into the strong money, and
Speaker 9: it's only a matter of time. So if you look
Speaker 9: at the United States and you want to discuss the
Speaker 9: Strategic National Bitcoin Reserve, is it a good idea, is
Speaker 9: it a bad idea? Is it going to happen within
Speaker 9: the first hundred days, or is it not even going
Speaker 9: to happen in the next four years, all of that
Speaker 9: doesn't really matter. Capital is definitely going to flow from
Speaker 9: weak money like the US dollar into strong money like bitcoin.
Speaker 4: It's just a matter of time.
Speaker 2: I think you to back that up a little bit.
Speaker 2: Why do you say bitcoin is superior money? It's not
Speaker 2: even money, no offense.
Speaker 5: I have yet to transact in bitcoin, and I think
Speaker 5: if you ask, most people, unless you go to an
Speaker 5: emerging area, have yet to transact in bitcoin.
Speaker 4: Yeah, it's a great question.
Speaker 9: I'm glad you asked, and I could talk about it
Speaker 9: for hours, but I'll try to keep my answer short.
Speaker 9: There's really two ways to think about money. First is
Speaker 9: as a medium of exchange, which I would actually call
Speaker 9: it currency. So if you're going to buy a cup
Speaker 9: of coffee or groceries, you're going to use currency, and
Speaker 9: you want something that moves quickly, it has low transaction
Speaker 9: fees and doesn't take a lot of energy to make
Speaker 9: that transaction, and the US dollar is great for that.
Speaker 9: The other reason you'd have money is as a store
Speaker 9: of value, and that basically means you acquire it and
Speaker 9: then you hold it for ten years or twenty years,
Speaker 9: and it just sits there, and you might even forget
Speaker 9: that you have it, but the whole point is for
Speaker 9: it to stay in one place and secure your value
Speaker 9: over time. That's gold and it's bitcoin, so that when
Speaker 9: I say money, I'm referring to gold or bitcoin. That's
Speaker 9: store of value of functionality, whereas a currency like the
Speaker 9: US dollar that's more of a medium of exchange. So,
Speaker 9: by the way, don't hold your breath on being able
Speaker 9: to use bitcoin to buy a cup of coffee. It's
Speaker 9: not going to happen. It shouldn't happen, doesn't matter.
Speaker 2: Why are you so convinced it's a store of value
Speaker 2: because the supply is finite? Does that make it a
Speaker 2: store of value as.
Speaker 9: Really it's partly because the supply is finite, But more importantly,
Speaker 9: it gets increasingly more difficult to make another bitcoin. That's
Speaker 9: so so, so critical. That happens naturally with gold. No
Speaker 9: one has to design it that way. But if there's
Speaker 9: two different ounces of gold sitting in the ground, and
Speaker 9: one's really easy to get to and one's really hard
Speaker 9: to get to, you're going to mine up the easy one,
Speaker 9: so later in the future you're going to have to
Speaker 9: go after that hard one and spend more energy to
Speaker 9: get a unit of gold. In the future, bitcoin mimics
Speaker 9: that same property artificially using code, so that it takes
Speaker 9: more and more and more energy to mine each subsequent bitcoin.
Speaker 9: That's good news for anyone holding bitcoin, because if you
Speaker 9: acquired it earlier, it didn't take you that much energy
Speaker 9: to get it. However, anyone who wants to acquire a
Speaker 9: bitcoin in the future has to give up a lot
Speaker 9: of energy to get one.
Speaker 5: I guess Ellen, I would ask that if there's a
Speaker 5: limited supply, I understand the dynamics of supply and demand,
Speaker 5: but if there's a limited supply, how can it be
Speaker 5: something that is used much more or broadly. I understand
Speaker 5: the value of maybe blockchain in terms of transacting, but
Speaker 5: the individual bitcoin as a way of transacting, If it's
Speaker 5: going to be limited in supply forever, how can it
Speaker 5: be something that's much more broadly in use in terms
Speaker 5: of how we look at the US dollar or other currencies.
Speaker 9: Yeah, well, it sort of relates to my previous answer,
Speaker 9: which is that I wouldn't expect bitcoin to be used
Speaker 9: in day to day transactions, even if you develop something
Speaker 9: like the Lightning network or other layer two solutions they're called.
Speaker 9: I don't think it'll be that common to actually transact bitcoin.
Speaker 9: It will be more common to transact to US dollars, euros,
Speaker 9: yen and.
Speaker 4: So forth, whatever jurisdiction.
Speaker 2: Alan didn't. People say that about NFTs too, And they're
Speaker 2: not worth very much these days.
Speaker 4: Are they.
Speaker 9: I would not go anywhere near NFTs. No, I only
Speaker 9: go near Bitcoin. I made a mistake going after a
Speaker 9: dozen other cryptos when I thought they had attractive use cases.
Speaker 9: But they're very hard to value and they have real
Speaker 9: idiots syncratic risks. So I even went so far as
Speaker 9: to go visit one of these cryptocurrencies in person. I
Speaker 9: looked at their code, I met the team, I did
Speaker 9: my due diligence, and I lost ninety nine point nine
Speaker 9: percent of my value on that coin. And I have
Speaker 9: multiple stories like that these. Most of these cryptocurrencies, they're
Speaker 9: not well. Some are designed to be scams. They're not
Speaker 9: all designed to be scams, but some of them turn
Speaker 9: out to be scams because they have so many idiosyncratic risks.
Speaker 9: You have to have execution on the part of the
Speaker 9: software team. You have to have marketing, you have to
Speaker 9: have adoption, you have to have functionality. You can't have
Speaker 9: problems and you can't really have competitors that accomplish the
Speaker 9: same thing better than the way you accomplished it, or
Speaker 9: you're not going to attract capital.
Speaker 8: So if you say bitcoin is still in the process
Speaker 8: of price discovery, how do you discover, you know, a
Speaker 8: price when it's it's very unclear what the fundamentals are.
Speaker 5: Yeah, I mean right, its value is that it hunts
Speaker 5: outside the establishment. And yet that lack of transparency raises
Speaker 5: so many questions.
Speaker 4: Well, bitcoin is transparent.
Speaker 9: I mean it's a public blockchain, right, so you can
Speaker 9: go and look online and see where all the blockchains
Speaker 9: are sitting with the history of them has been in,
Speaker 9: what block they were mined. You can see all of that.
Speaker 9: So transparency is actually pretty fantastic on bitcoin. However, if
Speaker 9: I want to see how many dollars exist, I have
Speaker 9: to trust the Federal Reserves data, and I don't and
Speaker 9: it could be outdated and I don't know who's holding
Speaker 9: those dollars or where they are.
Speaker 5: Right the faith of the US government, And I know
Speaker 5: some could debate that right now, but nonetheless you have
Speaker 5: the faith of the US government. Listen, this excitement, we
Speaker 5: know we could go on for probably another hour. Means
Speaker 5: this is going to be a hot topic in twenty
Speaker 5: twenty five. Allen, thank you so much. Have a great
Speaker 5: new year. Alan Hibbard, Precious Metals and alternative money specialist
Speaker 5: over at goldsilver dot com.
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Speaker 5: More on this group pharmaceuticals what to watch out for
Speaker 5: In twenty twenty five, we were joined by Bloomberg News
Speaker 5: healthcare reporter Madison Muller, who is a must read on
Speaker 5: all companies and developments in this space. Madison, good to
Speaker 5: have you here with us. You know, I'm thinking about
Speaker 5: twenty twenty four. You know, an explosive year, Bloomberg News
Speaker 5: wrote last week, twenty twenty four was the year weight
Speaker 5: loss drugs took over. What was significant about twenty twenty four?
Speaker 5: After what was it? Kind of a busy year for
Speaker 5: this space also in twenty twenty three.
Speaker 7: Yeah, twenty twenty four was really the year that we
Speaker 7: saw the real world impacts of these drugs start to
Speaker 7: take shape. So it's not just talking about the clinical
Speaker 7: studies and how much percent weight loss and how great
Speaker 7: these drugs are, but we were actually seeing what happens
Speaker 7: when you put these out into the general population, and
Speaker 7: the challenges with insurance coverage, the challenges with just affordability
Speaker 7: and access in general, supply shortages. We also saw, as
Speaker 7: I know we've talked about on the show, the rise
Speaker 7: of telehealth companies that are making cheaper copy or selling
Speaker 7: cheaper copycat versions of the drugs and advertising them really
Speaker 7: widely on social media, and the sort of battle that's
Speaker 7: ensued between the drug companies and the compounding pharmacies that
Speaker 7: make these copycat drugs. So there was a lot that
Speaker 7: was almost surprising or unexpected that happened when these drugs
Speaker 7: really got out into the world, and I think twenty
Speaker 7: twenty four was the year that that started taking shape.
Speaker 2: So where are we on supply demand? Madison? Can people
Speaker 2: access them now who need them or want them?
Speaker 5: Yeah?
Speaker 7: So all for most of twenty twenty four, both Novo
Speaker 7: Nordisk and Eli Lilly really struggled to get a handle
Speaker 7: on the supply of their drugs. We saw wigov and
Speaker 7: zeb bound and manjaro and ozembic in and out of
Speaker 7: shortage throughout the year. So towards the end of the year,
Speaker 7: Eli Lilly actually did get a handle on their supply.
Speaker 7: And you know, according to the US Food and Drug Administration,
Speaker 7: zep bound and manjaro are not in shortage anymore, but
Speaker 7: there is some ongoing litigation there because a group of
Speaker 7: compound pharmacies are suing the FDA over this, saying that
Speaker 7: the drugs still are in shortage. So the drama on
Speaker 7: the saga is kind of continuing there. Novo Nordisks drugs
Speaker 7: are still in short supply as of you know, yesterday
Speaker 7: and today when we last checked the US FDA website.
Speaker 7: But that being said, all of the doses are listed
Speaker 7: as available and so they've gotten a better handle on
Speaker 7: their supply as well. From talking to patients, some of
Speaker 7: the drugs are still hard to find, just with different
Speaker 7: supply chain dynamics, so people are still seeking out these
Speaker 7: cheaper versions that are maybe more readily accessible through telehealth companies.
Speaker 5: Madison, how are you thinking about twenty twenty five The
Speaker 5: companies to watch, the executives to watch maybe the app
Speaker 5: starts to watch.
Speaker 8: Yeah.
Speaker 7: I mean, twenty twenty five is going to continue to
Speaker 7: be an exciting year. We have data from Eli, Lilly's
Speaker 7: oral drug or for Glipron that's coming in twenty twenty five.
Speaker 7: It's in late stage studies, and that's going to be
Speaker 7: a pretty big deal because we've talked about how people
Speaker 7: want an oral version of these drugs. You know, the
Speaker 7: current medications are a weekly inject for a lot of people,
Speaker 7: that's not super appealing, although for a lot of people
Speaker 7: it is because clearly there's no issue with demand for
Speaker 7: these products. But some people and in some you know,
Speaker 7: other markets, pills are preferred. And so we have a
Speaker 7: lot of companies that are trying to make oral versions
Speaker 7: of the drugs, including Lily and Novo. We have Structure, Viking,
Speaker 7: some smaller companies, but Pfizer as well. And so Lily
Speaker 7: has phase three data from their drug or for clipper
Speaker 7: On that's coming out in twenty twenty five, and so
Speaker 7: we're going to see that, We're going to see some
Speaker 7: other companies, you know, coming out with data from other trials.
Speaker 7: The competition's going to continue heating up and so and
Speaker 7: it you know, insurance coverage is also a place to watch.
Speaker 7: We had the Biden administration propose a new rule that
Speaker 7: would allow Medicare, which is the government health insurance program
Speaker 7: for people over sixty five, to cover weight loss drugs,
Speaker 7: and so it will be up to the Trump administration
Speaker 7: in a few months whether to pass that or to
Speaker 7: block it. And so we could see me care begin
Speaker 7: to cover these drugs soon, and so that's an important
Speaker 7: development to watch as well, but sort of remains to
Speaker 7: be seen what will happen there.
Speaker 8: That would be a big relief to a lot of people.
Speaker 8: But more broadly, how are hospital stoctors, health insurers preparing
Speaker 8: for a potential raft of changes in regulation. We see
Speaker 8: the incoming administration with President incoming Trump nominating people like
Speaker 8: Marty mccurray for FDA and Dave Wilden for CDC. These
Speaker 8: are people who've raised outs about vaccines and other treatments,
Speaker 8: and of course RFK Junior potentially the new AJH secretary.
Speaker 7: Yeah, I think that there's still a lot of uncertainty
Speaker 7: with RFK Junior in particular. He is someone you know,
Speaker 7: staying on the topic of weight loss drugs, has sort
Speaker 7: of come out against the pharmaceutical industry at large, but
Speaker 7: has also commented on ozembic and other GLP one drugs, saying,
Speaker 7: you know, his view is that the America's food system
Speaker 7: should be fixed before we turn to pharmaceutical interventions. And
Speaker 7: so that's i know, been an area of uncertainty. But again,
Speaker 7: until he's actually you know, confirmed, then we don't.
Speaker 5: Know what will happen.
Speaker 7: We don't know exactly what the policies will be. But
Speaker 7: there definitely has been a bit of uncertainty with some
Speaker 7: of the picks, more so in particular than others. I know,
Speaker 7: Dave Weldon is someone that has you know, said a
Speaker 7: lot about vaccines in the past. Marty Mackery actually is
Speaker 7: more is viewed as more industry friendly. So there's some
Speaker 7: it's a bit of a spectrum with the various picks
Speaker 7: and how much uncertainty and how friendly they are going
Speaker 7: to be to the sector. And so I think that
Speaker 7: that's something again that we're going to have to watch
Speaker 7: early in twenty twenty five and sort of see what
Speaker 7: policies they begin talking about, whether these people are actually
Speaker 7: confirmed or not, and go from there.
Speaker 5: Madison, Man, We've had so many conversations with you and
Speaker 5: it almost feels like I joke with you that this
Speaker 5: is like the perfect drug that's going to kind of
Speaker 5: fix everything that ails all of us. Having said that,
Speaker 5: what's the thing you're someone who critically looks at this space,
Speaker 5: What is the thing that could go wrong? I mean,
Speaker 5: have they been tested long enough? Do we have to
Speaker 5: worry about safety concerns longer term?
Speaker 3: Like?
Speaker 5: What is it?
Speaker 7: I think one of the things that we're actually already
Speaker 7: seeing go wrong, And it might not be the fault
Speaker 7: of the drug makers or the actual drugs themselves, but
Speaker 7: the widespread availability of these drugs, especially through telehealth companies
Speaker 7: and these cheaper copycats that are being marketed and made
Speaker 7: by compounding farmies, they're getting into the hands of some
Speaker 7: people who shouldn't be using them, which you know generally
Speaker 7: is not maybe not a safety issue for someone who
Speaker 7: just wants to take one to lose a couple of pounds,
Speaker 7: even though they aren't the population that these drugs are
Speaker 7: meant for. But I did a story a couple of
Speaker 7: weeks ago about people with eating disorders that are actually
Speaker 7: getting access to these drugs right through telephone companies that
Speaker 7: don't really have checks in place to make sure that
Speaker 7: the right, people are getting them and not something that's
Speaker 7: a little concerning.
Speaker 5: Came across that and prepping for this chat. Good stuff
Speaker 5: as always, medicine, happy news year.
Speaker 1: You're listening to the Bloomberg Business Week podcast. Catch us
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Speaker 2: YouTube with more contacts on the markets. Now we have
Speaker 2: Matt Stuckey joining us. He's chief Portolio manager of equities
Speaker 2: with Northwestern Mutual Wealth Management. So, Matt, you heard just
Speaker 2: there and her explanation of everything that's going on. Was
Speaker 2: there anything that you particularly agreed with or disagreed with?
Speaker 10: You know, I think what we're seeing here into year
Speaker 10: end is a little bit of the froth coming out
Speaker 10: of the market. If you kind of looked into the
Speaker 10: sentiment in the near term across institutions as well as consumers,
Speaker 10: there has been a build up in enthusiasm for equities
Speaker 10: and that is a shorter term contrarian indicator. And just
Speaker 10: as an example, if you look at the conference boards
Speaker 10: question to consumers, W already expects stock prices to be
Speaker 10: a year from now, over fifty percent of them said
Speaker 10: that they would be higher than where they are today.
Speaker 10: That's a forty year high. And if you look at
Speaker 10: the Bank of america'stitutional survey for how they're positioning, over
Speaker 10: forty percent of fund managers were overweight equities versus cash,
Speaker 10: near the high point that we've seen over the last
Speaker 10: five years. And so that's contributed to a very strong
Speaker 10: flow environment for US equities that can continue in the
Speaker 10: shorter term. But typically that's a contrarian indicator, and I
Speaker 10: think some of this weakness into your end is just
Speaker 10: some of the frauth coming out of the market.
Speaker 5: All right, So what's the focal point for you now?
Speaker 5: When you look at the markets, I'm just thinking about
Speaker 5: that FED meeting on January thirty. First, you've got economic news,
Speaker 5: You've got JP Morgan kicking off earnings on January fifteenth,
Speaker 5: you've got the inauguration. What's key for you, especially when
Speaker 5: I think about, you know what ultimately supports equities and
Speaker 5: continued gains.
Speaker 10: Yeah, I think the path of inflation in twenty twenty
Speaker 10: five is what we're going to watch the closest. And
Speaker 10: the reason I bring that up is, you know, the
Speaker 10: path of interest rates and the level of interest rates
Speaker 10: has really dictated winners and losers in the economy as
Speaker 10: well as in the markets. And what I mean to
Speaker 10: that is you look at kind of higher for longer
Speaker 10: and who that helps and who that hurts. It's really
Speaker 10: how they're affected by interest rates. And so larger companies
Speaker 10: that have turned out debt haven't really seen interest cost
Speaker 10: increase at all since the FED started to high rates,
Speaker 10: and that's not the case for smaller companies that are
Speaker 10: more tied to floating rate debt. And you can also
Speaker 10: use the same analogy to consumers. Wealthier consumers that own
Speaker 10: their own homes or have locked in mortgages around three
Speaker 10: percent and access savings are earning higher interest rates on
Speaker 10: those savings.
Speaker 6: That's not the case for.
Speaker 10: Lower income Americans that are more affected by inflation and
Speaker 10: are feeling the pinch of higher credit card rates as
Speaker 10: well as higher automobile rates. And so if inflationary trends
Speaker 10: were to kind of resume their downward trend that we
Speaker 10: saw in the front half, in the middle parts of
Speaker 10: twenty twenty four and into twenty twenty five, you know,
Speaker 10: we think that gives the FED more room to start
Speaker 10: cutting rates, which hopefully allows the economy to broaden back
Speaker 10: out and broader market participation to take place into next year.
Speaker 10: You know, we can see that happen. We also can
Speaker 10: see a higher for longer kind of sticky inflation dynamic
Speaker 10: also happened. And so if you're an investor, the question
Speaker 10: is how do you position for kind of some of
Speaker 10: this uncertainty a kind of both ends of the spectrum.
Speaker 10: And I think I think the good news is that
Speaker 10: if you look at the fixed income markets today, we're
Speaker 10: seeing near twenty year highs in real interest rates, and
Speaker 10: so that is something that we think investors can do
Speaker 10: a lot of good by positioning themselves towards that asset
Speaker 10: classes a little bit more than maybe there their best
Speaker 10: park levels would dictate. And then furthermore, if there is
Speaker 10: this broadening out that takes place, if disinflationary trends resume
Speaker 10: as we kind of look forward to the next calendar year,
Speaker 10: we think some of the smaller cap make caap areas
Speaker 10: of US equities are pretty attractive.
Speaker 4: Here for a couple of reasons.
Speaker 10: First and foremost, they're price more attractively than US large caps.
Speaker 10: And secondly, if you look at kind we're earning set
Speaker 10: for these asset classes relative to kind of the high
Speaker 10: bar that we're put in place in a couple of
Speaker 10: years ago. We think the path forward towards the rebound
Speaker 10: and earnings is a little bit easier than kind of
Speaker 10: continue march forward that we've seen for earning's estimates and
Speaker 10: large caps, which are really reluctant on higher profit margins.
Speaker 2: Does any of this depend on the FED cutting rates
Speaker 2: more than at least once next year?
Speaker 10: I think it does require FED to continue on their
Speaker 10: easing path more than just one or two cuts. And
Speaker 10: that's why the inflation area dynamics are so critical as
Speaker 10: we think about the path forward in twenty twenty five.
Speaker 10: You know, back and forth and inflation dynamics have kind
Speaker 10: of caught on industors off sides all year. We started
Speaker 10: twenty twenty four with six to seven cuts priced into
Speaker 10: the forward curve and we're ending this year with just
Speaker 10: one or two cuts priced into the forward curve. And
Speaker 10: so the path forward for inflation I think is the
Speaker 10: critical place to watch in terms of where market leadership
Speaker 10: is headed.
Speaker 5: You know, I just want to go back to small caps.
Speaker 5: I mean, man, I feel like people have been calling
Speaker 5: for that small cap outperformance, our mid cap outperformance. And
Speaker 5: I'm just looking on my Bloomberg just comparing the past
Speaker 5: few years of the S and P five hundred versus
Speaker 5: the Russell two thousand. It's been really hard. And I
Speaker 5: understand the S and P five hundred influenced by some
Speaker 5: of those big megacap tech names, but nonetheless hard to
Speaker 5: kind of beat that outperformance.
Speaker 10: I think that's right, and I think there's a couple
Speaker 10: of things going on there. One is kind of how
Speaker 10: interest rates impact the earnings and fundamentals of smaller companies
Speaker 10: relative to larger companies. But the other is what you
Speaker 10: touch touch on there, just the phenomenal growth levels we
Speaker 10: see in the mag seven. If you look at just
Speaker 10: the top ten of the S and P five hundred today,
Speaker 10: it's roughly forty percent of the index, and just you know,
Speaker 10: five years ago it was roughly twenty three percent of
Speaker 10: the index. And so these higher cap weighted names are
Speaker 10: having even greater impact in terms of the performance of
Speaker 10: the S and P five hundred, and fundamentally that's where
Speaker 10: the growth has been as well. And so if you
Speaker 10: look at the last couple of years, it certainly it
Speaker 10: makes fundamental sense and monetary sense why US large caps
Speaker 10: have led. The question is is if you look forward
Speaker 10: to next calent year, does that narrow? I think for
Speaker 10: the first time, as you're sitting kind of looking at
Speaker 10: kind of what's priced in and what's expected, the gap
Speaker 10: between the MAGS seven earnings growth and the rest of
Speaker 10: the market is starting to look kind of more and
Speaker 10: more compressed versus where we were as we started twenty
Speaker 10: twenty four and where we were when we s twenty
Speaker 10: twenty three. And so you know, whether that comes to
Speaker 10: fruition or not, I think we'll dig take. Whether or
Speaker 10: not this US large scap out performance can continue into
Speaker 10: next year.
Speaker 5: We shall see. We shall see, and whether or not
Speaker 5: once again we have another year where fundamentally those big
Speaker 5: tech names or big megacaps really kind of lead the way.
Speaker 5: Good to get your thoughts, Matt Stuckey, Thank you so much,
Speaker 5: Happy New year. He is chief portfolio manager of equities
Speaker 5: over at Northwestern Mutual Wealth Management, joining Vonnin me on
Speaker 5: this Tuesday, December thirty.
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