WEBVTT - Bond Traders Look to Hedge Risk of Fed Cuts 0:00:02.520 --> 0:00:13.760 Bloomberg Audio Studios, podcasts, radio news. This is the Bloomberg 0:00:13.800 --> 0:00:17.880 Surveillance Podcast. Catch us live weekdays at seven am Eastern 0:00:18.200 --> 0:00:21.960 on Apple CarPlay or Android Auto with the Bloomberg Business App. 0:00:22.320 --> 0:00:25.640 Listen on demand wherever you get your podcasts, or watch 0:00:25.760 --> 0:00:27.200 us live on YouTube. 0:00:27.600 --> 0:00:30.000 We start strong hair. One of my favorite people on 0:00:30.080 --> 0:00:34.839 wall stream Lindsay Rosters with Goldman Sachs Multisector Investing. I 0:00:34.840 --> 0:00:37.040 have no idea what that means. All I want to 0:00:37.080 --> 0:00:40.519 know is in the Lindsay Roster world, we've had at 0:00:40.680 --> 0:00:44.760 least a shift, if not a jump conditioning yield. How 0:00:44.800 --> 0:00:47.080 does that change a multisector view. 0:00:47.760 --> 0:00:50.000 Yeah, no, We've definitely had a big move in yields 0:00:50.040 --> 0:00:51.840 and it's happened in the past month and a half. 0:00:51.920 --> 0:00:54.040 To move forty basis points in the back end of 0:00:54.040 --> 0:00:57.560 the curve is no small thing. How does it affect 0:00:57.560 --> 0:01:00.520 our view? We've got to think about what's what's happened 0:01:00.560 --> 0:01:02.880 in the world, why do we get here? And big 0:01:02.920 --> 0:01:05.959 picture is the economy is still really strong. We have 0:01:06.120 --> 0:01:09.120 maybe slightly below trend growth in the US. We've just 0:01:09.160 --> 0:01:14.360 had a gamebuster burning season. Ten out of eleven sectors, 0:01:14.440 --> 0:01:18.559 just crushing it. Looking really good. But why are yields higher? 0:01:18.600 --> 0:01:22.000 Yields are higher because we continue to have this war conflict, 0:01:22.800 --> 0:01:25.800 questions about oil and long term inflation. We've got a 0:01:25.800 --> 0:01:28.960 FED reaction function that the market is telling the Fed. 0:01:29.160 --> 0:01:32.319 We don't know what it is, please please tell us. 0:01:33.440 --> 0:01:35.520 And you've got a lot of supply in the markets. 0:01:35.640 --> 0:01:38.120 And that's what's happened in the back end. In terms 0:01:38.160 --> 0:01:41.920 of how we're investing in our portfolio, we really aren't 0:01:41.959 --> 0:01:44.679 changing much. We haven't had any kind of large duration 0:01:44.880 --> 0:01:47.840 overweight all year. That hasn't seemed to be a place 0:01:47.880 --> 0:01:51.800 that we felt could win. Instead, we've got some structured 0:01:51.800 --> 0:01:54.080 product and a little bit of high quality, high yield, 0:01:54.120 --> 0:01:56.040 and that's where we want to be, and there's nothing 0:01:56.080 --> 0:01:57.640 that's telling us so far that we shouldn't be. 0:01:58.160 --> 0:01:59.840 How much credits do you want to be taking because 0:02:00.040 --> 0:02:01.720 and sit there at the tenure and clip a four 0:02:01.800 --> 0:02:04.520 seventy coupon, that's a decent living right there. 0:02:05.480 --> 0:02:08.560 Yeah, you don't necessarily have to do more than that 0:02:08.639 --> 0:02:12.160 if that satisfies your needs and your liabilities, for example. 0:02:12.280 --> 0:02:14.760 But when we think about the incremental spread that you 0:02:14.840 --> 0:02:18.160 can pick up in certain names that we fundamentally like, 0:02:18.560 --> 0:02:21.040 we feel confident doing that. This isn't a market though 0:02:21.120 --> 0:02:23.400 that you want to be all in, all chips on 0:02:23.440 --> 0:02:26.280 the table. You want to be, you know, slightly defensive. 0:02:26.400 --> 0:02:28.680 But we do have a posture of more risk than 0:02:28.760 --> 0:02:29.600 our benchmarks. 0:02:29.840 --> 0:02:32.560 You mentioned the FED and the market saying, you know, 0:02:32.639 --> 0:02:34.680 we need some guidance here. Do you think we'll get anything? 0:02:34.720 --> 0:02:35.160 Next week? 0:02:35.200 --> 0:02:37.560 In Jackson Hall? We'll have Tom knout there asking the 0:02:37.600 --> 0:02:39.840 tough questions. But maybe in the Q and A with 0:02:39.880 --> 0:02:41.280 Tom Okay. 0:02:40.800 --> 0:02:44.320 We got a chance there in what is the planned remarks? 0:02:44.400 --> 0:02:46.079 I don't think so. I think we're going to hear 0:02:46.120 --> 0:02:49.440 more about what these task forces are supposed to do, 0:02:49.960 --> 0:02:51.679 and the market is saying we don't. 0:02:51.520 --> 0:02:56.000 Need to hear. Can you imagine Haunts is on a 0:02:56.120 --> 0:03:00.960 task force? He sit, there's stone quiet like and then 0:03:01.280 --> 0:03:04.800 weigh in, right, where's Hatzi is now dovetailed into your view? 0:03:05.240 --> 0:03:08.440 He's you know, he's always been a realist, I'd say 0:03:08.480 --> 0:03:12.720 on GDP, does they see a pullback in real phenomenal GDP? 0:03:13.000 --> 0:03:14.320 Dovetail that into what you're doing? 0:03:14.360 --> 0:03:18.280 Lindsay, sure, so there has been predicted by Yan and team, 0:03:18.440 --> 0:03:22.320 who we obviously listen to, and is the best out 0:03:22.320 --> 0:03:25.680 there thinking that the second half will be softer. So 0:03:26.200 --> 0:03:28.760 when we're getting these prints coming in and they are 0:03:28.800 --> 0:03:31.720 softer for GDP, we are not surprised. That's been part 0:03:31.720 --> 0:03:34.560 of the forecast. Additionally, Yan and team believe that the 0:03:34.600 --> 0:03:37.200 FED will be on hold for this year. Okay, that 0:03:37.320 --> 0:03:39.839 sounds right. And the other thing that's important that he's 0:03:39.840 --> 0:03:43.240 pointed out is that inflation is coming in more benign 0:03:43.320 --> 0:03:45.200 and in fact we've seen that, which can mean that 0:03:45.240 --> 0:03:46.400 the FED can I didn't. 0:03:46.160 --> 0:03:47.840 Read it, but I knew the answer because you know, 0:03:47.880 --> 0:03:51.240 that's been yon for thirty years and that's why world class. 0:03:51.480 --> 0:03:55.480 If that's the case, can you bet yield down, price 0:03:55.600 --> 0:03:58.760 up and fixed income? That's the arch question right now. 0:03:59.040 --> 0:04:02.760 Yeah, I don't think you necessarily need yield down price up. 0:04:03.200 --> 0:04:05.920 You can earn the carry and I think that's it. 0:04:06.000 --> 0:04:08.840 You've got really attractive yields. And to just sit here 0:04:09.080 --> 0:04:10.600 and clip those couple. 0:04:11.960 --> 0:04:14.280 I mean for the listeners and viewers and where it's 0:04:14.480 --> 0:04:16.920 you know they're going to two year CDs, five year 0:04:17.040 --> 0:04:19.280 cd which do you extend duration? 0:04:19.640 --> 0:04:19.839 Yeah? 0:04:19.880 --> 0:04:22.360 I think you can extend duration into the belly of 0:04:22.400 --> 0:04:24.760 the curve. But we are not making a recommendation to 0:04:24.800 --> 0:04:26.880 go all the way out into the thirty year point. 0:04:27.200 --> 0:04:28.800 I get, but you can't extend. 0:04:29.000 --> 0:04:32.280 I'm putting Bloomberg Money Show together for Friday, and I 0:04:32.320 --> 0:04:35.880 did the TLTs out twenty years. Yep, you really, folks. 0:04:35.960 --> 0:04:39.680 Just so I can explain this to retail America, when 0:04:39.720 --> 0:04:43.480 you go out past the Lindsay Rosner duration, there's some 0:04:43.560 --> 0:04:46.200 price change you can have, but sometimes it's it's. 0:04:46.040 --> 0:04:49.040 Op that's that's exactly right. You have more volatility in 0:04:49.080 --> 0:04:51.080 the kid. So what do you need that? 0:04:51.240 --> 0:04:54.520 What do you make of all this new supply of technology, 0:04:55.279 --> 0:04:58.880 investment grade debt into your marketings? These are issues we 0:04:59.120 --> 0:05:02.640 typically don't see, and the total dollar mounts are just huge. 0:05:02.680 --> 0:05:04.159 How's that impacting your market? 0:05:04.400 --> 0:05:04.560 Yeah? 0:05:04.600 --> 0:05:07.240 So I think the market is handling it very orderly. 0:05:07.680 --> 0:05:09.800 Just to get some numbers, we've seen one point six 0:05:09.839 --> 0:05:13.080 trillion in ig issuance this year. That's up thirty four 0:05:13.120 --> 0:05:16.120 percent from where we were last year. So yes, is 0:05:16.160 --> 0:05:19.520 there more supply. Sure? When it comes to the hyperscalers, 0:05:19.520 --> 0:05:21.600 we've seen close to two hundred billion. If you think 0:05:21.600 --> 0:05:24.159 about the total AI complex, that number is more like 0:05:24.200 --> 0:05:28.599 four hundred billion. These are big numbers, but the market 0:05:28.720 --> 0:05:32.120 is taking it in stride. These deals are still over subscribed, 0:05:32.440 --> 0:05:35.800 but you are finding for this bucket of issuers that 0:05:35.960 --> 0:05:39.479 spreads are typically trading wider than like credits or like 0:05:39.520 --> 0:05:43.159 credit quality names. So I would say the market's orderly 0:05:43.520 --> 0:05:46.440 and people are excited about the story. But obviously buying 0:05:46.440 --> 0:05:48.680 the bombs of these issuers is very different than owning 0:05:48.720 --> 0:05:49.200 the equity. 0:05:49.440 --> 0:05:51.880 So I mean, I'm just assuming when people come back 0:05:51.920 --> 0:05:55.240 from labor day the summer season, they're going to be 0:05:55.279 --> 0:05:57.479 calling you guys up again and saying, hey, we've got 0:05:57.480 --> 0:05:59.760 more issues to come. I mean, and what are the 0:06:00.040 --> 0:06:02.760 questions you asked? Are they different now than maybe six 0:06:02.760 --> 0:06:03.240 months ago? 0:06:03.720 --> 0:06:05.440 Well, I think six months ago there was really a 0:06:05.520 --> 0:06:09.159 question on what is this Capex story and is it 0:06:09.240 --> 0:06:12.160 just a runaway train? And there was concerns that Capex 0:06:12.160 --> 0:06:14.880 could be something like one point seven trillion. For this group, 0:06:14.920 --> 0:06:16.880 I think we feel more confident that the numbers near 0:06:16.920 --> 0:06:19.800 one and this is again trillion with the Tea, so 0:06:20.279 --> 0:06:22.960 that much less and feeling more confident about it I 0:06:22.960 --> 0:06:26.240 think makes it more enticing to own this. But we 0:06:26.400 --> 0:06:28.040 very much think that there's going to be a lot 0:06:28.120 --> 0:06:31.800 of issuance and in our particular portfolios. We are underweight 0:06:31.920 --> 0:06:34.599 the hyperscalers and investment grade and finding ways to play 0:06:34.640 --> 0:06:38.600 AI and this space instructuring product and in high yelth 0:06:38.839 --> 0:06:40.120 okay hyperscaler. 0:06:40.240 --> 0:06:44.680 Like every single conversation, folks, there's two conversations. The mag 0:06:44.880 --> 0:06:49.680 seven equity stocks, markets should buy more Amazon and the 0:06:49.720 --> 0:06:51.960 pros are all looking at the debt build up. You 0:06:52.000 --> 0:06:55.520 have the advantage of one A line them Amanda line 0:06:55.560 --> 0:06:59.159 them at Goldman Exacts. Where's Amanda right now on the 0:06:59.200 --> 0:07:02.960 next margin kangaroo ban that these people are going to issue. 0:07:03.120 --> 0:07:05.960 Yeah, so very lucky to work with Amanda. Now, as 0:07:06.080 --> 0:07:07.680 I said, actually, last time I was on this. 0:07:07.760 --> 0:07:10.600 Show, did you I don't remember, Yeah, you brought it up. 0:07:11.000 --> 0:07:13.760 I think we talked about we are blonds and bonds? 0:07:13.920 --> 0:07:17.000 What could be better? That's our tagline podcast coming soon. 0:07:17.040 --> 0:07:21.800 Stay exactly, it's not the works, But what she said, 0:07:21.880 --> 0:07:25.200 I think what's been really helpful is contextualizing who's going 0:07:25.240 --> 0:07:26.720 to buy the paper and where is it going to go? 0:07:26.960 --> 0:07:28.880 And what she's been pointing out is there is a 0:07:29.000 --> 0:07:31.760 limit to how much the US regular way investment grade 0:07:31.840 --> 0:07:36.000 market can take and that she thinks the next shift 0:07:36.160 --> 0:07:40.040 will be that USIG gets saturated and had enough, it 0:07:40.040 --> 0:07:42.040 will go to private credit where there's four and a 0:07:42.080 --> 0:07:45.040 half trillion of dry powder waiting. 0:07:44.800 --> 0:07:46.600 And even it can go international and. 0:07:47.040 --> 0:07:49.600 It has actually true, that's right, right, But those are 0:07:49.640 --> 0:07:52.880 smaller markets. So it sounds like private credit is probably 0:07:52.960 --> 0:07:55.080 the next set of strong hands to take down some 0:07:55.160 --> 0:07:57.840 of this paper, which means we're not worried about the supply. 0:07:57.920 --> 0:08:00.640 Okay, Lindsay, and thank you so much with with sex 0:08:02.520 --> 0:08:06.720 Stay with us. More from Bloomberg Surveillance coming up after this. 0:08:13.960 --> 0:08:17.560 You're listening to the Bloomberg Surveillance podcast. Catch US Live 0:08:17.640 --> 0:08:20.760 weekday afternoons from seven to ten am Eastern. Listen on 0:08:20.880 --> 0:08:24.520 Applecarplay and Android Auto with the Bloomberg Business app, or 0:08:24.680 --> 0:08:26.160 watch US live on YouTube. 0:08:26.440 --> 0:08:29.600 Joining US now with an important update pre Jackson Hall 0:08:29.600 --> 0:08:34.560 of Kathleen bus Johnsick, chief economists at Nationwide to meet Kathy. 0:08:34.640 --> 0:08:40.439 The arch question is this ginormous nominal GDP into Q 0:08:40.720 --> 0:08:44.760 four and into twenty twenty seven does the animal spirit 0:08:44.880 --> 0:08:50.040 of five percent plus? Does that sustain? Yeah? 0:08:50.080 --> 0:08:53.720 Good morning, Tom. You know so our view is that 0:08:53.880 --> 0:08:57.040 both real and amal GDP going into the third quarter 0:08:57.080 --> 0:09:02.200 looks pretty solid and actually makes the prize. On the upside, 0:09:02.280 --> 0:09:04.439 we would say it's running somewhere between two and a 0:09:04.480 --> 0:09:07.760 half to three percent, mainly because we just had a 0:09:07.800 --> 0:09:10.360 lot of momentum coming out of the second quarter with 0:09:10.440 --> 0:09:14.000 the consumer and we continue to have very strong AI 0:09:14.200 --> 0:09:19.040 capex as you know. Then going towards the fourth quarter, 0:09:19.320 --> 0:09:22.680 it could get a little bit softer depending on where 0:09:22.800 --> 0:09:26.080 energy prices are. Inflation, but our view has been that 0:09:26.440 --> 0:09:31.600 inflation eases as we go through the end of the year. Now, 0:09:31.760 --> 0:09:35.199 obviously big wild card is what happens in the Middle East. 0:09:36.200 --> 0:09:37.560 But I think if you look at some of the 0:09:37.600 --> 0:09:40.520 core inflation readings, even though there's some upper pressure from 0:09:40.559 --> 0:09:44.439 AI spinning, overall, we think the tariffs start to fade, 0:09:44.679 --> 0:09:49.120 and other categories to us look rather well behaved. 0:09:50.200 --> 0:09:52.000 So, Kathy, I guess. 0:09:51.840 --> 0:09:54.480 One of the issues for the FED is they think 0:09:54.520 --> 0:09:57.200 about what to do next? Is this inflation And again 0:09:57.240 --> 0:10:00.079 we do have the energy swings that are kind of 0:10:00.280 --> 0:10:02.600 you know, hitting people in the pocketbook. But how do 0:10:02.640 --> 0:10:07.439 you guys view the underlying inflation out there in this economy? 0:10:08.160 --> 0:10:12.440 Yeah, I mean no doubt, you know, gasoline prices, oil prices, 0:10:12.480 --> 0:10:15.960 diesel prices stay high, and elevated. It's a tax on 0:10:16.200 --> 0:10:21.560 the economy, right, So businesses, consumers, and the agricultural sector 0:10:21.600 --> 0:10:26.480 all of them feel that that tax from higher energy prices. 0:10:27.240 --> 0:10:29.960 But in terms of inflation, right, you'd actually have to 0:10:30.000 --> 0:10:33.880 see those readings keep going up at a big rate 0:10:34.440 --> 0:10:37.640 to see inflation. If they just leveled off, you're actually 0:10:37.640 --> 0:10:42.199 getting zero inflation imputus from energy. And I think aside 0:10:42.200 --> 0:10:45.840 from energy and aside from the AI build out, we're 0:10:45.840 --> 0:10:50.160 actually seeing signs of disinflation both in the service sector 0:10:50.320 --> 0:10:53.440 and the goods sector. And you know, tying that back, 0:10:53.559 --> 0:10:57.040 you know Tom's question about you know, can this all persist, 0:10:57.120 --> 0:11:00.760 like economic growth with five percent and long term yields. 0:11:01.720 --> 0:11:04.640 You know, we've been there before on the tenure yield, Like, 0:11:04.720 --> 0:11:07.479 I'm not sure that that's enough to kind of really 0:11:07.640 --> 0:11:11.280 derail us obviously, you know, we'd like to see lower 0:11:11.360 --> 0:11:15.840 rates to support the economy, but what gets hurt most 0:11:16.000 --> 0:11:18.800 from on the consumer side is higher mortgage rates. But 0:11:18.880 --> 0:11:21.280 housing has been installed anyhow, I mean, we really haven't 0:11:21.280 --> 0:11:24.400 had the housing sector participating in this economy at all. 0:11:24.960 --> 0:11:27.400 So what is your surprise is you're writing in the 0:11:27.520 --> 0:11:30.960 labor day, are we there already close I'm rushing it. 0:11:31.080 --> 0:11:33.720 I think I'm rushing it. Kathy Is, you're right into 0:11:33.720 --> 0:11:37.920 that big nationwide Labor Day report. What's your greatest mystery 0:11:38.160 --> 0:11:41.800 about the American economy? Is it like business investment? 0:11:44.120 --> 0:11:48.640 Well, business investment has really been mostly comprised by the 0:11:48.679 --> 0:11:53.720 AI build out capex, so it's just been assumed by that, right, 0:11:53.880 --> 0:11:57.080 So then it's what happens outside of that, how does 0:11:57.080 --> 0:12:00.520 the labor market fare and the consumer? Because what's going 0:12:00.559 --> 0:12:03.560 to really dictate things for the consumer is the labor market. 0:12:03.800 --> 0:12:06.280 As long as the labor market remains good enough and 0:12:06.320 --> 0:12:10.560 we're getting you know, income gains, and especially if those 0:12:10.600 --> 0:12:13.520 gains are higher than inflation, so it is key for 0:12:13.559 --> 0:12:16.600 inflation to come down because there's a point where consumer 0:12:16.640 --> 0:12:19.319 is going to have hard time just dipping into their savings. 0:12:19.320 --> 0:12:20.959 That's what we start earlier this year. 0:12:21.520 --> 0:12:22.880 That can continue a little bit. 0:12:22.760 --> 0:12:23.520 But not forever. 0:12:23.800 --> 0:12:26.200 So to me, it's it's the labor market. 0:12:26.200 --> 0:12:28.280 But also I would say, you know jackson. 0:12:27.960 --> 0:12:32.679 Whole speech with chair wars, what does he say and 0:12:33.120 --> 0:12:35.720 get any type of insight on the reaction function? 0:12:35.800 --> 0:12:38.160 It sounds like a total mystery. Kathleen bus Jhonson, thank 0:12:38.200 --> 0:12:42.000 you so much. For the quick brief. Stay with us. 0:12:42.040 --> 0:12:45.280 More from Bloomberg Surveillance coming up after this. 0:12:52.520 --> 0:12:56.080 You're listening to the Bloomberg Surveillance podcast. Catch us live 0:12:56.160 --> 0:12:59.160 weekday afternoons from seven to ten am. He's durn Listen 0:12:59.240 --> 0:13:02.640 on applecarp and Android Otto with the Bloomberg Business up, 0:13:02.960 --> 0:13:04.720 or watch us live on YouTube. 0:13:04.920 --> 0:13:06.560 I want to give your window to this. So Ian 0:13:06.640 --> 0:13:09.480 Lincoln is definitive on Wall Street. He's the kind of 0:13:09.480 --> 0:13:14.199 research probably more Bank of Montreal research gets stolen off 0:13:14.240 --> 0:13:17.360 Ian Lncoln's desk and anyone I know's it's sort of 0:13:17.400 --> 0:13:20.319 like a papal blessing. I mean, Ian sort of looks 0:13:20.360 --> 0:13:23.600 at it. Veil Hartman's doing all the work. How do 0:13:23.679 --> 0:13:30.000 you create your acclaimed wicked, dense eight paragraph I've got 0:13:30.040 --> 0:13:32.760 to read it twice note. How do you and Veil 0:13:33.120 --> 0:13:34.760 put that note together every day? 0:13:34.840 --> 0:13:37.320 Well, that's interesting. We do start early. That's one of 0:13:37.320 --> 0:13:39.560 the keys. We are usually on the desk by five 0:13:39.600 --> 0:13:45.480 am and we put it together over there. We'd like 0:13:45.480 --> 0:13:47.079 to get an early start. You know, what I always 0:13:47.120 --> 0:13:48.840 say is, if you're going to make a living stating 0:13:48.880 --> 0:13:50.520 the obvious, you got to be the first person to 0:13:50.520 --> 0:13:50.840 say it. 0:13:51.920 --> 0:13:53.600 Okay, but how do you put it together? I mean, 0:13:53.600 --> 0:13:55.960 do you guys sit around a desk and do it 0:13:56.040 --> 0:13:57.600 or it does like Veil write it up and you 0:13:57.720 --> 0:13:58.439 prof freedom mean. 0:13:58.440 --> 0:14:00.679 What's like Veil has all the good ideas because he's 0:14:00.679 --> 0:14:03.520 a smart one. Yeah, we'll sit there side by side 0:14:03.760 --> 0:14:06.520 and collaborate on what we think is going on and 0:14:06.559 --> 0:14:10.000 then bounce the narrative off one another. Does this make sense? 0:14:10.040 --> 0:14:11.199 What's going on with oil? 0:14:11.520 --> 0:14:15.280 This dovetail show was seen in other markets, so it's 0:14:15.320 --> 0:14:16.520 a It's collaborative for sure. 0:14:16.520 --> 0:14:18.960 I can't say enough about this research. Note and you 0:14:19.040 --> 0:14:22.720 model out in a paragraph this morning, the technical upside 0:14:22.880 --> 0:14:27.320 and yield. Explain them ramification. You say, five point fifty 0:14:27.400 --> 0:14:31.640 obviously is psychological. What happens to the other classes of 0:14:31.760 --> 0:14:34.720 assets if we get a five point fifty thirty year bond. 0:14:35.400 --> 0:14:38.600 One of the most surprising aspects of this current move 0:14:38.680 --> 0:14:42.360 is the fact that stocks still continue to set fresh 0:14:42.440 --> 0:14:46.320 record highs even with thirty year yields above let's call 0:14:46.360 --> 0:14:49.840 it five twenty five, five thirty. And more importantly, perhaps, 0:14:49.880 --> 0:14:53.040 is the fact that thirty year real rates are above 0:14:53.120 --> 0:14:57.040 three percent, and everyone seems content with this across most 0:14:57.120 --> 0:15:01.800 asset classes. I would have otherwise expected some significant pairing 0:15:01.840 --> 0:15:04.120 back of the gains it stocks because that's important to 0:15:04.160 --> 0:15:05.560 the wealth effect, and that's important. 0:15:05.240 --> 0:15:07.720 To the fac that is and I mean it's I 0:15:07.760 --> 0:15:11.680 guess the question is, have you guys identified a level 0:15:11.680 --> 0:15:14.200 of rates out there, because we've seen raps rise across 0:15:14.200 --> 0:15:16.600 the globe, not just here in the US, where that 0:15:16.640 --> 0:15:19.960 does become a problem for broader markets, or how do 0:15:20.000 --> 0:15:20.760 you guys think about that. 0:15:22.040 --> 0:15:24.720 It is a process of trial and error. It's one 0:15:24.760 --> 0:15:27.360 of those things that you'll know it once you've passed it. 0:15:27.840 --> 0:15:30.960 And that's what is So that is what's so challenging 0:15:31.000 --> 0:15:32.640 for the market at the moment. I would have thought 0:15:32.640 --> 0:15:34.920 it was five percent thirties clearly hasn't been. 0:15:36.280 --> 0:15:39.040 And just brought up folks. You know the thirty year 0:15:39.320 --> 0:15:43.600 inflation adjust at rate. What is the ramification if that 0:15:43.800 --> 0:15:48.360 shoots through the Great Financial Crisis three point four zero. 0:15:49.080 --> 0:15:51.840 If let's say we get to three point fifty, I 0:15:51.920 --> 0:15:55.880 suspect that that's when you start to see some ramifications 0:15:55.960 --> 0:15:56.920 for the equity. 0:15:56.560 --> 0:15:59.800 Market, like Dow down three thousand. I'm just making it 0:15:59.800 --> 0:16:01.600 a folks. 0:16:01.640 --> 0:16:02.840 Shocks, yes, shocks. 0:16:02.880 --> 0:16:04.800 We should be we should be back to where we 0:16:04.840 --> 0:16:08.160 are starting the year, at least in terms of the 0:16:08.200 --> 0:16:10.560 S and P five hundred taking off some of those gains. 0:16:10.800 --> 0:16:12.920 But we haven't seen that flow through, and we haven't 0:16:12.920 --> 0:16:13.640 seen the concern. 0:16:13.800 --> 0:16:17.240 So when you go into Francois, Francois has the Mondral tickets. 0:16:17.280 --> 0:16:19.480 By the way, when you go into France, what's trying 0:16:19.560 --> 0:16:21.560 and you say this, how does the respond? 0:16:22.840 --> 0:16:25.720 So he is taking the approach that the most important 0:16:25.720 --> 0:16:28.400 thing in the market at the moment is inflation. And 0:16:28.760 --> 0:16:31.520 I'll say that inflation has been relatively benign for the 0:16:31.560 --> 0:16:34.840 last couple of months. And so if in fact inflation 0:16:35.160 --> 0:16:38.040 is the concern and it comes back in the second 0:16:38.040 --> 0:16:40.320 half of the year, I think that's becomes a monetary 0:16:40.320 --> 0:16:44.880 policy issue, which then becomes a equity valuation problem. 0:16:45.560 --> 0:16:48.320 So next week the smart folks are going to head 0:16:48.320 --> 0:16:51.480 out that Jackson hole, Wyoming. What do you expect to 0:16:51.520 --> 0:16:55.400 hear from FED Chairman Wash If anything, I guess. 0:16:55.520 --> 0:16:58.400 I'm certainly not expecting to hear any forward guidance. I 0:16:58.400 --> 0:17:01.960 think he I think the decision to participate was in 0:17:02.040 --> 0:17:04.840 part to make the point that he is not going 0:17:04.920 --> 0:17:07.480 to offer any concrete forward guidance. But there will be 0:17:07.520 --> 0:17:11.359 conversations around the event itself. We will have some FED speakers, 0:17:11.800 --> 0:17:14.239 we will be able to get a broader sense of 0:17:14.240 --> 0:17:17.840 how the policy, assuming how policy makers are approaching the 0:17:17.880 --> 0:17:21.000 September meeting. And right now, given the economic data that 0:17:21.040 --> 0:17:24.199 we have seen, the path of least resistance is for 0:17:24.320 --> 0:17:27.080 no hike, but we still have the August data series. 0:17:27.480 --> 0:17:31.200 Is the move higher in global rates is that reflecting 0:17:31.280 --> 0:17:34.119 the fact that there is no real forward guidance from 0:17:34.160 --> 0:17:36.080 the FED and the market's just going where the market 0:17:36.080 --> 0:17:38.840 thinks it should be and maybe doing the work for 0:17:38.920 --> 0:17:39.280 the FED. 0:17:39.880 --> 0:17:40.080 Well. 0:17:40.119 --> 0:17:43.359 Worsh certainly believes that the market is doing some of 0:17:43.400 --> 0:17:46.520 the heavy lifting for monetary policy makers, which frankly I 0:17:46.560 --> 0:17:49.600 worry about because that argument is somewhat circular. Eventually the 0:17:49.600 --> 0:17:52.600 FED will need to hike rates if the argument is 0:17:52.640 --> 0:17:56.560 that the market is doing the heavy lifting. Now, the 0:17:56.640 --> 0:18:01.160 idea that taking away forward guidance adds uncertainty, uncertainty puts 0:18:01.160 --> 0:18:05.240 a floor in forh nominal rates. That makes sense, That resonates, 0:18:05.280 --> 0:18:08.400 But there's also the global fiscal issues, whereas what's going 0:18:08.440 --> 0:18:10.439 on in Japan, there's what's going on in Europe. So 0:18:10.480 --> 0:18:14.119 I do think higher auction sizes or larger auction sizes 0:18:14.200 --> 0:18:16.800 going forward is a baseline assumption that's underpinning some of 0:18:16.840 --> 0:18:17.480 the barishness. 0:18:17.520 --> 0:18:20.440 You got to go, Ian lingoening are quickly on hyperscalars. 0:18:20.560 --> 0:18:23.359 It's away from your remit, but do you have a 0:18:23.400 --> 0:18:25.520 thought there on when enough is enough? 0:18:26.040 --> 0:18:28.800 Well, they've certainly been having an impact in the treasury 0:18:28.840 --> 0:18:31.040 market because I do think that one of the reasons 0:18:31.200 --> 0:18:33.639 rates are where they are for the curve is a 0:18:33.680 --> 0:18:38.399 bit of substitution. I accommodation for this duration heavy supply. 0:18:39.160 --> 0:18:41.919 Eventually they're going to run out of need to borrow, 0:18:42.200 --> 0:18:44.360 but right now I don't see the end in sight, 0:18:44.480 --> 0:18:45.959 so it's probably going to be a factor with us 0:18:46.000 --> 0:18:46.520 going forward. 0:18:46.760 --> 0:18:49.200 Ian Lincoln, thank you so much. Really appreciate your time 0:18:49.240 --> 0:18:51.040 to come and bring it. I'd love to get you 0:18:51.080 --> 0:18:53.560 and veiled together. I think that would be so cool, 0:18:53.800 --> 0:18:56.000 smarty Are you and Franzois together? That it'd be great? 0:18:56.920 --> 0:19:01.320 Ian Lincoln is the Bank of Montreal. Stay with us. 0:19:01.560 --> 0:19:04.800 More from Bloomberg Surveillance coming up after this. 0:19:12.040 --> 0:19:15.600 You're listening to the Bloomberg Surveillance podcast. Catch us live 0:19:15.680 --> 0:19:18.840 weekday afternoons from seven to ten am Eastern listen on 0:19:18.920 --> 0:19:22.320 Apple Karplay and Android Otto with the Bloomberg Business app, 0:19:22.480 --> 0:19:24.240 or watch us live on YouTube. 0:19:24.720 --> 0:19:29.040 John Stolfus joins US chief investment strategist at Oppenheimer. We 0:19:29.160 --> 0:19:32.479 just hit on Margie Patel, whose equity performance at All 0:19:32.480 --> 0:19:36.200 String is ninety nine percentile, and she said something John 0:19:36.240 --> 0:19:40.120 that totally dovetails with John Stolfitz. If you wake up 0:19:41.280 --> 0:19:45.119 glass half full, if you wake up optimistic about the 0:19:45.160 --> 0:19:49.119 American experiment, just like half the battle's done, isn't it. 0:19:49.280 --> 0:19:52.680 I think so I'd say amen to that. I really would. 0:19:53.240 --> 0:19:55.920 You know, when you look at the situation, the negative 0:19:56.000 --> 0:20:00.040 pitch book really is not the winning one across the 0:20:00.200 --> 0:20:03.679 across the cycle that we've seen since two thousand and 0:20:03.720 --> 0:20:05.960 eight with some of the greatest challenges that we could 0:20:06.000 --> 0:20:06.680 have expected. 0:20:06.800 --> 0:20:10.800 Your Denny's extrapolating out, how are you extrapolating it out 0:20:10.840 --> 0:20:12.280 into twenty twenty eight? 0:20:13.640 --> 0:20:17.200 Yeah, that one that came across there's somebody was it ISSI, 0:20:17.359 --> 0:20:20.240 a guy at ISI. It came out with a nine 0:20:20.280 --> 0:20:22.960 thousand for next year somewhere in that range. 0:20:23.000 --> 0:20:24.600 And I started to see that and I said, oh 0:20:24.600 --> 0:20:25.159 my gosh. 0:20:25.200 --> 0:20:29.639 You know it's when you consider that where you've got 0:20:29.720 --> 0:20:32.400 to realize where we are because we're closed so much 0:20:32.480 --> 0:20:34.560 to knock it on Heaven's door, on that eighty one 0:20:34.640 --> 0:20:37.680 hundred target that we put in last December. With all 0:20:37.760 --> 0:20:41.640 the turbulence that comes intermittently through these markets, we could 0:20:41.680 --> 0:20:44.000 easily see something like that next year. But I'm not 0:20:44.040 --> 0:20:46.359 predicting what we're going to say later on this year 0:20:46.400 --> 0:20:47.040 for next year. 0:20:47.320 --> 0:20:50.680 So, John, the earning story has been so strong really 0:20:51.440 --> 0:20:54.399 first quarter and then second quarter even stronger. Here, I 0:20:54.440 --> 0:20:57.879 guess people starting to ask the question, all right, twenty seven, 0:20:58.040 --> 0:21:00.960