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Speaker 1: Global business news twenty four hours a day. If Bloomberg

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Speaker 1: dot com, the radio plus mobile app and on your radio,

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Speaker 1: this is a Bloomberg Business Flash and I'm Terrain Moscow.

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Speaker 1: This updates brought to you by American Arbitration Association. Business

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Speaker 1: disputes are inevitable resolved faster with the American Arbitration Association,

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Speaker 1: the global leader in alternative dispute resolution for over eighty

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Speaker 1: five years. Learn more at a d r dot org.

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Speaker 1: Deutsche Bank, which runs Europe's largest investment bank, may post

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Speaker 1: a loss for the year as it overhauls its business

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Speaker 1: that according to CO chief executive officer John cryin U

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Speaker 1: stock index futures are little changed this morning ahead of

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Speaker 1: that Federal Reserve policy decision that is expected to give

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Speaker 1: more clarity on the timing of US interest rates increases.

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Speaker 1: We checked the markets every fifteen minutes throughout the trading

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Speaker 1: day on Bloomberg and SNP. E Many futures are now

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Speaker 1: down about two points, Dow E Many futures down eight

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Speaker 1: vast actimuny futures that will change that acts in Germany

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Speaker 1: is up to tenths per set ten your treasury of

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Speaker 1: six thirty seconds. The yeld one. I'm x screw oil

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Speaker 1: up two percent or seventy two cents at thirty seven

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Speaker 1: oh six of barrel comx gold is up two tens

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Speaker 1: per cent or two dollars ten cents to twelve thirty

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Speaker 1: three ten announced the euro and dollar, then one thirteen

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Speaker 1: point eight Pbody Energy, the largest US coal miner, saying

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Speaker 1: it may not be financially strong enough to remain in

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Speaker 1: business and its current form, and that the company may

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Speaker 1: seek bankruptcy protection. That's a Bloomberg business flash, Tom and

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Speaker 1: Mike Karen, thank you so much. Really a quiet markets,

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Speaker 1: but that is not true of the news cycle. It

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Speaker 1: is extraordinary. Eleven am this morning, the President's important UH

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Speaker 1: conference and announcement on the Supreme Court, and then we

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Speaker 1: moved right away a hundred and twenty minutes later to

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Speaker 1: our FED coverage. Michael McKee and myself was Scarlett for

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Speaker 1: Worldwide on Bloomberg Radio with a great set of guests.

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Speaker 1: We were gonna have Anna stage b B with us

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Speaker 1: in the one pm hour, but her people said she

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Speaker 1: couldn't do it. She's she's really busy filling out her bracket. Bracket.

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Speaker 1: That's a scary thought. Are you up to speed on

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Speaker 1: the bracket. I'm not up to speak, but I went

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Speaker 1: with the blue uniforms. Tom uses the scientific method. You

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Speaker 1: both have CFP uh cf A designations, and does that

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Speaker 1: teach you anything about how to teach you. I said

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Speaker 1: this to Francine Lax. She goes, we're gonna win. I

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Speaker 1: don't know. You don't understand, Francine. Everyone loses, No one wins.

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Speaker 1: I read something like there's nine quintillion different possible combinations

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Speaker 1: that you could have on a sixty four team, whether

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Speaker 1: it's really more other team brackets. So it is insane,

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Speaker 1: uh to try to think you're gonna win, but some

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Speaker 1: people do. You gotta win with this. By the way,

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Speaker 1: we're speaking at a station erosa from JP Morgan asset man,

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Speaker 1: you gotta win for your clients. UM. In this divergent

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Speaker 1: world that we were talking about before the break, what

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Speaker 1: do you invest in UM that you are reasonably confident

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Speaker 1: will happen? Yeah. I think one thing that is becoming

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Speaker 1: more and more apparent is that this divergent monetary policy

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Speaker 1: world that we live in is not necessarily supportive of

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Speaker 1: the US equity markets. And it was happening is there's

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Speaker 1: no impairment necessarily that we see in the U. S. Economy,

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Speaker 1: But the fact that the US dollar has strengthened as

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Speaker 1: much as it has, and the fact that it has

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Speaker 1: traded sideways for the last year, it does have some

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Speaker 1: significant ramifications for the equity markets. So for example, if

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Speaker 1: you look at inflation, it is now turning up because

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Speaker 1: the dollar at one point was up twenty percent year

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Speaker 1: over year. That was back in July of two thousand

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Speaker 1: and fifteen. The Dollar index today is up about point

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Speaker 1: six six percent year over year, So no wonder core PC,

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Speaker 1: Core c p I, or even the headline numbers are

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Speaker 1: moving higher. But if he's think about it from a

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Speaker 1: perspective of a corporation, if you're a Caterpillar, if you'll

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Speaker 1: like Eli Lily, if you're any multinational company out there,

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Speaker 1: the caters at least half of your sales to outside

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Speaker 1: of the United States, then it's not the year over

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Speaker 1: your change in the U. S. Dollar, but rather it's

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Speaker 1: the index value that really matters. So what I'm saying is,

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Speaker 1: if the FED does proceed with raising rates later on

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Speaker 1: this year, then we can expect that the US dollar,

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Speaker 1: if it doesn't strengthen materially from here it does stay

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Speaker 1: pretty strong. So that is a headwind to the earnings

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Speaker 1: landscape of the SMP five hundred companies, not all, but some.

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Speaker 1: And then you couple with this other notion that if

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Speaker 1: I'm a corporation, I have this pie of profits and

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Speaker 1: I have to split them up between what I get

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Speaker 1: to keep first just what I get to pay out.

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Speaker 1: So if I now have to pay out a greater

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Speaker 1: portion of that pie to people who work for me

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Speaker 1: because of wages, wages pressure that is building, that means

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Speaker 1: I don't get to keep quite as much. So that

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Speaker 1: rising wage pressure is now also eating into the profitability

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Speaker 1: or at least has the potential too for certain companies.

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Speaker 1: So it's interesting what's good for the economy is not

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Speaker 1: necessarily the best thing for the equity markets. So that

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Speaker 1: was a long winded answer to your question where do

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Speaker 1: we have reasonable conviction? And but what I'll say is

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Speaker 1: that risk assets could muddle through this year, maybe they

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Speaker 1: could be up a little bit. But one space that

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Speaker 1: we do have a lot of conviction is the investment

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Speaker 1: grade bond universe. If you think about that, not only

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Speaker 1: do you have the support from the bond market yields,

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Speaker 1: there are not rising very fast, which you also have

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Speaker 1: the support from the spread levels on investment grade corporates

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Speaker 1: that are now two hundred basis points, which is the

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Speaker 1: widest they have been in two thousand and twelve. So

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Speaker 1: I think if the economy does muddle through, and maybe

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Speaker 1: better than muddle through, and if the UH the risk

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Speaker 1: off sentiment doesn't pick up, that would be elite into

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Speaker 1: high grades. I usually go to Colgate Pamala when I

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Speaker 1: want to talk about broad America. I've full disclosure, folks,

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Speaker 1: I do not use cold Gate Pamala toothpaste. But we

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Speaker 1: could tell you can tell, thank you, Tucker Tucking us

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Speaker 1: to live it every day. But but if I look

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Speaker 1: at a twelve year piece from cold Gate six and

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Speaker 1: six point four or five coupon, so obviously it's trading

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Speaker 1: in a premium above a hundred because it's six point

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Speaker 1: four five, your optimism in investment grade paper has driven

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Speaker 1: that piece to one thirty three. So my yield on

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Speaker 1: cold Gate is three point the center tendency three point

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Speaker 1: one eight. Are our listeners, whatever flavor they are, Global

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Speaker 1: Wall Street, mom and pop, are they ready for a

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Speaker 1: ten year three point one seven percent return? And that's

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Speaker 1: taken the price from one thirty three cash it in

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Speaker 1: twelve years, So now at one are you kidding me?

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Speaker 1: It's all relative, Tom though, right, If they're comparing that

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Speaker 1: bond that you just mentioned with the paper they can

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Speaker 1: get into in Europe, they're they're absolutely ready for this.

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Speaker 1: So the challenge that a lot of insurance companies and

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Speaker 1: a lot of pension funds in Europe or facing is

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Speaker 1: they have twenty seven percent of the government bond index

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Speaker 1: that is not giving them any yield at all. And

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Speaker 1: then you pile on top of that the corporate bonds

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Speaker 1: that are now the yields are coming down. Guess what

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Speaker 1: the money is coming into the United States US trusurgy

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Speaker 1: market and US corporate Remind me again, how many times

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Speaker 1: is yelling gotta raise rates this year? I can't keep

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Speaker 1: track at one? Well they might, they might say three.

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Speaker 1: We would say to Okay, you say too, Bruce Kasman,

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Speaker 1: and your team says too, I love it. If she

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Speaker 1: raises rates twice, you're telling me this Colgate piece it

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Speaker 1: a one thirty three. Wow, that's amazing. Is not gonna

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Speaker 1: I'm not gonna enjoy that. A valiant like yeah, we

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Speaker 1: we don't have as much worry about the long end

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Speaker 1: of the curve as we have the short end of

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Speaker 1: the curve because the short the short term rates should

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Speaker 1: track the FED funds rate. But the long end of

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Speaker 1: the curve, there's so much more that's going on. You

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Speaker 1: have a lot of foreign investors that are in the

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Speaker 1: long end get yeah, exactly, and you have a lot

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Speaker 1: of institutions that you know for them, they have to

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Speaker 1: try to get that two percent yield. So maybe Colgate

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Speaker 1: is not that example that gives you the two percent yield,

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Speaker 1: but the index as a whole, the investment grade index

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Speaker 1: gives you a yield of about four percent. So that's

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Speaker 1: the best we've seen again since two thousand and twelve. Mike,

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Speaker 1: the circle, this this Fibosi like moment. I want to

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Speaker 1: make clear as you enjoy your cold Gate peace, going

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Speaker 1: from from thirteen thousand, three hundred fifty dollars to ten thousand,

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Speaker 1: twelve years out, you get a stream of six percent

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Speaker 1: coupon along the way. Yeah, I want to make that

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Speaker 1: clear that there is a payback along the way. We'll

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Speaker 1: do yield the maturity with a quiz tomorrow, folks, It's

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Speaker 1: a corporate bond. March I guess, but you can get

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Speaker 1: um dividend yields in some companies higher than your two

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Speaker 1: percent return there, So why why not do that? Yeah,

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Speaker 1: sure you can, but those dividend yields actually do come

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Speaker 1: with quite a bit more risk than the coupon does.

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Speaker 1: One thing that has changed, I would say with the

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Speaker 1: last year is that the corporate behavior, because of that

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Speaker 1: pie equation that we talked about, is becoming more bond

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Speaker 1: holder friendly than it is equity holder friendly. So if

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Speaker 1: you look at dividend cover ratios, if you look at profitability,

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Speaker 1: all of those metrics are actually dropping. So what are

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Speaker 1: you going to prioritize in that scenario? Are gonna prioritize buybacks,

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Speaker 1: M and A and dividends or are you going to

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Speaker 1: make sure that you more than satisfy your interest payment?

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Speaker 1: Of course I take the ladder, So I think that's

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Speaker 1: why you know six and a half percent coupon you

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Speaker 1: can get in high yield. I think that's in better

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Speaker 1: compensation for the risk that you take a this stage

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Speaker 1: in the market. Um, since you're our equity person and

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Speaker 1: today as well as the bond person thirty seconds, do

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Speaker 1: we care about who runs for and wins the presidency

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Speaker 1: this year. Is that going to get into the market

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Speaker 1: sometime soon? We do care. I don't think we see

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Speaker 1: a huge impact until it's evident who the Republican nomineees is.

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Speaker 1: But I think the markets in general, there's not a

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Speaker 1: direct correlation between what the makeup of this is, who

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Speaker 1: is in the White House, who's in Congress. But clearly

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Speaker 1: there's a big implication for certain sectors of the markets.

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Speaker 1: And I guess one other thing I would say about this,

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Speaker 1: just so that we have an unbiased uh answer here,

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Speaker 1: I'll talk about the implication of a Donald Trump presidency

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Speaker 1: versus a Bernie Sanders presidency. First of all, the measures

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Speaker 1: that they're currently proposing may not actually come to fruition. Yeah,

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Speaker 1: well we got Unfortunately, we have to stop there so

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Speaker 1: you don't get in trouble with your keeping. Thank you're

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Speaker 1: very roso, Yeah we did. Six lawyers just stood up

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Speaker 1: at the JP market head coach Futures Flat five day,

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Speaker 1: one PM special coverage. Stay with us