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Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along
Speaker 2: with Lisa Bromwitz and Amerie Hordernt. Join us each day
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Speaker 2: as investors look past credit concern Sarah Hunt of Alpine
Speaker 2: Saxon Woods, seeing the wall of worry becoming somewhat Steve Hurt,
Speaker 2: She writes, the following credit is usually the culprit in
Speaker 2: stock market selloffs. Add to that concerns about equity market
Speaker 2: valuations and we go a pop pyre and volatility and
Speaker 2: lower in yields and equities.
Speaker 1: Sarah joins us now for more.
Speaker 2: Sarah, good morning, good morning. Have we got a credit
Speaker 2: problem or an isolated fraud?
Speaker 3: Isha, That is the big question, and I think that
Speaker 3: that is something that is going to come under increasing scrutiny.
Speaker 3: You saw what happened with the regional banks. You saw
Speaker 3: some of the business development companies have some issues with
Speaker 3: their stock prices because people start to worry about that
Speaker 3: whole private credit boom and what is underneath the surface
Speaker 3: where you can't see it, and whether or not that's
Speaker 3: going to be a problem. Right now, it looks to
Speaker 3: be somewhat isolated, but every time there's another thing that
Speaker 3: comes out, it becomes a bigger problem. And that sort
Speaker 3: of goes to Jamie Diamond's comment, right, So I think
Speaker 3: that is going to be the issue and how much
Speaker 3: that continues for the next couple of weeks, months, days,
Speaker 3: it really depends on whether or not something bigger happens.
Speaker 2: So did you find it odd that the Diamond comment
Speaker 2: became the headline for last week at the same time
Speaker 2: earnings knocked it out of the park on Wolf Street
Speaker 2: and stocks finished the week.
Speaker 3: Hia, Not really, because it sort of goes to that
Speaker 3: list of things that people are concerned about, and I
Speaker 3: think that people have been talking about private credit and
Speaker 3: talking about some of those illiquid areas of the market
Speaker 3: and whether or not there are going to be issues
Speaker 3: in there, and you can't see what the valuations are
Speaker 3: for a while. So it's more that once something comes out,
Speaker 3: then it becomes a bigger problem. So I think that
Speaker 3: part of that was just the fact that something did
Speaker 3: happen and everybody was a little bit worried about that happening.
Speaker 3: So it's not surprising that that got latched onto.
Speaker 2: It's hard to make the argument right now looking across
Speaker 2: the banks that net charge officer spired and out of
Speaker 2: control nonperforming loans are increasing, and I see much of
Speaker 2: that at all now. It's not to say that it
Speaker 2: can't happen, right and I can see why people are
Speaker 2: worrying that we go from zero to sixty pretty quickly.
Speaker 2: I understand all that, but it's the one I think
Speaker 2: outside of the issues we've discussed the support that need
Speaker 2: to worry.
Speaker 3: I think the issue in credit is not with the
Speaker 3: big money center banks, which reported first and reported really
Speaker 3: good numbers. I think it's more down in the regional
Speaker 3: banks and in some of those private credit areas, and
Speaker 3: I think that that's the concern, and to the extent
Speaker 3: that that's not the biggest spending cohort. To your point earlier,
Speaker 3: then it's not that it doesn't matter it's more that
Speaker 3: who's caught up in it and how bad is it
Speaker 3: going to be? And if it's not that bad, it's
Speaker 3: not going to matter. If it's a few banks that
Speaker 3: have a problem here or there, it's not an issue.
Speaker 3: But this sort of reminds me of the issue with
Speaker 3: treasuries last year, when it was like, oh my goodness,
Speaker 3: now all of a sudden, these banks that you would
Speaker 3: have thought of have the gap because of the marked
Speaker 3: to market problem. So it really depends on where this goes.
Speaker 3: If it stays somewhat small and contained. I don't think
Speaker 3: it's a big issue, but it's definitely one of the
Speaker 3: things that people are concerned about.
Speaker 4: It's staying small and contained, at least at the moment,
Speaker 4: is what it feels like. Do you think all this
Speaker 4: spend and focus on AI investment can kind of put
Speaker 4: pest infiltration to the side.
Speaker 3: As long as that continues and it doesn't look like
Speaker 3: that's got to crack in it, right, Because every time
Speaker 3: you see a crack in the AI story, whether or
Speaker 3: not there was something that went around I think last
Speaker 3: week about how many hits this happened and whether or
Speaker 3: not that was smaller than it was and what does
Speaker 3: that mean? And I think that anytime you get a
Speaker 3: question about that, people start to question the premise of
Speaker 3: why valuations are so high. On the other hand, we
Speaker 3: do have rates coming down, and that makes a difference
Speaker 3: as well, whether or not it makes a difference to
Speaker 3: the economy as such, it definitely makes a difference to
Speaker 3: investors into the stock market because lower roads do make
Speaker 3: room for those.
Speaker 4: Multiple Jentathan access question last hour. Is it more important
Speaker 4: to hear from the tech mega giants than it is
Speaker 4: from the federal Reserve?
Speaker 3: It's both, But right now, if there's any slippage and
Speaker 3: earnings from the tech guys, I think you're going to
Speaker 3: see a more wobbly, more volable market because with the
Speaker 3: lack of data and with the assumption that the Fed's
Speaker 3: going to cut at the end of this month, I
Speaker 3: think that right now that is not as much of
Speaker 3: an open question. But if you see anything in the earnings,
Speaker 3: or if you see any concern in the earnings on
Speaker 3: the tech side, or a slowdown meaningfully somewhere that can't
Speaker 3: be explained by we don't have this capacity to give
Speaker 3: people something, and then I think people really start to
Speaker 3: worry about what that looks like and that spend direction
Speaker 3: looks like I have You've.
Speaker 2: Got a company it'd be more focused on than others.
Speaker 2: Next Wednesday, the same day the FED meets, will have
Speaker 2: Microsoft meta alphabet. The rest will follow. Is the one
Speaker 2: that stands out more than others.
Speaker 3: I think it's the compendia of those who are spending
Speaker 3: the most right, So it's all of them. And if
Speaker 3: anybody says something odd and everybody else doesn't say it,
Speaker 3: then I think it's okay. If you get a bunch
Speaker 3: of different comments that are like, well, we're pulling back
Speaker 3: a little bit here, or the year of a year
Speaker 3: spend is going to be x instead of X plus ten,
Speaker 3: I think it's really going to be a question of
Speaker 3: what they say collectively, because collectively that huge spend in
Speaker 3: the top of the you know, basically data center market
Speaker 3: is what's been driving a lot of this stuff, So
Speaker 3: everybody kind of has to be on the same page.
Speaker 2: I think there's two very different approaches between China and
Speaker 2: the US. Of course, those two countries will become the
Speaker 2: folks of attention over the next week when the two
Speaker 2: leaders get together at the end of this month. China's
Speaker 2: shooting for efficiency we saw that with Deep Seek at
Speaker 2: the start of the year. America at the moment, based
Speaker 2: on what we're hearing from these companies, is just shooting
Speaker 2: for massive capacity, investing tons and tons of money. It's
Speaker 2: then approach that as an investor you feel more comfortable with.
Speaker 3: Well, I think that right now it's harder for the
Speaker 3: US to jump in and do the efficiency thing. They're
Speaker 3: going to have to because the reality on the ground
Speaker 3: is the power that's needed for currently what is extrapolating
Speaker 3: from the demand is way bigger than we have. So
Speaker 3: there has to be an efficiency argument ultimately, and I
Speaker 3: think that there will be. The question is going to be,
Speaker 3: hoo does that effect the most? And I think at
Speaker 3: the moment right now, it's just a race to get
Speaker 3: all the chips on the board. It's sort of like
Speaker 3: the dark Fiber in two thousand. It's like, we just
Speaker 3: need to put fiber down. We just need to put
Speaker 3: fiber down, and at some point that has to work together.
Speaker 3: And I think that there will be efficiency in the
Speaker 3: United States because I think there has to be, and
Speaker 3: the innovation will get there because you just don't have power.
Speaker 1: Prices are already higher.
Speaker 3: It's already an issue, it's only going to get worse,
Speaker 3: and I think that that's something that will end up
Speaker 3: being solved. How exactly and who benefits the most, I'm
Speaker 3: not sure yet.
Speaker 4: Yeah, how exactly is it going to be solved, because
Speaker 4: obviously potentially government regulation have to come into play. When
Speaker 4: you think about the trade talks, that's I'm sure part
Speaker 4: of your wall of worry. Were you given some comfort
Speaker 4: over the weekend by the President's comments?
Speaker 3: I think it's really difficult a comfort just in the
Speaker 3: de escalation, right. The words themselves are not as important
Speaker 3: as the tone, and if the tone is de escalation
Speaker 3: on both sides, that's probably better for markets. It's when
Speaker 3: the tone started to get very hot on both sides
Speaker 3: that market's got very wobbly. And I think that that's
Speaker 3: one of the things where we just can't know the outcome,
Speaker 3: and what they say and what actually happens on the
Speaker 3: ground are not necessarily going to be the same thing,
Speaker 3: because it almost never is when people are doing negotiations,
Speaker 3: So we won't know what the final terms are in
Speaker 3: any near term. But the idea of less fighting versus
Speaker 3: more fighting is better.
Speaker 4: But when you look at a meeting like that, are
Speaker 4: you concerned that it just bleeds into twenty twenty six
Speaker 4: if it doesn't go well, some of those hot rhetoric.
Speaker 3: Well, all of the tariff stuff is bleeding into twenty
Speaker 3: twenty six, right Like in April of this year, we
Speaker 3: were all convinced that something was going to happen, and
Speaker 3: it was very short term, and now all of a sudden,
Speaker 3: that has been pushed out throughout the entire year. So now, yes,
Speaker 3: it will bleed into twenty twenty six. And I don't
Speaker 3: think that's necessarily a concern as much as it's reality
Speaker 3: on the ground that piece of the wall of worry
Speaker 3: is going to continue to have to be climbed, and
Speaker 3: not just with China, but in general. China is obviously
Speaker 3: one of the biggest issues.
Speaker 2: And just quickly, what's your favorite sector right now?
Speaker 1: And why?
Speaker 3: Well, I think if you look at some of the
Speaker 3: places like defense, which has already run a lot, but
Speaker 3: you've got some big thematic stuff that's not just AI right,
Speaker 3: so Golden Dome, so some of the spending that's going
Speaker 3: to come that you know is coming is very helpful.
Speaker 3: So there are areas in the industrials and defense that
Speaker 3: are going to play into that and I think that
Speaker 3: this is a very good time to be looking a
Speaker 3: longer term thematic investing because you know that there are
Speaker 3: places where they're going to continue.
Speaker 1: To spend Least Favorite.
Speaker 3: Least favorite is tough. Consumers really hard right now, because
Speaker 3: I think that a lot of the low end consumer
Speaker 3: is having a hard time. So consumer is mixed, and
Speaker 3: even high end consumer is not perfect. So I think
Speaker 3: that there are some issues there. But it's interesting that
Speaker 3: the iPhone is finally getting that upgrade cycle that Danives
Speaker 3: has been looking for, So I think that there's some
Speaker 3: good I think there's some good news in that in
Speaker 3: that regard.
Speaker 1: Stay with us.
Speaker 2: More Bloomberg Surveillance coming up after this. Investors looking for
Speaker 2: signs of strength beyond AI, with a busy week of
Speaker 2: erning still ahead. In this, McFee of Oxford Economics saying,
Speaker 2: outside of AI, the world and the US are in
Speaker 2: an investment recession, but it's unlikely to become a broader downturn.
Speaker 1: And it's joints.
Speaker 2: It's now for more and it's good morning and welcome
Speaker 2: back to New York. Well, can you play twn the
Speaker 2: numbers for us? So what is AI and basically what
Speaker 2: does the rest of the world look like yes.
Speaker 5: I think the first thing to mention really is that
Speaker 5: a lot of people are focused a lot on the
Speaker 5: AI investment numbers, and they're not necessarily thinking about imports
Speaker 5: associated with them, so their net impact on growth is
Speaker 5: actually quite small just from the investment portion outside of AI.
Speaker 5: Of course, investments been contracting for a couple of quarters,
Speaker 5: but you know, we don't need to get too worried
Speaker 5: about that. Investment recessions are relatively common. Go back through
Speaker 5: the G seven for example, They're about twice as common
Speaker 5: as normal recessions, so one doesn't necessarily lead to the other.
Speaker 5: I think the key point for growth really is how
Speaker 5: these tech stocks are doing the wealth impact on the
Speaker 5: high end consumer and how that's actually driving growth, not
Speaker 5: necessarily just the AI investment.
Speaker 2: This goes to the bifurcation of the US economy right now.
Speaker 2: The low income cohort is really really struggling, and it
Speaker 2: has been for a while a number of years. Is
Speaker 2: there any reason to believe that's going to migrate up
Speaker 2: to upper income A cohorts as well?
Speaker 5: I think that's the real uncertainty. Remember, the low income households,
Speaker 5: the bottom twenty percent of the income distribution are only
Speaker 5: about nine percent of overall consumer spending, so it's manageable
Speaker 5: if it stays there. But they are driven by very
Speaker 5: different things than the top end, so there's not a
Speaker 5: not a direct move from one to the other. We are,
Speaker 5: of course in a very regressive tax environment in terms
Speaker 5: of tariffs, but also in terms of the one big
Speaker 5: beautiful bill that we'll see. Low income consumers have their
Speaker 5: income fall by two three percentage points, whereas at the
Speaker 5: top end go by two or three percentage points. So
Speaker 5: I'm not sure that there's a direct link between the two.
Speaker 5: I think we've got to watch the stock market really
Speaker 5: to worry about that contagion.
Speaker 2: How fad does a stock market go to explaining how
Speaker 2: we can have an economy where employment levels have dropped
Speaker 2: off to the extent they have and retail sales have
Speaker 2: remained run up there.
Speaker 5: Well, I think that's a big part. But remember with
Speaker 5: the labor market, we're seeing two shocks, and this is
Speaker 5: the thing we've got to get a bit used to
Speaker 5: in economics, actually, as we've had twenty years of demand
Speaker 5: side shocks and supply side being relatively benign nowadays, though
Speaker 5: of course we're seeing much more adverse supply shocks, and
Speaker 5: that's what's happening in the labor market. We've got negative
Speaker 5: supply side shocks alongside a cooling and demand, and that's
Speaker 5: how you can have this no fire, no higher labor market.
Speaker 4: When you talk about this investment recession and the fact
Speaker 4: that we're not going to have a real recession, can
Speaker 4: you US remain exceptional even with this investment depression?
Speaker 6: Almost?
Speaker 5: Yeah, I think it can because ultimately, you know, let's
Speaker 5: think about the three big shocks in the world at
Speaker 5: the moment. First, you've got deglobalization, the impacts of tariffs
Speaker 5: that clearly is going to impact to the surplus countries Germany, Europe,
Speaker 5: China much more than it is Europe. There's a strong
Speaker 5: correlation in our forecast revisions over the last year given
Speaker 5: trade balances. Secondly, you know, on the AI side, clearly
Speaker 5: the US is not only benefiting much more at the
Speaker 5: moment in terms of the investment and consumption picture, but
Speaker 5: should also do so in long term productivity. And then thirdly,
Speaker 5: on the sort of policy dynamics, the US is not
Speaker 5: constrained in its fiscal position, whereas you look around the world,
Speaker 5: there are a lot of economies who are at the moment. So,
Speaker 5: if anything, there's more upside I think to the policy
Speaker 5: stimulus in twenty twenty six for the US.
Speaker 4: Given this backdrop and the investment we are seeing in AI,
Speaker 4: how important is it going to be these tech earnings
Speaker 4: that are upcoming.
Speaker 5: I think it's really crucial. Actually, you know, it's a
Speaker 5: rally that for some has built on these earnings. If
Speaker 5: there's any sort of pullback in the market, really might
Speaker 5: well pull out the rug from underneath those high end consumers.
Speaker 5: I don't see that happening at the moment, but that
Speaker 5: I think is the key risk.
Speaker 2: Do you think it's become more important than the FED decision?
Speaker 2: And by important, I mean more important for the economy
Speaker 2: the onies we get from the megatech fires next week
Speaker 2: versus what Chairman Poun's got to say.
Speaker 5: Well, this is probably my unpopular opinion, but I have
Speaker 5: to say I'm not sure that FED rate carts really
Speaker 5: mean a huge amount for the economy, Certainly not in
Speaker 5: the next six months. Well, you know, if you look
Speaker 5: at the structure of debt in the economy, it's far
Speaker 5: longer now than it has been in the past. We've
Speaker 5: got a situation, where As in most rate culling cycles,
Speaker 5: we're seeing rates come down, but the long end of
Speaker 5: the yell curve rise deepening happening. So financial conditions aren't
Speaker 5: pulling back or easing as much as many people might
Speaker 5: think just by looking at the FED funds, whereas obviously
Speaker 5: equity stocks are having a much bigger impact on overall
Speaker 5: financial conditions in that first phase of path through.
Speaker 2: Interest rates are going to come down again next week.
Speaker 2: Most people think they're going to continue to come down.
Speaker 2: Are you suggesting that's not going to alleviate some of
Speaker 2: the issues in the labor market.
Speaker 5: Yeah, I think that. You know, fundamentally, FED rate cuts
Speaker 5: don't have a huge impact on employments, certainly not in
Speaker 5: the next six months. And remember that a big part
Speaker 5: of what's going on in the labor market is a
Speaker 5: supply shock, and central banks can't really touch that.
Speaker 2: What kind of risk is the feder reserve embracing if
Speaker 2: they're going to be lulled into an easing cycle by
Speaker 2: misdiagnosing the labor markets the extend that obviously, based on
Speaker 2: what you've said, you think they are.
Speaker 5: I wouldn't say that they're going to make a huge
Speaker 5: polity mistake or anything like that. Ultimately, we're talking about
Speaker 5: moving at twenty five basis points, you know, and ultimately
Speaker 5: from a stance that's pretty restrictive by all measures to
Speaker 5: something that's a bit more of a gray area. Who
Speaker 5: knows where neutral is. So it's not like we're going
Speaker 5: to go in most forecasts anyway into a period where
Speaker 5: we'll have really really loose policy. So I don't think
Speaker 5: it's going to be a big mistake, but you know,
Speaker 5: clearly it's something they can correct pretty quickly.
Speaker 2: On our lead, not this side of May, the other
Speaker 2: side of May, once we get a new leadership of
Speaker 2: the Fed Reserve, who knows for the future holds? How's
Speaker 2: that debate plan? And in Europe what kind of conversations
Speaker 2: you guys have in looking across the pond to the
Speaker 2: US At the moment.
Speaker 5: I think there's a lot being talked about institutional quality
Speaker 5: of the US and whether that plays some sort of
Speaker 5: role in the obvious decline and the dollar that we've
Speaker 5: seen so far this year. To be honest, I think
Speaker 5: that's a little bit overplayed. You know, who knows who
Speaker 5: we'll see as the next FED chair, But if they move,
Speaker 5: you know, rates by let's say fifty one hundred basis
Speaker 5: points relative to where the market has some price Now,
Speaker 5: I'm not sure that's actually a massive change, to be
Speaker 5: honest with you, And frankly, you know, we've got a
Speaker 5: very very data dependent FED at the moment. Maybe a
Speaker 5: FED that looks a little bit more towards the forecast
Speaker 5: and things where policy should go and what impact it
Speaker 5: should have would be a good thing.
Speaker 1: Stay with us.
Speaker 2: More Bloomberg surveillance coming up after this gold bouncing offer
Speaker 2: selloff and precious metals on Friday, Ongoing economic uncertainty keeping
Speaker 2: the commodity close to all time highs. Tom's haid saw
Speaker 2: Us of tatig Us, writing, we suspect the gold is
Speaker 2: telling markets that the usc old curve needs to steepen
Speaker 2: in order to tends to maintain their status as the
Speaker 2: primary safe haven. Tom joins us. Now for more, Tom,
Speaker 2: welcome to the program. Understand the theory, but based on
Speaker 2: a price section, does it back it up?
Speaker 1: Yes?
Speaker 7: Absolutely, I think the price action is telling us that
Speaker 7: there are overflows into safe havens, and those overflows are
Speaker 7: going into gold rather than treasuries. You know, we've gone
Speaker 7: through a period we'll call it fifteen where anytime there
Speaker 7: was a bump in the night anywhere around the globe,
Speaker 7: whether it started in the US or it started in
Speaker 7: France or anywhere else, the flows into ten year treasuries
Speaker 7: were just astronomical.
Speaker 6: And that's just not happening this time.
Speaker 7: Yes, you're getting some safe haven flows as we're seeing
Speaker 7: stories about bad loans and worries about systemic credit risk,
Speaker 7: and so ten year yields are rallying, but they're not
Speaker 7: rallying as much as you would see in previous cycles,
Speaker 7: and so gold is getting the overflow of that safe
Speaker 7: haven flow, and that's really the big reason why you've
Speaker 7: continued to see this momentum trade in gold in my opinion.
Speaker 7: Obviously there's folks following into that, but it's the overflows
Speaker 7: from lack of appeal from the traditional safe haven that
Speaker 7: I believe is really the big driver in gold right now.
Speaker 2: So if you think of how deep these polls are,
Speaker 2: the gold poll just isn't deep enough to be the
Speaker 2: alternative to treasuries. I've I've hurt that directly from Goldman
Speaker 2: two when they come on the program, which is why
Speaker 2: you've seen this massive exponential move in gold. Can it
Speaker 2: really replace treasuries, Tom, given the depth of the polar
Speaker 2: invitable liquidity and the treasury market compared to site Goat, Oh.
Speaker 6: Oh absolutely not. It can't.
Speaker 7: And so eventually, if these fares of credit contagent, if
Speaker 7: they really were to spread and we start to see
Speaker 7: more signs of pests in the attic and stuff like that,
Speaker 7: then you're going to see ten year treasure yields not
Speaker 7: just dropping below four percent, but rallying down to close
Speaker 7: to where two's are right now.
Speaker 6: And that's not happening yet.
Speaker 7: But there's just the gold market's not big enough, the
Speaker 7: precious metal market's not big enough, the entire sovereign g
Speaker 7: ten markets not big enough. Treasuries are going to have
Speaker 7: to be the final outlet if there is that type.
Speaker 4: Of risk, Tom, you're looking a lot about what gold
Speaker 4: is doing in terms of the treasury market. Are you
Speaker 4: also concerned about d dollarization and countries trying to get
Speaker 4: their hands on gold because they don't want to touch
Speaker 4: US dollars.
Speaker 7: Well, you know, there's two reasons why we said the
Speaker 7: US curve has to steep in here in order for
Speaker 7: the floes into gold to stop. One is that if
Speaker 7: there's an economic contraction and the credit cycle, which everybody's
Speaker 7: focused on right now.
Speaker 6: The other scenear is that we have.
Speaker 7: Strong growth in the US, the FED eases into that,
Speaker 7: we have loss of FED central bank independence, and de
Speaker 7: dollarization just amplifies this, and so the curve has to
Speaker 7: steepen just to accommodate that. So two scenarios, a weak
Speaker 7: economy and a strong economy both would suggest that one
Speaker 7: gold is going to continue to see flows, and two
Speaker 7: the US treasury curve in order to compete with that
Speaker 7: needs to be steeper.
Speaker 6: We just don't know whether it's going to be a
Speaker 6: strong economy or a weak economy.
Speaker 7: But in both scenarios, yes, absolutely, you see the curves.
Speaker 6: Should steepen and gold should continue to see safe haven flows.
Speaker 7: But the de dollarization story is another reason why gold
Speaker 7: is rallying or picking up those overflows into safe havens
Speaker 7: that would otherwise go into treasuries.
Speaker 4: So you don't think we're seeing gold move into a
Speaker 4: speculative stage. You think there's going to need more flows.
Speaker 4: How much higher can we see gold go?
Speaker 7: Well, I'm probably not an expert on the precious metals market,
Speaker 7: but I will say this that near term we look overbought.
Speaker 7: But if you think about all the potential flows into
Speaker 7: gold over the next let's say year, a reasonable estimate
Speaker 7: of five thousand parounds, I mean, that's not unreasonable at
Speaker 7: this point in time, because you're going to continue to
Speaker 7: have central bank buying, because you're going to continue to
Speaker 7: see the global we'll call it a trade environment deglobalize,
Speaker 7: and there's going to be less demand for dollars.
Speaker 6: That's absolutely true.
Speaker 7: You're very lucky to see inflation reaccelerate next year driven
Speaker 7: by service sector inflation, not tariffs and goods inflation, but
Speaker 7: service sector inflation as the US economy begins to stimulate
Speaker 7: and reaccelerate ahead of midterm elections. So all of those
Speaker 7: would suggest there's a fundamental driver for gold to push higher.
Speaker 6: But near term, I would.
Speaker 7: Argue that we're probably overbought here because the flows definitely
Speaker 7: seem speculative very near term.
Speaker 6: So Tom, that's gold.
Speaker 2: This is where the bond market move gets interesting for me,
Speaker 2: at least if you believe that's going to happen. We've
Speaker 2: got a bond market managing into potentially hotter inflation prints
Speaker 2: and a federal serve that given Howmus communicates it, over
Speaker 2: a last month is willing to ignore those hot inflation prints. Now,
Speaker 2: if the Fed's willing to ignore hot inflation tom well
Speaker 2: the market will investors.
Speaker 6: Uh No, I don't think so.
Speaker 7: So. I think in that scenario you're talking about, yes
Speaker 7: there's credit concerns, but they're manageable. The real issue is
Speaker 7: that the US economy begins to reaccelerate, and in that scenario,
Speaker 7: the curve bear steepens, with tens pulling away from twos,
Speaker 7: but eventually twos pushing higher as well as the market
Speaker 7: probably takes one of those rate cuts from twenty twenty six.
Speaker 6: And just takes it off the table, so you get
Speaker 6: a bear market steepener.
Speaker 7: Everything's pushing higher, but tens push higher at a slightly
Speaker 7: faster clip. That's our base case forecast for this year,
Speaker 7: with tens forecast to end the year back around that
Speaker 7: four point thirty zone, and next year tens pushing back
Speaker 7: up close to five percent as the market realizes.
Speaker 6: That the fear is gone.
Speaker 7: There is an economy that is still reasonably healthy, and
Speaker 7: treasury yields have to push higher to accommodate the slightly
Speaker 7: higher pace of inflation and still slightly higher pace of
Speaker 7: growth too.
Speaker 1: Stay with us.
Speaker 2: More Bloomberg surveillance coming up after this. Terry Hanes of
Speaker 2: Pangaea Policy writing this, China had best show movement on
Speaker 2: some other hot button issues or the US is capable
Speaker 2: of broader direct movement against China's economic interests. Terry joined
Speaker 2: us now for more. Terry, welcome to the program. So
Speaker 2: now my initial reaction to reading that quote is what's
Speaker 2: left to tariff? So what's left to do here? Well,
Speaker 2: good morning all.
Speaker 1: I think what's left to do here, frankly, is to
Speaker 1: understand that the economic issues of the moment, soybeans and
Speaker 1: fentanyl and the rare earths, are part of a broader
Speaker 1: geopolitical struggle. And I think that's the reason why we're
Speaker 1: not going to see any serious movement on this anytime soon.
Speaker 1: We'll probably get some action on soybeans, we'll get another
Speaker 1: nod on fentanyl, they'll continue ropidoping on rare earths, and
Speaker 1: in return, what you get from Trump is not a
Speaker 1: calming effect by saying tariffs are unsustainable, because what Trump
Speaker 1: and Besset have always meant by unsustainable is that they're
Speaker 1: unsustainable for China. So it's not an attempt to calm.
Speaker 1: It's an attempt to tell China, look, we're perfectly willing
Speaker 1: to keep ramping this up if you want to, but
Speaker 1: if you don't, then you need to back off now.
Speaker 4: But Terry, hasn't it shown that it is unsustainable what
Speaker 4: we're dealing with right now, especially when it comes to farmers.
Speaker 4: It's unsustainable for the United States as well.
Speaker 1: It's not a pretty picture by any means, and I
Speaker 1: don't mean to minimize the problems that American farmers have
Speaker 1: at all, but this takes place in the context of
Speaker 1: a much greater geopolitical chess game, and the export markets
Speaker 1: for soybeans are one small part of that.
Speaker 4: So China is holding on to rare earth. They're not
Speaker 4: buying US soybeans. What do they want out of the
Speaker 4: United States besides lowering the tariff threshold.
Speaker 1: Well, they'd like to keep talking, and they'd like the
Speaker 1: United States to go away. Akin to twenty nineteen twenty twenty,
Speaker 1: what the Chinese very likely hope for is that they
Speaker 1: get some sort of small deal with Trump that gets
Speaker 1: trumpeted as a big deal, and what ends up happening
Speaker 1: is that the United States then goes away on bigger
Speaker 1: issues and I think this time out, Trump's not inclined
Speaker 1: to do that. The reason I think that is because
Speaker 1: that's very clearly what he's signaling. I mean, they see
Speaker 1: the rare earth issue as a threat to military plus
Speaker 1: Western economic power and influence and ability to continue frankly,
Speaker 1: and they'll defend that. And so this thing isn't going
Speaker 1: away anytime soon.
Speaker 4: It's not going But what you're describing is the contours
Speaker 4: of a maybe small deal on three specific issues that
Speaker 4: could be done with Holy Fang and Scott Bessont. Why
Speaker 4: do we need President Trump meeting with Shijiping.
Speaker 1: We need that because both both Trump and Chijinping want
Speaker 1: that meeting to be able to show that jaw jaws better.
Speaker 4: Than war war.
Speaker 1: And they're continuing to talk, and in this case, the
Speaker 1: any kind of seeming rapprochemont between these two leaders, you know,
Speaker 1: lifts all boats, whether it be in China, which wants
Speaker 1: respect and wants to be seen as an equal, or
Speaker 1: the United States, you know, where Trump knows he's going
Speaker 1: to get a pretty large market bounce out of a
Speaker 1: continued rap rushmop.
Speaker 2: Sorry, this amount of escalation really started with China a
Speaker 2: number of weeks ago. They flexed their superior rare res
Speaker 2: refining capacity. That's a move that does not come without risk,
Speaker 2: and Ry, I just want it from your standpoint, whether
Speaker 2: you believe that was a strategic mistake on the Chinese half.
Speaker 1: I think it was clumsily handled at the very least,
Speaker 1: So I think I'll mostly agree with you on that.
Speaker 1: But also I found the timing interesting because what you
Speaker 1: had in a situation. In this situation is in the
Speaker 1: broader geopolitical context, you've got a Gaza broker piece, which
Speaker 1: right now, of course is teetering a little bit, but
Speaker 1: you got that. You got the US Argentina bailout, which
Speaker 1: from a geopolitical perspective is a pushback against China in
Speaker 1: South America. And you've got Russia under a lot more pressure,
Speaker 1: not only because they're not winning in Ukraine, but because
Speaker 1: the price of oil and other things imperil their ability.
Speaker 1: That together describes a Chinese and client state proxy defeat.
Speaker 1: So China, among other things, is reminding everybody that they're.
Speaker 4: Still here, Terry, before we let you go on China,
Speaker 4: Today's day twenty of US government shutdown. We're just mentioning
Speaker 4: it now, twenty three minutes into the program. When do
Speaker 4: you think the goarm will actually opened?
Speaker 1: I got early November after the New York City elections.
Speaker 1: What I think about this is that this is now
Speaker 1: morphed into a struggle for the broad center of the
Speaker 1: American public, who's more reasonable. There's a lot of evidence
Speaker 1: out there that Democrats aren't winning that battle right now,
Speaker 1: and what Republicans see an opportunity to do now is
Speaker 1: kind of use the kind of no King's amused Bush,
Speaker 1: plus the Mamdani election in New York City to continue
Speaker 1: to paint Democrats as extremists.
Speaker 2: So I think this goes on for a while, Sarry,
Speaker 2: just quickly. Then you don't see that as a coincidence
Speaker 2: at a calendar. You actually think that's a connected story, what's
Speaker 2: happening in New York City and what happens in Washington.
Speaker 1: Oh absolutely, because what they'll end up doing is and
Speaker 1: you know, this gets teased all over the place and
Speaker 1: has been for a while. Trump mentioned it over the weekend.
Speaker 1: I think too, is that you know, this is the
Speaker 1: face of the Democratic Party, that's what these people are
Speaker 1: up to, and noticed, by the way, and not incidentally
Speaker 1: that you know, neither Schumer, nor Jeffreys nor anybody else
Speaker 1: in New York wants to stand up to them. This
Speaker 1: is your Democratic Party, folks, as compared to us, who
Speaker 1: are leading on already leading with the public on economy
Speaker 1: and crime and a bunch of other major issues.
Speaker 2: This is the Bloomberg Surveillance Podcast, bringing you the best
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