Speaker 1: Bloomberg Audio Studios, Podcasts, radio News.
Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along
Speaker 2: with Lisa Bromwitz and Amrie Hordern. Join us each day
Speaker 2: for insight from the best in markets, economics, and geopolitics
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Speaker 2: Terminal and the Bloomberg Business app. Roosevelt Barman of Bernstein
Speaker 2: Private Wealth Management, writing, we anticipate weak US growth in
Speaker 2: twenty five of aboutzero point five percent, given the current
Speaker 2: higher cost of capital and the uncertainty around tariffs. Roosevelt
Speaker 2: joins us now for more. Rizved, good morning, it's good
Speaker 2: to see you.
Speaker 3: Good morning, John Morriying.
Speaker 2: Thank you for being kit step down in US growth
Speaker 2: from around three percent too point five. Can you walk
Speaker 2: us through how our price bond markets are at the
Speaker 2: moment For a lot of growth in the US at
Speaker 2: least of zero point five percent, I.
Speaker 3: Would argue not very well priced at all.
Speaker 4: I mean, I think when we look at where growth
Speaker 4: is likely to move over the next couple.
Speaker 3: Of months, and really without policy support.
Speaker 4: You know, we're talking about the tax bill not quite
Speaker 4: there yet, and when you think from a monetary policy standpoint,
Speaker 4: the Fed not ready to cut because we haven't seen
Speaker 4: enough progress on the inflation front, You're likely to see
Speaker 4: some weaker labor and consumer data over that time that
Speaker 4: eventually pushes yields lower. I think the reason we haven't
Speaker 4: seen that yet is certainly that policy volatility when you
Speaker 4: think about some of the potential legal challenges there placing
Speaker 4: the FED chair. Thankfully that rhetoric has pulled back, but
Speaker 4: that's certainly kept yields, I think, elevated above levels that
Speaker 4: you would anticipate given the growth outlook going forward.
Speaker 2: What are your assumptions on inflation with the growth outlook
Speaker 2: you're expecting, So, I.
Speaker 4: Mean our assumptions are inflation kind of remains elevated over
Speaker 4: the short term, but that when you look more six
Speaker 4: to twelve months out, that you don't have the kind
Speaker 4: of high inflation or even the stagflation that's talked about
Speaker 4: a lot. I think from our perspective, the reason that
Speaker 4: so many people are worried about it's understandable you think
Speaker 4: about tariffs pushing at prices, but from our perspective, that
Speaker 4: only happens if consumers can meet.
Speaker 3: The higher prices.
Speaker 4: And you know, I would challenge the consensus view that
Speaker 4: we've seen this dichotomy of soft data has been really
Speaker 4: weak and that the hard data is still come in fine.
Speaker 4: When you kind of look at some of the high
Speaker 4: frequency consumption data, you know, credit card transactions, the ticket
Speaker 4: sizes associated with them, it's shown some real weakness and
Speaker 4: the consumer over the past couple of months, we're seeing
Speaker 4: that weakness in labor demand as well.
Speaker 3: When you look at online job.
Speaker 4: Hostings the salaries associated with them, they're both at fifteenth
Speaker 4: month lows. You look at Atlanta FED wage data that's
Speaker 4: spread between those that are staying in their job and
Speaker 4: those that are leaving their job.
Speaker 3: It's just absolutely collapse.
Speaker 4: So you're not getting any premium for leaving your job.
Speaker 4: The kind of the leverage is shifted from the employee
Speaker 4: back to the employer. That speaks the lower wages going forward,
Speaker 4: lower consumption consumers not meeting those higher tariff induced prices.
Speaker 5: So this morning, it seems like there are a couple
Speaker 5: of schools of thought among investors who come on the show.
Speaker 5: You've got Steve Shivverrode saying that actually he sees equities
Speaker 5: as a better bet than bonds right now because he
Speaker 5: does think that growth is going to reignite later this year.
Speaker 6: It sounds like, and.
Speaker 5: Correct me if I'm wrong, you actually prefer bonds later
Speaker 5: this year to equities if you do see growth meaningfully
Speaker 5: slowing and sending people back to what has been, and
Speaker 5: maybe we'll continue to be a haven asset.
Speaker 4: I actually think, Lisa, there's a pathway for both to
Speaker 4: kind of do better TNS the end of the year.
Speaker 4: So to your point, once we have some slowing growth
Speaker 4: over the near term, I think that, and once we
Speaker 4: have policy kind of more sort of knowns about what
Speaker 4: the tax bill looks like, then you have the pathway
Speaker 4: cleared for bonds to do well.
Speaker 3: I think equities you're going.
Speaker 4: To take some type of stimulus and support, and that's
Speaker 4: more likely to be I think from the Fed than
Speaker 4: necessarily the tax bill. And that's more of a kind
Speaker 4: of fall and winter story where the Fed actually has
Speaker 4: a green light to cut from both the inflation standpoint
Speaker 4: and the weakened economic data.
Speaker 5: So we were talking about this with Robert Sken just
Speaker 5: how quickly we can see the negativity of bleed into
Speaker 5: data that has been very distorted by front loading and
Speaker 5: a whole host of other factors before people start to
Speaker 5: question this theory of a rolling over in an economy
Speaker 5: that has been incredibly resilient, with companies adapting and adjusting
Speaker 5: and figuring out ways to keep on keeping on.
Speaker 4: Well, I think we're starting to see some of that.
Speaker 4: You know, as I mentioned, from both the consumer and
Speaker 4: labor standpoint, and as people are still concerned about their
Speaker 4: job prospects going forward, they're likely to pull back on
Speaker 4: their consumption. That's typically what we've seen in history, even
Speaker 4: if we haven't observed so much of that in retail sales,
Speaker 4: there's been some weakness there, and again I think the
Speaker 4: high frequency data have shown that consumers actually are pulling
Speaker 4: back and are not as quite as resilient as maybe
Speaker 4: the top line figures have suggested.
Speaker 5: So there's also this theory underpitting what you're talking about,
Speaker 5: which is that eventually money will go back into the
Speaker 5: US and US assets that have traditionally been havens. Why
Speaker 5: do you have that conviction to time where people are
Speaker 5: selling the dollar and you are seeing a move out
Speaker 5: of US assets, particularly among Youruropean and Canadian investment firms.
Speaker 4: Well, I think there's I think we can separate, you know,
Speaker 4: kind of fixed income and equities for a moment. So
Speaker 4: if you think about fixed income, understandably, there's been a
Speaker 4: premium there because of the policy volatility, so you may
Speaker 4: not see the size of the rally in bonds that
Speaker 4: you would normally anticipate with slower US and global growth.
Speaker 4: I think equities from a long term perspective, that is
Speaker 4: a tougher short because you're not just taking a geographic position,
Speaker 4: you're taking a sector position as well. Given the US
Speaker 4: leadership and technology, so you know, we talked to our
Speaker 4: clients and saying, hey, do you want to be short
Speaker 4: technology for a five to ten year period. The answer
Speaker 4: is a resounding no, understandably. So I think that is
Speaker 4: where we have confidence that, yes, there is a risk
Speaker 4: premium for US assets that was not there before because
Speaker 4: of the trade and monetary policy volatility. But the idea
Speaker 4: that we have this mass divestment into other options, you know,
Speaker 4: that's not our view at all, and I think that's
Speaker 4: you know, I think number one, the depth and size
Speaker 4: of the US bond market, and number two, the LEADLeadership
Speaker 4: and Technology says that both US fixed income and equities
Speaker 4: will be attractive going forward, just not as attractive as before.
Speaker 2: What do you think that don't a witness speaks to?
Speaker 6: Then?
Speaker 2: What do you think is ultimately behind it over the
Speaker 2: past few months?
Speaker 4: Oh, I mean, I think in terms of the dollar
Speaker 4: weakness for sure, that is where you can express more
Speaker 4: of that concern about policy volatility. And if you're thinking
Speaker 4: when you look at the dollar, it's undervalued over the
Speaker 4: short term kind of based on nominal interest rate differentials,
Speaker 4: but for longer term measures you could argue that it's
Speaker 4: been overvalued for a while. So I think it's a
Speaker 4: combination of long term overvaluation short term undervaluation, and you
Speaker 4: end up with some dollar weakness. I think the other
Speaker 4: part of it, too, is that the Fed, when you
Speaker 4: think about the range of outcomes for FED policy, you're
Speaker 4: more waiting for them to cut. You don't have the
Speaker 4: other side of the distribution where you're saying, oh, could
Speaker 4: there be price pressures that would have hikes that would
Speaker 4: really widen the interest rate gaps enough to overcome the
Speaker 4: policy volatility, So you end up with the dollar weakness
Speaker 4: that we're seeing right now.
Speaker 2: They've certainly taken those off the tank. When that's for
Speaker 2: show rich about this was great in staid against them.
Speaker 2: I'm going to see you. Thank you, sir, RISA vam
Speaker 2: Palm and the Burnstain Private Wealth Management. To extend the conversation,
Speaker 2: Terry Hines and Pangaea policy, Terry, welcome back to the program, Sir.
Speaker 2: Why have the Europeans found themselves in such a difficult spot.
Speaker 1: There's a couple of reasons, John. One is just the
Speaker 1: nature of their federation. Those of you who are American
Speaker 1: history buffs consider the EU much closer to the Articles
Speaker 1: of Confederation. Where As one of your correspondents said, you know,
Speaker 1: every major decision has to go back and be played
Speaker 1: through each of the twenty seven member countries, so you know,
Speaker 1: the structures. The structure is not great. There's also tensions
Speaker 1: between the European Commission kind of the supremos and the
Speaker 1: Burley Mountain, Brussels and the twenty seven member nations. So
Speaker 1: that makes for a very complicated group, you know, and
Speaker 1: just about every other negotiation and that the United States
Speaker 1: is pursuing, whether or whether it be with the UK,
Speaker 1: whether it be with India, whether it be with Japan,
Speaker 1: let's say, or even China. You know who you're dealing
Speaker 1: with and you know what kind of response you're going
Speaker 1: to get. So this is uniquely difficult.
Speaker 3: Terry.
Speaker 6: Do we have an understanding of better understanding.
Speaker 5: After this weekend of what the ultimate goals are with
Speaker 5: these negotiations, what the desired outcome looks like.
Speaker 1: On the EU? I don't think we do, but.
Speaker 3: I would.
Speaker 1: My view of this is that you know, Ludnick and
Speaker 1: his people at Commerce had gone out before even before
Speaker 1: the April second date and had given various countries wish
Speaker 1: lists of things that they wanted. So whether or not
Speaker 1: somebody in Burllymont got a list, I think is beside
Speaker 1: the point, because a lot of the member countries did,
Speaker 1: almost certainly Germany did, France did. I mean, there's all
Speaker 1: the main countries in the European Union know what the
Speaker 1: United States ask is generally, but the EU as a
Speaker 1: whole has to get down to it, and the scheme
Speaker 1: of the EC is always to delay, delay, delay, as
Speaker 1: any British Prime minister in the last ten years well knows.
Speaker 5: Do we get a sense that the one big beautiful bill,
Speaker 5: and the fact that it did pass in Congress gave
Speaker 5: ammunition to the administration to focus back on trade, and
Speaker 5: we can expect a lot more headlines to be made
Speaker 5: about trade over the next few weeks.
Speaker 1: Well, I think they've been doing both, but I think
Speaker 1: there's probably a lot more headlines on trade to be had,
Speaker 1: simply because you know, the Senate negotiations on the tax
Speaker 1: bill are kind of, you know, much more in the can.
Speaker 3: They're much more baked.
Speaker 1: Everybody knows what they are. But the expectation is that
Speaker 1: over the next month you're going to see a lot
Speaker 1: of those major deals, and you know, one of those
Speaker 1: is India, where the Indians have been have said quite
Speaker 1: quite publicly that they expect a deal to be done
Speaker 1: in the first phase by July ninth, with eighteen more
Speaker 1: sectors by October. You know, whether or not the United
Speaker 1: States agrees with all those that framework or not, as
Speaker 1: another thing, I doubt that they hugely disagree with it,
Speaker 1: but there's a lot of optimism coming from India, and
Speaker 1: you know, I've always thought that's exactly how you have
Speaker 1: to read what's going on with Apple is through the
Speaker 1: Indian trade negotiations, not as anything that's been going on
Speaker 1: with Apple.
Speaker 2: And Serry just build on that. What do you mean
Speaker 2: by that?
Speaker 1: What I mean is that people tend to look at
Speaker 1: you know, Look, I'm not an Apple analyst. Okay, I'm
Speaker 1: not saying buy or sell Apple. What I am saying
Speaker 1: is that the markets tend to look at Apple or
Speaker 1: you know, Tesla or you know whatever in a very
Speaker 1: siloed sort of way. What's going on. Trump's mad at them,
Speaker 1: Trump loves them. Whatever it is what's going on here?
Speaker 1: I almost certainly I think this is instinct. But you know,
Speaker 1: there's US India negotiations way down the track. India is
Speaker 1: a major beneficiary of offshoring from China, in this case
Speaker 1: iPhones to India. Trump likes to shake up negotiations. Is
Speaker 1: It's a standard negotiating tactic, not just for him. And
Speaker 1: the shake up. Part of the shakeup is, well, I'll
Speaker 1: introduce something new into the mix. Let me remind you,
Speaker 1: India that you're the beneficiaries of the United States policies here.
Speaker 1: So I'm going to put that one on the table too,
Speaker 1: and then we'll figure out where our negotiations go from there.
Speaker 1: So you know, I'm just looking at Apple as a
Speaker 1: bargaining chip in the larger trade negotiations with India.
Speaker 2: Frankly, Henry, there's also a foreign policy rinko in a
Speaker 2: mix as well, the threat of secondary sanctions against Russia
Speaker 2: and what that could mean for India, for China. How's
Speaker 2: that going to plan in the next few weeks and months.
Speaker 1: You know, I think it matters. It matters in the
Speaker 1: U SEU negotiations. To John, it matters greatly because what
Speaker 1: you're going to have is a situation where you know,
Speaker 1: this is a classic watch what they do, watch not
Speaker 1: what they say. The European Union heaped a lot of
Speaker 1: scoring on the Trump administration and Trump personally and Vice
Speaker 1: President Advanced personally for for their remarks over the winter,
Speaker 1: and they're going in position on the Ukraine. But now
Speaker 1: we're in a situation where the geopolitics are different and
Speaker 1: the United States as well as the European Union are
Speaker 1: taking the shackles off the use of weapons that are
Speaker 1: provided to Ukraine by all of those countries. You know,
Speaker 1: what you're going to see in the successing of weeks,
Speaker 1: I think is a geopolitical ramp up that's designed not
Speaker 1: just to put more pressure on Russia, but more importantly
Speaker 1: put more geopolitical pressure on China to get their client
Speaker 1: state Russia to the table. So this is yet another
Speaker 1: example where the geopolitics is driving the economic pency.
Speaker 2: Terry, it's got to hear from you as always, smart
Speaker 2: Terry Hines there of Panchaea policy joining us now the
Speaker 2: president of the New York Stock Exchange, then it's going
Speaker 2: to see you.
Speaker 6: Great to be here.
Speaker 2: Before we get to these trading debuts and maybe some
Speaker 2: IPOs coming through. I just want to talk to you
Speaker 2: about the amount of volume that's come through your business
Speaker 2: through the year so far. Just walk us through it.
Speaker 7: Yeah, if I look back on this year, it's been
Speaker 7: a year unlike any other, both from the demands on
Speaker 7: our system and the liquidity in our system manifesting itself
Speaker 7: in trading volumes. Now, if you look at that period
Speaker 7: between Liberation Day and the pause, we saw records in
Speaker 7: terms of messaging traffic hitting around one point two trillion
Speaker 7: incoming order messages that we processed with thirty microseconds median
Speaker 7: response time on two of those days. And then if
Speaker 7: you look at the amount of transactions that occurred on
Speaker 7: our platform and the equity markets as a whole. I mean,
Speaker 7: in average days around sixteen billion trades, and now during
Speaker 7: that period we had thirty billion.
Speaker 6: It's just unprecedented.
Speaker 7: It's more than two times the amount of volume both
Speaker 7: from execution, from actual trades as well as from messaging
Speaker 7: then we saw during COVID. Now you remember how active
Speaker 7: COVID was. There's been a variety of reasons why we've
Speaker 7: seen that.
Speaker 2: I think, do you think it's something we take for
Speaker 2: grants it the infrastructure holding gump and the way it
Speaker 2: has done.
Speaker 7: I think it's something that we at the NYS spend
Speaker 7: a tremendous amount of time thinking about and planning for.
Speaker 7: We hope you take it for granted, because that means
Speaker 7: we're doing our job. Our job is to ensure that
Speaker 7: the markets are open and efficient so you can manage risk,
Speaker 7: particularly during those incredibly uncertain times like we saw in April.
Speaker 5: We saw an incredible amount of volume on the seconding
Speaker 5: markets of existing companies that have existing shares. This was
Speaker 5: supposed to be the year of IPOs, of deals, of
Speaker 5: all sorts of capital markets activity.
Speaker 3: Where are we in that?
Speaker 5: Are we seeing a revival of that as people get
Speaker 5: a little bit more confidence around trade or is it
Speaker 5: still really kind of being iced.
Speaker 7: Yeah, so initially this year when I was with you
Speaker 7: both in Davos, I was incredibly excited. You know, I
Speaker 7: still am really excited about the IPO markets. I think
Speaker 7: Mountain and Hinge last week going and doing so incredibly well,
Speaker 7: both pricing at the high end of the range, both
Speaker 7: up significantly over their IPO prices just in their first
Speaker 7: two days of trading. Are the sign of what I
Speaker 7: was talking about with you both in Davos, and that
Speaker 7: there's a tremendous amount of demand for new issuance in
Speaker 7: the market. Portfolio managers I talk to, long only funds
Speaker 7: I talked to they want new issues in the market.
Speaker 7: So I think you're starting to see these companies now
Speaker 7: come to market now that the vis has come back
Speaker 7: to earth, back to that twenty ish level, and you're
Speaker 7: not seeing as much of the intra day swings as
Speaker 7: a result.
Speaker 6: Can you talked about Davos.
Speaker 5: I'm just wondering the enthusiasm you had.
Speaker 3: Then, can you.
Speaker 5: Give a sense of how much lower the volume of
Speaker 5: IPOs or deals you expect to be for the remainder
Speaker 5: of this year now, then, say in January, based on
Speaker 5: the uncertainty, and based on what hasn't gotten done over
Speaker 5: the first half the.
Speaker 7: Year, I'm actually still optimistic that the same amount.
Speaker 6: Of IPOs will go. It's just shifted out.
Speaker 7: If I look in the case of Mountain and Hinge,
Speaker 7: they were targeting early April. You've seen stub Hub flip,
Speaker 7: You've seen clarin a flip Circle went on the road
Speaker 7: this morning, which is an IPO. We're incredibly excited about
Speaker 7: happening just next week. So I think you're starting to
Speaker 7: see that group of companies that was public market ready
Speaker 7: get out of the gates.
Speaker 6: So I'm optimistic.
Speaker 7: I'm optimistic that the second half of this shar year
Speaker 7: is going to be when you start to see these
Speaker 7: bigger names come to market.
Speaker 2: Do we need clarity on the policies in Washington first,
Speaker 2: and how disruptive has that been for your business? I
Speaker 2: remember the President on the stock exchange floor alongside you.
Speaker 2: This is not what we all expected. This has been
Speaker 2: chaotic for a lot of people. Do we need some
Speaker 2: clarity on those issues to see the Canada plant and
Speaker 2: the way that you expect.
Speaker 6: So I think there's just.
Speaker 7: Been some uncertainty in the market. You can you can't
Speaker 7: argue that if you're a good company, though, if you're
Speaker 7: a company that has made the plans to go public,
Speaker 7: which many have their public company ready, I think they
Speaker 7: can go in any market, particularly when you look at
Speaker 7: certain sectors. Crypto is certainly a sector where there's a
Speaker 7: lot of optimism. Still, some companies are still trying to
Speaker 7: weigh the benefits or the issues associated with tariffs, and
Speaker 7: that's going to be a moveable feast throughout the course
Speaker 7: of the year.
Speaker 2: Everyone around this table is incredibly pro America. You and
Speaker 2: I were on a panel together. You mentioned Davos, and
Speaker 2: we've been talking about American exceptionalism, and then all of
Speaker 2: a sudden people are talking about peak American exceptionalism and
Speaker 2: the rest of the world. Can I ever find a
Speaker 2: word from you on that the future of America and
Speaker 2: American exceptionalism.
Speaker 7: There's nothing that beats our capital markets. There's no substitute
Speaker 7: for our capital markets. They're the deepest, most liquid in
Speaker 7: the world. They continue to be the envy of a world.
Speaker 7: The geopolitical situation, though, is a conversation.
Speaker 6: I think that's where I'll leave it.
Speaker 2: That's a diplomatic way of putting bit Lynn. It's good
Speaker 2: to see you. Good to see Lynn Martin. There the
Speaker 2: president of the New York Stock Exchange. Amandalaline of a
Speaker 2: black Rock Join just around a table, Amanda, good to
Speaker 2: see you, Good morning.
Speaker 3: Thank you for having me.
Speaker 2: You've been focusing on the interplay between margins and the
Speaker 2: labor market. Let's get an update. Where are we now?
Speaker 8: Yeah, I think Neil Cashcari said it well to your
Speaker 8: colleagues over in Asia. There time is of the essence here.
Speaker 8: Companies are in a bit of a weight and see mode.
Speaker 8: This is something that's been coming up in our client
Speaker 8: conversations over the past few weeks, including some conferences. Corporates
Speaker 8: are signaling that they're in a weight and see mode.
Speaker 8: But there's an expiration date on that weight and see
Speaker 8: and I think that's really what we're focusing on. This
Speaker 8: really just hinges on the labor market. You heard Stephanie
Speaker 8: say consumers can spend so long as their employment situation
Speaker 8: is solid. It's really that interplay between margins and the
Speaker 8: layoff rate that I think is going to determine the
Speaker 8: path from here.
Speaker 6: So when's the expiration date?
Speaker 8: Well, I think the FED is almost laying the groundwork
Speaker 8: for focusing the market on September and even going forward
Speaker 8: from that, I think if we can get through the
Speaker 8: next earning season. This earning season, I think positively surprised.
Speaker 8: If we can get through the next earning season, I
Speaker 8: think that will provide some clarity. But I kind of
Speaker 8: take a step back.
Speaker 6: If I'm a.
Speaker 8: Corporate CFO and I thought your conversation with Lynn Martin
Speaker 8: was great, at some point they just have to move
Speaker 8: on with it and kind of go through kind of
Speaker 8: the strategic initiatives that they need to enact. So for EXAM,
Speaker 8: we've actually seen strategic m and A rebound a bit.
Speaker 8: It wasn't that depressed to begin with, but I think
Speaker 8: corporates that are looking to do transactions to bolster their
Speaker 8: business are actually moving.
Speaker 2: Ahead with it.
Speaker 8: Where we've seen some lagging is on the private equity
Speaker 8: sponsor related m and A, where financial economics are a
Speaker 8: bigger part.
Speaker 6: Of the equation.
Speaker 8: But I think to a certain extent, there's almost a
Speaker 8: level of optimism that no matter the path, corporates can
Speaker 8: manage through it. And to a certain extent, we're actually,
Speaker 8: I think starting to see a bit more of that.
Speaker 5: So if you talk to corporate executives, you get a
Speaker 5: sense of optimism. You get a sense that they're going
Speaker 5: to keep on going, that there's certain levels of demand
Speaker 5: that are just going to be sticky, and that they
Speaker 5: can plan their business around that. Where the cracks are
Speaker 5: going to come as the consumers. That's what everyone has
Speaker 5: been saying. How much do you really believe in that
Speaker 5: given that you see real contradictory types of data on that.
Speaker 8: Yeah, and I think it's a great point. Sometimes folks
Speaker 8: describe it as mixed signals to us, but what I
Speaker 8: actually think is happening is that just like there's been
Speaker 8: dispersion in corporate credit, liquid private commercial real estate, there's
Speaker 8: also dispersion in the consumer One of the things that's
Speaker 8: jumping out in the recent data is that those consumers
Speaker 8: with student loans, now that those are actually impacting their
Speaker 8: credit scores and the delinquencies are coming under more pressure.
Speaker 8: So there's a bifurcation that has always existed amongst consumer
Speaker 8: income cohorts, but we believe in this cycle it matters
Speaker 8: more because the rate environment is really a forcing factor
Speaker 8: for affordability. So if you have floating rate exposures, you
Speaker 8: have high mortgage rates. These I would say differences in
Speaker 8: consumer strength are becoming more prominent in this cycle versus
Speaker 8: previous cycles. I think what we really need to focus
Speaker 8: on is does that weakness that is so far confined
Speaker 8: to the low end consumer extend more broadly up into
Speaker 8: the higher income consumer. We're not seeing it yet, but
Speaker 8: that doesn't mean that that risk isn't out there. So
Speaker 8: we're finally attuned to kind of what does that labor
Speaker 8: market dynamic look like?
Speaker 2: And if we see that migration, that certainly poses a
Speaker 2: threat to the headline data, that's for sure. I wanted
Speaker 2: to talk to you about the price of credit at
Speaker 2: the moment. We've had a lot of guests come on
Speaker 2: and talk about the riskiness of government debt, and how
Speaker 2: any talk about the riskiness of corporate credit. How are
Speaker 2: the two trading relative to each other at the moment.
Speaker 3: So I would say.
Speaker 8: Let's use high heel as an example because it's a
Speaker 8: bit more growth sensitive. The tights for HYLD spreads were
Speaker 8: two fifty six earlier in the summer.
Speaker 6: We're at three point.
Speaker 8: Thirty, so we're not back to that kind of euphoor
Speaker 8: period of mid February, but we're certainly well below the
Speaker 8: post financial crisis average. So I think where there is
Speaker 8: for sure some room for spreads to widen. I think,
Speaker 8: going back to your pointly so though, there's almost a
Speaker 8: sense of front footed behavior amongst investors as well, that
Speaker 8: they're cognizantive of the fact that they cannot time these developments.
Speaker 8: I think what happened over the weekend is a great example.
Speaker 8: We left Friday, it seemed like a bit of a
Speaker 8: risk off tone. We come in this morning. It's very
Speaker 8: risk on corporates, just like investors don't want to be
Speaker 8: on the sidelines, and so there's almost a kind of
Speaker 8: just move forward and kind of invest with the assumption
Speaker 8: that there will be some volatility from here.
Speaker 2: Thank Formerica points out that some microsolf credit some maturities
Speaker 2: at trading through the treasuries. I want to understand from
Speaker 2: your perspective whether you are seeing some investors begin to
Speaker 2: treat certain corporate credits that's more safe than maybe the
Speaker 2: US Treasury, which sounds bizarre saying out loud. So you've
Speaker 2: seen that take place, so.
Speaker 6: I would say that part of the market.
Speaker 8: So when I started in corporate credit in two thousand
Speaker 8: and five, there were actually a fair amount of triple
Speaker 8: A corporates left there are really only two triple A
Speaker 8: corporates and then a handful of universities. That whole segment
Speaker 8: of the market is about ninety billion US dollars triple.
Speaker 6: A rated corporates.
Speaker 8: It's very technical, it trades very tight. It also depends
Speaker 8: upon where are you on the curve where your spread
Speaker 8: is getting calculated. So I wouldn't take that as an
Speaker 8: arbiter of this is a better credit than the US.
Speaker 6: I think what it is is just the.
Speaker 8: Fact that over time, over the past fifteen years, there's
Speaker 8: been a migration down in credit quality in the US.
Speaker 8: A lot of corporates are just happy to be triple B.
Speaker 8: They don't need to be double A or triple A
Speaker 8: anymore like they were in two thousand and five. And
Speaker 8: I think that's really what you're seeing.
Speaker 5: Is there a lesson also, though about who the buyers
Speaker 5: are at any given time of the treasury market versus
Speaker 5: the corporate debt market, that there are two distinct buyer
Speaker 5: bases with different metrics to understand when to come in
Speaker 5: and when not.
Speaker 8: Too Absolutely, I do think that there's a healthy amount
Speaker 8: of market segmentation that has been in place since and
Speaker 8: remains in place between those two market cohorts. I really
Speaker 8: just think, though, if I'm an investor looking to deploy
Speaker 8: money in the corporate credit market, I see more scope
Speaker 8: for balance sheet deterioration amongst triple A and double A
Speaker 8: rated corporates in this environment than I do in triple b's.
Speaker 8: And you know our view, we like selectively moving down
Speaker 8: in credit quality. So for choice, I would prefer to
Speaker 8: be in the low end of investment grade, where I'm
Speaker 8: pretty sure those companies will want to stay investment grade.
Speaker 2: So your point, though, is that by design that deterioration,
Speaker 2: is that because someone of the C suite is said,
Speaker 2: we should do this.
Speaker 8: And I think that actually, the historical experience shows that
Speaker 8: your cost of capital as a double A rated corporate
Speaker 8: isn't that much less less expensive, or isn't that much
Speaker 8: cheaper than a triple B rated corporate, And so I
Speaker 8: think over time there's been a steady migration. Now, I
Speaker 8: think corporates use that prudently. They're not going to lever
Speaker 8: up just to do a run of the mail buy back.
Speaker 8: They'll wait for the right acquisition, They'll wait for the
Speaker 8: right time to add that debt to capital structure. But
Speaker 8: that's been a long term trend that's been in place
Speaker 8: for the past ten fifteen years, and I think actually
Speaker 8: those triplebee corporates are just fine, and even some of
Speaker 8: those high yield high end of high yield corporates are
Speaker 8: just fine as well.
Speaker 2: Out of line of Black Crock. Thank you, good to
Speaker 2: see you. This is the Bloomberg Surveillance podcast, bringing you
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