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Speaker 1: Bloomberg Audio Studios, podcasts, radio news. This is the Bloomberg

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Speaker 1: Surveillance Podcast. Catch us live weekdays at seven am Eastern

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Speaker 1: on Apple CarPlay or Android Auto with the Bloomberg Business App.

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Speaker 1: Listen on demand wherever you get your podcasts, or watch

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Speaker 1: us live on YouTube.

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Speaker 2: Well, I'm a going far away.

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Speaker 3: I got on a plane and I was sitting up

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Speaker 3: in the fancy seats and Christine Legarde got on a plane.

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Speaker 2: We sat down one row ahead of me. We said hello, and.

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Speaker 3: Sheep dived into the newspapers. Is the French banks blew up?

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Speaker 3: It was a day where basically European banking collapsed. We

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Speaker 3: start straw with the humility and history of BNP Perry

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Speaker 3: By of Paris. There, Victor Hortyort joins us this morning

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Speaker 3: and derivative and bond strategies. Victor, we are so honored

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Speaker 3: to have you here with the French banking tradition. What

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Speaker 3: does your measurement of liquidity look like in the system?

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Speaker 3: Is the plumbing working in our financial system this morning?

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Speaker 2: So far?

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Speaker 4: I think it is in the corporate credit world that

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Speaker 4: I live in. One good measure of this is what

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Speaker 4: people are prepared to pay for the spread between derivatives

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Speaker 4: and corporate bonds, and typically when you have liquidity shortage,

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Speaker 4: people are forced to sell their bonds. That's not really

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Speaker 4: been the story so far.

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Speaker 2: Tom.

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Speaker 4: You know, we've had a material move wider in spreads

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Speaker 4: over the last few weeks, but it's been mostly driven

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Speaker 4: by hedges derivatives. It's almost like the situation where, you know,

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Speaker 4: you introduce a lot of uncertainty, people reach for the hedges,

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Speaker 4: but they don't feel so negative yet that they need

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Speaker 4: to sell their bond portfolios. And that's kind of where

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Speaker 4: we are right now.

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Speaker 3: The tension in New York this morning is percolating that

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Speaker 3: we're not there yet, folks. For me, it's four standard deviations.

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Speaker 3: We're not there, but that we're nearing a point where

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Speaker 3: the Fed has to do something. They did that in

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Speaker 3: a medical crisis, the pandemic it BMP perrybod. Do you

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Speaker 3: have discussions that were at a point where any given

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Speaker 3: central bank, including Jerome Powell, will have to step in

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Speaker 3: to write the chaos.

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Speaker 4: Well, first of all, I don't think that we are

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Speaker 4: actually anywhere close to the conditions where that is that's

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Speaker 4: on the cards. Even primary corporate bond markets reopened, although

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Speaker 4: it was modest in the US yesterday, so the market's

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Speaker 4: are obviously not shut. Then to your point, what do

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Speaker 4: we think about the central banks? You're probably more likely

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Speaker 4: to see the EASYB being proactive here, and the FED

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Speaker 4: it used to be, has actually much easier job here

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Speaker 4: given the lack of inflationary pressures.

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Speaker 3: Brilliant, brilliant Paul headline out here, this is what's moved

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Speaker 3: the market now now at one point seven percent.

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Speaker 5: I forgot my glasses, so politic possible the wrong.

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Speaker 3: Let me know, you know, it's like it's like I'm

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Speaker 3: blind on the golf course, like Damian sass Hour. Here's

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Speaker 3: the headline, and it has directly to do with Duke

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Speaker 3: University merch China raises tariffs US goods to eighty four percent.

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Speaker 5: Yep, So that Duke sweatshirt from the Champion, the reverse

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Speaker 5: weave sweatshirt, I guess, goes up eighty four percent.

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Speaker 6: I mean, this is it continues, Tom, this tit for

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Speaker 6: tat for on the tear front. This is kind of

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Speaker 6: what we signed up for here. So Victor, you know,

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Speaker 6: in the credit markets, you know, where where are we

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Speaker 6: in terms of assessing risk? What is the bond market,

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Speaker 6: the credit market telling us about recession risk in the

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Speaker 6: US economy.

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Speaker 4: Well, spreads are substantially wider, but we're probably nowhere close

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Speaker 4: to actually pricing in a recession. You know, if you

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Speaker 4: look at US investment grades spreads on your Bloomberg index,

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Speaker 4: we're around one hundred and twenty basis points. That usually

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Speaker 4: gets to one hundred and forty one hundred and fifty

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Speaker 4: even outside of recessions. If you're going to enter a recession,

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Speaker 4: you're talking about two hundred basis points. So the credit

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Speaker 4: market is under pressure, but it's still nowhere close to

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Speaker 4: discounting a proper recessionary environment. It's actually only over the

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Speaker 4: last couple of days, for instance, that the markets began

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Speaker 4: switching focus from pure tariff concerns like auto's, like you

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Speaker 4: mentioned pharmaceuticals earlier, and started to focus on the real cyclicals,

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Speaker 4: including financials for instance. And cyclicals have started to underperform

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Speaker 4: only on the last couple of days.

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Speaker 6: Victor, we're going to see vulnerability in the credit markets.

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Speaker 6: Where do you think we'll see it first? We'll be

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Speaker 6: in a short term paper side or be in longer

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Speaker 6: term issuance. If we do see some pain where would

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Speaker 6: you see it first.

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Speaker 4: So the one thing that's different today compared to let's

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Speaker 4: say twenty twenty two, which was the last time we

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Speaker 4: had volatility and spread winding, is on the borer side.

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Speaker 4: So back then, HIEL companies had taken advantage of the

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Speaker 4: easy funding conditions during the COVID stimulus and extended their

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Speaker 4: born maturity profiles. This time around they have a little bit. Lastly, Whey,

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Speaker 4: the born maturity walls are probably three times what they

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Speaker 4: were back then. So my guess is that we're stay

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Speaker 4: here for another few months, it's going to be the

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Speaker 4: leveraged finance space that.

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Speaker 2: Starts to look interesting.

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Speaker 4: That's not the story today, but it will get there

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Speaker 4: if we stay here.

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Speaker 2: Don't be a stranger. Thank you so much.

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Speaker 3: I'd like to do the interview in French, but that

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Speaker 3: brilliant Victor or thank you so much with BMB bar

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Speaker 3: about Paris out of London this morning to get us started.

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Speaker 1: This is the Bloomberg Surveillance Podcast. Listen live each weekday

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Speaker 1: starting at seven am Eastern on Applecarplay and Android Auto

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Speaker 1: with the Bloomberg Business app. You can also listen live

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Speaker 1: on Amazon Alexa from our flagship New York station. Just

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Speaker 1: say Alexa play Bloomberg eleven thirty.

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Speaker 2: She does a.

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Speaker 3: Wonderful synthesis of the moment. Many people do, but nobody

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Speaker 3: does it better.

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Speaker 2: Than Constance Hunter.

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Speaker 3: She's the EIU and of course with macro policy perspective

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Speaker 3: as an advisor there as well.

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Speaker 5: What's the one chart for you, Constance Hunter right now that.

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Speaker 7: Speaks It's the chart of uncertainty. And that chart takes

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Speaker 7: into account.

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Speaker 5: Well uncertainty at JP Morgan what's.

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Speaker 7: Uncertain So it's it's a Nick bloom out of Stanford,

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Speaker 7: and he uses EIU data to chart the word uncertainty

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Speaker 7: in our reports. Plus he looks at changes in the

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Speaker 7: tax code that are coming up. Plus he looks at

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Speaker 7: the divergence of economic forecasts. And when you add all

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Speaker 7: those three things together, we are almost at the COVID

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Speaker 7: level of uncertainty.

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Speaker 8: But what we know.

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Speaker 7: Going back to the eighties is that this presage's recessions.

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Speaker 7: You know that those that recession data was backdated, right

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Speaker 7: you you look at the you choose a recession ex post.

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Speaker 7: We know that the GDP data ends up getting revised

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Speaker 7: down usually if there ends up being a recession. And

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Speaker 7: so when we look at this chart. We know that

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Speaker 7: there are certain behaviors that companies and households engage in

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Speaker 7: when there is this level of uncertainty, and one of

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Speaker 7: them is they do not invest.

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Speaker 6: So are you forecasting a recession?

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Speaker 7: We are forecasting recession, all right, talk to us about that.

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Speaker 8: Yeah.

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Speaker 7: Well, so we were in the process of doing our

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Speaker 7: forecast last night as we were sending you our notes,

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Speaker 7: and so before the latest that's where you were.

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Speaker 5: I drove by Central Park, so the constance right, doing

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Speaker 5: a recession forecast.

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Speaker 7: Okay, yeah, I had to have a glass of seltzer,

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Speaker 7: not a glass of wine. Yeah. So, I mean we're

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Speaker 7: I mean, I think that the story is and everybody's

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Speaker 7: going to be in this boat. We're just going to

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Speaker 7: have to keep revising down right. So right now, as

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Speaker 7: of last night, we were at down zero point one

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Speaker 7: percent for the year. I think it's going to end

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Speaker 7: up being lower than that. You don't have this kind

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Speaker 7: of dislocation and then just bounce back right away, right.

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Speaker 7: And the thing that we were arguing is even if

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Speaker 7: the tariffs get rolled back, which is what people were

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Speaker 7: talking about a couple of weeks ago, you still have

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Speaker 7: that uncertainty level very very high. Now of course it's

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Speaker 7: gone even higher. And what I said at a dinner

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Speaker 7: party this weekend, I was talking about how I had

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Speaker 7: written a note to everybody on my team and listen,

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Speaker 7: I've lived through a few crises. My first one was

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Speaker 7: the tequila crisis back in the nineties. And there's always

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Speaker 7: something that ends up being worse than you could imagine, right,

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Speaker 7: And so there's some opacity somewhere that we're not going

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Speaker 7: to see, some connectivity somewhere. And someone asked me a

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Speaker 7: dinner party, so when you wrote this note, did you

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Speaker 7: tell them what do you think? Is this going to

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Speaker 7: be the worst of your career? And I said, yeah,

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Speaker 7: very well, could be, because it's completely self inflicted.

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Speaker 3: Right, Constant Hunner with us. We're going to continue with

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Speaker 3: you're here and a good morning.

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Speaker 2: We say good morning to all of you.

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Speaker 3: With the futures negative one on the three, we're out

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Speaker 3: five figures on evics fifty seven point two three. I'm

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Speaker 3: not going to mince words an ugly tape and real

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Speaker 3: talk about to be polite financial dislocation out there, Constants.

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Speaker 3: One of the great things you do, and you've done

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Speaker 3: this for years, is synthesize this into what central banks

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Speaker 3: will do.

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Speaker 2: We had a gentleman from B and.

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Speaker 3: B, Perry Boss, say, actually, the ECB has more degrees

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Speaker 3: of freedom hereror to work than a Trump affected Jerome Powell.

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Speaker 3: How constrained is the FED right now to act within

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Speaker 3: crisis because of the politics.

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Speaker 7: So it's not so much the politics itself, but the

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Speaker 7: political policy of raising tariffs, which we know is going

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Speaker 7: to have an immediate inflationary impulse. And of course the

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Speaker 7: question is when does that get overwhelmed by the negative

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Speaker 7: economic impulse that then reduces to hand and pushes down prices.

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Speaker 7: If we start to get market dislocation, if treasuring markets

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Speaker 7: start not to clear, the FED is going to step in, right,

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Speaker 7: I mean, so we're in a different as we wake

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Speaker 7: up this morning, we're in a different realm than we

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Speaker 7: were yesterday. Yesterday I would have told you the FED

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Speaker 7: is going to be fashionably late because they don't want

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Speaker 7: to repeat the problems of the COVID. Right, They're going

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Speaker 7: to be a little bit late, and they know they

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Speaker 7: have enough firepower. But if we're getting into a situation

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Speaker 7: where we have breakdowns in capital markets and market's not clearing,

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Speaker 7: then they're going to have to step in sooner from

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Speaker 7: at least a market intervention perspective.

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Speaker 5: Yeah, I mean, I mean Jamie Diamond's on with Maria

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Speaker 5: right now. Paul, there's the headline economists or right to

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Speaker 5: say we're headed for a slowdown. Jamie Diamond didn't sleep

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Speaker 5: last night. I mean the major banks, Paul, are doing

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Speaker 5: risk management now against all this contagion, including speculation about

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Speaker 5: losses at hedge funds.

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Speaker 2: Inflation.

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Speaker 6: What's your inflation call here? Are we taking that up?

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Speaker 7: Yes, so we're at three point six percent for the

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Speaker 7: full year, but.

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Speaker 3: What we were before.

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Speaker 7: We were at two point five. But what we've cautioned

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Speaker 7: clients is that that doesn't mean there's not going to

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Speaker 7: be a couple months in there where we see a

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Speaker 7: prints above five percent.

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Speaker 9: Right.

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Speaker 7: Our expectation is inflation spikes up and then it comes down.

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Speaker 7: But again, this demand destruction is very significant, and the

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Speaker 7: supply effect that you would expect to have a little

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Speaker 7: bit of a lag, The lags are going away. China

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Speaker 7: said they're not importing anymore LNG. They're just not importing

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Speaker 7: any more of it. Right, So everything is happening in

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Speaker 7: a much more compressed fashion.

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Speaker 6: So where do we go from here? What are the

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Speaker 6: next steps that you're looking for? Just from an economic

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Speaker 6: outlook perspective, is it get starting to see it in

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Speaker 6: the data, because I guess if you look at the

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Speaker 6: you miss sentiment data, we're already seeing it, but we

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Speaker 6: haven't seen in some of the heart that data that

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Speaker 6: the FED likes.

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Speaker 7: Yeah, I mean, obviously they're going to be watching. I

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Speaker 7: think the next big piece of data that will contain

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Speaker 7: information about this will be the April jobs data, Okay,

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Speaker 7: and we would expect that to be softer. And then

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Speaker 7: you've got to look under the hood, right, what's the

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Speaker 7: diffusion index? How many firms are hiring? Maybe we get

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Speaker 7: a positive print of one twenty or something, but you

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Speaker 7: know the diffusion index falls significantly or ours worked false.

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Speaker 5: What's your model unemployment rate out?

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Speaker 3: I would suggest maybe that's the thing that moves this instration.

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Speaker 3: Oh off, there are you modeling a five figure on unemployment?

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Speaker 7: We were modeling four point seven. But I think we

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Speaker 7: are as we as I sit here, we are remodeling everything,

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Speaker 7: and I think five is absolutely not out of the question.

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Speaker 3: Cassus Hunter, thank you so much, greatly appreciate with are

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Speaker 3: you this morning?

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Speaker 1: You're listening to the Bloomberg Surveillance Podcast. Catch US live

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Speaker 1: weekday afternoons from seven to ten am E's durn Listen

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Speaker 1: on Applecarplay and Android Auto with the Bloomberg Business app,

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Speaker 1: or watch US live on YouTube.

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Speaker 2: Greg p is it pigeum.

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Speaker 3: It's very important to speak, I think today, on the

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Speaker 3: management side of things, of running portfolios, but far more.

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Speaker 3: He combines that with tours of duty at Salomon Smith Barney.

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Speaker 3: This is ancient Columbus just left yep, Salom and Smith

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Speaker 3: Barney and the US Treasury, and of course iconic work

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Speaker 3: when I first heard of him at Morgan Stanley as well.

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Speaker 3: Greg Peters compare this moment to the other analogs out there.

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Speaker 5: Is it a nineteen ninety eight reducts.

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Speaker 8: No, I think it's very different this time.

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Speaker 10: Tom.

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Speaker 8: You touched on it with the sofa spread. I know

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Speaker 8: that's kind of an in the weeds type of measure.

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Speaker 8: But I think what you're seeing here, and you're seeing

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Speaker 8: it in kind of the correlation and the price action

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Speaker 8: is risk premium being put into.

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Speaker 10: The entire US rate curve.

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Speaker 8: And you know, you look at the price action over

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Speaker 8: the past few days.

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Speaker 10: You know stocks have you.

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Speaker 8: Know, sold off and you know, you haven't really seen

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Speaker 8: the bond market react or at least react, uh, you know,

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Speaker 8: as a kind of a defense mechanism. So you know,

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Speaker 8: the markets are very nervous on the bond side around

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Speaker 8: debt and deficits, foreign buyers stepping away in a meaningful fashion. Uh.

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Speaker 8: And there's a lot of technical underwater, uh, you know, unlined.

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Speaker 8: So this is a very sloppy, ugly bond market right now.

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Speaker 3: Within it is the question of liquidity. You've got Trip,

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Speaker 3: You've got Peters, you got Percelli when he decides to

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Speaker 3: show up for work within the holistic page in view,

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Speaker 3: are we edging towards a liquidity freeze up where the

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Speaker 3: Fed needs to step in.

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Speaker 8: I think at some point that is almost inevitable. And

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Speaker 8: I don't want to be a doom's sayer, but I

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Speaker 8: do think it is inevitable. At the same time, you know,

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Speaker 8: things have actually been reasonably okay and orderly, but there's

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Speaker 8: only so much capacity to absorb.

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Speaker 5: Uh.

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Speaker 8: You know, treasuries and the dealer ballance sheets just don't

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Speaker 8: have enough of that capacity. So I think it's inevitable.

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Speaker 8: But but we're not there now. You know, this is

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Speaker 8: an incredibly important week. Of course, we had a three

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Speaker 8: year auction yesterday, we have tens and thirties today. That's

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Speaker 8: that's a lot of duration entering the system. And so

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Speaker 8: we'll have more you know, informational content to see how

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Speaker 8: you know that that notional kind of gets absorbed into

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Speaker 8: the system.

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Speaker 6: Greg you mentioned kind of the weaker than expected auction yesterday.

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Speaker 6: We have more duration today from the treasury is an issue?

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Speaker 6: How important if we have another week showing today, what

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Speaker 6: would that tell you?

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Speaker 8: Oh well, it means that there's just somewhat of a

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Speaker 8: buyer strike, right and so and so our read on

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Speaker 8: yesterday's auction is, you know not, you know, not a

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Speaker 8: lot really came from it. From informational content standpoint, I

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Speaker 8: think today is the important day.

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Speaker 10: Watch watch the tail, watch the bid to cover.

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Speaker 8: You know, it's important to note that, you know, we

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Speaker 8: can't have a failed auctions, right, the dealers must take

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Speaker 8: it down, but that doesn't mean it can't.

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Speaker 10: Trade you know, in a sloppy, ugly fashion.

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Speaker 8: So there's a lot of duration hitting the market at

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Speaker 8: a time when there is a you know, massive selling

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Speaker 8: of you know, treasuries across the board.

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Speaker 10: So it's it's going to be very very interesting, and.

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Speaker 8: The volatility is really extreme. I think it's important just

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Speaker 8: to kind of note that the ten year has traversed

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Speaker 8: like almost a sixty basis point range in just a

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Speaker 8: few days. Talk about standard deviation moves, Tom, that's uh uh,

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Speaker 8: you know, that's just eye popping, Paul.

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Speaker 3: I've got since April four the ten year, and nobody

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Speaker 3: ever quotes price except Liz Goldenberg. See the scar here,

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Speaker 3: Sure that's a that's a Manola blanocute. She got so

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Speaker 3: angry at me, she threw the shoe at me. It

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Speaker 3: bounce off the terminal, hit me in the face. The

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Speaker 3: price of the ten years down three point four to

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Speaker 3: seven percent in one two three days. That annulyzes out

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Speaker 3: to a ninety two per year long boy, sounds like.

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Speaker 2: A little bit hyperbolic.

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Speaker 6: Therefore, you know, exactly Greg, what who's been selling here

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Speaker 6: the last several days.

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Speaker 8: Well, there's been you know, a few factions. There's been

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Speaker 8: lots of talk around foreign selling. Well we'll know that

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Speaker 8: for sure, you know when the data are released. But

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Speaker 8: that's you know, a a a clear conversation in the marketplace.

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Speaker 8: But you're seeing a lot of kind of levered onlines.

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Speaker 8: There was a very popular basis trade that you know,

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Speaker 8: been talked about a lot, you know, over the past

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Speaker 8: couple of years, but you know, kind of entering this year,

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Speaker 8: there was a belief that you know SLR type of

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Speaker 8: relief would you know come on board. And there was

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Speaker 8: a loading up on that type of investment, which is

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Speaker 8: you know, long treasury short futures. Uh. And the stopouts

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Speaker 8: and the unwindes are you know, pretty substantial. So there's

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Speaker 8: this kind of broad based selling. I'd say, there's a uh,

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Speaker 8: you know, a raising of dollars and you know, exiting

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Speaker 8: you know, the US bond market. I think it's also

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Speaker 8: important to note that, uh, you know, trading partners, you know,

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Speaker 8: if their trading volumes are going down or going down

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Speaker 8: to zero, the the need to hold US treasuries.

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Speaker 10: Uh just becomes a lot less.

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Speaker 8: So you know, that's just a natural byproduct of you know,

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Speaker 8: trying to reduce trade, right and and that's an unintended

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Speaker 8: consequence that you know, I don't think the administration really

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Speaker 8: kind of thought through.

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Speaker 3: Greg Peters, thank you so much about eight more questions,

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Speaker 3: but we can't get there this morning. Mister Peters, of course,

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Speaker 3: with his work at Morgan Stanley and Salomon Brothers.

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Speaker 2: He's with pgum a frous the hood.

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Speaker 1: This is the Bloomberg Surveillance Podcast. Listen live each weekday

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Speaker 1: starting at seven am Eastern on Apple Corplay and Android

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Speaker 1: Auto with the Bloomberg Business app. You can also listen

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Speaker 1: live on Amazon Alexa from our flagship New York station,

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Speaker 1: Just say Alexa play Bloomberg eleven thirty.

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Speaker 2: This is fun, folks.

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Speaker 3: In the jargon across the pond is from London to

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Speaker 3: New York. Out on the left coast across the pond

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Speaker 3: is San Francisco.

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Speaker 2: And the answers Ernie T. Todesky did Chad Jones did.

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Speaker 3: This too, and I think in the case of Ernie,

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Speaker 3: he went from Stanford to Berkeley, ben which is so

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Speaker 3: I mean, there's no international comparison to this outrage joining

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Speaker 3: us now from Yale with the budget lab is Ernie Tdesky,

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Speaker 3: who did? What was it like going from Stanford to Berkeley?

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Speaker 2: Ernie?

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Speaker 5: What did did people like not talk to you for

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Speaker 5: a year?

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Speaker 2: They did?

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Speaker 9: They didn't talk to me for a year, And I

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Speaker 9: didn't care because I knew what a real college town

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Speaker 9: was like. When I finally went to Berkeley, I have

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Speaker 9: to say, what is it.

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Speaker 3: Like going down the hallway and seeing the plaque of

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Speaker 3: like DeLong, Ike and Green in the rest the criminals

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Speaker 3: out there.

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Speaker 5: I mean, it must have been. It must have been

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Speaker 5: just a colectic as all get out.

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Speaker 9: I took Brad Delong's seminar on economic history and it

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Speaker 9: was my favorite class. Bar nun at Berkeley.

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Speaker 3: I've heard that you have a character such an honor

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Speaker 3: to do some panels with him over the years, and

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Speaker 3: he's been a huge contribution to American economics with Brad

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Speaker 3: Delong's study of history. Where are we right now, doctor Tedesky?

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Speaker 5: Where we are right now?

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Speaker 9: I mean we're at a very uncertain point right now.

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Speaker 9: You know, with these retaliatory tariffs that we the increase

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Speaker 9: in the China tariffs that we announced, and then the

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Speaker 9: retaliation from China. So we're at a effective tariff rate

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Speaker 9: now of everything announced in twenty twenty five, of twenty

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Speaker 9: four percentage points, we've added twenty four percentage points to

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Speaker 9: our effective tariff rate. So that brings us to the

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Speaker 9: highest effective tariff rate since nineteen o three as of

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Speaker 9: today for the average family, that's forty six hundred dollars

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Speaker 9: in cost when you add in the extra fifty percent

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Speaker 9: on China that we just announced, So that's another two

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Speaker 9: point eight percent on the PCE price level. So that's

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Speaker 9: you know, like Sarah was talking about before, like on

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Speaker 9: the one hand, the Fed is going to try to

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Speaker 9: look through that. I mean, on the other hand, that's

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Speaker 9: going to cause economic weakness that is going to you know,

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Speaker 9: pressure the FED one way or the other to move

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Speaker 9: in some way.

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Speaker 3: I think Ernie Toeski with us and I didn't interview him,

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Speaker 3: introduce him properly. The budget lab at eal and I

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Speaker 3: will not mince words. It's what everybody looks at early.

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Speaker 2: In the morning.

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Speaker 3: The work of Martha Gimble, Ernie Tedesky and the crew

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Speaker 3: up there's just been absolutely superb on traditional budget analysis,

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Speaker 3: but much more.

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Speaker 6: Paul Sweeney, Ernie is your working assumption that globalization economic

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Speaker 6: globalization is dead.

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Speaker 9: It's it's dying a slow death, maybe less slow than

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Speaker 9: I had thought twenty four hours ago. Yeah, you know,

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Speaker 9: I think that the dynamics now are going to start

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Speaker 9: out across the world. Maybe anti American, counter American might

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Speaker 9: be a better word for it, with this trade war

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Speaker 9: and response to America. But look, you can even see

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Speaker 9: the politics seep into places like Canada, places like Europe.

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Speaker 9: I think that this is fueling broader populist anti trade

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Speaker 9: sentiment that we all know was already there and already

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Speaker 9: on the rise, and I think that this just punctuates it.

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Speaker 2: And on the.

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Speaker 6: Flip side, Ernie, the President Trump is and his administration

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Speaker 6: believes that these trade wars will result in the re

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Speaker 6: I guess, the recovery or the redevelopment of American manufacturing.

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Speaker 6: How do you see that playing out.

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Speaker 9: I don't see it playing out. So the you know,

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Speaker 9: the place where I see a lot of focus is

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Speaker 9: things like automobiles. The United States already had a symbiotic

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Speaker 9: relationship in North America with automobiles. So it's really unclear

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Speaker 9: how we make much gains automobile manufacturing when it's going

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00:23:16,480 --> 00:23:20,080
Speaker 9: to be at the expense of our free free trade partners.

441
00:23:20,440 --> 00:23:23,960
Speaker 9: The other thing, and we find this consistently when we

442
00:23:24,520 --> 00:23:26,879
Speaker 9: modeled tariffs, when we when we kind of look at

443
00:23:26,920 --> 00:23:30,600
Speaker 9: the long run economic effects of these tariffs, is there's

444
00:23:30,600 --> 00:23:33,080
Speaker 9: no doubt that if if you focused tariffs on a

445
00:23:33,119 --> 00:23:38,439
Speaker 9: specific industry like automobiles, you can shift production within the

446
00:23:38,560 --> 00:23:41,520
Speaker 9: United States to that industry and so you can look

447
00:23:41,560 --> 00:23:44,520
Speaker 9: at just say autos and say, oh, we can make

448
00:23:44,600 --> 00:23:48,280
Speaker 9: gains just in auto manufacturing, but it comes at the

449
00:23:48,359 --> 00:23:50,679
Speaker 9: expense of the rest of the economy. The United States,

450
00:23:51,000 --> 00:23:54,280
Speaker 9: you know, doesn't have limitless labor and capital in it,

451
00:23:54,440 --> 00:23:58,159
Speaker 9: especially in an environment where we're talking about limiting immigration.

452
00:23:58,720 --> 00:24:01,000
Speaker 9: And so what we also can say instantly, fined is

453
00:24:01,040 --> 00:24:05,200
Speaker 9: that putting aside any specific sector, the American economy is

454
00:24:05,560 --> 00:24:10,919
Speaker 9: consistently smaller regardless of what proposal we're analyzing. In the

455
00:24:10,960 --> 00:24:14,399
Speaker 9: long run, as a result of what we've announced so

456
00:24:14,400 --> 00:24:17,120
Speaker 9: far in twenty twenty five, the United States economy is

457
00:24:17,240 --> 00:24:20,159
Speaker 9: zero point seventy percent smaller in the long run in

458
00:24:20,280 --> 00:24:24,159
Speaker 9: level lords, which you know as an economist is significant.

459
00:24:24,560 --> 00:24:27,680
Speaker 5: We welcome all of you worldwide and your commutes this morning,

460
00:24:27,760 --> 00:24:31,119
Speaker 5: including good morning to New Haven with the budget lab at,

461
00:24:31,160 --> 00:24:33,840
Speaker 5: you know, Ernie Tedeski with us here to give us perspective.

462
00:24:33,880 --> 00:24:35,960
Speaker 5: I want to get to the budget matters in a moment.

463
00:24:36,320 --> 00:24:39,159
Speaker 5: But we have markets on the move, there's no question

464
00:24:39,240 --> 00:24:39,600
Speaker 5: about that.

465
00:24:39,720 --> 00:24:42,200
Speaker 3: With the Vics out five big figures, we're dashing near

466
00:24:42,320 --> 00:24:46,760
Speaker 3: sixty fifty seven point three eight SPX down one hundred

467
00:24:46,800 --> 00:24:50,480
Speaker 3: and six points down, down eight hundred points on futures

468
00:24:50,880 --> 00:24:54,399
Speaker 3: the yield space, Paul out twelve basis points in the

469
00:24:54,440 --> 00:24:57,679
Speaker 3: ten year yield. I want to take a moment right now, Aaronie,

470
00:24:57,680 --> 00:25:00,240
Speaker 3: stay with us, don't run away. The most import orton

471
00:25:00,320 --> 00:25:04,280
Speaker 3: person in Bloomberg today is Liz Goldenberg. Liz Goldenberg ran

472
00:25:04,320 --> 00:25:06,960
Speaker 3: all of our bond coverage and once she threw one

473
00:25:07,000 --> 00:25:08,800
Speaker 3: of her Manola bloonnock shoes at me.

474
00:25:08,920 --> 00:25:11,600
Speaker 5: Oh boy, almost took an eye out. And Liz said,

475
00:25:11,640 --> 00:25:15,680
Speaker 5: Tom in crisis, yield doesn't matter. This is really important, folks,

476
00:25:15,720 --> 00:25:18,919
Speaker 5: and Ernie knows this from his work on the Left Coast.

477
00:25:19,440 --> 00:25:22,920
Speaker 5: It's real simple, fancy people in bow ties talk about yield.

478
00:25:23,119 --> 00:25:23,600
Speaker 2: The yield.

479
00:25:23,640 --> 00:25:26,040
Speaker 3: This the yield that at the end of the day,

480
00:25:26,160 --> 00:25:31,080
Speaker 3: a fixed income item is a bond, a bill, a note,

481
00:25:31,359 --> 00:25:35,520
Speaker 3: It's a price, and the right now the prices are declining.

482
00:25:35,760 --> 00:25:37,840
Speaker 3: That is the tension of the morning that we're trying

483
00:25:37,840 --> 00:25:41,919
Speaker 3: to encapsulate for you. Greg Peters with us in twelve minutes.

484
00:25:42,000 --> 00:25:44,760
Speaker 3: Michael McKee on the Fed in a bit as well,

485
00:25:45,119 --> 00:25:48,480
Speaker 3: earning Tedsky, let us go to what the yell budget lab.

486
00:25:48,320 --> 00:25:52,840
Speaker 5: Is acclaimed for. The president wants the free lunch of

487
00:25:52,920 --> 00:25:56,960
Speaker 5: his new globalization, we'll call it with a tax cut.

488
00:25:57,720 --> 00:26:00,679
Speaker 5: There's no one I've read who says this may make sense.

489
00:26:01,520 --> 00:26:04,760
Speaker 3: What is the what is the path the president's on

490
00:26:05,680 --> 00:26:07,840
Speaker 3: and what does that mean for our.

491
00:26:07,760 --> 00:26:09,520
Speaker 5: Listeners and viewers this morning.

492
00:26:10,960 --> 00:26:15,560
Speaker 9: Well, ostensibly he's using these tariffs to at least partially

493
00:26:15,600 --> 00:26:18,680
Speaker 9: and it's only going to be partially pay for his

494
00:26:18,720 --> 00:26:22,480
Speaker 9: tax cuts. So if you were going to score everything

495
00:26:22,520 --> 00:26:26,119
Speaker 9: that they've announced this year, like as its own bill,

496
00:26:27,520 --> 00:26:31,000
Speaker 9: CBO would probably find that it raises two point eight

497
00:26:31,080 --> 00:26:33,360
Speaker 9: trillion over ten years if it were to stay in effect.

498
00:26:34,359 --> 00:26:40,200
Speaker 9: That's roughly half the cost of permanently extending the twenty

499
00:26:40,240 --> 00:26:44,880
Speaker 9: seventeen tax cuts. So you know they've gotten halfway. Now.

500
00:26:44,920 --> 00:26:47,760
Speaker 9: Maybe they're only going to extend the tax cuts for

501
00:26:47,800 --> 00:26:51,880
Speaker 9: five years. Maybe they're going to use other baseline gimmicks

502
00:26:51,920 --> 00:26:53,720
Speaker 9: to make up for the rest of that half. Maybe

503
00:26:53,760 --> 00:26:57,480
Speaker 9: they're going to introduce other cuts like to medicaid or

504
00:26:57,560 --> 00:26:59,359
Speaker 9: food stamps to make up for the rest of it.

505
00:27:00,520 --> 00:27:04,840
Speaker 9: But they haven't fully paid for it yet. So Number one,

506
00:27:04,920 --> 00:27:07,880
Speaker 9: that's one reason to expect that there are more tariffs

507
00:27:07,880 --> 00:27:11,520
Speaker 9: coming is because literally they need more revenue than they've

508
00:27:11,920 --> 00:27:14,960
Speaker 9: already raised. The second thing to bear in mind is that,

509
00:27:15,040 --> 00:27:17,520
Speaker 9: of course terror fare or regressive tacks they pinch, they

510
00:27:17,560 --> 00:27:20,520
Speaker 9: pinch lower income families more than number income families, and

511
00:27:20,600 --> 00:27:23,320
Speaker 9: the benefits of what they're talking about in the tax

512
00:27:23,320 --> 00:27:25,960
Speaker 9: bill skew to I mean, they help everyone, but they

513
00:27:26,040 --> 00:27:28,399
Speaker 9: skew to upper income families. So this is kind of

514
00:27:28,440 --> 00:27:30,879
Speaker 9: a raw deal for a lower income fanies.

515
00:27:31,119 --> 00:27:33,439
Speaker 5: I got to let you go, Ernie, because you're driving

516
00:27:33,480 --> 00:27:34,240
Speaker 5: the market lower.

517
00:27:34,280 --> 00:27:35,520
Speaker 2: We just got to get them off there.

518
00:27:35,920 --> 00:27:38,560
Speaker 3: I can't say enough folks about the budget lab at

519
00:27:38,640 --> 00:27:43,840
Speaker 3: Yale University. Everyone Republican, conservative, whatever, Democrat, they're all talking

520
00:27:43,840 --> 00:27:46,159
Speaker 3: about the work of Martha Gimble and Erninge Tesky in

521
00:27:46,480 --> 00:27:50,640
Speaker 3: a wide body of academics really thinking about this moment

522
00:27:50,680 --> 00:27:54,280
Speaker 3: where in doctor Tedeski, thank you so much for joining Bloomberg.

523
00:28:00,200 --> 00:28:04,120
Speaker 1: This is the Bloomberg Surveillance Podcast. Listen live each weekday

524
00:28:04,160 --> 00:28:07,160
Speaker 1: starting at seven am Eastern on Apple Coplay and Android

525
00:28:07,200 --> 00:28:10,160
Speaker 1: Auto with the Bloomberg Business app. You can also watch

526
00:28:10,280 --> 00:28:13,199
Speaker 1: us live every weekday on YouTube and always on the

527
00:28:13,240 --> 00:28:14,320
Speaker 1: Bloomberg terminal.

528
00:28:14,400 --> 00:28:16,920
Speaker 3: Right now, we're going to go to Amanda Agatti Aeronworld's

529
00:28:17,280 --> 00:28:20,000
Speaker 3: set up on Oppenheimer as well, John Turk, I'll give

530
00:28:20,000 --> 00:28:22,760
Speaker 3: you an important update here in a bit. Amanda Gotti

531
00:28:23,040 --> 00:28:26,800
Speaker 3: is with asset allocation at P ANDC. Hasn't slept in

532
00:28:26,840 --> 00:28:30,800
Speaker 3: three days, and we welcome her this morning. Amanda, how

533
00:28:30,840 --> 00:28:33,399
Speaker 3: have you changed your asset allocation?

534
00:28:35,240 --> 00:28:37,520
Speaker 11: It's great to be with you, guys, thanks for having me.

535
00:28:37,720 --> 00:28:42,360
Speaker 11: We're not making grand or sweeping allocation changes in this environment.

536
00:28:42,640 --> 00:28:46,400
Speaker 11: Tweaks at the margin are the approach in this environment,

537
00:28:46,480 --> 00:28:50,160
Speaker 11: and we're really trying to lean into the corrections that

538
00:28:50,200 --> 00:28:52,840
Speaker 11: we're seeing in both the equity and the fixed income

539
00:28:52,880 --> 00:28:56,480
Speaker 11: markets to try and reposition portfolios. And we really haven't

540
00:28:56,480 --> 00:28:59,440
Speaker 11: had an opportunity to do this in a while. So

541
00:29:00,200 --> 00:29:02,880
Speaker 11: US over international is still very much the place to

542
00:29:02,880 --> 00:29:06,560
Speaker 11: be larger over smaller and quality on the equity side

543
00:29:06,640 --> 00:29:08,520
Speaker 11: or areas that we're tweaking at the margin.

544
00:29:08,520 --> 00:29:09,960
Speaker 2: Pere Paul wants to jump on that.

545
00:29:10,080 --> 00:29:13,960
Speaker 3: I can just see why do you stay all American

546
00:29:14,880 --> 00:29:18,800
Speaker 3: given what we get from sixteen hundred Pennsylvania Avenue.

547
00:29:19,040 --> 00:29:23,840
Speaker 11: Well, we're not all American. We're leaning mostly American. We

548
00:29:23,880 --> 00:29:26,640
Speaker 11: have a home country bias for sure, but we do

549
00:29:26,680 --> 00:29:30,960
Speaker 11: have international equity exposure, both developed and emerging. We just

550
00:29:31,080 --> 00:29:35,480
Speaker 11: have less, we're underweight relative to our benchmarks, so we're

551
00:29:35,480 --> 00:29:39,360
Speaker 11: not betting against international markets here. But I think in

552
00:29:39,400 --> 00:29:42,640
Speaker 11: the face of this really unprecedented tariff and trade war

553
00:29:42,960 --> 00:29:46,200
Speaker 11: that we have underway here, you know, the rally that

554
00:29:46,320 --> 00:29:48,800
Speaker 11: international equities sought at the beginning of the year is

555
00:29:48,840 --> 00:29:51,920
Speaker 11: fading fast and for good reason, and so we want

556
00:29:51,920 --> 00:29:54,240
Speaker 11: to have a little exposure, but we want to be

557
00:29:54,280 --> 00:29:57,120
Speaker 11: really thoughtful about how much, given there's still so much

558
00:29:57,160 --> 00:29:59,440
Speaker 11: we don't know about the path forward for tariffs.

559
00:30:00,080 --> 00:30:03,520
Speaker 6: Amanda, we have a VIX here north of fifty right now.

560
00:30:03,840 --> 00:30:04,760
Speaker 6: What does that tell you?

561
00:30:06,480 --> 00:30:09,880
Speaker 11: It tells me you don't be a hero. You can

562
00:30:09,960 --> 00:30:12,400
Speaker 11: use that as a hashtag don't be a hero quote

563
00:30:12,400 --> 00:30:15,320
Speaker 11: for the day. Then that goes back to this idea

564
00:30:15,360 --> 00:30:18,440
Speaker 11: that we can't make big, grand or sweeping calls in

565
00:30:18,520 --> 00:30:23,120
Speaker 11: this environment. There's just too much volatility. And as I

566
00:30:23,160 --> 00:30:26,240
Speaker 11: said earlier, and I think the earlier guest also mentioned,

567
00:30:26,280 --> 00:30:29,640
Speaker 11: we're in a crisis of confidence. That's a reflection of

568
00:30:29,680 --> 00:30:32,520
Speaker 11: the volatility that we're seeing. And so you don't have

569
00:30:32,560 --> 00:30:34,440
Speaker 11: to sort of stay the course and sort of look

570
00:30:34,560 --> 00:30:38,040
Speaker 11: past a lot of this noise. The VIX is going

571
00:30:38,080 --> 00:30:41,080
Speaker 11: to settle down, but We're in a void here of

572
00:30:41,200 --> 00:30:44,520
Speaker 11: data points and headlines that have real meat to them

573
00:30:44,560 --> 00:30:47,240
Speaker 11: and frankly earning season, and so until we can get

574
00:30:47,480 --> 00:30:50,800
Speaker 11: a little bit more solid footing from some of these fundamentals,

575
00:30:50,840 --> 00:30:53,440
Speaker 11: I think this is just the volatility we have to accept.

576
00:30:54,480 --> 00:30:55,680
Speaker 2: Oh go ahead, Paul, please please?

577
00:30:55,760 --> 00:30:56,959
Speaker 6: What do you expect from earnings here?

578
00:30:57,000 --> 00:30:57,400
Speaker 2: Amanda?

579
00:30:57,440 --> 00:30:58,920
Speaker 3: I mean not the green on the screen now was

580
00:30:58,960 --> 00:31:02,520
Speaker 3: distracted exactly I'm getting getting my face from the grinding

581
00:31:03,280 --> 00:31:04,040
Speaker 3: crisis over.

582
00:31:04,440 --> 00:31:06,640
Speaker 6: Exactly what do you expect from earnings this season?

583
00:31:06,640 --> 00:31:07,000
Speaker 5: Amanda?

584
00:31:07,160 --> 00:31:10,200
Speaker 6: I mean, I'd be shocked if many companies were able

585
00:31:10,240 --> 00:31:12,600
Speaker 6: to give you pretty decent guidance, or any guidance.

586
00:31:12,600 --> 00:31:14,160
Speaker 12: I guess yeah.

587
00:31:14,200 --> 00:31:16,160
Speaker 11: I think that that's going to be the key question.

588
00:31:16,240 --> 00:31:18,640
Speaker 11: Of course, Delta this morning, first out of the gate,

589
00:31:18,640 --> 00:31:21,200
Speaker 11: pulls the plug on guidance. So is that the ripple

590
00:31:21,240 --> 00:31:25,120
Speaker 11: effect for what all of Q one earning season ultimately

591
00:31:25,160 --> 00:31:28,080
Speaker 11: looks like. I think it's it's tricky because I bet

592
00:31:28,120 --> 00:31:31,600
Speaker 11: you the underlying fundamentals aka the results for Q one

593
00:31:31,680 --> 00:31:35,520
Speaker 11: earning season actually come in better than expected. We had

594
00:31:35,520 --> 00:31:39,880
Speaker 11: the worst revisionary period since early twenty twenty going into

595
00:31:40,000 --> 00:31:43,440
Speaker 11: earning season, so the bar is set incredibly low. But

596
00:31:43,520 --> 00:31:47,680
Speaker 11: it's sort of like nothing else matters as it relates

597
00:31:47,720 --> 00:31:51,520
Speaker 11: to the path forward except tariff's, the trade war and guidance.

598
00:31:51,560 --> 00:31:53,840
Speaker 11: And so I think investors are going to be much

599
00:31:53,880 --> 00:31:57,240
Speaker 11: more focused on how many guidance forecasts get pulled as

600
00:31:57,240 --> 00:32:00,720
Speaker 11: opposed to the underlying results, which is, you know, frustrating.

601
00:32:00,800 --> 00:32:02,560
Speaker 12: But that's where we are, Amanda.

602
00:32:02,600 --> 00:32:05,560
Speaker 3: One more question here, and you know that people frame

603
00:32:05,600 --> 00:32:06,960
Speaker 3: out the analog looking back.

604
00:32:07,040 --> 00:32:07,880
Speaker 2: I am in the camp.

605
00:32:07,920 --> 00:32:10,440
Speaker 5: I've said this, folks, where other than the.

606
00:32:11,120 --> 00:32:12,920
Speaker 3: What we see, I got to be careful here. We'll

607
00:32:13,000 --> 00:32:15,800
Speaker 3: help me get the surveillance quirk out what we see

608
00:32:15,800 --> 00:32:18,600
Speaker 3: at the White House. To me, it's got a huge

609
00:32:18,720 --> 00:32:21,480
Speaker 3: nineteen ninety eight flavor to it. I could be wrong

610
00:32:21,520 --> 00:32:23,560
Speaker 3: in that, don't don't. Don't bet the bank on that.

611
00:32:24,040 --> 00:32:26,400
Speaker 3: But Amanda, do you have an analog to the past here?

612
00:32:28,360 --> 00:32:33,200
Speaker 11: I would say no, might drop no where it seems

613
00:32:33,200 --> 00:32:35,400
Speaker 11: I was saying to someone earlier today, it seems like

614
00:32:35,440 --> 00:32:38,640
Speaker 11: we continue to throw the playbook and the textbook out

615
00:32:38,760 --> 00:32:42,000
Speaker 11: over and over and over again, and it's we we're

616
00:32:42,040 --> 00:32:46,520
Speaker 11: just finding ourselves an unprecedented territory here. And so I

617
00:32:46,880 --> 00:32:49,240
Speaker 11: don't I don't think the history is very helpful in

618
00:32:49,360 --> 00:32:51,160
Speaker 11: terms of a guide for what comes next.

619
00:32:51,400 --> 00:32:53,960
Speaker 3: Don't know if President Trump's listening at ninety nine ONEFM

620
00:32:54,160 --> 00:32:57,320
Speaker 3: Washington or if he's on Andreid Auto and the golf cart.

621
00:32:57,400 --> 00:33:03,120
Speaker 3: The President says, quote all caps, this a great time

622
00:33:03,320 --> 00:33:03,760
Speaker 3: to buy.

623
00:33:04,280 --> 00:33:08,760
Speaker 6: Okay, there you go, there it is, Amanda. What does

624
00:33:08,840 --> 00:33:11,240
Speaker 6: fixing come do in a portfolio these days? Have you,

625
00:33:11,240 --> 00:33:15,160
Speaker 6: guys changed your allocation to fixed income? You hide out

626
00:33:15,200 --> 00:33:18,120
Speaker 6: in some short term treasuries? What have you done there?

627
00:33:18,920 --> 00:33:23,160
Speaker 11: Well, there's a few things that we're contemplating adjusting again

628
00:33:23,240 --> 00:33:26,080
Speaker 11: at the margin, and in some portfolios we have high

629
00:33:26,160 --> 00:33:29,440
Speaker 11: yield below investment grade credit exposure and some emerging market

630
00:33:29,560 --> 00:33:32,600
Speaker 11: that it's dollar denominated, so there's a little bit of

631
00:33:32,640 --> 00:33:35,760
Speaker 11: a hedge there, but we are watching that very carefully.

632
00:33:35,800 --> 00:33:38,400
Speaker 11: Given just the action that's been happening the last couple

633
00:33:38,440 --> 00:33:41,719
Speaker 11: of days, we may want to start pulling back on that.

634
00:33:41,840 --> 00:33:45,320
Speaker 11: But the belly of the curve still looks pretty attractive

635
00:33:45,320 --> 00:33:48,480
Speaker 11: at five to seven year range and so not going

636
00:33:48,520 --> 00:33:51,719
Speaker 11: really short, not going really long again, with the volatility

637
00:33:51,760 --> 00:33:54,200
Speaker 11: at both ends of the curve, the sweet spot still

638
00:33:54,200 --> 00:33:56,240
Speaker 11: feels like the five to seven year range, So we

639
00:33:56,240 --> 00:33:58,040
Speaker 11: think there's some relative attractiveness.

640
00:33:58,040 --> 00:34:01,680
Speaker 12: There is there any attractiveness to go up one hundred

641
00:34:01,880 --> 00:34:05,120
Speaker 12: and two dollars an ounce We're almost back to thirty

642
00:34:05,160 --> 00:34:08,440
Speaker 12: one hundred. I mean, there's some huge elasticities out on

643
00:34:08,480 --> 00:34:10,400
Speaker 12: the Bloomberg screen right now.

644
00:34:10,800 --> 00:34:15,680
Speaker 5: Is gold a legitimate investment within a conservative PNC bank?

645
00:34:16,560 --> 00:34:19,799
Speaker 11: We tend not to be buyers of gold in and

646
00:34:19,800 --> 00:34:22,919
Speaker 11: out of cycles. You know, I don't know that it's

647
00:34:23,120 --> 00:34:26,480
Speaker 11: really that much of an investment thesis kind of story. So,

648
00:34:26,800 --> 00:34:30,120
Speaker 11: particularly as you're quoting sort of the levels here, I'm

649
00:34:30,120 --> 00:34:33,359
Speaker 11: not sure that there's that much further to run in

650
00:34:33,440 --> 00:34:36,760
Speaker 11: terms of gold prices here at sort of top hashtag top,

651
00:34:37,600 --> 00:34:40,520
Speaker 11: and so from a thesis perspective, it's really much more

652
00:34:40,560 --> 00:34:42,799
Speaker 11: of a store of value story. And we think there's

653
00:34:42,840 --> 00:34:46,040
Speaker 11: a lot more interesting opportunities in the equity market, even

654
00:34:46,080 --> 00:34:48,560
Speaker 11: though there's a lot of purple haze uncertainty right now.

655
00:34:48,920 --> 00:34:49,319
Speaker 2: There is.

656
00:34:50,480 --> 00:34:52,800
Speaker 3: Thank you so much, greatly appreciate it. Amanda go Goti

657
00:34:52,840 --> 00:34:54,400
Speaker 3: WITHPNC Financial.

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Speaker 1: This is the Bloomberg Surveillance Podcast, available on Apple, Spotify

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Speaker 1: and anywhere else you get your podcasts. Listen live each

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Speaker 1: weekday seven to ten am Eastern on Bloomberg dot com,

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Speaker 1: the iHeartRadio app tune In, and the Bloomberg Business app.

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Speaker 1: You can also watch us live every weekday on YouTube

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Speaker 1: and always on the Bloomberg terminal