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Speaker 2: Well, I'm a going far away.
Speaker 3: I got on a plane and I was sitting up
Speaker 3: in the fancy seats and Christine Legarde got on a plane.
Speaker 2: We sat down one row ahead of me. We said hello, and.
Speaker 3: Sheep dived into the newspapers. Is the French banks blew up?
Speaker 3: It was a day where basically European banking collapsed. We
Speaker 3: start straw with the humility and history of BNP Perry
Speaker 3: By of Paris. There, Victor Hortyort joins us this morning
Speaker 3: and derivative and bond strategies. Victor, we are so honored
Speaker 3: to have you here with the French banking tradition. What
Speaker 3: does your measurement of liquidity look like in the system?
Speaker 3: Is the plumbing working in our financial system this morning?
Speaker 2: So far?
Speaker 4: I think it is in the corporate credit world that
Speaker 4: I live in. One good measure of this is what
Speaker 4: people are prepared to pay for the spread between derivatives
Speaker 4: and corporate bonds, and typically when you have liquidity shortage,
Speaker 4: people are forced to sell their bonds. That's not really
Speaker 4: been the story so far.
Speaker 2: Tom.
Speaker 4: You know, we've had a material move wider in spreads
Speaker 4: over the last few weeks, but it's been mostly driven
Speaker 4: by hedges derivatives. It's almost like the situation where, you know,
Speaker 4: you introduce a lot of uncertainty, people reach for the hedges,
Speaker 4: but they don't feel so negative yet that they need
Speaker 4: to sell their bond portfolios. And that's kind of where
Speaker 4: we are right now.
Speaker 3: The tension in New York this morning is percolating that
Speaker 3: we're not there yet, folks. For me, it's four standard deviations.
Speaker 3: We're not there, but that we're nearing a point where
Speaker 3: the Fed has to do something. They did that in
Speaker 3: a medical crisis, the pandemic it BMP perrybod. Do you
Speaker 3: have discussions that were at a point where any given
Speaker 3: central bank, including Jerome Powell, will have to step in
Speaker 3: to write the chaos.
Speaker 4: Well, first of all, I don't think that we are
Speaker 4: actually anywhere close to the conditions where that is that's
Speaker 4: on the cards. Even primary corporate bond markets reopened, although
Speaker 4: it was modest in the US yesterday, so the market's
Speaker 4: are obviously not shut. Then to your point, what do
Speaker 4: we think about the central banks? You're probably more likely
Speaker 4: to see the EASYB being proactive here, and the FED
Speaker 4: it used to be, has actually much easier job here
Speaker 4: given the lack of inflationary pressures.
Speaker 3: Brilliant, brilliant Paul headline out here, this is what's moved
Speaker 3: the market now now at one point seven percent.
Speaker 5: I forgot my glasses, so politic possible the wrong.
Speaker 3: Let me know, you know, it's like it's like I'm
Speaker 3: blind on the golf course, like Damian sass Hour. Here's
Speaker 3: the headline, and it has directly to do with Duke
Speaker 3: University merch China raises tariffs US goods to eighty four percent.
Speaker 5: Yep, So that Duke sweatshirt from the Champion, the reverse
Speaker 5: weave sweatshirt, I guess, goes up eighty four percent.
Speaker 6: I mean, this is it continues, Tom, this tit for
Speaker 6: tat for on the tear front. This is kind of
Speaker 6: what we signed up for here. So Victor, you know,
Speaker 6: in the credit markets, you know, where where are we
Speaker 6: in terms of assessing risk? What is the bond market,
Speaker 6: the credit market telling us about recession risk in the
Speaker 6: US economy.
Speaker 4: Well, spreads are substantially wider, but we're probably nowhere close
Speaker 4: to actually pricing in a recession. You know, if you
Speaker 4: look at US investment grades spreads on your Bloomberg index,
Speaker 4: we're around one hundred and twenty basis points. That usually
Speaker 4: gets to one hundred and forty one hundred and fifty
Speaker 4: even outside of recessions. If you're going to enter a recession,
Speaker 4: you're talking about two hundred basis points. So the credit
Speaker 4: market is under pressure, but it's still nowhere close to
Speaker 4: discounting a proper recessionary environment. It's actually only over the
Speaker 4: last couple of days, for instance, that the markets began
Speaker 4: switching focus from pure tariff concerns like auto's, like you
Speaker 4: mentioned pharmaceuticals earlier, and started to focus on the real cyclicals,
Speaker 4: including financials for instance. And cyclicals have started to underperform
Speaker 4: only on the last couple of days.
Speaker 6: Victor, we're going to see vulnerability in the credit markets.
Speaker 6: Where do you think we'll see it first? We'll be
Speaker 6: in a short term paper side or be in longer
Speaker 6: term issuance. If we do see some pain where would
Speaker 6: you see it first.
Speaker 4: So the one thing that's different today compared to let's
Speaker 4: say twenty twenty two, which was the last time we
Speaker 4: had volatility and spread winding, is on the borer side.
Speaker 4: So back then, HIEL companies had taken advantage of the
Speaker 4: easy funding conditions during the COVID stimulus and extended their
Speaker 4: born maturity profiles. This time around they have a little bit. Lastly, Whey,
Speaker 4: the born maturity walls are probably three times what they
Speaker 4: were back then. So my guess is that we're stay
Speaker 4: here for another few months, it's going to be the
Speaker 4: leveraged finance space that.
Speaker 2: Starts to look interesting.
Speaker 4: That's not the story today, but it will get there
Speaker 4: if we stay here.
Speaker 2: Don't be a stranger. Thank you so much.
Speaker 3: I'd like to do the interview in French, but that
Speaker 3: brilliant Victor or thank you so much with BMB bar
Speaker 3: about Paris out of London this morning to get us started.
Speaker 1: This is the Bloomberg Surveillance Podcast. Listen live each weekday
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Speaker 2: She does a.
Speaker 3: Wonderful synthesis of the moment. Many people do, but nobody
Speaker 3: does it better.
Speaker 2: Than Constance Hunter.
Speaker 3: She's the EIU and of course with macro policy perspective
Speaker 3: as an advisor there as well.
Speaker 5: What's the one chart for you, Constance Hunter right now that.
Speaker 7: Speaks It's the chart of uncertainty. And that chart takes
Speaker 7: into account.
Speaker 5: Well uncertainty at JP Morgan what's.
Speaker 7: Uncertain So it's it's a Nick bloom out of Stanford,
Speaker 7: and he uses EIU data to chart the word uncertainty
Speaker 7: in our reports. Plus he looks at changes in the
Speaker 7: tax code that are coming up. Plus he looks at
Speaker 7: the divergence of economic forecasts. And when you add all
Speaker 7: those three things together, we are almost at the COVID
Speaker 7: level of uncertainty.
Speaker 8: But what we know.
Speaker 7: Going back to the eighties is that this presage's recessions.
Speaker 7: You know that those that recession data was backdated, right
Speaker 7: you you look at the you choose a recession ex post.
Speaker 7: We know that the GDP data ends up getting revised
Speaker 7: down usually if there ends up being a recession. And
Speaker 7: so when we look at this chart. We know that
Speaker 7: there are certain behaviors that companies and households engage in
Speaker 7: when there is this level of uncertainty, and one of
Speaker 7: them is they do not invest.
Speaker 6: So are you forecasting a recession?
Speaker 7: We are forecasting recession, all right, talk to us about that.
Speaker 8: Yeah.
Speaker 7: Well, so we were in the process of doing our
Speaker 7: forecast last night as we were sending you our notes,
Speaker 7: and so before the latest that's where you were.
Speaker 5: I drove by Central Park, so the constance right, doing
Speaker 5: a recession forecast.
Speaker 7: Okay, yeah, I had to have a glass of seltzer,
Speaker 7: not a glass of wine. Yeah. So, I mean we're
Speaker 7: I mean, I think that the story is and everybody's
Speaker 7: going to be in this boat. We're just going to
Speaker 7: have to keep revising down right. So right now, as
Speaker 7: of last night, we were at down zero point one
Speaker 7: percent for the year. I think it's going to end
Speaker 7: up being lower than that. You don't have this kind
Speaker 7: of dislocation and then just bounce back right away, right.
Speaker 7: And the thing that we were arguing is even if
Speaker 7: the tariffs get rolled back, which is what people were
Speaker 7: talking about a couple of weeks ago, you still have
Speaker 7: that uncertainty level very very high. Now of course it's
Speaker 7: gone even higher. And what I said at a dinner
Speaker 7: party this weekend, I was talking about how I had
Speaker 7: written a note to everybody on my team and listen,
Speaker 7: I've lived through a few crises. My first one was
Speaker 7: the tequila crisis back in the nineties. And there's always
Speaker 7: something that ends up being worse than you could imagine, right,
Speaker 7: And so there's some opacity somewhere that we're not going
Speaker 7: to see, some connectivity somewhere. And someone asked me a
Speaker 7: dinner party, so when you wrote this note, did you
Speaker 7: tell them what do you think? Is this going to
Speaker 7: be the worst of your career? And I said, yeah,
Speaker 7: very well, could be, because it's completely self inflicted.
Speaker 3: Right, Constant Hunner with us. We're going to continue with
Speaker 3: you're here and a good morning.
Speaker 2: We say good morning to all of you.
Speaker 3: With the futures negative one on the three, we're out
Speaker 3: five figures on evics fifty seven point two three. I'm
Speaker 3: not going to mince words an ugly tape and real
Speaker 3: talk about to be polite financial dislocation out there, Constants.
Speaker 3: One of the great things you do, and you've done
Speaker 3: this for years, is synthesize this into what central banks
Speaker 3: will do.
Speaker 2: We had a gentleman from B and.
Speaker 3: B, Perry Boss, say, actually, the ECB has more degrees
Speaker 3: of freedom hereror to work than a Trump affected Jerome Powell.
Speaker 3: How constrained is the FED right now to act within
Speaker 3: crisis because of the politics.
Speaker 7: So it's not so much the politics itself, but the
Speaker 7: political policy of raising tariffs, which we know is going
Speaker 7: to have an immediate inflationary impulse. And of course the
Speaker 7: question is when does that get overwhelmed by the negative
Speaker 7: economic impulse that then reduces to hand and pushes down prices.
Speaker 7: If we start to get market dislocation, if treasuring markets
Speaker 7: start not to clear, the FED is going to step in, right,
Speaker 7: I mean, so we're in a different as we wake
Speaker 7: up this morning, we're in a different realm than we
Speaker 7: were yesterday. Yesterday I would have told you the FED
Speaker 7: is going to be fashionably late because they don't want
Speaker 7: to repeat the problems of the COVID. Right, They're going
Speaker 7: to be a little bit late, and they know they
Speaker 7: have enough firepower. But if we're getting into a situation
Speaker 7: where we have breakdowns in capital markets and market's not clearing,
Speaker 7: then they're going to have to step in sooner from
Speaker 7: at least a market intervention perspective.
Speaker 5: Yeah, I mean, I mean Jamie Diamond's on with Maria
Speaker 5: right now. Paul, there's the headline economists or right to
Speaker 5: say we're headed for a slowdown. Jamie Diamond didn't sleep
Speaker 5: last night. I mean the major banks, Paul, are doing
Speaker 5: risk management now against all this contagion, including speculation about
Speaker 5: losses at hedge funds.
Speaker 2: Inflation.
Speaker 6: What's your inflation call here? Are we taking that up?
Speaker 7: Yes, so we're at three point six percent for the
Speaker 7: full year, but.
Speaker 3: What we were before.
Speaker 7: We were at two point five. But what we've cautioned
Speaker 7: clients is that that doesn't mean there's not going to
Speaker 7: be a couple months in there where we see a
Speaker 7: prints above five percent.
Speaker 9: Right.
Speaker 7: Our expectation is inflation spikes up and then it comes down.
Speaker 7: But again, this demand destruction is very significant, and the
Speaker 7: supply effect that you would expect to have a little
Speaker 7: bit of a lag, The lags are going away. China
Speaker 7: said they're not importing anymore LNG. They're just not importing
Speaker 7: any more of it. Right, So everything is happening in
Speaker 7: a much more compressed fashion.
Speaker 6: So where do we go from here? What are the
Speaker 6: next steps that you're looking for? Just from an economic
Speaker 6: outlook perspective, is it get starting to see it in
Speaker 6: the data, because I guess if you look at the
Speaker 6: you miss sentiment data, we're already seeing it, but we
Speaker 6: haven't seen in some of the heart that data that
Speaker 6: the FED likes.
Speaker 7: Yeah, I mean, obviously they're going to be watching. I
Speaker 7: think the next big piece of data that will contain
Speaker 7: information about this will be the April jobs data, Okay,
Speaker 7: and we would expect that to be softer. And then
Speaker 7: you've got to look under the hood, right, what's the
Speaker 7: diffusion index? How many firms are hiring? Maybe we get
Speaker 7: a positive print of one twenty or something, but you
Speaker 7: know the diffusion index falls significantly or ours worked false.
Speaker 5: What's your model unemployment rate out?
Speaker 3: I would suggest maybe that's the thing that moves this instration.
Speaker 3: Oh off, there are you modeling a five figure on unemployment?
Speaker 7: We were modeling four point seven. But I think we
Speaker 7: are as we as I sit here, we are remodeling everything,
Speaker 7: and I think five is absolutely not out of the question.
Speaker 3: Cassus Hunter, thank you so much, greatly appreciate with are
Speaker 3: you this morning?
Speaker 1: You're listening to the Bloomberg Surveillance Podcast. Catch US live
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Speaker 2: Greg p is it pigeum.
Speaker 3: It's very important to speak, I think today, on the
Speaker 3: management side of things, of running portfolios, but far more.
Speaker 3: He combines that with tours of duty at Salomon Smith Barney.
Speaker 3: This is ancient Columbus just left yep, Salom and Smith
Speaker 3: Barney and the US Treasury, and of course iconic work
Speaker 3: when I first heard of him at Morgan Stanley as well.
Speaker 3: Greg Peters compare this moment to the other analogs out there.
Speaker 5: Is it a nineteen ninety eight reducts.
Speaker 8: No, I think it's very different this time.
Speaker 10: Tom.
Speaker 8: You touched on it with the sofa spread. I know
Speaker 8: that's kind of an in the weeds type of measure.
Speaker 8: But I think what you're seeing here, and you're seeing
Speaker 8: it in kind of the correlation and the price action
Speaker 8: is risk premium being put into.
Speaker 10: The entire US rate curve.
Speaker 8: And you know, you look at the price action over
Speaker 8: the past few days.
Speaker 10: You know stocks have you.
Speaker 8: Know, sold off and you know, you haven't really seen
Speaker 8: the bond market react or at least react, uh, you know,
Speaker 8: as a kind of a defense mechanism. So you know,
Speaker 8: the markets are very nervous on the bond side around
Speaker 8: debt and deficits, foreign buyers stepping away in a meaningful fashion. Uh.
Speaker 8: And there's a lot of technical underwater, uh, you know, unlined.
Speaker 8: So this is a very sloppy, ugly bond market right now.
Speaker 3: Within it is the question of liquidity. You've got Trip,
Speaker 3: You've got Peters, you got Percelli when he decides to
Speaker 3: show up for work within the holistic page in view,
Speaker 3: are we edging towards a liquidity freeze up where the
Speaker 3: Fed needs to step in.
Speaker 8: I think at some point that is almost inevitable. And
Speaker 8: I don't want to be a doom's sayer, but I
Speaker 8: do think it is inevitable. At the same time, you know,
Speaker 8: things have actually been reasonably okay and orderly, but there's
Speaker 8: only so much capacity to absorb.
Speaker 5: Uh.
Speaker 8: You know, treasuries and the dealer ballance sheets just don't
Speaker 8: have enough of that capacity. So I think it's inevitable.
Speaker 8: But but we're not there now. You know, this is
Speaker 8: an incredibly important week. Of course, we had a three
Speaker 8: year auction yesterday, we have tens and thirties today. That's
Speaker 8: that's a lot of duration entering the system. And so
Speaker 8: we'll have more you know, informational content to see how
Speaker 8: you know that that notional kind of gets absorbed into
Speaker 8: the system.
Speaker 6: Greg you mentioned kind of the weaker than expected auction yesterday.
Speaker 6: We have more duration today from the treasury is an issue?
Speaker 6: How important if we have another week showing today, what
Speaker 6: would that tell you?
Speaker 8: Oh well, it means that there's just somewhat of a
Speaker 8: buyer strike, right and so and so our read on
Speaker 8: yesterday's auction is, you know not, you know, not a
Speaker 8: lot really came from it. From informational content standpoint, I
Speaker 8: think today is the important day.
Speaker 10: Watch watch the tail, watch the bid to cover.
Speaker 8: You know, it's important to note that, you know, we
Speaker 8: can't have a failed auctions, right, the dealers must take
Speaker 8: it down, but that doesn't mean it can't.
Speaker 10: Trade you know, in a sloppy, ugly fashion.
Speaker 8: So there's a lot of duration hitting the market at
Speaker 8: a time when there is a you know, massive selling
Speaker 8: of you know, treasuries across the board.
Speaker 10: So it's it's going to be very very interesting, and.
Speaker 8: The volatility is really extreme. I think it's important just
Speaker 8: to kind of note that the ten year has traversed
Speaker 8: like almost a sixty basis point range in just a
Speaker 8: few days. Talk about standard deviation moves, Tom, that's uh uh,
Speaker 8: you know, that's just eye popping, Paul.
Speaker 3: I've got since April four the ten year, and nobody
Speaker 3: ever quotes price except Liz Goldenberg. See the scar here,
Speaker 3: Sure that's a that's a Manola blanocute. She got so
Speaker 3: angry at me, she threw the shoe at me. It
Speaker 3: bounce off the terminal, hit me in the face. The
Speaker 3: price of the ten years down three point four to
Speaker 3: seven percent in one two three days. That annulyzes out
Speaker 3: to a ninety two per year long boy, sounds like.
Speaker 2: A little bit hyperbolic.
Speaker 6: Therefore, you know, exactly Greg, what who's been selling here
Speaker 6: the last several days.
Speaker 8: Well, there's been you know, a few factions. There's been
Speaker 8: lots of talk around foreign selling. Well we'll know that
Speaker 8: for sure, you know when the data are released. But
Speaker 8: that's you know, a a a clear conversation in the marketplace.
Speaker 8: But you're seeing a lot of kind of levered onlines.
Speaker 8: There was a very popular basis trade that you know,
Speaker 8: been talked about a lot, you know, over the past
Speaker 8: couple of years, but you know, kind of entering this year,
Speaker 8: there was a belief that you know SLR type of
Speaker 8: relief would you know come on board. And there was
Speaker 8: a loading up on that type of investment, which is
Speaker 8: you know, long treasury short futures. Uh. And the stopouts
Speaker 8: and the unwindes are you know, pretty substantial. So there's
Speaker 8: this kind of broad based selling. I'd say, there's a uh,
Speaker 8: you know, a raising of dollars and you know, exiting
Speaker 8: you know, the US bond market. I think it's also
Speaker 8: important to note that, uh, you know, trading partners, you know,
Speaker 8: if their trading volumes are going down or going down
Speaker 8: to zero, the the need to hold US treasuries.
Speaker 10: Uh just becomes a lot less.
Speaker 8: So you know, that's just a natural byproduct of you know,
Speaker 8: trying to reduce trade, right and and that's an unintended
Speaker 8: consequence that you know, I don't think the administration really
Speaker 8: kind of thought through.
Speaker 3: Greg Peters, thank you so much about eight more questions,
Speaker 3: but we can't get there this morning. Mister Peters, of course,
Speaker 3: with his work at Morgan Stanley and Salomon Brothers.
Speaker 2: He's with pgum a frous the hood.
Speaker 1: This is the Bloomberg Surveillance Podcast. Listen live each weekday
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Speaker 2: This is fun, folks.
Speaker 3: In the jargon across the pond is from London to
Speaker 3: New York. Out on the left coast across the pond
Speaker 3: is San Francisco.
Speaker 2: And the answers Ernie T. Todesky did Chad Jones did.
Speaker 3: This too, and I think in the case of Ernie,
Speaker 3: he went from Stanford to Berkeley, ben which is so
Speaker 3: I mean, there's no international comparison to this outrage joining
Speaker 3: us now from Yale with the budget lab is Ernie Tdesky,
Speaker 3: who did? What was it like going from Stanford to Berkeley?
Speaker 2: Ernie?
Speaker 5: What did did people like not talk to you for
Speaker 5: a year?
Speaker 2: They did?
Speaker 9: They didn't talk to me for a year, And I
Speaker 9: didn't care because I knew what a real college town
Speaker 9: was like. When I finally went to Berkeley, I have
Speaker 9: to say, what is it.
Speaker 3: Like going down the hallway and seeing the plaque of
Speaker 3: like DeLong, Ike and Green in the rest the criminals
Speaker 3: out there.
Speaker 5: I mean, it must have been. It must have been
Speaker 5: just a colectic as all get out.
Speaker 9: I took Brad Delong's seminar on economic history and it
Speaker 9: was my favorite class. Bar nun at Berkeley.
Speaker 3: I've heard that you have a character such an honor
Speaker 3: to do some panels with him over the years, and
Speaker 3: he's been a huge contribution to American economics with Brad
Speaker 3: Delong's study of history. Where are we right now, doctor Tedesky?
Speaker 5: Where we are right now?
Speaker 9: I mean we're at a very uncertain point right now.
Speaker 9: You know, with these retaliatory tariffs that we the increase
Speaker 9: in the China tariffs that we announced, and then the
Speaker 9: retaliation from China. So we're at a effective tariff rate
Speaker 9: now of everything announced in twenty twenty five, of twenty
Speaker 9: four percentage points, we've added twenty four percentage points to
Speaker 9: our effective tariff rate. So that brings us to the
Speaker 9: highest effective tariff rate since nineteen o three as of
Speaker 9: today for the average family, that's forty six hundred dollars
Speaker 9: in cost when you add in the extra fifty percent
Speaker 9: on China that we just announced, So that's another two
Speaker 9: point eight percent on the PCE price level. So that's
Speaker 9: you know, like Sarah was talking about before, like on
Speaker 9: the one hand, the Fed is going to try to
Speaker 9: look through that. I mean, on the other hand, that's
Speaker 9: going to cause economic weakness that is going to you know,
Speaker 9: pressure the FED one way or the other to move
Speaker 9: in some way.
Speaker 3: I think Ernie Toeski with us and I didn't interview him,
Speaker 3: introduce him properly. The budget lab at eal and I
Speaker 3: will not mince words. It's what everybody looks at early.
Speaker 2: In the morning.
Speaker 3: The work of Martha Gimble, Ernie Tedesky and the crew
Speaker 3: up there's just been absolutely superb on traditional budget analysis,
Speaker 3: but much more.
Speaker 6: Paul Sweeney, Ernie is your working assumption that globalization economic
Speaker 6: globalization is dead.
Speaker 9: It's it's dying a slow death, maybe less slow than
Speaker 9: I had thought twenty four hours ago. Yeah, you know,
Speaker 9: I think that the dynamics now are going to start
Speaker 9: out across the world. Maybe anti American, counter American might
Speaker 9: be a better word for it, with this trade war
Speaker 9: and response to America. But look, you can even see
Speaker 9: the politics seep into places like Canada, places like Europe.
Speaker 9: I think that this is fueling broader populist anti trade
Speaker 9: sentiment that we all know was already there and already
Speaker 9: on the rise, and I think that this just punctuates it.
Speaker 2: And on the.
Speaker 6: Flip side, Ernie, the President Trump is and his administration
Speaker 6: believes that these trade wars will result in the re
Speaker 6: I guess, the recovery or the redevelopment of American manufacturing.
Speaker 6: How do you see that playing out.
Speaker 9: I don't see it playing out. So the you know,
Speaker 9: the place where I see a lot of focus is
Speaker 9: things like automobiles. The United States already had a symbiotic
Speaker 9: relationship in North America with automobiles. So it's really unclear
Speaker 9: how we make much gains automobile manufacturing when it's going
Speaker 9: to be at the expense of our free free trade partners.
Speaker 9: The other thing, and we find this consistently when we
Speaker 9: modeled tariffs, when we when we kind of look at
Speaker 9: the long run economic effects of these tariffs, is there's
Speaker 9: no doubt that if if you focused tariffs on a
Speaker 9: specific industry like automobiles, you can shift production within the
Speaker 9: United States to that industry and so you can look
Speaker 9: at just say autos and say, oh, we can make
Speaker 9: gains just in auto manufacturing, but it comes at the
Speaker 9: expense of the rest of the economy. The United States,
Speaker 9: you know, doesn't have limitless labor and capital in it,
Speaker 9: especially in an environment where we're talking about limiting immigration.
Speaker 9: And so what we also can say instantly, fined is
Speaker 9: that putting aside any specific sector, the American economy is
Speaker 9: consistently smaller regardless of what proposal we're analyzing. In the
Speaker 9: long run, as a result of what we've announced so
Speaker 9: far in twenty twenty five, the United States economy is
Speaker 9: zero point seventy percent smaller in the long run in
Speaker 9: level lords, which you know as an economist is significant.
Speaker 5: We welcome all of you worldwide and your commutes this morning,
Speaker 5: including good morning to New Haven with the budget lab at,
Speaker 5: you know, Ernie Tedeski with us here to give us perspective.
Speaker 5: I want to get to the budget matters in a moment.
Speaker 5: But we have markets on the move, there's no question
Speaker 5: about that.
Speaker 3: With the Vics out five big figures, we're dashing near
Speaker 3: sixty fifty seven point three eight SPX down one hundred
Speaker 3: and six points down, down eight hundred points on futures
Speaker 3: the yield space, Paul out twelve basis points in the
Speaker 3: ten year yield. I want to take a moment right now, Aaronie,
Speaker 3: stay with us, don't run away. The most import orton
Speaker 3: person in Bloomberg today is Liz Goldenberg. Liz Goldenberg ran
Speaker 3: all of our bond coverage and once she threw one
Speaker 3: of her Manola bloonnock shoes at me.
Speaker 5: Oh boy, almost took an eye out. And Liz said,
Speaker 5: Tom in crisis, yield doesn't matter. This is really important, folks,
Speaker 5: and Ernie knows this from his work on the Left Coast.
Speaker 5: It's real simple, fancy people in bow ties talk about yield.
Speaker 2: The yield.
Speaker 3: This the yield that at the end of the day,
Speaker 3: a fixed income item is a bond, a bill, a note,
Speaker 3: It's a price, and the right now the prices are declining.
Speaker 3: That is the tension of the morning that we're trying
Speaker 3: to encapsulate for you. Greg Peters with us in twelve minutes.
Speaker 3: Michael McKee on the Fed in a bit as well,
Speaker 3: earning Tedsky, let us go to what the yell budget lab.
Speaker 5: Is acclaimed for. The president wants the free lunch of
Speaker 5: his new globalization, we'll call it with a tax cut.
Speaker 5: There's no one I've read who says this may make sense.
Speaker 3: What is the what is the path the president's on
Speaker 3: and what does that mean for our.
Speaker 5: Listeners and viewers this morning.
Speaker 9: Well, ostensibly he's using these tariffs to at least partially
Speaker 9: and it's only going to be partially pay for his
Speaker 9: tax cuts. So if you were going to score everything
Speaker 9: that they've announced this year, like as its own bill,
Speaker 9: CBO would probably find that it raises two point eight
Speaker 9: trillion over ten years if it were to stay in effect.
Speaker 9: That's roughly half the cost of permanently extending the twenty
Speaker 9: seventeen tax cuts. So you know they've gotten halfway. Now.
Speaker 9: Maybe they're only going to extend the tax cuts for
Speaker 9: five years. Maybe they're going to use other baseline gimmicks
Speaker 9: to make up for the rest of that half. Maybe
Speaker 9: they're going to introduce other cuts like to medicaid or
Speaker 9: food stamps to make up for the rest of it.
Speaker 9: But they haven't fully paid for it yet. So Number one,
Speaker 9: that's one reason to expect that there are more tariffs
Speaker 9: coming is because literally they need more revenue than they've
Speaker 9: already raised. The second thing to bear in mind is that,
Speaker 9: of course terror fare or regressive tacks they pinch, they
Speaker 9: pinch lower income families more than number income families, and
Speaker 9: the benefits of what they're talking about in the tax
Speaker 9: bill skew to I mean, they help everyone, but they
Speaker 9: skew to upper income families. So this is kind of
Speaker 9: a raw deal for a lower income fanies.
Speaker 5: I got to let you go, Ernie, because you're driving
Speaker 5: the market lower.
Speaker 2: We just got to get them off there.
Speaker 3: I can't say enough folks about the budget lab at
Speaker 3: Yale University. Everyone Republican, conservative, whatever, Democrat, they're all talking
Speaker 3: about the work of Martha Gimble and Erninge Tesky in
Speaker 3: a wide body of academics really thinking about this moment
Speaker 3: where in doctor Tedeski, thank you so much for joining Bloomberg.
Speaker 1: This is the Bloomberg Surveillance Podcast. Listen live each weekday
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Speaker 3: Right now, we're going to go to Amanda Agatti Aeronworld's
Speaker 3: set up on Oppenheimer as well, John Turk, I'll give
Speaker 3: you an important update here in a bit. Amanda Gotti
Speaker 3: is with asset allocation at P ANDC. Hasn't slept in
Speaker 3: three days, and we welcome her this morning. Amanda, how
Speaker 3: have you changed your asset allocation?
Speaker 11: It's great to be with you, guys, thanks for having me.
Speaker 11: We're not making grand or sweeping allocation changes in this environment.
Speaker 11: Tweaks at the margin are the approach in this environment,
Speaker 11: and we're really trying to lean into the corrections that
Speaker 11: we're seeing in both the equity and the fixed income
Speaker 11: markets to try and reposition portfolios. And we really haven't
Speaker 11: had an opportunity to do this in a while. So
Speaker 11: US over international is still very much the place to
Speaker 11: be larger over smaller and quality on the equity side
Speaker 11: or areas that we're tweaking at the margin.
Speaker 2: Pere Paul wants to jump on that.
Speaker 3: I can just see why do you stay all American
Speaker 3: given what we get from sixteen hundred Pennsylvania Avenue.
Speaker 11: Well, we're not all American. We're leaning mostly American. We
Speaker 11: have a home country bias for sure, but we do
Speaker 11: have international equity exposure, both developed and emerging. We just
Speaker 11: have less, we're underweight relative to our benchmarks, so we're
Speaker 11: not betting against international markets here. But I think in
Speaker 11: the face of this really unprecedented tariff and trade war
Speaker 11: that we have underway here, you know, the rally that
Speaker 11: international equities sought at the beginning of the year is
Speaker 11: fading fast and for good reason, and so we want
Speaker 11: to have a little exposure, but we want to be
Speaker 11: really thoughtful about how much, given there's still so much
Speaker 11: we don't know about the path forward for tariffs.
Speaker 6: Amanda, we have a VIX here north of fifty right now.
Speaker 6: What does that tell you?
Speaker 11: It tells me you don't be a hero. You can
Speaker 11: use that as a hashtag don't be a hero quote
Speaker 11: for the day. Then that goes back to this idea
Speaker 11: that we can't make big, grand or sweeping calls in
Speaker 11: this environment. There's just too much volatility. And as I
Speaker 11: said earlier, and I think the earlier guest also mentioned,
Speaker 11: we're in a crisis of confidence. That's a reflection of
Speaker 11: the volatility that we're seeing. And so you don't have
Speaker 11: to sort of stay the course and sort of look
Speaker 11: past a lot of this noise. The VIX is going
Speaker 11: to settle down, but We're in a void here of
Speaker 11: data points and headlines that have real meat to them
Speaker 11: and frankly earning season, and so until we can get
Speaker 11: a little bit more solid footing from some of these fundamentals,
Speaker 11: I think this is just the volatility we have to accept.
Speaker 2: Oh go ahead, Paul, please please?
Speaker 6: What do you expect from earnings here?
Speaker 2: Amanda?
Speaker 3: I mean not the green on the screen now was
Speaker 3: distracted exactly I'm getting getting my face from the grinding
Speaker 3: crisis over.
Speaker 6: Exactly what do you expect from earnings this season?
Speaker 5: Amanda?
Speaker 6: I mean, I'd be shocked if many companies were able
Speaker 6: to give you pretty decent guidance, or any guidance.
Speaker 12: I guess yeah.
Speaker 11: I think that that's going to be the key question.
Speaker 11: Of course, Delta this morning, first out of the gate,
Speaker 11: pulls the plug on guidance. So is that the ripple
Speaker 11: effect for what all of Q one earning season ultimately
Speaker 11: looks like. I think it's it's tricky because I bet
Speaker 11: you the underlying fundamentals aka the results for Q one
Speaker 11: earning season actually come in better than expected. We had
Speaker 11: the worst revisionary period since early twenty twenty going into
Speaker 11: earning season, so the bar is set incredibly low. But
Speaker 11: it's sort of like nothing else matters as it relates
Speaker 11: to the path forward except tariff's, the trade war and guidance.
Speaker 11: And so I think investors are going to be much
Speaker 11: more focused on how many guidance forecasts get pulled as
Speaker 11: opposed to the underlying results, which is, you know, frustrating.
Speaker 12: But that's where we are, Amanda.
Speaker 3: One more question here, and you know that people frame
Speaker 3: out the analog looking back.
Speaker 2: I am in the camp.
Speaker 5: I've said this, folks, where other than the.
Speaker 3: What we see, I got to be careful here. We'll
Speaker 3: help me get the surveillance quirk out what we see
Speaker 3: at the White House. To me, it's got a huge
Speaker 3: nineteen ninety eight flavor to it. I could be wrong
Speaker 3: in that, don't don't. Don't bet the bank on that.
Speaker 3: But Amanda, do you have an analog to the past here?
Speaker 11: I would say no, might drop no where it seems
Speaker 11: I was saying to someone earlier today, it seems like
Speaker 11: we continue to throw the playbook and the textbook out
Speaker 11: over and over and over again, and it's we we're
Speaker 11: just finding ourselves an unprecedented territory here. And so I
Speaker 11: don't I don't think the history is very helpful in
Speaker 11: terms of a guide for what comes next.
Speaker 3: Don't know if President Trump's listening at ninety nine ONEFM
Speaker 3: Washington or if he's on Andreid Auto and the golf cart.
Speaker 3: The President says, quote all caps, this a great time
Speaker 3: to buy.
Speaker 6: Okay, there you go, there it is, Amanda. What does
Speaker 6: fixing come do in a portfolio these days? Have you,
Speaker 6: guys changed your allocation to fixed income? You hide out
Speaker 6: in some short term treasuries? What have you done there?
Speaker 11: Well, there's a few things that we're contemplating adjusting again
Speaker 11: at the margin, and in some portfolios we have high
Speaker 11: yield below investment grade credit exposure and some emerging market
Speaker 11: that it's dollar denominated, so there's a little bit of
Speaker 11: a hedge there, but we are watching that very carefully.
Speaker 11: Given just the action that's been happening the last couple
Speaker 11: of days, we may want to start pulling back on that.
Speaker 11: But the belly of the curve still looks pretty attractive
Speaker 11: at five to seven year range and so not going
Speaker 11: really short, not going really long again, with the volatility
Speaker 11: at both ends of the curve, the sweet spot still
Speaker 11: feels like the five to seven year range, So we
Speaker 11: think there's some relative attractiveness.
Speaker 12: There is there any attractiveness to go up one hundred
Speaker 12: and two dollars an ounce We're almost back to thirty
Speaker 12: one hundred. I mean, there's some huge elasticities out on
Speaker 12: the Bloomberg screen right now.
Speaker 5: Is gold a legitimate investment within a conservative PNC bank?
Speaker 11: We tend not to be buyers of gold in and
Speaker 11: out of cycles. You know, I don't know that it's
Speaker 11: really that much of an investment thesis kind of story. So,
Speaker 11: particularly as you're quoting sort of the levels here, I'm
Speaker 11: not sure that there's that much further to run in
Speaker 11: terms of gold prices here at sort of top hashtag top,
Speaker 11: and so from a thesis perspective, it's really much more
Speaker 11: of a store of value story. And we think there's
Speaker 11: a lot more interesting opportunities in the equity market, even
Speaker 11: though there's a lot of purple haze uncertainty right now.
Speaker 2: There is.
Speaker 3: Thank you so much, greatly appreciate it. Amanda go Goti
Speaker 3: WITHPNC Financial.
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