Speaker 1: Yea. Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene
Speaker 1: Jay Ley. We bring you insight from the best in economics, finance, investment,
Speaker 1: and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud,
Speaker 1: Bloomberg dot Com, and of course, on the Bloomberg. The
Speaker 1: big news is the big sell off last week, the
Speaker 1: biggest weekly drop on sp in more than two years,
Speaker 1: and a big backup in treasury yields as well well
Speaker 1: three three percent on ten year treasuries. Tom and the
Speaker 1: equity market very much softer through the whole of last week.
Speaker 1: I want to bring the guest show. We Marcus Ashworth,
Speaker 1: Bloomberg Gaffly columnist and Chris Faron, Strategous Research Partners, Head
Speaker 1: of Technical Analysis. Chris, let's begin with you. Was that
Speaker 1: a short term sentiment shift, a regime change, or none
Speaker 1: of the above of yet? I think the longer term
Speaker 1: regime is still very much intact. But in the very
Speaker 1: short term, I'm not convinced sentiment is as flushed out
Speaker 1: or as stressed as it needs to be. I'm not
Speaker 1: convinced this market has cleared yet. While Friday was certainly
Speaker 1: bad in terms of the headline numbers, volume wasn't terribly pronounced. Um,
Speaker 1: the internals weren't as stressed as we'd like to see.
Speaker 1: That often marks interim low, So I think it's too
Speaker 1: early to say that we're quote there just yet. Something
Speaker 1: that you've touched on is something I was questioning through
Speaker 1: the whole of lost week. Typically, if things are really
Speaker 1: ugly high yield, it's got something to scream about. We
Speaker 1: didn't see that in a huge, huge white Chris. Yeah.
Speaker 1: I mean, hi yeld was down last week, but it
Speaker 1: didn't lead lower. So I think ultimately, if we're going
Speaker 1: to see a major shift in this regime, credit likely
Speaker 1: has to weaken. The fact that we're not seeing that
Speaker 1: yet actually gives us some confidence that the longer term
Speaker 1: picture is still intact. Here now, that doesn't help us
Speaker 1: in the short term, and I think in the short
Speaker 1: term there's probably more pain or more weakness before this
Speaker 1: is over. But so long as credit remains at least
Speaker 1: reasonably contained, I'm reluctant to say that the longer term
Speaker 1: picture is changing meaningfully. Marcus Ashworth, when you were trying
Speaker 1: to explain the cell off to some individuals maybe not
Speaker 1: that closely affiliated with Wall Street, and you explained to
Speaker 1: them that it's off the back of better economic data,
Speaker 1: better wage growth in the United States. It's just meant
Speaker 1: the bond market has finally had to catch up. What
Speaker 1: are your thoughts, Marcus, Yeah, High, I think it's very
Speaker 1: much that the two year yield has been telling us
Speaker 1: something loud and clear, shouting at us for for months now,
Speaker 1: and the ten year and thirty years has really not responded,
Speaker 1: and it's led some people to be in this sort
Speaker 1: of false belief that this is a harbinger of impending recession.
Speaker 1: It's quite the reverse. You know, we've finally seen the
Speaker 1: wage print that everyone has been expecting to see, and
Speaker 1: that has led to the realization that inflation and the
Speaker 1: Philips curve is going to come come up up into
Speaker 1: view um in hiding behind. As it has been a
Speaker 1: very strong economy with very little obvious signs of of
Speaker 1: real strength and inflation that now it looks to be normalizing.
Speaker 1: The curve therefore needs to normalize, which means it should
Speaker 1: be steeper. And I think I can agree with Chris that,
Speaker 1: you know, having trade bonds for the best part of
Speaker 1: thirty years and being on the wrong end of many
Speaker 1: a bear market from time to time, you know, you
Speaker 1: have to sense whether or not this has got some
Speaker 1: legs to it. And I still don't think we're quite
Speaker 1: fully flushed out. And he's spot on to say that
Speaker 1: the fact that credit hasn't moved means that the market
Speaker 1: sentiment hasn't really shifted. Here. We're not talking about a
Speaker 1: bond route. We might get to get three percent in
Speaker 1: ten year yields. We might get to UM. I think
Speaker 1: in some ways more importantly three three point three just
Speaker 1: around the era for thirty years where from whence it
Speaker 1: came in sixteen. That's really why I think we need
Speaker 1: to be and test, and I think we'll probably bounce
Speaker 1: before then. Um. Europe is doing better this morning, is
Speaker 1: the reason why Treasury is on following on with their
Speaker 1: sell off. And the key thing in Europe is peripherals.
Speaker 1: Its ly, he's got an election in less than a
Speaker 1: month's time. They're actually doing better, they're tightening. So that's
Speaker 1: why I think, give me a little bit of stability
Speaker 1: just as we walk into the US market. However, if
Speaker 1: US treasuries want to go in high and yield out,
Speaker 1: they'll go Christopher, Yeah, you know, I think, UM, we're
Speaker 1: spot on when we talk about three five as a
Speaker 1: target for ten year yields over the next number of months.
Speaker 1: Here it doesn't mean they won't see to sixty or
Speaker 1: two seventy first, but I think ultimately higher is the
Speaker 1: path that we're heading now. I would frankly be more
Speaker 1: worried if equities were selling off and bond yields were
Speaker 1: moving materially lower. I think that would be a sign
Speaker 1: that we're still stuck in that old regime. So higher
Speaker 1: bond yields what tactically it's probably a source of stress.
Speaker 1: I think structurally it's a decent signal. One of these
Speaker 1: Christopher and you and I do in technical analysis is
Speaker 1: we have a great respect for people that do a
Speaker 1: lot of back testing. And the back testing is a
Speaker 1: correction is ten percent down. A bear market is eighteen
Speaker 1: percent down. We're down four point six percent from the
Speaker 1: peak on SMP futures. Is a correction still minus ten percent?
Speaker 1: Or is there a new number in your head for
Speaker 1: a correction. I'm I'm in the old school. It's still
Speaker 1: ten We look at these things very simply. A bull
Speaker 1: market you're making money, a bear market you're losing money.
Speaker 1: And a correction. You're not sure yet. Uh. And I
Speaker 1: think at the end of the day, um SMP down
Speaker 1: four or four and a half. While it sounds pronounced
Speaker 1: and it sounds meaningful, it hasn't happened in two years,
Speaker 1: and it's not John, This is really important. Yeah, I mean,
Speaker 1: I'm sorry. Four point used to be a day at
Speaker 1: the race. And I think we need to remember there
Speaker 1: are countless examples of exceptional years where there's some meaningful drawnouts.
Speaker 1: Is an example exceptional year, SMP up thirty, but you
Speaker 1: have to seven percent pullbacks during the best year for
Speaker 1: the bull market in this bull market was one of
Speaker 1: the worst yearest fits right races precisely. Uh. And I
Speaker 1: think from that perspective is a useful roadmap. But it's
Speaker 1: not the perfect roadmap, but it's a useful roadmap. I
Speaker 1: think seven is also pretty interesting here. Now, let's remember
Speaker 1: for the last six years the SMP has done better
Speaker 1: than earnings have done. The street right now is looking
Speaker 1: for about out of earnings and is this the year
Speaker 1: where the market underperformed the economy. It's possible. Looking at
Speaker 1: the screen right now, the pullback to steepens tom the
Speaker 1: down down body the SMP negative twenty points have you're
Speaker 1: looking for some stability in the equity market is not
Speaker 1: there yet. So Marcus Ashworth, thank you so much. Writing
Speaker 1: for Bloomberg Gatfi. Look for his good work chart paragraph, chart,
Speaker 1: paragraph out on Bloomberg gat Flight today. Mr Ashworth in
Speaker 1: her studios in London, Christopher her own strategous research as well.
Speaker 1: There were seven thousand, three d and twelve books of
Speaker 1: the crisis in fed. We trust was one that actually
Speaker 1: site sliced through the zeitgeist and the added serious value
Speaker 1: you Ben Bernanke's wore on the Great Panic. David Wessell,
Speaker 1: writing for years with a journal, who landed happy in
Speaker 1: Washington when Glenn Hutchens said, Okay, we got to set
Speaker 1: up a fiscal and Monetary policy division at Brookings and
Speaker 1: the tour to force of Mr Wessell has been the
Speaker 1: signing of Chairman Bernankey and announced a few days ago
Speaker 1: that Chair Yelling today will join Mr Wessell at the
Speaker 1: Brookings Institute. David Wessel joins us right now. David, congratulations
Speaker 1: on this. How do you attract with your charm, Chairman
Speaker 1: Bernankey and Chair Yelling together. That's a good question. I
Speaker 1: think you probably should ask them. I think what we've
Speaker 1: tried to do is create an environment at Brookings where
Speaker 1: they can continue the kind of work they did as
Speaker 1: public servants, but in a more academic atmosphere. It is
Speaker 1: pretty exciting and we're really looking forward to seeing what
Speaker 1: kind of book Jannet Yellen will right. I think it'll
Speaker 1: be very different than the one Ben Bernanke wrote, because
Speaker 1: for four years as fetcher have been quite different than
Speaker 1: his eight years. Absolutely, maybe you could toilet slack and
Speaker 1: that will get some attention as as as well. David
Speaker 1: Will they will? They be down the hallway from get
Speaker 1: paint us the picture of the physical structure here is it?
Speaker 1: Is it a hallway and they've got one office here
Speaker 1: in one office there? Or do you have to keep
Speaker 1: them apart? Uh. We're on the eighth floor of the
Speaker 1: Brookings Building on Massages this Avenue near DuPont Circle, and
Speaker 1: Ben Bernanke got the corner office. I had the really
Speaker 1: nice spatience office next to him, but I traded it
Speaker 1: for Janet Yellen, so she'll be right next door to him,
Speaker 1: and I'm a couple of doors down in a more
Speaker 1: more modest Brooking scholar office. What is the one I deserve,
Speaker 1: and when Chairman Powell joined you, you'll be down in
Speaker 1: the basement next to the heat maxt. That would be
Speaker 1: very good. We'll look forward to that. David, let's turn
Speaker 1: the monetary policy. Chairman Powell is not a monetary PhD.
Speaker 1: What kind of vice chairman does Chairman Powell need? Well?
Speaker 1: I think it would be fantastic if Chairman how got
Speaker 1: a monetary economy ast, somebody who has a PhD in
Speaker 1: economics and has some experience. We'll have to see whether
Speaker 1: the Trump White House agrees with that. I think, as
Speaker 1: you know, the other big job up for grabs is
Speaker 1: the New York Fed job, and so the presidency of
Speaker 1: the New York Fed. So it's important. It seems to
Speaker 1: me that one of those two jobs go to someone
Speaker 1: who has some experience of monetary policy and David, it
Speaker 1: was really interesting the final act of Chair Yelling on
Speaker 1: Friday to cap the Wells Fargo assets, essentially capping its growth.
Speaker 1: Do you see the Federal Reserve under Chair Chair Powell
Speaker 1: as relatively different to under Chair Yelling? Do we see
Speaker 1: a different regulatory regime? It's that the first of many
Speaker 1: more acts to come from the Fed, or was that
Speaker 1: really the top of the regulatory curve. I think the
Speaker 1: FEDS had a pretty powerful signal on Friday that they're
Speaker 1: going to hold directors of the banks accountable when the
Speaker 1: banks screw up. Of course, Powell was part of that decision.
Speaker 1: I think it would have happened this week they hadn't
Speaker 1: got the paperwork done and Wells Fargo ahead and agreed
Speaker 1: to it on Friday. My gut is that Powell will
Speaker 1: be just as aggressive at yelling at the enforcement side,
Speaker 1: but he may not be quite as resistant to changes
Speaker 1: in Dodd Frank as she would have been. But so far,
Speaker 1: you know, the Trump administration has talked a lot of
Speaker 1: talk about doing away with dot frank, and there's some
Speaker 1: House Republicans to want to do it. But when you
Speaker 1: look at what they've actually proposed in the administration, the
Speaker 1: National Economic Council and the Treasury, they've been pretty modest reforms.
Speaker 1: What's the base case of Brookings? What do you expecting,
Speaker 1: David about what regulatory change? Oh? I expect that this
Speaker 1: is the high water mark of regulator regulatory uh enforcement.
Speaker 1: After I think that across the government, you see the
Speaker 1: government pulling back. I think the Fed maybe the break
Speaker 1: the resistance on stuff going on in the rest of
Speaker 1: the government. Tell us David about what Chairman Bernanke has
Speaker 1: been writing out and what you would like to see
Speaker 1: Cherry Yellen right about. She's more than independent minded. She'll
Speaker 1: donro white about what she wants to write about. But
Speaker 1: what does the curiosity you have in her first essays? Well,
Speaker 1: Chairman Bernanke has been quite focused on what led to
Speaker 1: the financial crisis and how we got out of it.
Speaker 1: After all, he cut his academic teats on writing about
Speaker 1: the Great Depression, and so he's long been interested in
Speaker 1: this stuff. I expect that I'm interested to see what
Speaker 1: Janet Yellen writes about two things. One, She's long been
Speaker 1: interested in the labor market. Why does it work the
Speaker 1: way it does? Why does some firms pay more wages
Speaker 1: than they have to? Why has labor force participation been
Speaker 1: so disappointing lately? What's the role of women in the
Speaker 1: labor market? So I would imagine that that would be
Speaker 1: continue to hear interest. And then, of course it's hard
Speaker 1: to escape, uh, the fact that she's the first woman
Speaker 1: FED chair in an economics profession where women are really
Speaker 1: willfully underrepresented. So I think that people will be interested,
Speaker 1: whether she wants to write about that or not, what
Speaker 1: her experiences have been the only woman in her class
Speaker 1: of PhDs at Yale and so forth. Yeah, I mean
Speaker 1: these are huge, huge issues that we see right now.
Speaker 1: Are we free and clear from where you said? I
Speaker 1: use a chart, David Wessel all the time? Would you
Speaker 1: just the FED funds target rateed justif for inflation and
Speaker 1: we're still on the edge of ultra accommodative via Taylor rule. Uh, proxy,
Speaker 1: we're still accommodative ultracommendative. How far does the FED have
Speaker 1: to move to get anywhere near a neutral rate? Well,
Speaker 1: I think the conventional wisdom is something close to three.
Speaker 1: I think it's been a bit baffling. My wages haven't
Speaker 1: grown gone up more given how low unemployment is, So
Speaker 1: I think the FED will be watching that carefully. And
Speaker 1: of course there was this new evidence on Friday that
Speaker 1: wages are beginning to rise. But as you know, Tom,
Speaker 1: the consensus among the con him as, including those in
Speaker 1: the FED, is the neutral real rate, that rate that
Speaker 1: will prevail when all is calm in the economy has
Speaker 1: come down quite a bit, and so I think that
Speaker 1: will affect the Fed's judgment. In the time we've got
Speaker 1: left to you, I want you to talk about what
Speaker 1: Mr Hutchins did. You're at Brookings, it's an acclaimed think tank.
Speaker 1: You go over and set up this economic tank. You
Speaker 1: have this huge announcement of Bernankey and Yelling joining you
Speaker 1: as well. What did Mr Hutchins want to accomplish when
Speaker 1: he donated money large two Brookings? UM? I think I
Speaker 1: think Glenn Hutchins wanted to improve the amount of research
Speaker 1: and thoughtful policy work that goes on in fiscal and
Speaker 1: monetary policy. And you know Yelling and Bernankey are clearly
Speaker 1: our stars, but there's a lot of us stuff going on. UM.
Speaker 1: But I think the thing that's impressed me about Glenn
Speaker 1: is he's really the model donor. He gave us a
Speaker 1: substantial sum of money to get us off for five
Speaker 1: years and said I want people who I risk back
Speaker 1: to stay. You're doing good work. Um. He's not one
Speaker 1: of these donors who has a particular agenda, either on
Speaker 1: his personal pocketbook or his political agenda. He's trying to
Speaker 1: influence that. So it's been really remarkable and as you know,
Speaker 1: that's not always the norm, and think thanks sometimes donors
Speaker 1: really want to tie down their their their centers to
Speaker 1: pursue their own particular interest. David Russell for all of
Speaker 1: US and economics. Just congratulations Cheer yell And joining Chairman
Speaker 1: Bernankia Mr Wessell's hutch and Center the Brookings Institution. Just
Speaker 1: absolutely uh an extraordina announcement. Really looking forward to Cheer
Speaker 1: Yellin's first essays. Mr Wessell again with the Brookings Institutions.
Speaker 1: We sure now to Morgan Stanley's Chief of US Public Policy,
Speaker 1: Michael Zess, who has got a really interesting pedigree. Not
Speaker 1: only is he a cf A, but he's done the
Speaker 1: usual political credit as well. And who including the LBJ
Speaker 1: School of Public Affairs. Did you study with James K. Galbraith?
Speaker 1: He was, He was not one of my I never
Speaker 1: had class with him, but here, Yeah. I mean that's
Speaker 1: a really interesting and twisted program as well, and really
Speaker 1: fits it right now with what we're seeing within public policy.
Speaker 1: What is the public policy and after after the meetings
Speaker 1: in Montreal, Well, I think that remains to be seen explicitly,
Speaker 1: but umly, what the US is asking for um is
Speaker 1: something that I think really is focus around the bottom
Speaker 1: line of kind of shrinking trade deficits, and I think
Speaker 1: it's unclear what both sides are willing to accept that
Speaker 1: would actually practically do that. Uh, you know, in our view,
Speaker 1: there's something ultimately that can be delivered to kind of, um,
Speaker 1: get the negotiation across the finish line, which I think
Speaker 1: can allow the US to talk about trade deficits perspectively
Speaker 1: being shrunk. Something like upping the destination of origin rules
Speaker 1: around autos for example, where the U s thinks it's
Speaker 1: got a competitive advantage around auto labor and manufacturing. Um,
Speaker 1: something like that, which you know, ultimately, in game theory terms,
Speaker 1: is is something where both sides can kind of claim victory.
Speaker 1: But you know it's not evident yet precisely what that is.
Speaker 1: The public policy is to say face and after for
Speaker 1: all three parties, right, yeah, I mean more or less.
Speaker 1: Uh you know what the or what what the US
Speaker 1: wants here? If you were to kind of take the
Speaker 1: President at his word, uh, you know, it's free and
Speaker 1: fair trade, and he tends to always define it in
Speaker 1: terms of shrinking the trade deficit. So I think whatever
Speaker 1: has to be delivered is something that you can feel
Speaker 1: like you can credibly tell your base supporters that this
Speaker 1: is something that's going to shrink the trade deficit, as
Speaker 1: opposed to something where when they're talking about the border
Speaker 1: adjustment tax or some other type of tariffing regime which
Speaker 1: could demonstrably actually shrink a trade deficit, at least in
Speaker 1: mathematical terms, those things seem to be off the table.
Speaker 1: It's something you need to be able to credibly make
Speaker 1: the argument, as opposed to put it on paper. So
Speaker 1: we call these big significant issues that need to be addressed,
Speaker 1: and to address them thanktively, you would hope for stability elsewhere.
Speaker 1: But we're talking about getting to Thursday now, never mind
Speaker 1: getting to the next round of naftal negotiations. Can they
Speaker 1: agree to keep the government open and can they come
Speaker 1: to any kind of agreement around an immigration plan? Can
Speaker 1: they do those two things? Michael, I think that they
Speaker 1: can agree to keep the government open because I think
Speaker 1: the base case on all these governments shutdowns because they
Speaker 1: had so many opportunities for government shutdowns, is that they
Speaker 1: tend the muddle through because the actual instance of shutdowns
Speaker 1: is pretty small, and really, when you're thinking about from
Speaker 1: a market's perspective, um a shutdown on its own to
Speaker 1: us is not terribly consequential hasn't had a giant feed
Speaker 1: through effected gdp UM. What matters more is what that
Speaker 1: what is that signal telling us about other policies that
Speaker 1: may or may not be stimulative. If this were a
Speaker 1: year where we were getting really excited about something like
Speaker 1: infrastructure policy, which we're not, why aren't we Well, there's
Speaker 1: political reasons, but just I don't need to interrupt, but this,
Speaker 1: John Ferrol, this came up like four times this weekend.
Speaker 1: What is the why? So there's a there's a political reason,
Speaker 1: and there's a policy reason. The political reason is that
Speaker 1: we just don't think there's enough time for the Democrats
Speaker 1: and Republicans to bridge their difference. They get differences on
Speaker 1: labor issues, environmental issues, and they get differences on how
Speaker 1: they want to fund it. Right where the Democrats are
Speaker 1: willing to raise the gas tax or other revenues, the
Speaker 1: Republicans want to kind of redirect money from elsewhere. But
Speaker 1: even if that were in a problem, the policy issue
Speaker 1: is the way it appears to be constructed right now.
Speaker 1: It's not clear to us that this is actually a stimulus.
Speaker 1: All it really kind of boils down to is is
Speaker 1: there going to be net new money in the economy
Speaker 1: after this policy. And we haven't seen a full proposal yet,
Speaker 1: but if you're talking about something where you've got twollion
Speaker 1: dollars from the federal government, where that's not necessarily going
Speaker 1: to be a new money, it's gonna be redirected from
Speaker 1: Amtrak or Tiger grants or something like that, and then
Speaker 1: it requires state and local governments to partner um and
Speaker 1: to sign on to certain conditions. Not clear to us
Speaker 1: that that those governments are going to sign on. They've
Speaker 1: got easier incentives if they just kind of go go
Speaker 1: with the traditional funding mechanisms they've been using. Brilliantly describe
Speaker 1: John Ferrell, I would point out to someone who tests
Speaker 1: tatted to his brain the time from Coventry to Paddington
Speaker 1: Station or whatever in London, that, with great respect for
Speaker 1: the courage of first responders, we've had three major Amtrak
Speaker 1: accidents in a cup of coffee and it's not funny.
Speaker 1: I mean, I'm I would I would suggest Michael that
Speaker 1: we've almost reached the point with you know, rusted bridges,
Speaker 1: and this is not funny. This this is serious, Michael.
Speaker 1: At the same time, though, when you break down the
Speaker 1: country into individual states and think about where there needs
Speaker 1: to be the biggest infrastuch just spend. Could you assume
Speaker 1: and conclude that actually it's the Northeast and it's blue
Speaker 1: states that probably need the most money spent on them.
Speaker 1: I think it's fair to your higher tax jurisdictions are
Speaker 1: the ones with the most deferred capital. You know, whether
Speaker 1: or not that becomes a political sticking point is unclear,
Speaker 1: But I will say that one thing that we threw
Speaker 1: out there when we were doing our outlook for policy
Speaker 1: for the years that when it comes the midterm election
Speaker 1: is one of the things that can unlock this right
Speaker 1: if the Democrats are able to take control. Arguably the
Speaker 1: president the Democrats are on the same page with how
Speaker 1: to fund this and not necessarily concerned as much about deficits.
Speaker 1: Now you've got tax reform done, because Republicans seem to
Speaker 1: be okay with deficits for tax cuts so far, they're
Speaker 1: signaling that they're not okay with deficits for increased spending. Uh,
Speaker 1: that view gets marginalized. Obviously, if the Democrats take control
Speaker 1: of Congress. I would mention John that there can be
Speaker 1: c changed things in infrastructure to change debate, and I
Speaker 1: would go back to Staplehurst in Kent, England, in the
Speaker 1: train derailment that Charles Dickens was in that he was
Speaker 1: never the same after that. Radio going back sometime I'm
Speaker 1: doing that just impressed you with actually thoroughly impressed. Not
Speaker 1: actually to Tom Covered at the time. I said last
Speaker 1: week that he graduated with Keynes and that's funny. Michael's like,
Speaker 1: what are they talking about? But this, I'm sorry. These
Speaker 1: accidents drive the conversation. We've had three m track accidents, Michael,
Speaker 1: and we don't have infrastructure. I listen dazzled by that.
Speaker 1: There are a lot of urgent things that you would
Speaker 1: think would kind of spur on Congress at the moment,
Speaker 1: and right now just don't seem to be working. I mean, obviously,
Speaker 1: the the need to take care of the Dreamers and
Speaker 1: the docket issue is something that kind of keeps getting
Speaker 1: rolled forward because it is embroiled in all of these
Speaker 1: other short term government funding fights. You've gotta come back,
Speaker 1: but very quickly here with your cf A understanding of
Speaker 1: the dynamics. Are we anywhere near a yield lift that
Speaker 1: changes the calculus in Washington? I don't think so. Um
Speaker 1: the because I think the issue with kind of yields going,
Speaker 1: the yields increasing and kind of feeding through to the
Speaker 1: budget and causing concerns with conservative Republicans. That seems to
Speaker 1: be the type of thing that doesn't get reflected until
Speaker 1: beyond the mid terms. Okay, Michael, thank you so much.
Speaker 1: Michael Jays with Morgan Stanley with us this morning. Bond
Speaker 1: people live in another world than the things we quote.
Speaker 1: One would be Margie Patella Wells Capital Management, who joins
Speaker 1: us in Margaie, I look at the Bloomberg Barkley's High
Speaker 1: Yield Corporate Index where I get a coupon along the way,
Speaker 1: and I'm down a lot less than just looking at
Speaker 1: full faith and credit. Is your high yield market immune
Speaker 1: from what we've seen in the bottom pullback. Well, it's
Speaker 1: holding its own as I would expect because with really
Speaker 1: the default call it two and still a big premium
Speaker 1: three and a half percent or so more than Treasury's,
Speaker 1: it's able to hold its value much better. And as
Speaker 1: far as total return here today, it's slightly positive. Let
Speaker 1: me make this clear, folcus, As miss Patel just said,
Speaker 1: three and a half three fifty US points, three and
Speaker 1: a half percentage points of yield along the way more
Speaker 1: than you do with government bonds. Yes, all right, Well,
Speaker 1: can I just I just want to switch to the
Speaker 1: stock market because we're going to get it open in
Speaker 1: just a moment here. And Margaret, you've been quoted as
Speaker 1: saying that you see the bull market as continuing. Does
Speaker 1: what happened last week changed your mind at all? No,
Speaker 1: because it was actually rather puzzling. Is earnings reports have
Speaker 1: been great, and even the Sagum earnings which were reported
Speaker 1: last week, that the large camp tech companies had very
Speaker 1: very good earnings. And before that the market spiked up,
Speaker 1: maybe up seven percent in four weeks. So to me,
Speaker 1: it's a natural correction of something that looked pretty speculative
Speaker 1: to me. So I think earnings looked pretty good for
Speaker 1: the rest of the year. That's been validated at least
Speaker 1: so far, especially in the tech sector. So do we
Speaker 1: have any more to give up before the bull market continues? Well,
Speaker 1: it could. We've had three percent corrections now it looks
Speaker 1: like we may be maximum, say a five percent correction.
Speaker 1: I don't think there's much more than that, because the
Speaker 1: fundamentals are good, the economies growing rates. Although the curve
Speaker 1: lantened a lot it's still um doesn't provide much competition
Speaker 1: compared to stocks that have earnings growth from here and
Speaker 1: a lot too. All right, So that if you've been
Speaker 1: planning for this, or you have sort of looked into
Speaker 1: the future and said, you know, stocks don't grow to
Speaker 1: the sky, would you be deploying your cash now or
Speaker 1: maybe wait until the pull back to the fifty day
Speaker 1: movie average, I mean now would be another fifty points
Speaker 1: lower from where we are right now eleven. Let's say, well,
Speaker 1: I think actually I bought a little on Friday because
Speaker 1: I thought that provided some opportunity. I don't think there's
Speaker 1: a lot of downside to this, and some of the
Speaker 1: names have reacted pretty sharply, especially those that had been
Speaker 1: up a lot. So I think now it's good at
Speaker 1: time to get in. I noticed in the thirty year
Speaker 1: bun that I've enjoyed losing two years of coupon in
Speaker 1: the last number of weeks. How do you define a
Speaker 1: bear market within full faith and credit paper market, Well,
Speaker 1: it does appear as if we may be starting on
Speaker 1: at least a mild bear markets, not to say Rachel
Speaker 1: going to skyrocket up two points, but another fifty basis
Speaker 1: points across the curve looks pretty likely because we've broken
Speaker 1: out of that trading range. My rule of thumb PIM
Speaker 1: is three years coupon is when spouses start screaming when
Speaker 1: they look at the bond portfolio. Well three years, Cooper.
Speaker 1: But clearly you don't manage long term money because you
Speaker 1: don't have any No, that's there's that, yeah, Mark, I
Speaker 1: mean I just want to argue I'm in the high
Speaker 1: yield tuition funds where yeah, well showing the club. But
Speaker 1: the reason I say that in terms of long term
Speaker 1: is because if you're a pension plan manager and insurance
Speaker 1: company executive, you're worried about more than the next three years,
Speaker 1: so you're a natural buyer. Yes, and I think there's
Speaker 1: continuing demand for long duration, long maturity bonds even at
Speaker 1: these low levels, because they've moved up maybe fifty to
Speaker 1: a hundred basis points in Treasury's investment grade, so that's
Speaker 1: at least more yields. It's taken a little bit of
Speaker 1: the pressure off those kinds of people that need to
Speaker 1: invest every day. Are you buying this morning? Uh? Well not,
Speaker 1: I'm just seeing how things sort them out. But yes,
Speaker 1: I think it'd be a better day to buy on
Speaker 1: the stock side than to sell. Sure is that because
Speaker 1: the Patriots lost? Margaret margat Ptel, thank you so much.
Speaker 1: She's you know, up in Boston and you know as
Speaker 1: a wonderful listen she's probably met Tom Brady. You know,
Speaker 1: we think margat Ptel, thank you so much for the
Speaker 1: Wells Capital Management this morning, and thanks for listening to
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