Speaker 1: Bloomberg Audio Studios, podcasts, radio news. This is the Bloomberg
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Speaker 2: Sebastian Page has been writing up a storm.
Speaker 3: He wrote a book about the Baltimore Orioles psychology of leadership. Oh,
Speaker 3: it's working out Oriols starting strong, five hundred ball.
Speaker 2: I believe there. He's a t rowe price.
Speaker 3: We're thrilled at Sebastian Page could get us started, and
Speaker 3: he's spent much on my mind the last two or
Speaker 3: three days because everyone's talking about diversification and what it
Speaker 3: means and rebalancing, and that his book is definitive.
Speaker 2: It is beyond.
Speaker 3: Diversification whatever investor needs to know when there's a war.
Speaker 3: And we're thrilled Sebastian Page could join us this morning.
Speaker 3: I got so many pundent Sebastian going back and forth
Speaker 3: on stocks, bond's correlation. Cliff Astness had a beautiful tweet
Speaker 3: out going what is this hot air? What should we
Speaker 3: do with diversification given this war?
Speaker 4: Tom the stockbond correlation is super hard to understand and predict,
Speaker 4: but financial advisors everywhere just use a negative return correlation assumption,
Speaker 4: and to me, that's wrong. The twelve month correlation historically
Speaker 4: between stocks and bonds has flipped time has flipped signs
Speaker 4: twenty nine times over the last eighty years from positive
Speaker 4: to negative. It has ranged from minus eighty to plus eighty. Now,
Speaker 4: the key to understanding the correlation is a simple question,
Speaker 4: are we facing a growth shock or an inflation shock?
Speaker 4: If you're flacing a little bit of both, it's complicated.
Speaker 4: But if inflation volatility dominates, both stocks and bonds can
Speaker 4: go down together. We learn this in twenty twenty two.
Speaker 4: And by the way, if you're a nerd like me
Speaker 4: and you studied correlations back to the seventies, same thing
Speaker 4: that happened in the seventies. I do think looking out
Speaker 4: six to twelve months, that inflation volatility is going to dominate.
Speaker 4: So I'm arguing you should diverse fire hedges, not just
Speaker 4: use treasure.
Speaker 3: Clifastes alludes to the idea that we have equity products
Speaker 3: and we have equity exposure, even though we're not calling
Speaker 3: it equity all the alternative and derivative products out there today.
Speaker 3: Paul's better at this, folks than I am. All those
Speaker 3: private this private that are those equity equivalents.
Speaker 4: Look, I think they are in a broad sense. We're
Speaker 4: talking about businesses. You value them by discounting cash flows.
Speaker 4: You use an interest rate to discount the cash flows. Tom,
Speaker 4: it's CFA stuff, right, and then their discout rate should
Speaker 4: be influenced by risk and liquidity and market conditions. But
Speaker 4: you know, Cliff Astness likes to be controversial, and he
Speaker 4: calls it volatility laundering, I think is the term he uses.
Speaker 4: But we don't mark to market the private assets. Look,
Speaker 4: private assets can be wonderful additions to investors' portfolios. In
Speaker 4: my own personal portfolio, I own private assets.
Speaker 3: But that's continue you know, that's his private ass.
Speaker 4: Yeah, but you know those are financial assets. And if
Speaker 4: you're kind of a mark to market person, I think
Speaker 4: it's better to build risk models around an assumption and
Speaker 4: adjustments where you can, you know, synthetically mark to market
Speaker 4: those investments and do it more thoughtful portfolio construction. Well,
Speaker 4: these are great assets generally, they're just not free lunches.
Speaker 5: So Sebastian, what do we doing in the bond market here,
Speaker 5: how much credit risks should you be taking in a
Speaker 5: world that has black Swan events, has a lot of
Speaker 5: cross currents, has a lot of geopolitical risk here, how
Speaker 5: about credit?
Speaker 4: We're slightly long credit. And yesterday was interesting because the
Speaker 4: relief rally was clearly risk on. You saw high yield
Speaker 4: spreads titan again to Tom's point, the Vicks went down,
Speaker 4: you had five percent pops and stock prices also, it
Speaker 4: was favorable to the broadening. You know, European stocks did well,
Speaker 4: Emerging market stocks, small caps, they all are performed. But
Speaker 4: I think we also need to accept that there's remaining
Speaker 4: inflation pressures. Damage has been done and all prices yesterday
Speaker 4: they went down twenty percent, but they stabilized fifty percent
Speaker 4: higher than they were twelve months ago. So we don't
Speaker 4: expect a recession. The underlying forces in the economy are
Speaker 4: actually pretty good, because you know, the Bloomberg's economic surprise
Speaker 4: and dext is at its highest in two and a
Speaker 4: half years. And someone just showed me data that the
Speaker 4: tax refunds are running fourteen percent higher than last year.
Speaker 4: So quietly, in the background of all these headlines, the
Speaker 4: economy's humming if not accelerating, so we don't expect a recession.
Speaker 4: We're short duration because we're worried about inflation risk, but
Speaker 4: we're slightly long credit.
Speaker 5: What do you expect, Sebastian, This fed a reserve to do.
Speaker 5: It looks if I'm just looking at the worp function
Speaker 5: on the Bloomberg terminal, I got nothing. I mean, the
Speaker 5: market's not looking for cuts, not looking for hikes. It
Speaker 5: looks like they're just going to sit on their hands here.
Speaker 4: I think nothing is the base case. But if you
Speaker 4: ask me, where's the skew to use a technical term, right,
Speaker 4: can you get is the probability of an upside surprise
Speaker 4: and inflation greater than the probability of a downside surprise?
Speaker 4: I'll give you a resounding yes.
Speaker 3: You know.
Speaker 4: Just look at where oil prices is stabilizing on a
Speaker 4: day like yesterday, when we think we think this trait
Speaker 4: is going to reopen, it's nowhere near where it was.
Speaker 4: And go ahead, Tom, well, I got it.
Speaker 2: We gotta go.
Speaker 3: Keith Lender is here going win a man? Sebastian, As
Speaker 3: simple as I can. If you attended the Oriols yet,
Speaker 3: if you sat in the Tiro price box.
Speaker 2: It's in the dugout. And have you seen Alonso play
Speaker 2: yet for the Orioles.
Speaker 4: I haven't. I can't wait to go. You know, players
Speaker 4: are wearing a Tiro Price patch. We have Tier Price
Speaker 4: signage at the stadium. It's a wonderful partnership between the
Speaker 4: Orioles and Tiro Price where we have our global headquarters.
Speaker 4: So and tom My dream is to watch a game
Speaker 4: with you one day.
Speaker 2: Well, we'd like to do that.
Speaker 3: I'd love to see the I saw the Canadians the
Speaker 3: other day in New Jersey, Sebastian. I would kill to
Speaker 3: see les Abiitan with Sebastian Page always of Quebec.
Speaker 2: Sebastian, thank you so much.
Speaker 3: His book, The Psychology Leadership is out now, folks getting
Speaker 3: a heavy read by corporate leaders.
Speaker 2: Stay with us.
Speaker 3: More from Bloomberg Surveillance coming up after this.
Speaker 1: You're listening to the Bloomberg Surveillance podcast. Catch us live
Speaker 1: weekday afternoons from seven to ten am Eastern Listen on
Speaker 1: Apple Karplay and Android Otto with the Bloomberg Business app,
Speaker 1: or watch us live on YouTube.
Speaker 3: The incredible and recent work of Jennifer Welch, chief JE
Speaker 3: Economics Analysts for Bloomberg Economics. Jennifer, I'm honored to have
Speaker 3: you on one of the most painful books of my life.
Speaker 3: And this goes to your East Asian studies in Beijing
Speaker 3: with Bucknell, and it was Daniel kurtz Phalen's one volume
Speaker 3: on Marshall in nineteen forty six. There was a ceasefire
Speaker 3: and it didn't work out well in China in nineteen
Speaker 3: forty six. I know you studied that your thoughts on
Speaker 3: a ceasefire in twenty twenty six.
Speaker 6: Yeah, So the ceasar at the moment is looking rather
Speaker 6: fragile and rather ambiguous. It's unclear what terms it contains.
Speaker 6: It's unclear whether it is fully in place at the moment.
Speaker 6: The strait of her moves seems still be subject to
Speaker 6: Iranian control, and there's ongoing fighting in Lebanon, which Iron
Speaker 6: says is a violation of the ceasefire. Now that being said,
Speaker 6: it does seem negotiations are still moving forward this weekend,
Speaker 6: led by US Vice President Jad Vans and Iran Speaker
Speaker 6: of the Parliament, but there's very narrow space for a
Speaker 6: deal that lasts beyond the two week pause.
Speaker 3: Am I control, As I said to Paul earlier, where
Speaker 3: in Lord's name is the Secretary of State doing shuttle diplomacy.
Speaker 6: It is a excellent question, and I think it's not
Speaker 6: entirely coincidental that Secuary of State Mark or Rubio, who
Speaker 6: is also the National Security Advisor, hasn't seemed to be
Speaker 6: as directly involved in this conflict as he has, for example,
Speaker 6: in US operations in Venezuela and US policy on Cuba.
Speaker 7: It seems that he is focusing.
Speaker 6: Largely on Latin America, and President Trump has asked JD.
Speaker 7: Vans to take the helmet negotiations here.
Speaker 6: Now, that might be attempting to play to a domestic
Speaker 6: political audience, with JD.
Speaker 7: Vans being a known.
Speaker 6: Sort of skeptic of US foreign policy arrangements and sort
Speaker 6: of a way of signaling to Trump's base, don't worry,
Speaker 6: We're sending sort of our most skeptical person out there
Speaker 6: to make sure that we extract ourselves from this conflict
Speaker 6: that we launched.
Speaker 5: So what are the choices realistically for the US and
Speaker 5: for President Trump here as negotiations begin.
Speaker 6: So, frankly, President Trump doesn't have a huge number of
Speaker 6: options at his disposal right If Aron is seen as
Speaker 6: still not making good on its promise to reopen the
Speaker 6: straight of per Moves, which Trump said was critical to
Speaker 6: the ceasefire.
Speaker 7: He really has two choices.
Speaker 6: He can either threaten as he has to use military
Speaker 6: force against them, saying that the ceasefire is now Nolan void.
Speaker 7: I think the bar for that is rather high. This
Speaker 7: is an unpopular war in the United States. Gas prices
Speaker 7: are still rather high. He's clearly looking for an exit ramp.
Speaker 6: So that leads to the second option, which is diplomacy,
Speaker 6: and I think that's why we are seeing talks happening
Speaker 6: this weekend and there It's also difficult to say because
Speaker 6: the White House is saying that the ten terms around
Speaker 6: has put out publicly are not the terms are negotiating over.
Speaker 6: But even if we look at those ten terms, we
Speaker 6: think that there is the potential for a landing space
Speaker 6: for a deal. There are probably some areas Iran's willing
Speaker 6: to compromise on, areas the United States is willing to
Speaker 6: compromise on. I think the key sticking point is going
Speaker 6: to be how much Washington takes into account Israel's perspective,
Speaker 6: which is probably far less willing to accept some of
Speaker 6: the terms that Iran.
Speaker 7: Has put on the table, at least publicly.
Speaker 3: Jennifer Wells, chief geoeconomics analysts for Bloomberg and Economics. Jennifer
Speaker 3: on the economics of the moment, it is the cost
Speaker 3: of the war or do we just print bill notes
Speaker 3: and bonds and we don't care about the cost of
Speaker 3: the war?
Speaker 6: Well, I think there are two dimensions to the cost
Speaker 6: of the war for the United States. There's the military dimension,
Speaker 6: the cost of operations and in the Middle East, and
Speaker 6: clearly that's something that is high and probably rising further.
Speaker 6: The longer that these assets are deployed away from their
Speaker 6: home stations, the more maintenance they will need.
Speaker 7: After the fact.
Speaker 6: The more that we are deploying, in particular more personnel
Speaker 6: who the region, the higher those payroll costs are going
Speaker 6: to be. And then there's the second dimension, which is
Speaker 6: probably the one that President Trump is more sensitive to,
Speaker 6: and that's the oil price dimension and how that affects
Speaker 6: prices back at the pump here in the United States.
Speaker 6: That's obviously something that's incredibly domestically politically sensitive and salient,
Speaker 6: and that's probably the trigger that he is most closely
Speaker 6: paying attention to, along with the resulting impact on markets.
Speaker 5: Jennifer real quick here the Straight of HORNUS. I guess
Speaker 5: we're all getting small on this. How important it is.
Speaker 5: Before this war, it was effectively open to all international traffic.
Speaker 5: Now it's not. How was that an improvement for the US.
Speaker 6: That's a great question, and I think there's still many
Speaker 6: questions looming about what the ultimate path forward for her
Speaker 6: Moves is. Iran is saying that it wants to charge
Speaker 6: a toll, that it wants any vessels transitting through to
Speaker 6: do so in coordination with its military, and as several
Speaker 6: leaders in the region have pointed it out, that's not
Speaker 6: a free and open her Moves. That is still controlled passage,
Speaker 6: and so I think that is going to have a
Speaker 6: real constraining effect on how much traffic can go back
Speaker 6: to the Strait now. Obviously, I think negotiators this weekend
Speaker 6: are going to be trying to hammer this out. The
Speaker 6: US is going to be pushing for truly reopening it.
Speaker 6: But at the same time President Trump has turned out
Speaker 6: this idea of a joint toll, So a lot of
Speaker 6: questions still remaining.
Speaker 3: Jennifer, thank you so much. Jennifer Welch Bloomberg Economics today
Speaker 3: just brilliant. Stay with us more from Bloomberg Surveillance coming
Speaker 3: up after this.
Speaker 1: You're listening to the Bloomberg Surveillance podcast. Catch us live
Speaker 1: weekday afternoons from seven to ten am Eastern Listen on
Speaker 1: Apple Karplay and Android Otto with the Bloomberg Business app,
Speaker 1: or watch us live on YouTube Android.
Speaker 3: Perrald joins us down at HI Vista Strategies with all
Speaker 3: of his work as well at HBS in Boston. And
Speaker 3: I mean the parchment, folks, is important, the George Gunn,
Speaker 3: Professor of Finance and Banking Emeritus at HBS. It carries
Speaker 3: a lot of way to it. Is the stereotype of
Speaker 3: HBS the same as it was thirty years ago?
Speaker 2: Is it still case study? Rigor?
Speaker 8: It's a good stereotype, Okase, study grounded in the real world,
Speaker 8: having serious conversations with very smart people did nothing.
Speaker 9: Nothing can beat that.
Speaker 3: I mean, I think of the number I thank you
Speaker 3: so much down the road at MIT, Simon Johnson and
Speaker 3: Gary Gensler mentioning me and Paul in their latest podcast
Speaker 3: Down the River. At MIT and at Harvard, we're all
Speaker 3: dealing with AI. I assume there isn't a case study
Speaker 3: yet at AI.
Speaker 2: What's it going to look like?
Speaker 8: In five years now they're no okay, studies on AID
Speaker 8: all now. It totally pervades the curriculum completely, and startups
Speaker 8: and students trying to startups in the summer.
Speaker 9: And in the second year. And AI is a very
Speaker 9: big part.
Speaker 3: So I got to get to it. Paul's got any questions.
Speaker 3: I got to get to it as simple as I can.
Speaker 3: Everybody listening, everybody watching across America, what is the parole
Speaker 3: formula to embrace AI and keep going?
Speaker 9: Start my being scared.
Speaker 8: If you don't understand AI and use it yourself, you
Speaker 8: will be out.
Speaker 9: Of a job. So get with it. Learn it. Learn
Speaker 9: to vibe code? What code? Vibe code? You you can.
Speaker 8: Program yourself by talking to a program and it writes
Speaker 8: code and any of us can do it. If you
Speaker 8: can do Excel, you can do vibe coding. It's extraordinary,
Speaker 8: all right.
Speaker 5: So let's well the AI story before the war, it
Speaker 5: was all AI for the last three four years in
Speaker 5: this marketplace. Now we've got geopolitical risk, at least temporarily
Speaker 5: on the front burner.
Speaker 9: What's an investor to do?
Speaker 5: How do you instruct perhaps some of your students, HBS,
Speaker 5: there's a lot, it's arguably a more complicated world today
Speaker 5: than it was ten twenty, thirty forty years. So you
Speaker 5: could probably always say that, but how do you set
Speaker 5: that up in terms of trying to build a portfolio here.
Speaker 8: So, firstly, it's the most amazing world. It's crazy dynamic.
Speaker 8: I call it a world of exponential change on many dimensions.
Speaker 8: Think what's happening with AI AI on jobs, it's eviscerating jobs,
Speaker 8: it's creating jobs. It's eviscerating firms. It's creating firms at
Speaker 8: a pace we've never seen. War offense, Look at fiscal
Speaker 8: deficits completely out of control, inflation. Look what's happening with energy,
Speaker 8: you know, immigration, Just look around the world. It's scary,
Speaker 8: but it's changing rapidly and it's very exciting.
Speaker 9: So in a world like that where.
Speaker 8: It's changing rapidly, the chances you can get an edge
Speaker 8: if you're careful go way up. So if you're an investor,
Speaker 8: if the world is static, it's very hard to get
Speaker 8: an edge because everyone just catches up.
Speaker 9: But in this world you can get an edge.
Speaker 8: It's a fantastic place to be an active investor and
Speaker 8: for a career. I say to young people you should
Speaker 8: go to places where you can get an edge. Go
Speaker 8: where there's exciting new things happening as opposed to a
Speaker 8: staid old place.
Speaker 9: So where is that today?
Speaker 5: My coming through business school myself, it was Wall Street
Speaker 5: and consulting. Now it seems so much broader technology as
Speaker 5: taking some of the best and brightest. Where do you
Speaker 5: see some opportunities? Is it all AI today?
Speaker 8: It's well, stuff is related. I'll give examples. So electricians
Speaker 8: are in crazy demand. Okay, I don't know how many
Speaker 8: Nbas want electrician jobs, but they it's a fantastic job today.
Speaker 8: Data centers are consuming them and there's a huge shortage.
Speaker 8: It's an example of a job category that is amazing for.
Speaker 3: Global Wall Street Mark Champion coming up in a bit,
Speaker 3: but we are honored to bring an under approval of
Speaker 3: HBS CIO partner at High Vista Strategies as well. In HBS,
Speaker 3: did they still teach modern capitalism the first year that
Speaker 3: macroc course from ages ago?
Speaker 9: They teach it in varying ways.
Speaker 8: I would teach finance, and I think teaching finance is
Speaker 8: the is the most fantastic way to teach capitalism. It's
Speaker 8: about markets, right and what it does for the economy.
Speaker 3: I mean you sound like v body over at the
Speaker 3: other school there and coming with the avenue as well.
Speaker 3: Then help me here with your thoughts on the ginormous
Speaker 3: bond issuance. Are Robert Shifman saying we could see a
Speaker 3: multi billion dollar tens of billion a dollar amount of
Speaker 3: Facebook deal coming out of the transactions just in the
Speaker 3: last six six hours. How do you perceive the megabond
Speaker 3: deals and the demand for them.
Speaker 8: So the bond issuance right now, they have great credit
Speaker 8: rating so they can fund these data centers. Data centers
Speaker 8: get funded by guarantees from these things, and that's related
Speaker 8: to their bond issuance. But bond issuance at large in
Speaker 8: the economy.
Speaker 9: That is huge.
Speaker 8: The federal deficit for one, so real rates are extraordinary.
Speaker 8: You can buy thirty inflation bonds yielding two point seven
Speaker 8: locked in for thirty years, so as long as the
Speaker 8: government doesn't default, I'm getting two point seven plus inflation.
Speaker 8: If we go to stagflation, those will rerate yields down,
Speaker 8: prices up plus inflation protection. Why would you buy gold
Speaker 8: if you worried about monetary debasement, buy inflation bonds. GDP
Speaker 8: growth is like two two in a bit and I'm
Speaker 8: getting two seven on inflation bonds.
Speaker 5: It sounds like one of those young selling me some song,
Speaker 5: you know, moving some bonds exactly. Professor inefficiencies in the market,
Speaker 5: They're hard to find. However, one area to me in
Speaker 5: the equity markets that seems incredibly inefficient. It's almost a
Speaker 5: binary response. Is biotech. Either the thing works and you
Speaker 5: double your money, or the test fails and it goes
Speaker 5: to zero. How do you approach something like that with
Speaker 5: that risk profile.
Speaker 9: So we love biotech. It's a hedge fund investor.
Speaker 8: That's a stockpicker's dream because the upside is huge, the
Speaker 8: downside is huge. If you know what you're doing, you
Speaker 8: can distinguish it's event rich. Every time there's a clinical
Speaker 8: trial readout, it's an event. Every time there's a financing,
Speaker 8: it's an event. So it's a hedge fundream. You've got events.
Speaker 8: They shortened the time horizon on what's otherwise a long
Speaker 8: dated investment.
Speaker 2: Did biotech save Boston?
Speaker 3: Basically it came along jen Zimon all that years ago,
Speaker 3: and then it worked out from there and did essentially
Speaker 3: the courage to do biotech and the ge thing in
Speaker 3: Fidel do you know that it's saved.
Speaker 8: Boston and now it's hurting Boston because biotech took a
Speaker 8: big whack the last few years. Why because rates went
Speaker 8: up the cost they consume capital. They never make money,
Speaker 8: they get sold to farmer when they do make money,
Speaker 8: so they always consuming capital.
Speaker 9: Okay, rates go up, It really.
Speaker 8: Hurt them and they shut down tons of labs who
Speaker 8: were built and those have been show.
Speaker 3: Is that the analog for AI where they're consuming tons
Speaker 3: of capital and it's going to be.
Speaker 8: Oops, it could absolutely be absolutely the capital consumption startups.
Speaker 8: A startup today is in the billions of of value
Speaker 8: consuming megacap.
Speaker 5: X is at high vista strategies.
Speaker 2: How do you guys play the AI story?
Speaker 9: So AI is it's hard. We think of it as
Speaker 9: shorten your time horizon.
Speaker 8: What AI has done and all these other dynamic changes
Speaker 8: is it means terminal values are very hard to figure out.
Speaker 8: So if you take software sasmageddon or sas apocalypse, it's
Speaker 8: shortened the time rise. You know, earnings are great, but
Speaker 8: you don't have terminal values. So think very hard about
Speaker 8: terminal values.
Speaker 5: Do you think some of the sell off and some
Speaker 5: of these software stories which were so well regarded for
Speaker 5: so many years. Is that overdone?
Speaker 8: Some of them might be, But look at Claude came
Speaker 8: out with Mythos yesterday. It's going to eviscerate a lot
Speaker 8: of cybersecurity stocks and.
Speaker 3: Firms so powerful. Yeah, so right, Andrew peroled with us
Speaker 3: and we continue partner cio. Hi Vista strategy is truly
Speaker 3: definitive at Harvard Business School. Mister Kaplan was in the
Speaker 3: other day of the Dallas Fed and Goldbin's an original
Speaker 3: interview I did years ago with Quinn Mills. It's just
Speaker 3: been very kind to Team Surveillance. I want you to
Speaker 3: speak now to the graduate students across this nation looking
Speaker 3: for a job. And it ain't happened in the first
Speaker 3: week at April. We've been here before. This too will
Speaker 3: pass or is there something different going on from newly
Speaker 3: minted top tier MBAs.
Speaker 8: It's going to pass, but it's going to take time
Speaker 8: until so. AI will destroy, but AI will create, and
Speaker 8: we're going to go through a period of destruction before
Speaker 8: you get creation. So what do you do in the meantime?
Speaker 8: Build your human capital? Realize that your human capital is
Speaker 8: the only real asset you have.
Speaker 9: It's worth a fortune.
Speaker 8: Invest in it make connections. Think of skills that you need,
Speaker 8: now invest in those. And if you don't have a
Speaker 8: great job for the next year, so what invest in
Speaker 8: your human capital. It's the best thing you can do.
Speaker 3: Look at you know where we are, and everybody's telling
Speaker 3: me out there where AI is going to create jobs?
Speaker 2: Is that a hope?
Speaker 3: Which is a word I everything in literature. I circle
Speaker 3: when I see the word hope is trouble? The answer
Speaker 3: is there is there a model where you see job
Speaker 3: creation or is it just simply a hope?
Speaker 8: I think it's like the Internet. Look but look at
Speaker 8: all of the businesses around today. I would never have
Speaker 8: existed without the Internet. And look at the employment rate
Speaker 8: it's low. How's that possible? The jobs created in with
Speaker 8: new tech or extraordinary? It may take a while this time.
Speaker 5: Where do you put the AI on this companium of
Speaker 5: I've heard someone I'll say, hey, you got electricity really high,
Speaker 5: the Internet a little bit lower. AI is probably just
Speaker 5: below electricity in terms of its importance to mankind? Do
Speaker 5: you take it to that level?
Speaker 8: One hundred percent? I used to think there was a
Speaker 8: chance it would fizzle out. Okay, and now when you
Speaker 8: see the rapidity and the impact. It feels like it's
Speaker 8: it's a total game finger.
Speaker 2: Can you do it?
Speaker 3: Study in the Boston Red Sox. Can we get something
Speaker 3: done here before the end of the year.
Speaker 9: We know the answer.
Speaker 8: They only went a few times every two centuries, so
Speaker 8: we know the answer is not a good case study.
Speaker 2: There, We're good. There's the case study. Thank you so
Speaker 2: much for coming in. Please don't be a stranger. Andrey
Speaker 2: Perld with us of h Legendary.
Speaker 3: At HBS, I should say in partners Cio High Vistas Strategies,
Speaker 3: stay with us. More from Bloomberg Surveillance coming up after this.
Speaker 1: You're listening to the Bloomberg Surveillance podcast. Catch us live
Speaker 1: weekday afternoons from seven to ten am Eastern Listen on
Speaker 1: Apple Karplay and Android Auto with the Bloomberg Business app,
Speaker 1: or watch us live on YouTube.
Speaker 3: Courtney Rosenberger Gellman joins us working with Jason Trener and
Speaker 3: Dan Clifton, strategist Securities, and we welcome her this morning.
Speaker 2: Courtney.
Speaker 3: One of your great focuses is NATO. I would suggest
Speaker 3: it's incredibly off the American radar.
Speaker 2: Let's start with the why.
Speaker 3: Why should we focus on this fractious relationship between President
Speaker 3: and Trump in NATO.
Speaker 7: Thank you for having me.
Speaker 10: I mean, we even NATO is just something that's missing,
Speaker 10: you know, something that's being underpriced by investors. And it's
Speaker 10: certainly not our base case that there's going to be
Speaker 10: a US withdrawal from NATO. But I do think that
Speaker 10: there's a little bit of complacency when we talk to
Speaker 10: investors and others who are who are in the space
Speaker 10: about the fact that there's this law that prevents the
Speaker 10: president from withdrawing. But the president has a number of
Speaker 10: other options that he can take that can weaken NATO
Speaker 10: or kind of withdraw the US kind of a name
Speaker 10: or at least in practice from NATO. So we see
Speaker 10: it's very important and just important in terms of how
Speaker 10: the US interacts with the rest of the world, especially
Speaker 10: as we do enter this period where it seems like
Speaker 10: geopolitical conflict is kind of becoming Hotter.
Speaker 2: Explain them to me.
Speaker 3: I'm still in shock over the idea that NATO and
Speaker 3: Brussels there's a Swedish flag and a Finnish flag. Our
Speaker 3: Francis Lacroix with their reward acclaimed conversation with mister Stubbs
Speaker 3: of Finland what to Finland and Sweden is the newbies.
Speaker 3: What do they think of all this tension of this
Speaker 3: agreement back to the Atlantic Charter.
Speaker 10: Well, I'm not sure what they think specifically, but I mean,
Speaker 10: if I were then they joined NATO in an effort
Speaker 10: to thinking that they were joining a coalition that was
Speaker 10: going to be able to help them defend against threats
Speaker 10: that are again becoming more and more prominent. And it
Speaker 10: seems like this alliance is weakening, and again you have
Speaker 10: the administration not threatening to withdraw from it entirely. And
Speaker 10: if the US withdraws from NATO, does NATO still really exist?
Speaker 10: I think that that's the larger question. So I'm sure
Speaker 10: that there's concerns about the fact that they made these
Speaker 10: efforts to join an institution that it seems like it's deteriorating.
Speaker 5: Courtney, what do you think is would be a reasonably
Speaker 5: decent scenario here for the US to get out of
Speaker 5: this conflict in Iran? The reasons for getting inter in
Speaker 5: in the first place, I think for a lot of
Speaker 5: people remain unclear.
Speaker 9: So maybe that makes it.
Speaker 5: More difficult to actually get out of Iran in a
Speaker 5: successful way.
Speaker 2: How do you view that we have a lot of questions.
Speaker 10: I mean, certainly there's no good answers at this point.
Speaker 10: The president was boxed in, and that's why you have
Speaker 10: this ceasefire that was agreed to you for two weeks
Speaker 10: that has kind of unclear parameters. But the US and
Speaker 10: Iran seeming to have agreed to negotiate different points. So
Speaker 10: I think that there's a lot of questions about what
Speaker 10: ultimately this will look like. But we do think that
Speaker 10: the president wants to get out of Iran and move
Speaker 10: on to other priorities. The fact that Jade Vance, Vice
Speaker 10: President Vance was appointed to lead these negotiations, I think
Speaker 10: is important just because of the headlines about how he
Speaker 10: was opposed to going into Iran and the military action.
Speaker 10: So if he is running point on this and the
Speaker 10: ceasefire does hold, I think the US is going to
Speaker 10: look for any option that it can take to not
Speaker 10: have a military conflict extent. I do think that there's
Speaker 10: probably going to be a good deal of trying to
Speaker 10: give Iran what it wants reasonably, so probably kind of
Speaker 10: more concessions than kind of might have been thought about
Speaker 10: six weeks ago in terms of Iran's control of the streets,
Speaker 10: allowing them to impost tolls sanctions really.
Speaker 7: In some of those other measures.
Speaker 3: The first sentence of our claim top life go says
Speaker 3: the White House said the US will hold.
Speaker 2: Direct talks with Iran. Ok. I don't know what that means.
Speaker 3: That's how fluid this is right now. And it's such
Speaker 3: a privilege to speak to Courtney Rosenberger Gelman because Paul,
Speaker 3: this is the key, as you mentioned, am I right,
Speaker 3: Islamabad Friday or Saturday.
Speaker 5: Yeah, that's the zeitgeist right now, and vice President of
Speaker 5: VANCE will be there, and I'm not sure. And so
Speaker 5: the question is will the US negotiate directly with or
Speaker 5: any representations or through some Pakistani But.
Speaker 3: This needs clarify case sure a lot into Thursday and Friday.
Speaker 5: Yeah, So Accordney, again, what does this mean here for
Speaker 5: the region in the Mid East? Here it seems like
Speaker 5: even if there is a permanent cease fire here, things
Speaker 5: have materially changed in the Mid East. How do you
Speaker 5: view that going forward?
Speaker 2: I think that that's correct.
Speaker 7: I think we have a lot of questions.
Speaker 10: Is this going to be something like the nineteen nineties
Speaker 10: post Golf War, where there's several years of rebuilding of trust.
Speaker 10: That's certainly a scenario. Is this going to be a
Speaker 10: situation where trust is permanently gone between countries? Because I
Speaker 10: think a lot of these Gulf nations are surprised and
Speaker 10: upset I Ran for the fact that they attack them.
Speaker 10: And then I also think, you know, we have to
Speaker 10: consider does the fact that kind of geopolitics and war
Speaker 10: around energy be coming back into focus? Does China try
Speaker 10: to make moves into the Middle East? Does Russia trying
Speaker 10: to make moves into the Middle East? Does I Ran
Speaker 10: allow China to build a base. China only has one
Speaker 10: base in the Middle East, one known base I should
Speaker 10: stand in the Ely East.
Speaker 7: So does it become a.
Speaker 10: Center of geopolitical conflict as well?
Speaker 3: A lot of questions Courtney, you got to put up
Speaker 3: with Dan Clifton, which is, you know, a weight into itself,
Speaker 3: synthesize your work and the rest is strtiguous securities work.
Speaker 3: Is President Trump a lane duck right now?
Speaker 2: What is the thought of your Washington shop?
Speaker 10: I mean, definitionally, he is because he is not able
Speaker 10: to run for reelection, but he still has a lot
Speaker 10: of power and a lot of sway over the party.
Speaker 10: He is the face of the Republican Party. So we
Speaker 10: don't see him as kind of not able to implement
Speaker 10: policy at this point. He has proved that he can
Speaker 10: use executive authority to implement an agenda really without the
Speaker 10: need for much from Congress. So we still see a
Speaker 10: lot of investment implications and outcomes that can come from
Speaker 10: the President using his authority.
Speaker 3: Courtney, thank you so much, really appreciate it. This morning
Speaker 3: and important brief Courtney Rosenberger at Gilman with Jason Trenton's
Speaker 3: Strateiga's Securities.
Speaker 2: In part Stay with us.
Speaker 3: More from Bloomberg Surveillance coming up after this.
Speaker 1: You're listening to the Bloomberg Surveillance podcast. Catch us live
Speaker 1: weekday afternoons from seven to ten am Eastern Listen on
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Speaker 1: or watch us live on YouTube.
Speaker 3: Andrew Jackson joins us. Now we are thrilled to do
Speaker 3: this is a Vaunteville asset management. You may not know
Speaker 3: that wonderful European and Swiss shop as well. He is
Speaker 3: in Zurich and joins us in studio today as well.
Speaker 3: Yesterday I came in and the first thing I looked
Speaker 3: at is Swiss Frank is a flight to quality. This war,
Speaker 3: Given all of the independence of Switzerland, its heritage back
Speaker 3: a zillion years, how does this work look from Zurich.
Speaker 11: It's not great news story for those of you who
Speaker 11: sit in You're right, the strength of the Swiss Frank
Speaker 11: is not fantastic. But as a as a business based
Speaker 11: in Zurich, it's really positive. People are looking around the world,
Speaker 11: there's a sort of geopolitical mailstream occurring, and they're looking
Speaker 11: for stabilization. They're looking for stability, they're looking for no nonsense.
Speaker 11: You know, I know what I'm going to get from you,
Speaker 11: and Switzerland provides that, and that's a nice news story
Speaker 11: for Zurich based companies. It's a nice news story for
Speaker 11: Swiss banks generally. But then also in the background, you've
Speaker 11: got some you know, uncertainty about the regulatory backdrop in Switzerland,
Speaker 11: which is the headwind that we're facing as we sit
Speaker 11: in Switzerland.
Speaker 3: Paul, this is the precursor to jpm Worgan's earnings After
Speaker 3: the Diamond Letter.
Speaker 5: Life goes on, it does andrew in the world of
Speaker 5: fixed income in the last six seven weeks, with all
Speaker 5: this uncertainly on the geopolitical front with Iran, what are
Speaker 5: your clients asking you, is it where we should maybe
Speaker 5: allocate some capital outside of the US In the US,
Speaker 5: I mean, what's the regional play for you.
Speaker 11: There's three questions that people are asking. First question they're
Speaker 11: asking is what's the medium and long term perspective on
Speaker 11: global economy US trading relationship with the rest of the world.
Speaker 11: That's a very complex problem that we could spend hours
Speaker 11: talking about. The second is what happens to the US dollar? Candidly,
Speaker 11: that is a major topic of conversation. And then the
Speaker 11: third is how should we allocate our capital with this
Speaker 11: level of uncertainty and how should we trade our capital
Speaker 11: with this level of uncertainty. The response that we're giving
Speaker 11: is this is an environment in which you should be trading.
Speaker 11: You should be moving your portfolio a mound around a
Speaker 11: higher level of turnover in this setting than you would
Speaker 11: do in normal circumstances. Yesterday is a great example. Yesterday
Speaker 11: wasn't a rally. It was a short squeeze plus a rally,
Speaker 11: and that's why it was so powerful. There were a
Speaker 11: lot of shorts that had their fingers burnt yesterday, and
Speaker 11: a lot of the price action was around shorts. That's
Speaker 11: why I think we're seeing the top come off of
Speaker 11: some of those moves from yesterday. So we were encouraging
Speaker 11: our clients to be a bit more active to trade
Speaker 11: these markets a little more because the uncertainty, the short
Speaker 11: term uncertainty, is maybe clouding your vision that over the
Speaker 11: long term things are more predictable than they are over
Speaker 11: that sort of daily cycle.
Speaker 5: And I think a lot of folks are saying, to
Speaker 5: the extent you can afford to look past the short
Speaker 5: term volatility, fundamentals are pretty solid out there. We're going
Speaker 5: to get earning starting next week, as Tom's mentioned with
Speaker 5: JP Morgan, we'll kick it off. Economic trends seem pretty solid,
Speaker 5: Earning seem pretty solid. You know, rates are steady at
Speaker 5: probably the worst case scenario.
Speaker 9: So I don't know, Yeah, I totally agree with you.
Speaker 11: I think credit fundamentals in particular look rock solid almost everywhere.
Speaker 11: At this point in a credit cycle, having been so
Speaker 11: long since we last had a credit cycle, you'd expect
Speaker 11: HI yield to start to look worse, leverage to start
Speaker 11: creeping up, you to have more worries. There are less
Speaker 11: worries than you would actually think private credit aside, the
Speaker 11: software exposure aside. Other than that, credit fundamentals look strong,
Speaker 11: which is why I think technicals were so good in
Speaker 11: fixed income rates aside, the credit side of fixed income
Speaker 11: did very well over the last four weeks.
Speaker 2: Andrew Jackson vauntable with us and we continue here.
Speaker 3: Lots coming up, Claudias sim later, Mark Champions scheduled as well.
Speaker 3: One of the heroes in my house as a kid
Speaker 3: was James Clerk Maxwell, which is magnetism. It's actually, folks,
Speaker 3: pretty difficult mathematics.
Speaker 2: I didn't do that well at it.
Speaker 3: You darkened the door at King's College in London, where
Speaker 3: he was absolutely iconic as well.
Speaker 2: You know the variables.
Speaker 3: There's an epsilon on the back end of every equation,
Speaker 3: which is the unknown risk out there, the systemic risk
Speaker 3: measure right now for the pros listening the epsilon that's
Speaker 3: out there.
Speaker 11: Yeah, I think it's meaningful as a brit here in
Speaker 11: New York, our relationship with the US is the starting point.
Speaker 2: You know.
Speaker 11: I've been asked by a number of people, how are
Speaker 11: you feeling here in New York? New York was my
Speaker 11: second home for many many years. I used to come
Speaker 11: here regularly. I've worked here for a while and that
Speaker 11: has changed and that shift. It's got wider ramifications than
Speaker 11: people realize, and that level of uncertainty is making investors,
Speaker 11: I think, are a little more uncomfortable, and they're being
Speaker 11: forced to diversify away from where they used to previously
Speaker 11: put their bets. And I think for me, it's easy
Speaker 11: to talk about how much uncertainty there is. You don't
Speaker 11: want to get irrationally sort of bearish about things. I'm
Speaker 11: a fixed income guy, so it's easy for me to
Speaker 11: see the downside. But there is a very very large
Speaker 11: level of uncertainty, and the US's relationship with the rest
Speaker 11: of the world is critical to that.
Speaker 3: Reading a fobosi, what do you do given the stress
Speaker 3: with duration? Is it efficacious to play duration or do
Speaker 3: you just hide?
Speaker 2: No, I don't think you hide.
Speaker 9: I think you have to be involved.
Speaker 11: I think you probably have to trade it. Going back
Speaker 11: to the theme, do I think the move in short
Speaker 11: end rates over the last four weeks has been rational?
Speaker 2: Yes?
Speaker 11: I actually actually do you know? Strength of horll moves
Speaker 11: closed is bad for information, particularly in Germany, and therefore
Speaker 11: short end rates should be moving around. The ECB setting
Speaker 11: has fundamentally shifted over the last six weeks. Six weeks ago,
Speaker 11: no one would have predicted the ECB would raise rates
Speaker 11: in the next twenty four months. Now we have to
Speaker 11: price that in that level of uncertainty, and that confidence
Speaker 11: that we were only heading on a down with trajectory
Speaker 11: in terms of underlying rates has been eroded. But to
Speaker 11: play duration, I think, yeah, there's lots of parts of
Speaker 11: the curve that you can play duration. The longer dates,
Speaker 11: I think you've got a higher degree of confidence because
Speaker 11: medium term confidence is higher than that short end.
Speaker 5: When about a year ago, just today, almost when the
Speaker 5: tariffs really came into effect, there was a sale of
Speaker 5: US assets, the dollar, bonds, stocks, How has that trade
Speaker 5: these days? How are your clients thinking about the US
Speaker 5: versus rest of world? Because we did see a lot
Speaker 5: of those funds come back to the US, but now
Speaker 5: the world's changed it yet again.
Speaker 11: Yeah, I think the big theme that we saw in
Speaker 11: the back end of last year, and it wasn't necessarily
Speaker 11: as a direct result of the tariff conversations, but people
Speaker 11: shifted to thinking about emerging market fixed income and emerging
Speaker 11: market equities again in real fashion, in order to provide
Speaker 11: them diversification, not necessarily as a return play, but as
Speaker 11: a diversification play. People still talk about US high yield,
Speaker 11: of course they do. I was in Chile a couple
Speaker 11: of weeks ago. They're still allocating to US high yield,
Speaker 11: but their allocation to US highyield is probably lower than
Speaker 11: their allocation to emerging market fixed income right now. And
Speaker 11: within equities land, yes, of course they're going to allocate
Speaker 11: to US equities, but they're definitely going to start looking
Speaker 11: at emerging market equities again. So I think that's the
Speaker 11: long term ramifications of what we saw last year. And
Speaker 11: I thought the price action that we saw last year
Speaker 11: post the tariff talk, you know, that was very irrationally.
Speaker 11: That was a very irrational move. We've stabilized from there,
Speaker 11: this more recent move from the outside in. I would
Speaker 11: it expected this the Uranian conflict to have been a
Speaker 11: bigger deal for markets than what we saw last year.
Speaker 2: Andrew I was almost fired once. Okay, I can't believe
Speaker 2: that's Zurich.
Speaker 3: Okay, Al from New Jersey costs me up and he goes,
Speaker 3: how much did you spend at the McDonald's down the
Speaker 3: street from Vauntable.
Speaker 2: Are the prices of Zurich still stupid? Insane?
Speaker 11: I wateringly insane?
Speaker 2: It's it's it's like McDonald's way back then was twenty
Speaker 2: five bucks. Yeah, it must be like forty bucks now.
Speaker 11: But Tom, the quid pro quote for that is everything works.
Speaker 11: Everything works in Zurich. Everything's on times, on time, The
Speaker 11: trains are on time, the tramp you can get a
Speaker 11: countdown to when the trains arriving in seconds in Zurich.
Speaker 11: So you've got something nice about being there.
Speaker 2: You got Barretto, which is great.
Speaker 3: It's this wooden bar folks, it looks like it's out
Speaker 3: of the Spyo kitmen from the cold with this incredible
Speaker 3: artwork on the walls. In these itty bitty Martinez that's
Speaker 3: Barretto Barretta. They're like twenty euros each. Andrew, don't be
Speaker 3: a stranger. Andrew Jackson, thank you so much.
Speaker 2: With Vulntable Asset Management.
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