Speaker 1: Bloomberg Audio Studios, podcasts, radio News.
Speaker 2: Bob Michael at JP Morgan, We're going to try to
Speaker 2: get him in here.
Speaker 3: You have an outlook out there, and I see an
Speaker 3: outlook of price up, yield down.
Speaker 2: Is that the outlook at JP Morgan.
Speaker 1: Yes, it is. We're off to a fantastic start for
Speaker 1: the third quarter, probably not a repeat of the second
Speaker 1: quarter with all the volatility, but some expectation of the
Speaker 1: Fed bringing rates down by the end of the year.
Speaker 3: Is in the bond world is there fear of missing out?
Speaker 3: Is there fomo among bon buyers?
Speaker 1: We're starting to feel that now there are more and
Speaker 1: more conversations with clients who are in cash looking for
Speaker 1: an opportunity to get into the bond market and trying
Speaker 1: to figure out where in the bond market to go.
Speaker 1: There's still a ton of ton of money in market,
Speaker 1: money market funds and in cash accounts, depositives, checking accounts,
Speaker 1: savings accounts. The last time we looked at was over
Speaker 1: twenty one trillion dollars, which was a new high.
Speaker 2: Bob.
Speaker 4: We saw earlier in the Europe a move of capital
Speaker 4: out of the US into other markets, notably the European
Speaker 4: equity markets. And they're outperforming the US equity markets. Have
Speaker 4: we seen that in a fixed income world.
Speaker 1: As well, We actually haven't. There's been a lot of
Speaker 1: discussion about it, a lot of conversation. There was a
Speaker 1: bit of a pause in the end of April start
Speaker 1: of May where foreign investors who would typically put money
Speaker 1: to work in the US bond market just stopped. And
Speaker 1: then it started up again, and we've seen no selling
Speaker 1: of US fixed income assets and reallocation overseas. What we
Speaker 1: have seen is rethinking whether they want the dollar exposure
Speaker 1: to go along with that. Most now are taking some
Speaker 1: dollar exposure, but hedging some back to their base currency.
Speaker 4: Bloomberg Dollar Index you bring it up, the Bloomberg dollar
Speaker 4: inexus down almost ten percent this year. We don't see
Speaker 4: that very often, do we.
Speaker 2: What do you make of it?
Speaker 1: For us? It's a reflection of an overcrowded Overbaugh trade, Okay,
Speaker 1: where coming into this year everyone wondered, how is the
Speaker 1: dollar up there so high? What's keeping it up there?
Speaker 1: And it kept going and then there was a catalyst
Speaker 1: and reason to diversify out of dollars. We think actually
Speaker 1: there's another five percent move in the Dollar index lower.
Speaker 2: I modeled it today.
Speaker 3: I did not use Fibonacci's which I really don't believe in,
Speaker 3: and I came with a further decline of bbdxy of
Speaker 3: six point three percent total fourteen to fifteen percent down,
Speaker 3: and that takes it back to that range that we're at.
Speaker 3: You're in meetings with lots of foreigners using JP Morgan
Speaker 3: for wisdom on American full faith and credit? Do you
Speaker 3: see any tendency that they want to walk away at
Speaker 3: the margin of a belief to own and at the
Speaker 3: margin by acquire our bills, notes and bonds?
Speaker 1: None whatsoever. There is no concern about the full faith
Speaker 1: and credit of the US Treasury. There was a bit
Speaker 1: of a pause on the amount of supply. Would it
Speaker 1: be too much? But there was a lot of conversation
Speaker 1: about looking for an alternate. Do we have to have
Speaker 1: everything in dollar assets? Isn't there something else that could
Speaker 1: act as a calm in the storm to treasuries and dollars.
Speaker 1: I think that's why you've seen gold, and we should
Speaker 1: see continued support of gold. We should also pay attention
Speaker 1: to what's going on in CenTra Portugal this week, where
Speaker 1: the ECB has some pressure.
Speaker 2: Not there exactly, I mean do.
Speaker 1: You know what I wish I was there. I wouldn't
Speaker 1: be surprised if Breese is there, But it's an opportunity
Speaker 1: unity for them to try to establish more of a
Speaker 1: leadership role here.
Speaker 3: When you were studying Greek and Latin at Penn, I'm
Speaker 3: sure you looked at the X axis, probably in all
Speaker 3: three languages. But the answer is, Okay, they want to
Speaker 3: buy us, but they adjusted their maturity perspective because of
Speaker 3: all the fun and games we're going through.
Speaker 1: By and large, the investors we deal with where we've
Speaker 1: seen a lot of clothes from wealth management channels and
Speaker 1: total return investors has always been the intermediate part of
Speaker 1: the curve. The long end of the curve is really
Speaker 1: owned by pension funds and insurance companies, and they're far
Speaker 1: more strategic and where and how they invest, and they
Speaker 1: have certain trigger levels depending on their estimate of liabilities.
Speaker 1: I would say they've been pretty steady investors. In the
Speaker 1: current environment, it feels like there's no sponsorship for the
Speaker 1: long end of the curve. Usually get that when you
Speaker 1: have the FED bringing down rates. Let's not forget when
Speaker 1: we get to the point in the cycle, hopefully years
Speaker 1: from now, when the FED is hiking rates, then curve
Speaker 1: flatteners will be in vogue again, and then there will
Speaker 1: be buying at the long end.
Speaker 2: Paul, can I help this morning? Please? Price up, yield down,
Speaker 2: pretium octum, preventu's diminutum. Oh my goodness, Latin. Okay, that's
Speaker 2: what Michael. He goes out on the floor when the
Speaker 2: world's blown up.
Speaker 4: JP Morgan, I'm a big fan of Vatican two, which
Speaker 4: get away with Len's that Google translator.
Speaker 2: I'm sure exactly, Bob.
Speaker 4: How much credit risk do we take here? I think
Speaker 4: I'm not hearing anybody talk about recession, so shouldn't I
Speaker 4: be taking some credit risk here?
Speaker 1: Absolutely, you get concerned about credit risk when you think
Speaker 1: you're headed into recession. It makes sense. Recession by definition
Speaker 1: is lower corporate at profitability. The most levered companies have
Speaker 1: to go some sort of restructuring. Defaults go up, you
Speaker 1: get widespread de risking because everyone's concerned where the defaults
Speaker 1: could occur. We've been trained every other time there's a
Speaker 1: backup in credit spreads, you buy it if there's no recession.
Speaker 1: And we saw that earlier when credit spreads got to
Speaker 1: about four point fifty on high yield, and then suddenly
Speaker 1: there was a break in tariffs and probabilities of recession
Speaker 1: went down, and suddenly here we are through three hundred
Speaker 1: basis points on high yield.
Speaker 4: All right, you're CIO and head of Global Fixed Income,
Speaker 4: Currency and Commodities Group, to t ask you about commodities,
Speaker 4: gold hiring.
Speaker 2: What are we doing with gold here?
Speaker 4: Why are we all not owning gold?
Speaker 1: Well, actually, we think you should. We think of all
Speaker 1: the options for an alternate safe haven, a counterbalance to risk.
Speaker 1: Treasuries are out there, our high quality bonds are out there,
Speaker 1: Investors are adding those. Gold is another one of those
Speaker 1: generally accepted vehicles we expect to see more buying.
Speaker 4: I mean, it's just amazing. What's going on? Is that
Speaker 4: just Chinese banks and Chinese consumers buying it? Is there
Speaker 4: something else going on with gold?
Speaker 1: No, it's developed market. Central banks have been adding to
Speaker 1: their gold reserves, Its wealth management platforms have been talking
Speaker 1: to clients about holding some gold. It's not only a
Speaker 1: safe haven, it's also a reasonably good hedge against inflation.
Speaker 1: And just in case we get into next year and
Speaker 1: suddenly all the liquidity in the system gets ignited and
Speaker 1: inflation rears it's ugly head again and stays, then gold
Speaker 1: will be a pretty good hedge.
Speaker 3: Bob, I'm doing it. I mean, this is the way
Speaker 3: we roll with the Michael and JP marketing. Good morning
Speaker 3: in your commute across the nation. Good morning ninety two
Speaker 3: nine FM in Boston.
Speaker 2: We did a lot of.
Speaker 3: Linear regression of the Bloomberg Corporate Total Return Index get
Speaker 3: a little more yield, and I went back thirty years
Speaker 3: and it's stunning, the recovery off the gloom of a
Speaker 3: couple of years ago in price. It's appening. You guys, Neil,
Speaker 3: do you envision in your head that with price and
Speaker 3: you know, making the coupon, we will get back on
Speaker 3: trend of a wonderful linear trend from about two thousand
Speaker 3: and three straight up. That will get price up, back
Speaker 3: on trend that we knew before the tobacco.
Speaker 1: It feels like it. It feels like we're first of all,
Speaker 1: in an interest rate environment that will have yield to it.
Speaker 1: We're not going back to zero percent interest rates. I
Speaker 1: don't know if the Fed brings rates down to three percent,
Speaker 1: maybe three and a half, but somewhere in the threes
Speaker 1: puts treasur right close to four and puts credit close
Speaker 1: to five percent, which is kind of where we are.
Speaker 1: That's a pretty good level to be a holder of
Speaker 1: high quality corporate.
Speaker 3: There's job in Manhattan internship with bout Michael and JP work.
Speaker 2: It's like, you know you're working six days a week.
Speaker 2: Doesn't you just throw a fobosi at him? Because none
Speaker 2: of these kids remember like a normal yield market.
Speaker 1: So we now call them analysts. We don't call them interns.
Speaker 1: Their summer analysts and prove that. And then they come.
Speaker 1: They come prepared far more than I ever remember. They
Speaker 1: they come with a level of knowledge of markets and
Speaker 1: how the financial system works that probably took me five
Speaker 1: years to get there.
Speaker 3: The great L Hunt used to lecture at your Pennsylvania
Speaker 3: and Al told me once, he said, Tom, you're in
Speaker 3: the classroom in every single person there, it's smarter.
Speaker 2: Than all was thirty or thirty five.
Speaker 1: Yeah, and you know what, there's a lot of truth
Speaker 1: to that. They know it.
Speaker 2: Exactly. Not in terns. They're called analysts now here, summer analysts. Noted.
Speaker 4: Thanks, Okay, what is our fetter reserve thinking these days?
Speaker 1: Bob?
Speaker 4: I mean they could probably just give themselves a nice
Speaker 4: pat on the back and say we've engineered a nice
Speaker 4: soft landing. We've weathered some of the uncertainty from tariff's.
Speaker 4: Inflation seems okay, the economy okay, it's slowing, but it's
Speaker 4: still there. They do anything.
Speaker 1: They're thinking, how fast can I get out of here
Speaker 1: and go to the beach? I'll I promise I'll come
Speaker 1: back after Labor Day. That gives me a couple of
Speaker 1: weeks to look at the data, see how the US
Speaker 1: economy survived.
Speaker 2: This summer.
Speaker 1: We'll have more clarity on the one big beautiful bill,
Speaker 1: We'll have clarity on tariffs. Hopefully we'll start to gauge
Speaker 1: the impact to the labor market and two prices. Then
Speaker 1: we can make a decision whether we can and should
Speaker 1: bring rates down in September or whether we stay in
Speaker 1: track for December.
Speaker 2: Let's go back to your outlook. What is the anside?
Speaker 3: I think of Jamie's great annual letter, which I really
Speaker 3: advocate folks as a long read, and there's four or
Speaker 3: five sixteens.
Speaker 2: What's a theme secondary within your mid year outlook? It
Speaker 2: deserves note well.
Speaker 1: I think within that is a view that we're heading
Speaker 1: into an environment that's more normal that existed pre great
Speaker 1: financial crisis when there is a demand for capital because
Speaker 1: there's a productive use for capital, and there will be
Speaker 1: a cost for that capital and it won't be zero.
Speaker 1: Does that mean the FED funds rate belongs about where
Speaker 1: that first dot was that the FED put out in
Speaker 1: twenty twelve, four and a quarter percent Maybe could be
Speaker 1: Get ready for that. Get ready for markets where you
Speaker 1: could see a surge in inflation that Fed may have
Speaker 1: to go to six percent, and they may have to,
Speaker 1: you know, apply a little stim us and go down
Speaker 1: to three percent. I think that's the market we're headed for,
Speaker 1: and I think that's an exciting market.
Speaker 4: Do we ever have to worry about deficits and national debt?
Speaker 4: I'm looking at the negotiations going on down to Washington
Speaker 4: right now. We're all seeing, you know, talking about two
Speaker 4: three four trillion dollars of depthitts coming out of this
Speaker 4: budget plan. We ver have to worry about that? I mean,
Speaker 4: you're the front lines of the fixed andcome markets. Set,
Speaker 4: how do you think about that?
Speaker 2: We should?
Speaker 1: And I think we all have a sense of righteous
Speaker 1: indignation because every month we go home and rebalance our
Speaker 1: checkbook and pay bills, and it seems like our government
Speaker 1: doesn't have to. But the reality is we're watching deficits
Speaker 1: go up globally. We're now seeing Europe starting to borrow
Speaker 1: and spend and it seems to be the generally accepted
Speaker 1: principle that government should be allowed to borrow and spend,
Speaker 1: and you appoint central bankers which will help underwrite that.
Speaker 1: Bob Minake is spending.
Speaker 2: Generous time with you. Thank you so much. Mister Michael
Speaker 2: is with JP Morgan. Get their outlook from the analyst
Speaker 2: at JP Morgan.