WEBVTT - Markets React to Last Major US Eco Data of 2025 0:00:02.520 --> 0:00:13.760 Bloomberg Audio Studios, podcasts, radio news. This is the Bloomberg 0:00:13.840 --> 0:00:17.920 Surveillance Podcast. Catch us live weekdays at seven am Eastern 0:00:18.200 --> 0:00:22.000 on Apple CarPlay or Android Auto with the Bloomberg Business App. 0:00:22.360 --> 0:00:25.680 Listen on demand wherever you get your podcasts, or watch 0:00:25.760 --> 0:00:27.560 us live on YouTube. 0:00:27.720 --> 0:00:32.000 Stephen Major joins us legendary at HSBC's Global Macro Advisor 0:00:32.080 --> 0:00:36.199 now at Tradition, and we're just thrilled he could come 0:00:36.240 --> 0:00:40.320 back on today. Stephen Major, congratulations on this effort. At Tradition. 0:00:40.520 --> 0:00:45.240 You are associated with the belief in price up, yield down. 0:00:45.600 --> 0:00:50.800 Do you maintain a structural dampening of yield into the 0:00:50.840 --> 0:00:53.160 coming years? 0:00:53.159 --> 0:00:57.680 Shul Tom says yes. The elaboration on that, Tom is 0:00:57.680 --> 0:01:01.560 that the returns on off of from fixed income are 0:01:01.600 --> 0:01:04.520 really quite healthy. And if you think about the amount 0:01:04.600 --> 0:01:06.920 of cash that people are holding, so is it some 0:01:07.040 --> 0:01:10.919 seven trillion dollars in money markets now? I think before 0:01:10.920 --> 0:01:14.520 I started my garden leave six months ago, it might 0:01:14.520 --> 0:01:17.880 have been nearer six but seven trillion dollars in cash 0:01:18.000 --> 0:01:20.479 that's not going to be earning what it was at 0:01:20.480 --> 0:01:23.080 the start of this year. So there's plenty of cash 0:01:23.080 --> 0:01:25.399 to go into fixed income here now. If you look 0:01:25.400 --> 0:01:28.120 at the returns of other asset classes, it gets quite interesting. 0:01:28.360 --> 0:01:32.199 You know, I get people asking me about gold, about bitcoin, 0:01:32.959 --> 0:01:35.600 What do I know about that? But people ask and 0:01:36.080 --> 0:01:38.600 you look at it, just about everything's given you a 0:01:38.640 --> 0:01:41.640 good return s and P five hundred. Obviously we know 0:01:41.680 --> 0:01:44.839 the numbers there. The bomb markets had a positive return, 0:01:45.160 --> 0:01:47.600 Gold is on a tear. Gold goes up every day. 0:01:47.600 --> 0:01:50.800 It seems bitcoin not. But then again, it's all about 0:01:50.800 --> 0:01:53.680 the context of the last few years of performance. So 0:01:53.720 --> 0:01:55.120 it seems that most people are going to go into 0:01:55.120 --> 0:01:58.640 twenty twenty six with a healthy return based on whatever 0:01:58.720 --> 0:02:01.800 they've got. People have done all right. The question is 0:02:01.800 --> 0:02:04.240 how do you set your portfolio up for twenty twenty six. 0:02:04.360 --> 0:02:07.560 And I would say bonds have a central place. I mean, 0:02:07.600 --> 0:02:09.920 if you can get five six percent return in the 0:02:09.960 --> 0:02:12.840 next year, you should be happy. The trouble is people 0:02:12.840 --> 0:02:13.720 aren't happy with that. 0:02:13.720 --> 0:02:14.400 They're greedy. 0:02:14.880 --> 0:02:17.600 So that's a slightly longer answer, Steve. 0:02:17.960 --> 0:02:21.360 We've seen since the beginning of twenty twenty five, and 0:02:21.360 --> 0:02:24.480 we had all that uncertainty about the tariffs and introduction 0:02:24.520 --> 0:02:26.919 of the tariffs and Liberation Day, a lot of risk 0:02:26.960 --> 0:02:29.560 at most risk assets have rebounded one that has not 0:02:29.680 --> 0:02:32.200 has been the US dollars still down about I don't know, 0:02:32.240 --> 0:02:34.359 eight nine, ten percent from the early year highs. What 0:02:34.800 --> 0:02:36.119 do you make of the US dollar here? 0:02:36.840 --> 0:02:41.480 Yeah, Paul, Again it's context because we're down on the year, 0:02:41.639 --> 0:02:44.440 but on the last five years, we're up by a 0:02:44.480 --> 0:02:45.360 similar amount. 0:02:45.520 --> 0:02:45.680 Yep. 0:02:46.000 --> 0:02:51.000 So five years is an investment cycle, business cycle sort 0:02:51.000 --> 0:02:55.960 of time period. So, yeah, the dollar is down. It 0:02:55.960 --> 0:02:58.000 could be down a lot more if you told me 0:02:58.120 --> 0:02:59.960 some of the things that have been happening this year. 0:03:00.320 --> 0:03:01.840 I mean, you go back to the start of this year, 0:03:01.919 --> 0:03:04.400 if you had known some of the steps that have 0:03:04.520 --> 0:03:06.960 been taken. So you mentioned tariffs, but you could also 0:03:06.960 --> 0:03:09.480 talk about the FED chair for example. You could talk 0:03:09.480 --> 0:03:13.120 about the data releases, what happened at the Employment Bureau, 0:03:13.240 --> 0:03:15.040 all these things. I mean, I've forgotten half of what 0:03:15.080 --> 0:03:18.160 happened this year already. But if you told me these 0:03:18.200 --> 0:03:20.120 events were going to happen at the start of this year, 0:03:20.240 --> 0:03:24.320 I'd say, yeah, the dollar will be down. So is 0:03:24.360 --> 0:03:28.720 the dollar down by more than we would reasonably expect? Well, 0:03:28.919 --> 0:03:31.200 it seems okay. And actually in the context of the 0:03:31.240 --> 0:03:34.320 last five years, it seems okay. And when people tell 0:03:34.360 --> 0:03:36.840 me that there's a d dollarization going on. I don't 0:03:36.880 --> 0:03:39.800 see it in the data, and I always ask, well, 0:03:39.840 --> 0:03:40.960 what else are you going to hold? 0:03:41.440 --> 0:03:42.600 Actually is? 0:03:43.600 --> 0:03:46.400 And so it's an unsatisfactory answer because it's the same 0:03:46.440 --> 0:03:49.880 answer to the same question. But I'm afraid it's still 0:03:49.920 --> 0:03:52.520 the case that the dollar is something that you have 0:03:52.640 --> 0:03:55.560 to hold. It takes a big chunk of everyone's portfolio. 0:03:56.040 --> 0:03:58.360 I live in a region in the UAE, in the 0:03:58.400 --> 0:04:01.720 Middle East where many currencies are linked to the dollar exact. 0:04:02.000 --> 0:04:03.400 There's no evidence of that changing. 0:04:05.320 --> 0:04:05.720 Stephen. 0:04:05.760 --> 0:04:08.560 In the US treasury market, you know, we've got the 0:04:08.600 --> 0:04:10.880 two year at three point fifty, We've got the ten 0:04:10.960 --> 0:04:13.440 year at call it four fifteen, so sixty five basis 0:04:13.480 --> 0:04:15.320 points or so there of steepening. 0:04:15.440 --> 0:04:16.320 What does that tell you. 0:04:17.600 --> 0:04:19.800 Well, the steepening has come from the front, hasn't that. 0:04:20.240 --> 0:04:23.719 In fact, you pick your point on the curve, the 0:04:23.760 --> 0:04:27.159 middle point, let's say sevens to ten's has done very little, 0:04:27.480 --> 0:04:30.320 which means your positive total return this year of what 0:04:30.480 --> 0:04:33.159 best part of five percent is coming from the coupon. 0:04:34.040 --> 0:04:37.080 You just clip the coupon, that's fine. But if you 0:04:37.160 --> 0:04:38.960 go to the front of the curve, those yields have 0:04:38.960 --> 0:04:40.839 come down a lot, which means the FED has cut 0:04:40.880 --> 0:04:42.839 by more than most people expected at the start of 0:04:42.839 --> 0:04:45.479 the year. By definition, for the year to fall, it 0:04:45.480 --> 0:04:47.880 had to beat the forwards for you to make money, 0:04:48.160 --> 0:04:50.680 and that's what's happened. The longer end has slipped a 0:04:50.680 --> 0:04:53.240 little bit. But there's a lot of focus on this 0:04:53.560 --> 0:04:59.520 steepening of the US curve. Well, actually it's a ball steepening, right, 0:04:59.560 --> 0:05:03.080 It's a bullish steepening. And many people who were calling steepening. 0:05:03.200 --> 0:05:05.880 I bet we're arguing that yields would have to go 0:05:06.120 --> 0:05:09.320 up in the longer end, and that hasn't happened. That 0:05:09.360 --> 0:05:13.239 happened in Germany, it's happened in Japan, and the reasons 0:05:13.240 --> 0:05:15.080 are quite clear why it happened. It didn't happen in 0:05:15.080 --> 0:05:15.520 the US. 0:05:16.080 --> 0:05:18.400 Stephen Major where this folks of tradition based out of 0:05:18.440 --> 0:05:23.720 Dubai in or London Studios at que Queen Victoria Street, 0:05:23.800 --> 0:05:26.320 and we welcome all of you across America around the 0:05:26.360 --> 0:05:29.359 world to the Pacific rim good evening and over to 0:05:29.400 --> 0:05:34.000 Indian and mister Major's Dubai is well. Steve Major, I 0:05:34.360 --> 0:05:37.040 look at the curves in the pros you Jim Carron 0:05:37.120 --> 0:05:42.000 coming up with Morgan Stanley, Which spread is the best 0:05:42.040 --> 0:05:46.279 spread for our audience to study if they know there's 0:05:46.320 --> 0:05:50.320 twenty eight flavors of spreads. The vanilla spread is twos 0:05:50.400 --> 0:05:53.800 is compared to tenure. But which is the steve major 0:05:53.920 --> 0:05:57.760 spread that provides the most information and guidance. 0:05:58.880 --> 0:06:02.479 Yeah, if you want number on the curve, it's probably 0:06:02.600 --> 0:06:05.719 five to thirty year. You can ask Jim next. Send 0:06:05.760 --> 0:06:08.359 in my regards, but Jim will have an idea as well. 0:06:08.440 --> 0:06:12.120 I think twos tens can be quite distorted because two's 0:06:12.160 --> 0:06:14.800 is about the FED. That that is as simple as that. 0:06:15.120 --> 0:06:17.479 Two's is not a credit risk story. It's not a 0:06:17.520 --> 0:06:21.000 sovereign risk story. It's not about auctions or anything. Really, 0:06:21.040 --> 0:06:24.080 twos is safe, twos is about the FED. Tens starts 0:06:24.120 --> 0:06:25.919 to be a bit more cyclical, a bit more about 0:06:25.920 --> 0:06:31.520 the data and looking into longer term sort of trends. 0:06:32.279 --> 0:06:34.640 I think fives thirties is your best measure of the 0:06:34.720 --> 0:06:37.800 curve because you're capturing something that is close to where 0:06:37.800 --> 0:06:40.760 the FED is and sensitive to rates, but not quite 0:06:40.760 --> 0:06:42.680 as sensitive as twos, and I think I think it 0:06:42.720 --> 0:06:44.440 captures the whole story. Five thirties. 0:06:44.560 --> 0:06:47.440 Let's stay on this steave major in honor of Jim Carren, 0:06:47.680 --> 0:06:51.800 physics major in Bowden. Let's just stay on the physics 0:06:51.839 --> 0:06:54.000 of the moment, and I want to look at this 0:06:54.200 --> 0:06:58.120 first and second derivatives of the way the curve is changing. 0:06:58.640 --> 0:07:02.000 Is there an accelerat of tendency or is there a 0:07:02.120 --> 0:07:05.760 quiet stability to yield dynamics right now? 0:07:07.160 --> 0:07:11.040 Look, I think that the bomb market has performed very well. 0:07:11.120 --> 0:07:13.720 And one of the measures I would say on the 0:07:13.760 --> 0:07:16.600 health of this bomb market is the asset swap spread. 0:07:16.920 --> 0:07:20.160 So that's the difference between the treasuries and the swaps. 0:07:20.640 --> 0:07:23.240 When the treasury yield is going up at a faster 0:07:23.360 --> 0:07:27.000 rate than the swaps, that you might infer that there's 0:07:27.040 --> 0:07:29.920 something amiss. There's something wrong with the treasuries. People are 0:07:29.960 --> 0:07:34.520 worried about the term premium and other measures of risk. 0:07:34.960 --> 0:07:38.240 They're worried about the longer, longer term credit quality even 0:07:38.280 --> 0:07:41.920 of the US government. But the fact is those treasures 0:07:41.920 --> 0:07:43.920 have been coming in, they've been doing better, the yields 0:07:43.960 --> 0:07:47.120 have been coming in versus the swaps, and it could 0:07:47.200 --> 0:07:49.840 be because they got over sold. It could be that 0:07:49.880 --> 0:07:53.840 the fiscal narrative has been overplayed. I mean, I look 0:07:53.880 --> 0:07:55.760 at the fiscal position of the US. I don't think 0:07:55.760 --> 0:07:59.400 it's that bad, but I sound like a heretic. I'm 0:07:59.440 --> 0:08:02.040 just looking. I was looking at the data. It's actually 0:08:02.120 --> 0:08:05.920 come in better than people expected, and the US Treasury 0:08:05.960 --> 0:08:09.560 is finding you buyers of its bonds. You can think 0:08:09.560 --> 0:08:12.080 about what stable coin might do to the demand supply 0:08:12.280 --> 0:08:15.320 dynamics longer term, for example. But I just think that 0:08:15.360 --> 0:08:18.000 there's a narrative out there that is just ready to 0:08:18.040 --> 0:08:20.120 go all the time, and it tends to be very 0:08:20.160 --> 0:08:22.800 negative on the US Treasury and on the US government, 0:08:23.080 --> 0:08:26.280 and it's willing this risk premium called it term premium 0:08:26.320 --> 0:08:29.480 if you want to be there, and it just isn't. 0:08:29.120 --> 0:08:32.360 It's nothing like what people that expected. The curve has steepened, 0:08:32.400 --> 0:08:35.200 but that's because short dated yields went down. That's a 0:08:35.280 --> 0:08:37.640 very different explanation to the one that people were offering 0:08:37.679 --> 0:08:38.360 one year ago. 0:08:39.200 --> 0:08:41.480 Stephen. If you look back on twenty twenty five, it's 0:08:41.480 --> 0:08:42.079 been a great year. 0:08:42.080 --> 0:08:45.440 I'm looking at the world equity indices, the WI function, 0:08:45.600 --> 0:08:49.440 the Bloomberg terminal, double digit returns across the globe. You're 0:08:49.480 --> 0:08:52.640 on equities. We had US fix income high single digit 0:08:52.679 --> 0:08:55.320 total returns in twenty twenty five. What do we set 0:08:55.360 --> 0:08:56.920 up what's the setup for twenty twenty six? 0:08:57.000 --> 0:08:59.400 Do you think, I mean, Paul yours, you're so right, 0:08:59.400 --> 0:09:02.160 you couldn't really go wrong. I'm sure they're going to 0:09:02.160 --> 0:09:05.800 meet people who did go wrong, but you just I 0:09:05.840 --> 0:09:07.920 think the biggest mistake anyone could make will be taking 0:09:07.920 --> 0:09:11.079 profits too early in this rally, and whether that's gold 0:09:11.160 --> 0:09:13.600 or S and P five hundred and there are better 0:09:13.600 --> 0:09:15.440 people than me that have given you explanations as to 0:09:15.440 --> 0:09:18.360 why this will continue in twenty twenty six. So it 0:09:18.360 --> 0:09:21.000 does seem that the economy is resilient, the growth numbers 0:09:21.000 --> 0:09:24.160 are robust, the Fed's going to be dubbish. Whoever's going 0:09:24.200 --> 0:09:26.079 to be in charge will be cut in rates by 0:09:26.160 --> 0:09:29.880 more than the current chair for sure. So that's quite 0:09:29.920 --> 0:09:33.240 a nice setup going into twenty twenty six. It's very 0:09:33.280 --> 0:09:37.839 difficult to see how this could be derailed. But that's 0:09:37.840 --> 0:09:40.360 exactly when you should start to worry, because when it's 0:09:40.400 --> 0:09:43.320 so obvious and everyone's doing the same thing, then you 0:09:43.400 --> 0:09:47.000 need to be diversified. And I'm meeting people that are 0:09:47.040 --> 0:09:50.240 not touching the bomb market. They're coming up with all 0:09:50.280 --> 0:09:52.600 reasons for not holding bonds. That says to me, there 0:09:52.640 --> 0:09:55.840 might even be a structural short out there. Interesting, people 0:09:56.480 --> 0:09:59.520 are holding less than they need to of global fixed income. 0:09:59.559 --> 0:10:03.560 Don't forget credit spreads are tight as well, again relative 0:10:03.600 --> 0:10:06.959 to history. So to me, the government markets, led by 0:10:06.960 --> 0:10:10.120 the Treasury, they look like reasonable value. You're going to 0:10:10.200 --> 0:10:13.880 get five to six percent total return, probably again in 0:10:13.880 --> 0:10:16.960 twenty twenty six. I think the biggest problem is greed. 0:10:17.600 --> 0:10:19.280 That people expect that you should be able to make 0:10:19.320 --> 0:10:21.280 ten to fifteen percent because they've got used to it. 0:10:21.760 --> 0:10:27.120 But I think we all know that that expectation isn't realistic. 0:10:28.200 --> 0:10:33.040 Just along that line there Stephen spots silver hits fresh 0:10:33.320 --> 0:10:37.439 record above seventy dollars an hour. So the commodity markets 0:10:37.640 --> 0:10:40.439 are just going nuts. What do you think of that? 0:10:40.679 --> 0:10:43.160 Gold and silver medium and all those pressures. 0:10:43.720 --> 0:10:49.400 Well, we're quite big players in gold at tradition and 0:10:48.600 --> 0:10:52.520 the trend there is very clear. The people I speak to, 0:10:52.559 --> 0:10:57.360 the gold brokers, gold traders, all convinced it continues. Again. 0:10:58.720 --> 0:11:00.720 The problem with gold, I think for many people is 0:11:00.720 --> 0:11:04.160 they don't hold enough. So when something's going up, by definition, 0:11:04.240 --> 0:11:08.400 you don't hold enough of it, do you. So look, 0:11:08.559 --> 0:11:11.040 I can imagine that a personal portfolio should have ten 0:11:11.080 --> 0:11:14.040 to fifteen percent in gold institutions could be moving in 0:11:14.040 --> 0:11:16.880 that direction as well, and that probably get enough gold 0:11:16.880 --> 0:11:17.319 in the world. 0:11:17.679 --> 0:11:19.839 Stephen Major with us and of course based out of 0:11:19.880 --> 0:11:22.160 Dubai and all of us work in Hong Kong, particularly 0:11:22.240 --> 0:11:24.520 during COVID. But he's in London. Do you know why 0:11:24.520 --> 0:11:25.200 he's in London? 0:11:25.400 --> 0:11:25.559 Why? 0:11:25.800 --> 0:11:26.199 Okay u? 0:11:26.240 --> 0:11:28.960 I mean, Steve, I don't care about the dan bond market. 0:11:29.000 --> 0:11:32.240 The idea that west Ham would be relegated and have 0:11:32.320 --> 0:11:35.040 to go down to the minor leagues is just anathema 0:11:35.080 --> 0:11:37.600 to me. I mean, Santo's trying to get it done. 0:11:37.800 --> 0:11:40.320 They got full of here, Okay, I get it. Come on, 0:11:40.480 --> 0:11:44.640 Stephen Major, what does west Ham do to not It's 0:11:44.679 --> 0:11:47.640 like if the Baltimore Orioles were sent down to Triple A. 0:11:47.960 --> 0:11:51.720 Steve Major, what does west Ham need to do? Yeah? 0:11:51.760 --> 0:11:54.040 I guess for those that don't follow football. One of 0:11:54.040 --> 0:11:55.760 the things that we're talking about here is that there's 0:11:55.760 --> 0:11:59.360 a sixty thousand seater stadium, the old Olympic Stadium that 0:11:59.400 --> 0:12:02.160 could be in the lower leagues, which would would be 0:12:02.240 --> 0:12:05.840 a bit of an odd situation, right, but it's still 0:12:06.040 --> 0:12:09.480 We're only halfway on the season, and I think that 0:12:09.600 --> 0:12:11.839 Westam had been a bit unlucky, to tell you the truth, 0:12:11.840 --> 0:12:14.720 and they haven't really had the of the green, so 0:12:14.920 --> 0:12:18.160 there's still time. I'm a patient man. I think let's 0:12:18.160 --> 0:12:20.480 talk again in a few months and hopefully we'll be 0:12:20.480 --> 0:12:21.040 out of trouble. 0:12:21.280 --> 0:12:23.679 It is still early in this season. I love when 0:12:23.720 --> 0:12:25.640 they do this. They do this in YouTube when they 0:12:25.679 --> 0:12:29.520 show the highlights, they show the map of London with 0:12:29.720 --> 0:12:33.000 all the stadiums around. It's so cool. It's like if 0:12:33.040 --> 0:12:37.400 New York City had five Major League Baseball team rights, right, 0:12:37.520 --> 0:12:42.040 It's just fair, very cool. Tell us about Dubai, Steve Major. 0:12:42.160 --> 0:12:43.360 The time we've got left, we're going to go to 0:12:43.400 --> 0:12:46.280 an important inter year folks with Sir mic over at 0:12:46.280 --> 0:12:49.840 Novo Nordisk in a bit. But Stephen Major, tell us 0:12:49.880 --> 0:12:53.880 about your in Dubai, the vibrancy of Dubai. You know 0:12:53.920 --> 0:12:57.360 what what the Emirates have done with that airport, with 0:12:57.520 --> 0:13:01.120 that airline. What is the new Dubai look like to 0:13:01.280 --> 0:13:03.440 a global traveler like Steve Major. 0:13:04.800 --> 0:13:07.280 It's getting busy. I mean you can see the numbers. 0:13:07.760 --> 0:13:12.440 The population's north of ten million, and it's nearly ninety 0:13:12.480 --> 0:13:16.960 percent non Emiraties, so foreigners like me. But the place 0:13:17.040 --> 0:13:19.640 is booming, and it's not just Dubai's AVDB and the 0:13:19.640 --> 0:13:22.480 other emirates as well. And as you know, some of 0:13:22.520 --> 0:13:24.800 the big funds, some of the hedge funds have got 0:13:24.840 --> 0:13:27.400 as many people sitting in Dubai's they've got in London 0:13:27.480 --> 0:13:31.040 or New York. So you know, the numbers speak for themselves. 0:13:31.400 --> 0:13:35.360 And I think the geography, the location is very good, right, 0:13:35.880 --> 0:13:37.800 the sort of time zone works well. And then and 0:13:37.800 --> 0:13:41.440 then it's very high tech and it's a can do 0:13:41.640 --> 0:13:45.080 kind of society. So I think there's many reasons why 0:13:45.120 --> 0:13:45.960 people are based there. 0:13:46.120 --> 0:13:49.520 Mean Steven Major with Tradition as we celebrate his return 0:13:49.559 --> 0:13:52.360 to the street and look for his outlooks very prominent 0:13:52.720 --> 0:13:57.040 out on LinkedIn with Tradition. Stay with us. More from 0:13:57.040 --> 0:13:59.719 Bloomberg Surveillance coming up after this. 0:14:06.960 --> 0:14:10.560 You're listening to the Bloomberg Surveillance Podcast. Catch us live 0:14:10.640 --> 0:14:13.760 weekday afternoons from seven to ten am Eastern Listen on 0:14:13.880 --> 0:14:17.240 Apple Karplay and Android Atto with the Bloomberg Business app, 0:14:17.440 --> 0:14:19.120 or watch us live on YouTube. 0:14:19.360 --> 0:14:22.960 We continue looking at what we learn from yield. Jim 0:14:23.040 --> 0:14:26.240 Kieren is with Morgan Stanley. He's been definitive for decades 0:14:26.680 --> 0:14:30.680 on yield Jim. First of all, Stephen Major sends his 0:14:30.840 --> 0:14:34.480 kind greetings. He talked about Yeah, you know, you guys 0:14:34.520 --> 0:14:37.240 go way back here in the battle. He has a 0:14:37.360 --> 0:14:43.520 structural optimism about fixed income Grab the coupon, and he 0:14:43.640 --> 0:14:46.240 calls it a bullish steepener and that good things will 0:14:46.240 --> 0:14:48.760 turn out. Do you agree? 0:14:49.120 --> 0:14:49.440 Well? 0:14:49.480 --> 0:14:52.560 First of all, good morning and Merry Christmas to you both. 0:14:52.720 --> 0:14:54.840 And Steve Major is absolutely one of the best in 0:14:54.880 --> 0:14:57.640 the business. I call him the James Bond of interest 0:14:57.720 --> 0:15:02.920 rates strategy. I will say that, you know, grab the 0:15:02.960 --> 0:15:06.960 coupon is definitely the way I'm thinking about the fixed 0:15:06.960 --> 0:15:10.600 income markets in twenty twenty six. And the reason that 0:15:10.640 --> 0:15:13.080 I say that is that when I look across the 0:15:13.120 --> 0:15:16.520 Yeld curve, how much do I believe that yields will 0:15:16.560 --> 0:15:20.280 actually be moving lower in twenty twenty six. I don't 0:15:20.320 --> 0:15:22.240 really think that they will. The front end, maybe because 0:15:22.280 --> 0:15:24.240 the Fed, the Fed's going to cut, the Yeld curve 0:15:24.280 --> 0:15:26.600 is going to steepen. But for the rest of the curve, 0:15:26.800 --> 0:15:28.920 I think it's more of a sideways range. It may 0:15:29.000 --> 0:15:31.320 drift a little bit higher. So I think the most 0:15:31.360 --> 0:15:33.960 we can expect out of twenty twenty six is the 0:15:34.000 --> 0:15:36.440 coupon and the yield and the bond, and that should 0:15:36.440 --> 0:15:38.560 be a good estimate for your expected return. 0:15:39.640 --> 0:15:43.560 So how do you think about this Federal Reserve this year? 0:15:44.080 --> 0:15:44.320 Jim? 0:15:44.520 --> 0:15:48.120 We've gotten some cuts here. I think we're going to 0:15:48.160 --> 0:15:50.880 get maybe some more in twenty twenty six, but it's 0:15:50.920 --> 0:15:52.720 not a lockdown at this point. 0:15:52.720 --> 0:15:53.640 How are you thinking about that? 0:15:55.000 --> 0:15:55.080 So? 0:15:55.360 --> 0:15:58.000 Look, you know, I do think that the I do 0:15:58.040 --> 0:16:01.400 think that the Fed's going to cut possibly two more times. 0:16:01.640 --> 0:16:03.840 And I know there's a lot of concern about the 0:16:03.880 --> 0:16:06.680 next FED chair, whoever's coming in. I don't think it's 0:16:06.720 --> 0:16:09.480 about interest rate cuts. What I think it's really about 0:16:09.680 --> 0:16:14.680 is the overall regulatory aspect of the Fed. I think 0:16:14.880 --> 0:16:18.000 the next FED chair, and in President Trump's selection for 0:16:18.040 --> 0:16:20.640 the next FED chair, has a lot more to do 0:16:20.840 --> 0:16:24.160 about how the Fed will act as a regulator versus 0:16:24.280 --> 0:16:26.960 how they're going to think about interest rates. Look, this 0:16:27.080 --> 0:16:29.040 is probably going to be two more cuts, is probably 0:16:29.080 --> 0:16:31.920 going to be under Powell. If another FED chair comes in, 0:16:32.160 --> 0:16:36.320 is there another rate cut? Possibly? But it's really going 0:16:36.360 --> 0:16:39.200 to depend on the inflation data that's out there, So 0:16:39.480 --> 0:16:42.320 I'm not overly excited about that. What I'm really excited 0:16:42.320 --> 0:16:46.920 about is effectively what the regulatory nature of the FED 0:16:46.960 --> 0:16:49.040 will be. And it does seem like we're moving into 0:16:49.080 --> 0:16:51.640 a zone, or at least a time period where there's 0:16:51.680 --> 0:16:53.080 going to be a lot of deregulation. 0:16:53.560 --> 0:16:56.840 What do you tell the equity beasts at Morgan Stantley, 0:16:56.880 --> 0:16:59.880 the fixed income people call the stock market people beast, 0:17:00.120 --> 0:17:03.360 I mean, you know they're out of control. What does 0:17:03.400 --> 0:17:07.080 the bond market, Jim Careen signal to people focused on 0:17:07.160 --> 0:17:08.200 the S and P five. 0:17:08.119 --> 0:17:12.879 Hundred, It actually is a very positive signal for equities 0:17:13.080 --> 0:17:15.560 because look, I mean, credit spreads are typing, yes, but 0:17:15.600 --> 0:17:16.440 they're not widening. 0:17:17.320 --> 0:17:19.440 Default risks are relatively low. 0:17:19.480 --> 0:17:23.240 We're not really seeing a materially a material widening of 0:17:23.640 --> 0:17:28.280 default risks or increase in default risks. Interest rates, while 0:17:28.320 --> 0:17:30.520 they may drift a little bit higher in the back end, 0:17:30.680 --> 0:17:33.040 they don't seem like they're moving out of control. You know, 0:17:33.040 --> 0:17:35.480 they might go a little higher, but certainly not to 0:17:35.600 --> 0:17:38.800 levels that I think will destroy the equity markets. So 0:17:38.880 --> 0:17:41.160 I think twenty twenty six, at least from the bond 0:17:41.160 --> 0:17:43.919 markets perspective, I don't think the bond market's going to 0:17:43.920 --> 0:17:45.840 get in the way of equities I don't think that 0:17:45.880 --> 0:17:49.320 we're in and unless we get a shock higher in inflation, 0:17:49.440 --> 0:17:52.320 which is the risk in my opinion for twenty twenty six, 0:17:52.359 --> 0:17:54.960 if that happens, then all bets are off. But if 0:17:54.960 --> 0:17:57.800 that doesn't materialize, and I don't think it will, then 0:17:58.000 --> 0:18:00.920 I think it's really saying smooth sailing for equities. Equities 0:18:00.960 --> 0:18:03.400 have to make their own way, but bonds aren't going 0:18:03.400 --> 0:18:05.080 to be the hurdle that we have to jump over. 0:18:06.200 --> 0:18:09.800 Historically, Jim, it's been us. Large cap has kind of 0:18:09.800 --> 0:18:12.159 been the way to go. Is it time to think 0:18:12.200 --> 0:18:14.320 about mid caps and maybe even smaller cap? 0:18:15.640 --> 0:18:18.320 So you know, this is a really good question. So 0:18:18.480 --> 0:18:21.240 I still think large cap is going to do well 0:18:21.600 --> 0:18:24.720 in twenty twenty six. Certainly, a lot of the cap 0:18:24.840 --> 0:18:27.200 X spending is there, a lot of the benefits from 0:18:27.240 --> 0:18:30.320 taxes are there. But I do think that twenty twenty six, 0:18:30.359 --> 0:18:32.720 and this is the way that we're positioning our portfolios 0:18:32.720 --> 0:18:36.200 across fixed income and equities, is that we do think 0:18:36.200 --> 0:18:38.480 that the cyclical components of the markets are going to 0:18:38.520 --> 0:18:42.280 see an upturn. So what we likely will see is 0:18:42.320 --> 0:18:45.320 the broader markets the four ninety three right outside of 0:18:45.359 --> 0:18:48.040 the mag seven, we'll actually start to perform better. 0:18:48.119 --> 0:18:48.320 Now. 0:18:48.359 --> 0:18:52.439 Why because what we're already seeing if you look at confidence, 0:18:52.560 --> 0:18:55.760 if you look at even just the decline and interest 0:18:55.800 --> 0:18:58.800 rates that we've had over the past year, all of 0:18:58.840 --> 0:19:02.440 that works with a lag, and the cyclical sectors are 0:19:02.680 --> 0:19:05.080 likely to be what benefits from that. But it's probably 0:19:05.080 --> 0:19:07.919 not going to be Paul until until the end of 0:19:07.960 --> 0:19:10.760 the first quarter. I think the first quarter of twenty 0:19:10.800 --> 0:19:14.280 twenty six, we'll still see the soft patch bleed over 0:19:14.320 --> 0:19:17.280 from twenty twenty five, and it's not until then that 0:19:17.359 --> 0:19:20.760 I believe that the tax policies, the fiscal stimulus, the 0:19:20.840 --> 0:19:24.439 lower interest rates, which act with a lag, will actually 0:19:24.440 --> 0:19:26.600 start to take hold. And I would expect the labor 0:19:26.640 --> 0:19:30.000 markets to even get better starting around the second quarter. 0:19:30.040 --> 0:19:32.359 But I still think there's going to be weakness in 0:19:32.359 --> 0:19:35.800 front of us, at least until March thirty one. 0:19:36.560 --> 0:19:40.639 I'm I'm just fascinated here by Jim Kieren Folks in 0:19:40.680 --> 0:19:44.880 the physics of a sixty forty portfolio. We got three 0:19:44.920 --> 0:19:48.280 groups of people, Jim Karen. We got people their standards 0:19:48.440 --> 0:19:51.560 the dock, and after three years of double digit equity performance, 0:19:51.880 --> 0:19:56.000 the boats really really left the dock. We got people 0:19:56.240 --> 0:19:59.120 that did the right thing sixty forty, and they're like, well, 0:19:59.160 --> 0:20:02.280 I underperformed. Should have just loaded the boat on Nvidia. 0:20:02.400 --> 0:20:04.400 And then we got people trying to find a new 0:20:04.480 --> 0:20:09.120 sixty forty. What does Jim Caron's new sixty percent stocks 0:20:09.160 --> 0:20:10.679 forty percent bonds look like? 0:20:11.840 --> 0:20:15.080 Yeah, it's you know, this is a question of our time, right. 0:20:15.160 --> 0:20:19.679 So I think that the interest rates cycle that we 0:20:19.800 --> 0:20:22.520 have from nineteen eighty one to twenty twenty one was 0:20:22.560 --> 0:20:25.480 pretty much just downward rates, which meant that bonds were stable. 0:20:25.640 --> 0:20:28.760 Sixty forty is a passive way to look at the markets, 0:20:28.840 --> 0:20:32.440 was a very very good allocation. But now that interest 0:20:32.480 --> 0:20:36.080 rates are likely to move sideways over time, that means 0:20:36.119 --> 0:20:39.000 that sixty forty is no longer optimal. So what it 0:20:39.080 --> 0:20:42.359