Speaker 1: Bloomberg Audio Studios, Podcasts, radio news.
Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along
Speaker 2: with Lisa Bromwitz and Amrie Hordern. Join us each day
Speaker 2: for insight from the best in markets, economics, and geopolitics
Speaker 2: from our global headquarters in New York City. We are
Speaker 2: live on Bloomberg Television weekday mornings from six to nine
Speaker 2: am Eastern. Subscribe to the podcast on Apple, Spotify or
Speaker 2: anywhere else you listen, and as always on the Bloomberg
Speaker 2: Terminal and the Bloomberg Business App. Investors gear up for
Speaker 2: the defence big decision on Wednesday, The Central Bank expected
Speaker 2: account raids by these twenty five basis points, with some
Speaker 2: traders preparing for a larger fifty basis point move. Lori
Speaker 2: Cavicino of MBC joined us now for more. Lori, I
Speaker 2: knowber houseview is twenty five, and I just wonder if
Speaker 2: we get that twenty five, and of course welcome to
Speaker 2: the program. By the way, if we do get that
Speaker 2: twenty five, how vulnerable certain trades like the small camps
Speaker 2: actually are.
Speaker 3: Hi, John, So thanks for having me.
Speaker 4: Look.
Speaker 5: I think it's a great question. And we were watching
Speaker 5: the small caps just surge on Friday as the renewed
Speaker 5: optimism about the fifty basis point cut came up as well.
Speaker 3: And look, I think small caps have a lot.
Speaker 5: Going for them, but the reality is that valuations are
Speaker 5: full and positioning is also full. If you go back
Speaker 5: a few months ago, they looked under owned, they look cheap.
Speaker 5: We're just not there anymore. And now we've got a
Speaker 5: lot of FED optimism baked in. So I do think
Speaker 5: in the short term, at least if we're just thinking
Speaker 5: about the week ahead, I do worry a bit that
Speaker 5: if we get the twenty five rather than the fifty,
Speaker 5: which propelled small caps to these great heights on Friday,
Speaker 5: that there could be a bit of a reversion.
Speaker 3: In the small caps.
Speaker 5: I think that we really have sort of more of
Speaker 5: the fast money crowd sort of driving that trade right now.
Speaker 5: If you look at recent flows into small cap they
Speaker 5: have been all passive driven, and that passive money does
Speaker 5: tend to be very, very fickle.
Speaker 4: You have a nuance view here, Laurie, with respect to
Speaker 4: not only how much the FED cuts, but also the
Speaker 4: economic data behind it that needs to heap this going.
Speaker 6: There was this.
Speaker 4: Feeling that the FED was on track to cut by
Speaker 4: fifty basis points without real pain visible in the US economy.
Speaker 4: How much is any kind of weakening, even if not
Speaker 4: a recession, sort of a bear case right now for
Speaker 4: small calves.
Speaker 5: So I think the small caps really need the needle
Speaker 5: to be threaded. And what I mean by that is,
Speaker 5: if you go back and look at past cutting cycles,
Speaker 5: small caps do really really well and embark on a
Speaker 5: longer term out performance cycle. If you get a recession,
Speaker 5: if you break the economy, it's small cap one on
Speaker 5: one to say you sell them on the way into
Speaker 5: a recession, you buy them on the way out, and
Speaker 5: you tend to see that pivot midway through.
Speaker 3: But if we don't get that and we.
Speaker 5: Get some sort of economy that's still growing, I do
Speaker 5: think it depends on what kind of growth we get.
Speaker 5: And if you look at the other side of the equation,
Speaker 5: we really do need a hot economy above average GDP
Speaker 5: for small caps to really keep going. If you look
Speaker 5: at recent trading data since say twenty fifteen, twenty sixteen,
Speaker 5: and if we're just you know, kind of, I guess
Speaker 5: I think it comes downly. So what do you mean
Speaker 5: by soft landing a soft landing that's looking at like
Speaker 5: one and a half percent type AVP growth, maybe even two.
Speaker 5: I don't think that quite cuts it for small cap
Speaker 5: I think you need something more like two and a
Speaker 5: half to three percent or better.
Speaker 4: When you broaden out beyond small caps, you see you
Speaker 4: remain neutral in the S and P five hundred. As
Speaker 4: we get closer to your year end target. You talk
Speaker 4: about sentiment and how it concerns you. Can you explain
Speaker 4: why investor sentiment right now is a red flag?
Speaker 5: Sure, it's a great question, Lisa, And look, I would
Speaker 5: say if you look at aaii net bullishness, I think
Speaker 5: that's the best barometer. It's been doing the best job
Speaker 5: the last couple of years at calling short term inflections
Speaker 5: in the market, and it's really flirting with danger. If
Speaker 5: you look at where it's been recently, it's been kind
Speaker 5: of hovering right around that one standard deviation mark, poking
Speaker 5: above it on certain weeks, but not quite on the
Speaker 5: four week average. And that's very similar to what we
Speaker 5: saw back in July. That's very similar to what we
Speaker 5: saw back in August of last year. And if you
Speaker 5: look at CFTC data, which is going to give you
Speaker 5: more of.
Speaker 3: An institutional look, that data.
Speaker 5: Just continues to make new highs, and it's above levels
Speaker 5: that we were at in early twenty eighteen, in early
Speaker 5: twenty twenty pre COVID, and it's well above the highs
Speaker 5: that we've seen mark the peak in recent years in
Speaker 5: kind of that post COVID era look.
Speaker 3: Sentiment and position are not the.
Speaker 5: Only thing that drives stocks, and we certainly can stay
Speaker 5: overbought for quite some time. But I do think it
Speaker 5: tells me that we're really not sitting here in a
Speaker 5: position where we can absorb any kind of bad news easily.
Speaker 3: So those are charts, frankly.
Speaker 5: Lisa, that keep me up at night, even though we've
Speaker 5: had a more constructive view on equities overall.
Speaker 7: Lorie, do you still see a connection from a Trump
Speaker 7: win and small caps rallying?
Speaker 3: It's a great question, Anne, Marie.
Speaker 5: So you know, if we look back to twenty twenty three,
Speaker 5: twenty twenty four, we really just haven't seen that linkage
Speaker 5: right where Trump's doing well in the vetting markets and
Speaker 5: small caps are outperforming. We've really seen Trump more closely
Speaker 5: aligned with large caps with growth. Things are starting to
Speaker 5: change there a bit recently, so I would say we'll
Speaker 5: have to watch the data. One of the things we
Speaker 5: did mention in our piece this morning is that if
Speaker 5: the Harris corporate tax increases, raising the rate from twenty
Speaker 5: one percent to twenty eight percent, were to go through,
Speaker 5: I do think that's a negative sick for a small
Speaker 5: cap because if you go back into the twenty sixteen
Speaker 5: twenty seventeen period, small caps were one of the big
Speaker 5: beneficiaries of the rate cut. And that's not just to
Speaker 5: simply say the historical playbook, you know, flips on its head.
Speaker 3: We have to go back to the why. And what we.
Speaker 5: Found back then was that small caps were more direct
Speaker 5: payers of the headline rate. They had a tougher time
Speaker 5: managing their taxes lower than large cap companies did.
Speaker 3: So I think that issue may come up if.
Speaker 5: We end up seeing Harris whin and those corporate tax
Speaker 5: cut tax hikes rather are on the table. Of course,
Speaker 5: I think that really only happens, you know, in a
Speaker 5: democratic sweep scenario, which is not really our base case.
Speaker 7: Laurie, you've been looking at both these candidates plans. I
Speaker 7: saw you at Trump's economic speech here in New York City.
Speaker 7: What big questions are still missing as you think about
Speaker 7: and you put these into your models.
Speaker 5: So look, I think it's really preliminary for both candidates, right,
Speaker 5: I think that they've got both taken some heat for
Speaker 5: lack of detail. From my perspective, maybe my expectations are
Speaker 5: just low all around. I think this is maybe the
Speaker 5: fifth or sixth presidential election I've covered as a strategist.
Speaker 5: But I'm really just looking for kernels of where they're leaning,
Speaker 5: of what their wish lists are, of what their impulses are.
Speaker 5: So I think, you know, when I look going forward,
Speaker 5: you know, I think maybe on the tax side, for
Speaker 5: corporate taxes, at least, we have a little bit more clarity.
Speaker 3: On the hair side.
Speaker 5: I left the speech confused about exactly what Trump wants
Speaker 5: to do in terms of further tax cuts. The commentary
Speaker 5: of linking the fifteen percent rate to domestic production, I
Speaker 5: don't exactly know how that shakes out in the S
Speaker 5: and P.
Speaker 3: Five hundred.
Speaker 5: We have lots and lots of companies that are producing
Speaker 5: things overseas. So I think it's tough for me to
Speaker 5: sit here, when I'm looking at my earnings model, to
Speaker 5: just bake in a fifteen percent corporate tax rate. I
Speaker 5: think it's much more complicated than that.
Speaker 2: We sew you paint for policy on both sides. Lori,
Speaker 2: thank you, Lori Cavasena of Obvious. Let's continue this conversation
Speaker 2: with Robe Cannessey of Signum Colubal advice is Rope. Good
Speaker 2: mornings you, sir, morning. Another almost trying event over the weekend.
Speaker 2: Two very lucky escapes over the last two months for
Speaker 2: the former president. What is this change? Does this change anything?
Speaker 2: It's so, you know, I don't think it changes a
Speaker 2: whole lot.
Speaker 6: Certainly not as much as the first assassination of attempt
Speaker 6: where we saw, you know, photo after a photo of
Speaker 6: Donald Trump bleeding, standing raising his fist. This a little
Speaker 6: bit less interesting to the general public, but I think
Speaker 6: it points to the fact that the October surprise this
Speaker 6: year very well could be an example of political violence
Speaker 6: when you look.
Speaker 7: At the timeline to November fifth. Does Trump need to
Speaker 7: change how he campaigns now?
Speaker 6: I don't think he needs to change how he campaigns Now.
Speaker 6: Maybe we'll see him play a little bit less golf,
Speaker 6: but probably not. I mean, as the sitting president, you know,
Speaker 6: he likes to travel to his golf courses. As a candidate,
Speaker 6: he's certainly done the same thing now how he campaigns.
Speaker 6: I think this really only plays to his advantage. Now,
Speaker 6: obviously we're all very grateful that he's safe, but up
Speaker 6: until that point where he's not safe, I think this
Speaker 6: riles up his base and ensures that Republicans will turn
Speaker 6: out in November.
Speaker 7: Jack was just talking about what's going on with this
Speaker 7: task force. They're still investigating what happened two months ago.
Speaker 7: How quickly can Congress move and potentially beaming up his protection.
Speaker 7: We heard from the Palm Beach County sheriff yesterday saying
Speaker 7: if it was the sitting president, potentially there would be
Speaker 7: a bigger perimeter around the West Palm Beach golf course.
Speaker 6: Yeah, you know, unfortunately or fortunately, it's not really up
Speaker 6: to Congress how good Trump's protection is, right, it's a
Speaker 6: question of Secret Service. President Joe Biden vice President Kamala
Speaker 6: Harris have assured us over the weekend that Trump's protection
Speaker 6: is good. Right, It's as much as a candidate needs
Speaker 6: to have. But that being said, I wouldn't be surprised
Speaker 6: if beefed it up pretty close to essentially what the
Speaker 6: sitting president receives. Now, Donald Trump is not the sitting president,
Speaker 6: but he's six weeks away from potentially being re elected,
Speaker 6: so I would not be surprised if President Biden, frankly
Speaker 6: came out and said we're going to give Donald Trump more.
Speaker 4: Rob you said something that I want to pick up on.
Speaker 4: You said that the October surprise that we may see
Speaker 4: could be an act of political violence.
Speaker 3: What makes you say that, Well.
Speaker 6: Of course, We've seen two attempts on formal President Donald
Speaker 6: Trump's life, So that's the first. The second is, you know,
Speaker 6: our country is horribly divided, and I think to a
Speaker 6: certain extent, politicians are playing into that, and we'll play
Speaker 6: into that between now and November. I think the example
Speaker 6: of sort of coming from the other side is Trump
Speaker 6: and vice presidential candidate Jade Vance, you know, talking about
Speaker 6: these these illegal immigrants in Ohio, you know, Haitians eating
Speaker 6: dogs and cats, things of that nature. They're actually legal immigrants,
Speaker 6: but it's rhetoric like that that I think, you know, Frankly,
Speaker 6: could incite this kind of lone wolf violence that is
Speaker 6: so hard to defend against.
Speaker 3: So what's your.
Speaker 4: Sort of analogy, I mean, is there has there ever
Speaker 4: been a time or any other election cycle that you
Speaker 4: can think of, had this type of risk or is
Speaker 4: this a new and heightened risk that requires a very
Speaker 4: different type of security and different type of campaigning.
Speaker 6: You know, I think it's a it's a at least
Speaker 6: in the modern American era, this is new. Right. We
Speaker 6: haven't seen attempted assassinations like this in my lifetime and
Speaker 6: in all of our lifetimes. You know, you can go
Speaker 6: back to probably the Civil War to see when our
Speaker 6: country was most divided. I don't think we get there.
Speaker 6: And the whole bus Secret Service is able to protect
Speaker 6: obviously the sitting president, the former president Trump and Kamal Harrison,
Speaker 6: and they're doing their best. And it's important to say
Speaker 6: that none of these attempted assassinations have been successful. Now,
Speaker 6: obviously the first one was very close and very scary. Yes,
Speaker 6: second one not so much.
Speaker 2: Let's talk about the Harris campaign. The first time we
Speaker 2: had the Biden campaign, and the criticism at the time
Speaker 2: was that it was a one dimensional campaign centered around
Speaker 2: characterizing Trump as an existential threat to democracy. There's a
Speaker 2: lot of criticism about that. In the middle of July.
Speaker 2: Does the Harris campaign have enough facets too?
Speaker 6: It?
Speaker 2: Is it a multi faceted campaign that they're not relying
Speaker 2: on this single issue that they can back away from
Speaker 2: talking about this a little bit more.
Speaker 6: Yeah, I think they can. The issue with the question
Speaker 6: of democracy as a campaign issue is that it's you know,
Speaker 6: one hundred percent of people are worried about it, but
Speaker 6: it's fifty to fifty right Republicans are worried about how
Speaker 6: Democrats are a threat to democracy. Same thing vice versa.
Speaker 6: So a, did it insight the first attempted assassination against
Speaker 6: Donald Trump? We're not really sure who knows. The motives
Speaker 6: of that should have remain unclear. But you know, as
Speaker 6: a question of you know, can the Harris campaign do more?
Speaker 6: They better, right, because I'm not sure they're going to
Speaker 6: win on this single question of democracy. They have to
Speaker 6: win on abortion. You know, there's more messaging around a
Speaker 6: middle class economy and opportunity economy than we saw from Biden,
Speaker 6: who didn't want to talk about the economy at all.
Speaker 6: So Harris is doing more. I think she has to
Speaker 6: do more.
Speaker 2: To win total us about Harris is addressed in the
Speaker 2: US economy. Because we also had that interview gangainso the weekend,
Speaker 2: it wasn't impressive. Some very simple questions that weren't ready
Speaker 2: onswer it what is the opportunity economy? What are the
Speaker 2: policies behind it?
Speaker 6: You know, I think the policies that she wants to
Speaker 6: highlight first and foremost are the housing policies. You know,
Speaker 6: After that, it sort of falls off right, And I
Speaker 6: think what's important about these policies, What many of us
Speaker 6: know is that not a lot is going to get
Speaker 6: through Congress. So it's not as though she can promise,
Speaker 6: you know, huge reforms, huge changes, because if she sits
Speaker 6: in the seat, if she wins the election, she's very
Speaker 6: likely going to have a divide in Congress. And I
Speaker 6: would agree John that the interview on Friday not all
Speaker 6: that impressive. I think it's probably why we haven't seen
Speaker 6: her do a whole lot of interviews, why we probably
Speaker 6: won't see her do a whole lot of interviews between
Speaker 6: now and November. On the one hand, she's a candidate
Speaker 6: who absolutely turns out the base. On the other hand,
Speaker 6: maybe that they want to do their best to insulate
Speaker 6: her and just maintain the momentum that they have. Certainly
Speaker 6: that they she won in the debate on Tuesday.
Speaker 2: Night, Just quickly, just to wrap things up, base case
Speaker 2: for you and the team, what is it does it.
Speaker 6: Remain the same. It remains the same sixty five percent
Speaker 6: chance Harris win. So we think that's base case. With
Speaker 6: the divided government, the Senate goes red, the House goes blue,
Speaker 6: and that really limits what Harris is able to do
Speaker 6: at least until the midterm.
Speaker 2: Okay, Robbie's going to see you. Thank you, sir, appreciate
Speaker 2: the input. Rope case that signam, I'm pretty excited. The
Speaker 2: boss over at Pinco, Manny Ratherman, joins us. Now for
Speaker 2: the next thirty minutes or so, Maney, it's going to
Speaker 2: see you, sir.
Speaker 1: Good to see you. Thank you for having me put.
Speaker 2: Us out of our misery.
Speaker 1: Twenty five or fifty tomorrow. What's it going. Well, we're
Speaker 1: in the camp of twenty five.
Speaker 8: But you know, I always say we have a crystal
Speaker 8: ball and at the end of the day, we'll see
Speaker 8: what the market does. You know, it may very well
Speaker 8: be that it doesn't make that much of a difference.
Speaker 8: And our view is that there will be three cuts
Speaker 8: of twenty five and at the end of the day,
Speaker 8: what matters is where we are at the end.
Speaker 6: Of the year.
Speaker 2: Well, let's talk about the destination. This is a three
Speaker 2: pount act on Wednesday. As you know, it's a decision,
Speaker 2: it's a set of forecasts and a news conference and
Speaker 2: a big conversation around this table for the last several months.
Speaker 2: What's the destination, what are they aiming for, what are
Speaker 2: they shooting for? Where does this land in the next
Speaker 2: eighteen months.
Speaker 8: Well, I think you can say that there's less inflation
Speaker 8: right now, and that in the absence of new data,
Speaker 8: the destination will be to have lower rates, and the
Speaker 8: FED would be very data dependent, and I think I
Speaker 8: think sometimes one under estimate how careful they are about
Speaker 8: new data and how they want to be able to
Speaker 8: change their opinion. And so if you kind of use
Speaker 8: this framework, you sort of said, let's do twenty five
Speaker 8: and then let's see what we are, and then probably
Speaker 8: do twenty five and twenty five. But I think the
Speaker 8: total sum of the rate cuts may matter more than
Speaker 8: how they do it, which is the.
Speaker 4: Reason why people are looking forward and saying maybe the
Speaker 4: neutral rates three and a half percent, and oh yeah,
Speaker 4: look at that the two year yield right now, it's
Speaker 4: about three and a half percent. Back in June, when
Speaker 4: you put out the outlook for PIMCO, there was a
Speaker 4: feeling that intermediate bonds really had a fantastic investment proposal
Speaker 4: proposition just simply because there was yield. Do they still
Speaker 4: after the rally we've seen, We still.
Speaker 1: Do think so.
Speaker 8: And listen, the exciting thing about being at PIMCO right
Speaker 8: now is that fixed income is quite attractive. And you
Speaker 8: know we we we are in the business of fist
Speaker 8: and family, right so when rates are very, very low,
Speaker 8: it's harder to be that excited about fixed income. And
Speaker 8: when you can build portfolio and get a yell of
Speaker 8: sixty six and a half, you become very excited.
Speaker 1: And you know, we very focused on treasury, but.
Speaker 8: They're really is there is a lot of value in
Speaker 8: other part of the segment, a set back being one
Speaker 8: of them. And you know, we're excited about what we see.
Speaker 8: And at the end of the day, the yield on
Speaker 8: the portfolio is a good predictor of the return.
Speaker 1: That the investor will experience.
Speaker 8: And so what I think is exciting about fixed income
Speaker 8: right now is you can build a portfolio and get
Speaker 8: a return of sixty six and a half percent with
Speaker 8: a seria of different instruments.
Speaker 4: It used to be the bonds did better in bad
Speaker 4: times and worse in good times. Are we heading into
Speaker 4: a worse time where people go to bonds for safety
Speaker 4: or is this on just an absolute basis, yields are higher.
Speaker 8: My partner Dan ivesid and I'm going to quod him
Speaker 8: because because actually he has a very good line, bonds
Speaker 8: may be the most attractive asset class. And I think
Speaker 8: that there's an absolute argument and then there's a relative argument.
Speaker 1: And I think the relative.
Speaker 8: Argument is to say you need to build a portfolio,
Speaker 8: you need equity, you need fixed income, you need some
Speaker 8: real estate.
Speaker 1: You need some private asset.
Speaker 8: And at the end of the day, fixed income is
Speaker 8: much more attractive than equity, given the earning yield and
Speaker 8: given the evaluation of the equity market. And I think
Speaker 8: that's one of the arguments for owning a larger part
Speaker 8: of fixed income. And I think when I travel the world,
Speaker 8: I think that people are under invested in fixed income
Speaker 8: and a lot of them are looking at putting more
Speaker 8: money into fixed income. And whether they do it tomorrow,
Speaker 8: whether they do it two weeks from now or two months.
Speaker 1: From that, I don't know.
Speaker 8: But the reality is people were under invested values part
Speaker 8: of the fixed income market, and they're looking to readjust
Speaker 8: their allocation.
Speaker 2: Have you got confidence we've re established the invest coralinction
Speaker 2: between bounds and stocks.
Speaker 8: I don't know what I don't know, and I think
Speaker 8: I think correlation fictrate over time. I think that fixed
Speaker 8: income have a role in the portfolio construction, and I
Speaker 8: think they're there for a reason. But of course credit
Speaker 8: spread on the high market are correlation to equity prices.
Speaker 8: So once again, I think one needs to be careful
Speaker 8: about how you frame the question and how you conclude.
Speaker 2: Well, like I said, I mean more specific by saying
Speaker 2: do treasuries? Have treasuries re established an inverse correlation with equities?
Speaker 2: Because one of the reasts that we've seen established over
Speaker 2: the last few years, particularly given the central focus was inflation,
Speaker 2: is that when bombs sold off, equities did too. Have
Speaker 2: we changed that story if we left that Hopefully.
Speaker 1: Hopefully we have.
Speaker 8: But I think remember that we also saw with the pandemic,
Speaker 8: really an unprecent, debted program of money creation, which sort
Speaker 8: of threw everything and our economic textbook in terms of
Speaker 8: how we thought about the correlation. And so I'm careful
Speaker 8: about what I said because the data are just so
Speaker 8: skewed in terms of what we sew and I think,
Speaker 8: you know, you can make the argument, for example, that
Speaker 8: part of the reason why the US economy has done
Speaker 8: so much better than any other places is that the
Speaker 8: package in terms of the pandemic has been so much
Speaker 8: bigger than another country. And at the end of the day,
Speaker 8: all you can do is cross sectional analysis and try
Speaker 8: to compare a different country. But there's so many other
Speaker 8: valuable that comes into the picture that you don't want
Speaker 8: to understate the enormous creation of great company in the
Speaker 8: US versus Europe, for example, and so and so. I
Speaker 8: think we try to always be careful about making definitive
Speaker 8: conclusion when it comes to correlation and when it comes
Speaker 8: to cross sectional comparison between different country.
Speaker 4: Another way to frame this question is when you travel
Speaker 4: the world and you talk to international clients who are
Speaker 4: under invested in fixed and come in the United States,
Speaker 4: how many of them turn to you and say, what
Speaker 4: about the US deficit?
Speaker 8: Well, my my friend and partner, Richard Clarida, I used
Speaker 8: this very American expression and says, the US is.
Speaker 1: Let make sure to make sure I get that right.
Speaker 1: Carry the cleanness dirty. And you know, we have.
Speaker 8: Debated quite a bit at a forum about deficit and
Speaker 8: you know, deficit do matter, and they do matter, and
Speaker 8: at some one in them there's a tipping point, but
Speaker 8: we're not there. And the reality is it's a huge
Speaker 8: competitive advantage to be the reserve currency. People need to
Speaker 8: own dollars. And the reality is we don't think there's
Speaker 8: a crisis coming and that the LEVEL and the US
Speaker 8: can have suddenly a high level of debt versus historical
Speaker 8: precedent and be able to function just fine.
Speaker 3: When will the US get there?
Speaker 7: And do you see either party have any impetus to
Speaker 7: try to reign in spending, so to.
Speaker 8: Quote my partner once again, leave the Countrell, who comes
Speaker 8: often here on the show. No, we see no impetus
Speaker 8: to try to deal with the budget deficit. The only
Speaker 8: real example we have is the United Kingdom. And I
Speaker 8: think that the United Kingdom was actually quite interesting because
Speaker 8: you saw a situation where the bond market reacted so
Speaker 8: violently to the least trust proposal that all of a
Speaker 8: sudden they had to change and had to change really
Speaker 8: really quickly. And I think, I think that this example
Speaker 8: of what happened in a very developed country and how
Speaker 8: the Bank of England reacted and reacted really quickly with
Speaker 8: the LEDI situation and the pressure in the guilt market
Speaker 8: and in the pension market will be a textbook example
Speaker 8: of why markets react quite strongly when something outrageous come.
Speaker 7: Well, we have a Bloomberg survey to that point that
Speaker 7: says Kamala Harris her a victory for her in the
Speaker 7: White House would be better for treasuries and worse for stocks,
Speaker 7: vice versa for the foreign president.
Speaker 6: Would you agree with that scenario.
Speaker 8: I think, I think there's so many unknown you know,
Speaker 8: it depends, it depends on what happened in the House.
Speaker 1: It depends on what.
Speaker 8: The winner can do in terms of program how this
Speaker 8: is all going to pan out. I would be very
Speaker 8: careful about making any any prognosis on this on this matter,
Speaker 8: I think, you know, when we when we think about
Speaker 8: the world, you know, I realized politics is really important. Yeah,
Speaker 8: but at the end of the day, that's now how
Speaker 8: we invest. We invest because we find value and we
Speaker 8: find opportunity, and we try to bat cheap and we
Speaker 8: try to manage portfolio and think about risk carefully and
Speaker 8: ride different cycle and deal with many other factor than politics.
Speaker 8: And you know, there's a few exceptions. If you talk
Speaker 8: to my partner Promoda one in emerging market all of
Speaker 8: a sudden in emerging market sometimes, but its do really
Speaker 8: matter because they are very big changes and very big
Speaker 8: different outcomes.
Speaker 2: The struggle, man, is you notice that some dms have
Speaker 2: treated like ems over the last few years. And you
Speaker 2: mentioned the UK. So I won't put words in your mouth,
Speaker 2: I do want your views. Well, it does feel like
Speaker 2: a self imposed debt break in the United Kingdom, and
Speaker 2: I'm wondering whether from your perspective or even the team
Speaker 2: that actually makes UK government a little bit more attractive here.
Speaker 1: We think it's very attractive. We like the UK, We
Speaker 1: like Australia.
Speaker 8: We think that the UK fits very well in the portfolio,
Speaker 8: and then we'll need to cut and cut rates significantly.
Speaker 1: And so when you think of.
Speaker 8: A global outlook, the UK looks good for a fixed
Speaker 8: income investment.
Speaker 2: Relative to the United States, say in terms of duration risk.
Speaker 8: Relative to other countries in Europe, certainly compared to European bonds.
Speaker 8: We also like the US, So you know, if I
Speaker 8: want to kind of sum up things, you know, we
Speaker 8: like the US, we like the UK, We like Australia.
Speaker 2: The two year ten year segment of the yield curve
Speaker 2: things just starting to normalize, but the stepness almost back
Speaker 2: to double figures this morning as we get that curve normalization.
Speaker 2: Can you walk me through how much things change in
Speaker 2: fixed income whether you're starting to see that cash deployed
Speaker 2: a little bit more.
Speaker 8: Well, I think there's that, And of course people kind
Speaker 8: of look at the cash they have on the sideline,
Speaker 8: and there's about ten trillion dollars of money in cash
Speaker 8: where they will think to reinvested, either by extending duration
Speaker 8: or by going longer, or by taking a bit more
Speaker 8: credit risk. So there is a wall of money out there,
Speaker 8: and I keep on saying this, and of course some
Speaker 8: of it is cash corporate and will remain cash corporate.
Speaker 8: But I think people have been very much on the
Speaker 8: sideline rolling short term treasury bill and this money will
Speaker 8: get redeployed, and how fast and how remains to be seen.
Speaker 8: The other thing which I think you may find interesting
Speaker 8: is there are a lot of opportunity in relative value
Speaker 8: in the fixed inker market, and in particular think of Japan.
Speaker 8: You know, nothing happened in Japan for fifteen years and
Speaker 8: then all of a sudden, we now have positive rates
Speaker 8: in Japan, and there's a lot of arbitrush to be done.
Speaker 8: It's across the curve, it's with swamp, it's with different instruments,
Speaker 8: and all of a sudden, they are sources of alpha,
Speaker 8: as we tend to call them, where basically they didn't
Speaker 8: exist two years ago, which have come back to the
Speaker 8: market in Spain. How long it lasts, we'll find out,
Speaker 8: but it should be a very exciting opportunity in terms
Speaker 8: of the whole market, in terms of delivering better performance.
Speaker 4: How difficult is it to pry that cash out of
Speaker 4: people's cold hands, given the fact that people really do
Speaker 4: like what they're getting. And oh, by the way, there
Speaker 4: are fifteen other fund managers out there also trying to
Speaker 4: get them to pry that cash out of their hands.
Speaker 8: Well, I will tell your competition is good. Is good
Speaker 8: for everybody. And at the end of the day, there's two.
Speaker 1: Things there is.
Speaker 8: When the FED cuts rate, eventually the short end of
Speaker 8: the curve becomes less attractive, and I think you'll see
Speaker 8: cash moving.
Speaker 1: And from a competitive standpoint, we want to.
Speaker 8: Do the best possible job in terms of big and
Speaker 8: fiduciary and doing a good job in terms of performance
Speaker 8: and being there for our clients. And we compete every
Speaker 8: single day and hopefully we'll win more than we lose.
Speaker 1: But all we can do is trial best and were
Speaker 1: trying very hard.
Speaker 4: Where's the edge, where's sort of growth concentrated in or
Speaker 4: trying to be concentrated with respect to PIMCO in the
Speaker 4: say five years ahead.
Speaker 8: Well, Asia has been quite exciting lately, and there's a
Speaker 8: lot of things happening in Asia, and you can sort
Speaker 8: of think of our business as being linked to GDP
Speaker 8: in terms of the saving rate and people when they
Speaker 8: save more, invest more. And so Asia has been quite exciting.
Speaker 8: And the US is an absolutely wonderful place. I mean,
Speaker 8: it's a big market and there's a lot to be done.
Speaker 8: We have a very good Canadian business, we have a
Speaker 8: very good Latin American business. There's a lot of good
Speaker 8: things happening. But the one valuable we don't control is
Speaker 8: of course, make the macroeconomic situation. And so if you
Speaker 8: have a real reversal, and you have, for example of
Speaker 8: a session, and let me just say it's not our scenario,
Speaker 8: but if you have a real recession, people look at
Speaker 8: more discoversed and take.
Speaker 1: Some money away, and at the end of the day,
Speaker 1: you know, we.
Speaker 8: Here for the next twenty years, not for the next
Speaker 8: twenty minutes. And so you know, we have very liquid portfolio.
Speaker 8: People can take the money whenever they feel like, and
Speaker 8: we invest and so on, and we understand that people
Speaker 8: need money for all sorts of reason.
Speaker 4: There are a number of behemoth asset managers. PIMCO overseas
Speaker 4: one point eight trillion dollars. How much bigger could you
Speaker 4: see it getting?
Speaker 1: It's all about performance.
Speaker 8: And I always say the great thing about not being
Speaker 8: public and not having two give quality earnings is you
Speaker 8: focus on what matter. The circle of truth is if
Speaker 8: you perform, they will come.
Speaker 2: You said this last one, we spoke success by assets.
Speaker 2: We measure our success by the returns we provide. Does
Speaker 2: it disappoint you? Is it slightly upsetting that people do
Speaker 2: measure your success by assets because they've been pretty stable
Speaker 2: now for the last decade, black Rock over the same
Speaker 2: period has multiplied. Is that disappointing to you that people
Speaker 2: junctually have that.
Speaker 8: I think we have a very different business model. And
Speaker 8: you know we were talking about Onemart. We don't want
Speaker 8: to be Walmart. Onemar is a fantastic company, but we
Speaker 8: have an opportunity set where we very carefully think about
Speaker 8: capacity and how much money we can put to work
Speaker 8: and what the right target return are for investors. And
Speaker 8: I think that by definition means that we won't be
Speaker 8: the largest asset manager, and so be it.
Speaker 2: When it comes to asset management, private markets comes up
Speaker 2: all the time, and everyone's trying to make their own
Speaker 2: push pin cut fit into that big push at the
Speaker 2: moment into private markets.
Speaker 1: So we.
Speaker 8: Try to focus on what we know how to do,
Speaker 8: and what we know how to do is fixed income,
Speaker 8: and so that includes as a matter of fact, everything
Speaker 8: which has to do with private market and fixed income,
Speaker 8: and it also involves real estate and there's a big
Speaker 8: REALI state cycle that should be exciting. There will be
Speaker 8: pieces to pick and there will be cheap investment, both
Speaker 8: in debt and inequity and in the private credit market.
Speaker 8: There's quite a unique opportunity in asset backed lending. That's
Speaker 8: where my friend Dan Iverson grew up in. We have
Speaker 8: been doing this for twenty years and the one thing
Speaker 8: which has changed, so to speak, is the banks need
Speaker 8: to free up capital, and so they need to sell
Speaker 8: large portfolio of many different assets and do it fairly quickly.
Speaker 8: That's an opportunity for us. And so if they are
Speaker 8: good entry points and good asset to pick, we should
Speaker 8: be able to do quite well.
Speaker 4: What types of assets you're talking about commercial, you're going
Speaker 4: to be on residential.
Speaker 1: Swatch all bonds banks.
Speaker 8: Let me just focus first on fixed income. You know,
Speaker 8: I think in fixed income there's a lot to buy,
Speaker 8: and there's a lot to buy because the banks need
Speaker 8: to deliver. And so the banks, you can think about
Speaker 8: what they have on the balance sheet.
Speaker 1: They have loans that they've.
Speaker 8: Given to company and they want to get rid of it,
Speaker 8: and so they sell it to us, and that I
Speaker 8: think is fairly straightforward. In real estate, you have a
Speaker 8: real estate cycle, and there will be different things you
Speaker 8: can do. There will be some will need pref equity,
Speaker 8: some will need debts, some will need to buy equity,
Speaker 8: and we need.
Speaker 1: Just need to make sure that it's cheap enough.
Speaker 8: And that we think carefully about what happens and make
Speaker 8: sure we have an expected return which company set for
Speaker 8: the risk and it needs to be high because it's
Speaker 8: a lot of risk in commercial really State, for example.
Speaker 8: But we had a pretty fast cycle and hopefully we're
Speaker 8: going to be on the right side of the of
Speaker 8: the trade coming.
Speaker 1: Out of it.
Speaker 2: We've only got sixty seconds left with you. So the
Speaker 2: hardest question of the morning. What's more likely Arsenal winning
Speaker 2: the title or the Federal Reserve engineering a soft landing
Speaker 2: Arsenal winning the title. Arsenal winning the title? Should I
Speaker 2: read into when I think about your real views on
Speaker 2: the economy, then, based on now, you just think Arsenal
Speaker 2: is not good?
Speaker 1: No, you should, you should think about Arsenal. No. I think.
Speaker 8: Look, Look, I think I think people are very people
Speaker 8: are very sometimes criticized the FED. I think they do
Speaker 8: a really really good job with a very difficult hand
Speaker 8: to play, and.
Speaker 1: You know, they don't know what they don't know at
Speaker 1: the end of the day.
Speaker 8: And I think, I think it has been a tremendously
Speaker 8: complicated market to navigate for everybody. Over the past four years.
Speaker 8: None of us, none of us have so thought we
Speaker 8: would see a pandemic. And you know, from an investment
Speaker 8: standpoint and from a regulatory standpoint, and from the FED standpoint,
Speaker 8: I think we have to learn a new playbook.
Speaker 2: It's been humbling for so Maney's good to say you
Speaker 2: a great winning for the weekend. Thank you, sir, appreciating
Speaker 2: Money Roman, there of film Code. This is the Bloomberg
Speaker 2: Surveillance Podcast, bringing you the best in markets, economics, and geopolitics.
Speaker 2: You can watch the show live on Bloomberg TV weekday
Speaker 2: mornings from six am to nine am Eastern. Subscribe to
Speaker 2: the podcast on Apple, Spotify, or anywhere else you listen,
Speaker 2: and as always, on the Bloomberg Terminal and the Bloomberg
Speaker 2: Business app.