WEBVTT - Bloomberg Surveillance TV: September 16, 2024 0:00:00.120 --> 0:00:06.800 Bloomberg Audio Studios, Podcasts, radio news. 0:00:11.640 --> 0:00:15.440 This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along 0:00:15.480 --> 0:00:18.680 with Lisa Bromwitz and Amrie Hordern. Join us each day 0:00:18.720 --> 0:00:22.280 for insight from the best in markets, economics, and geopolitics 0:00:22.400 --> 0:00:24.920 from our global headquarters in New York City. We are 0:00:24.920 --> 0:00:27.680 live on Bloomberg Television weekday mornings from six to nine 0:00:27.720 --> 0:00:31.280 am Eastern. Subscribe to the podcast on Apple, Spotify or 0:00:31.320 --> 0:00:33.920 anywhere else you listen, and as always on the Bloomberg 0:00:34.040 --> 0:00:37.400 Terminal and the Bloomberg Business App. Investors gear up for 0:00:37.400 --> 0:00:40.440 the defence big decision on Wednesday, The Central Bank expected 0:00:40.440 --> 0:00:43.360 account raids by these twenty five basis points, with some 0:00:43.479 --> 0:00:46.599 traders preparing for a larger fifty basis point move. Lori 0:00:46.720 --> 0:00:49.559 Cavicino of MBC joined us now for more. Lori, I 0:00:49.600 --> 0:00:52.000 knowber houseview is twenty five, and I just wonder if 0:00:52.040 --> 0:00:53.640 we get that twenty five, and of course welcome to 0:00:53.680 --> 0:00:55.640 the program. By the way, if we do get that 0:00:55.720 --> 0:00:58.480 twenty five, how vulnerable certain trades like the small camps 0:00:58.520 --> 0:00:59.280 actually are. 0:01:00.520 --> 0:01:01.920 Hi, John, So thanks for having me. 0:01:02.000 --> 0:01:02.160 Look. 0:01:02.200 --> 0:01:04.160 I think it's a great question. And we were watching 0:01:04.160 --> 0:01:07.480 the small caps just surge on Friday as the renewed 0:01:07.520 --> 0:01:10.640 optimism about the fifty basis point cut came up as well. 0:01:11.040 --> 0:01:13.080 And look, I think small caps have a lot. 0:01:13.000 --> 0:01:16.240 Going for them, but the reality is that valuations are 0:01:16.240 --> 0:01:19.680 full and positioning is also full. If you go back 0:01:19.680 --> 0:01:22.240 a few months ago, they looked under owned, they look cheap. 0:01:22.280 --> 0:01:24.040 We're just not there anymore. And now we've got a 0:01:24.080 --> 0:01:26.759 lot of FED optimism baked in. So I do think 0:01:26.760 --> 0:01:28.520 in the short term, at least if we're just thinking 0:01:28.520 --> 0:01:30.360 about the week ahead, I do worry a bit that 0:01:30.400 --> 0:01:32.360 if we get the twenty five rather than the fifty, 0:01:32.440 --> 0:01:35.080 which propelled small caps to these great heights on Friday, 0:01:35.319 --> 0:01:37.280 that there could be a bit of a reversion. 0:01:36.920 --> 0:01:37.760 In the small caps. 0:01:37.920 --> 0:01:40.679 I think that we really have sort of more of 0:01:40.680 --> 0:01:43.640 the fast money crowd sort of driving that trade right now. 0:01:43.720 --> 0:01:45.800 If you look at recent flows into small cap they 0:01:45.840 --> 0:01:49.120 have been all passive driven, and that passive money does 0:01:49.240 --> 0:01:51.320 tend to be very, very fickle. 0:01:51.720 --> 0:01:53.840 You have a nuance view here, Laurie, with respect to 0:01:54.040 --> 0:01:56.400 not only how much the FED cuts, but also the 0:01:56.440 --> 0:01:59.080 economic data behind it that needs to heap this going. 0:01:59.320 --> 0:01:59.760 There was this. 0:01:59.720 --> 0:02:01.880 Feeling that the FED was on track to cut by 0:02:01.880 --> 0:02:06.000 fifty basis points without real pain visible in the US economy. 0:02:06.280 --> 0:02:09.440 How much is any kind of weakening, even if not 0:02:09.520 --> 0:02:12.280 a recession, sort of a bear case right now for 0:02:12.360 --> 0:02:13.000 small calves. 0:02:14.240 --> 0:02:17.040 So I think the small caps really need the needle 0:02:17.120 --> 0:02:19.400 to be threaded. And what I mean by that is, 0:02:19.440 --> 0:02:21.680 if you go back and look at past cutting cycles, 0:02:21.680 --> 0:02:24.080 small caps do really really well and embark on a 0:02:24.120 --> 0:02:27.119 longer term out performance cycle. If you get a recession, 0:02:27.200 --> 0:02:29.320 if you break the economy, it's small cap one on 0:02:29.320 --> 0:02:30.760 one to say you sell them on the way into 0:02:30.840 --> 0:02:32.720 a recession, you buy them on the way out, and 0:02:32.760 --> 0:02:34.640 you tend to see that pivot midway through. 0:02:34.880 --> 0:02:36.320 But if we don't get that and we. 0:02:36.280 --> 0:02:38.919 Get some sort of economy that's still growing, I do 0:02:39.000 --> 0:02:41.480 think it depends on what kind of growth we get. 0:02:41.520 --> 0:02:43.360 And if you look at the other side of the equation, 0:02:43.680 --> 0:02:46.600 we really do need a hot economy above average GDP 0:02:46.760 --> 0:02:49.000 for small caps to really keep going. If you look 0:02:49.040 --> 0:02:52.720 at recent trading data since say twenty fifteen, twenty sixteen, 0:02:53.000 --> 0:02:54.720 and if we're just you know, kind of, I guess 0:02:54.720 --> 0:02:56.480 I think it comes downly. So what do you mean 0:02:56.520 --> 0:02:58.720 by soft landing a soft landing that's looking at like 0:02:58.800 --> 0:03:01.359 one and a half percent type AVP growth, maybe even two. 0:03:01.880 --> 0:03:03.799 I don't think that quite cuts it for small cap 0:03:03.840 --> 0:03:05.840 I think you need something more like two and a 0:03:05.880 --> 0:03:07.160 half to three percent or better. 0:03:07.240 --> 0:03:09.239 When you broaden out beyond small caps, you see you 0:03:09.360 --> 0:03:11.320 remain neutral in the S and P five hundred. As 0:03:11.360 --> 0:03:14.040 we get closer to your year end target. You talk 0:03:14.080 --> 0:03:16.840 about sentiment and how it concerns you. Can you explain 0:03:16.919 --> 0:03:19.800 why investor sentiment right now is a red flag? 0:03:21.240 --> 0:03:23.200 Sure, it's a great question, Lisa, And look, I would 0:03:23.200 --> 0:03:25.600 say if you look at aaii net bullishness, I think 0:03:25.600 --> 0:03:27.720 that's the best barometer. It's been doing the best job 0:03:27.760 --> 0:03:30.200 the last couple of years at calling short term inflections 0:03:30.200 --> 0:03:32.840 in the market, and it's really flirting with danger. If 0:03:32.880 --> 0:03:34.840 you look at where it's been recently, it's been kind 0:03:34.840 --> 0:03:38.040 of hovering right around that one standard deviation mark, poking 0:03:38.080 --> 0:03:40.920 above it on certain weeks, but not quite on the 0:03:40.960 --> 0:03:42.960 four week average. And that's very similar to what we 0:03:43.040 --> 0:03:45.240 saw back in July. That's very similar to what we 0:03:45.280 --> 0:03:48.080 saw back in August of last year. And if you 0:03:48.120 --> 0:03:50.240 look at CFTC data, which is going to give you 0:03:50.280 --> 0:03:50.480 more of. 0:03:50.440 --> 0:03:52.920 An institutional look, that data. 0:03:52.680 --> 0:03:55.120 Just continues to make new highs, and it's above levels 0:03:55.160 --> 0:03:58.200 that we were at in early twenty eighteen, in early 0:03:58.240 --> 0:04:01.000 twenty twenty pre COVID, and it's well above the highs 0:04:01.240 --> 0:04:03.280 that we've seen mark the peak in recent years in 0:04:03.360 --> 0:04:05.200 kind of that post COVID era look. 0:04:05.280 --> 0:04:06.840 Sentiment and position are not the. 0:04:06.760 --> 0:04:09.680 Only thing that drives stocks, and we certainly can stay 0:04:09.720 --> 0:04:12.400 overbought for quite some time. But I do think it 0:04:12.480 --> 0:04:15.760 tells me that we're really not sitting here in a 0:04:15.760 --> 0:04:18.760 position where we can absorb any kind of bad news easily. 0:04:19.080 --> 0:04:20.480 So those are charts, frankly. 0:04:20.240 --> 0:04:21.960 Lisa, that keep me up at night, even though we've 0:04:22.000 --> 0:04:24.159 had a more constructive view on equities overall. 0:04:24.400 --> 0:04:26.760 Lorie, do you still see a connection from a Trump 0:04:26.839 --> 0:04:28.640 win and small caps rallying? 0:04:30.240 --> 0:04:32.040 It's a great question, Anne, Marie. 0:04:32.120 --> 0:04:34.200 So you know, if we look back to twenty twenty three, 0:04:34.360 --> 0:04:37.760 twenty twenty four, we really just haven't seen that linkage 0:04:37.800 --> 0:04:39.800 right where Trump's doing well in the vetting markets and 0:04:39.800 --> 0:04:42.599 small caps are outperforming. We've really seen Trump more closely 0:04:42.640 --> 0:04:46.159 aligned with large caps with growth. Things are starting to 0:04:46.240 --> 0:04:48.240 change there a bit recently, so I would say we'll 0:04:48.240 --> 0:04:50.520 have to watch the data. One of the things we 0:04:50.600 --> 0:04:52.720 did mention in our piece this morning is that if 0:04:52.720 --> 0:04:56.159 the Harris corporate tax increases, raising the rate from twenty 0:04:56.200 --> 0:04:58.479 one percent to twenty eight percent, were to go through, 0:04:58.760 --> 0:05:00.640 I do think that's a negative sick for a small 0:05:00.640 --> 0:05:03.599 cap because if you go back into the twenty sixteen 0:05:03.680 --> 0:05:06.680 twenty seventeen period, small caps were one of the big 0:05:06.720 --> 0:05:09.479 beneficiaries of the rate cut. And that's not just to 0:05:09.520 --> 0:05:12.359 simply say the historical playbook, you know, flips on its head. 0:05:12.600 --> 0:05:14.520 We have to go back to the why. And what we. 0:05:14.520 --> 0:05:17.039 Found back then was that small caps were more direct 0:05:17.120 --> 0:05:20.159 payers of the headline rate. They had a tougher time 0:05:20.520 --> 0:05:23.440 managing their taxes lower than large cap companies did. 0:05:23.480 --> 0:05:25.040 So I think that issue may come up if. 0:05:24.960 --> 0:05:27.440 We end up seeing Harris whin and those corporate tax 0:05:27.480 --> 0:05:30.120 cut tax hikes rather are on the table. Of course, 0:05:30.160 --> 0:05:31.680 I think that really only happens, you know, in a 0:05:31.680 --> 0:05:34.280 democratic sweep scenario, which is not really our base case. 0:05:34.440 --> 0:05:37.280 Laurie, you've been looking at both these candidates plans. I 0:05:37.320 --> 0:05:40.279 saw you at Trump's economic speech here in New York City. 0:05:40.800 --> 0:05:44.159 What big questions are still missing as you think about 0:05:44.279 --> 0:05:45.760 and you put these into your models. 0:05:47.279 --> 0:05:50.320 So look, I think it's really preliminary for both candidates, right, 0:05:50.360 --> 0:05:52.640 I think that they've got both taken some heat for 0:05:52.760 --> 0:05:56.360 lack of detail. From my perspective, maybe my expectations are 0:05:56.400 --> 0:05:57.960 just low all around. I think this is maybe the 0:05:57.960 --> 0:06:01.320 fifth or sixth presidential election I've covered as a strategist. 0:06:01.560 --> 0:06:04.159 But I'm really just looking for kernels of where they're leaning, 0:06:04.200 --> 0:06:07.000 of what their wish lists are, of what their impulses are. 0:06:07.760 --> 0:06:10.040 So I think, you know, when I look going forward, 0:06:10.160 --> 0:06:12.080 you know, I think maybe on the tax side, for 0:06:12.160 --> 0:06:14.320 corporate taxes, at least, we have a little bit more clarity. 0:06:14.320 --> 0:06:15.000 On the hair side. 0:06:15.400 --> 0:06:18.400 I left the speech confused about exactly what Trump wants 0:06:18.440 --> 0:06:21.040 to do in terms of further tax cuts. The commentary 0:06:21.080 --> 0:06:24.839 of linking the fifteen percent rate to domestic production, I 0:06:24.880 --> 0:06:26.800 don't exactly know how that shakes out in the S 0:06:26.839 --> 0:06:27.039 and P. 0:06:27.120 --> 0:06:27.640 Five hundred. 0:06:27.680 --> 0:06:29.480 We have lots and lots of companies that are producing 0:06:29.560 --> 0:06:31.800 things overseas. So I think it's tough for me to 0:06:31.800 --> 0:06:34.039 sit here, when I'm looking at my earnings model, to 0:06:34.200 --> 0:06:36.880 just bake in a fifteen percent corporate tax rate. I 0:06:36.880 --> 0:06:38.640 think it's much more complicated than that. 0:06:38.720 --> 0:06:41.320 We sew you paint for policy on both sides. Lori, 0:06:41.440 --> 0:06:54.880 thank you, Lori Cavasena of Obvious. Let's continue this conversation 0:06:54.960 --> 0:06:57.440 with Robe Cannessey of Signum Colubal advice is Rope. Good 0:06:57.440 --> 0:07:01.400 mornings you, sir, morning. Another almost trying event over the weekend. 0:07:01.440 --> 0:07:03.440 Two very lucky escapes over the last two months for 0:07:03.440 --> 0:07:06.360 the former president. What is this change? Does this change anything? 0:07:06.440 --> 0:07:08.240 It's so, you know, I don't think it changes a 0:07:08.240 --> 0:07:08.600 whole lot. 0:07:08.760 --> 0:07:10.720 Certainly not as much as the first assassination of attempt 0:07:10.760 --> 0:07:12.600 where we saw, you know, photo after a photo of 0:07:12.600 --> 0:07:16.040 Donald Trump bleeding, standing raising his fist. This a little 0:07:16.040 --> 0:07:18.160 bit less interesting to the general public, but I think 0:07:18.200 --> 0:07:20.080 it points to the fact that the October surprise this 0:07:20.160 --> 0:07:23.040 year very well could be an example of political violence 0:07:23.400 --> 0:07:24.120 when you look. 0:07:23.960 --> 0:07:26.480 At the timeline to November fifth. Does Trump need to 0:07:26.560 --> 0:07:28.040 change how he campaigns now? 0:07:28.480 --> 0:07:30.520 I don't think he needs to change how he campaigns Now. 0:07:30.560 --> 0:07:32.240 Maybe we'll see him play a little bit less golf, 0:07:32.360 --> 0:07:36.160 but probably not. I mean, as the sitting president, you know, 0:07:36.360 --> 0:07:40.000 he likes to travel to his golf courses. As a candidate, 0:07:40.000 --> 0:07:42.960 he's certainly done the same thing now how he campaigns. 0:07:43.000 --> 0:07:45.360 I think this really only plays to his advantage. Now, 0:07:45.360 --> 0:07:48.280 obviously we're all very grateful that he's safe, but up 0:07:48.360 --> 0:07:50.240 until that point where he's not safe, I think this 0:07:50.400 --> 0:07:53.400 riles up his base and ensures that Republicans will turn 0:07:53.400 --> 0:07:54.240 out in November. 0:07:54.520 --> 0:07:56.120 Jack was just talking about what's going on with this 0:07:56.240 --> 0:07:59.640 task force. They're still investigating what happened two months ago. 0:08:00.040 --> 0:08:03.920 How quickly can Congress move and potentially beaming up his protection. 0:08:04.240 --> 0:08:06.880 We heard from the Palm Beach County sheriff yesterday saying 0:08:06.960 --> 0:08:09.360 if it was the sitting president, potentially there would be 0:08:09.400 --> 0:08:12.280 a bigger perimeter around the West Palm Beach golf course. 0:08:12.800 --> 0:08:15.320 Yeah, you know, unfortunately or fortunately, it's not really up 0:08:15.360 --> 0:08:17.960 to Congress how good Trump's protection is, right, it's a 0:08:18.040 --> 0:08:21.480 question of Secret Service. President Joe Biden vice President Kamala 0:08:21.520 --> 0:08:24.679 Harris have assured us over the weekend that Trump's protection 0:08:24.840 --> 0:08:27.000 is good. Right, It's as much as a candidate needs 0:08:27.080 --> 0:08:30.480 to have. But that being said, I wouldn't be surprised 0:08:30.480 --> 0:08:33.160 if beefed it up pretty close to essentially what the 0:08:33.200 --> 0:08:35.960 sitting president receives. Now, Donald Trump is not the sitting president, 0:08:36.000 --> 0:08:38.520 but he's six weeks away from potentially being re elected, 0:08:38.559 --> 0:08:42.320 so I would not be surprised if President Biden, frankly 0:08:42.360 --> 0:08:44.600 came out and said we're going to give Donald Trump more. 0:08:44.640 --> 0:08:46.400 Rob you said something that I want to pick up on. 0:08:46.679 --> 0:08:48.920 You said that the October surprise that we may see 0:08:49.200 --> 0:08:51.320 could be an act of political violence. 0:08:52.040 --> 0:08:54.040 What makes you say that, Well. 0:08:53.920 --> 0:08:56.920 Of course, We've seen two attempts on formal President Donald 0:08:56.920 --> 0:08:59.840 Trump's life, So that's the first. The second is, you know, 0:09:00.480 --> 0:09:03.320 our country is horribly divided, and I think to a 0:09:03.320 --> 0:09:05.920 certain extent, politicians are playing into that, and we'll play 0:09:05.920 --> 0:09:08.280 into that between now and November. I think the example 0:09:08.320 --> 0:09:10.840 of sort of coming from the other side is Trump 0:09:10.920 --> 0:09:14.400 and vice presidential candidate Jade Vance, you know, talking about 0:09:14.400 --> 0:09:18.240 these these illegal immigrants in Ohio, you know, Haitians eating 0:09:18.320 --> 0:09:21.400 dogs and cats, things of that nature. They're actually legal immigrants, 0:09:22.040 --> 0:09:24.960 but it's rhetoric like that that I think, you know, Frankly, 0:09:25.160 --> 0:09:28.080 could incite this kind of lone wolf violence that is 0:09:28.160 --> 0:09:29.400 so hard to defend against. 0:09:29.760 --> 0:09:30.520 So what's your. 0:09:30.640 --> 0:09:32.280 Sort of analogy, I mean, is there has there ever 0:09:32.320 --> 0:09:35.680 been a time or any other election cycle that you 0:09:35.720 --> 0:09:37.520 can think of, had this type of risk or is 0:09:37.520 --> 0:09:40.240 this a new and heightened risk that requires a very 0:09:40.240 --> 0:09:42.599 different type of security and different type of campaigning. 0:09:42.840 --> 0:09:44.719 You know, I think it's a it's a at least 0:09:44.760 --> 0:09:47.560 in the modern American era, this is new. Right. We 0:09:47.640 --> 0:09:52.280 haven't seen attempted assassinations like this in my lifetime and 0:09:52.320 --> 0:09:54.320 in all of our lifetimes. You know, you can go 0:09:54.400 --> 0:09:56.960 back to probably the Civil War to see when our 0:09:56.960 --> 0:09:59.880 country was most divided. I don't think we get there. 0:10:00.360 --> 0:10:03.000 And the whole bus Secret Service is able to protect 0:10:03.040 --> 0:10:06.280 obviously the sitting president, the former president Trump and Kamal Harrison, 0:10:06.400 --> 0:10:09.880 and they're doing their best. And it's important to say 0:10:09.880 --> 0:10:12.840 that none of these attempted assassinations have been successful. Now, 0:10:13.240 --> 0:10:16.200 obviously the first one was very close and very scary. Yes, 0:10:16.400 --> 0:10:17.439 second one not so much. 0:10:17.520 --> 0:10:20.720 Let's talk about the Harris campaign. The first time we 0:10:20.760 --> 0:10:23.280 had the Biden campaign, and the criticism at the time 0:10:23.559 --> 0:10:26.960 was that it was a one dimensional campaign centered around 0:10:27.440 --> 0:10:30.800 characterizing Trump as an existential threat to democracy. There's a 0:10:30.800 --> 0:10:32.920 lot of criticism about that. In the middle of July. 0:10:33.520 --> 0:10:35.560 Does the Harris campaign have enough facets too? 0:10:35.559 --> 0:10:35.599 It? 0:10:35.720 --> 0:10:38.280 Is it a multi faceted campaign that they're not relying 0:10:38.280 --> 0:10:40.199 on this single issue that they can back away from 0:10:40.240 --> 0:10:41.520 talking about this a little bit more. 0:10:41.960 --> 0:10:43.960 Yeah, I think they can. The issue with the question 0:10:44.000 --> 0:10:46.800 of democracy as a campaign issue is that it's you know, 0:10:46.840 --> 0:10:48.960 one hundred percent of people are worried about it, but 0:10:49.000 --> 0:10:51.200 it's fifty to fifty right Republicans are worried about how 0:10:51.240 --> 0:10:53.840 Democrats are a threat to democracy. Same thing vice versa. 0:10:54.040 --> 0:10:57.880 So a, did it insight the first attempted assassination against 0:10:57.920 --> 0:11:01.520 Donald Trump? We're not really sure who knows. The motives 0:11:01.559 --> 0:11:05.240 of that should have remain unclear. But you know, as 0:11:05.240 --> 0:11:07.800 a question of you know, can the Harris campaign do more? 0:11:08.040 --> 0:11:09.880 They better, right, because I'm not sure they're going to 0:11:09.960 --> 0:11:12.320 win on this single question of democracy. They have to 0:11:12.320 --> 0:11:15.360 win on abortion. You know, there's more messaging around a 0:11:15.360 --> 0:11:18.400 middle class economy and opportunity economy than we saw from Biden, 0:11:18.400 --> 0:11:20.199 who didn't want to talk about the economy at all. 0:11:20.920 --> 0:11:22.800 So Harris is doing more. I think she has to 0:11:22.840 --> 0:11:23.200 do more. 0:11:23.120 --> 0:11:25.199 To win total us about Harris is addressed in the 0:11:25.280 --> 0:11:28.280 US economy. Because we also had that interview gangainso the weekend, 0:11:28.400 --> 0:11:31.720 it wasn't impressive. Some very simple questions that weren't ready 0:11:31.760 --> 0:11:34.559 onswer it what is the opportunity economy? What are the 0:11:34.640 --> 0:11:35.559 policies behind it? 0:11:35.960 --> 0:11:37.480 You know, I think the policies that she wants to 0:11:37.520 --> 0:11:40.439 highlight first and foremost are the housing policies. You know, 0:11:40.720 --> 0:11:42.920 After that, it sort of falls off right, And I 0:11:42.920 --> 0:11:45.600 think what's important about these policies, What many of us 0:11:45.679 --> 0:11:47.600 know is that not a lot is going to get 0:11:47.600 --> 0:11:49.679 through Congress. So it's not as though she can promise, 0:11:49.960 --> 0:11:54.199 you know, huge reforms, huge changes, because if she sits 0:11:54.200 --> 0:11:56.280 in the seat, if she wins the election, she's very 0:11:56.320 --> 0:11:58.839 likely going to have a divide in Congress. And I 0:11:58.840 --> 0:12:02.439 would agree John that the interview on Friday not all 0:12:02.440 --> 0:12:04.680 that impressive. I think it's probably why we haven't seen 0:12:04.679 --> 0:12:06.880 her do a whole lot of interviews, why we probably 0:12:06.920 --> 0:12:09.400 won't see her do a whole lot of interviews between 0:12:09.400 --> 0:12:11.680 now and November. On the one hand, she's a candidate 0:12:11.720 --> 0:12:15.040 who absolutely turns out the base. On the other hand, 0:12:15.559 --> 0:12:17.559 maybe that they want to do their best to insulate 0:12:17.600 --> 0:12:20.240 her and just maintain the momentum that they have. Certainly 0:12:20.240 --> 0:12:23.200 that they she won in the debate on Tuesday. 0:12:22.920 --> 0:12:24.720 Night, Just quickly, just to wrap things up, base case 0:12:24.720 --> 0:12:26.439 for you and the team, what is it does it. 0:12:26.360 --> 0:12:28.400 Remain the same. It remains the same sixty five percent 0:12:28.480 --> 0:12:31.800 chance Harris win. So we think that's base case. With 0:12:31.960 --> 0:12:34.840 the divided government, the Senate goes red, the House goes blue, 0:12:35.160 --> 0:12:37.000 and that really limits what Harris is able to do 0:12:37.400 --> 0:12:38.440 at least until the midterm. 0:12:38.440 --> 0:12:40.480 Okay, Robbie's going to see you. Thank you, sir, appreciate 0:12:40.520 --> 0:12:52.959 the input. Rope case that signam, I'm pretty excited. The 0:12:53.000 --> 0:12:55.240 boss over at Pinco, Manny Ratherman, joins us. Now for 0:12:55.280 --> 0:12:56.959 the next thirty minutes or so, Maney, it's going to 0:12:57.000 --> 0:12:57.560 see you, sir. 0:12:57.640 --> 0:12:59.760 Good to see you. Thank you for having me put. 0:12:59.640 --> 0:13:00.600 Us out of our misery. 0:13:00.640 --> 0:13:02.600 Twenty five or fifty tomorrow. What's it going. Well, we're 0:13:02.600 --> 0:13:03.680 in the camp of twenty five. 0:13:03.760 --> 0:13:06.120 But you know, I always say we have a crystal 0:13:06.160 --> 0:13:09.280 ball and at the end of the day, we'll see 0:13:09.280 --> 0:13:11.360 what the market does. You know, it may very well 0:13:11.400 --> 0:13:13.480 be that it doesn't make that much of a difference. 0:13:13.960 --> 0:13:16.600 And our view is that there will be three cuts 0:13:16.640 --> 0:13:18.760 of twenty five and at the end of the day, 0:13:18.840 --> 0:13:20.480 what matters is where we are at the end. 0:13:20.440 --> 0:13:20.840 Of the year. 0:13:20.880 --> 0:13:22.839 Well, let's talk about the destination. This is a three 0:13:22.880 --> 0:13:25.400 pount act on Wednesday. As you know, it's a decision, 0:13:25.679 --> 0:13:27.960 it's a set of forecasts and a news conference and 0:13:28.000 --> 0:13:30.600 a big conversation around this table for the last several months. 0:13:30.920 --> 0:13:33.080 What's the destination, what are they aiming for, what are 0:13:33.120 --> 0:13:35.320 they shooting for? Where does this land in the next 0:13:35.320 --> 0:13:36.200 eighteen months. 0:13:36.400 --> 0:13:40.480 Well, I think you can say that there's less inflation 0:13:41.000 --> 0:13:44.240 right now, and that in the absence of new data, 0:13:44.800 --> 0:13:47.960 the destination will be to have lower rates, and the 0:13:47.960 --> 0:13:50.400 FED would be very data dependent, and I think I 0:13:50.400 --> 0:13:56.120 think sometimes one under estimate how careful they are about 0:13:56.240 --> 0:13:58.600 new data and how they want to be able to 0:13:58.679 --> 0:14:01.080 change their opinion. And so if you kind of use 0:14:01.120 --> 0:14:03.480 this framework, you sort of said, let's do twenty five 0:14:03.520 --> 0:14:06.000 and then let's see what we are, and then probably 0:14:06.000 --> 0:14:07.960 do twenty five and twenty five. But I think the 0:14:08.080 --> 0:14:11.560 total sum of the rate cuts may matter more than 0:14:12.640 --> 0:14:14.280 how they do it, which is the. 0:14:14.200 --> 0:14:16.600 Reason why people are looking forward and saying maybe the 0:14:16.640 --> 0:14:18.640 neutral rates three and a half percent, and oh yeah, 0:14:18.679 --> 0:14:20.920 look at that the two year yield right now, it's 0:14:20.960 --> 0:14:23.720 about three and a half percent. Back in June, when 0:14:23.760 --> 0:14:26.720 you put out the outlook for PIMCO, there was a 0:14:26.720 --> 0:14:31.160 feeling that intermediate bonds really had a fantastic investment proposal 0:14:31.400 --> 0:14:34.520 proposition just simply because there was yield. Do they still 0:14:34.760 --> 0:14:37.520 after the rally we've seen, We still. 0:14:37.280 --> 0:14:37.840 Do think so. 0:14:38.120 --> 0:14:40.800 And listen, the exciting thing about being at PIMCO right 0:14:40.800 --> 0:14:43.960 now is that fixed income is quite attractive. And you 0:14:44.000 --> 0:14:47.200 know we we we are in the business of fist 0:14:47.280 --> 0:14:49.480 and family, right so when rates are very, very low, 0:14:49.800 --> 0:14:51.920 it's harder to be that excited about fixed income. And 0:14:52.120 --> 0:14:54.600 when you can build portfolio and get a yell of 0:14:54.640 --> 0:14:57.000 sixty six and a half, you become very excited. 0:14:57.040 --> 0:14:59.600 And you know, we very focused on treasury, but. 0:14:59.560 --> 0:15:02.200 They're really is there is a lot of value in 0:15:02.280 --> 0:15:04.440 other part of the segment, a set back being one 0:15:04.440 --> 0:15:09.160 of them. And you know, we're excited about what we see. 0:15:09.360 --> 0:15:11.800 And at the end of the day, the yield on 0:15:11.840 --> 0:15:18.240 the portfolio is a good predictor of the return. 0:15:18.080 --> 0:15:20.760 That the investor will experience. 0:15:21.360 --> 0:15:23.640 And so what I think is exciting about fixed income 0:15:23.720 --> 0:15:26.120 right now is you can build a portfolio and get 0:15:26.120 --> 0:15:28.560 a return of sixty six and a half percent with 0:15:28.920 --> 0:15:30.200 a seria of different instruments. 0:15:30.880 --> 0:15:33.880 It used to be the bonds did better in bad 0:15:33.920 --> 0:15:37.120 times and worse in good times. Are we heading into 0:15:37.200 --> 0:15:40.400 a worse time where people go to bonds for safety 0:15:40.560 --> 0:15:44.960 or is this on just an absolute basis, yields are higher. 0:15:44.440 --> 0:15:47.200 My partner Dan ivesid and I'm going to quod him 0:15:47.200 --> 0:15:50.320 because because actually he has a very good line, bonds 0:15:50.360 --> 0:15:52.960 may be the most attractive asset class. And I think 0:15:53.000 --> 0:15:57.080 that there's an absolute argument and then there's a relative argument. 0:15:57.200 --> 0:15:58.479 And I think the relative. 0:15:58.160 --> 0:16:00.840 Argument is to say you need to build a portfolio, 0:16:00.840 --> 0:16:02.880 you need equity, you need fixed income, you need some 0:16:02.920 --> 0:16:03.600 real estate. 0:16:03.480 --> 0:16:05.680 You need some private asset. 0:16:06.200 --> 0:16:09.360 And at the end of the day, fixed income is 0:16:09.480 --> 0:16:13.600 much more attractive than equity, given the earning yield and 0:16:13.640 --> 0:16:15.840 given the evaluation of the equity market. And I think 0:16:15.880 --> 0:16:21.120 that's one of the arguments for owning a larger part 0:16:21.120 --> 0:16:22.920 of fixed income. And I think when I travel the world, 0:16:23.000 --> 0:16:26.160 I think that people are under invested in fixed income 0:16:26.200 --> 0:16:28.320 and a lot of them are looking at putting more 0:16:28.360 --> 0:16:30.840 money into fixed income. And whether they do it tomorrow, 0:16:30.960 --> 0:16:33.680 whether they do it two weeks from now or two months. 0:16:33.440 --> 0:16:34.240 From that, I don't know. 0:16:34.760 --> 0:16:39.000 But the reality is people were under invested values part 0:16:39.000 --> 0:16:41.280 of the fixed income market, and they're looking to readjust 0:16:41.280 --> 0:16:41.920 their allocation. 0:16:42.600 --> 0:16:45.000 Have you got confidence we've re established the invest coralinction 0:16:45.120 --> 0:16:46.480 between bounds and stocks. 0:16:47.760 --> 0:16:49.280 I don't know what I don't know, and I think 0:16:49.360 --> 0:16:53.160 I think correlation fictrate over time. I think that fixed 0:16:53.200 --> 0:16:55.720 income have a role in the portfolio construction, and I 0:16:55.720 --> 0:16:58.400 think they're there for a reason. But of course credit 0:16:58.440 --> 0:17:01.080 spread on the high market are correlation to equity prices. 0:17:01.120 --> 0:17:02.960 So once again, I think one needs to be careful 0:17:02.960 --> 0:17:05.960 about how you frame the question and how you conclude. 0:17:06.040 --> 0:17:07.760 Well, like I said, I mean more specific by saying 0:17:07.800 --> 0:17:11.800 do treasuries? Have treasuries re established an inverse correlation with equities? 0:17:11.840 --> 0:17:13.840 Because one of the reasts that we've seen established over 0:17:13.880 --> 0:17:16.840 the last few years, particularly given the central focus was inflation, 0:17:17.280 --> 0:17:19.720 is that when bombs sold off, equities did too. Have 0:17:19.800 --> 0:17:22.080 we changed that story if we left that Hopefully. 0:17:21.640 --> 0:17:22.359 Hopefully we have. 0:17:22.440 --> 0:17:26.400 But I think remember that we also saw with the pandemic, 0:17:27.200 --> 0:17:31.840 really an unprecent, debted program of money creation, which sort 0:17:31.840 --> 0:17:35.359 of threw everything and our economic textbook in terms of 0:17:35.359 --> 0:17:37.520 how we thought about the correlation. And so I'm careful 0:17:37.520 --> 0:17:40.439