Speaker 1: Bloomberg Audio Studios, podcasts, radio news.
Speaker 2: We are advantage in particularly that we're not under the
Speaker 2: time pressure of the feddicides to have someone that's been
Speaker 2: a foundation of our thinking about our central bank and
Speaker 2: Bill's notes and bombs. Boy Michael joins us now CIO,
Speaker 2: head of GFIICC.
Speaker 1: Global Fixed Income, Currency and Commodities. Got it all, got
Speaker 1: them all.
Speaker 2: He attended every restaurant in the new building and they
Speaker 2: came mat Hoarium, JP Morgan Investment Management. Do you know
Speaker 2: what worst strategy is yet.
Speaker 1: Other than to set up task forces, it's not clear
Speaker 1: will it take.
Speaker 2: Based on the history of central bankers. Powell, for example.
Speaker 1: We think his hand will be for sooner than he
Speaker 1: likes it. Clearly, by having the task force come back
Speaker 1: at year end, he wants to glide into twenty twenty
Speaker 1: seven without having to do much. But the markets move,
Speaker 1: the economy moves, the summers tend to be a crucible
Speaker 1: of intensity, So we think by the September meeting he's
Speaker 1: going to have a plan.
Speaker 2: I gotta get I gotta get this, and it's too important.
Speaker 2: Paul's got a million smart questions. I'm assuming James Diamond
Speaker 2: hates task forces with a passion. What do you expect
Speaker 2: to get out of a task force plural from the Fed?
Speaker 1: Well, it depends who's leading them and who's on them.
Speaker 1: I think they'll come back with very thoughtful ideas. In
Speaker 1: the end, you don't set up task forces unless you
Speaker 1: already know the answer. So he knows the answer. It's
Speaker 1: just a matter of seeing if he can pin it
Speaker 1: on the task force or just go ahead and say
Speaker 1: do it this way runs it folks.
Speaker 2: So you've just heard there absolutely perfect, Tom.
Speaker 3: I don't want to say Bob is old here, but
Speaker 3: let's just say he's been around the block once or twice.
Speaker 3: Look at this note, This bond market looks fair value.
Speaker 3: We expect a ten year US treasury to trade between
Speaker 3: four and one eighth and four and five aays he's
Speaker 3: quoting fraction. I mean, who does that anymore? But Bob
Speaker 3: Michael talk to us about that ten year. I mean,
Speaker 3: it feels like we are where we are, and that's
Speaker 3: kind of where the market feels pretty comfortable here. What
Speaker 3: do we do here with rates here where they are?
Speaker 1: Well, in two and a half months, we went from
Speaker 1: three ninety too close to four seventy and both of
Speaker 1: those proved to be extremes. We're somewhere in the middle.
Speaker 1: We're pricing in one, possibly two FED rate hikes. I
Speaker 1: think four and five eighths covers you for two rate hikes.
Speaker 1: I think when you get down to four and an
Speaker 1: eighth probably you don't have enough yield in the market
Speaker 1: to cover you for a rate hiker two. So we're
Speaker 1: saying the bond market looks pretty good right now. It
Speaker 1: has a repricing. The FED if they come in and
Speaker 1: lean into growth and inflation pressures, they don't need to
Speaker 1: do a lot. Maybe one or two maintenance hikes. Join
Speaker 1: the other central banks, but that's about it.
Speaker 3: How much credit risk are you taking these days?
Speaker 1: We're taking a lot. We've had our investment quarterly. Last
Speaker 1: week we tried, as bond investors do, to poke holes
Speaker 1: in the economy and I prove that either it's about
Speaker 1: to collapse or melt up in a fireball of growth
Speaker 1: and inflation. And instead what we saw is that businesses
Speaker 1: are rationally putting together capex plans. There's a lot going on.
Speaker 1: When we think about sovereigns away from the US, they're
Speaker 1: also thinking about investing. Everyone wants energy security, everyone wants
Speaker 1: defense of their borders. Everyone has to invest in AI.
Speaker 1: So these are things that will keep the underlying trend
Speaker 1: rate of the global economy going.
Speaker 3: Does that include emerging markets as well?
Speaker 1: Well? Emerging markets are the pleasant surprise of the year
Speaker 1: so far. Here as yet another shot that they survive.
Speaker 1: They survive the FEDS five hundred and twenty five basis
Speaker 1: point rate hikes never happened before, they survive COVID, and
Speaker 1: now they're surviving an oil shot. It's a little bit
Speaker 1: more nuanced. We had owned the energy exporters. We've now
Speaker 1: gone back to the importers. But when you look at
Speaker 1: the way China was able to cut imports of oil
Speaker 1: and repurpose how they get energy, it tells us that
Speaker 1: the emerging markets are maybe have developed faster than we
Speaker 1: want to give the term emerging markets credit for well, it's.
Speaker 2: Across America and worldwide. Bob Michael of JP Morgan here
Speaker 2: perspective from Bill's notes and bonds, of course, dragging it
Speaker 2: over to the equity markets as well. So I skimmed
Speaker 2: FAROLEI Weekly Prospects comes out every Friday evening. I've got
Speaker 2: a pause with the beverage of my choice. Paul to
Speaker 2: read Faroli on a team and what to say, And
Speaker 2: I'm sorry, it's a pretty balanced view, and I'm hearing
Speaker 2: from you a balance view. Bill Ackman is out today
Speaker 2: with the retreat of a plus plus plus on Hyperscalers.
Speaker 2: From a guy out of unit credit in Slovenia is well,
Speaker 2: there's all this heat, this ferment, this smoke and mirrors
Speaker 2: debate about AI. You guys are doing business in it.
Speaker 2: How are the bonds, the debt of AI hyperscalers being
Speaker 2: digested by the public.
Speaker 1: Well, so far they've been digested pretty well. I think
Speaker 1: we've all seen when a new technology revolution comes along,
Speaker 1: it's not all over in one or two years. It
Speaker 1: tends to run for a decade, and the first half
Speaker 1: of that decade is where the capex gets invested in.
Speaker 1: The second half is where you get the payback. The
Speaker 1: hyperscalers have very pristine balance sheets, so the amount of
Speaker 1: debt that they're adding is hardly noticeable on their leverage metrics.
Speaker 2: Do you look at them as a trunch now, an
Speaker 2: initial gazillion dollar trunch, and there'll be a second one
Speaker 2: into twenty seven and a third even Is it going
Speaker 2: to stagger forward twenty year, twenty year, twenty down the road.
Speaker 1: Well, you look at what some of them have raised,
Speaker 1: and you wonder where it is other than sitting in
Speaker 1: cash or some sort of short duration account, because they
Speaker 1: aren't fully spent yet. So yeah, it's possible they'll be
Speaker 1: back next year. I think they have to start spending
Speaker 1: what they've raised so far, and that takes some time.
Speaker 3: Pat do you think about all this technology debt coming
Speaker 3: to the marketplace, because this is these companies haven't historically
Speaker 3: been in your market raising capital, but it seems to
Speaker 3: have been well received so far.
Speaker 1: We're impressed because certainly you get warried that trillions of
Speaker 1: dollars of debt could overwhelm the market. When we look
Speaker 1: at the Bloomberg Aggregate bond index, it's forty trillion, So
Speaker 1: a couple trillion here is not a lot of money.
Speaker 1: It's maybe about five percent, and that couple trillion will
Speaker 1: come in over three or four years. We've also been
Speaker 1: impressed about how intelligent the hyperscalars have been. They've diversified
Speaker 1: across markets. They've issued some in Euros, some in Conada dollars,
Speaker 1: there will be some in Mexico Peso, and some in
Speaker 1: Japanese yet, and then they've gone to some hybrid structures
Speaker 1: to finance the data centers.
Speaker 2: So JP Morgan gets five hundred thousand applications for summer rules,
Speaker 2: Oh wow, and they weeded out with an acceptance rate
Speaker 2: frankly under one percent to four thousand summer interns. Bob
Speaker 2: Michael's got to wander into a room with a bunch
Speaker 2: of emotional, really really smart, really competent kids. What's your
Speaker 2: first message to them?
Speaker 1: My first message is the way to differentiate yourself is
Speaker 1: to make use of the current tools that are available
Speaker 1: in the marketplace. That you know, the senior investors in
Speaker 1: the platt form aren't really that skilled at so AI
Speaker 1: is one. When I came into the industry, it was
Speaker 1: electronic spreadsheets. Do that, and secondly, observe what's going on.
Speaker 1: You'll see who the leaders are and the traits that
Speaker 1: are characteristic of them. You'll also see people who you
Speaker 1: feel well because of their characteristics and traits, they're being
Speaker 1: held back. So keep your eyes open and observe.
Speaker 2: I really emphasize the last thing you just said is
Speaker 2: forget about trying to find wonderful people like Kelsey Barrow.
Speaker 2: It is just an idea, figure out the people that
Speaker 2: aren't getting it done. That's the biggest lesson from an intern.
Speaker 2: You didn't mention this that part of the training of
Speaker 2: the jpborg an intern is to master the Bloomberg Professional Service.
Speaker 1: Of course, to nail technology. Okay, we do send them
Speaker 1: for training.
Speaker 2: Every day, coming to Bob Michael lecturing on the Bloomberg
Speaker 2: terminal to interns. The chairums at JP Morgan he drives
Speaker 2: all a fixed income for the bank.